Q4 2021 Asbury Automotive Group Inc Earnings Call

February 15, 2022

Okay.

Good day and welcome to the Asbury Automotive Group Q4, 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Karen <unk>. Please go ahead ma'am.

Thanks, operator, and good morning, everyone. As noted in today's call is being recorded and will be available for replay later this afternoon.

It was pretty automotive group's fourth quarter 2021 earnings call. The press release detailing our fourth quarter and full year results was issued earlier. This morning and is posted on our website at Asbury autos Dot com.

Dissipating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, Our senior Vice President of operations and Michael Welch, Our senior Vice President and Chief Financial Officer at the conclusion of our remarks, we will open up the call for questions and I will be available later for any follow up questions that you may have.

Before we begin we must remind you that the discussions during the call today is likely to contain forward looking statements.

Looking statements are statements other than those which are historical in nature, which may include financial projections forecast 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 2020, any subsequently filed quarterly reports on Form 10-Q , and our earnings release issued earlier today.

We expressly disclaim any responsibility to update forward looking statements.

In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.

As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website.

We have also posted an updated investor presentation on our website at very other dot com, highlighting our fourth quarter and full year results.

It's my pleasure to now hand, the call over to our CEO , David Hult David.

You, Karen and good morning, everyone welcome to our fourth quarter earnings call.

In the fourth quarter, we closed on the transformative acquisition of Larry Miller and total care.

Kurt.

Hello, Chrysler Jeep Dodge.

<unk>, Hyundai Genesis and the Stevenson automotive group representing.

Approximately $6 6 billion in annualized revenue.

These acquisitions represent the right brand.

In high growth markets and are aligned with <unk> culture.

We look forward to deploying our joint capabilities and growing together.

We're excited to have our new team members as part of the Asbury family.

2021, with an all time record year for Asbury.

For the full year, we grew adjusted EBITDA by 94% and adjusted EPS by 112%.

We delivered an operating margin adjusted at eight 1%.

We succeeded in adding great stores in targeted high growth markets and.

And we completed the rollout of our online transactional too quickly to all the legacy Asbury stores.

In a challenging new vehicle environment, we delivered record profitability by improving our new vehicle margin.

Our used vehicle sales and growing our parts and service business.

All while maintaining our improved employee productivity levels and.

And using our strong cash flow for acquisitions.

Our multiple business lines allow us to adapt and continue to deliver strong earnings in any business environment.

We will also deploy total care auto into our legacy stores and rollout quickly into our recent acquisitions allow.

Allowing us to further grow our earnings.

Due to our record performance and strong cash flow our balance sheet remains solid our adjusted operating cash flow for 2021 was $632 million an increase of 189 million over 2020.

Our net leverage ended this quarter at two seven times.

We will continue to use our free cash flow to manage our leverage and maximize shareholder return through share buybacks and acquisitions.

In our earnings release. This morning, we also announced that our board of Directors has approved an increase in our share repurchase authorization by 100 million to $200 million.

Now I'd like to give you a quick update on our five year plan.

Our same store adjusted revenue grew almost 12% last year exceeding expectations quicker.

Quick link continues to deliver impressive metrics generating over $570 million in additional revenue for three quarters in 2021.

Despite lower new vehicle levels inventory levels quickly and contributed an incremental 7% to our same store growth and as previously noted we had a very successful year regarding acquisitions.

With these results we maintain full confidence in the execution of our growth strategy based upon our results in 2021, we will update our five year plan during our Q1 2022 earnings call.

I will now hand, the call over to Dan to discuss our operating performance.

Thank you David and good morning, everyone.

Before I share our operating performance.

I'd like to thank all our teammates in the field for their hard work dedication and commitment to delivering an exceptional guest experience.

In our earnings release. This morning, we reported adjusted EPS of $7 46.

A fourth quarter record of 68% over the prior year.

We delivered strong results, enabling us to deliver an impressive gross margin of 24%.

An all time record and an expansion of 370 basis points versus the fourth quarter last year.

Our teams continue to maximize productivity per employee, resulting in adjusted SG&A as a percentage of gross profit or 54, 3%, a 710 basis point improvement versus prior year.

Our total revenue for the quarter was up 19% year over year and total gross profit was up 46%.

We improved our adjusted operating margin for the quarter from 6% in 2020, 289% in 2021, and we will continue to optimize our portfolio in the future.

Now I will turn to our same store performance compared to the fourth quarter of 2020 unless stated otherwise.

Starting with new vehicles.

Based on current market conditions, we continue to be focused on being opportunistic with our inventory and improving grosses to maximize profit.

Our new average gross profit per vehicle was $6335 up $3441 or 119% from the prior year period.

<unk> segment margins were up significantly from the prior year period.

At the end of December our total new vehicle inventory was $207 million.

And our day supply was at eight days down 32 days from the prior year.

We expect that they supply to remain low as we progress into 2022 trending up moderately towards the end of the year.

Turning to used vehicles.

Our U S retail volume increased 15%, while gross margin was eight 2% representing an average gross profit per vehicle of $2623.

As a result of our performance our retail gross profit was up 64%.

Our total used vehicle inventory ended the quarter at $402 million, which represents a 34 day supply.

Up three days from the prior year.

We used to new ratio for the quarter was 100% to 9%.

Shifting to F&I, our strong consistent and sustainable growth in F&I delivered an increase of $213 to $1961 per vehicle retailed from the prior year quarter.

In the fourth quarter, our front end yield per vehicle increased $2169 per vehicle to an all time record of 6360 to $1.

And now to parts and service.

Our parts and service revenue increased 13% in the quarter.

The warranty revenue dropped 19% our customer pay revenue continues its healthy recovery posting a 17% growth.

We achieved over 149000 online service appointments and.

An all time record and a 16% increase over the prior year quarter.

Some of the benefits of increasing online service appointments include enhancement to the customer experience higher customer retention higher conversion rates higher margins and higher returns to our shareholders.

With three or four quarters of click link at all legacy stores under our belt, we will like to share some performance metrics.

We sold over 5000 vehicles through click late in Q4 of <unk>.

Which 47% of them were new vehicles and 53% used.

91% of our transactions this quarter with customers that were new to Asbury the dealership network.

Average transaction time continues to be consistent with previous quarter eight minutes for cashews and 14 minutes for finance deals.

Total variable front end yield of $4298 and F&I front end yield of $1846.

Average credit score is higher than the average credit score at our stores.

80% of consumers seeking financing receive instant approval.

An additional 10% require some offline assistance, 90% of those are applied we're approved for financing.

43% of Cleveland sales traders, who is 78% of such trades recondition and retail to consumers with a total front end yield of $4490.

And 92% of our clicks lean deliveries are within a 50 mile radius of our stores, thus, allowing us the opportunity to retain our new customers in our parts and service departments.

As expected click link customers are converting a greater rates than traditional internet leads.

Our first few months after launching quickly approximately 60% of our sales were new vehicles.

Until inventory levels somewhat normalize we will not be able to fully assess the full potential of Cleveland.

We remain quite excited about the continued growth of Cleveland.

Lastly, I would like to extend a warm welcome to our new team members.

All of you have built tremendous organizations are properly aligned with our north star of being the most guest centric automotive retailer our future is bright and I look forward to meeting all of you.

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

Thank you Dan to our investors analysts and other participants on our call good morning.

