Lithia Motors, Inc. (LAD) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Lithia Motors' Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now, my pleasure to introduce your host John North, Vice President of Finance. Thank you, sir. You may begin. John F. North - CAO, Vice President-Finance & Controller: Thanks, and good morning. Welcome to Lithia Motors' fourth quarter 2015 earnings conference call. Before we begin, the company wants you to know that this conference call includes forward-looking statements. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition, liquidity, and development of the auto industry and markets in which we operate may differ materially, from those made and/or suggested by the forward-looking statements on this conference call. Examples of the forward-looking statements include statements regarding expected operating results, projections for our 2016 performance, expected increases in our annual revenues related to acquisitions or open points, anticipated availability from our unfinanced operating real estate and anticipated levels of future capital expenditures and free cash flow. We urge you to carefully consider this information and not place undue reliance on forward-looking statements. We undertake no duty to update our forward-looking statements, including our earnings outlook, which are made as of the date of this release. During this call, we may discuss certain non-GAAP items such as adjusted net income and diluted earnings per share from continuing operations, adjusted SG&A as a percentage of gross profit and adjusted pre-tax margin. Non-GAAP measures do not have definitions under GAAP and may be defined differently and not comparable to similarly titled measures used by other companies. We caution not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We believe the non-GAAP financial measures we present improve the transparency of our disclosures, provide a meaningful presentation of our results from core business operations, because they exclude items not related to core business operations and improve the period-to-period comparability of our results from core business operations. These presentations should not be considered an alternative to GAAP measures. A full reconciliation of the non-GAAP items is provided in the financial tables of today's press release. We've also posted an updated investor presentation on our website, lithiainvestorrelations.com, highlighting our fourth quarter results. On the call today are Bryan DeBoer, President and CEO; Chris Holzshu, Senior Vice President and CFO; and Sid DeBoer, Executive Chairman. At the end of our prepared remarks, we will open the call to questions. I'm also available in my office after the call for any follow-up you may have. And with that, I'll turn the call over to Bryan. Bryan B. DeBoer - President, Chief Executive Officer & Director: Thank you, John. Good morning and thank you for joining us today. Earlier, we reported fourth quarter adjusted net income of $46.1 million compared to $37.5 million a year ago, for an increase of 23%. We earned $1.74 per share in the fourth quarter compared to $1.42 per share last year, up 23%. Our revenue increased 11% in the fourth quarter to $2 billion. For the full year, our revenue increased 46% to $7.9 billion, and we reported adjusted earnings of $7.02 per share compared to $5.11 in 2014. Despite headwinds reported from some of the industry, our store leaders successfully responded to their local and differing market conditions. As a result of their efforts, we achieved our third and fourth EPS milestones by exceeding $7 per share in 2015. October 1 also marked the first anniversary of our combination with DCH. We are pleased to report that we have fully integrated and realized most cost synergies. Their teams are continuing to expand their entrepreneurial approach to operating in metro markets, as they attack market share and improve earnings. All numbers from this point forward will be on a same-store basis, which again will include DCH results for the quarter. In the quarter, total sales increased 9%, new vehicle SAAR was 17.9 million, the highest national result since 2005. New vehicle revenue increased 7%, new vehicle average selling prices increased 2%. Unit sales increased 5%, compared to the national average of 8%. Domestic units increased 8% on par with national. Import increased 6% compared to 8% nationally, and luxury units decreased 5% compared to 6% increase nationally. Gross profit per new vehicle retail was $2,095 compared to $2,042 in the fourth quarter of 2014, an increase of $53 per unit. Our domestic gross profit per unit was down in the quarter, but gross profit dollars per unit increased in both our import and luxury segments. Our luxury store personnel chose margin over volume as unit sales were down, but overall gross profit per unit was stable. In the quarter, retail used vehicle revenues increased 12% and used vehicle average selling prices increased 3%. We retailed 9% more used units over the prior period, resulting in a used-to-new ratio of 0.7:1. In the quarter, certified units increased 9%, core units increased 12%, and value auto units increased 4%. Our used vehicle gross margins declined 10 basis points, due to an increase of $560 in average selling price. Gross profit per unit was $2,384 compared to $2,344 last year for an increase of $40. On a 12 months rolling average, we sold 62 used vehicles per store, up from 56 units in the comparable period last year. Our goal to retail 75 used units per store per month still provides upside in the future regardless of macro market conditions. Our F&I per vehicle was $1,189 compared to $1,120 last year, or an increase of $69. Of the vehicles we sold in the quarter, we arranged financing on 72%, sold a service contract on 43%, and sold lifetime oil products on 25%. Our penetration rates and profitability improved in all three categories over last year. Although, the DCH stores have just recently started to offer the lifetime oil product, so the blended penetration in the category is below our historic average. In the fourth quarter, blended overall gross profit per unit was $3,408 compared to $3,290 last year, an increase of $118 per unit. This was complemented by a 7% increase in unit volume. As we have previously discussed, our store personnel monitor total gross profit generated rather than on margin percentage to evaluate and drive their performance. Our service body and parts revenue increased 10% over the fourth quarter of 2014. Customer pay work increased 7%; warranty increased 22%; wholesale parts increased 5%, and body shop increased 12%. Our total gross margin was 14.7% compared to 14.6% from the same period last year, an increase of 10 basis points, which is an accomplishment considering the DCH volume based strategy. As of December 31, consolidated new vehicle inventories were at a days supply of 67 days, an increase of five days from a year ago. Used vehicle inventories were at a days supply of 55 days, an increase of two days from a year ago. Since October 2015, we have completed four acquisitions, which will contribute approximately $200 million in annual revenues. Concord, Chrysler Jeep Dodge Ram Fiat in California; Spokane, Chrysler Jeep Dodge Ram Alpha Fiat in Washington; Riverside Subaru in California and Milford Toyota in Massachusetts. With the Subaru and Toyota stores, we are excited to have acquired our first stores within the DCH metropolitan strategy on both the East Coast and the West Coast. The acquisition market remains active with a significant number of stores for sale. With Lithia targeting exclusive markets and DCH pursuing a metropolitan strategy, we have identified more than 2,600 stores nationwide as candidates. We remain confident that we will find accretive purchases in the near-term to increase our portfolio, and continue to expand our footprint. Our entrepreneurial culture, where each store has the autonomy to make individual decisions, will drive continuous operational improvement. This improvement along with growth through acquisitions will be critical to achieving our fifth milestone of $8 per share and beyond. Finally, some color on what we have seen so far this year. January results met our expectations and February appears to be off to a good start. As a result, we have increased our 2016 guidance with – which Chris will share with you in more details in his following remarks. With that, I'll turn the call over to Chris. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Thank you, Bryan. At December 31, 2015, we had approximately $179 million in cash and available credit, as well as unfinanced real estate that could provide another $159 million in 60 days to 90 days for an estimated total liquidity of $338 million. At the end of the fourth quarter, we were in compliance with all of our debt covenants. Our free cash flow as outlined in our investor presentation was $26 million for the fourth quarter of 2015. Capital expenditures, which reduce this free cash flow figure, were $21 million for the quarter. We generated over $160 million of free cash flow in 2015, providing significant capital for internal and external investment. Our annualized net debt to EBITDA is approximately 1.8 times, reduced by half a turn from last year, demonstrating the impact that strong financial performance has on our balance sheet. As a result, we have ample liquidity to complete acquisitions. We took advantage of the recent dislocation in our share price and deployed over $47 million since January 4 to repurchase approximately 595,000 shares. We estimate this will increase EPS by $0.13 in 2016. Our capital strategy is unchanged as we continue to balance acquisitions, internal investment, dividends, and share repurchases. Our first choice for capital deployment remains to grow through acquisition and internal investment, but regardless of category, all investment decisions are measured against strict ROE metrics to generate solid long-term returns. Our fourth quarter adjusted SG&A as a percentage of gross profit on a same-store basis was an estimated 67.9%, an improvement of 220 basis points over the fourth quarter of last year. Throughput, or the percentage of each additional gross profit dollar over the prior year we retain after selling cost and adjusted to reflect same-store comparisons, was 54%. We continue to target incremental throughput in a range of 45% to 50%. On a consolidated basis, including the effect of recent acquisitions, our adjusted SG&A as a percentage of gross profit was 68.2%, a decrease of 210 basis points from the fourth quarter of 2014. For the full year, our consolidated SG&A as a percentage of gross profit was an industry leading 67.9%. At current vehicle sales levels, we continue to target a full year consolidated SG&A to gross profit in the mid-60% range. Based on our results in the fourth quarter, and a result of the shares we have repurchased, we have increased our 2016 guidance from what was reported in October as follows. We expect full year 2016 earnings of $7.30 to $7.50, and first quarter 2016 earnings per share of $1.47 to $1.51. For the additional assumptions related to our earnings guidance, please refer to today's press release at lithiainvestorrelations.com. This concludes our prepared remarks and we'd now like to open the call to question. Operator?

