Earnings Call: Q3 2018

Oct 23, 2018

Day, and welcome to the Asbury Automotive Group Third Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Matt Pattoni. Sir, please go ahead. Thanks, operator, and good morning, everyone. Welcome to Asbury Automotive Group's 3rd quarter 2018 earnings call. Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's Q3 results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with us today are David Holt, our President and Chief Executive Officer John Hartman, our Senior Vice President of Operations and Sean Goodman, our Senior Vice President and Chief Financial Officer. 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. Before we begin, I 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 which are historical in nature. All forward looking statements are subject to significant uncertainties, and actual results may differ materially from those suggested by the statements. 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 2017, 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. It is my pleasure to hand the call over to our CEO, David Holt. David? Thanks, Matt, and good morning, everyone. Welcome to our Q3 2018 earnings call. We are pleased with the results for the quarter. Some highlights are as follows. We achieved record adjusted EPS of $2.21 We grew total retail unit sales by more than 10%. We reduced SG and A as a percentage of gross profit by 220 basis points to 67.9 percent and we increased income from operations by 16%. Our plan for the remainder of the year remains unchanged. We will continue to focus on the aspects of the business that we can control, specifically parts and service, used cars, F and I and overall expense management, while continuing to intelligently deploy capital towards the highest risk adjusted return. Year to date, through October 22, we have deployed over $160,000,000 of capital, which includes $91,000,000 on share buybacks and approximately $70,000,000 on acquisitions. The 3 acquisitions that we completed this year have integrated well into our Asbury operating model and performance is in line with expectations. Our omni channel investments are yielding strong results and the benefits can be seen in the record performance that we achieved this quarter. John will provide more details in a few moments. I will now hand the call over to Sean to discuss our financial performance. Sean? Thank you, David, and good morning, everyone. I would like to start with some color on the impact of Hurricane Florence on our operations in North Carolina and Virginia. Despite the intensity of Florence due to our emergency readiness programs and some good fortune, we did not have any notable property damage. While our North Carolina and Virginia stores were adversely impacted, the overall effect on our consolidated results was not significant and we do not expect to see any upside on our Q4 results. As a reminder, Q3 2017 was impacted by hurricanes Irma and Harvey. This year, we implemented accounting standard ASC 606 for revenue recognition. The impact in this quarter is not material. So overall, compared to the prior year Q3, our revenue increased by 10%, gross profit increased by 7%, gross margin of 15.8% was 40 basis points lower than last year, SG and A as a percentage of gross profit improved by 220 basis points to 67.9 percent. Operating margin of 4.6 percent was 20 basis points higher than last year. Adjusted net income increased by 46% to $44,900,000 and adjusted earnings per share increased by 49% to a record of $2.21 Net income for the Q3 of 2018 was adjusted for a tax expense of $0.03 per share associated with the IRS's recently issued guidance regarding Section 162M of the Internal Revenue Code. In Q3 2017, there were no non core adjustments. Our effective tax was 25% for the Q3 of 2018, down from 38.7% in the Q3 of 2017. We continue to expect the folio tax rate to be between 25% 26%. We successfully managed our SG and A expenses during the quarter to achieve a 2 20 basis point track to be in excess of $10,000,000 this year. Note that last year's SG and A included costs associated with CEO transition charges and this year we benefited from relatively favorable experience in certain employee insurance costs when compared to last year. SG and A as a percentage of gross profit for the 9 months ending 30th September was 68.6%, which is 110 basis points better than the prior year. As a result of our success in managing SG and A expenses this year, we now expect SG and A as a percentage of gross profit to be slightly below 69% for the full year. At the end of the quarter, our total leverage ratio stood at 2.7 times and our net leverage ratio at 2.2 times, thanks to our strong operating results and solid cash flow generation. While the 2.2 times leverage ratio is below our targeted range of 2.5 to 3 times, we believe that our leverage at the end of Q3 allows us to capitalize on expected attractive future capital deployment opportunities while taking into consideration the economic cycle. As we think about the economic cycle, it's worth noting that almost 50% of our gross profit is generated by the relatively stable parts and service segment of our business and that our SG and A costs are largely variable. We believe this business structure positions us well to effectively manage our costs and weather economic headwinds. Our investor presentation posted this morning shows some further information as to how we think about leverage. We repurchased $17,000,000 of our own shares in Q3, bringing the total share repurchases for the 1st 9 months of the year to $57,000,000 Now since the end of the third quarter, we have opportunistically repurchased an additional $34,000,000 of our own shares, bringing our total for this year to $91,000,000 representing approximately 7% of the outstanding shares at the beginning of this year. Our remaining share repurchase authorization has been increased to 100 proactively looking at attractive acquisition opportunities. Despite the same inventory days as last year, floorplan interest expense increased by $2,600,000 over the prior year, driven by increases in the LIBOR rate. A reminder that floor plan debt has a floating interest rate while all other debt is fixed rate. From a liquidity perspective, we ended the quarter with $7,000,000 of cash, dollars 43,000,000 available in floor plan offset accounts, $107,000,000 available on our used vehicle line, dollars 237,000,000 available on our revolving credit line and we also have unencumbered real estate in excess of $200,000,000 I would now like to hand the call over to John to walk us through the operating performance in more detail. John? Thank you, Sean. My remarks will pertain to our same store performance compared to the Q3 of 2017. Looking at new vehicles, while SAAR for the quarter was $17,000,000 or 1% below last year, we focus on retail SAAR, which was down 3% for the quarter. In this lower retail SAAR environment, we were able to grow our new unit sales 6%. Overall, our new car margin was 4.3%, 10 basis points lower than last quarter and 40 basis points lower than last year. This was driven by strong volume growth of imports, which are characterized by relatively lower margins. In addition, margins for imports declined due to aggressive incentive targets. Domestic margins were down because we underperformed in certain domestic brands, thereby missing some incentive money. Our total inventory was $773,000,000 Our day supply remained flat from prior year quarter at 73 days. Turning to used vehicles. We are very pleased that we were able to increase our used to new ratio 130 basis points resulting in used vehicle unit sales increasing by 8% from the prior year. Our gross profit margin of 7.3% was up 10 basis points from both last quarter and the prior year. The successful deployment of our omni channel initiatives and used car enterprise help us drive these results. Our used vehicle inventory of $150,000,000 is at a 35 day supply, which is consistent with the prior year. Turning to F and I. Our team continues to deliver strong results. Total F and I gross profit increased by 5 percent with gross profit per vehicle decreasing slightly to $15.24 Turning to parts and service. Our parts and service revenue increased 2% and gross profit increased 3% despite an 8% decline in warranty compared to the prior year quarter. This was achieved with a 5% increase in customer pay, the improved used vehicle sales caused our reconditioning work within parts and service to increase by 9%. I would like to take a moment to give you an update on the progress of some of our omni channel initiatives. Our centralized brand certified digital sales team currently supports 45% of our stores and we are ahead of schedule to onboard the remaining stores within the next 12 months. Stores participating in the program during this quarter increased digital sales by over 20% year over year. Our PUSHSTART online sales tool handled over 4,000 vehicle sales in the quarter, which is approximately 9% of our total retail units. We continue to grow the traffic utilizing our digital parts and service scheduling tool and for the quarter online service appointments were up 34 percent from the prior year to an all time record of 110,000. We are excited about our omnichannel driven growth and we are pleased that we have been able to invest in building omnichannel capabilities while maintaining our SG and A discipline. In conclusion, we would like to express our appreciation to all our teammates in the field and our support center who continue to produce best in class Our first question comes from Rick Nelson with Stephens. Thanks. Good morning. Nice quarter. I'd like to follow-up on the same store sales both new and used cars outpaced the overall market by a pretty significant margin. If you could discuss the drivers there and any regional commentary regional areas of strength or weakness would be helpful. Hey, Rick, this is John. Basically, we've had a real good focus on used vehicles this year and we've really focused on using the software and I think our teams grabbed it and knows it. So I think that's really helped on the used car. On the new car side, we did have some lift year over year from the Florida markets, which were down a little bit last year. And how we look at the new vehicle market is we really can't control the star, but we try to focus on is beating the competition locally and just being ahead of the competition locally there. Yes, I would add to that Rick. The omni channel piece that we're working on, there's a 2 connection prong there between our strong teams in the stores connecting with the digital team here, and both are really producing well. We're generating more traffic. We're converting at a higher rate, and we're finding efficiencies in doing so. And that's only with 45% of the company and so we're excited about the future. Yes. Thanks for that color. Just to follow-up on omni channel, is there sort of any sort of timeline when you expect you're going to leverage those investments? Or in fact, are you starting to leverage that investment now, that $10,000,000 that you spoke of? Yes. We're pretty much mostly expensed with that for the year. We're very pleased with the results that we've seen so far. We do believe from a unit perspective and somewhat to an SG and A perspective on our comp, we're