I would like to provide some financial highlights, which marked yet another record quarter for our company or.

For additional details on our financial performance for the quarter. Please see our financial supplement to our press release today.

In our investor presentation on our website.

Overall compared to the fourth quarter of last year.

Our access to managed gross profit and control expenses resulted in fourth quarter adjusted operating margin of eight 9% an increase of 290 basis points above the same period last year and an all time record.

Adjusted net income increased 89% to $163 million and adjusted EPS increased 68% to $7 46.

Net income for the fourth quarter of 2021 was adjusted for acquisition expenses and acquisition related financing expenses of $289 million or dollar and <unk> <unk> per diluted share.

Net income for the fourth quarter of 2020 was adjusted for a gain on dealership divestiture of $3 9 million or 15 cents per diluted share.

In addition to the net income adjustments adjustments mentioned above our fourth quarter 2021, EPS was negatively impacted by the interest in additional shares issued as part of the acquisition financing that was completed prior to the acquisition closing.

If the financing her close simultaneously with the leverage Miller acquisition, our adjusted EPS for the fourth quarter would have been positively impacted by 87 cents.

As a result of lower interest expense and fewer outstanding shares.

Now for the full year 2021 results compared to 2020.

Adjusted operating margin was eight 1% an increase of 240 basis points and an all time record.

Adjusted net income increased 120% to $549 million and adjusted EPS increased to 112% to $27 29.

Our effective tax rate was 23, 7% for 2021 compared to 24, 8% in 2020.

This quarter, we acquired $6 6 billion in annualized revenue.

In order to finance the acquisitions, we completed equity offerings totaling approximately $2 $1 billion, a syndicated mortgage facility of approximately $700 million and borrowed under our upsized syndicated credit facility.

In addition, we spent approximately $34 million of capital expenditures in the quarter.

We generated $632 million of adjusted operating cash flow for the year, our balance sheet remains healthy as we ended the quarter with approximately $437 billion of liquidity.

Price of cash excluding cash of total Corrado.

Plant offset accounts and availability on both of our youth line and revolving credit facility.

Also at the end of the quarter, our net leverage ratio stood at two seven times below our targeted net leverage of three times.

As David stated earlier today, we announced that our board has approved an increase to our share repurchase authorization by $100 million to $200 million.

For 2022, we are planning for a tax rate of approximately 25% to 26% and capex of approximately $150 million. This amount excludes real estate purchases and potential lease buyout opportunities that we consider to be financing transactions.

In closing I would like to thank our teams across the business, who continue to work hard to ensure our current and long term success I would also like to welcome our new team members.

Now I'll turn the call back over to David to discuss our 2022 objectives and expectations David Thanks, Michael.

Turning to 2022, our key objectives are to continue our smooth transition with all of our new valued team members.

Execute superior allocation of capital to maximize shareholder return.

Continue the innovation and growth of Cliff when rolling out this fully transactional tool coast to coast into our recent acquisitions.

Integrate our insurance and F&I product provider total care auto across the entire Asbury platform of dealerships.

Which will allow us to expand our F&I P V R.

Execute our companywide training initiatives to continue the development and growth of our teammates.

And maintain our best in class operating margins and SG&A.

I would also like to make a few comments regarding our expectations for this year.

We are excited about 2022.

We see good opportunities for automotive retail and we expect it to men will continue to exceed supply for most of the year.

We do anticipate a gradual recovery in inventory levels in the second half of 'twenty, two as OEM production improves.

As a result, we are planning our business for a SAR of 15, five to 16 million units and vehicle margins consistent with 2021.

We will remain nimble and vigilant to adapt as conditions evolve.

SG&A as a percentage of gross profit should continue to benefit from active expense management and improved employee productivity.

We look forward to continuing to deliver strong results for our shareholders.

Scanning partners with our Oems to steward, they're great brands.

And offer an environment, where our team members can thrive, while providing the most guest centric experience and automotive retail.

Finally, I'd like to address all of my teammates at Asbury.

Our ability to add quality stores, who like us care about serving our guests and being highly engaged in our communities could not have happened without you.

You have all you all have given us the ability to thoughtfully grow our core business, because you're aligned behind our vision.

Appreciate all of you and I'm thankful to be a part of this team.

People make the difference in any organization you are making us a better place to work and you're creating an environment where people want to do business.

Thank you for everything.

This concludes our prepared remarks, we will now turn the call over to the operator and take your questions operator.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speaker phone. Please make sure. Your mute function is turned off to allow your.

Signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone the opportunity the second half.

We'll take our first question from the line of Rick Nelson with Stephens. Please go ahead. Your line is open.

Thanks, a lot.

Hum.

Great.

Like to ask you about.

You acquired stores.

I pay you operate a hire private I mean, you all have lower SG&A.

For Asbury.

I've looked at the consolidated.

SG&A for example was slightly lower than the.

Same store.

Yeah.

Rick This is David I'll start and Michael considerably jump in as when we announced the deals the comment was made they're accretive to Asbury.

It's early on in the fourth quarter I think we had maybe 12 or 13 days.

In the quarter with LH, Larry H Millen numbers, and then you add in the holidays, there's probably 10 or 11 days so.

Those acquisitions as stated before our accretive to Asbury.

And what you acknowledged and recognized as accurate.

Okay.

Are there opportunities to improve our performance.

Performance of the acquired stores.

The bigger opportunity yeah rolling to Seattle for example across that.

Alright.

Yeah, it's great question.

Couple of things.

The best operation in the World has plenty of room for improvement.

We certainly do at our core stores in our new acquisitions, we certainly have an opportunity to continue to grow our used car performance and with the rollout of total care.

Into the Asbury stores that will certainly boost our F&I numbers as well while parts and service continues to grow at a steady rate.

One other thing to add Rick is another opportunity for us as you know putting quickly and in those acquisitions and that will just gives us a technology that didn't have before so that is an opportunity for us to to just help them from a technology perspective.

Okay.

For that also.

Well I could tell you.

Your appetite to.

I do more.

Preserves.

Just to close things here temporarily integrate.

Or.

Is there an appetite to do something or was that over the near term.

Yeah, Rick This is David I'll start and Michael Mike jump in our goal is never to grow to be the largest sort of grow the fastest.

It's really about being opportunistic in finding groups are really aligned with us.

We allow them to continue to operate as they have been so it's a much longer integration period to get to know each other and integrate everything over you know we feel like our stock price is extremely cheap right now and we're trading at an extremely low multiple.

And we want to be great capital allocators. So.

Could be a potential for some acquisitions or buying back our stock.

But it's tough to say how the year will play out if something comes up that's accretive to our company and for our shareholders. We'll certainly act upon it.

And if it makes sense, if we feel like our stock price has been devalued, who was certainly acquired some of our stock back.

Great.

Yeah, it's pretty stable.

<unk> some 2022.

Just kind of talk there that things would advance maybe in the front end of the year and that we'd see some pressure on the backend.

Given your expectations parameters to normalize.

Sure.

The good news is in the last year everyone's been wrong, all the time about inventory and trying to figure it out but the way we see 'twenty two as we sit here today. When you look at 'twenty. One the first two quarters inventory levels were higher margins were a little bit lower and then that reversed itself in the second half of 'twenty, one inventory really came down and margins went up we saw.

See the reverse of that in 'twenty to don't know that we'll be right, but we think the first half of 'twenty two we'll certainly have elevated <unk>.

