Boyd Group Services Inc. (BYD) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the Boyd Group Services 5-year Goal Announcement 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 related 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 sedarplus.ca. I would like to remind everyone that this conference call is being recorded today, Wednesday, February 26, 2025. I would now like to turn the conference over to Mr. Tim O'Day, Chief Executive Officer of Boyd Group Services, Inc. Please go ahead, Mr. O'Day.

Thank you, operator, and good afternoon, and thank you to those of you joining us on the call this afternoon. On the call with me today is Brian Kaner, our President and COO; and Jeff Murray, our Executive Vice President and Chief Financial Officer. Today, after market closed, we announced our new 5-year goal. You can access our news release as well as our updated investor presentation outlining the key highlights of our plan on our website at boydgroup.com. We will be referring to the investor presentation on this webcast throughout the call, and that abbreviated presentation was e-mailed to analysts a short time ago. On today's call, we'll provide an overview of our plan and our vision for the future. We will be releasing our fourth quarter and full year '24 results on March 19, 2025, and therefore, we will not be discussing these results on the call today. With my upcoming retirement in May and Brian's appointment as incoming CEO, it was an opportune time to release our next 5-year goal. Boyd has a strong history of setting long-term goals. As highlighted in Slide 4, in 2006, we set a goal to adjust -- to double our adjusted EBITDA to CAD 20 million, which was achieved in 2011. Fast forward to today, Boyd is nearing the end of achieving its most recent goal to double the size of the business from 2020 to 2025 based on 2019 revenue. Boyd has generated $346 million in adjusted EBITDA in a trailing 12-month period ending with Q3 of '24. And this evening, we're announcing a new goal to double our adjusted EBITDA to $700 million by the end of 2029. Our success has been rooted in the execution of our proven accretive growth strategy within the $50 billion North American collision repair industry. Currently, we're holding the #2 market position with only 6% market share, and we're confident that the strong long-term fundamentals of the industry, coupled with the continuation of our proven growth strategy will support the next phase of our growth and enable us to continue to generate strong returns for our shareholders. I will now pass the call over to Brian to share the details of our new plan.

