Sonic Automotive, Inc. (SAH) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Sonic Automotive First-Quarter 2016 Earnings Conference Call. This conference is being recorded today, Tuesday, April 26, 2016. Presentation materials which management will be reviewing on the conference call can be accessed at the company's website at www.sonicautomotive.com by clicking on Our Company, then Investor Relations, then Webcasts and Presentations. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and 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 the 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 - President, Chief Executive Officer & Director: Great, thank you. Good morning and welcome to Sonic Automotive's first-quarter 2016 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; Heath Byrd, our CFO; Jeff Dyke, our Executive Vice President of Operations; and C.G. Saffer, our Chief Accounting Officer. We're excited about our results for the quarter and we look forward to your questions later. I trust everyone has read the documents released earlier this morning. I'll provide some brief comments before opening the call for your questions. We are very pleased with our adjusted results from continuing operations for the quarter, coming in at $0.39 per diluted share. Our first-quarter results were in line with our expectations. We continue to be able to grow our total gross profit, which was a Q1 record for the company, primarily due to the strength of our high-margin fixed operations and F&I activities, which grew 6.2% and 8.9%, respectively. The effect of new vehicle growth compression has continued as industry inventory levels are high and are being managed downward by many retailers. Compounding this issue are stop sales on new and pre-owned vehicles. We had approximately 1,000 new units in inventory and 1,650 pre-owned units that we are holding until we receive the necessary parts to complete the warranty repairs. We experienced unit growth in our pre-owned business in both our franchise stores and EchoPark stores. Gross profit for pre-owned fell about $70 per unit. The rollout of OSOE technology continues to occur and is being well received by both our associates and customers. We're also happy to announce that we will be introducing EchoPark brand to the Carolinas and Texas markets in 2017. Our team has been accumulating property to allow for new store openings in these markets. We can offer more color on this during Q&A. As noted in February, we're actively repurchasing shares during the quarter, which helped to lower our outstanding share count to nearly 46 million shares. We plan on continually evaluating our repurchase program as we identify windows of opportunity to reduce our share count and enhance shareholder value. Unfortunately, weather did affect us in the quarter, due to significant hailstorms in Texas that resulted in approximately $6 million in damage. We are currently evaluating the effect of the recent flooding in Houston and its impact on the second quarter performance. We're happy to answer any questions that you may have on this topic in Q&A. At this point, I'd like to open the call for your questions.

And your first question comes from the line of Rick Nelson of Stephens.

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

Good morning.

I wanted to get some more color and update around EchoPark, how that's performing relative to your expectations. And I see you announced some new stores in Texas and the Carolinas. If you could discuss how those stores are maybe similar or different from what you opened in the Denver market that would be helpful.

Hey, Rick. Yeah, sure, it's Jeff Dyke. First of all, we have had a very nice first quarter with EchoPark and our trends continue to be at our models that we put together. We have had no surprises, other than getting some nasty snowstorms in Denver, but the stores are all performing well. We had just really nice store-level performances there, so we continue to grow. We are and we did announce we're moving into Texas and the Carolinas. We are opening two more stores in June. They're generation-two level stores, so a little less expensive than what we originally built, and then the gen-three stores are what we'll build in the Carolinas, in Texas, and they are significantly less. The average neighborhood store in Denver right now is about $12.5 million, $13 million. These stores are going to run between $7 million and $8 million, so significant cost savings. We're just more efficient and better at building a slightly smaller facility, and what we continue to learn is it's not all about how much brick and mortar you have, it's about how well your technology is and your training is. And so, the feedback that we are getting from our guests and our associates is just – there is not a better experience in the industry, from our perspective. I know that's biased, but I challenge everybody to go to EchoPark and experience the process that our guests experience. It's just really, really good. The Yelps, the Google Alerts are fantastic. So, we have a lot of confidence going into Texas and the Carolinas. Both markets we know very, very well. In Texas in particular, we're having a lot of luck with real estate and the cost of real estate and our ability to manage that. So, we're looking forward to – the next 18 months ought to be a lot of fun for us in EchoPark.

