Q4 2021 Group 1 Automotive Inc Earnings Call
Yeah.
Good morning, everyone and welcome to group, one automotive's, 2021, and fourth quarter and full year financial results Conference call.
Speaker 1: Good morning, everyone, and welcome to Group 1 Automotive's 2021 Fourth Quarter and Full Year Financial Results Conference Call. Please be advised that this...
Please be advised that this call is being recorded now.
I'd now like to turn the conference call over to Mr. Pete The long shot group one's senior Vice President of manufacturer Relations financial services and public Affairs. Please go ahead, Mr Dong shot.
Speaker 1: And now I'd like to turn the conference call over to Mr. Pete DeLong-Shaw, Group 1's Senior Vice President of Manufacturer Relations, Financial Services, and Public Affairs. Please go ahead, Mr. DeLong-Shaw.
Speaker 1: Thank you, Jamie. Good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results will refer to you on this call for comparison purposes have been posted to Group 1's website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures.
Thank you Jamie good morning, everyone and welcome to today's call. The earnings release, we issued this morning and a related slide presentation that include reconciliations related to the adjusted results. We'll refer to on this call for comparison purposes have been posted to group one's website.
Before we begin I'd like to make some brief remarks about forward looking statements and the use of non-GAAP financial measures, except for historical information mentioned during the conference call statements made by management of group. One automotive are forward looking statements that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker 1: Except for historical information mentioned during the conference call, statements made by management of Groupon Automotive are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Forward looking.
Speaker 1: Four looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to different materials and forecast results. Those risks include, but are not limited to, risks associated with pricing, risk management, and risk management.
These statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include but are not limited to risks associated with pricing volume inventory supply due to increased customer demand and reduced manufacturer production levels do.
Speaker 1: Inventory supply due to increased customer demand and reduced manufacturer production levels due to component shortages.
The component shortages conditions of markets and adverse developments in the global economy as well as the public health crisis related to Covid, 19 virus, and resulting impacts on demand for new and used vehicles and related services those and other risks are described in the company's filings with the Securities and Exchange Commission.
Speaker 1: conditions of markets and adverse developments in the global economy, as well as the public health crisis related to COVID-19 virus and resulting impact on demand for new and used vehicles and related services.
Speaker 1: Those and other risks are described in the company's filings with the Securities and Exchange Commission.
Speaker 1: In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
Speaker 1: As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.
As required by applicable SEC rules.
The company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.
Participating today on the call Earl <unk>, our President and Chief Executive Officer, Darrell Kingham, our president of U S. Brazilian operations.
Speaker 1: Participating today on the call, Earl Hesterberg, our President and Chief Executive Officer. Darryl Keningham, our President of U.S. Brazilian Operations.
Speaker 1: Daniel McHenry, Senior Vice President and Chief Financial Officer, and also joining us is Chris Gillette, our VP and Corporate Controller. I'd like to hand the call over to Earl.
Daniel Mchenry Senior Vice President and Chief Financial Officer, and also joining US is Chris <unk>, our VP and corporate controller I will like to hand, the call over to Earl.
Speaker 1: Thank you, Pete and good morning, everyone. 2021 was another record year for group one automotive driven by strong vehicle sales demand, strong margins due to vehicle supply constraints.
Thank you Pete and good morning, everyone.
<unk> 2021 was another record year for group, one automotive driven by strong vehicle sales commands strong margins due to vehicle supply constraints.
Speaker 1: double-digit growth in after-sales as miles driven and recovered, and continued strong expense control as we benefit from process and personnel efficiencies realized during the pandemic.
Double digit growth in after sales as miles driven have recovered.
And continued strong expense control as we benefit from process and personnel efficiencies realized during the pandemic.
We achieved record adjusted net income of $642 million.
Speaker 1: We achieved record adjusted net income of $642 million and record adjusted earnings per share of $35.02 per share in 2021, which represents year-over-year growth of over 90% for both metrics.
And record adjusted earnings per share of $35 <unk> per share in 2021.
Which represents a year over year growth of over 90% for both metrics.
Speaker 1: This strong performance was consistent across all three of our regions.
This strong performance was consistent across all three of our regions.
Speaker 1: I should note that the pending sale of our Brazilian business is likely to close during the second quarter of this year.
I should note that the pending sale of our Brazilian business is likely to close during the second quarter of this year.
Speaker 1: In addition to strong same store growth of 24% in revenue and 37% in gross profit, 2021 was also a record year for external growth with the acquisition of $2.5 billion in annualized revenue.
In addition to strong same store growth of 24% in revenue and 37% and gross profit 2021 was also a record year for external growth with the acquisition of two $5 billion in annualized revenues.
Speaker 1: This was driven by the acquisition of the Prime Automotive Group in the Northeastern US and the Robinsons Group in the UK.
This was driven by the acquisition of the Prime automotive group in the northeastern U S.
And the Robinsons group in the UK.
The 2021 acquisitions further diversify our footprint outside of the energy belt and early indications from these new stores are all very positive.
Speaker 1: The 2021 acquisitions further diversify our footprint outside of the energy belt, and early indications from these new stores are all very positive.
Most importantly, the strong growth initiatives did not preclude us from returning meaningful capital to shareholders with share repurchases of $211 million.
Speaker 1: Most importantly, this strong growth initiative did not preclude us from returning meaningful capital to shareholders with share repurchases of $211 million.
Speaker 1: These repurchases, which predominantly took place in November and December , represented 6% of our beginning of the 2021 ShareCal.
These repurchases, which predominantly took place in November and December .
Represented 6% of our beginning of 2021 share count.
Our strong cash flow and leverage position, which Daniel will cover in a minute we.
Speaker 1: Our strong cash flow and leverage position, which Daniel will cover in a minute, will continue to allow for significant capital deployment flexibility in 2022.
We will continue to allow for significant capital deployment flexibility in 2022.
Turning to our fourth quarter results I am pleased to report that for the quarter group one generated adjusted net income of $172 million.
Speaker 1: Turning to our fourth quarter results, I'm pleased to report that for the quarter, Group One generated a just-in-net income of $172 million, inclusive of Brazil, which is now classified as discontinued operations within our financial statement.
Inclusive of Brazil, which is now classified as discontinued operations within our financial statements.
This equates to adjusted earnings per share of $9 54 per diluted share an increase of 68% over the prior year.
Speaker 1: This equates to adjusted earnings per share of $9.54 per diluted share, an increase of 68% over the prior year.
Our adjusted results exclude noncore items totaling approximately $85 million of net after tax losses.
Speaker 1: Our adjusted results exclude non-cor items totaling approximately $85 million of net after tax loss.
Speaker 1: This net amount consists primarily of a $78 million non-cash charge related to our pending disposal of our Brazilian discontinued operation.
This net amount consists primarily of a $78 million non cash charge related to our pending disposal of our Brazilian discontinued operations.
Due to historical exchange rate translation adjustments recorded within accumulated other comprehensive income on our balance sheet that are required to be taken through earnings upon the sale of a foreign entity.
Speaker 1: due to historical exchange rate translation adjustments recorded within accumulated other comprehensive income on our balance sheet that are required to be taken through earnings upon the sale of a foreign entity.
