Q3 2023 Asbury Automotive Group Inc Earnings Call

Speaker 1: Greetings and welcome to Az-Varion Automotive Group, third quarter 2023, earnings cops.

Greetings and welcome to Asbury Automotive group third quarter 'twenty twenty-three earnings conference call. At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation.

Speaker 1: At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the call over to your host George El Fatah Senior Vice President and Chief Legal officer. Thank you you may begin.

Speaker 1: As a reminder, this conference has been recorded. I would now like to turn the skull over to your host, George Velasada, senior vice president and chief legal officer. Thank you, you may-

Speaker 2: Thank you operator and good morning. As noted, today's call is being reported and will be available for replay later this afternoon.

Thank you operator, and good morning as noted today's call is being recorded and will be available for replay later this afternoon.

Speaker 2: Welcome to Asbury Automotive Group's third quarter, 2023 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.

Welcome to Asbury automotive group's third quarter 2023 earnings call. The press release detailing Asbury third quarter results was issued earlier. This morning and is posted on our website at investors Dot Asbury auto Dot com.

Speaker 2: Participating with me today are David Holt, 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.

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.

Speaker 2: At the conclusion of our remarks, we will open the call up for questions and we will be available for any follow questions later.

At the conclusion of our remarks, we will open the call up for questions and we will be available for any follow up questions later.

Speaker 2: Before we begin, where we remind you that the discussion during the call today is likely to contain forward loading statements.

Before we begin where we 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.

Speaker 2: For looking statements, our statements, other than those which are historical in nature, which may include financial projections, forecasts, and current expectations.

Speaker 2: 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, including our form 10K for the year ended December 2022 and any subsequently filed quarterly reports on form 10Q and our earnings press release issued earlier today.

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, including our Form 10-K for the year ended December 2022, and any subsequently filed quarterly reports on Form 10-Q and our.

Earnings press release issued earlier today.

Speaker 2: We expressly disclaim any responsibility to update forward-looking statements.

We expressly disclaim any responsibility to update forward looking statements.

Speaker 2: 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 reconfiliations of any such non- GAAP financial measures to the most directly comparable GAAP measures on our website.

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.

Speaker 2: We also have posted an updated investor presentation on our website at investors.azberryauto.com highlighting our third quarter results.

We also have posted an updated investor presentation on our website at investors Dod Asbury auto dot com, highlighting our third quarter results.

Speaker 2: Now, it is my pleasure to hand the call over to our CEO , David Hall.

Now it is my pleasure to hand, the call over to our CEO David Hult.

Speaker 1: Thank you, George. Good morning, everyone. Welcome to our third quarter, earning a score.

Thank you George.

Good morning, everyone welcome to our third quarter earnings call.

Speaker 1: First, I'd like to commend the resiliency and strong efforts of our team members as they work diligently to deliver the most guest-centric experience in automotive retail.

First I'd like to commend the resiliency and strong efforts.

Of our team members as they work diligently to deliver the most guest centric experience and automotive retail.

Speaker 1: They have executed efficiently to maintain cost control as our business has scaled.

They have executed efficiently to maintain cost control as our business has scale.

Speaker 1: I remind everyone in the span of two years, we doubled the size of our company. The team has worked very hard to set up infrastructure to integrate processes, increase productivity, and drive performance. Now onto our consolidated results for the third quarter. We delivered

I'll remind everyone in the span of two years, we doubled the size of our company.

The team has worked very hard to set up infrastructure to integrate processes.

<unk> productivity and drive performance.

Now on to our consolidated results for the third quarter.

We delivered $3 7 billion in revenue.

Speaker 1: Had an adjusted FESTANA as a percentage of growth profit of 58.4%.

At an adjusted.

Our SG&A as a percentage of gross profit of 58, 4%.

Speaker 1: at a gross profit margin of 18.4%.

Gross profit margin of 18, 4%, we generated an adjusted operating margin of seven 2%.

Speaker 1: We generated an adjusted operating margin of 7.2%.

Speaker 1: Our just the EBITDA was 280 million. And our just the DPS was $8 and 12 cents. I'll touch on some areas where we did well. Another.

Our adjusted EBITDA was $280 million and our adjusted EPS was $8 12.

I'll touch on some areas, where we did well.

Other areas, where we know we have work to do.

Speaker 1: As expected, this quarter we saw some headwinds beginning with brand and model mix in new vehicles.

As expected this quarter, we saw some headwinds beginning with brand and model mix in new vehicles.

Speaker 1: While day supply remains at a healthy level, we are seeing some cases where high demand models are selling well, so difficult to replenish. While others remain at elevated day supply.

While days supply remains at a healthy level.

We're seeing some cases, where high demand models are selling well.

Difficult to replenish while others remain at elevated days supply.

Speaker 1: On the U side, we continue to see a challenging market for sourcing those vehicles.

On the used side, we continue to see a challenging market for sourcing those vehicles.

Speaker 1: We are seeing a continuation of PVR as a whole, turning to a more sustainable level.

We are seeing a continuation of PV ours, as a whole trending to a more sustainable level.

Speaker 1: Our parts and service business showed year over year growth. Yet this is an area that was disproportionately impacted by the integration activities we mentioned last quarter.

Our parts and service business showed year over year growth. Yes. This is an area that was disproportionately impacted by the integration activities, we mentioned last quarter.

Speaker 1: The man remains strong and we are confident in the longer term trend of our parts and service business. Turning to F and I.

Demand remains strong and we are confident in the longer term trend of our parts and service business.

Turning to F&I.

I'll highlight two areas in the quarter.

Speaker 1: We are seeing slightly lower penetration rates, you know, epinide products, as customers look for ways to manage lower monthly payments in a rising rate environment. Second, the way in which we account for TCA, will result in a negative drag on results over the next two years. As the products roll out across the legacy as race stores.

We are seeing a slightly lower penetration rates in our F&I products as customers look for ways to manage lower monthly payments in a rising rate environment.

The way in which we account for TCA will result in a negative drag on results over the next two over the next two years as the products rollout across the legacy Asbury stores.

Speaker 1: The impact is driven by the way in which sales from the products are recorded over time. Rather than upfront, like the third party provider, Michael will cover in more detail.

The impact is driven by the way in which sales from the products are recorded over time.

Rather than upfront like a third party provider.

Michael will cover in more detail in his section.

Speaker 1: Finally, our SGNA levels in the quarter demonstrated our commitment to manage our cost structure to the performance of the business.

Finally, our SG&A levels in the quarter demonstrated our commitment to manage our cost structure to the performance of the business.

Speaker 1: I'm encouraged by the progress and direction of our operations and strategic initiatives.

I'm encouraged by the progress and direction of our operations and strategic initiatives.

Speaker 1: We are enthusiastic about the pending acquisition of the Jim Coons Automotive Group, a well-respected group with a phenomenal set of team members and leaders. The group generates over three billion-

We are enthusiastic about the pending acquisition of the gym Koons automotive group, a well respected group with a phenomenal set of team members and leaders.

The group generates over $3 billion in annual revenue.

Speaker 1: An average is over 140 million revenue for rooftop.

And averages over $140 million in revenue per rooftop.

Yeah.

Speaker 1: I'm obviously evolving backdrop of our space. I am optimistic about automotive retail and I diversified business model.

Amidst the evolving backdrop of our space I'm optimistic about automotive retail and our diversified business model.

Speaker 1: We have strategically purchased quality assets, making us a stronger company.

We are strategically first purchase quality assets, making us a stronger company.

Speaker 1: Part of our long-term plans is to deploy capital to its best and highest use.

Part of our long term plan to deploy capital to its best and highest use.

Speaker 1: We have entered into growing strategic markets that we have an operated in before, and we continue to integrate and grow the business.

We have entered into growing strategic markets that we haven't operated in before and we continue to integrate and grow the business.

Speaker 1: We operate in an environment where the average age of the car is 12 and a half years.

We operate in an environment, where the average age of the car is 12 and a half years.

Speaker 1: And while several levels have been trending higher, it is important to note where it's built below historical levels.

Meanwhile, Sarah levels have been trending higher it is important to note we're still below historical levels.

Speaker 1: Our parts and service business will remain a critical element of our success well into the future.

Our parts and service business will remain a critical element of our success well into the future.

Speaker 1: preparing all the vehicles, addressing the complexity of newer cars, and supporting numerous EV models rolling out over the next few years.

Repairing older vehicles addressing the complexity of newer cars and supporting numerous EV models rolling out over the next few years.

Speaker 1: Overall, we are focused on achieving our long-term strategic goal.

Overall, we are focused on achieving our long term strategic goals.

Speaker 1: We plan to fund the pending act of the prune acquisition with existing liquidity and capacity.

We plan to fund the pending at the Coons acquisition with existing liquidity and capacity are.

Speaker 1: Our strong balance sheet and reliable cash flow has enabled us to undertake this deal without the need to raise additional debt or issue equity.

<unk> balance sheet and reliable cash flow has enabled us to undertake this deal without the need to raise additional debt or issue equity.

Speaker 1: We are well aware that interest rates have moved up and we have adjusted our return of function accordingly.

We are well aware that interest rates have moved up and we have adjusted our return assumptions accordingly.

Speaker 1: We will remain strategic with our capital allocation decision to the focus on paying down debt in 2024.

We will remain strategic with our capital allocation decisions with a focus on paying down debt in 2024.

As we are winding down on year three of our five year plan I am proud of the progress we have made in transforming the size and scale of our business.

Speaker 1: As we are winding down on year three of our five-year plan, I am proud of the progress we have made in transforming the size and scale of our business.

Speaker 1: In just a few short years, we have grown revenue from $7 billion to $15 billion, or $18 billion, pending the CUNES acquisition.

And just a few short years, we have grown revenue from 7 billion to $15 billion or 18 billion pending the coons acquisition.

Speaker 1: Increase the adjusted EPS from nearly $13 to over $34 per share.

The increase adjusted EPS grew nearly $13 to over $34 per share.

Speaker 1: Generated over 400 million in adjusted operating cash flow, it's now just over 700 million before the pending couping acquisition.

