Earnings Call: Q1 2021

Apr 27, 2021

Ladies and gentlemen, good day, and welcome to the Asbury Automotive Group First Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Karen Reed. Please go ahead. Thanks, David, and good morning, everyone. As David mentioned, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive First Quarter 2021 Earnings Call. I'm Karen Reed, Asbury's new Treasurer and Head of Investor Relations. I I look forward to engaging with our analysts and our investor community. The press release detailing Asbury's Q1 results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with me today are David Holt, our President and Chief Executive Officer PJ Guido, our Chief Financial Officer and Dan Clara, our Senior Vice President of Operations. At the conclusion of our remarks, we will open up the call for questions and I will be available later for any follow-up questions that you may have. Before we begin, we must remind you that the discussion during the call today is likely to contain forward looking statements. Forward looking statements are statements other than those that which are historical in nature, including those statements relating to the duration And contemplated impact of the COVID-nineteen pandemic on our business and financial performance, the impact of the chip shortage, as well as the financial projections and expectations about our products, markets and growth. All forward looking statements are Are subject to significant uncertainties and actual results may differ materially from those suggested by these statements, including potential impacts from the COVID-nineteen pandemic and the semiconductor chip shortage on us, our industry and our customers, suppliers, vendors and business partners. For information regarding certain of the risks That may cause actual results to differ, please see our filings with the SEC from time to time, including our Form 10 ks for the year ended December 2020, Any subsequently filed quarterly reports on Form 10 Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward looking statements. In addition, certain non GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non GAAP financial measures to the most directly comparable GAAP measures on our website. We have also posted an updated investor presentation on our website, asbury.com highlighting our 1st quarter results. It is now my pleasure to hand the call over to our CEO, David Holtz. David? Thank you, Karen. We are excited to have you on our team. Welcome to our Q1 earnings call. We have just reported record adjusted EPS of $4.68 up 160% over the prior year. Star continues to recover from prior year lows despite supply chain disruptions due to the chip shortage and COVID. This strong demand in the face of lower day supply helps us deliver a strong gross margin of 17.5%, An expansion of 60 basis points versus the Q1 last year. We've also stayed disciplined in managing expenses, Resulting in SG and A as a percentage of gross profit of 62.7 percent, an 8 80 basis point improvement versus prior year. Of note, this result includes an estimated $0.22 negative EPS impact from the winter storm experienced in February That caused us to close stores in several markets along with some structural damage. Our total revenue for the quarter was up 30 6% year over year and total gross profit was up 40%. Showing strong signs of recovery, New unit sales were up 24% and used unit sales were up 16% with margin expansion in both segments. Total F and I revenue was up 25%, while revenue from parts and service was up 18% from last year. We saw signs of growth in parts and service over this past quarter as drivers are returning to the road. Our balance sheet remains strong due to our performance and cash flow. Our pro form a adjusted net leverage ended this quarter at 1.7 times. This leverage level will allow us to maintain a more active acquisition pipeline and grow our business by strategically deploying capital. A couple of additional comments regarding performance. We achieved an adjusted operating margin of 6.1%, Up 180 basis points over last year and we successfully launched ClickLane, which Stan will discuss further. Regarding acquisitions, it is a very active market and we are engaged in many conversations, But remain disciplined in our approach, we are confident we will find deals that make sense for Asbury. Looking forward, We are focused on our 5 year plan, while we continue our disciplined approach to operating our business and allocating capital towards highest returns. Finally, I would like to thank all the hard working men and women who showed up every day throughout the past year with a positive attitude and a commitment to serving our guests. Once again, you delivered great results for our company. I will now hand the call over to Dan to discuss our operating performance. Dan? Thank you, David, and good morning, everyone. My remarks will pertain to our same store performance compared to the Q1 of 2020. Looking at new vehicles, based on current market conditions, we are focused on being opportunistic with our inventory And improving grosses to maximize profit. Our new average gross profit per vehicle was up $6.40 per car or 39% from the prior year period. All segment margins We're up significantly from the prior year period. Factoring in the acquisition of Park Place, Luxury represented 45% of our total revenue, Up from 34% in the Q1 of 2020, driving our all store new vehicle PBRs of $11.14 or 67%. At the end of March, our total new vehicle inventory was 527,000,000 And our day supply was at an all time low of 34 days, down 71 days from the prior year. Some of our brands were below 20 days supply during the quarter and experienced major challenges due to the lack of inventory. With no clear understanding of when production will return to normal levels, we expect the day supply to remain low throughout the remainder of the year. Turning to used vehicles. Our gross margin was 8.1%, up 100 basis points from the prior period, Representing an average gross profit per vehicle of $19.43 As a result of our performance, our gross profit was up 36%. Our used vehicle inventory ended March at $193,000,000 which represents a 27 day