Boyd Group Services Inc

TSX:BYD

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, everyone. Welcome to the Boyd Group Income Fund 2017 Fourth Quarter 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 call is being recorded today, Wednesday, March 21, 2018.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 Pat Pathipati, our Executive Vice President and Chief Financial Officer; and Tim O'Day, our President and Chief Operating Officer.We released our 2017 fourth quarter and year-end 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 were also filed on SEDAR this morning.On today's call, we will discuss the Fund's financial results for the 3- and 12-month periods ended December 31, 2017 and provide a general business update. We will then open up the call for questions.Overall, we are pleased with our progress in 2017. We remain focused on our long-term goal of doubling the size of our business on a constant currency basis over the 5-year period from 2015 to 2020. In 2017, we were able to add 105 locations, representing growth in location count of 26% during the year. We were also able to continue to improve our adjusted EBITDA margins, which improved by 30- basis points during 2017. We have now improved EBITDA margins by 240 basis points over the past 5 years.In line with our track record of the past several years, we again achieved record levels of revenue, adjusted EBITDA and adjusted net earnings despite the significant headwinds we faced in the year, which included a dry and mild winter, summer hurricanes, an unfavorable currency environment and a technician shortage, all of which contributed to a very modest level of same-store sales growth in 2017.Adding locations continues to be a key focus area, and in 2017, we added 105 locations, including 68 locations in Ontario with the Assured Automotive acquisition and 9 locations in Tennessee as part of the Auto Art acquisition. These new locations not only increased our market presence, they also helped to enhance our ability to grow as they positioned us in new geographies, added new service models and augmented our management team.Assured Automotive, which was acquired in July and added 68 collision repair locations in Ontario, including 30 dealer service centers, more than doubled our presence in Canada to 110 locations and provided a valuable footprint in Ontario, Canada's largest collision repair market with attractive growth potential. Des D'Silva and Tony Canade, who together led the growth of Assured from 9 locations to 68 locations in 12 years, continue to lead Assured and are also now valued members of the Boyd executive management team. Since acquisition, 5 additional collision repair locations and 1 intake center have been added to the Assured business in Ontario.The Auto Art acquisition consisted of a 9-store MSO in the Nashville region, which established our first presence in the state of Tennessee, and subsequent to year-end, we also acquired our first locations in Texas. These newly acquired locations in new states will now allow us to build our presence in both Tennessee and Texas.In early 2018, Boyd crossed the 500-location milestone. To date, we have 509 locations in 22 U.S. states and 5 Canadian provinces.The organizational changes that we made at the beginning of 2017 to better position our company with breadth and depth of senior management for our continued growth have achieved our desired outcome. Tim O'Day now has a full year of experience as President and Chief Operating Officer for all of the Boyd Group, as do the levels of operational leadership reporting into Tim in their new roles. This positions our operational management team very well for the future.As well as growth in locations, we achieved growth across all of our financial metrics, both in the year and in the quarter. Starting with our fourth quarter results; we had total sales of $414.6 million, a 15% increase over $360.4 million in the fourth quarter of 2016. Of the increase, $67.3 million came from locations added over the past year and $4.9 million from same-store sales, which increased 1.4% quarter-over-quarter. Unfavorable foreign exchange rates affected same-store sales, which resulted in a $15.8 million decrease when U.S. sales were translated into Canadian dollars. Facing strong same-store sales comps of 4.5% in Q4 2016, same-store sales in Q4 2017 were meaningfully impacted by the shortage of technicians, which meant we could not execute on all the revenue opportunities available to us. Although we had strong demand for our services in most of our markets, many of these markets were the ones where we were most challenged by unfilled technician positions.Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and acquisition and transaction costs, was $41.8 million or 10.1% of sales. In the same quarter of the previous year, adjusted EBITDA was $32.6 million with an EBITDA margin of 9.1%. As well as contributions from new locations, Q4 2017 adjusted EBITDA was favorably impacted by the Assured business model and the benefit of some expense accrual reductions as certain expense estimates were changed or firmed up at amounts that were lower than previously estimated or accrued. The Q4 adjusted EBITDA margin of 10.1% should not be interpreted as a permanent step-change or step-up in EBITDA margins going into 2018. Alternatively, we would expect slow and gradual margin expansion into the future. Additionally, we would remind investors that there is some seasonal fluctuation in our quarterly margins, with Q1 EBITDA margins being the lowest due to higher payroll taxes early in the year.Net earnings in Q4 2017 were $23.2 million or $1.19 per unit fully diluted compared to a net earnings of $8.4 million or $0.40 per unit fully diluted for the same period last year. Net earnings were impacted by the recording of fair value adjustments for exchangeable shares, unit options, convertible debenture conversion features and the noncontrolling interest put-option and call-option liability adjustment as well as the recording of acquisition and transaction costs and changes in deferred tax assets and liabilities resulting from changes in U.S. tax rates, which resulted in a onetime tax recovery of $13.6 million.As you are aware, late last year, the U.S. government passed tax reform legislation, which is expected to reduce our U.S. corporate tax rate from approximately 39% to 26% beginning January 1, 2018. This change in tax rate caused us to record a onetime income tax recovery of $13.6 million related to revaluing our deferred tax liability, which contributed to an overall income tax recovery of $4.4 million in Q4 2017 compared to an expense of $6.4 million in Q4 2016. Excluding these fair value adjustments, acquisition and transaction costs and the onetime tax recovery amount, adjusted net earnings for the fourth quarter was $17.4 million or $0.91 per unit compared to adjusted net earnings of $13.1 million or $0.73 per unit in Q4 2016.Our cash position continues to be strong, with adjusted distributable cash at $40.9 million in Q4 2017 and distributions and dividends paid of $2.5 million. This resulted in a payout ratio of 6.1%.In Q4 2016, we had generated adjusted distributable cash of $34.5 million and a payout ratio of 6.7%. This increase in distributable cash is primarily the result of higher adjusted EBITDA levels, partially offset by higher levels of capital expenditures. For the full year, our payout ratio was 10.2% compared