PAG - NYSE

Ladies and gentlemen, good afternoon. Thank you for standing by, and welcome to the Penske Automotive Group Second Quarter 2023 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through August 2, 2023, on the company's website under the Investors tab at www.penskeautomotive.com. [Operator Instructions] I will now introduce Anthony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Leah. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter 2023 financial results was issued this morning and is posted on our website, along with the presentation designed to assist you in understanding the company's results. As always, I'm available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, our Chair and our CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations, Randall Seymore, International Operations; and Tony Facione, our Vice President and 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 EBITDA and our leverage ratio. We have prominently – we displayed or 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 our previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations. I will now turn the call over to Roger.

Thank you, Tony. Good afternoon, everyone, and thanks for joining us today. Before we discuss our second quarter results, I wanted to welcome Randall Seymore and Rich Shearing to the call today. As you may recall, earlier this year, we added additional depth to our leadership team. Randall Seymore, Former Executive Vice President, Global Operations for Commercial Truck and Power Systems will now support our International Operations, Rich Shearing formerly President of Premier Truck Group supports our North American Automotive and Commercial Truck Operations. These roles will work in tandem with me, our President, Rob Kurnik and our executive leadership team while building further depth to ensure we have the best leadership team in place. Let me now discuss PAG's financial results for the second quarter. I'm really pleased to report strong second quarter performance from our diversified business model. As we will discuss, the quarter was highlighted by the performance of our automotive and commercial truck operations was partially was offset with higher interest expense and lower equity earnings for our investment and Penske Truck Leasing. During the second quarter, total units delivered increased to 123,879 units, which includes 8,900 units, which were agency in the U.K. Revenue increased 8% to a quarterly record of $7.5 billion. Our same-store retail revenue increased 6%, including an 11% increase in service and parts. Same-store variable gross profit per unit retailed increased $163 when compared to the first quarter of 2023. SG&A as a percentage of gross profit was 67.4% and improved 10 basis points sequentially. Net income was $301 million and earnings per share was $4.41. Year-to-date through June 30, we've repurchased 2.6 million shares for $350 million. Let me now turn to our automotive operations. Our demand for new vehicles remain strong and new vehicle availability is improving. However, we expect supply to remain below historical averages during 2023 for most of the brands that we represent. We continue to take forward orders and continue to see strong vehicle demand. In the U.K., our forward order bank represents 29,000 units. Grosses on these forward orders is approximately $132 million compared to $109 million at the same time in 2022. In the U.S., our current presold activity is approximately 50%. Beginning in the first quarter of 2023, we transitioned certain brands in the U.K. to an agency model for new vehicle sales. Under agency we received a fee from the manufacturer for the sale and delivery of each new vehicle, which is recorded in gross profit. We do not record revenue for the price of these vehicles. Looking at our retail automotive operations on a same-store basis for Q2 '23 versus Q2 '22, total units delivered increased 6%, new retail up 9%, used retail down 8%. Retail automotive revenue, however, increased 6%, including an 11% increase in service and parts. Service and parts is being driven by an increase of 10% in customer pay, 13% in our warranty business and 14% in collision repair. In fact, many of our operations experienced record months in service and parts during the quarter. Total gross profit remained strong and higher than historical levels. For example, variable profit per vehicle were $5,612 is more than $2,138 higher than it was in Q2 of 2019. Taking a look at CarShop, our unit sales were 18,206, down 10% as the continued availability of late model lower mileage vehicles remains very challenging. Revenue increased 2% to $475 million and variable gross profit per vehicle per unit declined 1%. We continue to focus on vehicle sourcing and the cost improvement programs, including digitization to improve efficiency. We operate 20 locations and remain committed to the CarShop brand. We have one store ready to open in the U.K. when the used vehicle availability improves. Let's turn to our retail commercial truck business now. Our premier truck dealership business represents 44 locations in North America and is an important part of our diversification. During the second quarter, we expanded into greater Winnipeg, Manitoba market area, acquiring five new locations and $180 million in estimated annualized revenue. New commercial truck demand remains solid as being driven by replacement demand. In fact, we look at our entire allocation of Class 8 product for 2023 is sold out. Through June 30, North American Class 8 retail truck sales were up 18% to 165,000 units. The current industry Class 8 backlog is 175,000 units, representing approximately six months of sales. During the second quarter, same-store unit sales were up 25%. Same-store revenue was up 19%, including a 4% increase in service and parts. Same-store gross profit increased 7%, looking at parts and service that represented 65% of total gross profit and covered 128% of the fixed cost for the business in the second quarter. Service and parts represented 65% of total gross profit and covered 128% as I said earlier, in the second quarter. Q2 EBT was $56 million, up $3 million when compared to the second quarter last year. As a data point, June 2023 was the second best month of EBT in the company's history. Let me now turn to Penske Transportation Solutions. PAG Group, as you know, owns 28.9% of PTS, which provides us with equity income cash distributions and cash savings. PTS currently manages a fleet of over 431,000 trucks, tractors and trailers, with a goal of increasing the fleet to 500,000 by 2025. The second quarter operating revenue increased 6% to $2.7 billion. Full-service leasing contract revenue increased 14%, logistics revenue increased 6%, rental declined 6%. PTS generated $253 million of income, our share at PTS declined by $63 million. The decline in earnings was mainly impacted by four particular items. We have over 40,000 units on order with a factory that's the OEM factory as a result of supply constraints. We have 17,000 lease extensions so far this year and 36,000 extensions over the last 18 months. The older units in operation, obviously drove higher maintenance costs of $65 million in Q2. Our commercial rental utilization declined 410 basis points to 77.8%, really, that's still a strong number at 77% or 78%. Interest expense increased $47 million due to a higher average outstanding debt from the growth of the fleet combined with $1.5 billion in refinancing of the overall high interest with overall high interest rates. A lower gain on sale of $55 million when compared to the record performance in 2022. As we look forward, we believe the supply of new trucks is stabilizing, which will provide PTS an opportunity to replace from the lease extension and certainly will lower maintenance expense. At this point, I'll turn it over to Randall Seymore to discuss our Penske Australia business.

