Q1 2023 Autonation Inc Earnings Call

First quarter 2023 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question. Please press Star then two.

Thank you I would now like to turn the call over to Derek Fiebig, Vice President Investor Relations. So Derek you may begin your conference.

Thanks, Brad and good morning, everyone welcome to Autonation first quarter 2023 conference call.

Our call today will be Mike Manley, our Chief Executive Officer, and Joe lower our CFO .

Following their remarks, we'll open up the call for questions before beginning I would like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives constitute forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1095.

Such forward looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward looking statements additional discussions of factors that could cause our actual results to differ materially.

And in our press release issued today and in our filings with the SEC.

Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call reconciliations are provided in our materials and on our website located at investor.

Dot Autonation dot com with that I'll turn the call over to Mike.

Thank you Sir.

And good morning, everybody and thank you for joining us today.

We reported first quarter EPS of $6 seven and.

That really is a result of <unk>.

Zillions of our business in this environment, but coupled with disciplined capital allocation.

And as a result of those two things that $6 seven was a record result for US now Joe will take you through the numbers in detail, but before that I wanted to discuss how we have been successfully navigating in the current environment.

Well, we've been taking the business in the future.

Obviously, theres a lot of mixed economic signals in the market and within auto retail, which do one I think a more cautionary approach in the past few years.

The rules will be discussed on this call reconciliations are provided in our materials and on our website located at investor.

It's also evident that the current economic environment is having an impact some of the concerns of late last year has not yet manifested themselves.

Dot Autonation dot com with that I will turn the call over to Mike. Thanks, Sarah.

Some thought they would and our consumer and our opinion is in no way tapped out on the industry is benefiting from lower unit sales over the past few years and an aging vehicle Park, which has historically supported demand within the industry.

And good morning, everybody and thank you for joining us today.

We reported first quarter EPS of $6 seven and that.

That really is a result of resilience of our business in this environment, but coupled with disciplined capital allocation.

Now for new vehicles industry inventory remains well below historical levels and we have seen some recovery, but there is a wide variation amongst brands and models.

And as a result of those two things that $6 seven was a record result for us and Joe will take you through the numbers in detail, but before that I wanted to discuss how we have been successfully navigating the current environment and where we've been taking the business in the future.

The new sales increase from a year ago, driven by a large increase in fleet vehicles with retail unit up slightly.

Obviously, theres a lot of mixed economic signals in the market and within wholesale retail, which do one I think a more cautionary approach and.

Even with the recent increase in sales the industry still remains at or near recessionary levels.

In the past few years.

As the nation's unit mix for the quarter were in line with industry after accounting for our brand mix.

I think it's also evident that the current economic environment is having an impact some of the concerns of late last year, if not yet manifested themselves to the extent some thought they would and our consumer and our opinion is in no way tapped out on the industry is benefiting from lower unit sales over the past few years and an aging vehicle park, which is.

So if you look at our portfolio and the way the industry shapes out new vehicle sales.

Just said in line with the industry for that period.

On new vehicle profitability was solid as you've seen us continue to moderate as expected.

Historically supported demand within the industry.

Inventory increased yet remained very robust at more than $5200.

Now for new vehicles industry inventory remains well below historical levels and we have seen some recovery, but there is a wide variation amongst brands and models.

Moving to used vehicles as we discussed on our last call availability of used vehicle inventory will be a key theme this year.

On the lower new unit sales over the past years have led to the scarcity of supply of late model used vehicles.

First quarter, new sales increase from a year ago, driven by a large increase in fleet vehicles with retail unit up slightly.

As of the end of last year, the population of vehicles five years and less of our <unk> was down about 10% from 2019 and vehicles three years unless were down more than 15% from 2019.

Even with the recent increase in sales the industry still remains at or near recessionary levels.

Auto nation's unit mix for the quarter were in line with industry after accounting for our brand mix.

So if you look at our portfolio and the way the industry shaped out new vehicle sales were as I just said in line with the industry for that period.

In addition, the turnover of younger used vehicles, which are more of a sweet spot has also declined as consumers are holding onto their vehicles for longer but.

But I do have to say that none of this was unexpected.

Our new vehicle profitability was solid as you've seen <unk> continue to moderate as expected.

Now to help offset the resulting reduction in used volumes, we focused on enhancing economics. So we effective self sourcing reconditioning speed to market and of course pricing. Our focus is squarely on internal sourcing, which is a strength of ours.

Inventory increased yet remained very robust at more than $5200.

Moving to used vehicles as we discussed on our last call availability of used vehicle inventory will be a key theme this year.

Asset turnover.

The lower new unit sales over the past years have led to scarcity of supply of late model used vehicles.

And avoiding purchase invasive the auction with Jonathan require substantial reconditioning to get them up to date.

As of the end of last year, the population of vehicles five years and less of our <unk> was down about 10% from 2019 and this was three years unless were down more than 15% from 2019.

As a nation standard will come at a premium price, which would have significantly impacted our margin.

Used vehicle gross profit was a first quarter record.

And up both year over year and on a sequential basis from the fourth quarter.

In addition, the turnover of younger used vehicles, which are more of a sweet spot has also declined as consumers are holding onto their vehicles for long that.

Last year in the first quarter, we made the tactical decision to realign repositioned to reduce our used car inventory and I think that proves to be a prudent move as the year went on did however set us up for a tough comp the unit volume in Q1.

But I do have to say that none of this was unexpected.

Now to help offset that.

And reduction in used volumes, we focused on enhancing economics.

We will remain nimble in our approach to used vehicles and the expansion of our Autonation USA footprint remains a core tenant of our expansion and Densification efforts.

Active south sourcing reconditioning speed to market.

<unk> pricing.

Our focus is squarely on internal sourcing, which is a strength of our asset turnover.

Turning to CFS, we continued to lead the industry in customer financial services.

And avoiding purchasing vehicles at auction with John's requires substantially conditioning to get them up to.

Increased product on focus on product penetration, we have structurally changed our CFS <unk>, we continue to average two products per vehicle.

<unk> standard will come at a premium price, which was significantly impacted our margin.

Product attachments in new vehicles has remained steady while not surprisingly that has been some reduction in product attachment to use vehicles on.

Used vehicle gross profit was a first quarter record.

And up both year over year and on a sequential basis from the fourth quarter.

On the finance side, which represents about 30% of our total CFS business penetration is lower than a year ago.

Last year in the first quarter, we made the tactical decision to realign reposition to reduce our used car inventory and I think that proved to be a prudent move as the year went on did however, set us up for a tough comp for us.

Increased marginally from late last year.

For office hours, we have been consistently growing in this high margin business.

Gross profit was a record $511 million up 11% from the first quarter last year. This was fueled by customer pay warranty and collision.

Volume in Q1.

We will remain nimble in our approach to used vehicles and the expansion of our Autonation USA footprint remains a core tenant of our expansion and Densification efforts.

Been able to overcome the decrease in late model vehicle Park.

Turning to CFS, we continued to lead the industry in customer financial services.

And we remain focused on expanding our technician workforce and serving more customers.

