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Good morning, everyone. Welcome to Boyd Group Income Fund Second 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 risks 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'd like to remind everyone that this conference call is being recorded today, Wednesday, August 14, 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; and Al Davis, our Independent Chair of the Fund's Board. We released our 2019 second quarter results late yesterday after markets closed. 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. On today's call, we will focus our discussion on the Fund's financial results for the 3- and 6-month periods ended June 30, 2019, and provide a general business update. We will of course also discuss the Fund's CEO succession plans, which were announced in conjunction with this quarter's results. We will then open the call for questions.Overall, we were pleased with our progress and results in Q2 and thus far in 2019.In Q2, we, again, had strong financial performance, including strong same-store sales growth. Notwithstanding our strong quarterly results, we remain 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 13 locations during the second quarter of 2019 and an additional 18 locations subsequent to quarter end. Bringing our 2019 year-to-date new location additions to 73. Looking at our results for the past quarter, our total sales were $572.5 million, a 25.4% increase when compared to the second quarter of 2018. This reflects a $79.3 million contribution from 170 new locations. Our same-store sales, excluding foreign exchange, increased by 5.2% in the quarter. After adjusting for 1 less selling and production day in Canada, in Q2 2019, same-store sales increased 5.4% on a same-day basis. Foreign exchange increased sales by $14.8 million due to the translation of same-store sales at a higher U.S. dollar exchange rate.Gross margin was 45.9% in Q2 2019 compared to 46% achieved in Q2 2018. This slight gross margin percentage decrease is primarily due to a higher mix of part sales in relation to labor, partially offset by improved DRP pricing as well as improved parts margins.Operating expenses for Q2 2019 were $182.7 million or 31.9% of sales compared to 36.7% in Q2 2018. Operating expenses for the quarter were significantly impacted by the adoption of IFRS 16, which removed $25.8 million of location lease expense from operating expenses. If we normalize or adjust for the adoption of IFRS 16 for comparative purposes, operating expenses would have been $208.4 million or 36.4% 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 adoption of IFRS 16 was $54.3 million, an increase of 27.9% over Q2 2018. Adjusted EBITDA growth was primarily due to contributions from new locations and same-store sales growth. Adjusted EBITDA margin was 9.5% in Q2 2019 compared to 9.3% in the comparative period, reflecting a 20 basis point improvement. 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 for comparative purposes in both the first and second quarters this year. Beginning in Q1 2020, we will no longer be adjusting out the impact of IFRS 16. Had we not chosen to exclude the impact of IFRS 16 in calculating adjusted EBITDA for Q2, adjusted EBITDA would have been $80.1 million or 14% of sales. Net earnings for Q2 2019 were $13.7 million compared to $12.8 million in Q2 2018. Impacting net earnings in both the current and prior year Q2 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 second quarter 2019 was also negatively impacted by the adoption of IFRS 16, which reduced net earnings by approximately $1.1 million, net of tax or $0.06 per unit. Excluding these impacts, adjusted net earnings for the second quarter was $24.6 million or $1.24 per unit compared to adjusted net earnings of $21.1 million or $1.07 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 for comparative purposes. Although fair value adjustments continue to impact net earnings, their effect will continue to diminish as the remaining unit options vest and are expected to be exercised in the second half of this year. This exercise of unit options may also result in some insider unit sales following exercise as option holders may need to fund exercise costs and related tax liabilities or for general estate planning purposes.In Q2 2019, we generated $45.7 million in adjusted distributable cash compared with $57.5 million generated in the same period of 2018. The decrease in adjusted distributable cash is primarily due to the timing of tax installment payments as well as the decrease in tax payments due to U.S. tax reform in the second quarter of 2018.We paid distributions and dividends of $2.7 million, resulting in a payout ratio of 5.9% compared to a payout ratio of 4.6% in Q2 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.For the 6-month period ended June 30, 2019, we reported sales of $1.1 billion. An increase of 24.2% for the same period of the prior year, driven by acquisition growth and same-store sales growth of 5.2% or 6% on a same-day basis. Gross margin was consistent at 45.6% of sales on a year-to-date basis compared to 45.5% achieved in the first 6 months of 2018. Operating expenses were impacted by the adoption of the new leasing standard. Removing this impact for comparative