Asbury Automotive (ABG) Q3 2026 Earnings Call Transcript

Total Revenue -- $4.4 billion, reflecting an 8% decrease driven primarily by lower new vehicle unit volume and pricing. Adjusted EPS -- $6.16, which excluded a noncash deferral headwind from the protection products segment of $0.69 per share. Adjusted Net Income -- $111 million, representing a 21% decrease compared to the third quarter of 2025. New Vehicle PVR -- $2,949, remaining within management's target range of $2,750 to $3,000 despite increased market competition. Used Retail Unit Volume -- 34,586 units, representing a 4.5% sequential increase from the second quarter of 2026. Parts and Service Revenue -- $644 million, compared to $659 million in the prior year as the company managed a company-wide technology transition. Electric Vehicle Sales -- down 76% year over year, following the expiration of state and federal tax credit eligibility in 2025. Transaction Adjusted Net Leverage Ratio -- 3.5x at the end of the quarter, with management prioritizing a reduction to below 3x by mid-2027. Total Liquidity -- $1.0 billion, consisting of cash, floorplan offset accounts, and availability on credit facilities. Adjusted F&I PVR -- $2,450, representing a $119 increase year over year when excluding the impact of noncash deferrals. Adjusted SG&A -- 67.4% as a percentage of gross profit, elevated by the implementation costs of converting 47 stores to a new technology platform during the quarter. Full-Year Capital Expenditures -- projected between $270 million to $275 million for 2026, focused on facility improvements and technology initiatives. New Vehicle Inventory -- 53 days supply at quarter end, compared to 58 days in the third quarter of 2025. Used Vehicle Inventory -- 41 days supply at quarter end, reflecting a disciplined position heading into the fourth quarter. Share Repurchases -- $278 million spent on 1.35 million shares year to date through Sept. 30, 2026. Total Gross Profit Margin -- 16.6%, a decrease of 14 basis points compared to the prior year. Same-Store New Vehicle Units -- down 8%, with 5 percentage points of that decline attributed to decreased electric vehicle volume. Parts and Service Gross Profit -- $371 million, representing a 5% decrease from $389 million in the third quarter of 2025. Used Vehicle Retail Gross Profit -- $61.8 million, up 1% compared to the prior year due to retailing process improvements. Adjusted EBITDA -- $218 million, representing a 16.5% decrease from $261 million in the third quarter of 2025. Front End Yield Per Vehicle -- $4,612, a 3% decrease reflecting normalization in new vehicle gross profits. Used to New Ratio -- 79.1%, compared to 78.4% in the third quarter of 2025. Average New Vehicle Selling Price -- $52,427, remaining effectively flat compared to the third quarter of 2025. Import Segment Gross Profit per Unit -- $2,028, reflecting sequential and year-over-year pricing pressure in certain import brands.

Clara stated, “The sharp decrease in EV volume accounted for 5% of this 8% change year-over-year,” regarding the decline in new vehicle unit sales. Welch indicated that the company expects Total Care Auto noncash deferrals to remain a headwind into 2027. Management warned that “we still continue to have headwinds with Stellantis” affecting domestic segment performance and inventory management.

Asbury Automotive Group, Inc. (ABG +8.07%) reported the completion of its transition to the Tekion technology platform across all active dealerships, a move management indicated provides a unified operating foundation for long-term efficiency. The company also finished implementing Total Care Auto services across the Herb Chambers platform, enabling these protection products at all dealership locations. Financial performance during the period was influenced by noncash deferrals from the protection product segment and a 76% decline in electric vehicle volume. Management prioritized debt reduction to a target leverage ratio below 3x while maintaining a focused capital allocation strategy involving technology investment and facility maintenance.

Operating results and technology deployment

Management expects the adjusted SG&A as a percentage of gross profit to reach the low-60% range by the end of 2027 as technology-driven efficiency gains materialize. Daniel Clara stated that the company's longest-tenured stores on the new platform achieved a 7% increase in customer pay gross profit, outpacing the flat performance of the rest of the company. The FTC administrative proceeding against the company was dismissed in early Oct. 2026, which management noted was consistent with its view that its finance and insurance sales practices are lawful. Management identified Stellantis as a continuing challenge but noted it reduced inventory by approximately 1,000 units to manage floorplan expenses. Welch noted that the new unified technology platform “allows us the ability to deploy that AI easier” to automate certain functions and improve technician productivity. Clara noted that the company owns over 80% of its real estate and maintains a high-quality mix of luxury and import franchises, which management believe are undervalued by current market metrics.

