Boyd Group Services - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good morning, everyone. Welcome to the Boyd Group Services First Quarter 2025 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 found at SEDARplus.ca. I'd like to remind everyone that this conference call is being recorded today, Wednesday, May 14, 2025. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Boyd Group Services. Please go ahead, Mr. O'Day.

Tim O'Day (President and CEO)

Thank you, Operator, and good morning, everyone, and thank you for joining us for today's call. On the call with me today is Jeff Murray, our Executive Vice President and Chief Financial Officer, and Brian Kaner, our President and Chief Operating Officer. We released our 2025 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'll discuss the financial results for the three-month period ended March 31 and provide a general business update. We'll then open the call for questions.

Boyd continued to deliver market share gains during the first quarter of 2025, posting same-store sales declines of only 2.8% in a market where declines in repairable claims were estimated by industry sources to be down in the range of 9-10%. Gross profit showed an increase of CAD 6.7 million, demonstrating significant improvement at 46.2%, an increase of 140 basis points over the same period of the prior year, bolstered by internalization of scanning and calibration services, as well as improvements in performance-based pricing. While we continue to face some market headwinds, we are pleased with our ability to continue to outperform the market, as well as the improvement in our gross margins and, importantly, early signs of success from Project 360. I would now like to turn the call over to Jeff Murray to discuss our first quarter financial results.

Jeff Murray (EVP and CFO)

Thanks, Tim. For the first quarter of 2025, sales were CAD 778.3 million, a 1% increase when compared to the same period of 2024. This reflects a CAD 20.4 million of incremental sales from 58 new locations that were not in operation for the full comparative period. Our same-store sales, excluding foreign exchange, decreased by 2.8% in the first quarter, recognizing one less selling in production day when compared to the same period of 2024. Gross margin was 46.2% in the first quarter of 2025, compared to 44.8% achieved in the same period of 2024. Gross margin percentage increased due to several factors, including the benefits of internalization of scanning and calibration, improvements to performance-based pricing, and improved glass margins. Operating expenses for the first quarter of 2025 were CAD 278.7 million, or 35.8% of sales, compared to CAD 270.9 million, or 34.4% of sales in the same period of 2024.

Operating expenses, as a percentage of sales, were negatively impacted by the decline in same-store sales and new locations, which contributed positively to sales but had a higher operating ratio of 38.4%. In addition, while the internalization of scanning and calibration contributes positively to gross profit and adjusted EBITDA, it does not contribute incremental sales and therefore increases operating expenses as a percentage of sales. Lastly, operating expenses were also impacted by additional fixed costs, in particular in the area of occupancy costs from new locations. As Tim mentioned in his opening remarks, we have begun to see some early signs of success with Project 360. During the quarter, a new indirect staffing model was piloted, and a temporary hiring freeze was placed on non-production roles in preparation for the full rollout of the model in the second quarter of 2025.

Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transformation cost initiatives, was CAD 80.5 million, a decrease of 1.4% over the same period of 2024. The CAD 1.2 million decrease was primarily the result of a decline in same-store sales and lower contributions from new locations. Market dynamics, including continued declines in claims volumes and overall economic uncertainty, continued to impact demand for services. However, Boyd continues to outperform the industry, consistently demonstrating market share gains and is positioning itself well for when conditions improve. Net loss for the first quarter of 2025 was CAD 2.6 million, compared to net earnings of CAD 8.4 million in the same period of 2024.

Excluding fair value adjustments and acquisition and transformation costs, adjusted net earnings for the first quarter of 2025 was CAD 2.2 million, or CAD 0.10 per share, compared to CAD 9.4 million, or CAD 0.44 per share in the same period of the prior year. Adjusted net earnings for the period were negatively impacted by the decrease in adjusted EBITDA, as well as increased depreciation and finance costs. At the end of the period, we had total net debt of CAD 1.3 billion. Debt net of cash increased when compared to the prior quarter, primarily a result of acquisition activity and other investments in the business. I would now like to turn the call over to Brian Kaner to provide a general business update and discuss our long-term growth strategy.

Brian Kaner (President and COO)

Thanks, Jeff. Boyd is making progress relative to the five-year goal announced earlier this year, which includes growing revenue to CAD 5 billion and doubling adjusted EBITDA to CAD 700 million by 2029. Early in the second quarter of 2025, we implemented a new indirect staffing model, which is expected to result in annualized run rate savings of approximately CAD 30 million. The indirect staffing model allows us to optimize our cost structure, driving near-term profitability, while more importantly, laying the foundation for sustained operating leverage as we scale. The model includes a detailed playbook for adding non-production staff in alignment with business growth, along with robust controls to ensure disciplined execution and adherence.

