Autonation, Inc. Q3 FY2023 Earnings Call

Good morning. My name is Ellen, and I'll be your conference operator today. At this time, I would like to welcome everyone to the AutoNation Third Quarter 2023 Earnings Conference Call. I would now like to turn the call over to Derek Fiebig, Vice President of Investor Relations. You may begin your conference.

Thank you, Ellen, and good morning, everyone. Welcome to AutoNation's third quarter 2023 conference call. Leading our call today will be Mike Manley, our Chief Executive Officer; and Tom Szlosek, our Chief Financial Officer. Following their remarks, we will open up the call for questions. Before we begin, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non-GAAP financial measures, as defined in our SEC rules, will be discussed on this call. Reconciliations are provided in our materials and on our website located at investor.autonation.com. With that, I'll turn the call over to Mike.

Thanks, Derek, and good morning, everyone. Thank you for joining us today. I'm going to start on Slide 3, and I'm going to provide some opening remarks before Tom takes you through the third quarter results in great detail. So as we all know, there continue to be mixed economic signals in the economy. But despite concerns of affordability, consumer demand for vehicles remains relatively healthy. And during the quarter, partly because of improved new vehicle supply and stable used vehicle inventory, we saw double-digit year-over-year growth in new vehicle sales and strong sequential growth in used vehicle volume. And frankly, this is the first time in eight consecutive quarters that we've seen growth in combined new and used vehicle volumes for AutoNation. So I think that's very positive. We also continue to see significant benefits from our clear focus on after sales, which delivered a record quarter for revenue and margin, and as a result, AutoNation delivered a solid performance in this evolving operating environment. So I'm just going to quickly look at the performance by business, and I'll start with new vehicle sales, where volume was up 12% in total and 9.5% on a same store basis. And as forecasted, new vehicle margin was down sequentially in the quarter but remained above $4,000 a unit. Now during the quarter, we did see some mix impact on our margin and that was driven by significant year-over-year volume growth in our import franchises, which benefited from improved inventory flow, releasing some of the pent-up demand for those brands. And I'll touch on the inventory numbers in a minute. But basically, everything that we got, we sold. So we saw quite a large increase in our import dealership volumes in the quarter. But I would say our sales teams tend to look at every potential deal in a very balanced way. And you'll see our combined margin performance across new and used, which included CFS income, held up very well and, in fact, it's relative to the industry in the quarter and remains well above pre-pandemic levels. I mentioned other inventory levels, so let me touch on that. Obviously, they've increased from a year ago, but they remain less than 35 days supply but we have a lot of variation, frankly, among branding categories. We have 51 days of domestic brands, so that probably answers one of the questions about what's happening in my previous time. So we have 51 days domestic brands, as we said, 33 days of luxury and 17 days of import brands. Now moving on to used vehicles. As you'll recall, at the beginning of the year, we spent some time talking about the fact that used vehicle inventory would be harder to source and obviously critical to success this year. So knowing that, we've made continued investments to maintain and grow used vehicle inventory. I think the team in the quarter did a good job sourcing retail quality used vehicles and to facilitate this, we've increased our investment and we buy your car marketing and infrastructure, which you're obviously going to see in our SG&A. In addition, we have our teams looking at every potential sale in a much more holistic way considering not just the vehicle margin but also the income from CFS and additional consideration as the sale yield of retailable trade. Now as a result, used inventory has been stable, which has helped us post the sequential used vehicle sales increase of over 5%, which would not be possible without the daily focus on vehicle sourcing which, by the way, resulted in over 90% of our total used vehicles being self-sourced in the quarter. Now as you know, vehicle volume new and used is important for many reasons, but a key one for us is our industry-leading performance in customer financial services, which again continued to deliver in the quarter. And then the team has done a great job to overcome a significantly higher interest rate environment and lower finance penetration by continuing to maintain and grow product sales per unit sold. Now moving on to after sales. Here, the business continues to be one of our brightest spots. Revenue was up 12% and our gross profit was up 14%. The greater complexity of vehicles is leading to higher values per repair order and we've also been keenly focused on growing our technician workforce, which is allowing us to serve more customers. I was also pleased with the operating cash generation in our business. It was another great quarter of cash conversion relative to net income, which Tom will no doubt talk more about later. But aside from the solid quarter from a financial perspective, there are a few other highlights I'd like to touch on before handing over. Our 11 million plus customers are our core focus and we're extending our product offerings and reach into more recurring revenue streams, and we're adding new customers every day across all of our channels. And during the quarter, we increased the penetration of AutoNation finance at our AN USA stores, where we are now financing roughly one in four AN USA vehicle sales and we have also expanded into our franchise stores. So AutoNation Finance continues to be integrated as a thoughtful and measured place and is, in fact, ahead of where we thought it would be, which is why we expanded it to our franchise businesses. We're also actively launching supplementary products and services to meet our customers' needs, which supports consumer vehicle usage and also attracts new customers to us. And we launched a micro lease business called AutoNation Mobility and an e-commerce parts and accessory platform called autonationparts.com. These businesses, along with AutoNation's recently acquired mobile repair service, complement our traditional dealership model while expanding our reach into the transportation industry. We expanded our AutoNation USA footprint with our 17th store in Hilton Head Island, and this was the fourth opening of the year, and we expect four more openings in the fourth quarter, including our Fort Myers facility, which opened this week. Now as you can imagine, it's not an easy task to get these greenfield businesses open and up and running. And I'd like to congratulate and thank the teams that continue to work incredibly hard on this. I'm also pleased to say that so far these businesses are selling ahead of plan and are showing considerable growth year-over-year. And by the way, since this project with AN USA has started, they've now sold over 70,000 vehicles. So that's not out for organic growth, I think. So moving on. The exceptional service we provide to our customers did not go unnoticed as AutoNation was recognized as the top public franchise dealer group by reputation in the 2023 Automotive Reputation Report, and that's an honor that we have housed four out of the last five years. And, of course, that is only possible because of the 24,000 dedicated AutoNation associates who work tirelessly in our business and whom I would like to thank. So thank you all for listening, and I thank you in person as I get out into the business model. And finally, we were named on the best companies to work for list by U.S. News and World. So you can see customers at the center of what we do. We are focused on growth, outstanding customer service, and operational excellence through our business. And we're also looking to the future at how the industry will evolve and what the needs of our customers will be. There is clearly an opportunity for AutoNation to capitalize on our strong brand and footprint to retain and reactivate customers and provide them with more value and garner a larger share of wallet over a longer period of time. And now Tom will take you through the financials in greater detail.

