Group 1 Automotive, Inc. (GPI) Q2 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the Group 1 Automotive Inc. Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Pete Delongchamps. Please go ahead, sir.

Thank you, Maureen, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been updated to the Group 1 website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume and the conditions of markets. Those and other risks are described in the company's filings with the Securities and Exchange Commission over the last 12 months, and copies of these filings are available from both the SEC and the company. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me today are Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; and Lance Parker, our Vice President and Corporate Controller. Please note that all comparisons in the prepared remarks are to the same prior year period, unless otherwise stated. I will now hand the call over to Earl.

Thank you, Pete, and good morning, everyone. I'm pleased to announce that Group 1 reported record results in the second quarter, driven by strong revenue growth and continued expense control. On a consolidated basis, Group 1 reported all-time records for both second quarter adjusted net income of $39.7 million, which was up 33.6% over last year and adjusted earnings per common share of $1.52, which grew 21.6%. Total revenue increased 23.2% to an all-time record of $2.3 billion, with double-digit growth across each business line. In total, new vehicle unit sales rose 26.1% to 41,531 vehicles, with U.S. unit sales up 5.9%. Our average new vehicle selling price increased 1% to $33,137 per unit, which, coupled with the unit growth, drove a 27.3% increase in new vehicle revenues and a 25.9% increase in gross profit. Group 1's new vehicle unit sales mix was 78% U.S.; Brazil, with our first full quarter of results, increased to 13%; and the U.K. contributed 9%. Toyota/Lexus sales accounted for 26.5% of our new vehicle unit sales, with Honda/Acura, Ford/Lincoln, Nissan/Infiniti and BMW/MINI contributing more than 10% each. Consolidated new vehicle inventory was at a 67-day supply or 30,502 units, with U.S. inventory at a 73-day supply or 26,297 units on June 30. Used vehicle retail unit sales increased 16.5% in the second quarter. This generated a retail gross profit increase of 12% on 17.2% higher revenues. The average selling price increased about $100 to $20,863, reflecting an expanded mix of used vehicle sales at our luxury stores. Used vehicle inventory was at 33-day supply on a consolidated basis and 34-day supply in the U.S. Total consolidated finance and insurance per retail unit was $1,188, reflecting the mix effect of the increased U.K. and Brazilian sales; while the U.S. results were an all-time record at $1,351, reflecting a $121 increase per retail unit. Consolidated F&I revenues grew 22% on the same 22% increase in retail units. Parts & Service had an outstanding quarter with revenue up 18.4% and gross profit up 17.3% with same-store revenue up 8.8%. We made significant progress during the quarter on our cost leverage. On a consolidated basis, adjusted selling, general and administrative expenses as a percent of gross profit improved 180 basis points to 72.8%. On a same-store basis, the leverage was even more pronounced, with a 250 basis point improvement to 71.2%. I will now turn the call over to our CFO, John Rickel, to go over our second quarter financial results in more detail. John?

