Boyd Group Services Inc. (BGSI) Q1 2023 Earnings Report, Transcript and Summary

Good morning everyone. Welcome to the Boyd Group Services Inc. First Quarter 2023 Results Conference Call. Listeners are reminded that certain matters discussed in today’s conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties related to Boyd’s future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. 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 sedar.com. I’d like to remind everyone this conference call is being recorded today, Wednesday, May 10, 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. 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, our Vice President of Finance and Interim Chief Financial Officer. We released our 2023 first quarter results before markets open today. You can access our news release as well as our complete financial statements and management discussion and analysis on our website at boydgroup.com. Our news release financial statements and MD&A have also been filed on SEDAR this morning. On today’s call, we will discuss the financial results for the 3-month period ended March 31, 2023, and provide a general business update. We will then open the call for questions. During the first quarter of 2023, we delivered record sales and adjusted EBITDA, although adjusted EBITDA margins remained below pre-pandemic levels. Demand continues to be strong with results once again constrained by the tight labor market and accompanying wage pressure. Supply chain disruption continues to normalize. However, sustained levels of high demand continue to result in elevated levels of work in process inventory. 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 servicing the level of demand requires continuing increases in technician compensation to attract more labor into the industry and company, and this will require continued price increases from our customers. As we address this issue, we will be able to reduce cycle times and increase customer satisfaction levels. During the first quarter, we recorded record sales of $714.9 million, adjusted EBITDA of $84.7 million and net earnings of $20.8 million. Sales were $714.9 million, a 28.4% increase when compared to the same period of 2022. This reflects a $23.7 million contribution from 52 new locations. Our same-store sales, excluding foreign exchange, increased by 25.2% in the first quarter, recognizing the same number of selling and production days in the U.S. and Canada when compared to the same period of 2022. Same-store sales benefited from high levels of demand for services as well as some increase in production capacity related to technician hiring, growth in the technician development program as well as productivity improvement, although ongoing staffing constraints continue to impact sales and service levels that could be achieved. Sales also increased based on higher repair costs due to increasing vehicle complexity, higher park content and cost, increased scan in a calibration services as well as general market inflation. Gross margin was 45.7% in the first quarter of 2023 compared to 44.1% in achieved in the same period of 2022. Gross margin benefited from improvements in part margins, and parts are once again being sourced from primary suppliers and the mix of alternative parts continues to move toward historical levels. Increased scan and calibration services also positively impacted gross margin. Labor margins have improved to continue to be negatively impacted by the tight labor market, which has resulted in continued wage pressure to both retain and recruit staff. Operating expenses for the first quarter of 2023 were $242.4 million or 33.9% of sales compared to $191.6 million or 34.4% of sales in the same period of 2022. Operating expenses as a percentage of sales was positively impacted by improved sales levels, which provide an improved leveraging of certain operating costs, partially offset by wage and other inflationary increases as well as increased support costs related to recruitment and training, including the costs associated with the technician development program. Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $84.7 million, an increase of 57.5% over the same period in 2022. The increase was primarily the result of improved sales levels and gross margin percentage, which also improved leveraging of certain operating costs. Net earnings for the first quarter of 2023 was $20.8 million compared to $1.6 million in the same period in 2022. Excluding fair value adjustments and the acquisition and transaction costs, adjusted net earnings for the first quarter of 2023 was $21.2 million or $0.99 per share compared to $2.1 million or $0.10 per share in the same period of the prior year. Adjusted net earnings for the period was positively impacted by increased sales and improvements in gross margin percentage as well as improved leverage of operating expenses. At the end of the period, we had total debt net of cash of $1.108 billion compared to $963 million at December 31, 2022. The debt, net of cash, increased when compared to prior periods, primarily as a result of increased lease liabilities resulting from location growth as well as lease renewal activity. During the first quarter of 2023, the company was able to reduce the level of long-term debt held under the revolving credit facility by approximately $8.2 million. During 2023, the company plans to make cash capital expenditures, excluding those related to the acquisition and development of new locations within the range of 1.6% and 1.8% of sales. In addition to these capital expenditures, the company plans to invest in network technology upgrades to further strengthen our technology and security infrastructure and to prepare for advanced technology needs in the future. The investment expected in 2023 is in the range of $5 million to $8 million with similar investments expected in 2024 and 2025. This investment is expected to begin in the second half of 2023. Looking ahead, we remain focused on the key challenges of building capacity through increased staffing and negotiating sufficient price increases to recover lost margin from continuing wage pressure. We continue to experience high volumes of work and elevated levels of working process. We continue to benefit from increased scanning and calibration revenue. Thus far in the second quarter, our sales run rate is modestly above that experienced in the first quarter of 2023, and same-store sales results have been slightly lower than the growth experienced recently. The balance of 2023, beginning in May and June has higher comparative periods for which same-store sales will be measured against. We remain committed to addressing the labor market challenges so that we can service additional demand. Price increases for labor continue to work their way through the system, market by market and client by client. Modest improvements in labor margins have been experienced. However, pricing increases have not been sufficient to attract requisite talent into the industry and to offset the wage increases experienced to date. As communicated previously, performance credit-based programs may cause margin to vary on a quarter-by-quarter basis. Our intake location strategy is intended to drive same-store sales growth at times when capacity is not constrained. In late 2022 and early 2023, we decided to close many intake locations based on the reality of our current capacity constraints. On the other hand, we’re pleased to have opened or acquired 30 collision repair locations thus far in 2023 and the pipeline to add new locations and to expand into new markets is robust. Operationally, we’re focused on optimizing performance of new locations as well as scanning and calibration services and consistent execution of the well operating way. Given the high level of location growth in 2021, and the strong same-store sales growth during 2022 and the combination of same-store sales growth and location growth thus far in 2023, we remain confident the company 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. With that, I would now like to open the call to questions. Operator?

