Boyd Group Services Inc

TSX:BYD

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, everyone. Welcome to the Boyd Group Services, Inc. First Quarter 2024 Results Conference Call.

Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to the questions asked could constitute forward-looking statements that are subject to risks and uncertainties related to Boyd's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements.

These 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 sedarplus.ca.

I'd like to remind everyone that this call is being recorded today, Wednesday, May 15, 2024.

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.

[Timothy O'Day, executive]

Thank you, operator. Good morning, everyone, and thank you for joining us for today's call. On the call with me today is Jeff Murray, our Executive Vice President and Chief Financial Officer; and Brian Kaner, our Executive Vice President and Chief Operating Officer of Collision. We released our 2024 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 boydgroup.com. Our news release, financial statements and MD&A have also been filed on SEDAR Plus this morning.

On today's call, we will discuss the financial results for the 3-month period ended March 31, 2024, and provide a general business update. We will then open the call for questions.

First quarter results were disappointing with sales of $786.5 million, adjusted EBITDA of $81.7 million and net earnings of $8.4 million. Following several quarters of demand for services exceeding capacity, the first quarter was significantly impacted by mild winter weather with claims and appraisal volumes experiencing decline while used car pricing return to more normal levels, increasing the frequency of total losses.

As reported by industry sources, repairable claims were down 8% during the quarter, with a greater share of that decline in the month of March, which was unanticipated when the company last reported. As a result of the decline in demand, the cost structure and workforce that Boyd had in place, exceeded the level of demand and placed pressure on the level of adjusted EBITDA the company could deliver during the first quarter of 2024.

For the first quarter of 2024, sales were $786.5 million, a 10% increase when compared this period of 2023. This reflects a $55.9 million contribution from 121 new locations. Our same-store sales, excluding foreign exchange, increased by 2.2% in the quarter, recognizing the same number of selling and production days when compared to the same period of 2023.

Gross margin was 44.8% in the first quarter of 2024 compared to 45.7% achieved in the same period of 2023. Gross margin percentage decreased due to several factors including variability due to performance-based pricing, investments made to support higher demand and lower contributions from a greater number of new locations.

Labor rate increases have added to sales and gross profit dollars. However, margins remain below historical levels. These negative impacts were modestly offset by the benefit of increased internalization of scanning and calibration.

Operating expenses for the first quarter of 2024 were $270.9 million or 34.4% of sales compared to $242.4 million or 33.9% of sales in the same period of 2023. Operating expenses as a percentage of sales was negatively impacted by the decline in demand as the cost structure and workforce that Boyd had in place exceeded the level of demand and placed pressure on the operating expense leverage that could be achieved during the first quarter. In addition, operating expense leverage was negatively impacted by inflationary increases not fully absorbed by the lower same-store sales and as expected, the performance of new locations.

Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $81.7 million, a decrease of 3.5% over the same period of 2023. The decrease was primarily the result of mild winter weather, which impacted demand, including an unanticipated decline in March as well as reduced gross margin percentage from variability in performance-based pricing and lower contributions from a greater number of new locations.

Net earnings for the first quarter of 2024 was $8.4 million compared to $20.8 million in the same period of 2023. Excluding fair value adjustments, acquisition and transaction costs, adjusted net earnings for the first quarter of 2024 was $9.4 million or $0.44 a share compared to $21.2 million or $0.99 a share in the same period of the prior year. Adjusted net earnings for the period was negatively impacted by the decrease in adjusted EBITDA as well as increased finance costs and increased depreciation related to location growth.

At the end of the period, we had total debt net of cash of $1.2 billion. Debt net of cash increased when compared to prior quarter, primarily as a result of acquisition activity and increased capital expenditures including new location startups. In addition, start-up locations resulted in a temporary increase in real estate assets held.

During 2024, the company plans to make cash capital expenditures excluding those related to network technology upgrades and acquisition and development of new locations within the range of 1.8% to 2.1% of sales. During the first quarter of 2024, the company spent $4.8 million on network technology upgrades.

