Boyd Group Services Inc

TSX:BYD

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, everyone. Welcome to the Boyd Group Income Fund Third Quarter 2018 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 the Boyd's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Boyd's Annual Information Form and other periodic filings and registration statements. And you can access these documents at SEDAR's database found at sedar.com. I would like to remind everyone that this conference call is being recorded today, Wednesday, November 13, 2019. I would now like to introduce Mr. Brock Bulbuck, Chief Executive Officer of the Boyd Group Income Fund. Please go ahead, Mr. Bulbuck.

[Brock W. Bulbuck, CEO & Non]

Thank you, operator. Good morning, everyone, and thank you for joining us for today's call. With me today are Tim O'Day, our current President and Chief Operating Officer, who will succeed me in the role of CEO in 2020; and Pat Pathipati, our Executive Vice President and Chief Financial Officer. We released our 2019 3rd 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 focus our discussion on the Fund's financial results for the 3- and 9-month periods ended September 30, 2019, comments on the proposed conversion to a corporate form and provide a general business update. We will then open the call for questions. Overall, we are pleased with our continued progress and results thus far in 2019. In Q3, despite some challenges, we had continued strong growth, including growth in locations, sales and adjusted EBITDA. 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 34 locations during the third quarter of 2019 and an additional 3 locations subsequent to quarter end. On a year-to-date basis, we have thus far added 92 new locations. This quarter continues to build on our multiyear track record of profitable growth validated by the Fund being named in September to the inaugural TSX30. A flagship program recognizing the 30 top-performing TSX stocks over a 3-year period based on dividend-adjusted share price appreciation. Looking at our results for this past quarter, our total sales were $567 million, a 23.4% increase when compared to the third quarter of 2018. This reflects an $89.5 million contribution from 139 new locations. Our same-store sales, excluding foreign exchange, increased by 3.3% in the quarter. After adjusting for 1 additional selling and production day in both the U.S. and Canada in Q3 2019. Same-store sales increased 1.7% on a days adjusted basis. Foreign exchange increased sales by $4.2 million due to the translation of same-store sales at a higher U.S. dollar exchange rate. As previously commented on during our second quarter earnings reporting, while demand for our services continue to be healthy in most of our markets, Q3 did present a number of challenges including continued technician capacity constraints combined with strong comps, the challenges of vacation and softness in some markets. Additionally, as the quarter unfolded, we also had some additional modest negative impacts from Hurricane Dorian and the General Motors strike. And all of these factors combined to result in much lower same-store sales growth compared to what we achieved in the first half of the year. Despite these challenges, we were able to report positive same-store sales growth that contributed to double-digit increases in sales and adjusted EBITDA compared to the same period a year ago. Gross margin was 45.3% in Q3 2019 compared to 45.4% achieved in Q3 2018. The slight gross margin percentage decrease is primarily due to a higher mix of part sales in relation to labor as well as lower DRP pricing, partially offset by a higher mix of retail glass sales. Operating expenses for Q3 2019 were $179.6 million or 31.7% of sales compared to 36.5% in Q3 2018. Operating expenses for the quarter were significantly impacted by the adoption of IFRS 16, which removed $26.7 million of property lease expense from operating expenses. If we normalize for the adoption of IFRS 16 for comparative purposes, operating expenses would have been $206.4 million or 36.4% of sales. 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 $50.7 million, an increase of 22.9% over Q3 2018. Adjusted EBITDA growth was primarily due to contributions from new locations and same-store sales growth. Adjusted EBITDA margin was essentially flat at 8.94% in Q3 2019 compared to 8.97% in the comparative period. You will note that for 2019 reporting, we have chosen to adjust out the impact of IFRS 16 in reporting our adjusted EBITDA for comparative purposes. 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 Q3, adjusted EBITDA would have been $77.4 million or 13.7% of sales. Net earnings for Q3 2019 were $14.8 million compared to $16.6 million in Q3 2018. Impacting net earnings in both the current and prior year Q3 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 third quarter of 2019 was also negatively impacted by the adoption of IFRS 16, which reduced the net earnings by approximately $1.2 million net of tax or $0.06 per unit. Excluding these impacts, adjusted net earnings for the third quarter was $21.9 million or $1.10 per unit compared to adjusted net earnings of $20.4 million or $1.04 per unit for the same period in the prior year. The increase in adjusted net earnings is the result of contributions of new location growth and same-store sales growth. Adjusted net earnings was also impacted by increased finance costs based on additional borrowing under the credit facility to fund acquisitions as well as increased tax expense due to the completion and filing of the prior year's U.S. tax returns, which were recorded in the third quarter of 2019. 