Boyd Group CEO Tim O’Day recently told investors a decline in repairable vehicles, increased use of alternative parts, in-house scanning and calibrations, and labor rate increases during Q2 added to sales and gross profit despite margins remaining below historical levels.
He added that normally the decline in repairable appraisals due to ADAS and higher total loss rates would be more than offset by the increased miles driven and increased costs of repair.
“However, weather-related factors, changes in consumer behavior due to economic uncertainty, and higher insurance premiums resulted in the deferral and non-filing of claims, which further negatively impacted repairable appraisals in the second quarter,” he said during the company’s Q2 earnings call.
“The internalization of scanning and calibration services progress, Boyd’s ‘repair first’ strategy, and focus on the use of cost-effective alternative parts delivered strong value by lowering repair costs for the company’s customers, and consequently, reduced sales that could have otherwise been achieved while benefiting gross margin percentage.”
An uptick in aftermarket parts year-over-year was partially driven by a large U.S. insurer, which O’Day didn’t name, shifting its policy toward using aftermarket parts rather than OEM. In October, a memo from State Farm to its Select Service® repair centers said it would end its yearslong suspension on the use of “non-OEM crash parts,” i.e. aftermarket parts.
“Some of it is just our teams are getting even better at identifying and using parts to keep repair costs down for our customers,” he said.
“Higher total loss rates are definitely part of the drop in repairable appraisals. It probably accounts for 1.6 points of the 7-point drop in repairable appraisals, and that’s directly tied to the decline in used car values… It probably has an impact on our average cost of repair as well because some of those would have been higher-value repairs.”
One investor asked if the decreases were tied to the macroeconomic environment and tight budgets to which O’Day agreed.
“I think it’s a combination of some concern over the economic environment, insurance premiums having gone up significantly over the past couple of years, and a reluctance on the part of some vehicle owners to file a claim,” he said.
That reluctance, he added, appears to be out of concern that further insurance rate increases would be the result.
“Over the years, as we’ve seen periods of economic uncertainty, it’s pretty common for people to defer a claim or cash out a claim rather than repair it. But generally, that behavior bounces back to the other direction over time.”
During Q2, labor rate increases added to sales and gross profit dollars but margins remained below historical levels.
“These negative impacts were modestly offset by the benefit of increased internalization of scanning and calibration, and improved glass margins,” O’Day said.
Boyd recorded sales of $779.2 million, adjusted EBITDA of $89.6 million, and net earnings of $10.8 million.
O’Day cited “industry sources” when sharing that repairable claims continued to decrease, down 7% during the quarter, while Boyd’s same-store sales declined by 3.2%, “demonstrating Boyd’s ability to gain market share even in a difficult environment.”
By June 30, sales totaled $1.6 billion — an increase of $97.5 million, or 6.6% compared to the first half of 2023. O’Day said the increase was driven by $109.2 million in incremental contributions from 132 new locations that had not been in operation for the full comparative period. During the first half of this year, Boyd has added or acquired 30 new locations.
“Boyd has made progress in improving gross margins and keeping costs down for the company’s customers in the second quarter of 2024,” O’Day said. “The continued claims softness has impacted demand for services thus far, in the third quarter, which is resulting in similar same-store challenges that we experienced during the second quarter of 2024.
“While claim volumes and demand for services are currently below prior-year levels, Boyd views these as short-term trends and remains highly confident in the underlying fundamentals of the business over the longer term… Boyd is on track to achieve its long-term growth goals, including doubling the size of the business on a constant currency basis from 2021 to 2025 against 2019 sales.”
He went on to describe the North American collision repair industry as “highly fragmented” and offering “attractive opportunities for industry leaders to build value through focused consolidation and economies of scale.”
O’Day predicted that because of fewer new car sales, ADAS work may slow. However, he said Boyd expects that at the same time, the increased cost of repair ADAS causes will more than offset the claim volume per mile driven.
“We also saw a pretty significant softening of average repair cost increase during the quarter,” O’Day said. “Some of that was likely market. Some of it was impacted by our own actions of increasing the use of cost-effective alternative parts, internalizing scanning and calibration services which allows us to deliver it at a lower cost for our customers, and an increase in our tendency to repair — particularly as it relates to plastic repairs. We have a committed initiative that you can see in our ESG report to drive plastic repairs up.
“All of those drive costs down for our customer although they shift to labor operations or a higher margin alternative part so it’s generally favorable for gross margin… I’m really disappointed with the same-store sales decline. I think our teams actually did a pretty good job of taking advantage of what was available in the market.”
Boyd’s labor capacity, despite shop backlogs, isn’t fully being used, according to O’Day.
“That’s pretty unfamiliar territory with us,” he said. “The backlogs that we see in the business are pretty consistent with what we were experiencing prior to the pandemic… this is a territory that we need to change our behavior to take advantage of it or make the most of it but we have good experience in this.”
O’Day also told investors Boyd’s vice president and chief operating officer, Brian Kraner, had been promoted to president and COO taking on operating responsibility for the entire company. O’Day previously held the titles of president and CEO. He will remain CEO, a role he has held since 2020.
“This change is being made to position Brian with company-wide operating oversight, responsibility, and influence,” O’Day said. “…It will free up some time for me to focus on our long-term strategic direction… We’re getting the right leadership in place to drive some things that will be very good for our business.
“We see synergy opportunities both with our auto glass business and our calibration business. And those are key areas that, as you know, we’ve spent a lot of time talking about over the past couple of years. We’ve made great progress and I think we have more room to make progress in those areas.”
Original article at Repairer Driven News
