Group 1 Automotive, Inc. (GPI) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the Group 1 Automotive third 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 Lance Parker, Vice President and Corporate Controller. Please go ahead.

Thank you, Laura. Good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that includes reconciliations related to the adjusted results that we will refer to on this call for comparison purposes has been posted to Group 1's website. Before we begin, I would 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 Automotive 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 risk and uncertainty, 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. 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 in its website. Participating with me on today's call are: Earl Hesterberg, our President and Chief Executive Officer; and John Rickel, our Senior Vice President and Chief Financial Officer. 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, Lance, and good morning, everyone. For the third quarter, Group 1 reported a 4.9% increase in adjusted net income, to $32.9 million, an adjusted diluted earnings per common share of $1.20 on an 18.4% revenue increase. While we're pleased with our top line growth, several factors prevented us from driving a similar increase in profit levels. First, competition among U.S. dealers for new vehicle sales continued to ratchet up significantly during the quarter, causing new vehicle margins to contract across most of our brand and markets. This impacted not only gross generation, but also made it more difficult for us to deliver us our normal cost leverage. Second, we also saw a significant weakening in the Brazilian industry sales, which were down 10% over prior-year during the quarter, deterred our Brazilian results. I will cover the actions we are taking to respond to these issues in just a moment. While 2 of our markets had challenges, it should be noted that our U.K. business turned in a record quarter, on the both the consolidated and same store basis. Total same store revenues were up 14.4%, with new vehicle unit sales increasing 17.8%. Turning now to other key performance metrics. Total revenue increased 18.4% to $2.3 billion, reflecting double-digit increases across all parts of our business, except used wholesale which was up 9.4%. New vehicle revenues grew 21.5%, as new vehicle unit sales increased 22.5% to 42,311 vehicles. U.S. same-store new vehicle unit sales increased 6.2%. Group 1's new vehicle unit sales mix was 78% U.S., 12%, Brazil and 10%, U.K. Toyota/Lexus sales accounted for 26.9% of net new vehicle unit sales, with Ford/Lincoln, Honda/Acura and BMW/MINI contributing more than 10% each. New vehicle inventory was at 65-day supply or 29,718 units, with U.S. inventory at 79-day supply or 25,334 units on September 30. Used vehicle retail unit sales increased 16.2% in the third quarter. This generated a retail gross profit increase of 9.9% on 14.6% higher revenues. The average used vehicle selling price decreased about $280 to $20,332, primarily explained by the addition of Brazil, and the Ford stores in the U.K., which carried lower priced units. On a same-store basis, pricing was about flat. We ended the quarter with a 34-day supply of used vehicles. Total consolidated finance and insurance per retail unit was $1,207, while the U.S. results were up $115 per unit, to an all-time record of $1,375. Parts & Service had another strong quarter, with revenue up 13.5% and gross profit up 13.2%. Same-store revenue improved 8%. On a consolidated basis, adjusted selling, general and administrative expenses as a percent of gross profit, increased 90 basis points to 75.1%. On a same-store basis, adjusted SG&A as a percent of profit, increased 60 basis points to 73.6%. As we would normally have expected to further leverage our cost structure, as we had in recent quarters, we will need to make further cost adjustments to address the ongoing pressure on new vehicle margins. The actions are focused primarily on our U.S. and Brazilian operations. The market continues to strengthen in the U.K., and we continue to generate cost leverage in that market during Q3. For Brazil, the challenge is pretty straightforward. The market declined 10% in the third quarter compared with the same period a year ago. And similar to the experience we went through in the U.S. in 2008 and 2009, we need to reduce our cost to match the present size of the market. Our team is well underway with that task. We incurred approximately $300,000 in severance costs this quarter, as we reduced about 50 positions. Additional actions will be implemented in the fourth quarter, that will further adjust our costs to fit the present market conditions. Longer-term, we remain bullish on Brazil, but we need to work our way through this present slowdown. The U.S. market is a more challenging landscape in that sales continue to grow, but the competitive environment on new vehicle margins has continued to deteriorate. We saw a dollar margin compression across almost all of the brands and markets where we operate. This is putting pressure on our cost structure as a higher percentage of our sales were at minimum commission levels. This necessitates a variety of cost cutting actions across all of the major expense categories, which is well underway. I will now turn the call over to our CFO, John Rickel, to go over our third quarter financial results in more detail. John?