Industry definitions

• Tekion: A cloud-native automotive retail technology platform that serves as a dealership management system.
• Total Care Auto (TCA): The company's protection products and vehicle service contract business segment.
• F&I: Finance and insurance, representing revenue from vehicle financing arrangements and aftermarket product sales.
• PVR: Per vehicle retailed, a metric used to measure gross profit earned on each unit sold.
• SG&A: Selling, general, and administrative expenses.
• Floorplan: Short-term inventory financing used by dealers to purchase vehicle stock.
• Days Supply: A metric indicating the length of time current inventory would last at the recent sales rate.
• Fixed Ops: Dealership departments including parts, service, and collision repair.
• DMS: Dealer Management System, the primary software suite used to manage dealership operations.
• RO: Repair order, a record of service or repair work performed on a vehicle.

Conference call introduction

Operator: Greetings. Welcome to Asbury Automotive Group. Third Quarter 2026 Earnings Call. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Chris Reeves, Vice President, Finance and Treasurer.

Chris Reeves: Thank you. Thank you. You may begin. Thanks, operator, and good morning. As noted, today's call is being recorded. And will be available for replay later this afternoon. Welcome to Asbury Automotive Group's third quarter 2026 Earnings Call. A press release detailing Ashbury's third quarter results was issued earlier this morning is posted on our website at investors.asburyauto.com. Participating with me today are Daniel Clara, our president and chief executive officer and Michael D. Welch, our senior vice president and chief financial officer. At the conclusion of our remarks, we will open the call up 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-- Forward-looking statements are statements that are not historical in nature, which may include financial projections, forecasts, and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time including our form 10 k for the year ended 12/31/2025, and any subsequently filed quarterly reports on Form 10 Q and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward looking statements.

In addition, non-GAAP financial measures, as defined 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 third quarter results. And now it is my pleasure to hand over the call to our President and CEO, Daniel Clara.

CEO remarks on operational milestones

Daniel Clara: Thank you, Chris, and good morning, everyone. Welcome to our third quarter earnings call. I am pleased to share that we have reached a defining milestone. Every active Asbury store is now operating on Tekion, our single modern technology platform. After several years of planning and execution, we now run the entire company on 1 system, giving us a common foundation to operate more efficiently, make decisions faster, and serve. This milestone is 1 part of a broader strategy.

Anchored in our 5 pillars, which aligns the organization on operational excellence within the following 5 priorities: Growing new vehicle market share, driving profitable volume growth in used vehicles, reestablishing consistent growth in customer pay gross profit, disciplined management of SG&A, leveraging technology. On the technology pillar, we converted 47 stores to Tekion in the third quarter, our single quarter ever. And completed the final 10 dealerships in October. Our longest tenured Tekion stores in Georgia and at Koons, are giving us an early read on the platform's impact. In the third quarter, customer pay gross profit grew 7% versus the total company same-store being flat. Total fixed ops gross grew 5% versus total company same-store down 2%.

Units per salesperson increased 4% and gross profit per technician improved by 9%. Both outpacing the rest of the company. As we have shared before, it takes time for team members to build the muscle memory that comes with a new platform before taking it to another level. These stores have had the time. We believe the same opportunity exists for the rest of our stores to improve efficiency, enhance the guest experience, and drive value for our shareholders. This was a major lift for our organization. Our store teams learned a new system while continuing to sell, service, and care for our guests every day. And our support teams worked alongside them at every step.

I am grateful to them and to our partners at Tekion for getting us across the finish line. With the conversion behind us, the time and resources we dedicated to implementation can now go back into running and growing the business. Our teams have done the hard work. Now it is time to put the technology to work. It has been a busy few months for our teams. In addition to converting 47 stores to Tekion in the third quarter, we also implemented Total Care Auto to our 30 plus Herb Chambers stores. Which completed our TCA rollout to all of Asbury. And now will speak to our operational results on a same-store basis unless otherwise noted.

I will note that our Herb Chambers stores are included in same-store results for August and September only. Starting with new vehicles, Our new vehicle business continued to perform in line with our expectations this quarter. On an all-store basis, new PVRs were $2.95 thousand down 6% sequentially. These PVRs are well within the range where we expect them to remain going forward. Same-store new units were down 8%, against a tough prior year comparison. As we were lapping the expiration of federal and state BEV tax credit eligibility in 2025. The sharp decrease in EV volume accounted for 5% of this 8% change year-over-year. Mostly driven by Colorado, which had a robust state EV incentives last year.

We closed the quarter with a well managed inventory position of 53 days supply. In line with the second quarter and setting us up well for the fourth quarter. Next, turning to used vehicles. Our used vehicle business continued to build momentum this quarter. And we are encouraged by the progress. Used retail gross profit grew 3% over last year, and we grew used retail PVR by 10% to $1.78 thousand. Reflecting our focus on growing volume profitably. Our strategy and retailing process improvements are taking hold, and driving a stronger pre owned business. On an all-store basis, our used retail volume increased 4.5% over the second quarter.

