Boyd Group Services Inc. (BGSI) Q4 2022 Earnings Report, Transcript and Summary

Good morning, everyone. Welcome to the Boyd Group Services Inc. Fourth Quarter 2022 Results Conference Call. Listeners are reminded that certain matter discussed in today’s conference call or answers that maybe 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 at SEDAR’s database found at sedar.com. I’d like to remind everyone that this conference is being recorded today, Wednesday, March 22, 2023. I would now like to introduce Mr. Tim O’Day, President and Chief Executive Officer of Boyd Group Services, Inc. Please go ahead, Mr. O’Day. Tim O’Day: Thank you, operator. Good morning, everyone and thank you for joining us for today’s call. On the call with me today is Jeff Murray, Vice President of Finance and Interim Chief Financial Officer. At the end of 2022, Pat Pathipati retired from the role of Executive Vice President and CFO. As the search to succeed him continues, we have appointed Jeff Murray as Interim CFO effective January 1, 2023. We believe Jeff’s long tenure, skills and experience will serve us well during the search period and enable us to carry out our goals and achieve our long-term goals. We released our 2022 fourth quarter and year end results before markets open today. You can access our news release as well as our complete financial statements and management’s discussion and analysis on our website at boydgroup.com. 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 3-month period ended December 31, 2022, provide a general business update and discuss our long-term growth strategy. We will then open the call for questions. In 2022, Boyd was able to achieve record sales and demonstrate resilience in the face of many challenges, including supply chain disruptions in an extremely tight labor market with the accompanying wage pressure. We are pleased with the progress we made in 2022 and in particular the level of same-store sales growth and the improved adjusted EBITDA delivered consistently during the last three quarters of the year. We remained focused on our key challenges of building capacity through increased staffing and negotiated sufficient price increases to recover lost margin from wage pressure. For the year ended December 31, 2022, we reported sales of $2.4 billion, an increase of 29.9% over the prior year driven by same-store sales increases of 19.8% and contributions from 136 new locations that have not been in operation for the full comparative period. Gross margin decreased to 44.7% of sales compared to 44.8% in the comparative period. The prior period included the recognition of Canada Emergency Wage Subsidy or CEWS of approximately $4.0 million. The gross margin percentage was negatively impacted by reduced labor and park margins as well as a higher mix of park sales in relation to labor. During 2022, Boyd faced supply chain disruptions, which resulted in a negative impact on margins. While pricing increased and improvements were made throughout the year, labor margins were negatively impacted by the extraordinarily tight labor market, which continued to result in increased wage costs to both retain and recruit staff. The shortage of labor and increasing vehicle complexity also resulted in a higher mix of parts sales in relation to labor. These negative impacts were partially offset by performance based credit relief to address the constraints caused by current market conditions and increased scanning and calibration services. Operating expenses increased to $194.1 million when compared to the same period of the prior year primarily as a result of increased sales based on same-store sales as well as location growth. The prior period included the recognition of CEWS of approximately $5.8 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 year ended December 31, 2022 were increased support costs related to recruitment and training, including the cost 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 year ended December 31, 2022 was $273.5 million compared to $218.5 million in the same period of the prior year. The $54 million increase was primarily the result of improved sales levels. Adjusted EBITDA for the year was constrained by technician capacity and was also negatively impacted by wage inflation and supply chain disruption. In total adjusted EBITDA for the year ended December 31, 2022 or 2021 benefited from the CEWS payment of approximately $9.8 million. We reported net earnings of $41 million compared to $23.5 million in the same period of the prior year. Adjusted net earnings per share increased from $1.30 to $1.97. The increase in adjusted net earnings per share is primarily attributable to increased sales, partially offset by the lower gross margin percentage and the higher levels of operating expenses. Now, moving on to Q4 results. During the fourth quarter, we recorded sales of $637.1 million, a 23.4% increase when compared to the same period of 2021. Our same-store sales, excluding foreign exchange, increased by 20.7% in the fourth quarter. Same-store sales benefited from price increases and high levels of demand for services as well as an increase in production capacity related to technician hiring and the growth in the technician development program, although ongoing staffing constraints and supply chain disruption continued to impact the sales levels that could be achieved during the fourth quarter of 2022. Sales also increased based on high repair cost due to increasing vehicle complexity, increased scanning and calibration services as well as general market inflation. Same-store sales in Canada continue to recover, but this recovery continued to be impacted by supply chain disruption as well as labor capacity constraints in the fourth quarter of 2022. Gross margin was 44.3% in the fourth quarter of 2022 compared to 43.5% achieved in the same period of 2021. Gross margin percentage benefited from pricing increases, including performance-based credit relief to address the constraints caused by the conditions, market conditions and increased scanning and calibration services. These benefits were partially offset by higher mix of parts sales in relation to labor. Increasing vehicle complexity resulted in a higher mix of parts sales in relation to labor. The lower gross margin percentage in the fourth quarter of 2022 relative to the third quarter of 2022 is primarily the result of variability in parts sourcing and pricing, which is resulting in slightly greater parts variability quarter to quarter. The margin for the year ended December 31, 2022 is within the normal range. Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $74.7 million, an increase of 30.4% over the same period of 2021. The increase was primarily the result of improved sales levels. In total, adjusted EBITDA for the 3 months ended December 31, 2021 benefited from the CEWS in the amount of $2.3 million. Net earnings for the fourth quarter of 2022, was $14.2 million compared to $4.9 million in the same period of 2021. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the fourth quarter of 2022 were $14.6 million or $0.68 per share compared to adjusted net earnings of $5.9 million or $0.28 per share in the same period of the prior year. Adjusted net earnings for the period was positively impacted by higher levels of sales and higher gross margin percentage partially offset by higher levels of operating expenses. At the end of the year, we had total debt net of cash of $963 million compared to $940.8 million this past September 30, 2022, $957 million at the end of 2021. Debt net of cash increased when compared to December 31, 2021 primarily as a result of an increase in lease liabilities driven by lease renewal activity. During the year ended December 31, 2022, the company completed the sale leaseback transactions for proceeds of $55.1 million. The increase in startup locations resulted in a buildup of real estate assets. The company’s strategy has been to not hold real estate and the sale leaseback transactions allow the company to replenish capital for continuing to use these properties. Based on the confidence we have in our business, we announced an increase to our dividends by 2.1% at $0.588 per share on an annualized basis in Canadian dollars, beginning in the fourth quarter of 2022. This is the 15th consecutive year that we have increased dividends to shareholders. During 2023, we plan to make cash capital expenditures excluding those related to acquisition and development of new locations within the range of 1.6% to 1.8% of sales. In addition to these capital expenditures, we plan to invest in network technology upgrades to further strengthen our technology and security infrastructure and prepare for advanced technology needs in the future. This investment is expected in 2023 to be in the range of $5 million to $8 million, with similar investments expected in 2024 and 2025. These investments align with our ESG sustainability roadmap to responsibly address data privacy and cybersecurity. In November of 2020, we announced our new 5-year growth strategy in which Boyd intends to again double the size of the business over a 5-year period from 2021 to 2025 based on 2019 constant currency revenues, implied a compound annual growth rate of 15%. Given the high level of location growth in 2021 and the strong same-store sales growth in 2022, we remain confident that we were on track to achieve our long-term growth goals. Our intake location strategy is intended to drive same-store sales growth at times when capacity is not constrained. In late ‘22 and early ‘23, we decided to close many intake locations in the U.S. based on the reality of our current capacity constraints. We plan to increase production location growth during 2023 in relation to 2022. We are pleased to have opened or acquired 17 locations thus far in the quarter, all of which have been single locations and the pipeline to add new locations and to expand into new markets is robust. We remain focused on our key challenges from building our capacity through increased staffing and negotiating sufficient price increases to recover lost margin from wage pressure. We continue to experience high volumes of work and we are benefiting from increased scanning and calibration revenue. However, there has also been a continued shift of higher mix and parts in relation to labor driven by increasing repair complexity. Thus far in the first quarter of 2023, same-store sales results have been consistent with the growth experienced over the past few quarters. The balance of 2023 will have higher comparative periods for which same-store sales will be measured against. Workforce initiatives such as the technician development program are having a positive impact on capacity and ongoing investments in technology, equipment and training position us well for continued operational execution. We remain committed to addressing the labor market challenges so that we can service additional demand through initiatives such as the technician development program. Price increases for labor continue to work their way through the system market by market and client by client. This has resulted in gradual improvement in labor margins. The timeline for when this issue resolves is difficult to predict. The impact is expected to be less and less as wage increases stabilize and pricing matures. As communicated previously, performance based pricing programs may cause margin to vary on a quarter by quarter basis. Throughout 2022, we made progress on the priority areas in each of environmental, social and governance pillars outlined in our first ESG report published in March of ‘22. We recognize that we have the potential to deliver significant positive impacts to society and the environment. We look forward to publishing our second ESG report in the coming months. In summary and in closing, I continue to be incredibly proud of our team who have adjusted to the new environment and are working hard to position us well for the future. With that, I would like to open the call for questions. Operator?

