Q2 2020 Group 1 Automotive Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to group, one automotive 2022nd quarter Financial results Conference call. Please be advised that this call is being recorded I wouldn't I want to turn the call over to Mr., Pete Delongchamps Group, one senior Vice President of manufacture relations financial services.
Public Affairs. Please go ahead Mr. Delong Shaw.
Thank you Chuck and good morning, everyone and welcome to todays call.
The earnings release, we issued this morning and the related slide presentations that include reconciliations related to the adjusted results. We will refer to on his call for comparison purposes had been posted the group one of the website.
Before we begin I'd like to make some brief remarks about forward looking statements in the U.S non-GAAP financial measures, except for historical information mentioned during the conference call statements made by management of Rubone are forward looking statements that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements involve both known and unknown risks and uncertainties, which may cause the companys actual results in future periods of differ materially from forecasted results.
Those risks include but are not limited to risk associated with pricing volume conditions of markets adverse developments in the global economy, a well the public health crisis related to the cobot 19 virus and resulting impacts on demand for new and used vehicles and related services.
On the certainly regarding the duration severity of Kobin 19, and its impact on U.S. International authorities use current restrictions on various commercial indium economic activities.
And uncertainty regarding the timing pace and extend the economic recovery, the U.S. and elsewhere from the unknown current and future impacts of Kobin 19, Andy I know future impacts of oil producers and the effects such that can have on travel transportation in oil prices, which in turn will likely adverse affect demand for our vehicles and service.
Those and other risks are described in the company's filings with the Securities Exchange Commission over the past 12 months copies of these filings are available from both the FCC and the company.
In addition, certain non-GAAP financial measures as defined under FCC rules may be discussed on this call.
As required by applicable FCC rules the company provides reconciliations of any.
Such non-GAAP financial measures the most directly comparable GAAP measures on its website participating with me on the call today, Earl Hesterberg, our President and Chief Executive Officer, There'll Kenny Hammer President of U.S. and up in Brazilian operations, John Rickel, Our senior Vice President and Chief Financial Officer also Daniel Mchenry, who is our incoming chief.
Financial Officer, and Michael Welch, our Vice President corporate controller.
Like the cow give the call over to Earl.
Thanks, Pete and good morning, everyone.
The business some personal experience was all of those investors since early March was difficult for subscriber.
Challenges and uncertainty we have based in recent months are unprecedented and I believe that makes our results this quarter extremely impressive.
Our original goal is to keep the company upload and stabilize it financially.
In the face of an uncertain period of shutdown as we entered April in the second quarter.
Therefore, or $69.6 million of adjusted net income and $3.70 of adjusted earnings per share or nothing short of a spectacular performance.
These numbers represent 32% and 33% increases respectively over last year's second quarter numbers and were accomplished despite a 29% decrease in total revenues.
Clearly these impressive results demonstrate the resiliency of our business model.
And the brilliant efforts of our employees.
Unfortunately, they also represent an extremely decisive and aggressive cost cutting actions, we took across all three of our markets in late March.
When it became clear that many of our business as well be virtually locked down due to a variety of shelter in place orders and all three of our markets.
This resulted in many of our employees nearly 8000 in total.
Being furloughed by early April.
These were very painful actions to today, but were necessary due to the unknown duration of the business shutdowns.
At this point, we've been able to return many of our furloughed workers to a point, where our U.S. and UK headcounts or roughly two thirds of our pre covert levels.
Additionally, a large number of our remaining employees make sacrifices with reduced compensation and benefits as well and we're beginning to reverse some of these actions as we see the market further stabilize.
[noise] looking at the track of are you Russian UK businesses during the second quarter, we saw sudden dramatic decreases in our U.S. operations in early April.
During the first half of April both our vehicle sales and service business were down about 50%.
Some of our showrooms were completely closed and although most of our service departments remained open customer Tropic dropped dramatically.
In early May are used vehicle business returned to near normal levels.
