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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2023
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number: 001-31262
ASBURY AUTOMOTIVE GROUP, INC.
(Exact name of Registrant as specified in its charter)
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Delaware |
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01-0609375 |
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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2905 Premiere Parkway NW, |
Suite 300 |
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Duluth, Georgia
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30097 |
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(Address of principal executive offices) |
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(Zip Code) |
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(770) 418-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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|
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|
Trading |
|
|
Title of each class |
|
Symbol(s) |
|
Name of each exchange on which registered |
Common stock, $0.01 par value per share |
|
ABG |
|
New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes x No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in
Rule 12b-2 of the Exchange Act:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Accelerated Filer |
☒ |
|
Accelerated Filer |
☐ |
|
|
|
|
|
Non-Accelerated Filer |
☐ |
|
Smaller Reporting Company |
☐ |
|
|
|
|
|
|
|
|
Emerging Growth Company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No x
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: The
number of shares of common stock outstanding as of April 25,
2023 was 21,534,085.
ASBURY AUTOMOTIVE GROUP, INC.
TABLE OF CONTENTS
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Page |
PART I—Financial Information |
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PART II—Other Information |
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value and share data)
(Unaudited)
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March 31, 2023 |
|
December 31, 2022 |
ASSETS |
|
|
|
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
296.8 |
|
|
$ |
235.3 |
|
Short-term investments |
5.5 |
|
|
5.4 |
|
Contracts-in-transit, net |
156.3 |
|
|
220.8 |
|
Accounts receivable, net |
166.6 |
|
|
171.9 |
|
Inventories, net |
1,081.4 |
|
|
959.2 |
|
|
|
|
|
Assets held for sale |
44.9 |
|
|
29.1 |
|
Other current assets |
298.8 |
|
|
288.1 |
|
Total current assets |
2,050.2 |
|
|
1,909.8 |
|
INVESTMENTS |
280.8 |
|
|
235.0 |
|
PROPERTY AND EQUIPMENT, net |
1,930.5 |
|
|
1,941.0 |
|
OPERATING LEASE RIGHT-OF-USE ASSETS |
239.7 |
|
|
235.4 |
|
GOODWILL |
1,783.4 |
|
|
1,783.4 |
|
INTANGIBLE FRANCHISE RIGHTS |
1,800.1 |
|
|
1,800.1 |
|
|
|
|
|
OTHER LONG-TERM ASSETS |
98.1 |
|
|
116.7 |
|
Total assets |
$ |
8,182.8 |
|
|
$ |
8,021.4 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
CURRENT LIABILITIES: |
|
|
|
Floor plan notes payable—trade, net |
$ |
45.6 |
|
|
$ |
51.0 |
|
Floor plan notes payable—non-trade, net |
— |
|
|
— |
|
Current maturities of long-term debt |
83.1 |
|
|
84.5 |
|
Current maturities of operating leases |
22.6 |
|
|
23.6 |
|
Accounts payable and accrued liabilities |
672.2 |
|
|
645.0 |
|
Deferred revenue—current |
221.8 |
|
|
218.9 |
|
Liabilities associated with assets held for sale |
23.1 |
|
|
10.5 |
|
Total current liabilities |
1,068.3 |
|
|
1,033.4 |
|
LONG-TERM DEBT |
3,194.8 |
|
|
3,216.8 |
|
LONG-TERM LEASE LIABILITY |
224.2 |
|
|
218.4 |
|
DEFERRED REVENUE |
491.9 |
|
|
495.0 |
|
DEFERRED INCOME TAXES |
99.3 |
|
|
100.7 |
|
OTHER LONG-TERM LIABILITIES |
55.1 |
|
|
53.5 |
|
COMMITMENTS AND CONTINGENCIES (Note 13) |
|
|
|
SHAREHOLDERS' EQUITY: |
|
|
|
Preferred stock, $.01 par value; 10,000,000 shares authorized; none
issued
or outstanding
|
— |
|
|
— |
|
Common stock, $.01 par value; 90,000,000 shares authorized;
43,549,857 and 43,593,809 shares issued, including shares held
in treasury, respectively
|
0.4 |
|
|
0.4 |
|
Additional paid-in capital |
1,288.0 |
|
|
1,281.4 |
|
Retained earnings |
2,763.3 |
|
|
2,610.1 |
|
Treasury stock, at cost; 22,015,888 and 22,024,479 shares,
respectively
|
(1,064.3) |
|
|
(1,063.0) |
|
Accumulated other comprehensive gain |
61.8 |
|
|
74.4 |
|
Total shareholders' equity |
3,049.2 |
|
|
2,903.5 |
|
Total liabilities and shareholders' equity |
$ |
8,182.8 |
|
|
$ |
8,021.4 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
|
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|
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|
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For the Three Months Ended March 31, |
|
|
|
|
|
2023 |
|
2022 |
REVENUE: |
|
|
|
|
|
|
|
New vehicle |
|
|
|
|
$ |
1,767.7 |
|
|
$ |
1,855.6 |
|
Used vehicle |
|
|
|
|
1,126.5 |
|
|
1,350.9 |
|
Parts and service |
|
|
|
|
515.6 |
|
|
501.9 |
|
Finance and insurance, net |
|
|
|
|
172.5 |
|
|
203.4 |
|
TOTAL REVENUE |
|
|
|
|
3,582.3 |
|
|
3,911.8 |
|
COST OF SALES: |
|
|
|
|
|
|
|
New vehicle |
|
|
|
|
1,588.8 |
|
|
1,631.6 |
|
Used vehicle |
|
|
|
|
1,049.5 |
|
|
1,251.6 |
|
Parts and service |
|
|
|
|
233.5 |
|
|
225.4 |
|
Finance and insurance |
|
|
|
|
14.3 |
|
|
11.2 |
|
TOTAL COST OF SALES |
|
|
|
|
2,886.1 |
|
|
3,119.8 |
|
GROSS PROFIT |
|
|
|
|
696.2 |
|
|
792.0 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
Selling, general, and administrative |
|
|
|
|
403.0 |
|
|
455.5 |
|
Depreciation and amortization |
|
|
|
|
16.7 |
|
|
18.4 |
|
|
|
|
|
|
|
|
|
Other operating income, net |
|
|
|
|
— |
|
|
(2.7) |
|
INCOME FROM OPERATIONS |
|
|
|
|
276.5 |
|
|
320.8 |
|
OTHER EXPENSES: |
|
|
|
|
|
|
|
Floor plan interest expense |
|
|
|
|
0.6 |
|
|
2.6 |
|
Other interest expense, net |
|
|
|
|
37.3 |
|
|
37.6 |
|
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Gain on dealership divestitures, net |
|
|
|
|
— |
|
|
(33.1) |
|
Total other expenses, net |
|
|
|
|
38.0 |
|
|
7.1 |
|
INCOME BEFORE INCOME TAXES |
|
|
|
|
238.5 |
|
|
313.7 |
|
Income tax expense |
|
|
|
|
57.1 |
|
|
76.0 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
NET INCOME |
|
|
|
|
$ |
181.4 |
|
|
$ |
237.7 |
|
EARNINGS PER SHARE: |
|
|
|
|
|
|
|
Basic— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
$ |
8.42 |
|
|
$ |
10.43 |
|
Diluted— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
$ |
8.37 |
|
|
$ |
10.38 |
|
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
Basic |
|
|
|
|
21.6 |
|
22.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share units |
|
|
|
|
0.1 |
|
0.1 |
Diluted |
|
|
|
|
21.7 |
|
22.9 |
See accompanying Notes to Condensed Consolidated Financial
Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(In millions)
(Unaudited)
|
|
|
|
|
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|
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|
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|
For the Three Months Ended March 31, |
|
|
|
|
|
2023 |
|
2022 |
Net income |
|
|
|
|
$ |
181.4 |
|
|
$ |
237.7 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
Change in fair value of cash flow swaps |
|
|
|
|
(19.4) |
|
|
42.2 |
|
Income tax benefit (expense) associated with cash flow
swaps |
|
|
|
|
4.7 |
|
|
(10.4) |
|
Gains (losses) on available-for-sale debt securities |
|
|
|
|
2.5 |
|
|
(2.2) |
|
Income tax (expense) benefit associated with available-for-sale
debt securities |
|
|
|
|
(0.5) |
|
|
0.2 |
|
Comprehensive income |
|
|
|
|
$ |
168.7 |
|
|
$ |
267.5 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
(Dollars in millions)
(Unaudited)
|
|
|
|
|
|
|
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|
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|
|
Common Stock |
|
Additional
Paid-in
Capital |
|
Retained
Earnings |
|
Treasury Stock |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Total |
|
Shares |
|
Amount |
|
|
|
Shares |
|
Amount |
|
|
Balances, December 31, 2022 |
43,593,809 |
|
|
$ |
0.4 |
|
|
$ |
1,281.4 |
|
|
$ |
2,610.1 |
|
|
22,024,479 |
|
|
$ |
(1,063.0) |
|
|
$ |
74.4 |
|
|
$ |
2,903.5 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
181.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
181.4 |
|
Change in fair value of cash flow swaps, net
of reclassification adjustment and $4.7 million tax
benefit
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(14.6) |
|
|
(14.6) |
|
Unrealized gain on changes in fair value of debt securities, net of
reclassification adjustment and $0.5 million tax
expense
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2.0 |
|
|
2.0 |
|
Comprehensive income |
— |
|
|
— |
|
|
— |
|
|
181.4 |
|
|
— |
|
|
— |
|
|
(12.6) |
|
|
168.7 |
|
Share-based compensation |
— |
|
|
— |
|
|
8.6 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
8.6 |
|
Issuance of common stock, net of forfeitures, in connection
with share-based payment arrangements |
120,575 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Share repurchases |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
110,323 |
|
|
(20.7) |
|
|
— |
|
|
(20.7) |
|
Repurchase of common stock associated with net share settlement of
employee share-based awards |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
45,613 |
|
|
(10.9) |
|
|
— |
|
|
(10.9) |
|
Retirement of common stock |
(164,527) |
|
|
— |
|
|
(2.0) |
|
|
(28.2) |
|
|
(164,527) |
|
|
30.2 |
|
|
— |
|
|
— |
|
Balances, March 31, 2023 |
43,549,857 |
|
|
$ |
0.4 |
|
|
$ |
1,288.0 |
|
|
$ |
2,763.3 |
|
|
22,015,888 |
|
|
$ |
(1,064.3) |
|
|
$ |