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of James Albertine with Stifel. Please proceed with your question. Jamie Albertine - Stifel, Nicolaus & Co., Inc.: Great. Thanks for taking the question, and good morning, everyone. Bryan B. DeBoer - President, Chief Executive Officer & Director: Morning, Jamie. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Morning, Jamie. Jamie Albertine - Stifel, Nicolaus & Co., Inc.: Wanted to ask, we've now transitioned to the first full year of DCH in the portfolio. You mentioned lifetime oil product just started at the DCH stores. I just wanted to get a sense of sort of what inning we're in as it relates to accretion from the DCH side of the business. Bryan B. DeBoer - President, Chief Executive Officer & Director: Jamie, this is Bryan. Thanks for the question this morning. So, in terms of LOF specifically, we only have a handful of stores that are heavily selling it yet. We're at about 25% aggregated between both divisions, which is up about 250 basis points from where it was last year aggregated. So that's a little bit of a move. But if you recall, the Lithia stores have always run in the mid to high 30 percentile range. So that talks about, talks to some of the opportunities that are there for lifetime oil. There's also some opportunities that many of the stores are looking into as well with something we call detail, which is a way to basically grow gross profits without adding lots of expense. And we run it as independent departments. DCH has about nine of their stores that currently have detail departments where we actually are washing and vacking consumers' cars, as well as we generated as a profit center from our used cars, which obviously flows through into our recon (15:05) in used vehicle sales. In terms of other accretion in DCH and other opportunities, I think, George Liang and their teams have developed and grown pretty quickly, they've actually got most of the synergies that they expected. And I think now it's more of a function of the opportunities to now move towards what Lithia's margin are, which is let me just look here, we estimated some numbers here, we believe DCH was just over 2% pre-tax margin in the quarter. Lithia is just over – it's about 3.7%, 3.8% margin. So, together, we think that that other 1.5% or so is what the opportunity remains for DCH to extract. What we noticed pretty early on is the amount of gross profit and volume that are generated in the DCH stores is vastly different than Lithia stores. So, the ability to play with expenses is pretty large because the grosses are so large and they're such quantity, so they're doing a great job of finding new opportunities. We spent the last two weeks down in the West Coast stores in LA. And their team is motivated, they're hungry, and they're looking for the next opportunity, and I think that's really to extract that extra SG&A out of – out of the stores. I hope that helps. Jamie Albertine - Stifel, Nicolaus & Co., Inc.: Extremely helpful. I really do appreciate that, Bryan. But if I may ask a follow-up. Related to the used side of the world, and I noticed number one, your slide 10 in your slide deck is extremely helpful. There is a lot of great detail on the trade-ins, and sort of how much of the trades are being retailed and so forth. But I did notice your inventory ticked a little bit higher in the fourth quarter. Wanted to get a sense of kind of what you are seeing on the used market, maybe looking into the first half of this year, and the question has been raised that what was good for new vehicle sales three years ago is good for used today, but obviously we're doing a lot more truck sales, lot higher truck demand today than there was three years ago. So, do you see any concerns with respect to the supply of either off-lease vehicles or the cars that you are seeing coming off on to trade? Thanks. Bryan B. DeBoer - President, Chief Executive Officer & Director: Good question, Jamie. This is Bryan again. Hey, one clarification. The pre-tax margin that I mentioned on Lithia is more in the upper 4%s, the 3.7% was aggregated between both Lithia and DCH. So, DCH at 2.1% today, and Lithia at 4.5%, 4.6%, 4.7%, something like that, there is at least, double the opportunities in the long-term. Okay. Jamie Albertine - Stifel, Nicolaus & Co., Inc.: Glad to hear that. I thought my math was wrong there. Bryan B. DeBoer - President, Chief Executive Officer & Director: On the used – no, you did good. Jamie Albertine - Stifel, Nicolaus & Co., Inc.: But thank you. Bryan B. DeBoer - President, Chief Executive Officer & Director: You did good. Okay, on the used, there's a couple things that we're looking at there, obviously we focus on that 75 units per store, we just moved a fairly big amount because of DCH stores are a little larger. So keep that in mind, that's about a 21% increase in same-store sales, over whatever period we think we – it'll take us to get to the 75 units, okay. And if you extrapolate that out, we sell about 18,000 units, so at 16,000 additional units, it's approximately $15 million in additional gross profit into the two divisions. So, it's pretty big money, it could be somewhere in the $15 million to $20 million in bottom line, depending on how well we manage that expense. In terms of the supply of used vehicles, I think, it's important to look at what's happening to same-store sales growth in revenue core product and certified. And I think, as we've looked back at the last few years, what we saw was large increases in certified, but we didn't see the large increases in value auto sales the last two years or core product. And what you're now starting to see is a pipeline that is starting to have a greater pool to pull from. So if you noticed value auto was up 11%, core was up 13%, and certified was up 12%. More similarly core product was up 12% in unit sales, which we look to be purely a supply based issue because if you remember the waterfall effect of used vehicle sales starts with the new vehicle sale or certified sale, and then we get that core product on one of those two as trade-ins, which is ultimately how we get the value auto car. So that supply, if you look back at units in operation, and what those sales volumes are on a SAAR basis new, you'll start to see that that 10.8 year and that 12.2 year (20:12) are starting to fall into that now in the value auto, which means that the years coming in are larger years, which will increase our supply and help us sell more used cars. Jamie Albertine - Stifel, Nicolaus & Co., Inc.: Okay. Great. Thanks so much, and best of luck in the first quarter.

