Good morning, and welcome to the Sonic Automotive fourth quarter 2021 earnings conference call. The conference is being recorded today, Wednesday, February 16, 2022. Presentation materials accompanying the management's discussion on the conference call can be accessed at the company's website, ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor statement under Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or 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 eight-K filed by the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference. Great. Thank you very much. Good morning, everyone, and welcome to Sonic Automotive's fourth quarter and full year 2021 earnings call. As you said, this is David Smith, the company's CEO. Joining me on the call today are Sonic President Jeff Dyke, our CFO Heath Byrd, our Chief Digital Retail Officer Steve Wittman, and our Vice President of Investor Relations Danny Wieland. Also joining us is Mr. Tim Keen, who was recently promoted to EchoPark Automotive Chief Operating Officer. Today, Sonic Automotive reported all-time record results, delivering all-time record revenues for both the fourth quarter and the full year 2021. We are very proud of our team's performance for the quarter, which capped off a year of significant growth for our company. In addition to our record financial performance, we achieved several important milestones that position Sonic for continued growth in 2022 and beyond. On a consolidated basis, Sonic delivered record revenues of $3.2 billion for the fourth quarter of 2021 and $12.4 billion for the full year, up 14% and 27% respectively. We continue to see increased customer traffic at our stores and robust consumer demand, which combined with our sales and marketing activities and improved digital channels, drove our strong sales growth during the quarter. This was achieved despite the challenging conditions which have persisted throughout the industry, including inventory constraints and supply chain issues. At the same time, we continue to see benefits from the steps we took in both 2020 and 2021 to permanently reduce our expense structure, enhancing operating efficiency through our organization. For the fourth quarter, adjusted SG&A expenses as a percentage of gross profit were 63.3%, a 480 basis point improvement year-over-year. This contributed to fourth quarter adjusted EPS of $2.66 per diluted share compared to fourth quarter 2020 adjusted EPS of $1.50 per diluted share, a 77% increase. This represents our 12th consecutive quarter of year-over-year EPS growth. For the full year, we delivered adjusted EPS of $8.46 per diluted share, compared to adjusted EPS of $3.85 per diluted share in 2020, a 120% increase, and our third consecutive year of record-setting adjusted EPS. In the fourth quarter, we took significant measures to continue the strategic expansion of our nationwide footprint. Our landmark acquisition of RFJ Auto, one of the largest transactions in automotive retail history, is projected to add $3.2 billion in 2022 revenues, which are incremental to Sonic's previously stated target of $25 billion in total revenues by 2025. With 33 locations in seven states and a portfolio of 16 automotive brands, this strategic acquisition has added six incremental states to Sonic's geographic coverage and five additional brands to our portfolio, including the highest volume Chrysler Jeep Dodge RAM dealer in the world in Dave Smith Motors. Through this single transaction, we have substantially increased our geographic footprint, brand presence, and added considerable upside to our growth trajectory. In addition to RFJ Auto, we also have completed several other strategic acquisitions to drive further growth in our franchise dealership segment. We would like to welcome our newest teammates at Momentum Chrysler Dodge Jeep RAM in the greater Houston market, Volkswagen of Fallston in Maryland, and Sun Chevrolet in Upstate New York. These follow our earlier acquisitions of four Audi, Subaru, and Volkswagen franchises in Colorado during the previous year, or previous quarter rather. With these strategic additions, we have significantly enhanced our geographic coverage and brand portfolio while ensuring that we remain disciplined in investing in the right businesses at the right return. We want to take this opportunity to sincerely thank all of our manufacturer partners for their amazing support and dedication to our industry, without which we couldn't have achieved our record growth in 2021. Turning now to our EchoPark business. In the fourth quarter, we continued the nationwide expansion of our unique pre-owned vehicle concept, adding five locations in four states. Bringing our EchoPark brand to over 30% of the U.S. population, which is ahead of our target of 25% reached by the end of 2021. With our progress to date in growing our EchoPark distribution and digital network, we are well positioned to achieve our previously stated goal of 90% U.S. population coverage by 2025. In the interim, we have continued to invest in the human capital necessary to support the long-term success of EchoPark. With the promotion of Tim Keen to Chief Operating Officer of EchoPark, and the addition of Thien Truong, Chief Revenue Officer, Dino Bernacchi, Chief Marketing Officer, Steve Wittman, Chief Digital Retail Officer, and a Chief Technology Officer, which will be appointed shortly. As an update on the development and launch of our proprietary e-commerce platform at echopark.com, starting late in 2021, we have now gone live with a percentage of web traffic in select markets. Early results are very positive with a 68% increase in website cars sold conversion rate, which is overwhelmingly positive feedback from our guests and better than expected F&I sales via the new platform. To date, over 90% of the end-to-end online transaction were out-of-market sales and were completed in as little as 10 minutes. Our rollout continues to progress, and we expect to roll out our new digital platform to our entire EchoPark