Asbury Automotive Group Inc

Please stand by. Good day, ladies and gentlemen, and welcome to the Asbury Automotive Group Q3 2020 earnings call. Today's conference is being recorded, and at this time, I would like to turn the conference over to Mr. Matt Peritone. Please go ahead, sir.

Thanks, operator, and good morning, everyone. Welcome to Asbury Automotive Group's third quarter 2020 earnings call. Today's call is being recorded and will be available for replay later today. The press release detailing Asbury's third quarter results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with me today are David Holt, our President and Chief Executive Officer, PJ Guido, our Chief Financial Officer, and Dan Clare, our Senior Vice President of Operations. At the conclusion of our remarks, we will open the call up for questions and I will be available later for any follow-up questions you might have. Before we begin, I must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, including those statements relating to the duration and contemplated impact of the COVID-19 pandemic on our business and financial performance. as well as the financial projections and expectations about our products, markets, and growth. All forward-looking statements are subject to significant uncertainties, and the actual results may differ materially from those suggested by the statement, including potential impacts from the COVID-19 pandemic on us, our industry, and our customers, suppliers, vendors, and business partners. For information regarding certain of the risks that may cause actual results to differ, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2019, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. It is my pleasure to hand the call over to our CEO, David Holt. David?

Thanks, Matt. Good morning, everyone. Welcome to our third quarter earnings call. We just reported an all-time record third quarter despite the ongoing uncertainty in the economy. And even with SAR well below prior year levels, we delivered an all-time high adjusted operating margin of 6.6%. As a result of our cost control measures we implemented, we're able to achieve an adjusted SG&A as a percentage of gross profit of 61.1%. Our focus on gross profit and expense management once again produced a great quarter. with adjusted EPS of $4.08, up 75% over the prior year. In addition, this quarter continued to prove the strength of the new vehicle franchise dealer model. With significantly lower volume of constrained inventories, we increased our front-end yield per vehicle by $1,045 over the prior year. We also flexed our cost structure down, managed our inventories to improve margins, and maximized profits to deliver these record results. We also successfully closed on a highly strategic Park Place acquisition. We want to welcome all of our new teammates and thank all of our employees who worked on the integration to ensure we hit the ground running. Due to our strong performance and cash flow, our pro forma net leverage ended this quarter at 2.4 times below our targeted range and well ahead of schedule after financing the largest acquisition in our history. which increased the size of our company by 25%. This will allow us to maintain a more aggressive acquisition pipeline and grow our business by strategically deploying capital. Our strong performance is the result of our pioneering omnichannel that we launched over four years ago. In the third quarter, 22% of our guests chose to buy their used vehicle online. While we are pleased with these results, we are focused on further building and refining our omnichannel tools to enhance the guest experience. In July, I said we'd have an update regarding our online buying software. We have completed the construction of our newly redesigned on-buying platform and site, which will greatly enhance the guest experience. We have begun live testing on the new platform to work out any kinks we may have. We will have an investor day in mid to late November to walk you through the software in detail. In addition to building an industry-leading online sales platform, two years ago we began our journey to become the most guest-centric automotive retailer. We've made incredible strides and plan to continue enhancing the guest experience with our omnichannel tools and investing in our people and our culture. We believe in the dealer franchise model. Amongst franchises, the only differentiators are, first, the level of service your teammates provide, And second, a world-class omni-channel strategy. These key differentiators create a seamless and transparent experience for our guests. Finally, I want to thank all of our teammates for their commitment during this pandemic. These results happen because of your passion and perseverance adapting to our new world. Thank you. I'll now hand the call over to Dan to discuss our operating performance. Dan?