Thank you, Earl and good morning, everyone. Our adjusted net income for the third quarter of 2013 rose $1.5 million over our comparable 2012 results to $32.9 million. These 2013 results exclude $100,000 of net after-tax expenses for various non-GAAP adjustment. The comparable results for the third quarter of 2012 do not exclude any similar adjustments. Despite the 4.9% increase in adjusted net income, our adjusted earnings per diluted common share declined 9.1%, from the comparable prior year results to a $1.20, reflecting a 3.9 million share increase in weighted average diluted common shares outstanding to $26.3 million. This equates to a 17.3% increase in weighted average diluted common shares outstanding, and is primarily the result of the dilution from our 3% and 2.25% convertible notes. Included in our weighted average diluted share count for the third quarter of 2013, are 3 million shares attributable to these notes, which is up 1.3 million shares in the second quarter of 2013, and 2.1 million shares from the third quarter of 2012, as a result of the increase in Group 1's average stock price during the third quarter and from year-ago levels. It should be noted that the accounting dilution calculation does not include the beneficial impact of the call spreads the company has in place. For the quarter, the call spreads would offset 2.2 million shares of the calculated dilution. For your reference, we include tables in both our investor presentation and our quarterly SEC filings, that provide the share dilution for these notes at various stock prices. Starting with a summary of our consolidated results. For the quarter, we generated $2.34 billion in total revenues. This was an improvement of $363.6 million or 18.4% over the same period a year ago, and reflect increases in each of our business units. Our gross profit increased $38.2 million or 13.1% from the third quarter a year ago, to $329.5 million. On an adjusted basis for the quarter, SG&A as a percent of gross profit was 75.1%, and operating margin was 3.1%. Floor plan interest expense increased $2.7 million or 34.6% from prior year to $10.7 million. This increase is primarily explained by our Brazil acquisition earlier this year, which added $2.2 million of floor plan interest expense in the quarter, as well as higher inventory levels to support rising sales in the U.S. At September 30, 2013, our new vehicle inventory stood at 29,718 units with a value of $1 billion, compared to 24,469 units with a value of $826 million as of September 30, 2012. Other interest expense increased $352,000 or 3.7% to $10 million. This increase is attributable to an increase in weighted average debt outstanding of $31.5 million, explained by additional mortgage borrowings associated with recent dealership acquisitions. Our consolidated interest expense for the third quarter includes incremental, noncash discount amortization of $2.7 million related to our convertible notes. Now turning to the third quarter same-store results, which include stores from the U.S. and U.K. owned during the same period. In the third quarter, we reported revenues of $1.99 billion, which was a $133.9 million or 7.2% increase from the comparable 2012 period. Within this total, New Vehicle revenue was up 7.7%, Used Vehicle revenues improved 6.4%, Finance and Insurance revenues rose 14.5% and Parts & Service delivered another strong quarter, with revenues up 8%. New Vehicle revenue increased to $1.15 billion on 7.1% more new vehicle unit sales, with an increase in our average new vehicle sales price of $183 to $33,620 per unit. Our U.S. retail revenues improved to $467.1 million on 6.5% more units, partially offset by a $16 decrease in our average retail used vehicle sales price to $20,780. F&I revenue for retail unit rose 7.1% to $1,338, driven 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 5.2% in customer pay, 7.4% in warranty, 22.4% in collision and 6.5% 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 sectors. Some of our competitors account for internal work differently. In aggregate, our same-store gross profit grew $15.5 million or 5.6% to $290.9 million. Our same-store new vehicle gross profit dollars declined 7.4%, as higher volumes more than offset -- were more than offset by a $270 decline in gross profit per unit to $1,716. Our used vehicle retail gross profit dollars increased 1.9%, more than explained by volume growth, partially offset by a $73 decline in gross profit per unit to $1,628. Our F&I gross profit grew 14.5%, reflecting the unit volume growth in the improved PRU that I mentioned previously. Finally, Parts & Service gross profit grew $10.5 million or 9.5%, primarily reflecting the strong revenue growth and an 80 basis point improvement in margins to 53.3%. For the third quarter, we grew our total gross profit by $15.5 million, while adjusted SG&A expense rose $13.2 million. The increase in SG&A expense is primarily explained by higher personnel costs. As a result, our adjusted SG&A, as a percent of gross profit increased 60 basis points to 73.6%. Our same-store adjusted operating margin declined by 20 basis points to 3.4%. Turning now to our geographic segments, starting with the U.S. market on an actual basis. As a reminder, we rebalanced our U.S. dealership portfolio over the last 12 