61.8 |
|
|
$ |
3,049.2 |
|
|
|
|
|
|
|
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|
|
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|
|
|
Common Stock |
|
Additional
Paid-in
Capital |
|
Retained
Earnings |
|
Treasury Stock |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Total |
|
Shares |
|
Amount |
|
|
|
Shares |
|
Amount |
|
|
Balances, December 31, 2021 |
45,052,293 |
|
|
$ |
0.4 |
|
|
$ |
1,278.6 |
|
|
$ |
1,881.3 |
|
|
21,914,251 |
|
|
$ |
(1,044.1) |
|
|
$ |
(0.7) |
|
|
$ |
2,115.5 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
237.7 |
|
|
— |
|
|
— |
|
|
— |
|
|
237.7 |
|
Change in fair value of cash flow swaps, net
of reclassification adjustment and $10.4 million tax
expense
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
31.8 |
|
|
31.8 |
|
Unrealized loss on changes in fair value of debt securities, net of
reclassification adjustment and $0.2 million tax
benefit
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2.0) |
|
|
(2.0) |
|
Comprehensive income |
— |
|
|
— |
|
|
— |
|
|
237.7 |
|
|
— |
|
|
— |
|
|
29.8 |
|
|
267.5 |
|
Share-based compensation |
— |
|
|
— |
|
|
7.0 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7.0 |
|
Issuance of common stock, net of forfeitures, in connection
with share-based payment arrangements |
115,435 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Share repurchases |
— |
|
|
— |
|
|
1.4 |
|
|
— |
|
|
1,069,203 |
|
|
(200.0) |
|
|
— |
|
|
(198.6) |
|
Repurchase of common stock associated with net share settlements of
employee share-based awards |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
53,810 |
|
|
(8.9) |
|
|
— |
|
|
(8.9) |
|
Retirement of common stock |
(1,069,203) |
|
|
— |
|
|
(12.9) |
|
|
(187.1) |
|
|
(1,069,203) |
|
|
200.0 |
|
|
$ |
— |
|
|
$ |
— |
|
Balances, March 31, 2022 |
44,098,525 |
|
|
$ |
0.4 |
|
|
$ |
1,274.1 |
|
|
$ |
1,931.9 |
|
|
21,968,061 |
|
|
$ |
(1,053.0) |
|
|
$ |
29.1 |
|
|
$ |
2,182.5 |
|
|
|
|
|
|
|
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|
See accompanying Notes to Condensed Consolidated Financial
Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
2023 |
|
2022 |
CASH FLOW FROM OPERATING ACTIVITIES: |
|
|
|
Net income |
$ |
181.4 |
|
|
$ |
237.7 |
|
Adjustments to reconcile net income to net cash provided by
operating activities— |
|
|
|
Depreciation and amortization |
16.7 |
|
|
18.4 |
|
Share-based compensation |
8.6 |
|
|
7.0 |
|
Deferred income taxes |
2.8 |
|
|
(0.4) |
|
|
|
|
|
Unrealized (gains) losses on investments |
(3.1) |
|
|
3.3 |
|
|
|
|
|
Loaner vehicle amortization |
6.7 |
|
|
3.2 |
|
Gain on divestitures, net |
— |
|
|
(33.1) |
|
Change in right-of-use assets |
6.3 |
|
|
7.3 |
|
Other adjustments, net |
0.8 |
|
|
0.4 |
|
Changes in operating assets and liabilities, net of acquisitions
and divestitures— |
|
|
|
Contracts-in-transit |
64.5 |
|
|
(1.8) |
|
Accounts receivable |
5.2 |
|
|
35.7 |
|
|
|
|
|
Inventories |
(33.3) |
|
|
70.3 |
|
Other current assets |
(109.5) |
|
|
(82.5) |
|
Floor plan notes payable—trade, net |
(5.4) |
|
|
(22.0) |
|
Deferred revenue |
(0.2) |
|
|
15.5 |
|
Accounts payable and accrued liabilities |
33.8 |
|
|
163.0 |
|
Operating lease liabilities |
(5.9) |
|
|
(7.0) |
|
Other long-term assets and liabilities, net |
2.3 |
|
|
(6.0) |
|
Net cash provided by operating activities |
171.7 |
|
|
409.0 |
|
CASH FLOW FROM INVESTING ACTIVITIES: |
|
|
|
Capital expenditures—excluding real estate |
(15.2) |
|
|
(20.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures |
— |
|
|
252.2 |
|
Purchases of debt securities—available-for-sale |
(44.1) |
|
|
(12.3) |
|
Purchases of equity securities |
— |
|
|
(3.3) |
|
Proceeds from the sale of debt
securities—available-for-sale |
3.5 |
|
|
12.2 |
|
Proceeds from the sale of equity securities |
0.6 |
|
|
3.3 |
|
|
|
|
|
Net cash (used in) provided by investing activities |
(55.2) |
|
|
231.3 |
|
CASH FLOW FROM FINANCING ACTIVITIES: |
|
|
|
Floor plan borrowings—non-trade |
1,799.6 |
|
|
1,873.7 |
|
|
|
|
|
Floor plan repayments—non-trade |
(1,798.2) |
|
|
(2,004.1) |
|
Floor plan repayments—divestitures |
— |
|
|
(19.9) |
|
|
|
|
|
Repayments of borrowings |
(15.3) |
|
|
(7.7) |
|
Proceeds from revolving credit facility |
— |
|
|
320.0 |
|
Repayments of revolving credit facility |
— |
|
|
(489.0) |
|
|
|
|
|
Proceeds from issuance of common stock |
— |
|
|
1.4 |
|
Payment of debt issuance costs |
— |
|
|
(0.4) |
|
Purchases of treasury stock |
(30.2) |
|
|
(200.0) |
|
Repurchases of common stock, including amounts associated with net
share settlements of
employee share-based awards |
(10.9) |
|
|
(8.9) |
|
|
|
|
|
Net cash used in financing activities |
(55.0) |
|
|
(534.9) |
|
Net increase in cash and cash equivalents |
61.5 |
|
|
105.4 |
|
CASH AND CASH EQUIVALENTS, beginning of period |
235.3 |
|
|
178.9 |
|
CASH AND CASH EQUIVALENTS, end of period |
$ |
296.8 |
|
|
$ |
284.3 |
|
See Note 11 "Supplemental Cash Flow Information" for further
details
See accompanying Notes to Condensed Consolidated Financial
Statements
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Asbury Automotive Group, Inc., a Delaware corporation organized in
2002, is one of the largest automotive retailers in the United
States. Our store operations are conducted by our
subsidiaries.
As of March 31, 2023, we owned and operated 184 new vehicle
franchises (139 dealership locations), representing 31 brands of
automobiles, and 32 collision centers in 14 states. For the three
months ended March 31, 2023, our new vehicle revenue brand mix
consisted of 34% luxury, 38% imports and 28% domestic brands. Our
stores offer an extensive range of automotive products and
services, including new and used vehicles; parts and service, which
includes repair and maintenance services, replacement parts and
collision repair services (collectively referred to as "parts and
services" or "P&S"); and finance and insurance ("F&I")
products, including arranging vehicle financing through third
parties and aftermarket products, such as extended service
contracts, guaranteed asset protection ("GAP") debt cancellation
and prepaid maintenance. The finance and insurance products are
provided by independent third parties and Total Care Auto, Powered
by Landcar ("TCA"). The Company reflects its operations in two
reportable segments: Dealerships and TCA.
Basis of Presentation
The accompanying condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP"), and reflect the
consolidated accounts of Asbury Automotive Group, Inc. (the
"Company") and our wholly owned subsidiaries. All intercompany
transactions have been eliminated in consolidation. If necessary,
reclassifications of amounts previously reported have been made to
the accompanying condensed consolidated financial statements in
order to conform to current presentation.
In the opinion of management, all adjustments, consisting only of
normal, recurring adjustments, considered necessary for a fair
statement of the condensed consolidated financial statements as of
March 31, 2023, and for the three months ended March 31,
2023 and 2022, have been included, unless otherwise indicated.
Amounts presented in the condensed consolidated financial
statements have been calculated using non-rounded amounts for all
periods presented and therefore certain amounts may not compute or
tie to prior year financial statements due to
rounding.
The results of operations for the three months ended March 31,
2023 are not necessarily indicative of the results that may be
expected for any other interim period, or any full year period. Our
condensed consolidated financial statements should be read together
with our audited consolidated financial statements contained in our
Annual Report on Form 10-K for the year ended
December 31, 2022.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses
during the periods presented. Actual results could differ
materially from these estimates. Estimates and assumptions are
reviewed quarterly and the effects of any revisions are reflected
in the consolidated financial statements in the period they are
determined to be necessary. Estimates made in the accompanying
condensed consolidated financial statements include, but are not
limited to, those relating to inventory valuation reserves,
reserves for chargebacks against revenue recognized from the sale
of finance and insurance products, reserves for self-insurance
programs, and certain assumptions related to goodwill and
dealership franchise rights intangible assets.
Share Repurchases
Share repurchases may be made from time-to-time in open market
transactions or through privately negotiated transactions under the
authorization approved by the Board of Directors. Periodically, the
Company may retire repurchased shares of common stock previously
held by the Company as treasury stock. In accordance with our
accounting policy, we allocate any excess share repurchase price
over par value between additional paid-in capital, which is limited
to amounts initially recorded for the same issue, and retained
earnings. During the three months ended March 31, 2023 and
2022, the Company repurchased 110,323 and 1,069,203 shares and
retired 164,527 and 1,069,203 shares, of our common stock under our
share repurchase program, respectively. The cash paid for share
repurchases was $20.7 million and $200.0 million for the
three months ended March 31, 2023 and 2022, respectively. From
April 1, 2023 through April 27, 2023, the Company repurchased
149,765 shares for $28.7 million pursuant to a 10b5-1
agreement.