Thank you, David. And good morning, everyone. My remarks will pertain to our same-store performance compared to the third quarter of 2019. Looking at new vehicles, as we mentioned last quarter, our focus remains on improving margin and not chasing volume, and we continue to pursue this strategy in the third quarter. Overall, our new gross profit per vehicle was up $830 per car, or 58 percent from the prior year period. all segment margins were up significantly from the prior year period. With the acquisition of Park Place, we increased our luxury mix from 33% to 49%, driving our all-store PBRs up 41%. At the end of September, our total new vehicle inventory was $579 million, and our day supply was 47 days, down 29 days from the prior year. We expect the day supply to increase gradually through the fall and winter selling season. Turning to used vehicles. Our gross profit margin was 8.5% up 170 basis points from the prior period, representing a gross profit per vehicle of $2,036. Similar to our new vehicle strategy, we focused on being opportunistic with our inventory and improving grosses to maximize profits. The second aspect of our used car business is wholesale, where we were able to increase our gross profit over $6 million. And as a result, our used revenue, including wholesale, was flat with the prior year period. Our used vehicle inventory ended September at $204 million, which represents a 35-day supply, down one day from the prior year. Turning to F&I, our strong, consistent, and sustainable growth in F&I delivered an increase of $208 to $1,830 from the prior year quarter. In the third quarter, our front-end yield per vehicle increased $902 per car to an all-time record of $3,992. Finally, turning to parts and service. Although our parts and service revenue decreased in the quarter, we continue to see the business improve each month. In the month of September, our same store parts and service revenue was up 8% over last year. Our parts and service gross margin declined 130 basis points to 60.8%. The declining gross margin was primarily attributable to a $2.7 million expense in our internal profit reserves for reconditioning and preparation work related to our increased vehicle inventory from the Park Place acquisition. We expect our margin to return to normal levels next quarter. I would like to take this opportunity to express appreciation to all of our teammates in the field and our support center for managing through this pandemic and transformational acquisition. I will now hand the call over to PJ to discuss our financial performance.

PJ? Thank you, Dan, and good morning, everyone. I would like to provide some financial highlights which mark another great achievement for our company in a tough and still uncertain macro environment. For additional details on our financial performance for the quarter, I would refer you to the financial supplement in our press release. Overall, compared to the third quarter of 2019, revenue was on par to last year, despite a lower SAR, due to completed acquisitions and improvement in F&I PBRs, gains in wholesale revenue, and a continued recovery in our parts and service business. Gross margin expanded by 230 basis points to an all-time high of 18.2 percent, driven by our proactive inventory management and focus on improving gross profit per unit. Moving down to P&L, we saw adjusted SG&A as a percent of gross profit decreased by 780 basis points to 61.1 percent. This is due to proactive expense reductions and efficiencies gained on both personnel and advertising. Our actions to manage growth, profit, and control expenses resulted in an all-time record adjusted operating margin of 6.6%, an increase of 210 basis points above the same period last year. Adjusted EPS increased by 75% versus the prior year period, which was also an all-time record. Net income for the third quarter of 2020 was adjusted for a $24.7 million gain or $0.96 per diluted share on the dealership digestiture, $1.3 million or $0.05 per diluted share of acquisition-related costs, and a $700,000 or $0.03 per diluted share real estate-related charge. Our effective tax rate was 24.8% for the third quarter of 2020, compared to 24.4% in the third quarter of 2019. Floor plan interest expense for the quarter decreased by $6 million over the prior year quarter, driven primarily by lower inventory levels and lower LIBOR rates. With respect to capital deployed excluding acquisitions, we spent approximately $10 million on store improvements and real estate this quarter. During the quarter, we closed on the Park Place acquisition. We expect this acquisition to generate approximately $1.7 billion in annualized revenues. To finance the acquisition, we use cash on hand, our credit facilities, and $200 million in seller notes. Very shortly after closing, we issued $250 million of debt as add-ons to our existing senior notes. We added $125 million to our senior notes due in 2028 and $125 million to our senior notes due in 2030. We used the proceeds to fully repay the seller notes and pay down approximately $50 million on our revolving credit facility. Also during the quarter, we divested our Greenville Lexus dealership as we reached our regional ownership cap due to acquiring two Park Place Lexus stores. However, we are still under our total national cap for Lexus store ownership, This dealership generated approximately $90 million in annualized revenue. As a result of our operational performance, our balance sheet remains in a very strong position, and we ended the quarter with approximately $385 million of liquidity comprised of cash, floor plan offset accounts, and availability on both our use line and revolving credit facilities. Also at the end of the quarter, our pro forma net leverage ratio stood at 2.4 times below our targeted net leverage range of 2.5 to 3 times. As a result of our strong cash flow generation, we were able to fulfill our commitment to reduce leverage on the heels of the Park Place acquisition well in advance of our original time table. This will put us in a much more proactive and flexible position to strategically deploy capital going forward. In closing, I would also like to thank our teams across the business who continue to work tirelessly during this unprecedented time to ensure our current and long-term success. We will now turn the call over to the operator and take your questions. Operator?

