This morning, Brian Kaner, President and Chief Executive Officer, and Jeff Murray, Executive Vice President & Chief Financial Officer, presented during day three of RBC's Canadian Industrials Conference. Overall, our discussion touched on the operating backdrop, the potential fallout from tariffs, the opportunity with scanning/calibration, and the company's cost saving initiatives. We highlight key takeaways from our discussion below:
Repairable claims were down in Q1 but seeing some positive developments – At Q1 reporting, Boyd outlined that repairable claims across the industry were down in the range of 9-10%, which is being driven by factors that are more transient in nature (i.e., weaker consumer confidence as opposed to ADAS adoption/efficacy). What gives management confidence in this observation is the fact that liability claims (i.e., where the driver is not at fault, meaning the other party/insurer pays) are only down in the range of 2-3% (in line with historical levels). Looking ahead, there are signs of the current headwinds easing, such as 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; higher used car prices result in a lower salvage rate, all else equal), which are two directional positives for collision repair volumes. In the case we get back to repair claims declining in the LSD-MSD% range annually (i.e., in line with historical levels, largely driven by ADAS adoption, partly offset by an increase in number of vehicles/miles travelled), management believes that the company can return to positive SSS growth (noting ADAS increases repair complexity/cost of repairs).
Tariffs could result in used car prices increasing – Management highlighted that if tariffs result in the price of new cars increasing, then used car prices are likely to increase as well (a sentiment we share, in part driven by the substitution effect). As noted above, this should in turn serve to lower the salvage rate and therefore increase collision repair volume (all else equal). As it relates to potential direct tariff impacts to Boyd, management highlighted that labor is one of the company's biggest revenue streams (~40%), which would not be impacted by tariffs. Although parts sales (~40%) could be impacted, recall that insurers buy parts at a pre-set list price, with Boyd earning its margin by buying those parts at a discount to that price (e.g., via scale efficiencies/ procurement savings). In other words, we would expect any increase in the cost of parts to be passed on to insurers (recall that labor was the bigger pain point for Boyd during the pandemic as opposed to parts). We also note that the company purchases/sells from local suppliers (~92% of sales in 2024 came from the U.S., with the remainder coming from Canada), implying that Boyd's tariff exposure is likely to be minor.
Outlining the scanning/calibration opportunity – As the prevalence of ADAS in the car park increases, Boyd is seeing increased demand for scanning/calibration services. For perspective, management outlined that the TAM for collision repair calibration services is ~$1B today and this could grow to ~$4-5B over the next few years. Historically, the company has outsourced a lot of this work to third parties, but Boyd is currently focusing on bringing this work in-house (~60% today), with the expectation that in-sourcing could reach 80% within the next ~2-3 years. Given outsourced work is margin dilutive, we believe that the company should see some margin benefit as it transitions toward insourcing these services (GM% was +134bps YoY in Q1, in part supported by this). For additional information on scanning/calibration, see our deep-dive here.
Project360 to support the company's journey to 14% Adjusted EBITDA margins – Recall that management outlined a target of getting back to a 14% Adjusted EBITDA margin by 2029, supported by a company-wide cost optimization program (“Project 360”) that aims for $100MM in annual cost savings (~70% of which is expected within the first two years). See our note here for more on the company's 5-year targets. In April, Boyd implemented a new indirect staffing model (which introduces a playbook for adding non-production staff and adding controls to ensure execution/adherence) that is expected to result in annualized run-rate savings of ~$30MM. Thus far in Q2, this cost saving initiative has resulted in an improvement in Adjusted EBITDA dollars/margin QoQ, and we note a further $40MM of run-rate savings are expected to be rolled out by the end of 2026.