Greetings, and welcome to the Asbury Automotive Group, Inc. First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance, Investor Relations. Thank you, sir. You may begin.

Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group, Inc.'s first quarter 2025 earnings call. The press release our president and chief executive officer, Dan Clara, our Chief Operating Officer and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow-up questions. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature which may include financial projections, forecasts, and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time including our Form 10-Ks for the year ended December 31, 2024. Any subsequently filed quarterly reports on Form 10-Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website investors.asburyauto.com, highlighting our first quarter results. It is now my pleasure to hand the call over to our CEO, David Hult. David?

Thank you, Chris, and good morning, everyone. Welcome to our first quarter earnings call. I want to begin by expressing my appreciation for our hardworking team members in delivering strong first quarter results. We are proud of the way our team members came together to serve our guests. Since 2017, Asbury Automotive Group, Inc. has been the top public operator in adjusted SG&A as a percentage of gross profit and an adjusted operating margin. We take pride in how we run our business to generate strong, long-term results for our shareholders. I'd like to spend just a few moments addressing the issue of tariffs. As the scale and scope of the new tariff approach became more clear, we saw a rise in demand in late March as consumers purchased vehicles ahead of the potential price increases. Our OEM partners are all working to determine how the tariff policies will impact their specific brand. They will communicate those decisions to us when ready. As we assess our own scenario planning, we believe our portfolio is comparatively insulated from the tariff impacts on pricing. We estimate that approximately 56% of our new vehicle units in Q1 were produced in America and would be shielded from the tariffs. As it stands today, we are seeing a wide range of approaches for how the OEMs are addressing the tariff impact. We expect to get more clarity in the weeks and months ahead. But until then, predicting the trend lines for key metrics like volumes or new GPUs will be challenging. Transitioning to highlights for the quarter, we posted another all-time record in gross profit for our parts and service business. The team built off their momentum from previous quarters with same-store gross profit up 5% and same-store customer pay gross higher by 6%. I…

Thank you, David. Good morning, everyone. I am thankful and proud of our team members' commitment to our North Star to be the most guest-centric automotive retailer ever. Now I am going to provide some updates on our same-store performance which includes dealerships and TCA on a year-over-year basis unless stated otherwise. Starting with new vehicles, same-store revenue was up 6% year-over-year and units were up 4%, driven by the boost in March sales. New average gross profit per vehicle was $3,449, a solid first-quarter performance compared to normal seasonality from the fourth quarter to the first quarter. Our volume for Stellantis was up 3% this quarter compared to national sales down 12%. While this is an improvement from where we have been, we estimate the Stellantis headwind to our PBR was $125. Across all brands, our same-store new day supply was 44 days at the end of March, versus 47 at the end of December. Turning to used vehicles, first-quarter unit volume was down 8% year-over-year. Used retail gross profit per unit was $1,587, which marks the third quarter of sequential growth. We still plan to prioritize unit profitability at this point of the used car supply cycle. We remain ready to adjust our approach to the pre-owned business based on how market conditions are shaping up. Our same-store used day supply was 31 days at the end of the quarter. Shifting to F&I, we earned an F&I PVR of $2,263, a sequential increase versus the fourth quarter. This year, we now plan to integrate TCA in the Koons stores by early Q4. The Koons stores are undergoing a transition to Techion that we would like to focus on before rolling out TCA at those locations. Our total front-end yield per vehicle was $4,854. Moving to parts and service,…

Thank you, Dan. And thank you to our team members for a solid start to the year. For now, I will discuss our financial performance in the quarter. For the first quarter, adjusted net income was $134 million and adjusted EPS was $6.82 for the quarter. Adjusted net income for the first quarter of 2025 excludes net of tax $11 million of non-cash asset impairments, $7 million of cyber insurance recovery proceeds, $3 million related to the gains on divestitures, and $2 million of professional fees related to the pending acquisition of the Herb Chambers Automotive Group. There were no adjustments in the first quarter of 2024. Adjusted SG&A as a percentage of gross profit came in at 64%. As we stand today, there is a risk for a slightly higher SG&A profile if tariff policies persist. The adjusted tax rate for the quarter was 24.7% and we forecast the full-year adjusted tax rate for 2025 to be 25.2%. TCA generated $19.5 million of pretax income in the first quarter. The negative non-cash deferral impact for the quarter was about $2 million or $0.06 on an EPS basis. In the first quarter of 2024, this was a slight non-cash benefit to EPS. We estimate that the second quarter of 2025 would follow this trend of negative non-cash deferral impacts. As Dan mentioned, we now anticipate offering TCA in the Koons stores in early Q4. The updated schedule of the rollouts would affect the timing of referrals in future periods. We have outlined our timeline and estimated impact on EPS on slide 18 of the presentation posted to our website this morning, along with the accounting example from last quarter. The future periods have not been updated due to the uncertainty around tariffs. Now moving back to our results, we generated…