supply, Down 15 days from the prior year. We remain focused on sourcing inventory that will generate a fair return. Turning to F and I. Our strong, consistent and sustainable growth in F and I delivered an increase of $114 to $17.98 per vehicle retailed from the prior year quarter. In the Q1, our front end yield per vehicle increased $6.37 per vehicle to a 1st quarter record of $3,932 Turning to parts and service. Our parts and service revenue increased 1% in the quarter With business exceeding pre COVID numbers in March, we continue to see this trend thus far in April. And now I would like to provide an update on our omni channel initiatives. In December we launched ClickFlame Which is the latest evolution in our omni channel strategy that we began more than 5 years ago. We are excited to announce that we have completed the rollout of FleetLink To all stores in this quarter. As a reminder, ClickLean is a complete transactional tool, which allows for a true Online carbine and selling experience. It fills many of the gaps that exist with online automotive retail platforms currently on the market, Which basically are lead generators and unable to fully complete an online transaction. Features that are unique to ClickLine include Penny Perfect trading values and loan payoffs, real payment figures based on local taxes and fees, a loan marketplace which now includes more than 30 lenders, VIN specific finance and insurance products customized to the vehicle and consumer. The ability to sign all documents online via DocuSign, team tool service and collision appointment scheduler And we just added parts and accessories. Although ClickLane just fully launched in all stores, we have some promising initial metrics To share, average down payment is more than double our in store average. F and I PVR is 17% higher When compared to our stores, nearly 50% of customers chose to take delivery at home. Credit scores on average are higher than our stores. On average, 9 out of 10 customers that apply for a loan are approved through ClickLane. 50% of transactions had a payoff with their trade. Trades taken through ClickLane that were retailed are averaging higher front end PVRs when compared to our stores. Trade through Clicklane are turning in less than 15 days. We are certainly excited about these early indicators. And finally, I would like to take this opportunity to express appreciation to all of our teammates in the field for their continued focus on the guest experience, Their commitment to continuous improvement and the perseverance. I will now hand the call over to P. J. To discuss our financial performance. P. J? Thank you, Dan, and good morning, everyone. I'd like to provide some financial highlights, which marks yet another record quarter for our company. For additional details on our financial performance for the quarter, I would refer you to our financial supplement in our press release dated today, April 27, 2021. Overall, compared to the Q1 of last year, total revenue was 36% higher than last year. Gross margin expanded by 60 basis to 17.5 percent driven by our focus on maximizing gross profit in a market where demand continues to outweigh supply. Moving down the P and L, we saw SG and A as a percent of gross profit decreased by 8 80 basis points to 62.7%. We estimate that SG and A would have been approximately 100 basis points lower, absent the impact on gross profit and expenses The winter storm that resulted in store closures in several markets and also caused damage to a few of our Texas stores. Our actions to manage gross profit and control expenses resulted in a record first quarter adjusted operating margin of 6.1%, An increase of 180 basis points above the same period last year. Adjusted net income increased 161 percent $90,700,000 and adjusted EPS increased by 160% versus the prior year period, maintaining our momentum coming out of 2020. Net income for the Q1 of 2021 was adjusted for the following pre tax items: gain on legal settlements $3,500,000 or $0.14 per diluted share, gain on real estate sales of $1,100,000 or $0.03 per diluted share and real estate related charges of $1,800,000 or $0.07 per diluted share. Net income for the Q1 of 2020 was adjusted up for pretax items totaling $20,400,000 or $0.79 per diluted share. For specific details on 2020 adjustments, please Reference this morning's press release. Our effective tax rate was 22.3% for the Q1 2021 compared to 19.1% in 2020. Floorplan interest expense for the quarter decreased by $4,100,000 over the prior year quarter, driven primarily by lower inventory levels and lower LIBOR rates. With respect to capital deployed this quarter, We spent approximately $17,000,000 on store improvements in real estate and we repaid approximately $14,000,000 of debt. As a result of our operational performance, our balance sheet remains in a very strong position. We ended the quarter with approximately 5 $50,000,000 of liquidity comprised of cash, floor plan offset accounts and availability on both our used line and revolving credit facility. Also at the end of the quarter, our pro form a adjusted net leverage ratio stood at 1.7 times, well below our targeted leverage range of 3.0 times. As we look forward to the remainder of 2021, we anticipate similar conditions to what we have seen in the last few quarters. Inventories are likely to remain low and there will be continued opportunity to drive gross margin. Overall, as we did in Q1, we are still planning to 1,000,000 star environment, but we'll keep our business nimble and flexible with an emphasis on gross margins and SG and A expense management. One shift worth noting is that as the economy opens up more, we expect to see higher growth and a bigger contribution from our parts and service business. With regard to our 5 year plan, we are only 1 quarter into it, but are off to a great start. Our ClickLane platform is up and running across all our stores. Our same store sales revenue in Q1 was a strong 18% And we are building an active acquisition pipeline to pursue those deals that make the most sense for Asbury. As we progress, we will provide regular updates on the 5 year plan and how we are delivering. In closing, I would also