Q3 2021 Sonic Automotive Inc Earnings Call
By our Sonic initiative, our teammates congratulations and thank you all.
We would also like to thank our customers manufacture and vendor partners for helping us achieve another record quarter.
During the third quarter of 2021, Sonic delivered another quarter of record revenue and an 11th consecutive quarter of year over year EPS growth.
On a consolidated basis.
We posted record third quarter revenues of $3 1 billion up 21%.
And record third quarter gross profit of $472 million.
Up 25% driven by strong performance across the board and new is fixed operations in F&I.
Going beyond our top line growth our third quarter results continue to validate our permanent expense reductions achieving record third quarter SG&A expense as a percentage of gross profit.
Just 68, 1%.
On a franchise dealership segment basis, though SG&A as a percentage of gross profit was just 61.
1%, a 760 basis point decrease year over year and down from 76, 9% in the third quarter of 2019.
Turning to earnings we reported record third quarter pre tax income from continuing operations of $112 million up 39% year over year and earnings from continuing operations of $85 million or $1 96 per diluted share.
Diving deeper into our core franchise dealership segment third quarter 2021 revenues were $2 4 billion.
Compared to $2 2 billion in the prior year.
Which reflects the ongoing recovery in consumer demand, we've seen since the height suspended.
On a same store basis franchise dealerships third quarter revenues were up 11% year over year, while gross profit improved by 27% driven.
Driven by record new and used vehicle gross per unit.
A 21% increase in customer pay fixed operations gross profit.
And all time record franchised segment F&I gross profit per retail unit of 'twenty $303.
27% from the third quarter of 2020.
As a result of ongoing supply chain disruptions that limited new vehicle production and inventories, we believe that third quarter, New vehicle unit sales volume was negatively impacted by the low supply of new vehicle inventory. Despite continued consumer demand.
Our franchise dealerships new vehicle inventory was approximately 2400 units or.
Or just a 10 day supply down from nearly 13000, new vehicles at this same time last year.
Comparatively due to the inventory was in line with our target level of 27 day supply or 8200 units.
Turning now to our Echo Park business, we reported all time record quarterly revenues of $663 million up 72% from the prior year and representing our fifth consecutive quarter of record Echo Park revenues.
We achieved record third quarter retail sales volume of 21255 units up 41% year over year.
During the third quarter of 2021 Echo Park market share increased 110 basis points to approximately 4% of the one to four year old vehicle segment in our current markets.
At the end of the quarter Echo Park used vehicle inventory was approximately 9800 units for a 41 days supply.
For the third quarter, we reported an Echo park pre tax loss of $32 9 million.
An adjusted EBITDA loss of $28 5 million.
This includes new market related losses of $18 million and $16 8 million respectively.
The effects of new vehicle inventory shortages have continued to drive this vehicle wholesale pricing higher.
Which negatively impacted <unk> margins and profitability in the near term.
While we continue to strategically manage our pricing and volume amidst this temporary disruption in the used market pricing environment.
We remain very confident that export margins and profitability will rebound once these market conditions normalize, which we anticipate will occur in mid 2022.
Despite.
These short term challenges we continue to believe in the long term potential of the <unk> brand and remain very committed to growing our nationwide distribution network.
With our progress to date, we remain confident in attaining our goals of 25% population coverage by the end of 2021 and 90% population coverage by 2025.
In addition to the launch of our proprietary digital retail platform at Echo Park continues to progress and we remain on track to go live by the end of this year and rollout to our entire network in early 2022.
As we announced earlier this month the Echo Park team is pleased to welcome Dino for Nike, Chief Marketing Officer, and Tim Trong as Chief revenue Officer.
The addition of these key roles to our team reflects our continued focus on executing our long term growth plans in Echo Park.
And we're excited to see their expertise contribute to echo parks promising future.
Returning now to our franchise business, we recently announced several strategic acquisitions to further accelerate our growth plans.
In September we signed a definitive agreement to acquire RFK Auto partners.
15 U S dealer group by total revenues.
With 33 locations in seven states and a portfolio of 16 automotive brands. The transaction will add six incremental stage to Sonics geographic coverage and five additional brands to our portfolio, including the highest volume Chrysler Dodge Jeep Ram dealer in the World and Dave Smith Motors.
Yes.
This acquisition, which is expected to close in December of this year.
<unk> to add $3 $2 billion in annual revenues to the company, which are an incremental two songs previous stated target of 25 billion.
