Sonic Automotive, Inc. (SAH) Q4 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Sonic Automotive Fourth Quarter Earnings Conference Call. This conference call is being recorded today, Tuesday, February 23, 2016. Presentation materials, which management will be reviewing on this conference call can be accessed at the company's website at www.sonicautomotive.com by clicking on the Investor Relations link at the bottom of the page and choosing Webcasts & Presentations. At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information, or expectations about the company's products or market, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. I would now like to introduce Mr. Scott Smith, Co-Founder and CEO of Sonic Automotive. Mr. Smith, you may begin your conference. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Great, thank you. Well, good morning, everyone. Welcome to Sonic Automotive's fourth quarter 2015 earnings call. I'm Scott Smith, the company's CEO and Co-Founder. Joining me on the call today are David Smith, our Vice Chairman; Jeff Dyke, our Executive Vice President of Operations; Mr. Heath Byrd, our CFO; and C.G. Saffer, our Chief Accounting Officer. I trust that everyone has read the documents released earlier this morning. I'll provide some brief comments before opening the call to your questions. Needless to say, we're very pleased with our adjusted results from continuing operations for the quarter coming in at $0.61 per diluted share. Some fourth quarter 2015 highlights were: record Q4 new retail units of 35,228; record Q4 pre-owned retail units of 28,220; record Q4 fixed ops gross profit up 8.2% over the prior-year quarter; and at EchoPark, we retailed 764 units in the quarter. Some full-year 2015 highlights are: record annual new retail units of 138,129; record annual pre-owned retail units of 117,123; record annual fixed ops gross profit; record annual total gross profit; and at EchoPark, just in nine months roughly, we retailed 3,225 cars. We believe our dedication to providing best-in-class customer service has allowed us to translate these activities into strong results hitting bottom line. We did experience some new vehicle pricing pressure due to various external factors, which contributed to lower gross profit per unit amount in some brands. A combination of transparency in pricing and high levels of inventory supply for specific manufacturers impacted profitability on a new retail unit sales basis. We'll continue to work with our OEM partners to optimize our inventory and days supply. On the pre-owned side, we've also seen record unit sales as we continue to believe that there is a vast opportunity in this area. We're able to grow our pre-owned units on a same-store basis by 6.2% during the quarter. These increases in unit sales enabled us to capitalize on opportunities in the F&I area, resulting in increases in Q4 F&I growth of 9.6% on a same-store basis. Fixed ops were particularly strong, with solid results across customer pay and warranty. Gross profit in fixed ops increased 9.6% on a same-store basis. On the strategic front, we continue to execute our long-term strategies of One Sonic-One Experience, EchoPark, and returning capital to our shareholders. The next phase of our One Sonic-One Experience initiative has already begun, and we're pleased with the feedback that we're receiving from both our customers and associates. At EchoPark, we're making progress to open additional stores. In the Denver market, two additional stores are scheduled to open in the first half of 2016 and two others later in the year or the first quarter of 2017. We're also scouting and acquiring properties in other markets. We're closely tracking our customer feedback and it's been outstanding and encouraging and we're creating raging fans. What we're hearing is that it's the best car-buying experience that they've ever had. To show our commitment to returning capital to shareholders, we repurchased 4 million shares in the first quarter of 2016. This represents approximately 8% of the outstanding shares as of 12/31/2015. These repurchases bring us down to an outstanding share count, 46 million, compared to our high in December of 2010 of 65.8 million shares, with the share dilution impact of convertible notes. In addition, we have raised our dividend to a quarterly rate of $0.05 per share. On an annual basis for 2015, we're pleased that on an adjusted continuing ops basis, we made $1.97 per diluted share. This compares to the range of $1.85 to $1.95 provided at the beginning of the year. Our outlook for 2016 continues to be positive. We expect the 2016 SAAR to range between 17.3 million to 17.7 million units. We project our consolidated earnings per share – diluted earnings per share from continuing ops to be between $2.07 and $2.17. This includes an expected investment related to EchoPark projected to be between $0.21 and $0.23 per diluted share. At this point, we'd like to open the call up for your questions.

Our first question comes from the line of Rick Nelson with Stephens.

Thanks. Good morning, guys. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Hi, Rick.

The margin pressures, I'm curious, is that primarily confined to the premium luxury segment, and do you think those margin pressures continue, and if so, for how long?

