Asbury Automotive Group, Inc. (ABG) Q2 2016 Earnings Report, Transcript and Summary

Please, stand by. Good day, everyone, and welcome to today's Asbury Automotive Group Second Quarter 2016 Earnings Conference. Just as a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Matt Pettoni, Vice President and Treasurer. Please, go ahead, sir. Matt Pettoni - Vice President & Treasurer: Thanks, operator. And good morning, everyone. Welcome to Asbury Automotive Group's second quarter 2016 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 at asburyauto.com. Participating with us today are Craig Monaghan, our President and Chief Executive Officer; David Hult, our Executive Vice President and Chief Operating Officer; and Keith Style, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call up for questions, and I will be available later for any follow-up questions you might have. Before we begin, I must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature. All forward-looking statements are subject to significant uncertainties, and actual results may differ materially from those suggested by the statements. For information regarding certain of the risks that may cause actual results to differ, please see our filings with the SEC from time-to-time, including our Form 10-K for the year ended December, 2015, 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. It is my pleasure to hand the call over to our CEO, Craig Monaghan. Craig? Craig T. Monaghan - President, Chief Executive Officer & Director: Good morning, everyone. This morning, we announced record earnings per share of $1.65 for the second quarter, a 9% increase over last year. The automotive retail environment remained choppy in the second quarter, with the monthly SAAR ranging from a high of 17.4 million to a low of 16.7 million. While the overall SAAR for the quarter was relatively flat compared to last year at 17.2 million, we believe retail sales were down nearly 2%. Our teams responded well to the challenge. We stabilized our new vehicle gross profit per unit. We continued to improve our used vehicle margins, and we delivered excellent F&I results. In short, we were able to offset the majority of the decline in sales volume with improved front-end yield, which was up over $100 per vehicle for the quarter. On the parts and service side of the business, our teams delivered exceptional customer pay, gross profit growth of 8% on a same-store basis. Our fixed operations continued to deliver steady growth and contributed 45% of our overall gross profit for the quarter. We believe parts and service will provide further growth opportunities as we move forward. With regards to Q auto, we opened a new Q auto store in the Greater Tampa area, and we're on track to open our fourth location in the same market during the third quarter. I am proud that we have once again delivered industry-leading operating margins. Nonetheless, we will continue our efforts to become a stronger and more efficient company. Now, I'll turn the call over to Keith to bring us to our financial highlights. Keith? Keith R. Style - Chief Financial Officer & Senior Vice President: Thanks, Craig. And good morning, everyone. Before I get into a more detailed review of our financial performance, I'd like to provide a high-level overview of our second quarter results. First, our total revenue for the quarter was down 4%. The majority of the decline in our revenue base is attributable to strategic divestitures we made during the second half of 2015 to realign our dealership portfolio. Second, we added leverage to our balance sheet with our $200 million bond add-on in the fourth quarter of last year. The incremental leverage increased our other interest expense $2.9 million for the quarter. Finally, we deployed $310 million to repurchase our stock over the past year, reducing our average share count by 18%, enabling us to deliver 9% EPS growth for the quarter. With that high-level summary behind us, let's turn to SG&A. Our SG&A as a percentage of gross profit for the quarter was 68.1%. Our SG&A ratio is up 110 basis points from last year and includes the negative impact of a few items. First, damages associated with a hailstorm in Missouri resulted in a $1 million increase in insurance costs. And second, as we discussed on our first quarter call, increased enrollment in our employee medical insurance plans have put pressure on our overall personnel expense. For the quarter, we experienced a $2 million increase in the cost of these plans. We expect that the cost of employee medical insurance will continue to impact our SG&A going forward. And assuming business remains consistent over the second half of the year, we expect our SG&A as a percentage of gross profit to be between 69% and 70%. In terms of capital deployment, CapEx, excluding real estate purchases, totaled $19 million for the quarter. For 2016, we continue to plan for $80 million of CapEx, which includes $45 million associated with our core annual CapEx plan and $35 million of CapEx associated with acquisitions and construction, which will enable us to move out of facilities that are currently under lease. In addition to executing on our CapEx plan, for the year, we have purchased $12.5 million of previously leased property and $11 million of property for future expansion. Going forward, we will continue to seek opportunities to purchase real estate currently under lease and acquire properties in connection with future dealership relocations. Turning to share repurchases, during the quarter, we returned $60 million to our shareholders. And our current board authorization stands at $138 million. From a liquidity perspective, we ended the quarter with $2 million in cash, $5 million available in floor plan offset accounts, $100 million available on our used vehicle line, and $166 million available on our revolver. Our total leverage stands at 3 times, which is at the high end of our targeted range of 2.5 times to 3 times. On a net basis, our leverage was 2.7 times. Going forward, we are committed to remaining in our targeted range, while maintaining flexibility to deploy capital on an opportunistic basis. As announced this morning, we amended and extended our senior credit facility. We extended the maturity date from 2018 to 2021, and we increased the facility size from $1.1 billion to $1.3 billion. Specifically, we added $75 million to our revolver capacity, now up to $250 million; $50 million to our used vehicle line, total capacity now at $150 million; and $75 million to our new vehicle floor plan facility. We believe this new facility will support the execution of our strategy over the next five years. Now, we'll hand the call over the David to discuss our operational performance. David? David W. Hult - Chief Operating Officer & Executive Vice President: Thanks, Keith. And good morning, everyone. As Craig mentioned, the retail environment remained choppy in the second quarter. However, our team increased our total gross profit margin to 16.4% and delivered an operating margin of 4.8%. The balance of my remarks will pertain to our same-store performance compared to the second quarter of 2015. Turning to new vehicles. Based on incentives available in the quarter, we decided that in some of our import and luxury stores, we were not going to chase volume. As a result, we were able to stabilize our gross profit at $1,840 per unit. Our new vehicle inventory totaled $786 million, or an 83-day supply on a trailing 30-day basis. Our inventory levels were not materially impacted by stop-sale vehicles. Looking forward, we believe we are well positioned for the remainder of the summer selling season. Turning to used vehicles, our unit sales were down 5% as many of our stores continued to work to the stop-sale issue, which tied up approximately 10% or $16 million of our inventory. Approximately, one-third of our stores are currently impacted by stop-sales, with stop-sale inventory as high as 40% at certain locations. Despite these challenges, with better used vehicle management, we were able to improve our gross profit per unit by $114 to $1,769, our highest level in over a year. And taking into consideration our improved wholesale performance, total gross profit was up 3%. Our used vehicle days supply was 38 days, which was above our targeted range of 30 days to 35 days. Adjusting for $16 million of stop-sale inventory, our used vehicle days supply would be in our targeted range. Turning to F&I, our team continues to deliver strong results, delivering F&I per vehicle retailed of $1,436, up $42 from last year. The lending environment remains favorable. Now, turning to parts and service. In the second quarter, we delivered parts and service revenue growth of 6% and gross profit growth of 4%. This was driven by an 8% increase in customer pay; however, our reconditioning and warranty were relatively flat. We believe we can continue to grow our parts and service gross profit in the mid-single-digit range. Finally, we would like to express our appreciation to all of our teammates in the field and in our support center who continued to produce best-in-class performance in many areas. Again, thank you. We will now turn the call over to the operator and take your questions. Operator?