Thank you. [Operator Instructions] We will hear first from Chris Murray at ATB Capital Markets. Tim O’Day: Good morning, Chris.

Yes. Good morning. A couple of questions, a couple of quick questions for you folks. Just thinking about kind of the mix of work as we go into 2023. It sounds like pricing is continuing to improve. I was just sort of curious about what you folks are seeing in terms of kind of part and labor dynamics. And I was wondering if you could maybe make some comments on what you’re seeing around scanning and calibration and how that you think will play in through the margin profile as we get to, call it, more normalized operations or pricing maybe later in ‘23 and into ‘24? Tim O’Day: Yes, there are a few different questions in there, Chris. But I think on the first one as it relates to parts. I think we’re seeing two things impact our revenue mix and skewing more toward parts. One is one, a trend that I think will continue and that’s just increasing vehicle complexity and higher part content. When we look at the mix of vehicles, newer vehicles have a higher number of parts and a higher average cost in part when going through repair in that older vehicles. So as we begin to grow newer vehicles as part of our mix, we will likely see that shift. The second issue really relates to capacity constraints. When a non-drive vehicle comes to one of our facilities, we really have to address it, which means we may be scheduling out lighter hit drivable vehicles. And those lighter drive vehicles would tend to have a better labor to parts mix than the non-drive vehicles.

Maybe Tim, just to add as well, the fact that we’ve got some supply chain challenges still, and the big tackle does mean that sometimes we have to choose at least optimal choice in terms of parts selection. Tim O’Day: So we’ve had – for the year, we’ve had a richer mix of OE parts than what we’ve historically had because of limited availability or less availability of aftermarket, although we have seen some improvement in the availability of aftermarket, particularly in the fourth quarter.

And that should smooth out over time. Tim O’Day: Yes. As it relates to the calibration and the scanning, scanning the calibration has continue to gradually become a richer part of our mix of sales. And what we don’t go into specific details on that, it’s a trend that I would expect to continue. Newer vehicles require more calibration operations. Our business practice is to really scan everything that comes in to identify any potential damage to ADAS components. And then obviously, repair those who require repairs as a part of the repair. So I’d say that’s a favorable tailwind and the – well, the margins on that are somewhat less attractive because much of it is sublet. Our strategy is to bring more of it in-house over time, which should be a positive for us as we accomplish that.