to 12% in 2016. We continue to maintain that a conservative payout ratio is the preferred capital allocation strategy that enables us to devote resources to take advantage of these significant consolidation opportunities in our industry and maintain flexibility.We have, however, also consistently increased distributions to unitholders. And in November, we again increased distributions for the 10th consecutive year. Unitholders now receive an annualized payment of approximately $0.53, a 2.3% increase.In terms of capital expenditures, a year ago, we stated that over and above our historical normal CapEx spend of approximately 0.8% of sales, for 2017, we expected to invest an additional $8 million to $10 million in technology infrastructure and $4 million to $5 million in specialized collision repair equipment relating to new vehicle technology. This guidance was, therefore, for CapEx in the range of 1.6% to 1.8% of sales in the aggregate. Actual expenditures for 2017 came in at the low end of this range at about 1.5% of sales.Automobiles continue to change rapidly, resulting in requirements for new specialized repair equipment. We also continue to face evolving information technology needs, both corporately as well as at the store level. To address this, in 2018, we again plan to make capital expenditures within the same 1.6% to 1.8% of sales range of the guidance that we had provided for 2017. These proactive investments will position us to meet anticipated market needs, and we continue to believe that our large scale and multi-location model will continue to give us competitive market advantage against single-location and smaller MSO businesses. It is also possible some repairers may choose not to make these investments, and in doing so, contribute to an acceleration of the consolidation of the industry.Looking at our annual results. We had record sales of $1.6 billion, a 13.1% increase over $1.4 billion in 2016. Same-store sales increased 1% year-over-year to $1.32 billion from $1.31 billion in 2016. Adjusting for 1 less selling and production day in 2017 compared to 2016, same-store sales grew by 1.4%.In addition to facing strong same-store sales comps of 5.3% in 2016, weather played a key role in the slower growth in same-store sales, with mild and dry winter conditions in the first quarter and Hurricane Irma in the third quarter. In the fourth quarter, a shortage of technicians negatively impacted same-store sales growth.Adjusted EBITDA had a solid increase of 17.2% to $145.6 million or 9.3% of sales from $124.3 million or 9% of sales in 2016, representing an approximate 30- basis point improvement in adjusted EBITDA margin. This improvement is a continuation of our multiyear trend of gradual margin expansion. Since 2012, we've improved our adjusted EBITDA margins by 240- basis points from 6.9% to 9.3% of sales.Adjusted net earnings increased 11.8% to $58.8 million in 2017 from $52.6 million the year before. This translates into adjusted net earnings of $3.18 per unit compared to $2.92 per unit in 2016.We remain very conservatively leveraged with a strong balance sheet. At year-end, Boyd had total debt, net of cash, of $219.1 million. This compares to $264.4 million at September 30 and $110.8 million at the end of 2016. Debt, net of cash, increased from a year ago as a result of the acquisition and development activity, partially offset by the conversion and redemption of the 2014 convertible debentures. In September, we announced the early redemption and conversion of our convertible unsecured subordinated debentures due October 31, 2021. In November, we converted and redeemed $54.9 million principal amount of debentures into approximately 882,000 units of the Fund.Also under the topic of trust units, on January 2, 2018, 150,000 trust units were issued in conjunction with the settlements of the exercise of unit options. In this regard, there may continue to be some insider unit sales in the near term as option holders need to fund past liability loans and for general estate planning purposes.In 2017, we increased our revolving credit facility to USD 300 million with an accordion feature that allows it to increase to USD 450 million. As of the end of the year, we had drawn approximately USD 160 million on the facility.During 2017, our unit price increased by 17.9%. More important, however, is the long-term value unitholders have been able to enjoy. Over the last 5 years, Boyd investors would have achieved a total return of 554% from unit price appreciation and cash distributions. As well, Boyd Group Income Fund had the best ten-year performance on the TSX in both 2015 and 2016 and the second best ten-year performance in 2017 with a total return of over 5,000%.While we remain confident in our ability to continue to achieve our long-term goals, in the near term, the industry-wide shortage of collision repair technicians may continue to challenge our ability to meet the demand for our services. As we have previously communicated, we've been working to address this shortage with a number of initiatives to attract new technicians and increase retention. To date, this has translated into improved same-store sales growth in the first quarter, moving towards but not yet reaching our historical levels of average quarterly same-store sales growth.Adding to the initiatives that we put in place in 2017, we are also now rolling out enhancements to our benefits for U.S. employees that will be funded by a portion of the tax savings that will be realized from the recently announced U.S. tax reform. These benefit enhancements include increasing vacation and holiday pay for technicians as well as doubling company contributions and cap for our 401(k) retirement savings plan and shortening the vesting period for the plan. We estimate that the total annual cost of all enhancements will represent between 40% and 50% of the overall reduction in our U.S. tax -- income tax expense attributable to U.S. tax reform. We are optimistic that these benefit enhancements will have a positive impact on our ability to recruit and retain technicians.In addition to the challenge of technician capacity, we are also again facing currency headwinds in Q1. The average U.S. dollar conversion rate in Q1 thus far sits at approximately CAD 1.26. This compares to an average conversion rate in Q1 2016 of approximately $1.32. The quarter-over-quarter impact of this 6-point reduction in conversion of U.S. sales, adjusted EBITDA and adjusted net earnings will be noticeable.On a very positive note, our best estimate of the impact of the rate reduction from U.S. tax reform is approximately 13%, which, based on 2017 metrics, would translate into approximately USD 8.5 million in lower U.S. taxes or approximately CAD 11 million. This impact is expected to grow in 2018 with the growth in our U.S. business. As stated, we will use a portion of these tax savings to enhance U.S. employee benefits.In terms of new location growth, we continue to see many opportunities to add new centers and we have the capacity with approximately $400 million in dry powder to act on opportunities. We are on track with our goals, and we are confident that in 2018, we will continue to progress towards our stated goal of doubling the size of our business on a constant currency basis from 2015 to 2020. With that, I would now like to open the call to questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from the line of Chris Murray with AltaCorp.

