Q1 2022 Group 1 Automotive Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to group one Automotives.

2022 first quarter financial results conference call. Please be advised that this call is being recorded I would now like to turn the call over to Mr. Pete The long shore, one senior Vice President of manufacturer Relations financial services and public Affairs. Please go ahead Miss at the long shore.

Thank you Chuck and 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 were referred to on this call for comparison purposes have been posted to the group one 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 1095.

Forward looking 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 manufacturing production levels due to COVID-19 .

Product shortages.

Visions of markets and adverse developments in the global economy as well as the public health crisis related to the COVID-19 virus, and resulting impacts on demand for new and used vehicles and related services.

Those are the rest are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call 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 with me today, Earl <unk>, our President and Chief Executive Officer, Daryl Kingham, our president of U S operations, Daniel Mchenry Senior Vice President and Chief Financial Officer, I'll now hand, the call over to Earl.

Good morning, everyone.

Pleased to report that for the quarter group, one generated adjusted net income of $185 million for continuing operations.

This equates to adjusted earnings per share of $10.81 per diluted share an.

An increase of 96% over the prior year and an all time quarterly record.

Our adjusted results exclude noncore items totaling approximately $16 million of after tax gains, which resulted from the sale of two franchises in Boston.

As well as excess real estate in the U K.

These results were largely due to our record setting UK performance significant contributions from our recent acquisitions continued strong vehicle margins that we're able to more than offset weaker vehicle supply.

Continued double digit growth in our U S. After sales business and impressive cost control.

Consumer demand for vehicles remains extremely strong exiting the first quarter and we continue to sell most units almost immediately after OEM delivery.

This dynamic should continue throughout the year.

As with the U S consumer demand for vehicles in the UK is extreme.

And new vehicle availability is severely constrained.

We have a total U K, new vehicle order bank of more than seven months right now with.

With orders for some of our key luxury brand models now extending into 2023.

We believe pent up demand built over the past several years due to both Brexit and the very strict pandemic Lockdowns will help drive strong U K vehicle demand into the foreseeable future.

We believe our UK exposure, which is focused on major luxury brands, such as Audi BMW, Mercedes and land Rover.

As a meaningful tailwind for our company.

We're also seeing continued strength in the state of Texas the market collectively outperformed our total U S same store growth in new vehicle sales used vehicle sales after sales and net profitability.

This demographic trends continue to be a positive tailwind for the company due to population growth reasonable cost of living low taxes, and a friendly business environment.

We believe this is both a near term and longer term advantage for our company.

To provide some color on our U S first quarter performance.

I'll now turn the call over to Darryl Cunningham.

Thank you Earl once again, the factors contributing to our outstanding quarter, where great growth in all segments of our U S business combined with the continuing focus on controlling cost driving productivity in the face of very limited vehicle supply.

As of March 31, we had 3100 U S. New vehicle inventory units in stock representing a nine day supply, which was flat from year end.

Our used inventory situation is stronger.

At 28 days.

Our same store used vehicle retail unit sales declined by 4% versus the first quarter of 2021.

Despite significantly fewer trade ins due to a 17% decrease in new vehicle unit sales.

Improved focus on sourcing resulted in acquiring more than 7400 vehicles directly from individuals through accelerated.

Which was nearly 300% increase from the first quarter of 2021.

In addition, we wholesale 1700 fewer units during the quarter as we are focusing on building retail inventory.

Those vehicles carry a bit lower retail tru, however, we want.

Tradeoffs as our F&I attachment rate is high.

We believe the most important profit driver was once again, our after sales performance.

We've placed additional.

Emphasis on technician recruiting and retention and.

And based on the attractiveness of our four day work week schedule, we increased our same store technician head count by 16% versus the first quarter of 2021.

After a very strong 2021, our customer pay same store revenue grew 19%.

Versus the first quarter of a year ago.

Our same store collision revenues increased 28% in wholesale parts revenues increased 29%.

This allowed us to grow same store total after sales revenue by 19% versus a year ago. Despite continued declines in warranty work.

We foresee after sales continuing to improve sequentially over the course of the year.

The final major factor driving our outstanding profit performance was continued cost discipline.

First quarter adjusted SG&A as a percentage of gross profit was 60% down.

Down from 63% in the first quarter of 2021 and down from 74% in the first quarter of 2019.

