PAG - NYSE

Good afternoon and welcome to the Penske Automotive Group First Quarter 2023 Earnings Conference Call. Today’s call is being recorded and will be available for replay approximately 1 hour after completion through May 3, 2023 on the company’s website under the Investors tab at www.penskeautomotive.com. I would now like to introduce Anthony Pordon, the company’s Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Lois. Good afternoon, everyone and thank you for joining us today. A press release detailing Penske Automotive Group’s first quarter 2023 financial results was issued this morning and is posted on our website, along with a presentation designed to assist you in understanding the company’s results. As always, I am available by e-mail or phone for any follow-up questions you may have. Joining me for today’s call are Roger Penske, our Chair and CEO; Shelley Hulgrave, our EVP and Chief Financial Officer; and Tony Facione, our Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, future events, growth plans, liquidity and assessment of business conditions. We may also discuss certain non-GAAP financial measures, such as earnings before interest, taxes, depreciation and amortization or more commonly referred to as EBITDA, our leverage ratio, free cash flow and cash flow yield. We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures in this morning’s press release and investor presentation, which are available on our website to the most directly comparable GAAP measures. Our future results may vary from our expectations because of risks and uncertainties outlined in today’s press release under forward-looking statements. I direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs for additional discussion and factors that could cause future events to differ materially from expectations. At this time, I will now turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I’m pleased to report a strong first quarter as our performance continues to demonstrate the benefits of the company’s diversification. During the first quarter, total units delivered increased 8% to 122,431 units. Our revenue increased 5% to $7.3 billion and our SG as a percentage of gross profit was 67.5% and declined 140 basis points sequentially. Looking at net income, it was $298 million and earnings per share were $4.31. If we exclude FX, revenue increased 9% to $7.6 billion and earnings per share would have been $4.42. During the quarter, we repurchased 900,000 shares for $110 million. Let’s turn to our automotive operations. Demand for new vehicles remained strong, and vehicle availability is improving. However, we expect supply constraints to remain during 2023 for most of our brands that we represent. We continue to take forward orders. In fact, in the UK, our forward order bank is 8% higher than it was this time last year and represents 32,000 units. Grosses on these forward orders are $130 million compared to $83 million at the same time last year. The U.S. is approximately 40% to 50% for allocation remains forward sold. Beginning in the first quarter of 2023, we transitioned certain brands to the UK to an agency model for new vehicle sales. Under agency, we received a fee from the manufacturer of the sale and delivery of each new vehicle. We do not record revenue, the price of the vehicle. However, a delivery fee is included in our new vehicle gross profit. Beginning in 2023, we’ve broken out these agency units separately. There is no impact to our used business or service in part. Looking at our retail automotive operations on a same-store basis, for the quarter versus last year, new units increased 15%, used units declined slightly at 2% largely due to the challenges in acquiring affordable inventories. Retail automotive revenues increased 2%. However, when excluding FX, our retail automotive revenue increased 6%. New vehicle gross profit declined $483 or 7% to $6,383. Used vehicle gross declined $482 or 21% to $1,821. When compared to Q1 of last year, variable gross profit declined 10% or $580 to $5,483. However, when we exclude FX, our variable gross only declined $374. If you look on a sequential basis, excluding FX, variable vehicle gross profit per unit only declined $156. Variable gross profit remained strong and higher than historical levels. If we take an example, variable gross profit per unit of $5,483 is more than $2,000 more per unit higher than 2019, Q1 or 66%. Our fixed operations business continues to perform well. Revenue increased 10% or 14% when excluding FX, has been driven by customer pay, warranty and collision repair. Looking at CarShop, CarShop unit sales decreased 2% to just under 20,000, 19,165 units. Revenue decreased 5% to $489 million and variable gross profit per unit declined 5% as vehicle acquisition prices, along with reconditioning costs and logistics continue to impact customer affordability and our profitability. Excluding FX, revenue increased 3% and variable gross profit per unit would have increased 3%. We continue to focus on vehicle sourcing and cost improvement programs to improve CarShop profitability. I am pleased to report CarShop’s profitability improved sequentially. Turning to retail commercial truck dealership business. Our premium truck dealership business represents 39 locations in North America and is an important part of our diversification and continues to perform well. New commercial truck demand remains solid, is being driven by replacement demand associated with supply constraints over the last several years. In fact, our entire allocation of Class 8 products for 2023 is essentially sold out. The current industry Class 8 backlog is 218,000 units, representing 7 months of sales. During the quarter, total unit sales increased 10% to 5,172 units. Same-store sales increased $7,000, 4,974 units. Our total revenue increased 13% to just under $900 million, and our gross profit increased 4% to $147 million. Looking at same-store revenue increase 10%, including 11% increase in Service & Parts. Service & Parts represented 67% of the total gross profit and covered 136% of our fixed cost. EBT was $57 million compared to $58 million in the first quarter of last year. Turning to Penske Transportation Solutions. PAG owns 28.9% of PTS, which provides us with equity income, cash distributions and cash tax savings. PTS currently manages a fleet of over 419,000 trucks, tractors and trailers with a goal of increasing its fleet to 500,000 units by 2025. During the first quarter, PTS had another strong performance, generating $3.3 billion in revenue and $280 million in income. Full service contract revenue increased 30% to a first quarter record, while logistics increased 10%. We believe demand remains strong for PTS that has 550,000 trucks on order. However, over the last 2 years, PTS has extended the contracts and 41,000 units simply due to supply challenges. As a result, our maintenance costs increased $73 million in the first quarter. The rise in maintenance costs, coupled with higher interest costs associated with raising – rising interest rates and high debt levels, lower utilization of our rental fleet from 81% to 77% and a lower gain on sale compared to the record level of gain on sale of ‘22. Compared to the record performance of last year, the income we record at PTS declined $38 million. I’d like to now turn it over to Shelley Hulgrave, our Chief Financial Officer. Shelley?