[Christopher Allan Murray]

Just -- I guess the first question, just talking a little bit about the quarter and the normalizations of a couple things. First of all, you -- as you indicated, the 10.1% margin, probably a little higher than normal. I guess part of that will be the mix with Assured in there, but as you did say, there was, I guess, some accrued expense adjustments. Just to be -- we're trying to straighten out what the run rate was, what was the magnitude of those adjustments?

[Brock W. Bulbuck, CEO, Non]

Well, Chris, we are preferring not to quantify that because the EBITDA margin for the year is accurate. And there is -- you could -- the impact of Assured is in basis points, not in hundreds of basis points. So probably approaching about 100- basis points for the 6 months, but that is -- so what we'd like everyone to focus on is sort of the overall level set of margins for 2017, and then as we indicated in the call script, our plan is to continue to be able to expand those margins slowly and gradually over time.

[Christopher Allan Murray]

Okay. Fair enough. And then just turning to the same-store sales commentary. So if I look at your long-run average, around 4%, if I go back to 2006 and just to get a straight average. In the quarter, you had mentioned that you had some loss performance just because you didn't have enough technicians, but you're approaching, I guess, that longer-run average in Q1. I guess, first of all, the magnitude, would it be fair to think that you would have been closer to your long-run average in Q4 ex those issues? And is that the right way to think about it?

[Brock W. Bulbuck, CEO, Non]

Yes, it is.

[Christopher Allan Murray]

Okay. Good. And then the -- I guess more of the important question for me -- and this is certainly something that we like with the Assured model, and I know you just started and still early days -- but any additional comments that you can make about the performance of the dealer intake model, how you continue to evolve it? And I believe you started introducing some of those types of storefronts down in the U.S. Just any early thoughts on the reception and any impacts that you're seeing.

