Q4 2019 Earnings Call
I would like to welcome everyone to other nations fourth quarter end for your conference call.
All lines have been placed on mute to prevent any background noise.
The speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you'd like to withdraw your question press the pound Keith Thank you.
<unk> Vice President of Investor Relations you May begin your conference.
Thank you.
Good morning, welcome to Autonations fourth quarter, and full year 2019 conference call and webcast.
Leading our call today will be Cheryl Miller, our Chief Executive Officer, and President and Joe Lowery, Chief Financial Officer.
Following their remarks.
Open up the call for questions.
I'll be available by phone following the call to address any additional questions that you may have.
Before we begin let me read our brief statement regarding forward looking comments.
Certain statements and information on this call, including any statements regarding our anticipated financial results an objective constitute forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks, including economic conditions and changes in the fluff applicable regulations that may cause our actual results or performance could differ materially from such forward looking statements.
Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and in our FCC filings, including our most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q, and current reports on form 8-K, and now I'll turn the call over to Autonations, Chief Executive Officer, and President <unk>.
Carl Miller, good morning, and thanks for joining us our nation's financial results. This quarter again reflect our focus on operational excellence and delivering a pure list customer experience low unemployment and three interest rate cuts by the federal reserve at supported consumer demand and reduced our inventory carrying costs.
And we believe industry combined new and used vehicle sales for 2020 will be inline with last year.
Today, we reported record fourth quarter earnings from continuing operations of $1.74 cents per share.
Same store fourth quarter 2019 revenue totaled $5.5 billion, an increase of 4% compared to the year ago period.
Same store gross profit of $886 million increased by seven per cent compared to the year ago period, driven by growth in all of our business sectors.
New vehicle used vehicles customer care and customer financial services.
We continue to manage our inventory levels to meet customer demand and we're in great shape for the upcoming selling season.
Due to our disciplined inventory management.
Vehicle inventory decreased over 11000 units year over year.
For the quarter same store total variable gross profit per vehicle retail was up $215 or 6% compared to the same period a year ago.
We were pleased that aren't new unit sales were in line with industry retail.
While increasing new vehicle margin.
Same store new vehicle gross profit per vehicle retailed increased $80 or 5% on a year over year basis, we remain committed to executing at a high level and seeking the optimal balance between new vehicle pricing and volume.
Same store used vehicle gross profit was up 21% and same store used vehicle gross profit per vehicle retailed increased $122 or 9% on a year over year basis.
We expect consumer demand to continue for nearly new vehicle as customers find value and relative affordability in the U.S vehicle sector.
We're excited about are used business, where I'm multichannel go to market strategy has prepared us to evaluate the next phase of growth, both organically and our existing stores as well as through potential acquisitions.
As part of our strategy to expand channels for used car sale I'm pleased to share that the Autonation USA group broke even for the third consecutive quarter.
Same store customer financial services delivered another record breaking quarter with gross profit per vehicle retailed of $1989, an increase of $130 or 7%.
Approximately $650 of our gross profit per vehicle is generated from financing and approximately $1350 is generated from product sales.
Our same store total variable gross profit per vehicle retailed with $3654 and that was driven by strong growth in gross profit per vehicle across new use and customer financial services.
We're excited about our future as we have stabilized our new vehicle business, we're realizing solid growth in our U.S business and we see further opportunity in our brand extensions.
Same store customer care gross profit was $398 million, an increase of 4% compared to the same period, a year ago with strong growth in customer pay which was up 5% warranty gross profit was down 1% year over year for the quarter.
Our customer care business continues to generate solid growth due to our brand extensions increasing vehicle complexity and industry vehicle in operation demographics, I'll now turn the call over to our Chief Financial Officer, Joe Lauer.
Thank you Sheryl and good morning, everyone.
Before I address our financial performance I, just wanted to share how excited I am to join the Autonation team.
What I'm looking forward to working together with our associates analysts investors and all of our key stakeholders going forward.
None of the financial result.