Margins like we saw in the fourth quarter.

And then the second half of the year might look a little bit like the first half of 'twenty, one really difficult to gauge what's going to happen between the pandemic and the chip George and everything else, but as we sit here today, that's the way we see it.

Great.

Thanks for the color.

Good luck.

Thank you.

We will take our next question is from the line of John Murphy with Bank of America. Please go ahead. Your line is open.

Good morning, everybody.

Maybe follow up on.

Maybe just to follow up on Rick's just last question there.

Where do you think inventory is going to normalize and I know I mean, obviously, calling second half this year is tough right because.

It's a very tough thing to call the timing, but one thing the logjam is broken here what do you think the level of the automakers are going to go back to you and what do you think it means for grocery so there's somewhere between here and where it used to be or is it all the way back to where it used to be.

Very tough to predict it's a competitive world.

You never know what someone's going to do to try and gain market share and grow their business I think everyone's learned from the concept that we can be effective with a lower day supply and everyone can benefit from that does that mean, we will stabilize at a 35 40 days supply compared to a 65 or 70 I think it's too early to tell but to me.

The demand seems so high right now even when they're able to start catching up on the inventory between the rental car companies and fleet businesses and everything else I, just don't see the demand settling until some time into 'twenty three.

Yeah.

Generally agree with you there.

Albuquerque normalized on the SG&A front.

The absolute.

Dollars as well as the percent of grocery is pretty impressive is there.

Way to think about that going forward is it tied more towards units than the <unk> or is there a way to for you to maybe thinking a little bit more to grocery. So we don't have this kind of variability in the numerator and denominator stays a little bit more static and yet and yet you keep.

More of the growth consistently over time.

Yeah, I would it's a tough one John I would tell you.

Prior to the pandemic, we're focused on our productivity per employee and that is generally keeps your costs down. However, if margins certainly start to go backwards a lot there will be some leakage into SG&A I also think as technology continues to evolve over the next few years that gives you an opportunity to hit new ceiling levels with production per employee.

So we see it as a pretty stable environment and as margins start to come back and say call. It 23 at this point again, who knows but if it's 23. We also think we're going to be that much more productive per employee in 'twenty three.

So we think we run lean and mean.

And the stores do a tremendous job of keeping their expenses down and operating extremely efficiency, whether it's our marketing dollars that we spend or how we staff. The stores. We just think it's a discipline and a core behavior of ours.

Okay, and then just lastly could you just kind of remind us exactly what's going on in your total care auto.

And Larry Miller's and really is there or not.

Can you just kind of shedding light on not just as Rick mentioned spreading across stores that may be even doing more in F&I and becoming.

You have your own underwriter in some cases, because that's you know some of your peers are looking at this stuff and it seems like it might be an incremental opportunity, but also a little bit touchy, because you don't want to compete with the captives.

Okay.

Yeah, I mean, Tokyo auto as a full F&I product suppliers today.

Take the place of some of the third parties out there and so we basically retain all the profitability that used to go to the third parties.

The other benefit is because we control both sides of the equation, we have the F&I side, and we have the sale and the parts and service side.

It allows us to kind of hold the customer throughout the whole process and really provide a better customer experience.

So there is a tremendous upside for us as we roll this out to.

Our stores.

Once we will have to do just a next quarter just for transparency as we're gonna have to be able to show you guys dealership operations TCA operations, and really consolidated operations and make sure we kind of present that to you guys in a way that you can really see the impact and so you'll see that coming next quarter. When we have a full quarter of operations with TCA Tso.

We'll hopefully be able to give you guys the transparency to kind of see the see the benefits of that operations and then one quick one on top of that TCA is an extremely mature insurance company thats been in business over 30 years and has a M best rated.

It's woven into the fabric and DNA of the Miller organization in their stores.

For the benefit they have increased penetrations in product sales compared to the legacy Asbury stores. So.

So we feel confident as that gets rolled into Asbury, we will see the benefit as well in future.

Improved product sales.

So that functions as offshore self insurance is that is that essentially kind of what what's going on there with TCA.

It's onshore it's just a again, it's just the the underwriter behind the F&I products like vehicle service contracts maintenance contracts.

Things like that on the F&I side.

Okay, Alright, thank you very much.

Thank you Jeff.

We will take our next question from the line of Rajat Gupta with Jpmorgan. Please go ahead. Your line is now open.

Hi, Thanks for taking the question.

I was just hoping maybe you could provide us a quick preview of what to expect.

During the first quarter print you know with regard to the long term.

Clearly acquisitions are ahead of us.

Well ahead of plan overall cumulative cash generation is going to be much higher than what you had in mind.

We can publish targets.

<unk> talked about you know a number of horizontal and vertical adjacencies you already have TCA and <unk>.

No it's captive finance that's on the cards.

Any color on what could be that extra use of that cash.

You, obviously have the buyback and could that be a more consistent than bigger portion of the capital allocation going forward.

I'll follow up thanks.

So I'll just sit on the capital allocation portion.

Yeah, I think with the share price, we always look at share buybacks and acquisitions in terms of the best return for the shareholder and of course at these share prices.

Buybacks look pretty attractive.

Well that we have that kind of built into that five year model too, but it's you know it's hard to say where the share prices go trade and where the acquisitions are going to price at three.

Three or four years into the future. So it's the same capital floor. We've always looked at in terms of what's the share price versus what's acquisition side. So no changes there just more like you said more cash floated to put into both of those buckets.

On the five year plan on the update of the key there is we did more acquisitions than we originally anticipated upfront and so that will of course give us a larger base to do same store off of and click Wayne.

I don't see a bunch of changes in terms of the paths. We're looking to go down. It's just the numbers will get updated with the larger base.

And your comment regarding the finance company I would say you know we're in the really early stages of investigating and looking at it.

And see if thats something that makes sense for us or not it's too early to tell at this point.

Clearly going to generate a lot more cash this year.

We will pay down mortgages and some debt that we have available.

Whether it's through acquisitions or buybacks.

Depending upon what the market gives us and what acquisitions are out there.

<unk> seen a lot of opportunities for acquisitions already this year.

And we passed on them just because it doesn't fit our thresholds and our disciplined look at planning stores that are accretive to our company.

Yeah.

We will take our next question from the line of Stephanie more with Trust. Please go ahead. Your line is now open.

Hi, good morning.

Good morning.

I wanted to just touch on a quick win and what your expectations are for marketing and advertising in 2022, and just increasing awareness for the platform.

Yes. This is David Stephanie I would tell you we started off 21 thinking we're going to spend a chunk of money marketing.

Politically and we quickly cancelled all of that because it didn't make sense with the lack of inventory that we have.

We constantly look at the tools that are out there we still believe we have the best tool in the market.

It's a fully transactional tool the benefits of that as the consumer experience. The downside to that is integrating that into new stores. It takes a little bit longer than if it was simply a lead generator and overlaying it into our website.

So it's going to take us a little time to integrate the rest.

I'd tell you the marketing dollars won't pick up until the inventory levels are there.

The software right now because we don't want to ruin the experience for the consumer.

You can go on our website at in one of our stores and see some stores has quickly and on the vehicle display patients. Some don't and the reason that is is really the availability of the product we.