Thank you. [Operator Instructions] And your first question comes from Michael Doumet from Scotiabank. Michael, please go ahead. Tim O’Day: Good morning, Michael.

Hey, good morning, Tim. Hey, Jeff, as well. Nice quarter. Maybe to just start on the Q2 sales – same-store sales commentary. It seems like you’re suggesting that April same-store sales are trading at kind of plus and minus 25%, but good slow May, June, given the tougher comps last year. Just in order to get a better sense for that. Any way you can comment on how much May-June sales increased last year versus April. Yes, just anything that can help us there? Tim O’Day: Yes, I think what we were trying to provide some color around, Michael, is that same-store sales growth was pretty strong in April. We know we’re up against tougher comps. And we tried to provide some information that the sales run rate that we’re seeing right now is modestly above what we saw during the first quarter. So I would look at our run rate during the first quarter and probably build off of that.

Just to add as well, in terms of comparison to thus far in the quarter compared to the comparative period, we have seen – it’s been lower than what we’ve experienced in the last couple of quarters, not just the most recent quarter. So we factor that as well.

Helpful, Jeff. Thank you. And then I guess, turning to the margin discussion of how this conversation to several times with many investors, as we think about the return to normalized margin and what that means for dollar margin versus percentage margin. And if I look at the Q1 EBITDA on a per shop basis, your Q1 EBITDA was higher versus 2019 levels, again, on a per shop basis, but you’re still 200 basis points below. So how do you think about dollar margin versus percentage margin? And where is your confidence in terms of recovering the percentage margin longer-term? Tim O’Day: Yes. we haven’t really – we haven’t expressed a specific goal on the EBITDA margin we’re targeting long-term. But we’re still negatively impacted on our labor margins because of the wage price and the wage inflation that we’ve experienced. And I think we’ve been pretty clear that, that has not yet been offset. I’m pleased with the progress we’ve made on our EBITDA margin with increased – we did see increased throughput in the most recent quarter coming from multiple components. We saw an increase in the contribution from our technician development program, increased productivity from our experienced technicians and some increased staffing relative to the prior quarter. So I think we’ve made good progress on building up our revenue. And we’ve got plenty of demand. So part of the long-term solution is continuing to build our capacity to process the demand to offset the increased costs we’ve experienced over the past couple of years.

