Q4 2023 Asbury Automotive Group Inc Earnings Call
Operator: Greetings and welcome to the Asbury Automotive Group fourth quarter 2023 earnings conference. At this time, all participants are in a listen-only mode.
Greetings and welcome to Asbury automotive group fourth quarter.
2023 earnings conference call at this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Chris Reeves, Vice President of Finance and Treasurer. Thank you. Thank you, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded.
I'd like to turn the conference over to your host Mr. Chris Reeves, Vice President of Finance and Treasurer. Thank you you may begin.
Chris Reeves: Thanks, operator, and good morning as noted today's call is being recorded and will be available for replay later this afternoon.
Chris Reeves: Welcome to Asbury Automotive Group's fourth quarter 2023 earnings. The press release detailing Asbury's fourth quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, our 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 for questions and will be available later for any follow-up questions. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts, and current expectations, each of which are subject to significant risks. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please contact us at 1-866-433-4332.
Chris Reeves: Welcome to Asbury automotive group's fourth quarter 2023 earnings call. The press release detailing Asbury fourth quarter results was issued earlier. This morning and is posted on our website at investors not Asbury audio dotcom.
Participating with me today are David Hult, our President and Chief Executive Officer, Dan Clara, Our senior Vice President operations, and Michael Welch, Our senior Vice President and Chief Financial Officer.
Chris Reeves: At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow up questions.
Chris Reeves: Before we begin we must remind you that the discussion during the call today is likely to contain forward looking statements forward looking statements are statements other than those which are historical in nature, which may include financial projections forecast and current expectations each of which are subject to significant uncertainties for information regarding.
Chris Reeves: Certain of the risks that may cause actual results to differ differ materially from these statements. Please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2022.
Chris Reeves: Please see our filings with the SEC from time to time, including our Form 10-K for the year end of December and any subsequently filed quarterly reports on Form 10-Q in our earnings release issued earlier today; we expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
Chris Reeves: And any subsequently filed report quarterly reports on Form 10-Q in our earnings release issued earlier today.
Chris Reeves: We expressly disclaim any responsibility to update forward looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call as required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly.
Chris Reeves: As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. We have also posted an updated investor presentation on our website, investors.asburyauto.com. Highlighting our fourth quarter, it is my pleasure to now hand the call over to our CEO, David Hult. David?
Chris Reeves: <unk> GAAP measures on our website.
Chris Reeves: We have also posted an updated investor presentation on our website investors thought Asbury auto dot com highly.
Chris Reeves: Highlighting our fourth quarter, highlighting our fourth quarter results.
Chris Reeves: It is my pleasure to now hand, the call over to our CEO, David Hult David.
David W. Hult: Thank you, Chris. And good morning, everyone. Welcome to our fourth quarter and year-end earnings call. 2023 was a productive year, with meaningful growth from M&A and growth within our stores. A reflection of our hard work that was recognized with several accolades, this year we were ranked 18th on Forbes' list of America's best mid-sized companies. We were recently named one of America's greatest workplaces for 2023 by Newsweek, receiving a 5 out of 5 star rating based on company reviews. Coons was also named by Newsweek, one of the few auto retailers alongside us named for this distinction.
David W. Hult: You, Chris and good morning, everyone.
David W. Hult: Welcome to our fourth quarter and year end earnings call.
David W. Hult: 2023 was a productive year.
David W. Hult: With meaningful growth from M&A and growth within our stores.
David W. Hult: A reflection of our hard work that was recognized with several accolades. This year. We were ranked 18th on Forbes' list of America's Best Midsized companies.
David W. Hult: We're recently named as one of America's greatest workplaces 2023 by Newsweek, receiving a five out of five star rating based on company reviews.
Chris Reeves: Koons was also awarded by Newsweek, one of the few auto retailers alongside US name for this distinction.
David W. Hult: And we were honored to be named the 2024 Best Companies to Work for in the Retail Industry by U.S. News and World Report. These are great affirmations on our journey to be the most guest-centric automotive retailer. Change must start internally before you can see it externally.
Chris Reeves: And we were honored to be named 2024 best companies to work for in the retailers industry by U S News and World report.
Chris Reeves: He is a great affirmation on our journey to be the most guest centric automotive retailer it must start internally before you can see it externally.
David W. Hult: Now for our consolidated results for the full year of 2023. We delivered $14.8 billion in revenue, and had a gross profit margin of 18.6%. Our adjusted SG&A as a percentage of gross profit was 58.5%, and we generated an adjusted operating margin of 7.3%. Our adjusted earnings per share was $32.60, and our adjusted EBITDA was over $1.1 billion.
Chris Reeves: Now for our consolidated results for the full year of 2023.
Chris Reeves: We delivered $14 8 billion in revenue.
Chris Reeves: I had a gross profit margin of 18, 6%.
Chris Reeves: Our adjusted SG&A as a percentage of gross profit was 58, 5%.
Chris Reeves: We generated an adjusted operating margin of seven 3%.
Chris Reeves: Our adjusted earnings per share was $32.60.
Chris Reeves: Adjusted EBITDA was over $1 1 billion.
David W. Hult: In addition to the Coons acquisition, we repurchased 1.3 million shares for $258 million, and we produced an adjusted operating cash flow of $705 million. Looking to the future. We are committed to deploying capital to its best and highest use, to strengthening our balance sheet, and to running strong, disciplined operations. The world has evolved significantly since we initially laid out our vision for growth in December of 2020, and we are very pleased with what we have achieved so far, including $11 billion of acquired revenue and the strategic entry into markets we have circled for many years. We have strong convictions about this vision of smart growth. This vision acts as a strategic framework for how we think about our business, serving to inform our decision-making along the path to $30 billion or greater in revenue. This framework allows us to continuously adapt to macro factors that may impact the timeline for our journey but not how we think about achieving it. To us, it is more realistic to consider it a matter of when rather than if.
Chris Reeves: In addition to the cones acquisition, we repurchased one 3 million shares for $258 million and.
Chris Reeves: And we produced an adjusted operating cash flow of $705 million.
Chris Reeves: Looking to the future.
Chris Reeves: We are committed to deploying capital to its best and highest use.
David Hult: Strengthening our balance sheet, and so running strong disciplined operation.
Chris Reeves: The World has evolved significantly since we initially laid out our vision for growth in December of 2020.
David W. Hult: And we are very pleased with what we have achieved so far.
Chris Reeves: Including $11 billion of acquired revenue.
Chris Reeves: And the strategic entry into markets, we have circled for many years.
Chris Reeves: We have strong conviction for this vision of smart growth.
Chris Reeves: This vision acts as a strategic framework for how we think about our business.
Chris Reeves: Serving to inform our decision, making along the path that $30 billion or greater in revenue.
Chris Reeves: This framework allows us to continuously adapt to macro factors that may impact the timeline for our journey, but not how we think about achieving it.
Chris Reeves: To us.
Chris Reeves: We believe it is more realistic to consider it a matter of when rather than F.
David W. Hult: As we prioritize disciplined and balanced capital allocation being good operators of our business by accelerating same store growth and seeking opportunities through M&A activities.
David W. Hult: As we prioritize discipline and balanced capital allocation, being good operators of our business by accelerating same-store growth and seeking opportunities through M&A activity, we plan to deploy capital when the opportunity arises, such as with Koons. We were fortunate to make a great acquisition in a great market with an outstanding group of team members and leaders. Going forward, we will continue to seek acquisitions of this caliber. We plan to optimize our portfolio for markets with strong demographics and friendly state franchise laws and for assets with quality operators and performance.
Chris Reeves: We plan to deploy capital when the opportunity arises such as with Coos.
Chris Reeves: We were fortunate to make a great acquisition and a great market with an outstanding group of team members and leaders.
David W. Hult: Going forward, we will continue to seek acquisitions of this caliber.
David W. Hult: We plan to optimize our portfolio for markets with strong demographics and friendly state franchise laws in assets with quality operators and performance.
Daniel Clara: There are additional details about our updated vision and framework in our investor presentation. Before I hand the call over to Dan, I'd like to once again express my appreciation for all our team members for their continued focus on the guest experience and their hard work. Thank you all very much. Now Dan will discuss our operations performance.