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 have vested and are expected to be exercised before the end of the 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 Q3 2019, we generated $20.6 million in adjusted distributable cash compared with $7.9 million generated in the same period of 2018. We paid distributions and dividends of $2.7 million, resulting in a payout ratio of 13.2% compared to a payout ratio of 33.2% in Q3 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. Based on our continued growth, the strength of and confidence in our business, we announced today that we are again increasing our distributions by 2.2% to $0.552 per unit on an annualized basis from their present level of $0.54, effective November 2019. This is the 12th consecutive year that we have increased distributions to unitholders. For the 9 months period ended September 30, 2019, we reported sales of $1.7 billion. An increase of 23.9% over the same period of the prior year, driven by acquisition growth and same-store sales growth of 4.6%. Gross margin was consistent at 45.5% of sales on a year-to-date basis for both 2019 and 2018. As already noted, operating expenses were impacted by the adoption of the new leasing standard. Removing this impact for comparative purposes, operating expenses were 36.2% of sales compared to 36.3% in 2018, reflecting improved same-store sales leverage. Adjusted EBITDA was $159.2 million compared to $125.8 million when the impact of IFRS 16 is removed from the 2019 results for comparative purposes, or $235.8 million for the 9 months ended September 30, 2019 on a post-IFRS 16 basis. We reported a 4.5% increase in net earnings for the 9-month period at $49.9 million compared to $47.7 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 $3.17 per unit to $3.81 per unit, a 20% increase. At the end of the third quarter, we had total debt net of cash of $895 million compared to $232.1 million at the end of 2018 and $182.2 million at September 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 $377.3 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 conservative leverage at the end of Q3 of approximately 1.9x 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 $250 million of dry powder available in cash and existing credit facilities to execute our growth strategy. Entering the fourth quarter, there continues to be healthy demand for our services in most of our markets; however, our technician capacity constraints will continue to make it challenging to return to strong organic growth in the face of strong Q4 2018 comps of 6.8% or 5.2% on a days adjusted basis. Additionally, the continued effects of the GM strike have had some impact on Q4 sales to date. Although it is early in the quarter, after 1 month, we are experiencing same-store sales growth that is slightly below, but in the range of Q3 levels, still falling short of the strong same-store sales levels experienced in the first half of the year. Our ability to improve upon this level of same-store sales growth, as the quarter progresses, will be primarily dependent upon our ability to grow same-store technician capacity as the quarter unfolds. We continue to have a high level of focus on our people initiatives, and we are continuing to make progress in building a strong foundation that will better position us to attract and retain technicians and all other positions in the future. Kim Morin, our new Chief HR Officer, who joined us in February leads these people initiatives and brings a wealth of HR leadership experience to our business, and we are excited by the systems and process that she has already implemented in this critical area. Notwithstanding this foundational progress, we were not able to continue to grow our same-store technician capacity in and leading up to Q3 2019 sufficiently to achieve the strong same-store sales growth that we had achieved in Q1 and Q2. We are working hard to address this and we have further heightened our focus on growing our same-store technician capacity during Q4. But as already noted, it will continue to be a meaningful constraint in Q4. During the third quarter of 2019, the fund announced the proposed conversion from an income trust to a corporate structure effective January 1, 2020, pursuant to a plan of arrangement. If approved, fund unitholders would receive 1 publicly traded common share of the new corporation called Boyd Group Services, Inc. for each fund unit held by the unitholder. A proposed conversion is subject to unitholder approval at a special meeting to be held on December 2, 2019. The reasons for and benefits of the proposed conversion include removal of the restriction of non-Canadian ownership that the fund currently has as well as adopting a public company structure, more typical, more easily understood and, therefore, more accepted by global investors and the capital markets. For these reasons, we believe that under a more typical corporate structure, we should enjoy an expanded shareholder base which, in turn, should result in greater liquidity and maximization evaluation. These and other benefits of the proposed conversion from an income trust to a corporate structure have been outlined in detail in the information circular that was mailed to all unitholders of the fund in October 2019, which is also available on SEDAR as well as the fund's website at www.boydgroup.com.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. Therefore, 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. The ongoing investments that we are making in people initiatives, technology, equipment and training positioned us well for continued operational execution. In summary, and in closing, we continue to be very well positioned to continue to take advantage of the growth and market share gain opportunities within our industry. Before we open the call to questions, as this is my last quarterly conference call as CEO, I would like to personally thank all of you: our unitholders, research analysts, advisers and other participants in Boyd's capital market activities for the support, advice, counsel and trust and confidence in our business that you have all provided to us during my tenure as CEO. You have all been absolutely terrific to work with. And this has certainly made my job as CEO much easier and much more enjoyable than it might otherwise have been. As I have commented many times, I have the highest level of confidence in Tim, as he moves into the role of CEO in January. Tim, with the support of our long-tenured experienced senior leadership team, will continue to lead Boyd to continued growth and success in the future. And I very much look forward to continuing to be part of our team in my new role of Executive Chair and as a Board member. With that, I would now like to open the call to questions. Operator.