And is that a specific market in Texas and how many stores should we be looking for there, as well as the Carolinas?

Yeah. So in Texas, we're going to focus to begin Dallas, Waco, Austin, and San Antonio. And then later on, we will focus on Houston. In the Carolinas, both North Carolina and South Carolina, and from Fayetteville to Charleston to Columbia to Charlotte, we're going to have stores surrounding that state. So in terms of stores in Dallas, we'll have several locations. In Waco, we will have one; in Austin, a couple; in San Antonio, several locations. So, enough to cover the market. We will average about 250 vehicles carrying capacity for each of the locations and should sell easily. That should give us a 60-day supply or less in terms of inventory.

And on dealership side of the house, you pointed to some heavy inventory, especially in premium luxury. How long do you think it takes to fix that situation? Could we see a potentially better second half as we look at margins on the new car side? Bryan Scott Smith - President, Chief Executive Officer & Director: I think it depends a lot on how quickly the manufacturers can reduce their inventories, especially on high line. The simple fact that they keep offering huge discounts to take on inventory puts us in a competitive situation where at points we have to take inventory because if we don't, then we are not competitive with the guys up and down the street. So, we've reduced our inventory in high line in particular in Texas, where we have seen part of the slowdown in particular with BMW and Audi. I mean, we ended the year last year with over 7,000 BMWs on the ground. As of this morning, we have a little over 4,700 BMWs on the ground for the company. So, you can see we can move pretty quick. But I do think the second half of the year from an inventory management perspective will be better than the first half. There is no question. And we are probably 90 days out, I think, from having a nice, clean slate when it comes to inventory. But a lot of that depends on how many port cars some of these manufacturers have on the ground and types of incentives they're giving to take those cars and the help that we can provide, when we need to do it, when it's a positive return for our shareholders and for the company. So, we will see. I think there is still 60 days to 90 days of choppy water when it comes to inventory management left.

And could I ask you about performance during the quarter? Some of the dealers that we speak to are talking about a tougher March sales period, and then April seems to be getting stronger with five weekends, you could comment there.

Yeah, I mean March was not the typical March that it is. Easter played a role in that, no question. April is a five-weekend month, so don't get fooled by that. You're going to – I see the softness in Houston for us, the softness in BMW, and a little bit in Southern California. So, the rest of the markets for us, Northern California, Florida, Alabama, the Carolinas, they all are doing just fine. I mean, we are rolling right along. The used car business is particularly strong across the board, and that's with EchoPark and with Sonic, so. But I don't disagree with everybody saying, March is soft and you are having a five-weekend April, so it is going to be stronger anyway.

And the weather challenge here in Houston of late, do you think that turns around to be a positive for the quarter with service and parts and insurance reimbursement (11:51)

Absolutely. There is no question we are fighting our way through. We have a Ford store in Dallas. We're the only Ford store that got whacked by hail in March, so that kind of hurt us. But the floods in Houston are certainly a big negative impact on April, but it will be a positive impact on May. There are just thousands and thousands and thousands of cars, tens of thousands of cars, that got damaged per reports (12:13) in Houston and I know our shops are full. We won't get all the cars out in April, but certainly will have a positive impact in May. We've had the oil prices there, the hail damage there, the flooding there. We are waiting for the locusts to show up and then hopefully all the things will be over with and we can move on down the road. But Houston is much more resilient than it has been in the past and we will get by this. It will be nice to have some of the cars that were damaged in the shops and replenishment cars, obviously, for cars that have been totaled to be able to sell.

Great. Thanks a lot and good luck.

Thank you.

Your next question comes from line of Pat Archambault of Goldman Sachs. Patrick Archambault - Goldman Sachs & Co.: I had to take myself off mute. Thank you. Just on the inventory issue, and I am sorry, I joined the call a little late. So, is the elevated level both in used and new? I guess that's just my first clarification, and then a follow-up on that.