The continuing mild weather and resulting low demand environment has impacted demand for services into the second quarter. This, along with strong comparative same-store sales, has made it challenging to deliver same-store sales growth thus far in the quarter. As is typical during the summer months, the company anticipates miles driven to increase and the claims volume and demand for services to increase.

While the company expects claims volume and demand for services to normalize as the year progresses, Boyd is prepared to take steps to address the challenges the business is currently facing should the current softer demand continue. Boyd has made meaningful progress towards our goal of internalizing scanning and calibration services to drive down cost to our customers and to convert a sublet operation to an internal operation.

During 2024, the company has increased the amount of scan in a calibration services Boyd is able to perform in-house by increasing its workforce in this area by over 60% and expanding the footprint of states the company is able to serve while continuing to increase the remote services Boyd is able to offer.

Given the combination of same-store sales growth and the location growth in 2023, the location growth thus far in 2024 and the commitment of Boyd team to improving performance throughout the remainder of 2024, the company remains confident that 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.

In the long term, management remains confident in its business model and its ability to increase market share by expanding its presence in North America through strategic acquisitions alongside organic growth from Boyd's existing operations. Accretive growth will remain the company's long-term focus, whether it's through organic growth, new store development or acquisitions. The North American collision repair industry remains highly fragmented and offers attractive opportunities for industry leaders to build value through focused consolidation and economies of scale.

As a growth company, Boyd's objective is to continue to maintain a conservative dividend policy that will provide the financial flexibility necessary to support growth initiatives while gradually increasing dividends over time. The company remains confident in this management team, systems and experience. This, along with a strong financial position and financing options positions, Boyd well for success into the future.

With that, I would now like to open the call to questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from Steven Hansen of Raymond James.

[Steven Hansen, analyst]

Tim, when you described same-store sales growth as being hard to deliver thus far in the quarter. I'm just trying to interpret that a little more clearly. Is that to suggest you're getting 0 growth thus far? Or is that it's still negative?

[Timothy O'Day, executive]

Well, as you know, it's very early in the quarter, Steve. And so it's too early to get a read on the full quarter. But the soft winter weather and actually even continuing mild weather into the spring, fewer hail events, fewer storms. I would say it continues to put pressure on our same-store sales growth opportunity.

[Steven Hansen, analyst]

Okay. Fair enough. And if we think about the decision to make adjustments to the workforce, I'm just trying to understand, I mean, I know labor has been one of your scarcest resources for the past couple of years. I have to imagine you're a little bit reluctant to let anything go if you don't have to. So I mean, have you started to see any sort of inclination that things are turning in May thus far, like specifically through May? Or is that too early to tell? Because -- and I guess, maybe as a derivative point at what point do you decide to make that decision to start adjusting the workforce size?

[Timothy O'Day, executive]

Well, I would say that we expect demand to normalize as miles driven increases through the normal summer driving season. So we're not anxious to make those adjustments, Steve. We're really just -- we're just prepared to do what we need to do to make sure that we properly manage the business. We will look to make sure that where demand is at levels that they are right now if we need to move some people around or make some adjustments, we would be prepared to do that, but it's -- I wouldn't call it significant at this point. We're still optimistic and expect claim volumes to recover.

[Operator]

Your next question comes from Derek Lessard of TD Cowen.

[Unknown Analyst]

This is Sheryl, standing for Derek. So first question is just around demand outlook. What would you say was the biggest factor impacting demand in the quarter? Was it the weather? And how concerned are you with respect to the other industry demand drivers? Did you call out moderating used car values this quarter? I'm just curious what has changed since the past few quarters?

[Timothy O'Day, executive]

I would say the primary issue by far is the weather and repairable claim volumes were down, and it was largely driven by weather. There was an increase in total loss rates which is related to used car values becoming more in line with where they've historically been. So total loss rates ticked up. But the real issue was the lack of winter weather across many of our markets.

