Jul 24, 2012
Operator
Good day, everyone, and welcome to ABG’s Second Quarter 2012 Earnings Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to the Treasurer, Mr. Ryan Marsh.
Please go ahead sir.
Ryan Marsh
Thank you, April, and good morning to everybody. Welcome to Asbury Automotive Group’s Second Quarter 2012 Earnings Call.
Today’s call is being recorded and will be available for replay later today. The press release detailing Asbury’s second quarter results was issued earlier this morning and is posted on our website, www.asburyauto.com.
Ryan Marsh
Participating with us today are Craig Monaghan, our President and CEO; Michael Kearney, our Executive Vice President and COO; and Scott Krenz, our Senior Vice President and CFO. At the conclusion of our remarks, we’ll open up the call for questions, and I’ll be available later for any follow-up questions you might have.
Ryan Marsh
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 2011, any subsequently filed quarterly reports on Form 10-Q, and our earnings release that we issued earlier today.
We expressly disclaim any responsibility to update forward-looking statements.
Ryan Marsh
With all that said, it is my pleasure now to hand the call over to our CEO, Craig Monaghan.
Craig Monaghan
Good morning everyone, and thank you for joining us. We are pleased to report all-time record results from continuing operations for the quarter.
Our EPS from continuing operations increased 38% for the quarter to $0.69 per diluted share from an adjusted $0.50 per diluted share in the prior year period. We achieved these results through solid operational performance and disciplined expense control.
Craig Monaghan
Scott will provide more detail on our financials and Mike will provide an overview of our operating results, but I would like to provide a few highlights from the quarter.
Craig Monaghan
Revenues improved 11%. We continue to improve our cost structure, reducing SG&A as a percent of gross profit by 250 basis points after adjusting for a lease termination charge in the prior year period.
Our operating leverage resulted in a flow through of 74% of our incremental gross profit. And with our adjusted leverage now at 2.3x, we believe we have one of the strongest balance sheets among the publicly traded automotive retailers.
Craig Monaghan
Now, Scott will provide more detail.
Scott Krenz
Thank you, Craig. We again had a clean quarter from an accounting standpoint.
Our second quarter results of $0.69 include no adjustments from non-core items. We continue to demonstrate discipline with our cost structure.
Our SG&A to gross profit ratio was 72.4% for the quarter, a 300 basis point improvement compared to the prior year period when looking at the face of our financials. However, after taking into consideration, our rent related adjustment we called out in the second quarter of 2011, the year-over-year improvement works out to be 250 basis points.
Scott Krenz
Our SG&A to gross profit ratio improved 380 basis points compared to our 2011 year end ratio of 76.2%. We believe this reflects meaningful improvements in our cost structure.
These improvements are a result of changes we have made in processes as well as investments we have made in systems and technology. We are also benefiting from our operating leverage in the increased sales environment.
We’ll continue to work very hard on reducing our costs and enhancing our operating leverage. We also benefited from a lower rent burden.
Scott Krenz
On a rent adjusted basis, our SG&A to gross profit ratio was 67.9%. The majority of the improvement is a result of productivity related to personnel.
During the quarter, we spent approximately $16 million prepaying mortgages that mature in 2013. As a result, further debt reductions and growing EBITDA, we ended the quarter with a total debt to adjusted EBITDA ratio of 2.3x.
Scott Krenz
During the quarter, we plan on retiring the $15 million of converts we have maturing with cash flow from operations. We will continue to evaluate our leverage and anticipate liquidity requirements as we position our company for potential future opportunities.
Scott Krenz
During the second quarter, we spent approximately $9 million repurchasing 325,000 shares under our continuing share repurchase program. At the end of the quarter we have $38 million remaining under our Board authorizations.
As capital expenditures, in the second quarter we spent $11 million, bringing our year-to-date total to $19 million of the $60 million we budgeted for 2012. Our CapEx numbers exclude lease buyouts and real estate investments.
So, in addition to CapEx we spent $4.7 million to buyout a lease during the second quarter.
Scott Krenz
We continue to target opportunities to purchase properties we are currently leasing. We could close on several additional lease buyouts over the next several months.
We ended the quarter with total liquidity of $242 million. This includes $215 million available under our un-drawn committed revolving credit lines, $9 million in cash and $18 million available in floor plan offset accounts.
We continue to execute a balanced capital allocation strategy, which centers on investing in our operations, evaluating acquisition growth opportunities and supporting an ongoing share repurchase program.
