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Boyd Group Services Inc
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Good morning, everyone. Welcome to the Boyd Group Services, Inc. Third Quarter 2020 Results Conference Call. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties relating to Boyd's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Boyd's annual information form and other periodic filings and registration statements, and you can access these documents at SEDAR's database found at sedar.com. I'd like to remind everyone that this conference call is being recorded today, Wednesday, November 11, 2020. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of the Boyd Group Services, Inc. Please go ahead, Mr. O'Day.
Thank you, operator. Good morning, everyone, and thank you for joining us for today's call. On the call with me today are Pat Pathipati, our Executive Vice President and Chief Financial Officer; and Brock Bulbuck, our Executive Chair. We released our 2020 third quarter results before markets open 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 this morning. On today's call, we will discuss the financial results for the 3 and 9-month periods ended September 30, 2020, provide a general business update and discuss our long-term growth strategy. We will then open the call for questions. As was expected, the third quarter of 2020 continued to be significantly impacted by the COVID-19 pandemic, although the impact was less severe than we experienced in the second quarter. We continue to focus on health and safety practices, such as contact-free customer drop off and pickup, enhanced vehicle and facility cleaning practices, social distancing and wearing a personal protective equipment, to keep our employees and customers safe. We continue to follow key practices that include deep cleaning facilities where an employee with a potential or confirmed case of COVID-19 has identified as well as defined processes for quarantine and testing in situations of potential exposure to help prevent the spread of the virus.During the third quarter, we recorded sales of $508.3 million, adjusted EBITDA of $84.5 million and net earnings of $21.1 million. Sales at $508.3 million showed a 10.3% decrease when compared to the same period of 2019. This reflects a $22.7 million contribution from 68 new locations. Our same-store sales, excluding foreign exchange, decreased by 15% in the third quarter. Same-store sales declines in Canada continued to be significantly higher than same-store sales declines in the U.S., which reflects the continued slower economic reopening in Canada when compared to the U.S. Foreign exchange increased sales by $3.6 million due to the translation of same-store sales at a higher U.S. dollar exchange rate. Gross margin was 47.2% in the third quarter of 2020 compared to 45.3% achieved in the same period of 2019. The gross margin percentage improved as a result of higher labor margins, primarily due to the recognition of the Canada Emergency Wage Subsidy of approximately $3.9 million, which more than offset the incremental COVID-19-related labor costs. Labor margins were also positively impacted by prudent cost controls, such as a cautious approach to bringing back resources as revenue grew in the U.S. The gross margin was positively impacted by a favorable mix of higher-margin retail glass sales and normal variability and DRP pricing. Operating expenses for the third quarter of 2020 were $155.5 million or 30.6% of sales compared to 31.7% in the same period of 2019. The decrease, as a percentage of sales, was impacted by the Canada Emergency Wage Subsidy as well as lower wages as a result of temporary layoffs and reduced management compensation. Boyd took a cautious approach to bringing back resources as revenue grew, which resulted in lower Q3 expenses, but is not sustainable. While many operating expenses were managed in relation to the decline in sales, certain expenses could not be reduced, such as property taxes and utility costs, which increased as a percentage of sales. Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $84.5 million, an increase of 9.2% over the same period in 2019. The increase was primarily due to improvements in gross margin percentage. In addition, adjusted EBITDA in the third quarter benefited from the Canada Emergency Wage Subsidy in the amount of $9.9 million. However, it should be noted as is the objective of this program, we continue to employ and incur costs for employees that would otherwise have been laid off or furloughed, absent the subsidy. Net earnings for the third quarter of 2020 was $21.1 million compared to $14.8 million in the same period of 2019. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the third quarter of 2020 was $21.8 million or $1.02 per share compared to adjusted net earnings of $20.7 million or $1.04 per share in the same period of the prior year. The decrease in adjusted net earnings per share is primarily attributable to a higher number of weighted average shares in 2020, due to the equity offering completed in the second quarter of this year. For the 9-month period ended September 30, 2020, we reported sales of $1.6 billion, a decrease of 7.9% over the same period of the prior year, driven by same-store sales declines of 16.5% or 17% on a days adjusted basis, partially offset by contributions from new locations that had not been in operation for the full comparative period. Gross margin increased to 46.1% of sales compared to 45.5% in the comparative period. The gross margin percentage was positively impacted by higher labor margins as a result of the Canada Emergency Wage Subsidy and a cautious approach to bringing back resources as revenue grew in the U.S., along with a favorable mix of retail glass sales and normal variability in DRP pricing. Operating expenses decreased $31.1 million when compared to the same period of the prior year, primarily due to COVID-19-related cost reductions, such as staffing reductions, salary and other compensation adjustments and reductions to other variable expenses. Operating expenses benefited from the Canada Emergency Wage Subsidy recorded as an offset to applicable indirect wages. Adjusted EBITDA for the 9-month period ended September 30, 2020, was $215.1 million compared to $235.8 million in the same period of the prior year. The $20.7 million decrease was primarily the result of the business slowdown caused by the COVID-19 pandemic, including operating expenses that could not be mitigated. We reported net earnings of $36.7 million compared to $49.9 million in the same period of the prior year. Adjusted net earnings per unit decreased from $3.64 to $1.69 in adjusted net earnings per share. These amounts were significantly impacted by the COVID-19 pandemic. At the end of the period, we had total debt, net of cash, of $672 million compared to $708.7 million at June 30, 2020, $949.9 million at March 31, 2020 and $893.2 million at the end of 2019. At the onset of the pandemic, we faced significant uncertainty regarding the extent and duration of the impact of COVID-19 on our business. In addition to acting quickly to reduce our expenses, we further addressed the uncertainty by drawing down on our credit facility and raising equity to ensure our balance sheet to withstand the impact of the pandemic and still be prepared for growth as conditions stabilized. As conditions have stabilized and the impact of COVID-19 has become better understood, Boyd has made repayments of $824.3 million during the 9 months ended September 30, to reduce the level of outstanding debt. As a result of the adoption of IFRS 16, Boyd reported total debt net of cash, including lease liabilities of $672 million compared to $895 million as of September 30, 2019, and $893.2 million as of December 31, 2019. Based on the strength of and confidence in our business, we announced today that we are again increasing our dividend by 2.2% to $0.564 per share on an annualized basis from their present level of $0.552, beginning in the fourth quarter of 2020. This is the 13th consecutive year that we have increased dividends to shareholders. During 2020, the company expects to make cash capital expenditures within the previously guided range of 1.6% to 1.8% of COVID-affected sales. This excludes those capital expenditures related to acquisition and development of new locations, the investment in LED lighting and the investment in the expansion of the WOW Operating Way practices through the corporate applications and process improvement efficiency project. During the first 9 months of the year, the company has invested approximately $3.5 million in LED lighting of a planned $5 million investment in order to reduce energy consumption and enhance the shop work environment. This investment will not only provide environmental and social benefits, but also achieve accretive returns on invested capital. Additionally, the company has begun to expand its Wow Operating Way practices to corporate business processes. The related technology and efficiency project will result in a total of $9 million to $10 million investment over the next 12 months and will also be expected to streamline various processes as well as generate economic returns after the project is fully implemented. This initiative began in the third quarter of 2020 and, thus far, has incurred nominal costs. Thus far, we've been able to successfully adjust and manage through the challenging situation that has arisen as a result of the COVID-19 pandemic. Our efforts have continued to deliver positive operating cash flow during the third quarter, notwithstanding the substantial decline in revenues caused by COVID-19. Following the pause on acquisition activity that occurred during the second quarter, we have added 11 locations during and subsequent to quarter end. On a year-to-date basis, we have thus far added 30 locations. As has been our practice, I would now like to comment on some potential for insider selling. With the recent changes to the economic and political environment that has translated into the potential for tax increases in the not-too-distant future, including taxes on capital gains, some insiders may choose to sell some of their Boyd holdings in advance of any such tax increases. But in any event, we'll continue to hold ownership of Boyd shares at levels well above those required by the company's share ownership policies. The COVID-19 