Boyd Group Services Inc.

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01:06 Thank you, operator and 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. 01:17 We released our 2021 fourth quarter and year-end 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. Our news release, financial statements and MD&A have also been filed on SEDAR this morning.

01:39 On today's call, we will discuss the financial results for the three month period ended December 31st 2021, provide a general business update and discuss our long-term growth strategy, we will then open the call for questions. 01:54 On January 2nd 2020, I was appointed President and CEO of Boyd Group Services, Inc.

and concurrent with this change Brock Bulbuck moved into the role of executive chair. On December 31st 2021, our transition plan was completed and Brock retired from his management role.

I would like to thank Brock for his many years of dedicated service to Boyd and for the great support he provided during the two-year transition period. I look forward to Brock’s continued contributions to Boyd as a member of our Board of Directors.

02:30 As was previously communicated, beyond January 1st 2021, Boyd is reporting results in US dollars. This change has been made in order to better reflect the company's business activities given the significance of US denominated revenues.

Financial results in the first half of 2021 showed steady improvement as demand for services began to recover from the COVID-19 pandemic that emerged in March of 2020. However, as demand continued to increase during the second half of 2021 and approached pre-pandemic levels in most of our US markets, Boyd’s ability to service this demand was meaningfully impacted by a tight labor market and supply chain disruptions.

03:16 The collision repair industry is experiencing significant and unprecedented competition for talent and in particular limited pool of qualified technicians and estimators. As a result, Boyd experienced increased wage costs in order both retain and recruit employees causing pressure on labor margins and operating expenses.

03:39 During 2021, we were able to add a record 127 new locations, including 101 locations through acquisition, 10 startup up locations and 60 locations operated this intake centers. Unfortunately, these new locations are also experiencing margin challenges as a result of the tight labor market, wage inflation and supply chain disruptions, as well as sales per location levels that are below pre-pandemic levels, due to capacity constraints.

04:12 For the year ended December 31st 2021, we reported sales of $1.9 billion, an increase of 19.9% over the prior year, driven by same-store sales increases of 7% and contributions from 154 new locations that had not been in operation for the full comparative period. 04:34 Gross margin decreased to 44.8%, compared to 46% in the comparative period.

The gross margin percentage was negatively impacted by reduced parts and labor margins, a higher mix of parts in relation to labor, and these impacts were partially offset by higher mix of glass sales in relation to collision sales. 04:58 During the second half of 2021, Boyd faced increasing supply chain disruptions, which resulted in a negative impact on gross margins as a higher percentage of parts had to be sourced from non-primary suppliers in order to complete repairs and fewer aftermarket parts were available.

Labor margins were negatively impacted by the extraordinarily tight labor market, which resulted in increased wage cost to both retain and recruit staff. The shortage of labor also resulted in a higher mix of parts sales in relation to labor.

05:34 The Canada Emergency Wage Subsidy or CEWS was put into place on April 11th 2020 and remained in place until October 23rd 2021. As was the objective of the program, Boyd continued to employ and incur cost for employees that would have otherwise been furloughed absent the wage subsidies.

The recognition of CEWS related to direct labor was approximately $4 million in the year ended December 31st 2021, compared to $5.3 million in the prior year. 06:08 Operating expenses increased $120.9 million, when compared to the same period of the prior year, primarily due to the growth in the number of locations, as well as the COVID-19-related cost reductions that impacted the prior year.

Operating expenses benefited from the CEWS of approximately $5.8 million, as compared to $7.4 million in the same period of the prior year, which helped mitigate incremental COVID-19 indirect wage costs. Operating expenses were negatively impacted by the extraordinarily tight labor market, which as noted resulted in increased wage costs to both retain and recruiting staff.

06:52 Adjusted EBITDA for the year ended December 31st 2021 was $219.5 million, compared to $220 million in the same period of the prior year. The $0.5 million decrease was primarily the result of lower gross margin percentage at higher levels of operating expenses, which more than offset the incremental impact of location growth.

07:17 We reported net earnings of $23.5 million, compared to $44.1 million in the same period of the prior year. Adjusted net earnings per share decreased from $1.97 to $1.30.

The decrease in adjusted net earnings per share is primarily attributed to a lower gross margin percentage and higher levels of operating expenses, which more than offset the impact of incremental location growth.

08:26 The increase in same-store sales percentage was constrained by production challenges, including technician and administrative staffing capacity constraints, as well as supply chain disruption, which impacted sales levels during the fourth quarter of 2021. Sales growth of $79 million was attributable to incremental sales generated from 131 new locations.

08:52 Gross margin was 43.5% for the fourth quarter of ’21, compared to 45.8% achieved in the same period of 2020. The gross margin percentage was negatively impacted by reduced parts and labor margins and a higher mix of parts sales in relation to labor.

09:10 During the fourth quarter of 2021, Boyd continued to face supply chain disruptions was resulted in the negative impact on margins as a higher percentage of parts had to be sourced from non-primary suppliers in order to complete repairs. Labor margins were negatively impacted by the extraordinarily tight labor market, which resulted in increased wage cost to both retain and recruit staff.

The shortage of labor also resulted in a higher mix of parts sales in relation to labor. 09:41 Operating expenses for the fourth quarter of 2021 were $167.2 million or 32.4% of sales, compared to 30.9% in the same period of 2020.

Operating expenses were negatively impacted by the extraordinarily tight labor market and fourth quarter operating expenses for both periods benefited from year-end expense accrual reductions as certain expense estimates were firmed up in amounts that were lower than previously estimated and accrued. 10:14 Adjusted EBITDA or EBITDA adjusted per fair value adjustments to financial instruments and costs related to acquisitions and transactions was $57.3 million, a decrease of 5.1% over the same period of 2020.

