Good morning, ladies and gentlemen and welcome to Group 1 Automotive's 2020 Fourth Quarter and Full Year Financial Results Conference Call. All participants will be in a listen-only mode [Operator Instructions]. After today's presentation there will be an opportunity to ask questions [Operator Instructions]. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Pete DeLongchamps Group 1's, Senior Vice President of Manufacturer Relations, Financial Services and Public Affairs. Sir, please go ahead.

Thank you, Jamie and good morning everyone and welcome to today's call. The earnings release we issued this morning, and the related presentation that include reconciliations related to the adjusted results, we will refer to on this call for comparison purposes have been posted to Group 1's website. Before we begin, I'd like to make some brief remarks about forward-looking statements in 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 that are made pursuant to the Safe Harbor's provision 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, conditions of markets, adverse developments in the global economy as well as public health crisis related to the COVID-19 virus and resulting impacts on demand for new and used vehicles and related services. Uncertainty regarding the duration and severity of COVID-19 and its impact on U.S. and international authorities use current restrictions on various commercial and economic activities. And uncertainty regarding the timing, pace and extent of an economic recovery in the U.S. and elsewhere from the unknown current and future impacts of COVID-19 and unknown future impacts of oil producers and the effects such can have on travel transportation oil prices, which in turn will likely adversely affect demand for our vehicles and services. 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 on its website. Participating with me on today's call, Earl Hesterberg, our President and Chief Executive Officer; Daryl Kenningham, our President of U.S. and Brazilian Operations; Daniel McHenry, Senior Vice President and Chief Financial Officer; and Michael Wells, our Vice President and Corporate Controller. I'd like to hand the call over to Earl.

Thank you, Pete. Good morning, everyone. The fact that 2020 was a record year for Group 1 Automotive is nothing short of astounding given the outlook we faced in late March and early April. For the full year, we were able to achieve record adjusted net income of $334 million, an increase of $130 million which equates to a 64% improvement over our 2019 results. This translates to record adjusted earnings per share of $18.06, an increase of 65%. This profit performance was largely driven by our swift cost cutting actions at the onset of the pandemic, and the continued rationalization of our cost structure throughout the year. As a company, we reduced adjusted SG&A by $179 million, reducing our adjusted SG&A as a percent of gross profit by 810 basis points to a record 65.8%. And the U.S. number reached an even more impressive level at 63.4% of gross profit. In the US, by the fourth quarter of 2020, we had improved the productivity of our technicians by 25% and the productivity of our sales people by more than 33%. Looking forward, we expect to retain a material amount of these cost reductions with a leaner operating and support structure as well as increasing our use of technology. Before turning to our Q4 results, I must thank all of our employees for the hard work and sacrifices this year. We faced ongoing business disruptions throughout the year in all of our markets. In the U.K., our showrooms have been required to close on at least three different occasions for a total of well over three months, yet our employees remain resilient and our business remained solid. All Group 1 employees are putting the safety of our customers and our colleagues first and we owe them a great deal of…

Thank you, Earl. A number of factors contributed to our outstanding U.S. fourth quarter results, namely new and used vehicle gross profit growth, F&I, PRU growth and strong SG&A discipline. All of which are continuation from our strong third quarter results. Due to continued tight new and used vehicle supplies same-store new vehicle unit sales decreased 6%, and used vehicle retail unit sales decreased 10% versus the prior year. New vehicle inventory levels finished the year of 48-days supply, down nearly 8,000 units from December 2019. To compensate for the lower volumes, our teams did a fantastic job staying disciplined - on gross margins. Our new vehicle margin improvement far outweighed our volume decline as a nearly $900 increase and same-store gross profit PRU generated a 36% increase in new vehicle gross profit. Although, our new vehicle unit volume was down 6% in the quarter, it improved significantly from the 16% decline in the third quarter. Our used vehicle unit sales improved sequentially as well and our strong PRU improvement drove a 6% total used vehicle gross profit increased on a same-store basis. The second major driver was F&I despite a decline in same-store total retail units. Our same-store F&I PRU growth of $190 to $2,027 allowed us to increase same-store F&I gross profit by 2%. In the fourth quarter, we saw our after sales business continued to recover as well, although gross profit was down 4.9% on a same-store basis that was due to a decline in warranty and collision. As Earl mentioned earlier, our customer pay gross profit was up for the quarter. We expect our after sales business to improve throughout 2021. The third major factor driving our outstanding profit performance was cost discipline. As Earl had mentioned, in the second half of March we were extremely…