And our new vehicle sales pace continue to increase steadily throughout the quarter.
By the ended the quarter, our new vehicle sales at improved to a level of approximately 15% below last year, but then stalled out due to inventory issues.
In the UK, we had a massive financial obstacles to overcome with the second quarter as our service departments were close down except for emergency service for the entire quarter until may 18th.
And our vehicle showrooms, we're close until June 1st.
This made it impossible to generate meaningful gross profit in two of the three months this quarter.
However, our cost reductions combined with a strong snap back in that sales and service market in June brought us back to a profitable level in June and we have good momentum going into the third quarter.
Mitigating our UK losses with a strong Jay.
And the great work by our newest came in May and June enabled our company to hold our gross profit declined to 21% versus the 29% revenue drop I previously mentioned.
And to leverage our business model with a 33% reduction and adjusted SGN a expense.
That is something few companies can do.
To provide some color on our U.S. performance I'll turn things over the Daryl counting half Daryl.
Thank you Carl.
Its outstanding US second quarter results were due in large part to our team's ability to move quickly to reduce our cost structure.
Adjusted SGN as a percentage gross profit decreased to a record 59.3%.
Our new and used vehicle gross margin improvement certainly helped us performance.
It's important to note that while our gross profit declined by 15% or $57 million from the prior year.
We reduced our SGN aided by 28% or $74 million.
Our second quarter, new vehicle volumes declined 28% and used vehicle volumes were down 14%.
The latter of which was caused by inventory shortages.
However, gross margin was extremely strong.
New vehicle gross profit per unit was up 40% in the quarter.
And after a decline in April used margins, they improve dramatically as well, finishing with a 62% increase in the month of June.
Our aftersales business accelerated throughout the quarter.
While we were down 19% in total we saw a dramatic increases as the quarter progressed.
June total after sales revenue is down less than 2%, while our June customer pay gross profit was up over June 2019.
And more customers than ever scheduled their points with us online over 30% of them.
Accelerated was a great story for us during the second quarter.
Our new branding at a more streamlined process are already creating a better customer experience nearly 3000 customers used our digital retailing tool to purchase a car online up 48% from the first quarter and nearly triple r. levels from a year ago.
Our teams and our customers have embraced accelerate and we will continue to build on that success over the past few months. We've also added the ability to buy cars from customers through accelerate.
And 100% of our locations now offer a full suite of ethanol finance and insurance products through the platform.
And then we should ahead, we will add more flexible customer financing options and this fall we are watching acceleron dot com, which will offer customers an additional way to access to accelerate.
Finally, we plan to launch accelerating our UK market by the end of the year as well.
Turning to Brazil, we realize a small loss during the quarter, but turned profitable in June as the macro environment improved.
As with the UK, our team did a fantastic job of cutting costs, reducing working capital and generating positive cash flow in an environment with much stricter shelter in place orders compared to what we experienced here in our us markets.
Before I turn the call over to our CFO, John Rickel to provide a balance sheet and liquidity review it should be emphasize that we expect to continue to leverage our leaner cost structure and should be able to meaningful lower meaningfully lower SGN as a percentage of gross profit going forward versus our pre cobot historical low.
Yes, John.
Thank you Darryl and good morning, everyone.
First I will cover the adjustments for our noncore items in more detail.
The adjustments made to second quarter, GAAP net income totaled $39.4 million or $2 in 14 cents per diluted share. These net income adjustments consist of noncash asset impairment of $20.6 million and out of period adjustment to accelerate stock based compensation expense for retirement eligible employees.
$9.7 million.
A loss on the redemption of our five in a quarter percent bonds of $8.1 million and UK severance cost for $1 million.
The $20.6 billion of impairments relate to UK in Brazil, intangible asset valuations that had been negatively impacted by Dakota 19 pandemic.
Turning to our balance sheet and liquidity position as of June Thirtyth, we had $73 million of cash on hand, and another $108 million that was invested in our floor plan offset account, bringing total cash liquidity to $181 million.