Scott Krenz
I’ll now hand the call over to Michael to discuss our operating highlights.
Michael Kearney
Thank you, Scott. I would like to remind you that everything I will be covering with respect to operational highlights will pertain to same store of retail performance.
New vehicle revenues increased 16% compared to the same period in the prior year. Our new vehicle margins for this quarter were at 6.5%, down 70 basis points compared to the same period in the prior year.
As you will recall, in last year’s second quarter, we did an excellent job holding margin on new vehicles as we faced imminent shortages in the J6 supply. As inventory levels have recovered, we have seen our margins return to the 2010 levels.
We ended the quarter with 63 days supply on a trailing 30-day basis.
Michael Kearney
We continued to grow our used car business, increasing used unit sales 6% over the second quarter of last year. Although margins slipped 140 basis points to 9.1%, we did see the benefit of the increased volume in our F&I parts and service business segments.
The margin pressure on used is attributed in part to comps against the strong prior year period, as well as increased availability of competitively priced new vehicles this quarter. Additionally, in a number of our brands we’re seeing aggressive incentive offerings that are pushing the transaction price on a new model very close to that of a late model pre-owned vehicle.
Our used to new unit sales ratio was 72% for the second quarter and we ended this quarter with approximately $100 million of used vehicle inventory or 35 days supply on a trailing 30-day basis. Our F&I business continues to remain strong for us, as our stores broke all time company records for both F&I revenues and per vehicle retail.
Second quarter F&I revenues grew 21% compared to the same period in the prior year. F&I per vehicle retail for the quarter was $1200, up 8% year-over-year.
Michael Kearney
In addition to excellent F&I processed execution and our continuous improvement training program, we continue to enhance our regional finance team management. As part of this process we’re creating a more effective customer-facing experience, while increasing productivity.
We continue to be the beneficiaries of the much improved lending environment, higher advance rate, consistent application of lender requirements and aggressive lease terms.
Michael Kearney
Our parts and service operations also produced an all time second quarter gross profit record for the company. Although revenues were basically flat, gross profit grew 4% compared to the second quarter of 2011.
Parts and service gross margin for the quarter was 58.3%, up 240 basis points compared to the same period in the prior year. The year-over-year gross profit improvement, driven primarily by the 22% increase in reconditioning works and 3% in customer pay, more than offset the decrease in the gross profit from warranty work, down 13% over the prior period.
We are experiencing a reduction of the higher recall volumes we saw this time last year, as well as lower units in operation, resulting from the drop in new vehicle sales over the last 3 years.
Michael Kearney
Our national tire initiative continues to provide us with additional parts and service revenue and greater opportunity to retain both current and previous customers. Our tire sales grew 38% versus the same period last year.
We are encouraged by the strength of vehicle sales through the first half of this year. Considering the sales volumes we have seen through the first half of the year, as well as the activity we are seeing so far in July, we believe that the current sales base has the potential to continue through the end of the year, resulting in a full year SAAR in the low to mid $14 million range.
There are several important factors that support our outlook, particularly the availability of consumer credit at attractive rates, the cadence of new products coming from all of our manufacturing partners during the year, and the increased availability of fuel efficient and redesigned vehicles.
Michael Kearney
Finally, I want to extend my appreciation and thanks to all of our associates in the field. Your collective efforts are reflected in these results.
Michael Kearney
With that, I’ll hand the call back to Craig to conclude our prepared remarks. Craig?
Craig Monaghan
Thanks, Michael. We continue to build a stronger company with the flexibility to capitalize on market opportunities.
We are well positioned to grow our shareholder value by investing in our business, pursuing acquisitions, and returning capital to our shareholders through an ongoing share repurchase program. These record results were achieved through the hard work, dedication, and commitment to innovation of the entire Asbury team.
And what we characterize is a modest - moderately healthy SAAR environment. We are delivering record operating results.
We look forward to continued progress as the economy recovers over the long-term.
Craig Monaghan
I’d now like to turn the call back to the operator and we’d be happy to take your questions. Operator?
Operator
[Operator Instruction] We’ll first hear from Rick Nelson of Stephens.
Rick Nelson
Ask you about the new car sales with your heavy Japan exposure, I thought we might see a little bit more growth there. Was there anything holding you back from an inventory standpoint?
I did notice Lexus came into the quarter with very tight supply and came out of the quarter also, which is…
Michael Kearney
Yes, Rick, this is Michael. I’ll answer this good question.
I think if we take a look at the overall picture, we performed with the market. I think in some of our brands we did have a little bit of inventory constraints.