Thank you, Roger. Good afternoon, everyone. As Roger indicated, we had another strong quarter, driven by our diversification. In addition, our commitment to maintain and achieve operational efficiencies through cost reductions, automation and other improvements gained the implementation of AI continues to help us maintain lower levels of SG&A to growth than historical averages. SG&A to gross profit was 67.5% in the first quarter and is 1,040 basis points below the 77.9% in 2019 prior to the pandemic. Most important, SG&A as a percentage of gross profit declined by 140 basis points sequentially when compared to Q4 2022. As we look to the future, we continue to expect the ratio of SG&A to gross profit to be in the low 70s. During Q1, on a combined basis, share repurchases and dividends represented $152 million in return to shareholders. We repurchased 110 million in shares and most recently increased the cash dividend by 7% to $0.61 per share and returned $42 million in dividends to our shareholders. We continue to maintain a disciplined approach to capital allocation. For example, in 2022, 52% of our cash flow from operations funded share repurchases 23% to acquisitions, 9% to dividends and 16% to CapEx for growth and future expansion. Our EBITDA is nearly $2 billion over the last 12 months, and we continue to focus on being safe and secure in the current rate environment in terms of debt. Debt to total capitalization was 28%, and leverage sits at 0.9x at the end of March. On March 31, our long-term debt was $1.7 billion, representing an increase of $79 million compared to December last year, largely related to an increase in mortgages on property. Approximately $1 billion of our long-term debt represents subordinated notes with 50% that matures in 2025, while the remaining 50% matures in 2029. The average interest rate on these notes is 3.6%. We also have $591 million in mortgages and $69 million in borrowings under lines of credit at our other automotive and Australia businesses. Last week, we amended our U.S. credit agreement to increase the facility borrowing capacity by $400 million. The amended agreement provides for up to $1.2 billion in revolving loans for working capital, acquisitions, capital expenditures, investments and other corporate purposes. We have the ability to flex our leverage up to 4x, leaving us plenty of opportunity to grow our business through acquisitions and to continue returning capital to shareholders. At March 31, we had $100 million in cash, $481 million in vehicle equity and over $1 billion in availability under our credit agreement. Total inventory was $3.6 billion, representing an increase of $121 million from December 31. Floor plan debt was $2.9 billion. We had a 26-day supply of new vehicles, including 22 days in the U.S. and 26 days in the UK. However, U.S. inventory was 19 days at the beginning of this week. As a data point, our days supply of new battery electric vehicles in the U.S. is 42 days. Days supply of new vehicles for premium was 27, volume form was 14. Used vehicle inventory had a 39 day supply. At this time, I will turn the call back over to Roger.