Okay. That’s helpful. And then one other question just on acquisitions. I think in your prepared remarks, in the MD&A, you talked about completing 40 acquisitions in 2022. And then talking about growing, I guess, stores this year. Should we think about that as growing above like adding more than 40%? You’ve done 17 so far year-to-date. Like how should we think about scaling that in terms of the acceleration and as you also noted, most of the store growth so far has been a single store. Any thoughts around multi-store and how that might be shaping up as we go further into the year? Tim O’Day: To answer your first question, I think in our MD&A, we did specifically say that we expect it to grow at a faster rate from a unit standpoint in 2023 than we did in 2022. I think the fact that we’ve opened 17 partly through the first quarter is a good indication of that. Those were all single shops. As most people know, the single shops have a higher return on capital than multi-shop operations, and we believe we can accomplish our double 25 goal without significant multi-shop investment. That doesn’t mean that we won’t acquire multi-shop operators. If there is one that’s attractive that makes sense, we’re willing to make those investments, but we’re also pretty focused on single shop acquisitions and greenfield brownfield development.

Okay, fair enough. Thanks folks. Tim O’Day: Thanks, Chris.

Our next question today comes from Steve Hansen with Raymond James. Please go ahead. Tim O’Day: Good morning, Steve.

Yes. Good morning, guys. Tim, how should we think about the intake center closures and that strategy shift from a revenue standpoint? Are they – I understand the concept that the capacity is already constrained. So there is no real need to have those shops or those intake centers referring volume over. But do you expect any actual material impact on the top line from those closures? Tim O’Day: Not at all. No, we were trading off work. And the reason that we closed the number of intake centers is that we didn’t have capacity to service the incremental business and it didn’t make sense to bear the expense and what the expense wasn’t material. It just didn’t make sense to continue that. We do have a very successful model. We know how to deploy it. So I think when the – whatever point the market returns to demand, what we’re really looking to identify more demand, I’m confident in our ability to put and take center strategy back in. We know how to execute it, and it does work well. It just isn’t necessarily in the current environment.

Okay. That’s very helpful. And then just on the margin front, it sounds like you’re pretty confident in labor margins improving incrementally as you get additional price and perhaps some additional throughput. I just wanted to be a little bit more clear on the idea around complexity and/or severity. Is there a difference between that severity and new car impact that you’re describing? I’m just trying to parse out some of the differences there. I think as you described in earlier Chris’ comment, there is the new car issue, but there is also a driver versus non-drive. Just maybe help us understand that issue a little bit better as it relates to margins. Tim O’Day: I think the – any time you shift mix toward parts and away from labor in terms of the total mix, your overall gross margin is going to be impacted because part margins, well, it’s not exact, part margins are about half of what labor margins are. So that shift will impact the overall gross margin. And the cause of the higher mix of parts right now. One is a systematic – or not systematic. It’s a trend that will continue, which is vehicle complexity. The other trend is high used car values, which are causing insurers to repair cars that in a normal environment, would have been totaled out. And those cars tend to have more damage because they are high-value repairs. That I would expect to normalize as used car values normalize and total loss rates normalize.

Perfect. Very helpful. And then just lastly on – as we think about that growth profile and you referred to this earlier, are the single shop – the decision to accelerate the single shop acquisitions is clearly notable thus far in the quarter. Is the piece that we’re seeing today thus far in Q1 pace that you expect you can continue or accelerate through the year? Thanks. Tim O’Day: I think the only guidance we’ve really provided on that, Steve, is that we’re confident in our ability to double the size of the business, and we expect new units to be above what we had in 2023. The challenge we’re providing specifics on that is that deals sometimes don’t go through. But we’re pretty confident we’ve got a good pipeline of accretive opportunities. And we’ve got a great team in place to execute on those.

Okay. Thanks for your time.

Our next question will come from the line of Bret Jordan at Jefferies. Please go ahead. Tim O’Day: Hi, Bret.

