Good morning, everyone. Welcome to the Boyd Group Services Inc.'s fourth quarter year-end 2020 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 relating 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 SEDAR. I'd like to remind everyone that this conference call is being recorded today, Wednesday, March 24, 2021. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Boyd Group Services Inc. Please go ahead, Mr. O'Day.
Thank you, operator. Good morning, everyone, and thank you for joining us for today's call. On the call with me today are Pat Pathipati, our Executive Vice President and Chief Financial Officer, and Brock Bulbuck, our Executive Chair. We released our 2024 fourth quarter and year-end results before markets opened today. You can access our news release as well as our complete financial statements and management discussion and analysis on our website at www.boydgroup.com. Our news release, financial statements, and MD&A have also been filed on SEDAR this morning. On today's call, we will discuss the financial results for the three-month period ended December 31, 2020, provide a general business update, and discuss our long-term growth strategy. We will then open the call for questions.
On January 22, 2020, we completed the conversion of the Boyd Group Income Fund to a corporate form, reporting as Boyd Group Services Inc., effective January 1, 2020. While this was an important change, it does not impact or change the underlying business or operations of Boyd. On January 2, 2020, I was appointed President and CEO of Boyd Group Services Inc. Concurrent with this change, Brock Bulbuck moved into the role of Executive Chair. We are now over a year into our transition plan, and it has progressed very well and as planned. Brock has provided me with great support, which has been incredibly helpful during the challenging times that arose during 2020. While the past year began as expected, near the end of the first quarter, the COVID-19 pandemic brought uncertain economic and business conditions.
The steps our team has taken since the onset of the pandemic have consistently positioned us well during these unprecedented times, and our 2020 results reflect the impact of these efforts. Through a prudent management of expenses, a focus on liquidity, and our ability to adjust capacity relative to changes in demand, we have posted respectable results in spite of the declines in revenue caused by COVID-19. Throughout the year, we continued to adjust our business in accordance with the changes in demand for our services, first decreasing and then subsequently adding back production capacity as demand for collision repair services rose. As we navigate through this pandemic environment in 2021, our priorities remain taking care of the health and safety of both our team members and our customers, and ensuring that we are prepared for the future that lies ahead.
We continue to focus on health and safety practices, such as contact-free customer drop-off and pickup, enhanced vehicle and facility cleaning practices, social distancing, and wearing of personal protective equipment to keep our employees and customers safe. We continue to follow key practices that include deep cleaning of facilities where an employee with a potential or confirmed case of COVID-19 is identified, as well as defined processes for quarantine and testing in situations of potential exposure to help prevent the spread of the virus. For the year ended December 31, 2020, we reported sales of CAD 2.1 billion, a decrease of 8.5% over the prior year, driven by same-store sales declines of 15.6%, partially offset by contributions from new locations that had not been in operation for the full comparative period.
The decrease in the same-store sales percentage was impacted by the business slowdown caused by the COVID-19 pandemic that began in mid-March 2020. Same-store sales declines in Canada were significantly higher than same-store sales declines in the U.S., which reflects more significant restrictions as well as the continued slower economic reopening in Canada when compared to the U.S. Gross margin increased to 46% of sales compared to 45.4% in the comparative period. The gross margin percentage was positively impacted by higher labor margins, primarily due to the Canada Emergency Wage Subsidy Program in Canada, which more than offset incremental COVID-19 labor costs and workforce management in the U.S. as well as a favorable mix of retail glass sales and normal variability in DRP pricing.
The recognition of CEWS related to direct labor was approximately CAD 7.1 million for the year ended December 31st, 2020, which positively impacted the gross margin percentage and importantly allowed us to retain employees that would have otherwise been temporarily laid off. Operating expenses decreased CAD 48.2 million when compared to the same period of the prior year, primarily due to COVID-19 related cost reductions such as staffing reductions, salary and other compensation adjustments, and reductions to other variable expenses. Operating expenses benefited from the Canada Emergency Wage Subsidy of approximately CAD 9.8 million, recorded as an offset to applicable indirect wages. Again, this program allowed the company to retain employees that would have otherwise been laid off.
