Thanks, operator, and good morning, everyone. As noted, today’s call is being recorded and will be available for replay later this afternoon.

Welcome to Asbury Automotive Third Quarter 2021 Earnings Call. The press release detailing Astbury’s third quarter results was issued earlier this morning and is posted on our website at asburyauto.com.

Participating with me today are David Hult, our President and Chief Executive Officer; Dan Clara, our Senior Vice President of Operations; and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call up for questions and I will be available later today for any follow-up questions that you may have.

Before we begin, we 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, which may have – which may include financial projections, forecast, and current expectations, each of which are subject to certain uncertainties.

For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2020, 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.

We have also posted an updated investor presentation on our website, asburyauto.com, highlighting our third quarter results. It is now my pleasure to hand the call over to our CEO, David Hult.

David?

Thank you, Karen, and good morning, everyone. Welcome to our third quarter earnings call.

In our earnings release this morning, we reported adjusted EPS of $7.36, a record third quarter, up 80% over the prior year. So our new car inventory levels continue to be challenged due to the chip shortage.

Our team delivered strong results and enabled us to deliver an impressive gross margin of 20%, an all-time record and an expansion of 180 basis points versus the third quarter last year. These results demonstrate the resilience and strength of the franchise model with its full suite of services through the car ownership journey, from sales to service contributing to sustained profitability.

We've also stayed disciplined in managing expenses, resulting in an adjusted SG&A as a percentage of gross profit of 55.3%, a 580 basis point improvement versus prior year. Our total revenue for the quarter was up 30% year-over-year, and total gross profit was up 43%.

Due to this record performance and strong cash flow, our balance sheet remains strong. Our net leverage ratio ended this quarter at 1.2 times.

A quick update on our five-year strategic plan. Same-store revenue growth assuming 2020 annualized revenue for Park Place is up 105 and is exceeding expectations regarding Clicklane, our unit sales are pacing ahead of our projection for year one.

And we've made great strides this quarter on our acquisition pillar. As announced, we expect to close on a transformative acquisition of the Larry H.

Miller Dealerships and Total Care Auto in the fourth quarter. With their strong name and brand mix in the right states and our aligned cultures, we look forward to jointly deploying our capabilities and growing together.

In addition, we closed two acquisitions recently, Greeley Subaru in the Denver market and Kahlo Chrysler Jeep Dodge in Indianapolis and are on scheduled to close Arapahoe Hyundai Genesis in the Denver market today. With another acquisition still under contract and expected to close in the fourth quarter as well, in total in 2021, we anticipate that we will close on $6.6 billion of annualized revenue from acquisitions.

With these results, we maintain full confidence in the execution of our growth strategy, and we will update our five-year plan during our Q1 earnings call in 2022. Now I would like to welcome Michael Welch, our new CFO, to the Asbury team.

He brings his vast knowledge of the auto retail business along with his broad experience in finance. We worked together at Groupon for many years and I'm excited to be working with him again.

I am also thrilled to welcome our new team members in Indianapolis and in Colorado into the Asbury family. And finally, I would like to address all of my teammates at Asbury.

Our ability to add quality stores, who like us care about serving our guests and being highly engaged in our communities, could not have happened without you. You all have given us the ability to thoughtfully grow our core business because you align behind our vision and you are executing each and every day.

I appreciate all of you and I'm thankful to be part of this team. People make the difference in any organization and you are making us the best place to work, do business, and grow your careers.

Thank you. I'll now hand the call over to Dan to discuss our operating performance.

Dan?

Thank you, David, and good morning, everyone. My remarks were preparing for our same-store performance compared to the third quarter of 2020 unless stated otherwise.

Looking at new vehicles, based on current market conditions, we continue to be focused on being opportunistic with our inventory and improving grosses to maximize profit. Our new average gross profit per vehicle was $4,808, up $21,369 or 97% from the prior year period.

All segment margins were up significantly from the prior year period. At the end of September, our total new vehicle inventory was $121.9 million, and our days supply was at 12 days, down 35 days from the prior year.

There’s still no clear understanding of when production will return to normal level. We expect the days supply to remain low throughout the remainder of the year and into 2022.

Turning to used vehicles. Our used retail volume increased 27% while gross margin was 8.4%, representing an average gross profit per vehicle of $2,402.

As a result of our performance, our gross profit was up 45%. Our used vehicle inventory ended the quarter at $236.4 million, which represents a 28-day supply, down 7 days from the prior year.