Thank you. We'll go first to Rick Nelson of Stephens.

Thanks. Good morning. I'd like to... Craig T. Monaghan - President, Chief Executive Officer & Director: Hi, Rick.

...ask about the GPUs on the new car, that we saw more stability and actually improved in the premium luxury segment. I was curious about the driver there. David W. Hult - Chief Operating Officer & Executive Vice President: Rick, all the credit goes to our folks in the field. Like I said, we – in a lot of our luxury stores, our focus wasn't volume-oriented, it was really improving our margin. And I think across the board, all our stores performed well.

Are you getting more assistance from the premium luxury OEMs? David W. Hult - Chief Operating Officer & Executive Vice President: No. There was no material difference.

Okay. Got you. So inventory, 83-day supply, ticked up a bit. If you could comment where you were heavy and where were you light on product? David W. Hult - Chief Operating Officer & Executive Vice President: I really don't want to call out certain brands. But in all three of our segments, we're a little heavy with some of the brands. Some of that is due to our lack of sales in the quarter. And we feel comfortable in this quarter, where it being a strong new car quarter, that we'll get our days supply in line.

Finally, if I could ask you about July sales, how they're tracking? David W. Hult - Chief Operating Officer & Executive Vice President: The best way to answer, Rick, is in kind of like the last few months, it's some very strong days and some quiet days and then strong again. It's pretty choppy, but similar to what we've seen.

Similar to June? David W. Hult - Chief Operating Officer & Executive Vice President: That's fair.

Okay. Thanks a lot, and good luck. David W. Hult - Chief Operating Officer & Executive Vice President: Thank you, Rick. Craig T. Monaghan - President, Chief Executive Officer & Director: Thanks, Rick.

We'll hear next from Brett Hoselton of KeyBanc.

Good morning, gentlemen. Craig T. Monaghan - President, Chief Executive Officer & Director: Hi, Brett. David W. Hult - Chief Operating Officer & Executive Vice President: Good morning.