Yes. Thank you, Shelley. As Shelley mentioned, we’re committed to implementing operational improvements, which we believe will lead to a lower cost structure. We’re committed to operating sustainability, and we continuously seek ways to reduce our carbon footprint by applying modern building practices, embracing energy efficiency and eliminating waste and recycling materials throughout our organization. We’re committed to offering our customers options to meet their shopping needs. This ranges from 100% online to our superior customer experience traditionally offered in store. These digital options include hybrid shopping solutions, virtual test drives, remote signing on the sales side as well as online scheduling, photo and video collision estimation and digital approvals on the service side. Additionally, one of our key efficiency initiatives is leveraging artificial intelligence on both service and sales side of our business. The AI allows us for automated interactions with our customers to answer basic customer inquiries, set service and sales appointments using natural conversional language. In Q1, we saw a 14% increase in service online appointments booked year-over-year and total online BDC and AI service appointments represent over 80% of our total employment. In addition, service RO payments made online increased 8%. In closing, our results continue to demonstrate the benefit from our diversification across the retail automotive and commercial truck industries, our cost control and a disciplined capital allocation strategy. I personally remain confident in our business model and about the opportunity I see continue to drive our businesses forward. Thanks for joining us today, and we appreciate your continued confidence in PAG. At this time, I’ll turn it back to the operator for questions. Thanks.

Thank you. [Operator Instructions] And our first question is from John Murphy from Bank of America. Please go ahead.

Hey, John.

Good afternoon. Hey, Roger. Hey, Shelley. Hey, Tony. Just a first question here, Roger, on agency in the UK because there is a lot of folks that have some fears around this. But I’m just curious if you could expand on what is actually changing and what is staying the same? And maybe if you have a comment on what the motivations are, particularly for the automakers like Mercedes that are going after this at this point? Because in some ways, it seems like they are trying to favor some of their stronger partners. And funnel more business in your direction, but there are some changes in the economics. So if you could kind of highlight what’s actually changing, what’s staying the same and what you think the motivations are?

Well, first, let’s talk about income. For us, as a dealer, we got fixed national pricing. There are no volume targets. It’s a fixed commission. And today, we get 5% from Mercedes, it’s the elimination of brokers. So there is no discounting on new vehicles. The commissions we get paid on our financing is exactly the same. We can still have add-ons from the standpoint of things that would come under the F&I manner. All the fleet sales are handled by the OEM. We have no marketing costs. There is no demonstration. They are all supplied free. The stock we have on site is free. And again, from an inventory perspective, we’re dealing out of a 5,000-unit inventory that’s online for the brand. There is no floor planning costs, obviously. No new car training costs. The allocation obviously is based on

And Roger, you maintain the ability to take the used vehicle in trade – or the trade-in as the transaction is occurring, right? There is nothing that’s changed with that part of the process either? So I just want to...

We own an option to take the trade or buy the trade from the customer, correct. There is no one involved from a factory perspective, OEM, demand or declaration as far as the used cars are concerned. There is really no changes both in used or in our Service & Parts business.

Great. And then just lastly on SG&A, for Roger or Shelley, 67.5% in the quarter was pretty good, much better than we were expecting. Doesn’t seem like you’re seeing a reinflation in your cost there like some other folks might be in the industry. I’m just curious what gives you the confidence that you can keep this in the low 70% range over time as grosses may be normalized over the next year or 2?

Hey, John, I can take that. I think it’s a number of things. I think, one, if you look at our Service & Parts, we continue to be more efficient. We’ve gained a lot, like we talked about, with the implementation of AI. We’re better. We’re scheduling better. We’re more efficient, and it’s enabling us to use different periods of time with our scheduling to be better with our tech. And overall, just our Service & Parts is up, which adds to that gross profit line. If you look at PTG, our fixed cost absorption was 134%. That compares to 128% in Q4 of 2022. So certainly an improvement there, but the margin for supply – or for Service & Parts, excuse me, is huge. We’ve taken a really hard look at our costs, and we continue to be really strict in terms of our cost control. We’re still down 8% to 9% of the folks that we took out during the pandemic, and that sets us up in a number of ways: one, we look really hard at whoever we’re going to add to the business as people are cost. But we also work really hard to retain the focus that we have. We know that it’s cheaper to keep an employee than it is to attract and to train up a new employee. And as our folks get a bigger piece of the pie, they are happier. They are keeping their comp up. But overall, our comp growth is down about 100 basis points quarter-over-quarter. So that’s a big factor of it, too.

Well said, Shelley. Also, John, when you look at – think about 27,000 employees and our overall compensation in real dollars is up $4 million. So a big, big number. When you look at cost controls – and we had some increase in rent and taxes, etcetera, but our marketing was only up $700,000. So those are things that we’re watching very carefully, not just globally. We’re looking at it right now at the store level.

Very helpful. Thank you, guys.

Yes. Thanks, John.