[Unknown Analyst]

Okay. That's very helpful. And then just looking ahead, if the demand challenge [ reduced ], I'm curious what, kind of thoughts, would you have to take to mitigate that? I think you did mention labor. I'm curious if there are any other levers that you would expect to pull?

[Timothy O'Day, executive]

Well, obviously, we'll look at any expenses that we can differ on that won't hurt our business, to try and take appropriate action to mitigate the EBITDA margin loss. In some cases, if demand were not returning, I would say we would be overstaffed in some areas and we would need to make adjustments to staffing. But as I said to Steve, we're not at that point yet. Miles driven in the first quarter was actually up over prior year. And I would expect it to continue to increase. So I'm anticipating demand will return to normal levels as we get into the summer driving season.

[Unknown Analyst]

Okay. That's very helpful. And then maybe just one more, if I may, before I re-queue. Just wanted to get more clarity on comments around the gross margin. You did call out variability due to performance-based pricing and investments made to support higher demand. I'm just curious if you could explain those, please.

[Timothy O'Day, executive]

Well, the performance-based pricing is something that we've talked about for a number of years now. And so that's not really unusual, although I would say the impact on our first quarter results was more unfavorable than normal. And that's really just kind of the movement of performance-based pricing up and down on a quarter-to-quarter basis.

I don't think there's anything significant that's changed with the one possibility of during the kind of the worst part of the pandemic, most of that performance-based pricing was eliminated. And as some of it has come back in, that would have an impact year-over-year. So that's on the performance-based pricing. On the expense absorption, it's really just -- I'm sorry, I'm in the -- go ahead, Jeff.

[Jeff Murray, executive]

Yes, I was just going to say the other part of the question is around margin in terms of what may be some behind some of the margin impacts. I would say, there is an element of just productivity, loss of productivity, just due to the fact that we're just not busy in the stores, in all the stores really without having enough throughput, there's inefficiencies that creep in. And so that's part of what's still putting pressure on the margin as well.

[Operator]

Your next question comes from Michael Doumet of Scotiabank.

[Michael Doumet, analyst]

So far, the weather in May seems to be at least more in line to seasonal patterns, especially versus March and April. So just a clarification, when you discuss the same-store sales trends so far in Q2, are you referring to the revenues through today or as of the end of April? And have you noted any improvements so far in May versus April?

[Timothy O'Day, executive]

Yes, Mike, we really are focused on what we know, which is May -- or sorry, April, which is what we know so far. And so really, that's what we're referring to is what we've seen so far. And it's essentially been -- it's going to be a challenge to get to same-store sales growth based on what we've seen so far.

[Michael Doumet, analyst]

Okay. So you are not specifically referring to May. Okay.

[Jeff Murray, executive]

But I guess I'd say that May -- we really haven't seen anything that would show us in terms of storm activity in May that would really change what we've been seeing in terms of a trend. And so we're going to have to wait and see until really miles driven picks up.

We did not have the carryover that we might normally have during the winter season that would carry us through April and the start of May. So really, we're going to be looking for miles driven and more accelerated driving activity to create more volume.

[Timothy O'Day, executive]

I would also say, Michael, that last year, we had more hail activity in the markets in which we operate than we've seen this year. It's -- even that aspect of some of the drivers of our business seems a little bit later this year, which is surprising because it's -- there's lots of inclement weather, but we just have not seen as much hail activity this year.

[Michael Doumet, analyst]

Perfect. Appreciate the comments there. And then you talked about the potential response to costs from slower same-store sales growth. What about the potential response from the strategy for greenfields and brownfields?

[Timothy O'Day, executive]

I don't think that my perspective on that will change. We still see normal maturing of our newly opened stores, whether they're acquisitions or greenfield and brownfield. And as we've discussed often over the last several quarters, we know those take time to mature, but we've got good experience with watching those mature and get to normal levels of revenue and EBITDA contribution in our business. So I wouldn't allow short term what we view to be likely weather-related issues to get in the way of our long-term strategy.

[Operator]

Your next question comes from Kate McShane of Goldman Sachs.

