Boyd Group Services Inc

TSX:BYD

Q4-2025 Earnings Call

[Operator]

Thank you for standing by, and welcome to the Boyd Group Services Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Linda Funk, VP, Finance. You may begin.

[Linda Funk, executive]

Good morning, everyone. Welcome to the Boyd Group Services, Inc. 2025 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 sedarplus.ca and EDGAR at sec.gov.

I'd like to remind everyone that this conference call is being recorded today, Wednesday, March 18, 2026. I would now like to introduce Mr. Brian Kaner, President and Chief Executive Officer of Boyd Group Services, Inc. Please go ahead, Mr. Kaner.

[Brian Kaner, executive]

Good morning, everyone, and thank you for joining us on today's call. On the call with me today is Jeff Murray, our Executive Vice President and Chief Financial Officer. We released our 2025 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 boydgroup.com. Our news release, financial statements and MD&A have also been filed on SEDAR+ and EDGAR this morning.

On today's call, we will discuss the financial results for the 3-month period and the year ended December 31, 2025, provide a general business update and discuss our long-term growth strategy. We will then open the call up for questions. Our 2025 fiscal year was both busy and highly successful for Boyd. In the first half of the year, we focused on implementing a number of key initiatives, including Project 360, an enhanced go-to-market strategy and a more localized customer service approach. As we moved into the second half, we saw strong execution on these initiatives, driving meaningful adjusted EBITDA, margin expansion and industry outperformance.

Combined with the continued improvement in repairable claims, this supported a return to positive same-store sales in the second half of the year, a trend that has continued into early 2026. Alongside these operational improvements, we also took advantage of an improving acquisition environment and our strong balance sheet to complete 4 small MSO acquisitions and announced the acquisition of Joe Hudson's Collision Center. We also listed our shares on the New York Stock Exchange and completed 2 unsecured note offerings, important milestones in Boyd's evolution that we expect to be -- will broaden our access to U.S. investors and further strengthen our capital markets profile.

Before I discuss our results in more detail, I want to thank our employees and senior leadership team. Their dedication and hard work are the foundation of our success, and these results are a direct reflection of their commitment. Turning to our financial performance. In 2025, we delivered $3.1 billion in revenue, representing growth of 2.4% year-over-year. And adjusted EBITDA increased by 12.4% with adjusted EBITDA margins expanding by 110 basis points to 12%, driven by the successful execution of Project 360, our cost transformation plan and the internalization of scanning and calibration. We exited the year with strong momentum. In the fourth quarter, we generated our second consecutive quarter of positive same-store sales growth of 2.2% and grew EBITDA by 24.2% year-over-year.

Our EBITDA margin expanded to 13.1% in the fourth quarter, up from 11.1% in the fourth quarter of 2024. As we've discussed on previous calls, throughout 2025, we saw consistent improvement in several of the industry headwinds that have been negatively impacting repairable claims, namely moderation of insurance premium growth and the increasing used vehicle prices. This resulted in a reduction in estimated declines in claims activity from 9% to 10% in the first quarter down to 2% to 4% by the fourth quarter of 2025. I'm pleased to report that this improvement has continued into 2026. Auto insurance premium growth is now running below CPI levels. Insurance carriers have implemented rate reductions and used car prices are increasing.

These improvements, combined with increased activity levels we've seen in our business since the end of the second quarter, give us confidence that the industry conditions continue to normalize. In the early months of 2026, while winter storms benefited our northern regions, this benefit was partially offset by unusual storm activity in the South. These storms resulted in lower driving activity and therefore, a short-term reduction in volume in our southern locations, including Joe Hudson's.

As the quarter progressed, we've seen the volumes in the South normalize with overall same-store sales thus far tracking similar to fourth quarter levels. Throughout 2025, we also continued to expand our location footprint through the execution of our long-standing growth strategy. During the year, we opened 70 new locations, including 27 start-up locations and 43 through acquisitions.

Looking ahead, we continue to have a robust pipeline of start-up locations under development through 2026. We expect to open 8 new locations in the first quarter with an additional 24 locations in development for the remainder of the year. In addition, 2025 marked a return to MSO acquisitions for Boyd as our strong balance sheet enabled us to capitalize on an improved acquisition landscape. In August, we completed our first small acquisition since 2021 with the acquisition of L&M Body Shop in Virginia. We also completed 3 additional MSO acquisitions in the fourth quarter in Nevada, Hawaii and Nova Scotia, with the Nova Scotia acquisition representing our initial entry into that province and underscores our commitment to continued growth in the Canadian market.