Adjusted EBITDA for the year ended December 31, 2020 was CAD 293.6 million, compared to CAD 319.9 million in the same period of the prior year. The CAD 26.3 million decrease was the result of the business slowdown caused by the COVID-19 pandemic, including operating expenses that could not be mitigated in relation to the decline in sales, such as property taxes and utility costs. We reported net earnings of CAD 57.7 million compared to CAD 64.1 million in the same period prior year. Adjusted net earnings per unit decreased from 4.83 to 2.57 in adjusted net earnings per share. These amounts were significantly impacted by the COVID-19 pandemic, which resulted in reduced sales levels.
In addition, relatively fixed levels of depreciation and amortization, as well as increased finance costs, negatively impacted adjusted net earnings and adjusted net earnings per share in 2020. The equity offering, although positioned us well for the future, also had a negative impact on adjusted net earnings per share in 2020. Now, moving on to our Q4 results. During the quarter, we recorded sales of CAD 526 million, a 10.2% decrease when compared to the same period of 2019. Our same-store sales, excluding foreign currency exchange, decreased by 12.6% in the fourth quarter. Same-store sales declines in Canada continued to be significantly higher than the same-store sales declines in the U.S., which again reflects a continued slower economic reopening and more significant restrictions in Canada when compared to the U.S.
Gross margin was 45.8% in the fourth quarter of 2020, compared to 45% that was achieved in the same period of 2019. The gross margin percentage increased as a result of improved labor margins as well as variability in DRP pricing arrangements and the recognition of CEWS related to direct labor, which was approximately CAD 1.0 million for the three months ended December 31, 2020. Operating expenses for the fourth quarter of 2020 were CAD 162.5 million or 30.9% of sales, compared to 30.7% in the same period of 2019. While many operating expenses were managed in relation to the decline in sales, certain expenses could not be reduced, such as property taxes and utility costs, which increased as a percentage of sales.
Late in the third quarter, as revenues became more stable, we brought back support resources that had been laid off at the onset of the pandemic, which increased our expense relative to the prior quarter. Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions, was CAD 78.4 million, a decrease of 6.7% over the same period of 2019. The decrease was primarily due to the slowdown caused by the COVID-19 pandemic, including operating expenses that could not be mitigated. In addition, adjusted EBITDA for the three months ended December 31, 2020 benefited from the CEWS in the amount of approximately CAD 2.3 million. Net earnings for the fourth quarter of 2020 was CAD 21 million, compared to CAD 14.3 million in the same period of 2019.
Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the fourth quarter of 2020 was CAD 18.9 million or CAD 0.88 per share, compared to adjusted net earnings of CAD 23.8 million or CAD 1.19 per unit in the same period of the prior year. The decrease in adjusted net earnings per share is primarily attributed to the impact of the COVID-19 pandemic, as well as a higher number of shares outstanding as a result of the equity offering in 2020. At the end of the year, we had total debt net of cash of CAD 685.6 million, compared to CAD 672 million at September 30, 2020, and CAD 893.2 million at the end of 2019.
At the onset of the pandemic, we faced significant uncertainty regarding the extent and duration of the impact of COVID-19 on our business. In addition to acting quickly to reduce our expenses, we further addressed the uncertainty by drawing down on our credit facility and raising equity to ensure that our balance sheet could withstand the impact of the pandemic and be prepared for growth as conditions stabilized. As conditions have stabilized, the impact of COVID-19 has become better understood. Boyd has made repayments of CAD 907.4 million during the year ended December 31, 2020 to reduce the level of outstanding debt. Based on the strength and confidence in our business, we announced an increase to our dividend by 2.2% to CAD 0.564 per share on an annualized basis beginning in the fourth quarter of 2020.
This is the 13th consecutive year we've increased dividends to shareholders. During 2021, the company expects to make cash capital expenditures within the range of 1.6%-1.8% of sales. This excludes those capital expenditures related to acquisition and development of new locations, the investment in environmental initiatives such as LED lighting, and the investment in the expansion of WOW Operating Way practices through the corporate applications and process improvement efficiency project. During 2020, the company invested approximately $3.5 million in LED lighting in order to reduce energy consumption and enhance the shop work environment. Continued investment in LED lighting will not only provide environmental and social benefits, but also achieve accretive returns on invested capital. Additionally, the company has begun to expand its WOW Operating Way practices to corporate business processes.