For the fourth quarter, we reported net income from continuing operations of $158 million.
Or $1.74 for sure.
Versus $93 million or dollar two per share during the fourth quarter of 2018.
This represents a 71% increase on a per share basis.
The fourth quarter 2019 results included net gains from store and property divestitures.
$20 million after tax or 22 cents for sure.
In a noncash gain related to our investment in broom of $19 million after tax or 21 cents for sure.
Fourth quarter 2018 results included net gains from store and property divestitures of $13 million after tax.
Or 15 cents per share.
And restructuring related charges of $7 million after socks.
Makes sense for sure.
During the fourth quarter same store revenue increased $208 million for 4% compared to the prior year.
On a total store basis revenue increased $137 million or 3%.
Gross profit increased $48 million or 6%.
Strong margins in gross profit growth as well as disciplined cost management continued to drive SGN a leverage in the fourth quarter.
Yes today as a percentage of gross profit was 72.0% for the quarter.
Which represents a 250 basis point decrease compared to the year ago period.
As a reminder, we incurred approximately $9 million up restructuring related charges in the fourth quarter of 20 team, which benefited the year over year comparison.
110 basis points.
Looking to 2020.
We expect our best generic to gross profit to be equal to or below our full year 29 teen level as we continue to manage expenses, while investing in our brand extension strategy.
Due to the timing of certain compensation expenses, we expect the SGN a two gross profit percentage to be higher in the first quarter of 2020, and then improving the remainder of the year.
The provision for income tax in the quarter was $53 million for 25.3%.
We continue to estimate our full year 2020 tax rate.
To be between 26 and 28%.
Floor plan interest expense decreased to $29 million as compared to $37 million in the fourth quarter of 28 team.
Due to lower interest rates and lower average for planned balances.
Non vehicle interest expense decreased to $25 million as compared to $29 million in the fourth quarter of 28 team.
Primarily due to lower average debt balances as we paid down debt from free cash flow.
The end of December we had $2.1 billion of non vehicle debt.
A decrease of $166 million compared to the ended the third quarter.
Other operating income was 32 million in the fourth quarter of 29 teams compared to $23 million in the prior year, an increase of $9 million.
Other operating income was primarily comprised of gains related to store and property divestitures in both periods.
Our pace of divestitures has slowed significantly from prior years.
While we will continue to evaluate and manage our portfolio as part of our asset optimization strategy.
Future divestitures will be more opportunistic in nature.
Okay.
Our cash balance at the end of the year it was $42 million.
Combined with our additional borrowing capacity resulted in total liquidity of approximately $1.5 billion at the end of the year.
Under the current board authorization the company has approximately $219 million available for share repurchases.
As of December 31st there were approximately 89 million shares outstanding.
Not including the dilutive impact of certain stock awards.
Our covenant leverage ratio decreased to 2.2 times at the end of the fourth quarter compared to 2.6 times at the end of third quarter.
As we continue to reduce outstanding borrowings from our strong free cash flow generation.
Gross capital expenditures were $87 million.
Compared to $122 million in the prior year.
Excluding lease buyouts and related asset sales net capital expenditures were $54 million for the quarter.
Compared to $97 million in the prior year.
As a reminder, capital expenditures are reported on accrual basis.
In 2020, we expect gross capex to be generally in line was 29 team spending levels.
Our capital allocation strategy remains consistent.
Our first priority is investing in restaurant business, including our brand extensions.
And that we will allocate capital, where we believe we can generate the greatest shareholder value we.
We remain well positioned to act opportunistically due to our strong balance sheet.
Robust cash flow generation.
And ample liquidity.
I will now turn the call back over to Cheryl Thanks, Joe.
Fourth quarter results are clear evidence of the progress, we are making and driving profitable growth across our business. We've continued to deliver strong execution through improving new vehicle gross margins. While also continuing to grow our used customer financial services and customer care businesses. We will continue to seek the optimal back.
Once between pricing and volume, while we maintain our emphasis on providing a pure list customer experience I'm encouraged by the progress, we're making within our brand extension strategies and a strong operational focus and cost management discipline, we have demonstrated.