Got it. And then maybe just in terms of longer-term margin expectation, was that closer? Was that in reference to maybe the labor margin is what you guys were looking to redo. Tim O’Day: We certainly expect to that and need to recruit more labor margin. We do have some other tailwinds, Michael, that we’ve talked about. I mean, I think the increase in repair complexity, which comes along with increased scan in the calibration services is a long-term opportunity and tailwind for us that has the opportunity to enhance margin, both gross margin and EBITDA margin because it’s new revenue that 3 or 4 years ago, the industry barely had. So we’ve got multiple ways to continue to drive EBITDA margin in addition to this improving throughput. Improving throughput and offsetting our operating – or kind of our fixed operating costs is really a key focus.

Got it, those are my question, thanks, guys. Tim O’Day: Thanks, Michael.

Your next question comes from Steve Hansen from Raymond James. Steve, please go ahead.

Hi, guys. Thanks for the time. I’ll follow-up on the last question in rate right into the calibration as getting opportunity. And can you maybe just give us a bit of a road map for the rollout of that opportunity within your network? I think as you’ve described in the past, it’s still relatively early, but how quickly can you expect to roll out these services? And how does that sort of, I guess, dovetail what sort of the broader industry adoption of the trends as well? Any color you have provided would be great? Tim O’Day: Yes. I think we are early on in rolling out calibration services across our network. Having said that, we are performing calibrations. There is just a higher percentage of that work being done by third-parties that are not our employees or not part of the Boyd companies. So I think the opportunity is the market will continue to grow for scanning and calibration, the size of the market, which will add to the size of the close repair market, and we will look to grow our capacity in our calibration company to service that business, both for Boyd and for other companies. So I think it’s a good long-term tailwind, but we’re in the early stages of.

Okay, great. Helpful. And just to clarify from just a regional standpoint, is this something that you roll out in the U.S. first and I suppose in the Midwest with our small group and then extend in Canada over time or how does that play for a retail standpoint? Tim O’Day: Not necessarily. I don’t think we’re – we’re not dependent on just growing from the base that we have. We believe we can open and add that service in markets that we operate in today and service more than work ourselves.

Okay very helpful. And then just one follow-up, if I may, is on the M&A front. You’ve been more active, which is positive and good to see. How do you feel about the pipeline? I know it’s been described as robust, but maybe just some additional color that gives us a sense for your expected cadence or your – maybe just your perception on how it’s feeling that market is right now from a growth standpoint? Thanks. Tim O’Day: We’re – as you can see from our Q1 results even Q4, we’re pretty focused on single shop growth. We – I feel really good about what we accomplished in the first quarter. Our team is, I think, doing a really good job of identifying and executing on opportunities and we’ve got plenty more in the pipeline that we expect to continue to execute on. So these are primarily single shop acquisitions or greenfield and brownfield developments that have good, high returns on capital. It’s not necessarily year 1 return on capital. But as we’ve talked about before, we expect our single shop acquisitions generally to have a return on capital post synergized including post-close investment in year 2 of 25%. And our greenfield and brownfields, we generally have higher expectations than that. So there is plenty of opportunity out there, and our team is doing a really nice job of executing on that.

Appreciate that.

Your next question comes from Gary Ho from Desjardins Capital. Gary, please go ahead.

Thanks. Good morning. Maybe just take one last question on M&A. You hear the PE guys are suffering from higher financing and refi costs, would you have appetite for maybe larger MSOs if they are available in the market? Tim O’Day: Yes, I think we’ve always been clear that we’re interested in any growth that enhances shareholder value. I think what we have to be cautious of is making acquisitions that ours accretive or take on more risk than makes sense for the nature of the acquisition. But we’d be very interested in transformative opportunities if they make sense from a shareholder value standpoint.

And anything in the pipeline anything in the market that you can comment on or is it still fairly quiet on that one? Tim O’Day: Well, I wouldn’t comment on it either way. So there are certainly likely opportunities in the market, but nothing that we would comment on. Our focus is pretty keenly on the highly accretive single-shop growth, and we’re confident in our ability to achieve our 2025 revenue goals even with that strategy alone.