The increased product on focus on product penetration, we have structurally changed our CFS <unk>, we continue to average two products per vehicle.

And finally for cash flow and capital allocation for the quarter, we generated significant cash flow with cash from operations of more than $500 million.

This strong cash flow generation combined with the strength of our balance sheet allow us to continue to invest to change our business for the long term make investments in our core operations and return capital to shareholders through share repurchase during the first quarter, we invested more than $300 million to repurchase a total of $2 4 million shares.

Alex attachments in new vehicles has remained steady or not surprisingly there has been some reduction in product attachment to used vehicles.

On the finance side, which represents about 30% of our total CFS business penetration is lower than a year ago.

<unk> increased marginally from late last year.

After sales we have been consistently growing in this high margin business.

I think when you look at the shape and the performance of our business in this quarter.

Gross profit was a record $511 million up 11% from the first quarter last year. This was fueled by customer pay warranty and collision as we've been able to overcome the decrease in late model vehicle Park.

Fact, recent prior periods. It is increasingly evident that the structural changes that we have made towards our nation. During a time when the supply and demand economics have been a tailwind for our operation will have a lasting and meaningful impact on a go forward basis on how to drive shareholder value and returns regardless of what cyclicality.

And we remain focused on expanding our technician workforce and serving more customers.

Finally for cash flow and capital allocation for the quarter, we generated significant cash flow with cash from operations of more than $500 million.

Thanks.

And just before turning the call over to Joe I would like to provide some color on wearable device thing is heading in our channels for growth.

This strong cash flow generation combined with the strength of our balance sheet allow us to continue to invest to change our business for the long term like investments in our core operations and return capital to shareholders through share repurchase during the first quarter, we invested more than $300 million to repurchase a total of $2 4 million shares.

I think we've been intentionally looking at areas, we can expand and grow to meet the transportation needs of our 11 million customers in the households, as we seek a deeper more frequent relationship for a longer period of time, which builds on Autonation has very strong full business utilizing our brand on a significant footprint.

I think when you look at the shape and the performance of our business in this quarter and in fact recent prior periods. It is increasingly evident that the structural changes that we have made towards a nation sharing a time when the supply and demand economics have been a tailwind for our operation will have a lasting and meaningful impact on a go forward.

In many ways. This represents a change of mindset within the company.

Approach is centered on the broader needs of our customers and the nearly 10 million households, we serve.

During the first quarter, we bought on nearly 100000, new households, and we're focused on enhancing our relationships with active customers and reactivating lapsed customers.

Basis on how to drive shareholder value and returns regardless of what cyclicality.

We've taken a number of actions to extend the value creation of our core business by increasing the depth and breadth of our product and service offerings, while providing a convenient trusted and transparent customer experience. These.

Thanks.

And just before turning the call over to Joe I would like to provide some color on where <unk> is heading in our channels for growth.

I think we've been intentional looking at areas, we can expand and grow to meet the transportation needs of our 11 million customers in the households, as we seek a deeper more frequent relationship for a longer period of time, which builds on auto nation's very strong full business utilizing our brand on a significant footprint in.

These include our digital efforts and the investment in <unk> com the.

<unk> and creation of ant finance and the acquisition of <unk>, which expands the reach and brand of our after sales business.

As we've said these acquisitions will not have a material impact on our near term results, but then put it have put in place critical pieces for our future. We are pleased with the effectiveness of ant finance and its ability to compete with other financial institutions and meeting our customers' needs.

In many ways. This represents a change of mindset within the company. The approach is centered on the broader needs of our customers and the nearly 10 million households, we serve during.

During the first quarter, we bought on nearly 100000, new households, and we're focused on enhancing our relationships with active customers and reactivating lapsed customers.

Have great relationships with existing lenders will continue to work with them.

As we've said it will be a slow expansion frame finance as it earns its business with its customers.

We've taken a number of actions to extend the value creation of our core business by increasing the depth and breadth of our product and service offerings, while providing a convenient trusted and transparent customer experience.

For repair estimates were in the very early days, having acquired them earlier in the first quarter. It will take time for the business to attain meaningful scale and scope, we expect it will thrive in the automation ecosystem.

These include our digital efforts and the investment in <unk>, the acquisition of <unk> and creation of and finance and the acquisition of <unk>, which expands our reach and brand of our after sales business.

Both of these acquired businesses are additive not substitutional for our business and we will take a measured approach as we work for sustainable profitable growth.

The expansion of offerings builds on some of the step changes we've made to the business, which include our continued expansion into used vehicles and USA, which is now 15 stores a continued growth in after sales and our continued growth and focus and CFS.

As we've said these acquisitions will not have a material impact on our near term results put in put it have put in place critical pieces for our future.

We're pleased with the effectiveness of ant finance and its ability to compete with other financial institutions and meeting our customer needs.

Two industry, leading Cvs.

We have great relationships with existing lenders will continue to work with them.

With time, we expect our actions will garner a larger share of wallet from consumers, thereby reducing our relative exposure to.

As we've said it will be a slow expansion frame finance as it earns its business with its customers.

So the most cyclical parts of the business.

The repair estimates were in the very early days, having acquired them earlier in the first quarter. It will take time for the business to obtain meaningful scale and scope, we expect it will thrive in the automation ecosystem.

<unk> now I'll turn the call over to Joe Who's going to take you through the financials in greater detail.

Thank you Mike.

Good morning, everybody I'm also going to start with the bottom line and then work back through the pieces of our performance for the quarter.

Both of these acquired businesses are additive not substitutional for our business and we will take a measured approach as we work for sustainable profitable growth.

Im also pleased to report that we generated record first quarter EPS of $6 seven per share an increase of 5%.

The expansion of offerings builds on some of the step changes we have made the business, which includes our continued expansion into used vehicles and USA, which is now at 15 stores a continued growth in after sales and our continued growth and focus and CFS.

The prior year as.

As Mike said this was driven by robust margins strong after sales growth disciplined expense management and our balanced capital deployment strategies overcame lower unit sales with both new and used vehicles.

Two industry, leading Cvs.

Starting with top of the P&L, we reported first quarter total revenue of $6 4 billion.

With time, we expect our actions will garner a larger share of wallet from consumers, thereby reducing our relative exposure to.

The decrease of 5% year over year, driven by lower units sold more than offsetting continued growth of after sales.

So the most cyclical parts of the business.

<unk> now I'll turn the call over to Joe Who's going to take you through the financials in greater detail.

Our new unit sales decreased by 2% in the quarter, which was in line with the industry when adjusted for Brian VIX as Mike mentioned earlier.

Thank you, Mike and good morning, everybody I'm also going to start with the bottom line and then work back through the pieces of our performance for the quarter.

New vehicle PBR margins remained above $5200, but has moderated from prior fees.

Im also pleased to report that we generated record first quarter EPS of $6 seven per share an increase of 5%.

Inventory for new vehicles increased to 25 days on average with a wide dispersion by brand and model.

Versus the prior year.

As Mike said this was driven by robust margins strong after sales growth disciplined expense management and our balanced capital deployment strategies overcame lower unit sales of both new and used vehicles.