like to thank our teams across the business who continue to work tirelessly during this unprecedented time to ensure our current and long term This concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator? Thank you. Our first question comes from Rick Nelson with Stephens. Thanks a lot. Good morning. So it sounds like you're expecting inventory To remain tight here, do you think you can maintain these GPUs and The SG and A expense ratio in an environment like this, is there potential You have 34 days of supply now, where you see that going Has potentially become even more or more problematic? Rick, as we all know, this is David. It's a fluid situation. It's a fantastic question. As we sit here today, We received far less cars in the month of April than we anticipated. But looking forward at May, we're anticipating more inventory to come in than we So based upon what we have on the ground now and what we perceive we're going to receive in May, which could certainly get pushed, We think we're in fine shape to deliver what we need to from a unit perspective, but also keep the margins as well. It's really tough to look beyond a month at a time, not knowing what's going to happen with the chip shortage in inventory and what's going to come. I mean, It's really too hard to see how much beyond that. But we have strong confidence as we're positioned In April and what we anticipate receiving in May. Thanks for that color, David. Hi, there are brands that are more impacted by the semiconductor shortage and others or How does that look? Crowds through the spectrum? Good morning, Rick. This is Dan. Yes. Listen, every brand is definitely impacted, but I would say, domestics are more impacted Yes, than some of the other ones that we're seeing out there. Got you. Thanks. Look, I'm Curious on the used side of that house, what proportion of vehicles are you sourcing Internally, what proportion are you going to auction and what do you see Going on in the auction market nowadays. Yes, Rick, another great question. So we are sourcing Over 50% of our cars coming from the trading perspective. Auction prices as you can imagine are At an all time high, and the availability is continues to be scarce at the auction. Parts and service, it was quite a differential. Customer pay same store up 3%, warranty down 13%. Curious What's driving that differential and the outlook, I guess, for those Two drivers to service some parts. Rick, this is David. The warranty, It had some blows with the brand and what's going on with recalls and everything. So across the board, import domestic luxury, we're just down everywhere in warranty. Don't read much into that. I mean that kind of pops up and down and we'll continue to do that throughout the year. We're really excited about Customer pay when you think about it, we probably had close to 40% of our stores at one point or another closed down in February. So we were dramatically impacted in February, not only with sales, but in parts and service. March came back so strong, it was actually ahead of 19 pace numbers. And as we sit here in April, we're experiencing the same. So the customers are back on the road. The service business is back. We always had a lagger in collision coming back, and now collision is back as well. So while we're feeling it on the variable side with some shortages with inventory, thankfully parts and service is picking up on that. And just to go back and touch on what Dan said about the used cars and acquisitions, 50% coming from trades. Our other resources is buying directly from consumers, Off lease vehicles from the manufacturers, certainly within our service drive and loaner car fleet. So We got certainly a tight day supply, but we think it's one that the inventory turns quickly and we're creating great margins with it. Great. And if I could sneak one more in here about April. You talked about the inventory Challenges, how do sales look and GPUs, are they continuing to Yes. Just what you've seen in the Q1 results, we're experiencing that as we sit here today in April as well. Great. Thanks a lot and good luck. Thank you. Thank you. Thank you. Our next question comes from John Murphy with Bank of America. Good morning, guys. I just had a first question Follow-up on Rick's on inventory. I mean, you and as well as the rest of the industry has done a great job of turning inventory faster and it hasn't Had a significant impact on sales. I'm sure it's hindered it to some extent, but it's not been a major negative. At what point or what inventory level You think you start running into constraints on supply being able to deliver to consumer what they want? And also on the inventory side, we all know often dogs sit around in inventory. I'm just curious If you think that you've kind of you and the industry have worked out a lot of these unattractive vehicles and now we're really just looking at really hot selling John, it's a great question. And again, it's such a fluid situation and you don't have a long runway to look over the next 90 days what's coming. So My comments that I'm going to make are based on sitting here today. Our perception is we're going to receive almost double the inventory in May that we received in April. I can tell you sitting here today, if we received the same inventory levels in May that we received in April, we would struggle To get to the new unit sales that we need to get to. So no insight to June at this point, But we're confident where we're sitting in April and we're confident with May assuming we receive the production that we were told we're going to receive. As it relates to the hot selling products as you point to, the OEMs are really great at this. And while the chip shortage is there, they've really been shifting Their production to the faster selling vehicles. So to your point about some of the dogs that sit out there, I'm sure there's a few strays every now and then. But it's really very light inventory and it's moving pretty quickly. The demand is very high, which is obviously you can see everyone's benefiting from in the margins. And I can't see it slowing down anytime soon, because there's also with people coming back, there's going to be a pent up