[Operator]

[Operator Instructions] Your first question comes from Steve Hansen with Raymond James.

[Steven P. Hansen, Senior Vice President]

Just a quick one for me to start with on the technician side. I think we're about 18 months now into the shortage issues that have been raised on numerous accounts. You have mentioned in past quarters that you're starting to see some progress on that front, but it's still lingering as your commentary suggests. Are there -- I guess the question is, are there other strategies that you're starting to deploy now that would be different over the last 18 months? Or is there some sort of shift that you're thinking about how you can address this specific issue? Or is it just more blocking and tackling on what you've already started?

[Brock W. Bulbuck, CEO & Non]

Yes, I would say that, first of all, let me comment on sort of the last 18 months. When we started talking about this, we started talking about the initiatives that we had undertaken that included better training -- HR training for our managers included an apprenticeship program, included an increase in the resources dedicated to recruitment. We continue with all of those today. But as commented on in the script, in February, we brought in Kim Morin as our new Chief HR officer, and Kim has been really focusing on putting what we would call more foundational, sustainable process and systems in place in order to truly become an employer of choice long into the future. So I would say that we continue to work on those same 3 things that we've been working on for the past 18 months. But we're also, I think, stepping up our game and introducing more foundational systems and process that are truly sustainable. The other comment that I would make on this is, we don't think that we've gone backwards in Q3 relative to the progress we've made on those foundational matters. But like many things, you -- in the short term, you may have an outcome that is not necessarily consistent with the good progress that you're making. And if you look back to Q3 and Q4 of 2018, we actually had done a very good job at the end of Q2 and early part of Q3 in building our same-store technician capacity that was able to translate into meaningful same-store sales growth in Q3 and Q4 of '18, and Q1 and Q2 of '19. But unfortunately, we weren't able to grow that same-store technician capacity sufficiently leading up to Q3 of '19 in order to achieve the same -- strong same-store sales growth, which we're now going up against those strong Q3 '18 comps. So again, it's not of a reflection -- this outcome is not a reflection of a lack of progress in the area, I would call it a short-term setback.