The overall new vehicle market remained healthy during the quarter as approximately 45% of our vehicles were sold at MSRP.

This continues to be far higher percentage than pre pandemic levels.

Starting with top of the P&L, we reported first quarter total revenue of $6 4 billion.

Our total used vehicle gross profit increased by 13% from a year ago to a first quarter record of $154 million.

A decrease of 5% year over year, driven by lower units sold more than offsetting continued growth of after sales.

Our strong margins with <unk> exceeding $2100 more than offset lower unit sales.

Our new unit sales decreased by 2% in the quarter, which was in line with the industry when adjusted for Brian VIX as Mike mentioned earlier new.

As Mike mentioned in the first quarter of last year, we realize our inventory, resulting in unit sales of nearly 80000 units and <unk> in the mid $500 range for context.

New vehicle PBR margins remained above $5200, but if moderated from prior peaks.

We continue to enhance our used vehicle economics through effective self sourcing, which remained around 90% as well as efficient reconditioning and pricing.

Inventory for new vehicles increased to 25 days on average with a wide dispersion by brand and model.

The overall new vehicle market remained healthy during the quarter as approximately 45% of our vehicles were sold at MSRP.

After sales gross profit grew 11% year over year as we continued to drive strong performance in this area of our business customer pay warranty and collision all grew year over year in the mid teens.

This continues to be far higher percentage than pre pandemic levels.

Our total used vehicle gross profit increased by 13% from a year ago to a first quarter record of $154 million as.

Our recurring revenue stream from our after sales continues to grow with 2022 full year annual gross profit up more than $275 million 10 to 2019.

Strong margins with PBR exceeding $2100 more than offset lower unit sales.

Yes, CFS performance also remained robust and we continue to lead the sector with PBR is consistently above $2700.

As Mike mentioned in the first quarter of last year, we realize our inventory, resulting in unit sales of nearly 80000 units and <unk> in the mid $500 range for context.

Moving to costs.

<unk> as a percentage of growth was 68% for the quarter remaining significantly below pre pandemic levels, reflecting permanent structural changes to our cost basis as.

We continue to enhance our used vehicle economics through effective self sourcing, which remained around 90% as well as efficient reconditioning and pricing.

As expected SG&A as a percentage of gross profit was slightly higher than recent periods, reflecting investments in technology, and new business initiatives to better position us for the future as Mike highlighted earlier in his remarks.

After sales gross profit grew 11% year over year as we continued to drive strong performance in this area of our business customer pay warranty and collision all grew year over year in the mid teens.

First quarter of floor plan interest expense of $27 million was.

Our recurring revenue stream from our after sales continues to grow with 2022 full year annual gross profit up more than $275 million 10 to 2019.

It was impacted by both higher rates and increased inventory levels.

<unk> expense increased from $20 million in the fourth quarter and $5 million a year ago.

Yes, CFS performance also remained robust and we continue to lead the sector with PBR is consistently above $2700.

This all culminated into net income for the first quarter of $289 million.

Or a record $6 <unk> per share.

Moving to costs.

Our operating performance and cash flow generation remained very strong with cash from operations totaling more than half of $1 billion for the quarter.

<unk> as a percentage of growth was 68% for the quarter remaining significantly below pre pandemic levels, reflecting permanent structural changes to our cost basis as.

This consistent cash flow generation combined with the strength of our balance sheet provides us with significant capacity to deploy capital into our business and return capital to our shareholders.

As expected SG&A as a percentage of gross profit was slightly higher than recent periods, reflecting investments in technology, and new business initiatives to better position us for the future as Mike highlighted earlier in his remarks.

During the quarter, we invested approximately $285 million in our business operations, including the acquisition of repair Smith and $95 million of capital expenditures.

First quarter of floor plan interest expense of $27 million was.

<unk> by both higher rates and increased inventory levels.

We also continue to expand our autonation USA footprint, adding locations in Austin and Albuquerque during the quarter, bringing the current store count to 15.

<unk> expense increased from $20 million in the fourth quarter and $5 million a year ago.

This all culminated into net income for the first quarter of $289 million.

As Mike mentioned, the Autonation USA stores play an integral part of both our long term growth plans and the achievement of scale scope and density in our markets to better serve and meet the needs of our customers.

A record $6 <unk> per share.

Our operating performance and cash flow generation remained very strong with cash from operations totaling more than half of $1 billion for the quarter.

Returning capital to shareholders via share repurchase remains significant.

Consistent cash flow generation combined with the strength of our balance sheet provides us with significant capacity to deploy capital into our business and return capital to our shareholders.

During the quarter, we invested $305 million, reducing our share count by two 4 million shares or 5% in the quarter.

We have approximately $875 million of remaining authority for share repurchase.

During the quarter, we invested approximately $285 million in our off premise business operations, including the acquisition of repair Smith and $95 million of capital expenditures.

Finally, we ended the first quarter with total liquidity liquidity of approximately $1 6 billion.

Our covenant leverage ratio of debt to EBITDA of one eight time remains well below our historical two times to three times range.

We also continue to expand our autonation USA footprint, adding locations in Austin and Albuquerque during the quarter, bringing the current store count to 15.

Looking ahead, we will continue to focus on operational excellence and disciplined capital allocation to fuel growth and drive long term shareholder value.

As Mike mentioned, the Autonation USA stores play an integral part of both our long term growth plans and the achievement of scale scope and density in our markets to better serve and meet the needs of our customers.

That I will turn the call back over to Mike.

Yeah, Thanks, Joe before taking your questions.

Returning capital to shareholders via share repurchase remains significant.

I really would like to take the opportunity to thank.

Our more than 24000 associates, who helped deliver I think a wonderful customer experience every day.

During the quarter, we invested $305 million, reducing our share count by two 4 million shares or 5% in the quarter.

Yes.

My mind is very placements was fortunate enough to join this organization that this is really a company that values and one of the important values as the drive Pink initiative.

We have approximately $875 million of remaining authority for share repurchase.

Finally, we ended the first quarter with total liquidity liquidity of approximately $1 6 billion.

I think it's absolutely fundamental and really fit firmly at the center of our corporate culture, and Marc Cannon and his team and all of the associates that get involved on their own time.

Our covenant leverage ratio of debt to EBITDA of one eight time remains well below our historical two times to three times range.

On their own volition I think has done an amazing job and have now raised more than $37 million to help drive out cancer and.

Looking ahead, we will continue to focus on operational excellence and disciplined capital allocation to fuel growth and drive long term shareholder value.

With that I will turn the call back over to Mike.

If you want to know anything about Autonation and that's an important thing Tonight. So thank you Mark. Thank you all of our colleagues again vote and thanks to everybody for.

Yeah, Thanks, Joe before taking your questions.

I really would like to take the opportunity to thank them.

More than 24000 associates, who have delivered I think a wonderful customer experience every day.

Confidence navigate in Q1 and with that we'll open up for questions. Derek. Thank you breakout here you can open up the line for questions that'd be great.

In my mind is very placements.

Thank you.

If you would like to ask a question. Please press Star then one on your kind of thing.

Was fortunate enough to join this organization that this is really a company that values and one of those.