We don't want to ruin the experience and have some and purchase a car there isn't available and while you had a seasoned professional salespeople in the stores that can see inventory come in a month ahead of time, they are pre selling into the pipeline, which is really shrinking the inventory availability for clinically. So it's just not prudent to spend the money right now to marketed.

We will wait for inventory to catch up.

Understood and then shifting gears I think we're all pretty aware that the majority of the Oems are exploring pretty impressive.

Shingles.

There's a lot of kind of new exciting model, maybe you could talk a little bit about the conversations you're having with the Oems about new model, particularly around EV.

New selling methods and direct to consumer and just kind of in general how you're preparing here so the dealers.

To meet that.

A lot of new models in the years ahead.

Sure.

<unk>.

We started about almost four years ago now starting to install charging stations at our facilities and so on in and getting up to speed on training as new product has come out a few years ago. There was some concern about the consumer adoption to EV.

You can really feel the wave now coming where the consumers are being far more accepting of Evs and we're excited about the opportunity to sell some of these products. We believe some of the electric cars that are coming out from some of the legacy Oems their quality and fit and finish to us is superior than some of the startups that we have seen touched.

And then as far as their products.

So we're adapting and were healthy and we're ready to go.

We're still of the belief.

As far as the supply chain goes from the legacy Oems in the franchise dealer is the best model for the consumer. These cars are complex and they need people locally that they can count on to help them when issues arise.

On a quarterly basis, we track in.

In our service departments combustible engine dollar spent per repair order hybrid and fully electric.

And it's still consistently the same right now the highest dollar spent per repair order on the fully electric cars and you would expect that with the new technology, that's coming out so that will improve over time as well.

We think by having a tool I clicked claim that is a complete transactional tool not a lead generator, that's going to get back to you.

That really negates the need to sell direct to consumer from some of these electric car companies. It as inventory becomes available and car companies has to compete with one another the differentiator they have as the people on the ground selling the product.

So we like our position we believe as long as we take care of our consumers and we offer them a high level of service that the franchise model makes a lot of sense.

Great No. That's all very helpful. Thank you so much.

Absolutely.

Well take our next question from the line of Bret Jordan with Jefferies. Please go ahead. Your line is now open.

Hey, good morning, guys.

Or.

How should we think about used vehicle valuations as the year progresses is it just sort of an inverse as new supply comes up used comes down or do you think used can soften before that and then the follow through on that is sort of in the click lane mix as youre selling 53% used is it.

A different profile of car than what you would be selling on average you say the FICO score is higher or is this a younger higher value used car.

Great. Good morning, this is Dan.

I'll address the first one the first question regarding the values.

Yeah.

It's hard to tell but we see the values starting in November December .

Adjusted meaning that they are not growing exponentially as they were before.

And until the inventory levels, our belief is until the inventory levels for new cars somewhat stabilize.

The used car valuation is going to is going to remain where it is right now.

And I don't.

We don't believe that when there is a correction that it'll be an immediate correction is going to be a gradual correction.

So, but we do believe that.

That is going to be dependent on the new DSI.

Our DSI on the second question as far as click land sales.

We're selling we're selling a low cost of sale car under call. It 10000, $8000 and we're selling the.

The high cost of sale of certified pre own luxury vehicle and.

In our Cleveland tool.

So.

No different than what we're selling in our stores.

Just a much better experience at a much faster transaction.

I would add the down payments are higher on quickly in the credit scores are higher for the simple reason Brett.

Consumers that have the ability and aren't worried about financing, but they value their time.

And they realize that it's a full transactional tool that they can get the purchase done in a 15 minute span.

And they move on.

Certainly have a seven day buyback no questions asked which probably gives us some level of comfort, but I think at the end of the day, it's clearly about convenience.

Which is what's driving the higher credit scores.

Okay, and then you called out a 4400 plus dollar GPU on the click Lane used was that just the used cars you were selling that you've taken on trade via collect lane as well, so you've built really well sourced inventory.

Yes, so those so that was a consumer who purchased the new vehicle on quickly and created a car and we took that trade and recondition and sold it.

Okay, great. Thank you.

Yes.

We will take our next question is from the line of David Whiston with Morningstar. Please go ahead. Your line is open.

Thanks, Good morning.

M&A fronts have you noticed so far this year any difference and.

And some are asking prices compared to 2021.

Yeah, It's a great question, David I would say it really depending upon the brand.

And the location of where it's at.

And what I would call some markets that are not growing at some rate as others and weaker brands. They are bringing lower multiples for sure but in those highly desirable markets and big stores Theres still bringing a premium at this point in time.

Do you see a lot of selling.

Selling salaries being unreasonable, though thinking well look at the margins now I shouldnt be able to assume that in the perpetuity and youre having to push back.

I think.

When anyone selling anything and then you have a buyer everyone's going to take their position in the sellers certainly wants to assume that.

You also have some people maybe that aren't fully sellers.

They are just testing the waters in the markets to see what valuations are and what they could possibly get.

We don't spend a lot of time looking at a lot of deals, we say no pretty fast and.

And we really only spend time on the deals that we think makes sense for us. So it's hard to really say I can tell you. The activity. We've seen in the last 60 days has been every bit as great. As it has been for the last 12 months.

Okay and on the.

The TCA restricted cash.

Just curious if there ever is a really bad crisis like when the pandemic first Senator Lehman collapsing is there any way you could access that cash for general liquidity, if you need a gym.

Tuesday cash yes.

The TCA cash most of that cash is for investments that have to be there for insurance purposes to cover future claims.

We do pull the cash from the excess cash gets pulled from TCA and pulled over to Asbury to use for general corporate purposes.

As it earns out so every month, we're pulling kind of the excess cash out of the business. So what's what's left there is just.

Investments that are needed for future claims.

Okay and finally, the special item in the quarter on the bridge commitment fee was that per GAAP booked in interest expense.

Yes, and that was I think I may have misspoke when I read it I think I said $289 million is $28 $9 million, if I misspoke that one.

So yeah that is in interest expense.

For GAAP.

Okay. Thank you.

Thank you Dave.

Once again, if you'd like to ask a question. Please press star one we will take our next question comes from the line of Rajat Gupta with Jpmorgan. Please go ahead. Your line is now open.

Alright, great. Thanks for getting me back in the queue I was accident.

Before my follow up.

The question I just had a question on the used vehicles business.

Tony.

Mutation.

Things have started to improve.

In terms of the overall same store performance and offer some mixed quarters in the past.

What would you attribute to.

Anything company specific.

Driving that turnaround.

And just how do you view the sustainability of that going forward. Thanks.

I also like a major part of it or not thanks.

I'll start and then Dan can finish with that.

Your point was obvious we had lower comp numbers.

So that certainly helped there has been a gain to focus at our stores.

I'll tell you we are more.

More of a conservative than an aggressive group and what I mean by that.

36 years in automotive for me the pricing valuation right now is hard to get my head around because I haven't seen numbers like this before.

So we try and stay disciplined at a 30 day supply or 30 to 35 day supply.

Could we have a $45 50, 60 day supply of used cars sure, but if the market swings that would put us in a tougher position. So we really like that discipline with having a lower day supply.

I think it will continue.

In the acquisitions that we have that are coming on I made the comment earlier, there are more accretive to our company one of the big areas of opportunity that they have they are used to new ratios are lower than the core legacy Asbury stores. So there's an opportunity to grow used car sales there, but behavior doesn't change overnight, it's going to take some.