Thanks, Tim, and thank you all for joining the call today. I'm excited to lead Boyd's next phase of growth and to present to -- our new plan to our stakeholders. I'll begin with the key highlights of our new 5-year goal as highlighted on Slide 5. Through the end of 2029, we aim to reach $5 billion in revenue and grow our market share through a combination of same-store sales growth and new locations, representing a greater than 10% compound annual growth rate during the plan period. We will augment this growth through enhanced profitability with a goal to double adjusted EBITDA to $700 million based on the Q3 2024 trailing 12-month results. This translates into a 14% adjusted EBITDA margin and a 15% compound annual growth rate. This goal is supported by the launch of Project 360, our company-wide profitability transformation plan launched in Q4 of 2024, which is projected to generate $100 million in annual recurring cost savings and enhance margins over the 5-year period. Moving to Slide 6. Boyd's $5 billion revenue target will be achieved by continuing our proven growth strategy, namely the combination of same-store sales growth and new location growth with a focus on securing a #1 or #2 market position in all markets served. We expect to generate 3% to 5% in average annual growth from same-store sales growth and an additional 5% to 7% in average annual growth through the addition of new locations. Beyond same-store sales growth and single shop expansion, we'll continue to be a strategic buyer of larger multi-location businesses. And if successful, this would be incremental to our revenue growth goals. As highlighted on Slide 7 the North American collision industry faced several short-term headwinds in 2024, including a mild winter, rising total loss rates due to lower used car prices, customers deferring claims amid economic uncertainty and the significant increase in insurance premiums, which resulted in a 9.7% decline in repairable claims volumes in the 9 months ended Q3 2024. However, as depicted in Slide 8, history has shown that the market and therefore, Boyd's growth normalizes as these headwinds abate. We believe that the Great Recession provides a useful comparison to the headwinds experienced in 2024. During the Great Recession, customers pulled back, deferring repairs and opting for cash outs, which negatively impacted our growth in 2009. However, as these headwinds eased, growth returned to the industry, enabling Boyd to experience a rebound in same-store sales growth. While it is still too early to determine if claims volumes have bottomed, we remain confident in the industry's long-term outlook. In addition, several long-term structural shifts are positively impacting the industry. The increasing complexity of vehicles and the growing need for scanning and calibration services have contributed to a 40% rise in the average cost of repair over the past 5 years, which has been a benefit to larger players like us. As a result, in our 5-year growth assumptions, we've assumed a return to historical macro environment, enabling us to achieve 3- to 5-year average annual same-store sales growth over the 5 years. As you can see on Slide 9, this assumption is in line with our 10-year average same-store sales growth of 5.4% and supported by our end market, which increasingly favors larger players like Boyd. The same-store sales growth will be complemented by continued new shop expansion through single-shop acquisitions, new brownfield and greenfield start-ups and small multi-location acquisitions. As we've discussed previously, we expect an increasing number of our single shop growth will come from brownfield and greenfield units. These facilities allow us to build a facility that meets the long-term needs of the business with a dedicated space for glass, calibration and collision all under 1 roof. These strategically placed facilities support our other collision facilities, enable us to gain market share, densify our markets and achieve our goal of securing a 1 or 2 position in all markets we serve. The increased focus on brownfield and greenfield locations does result in short-term margin headwinds, as shown on Slide 10. The additional costs incurred to the facility opening in addition to the initial months while sales ramp lead to modest start-up losses. However, these facilities generally reach positive adjusted EBITDA by the end of the first year and achieve target maturity by the end of year 3. Although this is less favorable when compared to single shop acquisitions, we reached target maturity by the end of year 2, brownfield and greenfield locations ultimately deliver higher returns on invested capital post maturity. Additionally, they offer Boyd a stronger platform for achieving leverage as we scale the business. While our pace of single shop growth has slowed in 2024 as we focused on the short-term headwinds in our market, we have a robust pipeline of opportunities to add new locations in our markets. We anticipate new single shop expansion will contribute an incremental 5% to 7% annual -- average annual growth over the plan period. As we turn to profitability, we have announced our goal, as highlighted on Slide 11, to double our adjusted EBITDA to $700 million and bring our margins to 14% over the next 5 years with an additional upside potential over the long term. To support this goal, we're launching Project 360, a company-wide plan to drive adjusted EBITDA margin improvements. This initiative launched in Q4 of 2024 in partnership with a leading global consulting firm will drive enhanced profitability and returns as we scale our business and densify our markets. Project 360's key areas of focus include optimizing our store operating model for increased profitability as volume grows, optimizing parts and indirect procurement, leveraging technology and designing a fit-for-purpose support organization to support our expansion. These efforts are projected to generate $100 million in recurring adjusted EBITDA margin enhancement. And as a result, we are confident in our ability to achieve our goal of doubling our adjusted EBITDA. Upfront investments and transition costs will be incurred to achieve these benefits with cost estimated to be $20 million to $23 million over the coming quarters. These costs will be tracked and reported upon in the coming quarters. I will now pass the call over to Jeff to provide an overview of our ability to fund our growth as well as our capital allocation strategy.

Thanks, Brian. As evidenced on Slide 12, we are well positioned to fund our new goal, thanks to our prudent financial management, solid balance sheet and strong free cash flow generation. Through our goal period, we are targeting a net debt to adjusted EBITDA ratio on a pre-IFRS basis of between 2 and 2.5x. The combination of our expected cash flow generation and existing revolver, including the accordion, provides us with an estimated $1.5 billion in cash available to invest in the growth of the business over the next 5 years. We believe that this liquidity is sufficient to execute on the current 5-year growth targets. If we were to be successful in completing a larger multi-location acquisition, we have access to both debt and equity markets and would be comfortable bringing our leverage level above the 2x and 2.5x target ratio for a period of time. Alongside today's announcement, there are no major changes to our capital allocation strategy, which we have outlined on Slide 13. With significant growth potential ahead, driven by organic investments to gain market share and the expansion of our shop network, we will continue to allocate a substantial portion of our capital towards growing the business, capitalizing on opportunities with the highest returns. Additionally, we will continue investing approximately 1.6% to 1.8% of annual revenue in maintenance capital expenditures and we will grow our dividend modestly each year, providing a consistent return of capital to shareholders. I will now pass the call back to Brian.

