Penske Automotive Group, Inc. Q1 FY2024 Earnings Call

Good afternoon and welcome to the Penske Automotive Group First Quarter 2024 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through May 7, 2024, on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Tony 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. As you know, a press release detailing Penske Automotive Group's First Quarter 2024 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 e-mail or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, our Chair and CEO; Shelley Hulgrave, our EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations; and Tony Facione, our Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, 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 presented the comparable GAAP measures and have reconciled the non-GAAP measures to the most directly comparable GAAP measures in this morning's press release and investor presentation, which are available on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward-looking statements. I also direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs, for additional discussion and factors that could cause future events to differ materially from expectations. At this time, I'll now turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. During the first quarter of 2024, PAG delivered 126,800 new and used vehicles and over 4,500 new and used commercial trucks. We increased revenue by nearly 2% to $7.4 billion. Our gross margin was 16.7%, which increased 40 basis points when compared to Q4 last year. We generated $295 million in income before taxes, $215 million net income, and earnings per share of $3.21. During the first quarter, our U.S. and U.K. retail operation faced headwinds from port holds, product recalls, supply and production issues on premium vehicles that impacted product availability. Additionally, a strike at a plant in Mexico that builds the Audi Q5 SUV impacted availability as well. Income and earnings per share were also negatively impacted by higher interest costs for the quarter of $17.4 million driven primarily by an increase in interest rates, higher inventory levels, and lower equity earnings from the company's investment in Penske Transportation Solutions. Lower equity earnings from PTS were driven by lower commercial rental utilization, lower consumer rental revenue, higher interest rates on average debt balances, and a lower gain from the sale of used revenue-earning equipment vehicles, partially offset by improved results in our full-service leasing business and our distribution center logistics management business. Looking at corporate development, during Q1, we added 24 automotive franchises, including 19 in our international markets and 5 in the U.S. Estimated annual acquired revenue is $1.1 billion. We also closed one CarShop location in the U.S. In April 2024, we entered into an agreement to acquire two Porsche dealerships and one Ducati motorcycle dealership in Melbourne, Australia, which is expected to close in the second quarter of 2024, subject to customary conditions. Let me now turn the attention to automotive operations. During the quarter, total automotive units delivered increased 4% to 126,864 units, which includes 8,932 agency units in the U.K. New units increased 6% and used units increased 2%. We continue to take forward orders with presold activity averaging between 10% and 20% in the U.S., depending on brand or region, and 36% of the new vehicles sold in the quarter in the U.S. were at MSRP. While 87% of the BEVs sold in the quarter required significant discounting, we estimate 90% of BEVs sold were leased. In the U.K., the forward order book is healthy at 19,000 units versus 18,000 at the end of December and 22,000 at the same time last year. Same-store retail automotive revenue increased 1%. However, Service & Parts increased 5%. Customer pay was up 5%. Warranty was up 6%. Our collision repair business is up 6%, all of which continued to grow during the first quarter. Gross profit for new unit retail declined only $302 sequentially, while gross profit per used unit retail increased during the quarter sequentially when compared to Q4 last year. Let me now turn to Penske Transportation Solutions. At March 31, PTS managed a fleet of over 442,000 trucks, tractors, and trailers compared to 418,000 at March 31 last year. Although the overall fleet size increased, we reduced our commercial rental fleet by 4,800 units during Q1 of 2024 due to lower utilization and a continued weak freight market. In Q1, PTS operating revenue increased 3% to $2.7 billion. Full-service contract revenue increased 12%. Our logistics revenue increased 4%, but our rental revenue declined 13%. PTS generated net earnings of $112 million. Our share of the PTS earnings was $32.5 million, which declined by $48 million compared to Q1 last year. The decline in PTS earnings over the prior year was due to: a $49 million increase in interest expense from higher rates related to bond refinancing and higher outstanding debt; a $66 million decline in the gain on sales of used trucks. We sold 11,667 used trucks in Q1 of '24 compared to 36,000 for all of '23 to expedite the disposal of older units. Our rental revenue fell 13%, and utilization rate fell 310 basis points when compared to Q1 of 2023 as weak freight rates and lower one-way consumer rental demand affected performance. Higher maintenance costs of $12 million compared to Q1 last year, but importantly, the sequential increase was only $3 million as we continue to replace the older fleet and lease extensions. Our new units on order we have placed with various OEMs are down 50%. That's really from 60,000 to 30,000, with nearly 12,000 units currently for sale compared to 8,400 at the end of March last year. As we look at Q2, we expect a sequential increase in earnings from PTS from the reduction in the rental fleet to 4,800, which improves utilization, coupled with new replacement vehicles and reducing maintenance expense. Let me turn it over to Rich Shearing now. Thank you.

