Matthew Pettoni - VP and Treasurer Craig Monaghan - CEO, President and Director Dan Clara - VP of Nalley & Greenville

Nels Nelson - Stephens Inc. Irina Hodakovsky - KeyBanc Capital Markets Michael Montani - Evercore ISI Michael Levin - Deutsche Bank Derek Glynn - Consumer Edge Research Elizabeth Suzuki - Bank of America Merrill Lynch Christopher Bottiglieri - Wolfe Research

Thanks, operator and good morning, everyone. Welcome to Asbury Automotive Group's First Quarter 2017 Earnings Call.

Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's first quarter results was issued earlier this morning and is posted on our website at asburyauto.com.

Participating with us today are Craig Monaghan, our President and Chief Executive Officer; and filling in for David Hult 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-K 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 Monaghan. Craig?

Good morning, everyone. This morning, we announced adjusted earnings per share of $1.58 for the first quarter, a 16% increase over last year.

While we continue to operate in a challenging new and news margin environment, our ability to drive incremental used sales volumes, enhanced F&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 Isuzu truck franchise in Indianapolis, Indiana.

We completed our Atlanta Nissan realignment with the opening of our Cumming Nissan add point and we repaid traders $15 million to our shareholders. In summary, our adjusted results represent another first quarter EPS record and our 31st consecutive quarter of EPS growth.

Now I will turn the call back to Matt to brings us through our financial highlights.

Thanks, Craig. This morning, we reported EPS of $1.61 for the first quarter of 2017.

Adjusted EPS was $1.58, a first quarter record and a 16% increase from last year. Income from continuing operations for the first quarter of 2017 was adjusted for $900,000 of pre-tax legal settlement benefits or $0.03 per diluted share.

Income from continuing operations for the first quarter of 2016 was adjusted for $3.4 million of pre-tax real estate-related charges or $0.09 per diluted share. Turning to expenses.

Our SG&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 and technologies we made to better manage our customer experience and improve productivity.

For 2017, we continue to expect our SG&A as a percentage of gross profit to be in the 69% to 70% range. Our floor plan interest expense totaled $5.3 million, 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 220 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 Hare Chevrolet, repurchased $15 million of our common stock and spent approximately $5 million in CapEx.

For 2017, we plan to invest $60 million in core CapEx and an additional $10 million for the construction of a new facility that will replace an existing leased facility. Going forward, we will continue to 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 million in cash, $55 million available in floor plan offset accounts, $106 million available on our used vehicle line and $237 million available on our revolving credit lines. Our total leverage stands at 3.0x.

On a net basis, our total leverage ratio is 2.5x which is at the lower end of our targeted range of 2.5 to 3x. Going forward, we're 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 dealership in Plano, Texas. While we're 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 million to $20 million.

Though our insurance policies limit our losses to $1 million, 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 will 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 first quarter of 2016, unless otherwise stated. We delivered a strong quarter.

We grew our used retail unit sales 6%, drove F&I PVR above $1,500, delivered a front-end yield of approximately $3,200 per car and grew parts and service gross profit 5%. Turning to new vehicles.

SAAR fell 1% to $17.3 million. While our new unit volumes were flat, we took market share in almost every brand in our local market.

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 were down 60 basis points to 4.8%.

Our total new vehicle inventory was $780 million 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, incremental used vehicle sales provide profit opportunities in both F&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-day supply. We target a range of 30 to 35 days which minimizes our risk of major movement in used vehicle valuations.

Overall, our business was not materially impacted by stop-sale inventory. Turning to F&I.

Our team continues to deliver strong results. Increased used vehicle sales, combined with a $91 increase in our F&I per vehicle retail, enabled us to increase F&I gross profit 9%.

Now for parts and service. Our parts and service business continue to perform well in the first quarter 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 million range.

Despite moderating SAAR and a difficult margin environment, we believe we'll be able to continue to grow EPS. The influx of off-leased 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&I improvements.