Okay, that’s makes sense. And then my next question, just your comments or suggests seeing some relief on the parts margin side, but labor continues to be challenging. So, maybe a two-part question. At the margin, have you seen kind of which pressure is starting to abate? And then second, you mentioned same-store sales growth is up against tougher year-over-year comps the top line growth slows, are you able to still manage the labor front to show margin improvement. Just wondering if there is a lag between those two that maybe could hurt margins in the second half of the year? Tim O’Day: The labor margin, we have made a little bit of progress on labor margins, not as much as I would like. And I do think that the wage pressure has diminished somewhat, but it’s still there. I mean when you have an industry that relies on highly skilled labor and there is a shortage in that pool, and there is lots of revenue available, people are going to fight for that labor as much as it can. And we continue to invest in our technician development program to grow our workforce and we’ve seen great results with that. Last year, we beefed up our focus on recruitment. We’ve had success with that. And I think as supply chain has normalized a bit and we get back to really focusing on the well operating way, we have been able to drive productivity improvements from our existing workforce. And that combination is really what’s driving our same-store sales growth. And we’re going to continue to focus on those things. So I think the – in the absence of meaningful short-term labor margin improvement, which we’re very focused on, we think revenue throughput – the revenue throughput opportunities are still available to us.

Maybe I’ll just add to the strong comps part of the question. Even though we will be facing some strong comps, the throughput is still in the demand for services is still sufficiently high that it wouldn’t be a negative to our overall sales levels. We still expect sales levels to continue to increase. It’s just that due to the higher comps, if you look at it on a same-store basis, it won’t be at the same rate that they did observed historically.

Okay, great. Thanks for those comments. Tim O’Day: Thanks, Gary.

Your next question comes from Bret Jordan from Jefferies. Bret, please go ahead.

Hey, good morning, guys. Tim O’Day: Good morning, Bret.

The scan and calibration business, could you maybe give us some more color on the margin profile there? And as you’re doing more third party for other collision facilities, what kind of margin you’re looking at? And is there a CapEx cycle here, obviously, if you’re doing third-party maybe as a man fleet or more hardware required – could you maybe talk about what that looks like? Tim O’Day: Yes. We haven’t disclosed a lot of detail on that, Bret, but there is a fair amount of calibration within our company today that’s being done as a sublet service. And to the extent that we can internalize that, we should be able to shift that revenue from sublet margins, which are the least attractive in our industry to labor margins. So that’s obviously very favorable to us. There is a capital investment required. Much of the calibration work today is done via mobile, although we are equipping stores with – where we have space for equipment than with targeting systems and mobile technicians can travel to our stores, and we will move work around on a hub-and-spoke basis to provide some of that work. But I think the – we’re going to continue to see a growth in revenue around scanning and calibration and we’re going to internalize more of it. And I’d say those are both positive tailwinds for us probably for several quarters to come.

Okay. Great. And then I guess on market growth, your comp of 25% plus. Could you maybe give us some color how you think that compared to what happened in the overall collision market? Obviously, supply chain has improved a bit. But could you sort of frame that in the scope of making share gain? Tim O’Day: It’s tough for me to give any good numbers on that, Bret. I mean CCC publishes some data. That’s claims data versus repair data, typically. We believe we have picked up share because we have increased our capacity, and we certainly added units. The average cost of repair has been going up, but our same-store sales gains are well above the level of inflation. So, our throughput is up, which would indicate a share gain.

Okay. Any order of magnitude or just… Tim O’Day: I don’t have a number that I would be comfortable to give you, but we are moving in the right direction on it and building our capacity. Our labor capacity is really the key to it. It could be higher, and I think we have been pretty clear in our MD&A that our sales revenue is – our revenue is still constrained by a lack of labor capacity that we are working to address.

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

Your next question comes from Jonathan Lamers from Laurentian Bank Securities. Jonathan, please go ahead.

Good morning. Thanks for taking the question. Tim O’Day: Good morning.