Chris Reeves: There are additional details about our updated vision and framework and our investor presentation.
Daniel Clara: Before I hand, the call over to Dan I'd like to once again express my appreciation for all our team members for their continued focus on the guest experience and their hard work. Thank you all very much.
Chris Reeves: Now Dan will discuss our operational performance.
Daniel Clara: Thank you, David, and good morning, everyone. I'll start off by once again thanking our team members who are focused on delivering the most guest-centric automotive retailer experience and ensuring our success. Now, moving to same-store performance, which includes dealerships and TCA, unless stated otherwise, starting with new vehicles. Our same store new day supply was 43 days at the end of December, an increase of 7 days from September. As a reminder, December is a good sales month for us, and it has a positive impact on day supply. However, we continue to see wide variation among models and disparity in the combustible, hybrid, and electric vehicles they supply, even within the same brand.
Daniel Clara: Thank you David and good morning, everyone.
I'll start off by once again thanking our team members who are focused on delivering the most guest centric automotive retailer experience and ensuring our success now.
Daniel Clara: Now moving to same store performance, which includes the dealerships and TCA unless stated otherwise.
Daniel Clara: Starting with new vehicles.
David W. Hult: Our same store New day supply was 43 days at the end of December an increase of seven days from September.
Daniel Clara: As a reminder December is a good sales month for us and it has a positive impact on days supply.
Daniel Clara: We continue to see wide variation among models and disparity in combustible hybrid and electric vehicles days' supply even within the same brands.
Daniel Clara: We don't know what 'twenty 'twenty four will bring but we will continue to manage they supply as best we can.
Daniel Clara: We don't know what 2024 will bring, but we will continue to manage day supply as best we can. Our new vehicle business generated solid performance. For the quarter, Sane Store revenue grew 10% in the quarter and 7% for the year. New unit volume grew 7% in the fourth quarter and 3% overall. New average gross profit per vehicle was $4,272 in the quarter.
Daniel Clara: Our new vehicle business generated solid performance for the quarter same store revenue grew 10% in the quarter and 7% for the year.
Daniel Clara: New units volume grew 7% in the fourth quarter and 3% overall.
Daniel Clara: New average gross profit per vehicle was $4272 in the quarter.
Daniel Clara: New vehicle gross margin was 8.3% this quarter and 9.2% for the year. Turning to used vehicles, U.S. retail revenue decreased 12% for the quarter and full year, as unit volume was down 10% in both the quarter and full year.
Daniel Clara: New vehicle gross margin was eight 3% this quarter and nine 2% for the year.
Daniel Clara: Turning to used vehicles.
Daniel Clara: U S retail revenue decreased 12% for the quarter and full year.
Daniel Clara: As unit volume was down 10% in both the quarter and full year.
Daniel Clara: Used retail gross profit per vehicle was $1,666 for the quarter, driven by a constrained environment to cost-effectively source quality vehicles. Our same store used DSI with a 32-day supply. We're looking at 2024 as a tough year to acquire pre-owned vehicles with a small pool of lease and rental fleets to pull from, shifting to F&I. We delivered an F&I PVR of $2,295 in the quarter, compared to $2,621 last year, a reflection of higher interest rates pressuring consumer payments. The Deferred Revenue Headwind of TCA contributed $142 to the PBR decrease in the same store FNI PBR number year over year, and this headwind will grow throughout 2024. For the full year, same store FNI PVR was $2,308.
Daniel Clara: Used retail gross profit per vehicle was $1666 for the quarter driven by a constrained environment to cost effectively source quality vehicles.
Daniel Clara: Our same store used ESI was 32 day supply.
Daniel Clara: We're looking at 'twenty 'twenty four is a tough year to acquire pre owned vehicles with a small pool of lease and rental fleets to pull from.
Daniel Clara: Shifting to F&I.
Daniel Clara: We delivered an F&I T V R $2295 in the quarter compared with $2621 last year.
A reflection of higher interest rates pressure in consumer payments there.
Daniel Clara: The deferred revenue headwind of TCA contributed $142 to the P. B R. A decrease in the same store F. N P. B R number year over year.
Daniel Clara: And this headwind will grow throughout 2024.
Daniel Clara: For the full year same store F N I P V arc was $2308.
Daniel Clara: In the fourth quarter, our total front end yield per vehicle was $5438.
Daniel Clara: In the fourth quarter, our total front-end yield per vehicle was $5,438. Moving on to parts and service. Our parts and service business revenue was $499 million, comparable to per year per quarter. Gross profit was $278 million, in line with prior year quarter, and we earned a gross profit margin of 55.6%. Non-converted stores' total parts and service gross profit was up 4% for the quarter, while stores that went through the conversion brought the company down to flat in the quarter.
Daniel Clara: Moving to parts and service our parts and service business revenue was 499 million comparable to prior year quarter.
Daniel Clara: Gross profit was 278 million in line with prior year quarter, and we earned a gross profit margin of 55, 6%.
Daniel Clara: Non converted stores total parts and service gross profit was up 4% for the quarter.
Daniel Clara: Stores that went through the conversion brought the company down to flat in the quarter. We believe in the first quarter, we will see an uptick in our business for.
Daniel Clara: We believe in the first quarter we will see an uptick in our business. For the year, we generated 5% growth in same-store revenue and gross profit, with a four-year gross profit margin of 55.3%. Finally, ClickLane is progressing well, posting a 32% growth in total retail units year over year versus the prior year quarter.
Daniel Clara: For the year, we generated 5% growth in same store revenue and gross profit with.
Daniel Clara: With a four year gross profit margin of 55, 3%.
Daniel Clara: Finally, click lean is progressing well posting a 32% growth in total retail units year over year versus prior year quarter.
Michael Welch: We are pleased by the shift we have seen in new vehicle penetration, which grew to 51% of total ClickLane units in the fourth quarter versus 42% in the prior year. We remain committed and focused on the growth of ClickLink and are excited about the path forward. As time has gone on, it has become a more integrated part of our dealership model, which is to serve our guests in the many ways they choose to shop. And so it makes sense to speak about it within the larger scope of our performance going forward. I will now hand the call over to Michael to discuss our financial performance. Thank you, Dan.
Daniel Clara: We are pleased by this shift we have seen in new vehicle penetration, which grew to 51% of total Cleveland units in the fourth quarter versus 42% in the prior year.
Michael Welch: We remain committed and focused on the growth of click lame and are excited about the path forward as time has gone on it has become a more integrated part of our dealership model.
Michael Welch: Which is to serve our guests and the many ways they choose to shop and so it makes sense to speak about it within the larger scope of our performance going forward.
Michael Welch: I will now hand, the call over to Michael to discuss our financial performance Michael.
Michael Welch: Thank you Dan to our investors analysts team members and other participants on our call good morning.
Michael Welch: To our investors, analysts, team members, and other participants on our call, good morning. I would like to provide some financial highlights for our company. For additional details on our financial performance for the quarter, please see our financial supplement in our press release today and our investor presentation on our website. Overall, adjusted net income for the quarter was $146 million, and Adjusted EPS was $7.12 for the. Adjusted net income for the fourth quarter of 2023 excludes net of tax. 88.1 million in non-cash asset impairments.
Michael Welch: I would like to provide some financial highlights for our company for additional details on our financial performance for the quarter. Please see our financial supplement and our press release today and our investor presentation on our website.
Michael Welch: Overall, adjusted net income for the quarter was $146 million and adjusted EPS EPS was $7.12 for the quarter.
Michael Welch: Adjusted net income for the fourth quarter of 2023 excludes net of tax.
Michael Welch: 88, 1 million of noncash asset impairments.
Michael Welch: 900000 of noncash fixed asset write offs at $1.8 million of professional fees related to the acquisition of the coons automotive companies.
