Sonic Automotive Inc (SAH) 2018 Q4 法說會逐字稿

Good morning, and welcome to the Sonic Automotive Fourth Quarter 2018 Earnings Conference Call. This conference call is being recorded today, Wednesday, February 20, 2019.

Presentation materials, which management will be reviewing on the conference call, can be accessed at the company's website at www.sonicautomotive.com, by clicking on Our Company, then Investor Relations, then Webcasts & Presentations.

At this time, I would like to refer to the safe harbor statement under the Private Securities and 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.

I would now like to introduce Mr. David Smith, Sonic Automotive's Chief Executive Officer. Mr. Smith, you may begin your conference.

Thank you, and good morning, and welcome to Sonic Automotive's Fourth Quarter 2018 Earnings Call. I'm David Smith, the company's CEO. And joining me on the call today is our President, Mr. Jeff Dyke; and our CFO, Mr. Heath Byrd. I will provide some brief comments and then turn the call over for questions.

In the fourth quarter of 2018, we reported $0.51 per diluted share from continuing operations on a GAAP basis and $0.76 per diluted share from continuing operations on an adjusted basis. For the full year of 2018, we reported $1.22 per diluted share from continuing operations on a GAAP basis and $1.79 per diluted share from continuing operations on an adjusted basis.

Some highlights for the fourth quarter. We're excited that our EchoPark stores retailed 8,762 units during the fourth quarter. That's up 94.9% from the fourth quarter of last year. We increased the quarterly cash dividend 67% to $0.10 per share. We generated fourth quarter revenue and gross profit of $2.6 billion and $370.7 million, respectively. We had record fourth quarter pre-owned retail unit sales of 35,135 units and record fourth quarter F&I gross profit per retail unit of $1,659. This resulted in record fourth quarter F&I gross of $109.6 million.

We were challenged on the franchise side of the business in the fourth quarter, specifically in 2 of our most important and profitable brands, BMW and Honda. Although we maintained our market share of the sales available in those local markets, in which our BMW and Honda stores operate, the incentives we received on a per unit basis were below our expectations and below our historical levels.

On the EchoPark side though, we were very pleased with the trajectory of our unit sales in our stores. As discussed in the prior quarter, we saw our new Charlotte location perform better than any other new EchoPark store in its first month of operations, and we continued to see that performance throughout the fourth quarter. In fact, all of our EchoPark stores sold more units in the fourth quarter of 2018 than in the fourth quarter of 2017, and we see that trend continuing in the first part of the quarter of 2019.

Lastly, we are also pleased that our Board of Directors approved a quarterly cash dividend of $0.10 per share, which is again a 67% increase from our previous quarterly dividend of $0.06 per share. This change to $0.10 per share increases the dividend closer to levels experienced prior to 2008 and demonstrates our commitment to return capital to all shareholders. The dividend will be payable in cash for our stockholders of record on March 15, 2019. The dividend will be payable on April 15, 2019.

At this point, we would like to open up the call to questions.

(Operator Instructions) And our first question comes from the line of Rick Nelson from Stephens.

To follow up on EchoPark. The loss in the fourth quarter of $0.08 compared to $0.04 a year ago, what was the driver there? Is that big store openings? And the loss for the year of $0.34, can you provide some color around your expectations?

Yes, you bet, Rick. You bet, Rick. This is Jeff Dyke. Yes. We moved our big store in Dallas. And so when we moved that store, it took a couple of months for it to get back up on its feet. But this is a store that traditionally was making about $1 million a month, $800,000 a month and selling to 1,200 to 1,300 cars. And it just took a couple of months to get it back on its feet. It's back there, made $1 million again in January. We expect that kind of level of performance again in February. So we've sort of weathered that storm plus we opened 2 stores, and there's just carrying costs that goes along with that. And I believe I told you on the last call, we thought it would take a couple of quarters for EchoPark -- a couple of more quarters for EchoPark to get profitable, including all of our topside expenses. I'm proud to announce that in January, EchoPark was profitable, including all topside expenses. So we're very, very excited about that. It's just every single day, it seems like we're setting another record. So EchoPark is just doing everything we anticipated. We told everybody that it would take us 4 or 5 years to get profitable. We are there now. And so we're expecting to be profitable for the quarter. February is a little shorter of a month. We'll see how that goes, but then we're expecting to have a huge March. And once we have a profitable quarter covering all expenses, then we'll start talking about some aggressive expansion plans. But we're very proud of the brand, and I hope that answers your question.