Thank you, Roger. In Australia, New

Thank you, Randall. Good afternoon, everyone. I would now like to walk you through several key financial highlights and discuss the strength of our balance sheet. We maintain our drive and discipline to achieve operational efficiencies through cost reductions, automation and other improvements gained over the last several years to help us maintain lower levels of SG&A to gross profit than historical averages. SG&A to gross profit was 67.4% in the second quarter and is 1,050 basis points below the 77.9% in 2019 prior to the pandemic. Most important, SG&A as a percentage of gross profit improved by 10 basis points sequentially when compared to Q1 of 2023. As a result of our efforts to control expenses in our U.S. automotive operations, our compensation to gross profit ratio improved by 30 basis points and our service and parts absorption improved 350 basis points over the second quarter of last year. Similarly, in the U.K. our compensation to gross profit ratio improved 130 basis points, and service and parts absorption improved 440 basis points. Looking to the future, we will continue to focus on simplification and optimization opportunities that will help deliver further efficiencies and cost reductions, particularly through automation. Looking at our cash flow. We generated over $600 million in cash flow from operations in the six months ended June 30, 2023. During this period, we repurchased 2.6 million shares for $350 million and returned $87 million in dividends to our shareholders. So far this year, we have increased the cash dividend by 26% from $0.57 to $0.72 per share. We continue to maintain a disciplined approach to capital allocation. Over the last 18 months, 60% of our cash flow from operations funded share repurchases, 23% to acquisitions, 12% dividend and 5% to CapEx for growth and expansion. Our trailing 12-month EBITDA is nearly $1.9 billion. At the end of the quarter, our long-term debt was $1.7 billion. Approximately $1 billion of the long-term debt represents subordinated notes with 55% maturing in 2025, while the remaining 45% matures in 2029. The average interest rate on these notes is 3.6%. We also have $586 million in mortgages and $160 million in other borrowings at subsidiaries. Debt to total capitalization was 28% and leverage sits at 0.9x at the end of June and is consistent with March. At the end of the quarter, we have the ability to flex our leverage up to 4x compared to the 1.9x, but lease adjusted ratio, leaving us plenty of opportunity for acquisitions and returning capital to shareholders. During the second quarter, 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 purchases. At June 30, we had $120 million in cash, $630 million in vehicle equity and over $1.6 billion in availability under our credit agreement. Total inventory was $3.9 billion, representing an increase of $372 million from December 31. Floor plan debt was $3.2 billion. We had a 32-day supply of new vehicles, including 26 days in the U.S. and 36 days in the U.K. As a data point, our current day supply of new battery electric vehicles is 54 days in the U.S. and 52 days in the U.K. Days supply of new vehicles for premium was 35 and volume form was 15. Used vehicle inventory had a 45-day supply. At this time, I will turn the call back to Roger for some final remarks.

