Intercontinental Exchange Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 24, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to Asbury Automotive Group Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn this call over to your host, George Villasada, Senior Vice President and Chief Legal Officer.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's 3rd quarter 2023 earnings call. The press release detailing Asbury's 3rd quarter results Was issued earlier this morning and is posted on our website at investors. Asburyauto.com.

Speaker 1

Participating with me today are David Hult, our President and Chief Executive Officer Dan Clara, our Senior Vice President of Operations And Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call up for Before we begin, we 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, which may include financial projections, forecasts and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC, including our Form 10 ks for the year ended December 2022 and any subsequently filed quarterly reports on Form 10 Q And our earnings press release issued earlier today, we expressly disclaim any responsibility to update forward looking statements. In addition, certain non GAAP financial measures, as defined under SEC rules, may be discussed on this call.

Speaker 1

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. We also have posted an updated investor presentation on our website at investors. Asburyauto.com highlighting our Q3 results. Now it is my pleasure to hand the call over To our CEO, David Hult.

Speaker 2

Thank you, George. Good morning, everyone. Welcome to our Q3 earnings call. First, I'd like to commend the resiliency and strong efforts of our team members as they work diligently to deliver the most guest centric experience In automotive retail, they have executed efficiently to maintain cost control as our business has scaled. I'll remind everyone in the span of 2 years, we doubled the size of our company.

Speaker 2

The team has worked very hard to set up infrastructure to integrate processes, Increase productivity and drive performance. Now on to our consolidated results for the 3rd quarter. We delivered $3,700,000,000 in revenue, had an adjusted SG and A as a percentage of gross profit of 58.4 percent at a gross profit margin of 18.4%. We generated an adjusted operating margin of 7.2%. Our adjusted EBITDA was 280,000,000 And our adjusted EPS was $8.12 I'll touch on some areas where we did well in other areas where we know we have work to do.

Speaker 2

As expected, this quarter we saw some headwinds beginning with brand and model mix in new vehicles. While day supply remains at a healthy level, we are seeing some cases where high demand models are selling well, Though difficult to replenish, while others remain at elevated day supply. On the used side, We continue to see a challenging market for sourcing those vehicles. We are seeing a continuation of PVRs as a whole trending to a more sustainable level. Our parts and service business showed year over year growth, yet this is an area that was disproportionately impacted by the integration activities we mentioned last quarter.

Speaker 2

Demand remains strong and we are confident in the longer term trend of our parts and service business. Turning to F and I. I'll highlight 2 areas in the quarter. We are seeing slightly lower penetration rates in our F and I products As customers look for ways to manage lower monthly payments in a rising rate environment. 2nd, The way in which we account for TCA will result in a negative drag on results over the next 2 years As the products roll out across the legacy Asbury stores.

Speaker 2

The impact is driven by the way in which sales from the products are recorded over time rather than upfront like a third party provider. Michael will cover in more detail in his section. Finally, Our SG and A levels in the quarter demonstrated our commitment to manage our cost structure to the performance of the business. I'm encouraged by the progress and direction of our operations and strategic initiatives. We are enthusiastic about the pending acquisition The Jim Koons Automotive Group, a well respected group with a phenomenal set of team members and leaders.

Speaker 2

The group generates over $3,000,000,000 in annual revenue And averages over $140,000,000 in revenue per rooftop. Amidst the evolving backdrop of our space, I'm optimistic about automotive retail and our diversified business model. We have strategically purchased quality assets, making us a stronger company. Part of our long term plan to deploy capital to its best and highest use. We have entered into growing strategic markets that we haven't operated in before and we continue to integrate and grow the business.

Speaker 2

We operate in an environment where the average age of the car is 12.5 years. And while SAAR levels have been trending higher, It is important to note we are still below historical levels. Our parts and service business will remain a critical element of our success well into the future. Preparing older vehicles, addressing the complexity of newer cars and supporting numerous EV models rolling out over the next few years. Overall, we are focused on achieving our long term strategic goals.

