Group 1 Automotive, Inc.

Good morning, ladies and gentlemen, and welcome to Group 1 Automotive's 2022 First Quarter Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongshaw, Group 1 Senior Vice President of Manufacturer Relations, Financial Services, and Public Affairs. Please go ahead, Mr. DeLongshaw.

Thank you, Chuck, and good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to the Group 1 website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ material from forecast results. Those risks include, but are not limited to, risks associated with pricing, volume, inventory supply due to increased customer demand and reduced manufacturing production levels due to component shortages, conditions of markets and adverse developments in the global economy, as well as the public health crisis related to the COVID-19 virus and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me today, Earl Hesterberg, our President and Chief Executive Officer, Daryl Kenningham, our President of U.S. Operations, Daniel McHenry, Senior Vice President and Chief Financial Officer. I'll now hand the call over to Earl.

Thank you, Pete, and good morning, everyone. Please report that for the quarter, Group 1 generated adjusted net income of $185 million from continuing operations. This equates to adjusted earnings per share of $10.81 per diluted share, an increase of 96% over the prior year, and an all-time quarterly record. Our adjusted results exclude non-core items totaling approximately $16 million of after-tax gains, which resulted from the sale of two franchises in Boston, as well as excess real estate in the UK. These results were largely due to a record-setting UK performance, significant contributions from our recent acquisitions, continued strong vehicle margins that were able to more than offset vehicle supply, continued double-digit growth in our U.S. after-sales business, and impressive cost control. Consumer demand for vehicles remains extremely strong exiting the first quarter, and we continue to sell most units almost immediately after OEM delivery. This dynamic should continue throughout the year. As with the U.S., consumer demand for vehicles in the U.K. is extremely and new vehicle availability is severely constrained. We have a total UK new vehicle order bank of more than seven months right now, with orders for some of our key luxury brand models now extending into 2023. We believe pent-up demand built over the past several years due to both Brexit and the very strict pandemic lockdowns will help drive strong UK vehicle demand into the foreseeable future. We believe our UK exposure, which is focused on major luxury brands such as Audi, BMW, Mercedes, and Land Rover, is a meaningful tailwind for our company. We're also seeing continued strength in the state of Texas. The market collectively outperformed our total US same-store growth in new vehicle sales, used vehicle sales, after sales, and net profitability. Texas demographic trends continue to be a positive tailwind for the company due to population growth, reasonable cost of living, low taxes, and a friendly business environment. We believe this is both a near-term and longer-term advantage for our company. To provide some color on our U.S. first quarter performance, I'll now turn the call over to Daryl Kenningham.

Thank you, Earl. Once again, the factors contributing to our outstanding quarter were great growth in all segments of our U.S. business, combined with a continuing focus on controlling costs and driving productivity in the face of very limited vehicle supply. As of March 31st, we had 3,100 U.S. new vehicle inventory units in stock, representing a nine-day supply, which was flat from year end. Our used inventory situation is stronger at 28 days. Our same-store used vehicle retail unit sales declined by 4% versus the first quarter of 2021, despite significantly fewer trade-ins due to a 17% decrease in new vehicle unit sales. Improved focus on sourcing resulted in acquiring more than 7,400 vehicles directly from individuals through Acceleride. which was nearly 300% increase from the first quarter of 2021. In addition, we wholesale 1700 fewer units during the quarter as we are focusing on building retail inventory. Those vehicles carry a bit lower retail PRU. However, we trade off as our F&I attachment rate is high. We believe the most important profit driver was once again our after sales performance. We've placed additional emphasis on technician recruiting and retention. And based on the attractiveness of our four-day workweek schedule, we increased our same-store technician headcount by 16% versus the first quarter of 2021. After a very strong 2021, our customer pay same-store revenue grew 19% versus the first quarter of a year ago. Our same store collision revenues increased 28% and wholesale parts revenues increased 29%. This allowed us to grow same store total after sales revenue by 19% versus a year ago, despite continued declines in warranty work. We foresee after sales continuing to improve sequentially over the course of the year. The final major factor driving our outstanding profit performance was continued cost discipline. Our first quarter adjusted SG&A as a percentage of gross profit was 60%, down from 63% in the first quarter of 2021, and down from 74% in the first quarter of 2019. A material part of the improvement is due to productivity gains, which will be a permanent benefit. And now to Acceleride. We couldn't be happier with our results as customers continue to demonstrate that they want to do business through Acceleride. We sold 5,800 vehicles through Acceleride online in the first quarter, representing over 9% of our total U.S. retail sales. These 5,800 sales were a 22% sequential increase over the fourth quarter of 2021. In addition, we've launched Acceleride in all of our new acquisitions. And Acceleride is bringing a new level of professionalism to our sales team. It's simpler, more transparent, and faster. And customers are responding. Aside from our volume increases, Acceleride customers are more loyal to Group 1, drive more F&I profit, and provide higher lifetime value to us. And we continue to make enhancements to Acceleride. As an example, we now offer delivery in every U.S. dealership. In the first quarter, nearly 700 customers chose delivery, and 70% of those customers choosing this convenience option are local, giving us an opportunity to provide future service through our outstanding after-sales operations. In short, our customers continue to say yes to Acceleride. We launched Acceleride in the new dealerships during the first quarter, and because 60% of our customer interactions use Acceleride in some way, We continue to see outstanding salesperson productivity results, even in this depressed inventory environment. I will now turn the call over to our CFO, Daniel McHenry, to provide a balance sheet and liquidity review. Daniel?