[Katharine McShane, analyst]

I know there's just been a lot of discussion on weather and the impact it is having on same store sales, but we wondered if you could talk about what you're seeing in the competitive environment currently and if there are any competitive pressures that might be emerging as a result?

[Timothy O'Day, executive]

I wouldn't say that there are any unusual competitive pressures that are new. And what I hear from industry sources is that what we've been experiencing is being experienced broadly. And you can look at other public companies that have reported and commented on kind of similar factors for their results that we're seeing. So -- but no, I haven't seen any change in behavior of competitors. No -- I think you might be thinking about other market shifts or things of that nature. And I would say I've not seen anything like that.

[Jeff Murray, executive]

Maybe, Tim, I'll add to that, that what we're seeing is not unusual from what we've had in our past history, although the recent history has been very different over the last few years coming out of the pandemic, we've not had the capacity to be able to handle the volume. But prior to that, there were lots of variations quarter-to-quarter depending on things like weather. And I think our business model holds up very well compared to competitors based on our ability to drive throughput and provide high customer satisfaction and high-quality repairs.

[Katharine McShane, analyst]

And is it fair to assume that the underperformance of the newer locations is being affected by this as well? Or is there anything else to flag with the newer locations and the underperformance?

[Timothy O'Day, executive]

I would say there's not much else to flag on it. You can assume that a softer quarter for the business overall would impact all of our operations, including new stores. Having said that, I think our -- we have more newer stores in the mix, more newer single shops in greenfields and brownfields than we've ever had. So that has some impact. But it's really not the issue that we're facing. It's really an overall demand issue.

[Operator]

Your next question comes from Chris Murray of ATB Capital Markets.

[Chris Murray, analyst]

So I turn it around, it feels like Q2 is going to be a bit of a tough comp and going to maybe have to circle through that. But as we think about the second half of the year, when you think about getting back to kind of normal cadence on same store? Is it fair to think that, that would put you back in the kind of low single-digit type of, call it, historical level of growth? Or is there anything that you're seeing that is structurally going to be different in the industry, assuming you get a normal level of intake?

[Timothy O'Day, executive]

I don't see anything structurally different, Chris. I think the -- we've got low claims volume right now, obviously, slight uptick in total losses, which could have a corresponding impact on average total cost of repair just because you're taking some vehicles that a year or 2 years ago may have been repaired.

But the vehicle complexity, more ADAS on newer vehicles, more parts, more sophisticated, more expensive parts on newer vehicles, are all tailwinds that have been underway for some time, and that's a trend that can't stop because as the car park -- as new cars come into the car park with that equipment and need to be repaired, they will be more expensive to repair in cars that didn't have that equipment.

[Chris Murray, analyst]

Okay. And then I guess the other piece of this, too, is that same-store is kind of returning back to call it, historical levels to get to that kind of, call it, 15% number that helps drive the doubling. Just thinking about M&A growth, and not even single store brownfield, greenfield, but actually like larger M&A. There's been some fairly large transactions in the space as of late. And I'm wondering your thoughts about maybe getting more into doing acquisitions because as you said, I mean if you guys are having these issues, I'm sure other stores are having these issues or other owners are having these issues, so that might open up some opportunity.

And then alongside that, I guess the other piece of this is maybe looking -- returning to look at the intake center model. Look, I know you guys shut down because you just couldn't handle the volume. But if volume is part of the issue, do you revisit that as part of the acquisition or growth strategy?

[Timothy O'Day, executive]

First of all, on the first question related to maybe larger opportunities. I think we've been pretty clear for the last several quarters that we're open to and interested in larger opportunities, as long as they are accretive to us and can be bought at a value that makes sense to us. So we'd be open to participating in virtually any opportunity that comes to the market. We'll remain disciplined so that we don't hurt value but we are interested in those. So I think you can -- I can't tell you that we'll be able to get one done, but we will pursue them.

