Good day, everyone, and thank you for standing by. Welcome to the Asbury Automotive Group Second Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Matt Pettoni. Please, go ahead, sir.

Thanks, operator, and good morning, everyone. Welcome to Asbury Automotive Group's second quarter 2020 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 me today are David Hult, our President and Chief Executive Officer; PJ Guido, our Chief Financial Officer; and Dan Clara, our Senior Vice President of Operations. 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, including those statements relating to the duration and contemplated impact of the COVID-19 pandemic on our business and financial performance, as well as the financial projections and expectations about our products, markets and growth. All forward-looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by the statements, including potential impact from the COVID-19 pandemic on us, our industry and our customers, suppliers, vendors and business partners. For information regarding certain other 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 2019, any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. It is my pleasure to hand the call over to our CEO, David Hult. David?

Thanks, Matt, and good morning, everyone. Welcome to our second quarter earnings call. We achieved record second quarter results, despite a volatile and challenging environment. In the quarter where SAAR dropped 34% to 11.3 million and American sheltered at home, due to the COVID-19 pandemic, we delivered record operating margin of 5.7%. Plus, through our cost control measures and the strength of our business model, we were able to achieve record low SG&A as a percentage of gross profit of 62.7% and an adjusted EPS of $2.52, up 6% over the prior year. During the quarter, we saw our new and used volume sequentially improved each week in May and June, with significantly higher profit per vehicle. We also saw our parts and service business rebound in June, ending the month flat in gross profit with the prior year. I'm extremely proud of our teammates for stepping up our pickup and delivery business, as well as their laser focus around keeping the dealership safe for our guests. Because of their hard work, we were able to deliver record results. In addition, the quarter proved the strength of the new vehicle franchise dealer model. With significantly lower volume due to the macro environment, we were able to flex our cost structure down, rationalize inventory and improve margins to deliver these record results. Our strong performance is also the result of our pioneering omnichannel strategy we launched over four years ago. In the second quarter, 20% of our guests chose to complete their used vehicle purchase online. While we are pleased with these results, we are focused on further building and refining our omnichannel tools to enhance the guest experience, more to come later this year. We are also pleased that our business model and performance allowed us to navigate the current environment and reengage on the highly strategic Park Place acquisition under more flexible financing terms and more favorable pricing. We are on track to close the acquisition in late August. Looking forward, our main goals are to delever and continue to build out our omni-channel tools, while working towards becoming the most guest-centric automotive retailer. Finally, I want to thank all of our teammates for their commitment, during this pandemic. These results happen, because of your passion and perseverance, adapting to our new world. Thank you I will now hand the call over to Dan to discuss our operating performance. Dan?

Thank you, David, and good morning, everyone. My remarks will pertain to our same-store performance compared to the second quarter of 2019. Looking at new vehicles. While SAAR for the quarter was at 11.3 million units, or 34% below last year, we focus on retail SAAR, which was down 24% for the quarter. In this lower retail store environment, new unit sales decreased 23%. Overall, our new gross profit per vehicle was up $436 per car, or 30% from the prior year period. All segment margins were up significantly from the prior year period. At the end of June, our total new vehicle inventory was $474 million. Our day supply was 52, down 34 days from the prior year. These levels are low, because of temporary OEM factory shutdowns. However, we expect the day supply to increase gradually through the summer selling season. Turning to used vehicles. Our gross profit margin was 7.5%, up 30 basis points from the prior period represents a gross profit per vehicle of $1,690. We focused on being opportunistic with our inventory and we were able to increase our used to new ratio by almost 1,000 basis points. The second aspect of our used car business is wholesale. We increased our wholesale gross profit over $4 million. Our used vehicle inventory ended June at $125 million, which represents a 26 day supply, down seven days from the prior year. Turning to F&I. Our strong consistent and sustainable growth in F&I delivered an increase of $80 to $1,737 from the prior year quarter. In the second quarter, our front-end yield per vehicle increased $357 per car to an all-time record of $3,539. Finally, turning to parts and service. Although, our parts and service revenue decreased in the quarter, we were able to recover and were flat in the month of June. In addition, 41% of our customer appointments were scheduled from mobile and web devices. I would like to remind you that, our parts and service gross profit margin was impacted by the decision we made to protect the income of our technicians during this pandemic, which cost approximately $5 million. I would like to take this opportunity to express appreciation to all our teammates in the field and our support center, who continue to produce best-in-class performance. I will now hand the call over to PJ to discuss our financial performance. PJ?