Thank you, Darrell, and good morning, everyone. As of March 31, we had $17 million of cash and another $199 million invested in our floor plan, all set accountants. bringing total cash liquidity to 216 million. During the first quarter, we amended and extended our U.S. syndicated credit facility for another five-year term. As part of this amendment, we increased our acquisition line capacity from 349 million to 500 million. As of March 31, we had 185 million available to borrow on the acquisition line. bringing total immediate liquidity to $401 million. We generated $319 million of adjusted operating cash flow in the first quarter and $293 million of free cash flow after backing out $25 million of CapEx. This capital was deployed through a combination of acquisitions, share repurchases, and dividends. As previously announced during the first quarter, we spent $115 million repurchasing 639,000 shares at an average price of $180.30. This represented approximately 4% of our beginning of year share count. Over the past two quarters, we've repurchased nearly 10% of our shares. Our rent-adjusted leverage ratio, as defined by our U.S. credit facility, with 1.8 times at the end of March. This strong leverage position will continue to allow for meaningful capital deployment in 2022, if appropriate opportunities exist. Finally, related to our interest expense, our quarterly floor plan interest of $5.3 million was a decrease of $2.2 million, or 30% from the prior year, due to lower vehicle inventory holdings. Non-floor plan interest increased 4.3 million, or 32% from prior year, primarily due to the debt rate in conjunction with the prime acquisition. For additional detail regarding our financial condition, please refer to schedules of additional information attached to the news release, as well as our investor presentation posted on our website. I will now turn the call back over to Earl.

Thanks, Daniel. In 2022, we have continued our focus on high quality external growth actions with the purchase of two large, highly successful U.S. Toyota stores. These dealerships add to our existing scale in the Austin and Albuquerque markets and are expected to generate $550 million of annual revenues. Growing our U.S. and U.K. businesses remains our top capital allocation priority and we expect to find additional external growth opportunities in 2022. However, our balance sheet cash flow generation and leverage position will continue to support a flexible capital allocation approach, which will likely include serious consideration of share repurchases in addition to pursuing external growth. This concludes our prepared remarks. I'll turn the call over to the operator to begin the question and answer session. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. And the first question will come from Mike Ward with Benchmark. Please go ahead.

Thanks. Good morning, everyone. If I'm not mistaken, your parts and services same store was the best in the group so far in the U.S. And I wonder if you could just talk about it. I mean, it looks like some of the digital activity is paying off. Customer pay was up. Warranty was down. Is that what I heard? And then also, you talked about what have you done with the prime acquisition? How is that folded in? as far as the digital service appointments, those sorts of things?

Prime is completely integrated. All of the stores at Prime are completely integrated in every digital resource and tool and process that we have. Acceleride went live there through the months of January, February. Digital service appointments are live there. So we are seeing the same kind of traction in those, and we'll see, I expect, for the rest of the year. And you're right about the CP growth and warranty. Warranty was down a bit in the first quarter, and CP growth is very strong.

Now, what percentage of the service appointments are done digitally now?

Almost 40. In the quarter, it was 37%, I believe, Mike.

And that will continue to grow as some of these other acquisitions are integrated. Second thing on the inventory front, I think your U.S. inventory, nine days, that's on the ground inventory, correct?

