Good morning, everyone, and welcome to Group one Automotive's 2021 Fourth Quarter and Full Year Financial Results Conference Call. Please be advised that this call is being recorded. I'd now like to turn the conference call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President of Manufacturer Relations, Financial Services and Public Affairs.

Please go ahead Mr. DeLongchamps..

Thank you Jamie. Good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we'll refer to on this call for comparison purposes have been posted to Group 1's website.

Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures.

Except for historical information mentioned during the conference call, statements made by management of Group one Automotive are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.

Those risks include but are not limited to risks associated with pricing, volume, inventory supply due to increased customer demand and reduced manufacturer production levels due to component shortages, conditions of markets and adverse developments in the global economy, as well as the public health crisis related to the COVID-19 virus and resulting impacts on demand for new and used vehicles and related services.

Those and other risks are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.

As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.

Participating with me on today's call, Earl Hesterberg, our President and Chief Executive Officer; Daryl Kenningham, our President of US and Brazilian operations; Daniel McHenry, Senior Vice President and Chief Financial Officer; and also joining us is Chris Gillette, our VP and Corporate Controller. I would like to hand the call over to Earl. .

Thank you, Pete, and good morning everyone.

2021 was another record year for Group one Automotive, driven by strong vehicle sales demand, strong margins due to vehicle supply constraints, double-digit growth in after sales as miles driven and recovery and continued strong expense control as we benefit from process and personnel efficiencies realized during the pandemic.

We achieved record adjusted net income of $642 million and record adjusted earnings per share of $35.02 per share in 2021, which represents year-over-year growth of over 90% for both metrics. This strong performance was consistent across all three of our regions.

I should note that the pending sale of our Brazilian business is likely to close during the second quarter of this year. In addition to strong same-store growth of 24% in revenue and 37% in gross profit, 2021 was also a record year for external growth with the acquisition of $2.5 billion in annualized revenues.

This was driven by the acquisition of the Prime Automotive Group in the Northeastern US and the Robinsons Group in the UK. The 2021 acquisitions further diversify our footprint outside of the energy belt and early indications from these new stores are all very positive.

Most importantly the strong growth initiative did not preclude us from returning meaningful capital to shareholders with share repurchases of $211 million. These repurchases, which predominantly took place in November and December represented 6% of our beginning of the 2021 share count.

Our strong cash flow and leverage position, which Daniel will cover in a minute will continue to allow for significant capital deployment flexibility in 2022. Turning to our fourth quarter results.

I am pleased to report that for the quarter Group one generated adjusted net income of $172 million inclusive of Brazil, which is now classified as discontinued operations within our financial statements. This equates to adjusted earnings per share of $9.54 per diluted share, an increase of 68% over the prior year.

Our adjusted results exclude non-core items totaling approximately $85 million of net after-tax losses.

This net amount consists primarily of a $78 million non-cash charge related to our pending disposal of our Brazilian discontinued operations, due to historical exchange rate translation adjustments recorded within accumulated other comprehensive income on our balance sheet that are required to be taken through earnings upon the sale of a foreign entity.

The remaining charges relate primarily to transaction costs associated with the acquisition of the Prime Automotive Group. These profit results were largely a result of our strong vehicle margins that were able to more than offset weak new vehicle supply, as well as continued strong growth in our US aftersales business and impressive cost control.

Consumer demand for vehicles remains extremely strong heading into 2022, and we continue to sell most units almost immediately after OEM delivery. This dynamic should continue throughout the first half of the year and potentially further out assuming no material change in consumer demand.

As of December 31, we had 3,400 US new vehicle inventory units in stock, representing a nine-day supply. Our used inventory situation is much stronger at 14,400 units and a 36 days of cost. Daryl will speak more about inventory shortly. The continued recovery in our aftersales business is very impressive.

Our US market saw an 18% increase in same-store after sales revenues versus prior year. Again, Daryl will provide more detail on our US results in a moment. As with the US, consumer demand for vehicles in the UK is extremely strong and new vehicle availability is severely constrained.

We have an order bank when most of our major UK brands extending well into the second half of 2022. Strong margins were able to more than offset sales declines due to inventory shortages. And we're proud to report that we generated an all-time fourth quarter and full year profit records in 2021.

We believe pent-up demand built over the past several years due to both Brexit and the pandemic will help drive strong UK vehicle demand into the foreseeable future. To provide some color on our US fourth quarter performance, I'll now turn the call over to Daryl Kenningham..