Thank you, Dan, and good morning, everyone. I would like to provide some financial highlights for the quarter, which marked a great achievement for our company in an unprecedented and volatile macro environment. Overall, compared to the second quarter of last year, revenue decreased by 20% and gross profit decreased by 18%, driven by the impact of COVID-19. Gross margin expanded by 40 basis points to 16.8%, compared to last year driven by our proactive inventory management and focus on gross profit per unit. Moving down the P&L, we saw SG&A as a percent of gross profit decreased by 530 basis points to 62.7% on expense reductions and efficiencies gained on personnel and advertising, as well as other cost control measures instituted across the business. Although, the operating environment remains uncertain in the back half of the year, we expect our SG&A as a percentage of gross profit to be somewhere in the mid to high 60s for the full year 2020. Our actions to manage gross profit and control expense resulted in an adjusted operating margin increase of 90 basis points to 5.6%. Adjusted EPS for the quarter increased by 6% versus the prior year period. Net income for the second quarter 2020 was adjusted for a legal settlement gain of $1.2 million or $0.05 per diluted share. Net income for the second quarter 2019 was adjusted for an $11.7 million gain on the store divestiture or $0.45 per diluted share and a $300,000 gain or $0.01 per diluted share on sale of real estate. Our effective tax rate was 25.2% for the second quarter of 2020 compared to 25.3% in the second quarter of 2019. Floor plan interest expense for the quarter decreased by $6.4 million over the prior year quarter, driven primarily by the reduction in inventory…

Thank you. [Operator Instructions] And we'll go first to Rick Nelson with Stephens.

Hi, good morning. Wanted to follow-up on inventory across the industry is quite lean that's evidenced with your days supply, especially in the new car side. Curious, how you see inventory normalizing the time frame for that. And the GPUs, how long you think you can maintain those high GPUs?

Good morning, Rick. This is David. Related to the newly, it varies dramatically by brand. But I would say, as we sit here today, we believe that it will really be September, before we start to see normalization of inventory. We're certainly starting to get vehicles in and we'll certainly get them in August. But with the demand currently that's out there and the way the supply is coming in I think it's mid-September before it starts to normalize. On the used vehicle side, a little bit different and probably a little bit tougher to predict. I would tell you and we normally don't give any guidance but when we think about July and where we are, July is what June is, as it relates to margin and maybe better. Volume is probably maybe just a little bit less than June. We anticipate August to be the same as July and similar to June. It's very difficult with what's going on in the world with the pandemic and everything to get too far out making predictions. But we see July being strong and we see August being similar. September is a little bit unknown at this point.

Yes. As a follow-up to that SG&A to gross profit, it was 55% in June. I know you're guiding mid- to high 60s. But I'm curious if there's anything structural or increased spending plans that you guys have in mind that here over the near-term why that kind of 55% ratio didn't get sustained with especially with the high GPUs? A – PJ Guido: Yes. Rick, it's PJ. So with regards to SG&A I think we need to just reference and level set on the quarter as a whole. When the pandemic first hit, we were very quick to rightsize the business to align with the new environment that we saw going forward. So that action primarily on -- with regards to headcount and advertising set us up to operate in the current environment. And I think going forward although a lot of that is structural and we have gained efficiencies. We do expect expense -- we don't see that as sustainable going forward. We do see expense coming back in as the environment normalizes as volume increases. So again to achieve the 62.7% SG&A in this environment or even in the mid-60s which is still below historic is an achievement. But we do expect some expense to creep back in as things normalize. Q – Rick Nelson: Okay. Got it. And finally, if I can ask on service and parts nice improvement here sequentially in June. Curious your outlook there when you could you get back on track, do you think for the mid-single-digit growth that we were used to seeing pre-pandemic? A – David Hult: Sure. This is David, Rick. I would -- when we look at our business, when we report numbers and we show customer pay I don't know many of our peers do. But you…