Thank you. We will now be conducting a question and answer session. You may press star two if you would like to remove your question from the queue. One moment please while we poll for questions. Our first question comes from Jeff Lick with JPMorgan. Please proceed with your question.

Hi. Good morning, guys. Congrats on a nice quarter. Thanks for taking my question. As it relates to TCA, on slide 18, you guys highlighted the $0.74 benefit in Q1 and then, you know, you have a $0.30 benefit for the rest of the year. Is that simply implying that a is gonna be a $0.44 cost the rest of the year? And then also building on slide 18, you highlighted that, you know, 2025 to 2029 were under review. Could you maybe highlight how tariffs will affect the TCA business as well?

Jeff, this is Michael. Yeah. With tariffs, you know, if it results in a decrease in the volume, that would slow down the deferral impact. So you'd have less of the deferral impact in 2025 and push off that deferral impact in the future years. And so it's really, you know, what that does to the SAAR level and it's you know, SAAR ends up in the 15 million range, and that's gonna be a less of the deferral impact for 2025. But more of a deferral impact in 2026 and 2027. So just kinda slides it over a year depending on the impact on volumes.

Got it. And just a quick follow-up on Techion, you know, you mentioned you know, you're rolling out stuff to Koons now. You know, you guys have talked about the SG&A opportunity longer term. I'm just curious in the short term, you know, how is the integration going? And maybe if you could remind us just you know, big picture you know, how this is gonna manifest itself into, you know, substantial SG&A savings. I think you guys even highlighted that you could get into the fifties.

Yeah. Jeff, this is David. The rollout's going extremely well. And it continues to progress. And our hope at this point is to have all stores converted by the end of 2026, beginning of 2027. We still have some pending litigation we have to deal with with CDK. But we're optimistic. The savings for us is certainly gonna be a material number to us. It's on a twofold basis. We're basically unplugging two-thirds of the software applications that we have currently in CDK that we will no longer have to pay. And then with each application that we have in CDK, we have to pay a fee for integration on a monthly basis. So those fees go away as well. So there's a benefit on overall expense savings there. On the flip side, we see the benefits on the productivity. If our productivity increases per employee like we anticipate and what we're seeing early on, that lowers our personnel cost as well.

Great. I'll pass it along, and congrats again.

Thank you.

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

Great. Thanks for taking the question. I just had one question on just, you know, overall, you know, gross profit performance. I mean, if you look at, you know, the unit performance and the same-store service performance, it seems a little bit below than some of the peers that are reported. I was curious if there's anything you can point to either in terms of, you know, regional differences. I know you have, you know, a lot of exposure in the DC area. Maybe that caused an outsized headwind. Anyway, you can unpack, you know, what might be causing the divergence, if any, in your opinion, and have a quick follow-up. Thanks.

Rajat, this is David. You know, it was a lot went on in the quarter. You know, it started off January a little bit soft for us. We had a lot of weather issues in a lot of our markets, and you know, we pull out Sundays and we look at the quarter. We generate around $50 million of revenue a day. And that kinda ties into the days we lost with weather as far as where we're off there. As we started to progress into the quarter and things were heating up on the tariffs, my message to the operators was don't chase volume. We can't replace the cars that we have. Focus on gross profit. Don't get caught up in volume. I think when you look at growth quarter over quarter, you can't just get caught in the concept of how much someone's up. But what are the dynamics within the quarter and how do we maximize our returns? And I think at the end of the day, we're here to maximize our returns, which I think we did again by so far having the highest operating margin and the lowest SG&A.

What are the regions that and you know, relatively within your store group.

The only reason, as you would expect, the DC market, that area around DC and Baltimore we saw some, you know, weakness there just with the uncertainties around government jobs. So that's the one market that kinda stood out as a tough market other than ones that David mentioned in terms of weather impact we had, you know, weather impact across a lot of our stores. We had in Georgia, the Carolinas, Indiana, Saint Louis, Northern Florida, you know, unfortunately, we just got hit hard compared to year over year, and Koons probably took the biggest hit.

