Asbury Automotive Group, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021. This is an annual filing; the supplied text does not provide standalone fourth-quarter results. Asbury operates franchised dealerships selling new and used vehicles, parts and service, and finance and insurance products.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $9.84 billion | $7.13 billion |
| Gross profit | $1.90 billion | $1.22 billion |
| Gross margin | 19.3% | 17.2% |
| Income from operations | $791.8 million | $370.8 million |
| Net income | $532.4 million | $254.4 million |
| Diluted earnings per share | $26.49 | $13.18 |
| Cash provided by operating activities | $1.16 billion | $652.5 million |
| Adjusted operating cash flow (non-GAAP) | $632.1 million | $442.6 million |
| Capital expenditures, excluding real estate and acquisitions | $74.2 million | $46.5 million |
Revenue rose 38% and net income increased 109%. Higher vehicle selling prices and gross profit per unit amid constrained new-vehicle supply contributed to the improvement. New-vehicle gross profit per unit increased 94% to $4,463; used-retail gross profit per unit rose 38% to $2,490. Same-store revenue increased 15% for parts and service and 13% for new vehicles. SG&A rose 37% to $1.07 billion, but fell to 56.5% of gross profit from 63.9%.
Business changes, debt and liquidity
- On December 17, 2021, Asbury completed its approximately $3.48 billion Larry H. Miller (LHM) and Total Care Auto (TCA) acquisition. It added 54 new-vehicle dealerships, seven used-vehicle stores, 11 collision centers and an F&I products business. The acquired operations contributed $256.4 million of revenue and $15.7 million of net income during the 15 days included in FY2021. The purchase price allocation remains preliminary.
- Asbury also acquired franchises in Denver and Indianapolis for a combined $485.7 million. Acquisition cash outflows drove net cash used in investing activities to $3.92 billion.
- At year-end, total debt was $3.61 billion, excluding floor-plan notes; floor-plan notes payable totaled $564.5 million. Cash and cash equivalents were $178.9 million. Reported available liquidity was $437.0 million, including revolving-credit and floor-plan availability.
- Debt increased substantially to fund acquisitions. The company issued $800 million of 4.625% senior notes and $600 million of 5.00% senior notes, and drew $689.7 million under a real-estate facility. Management targets 3.0x net leverage and said liquidity should be sufficient for at least the next 12 months. As of December 31, 2021, the company reported compliance with its covenants.
- The filing estimates that a 100-basis-point increase in market rates would raise annual interest expense by about $14 million on variable-rate debt. Five interest-rate swaps partially hedge exposure.
Outlook, risks and unusual items
- Management’s five-year strategic plan targets $20 billion of annual revenue by 2025. The company said 2021 acquisitions exceeded the plan’s acquisition target and that it would update the plan in 2022. No specific earnings guidance is provided.
- Management expected approximately $150 million of 2022 capital expenditures for facilities, service capacity, technology and equipment, and an effective tax rate of 25%–26% for 2022.
- Semiconductor and other supply shortages constrained new-vehicle inventory; Asbury ended the year with an eight-day new-vehicle supply. Management cautioned that shortages may persist and that normalization could pressure new- and used-vehicle profitability. COVID-19 disruption, inflation, labor costs, interest rates and consumer credit availability are additional risks.
- FY2021 included $27.5 million of bridge commitment fees related to the LHM/TCA acquisition and an $8.0 million gain on dealership divestitures. FY2020 included a $23.0 million franchise-rights impairment, a $20.6 million debt-extinguishment loss and $62.3 million of divestiture gains. No franchise-rights impairment was recorded in 2021.
- The company reported an unqualified audit opinion and effective internal control over financial reporting; however, the acquired operations’ controls were excluded from the year-end controls assessment. Those operations represented approximately $3.34 billion of assets and $346.0 million of 2021 revenue.
- Management identified risks from acquisition integration and realizing anticipated LHM savings and synergies, manufacturer and franchise dependence, competition (including direct-to-consumer sales), cybersecurity, regulation, self-insurance and litigation. Management did not expect known legal claims to have a material adverse effect, but outcomes remain uncertain.
Important facts for investors to verify
- Track post-acquisition integration, final LHM purchase accounting, and whether anticipated savings and operating synergies are achieved.
- Assess how quickly vehicle production and inventory recover, and whether unusually high per-unit vehicle profits and margins persist.
- Review debt maturities, covenant headroom, liquidity and the effect of higher interest rates on financing costs and customer demand.
- Reconcile presentation differences in the filing: the detailed parts-and-service table reports $1,184.3 million of revenue versus $1,182.9 million in consolidated results; the detailed F&I discussion also uses figures that differ from consolidated totals. The filing text does not explain these differences clearly.
- Verify the terms and maturity dates of the 2029 notes: one passage in the liquidity discussion refers to maturity on November 15, 2024, while the debt note states November 15, 2029.
- Consider that management’s adjusted operating cash flow is a non-GAAP measure and differs materially from reported operating cash flow, in part because of floor-plan financing classifications.