00:02 Good morning. My name is Alex and I'll be your conference operator today. At this time, I would like to welcome everyone to the AutoNation First Quarter 2022 Earnings Conference Call. [Operator Instructions] After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. 00:31 I would now like to turn the call over to Ankur Shah, Manager of Investor Relations. You may begin your conference.

00:40 Good morning, and welcome to the AutoNation's first quarter 2022 conference call and webcast. Please ensure that your lines are muted until the operator announces your turn to ask a question. Leading our call today will be Mike Manley, 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. 01:07 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 in 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. 01:54 And now I'll turn the call over to AutoNation's Chief Executive Officer, Mike Manley.

01:59 Yes. Thanks, Ankur. Well, good morning, everybody, and thank you for joining us. Firstly, I am pleased to report that the momentum with which AutoNation ended 2021 continued through to the first quarter of this year. From our view, consumer demand for personal vehicle ownership remained strong across both our new and our used channels and our service and parts business is clearly showing the benefits of both increased miles travel and our focus on increasing our penetration into the after sales market. And maybe as a result so today AutoNation reports record first quarter performance with earnings per share of $5.78, which is an increase of 103% and revenue of $6.8 billion, which increased $849 million or 14%, compared to prior year. 02:45 Now from a new sales perspective, our performance reflects the effect of continued tight supply basically with volumes down and new margins stable from the end of last year. The year-to-date, I can say, compared to prior year, we have not seen any reduction in lieu of demand for new vehicles or really any perceivable segments shifting as a result of current economic conditions. And our used car performance reflected good volume growth on a same-store basis and the continued expansion of our AutoNation USA business. And this helped maintain our revenue and total gross profit. 03:17 Now during the quarter, we sharpened our analytic capabilities, which are increasingly educating our buying, placement and pricing decisions in the used market. And these disciplines are work in progress, but I think you can clearly see they're going to have a beneficial impact on our business. For example, during the quarter, we recognized the need to rebalance some of our used vehicle inventory to help improve turn and margin. And as a result, in the quarter, we…

07:45 Thank you, Mike, and good morning, everyone. Today, we reported first quarter total revenue of $6.8 billion, an increase of 14% year-over-year. This increase was driven largely by used vehicle revenue, up 47% over the same period. Supply chain disruption continues to govern new vehicle availability as we saw a 6% decline in new vehicle revenue as we effectively sold every new vehicle received with inventory falling below year-end levels. 08:16 We continue to see demand exceed supply during the first quarter. With this, we remain focused on optimizing new vehicle margins and sourcing used vehicle inventory to support sales in our AutoNation USA expansion. For the quarter, total variable gross profit increased 31% year-over-year, driven by an increase in total variable PVR of $1,671 or an increase of 38%. The decline in new units of 19% was partially offset by growth in new units of 11%. Our after-sales business continues to gain momentum with after-sales gross profit increasing 19% on a year-over-year basis. Taken together, total gross profit increased 27%, compared to the prior year. 09:07 Shifting to cost, we continue to deliver significant SG&A leverage due to strong cost discipline and robust vehicle margins. First quarter SG&A as a percentage of gross profit was 56.6%, a 610 basis point improvement, compared to the year ago period. As measured against gross profit our metrics improve across all key categories with overhead decreasing 210 basis points, compensation decreasing 340 basis points and advertising decreasing 60 basis points. The combination of strong growth in gross profit, strict cost discipline and opportunistic share repurchase generated net income for the quarter of $362 million or $5.78 per share. EPS was up 107% versus prior year adjusted EPS of $2.79. This reflects our eight consecutive quarter of all-time high adjusted EPS. 10:09 Turning…