Generated over 400 million in adjusted operating cash flow to now just over $700 million before pending before the pending koons acquisition.

Speaker 1: Increase the adjusted EBITDA from 400 million to an annualized run rate of 1.2 billion.

Increased adjusted EBITDA from 400 million to an annualized run rate of $1 2 billion.

Speaker 1: We acquired an insurance company, Total Carado, and introduced click length, tools which fundamentally changed the buying experience.

We acquired an insurance company total care of auto and introduce quickly tools.

Tools, which fundamentally changed the buying experience.

Yeah.

Speaker 1: Our 2025 growth objectives will be updated after our year-run results and the plan closing of the Coons acquisition to provide a clear roadmap for our long-term growth trajectory.

Our 2025 growth objectives will be updated after our year end results and the planned closing of the coons acquisition to provide a clear roadmap for our long term growth trajectory.

Speaker 1: Oh, now he and the call over to Dan to discuss our operating performance. Dan, thank you, David. And good morning, everyone. I'll start off by once again, making our team members to deliver the most guest-centric automotive retailer experience.

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

Thank you David and good morning, everyone.

I'll start off by once again thanking our team members to deliver the most guest centric automotive retailer experience.

Speaker 1: Now moving to St. Stoke Performance, which includes dealerships and TCA unless stated otherwise.

Now moving to same store performance, which includes dealerships and TCA unless stated otherwise.

Starting with new vehicles.

Speaker 3: Our new vehicle inventory ended at the quarter at $807 million, which represents a 36-day supply.

Our new vehicle inventory ended the quarter at $807 million, which represents a 36 day supply.

Speaker 3: As in previous quarters, there was significant variation among brands and models.

As in previous quarters, there was significant variation among brands and models.

Speaker 3: Our new vehicle revenue grew 8% year-over-year to 1.9 billion. And unit volume grew 5% year-over-year to over 36,000.

Our new vehicle revenue grew 8% year over year to $1 9 billion in.

And unit volume grew 5% year over year to over 36000 vehicles.

Speaker 3: New average growth profit per vehicle was $4,567.

New average gross profit per vehicle was $4567.

Speaker 3: New vehicle gross margin was 9% this quarter.

New vehicle gross margin was 9% this quarter.

Turning to used vehicles.

Speaker 3: Use Retail Revenue was 1 billion, as unit volume was over 32,000 B was in the quarter.

Retail revenue was $1 billion as unit volume was over 32000 vehicles in the quarter.

Speaker 3: average used retail growth profit curvy was $1,862 for the quarter. A function of stronger new vehicle availability and macro condition.

Average used retail gross profit per vehicle was 1860 to $1 for the quarter.

A function of stronger new vehicle availability and macro conditions.

Speaker 3: Our U.S. D. E. Goulimontori ended the quarter at $304 million, which represents a 29-day supply.

Our used vehicle inventory ended the quarter at $304 million, which.

<unk> 829 day supply.

Speaker 3: As conveyed in our opening remarks, we are still seeing challenges in sourcing inventory.

As conveyed in our opening remarks, we are still seeing challenges in sourcing inventory.

Speaker 3: We typically source about 90% of vehicles internally to maintain a strong profitability profile.

We typically saw is about 90% of vehicles internally to maintain a strong profitability profile.

Speaker 3: We remain focused on delivering strong profitability over changing volume in this environment.

We remain focused on delivering strong profitability over chasing the volume in this environment.

Shifting to F&I.

Speaker 3: We delivered an FNIPVR of $2,207 compared to $2,521 last

We delivered on F&I, PV or of $2207 compared to $2521 last year.

Speaker 3: a reflection of higher interest rates pressuring consumer payments, which impacts our FNI results.

A reflection of higher interest rates pressure in consumer payments, which impacts our F&I results.

Speaker 3: In the third quarter, our total front end, your curvy was $5,514.

In the third quarter, our total front end yield per vehicle was $5514.

Moving to parts and service.

Speaker 3: Our part and service business revenue increased 3% and the quarter to $526 million. Growing over a tough comparison from last year's strong things to our growth of 12%.

Our parts and service business revenue increased 3% in the quarter to $526 million growing over a tough comparison from last year's strong same store growth of 12%.

Speaker 3: We have also been investing across the business towards a transition of software to support a more unified process and platform for fix-up.

We have also been investing across the business towards a transition of software to support a more unified process and platform for fixed ops.

Speaker 3: Some of which relates to the integration activities that David mentioned in his opening remarks.

Some of which relates to the integration activities that David mentioned in his opening remarks.

Speaker 3: We have served a mixed result among the stores in performance.

We observed a mixed results among the stores in performance.

Now turning to <unk>.

Speaker 3: Please note that for quick lane, we are reporting on an all store base.

Note that for click Lane, we are reporting on them all store basis.

Speaker 3: We achieved another all-time record with over 11,600 vehicles sold through click lane in the third quarter. A 71% increase year over year.

We achieved another all time record with over 11600 vehicles sold through click lane in the third quarter, a 71% increase year over year.

Speaker 3: 17% of our third quarter new and used retail sales were powered by click links.

17% of our third quarter, new and used retail sales were powered by click line.

We generated $416 million in play claim revenue for the quarter.

Speaker 3: We generated 460 million in click-length revenue for the quarter.

Speaker 3: We are tracking through approximately two billion of revenue in 2023, mostly governed by constraints with impreon sourcing and relatively low-day supply in our high-velocity brands that make up a good portion of new vehicle sales.

We are tracking to approximately 2 billion of revenue in 2023.

Mostly goulburn governed by constraints within pre owned sourcing and relatively low day supply and our high velocity brands that make up a good portion of new vehicle sales.

Speaker 3: Moving on to some click-length KPIs for the third quarter. 46% of click-length sales in Q3 were new vehicles, and 54% were used.

Moving onto some Cleveland Kpis for the third quarter.

46% of <unk> sales in Q3 were new vehicles and 54% were used.

Speaker 3: Total-friend and PBR of $3,018, an F&I PBR of $2,151, which equates to $5,168 of total-friend and yield.

Total friend on P. B R of $3018 and F&I P. D R <unk>, $2151, which equates to $5168 a total front end yield.

Speaker 3: The average click link customer credit score was 723, which is higher than the average credit score at our stores. And it's a bunch of higher than last quarter.

The average <unk> customer credit score was 723, which is higher than the average credit score at our stores and a sequentially higher than last quarter.

Speaker 3: 92% of those that applied were approved for financing, of which 86% of those customers received the instant approval. While the remaining customers required some offline assistance.

92% of those that apply to were approved for financing.

Which 86% of those customers received instant approval, while the remaining customers required some offline assistance.

Speaker 3: 74% were lender-finian sales and 26% were cash.

74%, where lender finance sales and 26% were cash sales.

Speaker 3: The average down payment of the finance sales continues to be over $9,000.

Average down payment or the finance sales continues to be over $9000.

Speaker 3: The average distance of a clay clean delivery from our dealerships was 40 miles. Consistent with last quarter, as the Western states utilize the convenience that clay clean has to offer.

The average distance of our pipeline delivery from our dealerships was 40 miles.

Consistent with last quarter, that's the western states utilize the convenience that Cleveland has to offer.

Speaker 3: We are pleased with the way clicks make it grow and driving adoption rates. We are seeing great feedback from the customer experience.

We are pleased with the way its nickname as growing and driving adoption rates, we are seeing great feedback from the customer experience.

Speaker 3: You will hear us talk about clikling within the context of our overall business as it becomes an integral part for the leadership model and our results.

You will hear us talk about click land within the context of our overall business as it becomes an integral part, but the leadership model and our results.

Speaker 3: I will now hand the call over to Michael to discuss our financial performance. Michael.

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

Speaker 4: Thank you, Dan, to our investors, analysts, team members, and other participants on the call. Good morning.

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

Speaker 4: I would like to provide some financial highlights for our company. For additional details on our financial performance.

I'd like to provide some financial highlights for our company for additional details on our financials.

This is the operator did you mute your line.

Speakers.

Speaker 4: 2023 cat-backs to be $155 million. As we continue to roll out plan cat-backs related to our 2021 acquisition.

2023, capex to be $155 million as we continue.

Rollout planned capex related to our 2021 acquisitions.

Of this $155 million about $15 million is expected to be really related to the replacement of leased properties.

Speaker 4: others $155 million, about $15 million is expected to be related to the replacement of least property.

Speaker 4: Year-to-date TCA made a $71 million of pre-tax income. We are deploying TCA in our state.

Year to date, TCA made a $71 million of pre tax income.

We are deploying TCA in our states.

Speaker 4: with large, jealant presence, and we will have all of our current stores enabled with TCA by the end of first quarter, 2024.

With larger dealer presence and we will have all of our current stores enabled with TCA by the end of first quarter of 2024.

Speaker 4: The deferrals associated with TC rollout have begun to show up in our FNI results, which led to some headwinds.

The deferrals associated with TC rollout that began to show up in our F&I results.

Which led to some headwinds in our PBR number.

Speaker 4: These trends will be more meaningful in 2024 as TC expands within new and existing markets.

These trends will be more meaningful in 2020 for CCI expands within new and existing markets.

Speaker 4: We now expect pre-text income for TCA for $2023 to $85 million.

We now expect pretax income for TCA 2023 to <unk> $85 million.

Speaker 4: Year-day we generated $514 million with just operating cash flow. A product of our robust and resilient business model. Our balance sheet continues to be strong as we end the quarter with approximately 1.7 billion liquidity comprised of cash, excluding cash at 12 per hour, four plan offset accounts, and a bill of billion both our use line and revolving credit facility.

Year to date, we generated $514 million of adjusted operating cash flow.

Products are our best robust and resilient business model, our balance sheet continues to be strong as we ended the quarter with approximately $1 7 billion liquidity comprised of cash excluding cash of 12, Corrado floor plan offset accounts and availability on both our use line and revolving credit facility.

Speaker 4: Last week we reached an agreement to renew an up size or crevice facility. Up from $2.55 billion to $2.80 billion.

Last week, we reached an agreement to renew and upsize our credit facility up.

From $2.55 billion to $2 8 billion.