Michael Welch: $900,000 of non-cash fixed asset write-offs and $1.8 million of professional fees related to the acquisition of Kuhn's Automotive. Lease items increased 2023 fourth quarter diluted EPS by $4.42. Adjusted net income for the fourth quarter 2022 excludes net tax expenses related to a significant acquisition that did not materialize at $2 million, and gains on dealership divestitures net primarily related to North Carolina stores of $153 million The tax rate for the quarter was 26.6%, which included a one-time deferred tax impact related to an increase in our estimated future state effective tax due to the acquisition of Kuhn.
Michael Welch: These items increased 2023 fourth quarter diluted EPS of $4.42.
Michael Welch: Adjusted net income for the fourth quarter 2022 excludes net of tax expenses related to a significant acquisition that did not materialize, a $2 million and gains on dealership divestitures net primarily related to the North Carolina stores of $153 million.
Michael Welch: The tax rate for the quarter was 26, 6%, which include a one time deferred tax impact related to an increase in our estimated future state effective tax rate due to the acquisition of Junes, we had to revalue, our net deferred tax liability for this increase and the state tax rate.
Michael Welch: We had to revalue our net deferred tax liability for this increase in the state tax rate. The impact was $1.4 million, or $0.07 per share. On an adjusted basis, our fourth-quarter tax rate was $25.5%, and we estimate our tax rate for the full year 2024 at 24.8%. For the full year, TCA generated $91 million of pre-tax income.
Michael Welch: The impact was $1 4 million or seven cents per share.
Michael Welch: On an adjusted basis, our fourth quarter tax rate was 25, 5% and we estimate our tax rate for the full year 2024 or 24, 8%.
Michael Welch: Yeah.
Michael Welch: For the full year of TCA generated 91 million of pre tax income for.
Michael Welch: For 2024, we anticipate TCA pre-tax income to be between $20 and $40 million, decreased between $1.90 and $2.60 per share due to the increasing deferred revenue impact of recently implemented stores and states with older policies rolling off. We completed the rollout to all of our markets in 2023, except for Florida and Coon. We expect to complete the remaining stores by mid-2024. We believe 2024 and 2025 will be the most impacted by TCA headwinds until the effect of revenue deferral or before. For the full year, we generated $705 million of adjusted operating cash flow, which enabled us to repurchase shares and make a sizable equity. Excluding real estate purchases, we spent $142 million on capital expenditures in 2023; free cash flow for the year was $563 million.
Michael Welch: For 2024, we anticipate TCA pretax income to be between 20 and $40 million or a decrease between $1 90, and $2 60 per share.
Michael Welch: Due to the increase in deferred revenue impact of recently implemented stores in states with older policies rolling off we.
Michael Welch: We completed the rollout to all of our markets in 2023, except for Florida, and Coons, we expect to complete the remaining stores by mid 2024.
Michael Welch: We believe 2024 and 2025 would be the most impacted with TCA headwinds until the effect of revenue deferral are behind us.
Michael Welch: For the full year, we generated 705 million of adjusted operating cash flow.
Michael Welch: Which enabled us to repurchase shares and make a sizable acquisition.
Michael Welch: Excluding real estate purchases, we spent 142 million on capital expenditures in 2023.
Michael Welch: Free cash flow for the year was $563 million.
Michael Welch: We expect Capex.
Michael Welch: WESPA, CAPEX, through 2026 to be elevated relative to prior years, partially driven by higher store count for M&A activity over the past few years, which is driving a higher near-term need for CapEx and facility relocation. We plan for approximately $250 million in capex per year. We ended the quarter with $460 million of liquidity, comprised of cash, excluding cash at Total Care Auto, floor plan offset accounts, and availability on our revolving credit system.
Michael Welch: Through 2026 to be elevated relative to prior years, partially driven by higher store count for M&A activity over the past few years, which is driving a higher near term need for Capex and facility relocations we.
Michael Welch: We plan for approximately $250 million in Capex per year.
Michael Welch: We ended the quarter with $460 million of liquidity comprised of cash excluding cash a total care auto floor plan offset accounts and availability on our revolving credit facility.
Michael Welch: As a reminder, we utilize. Thank you very much. Mostly incurred after the closing of the deal in mid-December. We will have an elevated amount of floor plan interest expense in 2024; we will have a lower balance in our floor plan also. Our pro forma adjusted net leverage was 2.5 times at the end.
Michael Welch: As a reminder, we utilized existing balance sheet liquidity, including our floor plan offset accounts to acquire shares in the fourth quarter for the quarter, we had $8 million of Floorplan expense interest expense, mostly incurred after the closing of the deal in mid December we will have an elevated amount of floor plan interest expense in 2024.
Michael Welch: Since we will have a lower balance in our floorplan offset accounts.
Michael Welch: Our pro forma adjusted net leverage was two five times at the end of December and we anticipate bringing leverage back to approximately two times by the end of 2024 that said, we will remain opportunistic with capital allocation, including share buybacks and acquisitions.
Michael Welch: And we anticipate bringing leverage back to approximately two times by the end of 2024. That said, we will remain opportunistic with capital allocation, including share buybacks, and, Finally, I would like to extend my thanks to our valued team members and leaders for a strong year through the growth process and look forward to what 2024 and beyond bring. Thank you.
Michael Welch: Finally, I would like to extend my thanks to our valued team members and leaders for a strong year through.
Operator: Through the growth process and look forward to what 2024 and beyond great. Thank you. This concludes our prepared remarks, we will now turn the call over to the operator and take your questions Rob.
Operator: This concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Rob?
Operator: Yeah.
Rob: Thank you.
Operator: 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 1 on your telephone. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 start.
Operator: At this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Operator: Confirmation tone will indicate your line is in the question queue.
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Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the darkies one moment. Please while we poll for questions.
Daniel Clara: One moment, please, while we poll for questions. Our first question comes from Daniel Embro with Stevens. Please proceed with your question. Yeah, hey, good morning, everybody. Thanks for taking our questions.
Daniel Clara: Our first question comes from Daniel <unk> with Stephens. Please proceed with your question.
Daniel Clara: Yeah, Hey, good morning, everybody. Thanks for taking my questions sure good morning Dana.
David W. Hult: David, I want to start on maybe a longer-term one. You mentioned that as you thought about the long-term targets, the world has obviously changed. I think the slides talked about M&A multiples, but we noticed a little bit less disclosure around ClickLane. I guess, can you talk about the progress you're seeing on ClickLane?
Daniel Clara: What is sort of a maybe a longer term. One you mentioned is he talking about long term targets. The world has obviously changed I think the slides talk about M&A multiples, but we noticed a little bit less disclosure around quick one I guess can you just talk about the progress you're seeing on quick Lane. If you still feel like longer term. The contribution you've previously talked about is achievable and if there are challenges, maybe where you're seeing them.
David W. Hult: If you still feel that, in the long term, the contribution you previously talked about is achievable. And if there are challenges, maybe where you're seeing them with that product. Sure, Daniel. I'll do the best I can and then Dan can jump in if he wants.
David W. Hult: With that product.
Daniel Clara: Sure Danielle I'll do the best they can and then Dan can jump in if he wants we loved the software we loved the tool we love the option. It gives our guests to acquire a vehicle in a very transparent and fast manner.
David W. Hult: We love the software, we love the tool, we love the option it gives our guests to acquire a vehicle in a very transparent and fast manner. The ebbs and flows as it grows and adoption from consumers is going to vary by brand and, in some cases, by state with us as we've seen so far. We were, you know, I think going through COVID, very optimistic that it was going to be a much higher percentage of our sales than what it currently is today. But we still think it's a very valued tool, and it'll continue to be a part of our business and grow over time as consumers get more comfortable with purchasing a vehicle online. As we all know, during COVID times, everything was really selling at a single price or MSRP. Now that the prices are softening and normalizing a little bit, that creates more of a negotiation standpoint, which would certainly challenge ClickLane going forward.
David W. Hult: The ebbs and flows as it grows and adoption from the consumers is going to vary by brand and in some cases by states with us that we've seen so far.
David W. Hult: We were you know I think going through Covid very optimistic that it was going to be a good higher percentage of our sales and what it currently is today.
David W. Hult: But we still think it's a very value tool and it will continue to be a part of our business and grow over time as consumers get more comfortable with.