We have had some holdback in that. We also have, because of our mix, I think that our particular brand mix we performed well, but we had some not as much of the drop this time last year.
And then quite honestly, we had - we have a couple of opportunities that we’ve identified on the volume side and we’re addressing those as we speak.
Rick Nelson
Okay. And that margin pressures, Michael that we saw sequentially in year-over-year on the new car, I realize that’s a function in part of inventories normalizing and mixing away from luxury, but is it getting more difficult to sell that incremental unit, I guess commentary on demand would be helpful?
Michael Kearney
Yes, so, Rick. I think let me answer in 2 pieces.
I think a little bit of mix shift affected the margin to a certain extent and I think we’ll see in the second half of this year a little bit of change in our mix shift. It will affect that positively, but I think it’s not that we are seeing a resistance from the buyer.
I think what we are seeing is a lot of competition out there. I think there is a substantial amount of marketing new car sales as the new products are hitting the streets, that the availability that we didn’t have last year.
And I think that the products themselves, the more fuel efficient vehicles, the very attractive lease and finance rates, so I just think there's a lot of competition and we are seeing customers we haven’t seen for a while. And I think all the dealers in the marketplace want to put that individual in a new car.
And so I think that, that continues to add the pressure on the margin side.
Rick Nelson
Would you expect the current level 6.5% on a new car gets just over $2000 a unit would you - if you can maintain that or do you think further pressures are coming?
Michael Kearney
Rick, I think we can maintain - I feel comfortable with that margin level.
Rick Nelson
Okay, thanks. Also I’d like to ask about the geographic strength and weakness with especially what might be happening in Florida?
Michael Kearney
I will answer that in a couple of pieces. I think geography-wise Florida very strong for us as well as Texas.
Those 2 markets attributed very, very strong results for us. I will tell you also that in terms of brand mix, our local markets had quite a different - in a number of brands, quite a different growth pattern than other parts of the country.
Some of our brands had national increases and our local markets were down, in fact. So, it's an unusual situation, but one that we're working through.
So, it's one of those situations, where we have to see it as time goes on. But to answer the direct question, Florida and Texas markets are very strong.
Operator
Next we’ll hear from John Murphy of Bank of America-Merrill Lynch.
John Murphy
Just wanted to follow-up on a risk question about these new vehicle margins, but in particular,, sort of the pricing and incentive activity. It seems sort of curious that the strength in new -- in used vehicle pricing is not translating into better new vehicle pricing.
It sounds like new vehicle pricing is coming down to the level or to meet used vehicle pricing is where the pressure point is. I’m just curious is that just a function of some of the activity that’s going at Toyota and Honda.
Are you seeing some of this - more of this activity at your luxury brands as opposed to just Toyota and Honda?
Michael Kearney
Hi, John this is Mike. That’s a good question.
I think and I mentioned I think maybe one, maybe 2 earnings calls ago that as the transaction price, the true transaction price of new vehicles approaches used transaction prices, you will see either pressure on volume, or pressure on margin. And I think as dealers we opt to sell the vehicle, so we will accept the pressure on the margin.
But I think in a number of the mid-line imports, we're seeing a substantial number of model changeovers that will happen as we speak in this month of July, August and September.
Michael Kearney
And there is a very strong push to move those models out. A little different than manufacturers have done in the past, as opposed to what we used to call model carryover allowance, there are now stair step incentives and cumulative bonus incentives.
And when you take that and apply to the vehicle along with very attractive manufacturing finance rates. The payment on a monthly basis for a late model used car approaches that of a new car and therein lies the pressure that we're seeing on the margin.
So, there is very good question, but I think it's not as broad based as you might think. A lot of it does have to do with model changeover vehicles.
John Murphy
So, it seems to me at this point that you are getting consumers that are potentially coming in as late model used vehicle buyers then are tripping into buying new vehicles. Are you actually able to make that transfer as people walk into your showrooms?
Michael Kearney
John, that is a very good observation, that is correct. We are seeing more of that than we’ve seen in the past.
We see it reflected in our sequential price increase of our used cars and essentially the flat revenue on a per retail unit - on the new car side, so we are seeing that. And again if you think about from a consumer’s mindset, number one some of the newer product is coming out there, but even the models that are changing over, the fuel efficiency and the warranties that go with that.
We are seeing some people there we’re able to switch from a late model, even late model certified, into brand new vehicle.