Thank you, Mike, and good morning, everyone. You can find a more detailed outline of our Q3 highlights on Slide 4 of the materials. New revenue from vehicles increased by 11% to $3.2 billion. Volumes in new vehicles rose by 12%, including a 25% increase in imports and a 5% rise in domestic, while luxury volumes remained about the same. Same store volumes grew by 9%, and revenue per vehicle for retail remained stable. Used vehicle revenue fell by 10% year-over-year, with U.S. sales down approximately 4% and revenue per retail vehicle down by 6%. However, used vehicle sales improved by over 5% in units compared to the second quarter, indicating that our investments are beginning to yield results. Customer Financial Services revenue saw a 2% increase to $370 million, reflecting the rise in total retail volume from 2022 and stable revenue per vehicle ratios. After sales revenue increased by 12% to $1.2 billion due to both higher value repair orders and improved volumes. After sales gross profit margins increased by 14%. Third quarter earnings per share were $5.54, down 8%, while operating income decreased by 16% and interest expense rose by $44 million. Our earnings per share benefitted from a more than 20% reduction in the share count, which reflects our ongoing share repurchase efforts. Cash from operations was robust, totaling $763 million, resulting in a net income conversion of over 95%. The company has impressed me during my initial months with its commitment to driving cash generation and managing working capital effectively. Mike also spoke about the integration of AutoNation Finance, which is still a relatively small business with an approximately $400 million portfolio, but we expect significant growth as we enhance financing penetration in our stores. We have stopped all third-party originations and are now exclusively focused on our AutoNation business. In September, AutoNation Finance accounted for about a quarter of the loan originations in our stores, and we have also started lending in our franchise stores. For the third quarter, we sold most of our lower credit tier loans from the legacy CIG portfolio, generating a pretax gain of $8 million. Moving to Slide 5 for a summary of our third quarter performance, the strength in new vehicle unit volumes and after sales, combined with stable revenue from customer financial services, offset the decline in new vehicle revenue per vehicle and used vehicle revenue. We are pleased with the 3% growth in our top line compared to 2022. Gross profit was slightly lower in nominal terms, with a decrease of roughly 90 basis points in gross profit margin to 19%, mainly due to lower new vehicle gross profit per vehicle, which was mostly balanced by growth in after sales gross profit. Adjusted SG&A increased by 7% to $823 million, driven by generally stable core expenditures and additional costs related to our growth initiatives. Third quarter floor plan interest expense was $38 million, up from $11 million in the same quarter last year, reflecting both higher rates and increased borrowings. For non-vehicle debt, interest expense rose to $49 million from $34 million a year ago, influenced by similar factors. Our income tax rate remained stable at 25%. This resulted in net income of $244 million, down from $336 million the previous year. Additionally, our average shares outstanding of 44 million were more than 20% lower than a year ago, which mitigated the impact of the net income decline on earnings per share. On Slide 6, I will elaborate on our performance across various revenue categories for the third quarter. New vehicle volumes increased by 12%, which includes a more than 25% rise in imports. Revenue per vehicle ratios for new vehicles remained stable. Gross profit per vehicle continues to decrease due to increased availability of new vehicles, coupled with our strategy to prioritize higher volumes to support other business areas. New vehicle inventory levels have grown over 50% in both units and dollar value from last year, increasing from approximately 13,000 units to over 27,000 units. In the used vehicle segment, reflected on Slide 7, we saw a modest volume decline of 4% from a year ago, with the most significant reductions occurring at our domestic stores, which fell by 10%. Luxury stores experienced less severe declines. However, since the second quarter, used vehicle volumes have risen by 5%, significantly outpacing market growth. We also saw solid progress in the $40,000 and below pricing tiers, which account for over 80% of our unit sales, while the higher-priced tiers, above $40,000, saw respectable growth of about 2%. Inventory levels for used vehicles remained stable at 33 days, with strong growth in lower-priced tiers, offset by declines in higher-priced tiers. We are concentrating on healthy sourcing through trade-ins, lease expirations, and our iBuyer car initiative, with self-sourcing accounting for 96% of used vehicles acquired this quarter. Moving to Slide 8, in Customer Financial Services, we achieved a 2% revenue increase, aligned with vehicle sales unit growth for the quarter. For new vehicles, the rise in unit volumes and greater penetration of both finance and non-finance products contributed to stronger revenue in this segment. On the used vehicle side, the sales of finance products experienced a slight year-over-year decline due to the interest rate landscape, but penetration remains impressively high at nearly 70%. Non-financial products also saw a modest decline, though penetration continues to be strong. On Slide 9, we see that after sales revenue grew by 12% to $1.2 billion, with double-digit growth in customer pay, warranty, internal, and collision areas, indicating broad success across the portfolio. The value per order is improving, and the number of repair orders has also increased, thanks to our investments in additional technicians made over the past few months. Gross profit grew by 14% year-over-year with gross profit margins climbing by more than 80 basis points to 47%. This reflects the higher value repair orders and the scale advantages we are beginning to realize from the increase in order volume. Regarding the UAW strike, we hope for a swift and agreeable resolution. We have been proactively building inventory where possible and ensuring after sales continuity with OEM support. In the third quarter, there were minimal financial impacts aside from slight inventory increases, and we are closely monitoring the situation. Slide 10 indicates that operating income for the quarter was down 6% compared to last year but still exceeds pre-pandemic levels by approximately 200 basis points. The decrease from last year is attributable to lower new vehicle gross profit per vehicle and increased SG&A, which reflects investments in growth and operational support for our AutoNation USA stores and aftermarket business. Increased advertising for vehicle acquisition through our buy your car initiative, along with inflation and self-insurance costs for weather-related losses, also contributed to this growth in SG&A. Overall, we anticipate normalized SG&A as a percentage of gross profit to remain lower than pre-pandemic levels. On Slide 11, our operating cash flow generation remains very robust, with a conversion rate of 105% of net income for the quarter. Our cash flow from operations reached $256 million, and we increased our non-trade floor plan by $89 million, with capital expenditures of $87 million. Together, this has resulted in free cash flow of $258 million for the quarter. Capital expenditures increased by around 10% this quarter, reflecting a steadily rising reinvestment ratio, now at approximately 1.6 times depreciation. The primary year-over-year CapEx increase that drove this growth has mainly been for expansion efforts, including AutoNation USA growth, facility enhancements for electric vehicles, and IT-related projects. Slide 12 presents our capital allocation for the first nine months of 2022 and 2023. Last year, our capital allocation focused on reinvesting in the business and executing share repurchases. Since early 2022, we have repurchased about 21 million shares, more than a third of our outstanding share count. During a low interest rate environment, we benefitted from a recovery in cash flows, although attractive M&A opportunities were lacking and our share price was undergoing dislocation. While we still believe in the long-term value of our stock, in 2023, with rising interest rates and normalizing cash flows, we have reduced the pace of share repurchase. Nevertheless, share repurchases have remained stable at close to 100% of free cash flow. At the end of the quarter, our leverage was 2 times EBITDA, at the lower end of our 2 to 3 times target range, and both Michael and I are comfortable with our position. Moving forward, we will continue to allocate capital aimed at maximizing shareholder value. Now I will turn it over to Mike to conclude.