demand on the fleet side as well. Yes, it's pretty encouraging. Okay. And then just second question, Park Place, Obviously, it was a big acquisition. You guys didn't even mention it much in the quarter. Just curious, the Eutels like integration is going very smoothly, because there's no noise about it. So I mean that's a good sign. And given that that Appears to be going so well. You've got a $5,000,000,000 target over your 5 year plan. Could you get more aggressive on I mean, some of your peers are talking about that kind of number almost on an annual basis. They're doing that almost on an annual basis. I mean, is there An opportunity to get more aggressive and even larger than what you're targeting at the moment? Yes. It's a great question, John. I'm going to touch on Park Please, real quick. The largest acquisition in Asbury's history from a dollar standpoint, but from a meaning standpoint And really setting us up for who we want to be. I mean, we look at Park Place as the crown jewel in the automotive industry. The professionals that we have there, the general managers, the senior team that runs the business there is everything we thought it was and more, but it takes a lot of communication and care to make sure things go And we're looking at the long term relationships and run. So very, very excited what we're seeing there and it kind of shows in our total numbers compared to same store. So That will continue to progress and the relationship is great and acquisition transition is going great at this point. As it relates to acquisitions, In the time that I've been with the company, we've never had more conversations going on than what we have now. Everyone wants their prices based off COVID numbers. I don't think that that's in the shareholders' best interest to buy every acquisition based on COVID numbers. And there has to be some discipline and common sense to the numbers. So while we feel the need to want to acquire things right now, We're not going to go outside our structure because it's about the long game and doing the right thing with the shareholders' equity. So we'll stay disciplined. We know deals will come our way. We like a lot of the conversations that we're in now. There aren't any deals being announced that we haven't looked at, But we're really not just into acquiring revenue. We really want to make sure it's revenue that is meaningful for the company for 5, 10 years from now. And we're not just buying at a moment in time when the earnings and multiples are very high. Okay. And then the last question that's all kind of weave together with that. I mean, Quicklane, you gave us some metrics, which were helpful. But very curious what kind of geographic reach or extension in your reach that is giving you, if If you can tell us sort of early days and even with that, what kind of market share gains you may be seeing in your existing markets Because of the EASL transaction for the consumer? Sure. It's a great question. And keep in mind, every store in the company has it, but some stores We're rolled out in the last week of the quarter. We're seeing the luxury customers really take advantage of the tool. We're seeing the import customers really take advantage of the tool. Seeing it a little bit on the domestic side, but I think We're really hurting with inventory on the domestic side, which is making it difficult. You can't purchase what you don't have. With PUSHSTART, We were seeing 70%, 80% used and 20%, 30% new. It's about a sixty-forty split used to new right now. And we're certainly, obviously, acquiring a lot of customers with sales transactions that we never did business with before. We're shipping a lot of vehicles, but I think that is somewhat normal as well right now with low day supply and people really looking for their vehicles. I think the key metrics to really focus on, it's not a lead generation to transactional tool. Most people's tools are Seeing a lot of subprime and are struggling to get the financing. Our average credit score so far on ClickLane is higher than the store average. 9 out of 10 people are getting financed, Double the cash being put down on a QuickLane consumer compared to in store. These are very strong metrics That says strong credit worthy people are buying these cars online, trading vehicles with payoffs and taking delivery of them at home. And I can't emphasize enough, it's just started. So this is only going to build incrementally over time. And we believe we're the 1st in the space to have a full transactional tool, Not a lead generation, not a piece of the sale, a full transactional tool, which puts us in the driver's seat for really growing the tool. And like I said, We launched all the stores at the end of the quarter. We've already launched parts and accessories on it now as well. So we're going to continue to innovate with this tool And we're going to get better each and every month and we'll certainly continue every quarter to share the information what we're seeing, but it's very, very promising. I'm sorry, David, if I can follow-up on that. So if we think about Clicklane and your acquisition strategy, I mean, you could argue that This digital overlay means that you might not need to make as any acquisitions and you have a much farther reach so you can gain market share that way. Or conversely, some are arguing that you need to build a greater national network to really leverage the digital overlay. Which way do you think it is at the moment? And how do you approach the marriage of the 2? Yes, John, it's an excellent Good question. And look, there's more than one way to climb a mountain, but from our perspective is brick and mortar is permanent and it's expensive. And If the transaction happens online, then it's really just a supply chain delivery. I've used this example before, so I'll use it again. As we sit here today, we currently don't have any stores in Phoenix. If we chose to put a ring around the city of Phoenix with 5,500,000 population And start marketing ClickClean, no differently than Carvana, we could start doing transactions within that marketplace, Which would create much higher SG and A numbers than what we're currently doing without that brick and