Boyd reports all-time record Q1 earnings, effects of TCOR and repairable claims on business

Boyd Group Services, parent company of Gerber, announced record Q1 earnings and the completion of its acquisition of Joe Hudson's Collision.

Brian Kaner, President and CEO, reported that based on repairable claims processing data, Boyd estimates repairable claims volumes declined 0-2%. He noted that this is back in line with the company’s long-term growth framework.

Q1 earnings details

> We achieved both all-time record revenue and adjusted EBITDA, grew our location footprint by 33%, recorded our third consecutive quarter of positive same store sales growth, achieved an incremental $20 million in Project360 and synergy cost savings, and expanded our adjusted EBITDA margins by 200 basis points. We also successfully closed our Joe Hudson’s acquisition, the largest MSO transaction in the company’s history, with the integration successfully completed subsequent to quarter end.

Regarding repairable claims, Kaner stated that Boyd’s long-term growth framework anticipates average same-store sales growth of 3-5%. This growth is expected to be supported by continued incremental market share gains driven by ongoing consolidation within the highly fragmented collision repair industry, strong performance with insurance clients, and disciplined operational execution.

The framework also assumes 3-4% annual growth in the average total cost of repair and 1% growth in miles driven, partially offset by a 2% decline in repairable claims due to collision avoidance systems.

> During recent quarters, the growth in average total cost of repair has fallen below the expected range required to support our long-term growth framework. We expect total cost of repair will return to levels outlined in our framework driven by lower total losses from rising vehicle prices, increasing vehicle complexity, and continued inflation in parts and labor costs. The positive same-store sales trends we experienced in our business over the past three quarters have continued thus far in the second quarter, with same-store sales in April approaching the low end of our long-term range.

Acquisition synergies

Kaner expects to generate $40 million in synergies from the Joe Hudson’s acquisition.

> Although Joe Hudson’s locations experienced some sales disruptions from the storms in Q1, as well as from the store conversion process through the end of April, the conversions are now complete, which allows sales to return to normal projection shortly. We remain on track to realize 50% of the synergies in 2026 and the balance by 2028.

Jeff Murray, Executive Vice President and Chief Financial Officer, added that the acquisition contributed $168 million in sales, while other new location growth added an incremental $35.3 million.

An investor inquired about the prolonged weakness in claims over the past two years and whether this trend is expected to continue. Kaner drew parallels to changes in the industry following the 2007-2008 financial crisis and the COVID-19 pandemic.

> We ultimately saw in that 2011/2012 timeframe that claims came a little bit outsized to the normal range. We saw the same thing happen coming out of COVID, where during COVID, we saw a very depressed claims environment and then two or three years of positive claims. We’re certainly prepared should that happen… History would suggest that that could happen. When it happens, I think it is probably a little bit more elusive from our perspective. What we’ve been watching is… what’s been driving claims negative. As those things have gotten better, we’ve seen the claims environment recover, which obviously points us to a place where you’d really argue that there really isn’t something more structural happening in the industry. It was really a bit of the cyclical impact of insurance premium increases and people’s reluctance or fear to file claims over that period of time.

Industry trends and costs

Another investor asked about the key factors contributing to the "muted" total cost of repair (TCOR). Kaner identified labor price movement and inflation as positively affecting TCOR.

> When you look at a year-over-year basis, we still have elevated total losses [comparing] Q1 of last year to Q1 of this year. Certainly, over the last couple of months, you’ve seen total losses actually start coming down, which is good. They’re responding in a way that we would expect them to respond when used car prices actually go up.

Kaner further noted that the increasing total cost of cars is driving up total losses and influencing the average cost of repairs due to the mix effect of high-dollar tickets. The aging car parc is another factor impacting average repair costs.

> We’re still seeing a bit of a trough in new car sales over the past five years coming out of COVID. That ultimately still puts us in a position where now the car parc age is skewed by about 10 points from that seven years to newer to seven years to older. And as you put older cars into the car parc, you have a higher propensity for aftermarket part consumption and more repair versus replace. When you’re repairing a new car, you tend to replace a lot more parts, you tend to use OE more frequently. They also will obviously tend to have more calibration services and needs which pushes the price up. It’s a bit of a temporal thing that as new car sales have over the last couple of years have started to respond more positively.

Boyd informed investors that it has achieved its 80% internalization calibration goal. When asked how 100% will be reached, Kaner responded that achieving 80% would not slow down hiring technicians or the company's objective to maximize internalization.

> There’s a balance between having too much idle capacity to staff for 100% or staff for 95%, and the margin benefit associated with it. What we’re trying to do is just make sure we keep the techs that we have productive 100% of their day. As we do that, we will continue to inch up. We have markets that are obviously greater than 80%. We have markets that are in the 90s.

Murray added that the calibration market continues to expand.

> Even though we’ve got the targeted level of technicians now in place that we commented on, the market will continue to expand and grow, so we should still see further benefits coming through our gross margin.