There was also $193 million of additional borrowing capacity on our U.S syndicated acquisition line, bringing total immediate liquidity to $374 million as of June thirtyth.
Our cash flow remained strong as we generated $186 million of adjusted operating cash flow in the second quarter.
Each one of our three regions generated positive cash flow in the quarter, despite varying degrees of business closures.
One of the most important strengths of this business model is the ability to generate strong cash flow even in the difficult macro environments, we experienced this quarter as well as back in 2008 2009.
This cash generation was partially used to reduce our non floorplan debt by $77 million during the quarter and another roughly $80 million of our acquisition line borrowings has been repaid in July.
Our us credit facility rent adjusted leverage ratio was reduced to 2.99 times at the end of June down.
Three one times at the end of March.
We do not have any material debt maturities before a 5% bonds are due in June of 22.
For additional detail regarding our financial condition. Please refer to the schedules of additional information attached to the news release as well as investor presentation posted on our website.
Before I turn it back over to rural I would like to go off script for a moment and make a few closing comments. This is scheduled to be my last earnings call with group one so before relinquish the podium there are a number of folks I would like to acknowledge and thank you.
It is entirely appropriate that first on the list as Earl Hesterberg, Earl and I go back over 20 years, which is longer than a lot of marriages last and I've learned a great deal for MIM I've enjoyed working with euro and very much appreciate the opportunity support and coaching you've given me you're one of the best business leaders I've ever known thank you for everything.
To my friends and colleagues on the operating team has been an honor and privilege to work with US group I appreciate the teamwork professionalism and camaraderie. We've shared we spent a lot of hours together new become like a second family to me I would specifically like to thank my long time Road, where your partner Pete along shop.
Pete and I spent many long hours on the investor relation circuit in his support advice and good Umer made those hours more than bearable. Thank you Pete.
I also want to acknowledge and thank my good friend, our General Counsel Daryl Berman narrow was an important sounding board and also a key advisor who is input and advice I value greatly.
Darryl Thanks for always being willing to listen.
And I'd be remiss not dimension the best best after sales leader in the automotive space, Mike Jones, Mike always made my day, a little brighter with his visits and with his infectious spirit of optimism in energy.
Frank Greece has to be my candidate for most brilliant personnel selection ever you're handling of HR has been inspiring.
Into our present President Daryl Cunningham, you stepped into some big shoes. When you took over us ops from rural but you didn't Miss a beat it took us to the next level.
Depart knowing the operations have never been in a better place if you could only align yourself with a better football team.
I also want to thank the finest team of accounting finance audit tax and IP professionals in the auto space I couldn't be more proud of my team here group one.
We have built a very talented organization for the best in class processes that are second to none none of that would have been possible without the efforts of many of you. Thank you for your outstanding effort hard work and friendship.
Thanks, as well to our colleagues in the UK in Brazil, you've been generous with your patience in dealing with the brash Americans I'm proud of the teams we've assembled in both markets.
I also want to thank our banking partners for their support relationships and advice and friendships I've been privilege to work with a large number of talented folks over my 15 years and their support has been critical factor in the company's success.
Recovering equity analyst in our investors I've enjoyed working with you and having the opportunity to tell the group one story. Thanks for all the time, you've invested learning about us.
Finally, I want to acknowledge and thank my wonderful wife, Roxana and our four children Catherine David Jacobs Nimbly, It sounds cliche, but it's true none of what I have accomplished over my entire career would've been a possible without their patient sacrifice love supporting advice. They have been my partners and all that I've done.
So since I'm getting the signal that they give long winded Oscar recipients time to wrap this up.
I leave knowing the company has never been in better hands and is well positioned operationally and financially for continued success going forward.
I also could not be more pleased that my replacement was selected from our internal team.
Part easing the knowledge on passing the baton along to a most talented individual and Daniel Mchenry, Congratulations Daniel and best of luck I'll now turn back over to Europe.