purposes, operating expenses were 36% of sales as compared to 36.2% in 2018 reflecting same-store sales leverage. Adjusted EBITDA was $108.5 million compared to $84.6 million when the impact of IFRS 16 is removed from the 2019 results for comparative purposes or $158.4 million for the 6 months ended June 30, 2019, on a post IFRS 16 basis. We reported a 12.7% increase in net earnings for the 6-month period at $35.1 million compared to $31.2 million in the same period of the prior year. Removing the impact of fair value adjustments, acquisition and transaction costs net of tax, and the impact of IFRS 16 adoption net of tax, adjusted net earnings per unit increased from $2.14 per unit in Q2 2018 to $2.71 per unit in Q2 2019, a 26.6% increase. At the end of the second quarter, we had total debt net of cash of $804.3 million compared to $232.1 million at the end of 2018 and $174.9 million at June 30, 2018. Total debt increased significantly in 2019 under the new IFRS 16 lease standard, which resulted in the recording of additional lease liabilities of $488 million on January 1, 2019. Normalizing for the impact of this new standard, total debt net of cash would have been $312.8 million, with the increase over December 31, 2018, being the result of 2019 acquisition activity.We continue to have a very strong balance sheet with very conservative leverage at the end of Q2 of approximately 1.6x adjusted EBITDA after removing the impacts of IFRS 16 adoption or 2.5x on a post IFRS 16 basis. Even after considering our growth Capital spend in 2019 to date, we continue to have over $250 million of dry powder available in cash and existing credit facilities to execute our growth strategy.As previously reported, during the final week of the second quarter, we detected a ransomware cyberattack on a subset of our information technology systems. We are pleased to report that we have immediately implemented countermeasures and were able to fully recover with minimal financial impact. We are also now pleased to report that a forensics investigation has confirmed that there is no evidence of exfiltration or breach of any customer or employee data. 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 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 strong same-store sales growth in Q2 that we attribute to a combination of continued strong demand and some modest growth in technician capacity and productivity over the prior year. Entering Q3, although demand remains strong in most of our markets, we are experiencing some vacation challenges, combined with softening in demand in some of our markets and stronger comparatives, which have resulted in much lower same-store sales growth thus far in Q3 when compared to the first half 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, we continue to be very well positioned to continue to take advantage of the growth and market share gain opportunities within our industry.And what a great segue into talking about our CEO succession and transition plan, which we also announced this quarter. As we have announced, on January 2, 2020, I'll move into an Executive chair role, and Tim O'Day, our current President and Chief Operating Officer will succeed me in the CEO role to become President and CEO. In my role as Executive chair, I'll stay on as a member of the Executive management team, primarily to support Tim in his transition into the CEO role. I'll also remain on our Board of Trustees, which will continue to be chaired by our independent chair, Al Davis. As most of you are aware, Tim has played an integral role in Boyd Group's growth and success since joining us as COO, U.S. operations in 2004 in conjunction with the acquisition of Gerber Collision. After 26 years of [ running ] hard, working with our team to build Boyd, including 10 years as CEO, were for me the CEO responsibility has occupied my mind, my attention and my priorities 24/7. As I now approach my 60th birthday, I've decided that I would like to enter this next phase of my life with some greater balance in where I spend my time and energies. Additionally, I feel great about where the company is right now. Its industry position, its strategy, its leadership team, its financial strength and its opportunity for continued success in the future. And Tim is ready, fully capable and very excited to have this opportunity to take his career to the next level of CEO and lead Boyd. Tim and I have been more like partners than anything else over the last 15-plus years as we, along with many others worked hard together to build Boyd. And I'm happy to now plan to move aside and give him the opportunity to lead Boyd. I also think that the January 2020 timing is right relative to our current goal to double the size of our business on a constant currency basis from 2015 to 2020. Given that we are tracking well to achieve our goal next year and that, in 2020, the Fund will be articulating and communicating its next level goals, it seems very appropriate that the CEO that will be responsible for executing against those goals should be the one to work with the Board to develop and communicate them. I would now like to turn it over to our independent Board Chair Al Davis to provide perspective from the Board and then to Tim to provide you with his comments. Al?