Our next question comes from the line of Steve Dyer with Craig-Hallum. Please proceed with your question.

Good morning, guys, and nice results. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Thanks, Steve. Bryan B. DeBoer - President, Chief Executive Officer & Director: Thanks, Steve. Hope all is great in the Great Midwest.

Kind of. Couple of quick questions. Your parts and service guidance for this year of 5% looks it was relatively conservative to the – I think it was above 10%, you just did, obviously the fleet isn't getting particularly younger, there's still a lot under recall. Is that sort of conservatism, is there another dynamic going on there? How do you look at that? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah. Hey, Steve, it's Chris. I think, it's a little bit of everything. I mean, one, we have a tough comp to lap obviously from last year, and some of the success that we've seen in our parts and service business. I think that we're continuing to find new ways on the service drive to bring and attract new customers into our dealerships. And I think the other thing is on the recall side, just the uncertainty and the volatility that you have on what's happening with recalls, it seems like it's a very hard number to wrap our arms around and given that warranty was up 22% in the quarter and watching that happen throughout the year, it's pretty hard to predict. So wrapping that together is how we came up with our 5% comp for the year and we hope it's much stronger than that.

Got it. That's helpful. There's been I think, a little bit of chatter on subprime and delinquencies ticking up a little bit, do you have a sort of a view on that, are you seeing any change in what can or can't get financed, et cetera? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah, Steve, Chris again. Our subprime business still makes up low teens as far as a percentage of the financed deals that we do, which definitely still lags some of the general metrics that we've seen. Part of this, I think, has to do with the markets that we're in, that are still running fairly high unemployment rates. I think, the other side is just the products that we sell in the metro markets whether it's the import or luxury brands. And so nothing that I can see right now or that we've seen internally would indicate that there's going to be any headwind on the subprime side. I think that what we're still looking to do is find opportunities to grow our subprime business. And so – no additional color there I can provide.