Speaker 1: The remaining charges relate primarily to transaction costs associated with the acquisition of the prime automotive group.
The remaining charges relate primarily to transaction costs associated with the acquisition of the Prime automotive group.
Speaker 1: These profit results were largely a result of our strong vehicle margins that were able to more than offset weak new vehicle supply, as well as continued strong growth in our U.S. after-sales business and impressive cost control.
These profit results were largely a result of our strong vehicle margins that we're able to more than offset weak new vehicle supply as.
As well as continued strong growth in our U S. After sales business and impressive cost control.
Speaker 1: Consumer demand for vehicles remains extremely strong heading into 2022 and we continue to sell most units almost immediately after OEM delivery.
<unk> demand for vehicles remains extremely strong heading into 2022, and we continue to sell most units almost immediately after OEM delivery.
Speaker 1: This dynamic should continue throughout the first half of the year and potentially further out assuming no material change in consumer demand.
This dynamic should continue throughout the first half of the year and potentially further out assuming no material change in consumer demand.
Speaker 1: As of December 31st, we have 3,400 U.S. new vehicle inventory units in stock representing a nine-day supply.
As of December 31, we had 3400 U S new vehicle inventory units in stock representing a nine day supply.
Speaker 1: Our used inventory situation is much stronger at 14,400 units and at 36 days of cost. Daryl will speak more about it.
Our used inventory situation is much stronger at 14400 units and a 36 days of course.
Darryl will speak more about inventory shortly.
Speaker 1: The continued recovery in our after-sales business is very impressive. Our U.S. market saw an 18% increase in same-store after-sales revenues versus prior years.
The continued recovery in our after sales business is very impressive our U S market saw an 18% increase in same store after sales revenues versus prior year.
Speaker 1: Again, Daryl will provide more detail on our U.S. results in a moment.
Again, Daryl will provide more detail on our U S results in a moment.
Speaker 1: As with the U.S., consumer demand for vehicles in the U.K. is extremely strong and new vehicle availability is severely constrained.
As with the U S consumer demand for vehicles in the UK is extremely strong and new vehicle availability is severely constrained.
We have an order bank when most of our major UK brands, extending well into the second half of 2022.
Speaker 1: We have an order bank with most of our major UK brands extending well into the second half of 2022.
Strong margins, we're able to more than offset sales declines due to inventory shortages and we're proud to report that we generated an all time fourth quarter and full year profit records in 2021.
Speaker 1: Strong margins were able to more than offset sales declines due to inventory shortages.
Speaker 1: And we're proud to report that we generated an all-time fourth quarter and full year profit record in 2021.
Speaker 1: We believe pent-up demand built over the past several years due to both Brexit and the pandemic will help drive strong UK vehicle demand into the foreseeable future.
We believe pent up demand built over the past several years due to both Brexit and the pandemic will help drive strong UK vehicle demand into the foreseeable future.
To provide some color on our U S fourth quarter performance I'll now turn the call over to Darryl Kingham.
Speaker 1: To provide some color on our U.S. fourth quarter performance, I'll now turn the call over to Daryl Kenningham. Thank you, Earl. The factors contributing to our U.S. fourth quarter were a result of outstanding growth in all segments of our business and continued focus on controlling costs and driving productivity.
Yes.
Thank you Earl.
Factors contributing to our U S fourth quarter result of outstanding growth in all segments of our business and continued focus on controlling cost and driving productivity.
Speaker 2: Our Q3 inventory receipts grew each month throughout the fourth quarter on the same store base.
Our Q3 inventory receipts grew each month throughout the fourth quarter on a same store basis.
Speaker 2: However, our inventories are still tight and led to a majority of units being pre-sold.
However, our inventories are still tight and led to the majority of units being pre salt.
As a reminder, our focus is on driving long term relationships with our customers.
Speaker 2: As a reminder, our focus is on driving long-term relationships with our customers.
Speaker 2: We direct our stores to selling at MSRP, helps to create the kind of sticky relationships that feeds our segment-leading after-sales performance.
We direct our stores are selling at MSRP helps to create the kind of sticky relationships that feeds our segment, leading after sales performance, we realized that causes some SG&A leverage in the short term, but for us it's much more important driver retention the strongest part of our business, which is after <unk>.
Speaker 2: We realize it costs us some SG&A leverage in the short term, but for us, it's much more important to drive retention in the strongest part of our business, which is Africa.
Speaker 2: Our same store used vehicle retail unit sales improved by 3% versus the fourth quarter of 2020, despite a 15% decrease in new vehicle units.
Our same store used vehicle retail unit sales improved by 3% versus the fourth quarter of 2020 <unk>.
Despite.
The increase in new vehicle units in.
Speaker 2: In 2021, improved focus on sourcing resulted in acquiring 16% more units through trades and more than doubling the number of vehicles acquired from individuals.
In 2021 improved focus on sourcing resulted in acquiring 16% more units through trades and more than doubling the number of vehicles acquired from individuals.
As a franchise dealer, we have a distinct advantage over used only operators due to the numerous channels of sourcing available to us, including our service drives lease returns and OEM closed auctions.
Speaker 2: As a franchise dealer, we have a distinct advantage over used-only operators due to the numerous channels of sourcing available to us.
Speaker 2: including our service drives, lease returns, and OEM closed auctions. The most encouraging...
The most encouraging.
Profit driver was once again, our after sales performance our customer pay business continues to ramp up following a very strong first half of the year with 22% same store revenue growth compared to the fourth quarter of 2020.
Speaker 2: Our customer-paid business continues to ramp up following a very strong first half of the year with 22% same-store revenue growth compared to the fourth quarter of 2020. Our same-store collision revenues increased 29% and wholesale parts revenues increased 27%.
Our same store collision revenues increased 29% in wholesale parts revenues increased 27%.
This allowed us to grow same store after sales revenue by 18% versus the fourth quarter of 2020, despite continued double digit headwinds.
Speaker 2: This allowed us to grow same-store after-sales revenue by 18% versus the fourth quarter of 2020, despite continued double-digit headwinds in warranty. We foresee after-sales continuing to improve over the near term.
And warranty we foresee after sales continuing to improve over the near term.
I'd like to provide another quarterly update on accelerating our digital retailing platform.
Speaker 2: I'd like to provide another quarterly update on Acceleride, our digital retailing platform.
Speaker 2: Acceleride continues to be a critical solution for digitally selling and acquiring vehicles at Group 1 dealerships.
Accelerated continues to be a critical solution for digital digitally selling in acquiring vehicles at group one dealerships.
Speaker 2: In 2021, we sold almost 20,000 vehicles through Xceleride, including over 4,700 in the fourth quarter.
In 2021, we sold almost 20000 vehicles through accelerated including over 4700 in the fourth quarter.
Speaker 2: for the quarter that's a 36% increase over last year.
For the quarter Thats, a 36% increase over last year.
We also continued to increase employee productivity and professionalism by using accelerate for in person deals.
Speaker 2: We also continue to increase employee productivity and professionalism by using Acceleride for in-person deals.