The decrease was primarily the result of lower gross margin percentage and higher levels of operating expenses, partially offset by proceeds from CEWS. 10:42 In addition, adjusted EBITDA for the three months ended December 31st 2021 benefited from CEWS in the amount of approximately $2.3 million.

Net earnings for the fourth quarter of 2021 was $4.9 million, compared to $16.3 million in the same period of 2020. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the fourth quarter of 2021 was $5.9 million or $0.28 per share, compared to adjusted net earnings of $14.6 million or $0.68 per share in the same period of the prior year.

11:25 Adjusted net earnings for the period was impacted by lower gross margin percentage and higher levels of operating expenses, as well as location growth. Our new locations are subject to the same, labor and supply challenges of Boyd’s currently facing across its business.

These market conditions are impacting the results that could be achieved in the short-term, while new location growth has resulted in increased levels of depreciation and amortization. 11:55 At the end of the year, we had total debt net of cash of $957.7 million, compared to $896.9 million at September 30th 2021 and $538.5 million at the end of 2020.

Debt net of cash increased when compared to December 31st 2020, primarily as a result of acquisition activity, including draws on the revolving credit facility, as well as increased seller notes and lease liabilities. 12:26 Based on the confidence we have in our business, we announced an increase to our dividends by 2.1% to $0.576 per share on an annualized basis in Canadian dollars beginning in the fourth quarter of 2021.

This is a 14th consecutive year we've increased dividends to shareholders. 12:47 During 2022, the company expects to make cash, capital expenditures of approximately 1.6% of sales.

This excludes those capital expenditures related to the acquisition and development of new locations and the investment in the expansion of the well operating way practices for our corporate applications and process improvement efficiency project. 13:11 During 2021, the company invested approximately $5.6 million in LED lighting in order to reduce energy consumption and enhance the shop work environment.

Continued investment in LED lighting will not only provide environmental and social benefits, but also achieve accretive returns on invested capital. Additionally, the company is expanding its well operating way practices to corporate business processes.

The related technology and process efficiency project will result in an additional $1 million to $1.5 million investment before the project is completed in the second quarter of 2022 and will be expected to streamline various processes, as well as generate economic returns after the project is fully implemented. 13:59 During the year ended December 31st 2021, the company spent approximately $4.5 million on the wall operating way expansion to corporate business process.

In November of 2020, we announced our new five-year growth strategy in which Boyd intends to again double the size of our business over the five-year period from 2021 to 2025 based on 2019 constant currency revenues, implying a compound annual growth rate of 15%. During 2021, we were able to add a record 127 new locations, including 101 locations through acquisition, 10 startup locations and 16 locations operating as intake centers.

14:48 In the short-term, we are primarily focused on addressing the labor shortage for our core business. In the long-term, we remain confident in our business model and its ability to increase market share by expanding Boyd’s presence in North America through a new location and organic growth from Boyd’s existing operations.

15:10 We are committed to addressing the labor market challenges through initiatives such as our technician development program, and we are working to more than double the number of trainees in the program to help meet our future needs. We continue to increase recruitment support staff to improve lead generation and follow-up, proactively evaluate compensation levels and make appropriate adjustments to ensure the company remains competitive in a rapidly changing environment and drive high levels of execution for on-boarding and orientation programs to increase retention.

15:44 We continue to work with key suppliers to source parts at normal margins, but we'll continue to use OE parts in place of aftermarket parts when necessary in order to complete repairs for our clients. We have made progress in addressing margin challenges by securing an unprecedented number of rate increases from clients for both labor and paint materials.

16:09 To-date, the vast majority of our clients have increased rates and the level of increase is much higher than we have ever seen historically. However, further increases are required to reflect the current environment, so that the industry can attract and retain the talent needed to properly serve our customers and complete repairs on a timely basis.

We continue to actively pursue and push for the necessary pricing increases. 16:38 Given how significantly and rapidly wage costs have increased and the continued tight labor market it will take some time to achieve all of the needed price adjustments and margins will continue to be impacted in the near-term.

In addition, as price increases are received, they are applied only to new work so that the work that is already in process or that has been aside are subject to previous pricing, which delays the pricing benefit. But contrast wage increases are immediately realized in our costs and as a result, it will take time for new rates to be realized and improved gross margin.

17:17 Thus far, in the first quarter of 2022 the majority of the benefits of the price increases have not been realized. Unlike one year ago, demand for Boyd Services is continuing to substantially exceed capacity.

The ability to service demand continues to be constrained by labor availability and part supply chain issues with the accompanying margin pressure continuing into the first quarter of 2022. 17:46 During the first quarter of 2022, the Omicron variant negatively impacted capacity constraints with increased levels of absenteeism relative to earlier periods in the pandemic.

In addition, the first quarter is burdened by higher payroll taxes that occur early in the year, while the fourth quarter of 2021 benefited from expense accrual reductions and certain expense estimates were firmed up at amounts that were lower than previously estimated and accrued. 18:17 The Canada employment wage subsidy also ended in the fourth quarter of 2021.

As a result, these factors cause operating expenses to be higher in terms of dollars and a percentage of sales, compared to the fourth quarter and have a dampening effect on adjusted EBITDA and adjusted net earnings. 18:37 Throughout 2021, we've increased our focus on ESG and are proud to announce the publishing of our first ESG report this month, which outlines our priority areas in each of environmental, social and governance pillars.

The report reflects our existing efforts to embed sustainability into our organization and sets a baseline for future performance as we strive to deliver against our mission to while all of our customers with quality work and best-in-class service. 19:09 We recognize that we have the potential to deliver significant positive impacts to society and the environment.