And finally, our strong balance sheet, modest leverage levels and over $400 million 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 a reflection of your dedication and hard work. And now we'll turn the call over to the operator and take your questions.

Operator?

I wanted to ask you, Craig, about CPOs. We saw a higher year-over-year luxury domestics 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 it is going to be stabilized?

All 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 said 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, if you have anything to add.

No, Craig. The -- actually, the only thing I would add is we're also seeing in some of the imports where there's some clearance of old model that are going up and that's also with the high base supply of those models that's creating additional pressure to the margins.

Any comments on the regions where you might be seeing strength, weakness and I guess I’m 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 a CFO. I thought Matt 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're specifically interested in and we think we've got a good chance of bringing that to conclusion rather quickly.

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' expectation. Is this a sign that perhaps this is improving?

And just your last comment kind of points to 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 Matt might be able to have 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-stores results. And so same-store results include the like stores in both periods, so there's really no impact of more of these 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 if we find that it makes sense, we're going to jump all over them.

If we could find another Hare Chevrolet-type transaction tomorrow, we'd buy. And as you know, our fallback is our own stores, new share repurchase.

And we're trading at somewhere around 7.5x on an EBITDA basis. [indiscernible] surprised that on this quarter [indiscernible] million dollars of fresh stock.

That's the price to our stores.

Irina, this is Matt. When you're looking at the difference between the off-stores and the same-stores, this quarter, we had a lot of going on.

Remember last quarter, we sold off our Arkansas platform. And halfway through this quarter, we purchased the Hare 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.

We lost a full contribution from the Arkansas stores. But during the quarter, our new initiative 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.

And can you guys update us on the Q auto and the progress there? I know you're very paced and careful about the roll out 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 a -- as really, I would say, a discount used-car store that's supporting just the local Tampa market.

And we're trying -- I mean, fundamentally, we keep coming back to ROI on everything we do. We want to generate the 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.

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?

Well, 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 multiple 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, our -- let's deal with the fundamental issue, it's 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, it's -- there -- 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, different times of the months, can see vastly different prices. And then ultimately, it devalues the franchise.

So I don't believe this will continue for the long term. I think it's a function where we're on the cycle.

I think when production gets back in line with demand, some of this will stabilize. But in the time -- in the meantime, we've got to manage through it and we do our -- 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?

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're exercising that ability.

Okay. Just two specific initiative questions.

One was on the F&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 pass 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&I.

You did see improvements, see some improvements there. I mean, F&I, it's very fundamental for us and that we do recognize that some of our competitors do a better job at F&I than we do.

We're 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 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&I side of the business seems to do better. And that's really -- it's really a team process that's happening these days in the store when we sell a vehicle.

The F&I office is working with the desk in order to try to maximize. We'll try a new which we talk about all the time.

And you do see some shifts when -- with that margin pressure from front end to F&I. Let me just stop for a second and see if 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 be able 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 got other initiatives that we're focused on right now.

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 cost 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 break even in new cars, I think I don't know that we can say that.

I go 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, it's -- it 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 the manufacturing facility, we'd be doing everything we could to maximize the throughput because that's how you maximize your profitability. 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 then that's why we'll come back into balance.

Got you. I mean, considering where we're on 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&A of existing used stand-alone 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're 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 outlooks in our model, if you would, we can move that across multiple 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 stand-alone used car store are really twofold, one, you've got to source inventory; and two, you've got a hanging of paper for a large population of subprime buyers.

So sourcing the inventory is -- it's 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 auctions that we could probably retail. Hanging the paper and a substantial number of your buyers can be subprime.

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 2 Q 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?

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, et cetera. But overall, the credit is available and it is not impacting us.

This is Derek Glynn on for Jamie. So we saw strong F&I trends in the quarter.

Can you just give us a sense of the gap between the top F&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&I for some stores.

And do you think you could still catch up to the average or the best performers there?

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 is so much that goes into a per retail unit in F&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 in completely different markets, so please keep that in mind.

Okay. That's helpful.