Thanks, Jeff. We're all excited to embark on this next phase of growth as we continue to execute on our proven strategy to drive our growth while at the same time, focus on becoming one of the most profitable players in the North American collision industry. Thank you for listening in on today's call, and I'd like to open the call to questions. Operator?

[Operator Instructions] Your first question comes from the line of Krista Friesen from CIBC.

I was just wondering -- it feels like a bit of a departure from previous messaging around looking at the multi-shop acquisitions. Can you walk through what the thought process was there and maybe what you're seeing in the market at this point in time for MSO opportunities?

Yes. I don't know that I would suggest it's a departure. I think we've always said that we would look at any large MSO that came on the market. If the economics were right, we would be in a position to move forward. I don't know that there's anything that's meaningfully changed in the marketplace today. Obviously, as we've talked previously, many of those have traded in the recent 18 months. And -- but there's a few still out there that if they came to market, we would be willing to take a look and obviously would only do something if the economics made sense.

I think what's probably important about it is that the plan that we've laid out doesn't require us to make -- to acquire a large multi-shop operator to achieve the plan. It's actually -- if we're successful with that, it would be incremental to what we've laid out.

Right. Okay. That makes sense. And then maybe just on the labor front, obviously, labor hasn't been as much of a challenge this past year, just given where demand has been. But as you're looking out the next several years and there's a focus on increasing your calibration offering, how do you feel about your level of labor to handle that?

Yes. I mean I would say in the bigger investor deck that we put out on our website, we actually talked about the growth in our calibration business. And you can see we've grown that workforce from 98 associates to 225 associates over the last year, so more than doubling the size of that business. In addition to that, on the collision side, as you know, part of the actions we took when capacity was not as needed was we took some actions to take the TDP program down. I think we've got -- we're in a position now where we would see our ability to start investing in the TDP program again and would expect that to be part of the catalyst that allows us to get to the capacity. And then the rest of it is continuing to hire as usual.

Your next question comes from the line of Cheryl Zhang from TD Securities.

Calling in from Derek. I'm curious how should we be thinking about the ramp in revenue? Would it be more front-end or back-end weighted? And curious what you have taken into account with respect to the challenging macro environment considering the high insurance premium.

Yes. I would -- I mean we're certainly not planning to back-end load the plan. I mean, I think, if you look at our growth historically, we've had relatively consistent -- take the COVID period out of the equation, we've had relatively consistent same-store sales growth of 3% to 5%, some years a little bit higher, some years a little bit lower. And we've augmented that with 5% or so -- 5% to 10% growth in new units. I think you'd -- we'd expect that to be similar, although, as you said, and I said in my prepared comments, we're not sure that the market has hit the bottom on repairable claims yet. And so we might be a little bit more cautious this year just as we come out of that recovery.

Brian, you might just comment on the greenfield development is a little bit more -- obviously, it's got a longer lead time, but more predictable and will provide some stability to the unit growth, whereas acquisitions tend to be a little bit more lumpy.

Yes. And we've said publicly that we expect half of our growth to come from brownfield, greenfield. And part of that is it does give us the -- if we were shooting for 80 to 100 growing units a year, that gives us at least half of that, that is very well planned and very predictable. So I think it -- the greenfield strategy also does allow us to take some of the -- just the lumpiness out of our acquisition strategy -- unit strategy.