Yes, Jeff. EchoPark in Charlotte, it sounds like that store is performing quite well. Are you doing anything different in that market than you are elsewhere?

So EchoPark Charlotte was sort of the first store that we opened after we merged driversselect and EchoPark together and all of the processes. So that's kind of our first baby out of all of that. And really, it was unbelievable. Our first month, the store made $85,000 selling over 300 cars. In the next month, I think it sold 327 cars, made $150,000 in January. So yes, it's just accumulation of that. And what's fantastic is our Houston store opened just after that. They're about 2 months apart, and we're seeing the same kind of lift. Now Houston is a much bigger store with a lot more overhead, but that store is going to do 370 to 400 vehicles this month. We expect it to do in the 400 to 500 range in March and to get profitable. So when we first opened EchoPark, it was -- it used to take a year to get us profitable, and now we've cut that down to less than 6 months. In Charlotte's case, it was basically in its first full month. And so we figured out the formula. When you came to visit us, we were talking about the things that we were working on. And we believe we've got the formula figured out. It's making money, and we're ready to launch this thing and do a lot of good things with it. So we could not be more excited about EchoPark and where it stands today than we are. I mean, it's just -- it's fun to watch.

Then at the franchised side of the house, [you've said on the call], same-store units were down 9%. I imagine the Texas was the driver for that. BMW, Honda, you mentioned. [Are you now ready to] call out those brands in that market to look how you're doing elsewhere?

Yes. So Texas did play a role there. We're still battling -- at that point in time, we're still battling some of the hurricane comparison. I think BMW for the quarter for us was down 13%, Honda around 8%. And I think Texas was down 7% -- 13% I'm being told, down 13% when you pull those out. So when you combine those -- a big chunk of our business is in Houston. And honestly, when BMW and Honda don't perform at the levels that we need them to perform at, they're such a large part of our overall mix that it just causes us issues. And that's why we're building EchoPark, quite honestly. And it gives us the off-ramp when the manufacturers have these ups and downs. But we're big believers in Honda. We're big believers in BMW. They're going to come roaring back and do great things, but we don't need that inconsistency. And when that -- when you have those 2 brands playing such a big role in your overall profit and volume mix, you got to have other options. EchoPark is that option for us. We worked really hard to get here, and now EchoPark can start carrying some of that weight.

Our next question comes from the line of John Murphy from Bank of America Merrill Lynch.

This is Yarden here, on for John. First question on interest rates, you guys mentioned that in your press release as a potential headwind this year. Can you share with us your strategy around managing rising rates and inventory levels? And I mean, are the automakers doing anything on the floor plan assistance side to help?

I wish they were doing more to help, quite honestly. We had less floor plan assistance last year in 2018 than we did the prior year. And hopefully we can get them to start thinking that way. We came out of the fourth quarter with a 59-day supply of new cars. So I feel like we do a really good job, but we are working. We've put in even more rules and regulations for our stores to bring the inventory levels down further. You can have a little bit of spike in days' supply in January and February just because of the seasonality of those 2 months. But I feel real good where we are there. We've built in 3 rate increases into our numbers for 2019. We'll see if that happens. And so effectively, those rate increases, they've actually eaten up all the tax break that we got and then some. And so it's a very difficult situation. We're working hard to make sure we maintain our inventory levels. We feel like we do a really good job there, but there's no question that we're going to have to do even better in order to offset interest rates climbing over the next few months.

Okay. So just to follow up on that. Can you remind us how much interest rate exposure do you have in your floor plan line, and out of that, in terms of what is variable versus fixed?

Say that -- will you ask the question one more time?

Sure. How much interest rate exposure do you have in your floor plan line, and out of that, in terms of what is variable versus fixed?

Yes, it's about 50%. We use CATs to -- we no longer use swaps. Where we use CATs, it's about 50% is exposed to variable rates.

Okay. And then lastly on the parts and service side, it seems a little bit soft this quarter on a total basis, but the performance was somewhat mixed by segment. Can you maybe provide some color on the divergence in comps between customer pay, warranty and internal work and so on? Is there anything in your markets that is driving that?

