Good morning, and welcome to the Sonic Automotive Third Quarter 2024 Earnings Conference Call. This conference call is being recorded today, Thursday, October 24, 2024. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or the market or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you very much, and good morning, everyone, and as you said, welcome to Sonic Automotive's third quarter 2024 earnings call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on the call today is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; our Vice President of Investor Relations, Danny Wieland. We would like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. Our EchoPark Automotive teammates have once again earned the top spot as the number 1 pre-owned automotive dealer and guest satisfaction ranked by reputation.com. And our Sonic Automotive franchise teammates continue to achieve among the highest customer satisfaction scores in our company's history. Our teammates are truly living our Sonic purpose to deliver an experience for our guests and our teammates that fulfills dreams, enriches lives and delivers happiness. We believe our strong relationships with our teammates, our manufacturer and lending partners, and guests are key to our future success. And as always, I would like to thank them all for their support and loyalty to the Sonic Automotive team. Our company remains focused on our ability to adapt to changing market dynamics in the near term while positioning Sonic to achieve our long-term strategic goals. I'm pleased to report that we continued to make great progress in our EchoPark segment performance in the third quarter, reporting all-time record quarterly gross profit, segment income, and adjusted EBITDA. Overall, the Sonic Automotive team continued to execute at a high level despite operational disruptions related to the functionality of certain CDK customer lead and inventory management applications, as well as manufacturer stop-sale orders in certain key brands amid the continuing normalization of new vehicle margins and increased vehicle production. Third quarter GAAP EPS was $2.13 per share. And excluding the effect of certain items as detailed in our press release this morning, our adjusted EPS was $1.26 per share, a 38% decrease year-over-year due primarily to the continued normalization of new vehicle GPU and the carryover effects of the CDK outage in July. Our reported results for the quarter included a $31 million tax benefit associated with an out-of-period adjustment, correcting an error recorded in connection with the impairment of franchise assets in a prior period. In addition, as a result of the business disruption caused by the CDK outage, we estimate that our third quarter GAAP income before taxes was negatively impacted by approximately $17.2 million or $0.36 in diluted earnings per share, which includes approximately $1.8 million or $0.04 in EPS related to excess compensation paid to our teammates who have reduced income potential due to the CDK outage. Turning now to third quarter franchise dealership trends. We saw stability in average new vehicle inventory levels, ending the third quarter with a 57-day supply of inventory, in line with the day’s supply at the end of the second quarter after accounting for the CDK related sales disruption at the end of Q2. Third quarter same-store new vehicle GPU was $3,049 per unit, down $540 per unit from the second quarter. The rate of new vehicle GPU decline accelerated somewhat in the third quarter due primarily to larger GPU headwinds from electric vehicle sales compared to the second quarter and the effects of stop sale orders on certain high-margin models. However, we are affirming our guidance to exit the fourth quarter in the low $3,000 range due to the seasonal benefits of our luxury weighted portfolio in the fourth quarter. Looking beyond 2024, we continue to believe that the new normal level of new vehicle GPU will remain structurally higher than it was pre-pandemic, normalizing in the $2,500 to $3,000 per unit range in 2025. Additionally, our teams continue to work closely with our manufacturer partners to manage new vehicle inventory levels and better align powertrain options with evolving consumer demand, which should benefit inventory day’s supply, floor plan interest costs, and new vehicle GPU. In the used vehicle market, wholesale auction prices for three-year-old vehicles increased nearly 1% during the third quarter, while our franchise dealerships average retail used pricing decreased 1% compared to the second quarter, driving a sequential decrease in used GPU to 13.86 per unit on a same-store basis. Elevated used retail prices remain a challenge for consumers contributing to affordability concerns amid the current interest rate environment. However, the return to normal seasonal trends in used vehicle wholesale pricing is positive for our business outlook. And when combined with potential further interest rate cuts, should begin to benefit affordability and used vehicle sales volume in 2025. In the meantime, our team remains focused on driving incremental used inventory acquisition and retail sales opportunities, driving upside in this line of business alongside the expected normalization of used car pricing and volume over time. Our F&I performance continues to be a strength despite elevated consumer interest rates with same-store franchise F&I GPU of $2,339 in the third quarter, down 3% year-over-year but well above historical levels. The continued stability of F&I in these levels supports our view that F&I per unit