Boyd Group Services Q3 2026 Earnings Call Transcript
Boyd Group Services (NYSE:BGSI) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Boyd Group Services reported a 28% increase in revenue and a 34% rise in adjusted EBITDA, with margins expanding from 12.4% to 13% year-over-year.
The company achieved $90 million in savings from Project 360 and Joe Hudson’s acquisition synergies, with a total of $105 million expected by year-end and a goal of $140 million by 2029.
Boyd Group Services launched a normal course issuer bid, repurchasing $14 million in shares, and maintained a pro forma net leverage ratio of 2.9 times.
Same-store sales grew by 2.2%, driven by higher volumes and improved repair costs, despite a slight decline in industry claims volumes.
The company plans 34 new startup locations over the next 12 months and continues to focus on market density through acquisitions and greenfield opportunities.
Future outlook remains positive, with continued emphasis on technology and AI to drive efficiencies and enhance productivity.
Management highlighted a focus on customer experience and insurer relationships as key drivers of outperforming broader industry trends.
Full Transcript
Brian Kaner (Chief Executive Officer)
Solid progress across our business. We expanded margins through the disciplined execution of Project 360 and the realization of acquisition synergies while continuing to outperform industry volumes and generate positive same-store sales growth supported by a sequential improvement in total cost of repair. We also launched a normal course issuer bid, reinforcing our commitment to a disciplined and balanced approach to capital allocation with a focus on supporting our existing operations, strengthening our market position and creating long-term shareholder value.
Revenue increased 28% compared to the third quarter of 2025 while adjusted EBITDA grew 34%, with adjusted EBITDA margins expanding to 13% from 12.4% last year. While I’m pleased with the margin improvement we’ve achieved this quarter, it’s important to take a step back and look at the progress we’ve made since launching Project 360 in the fourth quarter of 2024. Since that time, we’ve improved adjusted EBITDA margins by 230 basis points, reaching 13% this quarter compared to 10.7% in the third quarter of 2024.
This progress reflects the benefits of several initiatives we implemented over the past two years. In 2025, we introduced our indirect staffing model and made significant progress in bringing scanning and calibration in house. We continued building on that foundation in 2026, generating additional savings through indirect procurement and realized synergies from the Joe Hudson’s acquisition ahead of schedule. When we launched Project 360, we set a goal of delivering 100 million in cost savings between 2025 and 2029.
With the addition of approximately 40 million in expected synergies from the Joe Hudson’s acquisition, which closed in January, that target increased to 140 million. Through the end of the third quarter, we’ve realized 90 million in savings with another 15 million expected in the fourth quarter, bringing the total to an expected 105 million by year end. Looking ahead, we expect to capture the remaining 35 million between 2027 and 2029, with a growing emphasis on using technology and AI to improve shop productivity, streamline operations and drive further efficiencies across the business.
Turning to Joe Hudson’s, as I discussed last quarter, we completed the conversion of its locations onto Boyd Group Services’ system in an accelerated manner. We now have greater visibility into the business’s operational performance. Our focus has now shifted to embedding Boyd’s customer-centric operating model, including our successful WOW Operating Way and our regional management incentive structure across the Joe Hudson locations. The sequential revenue trend versus the prior year improved during the third quarter with positive momentum continuing into October as the locations progressed under Boyd’s operating model.
These results support our confidence in their continued improvement and contribution to Boyd’s long-term growth and profitability. Turning to industry conditions, third quarter claims data continues to point to a more stable operating environment, with repairable claims volumes estimated to be down 1 to 3% year over year. As we think through 2026, industry conditions have improved compared to last year and remain broadly consistent with our long-term planning assumptions. We continue to outperform the broader market in the third quarter, generating 2.2% same-store sales growth driven by higher volumes and modest improvement in total cost of repair.
Our continued market share gains reflect the strength of our insurer relationships, improving carrier performance and broad regional market coverage. In October 2026, same-store sales remained positive with continued volume growth supported by a sequential increase in total cost of repair. As we’ve discussed previously, monthly performance can fluctuate, so we remain focused on underlying trends over the longer periods rather than any individual month’s results.
I’ll now pass the call over to Jeff, who will provide a more detailed analysis of our third quarter results.
Jeff Murray (Chief Financial Officer)
Thanks, Brian. During the third quarter, sales increased 28% year over year to just over $1 billion, driven by $206 million of incremental sales from 342 new locations not in operation for the full prior year period and 2.2% same-store sales growth as we continue to successfully outperform industry volumes. During the quarter, Joe Hudson’s locations contributed $170 million in total sales. Gross profit increased to $473 million in the third quarter, up 29% year over year, and gross margin increased 40 basis points to 46.7% from 46.3% in the third quarter of 2025. The expansion in margins was driven by higher paint margins from acquisition synergies and Project 360 cost savings as well as increased scanning, calibration and supplement margins. This was partially offset by slightly lower labor and parts margins.