Looking ahead, our pipeline for single shop and small MSO acquisition remains strong and will continue -- will complement our start-up expansion. Our road map focuses on building density in our existing markets and achieving leading positions where we operate. Our goal is to establish a #1 or #2 position in all of our markets, which strengthens our ability to serve our insurance company clients and its customers while driving long-term shareholder value through margin expansion and market share gains.

Turning now to Joe Hudson's. We successfully closed the acquisition in early January, and the integration is progressing well and in line with our expectations despite some softness in activity levels early in the quarter due to the unusual winter storm activity in the Southern region. It's been very -- I've been very encouraged with the Joe Hudson's team. From the outset, they have shown strong enthusiasm about joining Boyd, and the teams have worked well together, combining the strengths of both organizations as we continue to integrate and operate as one team. Our initial focus has been on converting Joe Hudson's location to Boyd's information technology platforms and branding. Similar to the successful rollout of our indirect staffing model in 2025, we began this process gradually to ensure operational stability.

We initially converted 6 stores in our first week and have steadily increased the pace. We are now converting approximately 30 stores per week, which will continue -- which will remain the cadence until the process is completed. To date, we have converted approximately 44% of the stores and expect the remaining locations to be completed early in the second quarter of 2026. We have also begun realizing early synergy capture through direct procurement savings to date in the first quarter. Synergy realization is expected to accelerate once store conversions are complete, and we are able to fully leverage our scale and market position. We remain on track to achieve approximately 50% of the $35 million to $45 million in expected synergies in 2026.

Before turning the call over to Jeff, I'd like to provide a brief update on Project 360. When we launched the $100 million cost transformation plan in the fourth quarter of 2024, we set ambitious targets. I'm pleased to report that we delivered on those targets in 2025. We realized $40 million in annualized cost savings in 2025 from the successful implementation of our indirect staffing model as well as procurement savings.

Going forward, we will report Project 360 savings and Joe Hudson's synergies together as the team will oversee both initiatives. This team has been -- has successfully executed our Project 360 transformation since its launch and will now also lead the realization of Joe Hudson's synergies. As a result, these initiatives will be managed and disclosed as a single integrated cost program totaling $140 million, consisting of $100 million from Project 360 and approximately $40 million in synergies. To date, $40 million of the Project 360 savings were realized in 2025 with an additional $50 million expected in 2026 and the remaining $50 million to be realized between 2027 and 2029.

With that, I'll turn the call over to Jeff.

[Jeff Murray, executive]

Thanks, Brian. I will start off with an overview of our fourth quarter results, followed by a brief summary of our full year 2025 results. As Brian highlighted, we had a strong fourth quarter and positive same-store sales growth and solid margin improvement as we continue to execute on Project 360. During the fourth quarter, our sales increased by 5.5% year-over-year to $793.9 million with the same-store sales, excluding foreign exchange, increasing by 2.2%. In addition, $26.9 million in incremental sales were generated from 83 new locations that were not in operation for the full comparative period.

Industry conditions continue to improve in the fourth quarter. Based on claims processing platform data, we estimate that repairable claims declined by approximately 2% to 4%, a meaningful improvement from the first 3 quarters of 2025 with claims volume improving sequentially each quarter. Boyd continued to solidly outperform the industry during the fourth quarter. Gross margin was 46.3% in the fourth quarter of 2025 compared to 45.8% achieved in the same period of 2024. The gross margin percentage benefited from internalization of scanning and calibration, an increase in parts margins and improvements in performance-based pricing. The improvement in parts margin was a result of Project 360 initiatives, while the improvement in performance-based pricing was driven by improved alignment across our regional teams to meet the unique KPIs of their insurance company clients.

Turning to operating expenses. For the fourth quarter of 2025, operating expenses as a percentage of sales were 33.3%, down 150 basis points from 34.8% of sales for the same period in 2024. Operating expenses as a percentage of sales were positively impacted by Project 360 and our return to positive same-store sales growth, which provided improved operating leverage on certain operating costs. Adjusted EBITDA increased 24.2% year-over-year to $103.6 million. Adjusted EBITDA margins improved 200 basis points to 13.1% in the fourth quarter, up from 11.1% in the same period of the prior year. The increase was a result of an improvement in same-store sales, benefits from the internalization of scanning and calibration and cost savings from Project 360. In 2026, we expect to achieve additional cost savings from Project 360, including continued procurement savings and operational efficiencies.