months, and as a result, disposed of a net of 6 franchises representing annualized revenues of approximately $154 million since third quarter last year. As a result, our consolidated results are not fully reflective of underlying same-store performance in the U.S. Total U.S. revenues grew 4.1% to $1.89 billion, driven by increases of 4% in new vehicle revenue, 4.8% in used retail revenue, 3.3% in Parts & Service revenue and 13.3% in F&I income. New Vehicle revenues grew as a result of increases in retail unit sales of 2.8%, and in our average sales price per unit of $385. The increase in used vehicle retail revenues reflects 5.3% growth in retail units, partially offset by a $94 increase -- decrease in our average retail sales price per unit. Our F&I growth reflects the increase in retail vehicle sales volume, coupled with improved profitability per retail unit, which grew $115 or 9.1% to $1,375. The increase in our Parts & Service revenues reflects growth in all areas of the business. Total gross profit improved 3.2%, driven by increases of 4.6% in Parts & Service and 2.9% in Used Vehicle retail, as well as the F&I increase that I just mentioned. These gross profit improvements were mostly offset by an increase in our SG&A expenses, resulting in no change to adjusted SG&A as a percent of gross profit at 74%. Adjusted operating margin for the U.S. business segment declined 10 basis points to 3.4%. Related to our U.K. segment, our U.K. operations delivered a strong quarter with total revenues up 44.7%, driven by the acquisition of 4 Ford dealerships in the first quarter of this year, as well as impressive same-store growth of 14.4%, reflecting positive contributions from each of our Retail business segments. New Vehicle revenues grew 48% on 67.5% more retail unit sales, which more than offset a mixed driven decline of 11.7% in the New Vehicle average retail sales price. Used Vehicle Retail revenues improved 52.1% on 86.1% more retail units, which more than offset an 18.2% decrease in used vehicle average retail sales price, which is also explained by an increased mix of volume brand unit sales linked with the 4 dealership acquisitions. Parts & Service revenues improved 32.8%, primarily attributable to a 27.1% increase in our customer pay Parts & Service business. Our F&I income growth of 60.9% reflects the 73.9% increase in total retail unit sales, partially offset by a dealership mix driven $50 decline in income per retail units sold to $622. On a same-store basis, U.K. F&I income for retail units sold improved $81 per unit to $758. Total gross profit grew 29.7% on improvements in each of our retail businesses. SG&A as a percent of gross profit rose 20 basis points to 77% over the third quarter of last-year. Operating margin for the U.K. business segment declined 20 basis points to 2.2%. However, on a same-store basis, we leveraged our costs and coupled with the gross margin improvements, decreased SG&A as a percent of gross profit by 70 basis points to 74%. Similarly, on a same-store basis, our operating margin in the U.K. improved 10 basis points to 2.8% in the third quarter. Related to our Brazil segment, for the third quarter, we retailed 5,139 new units compared to 5,337 in the second quarter. We also retailed 1,343 used units in the third quarter versus 1,182 in the second quarter. In aggregate, for the third quarter we generated $215.9 million in total revenues, and $23.7 million in gross profit, compared to $246 million and $27.1 million respectively, in the previous quarter. Our adjusted SG&A as a percent of gross profit was 85.6% in the third quarter, compared to 80.5% last quarter, while our adjusted operating margin for the third quarter was 1.4% versus 2% in the second quarter. Overall, we remain profitable during the quarter, but we did not generate enough income this quarter to cover dilution. Compared with the second quarter, adjusted net income generated from Brazil declined $1.7 million. Turning to our consolidated liquidity and capital structure. As of September 30, 2013, we had $26.3 million of cash on hand, another $47.7 million that was invested in our floor plan offset account, bringing immediately available funds to a total of $74 million. In addition, we had $227.7 million available on our acquisition line that can also be used for general corporate purposes. As such, our total liquidity at September 30, 2013, was $301.7 million. Year-to-date, for 2013, we have generated $147.1 million of operating cash flow on an adjusted basis. With regards to our real estate investment portfolio, we own $546.6 million of land and buildings at September 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 September 30, we had $48.8 million outstanding under our mortgage facility, and $243.4 million of other real estate debt, excluding capital leases. During the third quarter, we used $4.1 million to pay dividends of $0.17 per share, an increase of $0.01 per share over the second quarter of this year, and $0.02 per share over the third quarter of last-year. In addition, as included in this morning's earnings press release, the Board has increased our share repurchase authorization by 50%, bringing our total approved repurchase program to $75 million. 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 back over to Earl.