In the fourth quarter, 52% of all of our traditional sales utilized accelerated accelerated capabilities in solar.
Speaker 2: In the fourth quarter, 52% of all of our traditional sales utilized Acceleride capabilities in the showroom.
Speaker 2: Together, our sales team and customers can digitally locate vehicles, structure deals, complete credit applications, and much more.
Together, our sales team and customers can digitally located vehicles structured deals complete credit applications and much more.
Speaker 2: For context on productivity, our legacy Group 1 dealerships sold over 20% more vehicles per salesperson in December than our newly acquired Northeast dealerships, which were not on accelerated.
For context on productivity, our legacy Groupon dealerships sold over 20% more vehicles per salesperson in December that our newly acquired northeast dealerships, which were not on accelerate at this time.
We've launched accelerating the new dealerships in mid January and we anticipate seeing an uptick in productivity over the coming months.
Speaker 2: We've launched Acceleride in the new dealerships in mid-January and we anticipate seeing an uptick in productivity over the coming months.
Speaker 2: During the quarter, we purchased nearly 5,300 used vehicles from customers through Acceleride.
During the quarter, we purchased nearly 5300 used vehicles from customers through accelerating.
Speaker 2: is through trades or individual acquisitions. That's up 8% from the third quarter.
It is through trades or individual acquisitions, that's up 8% from the third quarter.
Speaker 2: Also, in 2021, we digitally paid 2,500 customers through Zelle for the purchase of their Usia.
Also in 2021, we digitally paid 2500 customers through zelle for the purchase of their used vehicle.
Speaker 2: The ability to provide electronic payments to customers in under an hour is a key differentiator.
The ability to provide electronic payments to customers in under an hour as a key differentiator for us.
Expect to see more advancements efficiencies and growth will accelerate as 2022 unfolds.
Speaker 2: Expect to see more advancements, efficiencies, and growth with Acceleride as 2022 unfolds.
Speaker 2: I'll now turn the call over to our CFO , Daniel McHenry, to provide a balance sheet and liquidity review. Daniel? Thank you, Daryl, and good morning, everyone.
I'll now turn the call over to our CFO , Daniel Mckenzie to provide a balance sheet and liquidity review Daniel.
Thank you Daryl and good morning, everyone.
As of December 31, we had $15 million of cash on hand, and another 272 million invested in our floor plan offset account.
Speaker 3: As of December 31, we had $15 million of cash on hand and another $272 million invested in our floor plan offset account.
Speaker 3: bringing total cash liquidity to $287 million.
Bringing total cash liquidity to $287 million.
We generated $162 million of adjusted operating cash flow in the fourth quarter on.
Speaker 3: We generated $162 million of adjusted operating cash flow in the fourth quarter and $133 million of free cash flow after backing out $29 million of CapEx.
$133 million of free cash flow after backing out $29 million of Capex.
This brings 2021 full year free cash flow to $656 million.
Speaker 3: This brings 2021 full year free cash flow to 656 million.
Speaker 3: This capital was deployed through a combination of acquisitions, share repurchases and dividends.
This capital was deployed through a combination of acquisitions share repurchases and dividends.
Speaker 3: During the fourth quarter, we spent $192 million repurchasing 978,000 showers.
During the fourth quarter, we spent $192 million repurchasing at 978000 shares.
Speaker 3: bringing our total 2021 repurchases to 1.1 million shares at an average price of $190.82.
Bringing our total 2021 repurchases to one 1 million shares at an average price of $190 82.
Speaker 3: for a total spend of $211 million.
For a total spend of $211 million.
This represented 6% of our beginning of the year share count.
Speaker 3: This represented 6% of our beginning-of-the-year share count.
Our rent adjusted leverage ratio as defined by our U S. Syndicated credit facility was two times at the end of December .
Speaker 3: Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was two times at the end of December , inclusive of the prime acquisition.
Inclusive of the Prime acquisition.
Speaker 3: This strong leverage position will continue to allow for meaningful capital deployment in 2022 if appropriate opportunities exist.
This strong leverage position, we will continue to allow for meaningful capital deployment in 2022, and if appropriate opportunities exist.
Finally related to interest expense.
Speaker 3: Our quarterly floor plan interest of $7.2 million was a decrease of $1.2 million, or 15% from the prior year, due to lower vehicle inventory holdings.
Our quarterly Floorplan interest of $7 2 million was a decrease of $1 2 million or 15% from the prior year.
Due to lower vehicle inventory holdings.
Speaker 3: Non-floor plan interest expense increased 2.6 million or 19% from prior year primarily due to the debt raised in conjunction with the prime acquisition.
Non floorplan interest expense increased $2 6 million or 19% from prior year, primarily due to the debt raised in conjunction with the prime acquisition.
Speaker 3: For additional detail regarding our financial condition, please refer to the schedules of additional information attached in the news release, as well as the investor presentation posted on our website. I will now turn the call back over to Earl.
For additional detail regarding our financial condition. Please refer to the schedules of additional information attached in the news release as well as the Investor presentation posted on our website.
I will now turn the call back over to Earl.
Thanks Daniel.
Related to our corporate development efforts, we expect to find additional external growth opportunities in 2022.
Speaker 2: Related to our corporate development efforts, we expect to find additional external growth opportunities in 2022.
Speaker 2: Growing our U.S. and U.K. businesses remains our top capital allocation priority.
Growing our U S and UK businesses remains our top capital allocation priority.
Speaker 2: However, our balance sheet, cash flow generation, and leverage position will continue to support a flexible capital allocation approach, which will likely include serious consideration of share repurchases in addition to pursuing external growth.
However, our balance sheet cash flow generation and leverage position will continue to support a flexible capital allocation approach, which will likely include serious consideration of share repurchases. In addition to pursuing external growth.
This concludes our prepared remarks, and I'll now turn the call over to the operator to begin the question and answer session operator.
Speaker 2: This concludes our prepared remarks, and I'll now turn the call over to the operator to begin the question-and-answer session.
Ladies and gentlemen at this time, we will begin the question and answer session if.
Speaker 4: Ladies and gentlemen, at this time, we'll begin the question and answer session. If you would like to ask a question, you may do so by pressing star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two.
If you would like to ask a question you may do so by pressing star and then one using a touchtone telephone.
So withdraw your question you May press Star two.
Once again that is star and then one to ask a question.
Speaker 4: Once again, that is star and then one to ask a question. We'll pause momentarily.
We will pause momentarily to assemble the roster.
Our first question today comes from Michael Award from Benchmark. Please go ahead with your question.
Speaker 4: Our first question today comes from Michael Ward from Benchmark. Please go ahead with your question. Thanks very much.
Thanks, very much good morning, everyone.
Two things if I'm reading this right.
Speaker 5: Two things, if I'm reading this right, if I take the reported
If I take the reported.
Speaker 5: fourth quarter numbers in the U.S. and then subtract out the same store, the bulk of that is going to be prime. And if I'm reading that right, there's been a pretty quick and smooth integration of prime. Am I reading that correctly? And if so, can you talk about some of the things that drove that?
Fourth quarter numbers in the U S. And then subtract out the same store the bulk of that is going to be prime and if I'm reading that right. There's been a pretty quick and smooth integration of prime am I reading that correctly.