Before we open the call for questions I would like to personally. Thank autonation over 25000 associates from coast to coast for all of their hard work and to congratulate them on being the number one most recognized grip by JD powers dealers of excellence as well as being ranked number one in reputation.
Management for auto retail my reputation dotcom and operator, we will now take the questions from the audience.
Certainly at this time I would like to remind everyone in order to ask your question Press Star and then the number one on your telephone keypad.
Pause for just a moment combos kuni roster.
And our first question is from Stephanie Benjamin with Suntrust. Your line is open.
Hi, good afternoon.
Hey, Stephanie.
I was hoping you could discuss a little bit on the strong performance you continue to see in the F. nice tailwind or and just really how you view that can continue I'm kind of going forward. So maybe you can give us an update of where we are in the brand extension strategy and just says he face very tough comps.
In 2020, just how you're looking at the ability for that to kind of really grow at such a nice cliff it'd be helpful. Thank you.
It's a customer financial services was our first brand extension as you've noted we maintained all time record performance in that area would remind you that we still expect strong performance, but as a reminder, we continue to see a migration from new to nearly now and into the U.S part of the business, which has a lower dollar profit contribution for customer finance.
I'll services. So as we go forward, we expect continued strength, but the dollar waiting as you shift towards used does see some pressure in dollars, but your aggregate gross profit dollar should stay strong in that area.
And then maybe just broadly <unk> give us an update on just the brand extension strategy and what we know what we should look for in 2020.
Would also be helpful and just kind of the progress you've made in 2019 at and where we're at now and 2020 and then within that you know is there an ability, but we should start to see maybe some expansion of your USA stores now that you are on the at least broke even in the three that you have as of right now or the handful do you have now thank you.
Yes, so we have five autonation USA stores and if you do not for a second our broader brand extensions were in customer care with parts with auto gear also with auctions with Autonation USA.
As well so with Fotonation USA, we're pleased with where we are our focus right now is volume, but sustainable volume in that we've got the five stores today and we will consider broadly three years, we've got the multichannel strategy between digital franchise stores and Autonation USA. So we'll consider organic.
As well possible acquisitions to grow out used within the customer care part of the business. We continue to focus on penetration you see strong customer pay from us with respected brand extensions contributing to that as well as solid performance in our auction. So we feel very good about the brand extension strategy in certain.
Please see our first brand extensions that continue to do extremely well customer financial services and as an adder within our strong use profit for the quarter part of our brand strategy and our brand extension strategy was one price and use and we'll buy your car. So those are some additional things we feel very good about that helped contribute to the result.
In the quarter.
Great. Thank you so much it I'll leave it at that.
Great. Thanks, Stephanie.
Your next question is from a John Murphy with Bank of America Merrill Lynch. Your line is open.
A first question here, we think about the used and customer care opportunity Cheryl maybe there's some concern and it's certainly you're not getting the benefit for it in the stocking we know what's up today.
That the used in parts and service or customer care business will fade as the as the fleet ages and these nearly new vehicles might not be as available to you as they are right now what seems like it's that theory is way overblown at least in my opinion I'm. Just curious as you think about this over the next couple of years do you think this used business and the customer.
There will still be an opportunity for you as you think about how old you can go maybe in the age spectrum.
There are an effort to maybe go a little dip a little bit although the age spectrum just to open up that the addressable market in a big way.
Hey, John Great question, we actually expanded on the age spectrum, a number of years ago as we pushed in customer pay but vehicles keep getting more complex. So as we think about calibration opportunities as we look at electric as we look at hybrid just the complexity that you see in level three not to mention.
Some of the work that we're doing raimo in servicing autonomous vehicles. So we feel really good about customer care in the future, particularly for franchise dealers and for us covering over 30 brands and having the technicians that we do we feel like we're really well positioned in that area and with used vehicles.