Thank you, Earl. Factors contributing to our US fourth quarter were a result of outstanding growth in all segments of our business and continued focus on controlling costs and driving productivity. Our Q3 inventory receipts grew each month throughout the fourth quarter on a same-store basis.

However, our inventories are still tight and led to a majority of units being presold. As a reminder, our focus is on driving long-term relationships with our customers. We direct our stores to selling at MSRP helps to create the kind of sticky relationships that feeds our segment-leading aftersales performance.

We realized it cost us some SG&A leverage in the short term. But for us, it's much more important to drive retention in the strongest part of our business which is aftersales. Our same-store used vehicle retail unit sales improved by 3% versus the fourth quarter of 2020, despite a 15% decrease in new vehicle units.

In 2021, improved focus on sourcing resulted in acquiring 16% more units through trades and more than doubling the number of vehicles acquired from individuals.

As a franchise dealer, we have a distinct advantage over used-only operators due to the numerous channels of sourcing available to us including our service drives, lease returns and OEM closed options. The most encouraging profit driver was once again our after sales performance.

Our customer pay business continues to ramp up following a very strong first half of the year with 22% same-store revenue growth compared to the fourth quarter of 2020. Our same-store collision revenues increased 29% and wholesale parts revenues increased 27%.

This allowed us to grow same-store aftersales revenue by 18% versus the fourth quarter of 2020, despite continued double-digit headwinds in warranty. We foresee aftersales continuing to improve over the near term. I'd like to provide another quarterly update on AcceleRide our digital retailing platform.

AcceleRide continues to be a critical solution for digitally selling and acquiring vehicles at Group 1 dealerships. In 2021 we sold almost 20,000 vehicles through AcceleRide, including over 4,700 in the fourth quarter. For the quarter that's a 36% increase over last year.

We also continue to increase employee productivity and professionalism by using AcceleRide for in-person deals. In the fourth quarter, 52% of all of our traditional sales utilized AcceleRide capabilities in showrooms. Together, our sales team and customers can digitally locate vehicles, structure deals, complete credit applications and much more.

For context on productivity, our legacy Group 1 dealership sold over 20% more vehicles per salesperson in December than our newly acquired Northeast dealerships which were not on AcceleRide at the time. We've launched AcceleRide in the new dealerships in mid-January and we anticipate seeing an uptick in productivity over the coming months.

During the quarter, we purchased nearly 5,300 used vehicles from customers through AcceleRide. It is through trades or individual acquisitions. That's up 8% from the third quarter. Also, in 2021, we digitally paid 2,500 customers through Zelle for the purchase of their used vehicle.

The ability to provide electronic payments to customers in under an hour is a key differentiator for us. We expect to see more advancements, efficiencies and growth with AcceleRide as 2022 unfolds. I'll now turn the call over to our CFO, Daniel McHenry, to provide a balance sheet and liquidity review.

Daniel?.

Thank you, Daryl, and good morning, everyone. As of December 31, we had $15 million of cash in hand and another $272 million invested in our floorplan offset accounts, bringing total cash liquidity to $287 million.

We generated $162 million of adjusted operating cash flow in the fourth quarter and $133 million of free cash flow after backing out $29 million of CapEx. This brings 2021 full year free cash flow to $656 million. This capital was deployed through a combination of acquisitions, share repurchases and dividends.

During the fourth quarter, we spent $192 million repurchasing 978,000 shares, bringing our total 2021 repurchases to 1.1 million shares at an average price of $190.82 for a total spend of $211 million. This represented 6% of our beginning of the year share count. Our rent-adjusted leverage ratio as defined by our U.S.

Syndicated credit facility was 2 times at the end of December, inclusive of the Prime acquisition. This strong leverage position will continue to allow for meaningful capital deployment in 2022, if appropriate opportunities exist. Finally, related to interest expense.

Our quarterly floor plan interest of $7.2 million was a decrease of $1.2 million, or 15% from the prior year, due to lower vehicle inventory holdings. Non-floor plan interest expense increased $2.6 million or 19% from prior year, primarily due to the debt raised in conjunction with the Prime acquisition.

For additional detail regarding our financial condition, please refer to the schedules of additional information attached in the news release, as well as the investor presentation posted on our website. I will now turn the call back over to Earl. .