Can you talk.
<unk> talked about some of the things that drove that.
We're really happy with prime.
Speaker 2: We're really happy with prime the performance so far
The performance so far.
Speaker 2: The integration effort that we undertook was the largest in our company's history and we integrated everything from day one in every dealership from IT Personnel everything got integrated to group one standards and We had over a hundred people involved with that Mike on the ground up in New England and
The integration effort that we undertook was the largest in our company's history and we integrated everything from day one in every dealership from it.
Personnel.
Everything got integrated a group one standards.
We had.
Over 100 people involved with that Mike on the ground up in doing.
So.
Speaker 2: So we believe it was a really good transition. The employee retention of the existing stores up there was very high, very little loss in that regard. And we're really very, very pleased with the performance.
We believe it was a really good transition.
<unk> retention of.
The existing stores up there was very high.
Very little loss in that regard and we're really very very pleased with the performance.
Now where their parts and services performance was that similar to what the rest of the company saw.
Speaker 5: Now, were there parts and services performance? Was that similar to what the rest of the company saw? And could you talk a little bit about what's driving that? I mean, the.
And could you talk a little bit about.
What's driving that.
The customer pay and the collision is through the roof.
Speaker 5: The customer pay in the collision is through the roof. I mean, twice what the rest of the market is doing. And are there things behind that?
Twice with the rest of the market is doing.
Are there things behind that.
The.
Speaker 2: The, you know, philosophically.
Philosophically.
Speaker 2: What's driving, obviously, our customer paid business is our legacy stores, and just our staffing models and our...
What's driving obviously, our customer pay business is our legacy stores.
And just our staffing models and our.
Speaker 2: philosophical approach that we need to be available for our customers when they want to do business and So and we still are leveraging our four-day workweek
Philosophical approach that we need to be available for our customers when they want to do business in.
So and we still are leveraging our four day work week and.
Speaker 2: And we still have some work to do in the prime stores. We're pleased with their parts and service business, but, you know, most of that performance, obviously, was in our legacy stores. So, Earl? Yeah, and we'll...
We still have some work to do in the Prime source, we're pleased with their parts and service business, but most of that performance obviously was in our legacy stores.
And we will.
Yes, I think so.
Okay.
Got it.
Speaker 2: No, Mike, I think the key there, this is Earl, is it will take us a little more time to get our four-day work week installed in those stores because you need a certain number of techs in each shop to do that, and then that will enable us to expand some of the hours of operation.
Yes, no Mike I think the key there this is Earl is.
It will take us a little more time to to get our four day work week installed in those stores the cost.
You need a certain number of tax.
In each shop to do that and then that will enable us to expand some of the hours of operation.
Speaker 1: In those prime stores, which to a large degree don't match the extended hours of operation we have in many of our legacy stores.
In those prime stores, which to a large degree don't match.
The extended hours of operation, we have in many of our legacy stores.
Thank you. Thank you very much.
Yes.
Speaker 4: Our next question comes from Rick Nelson from Stevens. Please go ahead with your question.
Our next question comes from Rick Nelson from Stephens. Please go ahead with your question.
Speaker 6: Thanks a lot. Good morning. Nice quarter. So, question about Brazil, I guess, you know, what led you to the decision to sell that? And is there more asset optimization here in the cards?
Alright, Thanks, a lot.
Nice quarter.
Okay.
You should know about.
Okay.
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Could they do occasionally.
Okay.
Or more.
Top 10 military channel.
And that card.
Yeah. Rick. This is early very simple to two reasons, we decided to divest of Brazil. The first one is the exchange rate, we could never outrun it.
Speaker 2: Yeah, Rick, this is early. Very simple. Two reasons we decided to divest of Brazil. The first one is the exchange rate. We could never outrun it.
Speaker 2: It was two to one when we went down there Brazil was fourth biggest car market in the world bigger than Germany And it's still going to be a huge market
It was two to one when we went down there Brazil was fourth biggest car market in the world.
Bigger than Germany.
It is still going to be a huge market someday, but the exchange rate of 2% ones now more like five to one and we'd make more more profit every year in local currency and it would translate into less dollars. So we're kind of spinning the tires there.
Speaker 2: But the exchange rate of 2 to 1 is now more like 5 to 1, and we'd make more profit every year in local currency, and it would translate into less dollars. So we're kind of spinning the tires there. But beyond that, we had planned to take the original platform of 24 dealerships, and we thought by now we'd be at 50 to 75 dealerships. And we just could not grow the business externally.
Beyond that we had planned to take the original platform of 2004 dealerships and we thought by now we'd be 50 to 75 dealerships and we just could not grow the business externally.
Speaker 2: Because we we discovered that the acquisition process legally in Brazil Was requiring that we assume too many liabilities from the seller and we just couldn't do that for our
Cause we discovered that the acquisition process legally in Brazil was requiring that we assumed too many liabilities from the seller and we just couldnt do that for our shareholders.
Speaker 2: tax and employee types of liabilities, and we just could not do enough asset deals to grow like we would in the U.S.
Tax and employee types of liabilities.
And we just could not do enough asset deals to grow like we would in the U S. So the fact that we we could make it bigger and leverage our scale.
Speaker 2: So the fact that we couldn't make it bigger and leverage a scale was kind of the final factor in deciding that we'd like to deploy that capital where we can grow faster.
It was kind of the final factor.
In deciding that wed like to deploy that capital, where we can grow faster.
Speaker 6: That all makes sense. Thanks for that. Is there going to be some overhead related to Brazil that you're going to have to continue to carry in your SG&A?
Got it all makes sense.
So that is.
Can it be some overhead related to Brazil.
Okay.
Continued to carry your SG&A.
And so that's quite frankly.
Quite frankly, there wasn't a lot of overhead here.
Speaker 3: Quite frankly, Rick, there wasn't a lot of overhead here working with Brazil. Obviously, we consolidated accounts and provided some IT support, so yeah, there would be a little savings, but I would not consider that to be material at the headquarters here. Rick, it's Daniel here. On an ongoing basis, we'll still have to consolidate some information, but it will be very limited on an onward-going basis.
Working with Brazil, obviously, we've consolidated accounts in and provided some support so yes, there'll be a little savings, but I would not consider that to be material at the headquarters here Rick It's Daniel here on an ongoing basis, and we will still have to consolidate some information, but it will be very limited.
On and on and onward going basis.
Okay. Thanks for that.
Speaker 6: Okay, gotcha. Thanks for that. Also, I'd like to address inventory. It looks like used inventory has really improved meaningfully, yet you're able to sustain these outsized GPUs. Do you think that is going to continue as we push forward?
To address inventory.
It looks like you used.
Tory has really improved mainly play yet.
Able to sustain.
Okay.
J P use do you think.
That is going to continue.
As we push forward.
Speaker 2: Unused? Reused specifically on the GPU? Yeah. This is Daryl. You know, the used market obviously is super dynamic. We're able to keep the inventories at the level they are because of our...we changed our sourcing model and...
Unused reuse specific GPS.
Yeah. This is darryl.
The used market obviously.