Yeah.

Fulton values as the drive Pink initiative.

If you change your mind please Ms Staci.

I think it is absolutely fundamental and really fit firmly at the center of our corporate culture.

Marc Cannon and his team and all of the associates that get involved on their own time.

We have the first question on the sidelines from John Murphy with Bank of America. Your line is open.

On their own volition I think has done an amazing job and have now raised more than $37 million to help drive out cancer and.

Hi, good morning, guys.

Just a first quick one on SG&A, obviously grosses may move around and there are some market dynamics that are outside of your control, but you definitely control.

If you want to know anything about Autonation and that's an important thing Tonight. So thank you Mark. Thank you all of our colleagues again bolt and thanks to everybody for.

SG&A. So just curious if we saw it.

Try to kind of come with a rule of thumb.

This navigate in Q1 and with that we'll open up for questions. Thank you. Yes breakout here you can open up the line for questions that'd be great.

Gross dropped by 100, what would be sort of the natural flow through on.

On SG&A without any actions, taking meaning how much of sales comp our variable comp and I know it might depend through that through the segments.

Thank you.

If you would like to ask a question. Please press Star then one on your kind of thing.

And then Mike also what kind of actions would you take on top of sort of that natural flow through to reduce SG&A of grosses did come down.

Yeah.

If you change your mind pizza.

Good question, Jon I'll take that one and given my.

We have the first question on the sidelines from John Murphy with Bank of America. Your line is open.

Focus on SG&A expenses. So the quick answer is the flow through round numbers is about 70% flow through.

Hi, good morning, guys.

Just a first quick one on SG&A I mean, obviously grocers may move around and there are some market dynamics that are outside of your control, but you definitely control.

That's been kind of a historic.

Rule of thumb, but I would tell you as we look at the business and the way it has transformed pre pandemic to now I think there's some more fundamental things. If you go back as an example compensation used to be 45, 46% of growth.

SG&A. So just curious if we saw it.

The rule of thumb.

Gross dropped by 100, what would be sort of the natural flow through on SG&A without any actions, taking meaning how much of sales comp our variable comp and I know it might depend through that through the segments.

That's coming now at 40, and I think that is the type of benchmark. We will continue to monitor as we look at how it can be consistently more efficient.

And then Mike also what kind of actions would you take on top of sort of that natural flow through to reduce SG&A of grosses did come down.

Both in the stores and in the operations.

Advertising has been historically, 6% and we've driven that down to 3% to 4%.

Good question, Jon I'll take that one and given my.

And then overhead historically it was kind of about 20% and we're now operating at kind of a 15% to 16%.

<unk> focus on SG&A expenses. So the quick answer is the flow through round numbers is about 70% flow through.

And I think we're going to continue to aggressively manage the business.

Aggressively manage the cost what we're also making investments in the business, which we've talked about so that's kind of the numbers. Let me give you a kind of a Mike will give you a kind of a broader perspective.

That's been kind of a historic.

The rule of thumb, but I would tell you as we look at the business and the way. It has transformed pre pandemic to now I think there's some more fundamental things. If you go back as an example of compensation used to be 45, 46% of growth.

Yeah, Thanks, telling us pretty good job actually.

Adam.

I mean, one of the things that we've talked about in the past if you look at the ratio between what is fixed structurally in our business.

That's coming now at 40, and I think that is the type of benchmark. We will continue to monitor as we look at how we can be consistently more efficient.

What is actually variable as a result of growth with very high on the variable level. So to some extent in the initial parts of the downtime we get natural protection from that on the balance that we look at obviously as productivity within the business.

It would be naive to think that there is not a floor, where we need to maintain a level of.

Customer service and our level of responsiveness.

To our customers and indeed make sure our people at the right level of resources and.

At the end of the day when you reach that I think you have to very much recognize it's a cyclical business and recover pretty quickly after a downturn. So from my point of view.

I'm very fortunate to have joined the team looked at it.

On a daily basis.

With south moderating down to a point, we understand where that flow may well be but we're not prepared to sacrifice in the very short term our ability not just to recover as markets recover but also to provide ourselves with customer what the customer levels of handling I expect to continue to drive our loyalty ops.

Obviously with Joe's multiples of officer on my battling what will you won't Joe.

That's incredibly helpful. And then just on after sales obviously, a real good guy in the quarter.

Outperforming I'm just curious if you were limited by tech availability or if you were able to attract.

A lot more tax to drive that I mean, what's the status of your capacity utilization in your base and then also your manned capacity and how should we think about potential upside over there. It's really just constrained by tech availability.

Yes, I think <unk> been very pleased with the work that everyone has been doing in this area.

So if you look at the total opportunity whether its successful or not John there is no doubt that you're constrained biotech availability, but the reality is most retail dealerships up right about 40% to 50% penetration in the vehicle talks that are responsible for and I think most people have stocked up to that with the release of things lead times. We are very much focused on driving those leads.

<unk> down in conjunction with our OEM partners.

And we very much focus to improving our penetration.

In the vehicle parts that were responsible for so on that basis I would say, yes, we are.

Constraints, no more constrained than our competitors, but I think might be our aspiration, maybe different I don't know.

But we are continuing to recruit we're also working very hard on.

On <unk>.

Retention because as you know that's a very sold after labor force and.

That has always been in my experience a lot of a lot of attrition in that area. So.

I will just recruiting more people by providing a great career path for them in development for them and work on.

And welcome the retention side so.

I think the growth that we've got is a reflection of all of that.

Mike I'm, sorry, just one follow up on that you said something very interesting that you are only getting a 40% to 50% penetration of really your installed base on what you think you can get it I mean do you think you could ultimately get to a 100% or is that going to be really difficult and we should think about something lower than that I mean, what where on the spectrum of that 40%, 50% to 100% do you think you may have.

But we are continuing to recruit we're also working very hard on.

Ultimately be able to get to.

Yes. This is Mike.

Perfect World of tanks are available.

Retention because as you know that's a very sought after labor force and.

Yeah, it's probably well fall into opening Pandora's box Nigel.

That has always been in my experience a lot of a lot of attrition in that area. So we're working hard on not just recruiting more people, but providing a great career path for them in development for them and work on.

Well the answer you opened.

Yes.

Yeah Okay.

Except that.

The answer is youre never going to get to 100% because.

First of all you got to understand will age of vehicle pocket are you looking at and typically you look between seven and 10 year vehicle Park post that people are looking for different solutions and franchise businesses as <unk> and <unk>. The other big impact on retention is drive time to the dealership once you get beyond the 15 mile. Let me use models.

And welcome the retention side.

I think the growth that we've got is a reflection of all of that.

Mike I'm, sorry, just one follow up on that you said something very interesting that you're only getting a 40% to 50% penetration of really your install base and what you think you can get at I mean, do you think you could ultimately get to 100% or is that going to be really difficult and we should be thinking about something lower that where on the spectrum of that 40%, 50% to 100% do you think you may have.

And in time drive down to the dealership, we say a significant client penetration, which is one of the reasons why replacement for US is very very interesting because of course, they remove that reason for people to find a different solution. So you will navigate to a 100% it's not just asset 40% to 50% My guess is.