With our disciplined processes in place, we anticipate used volume to increase on a year-over-year basis as we move into the fourth quarter. We ended the quarter with a 41 day supply keeping us well-positioned heading into the fourth quarter. Moving to F and I. Our F&I business performed well at the dealership level this quarter. Where F&I PVR was up year-over-year. On a reported basis, F&I PVR was $2.18 thousand Down $19 from the prior year. But that decline was driven entirely by the noncash TCA deferral. Which represented $138 of impact. Excluding the TCA deferral, our F&I PVR was $2.45 thousand Up $119 year-over-year. Our front end yield per vehicle was $4.58 thousand in the third quarter.

Next, parts and service. Our customer pay revenue was up 2% with gross profit flat year-over-year. Warranty gross profit was down 1%. Overall, parts and service was not where we wanted it to be. But now with a heavy lift of rolling out a new DMS behind us, we are optimistic in our ability to get back to consistent growth while delivering an exceptional guest experience. And quickly, on operational efficiencies. Our same-store adjusted SG&A as a percentage of gross profit was 67% in the quarter. With the Tekion conversion now complete, we believe our SG&A to reach the low-60% range by the end of 2027. Driven by efficiency gains as our teams become more productive on the platform.

As we enter the fourth quarter, I am encouraged by what I see. Our used business has improved for several quarters in a row. And with our Tekion rollout now behind us, our teams can turn their full attention to serving our guests and executing our 5-pillar strategy. We will remain disciplined in allocating capital. Our priority is to bring net leverage below 3x. We believe we are well positioned to finish the year strong and look forward to 1 platform to achieve our goals in 2027 and beyond. Most of all, I want to thank our team members. They took on 1 of the largest changes in our company's history. And delivered it while keeping our guests at the center of everything we do. We are now positioned to see the benefits of their hard work. And before I pass to Michael, 1 additional item worth noting. In early October, the FTC administrative proceeding against the company was dismissed. The outcome is consistent with our long held view that our F&I sales practice have been and continue to be sound, lawful, and in compliance with applicable regulations. We remain focused on serving our guests with the integrity and transparency that we have always defined how we do business. And with that, I will now hand the call over to Michael to discuss our financial results for the quarter.

CFO financial review and outlook

Michael D. Welch: Thank you, Daniel, and good morning, everyone. I will start with our high level financial results for the third quarter. We generated $4.4 billion in revenue, earned a gross profit of $732 million, and grew gross profit margin of 16.6%. And we delivered an adjusted operating margin of 4.9%. Our adjusted net income was $111 million. Our adjusted EBITDA was $218 million. And adjusted EPS was $6.16 for the quarter. In addition, a noncash deferral headwind due to TCA this quarter was $0.69 per share. Our adjusted EPS would have been $6.85 without the deferral impact.

Adjusted net income for the third quarter of 2026 excludes, net of tax. $6 million related to the Tekion implementation expenses, $1 million related to duplicate DMS-related expenses, and $1 million related to the net gain on divestiture. Adjusted SG&A as a percentage of gross profit on an all-store basis was 67.4%, This reflected the peak of our Tekion conversions with 47 stores converting in the quarter and a number of stores still early in the adoption. We expect SG&A leverage to improve in the fourth quarter with cost savings continuing into 2027. Next, the adjusted tax rate for the quarter was 24.5%. We estimate our effective tax rate for the full year to be approximately 24.8%.

TCA generated $5 million of pretax income in the third quarter, versus $14 million in the prior year. The negative noncash deferral impact for the quarter net of tax was about $12 million compared to $4 million in the third quarter of 2025. TCA's rollout to Chambers Group has been completed, and now all Asbury platforms are enabled with this differentiated asset. As previously noted, we are assessing the next phase for TCA following its full rollout. We generated $525 million of adjusted operating cash flow year to date. Excluding the real estate purchases, we spent $190 million on capital expenditures in the first 3 quarters of this year.

We are updating our view for the full year CapEx in 2026 to be approximately $270 million to $275 million. Adjusted free cash flow was $336 million through the end of September. We ended the quarter with $1 billion liquidity comprised of floor plan offset accounts, availability on both our used line, our revolving credit facility, and cash, excluding cash at Total Care Auto. Our transaction adjusted net leverage ratio was 3.5x at the end of the third quarter. Our target of 3x remains a priority for us, and we plan to reach it by mid-2027. Driving operational excellence and reducing leverage is our focus. Once there, we will look for opportunities for share buybacks and tuck in acquisitions. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?