Theres still a good pipeline of off lease vehicles coming in so we expect that to remain strong for this year and certainly between our digital strategies, our franchisees and Autonation USA, we hit a number of channels and that helps us sell different types of used vehicles as well and we also source over 70% of our.
Vehicles internally, so we feel like from a used standpoint, we have a good competitive advantage in that.
That's very helpful.
Then just a second question Floorplan interest expense, obviously, you did a great job of managing inventory down.
And rates are helping a bit I mean, how should we think about that in 2020 and are you getting sort of up more rational response from your business partners being the automakers in trying to keep inventory reasonably tight to support pricing I'm just it seems like a dynamic has shifted area into the positive as well.
I've done a really good job there so we're not getting a inventory plush. So we feel like the Oems are in pretty good shape with away that they're managing production. So we're down to 52 days supply, we think thats a healthy level, that's down 11000 units year over year in certainly between that reduced inventory levels.
The rate cuts that provides a good tailwind for us we continue to make sure that we manage to consumer demand, but we feel really good about how that position and we feel good about piramal your inventory as well and that's something that we actively manage.
So it seems like did they put in context seems like it should be a sort of a tailwind similar to what we saw in the fourth quarter going into 2020, just the rates are lower in inventories be manage better is that it is that a reasonably fair statement.
Absolutely. So we feel like Theres good opportunity there to have that continued tail end, but in it. In addition to that it's also helps support customer demand. So as you look at new and used units, we're expecting the aggregate level 57 million across Q.
To be the same in 2020 as what we saw in 2019 and part of that is supported by lower interest rates at the customer see on their loans as well. So we get a benefit both from floorplan rates as well as rates that they can seem or sees when they're coming in.
And then just lastly, real quick on X gene I know you sound like it is going to be relatively flat, maybe slightly down as a percent of grows on a year over year basis in the past you've operated closer to 70%, sometimes dip below that do something structurally different about the business now that we'll keep you from getting there or eventually as you get through all these initiatives we could see it.
Drift down to those levels again.
It's important that we keep investing in the brand extension strategy as well as continued development of digital so I think these levels are the right amount to make sure we're investing for the future. So we want to make sure that we're running the business today, but that we also had a foot into the future and in order to do that I think you'll see us around these levels over time we.
When you think longer term, 70% is sustainable, but we don't want to Miss the opportunity and I got ourselves short on investing today for the future.
Great. Thank you very much.
Thanks, John.
Your next question is from a Rick Nelson with Stephens. Your line is open.
Thanks, Good morning.
Sure I haven't pulled down that balance has quite a bit because here.
Carriers have perhaps an ongoing strategy as we look to 20 to 20 and if you have a targeted a leverage ratio in mind.
The reason debt balances came down and because of the strong cash flow generation. So that's a great thing in a reminder, about the strength of the business model as we had growth across all of the sectors. Certainly we're operating on the lower end of leveraging that came down pretty quickly. So we were 2.6 times and within a quarter given strong cash flow generator.
Okay and came down to 2.2 times, we're certainly going to continue to Opportunistically deploy capital on the great thing as our balance sheet is incredible shape. So we will be able to consider I moved quickly on different opportunities within brand extensions and just future strategy for the business and there's no better place to do that from.
Proposition of strength. When you also are enjoying access to low cost capital.
No particular targets, you've seen us operate at or slightly below these levels in the past, but certainly post that we always continue to deploy capital.
Okay, and your appetite for acquisitions.
I don't know brand extensions has been a big focus.
Our acquisitions Uh huh.
Part of them future.
We're always open to acquisitions, we're going to be prudent on price, particularly on the new vehicle franchise side, we have slowed our disposition. So we had a number of years, where we where we trimmed portfolio.
In certain brands and other pieces of that so we're really largely done that disposition strategy there could be some opportunistic moves there in terms of acquisition, there's always assets in certain markets that we would find attractive but again, we're going to be disciplined on price and we will also be open to looking at additional opportunities. So.
