Asbury Automotive Group, Inc. Aktie

Greetings, and welcome to the Asbury Automotive Group First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Treasurer. Thank you, sir. You may begin.

Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to the Asbury Automotive Group's First Quarter 2026 Earnings Call. The press release detailing Asbury's first quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com.

Participating with me today are David Hult, our President and Chief Executive Officer; Dan Clara, our Chief Operating Officer; and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow-up questions.

Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 31, 2025, any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements.

In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated Investor Presentation on our website, investors.asburyauto.com, highlighting our first quarter results.

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

Thank you, Chris, and good morning, everyone. Welcome to our first quarter earnings call. Our first quarter results highlighted efforts to transform our business by optimizing our portfolio and successfully migrating to Tekion. Today, over 50% of our stores are running on Tekion. We remain on track and anticipate to be fully converted by the fall of this year, after which time we expect to begin fully realizing the cost and efficiency benefits enabled by the new technology platform.

The first and second quarter of this year represent the peak in terms of number of stores making the transition. As a result, costs related to integration and temporary disruption to store operations will also remain elevated as team members become fully acclimated to the new technology. Michael will provide additional color behind the transition and its impact on our financial performance.

The first quarter also showcased a number of capital allocation decisions, which Asbury -- which position Asbury for future success while also returning capital to our shareholders. We divested 10 dealerships and a collision center at attractive multiples, representing approximately $600 million in annualized revenue. $147 million of the proceeds went towards repurchasing 678,000 shares of our stock with the rest directed towards reducing our debt. In our view, our trading price undervalues the earning potential of the company, and we took advantage of this price-to-value dislocation to accelerate our repurchase activity.

Moving on to our first quarter 2026 operational performance. Our results reflect the expected decrease in volumes as consumer demand moderated from last year's tariff-driven spike in sales. More challenging weather was also a factor as was the temporary disruption for the stores going through the Tekion conversion.

While new vehicle volumes were down, gross profit on a per unit basis held up well. On an all-store basis, new vehicle PVRs were down just $73 sequentially and $177 on a year-over-year basis, an indication profitability is beginning to approach normalized levels. Similarly, used vehicle PVRs on an all-store basis was $1,847, which is up sequentially 5% and 16% year-over-year as the team continues to execute our strategy to maximize per unit profitability.

Parts & Service had a more challenging quarter, driven by a variety of factors, including weather, a more cautious consumer and temporary disruption from our DMS transition. That said, we still expect fixed operations gross profit to grow at mid-single-digit rate over time.

And now for our consolidated results for the first quarter. We generated $4.1 billion in revenue, had a gross profit of $727 million, a gross profit margin of 17.7%, an expansion of 22 basis points. We delivered an adjusted operating margin of 5%. Our adjusted earnings per share was $5.37, and our adjusted EBITDA was $207 million.

Before I hand the call over to our incoming Chief Executive Officer, Dan Clara, I want to take a moment to thank our team members for helping to make Asbury Automotive the company that it is today. Together, we have transformed our organization from a regional player to one with national scale in highly desirable markets, a balanced portfolio and a leader in technology-focused investments. It has been an honor and a privilege to serve as the steward of this business for the past 8.5 years.

And I know our best days are ahead with Dan running the company. Dan, I will hand things over to you to discuss our operational performance in more detail.

Good morning, everyone. Thank you, David, for the kind words. I feel I can speak for everyone here in saying that Asbury would not be as strong as it is today without your vision for growth and seeing the potential in this company. We all wish you the best in your next role as Executive Chairman.

And now moving on to the quarter. I would also like to thank the team members for handling the challenges that were thrown at them this quarter, including severe winter weather in nearly all our markets and across multiple weekends. Our teams have been working diligently to make the transition to Tekion a smooth process, and we are pleased with the early progress our stores are making.

Changing the DMS is a complex endeavor for any dealership group, let alone one of our size, but it is necessary in order to elevate the guest experience and enhance our capabilities for strong operational performance. As an example, we converted the Koons dealerships last summer, and they are starting to show the power of the software. For that specific group in March, we saw gross dollars per technician up 21% year-over-year and average productivity per service adviser up 16%. We are seeing efficiencies extend beyond the service bay as support costs in the stores decreased by 5% at the same time.

And now I am going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis, unless stated otherwise. Starting with new vehicles. Same-store revenue year-over-year was down 9%. While we believe the winter weather impacted sales activity, we are also monitoring consumer behavior in light of ongoing geopolitical events. New gross profit per vehicle was $3,061 as luxury maintained GPUs in line with the prior year and import and domestic moderated as expected. On an all-store basis, which includes the positive impact of the Chambers platform, new gross profit per unit was $3,271, only down $177 year-over-year. Across all brands, our same-store new day supply was a healthy 54 days at the end of March, which we believe support resilient gross profit per unit.

Turning to Used Vehicles. First quarter total used gross profit was up 1% sequentially. Used retail gross profit per unit was up 12% at $1,828, a $201 increase over the prior year and a $79 increase over our reported fourth quarter 2025 number. Our efforts in used continue to pay off. This represented our second consecutive quarter of progress in growing GPUs. We have seen sequential increases in GPUs in 6 out of the last 7 quarters, thanks to our teams executing more consistently. We anticipate the pool of used vehicles will increase through the year, aided by lease return activity, which can give us the opportunity to increase volume and maintain this level of PVR. Finally, our same-store used DSI was 30 days at the end of the quarter, down from 35 days at the end of the fourth quarter.

Shifting to F&I. We earned an F&I PVR of $2,307. The non-cash deferral impact of TCA was $45. So without the year-over-year impact, the PVR would have been $2,351. We are on track to implement TCA in the Chambers stores by year-end, which will complete our rollout across all our platforms. And finally, in the first quarter, our total front-end yield per vehicle was $4,806. On an all-store basis, our front-end yield was up $70 year-over-year at $4,921.

Now moving to Parts & Service. Our same-store Parts & Service gross profit was down slightly year-over-year due to slowdowns associated with the winter storms. In addition, it is also important to note that when we convert stores to Tekion, there is a short-term effect of adjusting to the new software at the store level. We believe it takes about 4 to 6 months to overcome the muscle memory of the legacy software and start to see efficiencies take hold like those I mentioned earlier.

Now going back to the quarter's results. Customer pay gross profit was up 1% with warranty gross profit higher by 3%. During the month of March, we generated 4% growth for both customer pay and warranty gross, which was encouraging to see. April to date is trending similar to March. Overall, we believe our stores are well positioned for the extended period of growth within Parts & Service, supported by the aging car park and increased vehicle complexity.

Before I pass the call to Michael, I want to thank the team again for your hard work to deliver a guest-centric experience and striving for improvement to unlock further performance. And with that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Dan, and good morning to our team members, analysts, investors and other participants on the call. For our financial performance in the first quarter, adjusted net income was $102 million. Adjusted EPS was $5.37 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.26 per share. Our adjusted EPS would have been $5.63 without the deferral impact.

Adjusted net income for the first quarter of 2026 excludes net of tax net gain on divestitures of $94 million, $5 million related to Tekion implementation expenses, $3 million of weather-related losses and $1 million related to the duplicate DMS-related expenses. In our consolidated results, we estimate that the weather-impacted gross profit by $19 million and EPS by $0.56.

As stated in our press release this morning, during the quarter, we divested 10 dealerships and terminated 7 franchises, which included exiting the Alfa Romeo and Maserati brands. Combined, these stores generated an estimated annualized revenue of $625 million. Adjusted SG&A as a percentage of gross profit on a same-store basis came in at 66.9%, which includes $2 million related to legal expenses for a specific matter. In March, we saw adjusted same-store SG&A in the low 60s. So we believe the SG&A number would have been more solidly within our expectations for mid-60s range without the severe weather headwinds.

As Dan mentioned, there are some frictional costs associated with changing our DMS that will take time to work out. In the short term, the stores are slightly less efficient in the first 2 months of operating in the new DMS. In months 4 to 6, we see this work become more efficient. It is encouraging to see our team members lean into the tool and embracing the operational improvements the new platform can provide. Overall, we believe any short-term headwinds are outweighed by the benefits to come.

Before I move on, I will note that the onetime implementation costs at the stores and the cost of duplicate software have been adjusted out of our non-GAAP SG&A numbers as shown in our press release this morning.

Next, the adjusted tax rate for the quarter was 25.1%. We also estimate the full year 2026 effective tax rate to be approximately 25%. TCA generated $15 million of pretax income in the first quarter. The negative noncash deferral impact for the quarter was $7 million. We generated $166 million of adjusted operating cash flow during the quarter. Excluding real estate purchases, we spent $46 million on capital expenditures in the first quarter and still anticipate approximately $250 million of CapEx spend for both 2026 and 2027.

Adjusted free cash flow was $120 million for the first quarter. We ended the quarter with $1.2 billion in liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding cash at Total Care Auto. Our transaction adjusted net leverage ratio was 3.2x at the end of the first quarter.

As David mentioned, we took opportunities to optimize our portfolio through strategic transactions. Our divestitures in the quarter also reduced our CapEx burden, further allowing us to deploy cash to higher return options. The proceeds of the divestitures, combined with the robust cash flow in our business allowed us to balance our capital allocation priorities, both reducing our debt level and repurchasing 678,000 shares. Our diluted share count is approximately 18.6 million shares before adjusting for any future buybacks.

And finally, before we open to Q&A, I would like to thank David for his years of valuable leadership. David guided Asbury through a new level of growth and instilled the team focused and guest-centric culture that makes Asbury what it is today. And with that, this concludes our prepared remarks.

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

[Operator Instructions] Our first question comes from the line of Jeff Lick with Stephens.

David, I just want to extend my thanks and you'll be missed. But since we've got you, I was wondering if -- look, 1Q was obviously a pretty noisy quarter on a variety of fronts, weather being one of the most. I wonder if you can maybe just give a state of the union of kind of where we are for yourselves and the industry in 2Q, just thinking about new and then new has some implications for used. And then obviously, Service & Parts was a little lumpy. I mean you did mention it was up in March. But just kind of where do you think things stand now that the tax refund season is over? And obviously, we're not going to be getting any more the rest of this year.

Sure, Jeff. I'll take a shot and Dan can jump in. January and February were really rough for us from a weather perspective, and we got far behind the April at that point. Before the weather started hitting in mid-January, we were actually pacing well in the first half of January. And then once we got hit with all the weather, we kind of didn't recover.

March was a good sign for us. Last March and April were extremely strong with the tariff presales for lack of a better term, but we really bounced back. And to Michael's comment, being in the low 60s for SG&A from March was a tell-tale sign for us.

We see the same going into April. Very difficult to predict much beyond that with what's going on with the war and gasoline prices and other things and how long that lingers. One would think the longer that lingers, the more impactful that's going to be on our business. We're definitely feeling the slowdown. It's not all the same by brand, but we're still seeing a slowdown in new car sales into April as well.

And just think, top-level, we're essentially back about 4,300 units or so in the quarter on new on a same-store basis. Roughly, you're going to take in $2,300 to $2,500 trade-ins on those $4,000 and you're going to retail 80% of those cars. So there's a chunk of preowned that we normally have internally to sell that we don't have. So it will be a balancing act in the next few quarters if new doesn't pop back where we're going to source vehicles, but I think Parts & Services is going to bounce back nicely and continue to grow as the year goes on.