Thanks, Daniel. Related to our corporate development efforts, we expect to find additional external growth opportunities in 2022. Growing our U.S. and U.K. businesses remains our top capital allocation priority.

However, our balance sheet cash flow generation and leverage position will continue to support a flexible capital allocation approach, which will likely include serious consideration of share repurchases in addition to pursuing external growth.

This concludes our prepared remarks and I'll now turn the call over to the operator to begin the question-and-answer session.

Operator?.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Michael Ward from Benchmark. Please go ahead with your question..

Thanks very much. Good morning everyone. Two things. If I'm reading this right if I take the reported fourth quarter numbers in the US and then subtract out the same-store the bulk of that is going to be Prime. And if I'm reading that right there's been a pretty quick and smooth integration of Prime.

Am I reading that correctly? And if so can you talk about some of the things that drove that?.

We're really happy with Prime the performance so far. The integration effort that we undertook was the largest in our company's history and we integrated everything from day one in every dealership from IT personnel everything got integrated to Group 1 standards. And we had over 100 people involved with that Mike on the ground up in New England.

And so we believe it was a really good transition the employee retention of the existing stores up there was very high, very little loss in that regard. And we're really very, very pleased with the performance. .

Now were there parts and services performance? Was that similar to what the rest of the company saw? And could you talk a little bit about what's driving that? I mean, the customer pay and the collision is through the roof, I mean, twice what the rest of the market is doing.

And are there things behind that?.

The philosophically what's driving, obviously, our customer payments is our legacy stores. And just our staffing models and our philosophical approach that we need to be available for our customers when they want to do business. And so -- and we still are leveraging our four-day work week. And we still have some work to do in the Prime stores.

We're pleased with their parts and service business. But most of that performance obviously was in our legacy stores for the quarter.

Earl?.

And -- well Prime picked up the same….

Yes. No, Mike, I think the key there -- this is Earl is it will take us a little more time to get our four-day work week installed in those stores, because you need a certain number of techs in each shop to do that.

And then that will enable us to expand some of the hours of operation in those Prime stores, which to a large degree don't match the extended hours of operation we have in many of our legacy stores..

Thank you. Thanks very much..

Our next question comes from Rick Nelson from Stephens. Please go ahead with your question..

Thanks a lot. Nice quarter. So, a question about Brazil.

I guess, what led you to the decision to sell that? And is there more asset optimization here in the cards?.

Yes. Rick, this is Earl here. Very simple. Two reasons, we decided to divest in Brazil. The first one is the exchange rate. We could never outrun it. It was 2:1 when we went down there. Brazil was fourth biggest car market in the world bigger than Germany and it's still going to be a huge market someday.

But the exchange rate of 2:1 is now more like 5:1, and we'd make more profit every year in local currency and it would translate into less dollars. So we're kind of spinning the tires there. But beyond that we have planned to take the original platform of 24 dealerships. And we thought by now we'd be 50 to 75 dealerships.

And we just could not grow the business externally, because we discovered that the acquisition process legally in Brazil was requiring that we assume too many liabilities from the sellers. And we just couldn't do that for our shareholders, tax and employee types of liabilities.

And we just could not do enough asset deals to grow like we would in the US. So, the fact that we couldn't make it bigger and leverage our scale was kind of the final factor in deciding that we'd like to deploy that capital where we can grow faster. .

Okay. That all makes sense. Thanks for that. Is it going to be some overhead related to Brazil that you have to continue to carry in your SG&A? And that….

Quite frankly Rick, there wasn't a lot of overhead here working with Brazil. Obviously, we consolidated accounts and provided some IT support. So yes, there will be a little savings but I would not consider that to be material at the headquarters here..

Rick, it's Daniel here. On an ongoing basis we'll still have to consolidate some information, but it will be very limited on an onward going basis. .

Okay. Thanks for that. Also I would like to address inventory. Looks like used inventory has really improved meaningfully yet you're able to sustain these outsized GPUs.

Do you think that is going to continue as we push forward?.

Unused Rick….

Yes. Yes. .

This is Daryl. The used market obviously is super dynamic. We're able to keep the inventories at the level they are because of our -- we changed our sourcing model. And the good thing about the PRUs is, we manage our inventory very tightly. So, any changes in the pricing environment we can react very quickly. I don't know when it's going to change.

I feel like it's going to change at some point this year, but I don't know when. I've read some outside external forecasts in the last week that suggests it will stay where it is and any changes will be very moderate later in the year. But what I do know is, we've set up our business to be able to react to it, if it's sooner or later.