John Murphy
Okay. And then just on the SG&A at $72.4 million, I mean, you guys are getting really low in the spectrum of where you have been historically.
I mean as we think about that going into the rest of this year and ‘13 and ‘14. I mean is there a lot of incremental gains to be made on sort of all the efforts that your putting forth to this point.
I mean should we expect another 200, 300 basis points as we go over the next couple years? What inning are we in this realization of the benefits as common dealer management systems and all your other initiatives?
Craig Monaghan
I love the fellow baseball fanatic here, but what inning are we? I’m not sure.
Let me tell you what our thinking is that one, a lot of what’s happened and what you see reflects vigilance on control, discipline as we said here. It’s not that we’ve cut things, although we have cut things, but we’ve managed to produce a lot more output from the cost we’ve got.
So, you see that, in total, SG&A is up only about $2 million year-over-year in the quarter, but gross is up significantly more than that, about $10 million and therein lies the real magic here. We continue to be vigilant and we continue to look for things.
And I won’t tell you that there aren’t other areas that we can improve on. I steal the saying from my colleague here Michael, that there is always a bottom third, because there is always places we can improve and we continue to look at that.
But I think the real thing is to make sure it is as leveragable as possible.
Craig Monaghan
Looking forward through the year, second quarter was obviously a very strong quarter on a percentage basis. Can we maintain that?
It’s probably as we look at the normal seasonality in sales and stuff, difficult to perhaps improve upon that. There's probably a little more bias for it to relative to EBITDA to or if the gross margin get a little weaker, but we still would expect the full year to come in as a meaningful and significant improvement over what we saw at year end 2011.
John Murphy
Okay. And then just lastly as we think about this parts and service gross margin, it’s by depth the 58.3%.
It’s intriguing because it’s sold a lot more tires, which are typically lower margin, but then you had pretty good recon of 22%. I’m just curious is that real improvement a function of mix or other efforts that you are making in your service lanes?
Michael Kearney
John, it’s Michael. I think it’s - there is a lot of factors that are involved here.
We are selling some more tires. They are a lower margin, but the tire business is not - was not put in place to sell tires, it was put in place to retain customers.
So, we are selling other services, when the customers purchase tires statistic - national statistic is for every dollar of tire sales, you get a $1.50 in other sales, and typically those are margin - of high margin maintenance type. So, we are seeing some of that.
Michael Kearney
We are also seeing a little bit of shift in the type of work that we are doing. Whereas for a number of years people were postponing a lot of work, high dollar work.
We are seeing a little bit of that coming back into the shop and we continue to see the growth in our internal work. So, I think that’s all reflected in our higher margin.
I think we are going to see a little bit of time lag for the tire initiative to really play in, but it is - it’s a long-term initiative to bring the customers back in the dealerships.
John Murphy
But this 58% gross margin, I mean, that is - is that in aberration, because I mean, you guys have been running in the mid 50s. I’m just trying to understand if this incremental sort of structural 300 basis points is something that sticks going forward?
Scott Krenz
Yes, I think we’ll stay right around that number.
Operator
Next, we have from Rod Lache of Deutsche Bank.
Dan Galves
I just wanted to see if you could talk a little bit about how store traffic trended through the quarter or did you see any kind of changes through the quarter in new or used? And then looking forward, we’ve been kind of in this kind of low to mid $14 million range.
What do you think it would take to move the SAAR up from that level? What type of economic environment do we need to continue to grow sales?
Craig Monaghan
Hey, Dan, it’s Craig. Maybe I can start with the second part of the question and we’ll go back to Michael to talk about store traffic.
I just put in perspective. I think we look at the first 6 months of this year.
I think all but 1 month, SAAR has been above $14 million and that we, as we sit here today, that’s the way things continue to feel in the store. Our view, like Michael mentioned on the call, we think things continue at that level.
I think, more broadly speaking, we feel like we are in a slow, but an ongoing economic recovery. There are times when it’s choppy.
I mean we can have a good weekend or a bad weekend or a strong month and softer month. But generally speaking, we feel like we’re heading in the right direction.
It’s interesting to us, but this seems to be a recovery that’s led by the automotive industry not the housing industry.
Craig Monaghan
Like others, we have some concerns about the fiscal cliff. We know the election is going to be disruptive.
I mean I will tell you, we will basically be out of the advertising business as we get close to the election because we can’t make a dent when there is that type of political volume in the marketplace. What's it really take to get this thing moving and maybe get back to $16 million SAAR where we see it?
It’s going to take continued improvement in consumer confidence. The housing markets going to have to come back.