Thank you. And ladies and gentlemen, to ask a question, please press star then 1 on your telephone keypad. Please note, if you're on a speakerphone, please pick up your handset or depress your mute function to allow that signal to reach our system. Again, that is star one to ask a question. And we'll go first to Rick Nelson of Stevens.

Good morning, guys. I wanted to ask you about inventory supply. Things have been pretty tight, constrained. When do you think that is going to normalize the implications for GPU and SG&A.

Good morning, Rick. This is Dan. To your point, we have seen the constraint in inventory. We're seeing inventory flowing back in slowly but surely into the stores, and we expect that to continue to grow as we go through the fall and the winter selling seasons and obviously into Q1. As business continues to come back around, we do expect some of our expenses to cost structure to go along for the ride as well. And I think there was one other question you asked, and did I miss one?

Yeah, the GPUs, do you think we go back to pre-COVID levels or do we normalize at higher rates next year.

Rick, this is David. I would tell you, as we sit here today, we're still benefiting in our GPUs from the lower inventory, and we anticipate at this point to benefit throughout the quarter. The virus is starting to heat back up, as we all know, assuming factories don't shut down at all. we anticipate at some point in the first quarter to get inventory levels somewhat back to normal. And at that point, you would assume you would feel it in the margins. But we don't see that happening in Q4. Thanks for that.

And on the used car side, we're also seeing elevated GPUs. Do you think those follow lockstep with a new car? Marjan, is that going to take a different trajectory? I understand inventory is also if you could comment there.

Sure. There's a little bit of seasonality in that as well with what's going on with the heat up of the virus. Used car inventory for us is a little bit more available than new car inventory. we've seen a little bit of pressure this quarter in gross profit, but we don't anticipate it in the quarter falling back to levels of pre-COVID at this point. But we do, again, think over time that those will start to normalize as well, just not in this particular quarter.

That's good. Thanks. Finally, if I could ask you about park plays, how that's performing in Relative to your expectations, there was an S4 filing that suggested first half EBITDA was down 23%. I think I calculated. If you could comment on the drivers to that decline and what changes are going into effect at Park Place.

Yeah, Park Place, it's very new. We closed at the end of August, but so far they're exceeding our expectations in all departments, parts, sales, service, pre-owned, margins. We're very, you know, Park Place, like Asbury, is benefiting from the low day supply and what's going on, and it's exceeding our expectations at this point.

Very good. Thanks and good luck. Thank you.

Our next question will come from John Murphy of Bank of America.

Good morning, guys. A first question on the parking service recovery, which sounded like it was accelerating. Is that something you expect to continue to ramp in the fourth quarter as we catch up on some deferred maintenance issues? and other work that may have been put off? Or do you think it's going to take longer until the economy, you know, miles driven, really picked back up to drive that?

Yeah, I would just, John, I'll start with just a reminder first. You know, in our parts and service numbers that we disclosed, collisions in there, collision for us is running, you know, 12 to 15% back, depending upon the market. So that's pulling back our CP numbers. We've been positive for the last few months in service specifically as it relates to customer pay and warranty. We anticipate that to continue, and I hate to keep putting this disclaimer on it, but depending upon what happens with the virus and how much that heats up, I would assume that could have a negative impact. But to this point in time, the last few months, we've been in the green. as it specifically relates to parts and service excluding collision.

In green, does that mean mid-single digit? It does seem like there was a fair amount of deferral in the second quarter, and then just this natural capture that you're getting on attachment of parts and service. It seems like, not to put words in your mouth, but you should be able to put up mid-singles naturally. Is that what's been happening? or is it something better or worse than that?