Thanks, John. Before I turn the call over to the operator for your questions, let me update you on our market outlook for the remainder of 2013. In the U.S., as we stated last quarter, the market continues to be highly competitive, while the overall condition for car buyers remains positive with low interest rates, improving employment levels, and attractive products, the selling environment for dealers will remain very competitive. We continue to anticipate new vehicle industry sales will range from 15.4 million to 15.6 million units in U.S. in 2013, given the pent-up demand and favorable buying conditions. The U.K. continues to outperform the rest of Europe. Vehicle registrations increased 12.1% in September, and increased 10.8% year-to-date. Conditions look favorable for the market to continue growing, and we believe with our brand mix, we are well-positioned to take advantage of this growth. Brazil's third quarter industry sales were down about 10% compared with the prior year, which reflects the impact of weakened consumer confidence, higher interest rates, and tax changes. Brazilian economy continues to face many challenges. The summer protest affected the last half of June's results and continue have a negative impact on new vehicle sales in the third quarter. Given these near-term challenges, we expect industry sales to be flat at best this year. We reiterate a bullish perspective 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. That concludes our prepared remarks. I'll now turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] And our first question is from John Murphy of Bank of America Merrill Lynch.

I apologize. I missed the first few minutes of the call. But I just wanted to ask, so I hope I'm not asking a duplicative's question here. But on Parts & Service, I mean 8% positive same-store sales comps is the fifth quarter where you guys are starting to really see some acceleration. Is this really the backlog of the -- is there a [ph] -- 5-year old UIOs [ph] coming in, or is there something else going on in the quarter? And if it's -- if we're not seeing that yet, when do you expect that to really hit, and really funnel through your service space?

Yes, I think the driving force, John, is clearly the UIO build, and that pattern of age of vehicles, but I also think we're performing very well in that area. Our Customer Pay business was up 5%, our Warranty business was up 8%, and our Collision business was up almost 23%. So, some of that's investments we had made in this area of the business.

Okay, that's helpful. And then on the SG&A front, when we look at what you did in the U.S., it was a pretty good performance, but Brazil and U.K. are obviously well above that, Brazil at 85.6 and U.K. at 77, and I know there's some market conditions specifically in Brazil that make the numbers a little bit tougher to hit. But is there a time where you think you can ramp those down to levels that you're seeing in the U.S., potentially as those markets recover, or are they just structurally going to be higher, SG&A to gross markets?

I believe they're structurally higher in both cases, John. But that said, we can continue to leverage the U.K., as we did last quarter. I think, in particular, we're starting to gain a little scale in the U.K., with the 4 Ford dealerships we purchased earlier this year and 5 Audi dealerships we purchased in May of 2012. So, scale will help us continue to leverage a bit in the U.K. But, it is structurally higher market. I would never expect it to be the same as the U.S. Some costs are just higher, real estate in particular. Brazil, we haven't even scratched the surface yet. Again, I think it's going to always be a higher SG&A market than the U.S., but we've got a long way we can go in Brazil, I believe.