Thank you, Brock. The Board and I believe that Tim is uniquely qualified to lead our company through its next phase of growth and development, while maintaining the principles and philosophies that have worked so well for Boyd Group over the last 10-plus years. As the Board went through a formal process to plan for a CEO succession, which involved utilizing a third-party advisor with extensive experience on CEO successions, it was clear that Tim was the best candidate for the role and that he was ready and motivated to take his career to this next level. We also believe that the continuity of leadership that will be achieved with Brock moving to the Executive Chair position to support Tim will provide for a seamless transition in the leadership of the company. I would now like to turn it over to Tim O'Day.
Thanks, Al. I'm honored that the Board has selected me as Boyd's next CEO, and I'm extremely excited for our future. We continue to execute against a solid business strategy supported by an excellent and long-tenured leadership team, a team that has delivered outstanding results over the past several years. This leadership team, combined with Brock's continuing support as Executive Chair will provide for a seamless transition and will continue to position Boyd well for the future. I suspect you may have some questions for us on the transition when we get to Q&A, but for now I'll turn it back over to Brock to close out our prepared comments. Brock?
Thanks, Tim. With that, I'd now like to open the call to questions. Operator?
[Operator Instructions] Your first question comes from the line of Chris Murray from AltaCorp Capital.
Congratulations on the promotion, Tim. Just turning back very quickly to your outlook. Just the moderating same-store approach, just some thoughts around how we should think about that? And as well, just some thoughts around any carryover from the IT incident? You talked about modest impacts on the financials. So just wondering how we should think about that as we go into Q3?
Maybe I'll respond to the second part of the question first in terms of carryovers from the IT cyberattack. We expect, again, very, very, very, minimal impact. It won't be even be noticeable in Q3. We do have some costs associated with the cyberattack that we have not yet received billings for, but we expect that those will be fully covered by insurance. So the impact on Q3 of the cyberattack will be really not -- will be negligible, not really even noticeable. In terms of further comment on the guidance I mean, Chris, I'm not sure how much more we can really say. It's still relatively early in the quarter. We were really wanting to report some factual information that quarter-to-date, we are well behind where we had paced thus far this year. And at this juncture, particularly given that we continue to go through vacation season, we had strong comps last year. I'd say that it will be challenging for us to -- very challenging for us to achieve a level of same-store sales growth that would be on pace with what we have achieved thus far this year in Q3.
Okay. But I mean, are we thinking materially lower? Or are we thinking kind of like back to more normalized 3% to 4% type numbers?
I think, we -- I think the term we used was much lower. So materiality is kind of, I mean, any time you put an adjective on, it's really subject to interpretation. So, I mean, if we would be talking only somewhat lower than, I'd say that Chris, I'm not sure how I can continue to answer this question. At this juncture, they're much lower. We don't know how the quarter is going to end yet. It's still -- we are still early on in the quarter.
Okay, fair enough. And I'm not sure who wants to take this one, but I mean, it's interesting with the transition. And Tim, I know you have been actively involved with the strategy. And when you think about the structure of the industry is still very highly fragmented, acquisition growth that seems to be driving a lot of stuff industry-wide and consolidation I think still comes. So when you think about kind of the next iteration of the strategy and you think out and I'm sure you guys have been thinking about this already. What has to evolve in the strategy, certainly there seems to be a lot of focus on quality of operations and supporting your insurance partners, growing the footprint. But beyond that, does this mean that we need to start thinking about international growth or growth outside the U.S.? What are some of the things that maybe you're thinking about and as well what are some of the timelines you're thinking about before being ready to start talking about that next generation of strategy?
I'd say right now our leadership team is very focused on accomplishing the goal we set in 2015. But obviously, we are always evaluating our strategy and our plans. I believe that we still have a -- I know that we still have a very small share of the market in the United States with plenty of room to grow and lots of opportunity. We've talked about our pipeline for growth has been robust for quite some time. So I -- for the foreseeable future, I think, we are focused on accomplishing the goal we set in 2015, and given our success with that, I wouldn't expect dramatic changes to our strategy going forward. But we'll evaluate that as we get closer to the goal we established for ourselves and I'll work with the Board to establish and then communicate any changes to our strategy sometime next year.
Okay. Anymore definition around when you think you're going to get this process started? And will it be something that we should be thinking about like concurrent with the AGM next year or something like that?
I'd say not, we will not have accomplished our 2015 goal by AGM next year or I don't anticipate that we will. But we will have work underway internally to start to think about it and work with the Board on next steps.