David W. Hult: With purchasing a vehicle online.
David W. Hult: As we all know through the Covid times, everything was really selling into one price or MSRP.
David W. Hult: Now that the prices are softening and normalizing a little bit and that creates more of a negotiation standpoint, which would certainly challenge them quickly and going forward, we have built algorithms.
David W. Hult: We have built algorithms for both new and used cars for pricing within the markets to make sure that we have the vehicles priced appropriately so there isn't a defection over price. But that is something, you know, we're entering new territory with this with Quicklane, so we'll have to monitor it as we go. Daniel, good morning. This is Dan.
David W. Hult: On both new and used for pricing within the markets are to make sure that we have the the vehicles priced appropriately so there isn't a defection over price.
Dan: But that is something you know, we're entering new territory with this with quickly and so we'll have to monitor it as we go.
David W. Hult: Daniel Good morning. This is Dan I'll, just add that we.
Daniel Clara: I'll just add that, as I stated in my script, we are very committed to continuing to grow ClickLane and happy with what we're seeing. I think one item to point out is that, ever since we rolled out ClickLane, we've always talked about the quality of credit that we get there that is higher than at our stores. And that was not an exception.
Dan: As I stated on my one of my script that we are very committed and to continue to grow click Lane are happy with what we're seeing I think one item to point out is ever since we rolled out click lane.
Daniel Clara: <unk> always talked about the quality of credit that we get there that is higher than at our stores.
Daniel Clara: And that was not the exception that trend continue last quarter, where we saw the highest credit score of all year and actually since the exception of clicks Lane.
Daniel Clara: That trend continued last quarter, where we saw the highest credit score of all year, and actually, since the exception of ClickLane, that credit score being at 740. So we continue to see, with inventory of new cars coming back around, we're starting to see that shift of a higher percentage to new cars, and consumers continue to really enjoy the transaction time compared to the traditional transaction time of acquiring a vehicle. I am so excited for the future, and I agree with everything that David stated. And one last thing to add. You know, when we launched it, it was solely an online tool, and consumers went through it online. Now that we've built showroom models, you know, the customers start their journey sometimes online at home, sometimes in the showroom, sometimes, you know, giving their personal information, social security number, doing the financing, coming in, finishing the deal, it's really just engagement in the software that's increasing. But from our standpoint, we don't count the sale if they didn't give us all their personal information and social security number. So if they just were in there looking at the tool and getting pricing, that didn't count for us. They had to give us their personal information, put their social security number in there. No, that makes sense. Thank you for the color.
Daniel Clara: That credit scores being at 740, so we're continue to see with inventory of new cars coming back around we're starting to see that shift of a higher percentage to new cars.
Daniel Clara: And consumers continue to really enjoy the transaction time are compared to the traditional transaction time of acquiring a vehicle. So excited for the future and I agree with everything that David State It and one last thing to add you know when we launched it it was solely in an online tool and consumers went through it online.
Daniel Clara: Now that we built a showroom models you know the customers starting their journey, sometimes online at home sometimes in the showroom.
Daniel Clara: Sometimes you know putting their personal information social doing the financing coming in finishing the deal. It's really just engagement and the software that's increasing but from our standpoint, we don't count the sale if they didn't give us all of their personal information social security. So if they do somewhere in there looking at the tool and getting pricing that didn't come for us they they had it.
Daniel Clara: Their personal information put their social in there.
Speaker Change: No. It makes sense. Thank you for the color.
David W. Hult: And Dan, maybe as our follow-up, I think in your prepared remarks, you mentioned you're excited to see a pickup in parts and service in the first quarter. If we heard that right. Just given the ongoing challenges with the integration, can you discuss what gives you that visibility? And while the comps were negative on the integrated stores, did they improve through the quarter? Have you seen those green shoots yet? Just any color there would be great.
Speaker Change: And maybe as a follow up I think in your prepared remarks, you mentioned you did see a pick up in parts and service in the first quarter, if I heard that right just given the ongoing challenges with the integration can you discuss what gives you that visibility in and while the comps were negative on the integrated stores did they improve through the quarter have you seen those green shoots yet just any color there would be.
Daniel Clara: Thanks. Yeah, happy to do so, Daniel. Yes, I did state that in my script.
Speaker Change: Great. Thanks.
Dan: Happy to do so Daniel Yes, I did state that in my Oh on my script and to answer. Your question. Further question, Yes, we're starting to see progress in the stores you when you think about it and.
Daniel Clara: And to answer your question, further question, yes, we're starting to see progress in the stores, you when you think about it. And, The Larry H. Miller stores that we bought on the West Coast, a tremendous number of stores with a tremendous number of people and tremendous amount of talent, but the stores were not up to the technology of doing business the way that we should be doing business today. And so to further enhance the guest experience, you know, that's a major part of the integration. It takes time to coach, train, and develop people to use the new technology and get used to it, and then be able to present it properly to the guests.
Daniel Clara: The the Larry Miller, our stores that we bought in the West coast, a tremendous amount of stores with tremendous amount of people and tremendous amount of talent, but the stores were not up to the to the technology of doing business. The way that we should be doing business today and so as to further enhance the guest experience.
Daniel Clara: That's a major part of the integration it takes time to coach train and develop people to use the new technology and get used to it.
Daniel Clara: And then being able to present a property to the guests that's what we have been.
David W. Hult: That's what we have been working diligently on, and we're starting to see progress, and that's why I stated that I expect to see a better first quarter, as I stated in the script. And Daniel, just to follow up on that, you know, January's over now. We saw a nice increase in January year over year across the company, so that gives us some hope that we're headed in the right direction. You know, it's that time of year, too, and we've got a lot of stores in Denver and Salt Lake City. But weather's a challenge as well.
Daniel Clara: Working diligently with <unk> and we're starting to see progress and that's why I stated that expect to see a to have a better first quarter as I stated on the script and then Daniel just to follow up on that you know January is over now we saw a.
Daniel Clara: A nice increase in January year over year across the company. So that gives us some hope that we're headed in the right direction. You know, it's that time of year to them. We've got a lot of stores in Denver, and Salt Lake Weathers, a challenge as well.
David W. Hult: So I don't know what weather's gonna be in store for us the rest of the quarter, and we certainly had some in January. But we've seen some nice progress in January. We frustrated a lot of our team members in the fourth quarter. When you convert software and go through all that, it never goes smoothly. So you're frustrated with your guests, you're frustrated with your employees, and it's just a painful process to go through. But, you know, we're pretty much on the other side of that. Oh, and there were... Discussion around just the shifting was that just to clarify your comment on the January improvement. I'm sorry, Daniel; you cut out.
Daniel Clara: So I don't know what weather is going to be in store for us the rest of the quarter and we certainly had some in January but we've seen some nice progress in January we frustrated a lot of our team members in the fourth quarter. When you convert software and go through all that had never go smoothly. So you're frustrated and your guest you frustrating your employees and its just a painful process to go through.
David W. Hult: But you know we're pretty much on the other side of that at this point.
David W. Hult: Okay.
Daniel Clara: Oh no.
Speaker Change: Discussion around just the shifting was that and just to clarify on your comment on the January improvement.
Speaker Change: I'm sorry, you cut out all I heard was January improvement.
David W. Hult: All I heard was about January improvement. Sorry, yeah. Was there any calendar benefit in there? There's been some discussion around just the holiday timing this year through 4Q. Was that any part of the improvement you just talked about in January? No, I wouldn't say that because we had some negative impact in January and some lost days with the weather.
David W. Hult: Sorry, Yeah was there any calendar benefit and there there's been some discussion around the holiday timing this year through pork you without any part of the improvement you just talked about in January.
David W. Hult: No I wouldn't say that because we were we had some negative impact in January and some lost days with the weather.
David W. Hult: So I kind of feel like that's not an issue. Great. I appreciate all the color.
David W. Hult: So I kind of feel like that that's not a not an issue.
John Murphy: Best of luck, guys. Thank you. The next question comes from John Murphy with Bank of America. Please proceed with your question. Good morning, guys. Um, I got on about five minutes after the call started.