Okay. That's very helpful. And one more before I requeue. Curious what -- how should we think about the cadence in realizing the $100 million cost savings? And what will be the cadence of that $20 million to $23 million upfront cost as well?

Yes. I would say that we expect roughly 70% of the savings to be in our run rate by the end of the second year. And I would suggest that you can think about the cost to achieve very similar to that.

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

Brian, a question for you just on sort of -- it's mirroring to the concepts you talked about. You talked about the fact that claims -- repairable claims might not have bottomed just yet. But then at the same time, you're still hoping for same-store sales growth. I mean the margin targets and all these things are going to be somewhat dependent, I presume, on getting volume back in the shops. Have you seen any indication that things are starting to get better or less worse as you sort of look out what you're seeing out there today?

Yes. Look, I think as we said earlier, we'll provide commentary around what we're seeing in the current environment as well as what we saw in the fourth quarter when we announced earnings on March 19. What I will tell you is what we did with the cost transformation plan is built it on a -- we built it on a steady volume. So what we weren't doing was building reliance on growth into that equation. So we -- whereas, again, we haven't spoke publicly about where the market is at. You did see through LKQ's release, you saw a little bit of softening of the -- or easing of the declines in the fourth quarter. So that can give you some indication of what you're likely to hear from us as well. But certainly are not reliant on growth to get back to the rate that we were -- the targeted rate that we're expecting.

Okay. That's helpful. And if I just want to drill down on the greenfield strategy a little bit. I mean, how much of the plan have you got in place thus far? Just trying to get a sense for where you're at from a stage of development standpoint, how much of the pipeline has been filled thus far, location selected? I think -- go ahead.

I was going to -- I would expect that as we get to the back half of this year, you're going to start to see -- we're definitely going to start seeing the fruit of that greenfield strategy. We started this the middle part of last year or kind of early last year. So we expect that we'll start seeing a more steady flow of greenfields into our new units by -- towards the end of this year, and then it will be pretty constant.

Your next question comes from the line of Daryl Young from Stifel.

Just with respect to the margin profile 14%, I know you've left the door open beyond 2029 to go over that. But I'm just -- I guess it's a little bit lighter than I might have expected just given the success of the scanning and calibration ramp-up. Is it mostly the greenfield brownfield mix that's causing some of the drag? Or is there any kind of color you can give on the margin profile and maybe not being a little higher?

Sure. Daryl, yes, Jeff speaking here. So I think that the -- really the -- the reality is that our cost -- the cost structure is still a bit of a headwind and inflation does take a bit of time to work through. So there is going to be progress that we're going to make by taking some cost out and getting some efficiencies and getting some margin benefit from things like calibration, but there still is going to be cost inflation that we're going to have to work through as well as we invest in the business and continue to grow. So I think when you factor in all those balancing out, I think getting to a 14% on a $700 million EBITDA number is really quite an accomplishment, and we think is going to be a pretty good result.

Yes. The only other thing I would add to that is I think, Daryl, you know this. I mean, part of -- and again, we've shown it in the larger presentation that's out there. We're at about 40% penetration on calibration as we sit here today. So some of that -- half of that is already in our results and that's yielding an 11.3% on a quarter or a quarter to -- or year-to-date basis and 11.3% margin. So there is still some left to go, but it's not as big of a tailwind as it's been historically.

And then just in terms of -- you mentioned you'd call out the $20 million to $25 million of costs going forward as they're incurred. Are you anticipating margins will actually go lower before they go higher and then you need to add back those costs to get to the normalized run rate? Or how should we think about the next few quarters?

No, I do not expect margins to go lower.

We're thinking of -- we're going to be basically calling out what those amounts are so that you can essentially look at what the business is doing ex those costs versus with those costs. So I think there'll be good clarity around the cost as well as what the actual business is doing.

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

So Brian, Tim, I think you mentioned greater focus on greenfield, brownfield. Can you share what your team has done to scope out these regional opportunities? Maybe a bit more color on that? And have you or will you be building out your team to execute on the strategy?