mortar. So we will continue to build out our markets, But because of the tool that we have and our ability to move vehicles around, we absolutely do not believe we have to be in every market to do In each segment of the country. Okay. That's incredibly helpful. Thank you very much. Thank you. Thank you. Our next question comes from Ryan Sigdahl with Craig Hallum Capital Group. Good morning, guys. Thanks for taking my questions. Good morning, Steve. Just one quick follow-up on QuickLane. So looking at the QuickLane website, also looking at Asbury website, Seems very similar between the 2. Curious if you have planned to run kind of side by side websites there or if you plan to consolidate those at any point in the future? Sure, Ryan. As a reminder, with the franchise stores, all the OEMs Require us to use certain vendors for websites. So we certainly have to stick to those policies. ClickLane will continue to grow, and depending upon whether we have franchise stores in that market or not, it will grow in different ways. When I talked about launching the parts and accessory piece, because we didn't want it to be a distraction during the purchase of the vehicle and people accessorizing the car, We actually put it in the back end of ClickLane. So after the consumer purchases the vehicle and we PDF them, their DocuSign documents, If they have access to the back end of the tool for service and parts and collision, that's where they have the ability to accessorize it as well. So we have a road map. We're not done innovating this tool, and we have a long ways to go from where we see it. But being the first with the lending marketplace and a full transactional tool and the only one out there in the market right now being able to do payoffs, We think we're at a competitive advantage and now we just need to scale our product and get the word out there to consumers the ease it is of doing business with us. Great. And then you mentioned the used versus new mix. It is higher on the used side on click claim. Do you think that's purely a function of inventory availability right now? Or do you think, over time, use will stay stronger online as far as the mix goes? Yes, it's an excellent question. It's hard to say. I mean, we were close to 80% with PUSHSTART and sixty-forty to us is very promising. We're selling $100,000 Land Rovers on the Tool NUP and we're selling pre owned that way as well. It's kind of hard to judge when your inventories are so low, whether someone would transact that way or not. We believe No differently than technology in any other space, as the consumers become more comfortable and the tools actually get out there more often, We believe that these numbers are going to double every year as far as use, because the convenience factor and transparency is second to none And it's what the space has been craving for, for years. And seeing our F and I results to be 17% higher per vehicle On ClickLane compared to the actual stores is extremely promising. Last one for me. You mentioned you quantified the Yes, impact from weather in Texas and closures there. Any way you can quantify what the impact was to same store sales? Yes, sure, Ryan. This is P. J. We estimated the total impact to growth Split evenly between sales and service at roughly $5,000,000 of gross profit impact. Our stores in Texas, our Park Place and McDavid dealer groups were closed for nearly a full week. And our Plaza Group in Indiana and our Crown Group We're also closed for a full day. So again, we estimate that the total impact of that on gross profit At $5,000,000 In addition to that, we also had roughly $1,000,000 worth of damage 2 of our stores in Texas are Lexus and Acura Plano stores. So we incurred the expense associated with that. And then lastly, we did guarantee Hey, for all our associates in those markets for the time that the stores were closed. So that was approximately an additional $800,000 of compensation Great. Thanks guys. Good luck. Thank you. Thank you. Our next question comes from Adam Jonas with Morgan Stanley. Hey, everybody. Thanks so much for your those KPIs Around Clicklane, that's really great. I wanted to hone in on one where you said over I think you said over 50% preferred or chose home delivery. Is that correct? Is that what you said? Yes, that's correct. Okay. Can you tell us how many units that was in the quarter? Yes, Adam, we're not disclosing that at this point because again Oh, I thought that was close. You tried. There were 90 stores that came on all throughout, but I could tell you it As we sit here, the number is growing every week. So when are we going to start seeing that stuff? Because and the KPIs were great. I'm looking for the slide in your deck. And of course, there is no slide with all this stuff and it's important that the KPIs are consistent. So obviously, we can do the whole dog and pony thing and check Transcripts and talk with you after, but it is nice if it's on the deck, just some feedback. When are we going to start seeing more Formal unit volume that we can track so we can start tracking digital comps sequentially and then eventually year on year? Yes. I appreciate your passion. I wanted See the numbers. As I said, we were launching stores the last quarter the last week of the quarter. So I don't think it's Much to say, well, let's get a full quarter under our belt and we'll be talking about it every quarter. So certainly in July, we'll be happy to share that information. Thanks, David. Last one for me. Auto companies are starting to explore Going direct to consumer with insurance. And then, yes, insurance has been and even legacy guys are starting to do that. GM Using partners with OnStar, Tesla, going themselves with partners but then eventually themselves. I'm wondering if what you think of that and do you think this is Does that make sense? Is that part of where you see the digital expression of auto retailing? And if OEMs start to do more, Kind of cutting out the 3rd party kind of parasitic insurance folks. And I'm saying that mainly because the cars Become the actuary and the agent and just makes sense to do that. How do you see that So I think it's an excellent question. And I don't really want to talk