Next, we'll go to John Murphy with Bank of America. Q – John Murphy: Good morning, guys. I just want to ask a first question on consolidation in the industry, because there's obviously with the Park Place acquisition you've done, and some of the other groups getting more aggressive on acquisitions. I'm just -- as you look at this, some of the deals that are being done in the private market are far above the valuation that your stock is currently selling at. So I mean, obviously, you just did a very good attractive deal so we understand that. But on the flip side, you had the potential for selling the business either to a large private group or another public valuation that might be more in tune with some of the private deals that are going on. I mean, is that something you would be open to, or the Board would have to consider if that came up?

John, I -- that's -- it's not something we think about on a daily basis. I would tell you, I know there's a lot of vibe in the market about growth and how big people can get over the years in consolidation in national branding. We have to remember that this is a franchise business. And that there's dealer agreement with every single one of these brands and then there's framework agreements on that. So until those documents materially change, I don't see the massive consolidation that you might be questioning.

Okay. That's very helpful. I mean, you think that the framework agreements and even the franchise laws actually would prohibit somebody getting significantly above 2% of the national market or something in that range. Is that a fair statement roughly?

Well, I would -- it's unfair for me to say what everyone's framework reads. But I would tell you, once you start having multiple rooftops of any brand beyond your dealer agreement that exists, you have a framework agreement. And within those framework agreements there are limitations and how many you can acquire in an annual season so to speak or a period. So there's a lot to a framework agreement and what's involved. And for a company A to buy company B of 40-plus stores overnight would take a significant amount of work with the manufacturers to make that happen and it would be a true test of some documentations that are out there.

Got it. Okay. That's very helpful. And then just a second question around SG&A. Obviously the performance was -- in the quarter. It sounds like you hold on to a decent amount of it, but you do expect some normalization there over time. As you look at the omnichannel efforts and as that is ramping up, I think you're saying you've done a lot of your sales online in the quarter particularly on used. I mean, is there an opportunity you stressed or leverage that omnichannel effort that the SG&A could structurally come down over time. I guess simply as SG&A dollars on a new or used sale much lower if you're doing it online?

Absolutely. There's no question about it. And we're very -- we're focused on the transaction online, not reserving a car not holding a car, not processing a piece of the deal. We're very focused on the complete transaction. We quoted the number of 20% on pre-owned. We're proud of that and that's not reserving or holding that transacting. And the 40% of our appointments online, it just shows what we've been working on over the years. We have more tools that we're looking forward to launch later in the second half of this year, but that we think will hopefully get us -- we believe it will get us to hopefully a higher plateau. So very focused in keeping our heads down and just really focusing on getting better at what we do and more efficient at what we do. Our discipline in SG&A in the quarter showed. We're proud of that. Some of the cost that will leap back in, in third quarter, some of our vendor partners that gave us discounts they're not there now. So those thoughts are naturally going to come back in. But we're disciplined on keeping the headcount where it is. We're disciplined on keeping our ad dollars down. I think we're one of the lowest in the space if not the lowest in the space. So I think we're showing efficiency. I think once we feel like we're at a point where we can really put the foot on the gas in the highway then we'll chase volume a little bit. But we're -- right now we're trying to get more efficient in what we do.

And the omnichannel SG&A to gross and if you go online, I mean, is that something that could be as low as 50%, or is that just like too aggressive as to how far when the opportunity could be?

Yeah, I'm smiling. I really couldn't touch that number. It would be unfair for me to say, it's more than fair to say that there's an opportunity over time to lower SG&A with online transactions.

Okay. And then just lastly, used vehicle pricing has been miraculously strong sort of defies a lot of the factors in the market except maybe one that was just this incredible underlying demand for travel utilities showing up in used as the new vehicles just aren't on the lot to sell. I'm just curious what your interpretation is of strong used vehicle pricing what it means to your business, because it seems like it's a keystone here that's undeniably strong. I'm just trying to understand how you think about that what that means?