Super dynamic, we're able to keep the inventories at the level they are because of our.
Our sourcing.
Model and.
The good thing about.
Speaker 2: The good thing about the PRUs is we manage our inventory very tightly, so any changes in the pricing environment, we can react very quickly. I don't know when it's going to change.
The PR use is.
Manage our inventory very tightly so any changes in the pricing environment, we can react very quickly.
I don't know when it's going to change.
Speaker 2: I feel like it's going to change at some point this year, but I don't know when. I've read some outside external forecasts in the last week that suggest it will stay where it is and any changes will be very moderate later in the year.
I feel like it's going to change at some point this year, but I don't know when I've read some outside external forecasts in the last week. This suggests it will stay where it is and any any changes will be very moderate later in the year.
Speaker 2: But what I do know is we've set up our business to be able to react to it if it's sooner or later. So.
But what I do know is we've set up our business to be able to react to react to it if it's sooner or later so.
That's what we know at this point.
Okay.
Speaker 6: Finally, if I could ask on the acquisition environment, your appetite, you know, are you going to take some time here to digest Prime or are you guys in the market, you know, to do more deals here relatively soon?
Hi can I ask.
Yes.
T I quit.
Alright.
Sure.
Right.
It takes some time here to digest prime or are you guys in the market.
Could do two more deals here relatively soon.
Speaker 3: Yeah, yes, Rick. This is Earl is Darryl just commented a few minutes ago. We've integrated prime to a very large degree already. So that is not going to impede.
Yes, Rick this is Earl.
As Daryl just commented a few minutes ago, we've integrated prime.
Two a very large degree already so that is not going to impede our ability or desire to grow but we can of course continue to improve those stores, but.
Speaker 3: our ability or desire to grow. We can of course continue to improve those stores, but the heavy lifting is over there. So yes, we are definitely interested in acquisitions. I'm quite confident we will continue to execute some that make sense this year.
The heavy lifting is over there so yes, we are.
Definitely interested in acquisitions I'm quite confident we will continue to execute something that makes sense. This year.
Speaker 3: We we need to be careful because you can't value these stores based on current margins and things
We need to be careful because you can't value these stores.
Based on current margins and things like that.
Speaker 3: So, but that said, and we were very conservative with how we valued Prime. You know, we have to look at more traditional vehicle margins when we're going to spend money on acquisitions. But yeah, I see external growth for us this year, certainly in the U.S.
So, but that said and we were very conservative with how we valued prime.
We have to look at more traditional vehicle margins, when we're going to spend money on acquisitions.
But yes, I see I see external growth for us this year certainly in the U S.
Speaker 3: We're interested in the UK, but I think it's more likely in the U.S.
We're interested in the UK, but I think it's more likely in the U S.
Speaker 3: But also, given the undervalued nature of our shares, I think we will also be returning capital to shareholders this year with share repurchases, just as I'm looking at it today. So yeah, I think we will be growing and returning capital to shareholders this year.
But also given the undervalued nature of our shares I think we will also be returning capital to shareholders. This year with share repurchases.
If I just as I am looking at it today so.
Yes, I think we will be growing in returning capital to shareholders. This year.
Speaker 6: Great. Good to hear it. Thanks and good luck.
Great.
Thanks, and good luck.
Thank you.
Our next question comes from John Murphy from Bank of America. Please go ahead with your question.
Speaker 4: Our next question comes from John Murphy from Bank of America. Please go ahead with your question.
Hi, good morning, guys.
Speaker 1: A first question around inventory, Erwin. I've got industry numbers on top of my head. I don't have your unit numbers, but if we think about the start of last year, we were at about 3 million units of dealer inventory at large, and now we're just over 1 million units. As we think about the course of this year, even if the automaker is huffing and puffing,
Just a.
First question around inventory early part of the industry numbers on top of my head around your unit numbers, but we think about the start of last year, we were at about a little about 3 million units.
Dealer inventory at large and now we're just over 1 million units. So as we think about the course of this year, even if the automakers have some costs, it's hard to believe they're going to get anywhere near normal on inventory and the chips don't exist. So it's really very unlikely what is your sense.
Speaker 1: It's hard to believe they're going to get anywhere near normal on inventory and the chips don't exist. So it's really very unlikely. What is your sense?
Speaker 1: or when this normalizes, and what does normalize mean go forward? Because it seems like there's a fair amount of discipline that's coming in from the automakers, at least in the way they're talking about it, and what do you think the implications are for GPUs? Because obviously, the short in the current environment is driving the GPUs higher. If we don't go back to the bloated levels before, it seems like GPUs might, you know, remain relatively strong versus history, but not as good as now.
Or when this normalizes.
Normalized means go forward because it seems like there's a fair amount of discipline, that's coming in from your automakers at least in where they're talking about it and why.
Or do you think the implications for Gpus, because obviously the short inventory environment is driving GPU is higher.
Go back to the bloated levels before it seems like Gpus might remain.
Relatively strong versus history, but not as good as now.
Well, John this is Earl and I am going to let Daryl commented as well, but I have not been able to predict on this subject with any accuracy at all I continue to be shocked and every month seems to delay the recovery of another month.
Speaker 3: Well, John , this is Earl and I'm going to let Daryl comment as well, but I have not been able to predict.
Speaker 3: On this subject with any accuracy at all, I continue to be shocked and every month seems to delay the recovery another month, you know, clearly no one's building inventory still. So, in terms of building up, we're still 26,000.
Clearly no one is building inventory still so in terms of.
Building up.
26000.
Units are more below where we were pre COVID-19 and that was before we added prime windows other groups or the other acquisitions last year. So.
Speaker 3: or more below where we were pre-COVID. And that was before we added Prime and those other groups or the other acquisitions last year. So it does seem it's going to take a long time.
It does seem it's going to take a long time too.
Speaker 3: to add let's say 20, 25,000 units back to inventory in excess of what we're selling every month because we continue to sell what we get. And of course, there were some warnings this week by I believe Honda and Toyota.
Let's say 2000 25000 units back to inventory.
In excess of what we're selling every month, because we continue to sell what we get and of course there were some warnings this week by I believe Honda and Toyota.
Speaker 3: Or maybe it was maybe it was Nissan and Toyota, but you know, it seems that there are some issues beyond shifts as well now with COVID interruptions and shipping interruptions and things like that. So I can't even keep track of all the Stated reasons, but it would certainly seem the first half of the year is going to remain with severe new vehicle inventory shortage
Or maybe it was maybe it was Nissan and Toyota.
It seems that there are some issues beyond chips as well now with Covid interruptions in shipping interruptions and things like that so I can't even keep track of all.
The stated reasons, but it would certainly seen in the first half of the year is going to remain with severe new vehicle inventory shortages I don't know what will happen in the second half of the year, but with five months left in the first half of the year I don't see any material recovery.
Speaker 3: I don't know what will happen in the second half of the year, but with with five months left in the first half of the year, I don't see any material recovery in the next five.
And the next five months.
Darryl.
I don't have anything to add to that.