Yes. We -- I mean, we've gone through a pretty intense market planning exercise over the last couple of quarters. And one of the focuses of that planning exercise is to identify areas that we want to densify in. So I would say that we've got a pretty good handle on where we want to grow. And we aren't relying on an internal team for that development. We're actually relying on an external team and developer relationships who have local -- very localized relationships with municipalities to help us more quickly get stores in the ground. It's just -- from my perspective, we're not a construction company. So we're much better off to partner with people who do this every single day. And that's going to help, one, the quality of the assets we put in the ground; and two, it's going to help the speed at which we make that happen and keep our costs down along that path.

Okay. And then maybe just a follow-on, maybe for Jeff. Just given the greater importance of greenfield, brownfield, any thoughts on providing a bit more disclosure just separating out the 2, so on our side, we can better assess kind of how that's tracking?

Yes. We're still going to be evolving, I think, how we provide our disclosure around the number of units in between greenfield, brownfield and other acquisitions and as well as forecasting the timing. But we don't have any plans right now to be providing much in the way of separately disclosing them as a separate segment or a separate population. But we will be providing some more visibility as to what we think the projection would be as well as what the current rate is. And then really, we did provide some guidance just as part of our release today that really provides a bit of a model that can be used to give some guidance as to what you could expect to be able to better understand the economics.

Okay. And then maybe just a bit another question. How should we measure your success, especially in the earlier years? Has or will senior or middle management comp be tied to KPIs presented within this plan, whether that's kind of Project 360, the revenue and/or the EBITDA target?

Yes. All of our compensation plans are tied to sales and EBITDA. And as a matter of fact, we just made a change to make sure that even at the GM level at this point, their compensation is tethered to sales and EBITDA attainment, and that attainment is against the budget, which is tied to the goals that we just laid out. So I feel like we've got really good continuity across the alignment in the organization, particularly as it relates to incentive plans. We've put a pretty robust structure in place to make sure that we're tracking and measuring success against the $100 million through a fairly robust PMO process. And I think you'll see the proof points coming through the P&L at the end of the day.

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

Thinking about the broader market, so I guess a couple of questions here. Historically, at least for the last few years, this has been basically a static market size. And there's always been a debate about the market shrinking with things like ADAS versus collision rates and the cost of repair. So when you think about your annual same-store sales growth, let's just assume for ease of the brain damage that 2% is inflation, but you're still going to be gathering share from folks. And so the question I've got is around how -- what's going to be the strategy to capture that share in a static market? And as you start getting larger, the market dynamics are likely going to have to start shifting around a little bit. So how are you thinking about what the market looks like in 5 years and how this plan dovetails into that? And I guess as part of this, is there anything implied in your change in geography or footprint? Is there anything that says, you sort of changed from where you are in Canada and the U.S. or do anything differently?

Yes. So a couple of questions, I think, packed into that statement. So first off, you're right, on the underlying market itself, we've talked for a long time about there's a 2% headwind associated with the adoption or the penetration of ADAS. That's partially offset by a 1% increase in miles driven and number of vehicles on the road, which leaves the overall claim volumes down around 1% and then inflation and complexity makes up 3 to 4 points of growth on the ticket, which leaves you at a 2% to 3% kind of market. And we've historically doubled that by taking share, leveraging mostly the DRP relationships, which as DRP relationships continue to strengthen and they do continue to strengthen, that obviously favors players like us. And I think the most important thing we can do to stay relevant with our clients is to make sure that we're providing great service at a great value and taking care of their clients in a reasonable period of time. You see that in the broader investor deck that we put out there. I think we're certainly above average as it relates to NPS scores. We're lower than the average cost of repair than our -- than the industry, which is value-added for our clients. And we keep -- we're the best in the industry on length of rental. So I think by doing those things, we continue to put ourselves in a better position to be able to win with our clients. That augmented with the fact that our growth strategy is much more focused on establishing a 1 or 2 position in the markets that we play in. And the purpose behind that is to make sure that we have -- we're relevant with our clients in the marketplace. So we're going to focus a lot of our growth in markets where there's -- where we're densifying a market, which gives us the ability to just more deeply penetrate the relationships we have in the markets that we're playing in.