Speaker 4: at the same pricing as our previous agreement. The agreement extends the current total credit facility to October of 2028. This gives us the financial flexibility to support our long-term strategic projects.

At the same pricing as our previous agreement the agreement extends the current credit facility to October 2028.

This gives us the financial flexibility to support our long term strategic objectives.

Speaker 4: We'd like to thank our OEM and bank partners for their continued support.

We'd like to thank our OEM or bank partners for their continued support.

Yes.

Speaker 4: Our pro forma of justinet leverage was 1.7 times at the end of September , reflecting the use of cash to repurchase shares earlier in the year. As David mentioned, we anticipate using current balance sheet liquidity, mainly comprise of cash, floor plan, offset accounts, and use vehicle floor plan capacity for the purchase of the pending Jim Coons acquisition.

Our pro forma adjusted net leverage was one seven times at the end of September reflecting the use of cash to repurchase shares earlier in the year.

As David mentioned, we anticipate using current balance sheet liquidity, mainly comprised of cash floor plan offset accounts and used vehicle floor plan capacity towards the purchase of the opinion, Jim Kuhn acquisition.

Speaker 4: Also, depending on the Coons acquisition, we anticipate our net leverage to be in the mid-tools. Our robust cash flow is the larger company will allow us to reduce leverage back to two times or lower by the end of 2024.

Also opinion Koons acquisition, we anticipate our net leverage to be in the mid twos.

Our robust cash flow as a larger company will allow us to reduce leverage back to two times or lower by the end of 2024.

Speaker 4: Finally, I am grateful for the hard work of our ASPRE team members who have helped us operate at a high level and continue to focus on the customer experience each and every day. Thank you.

Finally, I am grateful for the hard work of our Asbury team members, who help us operate at a high level and continue to focus on the customer experience each and every day. Thank you.

Speaker 1: I will now pass the call back to David for closing remarks. David? Thank you, Michael. I want to close our prepared remarks with a big thank you to our team members and leaders within our organization.

I will now pass.

The call back to David for closing remarks, David Thank you Michael.

To close our prepared remarks with a big thank you to our team members and leaders within our organization.

Speaker 1: Your efforts are noticed and greatly appreciated. Thank you.

Your efforts are noticed and greatly appreciated thank you.

Speaker 1: Your commitment and dedication to making a great workplace environment has also been recognized nationally.

Your commitment and dedication to making a great workplace environment has also been recognized nationally.

Speaker 1: We were recently named as one of America's greatest workplace to 2023 by Newsweek, receiving a 5 out of 5 star rating.

We were recently named as one of America's greatest workplaces 2023 by Newsweek, receiving a five out of five star rating.

Speaker 1: And we were awarded 2024. That's companies to work for retailers industry by US news and world report.

And we were awarded 2024 best companies to work for retailers industry by U S News and World report.

Speaker 1: I commend all of you for fostering and enriching and welcoming work environment.

I commend all of you for fostering an enriching and welcoming work environment.

Speaker 1: This clearly speaks to the quality of our store leaders and our team members committed to our vision.

This clearly speaks to the quality of our store leaders and our team members committed to our vision.

Speaker 1: This concludes our prepared remarks. We will now turn the call over to our operator and take your questions. Rob.

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

Speaker 5: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation till indicate your line is in the question queue. You may press...

Thank you.

At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is open question in queue.

You May press star two if you'd like to remove your question from the queue.

Unknown Executive: Greetings and welcome to Asbury Automotive Group, 3rd quarter, 2023, Earnings Conference School. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation.

Speaker 5: for participants using speaker equipment, it may be necessary to pick up your handset before pressing the store keys. One more.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Unknown Executive: If anyone should require operator assistance during the conference, please press dogs on your telephone keypad. As a reminder, this conference is being recorded.

Yes.

Speaker 5: Our first question comes from Daniel Embrall with Stevens. Please proceed with your question.

Our first question comes from Daniel Enbrel with Stephens. Please proceed with your question.

Yeah, Hey, good morning, everybody. Thanks for taking my questions.

George Villasana: I would now like to turn the skull over to your host, George Villasana, senior vice president and chief legal officer. Thank you. You may begin. Thank you, operator and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon.

Of course.

Speaker 6: I want to start on maybe the youth business. David obviously things have slowed there, but curious if you could provide some color on the cadence that was getting notable, noticeable changes month to month. And Dan, I think in your prepare to mark, she noted a focus on profitability over more volume, but GPU did still step back sequentially despite wholesale prices falling. So can you maybe talk about how you're thinking about use GPUs in this environment as well?

I wanted to start on maybe the used business, David obviously things have slowed there, but curious if you could provide some color on the cadence did we see any notable noticeable changes month to month and Dan I think in your prepared remarks, you noted our focus on profitability over more volume, but GPU did still step back sequentially just by wholesale prices. Following so can you maybe talk.

George Villasana: Welcome to Asbury Automotive Group's 3rd quarter, 2023 Earnings Call. The press release detailing Asbury's 3rd quarter results with issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Holt, 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 the call up for questions and we will be available for any follow-up questions later.

About how youre thinking about use gpus in this environment as well.

Speaker 1: Yeah, Daniel, this is David. I'll start and then Dan can jump in. You know, with the use car gross profits, it's all about what you require the vehicle for. It's a competitive space. There's less vehicle to alter. There's more shopping going on. So your cost of sale, as far as what we own the vehicle for is creeping up a little bit, which is put pressure on the margin.

Yeah. Daniel This is David I'll start and then Dan can jump in.

With the used car gross profit.

It's all about what you acquire the vehicle for it's a competitive space, there's less vehicles out there there is more shopping going on.

So you're you're cost of sale as far as what we own the vehicle floor is creeping up a little bit which has put pressure on the on the margin.

Speaker 1: We have chosen not to change volumes, so we're purchasing less cars at the auction than we normally would.

We have chosen not to chase volume, so we're purchasing less cars at the auction than we normally would.

George Villasana: Before we begin, we 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 hear our filings with the SEC, including our form 10K for the year-end of December 2022, and any subsequently followed quarterly reports on form 10Q, and our earnings press release issued earlier today.

Speaker 1: Our thoughts are if we're purchasing at a higher rate through the auction, you would see lower PBR.

Our thoughts are if we're purchasing at a higher rate through the auction you would see lower P V r's.

Speaker 1: We think we're getting close to a sustainable level, but in this dynamic environment, it's really difficult to predict what the future's going to be.

We think we're getting close to a sustainable level.

But in this dynamic environment, it's really difficult to predict what the future is going to be.

Speaker 3: Good morning Daniel, Dan here. You know, answer your question. We did see some pressure and the valuation of the vehicles specifically at the beginning of the...

Yes.

Good morning, Daniel Dan here.

To answer your question.

We did see some <unk>.

<unk> and the validation of the vehicles, specifically at the beginning of the quarter.

Speaker 3: And so that put a addition of pressure on our margin, a little bit more than we were expecting. And that's what we've got a little bit short. But I will tell you the good news is, we were able to adjust quickly. That is one of the benefits of keeping a...

And so that that put additional pressure on our margin a little bit more than than we were expecting.

George Villasana: We expressly display many responsibility to update forward-looking statements. In addition, certain non-gap financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, we provide reconfiliations of any such non-gap financial measures to the most directly comparable gap measures on our website. We also have posted an updated investor presentation on our website at investors.asburyauto.com highlighting our third quarter results.

What we felt a little bit short, but I will tell you. The good news is we were able to adjust.

Quickly that is one of the benefits of keeping a 29% to 30 day supply as market conditions.

Speaker 3: 29 to 30 day supply as market conditions change. We're able to adapt.

<unk>, we're able to adapt.

Speaker 3: And if you look at from a wholesale perspective, because of the quick turnaround that we were able to adjust, our wholesale perspective,

And if you look at from a wholesale perspective because of the quick turnaround that we were able to adjust our.

Our wholesale perspective, we did not suffer suffer on vehicles that we were wholesaling, because we cannot rethought the store level.

Speaker 3: Self-realm vehicles that we were all selling because we cannot reach out the store lab

Speaker 6: That's that's helpful. Maybe pocket probably just on the new side of the business. Obviously new GPUs probably bright spot. Taking through it. I mean domestic GPUs here are still over $421 bucks. David, versus pre-COVID, we call it 17, 1800.

That's that's helpful and maybe if I could follow ups on the new side of the business, obviously, new Gpus at probably a bright spot taking through it I mean domestic gpus here still a reported 200 Bucks David versus pre Covid I would call. It 17 1800 can you just walk through the buckets of how despite inventory building domestic <unk>.

David Holt: Now, it is my pleasure to hand the call over to our CEO, David Holt. Thank you, George. Good morning, everyone.

David Holt: Welcome to our third quarter, Ernie Scott. First, I'd like to commend the resiliency and strong efforts of our team members as they work diligently to deliver the most guest-centric experience in automotive retail. They have executed efficiently to maintain cost control as our business has scaled. I remind everyone in the span of two years, we doubled the size of our company. The team has worked very hard to set up infrastructure to integrate processes, decrease productivity and drive performance.

Speaker 6: Can you just walk through the buckets of how despite inventory building, domestic GPUs are still that much higher, that more premium, that OEMs being disciplined, and then what does that tell you about the future of new vehicle GPUs, given what you've seen so far in that section?

<unk> are still that much higher and more premium is that Oems being disciplined and then what does that tell you about the future of new vehicle Gpus, given what you've seen so far in that segment.

Speaker 1: Daniel, I'll give you my best attempt. It's a great question. You know, we're we're heavy with our domestic brand mix of Stellantis. So that impacts us a little bit compared to our peers. We've said when we've done these acquisitions, especially the Miller acquisition, there was a lot of domestic stores in there in the Mountain States.

Danielle.

Give you my best attempt it's a great question.

We're heavy with our domestic brand mixes to Atlantis.

So that impacts us a little bit compared to our peers.

