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Boyd Group Services Inc
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Good morning, everyone. Welcome to Boyd Group Income Fund First Quarter 2019 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 risk and uncertainties relating to Boyd's future financial and 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 statement. And you can access these documents at SEDAR's database found at sedar.com. I would like to remind everyone that this conference call is being recorded today, Wednesday, May 15, 2019.I would now like to introduce Mr. Brock Bulbuck, Chief Executive Officer of the Boyd Group Income Fund. Please go ahead, Mr. Bulbuck.
Thank you, operator. Good morning, everyone, and thank you for joining us for today's call. With me today are Pat Pathipati, our Executive Vice President and Chief Financial Officer; and Tim O'Day, our President and Chief Operating Officer.We released our 2019 first quarter 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 fund's financial results for the 3-month period ended March 31, 2019, and provide a general business update. We will then open the call for questions.Overall, we are pleased with our progress and results thus far in 2019. In Q1, we had strong financial performance, including strong same-store sales growth, combined with an above-average pace of new location growth. Notwithstanding our strong Q1 metrics, we remained focused on our long-term goals of operational excellence and doubling the size of our business based on revenues on a constant-currency basis over the 5-year period ending in 2020.We added 42 locations during the quarter and an additional 9 locations subsequent to quarter end. With these additions, we crossed the 600 location milestone and also entered 2 new states, New York and South Carolina. These new locations not only increase our market presence, they also help to enhance our ability to grow as they position us in new geographies.On January 1, 2019, we adopted the new leasing standard, IFRS 16, under International Financial Reporting Standards. As we have noted in our MD&A and on past conference calls, the adoption of this standard significantly changes our balance sheet as this standard requires that most operating leases, including premises leases, be brought on to the balance sheet. The impact can also be seen in our income statement in the form of reduced operating expenses and increased interest and depreciation expense. In adopting this new standard, we recognized right of use assets and lease liabilities on January 1, 2019, of approximately $452.9 million and $488 million, respectively. As we go through our call today, we will endeavor to provide additional details on the impact of IFRS 16 in our Q1 reporting. You will also find extensive disclosure in our MD&A detailing out these impacts so that you can clearly understand how our results would have looked absent the adoption of this new standard.Looking at our results for the past quarter. Our total sales were $557.9 million, a 23.1% increase when compared to the first quarter of 2018. This reflects a $62.2 million contribution from 108 new locations. Our same-store sales, excluding foreign exchange, increased by 5.3% in the quarter. After adjusting for 1 less selling and production day in the U.S. in Q1 2019, same-store sales increased 6.6% on a per day basis. Foreign exchange increased sales by $20.4 million due to the translation of same-store sales at a higher U.S. dollar exchange rate.Gross margin was 45.3% in Q1 2019 compared to 45.1% achieved in Q1 2018. The gross margin percentage increase is primarily due to improved DRP pricing this quarter as well as improved parts and labor margins, partially offset by a higher mix of part sales in relation to labor. This gross margin percent also reflects a return to more normal gross margin percentages up from last quarter's 44.3%. You will recall that in Q4 2018, we experienced some DRP performance pricing arrangements, which changed in a way that translates into slightly greater variability in our gross margin percent quarter-to-quarter. In line with this expected variability, we experienced a recovery in our gross margin percent this quarter compared to last quarter Q4 2018.Operating expenses for Q1 2019 were $174.7 million or 31.3% of sales compared to 35.8% in Q1 2018. Operating expenses for the quarter were significantly impacted by the adoption of IFRS 16, which removed $24.1 million of location lease expense from operating expenses. If we normalize for the adoption of IFRS 16 by adding back this rent expense, operating expenses would have been $198.8 million or 35.6% of sales. After normalizing, the decrease in operating expenses as a percent of sales reflects same-store sales growth leverage.Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments, costs related to acquisitions and transactions and the impact of the adoption of IFRS 16 was $54.2 million, an increase of 28.6% over Q1 2018. Adjusted EBITDA growth was primarily due to contributions from new locations and same-store sales growth. Adjusted EBITDA margin was 9.7% in Q1 2019 compared to 9.3% in the comparative period, reflecting a 40 basis point improvement. Contributions from new locations and same-store sales growth contributed to the adjusted EBITDA margin increase. You will note that we have chosen to adjust out the impact of IFRS 16 in reporting our adjusted EBITDA so that our adjusted EBITDA is presented on a consistent basis with our pre-IFRS 16 historical reporting. Had we not chosen to exclude the impact of IFRS 16 in calculating adjusted EBITDA, adjusted EBITDA would have been $78.3 million or 14% of sales.Net earnings for Q1 2019 were $21.4 million compared to $18.3 million in Q1 2018. Impacting net earnings in both the current and prior year Q1 was the recording of fair value adjustments for exchangeable shares, unit options and the noncontrolling interest put option as well as the recording of acquisition and transaction costs. The net earnings amount in the first quarter of 2019 was also negatively impacted by the adoption of IFRS 16, which reduced net earnings by approximately $1 million or $0.05 per unit. Excluding these impacts, adjusted net earnings for the first quarter was $29.2 million or $1.47 per unit compared to adjusted net earnings of $20.9 million or $1.06 per unit for the same period in the prior year. The increase in adjusted net earnings is the result of the contributions of new location growth and same-store sales growth. Again, you will note that we have chosen to adjust out the impact of IFRS 16 in reporting our adjusted net earnings so that our adjusted net earnings is presented consistently with our pre-IFRS 16 historical reporting.In Q1 2019, we generated $32.2 million in adjusted distributable cash compared with $29.9 million generated in the same period of 2018. We've chosen to deduct the repayment of leases from adjusted distributable cash for consistency with historical treatment. We paid distributions and dividends of $2.7 million, resulting in a payout ratio of 8.4% compared to a payout ratio of 8.8% in Q1 2018. Our approach to distributions continues to be to maintain a conservative payout ratio to provide returns for unitholders while preserving capacity to act on growth opportunities.At the end of the first quarter, we had total debt net of cash of $809.6 million compared to $232.1 million at the end of 2018 and $214.9 million at March 31, 2018. Total debt increased significantly in the first quarter of 2019 under the new lease standard, which resulted in the recording of $495.1 million of lease liabilities. Normalizing for the impact of this new standard, total debt net of cash would have been $314.5 million, with the increase over December 31, 2018, being the result of recent acquisition activity.We continue to have a very strong balance sheet with very conservative leverage at the end of Q1 of approximately 1.7x adjusted EBITDA after removing the impacts of IFRS 16 adoption. Even after considering our growth capital spend in 2019 to date, we continue to have over $300 million of dry powder available in cash and existing credit facilities to execute on our growth strategy.Looking to the rest of 2019 and beyond. We continue to be confident that we will maintain our progress toward our long-term growth targets and operational plans. We continue to add locations in new markets and expand in markets where we have a presence today. Our people initiatives are continuing to have a slow and gradual positive impact, and the ongoing investments we are making in technology, equipment and training position us well for continued operational execution. While the industry-wide technician shortage continues to be a challenge, we achieved above-average same-store sales growth in Q1 that we attribute to a combination of continued strong demand and increased component of part sales in our sales mix and some modest growth in technician capacity. Entering Q2, we are starting to see some normal seasonal softening in demand in some of our markets that is translating into lower work-in-process levels. However, we cannot yet tell what impact, if any, this might have on Q2 or the rest of 2019. Looking longer term, industry dynamics continue to drive industry consolidation that is favorable to our business model. Acquisition opportunities continue to be strong throughout our network, and we expect to continue to convert these opportunities into new locations. We remain confident that we will achieve our long-term growth goal. And as always, operational excellence remains central to our business model. And with our WOW Operating Way, we will continue to work to drive excellence in repair quality, customer satisfaction and repair cycle times to ensure the continued support of our insurance partners and vehicle owners. In summary and in closing, we continue to be very well positioned to take advantage of the growth and market share gain opportunities within our industry.With that, I would now like to open the call to questions. Operator?
[Operator Instructions] Your first question comes from the line of Michael Doumet with Scotiabank.