[Brock W. Bulbuck, CEO, Non]

Sure. As I think we commented on in the past call, we have an arrangement in place. We are in very early stage of training and getting that up and running. We have a couple of other irons in the fire relative to possible additional service centers. But I also -- again, I think we need to remind ourselves that, that model is -- has -- has use in some but not all of our markets and locations. We really need to have capacity, including technician capacity, to be able to take advantage of that model. So coming off of Q4 like we have where we -- where technician capacity was our primary issue, loading up on dealer service centers isn't going to help us.

[Christopher Allan Murray]

Okay. Fair enough. But are you starting to see where you can increase the capacity that you're getting the financial results you expected?

[Brock W. Bulbuck, CEO, Non]

Again, the dealer service center can generate increased capacity utilization provided that we have technicians in our production facilities to process the work. If we are struggling, as we indicated that we did struggle in many of our markets from a technician capacity perspective, sourcing more work at a dealer service center at this juncture is not going to translate into increased sales because we can't turn those sales into completed repairs.

[Christopher Allan Murray]

Okay. Fair enough. And then, I guess, just listening to your -- or reading your commentary and listening to your script, I think, is it fair to think that you feel like with the benefit changes that you're getting at least ahead of or on top of the technician shortage issue?

[Brock W. Bulbuck, CEO, Non]

We believe that we're making progress. As we have commented, I think in the last 2 conference calls, those initiatives that we put in place in 2017 that included recruitment initiatives, retention initiatives, apprenticeship initiatives are all long -- initiatives that will take time to mature in terms of the outcome -- the desired outcome and results. We do think that we're making some progress. We see some progress in Q1. We're also optimistic that the benefits enhancement might have a more immediate impact than some of those other initiatives that we've been working on throughout part of 2017.

[Operator]

Your next question comes from the line of Mark Petrie with CIBC.

[Mark Robert Petrie]

Just my -- I guess just sort of following up on that last question, maybe you can just kind of put into context from a competitive perspective what these changes in terms of the compensation packages for the technicians, how that -- what sort of context that puts you in, in terms of versus the players that you're competing with for those techs?

[Brock W. Bulbuck, CEO, Non]

Well, personally, there's a wide range of practices across the industry with -- from single locations to small multi-location businesses to some very large competitors, so there's a wide range of practices. But when we sort of consider the industry as a whole, we believe that these benefit enhancements now position us at the very highly competitive level.

[Mark Robert Petrie]

Okay. And I'm just curious with regards to the challenges of 2017 on this specific issue. Again, sort of putting yourselves in a competitive context, how do you think you fared in terms of your relationships with the insurance companies? And what's their take on the technician shortage? And has it affected your relationship with them either positively or negatively?

[Brock W. Bulbuck, CEO, Non]

I would say that it hasn't generally affected our relationship positively or negatively. I think we continue to position very well with our insurance company partners. They -- we continue to look at new ways to increase the ways we can do more business with them. They understand that one of our limiting factors is our technician capacity, and they appreciate the fact that we are proactive and working on them. Technician capacity, when we struggle as we did in the fourth quarter, being able to process the available work, it does put stress on some other operational metrics like cycle time and by extension, customer satisfaction. So we have to be mindful of those because the technician shortage does have an impact on our performance in some of those areas as well. But I would say, overall, we continue to be very, very well positioned with excellent relationships with insurance companies.

[Mark Robert Petrie]

Okay. And then just lastly, just maybe a comment in terms of the M&A environment. You guys have completed some nice sort of MSO tuck-in deals, and I think you've talked pretty optimistically about the pipeline in terms of availability of those or supply of those types of businesses. Any update to that commentary?

[Brock W. Bulbuck, CEO, Non]

I guess the only update is the pipeline is healthy, and I think as healthy as it has ever been. And I'd say that we've had a pretty healthy pipeline for some time, for a number of years now. But I will add the caveat that M&A is lumpy. And you kiss a lot of frogs and you work on a lot of deals, and some of them don't come across the finish line. And I think when we were reporting first -- fourth quarter last year at this time, that was the position that we were in. So pipeline is healthy, but we got to bring them across the line.

[Operator]

Your next question comes from the line of Maggie MacDougall with Cormark.

[Maggie Anne MacDougall, Analyst of Institutional Equity Research]

A lot of them actually have been answered, it was more just around the lever situation. But just to sort of ask another question on that, the comment on the industry-wide shortage of technicians, do you have a good view as to where people are actually getting their cars fixed if there's a shortage of technicians across the industry? I guess if going to the single shop operators, are there competitors of yours that are able to find some technicians?