Wanted to start off and just simply ask you about used vehicles. It sounds like you're attributing the year-over-year decline in used vehicle sales, at least in part, to the stop-sales. And my question is, if I understood that correctly, then what's the outlook in your view for the stop-sales and, of course, your used vehicle sales? David W. Hult - Chief Operating Officer & Executive Vice President: Brett, this is David. I'll start. It's what we said, one-third of our rooftops are dramatically impacted by these stop-sale vehicles. We've been told by our partners that, obviously, they're going to take care of the customers first, inventory second. We are being compensated. As far as the airbags coming in, they're still not coming in. It's very – they're coming in on a light flow but not what we expected by this point. And what we've heard most recently is we shouldn't expect to see them in any kind of volume until later in the third quarter, potentially early fourth quarter. Craig T. Monaghan - President, Chief Executive Officer & Director: Hey, Brett, it's Craig. If I could hop in there.

Yeah. That's fine. Craig T. Monaghan - President, Chief Executive Officer & Director: I think the point you made is very true though. These stores are being impacted when – like David mentioned in his script, when 40% of your inventory is on stop-sale, and we're just running out of space. They don't have cars to sell and, in some cases, we're looking for nearby lots in order to park these vehicles, so it has become very disruptive. But they are vehicles that, when we get the airbags, that we think are going to be very marketable. So we are holding on to them for the most part, and we're just going to ride this thing out.

Okay. Retail financing availability, it sounds like you're kind of saying, steady she goes at this point in time. My question is, we've seen a number of different articles about sub-prime and kind of the lower end of the spectrum. Are you seeing any changes kind of in the lower end of the credit spectrum? Keith R. Style - Chief Financial Officer & Senior Vice President: Sub-prime represents about 10% of our business. Currently, we don't see any difference at all, either in the advancing or being able to get folks financed in the sub-prime market.

Okay. Perfect. And then, finally, update on Q auto. I mean, looks like you just opened up a new store here. So can you kind of give us an update as to what's working, what's not working, where are you at in terms of your expansion plans? Craig T. Monaghan - President, Chief Executive Officer & Director: Sure, Brett. It's – so we've got – we opened our third store. We're on track to get the fourth store opened up later next month. All in, we lost about $0.01 in the quarter. Essentially, what's happening is the two existing stores make money and cover the corporate overhead that's associated with Q and then, we had to absorb the start-up costs that we're starting to occur now in the third store and fourth store. But we continue to be very optimistic about Q auto. We think it's a very interesting concept that could have a very bright future. And we're learning a lot. We're committed to it. We continue to move forward.

Do you think that you've pretty much fine-tuned the model at this point in time or at least found a general plan for what you think might work? Or are we still at a point where we're still experimenting with different ideas? Craig T. Monaghan - President, Chief Executive Officer & Director: I think there are some things that we feel very good about and other things where I think we're still learning our way. I'd break it into three major buckets. The first bucket is, I call it, how do we go to market. We don't have a brand. Q auto is unknown. We have learned to be competitive with very, I think, well-designed, well-thought-out SCM and SEO. We generate tremendous traffic to our stores virtually. So I think that part of the equation, we feel very good about. We've got, essentially, a fixed-price selling model. We sell off an iPad. We've got technologies in the stores that allow the salesperson to manage the transaction from start to finish. We do not transfer the customer to an F&I office. So those technologies and those processes, if you would, I think we feel pretty good with as well. I think the third major leg is sourcing inventory. And we get some of our inventory from our core stores that we believe would've gone to auction otherwise. But we also source inventory locally in the markets, and we go to auction. I don't think we have that completely figured out yet or we're not sure where we go with that. And then, finally, one of these stores that we're opening is a satellite store. It doesn't have a parts and service operation. I think that'll be a new learning for us. And it'll be interesting to see how quickly we can get this third store, which is a full service store, up to speed and generating positive cash flow. And again, we're all-in-one market, so we're also going to learn about as we penetrate a market, we get more concentration, and what kind of advantages does that bring. So it's a – I guess, it's a long-winded answer, I apologize. But I think there are a lot of things we are doing well and there's still a lot to learn. But I think we're headed down a track we feel very comfortable with.

Excellent. Thank you very much, gentlemen. Keith R. Style - Chief Financial Officer & Senior Vice President: Thank you.

We'll move next to Bill Armstrong of C.L. King & Associates. William R. Armstrong - C.L. King & Associates, Inc.: Good morning, everyone. So, Luxury, you had negative comps and positive GPU, and you explained that. Domestic was kind of the opposite, where you had pretty strong comps but another sharp decline in the GPU. I was wondering if you could maybe just flesh out what you're seeing there on the domestic side. Keith R. Style - Chief Financial Officer & Senior Vice President: There's a couple items or issues involved with that. From a year-over-year basis, there's actually less incentive money from our OEMs. The stair-step programs and that stuff is out there, but the dollars have changed. And with the market tightening a little bit and increased projections from our OEMs, it's become very competitive. So we've had to dig deeper to chase that money. William R. Armstrong - C.L. King & Associates, Inc.: Okay. And what's driving the strong comps? You had a 7% increase in unit sales on a same-store basis. Keith R. Style - Chief Financial Officer & Senior Vice President: There's a couple of things. Part of it is some fleet sales that we've done with Ford, one of our OEM partners. And then, generally, just the domestic market is fairly strong for us right now with the markets we do business in. William R. Armstrong - C.L. King & Associates, Inc.: Would the fleet sales sort of be temporary, maybe, as opposed to the other factor being, I guess, SUVs and pickups, which I would assume would be – that strength would be more sustainable? Keith R. Style - Chief Financial Officer & Senior Vice President: Our fleet business is real small relative to our total sales volume. It's fairly consistent but small. And you're correct, the truck and SUV market remains strong. William R. Armstrong - C.L. King & Associates, Inc.: Got it. Okay. Thank you.