No elevation that we did not want in used, so we are right where we want to be from a pre-owned perspective. On the new car side, certainly elevated above what we would prefer to have on the ground. And that's a combination of really in Texas, a slowdown in Houston, and when you look at some of the high line brands, them just being overstocked with inventory. They got a lot of port cars, in particular BMW. Audi has some. So, we're working with our manufacturer partners to weed through that inventory as quickly as we can. Patrick Archambault - Goldman Sachs & Co.: And is it the typical like long on sedan, not enough on high-end crossovers, or is that just a simplification?

I'm sorry. Will you say that again? Somebody was talking. I couldn't hear you. Patrick Archambault - Goldman Sachs & Co.: Yeah, is that within sort of some of the higher-end stuff? I mean, some people have characterized it as just being kind of long on sedans and maybe sort of stuck short a little bit on some of the crossover stuff. Does that characterize it at all correctly?

It does characterize it perfectly. I mean, we take all the sport utilities we can and we are long on cars. There is no question about it. Patrick Archambault - Goldman Sachs & Co.: Got it. And then just following up on the used side, I mean, I get it, your inventories are in pretty good shape and actually your margins were pretty perseverant. I mean, is there an impact that we should see because the Manheim obviously having started to come down, not dramatically, but come down year on year over the last two months? One would think that that would be kind of a natural headwind, right, as some of your inventory is losing value while it is sitting on the lots, but you guys seem to have managed it fairly well.

Yeah, I mean, we turn our inventory so quickly and we are able to replenish it so quickly with our retail trade center and our SIMS inventory management system. It's not really a problem for us. And our PUR, our front-end margin on pre-owned has been the same for many, many years now, so it's around the $1,300 to $1,400 range and it will continue to stay in that ballpark. That's where we want it from an elastic perspective. That's where we see we get the most gross and volume. And so, we're real comfortable where we are. We're real comfortable with the inventory levels that are out there. And as a matter of fact, if you have been listening to the calls here lately, we have been trying to increase our used inventory a little bit from a day supply perspective because we thought we were just running a little too tight and missing out on some sales opportunities. And then, that's turned around and showed up in our sales volume. So, we're real pleased with our ability to manage the inventory and where we are and see nothing but continued upside as we move forward throughout the year. Patrick Archambault - Goldman Sachs & Co.: Got it. And last one for me, I mean, sorry if you guys commented on it, but the SG&A implications of the additional rollout from the EchoPark model, how should we be thinking about that? Heath R. Byrd - Chief Financial Officer & Executive Vice President: This is Heath. It should be consistent with what you're seeing from Q1, obviously, as we open up additional stores and they come online. But that's all within the guidance that we provided at the beginning of year. Patrick Archambault - Goldman Sachs & Co.: Okay, so it doesn't really necessarily accelerate in 2017? It is more that this kind of pace, which includes this rollout is maybe sustained? Heath R. Byrd - Chief Financial Officer & Executive Vice President: That's correct. And obviously in absolute dollars, it's going to increase, but you've got – it goes offsite (17:00) because you are in operations. Patrick Archambault - Goldman Sachs & Co.: Okay, understood. All right, cool. Thanks a lot, guys. Heath R. Byrd - Chief Financial Officer & Executive Vice President: Thank you.

Your next question comes from the line of Paresh Jain of Morgan Stanley. Paresh B. Jain - Morgan Stanley & Co. LLC: Hi everyone. A follow-up on EchoPark expansion; it's interesting to see Texas as the next market for EchoPark. Any insights on why Texas and why now?

It is a fantastic pre-owned market. It is a market that we know very, very well. There is plenty of inventory in the market, so shipping and travel usage for inventory is easy versus the Denver market; it's kind of out on an island. You have got to ship cars into the market. But we knew that before we went into Denver. And so, it just fits right into our breadbasket. It is a market we know very well and we will be able to do well and we obviously do well there from a pre-owned perspective in Dallas and Houston markets and we're going to take advantage of that market. There is lots and lots of opportunity there. It is a huge, huge market and like I said, one we know well and we're looking forward to opening. Paresh B. Jain - Morgan Stanley & Co. LLC: Got it. On F&I, another really good quarter here, would you say how your used mix was a headwind to F&I per vehicle? And looking at peers, it seems like there is more room for F&I to grow from here on. What do you see driving F&I higher for you and is branded products an option?