network later this year, allowing us to market our entire EchoPark inventory nationwide. Turning now to our balance sheet. During the fourth quarter, we continued to strengthen Sonic's balance sheet and liquidity resources, including an amendment to increase the total capacity of our credit facilities to $2.95 billion. We also took advantage of attractive capital markets conditions and a corporate credit rating upgrade to refinance our existing debt maturities at favorable terms, lowering our borrowing costs and supporting our long-term growth plan with the issuance of $1.15 billion of unsecured senior notes to complete the RFJ Auto acquisition and for other general corporate purposes, including the repayment of debt. We ended the year with over $700 million in available liquidity, including approximately $400 million in cash and deposits on hand. As part of our balanced capital allocation strategy, since the end of the third quarter of 2021, we purchased over 1 million shares of Class A common stock for an aggregate purchase price of $50.4 million. In addition, I'm pleased to report that our board of directors approved a quarterly cash dividend of $0.25 per share, which is a 108% increase from its previous level of $0.12 per share, payable on April 14, 2022 to all stockholders of record on March 15, 2022. This dividend increase reflects the strong performance and cash flow generation of our business, our positive outlook for the future, and our commitment to delivering returns to our stockholders. Our fourth quarter and full year 2021 results demonstrate the strong consumer demand we've continued to experience despite pandemic related headwinds, our success in maximizing operating efficiencies at our franchise dealerships, continued expansion of the EchoPark brand, and the constant commitment and diligence of our valued team members. We are especially grateful to our teammates for their continued dedication and commitment to Sonic and EchoPark, which ultimately makes our success possible. Our distinctive guest centric culture that is at the heart of everything we do, combined with our enhanced operating model, has enabled us to post another year of record results in 2021. Looking ahead, we remain focused on implementing our strategic plans to fuel further expansion throughout our franchise dealerships as well as EchoPark. We are very excited to enter 2022 with a strong foundation to increase profitability and drive our future growth. We look forward to effectively executing our roadmap to deliver long-term value for our guests, our teammates, and stockholders alike. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. Our first question today comes from Rick Nelson at Stephens. Rick, please go ahead. Your line is now open. Ted, thanks a lot. Good morning and great quarter. Thank you. like to, I guess start by asking about inventory, you know, supplies on the new car side, when you think the challenges will abate, and is there any visibility into when inventory, you know, might start to normalize? Maybe you could speak to BMW, Honda, you know, two big brands of yours, what you're hearing from them. Hey, Rick, it's Jeff Dyke. Thanks for the question. Look, new car inventories, from our perspective, are gonna continue to be tight. We ended the quarter at about 11-day supply. That's where we are right now. Got some unfortunate news yesterday from some of the manufacturers, Toyota, Lexus, BMW included, that they're cutting back some of the allocation for February and March due to chips, microchip shortages. We expect this to kind of ebb and flow as we move through the first and second quarter. All indications are that as we move towards, we're gonna start to get better. That's with all of our brands, including BMW, including Honda. Yesterday was a bit of a surprise, to be quite honest with you. We were not expecting that. And so it goes. You know, we've dealt with that for the last couple of quarters. As you can see what happened in the fourth quarter, we've made adjustments. Obviously, our SG&A is in great shape. We've moved our margins up. We had record front-end margins, over $6,500 a copy in new car for the quarter or for December. We see that continuing. We had a great January. The margins are still high. That's gonna persist on as long as the day supply is gonna stay tight. I've said this before, I don't think new car supply is gonna come back ever to where it was, you know, prior to the pandemic starting. I look for BMW to get to a 16-20-day supply. For us, they're at about a 10-day supply now as we move towards the summer. You know, hopefully, without any more of the announcements that we had yesterday. But new inventory is gonna be tight. We think it's gonna get better as the year goes on and then progressively get better as we move into 2023. Thanks, Jeff. Where do you think GPUs settle once inventory is to recover? Do we go back to pre-pandemic levels, or do you think, you know, OEMs will manage things tighter and some of those elevated GPUs can carry on? Yeah, you know, I'm going to any brand meetings as I can, and, you know, we're pressing very hard for them not to bring inventory levels back to pre-pandemic levels. Margins are gonna stay high. The margins prior to the pandemic are low. We should be selling cars at MSRP. I mean, this industry needs to get away from doing all the negotiating. It's a hell of a lot less complex, much easier, and it brings the right value for the vehicle. I think that, you know, prior to the pandemic, you saw Sonic Automotive somewhere in the $2,000-$2,300 range in terms of front-end margin. That number's gotta stay north of $4,000, if not higher, as we move forward. I would work that into all the models. I just don't see margins coming back, going back to pre-pandemic levels ever. I certainly don't see them coming back in 2022 or 2023. That's great for the industry. It keeps us healthy. It puts lots of cash in the bank. Lets us make investments like we did in RFJ and make investments in EchoPark and continue to