too much about things we're working on in innovation, but I mean for 35, 40 years within dealership, people refer insurance business to other locations. It's natural to assume that this would be logical down the road to have it be one stop shopping and And everything available at one location. But I really don't want to get into any details at this point. But it's an excellent point. It's only logical that it's all together. All right. Well, that answers part of the question. Thanks, David. Appreciate it. Thank you. Our next question comes from Rajat Gupta with JPMorgan. Hi, good morning. Thanks for taking the question. Just had a question on the used vehicle unit growth. You talked about the overall $5,000,000 gross profit impact Overall for the company, I mean, suggests something like 2 to 3 points of unit growth impact. Am I close on that? And then just relatedly, obviously, pretty strong numbers year over year and on a 2 year basis, but Still seems to be lagging some of the peers that have reported recently. Are you satisfied with the performance there? Do you think There's more you could do in terms of sourcing or the mix of the vehicles that you're selling to grow that business even faster? And I have a follow-up. Thanks. No, it's an excellent question. No, we're not satisfied. And it's more than fair to say we're not At the level we should with pre owned. It's hard to quantify. PJ talked about some of the markets that were closed, but we literally had 40% of our stores closed. And while they were physically closed for a week, you know the hyper storms, they closed down before and closed down after. So I would think it's probably fair to say looking at all the stores and markets So we're closed for some periods of time and the effect on business. It had to be somewhere in the 4% to 6% range in volume, But it's really hard to quantify. It's really just a guess at that point. But to answer your question simplistically, we're not performing At the level we need to with pre owned. We think in every other category, we're more than holding our own, and this is an area of opportunity for us we need to get going. Got it. That's really helpful. And just to follow-up on the M and A The M and A environment, you talked about like unreasonable earnings and probably not appropriate multiples right now in the market. I mean, it looks like these gross margin tailwinds could probably last for another year or maybe Like mid-twenty 22 or late 2022. So when do you make the decision to Start deploying that capital finally because it's already been 6 months since you announced the plan. It will be 18 months, a year from now and earnings might So I mean, would you continue to sit on the cash on the balance sheet or Just trying to understand like how that capital might be deployed even now and then? And then when would be the right time to finally make that decision to work towards your 5 year plan? Thanks. Yes. Hey, Rajat, it's P. J. So I'll start and then maybe hand it off to David. But it's actually 3 months since we announced the plan in December. And as we said before, we're very disciplined in our approach 2 acquisitions. We do we look when we evaluate an opportunity, we're looking at EBITDA And then factoring in the synergies we think we can achieve and then we look at the IRR relative to our cost of capital. And we need to see a margin there to deliver an accretive deal. So We are evaluating deals. It's on a deal by deal basis. And so we'll continue to fill the pipeline, but We're only going to look at or execute on those deals that make the most sense for Asbury. And I'll just follow-up on that. Let's talk about 2 points. When you look at 2020, prior to 2020, a dealer was making 5 And then in COVID, they started making $10,000,000 and they want to work off the $10,000,000 and they want a That's higher than what the brand has ever brung. That makes it difficult. While I agree with you the way margins in this space is going to be for the next year, And again, it's one person's opinion. This isn't a forward looking statement, but you have to think about 'twenty three and 'twenty four, The amount of EVs that are going to be on the market, where the infrastructure is going to be for that in the country at the time And where is supply and demand going to mix? So I don't think you can get caught up in the hype of just buying at the moment in time and you have to look out a few years To really see what the value and trend is going to be. And as we talked about when we launched the 5 year plan, which is no doubt will hit it, That $5,000,000,000 doesn't all have to come in 1 year. It doesn't have to be $1,000,000,000 a year. We have to be disciplined. We've been Doing this a long time. I've been in automotive for 35 years. There's always highs and lows. We're talking to more acquisitions Today than we ever have since I've been employed here. So I think things will happen, but I think we should be judged in the long run by the acquisitions that we did and how accretive they were for the company, instead of just having nervous If they were for the company instead of just having Nervous Energy buying revenue and then maybe struggling with performance over time. Got it. Got it. That's really helpful. One last one, just following up on Clicklane. I know you don't want to give out like the unit numbers, but had it not been for Clicklane, Now would you have grown slower than what you did in the Q1? I'm just curious if it contributed to incremental volumes and Not just replacing 1 for 1. Thanks. No, it's an excellent question. And I can't stress this enough. We only had a few pilot stores on it in December. So we essentially and no other public group really has this full transactional tool, nor do they have it in all their stores. We rolled out 86 stores in 2.5 months. So the numbers are you know what I mean, week over week you're adding so many There's a lot of incremental sales that we would not have received, and I make that comment because looking at the information, we weren't doing business with them before. But when you're adding 40 stores in the last 3 weeks of the quarter, it's just not a material number. I can tell you every single week