Tekion rollout benefits and efficiency metrics

Daniel Clara: Yes. Good morning. Thank you for the call. Thank you for the question. Yes. As I stated, the customer pay gross profit grew 7% in the Koons and the Georgia stores. And the reason why I am focusing on that is consistent with what we have been stating in the past, which it takes 6 months for the muscle memory to kick in, and those stores have definitely been in the 6-month timeframe. So we are excited about what we see. I will give you a little bit more color as well.

When you look at ROs per advisor, we are seeing a 9% increase When you look at dollars per technician, we are seeing about a high single digit growth to a low double digit growth. And then from a unit per salesperson standpoint, we are seeing about a mid single digit improvement from an efficiency standpoint.

As I stated at the beginning of the call, we rolled 47 stores in the quarter So it is gonna take us 6 months to get the muscle memory in those stores to be able to see the efficiencies that I just mentioned, but we are very excited with what we see the hard work that the team members have put together, alongside our partner, Tekion, and excited for their future. And as you stated at the beginning, I appreciate your congrats. it is been a heavy lift. But excited that it is behind us.

Michael D. Welch: And Jeff, just 1 more thing on that for a minute. From an SG&A percentage of growth perspective, we were down 329 basis points in the quarter on a same-store basis. The 2 groups, Koons and Georgia, who have been on the longest, 1 of those platforms was actually improved on an SG&A percentage of growth basis. And the other 1 was, you know, with the with the decline in new PVRs, it was down. It increased on an SG&A percentage of gross basis but about a third of what the rest of the company did. So we have already seen the impact on SG&A as well.

And so, yeah, it is a 2 sided corn. it is a gross profit item, so it helps on the gross profit. But it also helps on the efficiencies. And so we are seeing that on the SG&A side percentage of gross. Out of those 2 those 2 markets as well.

Daniel Clara: Yeah. So, Jeffrey, if I look at the Koons and the Georgia markets, we are probably talking 35 to 40 stores. That have reached the 6-month threshold that is crucial for us to see that muscle memory kick in.

Michael D. Welch: 100%. that is really our focus is as we get back to be able. You know, we are growing profit again. Coming out of Tekion, the goal is to be productive with our people, and so do not put the cost back in that go with that gross profit growth. And so that is really where the focus is. it is some cost cuts, some benefits for AI, but it is it is really getting back to growing gross profit and maintaining the cost structure to go with that. So we are trying to chase, you know, reducing gross profit. it is just hard to that SG&A number. So it is it is it is 2 pieces.

And we talk about low 60s. I would say half of that comes from gross profit growth, and the other half comes from you know, true SG&A saves.

Fixed operations and consumer demand trends

Daniel Clara: Correct.

Michael D. Welch: Yeah. Parts and service is higher. We think there is still room to go, and we are seeing. You know, if you think about the layers, Koons is farther ahead than Georgia because it is been on it longer. And so as we as we see the stores work through the system, we are seeing those kind of improvements and they can kind of hit on, you know, those pieces because we have some-- you know, Florida just kind of got over the 6-month mark at the very end of quarter. And so there is some there is some numbers there that we are seeing.

You know, we are starting to see it on Florida at the very end of the quarter as well. Yeah.

Daniel Clara: Rajat, good morning. On Michael's comment, I will just give you a few more numbers. On what we saw at the end of September from a fixed operations gross profit, Florida, which just hit the mark, was up 3%. I will give you Koons as well, which I have already mentioned. Before, but Koons, just for September was up 9%. And then Georgia was up 7%. So that gives you a pretty good indication of the efficiencies and the gains that we are getting once the muscle memory takes place.

Michael D. Welch: We. I mean, we really love the TCA business. We love what it does for us long term and the cash flow that it provides. And so. And also just owning the guest experience all the way through the cycle. But, you know, once we get it fully rolled. We have rolled it out fully to all the groups, You have to evaluate, you know, keep it as is, grow it, through other channels outside our dealerships. Or, to your point, you know, flip it out to have it be an outside company. To kind of get rid of the accounting noise. We are still in the evaluation phase of that.

Again, we love the business, love what it does for us, love the cash flow. Very, very solid business for us, but just again, trying to think through the next steps, for that company.

Daniel Clara: And Rajat, 1 thing I would like to add to Michael's comment is to his point, we love the business. And when you think about the cash flow that it generates, it is also 1 part of the business that does not require heavy CapEx. Or any CapEx for that matter. So we really like what it generates from a cash flow. Standpoint. But as Michael mentioned, those are the 3 options on the table that we are always analyzing. Understood.