The next question is from Daniel Imbro from Stephens. Please go ahead.

Hey, Daniel.

Good afternoon, everybody. Thanks for taking our questions. I wanted to ask one, starting on the automotive side, just on demand. Sorry if I missed it, but could you provide some color, Roger, on maybe what percent of the new vehicle inventory is prefilled today? How different is that by OEMs? And then when you look at that data, what does that tell you about the true consumer demand out there for the new vehicle marketplace today?

Well, look, there is got to be some pent-up demand because of availability over the last several months. I think from a presold inventory perspective, we talked to our guys prior to the call. And we’re looking at 40% to 50%. Remember, we’re really primarily premium, which makes a difference. So I’d say 40% to 50% in the U.S., which gives us probably a nice tailwind. Looking at internationally in the UK order book, we’ve got 32,000 units compared to 28,000 a year ago. So probably almost $50 million more in gross profit, which I think is key. And that should be 3 to 6 months of tailwind in the UK. So again, our day supply, when you look at it, is very, very low. And you look at the different – I think we’re 20 days overall as we sit this morning. But we’re – Toyota and Lexus would be single digit. When you think about our premium side, our biggest brand is BMW. We’re sitting at 14 days. So again, availability is key for us from the standpoint of our business. Looking as of yesterday morning, our new business vehicle was up 2% over last year, and our used vehicle was flat sales for the month. So again, indicating that we have a solid base here at least leading off into the quarter.

Got it. So 40%, 50% pre-sold. I guess are you surprised how strong that demand is coming into this year, given the consumer backdrop and some of the headlines around just affordability issues, Roger or is that premium luxury consumer behaving as you would expect?

I think that the interest rates are not affecting the premium luxury person as much as it would maybe the middle market, the customer. And I think the pent-up demand is still there. And to me, on the luxury side, many of our customers are in 2 and 3-year leases rather than a 5, 6-year contracts that they have from a financing perspective. So we see those people coming back into the market. Now some of those we’ve had to extend because we didn’t have vehicles. So that’s going to be an opportunity for us to convert those again into a current 2023 vehicle. And I think that I expect leasing to increase. When you think about it, we were 50% to 55%, our mix in our company, on leasing and that’s dropped down into the mid to low 30s. And we think that’s going to grow back as the OEMs start to support residuals to get these payments in line as we go forward when they want these sales numbers as they go forward.

Got it. And if I could squeeze one more in, just following up on John’s question on the agency model. You mentioned you have the ability to sell, I think, full F&I products. Do you see a similar financing attachment? I guess when the consumer buys a car directly from Mercedes in the UK, are they getting offered captive finance upfront on the website and then you guys sell non-captive finance of the dealership? Or how does that F&I relationship work under the agency model?

I think this is all the things that we’re working with the OEM on, and the deals are now on the website. So they are competitive. If there is a deal out there at Mercedes – excuse me, at BMW or Audi. They have the ability – we’re seeing that on the website now. So we have the ability to sell product and insurance at any level during the transaction as the dealer.

Great. And no noticeable difference on financing attachment over there?

Not at the moment that we know of. But look, it’s early. I think I’ll answer that question better – we will, as a team here, probably after another 3 to 6 months, but once we get mature. But I would say overall, the ability for us to partner the overall business agency plan has been excellent, and we’re learning every day the fact that we’ve got – instead of having 300 or 400 cars online, we’ve got 5,000 think about it when you go online. So you really – as a customer can really fish in a big pond that we get the benefit of where you are from a post code. That inquiry comes directly to us, and it’s clear. And really, the customer really – he’s going to walk down the road now to try to get $200 or £200 off, you can’t do that. So then it becomes down to us being sophisticated enough to handle the trade in. But I think the big change will be in taking cost out will be that we have product specialists that understand the trading, and we will have people who can price the used vehicle. But we know everyone doesn’t have to have that complete capability. So we’re kind of changing the mix, which will take some of our cost out for the sales process. And hopefully, have a better informed product specialist with a customer, which should be a better customer experience as we go forward. I can tell you in our business – fleet business, meaning what we call in big customers, we cut that unit down in half on people already. So I think we’ve got some real opportunity. We’re also consolidating one of our service locations that we have in the UK, in our big location in West London. These are things that we’re already doing in order to take advantage of our scale and our technology.

Great. I really appreciate all the color and best of luck going forward.

Thanks.

The next question is from Mike Ward from Benchmark. Please go ahead.

Hey Mike.