And total revenues by 2025.
In addition to <unk> during the third quarter, we announced the acquisition of four Audi Subaru and Volkswagen franchises, and Colorado further enhancing our automotive sales and service network in that state.
More recently, we continued the expansion of our franchise dealership network with acquisition of Bobby Ford, Chrysler Dodge Jeep Ram and the greater Houston market.
Turning now to our balance sheet, we ended the third quarter with $618 million in available liquidity, including approximately $320 million in cash and $4 deposits on hand.
More recently in connection with our pending acquisition of RFK Auto, we announced a significant upsize to our credit facilities, increasing total capacity to 295 billion.
And completed an oversubscribed senior note offering with an aggregate principal amount of 115 billion.
Capitalizing on the favorable market conditions, and an upgraded corporate credit rating to refinance our existing debt maturities at attractive terms with lower borrowing costs.
These transactions demonstrate the strength of our business and positive outlook for the future as we continue to expand our nationwide reach and maximize operating efficiencies across our operations.
With our improved balance sheet and additional liquidity resources, we believe sonic is well positioned to pursue further growth opportunities in our franchise dealership business as well as to keep executing on our Echo Park growth plans.
Lastly, given our strong balance sheet I am pleased to report that our board of directors approved a quarterly cash dividend of <unk> 12 per share payable on.
On January 14th 2022 to all stockholders of record as of December 15, 2021.
In summary, our quarterly results reflect <unk> continued operating improvements despite the industry wide challenges stemming from the pandemic.
These results demonstrate ongoing strong consumer demand tremendous improvements in our franchise dealership performance.
Our success in maximizing operating efficiencies throughout our operations and our teammates unwavering dedication to delivering for our guests.
Going forward, we will continue to execute on our strategic growth plans in both our franchise dealership and Echo park business segments, including the rollout of our new digital platform beginning this quarter.
We believe that by following this course.
We will continue to achieve strong revenue growth increased profitability and build long term value for our shareholders.
This concludes our opening remarks, and we look forward to answering any questions. You may have thank you very much.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone.
Thank you Pascal.
VITAS reminder, please press star followed by one.
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Our first question today comes from John Murphy of Bank of America. John Your line is open. Please go ahead.
Good morning, guys.
Just wanted to ask a first question around capital allocation.
RFG is.
A major reentry into the acquisition realm on the new vehicle franchise side that you've kind of steered clear up for a while just curious as you think about the cascade.
Capital generates and redeployment of it now how do you think about the priorities now because previously you kind of been all Lego Park.
And then incremental reinvestment in.
And then the shareholder actions, but how should we think about that now because it is a big one obviously ran it like a good deal but.
It's a very big one.
Signalized transitioning strategy here.
Yeah, John Thank you David.
The stuff, we need to emphasize the unique nature of the RFK.
Acquisition.
Ill ask Jeff Dyke to expand on that but its sub.
We think a fantastic value and a great use of our cash yes, John first of all.
The last couple of years call it four or five years, we've just not been in a position liquidity wise.
<unk>.
And expand both Echo park in our franchise business and remember that we didn't intend to expand our franchise business.
That was always there, but we were busy shoring up our balance sheet paying off debt and positioning ourselves. So that when the day did come in the consolidation did start or restart as I should say in the industry. We can take advantage of that and we've done that record and I go back 25 years, we worked together at Autonation, We certainly work together at Sonic automotive we recruited break here.
Along with his management team.
And so as you look at capital allocation, we have important I know people people.
You don't want to comment here, but at the end of the day, we have the ability now to battle two fronts, we're going to continue to grow our franchise business. We have other acquisitions that we're planning.
And we've been working on and we're very excited about.
<unk>, our Echo Park business as David said in his opening notes and we're going to have 25% coverage of the market by the end of this year and we're on track to have 90% coverage of the market.
By the end of 2005, and so Thats a real exciting time for us in particular, if you're an investor.
Sah because of Echo park and the growth that we see there and we're very very excited about about the brand. So we're going to have we're going to fight those battles. When there is an opportunity for us to have a franchise business and it meets our needs and.
Where we are geographically they will do that.
And then of course, we've been very clear and upfront about what we're going to do with Echo Park.
Growth model there.
Yes.
Reiterate your point is exactly right, we have a strong balance sheet and the internal resources to fight those battles, we've always been a consolidator in a growth on the franchise side.