Daniel Clara: Yes. I will start with the last question, margin compression. And fixed operations. That is a product of what I just mentioned, the 6 months that it takes of muscle memory to be developed as we roll out Tekion. And to be more specific, think about this. You just got used to. You are used for 20, 30 years as an adviser to process customers 1 way under CDK. Your world is turned upside down. You are learning a new system. You have 5, 6 customers waiting for you. The path of least resistance, which I do not blame team members to take, is they start discounting just to make sure that we take care of the guests.

As that muscle memory starts to come in, the discounts start to go away. And then the margin starts to stabilize and get back to its normal course. So not concerned about that. We. that is going to get back to normal we are already seeing the progress being made. On the first part of the question on consumer affordability, I will tell you that we saw from a customer pay standpoint, we measure both I mean, we measure all of them. We measure BEV plug in hybrid, and internal combustion. And the dollars per tickets have stayed flat. In some cases, they have gone up a little bit here and there.

So that gives us good indication that things are working properly, and the consumer is still spending money with us. I will tell you that on customer-paid traffic, our customer paid traffic for the quarter, meaning the repair order account, was down 1.9%. But I think I have answered your question. If you have any other follow ups, happy to take them as well.

Michael D. Welch: Glenn, and 1 other thing on the margin. Your internal gross is highly accretive to the gross margin on parts and service because there is no revenue for, which is all gross profit. As we continue to grow the used car business, in the fourth quarter and in 2027. That will also help the fixed cost margin as we get that used car volume back through and get that recon work. Through the fixed ops side.

Used vehicle strategy and industry compliance

Daniel Clara: Yes. At the end, I cannot remember when it was. It might have been May or June, but we announced that our strategy was shifting. For years, we had been protecting gross profit and not chasing the volume. As a reminder, we shifted that strategy in May because we knew that these returns were coming it was a good time to start going after a little bit of the volume while protecting the profitability of the used car department. So when you think about 70% to 75% of our cars that we retail come from either trade-ins or acquisitions from guests or loaner cars, that puts us in a pretty good place to continue to grow that business.

And then about 15% to 20% of them come from acquisition at the auction, which we have made the concerted effort to go after to grow the volume. So I will tell you that we are fully committed to growing the volume while protecting the gross profit, and we expect in the fourth quarter to be ahead year-over-year compared to last year.

Daniel Clara: Yep. Morning, Alexander. On the work deferrals, the measurements that I had when I compare what we call declined work from our customers I have not seen an increase in that. So that gives us level of comfort that nothing is changing materially. On the first question in regards to maybe a loss of share I will tell you that it is more than a fair question, but when you look at the average miles that are coming through our shop, at 70 thousand miles, I would argue that we do a pretty good job of retaining them after the manufacturer's warranty expires. The 1.9%, like anything, you know, I would not make a big deal about it.

It is. it is seasonality. Obviously, when you roll 47 stores in Tekion in the quarter, And I cannot stress it enough, the heaviest lift of the entire rollout of Tekion, you will see an impact in traffic because people's muscle memory gets lost. They do not move as fast. The efficiency is not there. But that will all come as we have proven after 6 months of the muscle memory kicking back in. that is really helpful. And then my follow-up was just on the FTC enforcement actions. Can you tell me what impact are those enforcement actions sort of having on your business? You know, did you have to take advertised prices up at all?

You think it is impacting your used volume sales? And then you know, what do you think happens to some of those doc fees? Do you think they get dropped over time? Or how do you think this all sort of plays out? Thanks. Yeah. On the impact that we have had is more of a level playing field. We have always done things the legal ethical way full transparency. As a reminder, when the FTC came with this, notification at the beginning of the year, Asbury did not receive a letter because we have always been compliant And some of our major markets such as Georgia, Colorado, and Massachusetts, it was already state law.

To have that doc fee included in the price. So we have been operating under that under those circumstances for years. As far as what does it do, I think that it is great for the industry. I think that being transparent, no hidden charges is what the consumer deserves. It level sets the playing field for all of us out there. So I view this as very positive. It will continue to enhance the guest experience, and those that do not want to abide are going to be left behind. that is really helpful.

Electric vehicle trends and dealership operations

Daniel Clara: Yes, I can do that for you? In Q3 of 26, my electric vehicles were 2.1% of the total units sold. I will tell you that from a year-over-year basis, we were down 76% in EV sales Q3 of 25 versus Q3 of 26.