what we're doing. With the, as David said, in his opening, with the permanent reduction of SG&A, it just makes up for a really great run here these next few years. If we can keep our manufacturers partners in line with day supply, which we're all working on, I think that's the only thing that can screw this up, is if they bring day supply back to the you know 60-, 70-, 80-day levels that we used to see. I just don't see that happening. Rick, this is Steve. I'll just add, too, you know, if you look at Sonic specifically, you know, I all of our models indicate the same thing that Jeff is saying, that you know, it's gonna stay well over 4,000 at least in 2022. But some of it's gonna be impacted by RFJ's mix. Their mix is a little bit different than ours, so that brings the GPU down a bit. So it's gonna be a combination of that, lower inventory driving the higher GPU, keep maintaining it higher, and a little bit of an impact of RFJ's mix that reduces ours. Good. Good to hear. Speaking of RFJ, I'd like to hear about any early learnings, any positive or negative surprises, kind of come about there. Fortunately, this is David Smith. Fortunately, everything has been very, very smooth. We've so far been very pleased with the team and Rick Ford and his leadership team that they are still in place and everything has been going very smoothly. Yeah, the only thing I would add to that is I think that we, you know, we can learn a lot from each other. They do a fantastic job, you know, running smaller stores in mid- to small markets. They’ve got a lot to offer there. It also might open the door for us to do some tuck-in acquisitions of those type of stores that really have not been on our radar in the past that might be on our radar now. Overall, as David said, you know, them coming into our culture, the cultures were so similar already. Rick Ford, Myron Heronema, and that whole team are doing a fantastic job running their platform. Early results have been fantastic, beat our expectations. We’re very, very excited and bullish on this acquisition. It was a fantastic acquisition for our organization at this time. Just an absolute great addition to the family of Sonic Automotive. All right. Good. Good to hear. I'm curious also on your appetite for additional acquisitions. Do you go slower now while you integrate RFJ, or are you in the market to do more deals? Yeah, this is David. Yeah, we are very focused on integrating RFJ and also focused on EchoPark and continue our growth there. We're gonna be very disciplined on further acquisitions. That's not to say that if something came along that we wouldn't take a look at it because that's really what happened with RFJ, and that deal came together in record time over only about a three-month period. It was a great team, and we knew a lot of those people, and so it was a very special deal. But I think barring something like that, I think you're gonna see us really focused on driving our growth of our existing businesses and continuing on the growth path that we've already announced. Thanks for that, David. Finally, if I could ask on EchoPark, I believe you previously had targeted profitability in late 2022. I'm curious if that expectation has changed. I don't see it in your slide deck here. Yeah. You know, Rick, this is Jeff. In our mature stores, that's true. Obviously, with the used car market, right now, that the margins are really difficult. The average retail selling price has moved from about $21,000 to about $29,000. We've seen prices ease about $2,000 a car over the last six weeks in what we've been able to buy at the auctions. You know, we're gonna see our stores that are 3- years old begin to get profitable. Our 5-year-old-plus stores certainly do that as we move towards the end of the year in us getting sort of the EBITDA back on track. I do think that the first quarter and the second quarter are gonna continue to be tough. We're looking, and we've already started a little bit with the 5-year-old model car at EchoPark. There's some, you know, requests from our consumers for us to sell more than the 1- to 4-year-old models. We're looking at 5-, 6-, and 7-year-old cars. We do that in a handful of stores now. We'll see how that goes. We've got some retooling to do, because of the complexities in reconditioning in order to do that. We're taking it one quarter at a time here. We'll see how things progress as we go through the year, and if we need to make some adjustments like that, we'll do that. We are gonna expand, continue to expand EchoPark. We'll reach 50% of the nation by the end of the year. We're also introducing, with Dino Bernacchi joining our team, we'll start our marketing and branding campaigns this summer. So you can expect a drag on the stores and the marketing spend somewhere in the $40 million-$50 million range for the year, when you combine those two things added into our plan as we move forward, and that's what we have in our forecast internally here. But yeah, you know, if the markets continue to come down like we think they're going to from a pre-owned perspective, where we can get that average retail selling price at least below $25,000, it really puts a lot of wind in our sails for EchoPark. We're just one quarter at a time watching that. If we need to add another year or two to drop the average retail selling price, we will. It's a quarter-by-quarter watch here before we start making some of those moves. This is David Smith, and some of our teammates may wanna chime in on this, but we, you know, we achieved the number one position in our Reputation.com surveys verbatim from our customers. As Jeff said, we're you know, our customers are telling us what they want, and they want more than just the 1- to 4-year-old cars in many markets. I don't know if you guys wanna touch on that, but that was just incredible performance to be able to open as many additional stores as we did and still achieve that number one spot and being able to deliver that guest experience to all of our customers is absolutely