[Steven P. Hansen, Senior Vice President]

Understood. I think we can all appreciate the tough comps you've got. Just one follow-up for me, if I may, and this might be a question for Tim or Brock. But just, as I look at the high level here, you guys are quickly approaching your 5-year target to double your business. As you survey the landscape today, do you feel that there's any particular impediments or even perhaps tailwinds setting out a similar target over the next 5 years? And I'm not trying to front run the next strategic plan, but I'm just trying to get a sense for whether the landscape today is conducive to something similar around really growing the business over the next 5 years.

[Timothy O'Day, President, COO & Non]

This is Tim, and I'll take that. I believe that there is plenty of opportunity to continue to grow our business. It's still a highly fragmented market. The tailwinds are still very much in our favor. So when we are prepared to communicate our next plan, I think, you can count on it to include growth as a key component.

[Operator]

Your next question comes from Chris Murray from AltaCorp.

[Christopher Allan Murray]

Brock, congratulations on moving to the more Executive Chairman role. I guess the first question I've got for you, just looking at some of the BLS data we've been seeing around CPI rates in the growth in body work and also some of the changes in insurance rates across the U.S., just -- there seems to be some pretty good acceleration. They're capturing just even on inflation that I would think will be working into your year-over-year same-store sales growth numbers, just wondering how you guys are seeing kind of pricing trends as we start moving into '20? And maybe with inflation kind of staying flattish maybe the -- historically, the body work inflation numbers kind of tracked along the same CPI type levels, but I'm just wondering if there's something that's kind of disconnected that in the last little while, maybe technology or something else going on?

[Brock W. Bulbuck, CEO & Non]

No, I think that we are seeing inflation in the average cost of repair that is essentially associated with more complex vehicle repairs. We have had -- from an industry perspective, from a market perspective, we have had a slight decline in repairable claims in the U.S., nationwide in Q3. And Chris, I -- fundamentally, as it relates to our business, I think that unfortunately, the technician capacity constraint is limiting our ability to take full advantage of the market share gain opportunity and that inflation -- inflationary benefit that may be available to us. We also see -- sorry, we also see the forward forecast is also for continued inflationary tailwinds on pricing from an average cost of repair perspective, at least that's the outlook of CCC.

[Christopher Allan Murray]

Okay. That's fair enough. Do you think that if you did have to increase the costs around technicians, historically, anyway that's been sort of brought into your core pricing. Do you think that will still be the condition? I know we've been seeing some wage inflation across a number of industries, but I would assume that you'd be seeing it as well?

[Brock W. Bulbuck, CEO & Non]

I think that we would expect to be able to, I mean, absorb that. If you look at our long sort of our historical track record of gross margins. They haven't fluctuated significantly. We haven't experienced significant margin contraction as a result of wage pressure. Insurance companies generally recognize the fact that we are experiencing wage inflation, and that has to be reflected in the prices that they pay us. It may not be in terms of lockstep pricing increases, but it generally does track over a longer term. So we would continue to see the same thing going forward.

[Christopher Allan Murray]

Okay. Fair enough. And then just my second question. Just turning to the proposed transaction or I guess transition to a full corporate structure, just any thoughts or have you received any feedback from investors that gives you any concern that there shouldn't be anything but a successful vote? And at this particular point, in your analysis, do you have a rough idea what proportion of unitholders will end up being fully taxable?

[Brock W. Bulbuck, CEO & Non]

I would say that -- I'll answer the first question -- or the second part of the question first. And I think we actually reported on this when we had our conference call on the restructuring in September. We estimate that it's a small portion of our investors that will be taxable. That portion that are essentially that hold their units in taxable retail accounts and we currently sort of -- based on the information we have, we estimate that our retail investors represent about 25% of our units outstanding, and we would also estimate that a meaningful portion of that 25% would be in registered nontaxable accounts. So however you want to sort of slice the 25%, it's probably in the neighborhood of -- it could be half of that, that would have a meaningful tax. But that's just really a guess based on some very limited polling that we've done with some retail brokers as to what percentage of their clients' holdings are in registered versus nonregistered accounts.

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

So Chris, the U.S. investors are not subjected to these taxes, so we're limiting this to Canadians. And also the institutional investors may not be subject to taxes, so we're talking about the small segment of Canadian retail investors who have the holdings in the taxable accounts.