the number grows and the transactions are growing on the tool. And we haven't hit our Stride with marketing. Well, we really just start marketing now. We really want to perfect the tool, make sure everything was rolled out properly, And it was efficiently working. And I know it sounds crazy to roll it out. It's just plug and play software. But when you think about all the different counties and different tax Codes and making sure that it's perfect and everything is working correctly, there's a little bit of discipline and time to make sure it's right. You just don't want to invite people And what we quoted it last time with the pilot stores is still holding true. It's a 14 minute transaction. If there's a payoff and there's financing needed and if someone's paying cash, it's 8 minutes. It's hard to beat that kind of time. And it's very encouraging for us from our perspective, and I'm not saying it won't change over time, but it's information we're sharing as it's coming. 50% of the people are taking delivery at home. That didn't happen in the heat of COVID with push start. So we're very excited about what we're We're also seeing a higher credit score with Click Link compared to PUSHSTART. So it's very, very encouraging And I promise we'll talk about it in great detail every quarter. But it's not just the unit sales, it's the type of person that's using the tool and transacting on That is most encouraging to us. Got it. Got it. Makes sense. Thanks for all the color and good luck. Absolutely. Thank you. Thank you. Our next question comes from Stephanie Benjamin with Truist. Hi, good morning. Good morning. Just we really appreciate all the additional color that you've given on Kirkland. But question, I understand that it was a Pretty large task to roll this out to all of the your stores this quarter. So how should we think about any kind of incremental advertising or Investments as we move through the year. Should we expect a step up as you kind of look to get the name out there a little bit more in some of your markets? Is that something we should just kind of expect not only in store, but maybe also on a local level just so Customers know what their options are. Yes, Stephanie, it's a great question. Yes, we've allocated several $1,000,000 Between now and the end of the year, and we spread the dollars by market depending upon unit sales and traffic counts and density of population. And now the numbers may change as what our plan is depending upon what happens with inventories. It's too hard to predict Sitting here today what things are going to look like in July August from an inventory standpoint. But our intent is to get that out there. We think we have some interesting marketing things coming out that will help us. And again, we're sitting here the 3rd week In April, the 4th week I should say, and we're talking about 1st quarter data, I can't stress it enough. It's incrementally growing every week. So we're very excited to talk about it in the future as it comes. We're hoping that the marketing really sticks and it's noteworthy. And I can't stress this enough. This is different than A lot of the other tools that are out in the market right now, this was built on a chat platform. And what that means is the ability to walk people through the tool If they're getting stuck or if there's an issue at a moment in time. And there's also the ability when they leave the tool to send them a link to start right back So there's no starting over. So it's not just the incremental sale or the conquest sale when they go through the whole tool, But it's also the follow-up in recovering the sale and bringing them back. And we're very hyper focused on tracking all the KPI. And as we accumulate more, we'll certainly share that as well. Absolutely. And then just to follow-up on that, When you speak to the incremental advertising, is that going to be just in your existing markets? Or will you also look to maybe You mentioned Phoenix as an example kind of entering a new market as well with some of these investments or advertising investments? Sure, Stephanie. I'll say this. Our intent Soon will be to test this product in markets we don't do business in. I really don't want to start talking about specifics, But it will be in short time that we experiment in markets where we don't currently do business. That is a fact. Got it. And then lastly for me, just on acquisitions, you've mentioned that it's pretty apparent that it's a pretty active Market right now. So I'm just curious if you're if what you're targeting, I think in the past looking to And a little bit more in luxury, so maybe in terms of brand concentration or geography, has that changed at all just as new Opportunities maybe have come up as of late that maybe you really, you couldn't really consider in years past. Just trying To kind of gauge, as you're looking at the M and A environment, what's most appealing at this stage? No, it's a great question, Stephanie. Again, 35 years of doing this, brand strengths come and go. Certain luxury brands are harder than heck and years Later, they slowed down and I think it's really about having a balanced portfolio. After doing the Park Place deal, we had a lot of conversations where Dealers in other parts of the country wanted the same multiple that we paid Park Place. And I'll just pick a brand just for a conversation. If you have one luxury brand, The multiple is different, even though it's the same brand, whether you're talking Massachusetts, California, Michigan or Texas or Florida, Because the franchise laws are different within each individual state, seasonality of the business, density of population, business friendly state or not. So we really spend a lot of time looking at each individual acquisition and where it sits within the market and do we think that this is a Proper return for us. I mean, I've just recently had this conversation with someone else asking why we wouldn't offer them the same as what we paid for Park Place. And I just simplistically said it's not Texas. I mean, it's a different market with different franchise laws. If one state has a franchise law, no franchise 15 miles and another state is 5 miles. I don't know how you