incredible. It did. I guess the only thing I would add is it's becoming more than just about price. That's how we really drove a lot of our traffic, and now the guest experience is really taking hold. The rest of the nation, or half the nation this year will be able to experience EchoPark by the end of the year. When you combine all that, EchoPark's just getting stronger and stronger and stronger. That's what we've projected. We think the margins continue to improve. Inventory levels continue to improve, although it's gonna be slow until those new car inventory levels come back and the rental car companies get out of the auction lanes from buying cars and start selling cars again. You know, it's just gonna be a little bit of a slow drag here for the next few months. It's nothing. It's short term. Used cars are not gonna continue to appreciate. That's just not typical. We'll be in a depreciating market if we're not already in it, as we move forward here over the next couple of quarters, and we look for things to get back to normal from an EBIT perspective at EchoPark. Greg, this is Steve. I'll just add that, you know, I view 2022 as really the coming out party for EchoPark. We've got, you know, as Jeff mentioned and David mentioned, our branding has begun with Dino. We're building the infrastructure to make that happen. Digital retail platform being rolled out this year. Once you combine that branding and it becomes a household name, coupled with the ability to buy online, that's gonna be a tipping point for us. From my perspective, this is really a coming out year for 2022. Steve Wittman, I think he needs to comment here on where we are from an e-commerce perspective, Rick, for you guys in our digital retailing platform. Steve? Yeah, sure. As David mentioned in his opening comments, we've launched a website and proprietary digital retailing tool in North Carolina. We've expanded to South Carolina recently as well. Overall, the results are very positive. The new site is driving 68% incremental cars sold versus the old site. Of those cars sold end-to-end online, financing penetration is 100% and extended warranty penetration is 50%. Additionally, we've enabled nationwide shipping on our new website. The consumer can go onto our website, find a car in Long Beach and have it shipped to Charlotte, and we enable the consumer to do that. That's really interesting. What we've seen is that 90% of the cars we sold online have been shipped from outside of North Carolina. That new ability to shop nationwide inventory is really driving incremental volume for us. Additionally, we're seeing very strong internals, technical internals on the website. It's 30% faster than the old site. Bounce rates are down 70% and time on site is up 75%. Lastly, we've talked to consumers who have used the new tool. They love it. They talk about the simplicity of it, the ability to go end-to-end online in an automated way with no human interaction, and also the transparency. We are very transparent about the price, the payments, the products we sell the consumer, and we're getting great feedback from them early on here. It's gonna be a huge enhancement to our overall business. Thanks a lot for all the commentary there. I much appreciate it and good luck. Thank you. Thank you. Thanks, Rick. Thank you, Rick. The next question comes from John Murphy from Bank of America. John, please go ahead. Your line is open. Good morning, guys. I just wanted to follow up on used and EchoPark specifically. I mean, Jeff, as you look at this, I mean, I think your target is that the vehicle sold here would be basically 40% less or 60% of the value of a new or the pricing would be sort of that kind of a gap, which is kind of more, you know, normal. I mean, where would you say that relative gap is right now? Is it like half that or maybe even less in the used market? Yeah. On used to new pricing? No, I mean, that's a great question. That's the big issue is the new car prices are bumping up closer and closer to new car prices. It typically runs in the 50% range, 55% range. It's now pushing up towards 70%. 67%, I think, is the Cox Automotive number. That's just too high. What happens is the used car customer can switch off and buy a new car a lot easier. In particular, if there was inventory out there, I think it would even be tougher. Yeah. We've got to get back down to that 55% range, and bring that monthly payment down closer to $400. That's where EchoPark and the win really kicks in. We're in such really good shape with our day supply. You know, we don't have a lot of inventory. This is on the franchise side and the EchoPark side. We're sitting at a 36-day supply, something like that, a little higher maybe at EchoPark for store openings. We're in really good shape with the inventory. What you worry about is the rest of the market out there that might have a 60, 80, 90 day supply. They're still sitting on cars that they paid at the height of the market. They're gonna have issues. All that inventory needs to bleed through, and that average cost of sale needs to come down on pre-owned. That's gonna put us back closer to that 55% level. That's gonna drive the big volumes that we're very accustomed to at EchoPark. We're being very patient. You know, we've got this great franchise business. It's printing a lot of money. It gives us a lot of flexibility. We're being real patient with EchoPark. I don't want to go change the model up given you know, given what's going on in this appreciating used car environment. But if we have to, and we're being asked to by our customers, as David said, "Hey, could you guys start selling some 5- and 6- and 7-year-old cars?" We're looking at it. We put that inventory into the Tampa market, and that store took off. We put it in Birmingham, and that store's taking off. We're gonna play around with a little bit, that will drop that average retail selling price, and it needs to get below $25,000 and really get to $22 or $23. That's when we really start seeing the volumes come