It does take us 4 to 6 months with Tekion to get the muscle memory right in the stores. It doesn't matter the market or the brand. It's just human behavior takes time. But once you get past that 6-month window, you can really start to see some efficiencies as to why we would make this change in the DMSs. We do believe it makes our folks more efficient and more productive while certainly lowering our costs at the same time. I don't know if there's any you want to add?

I think you covered it well. Nothing to add.

And then just a quick follow-up for Dan maybe is as you -- I wonder if you could just give us one thing with Tekion where you look at it and say it manifests itself in financial benefit where you say, you know what, we're making the right decision here. Yes, it might be a little noisy for 4 to 6 months. But when you start to look at our P&L a year or 2 years from now, we made the right decision. I was wondering if there's one thing you could highlight.

Yes. I think, Jeff, I think I covered it just one example of several that we're seeing earlier today. When you think about the efficiencies to -- that the new software brings, when you look at the gross dollars per technician being up 21% at Koons and the average productivity per service adviser up 16%. And then you add the fact that support cost has also decreased, it's a pretty nice mix and aligned with what we expected. And then to put icing on the cake, the guest experience is definitely improved upon by the ease of use in the technology, the ability to enhance how fast that guest can be served. So we believe that it definitely gives us a competitive advantage that we need for the future, and it is definitely the right thing to do.

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

And David, best of luck and hope to catch up at some point again. I wanted to just follow up on some of the first quarter results, especially around the new car units and even used car. Of the 11% same-store decline and the 12% in used, is there any way to break up how much of it was weather? How much of it was just the Tekion productivity? And then how much of it was market? Any way to parse that out would be helpful. And I have a quick follow-up on SG&A.

Yes. Raj, this is Dan. I'll start it. On the -- when you look at the weather impact, I'm talking about from a same-store basis, we believe the snow closure in Q1 affected us somewhere in the 500 car range and similarly in used car volume. And then when you go down to the fixed revenue as well, obviously, that had a tremendous impact, somewhere on a same-store basis, somewhere around a $13 million impact. So it was a significant impact.

And as you know, when we have weather-related issues, it's not just the day that we're closed, it's the days leading up to with all the media frenzy that happens and the days after the fact recovering. David was in the Northeast at that time. And as you know, the Northeast was hit pretty severely and there were piles and piles of snow. So it was definitely a big impact. But glad that it's behind us and glad that March showed that we are directionally correct and glad that April is similar to March so that we can continue to build on the momentum.

And how much do you think you lost due to like just the Tekion rollout in 1Q because you'll probably close the store for like a day and like the Monday. I'm curious if that had any meaningful impact on the units. I know it probably impacted services, but anything on the units that you could flag?

So yes, on the -- I don't have the exact number, Michael, we have not shared that number. But on -- you bring up an excellent point because when we roll out the Tekion stores, we go through the conversion Saturday and Sunday, and we close operations on that Monday. So that is definitely a day that we lose from being able to serve our guests. And then Tuesday, we reopened. But again, that's a completely new system. We're much lower than what we used to be until we develop that muscle memory that like I explained earlier, it takes between 4 to 6 months to get back to the efficiency levels.

Got it. Got it. And just to clarify on Mike's comments on SG&A on the call -- in the prepared remarks, I think you mentioned mid-60s, excluding the weather headwinds. I just want to make sure we heard that correctly. And is it mid-60s even excluding some of the productivity losses from the DMS transition? I'm curious like what's a good steady-state number post Tekion? If you did not have weather, if you did not have DMS transition, what would have been a good steady-state SG&A to gross number in the quarter?

Yes. I think based on the March results that we saw that we were in the low 60s, I think mid-60s without the weather would have been the right number for the first quarter. So we're still comfortable in that mid-60s range going forward. And then at some point in the back half of the year as we start to see the Tekion efficiencies come through. I don't know if that's fourth quarter or where that shakes out, but sometime we'll start seeing an approach toward the mid-60s after we get the Tekion efficiencies running through the system.

Got it. Got it. Just a final one on buybacks. Given the fact that you're ramping up buybacks here, while EBITDA is coming down, I'm curious, is this just -- is this you taking a view on the benefits of the Tekion rollout and the benefits you might see into '27 and beyond that's giving you that confidence given like the cyclical backdrop still looks a bit choppy here. So curious like just the thinking around the buybacks ramping up.

So a couple of things in there. In the first quarter, we disposed of the stores, and so we used those proceeds to buy additional shares in the quarter. But also as the share price continue to dislocate and get to low levels and attractive prices for us, we took a view that we needed to take advantage of that stock price. We do think the back half of this year and into '27, the EBITDA comes up dramatically with the Tekion rollout behind us. And so we're kind of trying to balance the leverage ratio and the share buybacks. And if the share price is low, we're going to lean in a little bit on share buybacks.

[Operator Instructions] Our next question comes from the line of Glenn Chin with Seaport Research.

Just another follow-on related to Tekion. Can you just confirm for us sort of the contour of the Tekion impact throughout the year? Do the costs and inefficiencies from the transition peak in 2Q?

No. So if you think about just the stack-up effect, we have first quarter was pretty heavy rollouts. 2Q has a decent amount of rollouts and then we go kind of handle the west in 3Q. And so just the stack of all the stores, if you think about that 4- to 6-month window, it will probably peak in 3Q. At some point, call it, sometime in 4Q, we should be able to flip over the -- we have more stores that are past the 4 to 6 months. But I would say the peak of it is going to be very late 2Q into 3Q is kind of where the peak will be.

Okay. Very good. And then I understood that you're going to adjust out sort of the explicit costs from Tekion those time line around those, Michael, is also same?

No, it should be similar. 2Q and 3Q, 2Q probably has a few less stores in it and 3Q has a few more. So just from an implementation cost perspective, it will be in a similar ballpark to 1Q, but maybe a little lighter in 1Q and similar in 3Q when you compare it to 1Q.

Okay. Very good. And then I think, Dan, you mentioned in your prepared remarks as well as last quarter, just hesitation around the consumer with respect to Parts & Service. Can you just -- any further elaboration on that, if you will?

Yes, Glenn, we saw a pullback, as you mentioned, in Q4 going into Q1, there's a lot of uncertainties going on out there. So I would say that it is somewhat consistent, but there's -- keep in mind, there's a new war that has started that is with oil prices at an all-time high, is just keeping people on more of the defensive side of it. But again, when I go back into my remarks earlier today, it's encouraging to see what we saw in April, customer pay up and seeing that same trend going into April -- I'm sorry, in March going into April.

David, we'll miss you. Good luck with everything and your new position.

Our next question comes from the line of Alex Perry with Bank of America.

I guess just first, I wanted to double-click a little bit more on sort of the current state of demand with where gas prices have gone and just the impact of consumer confidence. On the new vehicle side, when did you start to see the slowdown? Is that more sort of an April comment? And is that just on new? Are you seeing any impact to mix yet in terms of the mix of vehicles that consumers are buying? And what are you sort of seeing on used?

Yes. On the new car, it really goes back to -- I mentioned this on the fourth quarter. There was -- we didn't really get the pop for a lack of a better term that we get in December. January, as David mentioned earlier today, the first half of January before we got hit with the weather, we were pacing okay. And then we just never recovered from the weather.

So from a new car perspective, I will tell you that really after the weather never recovered, February about the same in March, the same trend continued. From a mix, typically, when you see gas prices hit the levels where we are right now, it usually takes 5 to 6 months for consumers to start really changing their buying habits. We have not seen that. And what I mean by that is the consumer that is going to trade in a Chevy Tahoe for a Honda Civic or what have you. We have not seen that, but the longer the war goes, I think the closer we're going to be getting to see a shift in consumer behavior, but we're not there yet.

And from a used car standpoint, the demand of used cars is there, especially with the difference in the cost of sale between a new and used car. When you factor in all the items that have gone up, insurance rates, the average cost of maintaining a car. When you look at all that, the demand is definitely there for used cars. We strategically have made the decision to not chase the volume and to maximize the gross profit.

And as we showed in Q4, we were ahead in gross profit. Q1, when you look at March, again, even though we were backwards in volume, our gross profit was ahead year-over-year for used cars. So we believe strongly that, that is the right strategy to continue to execute. And as the availability of used cars become readily available as we move throughout the year, then we can pull that lever while still protecting the margins that we have delivered over the last few quarters.

Got you. Got you. That makes a lot of sense. And then I guess I just wanted to ask a little bit more on the parts and service trend. If we think about comps from here, I think you mentioned them rebounding earlier in the call. Is that primarily a factor of just getting past the weather impact? Is there something you're seeing in terms of sort of delayed effect from people that would have came in the first quarter starting to come in? Like can you just maybe talk about how you think about the Parts & Service and what sort of drives that rebound?

Yes. The Parts & Service, we've always been saying mid-single digit. We have a -- we've developed a very strategic plan to go and grow our fixed operations, meaning Parts & Service. And no different than what we've done with used cars. It's about the execution.

When you think about -- and you can see it on the IR deck, the average miles coming through our shop are -- continue to be in that 70,000 mile range. So that gives us a lot of stability that we are retaining the guests and obviously, that we have the opportunity to continue to maintain those cars for those customers.

And the last factor that I see tremendous potential is growing the CPRO count and really focusing on what we call the cycle time, how fast can we serve our guests, which is also one of the benefits that I mentioned earlier of going to Tekion. The faster we get that guest in and out, the higher the retention and the higher propensity for that customer to come back and do business with us and the more throughput that we can push through our service departments.

Our next question comes from the line of John Babcock with Barclays.

I guess just first of all, I was wondering if you could talk about Herb Chambers, how the integration is going there and if there's anything new to share on that front? And then also, if you can just remind us when you're planning on implementing Tekion into that business.

Herb Chambers integration is going well. We are very happy with the talent, the people. We got some great team members, great stores. And what they have built together is impressive and now is up to all of us to work together as a team to take it to the next level. Tekion rollout at Chambers started last month. We've already converted. I think we have 22 stores, 22 or 24 stores, call it, in the 20 range. With the rest of the stores, I think we have 8 more that are going to be converting in the month of May -- or June, I'm sorry, in the month of June. So by June, Chambers will be completely converted to Tekion.

Okay. And the next question, just on GPUs because you do break it out across luxury, imports and also domestic. And it seems like quarter-over-quarter, there was pretty good stability in luxury and imports, but domestic was down a decent bit. Is there anything we should take note of from those trends or...

Listen, the biggest impact that I'm seeing on domestic side is we still have the headwind of Stellantis. We are well aware of it. We're focusing on performing better with Stellantis, getting that inventory turned and maximizing the gross profit. But it really -- the biggest impact in the domestic was our Stellantis stores.

Okay. Very helpful. And then just my last question. Just I was wondering if you could share how much, if any, shares you bought back in April?

Yes, any shares we would have bought back in April would have been disclosed as part of the press release. So we did our share buybacks early on in the quarter, took advantage of some share prices then. And so that all those shares were kind of purchased January through March.

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

On the Stellantis, are you seeing any improvement in the trend? I mean it seems as if maybe they're making some product adjustments or maybe pricing adjustments. Are you seeing any traction there? Or is it pretty much the same?

From a high level, there is -- there are changes being made that make total sense and it is a step in the right direction. But it's a double-edged sword because when they make those changes, I'll give you an example, they adjust the pricing for the new models coming in, but we still have the same model that is a year older and that is more expensive than the new model coming in. And so that is where there is some pressure to the margins to be able to make sure that we liquidate that old inventory under the old pricing structure to make room for the new decisions that the management team is making.