Yes. Thanks, Tom. I'm just going to, again, before we go to the Q&A session, thank all of our associates in the business. And as I said, I think that there's been a lot of progress in terms of putting infrastructure in place, building new offerings, products, and services for our customers as well, and that will take tremendous effort. So thank you all. And with that, let's start the Q&A.

Ellen, if you could please prompt the audience on how to get in the queue.

We’ll take our first question today from John Murphy from Bank of America.

Maybe we have to come back to John.

Okay. Let's move on to Rajat Gupta from JPMorgan.

Just had a question first on parts and services. Clearly, very strong trends there. I think it was the best result amongst your peer growth. Would you be able to give us any more color there in terms of any differences you saw across the regions that might have led to the growth, as well as if you could quantify how much of it might have been driven by either the traffic or pricing or mix, any way to size that growth and expectations going forward as well? And I have one quick follow-up.

The growth came from both an increase in volume. We saw, as we progressed through the quarter, volume increasing as a result of the increase we had in terms of productive technicians. So a combination of that and reaching out into the vehicle park grew. But then we saw value growth really across our customer pay, our internal work as well with the growth that we saw in new vehicles and the sequential growth of used and then warranty was up as well. So it's a combination of both of those things. I have not seen a big difference in terms of the geographical distribution of that growth. If I look broadly across the market, it's roughly in line. So I don't think that there's necessarily anything from a geography perspective that's influenced it. So in summary, just a combination of increased volume but increased value per repair order as well.

I would like some clarification on your strategy for overall profitability regarding new cars. You mentioned that you are selling all incoming inventory, but also indicated that you are trying to increase volume to capitalize on CFS and other services. Could you confirm whether you had to lower margins to boost volume in order to maintain income from financing services?

No problem. I will try to clarify, but feel free to jump in and redirect. We have invested a lot, and it's important how we manage our used vehicle inventory as we progress through this year and into next year. This is crucial for maintaining our used vehicle sales for our franchise businesses and stocking the new AN USA stores we are opening. We are putting a significant amount of money into this, whether it's through additional marketing or infrastructure to support our vehicle acquisition efforts. We ask our teams to take a holistic view of the market volume and avoid distress selling. It's important to recognize our strong record in CFS performance and sales sourcing. When considering opportunities in the market, everyone should keep in mind that one of the most profitable sources for used vehicles comes from trades associated with new or used car sales. We want to ensure that everyone acknowledges the various profit sources in each sales deal. General managers and sales managers should consider this when planning for the month. Essentially, we're encouraging a balanced approach to business, as it is multifaceted.