We now have the ability to do that a little bit more aggressively.
On the <unk> side as the capital light business model doesn't take that much capital to continue growing that so that'll be one of our priorities obviously.
We will be looking at opportunistic acquisitions, the ones that fit that are accretive and also <unk>.
Allow us to do that without having a material impact on our leverage ratio, we don't intend to lever up.
To do another large deal anytime soon.
A ceiling of three Bob will never go over that if you actually look at the.
Our <unk> acquisition.
Less than one turn.
Our most restrictive leverage ratio. So we're going to continue to maintain that strong balance sheet.
After that even included with that is obviously investing in the correct.
The businesses on both sides that include facilities, we're doing significant.
Investments in our digital retail platform. We're also investing in technologies that will enable us to continue these efficiencies and reduce our SG&A.
Robotic process automation and things that will likely continue to get that SG&A as a percent of gross down.
And then of course, the return of capital to shareholders. We will continue on a regular dividend program and we will opportunistically look at share repurchases.
The price we think the share is greatly undervalued.
So we will always continue looking at share repurchase as an opportunity to return capital to shareholders.
Okay and then just.
Very helpful and then a follow up.
Should we view this.
Acquisition and the pickup in the pace or focus here on on new dealership acquisitions is maybe a sign that you may be leaning in the direction of separating Echo park or is that reading too much into that and that's not associated with this review process of <unk>.
The alternative for for Echo Park.
Yeah. This is David Smith.
Cannot comment any further.
On a previously.
Disclosed.
Announcement about about Echo Park.
I'll leave it at that if you will please we were just not legally allowed to expand on it.
Got you, Okay, and then just lastly on Echo Park I mean, it seems like you guys are highlighting the tightness in the used market is a little bit of a disruptive force there for Echo park, but in your core new vehicle franchise dealers and other new vehicle franchise dealers to use business has been doing fairly well. So I'm just curious as far as why you think that is just a question of <unk>.
Sourcing more from auctions.
And you just have better flow from trade ins, it's not disruptive to the the franchised used side of the equation and what's the delta in the two businesses there and how long do you think that lasts.
Yes. So John this is Jeff No question I mean, it's a franchise business were 80%, 85% trades or what we're what we're retailing a deck of Parkside, we're buying 80% to 85% of our inventory through auctions, because that's where the 1% for your own models are it doesn't mean, we're not trying to buy.
Off the street and that represents about 12% of our overall business and continues to be in that range, but work.
If I could refer you to slide 20.
If you look at that you could see some of the things we've done from July to September to mitigate margin loss. We have raised our prices have been in Echo Park and we expect this is going to be a little bit bumpy.
The next two to three quarters.
We'll begin to see the separation.
Our inventory comes back between wholesale prices retail prices, but it's a it's a really exciting time for us at Echo Park, there's a lot of great things that we're doing and but it's not like I said earlier by the time, we get to 25, you've got 90% coverage of the country. We're selling every 600000 cars in the most exciting thing is is when we get to the end of this quarter, we're going to launch our new our new website and e-commerce.
<unk> platform and I'll, let Steve Lindeman comment just a few comments on that yes sure absolutely we will launch our new Echo Park Dot comps in this quarter, which we believe is the best in industry digital retailing tool.
And what that means is that the consumer will be able to build end to end online with a real deal penny perfect payments and financing options and payment options will have real online document signing.
<unk> experience in the consumer experience online, which nobody else in the industry has.
We will be going to be able to let the consumer had a good a hybrid model, where they can start online institution stores. Our data tells us that about 75% of consumers really want that hybrid model, our digital retailing tools will enable end to end and hybrid.
And really this is this has enabled without any human involvement with celadon using AI.
As well as robotic process automation.
So net net we are on track to deliver we're delivering in this quarter and it'll be an accelerator for our business.
So John whether Youre, an investor for the franchise stores or for Echostar or combined.
It's an incredibly exciting time at Sonic automotive, we're going to grow the franchise side of the business and allocate capital Accordingly.
We continue to press on the accelerator Branco part we look at these next few quarters as an opportunity to.
Looking at a few other things we're practice.
<unk>, a five year old model now in a couple of stores.
Expanding the myeloid rain, maybe up to 55000 to help mitigate.
The next couple of quarters, but overall, we're just not going to change our strategy. When you see where we were before before all of this hit and our EBITDA was growing nicely and we expect that to continue to come back just as soon as we have a gap between wholesale and retail pricing. So new car day supply are going to be are going to be tough certainly through the fourth quarter.