Speaker 2

We plan to fund the pending The Coombs acquisition with existing liquidity and capacity. Our strong balance sheet and reliable cash flow Has enabled us to undertake this deal without the need to raise additional debt or issue equity. We are well aware that interest rates have moved up And we have adjusted our return assumptions accordingly. We will remain strategic with our capital allocation decisioning with a focus on paying down debt in 2024. As we are winding down on year 3 of our 5 year plan, I am proud of the progress we have made in transforming the size and scale of our business.

Speaker 2

In just a few short years, We have grown revenue from $7,000,000,000 to $15,000,000,000 or $18,000,000,000 pending the Coombs acquisition Increased adjusted EPS from nearly $13 to over $34 per share generated over $400,000,000 in adjusted operating cash flow to now just over $700,000,000 before the pending Coombs acquisition Increased adjusted EBITDA from $400,000,000 to an annualized run rate of 1,200,000,000 We acquired an insurance company, Total Care Auto and introduced ClickLane, tools which fundamentally change the buying experience. Our 2025 growth objectives will be updated after our year end results and the planned closing of the Coombs acquisition to provide a clear roadmap for our long term growth trajectory. I'll now hand the call over to Dan to discuss our operating performance. Dan?

Speaker 3

Thank you, David, and good morning, everyone. I'll start off by once again thanking our team members to deliver the most guest centric automotive retailer experience. Now moving to same store performance, which includes dealerships and TCA unless stated otherwise. Starting with new vehicles, Our new vehicle inventory ended the quarter at $807,000,000 which represents a 36 day supply. As in previous quarters, there was significant variation among brands and models.

Speaker 3

Our new vehicle revenue grew 8% Year over year to $1,900,000,000 and unit volume grew 5% year over year to over 36,000 vehicles. New average gross profit per vehicle was $4,567 New vehicle gross margin was 9% this quarter. Turning to used vehicles. Used retail revenue was 1,000,000,000 As unit volume was over 32,000 vehicles in the quarter, average used retail gross Profit per vehicle was $18.62 for the quarter, a function of stronger new vehicle availability and macro conditions. Our used vehicle inventory ended the quarter at $304,000,000 which represents a 29 day supply.

Speaker 3

As conveyed in our opening remarks, we are still seeing challenges in sourcing inventory. We typically source about 90% of vehicles internally To maintain a strong profitability profile, we remain focused on delivering strong profitability over chasing volume in this environment. Shifting to F and I. We delivered an F and I PBR of $2,207 Compared to $2,521 last year, a reflection of higher interest rates pressuring consumer payments, which impacts our F and I results. In the Q3, our total front end yield per vehicle was $5,514 Moving to parts and service.

Speaker 3

Our parts and service business revenue increased 3% in the quarter To $526,000,000 growing over a tough comparison from last year's strong same store growth of 12%. We have also been investing across the business towards a transition of software to support a more unified process and platform for fixed ops, some of which relates to the integration activities that David mentioned in his opening remarks. We observed a mixed result among the stores in performance. Now turning to Clicklane. Please note That for ClickLane, we are reporting on an all store basis.

Speaker 3

We achieved another all time record with over 11,600 vehicles sold Through ClickLane in the Q3, a 71% increase year over year. 17% of our Q3 new and used retail sales We're powered by ClickLine. We generated $460,000,000 in ClickLine revenue for the quarter. We are tracking to approximately $2,000,000,000 of revenue in 2023, mostly governed by constraints within pre owned sourcing And relatively low day supply in our high velocity brands that make up a good portion of new vehicle sales. Moving on to some ClickLINK KPIs for the Q3.

Speaker 3

46% of ClickLINK sales in Q3 were new vehicles and 54% were used. Total front end PVR of $3,018 and F and I PVR of $2,151 which equates to $5,168 of total front end yield. The average ClickClean customer credit score was 723, which is higher than the average credit score at our stores and sequentially higher than last quarter. 92% of those that applied were approved for financing, of which 86% of those customers received instant approval, while the remaining customers required some offline assistance. 74% were lender finance sales and 26% were cash sales.