Thank you, Earl, and good morning, everyone. Our adjusted net income for the second quarter of 2013 rose $10 million or 33.6% over our comparable 2012 results to $39.7 million, which is the best quarter in our company's history. Adjusted earnings per diluted common share improved 21.6% over the comparable prior year results to $1.52, which is also the best quarter in Group 1's history. These results for 2013 exclude $2.3 million of net after-tax adjustments, including $6.8 million of charges related primarily to the previously announced hailstorm and $400,000 of charges related to noncash asset impairment. These adjustments were partially offset by a $4.9 million net after-tax gain on our previously announced dealership dispositions. The comparable results for the second quarter of 2012 exclude $1.1 million of net after-tax adjustments, including $1.7 million of charges related to a hailstorm, partially offset by a $700,000 net gain on real estate transactions. It's important to point out that 1.7 million shares are included in our weighted average diluted share count for the second quarter relative to the accounting dilution on our convertible notes. For your reference, we provide tables in both our investor presentation and our quarterly SEC filings that calculate the share dilution for these notes at various stock prices. Starting with a summary of our consolidated results. We delivered all-time record revenues in the second quarter of $2.34 billion, which were up $439.3 million or 23.2% compared to the same period a year ago. This record reflects results from our 2013 acquisitions as well as increases in each of our business units. Our gross profit increased $55.9 million or 19.6% from the second quarter a year ago to $341.3 million, which represents another all-time record quarter for the company. The growth in gross profit, coupled with strong cost control, resulted in additional leverage on SG&A. On an adjusted basis for the quarter, SG&A as a percent of gross profit improved 180 basis points to 72.8% and operating margin was 3.6%. Floorplan interest expense increased $3 million or 38.3% from prior year to $10.9 million. This increase is primarily explained by a $350.2 million increase in weighted average borrowings as overall higher inventory was required to support rising sales and recent dealership acquisitions, as well as the addition of Brazil. At June 30, 2013, our new vehicle inventory stood at 30,502 units with a value of $1 billion compared to 22,990 units with a value of $773.9 million as of June 30, 2012. Other interest expense increased $380,000 or 4.1% to $9.6 million, explained by increased mortgage borrowings associated with recent dealership acquisitions. Our consolidated interest expense includes noncash discount amortization of $2.7 million related to our convertible notes. Now turning to the second quarter same-store results, which include stores from the U.S. and the U.K. owned during the same period. In the second quarter, we reported revenues of $1.96 billion, which was $121.9 million or a 6.6% increase from the comparable 2012 period. Within this total, new vehicle revenues were up 6.7%, used vehicle retail revenues improved 5.7%, finance and insurance revenues rose 15.3% and at 8.8%, Parts & Service posted the largest increase in same-store revenues in the company's history. New vehicle revenue increased 6.7% to $1.12 billion on 5.1% higher new vehicle units sales, an increase on our average new vehicle sales price of $487 per unit to $33,504. Our used retail revenues improved 5.7% to $467 million on 4.2% [indiscernible] unit and a $302 increase in our average retail used vehicle sales price to $21,125. Given the strength of last year's vehicle sales performance, comps of 21.5% for new and 18.8% on used vehicle sales performance, we are pleased with our results this quarter. F&I gross profit per retail unit rose 10.1% to $1,328, driven primarily by increases in both penetration rates and income per contract for most of our major product offerings. The overall revenue growth in Parts & Service is explained by increases of 4.6% in customer pay, 14.3% in warranty, 22.1% in collision and 6.7% in wholesale parts. As a reminder, our Parts & Service revenues are not impacted by increases in internal business. The revenue associated with internal work is eliminated in our consolidation. This varies across the sector, as some of our competitors account for internal work differently. Overall, our same-store gross profit grew $21.8 million or 7.9% to $298.6 million. Our same-store new vehicle gross profit dollars declined 0.04% as higher volumes were more than offset by declines in gross profit per unit. Our used vehicle retail gross profit dollars increased 3.6%, primarily explained by volume growth. Parts & Service gross profit grew $11 million or 9.8%, primarily reflecting the strong revenue growth and a 50 basis point improvement in margins to 53.5%. Finally, our F&I gross profit grew 15.3%, reflecting the unit volume growth in the improved PRU that I mentioned previously. With these increases in gross profit, a rough rule of thumb is that we expect that each incremental gross profit dollar will only add about $0.50 of variable SG&A expenses on a same-store basis. For the second quarter, we grew our total gross profit by $21.8 million and held the increase in adjusted SG&A expenses to $8.4 million. This equates to a 61% flow-through of gross profit EBITDA. As a result, our adjusted SG&A as a percent of gross profit improved 250 basis points to 71.2%. The leverage realized from our efforts to improve processes and cost structure also enabled us to improve our same-store adjusted operating margin by 40 basis points to 4%. Turning now to our geographic segments starting with the U.S. market on an actual basis. Total revenues grew 7.1% to $1.9 billion, driven by increases of 7.5% in new vehicle revenue, 6.6% in used retail revenue, 7.1% in Parts & Service revenue and 16.2% in F&I income. New vehicle revenues grew as a result of increases in retail unit sales of 5.9% and on our average sales price per unit of $492. Used vehicle retail revenue improvements reflected 5.6% growth in retail units sold and a $193 increase on our average retail sales price per unit. The increase in Parts & Service revenues is attributable to growth in all elements of the business. Our F&I growth reflected the increase in retail vehicle sales volumes, coupled with an improved profitability per retail unit, which grew $121 or 9.8% to $1,351. Total gross profit improved 7.8%, driven by increases of 8% in Parts & Service and 5.8% in used vehicle retail, as well as the F&I increase that I just mentioned. These gross profit improvements helped leverage our cost base by an additional 250 basis points, resulting in adjusted SG&A as a percent of gross profit of 71.6%. Adjusted operating margin for the U.S. business segment improved 40 basis points to 4%. Related to our U.K. segment, total revenues increased 50.1%, driven by the acquisition of 4 Ford dealerships in the first quarter of this year and the fact that we bought our Audi dealerships in the middle of Q2 last year, as well as growth in all business segments. New vehicle revenues grew 43.2% on 68.1% more retail unit sales and used vehicle retail revenues improved 64.6% on more than double the number of retail units sold. Parts & Service revenues improved 54.5%, primarily attributable to a 51.4% increase in our customer pay Parts & Service business. Our F&I income growth of 76.2% reflects the 81.1% increase in total retail unit sales, partially offset by a $17 decline in income per retail unit sold to $579. Total gross profit grew 50.5% on improvements in each of our business divisions. Similar to our results in the U.S., these gross profit improvements in the U.K. helped leverage our cost base by an additional 430 basis points, resulting in SG&A as a percent of gross profit of 78.2%. Operating margin for the U.K. business segment improved 60 basis points to 2.2%. Related to our Brazil segment, the market in the second quarter lacked strength and also suffered from comparisons against abnormally strong sales in late May and June 2012, triggered by a major vehicle tax reduction. Even with this challenge, we effectively covered earnings dilution for the quarter with our profit results. For the second quarter, we retailed 5,337 new vehicles and 1,182 used vehicles and generated $246 million in total revenues and $27.1 million in gross profit. Our SG&A as percent of gross profit was 80.5%, while our operating margin for the quarter was 2%. Turning to our consolidated liquidity and capital structure. As of June 30, 2013, we had $10.9 million of cash on hand, another $82 million that was invested in our floorplan offset account, bringing immediately available funds to a total of $92.8 million. In addition, we had $263.6 million available on our acquisition line that can also be used for general corporate purposes. As such, our total liquidity at June 30, 2013, was $356.4 million. As we've previously announced, we completed the extension and expansion of our U.S. credit facility during June. This agreement locks in a total of $1.7 billion in floorplan and Acquisition Line capacity at improved pricing through mid year 2018. We estimate this should reduce our ongoing floorplan expense by $300,000 per quarter. With regards to our real estate investment portfolio, we own $540.5 million of land and building at June 30, which represents more than 1/3 of our total real estate. To finance these holdings, we've utilized our mortgage facility and executed borrowings under other real-estate-specific debt agreements. As of June 30, we had $49.4 million outstanding under our mortgage facility and $230.4 million of other real estate debt, excluding capital leases. During the first quarter -- during the second quarter, we used $3.9 million to pay dividends of $0.16 per share, an increase of $0.01 per share over the second quarter 2012. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release as well as the investor presentation posted on our website. With that, I'll now turn it back over to Earl.