Thanks, John.
Oppose this is an appropriate time for me and the management team. The thank John for his many contributions to groupon over the past 15 years, John was responsible for the establishment of most of our operating infrastructure and our financial controls I.
I think most of our investors have come to appreciate John's detailed understanding of the automotive business as well as a sincere and straightforward style of communication.
I can assure you that John will be sorely missed by myself and our team.
We are indeed fortunate to have someone like Daniel Mchenry standing by to fill JOTS large ships, there will be a minimum learning curve for Daniel as he is very familiar with the industry as well as our company in systems.
And that will officially assume the CFO position on August 15th.
Additionally, we have a highly experienced global automotive financial executive to replace Daniel in the UK.
Referred to hope ahead, our has served US a financial director of our Brazilian operation since 2014 and has experienced with global companies, such as Delphi and Siemens prior to joining groupon.
So again, we are fortunate to make use of our experienced management bench to backfill John's retirement from group one.
As we move into the second half of the year, we intend to continue to remain flexible and responsive to market condition.
Sales and service traffic continues to fluctuate in some markets Workover 19 continues to spread.
New vehicle production inventory on incentive levels remain quite uncertain and both of us in the UK markets.
Nearly these factors both impact volume and margins.
Our team has proven the ability to control and adjust cost levels quickly and effectively that scale will remain important and the second half of the year.
This concludes our prepared remarks, I'll now turn the call over to the operator to begin the question and answer session operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.
And our first question will come from John Murphy with Bank of America. Please go ahead.
Thanks.
Good morning, everybody.
Firstly from US is what I congratulate John on a fantastic career and thank him for all of his insights over the years, because we've learned a tremendous amount and not just on group one back from the industry. So thank you John.
Thanks, John.
Just a first question.
Year earlier, maybe sort of big picture in kind of strategic.
Yes, the opportunity in the us seems to be opening up based on the strategy of some of your competitors.
And they're getting much more aggressive on building quote unquote national networks.
And heading towards larger larger sizes, you're in the US I'm just curious as you look at that and juxtaposing versus your strategy going international to the UK in Brazil.
And if you see anything changing here in the landscape in the us between the relationship between the distribution channel dealers, the automakers that might provide better opportunity than there has been in the past and you may rethink getting bigger internationally and see a greater opportunity here in the us.
No. John this is early I think.
I think for US is still the market of preference.
And I think Thats true for auto manufacturers as well.
I think the real shifts in recent years have been toward.
Strengthen the used car market in the service market.
And.
It's difficult to justify big capital expenditures to buy a lot of land and get a good return on that just to have them dedicated used car operations unless you want to be the bag right, which has been the key differentiating factor for Carmax.
And we we continue to reinforce.
To ourselves that we have a lot of upside in the used vehicle in service business.
Which is where the market is headed within our existing physical plant now we do expand some of those physical plans, but we continue to operate most of our physical plants with multiple revenue and gross profit streams and that seems to provide the best return on capital.
We want to the UK originally to have another expansion opportunity.
At a higher return on investment because the purchase of new vehicle franchises.
There is much lower and that continues to be the case. Unfortunately in recent years. The UK market has has really declined.
Because of primarily done certainly relating to Brexit.
We we seem to be coming near the end of.
Of.
That timeline.
And we continue to like the potential of those businesses and Weve used.
This completes shutdown period to retool, our UK businesses, and I don't think I've ever been more excited about them.
And we're going to come out of this more efficient than we've ever been in the UK and the UK is going to remain a good auto market for a long time, and we have a nice brand mix there at a good management team.
And were going to be much more efficient there and as we are as we sit here today.
I don't know if that answers your question back Thats.
Thats kind of our overview of how we look at thanks.
Okay, and then just two quick follow ups to that to that they answer I mean, when you look at what went on with SGN eight year, 59.3%.
In the us I mean thats.