Thank you, Roger. Our Premier Truck Group dealership business represents 43 locations in North America and is an important part of our diversification. We are one of the largest commercial truck retailers for Diamond Trucks North America. During Q1, Class 8 net orders increased 18%, while retail sales declined 6% from the strong pace of 2023. At the end of March, the current backlog was 162,600 and represents approximately 5 to 6 months' worth of sales. Premier Truck Group sold 4,500 units in Q1, down 12% overall, driven by new retail sales down 23%, but used up 60% for the quarter. However, a strong mix of new units and our fixed operations business drove an increase in gross margin of 190 basis points. Same-store SG&A to gross profit remained well controlled at 59.2%, and fixed absorption was 130%. Premier Truck Group produced a solid Q1 EBT of $51 million and a return on sales of 6.4%. We believe commercial truck demand will continue to be driven primarily by replacement needs, and we also see strength across private fleets, vocational segments, and Class 6/7 medium-duty. As we look towards '25 and '26, anticipated emissions changes should drive a strong order book in retail sales. I would now like to turn the call over to Randall Seymore.

Thank you, Rich. I will now cover our business in Australia. Penske Australia offers products across the on- and off-highway markets, including in the trucking, mining, power generation, defense, marine, rail, and construction sectors and supports full parts and aftersales service across the region. Service & Parts represents approximately 75% of our gross profit, so our focus on increasing units in operation is a key driver of the business. In fact, in March, it was the single-best month in the history of our business in Australia with a return on sales of 7.6%. During the 3 months ended March 31, '24, the Australian and New Zealand heavy-truck market increased 4.8% and 2.7%, respectively, from the same period last year. In off-highway, our power system operations continue to grow with turnkey solutions for hyperscale data centers, battery storage, mining, and military applications. We continue to be a leader in critical standby power, especially for data centers, and continue to make significant deliveries of generators into prime power and hybrid applications. In addition, we have started to deliver large-scale battery energy storage solutions with recent government contracts, adding to more than $50 million to the existing pipeline. Our current order bank for hyperscale data centers and battery storage systems combined is over $550 million for 2024 and beyond. I would now like to turn the call over to Shelley Hulgrave.

Thank you, Randall. Good afternoon, everyone. I will review our cash flow and balance sheet and discuss our capital allocation strategy. I'm pleased to report that we generated $456 million in cash flow this quarter, and our trailing 12-month EBITDA was $1.55 billion. At the end of March, our long-term debt was $1.68 billion, up approximately $50 million from the end of December. $1.05 billion of the long-term debt represents our subordinated notes with $550 million maturing in September 2025 and the other $500 million maturing in 2029. The average interest rate on these notes is 3.6%. We have the intent and ability to refinance the 2025 notes. Under U.S. GAAP, we do not plan to present the 2025 notes in current liabilities through maturity. We also have $360 million in mortgages and $193 million in other borrowings at our international subsidiaries. Debt to total capitalization was 25.7%, and leverage sits at 1.1x. As you can see, our balance sheet remains strong, safe, and secure. Our approach to capital allocation balances investing for growth through capital expenditures, investing in diversified and opportunistic acquisitions, and returning capital to shareholders through dividends and securities repurchases. Since the end of 2022, we have raised the dividend 5 times from $0.57 to $0.87 per share, representing a 53% increase. During the first quarter, we paid $59 million in dividends, invested $103 million for growth through capital expenditures, and repurchased approximately 221,000 shares for $33 million. It's important to reiterate that we have the ability to flex our leverage up to 4x on a lease-adjusted basis. New vehicle inventory increased $50 million from the end of December. Total inventory was $4.4 billion, up $100 million from the end of December. Long-term debt was $3.9 billion. Importantly, we had a 40-day supply of new vehicles and a 36-day supply of used vehicles. The days supply of new vehicles for premium was 41, and volume foreign was 29. The days supply of new battery electric vehicles in the U.S. was 91 days. At this time, I will turn the call back to Roger for some final remarks.