don't factor that in when you're looking at the pricing. Thank you. Our next question comes from Bret Jordan with Jefferies. Good morning. This is Mark Jordan on for Bret. Well, good questions have already been asked, but I guess I have 2 quick questions and you may have touched on them both already. But Thinking about the parts and service segment and in particular customer pay, can you talk about how it trended throughout the quarter and maybe if Trends have continued to accelerate through April, kind of what you're seeing there? Sure. I would call January pretty promising and stable. It wasn't Quite pre COVID numbers, but it was continuing to come back and I would call it close to being flat. Just because the way February played out, it really varied by market because of weather. But I'll call February a step back, but I think it was more due to weather than anything else. And March It was just a full acceleration forward and all the numbers specifically around customer pay were ahead of pre COVID numbers going back to 2019. We're seeing that same result as we sit here in April, and we anticipate that For the rest of the year, we think there's a lot of pent up demand. Now if something happens in the fall, the virus comes back, I mean, I can't honestly comment on that. I'm just saying, as I said in my comments earlier, people are back on the road. The collision business is back. The customer pay business is back. Warranty being down, I don't look at that as anything. It is what it is. You can't do warranty work if it's not needed. So that's just a reactionary thing. Okay, great. And then it seems like competition for sourcing attractive used vehicles is very high right now. And thinking trade ins might be down in terms of unit volume, are you having to shift more to purchasing vehicles directly from customers? And if so, kind of how competitive would you say that channel is right now given many competitors might be increasing sourcing from the same channel? It's an excellent question. We're taking in less trades because we're selling we're not selling the cars we should be selling based upon the demand But we're still from a percentage standpoint, we're still taking in the amount of trades we always did prior. It's just different volume levels. We're having to seek other avenues and some of those avenues have dried up. There's a lot of it's kind of like the residential real estate market. I mean, There's an awful lot of buyers out there and there's not a lot of sellers out there. So it's a little bit more difficult getting inventory. People are certainly paying up for that. You see it At the auctions and you certainly see it in the Manheim data that comes out. We don't think that that's going to change anytime soon, especially with what's going on with the new car inventory. I don't know if Dan you want to comment or add to that, Dan? No, I think you covered it well, David. Okay, great. Thank you very much for taking my questions. Thank you. Thank you. Our last questioner is David Whiston with Morningstar. Thanks. Good morning. Do you guys I guess, how badly do you guys want higher inventory or At the risk of giving up some of your pricing power you're now enjoying, do you want a lot more, a little more? Or can it stay where it is even? Yes. We're smiling over here on this end because it's such a fair and greedy question to ask. Yes, that's a great question. The problem is, look, it's all everyone looks great, everyone's reporting good numbers, everyone's showing high margins. We didn't all of a sudden get that much better. It's simplistically supply and demand. There is that point where you're missing a lot of sales because You just don't have the inventory. Domestic truck for us was brutal in the quarter. We were really down in trucks. I mean, we didn't have the inventory to sell, so we wanted a lot more than what we had. I would tell you the industry performs well and Stability exists when there's probably a 60 to 70 day supply in the market. And right now with all the government spending that's going on and people Coming out, the demand is going to be high right now and the fear is the inventory won't be there to match the demand. Okay. And what happens now when a customer is coming in, really set on buying a new A particular new vehicle, you have to tell them that you don't have it due to inventory. Does that customer tend to end up buying another new vehicle, buying a used vehicle or do they leave? Hi, good morning, there. This is Dan. So in a lot of cases, we have really become even more efficient on Taking a pre order for a lack of a better term. So perhaps a car that is an incoming unit that is actually being built or already On the transportation, in a lot of cases, we're seeing a lot of cars that are being delivered by the trucking company and they're going in For a pre delivery inspection getting detailed and coming right out for delivery. So I can tell you in a lot of cases, We just don't have that availability of that particular model. Customers are a little bit more flexible on maybe giving up a Particular package or maybe taking an additional package that they were not going to stay at the beginning. Okay. And shifting over to the rise of Tesla, in particular, their Model Y. I'm just curious, is that Hurting your Toyota, Honda or your premium brand stores at all. And do you have any customers, especially at the Park Place Group wanting to pay in Bitcoin? No. To answer to all your questions, no, not yet. Not at this No. Haven't had the consumers come to us with a Bitcoin request yet, and haven't really felt A strong competitive point from Tesla. I think a lot of their sales come from California and certainly other parts of the country, but it's not a real dominant player in the markets we currently transact in. Okay. I appreciate the detail. That's helpful. And just for P. J. Or Karen, just real quick, the 3 special items, where were they booked for GAAP? They're booked in other income, David. Okay. All right. Thanks, guys. Thank you very much. Appreciate it. This concludes today's discussion. We appreciate your participation and we look forward to speaking with you all in the next quarter. Have a great day.