Okay. And then hoping back, I forgot to ask on the parts and service. A couple of other of the publicly traded retailers have said they're having trouble finding service techs or that's an impediment. Are you seeing that in your markets or I mean is that an impediment to you guys going forward? Bryan B. DeBoer - President, Chief Executive Officer & Director: Steve, Bryan again. We've talked a lot on the previous calls over the last four years or five years that in Texas, and even some in Montana, that it's been difficult to find technicians, because we were typically fighting the workers out in the field – oil fields. The neat thing that is happening is, those workers are coming back into the stores now to hopefully help service the cars that we sold over the last five years to all the oil workers. So, believe it or not, it seems as though in most of the areas of the country that if anything there has been a relaxation of supply of technicians in our markets.

Interesting. That's very helpful. Then just quickly on acquisitions, what are you seeing in terms of valuations, asking prices, et cetera, obviously I'd like to see the buyback, given where the stock has been. But are you seeing asking prices come down at all; obviously that typically lags, but anything – any color there? Bryan B. DeBoer - President, Chief Executive Officer & Director: Steve, Bryan. I would say that, there is no question that the last 24 months that asking prices on deals are probably higher than historical averages. However, there is probably two times to three times as many deals as there has typically been out there even pre-recessionary days. So, there are still a lot of deals, we really believe that, what will start to happen is the asking prices and the realization of what money can actually be obtained to sell your store will more likely come and subside a little bit. And I – it's funny though that, even with the high asking prices, we somehow seem to find those opportunities, because typically we buy off what earnings of the sellers are and we typically buy average in somewhat underperforming stores which allows us, to have the high return on our investments, that we expect. So, I think, they will subside a little bit, which could provide some opportunity, but that's always within reason because ultimately, there is only so much that a seller can affordably sell for and still retire. And I think that's the anomaly that happened in the last recession, god forbid we have another one, but was that a lot of people just hunkered down and didn't sell because the multiples weren't high enough. So, we hope that it finds this good equilibrium between good prices that buyers can buy and sellers are willing to sell.

Got it. Very helpful. Thanks guys, good luck. Bryan B. DeBoer - President, Chief Executive Officer & Director: Okay. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Thanks, Steve.

Our next question comes from the line of Tony Cristello with BB&T. Please proceed with your question. Anthony F. Cristello - BB&T Capital Markets: Thank you. Good morning. Bryan B. DeBoer - President, Chief Executive Officer & Director: Good morning. Anthony F. Cristello - BB&T Capital Markets: First question I have pertains to the used side of the business, and the number of off lease vehicles that you have coming to you in the next two years, three years. I'm wondering, (26:41) view that in terms of growing your used to (26:45) and do you think your existing infrastructure is set to take a 1:1 ratio or 1.2:1 ratio or would that take (26:58) from an infrastructure standpoint to handle (27:02)? Bryan B. DeBoer - President, Chief Executive Officer & Director: You're breaking up. Anthony F. Cristello - BB&T Capital Markets: I'm sorry did you hear, I'm not sure how much... Bryan B. DeBoer - President, Chief Executive Officer & Director: I think, I – this is Bryan, Tony. I think I got enough of it just steer me the right way if I'm – if I get off track, okay. You asked specifically about the off-leased vehicles, if you recall the Lithia divisions off-leased vehicles is pretty low, it's not something that we really rely on as a supply chain because we focus more on the trade-in, as well as the downstream core and value products. However, we are getting better at that and are now, a little over – we're low single – low teens, in terms of lease percentage, so that will grow in important for us, and maybe able to add to that certified sale which we hope. And on the DCH side, they average in the high 30 percentile to even 40 percentile of lease sales on their new vehicles. And that is an extremely high part of their supply chain for used vehicles and that is a growing amount. So, we really believe that as DCH gets more of those vehicles, it allows them to be able to grow that, we'll call it the used to new ratio. So if you noticed, we announced that it was 0.7:1, we've been running at 0.8:1, 0.9:1. So, DCH in relationship to their new car sales does sell less used vehicles, because there's so high a volume on new vehicles. I think if we look forward at the opportunity to sell the 75 vehicles, I'd like to point out that 75 vehicles – it barely gets us to a 1:1 and more importantly, our best stores do 2:1 to 2.5:1. So, the idea of a 1:1 or 1.2:1 as you mentioned I believe is fairly reasonable. My little Honda store that I operated for eight, nine years, used to sell 3:1. So, those ideas and that belief in our team is really driven off finding the right cars that match your consumer demand and being able to drive it in all three buckets of used vehicle sales and when they can do that and the supply is there and our people have become experts at mining and finding those cars, look out. That's where we can be very successful in the coming years and really look at that as one of the two primary drivers along with fixed operations to be able to continue to grow top line as well as being driven through the bottom line. Anthony F. Cristello - BB&T Capital Markets: Do you think that with the perception of a flattening SAAR that the opportunity then for the used side for your business growth will continue to accelerate or be outpaced relative to where it has been in the last couple years? Bryan B. DeBoer - President, Chief Executive Officer & Director: This is Bryan again, Tony. I think that that's a fair assumption. I also think when you look at new vehicle SAAR, you also need to look at specific markets, as well as specific market share. Because just because new vehicle SAAR will subside and whether it is or isn't right now is another whole discussion, okay. I think more importantly than that is market share is driven by great people. And I think the way that we show that as an example is we have Subaru stores in certain instances that can outsell the other two major imports, which is typically unheard of. We have CJD stores or other manufacturers that sell vastly greater market share or number of units than the lead competitors in the nation within those brands. And I think that's important delineation, that every market and every team within our stores or departments perform differently. So, even as SAAR may subside, there is still market share that can be gained and if large groups have greater synergies and attract a higher quality of person, then they still have the ability to grow same-store business and to grow their customer base that will obviously then be the elixir to used vehicles and service and parts, as a peer continuum. Anthony F. Cristello - BB&T Capital Markets: Okay. That's very helpful. Maybe just one last follow-up. I assume then if you do see an acceleration or benefit from the – on the used side in the business, it also filters into the F&I and service sides of the business, where you could see a pickup or an acceleration in trend in those segments as well. Bryan B. DeBoer - President, Chief Executive Officer & Director: Great catch. And I think just to illustrate the example that we were talking about. It was $50 million in gross to go up 21% in used vehicle aggregated sales, okay, or approximately the 75 units, okay. So that kind of helps keep it in perspective and that's a blend of all of those things. Is it 70 – what is that, $700? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah. In addition, I mean, you'll see another $700 in gross per retail unit sold that'll make it into the service drive over that life cycle as well. So, together, those are both incrementally some pretty positive things for us, as we continue to sell more vehicles. Anthony F. Cristello - BB&T Capital Markets: Okay. That's great. Thank you for your time. Bryan B. DeBoer - President, Chief Executive Officer & Director: Thanks, Tony.