Speaker 1: But I'm sorry, I mean, just with the context of your industry knowledge, what do you think the normal will be when the automakers become unconstrained and can build back inventory? Is it, you know, 40 to 50 days as opposed to 60 to 65 days? I mean, where do you think they land? I mean, they're making all time record profits at these very low volumes as well. So I'm just curious how you, and you've been in the industry a long time, know a lot about it. I mean, how do you think about that?
I am sorry, I mean, just within the context of your industry knowledge. What do you think the normal will be when you automakers become unconstrained and can build back inventory is at $40 to 50 days as opposed to 60 to 65 days I mean, where do you think they can land I mean, theyre, making all time record profits at these very low volumes as well.
I'm just curious how you and you've been in the industry a long time know a lot about it I mean, how do you think about that.
Well I would hope no one would ever go over 50 days again and of course, historically, the domestics always had well over that because of these.
Speaker 3: Well, I would hope no one would ever go over 50 days again. And of course, historically, the domestics always had well over that because of these, you know, the big variation on built combinations of full size trucks and things like that. But, you know, for decades, Toyota dealers have operated well below 30 days and, and never missed that much business as far as I could tell.
The big variation on build combinations of full sized trucks and things like that but for decades Toyota dealers have operated well below 30 days in.
<unk> never missed that much business as far as I could tell so.
Speaker 3: So I think most brands can operate 30 to 40 days. And hopefully, there'll be a corporate memory that.
I think most brands can operate 30 to 40 days.
And hopefully there'll be a corporate memory that.
Speaker 3: that the OEMs also, you know, can see this benefit and try to manage that way as we go forward. However, any time these large auto companies start fighting for market share, that's when the discipline can erode.
That the Oems also.
Can see this benefit and try to manage that way.
As we go forward however.
Anytime these large auto companies start fighting for market share that's.
That's one of the disciplines can erode.
Speaker 1: And then just a second question, you know, over time, you know, TPEs will normalize to whatever level, you know, that they may land at. But you know, given what's going on this year, they're going to have a lot of capital to redeploy. I mean, you could argue that it's going to be a year that's at least as good as last year on a core basis, and then you layer in prime. So...
Okay.
Second question overtime, GPS will normalize to whatever level they.
Mainland debt.
But given what's going on this year youre going to have a lot of capital to redeploy and you could argue that it is going to be a year. That's at least as good as last year on a core basis, and then you layer on prime.
Speaker 1: that free cash flow number in the mid $600 million level should be significantly, or I would think should be higher. I'm not going to ask you to give an exact outlook, but I would assume to be a lot higher. So the benefit of all this is that you've got great cash now.
Yeah that free cash flow number in the mid 600 million level should be significantly.
I would think should be higher and I can ask you to give an exact outlook, but obviously will be a lot higher so the benefit of all this is that you got.
Got great cash.
Now and it can be redeployed as you think about the normalization of the business is that capital and the redeployment of that capital enough to continue to grow earnings in 'twenty, three and 'twenty four.
Speaker 1: and it can be redeployed. As you think about, you know, the normalization of the business.
Speaker 1: Is that capital and the redeployment of that capital enough to continue to grow earnings?
Speaker 1: in 23, in 24, I mean, is there, there's enough.
There is enough.
Speaker 1: birth or, you know, or structural business added here through used.
Or structural.
Business added here through used parts and service growth plus through acquisitions.
Speaker 1: parts and service growth plus your acquisitions to offset what might be some pressure on grosses.
What might be some pressure on on grosses.
Yes, absolutely and of course, that's the way we're looking at it now.
Speaker 3: Yeah. Absolutely. And of course that's the way we're looking at it now. And there's no doubt that 23 can be incredibly strong in that regard. Once you get out to 24 I know a lot of people like to pretend they can predict that. But this is a dynamic business. But when we look at our after sales business growing 18 percent and that's the core of our business.
And there is no doubt that 'twenty three can be incredibly strong in that regard once you get out to 'twenty four I know a lot of people like to pretend they can predict that but this is a dynamic business, but when we look at our after sales business growing 18% and that's a core of our business.
Speaker 3: You know, that's 40 to 45% of our gross profit. And this is with warranty going backwards and collision soft. We're growing 18% in the U.S. and 15% in the corporation.
That's that's 40% to 45% of our gross profit and this is with warranty going backwards in collision soft we're growing 18% in the U S and 15% as a corporation.
Speaker 3: And, you know, we're focused on that part of our business more than anything, because that is what we can control. We can't control our new vehicle supply, right? So yeah, I think this bodes very, very well for us, and, you know, continuing to add scale and continuing to capture more service business.
And.
We're focused on that part of our business more than anything because that is what we can control we can control our new vehicle supply right. So yes, I think this bodes very very well for us.
And continuing to add.
Add scale and continuing to capture more service business.
Speaker 3: Um, is, is really what we're focused on right now.
Is really what we're focused on right now.
John This is Daryl I would add.
Speaker 2: John , this is Daryl. I would add versus the fourth quarter of 2019, our customer pay business was also up 20%.
Versus the fourth quarter of 2019.
Our customer pay business was also up 20%.
Same store.
Yes, that's very helpful.
Speaker 1: Yeah, that's very helpful. Just lastly, you just made one comment about your sales folks being 20% more efficient or selling 20% more vehicles in your core versus the acquired stores of this last year. I'm just curious if there's room to increase efficiency on your existing core sales folks and how fast you can get your acquired sales folks up to this level of efficiency.
Lastly, you just made one comment about your sales folks being 20% more efficient, which I think 20% more vehicles.
And your core versus the acquired stores.
This last year.
If there is room to increase efficiency on your existing core sales folks and how fast you can get your acquired sales folks.
This level of efficiency.
This is darryl.
Speaker 2: Daryl, we believe.
We believe.
Speaker 2: The second part of your question, the new SOARs we think will be able to...
The.
The second part of your question.
New stores, we think we'll be able to.
Speaker 2: get them up fairly quickly. We have a very good launch plan, execution plan in place, but we started in mid-January with those stores. The second thing is, I believe there is room in the legacy stores, John . I can't tell you how much room there is. I think the more digital adoption there is by customers and inside our stores, I think the better that is for productivity.
Get them up fairly quickly.
We have a very good launch plan execution plan in place that we started in mid January with those stores.
The second thing is I believe there is.
Believe there is room in the legacy storage John I can't tell you how much room. There is I think the more digital adoption there is by customers and inside our stores I think the better that is for productivity.
Okay, great. Thank you very much guys.
And our next question comes from David Whiston from Morningstar. Please go ahead with your question.
Speaker 4: And our next question comes from David Whiston from Morningstar. Please go ahead with your question.
Speaker 4: Thanks. Good morning, Earl. I wanted to start with a comment you made a few minutes ago about if a market share 5 breaks out. In that scenario, if it were to happen, and hopefully it won't, can you push, how much pushback do you have on the factories and avoid taking too much allocation or are they going to force it on you?
Thanks, Good morning.
Hello, I wanted to start with a comment you made a few minutes ago about us.
Our market share if I break it out.
In that scenario that we're in or happen and hopefully it won't can you push how much pushback you can have on our factories.
And we're taking too much allocation or are they going to force. It on you.