Yes. Thank you, Shelley. As Shelley mentioned, our balance sheet is strong, and I would say certainly safe and secure. The capitalization ratio of 28%. We have the ability to flex our balance sheet to maximize our future capital allocation. We're committed to offering convenient options to meet the shopping desires, of course, with all of our customers. This ranges from 100% online to our superior customer experience traditionally offered in store. These digital options include hybrid shopping solution, virtual test drives, remote signing for our customers, online scheduling and service, photo and video, digital and approvals for upsell and service. One of our key efficient initiatives is to leveraging artificial intelligence in both service and sales as we allow for automated interactions to answer basic service inquiries. Set service and sales appointments using natural and conversational language even when our facilities are closed. Finally, I'm glad to say - I'd like to announce 44 of our U.S. dealerships have received notification from automotive news that they have been named to the best 100 dealerships to work for in 2023. I'd like to congratulate our team for the extraordinary efforts. In closing, I certainly remain confident in our business models. The results continue to demonstrate the benefit from our diversification across, the retail automotive commercial truck industries, our cost control and a disciplined capital allocation strategy. Thanks for joining us today, and we'll turn it back to the operator. Thank you.

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

Hi, John.

Good afternoon, Roger and everybody. Just a first question on one of the standouts. I mean there's a lot of good stuff in the quarter, but the parts and service same-store sales up almost 11% follows on a pretty good - strength in parts and service. The comps get tougher, you're arguing that this might slowdown, but over time. But I mean, what is your view on the sustainability of the strength in parts and service? And is there stuff that you or actions you can take on a micro basis that may support even further growth over time?

Well, hi guys. First on a same-store basis, John, our customer pay was up 10%, warranty was up 13% and our PDI up 27%, and body shops are now continuing to grow. As you know, during COVID, our body shop business really dropped. But I would say today, because of customer miles is being driven, it's certainly driving more service. And I think the use of AI that we're using from the standpoint of interaction across our network with the customers, quite honestly, is giving us the chance to schedule 24 hours a day, 2 o'clock in the morning, our customer can call up and they can schedule an appointment, which to me is really important, because it gives us a cleaner look at our daily operating capability through the number of sales available. And we do this certainly by AI, which has really been a new opportunity for us. I think with the car park, $290 million, and certainly, today, and miles driven were up. I think on the premium/luxury side, we continue to see the use of videos. We're using videos from the standpoint of our technicians actually videoing the car and coming back directly to the customer. So, I think this is, again, high-tech, high touch when you look at our service for the customers. Certainly, in the U.K., we see the same, just a pent-up demand. One thing, it's a negative, however, because our used car business is down, we're certainly not seeing the opportunity and reconditioning we have - used our inventory was up, and we sold more used cars. I think overall, we have an opportunity going forward, because the opportunity as cars are running longer because of the pent-up demand. We're going to still see this experience certainly in the automotive side. And on the truck side, there's no question that we're seeing it the retail truck side at premier truck. So again, the car park is certainly strong. And I think at the end of the day, we've been able to increase our effective labor rate which obviously is what we charge to the customer, up 6% from the standpoint in the U.S. and approximately 7% overall and at premier truck were up 4%. So again, we also get the benefit as we increase the customer rate, we get that same increase not overnight, but ultimately from the OEMs, right? Those are all things that are driving our parts and service.

Okay. One just second question real quick. On the SG&A, I mean, its great performance. I mean I think there's some skeptics that stand this is really a function of - the grosses that may be inflated in the short run. But I mean, it is very good performance. I mean, how do you think about SG&A going forward and the sustainability at these levels, either percent of gross or dollar value? I mean how do you think about that going forward?