Turning to operating expenses, in the third quarter, operating expenses as a percentage of sales improved to 33.7% compared to 33.9% in the prior year. This improvement reflects acquisition synergies, cost savings from Project 360 and increased operating leverage from same-store sales growth. If we look back to the third quarter of 2024, just before we launched Project 360, operating expenses were 35% of sales. Fast forward two years and we’ve improved this ratio by 130 basis points, reflecting the success of Project 360 and, more recently, the additional benefits from acquisition synergies.
Adjusted EBITDA increased 34% to $132 million over the third quarter of 2025, while adjusted EBITDA margins expanded to 13% from 12.4% in the prior year period. During the third quarter, we realized approximately $15 million in combined synergies from Joe Hudson’s and cost savings from Project 360, bringing the year-to-date total to $50 million. Adjusted net earnings in the third quarter were $19 million, up from $17.8 million in the third quarter of 2025, as higher adjusted EBITDA was partially offset by higher depreciation expense and increased finance costs.
Adjusted earnings per share was $0.68 in the quarter compared to $0.83 in the prior year period. For the nine-month period ended September 30, 2026, adjusted earnings per share was $2.06 compared to $1.85 in the same period last year. The company continues to expect maintenance capital expenditures to range between 1.6% and 1.8% of sales for the full year in 2026. Additionally, capital expenditures associated with the Joe Hudson’s acquisition remain on track at an estimated $30 million. As Brian mentioned, we launched a normal course issuer bid in September, providing us with additional flexibility in our capital allocation strategy. During the quarter, we repurchased approximately $14 million of our shares, and we also declared our third quarter dividend.
As of September 30, 2026, our pro forma net leverage ratio was 2.9 times compared to 3.1 times at the end of 2025. I will now pass it back to Brian for closing comments.
Brian Kaner (Chief Executive Officer)
Thanks, Jeff. As we approach the end of 2026 and I reflect on the year, I’m proud of what our team has accomplished. It has been a busy and productive year for Boyd as we successfully integrated Joe Hudson’s, realized meaningful synergies and continued to make progress on Project 360. Importantly, throughout the year we’ve maintained our focus on what has been core to Boyd’s success for many years: delivering a strong customer experience, improving carrier performance and building lasting relationships with our insurance partners. This focus has been a key driver of our ability to consistently outperform the broader industry and will remain central to our strategy going forward.
With that, I’d now like to open the call to questions.
OPERATOR
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sabahat Khan with RBC Capital Markets. Your line is now open. Please go ahead.
Sabahat Khan (Analyst)
Good morning. Maybe just for the first question, wanted to get a bit more color, Brian, on the commentary you made about TCOR. It sounds like the last few quarters, the claims volumes are in a reasonable place. There’s likely some market share capture, and maybe TCOR and pricing might be the delta versus going higher on the same-store sales side. Can you just maybe give us an update on where TCOR is, pricing discussions with your insurance partners, how those are looking?
Thank you.
Brian Kaner (Chief Executive Officer)
Yeah, and good morning to you, Saba. So on TCOR, look, we have seen now, even leading into October, as we said in the prepared remarks, that TCOR continues to improve. We’ve said for quite some time that the underlying metrics behind TCOR were still moving as they normally move. We still saw normal pricing increases on the labor side. We still saw normal price movement on parts through the inflationary environment that we’re in. And what had been muting that was just the year-over-year impact of more total losses, so bigger tickets coming out of the repair set, driving down or mixing down the overall TCOR.
We saw that level out in Q3 and we continue to see it now stable as we get into the fourth quarter. And that’s allowing the underlying movement in price to actually illuminate. I mean, obviously the other thing that’s driving price up is the increase in calibration services. We continue to see a higher penetration rate of calibration services on the average ticket that we’re seeing, and all of those things are starting to move the ticket back in a more positive direction.
Still muted from the, I would say, still muted from the, call it 4% that we expect, but certainly moving its way back towards that.
Sabahat Khan (Analyst)
Okay, great. And then maybe just an update on the startups. I think you might have had a few planned for this quarter. I might have caught that wrong, but don’t think those happened. Maybe just give us an update on the infrastructure you set up on the new store openings, how many are expected through late this year and maybe the cadence into sort of, you know, what can we expect annually going forward? Thank you.
Brian Kaner (Chief Executive Officer)
Yeah. If you saw in the MD&A, I think we flagged we’ve got 34 new startup locations planned for the next 12 months. Like any construction project, we’ll see delays where things shift slightly in and out of quarters. You saw after the quarter, subsequent to the quarter, we announced, you know, seven new locations opening subsequent to the quarter, after 10 in the quarter, not just startup, but all acquisitions. So I think you’ll feel—I would suggest that we’ll get to that kind of 30 to 35, you know, maybe pushing 40 some years of startup locations, which is in line with what we said back when we launched our five-year plan.