Our used-to-new ratio for the quarter was 113%. Turning to F&I.

Our strong, consistent and sustainable growth in F&I delivered an increase of $155 to $1,955 per vehicle retail from the prior quarter. In the third quarter, our front end yield per vehicle increased $1,400 per vehicle to an all-time record of $5,487.

Turning to parts and service. Our parts and service revenue increased 10% in the quarter.

Though warranty revenue dropped 18%, our customer pay revenue continues its healthy recovery, posting a 13% growth. Overall, our total fixed gross profit increased 10%, while total fixed margin was 60.9%.

And now I would like to provide an update on our omni-channel initiatives. Our digital marketing team continues to do an outstanding job generating traffic to our website.

Our commitment years ago to Google organic search continues to drive efficiencies in times where inventory is shrinking, allowing us to increase traffic without spending media dollars. In Q3, we had over 6.3 million unique visitors, a 12% increase versus Q3 2020.

Another initiative is to increase online service appointments. We achieved over 143,000 online service appointments, an all-time record and a 12% increase versus Q3 2020.

This component positively impact service retention and increased the dollars per repair work. Now, with two full quarter of Clicklane, and all stores under our belt, we would like to share some performance metrics.

We sold 6,000 vehicles through Clicklane in Q3, of which 47% of them were new vehicles and 53% used. 93% of our transactions this quarter were with customers that were new to Asbury’s dealership network.

Average transaction time continues to be consistent with previous quarter, 8 minutes for cash sales and 14 minutes for finance deals. Total front-end yield of $5,400.

Average credit score is higher than the average credit score at our stores. Total front-end yield of $4,396 on trades taken through Clicklane.

We continue to expect annualized volume through Clicklane of approximately 30,000 vehicles by year-end. As expected, Clicklane customers are converting at greater rates than traditional internet leads.

We remain quite excited about the performance of Clicklane thus far as it is tracking ahead of its targets. And finally, I would like to thank all our teammates in the field for their hard work, dedication and commitment to delivering an exceptional guest experience.

In addition, I would like to extend a warm welcome to our new team members from Subaru, Carlos CDJR and Arapahoe Hyundai, Genesis. All of you have built tremendous organizations that property, align with our North Star of being the most gas-centric automotive retailer.

Our future is bright and I look forward to meeting all of you. Michael, welcome to Asbury.

Your depth of knowledge in the automotive business is already making a significant impact on our company. I am enjoying working with you and look forward to growing Asbury together.

I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you both for the warm welcome. I’m excited to be part of the Asbury team and have the opportunity to work with David again.

I look forward to working with the team on our growth journey. To our investors, analysts, and other participants on our call, good morning.

I would like to provide some financial highlights which mark yet another record quarter for our company. For additional details on our financial performance for the quarter, please see our financial supplement in our press release today.

Overall, compared to the third quarter of last year, our actions to manage gross profit and control expenses resulted in a third quarter adjusted operating margin of 8.5%, an increase of 109 basis points above the same period last year and an all-time record. Adjusted operating income increased 69% to $204.5 million, a third quarter record.

And adjusted net income increased 81% to $143.6 million, another third quarter record. Net income for the third quarter of 2021 was adjusted for acquisition expenses of $3.5 million or $0.13 per diluted share and a gain on dealership divestitures of $8 million or $0.31 per diluted share.

Net income for the third quarter 2020 was adjusted for a gain on dealership divestiture of $24.7 million, or $0.96 per diluted share. Acquisition costs of $1.3 million or $0.05 per diluted share, and $700,000 or $0.03 per diluted share for a real estate related charge.

Our effective tax rate was 23.7% for the third quarter of 2021, compared to 24.8% in 2020. Floor plan interest expense for the quarter decreased by $1.5 million over the prior year driven by lower inventory levels.

With respect to capital deployed this quarter, we acquired a Subaru store in Colorado utilizing approximately $16 million of our cash on balance sheet. In addition, we spent approximately $15 million on capital expenditures, and we repaid approximately $9 million of debt.

Also, as part of our strategy to optimize our portfolio, we divested of our BMW store in Charlottesville, resulting in proceeds of $18 million net of its mortgage payoff. As a result of our operational performance, our balance sheet is quite healthy as we enter the quarter with approximately $780 million of liquidity comprised of cash, floor plan offset accounts and availability on both our used line and revolving credit facility.