And I just also had a follow-up on the used side of the business. I guess, with the market as a whole where you see supply relative to demand, if you could just help us delineate between those 2 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.

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 million units. It's the number of cars coming off-lease.

In theory, you're going to bring – not in theory, in reality, going to bring a lot more cars to market. But you're looking at 40-ish million units that'll trade hands in a year.

We think 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 or 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 $1,500, $1,600 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, it goes up slowly or it goes down slowly, as long as there's no major or dramatic shifts in valuations, we'll manage through this. It's 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're accustomed to.

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 the market value of those cars?

And are a lot of lessees coming in under water on their leases? And when that's the case, are the captives working with you and your dealers to come up with a price for the dealer to buy that car?

Liz, this is Dan. Yes, again, it depends from a OEM manufacturer standpoint.

We're seeing some lessees that's coming back that are under water. 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's had enough 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 preowned 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?

Yes, I think that from a percentage standpoint, it's probably the same. What has changed is the amount of cars that we're 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. And just one more quick one.

You mentioned the 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're seeing multiple warranty items out there in the marketplace, number one. 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 few mixes in there depending on the manufacturer and that is what is driving our 22% increase in our warranty.

Craig, just a question for you, there is a competitor I'm sure you've heard coming to market right now discussing e-commerce in 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 disrupter as people appear to think it is?

Irina, 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 I can 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're not very public about what we're doing to change our business, but I assure you that we're making investments every day in technology, in the web, in our digital capabilities. And those investments are baked in our SG&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 self-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 that have been in place for almost 2 years.

These are the millennials, polish concrete floor, they wear funky socks. But they're 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 first quarter, our website visitor count was up 130% versus the first quarter last year. In this past quarter, 5% of our vehicle sales were initiated in what we call PUSHSTART and that's our online sales tool.

And I'd encourage you to go to one of our website 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 PUSHSTART tool. And you will see a sell -- an online sales process that, in many ways, is very similar to what you see Carvana doing.

It won't take you through 100% of the way through the transaction, but it will take you all the way through the sale. It will take you through valuations on your trade.

It will take you through F&I product. But in many states, we still need wet signatures that 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.

And we're not just working on the front end of the stores, we're working on parts and services as well. And there are -- we're through that almost a quarter of our parts and service appointment are now scheduled online.

So I come back to what I said earlier, we're all about ROI. Sometimes, that means we buy store.

Sometimes, that means we buy stock. But the first place we spend money is always in 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. Just one follow-up.

You mentioned there was a percentage of sales that are generated online through the PUSHSTART button. What was that percentage?

5% of our sales in the first quarter were initiated in our PUSHSTART tool.

I 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 auto -- of the Q auto 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&D initiative. It is not a drag in any material way on our profitability.

Okay. And then on the service and parts side.

If 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?

Mike, this is Dan. I'll try to answer that question for you.

There is 2 items that are -- that affected our reconditioning. One is I believe we -- 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 in the quarter have 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 shops, 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 the 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.

Thanks for the commentary earlier on your digital initiative. That's really helpful.

I 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, we -- what we're finding is that an excess of 90% of the customers who start down the PUSHSTART path come to the store and take delivery. There are some who will ask for the car to be delivered and we will deliver the car.

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 is definitely -- they are in the minority at this point in time.

Let's say less than 150 basis points of sales. Like, what has the experience been there?

Are you seeing a return -- like for those customers that do choose delivery, kind of what has the experience been? Are you seeing a lot of return rates?

Are you seeing like other issues that are popping up where you don't think this model could be sustainable? Just kind of 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 that there's any doubt in our mind that we're not going to be spending more, 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 it 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, 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're 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 you, it sounds like you’re doing new as well.

What's the kind of like the -- what do 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 to the 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&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'd go back to the point -- 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 the store. So when they get to the store, we'll spend however much time we want with them, if they want on the 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. Well, that wraps up our questions.

We appreciate you being with us today and look forward to talk to you again next quarter.