Okay. And then I guess on the Parts & Service side of the business, you had a pretty hard warranty comp year-over-year. Could you sort of talk about what you're seeing? Are there any major warranty programs that are popping up that might give you some tailwinds in volumes in the balance of this year?

Yes. We had some big warranty comps. I'll tell you one of the -- I don't want to say surprises, but one of the, I guess, obstacles that we faced is one of our import OEMs had a major decrease in warranty issues last quarter, which obviously, warranty is something that we don't control. So we happily service the customers when they come in, but it's really outside of our control.

Moving forward, we've seen some of the domestics that have issued some recalls and some additional warranty work. But it's hard to tell. Like I said, warranty is important. I pay attention to it, but I cannot control it. That's why our focus is always on the customer pay. We'll just happily serve the guests when the OEMs have any warranty issues.

Our next question comes from the line of Ryan Sigdahl with Craig-Hallum.

This is Matthew Raab on for Ryan. Just want to go back to the new GPUs, maybe putting a finer point there. We've talked in the past about settling out in that $2,500 to $3,000 range. You're at $3,271, it feels like inventory is pretty rational and you're certainly getting the benefit of the Herb Chambers mix. I mean at this point, is there any reason why GPUs can't settle out near the higher end of that range? And if you have any expectation for new GPUs for '26, whether it's a year-end number or a quarter-over-quarter decline through the rest of the year, that would be great.

Matt, thank you. Great question. And I agree with you. I think for the last several quarters, we've been talking about $2,500 to $3,000. We believe now that, that number is moderating, and it is closer to that $3,000 range. So to your point, excellent question.

We have no further questions at this time. Mr. Hult, I'd like to turn the floor back over to you for closing comments.

Thank you, operator. We appreciate everyone joining our first quarter earnings call, and the team here looks forward to discussing our second quarter results in the future. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to the Asbury Automotive Group Fourth Quarter 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Chris Reeves, Vice President of Finance and Treasurer. Please go ahead.

Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's fourth quarter 2025 earnings call. The press release detailing Asbury's fourth quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com.

Participating with me today are David Hult, our President and Chief Executive Officer; Dan Clara, our Chief Operations Officer, and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open the call up for questions and be available later for any follow-up questions.

Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our upcoming Form 10-K for the year ended December 31, 2025, any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements.

In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated Investor Relations presentation on our website, investors.asburyauto.com, highlighting our fourth quarter results.

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

Thank you, Chris, and good morning, everyone. Welcome to our fourth quarter earnings call. As I said in our earnings release, 2025 was a productive year for Asbury. We grew the size of our business, both in terms of revenue and in the geographic areas of the country in which we operate, acquiring $2.9 billion in revenue. More importantly, the composition of our portfolio continued to improve through strategic divestitures. Because of the discipline in running our business, we were ahead of where we thought we would be from a leverage perspective at 3.2x versus our forecast of 3.5x.

We deployed $186 million in CapEx and continued our share repurchase efforts, buying back $50 million in shares for the quarter and $100 million for the full year. We transitioned 15 additional stores onto Tekion during the quarter, ending the year with 38 stores operating on our new DMS. Managing our portfolio and allocating capital to areas that generate the greatest returns for the business and our shareholders has long been a core pillar of Asbury's strategic plan, and I am proud of the team's efforts to both grow the company and maintain our focus on expense control. Moving into 2026, we are confident these collective investments and the strength of our team position us to win, delivering value to our guests and returns to our shareholders.

Next, I'd like to highlight some same-store operating metrics for the quarter. New Vehicle sales volume were a reflection of prior year post-election surge. PVRs on new vehicles continue to normalize, and we reiterate our view that new vehicle profitability will eventually stabilize in the $2,500 to $3,000 range. In Used Vehicles, we are beginning to see the results of our efforts to improve our performance. And while volumes continue to reflect a supply-constrained environment, gross profit rose 6% year-over-year with Used Vehicle retail PVRs up 18%. On the ground, we noticed a pullback in consumer spending in Parts & Service. However, we are optimistic about the outlook and positioning of our fixed operations business. Later in the call, Dan will provide additional details on our operational performance.

Our same-store adjusted SG&A as a percentage of gross profit was up 162 basis points versus prior year, reflecting the impact of lower New Vehicle profitability. We remain committed to operating our business in the most efficient way possible, and we'll continue to adjust our cost structure as business conditions change.

Moving to capital allocation. We divested 4 stores in the quarter and are on track to divest another 9 stores by the end of the first quarter. These 13 transactions collectively representing $750 million of annualized revenue, are at attractive multiples and will further accelerate our path to reducing our leverage, giving us additional flexibility to pursue share repurchases. We expect to continue our repurchasing activity in 2026, the pace of which will be dictated by our share price, leverage profile, economic conditions and trade-offs with strategic tuck-in acquisition opportunities.

And now for our consolidated results for the fourth quarter. We generated a fourth quarter record of $4.7 billion in revenue at a gross profit of $793 million, also a fourth quarter record, a gross profit margin of 17%, an expansion of 31 basis points. We delivered an adjusted operating margin of 5.4% and our adjusted earnings per share was $6.67. Our adjusted EBITDA was $250 million. I'm proud of what the team accomplished in 2025. And with the foundational investments we've made in our business, I'm excited about the path ahead for 2026. Now Dan will discuss our operational performance in more detail. Dan?

Thank you, David, and good morning, everyone. I would like to start off with a thank you to the team for the positive momentum going into this year as we undertook a number of growth objectives in 2025. Thank you.

Looking back at the fourth quarter, we increased our same-store used gross profit, thanks to our continued progress and execution by our team members. We also rolled out Tekion to an additional 15 stores during the quarter and in January, added 8 more stores, which brings our current count to 46 or more than 25% of our portfolio. And on an all-store basis, we can see the positive lift from the Chambers Group in our new and used PVRs. And now I'm going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis unless stated otherwise.

Starting with New Vehicles. Same-store revenue year-over-year was down 6%, which followed the SAAR contraction of 5%. We faced a tough comparable from last year's post-election surge and the pull-forward effect of demand earlier in the year. We did see some disruptions in our DC market as expected. New average gross profit per vehicle was $3,135, a slight decrease sequentially as import brand PVRs gave some ground but were offset by the seasonal strength in luxury. Across all brands, our same-store new day supply was 49 days at the end of December versus 58 days at the end of the third quarter. All 3 segments were at lower days supply versus the previous quarter, led by several luxury brands in the domestics. Through 2026, we will manage our business based on what we're seeing in our markets and execute accordingly.

Turning to Used Vehicles. Fourth quarter total used gross profit was up 6% year-over-year. Used retail gross profit per unit was up 18% at $1,749, a $271 increase over the prior year and a $198 increase over our reported third quarter 2025 number. Our same-store used DSI was 35 days at the end of the quarter, in line with our DSI at the end of the third quarter.

Shifting to F&I. We earned an F&I PVR of $2,335. The noncash deferral impact of TCA was $105. So without the year-over-year impact, the PVR would have been $2,440. We plan to implement TCA to the Chamber stores by year-end to complete our rollout across all platforms. And finally, in the fourth quarter, our total front-end yield per vehicle was $4,897, up $259 sequentially.

Now moving to Parts & Service. Our same-store Parts & Service gross profit was up 2% year-over-year. When looking at our customer pay and warranty performance, customer pay gross profit was up 3% with warranty gross profit higher by 6%. We lapped tough double-digit comps in both customer pay and warranty, which in 2024 were up 13% and up 26%, respectively. For the quarter, we generated a gross profit margin of 58.1%, an expansion of 13 basis points. On an all-store basis, this was a record fourth quarter for our Parts & Service business as total revenue grew 12% to $658 million. We remain optimistic about the trends we see supporting the long tail of Parts & Service operations. The average age of the car on the road, combined with the increasing complexity of technology in vehicles positions us to reap the benefits of this large addressable market. We believe we're well positioned to unlock meaningful efficiencies as we navigate our journey to becoming the most guest-centric automotive retailer, enabled by the hard work of our team members and continued investment in technology. Thank you.

And with that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Dan, and good morning to our team members, analysts, investors and other participants on the call. For our financial performance in the fourth quarter, adjusted net income was $129 million. Adjusted EPS was $6.67 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.31 per share. Our adjusted EPS would have been $6.98 without the deferral impact. Adjusted net income for the fourth quarter of 2025 excludes net of tax, noncash asset impairments of $87 million, net gain on divestitures of $26 million, $5 million related to the Tekion implementation expenses, $3 million related to noncash fixed asset write-offs and $1 million of professional fees related to the acquisition of Herb Chambers Automotive Group.

We divested 4 stores in the quarter, which generated an estimated annualized revenue of $150 million. Adjusted SG&A as a percentage of gross profit on a same-store basis came in at 64.1%. We feel confident in our ability to manage overall cost over the next few quarters as we progress the Tekion implementation across our stores and navigate normalizing New Vehicle unit profitability.

The adjusted tax rate for the quarter was 25.8%. We estimate the full year 2026 effective tax rate to be approximately 25.5%. TCA generated $12 million of pretax income in the fourth quarter. The negative noncash deferral impact for the quarter was $8 million. Our updated TCA slide in our presentation reflects the rollout to Chambers during 2026, the disposal of our held-for-sale assets and revised our estimates based on external forecast. Now moving back to our results.

We generated $651 million of adjusted operating cash flow during 2025. Excluding real estate purchases, we spent $186 million in capital expenditures this year. The assets we sold and have been held for sale allow us to avoid some low-return CapEx to deploy cash for more strategic capital decisions. We anticipate approximately $250 million in CapEx spend for both 2026 and 2027. Adjusted free cash flow was $465 million for the year. We ended the year with $927 million of liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding the cash at Total Care Auto.

Our transaction adjusted net leverage ratio was 3.2x at the end of the year. Our results were better than expected from a leverage standpoint, which we believe gives us room to continue with our path of disciplined strategic capital decisioning. And finally, before I finish our prepared remarks, on behalf of everyone, I want to thank our team members for their hard work in 2025, and we look forward to 2026. With that, this concludes our prepared remarks. We will now turn the call over to the operator to take questions. Operator?

[Operator Instructions] Our first question is from Jeff Lick with Stephens Inc.

This is maybe for David and Daniel, kind of pack a few questions into one. I guess if you look at 2025 as your base year, obviously, it's like 3 or 4 years inside of that year. As you now look at 2026 lapping tariffs, lapping the EV credit, you got lease returns, potentially maybe there's -- you guys have highlighted some more GPU normalization. Maybe you could just kind of give us a little road map to how you see things playing out? And maybe if you could give some granularity in terms of the first half and the second half, just kind of the qualitative path of travel, what we should look for as the year progresses?

Thanks, Jeff. This is David. I'll start and Dan can jump in, if he wants. I think we're forecasting to go slightly backwards in SAAR, but SAAR is an overall number that includes fleet and wholesale. And I think it's going to vary by brands. We have a lot of Stellantis stores that were a percentage of our business that were challenging for us in '25. All brands are cyclical, and we believe Stellantis will come back. So hopefully, that will turn into a tailwind for us in '26. we have over 50 stores now in the Northeast. January has been ridiculously tough with weather. So it's been a challenge starting off the year, and we've even had a challenging weather in the Southeast as well.

I would say the first half will probably be a little bit more of a struggle and the second half should start to free up a little bit. I don't know that the tariffs have fully settled across all brands. There's still movement on pricing, and it's yet to be known what incentives will look like in the future. We're optimistic about our Parts & Service business and where that's headed. We've had a lot of distractions in '25 between the acquisition and rolling out Tekion. Now having 1/3 of the company on Tekion and the rest of the company being rolled out by the fall. We think that's going to really bode well for us, not only from a cost perspective, but an efficiency perspective going into '27.