Thank you.
OPERATOR
Your next question comes from the line of Chris Murray with ATB Capital Markets. Your line is now open. Please go ahead.
Chris Murray (Analyst)
Yeah, thanks, folks. Maybe just turning to some of the margin performance and just kind of the cadence as we’re sort of walking into, I guess, the target or getting closer to it. Can you just talk about how you’re seeing kind of the entire system now behaving with the margins and your confidence level of being able to get to, I guess, the targets that you’ve set, and how we should think about kind of margin cadence and the pace of improvement as we go into next year?
Jeff Murray (Chief Financial Officer)
Yeah, well, look, as it relates to the pace of improvement, we said that the balance of the Project 360 savings would come in ratably. So the pace of improvement should be, you know, thought of as the incremental, you know, the incremental savings that are yet to be achieved on Project 360 coming through ratably. That’s the, that should be the pace of change. Obviously some incremental same-store sales will help, you know, give us a little bit more leverage and push that, you know, push that up a little bit more.
But I’m actually very pleased with, you know, the cadence that we’ve been on, as I said in my opening remarks. And we’ve seen a 230 basis point improvement from, you know, the time we started this project at the end of, call it Q3 of 2024 to now what we just reported in Q3 of 2026. So the progress on the actual project itself has been, you know, very much so in line with what we’ve expected. The pace, as I said, will be more tempered as you go forward. And so I think, you know, if you look at, and I think just commenting more broadly on Q3’s, you know, sequential, the sequential decline in EBITDA rate. You know, we normally see a 50 to 60 basis point movement in downward movement in Q3 versus Q2 just based on some of the seasonality related to our glass business in particular.
You know, so if you think about that, if you would have normally seen 60 basis points of downward pressure, 50 basis points of downward pressure, we offset that with Project 360 savings. And we did have some incremental costs in the quarter that, you know, related to things like fuel costs and utility costs that, you know, were a little bit elevated versus a year ago that ate up some of that savings. But by and large, and then we had a little bit of leverage loss.
So I think, but by and large I’m very pleased with where we’re at from, you know, the progress against, you know, the 14% goal that we set in February.
Brian Kaner (Chief Executive Officer)
Yeah, look, I think we’ve said this before. I mean the fourth quarter always tends to be our largest quarter from an acquisition perspective and store openings. So I frankly wouldn’t expect anything different this year. I will say that because we are taking a more measured approach to acquisitions—that is, we’re focusing on building density, getting in that number one or number two position in the markets that we operate in—that shrinks the pool of available opportunities that are out there for us.
It doesn’t mean that there’s not a lot of available opportunities. It just means that we’re looking for, you know, the right opportunity that, you know, again, has the right-size box, has, you know, the ability to do, you know, three and a half to four million dollars of volume out of a location. And when we find that, we’re happy to engage in purchase. If we don’t find that, we’re going to be more apt to look for brownfield and greenfield opportunities to build in those markets.
So it really is just, you know, there’s nothing behind it right now. The sellers in the marketplace, outside of the bigger—certainly the regional MSOs and some of the larger players that are out there—I think, given where we’re trading, have to start to see, you know, their multiples contract, their multiple expectations contract. We’re not a buyer in that environment. But the opportunity for single shops is still out there. Great, thanks.
OPERATOR
Your next question comes from the line of Mark Jordan with Goldman Sachs. Your line is now open. Please go ahead.
Brian Kaner (Chief Executive Officer)
Hey, Mark.
Mark Jordan (Analyst)
Hey, good morning. Hey, thank you for taking my question. Can you talk about how same-store sales trended throughout the quarter and maybe, you know, what you’re seeing quarter-to-date. I know you said it was positive in October, but just any as it relates to maybe the rate of change.
Brian Kaner (Chief Executive Officer)
Yeah, I think what we said in the opening remarks is what I would reflect on. Again, we said that the volume continues to be positive and we’re starting to see some incremental, some incremental TCOR. So those two things, you know, at least point us to an environment that we’re positive. We’re moving away from, you know, we’re evolving our messaging away from, you know, giving a pointed amount because, you know, we want people to focus on the underlying business performance.
We’re not providing, you know, additional quantitative details. You know, we highlighted during the month of October we saw continued volume growth. Once again we outperformed the industry, as well as, you know, that sequential improvement in TCOR. I think that gives you—that should give us—the sense that, you know, the marketplace continues to be positive.
Mark Jordan (Analyst)
Perfect. Thank you very much. And just one follow up. As we think about the parts mix between aftermarket and OEM, how that might have impacted margins for the quarter. Can you just talk about that a little bit? Because I know it was noted that parts margins were lower year over year.