John, there's two levers, obviously, maintaining gross or growing gross profit and I think we've been a customer for the last 18 months. That's going to be certainly under pressure as we go forward. But when you think about just cold hard SG&A over the last 12 months, company doing $27 billion, had $40 million more in SG&A over 12 months. So to me, that really when you look at it for the quarter, sorry, when you look at it quarter-to-quarter, when you look at it, it's amazing because, to me, I think that we're trying to balance our business, our costs associated with the volume of our business, similarly GM, I think, said about their inventory with inventory down and the ability for us to get better yield out of our sales people. We've gone from roughly 12.5 units per salesperson to over 13. I think there's an opportunity there. We get better salespeople, better connection with the customer and using tools. We're able to take some of the sales costs out and on a sequential basis, our SG&A actually went down. And I think - and the real costs were some in people about $8 million. We have some IT and some rent costs. But basically, we're going to continue to drive that. And through the simplification an optimization that we're looking at, I think it's really key. As we go forward, I sat down with the management team in the last couple of days, and we've got a plan that actually to take significant money out of our cost system. We're rolling that out over the next few weeks. And I think when you look at the overall 67.4% really from SG&A on a same-store basis, really, the SG&A was really only up $25 million. So it's a matter of hitting all the buttons and certainly, we're going to try to drive that, because we know we'll have some pressure on grosses.

Great. Thank you very much, Roger. Thanks everybody.

Thanks, John.

Next, we go to Rajat Gupta. Please go ahead.

Hi, Rajat, hi.

Hi, good morning. Thanks for taking the question. Just wanted to ask on PTS firstly. First quarter results were down like 30% year-over-year in the second quarter, down roughly 45%. You talked about some of the maintenance headwinds, these extensions, gain on sales being impacted by our selling fewer trucks. Any way to think about the trajectory here into the second half, maybe relative to the prior year or relative to the first half? What kind of areas of the second quarter should we expect to unwind? Any other trends that you can share in terms of handicapping the second half income levels for PTS. And I have a follow-up? Thanks.

I think one of the things we were writing over the last 18 months was the higher gain on sale. Now, we've sold already through six months approximately 5,000 more units. However, our margin is down about $14,000 per unit. So that certainly drove a big portion. Obviously, of the decline in gain on sale, which was $55 million, I think, for the quarter. I think overall, from the standpoint of the business, we will see a reduction in maintenance costs as we take out, as we've talked about earlier, with 17,000 leasing extensions so far this year, and we had 36,000 over the last 18 months. Now these drive higher maintenance costs. There's no question. And we also have the issue of trying to bring that many units in at one point and taking units out, because you have to prep these units going out and takes time in our shops. So again, it's taking longer than what we had expected because of the huge surge of these units coming in. We think that's going to flow through. We'll be more in a steady state here as we get into Q3 and certainly Q4. Overall, from a rental perspective, we look at the commercial rental - remember, that's down $31 million, really or 6%. But I talked about utilization. But what we'll do will flex that fleet will take out about 4,000 tractors. And when we do that, that will reduce those and take the depreciation interest and cost out and what will happen, we'll take 2,000 of those and now replace some of these high mileage units, obviously, which were killing us from a maintenance standpoint. And then what we'll do will also give 2,000 of those units to our sales team, and they'll sell the newer units. It's somewhat like selling a loaded car in the auto side, we'll run it for three or four months. And then we'll sell it into the market and our guys would obviously, they would lease for us. We've been very successful doing that on a shorter lease sometimes between two and four years. Certainly, when we look at the consumer rental that's rent the truck in New York, take it to Philadelphia. The only difference there is the length of the route and it's been shorter mileages in those one-way moves, which has impacted us. So we've got interest - we got to use truck values, which obviously declined just like used car values have over the last several months, and we have obviously the higher maintenance or the key areas that we have to deal with. But the company has a terrific reputation, the market, if you look at it against our peers, we continue to out this to them in all areas of the business. And certainly from the standpoint where we have an investment grade as we go into the market for our financing of our vehicles. And I think the - when you look at our first half, if you can believe it, the first half profits really equal the entire amount of profits in 2019. So, the business is certainly on a role.

Got it. Got it. That's helpful. Maybe just on the used car business, unit comps were down roughly 8% in the quarter, but the grosses are very healthy relative to pre-pandemic even versus the first quarter. How should we think about the trade-off between units and GPUs here into the third quarter and fourth quarter? Should we expect similar kind of unit declines and you're able to maintain the gross profit per unit? Or should we expect anything to change your internal strategy and that is all? Thanks.