Thank you, Daryl, and good morning, everyone. As of December 31, we had $87 million of cash on hand and another $176 million invested in our floorplan offset accounts, bringing total cash liquidity to $263 million. There was also $284 million of additional borrowing capacity on our U.S. syndicated acquisition line, bringing total immediate liquidity $547 million. We also have roughly $250 million in U.S. and U.K. real estate available to mortgage, which adds another $200 million to our near-term liquidity increasing the total to well over $700 million. Our cash flow remains very strong. As we generated $145 million of adjusted cash flow in the fourth quarter, which brings our 2020 full year adjusted operating cash flow to $504 million. And full year free cash flow to $426 million after backing out $77 million of capital expenditure. This cash flow generation along with this year's debt restructuring will save us over $15 million of annual interest expense, and has placed our balance sheet in the strongest position in our Company's history. The $426 million of free cash generation has been used primarily as follows, a $196 million reduction in non-floorplan debt excluding finance leases, a $129 million increase in total cash liquidity on the balance sheet, $80 million used to repurchased 864,000 shares of common stock at an average price of $92.86, which represented roughly 5% of our share float, and $11 million used to pay dividends of $0.30 per share in both the first and fourth quarters. Our U.S. credit rent adjusted leverage ratio reduced to 2.3 times at the end of December, down from 3.3 times at the end of 2019. This gives the Company significantly more balance sheet flexibility with a strong leverage position allowing for plenty of dry powder to grow our Company. Going forward, our preference for capital allocation is to add scale to our Company through acquisition. While the U.S. is our preferred market at the moment, we are open to acquisitions in our foreign markets as well given the right opportunity. Absent suitable acquisition targets, we are certainly open to returning cash to our shareholders, as evidenced by the $31 million spent on repurchasing shares in the fourth quarter. We have $169 million remaining on our share repurchase program. 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. I will now turn the call back over to Earl.

Thanks, Daniel. Related to our corporate development efforts, in December, we disposed of Buick and GMC franchises in New Orleans, and in January we disposed of the Cadillac franchise in the Dallas-Fort Worth market, as well as a mini franchise in the El Paso market. Additionally, we expect to close on a limited number of small additional dispositions earlier this year, but it should be noted, that most of our disposition actions are now complete. Also, we have been awarded two Toyota open points in the greater Sao Paulo market area in Brazil. We expect to activate these points in the first half of this year. Our actions to dispose of underperforming assets, combined with our work to improve our operating efficiency over the past two years reduce our debt load and stabilize the financial condition of our Company in the face of the pandemic and Brexit now puts us in a good position to ramp up our future growth efforts. As Daniel stated our preferred capital allocation is to invest in external growth via acquisition, as well as further internal investments to continue our strong rates of after-sales and used vehicle growth. U.S. remains our top priority for expansion, but we expect to consider U.K. opportunities as well as the economic [technical difficulty] in both markets. In the U.S., we see benefit and further diversifying our geographic footprint beyond the state of Texas. We consider our position here to be a strategic strength given the population growth and very friendly business environment, the latter of which is evidenced by the significant number of corporate relocations to the state, including recent announcements by Tesla, HP and Oracle. We expect this trend to continue. In summary, we're extremely optimistic about our prospects for future growth and success in 2021. We see several years of new vehicle industry growth ahead of us and ability to improve our vehicle sales levels with better supply, a meaningful recovery in our service business as lockdowns end, and an ability to leverage our improved cost and debt levels, as well as our financial strength. This 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 today comes from John Murphy from Bank of America. Please go ahead with your question.

