Asbury Automotive Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this filing reports full-year results, not standalone Q4 results. Asbury operated 139 dealership locations and 186 new-vehicle franchises across 14 states, alongside collision centers, used-vehicle businesses and its Total Care Auto (TCA) finance-and-insurance business.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $15.43 billion | $9.84 billion |
| Gross profit | $3.10 billion | $1.90 billion |
| Gross margin | 20.1% | 19.3% |
| Income from operations | $1.27 billion | $791.8 million |
| Net income | $997.3 million | $532.4 million |
| Diluted EPS | $44.61 | $26.49 |
| Operating cash flow (GAAP) | $696.0 million | $1.16 billion |
| Adjusted operating cash flow (non-GAAP) | $987.0 million | $632.1 million |
Revenue and gross profit growth primarily reflect a full year of results from the December 2021 Larry H. Miller (LHM) acquisition, rather than purely organic growth. The company reported same-store new-vehicle revenue down 9%, while same-store used-vehicle revenue rose 5%, parts-and-service revenue rose 12%, and F&I revenue rose 11%.
- New-vehicle gross profit per vehicle increased 25% to $5,583; same-store new-vehicle units fell 18%. Management attributed elevated new-vehicle margins to supply constraints and ended the year with 26 days of new-vehicle inventory.
- Used-vehicle retail gross margin declined to 7.2% from 8.6%; same-store gross profit per retail unit fell 17% to $2,085. Management cited a softening used-vehicle market.
- Parts-and-service gross profit increased 62% as reported. Same-store revenue increased 12%, supported by customer-pay work and customers keeping vehicles longer.
- SG&A was $1.76 billion, or 56.9% of gross profit, versus 56.5% in 2021. Other interest expense rose 62% to $152.2 million, reflecting a full year of acquisition-related financing costs.
Cash, debt and liquidity
- Cash and cash equivalents were $235.3 million at year-end; total assets were $8.02 billion and shareholders’ equity was $2.90 billion.
- Total debt was $3.33 billion, excluding floor-plan notes payable. Net non-trade floor-plan debt was zero after offset-account balances; trade floor-plan notes payable, net, were $51.0 million.
- Reported available liquidity was $1.54 billion, including cash excluding $53.7 million held by TCA, floor-plan offset funds and borrowing availability. The filing states management believes liquidity is sufficient for at least the next 12 months.
- Year-end debt included $3.30 billion of long-term debt, including current maturities. The company had no outstanding borrowings on its revolving credit facility at year-end and was in compliance with debt covenants.
- Investing activities provided $464.7 million, including $701.2 million of dealership-divestiture proceeds. Financing activities used $1.10 billion. The company repurchased approximately 1.64 million shares for $297.0 million during 2022; it has not paid dividends since 2008.
Material changes, outlook and risks
- During 2022, Asbury sold 18 franchises across 16 dealership locations and three collision centers, recording a $207.1 million pretax gain. There were no acquisitions in 2022.
- Management’s strategic plan targets $32 billion in annual revenue by 2025. This is a target, not a specific FY2023 earnings forecast. Planned 2023 capital expenditures are approximately $200 million; management forecasts an effective tax rate of approximately 24.5%.
- Management expects to finish rolling out TCA products to all dealerships in 2023. Because TCA recognizes contract revenue over time, management expects the rollout to lower F&I revenue and gross profit over the next two to three years, despite higher overall transaction profitability.
- Key business risks include vehicle and parts supply constraints, inflation and rising interest rates, consumer affordability and credit availability, used-vehicle price normalization, manufacturer dependence and franchise restrictions, competition including direct-to-consumer sales, labor availability, cybersecurity, and legal and regulatory exposure. A 100-basis-point increase in market rates was estimated to raise annual interest expense by about $1.0 million, based on year-end variable-rate debt.
- Control issue: Management and Ernst & Young identified a material weakness in IT general controls at acquired LHM and TCA, involving user-access reviews, segregation of duties and administrative access. Internal control over financial reporting and disclosure controls were deemed ineffective at year-end, and the auditor issued an adverse ICFR opinion. Management reported no related financial-statement misstatements or restatements and expects remediation during 2023. The financial-statement audit opinion was unqualified.
- Other unusual items include the substantial non-cash fair-value adjustments to LHM acquisition goodwill and franchise rights; no goodwill or franchise-right impairment was recorded in 2022. The filing reports no known legal claim expected to materially affect results, while noting outcomes remain uncertain.
Important facts for investors to verify
- How much reported growth and earnings reflect the LHM acquisition and the $207.1 million divestiture gain, versus sustainable same-store performance.
- Whether vehicle supply normalizes and new-vehicle margins retreat, and how used-vehicle margin pressure develops.
- Progress and tested effectiveness of the LHM/TCA IT-control remediation in 2023.
- Debt maturities, interest-rate exposure, covenant headroom and the composition and accessibility of reported liquidity.
- Execution of the $32 billion 2025 revenue target, approximately $200 million 2023 capital plan and TCA rollout, including its near-term effect on reported F&I results.