The related technology and process efficiency project will result in a total of CAD 78 million invested over the next 9 months, and will also be expected to streamline various processes as well as generate economic returns after the project is fully implemented. This initiative began in the third quarter of 2020, and thus far has incurred approximately CAD 2 million in capital costs. Thus far, we've been able to successfully adjust and manage through the challenging situation that has arisen as a result of the COVID-19 pandemic. Our efforts have continued to deliver strong operating cash flow during 2020, notwithstanding the substantial decline in the revenues caused by COVID-19. Following the pause on acquisition activity that began in late March, we resumed activity in mid-August of 2020.
The company added 39 locations through acquisition, including one intake center, 10 locations operating as intake centers, and five startup locations, for a total of 54 new locations. The COVID-19 pandemic continues to impact our business. Thus far in the first quarter of 2021, same-store sales activity is at a similar level to that achieved in the fourth quarter of 2020. Canada continues to have tighter restrictions and slower economic reopening when compared to the U.S. This has had, and continues to have, a significant impact on same-store sales activity in Canada. These declines have been partially offset by the Canada Emergency Wage Subsidy, which has been extended to June 2021. Boyd will continue to make applications under the program as long as eligibility criteria are met.
However, amounts expected to be received in 2021 will be significantly lower than those recorded in 2020 due to program changes announced to date. In the U.S., sales activity has experienced variability throughout the various states in which we operate. Variability has been caused by different levels of restrictions by states, a significant surge in COVID-19 infections, and unusual weather events in southern states, which contributed to power outages in Texas. Certain operating expenses and personnel costs, along with the continued reduced demand for services, will continue to impact the levels of adjusted EBITDA that can be achieved during 2021. Overall, we are well-positioned to navigate through this challenging environment, and we remain committed to our five-year growth strategy, through which we plan to double the size of our business on a constant currency revenue basis from 2021 to 2025 based on 2019 revenues.
In order to achieve this, we will continue to pursue accretive growth through a combination of organic and same-store sales growth, as well as adding new locations to our network in the United States and Canada. New location growth will continue to include single location acquisitions, as well as brownfield and greenfield startups, and multi-location acquisitions. Additionally, to reduce volatility from exchange rates, effective January 2021, as previously announced, Boyd will begin reporting results in US dollars. Given that almost 90% of our revenues come from the US, this makes sense as an appropriate currency for reporting purposes. Despite dealing with the impact of the pandemic, we moved several other important initiatives forward in 2020 that we will build on in the coming years. We increased our focus on ESG with investments in energy-saving LED lighting, which reduces energy consumption and improves the work environment.
We implemented updated diversity training and are preparing to establish broader diversity goals for our business. Our board is leading this and has committed to have at least 30% of our board be women within the next 3 years. As always, operational excellence remains central to our business model. With continuous improvement in our WOW Operating Way, we continue to work to drive excellence in repair quality, customer satisfaction, and repair cycle times to ensure that the continued support of our insurance partners and vehicle owners. Additionally, the company has begun to expand its WOW Operating Way practices to corporate business processes, an initiative that began in the third quarter of 2020, and is expected to streamline various processes as well as generate economic returns.
We also announced that Allan Davis, who's been on our board since 2005 and served as our chairman for the past 9 years, will not seek reelection to our board. I'd like to thank Allan for his dedicated service and in particular for his support and guidance to me over the past 15 months. In conjunction with Allan's planned retirement, the board has nominated David Brown as incoming Independent Chair, subject to his reelection at the upcoming general and special meeting. Additionally, Bob Espey, CEO of Parkland Corporation, has been nominated and will stand for election to the board. I look forward to working with David as incoming Independent Chair and Bob as a new member of our board. In summary and in closing, I continue to be incredibly proud of our team, who have adjusted to the new environment and positioned us well for the future.
We've been able to adjust our business to manage through this challenging situation. We continue to believe that there will be many opportunities that come from this crisis, both internal and external, and we put ourselves in a good position to come out of this crisis as a stronger company. Our priorities remain taking care of the health and safety of our team members and customers, as well as preserving our financial flexibility and preparing for the opportunities that lie ahead. With that, I would now like to open the call to questions. Operator?
Thank you. If you'd like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw your question, please press the pound key. Your first question will come from David Newman from Desjardins. Please go ahead. Your line is open.
Good morning. This is Patrick Buckley. How are you doing?
Good. How are you, David?
Very good. It's sunny day here. That's great. I'm just looking at your acquisition strategy overall. It seems like you've stepped up the intake and greenfield strategy overall. As you're looking out, is that gonna become a larger part of your strategy going forward in terms of building out the intakes and greenfields?
