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Asbury Automotive Group Inc (NYSE:ABG)
Q3 2021 Earnings Call
Oct 26, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Asbury Automotive Group Q3 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Karen Reid. Please go ahead.

Karen Reid -- Vice President & Treasurer

Thanks, operator, and good morning, everyone. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Third Quarter 2021 Earnings Call. The press release detailing Asbury's third quarter results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with me today are David Hult, our President and Chief Executive Officer; Dan Clara, our Senior Vice President of Operations; and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call up for questions, and I will be available later today for any follow-up questions that you may have. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements.

Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts and current expectations, each of which are subject to certain uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2020, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today.

We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. We have also posted an updated investor presentation on our website, asburyauto.com, highlighting our third quarter results.

It is now my pleasure to hand the call over to our CEO, David Hult. David?

David W. Hult -- President & Chief Executive Officer

Thank you, Karen, and good morning, everyone. Welcome to our third quarter earnings call. In our earnings release this morning, we reported adjusted EPS of $7.36, a record third quarter up 80% over the prior year. Though our new car inventory levels continue to be challenged due to the chip shortage, our team delivered strong results and enabled us to deliver an impressive gross margin of 20%, an all-time record and an expansion of 180 basis points versus the third quarter last year.

These results demonstrate the resilient strength of the franchise model with its full suite of services through the car ownership journey from sales to service contributing to sustained profitability. We've also stayed disciplined in managing expenses, resulting in adjusted SG&A as a percentage of gross profit of 55.3%, a 580 basis point improvement versus prior year. Our total revenue for the quarter was up 30% year-over-year, and total gross profit was up 43%. Due to this record performance and strong cash flow, our balance sheet remains strong. Our net leverage ratio ended this quarter at 1.2 times.

A quick update on our five-year strategic plan. Same store revenue growth, assuming 2020 annualized revenue for Park Place, is up 10% and is exceeding expectations. Regarding Clicklane, our unit sales are pacing ahead of our projection for year one. And we've made great strides this quarter on our acquisition pillar. As announced, we expect to close on the transformative acquisition of the Larry H. Miller Dealerships and Total Care Auto in the fourth quarter. With their strong name and brand mix in the right states and our aligned cultures, we look forward to jointly deploying our capabilities and growing together. In addition, we closed two acquisitions recently. Greeley Subaru in the Denver market and Kahlo Chrysler Jeep Dodge in Indianapolis and are on schedule to close Arapahoe Hyundai Genesis in the Denver market today.

With another acquisition still under contract and expected to close in the fourth quarter as well, in total, in 2021, we anticipate that we will close on $6.6 billion of annualized revenue from acquisitions. With these results, we maintain full confidence in the execution of our growth strategy, and we will update our five-year plan during our Q1 earnings call in 2022. Now I would like to welcome Michael Welch, our new CFO to the Asbury team. He brings his vast knowledge of the auto retail business, along with his broad experience in finance. We worked together at Group one for many years, and I'm excited to be working with him again. I am also thrilled to welcome our new team members in Indianapolis and in Colorado into the Asbury family.

And finally, I would like to address all of my teammates at Asbury. Our ability to add quality stores, who like us care about serving our guests and being highly engaged in our communities could not have happened without you. You all have given us the ability to thoughtfully grow our core business, because you align behind our vision and you are executing each and every day. I appreciate all of you, and I'm thankful to be part of this team. People make the difference in any organization and you are making us the best place to work, do business and grow your careers.

Thank you. I will now hand the call over to Dan to discuss our operating performance. Dan?

Dan Clara -- Senior Vice President of Operations

Thank you, David, and good morning, everyone. My remarks will pertain to our same store performance compared to the third quarter of 2020, unless stated otherwise. Looking at new vehicles. Based on current market conditions, we continue to be focused on being opportunistic with our inventory and improving grosses to maximize profits. Our new average gross profit per vehicle was $4,808 up $2,369 or 97% from the prior year period. All segment margins were up significantly from the prior year period. At the end of September, our total new vehicle inventory was $121.9 million, and our day supply was at 12 days, down 35 days from the prior year.