So that's what we know at this point. .

Okay.

And finally, if I could ask on the acquisition environment and your appetite are you going to take some time here to digest Prime, or are you guys in the market to do more deals here relatively soon?.

Yes. Rick this is Earl. As Daryl just commented a few minutes ago, we've integrated Prime to a very large degree already. So that is not going to impede our ability or desire to grow. We can of course continue to improve those stores but the heavy lifting is over there. So yes, we are definitely interested in acquisitions.

I'm quite confident we will continue to execute some that make sense this year. We need to be careful because you can't value these stores based on current margins and things like that. So -- but that said -- and we were very conservative with how we valued Prime.

We have to look at more traditional vehicle margins when we're going to spend money on acquisitions. But yes, I see external growth for us this year certainly in the US. We're interested in the UK, but I think it's more likely in the US.

But also given the undervalued nature of our shares I think we will also be returning capital to shareholders this year with share repurchases. If I -- just as I'm looking at it today. So yes, I think we will be growing and returning capital to shareholders this year. .

Great. Good to hear. Thanks and good luck..

Thank you..

Our next question comes from John Murphy from Bank of America. Please go ahead with your question..

Good morning guys. Just a first question around inventory Earl. I apologize I've got industry numbers on the top of my head. I don't have your unit numbers. But we think about the start of last year, we were at about three million units of dealer inventory at large and now we're just over one million units.

So as we think about the course of this year even if the automakers huff and puff, it's hard to believe they're going to get anywhere near normal on inventory and the chips don't exist. So it's really very unlikely.

What is your sense on when this normalizes? And what is normalized mean go forward? Because it seems like there's a fair amount of discipline that's coming in from the automakers at least in the way they're talking about it.

And what do you think the implications are for GPUs? Because obviously the short in return environment is driving the GPUs higher. If we don't go back to the float of levels before it seems like GPUs might remain relatively strong versus history, but not as good as now. .

Well, John, this is Earl. And I'm going to let Daryl comment as well. But I have not been able to predict on this subject with any accuracy at all. I continue to be shocked. And every month seems to delay the recovery another month. Clearly, no one is building inventory still. So in terms of -- I mean building up.

We're still 26,000 units or more below where we were pre-COVID and that was before we added Prime and those other groups or the other acquisitions last year. So it does seem it's going to take a long time to add let's say, 20,000 – 25,000 units back to inventory in excess of what we're selling every month because we continue to sell what we get.

And of course there were some warnings this week by I believe Honda and Toyota -- or maybe it was Nissan and Toyota. But it seems that there are some issues beyond chips as well now with COVID interruptions and shipping interruptions and things like that. So I can't even keep track of all the stated reasons.

But it would certainly seem the first half of the year is going to remain with severe new vehicle inventory shortages. I don't know what will happen in the second half of the year. But with five months left in the first half of the year I don't see any material recovery in the next five months.

Daryl?.

I don't have anything to add to that Earl. Thank you. .

I'm sorry, I mean, just with the context of your industry knowledge what do you think the normal will be when the automakers become unconstrained and can build back inventory? Is it 40 days to 50 days as opposed to 60 days to 65 days? I mean where do you think they land? I mean they're making all-time record profits at these very low volumes as well.

So I'm just curious how you -- I mean you've been in the industry a long time I know a lot about it.

I mean what -- how do you think about that?.

Well, I would hope no one would ever go over 50 days again. And, of course, historically the domestic has always had well over that because of these -- the big variation on the build combinations of full-size trucks and things like that.

But for decades Toyota dealers have operated well below 30 days and never missed that much business as far as I could tell. So I think most brands can operate in 30 days to 40 days. And hopefully there will be a corporate memory that the OEMs also can see this benefit and try to manage that way as we go forward.

However, any time these large auto companies start fighting for market share that's when the discipline can erode. .

Okay. And then just a second question. Over time GPUs will normalize to whatever level they may land at. But given what's going on this year you're going to have a lot of capital to redeploy. I mean you could argue that it's going to be a year that's at least as good as last year on a core basis and then you layer in Prime.

So that free cash flow number in the mid-$600 million level should be significantly or may -- I would think should be higher. I'm not going to ask you to give an exact outlook, but I would assume will be a lot higher. So the benefit of all of this is that you got great cash now and it can be redeployed.