Our ESG report builds on existing strength to ensure robust environmental, social and governance principles and practices across our company. Our approach is informed by the priorities of our key stakeholders including our employees, our investors, our customers and our communities, as well as local and global developments to find the context in which we operate.

19:42 In summary and in closing, I continue to be incredibly proud of our team, who have adjusted to this new environment and are working hard to position us well for the future. 19:53 With that, I’d now like to open the call for question.

Operator?

20:25 Good morning, Michael.

20:30 Hey, good morning Tim and Pat. On the negotiated rate increase to-date, one of the mechanisms exactly for that to flow through the P&L?

And does that get more fully reflected in the Q2? And also any chance you can quantify the rate increase?

How much more of the wage inflation today this will cover? Or how much more you'll need for the wage inflation to get covered?

20:56 Yes. We’re not prepared to answer the second question, Michael.

But the mechanism for getting the rate increases into our revenue, when we get an opportunity or an assignment from an insurance company and we write an initial estimate and schedule that out. The pricing that's attached to that estimate is whatever was in place at the time that we uploaded the estimate.

So as a result for all the work that we've estimated and as we've noted, we've got significant backlogs, it has the previous pricing in place, not the current pricing. So, we really need to work through that backlog for the pricing to show up.

21:36 So what we're satisfied with the first round of increases, but absolutely need much more in the way of increases from our insurance clients or satisfied it really won't be reflected significantly in Q1. I also noted that we -- our wage cost increases hit our costs immediately versus having a similar label to what we have on the revenue side.

So that's the reason that we've indicated that we wouldn't see much in the way of margin relief in the first quarter.

22:08 So Michael to supplement -- yes to answer your question. Yes, it will flow through in Q2, the price increases as we have negotiated whatever we have, we have delays in Q1 and as we disclose most of them have not been, they will flow through in Q2, we realize that.

22:22 And the one thing that you need to keep in mind is that the labor market is still very tight, we're working hard to build our staff and we're going to pay competitively to attract the staff that we need, which could put some near-term pressure on margins as a result.

22:37 Got it. Okay.

Thank you. And then I guess according to the bureau, labor statistics the way they breakout, leave inflation in the industry, it does look like it's decelerating on a quarter-over-quarter basis.

Again, can you confirm whether you're seeing a similar trend? And I guess with that in mind, and it relates to the first question are you called to end at the first round of price increases can outpace the wage inflation?

Or is enough to drive a gross margin improvement by Q2?

23:11 No, I think we've got more work to do on price increases. We -- I think it was very difficult for insurance clients to quickly recognize the pressure the industry was under and respond to it.

They have responded to it, but I would say they've responded to what we were seeing in the third quarter of last year and not the continuing pressure that the industry has been under to attract more labor into it. So there's no question that we're going to and we are going back to our clients and seeking further rate relief.

And we don't yet know -- I don't have a good data on whether the wages have stabilized, but given the shortage of technicians and my expectation is that the market is going to be tight for some time, I don't know that we can conclude that wages has stabilized yet.

24:04 Yes, we want to get to pre-pandemic levels with the price increases we have realized. We need more, that’s point number one.

Point number two, to keep the talent or attract the talent in the industry, we need to pay more competitive wages, so it's important to get more price increases from the times.

24:21 And I think what Pat said more competitive, we believe we are competitive, but the industry lacks sufficient capacity in terms of technical talent. And we're going to have to continue to make our industry more attractive through higher wages to attract the talent we need to service the business that’s really at our door now.

24:44 Perfect. Thanks for the answers, guys.

I'll get back in queue.

24:47 Thanks Michael.

24:48 Thanks, Michael.

24:55 Good morning, Chris.

24:56 Thanks, folks. Good morning.

I guess my first question maybe just following on, on this a little bit as maybe around the revenue side. Thinking about just even locking some of the year-over-year comps, certainly we saw some pretty negative same-store sales numbers early last year and even if you look at Q4’s number probably wasn't quite as strong as we're thinking.

Can you maybe give us an idea of how quickly you're able to start clearing some of these backlogs? And is this something like this call it this restriction, you know, should we be expecting this is going to persist for maybe a couple of more quarters before you, kind of, get caught back up into normal levels?

25:42 You know, there are two components to the building work and process. One is not having enough labor to process the work.

The other is the supply chain issues. And with regard to the supply chain issues, we find that we have many repairs that are substantially complete, but missing a part and cannot be safely delivered as a result.

So part of our whip buildup is related to the supply chain challenge issues. And we really not see much mitigation of supply chain challenges to-date, and it's difficult to say when that might happen, some of the feedback we’ve received from, always would indicate that, that it isn't going to happen quickly.

But time will tell on that. 26:27 On the labor side, as I've said, it's a very tight labor market, we're battling every day to attract the talent we need into the organization to process the work and or making some progress.

We've not yet made the progress that we need to make, but we're going to continue to focus on recruiting that talent into our organization, putting programs in place and executing those programs to retain it. And importantly for the long run, building our technician development program up.

26:58 Chris, you asked about the same-store sales growth. How long it takes to get to pre-COVID?

If you look at the Q4 of 2020, it was like our same-store sales declined by 12.6% and the recent quarter, we reported increase of 8.5%. So if you adjust for those things, if you compound them it’s down by 5%, compared to the pre-COVID level.

And in Q1 thus far in the quarter, obviously the quarter is not -- thus far in the quarter, so we are seeing same-store sales growth to be consistent with what we have experienced. So if you put that, so should exceed by the end of Q1 to the pre-pandemic level.

27:36 Thanks. That's helpful.