Good morning, everybody. Just a first question Earl, it sounds like there is a definitive change in tone on acquisitions and the potential to be a consolidator. I'm just curious what's shifting, and what you're seeing in the industry and if you can maybe share any general targets that you might be thinking about as far as revenue you might acquire per year, where you're going to be going after this stuff. I'm just curious what shifted and really what is the focus?

Yes. Sure, John. I understand the rationale for the question. About this time last year, we were about to call in one of two bond issues. And of course, when the pandemic hit, we eventually called in two bond issues, we were trying to decide what to issue in terms of new bonds. We were revising some mortgage debt. I mean, we sold a lot of Brexit uncertainty then the pandemic, so we did not feel we were in a good position to aggressively pursue external growth last year in the first half of the year. And of course everything worked out extremely well very much in our favor. As Daniel mentioned, we reduced our debt by a good amount $180 million, $190 million, got our leverage rate down, got favorable new bond issue out, got some clarity in the U.K. market and actually used the pandemic to really re-tool both our U.S. and our U.K. businesses. And you can see from our cost numbers throughout this year, we're in a totally different place now. We're leaner, and now we have the kind of financial stability and a lot better clarity on what the next few years are going to bring in the U.S. and the U.K. market. So we will now try to be much more aggressive in growing externally. We have the financial capacity to add certainly $1 billion a year in annualized revenue if it works out maybe a bit more. But what we're not going to do is relax our financial hurdle rates. We still believe they need - could be accretive, it's easy to destroy capital when you get too aggressive in this area. And the other thing we've learned over the years is when you buy these stores, at some point you have to run them, you have to operate them. And we've learned, we can't do that in every single market in the U.S. and not every single market in the U.S. is going to have a growth profile. So we will be as aggressive as we can be and we have the financial wherewithal to be much more aggressive in knowing the acquisition issuer, U.S. and U.K. So that will be our priority in terms of capital allocation.

Okay. And then just a second question on SG&A, there is obviously a lot of moving parts in the numerator and denominator in SG&A to gross right now. But just curious, as you think about sort of steady state as things settle in, it seems like sub-70%, somewhere in the 65% to 70% range is probably achievable at least from our estimates. And maybe even a lot better over time, but is that something that you think is a reasonable way to think about at those levels or how you think about SG&A to gross go forward as the world normalizes and maybe a little bit of cost is back in and gross is ease a bit.

Well, for the reasons you state, it's just not possible to get numbers, but we would have wasted a lot of hard work this year, re-tooling our cost structure, if we can't be materially better than we've been in the past. And yes, there'll be some movement upward as new vehicle margins temper a bit, but by the same token, our parts and service business is going to come back to. And I have complete confidence that we'll be a couple of 100 basis points better than in terms of a baseline. And when we were pre-COVID, and we've got to keep this cost out that's an even greater priority for us than growing the acquisition, otherwise we just wasted all the hard work.

Okay. And then just lastly, and I know this is also a tough question to answer, but I mean, you mentioned that your U.K. dealerships are close to 42 out of 91 days, but my understanding is they still are able to operate on curbside, delivery and the likes. So I'm just trying to understand how much pressure do you actually think you saw in the U.K. in the quarter as you dropped the shutdowns? And it's tough, and is there any way to pro forma what the U.K. would have looked like, or how we should think about the U.K. going forward into 2021? A lot of noise there.