Thanks very much. Good afternoon everyone. Two things. Shelley, if it works, and it seems like the initial agency model in the UK is set up pretty well, and if it’s effective and it expands to other brands, does the business itself become less capital intensive?

Well, as Roger mentioned, there is no change to used and to service. So, service will continue to be a big portion of our business over there. I think we are still expected to maintain a beautiful delivery site. So, from a capital allocation standpoint, I don’t see it becoming less. But in the UK, there is not a lot of space over there anyway for new cars as property prices are at a premium. If things were to change over here, certainly I think we would look at smaller sites. But as we have mentioned several times, we are away from that and in terms of all the transport costs [ph] and such there. So, I think you are long ways off from seeing any significant changes.

Yes. The only thing I would say, Shelley, is we don’t have a floor plan requirement. So, when you look at our total debt, you follow me, including floor plan, that would be eliminated from our overall debt. So, it does make a difference because it’s several million dollars.

Yes. And then, Roger, on the acquisition front, I think over the last couple of calls, you have talked about there being more opportunities on the truck distribution side. Is that still the case?

I would say that ones that we feel are rational from a standpoint of pricing and ones that would fit into us because of a geographical location, I would say, yes. I think as we look into the rest – into this quarter, we would look at between truck and automotive, somewhere between $300 million and $500 million of close – we would close on potential opportunities. So, again, I think that the multiples are probably more realistic certainly on the truck side versus automotive at the moment. Now where that changes, but there is still lots of activity we are looking at. But we are being really safe and secure on what we are going to go forward on.

Thank you very much.

Thanks Mike.

[Operator Instructions] Our next question is from Rajat – one second, he disconnected. We will go to Rajat Gupta from JPMorgan. Please go ahead.

Thanks for taking the question. We just had a question on PTO. Would you be able to unpack the drivers a bit more on the trends that you saw year-over-year related to interest expense or utilization, and even gain on sale? If you could quantify some of that for us and any updated thoughts on what you expect gain on sale to be for the year? I believe it was close to $500 million for the full entity last year. I think last time you had mentioned maybe down 20%. I am just curious if that’s still the case. And maybe any updated thoughts on like how we should think about PTO through the remainder of the year? And I have a follow-up.

Well, I think when you look at the interest cost, I think we had two bonds we secured in the marketplace over the last several weeks, and those interest rates were up probably 300 basis points to 400 basis points. So, our interest cost in the quarter, our piece one of the $38 million decrease in profit that we took into the PAG’s balance sheet was $38 million. $12 million of that was interest. So, to annualize that us, which is – would be roughly $50 million. So, it’s $150 million of interest cost, you would look at baked into your model if you looked at the balance of the year. And I think from a rental utilization standpoint, look, 77%. We’re down from 81% is tremendous because we had days that we were 80,000 units on rent, but we are able to flex that fleet very easily. And I think our revenue utilization was down for the quarter, that was down probably somewhere around about $30 million to $35 million. So, you take a look at that, and you can annualize and say we straight-lined it. And then gain on sale, I think you are going to see probably somewhere around $100 million off and gain on sale. We will sell more units, but I think the market – just the values in the market, spot prices for trucks, utilization by drivers is down, and there is more availability on vehicles. So, I think that probably would be – and we look at it probably gain on about $100 million. But again, our maintenance cost to offset some of this – when you look at maintenance costs, I think I mentioned it before in the conversation I had lately was that because of the late delivery and no delivery from the OEMs, we have had to extend over 40,000 of our customer leases, meaning units. These are units that were probably 4 years or 5-years-old. We had to extend these to another six months or a year. What we didn’t get when we extended, we didn’t get the initial more revenue to offset some of these maintenance costs. So, we see that maintenance returning back down to normal levels when you look at that – once this equipment has been delivered, and we will really rationalize that through the fleet. So, I see some ability to pull that back. But again, looking at the growth, we did $600 million of sales of leasing that would be new business, add-on business and renewals in the first quarter. And that was an all-time record. And when you look at it, at the end of the day, that sits at a rate of $2.4 billion, and that’s 1 year of revenue. So, I think overall, the business is strong, interest rates, delivery by OEMs, obviously, and utilization is based on the market. So, taking those into consideration, I think the guys are running a great business for us.

Got it. That’s helpful. And then maybe just on new GPUs, very strong result here in the first quarter in the non-agency stuff. How are you seeing the supply side develop here in the second quarter so far? Any updated thoughts on how we should think about that GPU trajectory for the remainder of the year, maybe how you expect...?