Got it. Got it. That's helpful. And then just one question on Herb Chambers. I know, like, in the past when there was a lot of uncertainty, you know, during the pandemic years, you know, you had, you know, exercised the option to, you know, walk away from the park place deal and, you know, then again, we negotiated. Know? Are those terms and agreements still in place even for Herb Chambers, you know, in case, you know, the macro got worse, due to the tariffs backdrop. Just curious how you'd approach it in that backdrop and, you know, what the breakup fee would be like. For Asbury? Thanks.

Sure. The asset purchase agreement we have doesn't have a breakup fee for us. It does for the seller. We do have a MAC in the contract. You know, based on current market conditions, we don't see any reason to not move forward with the deal. And there's nothing in the contract that would allow us to get out at this point. But we don't have interest in getting out at this point in the contract. And, you know, the group is performing extremely well. In the first half of the year. You know, like most, we're hoping the next couple of months create a lot of clarity with the tariffs. But as we said in our statements, you know, 56% of our products that we're selling is US-based and not, yeah, involved in the tariffs. Plus our parts and service business and our TCA business, you know, we think we're in a good position. We also think long term, as we should be thinking for our shareholders, this is a really great asset in a part of the country we've been trying to get into for a while. And we believe the luxury mix in there brand recognition and name in the market is certainly the dominant player in that area.

Understood. And that's very clear. Thanks for all the color, and good luck.

Thank you.

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

Good morning, guys. Just three quick ones. David, first on front ends, you know, grosses, the $4,852 is a really good number. I mean, I think we're looking at the year-over-year decline and looking at some of the components. But I think, you know, last year, you know, as you kinda average out the year, you ran it $4,880. So the year-over-year declines are slowing. You're kinda, you know, kinda reaching what appears maybe sort of an asymptotic limit on the downside. How do you think about that front-end yield or that front-end gross, you know, going forward? I mean, there's a lot of moving parts in it. But it seems like we're kinda, you know, getting close to a floor here.

John, I'll take a shot at it and hopefully, at some point, every time I repeat this, it'll get some credibility in the street. We're a different company today than we were, you know, pre-COVID. Our store balance mix is different. It shows that our acquisitions prior to COVID were accretive as far as GPU go to what the legacy Asbury was, and I think you've seen that in the numbers. The other comment that I would make, and Dan can follow this up if he wants, was my comment to Rajat. I don't think necessarily highest year-over-year increases in certain areas necessarily project a winner. I think it's based upon the market conditions. And you know, the market conditions were such in Q1 where, you know, we had beyond weather issues, you could see the winds coming with the tariffs. And to us, the inventory we had on the ground couldn't be replaced at the same dollar value in general thinking. So why would we give the cars away? We should focus on gross profit and not chase volume. And that's what we chose to do. It's certainly debatable, but that's what we chose to do. The weather days, as I said earlier, tied into the revenue mix that we think we had. And we feel really comfortable with the stability that we had. And I think that Dan's comment is really relevant. When you look at customer pay and warranty combined at 9%, that's a pretty strong number coming through the weather issue and the delays we had within Q1.

Okay. And then just a second one on parts and service. I mean, I guess you're talking about this on the weather, etcetera, that, you know, depressed the quarter. But, I mean, there's no change really in your view that you should be doing mid to high single digits on a same-store basis. I'm just curious if there's any change there. Are you seeing the consumer, you know, kinda getting freaked out and, you know, maybe buying ahead on vehicles, but maybe on service work, hitting the pause button, and we're seeing some deferred maintenance potentially build up with a slightly slower same-store sales on parts and service.

Hi, John. Good morning. This is Dan. No. Our thought process is still the same. We're not changing our outlook of fixed operations mid-single-digit growth. As far as the second question, if we're seeing any slowdown or pushing back service work because of tariffs. I would say, you know, we've seen a little bit of the opposite where customers are calling in and getting more information as to what the true impact is of the parts. The cost of the parts to repair future services, and you know, we share with them that this is something that the OEMs are cautiously watching and we only share the information that we have with them. In some cases, some of these guests have decided to move their services upfront rather than delay it in hopes that, you know, if the tariffs do impact parts in a negative way that they have already serviced their car, at least for the short term.