[Brock W. Bulbuck, CEO & Non]

And we know the feedback that we've gotten from the marketplace, Chris, has been very, very positive. I'd say that particularly, institutional investors are very supportive. I will -- there's been -- I would say that we've had feedback from a very, very small number of retail investors that while they're generally very, very supportive of Boyd, they don't like the fact that they'll have to pay some tax on this transaction. But after we explained it to them, most of them understand that, overall, this is a net benefit transaction for our business. And the reality of it is that they have to pay -- that their tax liability is associated with the fact that their investment has done so very well.

[Operator]

Your next question comes from David Newman with Desjardins.

[David Francis Newman, Analyst]

Just on your guidance for 4Q. When you say that it would be sort of in and around where you were in 3Q, is that on the adjusted or the unadjusted basis, so 1.7% or the 3.3%?

[Brock W. Bulbuck, CEO & Non]

Yes. First of all, it's not really -- we're basically stating what we are experiencing thus far. And then identifying that sort of some of those -- that some of the limiting capacity constraints are still in existence, so -- but in answer to your specific question, when we say it that it is slightly below but in the range of what we experienced in Q3, we are meaning on a days adjusted basis, not on a book's basis.

[David Francis Newman, Analyst]

Got it. And if you had to do an attribution on -- I know it's hard to do crystal ball, but if you had to look at it from -- you're facing very tough comps, you do have the technician shortage, which has been pretty constant. And then, of course, the nuance of the UAW strike at GM, if you sort of had to put it in the bucket, what would you say the attribution or the causality, the shortfall might be?

[Brock W. Bulbuck, CEO & Non]

It's primarily technician capacity constraints with the lesser impact of the GM strike.

[David Francis Newman, Analyst]

Okay. And how are you guys doing on the backlog of GM-related work? And are you getting the availability of GM-related parts at this juncture? Any worries there on the inventory?

[Timothy O'Day, President, COO & Non]

GM is recovering fairly quickly from it. There's still some impact, but I would say, over the next few weeks that should be resolved.

[David Francis Newman, Analyst]

Okay. And that sort of begs the question, the pileup of maybe collision work that you, pardon the pun, the pileup of collision work that you might potentially be able to do as you kind of get through these pinch points, are you seeing the backlog rise on the back at some of these challenges?

[Timothy O'Day, President, COO & Non]

We saw an increase in the backlog, some of that was attributable to the GM strike. Some of it is just a healthy business environment, but we're working our way through that, including the GM work.

[David Francis Newman, Analyst]

Okay. And guys, you flagged select markets being soft. Can you kind of give a little more granularity around certain markets that you're seeing and why?

[Brock W. Bulbuck, CEO & Non]

We don't like to sort of -- because every quarter, we have a range of organic growth performance. So we try not to get that granular, but I will say that the Alberta market is -- continues to be a very challenging market for us. And I don't think that really should surprise anyone given the economic state of the province. So that's by way of example, one market that is very challenging for us right now.

[David Francis Newman, Analyst]

Okay. And last question for me guys, the -- as you look at sort of your mix of parts versus labor, have you guys had come to terms as to how you want to balance out, I guess, EBITDA dollars versus relative margins? In other words, you want more dollars in there, so if parts help you kind of improve your KPIs on a shop floor, does that serve to get you more EBITDA dollars and you're kind of doing a bit of a balancing act between parts and labor?

[Timothy O'Day, President, COO & Non]

I would say repair price will go up more because of parts than labor in the near term, just the mix of parts on vehicles is higher. We -- I really don't think about it in terms of how we'll improve our overall EBITDA dollars based on the parts increase. We'd love to keep the balance really where it is, but parts are likely to pick up more and I think that's favorable to us as long as the labor hours don't decrease, which we wouldn't expect.

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

And also, David, like a longer term strategy, we are focused on expanding the margins. So certainly, the repair versus replace is one of the opportunities we have.

[David Francis Newman, Analyst]

On a relative basis, right, Pat?