Let's look at the real world here. We know everybody is trying to get zero to four-year used vehicles, and that's still going to be tight, because they have less trades on vehicles over new vehicle sales over the last say, 18 months. They were all fishing in the zero to four times. And we had a number of lease returns that didn't come back during that period due to customers buying out or extending leases. So, what I see is probably the cost of sales going down in the market. But on the other hand, I think we can maintain our grosses, because we're going to stay in the zero to four-year timeframe, we've done that in the past. And hopefully, when we look at the opportunity here, we'll get some - hopefully, some cars coming off lease, which before obviously, we're going to customers who are buying those. So, we see that being an opportunity plus you'll have some railcars coming into the market. And when you look at the marketplace on leasing, where we actually got a lot of our used cars on the premium side which we were at 55% and those cars would always come back to the dealer. At this point, we've not had a lot of that, because cash has been rolling - I think Shelley mentioned it earlier today in a conversation that we still have 22% of our buyers are cash buyers today. So that's up from where we've been. Would you have any comment on that, Shelley?

No, it's just that the consumer remains very healthy. They're obviously trying to avert some of these higher finance costs. But yes, they're up 2% over where they were last year, which was a historic high to begin with.

So I see probably lower cost of sale. I see us maintaining our margins quite honestly. And I see our pipeline for us from a premium perspective, having the opportunity to see more trades. And when you think about our volume foreign business, that Honda, Toyota, and say, Hyundai, right now, we're running anywhere between 10 and 15 days supply. So as that picks up with obviously the OEM picking up supply, we're going to get more trades from them, which will be really hot merchandise for us.

So one additional thing to consider is how we are sourcing vehicles too. We've put a concerted effort into buying more vehicles directly from consumers. So on our franchise business in the U.S. is only about 4% of what we bought in 2020. This - in 2023, so far, it's 12% and when you look at CarShop, when you go back and look at where they were in 2020, it was 6% and today, they're up to 27%. So, we're really doing a good job of changing the way that we source. But with 6 million fewer cars sold in the marketplace over the past three-plus years, the amount of cars that are available for us to buy is really challenging.

Yes and also, we're now compensating our salespeople in many cases, in one way or the other - we sure we get the trade. So, the customer doesn't go out and sell it personally. And that's what's happened. That's been kind of the run for the last say, two or three quarters. So, we're hoping that's going to slowdown. But look, the market is going to be slow coming back, because they're just not the right cars. And we're not going to go to the auction, because they seem to be the cars that have been pulled over the last period of time. We're not going to buy those, we're going to stay our traditional way that we have, and I think that's going to pay dividends on growth.

Got it. That's very fair. Thanks for taking the question.

Thanks, Rajat.

[Operator Instructions] Next, we'll go to the line of Daniel Imbro. Please go ahead.

Hi Daniel.

Hi. Good afternoon everybody. Thanks for taking the questions. Maybe we got to follow-up actually on that topic you just touched on, Tony, around CarShop within this used business. Roger, you mentioned growth was hampered. Randall, I'd be curious if trends were any better or different international is sourcing just as tight there? And then stepping back, I mean, how does this near to intermediate-term challenging used car backdrop, maybe change your thinking about the viability of the stand-alone concept or kind of commitment to growth in the stand-alone use concept?

So I'll touch on the sourcing first in the U.K. So a similar shift. If you go back three years ago, we were getting 22% of all of our used cars from the OEM via some program. That's down to 5%. But conversely, 13% of our cars, three years ago, we got directly from the consumer, meaning not a trade, but we were out proactively buying. That's up to 29%. So from 13% to then as Roger said, focus on our trade has gone from 32% to 40% of all our used inventory. So if we call it self-sourced, you put it direct from consumer trade how we're focusing intragroup, I bucket all those together, that's 82% of all of our trades year-to-date are coming from that versus 58% three years ago.