pandemic continues to impact our business. Thus far, in the fourth quarter of 2020, same-store sales activity has continued below normal levels although slightly better than reported in the third quarter, with both fewer miles traveled and reduced traffic congestion impacting accident frequency. In addition, the higher-margin retail glass business, which had a favorable impact on our gross margin percentage in the seasonally high third quarter is entering a seasonally slower period in the fourth quarter. The company will continue to make applications under the Canada Emergency Wage Subsidy program as long as it continues to meet eligibility requirements. However, changes have been made to the program such that the subsidy is now determined by a particular employer's revenue reduction percentage in each qualifying period rather than providing a subsidy amount based on a minimum decline in revenues. This change, combined with some additional uncertainty as to how the program will work beyond November 21, 2020, will significantly reduce the subsidy that Boyd will be entitled to with respect to the fourth quarter of 2020 in comparison to both the second and third quarters of 2020. Overall, we are well positioned to navigate through this challenging environment and we are pleased to announce our new 5-year growth strategy. Our new growth strategy is to double the size of our business on a constant currency revenue basis from 2021 to 2025 based on 2019 revenues, implying an average annual growth rate of 15%. In order to achieve this, we will pursue accretive growth through a combination of organic or same-store sales growth as well as adding new locations to our network in the United States and Canada. New location growth will continue to include single location acquisitions as well as brownfield and greenfield start-ups and multi-location acquisitions. Additionally, to reduce volatility from exchange rates, effective January 2021, Boyd will begin reporting results in U.S. dollars. Given almost 90% of our revenues come from the U.S., this makes sense as an appropriate currency for reporting purposes. As always, operational excellence remains central to our business model, and continuous improvement investment in our WOW Operating Way. We continue to work to drive excellence and repair quality, customer satisfaction and repair cycle times to ensure the continued support of our insurance partners and vehicle-owner customers. Additionally, the company has begun to expand its WOW Operating Way practices to corporate business processes, an initiative that began in the third quarter and is expected to streamline various processes as well as generate economic returns. In summary and in closing, I continue to be incredibly proud of the steps that we've taken to adjust to this new environment and position ourselves well for the future. We've been able to adjust our business to manage through this challenging situation. We continue to believe that there will be many opportunities that come from this crisis, both internal and external, and we put ourselves in a good position to come out of this crisis as a stronger company. Our priorities remain taking care of the health and safety of our team members and customers as well as preserving financial flexibility and preparing for the opportunities that lie ahead. With that, I would now like to open the call to questions. Operator?
[Operator Instructions] Our first question comes from the line of Steve Hansen with Raymond James.
Yes. Just want for me to start is on -- I think your commentary seems to suggest to be cautious on the gross margin going forward. You said not effectively not wanting this to extrapolate the recent performance given you're bringing back resources more slowly. I'm just trying to get a sense for now, you've got 2 quarters in a row where you probably outperformed most people's expectations. But over what time frame should we expect those gross margins to get back to normal? Is it a quarter or 2, Tim? Or is it 3 quarters? I'm just trying to get a sense of that cadence.
Steve, we really haven't said the timing of -- I think the impact that you saw in the third quarter and actually in the second quarter in part as well, was a combination of a few things. We did eliminate lots of expense that was difficult to sustain. And we were slow to bring back some of that. A good example would be our apprenticeship program, which we weren't growing at the rate that we'd expected to grow, but we now are full steam ahead on that. And that does put some downward pressure on margin. The other key factor is the wage subsidy, the Canadian Wage Subsidy was fairly meaningful in both Q2 and Q3. And Q2 and Q3 are seasonally high for our glass business. And with lower collision sales and the glass business is a greater percentage of total sales, that has a lift on margin. So we won't get the benefit of the glass seasonality in Q4. We also aren't anticipating the benefit of the Canadian Wage Subsidy, at least not at the level that we've seen. And we have brought back most of the resources and are really trying to move full steam ahead to manage the revenue that we have available. So hopefully, that answers your question.