Remarkable and should be applauded because it really is quite amazing in a disastrous time like this to execute light that I'm. Just curious if you think about going forward how much of the cost C is sticky and.
To be a little bit tough on you in the industry I mean, it always seems like use this opportunity to flex as gene a down it take kind of a crisis period to kind of illustrate the you might be able to get down much lower than you've traditionally run at.
Is there sort of this discipline that may be enforced by this.
Disaster that we're all going through where there is opportunity maybe really persist to keep machine a significantly lower structurally going forward.
Absolutely John and we actually did the same thing in the U.S. business, our should say Daryl and his team did that we did in the UK we use this.
Crisis to rebuild our operations from the ground up.
And we're going to be materially more.
Fish up as you would measured by SGN today.
Permanently.
And.
Yeah.
The the lasting part of this is the efficiency in terms of what we can produce and selling units and servicing cars.
Her head.
And I I'm quite sure and we can already confirm that that will on head count basis will be 20 at least 20% more.
Efficient in the USA, maybe more than that in the UK in terms of number card. We can sell per person in number of cars. We can service per person and that comes from more productive.
Revenue generating people technicians on salespeople and less support people.
And we we've rebuilt that from the ground up.
And we can handle volumes that will come back up all the way to pre cobot levels. So.
We're very confident in that.
Okay. That's incredibly helpful. And then just last lastly, just kind of moved up generally what would that is the accelerate opportunity you kind of alluding to it.
It seems like it sort of an all.
Hands on Dec interface with the consumer.
But obviously, maybe the bigger opportunities are I mean, it beyond just typical CRM.
Is that use eagle opportunity and the parts and service opportunity and it seems like you are going through.
Strategy or approaching a strategy that is much more let's uses the interface to grow the business and leverage our existing bricks and mortar where some folks are thinking that they have to go out and build even bring more bricks and mortar along with this interface. So im just curious as you think about acceleron side, how much more.
Can you make your traditional brick and mortar footprint and would there be any point in time, where you might break from this say listen I need to build some used car standalone superstores and or maybe even service based.
Service out over over time.
John This is Daryl Cunningham.
You know what our customers are demonstrating to us as a day they love the interface with Acceleron and what we're seeing.
It provides us the ability to be more productive.
And faster.
More efficient.
And provide a better customer experience and it's with that focus that we are moving forward with accelerated in our existing footprint and I believe thats, where our focus will be.
Moving forward Earl may want to add something that.
No in and in particular, we've expanded our service capacity capacity significantly in the last decade, a we continue to look for opportunities to do that but in almost every case, we can do that within our existing facility footprint and thats not to say, we wouldnt, we wouldnt buildup.
A standalone news vehicle operation or service operation, if we thought it could provide a good return on our investment.
But clearly we have.
We havent had that belief to date.
Okay, great. Thank you very much guys.
The next question will come from Michael Ward, What's benchmark. Please go ahead.
Please go ahead, thanks very much.
Thanks very much.
Just to clarify a few things on saw right first off it's been in place for several years is that correct.
Hi, it's been fully in place Mike We've had all of our stores on for a little over a year now.
And we rolled it out for probably a year before that.
So probably I would say two years now to an accurate and thats for all across the business model, but it's been scheduling service for several years is alright.
We've been scheduling service online.
For several years, yes, okay. So no customer contact center in place for six or seven years, which is a combination of digital and telephonic.
Customer FX.
Okay, and so on the digital side on the selling a new vehicle.
Basically go through the entire process up until the wet signature.
Yes.
Okay. So that so when you think about it going forward.
Is this a productivity tool that allows you to reduce headcount in the stores selling new vehicles is that the way to think about from from our perspective. So you have the combination with John was talking about there with the used vehicle side gives the service scheduling, which is clearly more efficient and that also can enhance the.
The store profitability is that am I thinking about correctly.
We can sell new and used to accelerate side and yes. It makes our sales teams more productive.
And we see that even today, yes.
Okay. So as we think about just simplistically SGN as percentage gross.