Hi, guys. On that growth question, as you sort of look around the environment and clearly some others consolidating the collision space as well, do you see any change or have others taken a step back just given the pressures on internal costs and capacity, do you see yourself, I guess, in a changed competitive situation, either better or worse than you were a couple of years ago in M&A? Tim O’Day: We’re pretty focused on single shops right now in greenfield, brownfield development. And on that front, I’m not sure we’ve seen much of a change even over the past several years. I’m not sure if we get asked this question every quarter, and I usually answer by saying, I think it’s too early to tell. I think what we have to look at is do some of the growing private equity-backed competitors continue to buy multi-shop operations, and they don’t disclose their values, but they continue to be aggressive with those acquisitions. And I think I’m not sure what the answer to that is yet. What I am sure of is that we have a single shopping greenfield, brownfield strategy that we’re confident, combined with same-store sales growth can allow us to achieve our growth goals.

Okay. Great. And then on the mix shift, obviously, more parts than labor. Could you sort of maybe bucket how much of that has also in the parts mix? I think you called out more OE parts because of aftermarket supply. But could you sort of give us a perspective where we were in the quarter maybe versus a pre-pandemic percentage alternative part versus OE and then percent of parts versus labor? Tim O’Day: We don’t disclose that specifically, Bret. I think the parts has been growing over the past couple of years. We have seen an improvement in the availability of alternative parts. And I know LKQ also reported that they had much better fill rates and availability. So we’ve seen that, and that’s good because it helps us keep repair costs down. And as many people know, we generally have better margins on aftermarket parts than we would on OE. But that’s probably all I can give you on it.

Okay. And then one quick last question. You said there is no real top line impact from shutting intake centers. Is there any cost associated in the short-term with shutting intake centers? Tim O’Day: There is some cost. It’s not material. It takes centers or staff with one individual and typically not much other expense associated with it.

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

[Operator Instructions] Our next question will come from the line of Michael Doumet at Scotiabank. Tim O’Day: Good morning, Michael.

Hey, good morning, guys. Hi, Tim. Hi, Jeff. First question is actually a clarification. In your commentary, you talked about Q1 to date same-store sales growth being consistent with the growth in the last few quarters. I mean, is that true to mean to us, at least that’s going to be roughly 20% year-on-year in line with the last, I guess, three or four quarters? Tim O’Day: Yes. We’re really just referring to what we’ve seen thus far in the quarter. So I think we’re clearly signaling that we’re going to have pretty respectable same-store sales growth this quarter. We expect that. But beginning in Q2, we saw significant same-store sales growth. Last year at this time, I think Q2 was over 14%. Q2 was over 22%. in Q3 was in the 20% range. So we’re moving up against pretty significant comp periods. So that’s really what we were trying to bring clarity to.

Yes. No, that makes sense to me. I guess just if I’m running the math with 20% same-store sales growth in Q1, revenue per location so far – again, so far through Q1, it looks like going to increase 5% to 7% quarter-on-quarter. So again, I was wondering if you could comment on if that math is right. Plus what the sequential improvement is a reflection of and I’m wondering if that’s price or volume and if that shouldn’t necessarily slow down to the bottom line. Tim O’Day: Yes. I think it’s a combination of price and volume. We’re certainly benefiting from price increases. We’re benefiting from some increased vehicle complexity, although that does use labor capacity because the average repair today has both more parts and more labor hours on it and labor is really our constraint. I don’t know if you have anything you want to add?

Well, I guess, productive capacity is we have seen some improvement with that. Our technician development program, we are really impressed with how it’s developed over the course of the year and so that’s making a difference too. Tim O’Day: And we had an improvement in technician staffing generally. So, those are really the drivers.

Okay. Yes. No, that looks good for Q1. I guess second question, maybe to dig into the operating expenses a little bit, for the year up 31% versus ‘21. By comparison, the average store count, I think increased about 7%. So presumably, a lot of that has inflationary pressures. But there is a balance that’s associated with the corporate initiatives, and I am assuming it’s mainly about the TDP. Given, some of these project based investments, like how should we think about OpEx growth into 2023? Maybe just like, should we think of that as slowing down as some of these investments mature? Tim O’Day: We are certainly looking to drive more sales growth to absorb operating costs. And we are very conscious of the fact that our operating cost ratio is above historical levels. So, we are looking carefully at that, and expect to absorb operating costs with sales growth over time.