Time to work on that with them and get the potential out of those stores with pre owned.

Raj.

Two.

It's been a main focus of us as an entire team, but more importantly, the operators at the store level.

Getting behind our vision and executing and what I mean by that is.

Anything from a used car perspective is really about having the right car at the right store, where it turns the fastest.

For the highest margin and <unk>.

We have the.

The tools to the historical that shows that and we maximize that on a month to month basis to put the cars, where they belong and turn them at a faster pace.

So very pleased with what the what the operators have done cannot thank them enough, but we got plenty of room to continue improving.

Got it great. Thanks, Thanks for that color and good luck.

Thank you. Thank you.

This concludes our discussion today, we appreciate your participation and look forward to discussing our first quarter results in April have a great day.

Okay.

[music].

Yes.

[music].

Good day and welcome to the Asbury Automotive group Q4, 2020 One earnings call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Karen <unk>. Please go ahead ma'am.

Thanks, operator, and good morning, everyone. As noted in today's call is being recorded and will be available for replay later this afternoon and welcome to Asbury automotive group's fourth quarter 2021 earnings call. The press release detailing our fourth quarter and full year results was issued earlier this morning.

And it is posted on our website at Asbury auto Dot com.

Participating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, Our senior Vice President of operations and Michael Welch, Our senior Vice President and Chief Financial Officer at the conclusion of our remarks, we will open up the call for questions and I will be available later for any follow up questions that you may have.

Yes.

Before we begin we must remind you that the discussions 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 forecast 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 2020, any subsequently filed quarterly reports on Form 10-Q .

And our earnings release issued earlier today.

We expressly disclaim any responsibility to update forward looking statements.

In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.

As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website we.

We have also posted an updated investor presentation on our website at very other dot com, highlighting our fourth quarter and full year results.

So now I'll hand, the call over to our CEO , David Hult, David Thank.

Thank you Karen and good morning, everyone welcome to our fourth quarter earnings call.

In the fourth quarter, we closed on the transformative acquisitions of Larry Miller, and total care all powered by <unk>.

Carlo Chrysler Jeep Dodge Arapahoe, Hyundai Genesis and the Stevenson automotive group.

Representing approximately $6 6 billion in annualized revenue.

These acquisitions represent the right brands and high growth markets and are aligned with <unk> culture.

Look forward to deploying our joint capabilities and growing together and I'm excited to have our new team members as part of the Asbury family.

2021, with an all time record year for Asbury.

For the full year, we grew adjusted EBITDA by 94% and adjusted EPS by 112%.

We delivered an operating margin adjusted at eight 1%.

We succeeded in adding great stores in targeted high growth markets and.

And we completed the rollout of our online transactional too quickly to all the legacy Asbury stores.

In a challenging new vehicle environment, we delivered record profitability by improving our new vehicle margin.

Our used vehicle sales and growing our parts and service business.

All while maintaining our improved employee productivity levels and.

And using our strong cash flow for acquisitions.

Our multiple business lines allow us to adapt and continue to deliver strong earnings in any business environment.

We will also deploy total care auto into our legacy stores and rollout quickly into our recent acquisitions allowed.

Allowing us to further grow our earnings.

Due to our record performance and strong cash flow our balance sheet remains solid our adjusted operating cash flow for 2021 was $632 million an increase of 189 million over 2020.

Our net leverage ended this quarter at two seven times.

We will continue to use our free cash flow to manage our leverage and maximize shareholder return through share buybacks and acquisitions.

In our earnings release. This morning, we also announced that our board of Directors has approved an increase in our share repurchase authorization by 100 million to $200 million.

Now I'd like to give you a quick update on our five year plan.

Our same store adjusted revenue grew almost 12% last year exceeding expectations.

<unk> continues to deliver impressive metrics generating over $570 million in additional revenue for three quarters in 2021.

Despite lower new vehicle levels inventory levels quickly and contributed an incremental 7% to our same store growth and as previously noted we had a very successful year regarding acquisitions.

With these results we maintain full confidence in the execution of our growth strategy based upon our results in 2021, we will update our five year plan during our Q1 2022 earnings call.

I will now hand, the call over to Dan to discuss our operating performance.

You, David and good morning, everyone.

Before I share our operating performance.

I'd like to thank all our teammates in the field for their hard work dedication and commitment to delivering an exceptional guest experience.

In our earnings release. This morning, we reported adjusted EPS of $7 46.

A fourth quarter record of 68% over the prior year we.

We delivered strong results, enabling us to deliver an impressive gross margin of 24% and.

All time record and unexpected churn of 370 basis points versus the fourth quarter last year.

Our teams continue to maximize productivity per employee, resulting in adjusted SG&A as a percentage of gross profit of 54, 3%, a 710 basis point improvement versus prior year.

Our total revenue for the quarter was up 19% year over year and total gross profit was up 46%.

We improved our adjusted operating margin for the quarter from 6% in 2020, 289% in 2021, and we will continue to optimize our portfolio in the future.

Now I will turn to our same store performance compared to the fourth quarter of 2020 unless stated otherwise.

Starting with new vehicles base.

Based on current market conditions, we continue to be focused on being opportunistic with our inventory and improving growth is to maximize profit.

Our new average gross profit per vehicle was $6335 up $3441 or 119% from the prior year period.

All segment margins were up significantly from the prior year period.

At the end of December our total new vehicle inventory was $207 million and our day supply was at eight days down 32 days from the prior year.

We expect that they supply to remain low as we progress into 2022 trending up moderately towards the end of the year.

Turning to used vehicles.

Our U S retail volume increased 15%, while gross margin was eight 2% representing an average gross profit per vehicle of $2623 is.

As a result of our performance our retail gross profit was up 64%.

Our total used vehicle inventory ended the quarter at $402 million, which represents a 34 day supply up three days from the prior year.

Our used to new ratio for the quarter was 100% to 9%.

Shifting to F&I, our strong consistent and sustainable growth in F&I delivered an increase of $213 to $1961 per vehicle retailed from the prior year quarter.

In the fourth quarter, our front end yield per vehicle increased to $169 per vehicle to an all time record of 6360 to $1.

And now to parts and service.

Our parts and service revenue increased 13% in the quarter.

The warranty revenue dropped 19% our customer pay revenue continues its healthy recovery posting a 17% growth.

We achieved over 149000 online service appointments.

And all time record and a 16% increase over the prior year quarter.

Some of the benefits of increasing online service appointments include enhancement to the customer experience higher customer retention.

Conversion rates higher margins and higher returns to our shareholders with.

With three full quarters of click link at all legacy stores under our belt, we will like to share some performance metrics.

We sold over 5000 vehicles through click late in Q4 of which 47% of them were new vehicles and 53% used.

91% of our transactions this quarter with customers that were new to Asbury dealership network.

Average transaction time continues to be consistent with previous quarter eight minutes for Castillo and 14 minutes for finance deals.

Total variable front end yield of $4298 and F&I front end yield of $1846.

Average credit score is higher than the average credit score at our stores.

80% of consumers seeking financing receive instant approval, while an additional 10% require some offline assistance.

90% of those are applied we're approved for financing.

43% of Cleveland sales traders.

With 78% of such trades, recondition and retail to consumers with a total front end yield of $4490.

And 92% of our clinically and deliveries are within a 50 mile radius of our stores, thus, allowing us the opportunity to retain our new customers in our parts and service departments.