David Holt: Now on to our consolidated results for the third quarter. We delivered $3.7 billion in revenue. Had an adjusted FSCNA as a percentage of gross profit of 58.4% at a gross profit margin of 18.4%. We generated an adjusted operating margin of 7.2%. Our adjusted EBITDA was 280 million and our adjusted EPS was $8.12. I'll touch on some areas where we did well in other areas where we know we have work to do.

There are as it were.

Said when we've done these acquisitions, especially the Miller acquisition, there was a lot of domestic stores and Theyre in the mountain States and as I said, when we acquired them their gross profit margins.

Speaker 1: And as I said, when we acquired them, their gross profit margins or PVRs were higher than Asbury was.

PV hours were higher than Asbury was.

Speaker 1: So while we are seeing some deterioration from all time highs, we're still at very healthy profit margins. And even with the day supply creeping in some areas on domestic, we're still able to get good growth profit. So we're excited about that. We think it has a lot to do with the average age of the car park and the large-down payments that our customers are still putting down.

So while we are seeing some deterioration from all time highs we are still at very healthy profit margins.

Even with the day's supply creeping in some areas on domestic we're still able to get good gross profit. So we're excited about that and we think it has a lot to do with the average age of the car park and a large down payments.

David Holt: As expected, this quarter we saw some headwinds beginning with branded model mix and new vehicles. While they supply remains at a healthy level, we are seeing some cases where high demand models are selling well so difficult to replenish. While others remain at elevated days to fly. On the use side, we continue to see a challenging market for sorting those vehicles. We are seeing a continuation of PVR as a whole turning to a more sustainable level.

Our customers are still putting down.

Yeah.

Great I'll hop back in the queue. Thanks, so much guys.

Thank you.

Our next question is from John Murphy with Bank of America. Please proceed with your question.

Speaker 5: Our next question is from John Murphy with Bank of America. Please proceed with your question.

Speaker 7: Good morning guys. A couple of quick ones. They were first on parts and service. You indicated that integration and presented those same store sales a little bit. You know, I'm just curious, you know, when you think that will resolve and how we should think about the opportunity of parts and service growth is sort of made and long.

Good morning, guys.

A couple of quick ones.

David first of all on parts and service you indicated data.

Integration and Andrew stunted.

Same store sales a little bit I'm.

I'm just curious when you think that will resolve and how we should think about.

David Holt: Our parts and service business showed year-over-year growth. Yet this is an area that was disproportionately impacted by the integration activities we mentioned last quarter. Demand remained strong and we are confident in the longer term trend of our parts and service business.

Opportunity in parts and service.

Gross you sort of mid and long term.

Speaker 1: Sure, I'll do my best, John , and others can jump in here. There was a lot of accounting consolidation that took place. And when that takes place, it's never convenient. It's never easy. And there's unfortunately hiccups with software integration, which makes it difficult for the results. At the same time, we were integrating some of our service software to make our stores out west a little bit more efficient, how they operate, and sell their products.

Sure.

I'll do my best John and others can jump in here.

There was a lot of accounting consolidation that took place and when that takes place. It's never convenient it's never easy and there is unfortunately hiccups with software integration.

David Holt: Turning to FNI. I'll highlight two areas in the quarter. We are seeing a slightly lower penetration rates in our FNI products as customers looked for ways to manage lower monthly payments in a rising rate environment.

Which makes it difficult for the results at the same time, we're integrating some of our service software.

David Holt: Second, the way in which we account for TCA will result in a negative dragon results over the next two years as the products roll out across the legacy as well as stores. The impact is driven by the way in which sales from the products are recorded over time. Rather than upfront, like the third-party provider, Michael will cover in more detail in his section.

To make our stores out west a little bit more efficient in how they operate and sell their product.

Speaker 1: As I said last quarter, I thought it'd be a quarter or two. We're hoping by the end of the fourth quarter, we should have normalized and had everything integrated and start off fresh in Q1 of next year.

As I said last quarter, I thought it'd be a quarter or two.

We're hoping by the end of the fourth quarter, we should have a normalized had everything integrated in and start off pressure in Q1 of next year.

Speaker 7: That's super helpful. On the use sourcing side, is this really just a function of a to redeem yourself?

Okay.

Super helpful on the used sourcing side.

David Holt: Finally, our SGNA levels in the quarter demonstrated our commitment to manage our cost structure to the performance of the business. I'm encouraged by the progress and direction of our operations and strategic initiatives.

Is this really just a function of.

Dearth of.

Speaker 7: Lake model vehicles and is there maybe a need to go older in the age spectrum until we Regrow that population of units or do you think there's something sort of more structurally going on And the dynamics of you know who is getting vehicles in the competitive set and in the use vehicle

Late model vehicles and is there maybe a need to go older in the age spectrum until we re grow that that population of units or do you think there is something sort of more structurally going on and the dynamics of who is getting vehicles in the competitive set in the in the used vehicle market.

David Holt: We are enthusiastic about the pending acquisition of the Jim Coons Automotive Group, a well-respected group with a phenomenal set of team members and leaders. The group generates over 3 billion annual revenue and averages over 140 million in revenue per rooftop. Amidst the evolving backdrop of our space, I am optimistic about automotive retail and our diversified business model. We have strategically purchased quality assets, making us a stronger company. Part of our long-term plans is to deploy capital to its best and highest use.

Speaker 3: John , good morning. This is Dan. You know, as you can see or cost a sale drop, $900 a car or around there. And so we're definitely...

So John Good morning. This is Dan as you can as you can see our cost of sales dropped $900 a car or around there and so we're definitely.

Speaker 3: You know, bringing that cost of sale down with trying to really keep the folder car for a lack of a better term. We are those cars are harder to get. When we get them, we do everything within our power to put a safe reliable car in the front line that we can sell to one of our guests.

No.

Bringing that cost of sale down with trying to really keep the older car for a lack of a better term. We are those cars are are harder to get when.

When we get them, we do everything within our power to put a safe reliable car in the front lines, we can sell to one of our guests.

David Holt: We have entered into growing strategic markets that we haven't operated in before and we continue to integrate and grow the business. We operate in an environment where the average age of the car is 12 and a half years. And while several levels have been trending higher, it is important to note where it's built below historical levels.

Speaker 3: But we still, even at that point, you're talking about $31,000 in our cost of sale for a new car. That is pretty high. And that has just been a product of what we've seen in the last few years, where the acquisition cost of new cars has continued to grow.

But we still even at that point Youre looking youre talking about $31000 in our cost of sale or a new car that is pretty high and that has just been a product of what we've seen in the last few years, whereas the acquisition cost of new cars has continued to the ground.

David Holt: Our parts and service business will remain a critical element of our success well into the future. We're preparing all the vehicles addressing the complexity of newer cars and supporting numerous EV models rolling out over the next few years.

Okay, and then just just lastly, obviously, you're making big acquisitions and that seems like it makes sense you got the cash flow balance sheet to do it but at some point David that that story will will run out maybe maybe to some degree it might be many many years, so I'm not saying that's happening anytime soon but as you build out the network even even further.

Speaker 7: Okay, and then just lastly, you know, obviously you're making big acquisitions and that seems like it makes sense. You got the cash flow balance sheet to do it, but at some point, David, you know, that that story.

Speaker 7: We'll run out, maybe, maybe to some degree, it might be many, many years. So I'm not saying it's happening anytime soon.

David Holt: Overall, we are focused on achieving our long-term strategic goals. We plan to fund the pending acquisition with existing liquidity and capacity. Our strong balance sheet and reliable cash flow has enabled us to undertake this deal without the need to raise additional debt or issue equity. We are well aware that interest rates have moved up and we have adjusted our return assumptions accordingly. We will remain strategic with our capital allocation decision to the focus on paying down debt in 2024.

Speaker 7: But as you build out the network even further and go wider, ultimately, what kind of opportunity is there to go deeper?

And go wider ultimately what kind of opportunity is there to go deeper.

Speaker 7: in each market, whether it be sort of what we're just talking about sort of age of vehicle.

In each market, whether it be sort of what we're just talking about sort of age of vehicle.

Speaker 7: You know, on the sort of the turn or the second, third, fourth turn of the vehicle or the service work, that might go, you know, until the five years, 10, 15 years.

On the on sort of the turn or that second third fourth turning to vehicle or the service work that might go instead of five years 10 years 15 years.

Speaker 7: How do you think about that in the eventuality of needing to and wanting to go after that?

How do you how do you think about that in the eventuality of.

Meeting to and wanting to go after that.

Speaker 1: It's a great question, John . You know, a few years ago, we were the smallest part of the public, so we've been trying to grow in markets where we think it will stabilize and strengthen our company. And we think we've effectively done that. And even though we've had a lot of acquisitions, I'll just remind everyone when we close on the pending deal, it'll be almost two years since we've acquired something. And in 2022, we divested a 16 store.

It's a great question John .

David Holt: As we are winding down on year three of our five-year plan, I am proud of the progress we have made in transforming the size and scale of our business. In just a few short years, we have grown revenue from $7 billion to $15 billion, or $18 billion pending the CUNES acquisition. Increased suggested EPS from nearly $13 to over $34 per share. Generated over $400 million in adjusted operating cash flow, it's now just over $700 million before the pending CUNES acquisition. Increased suggested EPS from $400 million to an annualized run rate of $1.2 billion.

A few years ago, we were the smallest by far of the publics and what we've been trying to grow in markets, where we think it will stabilize and strengthen our company and we think we've effectively done that and even though we've had a lot of acquisitions I'll just remind everyone. When we close on the pending deal it'll be almost two years since we've acquired something in too.

'twenty two we divested of 16 stores.

Speaker 1: So there's a lot of activity going on there. We've been building for the last few years to be an efficient organization, to be ready to scale, to be ready to support the OEMs and any consolidation that might take place over time.

So there's a lot of activity going on there.

We've been building for the last few years.

To be inefficient organization to be ready to scale.

To be ready to support the Oems in any consolidation that might take place over time.

David Holt: We acquired an insurance company, Total Care Auto, and introduced QuickLink, tools which fundamentally change the buying experience. Our 2025 growth objectives will be updated after our year-run results and the plan closing of the CUNES acquisition.

Speaker 1: As you know, leasing has disappeared from the marketplace for the last few years for obvious reasons.