Well, I mean, I think we had some bigger comps in Texas from the year-over-year from the hurricane piece. That's certainly one. We had some trouble with our Honda stores from a fixed operations perspective, and that drove a little bit of that. We've rectified those issues. And so we saw a much better performance in January than we'd been having. I think we were up 3% to 4% in January, which is back to kind of our normal growth rate. And that's what we're expecting for this year, somewhere in the 3% growth rate. And then also, we had a big strategy change with fixed operations when it comes to EchoPark. We got totally out of the fixed business. That's just not part of our model. And that's why you're seeing the profitability improve at EchoPark. So that took -- from our forecast, that took a big chunk of planned gross that we were going to get out. So that should suffice to answer your question.

Okay. So what's your outlook for 2019? Do you expect P&S to start picking up again this year?

We do. On a same-store basis, we're looking for a 3.3% increase, I think, is the exact number. On a consolidated basis, we'll be down about 1.9%. But that number -- in our forecast, that number includes us selling 2 stores. We sold a big Lexus store and a big Honda store in the D.C. area. We were being asked to do some massive facility consolidation work on those stores, and we just couldn't find a return on investment for putting the money into those stores. So we sold those stores, got a big return for the investment that we had in the store, and we're putting that capital to use elsewhere. So that's going to cause a little bit of the total fixed operations number to look a little screwy this year. But on a same-store basis, we're expecting to be up about 3.3%.

Our next question comes from the line of Armintas Sinkevicius from Morgan Stanley

Just with BMW, I wanted to understand the dynamic because you're expecting a good lineup here of new vehicles. Was it the incentives, or was it the supply of new vehicles, or both, that pressured results? And also, do you think WLTP had some impact related to the supply of BMW vehicles and your outlook for BMW going forward, particularly given the new lineup?

Yes, well, look, there's no question that we hoped that some of the new model launches would have gone faster and better. That's okay. We had great outlook of BMW. They're a fantastic manufacturer partner. And I think they'll bounce back and have a good 2019. But certainly, the incentives and the volume levels were not where they need to be in the fourth quarter. Our BMW gross was down about $5.8 million for the quarter, and our volume was down about 13%, and we did not expect that. When we got to the end of September, our BMW business was off about 1%. So to have that big -- you could not have trended that out. You wouldn't have. And just really had a tough, tough December, and we usually have a huge December with BMW. And it made it a difficult month for us when they're such a large part of our profitability. So goes BMW, so goes this company. And so that's why we're building EchoPark, so we have other means to drive volume and profitability, and don't have to count so heavily on those 2 brands, in BMW and Honda, when they make adjustments or they -- because they're going to have issues as the years go on, we all do. And for us to better support ourselves, to better support them even and be a good business partner, we need to have other ways to bring profitability into the company, and that's what we're doing with EchoPark.

Okay. And then with relation to only providing GAAP results on a go-forward basis, just wanted to understand the thought process, the reasoning behind that. If I look at this quarter, for instance, GAAP results would have been worse. So I'm sure there's a rhyme and a reason to it, but I just wanted to understand your thinking there.

Yes. This is Heath. It's really nothing more than trying to be compliant with SEC and not having to go back and forth from an SEC perspective. And it's also, you saw that AutoNation has done the same thing. We'll obviously provide some color around any of the adjustments on the earnings call, but we've made a decision as a company to only report on a GAAP basis going forward.

Got it. So we'll still get some disclosure as far as some of the one-off items that we should be mindful of for our models at least?

Yes, absolutely.

Our next question comes from the line of Colin Langan from UBS.

How should we think about BMW and Honda? Do you still think those are going to be headwinds into next year? Or is Q4 more of an anomaly than we should think about?

Look, we thought the combination of BMW and Honda for all of 2018, we were down $20 million in profit between the 2 brands. So that was a big headwind in the entire year. Fourth quarter just happened to be elaborated. When you look at Honda, a lot of that short supply on Civic and incentives on Accord, the great news is Honda got better as the quarter went on. And in January, we were back up and rolling again with Honda. So I don't see that being a headwind at all. And we'll see with BMW. It depends on the incentives and how they handle stair-step programs and all the things that BMW is doing. They're a great company with great products. And so I think that one's a little bit of a hit or miss until we get a couple more months under our belt and we see what they do with incentives and how the product launches go. The X7 is coming, which we're all really excited about, in particular in our markets. It's a fantastic product, and I think it's going to do very well. That will mean a lot for our bottom line and our volume levels. So we're a lot -- we feel a lot better about both of those brands than I do -- I do not think we'll see a repeat of what we had in 2018.