This represents a significant milestone under Project 360, a company-wide initiative to drive store economics, cost leverage, and customer satisfaction, projected to result in CAD 70 million of cost savings by the end of 2026 and a total of CAD 100 million in cost savings by 2029. Market dynamics, including continuing declines in claims volume and overall economic uncertainty, continue to impact demand for services. However, Boyd continues to outperform the industry, consistently demonstrating market share gains. While we're still in early innings of the quarter and thus far the same-store sales have been consistent with the first quarter, there have been early signs of insurance premium inflation moderating and used car prices increasing, which are positive trends. The glass business is entering its seasonally higher period, and location growth through acquisition as well as startup continues.

During the second quarter of 2025, the company has eight startup sites currently scheduled to be opened and an additional 16 startup locations anticipated to be opened through the balance of the year. In the second quarter, the cost savings driven by the implementation of the indirect staffing model will result in an improvement in adjusted EBITDA dollars and margin relative to the first quarter of 2025. In addition, the payroll benefits reset, which impacted the first quarter of 2025, does not have the same impact on the second quarter results. In the current environment, we are focused on taking meaningful steps, taking the meaningful steps that we can control that will benefit the company when demand returns.

In the long term, management remains confident in its business model and its ability to increase market share by expanding its presence in North America through strategic acquisitions alongside organic growth from Boyd's existing operations. Accretive growth will remain the company's long-term focus, whether it's through organic growth, new store development, or acquisitions. The North American collision repair industry remains highly fragmented and offers attractive opportunities for industry leaders to build value through focused consolidation and economies of scale. As a growth company, Boyd's objective continues to be to maintain a conservative dividend policy that will provide the financial flexibility necessary to support growth initiatives while gradually increasing dividends over time. The company remains confident in its management team, systems, and experience. This, along with a strong financial position and financing options, positions Boyd well for success into the future.

I'd now like to turn the call back over to Tim before opening the call to questions.

Tim O'Day (President and CEO)

Thanks, Brian. At Boyd's annual meeting today, I will officially step down from my role as Chief Executive Officer, and I'm pleased that Brian will be succeeding me. It's been a true honor to be part of Boyd since joining the company through the acquisition of Gerber Collision & Glass in 2004. I'm deeply grateful to our shareholders, clients, and trading partners for your trust and support over the years. I also want to sincerely thank the incredible team at Boyd, my executive colleagues, and our board. I'm immensely proud of what we've accomplished and truly appreciate the confidence you have placed in me and our leadership team throughout this journey. With that, I'd like to open the call to questions, Operator.

Operator (participant)

Thank you so much, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to remove your hand from the queue, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. Just a moment for your first question. Your first question comes from Chris Murray at ATB Capital Markets. Please go ahead.

Chris Murray (Managing Director of Institutional Equity Research)

Yeah, thanks, folks. I was wondering if we could maybe dig into a couple of the parts of the guidance, starting with the same-store sales estimate. I know that when we came out of Q4, you talked about the fact that you expected to see some improvements sequentially, but then there was also the one fewer production day. Just wondering how the production days fit into the guidance that you guys are thinking about right now. The other question I have is around kind of the margin profile and the step forward. Do you think that 140 basis point trend that we're seeing kind of year over year, is that the right way to think about this, or is there some stuff that's going to accelerate as we go forward?

Jeff Murray (EVP and CFO)

Yeah, I'll maybe start off talking about the same-store sales guidance. Basically, we've seen so far, this far in the quarter, similar same-store sales that we saw in Q1. I think that's been sort of stubbornly in that very small single-digit down sort of range. It's not, we haven't seen, it's still early in this quarter, but we haven't seen that tick up yet. That's still where we're residing.

Brian Kaner (President and COO)

Yeah, and I guess just one piece to add to that, Chris, is obviously there was one fewer production day in Q1. There is an equal number of days to prior year in Q2, but still an equal number of days to Q1 in Q2.

Jeff Murray (EVP and CFO)

Yeah, so for Q1, on a days-adjusted basis, our same-store sales would be closer to 1.2% versus the 2.8%.

Chris Murray (Managing Director of Institutional Equity Research)

Okay, that's helpful. Thanks. Maybe just some thoughts around the margin progression. It sounds like there's a lot of moving parts going on right now. Just wondering, how do we think about maybe scaling your expectation for margin increases and absolute EBITDA dollar increases as we go into the next quarter?

Brian Kaner (President and COO)

Yeah, I'll take that question. On the gross margin side, I mean, obviously, we're very pleased with the progress we've made, 140 basis points up over prior year, 40 basis points up sequentially from the fourth quarter. We're very pleased with the progress we're making. A lot of that is driven by the scanning and calibration internalization, which right now sits at 60% of internalized calibration. We're very pleased with the progress we're making there. I would say when you think about our gross margins, there's nothing anomalous that happened in the Q1 results that pushed that number up. I wouldn't expect us to see anything going backwards from that number.