[Brock W. Bulbuck, CEO, Non]

It's -- I think our general view would be that when you have strong market conditions, which we've had for a couple of years, what's likely happening is that the work in process or the available work in the queue just builds. So you start scheduling out further. It's not necessarily so that all of that work is -- that is being generated, the demand that's being generated is being processed within periods. I think you just extend it out, and that's contributed -- if you look at the multiyear trend of length of rental, which is a proxy for repair cycle time, you'll see that the trend over the last few years has been for a lengthening of repair cycle times. So -- and I think as we commented in some past calls, Maggie, our industry has faced the challenge of technicians for many, many years now. I've been in this business 25 years, and there's been discussion of the challenge of technicians ongoing over that period. For companies like us, where we generally have market share gain opportunity and lots of revenue opportunity, because of the piecework or commission pay nature that we pay technicians, we didn't historically have as much of the challenges as much of the industry, because technicians follow the revenue. But what we've been experiencing over the last couple of years now have been very strong cyclical collision repair market conditions. Gas prices have been low. Unemployment has been low. Miles driven has been up, and that's been contributing to increased accident frequency. And that means that even the single shops have available work in this kind of a marketplace, so they are being more competitive than they have been, I would say, over the longer term.

[Maggie Anne MacDougall, Analyst of Institutional Equity Research]

Okay. And then I'm just curious if you are able to break out same-store sales growth in Canada versus the U.S.

[Brock W. Bulbuck, CEO, Non]

I'm afraid we don't report same-store sales growth on a segmented basis.

[Operator]

Your next question comes from the line of Michael Glen with Macquarie.

[Michael W. Glen, Analyst]

So are you guys able to discuss at all maybe some weather impact during Q1? You highlighted the dryer conditions, but it feels like we've had a better winter from a collision perspective, I guess, this year. Have you seen any benefit in your network?

[Brock W. Bulbuck, CEO, Non]

Yes. I would say that the weather has been much more favorable for collision in Q1 of '18 versus Q1 of '17. Our issue is not necessarily claims revenue -- claims opportunities in the marketplace. We -- although we've been making -- as we commented, we see improvement in our same-store sales growth in Q1. Technicians are still, in many of our markets, a limiting factor.

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

Michael, just to clarify, the driver, the reference we made was to Q1 of 2017, not Q1 2018.

[Michael W. Glen, Analyst]

Yes. Okay. Understood. And then also, can you talk about the recent Texas entry you made a little bit more? Maybe just a little bit more information on -- the entity that you acquired there looks to be a high-quality shop, and I'm just trying to get a sense of the opportunity you see in front of you in that state.

[Brock W. Bulbuck, CEO, Non]

I guess, generally, the opportunities that we see in that state is that it is a very, very large state that we didn't have any presence in, notwithstanding that it does have 2 of our large competitors. Our research and assessment of market demand was that another player would be welcomed in the marketplace, and so we saw it being attractive from a market demand perspective. And then as we continued to research the market, we also found that there is -- that there will be opportunity for us to grow through M&A in that marketplace. So we think that it represents a very attractive new state for continued growth.

[Michael W. Glen, Analyst]

And then outside of the 2 -- like the competitive set down there, outside of the 2 larger MSOs that are there, are there some strong regional chains as well that you can think about?

[Brock W. Bulbuck, CEO, Non]

Yes. There would be a number of smaller MSOs that -- and Tim, you spend more time in the market, but between 5 and 10 locations?

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

Even slightly larger than that.

[Brock W. Bulbuck, CEO, Non]

Even slightly larger than that.

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

A bunch of them, yes.

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

It's a very rapidly growing market. Texas is very strong economically, and that's one of the reasons I think there's room for more players.

[Michael W. Glen, Analyst]

Okay. Great. And then maybe just one more. Brock, you talked about this a bit. You're about halfway on your path towards doubling the revenue base. Would you say that you're where you want to be at this point? And how would you sort of characterize for us how active you need to be on M&A from this point going forward to hit that goal?

[Brock W. Bulbuck, CEO, Non]

Michael, you know us by now. We're kind of steady state. We're -- we believe that we will continue to do what we've been doing, and it will get us to where we need to go. They -- our goal is on a constant currency basis, that's our stated goal. Obviously, we don't control currency. Currency has been a headwind for us against -- if we were to have made that goal in reported currency or -- currency would have been a headwind for us, but we believe that we are -- we're going to achieve that goal.

[Operator]

Your next question comes from the line of Steve Hansen with Raymond James.

[Steven P. Hansen, Senior Vice President]

I apologize if I missed it, but did you provide some sort of quantum of the number of technicians that you're in need of at the moment? I'm just trying to think of it in relative terms to your location counts just to give us a sense for how many you're actually looking for.

[Brock W. Bulbuck, CEO, Non]

No, we did not, nor will we.