Speaker 3: How much pushback from factories on what I'm sorry on allocations vehicle allocation if they start to increase well It's been so long since we had to push back. I don't remember how to do that. But um, but uh, yeah, I I think No, we we have always run our businesses um for our shareholders and I think over the years mostly
How much pushback from factories on what I'm, sorry, an allocation vehicle allocation as states start to increase its been so long since we had to push back I don't remember how to do that but.
But.
Yes, I think.
Yeah.
No we have always run our businesses for our shareholders.
I think over the years most of the Oems.
Speaker 3: Have become more sophisticated in that regard and they they understand that too much inventory is bad for us
I have become more sophisticated in that regard and they understand that too much inventory is bad for us and we're not going to take it and its bad for them too and that lesson is really being driven home right now to the Oems as to the cost of excess inventory.
Speaker 3: And we're not going to take it. And it's bad for them, too. And that lesson is really being driven home right now to the OEMs as to the cost of excess.
Speaker 3: The distribution channels in both the US and UK have been overstuffed for a decade or more.
Distribution channels in both the U S and UK had been overstuffed for a decade or more.
Speaker 3: And now that they get leaned out, you can see what it does for the OEM profits also. It's much better for them.
And now that they get leaned out you can see what it does for the OEM profits also it's much better for them.
Speaker 3: And so I think we're going to be in a much better position going forward. And we have our inventory targets. And should we ever get back to them, we will have to turn down the vehicle.
And so I.
Think we're going to be in a much better position going forward and we have our inventory targets and should we ever get back to them. We will we will have to turn down the vehicles.
Speaker 2: David, if this is Darrell, I would add one thing to Earl's comments. We, you know, we will push back to be able to manage our own inventories based on what's best for our shareholders, but the market-based supply will determine the gross profit outlook. And so, if the OEMs do go too far on overproduction, that will determine the...
David This is Daryl I would add one thing.
Comments.
We will push back to be able to manage our own inventories based on what's best for our shareholders, but the market day supply.
The gross profit outlook.
So as the Oems do go too far on over production.
That will determine the.
What happens to the grocers in the marketplace.
Speaker 4: what happens to the grosses in the marketplace. Okay, thanks. And moving on to, there's a bill recently introduced in Congress on basically expanding that Massachusetts right to repair scenario nationwide. I know you've got a lot of presence in Massachusetts. Are you at all worried about this legislation or is it really a non-issue?
Okay.
And moving on to.
There is.
<unk> introduced.
In Congress on.
So expanding that Massachusetts right to repair.
Scenario nationwide.
You've been on a presence, Massachusetts are you at all worried about this legislation or is it really a non issue.
Well that particular, Massachusetts, Bill has been around for many years and that that threat or that.
Speaker 3: Well, that that particular Massachusetts bill has been around for many years and that that threat or that.
Speaker 3: You know, that issue of better access for aftermarket repairs has been around for a long time. So I don't see that as material to what we do for a living. We have as much service business available to us as we can capture. And our goal is to make our customers loyal and continue to get more of our customers back in our shop. So that is an issue I assume more for the OEMs than for us.
That issue of better access for aftermarket repair has been around for a long time.
So I don't see that as material to what we do for a living we have as much service business available to us as we can capture and our goal is to make our customers loyal and continue to to get more and more of our customers back in our shops. So.
That is an issue I assume more for the Oems and for us.
Okay.
Speaker 4: Okay. And on these pricing being so high, it should come down eventually. Perhaps in 2023, we could be looking at a lot of negative equity for consumers who want to perhaps get rid of a vehicle. Just curious, your lending partners, traditionally, how willing are they to roll negative equity into a loan for a new vehicle? And do you think maybe they would be willing to put more of that negative equity in a loan in the past, given what's happened recently?
On your pricing being so high if it should come down eventually.
Perhaps in 'twenty three we can be looking on a negative equity.
Consumers, who wanted to perhaps get rich.
One of the vehicle just curious your lending partners traditionally how willing are they to roll negative equity into a new loan for a new vehicle and do you think maybe they wouldn't be willing to put more of that negative equity on alone and then in the past given what's happened recently.
Speaker 3: Sure, David, this is Pete DeLonge, and when you look back, we've had lenders that go up to 130% loan-to-value, but for our company, the way that we manage our lenders,
Sure. David This is Pete Longshot, and when you look back we've had lenders that would go up to 30% loan to value, but for our company and the way that we manage our lenders and with our loss ratios I will tell you that in negative equity is not something we're concerned about with our lending partners.
Speaker 3: And with our loss ratios, I will tell you that negative equity is not something we're concerned about with our lending partners.
And the other piece of as Daryl alluded to is that we've been very disciplined.
Speaker 1: And the other piece of it Daryl alluded to is that we've been very disciplined in
Speaker 3: in not overcharging our customers because one of the concerns is in two to three years these customers have paid substantially over sticker price, that will lead to negative equity. So we're managing our transactional pricing today with a long-term view.
Not overcharging, our customers because one of the concerns is two to three years for these customers obtain substantially over sticker price that will lead to negative equity. So we're managing our transactional pricing today with a long term view so.
Speaker 3: Right now, the lenders have remarkably low loss ratios because people have equity in their cars, but in the conversations I've had with lenders, their appetite continues to be very strong.
Right now the lenders have remarkably low loss ratios because people have equity in our cars, but in the conversations I've had with lenders their appetite.
To be very strong.
Okay, great. Thank you.
And our next question comes from Rajat Gupta from Jpmorgan. Please go ahead with your question.
Speaker 7: And our next question comes from Rajat Gupta from J.P. Morgan. Please go ahead with your question.
Speaker 8: Great. Good morning. Thanks for taking the questions. Maybe on Acceleride, can you talk about, you know, the progress, you know, on the rollout of the integrated delivery feed?
Great. Good morning, Thanks for taking the questions.
Maybe an accelerated.
Can you talk about the progress on the rollout.
Great the delivery fees.
Speaker 8: And also, maybe on the integration with the prime automotive network, I'm curious how that's progressing, you know, when do you think you can overlay that? And in general, like, how do you see the Acceleride platform scaling in 2022? Any targets, any volume targets that you have that you can share? And I have a follow-up.
And also maybe on the integration with the Prime automotive network.
Thank you and just how that's progressing when do you think you can know when they adopt.
And in general how do you see accelerated platform scaling in 2020 do any targets.
Any volume targets.
Sure.
I'll follow up thanks.
Speaker 2: This is Daryl. Delivery fees, we've integrated it into Acceleride. We had it in about 40 stores in the fourth quarter and will continue to roll it out through the rest of the network.
John This is Daryl.
Delivery fees, we've integrated it into accelerated we had it in.
About 40 stores in the fourth quarter and will continue to roll it out through the rest of the network.
Speaker 2: quickly and in
Quickly and.
The new acquisition in New England.
Speaker 2: The new acquisition in New England we have rolled out acceleride We are rolling out acceleride in all of those orders as we
<unk>.
Rolled out acceleration.
We are rolling out accelerated in all of them.
As we speak.
Speaker 2: And we started that in the third week of January .
And we started that.
Third week of January .
And we expect that by the end of the first quarter will be fully rolled out there and we expect adoption to be.