Yeah, no, I think that's a fair number. Dan said in the script, you know, for September we were up 8% in revenue. You know, we had a little bit of a gross hit in the quarter, but that was more to do with, you know, how we handled reserves and increasing them for the park place acquisition. So we actually improved, if you pull out the reserve, our margin in the quarter as well. So I would say mid-single digits at this point. uh, is fair to say we're back on track with that. And again, I've, you know, assuming nothing dramatically changes with the virus, you know, we should stay on that trend.

Um, another question on, on you and you're going after this with, with push start and leveraging your existing, um, assets. I mean, Q auto was started and stopped. Um, and it sounds like for good reason that we used to, according to whether you operating it, um, I thought we could do this. How much opportunity do you think there is? I think it was 0.3. I think it was the number in the quarter to maybe drive that up significantly higher. And as you really leverage Coast Guard and the omni-channel efforts, could you get significantly above one-to-one? Could this be a big growth driver just off your existing asset base?

There's no question, John. Everything you said is accurate. Our biggest opportunity is in pre-owned sales. I'm not making excuses, but it was a busy quarter for us. Adding that large acquisition, I think when you see on Invest Today what we've done with the digital tools, how significantly different they are, it's been a busy quarter for us. But having said that, we don't think the tool is the end-all, be-all. There's still people that will want to come in person. We just think that we've thought this thing through and we're going to be industry-leading in with a lot of tools that don't exist in the market today as it relates to the acquisition online. To answer the end question, can we get above one for one, there's no question about it. I would tell you that many of our operators in the quarter purposefully dialed back volume to really take a chunk at margin. And that was the focus. We really just didn't feel like with what was going on in the quarter, It wasn't about driving unit sales. It was about driving gross and net profit.

Makes sense. And then just lastly, how do you think about sustainable front-end yields? You know, approaching $4,000 here, $3,000 to $3,500 was, you know, pretty good before. Those are good, valid numbers. You know, what do you think of all-in, you know, sustainable and net? What's kind of the glide path there? Are we in another quarter or two of having very high front-end yields, or is that going to fade reasonably quickly?

Yeah. So, again, I wish I had a crystal ball, but I'll give you my personal opinion and the way I see it. I think this particular fourth quarter will remain elevated on our total yield compared to what pre-COVID levels are. I think when inventories get back and the world gets back to normal, I'm sure that will come down a little bit. But even when you go pre-COVID, if you look back, even though we had pressure on our new car margins, we were still raising our total yield slightly every quarter. And now with the material acquisition of Park Place and their PVUs or PVRs, excuse me, we expect some natural lift there as well. So I think we'll remain elevated in the fourth quarter. We'll be as high as Q3, I'm not sure, but certainly elevated to pre-COVID. And then even when the dust settles, I expect us to settle in at a higher number because of the impact of first place as well.

That's very helpful. Thank you so much. Thank you.

We will now go to Adam Jonas of Morgan Stanley.

Hey, everybody. Can you give a bit more of the KPIs on digital? I know you have a number internally that you share on percentage of your sales that are done, of the used sales that are done 50% to 100% online. I don't know if you could give that number for the third quarter and have that compared year on year.

Good morning, Adam. This is Dan. So, For the quarter, 22% of our used vehicle sales were transacted fully online through Push Start. And just as a reminder, we define a full online sale when a customer completes the entire process online and has the option to receive a home delivery. This process must include selling their trade-in, purchasing insurance products, receiving financing, and signing all the documents online, not requiring a WIT signature by state law. And then, in addition, one of the things that we continue to see is, surprisingly, most of our customers select to pick up the vehicle at the dealership.

Adam, just to follow up on that, I mean, in this day and age, 95% of their people are looking online first. I mean, that's the new newspaper, for lack of a better term. We're not counting that. These are the people that utilize the PushStar tool and come down the channel with the tool.

And what was the prior year, just so we can get the comp? The 22% this quarter, what was it last year?

Adam, it was 8% last year.