Earnings per Share
Basic earnings per share is computed by dividing net income by the
weighted-average common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income by
the weighted-average common shares and common share equivalents
outstanding during the period. The Company excluded 4,005 and 2,123
restricted share units and 476 and 533 performance share units
issued under the Asbury Automotive Group, Inc. 2019 Equity and
Incentive Compensation Plan from its computation of diluted
earnings per share for the three months ended March 31, 2023
and 2022, respectively, because they were anti-dilutive. For all
periods presented, there were no adjustments to the numerator
necessary to compute diluted earnings per share.
Recent Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board
("FASB") issued Accounting Standards Update ("ASU") 2022-04,
Liabilities-Supplier Finance Programs.
This standard serves to improve transparency about supplier finance
programs. The ASU requires certain disclosures around key terms of
outstanding supply chain finance programs and changes in
obligations during a reporting period related to vendors
participating in these programs. The new disclosure requirements do
not affect the recognition, measurement or financial statement
presentation of any amounts due. The guidance is effective for
fiscal years beginning after December 15, 2022, except for
rollforward information, which is effective in the first quarter of
2024. Early adoption is permitted. The adoption of this new
guidance on January 1, 2023 did not have a material impact on our
condensed consolidated financial statements. Refer to Note 8,
"Floor Plan Notes Payable."
2. REVENUE RECOGNITION
Disaggregation of Revenue
Revenue from contracts with customers for the three months ended
March 31, 2023 and 2022 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
2023 |
|
2022 |
|
(In millions) |
Revenue: |
|
|
|
New vehicle |
$ |
1,767.7 |
|
|
$ |
1,855.6 |
|
Used vehicle retail |
1,021.6 |
|
|
1,217.0 |
|
Used vehicle wholesale |
104.9 |
|
|
134.0 |
|
New and used vehicle |
2,894.2 |
|
|
3,206.5 |
|
Sale of vehicle parts and accessories |
126.0 |
|
|
130.2 |
|
Vehicle repair and maintenance services |
389.6 |
|
|
371.7 |
|
Parts and service |
515.6 |
|
|
501.9 |
|
Finance and insurance, net |
172.5 |
|
|
203.4 |
|
Total revenue |
$ |
3,582.3 |
|
|
$ |
3,911.8 |
|
Contract Assets
Changes in contract assets during the period are reflected in the
table below. Contract assets related to vehicle repair and
maintenance services are transferred to receivables when a repair
order is completed and invoiced to the customer. Certain
incremental sales commissions payable to obtain an F&I revenue
contract with a customer have been capitalized and are amortized
using the same pattern of recognition applicable to the associated
F&I revenue contract.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Repair and Maintenance Services |
|
Finance and Insurance, net |
|
Deferred Sales Commissions |
|
Total |
|
(In millions) |
Balance as of January 1, 2023 |
$ |
14.7 |
|
|
$ |
14.7 |
|
|
$ |
37.2 |
|
|
$ |
66.6 |
|
Transferred to receivables from contract assets recognized at the
beginning of the period |
(14.7) |
|
|
(3.0) |
|
|
— |
|
|
(17.7) |
|
Amortization of costs to obtain a contract with a
customer |
— |
|
|
— |
|
|
(2.0) |
|
|
(2.0) |
|
Costs incurred to obtain a contract with a customer |
— |
|
|
— |
|
|
8.6 |
|
|
8.6 |
|
Increases related to revenue recognized, inclusive of adjustments
to constraint, during the period |
16.3 |
|
|
2.8 |
|
|
— |
|
|
19.1 |
|
Balance as of March 31, 2023 |
$ |
16.3 |
|
|
$ |
14.5 |
|
|
$ |
43.8 |
|
|
$ |
74.6 |
|
|
|
|
|
|
|
|
|
Contract Assets (current), March 31, 2023 |
16.3 |
|
|
14.5 |
|
|
12.9 |
|
|
43.7 |
|
Contract Assets (long-term), March 31, 2023 |
— |
|
|
— |
|
|
30.9 |
|
|
30.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
The condensed consolidated balance sheets reflect
$713.7 million and $713.9 million of deferred revenue as
of March 31, 2023 and December 31, 2022, respectively.
Approximately $62.4 million of deferred revenue at
December 31, 2022 was recorded in finance and insurance, net
revenue in the condensed consolidated statements of income during
the three months ended March 31, 2023.
During the three months ended March 31, 2022, we sold one
franchise (one dealership location) in St. Louis, Missouri, and
three franchises (three dealership locations) in the Denver,
Colorado market. The Company recorded a pre-tax gain totaling $33.1
million, for the three months ended March 31, 2022, which is
presented in our accompanying condensed consolidated statements of
income as gain on dealership divestitures, net. There were no
divestitures during the three months ended March 31,
2023.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
March 31, 2023 |
|
December 31, 2022 |
|
(In millions) |
Vehicle receivables |
$ |
48.1 |
|
|
$ |
50.4 |
|
Manufacturer receivables |
42.1 |
|
|
43.3 |
|
Other receivables |
78.6 |
|
|
80.5 |
|
Total accounts receivable |
168.9 |
|
|
174.1 |
|
Less—Allowance for credit losses |
(2.3) |
|
|
(2.2) |
|
Accounts receivable, net |
$ |
166.6 |
|
|
$ |
171.9 |
|
5. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
March 31, 2023 |
|
December 31, 2022 |
|
(In millions) |
New vehicles |
$ |
643.0 |
|
|
$ |
527.7 |
|
Used vehicles |
308.5 |
|
|
304.4 |
|
Parts and accessories |
129.9 |
|
|
127.2 |
|
Total inventories, net (a) |
$ |
1,081.4 |
|
|
$ |
959.2 |
|
____________________________
(a) Inventories, net as of March 31, 2023 and
December 31, 2022, excluded $5.0 million and $3.4 million
classified as assets held for sale, respectively.
The lower of cost and net realizable value reserves reduced total
inventories by $9.5 million and $10.7 million as of March 31,
2023 and December 31, 2022, respectively. As of March 31,
2023 and December 31, 2022, certain automobile manufacturer
incentives reduced new vehicle inventory cost by $4.0 million and
$2.7 million, respectively, and reduced new vehicle cost of sales
for the three months ended March 31, 2023 and 2022 by $22.3
million and $25.5 million, respectively.
6. ASSETS AND LIABILITIES HELD FOR SALE
Assets and liabilities classified as held for sale include (i)
assets and liabilities associated with pending dealership
disposals, (ii) real estate not currently used in our operations
that we are actively marketing to sell and (iii) the related
mortgage notes payable, if applicable.
A summary of assets held for sale and liabilities associated with
assets held for sale is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
March 31, 2023 |
|
December 31, 2022 |
|
(In millions) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Inventory |
$ |
5.0 |
|
|
$ |
3.4 |
|
Loaners, net |
0.9 |
|
|
0.9 |
|
|
|
|
|
Property and equipment, net |
36.0 |
|
|
24.0 |
|
Operating lease right-of-use assets |
2.1 |
|
|
— |
|
Goodwill |
0.9 |
|
|
0.9 |
|
|
|
|
|
Total assets held for sale |
44.9 |
|
|
29.1 |
|
Liabilities: |
|
|
|
|
|
|
|
Floor plan notes payable—non-trade |
4.2 |
|
|
2.8 |
|
Loaners notes payable |
1.0 |
|
|
0.8 |
|
|
|
|
|
Current maturities of long-term debt |
1.0 |
|
|
0.6 |
|
Current maturities of operating leases |
0.5 |
|
|
— |
|
Long-term debt |
14.8 |
|
|
6.2 |
|
Operating lease liabilities |
1.6 |
|
|
— |
|
Total liabilities associated with assets held for sale |
23.1 |
|
|
10.5 |
|
Net assets held for sale |
$ |
21.8 |
|
|
$ |
18.7 |
|
As of March 31, 2023, assets held for sale consisted of one
franchise (one dealership location), real estate associated with
five used vehicle stores, one collision center, and one real estate
property not currently used in our operations.
As of December 31, 2022, assets held for sale consisted of one
franchise (one dealership location) in addition to one real estate
property not currently used in our operations.
7. INVESTMENTS
Our investment portfolio is primarily funded by product premiums
from the sale of our TCA F&I products. The amortized cost,
gross unrealized gains and losses and estimated fair values of debt
securities available-for-sale, equity securities, and other
investments measured at net asset value are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023 |
|
Amortized Cost |
|
|
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
|
(In millions) |
Short-term investments |
$ |
5.5 |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5.5 |
|
U.S. Treasury |
11.9 |
|
|
|
|
0.1 |
|
|
(0.1) |
|
|
11.9 |
|
Municipal |
28.3 |
|
|
|
|
0.2 |
|
|
(0.2) |
|
|
28.3 |
|
Corporate |
93.8 |
|
|
|
|
0.6 |
|
|
(1.4) |
|
|
93.0 |
|
Mortgage and other asset-backed securities |
96.5 |
|
|
|
|
0.6 |
|
|
(1.1) |
|
|
96.0 |
|
Total debt securities |
236.0 |
|
|
|
|
1.5 |
|
|
(2.8) |
|
|
234.6 |
|
Common stock |
51.7 |
|
|
|
|
— |
|
|
— |
|
|
51.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
$ |
287.7 |
|
|
|
|
$ |
1.5 |
|
|
$ |
(2.8) |
|
|
$ |
286.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
Amortized Cost |
|
|
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
|
(In millions) |
Short-term investments |
$ |
5.4 |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5.4 |
|
U.S. Treasury |
11.8 |
|
|
|
|
— |
|
|
(0.2) |
|
|
11.6 |
|
Municipal |
22.8 |
|
|
|
|
— |
|
|
(0.4) |
|
|
22.4 |
|
Corporate |
81.8 |
|
|
|
|
0.2 |
|
|
(2.3) |
|
|
79.7 |
|
Mortgage and other asset-backed securities |
73.8 |
|
|
|
|
0.3 |
|
|
(1.4) |
|
|
72.7 |
|
Total debt securities |
195.5 |
|
|
|
|
0.5 |
|
|
(4.4) |
|
|
191.7 |
|
Common stock |
48.7 |
|
|
|
|
— |
|
|
— |
|
|
48.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
$ |
244.2 |
|
|
|
|
$ |
0.5 |
|
|
$ |
(4.4) |
|
|
$ |
240.4 |
|
The Company had an unrealized gain of $2.6 million and an
unrealized loss of $0.4 million related to equity securities
held as of March 31, 2023 and December 31, 2022,
respectively.