So obviously a very strong same-store sales number in the quarter. Presumably, I think, you talked about it too with the technician capacity or the investments there paying off. Could you give us any insights on what drove the mix to parts in the quarter? Was that driven again by a substitution element, again, due to the technician constraint, just any underlying trends there?
Yes. It's hard to pinpoint exactly which specific variables contributed to it. But usually, we do have a higher parts to labor mix in Q1, but that was the case in the comp period as well. I would say that the continued strong demand is probably the biggest driver, whereby we just got so much -- had so much work stacked up that -- and with still some constraints on technician capacity, we were probably opting for parts replacement more often than we might have been historically. I'd say that the other potential factor is the increasing repair complexity that is creeping into the market as we see more newer vehicles, but that's a very slow and gradual impact.
Okay. And if we were to dig a little deeper on that same-store sales number, any way you can give us a trend for how the quarter played out, either month-to-month or maybe some color on the unprocessed work and where that stands versus prior quarters?
Sure. I'd say that the same-store sales growth in Q1 was fairly consistent throughout the whole quarter. I'd say the unprocessed work at the end of Q1 had come down slightly to where we had been finishing the prior couple of quarters. And that unprocessed work has continued to come down, although it hasn't -- it has continued to come down throughout Q2. It's still -- I would say that thus far in Q2, it hasn't -- the unprocessed work reduction hasn't yet had a significant impact on our ability to generate same-store sales growth. I'm not committing to sort of same level of growth as Q1, but it hasn't had a meaningful impact, but we are seeing some seasonal slowdown, which is normal and that is translating into lower work-in-process levels. So that raises uncertainty as to whether or not we continue this -- can continue this pace of growth throughout this quarter and into the next quarter.
No, that's great. That's helpful. And maybe just flipping it to margins. You indicated that parts and labor margins were improved. So maybe just on the labor side, you obviously had inflationary pressures last year with the investments that you've made. If you look at industry comments, they talk about labor inflation. Just wondering if that trend that you're seeing in the quarter is some sort of normalization across the industry. Or if it's something else, just any color there, please.
I would say that we have some normal quarter-to-quarter variation and fluctuation in both labor and parts margins. And we saw some of that in this particular quarter. Our labor margins, I would say that I wouldn't characterize us as having less labor pressure today than we had a year ago or in prior quarters. But we are starting to see some benefits of scanning translate into some labor gross profit. So that's having some marginal impact as well.
Your next question comes from the line of Chris Murray with AltaCorp.
Just -- I guess, Brock, just following on -- I mean the same-store sales number was -- I guess even ex a day was 6.6%. You're talking a little bit about some softness, and Brock, I know you're always somewhat cautious, but this is kind of a couple quarters in a row where you've said it could be a little bit weak -- could be a couple -- little bit weak, and we seem to -- continue to be surprised with the upside. So I want to be careful about, again, getting maybe too enthusiastic or trying to extrapolate this trend, but just trying to think about if there's anything you're seeing other than maybe kind of returning to kind of your normalized 4% same-store long-term run rate that would take you down below that. Or is there anything structural? And I guess what I'm also thinking about here, is there any shift in the marketplace with some of the transactions going on or anything else at play here other than normal course of business?
No. Not really. This is all normal course of business. I mean we -- you know that we haven't talked about -- I mean we talked about some seasonal slowdown that we're also seeing. As you know, we've also seen a flattening out of miles driven over -- we experienced a number of consecutive years of meaningful growth in miles driven. But the miles driven trends have started to flatten out. We're still seeing modest growth year-over-year but not the same degree of growth that we were seeing in miles driven, say, a year to 2 years ago.
Chris, the main difference is, like, we had ample work in the Q4 as well as in Q1. The progress we made on the technician side contributed to that additional same-store sales growth. So yes, we made progress and -- so it's company specific. It's not structural.
Okay. So it's more to -- Pat, to your point, it's that you had probably a higher than normal backlog of work to get through. And what we're really seeing in the last couple of quarters is just flushing that excess work that was sitting on the ground.
That's correct. The strong demand was a significant contributing factor to our ability to generate those levels of same-store sales growth.