Thank you, Shelley. With the acquisitions we completed during the first quarter, we continue to demonstrate the flexibility we have with our capital allocation. These acquisitions strengthen our premium brand footprint in our international markets and are expected to generate approximately $1 billion in estimated annual revenue. Most recently, our geographical diversification provided us with the opportunity to expand our partnership with Porsche. Today, we have 22 Porsche stores throughout the network. We recently entered into an agreement to acquire 2 Porsche centers: 1 in Brighton, and the other 1 Porsche center at Doncaster, along with the Ducati Melbourne in Australia. For over 10 years, we've strategically built a diverse commercial vehicle and power system business in Australia. And with this significant acquisition, we will leverage that existing infrastructure and our significant experience in the retail automotive industry to drive growth with the Porsche brand in Melbourne. Our results continue to demonstrate the benefit of our diversification across retail, automotive, commercial truck, cost control, and disciplined capital allocation strategies. I remain confident in our model and the performance of the business. Thanks for joining us today and your continued confidence in PAG.

And first, we go to John Murphy with Bank of America.

Roger, I wanted to start by discussing the new GPUs, which have been a significant topic of interest for some time now. They are performing better than many had anticipated. Can you elaborate on whether this is due to brand mix, luxury mix, or your management's efforts to maintain the current status of these GPUs? I'm interested in hearing your thoughts on this.

Why don't I have Rich Shearing talk about the U.S., and then Randall can talk about international. Rich?

Yes. Thank you, John. Look, yes, I think you touched on it. The first thing I would highlight is certainly our premium mix. We definitely think that plays a role in the grosses. And so then, if you look at the new side in the U.S., sequentially down $364 and used up $323 sequentially. So I think as Shelley touched on our days supply as well, so that's been a very key focus for us to make sure that we're turning the inventory that we are getting. And then frankly, I think our operating team has done a fantastic job too of balancing the volume, achieving the OEM scorecard compliance with the best deals that are out there that are available. And you see that obviously in the numbers.

I believe, John, that as we emerged from COVID, we've evaluated our sales team and significantly increased their utilization. The productivity has improved from 12 units per salesperson to 14. We now have our strongest individuals on the front lines, which is positively impacting our results. I also agree with Rich that the premium and luxury sectors have provided us with this opportunity. However, we faced challenges with the Porsche brand, which declined by 26% this quarter. Our performance was down by 26% as well, while Porsche saw a 23% drop. Consequently, we experienced some effects on higher gross units. Additionally, from a battery electric vehicle perspective, we are offering discounts of about $6,000 below the manufacturer's suggested retail price, further contributing to our challenges. Overall, these factors would have augmented our margins in the quarter. So, Randall, why don't you share your thoughts?

Yes. It's a similar story in the U.K. I mean new gross all-in was down $265 per unit, which isn't bad. And if you look at BEV in the U.K., which represents 19% of all of our new car sales, our BEV gross per unit was about 1,400 pounds less per unit than ICE. So a little bit of that headwind. But I think, look at the other point here, it's a common conversation with the team and the dealerships about gross profit. And keeping the inventory where it is at a 40-day supply certainly helps that. So it's a massive focus every day.

And also the mix. So John, when you pull it all together, if you take the U.S. and you take the U.K., we were down $302 on a company-wide basis on new but up $428 on used. So I'm really glad to report that for the quarter. But it was a byproduct, I think, of keeping our days supply down and our premium mix properly in line to be able to get the maximum growth.

We saw an increase of about $30 million to $35 million in SG&A costs sequentially. However, the 70.7% growth in SG&A is still 600 to 700 basis points lower than pre-COVID levels, indicating that we are keeping things under control. I'm interested in your thoughts on how you plan to manage this in the mid- to long-term. You've done a great job of compensating staff well and maintaining low turnover, which is one reason for slightly higher SG&A compared to others. I'd like to hear your current perspective on this, especially in light of the acquisitions of Rybrook and the other dealerships, and whether this might lead to an increase in SG&A that could eventually be reduced.

Well, I think one point you hit was the human capital side. Our turnover is only 18% through the end of the first quarter, which is world-class. Let me let Shelley give you some color on SG&A, okay?