As of March 31, 2023 and December 31, 2022, the Company
had $1.5 million and $1.3 million of accrued interest receivable,
which is included in other current assets on the condensed
consolidated balance sheets. The Company does not consider accrued
interest receivable in the carrying amount of financial assets held
at amortized cost basis or in the allowance for credit
losses.
A summary of amortized costs and fair value of investments by time
to maturity, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023 |
|
Amortized Cost |
|
Fair Value |
|
(In millions) |
Due in 1 year or less |
$ |
5.5 |
|
|
$ |
5.5 |
|
Due in 1-5 years |
87.7 |
|
|
87.0 |
|
Due in 6-10 years |
44.0 |
|
|
43.9 |
|
Due after 10 years |
2.3 |
|
|
2.3 |
|
Total by maturity |
139.5 |
|
|
138.7 |
|
Mortgage and other asset-backed securities |
96.5 |
|
|
96.0 |
|
Common stock |
51.7 |
|
|
51.7 |
|
|
|
|
|
|
|
|
|
Total investment securities |
$ |
287.7 |
|
|
$ |
286.3 |
|
There were no gross losses and $0.1 million gross gains
realized related to the sale of available-for-sale debt securities
carried at fair value for the three months ended March 31,
2023. There were no gross gains or losses realized related to the
sale of equity securities carried at fair value for the three
months ended March 31, 2023.
The following tables summarize the amount of unrealized losses,
defined as the amount by which the amortized cost exceeds fair
value, and the related fair value of investments with unrealized
losses. The investments were segregated into two categories: those
that have been in a continuous unrealized loss position for less
than 12 months and those that have been in a continuous unrealized
loss position for 12 or more months. The reference point for
determining how long an investment was in an unrealized loss
position was March 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023 |
|
Less than 12 Months |
|
Greater than 12 Months |
|
Total |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
(In millions) |
Short-term investments |
$ |
4.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4.0 |
|
|
$ |
— |
|
U.S. Treasury |
7.4 |
|
|
(0.1) |
|
|
0.1 |
|
|
— |
|
|
7.5 |
|
|
(0.1) |
|
Municipal |
14.8 |
|
|
(0.1) |
|
|
0.9 |
|
|
— |
|
|
15.7 |
|
|
(0.2) |
|
Corporate |
52.4 |
|
|
(0.8) |
|
|
9.5 |
|
|
(0.6) |
|
|
61.9 |
|
|
(1.4) |
|
Mortgage and other asset-backed securities |
55.3 |
|
|
(0.9) |
|
|
3.5 |
|
|
(0.3) |
|
|
58.8 |
|
|
(1.1) |
|
Total debt securities |
$ |
133.9 |
|
|
$ |
(1.9) |
|
|
$ |
13.9 |
|
|
$ |
(0.9) |
|
|
$ |
147.8 |
|
|
$ |
(2.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
Less than 12 Months |
|
Greater than 12 Months |
|
Total |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
Fair Value |
|
Unrealized Losses |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
$ |
9.2 |
|
|
$ |
(0.2) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9.2 |
|
|
$ |
(0.2) |
|
Municipal |
19.0 |
|
|
(0.4) |
|
|
— |
|
|
— |
|
|
19.0 |
|
|
(0.4) |
|
Corporate |
66.2 |
|
|
(0.1) |
|
|
5.2 |
|
|
(0.3) |
|
|
71.4 |
|
|
(0.4) |
|
Mortgage and other asset-backed securities |
51.4 |
|
|
(1.3) |
|
|
1.5 |
|
|
(0.2) |
|
|
52.9 |
|
|
(1.5) |
|
Total debt securities |
$ |
145.7 |
|
|
$ |
(2.0) |
|
|
$ |
6.8 |
|
|
$ |
(0.5) |
|
|
$ |
152.6 |
|
|
$ |
(2.5) |
|
The Company reviews the investment securities portfolio at the
security level on a quarterly basis for potential credit losses,
which takes into consideration numerous factors including changes
in credit ratings. The decline in fair value identified in the
tables above are a result of widening market spreads and not a
result of credit quality. Additionally, the Company
has
determined it has both the intent and ability to hold these
investments until the market price recovers or until maturity and
does not believe it will be required to sell the securities before
maturity. Accordingly, no credit losses were recognized on these
securities during the three months ended March 31,
2023.
8. FLOOR PLAN NOTES PAYABLE
Floor plan notes payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
March 31, 2023 |
|
December 31, 2022 |
|
(In millions) |
Floor plan notes payable—trade |
$ |
59.9 |
|
|
$ |
65.1 |
|
Floor plan notes payable offset account |
(14.3) |
|
|
(14.2) |
|
Floor plan notes payable—trade, net |
$ |
45.6 |
|
|
$ |
51.0 |
|
|
|
|
|
Floor plan notes payable—new non-trade (a) |
$ |
680.0 |
|
|
$ |
613.6 |
|
|
|
|
|
Floor plan notes payable offset account (b) |
(680.0) |
|
|
(613.6) |
|
Floor plan notes payable—non-trade, net |
$ |
— |
|
|
$ |
— |
|
____________________________
(a) Floor plan notes payable—new non-trade as of March 31,
2023 and December 31, 2022, excluded $4.2 million and $2.8
million classified as liabilities associated with assets held for
sale, respectively.
(b) In addition to the $680.0 million and $613.6 million
shown above as of March 31, 2023 and December 31, 2022,
respectively, we held $158.1 million and $164.0 million, in
the floor plan notes payable offset account as of March 31,
2023 and December 31, 2022, respectively. As of March 31,
2023, $77.2 million of the $158.1 million was reflected within
cash and cash equivalents and the remaining $80.9 million was
shown as an offset to loaner vehicles notes payable. As of
December 31, 2022, $100.8 million of the
$164.0 million was reflected within cash and cash equivalents
and the remaining $63.2 million was shown as an offset to
loaner vehicles notes payable. Loaner vehicle notes payable is
included in accounts payable and accrued liabilities within the
condensed consolidated balance sheets.
We have floor plan offset accounts that allow us to offset our
floor plan notes payable balances outstanding with transfers of
cash to reduce the amount of outstanding floor plan notes payable
that would otherwise accrue interest, while retaining the ability
to transfer amounts from the offset account into our operating cash
accounts within the same day.
We have the ability to convert a portion of our availability under
the Revolving Credit Facility to the New Vehicle Floor Plan
Facility or the Used Vehicle Floor Plan Facility. The maximum
amount we are allowed to convert is determined based on our
aggregate revolving commitment under the Revolving Credit Facility,
less $50.0 million. In addition, we are able to convert any
amounts moved to the New Vehicle Floor Plan Facility or Used
Vehicle Floor Plan Facility back to the Revolving Credit
Facility.
On May 27, 2022, $389.0 million of our availability under the
Revolving Credit Facility was re-designated to the New Vehicle
Floor Plan Facility to take advantage of lower commitment fee
rates. On March 31, 2023, we designated this
$389.0 million back to the Revolving Credit
Facility.
In addition to our new and used vehicle floor plan facilities, we
have loaner vehicle floor plan facilities with Ford Motor Credit
Company (“Ford Credit”), Bank of America and certain original
equipment manufacturers (“OEMs”). Generally, the loaner vehicle
programs with the OEMs provide for a short-term lease of the loaner
vehicle pursuant to which we make monthly payments. During the term
of the lease, the title and ownership of the loaner vehicles are
retained by the OEM. We are obligated to purchase the loaner
vehicle upon expiration of the lease. Under certain programs, we
have the option to purchase the loaner vehicle prior to the
expiration of the lease term. Loaner vehicles notes payable related
to Ford Credit as of March 31, 2023 and December 31, 2022
were $13.7 million and $13.4 million, respectively. Loaner
vehicles notes payable related to Bank of America as of
March 31, 2023 and December 31, 2022 were
$0.0 million and $10.8 million, net of offsets of
$80.9 million and $63.2 million, respectively. Loaner
vehicles notes payable related to OEMs as of March 31, 2023
and December 31, 2022 were $75.1 million and $70.4
million, respectively.
9. DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
March 31, 2023 |
|
December 31, 2022 |
(In millions) |
4.50% Senior Notes due 2028
|
$ |
405.0 |
|
|
$ |
405.0 |
|
4.625% Senior Notes due 2029
|
800.0 |
|
|
800.0 |
|
4.75% Senior Notes due 2030
|
445.0 |
|
|
445.0 |
|
5.00% Senior Notes due 2032
|
600.0 |
|
|
600.0 |
|
Mortgage notes payable bearing interest at fixed rates
(a) |
37.7 |
|
|
38.3 |
|
2021 Real Estate Facility (b) |
642.9 |
|
|
660.6 |
|
2021 BofA Real Estate Facility |
171.5 |
|
|
173.3 |
|
2018 Bank of America Facility (c) |
53.5 |
|
|
54.5 |
|
2018 Wells Fargo Master Loan Facility |
75.7 |
|
|
76.9 |
|
2013 BofA Real Estate Facility |
24.3 |
|
|
24.9 |
|
2015 Wells Fargo Master Loan Facility |
41.1 |
|
|
42.3 |
|
|
|
|
|
Finance lease liability |
8.4 |
|
|
8.4 |
|
Total debt outstanding |
3,304.9 |
|
|
3,329.2 |
|
Add—unamortized premium on 4.50% Senior Notes due 2028
|
0.8 |
|
|
0.8 |
|
Add—unamortized premium on 4.75% Senior Notes due 2030
|
1.5 |
|
|
1.6 |
|
Less—debt issuance costs |
(29.3) |
|
|
(30.4) |
|
Long-term debt, including current portion |
3,277.9 |
|
|
3,301.2 |
|
Less—current portion, net of current portion of debt issuance
costs |
(83.1) |
|
|
(84.5) |
|
Long-term debt |
$ |
3,194.8 |
|
|
$ |
3,216.8 |
|
____________________________
(a) Mortgage notes payable excluded $2.7 million that were
classified as liabilities associated with assets held for sale as
of both March 31, 2023 and December 31,
2022.