Speaker Change: Great I appreciate all the color best of luck guys. Thank you. Thank you.
John Murphy: Our next question comes from John Murphy with Bank of America. Please proceed with your question.
John Murphy: Good morning, guys.
John Murphy: I got on about five minutes. After the call started so I hope I'm not covering stuff here that you've covered but I mean, if we think about the used business you had gotten close to a one to one or actually you know a little bit above that but more recently, it's been sort of in the just below <unk> nine to one and.
David W. Hult: So I hope I'm not covering stuff here that you covered. But I mean, if we think about the used business, you know, you've gotten close to one to one or actually, you know, a little bit above that. But more recently, it's been sort of in the, you know, just below, you know, point nine to one. Yeah, I'm just curious if that's a function of market dynamics, acquisitions, or, you know, is this the kind of thing that we could look at recovering, 324, David. Yeah, John, I'll start, and this is David, and Dan can jump in.
David: I was just curious if that's a function of market dynamics acquisitions or it was.
David: Is this the kind of thing that we get we could look at recovering.
David: 324, David.
David W. Hult: Yeah, John I'll start and this is David and Dan can jump in.
David W. Hult: You know, I would say we've had a conservative approach to acquiring inventory, and maybe too conservative. We've been, right or wrong, more focused on gross profit than we have volume. We need to take a more aggressive stance on acquiring vehicles. Naturally, when we acquire or purchase a vehicle, our gross profit is lower than when we take it in trade.
David: I would say we've had a conservative approach on acquiring inventory and maybe too conservative.
David W. Hult: We've been right or wrong more focused on gross profit than we have volume.
David W. Hult: We need to take a more aggressive stance at acquiring vehicles naturally when we acquire a purchase a vehicle our gross profit is lower than when we take it in trade and as a reminder, you know when your trades are coming in and the average age of the trade is 12 and a half years sometimes.
David W. Hult: And as a reminder, you know, when your trades are coming in, and the average age of the trade is 12 and a half years, sometimes a lot of the trade-ins that you have just aren't for retail sale. I expect in 24, it'll still be challenging because there's not a lot of fleet vehicles coming off the line, there's not a lot of off-lease vehicles, so there'll still be a tight pull to pick from. But I think it's time that we take a more aggressive stance on creating more volume.
David W. Hult: Sometimes a lot of the trade ins that you have just aren't for retail sale I expect in 'twenty four it still to be challenging because there's not a lot of fleet vehicles coming off there's not a lot of off lease vehicles. So there's still be a typo to pick from a but I think it's time that we take a more aggressive stance on creating more volume.
Speaker Change: Yeah, John I would I agree with David the we're taking a more aggressive stance.
David W. Hult: Yep, John, I agree with David, we're taking a more aggressive stand. We understand the benefit of the additional volume. You pick up the reconditioning parts and service, you put another unit in operation in the market, and then you pick up F&I as well.
David W. Hult: We understand the benefit of the additional volume you pick up the reconditioning parts and service you put another unit in operation in the market and then you pick up if and I as well so.
David W. Hult: So we're committed to a more aggressive stance as we go into 2024. And then just a second question on SG&A, you know, it's a little bit mean and not necessarily fair because you are at 61% in change. You're doing very well in absolute terms and relative to some of your peers, but that was a little bit of a slippage relative to where you have been. Just curious, David, what you think the drivers of that small slippage, once again, absolutely, it's good performance, but that slippage relative to where you have been, and was there maybe some sort of distraction as the Coons deal was going on that maybe, you know, let things slip I mean, what's going on here?
Speaker Change: We're committed to a more aggressive stance as we go into 'twenty four.
David W. Hult: Okay, and then just a second question on SG&A.
David W. Hult: It's a little bit mean, and not necessarily fair because you are at 61% or can change.
David W. Hult: Doing very well in absolute terms and relative to some of your peers, but that was a little bit of a slippage relative to where you have been I'm. Just curious what you think the drivers of that.
David W. Hult: That small slippage once again, absolutely. It's it's it's it's good performance, but that slippage relative to where you had been and was there may be some distraction as the coons deal was going on at that maybe let things slip a little bit and we could see some improvement in 2024, I mean whats going on there.
David W. Hult: Sure. John This is David No Koons acquisition had nothing to do with it.
David W. Hult: Sure, John. This is David. No, Kuhn's acquisition had nothing to do with it. We're optimistic about the number because some of it was self-inflicted, trying different things on our end. We took a more aggressive stance on loaner vehicles and depreciation. And quite honestly, we spent a lot more on advertising in the quarter than what we normally spend per car. So those are two controllable expenses that we have. So when we think about the personnel costs and other expenses that we have, we were comfortable where we came in and consistent with our past. But those two line items that I mentioned really had an impact on overall SG&A. Michael, I don't know if you want to comment. Yeah, I mean, I think we're comfortable kind of, you know, 59 to 60 is still a comfort level that we have for next year. The other thing is that fixed ops comes back.
David W. Hult: We're optimistic about the number because some of it was self inflicted trying different things on our end, we took a more aggressive stance on loaner vehicles and depreciation and quite honestly, we spent a lot more in advertising in the quarter than what we normally spend per car. So those are two controllable expenses that we have so.
David W. Hult: When we think about the personnel costs and other expenses that we have we were comfortable where we came in and consistent with our past, but those two line items that I mentioned really had an impact on overall SG&A Michael I know if you want to comment yeah. I mean, I think we're comfortable kind of 59 to 60 range is still a comfort level that we have for next year. The other thing.
Michael Welch: Is it fixed ops comes back you that just provides more gross profit to cover some of those fixed expenses and so the decline in fixed ops also impacted the SG&A number.
Michael Welch: You know, that just provides more gross profit to cover some of those fixed expenses. And so the decline in fixed ops also impacted the SG&A numbers. Very helpful.
John Murphy: Thank you, guys. Absolutely. Our next question is from Ryan Sigdahl with Craig Hallam Capital; please proceed with your questions. Hey, good morning, guys.
Speaker Change: Very helpful. Thank you guys.
Michael Welch: Absolutely.
Ryan Sigdahl: Our next question is from Ryan Cig Dahl with Craig Hallum Capital Group. Please proceed with your question.
Ryan Sigdahl: Hey, good morning, guys.
Ryan Sigdahl: Just want to go over to new vehicle GPUs, I guess any notable changes by OEMs thus far in 2024? And then, kind of second to that, I guess, what's your expectation overall for the pace of GPU normalization? Sure, Ryan.
Ryan Sigdahl: Want to go over to new vehicle GPU I guess any notable changes by Oems. Thus far in 2024, and then kind of second to that I guess, what's your expectation overall for the pace of GPU normalization.
Ryan Sigdahl: Sure Ryan as you can imagine the day supply for us look low in the quarter, but as Dan stated it was really the pickup in sales in December that brought down the day supply. We still had you know a Honda and Toyota in the mid teens for a day supply. So naturally you can imagine the margin held up there.
David W. Hult: As you can imagine, you know, the day supply for us looked low in the quarter. But, as Dan stated, it was really the pickup and sales in December that brought down the day supply. We still had, you know, Honda and Toyota in the mid teens for day supply. So naturally, you can imagine the margin held up there.
David W. Hult: We had a higher day supply in Nissan, so that certainly impacted the margin. We have a higher day supply in Stellantis that impacted the margin as well with Infiniti.
David W. Hult: We had a higher day supply of Nissan So that certainly impacted the margin are we have a higher day supply and to lantus that impacted the margin and with infinity.
David W. Hult: But with some other brands, you know, like Lexus, Mercedes, and our others, meaning Porsche, and Land Rover, margins we felt really held up well, and as you can obviously see, significantly above 2019. So we really think we're in a pretty good space for our new car business, both in gross profit and volume, but the story varies by brand, certainly. And just on your comment on expectations for 24, you know, this glide path we've seen at kind of 300 a quarter. We expect that to kind of continue through 24 as inventory continues to build. Good. Now, just switching over to technology, Techeon's DMS platform.
David W. Hult: But with some other brands like Lexis.