Vehicle services contracts, our VSA penetration has grown from the light 30% range to the 40% range, early 40%s, and our team is just doing a fantastic job executing our processes that we have laid out, and it has been a big focus for us in 2016 and the end of 2015, and so the results are coming. And we agree with you; we have reached the $1,400 market for Sonic stores at the end of March and we think that we can raise that number up to $1,500. I think one of our competitors is out there over $1,600. So there is plenty of room to grow, and we see that upside and we're going to take advantage of it. Paresh B. Jain - Morgan Stanley & Co. LLC: Got it. And finally, Jeff, a question for you. Any update on how the pricing tool is shaping up?

Yeah, so for pre-owned, fantastic, and it's one of the big reasons why we're able to have some focus on moving forward with EchoPark. It's really fun to watch it grow. On the new car side, slowly but surely. I think by the end of the year, we'll have something in our hands that's very tangible and usable, but we've learned a ton on the new car pricing models and we continue to experiment in the Charlotte market. As you know, we're rolling out One Sonic-One Experience in phases, but the last phase is the new car pricing, just because of all of the innuendos that we found in the process. And coming six months or so, we think we'll make our way through all that and be able to start using the tool the way we want. Paresh B. Jain - Morgan Stanley & Co. LLC: Thanks for the color, guys. Bryan Scott Smith - President, Chief Executive Officer & Director: You bet.

And your next question comes from John Murphy of Bank of America.

Good morning, guys. If we look at slides 35 and 36, there is a real good story here that seems to be developing on parts and service. And the trajectory, if you look at slide 36, continues to accelerate. I'm just curious, as you look at the remainder of this year and even into the coming years, do you still think this is an opportunity where there is still a lot of room for growth? And are you still in a tough position with service bays, but more importantly, technicians, to meet this growing demand?

Yes, so, this is Jeff. There is no question that coming out of the end of the fourth quarter of 2014, the efforts that we made towards hiring technicians and managing the warranty work in our shops appropriately has made a big difference in our customer pay growth and our overall growth in fixed. And I don't see that really slowing down. We're also investing in or around $100 million a year in facility work with our manufacturer partners, and that investment is predominantly growing facilities, which is predominantly growing fixed operations base. So we've got a bunch of stores being built today, and we're rapidly expanding the number of bays that we have in our stores, and so I think there is plenty of upside. And also, as One Sonic-One Experience technology begins to flow into the service departments and when we rolled out One Sonic-One Experience in Charlotte, the one big lesson that we learned was we got whacked in service. We had more customers than we had technicians or service providers to handle. So, for example, the number of service providers at our Toyota stores doubled since we rolled out One Sonic-One Experience, and that has been parlayed into more technicians, the need of more space in the shop for less, and we're working on putting those things together. So I believe that there is lots of upside here. I think you're exactly right. There is a great story playing out here, and as we continue to get better at what we do, we'll take advantage of that moving forward.

And, Jeff, when you refer to $100 million of facility investment, what kind of number that translates that into in service bays or percentage increase in service bays on an annual basis, roughly?

It's a great question, but I would say that an increase of probably 40% to our service bay count when we're – so we just did Long Beach BMW and I think we got, I don't know, 20 to 25 more service bays in that store from what we had. The only way that it wouldn't, though, is if we are remodeling a facility and we have enough space to begin with, right? And that's the only way we wouldn't get it. But most of the stores we're adding significant stall count, too.

That's very helpful. And then just a second question, it does seem like there is a little bit of relief on new vehicle GPUs just maybe sequentially in the industry, and the way that you're talking about it and some of your peers are talking about it, does seem like there is potentially some relief on the horizon. Is that merely a function of the inventory being rebalanced or is that also sort of a function of the competitive dynamics and some product launches that are coming in the industry? Just trying to understand what that positive spin on GPUs going forward is coming from.

