Earnings Call: Q4 2020

Feb 2, 2021

Day, ladies and gentlemen, and welcome to the Asbury Automotive Group Q4 2020 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Matt Pattoni. Please go ahead. Thanks, operator, and good morning, everyone. Welcome to Asbury Automotive Group's Q4 2020 earnings call. Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's 4th quarter results Pitts. Were issued earlier this morning and is posted on our website at asburyauto.com. Participating with me today are David Holt, Matt, our President and Chief Executive Officer P. J. Guido, our Chief Financial Officer and Dan Clara, our Senior Vice President of Operations. Pitts. At the conclusion of our remarks, we will open the call up for questions and I will be available later for any follow-up questions you might have. Pitts. Before we begin, I must remind you that the discussion during the call today is likely to contain forward looking statements. Forward looking statements Matt. Our statements other than those which are historical in nature, including those statements relating to the duration and the contemplated impact of the COVID-nineteen pandemic Emmick on our business and financial performance as well as the financial projections and expectations about our products, markets Matt and Groff. All forward looking statements are subject to significant uncertainties and actual results may differ materially from those suggested Matt's vendors and business partners. For information regarding certain of the risks that may cause actual results to differ, Matt. Please see our filings with the SEC from time to time, including our Form 10 ks for the year ended December 2019 Matt and his subsequently filed quarterly report on Form 10 Q and our earnings release issued earlier today. Pitts. 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, Pitts. We provide reconciliations of any such non GAAP financial measures to the most directly comparable GAAP measures on our website. It is my pleasure to hand the call over to our CEO, David Holt. David? Thanks, Matt. Good Good morning, everyone. Welcome to our Q4 earnings call. We have just reported another all time record Q4 despite continued volatility and uncertainty in the economy. Pitts. As Shar recovered from Q2 lows, we delivered a strong gross margin of 16.7%, Matt, which expanded 80 basis points versus Q4 of last year. We also remain very active in managing expenses And we achieved SG and A as a percentage of gross profit of 61.4%. Our focus on gross profit and Up 76% over the prior year. I would also like to call out that 2020 as a whole was a record year for Asbury. For the full year, we grew adjusted EPS by 36%, increased adjusted income from operations by over $70,000,000 to $405,000,000 an increase of 21% and the highest level ever. Pitts. We acquired a Chrysler Jeep Dodge store in Denver from John Elway. We acquired 8 Park Place dealerships, Matt. 2 collision centers and 1 auction center in Dallas, which in total added $1,900,000,000 in annualized revenue. We launched ClickLane, our communication technology and ecosystem, which allows for a true online car buying and selling transaction. We publicly announced our 5 year strategic plan, which targets growing the company to $20,000,000,000 in revenue by 2025. Our balance sheet remains strong due to our performance and cash flow. Our pro form a net leverage ended this quarter at 2.1 times. Pizzo. This will allow us to maintain a more active acquisition pipeline and grow our business strategically by deploying capital. Looking back over the last 3 years, we've dramatically transformed our portfolio by acquiring $2,500,000,000 Matt. In divesting $700,000,000 in annualized revenue. Our acquisitions had much higher margins than our divestitures and we're accretive to our overall margin. This helped us achieve our 5.7 percent operating margin compared to 4.6 Matt Turning to our key objectives in 2021. We will continue to build a strong culture obsessed with the guest experience. Matt. Roll out our Clicklane platform to all stores by the end of Q1. Be great partners to our OEMs by delivering an exceptional and transparent guest experience, grow our same store revenue across all departments, Matt. Build our M and A pipeline to support our goal of acquiring $5,000,000,000 of revenue by 2025 Matt and maintain net leverage at or below 3 times, while executing a more active capital allocation strategy. Pitts. Finally, we know the only differentiator we have in a franchise system is the level of service we offer. Matt. Our strong performance is because of all the men and women in our stores who show up every day committed to serving our guests with passion and professionalism. Their incredible performance inspires all of us to be better today than we were yesterday. Our future is bright And we look forward to sharing this journey with all of our teammates who run our business every day. We are thankful they are here making a meaningful difference. Pitts. I will now hand the call over to Dan to discuss our operating performance. Dan? Thank you, David, and good morning, everyone. Pizzo. My remarks will pertain to our same store performance compared to the Q4 of 2019. Looking at new vehicles, Matt. Based on current market conditions, our focus remains on improving margins and not chasing volume. Our new gross Profit per vehicle was up $7.79 per car or 49% from the prior year period. Matt. All segment margins were up significantly from the prior year period. Factoring in the acquisition of Barclays, We increased our luxury mix to 48%, driving our all store PBRs up $12.82 a car or 79%. Pizzas. At the end of December, our total new vehicle inventory was $640,000,000 and our day supply was 40 days, Pizzo, down 26 days from the prior year. As a reminder, 40 days is an average composite of all of our brands. Matt. Some of our brands were below 20 day supply during the quarter and experienced major challenges due to the lack of inventory. Matt. We expect the day supply to remain low for the first half of the year, but gradually recover towards the back half as production capacity recovers. Pizzo. Turning to used vehicles. Our gross profit margin was 7.1%, up 60 basis points from the prior period, Matt. Representing a gross profit per vehicle of $17.41 Similar to our new vehicle strategy in the current market condition, We