Okay. Fair enough. And then just turning back to the lease standard. I guess, a couple of pieces of this. Pat, I'm going to assume that you spend a lot of hours having to go through the analysis to get the standard ready. A couple of things just to think about on a go-forward basis, what's the average tenure of your leases, just for some color? I mean you disclosed your lease rates in your notes to your statement, but I was trying to think about what -- how long the average lease is in that portfolio. And I just want to double check whether anything -- was there anything in that portfolio of leases that we should consider onerous or out of market when you guys came up with the liability?
Chris, we haven't disclosed -- I don't believe we've disclosed...
We haven't disclosed.
The average tenure of our lease. And we'd have to take that away and consider whether that's a matter that we would want to disclose on the surface or -- my first reaction is that it does have some competitive elements to it. So we need to consider that. But I would say that in a general answer to your question, there's nothing -- we've got lots of leases. We've got over 600 leases. And there's nothing unique in -- that is persuasive across that portfolio that would be significantly different from any other tenant leasing space for a multi-location business.
But Chris, to answer your question, we don't think we have any onerous leases. So again, when we have so many, we may have a few, but in general, we don't have. And the structure is, we -- typically, we have an initial term and we have options to extend the lease. The only thing we disclose specifically is like the discount rate, the 4.47%. It's a blended rate. So you can do some back-of-envelope math to derive. But no, at this point in time, we have not disclosed the term.
No. That's fair. And then along the same lines and I guess kind of a follow-up to it. You did allude to the fact that some of your adjusted metrics as we move forward, the Q1 numbers are -- were more to provide a clean comparison to Q1 last year where the standard didn't apply. Is it fair to think as we move forward -- I know we've had this discussion with a lot of other companies as well. The structure of your balance sheet's now materially changed. I would assume that -- is it fair to think that you may be starting to change thinking about how you report certain adjusted metrics as we kind of roll more into the year?
I think that we're not sure, quite honestly and transparently. I think we'll have to see how the marketplace evolves in terms of other reporting companies. What we endeavor to do this quarter is really to provide a very clear reconciliation of the impact of IFRS 16 on our results so that one could easily compare them and actually such that we would report in a consistent basis of adjusted EBITDA and adjusted net earnings to the way we had historically calculated the adjusted EBITDA and adjusted net earnings. Whether or not we, at some point in the future, evolve a way into having primary focus on an EBITDA number that is unadjusted for IFRS 16 is a possibility. But I think we need to first see how sort of the marketplace would like us to report, how other issuing companies are reporting. And I think with that additional information, we'll -- we may or may not see our reporting around this matter evolve.
Yes. Chris, you're right. This is having -- this change is having a significant impact on our financial statements. And when we looked at other companies, what we decided is to be fully transparent. In fact, if you look at our disclosure, it's a very fulsome disclosure compared to other companies out there. And going forward, obviously, we're going to see how the market's evolving relating to this disclosure and also the competition and then, yes, we'll act accordingly.
Okay. Great. One last question, if I may. Pat, just very quickly, with the change in the standard, does this have any impact in any of your credit facilities? Or is that something you work through with your lenders over time?
Yes. We -- in the current credit agreement, we do have a language that normalizes the impact of new accounting standard. So as we renew a new credit agreement, at that point in time, I think we're going to renegotiate that. So right now, this doesn't have any impact.
Your next question comes from the line of Matt Bank with CIBC.
My first question is with the seasonal slowdown in demand you called out, does that ease the technician capacity constraint?
It does in the markets where we're seeing some seasonal slowdown. As we indicated, we are seeing some seasonal slowdown in some of our markets, not all of our markets. So even though we have some markets where the technician shortage issue is not currently really representing a inhibiting factor to process sales, we still have markets where we still suffer from a shortage of technicians. So it's really a tale of two stories.
Okay. Great. And since the backlog has become a bit more of a metric we talk about on the quarterly call now, can you just help me understand exactly how to interpret what this backlog exactly is? Like how many months or weeks of work can realistically be in a backlog given relatively quick turnaround times? I'm just trying to get a sense of how much or how long your backlog can insulate you from a slowdown?