As it relates to my prepared comments, as it relates to the operating expenses, obviously, we took a CAD 30 million cost savings project or we took a CAD 30 million cost savings in the quarter. On top of that, as we said, there is this benefits reset that always happens in Q1 that we have not sized, but it is a nominal amount of money that will ultimately push the operating expenses down in the second quarter versus the first.

Chris Murray (Managing Director of Institutional Equity Research)

Okay. One other question I was going to ask you is just about acquisition growth and the pace of acquisition growth. I know you've talked longer term, it's part of the strategy, but how are you thinking about that over the next few quarters? Is it something that you're just trying to maybe protect the balance sheet, or you just have a few other things to deal with right now, or do you feel comfortable that you could start maybe finding tuck-ins or even smaller MSOs in the near term? Is there anything in the pipeline that you would think that we should be thinking about, at least before we get to the end of the year?

Brian Kaner (President and COO)

Yeah, I mean, look, I still believe that the pipeline's robust enough for us to be able to deliver on the expectations we had in the five-year plan. You are right that at this point, the pacing is merely a function of our ability to get insurance support for the new locations. I do feel like as we've exited the first quarter, the robustness of even some of the smaller MSOs that are coming into the market puts us in a position where we could accelerate progress as we get towards the end of the year. We still remain committed to being able to deliver the 80-100 locations on an annual basis over the five-year period. There may be some that are 120.

There may be some that are 60, but we still remain committed to the acquisition strategy and are also then using our greenfield strategy to infill the markets that we need to.

Chris Murray (Managing Director of Institutional Equity Research)

Okay, that's great. Tim, congratulations on your term.

Tim O'Day (President and CEO)

Thanks, Chris.

Thanks, Chris.

Operator (participant)

Your next question comes from Sheryl Zhang with TD Cowen. Please go ahead.

Cheryl Zhang (Equity Research Associate)

Hey, good morning. This is Cheryl calling in for Derek. Congratulations, Tim, on this successful career at Boyd, and congrats, Brian, for the official promotion.

Brian Kaner (President and COO)

Thank you.

Cheryl Zhang (Equity Research Associate)

Our first question is just wanted to add on the previous question on same-store sales. Could you maybe provide a bit of color on how the same-store sales trended during Q1 from January to March? Could you maybe comment on what you're seeing so far in Q2 in terms of the repair activity at the shop level?

Brian Kaner (President and COO)

Yeah, I would not say there was anything, I would not say that there was anything particular that showed us any meaningful change month to month in the first quarter. I mean, we reported late in the first quarter our fourth quarter earnings. I mean, as we came out, we gave guidance that we would be down in, frankly, in the range that we ended up in. That was reflective of what was happening in the claims environment at that time. As we sit here today, we have just said that the claims volume or that our same-store sales is anticipated to be pretty consistent with what our same-store sales decline is, pretty consistent with what we saw in Q1, which would indicate that the claims environment is probably similar to what we saw in Q1.

Cheryl Zhang (Equity Research Associate)

Okay, got it. Thanks for the color. On Project 360, you said that you implemented an indirect staffing model. I'm curious, when do you expect that to be fully rolled out? For the remaining CAD 40 million of savings by the end of 2026, is that primarily targeting the gross margin? I think you called out procurement savings. How should we be thinking about the cadence?

Brian Kaner (President and COO)

Yeah, so the CAD 30 million cost savings initiative was actually executed on April 4. It is, at this point, with the exception of a week or two in April, fully rolled out. You can consider that one done. The balance of the CAD 40 million, I would say, is there are definitely some actions that are targeted at gross margin, but there are also still remaining actions on operating expenses, particularly relative to indirect procurement savings and some other pay initiatives that we have going on. I would not say that we are done with operating expenses. We still believe we have got opportunities to take cost out there. As far as how I would, I think you can model it how you want over the next two years. The first big project was really the indirect staffing model changes that we made.

If there are other big projects, we will certainly note them throughout the coming quarters to make sure that you understand the nature and size of those opportunities. Beyond that, I'd probably think about it radically over the next the quarters leading up to the end of 2026.

Cheryl Zhang (Equity Research Associate)

Okay, got it. That's very helpful. Thank you. I'll re-queue.

Brian Kaner (President and COO)

Okay, thank you.

Operator (participant)

Your next question comes from Steve Hansen with Raymond James. Please go ahead.

Brian Kaner (President and COO)

Hi, Steve.