Hey, Rick; it's Jeff Dyke. Mostly it's Mercedes, Audi, and BMW, and really Audi and BMW. That has a lot to do with the increase in inventory levels. And we noticed that trend beginning to happen way back in the end of the third quarter and began to make adjustments in our ordering processes. So we did see some margin compression in Q4. We had very little margin compression in January, and we're seeing about the same levels in February. So I think that, while we are getting BMW and Audi in particular in shape when it comes to total inventory levels, we're going to have a little pressure. That's going to be January, February, March, April-ish. But things should start to level out as we get into the summer months and we sell through the 2016s with BMW. BMW came out on their model year 2017s with a new program, so that should help margin there and we applaud them for that, and hopefully this is behind us here in a couple of months.

Great. Thanks for that color, Jeff. Also curious, in your guidance, how many EchoPark stores are embedded into that?

Now, if I told you all that, I'd have to shoot you. We've got two more stores opening, as Scott said earlier, here at the first half of the year, May-June timeframe. We've got another two that will hopefully open, given the weather in Denver, by the end of the year. We've got two other markets that we will open. We're not ready to announce them yet. And I don't know that we get a store open in those other two markets this year or not, Rick. We're trying to mass properties so we're not just opening one and two stores. Our goal would be to open four or five stores at a time, given the pod that we open. And I'm hoping that we'll break ground and get one of the pods open in the fourth quarter. That would add just stores in the fourth quarter; and if so, it would be four, five, six stores, something like that. And then in 2017, you'll see a pretty good swath of stores get opened. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Rick, this is Scott. One of the other reasons why we are waiting to open simultaneously is, when we order the materials for construction, it's significantly less expensive and we can move significantly faster in erecting facilities and it's bringing the costs down for these pods.

And on top of that, the training that we do, we'll train for four or five stores at one time versus training one store at a time, which reduces cost as well. So, we've learned a lot with our first three stores opening. We're very pleased with the amount of volume and gross that we're getting out of those stores, and so it won't be long now that we'll see a bunch more EchoPark stores up and running.

Thanks for that. Also, would like to ask you about geographies, areas where you're seeing strength and weakness, and I guess I'm particularly interested in any commentary on Texas.

Yeah, well, it's no surprise. When you get oil dropping – I think we're at $32 a barrel today, but when it drops like it was, under $30 a barrel, we haven't seen that in a long time, it's putting pressure in particular on the high-line stores in Houston for us, and in particular in the energy corridor there up and down I-10, where we've got a bunch of high-line stores. So there's no question there's pressure there, but our used car business is really good. Our fixed operations business is really good. And, as you saw in the quarter, those two categories, along with F&I, really carried the weight for us. So we can withstand this for a good long while, if that's what it's going to take. Our California business is good. Our Colorado business is good. The Carolina business is good. Florida's solid. So, I mean, there's no question we've seen a little slowdown in the high lines. A lot of that, in my opinion, has to do with just an overabundance of production, so law of supply and demand, but Texas is certainly the biggest opportunity market that we have right now and Houston being the biggest of that. And I don't think it's going to take all year for it to return; we'll see what oil does. But you got a resilient market there now. The last time oil dropped like this, you just didn't have the medical business like you do today and that city, if you go to it, is still booming along. So, hopefully we've got some protection there and we'll continue to see our business grow especially in the other categories if new is going to stay slow.

Great. Thanks a lot. Nice quarter and good luck.

Thank you. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Okay. Thank you.

Your next question comes from the line of John Murphy with Bank of America.

Good morning, guys. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: John, good morning.

A first question on the gross profit, just kind of follow-up on Rick's question there. Is there anything you're seeing on mix within BMW, Mercedes, and Audi? Meaning, are the real pressures on gross coming on the car side, and the crossovers and SUVs are doing just fine? And also, is there anything in the geographies that you're seeing for those brands on gross profit per unit?

Yeah, I would tell you that it's probably a combination of both in Texas and in Houston, because we don't have BMW and Audi in Dallas, but in Houston, we're seeing margin across all the model lines. There is probably more pressure outside of Texas on cars than there are crossover and sport utility vehicles. But definitely in Houston, we're feeling the pressure across all model lines there, in particular with Audi, in particular with BMW. And, John, I think a lot of that has to do with the amount of inventory we have there. Those are where our biggest stores are, some of our biggest stores and we've worked with BMW and with Audi to make sure that we're doing what they need us to do, but at the same time, manage those inventory levels and I think everybody else in town has done the same. And so, we've all got a lot more inventory than we normally would, with the sales rate slowing down because of the economy there and it's created pressure across all model lines.

