Wand NewCo 3 Inc.

The stable outlook on Caliber reflects our belief that the company will maintain or improve its EBITDA margins, allowing it to generate a small amount of free operating cash flow (FOCF) and sustain sufficient liquidity despite its acquisitive growth strategy. We could lower our rating on Caliber in the next 12 months if debt to EBITDA exceeds 8x or if the company is unable to sustain FOCF to debt of 3%-5%. This could occur if the company's operating prospects reverse and its EBITDA margins decline, potentially due to integration risks or to technical labor wage inflation. We could also lower the rating if the company makes multiple debt-funded acquisitions and we conclude its financial commitments are unsustainable. We consider an

...EBITDA margins were weaker in 2019 as Wand NewCo 3 Inc. (doing business as Caliber Collision) invested heavily in integrating Abra Auto Body Repair of America stores, but margins should improve in 2020 as the company begins to benefit from these investments, as well as improved procurement and synergies. While margins were weak in the first half of 2019 due to transaction and integration costs related to the merger of Caliber and Abra, they have recently improved. Caliber made investments in Abra centers, including training for workers. Caliber expects to achieve savings from procurement of parts and paint going forward, as well as a consolidation of back-office operations. Still, headwinds remain as insurance companies look to cut costs and have moved to performance-based pricing. Caliber will need to remain extremely vigilant in maintaining better performance metrics than competitors to continue to attract business and grow same-store sales. High labor turnover and technician wage inflation...

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