Brian Kaner (Chief Executive Officer)
You want to take that?
Jeff Murray (Chief Financial Officer)
Sure. Well, we have seen—just really there’s been some shifting, I think, in the marketplace and so there’s really not much to say. I would say that I would focus more on the—I mean, there’s been some pretty positive improvements year over year in terms of gross margin. There’s a lot of factors that were positive. There were a couple that were slightly negative, and we mentioned the parts and labor as being a couple of them, but they really weren’t all that meaningful.
And so some element of it was aftermarket parts related. But, again, I would focus more on the net positive overall. Yeah. And I’d just follow on to that, that, you know, typically on a quarter-over-quarter basis, Q2 to Q3, the erosion that I talked about in the EBITDA margin—most of that falls in gross margin. So if you just think about the sequential margin decline, we did report a couple of tenths of points of benefit on a year-over-year basis. But the sequential margin decline is simply more tied to that seasonality, and the seasonality is more tied to, you know, just the reductions we see in the glass business as we get into the third quarter.
Mark Jordan (Analyst)
Perfect. Thank you very much.
Brian Kaner (Chief Executive Officer)
Great, thanks.
OPERATOR
Your next question comes from the line of Stephen Hansen with Raymond James. Your line is now open. Please go ahead.
Brian Kaner (Chief Executive Officer)
Hey Steve.
Stephen Hansen (Analyst)
Yeah, good morning guys. Thanks for the time, Brian, Jeff. I just wanted to ask you about your conviction in the buyback around that opportunity that you see there. Valuations obviously come down a fair bit. Brian, you just referenced that it’s more expensive to buy the multi-shop MSOs. Now single shops may be still doable, but how do you feel about the pace of the buyback relative to some of the opportunities for acquisitions out there in the market?
Brian Kaner (Chief Executive Officer)
Yeah, look, I mean as our business continues to evolve, I mean so do our capital allocation opportunities. You know, that includes the addition of, you know, share repurchases. You know, the focus of the business remains on directing capital towards the opportunities that, frankly, offer the most attractive risk-adjusted returns and create long-term shareholder value. We’re not going to be prescriptive about what we’re doing on share buybacks. I think we have that as an option in our capital allocation strategy now.
And, you know, if there aren’t other places to deploy capital, that does certainly become an option for us.
Stephen Hansen (Analyst)
Okay, that’s helpful. And then just lastly I just wanted to go back to just the M&A environment just quickly. And how you think some of the smaller shop sellers—you know, I think it sounds like the multiples there are still quite good. The MSOs in the smaller tier are still probably off the table. But does the flywheel allow you to continue to, you know, move fast enough to meet your targets, or do you feel like you can slow a little bit and focus on the greenfield opportunity a little more—I know aggressively, if that’s the right word?
But how do you feel about that single-shop MSO versus the greenfield opportunity?
Brian Kaner (Chief Executive Officer)
Yeah, I mean, look, the acquisition strategy—the whole new unit growth strategy—is still predicated off of building out market density. And so, as we’ve talked about before, we have a map that has dots on the map, and our acquisition team is out in the marketplace looking for the opportunities to fill that dot on the map. And so it comes across as a little bit more opportunistic where we’ll go into the marketplace. It’s just the pacing of the way that the team can get into the market to fill those opportunities.
So if you get into a market and you realize that there’s not somebody to buy in the market, now you’ve got to get somebody that’s out looking for land in the market or looking for a brownfield opportunity in that market. So I think because we’ve gotten a lot more purposeful with our capital deployment and have just gotten very specific around where we want to grow, that inherently will slow the pace. If I, you know, had a shotgun approach to buying across the United States, there’s all kinds of places—I’m sure there’s places I could, you know, buy in Wyoming and Idaho and Montana and, you know, places that I ultimately don’t want to be. But the opportunities to go build out densification just narrows the pool of things that we can go do or places that we can go buy.
And that, I think, puts a little bit of pressure on the pace. But that’s okay, you know, because it’s ultimately driving—you know, we know that the success of those. We’re hedging our, you know, our bets on success on the ones that we are buying.
Jeff Murray (Chief Financial Officer)
And Brian, I’ll just add to that, because we’re opportunistic, it is lumpy if you look back over time. As a result, it is lumpy over time, and it’ll continue to have some level of lumpiness. The startup strategy does mitigate that to some degree because you’re going to have some leading in that are essentially planned for like that, but otherwise there’s still lumpiness.
Brian Kaner (Chief Executive Officer)
Yeah. And look, we said in the MD&A we’ve got 34 new startup locations. Those are the ones that we have certainty around, and acquisitions will—as Jeff said—they’ll just be lumpy.
Stephen Hansen (Analyst)
Very good. Appreciate it.