Thanks, Pat. My other question is around, sort of, acquisitions and acquisition strategy.

And look it's fair to say that you're not the only folks in the industry or having some pressures. I think there was one of your major competitors, who was dealing with either refinancing, some pretty major debt or bankruptcy filing?

What is this doing -- I guess, two parts in this question, you know, what is this doing to sellers in terms of you guys being able to acquire? And I guess the second part of this is, you've got some revisions that you put in place to your credit facility.

Does that in any way impact the acquisition strategy this year?

28:14 Great, in terms of the acquisitions, as you know, Chris acquisitions are lumpy, we had a phenomenal year, we added 127 locations. And so we don't have to do as many this year, and we are confident about a five-year target, so we’re reiterating our confidence in meeting our growth targets, that’s point number one.

Number two, relating to the trade agreement, so this is a proactive move it’s not a covenant brief issue, this is to enhance the financial flexibility by having more liquidity, that’s the reason we chose to hit the covenant flex in the agreement.

28:50 Okay. Thanks.

Thanks folks. I'll get back in queue.

28:53 Thank you, Chris.

29:01 Good morning, Nauman.

29:02 Hi, good morning. So, my first question, I think you've mentioned that most of the clients have increased the pricing.

I'm just wondering the first part, the ones that are left, is it just matter of time that they'll do it? And the second part about the pricing is, you guys just have the fullest round, how confident that you are that for the second round insurance companies would be more opened to the discussions the way they had for the first round?

29:27 On your first question, it is a matter of timing for those that have not yet provided price relief. I'm very confident that we will receive the price relief.

There's tremendous market pressure for price release and the closing of repair industry our margins are not where they need to be to properly serve our clients. And the significant increase in length of repair, which is reported by Enterprise Rent-A-Car in the US, it is very bad for insurance clients from a customer service and a rental cost standpoint.

So there is some economic reasons for them to help us increase our capacity. So the -- so I believe that I'm confident that the clients that have not moved, will move and should move fairly shortly.

30:15 In terms of the second round, there's really no choice. I think what will end up happening in the industry, and I believe it's even beginning to happen now is insurance clients that haven't moved, some repairs will begin to just favor their work and exchange the work that has higher margins.

And that is an untenable position for an insurance client in the long run. So I think that will help to normalize it.

Even today, we see insurance clients that have moved their rates up to levels that are more reflective of what's currently needed and others that have not. And so that will be our early target will be to normalize that.

And then to continue to press for what we need, so the industry can build the talent that needs to properly service our customers.

31:03 Okay. No that's great color.

And secondly, if you could just speak about the technician shortages, how is that trending during the quarter? I mean, has it improved in early March versus let's say in December or it's pretty much still the same?

31:19 We don't comment specifically on numbers on that. We were making slow progress towards it and we're focused on the actions that will improve our ability to make progress on that, such as expanding the size of our field recruitment efforts, so that we're closer to the ground and more responsive when we get applicants our retention initiatives to make sure that we do a good job with on-boarding and then stay in touch with our team and of course, our technician development program.

And we've got some other entry level training programs so that we can bring new talent into the organization and grow it into the key position that we're short on.

32:02 Okay. Thanks.

And maybe just one last one, so you've mentioned that some of the new locations that you've acquired, they're also facing these challenges from supply shortages and labor shortages. I'm just wondering is the market really competitive on the M&A side that you guys have to go into these location, acquisition during this period?

Or is it just that you feel that the turnaround for that new locations would be quick -- pretty quick, greatly the idea is to ask why be aggressive on that? And is that's a place that's still challenging?

32:37 Yes. Well, unfortunately, we had a fortunately had unfortunately, we had a very good year of growth last year.

So we really were ahead of maybe our internal thinking on that last year. And some of those businesses are impacted by the same forces that are impacted our business overall.

We believe that there is still good growth opportunities to make sense to execute on today even in a constrained labor environment. So, we will continue to grow, but we do have a little more focus right now on integrating and getting the operating results from the growth from last year on track.

And we think we have a big same-store sales or big revenue improvement opportunity by putting some of our focus into that. So we're continuing to focus on growth, but I would say we have an intense focus on the performance of our existing network.

33:37 Okay. No, that's very helpful.

Thanks for taking my question, I’ll get back in the queue. Thank you.

33:42 Thanks, Nauman.

33:43 Thanks, Nauman.

33:50 Hello, Maggie.

33:51 Hi, Maggie.

33:51 Good morning. I apologize to the background noise and putting on an airplane here.

And so I hope you can hear me. My question is really just around the covenant flex that was granted and you touched on the rationale was being essential to enable you to access your liquidity.

Can you give us an idea of the capacity that you're able to access in terms of drawdown on your credit facility? And if this is just simply a measure out of prudence given the -- I guess on certain outlook around inflation and pricing especially with regards to timing?

Or if we should think about this differently? Thanks.

34:33 No. I think, you’ve said.

I should point or Maggie the intent here is to increase the capacity and also, I cannot give you a number, because it's a moving target, it’s a 4 -- it’s goes to 4.50 and 4.25, but I can provide the framework how we've worked. So first of all, the covenant is a senior funded debt leverage ratio and is measured on a pre-IFRS 16 basis.

So you have to make a three adjustments: the first one is in terms of IFRS adjustments, so you have to back off in calculating. And the second one is you have to back out the vendor notes, we have approximately $54 million of our vendor nodes.

So you have to back that off. And we do get the benefit on the EBITDA side for the pro forma EBITDA, to -- for a year or so after the time we execute.

So you do get a better denominator in terms of EBITDA. So if you make those three adjustments, you'll see how much room we have?