As you know leasing has disappeared from the marketplace. The last few years for obvious reasons. So we think theres a lot of tailwind is down the road with leasing coming back with the Oems with the adoption of electric vehicles at some point in time.

Speaker 1: So we think there's a lot of tailwinds down the road with leasing coming back with the OEMs, with the adoption of electric vehicles at some point in time.

Speaker 1: and with further consolidation. We always have opportunity to deepen our relationship with our client base within our markets that we're in from a service retention standpoint.

With further consolidation, we always have opportunity to deepen our relationship with our client base within our markets that we're in from a service retention standpoint.

Daniel Clara: To provide a clear roadmap for our long-term growth trajectory, I will now hand the call over to Dan to discuss our operating performance. Dan? Thank you, David. Good morning, everyone. I'll start off by once again thanking our team members to deliver the most guest-centric automotive retailer experience.

Speaker 1: And as these vehicles become more complicated, we just think that we're the obvious choice to service your vehicle compared to independent cars.

And as these vehicles become more complicated we just think that were the obvious choice to service your vehicle compared to independent shops.

Speaker 1: So while the next couple of years might get a little bit bumpy with what goes on economically, what goes on in the world, we think this thing starts to settle down and get back to normal in the future. We'll be well positioned in the markets we're in with the brands that we're in to really deepen our relationship within the communities to expand our service retention and hopefully grow our new car numbers both through leasing and additional lift through SAR.

While the next couple of years might get a little bit bumpy with what goes on economically what goes on in the world. We think that as things start to settle down and get back to normal in the future will be well positioned in the markets. We're in with the brands that we're in to really deepen our relationship within their communities to expand our service retention and hopefully grow our new card numbers both.

Daniel Clara: Now moving to the St. Store Performance, which includes dealerships and TCA unless stated otherwise. Starting with new vehicles, our new vehicle inventory ended the quarter at $807 million, which represents a 36-day supply. As in previous quarters, there was significant variation among brands and models. Our new vehicle revenue grew 8% year-over-year to $1.9 billion, and unit volume grew 5% year-over-year to over 36,000 vehicles. New average growth profit per vehicle was $4,567. New vehicle gross margin was 9% this quarter.

We released it.

An additional lift through Saar.

Okay. Thank you very much guys.

Thank you.

Speaker 5: I'm Alex Shaminsky from ALBS untenite Store in G Importance membership and bid to volcanolists and commswenda.net

Our next question comes from Rajat Gupta with Jpmorgan. Please proceed with your question.

Speaker 8: Great. Thanks for taking the question. Just had a couple here. On the parking process, who went back from the integration and with the off-road.

Great. Thanks, Thanks for taking the question just had a couple here.

Yeah on the park in terms of impact from the from the integration and a software change.

Speaker 8: Is there any way to quantify that impact at all?

Is there any way to quantify that impact at all.

Speaker 8: in terms of how many points of signature in fact might have had and I have a couple of four. Yeah, it's.

Daniel Clara: Turning to use vehicles, use retail revenue was 1 billion, as unit volume was over 32,000 vehicles in the quarter. Average used retail gross profit per vehicle was $1,862 for the quarter, a function of stronger new vehicle availability and macro conditions. Our used vehicle inventory ended the quarter at $304 million, which represents a 29-day supply.

In terms of how many points of same store impact.

I've had.

Thanks.

Yeah.

Yeah.

Speaker 1: You know, you integrate from an accounting standpoint and consolidated look in your accounting through 50 stores.

New integrate.

From an accounting standpoint, a consolidated look in your accounting through 50 stores. It doesn't go equally across all some stores. Some have issues. Some don't some have more complicated issues that take a week or two to figure out and get the numbers correct. And then you have the service software I would tell you the stores that were impacted.

Speaker 1: It doesn't go equally across all from stores, some have issues, some don't, some have more complicated issues that take a week or two to figure out and get the numbers correct, and then you have the service software. I would tell you the stores that were impacted from a customer pay standpoint because that's kind of the number that we focus on. It was anywhere from 10 to 15.

Daniel Clara: As conveying our opening remarks, we are still seeing challenges in sourcing inventory. We typically source about 90% of vehicles internally to maintain a strong profitability profile. We remain focused on delivering strong profitability over changing volume in this environment. Shifting to FNI, we delivered an FNI PBR of $2,207 compared to $2,521 last year, a reflection of higher interest rates, pressuring, consumer payments, which impacts our FNI results. In the third quarter, our total front-end yield per vehicle was $5,514.

From a customer pay standpoint, because thats kind of the number that we focus on it was anywhere from 10% to 15%.

Speaker 1: disruption within those stores during the quarter.

Disruption within those stores during the quarter.

Speaker 1: Some brands were more than others, depending on parts of availability that on top of that. But generally speaking, it was between 10 and 15% of those stores out west.

Some brands were more than others, depending on parts availability to add on top of that but generally speaking it was between 10 and 15% of those stores out west.

Okay.

Speaker 8: got it got it that that's helpful and just on relatedly important services you know we've had the the Detroit 3 parts plants right now you know almost five weeks into that

Got it got it.

That's helpful.

And just relatedly on parts and services.

We've had the Detroit three parts.

Right.

Almost five weeks into that.

Speaker 8: To give us a sense of when should we start to get concerned about any kind of part shortages.

Could you give us a sense of.

When should we start to get concerned about any kind of parts shortages.

Daniel Clara: Moving to parts and service, our parts and service business revenue increased 3% in the quarter to $526 million, growing over a tough comparison from last year's strong things to growth of 12%. We have also been investing across the business towards a transition as software to support a more unified process and platform for fixed-outs, some of which relates to the integration activities that David mentioned in his opening remarks.

Speaker 8: You know, in any way to quantify what the four-day or impact could be with every day of shortage that you might see eventually. And also, relatively, you expect to recover any of that once the strike ends. If you do that end up...

To quantify what the four day or back could be with every with every deal shortage that you might see eventually.

And also Relatedly do you expect to recover any of that.

Right.

We do.

And I have one last follow up.

Speaker 3: Morning, Rezot. This is Dan. I'll start it and then turn over to David to add any additional comments. I will tell you that...

Good morning, Rajat. This is Dan I'll start out and then turn it over to David to add any additional comments.

I will tell you that.

The time mobile we're seeing the biggest impact is starting now.

Speaker 3: The time of we're seeing the biggest impact is starting now. We had enough day supply within our parts inventory when this all started where we were still able to serve as our cars and take care of the guests in a timely fashion. But the delivery centers, the parts warehouses have no employees and now the OEM is doing everything within their power to continue to ship.

Daniel Clara: We have served a mixed result among the stores in performance. Now, turning to clickling, please note that for clickling we are reporting on an all-store basis. We achieved another all-time record with over 11,600 vehicles sold through clickling in the third quarter, a 71% increase year-over-year. 17% of our third quarter new and used retail sales were powered by clickling. We generated $460 million in clickling revenue for the quarter. We are tracking to approximately $2 billion of revenue in 2023, mostly governed by constraints within pre-owned sourcing and relatively low-day supply in our high-velocity brands that make up a good portion of new vehicle sales.

We had enough supply within our parts inventory. When this all started where we were still able to service our cars and take care of the guests in a timely fashion.

But.

<unk>.

The delivery centers the parts warehouses have no employees in RV OEM is doing everything within their power to continue to shift.

Speaker 3: parts to us. In some cases we are not delivering, we're not receiving shipment and it's been days, it's not weeks since we received them. The good news about our size and our scale is we're able to transfer parts amongst our stores where some of them have the part that we need for to satisfy another guest across, you know, whether it's East Coast or the West Coast.

<unk> to us in some cases, we are not delivering we're not receiving shipments and it's been days if not weeks since we've received them. The good news about our size and our scale is we're able to transfer parts amongst our scores where some of them have the part that we need to for to satisfy another guest across whether it's in east coast.

The West coast. So we're working that to the best of our ability.

Speaker 1: So we're working that to the best of our ability, but as this continues to prolong, the impact is gonna be greater and unfortunately the one that gets affected is the end consumer. Reginald, I'll add to that, it's, you know, we have a large hotel parts operation.

But as this continues to prolong the.

Daniel Clara: Moving on to some clickling KPIs for the third quarter, 46% of clickling sales in Q3 were new vehicles and 54% were used. Total-friendly PVR of $3,018 and FNI PVR of $2,151, which equates to $5,168 of total front and yield. The average clickling customer credit score was $7.23, which is higher than the average credit score at our stores and is sequentially higher than last quarter. 92% of those that applied were approved for financing, of which 86% of those customers received instant approval while the remaining customers required some offline assistance.

The impact is going to be greater.

Fortunately the one that gets affected is the end consumer.

I'll add to that.

We have a large wholesale parts operation.

Speaker 1: That it's starting to impact as well, because we're not able to deliver those parts to our customers, so that's concerning. So every week that goes by, you know, we're, it's affecting our business.

That is starting to impact as well because we're not able to deliver those parts to our customers. So that's concerning so every week that goes by where it's affecting our business. We saw this coming our parts managers were strategic and built up the inventories as best they could to prepare for this and we came into it with a decent.

Speaker 1: We saw this coming, our parts managers were strategic and built up the inventories as best they could to prepare for this.

Speaker 1: And we came into it with a decent day supply of vehicles with all the brands.

Days supply of vehicles with all the brands.

Speaker 1: But as you can imagine, as these weeks go on and they shut down certain plans, it's going to impact us in the fourth quarter. To what degree at this point, it's hard to determine, but we're certainly starting to feel it.

But as you can imagine as these weeks go on and they shut down certain plants, it's going to impact us in the fourth quarter to what degree at this point, it's hard to determine.

But we're certainly starting to feel it.

Daniel Clara: 74% were lender finance sales and 26% were cash sales. The average down payment of the finance sales continues to be over $9,000. The average distance of a clickling delivery from our dealerships was 40 miles, consistent with last quarter as the western states utilize the convenience that clickling has to offer.

Speaker 1: And as far as it coming back, just real quickly, as far as it coming back, you know, that's a hopeful thing. You know, either the consumer gets frustrated and trades the vehicle for another brand, or they waited out. You really just don't know what that's gonna look like till you get to the other side.

