Asbury Automotive Group, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance sheet comparisons are with December 31, 2019. Unless stated otherwise, amounts are in millions. Asbury operated 102 new-vehicle franchises, 83 dealership locations and 24 collision centers across nine states.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $1,607.3 | $1,670.8 | Down 4% |
| Gross profit / margin | $272.4 / 16.9% | $279.2 / 16.7% | Profit down 2% |
| Operating income | $35.0 | $77.8 | Down 55% |
| Net income | $19.5 | $40.9 | Down 52% |
| Diluted EPS | $1.01 | $2.11 | Down 52% |
| Cash from operating activities | $127.7 | $65.2 | Up $62.5 |
- Revenue declined in new vehicles ($822.1, down 6%), used vehicles ($493.2, down 3%) and finance and insurance ($70.4, down 2%). Parts and service revenue increased 2% to $221.6. New-vehicle units fell 9%; used retail units fell 4%.
- SG&A rose 2% to $194.7; SG&A was 71.5% of gross profit versus 68.4% a year earlier. The filing reports a 23.0% franchise-rights impairment charge and $10.2 of other operating expense.
- Q1 operating cash flow included significant working-capital movements. Management’s non-GAAP “cash provided by operating activities, as adjusted” was $164.9, versus $97.9 in Q1 2019.
- Investing activities provided $45.2, including $115.5 of divestiture proceeds, while financing activities provided $212.2. Cash and cash equivalents increased to $388.6 from $3.5 at year-end.
Debt and liquidity
- Long-term debt, including current maturities, was $1,164.9 at March 31, compared with $939.4 at year-end. The company also reported $848.5 of net trade and non-trade floor-plan notes payable.
- Cash was $388.6; management reported total available liquidity of $581.1, including $180.0 in floor-plan offset accounts and $12.5 of used-vehicle floor-plan availability. The $237.0 revolving-credit-facility borrowing left no availability under that facility.
- Management said it expected sufficient liquidity for at least the next 12 months. The company was in compliance with debt covenants at quarter-end.
- On April 27, Ford Credit extended the floor-plan facility maturity from May 31 to July 31, 2020.
Material changes, outlook and risks
- COVID-19 sharply affected business late in March and continued to pressure sales and service activity in April. U.S. new-vehicle SAAR was 15.2 million for the quarter, versus 16.9 million a year earlier; March SAAR fell to 11.4 million. Management expected adverse effects to continue, but said it could not reasonably estimate the pandemic’s duration or total impact.
- In early April, the company furloughed approximately 2,300 employees, reduced store hours and employee pay, suspended its 401(k) match, cut marketing and deferred most capital spending. It also described online sales and vehicle delivery options.
- The company recorded a $23.0 non-cash franchise-rights impairment related to COVID-19; further impairments were possible. Goodwill testing found no impairment at quarter-end.
- Asbury terminated the planned Park Place acquisition on March 24 and paid $10.0 in liquidated damages. The termination also triggered redemption of $525.0 principal of the new notes. Asbury had issued $525.0 of 4.50% notes due 2028 and $600.0 of 4.75% notes due 2030, redeemed $245.0 and $280.0 of those series, respectively, and redeemed its $600.0 of 6% notes at 103% of par. The resulting debt-extinguishment loss was $20.6.
- Dealership and collision-center divestitures generated a $33.7 pre-tax gain. The quarter also included a $10.0 Park Place termination payment and other related financing/transaction charges within operating expense; these items make reported earnings less representative of underlying operating performance.
- Key risks include further COVID-related demand and operating disruption, vehicle and parts supply constraints, consumer credit availability, possible additional impairment charges, and access to liquidity and capital markets. The filing provides no specific full-year earnings or revenue guidance.
- Letters of credit outstanding were $12.7, with a $5.3 surety-bond line. The company said known claims were not expected to materially affect results, but unfavorable outcomes could be material.
Important facts for investors to verify
- Whether post-quarter sales, service activity, vehicle supply and customer traffic recovered or worsened relative to the late-March and April disruption described.
- Liquidity composition and availability, especially revolver capacity, used-vehicle floor-plan borrowing limits, and the timing and terms of debt and facility maturities.
- Whether COVID-19 or updated impairment assumptions lead to further franchise-rights or goodwill charges.
- The comparability of reported earnings after considering the divestiture gain, impairment, debt-redemption costs and Park Place termination-related charges.
- Whether the Ford Credit maturity extension and other financing arrangements were further extended or replaced after the filing.