Thanks, John. Before I turn the call over to the operator for your questions, let me update our market outlook for the remainder of 2013. While the U.S. market remains very competitive, the conditions for buying vehicles is positive, with many exciting new products being offered, widely available credit at very low rates and solid used car values. All of this is supported by significant pent-up demand as evidenced by the age of the car park. We have seen the pace of sales beginning to accelerate over the past few months, with June coming in at 15.9 million units. Given this, we are raising our outlook and now anticipate the new vehicle industry sales will range from 15.4 million to 15.6 million units in the U.S. in 2013. The U.K. continues to outperform the rest of Europe. Vehicle registrations increased 13.4% in June and for the first 6 months of the year, were up 10%. Ongoing low interest rates and improving employment levels should continue to support solid growth through the remainder of the year. With our strong luxury mix and exposure to the leading volume brand, we are well positioned for this environment. And finally, for Brazil, June industry sales were down 11% compared with the prior year, but it should be remembered that the government stimulated sales with a tax reduction action in May 2012. The Brazilian economy is facing many challenges and not demonstrating significant growth at the moment. The recent protests clearly impacted new vehicle sales in the last half of June and are likely to continue to negatively impact sales in the near term. Given these near-term challenges and the elevated sales in the second half of 2012 due to the tax reduction, we would expect industry sales to be flat at best this year. We remain bullish on the longer-term outlook for the country and auto sales but recognize, as with any developing market, there will be some bumps along the way. In the meantime, I am pleased with how our team is managing in this environment and take some comfort that even though industry sales are running below our initial expectations, the business is generating enough profit to cover dilution. This demonstrates the resilience of the model and has us well positioned when sales begin to recover. That concludes our prepared remarks. I will now turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] Our first question is Elizabeth Lane, Bank of America Merrill Lynch.

