Good morning. My name is Chantal, and I will be your conference operator today. At this time, I would like to welcome everyone to the AutoNation Fourth Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Rob Quartaro, Vice President of Investor Relations. You may begin your conference.

Thank you. Good morning. And welcome to AutoNation’s fourth quarter and full year 2020 conference call and webcast. Leading our call today will be Mike Jackson, our Chief Executive Officer; and Joe Lower, our Chief Financial Officer. Following their remarks, we will open up the call for questions. I will be available by phone following the call to address any additional questions that you may have. Before we begin, let me read our brief statement regarding forward-looking comments. 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 earlier today and our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. Now, I will turn the call over to AutoNation’s Chief Executive Officer, Mike Jackson.

Good morning and thank you for joining us. Today we reported all time record quarterly results with adjusted EPS from continuing operations of $2.43, an increase of 94% compared to last year. During the fourth quarter, same-store revenue increased $265 million or 5%, compared to the prior year, a solid growth in new, used and customer financial services revenue was partially offset by declining Customer Care, which has experienced a slower recovery correlated with lower miles driven. New vehicle inventory levels remain constrained and we expect demand to exceed supply for an extended period. Given these dynamics, we remain focused on optimizing our business in the current operating environment. We expect industry sales to approach $16 million in 2021 with strong retail sales growth compared to last year. We have seen a solid growth in ‘21, with January trends in line with our annual forecast. For the quarter, change to our total variable gross profit for retail increased $765 or 21%, compared to the prior year. Thanks to our new vehicle gross profit per vehicle retail increased $919 or 50% and same-store used vehicle gross profit per vehicle retail increased $127 or 9%, compared to the prior year. We drove significant SG&A leverage in the quarter, adjusted SG&A as a percentage of gross profit was 63.8% for the quarter, representing an 820-basis-point improvement compared to the fourth quarter of 2020. We mean committed to operating below 68% SG&A as a percentage of gross profit on a long-term basis. We continue -- are continuing our opportunistic capital allocation strategy that balances investing in our business and returning capital to shareholders. We expect to allocate capital towards the AutoNation USA expansion, share repurchase and franchise acquisition. Today, we announced our Board authorized an additional $1 billion of share repurchase from October 22nd through February 12th. We bought back 6 million shares or 7% of our outstanding shares. We made on track to open five new AutoNation USA stores by the end of this year. The stores will be located in Austin, Phoenix and San Antonio, and two stores in Denver. Were also entered the planning phase to open an additional 10 AutoNation USA stores in 2022. These stores will benefit from the AutoNation brand and its proven customer-friendly processes. We have set the long-term goal of selling over 1 million combined new and used retail units per year. We recently announced that we have enhanced AutoNation Express, our integrated retailing solution that provides customers with a seamless and intuitive omnichannel shopping and purchase experience. AutoNation Express is powered by real-time customer insights that provide a highly personalized mobile optimized step-by-step digital experience. I will now turn the call over to Joe.