Steve Hansen (Managing Director and Equity Analyst)

Yeah, good morning, guys. Thanks for the time. Could we go back to the gross margin improvements and the lack of flow-through into the operating line? Just trying to understand what the key holdback is. I think you referenced volumes in particular, but are there other issues? Perhaps the payroll expense, maybe quantify that for us. Just trying to understand that flow-through and what we need to see, I guess, from your side to make that leverage start to show up a little bit better.

Brian Kaner (President and COO)

Yeah, I think that in the quarter, I mean, obviously, the first quarter, as we've said, we have these excess expenses that kind of hit us every single quarter.

Tim O'Day (President and CEO)

Every first quarter.

Brian Kaner (President and COO)

Every first quarter, so. Beyond that, there certainly was no payroll expense that was driving the lack of leverage up or the lack of leverage down, I should say. We did experience declines in our payroll expense in the first quarter as we had implemented the hiring freeze at the beginning of the quarter. There were some other, I would say, anomalous things that were happening. Obviously, we did have, on a year-over-year basis, a much different winter season that actually served to prop up some volume in the northern markets, but it also serves to drive up occupancy cost, particularly around the maintenance of the plowing and things like that in our facilities, which does not sound like it could be a lot, but when you spread it across a lot of locations, it can be substantive.

I would expect that as we, if you do the math on the couple of elements that we've articulated for Q2, that we'd expect to see pretty significant leverage in Q1 versus Q2.

Jeff Murray (EVP and CFO)

Brian, maybe I'll just add some context as well around our sales level. If you look at a year ago, our sales today are very much in line with what sales were at a year ago, although we've added 58 additional locations during that time. You have this cost burden that exists now within the structure with some immature stores that are still developing and not seeing the volume that they would have normally seen in a normal environment. They are not contributing the same sales that we would expect. You have also got the same-store sales declines on the mature base of stores that is not helping their operating expense leverage either. That is really the kind of dilemma that we are in in the current environment.

Steve Hansen (Managing Director and Equity Analyst)

That's very helpful, guys. Thanks. I appreciate that color. I just wanted to go back to the greenfield rollout again. I know that's a key part of the strategic plan here. Brian, I think you referenced something in your earlier remarks around getting insurance support. Maybe just walk us through what that means and how you gather that support over time to accelerate sort of the fill-up of those locations. Just anything that's holding it back or holding you back relative to what you're expecting to the balance of the year. Thanks.

Brian Kaner (President and COO)

Yeah, I mean, look, the current claims environment is what holds back, particularly on acquisitions. On greenfields, we can be a little bit more forthright with the insurance carriers on where we're going, which actually does give us an opportunity to hedge success in a greenfield location because we're talking to carriers about where they need support. When we're doing an acquisition, a little bit tougher because there certainly is some confidentiality that's needed in that type of a transaction that doesn't allow us to get ahead of the insurance carrier demand expectations. It just makes it a more difficult, it can slow the maturing of an acquired store down. I think that's certainly what we're seeing.

Jeff just referenced, we've got 58 new locations that are on a year-over-year basis in our infrastructure that haven't meaningfully contributed or haven't matured at the same level that we would have seen them mature prior to the claims decline. That's more what I'm referencing. It's more on the acquisition side than it is on the greenfield side.

Steve Hansen (Managing Director and Equity Analyst)

Understood. Helpful. Thanks, guys.

Brian Kaner (President and COO)

Thanks.

Operator (participant)

Your next question comes from Kate McShane with Goldman Sachs. Please go ahead.

Mark Jordan (VP of Equity Research)

Good morning. This is Mark Jordan over Kate McShane. Thank you for taking our questions. Can you help us quantify the impact of the claims deferral? Are you seeing or hearing across the industry that trends are improving in that regard? It sounds like the insurance inflation is lessening. Should that headwind kind of lessen with that as well?

Brian Kaner (President and COO)

Yeah, we've talked the notion of deferral, I'm not sure is the right way to characterize it. I mean, we've talked about this idea that liability claims, there's two different parts of a claim. There's a liability claim, which is the person that was on the receiving end of an accident, and then there's the one that was on the giving end of the accident. The first, so what we're seeing in the marketplace is liability claims remain, relatively speaking, consistent with where they've been, down in that 2-3%, which, as we've said publicly many times now, we expect the market to be down 2% from a claims volume perspective driven by the penetration of ADAS. We expect miles driven to contribute, miles driven and, frankly, growth in the car park to contribute 1% increase in claims.

All of that negative is to be offset by an improvement in the average cost of a repair, which is mostly driven by the increasing penetration of ADAS and some other movements on parts and labor pricing. We expect that is the dynamic we expect in the industry right now, that liability claim, which is indicative mostly of accident frequency, is at that 2-3% range. The one area that is not, which is more reflective of underinsured motorists and consumer confidence, is when the collision claims are declining at a much more rapid pace than liability claims. That is what we are seeing right now, and that is what we saw coming out of the recession. It took, at that time, it took a couple of years for that to work itself out.