[Steven P. Hansen, Senior Vice President]

Okay. Understood. And are you going to be able to provide us some sort of details along the way? These initiatives that you described, Brock, are longer term in nature, I can appreciate that. You roll out these new incentive plans, which seem quite powerful. But how are we going to get a better understanding of how this technician issue is evolving? I guess the challenge is it's been an issue that's been long-standing, and we all understand that here on the call, but we're just trying to get a sense for -- at least I'm trying to get a sense for how we understand whether it's getting better or worse as we progress.

[Brock W. Bulbuck, CEO, Non]

Yes. I mean, the real way that you will see whether or not it's getting better or worse is when you see our future same-store sales growth numbers. That's where results will translate into financial results.

[Steven P. Hansen, Senior Vice President]

Okay, but at this time, no real intention providing a metric of some sort that we can track more diligently.

[Brock W. Bulbuck, CEO, Non]

That's correct.

[Steven P. Hansen, Senior Vice President]

Okay. Fair enough. I had to ask. Just one more, and I'm not so sure if this is quick form or if you could speak for the broader industry, but just perhaps a few comments from Boyd's perspective on the recent Aviva reports around some, I'll call them, somewhat nefarious practices by some handful of operators in the Ontario region.

[Brock W. Bulbuck, CEO, Non]

Yes. Be happy to -- unfortunately, the news report that -- and I guess it was about a week ago that came out, paints an unfair light on the entire industry based on the findings at a very few shop. I hope everyone is aware, none of our shops were included in the investigation that was reported on. And as we understand that all of -- almost all of the shops, if not all of the shop, that were the subject matter of the investigation are not shops that participate in direct repair programs. As we also understand it, many of those locations that were subject to the investigation have relationships with tow truck operators where they pay what we understand to be aggressive referral fees to tow truck operators to supply them with damaged vehicles. So we think the subset of the investigation is completely different than our business model. And factors within our business model that we would say that would mitigate or control the risk of fraud in our locations would include strong culture of integrity and honesty. We don't participate in paying referral fees to tow trucks. We get the vast, vast majority of our work through direct repair programs. And under those programs, our insurance company partners or clients regularly inspect the work that we do. And we also, of course, have internal quality control processes whereby we also inspect our shops on a regular basis as well. So unfortunately, that news report painted a picture of the industry. And we -- our position is that our business model and our operations are completely different than those that were highlighted in that news report.

[Operator]

Your next question comes from the line of Elizabeth Johnston with Laurentian Bank Securities.

[Elizabeth Johnston, Analyst]

Just again, on the technician shortage. In terms of challenges with that item, are you able to rank them in terms of which is the item that's most difficult? If it's retaining existing technicians or finding new ones or somewhere a mix between those 2 or something else?

[Brock W. Bulbuck, CEO, Non]

We could probably -- we don't have any metrics that would rank, but I think our preference is not even to get into that discussion. These are competitive issues that we're talking about. We understand that we need to communicate them to our investors and the financial markets as drivers of our business, but we really need to be careful about how much we drill down into the details, the specific details, to the degree that your question is focused on.

[Elizabeth Johnston, Analyst]

Okay. Understood. And just another one, a quick one for me. In terms of another way to combat this -- effectively a capacity issue, would you -- could you see yourselves acquiring at a higher pace? In other words, is there an ability to buy more capacity in single shops? Or do you really feel that even the single stores are in the same position that you're in at this point?

[Brock W. Bulbuck, CEO, Non]

I'd say that the industry at large is feeling this because of the robust market conditions that the industry has been in. We certainly -- it may represent some opportunities in M&A. I think we have to be careful there because to the extent that retention is an issue, we have to be careful about M&A because once you buy the location, you now have the employees and you have to make sure that you retain them as well. So I'm not sure that it's a -- it may provide some counteraction to this issue, may represent some opportunities if some collision repair businesses just get tired of fighting the people challenges of their business, but I wouldn't say that it is a complete offset for the challenge.

[Operator]

Your next question comes from the line of Bret Jordan with Jefferies.

[Mark David Jordan, Equity Associate]

This is Mark Jordan. Most of my questions have been answered here, but -- so maybe I'll touch on glass pricing, I believe the NAGS pricing reset on January. So I was wondering if you can discuss how that impacted the company during the quarter and maybe how we can think about it going forward, thinking it might be more of a -- more as headwind or tailwind, but nothing quite as significant as the September '16 impact.

[Brock W. Bulbuck, CEO, Non]

I think that's the correct way to look at it. The adjustment in January was very modest, and I actually think it might have been a favorable modest adjustment, but very, very modest. The next NAGS repricing is set for May, and we don't have any visibility into what that outcome will be. I would say the way we're looking at it is that we shouldn't expect any material relief or favorable pricing adjustments, nor do we expect any material unfavorable pricing adjustment at this point. That's our best guess.