back. Jeff, when we think about three years of pretty depressed by supply constraint, you know, volume years, you know, even in the next few years, there's not gonna be that many young used vehicles available because they just wouldn't have been made and sold. I mean, don't you have to, you know, kind of push into sort of 4- to 5- to 6- to 7-year-old vehicles in the coming years just because, I mean, the vehicles won't be there right in the 1- to 3-year-old bucket. Yeah. I'm just curious, you know, how do you... I mean, what does that change in your model? I mean, you were talking about sort of on the production side, you know, there might be some changes. I mean, other than that, is it really just, you know, getting, you know, good vehicles at lower price points that just happen to be a year or two older? I mean, you can deliver a good product at that age. I'm just curious, how, what's the difference in what you need to run in the business model? Yeah, it's real simple. We've got to retool our reconditioning system. One to 4-year-old car is a lot easier to recondition than a 5-, 6-, and 7-year-old car, and the parts availability issue that's out there. We've got to have a different level check. We can retool very quickly to do that. It would take us 90-120 days to begin to sell that 6-, 7-, 8-year-old car. That's not something that we can't do. But I'll tell you, there are more off-lease cars coming back this year than last, about 25%-30% more. You might think that next year they're not. There's a lot of customers that stayed in their leases. They bought their leases out. The car is going to come back in a different way. They're not gonna come back through the traditional lease lanes. They're gonna come back from the customer returning that car via us buying the car off the street. We've also been able to increase EchoPark's purchases off the street from call it in the fourth quarter around 10, 11, 12%. We're pushing January, February in the 18% range. We think we can get that number up to 30%. John, if you're being logical, yes. The answer is yes. We can retool and sell that 5-, 6-, 7-year-old car. It's a lot easier and a lot less complex if we can just sell 1-4. But you're probably right. You're probably gonna see us move, maybe talk a little more in the second quarter about selling some of that 6, 7, 8-year-old inventory and buying those cars off the street. They're a lot easier to buy off the street. We do it every day at our franchise stores. We can also leverage our franchise stores to buy more of those cars off the street to feed EchoPark, something we've never done before. But the inventory is there for us to do that. Customers are coming in every day for us to do that. We can utilize our service lanes to buy more and more cars. Logically, probably, yes, as we move into the middle of the summer and into the third quarter, you'll see us making some of those moves. John, this is Heath Byrd. Just to add a couple of the differences in that model is basically the way you make when you look at the unit economics, the way you make money on a 1-4 compared to a 5-8 will be different. You'd see a on the 5-8, you would be seeing a higher front-end GPU and less F&I because the underwriting obviously is different for those 5-8-year-olds for warranties. Got it. Okay. Just flipping back to the franchise side, I mean, the parts and service recovery is pretty good, but it seems like there's a lot of legs left there. I mean, how do you see that progressing through 2022 and maybe even into 2023 as the world, you know, knock on wood, hopefully normalizes? I mean, it just seems like there's a huge opportunity still there in backlog. Yeah, we agree 100%. Our customer pay grew over 18% in the fourth quarter, which is great. Really can't control warranty. That's down, I think it was 11%, if I'm not mistaken. But we agree with you 1000%. There's a lot of room there. We're hiring technicians left and right right now, adding capacity into several of our brands, and there's a lot of upside. In particular on the West Coast, they were sort of first in and last out of all of this, so there's certainly opportunity to grow there, and we're budgeting that way. As the supply chain improves, we're gonna see a lot more growth there. There's been again, historically high work in process in our dealerships. It's really been not only the parts, but the shipping of those parts that has been the issue. But as that clears up, which we think it will over time, that will improve. Yeah. We did, we got hit in the fourth quarter. We had a ton of techs that were out sick with COVID. That it really smacked us around a bit. There's plenty of upside in the fixed business. Okay. Then just lastly real quick on rising rates, I mean, is this an issue? I mean, it's not a one for one just given the duration of the loans and leases. You know, you don't go up one for one with Fed funds rates. I'm just curious how you think about rising rates. I mean, as you just gauge the backlog in both new and used is just so strong and not supplied at the moment that, like, this is gonna be largely subsumed or overwhelmed with the backlog of demand. I mean, how do you think the balance of power is there? Well, from a demand perspective, you know, I think that, you know, we budgeted in 4 rate hikes for the year. You know, as long as those are moderate, we don't think that it's gonna become an affordability issue. Actually, the actual vehicle price is becoming more of affordability issue than financing. From a standpoint of, you know, expenses from our perspective, obviously we factored in those increases if it impacts our floor plan, et cetera. At this point, you know, we think the demand is so high and supply is so low that rate increases are not gonna impact the demand to the point that it's material for the industry. Great. Thank you very much, guys. Appreciate it. You bet. Thank you, John. Thank you, John. The next question today comes from Rajat Gupta of JP Morgan. Rajat, please go ahead. Your line is now open. Great. Thanks