Sure. I think we've actually talked about this on prior calls. You may not have participated or may not have recalled that, but our backlog is more in days than it is in weeks. Because we are demand service, our work that we're processing today has shown up at our door or has tried to schedule in for repairs in a matter of a couple of weeks or days versus months prior. So we don't have -- we have never had a backlog that would extend sort of beyond 30 days into multiple months.
That makes a lot of sense. And then just one more if I could. After you lapped the employee benefits investments that began, I believe, in Q2 of last year, how should we think about OpEx rates for the rest of the year?
Well, that depends on how we -- successful we are at generating same-store sales growth, which a positive same-store sales growth would leverage those OpEx expenses. But you are correct, in Q2 last year, we had the burden of the enhanced benefit cost and we continue to have those expenses in 2019. So our OpEx ratio was really a function of -- more a function of how well we can generate same-store sales growth to leverage growing expenses.
Your next question comes from the line of David Newman with Desjardins.
Great momentum. Did you -- have you done any sort of attribution analysis just on the mix? In other words, the $54 million that you posted in EBITDA, if you'd been sort of the same mix between labor and parts, what might have that been, a couple million more? Or what do you think it would have been on sort of same-store basis on mix?
Well, actually, we haven't done that calculation but if we would do that calculation, that actually could translate into a reduction in sales with a slightly more higher gross margin because essentially, we're putting on a part that has a certain cost to it rather than trying to repair some damage that in most cases has a lower cost but a higher gross margin.
So it'd be net EBITDA positive though at the end of the day if you did more labor versus parts?
It's hard to say. It depends on the delta between the sales dollars and the delta in the gross margin percentage, and those differ repair to repair.
Got it. Okay. And second one, guys. We noticed there's a few insurers that are forward integrating into collision repair to some degree. Do you think this is a trend? Or is it just a case insurance companies kicking it higher, so to speak, on collision repair business models to understand the cost structure? Or are you seeing anything out there in terms of any insurers forward integrating at all?
I think that we see, in Canada, there are a couple of insurers that have -- and it's not pure forward integration in terms of ownership. There -- it's more forward integration in terms of dedicated facilities, but that is pretty much limited to Canada. And in fact, if we look at other areas in the United States, we've seen all states sell their collision business that they owned for a number of years. They sold it probably 5 or 6 years ago. And we also see now there is a Australian insurance company that owned a collision repair company that's divesting that collision repair business. So I wouldn't say that what we're seeing in Canada is an indicative trend. It's maybe unique to Canada. It's not real ownership. And we're not seeing those trends in the U.S. or elsewhere.
Doesn't it just make them captive to their own insured as well? I mean -- so it limits their ability to do other work -- for other insurance companies, does it not?
Yes. David, I really prefer not to sort of get in and discuss and critique strategies of insurance companies.
Yes. Yes. Yes. No. It makes sense. Okay. And just on the M&A here, guys. I mean obviously, you're on a torrid pace of M&A here. And I saw that Caliber and Abra did a deal, and Service King still relatively absent. And then also, you bought the Fix Auto franchise, which I thought was kind of unique. So if you kind of look out on the horizon of acquisitions here, white spots, new states and things like that, what do you think the pipeline looks like just in terms of encroaching on other states and kind of doing these unique strategies and this competitiveness right now for those acquisitions?
First of all, I just want to clarify we didn't buy the Fix Auto franchise. We purchased 7 locations that may have operated as a Fix Auto licensee or franchisee, historically. In terms of the pipeline, as we indicated in our prepared comments, the pipeline continues to be healthy. We have a lot of opportunity. Whether or not we can have the same success rate in the balance of the year that we've had in the first quarter and first 5.5 months of -- or 4.5 months of this year is questionable. As we know, M&A -- closing rates on M&A can be lumpy, but the pipeline is healthy today as healthy as it was going into 2019 where we would have -- we're able to convert with a high rate of success. So I'd say that -- whether that's a function of Service King being somewhat on the sidelines or quiet or whether it has some relationship to Caliber and Abra's merger, it's really hard to say. All we can really say with certainty is we've got lots of opportunity.
David, as you know, acquisition is now part of our growth strategy and we have a solid balance sheet. So that can help us in making it happen.