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

Yes. Yes.

[Operator]

Your next question comes from Bret Jordan with Jefferies.

[Bret David Jordan, MD & Equity Analyst]

My question on OE certification programs, I mean, certainly, reading more about it in industry publications. But could you talk about maybe what percentage of your works are exposed either to OE certification? And I guess is there a bias to parts replacement rather than repair in those programs?

[Timothy O'Day, President, COO & Non]

Yes. I would say the majority of our work has not sourced as a result of OE certifications today. We really view the efforts we've made to date as putting ourselves in the right position when the influence may shift or more of the work may be sourced through OE certification programs. Not that we don't have any coming through it, but I would say it's not significant today. As far as the approach to the repair, I think our commitment is really to do a quality repair as cost effectively as we can, and we still will use alternative parts to manage repair costs appropriately. There are some OE certification programs that would put more emphasis on the use of OE parts. And to the extent that occurs and it's the right thing to do for the customer, we would do that. But I think we have an obligation to make sure that we're managing repair cost effectively.

[Bret David Jordan, MD & Equity Analyst]

Okay. And then one follow-up question on the regional performance. Are you seeing any change in the competitive landscape, sort of, more on the U.S. side of the business, as some other MSOs consolidate? Do you see any moves, I guess, either competitive pricing around DRP programs or anything in markets?

[Timothy O'Day, President, COO & Non]

No, I would say we've seen nothing to suggest that.

[Operator]

Your next question comes from Maggie MacDougall with Cormark.

[Maggie Anne MacDougall, Director of of Institutional Equity Research]

I wanted to ask on the comments in -- around the gross margin. [Technical Difficulty] lines of change in DRP performance pricing arrangements had an impact on gross margin. And I'm wondering if that is tied into the outlook section comments, which includes statement around performance-based DRP programs evolving with insurance companies, and so there's a continuous need to improve customer repair and cycle times. So I guess my question is: First, are those 2 comments connected to each other? And then second, if you can elaborate on the nature of the change in DRP performance pricing arrangements? And then the nature of the investment or strategy that you have to improve customer repair and cycle times?

[Timothy O'Day, President, COO & Non]

I would say the 2 comments are connected. But as I believe we commented in the first quarter the performance-based pricing may create some variability, but it's not a structural change. So the variation you see is really a quarter-to-quarter variation and something that we would expect to move up and down, not necessarily, significantly, but it would shift over -- shift up and down over time. The targets that we have for our insurance clients do not really vary quarter-to-quarter. Some of it is based on market performance, but the -- we continue to look for ways to keep repair costs down to fix cars more quickly, reduce length of rental and improve customer satisfaction, but those are really significant drivers in the variability of pricing.

[Maggie Anne MacDougall, Director of of Institutional Equity Research]

Okay. And then just a follow-up. I'm curious if there's any labor-related constraint to improving on customer satisfaction and cycle time?

[Timothy O'Day, President, COO & Non]

More availability of labor would allow us to process some of our work faster, although we work to schedule repairs in to manage our cycle times and keep plan convertible down and customer satisfaction up, so I'd say it's more availability of throughput rather than significant changes to customer satisfaction or cycle time.

[Maggie Anne MacDougall, Director of of Institutional Equity Research]

Okay. The second question I have is around the M&A landscape. And I'm wondering if you can comment on both the competitive situation as well as the opportunity -- sort of type of opportunity that you're seeing most prevalently in your pipeline?

[Timothy O'Day, President, COO & Non]

There really hasn't been any significant change in this in quite some time. Our pipeline is very healthy, and we have a mix of both multi-shop opportunities as well as single shop and even greenfield-brownfield opportunities. So there's been really no shift in the environment on that front.

[Maggie Anne MacDougall, Director of of Institutional Equity Research]

Okay. Great. And then just finally, maybe I'm wrong on this, but it appears as though there may be a bit of an acceleration in the number of intake centers that you're opening. So first, is that accurate description of your recent activity? And then, second, what are your future plans with regards to that strategy considering, I think, obviously, there's an opportunity to do so, but that you have some labor constraints as well.