And as far as the coming back.

Just real quickly as far as that coming back.

That's the whole thing.

Either the consumer gets frustrated and trades the vehicle for another brand or they wait it out you really just don't know what that's going to look like so you get to the other side.

Speaker 8: got it that's a purple color. I just last one I believe Mike I think in your

Got it got it that's helpful color just last one Mike.

Mike I think in your prepared remarks, you mentioned.

Daniel Clara: We are pleased with the way Flickling has grown and driving adoption rates. We are seeing great feedback from the customer experience. You will hear us talk about Flickling within the context of our overall business as it becomes an integral part for the leadership model and our results.

Speaker 9: that you expect the leverage for the company to go to the mid-twos with the Jim Goons deal, and then you mentioned you expect to.

Do you expect the leverage for the company to go to the mid June with the Jim Go deal and then you mentioned you expect to.

Speaker 9: get it back down to less than two times by the end of 2024. Is that in specifically suggesting some sort of earnings cadence for next year? I mean, I mean, if you were able to get to less than two times by the end of next year.

Get it back down to less than two times by the end of 2024.

Is that implicitly suggesting.

Michael Welch: 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. Good morning.

Some sort of earnings cadence for next year.

If you were able to get to less than two times.

By the end of next year.

It would suggest that you were expecting EBITDA for the company.

Michael Welch: I would like to provide some financial highlights for our company for additional details on our financial performance. Did the operator, did you mute your line speakers? Thank you. We'd like to thank our OEM and bank partners for their continued support. Our pro-forma Justin Net leverage was 1.7 times at the end of September, reflecting the use of cash to repurchase shares earlier in the year. As David mentioned, we anticipate using current balance sheet liquidity, mainly comprise of cash, floor plan offset accounts, and use vehicle floor plan capacity for the purchase of the pinning Jim Coons acquisition.

Speaker 8: including Jim Coons to grow next year. Is that like an unreasonable assumption? Are we missing something there in your statement there? Any thoughts?

Jim tons due to grow next year or is that like an unreasonable assumption.

Or are we missing something there.

In your statement.

What would be carrier thanks.

Speaker 4: Now that's more of a cash flow issue. We're going to prioritize cash to pay down debt. And so that's just taking the cash flow that we'll have next year and using that to pay down the debt level that will take up, you know, the net debt level that we'll take on as far as the coons acquisition.

That's more of a cash flow issue, we're going to prioritize cash paying down debt.

And so that's just taken the cash flow that we'll have next year.

And you're using that to pay down the debt level that will take up.

The net debt level that will take on as part of the <unk> acquisitions.

Speaker 8: got it got it but but is that there's an implicit assumption there like

Got it got it.

And implicit EBITDA assumption.

Speaker 10: There's an EBITDA assumption in there. I mean, it's, you know, it takes the same store EBITDA assumption with, you know, with lower margins next year, but then adds to that the Coons, you know, cash flows kind of come with it. And so, you know, while same store will be backwards a little bit because of the decline in new vehicle margins, you know, we'll get a lift because of the adding the Coons EBITDA. Got it. Got it.

There's an EBITDA assumption there.

It takes the same store EBITDA assumption with with lower margins next year, but then add to that the kuhns.

<unk> got to come with it and so.

Same store will be backwards, a little bit because of the decline in new vehicle margins will get a lift because of the adding the coons EBITDA.

Got it got it great. Thanks for all the color.

Thank you.

Speaker 5: As a reminder, if you'd like to ask a question, please press star one on your tele.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Yes.

Speaker 5: Our next question comes from Ryan Sigdel with Craig Hallum Capital Group. Please proceed with the question.

Our next question comes from Ryan <unk> with Craig Hallum Capital Group. Please proceed.

Speaker 11: Good morning guys. I want to start with TCA. Can you talk a little bit more about the accounting nuance?

Good morning, guys.

One is that with TCA can you talk a little bit more about maybe the accounting nuance.

Looking at profit you expected $25 million, starting this year than it was.

Speaker 11: Start this year then it went to 75 now 85. I guess is that primarily a timing of when as per resource are rolling on.

$75 85, I guess is that primarily a timing of when.

John Asbury stores are rolling on to GTA.

Speaker 11: at TCA or if there's some other underlying assumption in there.

Or is there some other.

Underlying assumption in narrow business impact and then can you also talk maybe magnitude of.

Speaker 11: and then can you also talk maybe magnitude of negative impact.

Negative impact next year.

Speaker 4: Yeah, so two things in there, when we originally had the $25 million forecast, we expected higher use vehicle and new vehicle volumes for this year.

Yes, so two things in there.

We originally had the $25 million forecast, we expected higher used vehicle new vehicle volumes for this year.

Speaker 4: And so as those came in less, you know, we're in effect rolling off LHM stores for 2018 and 19. That's the income that's kind of rolling off as far as the deferral. And we're replacing it with less of a hit for this year because of the ball.

So as those came in less we're in effect rolling off La <unk> stores for 2018, and 19 Thats. The income that's kind of rolling off as part of the deferral and were replacing it was less of a hit for this year because of the volumes being lower so thats.

Speaker 4: So that's a big chunk of it. And then the other pieces we did are large groups in Georgia and Florida.

That's a big chunk of it.

And then the other piece is we did our large groups in Georgia, and Florida, where we have a lot of our volume for Asbury the Georgia ones are fully rolled out the Florida ones.

Speaker 4: where we have a lot of our volume for Asbury. The Georgia ones are fully rolled out. The Florida ones were, you know, we're gonna go out this in the fourth quarter. We've delayed that till the first quarter, just with the Coons acquisition and some other things, just decided to, you know, push that off to the first quarter versus trying to stick it in during the holidays in the fourth quarter. So, we'll move the delay of the Asbury stores in Florida rolling out, which is a big group for us.

We're going to go out this in the fourth quarter, we delayed that until the first quarter.

Just with the <unk> acquisition and some other things just decided to push that off to the first quarter versus trying to stick. It in during the holidays in the fourth quarter, So a little bit of a delay of the Asbury stores in Florida Rolling out, which is a big group for US and then just the lower volumes.

Speaker 10: and then just the lower volumes from both LHM and has very from our regional projections.

From both I'll, let Jim and Asbury from our original projections.

And then for next year you expect yes. Thank you.

Speaker 4: Yeah, for next year, we're still working through the forecast of the units for next year in terms of what SARS going to be and use vehicle volumes. But I would expect something close to that.

Yes for next year, we're still working through the forecast of the units for next year in terms of what Saar is going to be in used vehicle volumes, but I would expect something close to that.

Michael Welch: Also pinning the Coons acquisition, we anticipate our net leverage should be in the mid-toes. Our robust cash flow is the larger company will allow us to reduce leverage back to two times or lower by the end of 2024.

Speaker 10: you know, call it breaking the, break even the 25 million range. So, you know, pretty, pretty, pretty big fall off for next year, just because we'll have the full year of deferral of all the stuff that we rolled out this year. Plus, we'll have Florida rolling in next year.

Call it breakeven at breakeven to $25 million range, so pretty pretty fall pretty big fall off for next year, just because we'll have the full year deferral of all the stuff that we've rolled out this year plus we will have Florida rolling in next year.

Great.

Michael Welch: Finally, I am grateful for the hard work of our Asbury team members who help us operate at a high level and continue to focus on the customer experience each and every day. Thank you.

Question for me.

You mentioned F&I slightly lower attach rates, but then I look at quick Lane, and it's 74% finance, 26% cash transactions, which is identical to what it was in Q2 I guess can you talk through the dynamics of F&I attach rates between quick Lane and then the retail stores and then anything you've seen in October at all.

Speaker 11: F and I slightly lower a tax rates, but then I look at click lane and it's 74% finance, 26% cash rents, actions, which is identical to what it was in Q2. I guess can you talk through the dynamics of F and I a tax rate?

David Holt: I will now pass the call back to David for closing remarks. David? Thank you, Michael.

David Holt: I want to close our prepared remarks with a big thank you to our team members and leaders within our organizations. Your efforts are noticed and greatly appreciated. Thank you. Your commitment and dedication to making a great workplace environment has also been recognized nationally. We were recently named as one of America's greatest workplace this 2023 by Newsweek, receiving a 5 out of 5 star rating. And we were awarded 2024 Best Companies to Work for Retailers Industry by US News and World Report. I commend all of you for fostering an enriching and welcoming work environment. This clearly speaks to the quality of our store leaders in our team members committed to our vision.

Speaker 11: and then the retail stores and then anything you've seen in October would also be helped.

So be helpful. There.

Speaker 1: Sure Ryan, this is David. I apologize, I might have got it wrong in the script. Normally of our epa 9 number per vehicle, 70% of it is products sales and 30% of it is reserved.

Sure Ryan this is David.

I apologize I might have got it wrong in the script.

Normally we of our F&I number per vehicle, 70% of it is product sales and 30% of it is reserve.

Speaker 1: In this past quarter, he was just about 67% products in the rest reserve. So the leakage was a little bit lower penetration than our products sale.

In this past quarter. It was just about 60, 70% products and the rest reserve. So the leakage was a little bit lower penetrations on our product sales.

Speaker 12: We don't think it's a material number, but it was certainly down, so we thought we would call it out a little bit. We think we're a healthy business when we're 70% product sales and 30% reserve. Gotcha, maybe just.

We don't think its a material number.

But it was certainly down so we thought we would call it out a little bit we think we're a healthy business when we're 70% product sales and 30% reserve.

Unknown Executive: This concludes our prepared remarks.

Got it you may be misunderstood as well and then comment on October any change in trends there and then that's it for me thanks guys.

Unknown Executive: We will now turn the call over to our operator and take your questions.

Unknown Executive: Rob? Thank you.

Speaker 3: Ryan, this is Dan. No, I mean, what we've discussed is what we're experiencing for October.zw zwzw in fan a

Unknown Executive: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, let me poll for questions.

Ryan This is Dan.

No I mean, what what we've discussed.

What we are experiencing for October .

Thanks, that's it for me.