Okay. And just to confirm, like there's no intent to step out of your current markets here. There's no -- you're not going to Europe, you're not going to Mexico or anything like that, right?

Nothing in this plan contemplates anything like that, no.

Okay. And then the other question is just on the -- I guess, on whatever Project 360 or however you want to call it, if you want to think about this, what exactly is it that you see differently or doing differently than you've been doing historically? Margins have sort of naturally moved higher just with higher levels of same-store sales. There's an absorption factor, things like that. But what is it that's kind of different in Project 360 that you think gives you an ability to generate those extra earnings?

Well, look, I mean, Project 360 is really more geared towards going after some structural costs. It's not -- it's, again, as I said earlier, not reliant on growing our way into a cost structure. and it's not reliant on same-store sales growth to offset the cost of increasing -- or the increasing cost of running or operating the business. At this point, we're -- we realize there's some structural costs that we can take out of the business. That plus as we've grown in size, leveraging the size and scale we have to get better discount structures with our vendors and better position ourselves with a fewer number of partners that are out there. Those types of things are really what Project 360 is focused on in the short term. In the long term, things like enhancing store operations through better use of technology, things that take a little bit longer for us and are a bit more of an investment to get the benefit out of. That's why roughly 70% of the benefit is coming in the first 2 years and the balance of it kind of trickles in over the next over the next 2 or 3 years. So that's -- I think there is -- we will be much more intentional about structural cost versus just what you articulated in terms of growing our way into it.

Okay. And then maybe just return to the first question a little bit. As you get larger, are you expecting any sort of competitive dynamics as the industry continues to consolidate? And does that change kind of how we think about the consolidation of the industry kind of moving forward over time?

I mean, look, I think we're only talking about ourselves getting to a point where we're slightly less than or around 10% of the industry. I think there's many examples of industries where a few players have consolidated to 40% or 50% of the industry. I don't see any aberrant kind of behavior or dynamics that come out of us continuing to effectuate the plan that we have.

Your next question comes from the line of Zach Evershed from National Bank Financial.

It's actually Nate calling in for Zach today. So my question is, could we get some more color on your insurer relationships given the predicament of rising cost of repairs, higher severity versus perhaps premiums increasing on a lag? Is there any accretion to be had on that front and baked into your plan?

So the only -- the best information I can give you on where we're positioned with our insurers is the answer I gave to the question a second ago, which is we position ourselves as one of the best in the industry on NPS, one of the best in the industry on length of rental and providing good value for our insurance clients through keeping the average cost of a repair down. That's what keeps our relationships with our clients solid. As it relates to any specific clients, certainly, we're not going to do that. But I don't know if that answered your question.

Okay. So just moving on then, you mentioned also that 70% of the cost savings will be had by the end of year 2. But just regarding the margin target, will -- do you anticipate that it will take you the full 5 years to bring margins up to 14%?

No. But obviously, we've left ourselves some room in the presentation to -- we've demonstrated that -- by the midpoint of this journey, we'll get ourselves to 13%. That's how you can think about the 70% of the target being achieved, and the other 30% will trickle in. But I don't anticipate it being the entire 5 years to get us to the 14% goal.

That's helpful. And regarding the 80% internalization target over the next 2, 3 years for scanning and calibration, is that a ceiling or more of a midpoint target? And can you discuss if there's any structural reasons for not hitting perhaps near 100% internalization?

Yes. I think the only -- there is, and the reason for not hitting 100% is just that you have to weigh overstaff that business in order to get to 100% of our own volume. So there's an element of this. It's a mobile service that has to be performed. There's a balance between the loss of profitability by having excess staff to make sure you get to 100% versus being at 80% or 90% that keeps the team busy 100% of the time. So it's really a productivity play.