We saw five quarters of same-store sales decline coming out of the recession. I think from our perspective, we just announced our fourth quarter of same-store sales decline. With some of the stuff that is happening in the industry as it relates to used car pricing going up, that actually pushes total losses down or should push total losses down. Insurance premiums are moderating, which should be a positive for us. I think what consumers are going to have to do and what they are doing right now is switching carriers. Carrier switching and carrier shopping is at an 18-year high because people are underinsured at this point and need to be able to put themselves in a proper with proper coverage. I do not know that I would characterize it as deferral.

I'd characterize it as the general consumer confidence is down right now. That's putting pressure on collision claims at the moment.

Mark Jordan (VP of Equity Research)

Perfect. Thank you very much for that answer. That's very insightful. As we think about maybe inflationary cost increases, what impact did that have on operating expenses for Q1? And how should we be thinking about that for the remainder of the year?

Jeff Murray (EVP and CFO)

Yeah, I wouldn't say that there was anything unique about the inflationary environment on the cost side. It's pretty typical with what you'd see normally in that low single-digit inflationary increases across the board with some things being a little more but some being less. There's nothing unique about the inflation itself.

Mark Jordan (VP of Equity Research)

Perfect. Thank you very much.

Operator (participant)

Your next question comes from Gary Ho with Desjardins. Please go ahead.

Brian Kaner (President and COO)

Good morning, Gary.

Gary Ho (Research Analyst)

Thanks. Good morning. First question, just wondering if you're seeing kind of parts pricing increase yet due to some of the tariff noise. How should we think about that versus early signs of used car pricing rebounding? Kind of saw the April Manheim data being pretty encouraging there.

Brian Kaner (President and COO)

Yeah, we have not seen any meaningful movement on list price increases on the parts side yet. I do suspect that over some period of time, as certainty comes into the tariff situation, that will or will not have the impact we've articulated. As you said, I mean, we kind of view the tariff situation as a positive to neutral for us, just driven by the fact that I think a couple of manufacturers have come out with price increases on new cars ranging from CAD 3,000-CAD 10,000 as those new car prices go up. Used car prices should follow. As you indicated, Manheim is starting to see that. That will, over time, start to drive down total losses. When total losses go down, it puts more expensive tickets into our shops and more tickets.

As we get more expensive tickets, right now, one of the things that we've seen from an average cost of a repair perspective is it's been relatively muted. The total losses are muting the benefit of some of the price increases and other normal movement that happens with average cost of repair. As we ease on that, or as we either ease or overlap those total loss ratios, we would expect that to start to return to a more normal level where we'd see 4-5% improvement in price every single year or increase in price every single year, partially offset by a claims environment that's down 1-2%.

Gary Ho (Research Analyst)

Okay. Great. My next question, just going back, I guess related to the question from the last one, just the premiums moderating, used car pricing increasing comments. When you look back in history, how quickly will you see these kind of come back through to same-store sales growth line? What's the typical lag, just assuming these trends persist?

Brian Kaner (President and COO)

Yeah. I mean, look, we talked about the last time this happened. We were five quarters of decline. We do not give forward-looking guidance, so it is tough to answer that question. It is tough to understand where will we start to see claims declines easing. We do not need them to go positive, right? We do not expect them to go positive. We expect them to get back to a normal level of negative and then get the pricing back. Again, I think right now, total losses was having a pretty big effect on the average cost of a repair. As total losses go down, I would expect that the positive side from a premium perspective or pricing perspective to actually go in a positive direction. Insurance premiums right now, I think, are down on a 12-month basis.

They're still the highest category of CPI, but they're certainly way, way down from where they were a year ago. That's positive for us. Again, I think until people start switching and making different choices on their insurance, which usually does take a cycle, that's when we would expect to start to see some changes in the dynamics in the marketplace.

Gary Ho (Research Analyst)

Okay. Great. Maybe just the last one. I just want to confirm the numbers question. The minus 1.2% on a production day adjusted basis. I guess in your outlook, you're gravitating to that number as opposed to the reported 2.8%. Second, I think last quarter you gave an adjusted EBITDA dollar comment, at least kind of what you saw so far. There's a bunch of moving pieces in Q2, like the Project 360, the payroll seasonality. Just wondering maybe qualitatively if you can, if there's anything that you can share.

Jeff Murray (EVP and CFO)

Yeah. Maybe I'll just address, I'll just, both questions. In terms of the same-store sales, I think that you've articulated the range of the 2.8-1.2. That's sort of the range that we're referring to. That's the guidance on what we're seeing so far in Q2. I guess with respect to the other question.