for taking the questions. Just wanted to follow up again, you know, on the used car market. You know, we're hearing some mixed commentary there around demand and growth. You know, industry data continues to suggest a pretty bleak picture, you know, year to date. Can we get a sense of what you're seeing at your franchise stores on the used car side, you know, maybe quarter to date? You know, what the demand backdrop really looks like, you know, particularly as we head into the tax season here. Maybe relatedly any views on pricing. I mean, you did suggest earlier that you expect it to correct over the next couple of quarters, but do you see another leg up here into the tax season, you know, before we start to see the leg down? Just curious how you view that dynamic there in the near term. Then I have a follow-up. Yeah. Certainly the used car volume is gonna pick up in March and April and May from where it was in January and what we're seeing in February as it always does. The demand is there. I mean, we're gonna sell 40 million used cars in this country this year, and that's, you know, 36-40 million is pretty consistent for the last decade. It's the price point, right? You know, that's pushing demand up for new cars really because the used car price points are so high, and that's gotta give, and it's gonna give. I mean, that's gonna happen. Like I said earlier, used cars are not gonna continue to appreciate. We do believe we're starting to see the depreciation cycle start, if the last six weeks are any indication of that. The used car demand is there. It's still very strong. It's just a matter of providing the inventory at the right price payment that you can get for the consumer, because most of our consumers are payment buyers and both on the EchoPark side and the franchise side. We've got to hit that right price point. You know, our stores have literally gone from selling an average retail selling price of $23,000 on the franchise side to $30,000 or $31,000. It's just too high. It's butting up too close to the new car pricing, and the payment that you can get on a new car. We're gonna battle that headwind here for the next couple of quarters for sure. First quarter, second quarter, maybe even into the third quarter, but it is going to slowly and progressively get better. That's the message we've been getting from the manufacturers. That's what our economist teammates are telling us. That's what we've budgeted for. Rajat, this is David. As you can imagine, as the new car day supply is, you know, 10, 15 days, you know, naturally, customers who can't get a new car are going to buy, you know, a car from our franchise stores that's a, you know, 2- or 3-year-old, you know, pre-owned car that's in great shape because that's just the only thing they can get. They're, you know, so it may be closer to the price of a new vehicle, but they're still gonna, you know, they need a new vehicle, so they're gonna go for the, you know, 2- or 3-year-old pre-owned vehicle. Got it. Great. Then maybe just to follow up on EchoPark and maybe into like the full year puts and takes. You mentioned that you expect this kind of like, you know, reduced unit volume metering to continue here for the next couple of quarters. I mean, any numbers you could put around that, you know, in terms of like volume expectations or, you know, just EBITDA losses, you know. Are we gonna see a continued improvement on that EBITDA loss or, you know, should stay at this kind of level like for some time, you know? Just maybe some numbers around, you know, how the EchoPark volume and loss trajectory could play out this year. Maybe if you could tie that into like just some other puts and takes for the full year, you know, for the overall business as well. Yeah. Let's just call, depending on what happens with the inventory, this is a little bit of a guess, but 110,000-120,000 cars, somewhere in that ballpark, for EchoPark, this year. EBITDA progressively getting better as each quarter goes through the year, and we get to the fourth quarter, positive EBITDA probably maybe even in the third quarter. I think the first quarter is gonna be tough. Certainly gonna be tough, just because of where the inventory levels are right now. Getting a little better in the second quarter, progressively getting better in the third and then in the fourth quarter. Some of the EBITDA is dragged from moving to 50% coverage in the country, so dragged from opening the stores that $10 million-$15 million range we've been talking about on an annualized basis. Then the investment of that $30 million-$35 million, maybe even $40 million, we'll see how it goes in our marketing and branding campaigns that Dino's working on that we'll launch this summer. This is, as he said earlier, a coming out party kind of year for EchoPark. We're very, very bullish on what our customers are saying. Our Reputation.com scores, as David said earlier, we're ranked number one in the nation for a pre-owned dealership group in those Reputation.com scores. When you add it all together, this is just a great year. It's gonna be a great year for EchoPark. We're gonna increase our revenue, increase our volume. EBITDA is gonna continue to improve as we move through the year. Inventory is gonna get better. It's gonna roll us into us being in an even better position when we roll to 2023 as inventories come back to hopefully a 25- to 30-day supply level. Hopefully, that gives you know, enough insight on what EchoPark's gonna look like as we move forward. Yeah. This is David. It's, as Jeff was talking about earlier, the fact that we've kept our day supply in line and been disciplined about that. It's sure a whole lot easier to crank up the volume as the market drops, as the market value of these, you know, pre-owned vehicles drops. We can crank up that volume rather quickly versus if we were carrying a large day supply going into that situation. It's a real drag on performance. Yeah, that's right. I mean, we could have sold more cars in the fourth quarter on