focused on being opportunistic with our inventory and improving grosses to maximize profits. As a result of our performance, Matt. Our used retail gross profit was up 10%. Our used vehicle inventory ended December at $189,000,000 Matt, which represents a 31 day supply, up 2 days from the prior year. Turning to F and I. Pizzas. Our strong, consistent and sustainable growth in F and I delivered an increase of $126 to Matt. $8.17 per vehicle retail from the prior year quarter. In the 4th quarter, our front end yield per vehicle increased $701 Matt. To a 4th quarter record of $3,924 In addition, if you include reconditioning gross profit, Which we record in parts and service, our front end yield per vehicle was $4,582 per car. Pizzo. Turning to parts and service. Although our parts and service revenue decreased in the quarter, our business improved from the lows in April, Matt. But the recovery continues to be choppy due to the pandemic. And now, I would like to provide an update on our omni channel initiatives. Pizzas. In December, we launched ClickLane, which is the latest evolution in our omni channel strategy that we began more than 5 years ago. ClickLearn is a communications technology ecosystem, which allows for a true online car buying and selling experience. Matt. It feels many of the gaps that exist with online automotive retail platforms currently on the market. Features that are unique to this platform include Matt. Any perfect trading values and loan payoffs, real payment figures based on local taxes and fees, Matt. A loan marketplace, which now includes more than 30 lenders. VIN specific finance and insurance products customized to the vehicle and consumer. Matt. The ability to sign all documents online via DocuSign, eamTool service and clinician appointment scheduler. Matt. Early results and guest feedback on our ClickLane platform have been extremely encouraging. We piloted ClickLane in 3 stores for the full month of December and the results have exceeded expectations. These three stores doubled their online car sales versus the prior year period. In addition, customers have commented on the great transparency, ease of use and ability to complete a transaction in minutes. Matt. The average time it took guests to complete a total online transaction, including arranging the financing was 14 minutes, Matt. And it took only 8 minutes for an entire transaction without financing or an all cash deal. Since the end of Q4, we've continued with our rollout of Click Matt McClain and expect to have all stores rolled out by the end of Q1 with the majority of stores connected during the second half of Q1. And finally, looking at the results from our 1st full quarter of Barclays, Rick confirms why we made the acquisition. Matt. The first full quarter contributed meaningfully to our top line and profitability results, and we are well on track to deliver the synergies we have targeted Matt within the timeframe previously outlined. I would like to take this opportunity to express appreciation Matt. To all of our teammates in the field for their continued focus on the guest experience, their commitment to continuous improvement and their perseverance Matt. I will now hand the call over to P. J. To discuss our financial performance. P. J? Pitts. Thank you, Dan, and good morning, everyone. I would like to provide some financial highlights, which marks another record quarter for our company in a still uncertain macro environment. Pitts. For additional details on our financial performance for the quarter, I would refer you to our financial supplement in our press release dated today, February 2. Pizzas. Overall, compared to the Q4 of last year, total revenue was 18% higher than last year Due to completed acquisitions and improvement in F and I PVRs and higher average selling prices for both new and used, Gross margin expanded by 80 basis points to 16.7%, driven by our proactive inventory management Matt and his team focus on improving gross profit per unit. Moving down the P and L, we saw SG and A as a percent of gross profit decreased by Matt. Our actions to maximize gross profit and control expenses Matt. This resulted in a record 4th quarter adjusted operating margin of 6%, an increase of 140 basis points above the same period last year. Adjusted EPS increased by 76% versus the prior period, maintaining momentum from the previous quarter. E. Net income for the Q4 of 2020 was adjusted for a $3,900,000 or $0.15 per diluted share pre tax gain on a dealership divestiture. Pizzas. Net income for the Q4 2019 was adjusted for a $7,100,000 pretax charge for franchise rights impairments Matt Bishop for $0.27 per diluted share, a $600,000 pretax charge for real estate related charges or $0.03 per diluted Matt Peschel and a $600,000 pretax gain from a legal settlement or $0.03 per diluted share. Our effective tax rate was at 24.8 percent for the full year 2020 compared to 24.4% in 2019. Matt. Floorplan interest expense for the quarter decreased by $4,600,000 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 $20,000,000 on store improvements in real estate and we spent approximately $80,000,000 on debt repayment, which includes fully paying off our used line. Also during the quarter, we divested a Ford dealership in Georgia, which generated approximately $50,000,000 in annualized revenues. Matt. As a result of our operational performance, our balance sheet remains in a very strong position and we ended the quarter with with approximately $462,000,000 of liquidity comprised of cash, floorplan offset accounts, Matt and his team will be on track to discuss our underlying credit facility. Also at the end of the quarter, our pro form a net leverage Matt. I would now like to make a few comments Matt regarding our expectations for 2021. We are still operating in a volatile environment with limited visibility, Matt. But do anticipate a gradual recovery in the second half of twenty twenty one as COVID vaccines get rolled out Matt. And OEM production capacity improves. As a result, we are planning our business for SAAR approximating 16,000,000 units, Matt. But we'll remain nimble and vigilant to adapt to whatever conditions evolve. As inventories begin to normalize and the economy opens up, at the end of the call. We believe our parts and service gross profit sees a full recovery. We also believe SG and A as a percentage of gross profit Matt. She should continue to benefit from active expense management and improved productivity. We are also planning for A tax rate in 2021 of approximately 25% and CapEx of approximately 55,000,000 Pizzas. This amount excludes real estate purchases and potential lease buyout opportunities that we consider to be financing transactions. Finally, I would like to also provide a quick review of our 5 year plan we unveiled at our launch of Clicklane in December. Matt. Our 5 year strategic plan is to add $12,000,000,000 of revenue by 2025, expand our operating margins Matt. And we'll now turn the call over to Matt. Specifically, this includes driving same store revenue growth of $2,000,000,000 over 5 years, Matt. Acquiring $5,000,000,000 of additional revenue over 5 years and adding an incremental $5,000,000,000 of revenue through the new CliffLane platform. 