Yes, I can give you some color on what we've experienced and what's now more than three months of lockdown. I don't think I can help you a lot by quantifying what it might have been able to do without. But let me see if I can at least help a bit. The lockdowns began on November 05. As we closed the showrooms, and continue to sell what they call click and collect, which is basically AcceleRide types of sales which we actually do our operating AcceleRide with at least six new car brands and we're selling used vehicles through a vendor platform. And it will shift to AcceleRide later this year. So we have pretty much a full online capability to sell vehicles in the U.K., but what was different about these lockdowns to begin on November 05 is, they're very aggressively policing people to stay home. And if you're caught out on roads at least in these areas around London, which were at the highest lockdown level, I mean you actually get find. Now, we've been able to keep our shops open, but that has kept service traffic depressed a bit too. And when you see the January, U.K. industry numbers come out which they're just coming out, I think today, you're going to see that basically, the new vehicle industry is down about 40%. And so that's kind of what these lockdowns do is, they're just throttling back the traffic. However, the demand is there. When the U.K. reopens, right now schools are closed until March 8, and schools being closed is a pretty good proxy for the country being closed. There is a lot of internet lease inquiry level, there is a lot of pent-up service demand we know, because people have to get these government mandated inspection. So I think when it does open up, there'll be some real nice magnitude of pent-up demand. But it is really throttled back. And it is absolutely amazing that we were able to stay profitable all three months of the fourth quarter, when two of those months, the showrooms are closed. And when the showrooms are closed, it pretty much looks like you're out of business. So that's kind of where we are. I'm hoping that sometime in March, the customers will be back out. Until then, we've just throttle back as far as we can throttle back our cost.

John, it's Daniel here. In addition, one thing I'd like to add is, I think that with the Brexit clarity that we've got at the end of 2020, that should also help with some of the pent-up demand, especially around companies that we're looking to change your vehicles in 2020 that will pull forward now into 2021.

That's very helpful. Thanks, guys.

Our next question comes from Michael Ward from Benchmark. Please go ahead with your question.

On the SG&A side, in the U.S., how much of the savings will be ongoing. If I got it right, your SG&A costs were down about $120 million, and if half of that was from personnel and the other half from ad spending and other, how much of that is going to be able to stick?

I'm afraid I can't quantify that for you, Michael. But as I mentioned a few minutes ago, we've got to keep most of it out. We clearly will have to add some people back in as a volume comes right. And people were a big part of that.

But you're not going back. You're not going back to the '21?

No, no. We can't go back. We can't go back. And as I mentioned by the fourth quarter, we were 25% more productive with our techs in terms of the gross profit they generate per month. And 33% more productive with our salespeople, meaning how many cars they sell per month. So we've got to keep that efficiency rate. Let's say, compared to pre-COVID a year ago, we got to hold on to least 20% of that productivity gain. That's what we get up and come to work.

Mike, this is Daryl, just from an operating perspective, one thing that all these cost reductions taught us is how to manage our business differently. We manage it much closer now from a centralized basis on head count. And on a lot of our bigger variable spends, and we have different processes in place in the company today to manage that than we did a year ago and two years ago, and a year ago and two years ago we were SG&A leaders in the segment. And so, I believe that - as Earl mentioned, we're going to see good news moving forward with it. We manage the company totally different.

And it's the same thing in the U.K., correct?

Yes, yes and we had - added a couple of big acquisitions just around the time of Brexit, three years ago, two and a half years ago. And we have never really structured our U.K. business to be a 50-dealership group. We had it structured more like a 20 or 25 dealership group. So we've been able to centralize our call center and after sales support, F&I support things like that, more along the way we do it in the U.S. And, when - the pandemic hit in late March, in one week we went from 3,300 employees in the U.K. to 300. And so we - because we were shut down, I mean we really shutdown. And so when we built back up for 300 then that enables us to retool the business, which would have been very difficult to do while operating with 3,000 employees or so.

So, it's tied into some of your digital efforts. How did the grosses compare, if you sell a vehicle through AcceleRide versus just the normal way? And if - I think you said 6% in the fourth quarter, it looks like 11,000 units for the year were sold on AcceleRide, how did the grosses compare on those?

This is Daryl. The grosses - front-end grosses are comparable as is F&I, Mike.

It is. Okay.

Through our offline asset.