We've heard some commentary from some of your peers that the environment is getting a bit more competitive, particularly in the mid-size car segment, which is putting pressure on the gross profit per vehicle dollars. Looks like you're experiencing some of that as well. Can you just comment on the competitive environment right now?

Yes, Elizabeth, this is Earl. I think that's a valid input. This year, there's some new models in that segment. I think last year, you saw, for example, the new Volkswagen Passat had extremely massive sales increases that drove VW sales up. And this year, the VW doesn't have that type of increase. This year, there's things like a new Accord, a new Ford Fusion, better supply of Sonata and Camry is always going to fight to maintain their share. So I just think the competition in that volume car segment is much more intense this year with several new models.

Right. And in the U.K., it looks like the gross profit per unit for both new and used came down pretty dramatically year-over-year. Is there anything going on there that's an anomaly or is that the way the market's been trending over there?

We added some Ford dealerships which were our first non-luxury brand.

Yes. Liz, this is John Rickel. Earl is right. It's basically the mix effect of bringing in the volume brands where everything previously has been luxury stores.

Got it. Okay, that makes sense. And just one more quick one, which is that the press release mentioned that you don't expect any further dealership dispositions in California specifically. But are there underperforming stores in other markets that you expect to take out? Or at this point, is that dealership base more or less rationalized?

At this point, we're more or less rationalized. We don't have any dispositions we're considering at this moment in time. But every month, every quarter, we continue to revisit that, so we can keep our capital redeployed for the best return to our shareholders. But no, at this moment, we don't have any other dispositions planned.

Our next question is Rick Nelson with Stephens.

The gross profit flow-through on that same-store basis, I'm calculating 61%; on a consolidated basis, 36%. Wondering if there's opportunity with the acquisitions or is there something structural, given their -- Brazil and U.K. is largely where they've occurred, if there's opportunity to narrow that difference.

Rick, this is John Rickel. Obviously, with the acquisitions it takes a little while. But the bigger issue on the consolidated is, you're right, it's the mix effect of Brazil and the U.K., which have higher SG&A as a percent of gross metrics. Primarily, real estate is more expensive in those 2 countries. We don't own as much there. So I don't know that near term we'll be able to close a lot of that gap, but clearly had a great quarter on the same-store basis. And with the acquisitions themselves, we do think there's some opportunities to continue to work that.

And on the new car side, same-store unit sales in the U.S., up 5.9%, the industry, 8.5% growth. I'm wondering if you can discuss market share and brand trends within your markets.