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 Matt and long term success. We will now turn the call over to the operator and take your questions. Operator? Matt. Thank you. Paducherphone. Pitzer. We'll take our first question from Rick Nelson with Stephens Incorporated. Please go ahead. Pizzo. Thanks and good morning. So to talk about same store Matt. On units, both Neil and Hughes, Neil down 6, Hughes down 9. It sounds like Matt. You've taken a strategy where you're going to try to maximize GPUs. If you could speak to that, what you think is Matt. What's happening to market share, about new and used and whether this strategy will continue? Pitts. Yes, Rick. Good morning, and thanks for the question. This is David. I would tell you we went into it with the approach of we can see our days supply where we're at. We're sitting in October. We can and see what we have for inventories and what's coming by the end of the year. And we know what a large month December is for Luxury. So I would tell you on the new car side, we lost unit sales Because we just weren't chasing volumes because we couldn't replace the inventory. So we just thought it was a better return on our cash to maximize the gross profit as best as possible. As Dan pointed out, even with that strategy, in December, we had many stores below a 20 day supply. And that's a 20 day supply across all model lines. So individual hot models, you didn't have any day supply. So there's no question that hurt the unit sales. Pizzas. On the pre owned side, again, it's not about chasing volume for us, it's about maximizing our return. We make far greater profits when we sell a vehicle that we've traded for than when we go out and purchase a vehicle. So we've tried to be more opportunistic. Matt. At least at these challenging months when inventory is tight and prices are high at the auction to really just maintain the growth as best as we can and give the greatest returns we can. So I would tell you, we sat here a quarter ago and thought by the end of the Q1, day supply would be back up to normal. Matt. But because what's going on with the microchips and some other things, it's probably going to bleed well into the Q2 before inventories gets back. You never really know how that ends up, but we're going into each month looking at is how do we maximize our return. Even with some of those numbers, we Matt. We exceeded market share in some markets and some we didn't. We're not looking at that short term Market share gain or loss, we're kind of looking at the overall picture and return. So we're happy with our strategy and the way it's played out so far. Great. That's helpful color. Also, the inventory front, When things do normalize, it sounds like the back half of twenty twenty one is your current expectation. Do you think you hold down to some of those GPUs? Do we go back to 2019 pre COVID levels or Your expectation there. Sure. As a company, I don't think we'll go back to pre COVID because The acquisition of Park Place just does move our overall numbers. Do I think that we'll maintain this when things get back to normal? I'm sure there'll be some drop off in some areas. Very difficult to predict what incentives are going to be, what the day supply is going to be like and What the economic conditions are, but from everything that we see, we're very excited about 2021. We see our business growing in 2021 compared to 2020. And there might be different things moving around in those numbers throughout, but Very opportunistic about what 2021 offers. And quite honestly, the acquisition pipeline He's certainly active right now. So there's a lot of good things happening in the space and we certainly want to be disciplined and execute as best we can. Pizzas. Just to follow-up on that comment about the acquisition pipeline, if you could speak to that, Yes. What you're saying in terms of pricing out there? I know you stepped up the buyback authorization as well with your preference Matt. Acquisitions versus buybacks at the moment. Yes. Rick, I would say generally overall, It's what gives the greatest returns for our shareholders, but in the best way for us to deploy capital. Yes. The pipeline for our conversations and activity was kind of slow around the holidays. It dramatically picked up in January. And we're having a lot of meaningful conversations with different folks right now. So it's early. We'll see where it goes, but we're very engaged in a lot of conversations and excited about As far as the pricing and overall multiples, it's a competitive space right now and there's a lot of buyers out there. And I'm sure there's a lot of sellers that want to make sure that they're concerned about their legacy and who they sell to. So it'll be an interesting year and see what happens. But I'm Sure. From an M and A perspective, at least what we see so far, it should be an active year. Great. Thanks for all of that. Sure. Go ahead. Rick, sorry, this is T. J. I would just add that we do have a capital allocation policy. And 1st and foremost, we want to reinvest In our core business, then we look to delever to the extent we're over our target. And as I mentioned earlier, we're well below our target, Pizzas, which means our balance sheet has capacity for acquisitions, which as David said, we're maintaining an active Matt. And to the extent there's cash left over in the waterfall, we would look to return to shareholders. Matt. Great. Thanks for the color and good luck. Thank you, Eric. We'll