We will have some headwind in '26 paying for both DMSs. And as you can imagine, when you transition a store into a new DMS other than the excessive cost for a period of time, there's a transition getting everyone comfortable with the software and efficient on it. So we think all this blocking and tackling and the heavy lifting we're doing is going to pay dividends going into the future. For us, we probably got 5, 6, 7 months of bumpiness and distraction of going through all of it, but we know the outcome will be very beneficial for Asbury.

And maybe just a quick -- go ahead, Jeff.

No, go ahead.

I was just going to add to David's comments on the -- when you think about from a Used Car standpoint, what we're expecting in the second half with lease earnings coming in, you can see the results of our renewed strategy and execution by the team. So we are very confident that it is working, and that has paved the way for a lack of a better term, to when that influx of inventory coming in that we can pull that lever and execute accordingly while still remaining disciplined to maximizing the gross profit per unit.

And then just a quick follow-up. I mean, because your GPUs are still north of that $2,500 to $3,000 kind of settling range you've talked about. I guess, where do you see -- let's say, you get to the middle of that range, $2,750, where does that come from? How does that decline in GPU manifest itself? Is that more inventory finally getting 3 million units on the ground? Is that because Toyota gives a little back? I'm just curious what -- because you guys have been pretty steadfast to that $2,500 to $3,000 mark. I'm just curious where do you see that further adjustment to come?

It's a great question, Jeff. I think as long as the inventory stays somewhat balanced the way they are, we kind of look at our brand mix and the way the incentives have been tracking. With the divestitures we've had and the several that are coming, our percentage of luxury goes up from 32% to probably about 36% which benefits us overall. I would say if the SAAR was going to stretch and the inventories were going to grow, that puts the most pressure on margins. But we're -- most OEMs are predicting a flat or a little bit backwards here.

We don't anticipate sitting on a high day supply. Now the winter months, you tend to sit on a high day supply because you're coming off a busy fourth quarter and things slow down. But that should normalize over the next quarter or 2. I think we're conservative in our approach when we give estimates at $2,500 to $3,000 based upon our brand mix, but it's also difficult to predict the future. I think the biggest thing that's going to govern the volume this year is what we've all been talking about is the high cost of sale for New, we're over $52,000 in the quarter, and that's a stretch. So when people are stretching into purchasing, it tends to put pressure on margins as well to try and consummate the deal. Dan, I don't know if you have anything you want to add?

No, nothing to add.

Our next question is from Rajat Gupta with JPMorgan.

I just wanted to follow up on Parts & Service. The customer pay growth was a little weaker than we would have expected. I understand the warranty comps. I know you mentioned like you had a tough comp, but I also felt fourth quarter of '24 had some easy compares from fourth quarter of '23 because of the DMS transition. So I'm curious if the customer pay number is satisfactory to you? I mean, is there more opportunity there? Any sense you can give us around the outlook for '26? And I have a quick follow-up.

Rajat, this is Dan. No, we're not satisfied with the customer pay growth. We -- just as it is with Used Cars, we have a renewed strategy in fixed operations that we feel very confident in executing. There -- when you look at the age of the car on the road and then you look at all the technology enhancement that is coming with the new product, we know and we're ready to take advantage of that part of the market. So our forecast remains the same as it's been in the mid-single digits in customer pay like we have been talking about over the last few quarters.

Rajat, this is David. I would add in previous quarters, and I think it's the case for our peers, but I'm not confident, the growth in Parts & Service has been more top heavy on dollars than actual cars coming through the service drive or repair orders. And I made the comment in my remarks, the traffic counts were okay and normal for us. And based upon that, we should have been higher on the dollars. We saw less dollars being spent for the consumer. So it wasn't so much the traffic that took a hit as much as it did what the consumers were willing to spend. And as you can see, because I think we have it in our IR deck, when we talk about how much we're generating per ticket, combustible engine is over $550. These numbers keep going up, which is great, but it also puts a limit a little bit on customers.

But I was shocked to see the pullback in October and November with the dollars being spent. It rebounded in December and January is starting off, the dollars are pretty good again. So I can't explain what happened in October and November. The biggest headwind we have in January is the traffic because of the weather.

Got it. Any preview on the renewed strategy for Parts & Service that you can give us going forward?

I would tell you, Rajat, the biggest thing is there's a massive difference between our current DMS and Tekion, and there's a learning curve there. And our original stores that went on it a year ago are performing better than most of our stores in our company because of the efficiencies and benefits of the software. But when these stores transition to the new software, and now we're up to over 40 stores, it takes them a few months. We actually become less efficient for the first couple of months as they're trying to get used to the software and work out the kinks. So we'll finish the Tekion rollout late in the fall. I look at '27 as a really efficient, productive year for us that you'll notice in both our production with Tekion, but our cost control with Tekion as well.

Understood. That's helpful. And maybe just a follow-up question, maybe for Mike around the leverage. Good to see the progress there. I believe you do have a few more divestitures in the pipeline that you're looking to execute. Any update on that? And how soon can you get below 3x? Is it earlier than '26? Any time line around that would be helpful. And then just related to that, how should we think about free cash flow deployment priorities as well in '26?

Yes. So from a -- we talked about the 9 divestitures that we have out there that will close in the first quarter. And that will free up some cash to get our leverage down some more. So we think kind of by the summer, we'll be below 3x. The only caveat to that would be with where our share price is, we think there's some opportunities to deploy some cash for share buybacks. And so our goal is still to get below 3x by the end of the year. And if we can do that and buy some shares back along the way, we'll kind of balance that as we go throughout the year. But if we just took the cash from the disposals and the free cash flow and put that toward the leverage, we'd be able to get there by kind of the summer of this year.

Our next question is from Glenn Chin with Seaport Research Partners.

Can you just clarify for us the path forward for Tekion? How many more stores you have to transition? It sounds like it will be done by fall of this year. And then to what extent you will incur these double expenses for running two DMSs simultaneously?

Glenn, this is Dan. So we have 125 more stores to roll out. We have 8 more going out -- being rolled out this weekend and then another 8 following the following week. But like David stated, we'll be done by the third quarter of this year. As far as the expense, I'll let Michael give clarity on that.

Yes. So once we roll out a store, you have to kind of -- you can't cancel it right away. You have to kind of roll it out, make sure everything is working, all the data comes across and then we can go cancel the other products. So there's a couple of months of duplicated costs in there when we roll it out. So the first half of this year, you'll see kind of a hit on SG&A for this duplicated cost plus the implementation fees. By the time we get to kind of midyear, we'll roll over and the savings from Tekion will more than offset the duplicated costs. So it's, I'll call it, a front half hit to SG&A and then a back half benefit to SG&A.

And then to David's point, when we get to '27, the efficiency that we're going to see from it, you'll start seeing those as well. So it's -- that's kind of the pace is duplicate costs first half, savings from the software in the second half and then those efficiencies will come in during 2027.

Okay. But then Michael, to clarify, it looks like you adjusted it out for the dual expense you adjusted out this quarter, I guess...

We only adjust out the implementation costs, the cost of having to pay, to do the implementations. And then also in third and fourth quarter of '25, because of the SOX requirements from internal controls around the Tekion software, we had a pretty heavy lift on just, I'll call it, auditors and all those type of IT folks, third parties to help us get over the hump with the initial year of SOX compliance on Tekion. So those Tekion costs is heavy, heavy SOX control and then the implementation cost. We have not been adjusting out the duplicated cost of the software.

Okay. So it sounds like we should expect it to hit even adjusted numbers in the first half. And can you quantify for us how much that might be?

We have not quantified that number, but we can -- we'll work on that for first quarter to give you guys, an insight into the first quarter. It wasn't that material for fourth quarter because we didn't roll out a ton of stores, and we only rolled them out at the very end of December. But in the first quarter, we'll kind of give you how much that -- how much of an impact that was.

Okay. Yes, that would be helpful. Okay. And David, will you be on future earnings calls?

I think I'll be on the next earnings call, and that will probably be it for me.

[Operator Instructions] Our next question is from John Babcock with Barclays.

I did want to ask, I know it's still early in the Tekion rollout here, but with some of the first stores that were put on the system, are you starting to see benefits? Or is it still too early to tell?

John, this is Dan. Yes, we had the first 4 stores where we rolled it out, they were here in Atlanta, and we are seeing the benefits from an efficiency standpoint, from a productivity standpoint, from a guest experience standpoint. And then you can also see the flexibility that it gives us because it is a cloud-based DMS when you're talking about enhancing technology and AI, in conjunction with our internal development team, you get rid of all the bolt-ons and it's a lot easier to enhance the technology to improve the guest experience and efficiencies across the store. So yes, we are...

I'm sorry, Dan. John, one thing I would add, every store we roll out, technicians don't like change. They hate the new software. It's a lot of key changes and it's difficult. But If you went back to the original 4 stores, they would tell you they wouldn't work at a store that didn't have Tekion. So it makes the employees more productive. It increases the transparency between departments, and it also increases the transparency with consumers, which you can visually share with them. So there's a lot of benefits. There's cost savings for sure, but there's productivity benefits as well.

Human behavior takes a little while to change and get used to a new software a new language for lack of a better term. But the early adopting stores that we have are really running efficiently well on it. Costs are lower, productivity is up, which is everything we anticipated.

Okay. And then just next question. I was wondering if you could talk about how -- just broadly how the demand environment feels right now, both for New and Used, if there's any discrepancy between the two? Just generally want to get a sense for what you're hearing from the dealership.

Yes. John, I'll start and David can add. if he wants to. I'll tell you for January, the beginning of January was good until we got hit by the weather. And so that pullback that we saw October, November was not there the first few weeks in January. But after the weather hit us, it impacted us pretty big because that storm came in through Texas, and it basically just follow our path of where we have stores all the way to the Northeast.

Our next question is from Ryan Sigdahl with Craig-Hallum.

This is Matthew Raab on for Ryan. Just quick on TCA. It looks like the SAAR assumptions were changed very slightly in '26 and '27 and the noncash deferral was raised a little bit through 2029. Just what drove that change? And just talk about where TCA stands today? Any color there would be great.

Yes. So on that one, we just looked at the third-party kind of different -- your guys' assessments and the other third-party providers out there for their SAAR projections, and most of the people were coming up 15.8% kind of 16.2% And we originally had that forecast in there based on those third parties at 15.7%. So we just bumped a little bit to 15.9% to reflect kind of the additional color out there from the third parties. And also, that's what we use kind of the base our budget off of, for '26 is that 15.9% number. So small adjustment there just as kind of SAAR, our projections came up a little bit during the fourth quarter.

And the TCA, we talked about it on the earlier in our comments. Our last platform to roll out is Herb Chambers. We're going to roll them out on Tekion, and then following the Tekion rollout, we'll roll them out on TCA, so sometime this late summer probably. And that will complete the rollout to all the stores and then we'll be done with kind of the TCA rollout side of it.

Our next question is from Daniela Haigian with Morgan Stanley.

So kind of on that point of adjusting SAAR forecast, we also saw that Used, you made a comment about supply remains tight. How -- what kind of assumptions are you baking in on affordability, what the consumer is facing this year, consumer credit availability? And how does that flow through into Used? We definitely saw stronger Used margin and then a bit weaker on the volume side. So how does that play out into '26 in your view?