[Timothy O'Day, President, COO & Non]

Yes, the labor constraint is a concern. You have seen, I'd say, very modest acceleration of it, partly due to labor constraint, but we do see opportunity there. I think it ties in naturally to the OE certification strategy that we have underway. So I would expect that we'll continue to increase the number of intake centers, particularly where we believe we have capacity available or where we have an opportunity to maybe more rapidly improve on that capacity expansion.

[Operator]

Your next question comes from Jonathan Lamers with BMO Capital Markets.

[Jonathan Lamers, Analyst]

Are there any specific HR initiatives being planned that we should be aware of as we think about margin expectations for next year?

[Brock W. Bulbuck, CEO & Non]

So HR, to maybe try to get further clarification on the question. You're asking if any of the HR initiative is going to translate into significant incremental costs that will -- that may be channel compress margins? Is that the...

[Jonathan Lamers, Analyst]

Yes.

[Timothy O'Day, President, COO & Non]

No, we don't have any specific plans that would expect to have that impact.

[Jonathan Lamers, Analyst]

Okay. And Tim, as you look to take over the CEO role. Have you looked at Boyd's current organizational structure and footprint and do you believe that continues to support the next leg of growth? Or would Boyd be kind of approaching a level of -- and growing out of its -- the capabilities of the current organization?

[Timothy O'Day, President, COO & Non]

We've actually made adjustments to the organization over the past few years. And like last quarter, we talked about the fact that we had appointed a Chief Operating Officer for U.S. collision at the beginning of this year. We also have now appointed a Chief Operating Officer of our Canadian operations. And as part of that we've expanded the leadership on the operating side. So I'm very comfortable that we have a strong team in place to continue to execute on the strategy that we've been executing for the past several years.

[Jonathan Lamers, Analyst]

Okay. And just to be clear, does it make sense to continue being domiciled in Canada with yourself and Pat being U.S. citizens.

[Timothy O'Day, President, COO & Non]

Yes. I think we have a very strong team in Winnipeg and critical functions that are performed here. Obviously, we're traded on the Toronto Stock Exchange, so I fully expect we'll continue to be domiciled here. And Pat and I will continue to spend a fair amount of time in Winnipeg as well.

[Operator]

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

[Zachary Evershed, Analyst]

So the pace of acquisitions, the addition of locations has been quite a bit higher this year than historical levels. Could you outline for us again the factors contributing to that acceleration?

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

The acquisitions, as you know, they come in lumps. So you may not see much activity and then all of a sudden you'll see a spurt in activity. So there's nothing unusual. We continue to expand our corporate development team and -- to meet our growth targets.

[Zachary Evershed, Analyst]

Excellent. And given the level of leverage that you have? Obviously, dry powder, substantial amount available $250 million. But given leverage, where do you see sustainable pace of locations added per quarter going forward?

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

Currently, we are at 1.9x net debt to EBITDA. And as we indicated in the past, we are comfortable at 2x to 2.5x net debt-to-EBITDA. And from time to time, for the right acquisition opportunities, we might go beyond that level, but that's the level on a steady-state basis we're comfortable with.

[Zachary Evershed, Analyst]

That's helpful. And just last one for me. Could you dive into the U.S. tax returns. A completion of filing in the third quarter and the impact that, that had on your tax expense?

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

Yes. We typically make a provision each quarter and then typically in the third quarter, we true-up. So depending upon what kind of provisions we have made, you'll see either a pickup or you'll see an additional charge. So yes, last year, in 2018, we had a pickup. And this year, we have a charge. That's the reason we have that differential and we've disclosed that in the footnote.

[Brock W. Bulbuck, CEO & Non]

Yes. So unfortunately, as Pat says, unfortunately, this year, the true-up adjustment was modestly negative. But it was bouncing up against the comp period of last year Q3 that was a positive adjustment. So we added -- we actually had a wider spread in the divergence of results as a result of that.