Maybe like just to finish up on the new gross profits. Were you able to, like do you see any benefit from the strike in the third quarter, and do you expect any benefit from a slower inventory build in the fourth quarter to the gross profits? Or would you think like the strategy around customer financial services and driving volume growth would continue to lead to declines in those gross profits here in the fourth quarter?

No, there will be no benefit, and I'll elaborate on that. When gross profits increased across the industry, it was due to competitive cross-shop models being in limited supply. In this scenario, each brand faced shortages, which led to higher prices. If we only have individual domestic models in short supply, and the alternative cross-shop brands that consumers consider are also unavailable, there would be no reason for domestic models to see a price increase simply based on having slightly lower supply than others. Generally speaking, the pandemic served as a reset to the market. We noted a 65-day supply for domestics, which is far from the pre-pandemic levels but sufficient to last us for the next few months. As Tom mentioned, we are hoping for a quick resolution to the strike, and as of now, we have 55 days of supply, which I believe will be adequate.

Our next question today comes from Daniel Imbro from Stephens.

Mike, maybe I'll follow up sort of on the new unit. I think you called out strength in import brands even as production increased. Can you talk about what you think is driving that, is it more affordable product, just a strong lineup, trying to understand why some of the brands are outperforming so well?

So without diving into all of the inventory numbers, if I just think about the last few years, what we saw initially is we came into the pandemic with those import brands holding up in terms of their inventory. And we saw a kind of delayed effect as their inventory levels got really low, and we were talking about three, four, five days of supply. So a lot of those customers for those brands just couldn't find the vehicles. And as we've been able to see flow increase and improve, I genuinely think it is just some pent-up demand that is being able to get unlocked as a result of that. We saw those brands rebound and rebound strongly. And I'm convinced that that is what it was in those brands. And our turn rates are just phenomenal, as you can see, we're still very low day supply but produced great volume in the quarter, I think.

And then, Tom, maybe a strategy one for you. You guys, I think, put in a bid on a UK asset during the quarter, would have been a big international deal. Maybe you can discuss where dealership M&A fits. You obviously saw the buyback this quarter. But where does dealership M&A fit in your focus? And maybe is international becoming more of a focus for you guys as you think about the next lot of growth for AutoNation?

I’ll let Mike address the details regarding Pendragon. However, in terms of capital allocation overall, the first thing I notice about AutoNation is our strong cash generation, which gives us significant flexibility. This flexibility is one of the reasons I joined the company. We have the option to reinvest in the business through capital expenditures and mergers and acquisitions, or we can reduce our debt. We are comfortable with our current debt levels, but we can also return cash to shareholders through dividends and share buybacks, which have been a major focus for us in recent years given the low-interest rate environment. As conditions change, we need to remember that our primary goal is to maximize shareholder value, and we will approach this carefully. We will continue to invest in the business while also considering opportunities to return value to shareholders through share repurchases. In terms of M&A, I see plenty of opportunities available. The challenge lies in identifying those that will benefit our shareholders and where we can manage them profitably and enhance our business. We are actively exploring a variety of opportunities. I’ll let Mike provide comments on Pendragon specifically.

Well, by the way, I think that was a great answer question. I also there's much more to add on Pendragon. I mean when we made a preliminary offer on that, obviously, compared to the offers that were out there at the time, we thought it was an appropriate thing, and we think they were good assets and we did our deliberations and decided to not formalize an offer at that point. I think there’s nothing much the same yet to close, but bets continue to do exactly as you described them.