[Mark David Jordan, Equity Associate]

And I understand you don't discuss same-store sales by segment, but kind of thinking about underlying market trends, I believe that the national collision liability claims in the U.S. increased 3.5% during the quarter. So I was wondering if that was kind of within the ballpark of maybe what you guys observed and if you can touch on that.

[Brock W. Bulbuck, CEO, Non]

Well, as you -- as we reported, our same-store sales growth in the quarter was 1.4%. You are correct in that the CCC reported, I believe, an increase in repairable claims in the quarter of 3.5%, but that is available work. That isn't necessarily processed work. So essentially, our same-store sales growth would indicate that we didn't -- we're sure that we had our share of opportunity at that 3.5% growth in market demand. We just couldn't fix the cars to achieve that in sales.

[Operator]

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

[Jonathan Lamers, Analyst]

On the CapEx guidance for this year, could you describe the types of collision repair equipment that you added in 2017, the types you plan to add for 2018? And maybe provide us a sense of how many shops in the network this will be going into.

[Brock W. Bulbuck, CEO, Non]

Jonathan, we -- I mean, we talked last year about introducing certain kind of welding equipment. We -- I don't think I want to get into a detailed listing of all of the kind of equipment. I think that, that information on evolving repair technologies is available generally. And again, to get into a discussion of the kind of equipment that we're adding, in which shops we're putting it in, or the number of the shops, I just think is a little too competitive. And I'm not sure that it provides the investor with any meaningful information relative to an investment position.

[Jonathan Lamers, Analyst]

Okay. So the -- I understand the competitive dynamics. I think the valuable information for investors would be whether these equipment upgrades that you're making will provide for the capabilities you need to service the vehicles of the future or whether this is the beginning of a trend and your ongoing CapEx range has moved to -- has moved up.

[Brock W. Bulbuck, CEO, Non]

Fair enough. I would say that -- maybe part of the way to answer the question is that I believe everyone is aware that OE certification trends are increasing. Many of the vehicle manufacturers are prescribing certification processes whereby they will recommend a network of shops or a listing of shops that have the capabilities to fix their manufactured vehicles. Many of those OE certifications have equipment specifications attached to them along with training specifications. And some of the equipment that we're talking about in our 2018 guidance is relative to our increased penetration of OE certifications.

[Jonathan Lamers, Analyst]

Okay. So there may be continued penetration of OE certifications beyond 2018 depending on the performance of your network and future acquisitions, et cetera?

[Brock W. Bulbuck, CEO, Non]

Yes. I mean, I just don't know that anyone knows today how vehicle technology will continue to evolve. We're having -- one example for -- Tim, rivet guns. Specialized rivet gun is a requirement that we have visibility in today that we didn't have visibility into 12 months ago.

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

Correct.

[Brock W. Bulbuck, CEO, Non]

So there are lots of -- this is currently a fast-moving -- we can't tell whether -- at this juncture, whether vehicle technology will continue to change at the pace that it has changed over the last few years. And I think that will dictate whether -- how long into the future this higher level of CapEx spend may continue.

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

And Jonathan, I think the thing one needs to remember is not to gear a position to make those further investments that [indiscernible]. And some of the single shops, they may not be able to make them, but that's going to be good news for large MSOs like us.

[Jonathan Lamers, Analyst]

Yes. Moving on, on the new benefit programs, when will you be implementing those? And can you comment on any early results yet?

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

Yes. We've implemented some of them, and the 401(k) plan will be -- the changes will be implemented within the next 60 days. We've already communicated it internally, and the feedback that we've received has been very positive.

[Brock W. Bulbuck, CEO, Non]

And Tim, the technician -- the change to vacation and holiday pay for technicians is -- that's gone into effect immediately, hasn't it?

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

Yes, it'll be in place April 1.

[Brock W. Bulbuck, CEO, Non]

In place for April 1.

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

Yes.

[Jonathan Lamers, Analyst]

In time for the summer vacation season, that's good. The -- and I guess looking further down the line, are there any opportunities to pass on any portion of these benefit programs through rates to the insurance companies?

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

Probably not. I mean, it's -- rates come for other reasons than enhanced benefits for our technicians.

[Jonathan Lamers, Analyst]

Fair enough. And Brock, I believe you previously indicated there was NAGS glass pricing adjustment coming on January 1. Looking at your balance sheet, it seems that the glass business kind of has stabilized quarter-over-quarter from Q3 to Q4. Could you just comment on the performance of the glass business in Q4, the outlook for the business and the outcome of the pricing adjustment?