Speaker 3

The average down payment of the finance sales continues to be over $9,000 The average distance of our Click Link delivery from our dealerships was 40 miles, consistent with last quarter As the Western states utilize the convenience that Click Link has to offer. We are pleased with the way Click Link is growing and driving adoption rates. We are seeing great feedback from the customer experience. You will hear us talk about ClickLearn within the context of our overall business as it becomes an integral part of the dealership model and our results. I will now hand the call over to Michael to discuss our financial performance.

Speaker 3

Michael?

Speaker 4

Thank you, Dan. To our investors, analysts, team members and other participants on the call, good morning. I would like to provide some financial highlights for our company. For additional details on our financial performance,

Operator

Operator, did you mute your line, Speakers?

Speaker 4

2023 CapEx to be $155,000,000 as we continue to roll out planned CapEx related to our 2021 acquisitions. Of this $155,000,000 about $15,000,000 is expected to be related to the replacement of leased properties. Year to date, TCA made $71,000,000 of pre tax income. We are deploying TCA in our states with larger dealer presence and we will have all of our current stores enabled with TCA by the end of Q1 of 2024. The deferrals associated with TCA rollout have begun to show up in our F and I results, which led to some headwinds in our PVR number.

Speaker 4

These trends will be more meaningful in 2024 as TCA expands within new and existing markets. We now expect pre tax income for TCA for 2023 to be $85,000,000 Year to date, we generated $514,000,000 of adjusted operating cash flow, a product of our robust and resilient business model. Our balance sheet continues to be strong as we ended the quarter with approximately $1,700,000,000 liquidity comprised of cash, excluding cash at Total Care Auto, floor plan offset accounts and availability on both our used line and revolving credit facility. Last week, we reached an agreement to renew and upsize our credit facility, up from $2,550,000,000 to $2,800,000,000 at the same pricing as our previous agreement. The agreement extends the current credit facility to October 2028.

Speaker 4

This gives us the financial flexibilities to support our long term strategic objectives. We'd like to thank our OEM and bank partners for their continued support. Our pro form a adjusted net leverage was 1.7x at the end of September, reflecting the use Cash to repurchase shares earlier in the year. As David mentioned, we anticipate using current balance sheet liquidity, mainly comprised of cash, floorplanoffset accounts and used vehicle floorplan capacity towards the purchase of the pending Jim Coons acquisition. Also pending the Cocoons acquisition, we anticipate our net leverage to be in the mid-2s.

Speaker 4

Our robust cash flow as a larger company will allow us to reduce leverage back 2 times or lower by the end of 2024. Finally, I am grateful for the hard work of our Asbury team members who help us operate at a high level and continue to focus on the customer experience each and every day. Thank you. I will now pass the call back to David for closing remarks. David?

Speaker 2

Thank you, Michael. I want to close our prepared remarks With a big thank you to our team members and leaders within our organizations. Your efforts are noticed and greatly appreciated. Thank you. Your commitment and dedication to making a great workplace environment has also been recognized nationally.

Speaker 2

We were recently named as one of America's Greatest Workplaces 2023 by Newsweek, receiving a 5 out of 5 star rating. And we were awarded 2024 Best Companies to Work For Retailers Industry by U. S. News and World Report. I commend all of you for fostering an enriching and welcoming work environment.

Speaker 2

This clearly speaks to the quality of our store leaders and our team members committed to our vision. This concludes our prepared remarks. We will now turn the call over to our operator We'll take your questions. Rob?

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Daniel Imbro with Stephens. Please proceed with your question.

Speaker 5

Yes. Hey, good morning, everybody. Thanks for taking our questions.

Speaker 2

Of course.