From Jefferies, we'll go next to Bret Jordan.

Hey. Good morning, guys. Craig T. Monaghan - President, Chief Executive Officer & Director: Good morning. David W. Hult - Chief Operating Officer & Executive Vice President: Good morning.

Hey, on the customer pay service comp up 8%, could you talk, are you still promoting tires? Is there anything that you're doing to drive that volume or is that just core demand within the space? David W. Hult - Chief Operating Officer & Executive Vice President: It is really just the focus that we've had the last 18 months of really refining our marketing and our processes within the store and to handle the throughput with our facilities and really stabilize the workflow throughout the day. There's plenty of potential out there. There's still plenty of potential upside for us. We are happy with the progress we've made, but we see there's a lot more out there.

What are you seeing at the Q stores parts and service? And it sounded as if you're starting a – you're testing a Q store that is not offering parts and service. Is that meaningfully different volume in that channel versus your traditional stores? Craig T. Monaghan - President, Chief Executive Officer & Director: The parts and service business is not material at Q. The – what's interesting about this store, we call it a satellite store, is it allows us to reduce the amount of investment that we need to put in store on the upfront. At Q, it's all about – for us, it's all about generating an ROI on the investment. We can service those cars at – in this case, we'll service those cars at the branded store, and this satellite site will essentially just be a retail site. It's going to be interesting to see how it plays out.

So I guess, as you look forward, do you not assume a meaningful contribution from parts and service in the Q channel? Craig T. Monaghan - President, Chief Executive Officer & Director: Not until we've established more of a permanent presence. I mean, we do parts and service, but we just don't have that many units in operation that it's material.

Okay. And then, a question on the stop-sale used inventory. You said some stores are actually having capacity problems for storage. Is that something you can wholesale? Or are you finding that the auction companies can't clear stop-sale inventory either? Craig T. Monaghan - President, Chief Executive Officer & Director: Okay. Go, David, go. David W. Hult - Chief Operating Officer & Executive Vice President: I'm sorry, this is David. We're really holding on to all – most of our stop-sale inventory. We're not, obviously, selling anything from a retail perspective. Some of the operating stores are getting rid of some small-volume stop-sale vehicles. But generally speaking, we're holding on to all the stop-sale vehicles.

Okay. Great. And you said the OEs are making up any depreciation to you. So net-net it will – once they finally clear, it will not have been a negative economic impact? Craig T. Monaghan - President, Chief Executive Officer & Director: The – every OE is different. On some of them, there will be no economic impact. On others, there will be probably some, some loss that we're going to suffer by the time we get these lots cleared.

Okay. Great. Thank you.

Mike Montani at Evercore ISI has our next question. Please, go ahead.

Hey, guys. Thanks for taking the question. I wanted to ask about, just sequentially, $16 million of stop-sale inventory, what was that in 1Q? And also, tied to that, the GPU dollars same-store for used, up 7% YY, certainly better than what we were looking for. Can you talk to the competitive environment there versus your own mindset in terms of trading off unit versus GPU margin discipline? Keith R. Style - Chief Financial Officer & Senior Vice President: Hey, Mike. This is Keith. Just as far as the total stop-sale inventory, we reported in the first quarter, we had $14 million of used stop-sale inventory. As David said in his script, that's moved up a little bit here now. And I'll hand the call over to David for a comment on margins. David W. Hult - Chief Operating Officer & Executive Vice President: The margin, it really – nothing is materially different as far as our operations. All the credit goes to our operators in the field. We've been disappointed with what we've been delivering on the used car margin. They've been focused on it, and they delivered.

Okay. Great. And just following up on that point, one area we had been hoping for a little bit more improvement sequentially was the days inventory on the new side. And there does sound to be some optimism here into the third quarter that you guys can get that back in line. Can you just talk a little bit about, is that based around your thoughts on sell-through or, perhaps, production changing or cancellations, like, what gives you the conviction there that, that would improve? David W. Hult - Chief Operating Officer & Executive Vice President: Historically, Q3 is really the selling – the sell-down of the model year for new. So you traditionally see your new volumes go up this time of year. We anticipate seeing the same.

Okay. Great. Thank you, guys. Craig T. Monaghan - President, Chief Executive Officer & Director: Thank you.