I would like to highlight that as we enter 2026, first year quarter expenses consistent with prior years are impacted by higher payroll taxes that occur early in the year. In addition, the fourth quarter of 2025 benefited from reductions in expense accruals as certain estimates were finalized at amounts lower than previously accrued. These items should be considered when comparing sequential margin performance between the fourth quarter of 2025 and the first quarter of 2026. Net earnings for the fourth quarter of 2025 was $4.8 million compared to $2.4 million in the same period of 2024. Net earnings for the period benefited from higher operating income, partially offset by an increase in depreciation expense due to location growth and acquisition and transformation costs.

Excluding fair value adjustments, acquisition and transformational cost initiatives and amortization of intangibles arising from acquisitions, adjusted net earnings for the fourth quarter of 2025 were $22.8 million or $0.90 per share compared to adjusted net earnings of $10.8 million or $0.50 per share in the same period of the prior year. Commencing in the fourth quarter of 2025 and to align with many other growth companies, the calculation of adjusted net earnings now also excludes amortization of intangibles arising on acquisitions. Comparative periods have been restated for consistency.

Now moving on to our annual results. For the year ended December 31, 2025, we reported sales of $3.1 billion, an increase of 2.4% over the prior year, driven by contributions from 119 new locations that had not been in operation for the full comparative period, partially offset by same-store sales declines of 0.2%. It is important to note that fiscal 2025 included 1 fewer selling and production day compared to fiscal 2024, which reduced capacity by approximately 0.4% and resulted in the decline in same-store sales. I'm pleased to report that we once again outperformed the industry in 2025 with our same-store sales performance exceeding the estimated 5% to 7% decline in repairable claims.

Gross margin increased by 90 basis points year-over-year to 46.4% of sales compared to the prior period, reflecting the benefits from internalization of scanning and calibration, improved parts margins and improvement in performance-based pricing. Operating expenses as a percentage of sales declined 20 basis points to 34.4% for the year ended December 31, 2025, compared to 34.6% for the same period in 2024, primarily driven by Project 360 cost savings. These improvements were partially offset by negative leverage on lower same-store sales, incremental costs from scanning and calibration and an investment in facilities maintenance costs.

Adjusted EBITDA for the year ended December 31, 2025, increased 12.4% year-over-year to $376.3 million, while adjusted EBITDA margins expanded to 12% from 10.9% in the same period of the prior year. The improvement in adjusted EBITDA was a result of an increased sales from new location growth, gross margin improvement and the significant cost savings achieved through Project 360. We reported net earnings of $18.4 million compared to $24.5 million in the prior year.

The decline was driven in part due to acquisition and transformational cost initiatives of $22.6 million, net of tax, including $9.1 million related to the Joe Hudson's acquisition and $9.9 million related to Project 360 implementation. Adjusted net earnings in 2025 increased 28.8% year-over-year to $62.4 million, while adjusted net earnings per share increased to $2.78 in 2025 from $2.26 in 2024. The growth in adjusted net earnings came from increased sales, improvement in gross margins and cost efficiencies from Project 360.

As previously noted, commencing in the fourth quarter, we have begun to exclude amortization of intangibles arising from acquisitions from adjusted net earnings and comparative periods have also been restated. At the end of 2025, we had total debt net of cash of $488.1 million compared to $1.28 billion at the end of the third quarter of 2025. Before lease liabilities, we exited 2025 with net cash of $290.7 million compared to net debt of $521.1 million at the end of September 2025. The decrease in debt net of cash was a result of the proceeds received from the CAD 525 million senior unsecured note offering and the $897 million bought deal initial public offering in the U.S. that reduced draws on the credit facilities and partially offset by location growth. The net proceeds of these offerings were used to fund the $1.3 billion acquisition of Joe Hudson's Collision Center on January 9, 2026.

During 2026, the company plans to make capital expenditures, excluding those related to acquisition development of new locations within the range of 1.6% and 1.8% of sales. In addition to these capital expenditures, the company expects to incur approximately $30 million related to the Joe Hudson's acquisition as well as completing our planned investment in network technology updates. In 2026, we also expect to incur onetime costs related to the Project 360 cost savings initiative and the realization of the synergies from the Joe Hudson's acquisition. For Project 360, the total cost to achieve are expected to be between $20 million to $23 million, of which $13.4 million were incurred in 2025. In 2024, similar transformation costs were incurred totaling $4.4 million. The cost to achieve the Joe Hudson's synergies are estimated at approximately $30 million in onetime costs.

I will now pass it back to Brian for closing remarks.