seeing the leverage benefits of it with only 45% in, and we continue to think we'll get better. Okay. And F and I per unit, it looks like that backed up a little bit, if you could speak to that and your expectations as we push forward? Rick, I think that's some of that's to do with the mix we had and increasing our used vehicle retail 130 basis points versus new. So we saw the finance penetrations just drop slightly. And we've had some pretty soft performance in F and I for a while, but I don't I see us maintaining that range of F and I. Okay. And finally, if I could ask about capital allocation and the acquisition environment today. I think this chart in your new PowerPoint of leverage chart is pretty interesting too where you think we are within that band of the normal targeted range with some of those factors you cite for influencing the leverage? Hi, Rick, it's Sean. Good morning. So our chart shows an equilibrium leverage range of 2.5 to 3 times. And as I stated, our leverage rate our leverage at the end of the Q3 was 2.2x. And that reflects very strong results in the quarter. It also reflects the acquisitions that we didn't do any acquisitions in the Q3 and we bought back $17,000,000 of shares. It positions us very well for opportunities in the future and you see that in the share buybacks that we've done at the beginning of Q3. Our average share price during the sorry, at the beginning of the Q4. Average share price during the Q3 was around $72 and our average share price during the first 3 weeks of the Q4 has been around $62 And so in that period with that lower average share price, we bought back $34,000,000 of shares just in that 3 week period of time. And that's just an indication of the flexibility we have given our leverage ratio at the beginning of the quarter. And we're also looking at acquisitions that I think are exciting to us if they provide the right return. And there is a slide in our presentation about that as well that we do look at each project standalone by itself and look at the risk and return characteristics. And if the project meets the return characteristics given the risk profile, then we would invest in that project. Great. Thanks a lot and good luck. Thank you. Thank you. Our next question comes from Bret Jordan with Jefferies. In the prepared remarks, you talked about aggressive incentives on the import side impacting margins. Could you talk about the cadence of incentives and whether or not you're seeing that moderating or if we're still sort of seeing the volatility that we saw around the Q2 as well? Yes. I'll try to answer the best I can. The imports, midline imports, we've got some manufacturers that have some pretty aggressive incentives. And what happens is you really can't say, okay, we're going to dial Doctor. Blime and chase margin because everybody around you is chasing that incentive, which drives the margins down. So I don't see a difference in the cadence coming forward. Yes. I'll also add to when you think about it, our midline imports, everything is geographical as far as where you're located. We're predominant midline imports and then we have a lot of high volume midline imports in very metro markets, which is very intense and competitive, which further pushed margin down compared to an import store that might sit in the Midwest. Okay. And then another sort of cadence question on the 5% growth in customer pay service. Could you talk as far as ramping, are there programs you're running to drive volume? Years ago, you used to run tire discounting, but is there anything that you're doing out of the ordinary? Or is that just particular strength in customer demand for service? And I guess as the quarter progressed, did you see that changing, accelerating or decelerating? Yes. I would say about 2.5 years ago, we implemented some software that was new to our organization that really clearly helped us identify where our areas of opportunity was, how the car was moving through the system because cycle time is such an important factor with a consumer from a point of defection, meaning how quickly can you get them in and out. We're getting very comfortable with that software now, and we're starting to see the benefits of it. It's a very competitive space. We focus on brakes, batteries and tires. That has never changed. And we're very focused on our customer attention, how we communicate with them. So from a digital perspective, through text and via e mail, more so text now more than anything, we're texting MPIs to customers and communicating that way and really focusing on selling the work that's needed and focusing specifically on safety item work. So I think that 5% has been steady, but at times it gets a little frustrating because we see opportunity to grow certainly even more than that. Okay, great. Thank you. And I guess one final question on a comparable basis. Do you have a feeling, I guess, year over year the hurricane impact, what did it cost you last year that maybe you didn't get store closure days or anything this year? So last year's hurricanes, Hurricane Harvey and Irma, we did announce in last year when we had our earnings call, we announced the impact of that. I think it was around 1,000 cars that we missed out on selling due to those 2 hurricanes. The hurricane this year, while we did have store closures in North Carolina and Virginia, we had about 4 days of impacted sales in North Carolina and Virginia and maybe about 2 days in South Carolina. Overall for the quarter, there was not a material impact on the consolidated results. Thank you. Our next question comes from James Alberty with Consumer Edge. Great. Thank you for taking the question and good morning and