As far as the intake center strategy, I think it's a great question and something that we've been talking about internally. We know the model works. If the [ fall ] in demand continues, we'll use all of the levers that we have available to drive incremental demand into our production facilities.

[Operator]

Your next question comes from Gary Ho of Desjardins Capital Markets.

[Gary Ho, analyst]

I just wanted to touch on kind of previous question here. Just want to ask about the location adds. So 7 that's added kind of quarter-to-date that pace is a bit slower than what we've seen in last year. So just curious to hear if that's just timing or you're taking a slower approach, just given the milder weather we've had or perhaps kind of market dynamics for deals, if there's any change, multiple valuations, et cetera?

[Timothy O'Day, executive]

It is simply timing. We've got a great pipeline of opportunities that we're pursuing. We're not slowing down our pursuit of those opportunities because of the soft winter weather. So it's really a matter of timing. And we'll recall that if you look back at Q3 and Q4 of last year, we had a pretty significant surge of opportunities that we closed down, but we expect to continue to fill and close on deals throughout the year.

[Gary Ho, analyst]

Okay. Perfect. And then my next question is, I guess, one of your peers mentioned that because of the higher insurance premiums, customers have also increased their deductible and not necessarily repairing cars. Have you experienced this and maybe impacting kind of lower ticket repairs, maybe speak to any read-throughs from the high insurance premiums that you're seeing to your business, if at all?

[Timothy O'Day, executive]

Yes. We actually looked at some data in response to that question. And the data we looked at did not show a significant shift in the level of deductibles across policies in force. So we don't really see that as a driver of the short-term law that we've seen. I know insurance premiums are expensive. But you also need to consider that the cars that are typically in collision repair shops are newer model cars than the overall car park. Most of them are going to have loans. And if you have a loan on a vehicle, insurance -- you're obligated to have insurance -- you actually obligated anyway. But the people that might not carry insurance with lower value vehicles wouldn't end up in our shops anyway.

[Gary Ho, analyst]

Okay. That's helpful. And if I can sneak just one more in, just on the scanning calibration. Starting to see more -- you guys acquire those business, can you share what those economics are like multiples or how they compare to mom-and-pops that you acquire on the collision repair side? Any targets you can share with us that would be great.

[Brian Kaner, executive]

Yes. I mean right now -- this is Brian. Right now, what we see in the marketplace is because we have the ability to internalize that and as Tim has described, it shifts it from a sublet margin to a labor margin, which is our highest margin category. The returns are actually very favorable, as we target opportunity on the marketplace. What we're really looking for is people who have a high concentration of their business with us already to just get that -- basically to get that arbitrage. And so it does provide pretty high returns and I would say, even higher than, frankly, higher than our average single-store acquisition.

[Operator]

Your next question comes from Krista Friesen of CIBC.

We'll proceed to the next questioner. His name is Daryl Young from Stifel.

[Daryl Young, analyst]

I just wanted to dig in a little bit on, I guess, some of the factors you're considering that why demand may stay lower for longer? And I guess it's just -- it's a bit perplexing to me why you talked about potentially cutting the cost structure in response to softer for longer demand. So is there something there that you're seeing that you're worried about or thinking about beyond just the weather because the weather seems pretty transitory? Or is it just your way of kind of telegraphing that margins at current levels are probably not going to stay this low?

[Timothy O'Day, executive]

Well, I think it's -- we don't say that we think that volume is going to remain low. We really expect it to return to normal levels and to put our business back on the track that it was on. So we're not anticipating that. And I don't think the market is anticipating it. However, if demand did stay soft, I think we'd feel an obligation to make sure that we're managing the business prudently, and we'd be prepared to take steps to do so. But that's not what we're anticipating or expecting.

[Daryl Young, analyst]

Okay. And then I guess just following on that, on the total loss ratios dynamics, we talked a lot about the used car prices, but is the other side of it, just the increasing cost of the average repair that maybe is leading to more write-offs. I think we've seen a long-term trend of total write-offs increasing for the last effectively decade. So is that maybe creeping into the story more rapidly?