Yes, sure, Rick. This is Earl. There are 2 factors. One is our brand mix wouldn't generate quite the same sales increase that the industry realize. But another factor is our business in the Northeast, New England in particular, is extremely weak. In fact, it's not growing in new car sales at all this year. So the Northeast has been an anchor on our new vehicle sales performance in the second quarter and also on the first quarter.

Earl, if I can ask you about acquisitions, the pipeline, U.S., U.K., Brazil on where you see the most opportunity over the near term.

Rick, we're looking to grow in any of those 3 markets and we have the financial wherewithal to do that, clearly. But at the moment we don't have anything material lined up. I would say the U.S. probably represents the best opportunity for us primarily because we have the most experience in that market and we have to be double careful when we're dealing in these higher-real-estate-cost markets like the U.K. and Brazil. But we're looking to expand in all 3, but I would -- if I had to prioritize one, I'd say the U.S., Rick.

Our next question is Scott Stember of Sidoti & Company. Scott L. Stember - Sidoti & Company, LLC: Acknowledging that, obviously, the comparison for Toyota and Honda were much more difficult in the first half of the year, can you talk about how you expect those comps to improve as we move through July and the rest of the year?

Yes. Third quarter, Scott, was also pretty strong for us, and I think when you really get into the fourth quarter where they start to come back to kind of more single digit sort of levels. So I think on a year-over-year basis, the third quarter comps are still pretty stout as well. Scott L. Stember - Sidoti & Company, LLC: Okay. And could you talk about sales disruptions from the storms in Oklahoma City?

Yes, Scott, this is Earl. We had probably the best part of a month of disruption before we could replenish inventory. As you could tell from the financial magnitude of that storm, which is almost unbelievable for a hailstorm, it took us the best part of a month to replenish our new vehicle inventory at virtually all of our dealerships up there. Usually, we're able to replace in kind of 2 weeks or so, but it took us a while to get back to normal inventory levels on new. Scott L. Stember - Sidoti & Company, LLC: The third quarter should see more normalized, thus, sales levels at those locations then?

Yes, indeed. Scott L. Stember - Sidoti & Company, LLC: Okay. And just a last question on the Parts & Service comps, up 7% in the U.S. Could you give a little bit more details on the breakout of that between the different segments, John?

Yes, the 7% and 1%, Scott, was on an actual basis. If you look at it on a same store, U.S. was pretty close to what the consolidated same store was, which was up 8.8%, which we're really proud of that performance. Of that as I mentioned, customer pay was up 4.6%, warranty was up 14.3%, wholesale was up 6.7% and collision was up 22.1%. So a great quarter in our Parts & Service activity. Scott L. Stember - Sidoti & Company, LLC: And that breakout you gave was on a consolidated basis?

No, that's basically similar for the U.S. operations.

Our next question is James Albertine, Stifel. James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division: So just to kind of stay on the Parts & Service side, I absolutely, I think great result, as you alluded to moments ago. Just want to be clear, were the catastrophic event impacted stores -- the Oklahoma stores -- also shutdown from a service bay perspective? I would assume they would have been, but I just wanted to clarify that.

Yes. They were shut down, but only for a very brief period of time, only a couple of days. James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And then if you could just dig in on the customer pay side a little bit. We're hearing from some of your peers that warranty work is elevated by recalls. I don't want to get into that as much, but I want to understand what you're focusing on, what your -- what initiatives you're kind of implementing in the customer pay visits to drive that higher? And then as a follow-up to that, if you could break out by your U.S. geographies the various performance in customer pay, that would be great.

Yes, the customer pay business is what we basically put all of our effort into. That would include collision, of course, also. There's another factor on the warranty that maybe hasn't been discussed, and that is factory-paid maintenance. What -- we book our Toyota, BMW factory-paid maintenance and warranty because the factory pays those claims. In the past, that would have been customer pay business. Toyota Care is available, I think, or offered on every vehicle, that's 2-year free maintenance. BMW offers, I believe, it's 4-year free maintenance. And those are 2 of our biggest brands. And so that customer pay, or historically customer pay business, is in our warranty numbers. So that's also maybe something that's giving that a little strength that we haven't seen before in addition to recalls. But now we've been investing in our Parts & Service business in terms of technology, facility and manpower since before the recession. So some of that's just starting to pay off now that the unit and operation profile is starting to build again. So there's no magic to that business. But I think over time, we've become more competitive the harder we work at it.