congratulations. Thank you. I wanted to ask if we could on a regional basis, if you saw and I understand luxury, you had units up, gross profit per unit up, but for imports and domestic, it was the opposite. So for imports and domestic, were there any regions within your portfolio where units were actually higher year over year while GPUs worked higher? It was pretty consistent, James, across the board that we were down a little bit in gross and up in units. So regionally, didn't see a big no fluctuations originally really. Got it. So industry wide, nothing specific to any regions or isolated impacts there. Great. Then second question I had was on technicians. You've been talking about for several years, I think now, a shortage for parts and service technicians. Where are you seeing the best opportunities in terms of sourcing technicians right now? Is it coming from the aftermarket competitors or is it more straight out of sort of trade schools and things of that nature? We try to take the technicians out of the trade schools, but we'll take them from anywhere. We've got multiple programs going on to try to attract and retain our tech headcount. It's something we look at every week. We've got a of upside and fixed and really that's a challenge. Let's keep moving forward that we just need to increase our tech headcount, but it's not going to get any easier. Would you say that you're sourcing more recently from peers or does it feel like it's been pretty steady over the past few quarters? I think it's been pretty steady. Okay. And then the last question on digital. You had a great slide in here on advertising spend on your Q3 presentation. Wanted to understand if you could break out or delineate internal generated leads versus sort of usage of 3rd party? And for the 3rd parties, are there any names you'd be willing to share in terms of where you're favoring right now, whether it's things like CarGurus or Auto Trader or so forth, if you'd be willing to share that? Thanks. Yes. I would say our mix hasn't changed. We're very efficient with our ad dollar spend. Naturally, we value direct connect leads over 3rd party, but we have tremendous third party relationships. And it's a tough question to answer because some of those 3rd parties are stronger in other markets and then weaker in other markets and then others that are weaker are stronger in those markets. But we're selective. We look at it every month. We look at what we're getting for our money and we look at the conversion rate. And we're constantly tweaking, making adjustments to it. But our main focus is building our own content and driving our own traffic for the higher conversion. I guess as a follow-up to that last question, can you give us a breakdown of internal generated leads versus 3rd party and how that's trended over the past quarter or 2? Yes, I would we've never shared that before and we're really not comfortable doing it now. I would and this isn't real helpful, but it continues to grow at a steady rate, but we certainly couldn't do without our 3rd party partners. Understood. Thanks again and best of luck. Thank you. Thank you. Our next question comes from John Murphy with Bank of America. Good morning, guys. Good morning, John. Just a follow-up on incentives and pricing. I mean, it sounds like the industry is getting a little bit more disciplined sort of across the board, but it sounds like that you're on the imports in certain markets, you're having a little bit of an issue or they're having a little bit of an or they're having a little bit of an issue on pricing incentives. Is that because they're offsides on mix and have some of the wrong product for the market, they're just sort of heavier in sedans? Or is this just a sort of a competitive action that they're taking right now? I mean, to me, it's a little of both. I think it's a competitive action, where the manufacturer wants to grab share. So they'll put aggressive incentives out. And again, when you get into these stair stepper or number related, objectives, it's difficult. And I said it a couple of minutes ago, you can't decide I'm not going to chase volume while all the other local competition around you is chasing it because you wind up losing the business. So you kind of have to go all in and get into that game from the get go to get the volume. But when you also think about imports in trucks, Nissan Rogues, Honda CRVs, Toyota RAV4s, those are trucks. And those are becoming, as you know, high volume segments with not a lot of margin baked into them in a very competitive space. So you're actually at this point seeing some of these small crossovers and mid crossovers become essentially like sort of the sedan that you saw 3 to 5 years ago, just as far as the competitive environment and the margins that you're getting on them? Absolutely. Okay. Then a second question, Sean, you talked about attractive opportunities to deploy capital. And it sounded like there's an expectation that things are going to get more attractive for deploying capital. I'm just curious, is that sort of in the traditional channels of acquisitions where you see some of the privates getting more realistic around valuations? Or is there sort of something outside the normal bounds that we should be thinking about that you might be going after? This is David. I would say in over 30 years of doing this and the cyclicality of it, from 2010 to 2017, the valuations were very high and the market was optimistic and the dealers were optimistic expecting to grow their business even more and they almost want to be paid on the multiple that they weren't even attending themselves. The benefit when it gets a little bit bumpy like this