On the ground, what we can see, touch, and sell ourselves, yes.

Okay. How have your – and do you have a percentage of your sales that are basically being sold off the truck? Are they just coming in and going out?

Basically, it's somewhere north, depending on the brand, but it's somewhere north of 60%. Some brands as high as 80 or 90. Okay.

And how are your allocations in Q2 versus 1Q?

Hard to say. You know, you've seen some things out in the press about the forward availability, and those are as reliable as anything I could tell you, to be honest with you, Mike.

Yeah, I'm sure. I'm sure. Well, thank you. Thank you for your time.

Thank you.

The next question will come from John Murphy with Bank of America. Please go ahead.

Good morning, guys. I just wanted to hit on cap allocation here real quickly. And I understand the buybacks that you executed in the last two quarters, but if you just look at the average weighted count using the DPS calc, fourth quarter to the first quarter, it would indicate that you structurally improved EPS power by a little over 8%. And if we take the acquisitions that you made net of what you sold and, you know, very simply assume that you have a similar earnings power in that net 425 acquired, that's another 3% plus to your earnings power going forward. So, you know, in the course of the quarter in the cap reallocation, you know, it appears you've improved your structural EPS by north of 11%. It doesn't seem like you even used up all your cash generated. Is this something you can think you can just keep plowing through and keep executing on? Because I think it's something that's very misunderstood is that there might be portions of the business where you're over-earning, maybe not actually going forward. I think that's probably a little bit overblown. But it seems like people are missing this redistribution or reallocation or redeployment, I should say, of cash and what it means for your structural learning powers. Daniel, is there anything wrong with that general kind of math or thought process, or certainly your L2?

I think in terms of your math, John, you're 100% correct. And I think one of the things that people forget if you compare our company to 2019, it's a structurally different company. We've reduced our share count. We've added over $3 billion of revenues so far. versus 2019. As we were as a company, I think we've just come out of the pandemic a much stronger company. The cash flows that were currently generated can be reinvested, whether we choose to do that through then growing the company further or additional buybacks. I just think the company's structurally different going forward, and your math is 100% correct.

And John, this is Earl. Yeah, we plan to continue down this same path. I mean, clearly our shares remain very much undervalued. But at the same time, we've been able to find some incredibly high-quality acquisitions with these Toyota dealerships, with Prime last year, and a couple other dealerships we bought last year. So we really don't see execution risk in the acquisitions. And the math on the share buybacks is incredibly compelling, and there's no execution risk. We think we're getting tremendous accretion from the way we're allocating capital at the moment.

Yeah, sure, seems like it, and widely underappreciated. I guess the second thing, you're kind of hearing these rumblings from certain folks in the used car market, even some new car folks talking about weakness in demand, which seems like the most bizarre thing given what you're seeing in in pricing and what we generally hear. But is there anything you're hearing from consumers or ops as they're walking into showrooms or getting onto Acceleride where, you know, there's some, you know, potential weakness in demand? I mean, I understand pricing is something that might give people a little bit of a pause. But, I mean, you know, in general, it seems like the auto consumers are in pretty good shape. But, I mean, we hear different things. What are you seeing on the ground?

I'll start with that, John. Then I'll let Daryl jump in because he's closer on the U.S. operations. But inflation is never good for the consumer, but clearly it's going to hit the lower demographic sectors of the market first. And there is such a massive gap and has been such a massive gap for the last 18 months between supply and demand that, first of all, demand would have to come down on new vehicles a long way before it got anywhere close to supply. And much of our business, particularly in the U.K. and to a large degree in the U.S., are luxury brand businesses and businesses such as Toyota and Honda and so forth in the U.S. And our core customers, while it may be not ideal, we just don't have data that shows that that we're seeing less activity in our stores yet. And Daryl, I don't know if you want to take that.

I agree. During the quarter, John, we saw our average selling price held up through the quarter and used. We saw the lead counts per inventory continue very strong and very consistent in terms of gross profit and pricing ability. So we haven't seen that yet. We watch it every day, but we haven't seen it yet.