Waymo was a good example of an area in which we have a foot in the future room, we actually had an investment in a foot in the future and so if there's other acquisition or partnership opportunities that could require some capital. It's certainly something that we'll consider as well as assets in the U.S vehicle space, if they make sense.
Okay, Okay fine with it I can ask at what drove the game and Froome.
So that was based on a capital raise at a higher valuation. So we're we're pleased with that and I'm pleased with the opportunity to continue to test and learn there.
Right.
Thanks, and good luck.
Hey, Thanks, Rick.
Your next question comes from Russia, Good time with JP Morgan Your line is open.
Hey, good morning, Thanks for taking my question I will turn welcome to journal.
No there aren't a question on parts and services, you know, particularly on the customer fee side of things.
You talked you you've obviously you expanded your thoughts before we are there other breadth of products that are offering.
One of the automotive media, there's not as we've talked about some slowing in the first quarter due to good warm weather and then they also talked about some inflation early to build inventory 19 potentially lapping the CR.
Just trying to decide to get a sense. So if you know what you're seeing out there and what's your ultimate between between.
In parts and services overall, and then also you know across like the different categories like obstacle thing hopefully.
On a warranty that's going to break book.
And the visibility you have one like beyond there the other buckets.
Thanks.
Sure outlook is that we expect that to remain solid likely in the mid single digit level.
Given the fact that we have largely a sunbelt footprint, we're not as affected by the warm weather, where my there is actually good for us overall with fail.
We see we see inflation being reasonable and certainly with the tariff situation, where it is we think that's in a in a reasonable spot warranty as you mentioned is difficult to predict but we do think we have an opportunity to continue.
With our strong OEM business as well as with our aftermarket parts business. So we view it as a very solid year very substantial year in customer care.
Got it okay.
Okay. So far there just to follow up.
Question on you talked about them acquisitions and new sorry.
What kind of assets or would you be looking at it.
There is there any color you could border.
At this point, we're still evaluating the landscape, but we would definitely be open to looking at assets within used and certainly we'll always continue to opportunistically look within new but it has to be the right brand and REIT market.
Got it that's helpful. And then just lastly, all the new side.
Well, what do you drew I did see acceleration here in the fourth quarter on taking the board you being down while we were solid bottom engine you actually it looks like we should breakeven. So we've tried a lot of that can come in from you know just the franchisee side of things what what would you look at nearly completed I said that performed well, but but that will build.
Thanks.
Yeah really down to strong operational execution and the continuation of the strategy with one price, which customers love so that that helps the brand as well as well by your car. So we've increased our will buy your car purchases are autonation USA stores have higher penetrations, and we'll buy your car and that's something that we're continuing to focus on.
Throughout the base franchise business as well so those two things helped lift use volume. In addition to just the general consumer shifting towards nearly new so new vehicle prices in the last five years are up about $5000. So that 15% increase in prices when customers come in does shift them over to you.
That being said we were pleased with the fact that our new vehicle units were down about 3% at retail in the fourth quarter, which was actually pretty consistent with the industry average, which was down about 2%.
Got it.
Excellent.
Great. Thank you.
Your next question this from the Chris Bottiglieri with Wolfe Research Your line is open.
Hi, Thanks for taking the questions.
Wonderful, but a question it's forgive earlier on the complexity.
Yes, so whatever could help maybe contextualize or quantify that for us.
Specifically.
When you look at similar model years right in your parts and service divisions.
The retention rates for the better electric vehicles, the hybrids and other vehicles that you would describe is complex.
The.
Retention rates up those vehicles compared to traditional ice vehicles.
I would put into context to say that the actual amount of vehicles on the road in electric and hybrid remains very small so as I think about that over 275 million car park today, the type of complexity that we're referring to you as.
Things like aluminum that that takeout weight right. So there is additional totaling in aluminum recalibration protecting our collision business and just the compacting of the parts within the vehicles as you pull laid out. So that's that's the main focus in terms of vehicle complexity and some of the level. Three features we're seeing in the vehicles as we go.
To electric.