And Jamie, to your question, there's really not a lot of difference across the U.S. I mean, we've seen a pretty comparable lift across all regions of the country.

Our next question is Bill Armstrong, CL King & Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: The big increase in collision revenues, was that from hailstorm repairs or were there other things going on also?

Part of that was related to hail. Our increase -- if we took all of the collision business out in the hail-affected areas, the increase would have been 15%, not 22% or whatever it was. There was -- you're right, there was a hail impact. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay. So the 15% also, excluding hail, is very strong. What was driving that?

We -- for the last 3 years, we invested in a number of new body shops and improved the equipment in some existing shops. And some of those shops have just started to hit stride this year. It's kind of a cumulative effect of prior year investments. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay. And those are same-store sales increases, just to clarify, or total...

That's correct. But it takes some time for these shops to mature after you -- we probably opened them 12 to 24 months ago, so -- a couple of these shops.

Our next question is Jordon Hymowitz, Philadelphia Financial.

Two questions. One, have you noticed any differentiation in car versus truck sales? In other words, car sales have been staying very strong and truck sales may be moderating a little bit given the increasing correlation of trucks with commercial use.

Well, our numbers are probably a little muddy that way since we've added Brazil and the U.K. growth, which are car-driven. But the truck business is very, very strong at the moment in our core markets like Texas and Oklahoma.

That's right, because you have the energy boom that...

Yes, very much so. It's noticeably stronger.

Okay. And second question, can you comment on any CFPB changes in pricing by lenders towards flat rate? Has anyone moved to a flat rate that you're dealing with, and has anyone cut their yield spread premiums they're charging?

Jordon, it's Pete Delongchamps, and the answer is no to both of those questions. We've had very transparent and fluid discussions with all of our major lenders. But at this point, there's been no appreciable change in the way they're buying spreads or a flat fee strategy.

Our next question is Brett Hoselton, KeyBanc.

Let's see. I was hoping to ask you some questions about same-store sales. I know you've given us kind of the overall market, but first of all, just from a unit perspective, is it possible that you could give us a sense of the same-store sales in the U.S., U.K. and Brazil?

Well, there isn't a same store for Brazil because we haven't had them for 12 months, right? So it's just kind of U.S. and U.K. And basically, the numbers that Earl gave you are not significantly different between the U.S. and U.K. So U.S. was up on kind of new vehicle units in the mid-5s as was the U.K.

And then as we think about your gross profit on the new and the used side, and I was looking at the U.K. results, both down significantly. I know you had the Ford acquisition. I guess, I'm wondering can you kind of give us a sense of what's going on there? On a same-store basis, were they essentially flat or were the -- was the same-store also down significantly or is it simply just -- you acquired the Ford store and the margins were just lower there?

Yes, on a -- basically, on a same-store basis, Brett, they were basically unchanged in the U.K.

That same store only would include our BMW dealerships in the U.K. Because we purchased Audi dealerships in the middle of the second quarter last year and the Ford dealerships only 4 months ago. So our same-store U.K. is just our BMW business.

And then, in brands specifically, how are you thinking about your BMW performance kind of through the second quarter and into the third quarter and so forth? Because as I think about last year, the general sense was there were some constraints particularly in the 3-Series, which is a high volume. So it seems like your comps may be a little bit easier as we kind of move through the second quarter and into the third quarter. Is that in fact the case? Have you seen some out-performance there? Do you expect to see out-performance in the third quarter?

Yes, I think it's fair to say that the BMW growth potential is still significant, that the strength of their product and availability continues to give us a good chance to grow with BMW. That said, Mercedes and Audi are pretty -- and Lexus are all pretty [indiscernible] states as well, but BMW remains a very good business for us with good growth potential.