Now looking at the commitment to the brand, there's no question we're committed to the brand. We have 20 units now. We've got a location in the U.K., we're planning to open up as soon as the supply opens up for us. So, we could be prudent from the standpoint of cost. In fact, to be honest with you, we had an operation in Phoenix that we opened up and because we didn't have a supply and quite honestly, it was turning into a loss for us, we closed it and sold the building. So look, we're not afraid to take the action one way or the other. But I would say it's supply both in the U.S. and the U.K. We need 150 to 200 units more in the U.S. to get where we want to go, and I think we're doing 5,000 units. Am I right, Randall in the U.K. on a monthly basis. So it's a big business right now, and we're going to try to look at digitization in the U.K. to take costs out. And we can do that by certain things that we haven't done in the past by giving certain functions of the sales process, either doing it technically or giving it to one person rather than having multiple managers in sales and delivery people handling. And we think that's going to take some additional cost out over the next third and fourth quarter. So to me, it's a great business. We've got a great brand when you look at CarShop both here and also in the U.K. And we think it's an independent business, we run it that way. And quite honestly, overall, we're just looking for volume.

Got it. That's all really helpful color. Thank you. And then maybe shifting to the commercial truck side. Rich, the Class 8 backlog is substantial that will support sales at least through this year and into next year. How do you think about - or can you talk about the risk into next year or maybe the freight backdrop remaining tough? How does that impact your freight customers' willingness to turn over their fleets? And how does that weigh with the emission changes and obviously, service and parts is a natural hedge. If you could just talk through the moving pieces into 2024 as we think through how the industry works through backlog?

Yes. Thank you, Daniel. Just to comment on current environment. As you mentioned, the backlog is still very at 176,000 units, representing about six months of retail sales. So that's going to carry us through the balance of this year. And so any allocation that we've received this year were completely sold out. As you mentioned, the emissions, there's a greenhouse gas regulations go into effect in two steps, 2024 and 2027. For 2024, you normally have in advance of an emissions year a prebuy effect. And of course, the OEMs aren't able to produce the vehicles, do supply chain challenges to take advantage of that. That's going to be a buffer against what you would normally have as a hangover year when new emissions vehicles are launched, which would be next year. I think you combine that with the fact similarly to the auto side for the last three years, there's been a lower supply of vehicles coming into the marketplace. Certainly, Roger talked about it on the maintenance cost side for PTS, a lot of our carriers on retail truck side experienced the same thing. So their maintenance costs are up as well, and they're going to be eager to replace those vehicles. So over the last two years, the sales have been driven by a robust rate environment. I think this year certainly and going into next year, it's going to be driven by replacement demand to get older higher-cost units from an operating standpoint out of the marketplace. And so, you see that with the Q2 sales up 13% for the industry in the opening comments, we saw were up 29% for the quarter on a retail sales basis. And so, I think the fundamentals right now for us bode well for certainly this year and looking into next year. The last comment I would make on the freight rates certainly, the spot market has come down from its historical highs, and we feel it bottomed out. We think there could be some more correction on the contract side through the end of the year. But the forecast is for freight rates to start trending back upward over the next six months. And so, as the freight cycle recovers, I think that's going to act as a natural buffer to the retail sales and the commercial truck side.

Thank you so much for color. That's all everybody.

All right. Thanks, Dan. Yes. Great.

And next, we go to David Whiston. Please go ahead.

Hi David.

Hi, everyone. I guess first on PTS. I was just curious on Slide 27 the - if you could break up the difference for me between full service lease and maintenance versus commercial rental?

You're talking to me. The maintenance on the equipment you're saying.

Your pie chart is full service lease and maintenance. And I mean, are you referring to truckline versus commercial rental truck facing compensation that's why I am asking?

No, all our maintenance, when we talk about maintenance, it's not only on leasing on our logistics contract makes business and our consumer and our commercial rental fee. That's our total maintenance number. So it includes hires and maintenance. So that's the total number that you saw. It was up $65 million in the quarter.

Okay. And on the M&A market, do you expect to stay more skewed for the rest of the year, if you do a deal on the truck side or do you have a pretty robust light vehicle pipeline?

Well, look, I would say we have a pipeline. Our goal is to be up five from a brand standpoint, at least five on acquisition, I think we're tracking in that area. We have some things in the pipeline, which I think what's promising. But we're going to be very, very selective, whether it's internationally or domestically to be sure it fits in areas where we have scale also, we wanted to fit in with all the premium luxury and volume foreign brand mix. So that's going to be important as we go forward. And I think at the end of the day, we followed that. That's why you look at us even in the U.K., we're 95% premium luxury. We made that acquisition of the North London Mercedes businesses is now under agency, and we had a 20.5% market share in the month of June. So that's starting to really pay off. So strategically and the brand will be critical when we look at this as we make acquisition, obviously, affordability from a standpoint of a return will also be key plus today, what's the CapEx requirement.