As you think about the normalization of the business is that capital and the redeployment of that capital enough to continue to grow earnings in 2023 and 2024? I mean is there there's enough earth or structural business added here through used parts and service growth plus your acquisitions to offset what might be some pressure on grosses. .

Yes. Absolutely. And of course that's the way we're looking at it now. And there's no doubt that 2023 can be incredibly strong in that regard. Once you get out to 2024 I know a lot of people like to pretend they can predict that but this is a dynamic business. But when we look at our after sales business growing 18% and that's the core of our business.

That's 40% to 45% of our gross profit. And this is with warranty going backwards and collision soft. We're growing 18% in the US and 15% in the corporation. And we're focused on that part of our business more than anything because that is what we can control.

We can't control our new vehicle supply, right? So yes, I think this bodes very, very well for us. And continuing to add scale and continuing to capture more service business is really what we're focused on right now..

John, this is Daryl. I would add on – versus the fourth quarter of 2019, our customer pay business was also up 20% from same-store business..

Yes. That's very helpful. Just lastly, you just made one comment about your sales folks being 20% more efficient or selling 20% more vehicles in your core versus the acquired stores of this last year.

I'm just curious, if there's room to increase efficiency on your existing core sales folks and how fast you can get your acquired sales folks up to this level of efficiency. .

This is Daryl. We believe – the second part of your question, the new stores, we think we'll be able to get them up fairly quickly. We have a very good launch plan, execution plan in place that we started in mid-January with those stores. The second thing is I believe there is room in legacy store, John. I can't tell you how much room there is.

I think the more digital adoption there is by customers and inside our stores I think the better that is for productivity..

Okay. Great. Thanks very much, guys..

And our next question comes from David Whiston from Morningstar. Please, go ahead with your question..

Thanks, good morning.

Earl, I wanted to start with the comment you made a few minutes ago about if a market share if it breaks out in that scenario, if it were to happen and hopefully, it won't, can you push – how much pushback do you have on the factories? And are we taking too much allocation, or are they going to force it on you?.

How much pushback on factories on what? I'm sorry?.

On allocations, vehicle allocation..

If they start to increase. .

Well it's been so long since we had to push back. I don't remember how to do that. But yes I think – no we have always run our businesses for our shareholders. And I think over the years most of the OEMs have become more sophisticated in that regard. And they understand that too much inventory is bad for us and we're not going to take it.

And it's bad for them to. And that lesson is really being driven home right now to the OEMs as to the cost of excess inventory. The distribution channels in both the US and UK have been overstuffed for a decade or more. And now that they get leaned out, you can see what it does for the OEM profits also. It's much better for them.

And so I think we're going to be in a much better position going forward. And we have our inventory targets. And should we ever get back to them we will have to turn down the vehicles..

David, this is Daryl. I would add one thing on Earl's comments. We will push back to be able to manage our own inventories based on what's best for our shareholders. But the market-based supply will determine the gross profit outlook.

And so if the OEMs do go too far on overproduction that will determine the – what happens to the grosses in the marketplace..

Okay. And moving on to – there's a bill introduced in Congress on basically expanding that Massachusetts right to repair scenario nationwide. I know you've got a lot of presence in Massachusetts.

Are you at all worried about this legislation, or is it really a non-issue?.

Well, that particular Massachusetts bill has been around for many years and that threat or that issue of better access for aftermarket repair has been around for a long time. So, I don't see that as material to what we do for a living. We have as much service business available to us as we can capture.

And our goal is to make our customers loyal and continue to get more of our customers back in our shops. So, that is an issue I assume more for the OEMs than for us..

Okay. And on these pricing being so high and it should come down eventually. Perhaps in 2023, we could be looking at a lot of negative equity for consumers who want to perhaps get rid of a vehicle. Just curious, your lending partners traditionally how willing are they to roll negative equity into a new -- loan for a new vehicle.

And do you think maybe they would be willing to put more of that negative equity on a loan than in the past given what's happened recently?.

Sure David. This is Pete DeLongchamps. And when you look back, we've had lenders that go up to 130% loan to value. But for our company and the way that we manage our lenders and with our loss ratios, I will tell you that negative equity is not something we're concerned about with our lending partners.

And the other piece of it, Daryl alluded to, is that we've been very disciplined in not overcharging our customers. Because one of the concerns is two to three years, these customers that pay substantially over sticker price that will lead to negative equity. So, we're managing our transactional pricing today with a long-term view.