And maybe I'd ask you to make a characterization, and I don't know if it's fair or not fair, but given the volume levels, maybe specifically talking about the U.S., that we've seen in aggregate for the industry for calendar year 2021 and what seems like it's going to transpire in 2022. Earl, you've been in the industry for a long time. Would you characterize those as essentially recessionary level volumes right fulfilled right you know i mean it's not necessarily the demand um so that you know you could almost argue that that new vehicle auto demand has been in a recession for at least the last two years and probably going to be in it for a third year on the levels itself not necessarily on the economics but on the levels is that is that a fair characterization absolutely absolutely 13 14 million sars i mean that that historically was was a recession and um

So and there's a lot of consumer purchasing power that is still pent up from, you know, the lockdowns from COVID. You know, people are still trying to spend money. And, yeah, I get it if you talk about the lowest, you know, the lowest demographic sector of the subprime used car market. All right. That's a very price sensitive, credit sensitive market. But we're not in that market to any large degree. And inflation is never good for consumers, and in particular, the lower demographic sectors of the economy. That's a fact. But that's just not where our business is.

And then just lastly, on parts and service, you kind of talked about this as really accelerating. But is there anything that's going on there that you can kind of quantify? I mean, you're saying you expect it to remain strong through the course of this year. On deferred maintenance... You know, on people willing to, you know, maybe, you know, do more maintenance on their vehicles because they're holding on to them longer. Things that we kind of sort of on a short-term and long-term sort of, you know, think about sort of they're a little bit more structural and sticky than, oh, just, hey, they're just some pent-up demand. I mean, it just seems like there's a lot more going on here.

John, this is Darrell. We've seen the trend in Q1 is similar to what we saw in Q4. The customer counts are up, but also... the average spend per customer is up as well. And that's not inconsistent with what we've seen in the last couple of quarters. So we've seen that continue. I expect it will continue.

Do you have enough techs at this point? Or no, you need to hire a lot more?

We're continuing to hire techs. And we're happy with the number we've hired. We've increased our base 16% in the last year. But we want to continue to hire more. There's more growth opportunity there. And the good thing is our four-day workweek allows us to be flexible with our scheduling, and we can maximize the productivity of our shops without adding brick and mortar.

Do you have a cap unit number for your stalls, or is that something you're looking at, Darrell?

Well, we actually, with the four-day workweek, we can have more techs than we have physical stalls, and we have that in several dealerships. So, We don't feel like we're limited by the number of physical stalls that we have. We're not at our physical stall limit yet on techs, but we could go by that with the four-day work week, and we do that in a number of stores. We have several more techs than we do stalls in a number of stores. Great.

All right. Thank you very much, guys.

The next question will come from Daniel Imbrow with Stevens. Please go ahead.

Yes, thanks. Good morning, guys. Thanks for your questions, and congrats on the strong quarter. Daniel, I want to start on the Accelerad business. I think you guys said he sold 5,800 units in the quarter. I guess, how are you measuring what's sold online? Is that just what's fully done online, or does that count units where part of it's done online? And then what percent of those are getting a trade-in attached?

Daniel, this is Daryl Kenningham. The Acceleride numbers, you know, 9.6% of our business, 5,800 units, whatever it was, those are people that start in Acceleride and continue through the process and buy a car. They may hop out of Acceleride at some point to come in and test drive a car or something like that, but those are people that start in the Acceleride process and then end up buying a car from us. So that's how we define an Acceleride sale. And then there's 60% of our customers that touch Acceleride in some way, whether they trade a car in online using Acceleride or whether they upload insurance and driver's license information using Acceleride or whether they shop for inventory or value a trade through Acceleride. That's over 60% of our customers are doing that.

Got it. And then I wanted to tie that into the F&I. I think you made a comment, Daryl. that Acceleride customers are driving more F&I per unit. I guess, how does that compare to an in-store F&I per unit? And then taking a step back just broadly, you know, as rates rise, is it going to get harder to attach more products to each vehicle sold, or how should we think about rising rates impacting F&I?

Thanks. I'm sorry. Go ahead. I will answer the Acceleride portion of that, and then Pete DeLongshaw will answer the F&I impact moving forward. What we're seeing with Acceleride customers is there's more attachment rate on FMI. For those customers that start in Acceleride, we are seeing that there's more attachment rate on FMI. And we're continuing to monitor that and believe that to be a long-term trend. We've seen that over several quarters. And then Pete can answer about interest rates and the impact of that on our PRUs.