11:50 Yes, thanks, Joe. Just a couple of comments I made before we get into Q&A session and that's around our structure and the people that we have. You will have seen some announcements as we got into April, I really finished last year and got into the first quarter of basically the -- some realignment of our existing businesses. With couple of elements I'm going to touch on is obviously the two new Chief Operating Officer roles that we have with Dave Koehler coming in. Dave is going to look after our non-franchise businesses, so that we can make sure we have appropriate focus on that is going to be significant growth opportunities, some of which already identified, some of which is work in progress, but Dave and his teams will be making sure that, that gets the folks that it needs. 12:30 And then Steve Kwak will look after our franchise businesses and that again remains our core business naturally, and we'll get the additional focus of new roles that we brought into the organization, which basically our market brand president roles. That's going to strengthen our relationships with our manufacturers, but really get the focus so that we can work really alongside manufacturers’ partners across our three automotive segments of domestic, import and premium luxury. So, what I think this will do is it will bring significant focus based upon individual brands within our overall AutoNation Group, but also now teas out areas of the business that moving to offer, I think, significant growth with the right level of focus and dedication so. 13:19 And with that, I think, we can open up for questions, please.

13:26 [Operator Instructions] Our first question comes from the line of Rajat Gupta from J.P. Morgan. Rajat, your line is now open.

13:44 Great. Thanks for taking the question. Just had a first question on the used car business. The GPUs, they’re normalized faster than maybe what we saw at your peers, Lithia still had pretty good margins there. Just curious as to what drove that normalization. Was it more a prioritization on growth versus margins? Or was there something else to highlight there that was more temporary, maybe if you could start there. Thanks.

14:21 Yes. Sure. Rajat, this is Mike. No, it's completely temporary, as I mentioned in my comments. Towards the end of last year and progressively through Q1 we've been, I think, strengthening our data analytics with regard to used vehicles, not just in terms being more precise in what vehicles, what segments, what geographies are moving and in which direction, but also how that applies to our inventory levels. And frankly, I didn't like some of the -- as a result of that, frankly, I didn't like some of the profile that we has. And I wanted to make sure while we were -- [indiscernible] in a very strong quarter that we took the necessary action to realign it. And I'm pleased to say that was completed in the quarter. Our return rates have improved and our margins are rebounding in the way that I hoped they would. So I just think it was appropriate action based upon a continued focus on us in terms of data and data analytics.

15:15 Understood. So do we expect margins to move back higher here going forward? And obviously, like there are other governers around like used car pricing and some factors that -- they're probably not in your control. But maybe like if you could help us understand, like where do we expect those used car GPUs to settle relative to what they were pre-pandemic?

15:43 That already moved up as a result of the actions. We completed what I wanted them to get done in the quarter. So they've already moved up. I think -- when I think about GPUs, even though we have seen some movement from pre-pandemic levels, the actual margin on the basis of sales prices remained relatively flat. What I expect as we bring additional efficiencies in the business, in terms of the conversion of a raw purchase of a used vehicle to get it pressed and ready for sale and the speed of getting it to market, that there's actually opportunity to us -- to improve margins beyond what you saw pre-pandemic in used. So that piece is very much a focus internally, and it talks to some of the things that I commented on in terms of some of the structural changes that we're making. But the raw margin that you see reflected in the quarter was driven by exactly what I said. It was a -- it really was a realignment of some inventory that was completed in the quarter. The guys have delivered margins that are much better and heading in the right direction. But as I mentioned, I still think there's even further upside. Thank you.

16:44 Got it. Got it. Great. Thanks for the color. And maybe you mentioned last quarter that you have a captive finco in your mind that you plan to maybe build at some point. Curious, like, if your thoughts on that has evolved at all over the last couple of months? Where are you in that planning process? When could we expect to see that? And maybe like if you could comment on just the broader auto lending environment today, is there any stress that you're seeing in terms of ability -- just ability for lenders to pass on some of the interest rate increases that you're seeing on the benchmark side? Just maybe if you could frame that as well along with just updated thoughts on the captive?