[Brian Kaner, executive]

Thank you, Jeff. Throughout 2025, we significantly strengthened our business through improved profitability, a more focused location growth strategy centered on densification, a meaningfully expanded footprint and a stronger capital markets profile. Looking ahead to 2026 and beyond, we believe our strength and position enables us to deliver even greater value as we leverage our leadership in the highly fragmented North American collision repair industry and continue executing the disciplined growth strategy that has driven Boyd's success for more than 3 decades.

With that, I would now like to open the call to questions.

[Operator]

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

[Krista Friesen, analyst]

Can you give a little bit more color on what you're seeing for same-store sales growth right now? I appreciate there were some storms in January. But just curious how you view Boyd exiting Q1 and maybe what the run rate is in March, if you can share that?

[Brian Kaner, executive]

Yes. Well, obviously, we won't share the run rate in March. But as we look at the first 2 months of the year, what we saw was what we said, strength in the northern markets, partially offset by just a couple of day period of time where the storms in the South, there was a batch of storms that hit the South late in January that just negatively affected our arrivals for a couple of day period of time, and that partially offset our ability to get back into the range. I think without that, I would suggest we probably would have been talking about something that was more in line with the range, which is reflective of -- which is certainly reflective of the macro backdrop that we're experiencing. We've continued to outperform the market by somewhere around 5 points.

So if the market is down 2% to 4%, you'd expect us to be in that kind of 3 to 3-plus percent range. But with the storms that affected the South, it just -- it put us in a position where we saw that temporarily impact the business. The growth in our northern markets where we've had snow and pretty consistent weather has been very strong. So I think we're -- all we're really flagging there is a short term, very short-term impact from the weather.

[Krista Friesen, analyst]

Okay. And then maybe just on the Q4 same-store sales growth. I believe when you had reported Q3 in mid-November, you talked about Q4 kind of being back within the target range. And just wondering if you can speak to kind of what caused that difference in the last half of Q4.

[Brian Kaner, executive]

Yes. Yes. I mean I think the only thing I can really point to that caused any sort of -- when we had reported, we certainly were in the range that we talked about as we progress throughout the quarter. We saw a little bit more vacation time from the technicians, and that put us slightly behind where we expected to be, really had nothing to do with the work coming into the shops or a slowdown in work coming into the shops. It had more to do with our ability to get through it in light of just the way that the holidays fell. And so nothing really more to note than that.

[Operator]

Your next question comes from the line of Sabahat Khan from RBC Capital Markets.

[Sabahat Khan, analyst]

Maybe I guess just kind of continuing on '26, with sort of that operating backdrop you just talked about and the integration of Joe Hudson's, how are you thinking about just run rate M&A of smaller shops? What is kind of the capacity or just the willingness to sort of pursue that over the course of this year while you integrate the Joe Hudson's transaction?

[Brian Kaner, executive]

Yes. Well, look, I think as we've said on a couple of different occasions, we intend to integrate the Joe Hudson's business with a separate team of people that's focused on the base business acquisition activity that we do. So we don't expect to see a big slowdown in activity as it relates to acquisitions driven by what we were -- driven by the integration. As I said in the prepared remarks, our intention is to get through the integration of Joe Hudson's by early in the second quarter to have all the shops converted and have that business kind of up on our operating platform and running and ready to go.

The organization is already put in place. So I don't expect it to be distracting throughout the year. The pipeline for activity remains very robust. Our balance sheet still remains very well positioned to be able to take advantage of those opportunities. As I said, we've already got 32 start-up locations already planned for 2026 and would expect to infill the balance of our expected 80 to 100 unit growth with acquisitions or even further start-ups to pull in.

[Sabahat Khan, analyst]

Great. And then I guess just to put a finer point on the same-store sales discussion that you outlined a bit earlier, is I guess, the expectation based on the operating backdrop and how you're sort of evolving through Q1 that you could still be within that sort of 3% to 5% range for the year or too early to sort of comment on that?

[Brian Kaner, executive]

Yes. I mean, look, I think we've said we expect to be in a 3% to 5% range over our long term -- over the long-term horizon. I think the market backdrop continues to progress to move positively towards that. The claims environment continues to get better quarter after quarter after quarter, which gives us confidence that we can get back into that range. As I said, without the impact of this couple of day impact of just really odd storm activity that hit the South, we very much would have likely been in that position in the first quarter. So I don't expect us to be out of that range.

[Operator]

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

[Chris Murray, analyst]

Maybe, Brian, going back to maybe some of the bigger macro pieces. It sort of feels like you are seeing the improvement in the underlying. So I guess a couple of pieces of this. One, is your expectation that sort of the claims volume numbers, I mean, at least are trending to be positive? And would you expect that the kind of the spread between what Boyd has historically been doing versus the industry to continue?

