Earnings Call: Q1 2017

Apr 27, 2017

Ladies and gentlemen, welcome to the Asbury Automotive Group Q1 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to hand the call over to Mr. Matt Pattoni, Vice President and Treasurer. Please go ahead, sir. Thanks, operator, and good morning, everyone. Welcome to Asbury Automotive Group's Q1 2017 earnings call. Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's Q1 results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with us today are Craig Monahan, our President and Chief Executive Officer and filling in for David Holt is Dan Clara, our Atlanta Market Managing Director. David is currently attending a Harvard Executive Management program and will be back for our next call. At the conclusion of our remarks, we will open the call up for questions and I will be available 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 2016, 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, Craig Monahan. Craig? Good morning, everyone. This morning, we announced adjusted earnings per share of $1.58 for the Q1, a 16% increase over last year. While we continue to operate in a challenging new and used margin environment, our ability to drive incremental used sales volumes, enhanced F and I PVR and grow parts and service enabled us to deliver same store gross profit growth of 3% and industry leading margins of 4.6%. In addition, during the quarter, we acquired a Chevy franchise and an adusu truck franchise in Indianapolis, Indiana. We completed our Atlanta Nissan realignment with the opening of our coming Nissan Ad Point and we repatriated $50,000,000 to our shareholders. In summary, our adjusted results represent another 1st quarter EPS record and our 31st consecutive quarter of EPS growth. Now I'll turn the call back to Matt to bring us through our financial highlights. Thanks Craig. This morning we reported EPS of 1 point $6.1 for the Q1 of 2017. Adjusted EPS was $1.58 a first quarter record and a 16% increase from last year. Income from continuing operations for the Q1 of 2017 was adjusted for $900,000 of pretax legal settlement benefits or $0.03 per diluted share. Income from continuing operations for the Q1 of 2016 was adjusted for $3,400,000 of pretax real estate related charges or $0.09 per diluted share. Turning to expenses. Our SG and A as a percentage of gross profit for the quarter was 69.6%, up 10 basis points from last year. A significant portion of this was associated with investments in technologies we made to better manage our customer experience and improve productivity. For 2017, we continue to expect our SG and A as a percentage of gross profit to be in the 69% to 70% range. Our floorplan interest expense totaled $5,300,000 up $900,000 from the prior year period, primarily due to an increase in the LIBOR rate. Our tax rate for the quarter was 36%, down 2 20 basis points from the prior year period. This was primarily attributable to new accounting guidelines related to the tax treatment of stock based compensation. Notwithstanding the adoption of these guidelines, we expect our effective tax rate to be approximately 38% over the remaining quarters of 2017. With respect to capital deployment, during the quarter we acquired Haier Chevrolet, repurchased $15,000,000 of our common stock and spent approximately $5,000,000 in CapEx. For 2017, we plan to invest $60,000,000 in core CapEx and an additional $10,000,000 for the construction of a new facility that will replace an existing leased facility. Going forward, we will continue seek opportunities to purchase real estate currently under lease and acquire properties in connection with future dealership relocations. From a liquidity perspective, we ended the quarter with $3,000,000 in cash, dollars 55,000,000 available in floorplan offset accounts, $106,000,000 available on our used vehicle line and $237,000,000 available on our revolving credit lines. Our total leverage stands at 3.0 times. On a net basis, our total leverage ratio is 2.5 times, which is at the lower end of our targeted range of 2.5 to 3 times. Going forward, we are committed to our targeted leverage range while maintaining flexibility to deploy capital on an opportunistic basis. And finally, last weekend, a major hailstorm hit 2 of our dealerships in Plano, Texas. While we are still working to understand the full impact of the storm, more than half of the vehicles were totaled and the damages could range from $15,000,000 to $1,000,000 our dealerships were left with virtually no vehicle inventory and it is too soon to say how long it will be before these stores are fully operational again. Now I'll hand the call over to Dan to discuss our operational performance. Dan? Thanks, Matt. Good morning, everyone. My remarks will pertain to our same store performance compared to the Q1 of 2016, unless otherwise stated. We delivered a strong quarter. We grew our used retail unit sales 6%, drove F and I TBR above $1500 delivered a front end yield of approximately $3,200 per car and grew parts and service gross profit 5%. Turning to new vehicles. Star fell 1% to $17,300,000 While our new unit volumes were flat, we took market share in almost every brand in our local markets. From a margin perspective, we experienced new vehicle margin pressure across all segments due to aggressive stair step programs and growing inventory levels in certain brands. As a result, our margins down 60 basis points to 