Speaker 5

I want to start on maybe the used business. David, obviously things have slowed there, but curious if you Provide some color on the cadence. Did we see any noticeable changes month to month? And Dan, I think in your prepared remarks, you noted a focus on profitability over more volume, But GPU did still step back sequentially despite wholesale prices falling. So can you maybe talk about how you're thinking about used GPUs in this environment as well?

Speaker 2

Yes. Daniel, this is David. I'll start and then Dan can jump in. With the used car gross It's all about what you acquire the vehicle for. It's a competitive space.

Speaker 2

There's less vehicles out there. There's more shopping going on. So your cost of sale as far as what we own the vehicle for is creeping up a little bit, which has put pressure on the margin. We have chosen not to chase volumes, so we're purchasing less cars at the auction than we normally would. Our thoughts are if we're Purchasing at a higher rate through the auction, you would see lower PBRs.

Speaker 2

We think we're getting close To a sustainable level, but in this dynamic environment, it's really difficult to predict what the future is going to be.

Speaker 3

Good morning, Daniel. Dan here. To answer your question, we did see some Pressure and the valuation of the vehicles specifically at the beginning of the quarter. And so that put additional pressure on our margin, a little bit more than we were expecting. I mean, that's what we felt a little bit short.

Speaker 3

But I will tell you the good news is we were able to adjust quickly. That is one of the benefits of keeping a 29 to 30 day supply as market conditions change, we're able to adapt. And if you look at from a wholesale perspective because of the Quick turnaround that we were able to adjust our wholesale perspective. We did not suffer on vehicles that we were Full selling because we cannot retail at the store level.

Speaker 5

That's helpful. And maybe if I could follow-up On the new side of the business, obviously, new GPUs are probably a bright spot. Digging through it, I mean, domestic GPUs here are still over $4,200 David, versus pre COVID, we'll call it 17, 18 100. Can you just walk through the buckets of how despite inventory building, Domestic GPUs are still that much higher? Is it more premium?

Speaker 5

Is it OEMs being disciplined? And then what does that tell you about Future of new vehicle GPUs given what you've seen so far in that segment?

Speaker 2

Danielle, I'll give you my best attempt. It's a great We're heavy with our domestic brand mix of Stellantis, so that impacts us a little bit Compared to our peers, we're as we've said when we've done these acquisitions, especially the Miller acquisition, There was a lot of domestic stores in there in the Mountain States. And as I said, when we acquired them, their gross profit margins Or PVRs were higher than Asbury was. So while we are seeing some deterioration from all time highs, We're still at very healthy profit margins. And even with the day supply creeping in some areas on domestic, We're still able to get good gross profit.

Speaker 2

So we're excited about that. We think it has a lot to do with the average age of the car park and the large down payments That our customers are still putting down.

Speaker 5

Great. I'll hop back in

Speaker 3

the queue. Thanks so much guys.

Speaker 2

Thank you.

Operator

Our next question is from John Murphy with Bank of America. Please proceed with your question.

Speaker 6

Good morning, guys. Just A couple of quick ones. David, first on parts and service, you indicated that integration had stunted Same store sales, a little bit. I'm just curious when you think that will resolve and how we should think about The opportunity in parts and service growth is sort of mid and long term.

Speaker 2

Sure. I'll do my best, John, and others can jump in here. There was a lot of accounting consolidation that took place. And when that takes place, it's never convenient, it's never easy, and there's hiccups with software integration, which makes it difficult for the results. At the same time, we were integrating some of our service software to make our stores out west a little bit more efficient how they operate and sell their product.

Speaker 2

As I said last quarter, I thought it would be a quarter or 2. We're hoping by the end of the Q4, we should have normalized and had everything integrated And start off fresh in Q1 of next year.

Speaker 6

Good. That's super helpful. On the used sourcing side, Is this really just a function of a dearth of late model vehicles? And is there maybe a need to go older in the age spectrum until we We grow that population of units or do you think there's something sort of more structurally going on in the dynamics of Who is getting vehicles in the competitive set in the used vehicle market?