[Brian Kaner, executive]

Yes, I would expect the spread to continue. I don't know that the claims environment is going to go positive. I think it's progressing less negative, which is what we expect it to do. We've always said that based on collision avoidance systems, we expect the underlying marketplace to be negative by 2%. We expect that to be offset by 1% improvement in miles driven as well as a 1% increase in the car park, which leaves the market kind of down 1%. As we suggested in the fourth quarter, we're starting to near that 1%. So we wouldn't expect to give up the share gains that we're getting right now in the down environment. We'd expect that to continue even as the market improves.

[Jeff Murray, executive]

And maybe I'd just add to that, Brian, is that we certainly have seen sort of a delay in the maturation of some of the stores we've added over the last few years. So I think that's also something to take into account is that we could benefit just from a maturation of those stores.

[Chris Murray, analyst]

Okay. That's helpful. And then maybe just looking at operating expenses, certainly, some really good performance in the quarter. I'm just wondering how you're thinking about it -- there were a lot of things called out. I mean, you talked about scanning and calibration helped you, but it also hurts you a little bit. And then that maturation piece. Like if we were thinking about net-net, that kind of pace of or directionality of margin improvement, if you were to kind of back out the, call it, the onetime accrual adjustments, like how do you -- how are we thinking about kind of progressive margin improvement through the balance of the year?

[Jeff Murray, executive]

Well, I think I would go back to our -- looking at our -- just our Project 360 ambition that we've talked about of getting back to 14% by 2029. And we've also really highlighted the improvements in terms of Project 360 and Joe Hudson's that we expect to realize in 2026. And so that number is $50 million. So I would just layer that $50 million improvement into the -- into your assumptions around OpEx, and that will give you your answer.

[Operator]

Your next question comes from the line of Mark Jordan from Goldman Sachs.

[Mark Jordan, analyst]

As we think about the same-store sales growth, are you able to talk about the pricing benefit that you're seeing from the pass-through of parts inflation? And maybe how we should think about that tailwind going forward?

[Brian Kaner, executive]

Yes. Well, if you look at what's happening with parts prices, as you've highlighted, they continue to go up. Parts pricing CPI in February was 2.6%. We also continue to see labor price increases. We still believe that, that's still partially being offset by the blending down of the overall claims population driven by the elevated total losses. So we still haven't really seen -- I think the tailwind is as total losses continue, as total losses start to come down, reflecting the used car price increases that are now in the marketplace.

And Manheim would suggest those are up 4% in the month of February, which is really probably the first meaningful improvement in or increase in used car prices that we've seen over the past few months. So I'd expect that to kind of come through more -- I'd expect that to come through more visibly as we start to see total losses come down. We haven't yet seen it in our results to date. Right now, if you look at through Q3 of 2025, the industry claims or the industry cost to repair was up about 1.7%. That's still far off of the 3% to 5% that we would expect it to be driven by the factors that you just articulated.

[Mark Jordan, analyst]

Okay. Perfect. As we think about the synergies that are expected for Joe Hudson's midpoint, $40 million, half are expected to be realized this year, it kind of sounds like you've realized some already, but is it fair to say the majority of that should be more back half weighted?

[Brian Kaner, executive]

No. I mean I think some of the savings that we're expecting for 2026 are really largely driven by procurement savings. And those procurement savings were starting to be realized as early as the time we closed on the transaction. We had very good visibility to where those opportunities were at. The team worked very, very quickly to put those best of the best contracts in place. And I think we're -- we'll start to see some of that benefit even in the first quarter. Fair to say that some of the other synergies would be more likely executed towards the back half. But I wouldn't weight it so heavily to the back half.

[Operator]

Your next question comes from the line of Thomas Wendler from Stephens.

[Tom Wendler, analyst]

We've heard some chatter that OEMs intend to raise their prices with the 2027 model year. As new prices kind of increase, you generally follow suit. Do you think the company could see a bit of a bump up in the back half of the year as the repair versus replace dynamics kind of start leaning towards repairing?

[Brian Kaner, executive]

It's very possible. I mean I've been surprised that the used car prices haven't moved more meaningfully even this year as the tariffs have impacted the new car pricing. New car prices are an all-time high even as we sit here today. So it wouldn't surprise me that as total losses or as used car prices go up in a more meaningful way that total losses come down. And I think what -- the way that manifests itself is it just -- it shows itself as a higher average cost to repair. And instead of total losses muting the benefit we're seeing from just the previously mentioned parts price increases and labor price increases, they may actually put us in a position similar to what we saw in 2022 and 2023, where the prices actually elevate greater than that 3% to 5%.