From BB&T Capital Markets, we'll go next to Tony Cristello. Please, go ahead. Anthony F. Cristello - BB&T Capital Markets: Hi. Good morning. David W. Hult - Chief Operating Officer & Executive Vice President: Good morning. Craig T. Monaghan - President, Chief Executive Officer & Director: Good morning, Tony. Anthony F. Cristello - BB&T Capital Markets: First question I had was related to your expectations today and how they may differ from your expectations in January, as we look into 2016 and what remains for the sort of balance of the year? Craig T. Monaghan - President, Chief Executive Officer & Director: Well, I think we sit here today in a – I used the word choppy to start, in a market that – where we have a good week and a bad week and a good month and a soft month. But broadly speaking, I don't think things feel a lot different. There's certainly plenty of uncertainty. We, for internal planning purposes, are planning for a SAAR somewhere in the low to mid 17 million range. We give you a lot of detail on our numbers. You've got a good sense of what you see happening with margins, so you see the same things that we do. We are continuing to stay focused on costs. We think we've got to make sure that our stores are right-sized for – if this is going to be the environment, this choppy environment, we need to make sure our stores are staffed appropriately for this type of a selling environment. We continue to look for ways where we can drive incremental productivity, and capital allocation is key. Keith mentioned that we've got this – our new bank facility in place, so we've got plenty of liquidity on hand. I think one thing that we might think about that's maybe just a little different today than it was in January is that we think this type of environment creates a lot of opportunity. So we think it makes sense for us to stay flexible, keep some of our powder dry, and be ready to move when opportunities present themselves in the future. Anthony F. Cristello - BB&T Capital Markets: And with respect to opportunity, are you seeing any change in sort of prospective targets with how multiples for price is being paid, or has the environment not been choppy enough for a long enough period of time yet to see sellers adjust? Craig T. Monaghan - President, Chief Executive Officer & Director: No, what's changed – there's been some change. Maybe, I'd start off first and say that your point is correct. I think it typically can take a longer period of time for sellers' expectations to adjust. But what we have seen over the course of the past quarter is a lot more conversation, where there are more sellers talking about potentially selling their stores. Whether or not we can come to an agreement or get to prices that we think make sense, that remains to be seen. But certainly, we're seeing a lot more conversation now than we were in the beginning of the year. Anthony F. Cristello - BB&T Capital Markets: Okay. And if I can just have one more follow-up. In the context of this year being a heavier off-lease volume year and as we flow into the next couple of years that trend should continue, how have your locations been handling that? It sounds – it appears to be handling it well, but I wonder, is it as expected? And from a consumer standpoint, how has the consumer looked at the CPO and some of the other off-leases relative to where the new units are selling today? David W. Hult - Chief Operating Officer & Executive Vice President: I'll try and hit all those points, if I can, Tony. We've all been preparing for this onslaught of inventory coming. So I think we're in pretty good shape, and we welcome it. And we're using our software to distribute the cars where they belong and try and turn them as quickly as we can. From a CPO perspective, the consumer – and we see tremendous value in CPO-ing a vehicle, and we also see that, quite honestly, as a big opportunity for us. The more we dive into CPO, the better our results will be, is our belief. Anthony F. Cristello - BB&T Capital Markets: Okay. Very helpful. Thanks for your time. Craig T. Monaghan - President, Chief Executive Officer & Director: Thank you.

Moving on to Mike Levin of Deutsche Bank.

Good morning, guys. I know you were sort of saying that financing was pretty much steady as she goes in terms of credit availability. But particularly, we've seen recovery rates in auto ABS worsening, delinquencies and loss rates worsening, some actions being taken by Santander and some others. I mean, is the credit environment in used availability looking a little bit different than new right now? Just also thinking about that in the context of the large uptick in off-lease, particularly in 2017? David W. Hult - Chief Operating Officer & Executive Vice President: Mike, I – we see and hear all the things you are seeing, but we're just not feeling it. With the lenders that we do business with, they've been steady as she goes. We have not seen any difference whatsoever. Pre-recession and post-recession, they've changed their model a little bit, the ones that we do business with, with bank fees, and I think that offsets a lot of their losses that they might have. And I wish I – I mean, I'm happy with what we're seeing, hope it doesn't change. But from what we can see up until today, we have not seen any difference at all.

Got it. Okay. And I know you guys this quarter were taking a little bit of a profit-first versus volume approach. Can you kind of speak to how much of that you're seeing from your competition out in the market as well? Is this something being pursued by a lot of dealers at this point, given incentive levels? Or do you kind of feel a bit like an outlier amongst a crowd that's kind of pushing volume? David W. Hult - Chief Operating Officer & Executive Vice President: It would be difficult for us to speak to our competitors. The market is always competitive. It doesn't seem to matter what's going on in the world, this space always stays competitive. We try and go into each quarter, assess what our availabilities are with incentives and how can we maximize our opportunities for our shareholders, and that's kind of how we attack it. In some cases, if it makes sense to chase the volume, we do. If we don't think that we can get there and it makes sense, we choose not to.