And then finally, can you comment on the acquisition outlook, maybe specifically talk a little bit about the number of deals that may be in the marketplace today versus where they were maybe a year ago, kind of where you see valuations relatively to where they've been and then your interest level kind of from a geographic standpoint?

Yes. I haven't seen any appreciable change in the acquisition dynamics this year. I think for the last year, 1.5 years, there have been a good number of sellers and buyers in the marketplace. And I think all of the valuations are pretty stout and -- which is limiting the number of transactions that occur. There's a good number of buyers and sellers in the marketplace, probably the most that we've seen, but it hasn't changed, hasn't changed recently. Geographically, we continue to look for opportunities along the East Coast and the Sun Belt and California and the southern half of the U.K. and we'll have to see in Brazil. But generally, we're operating in São Paulo and the state to the southwest of that, Paraná, which is where we'd most likely look to expand.

Your next question is Scott Stember of Sidoti & Company. Scott L. Stember - Sidoti & Company, LLC: Just had a follow-up question on the Parts & Service and the inbound call center that you guys have put in place. Could you talk about the impact that, that's had on your business and what percentage of your stores are now running on that system?

We probably had 90% of the stores rolled out, Scott, on that -- from that call center. And we think it's a critical part of the way we're going to do business and certainly couldn't be separated from our level of performance.

Our next question is Simeon Gutman, Crédit Suisse. Simeon Gutman - Crédit Suisse AG, Research Division: I jumped on late, so I apologize if this was asked in some form or another. The throughput was pretty solid this quarter. I didn't look at it in every division, but just looking at the U.S. and the U.K., it looked really good. And so thinking about the next few quarters, I guess most of the centralization initiatives or efficiency initiatives will have ramped. Do you think that, assuming gross profit holds in, you're past the point where we should see it more consistent going forward, meaning north of that 50% mark? Any thoughts on that?

Yes, Simeon, this is John Rickel. As we've stated pretty consistently over the last couple of years, our goal, our benchmark is basically kind of a 50% throughput. We obviously outperformed that in the second quarter at 61%, but I think continue to think that kind of that 50% level is the right way to think about it. Simeon Gutman - Crédit Suisse AG, Research Division: And then if we calculate the U.S.-only piece, I mean, it comes in much higher, are there allocated costs that we're not seeing if we capture that? Or is the way we do it on the U.S. business where you get almost the 60%, is that the right math?

Well, the 61% for the second quarter is U.S., U.K. same store. And we continue to think same store is the right way to think about it. Anytime you have acquisitions, they bring in their own load of fixed cost. So I think the only really way to think about throughput is on a same-store basis. And as I said, I think our goal of 50% flow-through is the right way to model it. Simeon Gutman - Crédit Suisse AG, Research Division: Okay, that's fair. And then just one on the credit environment. Past few years or past couple of years, a lot of anecdotes of increasing willingness for lenders to put money towards auto paper. Could you just describe the current environment whether the tick-up in interest rates has -- and I know it really hasn't affected auto loans, but just the broader market in terms of the willingness -- are banks coming forward with balance sheets?

Well, clearly, the strategy we put in place with consolidating our lenders over the last few years has played well for us, and interest rates are something we clearly watch. But we still truly believe that with the OEM captives in place and what they can do to help bolster that business and make sure that there is some insulation [ph] at interest rates certainly is a benefit to the auto retailers.

The other thing, Simeon, to bear in mind -- this is John Rickel. Most of that interest rate increase is out on the longer end of the curve. The auto paper is kind of 3- and 4-year paper, so you haven't seen nearly the same sort of increases. And even to the levels you are seeing -- 30, 40 basis point sort of moves, it's off of what were already record low-time rates that it would have to move quite a bit, I think, for it to become very impactful.

[Operator Instructions] Having no questions, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Thanks, everyone, for joining us today. We look forward to updating you on our third quarter earnings call. Have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.