And as far as the digital, I think you've been doing, booking the service side of the business for several years? Do you have any data related to like the retention rate in the later years of ownership or repeat customers or that sort of information?

I don't have specific data to as it relates to years of ownership. We do know that customers that do business with us digitally tend to be more important. But, so hopefully that helps.

Okay. And do you have the percentage of your service that has gone with the - digitally, the reservations?

In the quarter, it was 30%.

30%. And that's been increasing...

[It was 27%] a year ago. Over 100,000 service appointments.

Thank you very much.

Thank you.

And our next question comes from Rajat Gupta from JPMorgan. Please go ahead with your question.

Thanks for taking my questions. Just to follow-up on couple of the previous questions, and I have a follow-up after that. Just to put a final point on the SG&A to gross comment. I mean, you mentioned that you would expect to return to 200 basis points or so below pre-pandemic levels? I mean, obviously 1Q is likely going to be favorable given now the new vehicle gross are still strong. But are we talking about something like under 70% as a normalized run rate once you're back to more normal - normal sales environment or - just looking for a more finer point on that number?

Well, I couldn't comment to a specific number, but I can certainly comment that we couldn't live with 70% again. So we have to be below 70%. I think to be competitive. I think the world's moved on. So, yes so certainly we would expect to be significantly below a 70% level.

Okay, significantly below. Okay, got it. And just on AcceleRide, obviously some good traction here from the third quarter to fourth quarter? Could you give us some numbers around like just the conversion risk - that you're seeing on the leads. And then any targets that you have in mind with respect to the platform in terms of units, you expect to sell this year maybe over the next couple of years over and above what you expect at the stores?

Rajat, this is Daryl, our conversion in the fourth quarter was 10.5%, which is almost, it's about 3.5 points higher than what we see customers that come to us through an Internet lead up some sort. In terms of a specific target, we don't necessarily have a specific target that that we would share. What we do know is customers want to do business this way and they keep proven it to us over and over again and at some point, all of them want to do business with us. This way we won't be able to enable that. So, we've tried to build a model where customers can go on and offline transparently and seamlessly and what we're seeing and what we believe is that - so far that's been successful for customers and that's kind of our focus so.

And just to follow-up on the M&A commentary yes, I appreciate all the color that you gave earlier that no, you are looking to participate in acquiring more stores. Going forward, but I mean one of your peers recently talked about the need for the publics to consolidate going forward in order to compete with the online players? I mean what would be your response to that and then would you be - would consider participating in some way in a potential combination at some point and now the public fear or just in order to diversify your regional presence. Would you be able - would you be looking to divest some of the assets and some of the regions like in Texas or so where were you lot of pretty skewed presence today, that will be all? Thanks.

Okay, that's fairly broad question, but let me see if I can help. I think there is a natural consolidation that needs to occur among the U.S. auto retail networks. There are simply too many dealers in many of the brands, not all of them, many of the brands to operate in efficient privately owned distribution network. So there is a return on investment. And this trend has been going on for a long time. And it's becoming more and more a big player game just because of capital investment and amortizing technology costs and the cost of developing people and things like that. So, I think that trend accelerates and that is the reason that there will be a lot of acquisition opportunities as they have been in the past few years, I would expect that to accelerate. And I think that will benefit the remaining larger retail groups. And I think it will benefit the OEMs. And so I think there, we're going to continue to move to an era of bigger partners for the OEMs. And - so I think that is very much a catalyst for these M&A opportunities. Now, the advantages of scale you know it would seem that we're not nearly as big as many other groups, yet we've been able to create a cost structure that's just about as competitive as any. So there is a diminishing point of return on scale, I think but there is a benefit to diversity of markets and brands that we can continue to benefit from. And there is potentially a widening of the gap between the ability to operate efficiently - for a smaller operator compared to a bigger operator. So I think those are all industry trends that that relate to this M&A topic, I don't know if that helps you or not.

But you would rule out any potential combination with another public. It seems like that's very much the answer?