Brian Kaner (President and COO)

On the margin side, I do expect that there is, to your point, there's noise. We actually feel really good about how we're positioned from a margin perspective at this point. We've taken the cost actions on Project 360. As we said, that's going to give us CAD 30 million of benefit over for that particular project, which, again, you can do the math on what a quarter of that looks like. The incremental benefit on this payroll reset, if you will, does serve to put us in a position. All of that, coupled with a very strong improvement in gross margins, a little bit of same-store sales growth going back through the system again, is going to drive a lot of leverage in a really good financial position for us.

We feel like we're taking the actions that we need to take in order to put ourselves in the best position to take volume when it comes back. I think that margin profile, as we've articulated in the five-year plan, we had a near-term objective to get back to 13%. We've got a long-term objective to get back to 14%. We feel like the second quarter will put us in a good position on that journey.

Gary Ho (Research Analyst)

Okay. Great. No, thanks for those comments. Tim, congrats again. Enjoy your new chapter.

Tim O'Day (President and CEO)

Thank you.

Operator (participant)

Your next question comes from Darryl Young with Stifel. Please go ahead.

Brian Kaner (President and COO)

Hi, Darryl.

Daryl Young (Managing Director)

Hey, good morning, everyone. Just with respect to the glass industry and a bit of a two-part question, are you starting to see any meaningful uptick in market share from doing repairs in facility as opposed to mobile vans currently? Secondly, is there anything to make of the recent agreement that Stifel signed with State Farm to be, I believe, an exclusive glass repair provider?

Brian Kaner (President and COO)

Yeah. As it relates to the first part of your question, I don't see any real meaningful change in market share gains based on the need for brick-and-mortar locations. On the Stifel question, we were obviously disappointed to see that. Stifel is the, I think that was a, it's a, we still will benefit from that agreement. There are still plenty of retail claims that come out of the lack of capacity that a Stifel would have to fulfill that much demand that ends up coming into our system as well anyways.

Tim O'Day (President and CEO)

Yeah. There is customer choice in auto glass claims. The relationship, the exclusive relationship, is with the TPA owned by Safelite, not Safelite's retail. Our go-to-market strategy is really not to the TPA. It is through other sources of referral, such as insurance agents.

Daryl Young (Managing Director)

Got it. Okay. Thanks. One more. With respect to your margin profile and the Greenfield ramp-up, are you able to give us sort of a run rate, "Here's what our margins were," or said differently, what the quantifiable drag was from the Greenfield ramp-ups currently?

Brian Kaner (President and COO)

Yeah. Again, I wouldn't classify the Greenfield ramp-up right now as much different than the acquisitive ramp-up because I think that casts kind of a different light on Greenfield. You said that Greenfields take another an additional year to ramp versus an acquisition. I think Jeff quantified in his prepared statements some of the negative impacts to each of the line items on the, whether it was OpEx or even talked about the 58 stores relative to the somewhat about the growth profile that those would be contributing. You can do that math. The same-store sales are down 2.8% in 58 stores. That means 58 stores contributed some number. I think you can back into that math without us providing that clarity you're looking for.

Jeff Murray (EVP and CFO)

We have provided the OpEx ratio for new locations. You can use that as a bit of a guide as well.

Daryl Young (Managing Director)

Got it. Okay. Thanks very much, guys. I'll jump back in the queue.

Brian Kaner (President and COO)

Thanks.

Operator (participant)

Your next question comes from Krista Friesen with CIBC. Please go ahead.

Krista Friesen (Director of Equity Research)

Hi. Thanks for taking my question. Maybe if I can just dig in a little bit more on the same-store sales growth for Q2. I appreciate that what you're seeing right now is similar to what you saw in Q2. As we get through this quarter, would you expect to see a bit more of an improvement simply because of the comps that you're now lapping from last Q2's negative same-store sales growth? Thanks.

Brian Kaner (President and COO)

Yeah. I mean, look, the claims is relative to comping a negative number as well. I think we're still in a position where we feel like we're outpacing the marketplace and taking market share based on the current claims backdrop. What we're really looking for is for that to change. We have seen, even if you look at the sequential changes that we've experienced over the last four quarters, it's down 3.2% in Q2 of last year, down 3.5% in Q3, down 2.6%. As Jeff said, with one less production day in Q1, down 1.2%. We have seen sequential benefits just from our internal actions to drive more of a higher capture rate on the claims that are coming our way. That's really what's putting us in a position to take market share gains.

Krista Friesen (Director of Equity Research)

Okay. Great. Thank you. I was also just wondering if you can provide us with a bit of context. Previously, before when you noted you saw five consecutive quarters of negative same-store sales growth, how did that inflect after those five quarters? Was it a very strong return to growth or just more incremental, I guess?