35:27 And again, you know, our intent is not to provide the exact information, because it changes and, you know, if you don't want to give a strategy number and keep on updating. You could easily calculate based on those three factors.

And again, we have ample capacity at this point in time.

35:40 And I think the changes put us in a good position to take advantage of opportunities to the extent that opportunities emerge from this difficult environment. We're very well positioned on that, our balance sheet remains very strong, and so that was part of the reasoning as well.

36:00 Okay. Thank you and if I may, just one follow-up on that, Tim.

Have you seen any signs that the large quantities of Mon-and-Pop -- assuming operate at lower margins than you, are indeed looking to be active at this point?

36:16 I'm not sure we've seen an acceleration of it. There's always been an ample supply of single shop operators that are interested in selling.

So and I would say there's still an ample supply today.

36:29 Okay. Thanks very much.

Have a good day.

36:41 Hi, good morning, Tim and Pat.

36:44 Great.

36:45 In terms of parts supply, obviously, shipping rate, freight costs and things like that have remain elevated and you guys are using obviously alternative suppliers OE parts and things like that to solve some of the issues. And supply chain challenges still remain.

And I know it's a cost pass-through to the P&C insurers, but can you dynamically pass-through all that? And I'm also thinking like some of the commodity inflation we're thinking on what will end up going to the supply chain for parts for OE part and things like that?

Or do you have -- do you get squeezed on the markup up at all to share the pain in this kind of environment just on the parts side and we killed the labor issue?

37:27 I think to-date, the challenges we've had on the parts and supply chain side are really a lack of availability, which is suspending repairs and process or delaying, bring a repair in. Or when the parts not available from our primary supplier and we buy at discount levels that aren't attractive to us.

In addition, if aftermarket isn't available, which has been -- aftermarket supply has been more challenged than OE, although OE has been challenging. Our margins on after market are better than our margins at OE.

So that's had a negative impact. 38:01 But to answer your question, if the part pricing goes up, which it has, we're still able to pass that through so we’re buying from a primary supplier and the part price goes up that's a pass through are not negatively impacted margin.

So, the negative impact is really suppliers don't have -- that we do business with, they don't have the part and sourcing it elsewhere and the shift from aftermarket to OE. We have incurred modest freight charges that can be difficult to pass through, but I would say in this scheme of things that, that's pretty insignificant.

38:38 Okay. And then the second question, it just relates to -- we talked about the financials and the progression of some of the margins whatnot.

But just from a shop floor productivity point of view, are you seeing any incremental improvements in terms of the work in process, maybe the length of rentals, cycle times all that sort of thing. Are you seeing any incremental improvements as you kind of balance this equation between labor and parts?

39:08 I would say that we’ve not seen incremental improvement and I would attribute much of that to the supply chain challenges. Length of rentals continue to go up, I believe in December, it was over 19 days in the US.

39:22 Yes for sure.

39:23 Extraordinary and but I think that's reflective of primarily the supply chain challenges, but certainly the labor as well. When repairs right now, get vehicles towed in and they are already overcapacity, they have to balance how repairing that vehicle that they have no choice to accept with drivable vehicles, that may be in process.

So until we build our labor to the point where we can services this work and the supply chain disruption is reduced. I think we'll continue to see elevated cycle times.

39:55 So David, if you look at the industry --

39:58 Not just our issue, the industry as a whole, that experience with industry challenges. And as Tim pointed out, if you look at the beginning of the quarter, it was the 17.8 days and this is for the industry end the quarter it’s 19.4.

So that’s the increase because of the capacity constraint and also because of the supply chain disruption.

40:16 Makes sense, and two quick ones for me. Just obviously with these interest rate increases that we're seeing.

And I know what the private market valuations were a lot different than public market valuations et cetera. And this has been, kind of, the PE theme is kind of cracked into everything in the industry recently with all the PEs acquiring from these MSOs and single shops, et cetera.

Your main -- one of your major competitors PE bought, they bought PE back, but you've also got a lot a PE stepping and buying MSOs. With these rate increases and given that the leverage of these guys deploy, I would assume that going forward at some point, the bandwidth of M&A that you guys have could be very, very significant.

41:06 I think we're well positioned versus our competitors on this.

41:10Yes, absolutely, right, David. I think you hit the nail his head, like if you look at PE their model is to have high leverage and in the rising interest rate environment and with the competitive EBITDA margins, they'll find it difficult to continue that path aggressively, unless the sponsors decide infuse additional equity.

So from that past, we are positioned much better. And if look at the large eight or the top eight other than as all of others are controlled by PE and all of them have higher leverage than us, so we are well positioned.

41:40 Okay. And last one for me, I'm socially going to ask one more, because my last call with you guys from a research team, and I look forward to supporting it from the sales seat going forward.

But just the accrual or reversals in 4Q -- on 4Q EBITDA, Pat maybe just kind of what ballpark what was that kind of the impact there on the reversals?

42:01 I think we don't give a specific factor or the specific numbers. So, David, but I'll help you here the three things are going to impact from Q4 to Q1.

The first one is accruals, we take a lot of year-end accruals. So that will -- that is accretive to the EBITDA.

The second one is the payroll taxes typically, you know, you max out around Q3, so Q4 will have very little. So in Q1 you reset the clock for the unemployment or social security and stuff like that, so that's the second fact.

And the third one is the CEWS, we commented Q4 benefited by $2.3 million, so you won't to see that in Q1. So those are the three things that are going have a negative impact.

42:42 Let me give some color if you look at Q4 of 2020 to Q1 of 2021, I’m not saying that's going to happen here, but just to provide the context. In Q4 of 2020 we had a 30.9% OpEx ratio, in the Q1 that was 33.5%, so it was up by almost 250 basis points.