With still no clear understanding of when production will return to a normal level, we expect the day supply to remain low throughout the remainder of the year and into 2022. Turning to used vehicles. Our used retail volume increased 27%, while gross margin was 8.4%, representing an average gross profit per vehicle of $2,402. As a result of our performance, our gross profit was up 45%. Our used vehicle inventory ended the quarter at $236.4 million, which represents a 28-day supply, down seven days from the prior year. Our used to new ratio for the quarter was 113%. Turning to F&I. Our strong, consistent and sustainable growth in F&I delivered an increase of $155 to $1,955 per vehicle retail from the prior quarter. In the third quarter, our front-end yield per vehicle increased $1,400 per vehicle to an all-time record of $5,487.

Turning to parts and service. Our parts and service revenue increased 10% in the quarter. Though warranty revenue dropped 18%, our customer paid revenue continues its healthy recovery, posting a 13% growth. Overall, our total fixed gross profit increased 10%, while total fixed margin was 60.9%. And now I would like to provide an update on our omnichannel initiatives. Our digital marketing team continues to do an outstanding job generating traffic to our websites. Our commitment years ago to Google organic search continues to drive efficiencies in times where inventory is shrinking, allowing us to increase traffic without spending media dollars. In Q3, we had over 6.3 million unique visitors, a 12% increase versus Q3 2020. Another initiative is to increase online service appointments. We achieved over 143,000 online service appointments, an all-time record and a 12% increase versus Q3 2020.

This component positively impacts service retention and increases the dollars per repair order. Now with two full quarters of Clicklane at all stores under our belt, we would like to share some performance metrics. We sold 6,000 vehicles through Clicklane in Q3, of which 47% of them were new vehicles and 53% used. 93% of our transactions this quarter were with customers that were new to Asbury's dealership network. Average transaction time continues to be consistent with previous quarter, eight minutes for cash deals and 14 minutes for finance deals. Total front-end yield of $5,400. Average credit score is higher than the average credit score at our stores. Total front-end yield of $4,396 on trades taken through Clicklane.

We continue to expect annualized volume through Clicklane of approximately 30,000 vehicles by year-end. As expected, Clicklane customers are converting at greater rates than traditional Internet leads. We remain quite excited about the performance of Clicklane thus far as it is tracking ahead of its target. And finally, I would like to thank all our teams in the field for their hard work, dedication and commitment to delivering an exceptional guest experience.

In addition, I would like to extend a warm welcome to our new team members from Greeley Subaru, Kahlo CDJR and Arapahoe Hyundai Genesis. All of you have built tremendous organizations that properly align with our North Star of being the most guest-centric automotive retailer. Our future is bright, and I look forward to meeting all of you. Michael, welcome to Asbury. Your depth of knowledge in the automotive business is already making a significant impact on our company. I am enjoying working with you and look forward to growing Asbury together.

I will now hand the call over to Michael to discuss our financial performance. Michael?

Michael D. Welch -- Senior Vice President & Chief Financial Officer

Thank you both for the warm welcome. I'm excited to be part of the Asbury team and have the opportunity to work with David again. I look forward to working with the team on our growth journey. To our investors, analysts and other participants on our call, good morning. I would like to provide some financial highlights, which marked another record quarter for our company. For additional details on our financial performance for the quarter, please see our financial supplement in our press release today. Overall, compared to the third quarter of last year, our actions to manage gross profit and control expenses resulted in a third quarter adjusted operating margin of 8.5%, an increase of 109 basis points above the same period last year and an all-time record.

Adjusted operating income increased 69% to $204.5 million, a third quarter record. And adjusted net income increased 81% to $143.6 million, another third quarter record. Net income for the third quarter 2021 was adjusted for acquisition expenses of $3.5 million or $0.13 per diluted share and a gain on dealership divestitures of $8 million or $0.31 per diluted share. Net income for the third quarter of 2020 was adjusted for a gain on dealership divestiture of $24.7 million or $0.96 per diluted share, acquisition costs of $1.3 million or $0.05 per diluted share and $700,000 or $0.03 per diluted share for a real estate-related charge. Our effective tax rate was 23.7% for the third quarter of 2021 compared to 24.8% in 2020. Floor plan interest expense for the quarter decreased by $1.5 million over the prior year, driven by lower inventory levels.

With respect to capital deployed this quarter, we acquired a Subaru store in Colorado, utilizing approximately $16 million of our cash on the balance sheet. In addition, we spent approximately $15 million on capital expenditures, and we repaid approximately $9 million of debt. Also as part of our strategy to optimize our portfolio, we divested of our BMW store in Charlottesville, resulting in proceeds of $18 million, net of its mortgage payoff. As a result of our operational performance, our balance sheet is quite healthy as we ended the quarter with approximately $780 million of liquidity comprised of cash, floor plan offset accounts and availability on both our used line and revolving credit facility. Also, at the end of the quarter, our net leverage ratio stood at 1.2 times, well below our targeted net leverage of three.