Yeah. I'd say it has always been a part of our strategy, but we will increase our emphasis on greenfield and brownfields as a part of the overall mix.
is there anything that came out of the pandemic? I mean, it's, there's always a silver lining in everything, and there's always an opportunity to kind of, you know, reevaluate who you are, the insights, looking at the strategy. Any learnings that you that you came out of the pandemic beyond the obvious in terms of your forward long-term strategy?
I don't really think it's changed our outlook on the long-term strategy. You know, I think we felt very good about our position as we went through the pandemic, that we had a strong balance sheet that allowed us to manage the business effectively, but you know, without the concerns that a company with a weaker balance sheet might have had. It really hasn't adjusted our perspective on the long-term opportunity that we have to continue to consolidate the industry.
Okay. Last one from you guys. You know, obviously, cheap financing right now. You know, as rates begin to climb, could you see more opportunities evolve in terms of picking up assets, either PE-owned or otherwise? Obviously, your CAD 1 billion in dry powder puts you in a very, very unique position in North America. Anything that you see not in your pipeline that might be heating up?
We cannot make any forward-looking statement, David. As you pointed out, we do have tremendous financial flexibility, and we have been actively pursuing acquisition opportunities. As you pointed out, there are a bunch of PE-owned companies, and they do have a finite timeframe to harvest their investments. There could be opportunities out there.
Excellent. Thanks, gentlemen. Appreciate it.
Thanks, David.
Your next question comes from Chris Murray from ATB Capital Markets. Please go ahead. Your line is open.
Thanks. Good morning, gentlemen.
Good morning, Chris.
Just going back to your Q1 guidance, and maybe I'm just trying to understand this a little bit better. You talk about same-store sales levels in line with what you saw in Q4. Should we be expecting that, like, on an absolute basis or on a percentage basis, I guess, is what I'm trying to make sure I understand.
We were referring to what we've seen thus far in the quarter, on a percentage basis rather than a dollar basis.
That 12.6% type number is still trending out of Q4. That's great. Then maybe just quickly back to David's question on the intake centers and the number that you've been opening. The strategy around the intake centers right now, is that something that you're just using as a way to manage COVID and the ideas down the road, those will convert to actually full shops? Or is that, you know, is the intent to have those intake centers remain as intake centers as you go forward?
Chris, you may recall that this was a strategy that had been deployed by Assured in Ontario.
Yep.
It's been executed with good success at driving incremental revenue. I would say our strategy is really piggybacking on what we learned from Assured when they became part of our company. I would expect it will, you know, continue to be one of the tools that we have to grow our business going forward.
Okay, that's fair. Just one last one for me. Pat, you put up some preliminary conversion information for the change to US dollars. When should we be expecting any additional information on the 2020 numbers just to update the models?
Within the next two weeks.
Okay. That's helpful. All right. Thanks, folks. That's all my questions.
Thanks, Chris.
Thanks, Chris.
Your next question comes from Michael Doumet from Scotiabank. Please go ahead. Your line is open.
Good morning, guys.
Good morning, Michael.
Good morning, Michael.
Just on the same-store sales decline, any way you could break out the cadence so far in Q1? Because at the end of March last year, you disclosed organic declines were between 40%-50%. So that should help ease the comp, right? Or is the reason why we're seeing a similar decline to Q4, you know, maybe relating to the U.S. storms in February? Just a little bit of color as to why that's not easing.
I would say, you know, there certainly was some impact from the storms. If you know, think back to the timing of when COVID hit, it was really at about this time, maybe slightly earlier when the pandemic was declared, we had pretty good inventory. Our quarter was not terribly impacted by COVID. It was really Q2 when the, you know, the significant decrease in inbound opportunities translated into large revenue reductions. I think Q2, our same-store sales were down a little over 35%, and then began to recover in Q3 and then into Q4.
I think you know, we're still faced with the COVID headwinds relative to what had been a fairly normal environment, at least in terms of work in the shops through pretty close to the end of last quarter of the first quarter last year.
Got you. Okay, that makes sense. On the operating expenses, those were up sequentially, I mean, as telegraphed on the Q3 call. Just wondering if you still need to add costs back, any overhead, or if at this point, expense growth should generally trend with revenue.