Okay, just 8%. Okay. And any color on front end or attachment rate or GPU of that, of the online, of what you define as online through push start versus the in-store sales?

Yeah, it runs about the same, Adam. I mean, you know, when you look individually at each individual store, you'll see a couple hundred up or down, but when you aggregate it, it's averaging about the same.

That's great. And then finally, SG&A, you know, 61.1% in the quarter, obviously helped by the kind of juicy, meaty GPUs. But if I were to ask you high level, how much of the year-on-year improvement would you say is related to This is called unusual growth versus structural and sustainable. Thanks.

Sure. I would tell you some of the tailwinds and some of the headwinds that we potentially could have. From a tailwind perspective, you learn over time as an operator, never let a downturn go to waste. This gave us an opportunity to really increase our production per employee. We believe that's sustainable when we get back and we'll get a natural lift from that. Some headwinds could be the normal stuff that you expect, medical expenses, insurance costs, that kind of stuff. Those always seem to creep up every year and something that we're trying to get aggressive on. The advertising, you know, you could make a case that we've trimmed it so much to the bone it might be affecting our volume to a certain degree, and we may take a look at that and play with that. Later on in November, when you get a real, very detailed walkthrough of the software, it won't be screenshots. It'll be actual video of the tool. If we get the conversion right there, there's opportunities on the cost structure side again, but I'd be getting ahead of myself with that until we really get it implemented and see what the data looks like. I look forward to that. Thanks, Aaron. Thank you.

We will now take our next question from Raji Gupta of JP Morgan.

Hey, good morning. Thanks for taking my question. This is a broader question on electric vehicles after the recent Hummer announcement. It looks like your two GMC dealers in Florida and Indiana are on the program. How do you think the dealer channel is likely to be impacted as more of these OEMs start to offer one price vehicle to their websites? I mean, how do you think this could change the profitability profile on the new vehicle side? I mean, GM also noted that, you know, they're trying to remove efficiencies in the dealer channel while doing this. So, but it's a bit unclear to us like how the economics might look like if this becomes a norm, you know, not just for electric vehicles, but for, you know, other marquee vehicles too. I assume you'll still get the service side of the business, but just curious as to, What changes might, you know, happen here, you know, from like a supply chain perspective and economics going forward? And I have a follow-up, thanks.

Yeah, this is David. You know, I'll give you my perspective as a dealer with the manufacturer. I guess I don't interpret it the way you do as it relates specifically to General Motors. In my career, I've seen a lot of manufacturers in a lot of different states try to direct sell, and it doesn't work well. The supply chain, the way it currently works, and local dealers servicing and selling vehicles tends to produce the best results, and I don't see that changing. Specific to electric sales, look, they're coming, and it's coming over time. But in the current world as we sit here today, it's still a push sale. It still has to be dramatically incentivized by the government with credits. It has to be heavily incentivized from the manufacturer. It's not a profitable solution at this point in time. And because of the push of it, the gas is so cheap, you know, big SUVs are selling and big trucks are selling with big engines right now. But, again, that's going to change over time. There's a lot of work that has to be done to the infrastructure. We think the franchise model works really well. and we don't see that materially changing. All the startup electric companies that are going direct, time will tell how many of them make it, how many of them don't, how many consolidate, and what their success looks like.

Understood. I think GM also talked about signing participation agreements and only half their GMC dealers are gonna be on the network. Can you give us a sense as to why one would decide to participate or not, or just demographics or economics or investment requirements, any color on that?

I couldn't give you insight as to how dealers would think and what the decisions are that they make. Anytime you become part of something, there's investments that have to be made in the infrastructure and getting ready for specific products. We see the value in it. We anticipate doing it. But I couldn't speak as what other dealers might be thinking and why.

Got it. That makes sense. Just last one, you know, on capital allocation. Your balance sheet is a little levered, you know, currently on a pro forma basis. You know, it still looks fine. You talked about, you know, looking out for strategic opportunities. You know, can you give us a sense of of what those might look like? Is it more trying to expand your regional density or your brand makes further or any sense of, you know, what those, uh, private priorities might look like going forward? Uh, that'd be all. Thanks.

