Michael Ward: Thanks very much.
Roger Penske: Hi, Mike.
Michael Ward: Good afternoon, everybody. Hello, everybody.
Roger Penske: You are welcome.
Michael Ward: Randall, there’s been a couple of significant transactions in the U.K. market over the last six months with yourselves and Lithia and Group 1. Is there something going on in the market that we’re not seeing and are the franchise restrictions similar in the U.K. or the U.S.? Do you have more room to grow there, more opportunities or are you about done as far as expansion?
Randall Seymore: Yeah. I — look, I think, we’re going to continue to be opportunistic there. Yeah, the franchise laws aren’t nearly as strong as they are here, but if you look at the premium brands and how we’ve positioned ourselves, being 20% plus of the Mercedes business, 16% of the Porsche business, we’re 20% plus of the BMW business. We’ve got that core in the culture there and we want to continue to grow. And look at some of these other acquisitions that’s happened from the publics. It’s a good market, but some of that brand mix just didn’t fit right into our wheelhouse. So we just — we want to continue. We’re 98% premium in that market and we just want to continue to be that way moving forward.
Roger Penske: I think one of the other things, Mike, is we looked, and obviously, we were on the Pendragon deal, but it got to a pricing that was higher than we wanted. And obviously, I think, Lithia saw the benefit there, no question about it. Group 1 with the Inkscape, look, they have good brands. They have premium brands. But for us, taking our mix from, say, 90 down to 75 and premium, we think was a mistake, and that’s one of the benefits we have, because we got major market share, as Randall mentioned, when you think about each one of the key premium brands there. So, obviously, the multiples, at least, when these took place, were lower than the multiples are in the U.S. right now, so that would certainly think that you’d see where they’d look at.
We have $9 billion of annualized revenue in the U.K. now. It’s a great car market. We’ve got a terrific management team. I think we have almost 10,000 people operating in the U.K. now. So, look, as Lithia and Group 1 come in, look, there’s plenty of room there. It’s like there are here. I think it shows that people realize the market might be validates our being there as long as we have, to be honest with you.
Michael Ward: Yeah. I think the upside might be, near-term upside, is probably better in the U.S. as far as industry sales. Shelley, there are two things, just for clarification. The first one, you kind of mentioned that SG&A included a legal settlement. Can you quantify that? I’m coming up at like $30 million or $40 million. Is that the right number? That was a one-time type penalty, is that right?
Shelley Hulgrave: No, no, no. So, that $30 million was total overall. We had a shareholder lawsuit that we disclosed publicly in the first quarter and it was about $1.5 million, Mike.
Michael Ward: Okay. And then the second thing — okay. Okay, it was $1.5 million and you did not call it out as a one-time item, but it’s included in the SG&A.
Shelley Hulgrave: Yeah.
Michael Ward: Okay.
Shelley Hulgrave: That’s correct.
Roger Penske: I also had, Mike, we had some acquisition costs, which we just don’t call those out as unadjusted earnings. We just take that. But I think Shelley wanted to make that comment, because if you look at that on a same-store basis, we’re really flat.
Shelley Hulgrave: Relatively flat.
Michael Ward: Right. Okay. And then the second thing, Shelley, you mentioned about the 2025 notes, and you said, you’re not — you are going to allow them to come current or are you in the middle of refinancing, right? I didn’t quite catch that.
Shelley Hulgrave: So we wanted to stress that even though we have the 2025 notes due September of 2025, under standard U.S. GAAP rules, come September, we’d be required to classify those as current liabilities. But when you have the intent…
Michael Ward: Right.
Shelley Hulgrave: … and ability to refinance them, as we do with the $1.7 billion of availability that we have currently in dry powder, you don’t have to classify them as current. So we’ll continue to keep them…
Michael Ward: Okay.
Shelley Hulgrave: … in long-term debt. And with the rate being where it is versus the rates right now, that really is more of a true story, so.
Michael Ward: Right. Makes sense. Thank you. Thank you very much.
Shelley Hulgrave: Thank you.
Operator: Next we go to Rajat Gupta with JPMorgan. Please go ahead.
Rajat Gupta: Great. Thanks for taking the question. I just had a question on PTL first. You mentioned you expect earnings debt to be up sequentially quarter-over-quarter. Would it be possible to give us a little more granularity on a range around the dollars or year-over-year number, on how we should think about that and then just the cadence beyond that into the second half. Any kind of like four-year guidance related to that would be helpful. And just with our models and I have a follow-up. Thanks.
Roger Penske: I think I understood the question asking is if we look into Q2 and beyond, what are the generators going to give us a sequential increase in profitability, is that correct?
Rajat Gupta: Yeah. In the trucking business, the PTL business.
Roger Penske: Yeah. Well, look, number one, we’ll have a reduced rental fleet. Well, at this point, we had 4,800 come out. During Q1, we’ll continue to defleet as we can as the market will allow us to sell used trucks into the market with profit and that’ll help our utilization. ACT put out a statement last week that said that they expect the freight rates or freight to pick up, am I correct, Rich…
Rich Shearing: Correct.