Daniel Clara: Yes. it is a great question, an excellent point. You are correct. The PVR in ICE is higher than EV. I will tell you that what impacted the drop in PVR quarter over quarter, it really came down from imports We are seeing additional pressure with some of the OEMs Hyundai being 1 of them. Understood. And then, obviously, you can see at the domestic side of the equation as well, we still continue to have headwinds with Stellantis Although I will tell you that from an inventory management standpoint, we have really put ourselves in a good position. We have reduced about 1 thousand units from what we used to carry on floor plan expense with Stellantis.

Our ordering is at and it is at a much higher level from a turn rate standpoint. So really excited to see what I am seeing out of those Stellantis stores that we are set up for a better quarter and as we move into 2027.

Daniel Clara: Yeah. I think you are looking at it right. I would just say that it will be more into the tail end of Q1, beginning of Q2. Listen, nobody's more anxious and wants to get the benefits of all the hard work than us. But we do know after rolling out 157 dealerships that it does take 6 months for the muscle memory to kick in. And we are just gonna be there continuing to train, mentor, and develop our team members to provide the best guest experience.

SG&A expense trajectory and 2027 goals

Just to clarify, we expect to be in the low 60s by the end of 2027. So we will get a little bit better in fourth quarter and then kind of progress through 2027 as we go through next year. And to Daniel's point, Q2 is when we start getting most of the stores into that 6 month window. So you will see it in the back half of the year next year when you get kind of fully on. And again, it is it is both a combination of increasing the gross profit, which will help the SG&A and making sure we get the cost out that will help the SG&A. So it is def.

You know, low 60s by the end of 27 is the goal. Thanks.

And then just 1 follow-up would be, obviously, not just SG&A, but sort of high level thoughts on the business here into 2027? Are you thinking about the trajectory, and kind of how are you thinking about the rest of the business heading into next year? Just some early high level puts and takes you guys are thinking about as we start to plan.

Yeah. it is really hard right now. We are we are still. You know, it feels like from a new vehicle perspective, it is probably going to be, you know, similar in terms of volume. PVRs, we have said, you know, kind of 2.75 thousand to 3 thousand is kind of where we see the range. And we are kind of in that range now. So I think that is kind of a range for next year. Used cars, we have. You know, we talked about we are gonna push all the volume side of the equation. PVRs should kinda be in the range that they are at now, so we are at the 1.75 thousand range.

F&I, from a TCA perspective, you know, we will we will see is continued headwinds in the next year. And so we think the dealerships will have some improvements in F&I, but TCA will kind of offset that and make, you know, call it F&I a little bit of a drag. Next year. And then fixed ops, we think we can get back to growing fixed ops in that mid single digit range. Of next year, and that will put SG&A kind of in that, you know, it will move throughout the year, but by the end of the year in that low 60s. But you know, starting off you know, mid-60s and then kind of working its way down.

Consumer behavior and macro trends

Thank you. I think that was a really helpful overview of thoughts into next year. I will kinda step back and ask more of a macro question. Have you seen any change in consumer behavior whether that is trade down or substitution from new into used or deferring some service work. I know we have talked a little bit about this, but any greater sensitivity than you have seen in prior quarters?

Good morning, Daniela. Yes, we have seen a little bit of a change I think the longer that it goes with the high gas prices that we have, I mentioned this in the last earnings call that based on prior history, it takes about 6 months for consumers to decide whether they are going to get rid of the gas customers or not. And we are starting to see a little bit more of that. Ironically, if they are trading for. From a big, you know, SUV V8 or what have you into still SUV, but maybe in this case, a hybrid SUV that is still a full-size but still a much better miles per gallon.

And then from a decline I mentioned this earlier. Based on what I track, I have not seen a drop in declined services staying pretty consistent. So I am not seeing a change there from a consumer behavior.

Thank you. that is that is very helpful. And then on the used vehicle side, you said pushing volumes more. Is that a function of more off lease supply coming online so now you have more access to trade ins, or are you seeing greater competition to try and access those volumes?

it is more about tweaking the way that we appraise cars, improving our look to book. Which basically what that means is if I appraised 100 cars how many did I trade for? it is a metric that we pay close attention to. Working with our freight operators on improving that metric. Then obviously taking full advantage of the parts that we can buy through the service drive with the internal processes that we have. Great.

Used vehicle market dynamics and valuation

Just firstly on the used vehicle market, it generally sounds like the wholesale market has been pretty soft there. What impact did that have on the GPUs? And also if you can just broadly talk about what is driving that? That would be helpful.

Yeah. You know, it did not have much of an impact on our PVR. As I mentioned before, 75% to 80% of our inventory comes from it comes from trade ins, loaner cars, and cars that we acquire internally. I will tell you that it is a metric that I measure every single week, and it is how much PVR do we make on a car that we traded in versus a car that we bought at the auction. The 1 thing that is guaranteed when you buy a car at the auction is you are the 1 that paid the most money for the car because you are the last 1 standing. With your arm up.