So, the gross margin result for the quarter was very strong and that you continued to highlight the opportunity for labor margins to be stronger, and you continued to negotiate rate improvements. Of course, you are expanding the scanning and calibration program. These – as you continued to roll out your scanning and calibration business and negotiate higher rate increases, would you be willing to hazard a guess as to how much higher gross margins could be than historical levels? Tim O’Day: Well, we won’t provide projections on that, Jonathan, but the – some of the improvement that we have seen recently, some of that is in the parts area, and we did comment that supply chain is normalizing, and that’s done two things on the parts side. It’s allowed us to use more higher margin alternative parts, especially aftermarket parts because of improved availability. And LKQ has been pretty clear on their fill rates have gone way up, and we are seeing the benefit of that. We also have been able to rely more on our primary suppliers as supply chain is freed up a bit, which is kind of recovered our part margins to more normal levels. Scanning and calibration is definitely another one of the benefits that we are seeing on the labor side, because we do have more going through that, more sales going through a scanning and calibration and some of it is being serviced internally. But we are not providing a projection of where gross margins will end up.

That’s fine. Thanks. And just a clarification question for Jeff on the sales run rate. So, the way that I like to think about this is I take the same-store sales percentages that you report. And if I multiply those through since 2019, like the trend is kind of up 22% in Q1, improved from up 14% in Q4. I would think that, that could be continuing into Q2 and I can kind of back out what that means for the same-store sales number for the quarter. Is that the right way to think about the run rate, or are you talking about like dollars per location or something else with that comment? Thank you.

Yes. I think you are right. You could probably look at it different ways. So, as you asked to clarify that. The way we were thinking about it is if you looked at our Q1 sales and looked at the number of production days that really gives us an active [ph] perspective as to what our current business is performing at from a sales perspective on a per day basis. And then if you were to use that into Q2, then that would be a reasonable way to sort of maybe try and get it a little bit. Just – and really, the complexity has come in just because of some of the variability of the strong costs and the shifting month-to-month, it becomes very difficult to give meaningful guidance when the range is starting to kind of be more. So, we thought we would give that additional perspective to help to just give another perspective.

Thanks. And from looking at some others in the industry in Q1, severity seems to have been strong. Can you tell from the information you have that repair cost inflation is accelerating, or is it kind of too hard to tell? Tim O’Day: I think it’s I would not have thought it was accelerating, although repair cost inflation has definitely been a contributor, repair complexity, number of parts, average cost per part, the increase in the need to calibrate vehicles that our damaged has been growing. So, it’s not just inflation. It’s really – the average repair today has more labor hours on it and likely more calibration on it than an average repair did even 2 years ago.

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

Your next question comes from Zachary Evershed from National Bank Financial. Zachary, please go ahead. Tim O’Day: Good morning Zach.

Good morning. Thanks for taking my questions. Of course, an inventory one on how labor negotiations are going, what’s the sense of urgency with your insurance partners, noting that there was an uptick in length of rental and backlogs? Tim O’Day: Well, I think that insurance carriers generally are worried about having adequate capacity to service their policyholders. So, I think the sense of urgency for everyone in the value chain is very high. We have continued to see a good pace of increases in labor rates even through Q1. The carriers are looking for capacity. So, I think the urgency is similar to what it’s been over the last several quarters. We are still not – the industry is still not servicing automobile owners as effectively as we were prior to the pandemic. Length of rental is still very elevated. Customer satisfaction scores, in part because of high repair times, longer repair times and still some supply chain disruption in the labor issues are where they should be, and we are all working hard to get back to making sure we are taking great care of our customers.

Good color. Thanks. Could you give us a comment on the legislative landscape with respect to some in transmissions taking a stance against big insure premium hikes and what that might do for your liberate negotiations? Tim O’Day: It’s a good question. I think that insurers need quality repair capacity, and they are competing for that repair capacity. So, I think that there is not necessarily a direct connection between those two. If you look at the data, our insurance clients have, by and large been very successful at seeking and receiving rate increases. I think there are some states that there has been a fair amount of noise over like Georgia recently, which had some very large increases by carriers last year, and I think there has been some recent legislation to try and control that. California has been tough. But at some point, regulators have to provide an upgrade for insurance companies to make money and cars are more complex and more expensive to repair. And insurance carriers have a way of reducing their book if they can’t go and get an adequate rate. So, I don’t think there is a direct connection to that. There is – over time, there is probably a direct connection, but I think carriers will continue to get the rate they need to be profitable with their book of business because they can’t survive long-term without that.