4.8%. Our total new vehicle inventory was $780,000,000 or 74 day supply at quarter end. We were not materially impacted by stop sale vehicles. Like the industry, our new vehicle levels are higher than we would like, but we believe they are manageable. Turning to used vehicles. We increased our unit sales 6% in the quarter with CPO vehicle sales up 13%. Our used vehicle retail gross profit was down 2% due to our decision to trade margin for volume. As you are well aware, incrementally used vehicle sales provide profit opportunities in both F and I and parts and service. We continue to believe that there is additional opportunity to grow our used vehicle sales. Our team did a great job managing our used vehicle inventory at 32 days supply. We target a range of 30 to 35 days, which minimizes our risk of major movements in used vehicle valuations. Overall, our business was not materially impacted by stopped sales inventory. Turning to F and I. Our team continues to deliver strong results. Increased used vehicle sales combined with a $91 increase in our F and I per vehicle retailed enabled us to increase F and I gross profit 9%. Now for parts and service. Our parts and service business continued to perform well in the Q1 with our teams delivering 5% gross profit growth. This growth was primarily attributable to a 22% increase in warranty. Now I'll hand the call back over to Craig. Thanks, Dan. Looking forward, we expect the SAAR to fluctuate in the low to mid $17,000,000 range. Despite moderating SAAR and a difficult margin environment, we believe we'll be able to continue to grow EPS. The influx of all fleet vehicles will allow us to better source inventory and grow our used business. We believe our parts and service business will continue to benefit from the growing number of late model units in operation and the ever increasing complexity of today's vehicles. Our ongoing efforts to strengthen our sales process, recently renegotiated product contracts and increased used unit sales should continue to drive further F and I improvements. And finally, our strong balance sheet, modest leverage levels and over $400,000,000 of available liquidity affords us considerable flexibility to deploy capital as opportunities come our way. In closing, we want to thank each of our associates. Our record results are reflection of your dedication and hard work. And now, we'll turn the call over to the operator and take your questions. Operator? We'll take our first question from Rick Nelson, Stephens Investment Bank. Thanks. Good morning, guys. Good morning, Rick. I'd like to ask you about the GPUs. We saw a higher year over year in luxury domestic segments, but quite a bit of pressure in the import segments. If you could provide some color there, is it specific brands or regions that are driving that? And any signs that things may be stabilized? Right. Yes. Rick, I'm happy to jump in on that. What you see there is a direct reflection of these stair step programs and very aggressive sales targets. In the import brands, it's where it's the I'd say the pressure is the greatest. And that's where we're seeing the biggest margin deterioration. In some of the other in the luxury brands, we actually have some instances where we've got some product shortages. And as a result, you see the opposite happen. You see some improvement in margins. But it's really that simple. I don't know, Dan, do you have anything to add? No, Craig. Actually the only thing I would add is we're also seeing in some of the imports where there is some clearance of old model that are going up and that's also with the high day supply of those models that's creating additional pressure to the margins. Got you. Thanks for that color. Any comments on the regions where you might be seeing strength or weakness? And I guess some especially interested in Florida, What's happening there? Yes, Rick. The regions, we didn't see that much variation across the regions. I mean, there's always some up and downs. But broadly speaking, I would say our performance was fairly constant across the regions. And finally, if I could ask you for an update on the timeline for recruiting as a CFO. That sounded pretty good on the call this morning. Yes. We've got a recruiting effort underway. We've talked to a number of very attractive candidates. We have one that we are specifically interested in and we think we've got a good chance of bringing that to conclusion rather quickly. Sounds good. Thanks a lot and good luck. Thanks, Rick. Next up, we'll hear from Irina Huttikovsky, KeyBanc. Thank you. Good morning, everyone. Good morning, Irina. A couple of questions for you gentlemen on the contributions overall acquisitions and the contributions from the acquisitions you just announced. How big are they? And then you haven't been very active in the acquisition market recently because of the kind of the sellers' expectations. Is this a sign that perhaps this is improving? And just your last comment kind of points that as well. Can you talk a little bit about the conditions in that market? Sure. Let me take a shot at this and maybe Mac might be able to add more color as well on the numbers. But I'd start off with broadly speaking when we look at these numbers we focus on the same store results. And so same store results include the like stores in both periods. So there's really no impact of these more at least recent acquisitions when we talk about