Okay. But if we were to look at other areas in your operations, would you say that crossovers are relatively tight on inventory, or are they also heavy on inventory as well?

If you start looking in the imports in other markets, there's no question that trucks and crossovers are light on inventory and we're heavy on car. In particular with Toyota, we spent the back half of the year with Toyota sitting at about a 12% truck inventory, which is terrible, because so goes Toyota and we've got several stores, so goes Toyota margin, but you're not finding it in Camry and Corolla, right? So, there's no question that that's plagued us and it's plagued the industry. And if you've been to the Toyota dealer meetings and things like that, that's probably the number-one complaint, is just getting more crossover, Highlanders, Tundras, and that type of inventory on the ground. And Honda has done a really good job. Our margins with Honda are way up, actually, year-over-year. Our volume is up. Our profits are up. So, I think kudos to them. They've done some of the best job in terms of managing that inventory out of all of the brands. But no question, if you just segregate out Texas and that inventory issue, we're light on crossover and sport utes and trucks.

Okay. That's helpful.

And if gas is going to stay this low for a while, we're going to need to produce more. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Yes. This is Scott, John. I think whichever manufacturers can retool during the summer, and whoever is first to the punch there with production on sport utilities and trucks, will be in pretty good shape for the balance of the year.

Okay. That's helpful. Then a second question. If we look at SG&A on slide 20, it looks like comp went up as a percentage of SG&A by just about 2 points. Was there anything going on there, or is that really the acceleration of the EchoPark efforts?

That's part of it, and I think Houston is another little bit a part of that. But nothing out – no outliers there. Our pay plans didn't change. No corrections, no element changes or anything like that.

Okay. Heath R. Byrd - Chief Financial Officer & Executive Vice President: It really was, this is Heath, it's more of a growth issue than an expense issue. And we got things such as medical and stuff that's running through there that was a little bit higher this year than expected.

Yeah. No, that makes sense. And then just lastly, obviously, you guys saw a real opportunity in buying back the shares, which seems like it made a lot of sense, and you acted very quickly there. It looks like you used, I don't know, 70%, 80% of the incremental buyback authorization. Do you think you could get more authorization if your shares remain very attractive, or how much capacity do you think you have to buy back shares? Because it just seems like relative to doing the acquisitions in the private market, buying back your stock makes sense all day long. Heath R. Byrd - Chief Financial Officer & Executive Vice President: Yes, this is Heath. We don't anticipate any problem getting additional authorization from the board, if needed. And you're exactly right, if you look right now, at least before this morning, our valuation, we were trading at 3.2 times our store-level EBIT. And so it becomes an obvious decision on what you do with your money as it relates to spending 8 to 10 times EBIT to acquire. So, it's still attractive, and we think we'll continue evaluating the market to be sure it's the best use of our capital.

Great. Thank you very much. Heath R. Byrd - Chief Financial Officer & Executive Vice President: And just one clarification, I actually saw in one of the first takes. I think someone indicated we had $48 million left in authorization. We actually have $72 million left in authorization right now.

Okay. So, you have a decent amount of room to go out there right now. Okay. Thank you very much. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Thanks. Heath R. Byrd - Chief Financial Officer & Executive Vice President: Thanks.

Your next question comes from the line of Paresh Jain with Morgan Stanley. Paresh B. Jain - Morgan Stanley & Co. LLC: Good morning, everyone. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Good morning.

Good morning. Paresh B. Jain - Morgan Stanley & Co. LLC: Just a couple of broad industry-level questions. Jeff, you highlighted oil production as an issue, not just the mix. But mix, the expectation is that it will correct itself in a couple of quarters. But historically this has been more like a sell-what-you-can-make kind of industry. And as one of your peers pointed out, every OEM is planning to gain share. So shouldn't we think of this as a more longer term issue because of the capacity in place and the rerouting of production that was perhaps meant for other regions?