Well, we've continued to bring back resources as needed during Q4 and into Q1. I think that in the not too distant future, we'll have a pretty stable run rate on the expense side.
Got you. Okay. Just one last one. I mean, at the beginning of the pandemic, Tim, I think you talked about, you know, how government programs were supporting industry players, and I'm just wondering if that was your expectation into 2021. As it relates to M&A, I mean, has the bid and the ask spread somewhat narrowed between, I guess, what you guys are looking to buy for and what sellers are looking to sell? Just trying to get a sense for whether, you know, there's some pent-up M&A activity in 2021 that we can expect to see.
I think there's plenty of opportunity out there. We don't really comment on valuation, so I can't really make a statement on that. We see ample activity available to us in the marketplace to compete for. I think we have talked and the market has seen that there are other private equity backed players out there as well. We feel very good about our opportunity to meet our five-year plan.
Perfect. Thanks, guys.
Thanks, Michael.
Thanks.
Your next question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.
Good morning, guys. Just a couple follow-ups on the earlier themes, if I may. The first one is, you know, Tim, just simplistically, you know, why not go faster? You know, I'm just curious here. We've seen, you know, a number of what I'll call super regional MSOs sort of evolve here over the last six to eight months that have been going at a pretty brisk pace on the M&A path. And you guys have started to accelerate, admittedly, but I would still suggest relative to your liquidity profile, it's been relatively slow. Just maybe what's holding you back? You suggest the opportunity is strong, so why not go faster?
Yeah. I think that what I've seen over the years, Steve, is when businesses have gotten ahead of their capacity to integrate effectively, they end up stumbling and then suspending growth for a period of time. I think the five-year plan that we've laid out delivers shareholder value. We know we can execute effectively. If there were opportunities to accelerate that and to operate effectively, we would consider that. But I think we're trying to line up resources to grow at that pace and make sure we do it very well.
Okay. I think that's fair. Just another one on, you know, this actually stems back to a couple of quarters back now. You had mentioned you would evaluate some opportunities in and around the larger dealer channel. Just curious if that sort of effort has, you know, culminated in anything significant, if you can comment on where you're at today, if you're still pursuing that. I understand there are several hundred shops still within that dealer channel that might, you know, at some point want to make their way out.
Yeah. I think dealers today have about 18% of the North American collision repair market, and some dealers love being in the business and others do not. We're certainly interested in working with a dealer that has a body shop that really doesn't love being in that business, but it would be just one of the elements we would look at to grow our business going forward. Okay. Appreciate that one. Thanks.
Your next question comes from Maggie MacDougall from Stifel. Please go ahead. Your line is open.
Morning, Maggie.
Thanks. Good morning.
Good morning, Maggie.
Morning. Morning, everybody. First off, just wanted to circle back on something that a couple of you guys have already touched on a bit. The increased focus on greenfield and brownfield versus M&A. Is there, an underlying reason for that in terms of market conditions or perhaps you're looking at sort of a map and seeing, you know, you'd like a larger facility or one with newer equipment in a specific region and filling the hole? I'm just guessing. Any color you can give us in terms of why that approach today and, how we should be thinking about, secondly, the economics of greenfield/brownfield versus, acquisition.
Yeah. I think anytime we've decided that we would like to enter a market, we would look at the way that makes the most sense for us to enter the market. Historically, we've entered through single shop acquisitions or for platforms, multi-shop acquisitions, and we've occasionally done a greenfield or a brownfield, but it has not been in an organized, intentional manner. We've now moved to the point where we have that capability to drive that in-house. When we're looking at new markets, we'll evaluate the best way for us to enter that market. If it's a greenfield or a brownfield operation, we're now very capable of that. As you might expect, a greenfield or a brownfield opportunity would have a lower investment than acquiring something that has revenue and goodwill.
The upfront investment is lower. It does take a little longer to build the revenue, so the, you know, the returns could come a little bit more slowly. Ultimately, we think we would get to a similar place in terms of revenue, so it should have higher ROIC characteristics than the two other main alternatives that we've got. It'll be in single shop and then MSOs. It's just, I guess in addition to that, Maggie, there are markets that may be emerging markets or markets where there's been a firm amount of growth that could be attractive to us that there isn't an acquisition alternative to get into. Those would be areas where greenfield or brownfield may be our only viable choice.
Great.