Yes, Daniela, this is Dan. We continue to stick to our strategy of not chasing volume and maximizing gross profit. There's several items that we have been executing on, really limiting the number of acquisitions through the auction and improving the number of cars that we take through the trades or that we purchase from -- directly from our guests. And that is working well. That's where you see how we're maximizing the PVRs and the impact that it had in the fourth quarter. There -- the average cost of our used car being over $30,000 is definitely something that we're focused to bring down because we know that the lower the cost of sale, the faster that inventory turns.

And we believe that the opportunity to do that is going to be on the second half of the year, as lease turn-ins start to come in, we have better availability of inventory flowing and then we can really pull the lever if the availability of inventory is there, we can pull the lever of going after the volume while still maintaining our strict discipline on the gross profit per unit.

;

Got it. And then second is just on your EV outlook for the year. Obviously, there's a big deceleration following the removal of the tax credits. Do you believe your inventory levels here are sufficiently rightsized? Or is there more room for that to play out?

I will tell you that overall company-wide, I would like -- I would say our EVs inventory is rightsized. There we have pockets, specifically Colorado, where there was a high demand for EVs that we have a little bit more inventory than I would like to. But overall, it's been rightsized. And in the fourth quarter of '24, our EV sales were like 5% of the total sales. And in the fourth quarter of '25, it was about 2%. So -- and I would expect that to continue as we go into '26.

There are no further questions at this time. I would like to turn the floor back over to David Hult for any closing comments.

Thank you. We appreciate everyone joining our fourth quarter earnings call. We look forward to speaking with you after the first quarter. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

Greetings, and welcome to the Asbury Automotive Group Q3 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It's now my pleasure to turn the call over to Chris Reeves, Vice President, Finance and Investor Relations. Please go ahead, Chris.

Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's Third Quarter 2025 Earnings Call. The press release detailing Asbury's third quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com.

Participating with me today are David Hult, our President and Chief Executive Officer; Paul Whatley, our Vice President of Operations; and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow-up questions.

Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 31, 2024, and any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements.

In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on the call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website, investors.asburyauto.com highlighting our third quarter results.

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

Thank you, Chris, and good morning, everyone. Welcome to our third quarter earnings call. Our acquisition of the Chambers Group has already had a positive impact on many of our operating metrics. And while it is still early in the integration process, I am pleased with how our teams are coming together.

We've talked many times in the past about how our transition to Tekion will transform how we sell and service vehicles and deliver a superior guest experience. Our litigation with CDK has reached a point where we can continue migrating stores onto the new BMS.

Moving on to our operating performance for the quarter. Pent-up consumer demand and the expiration of the EV tax credit drove strong new volumes. And our new vehicle performance on an all-store basis highlights the impact of our Herb Chambers acquisition and the heavier weighting towards luxury brands. In the near term, we'll be opportunistic and react to what the market gives us.

Our parts and service business delivered consistent results once again with same-store gross profit up by 7% and the customer pay segment up by 8% in the quarter. As referenced earlier, growing the business while avoiding expense leakage is a top priority for the team. In the third quarter, our same-store SG&A as a percentage of gross profit was 63.6%, a decrease of 32 basis points. Our strategy for deploying capital to its highest and best use has primarily emphasized large transformative acquisitions that expand our portfolio in the most desirable markets.

Going forward, we are focused on delevering the balance sheet, optimizing the makeup of our portfolio and being opportunistic with share repurchases. As a reminder, we divested 4 stores in July with annualized revenue of $300 million in keeping with our disciplined approach to portfolio management. We resumed opportunistic share repurchases, buying back $50 million in shares in the quarter. The pace of future share repurchases will be dictated by portfolio management activities, share price levels and returns offered by organic and inorganic opportunities.

And now for our consolidated results for the third quarter. We generated a record $4.8 billion in revenue, had a gross profit of $803 million, and a gross profit margin of 16.7%. We delivered an adjusted operating margin of 5.5% and our adjusted earnings per share was $7.17, and our adjusted EBITDA was $261 million.

At the end of my remarks, I traditionally hand the call over to Dan Clara to walk through our operational performance. However, Dan was not able to be with us today. So I'll hand the call over to Paul Whatley, Vice President of Operations, who's been doing a phenomenal job running our stores. Now Paul will discuss our operational performance in more detail.

Thank you, David, and good morning, everyone. Over the past few months, we've integrated a large acquisition with the Chambers Group. We've divested stores, and we've rolled out Tekion into 19 stores, and we still grew our business and new volume, fixed operations and overall same-store gross profit. I'm pleased the team has been able to successfully grow the business and maintain our margin profile while undertaking these large objectives for long-term success.

And I'm going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis unless stated otherwise. Starting with new vehicles. Same-store revenue was up 8% year-over-year and units were up 7%. We did see elevated consumer demand for EVs to take advantage of the expiring tax credit and significant increases in EV volume versus quarter 2. New average gross profit per vehicle was $3,188 as the increase in EV sales and their lower PVR profile slightly pulled down our overall PVR.

Brand unit performance varied widely depending on availability and consumer demand within certain OEMs. We continue to have relatively low day supply in key brands. Across all brands, our same-store new day supply was 58 days at the end of September, one day less than the end of Q2. We've generally been pleased with inventory balances against consumer demand. While it's been a stronger start to the year and inventory levels remained in check, we do expect headwinds through year-end with a softening labor market and challenges with vehicle affordability.

Turning to used vehicles. Third quarter unit volume was down 4% year-over-year and used retail GPU was $1,551, a slight increase over the prior year. For the quarter, our team sourced over 85% of our used vehicles from internal channels. The largest portion of this comes from customer trade-ins, which tend to be our most profitable acquisition channel. Our same-store DSI was 35 days at the end of the quarter and we remain diligent on maintaining a healthy velocity of sales to manage inventory.

Stepping back for a moment, we see our performance in used vehicles as our biggest opportunity to improve execution. The pool of available used car starts to recover in 2026, improving further into '27 and '28. Our teams are focused on driving profitable volume growth over the coming quarters.

Shifting to F&I. We earned an F&I PVR of $2,175, only $4 less than last year, and it would have been higher by $64 to $2,239 without the noncash impact of TCA. In October, we finished the rollout of the Koons stores to TCA following the completion of the Tekion conversion at those locations. Michael will walk you through additional details regarding TCA.

Despite macro challenges of consumer affordability, we continue to see a healthy adoption rate of TCA products. Historically, the average customer chooses about 2 products per deal and that number fell steady even as pricing challenges have become more acute. And finally, in the third quarter, our total front-end yield per vehicle was $4,638, down $230 sequentially partially due to increased EV volume.

Now moving to parts and service. As David mentioned earlier, our same-store parts and service gross profit was up 7% year-over-year, and we generated a gross profit margin of 58.8%, an expansion of 172 basis points. And once again, our fixed absorption rate was over 100%, a key measure for the strength of our business. When looking at customer pay and warranty performance, customer pay gross profit was up 8%, with warranty gross profit higher about 7%, were on a combined basis up 8%, lapping tough comps and warranty from recall work across multiple brands in 2024.

We believe our stores are well positioned for growth trends within parts and service. We continue to invest in improved facilities and technology and in training for our people. And before I pass the call to Michael, I want to share a couple of highlights from the Chambers platform.

Looking at our overall store numbers, the heavier luxury weighted mix lifted PVRs for both new and used. It's even more impressive considering that it was only for a partial quarter performance. I am very optimistic about how Asbury has strategically set itself up for long-term success by continuously improving our operations today.

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

Thank you, Paul, and good morning to our team members, analysts, investors and other participants on the call. And now on to our financial performance. For the third quarter, adjusted net income was $140 million, adjusted EPS was $7.17 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.23 per share. Our adjusted EPS would have been $7.40 without the deferral impact. Adjusted net income for the third quarter of 2025 excludes net of tax of $27 million in net gain on divestitures, $9 million related to the noncash asset impairment related to a pending disposal, $7 million of professional fees related to the acquisition of Chambers, $2 million in income tax expense related to the deferred tax true-up for the Chambers acquisition, and $2 million related to the Tekion implementation expenses.

Adjusted SG&A as a percentage of gross profit for the total company came in at 64.2%. While we are confident in our ability to reduce SG&A expense, there may be transition-related expenses pulled forward over the next couple of quarters as we roll out Tekion to a greater number of stores. As it relates to new vehicle GPUs, we believe those will continue settling to our estimated range of $2,500 to $3,000. However, the trajectory and timing of this normalization would be sensitive to macro elements, and it may be difficult to pinpoint a solid time frame for when this occurs.

The adjusted tax rate for the quarter was 25.4%. We estimate the fourth quarter effective tax rate to be approximately 25.5%. TCA generated $14 million of pretax income in the third quarter. The negative noncash deferral impact for the quarter was about $6 million. At the beginning of this year, we provided an outlook for TCA and the impact on earnings per share through 2029 based on information known at the time. With our recent acquisition and divestiture activity, delayed rollout of our Koons stores, and lower projected SAAR through 2030, we have revised our estimate for the TCA business, as shown in our presentation on Slide 18.

We now expect less [indiscernible] deferred revenue impact over the next several years, primarily as a result of changes in the SAAR estimates. Our initial projections were based on a faster return of 17 million SAAR levels. While the latest publicly available forecast indicates something closer to high 15 million to low 16 million range.

Now moving back to our results. We generated $543 million of adjusted operating cash flow year-to-date, an 11% increase over the comparable period last year. Excluding real estate purchases, we spent $104 million in capital expenditures so far this year. We now anticipate approximately $175 million of CapEx spend for 2025. This amount will depend on the timing of certain projects before year-end, and we expect some CapEx in 2026 associated with Chambers. We will provide a more robust view on 2026 CapEx following our Q4 results.

Free cash flow was $438 million through the first 3 quarters of 2025, $50 million higher than 2024. We ended Q3 with $686 million of liquidity, comprised of [indiscernible] accounts, availability on both our used line and revolving credit facility and cash, excluding cash of Total Care Auto.

Our transaction adjusted net leverage ratio was 3.2x on September 30, following the Chambers acquisition. We believe our business model's ability to generate cash efficiently will help us reduce our leverage over the next 12 months while remaining agile enough to be opportunistic with share repurchases. The dilutions we sold this year enabled us to avoid lower return CapEx while also providing additional liquidity to reduce leverage and repurchase shares. We will continue to review our portfolio for similar opportunities.

And finally, before I finish our prepared remarks, I want to thank our team members, and we look forward to finishing the year strong. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?

[Operator Instructions] Our first question today is coming from Jeff Lick from Stephens Inc.

Paul, welcome to the call. David, I was wondering just, obviously, with the Chambers acquisition and everything that was going on in Q3 with EVs and obviously, some of your competitors have talked about maybe the ICE incentive scenario being a little different in Q3 because of all the attention on EVs. I'm just wondering if you could kind of unpack where you see new GPUs going in Q4 as we get into the all-important luxury season?

Sure. Jeff, this is David. Traditionally, the fourth quarter is a great quarter for luxury and specifically in December. So we don't see any indications where that wouldn't be the case now. Our EV volume of units in Q3 compared to Q2 doubled and our EV average gross profit per car sold is significantly lower than what the hybrid and combustible engine gross profit is. So while that will probably slow down a little bit, even though they're still incentivized from the manufacturers in luxury, we think will pick up in the fourth quarter. At this point, we think our margins will hold up well in the fourth quarter. But again, difficult to predict not knowing what macro events could happen.