In the first quarter.
There would be some trickle trickle up in terms of day supply as we move into the second quarter in the third quarter of next year and hopefully we get back to that 20% 25 day supply range, which is historically low but that gets the caveat in terms of creating the gap of wholesale to retail for US. Yes. This is David you have to remember that as far as the Echo Park.
We're growing market share and growing our footprint and so this is an investment in that and so when the market reverts back to what.
The normal traditional market you got to remember some of our Echo Park source. Prior to this unusual situation. We have right now in the wholesale market, where some of our most profitable stores.
And our entire company, so youll see it pop back up here shortly as the market correct.
I'm, sorry, and just one follow up I mean, why not drop to a five to six year old.
Vehicle that has a high quality vehicle that you can represent well.
And kind of.
Kind of consistent with your ammo on what Youre trying to offering the consumer there to kind of alleviate some of the pressure on inventory or supply in Echo Park.
Yes, we're looking at it and particularly the five year old hence complexities John in terms of reconditioning and the amount of time remember Echo Park is all about Biochar transport Tacoma recon, the cart merchandize recur and within like 12 basis getting on the frontline. It's gone so that 20 day frontline supply in that 10 to a pipeline supply is critical to us using our <unk>.
Fences, where they need to be you got to have a little bit of a different technician a little bit of a different recount process, but we sell 1% to eight.
In the San Antonio market in the volume really hasn't adjusted there and our margins are positive. So there are some things that we're going to pivot around here with over the next quarter or so and it might be that when we come out of this Echo Park model is the one to five year old model under 60000 miles.
We're working on that and we'll see how that goes we just we're not going to disrupt our entire model for this sort of black Swan event. If you will thats happened thats happening in my 25 years is really at this time, it's never happened and it just makes no sense that we know the new car inventories coming back it's not going to come back pre pandemic levels I think we all know that and want.
Because were on during the high margins on the new car side, but it is going to come back it's not going to stay at eight to 10 day supply were going to have 202000 cars on the ground and our franchise stores will get back to 13, 14000 cars and things will return to normal and that happens that gap comes back once the EBITDA at <unk>.
Actual park it will sky.
Sky rocket given the number of stores that we now have opened in the amount of coverage that will happen by the end of the year and next year initially.
And then one more thing to that.
I think it's underappreciated are underappreciated.
Steve headwind into the franchise business and new and used margins revert toward a normalized wherever the new normal go forward level of it and that's an absolute tailwind to launch Central Park.
Previous trajectory from a profitability perspective, and from a volume perspective, because it moves faster than that low new supply, we really changed tremendous pricing advantage versus the wholesale price increase was moderate and then ultimately decline.
Very helpful guys. Thank you so much.
You bet.
Thank you. Our next question today comes from Rick Nelson of Stephens, Inc.
Your line is open.
Okay.
Good morning.
Follow up on slide.
Slide 20.
Joseph.
I'm curious to know how youre pricing compares to the overall market and the EBIT loss for that.
Sure.
No.
Can we pick the September EBITDA loss carry back power.
Currency continued.
To narrow the loss per months September levels.
So this is just we're going to continue to narrow the losses, we were private traditionally echo parks price in the $94, 5% to 95% of market range.
Probably in the 98% to 98, 5% range today.
And we will continue to narrow that that's not it's not just the price it's going to narrow that it's also some of the other moves that we're making buying more cars off the street expanding to that five year model. A couple of those things will also generate higher margins.
Of course in the long run we believe that the Echo Park front end margin will be will end up naturally being in the positive it won't be always negative three or $400.
Hence the brand it takes a hold across the country as we expand the brand across the country. That's why Dino and 10 in the whole entire team are here, we're really looking at elasticity of pricing and how we can continue to have the great revenue growth the great volume growth and the EBITDA growth by doing some of those things. So a combination of we will continue through the fourth quarter of narrowing.
<unk>.
EBITDA loss.
And then and that will probably continue into the first quarter along with some of the other changes that we're making.
Okay.
I'm not sure.
Kim Ann.
Right.
Terry.
Margaret.
They continue.
At <unk> the timeline.
Franco part.
The exploration.
Hey, Jake alternatives are executing on that.
No no timelines have changed we're still executing on our plan, we're still executing on our strategic alternatives, David Smith said earlier and other than that Theres. No. Further comments, there's just no timelines have changed at all the only thing that I would tell you is is that.