So, right now, the lenders have remarkably low loss ratios, because people have equity in the cars. But in the conversations I've had with lenders, their appetite continues to be very strong..

Okay, great. Thank you..

And our next question comes from Rajat Gupta from JPMorgan. Please go ahead with your question..

Great. Good morning. Thanks for taking the questions.

Maybe on AcceleRide, can you talk about the progress on the rollout of the integrated delivery fees? And also maybe on the integration with the Prime automotive network, curious how that's progressing? When do you think you can overlay that? And in general, like how do you see the AcceleRide platform scaling in 2022? Any targets -- any volume targets that you have that you can share? And I have a follow-up.

Thanks..

Rajat, this is Daryl. Delivery fees, we've integrated it into AcceleRide. We had it in about 40 stores in the fourth quarter and we'll continue to roll it out through the rest of the network quickly. And in the new acquisition in New England, we have rolled out AcceleRide -- we are rolling out AcceleRide in all of those stores as we speak.

And we started that in the third week of January. And we expect that by the end of the first quarter we'll be fully rolled out there, and we expect adoption to be -- and we have a -- what we feel like is a really good execution plan there.

And we have some huge advocates for it in that -- in those stores because previously Prime didn't have much of a digital strategy. So, we feel like it's a real advantage. And then, what was the rest of your question? How about targets and things like that..

Yeah..

We haven't set a target per se. I mean we did 20,000 units last year. We feel like there's still more upside from there obviously and it will become a bigger and bigger piece of our business. And -- but we don't have targets that we share externally with it.

But, I think if you look back at our growth with AcceleRide since we launched it, I think you can expect to continue to see that same kind of growth moving forward..

Understood. I mean maybe a broader question on just inflation.

How do you see inflation in general impacting your business, more from like an SG&A standpoint? We know that a lot of the personnel cost salespeople, like my managers, highly variable in nature but curious, if you're starting to see any of the wage inflation start to creep in into your expenses.

And obviously productivity has been very strong offsetting a lot of debt. But just curious to get your thoughts how you see that impacting your profitability in the more near to medium term? Thanks..

This is Earl, Rajat. Yeah, we've seen it in some support positions. But as you mentioned, the vast majority of our employee costs are productive people. And so they are paid by what they produce. Where we will see it start to creep in will be in things like call center and some staff and support people.

And – but that is not – that is not the biggest part of our cost structure. But there's no doubt that inflation is here and there's going to be some interest rate increases too..

Rajat, one thing that I'll add on the interest rate increase, or changes to mitigate rising interest rates we've swapped out a large part of our floating debt. So for every 100 basis points increase in LIBOR that would only negatively impact our full year earnings per share by about $0.21. So that's helpful going forward..

Got it. Got it. That's helpful. Maybe just last one on capital allocation. You mentioned earlier that you will be returning capital back to shareholders this year.

Any numbers you can put around that? What kind of leverage are you willing to add? Is it just using the excess free cash flow or are you willing to take on more leverage to do that? Just curious if you could give us some sort of a range around that? That will be –.

I think relative to acquisition volume that we can comfortably do. And then clearly, we have more debt capacity, if we want it. But as we said last year, we have the capacity to easily add $1 billion of revenue per year. We need to find acquisitions that fit with the geography and brand and financial requirements that we have.

But we're pretty comfortable with planning that way. And we just think our shares are severely undervalued. And so buying – investing in our own acquisitions isn't a bad thing to do either. So clearly, this is a dynamic market in terms of which acquisitions are available and what our share price is.

But I'm quite confident we're going to pursue both of those avenues this year..

Rajat, it's Daniel again. In response to the leverage question, we added $2.5 billion of revenues last year. Our leverage is around two times coming out of 2021.

And I think as a company for the right acquisition, we would feel comfortable at extending our leverage ratio to three times, or perhaps three and half times, for a short period for the right acquisition. So that will give you some guidance on where we are with that..

Understood. Thanks for the color and good luck..

Thank you, Rajat..

Thanks..

And ladies and gentlemen with that, we'll end today's question-and-answer session. I'd like to turn the floor back over to Earl Hesterberg for any closing remarks..

Okay. Thanks to everyone for joining us today. We look forward to updating you on our first quarter earnings call in April. Thank you..

And ladies and gentlemen with that, we'll conclude today's conference call. We thank you for attending. You may now disconnect your lines..