and what I've seen over the last 3 decades, whether I've been with a private group or a public group, the best people grow in bad times or tough times. And so we see this as a great opportunity if the SAAR backs up a little bit or if it gets a little bit choppy to acquire things at realistic rates. We're lucky. Our only differentiator, as we tell everyone, is our people. We have great people and we have a lot of them. So to grow and add at the right values really becomes accretive for our shareholders and we're excited about that opportunity. Sort of contrary to popular wisdom, a bit of a slowdown in the new vehicle SAAR actually might be a very attractive opportunity for you guys to grow the business. Agree. Okay. And then just lastly, if you think about the SG and A levels, you're talking about a little bit less than 69% this year, that's fantastic performance, just hands down regardless of anything else since one of your better years. Is there more room on that to take cost out Or will that get better over time with leverage? Or do you think the 60% close to 69% rate is almost as good as you can operate at? I'm getting a little over my skis, John. So I'll paint a picture that I can't answer today. But with what we have going on with our omnichannel, with where we see the business by 2022, 2025 and what that dealership model is going to look like, we do see opportunities to be more efficient at doing what we do today. So we shouldn't think about it in the context of sort of the old school confines of high 60s to low 70s. There might be a whole sort of sea change that's going on here over time? Yes. I think it's a couple of years out, maybe a few years out, I definitely think you'll see a lot of industry change with SG and A specifically around compensation. Our next question comes from Artemates Sykavichos with Morgan Stanley. Good morning. Thank you for taking the question. With regards to new vehicle sales, it seems like there was a lot of mostly it was market share and coming from the import channel. Just curious if there were any specific manufacturers or just trying to think about drawing lines or conclusions across the industry here? Well, on the import side, I mean, your volume manufacturers are basically Nissan, Honda and Toyota. And if you look at our percent of sales, I mean, we're driving 61% of our sales from that segment in the import segment. Okay. But was it you taking share in those segments? As you mentioned, you couldn't dial back on volume. So did you make the push then on volume and find yourself taking share in those vehicles? We did. And the benefit of volume is, 1, you get the F and I income on that. 2, you get you can feed your used car inventory to retail used vehicles. And then as the UIO grows, obviously, you're feeding your service and parts business in the future. So it's all benefits when it gets here. Okay. And then with the used car sales running strong as well, what's your view of the used car market this year? Do you think we're on record pace for used car industry sales? And how has October trended to date? I mean October is kind of as expected for October. Typically the used car markets to about 2.5 times what the new vehicle star is. But I think it's a solid used car market moving forward. Okay. And then on the M and A environment, as you talk about potentially attractive acquisition opportunities, is this something you're looking at today or is it something that you're just waiting for and evaluating as they come? I'll answer it as best I can this way. During the year of 2018, I don't think we've had a week where we haven't been looking at an acquisition. So it's fair to say we're looking at things now. We're excited about some things we're working on and the potential, but like anything else, they're very complex to put together. So we're hopeful. Okay. And would you think about tuck in type acquisitions or something of large scale? I think the answer is both. It really depends. When you think about going into a market you haven't been in before, other than the revenue you're buying and to me more importantly than the revenue that you're buying is you really need to understand how that business operates and how well it will fold into your organization and assimilate to what you have. Sometimes buying revenue isn't necessarily a great thing for a company if it doesn't work mesh well together. So we're very focused on how they operate and is it a good fit for us and is it a win win for us and the dealer partner. Tuck in opportunities, we look at tuck ins as they come up and certainly want to take advantage of them. But we also think that tuck ins are good time to look for because you tend to have scale in those markets and you can really support them well with your brand name. Okay, great. Thank you so much. Thank you. Thank you. Thank you. Our next question comes from Chris Bottiglieri with Wolfe Research. Hi, thanks for taking the questions. A couple of follow ups. I guess, on the first one on the insurance, did you quantify at all how much of a benefit that was to SG and A, a percentage of gross or per unit, however you want to contextualize that? No, this is Sean. We didn't quantify the impact, but what we are seeing is that some of our insurance claims experience, and I'm thinking specifically here about workers' comp and medical benefits, were lower than last year, and that certainly half the SG and A, but we have not quantified that. Got you. So that's something you think that would persist, not just like a onetime accrual true up? No. I think it's a one off for this quarter in terms of the variation versus last year. We expect that to be more stable in the 4th quarter