Thank you, Mike, and good morning, everyone. As Mike has highlighted today reported adjusted net income from continuing operations of $213 million or $2.43 per share versus $113 million or $1.25 per share during the fourth quarter of 2019. This represents an all-time high quarterly EPS and a 94% increase year-over-year. Results were driven by solid growth in new, used, customer financial services profitability, partially offset by a decline in Customer Care. During the quarter, new vehicle demand continued to exceed supply, while our We will Buy Your Car program supported our used vehicle inventories. Fourth quarter 2020 adjusted results exclude a non-cash accounting loss of $62 million after-tax or $0.70 per share associated with our equity investment in Vroom. Moving to the balance sheet and liquidity, our cash balance at quarter end was $570 million, which combined with our additional borrowing capacity resulted in total liquidity of approximately $2.3 billion at the end of December. Note, in January of this year, we paid the maturity of our $300 million 3.35% Senior Notes from available cash on our balance sheet. Our covenant leverage of debt-to-EBITDA declined to 1.8 times at the end of the fourth quarter, down from 2.0 times at the end of the third quarter, including cash and used floor plan availability, our net leverage ratio was 1.3 times at year end. During the fourth quarter, we sold 3.1 million shares of our equity invested in Vroom for proceeds of $105 million. Early in 2021, we sold the remaining shares of Vroom for proceeds of $109 million. So in total we realized a cash gain of $165 million on our investment. AutoNation remains committing -- committed to delivering shareholder value through capital allocation, which includes attractive organic growth opportunities, a disciplined acquisition strategy and opportunistic share repurchase. Our AutoNation USA expansion provides an attractive growth opportunity and we remain on track to open five new AutoNation USA stores in 2021, and additional 10 in 2022, as Mike addressed earlier. During the fourth quarter, we repurchased 4.7 million shares of common stock for an aggregate price of $302 million. Year-to-date in 2021 through February 12th, we repurchased an additional 1.3 million shares for an aggregate purchase price of $95 million. Today, as Mike mentioned, we also announced that our Board have increased our share repurchase authorization by an additional $1 billion. With the increased authorization, the company has approximately $1.1 billion available for additional share repurchase, and as of February 12th, there were approximately 82 million shares outstanding excluding the dilutive impacts of certain stock awards. Looking ahead, we will continue to balance investing in our business with opportunistic share repurchase and acquisitions. With that, I will turn the call back over to Mike.

Thank you, Joe. 2020 was an unimaginable year but our associates came together and delivered record results. We sold over 13 million vehicles in December, the only automotive retailer in history to do so. We have raised over $25 million in the fight against cancer. We created the largest and most recognized automotive retail brand, and we did it one sale, one service, one vehicle at a time. The acknowledgment and brand awareness continued when AutoNation was recognized for the third year in a row according to reputation.com, as having the number one reputation score for public auto retailers. In 2021, we are celebrating 25 years of leadership, innovation, excellence and recognition, as the most admired -- as one of the most admired companies in the world by Fortune Magazine. AutoNation was the highest ranked automotive retailer on the list. Congratulations to all 21,000 AutoNation associates for achieving such tremendous success. We will now take your questions.

Operator?

[Operator Instructions] Your first question comes from John Murphy from Bank of America. Your line is open.

Good morning guys and congrats on a great quarter and execution here. Mike isn’t the first question on the cap allocation, because it seems like you turned on the spigot again on share buybacks, which seems like it makes sense, so you guys have been good stewards of capital over time. But when you just hold that versus the opportunity on AutoNation Express and what you can do? If you think that Express is where it needs to be or a lot more capital needs to be put there to really ramp it up and advertise it to get some of the hotspots or contain, two other names to put it politely. I am just curious, what you think you need to do there. It’s a question of capital, advertising or emphasis and how do you judge to those acquisition -- buyback and acquisitions?

Excellent. Excellent question. I will go first and I will turn it over to Joe. So, look, the first priority on investment is the company and we are making a significant -- and have made a significant investment in digital that is remarkable, the capabilities, we have built a platform that has the capability to perform for the entire enterprise day in, day out, and that surge investment period is thankfully behind us and we have the performance that we need and we want. We, of course, will on a sustainability basis continue to invest in digital, but the surge investment period is behind us. We are continuing to investment in our USA stores. We are confident and optimistic about it. And here you are absolutely right John. We intent in 2022 with some of our 10 new stores to move into new markets where we are not today and we have budgeted additional communication that as we don’t rely on markets, where the AutoNation brand is strong and established that we will need incremental marketing dollars for that. But -- and that’s been in the USA. We will also do, I expect some acquisitions in new vehicle franchises, that fit our strategy and our footprint, and we expect that to happen. And now, I will turn it over to Joe, because we are in a position that we could do it all with very low leverage on the company, and Joe, why don’t you take it from there?

Thanks Mike. To reinforce, you take the extremely strong cash flow and an underleveraged balance sheet, we really do have a way with all and especially there are very attractive opportunities in front of us. As Mike said the first priority is always going to be to reinvest in the business, which we have been doing and will continue to do. As Mike said that, the significant investment in digital is behind us and in front of us is the opportunity on AutoNation USA, which we see very attractive returns. Beyond that as Mike said, we are going to be continue to be opportunistic in M&A. We do have a pipeline but we will maintain discipline. And then continue to believe there is tremendous value in our stock. We have obviously been active in that historically including recently and we will continue to do that going forward.