David W. Hult: Mercedes and are others meeting Porsche land Rover margins, we felt really held up well and as you can obviously see significantly above 2019.
David W. Hult: So we really think we're in a pretty good space for our new car business, both on gross profit and volume, but the story varies by brand certainly.
David W. Hult: And one just on your comment on expectations for 'twenty for you know this glide path. We've seen it kind of you know 300, a quarter, we expect that to kind of continue through 'twenty four as inventory continues to build.
David W. Hult: Good and then just switching over to technology, a techie on CMS platform can you talk about I guess, what you are looking to gain there versus CDK previously.
David W. Hult: Can you talk about, I guess, what you're looking to gain there versus CDK previously? Absolutely. This is David.
David W. Hult: Absolutely. Yeah. This is David you know keep in mind Tech he owns a fairly new company.
David W. Hult: You know, keep in mind, Techeon is a fairly new company, and we're excited. We've been talking with them for over two years, working together to overcome obstacles and what both of us would need to do on our ends to create the relationship. Techion is a cloud-based DMS. The other DMS companies are not. The technology with the other legacy DMSs, unfortunately, require a tremendous number of bolt-on software applications
David W. Hult: And and we're excited we've been talking with them for over two years of working together to overcome obstacles and what both of US would need to do on our end to create that relationship.
David W. Hult: Under a cloud based Tms the other D M S companies or not.
David W. Hult: The technology with the other legacy D. M. S's, Unfortunately require a tremendous amount of bolt on software applications. So if you're in our sales or service teams you have multiple different applications opened at the same time, which doesn't make you a fishing doesn't make your attrition and communicating internally or with the guest.
David W. Hult: So if you're in our sales or service teams, you have multiple different applications open at the same time, which doesn't make you efficient at communicating internally or with the guests. With TechEon, again, in the building process, and we'll launch four stores on the pilot in the third quarter, but with TechEon, we'll have the opportunity to take off about 70% to 75% of the bolt-ons that we have, which will keep our folks on one software base and make it easier for them to communicate internally and also with our guests. And the other thing that we find beneficial to us, you know, right now, if you're a customer at one of our stores in Atlanta and you go to another store in Atlanta, they can't see what you did at the prior store. What we're working on is a one-customer profile with TechEon, which will allow any of our stores to see that customer's transactions in any stores that do business with us.
David W. Hult: With Turkey on again in the building process and will launch four stores on the pilot in the third quarter, but with Tech you on will have the opportunity to take off about 70% to 75% of the bolt ons that we have.
David W. Hult: Which will keep our folks in in one software base and make it easier for them to communicate internally and also and working with our guests and the other thing that we find beneficial to US you know right now if you're a customer is one of our stores in Atlanta. When you go to another store in Atlanta, They can't see what you did at the prior store.
David W. Hult: What we're working on is a one customer profile with tech Jaan, which will allow any of our stores to see that customers transactions in any stores that did business with us. So there's gonna be efficiencies in marketing, there's going to be and fishing.
David W. Hult: So there's going to be efficiencies in marketing, there's going to be efficiencies in productivity with employees, and there's going to be a better guest experience, our belief is, because our folks will be really living out of one software base and more comfortable interacting with them. That's great. Thanks, guys.
David W. Hult: Excuse me efficiencies and productivity with employee.
David W. Hult: And there's going to be a better guest experience. Our belief is because our folks will be really living out of one software base and more comfortable interacting with them.
Speaker Change: That's great. Thanks, guys. Good luck.
Ryan Sigdahl: Good luck. Thank you. Our next question is from Rajat Gupta with J.P. Morgan. Please proceed with your question. Good morning.
David W. Hult: <unk>.
Ryan Sigdahl: Our next question is from Rajat Gupta with JP Morgan. Please proceed with your question.
Rajat Gupta: Great. Good morning, Thanks for taking the question does that started a couple of follow ups.
Rajat Gupta: Thanks for taking the question. Just had a couple of follow-ups to some of the previous questions. The 59 to 62 percent SG&A comment for 2024, could you quantify what kind of new and used GPU assumptions are those based on and maybe even new or used unit growth assumptions that underlie that expectation?
Rajat Gupta: Some of the previous question.
Rajat Gupta: M D D, but 59 to six 2% SG&A.
Rajat Gupta:
Rajat Gupta: For 2024.
Rajat Gupta: Hum.
Rajat Gupta: Could you quantify like what kind of new and used GPU assumption.
Rajat Gupta: Although based on and maybe even like new or used unit growth assumptions are underlying that expectation I have just a quick follow up.
Michael Welch: As we stated on the new margin, we've kind of seen $300 decrease by a quarter. We expect that to continue in 2024, so just that steady step down each quarter of the $300. That was our expectation for next year, for used vehicles. You know, somewhere in line with what we've been doing. Again, we're going to try to push the volume a little bit higher. And so that will keep that margin on the low, not the low side, but just in the same range that we've been. For SAR, the piece there that we've kind of looked at is the SAR range is kind of 15.7 to 16, which is what we've seen out there for SAR.
Michael Welch: Yes, as we stated on the new margin you. This we've kind of seen 300 dollar decrease a quarter. We expect that to continue in 'twenty. Four suggests that studies, you know step down each quarter of the $300.
Michael Welch: That was our expectation for next year used vehicles.
Michael Welch: Somewhere in line with what we've been doing them again, we're going to try to push the volume a little bit higher and so that will keep that margin on the LOE on not the low. So I would just you know in the same range that we've been for SAR you know the piece there that we've kind of looked at as you know the Saar range is kind of a 15, 7% to <unk>.
Michael Welch: <unk>, what we've seen out there for Sars or something in the high <unk> is what we're expecting from our new vehicle volume perspective. So.
Michael Welch: So something in the high 15s is what we're expecting from a new vehicle volume perspective. So those are the main drivers of those. $300 a unit on new, coming down each quarter.
Michael Welch: Those are the main drivers of those is 300 Bucks a unit on new coming down each quarter used vehicle kind of staying in fly with gross profit and then new vehicle growing with those you know Saar assumption in the high <unk>.
Michael Welch: Used vehicle kind of staying in flat with gross profit, and then new vehicle growing with those SAR assumptions in the high 50s. Got it. Got it.
Michael Welch: Got it got it.
David W. Hult: That's helpful. And just just following up on the take you on question, you know, obviously, you've had this, you know, this transition, you know, at the end of the gem stores, and then I'm going to take on, you know, the take me on, you know, roll out, you know, across the board. You know, when it's all said and done, would you be able to quantify, you know, what kind of savings or efficiencies this might bring, like any numbers around that? And will there be, you know, any redundant expenses? to factor in while this rollout is happening. Thanks. Rajat, this is David.
Speaker Change: That's helpful. And then just following up on the particularly on question. You know obviously you know you buy both saw.
David: This transition you know.
David: Stars and they're not going to take time.
Rajat Gupta: Well well rollout across the across the board.
David: When it's all said and done I mean would you were you able to quantify.
David: You know what kind of savings or efficiency.
David: My brain and he just like numbers around that and will there be any redundant expenses.
David: Oh did you factor in the wild well control out of the top line.
Richard: Richard This is David.
David W. Hult: At this time, we're not comfortable quoting a number, but I would tell you because of the lack of bolt-ons that we'll have in working out of one DMS or one software application for the most part, we anticipate a nice tailwind to our SG&A expense. As we, you know, third quarter, we'll launch four stores in our shared service center on the East Coast. Our anticipation is allowing that to run through the end of the year, work out the kinks, and if all goes well, the beginning of 25, we will start to roll out the rest of the company. And because the Kuhns acquisition most recently just came on, they would be the last ones to convert, and we would see them converting sometime in early 26.
Rajat Gupta: At this time, we're not comfortable quoting a number but I would tell you.
David W. Hult: Because of the lack of bolt ons that will have in working out of one Tms or one software application for the most part we.
David W. Hult: <unk> paid a nice tailwind.
David W. Hult: Two our SG&A expense.
David W. Hult: As we you know third quarter will launch four stores and our shared service center on the East Coast are.
David W. Hult: The patient is allowing that to run.