We're still we're going to have a convergence on EBITDA and year of 2022, that's what we said in.
Given what's going on in the wholesale market that probably pushed back to the end of the year now versus being the entire year.
And Rick This is David I think again you have to look at this short period of time.
Unusual market.
Again investment in the brand.
Mark and growing our footprint and then we're just plowing through this and we're going to come out the other side of it.
As Jeff in that group and the thing with the.
With a group of stores that are going to be highly profitable in the future.
Her that also.
Tim or color on the Arab today.
Chris.
The multiple you paid the quality of its stores.
The management.
That's coming along or might that be coming along.
Any commentary that would be helpful.
So we visited all of the <unk> stores, Tim Keating myself, David It's a whole team we've been in the last couple of weeks living on the road and we visited all the stores they're.
Our entire management team is coming along for the running their general managers the regional Vice Presidents, who also our solutions. They work for US at one point in time, Iraq, Iran amount who is there.
Hello, also who is estimation.
Staying in a cautionary forward their leader is paying so we were recently out on the west coast at their general make annual meeting with their general management controllers were so excited about this you kind of walk into one of their stores and it feels like a sonic store they run their playbooks very similar to us and it's because of their DNA comes from comes from Sonic automotive they are fantastic.
Leadership team.
We're very excited we always want more talent on our team.
That's critically important to us in adding that talent to this team is just going to be great. This is a perfect fit for us given the multiple somewhere in the mid fives. So we think that that's a really good really good deal for US and then there are synergies that we have kind of day, one synergies in the $12 million to $14 million range in the long term synergies in the 20% to $30 million range.
When you put the companies together.
It's just a really really exciting time, we looked at a lot of other big deals that were done in Bismarck was just the best fit for US and this is David Smith I just would add that.
Already learned that some of the processes that RFA team uses that go into what's very exciting is the opportunity to implement some of their processes into our stores nationwide that could be.
Theres toward profitability in the future but.
Which we haven't even figured in.
Thats part of the synergies in particular very small town USA stores. They just do a fantastic job in the smaller towns and we look forward to expanding that to some of our smaller term storage building around a lot, but it certainly opens up.
Ollie's for us to add more revenue and those type of and those type of markets.
Great.
Because that also.
<unk> was the big driver on the franchise.
Kind of if you could speak to the GPU exit.
The inventory came down.
In fact, the GPU.
And crews.
Yeah.
During the <unk>.
And the recovery.
Some parts.
Do you think.
That is sustainable.
First of all in the service parts question, Yes, Thats, a huge tailwind for us our warranty was only up 9% I think for the quarter, our customer pay was up 21%, California wax all of that we're going to we're going to get a big tailwind for California as they begin to open up as well so the parts and service business is fantastic for US and continues to be great. We don't see that as a big.
Tailwind to us as we move into next year and the year after.
In terms of new car Gpus, they just keep getting stronger I don't I don't know where the ceiling is october's numbers are exceptional.
Better than what Youre seeing in the what you saw in the third quarter for us.
And just one of the things that I think is going to happen is that manufacturers have gotten really want us to this they are not going to bring inventory levels back to the levels. They were before we're going to have sustainable <unk> growth into the future and I just don't see it it's never going to go back to pre Covid environment say never but its up very unlikely, but it is going to go back to pre COVID-19 levels.
We're going to enjoy a great new car front end margins.
Foreseeable future.
Okay.
Yes.
Okay.
<unk>.
On the fixed side.
Really amazing you mentioned the fixed ops, even if you compare to 2019 were still up 20%.
Fixed ops and the customer pay is really coming back strong.
That's great.
Thanks, guys for the color good luck.
You bet. Thank you Rick.
Our next question today comes from Rajat Gupta of Jpmorgan. Your line is Aitken. Please proceed.
For taking the question.
I just had a follow up on the used vehicle franchise side.
I'm not sure if I missed your commentary here, but.
11%.
2019 levels.
Just curious.
How much stronger results appear just curious through the disconnect there.
Anything specific to the company that might be driving that maybe sourcing or regional bank.
So first to comment on that would be helpful.
Yes. This is more brand mix I think if you look at us and Penske they've got a real hot highlighting brand mentioned both of US were a little bit flat to the prior year and versus some of the others and that a lot of that is just leased where theres not a lot of off lease cars coming back.