will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment. Our Parts and Service or Fixed Operations business remains very strong with an 8% increase in same-store fixed ops gross profit in the third quarter, we are very proud of the success our team has had in this area, and we believe there are remaining opportunities to grow our fixed ops business as we finish 2024 and look ahead to 2025. As we have previously discussed, in March, we launched an initiative to increase our technician headcount by a net 300 techs in 2024, which we expect would contribute an additional $100 million in annualized fixed ops gross profit. To date, we have increased our technician headcount by a net 216 techs and paced adding 15 net techs per week in the last few weeks, positioning us to achieve this goal as we approach the end of 2024. Turning now to the EchoPark segment. We are very excited to report all-time record quarterly EchoPark segment adjusted EBITDA of $8.9 million, consistent with our previous guidance for a seasonally strong third quarter. For the third quarter, we reported EchoPark revenues of $545 million, down 13% from the prior year and all-time record quarterly EchoPark gross profit of $55 million, up 5% from the prior year. EchoPark segment retail unit sales volume for the quarter was approximately 17,800 units, down 7% year-over-year but up 7% sequentially from the second quarter, outpacing the industry growth rate of 2% sequentially from the second quarter. On a same market basis, which excludes closed stores, EchoPark retail unit sales volume was up 2% year-over-year. Revenue was down 3% and gross profit was up 21%. EchoPark segment total gross profit per unit was $3,111 per unit, up $344 per unit year-over-year and up $33 per unit from the second quarter despite marginal increases in used wholesale market pricing as a result of improving inventory sales velocity and higher F&I gross profit per unit. EchoPark's used vehicle day supply ended the third quarter at 33 days, down from 38 days at the close of the second quarter, benefiting from quicker inventory turns that enhanced gross profit per unit. As we mentioned in earlier earnings calls, the reduction in our store footprint since the first quarter of 2023 has enabled us to better distribute inventory across the platform, leading to increased unit sales volume per location, improved overall gross profit per unit, and enhanced profitability. Our strong belief in EchoPark's long-term potential has helped us navigate the challenges in the used vehicle market over recent years. We believe that our performance in the third quarter highlights significant opportunities for the brand. Achieving a third consecutive quarter of positive segment adjusted EBITDA for EchoPark confirms the strategic changes we've implemented recently. We are eager to continue pursuing disciplined long-term growth for EchoPark as used vehicle market conditions are expected to improve over the next several quarters. Turning now to our Powersports segment. For the third quarter, we generated revenues of $59.4 million, gross profit of $17.7 million, and segment adjusted EBITDA of $5.8 million. As expected, the Powersports selling season accelerated in the third quarter, and this year's Sturgis rally was an overwhelming success, benefiting from the new processes and technology we recently began to integrate into this segment. We continue to focus on identifying operational synergies within our current Powersports network while fine-tuning our operating playbooks. In the near term, we look forward to finalizing the implementation of our refined F&I sales strategy, centralized marketing, and inventory management, and the recent rollout of sonicpowersports.com. While we are taking a disciplined approach to expansion in this segment, we remain optimistic about the future growth opportunities in this adjacent retail sector when the time is right. Finally, turning to our balance sheet. We ended the third quarter with $834 million in available liquidity, excluding unencumbered real estate, and $418 million in combined cash and floor plan deposits on hand. We continue to maintain a conservative balance sheet approach with the ability to deploy capital strategically as the market evolves. Additionally, I'm pleased to report today that our Board of Directors approved a 17% increase to the quarterly cash dividend to $0.35 per share payable on January 15, 2025, to all stockholders of record on December 13, 2024. As you can see in the investor presentation we released this morning, we have updated certain limited financial guidance for 2024 following our third quarter results. We continue to believe that our lower franchise dealership segment earnings can be at least partially offset by significant improvements in EchoPark segment results, returning to positive EchoPark segment adjusted EBITDA for the year and setting the stage for continued growth in 2025 and beyond. In closing, our team remains focused on near-term execution and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long-term returns. Furthermore, we continue to believe our diversified business model provides significant earnings growth opportunities in our EchoPark and Powersports segments that may help to offset any industry-driven margin headwinds we may face in the franchised business, minimizing the earnings downside to our consolidated Sonic results over time. We remain confident that we have the right strategy, the right people, and the right culture to continue to grow our business and create long-term value for our stakeholders. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you.

