Chris Snyder: I wanted to talk about the ability to drive operating leverage as Onsite activations ramp. And I understand that a fully mature Onsite can be accretive to operating margin despite being materially lower on the gross margin side. But I guess my question is how long do you think it takes? Or how long should we expect it to take from Onsite to reach that level of maturity and how should we think about that dynamic into 2023 as Onsite activations are ramping?
Holden Lewis : Functionally, I think it’s less about a function of time and more a function of scale. And that being said, it really — well, on an individual on-site basis, you’re going to get a certain degree of variability, right? I don’t believe that a $600,000 a year on-site is necessarily margin accretive. But if that $600,000, we believe can lend itself to $1.8 million to $2 million a year, then it’s certainly worth being in that setting and that environment and that relationship for the potential upside. And that’s part of the point of the exercise. But if it’s a function of volume, what I’ve always said is prior to Onsite becoming an initiative, and we just looked at 215 on sites that have been there, somewhere between 1992 and 2014, they were mature not as a function of time, but a function of scale.
On average, those Onsite were doing between $1.8 million and $2 million a year in revenue. And that is when you achieved a margin north of 20% on that group. And what I can tell you is during the period of COVID when our signing slowed down, you had a certain maturation of existing on sites that became a faster percentage of the whole than we would have expected to see in the absence of COVID. And one of the byproducts of that was we actually saw a pretty good increase in the overall operating margin of our Onsite business. And I believe that, that increase was to the tune of a percentage point a year between 2020 and 2021 and ’21 and ’22. Now we signed a lot of Onsite last year. We’re targeting signing a lot of Onsites this year. Assuming we’re successful with that, and we believe we will be, then you’ll sort of see the inverse of what happened during COVID, where you’re going to see those newer units kind of stepping up a bit in the mix again.
And that might make further progress in 2023 on margin at the Onsite level, a little bit more difficult to achieve. You might see a little bit of a step back, but you’re not going to step back to where we were pre-pandemic. We’ve seen the mix of mature units go up. And I think we’ll continue to see that. And our expectation is that right now, your average unit is probably between $1.6 million and $1.7 million. If that steps back a little bit in 2023 because of all the new implementations that we’re doing and the greater signings, that’s fine. But we do expect that, that average size is going to continue to trend towards that 1.8 to 2 and that those margins will trend towards 20% plus. That’s the expectation.
Dan Florness: We’ve talked about over time. It’s going to add to Holdings. We’ve talked about over time how we expect the operating margin of our business to continue expanding. And there’s really 2 dynamics going on there. One is we can absorb a greater mix, even if they’re below company average operating margin, we can accept a greater mix because the branch network isn’t stagnant. The branch network is continuing to grow because we’re adding revenue every day, and we pulled some units out over time, as we talked about. So if I look at our oldest regions that have the highest concentration of Onsite, their average branch isn’t doing $150,000, $140,000 a month. It’s doing $210,000, $220,000. Our operating margins are higher in those areas even though our Onsite revenue might be 50% of revenue.