Sure. Um, you know, I, I would say, um, and I've said this in the past, we look at a lot of deals, uh, and don't acquire many. because we're really looking for the right fit for us. It's easy to buy something, much harder to operate it, and we try to be thoughtful about that. It's an interesting time with the election coming up. There are deals out there right now. We've looked at some deals. They're not deals that excite us or think that it's worth the time or investment in capital in them right now. It's a more competitive space with all the private cap money that's coming into it as well. But there's a lot of stores that are coming up in certain markets that just don't interest us. You know, we generate a lot of cash. We'll generate a lot more cash now with the Park Place acquisition. We still have some mortgages to pay down over time, and we'll certainly chip away at that and deploy capital to the highest return. But we're very focused on certainly getting our debt down in the meantime. But we're opportunistic with acquiring. We'll certainly look at every deal that comes our way and put the time into it, but we're not going to jump on it if we don't feel like it's accretive for us.

Understood. That's super helpful. Thank you so much, and good luck.

Thank you.

We will now go to Stephanie Benjamin of Trisp.

Hi, good morning.

Good morning.

I'm hoping that you could update us a little bit on the integration plans with Park Place, obviously closed late in August, so maybe what was implemented at the end of the quarter and what's on deck for the fourth quarter here.

Yeah, this is David. You know, I would tell you the integration piece, the biggest part early on is all the accounting and standard chart of accounts and doing all that integration. From an operational standpoint, we didn't change anything at Park Place. We didn't change their infrastructure. We didn't change their support structure. We wanted to keep them whole. They were a very profitable, well-run organization, so we kept their ecosystem the same and kind of plugged into ours. So I would say, you know, for several weeks, we're, for lack of a better term, business as normal. In the first couple weeks, we certainly had the normal challenges with phone lines and software issues and integrating certain things like that in circuits. But we've worked through all those kinks, and everyone's back to normal operating.

Got it. Thank you. And then in terms of inventory, I think you noted that you're seeing some of it start to slowly come back on the new side. Is there any difference between your luxury import or domestic divisions where you're seeing inventory return at a slightly faster rate?

Good morning, Stephanie. This is Dan. Yes, there is a slight difference on the different segments, whether it is luxury, import, or domestic. Some of the domestic, as you know, were affected by a strike pre-COVID-19, and obviously that is carrying over to where we are today on inventory coming in, because you double that with the COVID-19 impact. And then some did not go through that, and so we're seeing a better influx in some of our luxury and some of our imports and then some of the domestic, maybe a little bit slower than we would like it to be.

The only thing I would add to that, some of our luxury stores in the quarter had less than a 20-day supply of cars at times. And when we talk about a 20-day supply, that's overall all models included. We had some models where we didn't have any cars in stock. So naturally that dramatically impacted the unit counts as well. When you think of the domestic side and even the import side, it was kind of the same story. You know, even though you had a light inventory, there are certain models, no different than on piers, I'm sure, you just didn't have them. You just didn't have the inventory to sell.

Got it. That's all I have. Thank you so much.

Thank you.

And now we will take a question from Brett Jordan of Jefferies.

Hey, good morning, guys. Good morning.

On the wholesale growth, is that driven by greater demand for used vehicles and pricing, or is that because you now are putting more cars through your own auctions that acquired with Park Place? I guess if you give us an outlook, what do you think you're going to be doing with owned auctions now? Sure.

Yeah, no, it's just kind of like the daddy of super with Mannheim. I mean, the auction prices in July and August are ridiculously high. The last few weeks they've tailed off a little bit, but they've tailed off to still a high number. The auction that we acquired, you know, again, forget about the last week of August because there was a lot going on. You know, we had it for the month of September. We really just observed for the month. We really wanted to see what it did, how it did it, how it operated, and what the potential is. We certainly went into it with a mindset of what we thought our potential is, and we're even more convinced today than we were pre-closing of our potential with that auction. So we anticipate growing that auction and maybe doing more down the road besides that.

Okay, great. And then A question on Omnichannel, and clearly it seems to be applied to use pretty effectively. Can you do an Omnichannel new, or are you going to be restricted selling new vehicles to markets where you don't own a franchise? I mean, could you sell luxury from Park Place into California, or would you get pushback on that?