With our announced acquisitions under contract, we are working toward financing the exciting growth at Asbury. As announced in late September, we plan to raise the combined -- a combination of permanent debt and equity financing prior to the closing of Larry H. Miller acquisition. We are working with our supportive lender group to upsize our credit facility and syndicate the real estate mortgage financing with plans to close both ahead of our acquisition of Larry H. Miller Dealerships later this year. Although the transaction is initially expected to take our net leverage above our targeted range of three times, we believe that we can deleverage approximately three times during 2023, given the highly accretive nature of the deal combined with strong free cash flow generation.

As we look forward to the remainder of 2021, we anticipate similar conditions to what we have seen this quarter. New vehicle inventory supplies will likely remain low and unpredictable into the next year. In closing, I would like to thank our teams across the businesses, who continue to work tirelessly during the unprecedented times to ensure our current and long-term success. I would also like to welcome our new team members from our recent acquisitions. I look forward to working with you and continue to build on the strong cultures that you are bringing to Asbury. This concludes our prepared remarks.

We will now turn the call over to the operator and take your questions. Operator?

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Our first question comes from Rick Nelson with Stephens.

Rick Nelson -- Stephens -- Analyst

Thanks. Good morning. Terrific quarter. So I guess, to begin, from a balance sheet standpoint, where you see the pro forma leverage going post the $6.6 billion in revenue that you're acquiring? And how should we think about the capital priorities going forward? Are we in deleverage mode? Is that the focus of some of the near-term post these deals?

Michael D. Welch -- Senior Vice President & Chief Financial Officer

Rick, thank you for your question. Yes, from a leverage perspective, after we close the deals, we expect leverage to be in the high 3s. From a capital deployment perspective, just allocation in the future, we will be in a deleveraging mode in '22 and '23, just to bring that leverage back down to our three times target. But we can also take the cash flow from a deleveraging perspective and either pay back debt or if we found some acquisitions that provided EBITDA, that then would provide additional leverage, that would also provide some deleveraging ability as well.

Rick Nelson -- Stephens -- Analyst

Thanks for that, Michael. Also, the $900 million in incremental revenues, you could talk about the composition of those dealerships, maybe what markets are in and the size of the groups that you're bringing in.

David W. Hult -- President & Chief Executive Officer

Rick, this is David. We discussed this morning, Kahlo, the Greeley Subaru and Arapahoe Hyundai today. When you take those three out, it leaves a balance of about $740 million in revenue, which is all in one group. Because it hasn't been fully announced yet, we don't want to say it, but the brand mix is about 50% luxury and then mostly import with one domestic store as well. Really a very strong group with the right brand mix in a market that we've been trying to grow.

Rick Nelson -- Stephens -- Analyst

Great. Thanks for that. Maybe as a follow-up to that, if you could speak to the multiples that you're looking at for those stores.

David W. Hult -- President & Chief Executive Officer

Yes. So on the one that we haven't announced yet, off the top of my head, I believe it's about an eight multiple -- between seven and eight multiple. There's good upside in the stores and opportunity to grow them within the marketplace, and there's a little bit of Capex involved as well.

Rick Nelson -- Stephens -- Analyst

Okay. The Larry Miller deal, I'm sure they're bringing some digital assets to the group. And if you could speak to any potential challenges integrating that group into Clicklane and the opportunities there?

David W. Hult -- President & Chief Executive Officer

Sure, absolutely. I would tell you, it's -- the integration should go pretty smooth. We're all in the same software, same DMS. We're retaining all the senior executive management team and really kind of like we did Park Place, let it operate in its own silo. They're extremely strong brands, great leadership, and the store has performed extremely well. There's a lot of capabilities there for us to enhance their digital side. They're extremely strong operators, but there's an opportunity for digital. I don't think that will be a focus the first few months. It will be mainly more integrating the folks and getting to know one another and creating that trust and relationship and then starting to integrate the software. But like anything, there's always potential in every acquisition to grow.

Rick Nelson -- Stephens -- Analyst

Great. Thanks for that. Finally, if I could ask you about Total Care Auto, the opportunities to bring that in. How is -- what sort of financial implications that has on the F&I side and any potential risks that, that strategy brings?