No. You're very, very well positioned. And just looking at the stock here today, any thoughts given to maybe splitting the stock at some point?
We're not looking at the stock because we're on this call with you guys.
I'm looking at it. It looks pretty good. I mean at what point you kind of think about splitting the stock, I guess?
Again, we can have a long discussion. I -- we think about it from time to time. We haven't necessarily come to the conclusion that it is something that we need to do and we have lots of important priorities that we're working on. So I think we'll continue to evaluate that as we move forward but have not reached any conclusions on it yet.
Your next question comes from the line of Bret Jordan with Jefferies.
When we look at the comp, I guess when we think about the price driver versus the traffic driver in the quarter, I think you commented they need more parts mix and maybe that's driving some pricing up. Could you maybe sort of break it out? What is pricing in the comp? And what is incremental job?
Yes. Bret, we've been asked this question on several occasions, and we really don't like to get into that discussion. First of all, we don't pay a lot of attention to it because not only do you have price impact -- price/volume impact in terms of parts to labor mix, you also have price/volume impact depending upon the size of jobs that you're doing. And we could take a technician. And last year, he fixed 1 job that was $3,000, and this year -- this quarter, he fixed 2 that were $1,500. So dissecting the elements of price become very difficult when we have such a high mix of type of repair jobs. So I'm sorry. It's difficult for us to answer that question.
Is it benefiting from a shift to more OE parts as the technology becomes more complicated and you're pushed into using an original equipment part? Is there a tailwind to comp because of the parts mix?
We don't believe so at this juncture.
Okay. And then one last question...
We don't believe it's quite having a meaningful impact.
Okay. And then a question on regional trends. I guess if you sort of looked at the strongest markets versus the weakest markets, I guess we assume that those seeing winter were stronger. But what sort of spread within your comp would you see across the map?
The spread in our comp, we don't disclose it, but it is significant, low single digit to flat. We've had -- I think we even had some flat markets, maybe even -- I don't know if we had any negative markets, but to strong double digit. The -- just to comment on the weather. Weather does play -- have some impact. We're not sure -- if you look at CCC's national number of claims frequency, you might -- which was down 2.6%, you might say, "Well, how can that be? We had such a poor weather -- winter that should have contributed to frequency." When we've talked with CCC about that, they believe that a lot of the poor weather that was experienced was for short spurts followed by pretty mild weather. And as such, it really didn't have as much of an impact on claims frequency in Q1 as any of us might have expected listening to the news. So look -- but we do have -- in answer to your question, we always have significant variability in same-store sales performance across markets, some of which is related to demand, some of which is related to our ability -- technician capacity and our ability to put the work through.
Your next question comes from the line of Jonathan Lamers with BMO Capital Markets.
Brock, are you prepared to explain the change in your DRP performance price arrangements?
No. No. It's competitive, Jonathan. I think what we endeavor to do is to say that we potentially will have greater variability in gross margin that is related to DRP performance pricing, but we don't -- and these -- we made these comments last quarter. We don't believe that those changes will structurally impact our gross margins positively or negatively overall. We'll just see them bounce around a little more.
I believe that issue was noted as having a positive -- the largest positive impact on the gross margin percentage this quarter. So I'm just trying to sort out whether there's been sort of a change to timing of rebate receipts or something that are included in the EBITDA that we should be cognizant of.
No. There's no -- I actually -- this quarter, we returned to sort of more normal gross margins, slightly above the comp period gross margin. We cited what some of the other contributing factors were in addition to DRP pricing, but I wouldn't -- we can have -- we may have some continuing variability in our gross margins, but I think right now, what we're seeing is that they're sort of going to all return. On a longer-term basis, they will return to sort of the average levels that we've experienced over the last several quarters, maybe even last couple of years.
Okay. And there's quite a notable improvement in the EBITDA margin year-over-year after considering that all else being equal, there should have been kind of a 30 basis point negative impact from those improved benefit programs year-over-year. So was there anything else -- any other nonrecurring benefits that we should be cognizant of?