Your next question comes from the line of Michael Doumet from Scotiabank.
As it relates to the comments, again, about the slower Q3 starting out, I appreciate the additional disclosures there. Do you think given last year's slow start to Q3 and the catch up in the latter half of the quarter that there might be a modest change in the seasonal pattern, especially given the increase paid vacation days as part of your enhanced U.S. benefit package?
Yes, I think that what we have experienced last year in July and what we experienced this year in July was a very, very pronounced impact of vacations. And as much as we work to plan and schedule vacations and trying to manage them in a way that minimize the impact on our operations, particularly, when we are working in a very tight labor market and employees have last-minute requests. It's difficult to really be as disciplined as we would like to be in order to manage that as crisply and carefully as we would like. So there could be -- the tight labor market and the fact that we've enhanced our benefits, we have now provided more vacation pay to our technicians and they're able to take vacations more readily from the financial perspective. So the combination, the tight labor market, combined with our enhanced benefits could be starting last year and continuing this year having vacations have a more pronounced impact on our operations.
Okay, that's helpful. So for all the reasons you have listed for the slower Q3 start, would you suggest that the bulk of the impact there relates to vacation versus any other reasons?
Yes. I would say so, yes, we still had relatively strong demand in most of our markets. We do have some pockets of markets where we have weak demand. But I'd say that the biggest lost opportunity for us thus far in the quarter predominantly July was due to vacations. We just couldn't get the work through.
Yes, that's certainly helpful just in terms of understanding that. And then if I flip over to sales decline in Canada, I know there is one less day that you disclosed. But there has also been acquisitions in the region last year. I think last quarter you indicated that there was some weakness in Western Canada, but I'm just wondering if there is anything else going on from a structural standpoint that's impacting your business in Canada?
We don't assess it as structural, we assess it as weakness in Western Canada, particularly Alberta. We have also seen the Eastern Canadian markets soften compared to where it had been from a demand perspective over the last couple of years. So we don't see it structural. We still have strong support of our insurance clients. We are just not seeing the demand.
Your next question comes from Steve Hansen from Raymond James.
Two quick ones for me, if I may, on the industry structure and related growth opportunities. First I'm just curious we are about 7 months in now as it relates to one of the larger mergers in this space? And I'm just curious if you have seen any impact positive, negative or otherwise as it relates to that ongoing merger integration? It really stems from your insurance partners or in other words, are you seeing anything from them? Or there has been any impacts in that integration that would suggest that it will be less favorable towards large mergers going forward?
No not at all. We really have not, I mean, we really haven't seen any huge impact as a result of the merger, I mean, we still have -- that business is still a competitive business to us that we are competing for -- primarily for labor and acquisitions or new locations. Although maybe they have been -- Caliber has continued to be active on an acquisition and new location basis, although we haven't necessarily bumped up against them in the targets, in all of the targets that we have been pursuing, but have against with some of them. So nothing structural from a customer perspective or insurance claim perspective.
Steven even after the combination they only have 1,100 shops out of 32,000 shops in the U.S. So still it's a small market share of that combined entity.So, yes, we are not seeing any impact.
Okay that's helpful. Second one just relates to the quantum of midsized MSOs still out there. You guys have been very brisk in your M&A base over the past 7, 8 months. Your competitors have been slower, but still it does strike me that list of those midsize targets is shrinking. And so I'm just curious whether or not you need to adjust either your internal resources on the corp debt side to chase more smaller deals or whether or not you're seeing maybe a graduation of real small MSOs graduating back up to repopulate that existing list. I'm trying to understand how you continue to grow just given you've taken out so many of these midsized targets?
Yes. Steve, I think, the answer is that the smaller and midsize ones continue to grow and repopulate that next level MSO size of business. And I think, we may have commented on this in the past call, but last year's Romans' report reported the highest number ever of MSO businesses with $20 million of sales or more. So notwithstanding that many of the historical larger mid- to larger size MSOs have been purchased, we continue to have new ones growing up into that category.
So a lot of entrepreneurs are looking at this as an opportunity for them to do a little bit of consolidation and exit. So that's why now we are seeing that repopulation continuing.
Your next question comes from Matt Bank from CIBC.
Looking at the success entering and expanding in New York this year, can you talk about or maybe give a relative sense of the size of the opportunity over the next few years from entering new states versus densifying states that you're currently in?