pre-owned. There's no question about that. But we had no idea from September through December or January what the appreciation issue was gonna be as new car inventories were tighter and tighter. We maxed out our gross profit, had the biggest grossing quarter, fourth quarter we've ever had in pre-owned and the biggest grossing year we've ever had in pre-owned and took advantage of the market. We can do that because our day supply is so nimble. We carried 10 days in the pipeline, 20 days on the front line, and we can move very, very quickly to adjust for the market versus some of those competitors that are out there that are sitting at 70, 80, 90 day supply of product. There's a lot of water in that inventory that they're gonna have to deal with. One other thing that's a big positive for EchoPark for this year is the rollout of the digital retailing platform not only creates the incremental opportunity for consumers, but the efficiencies are going to really show through the SG&A because it truly is a humanless transaction. There's no one behind the scenes that's doing paperwork, and it is done completely automated. That will get us from 25 units per associate per month to you know higher 30, 35 because the work is being done by the consumer online. We look forward. We'll have a day where we get to really show the tool, and we look forward to really rolling that out and showing everybody. It is a very special tool. Whitman and the team did a fantastic job with the development of the tool. Bottle Rocket, our business partner, just did a fantastic job with the development of the tool. When we get to the point where we're ready to display it, we'll put it out there for everybody to really see. First time or you've got a tool that someone can buy a car online beginning to end with no human interaction. Robots or bots, as we call them, and a lot of great technology driving what is a fantastic guest experience. We'll be excited to share that with you in the coming quarter or two. Yeah. We will be setting up an analyst day to walk all of you through that as well. Got it. Maybe just to clarify the advertising number, 30 to 50 million, that's a year-over-year number. I think you spent like 36 million for the full year in EchoPark advertising in 2021. Is that incremental? Yeah, that's wholly incremental. ... or is that like a- Yes, it is. It's all incremental. Okay. Got it. Yeah. I just used a $30 million number. Got it. Just lastly, you know, you gave us some color on the EchoPark EBITDA trajectory. You know, you mentioned like 4,000+ new GP for the year. You know, services continue to recover. Where do you think, like any range around what SG&A to gross might look like for the company for 2022 in ballpark, like just for modeling? You know, I think if you do the modeling and look at the math, understanding that, you know, there's a couple of things that's dragging on SG&A. If you look at wages, you know, everyone's experiencing this, but it's an incredible increase in wages from a standpoint of merit increases and retaining good talent. That's up about 6.4% from a corporate perspective. That's gonna be a drag on your SG&A. You add in the $50 million that Jeff was talking about the investments with EchoPark. Finally, we've got a little bit; it's probably $5 million-$10 million of what I would call RFJ transition work that we need to do that'll run through SG&A. We've got a lot of opportunity with synergies with RFJ, but there needs to be some double work to get that in place. It'll definitely have return, but you'll have that drag in the SG&A as well. You got 6.4% increase in the wages. That's not the total comp that you see in reports, but that's our corporate team coupled with the investments that Jeff mentioned and $5 million-$10 million in expenses for RFJ transition, and that gets you to the number that we're expecting for 2022. Got it. Okay, that was extremely helpful. Thanks and good luck. Yes, I think one thing more just to be aware of, as you look at SG&A and overall, I think it's very important that everyone understands in sort of the sequencing of our earnings. In Q1, it is always around 15%. It's never been more than 19% of the total year. Second quarter and third quarter run around 25% each quarter, and then the fourth quarter is the remaining profitability. We've run that type of percentages and cadence for the last 15 years. As you model, you know, our bottom line, that is typically the way that it works. This is Jeff. I think if you guys refer back to Heath's comments last year, we gave the same kind of guidance. For whatever reason, the third and fourth quarter always get tossed out. They're always wrong. It can't be stated any more clear. Here's the secret sauce. It's 15% in the first quarter, 25% in the second quarter, 25% in the third quarter, and 35% or better in the fourth quarter. That's how our profit works, and we've been very consistent in that over the years, and it played out exactly like that in 2021. Guess what? It's gonna play out like that in 2022. Got it. I mean, ultimately depends a lot on, like, the new vehicle gross margin cadence, I guess, right? I mean, such a big mover, but that's helpful. I'm sorry. Sorry, repeat that. Yeah, I was just saying, like, I mean, the new vehicle gross GPU is such a big, you know, unknown, or I would say. Yes. That has such a big influence on, like, the cadence or the seasonality of it, which just makes it a little difficult. But I appreciate all the color. Thanks so much. Yes, sir. I mean, keeping in mind that the new vehicle GPU that we mentioned earlier, as it decreases it, you know, we're also gonna increase volume of new vehicle sales as well. Yeah, it's gonna be 15, 25 and 35. It's gonna be right in that ballpark. Thank you. Okay. Thank you. Great. Thank you, Rajat. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question comes from Bret Jordan from Jefferies. Bret, your line is open. Please go ahead. Hey, good morning. Good morning. I might have missed this. Did you say what percentage of your EchoPark product came from auction in the quarter? Yeah. About 82%-83%, somewhere in there. That number is pushing up or pushing down in going into the first quarter. We're buying about 18% of our cars off the street now and keeping about 18% of our cars with trade-ins and vehicle purchases off the street. That's been a big focus for us. A little harder to buy 1- to 4-year-old cars off the street than it is to buy 5-, 6-, 7-year-old cars off the street, as John Murphy was talking about earlier from Bank of America. But we believe we can move that number up to about 30% of our overall inventory, and we're working diligently on that. We've launched our first marketing and branding plan around that. That went out sort of December-ish timeframe, and that continues to gain strength. We're getting a lot more traffic into our site to buy vehicles, so you can expect that number of purchases off the street and trades kept for EchoPark to grow to the 30% range. It'll grow even further as we expand the portfolio to selling 5-, 6-, and 7-year-old cars. Okay. On pricing, I mean, obviously your deck shows that you're selling 3-year-old or 4-year-old cars at prices that would be comparable to five or six. As you sell five to eights, are you pricing more in line with the market, or are you still trying to be below, you know, the competitive price, you know, significantly? Yeah. We'll still have a competitive price advantage, but we'll have positive margin on those vehicles. We see that right now in the stores that we're selling those vehicles, that our margins are much better overall in the stores from a front-end perspective in the stores that we sell 1-8 than we do the stores that sell 1-4. It's just the 1- to 4-year-old stores, the volume is significantly higher because the price advantage is so much greater in normal times. Smaller front end loss, but smaller F&I on the back end. Is that the thing about it over time? That's how you look at it. For a blended number overall, that's about that same, you know, 2500 range. You're in-person at the EchoPark stores? Yeah, absolutely. We're seeing extended warranty penetration at over 50%, which is in line with value reframing we do with them online. You talk about how much the extended warranty costs, but versus repairs that they would potentially have to make down the road. Very positive feedback from consumers, and our F&I penetration has exceeded our expectations to date. Yeah, that's been the best. That's been the best single, I mean, the performance of the website is fantastic from a metric perspective, but man, it sure is a great release given our model. We rolled that site out and here comes our warranty penetration, and here comes our finance penetration. For those to really improve over what we've seen at the store level is just great. That's fantastic news for us and gives us a lot of energy in rolling that site out everywhere. Yeah. This is David Smith. That's really to highlight. That's our benchmark, right? That's our benchmark for success is seeing that new website work in that way. We're making at least if not more than we are in an in-person transaction. That's the key. That's what we're seeing. That's the big takeaway from this call. Yep. Okay. I guess I might have missed this, but I mean obviously you talked a few quarters ago or a couple quarters ago about sort of evaluating EchoPark and alternatives. Is the disruption in the market and obviously the craziness around used vehicle sourcing and margin delaying that? I mean, is there any update on that strategy? This is David. No, we don't have any additional comment on that from our. You know, please refer to our previous disclosure. Okay, great. One last question, this goes back to the prior as far as the breakdown on a quarterly profit contribution, the 15, 25, 35. Is your feeling, I guess, you know, the read through and, you know, obviously GPU is at very high levels. Is your feeling, I guess, on the full year that GPUs will stay relatively consistent in the sense that your outlook as far as the supply that we're gonna be running these front ends that are still at very high levels and relatively stable? Yeah. If you look at our internal models, everything's basically flat, you know, across the board. Again, the RFJ impacts and their mix has a little bit of an impact. It's just gonna be sort of the mirror image of 2021. You know, we're gonna end up, if you put them together, they're gonna be sort of a mirror image from when it comes to new gross. Bret, this is Jeff Dyke. I mean, I think it's to Heath's point, if you look at what the second quarter of last year looked like when we were in the high 30-day supply, we were running just shy of 4,000 new GPU, but it was closer to an 18 million SAR because we had the inventory to support that. Right. As GPUs come down, that's gonna imply that inventory or at least production is increasing. We believe, as David just said, that the volume could offset from an overall earnings perspective, the volume could offset the GPU compression to where it may affect the overall earnings level for next year, but it doesn't affect the cadence in our view from the quarter to quarter. Yeah. Brett, if you look at it, I don't care what brand it is, we are substantially sold through the pipeline on all new vehicles that we have. It's been mayhem. It'll level off of volume. You know, we don't want 60-day supply inventory, and we don't even want 45-day supply inventory. If they could just get it back to the 20- and 30-day supply, you got great demand, great margin. It sets up 2022 and really 2020 for the industry. Okay, great. Thank you. There are currently no further questions registered, so I will now pass the conference back over to David Smith for closing remarks. David, please go ahead. Thank you very much and thank you everyone, and, y'all have a great rest of your week. We appreciate- This concludes the Sonic Automotive fourth quarter 2021 earnings conference. Thank you for your participation. You may now disconnect.