(b) Amounts reflected for the 2021 Real Estate Facility as of
March 31, 2023 exclude $9.2 million classified as
liabilities associated with assets held for sale.
(c) Amounts reflected for the 2018 Bank of America Facility as of
March 31, 2023 and December 31, 2022, exclude
$4.0 million and $4.1 million classified as liabilities
associated with assets held for sale.
10. FINANCIAL INSTRUMENTS AND FAIR VALUE
In determining fair value, we use various valuation approaches,
including market and income approaches. Accounting standards
establish a hierarchy for inputs used in measuring fair value that
maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be
used when available. Observable inputs are inputs that market
participants would use in pricing the asset or liability developed
based on market data obtained from independent sources.
Unobservable inputs are inputs that reflect our assumptions about
the presumptions market participants would use in pricing the asset
or liability, developed based on the best information available in
the circumstances. The hierarchy is broken down into three levels
based on the reliability of inputs as follows:
Level 1-Valuations based on quoted prices in active markets for
identical assets or liabilities that we have the ability to
access.
Level 2-Valuations based on quoted prices in markets that are not
active or for which all significant inputs are observable, either
directly or indirectly. Assets and liabilities utilizing Level 2
inputs include interest rate swap instruments, exchange-traded debt
securities that are not actively traded or do not have a high
trading volume, mortgage notes payable and certain real estate
properties on a non-recurring basis.
Level 3-Valuations based on inputs that are unobservable and
significant to the overall fair value measurement. Asset and
liability measurements utilizing Level 3 inputs include those used
in estimating the fair value of certain non-financial assets
and
non-financial liabilities in purchase acquisitions and those used
in the assessment of impairment for goodwill and manufacturer
franchise rights.
The availability of observable inputs can vary and is affected by a
wide variety of factors. To the extent that valuation is based on
models or inputs that are less observable or unobservable in the
market, the determination of fair value requires more judgment.
Accordingly, the degree of judgment required to determine fair
value is greatest for instruments categorized in Level 3. In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy within
which the fair value measurement is disclosed is determined based
on the lowest level input that is significant to the fair value
measurement.
Fair value is a market-based exit price measure considered from the
perspective of a market participant who holds the asset or owes the
liability rather than an entity-specific measure. Therefore, even
when market assumptions are not readily available, our assumptions
are set to reflect those that market participants would use in
pricing the asset or liability at the measurement date. We use
inputs that are current as of the measurement date, including
during periods of significant market fluctuations.
Financial instruments consist primarily of cash and cash
equivalents, contracts-in-transit, accounts receivable, cash
surrender value of corporate-owned life insurance policies,
accounts payable, floor plan notes payable, subordinated long-term
debt, mortgage notes payable and interest rate swap instruments.
The carrying values of our financial instruments, with the
exception of subordinated long-term debt and certain mortgage notes
payable, approximate fair value due to (i) their short-term nature,
(ii) recently completed market transactions or (iii) existence of
variable interest rates, which approximate market rates. The fair
value of our subordinated long-term debt is based on reported
market prices in an inactive market that reflect Level 2 inputs. We
estimate the fair value of our mortgage notes payable using a
present value technique based on current market interest rates for
similar types of financial instruments that reflect Level 2
inputs.
A summary of the carrying values and fair values of our
subordinated long-term debt and our mortgage notes payable is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
March 31, 2023 |
|
December 31, 2022 |
|
(In millions) |
Carrying Value: |
|
|
|
4.50% Senior Notes due 2028
|
$ |
402.3 |
|
|
$ |
409.5 |
|
4.625% Senior Notes due 2029
|
789.4 |
|
|
789.1 |
|
4.75% Senior Notes due 2030
|
441.8 |
|
|
441.7 |
|
5.00% Senior Notes due 2032
|
591.7 |
|
|
591.5 |
|
Mortgage notes payable (a) |
1,044.2 |
|
|
1,061.1 |
|
Total carrying value |
$ |
3,269.5 |
|
|
$ |
3,292.9 |
|
|
|
|
|
Fair Value: |
|
|
|
4.50% Senior Notes due 2028
|
$ |
367.5 |
|
|
$ |
354.4 |
|
4.625% Senior Notes due 2029
|
708.0 |
|
|
672.0 |
|
4.75% Senior Notes due 2030
|
393.8 |
|
|
372.7 |
|
5.00% Senior Notes due 2032
|
523.5 |
|
|
492.0 |
|
Mortgage notes payable (a) |
1,045.2 |
|
|
1,069.8 |
|
Total fair value |
$ |
3,038.0 |
|
|
$ |
2,960.9 |
|
____________________________
(a) Mortgage notes payable as of March 31, 2023 and
December 31, 2022, exclude $15.8 million and
$6.8 million classified as liabilities associated with assets
held for sale, respectively.
Interest Rate Swap Agreements
We currently have seven interest rate swap agreements. In January
2022, we entered into two new interest rate swap agreements with a
combined notional principal amount of $550.0 million. These
swaps are designed to provide a hedge against changes in variable
rate cash flows regarding fluctuations in the SOFR rate. All
interest rate swap agreements with an inception date of 2021 and
prior were amended on June 1, 2022 to provide a hedge against
changes in variable rate cash flows regarding fluctuations in SOFR
as compared to the previous benchmark rate of one-month LIBOR. The
revisions to the interest rate swap
agreements did not impact our hedge accounting because we applied
the accounting expedients outlined in ASU 2020-04 and ASU 2021-01
of ASC Topic 848,
Reference Rate Reform.
The following table provides information on the attributes of each
swap as of March 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception Date |
|
Notional Principal at Inception |
|
Notional Value as of March 31, 2023
|
|
Notional Principal at Maturity |
|
Maturity Date |
|
|
(In millions) |
|
|
January 2022 |
|
$ |
300.0 |
|
|
$ |
285.0 |
|
|
$ |
228.8 |
|
|
December 2026 |
January 2022 |
|
$ |
250.0 |
|
|
$ |
250.0 |
|
|
$ |
250.0 |
|
|
December 2031 |
May 2021 |
|
$ |
184.4 |
|
|
$ |
171.5 |
|
|
$ |
110.6 |
|
|
May 2031 |
July 2020 |
|
$ |
93.5 |
|
|
$ |
80.1 |
|
|
$ |
50.6 |
|
|
December 2028 |
July 2020 |
|
$ |
85.5 |
|
|
$ |
72.1 |
|
|
$ |
57.3 |
|
|
November 2025 |
June 2015 |
|
$ |
100.0 |
|
|
$ |
62.7 |
|
|
$ |
53.1 |
|
|
February 2025 |
November 2013 |
|
$ |
75.0 |
|
|
$ |
40.5 |
|
|
$ |
38.7 |
|
|
September 2023 |
The fair value of cash flow swaps is calculated as the present
value of expected future cash flows, determined on the basis of
forward interest rates and present value factors. Fair value
estimates reflect a credit adjustment to the discount rate applied
to all expected cash flows under the swaps. Other than this input,
all other inputs used in the valuation of these swaps are
designated to be Level 2 inputs. The fair value of our swaps was an
$83.0 million and a $102.4 million net asset as of March 31,
2023 and December 31, 2022, respectively.
The following table provides information regarding the fair value
of our interest rate swap agreements and the impact on the
condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
March 31, 2023 |
|
December 31, 2022 |
|
(In millions) |
Other current assets |
$ |
27.9 |
|
|
$ |
29.6 |
|
|
|
|
|
Other long-term assets |
55.1 |
|
|
72.8 |
|
|
|
|
|
Total fair value |
$ |
83.0 |
|
|
$ |
102.4 |
|
Our interest rate swaps qualify for cash flow hedge accounting
treatment. These interest rate swaps are marked to market at each
reporting date and
any unrealized gains or losses are included in accumulated other
comprehensive income and reclassified to interest expense in the
same period or periods during which the hedged transactions affect
earnings. Information about the effect of our interest rate swap
agreements in the accompanying condensed consolidated statements of
income and condensed consolidated statements of comprehensive
income, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
Results Recognized in Accumulated Other Comprehensive
Income/(Loss) |
|
Location of Amount Reclassified from Accumulated Other
Comprehensive Income/(Loss) to Earnings
|
|
Amount Reclassified from Accumulated Other Comprehensive
Income/(Loss)
to Earnings |
2023 |
|
$ |
(27.0) |
|
|
Other interest expense, net |
|
$ |
(7.7) |
|
2022 |
|
$ |
45.4 |
|
|
Other interest expense, net |
|
$ |
3.1 |
|
On
the basis of yield curve conditions as of March 31, 2023 and
including assumptions about future changes in fair value, we expect
the amount to be reclassified out of Accumulated Other
Comprehensive Income into earnings within the next 12 months will
be gains of $27.9 million.