Okay. And then, Earl, you also seemed to be pretty aggressive in the portfolio rebalancing, obviously the acquisitions have ramped up, and that's pretty clear. But you're also -- been ramping up the dispositions of 7 franchises for almost $320 million. Is there something in your -- we're going to see more of this in your portfolio appearing back of the underperformers? Or is this kind of a, sort of a one-time phenomena we're seeing year-to-date? I mean is there is a lot of stuff that you need to still work out of the portfolio that you think are underperformers that you'd rather get rid of?

Well, John, the short answer to your question is, I don't see any significant dispositions in the near term. But it is our job, for our shareholders, to make sure we redeploy the capital where we can get a good return for our shareholders. So, I will continue to look at every dealership we own every quarter. And when it becomes a trend that I don't think we can get it to a good return on investment for our shareholders, we'll dispose of that and redeploy the assets. But we did a lot of that earlier this year. We don't have anything substantial or pending at the moment in that area.

Okay, and then just lastly, and you may have talked about this a little bit early in the call, but there's been a lot of concern around the sales rate moderating, although that wouldn't be that surprising, given all the insanity that was going on in D.C. early in the month. I'm just curious, what your sort of comments are, and it seems like people are interpreting this very differently, and what did you see early in the month? Have you seen anything more recently that would lead you to believe the market is normalizing back, maybe without putting a fine point a bit, back to where it was in the mid- 15% to maybe high 15% known unit rate? In the last week or so?

I don't see anything alarming at all, John. And now, of course most of the sales on a given month occur in the last week. So, that's what will determine October. September did not close as well as I think everyone expected, not just myself. But it was hard to tell if that was starting to have some relationship to the Washington bit, or if it was just to pull ahead into that big Labor Day weekend, which actually got booked in August. But I think overall, the fundamentals haven't changed in Auto Retail. Maybe there was a blip because of the government shutdown. I really couldn't point to any data that shows you that. So I think we're still in pretty good shape. I think all of the factors remain that have driven kind of a $15.5 million unit selling rate. And I don't see any reason why that will vary too much in the fourth quarter this year, and why there can't be kind of a mid single-digit increase year-over-year in 2014.

And our next question will come from Ravi Shanker of Morgan Stanley.

I had a question on new margins. With new margins across the dealer group have been coming down for the last few years or so, can you describe for us the environment there, I mean, is it just again, a case of voluntary giving up of margins to try and drive more comps? Can you just characterize the competitive environment out there as well?

Ravi, this is John Rickel. Yes, clearly we have seen, over the last couple of years, that certainly across the summer, saw it accelerate a bit more, and I think a piece of it is, that it's just a competitive environment out there. There's a lot of transparency on the Internet, and people have a pretty good idea of what our comps are. It's easy for them to cross-shop. And I think the combination of those has made it very competitive for the front-end sales.

Got it. And just moving to PNS [ph], that dilution number of 23%, is that normal? And is that a sustainable level, or is there something going on in this quarter?

Well, if you look, last quarter, Ravi, this is John again, we had kind of, close to similar comps in the second quarter. It's an area that we've put additional capital to work in, we have a lot of focus on that business. Now, I don't know if you can -- how long we can continue to comp at those double-digit levels, but we certainly continue to see a growth opportunities inclusion, and we'll continue to put additional capital to work in that part of the business.

Got it. And just finally, on the PNS business again, can you help us understand at what percentage of cars you service are 0 to 3 years old, versus older than 3 years?

All right. I don't have that number in my head or at hand. Perhaps, we could do some research and get back to you on it.

And the next question will come from Rick Nelson of Stephens.

I'd like to try some -- a follow-up on this new car margin pressure, whether it's across the board, the 3 segments, or are you feeling it to a greater extent with the imports? And regionally, if there's a big -- differences there? And then, how quick can you -- you think you can move on the expense -- tied to get the flow-throughs more in line with your historic norms?