Yes, as Randall mentioned, our teams are effectively managing expenses, and we are pleased to report a 30 basis point decrease on a sequential basis. While overall SG&A expenses increased, it's worth noting that on a same-store basis, we only saw an increase of $5 million year-over-year. This includes about $4 million related to our acquisition and a legal settlement this quarter. Therefore, SG&A was relatively flat, thanks to our team's continuous efforts. We are committed to keeping our headcount below pre-COVID levels, and our executives are carefully evaluating all new hires and managing pay plans. We aim to retain our employees while avoiding excess in our growth. Our executive leadership team is focused on improving efficiency across the board. Additionally, we experienced a $4 million rise in vehicle maintenance, primarily driven by our service loaner business, which we consider productive. We also saw an increase of $34 million in Service & Parts gross profit, attributed to various efforts, including those of our service loaners. One of our teams managed to reduce the waiting period for service loaner appointments from 14 days to 7 days, resulting in tangible benefits.

If I could ask one last question, Australia appears to be an increasing area of focus for you, and you have been operating there for some time. I wouldn't directly compare it to your position in the U.K., but do you see this, Roger, as a growth platform where we can expect to hear more about acquisitions in Australia? While you may not want to control the market, you could certainly become a significant player there in various aspects beyond just the power and dealership sectors.

Yes, John, it's Randall. I'll take that one. For the past 10 years, we've had other opportunities to enter the automotive retail sector but decided to focus on the core of the commercial vehicle and power system to drive growth. However, this opportunity with Porsche was significant and has been in the works for several months. We are excited to have finalized it and see it as a launchpad for more prospects. In fact, we have already received inquiries about further opportunities. With 1,300 people in that region, we can utilize our existing infrastructure in finance, legal, HR, and IT. It’s a strategic addition that we can continue to expand. The Australian market, along with Melbourne being one of the best places globally, makes it an excellent first step.

Next, we move on to Michael Ward with Freedom Capital.

Randall, there have been several notable transactions in the U.K. market over the past six months involving your company and Group 1. Is there something happening in the market that we might not be aware of, or is it a more general condition affecting the franchise? Are the instructions in the U.K. similar to those in the U.S.? Do you see more growth potential and opportunities there, or has your expansion nearly reached its limits?

I believe we will keep taking advantage of opportunities in that market. The franchise laws there are not as strict as they are here. However, considering our position with premium brands, being over 20% of Mercedes, 16% of Porsche, and over 20% of BMW, we have a strong core culture that we aim to expand upon. While recent acquisitions in the public sector show it's a good market, some of those brands haven't aligned with our vision. We remain focused on being predominantly in the premium segment, currently at 98%, and intend to maintain that as we move forward.

I think it's important to note that while we operated the Pendragon deal, it had pricing that we intended to achieve. Lithia clearly recognized the advantages of this, as did Group 1 with Inscape. They have strong premium brands. However, for us, reducing our premium mix from around 90 to 75 was a misstep. This gives us a competitive edge, as we hold significant market shares in each of the key premium brands, as Randall noted. Additionally, the multiples at the time of these transactions were lower compared to the current multiples in the U.S. We now have $9 billion in annualized revenue in the U.K., which is a robust car market. Our management team is exceptional, and we have nearly 10,000 people operating in the U.K. The presence of Lithia and Group 1 indicates the potential in this market, which reinforces our long-term commitment to being here.

And I think the upside might be near-term upside is probably better in the U.S. as far as industry sales. Shelley, there are two things just for clarification. The first one, you kind of mentioned that SG&A included a legal settlement. Can you quantify that? I'm coming up like $30 million or $40 million. Is that the right number that was a one-time fee? Is that right?

No, no. So the $30 million was total overall. We had our shareholder lawsuit that we disclosed publicly in the first quarter, and it was about $1.5 million.

Okay. It was $1.5 million. You did not mention it as a one-time item, but it's included in the SG&A?

Yes, that's correct.

Mike, we incurred some acquisition costs that we don't categorize as adjusted earnings. We simply absorb those. I believe Shelley wanted to mention this because when looking at a same-store basis, our performance is essentially flat.

Relatively flat.

Right. Okay. And then secondly, Shelley, you mentioned the '25 notes. Did you say you're going to allow them to come current, or are you in the middle of refinancing? I didn't quite catch that.

So we wanted to stress that even though we have the 2025 notes due September of 2025, under standard U.S. GAAP rules, come September, we'd be required to classify those as current liabilities. But when you have the intent and ability to refinance them as we do with the 1.7 of availability that we have currently in dry powder, you don't have to classify them as current. So we'll continue to keep them in long-term debt. And with the rate being where it is versus the rates right now, that really is more of a true story.