Thank you. We will now begin our question-and-answer session. Our first question comes from John Murphy with Bank of America. Please go ahead with your question.

Good morning, guys. I just have a couple, but just a very simple one, and I apologize, there's a lot of earnings and noise today. So just trying to understand, when you think about the adjusted EPS on an operating basis, that you want folks to focus on, ex-CDK, storms and stop sale, what do you think is the correct number? Because I think there's some questions about comparability to what the consensus number was, and we may have had this off. So I just want to get clear on this.

Yes. This is Heath. Real quickly on the CDK impact, we are estimating this around $17 million. It's a $0.33 impact by the CDK and BMW is $2.6 million impact for this quarter, and that's $0.05 of EPS. So a total between the two is around $38 million.

Okay. That's incredibly helpful. Was there any impact from the storms? What was the overall effect of the storms? I know it's always difficult to determine. Is there anything you could share with us about the storms, Heath, or do you think it was significant enough?

First, I'd like to say we were very, very fortunate. None of our teammates were hurt, and we did have some damage. But I think Jeff Dyke has some color on that for you.

Yes, John, we were prepared. Unfortunately, David mentioned that we are getting really good at this. We were well prepared and did not lose any inventory. We only had one air conditioning unit on top of a store that had an issue. Overall, neither of the storms really slowed us down.

That's good to hear from a people and property perspective. Just quickly on the GPUs. I mean you highlighted that EVs, stop sales is a wait but EVs are certainly a wait. Can you give us a breakdown of EV versus ICE new GPU, if you can? I'm sure you don't want to disclose quite that level of detail, but we'd love to hear it.

Yes, I've got a couple of numbers of the headwinds related to EVs. In Q1, it's $400 headwind to the funding GPU. Q2 is $170 headwind to new GPU, and Q3 was $440.

And that difference in the second quarter, the incentives were much higher, in particular, on the West Coast with certain luxury brands that helped the GPU and the headwinds there. Those incentives lessened in the third quarter, and therefore, you saw kind of a return to normal that we saw in the first quarter.

If you look at the difference sequentially, I think it's $530, $540. About half of that is related to the EV, the incremental. So 270 was EV, the other 270 was from normal prices.

And John, this is Danny. If you look at Slide 8 in our deck, we've got the relative GPU broken out between EV hybrid and ICE by our luxury import and domestic. And you can see that hybrid is equal to or better than ICE across that platform. And EV is still significantly underperforming. And there's no structural reason why in the same price point in EV, a hybrid or an ICE vehicle should make a different GPU. It's all about the imbalance of supply and demand. And so while we've seen some improvement in days supply of EV relative to demand, we still had a 15% of our inventory with EV while only 10% of our sales. So we're still relatively oversupplied. And I think the OEMs are moving in the right direction. We've just got some work to do.

And do you think they're going to step back in with those kinds of stuff they had in the second quarter? Or is it still head in the same kind of stuff?

There are some aggressive incentives out there. BMW is really aggressive right now. That's a lot just to do with the inventory build-up because the stop sale in the third quarter. Mercedes continues to be decently aggressive on EVs. So, I expect the fourth quarter, in particular, with the stock sale of BMW, I mean you look at October for us, our BMW business is on fire, we're up plus 20%. And I expect that to continue on into the November and December time frame as well. So it should be a great fourth quarter.

Great. And then just one last one on 300 techs, I mean the run rate sounds like it's pretty awesome and 15 a week, and that's pure gravy. I mean it's not pure gravy, but it's a lot of gravy there. As you think about the potential beyond those 300 techs, could you keep going? Do you think there's any reason that you couldn't keep going in that 15 per week or some pretty hot pace? And is there any issue with actual stall capacity and adding folks at this point?

Yes, it does become an issue over time, but we'll add more stall capacity. It's the best thing we can do at a dealership to add stall capacity, right? Once we change the culture in the stores and got everybody to believing that we needed more techs, that's one of the big things, not so much you can't go out and get a technician. You got to get the culture in the store to want more technicians because technicians are working in the stores, they'll want you to hire more technicians, right? Once we got that changed in the stores, that's made a big difference for us. And now we're beginning to see the doors open and things unlock for us. So, sure, that could continue on in the first quarter. We'll probably get the 300 techs hired in this calendar year, take a little breather, do a much better job of retaining our technicians than we've done in the past and really kind of shift our focus there. And then we can grow from there. But the fixed operations business is just fantastic. And of course, warranty played a big role in all that with BMW. But customer pays there, too. And so '25 should be fantastic. The fourth quarter is going to be great from a fixed ops perspective, and we'll see how things go from there.