Speaker 3

John, good morning. This is Dan. As you Can see our cost of sale drop $900 a car or around there. And so we're definitely bringing that cost of sale down With trying to really keep the older car for a lack of a better term, we are those cars Are harder to get. When we get them, we do everything within our power to put a safe, reliable car In the front line, we can sell to one of our guests.

Speaker 3

But we still even at that point, you're looking you're talking about $31,000 in our cost of sale for a new car that is pretty high and that has just been a product of what we've seen in the last few years Where the acquisition cost of new cars has continued to ground.

Speaker 6

Okay. And then just lastly, obviously, you're making big acquisitions and that seems like it makes sense. You got the cash flow balance sheet to do it. But at some point, David, that story We'll run out maybe to some degree. It might be many, many years.

Speaker 6

So I'm not saying it's happening anytime soon. But as you build out the network even further And go wider. Ultimately, what kind of opportunity is there to go deeper in each market, whether it be sort of what we're just talking about Sort of age of vehicle, on the sort of the turn or the second, third, 4th turn of the vehicle or the service work They might go instead of 5 years, 10, 15 years. How do you think about that in eventuality of needing to and wanting to go after that?

Speaker 2

It's a great question, John. A few years ago, we were the smallest by far of the public. So we've been trying to grow in markets We think it will stabilize and strengthen our company, and we think we've effectively done that. And even though we've had a lot of acquisitions, I'll just remind everyone, When we close on the pending deal, it will be almost 2 years since we've acquired something. And in 2022, we divested of 16 stores.

Speaker 2

So there's a lot of activity going on there. We've been building for the last few years to be an efficient organization, To be ready to scale, to be ready to support the OEMs and any consolidation that might take place over time. As you know, leasing has disappeared from the marketplace the last few years for obvious reasons. So we think there's a lot of tailwinds down the road with leasing coming back with the OEMs To deepen our relationship with our client base within our markets that we're in from a service retention standpoint. And as these vehicles become more complicated, we just think that we're the obvious choice to service your vehicle compared to independent shops.

Speaker 2

So while the next couple of years might get a little bit bumpy with what goes on economically, what goes on in the world, we think as things start to settle down and get back to normal in the future, We'll be well positioned in the markets we're in with the brands that we're in to really deepen our relationship within the communities to expand Our service retention and hopefully grow our new car numbers both through leasing and additional lift through SAAR.

Speaker 7

Okay. Thank you very much, guys.

Speaker 2

Thank you.

Operator

Our next question comes from Rajat Gupta With JPMorgan, please proceed with your question.

Speaker 8

Great. Thanks for taking the questions. Just had a couple here. On the parts and services impact from the integration and the software change, is there any way to quantify that impact At all, in terms of how many points of same store impact it might have had? And I have a couple of follow-up.

Speaker 4

Rajat,

Speaker 2

you integrate from an accounting standpoint a consolidated Look at your accounting through 50 stores, it doesn't go equally across all some stores. Some have issues, some don't. Some have more complicated issues that take a week To figure out and get the numbers correct and then you have the service software, I would tell you the stores that were impacted From a customer pay standpoint, because that's kind of the number that we focus on, it was anywhere from 10% to 15% Disruption within those stores during the quarter. Some brands were more than others depending on parts availability that are on top of that. But generally speaking, it was between 10% 15% of those stores out west.

Speaker 8

Got it. That's helpful. And just on relatedly on parts and services, we have had the Detroit 3 parts plan strike now Almost 5 weeks into that. Could you give us a sense of when should we start to get concerned about any kind of Part shortages, any way to quantify what the 4 day or impact could be with every day or shortage That you might see eventually. And also relatedly, do you expect to recover any of that once the strike ends, if we do end up having an And I have one last follow-up.

Speaker 8

Thanks.

Speaker 3

Good morning, Rajat. This is Dan. I'll start it and then turn over to David to add any additional comments. I will tell you that the time of we're seeing the biggest impact is starting now. We had Enough day supply within our parts inventory when this all started where we were still able to service our cars and take care of the guests in a timely fashion.