A material part of the improvement is due to productivity gains, which will be a permanent benefit.

And now to accelerate and we couldnt be happier with our results as customers continue to demonstrate that they want to do business through accelerated.

We sold 5800 vehicles to accelerate online in the first quarter, representing over 9% of our total U S retail sales.

These 5800 sales were up 22% sequential increase over the fourth quarter of 2021.

In addition, we have Washington still arrive in all of our new acquisitions.

And accelerate is bringing a new level of professionalism to our sales teams.

It's simpler more transparent and faster.

And customers are responding.

Aside from our volume increases accelerating customers are more loyal to group one drive more F&I profit and provide higher lifetime value to us.

And we continue to make enhancements to accelerate as an example, we now offer delivery in every U S dealership.

In the first quarter nearly 700 customers chose delivery.

And 70% of those customers choosing this convenience option, our local giving us an opportunity provide future service through our outstanding after sales operations.

In short our customers continue to say, yes to accelerate.

We launched accelerating new dealerships during the first quarter.

And because 60% of our customer interactions us accelerate in some way we continue to see outstanding salesperson productivity results even in this depressed inventory environment.

I will 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.

As of March 31, we had $17 million of cash and another $199 million invested in our floor plan offset account, bringing total cash liquidity to $216 million.

During the first quarter, we amended and extended our U S syndicated credit facility for another five year term.

As part of this amendment, we increased our acquisition line capacity from $349 million to $500 million.

As of March 31, we had $185 million available to borrow on the acquisition line, bringing total immediate liquidity $401 million.

We generated $319 million of adjusted operating cash flow in the first quarter and.

$293 million of free cash flow after backing out $25 million of Capex.

This capital was deployed through a combination of acquisitions share repurchases and dividend.

As previously announced during the first quarter, we spent $115 million repurchasing 639000 shares at an average price of $180 30.

This represented approximately 4% of our beginning of year share count.

Over the past two quarters, we've repurchased nearly 10% of our shares.

Our rent adjusted leverage ratio as defined by our U S credit facility with one eight times at the end of March this strong leverage position will continue to allow for meaningful capital deployment in 2022.

If appropriate opportunities exist.

Finally related to our interest expense our quarterly floor client interest of $5 3 million was a decrease of $2 2 million or 30% from the prior year due to lower backhaul inventory holdings.

Non floor plan interest increased $4 3 million or 32% from prior year, primarily due to the debt rates in conjunction with the prime acquisition.

For additional detail regarding our financial condition. Please refer to the schedules of additional information attached to the news release as well as our investor presentation posted on our website.

I will now turn the call back over to Earl.

Thanks, Daniel and 2022, we have continued our focus on high quality external growth actions with the purchase of two large highly successful U S Toyota stores.

These dealerships add to our existing scale and they often in Albuquerque markets in there.

We're expected to generate $550 million of annual revenues.

Growing our U S and UK businesses remains our top capital allocation priority and we expect to find additional external growth opportunities in 2022.

However, our balance sheet cash flow generation and leverage position, we 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, I'll turn the call over to the operator to begin the question and answer session.

Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

And to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Yes.

And the first question will come from Mike Ward with benchmark. Please go ahead.

Thanks, Thanks, good morning, everyone.

If I'm not mistaken your parts and service same store was the best in the group so far.

In the U S.

I Wonder if you could just talk about it.

It looks like some of the digital activity is paying off.

Customer pay was up warranty was down is that what I heard and then also can you talk about what have you done with the Prime acquisition, how was that folded in as far as the digital.

Service appointments those sorts of things.

Prime is completely integrated all of the stores.

Prime are completely integrated.

And every day.

Digital Resourcing tool and process that we have.

Accelerated went live there through the months of January February .

Digital service appointments our lives there.

So we are seeing the same kind of traction on those and we will see I expect for the rest of the year.

And Youre right about the CP growth in warranty warranty was down a bit in the first quarter and <unk> growth is very strong.

What percentage of the service departments are done digitally now.

<unk> 40 in the quarter it was 37% I believe Mike.

Alright.

And that will continue to grow as some of these other acquisitions are integrated.

Second thing on the inventory front.

Your U S inventory nine days, that's on the ground inventory correct.

On the ground, what we can see touch and sell ourselves yes.

Okay.

Sure.

And do you have a percentage that of your sales that are basically being sold off the truck or are they just coming and going out.