David W. Hult -- President & Chief Executive Officer

Rick, this is David. I'll start and then Michael can jump in. I would tell you it's a very stable business. The Miller organization has had it over 30 years. It's AM Best rated. They're doing extremely great job at paying claims, a strong balance sheet. Really, we see it as very accretive to us. Margin is significantly higher than our operations. And they're essentially just high level, making above $50 million a year EBITDA on 115,000 car sales. When you integrate Asbury at over 200,000 car sales into that, you can kind of see the upside potential there. So we're excited about what it can do. And the other huge benefit that it's had for that organization, they have extremely strong service retention numbers. It's a true hand-in-glove relationship between TCA and the Miller organization.

Michael D. Welch -- Senior Vice President & Chief Financial Officer

Rick, one thing that will cause a little bit of, I guess, slowness on how we integrate is from an accounting perspective, it costs a little bit of noise of moving dealership profits from a day one profit to kind of we have to kind of defer and amortize it over the life of the contract because it's an insurance business. So because of that, it will take us a few years to be able to bring in Asbury at a measured clip. The other thing is that business to bring in Asbury has to just size itself a little bit for the additional business and obtain some insurance licenses in some states that they don't do business right now. And so we just have a little bit of leg work to do to be able to get Asbury fully brought into their mix.

Rick Nelson -- Stephens -- Analyst

Got it. Okay. Thanks a lot.

Michael D. Welch -- Senior Vice President & Chief Financial Officer

It's about two to three years -- it's going to be two to three year period.

Rick Nelson -- Stephens -- Analyst

Okay. Thanks for that. Good luck.

David W. Hult -- President & Chief Executive Officer

Thank you, Rick.

Michael D. Welch -- Senior Vice President & Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from John Murphy with Bank of America.

Aileen Smith -- Bank of America -- Analyst

Good morning, everyone. This is Aileen Smith on for John. First question on the new vehicle business. Can you talk about the entrance versus exit rate in the quarter on gross margins in GPUs? And more specifically, is it fair to assume that growth has improved through the quarter as the inventory environment tightened or rather dropped off with sales trends? Just trying to think about what the launch point should be for 3Q into 4Q and then further into 2022?

Dan Clara -- Senior Vice President of Operations

Yeah. Good morning. This is Dan. The margins, as we enter into our Q3, saw pretty stable throughout the quarter, although I would say probably a little bit of an uptick as we were exiting the quarter, mainly driven for the -- due to the supply and demand. As we move forward, we -- as I stated on my script, we see the inventory constraints continue well into 2022. So we expect the margins to ride right along the inventory.

Aileen Smith -- Bank of America -- Analyst

Okay. Great. And then can you talk a bit about the prioritization, if at all, for the used vehicle business between same-store sales comps versus gross margins and GPUs? Relative to the new vehicle business quarter-on-quarter, gross margins are down, but the offsetting factor for this is obviously a material acceleration in same-store sales growth. Is this something we should look at as a structural trend going forward as you continue to focus on the used vehicle market for growth opportunity? Or is this purely a function of broader market dynamics, namely the inventory shortage that's more transitory in nature?

Dan Clara -- Senior Vice President of Operations

Yeah. I think that it's just a product of the market. If you look at our cost of sale or average selling price in used cars, it increased 16%, and that is something that we're seeing. As inventories drop down in new cars, our cost of sale for used cars is going up. A lot of people, customers that have purchased cars in the recent years, their car is not going to be worth more than today. So they're opting to trade that car in or sell it back to us. So I believe that that's part of the issue.

The other aspect is we expect this to continue as long as the market conditions stay the same. And to be honest, we're not saying, hey, let's grow the used car business from a volume standpoint and sacrifice margin, we believe that we can get both in this market.

Aileen Smith -- Bank of America -- Analyst

Got it. And one last one, if I may. I know you referenced you're going to update your five-year plan next year, which I think we can reasonably assume as a function of the Larry Miller acquisition and obviously, driving acquired revenue much higher than the target you've previously outlined. But the other key component of your five-year plan is Clicklane. Should we also be thinking about Clicklane and organic growth in the business as having upside versus your prior target? Or would you say the rollout on this front is coming more in line with expectations?

David W. Hult -- President & Chief Executive Officer

Yes. This is David. I'll try and address it, and if I don't hit it right, please come back. When we look at Clicklane for the next five years, we did it on a monthly basis by store, with conversions increasing each and every year to get to that valuation. As it relates to year 1, we're technically six months fully into it.