And just a follow up to that. It seems like the attitude of the automakers towards yourselves and the larger groups as far as approvals on franchise acquisitions. It seems to be either loosening up or moving more towards collaboration if you will. Are you seeing that and could we see AutoNation, as you said, utilize your under levered balance sheet to make bigger and maybe more robust as opposed to one day, two day acquisitions?

Joe could you take that please?

Sure. So I think it’s hard to say across the entire spectrum how the OEMs are feeling. I can tell you, as we have looked at opportunities, we are very mindful of location relationships and we do believe there are very viable opportunities for us to acquire within the constraints they are offered in those. So we don’t see that as an inhibitor to our strategy, albeit one that’s very focused and disciplined.

Okay. That’s helpful. And then just lastly Mike some of us may be a lot of us would like to stick around forever, but there is this big surge going on. I am just curious you could give us an update on how that’s progressing, the timing, how we should think about that stuff?

Yeah. Absolutely, John.

If you could address the Chairman, would you going to be to remain on the Board.

So we are actually taking a step today, because two things, as I look at succession. As we previously announced in 2019, we will split the role of Chairman and CEO with my departure. And we have taken the step of going ahead and doing that. Because we have a long serving Director Rick Burdick who is 30 years plus with the company, two years as a lead Director very successful. So the Board met yesterday and selected and elected Rick Burdick as the Chairman of the company. So this gives a lot -- should give everyone a lot of confidence and trust that we have the right way forward. We have someone from within the company assuming this responsibility. Rick will also lead the search for the new CEO, which will kick off in the spring and but half the equation is already answered with Rick becoming Chairman.

Got it. Okay. Thank you very much guys.

Your next question comes from Bret Jordan from Jefferies. Your line is open.

Hey. Good morning guys.

Good morning.

When you are sourcing used inventory, obviously, you are talking about We will Buy Your Car, are you seeing any recent changes in the competitive landscape, obviously, others trying to execute that strategy or possibly some of the competitors being more aggressive with maybe negative equity financing, to attract trades away from you, just sort of landscape on used inventory?

Yes. We have been very successful in our pre-owned business. As you see we have outperformed the marketplace in the fourth quarter, with an increase in revenue in the fourth quarter of 12% which is quite impressive, and all of those vehicles, we have retailed fully 85% came from internal efforts of AutoNation. We either took them as in trade or We will Buy Your Car or we took them in for off lease. So it’s the machine that we have created is quite impressive. And I view it as an arbitrate business that our ability to acquire inventory at the right price and pay a fair price to our customers and then recondition it at speed and get it on the frontline and present it in an one price environment to our customer. It’s obviously a winning formula of this combination of brand, customer, experience and digital capability. We think it’s sustainable. It’s one of the reasons we are investing in U.S.A. So five more stores this year, 10 more stores next year.

Okay. And then a follow up on Customer Care, you sort of called out and obviously vehicles miles traveled being down is impacting service demand. But have you seen any cadency of improvement as VMT has come back, and I guess, in that theory, we should be lapping the last, negative comp should be run about now. We start going against the real declines in VMT in March and April of last year. Is that a fair way to think about it?

It is. We obviously from the dramatic lows, we are past that. We estimate at the moment that miles driven are down about 10%. Our actual Customer Care business in the fourth quarters down 4% or 5% something like that. And so we view it as a gradual recovery, and obviously, we have opportunity against the extreme situation that existed when the first pandemic broke out and the shutdown and shelter-in-place. Joe, why don’t you to talk about how you think Customer Care will unfold this year?

Thanks, Mike. I will reiterate again as we look at kind of business recovering. If you think about bracket customer pay, warranty of all recovered internally, obviously, was the volume of business we are doing has actually recovered quite nicely. It’s collision that has lagged, as Mike indicated, really driven by the miles. As you look at through the year, and you are correct, it’s really going to be starting in April that we saw the significant decline associated with COVID, April and May in particular being the two months that were dramatically impacted, as you recall us talking about last year. But really, I think, you are going to see throughout Q2, Q3 and even in the Q4 favorable comps year-over-year in the Customer Care business. In particular as collision I think will recover as miles driven recover through the course of the year, with the benefit of the vaccine and if you will the continued reopening of the country.