And our next question comes from the line of Paresh Jain with Morgan Stanley. Please proceed with your question. Paresh B. Jain - Morgan Stanley & Co. LLC: Good morning, everyone. Bryan B. DeBoer - President, Chief Executive Officer & Director: Morning. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Morning. Paresh B. Jain - Morgan Stanley & Co. LLC: First one on acquisition, you mentioned on the last call you were involved in a few big deals, but didn't go through them – go through with them. Given where we are in the cycle, is it perhaps better to acquire smaller dealer groups, one or two stores, so that you can turn them around quickly? Is that how you're thinking about it? Bryan B. DeBoer - President, Chief Executive Officer & Director: Paresh, this is Bryan. I think we look at deals under $100 million in revenue as somewhat sizable, but we look at that as our – let's call it our staple diet, okay, it's our meat and potatoes. We're always going to be doing that. And those are going to be there. I think, when we look at larger deals, those are more opportunistic and may come occasionally. The deals that we were talking about on previous calls were the East Coast and West Coast stores for DCH. We believe that both of those stores, the Subaru Riverside store, despite it being very small in revenues today and only selling about 450 new vehicles, we believe that the Riverside Subaru store has the potential to be a top 10 Subaru store in the country. And if you recall, our Reno Subaru store is a top five store in the country, and it does over $120 million, $130 million in revenue. Now, we don't forecast that because ultimately day supply in Subaru inventory is very tight, meaning our ability to move from 450 new units to 2,000 new units or 3,000 new units is going to be difficult. We also have a little bit of space constraint in that store, so hopefully we'll be able to go acquire some land. We have some – our finger on a few things to be able to grow that over the next three years to five years, and really put that on the map. We really look at that Toyota store as the same type of situation in Massachusetts that it has the potential to grow as well. The stores in Spokane, they're already selling almost double the volume that they were selling previously. Ultimately that all has to translate into profitability, and when you're starting new stores, it can take three months to six months to get the profitability there, but everything starts with volume. I hope that helps, Paresh. Paresh B. Jain - Morgan Stanley & Co. LLC: No. Definitely. The second question on F&I, your top two brands now, Honda and Toyota have both settled with CFPB to cap dealer spreads. Wanted to get a sense of where your average spread is versus those caps for the two brands? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah, Paresh, this is Chris. Where they settled on the spread and what that should look like represented less than 10% of the financed deals that we have. So, it has a real minimal impact on the overall spread that we have in our transactions, where there actually is spread and about 50% of the deals that we actually do in F&I are done on flat. So, not only does it affect the small subset of the deals that actually have dealer spread, but it's going to have a minimal impact on our overall finance income that we generate. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: Paresh, this is Sid. Just in – a little background on that. I'm on the National Auto Dealer Association as a Director from Oregon, and it's a key element of that is this work with CFPB, they've had hundreds literally of meetings with Cordray and his group. And the method that Honda is using has very little impact, and we're trying to get, and I think, we're being successful at getting the CFPB to accept that as a standard. And so, I think, the big fear of any loss in our reserve is pretty much behind us. Paresh B. Jain - Morgan Stanley & Co. LLC: Understood. That's helpful. And finally, one housekeeping one and forgive me if I missed this. Is there an underlying SAAR assumption to your guidance? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah. Paresh, this is Chris. No, well we continue to run our forecast on a store-by-store basis, market-by-market. So, you could translate it by taking our overall increase in new vehicle sales up 5%. But we don't use SAAR as a means to set the guidance. Paresh B. Jain - Morgan Stanley & Co. LLC: Understood. Thanks, guys.

Our next question comes from the line of Brett Hoselton with KeyBanc. Please proceed with your question.

Bryan, Chris, Sid, John, how are you? Bryan B. DeBoer - President, Chief Executive Officer & Director: Hey, Brett. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Hey, Brett. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: I'm doing good, Brett. Bryan B. DeBoer - President, Chief Executive Officer & Director: What's up?