From a conversion standpoint, we're about two percentage points below where we expect it to be. But because there's been additional traffic, we're exceeding our volume target. I would tell you it's a little bit tricky with Clicklane right now because of the lack of inventory. There's a lot of traffic, but there's not a lot of inventory to purchase from.

So it's hard to fully assess the conversions right now with lack of inventory. But we're real happy with what we've seen, how it's being treated and the consumer responds to it. And our belief is next year in '22 and certainly in '23 and '24, each year, we're anticipating that conversion rate to go higher as the consumer becomes more comfortable transacting online and the tools continue to become more sophisticated and easier to use.

Aileen Smith -- Bank of America -- Analyst

Got it. That makes a lot of sense. Thanks for taking my questions.

David W. Hult -- President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Morning. Nice quarter and thank for taking my questions.

David W. Hult -- President & Chief Executive Officer

Thanks, Ryan.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Curious on mobile mechanic. I mean you talked Clicklane a lot, but how much opportunity is there from a parts and service standpoint to really digitize that and go closer to the consumer and bring it to them?

David W. Hult -- President & Chief Executive Officer

Yes, it's a great question. I would tell you, over the last five years, between different things we've done to enhance it on our own and adding a service tracker element, we're seeing higher conversion rates than we've seen in the last four or five years, meaning consumers are approving more work than they have in years past, and they're spending more dollars per repair order. That has a lot to do with the age of the car as well. We do see more opportunity to be more digital and more engaged and transparent with the consumer, and that will come over time. But tremendous benefits so far from what we've seen, and it's mainly our source is text messaging.

We're communicating through text message, the MPIs and how -- the multi-point inspections on how the car is doing, their ability to communicate directly with the technician and then being able to pay for the service via text as well. So continues to grow, great feedback. And with the consumers converting at a higher rate, that tells us their level of comfort and transparency is there as well.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Got you. And then just on the inventory, I know not to belabor the point, but 12 days supply on the new side, I guess, how has that trended in the months subsequent to the quarter end? And then also comment on used as well.

Dan Clara -- Senior Vice President of Operations

So thanks. Good morning. This is Dan, by the way. The day supply around the quarter, we have been around that 12-day supply from the beginning of the quarter, and we remain consistent. The stores are doing a great job. And I think I mentioned this in the previous call, doing a great job really preselling incoming units. So we've adjusted to the market demands.

And again, the stores and the operators are doing a fantastic job. From a used car perspective, I'll tell you, our day supply, you can see it is lower than where we were operating a year ago, but we continue to acquire inventory from our main stream, which will be your trade-in, your lease turn-ins and direct-to-consumer purchases. Approximately about 79% of our inventory are coming from those three venues.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Last question for me, and I'll turn it over to the others. But Mercedes, they're cutting dealer trade margins by 50 bps to help pay for EVs. Any comment there, any concern, I guess, with other OEMs doing this and potentially squeezing the dealer margins?

David W. Hult -- President & Chief Executive Officer

This is David. So the quick reaction is no, as it relates to Mercedes. We really enjoy the partnership with them and the brand. We have high-margin business with them. Consumers really appreciate the brand as well. And we look at this as a partnership. A small cut into the margin to set up for the future is an investment for both of us to make, and we're proud to represent the brand. As it pertains to other manufacturers that might do it, it's hard to comment on something that you can't see and not aware of yet. But certainly, we look at the relationship as a partnership, and we have to have skin in the game as well. But we don't see that margin percent with Mercedes materially affecting us.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Thanks, guys. Good luck

David W. Hult -- President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Grace Kim with Morgan Stanley.

Grace Kim -- Morgan Stanley -- Analyst

Hi. Thank you for taking my question and congrats on the quarter. On behalf of Adam Jonas, how sustainable do you expect SG&A to growth to be going forward, taking into account your digital strategy and recent acquisitions?

David W. Hult -- President & Chief Executive Officer

Sure, Grace. This is David, and I'm sure after what I say, Michael will jump in and try and clean that up. I would tell you the SG&A is impressive right now for a couple of different reasons. The obvious supply and demand, high margins is helping dramatically. But as the pandemic started, we really got our production per employee at a much higher rate.