Roger Penske: … in the second quarter. So that certainly will help us. I think also from a standpoint, maybe you got to go back and tell the story when we had 60,000 units on back order back in March of 2023. Today, we got 30,000. So we pushed a lot of those units through the system. The new units coming in which have to replace roughly 25,000 or more extension we had, so we won’t have the higher maintenance on those older units, and in fact, we only had 2,500 units that we extended in Q1 of this year. So that’ll be key. And obviously, as we look at the one-way business, and if we get some benefit in interest rates, that’ll certainly help us. We also have 12,000 units available for sale versus 8,000 roughly last year and we’ll continue to work through those.
So I see the continued increase in market share we’re getting on full-service leasing. I think we’re right-sizing our rental fleet to go forward, which will be positive. Remember, 50% of our rental revenue comes from our lease customers. And with all of these businesses somewhat lower in revenue, they’re using less extra trucks. So that’s been obviously hit us from the standpoint of revenue. We think that’ll pick up as we go into the second quarter and third quarter. Overall, I think the reduction in people, I think we’re looking at our T&E, we’re looking at our CapEx from a standpoint of facilities, all of those things will have a benefit. And again, reducing the growing balance sheet, we had $350 million of increase in balance sheet in Q1.
We expect that to stay down and we’ll be well below what it was last year, even with a big buy of new trucks coming in. We’re buying no more rental trucks in the rest of the year other than what we got in the first quarter. So when you put all that together, I can say that our expectations, talking to the team, we would expect a sequential increase in the bottom line for PTS in Q2.
Rajat Gupta: Got it. Any granularity on the degree, like is it double-digit, single-digit, because it’s a pretty, there’s a seasonality like that [ph]. Is there a way for us to baseline that assumption?
Roger Penske: I don’t want to give you a number on the phone, but I can assure you I’m pushing for as much as we can and we would hope to continue that momentum as we look at our comps in Q3 and Q4 for the rest of the year.
Rajat Gupta: Got it. I know that’s helpful. And then just to follow up on the used car GPUs, a very nice improvement here from the fourth quarter, both in the U.S. and U.K. How should we think about the sustainability of those levels here in the second, third quarters? Obviously, fourth quarter has like a seasonal headwind, but just curious, like how should we think about the progression here and also on the unit for the used car business? Thanks.
Roger Penske: Let Rich and what the feeling is here as we go forward, Rich, on used GPUs.
Rich Shearing: Sure. Yeah. Rajat, I think a couple things to keep in mind. So the affordability, we’re seeing some improvement there. If you look at our average sales from an average sales transaction price, it peaked in 2022 at over $30,000. That’s come down to under $27,000 now, so we anticipate that that’s going to continue to trend down as the market normalizes. Then you look at the sourcing side. We’re seeing that what was difficult in the past relative to trade-ins from a negative equity standpoint, closed auctions, those are starting — those channels are starting to open up again and traditionally those have been some of our highest profitability sourcing channels. So we anticipate that continuing as well. Of course, the team needs to continue to be disciplined on what we’re purchasing, so we’re looking at that.
And with some of our technology and some of the vendors we use, using algorithms to make sure we’re putting values on these cars that we know are going to turn to profitable units. And so we’ve seen good stabilization in that aspect and price corrections I think will continue as we go into Q3, Q4.
Roger Penske: Yeah. I would say to add on to the U.S. day’s supply, when you’re looking at 37 days, we really, when you look at it, in the U.S., 37 days on new and really 29 days on use. So keeping that inventory current, so as used cars start to age, I think, we’re in good shape. One other benefit, we’ve seen car shop really make a big step forward in margin in the U.S. as we’ve been able to access more cars. We’ve seen several hundred million, $100 benefit on that here in the U.S. So, Randall, what about you from the U.K.?
Randall Seymore: Yeah. Similar story. I mean, we were up $725 per unit on used gross in Q1 versus Q4 sequentially, and remember, we were fighting those headwinds in Q4. The pricing in the market was down 10% over Q4. So, that certainly stabilized. And it’s really managing day supply and age. I mean, I’d love you to sit in one of our meetings as we go through used inventory and our goal is to have zero over 90 days and hardly any from 60 days to 90 days and the team’s just all over that. So, as we turn it, keep it fresh, price it right, get it through reconditioning quickly, we’re going to get more gross profit in a stable market and that’s exactly what we’re doing.
Rich Shearing: Rajat, one other thing to add.
Rajat Gupta: Got it. Got it.
Rich Shearing: Sorry, Rajat. One other thing to add that I failed to mention is the changes in the loaner fleet. So, if you look at our loaners going back 12-plus months ago, used vehicles were the predominant makeup of the fleet. As we’ve been able to take those out, we put new cars into that fleet now. We’re able to turn those much faster. They turn into great used cars and we’re able to put new car programs, depending on the OEM, on a lot of those that will help us from a gross profit per unit perspective.