So, naturally, your PVR is not gonna be the same, but we normally make about 50% less than we make on a car that we trade in. But there is a benefit. You get the internal gross profit. You get another unit in operation. You get to certify the car. And then you get also the opportunity to protect the investment by offering the vehicle service contract or any of the other products that we offer. Alright. Thanks for that.

And then next on M&A, was wondering if you might be able to talk about what you are seeing in the market right now, both in terms of prospects and valuations and also when we should expect you to get more active there? Like Michael and I stated earlier, our number-- we have 2 major priorities right now. Our number-1 priority is operational excellence now that the rollout is behind us, The second priority is with the operational excellence comes additional EBITDA and free cash flow. We want to go ahead and pay down the debt. To get below 3x In the M&A, I have been seeing some deals still hitting the market.

As you can see, those deals I am sure that you are that you see what they are bringing. And, you know, I would like to expand a little bit on this 1. Because I would say that the private market transactions in our industry, they continue to show the value that buyers place on high quality dealership portfolios. We believe that Asbury stacks up very well. A strong mix of luxury and import franchises. very attractive markets, and very valuable owned real estate. And I cannot stress it enough. We own over 80% of our real estate.

And we have TCA, which gives us with a nice growing streams, which we believe the market does not give us full credit for that business. So therefore, when you put all that together, we believe our current share price does not reflect the underlying value of the business that we are seeing in some of these private markets deals that are happening out there. Okay.

And then just last question quickly. You mentioned operational excellence and obviously you have the Tekion benefits rolling through next year. Could you maybe talk about what other opportunities you have here to help take costs out on the SG&A line and or just broadly to help improve, you know, volumes within the business?

Yeah. So on the SG&A side, you know, not only Tekion just makes us more efficient, but also just a lot of stuff going on with AI. Really helps us with those efficiencies as well. So and be able to automate some functions with that technology. And Tekion allows us the ability to deploy that AI easier. But, really, it is we have been-- oh, this sounds bad, but we. You know, we have been devoting a lot of our resources to getting Technion rolled out. And so being able to deploy all those resources back into the 5 pillars where it is growing new vehicles, growing fixed ops, growing used cars, like, that focus and not being.

I will not say distracted, but just having to put a lot of resources towards just the rollouts. that is just gonna allow us to push the volume and the gross profit growth and that is really. If we get back to growing gross profit in solid numbers, and keep the expenses lean, that has a big benefit on the SG&A number. or SG&A percentage of gross number. Okay.

Financing pressures and interest rate impact

Thanks. Good morning. Could you just talk a bit about what effect if any interest rates and negative equity is having both for buying used and new vehicles and for making, additional purchases in the service lane.

Yeah. I will tell you that the biggest impact that I have seen or the 1 that comes up the most is negative equity. You know, there is. We are we are starting to see cars that were sold during the pandemic that are starting to come in. And so there is that negative equity is definitely impacting some brands more than others. From a interest rate perspective, you know, we are not seeing a major shift Although, I am curious to see when OEMs are going to start supporting more leasing just because of the affordability that it allows somebody to get a newer car for less of a monthly payment.

Then on the brands where it is having a an issue, are you losing those sales? Are you able to figure something out? Listen, it is hard to tell because, as you know, it is based on the consumer credit. If the consumer credit is you know, it is, call it, a 700-plus FICO score, your long term value is gonna be a lot more flexible. You can put that deal together depending on how much negative equity we are talking about. But that is on the case by case scenario. And in some cases, if you have somebody that may be a subprime, or does not have a lot of down payment, yeah, you do miss that deal.

Or always try to find a solution is there a car that came out a loaner car that maybe puts you in a better book position that you can trade them out of it, and we explore every option. Available for us.

And then on, the balance sheet, you talked about wanting to do some tuck in acquisitions, but also paying down debt. Get the leverage ratio to your target. So with the tuck in deals, involve touching the credit line or would it be entirely internally funded without debt?

Well, I mean, our first priority is getting the leverage down. And then, you0 know, at the current share price, it would be share buybacks. And then tuck in acquisitions would be the last of what we use the capital for. But the goal is in the future, we should be able to do tuck in acquisitions as well. We should be able to do share buybacks and tuck in acquisitions with our free cash flow. We wanna get back to that, you know, below 3x just to have the optionality when something comes up to be able to go after it. Right now, you know, we are just a little limited in terms of where the leverage is.

Hey, good morning, guys. 2 clarifications for us or follow ons. But on the doc fees, I appreciate the more transparent approach relative to many of your peers. But curious on it from an absolute standpoint if you expect doc fees to go lower from here for Asbury or if you think most of that is already built in at this moment. And then maybe you could just talk to the GPU, $3 thousand from a new standpoint normalization and if doc fees impact that from here?