Got you. And can you describe how that curve kind of works? Like is 80% like what you're going to target in like perpetuity, for example, as the business continues to grow?

I don't -- I think what will happen ultimately with this business is a chunk of it will start to -- a piece of it will migrate into the shop and move away from mobile as more ADAS penetration takes place. I think when that kind of -- when that happens, you're going to get to 100% of our activity will be when it's done in shop. But it won't be -- not all shops will be able to support having an ADAS or a calibration tech inside of it, which gives us the -- which leaves us in a position where we put -- where we do it mobilely, which I think that we will target 80% for the mobile side.

Got you. And just one last one. You mentioned a steady volume as a base case within your plan. Can you just expand on whether that's based on a run rate of like repairable claims or a certain claim frequency and on perhaps what time frame you decided to take your sample for that steady volume base case?

We did -- we used the trailing 12 months of volume. So if you were to use our trailing 12 months of volume and put $100 million of savings on top of a $3 billion business, that's 300 basis points of growth versus 11.3% trailing 12 EBITDA right now, that's 14.3%.

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

What are you guys assuming for total loss rates in '29 in that industry growth model?

I think our perspective on the size of the industry, Bret, is that it's going to continue to grow in that 2% to 3% a year range. Total losses may go up during that period of time, but we still expect the growth in the industry to be in that 2% to 3% range.

Do you guys model a total loss number in that? Or is it...

We don't.

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

Just a quick follow-up. I don't ask four questions in a row, so I just wanted to be respectful. Look, I just -- Brian, I think you described the ratability and return benefits to greenfield in your earlier remarks. I get that. I'm just curious, how important do you think greenfield is to your insurance customers in terms of like that long-term vision? Like do you view that as a key part of the strategy to continue growing share? Or could you do it also just through M&A? I'm just curious how important that is.

I missed -- there was a part of your theme, so how important what was it?

How important are greenfields to our insurance clients?

Yes. I mean, I think -- look, I think there's a bit of a misconception that if we put a greenfield into the market, we're actually adding capacity to the market. I don't view it that way. I think not all capacity in the market is created equal. And there are lots of new growth markets in the U.S. in particular, that have -- that are a byproduct of suburbanization, expansion of large markets into other areas that don't have body shops. And quite honestly, I mean, a portion of this strategy is focused on where are those markets that growth has happened, large population growth has happened and many people have relied on drive times to go to get their vehicle repaired. We're cutting down those drive times or putting a box in there in a densified market and doing that. So I don't feel like the insurance carriers feel like we're adding capacity. I think there's enough retiring capacity out of the system that we're augmenting some of that with what we're doing.

I do think our insurance clients appreciate the quality and layout of the facilities and the fact that we can service all aspects of the business from it. But I do think clients like what we're doing with it. So I think it's viewed favorably.

And maybe it's too granular, so I apologize in advance. But is it possible to identify the average greenfield size relative to your average shop today? I know the slide you have is illustrative. It's got effectively equivalent. But the greenfield at 17,000 or 13,000 square feet are presumably larger on average and have higher throughput than your average shop. Is that correct?

Certainly, the 16,000 or 17,000 is above the average.

Yes. And I think the model that's out there, albeit illustrative, is the target that we're expecting for these shops. And as you can see, they get well over $4 million versus an average shop today that's the average AUV in our business today, I would -- just on math is $3.2 million or so.

[Operator Instructions] Your next question comes from the line of Sabahat Khan from RBC Capital Markets.

I guess just following up on that earlier discussion around new units to market and some of the comments earlier around the good metrics that Boyd has and getting these shops added to the DRPs, et cetera. I guess to what extent would you have talked to your insurance customers around, look, we're looking to add this many shops to the system. How many do you think would get added? Or is it just a broad ratio of look, every shops we bring this many get added? Like how are you sort of making those decisions around, look, what's the right number to add and how many will get added to those programs, et cetera?