17:42 Yeah. Look, like you said my thoughts evolved on the need for us to have a captive finco, no. But they're certainly solidified. I view it as an important piece of the business for us going forward for our AutoNation USA stores. I think -- when I think about our business, one of the reasons why I wanted to slightly restructure it was to enable us to put in place the tools that AutoNation USA needs to be successful going forward. Obviously, on the franchise side, we have relationships with our OEMs, and that's slightly important, but we have a business that is in a growth phase. It will continue to grow. It's proven that the model is working, and it needs, in my view, to have the flexibility of a timed finco. That finco, like most successful fincos, will not be responsible for picking up the whole book. Naturally, you're going to remain in partnerships with people that have been supportive during your period of growth before, and I expect that to happen going forward. You will absolutely hear more on this subject as the year develops. But one of the things that we will do is I think, the group has always done, is not rush the purchase. 18:47 I think that there are opportunities in the market that may -- that are interesting at this moment in time. And as we find what is the right opportunity and the Board agrees with that, we'll make the appropriate move. In terms of our conversion rate on used, I can tell you it remains strong. At this moment in time, we are not seeing a drop off in terms of conversion. You can see from our CFS, our Customer Financial Services performance, that in fact, that's improving. It's been a strength of ours and continues to be a strength of ours. 19:17 So at this moment in time, what I can tell you is when I look at both the top level of inquiries and also some of the conversion rates by mix, we're not really seeing any dramatic shift except in the sub, I would say, $22,000 mark, where we are seeing a drop off of not raw inquiries, but really a drop-off of conversion, and that's more to do with inventory. As you know, that inventory is relatively tight across the industry, and we're seeing the same thing, but it's been more than supplemented by an increase in plus $40,000 inquiries. So did that help paint some color for you?

19:58 Yes, absolutely. Thanks so much for all the color and good luck. I'll get back in queue.

20:06 Thank you.

20:08 Thank you. Our next question comes from Adam Jonas of Morgan Stanley. Adam, your line is now open.

20:17 Hey, Mike. Is there a precedent for OEMs to raise MSRPs intra-model year that you've seen?

20:29 I have seen OEMs make, what I would call, inflationary price adjustments during model years. It's certainly something that I have seen on multiple occasions. They're typically in response to, as we see, inflationary pressures in the marketplace. But some of those may not be a pure MSRPs or maybe incentive adjustments as certain things change in the marketplace. So that is not unprecedented in my view or my experience.

21:04 Thanks, Mike. Another one on Ford and Jim Farley, I believe you have 42 Ford stores. I hear Ford made some comments in February saying and I'm kind of paraphrasing here, Mike, bear with me that dealers that would charge significant mark-ups on the lightning won't be allocated. Now, I'm not a lawyer, but that sounds like getting close to disenfranchisement talk. Is he able to -- is that legal or is Ford actually able to do unallocate someone that charges over MSRP for product in the current franchise agreement?

21:43 What I would say is that -- and I'm not an attorney, so I'm going to give you my view. What I would say is that there are mechanisms -- and this isn't a Ford thing, by the way. And I would tell you that Jim's sentiment in this area is probably going to be echoed by most of the OEM CEOs. What I can tell you is that the OEMs in the current franchise agreement need to treat their dealers, whether it's a large group or individuals, broadly, in a similar manner that's in keeping with state franchise board. Now having said the obvious, which that was, obviously, there are mechanisms that OEMs want to and do employ to try and make sure that the value they perceive in their vehicles is passed on to their customers. So Jim's reacting to a huge amount of demand for Lightning, which is in the marketplace. And as you know, they've now shut off reservations for that vehicle. And what he's trying to do, which I think is reasonable, is to make sure the vehicle hits the market at a price point that is supportive of the brand of the F-150. And there are many ways that he can influence that, and a lot of those ways are within the franchise regulations, some of which may be outside, but there are a lot within.

23:01 Okay, Mike, if I can just squeeze in one more, please, I appreciate it. Agency model. It seems like, from my perspective, that seems like a good development for a company like AutoNation, kind of -- just let you focus on the areas where you are -- have greater capability and where you win on service and efficiency. I would love your thoughts on that at a high level. Am I wrong that if we are in some circuitous way, ending up in some kind of fixed commission and/or fixed percentage or whatever, that's not necessarily a bad thing? I know there's a lot of details there, but I would love your thoughts high level. Thanks.