I feel like I would ask Sid a question. So, maybe I will come up with one here, just even kind of quantitative... Sidney B. DeBoer - Founder & Executive Chairman, Chairman: Come on, I got the answers. Bryan B. DeBoer - President, Chief Executive Officer & Director: You'd make him really happy. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: (37:35)

For all I know, Sid. You're sitting there with a piece of paper and writing things down and sliding across to the guys and saying, say this. So, I think, you know, what I'm going to ask. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: And thanks. Well, Brett. I don't have to do that. These guys are getting better and better as you can see from the results.

Well, I would agree. I think, it's time for you to take a permanent vacation, my friend. You've earned it. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: Well that's not going to happen. Bryan B. DeBoer - President, Chief Executive Officer & Director: We'll miss him then way too much.

Well, I know, Bryan, just needs to make up something for you to do and so that you can, anyway. So Texas oil exposure, thoughts there, any positives or negatives there, concerns at all. I know, it – I get it. I get it as 8% of – in terms of impact in markets for you guys. So, I don't know if that's right or not. But what do you think? Bryan B. DeBoer - President, Chief Executive Officer & Director: This is Bryan, Brett. Good question. And like we discussed many times, every market responds differently. Texas is one of our softer markets, same-store sales in the quarter were up 1.4%, other oil markets such as Montana was up 24%, Alaska was up 11.4% in the quarter. They are dealing with some what we would call pressures, because they are used to in Texas especially being up what 8% – 22%, 23%, which is what they've been really seeing over the last four years or five years. So, what's really happening in those market is they're having to adjust their cost management to that flatter environment, and I think, we're starting to see it a little bit in Montana as well, and I think, they're doing a good job, because what we're starting to see in January, Texas actually is up a little higher in January, it was up 5.5% instead of the 1.4% I referenced. And they weren't down as much in pre-tax profit, which was a good thing. So, we think that they're starting to adjust to a flatter environment which is realistic to what they've been experiencing. More importantly, I think, it's – I think we have to keep this in perspective, especially in Texas. Because if you look at pre-recessionary sales volumes in new versus today, the volumes are almost 40% higher than what they were. The infrastructure is now built within those markets, and it will have higher levels than what they were, so there is a lot of service and parts business there. Our teams there have not really had to focus on selling used cars, because there was such a robust new vehicle market. So, I think, with change comes the opportunity to be able to extract higher margin businesses and continue to grow in those markets profit wise. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Hey, Brett, this is Chris. Just to start what you – or add to what you started with it, our Texas exposure at 20%, it's actually much lower than that, it's about 14%.

Perfect. Okay, great. Let me switch gears a little bit, talk about new vehicle gross profit per unit. So, the investment community, I think, let's say about a year ago or so, maybe a little less, saw the drop in gross profit per unit, particularly on the new car side and kind of panicked thinking that maybe new car sales are plateauing and therefore maybe were kind of pushing a string here a little bit in order to get some volume, we're going to take lower gross profit, lower margins. And the concern here is with sales plateauing and lower gross profit per unit, so your total gross profit is not going to grow, it's actually going to plateau or maybe drop down, et cetera, et cetera, et cetera. What we argued at that time was that it's not that sales are getting weaker, it's really just a shift due to gas prices from cars to trucks, and the industry broadly just needs to adjust to it at both the dealer level, but also the manufacturing level, which generally takes in place over a two year to three year period of time slowly. My question to you is this, okay, one, do you agree with my assessment? Two, what are you seeing on the gross profit per unit side, not just new, but also used and F&I, and overall, because in – what we've seen is we've seen trend – the whole overall trending upwards, which is the most important numbers you guys often say. And then three, what are you seeing in terms of like supply of pickup trucks for utilities and so on and so forth relative to where we were six months or a year ago. As you kind of do the order banks, you get more pickup trucks then has the availability improved it all? Or is there still a lack of capacity to meet that demand? I know, it's a lot, but how much you're thinking. Bryan B. DeBoer - President, Chief Executive Officer & Director: Brett, Bryan.

Hey, Bryan. Bryan B. DeBoer - President, Chief Executive Officer & Director: I think you've got a pretty good grip on things. I think that's a fair assessment. I think, we can provide a little bit more detail that may help reinforce some of the thoughts that you're having as well. Probably the easiest way is to start again that our new vehicle, same-store, our unit average went up $53. If I give you the individual breakdown and obviously that's on the front end, total deal average we were up $118. What we're seeing is this, our luxury gross profit per unit was up $228. Now, keep in mind that we were below national average on luxury. However, there could be some fleet sales in all the national numbers, which typically happens towards the end of the year. So, also, take everything else with a grain of salt because of that, okay. Our import, which is 54% of Lithia's new vehicle sales, were up $211 in front end deal average, okay, which would indicate that, there is not margin pressure in that bucket, okay. Our domestic however, which could be indications of SUVs and trucks were down, so they were down a couple hundred dollars, $213. So we are seeing some anomalies, but again our beliefs are that every store and every market perform different, because the competition and the team that you've built. And it's easy for me to always put the owners back on that, but that's really why we believe that we can power through most of these markets, and I think, that the supply of SUVs and trucks are still improving at a dramatic rate, because they are still driven off of so many different factors such as housing starts and so many other things. So all positive there I really think, and I really believe that, that margin pressure or that margin pressure release, I think, it's okay. There's a lot of other factors that are occurring within the imports, luxury and domestic that could relieve some of the pressures on margin. And I hope that we all start to benefit from that in the public peer groups, as well as the private dealer body.