Yeah. From a margin perspective, you could say that across the board for the industry. But for Sonic Automotive, as soon as we correct a couple of these brands in terms of our levels of inventory, we feel comfortable that – I mean, we've already started correcting, and I think if you look at our new car PUR for January, for example, I think the year-over-year margin erosion was $15. So, it's really – I mean, we don't really see massive erosion kind of like you've experienced in the fourth quarter in and outside of Sonic. So, yes, I do believe that you're going to have an overabundance of inventory. I do believe that there are going to be those that are going to be dealing with that all year long. We've just been very quick to the punch to stop all of that at Sonic and to limit our exposure as best we can. Now, what will help is what Scott talked about earlier, and that's the retooling. If we had more trucks and SUVs on the ground, it'd make a big difference in terms of our margins; we just make more margin on that product. And hopefully as we move forward and some of these brands adjust, as well as, as you know, we've got a big exposure to BMW and once the 2016s are out and the new 2017 model year starts selling, then their whole new margin program is going to help a lot as well. So, overall, for Sonic, I don't see this being a major margin bust for the rest of the year. I think we're going to see a little pressure here for the next couple of months, and that will ease up as we move forward. Paresh B. Jain - Morgan Stanley & Co. LLC: Understood. So, it seems like you guys won't be chasing volume, and that kind of explains your SAAR expectations. Is that right?

You know, look, we're not going to give away market share. That's for darn sure, but we've been in this market share situation working with One Sonic-One Experience for a long time now. So, we're not looking to give up any share. What we're not going to do is go bastardize the business, right. That won't happen. So, there's competitors out there that want to just give cars away. Let them knock their socks off. We're not – that still won't cause us to give a lot of share up, just because of the assets that we have and the locations that we have. And so, we're projecting to have an average normal increase that we've had in the new car for 2016 like we've had the last couple years; and our used car business is on fire right now, and we project that to continue on for the remainder of the year. Paresh B. Jain - Morgan Stanley & Co. LLC: Understood. Then one on the cost structure, the Internet has certainly played its part of bringing down GPUs to some extent. Wouldn't you say the Internet has also reduced, to some extent, not by a lot, the role of a traditional salesperson and what that means for compensation structure going forward?

I mean, look, that's just feeding right into our hands. If you look at One Sonic-One Experience, we don't have a traditional salesperson in that store. Our Experience guy does the entire delivery and the same at EchoPark. They do everything. So, we don't have the traditional F&I department, the traditional management teams. We've got the one person that does the entire transaction and that's exactly what we believe, and that's the experience that we're rolling out and...

And customers love it.

Yeah, and the customers do. David Smith just chimed in that the customers love it. If you could just read the verbatims that we get from everywhere, we don't ever get anything bad. It's unbelievable. And that's what gives us just so much strength to keep pressing forward is our guests and our associates are in love with what we're doing. And so, the more we put this technology to work, you're right, the less overhead we're going to need; the less compensation we're going to need. And that's what we've been saying all along is, this is what's coming. But you got to go through some hills and valleys in order to get there and we've got the fortitude to be able to do that. Paresh B. Jain - Morgan Stanley & Co. LLC: Understood. And lastly on F&I, with obviously flattish SAAR expectations and expectation of used to outgrow new vehicle sales significantly, should we expect F&I per vehicle to see some headwinds here just because of the mix? Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: No. No. Our F&I – we've got lots of room in our F&I, and our vehicle services contract penetration is going up. We feel like we've got a great team and a lot of room there. So, again, I'm not speaking for the industry. I'm just speaking at Sonic, we've got plenty of room to grow our F&I and look for that to continue to grow this year. Paresh B. Jain - Morgan Stanley & Co. LLC: Thank you.

Your next question comes from David Tamberrino with Goldman Sachs. David Tamberrino - Goldman Sachs & Co.: Great. Thanks for taking my questions. My first one I think is just a follow-up from earlier. I think looking at the adjusted SG&A to gross for the quarter on slide 20, it looks like comp was up as a percentage year-over-year from Q4 2014 to Q4 2015. What was driving that I think 200 basis point increase from 44.6% to 46.6%? Heath R. Byrd - Chief Financial Officer & Executive Vice President: Yes, I'll go ahead; this is Heath. One of the big issues there is higher medical expense, which actually falls in that category for that graph. That, coupled with as we build – one of the other initiatives is our shared services center where we will be centralizing accounting. As we build that up, you had additional expenses related to comp for that initiative, and the rest is just as we ramp up EchoPark. David Tamberrino - Goldman Sachs & Co.: Okay. That's fair. And then on the EchoPark, it looks like the guidance is for a loss of $0.21 to $0.23, which is a little bit larger per share than what you experienced in 2015 with about $0.19 on a lower share count. What's driving that increased drag year-over-year?