We think that there continues to be, I mean, again, if we go back to sort of level setting against how much of the industry is consolidated, it's still relatively, a very small percentage that -- the large MSOs only have 15% of the market. There still is lots of white space out there for growth, and it will continue to be both in existing markets where we operate for densification purposes, but also new states. We -- there is lots of large states out there that we have either have a very small presence in or no presence at all. And there is lots -- so lots of opportunity.
Okay. Great. And then on the higher mix towards parts, do you see that share continuing to increase, level out or even decline if labor availability improves?
Tim, you want to take it.
I would say that the industry data suggests that parts will continue to grow as a percentage of revenue because newer vehicles tend to have more parts on them. So looking at newer vehicles, there is a higher parts mix than they are with older vehicles. So as these new vehicles become a larger share of the market, we'll see some shift in that...
But we have commented in the past that because we have been challenged from a labor capacity perspective, we probably are shifting unintentionally, undesirably shifting some labor sales to part sales. How much -- so how much of the mix change that we are seeing is structural versus situational related to the labor situation is really hard to assess now.
Okay, and then just a follow-up on the structural component of that. How should we think about long-term gross margin percentage?
We really don't have -- other than to sort of as Tim has suggested, to sort of consider the fact that repairs will continue to have a growing proportion of parts. It's really hard to measure. I can't tell you what our gross margin percentage is going to be 2 years out based on that structural change.
And there are other changes occurring in the industry as well that could offset this.
Sure, scanning and calibration is going to have labor sales, right. So there'll be some offsets. So we really can't -- it's hard to predict exactly, but we certainly don't see a -- we certainly don't see a step change in our gross margin makeup.
Your next question comes from Bret Jordan from Jefferies.
A quick question on that scanning and calibration comment, I guess, what percent or how do we think about that? What percent are your repairs involve scanning and calibration now? Or maybe what percent of your revenues are in that category? And how do you see the growth rate of that piece of work?
Bret, we need to carefully consider how we answer that one. We know exactly what percentage of our revenues are scanning today, but we haven't disclosed that, and we will consider that as a disclosure item going forward. We need to consider the competitive aspects of that as well. So, but certainly, it's an area that we see continuing opportunity.
Okay. And then in prepared remarks you've talked about favorable DRP pricing. Is anything changing materially this year in pricing with insurance companies versus last year?
No. No the only thing that we commented on a couple of quarters ago, was that we had a situation, a client arrangement or client arrangements that was going to contribute to some greater volatility, which you have seen some of. It's not every quarter, but we continue to have that condition in place today that could lead to that volatility in the future as well.
Okay. And then one last question. On the regional commentary, I guess, you called out Western Canada and maybe some slowdown in the Eastern Canada, were there any regions in the U.S. that were particularly weak? And, I guess, what do you attribute it to, is it a weather impact, or is there anything particular going on in some markets?
I don't think that there is anything that's all that significant in the U.S. market. So the smaller pockets where it's likely weather-related.
Your next question comes from Maggie MacDougall from Cormark.
So I was just wondering if maybe it's too early to do this, so that's totally fine, but if you could provide us with a little bit more insight into further process to transition Tim into the CEO role? And Brock, perhaps your thoughts on how you anticipate your involvement either from a day-to-day perspective versus sort of overall strategy or maybe more of a focus on M&A? Just to help us sort of understand how you plan to go about making the change?
Sure. Sure. I would start by saying that the process of transitioning has started well before now. As many of you and many of our shareholders are aware, we have been involving Tim in these kinds of activities for some time now. And that extends beyond Investor Relations into other areas of the business working with the Board, having more visibility contact and interaction with the Board in addition to being a Board member. So in terms of specifics of transition, I do intend to continue to carry out my duties as CEO to the end of this year as stated. In January of next year, when I transition to the role of Executive Chair and Tim becomes President and CEO, my primary function will be to support and even mentor Tim to some degree in terms of sharing my experiences that I have had over the last 10 years in this role. I'll be part of the Executive management team so it is an Executive chair position as mentioned. From a Board and governance perspective, we will continue to have Al Davis serve as independent chair. So I'll be part of the management team. I'll provide Tim with support in the areas that he is seeking support in. And when you consider how closely Tim and I have worked over the last 15 years, I haven't, I didn't make a move without talking to Tim. And I can't see that, that situation is going to change going forward, and Tim can comment as well. But as we spoken about this, we really don't see sort of the Brock, Tim and Pat team changing a whole lot in terms of sort of making major decisions for the company. Tim, do you want to add anything?