Yes. No, that's helpful. And just one follow-up. On the strategic growth plan to double again, quite bold. Just curious if you guys mapped out sort of that pace of acquisitions you need to make to get there over the 5 years? And really over what cadence should we expect that to unfold. You've been relatively slow thus far, I'd say, coming out of the trough relative to a few others. And so just trying to get a sense for whether you envision some bigger deals to happen amongst there because if it's just smaller one-offs, you're going to have to really accelerate the pace. So just maybe walk us through how confident you are in meeting that plan and whether it entails medium and/or larger-sized deals within it?
Yes. I feel very good about the opportunity that we have to achieve that goal. I wouldn't say that it's a quarter-by-quarter march toward that goal. There will be periods of time when we grow much faster, maybe through multiple MSO deals that happen over a successive period, as we've seen in the past. But we're geared up and ready to grow both with single shops and MSO, and the single shops will include, as we've done in the past, single shop acquisitions, but we'll also put some focus on greenfield and brownfield opportunities. So I think that I'm comfortable with our strategy and the resources that we have in place to accomplish that.
Steve, if you look at it -- you made a comment, it has been slow, and that was the choice we made. We paused because of the uncertainties relating to the COVID-19 pandemic. So we now publicly are stating that we are pursuing, we are recommencing that the growth, and the industry is still highly fragmented, and we are well positioned to consolidate. So we are very optimistic.
Our next question comes from the line of Michael Doumet with Scotiabank.
I'd like to get a little bit more clarity on the comment regarding the sustainability of the cost action taken in Q3. I mean, just in terms of how we're supposed to interpret the comment around sustainability, should we assume that margins in Q3 as a percentage may have peaked, but the dollar profit should improve with volumes. I mean that's another way, should we expect revenues to come back faster than costs?
Well, I think one of the comments I made was that we were slow to bring back resources as revenue ramped up in Q3. And if I had to do it over, I might not be as slow with bringing back those resources. So I think the Q3 benefited from a combination of things that I did describe, but one of them was a slower response to bringing back resources just out of caution because we really didn't know exactly how the revenue would build.
Got you. That's clear. And maybe as an offset, just as a follow-on. I mean, if it were not for [ queues ], what would be the alternate cost actions that resulted in terms of cost reductions?
Michael, we really haven't tried to assess that. We had plans that we laid out at the -- when the pandemic began, and queues did allow us to avoid some furloughs or layoffs. But because the whole situation evolved in terms of the decline in revenue and how it ramped back up. We really don't have the go -- the ability to go back and look at what might have happened had that not occurred.
Yes, that's fair. Okay. And then just on the second question, I mean, obviously, we're not at the acquisition pace that gets us that 15% CAGR. I'd like to get your take on maybe what you think are the main obstacles or what you think it would take to get back to that desired activity level?
Well, I think that we have a team that is prepared to accomplish the level of growth that's required to achieve that. What you're seeing or what you've seen in 2020 was an intentional halt on growth. And while we kept things that were in the pipeline warm, we've still been relatively cautious with acquisitions and integration. We are getting more comfortable with doing more of the integration activity virtually and having limited resources on the ground. But we're prepared to step up the pace and believe that we have the resources available to us today to get on the run rate to accomplish the 5-year plan.
Our next question comes from the line of David Newman with Dejardins.Their line has disconnected. [Operator Instructions]Our next question comes from the line of Sean [indiscernible] with Goldman Sachs.
Just going back to your 5-year plan in terms of sort of doubling the revenue. As we think about the composition of that with the reacquisitions and then same-store sales. How should we think about the split? Should we go back to the prior 5 year? And is sort of the 3.5% to 4% comp still the right way to think about it as we look forward?