Also, at the end of the quarter, our net leverage ratio stood at 1.2 times, well below our targeted net leverage of 3 times. With our announced acquisitions under contract, we are working toward financing the exciting growth of Asbury.

As announced in late September, we plan to raise the combined – the combination of permanent debt and equity financing prior to the closing of Larry H. Miller acquisition.

We are working with our supportive little group to upsize our credit facility and syndicate the real estate mortgage finances. We plan to close both ahead of our acquisition of Larry H.

Miller Dealerships later this year. Although the transaction is initially expected to take our net leverage above our targeted range of 3 times, we believe that we can deleverage approximately 3 times during 2023 given the highly accretive nature of the deal from our strong free cash flow generation.

As we look forward to the remainder of 2021, we anticipate similar conditions to what we have seen this quarter. New vehicle inventory supplies are likely to remain low and unpredictable until the next year.

In closing, I would like to thank our teams across the businesses who continue to work tirelessly during the unprecedented times to ensure our current and long-term success. I would also like to welcome our new team members from our recent acquisitions.

I look forward to working with you and continue to build Acquisitions. I look forward to working with you and continue to build our – on the strong culture that you're bringing to Asbury.

This concludes our prepared remarks. We’ll now turn the call over to the operator and take your questions.

Operator?

Thanks. Good morning.

Terrific quarter. So I guess to begin from a balance sheet standpoint, where you see the pro forma leverage going post the $6.6 billion in revenue that you're acquiring.

And how should we think about the capital priorities going forward? Are we in the deleverage mode?

Is that the focus over the near term post these deals?

Rick, thank you for your question. Yeah, from a leverage perspective, after we close the deals, we expect leverage to be in the high 3s.

From a capital appointed perspective, just allocation in the future. We will be in a deleveraging mode in 2022 and 2023 just to bring that leverage back down to our 3 times target.

But we can also take the cash flow for deleveraging perspective, either pay back debt or if we found some acquisitions that provided EBITDA that didn’t require additional leverage, that would also provide some deleveraging ability as well.

Okay. Thanks for that, Michael.

Also the $900 million in incremental revenues, you could talk about the composition of those dealerships, maybe what markets are in and the size of the group, such that you're bringing in?

Rick, this is David. We discussed this morning at KLO, the Greele Subaru and Arapahoe Hyundai today.

When you take those three out, it leaves a balance of about $740 million in revenue, which is all in one group. Because it hasn't been fully announced yet, we don't want to say it, but the brand mix is about 50% luxury and then mostly, import with one domestic store as well.

It's really a very strong group with the right brand mix in a market that we've been trying to grow.

Great. Thanks for that.

Maybe as a follow up to that, if you could speak to the multiples that you're looking at for those stores?

Yeah. So on the one that we haven't announced yet, off the top of my head, I believe it's about an 8 multiple between a 7 and 8 multiple.

There's good upside in the stores and opportunity to grow them within the marketplace, and there's a little bit of CapEx involved as well.

Right. Larry Miller deal, I'm sure they're bringing some digital outsource to the group.

If you could speak to any potential challenges integrating, that group into Clicklane and the opportunities there?

Sure, absolutely. Yeah.

I would tell you the – it's the integration should go pretty smooth, and we're all in the same softwares, same DMS. We're retaining all the senior executive management team and really kind of like we did Park Place but it operated in its silo.

They're extremely strong brands, great leadership, and the stores perform extremely well. There's a lot of capabilities there for us to enhance their digital side.

They're extremely strong operators, but there's an opportunity for digital. I don't think that'll be a focus the first few months.

It'll be mainly more integrating the folks and getting to know one another and creating that trust in relationship, and then starting to integrate the software. But like anything, there's always potential in every acquisition to grow.

Great. Thanks for that.

Finally, if I could ask you about Total Care Auto, the opportunities to bring that in-house, what sort of financial implications that has on the upside and any potential risks that that strategy brings?

Great. This is David.

I'll start and then Michael can jump in. I would tell you it's a very stable business.

The Miller organization has had it over 30 years. It's been best rated.

They do an extremely great job at paying claims, a strong balance sheet, really we see it as very accretive to us. Margin significantly higher than our operations and they're essentially just high level making above $50 million a year EBITDA on a 115,000 car sales.

When you integrate Asbury at over 200,000 car sales into that, you can kind of see the upside potential there. So, we're excited about what it can do.

And the other huge benefit that it's had for that organization. They have extremely strong service retention numbers.