Sure. I'm going to address that in a couple different ways, and if I don't hit it, please come back. You know, we felt that 22% because it's the highest number. On the new car side, we're running about 13% with the push start tool. We have franchise laws with our brands and we have framework agreements. I cannot market a brand new vehicle of any kind in Los Angeles. Can someone from Los Angeles reach out to us and want to buy a car from us? The answer is yes. I just can't market there. So there's some semantics there. I think you'll see if you participate in the investor day, and if you've purchased a car from, you know, say a Carvana, you'll see some dramatic differences in the tool and dramatic differences from what we currently have in the push-start tool. Full disclosure, there's some things in that push-start tool that just don't exist that need to to enhance the experience and fully bake the sale, for lack of a better term. We know we've solved for those equations, and we're excited to show that in a few weeks. But to answer the question more directly, the way we look at Omnichannel, you know, there's an opportunity, for lack of a better term, you know, if down the road we chose to target certain markets with pre-owned and utilizing this tool and having more of a distribution hub in that part of the country at a lower cost than, say, having a franchise or a showroom just to create a distribution system, there's a lot of opportunities that we're looking at. We think the benefit through a digital tool is the fact that you don't need brick and mortar. And how do you maximize that flow through? And that's through the tool and the ability of it and what it can do. Great. Thank you.

Thank you. Now we'll go to David Whiston of Morningstar.

Thanks. Good morning. First on the special items for the quarter, the $700,000 in real estate charges for GAAP, is that booked in other income?

Yes, it is, PJ. Yes, that's booked in other income.

Okay. And can you just talk a bit about what drove F&I GPU up 11% year over year?

Good morning, David. This is Dan. You know, our F&I... team is doing a very good job consistently training. As you know, we have our bottom of the scores that we continue to focus and ensure that we continue to train, and we're seeing improvement there. Our top producers that they're consistently performing don't see much more of an uptick with the top producers, but strategically focusing on the bottom ones and strategically training them on a week-to-week basis, and following through to ensure that that consistency is maintained at the store level.

Okay. And do you still think there's a lot of room for improvement on that bottom end?

You know, like I said, there's always the bottom half that we focus on in There's always opportunity and room for improvement in those bottom half, yes. The top half, like I said earlier, I would say there's not much more room to go in the top half.

Okay. And looking at the GMC Hummer pickup from a different angle beyond the distribution logistics discussed earlier, I'm more interested in just the fact that a lot of automakers, both legacy like GM, but a lot of startups like Tesla and Rivian, Bollinger are all going after this pure electric, very high-end premium pickup truck niche. They're really creating a new segment, and it's obviously going to be a low-volume segment given the price point. So I'd just like to hear, I mean, you're in touch with the customers there. I mean, do you think there's a lot of interest for vehicles at that price point, or especially all-electric ones, or will people – Are they waiting for something that perhaps, you know, they're open to a BEV pickup truck. They want something a bit more reasonably priced, like maybe the F-Series will be in a few years.

You know, David, I'll take a shot at this and Dan can clean it up. I think of the traditional truck buyer and how long they've been buying trucks, and I'm very curious and interested to see when the electric trucks start to come out, if that buyer shifts at all and what happens. I'll tell you, I'll just talk about a traditional domestic truck right now. And it's probably a lot to do with the pandemic and people have more discretionary cash available. The more expensive the truck is today, the faster it sells. We will sell a $75,000 pickup truck faster than we will a $50,000 pickup truck. Now, I don't know if that's sustainable over time, but it's been creeping that way for a while. So I do think there's an appetite. I don't think there's, again, it's just one person's opinion today as I sit here. The truck market seems to have a watermark from what I can see, and it's, you know, somewhere in the $75,000 to $80,000 range. When you start to see trucks much more than that, the sales become very small.

Okay. Thank you. That's helpful. Appreciate it.

Thank you. Thank you. This concludes today's discussion. We appreciate your participation and look forward to discussing the next quarter. Have a great day.