I think you said it well Brock. I mean, I'm looking forward to having your support as I transition into this, and I think it will be relatively seamless both for our team members internally and for the market.
Wonderful. And then the other question I have is just your thoughts on how you plan to fill Tim's role? He obviously has occupied a significant position for some time and maybe you have some internal candidates in mind or external, but any sort of color you can provide to us on that would be much appreciated?
Thanks, Maggie. I'll start, and then I'll turn it over to Tim to add some color as well. Tim, as mentioned will continue to carry the title of President. He will be President and CEO. And, although I gave up the title of the President, I think, it was 2017 to Tim where he took those responsibilities on. Prior to that time I carried both roles, President and CEO. So Tim will continue to be President, his title will be President and CEO. His chief operating responsibilities, I'll let you comment on that, Tim.
Yes, I talked earlier about really having a long-tenured leadership team that we worked with for many years. So I'll be passing my COO responsibilities over the next month, before the end of the year to some of the key team members that have worked for me for some time. It won't be a significant transition for them, in many ways they have been playing that role for the past year or more anyway. So I think, it will be a fairly easy transition of those responsibilities.
Your next question comes from the line of David Newman from Desjardins.
First of all, congrats Brock and Tim on the succession plan. So very well deserved. And just on talking about structural impacts overall, and as we head into 3Q. Is there anything structural at all you sort of defied the industry data overall in terms of U.S. wide collision claims. Do you see this and you defy that, but in the end, is it do you think that is there anything structural here coming to play it all?
Well, I think the structural things that are at play with our performance would continue to be the industry tailwinds of consolidation and consolidation of repair volumes with fewer larger providers. And we don't see -- we certainly don't see anything in the future that is going to change that. We continue to work with -- we continue to see additional insurance clients look to establish tiers of direct repair programs that are available only to large MSOs, and we continue to see opportunity in that regard. So we don't see -- the structural things that we see are ones that we have really been benefiting for many years now.
And the only other thing I'll supplement, David, is in terms of the technology needs and the technology component of the vehicle is increasing. So to that extent like there is going to be expectations from clients to meet those requirements. So there may be additional need for capital, so again that is going to favor companies like us. So whether we talk about scanning or calibration or special repair equipment, OE certifications, so they all need capital.
And we have been investing.
And we've been investing and we will benefit, yes, from those changes.
Okay, and then speaking on competitive advantages, your OE certifications. Do you think in part the shift towards parts because the OE certifications require more parts? And does that lead into eventually a linking with DRP arrangement such that you can see the shift to parts, but you are winning a higher proportion of DRPs because you have those OE certifications?
I don't think the OE certifications are leading to the higher parts utilization. I think that's, I don't think there is any connection there. Over time, I think that DRPs will likely do more to connect up with OE certification programs so that they can refer their customers to shops that they partner with as well as the OEs partner with. Although that has not -- we really haven't seen that yet. But I would anticipate that will occur over time.
Makes sense. And then just you guys have quoted this, and it's kind of nebulous. I know you don't really have a backlog to speak of, but from the ransomware attack was there any erosion in that so-called backlog that you just couldn't execute and you had to give up some, you lost some business to other claim or other repairers because of the attack or?
No. In markets where we've had strong demand, we are dealing with the scheduling out in any event due to capacity constraints. And no we don't anticipate that we lost any real opportunities through that attack. Anything meaningful anyway.
And the other way around, Brock, was there the backlog or whatever you guys quote is, you don't have to quote a backlog, but the backlog that you have will that be a bit of a buffer as you sort of head into the 3Q here?
No, because primarily in the markets where we have a backlog, those are the markets where we have the most significant capacity constraints due to technicians and vacation. The added pressures of vacation with those technician capacity constraints.
Make sense. And the last one just on for me is just on the merger and the consolidation of the market. And I know, I think, it was asked before, but are you seeing any preferential deals come out on procurement, things like paint, supplies, or things like that as they renegotiate those contracts. So are you guys also getting a free rider on any potential procurement deals or the like?