Got it. And just one last thing, are there any kind of cost control measures that you guys are putting in place or thinking about as potential offsets to some of the increases in SG&A that you were talking about? Keith R. Style - Chief Financial Officer & Senior Vice President: Hey, Mike, this is Keith. Just in the form of context, going back to what we expected heading into the year, I think it's good context to show the progress. We expected to be about 70% headed into the year. We delivered 69.5% in the first quarter. We're down to 68.1% in the second quarter here. And that includes $1 million of hailstorm and $2 million of employment cost increases around healthcare. So if you kind of normalize for that and consider the sales lines being where they are, I think the company has done a pretty good job at keeping our cost structure in line with volume. And as you know, this is one of the – where Asbury shines in the industry, as far as our cost standpoint, so good job there. Going forward, we have continuous initiatives on centralization of processes that will continue to provide benefits over time. We continue to look at our major vendor spend on a regular basis and, of course, always looking – as Craig and David mentioned, always looking to keep our employee base in line with the volumes that we're seeing.

Got it. Thanks, guys.

We'll move next to James Albertine, Consumer Edge Research.

Good morning, and thank you for taking the question. I want to ask, just for point of clarification, on a comment that was made earlier in the Q&A with OEMs taking some depreciation on vehicles, I just wanted to understand if that's on used in addition to new. I understand with stop-sales for new, it would be more likely, but on used as well? Is that something that you're seeing? Keith R. Style - Chief Financial Officer & Senior Vice President: Yeah, Jamie, this is Keith. In general, and as Craig said, everybody's a little different. But in general, they're providing depreciation assistance on used vehicles as well. They also cover some floor plan assistance and some insurance assistance.

Got it. And then, a few housekeeping items, if I may, because a lot of the key topics I think we've touched on here in the prepared remarks and Q&A. But you mentioned 83 days of inventory for new. It does ramp typically entering 3Q. But what is the target if you had one for this time of the year? And is the ramp in inventory that you've alluded to, both on the new and used side that you said 38 days, typically for used you want 30 days to 35 days, is that ramp the main reason why we saw the floor plan interest expense uptick sequentially or is there something else going on underlying the rates that you've pre-negotiated for those lines? Keith R. Style - Chief Financial Officer & Senior Vice President: Jamie, it's Keith, again. And we could take this offline a little bit to make it a little detailed. But we do have a little uptick in our LIBOR-based rates, as LIBOR increased a bit over the prior quarters. Also, we had a lot of capital that we had in floor plan offset accounts in past periods. So that's also had some impact. And then, the third impact, of course, is our inventory levels in total, year-over-year, are up as well.

Okay. Great. And I will look forward to maybe getting into that more detail offline. Lastly, just with respect to your – the cadence of your buybacks, you've had a big year last year certainly. I think the first quarter was a big start to this year in terms of the cadence. But I wanted to understand how we should be modeling that, perhaps. And I know you can't have a ballpark in mind, but just sort of rough numbers or magnitude relative to last year, maybe, is the way to ask it. What should we be thinking about from a buyback perspective? Thanks. Craig T. Monaghan - President, Chief Executive Officer & Director: Well, I'd start off and say we've bought about $160 million year-to-date, so I feel like we're off to a very strong start. As Keith mentioned, our leverage is just about exactly where we want it. Gross leverage is at 3 times, net leverage is at 2.7 times. We are continuing to generate cash as, again, as we mentioned earlier with our new credit facility in place, we've got plenty of liquidity. But like I said earlier, at this point, I think there are times when it makes sense to be patient and wait and see what the world brings us. We're in that mode today. Therefore, from a modeling perspective, I'm not sure I would put anything in. I mean, we just don't have the visibility, we don't know. So I will tell you internally. When we're in that type of a mode, we don't model things that we don't feel comfortable that we can see. But I will come back to – we will keep the leverage in this range and within these targets. And to the extent that we have excess liquidity, we will find the most productive way to deploy it.

Very good. Thank you, Craig and gentlemen. And best of luck in the third quarter. Craig T. Monaghan - President, Chief Executive Officer & Director: Thank you. Keith R. Style - Chief Financial Officer & Senior Vice President: Thank you.

From Bank of America Merrill Lynch, we'll go to John Murphy.

Good morning. Just one follow-up on Q auto and the stop-sale. I'm just curious how the auto makers are compensating you for vehicles that might be on stop-sale at Q auto versus your new vehicle franchises and there is a difference as to how they're handling that. Craig T. Monaghan - President, Chief Executive Officer & Director: There's no assistance at Q auto.

Okay. And is there any vehicles on stop-sale at Q auto? Or do you have those all at your franchise dealers? Craig T. Monaghan - President, Chief Executive Officer & Director: There are a few vehicles at Q, but it's not material.