And we have to admit there are factors outside of this country that also impact our business. The situation in Europe needs to stabilize, but as the world economy continues to make progress I think we will enjoy that progress.
Craig Monaghan
So, in the meantime, we feel like we are running in a marathon, there is only so many things we can control. What we’ll do is exactly what I think you saw in this quarter is we’ll work to continue to build a stronger company.
I’ll go back to what Scott said earlier. I mean what we - I think we demonstrated this period is that we’re able to basically do more with the same level of resources and that’s what led to this what we believe is a very healthy flow through and we will just continue to do the same no matter what, be if the macro economy throws at us.
Michael Kearney
Mr. Dan, this is Michael.
So, on your traffic question, go back a little bit. At the end of March, it was very strong, of course.
April usually and this was reflected as the soft in the first couple of weeks and then much stronger towards the end. We saw a substantial up-tick in traffic the last part of May.
This is not as strong through the first part of June, but a very strong influx of customers, both new and used. Internet traffic was up a lot at the end of June.
And as I mentioned in the script we see very favorable continuation of that into July. It is the summer selling season.
July and August are typically in the industry equation are very strong months and we would anticipate that this traffic would continue. There is a lot of new product that is becoming available.
We still see a little bit of tightness in the inventory on the used car side, but we take most of our cars from trades. So, it’s been consistent as we’ve described and we would expect to stay that way the hot summer selling season.
Dan Galves
Okay. Thanks for the color on that.
Just one other question, hoping you could give us some more color on the reconditioning and prep segment of parts. Is that purely a volume driven, driven by new and used volume growth?
And could you give us a sense of kind of how, my recollection is that it flows through 100% growth margin into parts, just kind of want to confirm that. And how do you see if volumes do flatten out once we get tougher comps and that segment of parts flattens out a bit, do you see that impacting your growth margin in parts and service overall?
Michael Kearney
So Dan, this is Michael again, so that is a correct assumption on the accounting piece. It’s a - we continually look at doing more certified business in our dealerships which we will then be reflected in higher internal work as we spend more money on the cars.
As we continue to grow our one-to-one program, it’s not growing at the pace that it did at the beginning. We never expected it would continue that.
But as we continue to reach to the 100% level we will continue to grow that internal parts and service business as we just get more and more cars available. So, I think near term, we’ll continue to see I don’t know what kind of double-digit growth.
We will continue to see strong growth in that arena as long as we continue to push our used car program.
Dan Galves
And is there any of that business driven by new volumes or is it pretty small?
Michael Kearney
That’s fairly small, there is not a substantial piece what we used to call PDI or new car recon work that’s involved and its almost all driven - not almost but the vast majority of its driven on the pre-own side.
Operator
Next, we’ll hear from Greg Palm, Craig-Hallum Capital Group.
Greg Palm
Most of our questions have been answered, just one quick here on the parts and services. We were sort of modeling a slight increase in parts and services revenue on a year-over-year basis.
It came in flat. Any additional color there?
I mean how should we think about that going forward?
Scott Krenz
Well, I can, this is Scott and then Michael can add to it? When you look at it, warranty work as we have talked about on just about every call I’ve been on, it was down fairly significantly.
Lots of things in that. It’s somewhat unpredictable, because of trying to predict recalls, but also the vehicles themselves are better, but the decline in warranty really offset a healthy increase in customer pay.
Customer pay represents about 60% of the business we do. And on a revenue side, those 2 just about offset, which is what led to the flat revenue.
More importantly, if you look at the gross though, that’s where you receive the real detail. Because at the end of the day, it’s not how much you sell at the top line, it’s how much you get to the bottom line here.
And we had a good healthy 3% improvement in the gross in parts and services in the quarter, which is a result of this change in mix. Again focus on customer pay, good growth in customer pay, and the falloff to offset at the revenue line by the falloff in warranty work.
Michael, is there anything to add?
Michael Kearney
No, I think Scott answered that right on spot. I think Greg, the only thing then - and we have mentioned it a number of times over the different calls, that predicting recalls is just about impossible.
So we are facing some pretty high comps this time last year. We are in the middle of a couple of them right now in this quarter for some of our brands.
So, it’s hard for us to tell what it’s going to be, so we just deal with it as it shows up.
Operator
Next, we’ll hear from James Albertine of Stifel, Nicolaus.