We haven't seen any structural changes in -- on that side of the business to date.
[Operator Instructions] Your next question comes from the line of Jonathan Lamers from BMO Capital Markets.
Brock, could you describe how involved you personally have been with acquisitions over the past 2 years and Boyd's teams that have been established that source structure deals and oversee integration?
I would say my level of involvement has been oversight, setting goals, targets and then oversight and then approval. Not deep in the weeds in sourcing or processing. In fact not at all.
And Tim, could you describe your responsibilities and experiences as COO and from Gerber that have prepared you to lead this company over the next 5-plus years?
I would say the -- on the operating side, obviously over the past several years, we really conceived and then developed and implemented the WOW Operating Way. And that's certainly been one of the most significant things that we've done from a performance management standpoint and standardization of our operations across North America. I have been heavily involved in acquisitions, really since Boyd purchased Gerber back in 2004. So while I don't actually lead that area, because of my relationships have been involved in that at a especially for the larger acquisitions at a fairly meaningful level. I also think that both participating with Brock and the balance of the senior management team and our Executive management team for the past several years and being involved really on an ongoing basis with all of our key strategic decisions has helped me understand that aspect of the business, and therefore, better prepared to lead going forward. So I would say those were the key matters.
And Tim, maybe one that you don't -- Tim really has -- owned at the highest level of our organization, has had the primary relationship with insurers -- with our insurance clients. He has allowed me to tag along usually, once a year to visit clients, but on an ongoing basis, Tim, I think has really established those relationships that will serve us well going forward. And they now have -- those clients now have -- will have a relationship with the CEO of the company.
And just a quick question on the same-store sales I would like. On the pockets of weakness you've identified, has the company look to see whether those correlated all with markets where U.S. collision claims are declining?
I guess, we do look at that. I don't have the data in front of us. Primarily that is -- there is a correlation, I can't tell you that it is in every one of the markets, but there is generally a correlation. And as Tim commented earlier, it's usually -- it can be weather-related as well. And in some cases, Jonathan, it's also that we have had some interruption in our capacity in a particular market that has impacted our sales performance during the period. So it can be sometimes sort of a onetime event in 1 quarter and bounce back the next quarter.
Your next question comes from the line of Daryl Young from TD Securities.
Just one question for me kind of following up on this collision claims data. So through from 2009 until effectively 2018, collision claims increased year-over-year and we have now seen kind of a slowing through 2018. And now, in the last 3 quarters it's declined sequentially. And I'm just wondering if you guys have any color on kind of why that's happening? Or is it just a direct reflection of the slowing in the growth of vehicle miles traveled?
I think the slowing in the growth of vehicles are flattening, I guess, is really what we saw over the last several quarters is really likely the primary driver.
Okay, and still probably much too early to be considering the impacts of collision avoidance or any of that kind of thing?
Collision avoidance is probably having some impact on it. As we have outlined in our investor presentation one view as to the potential impact of collision avoidance over time that is going to, although it's a 25 to 30-year period, that's going to be a 25% to 30% reduction in claims frequency per miles driven. That does translate into some nominal frequency decline on an annual basis even as early as now. So there is likely some impact from that.
Okay. And then just finally, the existing backlog, would it be building now that the vacation or would it have been building during July when the technicians were on vacation?
We finished July with a very high level of work in process that we couldn't get out.
Your next question comes from the line of Zachary Evershed with National Bank Financial.
Most of my questions have been answered so far. Maybe I don't know if you can give us your take on that yet, but we have read that the Department of Justice was looking at ending the 1963 auto repair consent decree. Do you think there would be any impact on traffic or pricing?
Well, my understanding of that is that really was what a number of the -- number of the constituents that were opposing direct repair programs were hanging their argument on. And my read of it is that if that decree is pulled back or terminated that it really takes away another argument of the opponents of direct repair program. Tim, is that your...?
I think that the reason at least from my reading of it that they were considering eliminated was it really wasn't necessary anymore. So I don't think we anticipate that it will have any impact on us.
There are no further questions at this time. I'll now turn the call back to Mr. Bulbuck.
Thank you, operator, and thank you all once again for joining us for our call today. We look forward to reporting our third quarter results to you in November. Thanks again. Have a great day.
Thank you.
Thank everyone.
This concludes today's conference call, you may now disconnect.