And John, I would add, as said in my statement, you know, that base of 54 stores that we still own in 2024 to go from $122 million to $240 million with essentially flat volume because, you know, SAR went up and down during that period. But when you snapshot 2014 against 2024, to grow $100 million in 54 stores with essentially flat volume shows our growth within the market and stays consistent. And the other thing that I think it's really important to refer to is slide 15 on our IR deck where it shows the average miles through the shop at over 71,000 approaching 72. We have some stores over 90, but the average is over 71. That's pretty strong, and it shows tremendous growth there. So that also insinuates, you know, as opposed to the franchise deal, it loses the customer after warranty. Well, this is well after warranty, and it shows we're retaining it, and we keep getting it. It's not coming in huge chunks at once, but it's slow steady growth, which we think is smart because we want to retain the customers as well. We're very focused on that. And as I've said in prior calls, you know, in my opinion, between now and 2030, between the EVs and all the other things going on in the marketplace right now and technology changing, we think we're in an opportunity over the next several years to grow revenue because, you know, cost of ownership is gonna go up and service expenses are going to go up as well. The cost per ownership is going to go up. So we see this as favorable for us, and with technology the way it is, we think it makes it tougher for the independents and we see it as an opportunity for the franchise model to continue to thrive and grow.

I completely agree. Just one last one, David. You know, on Techion, I think a lot of folks tend to focus on the cost side of the equation. But as that system is integrated, you know, are there other, you know, revenue opportunities as folks become more efficient? How do you think about it sort of on the sort of the top-line potential benefit as opposed to just the cost side?

Sure, John. I'll take a stab at it and please follow-up if it doesn't make sense what I'm saying. One of the main elements that we did when we designed our software with Techion was a one customer profile. So, basically, you know, right now in Atlanta with the stores that we have, if you do business in one store and your wife does business in another store, the two stores can't see that. With our one customer profile, all stores see that customer and the family and what goes on. So it allows us to better communicate. It's also a one CRM for all departments. You know, usually, CRMs are just for a sales department. They have a CRM for sales, service, parts, collision. It allows us better connectivity, better communication, more efficient marketing and communication to that consumer as well. So we see an opportunity with efficiencies and cost of marketing. We see obviously lower cost with the software. But to your point, as technology continues to advance, our production per employee or on the sales side, sales units per salesperson, we expect to see it go up over time fairly materially, which is gonna save us on the expense line. We're also starting to see it on the productivity per service adviser as well. As the technicians get more comfortable with videos and technology that they have, and how seamless it's integrated into Techion. It just makes it a lot easier. It also allows the consumer at the same time instead of just getting a text message to see how their car did on an MPI, they're getting to see all the documents and create their own library. So the transparency and communication, we think, is gonna build trust which is gonna allow us to capture more business within the markets we compete in.

Super helpful. Thank you very much.

Thank you.

Our next question comes from Ryan Sigdahl with Craig Hallum Capital Group. Please proceed with your question.

Hey, thanks. This is Matthew Rob on for Ryan. I believe it was mentioned there's risk to slightly higher SG&A profile if the tariffs persist. What sort of guardrails would you provide to us knowing what you know today about the tariff situation? I think last quarter, you called out kind of a mid-sixty percent range for 2025. Any puts, takes there would be helpful. Thanks.

Yeah. It'd be slightly higher than that. So, you know, call it mid to high sixties if but I was assuming that you had a big fall off on volume. And so we will be able to control the cost. A lot of our costs are variable and compensation related. Our average advertising related. So we're able to pull the leverage pretty quick to get the cost out. But if you saw a meaningful drop off in the sales volume, you'd see a little bit of an uptick on the SG&A side.

And just as a follow-up, if the volume goes down, we can track the headcount. And generally speaking, over the last few decades in the franchise model, when volume decreases, you know, usually margins sustain or grow.

Our next question comes from David Whiston with Morningstar. Please proceed with your question.

Thanks. Good morning. Going back to Techion, David, you said that personal cost are going down with the pilot. And so once you roll that out everywhere, does that mean would these personnel costs be more from you at that point, headcount reductions could be done, or do you mean that there's would be less replacement hiring?

Yeah. David, let me clarify that. Headcount has not gone down today. You know, like anything else, you get better with practice with software and you become more efficient with it over time. Compared to the software in the stores we had before and what we have with Techion, it's kinda like going from a car to a Ferrari. A traditional car. So it takes a while to get used to it. We're confident that over time, headcounts will come down because we will be more productive but it's also part of our vision of being a flatter organization and offering a better guest experience. Time and efficiency is what matters to our guests, and we think this software along with future training and efficiencies, will certainly get us there. We also think when the headcount comes down, our income per employee will go up. Which is gonna allow us to garner a higher quality employee to service our guests. Our focus is that. I mean, at the end of the day, we gain or grow our business based on the level of service we offer.