take our next question from Don Murphy with Bank of America. Please go ahead. Good morning, everybody. Just a first A question on the Barclays acquisition and integration. It seems like it's gone even better than planned on the integration, no hiccups whatsoever. And actually, They're helping you drive the better performance almost immediately. I'm just curious if there's any lessons learned here on targets Matt. The actual integration process itself, David, I mean, it just seems like it's split in and actually been sort of a net benefit right off the bat, which is Matt. Sure, John. This is David. I'll start. It really just speaks to the Park Place Matt. And their level of professionalism, changing hands, going through a buy sell, 1400 employees, There's a lot of moving pieces, and I'm sure there's a lot of frustrated folks on the Park Place side. I think both sides went at it with the intent Matt. There's a level of respect and trust for one another and work through the issues that came up, but it's truly a credit to them. Certainly in the quarter, the luxury mix that they have and the low day supply that benefited us as well. But I'll tell you post acquisition, We got exactly what we thought we're getting, which is amazing teammates who are really passionate and professional with what they do every single day and committed to what they do. I would say in the last couple of years, that's been our big difference when we look at acquisitions. We just don't look at the revenue upstream. We're really interested in how the business runs and whether we'd be a good steward of the business and whether it's the Colorado acquisitions or the Indiana ones. I think so far the model that We're working on as far as when we look at acquisitions and integrate, we've been pretty successful at making sure we'd be a good steward of the business. Pappas. Okay. That's incredibly helpful. And just a second question around parts and service. Obviously, there's some choppiness here, the world and the markets are volatile, so it's somewhat understandable. But as you think about parts and serves, When do you think that normalizes? Is it post vaccine and sort of mid this year to maybe second half? Could it normalize sooner and how much deferred maintenance you think is out there that you might catch up on over time? Sure. And just as a reminder, those numbers too are Collision numbers and Collision still maintains 20% to 30% back from prior year. Matt. I'll tell you, the virus, while it's only been around for a year, it feels like it's been around longer. And it was dramatic when it first hit, but then it kind of cooled off through the summer and business started bouncing coming back. In the Q4, we went negative in parts and service in November and we came back positive in December And we're starting January off with a little bit more volatility. So I would tell Matt. These high positive rates that you're seeing across the country and the number of deaths a day over 4,000 are playing an impact On the parts and service business, it varies a little bit by market, but generally that's a theme. So we feel confident Matt. As the vaccines roll out and things normalize, parts and service not only comes back, it should have a nice tailwind. To your point on pent up demand with service work, that's our Matt. And the belief right now is somewhere between June late July, early August Is when we think that we should really start to get back in a groove of a normal look in parts and service. Could be sooner. It's hard to predict with what's going on with the vaccine. I mean, it's very fluid. We're all reading about it every day. But that's the way we see it right now. Overall, that's a little on consumer, but that's helpful. And then just lastly on SG and A, Obviously, last two quarters, you've run-in the 51% range. Grocers Matt. Hi, right. So I mean, the denominator is benefited to some degree. But as you think about SG and A going forward, has it something structurally changed here Matt. You think that you can operate in these low 60s or maybe even better over time it quickly takes off and you're able Matt. I would say there's 3 main levers. Like I said in my statement, some of the divestitures and some of the acquisitions really lifted our margins. And those were stores that had a history of higher margin business when we were lower margin business. So I think there's definitely going to be a sustainable pickup there. We also changed our production per employee when the downturn hit and we stayed disciplined with that. And to your point with ClickLane, It's only 3 stores. It's 1 full month, but it's up over 100% with those 3 stores. Most of them were luxury brands that we tried ClickLocking in. So we're very hopeful between those three levers that there's a meaningful difference there in SG and A Matt. Over time as well. Okay. But would you underwrite something in the low 60% range now? Or is it too early to kind of So, what is going to land? Yes. I would say it's still bouncing around right now. I mean, our goal Matt. The next view, I would say, this quarter is maintaining high operating margins and maximizing our opportunity. Depending when we get back to normal, depending upon where margins lay, I think we'll certainly be in a much better position from an SG and A standpoint than we were Matt. Pre COVID, but where exactly that lands, I think there's too many variables to call that right now. Okay. Thank you very much. Thank you. Pitts. We'll take our next question from Ryan Sigdahl with Craig Hallum Capital Group. Please go ahead. Pappas. Great. Thanks for taking my questions. Just want to dig in a little bit on the online. So specifically looking at Slide Matt. So it shows Internet leads down sequentially Matt. I guess, year over year down a little bit. Online service appointments also kind of trending lower. I guess, as you're expanding your click lane, You talked about a lot of traction you're gaining online. I guess, can you just talk through the sequential decline and kind of the moving pieces there? Pizzas. Yes. So I'll talk about the decline in traffic and then the comment on Clicklane. One thing is true for our industry. When you have more inventory online, you have more leads and more eyeballs on your sites. So part of the traffic coming down Matt. Was lack of inventory. Had we had more inventory, I