Okay. Great. Thank you.

Sure.

Your next question comes from Rajat Gupta from JPMorgan. Your line is open.

Hi. Good morning. Thanks for taking my question. You provided some color on the new vehicle business in January. I was tracking in line with the forecast. Any color on how like the used vehicle business is performing, you talked about inventory levels and the sourcing, but any color on how the unit comps has been tracking so far year-to-date in January or early part of February here? And you talked about the parts and services business also more on the miles driven side and customer pay and warranty work started to come back pretty quickly. I am assuming there is some pent up demand there that should continue to flow through. Just give us here your thoughts there and I have a follow up. Thanks.

Sure. Our view is that the new vehicle business will improve by about 7% this year, approaching 16 million units. There is demand for higher volume than that, but I don’t see a path on the production side to them. But it’s a very opaque, uncertain, disrupted situation on the production side where you now have this combination impact of the pandemic with the shortages of the chips to produce vehicles. One of the things we went through, when production was resumed after the shutdowns was manufacturers made vehicles without even having all the parts and then parked them for completions that turned out to be a fiasco and we literally had vehicles that we were told were ours and we are on the way that didn’t show up for six months, seven months, eight months. And so the manufacturers have stopped that practice and really don’t produce unless they have a sideline to all the parts. And when this combination of the pandemic and the chip shortages going to clear, I don’t think anyone really knows. So I think the demand is there clearly. I think if you look at the extremes of last year, you sort of smooth that out I think it’s fairly safe statement to say that new volume will be up 7% this year. The demand is there and January tracked along that line. I think the pre-owned business for the industry is probably relatively stable. But I think we will outperform as we did in the fourth quarter. That’s our goal. Availability, as I said, we look to generate as much on our own means and terms as we can. We have been very successful with that. We will continue working at that. And Customer Care again it’s a situation of miles driven and when do people fully resume the behavior that existed pre-pandemic that could take a while. I don’t know exactly. Joe, what would you like to add to that?

Let me touch a couple of things. One, going to the used, as Mike indicated, I think, one of the benefits we really have is the sourcing. So used is a lot about having inventory. With 85% of our inventory being sourced directly from customers versus many of the peers are 50% or less. I think that clearly does serve us well and positions us well for 2021. And on the -- let me dissect a little bit Customer Care. I think you asked specifically about customer pay and warranty. So if you look at the fourth quarter, the entire Customer Care business was down about 3%. Customer pay in that same general directions down a little bit more but not much, warranty similar, kind of in same ZIP code if you will. Internal again, being the area that actually saw a positive growth again associated with the volumes of units. And as indicated, collision is really is the area that has dragged, if you will. The flow is to recover with miles down 10%, collision down a little bit greater than that. Again, I think, as the miles recover, we will see that portion of the business in particular improve and are very optimistic about Customer Care as we go through 2021.

Got it. That’s helpful. And the customer pay and warranty, is it down slightly in the fourth quarter? Did it exit at positive rate in December or into January here or is that still comping down from a year-over-year perspective here recently.

It’s still slightly comping down, but the trend continues to be a positive one.

Got it. That’s super helpful. Thanks for the color. And then just on AutoNation USA, any metrics you can share so far, about the five stores? What the profitability was in the quarter? Like what the units are looking like there today and just the economics of those, as they continue to mature over the last couple of years?

Joe, you take that please.

Sure. So the five existing stores continue to operate successfully. As you know those were kind of the five sample stores if you will. We indicated the pre tax slightly below 2 million kind of run rate. Again, it continues to be very positive, we are seeing. And as we roll out the five new locations set to open this year increasingly optimistic. The forecast that we provided previously about units, about the monthly pre tax, we feel very good about. And so continue to believe that the monthly pre tax when it gets to the full run rate, within the $200,000 a month area and are very positive about the economics and very encouraged by from our real estate and build standpoint the progress we are making.