OPERATOR
Your next question comes from the line of Derek Lessard with TD Cowen. Your line is now open. Please go ahead.
Neil
Yeah. Good morning, Brian, Jeff. Stephen. I hope you’re well. I just wanted to maybe just hit on the volume trends in the quarter. It was down 1 to 3%, but that seems like it was a bit of a deterioration compared to Q2. I think it was down 0 to 2. So maybe just talk about some of the trends that you were seeing there and more specific. And then maybe specific to you guys. Looks like you did outperform the industry a little bit better in Q3. So if there’s anything you’d like to point out.
Brian Kaner (Chief Executive Officer)
Yeah, and you’re right. The volume in the quarter did contract a bit, a little bit. You know, I think a large portion of that is if you look at vehicle miles traveled in the quarter, you saw some suppression in vehicle miles traveled in the summer months. That’s largely what probably drove the decline in volume, still within the range that we expected it to be. So it’s not that it didn’t go back down to the high single digits. It stayed in that band.
Relative to our performance against it, remember we said there was a little bit more TCOR movement in the quarter, so that gave us a little bit of incremental spread against how the market was performing. We talk about claims in terms of units; we talk about same-store sales in terms of dollars. So that incremental TCOR helped us increase the spread, albeit the volume spread, if you will, was probably fairly consistent. I think it’s also worth pointing out the third quarter in a row now is where we’re essentially in the typical range of 0 to 3%. So that’s what.
Neil
Absolutely. Thanks for that color. And then maybe one last one for me. Just correct me if I’m wrong too. I think you guys are pretty much done on the internalization of your scanning and calibration. Are you able to quantify the margin impact on that $90 million year to date realized or maybe just highlight sort of the biggest margin bucket contributors to the $90 million in savings you’ve realized so far?
Brian Kaner (Chief Executive Officer)
I think you’re talking about just the overall progress on both Project 360 and the synergies from the Joe Hudson transaction.
Neil
Right. And I guess where did the scanning and calibration contribute to those savings that you realized?
Brian Kaner (Chief Executive Officer)
Yeah, I don’t know that we have split out the incremental improvement we’re getting from scanning and calibration. I think I’ll answer your first part of your question, Neil. We are at the threshold that we said we would be at. We’re at and beyond, frankly, the 80% coverage of internalization. That team needs to continue to build as you see higher penetration rates of calibration services now. So it isn’t that the journey is done because now we need to continue to add staff to maintain the growing environment that we’re in.
I just wanted to make sure we’re clear. I mean, the $90 million that you’re referencing is—we said we’d be at $105 million by the end of the year on total Project 360 savings, not year to date, but project to date. The $90 million is project to date as of the quarter. That includes Joe Hudson synergies. And when we get the incremental $15 million in the fourth quarter, we’ll be $105 million towards our goal of $140 million, with the remaining $35 million coming from investments in technology that’ll help drive efficiency in our stores.
Jeff Murray (Chief Financial Officer)
And maybe just add to be clear, the internalization of scanning and calibration was not part of those numbers. However, there was some element of synergy.
Brian Kaner (Chief Executive Officer)
Yeah. It wasn’t part of Project 360. It was part of Joe Hudson synergies. So I think about it that way. We’ve got $15 million to achieve in Q4, and we’ll have another $35 million that will come in ratably throughout the balance of ’28 and ’29.
Neil
Got it. I think I was—that was my point. It was the scanning and calibration margin improvement on the back of the synergies.
Brian Kaner (Chief Executive Officer)
No, no. It is. Part of the synergies are definitely driven by—frankly, some of the pull-forward in synergies is driven by the faster internalization of scanning and calibration versus what we anticipated. So you are seeing some of that in that number.
Neil
Got it. Thanks, guys.
OPERATOR
Your next question comes from the line of Gary Ho with Desjardins Capital Markets. Your line is now open. Please go ahead.
Gary Ho (Analyst)
Thanks. Good morning, Regis. First question just on the Joe Hudson contribution. I think it’s roughly $170 million in the quarter. Feels like that business is running a little bit lighter than it was acquired. Correct me if I’m wrong. Maybe a seasonality, and your disclosure notes trend versus the prior year improved through 3Q and into October, perhaps. Can you update us on the progress on kind of stores moved onto the Boyd operating model and thinking you fixing some of the underperforming stores and the path to growth from there?
Brian Kaner (Chief Executive Officer)
Yeah, and look, I mean we said on the last call we accelerated the integration of Joe Hudson. Because when we got the business—we closed at the end of October; we actually got the business on January 9. For all intents and purposes, there had been erosion in that business in that period of time. So as we picked that up and we started to realize tools we had in the available operating environment to run the business, we realized that they didn’t have the same type of tools and data visibility and business processes that, frankly, we had in the Boyd business.