Next, we go to Rajat Gupta with JPMorgan.

Just had a question on PTL first. You mentioned you expect earnings there to be up sequentially quarter-over-quarter. Would it be possible to give us a little more granularity on a range around the dollars or a year-over-year number and how we should think about that? And then just the cadence beyond that into the second half? Any kind of full-year guidance related to that would be helpful just with our models. And I have a follow-up.

I think I understood the question asking is as we look into Q2 and beyond, what are the generators that are going to give us a sequential increase in profitability. Is that correct?

Yes. In the trucking lease business, the PTL business.

Yes. Well, look, number one, we'll have a reduced rental fleet. At this point, we had 4,800 come out during Q1. We'll continue to defleet as we can as the market will allow us to sell used trucks into the market with profit, and that will help our utilization. ACT put out a statement last week that said that they expect the freight rates or freight to pick up. Am I correct, Rich?

Correct.

In the second quarter, we will benefit from our progress. To recall, we had 60,000 units on back order in March 2023, and now that number is down to 30,000. We have successfully processed many of those units. The new units are set to replace around 25,000 older extensions, which means we will not face increased maintenance costs on the older models. In fact, only 2,500 units were extended in the first quarter of this year, which is crucial. Furthermore, as we analyze the one-way business and if we experience favorable interest rates, that will positively impact us. We have 12,000 units available for sale compared to about 8,000 last year, and we will continue to manage our inventory effectively. I anticipate ongoing growth in market share within full-service leasing. We are adjusting our rental fleet for future needs, which is a positive move since 50% of our rental revenue comes from lease customers. The overall reduction in revenue across some of these businesses means they are utilizing fewer additional trucks, which has affected our revenue. However, we believe this will improve in the second and third quarters. We are also examining our travel and expense, as well as capital expenditures related to facilities, all of which will provide advantages. Importantly, we are focused on reducing our balance sheet, which increased by $350 million in the first quarter but is expected to remain significantly lower than last year, despite the anticipated new truck purchases. We do not plan to acquire any more rental trucks for the rest of the year beyond what we procured in the first quarter. In summary, based on discussions with the team, we foresee a sequential improvement in PTS's bottom line for the second quarter.

Got it. Can you clarify the extent? Is it in double digits or single digits? There's a significant seasonality factor at play. Is there a way for us to establish a baseline for that assumption?

I don't want to give you a number here on the phone, but I can assure you I'm pushing for as much as we can. And we would hope to continue that momentum as we look at our comps in 3 and 4 for the rest of the year.

Got it. That's helpful. And then just a follow-up on the used car GPUs. Very nice improvement here from the fourth quarter both in the U.S. and U.K. How should we think about the sustainability of those levels here into the second and third quarters? Obviously, the fourth quarter has like a seasonal headwind, but just curious how should we think about the progression here and also on the units for the used car business.

Rich, what the feeling is here as we go forward, Rich, on the used GPUs.

Sure, Rajat, there are a couple of things to consider. We're seeing some improvement in affordability. Our average sales transaction price peaked in 2022 at over $30,000 and has now decreased to under $27,000. We expect this trend to continue as the market normalizes. On the sourcing side, we are noticing that channels which were previously challenging, particularly regarding trade-ins with negative equity and closed auctions, are beginning to reopen. Historically, these channels have generated some of our highest profitability, and we anticipate this will persist. The team needs to remain disciplined in our purchasing strategy, and we are leveraging technology and vendors to ensure we are accurately valuing cars that will become profitable units. We've observed good stabilization in this area, and we expect price corrections to continue as we move into the third and fourth quarters.

Yes, I would say that regarding the U.S. inventory, we have a supply of 37 days for new cars and 29 days for used cars, which helps us keep our inventory current. As used cars begin to age, I believe we are in a strong position. Additionally, CarShop has achieved significant improvements in margins in the U.S. due to our increased access to cars, resulting in several hundred million dollars in benefit.

Yes, it's a similar situation. In Q1, we increased our gross profit on used units by $725 compared to Q4, even though we were facing challenges in Q4. The market pricing had decreased by 10% over that period, but it has now stabilized. We're focused on managing our supply and minimizing aged inventory. Our goal is to have no units older than 90 days and very few between 60 to 90 days. The team is dedicated to this effort, ensuring we keep the inventory fresh, price it appropriately, and expedite reconditioning. This will help us achieve higher gross profit in a stable market, which is precisely our strategy.