It's a true hand-in-glove relationship between TCA and the Miller organization.

Yeah, Rick, one thing that will cause a little bit of I guess slowness for how we integrate is from an accounting perspective that caused a little bit of noise of moving dealership profits from a day one profit to a kind of we have to kind of defer it and amortize it over the life of the contract as an insurance business. So because of that, it will take us a few years to be able to bring in Asbury at a measured clip.

The other thing is that business, to bring in Asbury, has to just size itself a little bit for the additional business and obtain some insurance licenses in some states, so they don't do business right now. And so we just have a little bit of labor to do to be able to get Asbury fully brought into their mix.

Got it. Okay.

Thanks a lot.

Right through this year, the 2022-2023 year period.

Okay. Thanks for that.

Good luck.

Thank you, Rick.

Good morning, everyone. This is Aileen Smith on for John.

First question on the new vehicle business. Can you talk about the entrance versus exit rate in the quarter on gross margins and GPUs?

And more specifically, is it fair to assume that growth is improved through the quarter as the inventory environment tightened or rather dropped off with sales trends? Just trying to think about what the launch point should be for 3Q into 4Q and then further into 2022.

Yeah. Good morning, this is Dan.

The margins as we enter into our Q3 are pretty stable throughout the quarter, although I would say probably had a bit of an uptick as we were exiting the quarter, mainly driven shortly due to supply and demand. As we move forward we, as I said it on my script, we see the inventory constraints continue one into 2022.

So we expect the margins to rise right along the inventory.

Okay, great. And then, can you talk a bit about the prioritization, if at all for the used vehicle business between same-store sales comps versus gross margins and GPUs?

Relative to the new vehicle business quarter-on-quarter. gross margins are down, but the offsetting factor for this is obviously a material acceleration in same-store sales growth.

Is this something we should look at as a structural trend going forward as you continue to focus on the used vehicle market for growth opportunity or is this purely a function of broader market dynamics, namely the inventory shortage that's more transitory in nature?

I think, it’s just a product of the market. If you look at our cost of sale or average selling price in used cars, it increased 16% and that is something that we're seeing as inventories drop down in new cars.

Our cost of sale for used cars is going up. A lot of people customer that have purchased cars in the recent years, their car is not going to be worth more than today.

So they are opting to trade that car in or sell it back to us. So I believe that – that’s part of the issue.

The other the other aspect is, we expect this to continue as long as the market conditions stay the same. And to be honest, we're not saying, hey, let's grow the used car business from a volume standpoint and sacrifice margin.

We believe that we can get both in this market.

Got it. And one last one, if I may.

I know you referenced your own update, your five-year plan next year, which I think we can reasonably assume is a function of the Larry Miller acquisition and obviously driving acquired revenue much higher than the target you've previously outlined. But the other key component of your five-year plan is Clicklane.

Should we also be thinking about Clicklane and organic growth in the business of having upside versus your prior targets or would you say the rollout on this front is coming more in line with expectations?

Yeah. This is David.

I'll try and address it. And if I don't hit it right, please come back.

When we looked at Clicklane for the next five years, we did it on a monthly basis by store with conversions increasing each and every year to get to that valuation. As it relates to year one, we're technically six months fully into it.

From a conversion standpoint, we're about two percentage points below where we expect it to be but because there has been additional traffic, we're exceeding our volume target. I'd tell you it's a little bit tricky with Clicklane right now because of the lack of inventory.

There is a lot of traffic but there is a not a lot of inventory to purchase from. So it's hard to fully access the conversions right now with lack of inventory, but we're real happy with what we've seen, how it's been treated and the consumer response to it and our belief is next year in '22 and certainly in '23 and '24, each year we're anticipating that conversion rate to go higher as the consumer becomes more comfortable transacting online and the tools continue to become more sophisticated and easier to use.

Got it. That makes a lot of sense.

Thanks for taking the questions.

Thank you.

Good morning. Nice quarter and thanks for taking my questions.

Curious on mobile mechanic. I mean, you talk Clicklane a lot, but how much opportunity is there from a parts and service standpoint to really digitize that and go closer to the consumer and bring it to them?

Yeah. It's a great question.

I would tell you over the last five years between different things we've done to enhance it on our own and adding a service tracker element. We're seeing higher conversion rates than we've seen in the last four or five years, meaning consumers are approving more work than they had in years past, and they're spending more dollars per order.