Got it. And I'm not sure if I missed this earlier. On EchoPark, I think in the past, you said you expect it to be profitable next year, breakeven for the full year. I mean, is that still the outlook? I mean, what is the profit profile as we go forward?

Yes, I mean, we -- look, we're -- our forecasts are actually to lose a little bit of money with EchoPark for the year. But if you look at how we performed in January and we look at how we're performing in February, it seems to be that we're going to beat those forecasts. So we're very excited that EchoPark is really starting to pick up a lot of steam. And very excited about our last 2 openings, both in Charlotte and Houston. These stores have just rocketed off. It took us 2 years to get to the kind of volume levels that Houston is doing just in a couple of months in the Denver market. So we think we've cracked the code, we've got profit coming in and we're really excited about where we are. It's going to be a fun 2019.

But it's fair to say the second half was where you start seeing profits? Or you said later on for the year, is it still losing in the first half, but then back to profit in the second?

We'll see. We made money in January. So we'll see how it goes. My expectations for our EchoPark team is start making money now. If we can make money in January, why can't you make money in the other 11 months of the year? We're selling cars. February's daily run rate is probably the highest daily run rate that we've had of any month since we opened EchoPark. So my expectations are for us to be profitable. We even forecast that way. We were a little more conservative there. But January sure was fun, to make your first profit and to do it in the fashion that we did, sold a lot of cars in that month, there's nothing but upside for the rest of the year from our perspective.

Yes. And this is Heath. I think where the variables and the profitability of EchoPark is how aggressive we decide to grow the brand. If we continue to see the profitability, we'll probably get more aggressive throughout the year. And as you open new stores for the training and hiring, that can impact the overall profitability. And that is actually one of the drivers of the no longer providing guidance because we want to have the flexibility of EchoPark. And again, if we continue to see the kind of performance that we saw in January and are seeing in February, the growth plan can get a lot more aggressive.

The other thing is there's a lot of news going on now about the tax refunds and are they going to be as great? There's a bunch of surprises in that, always plays a big role in the used car business. So we'll see how it goes. We feel very good about where we are with EchoPark. It's going to be a great, great year. Obviously, we lost north of $20 million with EchoPark in 2018. We're not going to be anywhere near that in 2019. So it's an exciting time for our company and an exciting time for this brand.

Got it. And just lastly, the press release mentioned some headcount reductions, I guess, about 6%. I mean, that was not in the Q4 results but started in Q1. And any -- one of that's [right], any quantification of the savings that you should get from those reductions?

Yes, this is Heath. That's correct. There will be -- we'll start seeing the savings starting in Q1. That was just one of many initiatives that we have to reduce SG&A. And so far, we've identified around $20 million of decrease in SG&A, including that reduction. And that, coupled with if you look at our CapEx spend for 2019, we're reducing that by $55 million. And so we're really focusing in on free cash flow. And so to answer your question, Q1 is when you're going to see that reduction in SG&A.

Yes, and -- this is David Smith. And one of the big things that we were wanting to do is, as Heath mentioned, we want to focus our team on what's most important. And we believe that we have a lot of different projects going on, and we eliminated a lot of expense and are really focusing on our core business and growing EchoPark and our strategic goals. And that's going to lead to much more profitability, we all believe so.

And just to add one more thing to that. This is Heath. We have made a decision as a company to really focus on improving our leverage ratio. And so as we generate free cash flow with reduction of CapEx, some of the proceeds that we mentioned of the 2 stores that we sold as well as the increased profitability from the franchise and EchoPark, we're going to focus on taking our debt down. And so I think you'll see that the way that we plan on providing capital back to the shareholders will be in the form of dividends and the free cash flow remaining, we'll focus on taking down our debt.

Our next question comes from the line of Bret Jordan from Jefferies.

This is Mark Jordan, on for Bret. So looking at the used vehicles segment, we had some strong unit growth in the quarter, but it looks like gross profit kind of -- gross profit per unit had a bit of a decline. Can you talk about the driver there? Was it really maybe a result of chasing volumes during the quarter or perhaps the average profile of the vehicle has changed?

No, no. Are you talking on a consolidated basis?