don't think the lease would have been down as much. The other piece of it was too is Trying to be more strategic with the marketing dollars knowing we had less of an inventory, did it really make sense to create some supply Matt. Of leads where we really didn't have the product there to sell it. On the ClickLane side, the growth that we're talking about on ClickLane, I would say the material difference when we make that comment, and I'm going to compare PUSHSTART, which most of our stores are on today compared to Clicklane, It's the conversion. It's not the lead counts up with Clicklane. It's the conversion on Clicklane is up dramatically from PushStar. Great. And then just on Quicklane, Matt. You know, 4 rollout by the end of Q1, you have 3 beta tests in December. Can you talk through the cadence of how you're going to roll that out Matt over the next couple of months, kind of all at once or staged or what the cadence plan is there? Sure. We have the whole company set We're rolling out, depending upon the size of the stores and when, anywhere between 8 to 12 stores a week. And it will also include towards the tail end of the quarter Park Place, which in the Q4 did not offer an online transactional tool at all. So they'll get their first shot or first look at it, if you will, at the end of Q1. It wasn't at all in their sights in Q4. Matt. Great. Thanks, guys. I'll turn it over. Good luck. Thank you. We'll take our next question from Adam Jonas with Morgan Stanley. Please go ahead. Hi, everybody. Can you hear me? Yes. So I've got a couple of questions for you here. Only in terms of stock sales on ICE Matt. I'm just wondering if you could refresh us on the rapid move Matt. EV in any way concern a long term stakeholder about your business, including your P and S business. And I'm also noticing a lot of startups, are moving to direct to consumer models, and they insist they don't want to use existing Matt. Deal franchises, Apple is entering the auto industry. We both it's our understanding they don't want to do a franchise dealer model, although that's Matt. Fully confirmed, they want to control the downstream distribution. If there are, David, that you're acquiring legacy brick and mortar dealerships, but He'll sell legacy ICE OEM products that was ICE intense P and S. How can you assure shareholders that you're not doubling down on this ICE legacy tech at the worst possible time at the end of the for the full time at the end of the ice age. Thanks. Sure, Adam. I would tell you that our manufacturer Matt. They've been building quality cars for a long time and they're all in the process of transitioning to EV and we'll certainly go along for the ride And I would tell you like any industry that has Matt. Spurtz, if you will. There's a lot of EV companies that are coming out. We'll see which ones make it, which ones don't, Matt. Which ones consolidate and which ones share and sell their technology. I would also tell you, as I'm sure you're aware, some of them that will be launching KAR soon Matt. Literally, as we speak, working with 3rd party vendors to try and figure out how they're going to handle parts and service Matt on the backside. So I don't think that's a well thought out model either. And I think there's something about there's something tried and true to the Supply chain and mechanisms that work now. So the mechanism, whether it's ICE or electrification or hybrids or whatever it might be, it doesn't really matter. Pitt. We're here locally in the community to sell and service the vehicles and have been for many years and have a strong reputation Matt. And know how to do it. We're not making it up as we go. We're figuring out as we go for how to handle a recall. Matt. Appreciate it, David. Thanks. Yes. We'll take our next question from Raja Gupta with JPMorgan. Please go ahead. Matt. Hey, good morning, everyone. Thanks for taking my questions. Just a follow-up on the SG and A Question earlier. I'm not sure if I missed this earlier, but could you give us a sense of where you expect Matt. The SG and A grows to wind up like in some sort of a range. Is there anything you want to work around for this year just Yes, Raj, it's P. J. So on SG and A, as David mentioned, it's difficult to forecast in this environment. What we do know is the leverage we generated in Q3 and Q4 predominantly Driven on the personnel side and then the balance in advertising and other related costs. What we have confidence in is that those there are structural changes there that we will We'll continue to benefit from in the form of higher productivity, whether it's units per salesperson, average gross per associate. We track a lot of metrics Matt. We do see that our productivity is up and we hope to or we're confident that we can retain that. Matt. As production comes back online, again, we're looking at the latter half of the year. We do expect to see some pressure on grosses, which will put pressure on SG and A. But again, the structural changes we've made and the fact that was very active in managing expense, gives us confidence that our SG and A will be will continue to be favorable. Got it. Got it. And anything within the SG and A, like the buckets within that, at the end. Any follow-up or any expectation around what advertising might look like particularly in the context of Matt. We're really not just clickerings platform and we'll be broadening the reach of that platform. As I said, just a normalization Matt. And now regarding spending about back to pre COVID guidance, should we expect a further uptick beyond that, just for procurement purposes? Matt. Raj, this is David. And if I got the question wrong, I apologize. It was cutting in and out a little bit. But as it relates to marketing and click lane, if you look at us against our peers, we traditionally and still do, I guess I can't speak for the Q4, but prior to that, have the lowest dollars per car spent in marketing. So I think we're as efficient as we're going to get. Pizzas. Once ClickLane is fully rolled out in our stores by the end of Q1, for the first time, we will make an investment and spend some dollars marketing ClickLane To drive traffic, we never really marketed push start that much. We will market Clicklane. So I don't know that you'll see much of a meaningful difference in the PBR at the end of the quarter, but there will be some dollars