If you've been looking at 74% historically, we're going down a bit we're going down under 70%.
Good.
Well, it's hard for me to give you a number but yes, we are going down there is no doubt about that own there's just with all the.
Half that half of that metric being driven by gross profit volume industry volume and margins in such it's hard to calculate a number but on the cost and yes, we are going down.
Appreciate it thanks, Brian and John Thank you very much and good luck with everything John Thanks, Mike.
The next question will come from Roger.
JP Morgan. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question, while and John back. Thanks, a lot portal to help over the last couple of years and best of luck.
Going forward.
Just another first question.
No the omni channel access to ride.
The units.
Gave us on the slide on the online sales.
They are the 2700 units I think.
Twoq is that is that a fully online transaction, where you know everything is done online or just curious as to when you when you define it that way what what exactly.
Just curious Esther.
The unit economics were four portability is for those particular units in terms of GPU.
Just as.
As Ginny.
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The let me start with economics. This is Daryl Kenny camera job.
Let me start with the economics, the gross profits are very similar to our terrestrial sort of.
Vehicle deliveries.
In.
Front end and F and I have profits.
In terms of.
The SGN a side of that.
No secret that.
Theres less human involve an acceleration.
Sale, and we expect that will continue and as we add more capability to accelerated we expect that to continue on on.
How many were fully.
Good.
Acceleron.
Our customers what they have what they have had demonstrated to US is they will go in and out of accelerated and a true omnichannel fashion.
Very easily and we've tried to set our tool up to be able to enable.
So if we don't want them to start over if they decide to come into the dealership to look at two or three different cars in person. We don't want that they have to go start the process over digitally and we want them to be able to pick up where they left off so some customers will go online and get a payment that they like.
And as selected car commented in test drive it and.
And then maybe get us to value their trade there than they may go back online and do upload their insurance information up other drivers license and finalize things. So what we've tried to focus on is getting.
Hey, when customers to be able to do it how they want to do and what our customers are telling us as they like going in and out of accelerating and we have the same capabilities that are carvana does or Carmax does.
With our digital retailing tool and we'll continue to offer that.
Got it okay, that's helpful and any update on.
Are you seeing trend here.
No early in the quarter, just just across the different business lines.
The U.S. and you gave us specifically.
How is how is Texas evolving here you know worsen the June trends that you have seen July and.
And just what your expectations are you know more like.
Extend into the fall thanks.
Yeah. This is oral I'll, let Darrell Ed Ed what he would like here in a moment, but the trend into July is very much as it was in June which is quite strong and both of us in the UK market. In fact, I would say the UK market is in gaining strength in particularly in used vehicles and service.
Obviously, there is it was more pent up demand in the UK because the closure periods. When they were very very complete closure periods were much longer in the UK.
New vehicles clearly Ken.
Can snap back so much in the UK because so many of the vehicles are have to be produced at the factory. There is not big inventories kept a dealerships and such.
The U.S., we're also continuing to see that strong momentum from June, but probably with a little more headwind.
From inventory shortages and let me, let me, let Darrell kind of pickup there, yes, that's a that's exactly right and.
We are seeing a bit of an inventory strain in new and used and especially on the new side with some hot models that are typically our volume sellers.
And then after sales were seeing a good July will continue like June did.
And with a shot at our customer paving up again so.
That's what we're seeing.
Got it.
And then just just to follow up on the DNA question.
Just to ask the differently I mean.
You talked about you know 200 to 300 basis points from introduction.
In the us.
UK no demand has been pretty weak therefore for no like almost a couple of years now so it looks like.
A lot of pent up demand in the region, you know you've taken out a lot of costs during that period.
So im just asking a different way I guess, you're back to a similar level of gross profit for the company.
What do you had in 2019.
I mean, how much lower could be SGN into gross fee I mean, I think you finished 2019 at around 70 to one 9% so.
Is it fair to assume that that number is probably sub 70, dotcom gross profit level or.