I am not sure about that, that would be the decision of the major OEMs and that - the ability for some of our larger OEMs to support that is not clear to me. It's not clear to me at all [part of the call], but I haven't heard any public support of that concept from any of our major brands.

And our next question comes from [indiscernible] from Morgan Stanley. Please go ahead with your question.

All right so I have - good morning. I have one question on behalf of [Adam Jonas]. More so towards the trend we're seeing with these EV start-ups going more direct-to-consumer. So I guess the question is more why do you think kind of the EV companies are going direct-to-consumer versus using the franchise model? Do you think you're kind of making a mistake by going this route? Thank you.

This is Daryl. It does appear that most of these start-ups will enter the market trying to sell direct. And direct clearly has not been a problem for Tesla although I'm not sure there will be many companies like Tesla in our history. And that model works as long as demand is above supply. But when you look at the evolution of automotive retailing most companies eventually reach a point where demand plateaus and they want to continue to be aggressive in expanding their share. And that's when the dealership network becomes an asset. And that relates to both the dealership networks marketing power in the local market and their ability to service customers because customer satisfaction becomes a critical element to repeat purchases. So, Tesla doesn't appear to have reached that yet, but all companies reached that at some point. So it can be also a big capital strain on a company selling direct. They can't unload their inventory, their work-in-process on to someone else's books, right. When - and our distribution network basically the traditional network that gate out when the auto manufacturers produce the car, it very quickly clips from their books to our books under our credit line. And in the automotive industry that is a large amount of capital and money. And while Tesla may be strong enough at this point to carry that it is very difficult for start-ups to carry that for an extended period of time. So yes, I would expect the start-ups to go direct, but then over time we'll see what the competitive advantages of an independently funded dealer network might represent for a more mature brand.

Our next question comes from Rick Nelson from Stephens. Please go ahead with your question.

I appreciate the earlier color to U.K. and what you're seeing there in early 2021. If you could speak to the U.S., what you're seeing with units? Daryl and you just were hearing about the recovery - curious if that's something you're seeing?

Hi, Rick. This is Daryl. We're seeing - we're quite inventory constrained right now. As you know and we expect the new car inventory situation to continue to be constrained for probably the first half of the year. But what we're seeing is an improvement sequentially month-over-month in both new and used and that goes into January. We've seen that so.

And GPUs are they holding as well?

Yes.

Great. And had two follow-ups on the acquisition environment - curious if you're seeing a lot of opportunities there? How competitive is it for these deals where you see valuations and how do you win, I guess on the acquisition front with some of your competitors being quite aggressive?

Well, that's true Rick, and that's a good question. Yes, there are a lot of opportunities. And of course you have an awful lot of independent dealers, who benefited from free capital infusions from the PPP program. We have a little bubble there, which I think is motivated more and more of them to market their dealerships, and I think that will continue this year. And that's why I mentioned earlier that we can't abandon our hurdle rate discipline. It's easy to get excited about rolling very much like to grow externally. But there is a certain point where you destroy capital, and they need to be accretive, and you're right there is a lot of competition in the market for high-quality acquisitions, and I don't expect that to subside this year. So - which is one of the reasons that we prefer not to set a target for more acquisitions because if you get in a mode where you want to buy at any cost and may not end up being the best thing for their shareholders. But to me, Rick the most important thing for us is in the fourth quarter this past year. We increased our earnings per share by 88%, I mean you've been at this as long as, have you? How many times have you seen quarterly growth at 88% that was our adjusted earnings per share growth if I'm looking at the right number, and I'm looking at some really good quality companies that purchased a lot of revenue last year and added a lot of dealerships to their universe of profit generating locations. And I'm not seeing anybody else grew their earnings per share of 88%, maybe I got the wrong numbers, I don't know. There has been some great growth by all of us, but it would seem to me the fact that we grew our adjusted EPS by 88% in the fourth quarter with no additional stores. We didn't buy any stores last year. Now we want to buy some this year 88%, and we were close half the time in the U.K. in that quarter, we grew our earnings per share by 88%, I don't - I mean, I have to say I'm seldom impressed by what we do. I was pretty much impressed 88%, and we were closed half the time in a market that represents 20% of our revenue. So yes, I'd like to have some acquisitions, but we did that last year in Q4, and for the full-year, I think, we are up 64%, 65% with no acquisitions, in an industry that was down due to COVID.