David W. Hult: Through the end of the year work out the Kinks, and if all goes well the beginning of 'twenty five we will start to roll out the rest of the company.
David W. Hult: And because of the Coons acquisition, most recently just coming on and they would be the last ones to convert and we would see them converting sometime in early 'twenty six.
David W. Hult: So, good progress. If we get it through with TechEon, which we believe we are, we're working really well with them and getting a lot done. We anticipate January rolling out all our stores, finishing up with Kuhn's in the early part of 26. So, from an expense savings perspective, that would be, you know, not much in 24. So it's more of a 25-26 play for the expense savings.
David W. Hult: So good progress if we get it through with Jackie on which we believe we are working really well with them and getting a lot done we anticipate January rolling out all of our stores.
David W. Hult: Finishing up with cones are in the early part of 'twenty six.
David W. Hult: And so going from a expense savings perspective that would be you know not much in 'twenty four.
David W. Hult: So it's more of a 'twenty five 'twenty six play for the expense savings there will be some cost for you know kind of implementation of those things this year.
Michael Welch: There will be some cost for the kind of implementation of those things this year, but a piece of that will be capitalizable. So there'll be a couple million dollars of expenses for just the, you know, the rollout this year, building out the... Great. Thanks for all the color and good luck.
Michael Welch: A piece of that will be capitalized.
Michael Welch: <unk>.
Michael Welch: So there'll be a couple of million dollars of expense for just the rollout this year building out the system.
Speaker Change: Okay, great. Thanks, Thanks for all the color and good luck.
Rajat Gupta: Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone. One moment, please, while we poll for questions.
Michael Welch: <unk>.
Rajat Gupta: Yeah.
Rajat Gupta: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Rajat Gupta: One moment, please while we poll for questions.
Rajat Gupta: Our next question comes from Glenn Chin with Seaport Research Partners. Please proceed with your question.
Operator: Our next question comes from Glenn Chin with Seaport Research Partners. Please proceed with your question. Good morning.
Glenn Chin: Hi, good morning. Thank you so just revisiting some of our earlier.
Glenn Chin: Thank you. So just revisiting some earlier comments. So first, on the Larry H. Miller stories, it sounds like TCA has been incorporated. But would you consider the Larry H. Miller Group?
Glenn Chin: Earlier comments, so first time to Larry Miller stores it sounds like.
Glenn Chin: TCA has been incorporated.
Glenn Chin: But would you consider the Larry each Miller group.
Daniel Clara: Those stores fully integrated now? So on TCA, they were already fully integrated with LHM as part of the bi-cell. So TCA, the integration was more TCA coming into the legacy Asbury stores as we rolled that out across the stores. And so, LHM's always been in there; it's the legacy Asbury stores that have been rolling in. We have Florida left to do this year, and then with, you know, acquiring Coons, we'll roll Coons on mid-year this year as well. So those are the last two to kind of come on. That's great. I misspoke. I apologize for that.
Speaker Change: The store is fully integrated now.
Daniel Clara: So.
Daniel Clara: Archie on TCA I'm, you know they were already fully integrated with Elliot Jim as far the buy sell.
Daniel Clara: So TCA the the integration was more TCA coming into the legacy Asbury stores as we've rolled that out across the stores.
Daniel Clara: And so I'll, let Jim has always been known for its the legacy Asbury stores that had been rolling in we have Florida left to do this year and then with you know acquiring tunes will roll tunes on mid year. This year as well. So those are the last two to kind of come on.
Daniel Clara: That's great and then spoke apologize for that but but otherwise are they fully integrated into Asbury now.
Daniel Clara: But otherwise, are they fully integrated into Asbury now? Yes, Glenn. Good morning. This is Dan.
Daniel Clara: Yes, Glenn Good morning. This is Dan yes, the L. A chunk of stores are fully integrated to two out there that there is the D. M. S conversion took place.
Daniel Clara: Yes, the LHM stores are fully integrated into Asbury. There is, the DMS conversion took place mainly in the third quarter and fourth quarter, and then we rolled out parts and service software, kind of a bolt-on to our DMS. There are just a handful of stores left that we are rolling out right now, but it's a very small amount. And then, just going back to parts and service, was there any discernible impact from the UAW strike? Of, You know, we, we, I would say it was not material; we had an impact, there was a, you know, it was challenging to keep up with the guest experience when we had the lack of availability of parts. But I would say no.
Daniel Clara: Mainly in the third quarter into the fourth and then we.
Daniel Clara: Rolled out parts and service software kind of a bolt on to our D. M S.
Daniel Clara: Just a handful of stores left our debt.
Daniel Clara: That we are rolling out right now.
Daniel Clara: But it's a very small amount.
Speaker Change: Okay very good and then.
Daniel Clara: Just going back to parts and service was there any discernible impact from the UAW strike.
Daniel Clara:
Daniel Clara: We I would say it was not material we had an impact there was.
Daniel Clara: Challenging to.
Daniel Clara: To keep up with the guest experience when we had the the lack of availability of parts.
Daniel Clara: But I I I I I would say no, but like our peers, we certainly had some impact with parts, but quite honestly, we had some impact with parts on Oems that don't have union issues.
Daniel Clara: But like our peers, we certainly had some impact on parts. But quite honestly, we had some impact on parts on OEMs that don't have union issues. So it was just an odd end of the year from a parts standpoint, of Epping and Flowing with When We're Receiving Parts. Okay, very good. And then just lastly, on your leverage target, it sounds like you're targeting below two times by end of year. But I mean, is that a revision to your longer-term target, which I think historically is between two and a half to three times? No, I mean, the two and a half to three times is kind of when we get back to normalizing SAR and normalizing new vehicle margins. So that's still not a revision from that.
Daniel Clara: So it was just an odd end of the year from a parts standpoint.
Daniel Clara: Ebbing and flowing with when we're receiving parts.
Daniel Clara: Okay, Great and then just lastly on your leverage target it sounds like you are targeting.
Daniel Clara: Below two times by end of the air, but I I mean is that a revision to your longer term target, which I think historically gives them like two and a half to three times.
Daniel Clara: No I mean, the the two and a half to three times is kind of when we get back to a normalized SAR and normalize our new vehicle margins.
Daniel Clara: So that's still you know not a revision from that we want to you know work their way back down to two times to be ready to do.
Michael Welch: We want to work our way back down to two times to be ready to do sizable acquisitions and share buybacks. But also this year, as I quote in the script, if we see something from a share repurchase perspective or an acquisition, we wouldn't be afraid to spend money on that. So if we don't see those things, we'll work our way back down toward two times.
Michael Welch: Sizable acquisitions and share buybacks, but also this year you know that as I quoted in this in the script, if we see something from a share repurchase perspective, or an acquisition, we wouldn't be afraid to spend money on that so if we don't see those things will work our way back down to toward two times, but if something comes up that makes sense from a capital allocation perspective.
Glenn Chin: But if something comes up that makes sense from a capital allocation perspective, we're not afraid to spend the money on those items. Okay, very good. That's it for me.
Glenn Chin: <unk>, we're not afraid to spend the money of all those items this year.
Speaker Change: Okay, Great. That's it for me. Thank you. Thank you Glenn.
Bret Jordan: Thank you. Thank you. Our next question is from Bret Jordan with Jefferies. Please proceed with your question. Hey, good morning, guys. Good morning.
Bret Jordan: Our next question is from Bret Jordan with Jefferies. Please proceed with your question.
Bret Jordan: Hey, Good morning, guys. Good morning can you talk a little bit about what you're seeing on the battery electric vehicle side from an inventory and maybe GPU.
David W. Hult: Could you talk a little bit about what you're seeing on the battery electric vehicle side from an inventory and maybe GPU? And the follow-up question I'm going to ask is really about GPUs by brand. You talked about Spilantis and Nissan being kind of back to relatively high inventory levels. Are those GPUs looking like pre-pandemic levels, or is the new base above historic profitability? I'll talk about the gross profit per vehicle, and then Dan can cover the electric car stuff. It's a great question, Bret.