Ultimately be able to get to.

Yes. This is Mike.

Well thanks for available.

Yeah, Yeah, well fall into opening Pandora's box Hi, Joe.

That's a typical kind of number that you would hear.

There's opportunity for us to grow that number but deploying not just improvements in availability Davis ships, but other initiatives to help provide convenient service at the right cost equation for customers.

Well the answer you opened.

Yes.

Yes.

I accept that.

The answer is youre never going to get to 100% because.

First of all you got to understand will age of vehicle pocket are you looking at and typically you look between seven and 10 year vehicle Park post that people are looking for different solutions and franchise businesses as you know and <unk>. The other big impact on retention is drive time to the dealership once you get beyond the 15 mile. Let me use models.

But safe to say there is a huge structural opportunity we're not looking at something thats cyclical here, it's a matter of getting the capacity in the human capital to address this that should drive same store sales comps going forward, whether it be repair smoother actual tax is that a fair statement yes.

Rather than time drive down to the dealership you say a significantly declining penetration, which is one of the reasons why replacement for US is very very interesting because of course, they removed that reason for people to find a different solution. So you will navigate to a 100% it's not just asset $40 to 50% My guess is.

Yep, great. Thank you Greg that's fantastic. Thank you very much.

Thanks.

Thank you we now have Daniel.

Steven.

You May proceed with your question.

Hey, guys. This is Joe Andrew on for Daniel Thanks for taking our question.

That's a typical kind of number that you would hear.

Looking at used you talked you that came in ahead of our expectation.

And there is opportunity for us to grow that number but deploying not just improvements in availability David ships, but other initiatives to help provide convenient service at the right cost equation for customers.

How would you attribute the sequential gain there to the increase in wholesale pricing during the quarter.

And then as you look for what would be your expectation for trajectory. There is that something that would allow you to hold onto GPU more than you initially thought.

But safe to say there is a huge structural opportunity we're not looking at something thats cyclical here, it's a matter of getting the capacity in the human capital to address this that should drive same store sales comps going forward, whether it be repair smoother actual tax is that a fair.

Yeah, Thanks, Jonathan as always.

Hello a.

A combination of things that.

Contribute to it.

I think.

Your statement yes.

For us one of the things is that.

Yeah, great. Thank you Greg that's fantastic. Thank you very much.

You never you never got the supply the supply and demand dynamics on us that you have with new as you know for very obvious reasons, but.

Thanks.

Yeah.

Thank you we now have Daniel.

Steven.

When as we thought about our used vehicle inventory and in our approach.

You May proceed with your question.

Hey, guys. This is Joe Andrew on for Daniel Thanks for taking our question.

We really wanted to do is make sure that we maximize the inventory that we had and with that it means that we will.

Looking at your chart you that came in ahead of our expectation.

Even more diligent I think in terms of pricing. The other thing was for us to try and continue to improve.

How would you attribute the sequential gain there to the increase in wholesale pricing during the quarter.

And then as you look for what would be your expectation for trajectory. There is that something that would allow you to hold onto GPU more than you initially thought.

Dice to supply and I'll turn rates and.

We were able to improve that through the quarter and all of these things become all of these things become additive and as John mentioned, our year over year comp on this one it was always going to be a good guy because the work we did last year how much of it is structural in this market.

Yeah, Thanks, Jonathan as always.

Hello a.

Combination of things that.

Contribute to it.

I think the.

I think that as I said in the area of vehicles that for Autonation is the sweet spot that will be continued constraints we have.

For us one of the things is that.

You never you never got the supply the supply and demand dynamics on used that you have with new as you know for very obvious reasons, but.

Can imagine.

Logistics set to that but putting in place.

When as we thought about our used inventory and our approach.

Some actions in some processes to mitigate that where possible and in some areas than from others that have done good job over the years as well, but add back to the discipline in terms of.

We really wanted to do is make sure that we maximize the inventory that we had and with that it means that we will.

Even more diligent I think in terms of pricing. The other thing was for us to try and continue to improve.

Getting these vehicles to the front pricing thinking about where the vehicles should be sold from.

That is to supply and I'll turn rates and.

I think helped and contributed towards how much how much sticks is a great question.

We were able to improve that through the quarter and all of these things become all of these things become additive and as John mentioned, our year over year comp.

We anticipate some of it will stick.

All of it for sure because it's a very dynamic market at the moment.

This one it was always going to be a good guy because the work we did last year.

Okay.

How much of it is structural in this market I think that as I said in the area of vehicles that for automation is the sweet spot that will be continued constraints we have.

Thank you that's super helpful.

A follow up you had appear suggest there's a disproportionate number of fleet vehicles being transacted right now as opposed to retail and as a result customer incentives remain constrained.

Can imagine.

Would you provide some thoughts on this and then in particular, how do you expect the cadence of customer incentives to trend. This year. Thank you.

Well just access to that but put in place.

Some actions in some processes to mitigate that where possible and in some areas learn from others that have done good job over the years as well, but add that to the discipline in terms of.

Yes.

Yes, unlike the previous recessions, where.

All markets were being served with plenty of supply I mean, it was pure demand the fleet market. Obviously has been stopped as supply during this period as the Oems.

Getting these vehicles to the front pricing thinking about where the vehicles should be sold from.

Think helped and contributed towards how much how much sticks is a great question.

Prototypes that retail channels.

I think as Oems are beginning to return, they're obviously looking at their margin and I have made the decision I think to do two things one is too.

I anticipate some of it will stick not all of it for sure because it's a very dynamic market at the moment.

Yeah.

Get that fleet customers, which are very important to Oems of vehicles that they've been asking for for some time. So you naturally see a spike and then secondly look at their performance in the broader marketplace.

Thank you that's super helpful.

As a follow up you had appear suggest there's a disproportionate number of fleet vehicles being transacted right now as opposed to retail and as a result customer incentives remain constrained.

Other thing is on attendees an unusual phenomenon.

Could you provide some thoughts on this and then in particular, how do you expect the cadence of customer incentives to trend. This year. Thank you.

So from an incentive point of view, we will not incentives is still significantly lower I think there are some brands that will have to progressively increase.

Okay.

Yes, I mean, unlike the previous recessions where.

The incentives to drive net price position down in the marketplace is that going to maintain or even slightly grow market share in one of the things that I think are aggressively will happen is.

All markets were being served with plenty of supply and it was pure demand the fleet market, obviously has been stuff that supply.

Leasing business will begin to return.

During this period as the Oems.

I think it was around 15 or 16% at the moment, it's about 30% 32 33, something like that in normal times and so as we go through the year I think.

Prioritize their retail channels.

I think as Oems are beginning to return, they're obviously looking at their margin and I have made the decision I think to do two things one is too.

If the residual demand out there remains where it is youre going to see Oems progressively.

Get that fleet customers, which are very important to Oems of vehicles that they've been asking for for some time. So you can actually see a spike and then secondly look at their performance in the broader marketplace.

<unk>.

I think as just that net price position. So they can balance that production that fleet demand.