I’m not suggesting it'll be 250, but I'm saying it shows the order of magnitude, the impact of the OpEx in the part of these accruals offset.

43:17 Got it. Very helpful.

Thanks guys.

43:19 You’re welcome and thank you very much and good luck with your next move.

43:22 Thank you, David. Good luck.

43:23 Thanks, Tim. Thanks, Pat.

Appreciate it.

43:33 Good morning.

43:33 Good morning, Jonathan.

43:34 Hi, Jonathan.

43:35 Hi most of my questions were answered. One follow-up, Pat during your Q&A earlier, did you say that at Q1 quarter end, same-store sales should exceed 2019 level?

Despite the technician shortages?

43:51 So, I was illustrating the -- because the question was on the same-store sales growth when we would get back to the pre-pandemic level, and I was illustrating in Q4 of 2020, the same-stores declined by 12.6% and in Q4 of 2021 the same-store sales exceeded by 8.5%. So if you compound the two, net-net the same-store sales were down by approximately 5% at the end of Q4.

And I told thus for in the quarter, we are seeing the same-store sales growth consistent with the fourth quarter -- for fourth quarter to 8.5%, if I’m not saying it’s exactly the same, but if you add that 8.5% to this 95% that would exceed the 100% at the pre-pandemic level, that was the point I was trying to illustrate.

44:38 Okay. Thank you.

That's clear.

44:40 Thanks, Jonathan.

44:41 Labor shortages have been an issue for Boyd for several years now. So, I think the tricky thing for investors to sort out is how far below 2019 levels our volumes now.

And can you get operating margins back to historical levels? Absent the throughput it really depends on the technicians?

45:11 Yes, I think this is not just a Boyd issue, this is an industry issue added affects our customers. And so the solution is for the industry to build its capacity and to do that, we have to attract new labor into the industry.

And to attract it from say the mechanical repair industry or other industries where skills, where somebody could become proficient in our trade in a reasonable period of time, compensation levels in our industry are going to have to go up. And in order for them to happen, insurers are going to have to pay more for the repairs.

Otherwise, we won't be able to attract the labor. So, we're going to continue and as I said earlier, it is absolutely in an insurers best interest for their customers to be very satisfied with a timely quality repair when they have a claim.

Otherwise, they're very likely to change insurance companies. So I think there's motivation all around to do the right things so that we can attract and retain the talent in our industry.

But these are things that happen overnight, because it requires adjustments to your business. The insurers have to raise rates, which if you've been reading the news on the automotive claims front, insurers have been taking rate right and left and in significant percentages and what collision repair is at the only segment they're covering for in that risk it is a sizable piece of it.

So I think that unfortunately, premiums for consumers will continue to go up. And I think that will continue to get passed through until we have stabilization of labor in our industry, which is what's necessary for us to really to service our customer properly.

47:00 One follow-up on that if I can. So now that you've secured this first round of rate increases, which were unprecedented, will the next set of negotiations or the next round of rate increases be easier or will those be contingent on consumer premiums going up first, for example, and they'll be a bit tougher?

47:25 Yes, I don't know the answer to that. I can tell you that we are going to continue to pursue increases aggressively, because that's what's needed for our business to properly service our customers and we'll help our customers understand that.

I did mentioned earlier that when we look at the market right now and we've been I think we've been patients probably the wrong word, but I think we've accepted insurers moving at different paces to get their rates to where they need to be. At some point, given the significant lack of capacity versus the demand that exists, the industry will have no choice, but to favor work from insurers, who are paying rates that allow us to make an acceptable level of margin.

48:16 And so, I don't know that that's happened broadly yet, but it has to happen, because the returns we're getting right now aren't adequate and we have all the work we could one at our door. So, I think that there will be continuing pressure particularly from those insurers, that have not yet gotten the competitive rates versus their peers and we'll continue to push from there.

48:42 Great. Thanks for your comments.

48:44 Thanks, Jonathan.

48:45 Thanks, Jonathan.

48:51 Good morning, Bret.

48:52 Good morning, guys.

48:54 On the parts supply chain challenges, could you talk maybe about the cadence? Are you seeing any improvement in availability and maybe carve out between OE and aftermarket is one looking better than the other going into Q1, Q2?

49:11 Don't know anything about Q2 yet, I would say thus far in Q1 we have not seen any meaningful improvement. The number of parts that are -- on that quarter across our network at the highest level that they've been and we have a substantial portion of our work in process that not, you know, that hasn't derived recently, that's waiting for parts to be completed.

49:41 And you said OE is in better shape than aftermarket. Could you maybe talk about where OE percentage of mix was this quarter versus a year ago or maybe pre-COVID?

How much have you shifted back to OE?

49:56 We definitely have seen a shift toward OE from aftermarket, but the OE parts quite frankly, those are the big problem, because if we can't get an aftermarket part, we can use an OE part to complete the repair. So the real issue we've got with our whip is a lack of OE part availability and it's across the board from all manufacturers.

50:21 Okay. So, I guess how do we think about like the mix of obviously, the margins better on aftermarket, but as a percentage of your parts usage, could you talk about where aftermarket is versus the prior year?

50:36 I don't think we’ve disclosed that, I don't have it in front of me, anyway Bret but aftermarket usage is down relative to OE usage and that's one of the drivers of the negative impact on our part margin. Because as you said, aftermarket parts typically have a higher gross margin and there are lower cost to our customers.

So it's unfortunate that there's a lack of availability, but I think fill rates on the aftermarket side, especially timely fill rates are not what they were before the pandemic.

51:05 And -- Bret I think you know this already we have majority of our parts are OE parts, so the aftermarket is a minority chunk of our usage.