And as it relates to Chambers when that gets into the 4Q will be the first quarter where it's all the way in there, just based on the 8-K that you guys filed, it would appear that Chambers will have a slightly accretive effect on new GPUs. Is that correct?

Absolutely. So far, since we've acquired them, their gross profits on new vehicles and used vehicles as the lead platform in our organization. They do a fantastic job generating growth on both sides. And you look at our numbers in Q3 on an all-store basis, they pulled up our PVRs on new and used. So we're very pleased with the operators and how they run their business.

Awesome. Good luck on fourth quarter.

Our next question today is coming from Ryan Sigdahl from Craig-Hallum Capital Group.

I want to dig into TCA just given the change or updated outlook here. So if I look at the previous assumptions from a year ago this time when you originally gave them, it was $5.69 of EPS accretion or incremental in 2029. Now it's $0.81. I guess, a 6% reduction in SAAR assumption, 17 million to 16 million has that type of impact on EPS. But I guess, can you help me walk through really the next several years? And what's changing? I assume there has to be more change in there than just the SAAR assumption?

So on that number, TCA, we have a couple of things in there. One, the Chambers acquisition will have that deferral headwind when we roll that out starting kind of mid next year. Also, we disposed of some pretty good stores out West in terms of the Toyota stores in California and the Lexus stores. And those will have an impact. We'll get the lack of the deferral hit, but you basically lose that volume in the future. So you have those 2 pieces on the acquisition and disposal side.

And then Koons, we originally projected to roll out early this year. It rolled out in October. And so that's a delay on that kind of deferral hit. But the biggest one is just SAAR, we had assumed that we'd be back to 17 million SAAR in 2027 and then kind of stay at those levels for a couple of years. And now the projection is kind of high 15s to low 16s during that time frame. And that cumulative effect on SAAR [indiscernible] and kind of the high 15 to 16 hits you every year and just kind of rolls out. We still expect to get back to that $5 of EPS. It's just going to be delayed until SAAR fully recovers. And so the biggest impact is just the SAAR piece of that equation. And you looked at the numbers, next year's number is significantly lower from a deferral hit. Again, just the SAAR being delayed has a big impact on the negative deferral hit that we expected next year.

So we can basically assume just kick it out 2 years kind of from the previous assumptions to get back to that $5-plus [indiscernible]?

Yes. Yes, it's probably 2031, 2030, again, it depends on when you think we get back to that high 16 million, 17 million SAAR range. We really have to get back to those levels to drive that volume necessary to get those levels.

And then maybe one more follow-up and then I'll leave this one. But would you eventually get there with the 16 million SAAR or just will take longer? Or do you actually need 17 million SAAR type volume to get to that level?

To get to the high $5 EPS, we need the 17 million SAAR because you need that volume level. Now you can also get there with future acquisitions and adding additional stores, but you need a total volume level to drive the products going through the system. So we have to get there with the 17 million SAAR or additional acquisitions.

Got you. Just for my follow-up, SG&A. Just curious, if I look kind of on an adjusted basis, gross profit up similar sequentially as SG&A. I guess just curious from kind of an SG&A to gross profit leverage as you look into Q4 and even into '26. Any comments would be helpful.

I think -- it all depends on what you think gross profit is going to do on the new vehicle side. We think fourth quarter hangs in there on a gross profit, so we should be able to maintain these SG&A levels. Going into next year, we should still be able to maintain these SG&A percentage of gross levels. But again, depends on what your view is on where new vehicle PVR shake out.

Going out beyond that, once we get past the Tekion rollout, we will have some kind of onetime costs if we go through that rollout phase. We pulled those out as adjusted items this quarter. We'll continue to do that in future quarters. Once we get past the Tekion rollout, there's opportunities for productivity gains and cost savings because of the Tekion piece that will help us drive that number down.

Next question today is coming from Rajat Gupta from JPMorgan.

Great. I had a question on just the total contribution from -- just the total -- just the acquisitions net of divestitures. If I look at the 8-K, it looks like when you do the adjustment on the leverage calculation, you're adding roughly $78 million of net EBITDA for the acquisition divestitures. It would seem like the third quarter contribution is more like $25 million, $26 million. I mean is it like $100 million-ish kind of annualized run rate EBITDA net of all the divestitures that you've done with Herb Chambers? Is that a reasonable run rate to assume for the total sold deals this year? I just want to clarify that. I have a quick follow-up.

Yes. I mean it's probably a little bit above that, but in that ballpark. We did -- we sold the Toyota and Lexus stores, so those were good EBITDA stores. But yes, in that ballpark point, it will touch above that number.

Understood. That's helpful. Just one question on capital allocation. I was a bit surprised to see the buyback this quarter just given you just integrated Herb Chambers. I'm curious if you're able to rank-order what your priorities are going forward, should we think about excess free cash flow going more into the delevering and buyback from here? Or is M&A still within the rank order? I'm just curious what -- if you could rank order those?

Rajat, this is David. I'll take a crack at it, and then Michael can respond. I think some of the divestitures that you've seen, and I talked about in my script as far as organic or inorganic, we'll continue to balance our portfolio will generate cash with that. And I think there'll be a heavier focus on share repurchases. Debt will take care of itself over the next 12 to 18 months in paying itself down. if we think our share price is at an attractive price, that would probably be #1. And if for some reason, that isn't the case, then naturally buying down debt will be it. But we generate a lot of cash. That will continue through next year. So I would say share repurchase is debt, but they could trade place it depending upon what's going on at a moment in time.

[Operator Instructions] Our next question is coming from Bret Jordan from Jefferies.

A few of your peers who have reported were sort of talking cautiously about recent luxury trends sort of at the [indiscernible] and it sounds like you guys really aren't seeing that. Is that more brand-specific or region-specific around luxury performance?

Yes. I would -- Bret, this is David. I would say it's more brand than region specific. On a same-store basis, I think we're back 1% in the quarter on volume. So we don't think that's material. Naturally, Lexus is probably the hottest luxury brand out there right now, but they're all performing fairly well. And we're traditionally going into a quarter that does well with luxury -- it may be trophy October, November, but we still anticipate at this point, a strong luxury into the quarter. We're not seeing any material change in traffic or desire with the luxury consumer.

Great. And then on parts and service and customer pay, could you sort of parse out what was price versus units in that 8% growth?

Sure. Almost half and half. It was a little bit more, I would say, 60% dollars and 40% traffic growth. So it's always nice to see the growth in traffic that we have from what we call our repair order count. Up 6%, 7% in the quarter for warranties like compared to our peers, that would have, if we were hiring warranty, that would have drove our overall fixed number higher, obviously, but we came off heavy comps last year from warranty.

When did the comp peak last year in warranty? There were some big recalls late in the year. Is the fourth quarter the hardest warranty compare?

You're testing my memory, but I'm pretty sure it is.

Next question today is coming from Glenn Chin from Seaport Research Partners.

Just a couple of questions on Tekion. David, I think you mentioned it's been rolled out to 19 stores. If you can just give us an update on how it's going? Any surprises favorable and/or unfavorable and the pace at which we should expect to continue to be rolled out? And then lastly, any changes on the prospects for savings there?

Sure. If I missed something, Glenn, just circle back around. We have 23 stores on Tekion. The 19 stores that we did with Koons was Reynolds and 4, CDK. We start rolling out CDK stores in this quarter. So we anticipate, hopefully, towards the end of next year, we'll be done rolling out all the stores. From an efficiency standpoint, when you think about CDK or traditional DMS, most dealers have a lot of bolt-ons. So for your employees, they have to have multiple screens open to service one customer. We lose 70% of those bolt-ons with Tekion. So it makes it more efficient for our folks to communicate and be more transparent with our guests, but also raised our productivity per employee. So there's some good tailwinds there.

Some things that were a little surprising to me, and maybe I just didn't think it through well because it's cloud-based software, and it's extremely intuitive compared to the traditional DMS', I thought the understanding of migration to the software would be fast. It's been fast for someone that is new to the automotive business or it hasn't been on one of the traditional DMSs. They pick up Tekion fast. For our folks that have been on CDK for a 20-year-plus years or Reynolds, it's taken them a little bit longer to get comfortable and used to Tekion. And I would say for a traditional person that's been on one of the legacy DMS for a long time. It's about 6 or 7 months before they really become efficient with the software where I thought it would have been closer to 3 months.

If it's a new hire that doesn't know the industry or the software, they are adapting to the software extremely fast. So I just think it's going to take some time. When we get past the rollout and all the expenses that are involved in the rollout, there are absolutely be SG&A savings from a software standpoint, from a third-party software standpoint in what I would call fees for API connections that we had with the legacy DMS.

And any change in those prospects for savings dated given it sounds like somewhat of a longer tail as far as adoption or efficiency gains?

Yes, there'll definitely be savings. I think we'll start to -- who knows how things go the next 6 to 9 months rolling out the rest of the stores. But as we sit here today, fourth quarter, we should fully realize the savings of the software cost. And then I would say the end of the first quarter of '27, you should really start to see the efficiency gains with Tekion. And look, not all horses are equal, not all markets are rolling out at once. So the early adopters or transitioning to the software will probably see gains middle of next year, while the stores that go on the back end of integration, we'll experience it in early '27.

Next question today is coming from David Whiston from Morningstar.

Just focusing on used vehicles. You hear all the time, everyone wants to get more of that volume, especially around buying off the street to avoid auction, it's obviously a great opportunity, but what more can you guys be doing in terms of marketing both [indiscernible] marketing versus digital marketing to get more vehicles on street?

David, this is Paul. We've got our Clicklane acquisition tool, which is one tool that we use to buy cars off the street. It's a digitally marketed platform that creates [indiscernible] that are specifically for selling cars, not necessarily buying anything from us, but that's the #1 portion of the -- the second place is a service [indiscernible] and those [indiscernible]. We also have opportunity, we think, in the lower end or lower price cars with retaining more of our wholesale cars and we're more focused on that as well.

And David, I would add, we believe, from our standpoint, one of the benefits that we continue to lead this space in SG&A, sometimes volume doesn't create more profitability. Larger used car volume at lower gross profits, raise your SG&A. And while it's a very competitive market for preowned right now, because the pool is so shallow, it just doesn't make sense from our perspective to chase volume and be up 2% or 3% or 4% volume but backwards in profitability. So we're trying to balance that as best we can.

As Paul said in his script, just because of the COVID hangover and the lack of cars being built back then, '26, there'll be more used cars in the market, '27 gets even better and '28, you're back to a normalized market. So I just think naturally, you'll see lifts in volumes as you go forward. The key is acquisitions because your gross profit is 100% determined on what you acquire the vehicle for.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to David for any further closing comments.

Thank you, operator. This concludes today's call. We look forward to speaking with you all after the fourth quarter earnings. Have a great day.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Greetings. Welcome to Asbury Automotive Group's Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now a pleasure to introduce Chris Reeves, Vice President of Finance and Investor Relations. Thank you. You may begin.

Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's Second Quarter 2025 Earnings Call. The press release detailing Asbury's second quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com.

Participating with me today are David Hult, our President and Chief Executive Officer; Dan Clara, our Chief Operating Officer; and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow-up questions.

Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time including our Form 10-K for the year ended December 31, 2024, and any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today.

We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website, investors.aburyauto.com, highlighting our second quarter results.

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

Thank you, Chris, and good morning, everyone. Welcome to our second quarter earnings call. This is an exciting time for Asbury. And I want to begin my remarks by thanking our team members who make it all possible through their hard work and approach to execution that has helped us consistently lead the pack in operating efficiency. I would also like to formally welcome the more than 2,000 team members from Herb chambers. And finally, I want to personally thank [indiscernible] Chambers for the opportunity to be a steward of his business. We look forward to a bright future together and we're eager to partner with the Herb Chambers team members to continue growing our presence in the New England market with a high level of service you have been delivering for 40 years.