Well, no question, as inventories begin to shrink, our margins are going to get better. Also for us we make more margin on a 2017 BMW because of their restructure of their deal versus the 2016. So as that becomes a bigger percentage of our business and we had a lot of BMW stores, it is 30% of our profit. So that will make a big difference from a PUR perspective. And the other thing, too, is we probably being a little more balanced market share versus margin this go-around or this year than we have been in the – not quite as aggressive, because there has been so much shrinkage. And I think you see that not just in us, but in some of our competitors as well. So as we get better at pricing and our competition in particular they get better at pricing and the more technology that arrives that allows us to do that, I think the more precise we can be and you won't see these big margin whacks, as long as the manufacturers don't find themselves in a position where they've done now and they just overproduce too many cars and they're really pressing us to take inventory.

Okay, that's helpful. And then just lastly on the cap allocation, obviously big buyback in the first quarter, second quarter sounds like it's starting off a bit hot. You've almost bought back 1% of the shares so far in the first quarter. How far can this go? How far are you willing to take the leverage up to take advantage of the opportunity in the stock here in the near term? Heath R. Byrd - Chief Financial Officer & Executive Vice President: Yes, I'll start. This is Heath. We obviously are looking at the market every day. We still, even at today's price, are very undervalued. So we think it is a good time to be buying back shares, especially when you compare it to the multiples of buying acquisitions. But at the same time, as Jeff mentioned, we've got the EchoPark rollouts, we're going to spend about $77 million this year in EchoPark rollouts, we've got the facilities of $120 million, we have to consider another big CapEx spend for us in 2016, and 2017 is going to be our owning our own properties. We've got a lot of properties that come to the end of term. So we've got to balance that. But, again, we think that there is a huge opportunity. We're way undervalued and we are considering looking at the opportunity of levering up with the right market and the right rates where it makes sense to buyback. We're just way undervalued at this point, as we all know.

Great, that's very helpful. Thank you very much.

Your next question comes from the line of Tony Cristello of BB&T Capital Markets. Anthony F. Cristello - BB&T Capital Markets: Thank you. Good morning. Quickly on the stop-sale and then on the stair-step, I just wanted to get your thoughts on how you see those two issues impacting the second half of the year. And will one have a greater influence or one be corrected on a quicker basis?

So on the new car side, we ended the first quarter with about 1,000 stop-sale units. We've managed to get that number since the end of the first quarter down to 550 stop-sale units to 600 stop-sale units now. And as the airbags come out, and that's what we're primarily talking about here is the Takata dealers is, as they come out and I expect us to start seeing the manufacturers really start taking care of the customers in June and July and fixing inventory that's sitting on our lots later into the summer. I think they're working their tails off to get this all figured out and I don't see it being a massive issue, but I do think some manufacturers are doing a better job than others in how they are helping the dealers deal with the issue. And so we continue to work with our manufacturer partners to implore them to do the right thing when it comes to taking care of that guest. We don't want a guest driving around out there in an unsafe vehicle. So that's one of the reasons at Sonic that we just will not sell a stop-sale car that has a safety issue like that. And so they're sitting on our fence lines and we're waiting patiently for the manufacturers to bring a resolution to those vehicles. On the pre-owned side, we ended the quarter with about 1,600-plus stop sales on the ground. That number is up to around 2,500 now and we're working diligently with our manufacturer partners there as well. I will tell you that I think BMW is doing a fantastic job in particular helping in this arena. And I'm expecting those cars to have solutions again as we move towards the end of the summer, and we'll get them fixed up and get them sold as we approach the third and fourth quarter. Anthony F. Cristello - BB&T Capital Markets: Okay. That's very helpful. And then the incentives or, I guess, the stair-steps that I guess some dealers have gone after and then you don't end up hitting your target and it ends up taking cost twice. Will those numbers do you think the manufacturers got the results that they wanted from the programs that were in place? And do you foresee changes to these programs? One, will they continue? And two, will they be different than the programs perhaps you are seeing in March or that you saw last month?