23:40 Yeah, no problem. So you can throw whatever words you want at it, whether you call it an agency or whether you -- a dealership agreement or a dealer agreement, one of the things that, in my mind, is absolutely certain as we move forward is that there needs to be a much less friction in the sales process than has historically been, and there needs to be more price transparency. And I think that the reset that we have been through over the last two years is a good opportunity, particularly with the transition to new powertrains to make sure that, that continues in the marketplace. 24:12 And for me, what we've recognized is that there is opportunity to remove cost from the distribution channel, and there is opportunity for us to encourage customers to maybe preorder more than they've done in the past, which also adds some efficiency. I think given the increased price of electric powertrains that should be passed on to the customer to make sure that this transition is as smooth as possible, and AutoNation will be a part of that. And that means reasonable margins for the work that we do, and it means we'll continue to compete as a customer-focused business. So in principle, I'm agreeing with what you said. I just don't particularly want to label it an agency model or anything else because frankly, I think it's good business.

24:54 Appreciate it, Mike. Thanks.

24:58 Thank you. Our next question comes from John Murphy of Bank of America. John, your line is now open.

25:06 Hi. Good morning. Good morning, Mike. Maybe just to follow up on the pricing and maybe the more important question is are you seeing OEMs increase invoice pricing to you? I mean, MSRP is a suggested price in the market, but what you get charged is the invoice. So it seems like that might be a more important thing to focus on because they're looking at the grosses that you're making and you're making big grosses on new. So is there any increase there to maybe kind of claw back some of that and share a little bit in the wealth on GPU a little bit more?

25:42 So, John, I apologize. We have 30 brands. I'm going to have to talk a little bit more general and if you want to circle back with it, feel free to do so. Yeah. When the OEMs make the interim -- and Adam asked the question, interim model year changes that are due really to inflationary pressures typically in the past, that result's obviously in an increase to us or they don't get any benefit from it. And ultimately, therefore, a portion of that gets passed into the marketplace. It's interesting, isn't it? Because what was actually happening today is vehicles have been sold at MSRP and the margins that we are getting are as a result of vehicles being sold at MSRP. And I thought that fundamentally, that was the business model we were supposed to be achieving. And I never was able to achieve it as a CEO of an OEM for a whole host of reasons, partly because the levels of inventory that were in the retail network had to be turned and they had to be turned in a fashion that meant heavy discounting. We're not in that position anymore. 26:40 The last time I looked, many OEMs were also benefiting from improvement in terms of their margin. And I think that's -- I think, frankly, that's going to continue. So if you want more specific details, then feel free, as I mentioned, to reach out to us. But if I look generally at our new car pricing now, our new car pricing is AutoNation. The quarter was very stable, very stable. So I -- in fact, saw a downward in terms of our average price on new vehicles, which was driven by mix, not driven by incentives or further discounting. So I think we've now seen the level of stability in new car pricing that we didn't have through the early part of last year. So obviously, the year-over-year comps are quite large at this moment in time. But as we get into the second half, you're going to see them stabilize down significantly.

27:36 Yes. I'm sorry, Mike, maybe to be clear, I mean, right -- I mean, your gross is a function of what you charge the consumer less your invoice price from the automaker that you're charged, net of any kind of floorplan financing assistance. So I'm just curious, have you seen any actions by the automakers on the pricing to you on invoice that would change that seems like it's an increase relative to the MSRP? Meaning, are they narrowing the gap between the MSRP and the invoice they charge you, right? The MSRP is what's in the market, the invoice is what's charged to you? I'm just curious if they're changing that gap?