Speaker 2: And we expect that by the end of the first quarter, we'll be fully rolled out there and we expect adoption to be. We have what we feel like is a really good execution plan there and we have some.
We have what we feel like is a really good execution plan, there and we have some.
Speaker 2: huge advocates for it in those stores, because previously, Prime didn't have much of a digital strategy. So we feel like it's a real advantage.
Huge advocates for it.
And those stores because previously prime didn't have.
Much of a digital strategy. So we feel like it's a real advantage.
Speaker 2: And then what was the rest of your question, oh, about targets and things like that?
And then what was the rest of your question about targets and things like that.
Yes.
Speaker 2: You know, we haven't set a target per se. I mean, we did 20,000 units last year, like there's still more upside from there, obviously, and it'll become a bigger and bigger piece of our business.
We haven't set a target.
Per se I mean, we did 20000 units last year like there is still more upside.
From there obviously.
It will become a bigger and bigger piece of our business.
Speaker 2: And but we don't have targets that we share externally with it, but I think if you look back at our growth with Acceleride since we launched it, I think you can expect to continue to see that same kind of growth moving forward.
And but we don't we don't have targets that we share externally.
With it but.
If you look back at our growth with accelerated since we launched it I think you can expect to continue to see that same kind of growth moving forward.
Speaker 8: Understood. Maybe a broader question on just inflation.
Understood.
Maybe a broader question on just inflation.
Speaker 8: How do you see inflation in general impacting your business, more from an SG&A standpoint? We know that a lot of the personnel costs, you know,
How do you see inflation in general.
Impacting your business more from like an SG&A standpoint.
We know that a lot of the personnel costs.
Salespeople with my managers I E variable in nature, but but curious if you're starting to see.
Speaker 8: you know, salespeople, like my managers, you know, highly variable in nature, but curious if you're starting to see.
Any of the regions Lei Shan start to creep in in your expenses.
Speaker 8: Any of the wage inflation, you know, start to creep in into your expenses.
Speaker 8: Obviously, productivity has been very strong, offsetting a lot of that, but just curious to get a thought, how you see that impacting your profitability in the more near to medium term. Thanks.
Obviously productivity is very strong offsetting a lot of that but.
Just curious to get our parts.
That impacting your profitability.
The more medium.
Medium term thanks.
This is Earl.
Yes, we've seen it in some support positions, but as you mentioned the vast majority.
Speaker 3: Yeah, we we've seen it in some support positions. But as you mentioned, the vast majority of our employee costs are productive people. And so you know, they are paid by what they produce, where we will see it start to creep in will be in things like call center and some staff and support people.
Our employee costs are productive people.
So.
They are paid by what they produce.
Where we will see it start to creep in will be in things like call Center, and some staff and support people.
Speaker 3: And but that is not, you know, that is not the the biggest part of our cost structure. But, you know, there's no doubt that inflation is here and and there's going to be some interest rate increases, too.
And.
But that is not.
That is not the biggest part of our cost structure, but.
There is no doubt that inflations here.
And there's going to be some interest rate increases to rate.
Speaker 9: Rajat, one thing that I'll add on the interest rate increase or change is, you know, to mitigate rising interest rates, we've swapped out a large part of our floating debt. So for every 100 basis points increase in the LIBOR, that would only negatively impact our full-year earnings per share by about 21 cents, so that's helpful going forward.
One thing that I'll add in the interest rate increase or changes to mitigate rising interest rates, we have swapped out a large part of our floating and debt.
So for every 100 basis points increase in LIBOR that would only negatively impact our full year earnings per share by about 21.
That's helpful going forward.
Got it got it that's helpful.
Speaker 8: Got it. Got it. That's helpful. Maybe just last one on capital allocation, you mentioned earlier that, you know, you will be joining capital.
Maybe just last one on capital allocation you mentioned.
That will be returning capital.
Speaker 8: Any numbers you can put on that, you know, what kind of leverage are you willing to add? Is it just using the access-free cash flow, or are you willing to take on more leverage to do that? I'm just curious if you could.
Sure Lucas.
Okay.
<unk>.
Any any numbers you can put on that what kind of leverage are you willing to add is it just using the excess free cash flow are you willing to take on more leverage because of that I'm. Just curious if you could.
Speaker 8: give us some sort of a range around that.
You gave us.
Some sort of a range around that.
Speaker 3: Well, I think relative to acquisition volume that we can comfortably do, and then clearly we have more debt capacity if we want it. But as we said last year, we have the capacity to easily add a billion dollars of revenue per year. We need to find acquisitions that
I think relative to the acquisition volume that we can comfortably do clearly we have more more debt capacity, if we want it but as we said last year, we have the capacity to easily at $1 billion of revenue.
Per year.
We need to find acquisitions that.
Speaker 3: that fit with the geography and brand and financial requirements that we have. But we're pretty comfortable, you know, with planning that way.
It fit with the geography and brand and financial.
<unk> requirements that we have but we're pretty we're pretty comfortable.
With planning that way.
Speaker 3: And we just think our shares are severely undervalued.
And we just think our shares are severely undervalued.
Speaker 3: And so, you know, buying, investing in our own acquisitions isn't a bad thing to do either.
So buying investing in our own acquisitions isn't a bad thing to do either so clearly this is a dynamic.
Speaker 3: So clearly this is a dynamic market.
Market.
Speaker 3: in terms of which acquisitions are available and what our share price is.
In terms of which acquisitions are available and what our share prices, but but I'm quite confident we're going to pursue both of those avenues. This year resident and Daniel again in response to the leverage question. We added $2 5 billion of revenues last year, our leverage is around two times coming out of 2000.
Speaker 3: But I'm quite confident we're going to pursue both those avenues this year.
Speaker 9: Rajat, it's Daniel again. In response to the leverage question, you know, we added two and a half billion of revenues last year. Our leverage is around two times coming out of 2021. I think as a company, you know, for the right acquisition, we would feel comfortable extending our leverage ratio to three times or perhaps three and a half times for a short period for the right acquisition. So that will give you some guidance on where we are with that.
'twenty, one I think as a company for the right acquisition, we would feel comfortable.
Extending our leverage ratio to three times or perhaps three five times for a short period for the right acquisition. So that will give you some guidance on where we are with that.
Sure.
Understood.
Thanks for the color and good luck.
Speaker 10: Thank you, Rajat. Thanks.
Thank you Roger Thanks.
Yes.
And ladies and gentlemen, with that we'll end today's question and answer session I would like to turn the floor back over to Earl <unk> for any closing remarks.
Speaker 7: And, ladies and gentlemen, with that, we'll end today's question and answer session. I'd like to turn the floor back over to Earl Hesterberg for any closing remarks.
Speaker 3: Okay, thanks to everyone for joining us today. We look forward to updating you on our first quarter earnings call in April . Thank you.
Okay. Thanks to everyone for joining us today, we look forward to updating you on our first quarter earnings call in April . Thank you.
And ladies and gentlemen, with that we'll conclude today's conference call. We thank you for attending you may now disconnect your lines.
Speaker 7: And, ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending. You may now disconnect your line.