And finally, do you - in your opinion, outside of Tesla, do you think there are too many EVs on the market right now?

Well, look, we're getting to electrification. I'm glad I'm not running the business, what I'm going to make on electric vehicle for the rest of the year. But why don't Randall talk a little bit about Tesla and what's going on in the EVs in the U.K. I think he's got good color on that.

Yes. So in the U.K., there's been government subsidies for several years now, and the total market is about just over 16% BEV. Our business year-to-date is 20% BEV with our premium luxury mix. What's interesting on that as well as since they've been subventing the government for four years, we're - that's the first market working where we're seeing a bonafide trade cycle of used BEV. We've been hovering about a 50, 52, 53 days supply of BEVs, which is about 375 units and that only represents about 6% of our total used inventory. So our exposure there is not massive. But interestingly, at the beginning of the year, late January, we had north of 600 units in stock. And when Tesla announced their price reduction that had a ripple effect on the used side as well, even though we weren't exposed to Tesla as a brand unused certainly hit all BEVs. So, we just need to be eyes wide open. We've got to turn these things quicker. And then as a consumer, if you buy a four-year old BEV, it's just interesting to say, what's the range going to be like after that time from a degradation standpoint? And then if there's a warranty situation, what are the associated costs there excuse me, if it's an out of warranty situation, what are the associated costs. So look, we're - and then I just hit a couple of other markets. Germany is about 16% as well and government subsidies, interestingly, you go to a country like Italy, where there's not a lot of government subsidy and the market is only 4%, and we would even be less than that from a from a PAG standpoint. So interesting between the different markets.

I think that also, when you look at it, talk a little bit about in the international markets, the impact of the governmental support, I think, think about that from a from a tax perspective in the U.K.

Well, it's a follow-the-money scenario. So in the U.K., a lot of people will have their vehicle as a company benefit and they provide a significant tax relief if you have a BEV, which is not quite zero, but maybe £50 for tax where you've got a BMW 3 Series, that may be $300 per month in tax. So there's a real benefit to have that BEV from a tax standpoint, similar in Germany, like I said, I mean the government subsidies there some of these other countries where it's not. So you could call a little bit artificially buoyed on where the government subsidies are.

Yes. And I think when you look at the U.S. EQS for Mercedes, we've got 190-day supply right today at to sit here overall on BEV for MB we had 113. So, we're seeing affordability and pricing be a critical period from the standpoint of our business. And I know there's been some questions in the past I've heard this week from the other -- our peers talking about what part of our business is do we sell from a 100% or MSRP. We're running at about 54% year-to-date. If you take out you take out both hybrid and BEVs, we're at 70%. So you can see that the noise of the business, the PR from the OEMs and the supply is much greater than the marketplace. So, I think it's something that we really have to look at as we go forward over the next several quarters. So, we're watching the used car pricing. We're being careful. One of the things that's going to have to take place. We've already seen it in the U.K., we're in our - with Mercedes Benz on our commission or agency fee they've already raised at 100 basis points on EVs. We're seeing discounts and also incentives here in the U.S. or remove this you've seen what's happened domestically here with Ford. I think this lately here in the paper. So I think we're in that kind of environment. So, we're going to watch it carefully. But the OEM captives at least on the premium side, we're going to have to step up and put residual values on these things if they're going to move them. And I just can't say that there's no other way to move these because right now, I think it's sticker shop for the customer.

Yes. And real quick, that MSRP ratio you just mentioned is interesting because that's higher than what I've heard from some other dealers. Do you think that's sustainable for the next few quarters or is it going to crash hard soon as inventory grows?

Start with a higher batting order. I want to get enough out, but for MSRP it will be stopped, but there's going to be pressure. Let's may be honest. But remember, we don't have a domestic portfolio today. We're 1% so at this particular time, with the day supply we have in premium luxury, what we have in volume for and I still think we've got model right now, at least a market that's providing us the opportunity to hold pricing.

Okay. Appreciate all information. Thank you.

Yes. Great.

Mr. Penske, I'll turn it back to you for closing.

All right. Well, thanks, everybody, for joining us. We'll see you next quarter. Thanks for the support for our people that are on the line. Thanks.