Investments
The
table below presents the Company’s investment securities that are
measured at fair value on a recurring basis aggregated by the level
in the fair value hierarchy within which those measurements
fall:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
(In millions) |
Cash equivalents |
$ |
2.5 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2.5 |
|
Short-term investments |
1.5 |
|
|
4.0 |
|
|
— |
|
|
5.5 |
|
U.S. Treasury |
11.9 |
|
|
— |
|
|
— |
|
|
11.9 |
|
Municipal |
— |
|
|
28.3 |
|
|
— |
|
|
28.3 |
|
Corporate |
— |
|
|
93.0 |
|
|
— |
|
|
93.0 |
|
Mortgage and other asset-backed securities |
— |
|
|
96.0 |
|
|
— |
|
|
96.0 |
|
Total debt securities |
13.4 |
|
|
221.3 |
|
|
— |
|
|
234.6 |
|
Common stock |
51.7 |
|
|
— |
|
|
— |
|
|
51.7 |
|
|
|
|
|
|
|
|
|
Total |
$ |
65.1 |
|
|
$ |
221.3 |
|
|
$ |
— |
|
|
$ |
286.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
(In millions) |
Cash equivalents |
$ |
6.6 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6.6 |
|
Short-term investments |
0.6 |
|
|
4.8 |
|
|
— |
|
|
5.4 |
|
U.S. Treasury |
11.6 |
|
— |
|
|
— |
|
|
11.6 |
|
Municipal |
— |
|
|
22.4 |
|
|
— |
|
|
22.4 |
|
Corporate |
— |
|
|
79.7 |
|
|
— |
|
|
79.7 |
|
Mortgage and other asset-backed securities |
— |
|
|
72.6 |
|
|
— |
|
|
72.6 |
|
Total debt securities |
12.2 |
|
|
179.5 |
|
|
— |
|
|
191.7 |
|
Common stock |
48.7 |
|
— |
|
|
— |
|
|
48.7 |
|
|
|
|
|
|
|
|
|
Total |
$ |
60.9 |
|
|
$ |
179.5 |
|
|
$ |
— |
|
|
$ |
240.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We review the fair value hierarchy classifications each reporting
period. Changes in the observability of the valuation attributes
may result in a reclassification of certain investments. Such
reclassifications are reported as transfers in and out of Level 3,
or between other levels, at the beginning fair value for the
reporting period in which the changes occur.
Available-for-sale debt securities are recorded at fair value
and
any unrealized gains or losses are included in accumulated other
comprehensive income and reclassified to finance and insurance, net
revenue in the period or periods during which the debt securities
are sold and the gains or losses are realized. Information about
the effect of our available-for-sale debt securities in the
accompanying condensed consolidated statements of income and
condensed consolidated statements of comprehensive income, is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
Results Recognized in Accumulated Other Comprehensive
Income/(Loss) |
|
Location of Amount Reclassified from Accumulated Other
Comprehensive Income/(Loss) to Earnings
|
|
Amount Reclassified from Accumulated Other Comprehensive
Income/(Loss)
to Earnings |
2023 |
|
$ |
2.6 |
|
|
Revenue-Finance and Insurance, net |
|
$ |
0.1 |
|
2022 |
|
$ |
(2.5) |
|
|
Revenue-Finance and Insurance, net |
|
$ |
(0.3) |
|
11. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2023 and 2022, we made
interest payments, including amounts capitalized, totaling $28.4
million and $31.6 million, respectively. Included in these interest
payments is net interest received of $0.2 million during the three
months ended March 31, 2023 due to cash held in our floor plan
offset accounts, and $2.6 million of floor plan interest payments
during the three months ended March 31, 2022.
During the three months ended March 31, 2023 and 2022, we
transferred $90.4 million and $57.5 million, respectively, of
loaner vehicles from other current assets to inventories on our
condensed consolidated balance sheets.
12. SEGMENT INFORMATION
As of March 31, 2023, the Company had two reportable segments:
(1) Dealerships and (2) TCA. Our dealership operations are
organized by management into geographic market-based groups within
the Dealerships segment. The operations of our F&I product
provider is reflected within our TCA segment. Our Chief Operating
Decision Maker is our Chief Executive Officer who manages the
business, regularly reviews financial information and allocates
resources at the geographic market level for our dealerships and at
the TCA segment level for our F&I product provider's
operations. The geographic dealership group operating segments have
been aggregated into one reportable segment as their operations (i)
have similar economic characteristics (our markets all have similar
long-term average gross margins), (ii) offer similar products and
services (all of our markets offer new and used vehicles, parts and
service, and finance and insurance products), (iii) have similar
customers, (iv) have similar distribution and marketing practices
(all of our markets distribute products and services through
dealership facilities that market to customers in similar ways),
and (v) operate under similar regulatory environments.
TCA's vehicle protection products are sold through affiliated
dealerships and the revenue from the related commissions is
included in finance and insurance, net revenue in the Dealerships
segment before consolidation. The corresponding claims expense
incurred and the amortization of deferred acquisition costs is
recorded as a cost of sales in the TCA segment. The Dealerships
segment also provides vehicle repair and maintenance services to
TCA customers in connection with claims related to TCA's vehicle
protection products. Upon consolidation, the associated service
revenue and costs recorded by the Dealerships segment are
eliminated against claims expense recorded by the TCA
segment.
Reportable segment financial information for the
three
months ended
March 31, 2023
and 2022, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2023 |
|
Dealerships |
|
TCA |
|
Eliminations |
|
Total Company |
|
(In millions) |
Revenue |
$ |
3,556.3 |
|
|
$ |
70.7 |
|
|
$ |
(44.7) |
|
|
$ |
3,582.3 |
|
Gross profit |
$ |
679.6 |
|
|
$ |
21.1 |
|
|
$ |
(4.5) |
|
|
$ |
696.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
Dealerships |
|
TCA |
|
Eliminations |
|
Total Company |
|
(In millions) |
Revenue |
$ |
3,894.2 |
|
|
$ |
57.3 |
|
|
$ |
(39.7) |
|
|
$ |
3,911.8 |
|
Gross profit |
$ |
781.4 |
|
|
$ |
12.4 |
|
|
$ |
(1.9) |
|
|
$ |
792.0 |
|
Total assets by segment as of March 31, 2023 and as of
December 31, 2022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023 |
|
Dealerships |
|
TCA |
|
Eliminations |
|
Total Company |
|
(In millions) |
Total assets |
$ |
7,348.7 |
|
|
$ |
840.5 |
|
|
$ |
(6.4) |
|
|
$ |
8,182.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
Dealerships |
|
TCA |
|
Eliminations |
|
Total Company |
|
(In millions) |
Total assets |
$ |
7,170.8 |
|
|
$ |
869.2 |
|
|
$ |
(18.6) |
|
|
$ |
8,021.4 |
|
13. COMMITMENTS AND CONTINGENCIES
Our dealerships are party to dealer and framework agreements with
applicable vehicle manufacturers. In accordance with these
agreements, each dealership has certain rights and is subject to
restrictions typical in the industry. The ability of
these
manufacturers to influence the operations of the dealerships or the
loss of any of these agreements could have a materially negative
impact on our operating results.
In some instances, manufacturers may have the right, and may direct
us, to implement costly capital improvements to dealerships as a
condition to entering into, renewing, or extending franchise
agreements with them. Manufacturers also typically require that
their franchises meet specific standards of appearance. These
factors, either alone or in combination, could cause us to use our
financial resources on capital projects for which we might not have
planned or otherwise determined to undertake.
From time-to-time, we and our dealerships are or may become
involved in various claims relating to, and arising out of, our
business and our operations. These claims may involve, but not be
limited to, financial and other audits by vehicle manufacturers or
lenders and certain federal, state, and local government
authorities, which have historically related primarily to (i)
incentive and warranty payments received from vehicle
manufacturers, or allegations of violations of manufacturer
agreements or policies, (ii) compliance with lender rules and
covenants, and (iii) payments made to government authorities
relating to federal, state, and local taxes, as well as compliance
with other government regulations. Claims may also arise through
litigation, government proceedings, and other dispute resolution
processes. Such claims, including class actions, could relate
to, but may not be limited to, the practice of charging
administrative fees and other fees and commissions,
employment-related matters, truth-in-lending and other dealer
assisted financing obligations, contractual disputes, actions
brought by governmental authorities, and other
matters.
We evaluate pending and threatened claims and establish loss
contingency reserves based upon outcomes we currently believe to be
probable and reasonably estimable. Based on our review of the
various types of claims currently known to us, there is no
indication of material reasonably possible losses in excess of
amounts accrued in the aggregate. We currently do not
anticipate that any known claim will materially adversely affect
our financial condition, liquidity, or results of
operations. However, the outcome of any matter cannot be
predicted with certainty, and an unfavorable resolution of one or
more matters presently known or arising in the future could have a
material adverse effect on our financial condition, liquidity, or
results of operations.
A significant portion of our business involves the sale of
vehicles, parts, or vehicles composed of parts that are
manufactured outside the United States. As a result, our operations
are subject to customary risks of importing merchandise, including
fluctuations in the relative values of currencies, import duties,
exchange controls, trade restrictions, work stoppages, and
general political and socio-economic conditions in foreign
countries. The United States or the countries from which our
products are imported may, from time-to-time, impose new quotas,
duties, tariffs, or other restrictions, or adjust presently
prevailing quotas, duties, or tariffs, which may affect our
operations, and our ability to purchase imported vehicles and/or
parts at reasonable prices.
Substantially all of our facilities are subject to federal, state
and local provisions regarding the discharge of materials into the
environment. Compliance with these provisions has not had, nor do
we expect such compliance to have, any material effect upon our
capital expenditures, net earnings, financial condition, liquidity
or competitive position. We believe that our current practices and
procedures for the control and disposition of such materials comply
with applicable federal, state, and local requirements. No
assurances can be provided, however, that future laws or
regulations, or changes in existing laws or regulations, would not
require us to expend significant resources in order to comply
therewith.
We had $12.5 million of letters of credit outstanding as of
March 31, 2023, which are required by certain of our insurance
providers. In addition, as of March 31, 2023, we maintained a
$17.4 million surety bond line in the ordinary course of our
business. Our letters of credit and surety bond line are considered
to be off balance sheet arrangements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Information
Certain of the discussions and information included or incorporated
by reference in this report may constitute "forward-looking
statements" within the meaning of the federal securities laws.
Forward-looking statements are statements that are not historical
in nature and may include statements relating to our goals, plans
and projections regarding industry and general economic trends, our
expected financial position, results of operations or market
position and our business strategy. Such statements can generally
be identified by words such as "may," "target," "could," "would,"
"will," "should," "believe," "expect," "anticipate," "plan,"
"intend," "foresee," and other similar words or phrases.