And our high line stores.
So the sourcing of that inventory is difficult and we're trying to balance the volume and the excellent margin growth.
We saw in the quarter.
Very comfortable that we can sustain the margin levels that we're at I'm not so sure that the industry can sustain the used car levels margin levels that they're at.
Along with a good balance in growth and volume as the inventories come back in the high line stores in particular from off lease which is a big source of pre owned and certified preowned inventory for us that will make a big difference in terms of our growth. So that's what drove that.
Adding to that David I think one of the things that.
If you look at where margins already look at Gpus, where we are today, and where we expect to be longer term and the mix and the sustainability of earnings based on those we have a lot of things that are headwinds based on brand mix lower lease rate lower lease returns.
And so I think that are selling specific earnings opportunity to sustain at these levels would be expense reduction has been put in place looks pretty good I think into.
Into 'twenty, two and not just that but beyond 'twenty three.
We've returned to a more normalized environment.
Understood that's helpful.
Our F&I.
Really good improvement there over the last few years.
Clearly after the Gemini partnership.
Curious as to if you can unpack some of the drivers quarter to quarter on the F&I uptake.
Obviously, we're thinking about the go forward opportunity here.
Yes, so it continues to grow right our warranty penetration.
On the franchise side is what there is a big driver of that improvement.
And I give a lot of that credit to our team internally Richard O'connor, Tim Kaine and that whole that whole team is really focused on driving F&I for us and I also gave a lot of credit to Germany, they've done a fantastic job great business partner and.
As you can.
<unk> over the last three or four years, they've just done an outstanding job with us very stable workforce in terms of our F&I leaders.
Just very very little turnover. The company turnover is just exceptional our general manager turnover I think it will be less than 3% this year.
We're in really really good shape from an F&I perspective, and I expect that our F&I numbers will just continue to improve we're seeing that in October.
I don't know what the ceiling is there is one I think are two of the other publics are out ahead of US and we'll go we'll go chase that down as well.
But.
See nothing but upside from that perspective moving forward.
Understood does this lastly on the online platform coming up later this year or early next year.
Any preview on that platform.
You had a lot of your peers come onto their platform. How do you plan to differentiate what are going to be like.
And any quick preview on that would be helpful. Yes.
Yes, sure. So we actually compare ourselves versus the best in class competition out there we looked at 10 different components in the consumer journey that we're really meaningful to the consumer and.
We believe we can deliver significant significant significant advantage versus the other guys, whether it's a real contracts that the consumer can sign online any perfect payments shopping a lender network of our preferred lenders, giving the consumer the ability to sign the REO documents online not not document that they'll have to sign again when they come in store.
And then also the Omnichannel shopping ability so the ability to stop halfway online and finish in store. We know most consumers want to do that they wanted to go test drive the car before they finalize the deals already platform enables that so you can consider progress and then you can really doing a seamless way to pick it up in a seamless way and when you go into the dealership.
Have a great customer experience and a customer experience that we believe will reduce the time in store. So the customer will be more satisfied and also make our sales process more efficient our sales folks will be able to sell more cars, because we're not spending three or four hours.
Executing the deals.
We've taken our time here, we've learned from others and we believe we're going to be the best and can leverage that to accelerate our business and I think you'll remember we really slowed down because we just did not have the expertise and Paul Steve and his team showed up so last year. We said look we're going to slow down everybody else launched and part of our <unk>.
<unk> was to go and everybody site. The Blackhawks I don't care, if it was carmax carvana, our autonation or whoever we went we went and bought cars from everybody to see.
Where how everything works.
And we felt like.
We could build a better tool for the consumer and the experience and we've done that and so we will have a day, where we share that tool with the investment community and really get you guys into the two and once you do that it's self intuitive I mean, just it's very simple to work in.
We're looking forward to getting the launch I think we're going to launch our Charlotte store in North Carolina market in December.
Then in January better we'll launch the rest of the platform.
The only other point to make is this will be entirely automated. So we will have people in the background doing the deal. It's automated based on the different API calls it the consumer goes through the journey, but like I said before we're using artificial intelligence to help with that we're also using robotics process automation to create the right documents and to create those deals so no human.
Of course, if a consumer wants human involvement with let them.
But our system is really an automated system that links the consumers seamlessly buy a car.
This is mainly three steps three simple steps.
Got it great.
Great. Thanks for all the color and good luck.
You bet. Thank you.