relative to last year. So it's a one off benefit this quarter versus last year, but it should be more stable in the 4th quarter. Got you. Okay. And then the used system changeover, obviously, pretty tremendous growth in Q3, very easy compare in Q4. Is there a way to contextualize how much of a headwind that was last year? And maybe just frame for us what do you think the underlying your underlying same store sales unit growth is right now that we can think about projecting outwards depending on the macro environment? Well, I think when you change, if people are used to using a certain system or software, anytime you change it, it's kind of like you're going back to scratch and starting anew. So I think it took some time for people to get used to it, not that the underlying business changed, it really doesn't. But the tool that you're using every day to manage that business did. So I think you're seeing some of the traction after 3 or 4 quarters of using the software and the employees getting used to it and taking advantage of it is where you saw the uptick in sales. I'll also add that I think our omnichannel piece really wasn't in full gear last year at this point, and we're still probably in the 3rd, 4th inning with it. So as that continues to mature and grow, the combination efficiency of that and our team in the field really getting used to that software is going to garner great results going forward as well. Got you. In those markets where you do have the omni channel, I think it sounds like 40 3% or something like that, how have they used unit comps compared to the markets where you don't have that in place? So what we're noticing, and I'll answer it this way, much higher conversion rates. I think John mentioned in his script, a 20% increase year over year. You can kind of see we've been running as a total company at 10% for the quarter. So we're closing at a higher rate, converting at a higher rate with those 45% of those stores. Got you. Okay. And then finally, just one last big picture question. The gross profits have been down for 7 years running, approaching like $1500 per unit. Is there a way to frame where you think this metric could bottom, either incremental SG and A or private dealer profitability? Or is it just you think you're making so much money in F and I and P and S, there really isn't a bottom? Like do we think about kind of the direction of used vehicle gross profits going forward? We thought a year ago they were stabilizing. It's tough to really answer that. And it really matters geographically where your stores are located because some markets are more competitive as others as far as saturation of number of rooftops. The one positive I would say, we have pretty tough new car margins. We're predominantly midline import, which is a tough thing right now, and we're demonstrating high operating margins and great SG and A. So to me, the takeaway is regardless of focusing on the negative of the new car margin, just how well this model can be efficient, generate income and control expenses at the same time. So that lends a lot of confidence to us as regardless of where it goes, we can control our destiny and our growth. Got you. That makes sense. Thank you for the time. Thank you. Thank you. Our next question comes from David Winston with Morningstar. Thanks. Good morning. I wanted to continue with the incentive discussion. Basically, I'm just wondering, is there ever a point where and I guess it would probably be more applicable to the domestic side given that's a smaller part of your business, but is there ever a point where you would say, we're just not going to play this game anymore and exit those franchises? Or conversely, do you ever think about maybe trying to have a more balanced brand portfolio and actually increasing your domestic exposure? I'll answer and then John can jump in. Clearly, diversifying the portfolio is our main focus because all brands are cyclical. So you really want to think about where you're positioned in the country and what brands you have. There's no question we would like to grow our domestic rooftop count. Our domestic partners are much appreciated. We think we make good money with our domestic partners. They make quality products. So we would certainly like to grow with our domestics. Yes. I think that it's a competitive business. And when the incentive targets are out there, you've got to go grab them. David, there are times that we have gone into the month because these targets change monthly. We said this is this doesn't make sense. We're not going to chase it. So we don't. Okay. Other questions on the rise in interest rates and affordability, which is getting some attention on the press now. On average, when I do the math, 100 bps is on a new car is generally about a $14 a month increase in the monthly payment. But maybe what's going on now perhaps some consumers are getting hit way harder than that if their credit's not very good and it's more like a $50,000,000 $100 plus payment, it's just pushing these people either out of the market completely or in the used? We haven't seen the interest rates really affecting the consumer lending. The rates have uptick slightly, but not to the point where it's costing us volume or shifting customers from new to used. With the interest rates, we're feeling a little bit of headwind is really on the inventory side. But we've done a good job managing our day supply, yet the carrying cost has gone up year over year. Okay. Thanks, guys. Thank you. Thank you very much. This concludes today's discussion. We appreciate your participation on the call today. Have a great day. Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.