Thank you.

Okay.

Speaker 5: Our next question is from Brett Jordan with Jappries. Please proceed with your question.

Our next question is from Bret Jordan with Jefferies. Please proceed with your question.

Speaker 7: Hey, good morning, guys. Any color on the UAW impact to GPUs and the third quarter on a guess into the fourth are the broader market discounting less with concerns around supply shortage or isn't?

Hey, good morning, guys. Good morning, any color on the UAW impact to Gpus in the third quarter on I guess into the fourth or is the broader market discounting last with concerns around supply shortage or is it not impacting.

Daniel Imbro: Our first question comes from Daniel Ambral with Stevens. Please proceed with your question. Yep, hey, good morning, everybody. Thanks for taking our questions. Of course, I want to start on maybe the youth business. David, obviously things have slowed there, but curious if you could provide some color on the cadence that was getting notable, noticeable changes month to month. Dan, I think in your prepared remarks, you noted a focus on profitability over more volume, but GPU did still step back sequentially despite wholesale prices following. So can you maybe talk about how you're thinking about use GPUs in this environment as well?

Hi, Good morning, Brett This is Dan yes.

Speaker 3: Good morning Brett. This is Dan. Yes, you know, we were starting to see a shift. Less of a discount before the strike was taking place, even though you could see it coming. You know, there were a lot, dealers were a lot more aggressive on the domestic side. And we have seen that scale back considerably now that we know where we are and that this is going for for a long time, I guess, looks like

We're starting to see a shift.

Less of a discount before the.

The strike was taken place, even though you could see it coming.

There were a lot of dealers were a lot more aggressive on the domestic side and.

And we have seen that scaled back considerably now that we know where we are and that this is going forward.

David Holt: Yeah, Daniel, this is David. I'll start and then Dan can jump in. You know, with the use car gross profits, it's all about what you require the vehicle for. It's a competitive space. There's less vehicles out there. There's more shopping going on. So your cost of sale, as far as what we own the vehicle for, is creeping up a little bit, which is put pressure on the on the margin. We have chosen not to change volume, so we're purchasing less cars at the auction than we normally would.

For a long time, I guess looks like it's up to them.

Speaker 7: And then a question I guess sort of got asked earlier, but now that you've got another quarter under your belt, do you have any feelings for what the new normal market average GPU is on new? I mean, are we going back to 2000 or is it just given the changes in the market going to stay higher than the historic level?

Okay, and then a question I guess it sort of got asked earlier, but now that you've got another quarter under your belt do you have any feelings for what the new normal market average GPU is on new I mean are we going back to 2000 and or is it.

Just given the changes in the market going to stay higher than historic levels.

Speaker 1: Yeah, Brett, I think across the peer space, it'll differ by brand mix and whether it's luxury, domestic or import. The one thing that we've stated all along and we still believe, whatever it settles into, we believe that will be higher than we were in 2019 because of the mix of our company now in the brand mix.

Yeah Brad.

Take aggressive peer space it will differ by brand mix and whether it's luxury domestic aramco it.

David Holt: Our thoughts are if we're purchasing at a higher rate through the auction, you would see lower PVRs. We think we're getting close to a sustainable level, but in this dynamic environment, it's really difficult to predict what the future's going to be.

The one thing that we've stated all along and we still believe.

Whatever it settles into we believe that will be higher than we were in 2019 because of the mix of our company now and that brand mix.

Speaker 1: You know, there's nothing to prove that model out and there's a lot going on in the world right now to predict what the future is going to look like, but we still believe that we should end up higher than 2019 levels and we'll continue to manage our expenses as best we can to the size and scale of our business as far as what we're generating.

Daniel Clara: Good morning, Daniel Dan here. You know, answer your question. We did see some pressure and the valuation of the vehicles specifically at the beginning of the quarter. And so that, that's put an additional pressure on our margin a little bit more than, than we were expecting. And that's what we've got a little bit short. But I will tell you the good news is we were able to adjust quickly. That is one of the benefits of keeping a 29 to 30 day supply as market conditions change.

Theres nothing to prove that model out and there's a lot going on in the world right now to predict what the future is going to look like but we still believe that we should end up higher than 2019 levels and we'll continue to manage our expenses.

As best we can.

The size and scale of our business as far as what we're generating.

Speaker 7: Okay, and then one quick question on parts and service. When you think about supply chain problems on parts, I guess is there anything that prevents you from using aftermarket parts for post warranty work? I mean, you could go ahead and stock up on a rile if you had to or do OE agreements prohibit you from doing.

Okay and then one quick question on parts and service when you think about supply chain problems on parts. I guess is there anything that prevents you from using aftermarket parts for post warranty work I mean, you could get at in stock up on O'reilly, if you had to or OE agreements prohibit you from doing that.

Daniel Clara: We're able to adapt. And if you look at from a wholesale perspective, because of the quick turnaround that we were able to adjust. Our wholesale perspective, we did not suffer, suffer on vehicles that we were wholesaling because we cannot read out the store level. That's helpful.

Speaker 1: So this is David. We do do some aftermarket parts. We generally try to stay away from it. We represent the manufacturer as we want to sell their parts. We believe that they're the best quality parts in the market and they're what should be put on our guest vehicles. But in certain circumstances, to keep cars up and running, keep them on the road, we certainly do some business in aftermarket. Okay.

So this is David.

We do do some aftermarket parts, we generally try to stay away from it.

We represent the manufacturers we want to sell their parts. We believe that they are the best quality parts in the market and then what should be put on our guest vehicles.

Daniel Imbro: Maybe if I could follow up on the new side of the business, obviously new GPU is probably a bright spot. Taking through it, I mean, domestic GPUs here are still over 4 to 200 bucks. David, versus pre-COVID, I would call it 17, 1800.

But in certain circumstances to keep cars up and running and keep them on the road, we certainly do some business in aftermarket.

Okay, great. Thank you.

David Holt: Can you just walk through the buckets of how despite inventory building, domestic GPUs are still that much higher? Is it more premium? Is it OEMs being disciplined?

Thank you.

Speaker 1: This concludes our call today. We appreciate everyone's participation. And we look forward to discussing our fourth quarter earnings down the road. Have a great day.

This concludes our call today, we appreciate everyone's participation and we look forward to discussing our fourth quarter earnings down the road have a great day.

Speaker 5: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

David Holt: And then what does that tell you about the future of new vehicle GPUs given what you've seen so far in that segment? Daniel, I'll give you my best attempt. It's a great question. You know, we're we're heavy with our domestic brand mixes to land this. So that, you know, impacts us a little bit compared to our peers, where we've said when we've done these acquisitions, especially the Miller acquisition, there was a lot of domestic stores in there in the mountain states.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

David Holt: And as I said, when we acquired them, you know, their gross profit margins, or PVRs were higher than Asbury was. So while, you know, we are seeing some deterioration from all time highs, we're still at very healthy profit margins. And even with the day supply creeping in some areas on domestic, we're still able to get good gross profit. And so we're excited about that. We think it has a lot to do with the average age of the car park and the large sound payments that our customers are still putting down.

Daniel Imbro: Great. I'll hop back on the queue.

Unknown Executive: Thanks so much.

John Murphy: Our next question is from John Murphy with Bank of America. Please proceed with your question. Good morning, guys. A couple of quick ones. They were first on parts and service. You indicated that integration and presented those same store sales a little bit.

David Holt: You know, I'm just curious, you know, when you think that will resolve and how we should think about the opportunity of parts and service growth is sort of made in long term. Sure. I'll do my best John and others can jump in here. You know, there was a lot of accounting consolidation that took place. And you know, when that takes place, it's never convenient. It's never easy. And there's unfortunately hiccups with software integration, which makes it difficult for the results.

David Holt: At the same time, we're integrating some of our service software to make our stores out west a little bit more efficient, how they operate and sell their product. As I said last quarter, I thought it'd be a quarter or two. We're hoping by the end of the fourth quarter.

John Murphy: Now, we should have normalized and had everything integrated and start off fresh in Q1 of next year. Okay, that's super helpful.

John Murphy: On the use sourcing side, is this really just a function of a derth of linked model vehicles, and is there maybe a need to go older in the age spectrum until we regrow that population of units, or do you think there's something more structurally going on in the dynamics of who is getting vehicles in the competitive set in the use vehicle market? John, good morning, this is Dan. You know, as you can see, or cost of sale drop, $900 a car, or around there.

John Murphy: And so we're definitely, you know, bringing that cost of sale down with trying to really keep the folder car for a lack of a better term. We are those cars are harder to get. When we get them, we do everything within our power to put a safe, reliable car in the front line that we can sell to one of our guests. But we still, even at that point, you know, you're looking, you're talking about $31,000 in our cost of sale for a new car that is pretty high, and that has just been a product of what we've seen in the last few years, where the acquisition cost of new cars has continued to grow.

John Murphy: Okay, and then just lastly, you know, obviously, you're making big acquisitions, and that seems like it makes sense. You got the cashflow balance sheet to do it. But at some point, David, you know, that story will run out, maybe, maybe to some degree. It might be many, many years. So I'm not saying it's happening anytime soon.

David Holt: But as you build out the network, even further, and go wider, ultimately, you know, what kind of opportunity is there to go deeper in each market, whether it be sort of what we're just talking about sort of age of vehicle, you know, on the sort of the turn, or the, you know, the second, third, fourth turn of the vehicle, or the service work, that might go, you know, into the five years, 10, 15 years. You know, how do you think about that in the eventuality of needing to and wanting to go after that?

David Holt: It's a great question, John. You know, we, you know, a few years ago, we were the smallest by far of the public, so we've been trying to grow in markets, where we think it'll stabilize and strengthen our company, and we think we've effectively done that. And even though we've had a lot of acquisitions, I'll just remind everyone, when we close on the pending deal, it'll be almost two years since we've acquired something.

David Holt: And in 2022, we divested of 16 stores. So there's a lot of activity going on there. We've been building for the last few years to be an efficient organization, to be ready to scale, to be ready to support the OEM, and any consolidation that might take place over time. As you know, leasing has disappeared from the marketplace the last few years for obvious reasons. So we think there's a lot of tailwinds down the road, with leasing coming back with the OEMs, with the adoption of electric vehicles at some point in time, and with further consolidation.