That has a lot to do with the age of the car as well. We do see more opportunity to be more digital and more engaged and transparent with the consumer, and that'll come over time.

But tremendous benefits so far from what we've seen. And mainly our source is text messaging.

We're communicating through text message. The NPIs and how the multipoint inspections on how the car is doing, their ability to communicate directly with the technician and then via – being able to pay for the service via text as well.

So continues to grow, great feedback. And with the consumers converting at a higher rate, that tells us their level of comfort and transparency is there as well.

Got you. And then just on the inventory, I know it’s not to belabor the point, but 12-day supply on the new side.

I guess how has that trended on the months subsequent to the quarter-end and then also comment on used as well?

So the days – good morning. This is Dan, by the way.

The day supply around the quarter, we have been around that 12-day supply from the beginning of the quarter and we remain consistent. The stores are doing a great job.

And I think I mentioned this in the previous call, doing a great job of pre selling incoming units. So we've adjusted to the market demands.

And again, the stores and the operators are doing a fantastic job. From a used car perspective, I'll tell you our day supply, you can see it as well within where we were operating a year ago.

But we continue to acquire inventory from our main stream which will your trade-ins, your lease turn-ins and direct-to-consumer purchases, approximately about 79% of our inventory are coming from those three venues.

Last question for me, and I'll turn it over to the others. But Mercedes, they're cutting dealer trade margins by 50 bps to help pay for EVs.

Any comment there or any concern, I guess, with other OEMs doing this and potentially squeezing the dealer margins?

Yeah. This is David.

So the quick reaction is no, as it relates to Mercedes. We really enjoy the partnership with them and the brand.

We have high margin business with them. Consumers really appreciate the brand as well.

And we look at this as a partnership. A small cut into the margin to set up for the future is an investment for both of us to make and we're proud to represent the brand.

As it pertains to other manufacturers that might do it, it's hard to comment on something that you can't see and not aware of yet. But certainly, we look at the relationship as a partnership and we have to have skin in the game as well.

But we don't see that margin present with Mercedes materially affecting us.

Thanks, guys. Good luck.

Hi. Thank you for taking my question and congrats on the quarter.

On behalf of Adam Jonas, how sustainable do you expect SG&A to gross to be going forward taking into account your digital strategy and recent acquisitions?

Sure, Grace. This is David.

And I'm sure after what I’d say, Michael will jump in and try and clean it up. I would tell you the SG&A is impressive right now for a couple of different reasons.

The obvious supply and demand high margins is helping dramatically. But as the pandemic started, we really got our production per employee at a much higher rate.

We're of the belief, as you look three to five years out, the retail franchise model changes a little bit in how you compensate and what that looks like. So we think that the current SG&A is certainly there – is here to stay for at least the next year.

And then with improving software and capabilities and Clicklane growing, we think there's future opportunities to strengthen the SG&A or tied it up for lack of a better term.

Got it. That's really helpful.

And shifting gears a bit, how would you characterize high-quality strategic acquisitions going forward?

It's a great question. When we came out with the five-year plan for $5 billion in revenue, you're never going to get $1 billion each year, but the thought process is what are we generating cash flow and what do we take on not knowing that an acquisition like a Larry H.

Miller would be out there. There's a lot of stores for sale.

There's a lot of stores that transact, but every store is not the same even though the brand name might be the same. Some groups and the cultures that they have are pretty strong and aligned really well with us.

When we find a group that we think aligns really well with us and the synergies are there, we try to be very aggressive and go after it. And the other stuff, we just simply don't go after, not that it's a bad asset, but it just might not align with us.

I think in the last 3.5 years, when you look at the acquisitions we've done, they've shown to be extremely accretive to our growth with extremely lower turnover numbers. So, that tells us that we’re finding the right acquisitions we’re properly inline and we’re making good investments with the shareholders money.

Got it. Thank you very much and congrats, again.

Thank you.

Hi, good morning. Thanks for taking the question.

Just had a follow up question on productivity savings, could you remind us of where your headcount level is currently.

Well, I think, before the couple acquisitions we just did Rajat. Our head count was right at 8,300.

Got it. It looks like, you were at 8,500 before Park Place.

You're up early on 8,300 today. Your volumes are up meaningfully with this 2019 levels on a combined basis.

So just curious any way to parse out these productivity benefits across, permanent head count reduction, move to digital like Clicklane and then maybe just lower inventory levels we're dealing with at the stores today. Just trying to get a sense, as inventory starts to come back, who knows and may be 2023 whether your like-for-like headcount and go.