James Albertine
I wanted to focus, if I could, on the F&I per unit at $1200, just slightly north of $1200, tremendous result certainly. I guess, the first part of that I want to focus on is #1, are there any drivers in particular that are more or less impactful and as it relates to brand versus market specific commentary that you can provide that might be helpful?
And then separately, I mean, the obvious question is given where we are now and this is well above sort of where you would run historically, some sense of where you think that number can go over time?
Michael Kearney
James, this is Michael. On the, what’s pushing the number, as I mentioned on the script, a lot of it is our educational program.
But on the monetary side of it, product sales and penetration force the number up. So, as you get better and better at selling product, which provides real value of the consumer, that drives up the per retail basis.
There isn’t any real geography split, I would say, across all of our geographies. The numbers are about the same.
Little bit of different mix. As you might expect, some brands are a little bit different than others.
Some of that has to do with the financeable balance of the vehicle, some of it has to do with whether there is maintenance involved in the vehicle and whether you can sell maintenance to that or not. So, I would say that there is a little difference by brand, not by geography.
Michael Kearney
To your point on how do you grow it from where it is. I’ve mentioned it a couple of times, I think that if you focus on the bottom 1/3, we will in fact drive that number up.
As long as the banking environment stays where it is today, I think we have some more room to grow on that. Don’t want to put a number out there, but I think we’ve got room to grow and we’ll focus on the bottom third and we’ll continue to see improvement on that.
James Albertine
Very, very helpful and I appreciate that detail. And really sort of as a follow-up, I’m trying to sort of glean another degree of insight on the current consumer, right?
And so we’ve talked about now, ad nauseum, the slow persistent growth. But still it’s a struggling and sometimes a choppier environment than typical.
So, as the economy recovers, do you get a sense that more people are financing today that as the economy recovers won’t be or there is any sort of anomaly shift to the positive that’s helping to drive the F&I per unit higher?
Michael Kearney
So, James, I think throughout if you exclude 2008 and part of ‘09, I think that the statistic is essentially 91%, 92% of all car purchases are financed in some way or another, whether it’s indirect lending, direct lending, leasing or through a consumer credit union. So, I think again with the exception of '08 and part of '09, we are seeing a return to that.
I think the biggest impact is not necessarily the amount of consumers financing as a percent of retail sales. I think it is a function of products available to protect the consumer, mechanical extended warranty and prepaid maintenance are bargains.
They're a convenience for the consumer. They are utilized.
GAP insurance is another product that is very effective for the protection of consumer. So, I think we continue to educate the consumer and create an awareness for that, more of those products are sold and that is - that does create an enhancement on the PVR line.
James Albertine
Very helpful. If I could sneak one more and just any update on sort of your capital allocation priorities and that’s it?
Craig Monaghan
Yes, James its Craig, I’ll jump in on that one. We’re basically, you look at the quarter, we’re continuing on the same path that we have been.
We’ve paid down debt. We buy back leases.
We can get - when we do that, we can get certainly high single digits into the double-digit returns. We are investing in our stores.
We’ve got a fairly heavy capital expenditure program this year at the $60 million that we’ve targeted. We envision that drop been down next year and then continuing to lower basis.
We are - with our leverage at 2.3x, we don’t feel like there is a lot more debt that needs to be paid down. We will pay off the converts this quarter as they come due, but we are actually in a very good position and we’ve been buying back stock.
We bought back $9 million this quarter. You should expect to see an ongoing share repurchase program, and then there's acquisitions.
Craig Monaghan
And we - I think our philosophy here is, I’d like to say, is as we get stronger, that will position us - positions us to be in a place where we can go hunting. So, we do look for acquisitions, but we’re going to be disciplined.
We are only going to go after acquisitions that make good economic sense. We seem to be talking to someone or another on a constant basis.
But I’ll tell you in the last quarter, we walked away from 2 potential acquisition targets. Just as we got deeper into the analysis, it wasn’t going to make sense.
So, I think you’ll continue to see us be opportunistic and we’ll take advantage of opportunities as they come their way, but it’s great to be in a position where we’ve got a number of different levers we can pull with respect to redeploying our capital. Always looking for the place where we’re going to get the greatest shareholder return.
Craig Monaghan
Great. Thank you, James.
Well, I think that wraps it up, we don’t have any more questions. I’d like to just once again thank you for your time.
Thanks for joining us today. I’d like to thank all the people here at Asbury and congratulate them once again on this record quarter.
And for everyone who is with us on the phone, we look forward to talking to you next quarter, if not beforehand. Thanks again.
Operator
And that does conclude today’s conference. Thank you all for your participation.