But there are there are inflationary pressures, that we are still seeing that we have to deal with. Tim O’Day: And we are benefiting from these some inflationary pricing on the other side, too. But we do lag. And we have talked about this before. But we see things like wage increases or other utility cost increases and things that we don’t have much control over that has gone up. But our pricing comes in more slowly. So, we are going to continue to focus on pricing and managing our business more effectively, to recover our margins back to our historical levels.

Got it. Okay. And before I pass the line, just one technicality if you can clarify it, just wondering if the salary of an unproductive technician, so somebody in the TDP in the first or second phase of the training, if that moves from SG&A to cost of sales when they do become productive, just trying to think about the two lines there? Tim O’Day: It moves once they are beginning to become productive, it moves to cost of sales, prior to that it is in SG&A.

Perfect. Alright. Thanks a lot guys. Tim O’Day: Okay. Thanks. Thanks Michael.

We will hear next from Daryl Young at TD Cowen.

Hey. Good morning. Just one quick one for me. Following up on the parts mix and the impact on margins. Some of those complexities of repair being structural, does that prevent you from getting back to historic margin levels, or is the number of parts in the operating leverage that’s driven by the greater number of parts and same-store sales growth offsetting such that you can get back to your historic overall margin level? Tim O’Day: Yes. Well, the parts is a headwind, although it does increase total revenue. But one of the other trends that’s going the other way relates to calibration – scanning and calibration services, which are also growing as we address more vehicles with ADAS equipment. So, I think there are some offsetting factors that over time, we expect to help us leverage our margin back up.

Okay. So… Tim O’Day: In addition to continuing to seek out improved price and to recover labor margins.

Got it. Okay. That’s all for me. Thanks. Tim O’Day: Thanks Daryl.

Zachary Evershed with National Bank Financial, please go ahead. Your line is open.

Thank you. Good morning everyone. Tim O’Day: Good morning Zachary.

And we saw a slight down trend in the number of DRP relationships in 2022 for national MSOs. And we did note that your top five concentration ticked up a bit. How are you thinking about your DRPs in the current environment? And do you think you are adjusting your competitive positioning? Tim O’Day: I am not sure quite what you are getting at. I mean the DRP is our primary source of revenue obviously. And we have grown with our larger partners. But I am not sure completely understand exactly what you are trying to get to.

I guess what I would be driving at is, do you see yourself increasing your business with DRP partners who have moved more quickly on wage increases? Tim O’Day: Yes. Well, we have talked about this over the last several quarters and we have been patient. We do have very limited capacity. And at some point, I think we have to make sure that we are serving the clients who allow us to get the returns that we need and to attract and retain the staff that’s necessary to build our business. We don’t take those decisions lightly. So, we want to be really cautious and fairly patient about it. We have made a lot of progress with our clients and have seen greater parity in pricing. But there are still gaps. So, I do think at some point, we are going to have to remove capacity where we can’t be as profitable as we need to be or we are just barely cautious about what, how and when we do that.

Understood. And then if we think about those steps of creating capacity by raising wages to attract talent, which relies on the carrier’s raising rates, which relies on passing premiums to customers, where are we now for each of those three dynamics, versus where we need to be for a balanced picture? Tim O’Day: Well, I probably can’t speak fully to where the carriers are. I mean it – but I read the same reports that others do, and carriers have been aggressively seeking rate increases so that they can make their auto books profitable. Most of the carriers are not there yet and expect to have some continued increases. I don’t know that we are fully dependent on carriers getting the increase before we get them. We have been very successful to-date getting increases from really all of our partners. So, I would say that there is a complete dependency. But – and we have seen good improvements from our clients over the last several quarters. And it really hasn’t slowed down. So, I think we are in – we are probably – we are certainly not done. We have got more work to do. But there seems to be a willingness on the part of our partners to adjust rate to make sure that we can continue to build our capacity.