same store results. With respect to the market, these were acquisitions that made a lot of sense to us. They were in markets that we feel good about, markets that we feel are going to continue to grow. They were priced right. And when we find out if that makes sense, we're going to jump all over them. If we find another Haier Chevrolet type transaction tomorrow, we'd buy it. And as you know, our fallback is our own stores, for share repurchase. And we're trading at somewhere around 7.5 times on an EBITDA basis. Which at the price, on this quarter we'll $5,000,000 of our stock. That's a good price for our stores. Marina, this is Matt. When you're looking at the difference between the all stores and the same stores, this quarter we had a lot going on. Remember last quarter, we sold off our Arkansas platform and halfway through this quarter, we purchased the Haier Chevrolet. And in addition to that later in the quarter we had our new Nissan Open Point in Cumming, Georgia. So there was a lot of timing in this quarter of we lost the full contribution from the Arkansas stores. But during the quarter, our new initiatives started to come on. So hopefully as we get throughout the rest of the year, we'll be able to realize the full quarterly potential of those new initiatives. Thank you for that. And can you guys update us on the Q Auto and the progress there? I know you're very paced and careful about the rollout of that initiative. A lot of your competitors seem to be entering the used vehicle market. And just can you talk a little bit about the results there and how your plans going forward? Anything changing? Yes. I'll take that one. We're running the Q Auto stores as really a I would say a discount used car store that's supporting just local Tampa market. And we're trying fundamentally, we keep coming back to ROI on everything we do. We want to generate a return on the investment. We're trying to prove that we can make that model economically viable. And at this point, with just 2 stores, it's just not material to our results. I don't think there's much to add. We continue to work on it. But we're going to watch and see where it goes. Got you. Thank you very much gentlemen. Congratulations on a good quarter. Thank you. Next up from Evercore ISI is Mike Montani. Hey, guys. Good morning. Thanks for taking the question. Hey, Mike. Hey, I just wanted to ask if I could, first off, if there's any incremental color you can share on the import side for new, is it one particular brand or is it across basically all the import brands? And what are maybe some actions that you all can take moving forward to get a little bit better balance there between volume and GPU pressure? Mike, that's a big question. I'll start with that and maybe Dan wants to add more. But specifically, no, it's not just one manufacturer. We see it happening with mobile manufacturers. It's not just stair steps. In some cases, it's manufacturers are trying to move a lot of inventory to the marketplace. And the inventory stacks up in the stores and there's a lot of pressure on the stores to move that inventory. And our competitors drop prices in order to move it and we drop prices to match. I think longer term let's deal with the fundamental issue is there's too much production and it's causing these disruptions in the market. I'll speak specifically to our view on stair steps and these aggressive targets is they cause quite a lot of damage. And I'd break it down maybe into 3 areas. When a store gets a sales objective that it just can't achieve, it's very demoralizing. So it demoralizes our staff. I think you're very familiar with the fact that it alienates customers because different customers in the store at different times of the month can see vastly different prices. And then ultimately devalues the franchise. So I don't believe this will continue for the long term. I think it's a function of where we are in the cycle. I think when production gets back in line with demand some of this will stabilize. But in the meantime, we've got to manage through it and we do the best we can on a store by store basis of balancing volume and margin. Dan? How much ability do you have to sort of refuse allocation? And are you all kind of canceling orders actively as well? Or is there just not enough potential to do that? Good morning, Mike. It's Dan. We do have the ability to decline allocation. Obviously, we manage that on a store by store basis. And we can even get more specific on a model to model basis to that particular store. So to answer your question, yes, we do have the ability. And in some instances, we are exercising that ability. Okay. And just 2 specific initiative questions. 