We're of the belief as you look three to five years out, the retail franchise model changes a little bit on how you compensate and what that looks like. So we think that the current SG&A is certainly there, is here to stay for at least the next year. And then with improving software and capabilities and Clicklane growing, we think there's future opportunities to strengthen the SG&A or tighten it up for lack of a better term.

Grace Kim -- Morgan Stanley -- Analyst

Got it. That's really helpful. And shifting gears a bit, how would you characterize high-quality strategic acquisitions going forward?

David W. Hult -- President & Chief Executive Officer

It's a great question. We came out with the five -year plan for $5 billion in revenue. You're never going to get $1 billion each year, but the thought process is what are we generating cash flow and what do we take on, not knowing that an acquisition like Larry H. Miller would be out there. There's a lot of stores for sale.

There's a lot of stores that transact, but every store is not the same, even though the brand name might be the same. Some groups and the cultures that they have are pretty strong and align really well with us. When we find a group that we think aligns really well with us and the synergies are there, we try to be very aggressive and go after it. And the other stuff, we just simply don't go after, not that it's a bad asset, but it just might not align with us.

I think in the last 3.5 years, when you look at the acquisitions we've done, they've shown to be extremely accretive to our group with extremely low turnover numbers. So that tells us that we're finding the right acquisitions, we're properly aligned, and we're making good investments with the shareholders' money.

Grace Kim -- Morgan Stanley -- Analyst

Got it. Thank you very much and congrats again.

David W. Hult -- President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Rajat Gupta with JPMorgan.

Rajat Gupta -- JPMorgan -- Analyst

Hi, good morning. Thanks for taking the question. Just had a follow-up question on productivity savings. Could you remind us of where your head count level is currently?

Michael D. Welch -- Senior Vice President & Chief Financial Officer

Well, I think before the couple of acquisitions we just did, Rajat, our head count was right at 8,300.

Rajat Gupta -- JPMorgan -- Analyst

Got it. Got it. So it looks like you were at 8,500 before Park Place, you're roughly around 8,300 today. Your volumes are up meaningfully versus 2019 levels on a combined basis. So just any way to parse out these productivity benefits across permanent head count reductions, move to digital like Clicklane and then maybe just lower inventory levels we're dealing with at the stores today. Just trying to get a sense as inventory starts to come back, who knows it maybe 2023, where does your like-for-like head count go? And can you maintain these current levels of productivity once you are there? And I have a follow-up. Thanks.

David W. Hult -- President & Chief Executive Officer

Sure, Rajat, this is David. Yes, we believe we can maintain these productivity levels per employee, mainly because of the software applications that we've had is making it easier for our folks to become more productive. We think the current numbers were at productivity per employee probably stay stable for the next 18 months to 24 months. And then we think at that point, we have another opportunity to increase the production per employee and that's where our focus is. And the reason why it's 18 months to 24 months out, quite honestly, it's software-related.

Rajat Gupta -- JPMorgan -- Analyst

Understood. Great. That's encouraging. Just shifting gears completely to parts and services. Can you give us a sense of how the exit rate was for that business in the third quarter? How the fourth quarter is shaping up there in terms of just improvement in that trajectory? And I also thought to ask on the warranty business specifically, given the supply shortages, but also given we have sold fewer than normal level of new vehicles the last couple of years, how do you see that playing through in terms of impact to the overall business in maybe 2022, 2023, given the retention rates are pretty high in like the first two to three years? So just if you could tie this together, that would be really helpful and also just some of the near-term trends? Thanks.

Dan Clara -- Senior Vice President of Operations

So Rajat, this is Dan. Good morning. From a fixed operations business for the quarter, as you can see, the warranty business really pulled back. That's really got to do a lot, and it's just really across all domestic import and luxury. Just some of the campaigns that we saw last year, fuel pumps to name a few, maybe a few dashboards, door actuators, you name it, we've seen a pullback from that perspective. And that's affecting, obviously, our warranty traffic.

Customer pay is recovering pretty good, as you saw. Our customer pay gross profit was up 10%, and we continue to see the healthy recovery as well. As we move forward from a unit and operational standpoint, from a warranty perspective, it's hard to tell because warranty is not something that we forecast for. It's really driven by if there's a recall, if there is an issue with fuel pumps, again, you name it. So we really don't control that. To the extent that, something like that happens, we expect warranty to come back up around. And if not, then we'll just -- we'll keep focusing on growing the customer pay.