Basically it's somewhere north of depending on the brand, but it's somewhere north of 60% some brands as high as 80 or 90, okay.

Okay, and how are your allocations in Q2 versus <unk>.

Hard to say.

You've seen some things out in the press.

About the forward availability and those are as reliable as anything I can tell you to be honest with you.

I'm sure I'm sure well. Thank you. Thank you for your time.

The next question will come from John Murphy with Bank of America. Please go ahead.

Hi, good morning, guys.

I just wanted to hit on cap allocation here real quickly.

I understand the buybacks the X gene in the last few quarters, but if you just look at the average.

Wade count used in the diluted EPS calc.

Fourth quarter to the first quarter would indicate that you structurally.

Improved EPS power by a little over 8% and if we take the acquisitions that you made net of what you sold and very simply assume that you have a similar earnings power and that net.

425 acquired that's another 3% plus.

Your earnings power going forward. So in the course of the quarter in the cap reallocation in it appears you've you've improved your structural EPS by north of 11%.

Does it seem like even used up all your cash generated.

Is this something that you can think you can just keep plowing through and keep executing on because I think it's something that's.

I misunderstood is that there.

There may be portions of the business, we are over earning maybe.

Maybe not actually going forward, I think thats, probably a little bit overblown, but it seems like there's a people are missing.

It's redistribution of reallocation of redeployment I should say of cash and what it means for the structural earnings powers. Daniel is there anything wrong with that general kind of math or thought process.

I think at times, you've driven.

John .

Youre, 100% correct I think one of the things that people forget if you compare companies into 2019 is structurally different company, we have reduced our share kind of divided over 3 billion of revenues so far.

2019.

Whereas the company I think we've just come out of the pandemic a much stronger company. The cash flows that we're currently generated can be reinvested, whether we choose to do that through then growing the company further or additional buybacks and I just think the company structurally different going forward and your math is 100% correct and John .

This is Earl.

We plan to continue down the same path I mean, clearly our shares remain very much undervalued.

But at the same time, we've been able to find some incredibly high quality acquisitions with these Toyota dealerships with Prime last year and couple of other dealerships, we bought last year.

So, we really don't see execution risk and the acquisitions and the math on on the share buybacks is incredibly compelling and there's no execution risk. So we think we're getting tremendous.

Accretion from the way, we're allocating capital at the moment.

Yes, sure seems like it.

Wildly underappreciated I guess the second thing.

You're kind of carrying these rumblings from certain folks in the used car market.

Some new car folks talking about weakness in demand, which seems like the most bizarre thing given what youre seeing in pricing and what we what we generally here, but is there anything youre hearing from consumers or ups. They are walking into showrooms are getting onto accelerated where.

There are some potential weakness in demand I mean, I understand pricing is something I might give people a little bit of a pause, but I mean in general it seems like the auto consumers are pretty good shape I mean, we hear different things what what are you seeing on the ground.

I'll start with that John and then I'll, let Daryl jump in and policies closer on the U S operations, but inflation is never good for the consumer, but clearly it's going to hit the lower demographic sectors of the market first.

And there is such a massive gap and has been such a massive gap for the last 18 months.

Between supply and demand the first of all demand would have to come down on new vehicles, a long way before it got anywhere close to supply.

And much of our business.

But particularly in the UK and to a large degree in the U S. Our luxury brand businesses and businesses, such as Toyota and Honda and so forth in the U S.

And our core customers, while it may be not ideal. We just we just don't have data that shows that that we're seeing less activity and our store ship and Daryl I don't know if you want.

Earl agreed weeks during the quarter, John we saw our average selling price held up through the quarter and use.

We saw the lead counts per.

Inventory continue.

Continued very strong.

And very consistent in terms of gross profit and price stability. So we haven't seen that yet.

We watch it everyday but we haven't seen it yet.

And maybe I'd ask you to make a characterization I don't know if it's fair or not fair, but given the volume levels may be specifically talking about the U S that we've seen in aggregate for the industry for calendar year 2021, and what seems like it's going to transpire in 'twenty two now you've been in the industry for a long time would you characterize those.

<unk> is essentially recessionary level.

Volumes right fulfilled right I mean, it's not necessarily the demand.

So that.