spent on it. Matt. The SG and A, because we've kept our headcount down, our productivity is up. There's always opportunity Matt. In compensation and certainly operating expenses, and I think we've been fairly disciplined over time regarding that. We'll continue to look at that. And we think our plan moving forward will keep us certainly competitive and probably in the better half of our peer group. Got it. That's helpful. Just last one for me. Any color on when you talked about like the chip shortages and the Margin strength here in the near term. Any color on like how January was in terms of just units? Is there are you seeing the same situation that you saw in the 4th With respect to the demand versus GPU trade off or has that in any way changed so far in January? Just in general, Matt. How is the demand environment looking like here? Sure. Yes, absolutely. In January, there's always a little bit of a let I'm from December, but I would tell you comparing this January to the last 35 I've been in the business, was very surprised by the activity and the overall performance in January. It was amazingly resilient and we're very pleased with how January looked. I will tell you it's the same frustration, very low day supply in a lot of areas. So There is that potential what you could have sold compared to what you did sell just because of lack of inventory. But considering what went on With the pandemic in the month of January and the horrible numbers we all saw nationally, it was a productive January for us. Matt. Got it. Got it. That's helpful. All right. That's it for me. Thanks and good luck. Thank you. Thank you. Pappas. We'll take our next question from Glenn Chin with Seaport Global Securities. Please go ahead. Great. Thank you. Good morning, gentlemen. Hi, Glenn. So David, perhaps a question for you. I'm getting a lot of questions from investors Just regarding the achievability of revenue and implied buy in targets for CookLean, can you just remind us or share with us Matt. Maybe a framework or the assumption underlying some of your goals for Quick Lean. Maybe if you could just start at the top of the funnel and then narrow it down for us, maybe starting with as you know, TAM, the number of leads you expect to get from that, the conversion rates and the market share that ultimately that implies? Sure. I'll and if I don't explain it well, Glenn, please just come back at me. We will start to spend money on Clicklane. We do expect additional traffic because of that. But when we talk about our model of the $5,000,000,000 with Clicklane, It actually is not accounting for any additional traffic. It's basically looking at the traffic we have now And looking at the conversion on Push Start and what we believe the conversion will be with Clicklane. So for lack of a better term, Matt. If we had 100 leads on Push Start and we closed 10 of those leads out of 100, that's your conversion of that ten Matt. If we had those same 100 leads with ClickLane, we believe that number will be more than double that Matt. And by the time we get to year 5, like any tool and anything that takes place online, you think about airline tickets, When they first converted to online, people were used to calling in. If you remember at the time, they actually charged you more to call in than online because they were trying to push online. Matt. Once the acceptance level is there and people realize you can do a full transaction, we believe over the next 5 years that number will go up materially. So Do we think 100% of the people are going to buy online? No, of course not. But we certainly believe somewhere between 30% 50% of the consumers will transact online Matt over the next 5 years. So it's basically taking our traditional conversion rates, looking at what Push I mean, what Clicklane can do against Matt. And modeling that out over 5 years with really no incremental growth on the ClickLane tool itself. So we think we're very conservative in our numbers and our approach. And again, 1 month out of the gate, with only 3 stores. But within those three stores, You had 4 different luxury brands in the midline import. And I would tell you again month 1 out of the gate, We were conservative on our conversion numbers. Okay. And so speaking about that 5 year at the end of the call. David, I think you were quoted in an automotive news interview saying that you expected not Quicklane, but sort of Matt. It's a quickly type capability to be prominent throughout the industry within 2 years. So after that Matt. 2 years when it is has proliferate around the dealer network nationwide, do you expect that conversion rate or the traffic to diminish given the increased competition online? I don't. I kind of look at it as when the websites Matt. He came online in the late '90s, early 2000s. It was walking in phone traffic and now there was Internet. It just the traffic flows move into different channels. The benefit here to the overall automotive space will be the level of satisfaction to the consumers, Matt. The speed and experience that the consumers can go through and how transparent it will be and how that will be beneficial Matt. Going costs within a store with the use of a tool like this really being accepted in the space. Matt. That's the opportunity that is really meaningful. And then the $5,000,000,000 target, David, is that all new and used retail? Is any of that parts and service or F and I? Well, some of it's F and I for sure. But no, it's not parts and service. It's just Matt. Simply sales. When we talked about the 5 year plan and we talked about the $2,000,000,000 in revenue growth in our store count, it didn't assume any acquisitions, Obviously, we looked at our same store sales of what we have now. And then we looked over the next 5 years, we looked at our service retention numbers, our market share numbers And where we thought what we could do with the brand. We did not factor in any economic downturn in that 5 year model. We kind of assumed Matt. Somewhere between 2016 2017 over that 5 year period. Very conservative numbers is everything that we do. So we just kind of modeled it that way and that's where the numbers laid, if you will. Okay. I guess my question around F and I, David, was not so much around volume because obviously that will go up with increased volume of retail sales, but more around, Matt. I guess