Shifting to our operational performance. We continue to see strong demand in the second quarter as consumers weighed the decision to buy ahead of potentially higher prices from an ever-changing tariff landscape. But we did see the AR decline as the quarter went on. We believe the outlook for the second half of the year will be heavily dependent on how various tariff decisions make their way to consumer level pricing. While new vehicle GPUs have been resilient year-to-date, we still see those metrics trending back towards the $2,500 to $3,000 range over time with optimism that we end up more towards that 3,000 level.

Used vehicle profitability has remained strong, supported by a constrained supply environment. Based on the limited pool of used vehicles, we have chosen to focus on gross profit. but we'll continually evaluate that approach based on how the used vehicle market evolves. Our parts and service business continued to deliver stable, consistent growth with same-store gross profit up 7% for the quarter. We are continuing to invest in tools and technology that will enable our fixed operations business to operate more efficiently and deliver an even better guest experience.

Our transition to Tekion is part of that investment, and we are happy to report that our Koons stores are now 100% converted to the new DMS. As I mentioned at the start of the call, it's been an exciting but busy time for Asbury. Our near-term focus will be ensuring all of our critical initiatives are executed at the highest level possible. I couldn't wrap up my comments about our operational performance without commending the team for their focus on running the business efficiently. Our same-store adjusted SG&A as a percentage of gross profit was 63.2% for the quarter, an improvement of over 100 basis points from the second quarter of 2024 and a sequential improvement from the first quarter of 2025.

It is important to note that we still see opportunity to further reduce our SG&A profile over time. Our ability to grow the company through transformative acquisitions while maintaining our operating margin profile is a point of pride for us, but it's just one element of our broader approach to strategically managing our portfolio and deploying capital to its highest and best use. In the second quarter and through July 28, we divested of 9 stores as part of our ongoing capital allocation in our effort to optimize our portfolio. The proceeds from these transactions helped to offset some of our investment in her chambers, and we anticipate prioritizing leverage reduction over the next 12 to 18 months as we work to integrate the acquisition and focus on our migration to Tekion.

That said, share repurchases are an important component of our capital allocation strategy. and we will be opportunistic in our execution of share buybacks even as we work to reduce our leverage ratio. And now for our consolidated results for the second quarter. We generated $4.4 billion in revenue, had a gross profit of $752 million and a gross profit margin of 17.2%. We delivered an adjusted operating margin of 5.8%. Our adjusted earnings per share was $7.43 and our adjusted EBITDA was $256 million.

Before I pass to Dan, I want to once again acknowledge our team members for their focus and dedication to the business. Your commitment every day puts us on the path to be the most guest-centric automotive retailer and we're optimistic about the future. Now Dan will discuss our operational performance. Dan?

Thank you, David, and good morning, everyone. I am going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis unless stated otherwise. Starting with New beds. Same-store revenue was up 9% year-over-year and units were 7%. New average gross profit per vehicle was $3,611 Brand unit performance varied widely depending on availability or potential for tariff impact. Our volume for Stellantis was up 15.6% this quarter compared to national sales down 11.5%. Across all brands, our same-store new day supply was 59 days at the end of June.

Turning to used vehicles. Second quarter unit volume was down 4% year-over-year. Used retail gross profit per unit was $1,729 which marks the fourth quarter of sequential growth. We continue to monitor conditions on a market-by-market basis for deploying our approach to prion, and we still plan to prioritize unit profitability at this point of the used car supply cycle. Our same-store used day supply of inventory was 37 days at the end of the quarter.

Shifting to F&I. We earned an F&I PBR of 2,096. The deferred revenue headwind of TCA was a $161 decrease in the same-store F&I PVR number year-over-year. As a reminder, we are planning the TCA rollout to the Koons stores in the fourth quarter of this year following the recent completion of the Tekion conversion at those stores. The timing of this TCA rollout changes the magnitude of the deferral headwind that we had estimated at the start of the year. Michael later will walk you through additional details regarding TCA. In the second quarter, our total front-end yield per vehicle was $4, 861.

Moving to parts and service. As David mentioned earlier, our same-store parts and service gross profit was up 7% in the quarter. We generated a gross profit margin of 59.2%, an expansion of 53 basis points. In addition, our fixed absorption rate was over 100%, an important benchmark for the strength of the business.

When looking at our customer pay and warranty performance, customer pay gross profit was up 7% and with warranty gross profit higher by 16% or 9% on a combined basis. In our Western stores, we grew 15% on this combined metric. We continue to be bullish on the long-term trajectory of our parts and service business. We believe the continually aging car park and the increasing complexity of modern vehicles mean our stores are well positioned to capture future service growth. The average age of a passenger car on the road is 14.5 years old, and the average truck is nearly 12 years old.

Additionally, recent and upcoming models have more technology and innovative powertrains, which should create opportunity for our service departments for years to come. And finally, on an all-store basis, we retailed over 9,500 sales through Clicklane in the second quarter. 46% of these sales were new units. Before I pass the call, I would like to once again thank our team members for their commitment to service and to be the most kid-centric automotive retailer. I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Dan. To our investors, analysts, team members and other participants on the call. Thank you for joining us this morning. And now on to our financial performance. For the second quarter, adjusted net income was $146 million and adjusted EPS was $7.43 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.43 per share.

Our adjusted EPS would have been $7.86 without the deferral impact. Adjusted net income for the second quarter of 2025 excludes net of tax, $4 million of cyber insurance recovery proceeds, $4 million related to the gain on divestitures and $2 million of professional fees related to the acquisition of Herb Chambers.

Adjusted SG&A as a percentage of gross profit came in at 63.6%, noting that the Tech ion implementation costs are beginning to impact our P&L. We still anticipate 2025 SG&A in the mid-60s, caveating that we are monitoring tariff and trade developments. While we see additional expenses for Tekion rollout and legal fees, we still are optimistic there are opportunities to lower SG&A in the future. The adjusted tax rate for the quarter was 25%.

Following the Chambers acquisition, we estimate the third and fourth quarter effective tax rate to be 25.5%. TCA generated $7 million of pretax income in the second quarter. The negative noncash deferral impact for the quarter was $11 million or $0.43 on an EPS basis. As Dan mentioned, we now anticipate offering TCA and the Koons stores in early Q4. The updated schedule of the rollouts, along with lower SAAR projections versus our original estimate will affect the timing of deferrals in future periods.

We have outlined our time line and estimated impact on 2025 EPS on Slide 19 of the presentation posted to our website this morning, the periods beyond 2025 have not been updated due to uncertainty around tariffs. Now moving back to our results. We generated $334 million of adjusted operating cash flow through the first half of 2025. Excluding real estate purchases, we spent $60 million on capital expenditures. Through the end of June, we anticipate approximately $250 million in CapEx spend for both 2025 and 2026.

However, this is dependent on the impact and duration of tariff policies with adjustment to spending as appropriate. Free cash flow was $275 million through the first 2 quarters of 2025. We ended Q2 with $1.1 billion of liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding cash at Total Care Auto.

Our transaction adjusted net leverage ratio was 2.46x at the end of June. Following the Chambers acquisition, we anticipate that this ratio will be above our target range. We will work down our leverage over the next 12 to 18 months and expect to be below the higher end of our range in mid- to late 2026.

On July 21, we closed on the acquisition of Herb Chambers Automotive Group. Full year 2024 adjusted EBITDA for Her Chambers was $176.8 million, and the transaction was valued at about $1.45 billion. Of this amount, $750 million represented a blue sky and $610 million was real estate and improvements. Please refer to Slide 32 in our investor deck and the Form 8-K filed this morning for more information on the pro forma financials. Upon completion of the deal, with our mini credit agreement, our revolver capacity increased to $925 million and our new vehicle floor plan facility to $2.25 billion.

This deal was financed through a combination of our credit facility funding, proceeds from a new mortgage facility and cash. As noted in our release this morning, we divested 9 stores with annualized revenue of $619 million since the start of the second quarter. This was done as part of our portfolio optimization strategy, and it allowed us to use the net proceeds of $250 million to $270 million towards reducing our leverage. Before we take questions, I want to thank our team members. We appreciate and recognize your efforts and performance. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions.

Operator?

[Operator Instructions] Our first question is from Jeff Lick with Stephens.

Congrats on the great quarter and congrats on the acquisition. I know that means a lot to you, David, if you're known in routes up here. I just wanted to wonder if you could just walk through as the quarter progressed kind of the cadence of GPU and also units and just where you see things standing now as we are into the first month of Q3.

Jeff, this is Dan. So as the quarter progressed, we saw the GPUs started at stronger in the first part of the quarter. as the SAAR started to level off, as David mentioned in his remarks at the beginning of the call, we started to see adjustment into the GPUs as well. I'll tell you that as things move forward, the situation is still pretty fluid. There's been, as you know, a few agreements that have been reached with Japan and the European Union, but still trying to see where things are going to fall and how the OEMs will react. But back to the comment that David stated earlier, we see those still have belief that those GPUs fall into 2,500 to 3,000 range.

And that range you've given, that's inclusive of any, say, new kind of dealer invoice to MSRP adjustments and relationships?

Yes. It's -- again, it's still hard to tell where the product is going to fall for a lack of a better term until we start to see how they're adjusting. I will tell you there's been a few OEMs domestic and some of the luxury imports that have slightly adjusted invoice, but it's still too early to tell to see what the final impact is going to be.

And is it your thinking that most likely all of the.

kind of major adjustments if there are any, will really kind of accompany the 2026 model year changeover.

Yes. I think, yes, the 2026 model, when you think about the OEMs going through the transition right now, and this has been going on since the end of the first quarter, they've had plenty of time to strategize, think about it and make the necessary adjustments that are going to come down the pipeline. But you also got to think about that anything that has to do from a production standpoint, it takes time to really adjust the parts and the suppliers and what have you. So I do expect that in the 2026 model, there will be the adjustments necessary to adjust to the tariff, but it will take some time when it comes down to the packages and the options that might be available to adjust that accordingly with the suppliers.

Our next question is from Federico Miranda with Bank of America.

So you had a solid SG&A performance during the quarter. And I was wondering, can you talk more about the initiatives that that are allowing the SG&A to remain under control.

Yes. I mean the main one is just focusing on that productivity per employee. We just try to make sure we maintain that discipline on the headcount and gain the productivity for the employee side. That's the big one because most of our expenses are compensation but then also looking at the different outside services that we use and making sure we're getting a good return for that investment. The 1 piece in that number that we still have in there is there's a couple of million dollars of Tekion conversion cost in there. So that number would have been even lower if we wouldn't have had the kind of Tekion on conversion cost in that mix.

And if we assume that in the second half, volumes for new vehicles will be lower due to higher prices and so consumers want buy vehicles. I would assume that it will be harder to leverage your SG&A. So how would you plan to offset the lower SG&A absorption?

Again, that protect for employee is key because a lot of our costs are commission-based, and they adjust with either a downturn in volume or PVRs so that cost discipline is key. But that's also why we kind of said mid-60s. To your point, it will be a little tough to keep that lower number if the PBR drops off significantly or the volume drops off. But that discipline on productivity is kind of the key to keeping that number as low as possible.

Our next question is from Rajat Gupta with JPMorgan.