You could almost argue that new vehicle auto demand has been in a recession for at least the last two years and probably going to be in it for a third year on the level of itself not necessarily on the economics, but on the levels is that a fair characterization.

Absolutely absolutely 13 14 million Sars.

That historically it was was a recession.

And so.

So and there's a lot of consumer purchasing power that is still pent up from the Lockdowns.

Covid people are still trying to spend money and yeah I get it if you talk about the lowest the.

The lowest demographic sector of the subprime used car market alright, that's very price sensitive credit sensitive market, but we're not in that market to any large degree.

Inflation is never good for consumers and in particular.

The lower demographic sectors of the economy, that's a fact.

But that's just not one of our businesses.

And then just lastly on.

Parts and service you kind of talked about this is really accelerating but is there anything that's going on there.

You can kind of quantify as youre, saying you expect it to remain strong through the course of this year.

On deferred maintenance.

You want people willing to pay.

Maybe do more maintenance on their vehicles, because they're holding onto them longer things that we kind of sort of on a short term and long term.

You think about sort of a little bit more structural and sticky benno just hate to just some pent up demand I mean, it just seems like there's a lot more going on here.

John This is Daryl we've seen the trend in Q1 is similar what we saw in Q4.

The customer counts are up but also the average spend per customer is up as well so.

And that's not inconsistent with what we've seen in the last couple of quarters. So we've seen that I continue to expect that will continue.

Do you have enough tax at this point or now you need to hire a lot more.

We're continuing to higher tax and.

We're happy with.

With the number we've hired.

We hired 16% of our we've increased our base, 16% in the last year, but.

We want to continue to hire them.

There is more growth opportunity there and the good thing is our four day work week allows us to be flexible with our scheduling and we can maximize the productivity of our shops without adding brick and mortar.

Do you have a cap ute number for your stalls or is that something you're looking at Daryl.

We are actually with a four day work week, we can have more tests than we have physical stores and we have that in several dealerships. So we don't feel like we're limited by the number of physical stores that we have we're not at our physical saw limit yet on tax, but we could go buy that and with the four day work when can we do that a number of stores.

We have several more text than we do stalls in a number of stores.

Alright, Thank you very much guys.

The next question will come from Daniel <unk> with Stephens. Please go ahead.

Yes. Thanks, good morning, guys. Thanks for taking the questions and congrats on the strong quarter.

Daniel I wanted to start on the accelerated business I think you guys said you sold 5800 units in the quarter I guess, how are you measuring what thought online is that just what fully done online or does that count.

Units were part of it is done online and then what percent of those are getting a training events.

Daniel This is Daryl Cunningham.

The accelerated numbers nine 6% of our business 5800 units what it was.

Those are people that start and accelerate and continue through the process and buy a car. They may hop out of accelerate at some point.

To come in and test drive a car or something like that.

But those are people that start an accelerated process and end up buying a car from us. So that's how we define accelerates.

And then there are 60% of our customers that touch accelerate in some way whether they.

Trade a car in online using accelerate or whether the upload insurance and driver's license information using accelerated.

Or whether they shop for inventory or value of trade to accelerate that's over 60% of our customers.

Got it and then I wanted to tie that into the F&I I think you made a comment Darrell.

Stellar adding customers and driving more F&I per unit I guess, how does that compare to an indoor F&I per unit and then taking a step back just broadly as rates rise is it going to get harder to attach more products.

So each vehicle sold or how should we think about rising rate impacting F&I.

I'm sorry go ahead.

I will answer the accelerated portion of that and then people are shovel answer the.

F&I impact moving forward.

What we're seeing with accelerate customers as theres more attachment rate on it.

For those customers that start and our.

And accelerated.

We're seeing that.

Theres more attachment rate on ethanol and we're continuing to monitor that.

Okay.

I believe that to be a long term trend we've seen that over several quarters.

And then Pete can answer about interest rates and the impact of that on our <unk>. So hey, Daniel This is Pete.

Following up on barrels.

Or.

About $140 higher on the accelerated versus in store.

And as far as rising rates is a the consumer looks at a monthly payment. So there is certainly risk that if rates go up that could affect some product penetration, we haven't seen that but there's always things I'd like to remind you is that the captive finance companies, whether it's Toyota or financial or Toyota finance.

<unk> services are BMW, they're there to support the deal.

<unk> and traditionally they've come with incentivize rates when rates get too high. So we're very pleased with our with our product penetrations I think the numbers show that for the rest of <unk> on our plan, but.