28:10 Yes, now, I understand your question, John. So [Multiple Speakers]

28:19 Okay. Yes, second question and because I can only do simple math, let's just think about this in simple terms. I mean, the buybacks basically improve your EPS by 5.4% in the quarter, if you look at the 66% versus the 62.6% from the fourth quarter to the first quarter. And if you kind of drew a linear sort of math on that, that would be equivalent of view acquiring 18.3 franchises or $1.4 billion in revenue in the quarter, obviously, it's a similar PE about 5 times where your stock is trading right now. I mean, it just seems like buying back your stock all day long makes so much more sense making any acquisitions and you bought back at roughly 109 bucks on average through the quarter. You're below that now. 29:04 Do you just stay very aggressive -- I mean not aggressive. I mean it's a balance, right? It's the right thing to do on buying back your stock and not making new vehicle acquisitions and then pressing the used growth. I just -- it just seems like the exact right strategy and you're executing on it. And if you comp it versus what the splashy announcements are made on the acquisition side by some other competitors with smaller networks, it just seems like you're having a much bigger impact and immediate return on your earnings per share structurally over time.

29:38 Yes. I think as we've seen over the last 24 months, and we'll continue to see, the way that people are valuing companies is changing and will continue to change. But the math that you did broadly was right with the exception of one thing, and that is that some of the acquisitions that we're looking at and frankly, are pursuing, will give us, I think, a multiple higher than the historical business has been able to generate, because our industry is going to change. And with that change is going to come opportunities that, frankly, will be more under our control as a retailer than we've been in the past and bring more incremental benefits to our shareholders in terms of value. 30:18 But one of the things that AutoNation has done is, I think they've not -- there has been a strategy to try and maximize the benefit to the shareholders where capital has been. And certainly in the first quarter with everything that was going on and the fact that we are reviewing and have reviewed some of our strategic priorities, it was best for us to maintain that activity, and you've seen the results come through. But that doesn't mean to say there aren't attractive acquisition opportunities for us. There are. And as the year goes through, you'll hopefully see some.

30:49 And then just lastly on the AutoNation USA stores, 130 by 2026. I mean you're making good progress there. It seems like the business is working well. Why is 130 the right number? Could it be significantly higher?

31:05 Yeah. I think when the 130 was done, it was really looking at two things: one was which are the most attractive markets that we are not necessarily in with our existing footprint. And by that, I'm talking about franchise business as well. And then the second thing was, as the group is thinking about is capital allocation, what would be a reasonable allocation of capital over that period. I can tell you that our thoughts on that have continued to mature, partly because as they were putting -- and we -- now obviously we're putting in AutoNation USA stores, the model was being tweaked and made more efficient. And so today's AutoNation USA stores are slightly different than the past. 31:42 And secondly, I also think about these stores not just purely as a place where used cars are sold. These stores in the future can do many other things for us. So that 130 is our baseline today. It may well grow, and we may get more aggressive for other reasons.

31:58 Okay. Very helpful. Thank you so much.

32:03 Thank you. Our next question comes from Bret Jordan of Jefferies. Bret, your line is now open.

32:10 Hey, good morning. This is Ethan Huntley on for Bret. Thanks for taking our questions. Maybe just going back here to supply and maybe the cadence of supply, I know new inventory sort of came down to eight days from nine and used to 30 from 40. But can you maybe just provide a little bit of color on sort of the cadence of supply and whether things might have improved at all or would you sort of bouncing along the bottom here?

32:40 Frankly, I think what we are doing is bouncing along the bottom, but I don't think it is -- as you said, one of the things that I wanted to do with our team to increase our turn rate. It's -- and we've been able to do that and I think that's why you've seen days of supply really level out. What's been interesting for me as we've come into this year, obviously none of this could really foresee the ongoing impacts of things that happening around the world and they are going to have impact on people's original plans in terms of their production levels. But what I do know is, given this market, it's a key market for all of the OEMs and I do know that the intent is there to improve as soon as possible. From my point of view, you're not really going to see anything until the third or fourth quarter, but I know you're asking individual OEMs. So, our focus is let's sell more aggressively up the pipeline, which is a new scale for the industry in the U.S. and let's make sure we're turning the inventory as fast as possible when it lands and they're two key things that are in our control and they're the things we're focused on.

33:50 Okay, great. That's helpful. Thank you. And then maybe just here on the floor plan. Did floor plan subsidies exceed expenses for the quarter?