Okay, Rick. This is Earl. The margin pressure is very widespread, I would say it was across all brands, except Ford. I would say our Ford margins were up a bit, but other that than, it was across all brands. I would also say, half our business is in Texas and Oklahoma, our full-size truck sales were up 17% -- or our truck sales in total were up 17% for the quarter. There's a lot of dynamics in the truck market with the sell down of '13s and the new Chevrolet Silverado and GMC Sierra coming out. There was a lot of aggressive activity in the full-size truck segment. We're a big truck company. Despite the fact our Ford margins were okay. The Ford truck bit of that was pretty competitive, as they were fighting the Chevrolet introduction. So, there was some truck, and -- but Japanese brands, probably more than anything, and we're a big Toyota company as you know, is where the greatest margin pressure was. Relative to how quick we can adjust cost, clearly we knew this was an issue before the quarter ended. So, we're probably 6 weeks or more into working on that. Our goal will be to make a difference immediately in this quarter, but sometimes those things take a little more time than that. But we're certainly been on it for at least 6 weeks.

Great. Also curious on the M&A front, if the recent challenges caused you to slow up at all, on acquisitions?

No. They don't cause us to slow up, Rick. We intend to continue to make our best effort to grow the business in all 3 markets where we operate. I don't have anything to announce at this time, but I'm optimistic by the end of the-year, we may be able to announce another action or 2. Growth action.

And finally, if I could ask you, on the F&I ties that per unit, it came down a little year-over-year. Are you seeing any changes from lenders as a result of the CFPB?

Well the, actually our F&I total number may not have looked as strong as -- our actual U.S. number was an all-time record. Our U.S. number continues to improve. I think it was $115, up to $1,375 per unit. So our F&I business is actually quite strong. The Brazil and the U.K. market, don't do as well, although we actually had an increase in the U.K. also. So that part of the business, like our Parts & Service business, is very strong at the moment. But let me ask John to make comments on your other part of the question.

Yes, Rick, Earl's correct. I mean basically, if you look at the individual markets, particularly the U.S. and the U.K., we actually saw good growth in F&I income. Both on an improved retail basis and obviously these volumes were up. So what you're seeing on a consolidated basis is basically just the mix effect of the countries. And then to your question on any different behavior from the banks, no, we really are not seeing any change in their behavior. They are all obviously working hard to answer data requests from the Consumer Finance Protection Bureau. But, so far, we have not seen any change in their buying or their terms of how they buy.

And the next question will be from Scott Stember of Sidoti & Company. Scott L. Stember - Sidoti & Company, LLC: Is there any way of talking about, if you adjust for the $300 million of disposed revenue? What the unit volume and comps would've been in the U.S. for the new car set?

Scott, this is John. Yes, I can talk to you on kind of a same-store basis. It's probably the best way to look at it. I mean, same-store, new vehicle retail revenue would have been up -- it was up on a same-store basis, 6.9%, driven primarily by a 6.2% increase in new vehicle retail unit sales. Scott L. Stember - Sidoti & Company, LLC: Okay, got you. And, could you talk about the Parts & Service business maybe, the comps by region? Or was there not that much of a divergence?

There really wasn't that much of a divergence. U.S. was up about the 8%, and the U.K. was up a little bit more than that. But in total, both were kind within the same bandwidth. Scott L. Stember - Sidoti & Company, LLC: Okay. And maybe you could just, with Brazil in mind, just talk about some of the additional moves that you plan on making, and how far along do you think you are, with respect to what you think you totally need to get done?

Yes, like most markets outside the U.S., Europe or South America, it takes longer to make personnel changes in Brazil. We mentioned a reduction of about 50 heads. There's the union contracts that are kind of annual, that you have to work with, and other labor regulations and laws. But, obviously we have a very experienced local team that is managing through that. We'll probably still have some severance costs in Q4, although I don't think they'll be quite as big as they were in Q3. It will take some time. We're also changing some of the pay plans within our field operating and dealership teams, to have a component relating to either gross or net profit, which is a little more of the way we operate, and not as traditional in Brazil. Those changes will probably take another 3 to 6 months to really settle in. Scott L. Stember - Sidoti & Company, LLC: Great. And last question, John, on the share counts, just to make sure that we all get it right, going forward. Are we looking, obviously with the stocks paring back here a little bit, but it's safe to assume, in the $26 million range going forward, for the foreseeable future?