Yes, so predominantly our business is high line and we don't see as much of that going on. There is some things happening with the stop-sale cars and things like that, but then when you get into some of the domestic and imports, that's just been part of the business for so long, I wish they'd all stop it and we could get down to selling cars without having to go through all the herky-jerky motions that everybody wants you to go through in order to hit certain numbers, right? It would just be a godsend, and I think you hear that pretty much across the board from all the different public retailers, anyway. So did they get what they wanted out of it? I think they had a tough first quarter, and I think they use a lot of those incentives when things start to slow down to make things like that happen, and I think they'll continue to do it as long as the markets are soft, especially in those markets like Southern Cal or Texas where they're a little softer from our perspective than others. Anthony F. Cristello - BB&T Capital Markets: That's very helpful. And then if I could just get one more question. You gave a lot of color on the fixed op side and the customer pay and some of the things that are going on with getting the customers to do more and come back. And I'm just wondering, as you do more and more on the used side of the business, should we continue to think that the influence there on customer pay will only increase, or is it going to have more of a function on extended warranty? Or do they go hand in hand as you increase the units sold?

Well, I mean, obviously there are going to be warranty opportunities as we move along. The Takata bag stuff is an anomaly, but I still think that warranty is always going to play a role. As a matter of fact, prior to all of this it was playing less and less of a role. But the focus on customer pay has been massive for us, and we really dug in towards the end of the third quarter in 2014 and started pressing coming out of the fourth quarter and in the first quarter, and as a result, you can see what's happened. We put, I think, last year 200 incremental technicians to 210 incremental technicians into our system, and that made a big difference. And as our technology – which is really a big emphasis here, because we've been working very hard on our fixed operations technology from a pricing perspective, from a parts management perspective. As that comes online and the ease for the guest, the experience that they get as they go through our service drive, I think that we have nothing but upside. It's the same thing that we say in pre-owned; it's just an endless gift as long as you know what you're doing, you manage it appropriately, and you are able to have the right technology in place to handle it. And that's for today's shopper. Tomorrow's shopper as you know, it came out of the womb with an iPad or an iPhone in their hand. That's how they communicate and if you don't know how to service that moving forward, I think you're going to have big problems. So we've been working very hard on bringing the right technology so that our associates and future associates are able to take advantage of that as the years flow on. Anthony F. Cristello - BB&T Capital Markets: That's great. I appreciate that. Thank you.

You bet.

Your next question comes from line of Bret Jordan of Jefferies.

A question on the customer pay parts and service at the EchoPark side of the business; are you having success retaining those people within the EchoPark service bays? And then a follow-up question I guess on F&I there. As you expand EchoPark, are you thinking about getting into captive finance?

So, the first part is, we are having customers come back, our guests are coming back. But it's not been a big focus. We need every service bay that we have right now and every technician reconditioning vehicles, along with our partners at Mannheim, to keep up with the volume and the needs that we have, in particular, like this second because we have two stores that are opening in June. So we're busily getting vehicles ready for that event. But when we start advertising it and pressing customer pay, I think we can fill our shops up. It's the experience, right, and the guests are – certainly that we're selling to are coming back, but there is more opportunity there moving forward. In terms of captive finance, we did not build the EchoPark model like some of our competitors have, that really requires a big captive finance to make the model work. But long-term – Heath may comment here, but long-term that might be a possibility for us, but it would be 100% incremental to what we've built and are operating now. Heath? Heath R. Byrd - Chief Financial Officer & Executive Vice President: This is Heath. I was just going to add, it is long term. It's on our five-year plan. We considered it in the beginning but with the CFPB and the regulatory environment, we just didn't feel like it was the right time.

Okay. And then I guess as you look at EchoPark F&I then, are you focusing on selling things like extended warranties that would drive service traffic or are you really not focusing on that because your bays are utilized doing refurbish?

No, we're focused on it and it's certainly a part of our business. We originally started EchoPark in our plans to run F&I at about $850 a copy and I think the most recent month we're running a little over $1,150 a copy. So, we're real proud of where we are and the way that we're doing that is we're selling our vehicle service contracts and things like that, that do drive your customer back into your store. So, absolutely, it's part of the business. It's just not – I mean we've sold 4,000 cars or 5,000 cars so far, so it's not just a huge chunk of the business yet, but as we continue to grow, it certainly will become.