As expected click link customers are converting a greater rate than traditional internet leads.

During our first few months after launching Cleveland approximately 60% of our sales were new vehicles.

Until inventory levels somewhat normalized we will not be able to fully assess the full potential of Cleveland.

We remain quite excited about the continued growth of Cleveland.

Lastly, I would like to extend a warm welcome to our new team members.

All of you have built tremendous organizations that properly aligned with our north star of being the most guest centric automotive retailer our future is bright and I look forward to meeting all of you.

I'll now hand, the call over to Michael to discuss our financial performance Michael.

Thank you Dan to our investors analysts and other participants on our call good morning.

I would like to provide some financial highlights, which mark had another record quarter for our company.

For additional details on our financial performance for the quarter. Please see our financial supplement to our press release today.

And our investor presentation on our website.

Overall compared to the fourth quarter of last year.

Our actions to manage gross profit and control expenses resulted in fourth quarter adjusted operating margin of eight 9% an increase of 290 basis points above the same period last year and an all time record.

Adjusted net income increased 89% to $163 million and adjusted EPS increased 68% to $7 46.

Net income for the fourth quarter of 2021 was adjusted for acquisition expenses and acquisition related financing expenses of $289 million or $1 <unk> per diluted share.

Net income for the fourth quarter of 2020 was adjusted for a gain on dealership divestiture of $3 9 million or <unk> 15 per diluted share.

If the financing had close simultaneously with the <unk> acquisition, our adjusted EPS for the fourth quarter would have been positively impacted by 87.

As a result of lower interest expense and fewer outstanding shares.

Now for the full year 2021 results compared to 2020.

Adjusted operating margin was eight 1% an increase of 240 basis points and an all time record.

Adjusted net income increased 120% of $549 million and adjusted EPS increased 112% to $27 29.

Our effective tax rate was 23, 7% for 2021 compared to 24, 8% in 2020.

This quarter, we acquired $6 6 billion in annualized revenue.

In order to finance the acquisitions, we completed equity offerings totaling approximately $2 $1 billion, a syndicated mortgage facility of approximately $700 million.

<unk> borrowed under our Upsized syndicated credit facility.

In addition, we spent approximately $34 million of capital expenditures in the quarter.

We generated $632 million of adjusted operating cash flow for the year, our balance sheet remains healthy as we ended the quarter with approximately $437 billion of liquidity.

<unk> cash excluding cash of total corrado.

Floor plan offset accounts and availability on both our used line and revolving credit facility.

Also at the end of the quarter, our net leverage ratio stood at two seven times below our targeted net leverage of three times.

As David stated earlier today, we announced that our board has approved an increase to our share repurchase authorization by $100 million.

To $200 million.

In closing I would like to thank our teams across the business, who continue to work hard to ensure our current and long term success.

I would also like to welcome our new team members.

Now I will turn the call back over to David to discuss our 2022 objectives and expectations David Thanks, Michael.

Turning to 2022, our key objectives are to continue our smooth transition with all of our new valued team members.

Execute superior allocation of capital to maximize shareholder return.

Continue the innovation and growth of Cliff when rolling out this fully transactional tool coast to coast into our recent acquisitions.

Integrate our insurance and F&I product provider total care auto across the entire Asbury platform of dealerships.

Which will allow us to expand our F&I PBR.

Execute our companywide training initiatives to continue the development and growth of our teammates.

And maintain our best in class operating margins and SG&A.

I would also like to make a few comments regarding our expectations for this year.

We are excited about 2022.

We see good opportunities for automotive retail and we expect that demand will continue to exceed supply for most of the year.

We do anticipate a gradual recovery in inventory levels in the second half of 'twenty, two as OEM production improves.

As a result, we are planning our business for a SAR of 15, five to 16 million units.

In vehicle margins consistent with 2021.

We will remain nimble and vigilant to adapt as conditions evolve.

SG&A as a percentage of gross profit should continue to benefit from active expense management and improved employee productivity.

We look forward to continuing to deliver strong results for our shareholders.

Standing partners with our Oems to steward, they're great brands.

And offer an environment, where our team members can thrive, while providing the most guest centric experience and automotive retail.

Finally, I'd like to address all of my teammates at Asbury.

Our ability to add quality stores, who like us care about serving our guests and being highly engaged in our communities.

Net have happened without you.

You have all you all have given us the ability to thoughtfully grow our core business, because you're aligned behind our vision.

Appreciate all of you and I am thankful to be a part of this team.

People make the difference in any organization and you are making us a better place to work and you are creating an environment where people want to do business.

Thank you for everything.

This concludes our prepared remarks, we will now turn the call over to the operator and take your questions operator.

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speaker phone. Please make sure your mute function is turned off.

Signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone the opportunity the second.

We'll take our first question comes from the line of Rick Nelson with Stephens. Please go ahead. Your line is open.

Thanks, a lot.

Hum.

Another great quarter.

Like to ask you about.

We have acquired stores.

Pay operate hire private media all of that lower SG&A.

Or asbury.

Consolidated.

SG&A for example was slightly lower than the same.

Same store.

Rick This is David I'll start and Michael considerably jump in as when we announced the deals.

Comment was made they are accretive to asbury.

It's early on in the fourth quarter I think we had maybe 12 months to 13 days.

In the quarter with Larry Miller numbers, and then you add in the holidays, there's probably 10 or 11 days so.

Those acquisitions as stated before our accretive to Asbury.

And what you acknowledged and recognized as accurate.

Okay.

Are there opportunities to improve.

Performance of the acquired stores.

The bigger.

Procurement Rutland.

<unk> for example across the Asbury Trent.

It's a great question.

Couple of things.

The best operation in the World has plenty of room for improvement and we certainly do at our core stores and our new acquisitions, we certainly have an opportunity to continue to grow our used car performance and with the rollout of total care into the Asbury stores that will certainly boost our F&I numbers as well while parts and service continues to grow it.

A steady rate.

One other thing to add Rick is.

Another opportunity for us is putting quickly and in those acquisitions and that will just gives us a technology. They didn't have before so that is an opportunity for us to to just help them with technology perspective.

Okay.

For that also.

Sure.

Today is your appetite to do more.

Acquisition.

Just to close here.

Inherit temporarily integrated.

<unk> dot.

Yes.

Is there an appetite to do something or was that over the near term.

Yes, Rick this is David I'll start and Michael Mike jump in our goal is never to grow to be the largest or grow the fastest.

It's really about being opportunistic in finding groups are really aligned with us.

We allow them to continue to operate as they have been so it's a much longer integration period to get to know each other and integrate everything over.

We feel like our stock price is extremely cheap right now and we're trading at an extremely low multiple.

And we want to be great capital allocators. So.

It could be a potential for some acquisitions or buying back our stock.

But it's tough to say how the year will play out if something comes up that's accretive to our company and for our shareholders. We will certainly act upon it.

And if it makes sense, if we feel like our stock price is being devalued, who was certainly acquire some of our stock back.

Great.

Yes expectation for stable Gpus, some 20%.

Wanted to.

Talk there that things would advance maybe in the front end of the year.

There is some pressure on the backend.

Okay.

Those firms Crematoriums normalizes.

Sure.

See the reverse of that in 'twenty, two don't know that we will be right, but we think the first half of 'twenty two we'll certainly have elevated <unk>.