Okay. Then a second question for you, Craig. And as we think about the opportunistic sales that you made on dealerships the second half of last year, just curious if you see any of those, and is there an arbitrage in potentially selling some of your dealerships in the private market and buying back your stock in the public market? And, maybe, conversely, some of your comments indicated that the acquisition pace might be picking up, and it sounded almost like you were talking about a larger acquisition as opposed to onesies and twosies. Curious if you could comment on both of those, the arbitrage and then potentially doing a larger acquisition? Craig T. Monaghan - President, Chief Executive Officer & Director: Yeah. Those are great points. So I'll start with the divestitures. I mean, this is an interesting industry. If we look back over time, there are times when the private dealers are valued at premiums well above where the publics trade. And there are times where the exact opposite happens. And we do try to take advantage of that when we see those opportunities. We do have to be sensitive to taxes. And so, you may find yourself in a situation where you have a store that you could potentially sell and get a great premium. But then, you may also owe Uncle Sam a lot of money, so that's part of our calculation. But the stores that we divested in, we feel that was a great decision for us. We felt we got very attractive prices. And with our stock trading at bit of a discount that it's been trading at, we think making that trade-off to sell those stores and buy back our stock was a great move for us. And we think one of our responsibilities is to manage the portfolio. And so, we are constantly looking for opportunities to add to that portfolio. If there are divestitures that make sense, as we've demonstrated, we'll do that as well.

Okay. And then, on potential for a larger acquisition, I mean, it just seemed like you were kind of alluding to something maybe bigger than you had done in the past, or is that just me reading into it? Craig T. Monaghan - President, Chief Executive Officer & Director: I think that you're reading into it. I mean, we talked to people with onesies and twosies and we talked to people who have larger groups of stores for sale. The conversations are interesting, but at the end of the day, we come back to the simple analysis of, well, where do we trade versus what would we have to pay to buy somebody else. And we will take into account the synergies that we think we can bring to bear, but we're not going to pay a premium beyond that.

Okay. That's very refreshing... Craig T. Monaghan - President, Chief Executive Officer & Director: Yeah, we've got a great fallback position, we just buy back our own stores.

Yeah. And so, that's very refreshing to hear. And just lastly, as – you guys mentioned, David, I think that you weren't chasing volume, particularly on premium and lux, and some of the competition sounds like it may have been. Do you have the ability or are you pushing back on taking on incremental inventory if you're not selling through maybe as fast as other dealers? Can you push back a little bit right now? Or is there still not a ton of leverage with the automakers as far as taking inventory? David W. Hult - Chief Operating Officer & Executive Vice President: There's a balance there because there's a relationship, and you have to factor that in. And that might be why our days supply run slightly higher than we'd like, but although this time of year not much higher. I think 75 days, 80 days is a great days supply to go into your selling season, so we might be slightly above that. But we have been turning down vehicles for the last few months. We're very focused on our model days supply, and we're pretty, I would say, focused on making sure we balance it as best we can between the relationship and our inventory levels.

But do you think they're listening to you a little bit more on the feedback loop on production just so they don't get out of whack themselves? Or is it sort of more similar to it has been for a long time? David W. Hult - Chief Operating Officer & Executive Vice President: No, I think in the last six to nine months, they've done the best job they can at aligning the car/truck balance as well as they can. I mean, obviously, some lines are not going to shut down, they have to keep producing. But generally speaking, I think they've all done a really good job at trying to align it.

Great. Thank you very much. David W. Hult - Chief Operating Officer & Executive Vice President: Thank you.

We'll hear next from Paresh Jain of Morgan Stanley. Paresh B. Jain - Morgan Stanley & Co. LLC: Good morning, everyone. Just have one question, actually, on the strategy front with Q auto. Seems like there is this focus to reduce the capital requirement for growth here. So instead of having multiple physical stores in a particular market, would you consider combining the brick-and-mortar strategy with an online-only business model or some sort of peer-to-peer model, like, having a hybrid of the two in niche market? Craig T. Monaghan - President, Chief Executive Officer & Director: Absolutely. One of the beauties of Q Auto is that it's a place where we can experiment. And as I mentioned earlier, we experiment with the sales techniques; we experiment with the way we market online; we're experimenting with these facilities. But I would come back to – but at the end of the day, in our minds, this is all about return on investment. So how big does a facility have to be; what kind of volume can we get from that facility; how can we come up with a business model that allows us to earn a return? The objective at the end of the day, earn a return that's more attractive from an ROI perspective than what we can get buying a car store on the marketplace. So we are constantly experimenting, and we will continue to experiment. Paresh B. Jain - Morgan Stanley & Co. LLC: So you're already working on some programs where it's just an online business model without the customer even having to step into the store? Craig T. Monaghan - President, Chief Executive Officer & Director: We – Q auto stores have the ability to do a sale 100% online, so do our core stores, have the same ability. We are working with some third parties who are developing those technologies. I would consider it experimental in both the core and the Q stores. We – but what I will say to you is it is very interesting, that if we were to go back even three years, four years, there were very few customers who would take a delivery online. I mean, they -- $30,000 to $35,000 average purchase price, they wanted to come and touch it, feel it, drive it, make sure it was a car they want. We are seeing many more people take direct delivery today than we've ever seen. And, David, maybe you want to jump in and give a little more color on that. David W. Hult - Chief Operating Officer & Executive Vice President: Yeah, like Craig said, we've partnered with a third-party company on software. We've put it in several of our stores. We've been very happy with the results we've seen so far. We've done many transactions online and deliver the car to the house, and the customers never came to the dealership. It was completely online. So we are very excited about the potential there and where it can go in the future. Craig T. Monaghan - President, Chief Executive Officer & Director: But we must say today, it is a very, very small part of our business, but something we are paying a lot of attention to. Paresh B. Jain - Morgan Stanley & Co. LLC: Understood. Thanks for the color, guys. Craig T. Monaghan - President, Chief Executive Officer & Director: Sure thing. David W. Hult - Chief Operating Officer & Executive Vice President: Thank you.