That helps. [technical difficulty] revenues down 4% to grow EPS like that, speaks to your ability to navigate. So service and parts were down 4.8% in the fourth quarter in the U.S., 4.7% consolidated. I guess when virus clears, people get out or else driven starts to grow again. Do you think we go back to mid-single-digit type growth whereas our pent-up demand that would drive faster growth than that you would think?

Yes, Rick, I'll make a comment, maybe Daryl will too. Yes, we were soft on our after-sales volume in Q4 in the U.S., which is quite rare, which of course makes that 88% EPS growth even more amazing doesn't it? And it was simply a function of a warranty, which we don't control and that's usually a brand mix issue, and our collision business is extremely weak, because as you say, people are driving a lot of smiles, but that will come back, the collision business will come back, usually the warranty business comes back a lot of that's driven by recalls, but our customer pay business is really holding up well, and it was flat or a bit up, I think Daryl has got some statistics relative to…

That was up a bit in the quarter, gross profit was up in customer pay.

And ladies and gentlemen, our next question comes from David Whiston from Morningstar. Please go ahead with your question.

Sticking on service first, is [technical difficulty] compared with American vehicle owners?

I would actually say they are delaying it more simply because of the pressure coming from the government mandated lockdowns and being told to stay home and you get a fine if you get caught without having a justification and being on the road. And there is these things called an MOT, Ministry of Transport required inspections for everybody in the U.K., and the governments govern some leniency on the timing of having to get those completed. But as soon as people feel free to go out, we're going to have a rush of people into the dealerships there. In the U.S., there is still a good flow of service business for the number [technical difficulty] customer behavior seems to be in debt by area of the country.

So what kept you profitable in the U.K. then is it purely cost cutting, you need the revenue to help those cost cuts too, or where you just doing a lot of salary type business in U.K.?

Yes, I think in the U.K. with slightly higher margins in both new vehicles and significantly higher margins and used vehicles. As you say the parts and service business was pretty good for the quarter. I think that's something that we probably began about a year ago, and we put in much better processes for parts and service and we had a both an inbound and outbound call center instituted in the U.K. So I think that it was already on a natural growth pattern. And in addition to that, we cut costs to the bone in terms of scaling back or staffing levels and you're taking out any costs that we could for both the quarter and year-to-date.

And then over to the U.S., you talked about the U.S. being the first choice for acquisition for this year, and you want to reverse by big deal on Texas. So is your first choice to do existing U.S. markets other than Texas, or you want to be even a new part of the country. And then what region is your first choice in the States?

Well, clearly, we want to prioritize the U.S. market because that's where we have the most talent, and we really can benefit from diversifying our footprint outside of Texas and the oil patch in general, which is going to part - the oil patch is only parts of Texas. And I think it's important for people to understand that we're in Austin in Dallas in places like that, that's not really the oil patch. So we're not afraid of Texas. But I think our company benefits long-term, a lot more to the degree we can expand our geographic footprint in the U.S. So that would be our preference.

Okay. And then [technical difficulty]?

….the main drivers where we had a nice increase in finance penetration and we also really focused on our product sales and had nice lift on vehicle service contract. So it is a good effort by the team. We also continue to be laser focused on our compliance and processes, which I think will continue to pay off in the future.

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

Yes. Thanks to everyone for joining us today. We look forward to updating you on our first quarter earnings call in April. Have a good day.

And ladies and gentlemen with that, we'll conclude today's conference call. We thank you for attending. You may now disconnect your lines.