Yeah, Weve up Weve cared for electric vehicles for a number of years, so thats not actually new to us starting back with with the hybrid into some of the electrics that we have out many years ago and BMW you had the three and I ate. So we have specialized technicians. We have mastered technicians, we have technicians that also work on autonomous and so we're well.
Physician, I'd say, particularly versus the independent to continue to take share as electric and hybrid becomes more common but also just as manufacturers roll out additional L. Two and L. Three features in the cars.
Lot of calibration work needs to be done the industry as well.
Okay. That's helpful and that one follow up on the retention initiatives that you're rolling out now.
That's the kind of like offline, but by your car appraisal tool can you talk about that and market are you seeing any signs that put competition for trade, it's becoming more competitive.
Obviously, they were an issue for you, but it's kind of curious how you look at that market today.
Yes, we self sourced 70%.
Of our vehicles and we thought we'd actually like to continue to do that so we have great retail locations. We've got a great digital presence of that combination for US is extremely helpful. In sourcing and that's an initiative, where we continue to drive the awareness to customers that will buy your car. Even if you don't buy it from us so for franchise new not every.
Customers aware of that proposition. So it's something that we're continuing to drive both in our marketing and online and in stores when customers come in so we think Theres a continued opportunity for sourcing in that area.
Got you then the economics, we compare those for the trade ins versus off lease vehicles or or auction like how did the unit economics look.
Between the two.
Definitely higher unit economics for self source vehicles. The good thing for US is we own several auctions as well. So any vehicles that are are traded and from our stores. We take a second lock ins, we really want to make sure that were retailing every vehicle that we can rather than doing anything through through wholesale and we feel like our sourcing is definitely an advantage.
Isn't that area and also reconditioning. So we earn the profitability from reconditioning for vehicles that are traded him with us as well.
Okay. That's helpful. Thank you.
Your next question is from Armintas thinking visits with Morgan Stanley. Your line is open.
Great. Good morning, Thank you for taking the question.
When I'm looking at new last year, we had a bit of a shift in strategy through through it through the course of the year an emphasis on profitability early on striking a balance later on in the year between profitability in volumes, how should we be thinking about your plan for a new vehicles into 2020.
We like the balance point that we're at now if the if you remember the beginning of 2019, we were lagging the industry and retail unit sales as we pulled through additional PVR as we ended the year, we had a much better balance between assume we were still able to maintain the PVR. So we like the spot that.
We're in today with respect to the strategy. It was important for us to stabilize that new PVR last year, but now that that's been accomplished I think we have a nice balance between volume and PV R&D saw that pulling through in the numbers.
Okay and on Autonation USA for Sonic for instance, the turning point for it for that company was when Echopark turned profitable you've now had three consecutive quarters of breakeven.
What are some reasons that you would.
Pursue this you know with with more bigger then you are today.
What would cause you to look at it that way.
Yes, we're continuing to focus on additional will buy your car volume, we want to make sure without an Asian you at their goal was to get additional volume through these stores to make sure sustainable in any given time period. You can always you know through marketing or other means artificially put put volume three but we wanted to make sure we have a sustainable.
Path as we look at the next phase of rollout of use broadly whether that digital whether that's additional organic moves within franchise or expansion of autonation USA through greenfields or potential acquisitions.
Okay, and just to touch on the other element of your multi channel strategy. What are your initiatives for us for digital in 2020.
Yeah, we've continued to do additional will buy your car in digital.
We continue to improve our web sites and put additional features on them as well. So it really continued evolution starting back when we did Autonation Express I really continuation of that strategy and our mobile strategy in both new and used.
Okay, great. Thank you for taking the questions.
Great. Thank you.
Your next question is from Bret Jordan with Jefferies. Your line is open.
Hi, good morning, guys.
Good morning, Brett.
A question on the parts business I guess my usual question as you have got a bit more experience whether it be internally sourcing your own parts are selling to third parties.
I guess, where do you feel you are in that parts roll out and I think maybe you've done a supply tasked with one of the collision consolidators out there could you give us some.
You know update as far as how you're doing selling parts to outside your network.