We'll hear next from Morningstar's David Whiston.

Thanks. Good morning. Going back to the sub-prime discussion, are you seeing customers coming in who are in the sub-prime bucket? Are they are a bit more enthusiastic or aggressive on wanting a new vehicle than a used vehicle compared to a few years ago? David W. Hult - Chief Operating Officer & Executive Vice President: I've been in retail a long time, so I'll try and tick back over the timeline and think about this. Customers, generally speaking, are always excited about getting a new car, and they're always very optimistic about what they're willing to pay on a monthly payment, even through the recession. I mean, the numbers could have been greater then if the money was available to lend. So I don't think that we've seen anything different there. And we're very pleased from the consumer coming in and their positive outlook on purchasing a new vehicle.

Okay. And on the M&A front, are you, perhaps rethinking your domestic exposure? Because you – one, it's pretty small relative to the other two categories, but it's also heavily skewed to Ford and with gas looking like it's still not going up any time soon, are you, perhaps, wanting to get more GM stores in your mix or even an FCA? Craig T. Monaghan - President, Chief Executive Officer & Director: We like Ford stores. Obviously, the last three -- big three acquisitions that we've done have all been Ford stores. We are very open-minded to domestic. We've got a set of criteria that we look at when we target acquisitions. But I would say that we are pretty wide open, and we consider most brands. We're willing to range outside of our existing footprint for stores that make sense. But at the end of the day, I think we're still in a world where the greatest challenge is going to be the economics.

Okay. And last question on Q auto. Can you just remind me how you're advertising that? Is it primarily online, exclusively online, any TV in those local markets? Craig T. Monaghan - President, Chief Executive Officer & Director: It's primarily online. We do experiment with some of the other medias, but the bulk of it is online.

Okay. Thank you. Craig T. Monaghan - President, Chief Executive Officer & Director: Sure thing. David W. Hult - Chief Operating Officer & Executive Vice President: Thank you.

Bill Armstrong of C.L. King & Associates has a follow-up question. Please, go ahead. William R. Armstrong - C.L. King & Associates, Inc.: Thank you. Just a quick follow-up on an earlier question. Within the used comps, which were down 5%, what were CPO same-store sales? Keith R. Style - Chief Financial Officer & Senior Vice President: Bill, I don't have that number. We could get it to you. William R. Armstrong - C.L. King & Associates, Inc.: Okay. I'll follow up offline then. Thank you. Craig T. Monaghan - President, Chief Executive Officer & Director: Sure thing.

From Evercore ISI, we'll go back to Mike Montani.

Hey, guys. Just wanted to follow up on the service gross profit rate degradation, was there anything inter-category there? Or was that more of an accounting issue? Just trying to figure out is there promotional or other pressure, or is it just more GAAP accounting? Keith R. Style - Chief Financial Officer & Senior Vice President: Hey, Mike, this is Keith. With – obviously, with customer pay growing at 8% and internal work being relatively flat and, of course, you know that internal work is at 100% margin, there was a revenue shift there or gross profit shift, which led to a degradation of the overall parts and service margin.

Okay. But it doesn't sound like there's anything, say, within customer pay or anything like that? Keith R. Style - Chief Financial Officer & Senior Vice President: No. Nothing to be alarmed about. No.

Okay. Cool. Thank you. Keith R. Style - Chief Financial Officer & Senior Vice President: Great. Craig T. Monaghan - President, Chief Executive Officer & Director: Great. Well, thank you, everyone, for joining us today. That concludes our discussion. We appreciate you taking the time to be with us this morning. And we look forward to talking to you again next quarter.

And again, that does conclude today's conference. We thank you all for joining.