Sorry, Rajat, one other thing to add that I failed to mention is the changes in the loaner fleet. So if you look at our loaners going back 12-plus months ago, used vehicles were the predominant makeup of the fleet. As we've been able to take those out, we put new cars into that fleet now. We're able to turn those much faster. They turn into great used cars, and we're able to put new car programs, depending on the OEM, on a lot of those that will help us from a gross profit per year perspective.

Yes. I think just, Rich, in BMW alone, we have 2,000 loaners. If we can turn those 2 or 3 times, it's 46,000 more used cars that we can put into the market 0 to 4 years old, which, as Rich said, yet that all the new car program. That will be a huge benefit for us now that we're starting to get some supply of ICE vehicles. Leasing is also up from the standpoint; Shelley, what is it, we're up from what year-on-year?

We're up 8% year-over-year, up to 32% of our new sales. So it's...

And we're getting some lease returns now, which are also good opportunities for us. And I think we're starting to see that the fab units are able to buy in the market. We're making more money on those than we are on the ones that we sell new. So interesting, our guys are being very selective as we trade those or we buy them on the open market.

Next, we go to David Whiston with Morningstar.

Just two questions. First, on capital allocation for the rest of the year. You do seem pretty interested in doing acquisitions so far. So just curious about how to balance thinking about spending between buybacks and more M&A for the rest of the year.

We have seen significant shareholder returns over the past couple of years from our cash generated through operations. Typically, we aim to maintain a balance of 50-50 between growth and returning value to shareholders. Recently, this balance has leaned more towards returns, with last year's figure being around 65-35. Our goal is to achieve a 10% revenue growth, with at least 5% coming from acquisitions and pushing our teams to achieve another 5% through organic growth. This will depend on the opportunities that present themselves to us, and we will be selective in our choices. We are actively exploring various markets, including international expansion, with particular interest in Australia for both retail and business opportunities as mentioned by Randall. Our focus on truck acquisitions also presents many opportunities, allowing us to be discerning in our approach. Ultimately, the direction we take will depend on the opportunities available to us.

I think we need to recognize that purchase prices and multiples reached their highest levels in the past 24 months. We're now seeing those decline, which makes certain opportunities more appealing to us, and we intend to explore them. We have a pipeline of deals in progress, primarily for acquisitions. Our goal is to achieve at least 5% growth through acquisitions and hopefully another 5% through organic growth as part of our mission. There are promising opportunities on the acquisition front as we move forward. Additionally, we have increased our dividend significantly since 2022.

Right.

We are pleased to announce an increase in our dividend, which is now around $60 million for 2024. Our capital expenditure exceeds $100 million, with approximately $25 million allocated for land. Additionally, we've executed share repurchases totaling about $250 million. Our leverage remains stable at 1.1:1, indicating the company's financial security. We aim to balance share buybacks with acquisition opportunities, as we seek to grow through both acquisitions and organic growth by at least 5%.

And we have a follow-up from Michael Ward with Freedom Capital.

Just we're about one year into the agency model in the U.K. And I'm just wondering what your thoughts are on. And how is it working out?

Mike, it's Randall. I'll take that. If we look back at the beginning of 2023, the first quarter posed significant challenges regarding our systems and available inventory. However, Mercedes-Benz U.K. has effectively collaborated with us and the entire dealer network. The systems and the overall ease of doing business for both dealers and customers are now largely established. This has allowed us to significantly boost our volume in Q1, with fixed gross contributing positively and an additional percentage point from EV sales. Over the past year, as we have developed our agency model internally, we have also managed to lower our cost base. We closely track the retained profit per unit on new vehicles, which is now the highest since we acquired Sytner, except for 2022, which was an outlier for the car market. Representing over 20% of all Mercedes sales in the U.K., our acquisition of the London stores in late 2022 has proven advantageous, as over 90% of all cars are sold within each dealer's primary market. Customers are not shopping around to neighboring dealers due to fixed pricing, which has decreased competition. As a result, our conversion rate has improved by 6 percentage points over the past year. Our team in the U.K. has done a commendable job alongside Mercedes-Benz U.K., and we are poised to become more efficient. Overall, it seems like a successful year for us.

And for closing remarks, I'll now turn the conference back to Mr. Penske.

Thank you, everyone, for joining us. Good quarter. We're looking forward to Q2 and your support. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.