I think for now we're not.

<unk> ago.

Yes.

Great. Thanks, So much guys and then one more if I could sneak it in are you guys seeing I need to turn it will impact in the oil patch and the move in commodity prices, yet and if not do you think that will show up this year as drilling activity picked up down in Texas.

Yes. This is Earl yes, clearly these high energy prices.

A lot of companies in the oil areas of Texas, West, Texas, Houston, and a couple of the other areas.

So that's good I Wouldnt say theres been more drilling activity in these companies have gotten very efficient and lean but the other thing is these companies are also leading the energy transition and the new forms of energy, Texas now gets 20% of our power from wind if you can believe that and.

The other thing that has really exploded in the last month or so.

Invasion of Ukraine is the future investment potential of LNG.

That is all centered.

Within our markets here. So I think this LNG investments round is likely to go on for some time so the combination of.

Of this movement toward renewable energy and the energy transition.

<unk> of America.

It's still going to be centered to a large degree around here.

And then the higher prices and the move towards LNG all of that bodes well for our markets.

Great. Thanks for all the color and best of luck.

Okay.

The next color will come from David with them with Morgan Stanley . Please go ahead.

Thanks, Good morning.

I guess first on used you guys think about the.

The trend I saw some other dealers.

With recently and that your GP was up.

It's a very high inventory acquisition costs.

Just curious any more aggressive on raising prices to offset those high procurement costs compared to some other players.

We felt like we had some opportunity David in our PR use and so.

A lot of it is the way we are sourcing vehicles.

We're not relying on outside auctions at all.

We're keeping more vehicles for trading for more vehicles, we're buying more vehicles out of our service drives 5700 vehicles were acquired through accelerated those all have higher profit potential than anything we can go source from the outside and so I would say, that's what's driving our incremental improvement.

So 100% every reduce the majority is coming from trades.

No well north of 90% is being sourced organically, though.

Less than far less than 10% from any auction.

Yes.

And there was a slide in the deck I think it's likely.

That accelerated retention.

91% higher than international.

Consumers are made there.

It's running at a 71%.

And then it is higher than traditional I'm, just curious does that mean.

71% and accelerate customer has already bought another car from you guys or is it just a portion of their coming for service after buying them accelerate platform. After after the two years, we've had accelerated fully deployed.

Those customers are coming back to us.

71% of the time versus 54% of the time.

With other customers.

Okay.

Finally, just on pricing with the dealers all doing seven 8% EBIT margins.

Just curious how the factories number come to you guys and basically said youre doing an extra two to 300 bps of EBIT margin pre than pre COVID-19 .

Some of that belongs to us.

It doesn't seem like there's been that tension or adversarial relationship the past few years.

Well.

Factories, and you've seen it in all of their homes.

<unk> public releases in.

They've been very clear that they would like dealers to sell vehicles at MSRP philosophically, we believe.

We look at these transactions and the long term.

Relationship with the customer and we want them to come back we want them to have equity in their cars a year two years three years from now.

So that's philosophically why we approach are selling at MSRP the way we do.

Factories has been very clear we've seen that this quarter quite a bit we see it in regular communications.

Earl just something out of it no no. The only communication we've had as with most of them that they would prefer that we don't have these smartphones.

Both MSRP and we agree with that.

I'm, saying, we havent sold a few specialty vehicles above that but our policy is if it's our customer and us.

Market area, we're selling these cars at MSRP and our feedback from our Oems have been very positive in that regard.

Okay. Thank you.

The next question will come from Rajat Gupta with Jpmorgan. Please go ahead.

Great. Thanks.

For taking the question.

The two questions.

We get a lot more than.

People are trying to understand what normalized earnings could look like.

For your company and your peers.

And.

I think the two the turnkey uncertain area at all.

Like just can you make up gross margins are.

What's going to happen with SG&A to growers.

And what's gonna have indeed F&I.

No.

Could you comment on each of them.

Productivity, obviously continues to remain strong can you give us a sense of how your thinking has evolved.

Evolve overtime in terms of quarter the possible ratio there longer term.

Obviously gpus are factors. So maybe you can help screen in the context of some GPO scenarios.

And then on the F&I.

Obviously, continuing to crush that number every quarter.