So, hey, Daniel, this is Pete. You know, Following up on Daryl's answer, it's about $140 higher on the Acceleride versus in-store. And as far as rising rates, you know, it is a, you know, the consumer looks at a monthly payment. So there's certainly risk that if rates go up that, you know, it could affect some product penetration. We haven't seen that. The other things I'd like to remind you is that the captive finance companies, whether it's Toyota Financial Services or BMW, they're there to support the dealers. And traditionally, they've come with incentivized rates when rates get too high. So we're very pleased with our product penetration. I think the numbers show that we're executing on our plan. But I think for now, we're going to continue to go.

Great. Thanks so much, guys. And then one more, if I could sneak it in. Are you guys seeing any discernible impact in the oil patch just in the move in commodity prices yet? And if not, do you think that will show up this year as drilling activity picks up down in Texas? Thanks.

Yeah, this is Earl. Yeah, clearly these high energy prices help a lot of companies in the oil areas of Texas, West Texas, Houston, and a couple of the other areas. So that's good. I wouldn't say there's been more drilling activity, and these companies have gotten very efficient and lean. But the other thing is these companies are also leading the energy transition into new forms of energy. Texas now gets 20% of our power from wind, if you can believe that. And the other thing that has really exploded in the last month or since this – invasion of Ukraine is the future investment potential of LNG. That is all centered within our markets here. So I think this LNG investment trend is likely to go on for some time. So the combination of this movement toward renewable energy and the energy transition of America you know, it's still going to be centered to a large degree around here. And then the higher prices and the move toward LNG, all of that bodes well for our markets. Great. Thanks for all the color and best of luck.

The next caller will come from David Witham with Morgan Star. Please go ahead.

Thanks. Good morning. I guess first on unused, you guys seem to buck the trend I saw some other dealers fight with recently in that your GPU was up despite some very high inventory acquisition costs. And just curious, maybe more aggressive on raising prices to offset those high procurement costs compared to some other players.

We felt like we had some opportunity, David, in our PRUs. And so You know, a lot of that is the way we're sourcing vehicles. We're not relying on outside auctions at all. We're keeping more vehicles. We're trading for more vehicles. We're buying more vehicles out of our service drives. 5,700 vehicles were acquired through Acceleride. Those all have higher profit potential than anything we can go source from the outside. And so I would say that's what's driving our incremental PRU improvement.

So 100% of the removal is coming from trace?

No, well north of 90% is being sourced organically, though. There's far less than 10% from any auction.

Okay, and there was a slide in the deck, I think it was 516, that said accelerated retention is 71% higher than traditional sources. or maybe it was running at a 71% rate. It was higher than traditional. I'm just curious, does that mean 71% of Acceleride customers have already bought another car from you guys, or is it just the portion that are coming for service after buying an Acceleride platform?

After the two years we've had Acceleride fully deployed, those customers are coming back to us 71% of the time versus 54% of the time with other customers.

Okay, and finally, just on pricing with the dealers all doing 7%, 8% EBIT margins, just curious, have the factories ever come to you guys and basically said, you're doing an extra 200, 300 BIPs of EBIT margin than pre-COVID, and some of that belongs to us? I mean, it doesn't seem like there's been that tension or adversarial relationship the past few years.

Well, the factories, and you've seen it in all their projects, own public releases. And, you know, they've been very clear that they would like dealers to sell vehicles at MSRP. Philosophically, we believe that, you know, we look at these transactions as a long-term relationship with a customer. And we want them to come back. We want them to have equity in their cars a year, two years, three years from now. And so that's philosophically why we approach our selling at MSRP the way we do. And the factories have been very clear. We've seen that this quarter quite a bit. We see it in regular communications. But, Earl, did you have something to add to that?

No, no. The only communication we've had is with most of them that they would prefer that we don't have these markups of them. above MSRP, and we agree with that. I'm not saying we haven't sold a few specialty vehicles above that, but our policy is if it's our customer and it's in our market area, we're selling these cars in MSRP. And our feedback from our OEMs has been very positive in that regard.

Okay, thank you. The next question will come from Rajit Gupta with JP Morgan. Please go ahead.