We would have had -- we always have some nonrecurring benefits, but I would say that we generally have some of those every quarter. Sometimes they're positive, sometimes they're negative, but nothing of any materiality. I mean I think what we're seeing is that we really got good leverage on our same-store sales growth this quarter. We also have the impact of some acquisitions that are flowing into the results as well.
Your next question comes from the line of Maggie MacDougall with Cormark.
A lot of them have been answered already, but just one I wanted to ask. If you're seeing miles driven flattening and a bit of improvement in labor in terms of technician availability in certain areas, do you believe there could be more capacity to accelerate a rule out of the intake center model in select markets?
Certainly to the extent that we have markets that are softening from a demand perspective, that is one of the primary sort of factors that would cause us to want to look to do dealer service centers. So yes would be the answer. But just -- sorry, Maggie, just to -- accelerate may be a strong word. We'll certainly look to implement that if we see all of the right characteristics to be able to have that strategy contribute to some of the -- to a demand need in a market, but accelerate may be a strong word.
I see. So it's a bit more opportunistic than...
It is opportunistic. We need to have a repair facility that needs work. We need to have a dealership and a dealer principal nearby that is willing to enter into a business relationship with us. And we also need to have some insurance company support in order to provide the DRP status to that dealer service center. So there are a few characteristics that really are required in order to make that an attractive strategy.
Your next question comes from the line of Daryl Young with TD Securities.
Just wondering, given the expansion in your multiple, has that changed your thinking at all about valuation in the acquisitions that you do? And whether you would use more stock in your deals?
Certainly, we will look to try to use stock. There are -- I would say that the practical reality is that we really only use stock for deals that are of some size and substance. If we're buying a single location or even a small MSO, the cost and complexity of introducing stock into a deal is probably not worth it. But certainly, if we have large transactions, I think that we do have an appetite to use stock as -- for a part of the consideration and have always have that irrespective of sort of where valuation was because generally with those larger deals, we have -- oftentimes, we have the seller of the business stay on in a management role, and we like to have them fully invested in the success of not only their piece of the business but our business overall. In terms of whether or not our stock valuation has an impact on the valuations that we're prepared to pay for businesses, we try not to let that influence us because we approach acquisitions and what we're prepared to pay more from a perspective of return on capital not on the -- not from a perspective of multiple arbitrage, which can disappear very quickly. So that's sort of the way we think about that.
Okay. Excellent. And then one final one. Market share across the industry, have there been any changes amongst the large MSOs in terms of volumes processed?
We really don't have access to that information. The only place we see that information is in Vince Romans' report, which he publishes annually, where he tiers the large players. He doesn't disclose actual revenue, but he tiers the large players and then as a group estimates the market share that they have. So we really don't have any more current information than Vince's last white paper.
Your next question comes from the line of Ben Jekic with GMP Securities.
Congrats on a very, very robust quarter. Most of the questions that I had have been obviously answered. I just have one modeling question. And I think, Brock, you alluded to it. I just want to make sure I understand it correctly. So when we are modeling EBITDA going forward, should we model it sort of primarily as before IFRS introduction or with IFRS introduction? And should that maybe change starting in 2020 when we have 1 year of, like, full comps?
Yes, I would expect for the balance of the year, we're -- at least for next quarter and maybe even beyond, we're going to continue to report out adjusted EBITDA that excludes the impact of IFRS 16. We will likely provide disclosure on what it would have been had we not excluded it, just as we've done in this quarter. And I'd say that you can -- I'd say that would be a safe way to model it for the balance of the year.
Right. So otherwise, there would be quite a discrepancy if it's kind of 2 ways.
Right. We'll give it to you both ways so -- for the balance of the year. So you can model that really whichever way you want and run your valuation of whichever metric you choose to, but we'll give it to you both ways.
Really, Ben, like -- the thing is for comparable period. I know you won't have a number. So I guess we'll provide going forward that information, yes.
Your next question comes from the line of Zachary Evershed with National Bank Financial.
So most of my questions have been answered, but one last one. Coming up on this summer, what are your thoughts on the vacation impact on the technician shortage? And is there anything in place to mitigate or address that?