I think if you look, sequentially we have been on new vehicles, but somewhere in the 11.5% to 11.8%, I think. I don’t see that changing because on the premium side, we have been able to hold the gross. I think overall, if you look at the gross profit from a year ago, we are down about $500 when you look at the variable gross per unit on new vehicle, including F&I. So, I don’t see a big deterioration on that. Used, on the other hand has been running in the low to mid-5s. And I would look at that as probably a number as we looked out over the next quarter.

I mean, Rajat, this is Tony. So, as you look at the overall new vehicle growth and you compare fourth quarter to first quarter on a sequential basis, I think we mentioned in the prepared comments, it was only down about $150. So, I think that that remains strong. And when you talk about demand, we still see forward orders. We still see forward supply being sold in advance of our allocation at that 40% to 50%. And when you think about our days supply of the units that are out there were 21 days in the U.S. right now. So, I think demand remains strong. We are seeing inventory come in. It’s higher than it was, but we are turning it very quickly, and we are doing a good job of maintaining the growth across the industry. So, I think that the setup is pretty good as we look towards the future.

I think our premium brand mix at 71% will drive probably our ability to maintain these grosses versus maybe the U.S. Big Three, which looks like they have more availability right now, which is driving some – probably some of these deals are starting to discount.

Got it. That’s helpful. Thanks so much and I will go back in queue.

Thanks.

And the next question is from the line of David Whiston from Morningstar. Please go ahead.

David, hi.

Hi everyone. I guess first on agency, once you guys get your commission or payout or whatever you want to call it, from Mercedes, does the portion of that money goes to the Penske associate who help the customer in store?

Well, we have a variable – we have a compensation. Now quite honestly, he will be – we would think of a delivery commission for a salesperson, plus some who is involved in the F&I piece, he would get that. But we might go to more salaried people depending on how the model works as we go forward, but I think it’s too new to read that at the moment.

And you are getting…

The comp plan, David, probably is more fixed in the UK, anyhow it always has been.

The F&I business for the vehicle, that goes to you guys?

Yes. Remember, I think Tony said or I said it earlier that we get a delivery fee for the sale of the new car, everything else stays the same. We have the F&I income. We get the benefit of that. All our parts and service, all that gross profit drops to the bottom line is normal.

And David, if you go back and you look at the agency units in the first quarter, you compare that to the – what we did for – on a normal basis or before agency, the F&I was about the same in the UK. So, I think that that’s very positive and shows that the people at the stores are selling the product or the insurance products effectively.

Well, and also when we look at – if you go back and look pre-COVID 2018 and ‘19, the 5% margin we are getting today, quite honestly, in most cases, somewhat has due to mix at certain stores, is actually higher than it was back then because we were chasing volume, targets and plans. Yes.

And we had brokers in the middle of our business.

And David, I think it’s important to remember, when you look at agency and you look at MB in particular, historically, their new gross profit was only 1% of our total gross profit last year, in 2022 in the height of all of it. So, there is still so much opportunity with these businesses in used and particularly in Service & Parts where we make higher margins for their impact to our total bottom line, so important to keep that in perspective.

Okay. Thank you. And on the M&A environment, is there – either in the U.S. or UK, are you seeing any surge in the number of sellers coming to market perhaps fearful of a recession coming soon?

We have got a number of these brokers coming to us with deals, but I would say I don’t know that it’s any more or any less. I think some of the bigger deals we are not seeing. We are focusing on ones that we can glue on where we have capability and have a lower SG&A when we take over some, it’s a brand, which we think fits our premium basket. But I don’t see it being higher at this one, you would have to ask the brokers themselves that are moving these things around the country. I am just not up to speed on that. I know we are getting – our phone is ringing, but I would say we are being very selective.

Okay. And just one more on the credit line increase. I was just curious, is that just to grow the facility as the company has grown over time, or are you looking to be more aggressive in M&A and/or buyback?

I would say what it does, because of our – I guess, our results. We want to put in place this evergreen line of credit because as we look at the business over the next – I think it expires in ‘25 and is evergreen. And it gives us flexibility now from the standpoint of the use of our capital. And to me, that’s important. We are aggressive. We are willing to take risk. But I think in today’s business environment, I think that we want to be cautious as we go forward here for the next 6 months to 12 months. But when we can load our gun, I certainly want to do that.

Okay. Thank you everyone.

Great.

Thank you. And at this time, there are no further questions in queue.

Alright. Thank you everybody and we will see you next quarter. All the best.