[Tom Wendler, analyst]

Perfect. And maybe just one more. It's been almost a year since you've kind of aligned the regional field management compensation to key performance metrics from the insurance partners. Can you maybe talk about how this has impacted your volumes, maybe some wins you've seen on the market share side from this?

[Brian Kaner, executive]

Yes. I mean, look, I would tell you that I think that's what's driving the outperformance to the market as we sit here today. The client performance metrics have moved very positively over the past 12 months. The team has done a phenomenal job of focusing in on what I call majoring in the miners and making sure that we're not just winning on the big 3 things that are important to insurance carriers, but we're winning on all of the smaller things that are important to them as well. And as we've done that, we've seen meaningful progress with one, our largest carrier, but all of the other carriers as well have benefited by a team that's just uber-focused on driving a great result with our customers.

[Operator]

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

[Steven Hansen, analyst]

Brian, not to beat the same-store horse too hard here, but is it fair to say that the activity levels in March have improved back to the range you would have expected absent the weather stuff you saw earlier in the year? I'm just trying to understand sort of the cadence through the quarter.

[Brian Kaner, executive]

Yes. I would say that it's not -- it's less about March and frankly, more about we saw the activity bounce back pretty quickly even as we got into February. It was very much so -- that impact was very much so isolated to a few days of really just a marketplace that got shut down, frankly, from Texas all the way to the Carolinas. And it was just a very odd storm that just had an impact on the southern region that -- but it was very short term in nature. And as we came out of it, we saw the dip and then we saw the bounce back pretty quickly.

[Steven Hansen, analyst]

Okay. That's helpful. And I just want to circle back on the M&A side again. The small MSOs become more thematic or topical here. I mean, how competitive are they? The broader landscape has had some challenges, of course. But are you having to pay up for these small MSOs? Or are you finding there's still good value to be had there?

[Brian Kaner, executive]

Yes. I think there's actually -- as time goes on, there's even more value to be had there. The competitive backdrop is less competitive right now as a few of the major players in the business or in the industry are going through different things. I think it's putting us in a position to be a bit of the acquirer of choice. And as you well can appreciate, as that happens, the competitive environment actually starts to slant more towards the buyer versus the seller.

[Operator]

Your next question comes from the line of Derek Lessard from TD Cowen.

[Derek Lessard, analyst]

So I want to switch gears here and focus on your strong margin performance in the quarter. Can you just maybe break down how much of the remaining [indiscernible] is driven by...

[Brian Kaner, executive]

Derek, you're breaking up there.

[Derek Lessard, analyst]

Can you hear me now?

[Brian Kaner, executive]

Yes, we can hear you now. We heard everything up to how much of the strong performance is driven by -- and then you broke up.

[Derek Lessard, analyst]

Yes. So how much -- I guess, the remaining path to your 14% target, how much of that is being driven by Project 360 versus mix and scale and Joe Hudson's synergies?

[Brian Kaner, executive]

Good question. I mean we still expect the pathway to 14% in the base business to be paved by Project 360. No doubt that Joe Hudson's profit profile enhances and accelerates our ability to get to that objective. So we're not slowing anything down relative to the benefits we would expect Project 360 to deliver and frankly, would expect as we get further out into the plan period, that plus that we have at the end of the 14% to be positively impacted by Joe Hudson's mixing into the business.

[Derek Lessard, analyst]

Okay. And then -- and when you think about the internalization of your scanning and calibration, I think you put out in the press release, you're at 75% in Q4. Where does this, I guess, ultimately plateau? And how should we be thinking about the incremental margin and competitive benefits from further internalization?

[Brian Kaner, executive]

Yes. Well, we've talked about the benefits associated with it are certainly related to shifting that labor or that revenue category from a sublet category, which is our lowest margin category to a labor margin. And we've talked about that being anywhere from 25 to 30 points of difference between those 2 categories. From a customer benefit, what we do know is when we do it internally, we're getting -- we're able to offer better pricing because we offer our menu-based pricing as well as drive down the cycle time for repair because we're not beholden to somebody else to actually complete that repair. So lots of benefits there.