Yes. Again, I said it, I think early in July. We had a perfect storm of event tapping with a lot of things and with the manufacturers shutting down and there's still a demand out there to purchase cars and the average age of ownership is almost 12 years. You do have some pent-up demand. And there's a lot of pre-owned vehicles on the market. I'd say every quarter any company, what did you do right? What did you get wrong? I'll tell you one of the things we got wrong in the quarter. I thought we're smart not to wholesale our cars and take any kind of loss when the market really dropped in March, because we didn't think it was real. But in hindsight, we could have been more aggressive at buying more inventory, and that's something we didn't do. We chose to stay conservative and just manage the growth. The business is still strong today in used. I anticipate August won't be any different. September is a natural slowdown after Labor Day. In a normal year, I would call 2020 anything, but normal. So it's really tough to predict what September comes, but there could be that natural slow in September.

Okay. Great. That's very helpful. Thank you very much.

Thank you.

We'll go next to Ryan Sigdahl with Craig-Hallum Capital Group.

Good morning. Thanks for taking my questions. Just as it relates to Park Place and digital, how do you think about allocating both financial and human resources towards the integration of Park Place versus digital capabilities as the industry rapidly shifts online?

This is David, Ryan and I'll address that. Yes. I've been lucky in 34 years to work for a lot of great companies, a lot of great people and have done a lot of acquisitions. And acquisitions are fun to do, but integrating them is extremely difficult. This is going to be 1,700 employees a lot of stores a lot of revenue. I'll tell you what attracts us most of this deal besides the obvious are the people there, but it's also the systems that they have. You won't find a company where we haven't or I haven't seen it in my career, where we align so much operationally right down to the softwares that we use, both from DMSs to HR software. So we see this as a fairly easy integration even though it's a large size one. We feel that their strength is delivering a high level of service and our strength is the digital side. We think we can learn a lot from them and they can learn from us on the digital side and we're very excited to get the acquisition done and start chipping away at that.

That's helpful. One other one for me. So one of your dealer peers announced it's rolling out a national brand for its digital initiatives. Where do you guys ultimately see your positioning in digital, is it the unified Asbury brand? Is it the PUSHSTART brand? How do you think about kind of a nationwide rollout there?

Yes. I would say, when you think about branding nationally, I'll go back to the dealer agreements and framework agreements. I'm a small Mercedes dealer in any city. I have restrictions as to where I can market that vehicle and what I can do. We all have restrictions on where we can market our new vehicle sales service to some degree in CPO where there are no restrictions or out and out pre-owned sales. But I would tell you Cox Automotive is pretty good on doing studies and everything else like that. And if you look at their 2020 car buyer journey study on the pre-owned side 87% of the people that purchase the used vehicle, purchased it within 60 miles of where they live. And on the new car side it was 93%. So the way we look at it is, we see brick-and-mortar as an expense and we see digital as a highway to do business. And we feel like our omnichannel approach we have enough facilities to facilitate the deliveries of the vehicles as well. So, we look at unlimited potential through our rooftops. We think there are local branding names within the market have value and we'll go after it. Just like our peers, just like on the private side, we all sell preowned cars all over the country. When people are looking for certain cars they go after them. But 87% of your business is done within a six-mile radius and we still see that within our business as well. So, we think there's high-efficiency through online. We think the true savings in the SG&A is brick-and-mortar is not needed. It's all online. And when you can truly complete the transaction 100% online and make it fast and transparent for the consumer your -- I can't see how you're not likely to garner good results and acquire more business from doing that.

Great. That's it for me guys. Good luck.

Thank you.

Next we'll go to Armintas Sinkevicius with Morgan Stanley.

Great. I appreciate the question. Notice that your import GPU was up quite a bit here. Maybe you could talk about the environment here with regards to the luxury domestic and import brands. And then also how incentives have been trending through the quarter and into July?