It will stay like Asps do come back to like 2019 level, but maybe that's not a realistic scenario, but even if that is what it turned out to be.

How should your F&I.

How should the F&I GPU will look like and that's it.

Given the changes you see.

On the service contract penetration.

It'll be all.

Well, let me just start with kind of a macro look at it.

It's clear that <unk>.

Margins.

Are not likely to stay this high indefinitely.

And that in a higher interest rate environment F&I penetration per unit could also go down. So those are both gross profit numbers that could go down some day in and we've proven our business model is one that when gross profit generation reduces we have to reduce our cost.

But we have a flexible cost structure and that's what we continue to prove and recessions at another time in spite of Covid when we have to adjust.

As we have a flexible cost structure and that is the advantage of our business model. The other factor that should coincide and timing with such time as perhaps gross margins, whether it's Jeff and I are on the vehicles start to decline the volume should start to increase.

So we all know there was upside of new vehicle volume in the future.

So those are the two factors that we have the leverage.

At the point in time, when when I per vehicle or finance margins.

Soften down a bit.

Have to reduce our cost and we have to make it up in volume and clearly the power of F&I as an incremental volume right.

Maybe just $200 less a unit, but it is getting more turns from selling more new and used car as well.

That's a powerful offset and that's really how we look at it quite simplistically.

Got it to resolve this as this is Pete I will.

Thanks for your kind words on crushing it but if you look at our trends over the last 10 years weather.

Through financially hard times, we've continued to execute through our training and our processes and our compliance piece of it we've got terrific Atlanta lender relationships.

Okay.

I'll Echo <unk> comments that the macro could affect it but the.

The process that we have in place in our company for F&I continues to execute.

We're seeing it's not just asp's, that's driving the PR use up.

Seeing better product penetration too.

Got it okay, great. Thanks.

The next question will come from Glenn Chin with Seaport. Please go ahead.

Good morning folks. Thank you and congratulations most of my answer my questions have been answered, but maybe a couple of quick follow on so I.

I apologize if I missed it but did you say you feel like you've benefited benefited yet from record in energy prices or supplies.

Supply is so tight that it's not even really fairly apparent.

I don't think I could articulate that we benefited by some amount, but by being the largest retailer.

Houston and Texas overall these things these macro factors and in the energy transition energy prices invest.

Investments in LNG and alternative energy sources, that's all great for our core market that that's the only point I was making but I couldnt tell you. The only thing I can tell you is that our Texas market did outperform our other markets in the quarter.

Texas is a very diversified state. However, so I couldn't tell you. It was just attributable to anything in energy.

Right, but I think historically.

The lag time will start to have been.

Two to three quarters is that fair.

Yes, there is a time lag of some amount that's correct.

Yeah, that's directionally correct I, just know that when oil prices and gas prices go down and we get hammered and yet wanted strong nobody seems to care.

I care.

Okay, that's what I don't want to hear it.

Uh huh.

And then I'll make sure everyone else cares.

And just a follow up.

Yes, that's fair.

A follow on on self sufficiency.

And your use of auctions granted youre used is very low you know yourself efficiency is very impressively high.

Just given recent M&A in the auction space right.

Greg I was wondering if your competitors acquiring your desktop or are you guys any less likely to use them in the future either at a wholesale or to buy from them.

Yes, we are less likely to use the deaths in the future.

Okay. Thank you and then lastly, just going back to F&I, maybe a question for Pete.

Hum.

I mean for years, we thought this is the peak.

And it just continues to step higher.

Do you still see room or or head way for it to grow further Peter and would that be a function of increased penetration of our product proliferation or both.

Yes.

So any of the increases are going to come from additional product penetrations, we've got.

We're making a 1% spread.

On rate to be thinking as we're comfortable with so the increases youre seeing our increased penetrations on product and with with customers and we're up to $73, 74% of penetration. So I'll go back to we've got they've got nine regional finance directors to do a terrific job of training.

Daniels audit team worked closely with the operations to make sure we're in compliance.

We've got a really good department, that's that's executing so.

I expect them to continue to perform at a high level and if we can increase the penetration and don't have interest rate headwinds I think there's still upside.

Okay very good that's it for me thank you.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to Mr. Earl <unk> for any closing remarks. Please go ahead Sir.

Thanks, everyone for joining us today, we look forward to updating you on our second quarter earnings call in July have a good day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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