We don't really provide specific guidance on that. But our growth plan includes both organic growth as well as growth through new unit development, whether it's by acquisition or brownfield, greenfield. So what our plan really calls for is 15% annual growth over that period of time, but without defining the organic versus unit growth.
I guess that's fair. I guess what I'm trying to understand is coming out of the pandemic, obviously, that's sort of a big reality now. Do you see anything changing the underlying drivers of the industry that we should consider? Let's just say that a vaccine comes out if things get back in normal. Do you see anything changing just the underlying dynamics of how we should be thinking about the core group?
I'm not sure I see anything significant. Obviously, this is such a disruptive year. We would expect as we come out of the pandemic that our organic growth year-over-year would be substantially higher next year than you would normally see. But that's really a recovery as a result of COVID. But it still remains to be seen what's going to happen with miles driven, with traffic congestion. But despite all of that, I think we have an excellent opportunity to consolidate the industry and to serve insurance clients and participate in OE certification programs to help gain share as part of our overall strategy to our growth.
Got it. And then a follow-up question. You guys talked about streamlining some corporate practices briefly there. Can you perhaps throw some more light, what can we expect? What sort of cost efficiencies can you achieve there?
We have not disclosed the cost efficiencies related into that yet. The only thing we disclosed is, so we'll be completing that over the next 12 months and also the cost associated with that. But you can certainly expect the benefit potentially starting in the 2022, but we have not disclosed that information yet, the magnitude of those benefits.
I think the one thing we have said is we expected to provide economic returns, though. So...
Absolutely. Yes. It's a great investment from that point of view, absolutely.
Our next question comes from the line of David Newman with Desjardins.
I think I got cut off there. Can you hear me?
Yes.
Yes.
Okay. Very good. So a great set of results first off the top. I just want to look at it kind of a different way, though. Do you think you'll revert to historic levels? And coming out of the pandemic, do you think Boyd might look a little different in terms of hub-and-spoke intake centers, any permanent cost reductions or other identified efficiencies beyond the WOW Operating Way in the corporate offices? Those are the questions.
Yes. I think there are multiple questions, David. I think if you peel the onion, one is relating to the cost structure. The cost structure as we commented, you need to normalize for the [ sous ] and the second one is relating to some of the staffing, Tim commented, so we might add back so that actually might put some pressure on the margins. And the third one is the mix between the repair versus replace like when you have less pressure on labor, you tend to use more labor and that has higher margins. And as you come back full steam, that might change a little bit back so those are the factors, I think, that might have an impact on the margins. So I'm going to revert back to the 45.5% in the range so that we cannot answer. We don't provide guidance on those things. But we'll be striving hard to enhance the EBITDA margins. And again, we don't want to get specific about the gross margins or the OpEx. But our focus is to enhance the EBITDA margins over a period of time.
Okay. And just more of a high level, though, I mean this pause from the pandemic, it's afforded many companies a chance to kind of really look at what they're doing and how they do it. Was there any revelations for you guys in terms of how you're operating? Or any changes? I know you're very, very efficient. But was there any -- did you identify anything that could be used go forward?
Absolutely. I think like in terms of the practice, we told in the past, I think, like we'll be increasing our focus on the dealer intake centers. So I think that is certainly one thing. And also, like if we looked at our cost structure, and we found some opportunities to consolidate some of the functions and derive synergies related to those things. And again, we have not disclosed those things. But yes, in fact, we have done, and we are doing those things.
Okay. And any benefit from the right to repair law that was recently passed? I know you already have a pre- and post diagnostics, but anything at the margin, any benefits that you guys can see?
I don't think there's an immediate benefit on that, although that was an important decision for the automotive aftermarket. So I think that Massachusetts intended to lead the way on legislation like that. So I view that as favorable for the aftermarket.