Got it. Great. That super helpful. Thanks for all the color. I will get back in queue.

Thank you.

Your next question comes from Stephanie Benjamin from Truist. Your line is open.

Hi. Good morning.

Good morning.

Good morning.

I wanted to touch a little bit on your decision to exit your Vroom investment. Just curious the timing of that or how that played out based on your expectations and how we should think about what this means for our future investments going forward?

Excellent question. I am glad you asked. So, look, we are not an investment enterprise. When we made the partnership with Vroom, it was with the hope that we will find synergetic common grounds to work together whether that was in our expertise, reconditioning digital whatever. We just thought there could be some mutual benefit for the two companies and that we could do something together. Well none of that worked out. And so then it became purely an investment, which is really not what we intended and you know once it was clear this was just an investment that the companies would not be doing business together. We decided to declare victory and move on. And I think we originally reinvested $50, 5-0, $50 million and finished receiving. Joe, was it $215 million, we got back something like that.

Yeah. $215 million in total.

$215 million in total, so an excellent investment. But with the two companies on operating basis, we are doing nothing together, nothing. So the correct decision was to exit the position. Now the other investments we have is Vimeo and I can tell on operating basis. We are doing things together that is interesting and can lead to something. So we stay on that journey and we are optimistic and hopeful that all that works out. But I want to be clear we only took these two steps because we thought the companies could do business together that was win-win from both companies. When we are cleared with Vroom that was not the case, we exited the position.

Got it. No. That’s very helpful. And then just my second question on your SG&A performance on an adjusted level another record quarter and certainly well below your target or kind of that sub 68%. Is there any desire to now lower your own long-term target just given your performance last two quarters or how would you kind of chalk up your outlook going forward just given the performance you have seen in the last two quarters? Thank you.

Yeah. The performance is outstanding, but that doesn’t mean that we are going to lower the target from 68%. We will be at 68% or below. That’s our commitment and so far we are doing pretty good on our commitment. I can tell you that we feel the steps we have taken over the last two years have dramatically improved the cost efficiency and effectiveness of AutoNation on a sustainable basis and we will see how the actual numbers come in, but we really like our position. But as far as moving to the goal post today on the 68%, we are not doing that. Joe, what would you like to add?

Yeah. Thanks Mike. So Mike is absolutely correct. We have clearly realized the benefits of prior investments and I think a better discipline in running the business. So, as you look at SG&A, I mean, the growth was up $88 million and SG&A was down $17 million. That’s remarkable leverage obviously. But when it comes across really all three categories of SG&A, compensation again make some difficult decisions through the pandemic, operating with fewer people. I think Lauren had to do that very effectively leveraging technology both in the store and in the back office. So, we had a compensation despite, obviously, a significant portion of the compensation being variable down 380 basis points year-over-year. Clearly an area we are seeing benefit in digital is an advertising bought that down 80 basis points year-over-year and while we still advertise I think to a greater degree than many of our peers, I think, the results in the success in the business is reflective of that, so I think we have been very prudent in finding the right level, albeit a reduced level in leveraging our capabilities. And then, finally, overhead, again, difficult decisions in people and then the discipline and within the overhead driving that down 350 basis points, so from my perspective driving it down over 800 basis points really across all three categories is a commitment we have made into and the change in operating and as Mike said we are committed to continue to operate at or below 68%.

Great. Thank you guys so much.

You bet.

Your next question comes from Rick Nelson from Stephens. Your line is open.

Thanks a lot. Good morning, guys. I would like to ask you about the acquisition environment, what you are seeing there in terms of opportunities? What kind of brands, geographies you are looking at and multiples that you are seeing?