I do not expect doc fees to go down. Our approach has always been very simple with doc fees. We have never wanted to be the highest in the markets that we operate. We have always been in the middle, for lack of a better term. So we are we are positioned the right way Do not expect that to go down. And we will continue to, obviously, to operate in the with full transparency. The second part of the question, can you please remind me? The vehicle. Oh, new vehicle PVR. Yeah. At 3 thousand you know, for several quarters, we have been talking about our projection of anywhere between $2.75 thousand and 3 thousand.

You can see that, actually, I believe new car PVR sequentially quarter over quarter went up $6 a car. If I remember correctly. So I believe that we are stabilizing there. And it fits well within the range that Michael and I have been talking about. 1 thing that is important to consider here is it does not mean that it is going to be a flat line. there is going to be ups and downs, seasonality, OEMs, incentives, what have you. But I think that, you know, that target that you see is pretty much what we are seeing moving forward.

Appreciate that. Then maybe just a quick 1 on SG&A to gross profit. Appreciate the commentary and kind of glide path from mid sixties to low 60s exiting next year? Are you willing to say at least directionally if you think 2028 and beyond you can go below the low 60s? Or is it a linear improvement from there. Thanks.

Well, so I guess we are gonna take it in stages. So we have, you know, what we call the AI and Tekion stuff that gets us into the low 60s. there is some things we are looking at in terms of you know, I will call it the digital vehicle transaction. And depending on where that goes, that could give us the ability to kinda push it below 60%. But that is. I would not say that is a linear path. that is more of a next step path, and we just gotta kind of figure out how that works with the software.

And the consumer and kind of how the consumer wants to behave on you know, online and digital type transactions. So that gets us below 60 with that new phase of digital vehicle sales transactions. Is it reasonable to assume that kind of a low 60s is the right run rate in out years now? Yeah. Until, again, until we kind of cross the bridge on. I mean, we are hoping 2028, 2029, but we gotta do some homework and feeling out on the consumer reacts to that and test it before we pull the trigger on that. But, yeah, I think low 60s until we can make that change. Helpful.

Parts, service and F&I outlook

Hi, thanks for taking the follow-up. Just wanted to follow-up on parts and services. I think you talked about getting back to mid single digit range at some point next year. Are you already starting to see some signs of turnaround, you know, in the fourth quarter here, you know, from down 2% same-store in the third quarter? Do you think you are gonna be back in positive territory here in the fourth quarter? Just trying to understand the path towards that mid single digit range. Is it market driven? Is it Tekion productivity driven? And then I have a very quick follow-up. Thanks.

So just reminder, 47 stores went live this quarter. Fourth quarter will still have an impact for those stores. Like, we are still in the, I will call it, this quarter, still in the heavy piece of Tekion. So I will kinda. I just want to tee that up over there, and I will let Daniel kinda answer the rest of it. But you know, fourth quarter is still a pretty heavy Tekion-impacted quarter. Just because of the balance of stores that went live this quarter.

Agree with Michael. And Rajat, just to give you more color again, you know, on. Yes. We are seeing progress in the stores or in the markets that have been under Tekion for 6 months or more. And just as I repeated earlier, Florida which just crossed a 6-month target, The market was up 3% in September. That was just for the month of September. And then Georgia was up 6.6% for the month of September. So very encouraged by what we see. But I cannot stress it enough. Please do not forget that we rolled out 47 stores in the third quarter All those stores are not gonna be in the 6-month threshold that we require.

And that we have seen the progress being made. Until end of Q1. So you will see progress in Q4, meaning in the stores that continue to roll into the 6 month threshold. We are not going to realize the full benefit of this as we go. Until we go into the end of Q1 and Q2 of 27.

Understood. And then just on F&I, you know, we have been hearing, at least from some private dealers that, you know, warranty attach rates are taking a bit of a hit given affordability pressures I am curious if you are observing any of that at your stores. Like, do you think F&I progresses, excluding obviously, the TCA accounting noise? Just on a core basis. You know, what is your what is your view there? Thanks.

Yeah. So we have seen a little bit of a drop in terms of our mix of the products versus the financing side of the equation. But this quarter, we still grew F&I PBR at the store level, like, excluding the TCA deferral. We grew at $119. So we are still able to grow the F&I number. We have a headwind of TCA deferral going through there, but we are we are still, you know, nice progress at the store level on the F&I side. So we have not seen a know, decrease on PVRs at the store level. Understood. that is very helpful. Great. Thanks for the questions again, and good luck.