They need to maintain retail market share.

Everything is on that brings an unusual phenomenon.

So from an incentive point of view, we will know incentives is still significantly lower I think there are some brands that will have to progressively increase.

That's helpful. Great. Thank you that's all for us.

We now have Bret Jordan of Jefferies.

That is to drive net price position down in the marketplace, if they're going to maintain or even slightly grow market share in one of the things that I think will happen is leasing business will begin to return.

Please go ahead when you're ready.

Hey, good morning, guys.

A couple of questions on the new business initiatives.

Repair Smith, I guess was it incremental to the parts and service business and then I guess within parts and service. If you could break out what was ticket versus traffic.

It was around 15 or 16% at the moment, it's about 30% study 233, something like that in normal times. So as we go through the year I think.

Yes, I mean, as we've said.

If the residual demand out there remains where it is youre going to see Oems progressively.

<unk> is not substitutional for.

<unk> is very much advocate the other thing that for us.

I think as just that net price position. So they can balance that production that fleet demand.

<unk> expansion is we also wanted to provide.

I need to maintain retail market share.

Autonation USA customers with a very tailored to specific convenient after sales service provision, which none of the Standalone used car business has really been able to do that.

That's helpful. Great. Thank you that's all for us.

Okay.

We now have Bret Jordan of Jefferies.

Therefore, we passed it effectively becomes Diane USA as after sales division, giving dies and the team.

Please go ahead for annuity.

Hey, good morning, guys.

Couple of questions on the new business initiatives.

I think it could be a fairly significant.

USA in the marketplace. So I'm pleased about that.

Repair Smith, I guess was it incremental to the parts and service business and then I guess within parts and service. If you could break out what was ticket versus traffic.

And the good news is as we've said both with <unk>.

<unk> finance and Jeremy tight with replenishment.

Approaches to deliberately go out of these businesses in the same way that we're growing deliberately autonation USA. So very much additive I think it's very much.

Yeah.

Yes.

As we've said <unk> is not substitutional for businesses is very much out of it the other thing that for US we recognize with Orion USA expansion is we also wanted to provide.

Now our USP for Autonation USA and.

Expecting the team too.

Autonation USA customers with a very tight lid specific convenient after sales service provision, which none of the Standalone used car business has really been able to do and therefore, we passed it effectively becomes Diane USA is off the sales division, giving dies and the team.

They're able to use that effectively in the marketplace.

<unk> is a repair.

Yeah.

Right.

No I was going to say is preparing Smith geographically restricted in the sense that it's an outdoor work or a remote work are you stuck are you, mostly southern markets or is it harder to staff for that model because technicians.

It could be a fairly significant.

Technicians prefer to work indoors or how does that what's what's the potential rollout for us.

USA in the marketplace.

<unk> about that.

And the good news is as we've said both with <unk>.

But it is interesting because.

<unk> finance and Jeremy type of replenishment.

As we thought as I look at that as more and more I think Mike Mike going in assumption is exactly that which for US. If you think about our footprint about where they are not really a huge issue.

Approaches to deliberately go out of these businesses in the same way that we're growing deliberately autonation USA. So very much additive I think it's very much.

But the reality is is over and the business model during the diligence phase of nationally.

Now in the USA for Autonation USA and.

The way that they work.

Im expecting the team too.

There are so many different ways that they interact with the extreme cold climates.

They are able to use that effectively in the marketplace.

And the rollout plan when it was not necessarily.

Tony is a repair.

Yeah.

And by the.

No no.

So it's not one or the temperature dropped dramatically in these areas because.

Yeah.

No I was going to say its repair Smith geographically restricted in the sense that it's an outdoor work or a remote work are you stuck are you, mostly southern markets or is it harder to staff for that model because technicians.

<unk> been able to improve.

Many many.

Those are the things that they do can be done.

Technicians prefer to work indoors or how does that what's what's the potential rollout for us.

Multistory car Park for example.

Within garage is in different places as well so I would.

I would think it would be completely out there for maintenance cycle and impact and you're completely right.

But it is interesting because.

As we started to look at this more and more I think my my going in assumption is exactly that much for us if you think about our footprint.

<unk> prefer to work in those.

Particularly during <unk>.

<unk> collagen hate, but there are benefits that come to the technicians in the model in terms of the way they manage their value their autonomy the way they think about growing the amount of business John territory. So as always.

Not really a huge issue.

But the reality is is also in the business more during the diligence phase of nationally.

The way that they work.

There are so many different ways that they interact with the extreme cold climates.

Pricing comps.

So to the model, but I would say that not having that.

And the rollout plan when it was not necessarily.

Necessarily by that but obviously, what we're focusing on is how we can densify our existing footprint to maximize the efficiency of our businesses and provide a complete range of services to customers that we have built up.

Driven by the.

So it's not one or the temperature dropped dramatically in these areas because.

<unk> been able to improve.

Many many.

The things that they do can be done.

Multistory car Park for example.

The last two decades of being one of the most progressive automotive retailer in the country.

Within garage is in different places as well so I would I would think it would be completely answer for me to say there is an impact and you're completely right technicians prefer to work indoors.

Okay, and then one last quick one.

<unk> was it incremental to F&I were or was the volume relatively small and it offset to somebody else's.

Particularly during the extreme cold and heat, but there are benefits that come to the technicians in the model in terms of the way they manage their diet narrow tone I made the way they think about growing the amount of business John territory. So as always there's pros and cons.

Loan revenues.

Okay.

So firstly.

We are as we say.

We're really aligning.

So to the model, but I would say that not happen.

<unk>.

Gross now wants to mention finance described.

Necessarily by that but obviously, what we're focusing on is how we can densify our existing footprint to maximize the efficiency of our businesses and provide a complete range of services to customers that we have built up of that.

The Autonation USA and I can tell you that integrate phenomenally.

We're very pleased with the model that we set up frankly was one where there was no write for business because what I didn't want to do but we didn't want to do is just say hey, we've got this finance company now you have to use it because I think they have to they have to remain very competitive fast I understand that there is no right to them to them to them getting the business for us.

The last two decades of being.

One of the most progressive automotive retailer in the country.

Okay, and then one last quick one I see I see hygiene was it incremental to F&I were or was the volume relatively small and it offset to somebody else's.

So response times.

Look to book all of the normal things you would expect.

Yes.

But they have they have displaced some I'll just say that this place volume because if you offline penetration as Joe said is broadly on new vehicles.

Loan revenues.

Yes.

So firstly.

As we said.

Assign unused base of it is slightly down as you might expect because there has been some reduction in deep sub prime and subprime.

We're really aligning.

<unk>.

Gross now I will just mention funds described.

So they have displaced some volume with other with other providers, but all in all I think what we've got now is a great competitive marketplace.

I'd also mention USA and I can tell you they are integrated phenomenally.

We're very pleased with the model that we set up frankly was one where there was no write for business because what I didn't want to do but we didn't want to do is just say hey, we've got this finance company now you have to use it because I think they have to they have to remain very competitive to have to understand that there is no right.

They're out there competing clearing that.

Alright, thank you.