I just had one -- first one on just the Herb Chambers acquisition. You now have them under the hood for a couple of weeks. It looks like the SG&A to gross profile for Herb Chambers is slightly better than the legacy Asbury business. I'm curious, have you been able to given the couple of weeks you've had, any incremental opportunities do you see to improve like just metrics and the store, other areas around services or used cars that you see you can bridge the gap to versus a or forces like border industrial period that had better metrics. Just curious if you could just give us some more insight into what we should expect to see as the acquisition gets integrated further? And I have a follow-up.

Rajat, this is David. There was a few things that we think about their mix of luxury over 60%, the name in the marketplace that they have and the scale that they have in the market was most interesting to us, along with the quality people and tenure that they have. So we think we align philosophically and how to run the business. The best part about this in any transaction, there's always opportunities to improve. There's opportunity to improve. And our same-store, there's opportunity to improve with any acquisition that we have -- we'll work with the team over time to look for efficiencies to improve upon the business. But this was a strategic market for us. It's a defensive position New England is in a growth market, but it's a very stable market. It performs well in a downturn. And with the luxury mix and the presence in this market with the level of service that they offer, we think this creates great stability for Asbury over time.

Understood. I just had a follow-up on parts and services into the second half. We're going to start running into some tougher comparisons. -- when it comes to warranty, specifically recall work later this year. Curious if you think you could maintain the mid-single-digit type growth cadence here as we go to the next couple of quarters? Do you feel comfortable offsetting any of the warranty to the tougher warranty comps with more customer pay work here later this year. Just curious to get your thoughts on the cadence there.

This is Dan. Yes, we feel comfortable with the mid-single digits that we have been discussing as we move into the second half of the year. And we have the throughput in the stores. Obviously, the bay utilization, we have opportunity to grow that as well. So we feel comfortable with that measurement and continue to have and push forward as we go into the second half.

Rajat, this is David. I'll just jump on that, too. It's kind of tough looking at year-over-year with the CDK issue last year so far against our peers. Our warranty growth was about half of our peers. Warranty isn't something that you sell. It's something that you do based upon what's going on with the product. mix-wise, we're similar I can only think when we're off that much year-over-year, we must have just done a better job last year closing warranty. But to your point, going into the second half of the year, we're definitely going to have some headwinds on the warranty side, but we're convinced that CP will continue to be stable. And the chamber organization just does a fantastic job with fixed as well. So we're very optimistic about parts and service in the second half of the year with to your point of question [ mark ], on warranty.

That's helpful. Just one clarification. Are the warranty margins higher than customer paid for Asbury? I know it's tired of some here, but curious if the case for you as well.

Yes. It varies slightly, but overall, it runs higher on warranty than it does CP the margin.

[Operator Instructions] Our next question is from Ryan Sigdahl with Craig Hallum Capital Group.

Want to move over to used GPUs. Nice -- really strong in the quarter. I guess, given the same-store sales performance, it appears as very continues to stick with the profitability over volume. But can you talk through kind of the strategy, how you think about the second half and if there's any change there?

Ryan, it's Dan. Our strategy remains the same. As you know, we are facing the lack of supply from a used car inventory in relation to the pandemic. And you don't need to walk you through it, but less lease turn-ins, et cetera, that all took place during the pandemic. So without thought in mind, our our plan stays the same, maximizing gross profit rather than chasing the volume. But as we've stated at the beginning of the call, this is something that we assess on a continuous basis, and we're ready to adjust as soon as we see the market shifting and more availability of inventory.

Ryan, I would jump on and say we can see the rest of this year. The pool is just very shallow, but I think we're at our low point to Dan's point about talking about the COVID peak. It starts to improve in '26 with off-lease vehicles, and that will vary a little bit depending upon lease penetration in groups and how much access they have. So $262 million certainly get back to normal, and I think you'll start to see increases mid-26 and beyond.

Helpful. Then just progress on Tekion, good to see Koons' completed a little ahead of expectation there. Multipart question here, I guess, as it relates to Tekion one, anything surprising you thus far post that conversion with Koons to -- can you quantify what the implementation costs for Tekion were in the quarter? I mean you had really nice SG&A leverage, especially comparing to peers in the quarter, you've been considering that, but if you're able to quantify? And then the last part would just be the conversion time line for the remaining Asbury source.

Ryan, I'll start and then Michael can jump in on the cost related stuff. One of the reasons we chose to go with Tekion was the simplicity of the software and not having as many bolt-ons as we have -- we see the benefits and efficiencies with that and making it easier for our teammates to work with the clients. But changing a DMS is like heart transplant. It's the one thing that dealerships never want to go through. And even with planning and execution, you're still going to have a lot of snaps, and we had that throughout the quarter. inconsistency with software applications, stuff going down at moments in time, things missing. It's just normal through it. So to the Koons folks credit, it was a frustrating quarter for them having to go through that. The stores that we originally piloted last year are all the way through that and really starting to see the efficiencies of the software. And when we're fully converted, which will hopefully be in '27 is when we really recognize the SG&A benefits, but also operating efficiencies positive feedback from some of the employees with less greens to utilize. Some of the feedback that we get from leadership, the software is a little bit like a Ferrari, it's got more to it than what we're used to. So we're finding new things every day about it. So it's going to take us a while to become proficient on the software and work through the kinks of normal DMS conversions. But we're very happy and pleased with the progress. And quite honestly, how resilient the Koons team was working through it in the quarter was just -- it was inspiring for us to see.

And on the cost front, it's about $2 million in costs in the quarter. About half of that is, I'll call it, duplication and implementation costs with Tecon. And the other half, because we're a public company, we have to go through a little bit of pain of aggravation of testing the control environment. And so we have we're paying outside resources to kind of work through the audit side of soft controls with the software. And so about $1 million of implementation and duplicated DMS cost at about $1 million of third-party audit cost.

Our next question is from David Whiston with Morningstar Equity Research.

I was curious how -- I'm sure your Toyota [indiscernible] inventory is lean, but is it leaner than it normally would be due to tariffs slowing production out of Japan?

David, this is Dan. No, it's lean, but we have not seen a negative effect on being leaner than what we're used to operating -- and as you know, we've been operating under that single-digit to low double-digit DSI for quite a while. And it's all about the turn. And I feel like our stores are doing a pretty good job with that.

All right. And on the EV tax credit and your EV inventory, do you expect the OEMs post September 30 once the credit is going to be very aggressive on trying to pressure you on allocation?

This is something that you have been able to monitor and see coming for for a while. I think some of the OEMs have done a very good job of planning accordingly and the number of EVs, whether they are in production or allocation or even on the dealer lots has been dwindling down. So I don't expect a tremendous amount of push because they have been preparing for it. And listen, at the end of the day, we're good partners. We are always going to make the best decision to to make sure that we return the right level of return of investment to our shareholders, but we're going to be true partners in support of our OEMs. But like I stated before, they've been planning accordingly. We've seen the DSI go down in the EVs. And we're monitoring that closely on a day-to-day basis to make sure that we retail the EVs that we have on the ground before the September 30 date.

Okay. And just one last question on your geographic mix with Herb Chambers really the one major part of the country you're not in is California. I know historically, you haven't wanted to be there, but are you perhaps thinking more about the West Coast that you've got the Northeast?

David, this is David. I'll take that question. We don't -- based upon the franchise laws in the different states and the economics in California, we just see there's better investments and better returns in other states. So you can never say never. But for the near term, we divested our 2 stores in California. I think we'll stay outside of California and focus on the markets that we're in. As a footprint now we're actually in the states that we want to be in and don't want to leave any of the states that we're in currently. However, that's not the plan anyhow. But we'll look at things as they come. size and scale matter to us to a certain degree, buying a store in a smaller state that has $30 million or $40 million in revenue per rooftop it's just something that doesn't interest us. We try and look at 10-year economic outlooks or markets that we're in, what the franchise laws are and all that kind of stuff. And we think that's what helps our portfolio, Keith, the SG&A as tight as it is. We're not hyper focused on growth as a top line revenue growth, but really being strategic about the capital allocation, where we're buying stores, what our returns are for our shareholders. and making sure that we're doing it thoughtfully and building to the future. And while we talk about the headwind of TCA and what it meant to an EPS, I think $0.43 or so in the quarter, when you look at Slide 19 of our IR deck, when you get out to 28 and 29, you're talking $4.50 to $5.50 per share before we sell a car. So while the next year, 1.5 years is tough on us on EPS, you start to look out a few years, we really look like a solid company and then you add in the concept of fully being on Tekion and the benefits of SG&A. So the next 6 or 7 months might be bumpy as we settle into tariffs and what happens there and stabilizing days supply. But we think the future is really bright and we're optimistic about it and excited for the future. But for now, California is not on the list, and it's really focusing on the markets we're in.

Our next question is from Bret Jordan with Jefferies.

On Slide 19, I guess, you're pending full visibility on the tariff impact for the estimate reviews. Is there a meaningful exposure on the parts side where you've written warranties that might see a higher cost expected or is most of that in labor or just too small and the total TCA portfolio to really make a difference in the next several years?

Yes. I mean it's a good point. We try to bake in inflation into our estimates for what we price the F&I contracts at. So they're somewhat baked in there. But if you had a meaningful increase on the parts side, to your point, labor is the biggest component of that. And so we have a small impact on the claims but not a huge impact. On the '26 through '29 what we're really trying to figure out there is where do we think SAAR shakes out? That's the big driver of the TCA runoff. And when kind of that deferral hits us when that SAAR rebounds. And so once we figure out kind of a better forecast for SAAR over the next couple of years, we'll come back and update those numbers for the SAR projections.

And Brett, just to jump on that real quick, if you don't mind, when we acquired TCA, their [indiscernible] rating with an A minus, we've improved it to an A rating. So we're real happy with the way we're managing the portfolio and loss ratios and -- so we're very optimistic about the future for TCA regardless of tariffs.

Great. And then a follow-up on regional dispersion. I guess you called out the Western stores having 2x the company average in parts and service growth. Is there anything else sort of interesting from a regional performance either on units or puts and takes geographically?

No, the Brett, this is Dan, the way No, I don't think that there's anything else interesting. I'll just expand on the double-digit growth in the West, and we've been talking about this for the last, I don't know, 12, 18 months been a lot of focus on the integration of our West stores and really putting the processes and procedures in place to to maximize the opportunity on a day-to-day basis, but more importantly, to enhance the guest experience through technology, even though we know that the employees on the front lines are the ones that create the experience.

I would just add to that. I would say more than geographical brand mix matters. All brands are cyclical. So depending upon your portfolio, it can be a tailwind or a headwind based on what you have. But things are pretty stable. And I think everything is really -- the market is kind of sitting still waiting to see where the tariffs shake up, what the manufacturers end up doing with pricing and we'll make that onetime adjustment move on. The one thing that's proven true about this industry because I know there's a lot of negative talk about the second half of the year, what's going to happen with tariffs and margin and all that kind of stuff. -- the public auto space has been public for '27, '28 years now. There's been a lot of negativity over time with it. And as far as everyone looking for the headwinds going forward, One thing that's hold true and especially through the recession in '08 and '09, this is a resilient business model, and it's an accordion effect whether it's an expense control and it always finds a way to perform and continue to go on. The transportation retail business is strong. It's not going to go anywhere. In this business model, not just ours, but our peers in the private cap space will certainly adapt and come out on the other side of it is just as strong as they did before.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to David Hult for closing remarks.

Thank you. This concludes our call today. We appreciate everyone's participation and look forward to speaking with you after our third quarter. Have a great day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.