1 was on the F and I per unit, obviously a nice gain there and it still looks like you have $100 to $200 of upside versus some of your peers. So just trying to understand if there's any structural impediments to that or if we can continue to expect the glide path to continue. And then secondly on private label parts, obviously AutoNation has been vocal about an initiative to basically private label their parts and not buy as much from the OEM supply chain. Would you all have any intentions to do something like that? If you could share any thoughts there? Sure. Mike, I'll start with the F and I. You did see improvements, see some improvements there. I mean F and I is it's very fundamental for us and that we do recognize that some of our competitors do a better job in F and I than we do. We are making progress. There's always the bottom 25% that needs to do better. A lot of it boils down to training, the processes, following the procedures that we've got in place. And we're just going to stick to it. I think the other thing that happens is when in our industry when you see a lot of pressure on the front end of the store, it seems amazing, but the F and I side of the business seems to do better. And that's really there's really a team process that's happening these days in the store when we sell a vehicle. The F and I office is working with the desk in order to try to maximize front end yield, which we talk about all the time. And you do see some shifts when with that margin pressure from front end to F and I. Let me just stop for a second too. Dan's got anything to add to that? No, Craig. I think you covered it very well. And then the second question, I'm sorry, I've forgotten already. It was about private label parts, if you might look to source those from the vendors directly as opposed to through the OE supply chain? We don't see that. I'm not we just don't see that. We wish the guys at AutoNation well. If that adds some value, that's something we'd think about. But that's not we've got other initiatives that we're focused on right now. Okay. Thank you. Sure thing. Up next is Mike Levin, Deutsche Bank. Good morning, guys. First, I just kind of wanted to get your feel for the new GPUs at this point? Do you kind of feel that at this point in the cycle, automakers have essentially positioned it such that on the new business, you're basically just covering costs and you have to just make money everywhere else. Is that a fair characterization from your experience? Well, I'd say it's true that we're not making anywhere near as much money selling new cars as we used to. But I whether that is an intentional move on the part of the manufacturers to force us to breakeven in new cars, I think I don't know that we can say that. I come back to what I mentioned earlier. I think we're just in a situation today where there is more production than there is demand. And until that gets back in balance, creates a very difficult environment for us. I don't believe that it's sustainable long term for the reasons that I stated. We've been through this before many times. It will eventually stabilize itself. But I think if you or I were running a manufacturing facility, we'd be doing everything we could to maximize the throughput because that's how you maximize your profitability. And in the near term, this policy, if you would, maximizes profitability at the manufacturer level. But in the long term, it damages the distribution network and that's why it will come back into balance. Got you. I mean, considering where we are in the new business and looking at your experience with Q Auto and sort of understanding the need for kind of a strong brand, Have you taken a look at doing any M and A of existing use standalone stores that kind of have a presence in certain markets and already have an established brand as a way to diversify your profit base and kind of move more into the used market? No, we really haven't. We've got Q Auto. If we can make that work in one of our local markets and like I said earlier, I said before, by making it work to us that means it generates an ROI in excess of our cost of capital. If we can make that model work, the outlet center model if you would, we can move that across mobile markets and enjoy some success there. But until we see that it's viable, we're not going to put a whole lot more capital into that. I would just share with you that the challenges of a standalone used car store are really twofold. 1, you've got to source inventory and 2, you've got to hang the paper for a large population of subprime buyers. So sourcing the inventory is something that's not that challenging for us as long as you don't get too large because we've got vehicles that we're sending to auction that we could probably retail. Hanging the paper and a substantial number of your buyers can be so fine. We found we have found in these stores. Hanging the paper is something that we're doing in the marketplace. We do not want to retain that risk. Others have made the decision to retain the risk. That's not where we want to go. And so we're just being careful as we move down this path. Interesting. I mean, in the exposure that you do have in both your franchise stores and in the 2Q auto, are you seeing increasing tightening within subprime from lenders? And is that something that could be a headwind in your ability to kind of take advantage of some of the better affordability developing for used? Good morning, Mike. This is Dan. We see that our credit is available out there. We have seen a few of the subprime lenders that are maybe getting a little bit more specific on some of the steps that they are requesting to verify employment, income levels, etcetera. But overall, the credit is available and it is not impacting us. Got it. Okay. Thank you so much guys. Thank you. Next question today comes from James Alberty, Consumer Edge Research. Yes. Hi, good morning. Thanks for taking my question. This is Derek Glynn on for Jamie. So we saw strong F and I trends in the quarter. Can you just give us a sense of the gap between the top F and I performance performers in your store base relative to say the bottom