Okay. Great. Thank you.

And your next question comes from the line of Bill Armstrong of C.L. King & Associates. Bryan Scott Smith - President, Chief Executive Officer & Director: Hey Bill. William R. Armstrong - C.L. King & Associates, Inc.: Thanks, gentlemen. A couple of questions on the stop sales. Anyway to estimate the impact on your unit sales for new and used during the first quarter? Bryan Scott Smith - President, Chief Executive Officer & Director: I don't think on new you probably heard us with BMW more than anything, maybe a little bit Honda. And on used, it's really hard to say, because we can replenish inventory so quickly that that's what we did, right, to offset it. So, I like to think that we had a nice same-store sales increase. I think 5% to 6%, somewhere in that ballpark. And I don't really think that it bothered us that much. I mean we've got the inventory there and we're holding it to get it fixed, but other than that it wasn't that detrimental to our business. William R. Armstrong - C.L. King & Associates, Inc.: Okay. And you mentioned that you had about 1,650 used vehicles under stop sales at the end of the quarter, now that's up to about 2,500. And it looks like, just on your website you've got just under 10,000 total used units. So that's a pretty big percentage of your inventory. In light of your comments before that you may not be seeing replacement parts falling until the end of the summer, any thought to – I know you can't retail these cars, but how about wholesaling them, just to move them off your lots and get them kind of out of the way, and maybe get some other vehicles in that you can actually turnover. What are the...? Bryan Scott Smith - President, Chief Executive Officer & Director: Yeah. So our thought process is this, if there's a safety issue on a stop sale car, we're not going to retail it or wholesale it, we're not going to go to sleep at night with that on our minds and have someone driving off in a car that's – like this 17-year-old girl did and driving down the road in Houston I think, and got in a fender bumper and the airbag went off and killed her. That's not going to happen with us. So, we are holding those cars and we'll hold them until there's a fix from the manufacturer – from our manufacturer partner. But again, we can put more inventory on the ground. The manufacturer is doing a great job in helping and support us on that in terms of the cost of the carry. And when you look at – we always have – prior to the stop sale, we had 8,000 cars, 9,000 cars, 10,000 cars online and that hasn't changed. I mean it's – and it's not our perspectives on our business now. William R. Armstrong - C.L. King & Associates, Inc.: Thank you for the color. Bryan Scott Smith - President, Chief Executive Officer & Director: You bet.

Your next question comes from the line of Michael Montani of Evercore ISI.

Good morning. Just wanted to ask if I could first on the used side from the franchised ops, can you guys give any incremental color on how big CPO is now as a percentage of your mix on used and then also the growth trends you are seeing for that versus the non-CPO within franchise? Bryan Scott Smith - President, Chief Executive Officer & Director: Yeah, sure. CPO percentage runs – it has and we keep it at about 30%. When it goes higher that just means that we're not driving the rest of our businesses high. I mean I think there are some months where it might reach into the mid-30%s, but that's about as high as it gets at Sonic and we'll get more aggressive on buying other inventories that are non-CPO, because we feel like we're missing out on business opportunities when that percentage is too high. And is it growing? Yeah, I mean, you're going to see it continue to grow, especially as off-lease cars begin to ramp up, especially the high-line guys. So that percentage of the business has an opportunity to grow and in particular, if they put incentives on those vehicles. So I think there's certainly some upside there from an overall volume perspective.

Okay. Great. And then if I could, there has been a fair amount of optimism obviously from yourselves and from several of the other dealers as well about the ability to kind of attack what I would term as like some inventory bloat. So, can you just give us a little bit more color, I guess, Jeff, around where the conviction comes from? I think you mentioned 90 days, things would probably look better from now, just kind of incremental color that you might be able to provide there.