Forward-looking statements may also relate to our expectations and
assumptions with respect to, among other things:
•the
seasonally adjusted annual rate of new vehicle sales in the United
States;
•general
economic conditions and its expected impact on our revenue and
expenses;
•our
expected parts and service revenue due to, among other things,
improvements in vehicle technology;
•our
ability to limit our exposure to regional economic downturns due to
our geographic diversity and brand mix;
•manufacturers'
continued use of incentive programs to drive demand for their
product offerings;
•our
capital allocation strategy, including as it relates to
acquisitions and divestitures, stock repurchases, dividends and
capital expenditures;
•our
revenue growth strategy;
•the
growth of the brands that comprise our portfolio over the
long-term;
•disruptions
in the production and supply of vehicles and parts from our vehicle
and parts manufacturers and other suppliers due to any ongoing
impact of supply issues, including the global semiconductor chip
shortage, which can disrupt our operations; and
•our
estimated future capital expenditures, which can be impacted by
increasing prices and labor shortages and acquisitions and
divestitures.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual future
results, performance or achievements to be materially different
from any future results, performance, or achievements expressed or
implied by the forward-looking statements. Such factors include,
but are not limited to:
•the
ability to acquire and successfully integrate acquired businesses
into our existing operations and realize expected benefits and
synergies from such acquisitions;
•the
effects of increased expenses or unanticipated liabilities incurred
as a result of, or due to activities related to our acquisitions or
divestitures;
•changes
in general economic and business conditions, including the current
inflationary environment, the current rising interest rate
environment, changes in employment levels, consumer confidence
levels, consumer demand and preferences, the availability and cost
of credit, fuel prices and levels of discretionary personal
income;
•our
ability to generate sufficient cash flows, maintain our liquidity
and obtain any necessary additional funds for working capital,
capital expenditures, acquisitions, stock repurchases, debt
maturity payments and other corporate purposes, if necessary or
desirable;
•significant
disruptions in the production and delivery of vehicles and parts
for any reason, including supply shortages (including semiconductor
chips), the ongoing conflict in Russia and Ukraine, including any
government sanctions imposed in connection therewith, natural
disasters, severe weather, civil unrest, product recalls, work
stoppages or other occurrences that are outside of our
control;
•our
ability to execute our automotive retailing and service business
strategy while operating under restrictions and best practices
imposed or encouraged by governmental and other regulatory
authorities;
•our
ability to successfully attract and retain skilled
employees;
•our
ability to successfully operate, including our ability to maintain,
and obtain future necessary regulatory approvals, for Total Care
Auto, Powered by Landcar ("TCA"), our finance and insurance
("F&I") product provider;
•adverse
conditions affecting the vehicle manufacturers whose brands we
sell, and their ability to design, manufacture, deliver and market
their vehicles successfully;
•changes
in the mix and total number of vehicles we are able to
sell;
•our
outstanding indebtedness and our continued ability to comply with
applicable covenants in our various financing and lease agreements,
or to obtain waivers of these covenants as necessary;
•high
levels of competition in our industry, which may create pricing and
margin pressures on our products and services;
•our
relationships with manufacturers of the vehicles we sell and our
ability to renew, and enter into new framework and dealer
agreements with vehicle manufacturers whose brands we sell, on
terms acceptable to us;
•the
availability of manufacturer incentive programs and our ability to
earn these incentives;
•failure
of our, or those of our third-party service providers, management
information systems;
•any
data security breaches occurring, including with regard to
personally identifiable information ("PII");
•changes
in laws and regulations governing the operation of automobile
franchises, including trade restrictions, consumer protections,
accounting standards, taxation requirements and environmental
laws;
•changes
in, or the imposition of, new tariffs or trade restrictions on
imported vehicles or parts;
•adverse
results from litigation or other similar proceedings involving
us;
•our
ability to consummate planned mergers, acquisitions and
dispositions;
•any
disruptions in the financial markets, which may impact our ability
to access capital;
•our
relationships with, and the financial stability of, our lenders and
lessors;
•our
ability to execute our initiatives and other strategies;
and
•our
ability to leverage scale and cost structure to improve operating
efficiencies across our dealership portfolio.
Many of these factors are beyond our ability to control or predict,
and their ultimate impact could be material. Moreover, the factors
set forth under "Item 1A. Risk Factors" and other cautionary
statements made in this report should be read and considered as
forward-looking statements subject to such uncertainties.
Forward-looking statements speak only as of the date of this
report. We expressly disclaim any obligation to update any
forward-looking statement contained herein.
OVERVIEW
We are one of the largest automotive retailers in the United
States. As of March 31, 2023, through our Dealerships segment,
we owned and operated 184 new vehicle franchises (139 dealership
locations), representing 31 brands of automobiles, and 32 collision
centers within 14 states. Our stores offer an extensive range of
automotive products and services, including new and used vehicles;
parts and service, which includes repair and maintenance services,
replacement parts and collision repair services; and finance and
insurance products. The finance and insurance products are provided
by both independent third parties and TCA. The F&I products
offered by TCA are sold through affiliated dealerships. For the
three months ended March 31, 2023, our new vehicle revenue
brand mix consisted of 34% luxury, 38% imports and 28% domestic
brands. The Company manages its operations in two reportable
segments: Dealerships and TCA.
Our Dealerships segment revenues are derived primarily from: (i)
the sale of new vehicles; (ii) the sale of used vehicles to
individual retail customers ("used retail") and to other dealers at
auction ("wholesale") (the terms "used retail" and "wholesale"
collectively referred to as "used"); (iii) repair and maintenance
services, including collision repair, the sale of automotive
replacement parts, and the reconditioning of used vehicles
(collectively referred to as "parts and service"); and (iv) the
arrangement of third-party vehicle financing and the sale of a
number of vehicle protection products. F&I products are offered
by dealerships to customers in connection with the purchase of
vehicles through either TCA or independent third parties. We
evaluate the results of our new and used vehicle sales based on
unit volumes and gross profit per vehicle sold, our parts and
service operations based on aggregate gross profit, and our F&I
business based on F&I gross profit per vehicle sold. Amounts
presented have been calculated using non-rounded amounts for all
periods presented and therefore certain amounts may not compute or
tie to prior year financial statements due to
rounding.
Our TCA segment revenues, reflected in F&I revenue, net, are
derived from the sale of various vehicle protection products
including vehicle service contracts, GAP, prepaid maintenance
contracts, and appearance protection contracts. These products are
sold through company-owned dealerships. TCA's F&I revenues also
include investment gains or losses and income earned associated
with the performance of TCA's investment portfolio.
Our TCA segment gross profit margin can vary due to incurred claims
expense and the performance of our investment portfolio. Certain
F&I products may result in higher gross profit margins to TCA.
Therefore, the product mix of F&I products sold by TCA can
affect the gross profits earned. In addition, interest rate
volatility, based on economic and market conditions outside the
control of the Company, may increase or reduce TCA segment gross
profit margins as well as the fair market values of certain
securities within our investment portfolio. Fair market values
typically fluctuate inversely to the fluctuations in interest
rates.
Selling, general, and administrative ("SG&A") expenses consist
primarily of fixed and incentive-based compensation, advertising,
rent, insurance, utilities, and other customary operating expenses.
A significant portion of our cost structure is variable (such as
sales commissions) or controllable (such as advertising), which we
believe allows us to adapt to changes in the retail environment
over the long-term. We evaluate commissions paid to salespeople as
a percentage of retail vehicle gross profit, advertising expense on
a per vehicle retailed basis, and all other SG&A expenses in
the aggregate as a percentage of total gross profit.
Our continued organic growth is dependent upon the execution of our
balanced automotive retailing and service business strategy, the
continued strength of our brand mix and the production and
allocation of desirable vehicles from the automobile manufacturers
whose brands we sell. Our vehicle sales have historically
fluctuated with product availability as well as local and national
economic conditions, including consumer confidence, availability of
consumer credit, fuel prices and employment levels.
In addition, our ability to sell certain new and used vehicles can
be negatively impacted by a number of factors, some of which are
outside of our control. While new vehicle inventories continue to
rise, manufacturers remain hampered by the lack of availability of
parts and key components from suppliers, such as semiconductor
chips, which has impacted new vehicle inventory levels and
availability of certain parts, keeping new vehicle inventories at
historical lows. We cannot predict with any certainty how long the
automotive retail industry will continue to be subject to these
production slowdowns or when normalized production will resume at
these manufacturers.
We are strategically operating within the changing environment and
we continue to prioritize profitability. Over the last couple of
years, pre-owned vehicle inventory has been depleted due to fleet
levels and lack of leasing. Overall, with this limited availability
of pre-owned inventory and unbalanced new inventory by brand, we
are focused on maximizing our gross profit streams.
Clicklane
As part of our omni-channel strategy, we implemented Clicklane, the
automotive retail industry’s first, end-to-end, 100% online vehicle
retail tool, which offers our customers a convenient, seamless and
transparent approach to purchase and sell vehicles completely
online. Our Clicklane platform provides our customers with the
ability to (i) select a new or used vehicle, (ii) arrange for and
obtain financing from a variety of lenders, (iii) obtain an offer
on their trade-in vehicle, (iv) obtain an exact pay-off amount on
any existing loan on a trade-in vehicle, (v) select and purchase
F&I products designed for the customer’s vehicle and then (vi)
complete the vehicle purchase and financing by signing the
transaction documents and scheduling in-store pickup or home
delivery, with each step performed entirely online. We have
implemented Clicklane across all of our stores.
Financial Highlights
Highlights related to our financial condition and results of
operations include the following:
•Consolidated
revenue for the three months ended March 31, 2023 was $3.6 billion,
compared to $3.9 billion for the prior year.
•Consolidated
gross profit for the three months ended March 31, 2023 was $696.2
million, compared to $792.0 million for the prior
year.
•The
decrease in consolidated revenue and gross profit is primarily due
to the effects of dealership divestitures. During 2022, we
completed sixteen divestitures that contributed $683 million in
revenue for the year ended December 31, 2022. Four of the
divestitures closed in the first quarter, three in the second
quarter, and nine in the fourth quarter of 2022.
•Our
capital allocation priorities were supported by the repurchase of
0.1 million shares for $21 million during the three months ended
March 31, 2023.