34:02 I can give you my gut of that reaction, but Joe is just double checking and make sure we don’t give you the wrong data point.

34:10 It did slightly.

34:13 It did slightly.

34:15 I mean, obviously now floor plan is relatively low from an expense perspective, because obviously you can see by the days turn that our actual expenses relatively modest, but incentives have also come down marginally for the same reasons.

34:31 Thanks, Joe.

34:34 Okay, thank you. And then just sort of lastly here on the service category, a 15.5% comp was solid there, can you just sort of help break out the difference in traffic versus average ticket?

34:52 Yes. Can you just say a bit more specific with your question, please, Ethan?

35:00 Sorry.

35:02 Could you be more specific with your question. You are asking me through our service departments how is that changing and growing, what is it specifically you're looking for?

35:12 Yes, just in the service category, did you see the comp of 15.5% was that primarily driven through inflationary pricing and increased prices or is it a pickup in sort of traffic?

35:26 We are seeing two dynamics there. Firstly, we have seen an improvement in traffic from a customer perspective and an improvement in internal work slightly offset by a decrease in warranty, because obviously the vehicle -- new vehicle already is dropping. But it's been more than offset by an increase in consumer both volume and a slight increase in per ticket and internal work as I used volume increases.

35:54 Okay, great. Thank you very much.

35:58 Thank you. Our next question comes from Stephanie Moore of Truist. Stephanie, your line is now open.

36:07 Hi, good morning. I wanted to touch on the new vehicle side of your business and maybe you can speak to, if you're seeing any change in the consumer profile of your new vehicle buyer, either from a credit quality standpoint or median average income and kind of thinking forward as we go through what it could be a potential recessionary environment certainly a rising interest rate environment, how you think your new vehicle business is positioned now versus prior cycle. Thank you.

36:41 No, I'm not seeing any foreseeable change in terms of the profile of customers coming through new vehicles. In fact, if you look at the traffic both coming through our digital -- all of our web pages, as well as walking into our stores it is in fact, up and continues to grow year-over-year. Our conversion rates obviously with the level of inventory and the demand that we've got remaining strong. So outside of that is difficult, because of the environment that we're in to really pinpoint if there is something underlying that's happening. 37:14 In terms of where I think new vehicles going forward, if you looked at the SAAR in the first three months of this year, it's bouncing around $13 million, $14 million and typically those numbers would have been associated with the recessionary period obviously. So even if you see us because of economic conditions, consumer confidence, whatever, see a reduction in that demand. I think the levels that we're at now would still be maintained going forward, because as I said they historically more associated with periods of recession and where we sit right at this moment in time.

37:57 Got it. So I guess maybe said another way, given the rise we've seen in just new vehicle MSRPs. Are you seeing affordability issue with the average consumer? Or do you find that they're trading up for the benefits of the vehicle? Or do you think it's more of a shift to the used market, I guess, the angle I'm looking for.

38:18 Okay. Well, I try and give you an angle on the answer then. If you look at the increase in used vehicle wholesale prices and the increase in new vehicle prices, the gap between them actually narrowed over the period of last year. So that's a theoretical cost to change, in my mind. So if you were trading in a vehicle then your position really has been not materially impacted by rising prices, because you've got it on both sides that obviously doesn't apply to people that are buying a vehicle for the first time in the marketplace. Outside of that, I can't really give you much color, because our turn rates are so high, it’s difficult to perceive what may be a slight movement in terms of affordability, because we frankly have customers for basically everything is coming.

39:02 Got it. No, that makes sense. I appreciate it. Thank you.

39:07 Thank you. Our next question comes from Colin Langan from Wells Fargo. Colin, your line is now open.

39:16 Great. Thanks for taking my questions. Just wanted to follow-up on the finco, I thought in your comments you said something you're in no rush to purchase. I mean, is the plan to acquire a finco? Or is this something about? Or are there thoughts to really more to it organically?

39:35 From my perspective if there is the right target in the marketplace that would be by far my preferred route to do it. By far my preferred route to do it.