Yes, on a same-store consolidated basis.

Okay. So what that is, is the mix of EchoPark coming in. EchoPark's front-end margins are 0, somewhere in there. So when you mix them together, you're bringing the overall margin of the company down. At the same time, EchoPark's back-end margins are really high, north of $2,000. So it's bringing the overall company F&I margin up. So the combination of those 2, we just don't look at front or back, we look at the combination of the 2 and just work sort of the elasticity of the pricing off of that. And so -- and we had -- I think, it's a record gross and volume quarter for us on a same-store basis in the fourth quarter for the franchise side, and it was certainly a record on the EchoPark side. So yes, we were up on the franchise side, I think, in GPU about $18 to $20, somewhere in that ballpark. So it's just the mix of business that's creating that but certainly of no concern. We're selling a lot of cars, and it's just the blend of the 2 brands coming together.

Okay, perfect. Yes, that makes sense. And then I know you discussed performance in Texas, but can you talk about performance in some of your other markets, such as California, Tennessee, Florida?

Yes. Look, in the fourth quarter, Northern Cal and Southern Cal were a little softer. But the East Coast has been holding strong. It doesn't matter if it's Carolinas, Florida, Alabama, Tennessee, Georgia. Our stores all there performed fairly well. We did have the Honda and BMW struggles. But our California stores and Texas really caused some of the year-over-year comp comparisons for us. And obviously, Texas has just the hurricane stuff. And California, that's where our biggest mix of and blend of BMW and Honda stores are. And we've been -- as you know, we've been struggling with the brands. And hopefully, those days are behind us, in particular with Honda now. And I believe we're going to see that with BMW as we move across the next couple of months.

Okay, great. And then in terms of your other larger brands, such as Toyota or Mercedes, how did they perform during the quarter for you guys?

On both cases, all major brands in the markets that we do business in were down. And I've never seen that before in my 14 years here at Sonic Automotive. I mean, every single market we had, all of our brands were down. We were able to maintain our share. But when you have every brand going down, that makes for a difficult situation. So Mercedes down, I think was down double-digit, certainly...

11.7%.

Yes, 11.7%. Audi was down. Chevrolet, Ford were down. In particular, Chevrolet was down, but we were -- I think it was the only brand we had that was actually up in volume, driven by our big, big Lone Star Chevrolet store in Houston, Texas, so across the board. And we saw it again in January when we started looking at the same report that we put out, we looked in January, it's like, "Oh, crap, here we go again." The new car business is just -- it's a little topsy-turvy right now, and -- but we feel like our pre-owned business, our fixed operations business, F&I is just doing fantastic. We had a record year, and we're going to have another record year this year there with our partners from JM&A. They're doing a great job in terms of training. And on the EchoPark side, our partners with Ally, they're all just doing a fantastic job with us. So our -- the new car volume is going to be a little bumpy as we move forward. But between EchoPark and the other departments, we feel like we're going to have a good 2019. And also -- I'd also add on to that, Mark, that -- David mentioned this earlier, we have really been doing a lot of soul-searching. And we have cut out just a ton of projects that weren't giving us enough clarity with the company. And so we've really -- and were watering us down. We really moved a lot of that aside. That's part of the savings that Heath Byrd talked about a minute ago, and there's more there. And as we move through this year, we'll realize more and more of that savings.

Our next question comes from the line of Rajat Gupta from JPMorgan.

I just had a question on your SG&A to gross profit progression that you expect in 2019. You talked about savings from some of the restructuring actions that you took. It looks like EchoPark could turn positive this year. You also have a couple of divestitures. So just combining all of that, what's kind of like the progression could -- we should expect for SG&A to gross heading into '19?

Yes, we -- in our forecast right now, we were at 78.2%, 78.3%.

Including rent.

Including rent.

Got it, got it. So it went down pretty materially from 79% you did in '18. And just on the 2 divestitures that you mentioned, could you help us size a little bit on the rough earnings impact from that we should see in 2019? Is there a rough ballpark number?

Earnings impact.

The impact on earnings, I think with the -- go ahead.

Yes, revenue was $240 million.

I think the combined income impact, when you combine what we've sold and what we know we're going to sell, I think it's around a $4 million net income impact, and that's what we forecasted.