Well, vacations are always a concern as we enter the summer period. We have them every summer. As our labor situation has gotten tighter, they have had a more acute impact. So they're going to have an impact, but whether they will have more of an impact than in the comp period or less, I really can't say. We really can't say at this point. We're -- in terms of mitigating factors, really, the only mitigating factor we can do is to try to be as effective at scheduling. And we do have some visibility into -- from a productive hour perspective into what vacation is booked in coming weeks and months. But it's -- so we're trying to more actively manage it, but there's no silver bullet to it.
Understood. And then this one is a bit of a stretch, but would you be willing to put a rough time line on when you see yourselves coming out the other end to the point where you no longer have a technician shortage?
No. I think it's going to be slow and gradual.
And your next question comes from the line of Elizabeth Johnston with Laurentian Bank Securities.
Could you review for us in terms of your capital expenditures this year? What -- just review what you expect to spend either in dollar terms or as a percentage of sales. And maybe highlight some of the key investments in technology that you're making as well.
Elizabeth, we already provided the guidance for the CapEx for the year, 1.5% to 1.7%. So we already provided that, yes, some time ago.
Yes, we provided it with our year-end fourth quarter report, Elizabeth. And we did say that's slightly down from the guidance that we provided for 2018, where I think we guided...
1.6% to 1.8%.
1.6% to 1.8%. We only spent, I think, 1.3% or 1.4% in 2018. So we had some carryover because those investments were still in the docket to make those expenditures. So our 1.5% to 1.7% guidance this year reflects some carryover from 2018 and the continuing trend to invest in the equipment that is now being required for things like OE certifications, continued rollout of scanning -- actually scanning is fully rolled out. So that's not a factor anymore. But it's really just the carryover as well as continuing investment in OE certifications and...
And normal equipment replacement as well. I mean, the equipment doesn't last forever. So there's normal replacement in there, too.
And we would like to reaffirm our guidance, Elizabeth. We're not taking it down notwithstanding 1.3% in Q1 because even if you look at last year, in Q1, we had 0.9% and we ended the year with 1.4%. So yes, we would like to stay with our guidance, 1.5% to 1.7%.
And I think the other area that -- I think we did increase the amount of capital that we targeted to spend on new location or on existing location image update. So those would be the main buckets, Elizabeth.
And your last question comes from the line of Michael Doumet with Scotiabank.
Just on the Canada sales, they were up, I think, 2% in the quarter and that's inclusive of some deals you made over the last year. So presumably, that's sort of 1 year weaker regions. Any color there you could -- you can give us to understand that trend versus the U.S.?
Very generally, we don't disclose sort of same-store sales performance by market. But I would say generally continuing strong demand in Eastern Canada that was sort of -- that we didn't have the ability to process because of technician capacity. And in Western Canada, I would say that we had a demand issue primarily through most of Western -- our Western Canadian operations.
So Michael, I think you might be picking it up from the footnote 16. So just we want to highlight, no, we don't disclose regional, geographic same-store sales growth. So the information there, I think you are taking a straight match. It's not same-store sales growth.
But just [indiscernible] yes.
Yes. No. That's helpful. And one last follow-up, just to clarify an answer that you gave, Brock. I just want to make sure, the acquisitions made in the quarter, were they accretive to the EBITDA margin percentage? I'm not sure if I heard that correctly.
They -- some of them would have been. Others might not have been. Overall, I was generalizing as to some of the impacts. I was trying to get away from everyone wanting to do a specific calculation of expected EBITDA margin down to 10 basis points. Our EBITDA margins are impacted by same-store sales growth primarily. They're also impacted by the mix of acquisitions that we may bring in contributing for the quarter. They're going to bounce around a little bit. Generally, our guidance remains consistent. We expect to slowly and gradually expand EBITDA margins over time, and that's not necessarily going to be a straight line. The biggest contributing factor is same-store sales growth.
And that does conclude our question-and-answer session for today. I will now turn the call back over to our presenters for their closing remarks.
Thank you, operator, and thank you all once again for joining our call today. We look forward to reporting our second quarter results in August. Thanks, again. Have a great day.
Thanks for your interest.
This concludes today's conference call. You may now disconnect. Have a great day.