David W. Hult: And the follow up question I'm going to ask it is really on GPU by brand you talked about the Atlantis and Nissan being handed back the relatively high inventory levels are those gpus looking like pre pandemic levels or is the new base above the historic profitability.
David W. Hult: I'll talk about the PV Oh, the gross profit per vehicle and Dan could hit the electric car stuff.
Dan: It's a great question Bret the brands that you mentioned Nissan's Atlantis Infinity.
Daniel Clara: The brands that you mentioned, Nissan, Spilantis, Infiniti, they had the biggest impact as far as going backwards in PVR, but all three of them are significantly above, say, 2019. Still very, you know, again, if you're comparing it to 19, extremely healthy, good gross profits, and they were good numbers overall just compared to some of their peers in their spaces, meaning domestic luxury and import, they weren't as OK. Greg, good morning. Dan, I'll try to give you, answer all the questions you asked about EV. It's a great question, so hopefully, I'll give you the color that you want.
Daniel Clara: They had the biggest impact and as far as going backwards in P V R, but all three of them.
Speaker Change: Our significantly above say 2019.
Daniel Clara: Hum.
Daniel Clara: Still very you know again, if you're comparing it to 19 extremely healthy good gross profit and they were good numbers overall, just compared to some of their peers in their spaces meeting domestic luxury and endpoint they werent as good.
Daniel Clara: Okay.
Daniel Clara: Brett Good morning, Dan I'll try to give you the answer.
Speaker Change: For all the questions you asked about <unk>. It's a great question. So hopefully I'll give you the color that you want if I Miss something please let me know.
Daniel Clara: If I miss something, please let me know. When you look at electric vehicle DSI as a percentage of our total inventory, it's about in the 5% range. So just keep that in mind as I'm discussing the other numbers. Our electric vehicle day supply for Q4 was 91 days, and about 54 days supply in the used car arena.
Daniel Clara: When you look at.
Daniel Clara: Electric vehicle DSI as a percentage of our total inventory it's about in the 5% range.
Daniel Clara: So just keep that in mind as I'm discussing the other numbers are our electric vehicle days supply for Q4 was 91 days.
Daniel Clara: And about 54 day supply in the used car arena, we did see an increase from Q3 to Q4, specifically in the new car Arena, we saw an increase of about 33%. So obviously you know there is no news out here, but the EV sales starting to slow down and.
Daniel Clara: We did see an increase from Q3 to Q4. Specifically, in the new car arena, we saw an increase of about 33%. So obviously, there's no news out here, but the EV sales are starting to slow down, and inventory is starting to build. So we're managing that as best we can. Did I miss anything else you wanted to color on?
Daniel Clara: Inventory starting to build so we're managing that as best we can and did I Miss anything else you wanted color on yeah. If you could just sort of talk about I guess, how you see the trajectory of <unk>.
Daniel Clara: Yeah, if you could just sort of talk about, I guess, how you see the trajectory of GPUs on the battery side. Yeah, so... You know, the early adopters of EVs, I think that's what we have been facing or serving at the dealership level. And now that that phase is behind us, there's a lot more, what's the right word?
Daniel Clara: Gpus on the battery side.
Daniel Clara: Yeah. So.
Daniel Clara: You know the the early adopters of Evs I think of that so what we have been facing.
Daniel Clara: Facing or serving at the dealership level and now that that phase is behind US. There is a lot more what's the right word a lot more aggressiveness on from a pricing standpoint, so expect EV EV gpus to be lower than our IC use and then ice.
Daniel Clara: A lot more aggressive from a pricing standpoint. So expect EV GPUs to be lower than ICUs, than ICE, and when we're working deals or working leases, which most of these vehicles are being leased, and that puts a little bit of pressure on the OEM or the lender institution from a residual factor, we're having to get pretty aggressive and discount cars much more than we do with traditional combustion engines. Thank you. You're welcome. Our next question is from David Whiston with Morningstar. Please proceed with your question. Thanks. Good morning.
Daniel Clara: And.
Daniel Clara: And.
David Whiston: When we're working deals or working leases, which most of these vehicles are being leased and that puts a little bit of pressure on the OEM or the the lender institution from a residual factor, we're having to get pretty aggressive and discount cars much more than we do a traditional combustion engines.
David Whiston: Great. Thank you.
David Whiston: Thank you Brett.
Daniel Clara: Yeah.
Daniel Clara: Our next question is from David Whiston with Morningstar. Please proceed with your question.
David Whiston: Hi, Thanks. Good morning can you talk a bit about what the franchise and goodwill impairments for the special item.
Michael Welch: Can you talk a bit about the franchise and goodwill impairments for the special item? Yes, so that's mostly related to our Stellantis and Nissan stores, and with interest rates going up, that kind of increases the whack in our calculation we have to do for our annual impairment testing, but that's primarily related to our Stellantis and Nissan stores in our company. Okay. Looking at your debt profiles, I have two questions on that. First, you've got a lot of bonds due from 2028 to 2030. So, if you're not already at a point like this, you might be soon at a point where you can't just keep piling debt into those three-year timeframes to do more deals in the future. So are your hands tied on big M&A, or do you just want to issue bonds that mature after 2032?
Michael Welch: Yes, so that's mostly related to ours to lantus of Nissan stores.
Michael Welch: But with interest rates going up that kind of increases the WAC in our calculation, we have to do for our annual impairment testing.
Michael Welch: But that's primarily related to are still anxious of Nissan stores in our company.
Michael Welch: Okay looking at your debt profile two questions on that first and you've got a lot of bonds due 2028 to 2030.
Michael Welch: So if you're not already at a point like this you might be sooner at a point, where you can't just keep piling that into those three year timeframe to do more deals in the futures are your hands tied on big M&A or would you just want to issue bonds that mature after 'twenty two.
Michael Welch: Yeah, I mean, we think with the cash flow that we generate on an annual basis, that provides sufficient capital to go out and do M&A and share buybacks. So we're looking more at those bonds in those years as a refinancing opportunity, not to continue to add more debt to those bonds. So we use our free cash flow to kind of do our activity. We do have some mortgages. When we bought the Coons acquisitions, we did not mortgage that real estate. So we do have the option to put on mortgages on that property. We typically mortgage the properties when we buy them, but in this case, we did not mortgage it just to kind of keep the debt level at a lower level. And then sticking on that, the 2026 maturities, the mortgage debt over $600 million. Would you look to just refinance that all at some point with a bond, or do you want to just retire that debt eventually in two years?
Michael Welch: Yeah, I mean, we think with our cash flow that we generate on an annual basis that provides sufficient capital to go out and do M&A and share buybacks.
Michael Welch: So we're looking more at those bonds in those years as a refinancing opportunity not to continue to add more debt onto those bonds.
Michael Welch: We'll use our free cash flow to kind of do our activity. We do have some mortgages. When we bought the coons acquisitions, we did not mortgage that real estate and so we do have the option to put all mortgages for you.
Michael Welch: You know for that property, we typically mortgaged properties when we bought them, but in this case, we did not mortgage it just to kind of keep the debt level at a lower level.
Michael Welch: And then sticking on that the 2026 maturities of the mortgage debt over 600 million would you look to just refi that also I'm fine with a bond or do you want to just retire that debt eventually in two years, though we'll most likely just flip that continue with the mortgage we have a good facility with our bank group and so well.
Michael Welch: No, we'll most likely just flip that, continue with the mortgage. We have a good facility with our bank group. And so we'll just refinance that with our bank group on the mortgage. Okay, thank you very much. Thank you, David. This concludes our call today. Sorry, operator.
Michael Welch: Just refinance that with our bank group on the mortgage side.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you David.
Speaker Change: This concludes our call today.
Speaker Change: Sorry up or no. That's gonna go ahead proceed. Okay. This concludes our call today. We appreciate you joining us for the fourth quarter earnings and year end, we look forward to speaking with you. After the first quarter have a great day.
Operator: Go ahead. Proceed. Okay.
Operator: This concludes our call today. We appreciate you joining us for the fourth quarter earnings and year end. We look forward to speaking with you after the first quarter. Have a great day! This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: That concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Operator: Okay.