It's actually the same. Heath R. Byrd - Chief Financial Officer & Executive Vice President: Same. Yeah.

It's just the difference of the share count. Heath R. Byrd - Chief Financial Officer & Executive Vice President: Yeah. Pre-tax it's equivalent to the loss we had this year. David Tamberrino - Goldman Sachs & Co.: Okay; that's helpful. And then OSOE, we haven't seen – or least in the slide deck, I didn't see really an update on how you're doing within the markets you've rolled out. I think historically you've given us how the market share has been going versus the margin on those different locations that have come out. Is there an update there? Is it still kind of steady as she goes? You've been gaining market share but the margins have been coming in.

Yeah, we got all of our market share and we've kept it. Our business in the Charlotte market is – it was just a broken recording, a broken record. We're saying the same thing every quarter, but our share is fantastic in the Charlotte market, and our margins are improving with some of the brands and others not. And so that's why we made the decision to roll out the technology as we continue to work on pricing in the Charlotte market. And as soon as we narrow that down, then we'll start moving that phase of One Sonic-One Experience into the other stores. But we couldn't be more pleased with our CSI. We're actually 100% CSI in sales and service for the fourth quarter, which is unheard of. Our associate satisfaction is high. Our turnover is low. Our market share has been fantastic. There's just not a whole lot to complain about other than on the new car side, margins, and we continue to work on that. And as soon as we perfect it, then we'll move that into the rest of the stores. Right now, it's just a focus on moving the technology. The technology is so good that it just makes everybody's jobs a lot easier, will reduce the amount of time it takes the guest to come into our stores and buy a vehicle. Even though we're not rolling out the pricing in the One Price, it still is going to reduce the amount of time and make a big difference for our guests and our associates in our other stores. So, that rollout started last week. The technology started going into the stores this week. So far, the startup has just been flawless. We learned a lot when we rolled out a while back in Charlotte. And we dotted Is, crossed our Ts, and it's just put us in a great position to be able to roll the technology out in the other stores. David Tamberrino - Goldman Sachs & Co.: Okay. That's helpful. And just...

All right. David Tamberrino - Goldman Sachs & Co.: ...on completion...

Just one last comment. If you just rank our stores, we are the first or second in every brand in terms of market share in the Charlotte market. David Tamberrino - Goldman Sachs & Co.: In the Charlotte market. How long – I think we got an update in the third quarter, but is it still by the end of 2017 that OSOE and the pricing tool should be at every location? I mean, is that the timeline we're still looking at or is it going to be beyond 2017?

No. We ought to have – so we've got a – with the update that we gave you, which was a three-phase rollout, in the first phase, our CRM tool, our desking tool and our appraisal tool are all going into place. We ought to have that done by the end of 2017 is my guess, maybe a little bit before then, but somewhere in that ballpark. The second phase would be rolling out the F&I tool. We'll start that some time towards the end of this year, maybe a little sooner. The third phase will be pricing, and that's a TBD. Until we get it right here, we're not going to roll it out obviously. We're going to – this is smart play and we want to, but you got to see the margin results before we put that in play anywhere else. David Tamberrino - Goldman Sachs & Co.: Okay. And then last one from us, just on the pace of sales that you've seen in February so far, has it been similar to where we finished in January or has there been any increase coming out of where the January pace of sales was, given the winter weather that impacted it?

Yeah, I'll divide it up into two pieces. The new car piece is – the pace is about the same, not any surprises there. January and February are always a bit of a struggle, in particular, on the high-line side. And our pre-owned business is just on fire. We're just selling the heck out of pre-owned cars. It's great, and that's across the board. Whether we talk about EchoPark or Sonic Automotive, our pre-owned business is just fantastic and continues to grow. So, we're blessed there. David Tamberrino - Goldman Sachs & Co.: Wonderful. Thanks for taking the questions.

You bet.

Your next question comes from Michael Montani with Evercore.

Hey, guys. Good morning. Thanks for taking the questions. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Good morning.

Good morning.

As first, if I could, just on EchoPark, if you can provide an update on four-wall profitability there and when we might anticipate – is it a CY 2017 or CY 2018 event where on a total basis it would actually be accretive to EPS?