Can you maintain these current levels of productivity once we're there? And I have a follow up thanks.

Sure Rajat, this is David. Yes, we believe we can maintain these productivity levels per employee, mainly because of the software applications that we've had is making it easier for our folks to become more productive.

We think the current numbers will productivity per employee probably stay stable for the next 18 to 24 per employee, probably stays stable for the next 18 to 24 months. And then, we think at that point, we have another opportunity to increase the production for employee.

And that’s where our focus is. And the reason why it’s 18 to 24 months out, quite honestly, it's software related.

Understood. Great.

That's encouraging. Just shifting gears completely to parts and services.

Can you give us a sense of how the exit rate was for that business? And in the third quarter, how is the fourth quarter shaping up there in terms of just improvement in that trajectory?

And I also wanted to ask on the warranty business specifically, given the supply shortages, but also given we have sold fewer than normal level of new echo the last couple of years, how do you see that playing through in terms of impact to the overall business in maybe 2022-2023 given the retention rates are pretty high and like the first two or three years. So you see, if you could tie this together, that'd be really helpful and also just some of the near-term trends?

Thanks.

So Rajat, this is Dan. Good morning.

From a fixed operations business for the quarter, as you can see, the warranty business really pulled back. That's really got to do a lot and it's just really across all domestic import and luxury.

Just some of the campaigns that we saw last year fuel pumps to name a few, maybe a few dashboards, door actuators, you name it. We've seen a pullback from that perspective, and that's affecting obviously our warranty traffic.

Customer pay is recovering pretty good. As you saw, our customer pay gross profit was up 10%.

And we continue to see the healthy recovery as well As we move forward, from a unit and operational standpoint, from a warranty perspective, it’s hard to tell because warranty is not something that we forecast for. It's really driven by if there's a recall, if there is an issue with fuel pumps again, you name it.

So we really don't control that. To the extent that something like that happens, we expect warranty to come back up around.

And if not, then we'll just – we'll keep focusing on growing the customer pay.

And just to touch on that. Dan mentioned the customer pays up to 10% growth.

It's actually a 12% growth. It's the dollars per repair order going up.

And if I heard you right, the new car customer hangs around for the first few years and weans off. In our organization, the one metric that we track every day on the customer pay side is what's the average miles coming into our store.

And naturally, the higher the miles, that tells us we're retaining them much deeper into the channel, if you will, and we're just under 70,000 miles for the average car from a customer pay standpoint coming into the company. So we think that's pretty healthy and as the car park continues to age and there is an availability really the product for everyone to keep up with the demand, we see parts and service continuing to stay on this what I would call stable growth rate.

Got it. That's really helpful.

Thanks so much for all the color and good luck.

Thank you.

Hi. Good morning.

Thanks for the question.

Absolutely.

I wanted to touch on we're about one year into the Park Place acquisition. So we'd love to get any comments Park Place acquisition, so would love to get any comment about how that acquisition has performed, maybe some areas that exceeded your expectations, maybe some that were a little below, maybe anything on integration that you learned.

Just any color there would be helpful. Thank you.

Sure, Stephanie. This is David.

I said this before the acquisition when it was announced that if we could only buy one dealership group in the United States, what would it be? And I would have said Park Place.

And it's not the brand mix. The brand mix is fantastic, but it's the people.

Tremendous leadership in that organization, tremendous tenure, dedicated employees. They just are very disciplined, well-run group that truly care about their customer base and have earned the brand recognition that they've had.

When we look at it, we're a year into it. We're exceeding our year three targets from a financial standpoint.

But I'd say there – oddly enough there aren't any surprises because they're everything that we thought they would be. They're just the best of the best at what they do.

They're caring individuals that execute consistently, and we're proud to be associated with them, and share ideas on how to get better. But it's been a phenomenal acquisition for us.

Absolutely. Thank you.

And then just switching to the F&I front, would love – there's obviously been – I think there's an opportunity that you spoke on even earlier in this call coming out of the Larry H. Miller acquisition and building on your F&I.

But is there anything else taking that acquisition to the side that you could be focusing on just to increase gross profit per unit on an F&I standpoint, anything more organically that you have working on? Thanks.

Morning, Stephanie. This is Dan.

Yeah. From an F&I standpoint, we believe our top performers, there is little room for growth.