Very helpful. Thank you, guys.

You bet.

Our next question comes from Rajat Gupta with JPMorgan. Please go ahead.

I just wanted to follow up on John's question there. BMW, I think you mentioned just a $2.5 million impact? I mean that seems much lower than what we would have thought given the stop sales. Is that net of like any recovery you might have seen on the recall side? Or were you just able to get more out the door? And just curious like what happened if you could dissect that a little more? And then just on CDK, are you able to give us what kind of unit impact it had on both new and used for the quarter or maybe just in July? And I have one or two quick follow-ups.

Yes. The BMW impact, it's 500 to 550 cars somewhere near during the quarter, from a new car perspective, and obviously, pre-owned business as well. Our team did an outstanding job selling what we could sell, getting the vehicles that were on stop sales sold, but waiting for the part to come in. And that's why we're seeing the huge increases that we're seeing, and we will see for October and November. I also tip my hat to BMW. I mean they were faced with a very difficult situation. They did an amazing job communicating with us. And really, we're on top of this. So all the way around, we just executed at a really high level. We're getting good at this kind of stuff. And we've got a great tenured BMW team, and those 15 stores really did just an amazing job getting us through that time. So we expect it to be a little bit tougher, too, to be honest with you, but our team raised up and did their job, and we got a lot of cars sold during the period. Again, it really cost us about 500, 550 units. That's not the end of the world, and we're certainly going to make all that up in the month of October.

This is Heath. On new units, we calculated that the impact was $482 million, GPU was down about $370 on new and used units was $920 with it impacting our front-end GPU at $153. We also got addicted, obviously to our F&I as well trying to do deals very quickly. And that was around $124 on the front end of our F&I for GPU.

Understood. And then just on BMW, for the fourth quarter, you talked about the October sales. Is there going to be like a big pickup on the service side as well, moving forward?

Yes. We still have about 25% or so of the inventory that needs to be corrected. The warranty business will continue to grow, and then we'll make up what we couldn't get done from a CP perspective. So, it's going to be a really good BMW quarter, and it should be a great quarter overall. The business is there. And now with no recalls really going on in CDK and whatever else was thrown at us during the last couple of quarters, we're able to operate without any of those distractions. And so we'll see what we can do in the fourth quarter.

Understood. And just like on SG&A to gross for the fourth quarter, you obviously have a full year guidance that's been pretty consistent through the course of the year. The year-to-date numbers look better than expected, you typically see a seasonal drop in the fourth quarter always just given how the comp structure works. Curious anything to keep in mind here, specifically given like all the changes around BMW that are happening? How should we think about changing to growth in the fourth quarter specifically?

I believe we generally experience a better SG&A to gross ratio in the fourth quarter due to our significant presence in the luxury segment, which accounts for over 50% of our sales, and the fourth quarter is always a strong period for us. You should expect to see that decline continue, but our guidance remains consistent, with franchise figures in the low 70s. For EchoPark, we have adjusted our guidance from the 80s to the high 70s based on recent performance. However, you can still expect typical seasonal patterns, as we usually observe in the fourth quarter.

Understood. Great and thanks for all the color. We will get back in queue.

Our next question comes from Jeff Lick with Stephens. Please state your question.

Good afternoon, guys. Thanks for taking my question. With respect to the new units in Q3, given your brand mix and the fact that you're operating pretty dark in your CRM because of CDK. I was a bit surprised plus 2 same-store units, can you talk about why it was as good as it was, because it's quite an outlier based on what your brand mix said it should have been.

This is David. I want to take this opportunity to highlight our team. The way our organization is structured, our teammates did a fantastic job. We've emphasized our guest experience, and having many experienced leaders has greatly contributed to this. When the CDK issue arose, we knew and discussed during our operations calls that our teammates would rise to the occasion, and they certainly did.

Yes, and I would add that we did a great job with Honda. The import brands performed very well, although we faced some inventory challenges with Toyota. The luxury brands remained strong, including BMW, where we experienced a slight year-over-year decline of about 3%. Overall, we executed well. In the domestic market, Ford and GM remained flat, while Stellantis continues to serve as a case study in how to mismanage a large number of brands. We're successfully selling a lot of cars, and while we're starting to sell more vehicles for Stellantis, the profit margins are quite poor due to oversupply. By July and August, we had 1,000 more cars than the previous year. They are incentivizing purchases through coupons rather than offering consumer incentives, which is not how we believe sales should be managed. Ultimately, we are seeing good volume across the board in luxury, imports, and domestics, and we anticipate this trend will continue, particularly with our luxury offerings as we approach the fourth quarter.