51:15 Right. Okay, great.

Thank you.

51:19 Thanks, Bret.

51:26 Good morning, Steven.

51:27 Hi, Steve.

51:28 Yes, good morning, guys. I just want to go back to your comments around the price increases not being realized thus far in Q1.

I think we can all understand the concept of a delay given the backlog, but even if I look at your three backlogs running, call it five, six weeks, which is unprecedented. I would still think that you would have some of that price benefit starting to roll through in Q1, if you had those price increases secured as of the first the year anyways?

So maybe just to help us walk through what you mean by they're not rolling through as yet and whether or not it's just that the labor is running harder and faster? Or are the price increase is actually running through the quarter so far.

I’m just trying to get a sense for why the lag would be so material?

52:09 I think we've seen some benefit on the revenue side from the price increases in Q1. But we've also continued to see wage pressure.

But we've certainly not seen any anywhere near close to the full benefit of the race that we've negotiated. And that six week lag is pretty significant and also have to consider that the average repair time right now is -- it used to be maybe 12 days now it's significantly higher than that.

So, we don't book the revenue until the car has gone, the repair is completed. So, there's a pretty good lag from the time we'll get a rate increase to when you'll see it in our margins.

52:52 Okay, that's helpful. And then just on the idea of going back to your customers again, for further rate increases, you suggest that it's going to be effectively necessary certainty.

But how frequent is that, Tim, is that you're going to be doing quarterly on a quarterly basis for all of these customers, if you're in a rationing effect, a valuable capacity you have to think you're going to be pushing hard, but is it -- give you a regiment of schedule that you'll be going back on? Or is it just as you feel and we're trying to get a sense for how you protect yourself here through the balance of this year in particular?

53:27 Yes. I'm confident that all of our key clients know today that whatever we've got isn't going to cover the need and they will be asking for more and we are asking for more.

So I think it'll be fairly constant. We'll use some analytics to identify where we think the best opportunities are a focus on that.

But I would expect that we're going to be going back for rate for several months.

53:51 I see -- difficult comment in order, but they going to go back every quarter, depends on how much increase they are going to get, because we want to be very competitive with other industries and that's, way, you know, we can attract and retain people.

54:05 And it's not a matter of taking one insurance client and negotiating them -- with them nationally many times and most of the time, we're looking at the rates on a market basis and then comparing it to what we need, what other clients are paying and then making our case based on that.

54:26 Understood. Okay, that's helpful.

And then just bring back to the M&A side again, it’s been suggested at least somewhat publicly that you guys have halted all M&A recently and I clearly don't think that's the case, but just trying to give a sense of your comp in the M&A track record going forward here. I think we need to all understand that the plan has not changed and that the five year plans been rearticulated here, but I want to understand just clearly that the M&A passed is still one that you're continuing on?

54:55 Yes. As I said in my conference call script, we remain confident in our ability to double our revenue from 2019 by the end of 2025.

And growth by acquisition or Greenfield, Brownfield opening is a very key part of that. I'm not sure where there was ever any indication that we've suspended growth.

We’ve -- first of all, we're not doing that. Secondly, we've never publicly stated that, so to the extent that, that was out there was wrong.

We remained committed to growth. We are very focused, as I said earlier, we're very focused on driving the results of our core operations, but we've got separate business development resources that are focused on growth and will remain focused on growth.

So growth can be lumpy. So, I'm not saying that we had 127 locations last year that doesn't mean we’ll open 127 locations this year, but we will continue to grow.

55:57 Okay, great helpful. And then just maybe just last one, I'll just ask directly, because I think we're trying to get there, but margin improvement again sequentially, I'm thinking off of fourth quarter, doesn't sound like it's necessarily in the cards in Q1.

Maybe it's hard to tell. But I mean, maybe that I’ll ask that question first is can we get any sequential margin improvement given the accrual differentials in the payroll issues that you've mentioned?

And if not in Q1 can we get it in Q2 again sequential not year-over-year?

56:26 Yes again, Steve we commented we cannot give exact guidance on the margin improvement, but I commented about impact of OpEx, how we've behaved in the past, but in Q4 and Q1 when you didn't have the benefits of accruals, when we didn't have in the payroll taxes had reset on the top of at this time, you know, we had no CEWS benefit in Q1. So given those three factors in the past, the increase was approximately 250 basis points again and I’m suggesting that’s the increase, you know, you expect or you should expect.

But that just gives a framework, it’s not like a very small amount, it’s a pretty meaningful amount in terms of the fit o r the impact of those factors. So beyond that, we cannot give exact guidance.

57:09 But historically, our expenses in Q1 have been higher than for -- by a meaningful level.

57:14 Yes, yes, because of those three factors, yes. And the other one is, you know, in terms to the per store sales, so you’ll have to see where they are now not tied to where they were before and then the under absorption of the fixed costs.

Those are all the factors that contribute to the delta, I just alluded to.

57:32 Sure. I understand that.

I'm trying to -- sense for the price increases that you're secured, and the future price increases that are coming. There's no visibility at this juncture, I guess, on when and if you'll be getting sequential improvement in margins.

I guess, that's the question?

57:46 We did say that in Q1 that you shouldn't expect to see incremental improvement in the gross margin.

57:54 Okay, that's helpful. I appreciate the time guys.

Thanks.

58:05 Good morning, guys.

58:06 Good morning, Daryl.

58:08 Just a question, some of the insurance companies have been highlighting a need for greater integration, greater use of technology, potentially even parts procurement relationships on their side. I’m just wondering, if you can give us a bit of color on what some of those initiatives are?

And whether it's a benefit or a potential risk to yourself and the large MOS model?