Just just wondering how to think about this as you know model. Our 2021 2022 asked about.
Yes, well I.
I have theres too many variables. These days to give you that number but I do think you know that head count is personnel expenses are generally about 60% of our total cost and and we expect to be at least 20% more efficient in that in that area.
I would also expect there'll be some marketing efficiencies as we continue to develop and move more.
Florida into non traditional media and digital media.
And our next question will come from Rick Nelson with Stephens. Please go ahead.
Thanks, Good morning.
Congratulations to John Yes.
Some of it less 15 years.
Yes.
So like too.
Follow up on that yet.
Supply constraints.
Hello had talked about.
When you fact goes or start to use.
How long you said, you're going to be able to toby's cheap could you.
You know.
Im sorry, Rick on the.
On the new car side.
I believe we'll start to see them is towards the end of this quarter and then I think on the fourth quarter will start to see.
More normal inventories.
Through the end of the quarter probably.
On the U.S side, I would expect that we'll be able to.
The pricing environment is driving a lot of that right now.
And.
I expect that that will probably normalize a bit over the next 90 days or so 60 to 90 days.
And that's what we're site anyway.
Based on our acquisitions.
And trading.
Great. Thanks for that so do you put your started talking about a big.
Step change in profit at Columbia.
June.
No curios.
You could talk about total contribution.
Good morning, or that you saw in June.
From a full quarter profit.
Standpoint.
Yeah, maybe SGN, hey, what the exit.
Right.
In June.
Thanks standpoint.
Yes. Rick. This is this is John Rickel, I don't want to get into kind of month by month details because we've never done that but clearly June was was the best of the three months and the exit rate on SDN as percent of gross was better than what we averaged for the quarter kind of makes sense. I mean April was shut down and pretty weak of so the.
The the.
The combination of really strong margins in June.
And the cost reductions meant that June was kind of the best month of the quarter Ines Junaid definitely exited at a lower rate than the average for the quarter.
And I think I can can make one statement.
Rick.
That again reinforces the business model and.
You know that we never lost money on an operating basis in no way no nine in terms of a quarter, but actually even in this quarter, where April was pretty much a disaster with the UK completely shut down in us volume down 50%, we didnt, we didnt even lose money in April.
As a company so we were even able to overcome a pretty.
Significant UK loss.
With the U.S. strength.
Which is because we cut costs.
Abruptly in the last week in March.
Thats great color also.
Carbo some parts.
Well you discuss some of those credential.
Tons Heres, how does how things are getting better I mean, if you could use and why we should be able to get back on that.
Hi double digit.
Comp growth.
And segment.
In the near term Rick the drags on that part of the business our warranty.
Which which has to do with you know to some degree whether people are comfortable coming out for elective things like recalls but also our collision business. There's just been people driving less mileage.
And so our collision business, which isn't a massive part of our business overall, but it's probably the weakest when you look at it year over year.
As as Daryl mentioned, the customer pay business is pretty much.
Back to to previous levels have enough you want to add anything I think thats right I think the.
Things that.
As a.
As markets open more and miles driven it goes up the sub service business will come back to a degree.
Asia. The car Park has like the oldest it's ever been which is generally good for service business.
Right.
Okay. Thanks, a lot and good luck.
Thanks.
Our next question will come from.
Armintas think vicious with Morgan Stanley. Please go ahead.
Great. Good morning, Thank you for taking my question.
And as everyone else congratulations to you John it's been a pleasure.
Thanks.
I guess.
We.
It's hard to know what the rest of the year look like but.
Labor the date seems to be five year target. So maybe you can talk about how you envision the business looking in five years.
Touch on capital allocation and your outlook for digital UK, Brazil that drop.
So yes, let me start and then as this is John I mean, clearly we think there will continue to be opportunities to grow through acquisition of we have always shied away from putting a specific number out there because we give the.