Great answer. Thanks. And just one last one, how quickly can interest come back online when your backlogs are returning to normal? Tim O’Day: We could bring them back online pretty quickly. It’s, they are not complicated to open, and they weren’t complicated to close. It just didn’t make sense for us to chase volume that we couldn’t service the – well, the expense of doing that wasn’t that significant. It’s just didn’t make sense. But we have had this model in place in Canada for years. It’s been highly successful. It was actually very successful in the U.S. if we could have serviced it, but we are confident in our ability to bring that model back when it makes sense.

Thank you very much. I will turn it over. Tim O’Day: Thanks Zach.

[Operator Instructions] Your next question comes from Sabahat Khan from RBC Securities. Please go ahead. Tim O’Day: Good morning Sabahat.

Hi, good morning. I guess there has been a lot of discussion about the labor topic. So, I wanted to get a little bit more color. I guess as the macro evolves, are you seeing any signs of maybe folks from other periphery industries, complementary industries that might be looking for jobs, or is it too early for the labor pool to become larger from industries you can maybe hire from? Tim O’Day: I think it’s difficult for us to really see that. We need to continue to make sure that we are competitive against alternatives of people with the skill level we are looking for have. And I think we made progress towards that. I don’t think we are where we need to be to attract as much new talent into the industry as we would like. But we have had success at both recruit and experienced technicians. I can’t tell you whether they come from competitors or from other industries. And I am really pleased with the success we have had with our technician development program. And we continue to invest pretty heavily in that. And this year, we will see quite a few graduates given the maturing program we will start to see a fair amount of graduates coming from that program.

I think there is two stages to it as well. We would need to stop the outflow. So, stopping the outflow is, I think most important at the immediate-term, at some point, if the rates can go sufficiently, how we may attract, but I think the focus is to make sure it’s an outflow.

Yes. That makes sense. And as you just think about the technician development program. Is that $400 million a limit just set based on the capacity availability, or could that program become bigger if the pool of labor increases? Tim O’Day: Well, we have had good luck recruiting for that program. So, that’s one area where I would say the availability of new entrants into the workforce via that program has not been a significant constraint. So, we could grow the program further. I think what we need to do is understand the benefits of investing in that long-term versus continuing to attract new labor into the industry. And it’s probably a combination. But we are not – I am not opposed to continuing to grow that program. We just need to understand that it’s the right way to invest our money.

And we have ramped it up very quickly in a short period of time. And so we see the mix. Tim O’Day: Yes, you are right.

It flushes out the way we… Tim O’Day: We were 200 at the beginning last year, and we were a little over 400 by the time we reported in November of last year. It’s a very well-received program by our operating teams. It’s got tremendous support, both in the locations and up through the ranks of the operating team. So, I am confident that if we choose to, we have the ability to grow and just take some extra support resources, trainers, administrative team members, recruiters to build around it. But it’s a scalable program because it’s a distributor program that’s metro-based. And we have got trained mentors in the system today that don’t currently have an apprentice, so we can scale it up.

And I guess just on the program. What is typically the demographic that’s doing it? Are the younger folks that are looking to enter the industry, because obviously, the average technician age was becoming a bit of an issue for the industry? But do you have it and do you prefer people under 30 years for example, or do you basically halo you got a certain amount of working is less will take in the program? Tim O’Day: We have really looked at the technician development program as an opportunity to not only bring in a younger workforce because we are recruiting typically from the schools or bringing people into entry-level positions like porters or parts clerks in our organization, making sure that they are committed, their attendance is good and then giving them the opportunity to go through the TDP program. But we also see good diversity across the spectrum. So, we have more women, more African-Americans, more Asians, more Hispanics and TDP than our company average. So, it’s really a great opportunity for us to begin to diversify our workforce. And it does tend to skew much, much younger. So, our cyclical recruit would probably be late teens to mid-20s.