39:48 Got it, okay. And then you also -- in your intro comments talking about costs and SG&A was quite low in the quarter. Are there any notable actions that we should be aware of that are going to drive that structural cost? I mean, we're really are some of the key drivers that you're kind of getting at in terms of structural cost coming down coming out of this crisis?

40:10 Yes. I'll address that. It’s really the same we've talked about in the past. It starts with really starting to leverage the digital capabilities we have both in the sales and stores operations, as well as the back office. So you go back to the beginning of 2020, I mean, we're 13% down on headcount on a same store basis, right? That is continue to kind of drive through the operations. Our digital tools have allowed us to be more efficient in advertising. And so these are -- in my perspective, structural changes we've made that have reduced, if you will, the fixed cost structure of the business, which we're maintaining the discipline going forward. So we expect that we will continue to have a much more favorable SG&A as a percentage of gross going forward by maintaining that discipline and ensuring that we continue to leverage the tools most effectively and we continue to invest in those tools to make sure that they're state of the art.

41:09 Great. All right. Thanks for taking my question.

41:13 Thank you. [Operator Instructions] Our next question comes from David Whiston of Morningstar. David, your line is now open.

41:27 Thanks, good morning. First on the USA stores, as you go into new metro areas from a marketing perspective. How are you introducing the stores in the brand to consumers? Is it mostly Internet or radio or TV?

41:44 Frankly, it's a combination of all of the above. I think what Joe didn't touch on is one of the efficiencies that Mark Cannon and his team has been able to generate is the way that they are communicating in the use of different media channels and I think that, that typically what we would do is really use the data that's available to see how the demographic that we're targeting in that particular area is consuming information and then he just basically built an optimum plan to try and make sure that we hit communication goals and marketing those in the timeframe that we need to launch and he does that individually by each and every market even though there's obviously a lot of commonality and then effectively rolls it out.

42:33 And on SG&A, if we were to have a recession later, obviously a lot was already cut in 2020 other than reducing advertising in a downturn, are you guys already close to the bone or do you think there is more cuts you could come up with, if you had to?

42:52 We are continually evaluating the cost structure and we have a number of initiatives underway to continue to operate the stores more efficiently. So we today have a large share of service center in Dallas. We continue to look at ways to optimize that and make our stores more and more efficient and that is an ongoing journey that will have ongoing benefit. So the answer is I don't like to think cut into the bone, I'd like to think about optimizing the organization and that's clearly something we see additional opportunity going forward.

43:24 Okay. And finally on -- with inflation perhaps sticking around short-term or even long-term, if there were to be a longer term problem, would that change your M&A strategy at all in terms of would you want to be more towards volume brands due to their lower prices or more -- focus more on the premium side, because those customers perhaps aren't as bothered by inflation.

43:50 Well, I mean, frankly, we're in a cyclical business, right? So obviously for me I like the blend that we have in terms of brands. I think it's a really good blend particularly when I think through the plan for the individual OEMs are put in place, because ultimately the product that they are working on today really is going to dictate the success on the new car side of the business going forward and that are reviewed now across many of our OEMs and product lines. Firstly, I am encouraged by the level of investment has been made. And secondly, it doesn't really change my view on the balance that we have in our portfolio today. I think it just reinforces we have a good balance.

44:32 Okay, thank you.

44:35 Thank you. There are no further questions at this time. Mr. Manley, I turn the call back over to you.

44:43 Well, thank you. Again, thanks for being on the call today. As I said before, I think it's good that the momentum that we have finishing of last year continued into the first quarter. I really just end by saying and we touched on it in some of the questions as well, I think that there are a number of changes that have been structurally made to the group that will continue to be in place, but for me will make us more efficient I think the focus on cost that we discussed with Joe and his answers to the question will continue going forward. And I look forward to seeing our Q2 ends for us and hopefully you'll be on a call in a few months' time. So thank you for your time this morning.

45:22 Thank you for joining today's conference call. You may now disconnect.