Yeah. We definitely have a lot of conversations going on a lot of negotiations and I fully expect we will have some new vehicle franchise acquisitions this year. But I am not going to put a specific number on it. We are very happy with the footprint we have in new vehicle and we spent a lot of time, Rick as you know, optimizing that and one of the reasons for our success today is that we have really took the time to go through every store we had in and decided if they fit or not. I would say the number one issue when we look at an acquisition is whether it will be a cultural fit with AutoNation or is it a complete reinvention of the dealership in order to meet our operating standards and how we do business. I would say that’s most important. And then, of course, we are very comfortable adding within our existing infrastructure with new vehicle franchises. I don’t expect much outside that, but we would be open to doing it, and of course, we are very disciplined on the cost side. And you have to be careful around multiples because 2020 is a very year-to-date anything offered. We sort of have to go back and look at ‘18 and ‘19, and look at what the world was like. So that’s our approach. And so I think we can do all of the above, there will be USA stores invested in our digital capabilities, keep all our existing stores fresh, do some new vehicle acquisitions and repurchase our stock which we think is very attractive.

Thanks for that color. Someone here one of your peers talked about the potential for public company consolidation. I’d look to get your view on that and whether you think the OEMs would be supportive of something like that?

So, I will give you my view. What I have experienced is that when you become as large as we are and you make an acquisition, takes a brand Z and you already own 25 brand Z stores and you want to buy number 26 and number 27, and the negotiation with the manufacturer, they will ask, okay, we will improve number 26 and number 27, but let me tell you what you have to do from store one through 25 in order to get approval for the next increment. And if you really add that demand on to what’s you are acquiring, it really changes the return on investment and so the higher you climb the mountain the more difficult it becomes to keep climbing. Now we are the only one over 20 million revenue, so I am talking from the point of view that no one else has experienced yet. That’s our experience. It’s is one of the reasons for us having gone through the AutoNation USA stores is because now we are in charge of our own destiny. We are able to build the stores for $9 million, $10 million each. We do not need manufacturer approval. All we need is the brand and great customer experience and the digital ability to penetrate the market and the size of the market is much larger. So I am in charge of my own fate, my own destiny. I don’t need manufacturer approval because all the way back to the beginning of time and all I need is the capability to execute. And we have gone through the most difficult period, which is building the brand, perfecting the customer experience, having the digital capability. So that on invested capital return -- return on invested capital is a very real equation and one of the reasons for is spot on Rick what you just called. Our experience is when you get over 20 billion and the number of stores you have, you can’t get manufacturer, but you can, but it’s quite a negotiation.

Okay. That makes a lot of sense. Thanks and good luck.

Thank you.

Your next question comes from Adam Jonas from Morgan Stanley. Your line is open.

Hey, Mike. First, best of luck…

Hi, Adam. Good morning.

Hey. Good morning. Best of luck with the new chapter. Sure we are not going to see last due. So best of luck.

Thank you.

Yeah.

Thank you. Thank you. Thank you.

You got lot more to share. Mike, I am curious, why are so many startups EV, OEMs going -- either going direct-to-consumer planning to go direct-to-consumer and when we put them on the spot at least, say, and hey why don’t you use an AutoNation or some of the best of breed existing franchises to really get the leverage and time the market and stuff? Why are you going to see a lot by yourself? Why do you think that is, are they foolish?

Yeah. So I think they are making a mistake and…

No.

And I think the verdict is close to coming in quite frankly. So what you avoid by going the route we are going is the massive cost of investing in a Customer Care infrastructure for a very sophisticated, technically complex product. And by the way, this thought that electric vehicles will not need care is also a folly. As a matter of fact, there are more complex internal combustion vehicle I have seen as far as the expertise and the equipment you need, because we are investing heavily with all the manufacturers to be able to care for electric vehicles. So if you want to skip that whole infrastructure footprint to care for your customers, you can do that by the route that Tesla has gone and some others have gone, but basically listen we are taking Tesla in trade all the time. And one of the number one issues we hear when they trade it in is that they are just frustrated at the lack of an enjoyable customer care experience for when something does go wrong. And so I think that’s what they are trying to bypass, but I think it’s a mistake and I think it will be proven wrong and I think the strength of the win-win-win equation of the new vehicle franchise, a win for consumer or win for the manufacturers and it can be a good investment for dealers and publically traded investment groups has been proven for the sustainability, viability and value in the marketplace. So you can go to our website today, autonation.com, you will see a huge flag for electrification, all the vehicles we offer from all the various manufacturers. We are in the game and I think this model will -- is viable, we will win and others will ultimately have to deal with this issue of how are they going to care for their customers?