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

And if you normalize for the tax, actually, the adjusted EPU would have been $1.13 in the current quarter; and for the comparable quarter, it could have been $0.98. So...

[Operator]

Your next question comes from Ben Jekic with GMP Securities.

[Ben Jekic]

I just want to also congratulate Brock and Tim for their new roles. All the best. And I do have one question, so either Brock or Tim can answer. When -- and it's tied to an M&A landscape, so I understand that the pipeline is very robust, but I was curious if there are any slightly more intangible factors when you look at potential center in terms of geography or parts of the United States, where you want the centers to be coming from? Or is it simply the business case for each center regardless of where it's located?

[Timothy O'Day, President, COO & Non]

I think as we're considering new markets, it's attractive to find a platform acquisition in new market that after we close on it, provides us with good opportunity for continued growth with single shop or greenfield acquisition or greenfield growth. So I would say that would be a criteria. Today, there is still a tremendous amount of open territory across the U.S. market anyway for us to grow in. So I think it's -- we have enough opportunity that we don't narrow it down to a particular geographic area. But obviously, we have areas where we have relationships and opportunity that we'll focus on. And it would be for those reasons, a good platform with the opportunity to grow from it.

[Operator]

Your next question comes from Daryl Young with TD Securities.

[Daryl Young, Mining Research Associate]

Just one quick one for me. The average cost of acquisitions per store has been trending higher, is that mostly reflection of more MSO deals being done in 2019 than historical?

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

That's correct, Daryl.

[Daryl Young, Mining Research Associate]

And so valuations remain effectively in the ranges we've talked about kind of 5?

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

That's right.

[Operator]

Your next question comes from Matt Bank with CIBC.

[Matt Bank, Associate]

Do you expect technician capacity pressure on comparable sales to continue into Q1 and Q2 of next year where you're also lapping strong comparable periods? Or do you see the people initiatives making significant progress before then?

[Timothy O'Day, President, COO & Non]

Well, we're certainly working hard to have the people initiatives put us in a position to deliver good same sale -- same-store sales growth. So I can't predict the future exactly how it will happen, but we have lots of effort and focus underway to build our technician count, and I expect us to have some success.

[Operator]

[Operator Instructions] Your next question comes from Steve Hansen with Raymond James.

[Steven P. Hansen, Senior Vice President]

Sorry, just one quick follow-up to the comment earlier. I just wanted to circle back on the concept of greenfield-brownfield site development. It's been a significant part of your growth strategy over the last 5 to 10 years. Just trying to understand what type of markets do you want to be deploying that? And is it going to be more prominent going forward relative to the past?

[Timothy O'Day, President, COO & Non]

I would say I would expect it to be a bigger share of our overall growth, and really, in any market where we have our core operations and leadership in place, a greenfield or brownfield opportunity makes tremendous sense. We've got good client relationships. The ability to bring the work in, the opportunity to have a site that meets our specific needs. So it's a very attractive opportunity to build out of market.

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

So Steve, typically, we look at the existing market. So typically, it's going to be a bolt-on, so we can leverage the management infrastructure we have in place. And number two, the focus has not been over the past 5 or 10 years, so the focus is more recent on the brownfield and greenfield. Just would like to provide that clarification.

[Brock W. Bulbuck, CEO & Non]

We do balance the fact that the cycle time for putting in a new greenfield-brownfield is longer. So if we have an immediate need, we may need to look at an acquisition. But that's just sort of further clarification on Tim and Pat's response.

[Operator]

There are no further questions queued up at this time. I'll turn the call back over to management.

[Brock W. Bulbuck, CEO & Non]

Thank you, operator, and thank you all once again for joining our call today. And we look forward to reporting our fourth quarter and year-end results in March, again, with Tim leading that call. Thanks again, everyone. Have a great day.

[Timothy O'Day, President, COO & Non]

Thank you.

[Narendra M. Pathipati, CFO, Executive VP, Secretary & Treasurer]

Thank you.

[Operator]

This concludes today's conference call. You may now disconnect.