As far as where it plateaus, we said we wanted to be at 80% by the end of -- I believe by the end of this year. We're clearly on track to be able to do that. I don't know that, that's the plateau. I think as the car park continues to require more calibration services, over time, what will happen is that will migrate into a shop. And we've talked about how that migration into a shop will offer up then -- will open up the opportunity for us to leverage the mobile capabilities that we have to expose that more to the external market and maybe even potentially take care of mom-and-pop shops that don't have the financial wherewithal to invest in this type of equipment. So I do believe that over time, you'll see us doing even greater than 80%. But for now, we flagged the 80% until the car park -- as the car park continues to mature.

[Jeff Murray, executive]

And Brian, maybe I'd highlight though, there's really -- there is 2 components. There's the internalization piece, which offers a margin uplift, but there is also just the growth in the volume of calibrations, the number of cars that require calibrations since it is a higher-margin category, just higher margin -- or sorry, higher volumes over time is also going to help provide additional margin lift going forward.

[Operator]

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

[Daryl Young, analyst]

Just as it relates to the insurance pricing, I know we talk a lot about the macro and pricing coming down. But are you seeing any signs of customer behavior around customer cash pay or any previous deferrals that are starting to come back through the shops? Or is there any green shoots there that you can speak to that kind of corroborate the upside that should come?

[Brian Kaner, executive]

I don't know that we're seeing anything differently as it relates to customer pay or obviously, the claims environment is getting less negative, which would indicate that people are more likely to file -- they're more likely filing claims when they get into an accident. Whether or not there's a deferral benefit as we look back to the last 2 times we saw the industry kind of react or behave this way, there was a period of time in the -- coming out of the recession, there was a period of time, I think it was 2 years after the recession ended that we saw an outsized growth in the market.

Certainly, COVID, we saw -- in the year right after COVID, we saw an exact inverse of what we were experiencing in the COVID period and then the period after '20 and 2023, we saw an outsized performance. So if you look at history, you might believe that there's something there. Right now, the focus of our organization is just to make sure that we're taking care of the volume that's coming in and that we're continuing to deepen the relationships we have with our insurance partners. And as we do that, we know that we're continuing to outpace the market and would expect to continue to do that if the market continues to get more positive.

[Daryl Young, analyst]

Got it. Okay. And then one other question just around labor rates. Seeing some news headlines around regional pressure on labor rates and actually coming down from insurance companies. Is that something that's more idiosyncratic? Or are you seeing pressure on labor rates from your insurance partners?

[Brian Kaner, executive]

We are not seeing pressure from labor rates with our insurance carriers. I mean I think the insurance carriers recognize that the cost of labor continues to move, generally speaking, at inflationary levels. And the cost of a labor hour or the price of a labor hour is going to have to move commensurate with that.

[Operator]

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

[Bret Jordan, analyst]

Just to [indiscernible] obviously, the impact on arrivals that you had on the very short term. Does the longer-term impact from higher weather-related crash become a net positive? Or do you think the driving reduction makes weather a net negative in Q1?

[Brian Kaner, executive]

You broke up on like one piece of your question. I don't know.

[Bret Jordan, analyst]

I was saying, does the weather-related collision create a net positive in Q1? Or was the timing of the arrivals and lack of driving a negative?

[Brian Kaner, executive]

Yes. I think it probably creates a slight net negative in Q1. But the benefit we're seeing in the North probably extends into the second quarter and creates a little bit of a WIP tailwind as we get into the second quarter.

[Bret Jordan, analyst]

Scanning and calibration, it is outgrowing the underlying market. Do you have a feeling for what the maybe 3-year outlook for scanning and calibration growth might be just as more cars require it?

[Brian Kaner, executive]

There's been research reports processed or done on this that would suggest that, that piece of business is growing at 20% to 25% a year. So I think we saw something very early on that said it would grow from $1 billion to $5 billion. I believe the time frame was till 2029.

[Operator]

Your next question comes from the line of Razi Hasan from Paradigm Capital.

[Razi Hasan, analyst]

Could you maybe just talk about the operating leverage potential as same-store sales grow? And which costs you saw improve in the quarter related to leverage? If any color there would be helpful.

[Jeff Murray, executive]

Yes. I think we've always continued to -- well, we've always really discussed what we would expect from an operating leverage perspective in same-store sales based on what you've seen historically. If you see a steady level of same-store sales growth in that 2% to 4% range. Over time, we've seen kind of a 20 basis point improvement in operating leverage. And it really just comes down to -- we do have fixed costs that we can leverage like general manager salaries and other occupancy type costs that don't flex at all with growth. And so that's where we get that leverage from. So you could see a 20% a year, you could see sort of a 1% overall improvement over a 5-year period if you get consistent same-store sales growth.

[Razi Hasan, analyst]

Okay. Great. That's helpful. And then maybe just your cash position, you expect that to get back to historical levels going forward?