Got it, understood. It's great color. Just one last one on F&I. I didn't hear much on the call, just that you had a pretty strong 2018. What's your outlook for '19 there? Do you still expect those healthy trends to continue? I know new vehicle probably declined in the mix. So what's kind of baked in into your internal expectations there just for F&I gross profit in '19?

Yes, so we've baked in about a 5% increase in F&I. We expect the trends that we've had to just keep on continuing. In particular, EchoPark just runs really high F&I margins, so that helps overall. But the work that we've done on the franchise side of the business and the relationship that we have with JM&A is making a huge difference in our performance there. We're well over $1,500 now. And we don't see why we can't be in the $1,600 range. We just keep moving that target up for ourselves, and the stores keep performing. So we're really excited about where we are. So about a 5% increase in gross is what we're putting into our model.

Our next question comes from the line of Grant Jordan from Wells Fargo.

Just a couple of follow-ups from earlier comments. Appreciate the comments about capital allocation and trying to focus on paying down debt. Do you have a target in terms of where you want your balance sheet either in terms of amount of debt or leverage?

Sure. We actually are really focusing on the public debt side. Obviously, we'll look at what is the best opportunity from a financial perspective, get rid of our higher-interest debt first. Our goal at this point is to focus on reducing our debt by $300 million within the next 12 to 18 months.

Okay. And then along with that, can you give us the amount that you sold those 2 stores for in terms of net assets or proceeds?

No, we don't disclose that. But it will be -- you'll be able to find it in the K.

Got you. And then on CapEx, obviously that's going down from last year. Thinking forward a couple of years, do you feel like you're just going to be tighter in terms of CapEx spending? Or should we expect to see that go back up?

This is Jeff Dyke. To put a stake in it, we're not going to have our CapEx go back up. We are done at this company and with our manufacturer partners building facilities that do not have a return on investment. And we're working hard with our manufacturer partners to get them to recognize that it's not the size of the building and how many square feet you have in the building that allows you to sell cars. And so those days are over. So our CapEx dollars are coming down, I think it's in our budget this year about $108 million, down from 140-something or 150-something the year before and down from 2-something the year before that.

$230 million.

Yes. So we expect that number to continue to fall. We've got a few projects that we're finishing up this year with our manufacturer partners. And then we'll focus on the investments that we're going to make in EchoPark. But EchoPark, we build a facility, we do it for significantly cheaper than we build a new car store for. And then we sell about 3 or 4x more cars out of it. So there's a lot we're learning in EchoPark that we're trying to teach the manufacturers on. And it's been a fight. It will be a fight. But I can assure you that the days of us spending a lot of money in the CapEx area without return on investment -- a proven return on investment are over at this company.

Yes, and it's -- what we have forecast right now is $123 million. And what you're going to see, as Jeff just mentioned, you're going to see a lot more in the EchoPark and less in the franchise. And we're also -- you'll see a dramatic decrease in the IT CapEx that you've seen historically.

(Operator Instructions) Our next question comes from the line of David Whiston from Morningstar.

Going back to the BMW headwinds in the quarter in addition to inventory shortages and incentives issues, do you think the rise of the Tesla Model 3 in California played a role?

There's no question. I mean, look, they're calling out to sell well over 300,000 cars this year. They sold a lot of cars last year. I can tell you that I've spent a lot of time in manufacturer meetings. And 5 years ago, Tesla was just not even a real big topic. And today, it's at the top of everybody's board, and it needs to be. They're selling a lot of cars. And until BMW -- I think Audi is really doing a good job coming out with products. But until the manufacturers come with the lineup to deal with them, you can say all you want about their service problems and all of this, they just keep selling more cars. And I don't know if it's more of a cult than it is anything else, but my hat off to them, they're selling lots of cars. And there's no question in California that it's getting in our shorts.

Okay, that's helpful. And over to EchoPark, I'm just curious why you guys had an impairment charge there in the quarter, even though it's a young business that's growing. Was that because of the fixed OpEx that you mentioned earlier?

No. We -- just like any business does, there were a few facilities that we built that just weren't working, they weren't selling the kind of volume we needed. And we changed strategy a little bit. So we didn't need as many stores in the Denver market as we had. So we closed the store and we're selling the property, and that's what that adjustment was.

We have no further questions in queue. I'll turn the call back to our presenters for closing remarks.

Thank you very much. And we appreciate you being on the call. And everyone, have a great day.

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