Got it Mike. Thanks. Thanks for your thoughts.

Great.

Your next question comes from David Whiston from Morningstar. Your line is open

Thanks. Good morning. I guess, I wanted to go back to the earlier comments on consolidation and just another thing I have been hearing some chatter about, would be -- if there were consolidations amongst the public that those larger players could effectively block out the digital startups on used vehicle methodically some late model use? I am just curious do you agree or disagree with that?

So the whole issue of consolidation whether two smaller public traded companies could come together, I can’t say, because I don’t have one of the smaller ones. But I can tell you as far as us acquiring one. I don’t see that’s just going to happen, because you immediately run into a problem of too much density in a given market that you are going to have to divest a significant part of what you just thought, at least that would be for us. So overlap and too much density in the given market is a real genuine issue for us and so we will not be acquiring any other publicly traded company. I don’t see it pay off to the finish line. And your other point was what -- question?

That was basically, I was thought, sorry, [Technical Difficulty] they see even customer going on late model used inventory and block out the current owners and other digital search in getting vehicle inventory.

I -- the sound is broke up, so I didn’t really hear the answer. But I can tell you who do I think wins in this huge pre-owned marketplace. I think companies that have a brand with a great customer experience and digital capability will take share in this huge pre-owned marketplace from everyone else. I think that’s what’s happening. And then you have to say, well, does my model make money or not. So we have already proven our model makes money, CarMax’s model makes money. So but I think brand, great experience and digital capability is a winning combination in the pre-owned marketplace.

All right. Thanks. That’s helpful. On the [Technical Difficulty] vehicles, can you just talk a little bit about, especially given your places like Texas and Florida and additionally they can be from the California market. Just outside of the Tesla demand, how much demand is there for -- to EV, is it really ramping up, you have seen in the past year or two, because there is still really trailing Tesla?

No. We have definitely passed an inflection point on the journey to electrification and there is no turning back. But it is gradual if you want some numbers for me. I think if you go to 2030, 20% of all new vehicles sold will be fully electric. However, this is not like going from the flip phone to the smart phone, where you throw away all the flip phone. I think if 6% of the units in operation on the roads of America are all electric by 2030, internal combustion engine is going to have a lifespan of 20 years to 25 years. It’s not obsolete from one day to the next. There is a huge segment of consumers that the affordable transportation that will come with the existing internal combustion engine will go on for years and years and years. So the transition for units in operations is a decade long process. The other insight I can give you as far as our customers who are buying electric vehicles, what they like about it, as long as, as well as all the obvious things is they like not pulling to the gas station anymore. And as long as you have a range of 250 miles plus, what they -- have they used the vehicle is they use it for daily use and when they get home at the end of the day, they plug it in, at their -- either in a garage or the parking unit in the condo and every morning they come out, and they have got a fully charged vehicle and they never go to the gas station. They are just delighted. And all our customers who do buy electric and use it that way and have another vehicle, not have a suburban or some other vehicle with a internal combustion engine and use that for long trips, and going around. So I think the journey to electrification is here. We embrace it. We are going to be a part of it. We are excited at least what the manufacturers have in the pipeline everything from the Hummer to the Mustang Mark and Volkswagen, Taycan is a sensation, the list goes on and on. It’s very exciting business to be in.

Yeah. I agree. There is a lot of full change coming and I am hearing great things from you, the one you just mentioned. Staying on EV, though, in your opinion the change for demand from leasing perhaps in a negative way, because there is more residual value risk for the capital finance arm and maybe they don’t want to pull back on these things?

We haven’t seen that yet. So far the residual values on electric vehicles are fine. I see no yellow flags or red flags.

Okay. Well, thanks for the color. I appreciate it.

Absolutely.

There are no further questions at this time. I would like to turn the call over to management for closing remarks.

Well, we have no closing remarks other than we are delighted you joined us today. Thank you very much for your questions. All the best. Thank you.

This concludes today’s conference call. You may now disconnect.