And on tariffs, it likely will be some type of price increases eventually. Do you think that's the automakers would be more likely to first try and cut incentives, try and do it in an indirect way, or do you think they'll just be more blunt and just do an increase and try and get it over with?

Yeah. I wish I knew the answer to that. I would tell you it's gonna vary dramatically by brand. And let's face it. I mean, your demand from the consumer is gonna dictate what the threshold is for price increases. If you have a product pre-tariff that has a high day supply and a low turn, that's not a car that can absorb a price increase. I would assume the first lever would be to back off on incentives. Some have already done that. Some have not. I think it's really too early to tell, and everyone's trying to navigate what the future holds. I think the other thing is whatever sticks at the end of the day, all of us will be able to create our plans and move forward, which we're excited to get to that point. But it also could fluctuate what models you see coming to the US. And what kind of supply and if any models get eliminated along the way. Again, I wish I had more insight, but I think it's a little bit early to figure out where it's gonna settle.

I think on that point of uncertainty, which I totally understand, I'm gonna ask you another one that's tough to say, but do you think a lot of March was more pull forward or a lot of pent-up demand?

Yeah, David. And you know, and I heard our peers. You know, from our standpoint, March was kinda pacing along like a traditional March for us. It wasn't till the last seven to ten days of the month that it started to go on a little bit higher trajectory. Again, I can't stress it enough. We really started focusing on in the middle of the quarter, don't chase volume. Let's focus on margin. Hold off. You can't replace that car. So right or wrong, our focus was on generating growth. Meaning that per transaction and less on volume. But it was a slight uptick towards the end of the quarter. I wouldn't say there was any uptick in parts and service. But we certainly did see it on the sales side slightly.

Okay. Thanks, guys.

Our next question comes from Brett Jordan with Jefferies. Please proceed with your question.

Hey. Good morning, guys. On the parts and service, could you give us maybe you said it and I missed it, but what was the contribution from price versus car count? And I guess as you think about the year shaking out, how do you see price contributing to that mid-single-digit growth in parts and service?

Brett, I'm sorry. I missed the question. Can you please repeat it?

Yeah. In the parts and service, what was priced versus car count in a ticket versus traffic? And I guess in your outlook for the year, where do you see price contributing to the mid-single-digit growth?

This is David Brett. I would tell you because of the weather impact the traffic count was slightly above. In what we've been trending the last couple quarters. Has been the revenue or dollar increases. Part of it, you can kinda see in our brand mix of what we have and what we're generating per transaction. But it's generally dollar increases more than traffic increases. We anticipate in the future quarters, meaning the spring and summer, not to have weather-related issues in that car counted to increase. But what you saw in the quarter was mainly dollar increase.

And then a question on luxury. It seems like a couple of the German brands are holding product pre-tariff at the import. Do you see any sort of short-term issue on supply? It sounds like maybe Porsche Audi enough to get through May, but is what you hear from the OEs, will they probably keep the inventory flowing, or is there a risk that we're gonna stock out in some of the German luxury brands?

Yeah. And then kind of the comment earlier about us not chasing volume, you can't replace it. You know, when the brand's announced, Porsche Audi and Land Rover kinda announced that they were holding off shipments coming to the US, generally, they had between a 45 and 60-day supply of vehicles currently in the United States. So that gave them this is my thought, not theirs. They don't share it. But it gave them inventory on the ground that was not tariffed. And if they brought shipments in early, meaning continued the shipments, they were gonna have that heavy tariff. And if for some reason things got worked out in 45, 60 days later, they would have had that product on the ground at a much higher tariff rate potentially. So I'm assuming it was a little bit strategic to say, let's take a breath. We have enough product in the United States. Let's see where the dust settles, decide what we're gonna do. To your point, we are certainly getting down at a lower day supply than we would like to be at. And we're looking forward to those shipments to continue. But not inside knowledge from an OEM perspective, just an opinion from sitting on the sidelines watching it.

Okay. Great. Thank you.

Thank you.

This concludes our call. Questions.

I'm sorry. Go ahead, Robert.

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

Thank you very much. This concludes our call today. We appreciate your participation and we look forward to discussing our performance in the next quarter. Have a great day.

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