Yes, good morning. This is Dan. I'll take the other question. So, yes, we saw a nice improvement across all segments from a luxury standpoint. I'll address that one first. Again that goes back to the supply and demand. We made the conscious decision to be smart and not just let cars -- retail cars that are hard to replace right now because of the OEM shutdowns and what have you. From an import standpoint, same of the similar situation that we experienced with luxury. We have seen the -- some OEMs have supported with effective incentives more than others. And -- but in the grand scheme of things I believe everybody was a very key player and a very good partner through the pandemic. And when you go down to the domestic again they were affected by the factory shutdowns. There was another domestic that prior to COVID it also had another factory shutdown. So, even more of a limitation when you come down to a day supply and again it goes down to the conscious decision that we made of holding to the product making good smart decisions in an environment where it is tough to replace the unit that you just retailed.

The only thing I'd add to put color on that. One of our core principles is our partnership with our OEMs. We're a franchisee. We value them. Hopefully they value us as well and we want to know what's important to them and we want to execute on that. They supported us extremely well through the pandemic in so many ways and we're very thankful for that. I would tell you especially in the midline import as it relates to Asbury. It was a very much a conscious decision for us to really just focus on margin and not chase growth. And when you're in secondary markets we're not with most of our midline imports. But when you are you're naturally going to be higher on gross profit per unit when you're in metro markets a little bit more competitive. So, we're very pleased with our results for the midline import for the quarter, but it was a focus to not chase volume and really just focus on margin.

Okay. And you mentioned about 20% of your sales involved the digital framework. How has that trended from keep COVID to the opening? Does that increase decrease remained flat? What's been the trend there?

Sure. Number moves around a little bit but essentially pre-COVID, it was around 10%. So, it jumped up to 20%.

Okay. And how has that been looking since you've been able to sell cars in dealerships and people have been able to have more options than just delivery and curbside pickup as there are obviously restrictions there by jurisdiction?

Sure. The number hasn't really moved yet. It certainly could at any point in time, but it hasn't yet.

Okay. Great. Well, thank you for taking the questions.

Thank you.

Next, we'll go to Rajat Gupta with JPMorgan.

Hi, good morning, everyone, and thanks for taking my question. Just had a follow-up on the omnichannel offering. You talked in your prepared remarks on how you're working to enhance that further. Can you give us a sense of what kind of steps do you have in mind there? Any bottlenecks that you think that you would want to improve on, or just any specific parts of the offering that you're going to be more focused on going forward? And I have a follow-up. Thanks.

Sure, Raj. This is David. When we launched the loan marketplace, we announced last year that we were the first to have it. And basically you could apply online and you instantly got back from the large lenders with their logo what the approvals were and what the rates were. We didn't preannounce it, because it's a competitive space. I would tell you in the second half of this year, we will launch tools that don't currently exist. No one has out there at this point in the automotive space certain elements of the transaction online. So there'll be more to come, but just because of the competitive nature of our space, we don't want to talk about it yet. I anticipate things could change, but I anticipate talking about it in October.

Got it. Got it. We look forward to that. And just on Park Place. I know it's not closed yet, but could you give us any sense from just the same-store metrics within that group how that has performed in the second quarter and what we're seeing here into July across the different business lines?

Sure. Respectively, it's still privately held and really don't want to disclose too much of his personal information. But I guess the general statement I could make for the month of June he's been in business a little bit over 33 years. It was his most profitable month he's ever had. Their stores are performing very well and holding up very well and it's certainly transitioning that way into July as well.

Got it. And you mentioned earlier or I think to Rick's question that July maybe saw a little bit of a slowing versus June in terms of volumes. Was that more of an industry dynamic, or is that more of a conscious decision on your part, because auction prices are so high, or just curious as to -- was that more of an unconscious decision might just to maybe hold off on sourcing expensive vehicles? Thanks.