And I guess squeeze in one more quick model clarifier. Tom, I think in your prepared remarks, you mentioned that the sale of CIG loans this quarter was an $8 million pretax gain. And if so, where was that in the P&L, is it an SG&A offset or is it getting reported below the line? Just where is that $8 million gain?

I believe it's included in the financial statements, specifically noted in the footnotes. Take a look at footnote one in the financial statement, Daniel. You can find it in the press release as well, and it's presented net of other items.

But the number was $8 million. Was that right, Tom?

Correct, that's correct, pretax gain $8 million.

Our next question comes from Bret Jordan from Jefferies.

This is Patrick Buckley on for Bret. Could you talk a bit more about the used sourcing environment during the quarter? It sounds like you guys successfully increased spend there. Do you see further room to grow through additional dollar spend, or is that pretty close to the optimal run rate?

It's a great question. I think the balance that we struck in the quarter is probably optimal going forward. The only additional thing that we have to factor in, which may not see a lot in the scheme of things is the four new openings of AN USA, just to make sure that we have incremental inventory to those. But I think we've got a good balance now in terms of we buy your car, what's coming in, in trade. And as I said, we're looking at each deal and giving credit if there's a really good trade there to make sure that we can get not just the sale of whatever we're selling, but also get a second sale out of the trade. So I would say optimal balance at this moment in time. And if we're able to continue to get sequential growth, we'll obviously need to get more inventory, but I'd say the balance right now is the best answer I can give you.

And then switching to the new side of things. Are you guys seeing any mismatch between higher content units in your inventory versus demand for a more affordable lower term units?

I don't think there is any mismatch. We look at our turn rates across different models as everyone does. One point to note about new sales this quarter is that although finance penetration levels were down, the team performed well. The overall finance penetration for new vehicles remains stable, but we have shifted from traditional sales to leasing, which can be advantageous for higher-content vehicles. This was a positive development on the new side, although we did see a drop in penetration rates there. Nothing particularly stands out to me. When I assess inventory, the only notable difference in turn rates is between electric vehicles and other powertrains; we are seeing improvements in turn rates for electric vehicles, but they still turn roughly half as fast as other powertrains at this time.

Our next question comes from John Murphy from Bank of America.

First question, Mike, you mentioned during your discussion about the used car business that you might be open to accepting lower gross profits because you can compensate for that on the customer financial services side, and there may be a retailable vehicle that comes in trade. It sounds like you might be suggesting a willingness to go deeper into the third turn of the vehicle rather than just focusing on the second turn. Could you elaborate on what you meant by that, how established this process is, and your approach to accepting lower gross profits while trying to grow the business through customer financial services and that third turn?

John, I want to avoid creating any confusion. We ask our sales teams to focus on the overall growth they generate. They should aim to maintain or grow market share for the brands they represent and also increase new-to-use ratios within their business. In a high-interest rate environment, sales executives or managers have various ways to construct deals in the showroom that are suitable for customers. This involves considering multiple factors, including the representation of CFS income and potential trade opportunities. A significant trend we've noticed, as Tom mentioned, is the shift in the average mix of used vehicle sales. We saw sequential growth primarily driven by vehicles priced under $20,000. In terms of used vehicles, those priced under $20,000 continue to attract a lot of interest and show substantial growth when inventory is available, while the $20,000 to $40,000 range has remained relatively flat or experienced a slight decline, and vehicles priced above $40,000 have declined. Regarding trade, we are investing more in trades to maintain our inventory of vehicles priced below $20,000. We take all these factors into account because sourcing a vehicle and buying cars involves considerable costs, which go beyond just advertising and commission expenses. As we assess the business, we want to maximize all available channels while ensuring we achieve an acceptable total gross profit per unit sold. We are clearly communicating to our teams that profit per unit is crucial, but we also understand the need for balance.

And then just a second question on after sales and you may have gone into this, but the increased technician headcount. I was wondering if you can quantify that and how are you finding these techs? I mean, it seems like everybody is finding, I mean, hard time sourcing them. And is there more opportunity with whatever you're doing there to increase the headcount or the tech count even more?