Thanks for that. And the trainees, where are they mostly coming from, any industry in particular? Tim O’Day: Well, actually, a lot of them come internally, they started in an entry level position in our company, could be somebody that’s a detailer car washer, and demonstrate their commitment to the company, their ability to show up the work every day, be on-time, have the right attitude. And those are probably our preferred path for bringing them into TDP. We also have been using the TTP program to drive our inclusion and diversity initiatives. So, we have recruited from trade schools, and we have tried to identify some of our trade schools in the areas that will help us increase our diversity. We do have a number of women in the TTP program now. We are very proud of the progress that we have made there. But I think we are going to focus as much as we can on internal promotions on the TDP, because it’s something that we know is committed and prepared to work hard to learn.

And referrals, referrals have been another channel that’s been affected. Tim O’Day: But we also do recruit from trade schools. I mean it’s a multifaceted approach. And we have been very successful with recruiting and building our TDP.

Great. Alright. Thanks. And just one last one, given the pipeline for acquisitions, new locations this year, how do you feel about your balance sheet funding that? Tim O’Day: I feel really good about our balance sheet. We have got – we are in a great position, our debt is conservative. We are generating good positive cash flow. And the focus that we have on single shop growth. And well, I am not saying that we are not going to look at multi shop growth. But the focus on single shop growth is not terribly burdensome from a total investment standpoint. So, I feel really good about our balance sheet.

Yes. We have made a lot of progress on our leverage ratio over the last year. And so that’s been a big job, big important factor of getting our balance sheet where it needs to be.

Appreciate that. Thanks. I will turn it over.

Our next question will come from Gary Ho with Desjardins, go ahead please.

Thank you. Tim O’Day: Good morning Gary.

Good morning. Actually on [ph] the intake, just going back to the intake locations, the decision to close them down. And I think you mentioned this more permanent than temporary. Are some of these intake stores at a specific dealership location? And if so, does that jeopardize that relationship? And just lastly, are you done with the intake location closures? Just noticed there is still a bunch in the Canada and a smaller number in the U.S. Tim O’Day: Yes. That’s right. There are several in Canada, and still a few in the U.S. It doesn’t affect our dealer relationships. We have a relationship that goes beyond the intake side of those dealers, ties into OE certifications, ties into parts purchases. So no, we don’t expect it to have any impact on dealer relationships.

And are you mostly done with the closures there? Tim O’Day: Yes, we are mostly done with the closures.

Great. And then my second question, just going to – going back to the technicians, just remind me, what’s the average technician per single repair shop, just wondering the magnitude of the TDP program as it relates to kind of the number of technicians per shop. Tim O’Day: We don’t actually disclose the number of technicians per shop. But the TDP program overall, is a fairly meaningful part of our overall technician headcount. Obviously, it’s not equal to it or even close to that, but it’s pretty meaningful. And as the program is maturing, we are seeing regular cadence of graduates moving out of TDP, and then into our formal full-time experience technician workforce. And we are successfully replenishing those graduates with new trainees.

Okay. Great. Thanks for the color and that’s it for me. Tim O’Day: Thanks Gary.

Krista Friesen at CIBC, you have our next question.

Great. Thank you. Hi everyone. Tim O’Day: Good morning.