third of performers? Just trying to get a better feel for the opportunity here in improving F and I for some stores and you could still catch up to the average or the best performers there? Good morning, Derek. Dan again. That's a great question. And I'm going to try to answer it to the best of my ability. But as you because and the reason I say that is because there's so much that goes into a per retail unit in F and I. The market could determine that and not to mention the it is extremely important to have the right individual at the desk with the right training that is able to execute the training 100% of the time. But if I had to give you a range, I would say that from the least the bottom line performer to the top line performer, you're probably looking at a spread of somewhere, if I had to guess, probably $300 a car. But again, there could be completely different OEMs and completely different markets. So please keep that in mind. Okay. Thank you. That's helpful. And then I just also had a follow-up on the used side of the business. I guess for the market as a where do you see supply relative to demand? If you could just help us delineate between those two dynamics, just trying to get a sense of how to think about the comp trajectory and whether you think looking out into the future demand could keep pace with what should be a rise in supply in the coming years? Thanks. Sure, Mike or Derek. That's a great question. And I'll give you the way we look at it might be a little different than others. But fundamentally, the used car market is about 40,000,000 units. It's the number of cars coming off lease in theory are going to bring up not in theory, in reality, going to bring a lot more cars to market. But you're looking at 40 ish 1,000,000 units that will trade hands in a year. We think that that's going to create some pressure on used car prices. I think that's inevitable. But we see it as a trading business. We try to be in and out of these cars in 30 to 35 days. I think Dan mentioned it in his remarks. If used car valuations fall, that means we'll buy them cheaper, we'll recondition them and then we'll sell them at a lower price. But we're just trying to make a spread, trying to make our $1500, $1600 on a transaction and then move on and get the next one done. So for us, it's really about turn. It's about velocity of moving that inventory through the stores. And as long as the market price for a vehicle goes up slowly or goes down slowly, as long as there's no major or dramatic shifts in valuations, we'll manage through this fine. We deal with this on a regular basis anyhow because used cars happen to be a very seasonal business. We see values fall at the end of the year and then values pick up again in the spring. So it's something that we are accustomed to. Okay. Thank you. Sure thing. We will now hear from John Murphy, Bank of America. Good morning. This is Liz Suzuki on for John. Just on off lease, when you're getting these cars back, how would you characterize the residual values on the lease agreements versus working with you and your dealers to come up with a price for the working with you and your dealers to come up with a price for the dealer to buy that car? Good morning, Liz. This is Dan. Yes, again, it depends from an OEM manufacturer standpoint. We are seeing some La Cesar coming back that are underwater. The good news is we a lot of the manufacturers have give us the ability where they come in, for a lack of a better term they'll appraise the car and then they'll give us a market value at which we can acquire that car if the customer decided not to repurchase that car after the end of the lease. So that is it's good support from our manufacturer partners and it is also allowing us to feed our used vehicle inventory and then turn it into a certified pre owned, which as I mentioned earlier, our CPO growth was very healthy in Q1. Great. And would you say that you are acquiring a larger same or smaller percentage of those off lease cars than you were say a year or 2 ago? I think that from a percentage standpoint is probably the same. What has changed is the amount of cars that we are seeing coming to the dealers on a day to day basis or a week to week basis. But we have always been aggressive at buying those cars in the past and we will continue to do so. Great. Thanks. And just one more quick one. You mentioned warranty was up 22% and I may have missed this in the comments, but can you just talk about what drove that significant increase? Absolutely. This is Dan again and I'll be glad to answer that question. We are seeing multiple warranty items out there in the marketplace. Number 1, airbag inflators are starting to come in pretty handsomely right now. We have a few OEMs that have a few engine warranty work that is being performed, other OEMs that have dashboards that are being performed. So it's a little bit of a few mixes in there depending on the manufacturer and that is what is driving our 22% increase in our warranty. Great. Thanks very much. Thank you. We'll now go back to Irina Hodaqovsky. Thank you for taking a follow-up question. Actually a question for you. There is a competitor, I'm sure you've heard coming to market right now discussing e commerce in the used vehicles a lot. And much of the investment community is discussing about a potential disruption to the way cars are sold and how much market share can this competitor