[Timothy O'Day, executive]

I don't think so. I think as used car values have normalized, total loss rates have gone back up. I think you're actually not at pre-pandemic levels yet. So I think this is just a normal reaction to used car values normalizing.

[Daryl Young, analyst]

Okay. Perfect. That's good color. And then maybe just one last one. I think last quarter on the new location growth and the greenfield brownfield, you mentioned you're being very strategic and mapping out where those are being opened. Is part of this to drive a better hub-and-spoke strategy longer term? And is there an argument that margins could be a step function higher as these stores really open up in earnest over the next few years?

[Timothy O'Day, executive]

We haven't said that. Certainly, it is strategic, and we're looking at placing greenfield and brownfield locations in particular in market areas that give us access to that hub and spoke the ideal facility for calibration for glass and collision all under one location. We don't need every location to be able to do that. But we do need locations strategically placed to be able to accomplish that. We haven't signaled that we expect higher EBITDA margins over time. We have said that we expect better returns on capital with greenfield and brownfield locations, but not necessarily higher EBITDA margins.

[Operator]

Your next question comes from Bret Jordan of Jefferies.

[Bret Jordan, analyst]

Do you have an internal view on where total loss rates are headed? Is there a secular risk that more and more cars will be written off rather than repaired and we're just going to limit industry volumes as a result of repair cost inflation and value decline?

[Timothy O'Day, executive]

I don't think that we're not necessarily experts on that, Bret. So I wouldn't say we have an internal view. Total loss rates have, prior to the pandemic, had been gradually increasing. And really, as you know, it's an economic decision for an insurer as to whether they repair a vehicle or buy a replacement vehicle based on the cost of repair versus the value of the vehicle. Newer cars had pretty high value because of the technology on them, which I think allows insurers to invest more in repair. But it would be difficult to predict exactly where that will fall out.

[Bret Jordan, analyst]

Okay. And I guess in past years where we've had historically mild winters like 2017 or 2012, pre-pandemic. How long does that impact last into the year, I guess, the volume -- the demand that might have been created in the ice storm, would that have been seen through Q2 or Q3? I guess, sort of when do we think we were back to hail storms, normal flow relative to weather?

[Timothy O'Day, executive]

I think over many years looking at it, Brett, I would say that we usually rely on strong winter to kick off a stronger Q2. But by the end of Q2, historically, I would say we see summer driving really being the key component of demand as the quarter progresses. And then Q3 would be pretty normal. So I would say that the carryover in Q2 is making at least the beginning of the quarter challenging as we've communicated. But as summer driving picks up, I would anticipate that we would get back to normal in Q3.

[Bret Jordan, analyst]

Okay. And the housekeeping, did you say of the 2.2% comp, how much was price versus car count?

[Timothy O'Day, executive]

We didn't. We did say that repairable claim volume was down about 8%. And for the quarter according to industry sources.

[Operator]

Your next question comes from Tamy Chen of BMO Capital Markets.

[Unknown Analyst]

It's [indiscernible] on for Tamy. My first question was in relation to the EBITDA margin. And so if you could quantify how much of the year-over-year decline or quarter-over-quarter decline is actually a result of the operational leveraging that you've seen? And how much was from the drag of having a lot of startups and technical issues?

[Timothy O'Day, executive]

I couldn't hear you very well. I know you're asking a margin-related question.

[Brian Kaner, executive]

Yes. I think the way I interpret it was is there sort of a breakdown in terms of the impact of the various components affecting gross margin. And I would say, we don't typically provide that level of detail. We would comment on things in the size of their significance in terms of the order that we've talked about them. But other than that, we don't provide any further details.

[Timothy O'Day, executive]

Right. So we commented that the outperformance based pricing was one of the key drivers of the margin change. New stores was a, I think, the third component that we mentioned. Does that help clarify your question?

[Unknown Analyst]

Yes. That's very helpful. Hopefully, you can hear me a bit better now?

[Timothy O'Day, executive]

Yes, we can.