Good morning. I was just wondering on the TDP, do you have the opportunity to increase the capacity of it if you have enough interest? Tim O’Day: We have plenty of interest. And we do have the ability to increase the capacity of it, if we chose to do that. It does come with an expense burden. We have a fairly sizable team that supports and manages the program. There is additional compensation to the mentors for the work that they do to help us develop the apprentice. There is a considerable amount of training expense, both the mentor training as well as third-party training. Generally, its I-CAR training, which is the organization that develops and helps to deliver training to the industry. But the program is very scalable, obviously, we built it from 200 at the beginning of last year to 400, when we reported in November. It’s got tremendous support from the operational teams. We have enough mentors in the organization that we could grow the program further based on your mentor interest. So, it’s definitely scalable. But we are trying to balance the expense associated with that, versus just recruiting and focusing on experienced technicians as well.

And we had a big step up last year. I mean that was a big step up. And I think it’s just time to monitor it for a period of time and assess it. Tim O’Day: But we were made really pleased with the program and excited with what it’s delivering for our business.

Okay. That’s great. And then I was wondering if you could speak to even if it’s just qualitatively, the retention that you are seeing at Boyd and if the wage increases you have implemented have been enough to at least retain the talent you do have. Maybe it’s not enough to attract enough talent, but just the retention that you are seeing. Tim O’Day: Yes. We don’t give specifics on retention. But we have put a number of programs in place to improve retention. And I think we have seen some positive results from that. And we are consistently reviewing our benefits where we are reviewing the rates that we pay technicians to make sure that we are competitive. We are proactive on that. We have leadership training initiatives in place to improve the ability of our frontline leaders to engage with their team members. We have put some other resources in place to help make sure that we are listening and responsive to our team members needs. So, we have had some good success. We have got more work to do. And we have plans to do that. But overall, I am pleased with our progress and expect us to continue to make further progress.

Okay. Great. And then I was just wondering, as you look at acquisitions, do you also – do you have a separate bucket where you consider kind of the mobile scanning and calibration business similar to the one you acquired in 2021 I believe? Tim O’Day: Yes. I think that’s a fair way to look at it. We look at that for both our calibration business and our auto glass business. We think we have acquisition opportunities there as well. The majority of the acquisitions are still going to be collision related. And we have been pretty successful in organically growing our auto glass and calibration business. But we are open to acquisitions in those segments as well.

Okay. Perfect. I will jump back in the queue. Thanks guys. Tim O’Day: Thanks Krista.

Our next question today will come from Jonathan Lamers at Laurentian Bank. Please go ahead.

Thank you. Tim O’Day: Good morning Jonathan.

Good morning. Just on the calibration business, Tim, you mentioned the opportunity there from internalizing the skill set. Do you see that as more of a 2023 opportunity or more of a 2024 opportunity based on your training plans? Tim O’Day: I would say both. We expect to grow that in 2023. But we won’t get to the end state in 2023. It’s another skilled labor position, that is not – there is not a plentiful supply. We are growing our own and recruiting. But we have got plans in place to continue to grow market-by-market our offering in that area.

Thanks. And just to circle up on the sequential improvement in the sales and the labor capacity comments, you mentioned that you did see some price increases from Q4 to Q1 or benefits from price increases, because you saw an improvement in labor capacity. Is it fair to say that you are getting further labor rate increases that are enabling more technician recruitment and retention? And is there any color you can provide us from the recent insurance partner discussions, I mean how that relates to the labor situation? Tim O’Day: But I think the fact that we are seeing such good same-store sales growth confirms that we are having success of growing our capacity, it’s not all price. But it’s going to be a continuing – it’s going to be a continuing effort, both to raise wages in the industry for the industry to attract from other segments. So, we are certainly not done, but we are pleased with our progress.

Thanks for your comments. Tim O’Day: Thanks Jonathan.

And that was our final question in the queue from our audience this morning. Mr. O’Day I will – Mr. O’Day, well, I will turn it back to you, sir for any closing remarks that you have, sir. Tim O’Day: Well, thank you, operator and thank you everyone for joining our call. And we look forward to reporting our first quarter results with you in May. Thanks and have a great day.

This does conclude today’s teleconference and we thank you all for your participation. You may now disconnect your lines and we hope that you enjoy the rest of your day.