increased penetration or attachment rates? Sure. Do you expect anything like that? Matt. So that's going to be subjective because it's over time. But again, and it's a small sample, I'll talk to the 4 Three stores and one midline import. It's in 3 stores, but one store has multiple brands. I would tell you we're very pleased with the F and I numbers that we've seen so far. Again, it's I know it's only a few stores, I know it's only 30 days. But in most cases, we're up significantly in F and I dollars per vehicle Matt. With the Click Rain tool so far, more than we've forecasted for. And what do you think might be driving that? Matt. I think there's a convenience of consumers and consumers selling themselves. Most people To sell themselves on something before they ever go out and purchase it and they justify why they're going to buy it and what they're going to pay for it. I think we focus Matt. On products that add value to the vehicle, the average length of ownership is almost 12 years in the country. There's a big purchase, a big expense. I think if you can Matt. Send products professionally, price them fairly and give information on the products to allow consumer to make an educated decision. Matt. What you end up with is selling products. Okay, great. Thanks very much. Appreciate the feedback. And just a quick housekeeping follow-up for P. J. P. J, did you guys say that Pappas. Your leverage target has changed. It was 2 to 3 times. Is it now just 3 times? Someone's asking. Yes. Hey, Glenn. So it's typically been or it's typically been 3 times. So 2 to 3 times, that's a Kind of a big window. Our target is 3 times. We feel like that conservative and balances Matt. Both risks with being able to put the balance sheet to work. Okay. But just to clarify, has your thinking around Matt. Our thinking has been changed? No. It's still 3 times target. Matt. Okay, very good. All right. Thanks very much gentlemen and good luck. Thank you. Thank you. We'll take our next question from Stephanie Benjamin with Truist. Matt. Please go ahead. Hi, good morning. Good morning. Good morning. Matt. I wanted to ask a bit about the use side of your business. Just looking at it, whether it's grosses or margins themselves Mab. Decelerated in the Q4, still obviously up on the growth side year over year. But I'd love if you could speak a little bit about that just given we did Matt. Actually a slight acceleration in ASPs and even the unit performance. So just if you could kind of walk through what you're seeing in the used business? Thank you. Yes. Stephanie, this is David. I would say The best way to describe the used business right now is our goal is not to chase volume. Our goal is to chase return. We really track all the different avenues, whether we purchase the car and then service drive, whether we acquire it off the street, whether we take it in trade or buy it at an auction. Matt. And we say what's our best investment and how do we get our highest return. I would say we're very happy with our margin performance on pre owned and being up 10 The percentage of gross profit was kind of the target where we wanted to be. I would tell you the margins are not deceiving, but Matt. The cost of sale has really jumped up a lot. And if you think about it, it's probably up a couple of $1,000 since 2018. I think we ended the quarter over 24,000 close to 24,400. And when you think back At the end of Q4 2018, it was 22% and change. So a material increase in cost of sales is going to have an effect on the margin. Matt. But just as a GPU standpoint, in Q4 of 2018, we were $15.41 a car. So we're still running a couple of $100 a car Matt. Ahead of where we were in a competitive market space, and that's based on a same store number. So we're confident Matt. In our plan, it's just really being opportunistic where we acquire inventory from. Our ability to make money in pre owned is not going to be about The sale price because the market dictates that it's really going to be about the acquisition price. And we're really trying to I have a strategic plan on how to acquire the inventory and not just turn over the inventory at a low margin, but turn it over to a fair margin. Matt. Great. And to follow-up on that, as you roll out Quicklane and you noticed some incremental kind of advertising or support behind that tool, Will that also include possibly some advertising about acquiring your vehicle, so through an online component, kind of like some of your Pure Digital used peers out there and their We Buy Your Car. Is that something that's on the table? Yes. Matt. It's in the tool and the quick answer is yes. It's on the homepage of the websites that are on those stores now, But absolutely as a part of it, yes. Got it. Well, thank you so much. Thank you. We'll take our next question from Bret Jordan with Jefferies. Please go ahead. Hey, good morning, guys. Good morning. On the Clicklane, I guess, in the test stores, is there any, I guess, information, anecdotal maybe that these are incremental customers? Or is it just a better conversion of folks that would have been coming to an Asbury store in the first place? Pitts. Yes, Brent, again, it's early on. It's a few stores, so I can share stories and give you real numbers. The answer is yes. It's both. It's higher conversions of the customers you may or may not have had before, but it's also We're seeing acquisitions, what I would call outside of our marketplace, with pre owned. And I I think it's because they can actually do the transaction online and I'll just give you one anecdotal sale. It was a $97,000 used Land Rover that was sold from our Greenville store in South Carolina And the person lived in the DFW marketplace. They put $13,000 down on their credit card. They financed the balance Matt. And did the whole transaction online, and we delivered the car over 9 50 miles away. And obviously, there were a lot of local dealers and quite honestly, one of them was Park Place within that market space. When you talk to that consumer, Matt. It was the ease and transparency with the vehicle that they wanted to be able to do the whole transaction online and have it be so transparent and seamless was a great experience Matt. So that's one story. We have many like that. But just I think the awareness of consumers actually They've all wanted this for a long time. So to know that it actually exists