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May 14, 2025
Boyd Group Services Inc. Shifting gears to margin expansion
Our view: Boyd reported mixed Q1 results vs. consensus estimates, with the key highlights being that SSS trends Q2 to-date are tracking in line with Q1 thus far (-LSD%), but Adjusted EBITDA margin/dollars are expected to meaningfully improve in Q2 and beyond (see below for more). Overall, we continue to believe that Boyd should return to positive SSS growth in 2025 as comps get easier through H2, with potential upside if the operating backdrop improves. Revising PT -$7 to $270.
Key points:
Thoughts exiting Q1 – Q1 saw a continuation of recent trends, with SSS of -2.8% (-1.2% on a same-days basis; vs. -2.6% in Q4) amidst a backdrop of repairable claims in the industry declining in the 9-10% range. The underlying drivers remain the same as in previous quarters (e.g., weaker consumer confidence), though management highlighted that there have been early signs of insurance premium inflation moderating (carrier switching/shopping is at an 18-year high) and used car prices increasing (recall that the Manheim index was +4.9% YoY in April), which are two directional positives for collision repair volumes. Looking ahead, Boyd's commentary points to a continuation of Q1 trends into Q2 (SSS of -LSD %), though we note that comps begin to get easier as the company starts lapping SSS declines that began in Q2/24 (-3.2%). Ultimately, we believe that Boyd should return to SSS growth in H2/25 and beyond, with the uncertain element being exact timing. Key is that liability claims (i.e., where driver is not at fault) are only down in the 2-3% range, which indicates that there hasn't been a meaningful decline in accident frequency (e.g., from ADAS), but instead lower repairable claims are primarily being driven by a weaker consumer (i.e., consumers foregoing/deferring collision repair to avoid paying the deductible or having their premiums increase). As SSS improves, we would expect the Adjusted EBITDA margin to also increase (Boyd has added 45 stores since Q2/24 but revenue was -1.0% YoY in Q1/25), noting that margins should also benefit from maturing new store openings (recall that these stores generate negative margin in year 1), payroll benefits resetting (margin drag in Q1), and Project 360 benefits (annualized run-rate savings of ~$30MM actioned in April; an additional $40MM of run-rate savings are expected to be rolled out by the end of 2026 – see here for more).
Positioned to accelerate pace of M&A – Leverage exiting Q1 was 2.7x (+0.2x QoQ), with management highlighting that there are smaller MSOs now coming to market, which puts the company in a position to accelerate the pace of acquisitions over the course of the year. Boyd added 9 locations in Q1 (3 acquisitions + 6 start-ups), and the company already has 8 start- up sites scheduled to open in Q2 and 16 in H2/25. Recall that Boyd's 5- year targets outline a goal of 80-100 store additions annually on avg. (new builds + acquisitions).