We continue to focus on our bottom 20%, bottom producers into the extent that we continue to train and improve their performance was due to growth coming from their progress and ITDR.

We like the fact that 70% of our F&I number is product sales and only 30% is reserve. And that Larry Miller Group has better penetration numbers than we do.

So we're certainly excited to learn from them and grow as well. So we definitely believe there's upside in F&I.

And clearly, we're certainly not at the top of the charts as it relates to our peer group.

Great. Thank you so much.

Thank you.

A question on Clicklane. I guess, with a bit more experience now, does the product skew to a higher demographic or skew more to luxury?

You talked about higher repair orders and higher FICO scores. But does that – does that channel really migrate to one segment of your mix, luxury or import versus domestic?

Good morning, Bret. This is Dan.

No. We're seeing consistent use across the brands from ultra-luxury, luxury, import and domestic.

So pretty well-received across the board.

And I would tell you that some of the brands and I can't really explain it, but some of the brands that are converting at a high rate or have a high use are Hyundai, Kia and Lexus are a few of the brands that just do extremely well with the tool.

Okay, great. And then the question, I guess on the M&A side.

You said multiples started in that six to eight times. Are we looking at trailing 12 or are we adjusting sort of for what we've seen in the surge in profitability recently and looking at a longer term to get to that six to eight times?

Yeah. No.

I appreciate that question. I don't think anyone is pricing the multiple on the trailing 12 months.

You really have to do – you have to look at the last three to five years and the market that it's in and the brand that it's in, and then the performance within the brand within the market. An example would be if the store is 200% sales efficient compared to 80% sales efficient when looking at the upside in it.

So, it's more based upon the three to five-year look average is when we refer to those multiples.

Hi, everyone. I'm going back to the Clicklane demographic discussion from a second ago.

You're getting – it sounds like you're getting a lot of exposure across all your brands, even the volume brands. But at the end of the day, it's more the higher FICO credit customers that are transacting with the tool.

So, why is that and can you get the lower FICO credit customers to engage more and actually transact?

Hey, David. This is David.

I'll jump in and then Dan can certainly. I would tell you on an average quarter between 8% and 10% of our business is what we referred to as lower credit or subprime.

And the rest of it isn't. It becomes a lot more complicated with subprime online transactions because of the documentations and what's needed.

It's not impossible. I think the reason you're seeing higher credit scores and higher down payments on the tool is it's simplistically someone with a 750-plus Beacon score understands they're not worried about financing and understands that they can get what they want.

So, when you think about ease and convenience, that consumer who knows they have the credit, power, and wherewithal to transact would they prefer to sit in a showroom for two and a half hours or do a 14-minute transaction online. So I think that’s that gravity that’s pulling it there.

What certainly seem lower credit scores as well on there, it’s not just simplistically all 750 plus Beacon Score customers. There's a broad mix, but again, the score average is certainly higher.

And we credit that – that's different than what we had with our prior tool and the main reason is – our belief is because that high credit score customer actually knows they can do a complete transaction and it's not simply a lead generator.

Okay. And compared to, say, a few months ago with the inventory continuing to be poor, are you seeing customers, especially new vehicle customers or would be new vehicle customers, are they more likely to buy used compared to a few months ago or are they at a point where they're saying, forget it, I’ll come back when inventory is better?

Good morning. This is Dan again.

Customers, we're seeing a mix. I mean, some customers are actually going into a used vehicle.

It depends on their circumstances. If they got to have their car now, they're willing to do that.

We're also seeing customers that are willing to give up a particular package or an option and maybe settle for a car that is incoming in the next few days or one that might be sitting on the dealer's lot.

Okay. And finally, are you guys worried at all about inflation for consumers ability to buy a vehicle next year?

Yeah, look, and this is David. Clearly, inflation is always a concern.

I would tell you, in this past quarter and in the past 12 months, it's comforting to us to see the credit scores go up. The down payments go up and financing terms slightly go shorter term.

So that tells us that there’s a lot of cash in the consumer’s pocket out there. And they’re using to their discretion.

We’ve already seen the inflation in a lot of areas, but as it relates to automobiles, I wouldn't call it inflation. I would say the margin pressure is simply a supply and demand.

The inflationary pieces of the automotive cycle, if you will is not material from our perspective. It's not like food and that kind of thing.

Okay, thank you.

Thank you very much.

This concludes today's discussion. We appreciate your participation and look forward to speaking with you after the fourth quarter.

Have a great day.