Yeah. I mean, I think that 90 days it can look better from now as long as our manufacturer partners are continuing to – as long as they bled through what they have as an overage, right. So I think the conviction sits in the gross margins that we have. I mean, the more inventory that you have out there, the more competitive everybody's prices are going to be and lower the PURs are going to be on the front end of the vehicles. And whether it's us or AutoNation or Asbury or Penske, I mean, everybody has been complaining about the same damn thing. And those inventories need to tighten up and as they're managed well, like you've seen in the last four year or five years, then margins are great and we're able to do good things. But when the inventories get out of whack, like you've seen here in the first quarter and really it started bloating in the last four months or five months of the last year, you could see it coming. It puts a lot of pressure on everybody to move the inventory up and follow all of our day supply guidelines and inventory management guidelines. And so, I think that's where the pressure lies. And you're seeing the big companies that really have good inventory management skill sets doing the things that they know are the right thing to do and what the data is telling them to do to clean that inventory up. And so, we're certainly doing it and I think you can see that from a competitive perspective as well.

Okay. Great. Thank you.

And your last question comes from the line of Steve McManus of Sidoti & Co. Steve J. McManus - Sidoti & Co. LLC: Hey, guys. How is it going? Bryan Scott Smith - President, Chief Executive Officer & Director: Great, Steve. Steve J. McManus - Sidoti & Co. LLC: Just couple of questions, I guess the first with respect to the new vehicle division; and aside from BMW what other brands are contributing to the revenue decline I guess from a volume perspective? Bryan Scott Smith - President, Chief Executive Officer & Director: Yeah. So, you really kind of got to break it down by marketplace, that's from my perspective and when you get into Houston, our Ford store is there, Audi, in particular there, BMW there, which we just got a lot of stores in that marketplace, and it represents our biggest revenue, our biggest profit as a single city across all of the Sonic markets that we do business in and so I think that's where the big piece is. The other thing too is, we got a Mercedes-Benz store and a BMW store in Denver, Colorado, that have totally been leveled and we're working out of some makeshift shacks to be quite honest with you. In those two stores, along with a big remodel that we did at Long Beach, BMW, have just sort of slowed some of those stores down in what we call our South West region, or our LA region. And so those two regions are primarily contributing to the slowdown from a new car perspective. The other guys are doing great. I mean we've got 17% new car growth. I think when I looked at last month for our Northern California stores, it's just been great. They are off to a rocking start in April. We're seeing that in the Florida market, along with Alabama, Tennessee, Georgia. D.C. is a little bit slower this month than we would probably like, but Houston – and not particular Dallas, but Houston and the LA markets are really struggling. The other piece is, is that we've got a handful of Volkswagen stores that are causing us some angst with the issues that VW's had and working with our VW partners to work through that. But certainly and we have three of those stores in Houston, Texas. So when you add hail to flood to oil to slowdown to VW problems, you can imagine some of the heartache that you get when you look at your volume in those stores in that marketplace. Steve J. McManus - Sidoti & Co. LLC: Okay. And then is that where you guys are seeing a lot of the pricing pressure or any other brands kind of contributing to that as well?

I can tell you that that the preponderance of the pricing pressure is coming out of those markets, yeah. Steve J. McManus - Sidoti & Co. LLC: Okay.

It doesn't mean that where we have high BMW inventory across the country, we don't see pricing pressures because we do, but Houston is really a big chunk of that. Steve J. McManus - Sidoti & Co. LLC: Okay. And then I know we touched on fixed ops a bit, but just looking at the overall segment gross margin, I mean it did tick down a bit from a year ago, is there anything worth noting there that we should be aware of?

Not at all. That's mix. It's just, no, nothing at all. No strategy change there whatsoever. Steve J. McManus - Sidoti & Co. LLC: Okay. Great. Thanks a lot guys. I appreciate it.

You got it.

And there are no further questions at this time.

Great. Well, I want to thank everyone for your time today. I think you can hear in our tone that we're bullish and excited for the rest of the year. We are very excited about our progress. We are launching OSOE in EchoPark. And we look forward to talking with you about our results for Q2 here in the future. Hope you all have a blessed day. And thank you for joining us.