Thank you we now have Adam Jonas with Morgan Stanley . Your line is now open.

To them to them getting the business for us So response times.

Hi, everybody Hey, Mike.

Adam how are you.

Look to book all of the normal things you would expect.

I am good thanks I'm good.

Your comment about 45% of volume being down a MSRP.

They have they have displaced some obviously that displaced volume because if you offline penetration as Joe said, it's broadly all new vehicles.

And that being lower.

And then others I'd just be curious if you could add a bit of detail around the trend where was that number.

The sign on the user base of its slightly down as you might expect because there has been some reduction in deep sub prime and subprime.

A year ago, I mean, do where was it at the start of the year, whereas it or is it trending.

They have displaced.

I don't know if there was any.

Some volume with other with other providers, but all in all I think what we've got now is a great competitive marketplace and.

Any other detail on what your price your average price versus MSRP, but don't want to get too greedy and then a follow up.

You guys had made a big initiative on.

They were competing pioneering that.

Okay.

Seeding a captive finance operation and also through through M&A.

Great. Thank you.

Thank you we now have Adam Jonas with Morgan Stanley . Your line is now open.

I'm curious if if you're.

Our path of growth there or that the the way you would fund that or grow that maybe changing given some of the changes in the credit environment. Thanks.

Yeah.

Hey, everybody Hey, Mike.

Dan how are you.

I am good thanks I'm good.

Your comment about 45% of volume being down a MSRP.

Yes, I think thanks.

I would tell you that.

At peak margins somewhere in the region and Joe you can correct me, but somewhere in the region of about 60% of MSRP.

And that being lower.

And then others I'd just be curious if you could add a bit of detail around the trends you know where was that number.

50, 560% of MSRP and as inventory levels have come in and ads.

A year ago, I mean, do where was it at the start of the year where is it.

The monthly payment conditions in the marketplace have been changing with progressive rate increases.

Or is it trending.

If there was any any other detail about your price your average price versus MSRP, but don't want to get too greedy and then a follow up.

The subsidy is that that transaction prices driven us down.

Guys had made a big initiative on.

Slowly, but consistently too to the numbers that John so the number that drives value what I would tell you. It's an interesting dynamic because if you look at the availability of inventory across.

Seeding a captive finance operation and also through through M&A.

I'm curious if if you're.

Path of growth there or that the the way you would fund that or grow that maybe changing given some of the changes in the credit environment.

<unk> domestic and luxury retail premium obviously there are different stages. So what you say what you do say if youre looking from our lands as you do see that direct.

Yes.

But direct impact to the availability and demand and.

Yes, I think thanks.

I would tell you that.

So to some some of our divisions are performing at a much higher level of sales to NFL players. Some are performing at a lower level of <unk> with a blended average our expectation is that I think everybody's expectation is as more inventory comes into the marketplace as we continue to see.

At peak margins somewhere in the region.

You can correct me, but somewhere in the region of about 60% of Amazon.

560% of MSRP.

Inventory levels have come in and as the monthly payment conditions in the marketplace Athene changing with progressive rate increases.

Our monthly payments and that will continue to mitigate.

Not a dramatic shock pace, what mitigates revenue, thus logging on geographies that answer firstly, if you want to qualify the offset feel free but if you want to answer the question on funding for <unk> that would be great. Yes, I'll just overly reiterate I think what Mike said on the PPR.

The subsidy is that that transaction prices, driven us down slowly, but consistently too to the numbers that Joe to the numbers that Joe what.

What I would tell you it's an interesting dynamic because if you look at the availability of inventory across impulse domestics and luxury retail premium obviously that at different stages. So what you see what you do see if youre looking from our land as you do see that direct.

And it really is almost by brand by model.

Like I said, if you go back.

Again by brand and model it could've been as high as 70, or 80% and were seeing a general trend down but still as you know at a much higher than it had been historically and I would remind you that we really don't price above as SRP.

But direct impact as availability and demand and so.

So to some some of our divisions are performing at a much higher level of sales to NFL players. Some are performing at a lower level. So Joe guide with the blended average our expectation is that I think everybody's expectation is as more inventory comes into the marketplace. As we continue to see higher monthly payments that will continue to mitigate.

And that's continued so I think thats another factor to continue as far as the funding.

Our I would tell you we are continuing to be very optimistic or opportunistic as it relates to.

Not a dramatic shock pace, but mitigate throughout the year slightly and geographies. It answer firstly, if you want to qualify what offset feel free but if you want to answer the question on funding for <unk> that would be great. Yes, I'll just overly reiterate I think what Mike said on the P. P. R.

Funding and as we've mentioned repeatedly a very deliberate cadence on originations.

We have warehouse facilities in place to provide a significant capacity.

We continue to monitor closely the securitization market.

It is available, but we're going to access that when it's most attractive.

It is available, but we're going to access that when it's most attractive.

And it really is almost by brand by model.

If you go back.

Given the other available funding vehicles, we have.

Again by brand and model it could've been as high as 70, or 80% and were seeing a general trend down but still as you know at a much higher than it had been historically.

Strategically our approach hasn't changed but we're being very mindful of kind of current market conditions.

And utilizing our balance sheet as as effectively as we can.

And I'd remind you that we really don't price above it this RFP.

And that's continued so I think that's another factor to continue as far as the funding.

Thanks, Mike Thanks, Joe.

Okay.

Are they would tell you we are continuing to be very optimistic or opportunistic as it relates to.

Okay.

Thank you we now have our final question from that yet.

With Jpmorgan you May proceed.

Funding and as we've mentioned repeatedly a very deliberate cadence.

Oh, Hey, good morning, and thanks for taking my question.

Originations.

We have a warehouse facilities in place to provide a significant capacity.

Just had a first one on capital allocation.

If you could give us an update there.

We continue to monitor closely the securitization market.

Ill start with the buyback here in the first quarter.

It is available, but we're going to access that.

How should we think about the cadence for the remainder of VR.

Most attractive.

And also like any update on your plans and pipeline for acquisitions.

Given the other available funding vehicles, we have.

And Relatedly would you be willing to add more leverage to balance sheet.

Strategically our approach Hasnt changed, but we're being very mindful of kind of current market conditions.

You know for more buybacks going forward.

And utilizing our balance sheet as as effectively as we can.

Hello.

Yes.

Yes, let me.

Thanks, Mike Thanks, Joe.

That was a couple of questions. There, let me start first with maybe availability in capital. So we benefit as you know it was asked.

Okay.

Yeah.

Thank you we now have our final question from that yet.

Strong free cash flow, which.

J P. Morgan you May proceed.

It helps us significantly from a leverage standpoint, we're still below 2.0, as we've said consistently we're very comfortable in the two to three times range. We are deliberate right now and being thoughtful and making sure we have capacity to be.

Oh, Hey, good morning, and thanks for taking my question.

Just had a first one on capital allocation.

If you can give us an update there.

I'll start with the buyback here in the first quarter.

Opportunistic.

How should we think about the cadence for the remainder of VR and.

As we've said repeatedly we highly value our investment grade rating.

And also like any update on your plans and pipeline for acquisitions.