Yes. I would tell you it's a little bit of everything. First on the day supply is low. So naturally sales are going to slow a little bit with that. And then the number one source for most new car dealers for used vehicles as trade-in, so there's an offset there. To your point about buying cars right now, we're trying to realize, we're not just buying for a moment in time or a quarter, but it's overtime. And we don't -- we want to stay conservative understanding that at some point the market is going to move a little bit. So we're buying what we need. We're trying to be opportunistic. We're buying directly from consumers. We're doing a lot of equity mining as most dealer groups are I'm sure and trying to be opportunistic. But I think our approach right now our mindset is how do we get our highest returns and that's our main focus now. How do we generate as much growth as we possibly can while keeping our expenses down to come out on the other side of this.

Got it. Great. That's super helpful. Thanks and good luck.

Thank you.

Next we'll go to Stephanie Benjamin with SunTrust.

Hi, good morning.

Hi, Stephanie.

Hey, Stephanie.

Just to kind of circle up again on the digital initiatives. I wanted to hear maybe color you've had about those customers that chose to purchase online or through the digital channel that 20%. How many of those customers chose the -- or roughly speaking chose the home delivery versus in store pickup? Just curious what you're seeing from that trend?

Yes. Stephanie, it's a great question. And like anything we launch, I'm always wrong. I anticipated a very high -- when we did this years ago a very high delivery rate at home for obvious reasons. It was a little bit more than expected in the beginning, but it quickly flipped. The majority of consumers are choosing to take delivery at the dealership. I'm guessing the reason is they want that relationship with the dealership on the parts and service side and want to meet people there. We certainly do home deliveries. I would say, we're doing more of the pickup and drop-off on service than we are deliveries on the actual transactions when they purchase a car. Naturally out-of-state purchases are certainly being transported by trucks. But local transactions that are done are -- mostly done at the dealership after they've purchased it online.

Got it. That's helpful. Thank you. And then also I wanted to touch on just F&I with your digital initiatives what you've seen from the adoption or penetration of really getting some of those additional warranty or service sales via, while still going through the digital platform, or is that an initiative that may be expanded as we look forward? Just any color there would be great.

Good morning Stephanie, this is Dan. So we've seen the team adapt pretty good to the new way of doing business with the digital transactions and at-home delivery. We have several -- the tools that we utilize afford us the ability to be able to further enhance the experience by being able to present the product in a digital aspect. And the team did a very good job adapting and we saw positive results from our consumers in this transaction, and therefore you can see the consistent and sustainable growth that we delivered in F&I.

And I would add -- I would say if you truly analyze our online transaction tool there's three key areas of what you call weakness or opportunity to be better. Those are the ones that we're focused on that we'll be launching. And one of them is related to F&I. We're lucky that our F&I numbers are holding up online as they do in the store. But in my personal opinion, our presentation of F&I products online can be a lot better than what it is.

Got it. And that’s all I want. Thank you.

Thank you.

We'll go next to Bret Jordan with Jefferies.

Good morning guys.

Good morning.

On the discussion of the customer pay impact and the collision softness. I think you mentioned you said it was at 10% back of prior year. Is that saying that collision is running at 90% of prior year levels, or it is running at 10% of prior year levels?

Yes. It's -- and that number was for July. And it's -- we're running at 90% of prior year so we're off 10%.

Okay. And what would have been the trend of improvement? I guess what would June or May have been versus prior year?

Yes. We had -- collision was backwards above 30%. Well we're 70%, if you want to do it that way.

Okay. Another question I guess...

Just to be clear, we were generating 70% of prior year.

Okay. And I guess you commented that Florida has been strong despite sort of COVID re-outbreak. Are there any markets that are outliers you talked about regional sequential improvement? Are there any particularly strong or weak markets in the recovery?

No. I would say early on end of March beginning of April there was, I would say once you kind of hit that mid-April point, you've seen fairly consistent recovery everywhere. Colorado, we only have a couple of stores out there, but it's been extremely strong for us. And they had some tough shelter in place regulations early on and we were still amazed that the business that was coming out of there. So I think we certainly had our lumps along the way. And like a lot of our peers I'm sure we had moments and times where we had stores physically closed for periods of time for a litany of different reasons, whether it be state regulated or a virus breakout, but it's just slowly coming back over time.