So we've always had great relationship and sold a lot of parts outside of our network, both on OEM and precision parts or.
Our goal is to make sure we continue to provide great quality OEM parts and in many cases, we think theres a continued opportunities to do that with a number of collision players on the OEM side as well as potentially through some of our aftermarket collision parts. So in aftermarket collision parts I'd say, we're still in relatively.
Early innings of that although we certainly have continued to mature that business and on precision cards. We continue to be focused on penetrations within reconditioning other vehicles using some of those parts in particular as well as certain on non warranty customer Kay.
Okay, and then a question I guess sort of follow up this big picture on customer pays service. The <unk> I guess as you've had more experience you know what is with the complexity. The <unk>. The ticket looking like I guess, what's a five or six year old hybrid costs to maintain versus a comparable five or six year old internal combustion.
As you get more of these complex vehicles will you see sort of inflation in the annual service spend.
Doing hybrid G. you have both an engine and a battery so hybrid certainly have higher than because you get the benefit of so there's not enough electric on the road today quite honestly to have the full trends built out in that but I will say that vehicles with sensors have a lot of calibration.
In collision or even in conventional repair there's a lot more calibration work that we're needing to do than what we've seen in the path and certainly that has an impact on the ticket price and for us being able to use a high quality O.G.M. parts and also in certain cases to use precision parts gives us some opportunity from.
Gross profit and a gross margin standpoint as well.
Okay and then last question I think in your prepared remarks. She had mentioned the auction business a couple of times around the Brad extensions is that something that you're wrapping up and I guess, maybe you think about your own inhouse auction volumes of your wholesale products versus maybe where you were a couple of years ago or you selling much more yourself at are you doing auctions for third part.
To use as well.
Yeah, we do auction for third parties as well, we're happy with our footprint of auctions today and we continue to use.
As an advantage.
Within our business and again, when we get we we send our vehicles to her auctions. We also looked to do consignment interactions. We've been successful in certain markets getting additional consignment vehicles I'm in particular first auction out in California in L.A. markets been out there while does a higher degree of consignment. So we're happy with the business we're happy.
With the footprint that we have today and it's been incremental I. It's not that then that we have current plans to do further expansion on.
Okay. Thank you.
Thank you.
The next question is from a very grim with consumer research. Your line is open.
[noise], Yeah, just wanted to try to get some more context on financing an insurance you're almost a 2000 PVR an average across a company what does that look like in your best performing stores versus your worst performing stores gives a sense of what that spread looks like.
Mm.
The biggest spread his wasn't look back across Franz remembering that it's tied to the average sales price so part of what helps drive.
P.D.R. isn't backed particularly in new that you've seen a 15% increase in transaction prices over the last five years.
With variation between markets I would say, we continue to see strength in taxes tends to be a stronger market for customer financial services generally I, but we do look across brands that across stores, we have a menu driven barry transparent selling process and that also AIDS us with customer acceptance in college.
Summer financial services.
<unk>, Okay got it and and also to question on advertising can you just walk us through your approach there too.
Cutting your vehicles, how do you think about competing from an advertising standpoint. We're today. Many of these smaller independence on the side are getting a lot of visibility on their inventory through online channels just want to get your take their illness advertising is something you lean lean into or if there's any efficiencies to be had there's you think about 2020.
[noise], we've spent years optimizing advertising both online as well as television the combination of the two actually helps drive really good results and we've done that.
By directing traffic directly to auto nation Dot com by directing traffic certainly through our <unk> website and all the different properties. We have we've done that with third party lead generation as well and we've been very selective about who we use and monitoring tagging and tracking the results of each.
Provider in his you've seen there's been a lot of changes in third party lead generation over the years as important network constantly optimizing that so advertising is a huge part of what we're doing we also partner extremely closely with all of our over 30 O.G.M. partners on that so we focus on high quality and high close rates and.
Certainly we had the highest close race on our self generated organic traffic through auto nation Dot com.
Guided thank you.