David W. Hult -- President & Chief Executive Officer

And just to touch on that, Dan mentioned the customer pays up 10% growth. It's actually up 12% growth. It's the dollars per repair order going up. And if I heard you right, with the new car customer hangs around for the first few years and weans off, in our organization, the one metric that we track every day on the customer pay side is what's the average miles coming into our store. And naturally, the higher the miles that tells us we're retaining a much deeper into the channel, if you will. And we're just under 70,000 miles for the average car from a customer pay standpoint coming into the company. So we think that's pretty healthy and as the car park continues to age and there is an availability really the product for everyone to keep up with the demand, we see parts and service continuing to stay on this, what I would call stable growth rate.

Rajat Gupta -- JPMorgan -- Analyst

Got it. That's really helpful. Thanks so much for all the color. And good luck.

David W. Hult -- President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Stephanie Moore with Truist.

Stephanie Moore -- Truist -- Analyst

Hi. Good morning. Thanks for the question.

David W. Hult -- President & Chief Executive Officer

Absolutely.

Stephanie Moore -- Truist -- Analyst

I wanted to touch on -- we're about one year into the Park Place acquisition, so would love to get any comments about how that acquisition has performed, maybe some areas that exceeded your expectations, maybe some that are a little below, maybe anything on integration that you learned. Just any color there would be helpful. Thank you.

David W. Hult -- President & Chief Executive Officer

Sure, Steph. This is David. Yeah. I said this before the acquisition when it was announced that if we could only buy one dealership group in the United States, what would it be, and I would have said Park Place. And it's not the brand mix. The brand mix is fantastic, but it's the people. Tremendous leadership in that organization, a tremendous tenure, dedicated employees. They just are very disciplined, well-run group that truly care about their customer base and have earned the brand recognition that they've had.

When we look at it, we're a year into it, we're exceeding our year three targets from a financial standpoint. But I'd say they're -- oddly enough, there aren't any surprises because they're everything that we thought they would be. They're just the best of the best at what they do. They're caring individuals that execute consistently. And we're proud to be associated with them and share ideas on how to get better, but it's been a phenomenal acquisition for us.

Stephanie Moore -- Truist -- Analyst

Absolutely. Thank you. And then just switching to the F&I front, I would love -- there's obviously been -- I think there's an opportunity that you spoke on even earlier in this call, coming out of the Larry H. Miller acquisition and building on your F&I. But is there anything else taking that acquisition at the side that you could be focusing on just to increase gross profit per unit on an F&I standpoint, anything more organically that you are working on? Thanks.

Dan Clara -- Senior Vice President of Operations

Good morning, Stephanie. This is Dan. Yes, from an F&I standpoint, we believe our top performers, there's little room for growth. We continue to focus on our bottom 20%, bottom producers. And to the extent that we continue to train and improve their performance, we see the growth coming from there for our F&I PVR.

David W. Hult -- President & Chief Executive Officer

We like the fact that 70% of our F&I number is product sales and only 30% is reserve. And the Larry H. Miller Group has better penetration numbers than we do. So we're certainly excited to learn from them and grow as well. So, we definitely believe there's upside in F&I. And clearly, we're certainly not at the top of the charts as it relates to our peer group.

Stephanie Moore -- Truist -- Analyst

Great. Thank you so much.

David W. Hult -- President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Bret Jordan with Jefferies.

Bret Jordan -- Jefferies -- Analyst

Hey. Good morning, guys.

David W. Hult -- President & Chief Executive Officer

Good morning.

Bret Jordan -- Jefferies -- Analyst

Question on Clicklane. I guess, with a bit more experience now, does the product skew to a higher demographic or skew more to luxury? You talked about higher repair orders and higher FICO scores. But does that channel really migrate to one segment of your mix, luxury or import versus domestic?

Dan Clara -- Senior Vice President of Operations

Good morning, Bret. This is Dan. No, we're seeing consistent use across the brands from ultra-luxury, luxury, import and domestic. So, pretty well received across the board.

David W. Hult -- President & Chief Executive Officer

And I would tell you that some of the brands, and -- I can't really explain it, but some of the brands that are converting at a high rate or have the high user, Hyundai, Kia and Lexus are a few of the brands that just do extremely well with the tool.

Bret Jordan -- Jefferies -- Analyst

Okay, great. And then a question, I guess, on the M&A side. You said multiple sort of in that six to eight times. Are we looking at trailing 12? Or are we adjusting sort of for what we've seen in the surge and profitability recently and looking at a longer term to get to that six to eight?