Maggie, just to supplement, that typically we underwrite the single shops to 25% pretax ROIC, and we expect a better ROIC on these brownfields and greenfields.
Thanks, Pat. That's great. I'm curious, is this strategy, I mean, you've, it sounds like you've increased your internal capabilities, but it also seems as though this strategy is more doable perhaps in this current employment environment and just given the state of the economy. There's likely more human resources and perhaps even physical opportunities in terms of leasehold and so on available.
Yeah. There may be more physical opportunities if vacancies are up. I'd say that I don't have an expectation that the labor market won't be tight again in at least the U.S. market. I think these are long-term. You know, for us to open a greenfield facility, a short greenfield would probably be close to a year. A brownfield would be less, you know, and it could take longer. We have to look at these with a longer-term perspective, and the labor market, well, that's always something we think about. That wouldn't drive our thinking on greenfield/brownfield.
Okay. Thank you. Just one more question from me. You've talked a couple of quarters now about introducing your WOW Operating Way into your corporate functions. Could you provide us with an update in terms of, you know, what are you doing with that? Is there some centralization or, you know, operational efficiency that you expect to gain from that, either in terms of processes, outright cost, or perhaps it will create some leverage for you within your platform to be able to do more with the same resources?
Sure, Maggie. I'll be happy to give an update on that. Yeah. We are essentially rolling out this WOW Operating Way in our strategic support services, finance, HR, procurement, and areas like that. It entails both reengineering the processes as well as implementing a technology solution that will help us take the company to the next level. Our expectation is to get it done by this project before the end of the year. Yeah, we'll realize a meaningful savings from this exercise.
Thanks, Pat. Nice speaking with you guys. Hope you have a good day.
Thanks, Maggie.
Thank you.
Your next question comes from Daryl Young from TD Securities. Please go ahead. Your line is open.
Good morning, Daryl.
Good morning, gentlemen.
Morning, Daryl.
Morning. Just a couple quick questions from me. First, with the entrance of private equity and the rise of some of these maybe super regionals, does this change at all the insurance dynamic in terms of pricing or allocation of work in those regions where there may be increased competition or any longer term impacts that you can think of?
I haven't seen any sign of that, Darryl. I think that, you know, we're well positioned with our insurance clients, and our focus is really on making sure that we're meeting or exceeding their expectations. As we do that, I think it takes care of itself. You know, the nationals still have an advantage over the regionals, and I would expect that to continue. We also, in most of our markets, have a pretty extensive network that we built up. You know, it's still competition, but our relationship with the insurance carriers doesn't seem to have been impacted by it to date.
Gotcha. Okay. Then on the margin front, historically, I think you've said same-store sales has been one of the biggest drivers of the historic 30-50 basis points of margin improvement. As we look out, you've been adding stores, obviously, and even the 2019 stores that got added, maybe all that operating leverage wasn't seen. Is there anything to change that dynamic, or could we almost expect two years of catch-up come 2020 when same-store sales re-accelerate and lap 2019 levels in terms of the margin growth?
Yeah. Our expectation is now that we'll go back to getting more same-store sales growth. With that, we do have the operating leverage. We are optimistic about getting those things as business conditions stabilize.
Perfect. Okay. Thanks very much, guys.
Thank you.
Thanks, Daryl.
Your next question comes from Bret Jordan from Jefferies. Please go ahead. Your line is open.
Hey, good morning, guys.
Good morning, Bret.
Morning, Bret.
Could you talk about, I guess, sort of the cadence of market share consolidation? I guess you've got the national MSOs, you've got more super regionals. When you think about the single shop operators, are they shrinking at an accelerating rate just given the increasingly competitive environment? I guess, you know, the inverse being, if they survived last year, does that mean that they're relatively stable and can generally survive into the future?
Well, I think 60% of the market or very close to it still remains single shops.
Right.
While there is, you know, increased activity from private equity, there's still a pretty large pool of single shops in the marketplace, and many of them are likely interested in selling at some point. I think there probably will be maybe a more rapid absorption of some of those single shops. You also see companies focusing on, you know, developing as well, such as we're doing. I think that should help to keep prices rational for that, because we do have alternatives to get into markets. I do think that there could be some, you know, further acceleration as a result of the regional players coming in with private equity money.