Okay. And last one for me, guys. A U.S. dollar reporting is this, do you think, eventually lead into potentially dualist?
That, I think we'll make that call at the appropriate time. I think, no, we are doing this to reduce the volatility because of the exchange rates.
Our next question comes from the line of Maggie MacDougall with Stifel.
A quick question on your intentions to extend the Wow Operating Way into your corporate culture and operations. The investment or the cost for that, is that actually an investment in systems? Or is that more of a restructuring cost? And then secondly, could you provide us a bit of detail in terms of what you plan on implementing corporately? I can imagine that you're on the floor shop operation, implementation of WOW is going to be quite a bit different from what you're going to be doing in your back office. So would be curious exactly what you have planned there?
Sure. Yes, there are 2 things. One is, you're right, the WOW Operating Way we have implemented in operations is different. And I -- that's an ongoing process, but we embarked on that 4 or 5 years ago, whereas this was started in Q3, and the focus is on finance, human resources procurement in areas like that, the strategic support, services and the corporate functions. And the investment of $9 million to $10 million we have identified do include systems. So we are implementing a system and that investment is part of that.
Okay. And it sounds to me, so this may be something that will help you scale over the next 5 years as you work towards your new revenue target goal. Is this the type of thing that could enhance operating efficiencies as you continue to add businesses to your platform? Or is it simply going to be removing a bit of excess cost or creating some new efficiencies within your...
No, no. I think the -- one of the reasons we are implementing the system is to scale up because we do have ambitious plans to grow the business, and this provides the right platform to enable that growth. So in addition to that, certainly, we are going to realize the cost synergies, as Tim pointed out, now we are looking for an attractive return on invested capital.
And then just with regards to the competitive landscape. Wondering if you could provide any insight into how it may have shifted or changed given the unusual circumstances of this year, it's obviously been a challenging year for the collision industry in terms of demand. You guys and others, I imagine, have navigated it very efficiently. Have you seen this sort of increased pressure on the single-store operators? Has there been a multiplier in terms of benefit to the larger groups, given that the balance sheet stability you have is superior and you have been able to navigate this challenge so well?
Maggie, I think it's -- we've commented on this in the prior quarter as well. Immediately after the pandemic, there was a fairly significant amount of support in the U.S. provided to small businesses that really allowed those that may have been under capitalized to get through it pretty well. I think our industry also has demonstrated a reasonable ability to manage its cost structure effectively. And even to generate positive cash flow in a tough revenue environment. Having said that, I think that over time, there could be more single shops that are motivated to sell as a result of what we've gone through or what we're going through. We're still in the early stages, I'd say of that, but I'm optimistic that we'll see good opportunities that come from this.
Our next question comes from the line of Bret Jordan with Jefferies.
When you look at the pandemic and, I guess, the last maybe 4 or 5 months, did you see a spike in total loss rates that compounded the impact on your -- on the negative comp? I guess if you could sort of carve out any kind of short-term change in the insurance company's thoughts here? And then I guess the second question, I'll ask it all at once. As you look at the DRP impact versus OE certification, given your scale and relationships with both OE and insurance companies, which of those do you see as a bigger driver going forward in the consolidation of volumes to major players?
Well, on the first question, Bret, with regard to total losses, I think we rely on the data that CCC publishes for that. And most total losses don't get to a collision repair shop. They would be declared. The insurance companies are motivated to identify those as total losses before they get to a shop. So we wouldn't necessarily see an increase in total loss rates in our operations, but CCC has reported an increase in total losses. Used car values are a driver of that, as you know, and used car prices initially went down because of oversupply, but they've since returned to actually pretty solid levels. So that's a favorable trend for us. But total loss rates have been creeping up over the past several years, and it may well be that we continue to do that. On the balance between DRP and OE certifications, I actually think that we -- there is balance between that. We've invested in many OE certification programs to date. We expect to continue to grow our portfolio of OE certifications and view that as important. Most insurers today do not refer business based on an OE certification program, and most OEs today don't play a significant role in where cars get repaired. But I think there's the potential for both insurers to recognize certifications and for OEs to play a greater influence in where cars go. So that's the reason that I think we'll maintain strong direct repair relationships. But also continue to invest in the equipment and training and process as necessary for OE certifications.