As a reminder, if you'd like to ask a question to the team.
Followed by one on your telephone keypad now.
Our next question comes from Ethan Huntley of Jefferies. Please.
Please go ahead.
Hi, Good morning. This is Ethan <unk> on for Brad George and Thank you for taking my questions.
Yes.
Yes, Hi, just back to new inventory I was wondering if you could sort of provide some color on how that trended throughout the quarter. I know you mentioned it was sort of 10 days at quarter end and you.
The gradual improvement, but just during the quarter or is it sort of decrease in to start maybe bounce along the bottom improved just sort of any color you can provide there would be helpful.
Yes, if you go back to if you kind of go back to March of this year, we had about a 43 day supply of new inventory by the end of June that quarter down to 2014.
July was 12 August was 12 September 10.
I think we've sort of bottomed out here and Youre plateauing now and we start trickling back up.
And that's going to be different by manufacturer.
Depending on how they are executing and their availability to parch chips you name. It I Covid really did the second wave dependent really to get us it's not as much in a chip issue I think there is a labor issue. We stayed on the parts side and getting parts deliveries across the board. So I think we are at our trough, we're not going to get any lower than the eight 910.
They supply and that starts moving back north as we move forward from here, but it's going to be slow.
So.
Q1, and Q2 are going to be a challenge in Q4, Q1, and Q2 are going to be a challenge from a new inventory perspective.
Great. That's helpful. Thank you.
<unk> talked about new Gpus, but maybe moving to use gpus pretty shine during the quarter up about 32% on a same store basis, but any sort of color you can provide on sort of the cadence of those used gpus month to month.
Month to month.
Do you want to answer that.
Yes.
So to me that's just north of 800 for the quarter and we had a little bit of variability in it.
We went through the quarter. If you recall July when we were looking at what we expected and what the wholesale price environment was doing it started to soften that allowed retail to catch up a bit and so theres a little bit of a dip there in our business.
My main commodity mix.
In the middle part of the quarter, but as we see pricing continue to expand exiting the third quarter through the month of October to date.
The strength in those margins.
Okay, great. Thank you and then just lastly here if you don't mind sort of on the M&A front are you seeing multiples getting pretty frothy, given the record profitability or are you seeing sort of deals being priced on more of sort of a normalized profitability.
Yes.
As I'm looking at all the deals that we're looking at it's pretty normalized in terms of the times earnings that are but we're looking at paying and what I've seen a few of the other deals I don't I don't think anybody skills that have been recently announced.
We have been way out of whack.
So I think it's pretty normalized I think that there is a lot of dealers out there that are looking at the tax situation and saying, what we want to we want to exit or they're looking long term at what the investment is going to have to be from an electric vehicle perspective, and they don't want to go through the journey and so the combination of those two things I think are are keeping the multiples reasonable.
<unk>.
And we certainly felt that way.
With the deals that we've done and as I look at the rest of the deals are being done I don't see anything just way out of whack.
David Smith I also think you've got to remember the automotive market is so huge that consolidation that's left to be done and the market is just.
Just begun.
So theres, so many opportunities where theres some dealers that would want alright.
A huge multiple that we've had plenty of various opportunities I think that it's really important to emphasize that our team is very.
Hi.
Focused and where we passed on many different opportunities that led up to.
The Big announcement is RFK deal. It just it works from a ROI perspective, but also as Jeff mentioned from a cultural perspective.
And the team and the great team that RFK and just all work together so.
We just wanted to emphasize that that we've got the focus and discipline on this team that.
To make great acquisition, so moving forward I wouldn't expect to see us.
Paying some some ridiculous multiple yes.
Yes.
Because we have that selected.
<unk> discipline, we've been out talking to a lot of different dealers and there is more deals in the pipeline, which was filed as part of this is just a great fun time for our company because we have the balance sheet. We're in a position to go do this and we've worked very hard on.
Doing that really since 2017 2018, when this leadership team came together that really made a big difference in the company and our balance sheet got shored up and like we said earlier, we can fight. These two battles and there are plenty of deals out there to be made and we're going to get our fair share.
Great I appreciate the color.
You bet.
Thank you we have no further questions in the queue. So I'll hand back to David Smith for closing remarks.
Great. Thank you very much and thank you everyone for joining us on the call and have greatly.
Later.
This concludes today's call. Thank you for joining US you may now disconnect your lines.
Yes.
Okay.
Okay.
Okay.