And we we own all of our inventory. So the great thing is when you see something online from US we actually have it on our site.
You were next question is from Mike worth with benchmark airline is open.
Thanks, very much good morning, everyone.
I Wonder if I could circle back on the debt reduction.
Some notes that we're doing in February.
<unk> 350 million something like that.
That's correct.
Okay. So it can those notes just be retired with current operations and then I guess you have some additional notes that mature in January of 21 is that the ultimate goal. So over the next year. So we we focus on the debt reduction wherever coach you too and then some of the other things like share repurchase says will be on the table as it's opportunistic is same strategy.
<unk>.
As a debt reduction we did retire the notes with operating cash flow and a little bit of commercial paper and given how low <unk>, but we're always opportunistically considering longer term financing. So we like to have the debt ladder it out.
There's no no mandate or need to reduce leverage further per se. So we think there's much better capital deployment opportunities than just reducing leverage as we go forward. Okay. Okay, and so if I'm if I'm right on the calculation. The the notes just retired were 5.5%. So you get a kick down I mean, criss cross for 20.
20 is that correct.
That's correct on those particular nodes.
Okay.
Like you're sure really appreciate it.
Right. Thanks, Mike.
You were next question is from the David listen with Morningstar. Your aligned this open.
[noise]. Thanks in morning, sticking to capital allocation lately have been paying down debt with castle, rather than buybacks or an l. buybacks the second half a year.
As you know the company has a history being extremely aggressive with buybacks, but are you guys. Just temporarily now focused on debt reduction or are you trying to subtly convey that buybacks won't be like they used to be an unrelated joson through new if you could talk about your philosophy on buybacks do you think there are a value or Don value added thing.
Sure. So first of all I think we continue to try to be up to Miss opportunistic and share buyback and we'll continue you.
Going forward, but I think it is a particularly when the stock is undervalued.
Equally effective tool to use as an investment alternative so as we've stayed at first and foremost we're always going to prioritize the business and then we're gonna look Opportunistically is how we can for the girl the business and then read a boy capital and share repurchase clearly as a tool we will use as we feel it's warranted by the <unk>.
Okay. Thank you and.
Use vehicles I read about how there's so much on awfully supply all the time and and particularly you've now got a lot of light truck a supply coming off lease and my question is is that.
Is there for a point, where the shoot there can be too much awfully supply on trucks and that the pricing could just be week for you or do you really not care because for you guys is just means more used vehicle sales, but other than also a higher <unk> vehicles and operation for service at a later date.
Yeah. They degrade thing we saw on off lease for 2019 was it was better matched to consumer demand 70 rollback three years ago, you had a lot of cars coming off least when the demand had shifted to see these so we liked the awfully supply that came in 2019 manheim estimating athletes volume to be roughly flat you every year and 2020.
A little over 4 million units. So we think we'll have a healthy supply, but not necessarily an oversupply of all please volumes and certainly we continue to see customer demand and preference for trucks and see these.
Okay and the last questions on a new vehicles. Your your G.B. was up 6.4% new but your volume was down 5.1. So is it fair to say you were just really.
Good at pricing just write this quarter or is it really all just suppose for more premium volumes.
No if I look at the same store it was down about 3% and at retail the industry was down about 2%. So I think we're right back in that sweet spot from volume and we struck the right balance with pricing matching volume so that we're not lagging the industry in retail volume.
Okay. Thanks.
And are less questions from the shot with J.P. Morgan Your line is open.
Thanks for getting you back on the <unk> do some kind of one classification on T.N.G.N. into gross you have to one time segment charges on the code or so you're gardens were flat to down into the ground.
That into account or.
Do you think that'd be even more and injecting for that.
Takes into account. So if you look at a record of S.U.N.A., that's really what we're referencing.
Okay.
72.61 or two.
<unk>.
Then you can correct correct for the year.
Got it but I guess.
Alright, well, thanks, everyone for joining us today.
Hmm, ladies and gentlemen, this does conclude today's conference call. This time you may know disconnect.
Oh.
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