David W. Hult -- President & Chief Executive Officer

Yes. No, I appreciate that question. I don't think anyone is pricing the multiple on the trailing 12 months. You really have to do -- you have to look at the last three to five years in the market that it's in and the brand that it's in. And then the performance within the brand within the market. An example would be if a store is 200% sales efficient compared to 80% sales efficient when looking at the upside in it. So, it's more based upon a three- to five -year look average is when we refer to those multiples.

Bret Jordan -- Jefferies -- Analyst

Okay. Thank you. Appreciate it.

David W. Hult -- President & Chief Executive Officer

Yes.

Operator

Thank you. Our next question comes from David Whiston with Morningstar.

David Whiston -- Morningstar -- Analyst

Hi, everyone. Going back to the Clicklane demographic discussion from a second ago, you're getting -- it sounds like you're getting a lot of exposure across all your brands, even the volume brands, but at the end of the day, it's more the higher FICO credit customers that are transacting with the tool. So why is that? And can you get the lower FICO credit customers to engage more and actually transact?

David W. Hult -- President & Chief Executive Officer

Hey David, this is David. I'll jump in and then Dan can certainly. I would tell you, on an average quarter between 8% and 10% of our business is what we refer to as lower credit or sub-prime and the rest of it isn't. It becomes a lot more complicated with sub-prime online transactions, because of the documentations and what's needed. It's not impossible.

I think the reason you're seeing higher credit scores and higher down payments on the tool is it's simplistically someone with a 750-plus Beacon score understands they're not worried about financing and understands that they can get what they want. So when you think about ease and convenience, that consumer who knows they have the credit power and wherewithal to transact, would they prefer to sit in the showroom for 2.5 hours or do a 14-minute transaction online? So I think that's the gravity that's pulling it there.

We're certainly seeing lower credit scores as well on there. It's not just simplistically all 750-plus Beacon score customers. There's a broad mix. But again, the score average is certainly higher. And we credit that -- that's different than what we had with our prior tool. And the main reason is -- our belief is, is because that high credit score customer actually knows they can do the complete transaction and it's not simply a lead generator.

David Whiston -- Morningstar -- Analyst

Okay. And compared to say a few months ago, with the inventory continuing to be poor, are you seeing customers, especially new vehicle customers or would be new vehicle customers, are they more likely to buy used compared to a few months ago? Or are they at a point where they're saying forget it, I'll come back when inventory is better?

Dan Clara -- Senior Vice President of Operations

Good morning. This is Dan again. Customers -- we're seeing a mix. I mean some customers are actually going into a used vehicle. It depends on their circumstances. If they got to have the car now, they're willing to do that. We're also seeing customers that are willing to give up a particular package or an option and may be settle for a car that is incoming in the next few days or one that might be sitting on the dealer's lot.

David Whiston -- Morningstar -- Analyst

Okay. And finally, are you guys worried at all about inflation for consumers' ability to buy a vehicle next year?

David W. Hult -- President & Chief Executive Officer

Yeah. Look, this is David. Clearly, inflation is always a concern. I would tell you, in this past quarter and in the past 12 months, it's comforting to us to see the credit scores go up, the down payments go up and the financing terms slightly go shorter term. So that tells us that there's a lot of cash in the consumer's pocket out there, and they're using it to their discretion. We've already seen the inflation in a lot of areas, but as it relates to automobiles, the -- I wouldn't call it inflation, I would say the margin pressure is simply a supply and demand. The inflationary pieces of the automotive cycle, if you will, is not material from our perspective. It's not like food and that kind of thing.

David Whiston -- Morningstar -- Analyst

Okay. Thank you.

David W. Hult -- President & Chief Executive Officer

Thank you very much. This concludes today's discussion. We appreciate your participation and look forward to speaking with you after the fourth quarter. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Karen Reid -- Vice President & Treasurer

David W. Hult -- President & Chief Executive Officer

Dan Clara -- Senior Vice President of Operations

Michael D. Welch -- Senior Vice President & Chief Financial Officer

Rick Nelson -- Stephens -- Analyst

Aileen Smith -- Bank of America -- Analyst

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Grace Kim -- Morgan Stanley -- Analyst

Rajat Gupta -- JPMorgan -- Analyst

Stephanie Moore -- Truist -- Analyst

Bret Jordan -- Jefferies -- Analyst

David Whiston -- Morningstar -- Analyst

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