Okay. And then one last question, I guess with so many public players now focusing in the used car space and promising big growth. Do you see auction activity getting any less rational, or are bids becoming more competitive in that channel?

Yes. And I would say, we don't know differently than our peers I'm sure. We constantly look at the competitive space of what people are doing what people aren't. In the last 120 days some of those national brands were not acquiring cars from consumers. They shut that piece down for a period of time. I think our goal is slow sustainable growth. And we agree with Cox and that 87% of the people that purchased that preowned purchased it within 60 miles. We think we have a tremendous opportunity to grow our preowned business. I think our focus really right now is perfecting that online piece and we have not done that yet. And that's why we keep quoting actual percentages. We're -- I don't think some others do. The reason we do that is to hold ourselves accountable to a number and really want to get better. But we believe our growth comes when we have a better tool and a world-class tool on the market and we can convince the consumers to transact online and that it's safe. It's different when you think about buying a car online to buying something on Amazon. When you're buying something on Amazon you're not trading anything into them. And when you don't trade anything into them you don't own any money on it. So it's more complex when you're doing a vehicle transaction. And there's different pieces of that element that have to be thought through when completing that transaction online. But that's where our focus is in growing our business. As far as national brands, we think within the markets we do business in we compete really well. We're a franchisee. Our partners are very important to us and we understand our restrictions around nationally marketing the new vehicle franchises. But on the preowned side it's clearly an open market, but it's like anything else. If you're going to ship a 5,000-pound item 10 states. There's certainly a cost associated with that. And whatever that cost is, is there that much of a savings not to buy it locally. So there's just a lot of thought that has to be put into what that landscape looks like.

Great. Thank you.

Thank you.

We'll go next to David Whiston with Morningstar.

Thanks. Good morning. First just an accounting question on the legal settlement gain. Was that for GAAP and SG&A or other income?

That was other income.

Okay. And earlier you talked about SG&A will be coming back. OPEC volumes come back up. Is that just almost entirely from hiring more people and volumes come back up?

No, it will be a combination of -- as volume comes back you'll see there will be a little bit of pressure on overhead costs that's outside services, bank fees, T&E training, but you'll also see – yes, you could also see us again adjust headcount to match the environment. And then also on advertising we may look to deploy additional advertising dollars again depending on the volume of the business. So, it really just depends on what we see. And then also, there could be pressure on the denominator side, the gross profit side again as volumes increase back in.

The one thing I'd add to that David like our peers, when tragic events like this happens, you get to rightsize your business and focus on other things. We're very disciplined right now and not adding back headcount and would only do that if we saw a material difference in our business. We are very focused on production per employee and it's higher than it's been in a long time and that's part of our success right now too and we certainly want to keep it there. As we sit here in July and coming forward, we're still seeing good margin and anticipate strong results with very disciplined SG&A. But as you -- that forecast of mid-60s to upper 60s was full year. In the one element that none of us can predict is that fourth quarter and what could happen in the fourth quarter. But in the short term, we'll stay disciplined and take advantage of what the market is giving us right now.

Thanks. That's helpful. And then on used vehicles, there's an adverse supply shock in that space due to a collapse in new vehicle sales. So, used vehicle pricing has come up pretty rapidly after an initial collapse just like it did in '08 '09. But do you see that used vehicle pricing dynamic maybe moderating second half of this year, or is it not until 2021?

Yes. That's a great question. I don't know the answer to that. I -- again, I think the fall will dictate if there's going to be a material change then or if it will weather through a little bit longer. I don't see anything changing in the next 60 -- 45 to 60 days. And I know that's not a great guidance or time period, but it's such an unusual period right now with so many different dynamics going on. It's very difficult to predict. July is every bit as strong as June in a lot of ways. As we sit here today and I know August is only a few days away, we anticipate August looking the same, but certainly that could change on a moment's notice as well.

Okay. Thanks guys.

Thank you.

This concludes our discussion today. We appreciate your participation on the call. Look forward to speaking with you in October. Thank you.