[Unknown Analyst]

Perfect. Yes, that's very helpful. And then in terms of the gross margin, rebounding on one of the questions that was asked previously as well. So would it be possible for you to rank in terms of the magnitude of the different elements? Or is it also like the same that you've provided in terms of performance-based pricing first than investments to support demand and lower contribution from new locations.

[Timothy O'Day, executive]

Yes. That's all the details that were provided on that. But those are the 3 primary drivers in the order of impact.

[Unknown Analyst]

Okay. And could you give us a bit more color on what part of your performance is currently not meeting insurers KPIs? And what are these investments to support demand?

[Timothy O'Day, executive]

Well, the investments to support demand are really simply the fact that we are staffed to service a level of demand that is higher than what's available right now. Which puts some pressure on margins, just the inefficiency of the workforce. The performance-based pricing really varies quarter-to-quarter. Not all of it -- the performance-based pricing doesn't all indicate poor performance. There is some built-in performance-based pricing even with good performance and you can mitigate it. So I would say we're performing quite well for our clients, but that doesn't completely eliminate the performance-based pricing.

[Operator]

Your next question comes from Zachary Evershed of National Bank Financial.

We'll proceed to the next question. His name is Steven Hansen from Raymond James.

[Steven Hansen, analyst]

Just a couple quick follow-ups. As it relates to the calibration ramp-up, in particular, was there any drag at all in the P&L or the margin associated with the cost to spool up the operations as you've been ramping?

And just as the second part is the baseline, how many states you're now up and running in and where you expect to be by the end of the year?

[Timothy O'Day, executive]

Yes. On the first question, there is -- there actually is not a drag because we know, as we add the investments, we know where the predominant amount of calibration services are. And it really becomes just a function of how quickly we can add as we've discussed before.

Relative to the next question around the state coverage, we're not preparing or we're not prepared to share that at the moment. But as you know, we're ramping to a place where we want to cover as much of our internal volume over the next 2 to 3 years as possible.

[Steven Hansen, analyst]

Okay. Great. And then just one last follow-up is just around the TDP program. I presume it's too early, but I'll ask anyway. Is there any implications to this lower workflow to the broader training event program internally, do you think you would want to spool it down or maybe rightsize it as we go through the year, add less applicants? Or is it still status quo for now until we'll see any more long-term changes as they've come?

[Timothy O'Day, executive]

Yes. Well, I would say we remain committed to our Technician Development Program. We will consider adjusting the quantity of people on Level 1 as we kind of progress through this slower period of time. But we don't want to damage our ability to continue to graduate a sufficient number of skilled technicians out of the program over time. But we do have some ability in the short term to slow it down or to tweak it.

[Operator]

Your next question comes from Krista Friesen of CIBC.

[Krista Friesen, analyst]

I guess, I just wanted to follow up on some of the questions. I'm just surprised that given weather seems to have been the biggest impact in Q1 and into Q2 here that it's causing you to kind of reevaluate the cost structure maybe? And is this typical that during difficult times of weather that you feel nimble enough to adjust your cost structure in response to that? Or is it also taking into account the other factors of used car pricing and total loss rates?

[Timothy O'Day, executive]

I think we may have communicated something and overstated it. It is not our intent to significantly impact our cost structure based on the short-term softness of the market. What we were really trying to communicate is that if something can -- if that continued, we would be prepared to take appropriate action. We don't believe that, that's appropriate or necessary right now based on a soft winter season, and we anticipate the demand as we get into the summer, will return to normal.

Now we've seen -- I guess the only other color I would add to it is we've seen several quarters of very high same-store sales growth and scrambling to service demand. And when demand slows down or even returns to more normal levels, I think that's when organizations should look at their structure and say, is there any cost that we put in place that isn't necessary to service normal demand, but it's not something that I would say is disruptive or dramatic.