David Holt: We always have opportunity to deepen our relationship with our client base within our markets that we're in, from a service retention standpoint. As these vehicles become more complicated, we just think that we're the obvious choice to service your vehicle compared to independent shops. So while the next couple of years might get a little bit bumpy with what goes on economically, what goes on in the world, we think as things start to settle down and get back to normal in the future, we'll be well positioned in the markets we're in with the brands that we're in, to really deepen our relationship within the communities to expand our service retention and hopefully grow our new card numbers, both through leasing and additional live-throughs are. Okay, thank you very much guys. Thank you.

Rajat Gupta: My next question comes from Rajat Gupta with JP Morgan. Please proceed with your question. Great. Thanks for taking the question. Just had a couple here on the parking process who then backed, you know, from from the from the integration and the software change. Is there any way to quantify that impact at all. So, in terms of how many points of signature impact might have had and have a couple of. Yeah, you know, Rajat, you know, you you integrate from an accounting standpoint, a consolidated look in your accounting through 50 stores.

Rajat Gupta: It doesn't go equally across all from stores, some have issues, some don't have more complicated issues to take a week or two to figure out. You get the numbers correct, and then you have the service software. I would tell you the stores that were impacted from a customer base standpoint, because that's kind of the number that we focus on. It was anywhere from 10 to 15% disruption within those stores during the quarter.

Rajat Gupta: Some brands were more than others, depending on parts availability that on top of that, but generally speaking, it was between 10 and 15% of those stores out west. Got it, got it. That's helpful. And just on relatively important services, you know, we've had the Detroit 3 parts, plants, right now, you know, almost five weeks into that. To give us a sense of, you know, when should we start to get concerned about any kind of part shortages.

Rajat Gupta: You know, anywhere to quantify what the four day or impact could be with every day of shortage that you might see eventually. And also, relatively, do you expect to recover in your back once the strike ends if you do end up having it back. And I have one last follow up. Thanks. Morning, Rajat. This is Dan. I'll start it and turn over to David to add any additional comments. I will tell you that the time of we're seeing the biggest impact is starting now.

Rajat Gupta: You know, we had enough day supply within our parts inventory when this all started where we were still able to serve as our cars and take care of the guest in timely fashion. But as, you know, the delivery centers, the parts warehouses have no employees and of the OEM is doing everything within their power to continue to shift parts to us. In some cases, we are not delivering. We're not receiving shipment and it's been days.

Rajat Gupta: If not weeks since we received them. And the good news about our size and our scale is we're able to transfer parts amongst our stores where some of them have the part that we need for to satisfy another guest across, you know, whether it's in East Coast or the West Coast. So we're working that to the best of our ability. But as this continues to prolong the the impact is going to be greater and unfortunately the one that gets affected is the end consumer.

Rajat Gupta: We're not all add to that. It's, you know, we have a large hotel parts operation that it's starting to impact as well because we're not able to deliver those parts to our customers. So that's concerning. So every week that goes by, you know, we're, it's affecting our business. We saw this coming our parts managers were strategic and built up the inventories as best they could to prepare for this. And we came into it with a decent day supply of vehicles with all the brands.

Rajat Gupta: But as you can imagine as these weeks go on and they shut down certain plants, it's going to impact us in the fourth quarter to what degree at this point it's hard to determine. But we're certainly starting to feel it. And as far as it coming back, just real quickly, as far as it coming back, you know, that's that's a hopeful thing. You know, either the consumer gets frustrated and trades the vehicle for another brand, or they waited out.

Rajat Gupta: He really just don't know what that's going to look like to you get to the other side. Got it, that's a hopeful color. I just last one, I believe Mike, I think in your prepared remarks, you mentioned that you expect the leverage for the company to go to the mid-Jews with the Jim Goon deal, and then you mentioned you expect to get it back down to less than two times by the end of 2024.

Rajat Gupta: Is that in specifically suggesting some sort of earnings cadence for next year? I mean, I mean, if you were able to get to less than two times by the end of next year, it would suggest that you're expecting the bad for the company, including Jim Coons to grow next year. Is that like an unreasonable assumption? Are we missing something there in your statement there? Any thoughts will be curious. Thanks. So that's that's more of a cash flow issue.

Rajat Gupta: We're going to, you know, prioritize cash to paying down debt. And so that's just taking the cash flow that we'll have next year and using that to pay down the debt level that will take up, you know, the net debt level that will take on as part of the Coons acquisitions. Got it, but is that there's an implicit EBITDA assumption there like in the two times? There's an EBITDA assumption there. I mean, it's, you know, it takes the same story with adoption with, you know, with lower margins next year, but then add to that the Coons, you know, cash flows kind of come with it.

Rajat Gupta: And so, you know, I think we'll be backwards a little bit because the decline in new vehicle margins, you know, we'll get a lift because of the adding the Coons EBITDA. Got it. Great. Thanks for all the color. Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad.

Ryan Sigdahl: Our next question comes from Ryan Sigdel with Craig Hallam Capital Group. Please proceed with the question. Good morning, guys.

Ryan Sigdahl: I want to start with TCA. Can you talk a little bit more about the accounting nuance looking at proper you expected 25 million. Started this year than it went to 75 now 85. I guess is that primarily a timing of when as per source are rolling on to TCA or is there some other, you know, underlying assumption and their business impact. And then can you also talk maybe magnitude of negative impact next year?

Ryan Sigdahl: Yeah, so two things in there when we originally had the 25 million dollar forecast, we expected higher use vehicle and new vehicle volumes for this year. And so as those came in less, you know, we're in effect rolling off LHM stores for 2018 and 19. That's the income that's kind of rolling off as far the deferral. And we're replacing it with less of a hit for this year because of the volumes being lower.

Ryan Sigdahl: That's a big chunk of it. And then the other pieces we did are large groups in Georgia and Florida, where we have a lot of our volume for as berry. The Georgia ones are fully rolled out. The Florida ones were, you know, we're going to go out this in the fourth quarter. We've delayed that till the first quarter. Just with the coons acquisition and some other things just decide to, you know, push that off to the first quarter versus trying to stick it in during the holidays and the fourth quarter.

Ryan Sigdahl: So we'll do the delay of the as per source in Florida rolling out, which is a big group for us. And then just the lower volumes from both LHM and has very from our regional project, and for next year. Yeah, thank you. Yeah, for next year, we're still working through the forecast of the units for next year in terms of what SARS is going to be in use vehicle volumes. But I would expect something close to that, you know, call it breaking the break even the 25 million range. So, you know, pretty, pretty fall off for next year just because we'll have the full year deferral of all the stuff that we rolled out this year. Plus we'll have forward to rolling in next year.

Ryan Sigdahl: Great. Last question for me, you mentioned F and I slightly lower tax rates, but then I look at click lane and it's 74% finance, 26% cash transactions, which is identical to what it was in Q2. I guess can you talk through the dynamics of F and I attach rate between click lane and then the retail stores and then anything you've seen in October would also be helpful there. Sure, Ryan. This is David.

Ryan Sigdahl: I apologize. I might have got to run on the script. Normally, we of our F and I number per vehicle, 70% of it is products sales and 30% of it is reserved in this past quarter. He was just about 67% products in the rest reserve. So the leakage was a little bit lower penetrations on our product sales. We don't think it's a material number, but it was certainly down. So we thought we would call it out a little bit.

Ryan Sigdahl: You know, we think we're a healthy business when we're 70% products sales and 30% reserve. Gotcha. I may be just misunderstood as well in the comments on October any change in trends there and then that's it for me. Thanks, guys. Ryan, this is Dan. No, I mean, what what what we've discussed is what we're experiencing for October.

Ryan Sigdahl: Thanks.

Unknown Executive: That's it for me. Thank you.

Bret Jordan: Our next question is from Brett Jordan with Jeffries. Please proceed with your question. Hey, good morning, guys.

Dan Clara: Any color on the UAW impact to GPUs in the third quarter on a guess into the fourth are the broader market discounting less with concerns around supply shortage or is it not impacting? Hi, good morning, Brett. This is Dan. Yes, you know, we were starting to see a shift less of a discount before the strike was taking place. Even though you could see it coming, you know, there were a lot dealers were a lot more aggressive on the domestic side. And we have seen that scale back considerably now that we know where we are and that this is going for for a long time. I guess looks like it's up to them.

David Holt: Okay, and then a question, I guess it sort of got asked earlier, but now that you got another quarter under your belt, do you have any feelings for what the new normal, you know, market average GPU is unnew? So, I mean, are we going back to 2000 or is it, you know, just given the changes in the market going to stay, you know, higher than the historic levels? Yeah, Brett, I, you know, I think across the peer space, it'll differ by brand mix and, you know, whether it's luxury, domestic or import.

David Holt: The one thing that we've stated all along and we still believe, you know, whatever it settles into, we believe that will be higher than we were in 2019 because of the mix of our company now in the brand mix. You know, there's nothing to prove that model out and there's a lot going on in the world right now to predict what the future is going to look like, but we still believe that we should end up higher than 2019 levels. And we'll continue to manage our expenses as best we can to the size and scale of our business as far as what we're generating.

David Holt: Okay. And then one quick question on parts and service. When you think about supply chain problems on parts, I guess is there anything that prevents you from using aftermarket parts for post warranty work? I mean you could get at and stock up on a rile if you had to or do oh, we agreements prohibit you from doing that. So this is David. We do do some aftermarket parts. We generally try to stay away from it.

David Holt: We represent the manufacturer as we want to sell their parts. We believe that they're the best quality parts in the market and they're what should be put on our guest vehicles. But in certain circumstances to keep cars up and running keep them on the road. We certainly do some business in aftermarket.

Unknown Executive: Okay. Great.

Unknown Executive: Thank you. This concludes our call today. We appreciate everyone's participation and we look forward to discussing our fourth quarter earnings down the road.

Unknown Executive: Have a great day. This concludes today's conference.

Unknown Executive: You may disconnect your lines at this time and we thank you for your participants.