Margins like we saw in the fourth quarter.

And then the second half of the year might look a little bit like the first half of 'twenty, one really difficult to gauge what's going to happen between the pandemic of the chip George and everything else, but as we sit here today, that's the way we see it.

Great.

Thanks for all the color.

Good luck.

Thank you.

We will take our next question from the line of John Murphy with Bank of America. Please go ahead. Your line is open.

Good morning, everybody.

I'm wondering if maybe follow up on good morning, maybe just to follow up on Rick's just last question there.

Where do you think inventory is going to normalize I know I mean, obviously, calling second half this year.

It's a very tough thing to call the timing, but one thing is the logjam is broken here. What do you think the level of the automakers are going to go back to you and what do you think it means for grocery there is somewhere between here and where it used to be or is it all the way back to where it used to be.

Very tough to predict it's a competitive world.

You never know what someone's got to do to try and gain market share and grow their business I think everyone's learned from the concept that we can be effective with a lower day supply and everyone can benefit from that does that mean will stabilize at a $35 40 day supply compared to a 65 or 70 I think it's too early to tell but to me.

The demand seems so high right now even when they are able to start catching up on the inventory between the rental car companies and fleet businesses and everything else I, just don't see the demand settling until sometime into 'twenty three.

Yes, okay.

Generally agree with you there will be a while before going to normalize on the SG&A front.

The absolute.

As well as the percent of growth is pretty impressive is there.

A way to think about that going forward is it tied more towards units than the grosses or is there a way to for you to maybe get a little bit more to grocery. So we don't have this kind of variability in the numerator and denominator stays a little bit more static and yet and yet you keep.

More of the growth consistently over time.

Yeah, It's a tough one John I would tell you.

The pandemic, we are focused on our productivity per employee and Thats generally keeps our costs down. However, if margins certainly start to go backwards a lot there will be some leakage into SG&A.

I also think as technology continues to evolve over the next few years that gives you an opportunity to hit new ceiling levels with production per employee. So we see it as a pretty stable environment and as margins start to come back and say call. It 23 at this point again, who knows but if it's 23 were.

I think we're going to be that much more productive per employee in 'twenty three.

So we think we run lean and mean.

Okay, and then just lastly could you just kind of remind us exactly what's going on in <unk>.

Total care auto.

And Larry Miller's and really is there an opportunity just kind of shedding light on not just as Rick mentioned spreading across stores that may be even doing more on F&I is becoming.

With your own underwriter in some cases, because some of your peers are looking at this stuff and it seems like it might be an incremental opportunity but also.

Little bit touchy, because you don't want not compete with the captives.

Okay.

Yeah, I mean tow corrado.

Full F&I product suppliers today.

The place of some of the third parties out there and so we basically retain all the profitability that used to go to the third parties.

The other benefit is because we control both sides of the equation, we have the F&I side, and we have the sale and the parts and service side.

It allows us to kind of hold the customer throughout the whole process and really provide a better customer experience.

So there is a tremendous upside for us as we roll those out to.

Our stores.

One thing we will have to do just in next quarter just for transparency as we're going to have to be able to show you guys dealership operations TCA operation and really consolidated operation and make sure we kind of present that to you guys in a way that you can really see the impact and so youll see that coming next quarter. When we have a full quarter of operations with TCA Tso.

We'll hopefully be able to give you guys the transparency to see to see the benefits of that operations and then one quick comment on top of that TCA is an extremely mature insurance company thats been in business over 30 years and has a M best rated.

It's woven into the fabric and DNA of the Miller organization in their stores.

For that benefit they have increased penetrations in product sales compared to the legacy Asbury stores. So we feel confident as that gets rolled into Asbury we.

You will see that benefit as well in future.

Improved product sales.

So that functions as an offshore self insurance is that is that essentially kind of what what's going on there at TCA.

It's onshore.

Just a again, it's just the underwriter behind the F&I products like vehicle service contracts maintenance contracts.

Things like that on the F&I side.

Okay, Alright, thank you very much.

Thank you Sir.

We will take our next question from the line of Rajat Gupta with Jpmorgan. Please go ahead. Your line is now open.

Hi, Thanks for taking the question.

I was just hoping maybe you could provide us a quick preview of what to expect.

During the first quarter print with regard to the long term.

Clearly acquisitions are ahead of us.

Ahead of plan overall cumulative cash generation is going to be much higher than what you had in mind.

We can put up those targets.

<unk> talked about.

A number of horizontal and vertical adjacencies, you already have TCA and <unk>.

No it's captive finance on the cards.

Any color on what could be that extra use of that cash.

You, obviously have the buyback and could that be a more consistent and bigger portion of the capital allocation going forward.

I'll follow up thanks.

So I'll just hit on the capital allocation portion.

Yes, I think with the share price, we always look at share buybacks and acquisitions in terms of the best return for the shareholder.

Of course at these share prices.

Share buybacks look pretty attractive.

Will that we have that kind of built into the five year model too, but it's you know it's hard to say, where the share prices trading and where the acquisitions are going to price that.

Three or four years into the future. So it's the same capital deployed we've always looked at in terms of what's the share price versus what's acquisition side. So no changes there just.

We are more like you said more cash floated to put into both of those buckets.

On the five year plan on the update of the key there is we did.

More acquisitions than we originally anticipated upfront and so that will of course give us a larger base to do same store off of and quick Wayne.

So I don't see a bunch of changes in terms of the paths. We're looking to go down. It's just the numbers will get updated with the larger base.

And your comment regarding the finance company.

I would say.

We're in the really early stages of investigating and looking at it and see.

See if thats something that makes sense for us or not it's too early to tell at this point, we're clearly going to generate a lot more cash this year.

We will pay down mortgages and some debt that we have available.

And whether it's through acquisitions or buybacks really depending upon what the market gives us and what acquisitions are out there.

We've seen a lot of opportunities for acquisitions already this year.

And we passed on them just because it doesn't fit our thresholds and our disciplined look at planning stores that are accretive to our company.

We will take our next question from the line of Stephanie Mora with Trust. Please go ahead. Your line is now open.

Yes.

Hi, good morning.

Good morning.

I wanted to touch on a quick Wayne.

What your expectations are for our marketing and advertising in 2022, and just increasing awareness for the platform.

Yes. This is David Stephanie I would tell you we started off 21 thinking we're going to spend a chunk of money marketing.

Click Lane and we quickly cancelled all of that because it didn't make sense with the lack of inventory that we have.

We constantly look at the tools that are out there we still believe we have the best tool in the market.

And it's a fully transactional tool.

The benefits of that as the consumer experience the downside to that is integrating that into new stores. It takes a little bit longer than if it was simply a lead generator and overlaying it into our website.

So it's going to take us a little time to integrate the rest.

I would tell you the marketing dollars won't pick up until the inventory levels are there.

The software right now because we don't want to ruin the experience for the consumer.

You could go on our website at in one of our stores and see some stores has the quickly on the vehicle display page and some don't and the reason that is is really the availability of the product.

We don't want to ruin the experience and has done a purchase a car there isn't available and while you had seasoned professional salespeople in the stores I can see inventory come in a month ahead of time, they are pre selling into the pipeline, which is really shrinking the inventory availability for clinically.

So it's just not prudent to spend the money right now to marketed.

We will wait for inventory to catch up.

Understood and then shifting gears I think we're all pretty aware that the majority of the Oems.