Thanks great color. And just one last quick one, obviously, the macro is evolving, but I am assuming there is a lot of competition out there for transactions. What are some of the factors that are influencing the multiples that maybe the mom-and-pop shop or the single stop owners might be basing their one on? And also just directionally, how are multiples trending broadly in the private space? Tim O’Day: Yes. On the single shops, we have not seen any real pressure on multiples, and we are able to underwrite those at our targeted return of 25% return on invested capital, including post-close capital and in year two, so with synergies and that – we have been underwriting to that standard for a number of years, so really seeing no change there. There is plenty of – seems to be plenty of opportunity out there. I would say, over the past couple of years, we have seen greater pressure on multiples for the multi-shop acquisitions. And we have responded by that to that by really stepping up our focus on single shop acquisitions. I think what you saw in the first quarter and really thus far through when we reported, we have opened quite a few shops, I think seven more brownfield or greenfield, the balance were single shop acquisitions. So, those are very attractive returns for us. The MSO acquisitions that we saw last year, some of those traded at multiples that wouldn’t make sense to us, and we would not have participated in those. And I would reiterate that we are confident in our long-term growth goals with our current approach to growth. But we are open to MSO acquisitions as long as they are accretive to us. We have seen fewer MSOs trade over the past, say, six months or seven months, which is probably a good sign. But I don’t know that we can say that valuations have changed as a result of that until we start to see some trading again.

Okay. Thanks very much for taking my questions. Tim O’Day: Thanks Sabahat.

We have another question from Michael Doumet from Scotiabank. Michael, please go ahead.

Hey. Lots of questions, so I appreciate you taking the follow-up. A couple of modeling questions. If you can help me on kind of walking down from EBITDA to free cash flow. And in particular, I am focused on the lease liabilities and the lease cash charge on the cash flow statement, it looks to be approximately up 7%. So, just can you comment on the average length of your lease and the incremental cost of renewals?

Sure. Well, our typical approach for our leases would be a 5-year lease with extensions. And so that’s what we typically try to work towards. With that factor, then basically, you can see about a 20% turnover approximately every year, which is with our number of locations, it’s quite a number, which can start to shift the amount of leases between current and ones that we have in place, so which results in different interest rates and things like that flowing through that cash flow statement as cash flow numbers. More recently, I think with the Brownfield, Greenfields, we typically sign up for a slightly longer tenure initially, the initial term is usually longer than that 10 years or 15 years. And so when you got those entering the mix and as they become a greater proportion of the mix, then that turnover element should reduce a little bit.

Okay. That’s really helpful. And then maybe just turning to [indiscernible], that was down quarter-on-quarter, but I think still relatively high on a historical basis. So, are you seeing maybe sufficient improvement in the supply chain that you think that can work down quite nicely in the next coming quarters? Tim O’Day: Yes. We have certainly – I think we both increased our production capacity, and we have seen supply chain improvement that’s allowed us to grow same-store sales and actually reduce work in process, right. It’s a relatively modest reduction, but given the same-store sales growth, it’s a pretty meaningful reduction. And I would hope that supply chain will continue to improve and will improve, but there is a lot of demand out there. So, the width you see on our balance sheet, it really reflects cars that have either been brought into our shops or where we have invested in parts or shop for vehicles that are coming into our shops. I think we are a little better of managing that today, too, than we were 1.5 years ago as the disruption was occurring. But I would expect – I would hope that we would continue to see supply chain improvement and improvement in throughput and a whittling-down that work in process in the coming quarters.

And that would be healthy. I mean that would be a real positive development if that’s the way it plays out.

Perfect. Helpful. Thank you, guys. Tim O’Day: Thanks Michael.

There are no further questions at this time. I will turn it back to Mr. Tim O’Day for closing remarks. Tim O’Day: Very good. Well, thank you, operator and thanks to all of you once again for joining our call today and we look forward to reporting our second quarter results to you in August. Thanks again and have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.