58:34 Yes. I'm not familiar with the details, but my understanding is that, it's likely where an insurance carrier may develop or have a relationship with a parts supplier that may provide some favor to the insurer, directed from the parts supplier for committing to volume from that supplier.

So, I think those are not likely to directly impact us, although it could impact the supplier’s ability to -- how they price, but there's lots of competition out there. Parts -- on a good day parts is complex, for us and we put a lot of time and effort into it.

I think it would be very difficult for an insurer to inject themselves in the parts, procurement decisions in a way that would be very beneficial to them. So, I guess it remains to see what they can accomplish with that.

But right now, I think that they're better off with us -- trying us sourcing the parts and working hard to keep their cost down which we do.

59:48 Got you. Okay.

And then just on the acquisition side, the acquisition cost per location, I know you've, done some high quality MSO acquisitions this past year, but it's certainly been marching higher on a per location cost. Should we look at sort of a trailing 12-month number as representative of go-forward?

Or is there anything to glean from that?

60:15 No. Because I think, last year the acquisition cost per shop was inflated because of the two MSOs we did, namely Collision Works and John Harris.

And we clearly indicated in a -- going forward, we are going to increase the emphasis on the single shops. Our single shops in brownfield, greenfield’s, the investment per shop is lower than the mix.

So if you take the last year mix, if you look at a statement of cash flows, you see $317 million for 127 locations. So you cannot use that as an indicator.

It should be lower than that.

60:46 Okay. Got you.

And then just one last one, CCC had some information out stratifying the average age of repair technicians, which would appear to be significantly skewed toward an older repair average repair or age. Will you see that as being a significant sort of hurdle in the future or I know you’re working hard to bring in more technicians and up the training today, but is that a big looming concern of mass retirements.

61:20 It's a concern, but it's also one of the reasons that in 2018, we launched our technician development program. So, we're successfully bringing in young talent to our industry and to our company, to help to offset that.

But I think during the pandemic, we probably saw an acceleration of retirements from that segment of the workforce that was not far from retirement. So it's a concern, but one that we're working to address.

61:52 Okay. Great.

I'll get back in queue. Thanks guys.

61:55 Thanks, Daryl.

62:04 Good morning, Zach.

62:05 Good morning, Zach.

62:06 Good morning, folks. Thanks for taking my questions.

Most of them have already been answered, but maybe you could touch on the admin staffing capacity constraints. Is that having a material drag on same-store sales growth on a store by store level?

And how does that really compare with the situation you're experiencing in new technician labor pool?

62:25 They're definitely connected, if we don't have sufficient skilled staffing in the front office, then we're not able to write quality estimates and build repair plans that makes the work for our technicians both more available and more efficient. So, it’s a balancing act, and what we generally talk about technicians, we have similar programs in place on the estimator side.

Similar to what we have and the technician said, we actually have an estimator development program that we've launched. We've actually had that underway for quite some time now.

We are expanding that this year as well. But like any business, the front office and the admin side needs to be in sync with the production side to optimize results.

So they are challenges and we've got good effort going into both the front and the back office.

63:20 That's good color. Thanks, and then a follow-up on your training program.

Approximately, how long does it take for someone to graduate? And then, if you could comment on their retention rate on those graduates?

63:32 Yes. Well, first of all, our retention rate is quite good and we actually are developing some additional plans right now to further improve retention, because it is clearly a vulnerability, we make a big investment to bring them up to a pretty good skill level.

The program -- our program is an 18-month program, but it's important to note that they do become productive and accretive to our capacity well before 18-months. Generally, in their first, three to six months, they would be a drag -- not on capacity, but a drag on margin.

And then by the time they get to the end of their first, third of the time and the program, they're actually added up to production capacity and should not be a negative drag on margin. And by the time in their last -- their last third, they should be accretive to margin and accretive to production capacity in a fairly meaningful way.

Once they’re graduate, our experiences that they're producing and not far from the average level of productivity of a technician and then they really need probably another 12-months to 18-months to continue to build their skills and their efficiency. So it's not a short-term solution, but it is the long-term solution.

64:57 Got you. Thank you very much.

That's it for me. I'll turn it over.

65:02 Thanks, Zach.

65:03 Thanks, Zach.

65:10 Good morning, Krista.

65:11 Thanks. Good morning.

Thanks for taking my questions. Most of them have been answered.

But I was just wondering on the rate side of the equation. Are you hearing any concerns from insurance companies that for future rate increases they have doubts of how much more they can really push through to their customer and if those can get approved from a regulatory standpoint?

65:36 No, I haven't heard that. In fact, I think when one of the major insurers reported four or six weeks ago, they expressed confidence in getting the rates that they needed to maintain the profitability of their portfolio, and noted that they would be going back multiple times.

So I think the reality is, we've got an inflationary environment and pricing is going to have to adjust, it isn't necessarily overnight, but I think there's lots of evidence to suggest that there is pricing power in the marketplace for insures to increase premiums to cover their loss costs.

66:18 Okay. Perfect.

And then maybe just one on the labor side of the equation. Are you seeing a net increase in your headcount, like, as we work through Q1 here, when you factored in any sort of retention losses?

Are you still increasing headcount?

66:38 We are not disclosing specifics on that, but we're making progress against our goals. I'd like to make faster progress, but we're making progress against our goals and I think we have the right strategies in place to continue to make progress and build our labor capacity.

66:59 Okay. Great.

That's it from me. Thank you.

67:02 Thanks, Krista.

67:15 All right. Well, thank you, operator and thanks really to everyone for joining our call today and we look forward to reporting our first call results in May.

Have a great day. Thank you.

67:26 Thanks everyone for your interest in Boyd. Bye.