Well, Scott, you mean -- you hit on the important point there. You obviously will have to continue to adjust for what goes on with the stock price, and we have the tables in the presentation and on our website that give you the dilutive impact of the convertibles at various share prices. So, you're just going to have to continue to adjust quarter-to-quarter based on where the stock is trading.

And our next question is from Brett Hoselton of KeyBanc.

I wanted to first ask you about gross profit per unit on a new vehicle segment, obviously you've made some acquisitions in both Brazil and the U.K., and we're kind of looking at these numbers, and I'm wondering, as you think about gross profit per new unit, maybe you can comment on this regionally, would you kind of consider the current level that you reported here in the third quarter to be a reasonable, kind of go-forward expectation? Or was there something materially, better or worse, in the quarter that might cause it to improve or decrease, going forward?

Well, Brett, this is John. The -- I guess the levels within each of the markets. Obviously, we saw pressure as we've talked about. We don't see anything near-term that changes that. So, I guess the individual market levels are kind of where they're at. You can always get kind of mix among changes. Obviously, third quarter is the strongest quarter for the U.K., that's going to contribute a little bit more. That will fall off in fourth quarter, just given the normal seasonality of that market. So you're going to have to watch the swings and roundabouts from the country mix, would be the main thing I'd tell you to watch.

And then, as you think about same -- similar question on the used vehicle side. Your thoughts there, with used vehicle price, you're kind of declining here in the U.S., certainly. Does that give you an opportunity to potentially improve your gross profit per unit on the used side? Or do you think that, that might remain stable and you just benefit from higher sales?

I expect the used margins will remain somewhat stable. I would like to see us do a little better than we did in the quarter. I think we were moving some units out at retail at lower margins. So, we didn't need the wholesale. But I think we can do a little better than that. But I expect it to be stable. There is a projected, kind of 1.5% overall used vehicle price level decrease in the months ahead, but that's fairly typical, due to seasonality.

Brett, the one thing, this is John, that potentially helps us going into next year, as we do start to get a better flow of units coming off lease, here in the U.S. And those tend to be good, used car pieces for us, they're low mileage, later model, great for the CPO business. So, I think there is some potential going into the next year that we get some benefit from that.

And then, can you talk about gross profit throughput, I mean obviously, you've had a lot of acquisitions and so forth, which have affected the calculation there. So, maybe you could talk about gross profit throughput in the quarter, on a same-store sales basis. I don't know how you are thinking about it these days. But more importantly, as you kind of think about the next 2, 3, 4, 5 quarters, and I know that your target has traditionally been 50%, how should we be thinking about that gross profit throughput as we kind of move forward?

Brett, this is John. You're right, I mean, our longer-term goal is certainly in that 50% range. We clearly were significantly below that for the quarter. Probably closer to kind of 25%, 26% flow-through on a same-store basis, which is why SG&A was basically unchanged. Near term, it's difficult to tell. I mean, obviously, it's going to be a combination of the speed at which the cost reductions kick in, versus what happens with the competitive environment with margins.

And the next question is from Matt Nemer of Wells Fargo.

So I hate to do it, but one more question on New Vehicle grosses. Is there a way to parse out, how much of this pressure is transitory, i.e., the J3 share grab, or the truck launches versus what I would think are more permanent issues like transparency?

Well that's a good question, I wish I had an answer. And we talk about this subject almost every day around here, and I still don't think I have a good answer for your question, Matt. We're operating the business, and which is why we've invested so much in Parts & Service, F&I, Used Vehicles, in that, a great percentage of the decline we've seen in recent years is going to become more permanent. Opposite to the degree we can ship brand mix and things, we can help that a bit. But I think a big part of it is going to be somewhat structural in the future.

And I guess, given that, does that cause you, since part of this is a permanent change, does it cause you to change the way you think about advertising spend or type, or maybe even your pricing strategy, your go-to-market strategy?

Yes, it does, in many ways. And we've been wrestling that -- with that for a long, long time. And, it's also -- it's not just related to the transparency, it's also related to digital marketing. And a lot more of our business comes via Internet leads, which are driven by digital marketing. So, we have to be much efficient in our media spend, and much more of our media spend in recent years has been digital. So it does have tails into almost every area of our business. And so, we've been operating under that assumption for quite a long time.