Great. Thanks for taking the question. You know, the two questions that, you know, we get a lot, you know, when, you know, people are trying to understand, you know, what normalized earnings could look like, you know, for your company and your peers. And, you know, I think the two key uncertain areas, I mean, outside of like just new legal gross margins are, you know, what's going to happen with SG&A to gross and what's going to happen with F&I. So, Could you comment on each of them? Your productivity obviously continues to remain strong. Can you give us a sense of how your thinking has evolved over time in terms of what is the possible ratio there longer term? Obviously GPUs are a factor, so maybe you can help frame in the context of some GPU scenarios. And then on the F&I, obviously continue to crush that number every quarter. you know, say like ASPs do come back to like 2019 levels, like maybe that's not a realistic scenario, but like even if that is what it turns out to be, how should your F&I, how should the F&I GPO look like in that scenario, given the changes you've seen on the service contact penetration? That'll be all. Thanks.

Well, let me just start with kind of the macro look. It's clear that margins are not likely to stay this high indefinitely, and that in a higher interest rate environment, F&I penetration per unit could also go down. So those are both gross profit numbers that could go down someday, and we've proven our business model is one that when gross profit generation reduces, we have to reduce our cost. But we have a flexible cost structure, and that's what we continue to prove in recessions and in other times like COVID when we have to adjust, is we have a flexible cost structure, and that is the advantage of our business model. The other factor that should coincide in timing with such time as perhaps gross margins, whether it's F&I or on the vehicles, start to decline, the volume should start to increase. And so we all know there's upside to vehicle volume in the future. So those are the two factors that we have to leverage. You know, at the point in time when either vehicle or finance margins soften down a bit, we have to reduce our cost and we have to make it up in volume. And clearly, the power of F&I is an incremental volume, right? maybe just $200 less a unit, but if you're getting more returns from selling more new and used cars, well, that's a powerful offset. And that's really how we look at it, quite simplistically.

Rajat, this is Pete. Thanks for your kind words on crushing it, but if you look at our trends over the last 10 years, whether it's You know, through financially hard times, we continue to execute through our training and our processes and our compliance piece of it. We've got terrific lender relationships that support. You know, I'll echo Earl's comments that the macro could affect it, but the process that we have in place in our company for F&I continues to execute.

We're seeing it's not just ASPs that's driving the PRUs up. We're seeing better product penetration, too.

Got it. Okay, great. Thanks.

The next question will come from Glenn Chin with Seaport. Please go ahead.

Good morning, folks. Thank you and congratulations. Most of my questions have been answered, but maybe a couple quick follow-ons. Earl, I apologize if I missed it, but did you say you feel like you've benefited yet from record energy prices, or the supply is so tight that it's not even really apparent?

I don't think I could articulate that we've benefited by some amount, but by being the largest retailer in Houston and in Texas overall, These things, these macro factors in the energy transition, energy prices, investments in LNG and alternative energy sources, that's all great for our core market. That's the only point I was making, but I couldn't tell you. The only thing I could tell you is that our Texas market did outperform our other markets in the quarter. Texas is a very diversified state, however, so I couldn't tell you it was just attributable to anything in energy.

Right. But I think historically, lag time was thought to have been, is it two to three quarters? Is that fair?

Yeah, there's a time lag of some amount. That's correct. That's directionally correct. I just know that when oil prices and gas prices go down, we get hammered, and yet when it's strong, nobody seems to care.

I care. Okay, that's what I want to hear, Glenn. And then I'll make sure everyone else cares. A follow-on on self-sufficiency and your use of auctions. Granted, your use is very low. Your self-sufficiency is very impressively high. Just given recent M&A in the auction space, with one of your competitors acquiring Adesa. Are you guys any less likely to use them in the future, either to wholesale or to buy from them?

Yeah, we're less likely to use Adesa in the future.

Okay, thank you. And then lastly, just going back to F&I, maybe a question for Pete. I mean, for years, we thought this is the peak, and it just continues to step higher.

do you still see room or or headway for it to grow further peter and would that be a function of increased penetration or product proliferation or both so any of the increases are going to come from additional product penetrations we've got um you know we're making a one percent spread on on rate which we think is we're comfortable with so the increases you're seeing are increased penetrations on product and with customers. We're up to 73, 74% on penetration. I'll go back to, we've got nine regional finance directors that do a terrific job of training. Daniel's audit team works closely with the operations to make sure we're in compliance. We've got a really good department that's executing. I expect them to continue to perform at a high level, and if we can increase the penetrations and don't have interest rate of headwinds, I think they're still upside.

Okay. Very good. That's it for me. Thank you. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Earl Hesterberg for any closing remarks. Please go ahead, sir.

Thanks, everyone, for joining us today. We look forward to updating you on our second quarter earnings call in July. Have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.