And this is Heath. I don't think you mentioned it, but we had a lot of good volume with Mercedes. I think Mercedes took that opportunity to gain some market share from BMW, and we had a really good quarter with Mercedes.

Yes, up 700-plus units for the quarter.

And then just a follow-up on the servicing parts and the technicians. Given your service and parts same-store sales up 7%, it implies you're getting good growth. How much incremental business do you think you're losing because of the technician shortage? How much business do you think you're leaving on the table?

It averages between $20,000 and $23,000 in gross revenue per technician each month, and for 300 technicians, that gives us an idea of our potential. This translates to a $100 million figure we've previously discussed. If you annualize that for next year, it should be a remarkable year for fixed operations, especially as we focus on increasing market share per job code, which we have been dedicated to for over a year and a half. These initiatives are truly driving our business, and our customer satisfaction scores reflect that. We are achieving excellent key performance indicators with all our manufacturer partners, which has been a significant priority for us. I anticipate this positive trend will carry into 2025, presenting substantial opportunities for us.

Well, great. Congrats on the quarter and I'll get back into the queue.

Thank you very much, Jeff.

Our next question comes from Chris Pierce with Needham & Company. Please state your question.

Hi, good morning everyone. I just had two quick ones on EchoPark. What's the right way to think about retail gross profit per unit at EchoPark? I think you did around $300 per quarter in the first two quarters, $250 this quarter. Is that just because of better days to sale because of better demand and inventory was tight and that will kind of normalize to closer to zero based on the model or should we model in modest retail gross profit per unit?

Are you talking about front end gross?

Yes, that's right.

In the third quarter, particularly due to the storms, the focus was on valuations. We are purchasing vehicles at auctions for around $23,000, but valuations have risen in the last month to the upper $23,000 range. This increase is likely to lead to some gross compression as we enter the fourth quarter. However, as we approach the first quarter and the usual seasonal slowdown for pre-owned cars occurs, we expect to see an increase in our profit per unit that will closely resemble the trends observed in 2024 and 2025.

I think it's important to note that if we look at the Denver market, we see the value of brand equity. In that market, they average over $200 higher than our other GPU locations, and they're actually performing higher than their pre-COVID numbers as well. We definitely believe that with the trough hitting in 2025 regarding inventory use, once that starts heading back up, it will be a perfect opportunity for EchoPark.

And this is David. And simply to keep in mind in the third quarter, we did in around about 325 to 330 cars per store with our existing EchoPark stores. And if you look at what we were doing and the potential for additional capacity to do around 550 cars per store with the existing stores. So you talked about technician capacity. We'll look at where we could go and where we expect to go with our EchoPark volume in addition to the GPU, as you were talking about.

Yes, it's Jeff. One of the great things to look at is the average selling price. We really want to reduce it to the $20,000 to $21,000 range for sales. Currently, we are in the $23,000 to $24,000 range. When we reach that lower price point and get the average payment below $400 while interest rates continue to decline, we expect the numbers David mentioned, with over 500 units on average per store each month. Our larger stores in Denver are currently achieving between 800 and 1,000 units per month. Much of this success is due to the brand equity we've built in the market over the years. There is nothing but potential for growth ahead. It should be an excellent year in 2025. As the lease returns come back and prices continue to decrease in the latter half of 2025, we anticipate improvements in margins on the front end and a significant increase in volume, which will allow us to start discussing growth opportunities.

And this is Danny. One more point on that. From a margin perspective on the vehicles, we're tracking $350, $375 better year-over-year on a full year basis, despite the fact that used car pricing is coming down, obviously, wholesale retail spreads have widened and that's good for the business. But we see it reported where used car price declines expected through the remainder of this year into '25 could be a headwind for the used vehicle business. And to Jeff's point, it improves affordability. We've improved margin in the face of that decline in used retail price environment. So it's positive for us on both fronts.

Yes. In auto retail, you can't get fooled by revenue because average retail selling price is dropping, but margins stay the same or as being said, improve, we sell more cars, we grow overall growth. So sometimes when people look at revenue, revenue can move around a lot. You're selling a $30,000 versus a $20,000 car. But if you make more money in the $20,000 car, you'd rather sell the $20,000 car. That's something that we focused on very hard that we do very well, and we've obviously done great with EchoPark in this calendar year.