[Brock W. Bulbuck, CEO, Non]

Yes. I think our glass business has stabilized, actually is -- I think it's stabilized in the context of those lower -- a lower glass pricing environment, which also has translated into a lower margin outcome for our glass business. As we've said in the past, notwithstanding that, we still really like the glass business. It is low capital cost. It's complementary to collision, and we're in a nice, nice return on investment on it. Our glass business, assuming no significant changes in the pricing environment through the May NAGS adjustment or any future NAGS adjustments, we would see our glass business continuing to get back on the trend of growth, both in terms of sales and the related profitability.

[Jonathan Lamers, Analyst]

Okay. Good to hear. And one housekeeping question. Just on the purchasing synergies you previously flagged from Assured, I believe there was expected to be some process -- some progress toward the $2 million annualized in Q4. Can you give us any guidance as to how much of that $2 million annualized benefited the Q4 results? And how much more might still be to come?

[Brock W. Bulbuck, CEO, Non]

Yes, it would be fully in place for Q4.

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

We realized them...

[Brock W. Bulbuck, CEO, Non]

We were realizing the proportion -- share of those annual benefits in Q4.

[Operator]

Your next question comes from the line of Daryl Young with TD Securities.

[Daryl Young, Mining Research Associate]

Most of my questions have been answered, but maybe just one quick one. We've been seeing an increase in auto -- personal auto claims within the insurance companies, and it's been rough on their margins. Wondering if that's driving any change in terms of the dynamic with the collision repair providers through the DRP relationships, be it positive in terms of scaling back the number of counterparties or negative in terms of pricing pressures.

[Brock W. Bulbuck, CEO, Non]

Well, I would say that, that specific issue of their margin pressure is not translating into any different sort of relationship with our insurance companies than the relationship we've had over the last several years. They continue to push us on operational performance, fixing cars fast and with high levels of customer service, also with a view to ensuring that we deliver quality, cost-effective repairs. We'll replace -- are repairing as much damage as we can as opposed to replacing parts. So we really don't see any significant change as a direct result of maybe some short-term financial results in their financial world.

[Operator]

[Operator Instructions] Your next question comes from the line of Ben Jekic with GMP Securities.

[Ben Jekic]

I have one question. I connected a little bit later, so apologies if you've answered this. And I think maybe partly was answered through Jonathan's question. But on the issue of EBITDA margins, 10.1%, they seem pretty high and developing in a good direction. Just wanted to ask, was there any outliers there? Or is the kind of trajectory set? And in particular, if you can, Brock or Pat, elaborate a little bit on the -- like there is an issue of adding Assured, so sort of the accretive impact of Assured, the addition. I know in the past, you also spoke about that some of the business model elements from Assured you might sort of implement in the kind of core Boyd's platform. So I just -- what can we expect going forward?

[Brock W. Bulbuck, CEO, Non]

Yes. We did actually -- if you joined late, you probably missed the prepared comments. We did talk about it in the prepared comments, and then there was some -- I think it might have been Chris that asked some specific questions about our EBITDA margin for the quarter. And Ben, to start the answer, we don't want you to think of Q4 as the new level set with the trajectory from there. Q4 is impacted primarily by 2 things. Number one, the -- impacted by Assured with its higher EBITDA margins and impacted also by some year-end expense estimate true-ups that had the result of we -- you make certain estimates throughout the year, and at the end of the year in conjunction with year-end audit, you look to reevaluate those. So we had some favorable pickup in Q4 from those adjustments. They result in us reporting a very representative EBITDA margin for the year but skewed on the high-end in Q4. So really, what we want you to do in your modeling and looking at 2018 and beyond is really to level-set against the annual EBITDA margins for 2017 and then consider the seasonality and the seasonal fluctuation quarter-to-quarter that we've experienced historically.

[Operator]

Your next question comes from the line of Mark Petrie with CIBC.

[Mark Robert Petrie]

I'm back. I just wanted to follow up, and I think you've answered this question sort of through the course of the conversation, but I just wanted to be clear. In terms of your sort of lagging the potential available claims in the market in Q4 specifically, aside from the technician shortages or tech availability, were there any other issues that you saw in your operations or execution that would have led to that disconnect? Or was it purely as it related to the tech shortage?

[Brock W. Bulbuck, CEO, Non]

I mean, there's always missed opportunity to a less significant event. I mean, it's an ongoing part of business. I would say primarily the issue and -- of why we weren't able to process our fair share of the available increase in claims in the marketplace is because of technicians.

[Operator]

[Operator Instructions] There are no further questions at this time.

[Brock W. Bulbuck, CEO, Non]

Well, thank you, operator. And thank you all again for joining our call today. We look forward to reporting our Q1 results in mid-May. Thank you, and have a great balance of the day.

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

Thanks, everyone.

[Operator]

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