I can’t provide the exact increase in headcount right now, but it's quite significant. As we evaluate each dealership's opportunities, whether it's boosting the number of vehicles they service or enhancing customer service by minimizing wait times, we gain a clearer understanding of what we need in terms of productive technicians. We've assembled a team of senior service directors and HR professionals to launch a strong campaign aimed at attracting and recruiting technicians. It's crucial for us to ensure that our compensation packages and benefits are competitive or superior to the market since this is a highly sought-after profession. Additionally, it's not just about hiring more technicians; it's equally important to retain the ones we already have. I believe we've made some additions, but I’ll need to confirm that number shortly.

14% same store.

Thank you for that. The important detail you're mentioning. It's obviously a constant battle. They are recognized part of the business focused on recruiting. We expect it to be a challenge moving forward as well. But I completely agree with what you're saying.

Our last question today comes from David Whiston from Morningstar.

You mentioned in the slide deck that you increased your tech headcount. I was just curious if you had to do any aggressive spending on compensation or advertising to make that happen?

No, and as I mentioned before, we obviously check very regularly market-by-market pay and benefit packages to make sure that we are competitive with the market. Like everybody else, we offer signing bonuses in the marketplace. And we also do a lot of work and there's more we can do in this area, frankly, but we do a lot of work in terms of recognition, seniority, tenure, and those things. But it's something that we recognize it. As I said, it's a very high-demand, in-demand profession and we just work very hard as do others.

And I believe last quarter, you were talking about wanting to get more recurring business from your customers. Service would be a big part of that, of course, especially on the customer pay side. I'm just curious, how do you convince consumers who normally haven't been considering using the dealer or service any more than they have to, to start doing so?

Let me answer your question in a different way to clarify my points. Starting with the idea that if you own a car, you will eventually need to service it. Our goal is to create service options that cater to your individual needs. You might prefer to do the work yourself, which is why we have an eCommerce parts platform where we provide the necessary parts. Some may not want to go to a franchise dealer; they might prefer a non-franchise option, or they may live far from the nearest franchise. That's why we have AutoNation Mobility services and why we acquired a repair service. If you prefer using a franchise, we have that option available too. Customers have various preferences for handling their service needs, and it's our job to provide them with convenient and cost-effective channels. There's a point, as our Head of After-Sales Christian might explain, where customers decide whether to stick with the franchise or seek alternatives. We actively engage with those customers to highlight the benefits of the franchise channel, but for those seeking alternatives, we guide them towards AutoNation mobile services.

And just one last thing on M&A. You mentioned it's becoming more attractive. Are sellers just becoming more reasonable or are there other variables at play here that change?

You broke up, could you just repeat again?

I think in the slide deck, you mentioned M&A is becoming more attractive. And is that just solely because sellers are becoming more reasonable in their asking prices, or are there other variables causing that change?

I'm relatively new to the environment. As we collaborate with our corporate development team on exploring various opportunities such as stores, franchises, and other initiatives mentioned by Mike, I would say that seller expectations have not significantly adjusted as one might anticipate. Particularly, given their financial performance over the last couple of years, sellers are still expecting to achieve pandemic-level profits, which sets the bar quite high. The challenge for us in evaluating these opportunities lies in understanding how much moderation and normalization we will see. I believe the point I was trying to convey is that these expectations will need to adjust as we move on from what has been an intense period for not only the retail automotive sector but also many other industries globally. I hope that clarifies my perspective, David.

Okay, thanks a lot.

Yes. Go ahead, Mike.

No, I don't think there was anything else I wanted to add. Did that answer your question, David? I believe that was the final question. Also, Derek, I will be calculating the numbers regarding technicians and I think your figure was incorrect. We probably need to revisit that to ensure we've covered it properly since my recollection is that we have added around 400 to 500 technicians over some time. So let's make sure we address that. With that, I would like to conclude the call. Thank you all for participating, and we look forward to connecting with you next quarter. Thanks to our entire team as well. Thank you, everyone. Goodbye.

That concludes today's conference call. Thanks very much for joining. You may now disconnect your lines.