take. Can you talk a little bit about what it is that you offer online? How is this model different from what you have? And what do you see in terms of consumer preferences? And just could this be as much of a disruptor as people appear to think it is? Rina, it's Craig. I'd be happy to answer that question. And maybe if I can, I want to answer the question from 50,000 feet? And I can just maybe I'll share our views and maybe share a little bit of data and we'll see where we go if you've got any follow ups. But I mean, I think we all agree this industry is changing and it's changing very rapidly and so are we. We are not very public about what we're doing to change our business, but I assure you that we are making investments every day in technology, in the web and our digital capabilities and those investments are baked in our SG and A. So rather than a big one off, it's just something that we're doing quarter to quarter. The investments are all about improving the customer experience and expediting sales process. We actually believe that many of the new entrants that are coming to our space are they're actually doing the right thing. We admire some of the moves that they're making. But I would also say that many of the things that you see them doing is happening in our stores already. And maybe I could give you some data points to back that up. We've got a 25 person in house digital marketing team. They've been in place for almost 2 years. These are the millennials, polished concrete floor. They wear funky socks. But they are good and they're having a tremendous impact on our stores. 75% of our advertising spend is now digital. Our internally generated Internet leads were up 37% last year, largely as a result of the work this team is doing. In the Q1, our website visitor count was up 1 130% versus the Q1 last year. In this past quarter, 5% of our vehicle sales were initiated in what we call push start, and that's our online sales tool. And I'd encourage you to go to one of our websites in all our stores, look at a specific vehicle and click on the button that says buy online and it will take you to our fresh start tool and you will see a sale, an online sales process that in many ways is very similar to what you see Carvana doing. It won't take you 100% of the way through the transaction, but it will take you all the way through the sale. It will take you through valuation on your trade. It will take you to F and I product. But in many states, we still need WEP signatures, we need to verify. So it's not 100%, but it is a huge step in the right direction. Our online sales are growing at double digit rates. We're not just working on the front end of the store, we're working in parts and service as well. And there I would share with you that almost a quarter of our parts and service appointments are now scheduled online. If I come back to what I said earlier, we're all about ROI. Sometimes that means we buy stores, sometimes it means we buy stock. But the first place we spend money is always in the stores and on technology that we think we need to have in place to grow our business in the future. So I'd sum this all up and say we see the world changing. We think there's an opportunity to blend this digital world with the traditional brick and mortar world and those are the things that we're working on. Very good. Thank you very much. Just one follow-up. You mentioned there was a percentage of sales that are generated online through the push start button. What was that percentage? 5% of our sales in the Q1, yes, were initiated in our push start tool. Got it. Thank you very much. Appreciate that. Most welcome. And we'll take a follow-up from Mike Montani. Hey, guys. Thanks for the follow-up. Just wanted to ask if there was any impact on the quarter to profitability from the remaining Q Auto stores? And also if you could talk about just the outlook moving forward if there's a certain period of time where if they don't turn profitable you may look to move in a different direction? Mike, the impact on the Q autos of the Q autos stores is completely immaterial. We're down to 2 stores. I would say it's an experiment. I think a lot of the things that I just mentioned with our online sales initiatives will play into Q Auto at some point. We like having them there. It's a place for us to go and experiment. We can combine different things. We can play with one price. I think they're going to be there for some time, but they are it's almost like an R and D initiative. It is not a drag in any material way on our profitability. Okay. And then on the service and parts side, memory serves the reconditioning component was actually down a little bit, which was surprising just given that the used unit comps were pretty strong. So just trying to understand the dynamic there, if that's a timing issue in some way that works itself out or what's driving it? Hi, Mike. This is Dan. I'll try to answer that question for you. There's two items that are that affected our reconditioning. One is, I believe we are and I'll probably turn it over here to Matt afterwards. He can give us some more color. But we had to there was a reserve that we took compared to last quarter. And then so that affected that number. And then the other item is the fact that we have had a few stores where we have ventured to go to outsource some of the detail departments for the reconditioning part. So that hopefully