So as we bought that, we realized we needed to integrate more quickly. We did that. And now, as I said in the prepared remarks, the focus now is just improving client scores that we know will drive incremental volume, making sure that we’ve got the staffing in the stores to deliver on that volume, and implementing the WOW operating way within that environment. And as we do that, we continue to see sequential progress from the business. Note you are right, there is seasonality from Q2 to Q3. The whole South normally sees a dip from Q2 to Q3.
But what we’re referencing is, as we look on a year-over-year basis, the business is actually getting better. We do continue to see improvement there, and it will take a little time for us to get the metrics that we normally look at to get enough data behind them for us to be able to form an opinion on what’s happening. But as I’ve said before, I have confidence in the fact that what we bought with Joe Hudson will ultimately be there. We bought ourselves now an opportunity—with the air cover from incremental synergies—an opportunity to get the revenue flowing in the business the way that we had expected to, and that’s progressing each and every month as we go forward.
Gary Ho (Analyst)
Okay, thanks. Appreciate that. And then my second question: just want to touch on self pay. So some industry peers have pointed to self pay repairs approaching historical highs, just with more work not going through insurance carriers. Just curious what you’re seeing with your own customer experience there, and how does that affect volumes, average ticket, and margins?
Brian Kaner (Chief Executive Officer)
Yeah, we certainly do see—albeit a small piece of our business—we do continue to see self-pay growing at a pace that’s greater than what the insurance volume is, but it is growing off of a much smaller base. You’re right: the average ticket on a self-pay job is much lower than an insurance-paid job. But look, our focus today still remains on providing great service for the insurance partners that we do business with. It’s the largest portion of our business.
As we continue to focus on client metrics and in driving performance and, frankly, outperforming our competitors on metrics, we continue to accrue more volume from that. On customer pay or self pay, we’ve started to introduce tools like the Sunbit financing program in our business that will allow a consumer to be able to finance a self-pay job. So we’re taking steps towards being able to be more amenable to a consumer. But the focus of the business still remains heavily on our insurance partners.
Gary Ho (Analyst)
Okay, great. Those are my questions.
Brian Kaner (Chief Executive Officer)
Great, thank you.
OPERATOR
Your next question comes from the line of Brett Jordan with Jefferies. Your line is now open. Please go ahead.
Brett Jordan (Analyst)
Hey, good morning. On the self pay question, I guess the ticket’s lower, but is the margin potentially higher in the sense that you’re not negotiating with an insurance company on labor rates, etc.?
Brian Kaner (Chief Executive Officer)
No, I wouldn’t reflect it that way. I think that the challenge with consumer pay is you’re actually dealing with somebody that might be more price competitive because there’s a threshold by which they can do the repair versus not do the repair. And it’s why consumer pay is really not so prevalent in the MSOs, because oftentimes you’ll see that they want to do different things with the repair—maybe not fix it completely, maybe not do something that needs to get done on the vehicle.
Our job as collision repair providers is to make sure that we complete the repair, we get the car back on the road safely, we do everything that needs to be done, and insurance carrier work allows us to do that. When you get into consumer pay, I think you get into a lot more negotiating of what can or should be done. Not that it’s so price sensitive from a rate perspective, but there really isn’t any discernible margin difference between the two.
Brett Jordan (Analyst)
Okay. And then sort of a macro question on the space: you said down one to three, sort of in line with longer-term expectation. Is there any pent-up demand out there? I mean, obviously being down high singles a year ago, you’d think there would be more cars driving around with a dent, and that customer, when they can come up with a deductible, might fix it. Is there a chance that you’re going to see some snapback, or are we sort of back to normal and don’t expect any surge of pent-up demand?
Brian Kaner (Chief Executive Officer)
Yeah, I mean we’ve said this in previous discussions. When you look back to that 2007–2008 time frame, when we were in the financial crisis and unemployment was high, there was a bounce-back year—I think it was 2011 that became the bounce-back year. So could there be something? Certainly. Is that what we’re banking on? No, but I think history would tell you that there could be something like that. But that’s not the way we’re thinking about the business right now.
Jeff Murray (Chief Financial Officer)
Or it could come up over time through rollover of loans, rollover of leases. That could be where it starts to come through, but it would sort of bleed in. We have time.
Brett Jordan (Analyst)
Okay, great. Thank you.
OPERATOR
Your next question comes from the line of Darrell Young with Stifel. Your line is now open. Please go ahead.
Darrell Young (Analyst)
Hey, good morning, everyone. Looks like the free cash flow generation was quite strong this quarter, but EPS was a little weaker than I might have anticipated. Is that a function of maybe some lease accounting and depreciation nuances, or is it more operating leverage in the seasonally weaker Q3 period?