Our next question comes from the line of Zachary Evershed with National Bank Financial.
Congrats on the quarter. So looking at the potential growth drivers, we have same-store sales growth, obviously, but then we have the acquisitions, greenfields and brownfields. How do the returns compare on an acquisition at typical prices versus a greenfield and versus the brownfields?
I guess, we would generally expect greenfield and brownfield acquisitions or growth to have a higher return on capital than single shop. So we haven't -- I think we've provided information in the past. Well, Pat, do you want to comment on that?
Yes. I think in terms of relatively, if you look at the 4 buckets, I think the same-store sales growth has the highest contribution margin. And then you have the brownfield, greenfield, and the third one is the single shops. And the last one is the MSOs, but instead of purely the ROIC, one has to look at the strategic value these things bring. So the MSOs may have lower, but it does have a -- it does add strategic benefits for our platform. So you have to factor that in. But a lot of magnitude, that's how they stack up.
That's helpful. And given the current environment, how easily do you think you can staff greenfields and brownfields with technicians?
I don't think -- I don't view that to be an exceptional challenge. I mean it is probably easier to attract staff into a newer facility with very current equipment. So we don't view that. It will require effort on our part, but we're prepared to make that effort.
Our next question comes from the line of Jonathan Lamers with BMO.
Just following up on that last discussion on the greenfield store plans. Can you comment as to whether you've secured a real estate development partner to assist you with that?
We have various options with that. So it's certainly not a barrier for us in terms of that method of growth.
When should we be thinking about those greenfield stores beginning to be implemented and thinking about working those into our forecasts?
We already started the focusing on brownfield greenfield. In fact, before the COVID hit, we slightly started, but we will increase the focus. And as you know, it's going to take time. Unlike the acquisitions, which will hit ground running. So there is a start-up phase. But as I said, we don't have -- we are not providing any specific goal but that's part of the mix. So we are going to evaluate the opportunities. So if we find brownfield, greenfield to be more meaningful in a strategic location than acquiring a shop, then we would do it. So that's how we are going to evaluate. So it's going to be part of the mix. It's one of the arrows in the quiver to facilitate the growth.
Okay. And last topic. On the Q3 same-store sales, it seems the U.S. business is well outperforming the industry claims volumes. Can you offer any comments as to what you would attribute that to, whether it's higher industry severity rates, market share gains for Boyd shops or both?
Well, it's probably a combination of that. Those are pretty difficult numbers for us to clearly assess. But we do believe we've gained some share. We have strong direct repair relationships with our insurance clients. There is also a component of severity of the average cost of repair, which has been creeping up over the years, and that's continued even through 2020 based on the data we see. So it's a combination of those.
The next question comes from the line of Steve Hansen with Raymond James.
Just a quick follow-up, if I may. First is on the fourth quarter same-store sales trend. You commented, Tim, that things are trending slightly better than the third quarter print. But I'm just curious if that -- have you seen any fade at all in the activity pattern through November as we start here. Some of the industry data suggests that things are a little bit softer here.
Yes. I think the only comment we're really providing is a historical look back. So up through the very recent time, we've seen a slight improvement from where we were in Q3, but it's pretty difficult to predict exactly what will happen over the next 7 weeks with -- obviously, there's a pretty significant increase in the pandemic, in the impact of the pandemic. But we don't really have any other guidance for what the balance of Q4 may look like.
Okay. Great. That's fine. And just one point of clarification on the 5-year target, just to make sure I've got the language correct. It sounds like you're using 2019 as the baseline for your 5-year doubling. In other words, 2020 is almost a throw out-year in a way.
Right. That's how...