Brett, also last year, just because they survived last year doesn't mean they're going to survive because they got the life support from CARES Act and Recovery Act and things like that. That may go away. We have to see how vulnerable they are. The other one is the tax reform. The tax reform could change the dynamics in terms of the capital gains, and that could also change the thinking of the single shop owners. Those are the couple of other factors to keep in mind.
Okay. Great. A question, I guess, on total rates. It seems like the fourth quarter was just over 21% of crashes were totaled. Do you see that sort of being a spike that was driven by the pandemic and we may moderate total rates, or is that just a longer-term trend where we see a higher percentage of cars going to salvage versus repair?
There's certainly been an upward trend that's been pretty steady over the past five years on total loss rates. I think a piece of it was probably a continuation of that trend. There were other factors, and I don't think, until we get another year or two behind us, I'm not sure we'll know. As has been reported, there were more high-speed crashes through the pandemic because of the lack of congestion and miles traveled. There were higher levels of damage. That may well have contributed to the total loss percentage as well. I think it's too early to know, you know, whether that's the new bar or whether we'll fall back a little bit and maybe continue its slow upward trend.
Okay, great. Thank you.
Thanks, Bret.
Sorry, Tim, if I just might add, just for clarity, you're correct. In terms of the more high-speed crashes, you're referring to the mix as opposed to the absolute number because the market was down. We're talking about a greater percentage of high-speed crashes in the mix of overall crashes. I don't want anyone to interpret it to be that there were more crashes, because there weren't.
No. Thanks, Bret.
As a reminder, to ask a question, please press star followed by the number one. Your next question will come from Zachary Evershed from National Bank Financial. Please go ahead. Your line is open.
Morning, folks. Good morning.
Good morning.
I was hoping you could give us a little more commentary on maybe how long Texas locations were offline due to power outages, whether you're seeing any kind of offset from additional collisions due to the severe winter weather, and maybe the magnitude of the impact on operations in other southern states?
It wasn't material enough for us to disclose separately. We did have locations that were shut down for multiple days. There was also some supply disruption, suppliers that couldn't get to us or didn't have employees out on the road that created, you know, production shutdown or production issues. The storms that hit the South weren't isolated to Texas. It hit most of the southern states. As many people appreciate, many of the southern states in the U.S. are really not set up well to handle ice and snow on their roads. They don't have the equipment to mitigate it and make the roads passable. Unfortunately for the collision industry, when those types of events happen in those environments, most people choose not to drive.
It really doesn't create the same type of increased demand that we would get in northern markets, where people are comfortable driving in that and the municipalities have the equipment to clear the roads.
That's helpful. Thanks. Separately, we were talking about miles driven making a comeback, but the traffic patterns, the concentration in rush hour traffic that drives a pretty big proportion of collisions is not quite there yet. For your own internal projections, when do you assume traffic patterns normalize?
I mean, we may noodle around with that internally, but we don't disclose our projections on that.
Fair enough. One last one. As the insurers seem to be directing traffic to larger operators first, are you seeing an uptick in smaller owner-operators looking to sell?
I don't know if I'd characterize it as an uptick, but we're confident in our ability to achieve our growth plan based on, you know, what we see in our pipeline and how we're managing our pipeline.
All right. Thank you. I'll turn it over.
Thank you.
Our last question will come from Steve Hansen from Raymond James. Please go ahead, your line is open.
Yeah, just one quick follow-up, guys. I doubt it's an issue as yet, but just noticing that we're seeing some auto production lines start to cut production on chip availability. Does any of that impact the repair supply chain at all? Or has it yet? I know collisions are down, but just wondering if there's any shortages of materials within the system. Thanks.
We've had some reports from the field, Steve, that we have repairs that are being delayed by a lack of parts availability. I'm not sure the chip issue has hit the aftermarket yet. There are other supply issues that have had some impact. At this point, it hasn't been anything that's been overly significant to us. In fact, it may be greater than what it's been historically, but there are generally supply issues that slow down some repairs. It may take, you know, a month to get a part or six weeks to get a part, which is unfortunate and, you know, doesn't make customers very happy, but we manage our way through those issues.
Okay, very good. Thanks for help. Cheers.
Thanks, Steve.
We have no further questions. I'd like to turn the call back over to Tim O'Day for closing remarks.
Very good. Thank you, operator. Thank you, all once again for joining our call today, and we look forward to reporting our first quarter results in May. Thanks again, and have a great day.
Thanks, everyone. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.