Excellent answer, Bryan, Chris, Sid, John. Thank you very much, gentlemen. I appreciate your time. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Thanks, Brett. Bryan B. DeBoer - President, Chief Executive Officer & Director: Thanks, Brett, to hear from you. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: The humor too.

Our next question comes from the line of Rick Nelson with Stephens. Please proceed with your question.

Hi, good morning, and nice quarter, guys. You've provided some pre-tax margin data for DCH and the core Lithia stores have differential for the fourth quarter, could you provide that also for the full year? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah. Rick, this is Chris. Not a huge deviation from what Bryan alluded to earlier and given the shared services centers that we've, and the consolidation that we have, it's probably not a metric that we're going to get much more granular on just because the numbers that Bryan is using are fairly loose estimate. Bryan B. DeBoer - President, Chief Executive Officer & Director: Chris, do you mind if I add something on SG&A a little bit? It may help you a little bit, Rick. We estimate that DCH's SG&A was somewhere in the 72 percentile, 73 percentile as a percentage of growth. If you look at the rest of the peer group, they are somewhere around 70-ish percentile. Lithia sits around 66 percentile, AutoNation around 68 percentile. We really believe, and I didn't – we didn't think this 16 months ago, when we combined, and I think, if you look back at our references, DCH was at mid-80s percentile, okay, and thought that it would be a real struggle even to get to maybe what we would call the more competitive metro-based peer group, which was really in the low to mid-70s percentile, we were there in one year and we assumed it may take three years to five years. So, our centers are really set on, let's start to drive towards where Lithia is at, which is another 600 basis points in drop in SG&A, and I still – I'm starting to believe, and I think our teams are starting to believe that it may even be able to challenge things below the Lithia because of that substantial volume and growth that's generated in both service and parts and new and used vehicle sales.

Sure. So just to kind of follow-up on that point, Bryan, is there anything structural with DCH, higher rents or that would prevent you from getting to Lithia averages? Bryan B. DeBoer - President, Chief Executive Officer & Director: So, DCH, if you recall, the neat part about them is the metro strategy, and it is somewhat different than most metropolitan strategies, they own 71% of their facilities, which allows for static – more static rents than in the past. We did have to remodel a number of stores, which increased rent a little bit, but as a whole, their rent factors are actually about the same as Lithia. The other thing that we look at when we look at opportunity in the future and stability of those stores to be able to really leverage that growth and cost structure is the stability of their people. And if you recall, DCH's culture had exceptional tenure for metropolitan markets. Their average general manager upon combination was 10 years. Now, George and their teams have made some upgrades over the past year. But, ultimately, when people come to DCH or Lithia for that matter, they come and they seem to stay because of the transparency in our models and the simplicity of our performance metrics. And I think that's a uniqueness that allows people to really thrive in our environments.

And how quick do you think you can close that gap between DCH and the core Lithia stores? Bryan B. DeBoer - President, Chief Executive Officer & Director: I wish I knew. What I do know is that we challenge them on a daily and monthly basis. They seem to be moving quicker than we ever expected on this stuff. And I think as long as we can keep them feeling that there's opportunities and that they haven't reached their limitations, which is what we've had to do in the Lithia division as well. It's one of our values of continuous improvement. They sure seem like they live that and they remain humble and eyes are wide open. So to me that's the making and the formula for continuing to grow and capture opportunities as quick as humanly possible. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: Rick – Rick, this is Sid. Never lose sight of the fact that it's total gross generated against fixed cost. I mean, SG&A by itself can fool you. So, it's really critical that we grow total gross profit and hold expenses in line, and yes, that will reflect but the total gross generated is more important than the percentage.

Understood. You guys did a great job with the gross. And thanks a lot and good luck. Bryan B. DeBoer - President, Chief Executive Officer & Director: Thanks, Rick.

Our next question comes from the line of Michael Montani with Evercore. Please proceed with your question.

Hey, guys. Congrats on the quarter. Just wanted to start off if I could on the gross per unit being up year-over-year. Is there any additional color you can provide, the $50 increase, and if we could peel back the onion to see core Lithia versus DCH, how would those two things have performed? And then any reason to think that that kind of a trend hasn't held up here through February? Bryan B. DeBoer - President, Chief Executive Officer & Director: This is Bryan. We don't have specific information on that for the divisions. We do know that through the first month, through January that things are stable and those trends continue. So – and we don't have specific that are GAAP in February yet, but early results are like I mentioned. We're right on track, and we're not seeing the instability that some in the sector or in the industry have mentioned. I think, more importantly than that, our western markets are fairly strong, okay. And I think every market is different and every store is different, and I think that's a important delineation that we all need to keep in mind going forward.

I guess maybe to ask differently then, in overall terms when you think about urban stores versus more rural stores, is there any noteworthy trend difference there? Bryan B. DeBoer - President, Chief Executive Officer & Director: We did not see any trend differences between our urban or our metropolitan stores.

Okay, thanks. Bryan B. DeBoer - President, Chief Executive Officer & Director: Good question.