Speaker 3

But as the delivery centers, the parts warehouses have no employees and now the OEM is doing everything within their power to continue to ship Parts to us, in some cases, we are not delivering, we're not receiving shipments and it's been days, if not weeks since we received them. The good news about our size and our scale is we're able to transfer parts among store stores where some of them have the part that we need for to Satisfying other guests across, whether it's in East Coast or the West Coast. So we're working that to the best of our ability. But as this continues to prolong, the impact is going to be greater. And unfortunately, the one that gets affected is the end consumer.

Speaker 2

Rajat, I'll add to that. We have a large wholesale parts operation that it's starting to impact as well because we're not able to deliver those parts to our customers. So that's concerning. So every week that goes by, we're it's affecting our business. We saw this coming.

Speaker 2

Our parts managers were strategic and built up the inventories as best they could to prepare for this, and we came into it with a decent day supply of vehicles With all the brands, but as you can imagine, as these weeks go on and they shut down certain plants, it's going to impact us in the Q4. To what degree at this point, it's hard to determine, but we're certainly starting to feel it. And as far as it coming back, Just real quickly, as far as it coming back, that's a hopeful thing. Either the consumer gets frustrated and trades the vehicle for another brand Or they wait it out. You really just don't know what that's going to look like till you get to the other side.

Speaker 8

Got it. Got it. That's helpful color. Just last I believe, Mike, I think in your prepared remarks, you mentioned that you expect the leverage The company to go to the mid-2s with the Jibcoons deal. And then you mentioned you expect to get it back down to less than 2x by the end of 2020 4, is that implicitly suggesting some sort of earnings cadence for next year?

Speaker 8

I mean, if you were able to get to less than 2 times by the end of next year, it would suggest that you're expecting EBITDA for the company, Including Jim Koons to grow next year. Is that like an unreasonable assumption? Are we missing something there in your statement there? Any thoughts We'll be curious.

Speaker 4

Thanks. That's more of a cash flow issue. We're going to prioritize cash to paying down debt. And so that's just taking the cash flow that we'll have next year and using that to pay down the debt level that will take The net debt level that we'll take on as part of the Coons acquisitions.

Speaker 8

Got it, got it. But is that there's an implicit EBITDA assumption there like in the 2 times?

Speaker 4

There's an EBITDA assumption there. I mean, it takes the same store EBITDA assumption with lower margins next year. But then add to that, the Coons cash flow is going to come with it. And so while same store will be backwards a little bit because of the decline in new vehicle margins, Yes, we'll get a lift because of the adding the Coons EBITDA.

Speaker 8

Got it, got it, great. Thanks for all the color.

Speaker 2

Thank you.

Operator

Our next question comes

Speaker 4

I want

Speaker 9

to start with TCA. Can you talk a little bit more about the accounting nuance? Looking ex profit, you expected 25,000,000 Started this year, then it went to 75, now 85. I guess is that primarily a timing of when Asbury stores are rolling on to TCA or is there some other underlying assumption in their business impact? And then can you also talk maybe magnitude of Negative impact next year.

Speaker 4

Yes. So two things in there. When we originally had the $25,000,000 forecast, we expect Higher used vehicle and new vehicle volumes for this year. And so as those came in less, we're in effect rolling off LHM stores 2018 2019, that's the income that's kind of rolling off as part of the deferral and we're replacing it with less of a hit for this year because of the volumes being lower. So that's a big chunk of it.

Speaker 4

And then the other piece is we did our large Groups in Georgia and Florida, where we have a lot of our volume for Asbury, the Georgia ones are fully rolled out. The Florida ones were going to go out this in the Q4. We've delayed that until the Q1 Just with the Coons acquisition and some other things, just decided to push that off to the Q1 versus trying to stick it in during the holidays in Q4. So A little bit of the delay of the Asbury stores in Florida rolling out, which is a big group for us, and then just the lower volumes from both LHM and Asbury From our original projections. And then for next year

Speaker 9

Yes, thank you.