Okay. And then, just a follow-up on the Service business. Again, is there any way to parse out the benefit of some of the internal initiatives that you've been working on, like the service call handling process. I realize that a piece of this is the market. But, is there any way to quantify the internal benefits that you've been driving?

Matt, this is John. I'd give you one kind of macro way, is look what our competitors are doing, and look how much we're outperforming them. If it was just the market, we ought to be all up, kind of about the same amount.

Fair point. And then, also on Service, the collision growth has been really strong, which I think is partly due to new facilities. Does that, as you look into the future, does the 20% growth rate sustain, because you have other new facilities that are coming online? How should we model that going forward?

No. And I don't think you can model 20%. We have some shops that we've launched in the last 12 to 18 months that are starting to mature. It takes a while for these shops to ramp up, and to get insurance providers supporting it -- them and so forth. But we've been operating for a couple of years now, and we will continue to try to add 2 or 3 new shops a year. We also -- in this most recent quarter, I don't think we had as much benefit from some hailstorms that we had in the previous quarter. But, our goal will be, for high single-digit, year-over-year growth in that area, and we'll price our internal targets at both double digits.

Okay, that's helpful. And then just lastly, the Parts & Service margin, despite this very strong growth, the percentage margin has been down a little bit. Is that mix between segments or geographic mix, because I would think that as you sort of drive capacity utilization across all of your segments and service, that, that would sort of trend higher over time?

Yes Matt, this is John Rickel. It's basically geographic mix. If you look within the countries, the U.S. margins in particular, have moved up almost a full percentage point. So it's basically just the impact of Brazil and U.K., which are lower margin. Primarily, in the warranty arena, where we don't get full reimbursement at retail rates in those 2 countries.

[Operator Instructions] And our next question is from Bill Armstrong of CL King & Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: Due to [ph] our favorite topic, the gross profit per car in the U.S., some of the other public retailers had actual slight increases year-over-year. Was there any difference, maybe in the way you approach the market, maybe in the way you guys went after stair step incentives, anything like that, that you could call out, or that, they -- you are aware that may, #1, explain why your decline was greater than some of the others, and #2, maybe you might -- these declines might mitigate a little bit, going forward?

Well, I don't know if I can speak with any degree of authority on the other companies. I know that our brand mix is generally very heavy in the Japanese Big 3. And we've been pushing a lot of volume, and aggressively attacking with those brands. Our luxury brand mix may also not be the same as a couple other companies. I know of a couple that have far bigger luxury brand mixes than we do. And our Northeast region, where we do a considerable amount of business, the overall market there hasn't been as strong this year as it's been across the southern half of the country, including California. And I know Florida's in a rebound also. We don't have much in Florida. So, that's about all I could say is that, I think there's probably a little different brand and geography mix for each country. And we're pushing hard with the Japanese brands, and we're having to push a little harder in the Northeast than we are other places. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay. And then in the U.S., I'm sorry, in the U.K., gross profit per unit also was down? Is that more of a mix issue with the Ford dealership?

Ford, yes. That's -- we've only operated 4 dealerships there since March. And of course, in a plate change month like September -- March or September, the 2 plate change months in the U.K., there's a lot of fleet vehicles registered. The Ford business has a pretty high fleet component. So, again, you're -- and it's a profitable fleet. But you're moving a lot of units at much different margins with Ford than you might been with BMW and Audi, which are our other 2 brands in the U.K. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay. And then, just in the U.K., I don't know -- I'm not sure if you have this handy, same store unit sales, used and new? Do you have that?

Yes, we've got it. Yes. For the U.K., new vehicle retail sales were up 17.8%. And retail used vehicles were up 14.1%. So a really strong performance by our U.K. team.

So that does not include Ford, that's Same-store. We didn't own the Ford dealerships a year ago.

Right. What would it be on a total revenue basis?

We've got that too.

Total revenue, on Same-store, was up 14.4%.

And that does conclude our question-and-answer session. I would like to turn the conference back over to Earl Hesterberg for any closing remarks.

Okay, thanks to everyone for joining us today. We look forward to updating you on our Fourth Quarter Earnings Call. Thank you.

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