And then just two last ones if I could, one was SG&A to gross at around 68% I think for the year was obviously impressive. How are you guys thinking about that line item into next year? Can you further improve it given the guidance that you've provided for revenue and gross? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah. Hey, Mike, it's Chris. We continue to do what we've done for the last several years which is just focus on the two major line items in SG&A. That's personnel cost, which makes about 66% of our SG&A up, and advertising which is the other – another 10%. And continuing to use metrics that identify productivity opportunities with our people, making sure that we get a good return on our investment in advertising, and sharing that with our stores so that they can make good decisions, has been really the key for us to continue to get that leverage. And so as far as looking forward, obviously we want to continue to drive down that leverage as much as possible. But our guidance is based on what our current performance looks like. I will tell you though that today we have stores that SG&A to gross is in the very low 60%s. And we have – our worst stores that are in the high 80%s, high 90%s, and so what we're really trying to do is maintain the stores that are performing at the top of the pack and bring more of our stores into that and obviously spend a lot of time and energy on the stores that have a lot of opportunity to either generate additional gross, which will bring that leverage down, or focus on cost control. And without getting into each individual store and identifying it on a store-by-store basis, it's really hard for us to say at corporate, what are we going to do drive SG&A? It's a store decision, it's a store opportunity. And we wrap our arms around almost 140 stores every single month and identify what those opportunities are. Bryan B. DeBoer - President, Chief Executive Officer & Director: Michael, just a little color there. Around 35 to 40 of our stores perform at vastly lower numbers in both performance and market share, and their ability to control expenses. So, there are still lots of opportunity within our existing stores and that's really a function of timing and what occurs in the market and our ability to attract and grow wonderful talent.

Okay, thanks. And just the last one I guess from me was on cash flow, and sorry if I missed this, I thought I heard $140 million or $150 million was what you did for CY 2015. Is there any guidance that you can share for 2016 in terms of CapEx spend and then also the free cash flow outlook, Chris? Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Yeah. Michael, Chris. So, we estimate our 2016 free cash flow is going to be somewhere around $160 million. And what I liked about that number is it includes about $100 million in CapEx, it's broken out in our slide deck specifically, but about $40 million of that CapEx is for post-acquisition cost, which means, it's probably non-recurring. So, what we look at into the future is once things stabilize and let's say that we didn't have additional acquisitions coming on board, even at maintaining the current sales levels that we're at, we're going to be generating somewhere north of $200 million in free cash flow. And as we said, our capital deployment strategy is unchanged, our number one use of capital is going to continue to be for acquisitions, trying to acquire some of those 2,600 stores that Bryan mentioned. We're going to continue to pay a sustainable long-term dividend and when our share price dislocates at levels that we feel are opportunistic, we're going to step in and buy back shares like we did so far in the first quarter. So, I'd say that would summarize it there, Michael.

Great. Thank you guys and good luck. Bryan B. DeBoer - President, Chief Executive Officer & Director: Thank you.

Thank you. Ladies and gentlemen due to time constraints, our final question will come from the line of David Whiston with Morningstar. Please proceed with your question.

Good morning. Thanks for getting me in. Question first on the $8 EPS milestone, one year to three years. Can you do that regardless if there is a recession? Bryan B. DeBoer - President, Chief Executive Officer & Director: David, this is Bryan. I think when you look at future growth, there is something that does occur. Quick recessions if it happens quickly, it's different than moving slowly into a 18 million SAAR and then retracting back to a 17 million three star (56:48) where source can adjust. So I think, it really depends on the experience of that type of event. I think that our stores because they make their individual decisions, because we have wonderful tracking of the metrics, they can adjust fairly reticent to changing climate or even a recession. If you recall, we had spoke many years ago about really the doomsday situation of an 8 million SAAR which is less than half of where we are and where we never got to in the previous recession. But that was really our breakeven point. So somewhere between that and our ability to hit the current milestones, if growth opportunities are there with acquisitions and our stores continue to be able to attract and capture the opportunity that many people and many dealers for that matter start to retract and pull back marketing and we can take market share, we can continue to grow our used cars and we can live off the service and parts business. It's feasible that all those stars line up and we're able to continue to hit our future milestones at a cadence despite weakening in the economy.

Okay. Bryan B. DeBoer - President, Chief Executive Officer & Director: Possible weakening in the economy. Was that better, David?

Yeah. I don't mean to imply the comments that you don't know. Bryan B. DeBoer - President, Chief Executive Officer & Director: Okay.

I wanted to go bigger picture a bit on the new Cadillac virtual store strategy for smaller markets, that was in the media recently, I was curious, I know you only have a few Cadillac franchises, but I was curious if this is going to impact your source? And what's your opinion on, is it really a good idea for customer to have a really great digital experience? But then not actually be able to see the car in a showroom? Bryan B. DeBoer - President, Chief Executive Officer & Director: David, this is Bryan. We don't have a lot of color there. We have a few Cadillac stores. One thing that we will say is, we're always supportive of manufacturers' marketing, branding and consumer efforts. So I think in terms of what they're doing, we like the strategy, it seems to make sense, but don't – it's not going to change anything really materially in how we operate. We're pretty transparent as it is and are pretty forthright in our processes. Sidney B. DeBoer - Founder & Executive Chairman, Chairman: David, this is Sid. General Motors is a great partner for us. They got wonderful cars and really they're one of the best manufacturers in the world. And I think that what they're moving to is to try to get more volume through the larger stores and still allow without terminating these guys that don't have much Cadillac exposure away to still sell their friend a Cadillac. But overall, we're going to do a lot with Cadillac, it's going to be moving into larger volume stores with it. It's got a great future.

Okay. Thanks, guys. Christopher S. Holzshu - Chief Financial Officer, Secretary & Senior VP: Thanks, David. Bryan B. DeBoer - President, Chief Executive Officer & Director: Thanks, David.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments. John F. North - CAO, Vice President-Finance & Controller: Thank you for joining us today. We look forward to updating you again in April. Have a great one.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.