Yeah. When we first rolled out EchoPark, we said it would be four years before you would be cash flow positive. We've had some months where we're cash flow positive already in some of the stores that we're operating now. So, no, 2017 won't be the year. I mean, we've got a few more years before we get to where the stores can absorb the overhead that we have for all of EchoPark. And that was all planned. On this journey, we hit our – I think we're within $200,000 of our internal forecast for EchoPark for the first year, something we developed 18 months ago. So we're very pleased with where we are. Obviously, we wouldn't be continuing to roll if we weren't. We're selling a bunch of cars and great Denver market. The weather has played some roles here and there. But overall, very, very pleased; and the next two markets we think will just motor even stronger. So, we've said all along in the fourth year, and we're still on target for that.

Great. Thanks. And then, if I could just ask for a little additional color on the inventory days. Obviously up from 54 to 64; maybe it was a bit too low last year. But I guess the question there is just can you provide any incremental color about where premium luxury is versus kind of mid-line and then domestic within that?

Yeah, sure. First of all, 100% of our increase in inventory can be measured through BMW, Audi, and then Mercedes-Benz in the fourth quarter year-over-year comparative. 100% of that growth is there. Overall, we ended December at 63.5 days. We're at luxury at 68; 44 on imports excluding luxury; and ending December in domestic we were at 84. So the big jump for us, though, is – because you have to be careful about what products are slowing down in sales and what products are increasing in sales; that can play a big role in your days supply. But the big increase for us is BMW and then Audi. Those two brands are seeing the largest impact for Sonic Automotive in terms of overall inventory increase. And that's what we're very focused on right now and have been for several months now, making sure that we control that, so that as we get into March, April, May and the summer selling season we don't overcorrect, so we have plenty of inventory on the ground. But we do manage so that we just don't have the abundance that we have ending December. And all of our – all of those brands, in particular BMW, improved from December to January. And they'll continue to improve as we move forward.

Okay. Great. And then if I could just follow-up on the GPU pressure, the 7% per unit, is that basically all premium luxury? And then if we could see domestic and import, they'd be kind of flattish, or can you provide any incremental color within category?

Yeah, happy to. Our GPU – 100% of the reduction was also caused by BMW, Audi, and Mercedes-Benz. I think combined those three brands in the fourth quarter were off like $190 a car across the entire company. It affected the whole company by $190, where the company was off $156, I think. Actually, to be honest with you, our Honda brand our margins are up. Like I said they've done a great job managing inventory. When you manage inventory really well, you have great product, you're going to have good margin. Some margin erosion we're seeing in Texas with Ford in some of domestic stores. That has probably more to do with what's going on in the economy than it does the brand, and maybe a little bit of mix shift. But again as they produce more trucks and things I think that will get better. Well, that's the color. It's really premium luxury and really driven by BMW and Audi.

Great. If I could just to finish up here and then I'll jump back, but one was on the EPS guidance. It seems to imply an 8% increase year-over-year at the midpoint, which basically, if I use the current share count of, what, 45 million and some change, sort of suggests that it's all buyback-driven and that the EBIT dollars might be flattish. I guess, am I reading that correctly, number one? And then number two, maybe the tax and interest assumptions, if you could share those that you've embedded? Heath R. Byrd - Chief Financial Officer & Executive Vice President: Yeah, sure. A couple of things. We actually are modeling based on 47.2 million shares. We've got grants that will be vesting through the year. So, the share count, if we do not continue to see buyback program would actually increase a little bit due to those grants vesting. It is, from an EBIT perspective, relatively flat. And then we have some issues with an increase in depreciation as it relates to some of the IT that we're rolling out for EchoPark and One Sonic-One Experience, as well as new facilities that are coming online, and a little bit of increase in interest. Depreciation we're modeling to increase about $8 million and interest about $1.8 million. So, that's the delta that you're seeing.

And just for OSOE – I'm sorry – centralization rather, Heath, is there any number you can share? What was the EPS impact for CY 2015? And does that actually get better or worse in CY 2017 – or 2016, rather? Heath R. Byrd - Chief Financial Officer & Executive Vice President: Yeah, I would estimate $0.01 to $0.02. And, yes, it will get better. We actually have a rollout planned to finalize centralization by June of 2017. At that point and during the implementation, we'll start being able to look at head count at the store level and find some expense reductions as we move everything internally or centrally.

Great. Thank you for the color.

Your next question comes from the line of Steve McManus with Sidoti & Company. Stephen J. McManus - Sidoti & Co. LLC: Hey, guys. Good morning and thanks for taking my questions. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Hi, Steve. Good morning. Stephen J. McManus - Sidoti & Co. LLC: So, the first one, obviously, you have a few new EchoPark locations coming online in 2016. Can you give us an idea of the typical cost and timeframe you expect to get one new location up and running?