All right. That was a lot of detail, but could you actually go a little bit deeper just on Denver? I guess I want to make sure I understand. When I think about the model, I think about buying a car at auction and selling it for minimal gross profit and you make the gross profit on the financing F&I side of the world. But I think maybe I've been underestimating how much you actually can do on front-end growth? And why is Denver better from a front-end gross perspective? And will other stores look like that? It's just because cars stay on a lot less there because you've been there longer or you can still price below your competitors but make $200 front-end gross and still be well below competitors? I just kind of want to make sure I think about the model correctly.

Yes. We have developed a strong presence in Denver with high brand awareness and many repeat customers since we opened in November 2014. Our goal is to replicate this success in other markets. We have not invested in brand marketing elsewhere in the past few years due to financial constraints brought on by COVID. However, this will change as we move into 2026. This transition will enable us to sell vehicles at prices that still remain significantly below market rates, while generating frontend earnings of $200 to $400. Coupled with backend margins of nearly $3,000 per vehicle, this combination allows for an average volume of 500 units at smaller locations and 1,000 at larger stores, which is highly profitable. The past few years have been challenging due to substantial losses, but we persevered while many others exited the market. We are confident in our model and its effectiveness in the upcoming market environment that EchoPark is designed for, and we're enthusiastic about the impending drop in prices.

Okay. And then perfect. And just lastly, on EchoPark, where are you as far as inventory where you are now and kind of where you want to be into tax refund season and just kind of broadly on a normalized basis?

In terms of day supply?

Yes.

Yes, we're right where we want to be. We're 20 days on the lot, 10 to 12 days in the pipeline and will increase as volume increases, that 20 days obviously generates more units on lot, as volume decreases, we bring our inventory level down. But we say 20 days on lot 10 to 12 in the pipeline. And that's where you'll see us stay.

Is there any metrics that you have that you could share that show that 20 days is actually x number of units? I imagine as you take share in the market, that 20 days is more units, but you're turning them over faster. Is that...

Yes, that's correct. I mean the more cars we're selling, the more units are on the lot. So if you just take a store to sell in 1,000, you can do the math pretty easily. You're going to have that 20-day supply on the lot to turn for that 30-day period.

Okay, thanks for all the details.

Thank you. You bet.

Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Hi. Good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking my question. And you just touched on this a bit. But looking ahead for the EchoPark eventual expansion and ramping up the footprint again, it sounds like that's an early 2026, and 2025 event, I guess, what sort of market conditions are you looking for? And how quickly can that ramp back up?

Yes. This is Tim Keen. We believe over the next 12 to 18 months, it will get what we would call normalized pre-COVID conditions, supply will be where we want it, and we'll be able to supply additional growth with the levels of inventory that we're experiencing now. So sometime in early '26, we believe the conditions will be perfect for growth.

Yes. And I'll add to that. Then very disciplined growth from our perspective. So our goal is still to have 90% coverage of the country, but we'll do that in a very disciplined way. And really, it's just a matter of getting an average payment down to $400 and below. That's where we really see the volume start to fly off the shelf. So we're thinking the back half of '25 is when we'll start seeing the prices get down into that range. We'll put plans together. We have plans. We've got properties that we own already that we've sort of hibernated, if you will, and we're just waiting for the right time to pull the trigger.

Great, that's helpful. Could you elaborate on where you expect F&I to trend in '25? I noticed you mentioned a $2,400 GPU in your slides and discussed stability in that area. Are there any signs of challenges from increased leasing or pushback on add-ons? Conversely, as the economy improves and rates decrease, do you see any potential for upside?

I would suggest projecting our performance within the current range. Yes, there is potential for rate cuts, and while we are performing well, there are larger consolidators achieving higher performance metrics. We believe we can reach those levels too. Additionally, we see opportunities in warranty and product sales. As margins and rates decrease, we have the potential for growth in those areas. If average retail selling prices decline, we can accommodate more costs from a lending perspective. So, we do see potential for improvement. However, if I'm setting projections, I would base them around our current situation.

Great. That’s all for us. Thanks, guys.

Thank you.

Thank you. And there are no further questions at this time. So I'll hand the floor back over to David Smith for closing remarks.

Great. Thank you very much. Thank you, everyone, for logging in and joining us, and we look forward to speaking with you next quarter.

Thank you. And that concludes today's call. All parties may disconnect. Have a good day.