Speaker 4

Yes. For next year, we're still working through the forecast of the units for next year in terms of what SAAR is going to be in used vehicle volumes. But I would expect something close to that, call it, breakeven the $25,000,000 range. So Pretty big fall off for next year just because we'll have the full year deferral of all the stuff that we rolled out this year, plus we'll have Florida rolling in next year.

Speaker 9

Great. Last question for me. You mentioned F and I is slightly lower attach rates, but then I look at Clicklane and it's 74% finance, 26% cash transactions, which is identical to what it was In Q2, I guess, can you talk through the dynamics of F and I attach rates between ClickLane and then the retail stores? And Anything you've seen in October would also be helpful there.

Speaker 2

Sure, Ryan. This is David. I apologize, I might have got it wrong in the script. Normally, we of our F and I number per vehicle, 70% of it is product sales and 30% of it is reserve. In this past quarter, it was just about 67% products in the rest reserve.

Speaker 2

So the leakage was a little With lower penetrations on our product sales, we don't think it's a material number, but it It was certainly down, so we thought we would call it out a little bit. We think we're a healthy business when we're 70% product sales and 30% reserve.

Speaker 9

Got you. I maybe just misunderstood as well. Any comments on October? Any change in trends there? And then that's it for me.

Speaker 9

Thanks guys.

Speaker 3

Ryan, this is Dan. No, I mean, what we've discussed is what we're Expansion for October. Thanks, Seth Me.

Speaker 4

Thank you.

Operator

Our next question is from Bret Jordan with Jefferies. Please proceed with your question.

Speaker 7

Hey, good morning, guys.

Speaker 2

Good morning.

Speaker 7

Any color on the UAW impact to GPUs in the Q3 and I guess into the 4th? Or is the broader market discounting less with concerns around Supply shortage or is it not impacting?

Speaker 3

Good morning, Brett. This is Dan. Yes, we were starting to see a shift, Less of a discount before the strike was taking place, even though you could see it coming. There were a lot dealers were a lot more aggressive on the domestic side, and we have seen that scale back considerably now that we know Where we are and that this is going for a long time, I guess, looks like it's up to them.

Speaker 7

Okay. And then a question, I guess, it sort of got asked earlier, but now that you've got another quarter under your belt, do you have any feelings for what the new normal Market average GPU is on new. I mean, are we going back to 2,000? Or is it just given the changes in the market going to stay higher than the historic levels?

Speaker 2

Yes, Brett. I think across the peer space, it will differ by brand mix and whether it's luxury, domestic or import. The one thing that we've stated all along and we still believe whatever it settles into, We believe that we'll be higher than we were in 2019 because of the mix of our company now and the brand mix. There's nothing to prove that model out and there's a lot going on in the world right now to predict what the future is going to look like. But We still believe that we should end up higher than 2019 levels and we'll continue to manage our expenses as best we can To the size and scale of our business as far as what we're generating.

Speaker 7

Okay. And then one quick question on parts and service. When you think about supply chain problems I guess is there anything that prevents you from using aftermarket parts for post warranty work? I mean you could get in and Stock up on O'Reilly if you had to or do OE agreements prohibit you from doing that?

Speaker 2

So this is David. We do some aftermarket parts. We generally try to stay away from it. We represent the manufacturers. We want to sell their parts.

Speaker 2

We believe that they're the best quality parts in the market and they're what should be put on our guest vehicles. But in certain circumstances to keep cars up and running and Keep them on the road. We certainly do some business in aftermarket.

Speaker 7

Okay, great. Thank you.

Speaker 2

Thank you. This concludes our call today. We appreciate everyone's participation, and we look forward to discussing our 4th quarter earnings down the road. Have a great day.

Operator

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

Remove Ads
Powered by Quartr
Earnings Conference Call
Intercontinental Exchange Q3 2023
00:00 / 00:00
Remove Ads