Sure. It takes – once we buy the piece of property and get through all of the baloney that you have to go through to do that, it takes us about six months. And we're working on bringing that down to four months. And the average store costs between $7 million and $8 million, somewhere in that ballpark. And that includes property; it includes technology, everything. That's opening the doors, ready for business. Stephen J. McManus - Sidoti & Co. LLC: Okay. And then we saw a nice pick up in fixed ops margins. Is that mainly due to the added customer pay work or is there anything else worth noting there?

I looked at it, it's really all of the above. The increased used or pre-owned business is helping too, from an internal perspective, and our CP business is really good; warranty is up. I mean, overall, our fixed operations business is rolling. If you'll remember in the beginning of the year we were really struggling with the amount of warranty work coming in and sucking up CP hours. But we added an incremental 205 technicians for the year, and that just made all the difference in the world. We've really been able to grow our customer pay business, and that's just really helping. It's helping from a margin perspective as well. Stephen J. McManus - Sidoti & Co. LLC: Okay. Then the last one I have, is there any diversification efforts or brand mix changes kind of in the works right now just to help mitigate the luxury pricing pressure, or do you think that mix will remain relatively stable moving forward?

Yeah. I mean, no, we're focused on growing EchoPark and lessening our exposure overall from the new car issues that can come and go. But, no, there's no plans to increase Honda or Toyota by an amount that would make a big difference or a major impact on the company for the year. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: And not to mention the price that it would cost to do that diversification by additional stores versus the price of our stock. It doesn't make a lot of sense.

Yeah, we'd be much smarter to go buy our stock than to do that. Stephen J. McManus - Sidoti & Co. LLC: Okay. Great. I appreciate it, guys. Thanks a lot.

Thank you.

Your next question comes from Bill Armstrong with C.L. King & Associates. William R. Armstrong - C.L. King & Associates, Inc.: Good morning, gentlemen. I have a question about GPUs for used. Looks like that sort of flattened out a little bit over the last three quarters. I mean, should we be – I guess, do you see that staying sort of in that high $1,300 range? And what sort of factors should we be considering that may either reduce or improve GPUs for used going forward?

No, I think that we've done enough homework. In and around that high $1,300, low $1,400 range is where we maximize our gross dollars and our volume. And so, I don't see that changing. I think we'll be right in that same ballpark as we move throughout the year. And that's kind of our targeted GPU, and so it might be plus $15 or minus $15, but at the end of the day, it's going to be somewhere right in that ballpark. And like I said earlier, our pre-owned business is really rolling on both sides of the table, EchoPark and Sonic. And so, we expect that to continue on. We've had a fantastic January. We're having a fantastic February from a pre-owned perspective, and margins are all in line about the same. So you could fluctuate a little bit here and there. I guess with more off-lease cars coming, there's probably going to be a little pressure there, but nothing so drastic that it's going to make that big a difference. William R. Armstrong - C.L. King & Associates, Inc.: With the pressure in luxury brands, does that trickle down to your used car margins in luxury, whether it's CPO or noncertified?

It can on CPO. The noncertified vehicles in CPO for us as a company runs between 30% and 33% of our overall volume; but non-CPO, not really. Every car, from our perspective, has got its own unique individuality, and we sell it based on the value that our systems tell us what we can get for that vehicle. And so, we've been really consistent in our margin. If you look not just a couple of quarters but for a long while now and it's just – we sort of target that ballpark and we feel like that's where we get our best turn and where we get the best volume, which overall generates the most gross dollars and related gross dollars for the category. William R. Armstrong - C.L. King & Associates, Inc.: Okay. Great. And then just one other quick one, you mentioned just before that – I think you said you added 205 technicians last year. Just want to make sure I got that number right. And do you feel like you have enough capacity in terms of technicians now, or do you think you still need to look for additional head count there?

No, I'd hire another 100 techs. We're working every day to bring more techs onboard. If you remember, I think somewhere in the beginning of the year maybe that number was a little bit higher, and we lost a few and cleaned up a few things. But we're always out looking for more technicians. And we have the capacity for them and we're building more capacity in our facilities. So, no question, we'd hire more technicians. William R. Armstrong - C.L. King & Associates, Inc.: Okay. Great. Thank you.

You bet.