[Brian Kaner, executive]

I think the only thing I would add to that is -- the only thing I would add to that is more of our focus is on nonproductive labor. I mean we understand the precious nature of our productive labor. And as we look to the cost structure, it really is more on the front side of the equation, not the back side of the equation, which, again, we're not -- at this point, we're not doing anything to disrupt the production capacity within our environment.

[Krista Friesen, analyst]

Okay. So would you say that your outlook for the back half of the year is unchanged than, say, what you were thinking about in January towards the back half?

[Timothy O'Day, executive]

I would say that our expectation is that claims volumes are going to normalize, and we're going to continue to perform and grow as we have been. We don't know exactly what's going to happen, but we see nothing structural that should change that once we get through the impact of a really mild winter and even a fairly mild weather in the spring.

[Krista Friesen, analyst]

And then maybe just one on the calibration businesses that you've acquired. Should we think about calibration in the same way you've talked about the collision centers and that you might look to do more greenfield, brownfield or is that going to be more of a focus on acquisition.

[Timothy O'Day, executive]

Well, I mean, on the calibration side the -- I guess you can consider the adding of a technician to be the -- adding of a tech in a market to be a greenfield, so that is on that side of the equation. That's what I -- that's how I would think about it. From an acquisition perspective, as I said earlier, I mean, we're really targeting acquisitions as a strategy to get into the markets more quickly. So as somebody has a significant concentration of business with us, we have the option to either enter a market by adding technician by adding greenfield or enter a market more quickly by acquiring the one that does business with us. And the economics are positive in either direction. So I mean that's how I would interpret that opportunity.

[Jeff Murray, executive]

Yes. I may just add to that, one of the benefits of some strategic acquisitions is that it could bring additional leadership to help us grow and manage that calibration operation as it expands. But we don't need to do acquisitions to grow it. I think we commented last quarter that the availability of technicians to service that kind of work is not a constraint like it is on the collision repair side. And most of the growth that we're seeing is organic or what Brian referred to as greenfield.

[Krista Friesen, analyst]

Perfect. And if I can just sneak one more in here, and you may have mentioned it before, but the softness in demand, is that, generally speaking, across the whole network? Or are there certain regions where it's noticeably softer than others.

[Timothy O'Day, executive]

I would say there's general softness, but we did see more of it in kind of a typical cold weather, snow and ice type markets.

[Operator]

Your next question comes from Zachary Evershed of National Bank.

[Zachary Evershed, analyst]

We've got tech issues wrapping up the call here. So where do you think we are on the wage front in terms of achieving balanced technician supply? And what's the latest trend in carrier pricing adjustment willingness?

[Timothy O'Day, executive]

We've continued to see a steady flow of carrier price increases during the first quarter that would be consistent with, it might have even been slightly above what we've been seeing prior to that. So I think we're still receiving price. If you follow the carriers, you'll see that they've gotten price, by and large, in most states that they operate in and have returned to profitable books of business in most cases on the auto side. So we expect to continue to pursue price increases because our labor margins have still not normalized.

And while the softness takes away some of the sting of not having enough technicians, we still expect overtime that we're going to need to bring in and retain more people in the industry.

[Zachary Evershed, analyst]

And any speculation on the gap between wages now and what's required to achieve that?

[Timothy O'Day, executive]

We haven't quantified that in the past. We've made progress against the gap that we have, but more progress needs to be made.

[Zachary Evershed, analyst]

Got you. And just one last one. I guess asking Carol's question slightly differently. We have seen normalizing used vehicle prices for a while now. So any difference in this quarter's decline versus prior declines that would have affected the total loss rate unduly?

[Timothy O'Day, executive]

Nothing. If there was anything, it may be that the lack of severe weather and snow and ice may have had somewhat of an impact, but there's nothing that I'm aware of that's really changed in that.

[Operator]

There are no further questions at this time. I would hand over the call to Mr. Tim O'Day for closing comments. Please go ahead.

[Timothy O'Day, executive]

Very well. Thank you, operator, and thanks again to all of you for joining our call today. We look forward to reporting our second quarter results in August. Have a great day. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.