Jeff Murray (EVP and CFO)

It was a moderate increase after. There was a bit of a pickup last time. Again, it's a small sample size. We're talking about one period of over 10 years ago. There are some different dynamics at play here. To answer your question, there was a bit of a bounce back after.

Krista Friesen (Director of Equity Research)

Thanks. I appreciate it. Congratulations, Tim and Brian. I'll jump back in the queue.

Tim O'Day (President and CEO)

Thanks, Krista.

Operator (participant)

Your next question comes from Zachary Evershed with National Bank. Please go ahead.

Zachary Evershed (Director)

Congrats, Tim and Brian. Thanks for taking my questions.

Brian Kaner (President and COO)

Sure.

Zachary Evershed (Director)

Could you tell us a bit more about the kind of softer stuff in the indirect staffing model? There is an established playbook and good rigorous controls. What are the changes that are being made to the model? How does it work?

Brian Kaner (President and COO)

I would say the primary change to the model is driven off of changing the bands of revenue. As we all know, the last five years of the industry, the marketplace has grown not through incremental cars, but has grown through incremental ticket. As you look at what we were driving our staffing model for the indirect side of our business off of, it was off of revenue bands. If you think about over the last five years, the revenue, the average ticket has grown almost 40% from 2019 to 2024. As that 40% ticket growth was happening, the stores were putting more, we were putting more indirect staffing into the locations. What drives the need for front office staff is not the, it's not the size of the ticket. It's the number of cars that we see.

We reoriented the staffing model to be more aligned with the staffing levels that we had in 2019 against that ticket level and essentially boosted the bands at which we put different levels or different resources into the stores. That's the primary difference. We took a crack at this last year as well. We had taken some costs out last year on the indirect side as we reached the midpoint of the year. We've just further refined that model earlier this year.

Zachary Evershed (Director)

Gotcha. Thanks. How have shop reactions been thus far to changes in staffing procedures? Any pushback or bumps in implementation?

Brian Kaner (President and COO)

Yeah. Look, these things are always hard. They're certainly not the types of things that we want to do on a frequent basis. I would say the shop responsiveness has been, it has been, we dealt with what we needed to deal with with empathy and kindness to the folks that were affected. The shops now are back to business and realizing that the way to not have to do this again is to drive more sales through our system so that we're getting the leverage out of the resources that we have. I think it's almost created a renewed focus on driving the top line of our business out in the stores.

Zachary Evershed (Director)

Interesting. Thank you. One last one for me. Looking at your acquisition and development of business cash outflows, was any of that front-loaded in Q1 for the scheduled startups and Q2 in the rest of the year?

Jeff Murray (EVP and CFO)

Yes. Yes. There's a chunk of that spend that relates to upcoming growth.

Zachary Evershed (Director)

Given the pace that you guys are setting for yourselves under the 2029 targets, is there any reason to think that that'll moderate or it should be a pretty steady drumbeat as we go forward?

Jeff Murray (EVP and CFO)

I wouldn't say that it's outside of a range of what we would expect.

Zachary Evershed (Director)

Thank you very much. I'll turn it over.

Jeff Murray (EVP and CFO)

Thanks, Zack.

Operator (participant)

Your next question comes from Brett Jordan with Jefferies. Please go ahead.

Brett Jordan (Managing Director and Senior Equity Research Analyst)

Hey. Good morning, guys.

Brian Kaner (President and COO)

Good morning.

Brett Jordan (Managing Director and Senior Equity Research Analyst)

I think you mentioned in the prepared remarks that weather propped up volume a bit in the quarter. Do you have a feeling sort of for what the weather contribution might have been and does it continue to support the second quarter?

Brian Kaner (President and COO)

When we released the fourth quarter results, we did indicate that at that time, our northern markets were seeing positive same-store sales growth, which gave us a, it did give us the belief that weather did play a factor in what we experienced last year. We haven't provided any specific numbers around the relative impact of that.

Brett Jordan (Managing Director and Senior Equity Research Analyst)

Okay. I think you also mentioned that sort of to get structural change in volumes, this insurance behavior takes a cycle. I guess by your best estimate, when did the cycle begin or when did the change of the shopping of policies start that we might sort of think about when the actual demand might change?

Brian Kaner (President and COO)

Yeah. I think as you know, I mean, when I say it's a cycle, people typically sign up for annual agreements on their insurance. I think people probably saw price increases flowing through last year as their contracts came up for renewal. That shock, they had to absorb. The question is, once you absorb that shock, do you build it into your normal monthly spending behavior or do you start to look at a different carrier? I think as we sit here now, J.D. Power and others that study what happens in the insurance carrier space certainly would indicate that the activity around shopping for a new carrier or switching is very active right now. I think in addition to that, if you look at the profitability of the insurance carriers right now, there's room for some movement there.