Question team has specific target. They can go get the target, but you want to make sure that you're getting appropriate returns on invested capital and you're buying the REIT asset. So we want to continue to be opportunistic clearly the balance sheet is in great shape. The cash levels of so we're positioned but we're going to be disciplined about it we're going to look.
For no good opportunities that offer appropriate returns on capital instead of just trying to hit arbitrary numbers that are thrown out there to get the the wall Street investors excited so that'll be I think still the longer term plan is we think there are plenty of opportunities to grow through acquisition. If you look at what we've done with the scale right.
It really does matter, whether it's the ability to do accelerated whether it's our inbound service call center, whether it's the back office efficiencies that we have in place.
It's getting tougher and tougher for smaller independent dealers to be competitive in a world where the the omni channel and scale really matters. So much. So we do think if we're disciplined and patient there will be opportunities due to grow and grow significantly, but we're going to do it in a way that makes sense for the shareholders and for return on invested.
Capital.
And this is they're all in terms of digital will certainly be more digital five years from now.
And in addition to things like Acceleron and online service scheduling and.
Online Bill pay and things like that artificial intelligence are starting to work with that in our call centers and.
With us on more backend support with our websites and things like that so all of that will become.
You know more.
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Bigger part of who we are and.
We will look for ways to continue that trend and.
This is this it helps customers that helps to slow our costs will we will certainly take advantage of it. So it's hard to say exactly where that will will be in five years, but I can.
Certainly bet that it's a much bigger part part of who we are.
Our men a ceiling that I would add as well is we will continue continue to be focused on parts and service.
That organic part of the business has been key to the model we've done a fabulous job. We've got great leadership in that area. The stuff that we've done on our four day work week, the inbound service call Center.
There are just continues to be huge amounts of opportunities in parts and service. So that will continue to be our internal focus for growing the organic part of the business.
Okay. Great. Appreciate you taking the question.
The next question will come from David Whiston with Morningstar. Please go ahead.
Thanks, Good morning, and John Congratulations on a great career.
First question is on accelerated and.
Home delivery just overall, how many customers are doing home delivery into accelerate customers still prefer to come into the store at the end of the process or do they want on delivery.
Most prefer coming into the store David.
We were.
We were up to about 20% at one point during the quarter, we give that option to everybody.
And.
Most still so prefer to come into the store.
The home delivery lemons, 20%.
Add one point during the quarter, yes.
And.
In Brazil, I hear the automakers are talking about how they're they need to and are able to.
Put price increases through because of the foreign currency headwinds they have.
You guys are on the ground with the consumer there there or can the Brazilian consumer absorb these price increases.
Yeah, we've we've heard from from the Oems on that issue and.
It all depends on how how much the price increases are the Brazilian market is smaller today than it was two years ago. So.
Massive price increases will help well and this is there.
Historically, we've seen a lot of pricing for instance that caused the deterioration.
Of the Ral versus Euro dollar.
And whatever and the last four or five years and.
Doesnt impact Honda and Toyota, which our volume businesses because they now make most of their their vehicles there they're very localized now.
The prices go up on BMW and.
Landrover quite a bit but the.
The upper income customer who buys those cars so seems.
Seems less impacted.
By increases in prices on luxury goods like that so.
I'm sure another round is coming but it hasn't been a material headwind there the.
The spread of the virus has been has been the big issue there in the last month or two.
Okay. That's helpful. And then finally I'm just curious if you heard any early feedback from your Texas and Oklahoma.
Customers on the next generation if 150.
Very positive.
Feedback on the next generation of 150, and the new Bronco is a hit it is going to be an absolute home run.
Yeah, I agree I think thats, a smart afford to get back into that niche alright. Thanks, guys.
Thank you.
This concludes our question and answer session I would like to talk turn the conference back over to Earl Hesterberg for any closing remarks. Please go ahead Sir.
Thanks to everyone for joining us today, we look forward to updating you on our third quarter earnings call in October.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Thank you.
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Yes.
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Yes.
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Okay.