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended March 31, 2023 Compared to the Three Months
Ended March 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
Increase
(Decrease) |
|
%
Change |
|
2023 |
|
2022 |
|
|
(Dollars in millions, except per share data) |
REVENUE: |
|
|
|
|
|
|
|
New vehicle |
$ |
1,767.7 |
|
|
$ |
1,855.6 |
|
|
$ |
(87.9) |
|
|
(5) |
% |
Used vehicle |
1,126.5 |
|
|
1,350.9 |
|
|
(224.4) |
|
|
(17) |
% |
Parts and service |
515.6 |
|
|
501.9 |
|
|
13.7 |
|
|
3 |
% |
Finance and insurance, net |
172.5 |
|
|
203.4 |
|
|
(30.9) |
|
|
(15) |
% |
TOTAL REVENUE |
3,582.3 |
|
|
3,911.8 |
|
|
(329.5) |
|
|
(8) |
% |
GROSS PROFIT: |
|
|
|
|
|
|
|
New vehicle |
178.9 |
|
|
224.0 |
|
|
(45.1) |
|
|
(20) |
% |
Used vehicle |
77.0 |
|
|
99.3 |
|
|
(22.3) |
|
|
(22) |
% |
Parts and service |
282.1 |
|
|
276.4 |
|
|
5.7 |
|
|
2 |
% |
Finance and insurance, net |
158.2 |
|
|
192.3 |
|
|
(34.1) |
|
|
(18) |
% |
TOTAL GROSS PROFIT |
696.2 |
|
|
792.0 |
|
|
(95.8) |
|
|
(12) |
% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
Selling, general, and administrative |
403.0 |
|
|
455.5 |
|
|
(52.5) |
|
|
(12) |
% |
Depreciation and amortization |
16.7 |
|
|
18.4 |
|
|
(1.7) |
|
|
(9) |
% |
|
|
|
|
|
|
|
|
Other operating income, net |
— |
|
|
(2.7) |
|
|
2.7 |
|
|
NM |
INCOME FROM OPERATIONS |
276.5 |
|
|
320.8 |
|
|
(44.3) |
|
|
(14) |
% |
OTHER EXPENSES: |
|
|
|
|
|
|
|
Floor plan interest expense |
0.6 |
|
|
2.6 |
|
|
(2.0) |
|
|
(75) |
% |
Other interest expense, net |
37.3 |
|
|
37.6 |
|
|
(0.2) |
|
|
(1) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on dealership divestitures, net |
— |
|
|
(33.1) |
|
|
33.1 |
|
|
NM |
Total other expenses, net |
38.0 |
|
|
7.1 |
|
|
30.9 |
|
|
NM |
INCOME BEFORE INCOME TAXES |
238.5 |
|
|
313.7 |
|
|
(75.2) |
|
|
(24) |
% |
Income tax expense |
57.1 |
|
|
76.0 |
|
|
(18.9) |
|
|
(25) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
$ |
181.4 |
|
|
$ |
237.7 |
|
|
$ |
(56.3) |
|
|
(24) |
% |
|
|
|
|
|
|
|
|
Net income per share—Diluted |
$ |
8.37 |
|
|
$ |
10.38 |
|
|
$ |
(2.01) |
|
|
(19) |
% |
______________________________
NM—Not Meaningful
|
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|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
2023 |
|
2022 |
REVENUE MIX PERCENTAGES: |
|
|
|
New vehicle |
49.3 |
% |
|
47.4 |
% |
Used vehicle retail |
28.5 |
% |
|
31.1 |
% |
Used vehicle wholesale |
2.9 |
% |
|
3.4 |
% |
Parts and service |
14.4 |
% |
|
12.8 |
% |
Finance and insurance, net |
4.8 |
% |
|
5.2 |
% |
Total revenue |
100.0 |
% |
|
100.0 |
% |
GROSS PROFIT MIX PERCENTAGES: |
|
|
|
New vehicle |
25.7 |
% |
|
28.3 |
% |
Used vehicle retail |
10.1 |
% |
|
12.1 |
% |
Used vehicle wholesale |
0.9 |
% |
|
0.4 |
% |
Parts and service |
40.5 |
% |
|
34.9 |
% |
Finance and insurance, net |
22.7 |
% |
|
24.3 |
% |
Total gross profit |
100.0 |
% |
|
100.0 |
% |
GROSS PROFIT MARGIN |
19.4 |
% |
|
20.2 |
% |
SG&A EXPENSE AS A PERCENTAGE OF GROSS PROFIT |
57.9 |
% |
|
57.5 |
% |
Total revenue for the three months ended March 31, 2023 decreased
by $329.5 million (8%) compared to the three months ended March 31,
2022, due to a $87.9 million (5%) decrease in new vehicle
revenue, a $224.4 million (17%) decrease in used vehicle revenue, a
$30.9 million (15%) decrease in F&I, net revenue, offset by a
$13.7 million (3%) increase in parts and service revenue. The $95.8
million (12%) decrease in gross profit during the three months
ended March 31, 2023 was driven by a $45.1 million (20%) decrease
in new vehicle gross profit, a $34.1 million (18%) decrease in
F&I, net gross profit and a $22.3 million (22%) decrease in
used vehicle gross profit, offset by a $5.7 million (2%) increase
in parts and service gross profit.
Income from operations during the three months ended March 31, 2023
decreased by $44.3 million (14%), compared to the three months
ended March 31, 2022, primarily due to the $95.8 million (12%)
decrease in gross profit and a $2.7 million decrease in other
operating income, net, partially offset by a $52.5 million (12%)
decrease in SG&A expense, and a $1.7 million (9%) decrease in
depreciation and amortization expense.
Total other expenses, net increased by $30.9 million, primarily as
a result of a $33.1 million gain on dealership divestitures, net
recorded during the three months ended March 31, 2022 whereas the
current year period did not reflect any divestitures. This increase
in other expenses, net was partially offset by a $2.0 million (75%)
decrease in floor plan interest expense, and a $0.2 million (1%)
decrease in other interest expense, net during the three months
ended March 31, 2023 when compared to the prior year period. Income
before income taxes decreased $75.2 million to $238.5 million for
the three months ended March 31, 2023. Overall, net income
decreased by $56.3 million (24%) during the three months ended
March 31, 2023 as compared to the three months ended March 31,
2022.
New Vehicle—
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|
|
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|
|
|
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|
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|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
Increase
(Decrease) |
|
%
Change |
|
2023 |
|
2022 |
|
|
(Dollars in millions, except for per vehicle data) |
As Reported: |
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
Luxury |
$ |
607.4 |
|
|
$ |
543.3 |
|
|
$ |
64.1 |
|
|
12 |
% |
Import |
666.9 |
|
|
765.9 |
|
|
(99.0) |
|
|
(13) |
% |
Domestic |
493.4 |
|
|
546.4 |
|
|
(53.0) |
|
|
(10) |
% |
Total new vehicle revenue |
$ |
1,767.7 |
|
|
$ |
1,855.6 |
|
|
$ |
(87.9) |
|
|
(5) |
% |
Gross profit: |
|
|
|
|
|
|
|
Luxury |
$ |
72.4 |
|
|
$ |
70.8 |
|
|
$ |
1.5 |
|
|
2 |
% |
Import |
64.0 |
|
|
95.4 |
|
|
(31.4) |
|
|
(33) |
% |
Domestic |
42.5 |
|
|
57.7 |
|
|
(15.2) |
|
|
(26) |
% |
Total new vehicle gross profit |
$ |
178.9 |
|
|
$ |
224.0 |
|
|
$ |
(45.1) |
|
|
(20) |
% |
New vehicle units: |
|
|
|
|
|
|
|
Luxury |
8,429 |
|
|
8,257 |
|
|
172 |
|
|
2 |
% |
Import |
17,389 |
|
|
20,678 |
|
|
(3,289) |
|
|
(16) |
% |
Domestic |
8,688 |
|
|
10,239 |
|
|
(1,551) |
|
|
(15) |
% |
Total new vehicle units |
34,506 |
|
|
39,174 |
|
|
(4,668) |
|
|
(12) |
% |
|
|
|
|
|
|
|
|
Same Store: |
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
Luxury |
$ |
607.4 |
|
|
$ |
513.0 |
|
|
$ |
94.3 |
|
|
18 |
% |
Import |
666.9 |
|
|
668.4 |
|
|
(1.5) |
|
|
— |
% |
Domestic |
493.4 |
|
|
527.9 |
|
|
(34.6) |
|
|
(7) |
% |
Total new vehicle revenue |
$ |
1,767.7 |
|
|
$ |
1,709.4 |
|
|
$ |
58.3 |
|
|
3 |
% |
Gross profit: |
|
|
|
|
|
|
|
Luxury |
$ |
72.4 |
|
|
$ |
67.6 |
|
|
$ |
4.8 |
|
|
7 |
% |
Import |
64.0 |
|
|
84.0 |
|
|
(20.0) |
|
|
(24) |
% |
Domestic |
42.5 |
|
|
55.9 |
|
|
(13.4) |
|
|
(24) |
% |
Total new vehicle gross profit |
$ |
178.9 |
|
|
$ |
207.5 |
|
|
$ |
(28.6) |
|
|
(14) |
% |
New vehicle units: |
|
|
|
|
|
|
|
Luxury |
8,429 |
|
|
7,741 |
|
|
688 |
|
|
9 |
% |
Import |
17,389 |
|
|
18,169 |
|
|
(780) |
|
|
(4) |
% |
Domestic |
8,688 |
|
|
9,868 |
|
|
(1,180) |
|
|
(12) |
% |
Total new vehicle units |
34,506 |
|
|
35,778 |
|
|
(1,272) |
|
|
(4) |
% |
New Vehicle Metrics—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
Increase (Decrease) |
|
%
Change |
|
2023 |
|
2022 |
|
As Reported: |
|
|
|
|
|
|
|
Revenue per new vehicle sold |
$ |
51,228 |
|
|
$ |
47,367 |
|
|
$ |
3,861 |
|
|
8 |
% |
Gross profit per new vehicle sold |
$ |
5,184 |
|
|
$ |
5,717 |
|
|
$ |
(533) |
|
|
(9) |
% |
New vehicle gross margin |
10.1 |
% |
|
12.1 |
% |
|
(2.0) |
% |
|
|
|
|
|
|
|
|
|
|
Luxury: |
|
|
|