that answers your question. Matt, is there anything you would like to add to it? Mike, I'll just add. Traditionally, it does our reconditioning does mirror our used unit growth and I would expect that going forward. We did it in quarter half some other things as Dan mentioned, but those are pretty small. Going forward, as we do continue to focus on growing and driving used car business, one of the reasons we do like focusing on it is because it puts business in our parts and service shop. So I would expect that to hold going forward. I don't know if you'd care to comment, but forgetting about the hailstorm stuff for a minute, but as you think about 2Q, is there anything you can say from an EBITDA standpoint because now you've done these acquisitions? Are we in a position where total EBITDA can start to grow again at this stage? Or do we have to wait for some more deals or other things to take hold? Mike, as you know, we don't give specific guidance. So at that level, there's just so many variables that are in play right now. I think these margins are the great unknown. If margins stabilize, I think we could be in an environment where we see EBITDA growth. If margins continue to deteriorate, that makes things much more difficult for us. Got it. Understood. Thank you. The next question comes from Chris Bottiglieri, Wolfe Research. Makes fun of the commentary earlier on your digital initiatives, that's really helpful. Just had a one follow-up. I don't think I heard you mentioned this, but are you still doing like are you still testing delivery online delivery to the customer right now? Yes. What we're finding is that in excess of 90% of the customers who start down the push start path come to the store to take delivery. There are some who will ask for the card to be delivered and we will deliver the card. We will take the paperwork to them, to their home or office, wherever it might be and we will complete that transaction remotely. But our experience is that's that is definitely they are in the minority at this point in time. Yes. So it looks like less than 150 basis points of sales. Like what has the experience been there? Are you seeing return like those customers that you choose delivery, what has the experience been? Have you seen a lot of return rates? Are you seeing other issues that are popping up where you don't think this model could be sustainable? Just curious your thoughts there. Let me just start and say, no, this model is very sustainable and it is growing nicely. I don't think there's any doubt in our mind that we're not going to be spending more and more time on this. I think Dan can give you some more Dan had a very interesting transaction just yesterday. I mean maybe he'll share with us. Yes. Chris, I'll try to provide more clarity to it. But back to Craig's point, it is very sustainable. We continue to see improving and increasing on a day to day basis. And since Craig mentioned, I'll give you some more information on it. We just a couple of days ago just sold a, I'll say, a Bentley to an individual that is moving from Australia to Savannah, Georgia. And that is the power that this tool brings to us. And in addition to that, we took a very hefty down payment from that consumer towards the purchase of this car. So we see that growing and expanding and we are very excited of what the future holds. As far as the consumer interaction and their satisfaction with it, I have been personally at the stores when transactions take place and customers A, either come to pick up the take delivery of their car or B, we deliver their car to their home. And in both instances, they are very, very satisfied. The biggest feedback that we get especially when a consumer comes to the store is the amount of time that it saves them throughout the transaction. That's helpful. And then for it sounds like you're doing new as well. What's the kind of like the would you think the pathway for regulation there looks like right now? Do you think it's something that could be more prevalent? Or is that going to be kind of a long path to get new car delivery? I'll jump in. We're doing new and used. Right the regulation piece that I mentioned earlier where you still need the wet signature and you definitely need to validate the steps or else we just create an F and I problem for ourselves down the road with reserves that go bad. I don't think it's it would be a lot easier to continue to move forward with this if the states were uniform in the regulations and we could accept digital signatures. But that will come. I don't think it's holding us back at this time. I think the point Dan made is very powerful and that is a lot of what this is about is expediting the sales transaction. The vast majority of the transaction is completed even before the customer comes to store. So when they get to the store, we'll spend however much time we want with them because they want on a demo. But literally, if they want to come in, sign the remaining paperwork and pick up the vehicle, they can be out. Certainly, they can be out of the store in less than an hour. Okay. All right. Very helpful. Thanks for your time. Appreciate it. Most welcome. Well, that wraps up our questions. We appreciate you being with us today and look forward to talk to you again next quarter. Again, ladies and gentlemen, that does conclude today's conference. Thank you all for your participation. You may now disconnect.