Yes. That's sort of how we're viewing it, Steve, is that we're basing the targets on 2019 revenue.
And yes, Tim, it's Brock. Just maybe a comment to add on that based on some of the earlier questions that sort of intimated that we were behind the curve angst that growth trajectory. Well, we're really not behind because the measurement period really hasn't started yet. The measurement period is 2021 through 2025. And just as we are basing the baseline on 2019, we really have -- and 2020 is, therefore, a through way year from a baseline perspective. It's also a throwaway year from a growth perspective. So I just wanted to -- I thought it was important to point out that the measurement period that -- the 5-year period that we are giving ourselves to achieve this growth really doesn't kick in until 2021.
Our next question comes from the line of Matt Bank with CIBC.
I wanted to clarify to make sure that I understood a comment you made earlier on the call. It sounded like you said that even after officially restarting M&A and doing some of it, you were cautious on deals but now you are ready to pick up the pace. Is that a fair way of hearing it? And then can you just also comment on the pipeline? Any M&A opportunities available to you and how that looks versus what you would have seen pre-COVID?
Well, on your first question, Matt, I think we are prepared to pick up the pace. I would say we still need to be aware of the fact that the number of COVID cases is increasing, and we have a responsibility to keep our teams safe. So if the environment were to make it more difficult, we could slow down some things for that reason. But we're prepared to pick up the pace. In terms of the pipeline, I would say we're comfortable that that our pipeline has -- as we've communicated in the past, we think we have a strong pipeline of potential opportunities to pursue, and that, that should not be a barrier to achieving our plan.
Matt, our focus for the longer term. So you may see a slightly different pace in the very short term. That's why we're providing the guidance for 5 years starting 2021. And we're very confident about achieving those goals.
Our next question comes from the line of Chris Murray with AltaCorp.
I guess, maybe my question is thinking a little bit about the strategic plan. And you've talked about the 5-year revenue target. But what I was also curious about is thinking about the composition of how you're going to build that revenue. And you talked about, certainly, same-store sales and store acquisitions. But just wondering about things like how you're going to -- maybe you are thinking about things like intake centers, cost management? And what I'm really trying to understand is, should we expect not necessarily the revenue growth number we can kind of get there, but the quality of earnings over that period, how do you think that that's going to evolve?
I'm not sure I completely understand the question.
Well, is there anything you can do as you grow that revenue to improve the margin profile of the company other than just straight up absorption?
Yes. I think that we'll have to see what the market gives us the opportunity to do on that, Chris. I think the -- in the collision repair business right now, parts as a percentage of total mix has been increasing because of greater part content as well as higher part prices. And as you know, our parts margins tend to be lower than our labor margins, or they are lower than our labor margins. On the other hand, I think there are opportunities for additional labor operations, particularly as it relates to ADAS that could help to offset that. And then obviously, we're looking for organic sales growth will drive maybe not gross margin improvement, but EBITDA margin improvement to help us improve our profitability during that planning horizon. I don't know if that answers your question, but...
Yes. Just -- and just maybe any thoughts around, do you try to look to accelerate using intake centers, which generally bias your margins one way or another or anything like that? And again, I guess the other piece is your involvement with DRP programs. Or do you do something different there as well?
Well, we -- I don't see any significant change in our involvement with direct repair programs. I think those are a key source of our revenue and delivering value to our clients from that standpoint. I do think intake centers is something that we will continue to pay attention to. We have been, and we will continue to do that. That's a good driver for organic growth. And -- but I don't think it changes the overall profit profile beyond driving organic growth and using DRPs and operational excellence to drive further organic growth.
There are no further questions at this time. I will now turn the call back to Tim O'Day.
Very good. Thank you, operator, and thank you all once again for joining our call today. We look forward to reporting our fourth quarter and year-end results in March of next year. Thanks, and have a great day. Bye-bye.
Thanks, everyone.
This concludes today's conference call. Thank you for your participation. You may now disconnect.