out there, a lot of them are stumbling on it by mistake when they see it on their website. At the end of the call. Are you finding just a different customer reaction between midline and luxury? I guess you demoed it for us at a Kia dealership in Florida. Are you seeing that The 3 buyers are more likely to do an online end to end transaction in midline or is it similar? Matt. It's a fantastic question. I'd like to give you an honest answer by saying I'd like to give you my thoughts before we started it and then tell you what the reaction Matt. Before we launched it, I assumed it would take off with midline imports. And I was concerned what would happen with the luxury buyer. After December, like usual, I was wrong. It was accepted really well by the luxury buyers. It had nothing to do with price transactionally. It did well with the midline imports customers too, but I expected that. I was shocked how well it did with the luxury buyers. Pinson. Thanks. And I guess maybe you might have told us this before, but the $5,000,000,000 expected Cliff Lane revenues in 2025, what's the mix of new versus used in that outlook? So we kind of stick to our same well, I'll tell you this. With PUSHSTART, When we initially launched PUSHSTART right out of the gate, it was majority new to use sales. Very soon it transitioned within months and it stayed there for Matt. To where over 2 thirds of it was pre owned and a third of it was new. As we start off with Clicklane, it's closer to fifty-fifty right now. But the way we've modeled it in, we've kind of again, we want to get granular with our 5 year plan. And so we built the 5 year plan literally by rooftop. So we kind of kept to our use to new ratio and then we kept the same sales volume, just higher conversions on ClickLine. Great. Thank you. Matt. Thank you. We'll take our next question from David Whiston with Morningstar. Please go ahead. Thanks. Good morning. A question on Toyota's announcement yesterday on their new e commerce platform. A A lot of the capabilities at Nissan are very similar to Clicklane. Obviously, at the end, they do transfer the customer over to a dealer. But Pitts. I'm just curious as having more automakers having a capability of their own like Clicklane, does that help you, hurt you or is it really neutral to you? Pitts. Thanks for the question, David. This is David. I'll answer it the way I did in December on the Investor Day. I think it helps the space overall. Our franchise system is being challenged now. As John talked about earlier, with start up companies coming into the space, I think this tool really levels the playing field and changes the experience. So I'm excited to see my competitors within the franchise system get the tool and get them to see the benefits of it. So we actually see this as a very positive thing for our space and helps us in the long run dramatically. Okay. And on the used market, I'm just wondering if you could contrast or maybe compare Matt. Today's new vehicle customer seems very like truck focused and very on the high end trims Matt Faucette versus a used customer who may be the used customer actually wants a sedan. Just what kind of differences are you seeing in preferences between those two channels? Pitts. David, it's a great question. I'll jump in and then this is David and then Dan can if he wants. It's the same on the pre owned. And because there's more discretional income right now with what's going on because people aren't spending on vacations or in bars or restaurants or that kind of things, Matt. We've seen higher down payments in 2020 and we saw higher credit scores in 2020. And you could see that by the jump in our cost of sale of pre owned, Matt. People are stepping up buying more car with more equipment. They're looking for the trucks and the SUVs. When you have a used truck, You can't go wrong with it and it's going to move very quickly. When you have a nice sedan, depending upon the price market that it's in, it may turn quickly or it may A little bit, but the used business is the same as the new. It's predominant SUV and truck. Pinson. So in your opinion, are sedans just going to keep shrinking? Do you think light truck penetration stabilizes now or keeps growing? Matt. It's hard to say. I mean, over the last few decades, we've seen a lot of movement in a lot of different areas. And As you see electrification coming in, battery anxiety when you get to the SUV size and bigger vehicles, how that's going to come into play. There's still a huge issue that hasn't been addressed in the country with an infrastructure to support it. The demand there from the OEMs Coming out with the products and the startups and there's the incentives there from the government, but there's not an infrastructure to charge it and support it. So I think and there's also the range anxiety that you talk to when you talk to customers that aren't just willing to go there yet. All that will change over time and things will get better and battery life will get better. But I'm sure no differently than we all know that the electric cars that have been out Matt. For years now, as they get up to 80,000, 90,000 miles, their battery life as far as charging goes isn't what it was when the car was new. So there's a lot of things to work out over time with electrification, to see how that goes and what role that will play as it relates to sedan, SUV and truck market. Pizzas. Okay. And last question on the new generation F-one hundred and fifty, are your 4 customers really anxious to get to buy that truck? Yes. It's a great question, David. I honestly can't say. We're not hearing I'm not hearing a tremendously high demand right now. There's a tremendous amount of curiosity Matt about seeing it and what it looks like and what the numbers will be as far as range and all that stuff. But I'm just not hearing it. No. This is Dan, David. I have not heard anything in regards to that to be on new F-one hundred and fifty. Although as you know, P. The truck buyer is very, very loyal to the brand, probably one of the most loyal ones out there. So I I would expect that that loyal Board buyer is definitely excited about it and can't wait for it to come out. Okay. Thanks, guys. Thank you very much. Pitts. This concludes today's discussion. We appreciate your participation and look forward to talking to you at the end of the quarter.