Jeff Murray (Chief Financial Officer)
No, I would agree it’s probably more the former. The right-of-use asset depreciation and other depreciation on assets from our growth is probably the one that’s contributing the most.
Darrell Young (Analyst)
Got it. That’s all for me. Thanks very much.
OPERATOR
Thanks, Darrell. Your next question comes from the line of Kristen Thomas Martin with BMO Capital Markets. Your line is now open. Please go ahead.
Kristen Thomas Martin (Analyst)
Hey, good morning. Just a point of clarification. The moving away from giving quantitative numbers, is that just strictly for the quarter ahead? I want to make sure nothing else is changing.
Brian Kaner (Chief Executive Officer)
You faded in the last part of your question. Say that again.
Kristen Thomas Martin (Analyst)
Just moving away from giving quantitative numbers. That’s strictly talking about the quarter ahead, right?
Brian Kaner (Chief Executive Officer)
Yeah, that’s talking about the month that we’re currently in. We’re not going to continue to talk about the months that we’re in because, as we know, there is variability in the business and one month does not make a trend.
Kristen Thomas Martin (Analyst)
Okay, got it. And then just on the paint benefit, I think a couple quarters ago, you called those tied to volume-trigger rebates. Is it still that or is there something else going on there?
Brian Kaner (Chief Executive Officer)
It’s really that you’re— You must be on a cell phone. It’s hard to hear. Can you say that again, just slower?
Kristen Thomas Martin (Analyst)
I’m just excited to be here. Just the paint benefit. In the past, you’ve called out volume rebates. Is it still volume rebates as you expand, or is there some other benefit in there?
Jeff Murray (Chief Financial Officer)
No, it’s just volume rebates. It is just the ability to have volume rebates come through the bottom line. Would you say anything else in terms of where the paint benefits come from? It’s primarily just as we continue to grow, we can concentrate more volume.
Brian Kaner (Chief Executive Officer)
Got nothing more to add there.
Kristen Thomas Martin (Analyst)
Okay, great. Sorry about that. I was not picking up on paint. Trust me, that’s the part I was missing. It’s 100% my fault. Thank you, though.
Brian Kaner (Chief Executive Officer)
All right. Appreciate you. Thank you.
OPERATOR
Your next question comes from the line of Razi Hassan with Paradigm Capital. Your line is now open. Please go ahead.
Razi Hassan (Analyst)
Good morning. Thanks for taking my questions. Most of them have been answered. But just a follow-up on TCOR. Brian, did you mention you saw total losses lower in the quarter, or was it just stable?
Brian Kaner (Chief Executive Officer)
From where we’ve been at, it’s actually just stable. So what we’re not seeing is a negative impact from the year-over-year impact, but we are seeing it just be relatively stable.
Razi Hassan (Analyst)
Okay, great. And then just lastly, I’m not sure if I missed it. How should we think about gross margin exiting the year in line sequentially? Any color that you can provide would be helpful there.
Brian Kaner (Chief Executive Officer)
I mean we’ve always talked about gross margins kind of operating in a band. I think the band has gotten tighter over the years as we’ve gotten bigger. Sequentially, I think we normally see a little bit of—we see heavier hits as we get into the fourth quarter, which ultimately likely suppresses some of the other positives that we would see. So I think stable margins is probably the best bet.
Jeff Murray (Chief Financial Officer)
Yeah, the other item would be glass. You know, glass would be our seasonally low period through the winter seasons versus the summer and summer. So that can have a moderating effect on those margins too.
Razi Hassan (Analyst)
Okay, thanks very much. I’ll leave it there.
OPERATOR
Your next question comes from the line of Carol Addu Bobby with Scotiabank. Your line is now open. Please go ahead.
Carol Addu Bobby (Analyst at Scotiabank)
Good morning, this is Carol and Jonathan Goldwyn from Scotiabank. Thanks for taking my question. I wanted to ask, have you been dealing with any incremental inflation on parts, paint and logistics since Q2? I know you mentioned there was a year-over-year impact, but I just wanted to clarify if it accelerated in the quarter and has this continued into the fourth quarter?
Jeff Murray (Chief Financial Officer)
We actually got our contractual paint increase in the second quarter. So we certainly have seen a little bit of incremental inflation on paint that has to roll through the paint and material rates. And as that rolls through, obviously the TCOR will continue to move up and the slight margin compression we saw from that will go away. Other parts inflation? Labor inflation? I wouldn’t say we’ve seen anything different in Q3 versus Q2.
Carol Addu Bobby (Analyst at Scotiabank)
Okay. I appreciate the color. And just a broader question: as you continue to realize these synergies and Project 360 moves towards the more mature phase and the cadence of margin improvement becomes more modest, what additional cost actions or process improvements could you undertake to continue to drive that margin improvement?