Yes. I mean, obviously, we do get regular feedback from carriers on gaps in the marketplace. So I think that is one piece of feedback that we get. We're also looking at the relative size of the marketplace and the competitive density in the market and what that competitive density is comprised of, how much of it is MSOs, how much of it is single shops. I mean the first point of entry into a market is for us to continue to drive the single shop acquisition strategy. It's the fastest place for us to get in if we can find a high-quality asset in a market where carriers need capacity. That's our first point of entry. If not, then we're going to look for opportunities to greenfield. So that -- I mean, it is a pretty -- there is a pretty robust model behind our decisions to put locations and where to put them and for that matter, where to buy locations.

Great. And then just a second quick one, just following up on the earlier discussion on total loss ratio. How are you guys just sort of thinking about the capacity for the -- is this 2% to 3% directionally in line with what the industry was going at when the total loss ratio maybe was in the low teens or mid-teens? Like the question basically is, is a 20-some-odd percent type total loss ratio still conducive to -- for you to be able to grow in that mid-single-digit range on SSS? Or is there at some point, it just gets a little bit to -- how do you guys sort of triangulate that as you look ahead to 5 years? [indiscernible]

If you were to look at total loss rates prior to 2019, they're pretty consistent with where they're at now, and that's when the marketplace was growing at an average of 2% to 3% or 4%. So we would expect -- I think we're planning for that type of total loss ratio. We're certainly not planning for a ratio that it was in the post-COVID time frame where used car prices shot up, total loss rates shot down and the average -- the same-store sales growth in the marketplace was obviously much more robust. Tim, I don't know if you do.

I think total loss rates have crept up. And part of the reason they're creeping up, not the only reason, but the car park is aged. And when you have an older vehicle that's damaged, the likelihood of it being worth repairing is lower. So we're almost 13 years for the average age of a car, and that does have an impact on total loss rates.

Yes. I think the only other thing I would add to that, too, that is just the indications that we're seeing in the marketplace now has used car values starting to creep back up again. I think, obviously, based on some of the speculation with what might be happening with tariffs and things like that, that only serves to probably push used car values up even further. So I don't feel like there's anything that -- there's no economic indicator that would suggest to us that the average -- the used car values are going to go down in a way where total loss rates would go much higher than they are right now.

Your next question comes from the line of Cheryl Zhang from TD Securities.

Just a quick follow-up. So on the $100 million recurring annual cost savings, would you be able to roughly break it down into buckets? Or how should we be thinking about the relative size of the items that you have identified?

Yes. I don't think we're not in a position where we're going to do that on this call. I think in the -- sometime in the -- maybe at the -- one of our upcoming earnings call, we would plan to do that. But you can see it's broken up between -- we broke it out between gross margin opportunities and OpEx opportunities. I would say that -- I will tell you that they're weighted more towards OpEx than it is towards gross margin opportunity.

Your next question comes from the line of Tristan Thomas from BMO Capital Markets.

Just a question. I mean a lot of talk about insurance premiums as a headwind to the consumer. How do we think about that flowing through in terms of timing, and what kind of impact if insurance rates do start to go back down? How are we thinking about that in the 5-year plan?

Well, I mean, we called for a return to kind of normal macroeconomic conditions. I think in the presentation, we showed kind of what happened post the Great Recession. We also showed what happened post-COVID, and you see a bounce back, I think most notably at the Great Recession, you saw a bounce back to where we saw modest same-store sales growth in the year following that and then I think 6% growth in the year after. So I think we're -- what we're planning for is a normal kind of environment.

That concludes our question for today. I will now turn the call back to Tim. Please continue.

Good. Thank you, operator, and thanks to all of you for joining our call. I know it was a very short notice, but we appreciate the opportunity to lay out our next 5-year plan and address your questions and look forward to follow-up conversations. Thank you.

Thank you all.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. [indiscernible].