Exploring pretty impressive expansion goals as well as a lot of kind of new exciting model, maybe you could talk a little bit about the conversations you are having with the Oems about new model, particularly around <unk>.

New selling method and direct to consumer and just kind of in general how you're preparing here so the dealers.

To meet that.

I think new models and kind of the years ahead.

Sure.

You can really feel the wave now coming where the consumers are being far more accepting of Evs and we're excited about the opportunity to sell some of these products. We believe some of the electric cars that are coming out from some of the legacy Oems they are quality and fit and finish to us is superior than some of the startups that we are seeing touched in.

And as far as their products.

So we are adapting and were healthy and we're ready to go.

We're still of the belief that.

As far as the supply chain goes.

Our legacy Oems in the franchise dealer is the best model for the consumer these cars are complex and they need people locally that they can count on to help them when issues arise.

On a quarterly basis, we track.

In our service departments combustible engine dollar spent per repair order.

Hi, Brett and then fully electric.

And it's still consistently the same right now the highest dollar spend per repair order on the fully electric cars and you'd expect that with the new technology, that's coming out so that will improve over time as well.

We think by having a tool like click claim that is a complete transactional tool not a lead generator thats going to get back to you.

That really negate the need to sell direct to consumer from some of these electric car companies and as inventory becomes available in card companies has to compete with one another the differentiated they have is that people on the ground selling the product.

So we like our position we believe as long as we take care of our consumers and we offer them a high level of service to the franchise model makes a lot of sense.

Great No. That's all very helpful. Thank you so much.

Absolutely.

Well take our next question from the line of Bret Jordan with Jefferies. Please go ahead. Your line is now open.

Hey, good morning, guys.

Or.

And the click lane mix as Youre selling 53% used is it a different profile of car than what you would be selling on average you say the FICO score is higher or is this a younger higher value used car.

Great. Good morning, this is Dan.

I'll address the first one the first question regarding the values.

Yes.

It's hard to tell but we see the values starting in November December .

<unk> adjusted meaning that they are not growing exponentially as they were before.

And until the inventory levels, our belief is until the inventory levels for new car somewhat stabilize.

The used car valuation is going to is going to remain where it is right now.

And I don't.

We don't believe that when there is a correction that it'll be an immediate correction is going to be a gradual correction.

So, but we do believe that.

That is going to be dependent on the new DSI.

Nucor DSI on the second question as far as click land sales.

We're selling we're selling a low cost of sale car under call. It 10000, $8000 and we're selling the.

The high cost of sale of certified pre owned.

Luxury vehicle in.

In our <unk> tool.

No.

No different than what we're selling in our stores.

Just a much better experience at a much faster transaction.

I would add the down payments are higher on quickly in the current scores are higher for the simple reason Brett.

It's consumers that have.

The ability and aren't worried about financing, but they valued at a time and they realize that it's a full transactional tool that they can get the purchase done in a 15 minute span.

And they move on we certainly have a seven day buyback no questions asked which probably gives us some level of comfort, but I think at the end of the day, it's clearly about convenience.

Which is what's driving the higher credit scores.

Okay, and then you called out a 4400 plus dollar GPU on the click lane used with that just the used cars you were selling that you've taken on trade via collect lane as well so you've built really sore well sourced inventory.

Yes, so those so that was a consumer who purchased the new vehicle on quickly and traded a car and we took that trade recondition and sold it.

Okay, great. Thank you.

Yes.

We will take our next question is from the line of David Whiston with Morningstar. Please go ahead. Your line is open.

Thanks, Good morning.

The M&A front have you noticed so far this year any difference.

All are asking prices compared to 2021.

Yeah. It's a great question, David I would say it really depending upon the brand and the location of where it's at.

Do you see a lot of.

Selling salaries being unreasonable, though thinking well look at the margins now I shouldnt be able to assume that in the perpetuity and youre having to push back.

I think when anyone selling anything and then you have a buyer everyone's going to take their position in the sellers certainly wants to assume that.

You also have some people maybe that aren't fully sellers. They are just testing the waters in the markets to see what valuations are and what they could possibly get.

We don't spend a lot of time looking at a lot of deals we say no pretty fast.

And we really only spent time on the deals that we think makes sense for us. So it's hard to really say I can tell you. The activity. We've seen in the last 60 days has been every bit as great. As it has been for the last 12 months.

Yeah.

Okay and on the.

The TCA restricted cash.

Curious if there ever is a really bad crisis like when the pandemic first center Lehman collapsing is there any way you could access that cash for general liquidity, if you'd need to do.

Tuesday cash yes.

The TCA cash most of that cash is for investments that have to be there for insurance purposes to cover future claims.

We do pull the cash from the excess cash gets pulled from TCA and pulled over to Asbury to use for general corporate purposes.

As it earns out so every month, we're pulling kind of the excess cash out of the business. So what's what's left there is to just.

Investments that are needed for future claims.

Okay and finally, the special item in the quarter on the bridge commitment fee was that per GAAP booked in interest expense.

Yes, so that was I think I may have misspoke, when I read it I think.

I said $289 million was $28 $9 million, if I misspoke that one.

So yeah that is in interest expense.

For GAAP.

Okay. Thank you.

Thank you Dave.

Once again, if you'd like to ask a question. Please press star one we will take our next question comes from the line of Rajat Gupta with Jpmorgan. Please go ahead. Your line is now open.

Great great. Thanks for getting me back in the queue was excellent.

Before my follow up.

First question I just had a question on the used vehicle business.

Clearly.

Communication.

Things have started to improve.

In terms of the overall same store performance and offers a mixed quarters in the past.

What would you attribute to anything company specific.

Driving that turnaround.

How do you view the sustainability of that going forward. Thanks.

And also like a major part of it or not.

I'll start and then Dan can finish.

Your point was obvious we had lower comp numbers. So that certainly helped there has been a gain focus at our stores.

I'll tell you we are.

We're more of a conservative than an aggressive group and what I mean by that.

36 years in automotive for me the pricing valuation right now is hard to get my head around because I haven't seen numbers like this before so we try and stay disciplined at a 30 day supply or 30 to 35 day supply.

Could we have a $45 50, 60 day supply of used cars sure.

But if the market swings that would put us in a tougher position. So we really like that discipline of having a lower day supply I think it will continue.

In the acquisitions that we have that are coming on I made the comment earlier, there are more accretive to our company one of the big areas of opportunity that they have they are used to new ratios are lower than the core legacy Asbury stores. So theres an opportunity to grow used car sales there, but behavior doesn't change overnight, it's going to take some.

Time to work on that with them and get the potential out of those stores with pre owned.

Raj.

I would add to that.

It's been a main focus of us as an entire team, but more importantly, the operators at the store level.

<unk>.

Getting behind our vision and executing and what I mean by that is.

Anything from a used car perspective is really about having the right car at the right store, where it turns the fastest.

And for the highest margin.

Hi.

The tools to the historical that shows that and we maximize it on a month to month basis to put the cars, where they belong and turn them at a faster pace.

So very pleased with what the what the operators have done cannot thank them enough, but we got plenty of room to continue improving.

Got it great. Thanks for that color and good luck.

Thank you. Thank you.

This concludes our discussion today, we appreciate your participation and look forward to discussing our first quarter results in April have a great day.

Q4 2021 Asbury Automotive Group Inc Earnings Call

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