It provides us some strategic and financial advantages and so we will continue to operate in that framework.

And Relatedly would you be looking to add more leverage to the balance sheet.

As it relates to deployment of capital I would say it hasn't changed we've always.

You know for more buybacks going forward, thanks, and I have a follow up.

Indicated that we are based on returns.

Okay.

Let me tackle a couple of questions. There, let me start first with maybe availability in capital. So we benefit as you know we've got some very strong free cash flow, which.

We look at organic inorganic and share repurchase.

It really from the standpoint of returns.

We have viewed and USA is a very attractive return and frankly the returns have exceeded our initial expectations will continue to fund that appropriately.

Helps us significantly from a leverage standpoint, we're still below 2.0, as we've said consistently we're very comfortable in the two to three times range, where deliberate right now and being thoughtful and making sure we have capacity to be.

It looks very opportunistically at acquisitions, those that we've been able to identify and we feel very good about as Mike indicated, but we maintain a disciplined in this marketplace.

Opportunistic.

And share repurchase continues to be attractive at these price levels and so we're going to continue to have a balanced approach, it's going to shift to based upon the relative opportunities.

But as we've said repeatedly we highly value our investment grade rating.

It provides us some strategic and financial advantages and so we will continue to operate in that framework.

And we will use a modest level of leverage.

As it relates to deployment of capital I would say it hasnt changed we've always.

As opportunities arise, whether those are organic inorganic or share repurchase so within those parameters. We intend to continue the path we've been on.

Indicated that we are based on returns.

We look at organic inorganic and share repurchase.

Really from the standpoint of returns.

With modest shifts just based upon availability of opportunity.

We have viewed and USA is a very attractive return and frankly the returns have exceeded our initial expectations will continue to fund that appropriately.

Okay.

Understood.

That's a good color.

You mentioned earlier on the call with prepared remarks.

Look very opportunistically at acquisitions, those that we've been able to identify we feel very good about as Mike indicated, but we maintain a disciplined in this marketplace.

There was a slight improvement in finance penetration.

Versus two.

2022 ending levels.

With credit Union.

And share repurchase continues to be attractive at these price levels and so we're going to continue to have a balanced approach.

Continuing to tighten.

Standards.

Should we expect.

The shift to based upon the relative opportunities.

A further increase in penetration there.

And we will use a modest level of leverage.

And Relatedly, you know for F&I outside of finance.

As opportunities arise, whether those or organic inorganic or share repurchase so within those.

If you could give us an update on how the penetration of other ancillary products.

Since the pandemic and what do you expect penetration from those also to remain sticky going forward.

Parameters.

And to continue the path we've been on.

With modest shifts just based upon availability of opportunity.

Yeah.

Okay.

Yes. This is Mike as we mentioned.

Okay.

Understood.

In the opening comments.

That's a good color.

You mentioned earlier on the call with the prepared remarks.

The number of products that we sell.

There was a slight improvement in finance penetration.

On new has been it's been very stable.

Versus.

2022 ending levels.

With credit Union, if you look where we are continuing to tighten.

And I think that that obviously speaks to.

The focus and the processes that we have in place we have seen some mitigation on used as you might expect.

Their standards.

Should we expect a further.

The increase in penetration there.

It doesn't mean that more sensitive in terms of.

And Relatedly, you know for F&I outside of finance.

The monthly payments I think everybody is sensitive in terms of their monthly payments I. Just think that then more exposed to the increases in interest rates.

Can you give us an update on how the penetration of other ancillary products.

I'll have trended since the pandemic and what do you expect penetration from those also to remain sticky going forward.

Our penetration on you on penetration overall remains stable new.

Okay.

And has shown continued strength, particularly.

Yeah.

Yes. This is Mike as we mentioned.

Some of the Oems are coming back into the market with subsidized finance, obviously helps and thats another tool to the bag on used as I mentioned before.

In the opening comments.

<unk>.

The number of products that we sell.

Black Hawk perspective.

News then.

A reduction in.

Been very stable.

Subprime and deep subprime I expect that to continue a lot of that is by choice.

And I think that obviously speaks to.

I would say.

The focus and the processes that we have in place we have seen some mitigation used as you might expect.

So that's how I would expect.

Eight to continue.

It doesn't mean that more sensitive in terms of.

In terms of is there upside from my perspective, I think price.

The monthly payments I think everybody is sensitive in terms of their monthly payments I. Just think that then more exposed to the increases in interest rates.

Obviously as always been sensitive and at the end of the day. It comes back to that monthly payment and that includes not just the vehicle, but all the product services warranties and everything else and therefore, sometimes to <unk>.

Our penetration on U penetration overall remains stable new.

Get to those monthly payments you take a contribution across the whole honestly.

As shown continued strength, particularly.

This is a product that you're selling to get balanced response to what the customer needs. If it is possible. So I wouldn't imagine that that would be significant upside on that I think we have some great processes in place there's not that doesn't mean, there's not room for improvement I think it is.

Some of the Oems are coming back into the market with subsidized finance, obviously helps and thats another tool to the bag on used as I mentioned before.

From a forecast perspective, there's been a reduction in.

Subprime and deep subprime I expect that to continue a lot of that is by choice.

But I think to some extent you may see some trade off between penetration and margins in those products.

Site.

Okay.

So that's how I would expect.

Understood great.

Thanks for the color.

It to continue.

In terms of is there upside from my perspective, I think price.

Thank you we have no further questions from the lines I would like to hand, it back thanks, Tim Hanley for any final remarks.

Obviously as always been sensitive and at the end of the day. It comes back to that monthly payment and that includes not just the vehicle, but all the product services warranties and everything else and therefore, sometimes to get to those monthly payments you've taken a contribution across the whole of the services and products that you are selling to get balance.

Yeah. Okay. Thank you very much again, thanks for.

Thanks for your time on the call today. We appreciate it. We also appreciate the questions and Bayou questions. You also give us insight and most of in your mind.

Again, I'll just end.

By thanking all of my associates and colleagues present within origination and as I said, we also in this quarter have been very pleased.

The response to what the customer needs. If it is possible. So I wouldn't imagine that that would be significant upside on that I think we have some great processes in place there's not that doesn't mean, there's not room for improvement I think it is.

To welcome all of Persimmon.

Flows into a family as well so with that I wish you all look like that thank you very much for the time.

But I think to some extent you may see some trade off between penetration and margins in those products.

Thank you all for joining this does conclude today's call you may now disconnect your line and have enough okay.

Okay.

Understood great.

Thanks for the color.

Thank you we have no further questions from the lines I'd like to hand, it that things can only for any final remarks.

Yeah. Okay. Thank you very much again, thanks for.

Thanks for your time on the call today. We appreciate it. We also appreciate the questions. In your question. You also gave us insight and most of in your mind.

And then I will just end.

By thanking all of my associates and colleagues within within origination and as I've said, we are also in this quarter have been very pleased.

Welcome all of <unk>.

<unk> into a family as well so with that I wish you all it looked like that thank you very much for the time.

Thank you all for joining this does conclude today's call you may now disconnect your line and have enough okay.

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