Brett Jordan (Managing Director and Senior Equity Research Analyst)

Okay. And then a quick sort of anecdotal question. Do you see any change in total loss rates as the quarter progressed? I mean, obviously, you get the quarterly data, but April was a pretty strong month for used vehicle values. Did you see, have you seen any change in loss rates as we've progressed here in 2025?

Brian Kaner (President and COO)

Yeah. I mean, that data takes a, it's probably a little bit more of a lag on that data because it takes time for it to mature. I can't really comment that we've seen any real change in the short term. I think we would expect no different than what happened coming out of the pandemic when new car or used car prices started to increase. We did see at that time, history would tell us the total losses did start to decline. I think that is one that, watchful waiting for us, where we're looking for that to have the same impact as it had coming out of the pandemic.

Brett Jordan (Managing Director and Senior Equity Research Analyst)

Okay. Great. Thank you.

Brian Kaner (President and COO)

Yep.

Operator (participant)

Your next question comes from Sheryl Zhang with TD Cowen. Please go ahead.

Cheryl Zhang (Equity Research Associate)

Hi. Thanks for taking a follow-up. Just wanted to follow up on the collision claims. Obviously, there are so many moving parts, but how do you feel about collision claims trends in the back half of the year? Do you think collision claims coming back would be more likely a second-half event or maybe potentially in 2026?

Brian Kaner (President and COO)

Yeah. I think it's tough to comment on that. I would, it really goes back to the same statement made earlier. It has a lot to do with how well-positioned people are from an insurance perspective and what happens with consumer confidence. I mean, the person that gets into an accident has a deductible or the person that causes an accident has a deductible to pay. When insurance premiums go up, they have a, one lever they can pull is to raise their deductible, which could put them in a position where they don't have the financial flexibility to pay that deductible to get the repair done. That is the one, I think that's the one elusive element for us is when will that ease? Because what we do know is accidents are still occurring.

The liability claims being only down in the 2-3% range indicates to us that the same level of accident frequency is out there as it was before. The notion that something magical happened where ADAS has magically now changed the dynamic of accident frequency, we do not think has happened because liability claims are still pretty consistent with where they have been. We just need the collision side to follow suit. Again, we do not need it to turn positive. We just need it to be less negative.

Cheryl Zhang (Equity Research Associate)

Right. Thank you for the comment. Just one more for me. Just looking at the leverage that seems a little above your long-term target range, just curious how you think about the leveraging if claim volumes continue to be pressured over the coming quarters.

Brian Kaner (President and COO)

Yeah. I mean, I'll say I think as we as you've guided on the EBITDA side and as you model that out, you'll see that as our EBITDA improves, you'll start to see the leverage decrease as well. So Jeff, I don't know if you have anything to add.

Jeff Murray (EVP and CFO)

No, I think that's right. We've been under a fairly lengthy duration of challenged EBITDA delivery. We've got underperforming assets. Result, the 58 new locations is the one we referenced earlier. Once we see those things come back in line, then so will our leverage.

Cheryl Zhang (Equity Research Associate)

Got it. Thank you for taking our questions.

Brian Kaner (President and COO)

Thank you.

Operator (participant)

Your next question comes from Tristan Thomas Martin with BMO Capital Markets. Please go ahead.

Tristan Thomas Martin (Senior Equity Analyst)

Hey. Good morning. Congrats, Tim and Brian. Just from me, is there just kind of a rule of thumb if a consumer does switch their car insurance, are they maybe a little more hesitant to come back to the market because they do not want to immediately file a claim? Or is it truly a consumer kind of had an issue where they would rather maybe build up their piggy bank a little bit and then return to the market? Thanks.

Brian Kaner (President and COO)

Yeah. I think it's an interesting point. If I'd answered that question a year ago, I probably would have said that people were deferring claims because they were afraid of insurance price or insurance premium increases. I think at this point, everybody has experienced because they have gone through a cycle where they've had to renew their insurance. I think everybody has probably experienced the pain of insurance premium increases. I don't believe that that dynamic is existing now. I think now it's a question of how well-positioned are they with the insurance that they have? Does that put them in a position where they can afford to file the claim on the collision side, on the person who caused the accident side?

Tristan Thomas Martin (Senior Equity Analyst)

Okay. Thank you for all that.

Brian Kaner (President and COO)

Great. Thanks.

Operator (participant)

There are no further questions at this time. I would now like to turn the call over to Brian Kaner. Please go ahead.

Brian Kaner (President and COO)

Nothing further from us, though. Thank you, operator. Thank you all once again for joining our call today. We look forward to reporting our second quarter results in August. Thanks again and have a great day.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.