Your next question is from Tony Cristello with BB&T Capital Markets. Anthony F. Cristello - BB&T Capital Markets: Hey, thank you. Good morning.

Good morning. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Good morning. Anthony F. Cristello - BB&T Capital Markets: My first question, I was wondering if you look at what's going on with the leasing side of the business today, can you maybe give a bigger picture of how you see the influences, it's at record highs today. If that starts to either trend down or – what's the influence then as it impacts the F&I side of the business or some of the other things that you might do on the used?

It certainly helps, in particular on the new car side of the business, and it helps in F&I. But we have such upside opportunity in F&I that if the mix were all of a sudden to change, that's not going to play a big role. We have very systematically and steadily grown our F&I business over the last couple years and we expect to continue to grow at kind of the same pace this year. I think the frontrunners in the industry are running around $1,500 a copy; we're a little over $1,300 I think was our number in Q4. And so, we've got plenty of upside. So, whether that changes positive or negative, there's still so much opportunity for us that we think we can systematically continue to grow just like we have been, irrespective of that. Anthony F. Cristello - BB&T Capital Markets: And then sort of another bigger picture, if you look at the increase in used, how does that impact your conditioning for resale of that vehicle, whether it's a trade-in or purchased from auction? And, two, does that then have a positive impact on, I guess referencing the other question, in terms of the number of service contracts or extended warranties you may either be able to sell from a CPO standpoint?

Yeah. I mean, that's insightful because that's where we've really gained a lot of ground is our service contract penetration. I think in the fourth quarter, we're up 210 basis points over prior year, and certainly a chunk of that is coming through pre-owned. So – but it doesn't impact – whether it's a – and if I understood your question right, whether it's a lease or a retail deal it doesn't impact how we recondition cars. We have one set reconditioning standard for our vehicles at EchoPark and a set reconditioning standard for our vehicles at Sonic Automotive and we follow those to the T. That's one of the, we think, competitive advantages that we have. We have a low return ratio in terms of those cars, and we're really focused a lot on making sure that the product that we put out on our lot is a high-quality product from a reconditioning perspective. Anthony F. Cristello - BB&T Capital Markets: Yeah. And I guess I was just adding, should I expect cost to rise as more and more used mix and perhaps new flattens, and then as more and more used are hitting, it seems like the extended service contracts should give you a bump or help as we go forward.

Yeah, I mean I don't know that I would expect cost to rise any more than they naturally would rise given the economy. As a matter of fact this year, I don't think you'll see that at all in terms of reconditioning costs. I mean, those numbers are relatively flat. And so I wouldn't expect an adjustment there. And you really kind of got to look at it, we all handle our reconditioning costs differently from a public perspective. I think there are some of the public companies take their reconditioning profit after 30 days and push that back into used car gross and others don't. We don't do that. So, it's really, when you start comparing the industry on that particular subject, its comparing apples and oranges because everybody handles it a little bit differently. Anthony F. Cristello - BB&T Capital Markets: Okay. That's great. Thank you for your time.

Uh-huh.

Your next question is a follow-up from Michael Montani with Evercore.

Hey, guys. Just wanted to ask two things, actually. One was if you could give us a ballpark for SUV, truck, crossover versus sedan as a percentage of your mix today. And then the second one was just on the CapEx step up from $170 million to $250 million, if you can give the dollar drivers of that variance. Obviously it's offset by mortgages. But it'd just be helpful to understand what's going on there.

Yeah, sure. This is Jeff Dyke, I'll answer the first one and Heath can answer the second. We're about 39% crossover truck in terms of – close to 40%, I guess you could call it – in terms of that as a percentage of our overall inventory and 60% car or sedan. Heath R. Byrd - Chief Financial Officer & Executive Vice President: Yeah and this is Heath. 2015 is – real quickly, about $105 million of that was for facilities, another $30 million was for real estate including EchoPark, and then we had about $22 million for IT. In 2016, the large majority of that spend will be on OEM facility enhancements or construction as well as EchoPark real estate and construction.

Okay. Thank you.

At this time I would like to turn it back over to Scott Smith for closing remarks. Bryan Scott Smith - Co-Founder & Chief Executive Officer, President, Director: Great. Well, thank you, everyone, for taking time to join us today. We really appreciate your interest in our company. We'd also like to thank all of our associates for making it one heck of a great year. We look forward to talking to everybody and sharing our first quarter 2016 numbers with you here in a short period of time. Have a great day. Thank you.