Brian Kaner (Chief Executive Officer)
Yeah, look, I think that one of the biggest focuses of the business going forward is going to be the usage of technology to lessen the administrative burden of claims in our business. I’ve said this at other times: almost half of our people are just simply in stores that are moving a claim to the back of the shop. And so if we can continue to focus on leveraging technology, leveraging agentic AI, leveraging other technologies to make that process more efficient, there is a big cost pool that is out there for us to be able to go attack.
We’ve started to do some things now with agentic AI. We’ve got agentic AI now answering calls after hours to schedule repairs. We’ve got follow-up on opportunities going through an AI agent. So we are starting to really see some of the benefits of AI accruing in this business to make the part of our business that’s really getting the car to the back more efficient.
Carol Addu Bobby (Analyst at Scotiabank)
I appreciate the color. Thanks for taking my questions.
Brian Kaner (Chief Executive Officer)
Thank you.
OPERATOR
Your next question comes from the line of David Bellinger with Mizuho. Your line is now open. Please go ahead.
David Bellinger (Analyst)
Hey, good morning. Thanks for the questions. I want to ask about the leverage point of the business. There’s an investor perception out there that you need to be in this 3% to 5% same-store sales growth bracket in order to get EBITDA margins higher. I know you’ve got a lot of the Project 360 synergies and cost cuts coming in. Can you talk about where the comp sales growth has to be in order to get EBITDA margins higher? Should we think about it as more of a low single-digit sort of qualitative measure in order to get there?
Brian Kaner (Chief Executive Officer)
Yeah, Jeff has talked about this in the past. If you look back historically, if you look back 10 years, the average same-store sales growth was around 4%. And when we were getting that 4%, the margin expansion was anywhere from 10 to 15 basis points of, call it, operating leverage that we were getting out of 4%. So I think that’s probably where the expectation of margin expansion through the 3% to 5% range comes from. Obviously we’ve expanded margins through very prescriptive actions in the business and continue to see those things and continue to have those opportunities to do that. I have every bit of confidence that when we start to get ourselves into that 3%, 4% range, we can certainly see the same type of benefit we’ve seen historically.
David Bellinger (Analyst)
Got it. Thanks for all that. And I just wanted to follow up on the insurance commentary. Are there any carriers that you’re looking to do more or less with, and maybe just talk about the concentration of where claims come from today for potentially where that could shift to? Thank you.
Brian Kaner (Chief Executive Officer)
Yeah, I won’t comment on specific carriers. The majority of our business, as you know, comes from insurance carriers. And our focus is on—there’s lots of different regional coverages by carrier—so our focus is on making sure that we are taking care of every carrier that we do business with. And so I’ll just leave it at that.
OPERATOR
Your next question comes from the line of Thomas Windler with Stephens. Your line is now open. Please go ahead.
Thomas Windler (Analyst)
Hey, good morning everyone. Thanks for taking my question. Just one quick one from me. We’ve seen some total loss thresholds increase in a few states, Oklahoma and Rhode Island. How impactful can these be to total loss rates? And then with that and insurance premiums moving lower, you’d expect deductibles to move in kind. Is there a scenario where total loss rates don’t just stabilize, but they start to decrease?
Brian Kaner (Chief Executive Officer)
I think if you see more regulation like that, I think you will see them start to decrease. Total losses are getting a tremendous amount of attention in the industry right now. We know that it’s not a great customer experience. There’s more people that are upside down in loans right now. So if their car gets totaled, they end up not only not being able to get a car, but they end up writing a check to get out of the car that they’re actually in. So we know that it’s not a great experience.
I think many people are picking up on that, inclusive of the insurance carriers. If you trust the data that’s out there—the data that CCC would reflect or that J.D. Power reflects—40% of people after a total loss event switch insurance carriers. So the attrition after a total loss event versus a repair event at 7% is super high. And so that’s got carriers’ attention. It’s got OEs’ attention because people are actually defecting from the brand after a total loss event. So I think there is a lot of positive momentum in the industry to push total losses down.
We haven’t seen that yet. But I do think, as you said, if those things start becoming more pervasive in the marketplace—raising the threshold; Rhode Island raised it to 85%—if you see people raising thresholds to 85%, those borderline total losses will end up becoming repairable vehicles again and ultimately help our business.
Thomas Windler (Analyst)
Perfect. I appreciate all the color.
Brian Kaner (Chief Executive Officer)
Yep. Thanks. We’ll see you next week.
Thomas Windler (Analyst)
Yep. See you guys next week.
OPERATOR
There are no further questions at this time. I will now turn the call back to Mr. Brian Kaner for closing remarks.
Brian Kaner (Chief Executive Officer)
Thank you, operator. Once again, everybody, thanks for joining the call today. We look forward to reporting our fourth quarter results in the new year. So thanks again and have a great day.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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