[Jeff Murray, executive]

Sorry, could you repeat the question? Our cash flow? Yes. Yes, it certainly this year -- end of this year was an anomaly in terms of the cash on the balance sheet as a result of preparing for the closure of the transaction with Joe Hudson's. So yes, going forward, we would expect to have the cash balances come back to their normal range.

[Operator]

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

[Tristan Thomas-Martin, analyst]

Brian, I think you called out kind of in a normalized year, basically a 1% benefit for miles driven. Should we think about that for this year as well, given just we've seen such an increase in gas prices recently?

[Brian Kaner, executive]

Yes. I mean, look, over a long term -- over a long period of time, that's what we expect. I don't know that I haven't seen any data relative to what's happened thus far given the gas price movement. I also don't -- wouldn't want to predict how long that's going to be. So it'd be speculatory or be speculative for me to suggest that we're going to see any negative associated with that. People also do tend to drive more when you're also seeing inflation on airline tickets as well, driven by the price of gas, which puts people in their cars more for vacations and things like that particular as we get into these types of months. So I think that might be an offset anyways.

[Tristan Thomas-Martin, analyst]

Okay. That makes sense. And then just kind of curious, as you continue to do work on the Joe Hudson's integration, anything that surprised you or any sources of like incremental upside from when you last updated us?

[Brian Kaner, executive]

Yes. I mean, Jeff mentioned earlier the notion that there's -- they bought -- they not dissimilar to us have a lot of stores that are in the maturation process. Still believe those stores have good opportunity for -- to be a tailwind to the business. They certainly were purchased. We bought 140 locations over the last 3 years leading up to 2025. So there's probably some untapped value there. But the team has been very positive, very accepting of the Boyd organization. The integration is progressing very well, couldn't, frankly, be happier with the pacing of the integration process at this point in time. And the synergies that we were expecting are real. And so we're very, very positive about what we're seeing thus far.

[Operator]

[Operator Instructions] Your next question comes from the line of Zachary Evershed from National Bank Financial.

[Zachary Evershed, analyst]

Congrats on the quarter. Hoping you could quantify the impact of paint rebates in gross margins? And what are your expectations of changes there as supply consolidates?

[Brian Kaner, executive]

I mean when you're talking about rebates, are you talking about rebates from suppliers? Or are you talking about rebates elsewhere?

[Zachary Evershed, analyst]

From suppliers.

[Brian Kaner, executive]

Yes. I don't think we'll really talk about what's happening with rebates with suppliers. I mean, obviously, we have some volume triggered rebates that are benefit -- that will benefit from continued growth in the -- in our purchases. And frankly, as we integrate Joe Hudson's, those things can be a benefit for us as well, but nothing on the specific numbers.

[Zachary Evershed, analyst]

And any downdraft expected as supply consolidates?

[Brian Kaner, executive]

No. No, I don't -- there's nothing that we would -- nothing that we see from that perspective.

[Operator]

Your next question comes from the line of Jonathan Goldman from Scotiabank.

[Jonathan Goldman, analyst]

Maybe just the first one, Brian, I understand all the comments around the weather in Q1 and obviously, no one has a crystal ball. But going back to your comments back on the Q3 earnings call about kind of trending back to the 3% to 5% same-store sales range based on what you saw in October and the industry fundamentals. Did you have any visibility on the vacation schedule and how that would line up for Q4 and the impact on that?

[Brian Kaner, executive]

Not good visibility. We made some changes to the way that we pay out vacation. We used to pay out vacation for people that had unused vacation time. We stopped doing that last year, and it probably had a bit of a short-term negative impact on the business, but it would have been difficult for us to see that ahead of time. So no real visibility. As we exited the month of October, we did see -- we had seen a nice bounce back in the activity in the month of October. But nothing really -- nothing from a arrivals perspective really slowed as we got into November, December. It was really more a function of our ability to get through the work that was coming in.

[Jonathan Goldman, analyst]

Okay. And then maybe one more for me. So if we were to strip out the noise from vacation schedules and the weather in Q1, would you have seen a sequential improvement in same-store sales in Q4 versus Q3 and then again, sequential improvement from Q1 versus Q4?

[Brian Kaner, executive]

Probably, yes. Yes, probably.

[Operator]

And that concludes our question-and-answer session. I will now turn the call back over to Brian for closing remarks.

[Brian Kaner, executive]

Okay. All right. Well, thank you all again for joining the call today. We look forward to reporting our first quarter results in May. And thanks again. Have a great day.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.