Asbury Automotive Group, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY2022. This is an annual filing, not a standalone Q4 report. Asbury operates franchised dealerships and collision centers, and provides finance and insurance products through its Dealerships and TCA segments. At year-end it operated 208 new-vehicle franchises, 158 dealership locations, and 37 collision centers across 16 states.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $14.80 billion | $15.43 billion | Down 4% |
| Gross profit | $2.76 billion | $3.10 billion | Down 11% |
| Gross margin | 18.6% | 20.1% | Down 1.5 percentage points |
| Income from operations | $953.5 million | $1.27 billion | Down 25% |
| Net income | $602.5 million | $997.3 million | Down 40% |
| Diluted EPS | $28.74 | $44.61 | Down 36% |
| Cash provided by operating activities | $313.0 million | $696.0 million | Down $383.0 million |
- New-vehicle revenue rose 4% to $7.63 billion, but gross profit fell 17% to $703.0 million as margins eased with improving inventory availability. New-vehicle gross profit per unit declined 16% to $4,702.
- Used-vehicle revenue fell 15% to $4.41 billion, and gross profit fell 25% to $264.0 million. Retail used units declined 16%; gross profit per retail unit declined 15% to $1,949.
- Parts and service revenue was nearly flat at $2.08 billion; same-store revenue increased 5%. F&I revenue declined 15% to $676.2 million, with F&I gross profit per vehicle down 7% to $2,304.
- SG&A declined 8% to $1.62 billion, but increased to 58.7% of gross profit from 56.9%, reflecting lower gross profit. FY2023 included $117.2 million of asset impairments; FY2022 included a $207.1 million gain on dealership divestitures versus $13.5 million in FY2023.
- Adjusted operating cash flow, a company-defined non-GAAP measure, was $705.4 million, down from $987.0 million. The filing attributes the decline mainly to lower net income and working-capital movements.
Liquidity, debt and capital allocation
- Year-end cash and cash equivalents were $45.7 million, compared with $235.3 million. Management reported total available liquidity of $459.8 million: $32.5 million of cash excluding TCA cash, $95.2 million in floor-plan offset accounts, and $332.1 million of revolving-credit availability.
- Total debt was $3.23 billion, excluding floor-plan notes payable; floor-plan notes payable, net, totaled approximately $1.79 billion. The company reported an adjusted net leverage ratio of 2.5x, versus 1.7x in 2022, and said it targets 2.5x–3.5x in a normal business environment.
- Other interest expense was $156.1 million. Management estimates a 100-basis-point increase in market rates would add about $18.1 million to annual interest expense, based on variable-rate debt outstanding at year-end. The company was in compliance with its debt covenants.
- Available liquidity and borrowing capacity supported the December acquisition of Koons for approximately $1.50 billion, funded with existing credit facilities and cash. The acquisition added 20 dealerships and six collision centers; its results were included from December 11, 2023.
- Asbury repurchased 1.32 million shares for $258.1 million under its program and reported $202.6 million of remaining authorization at year-end. It has not paid dividends since 2008.
Material changes, outlook and risks
- The Koons acquisition expanded Asbury in the Washington-Baltimore region. Purchase accounting remained preliminary; acquired operations represented approximately $1.65 billion of consolidated assets at year-end. The acquisition contributed $168.2 million of revenue and $7.0 million of net income from closing through year-end.
- Management announced a strategic target of revenue of $30 billion or more by 2030, relying on same-store growth, acquisitions and balanced capital allocation. Expected 2024 capital expenditures are approximately $250 million.
- Management expects TCA product rollout to all dealerships by the end of 2024. Because TCA recognizes contract revenue over time, the rollout is expected to reduce reported F&I revenue and gross profit over the next two to three years, despite higher combined transaction profitability.
- Key operating risks include vehicle affordability and interest rates, used-vehicle demand and margins, vehicle and parts supply, labor costs and availability, manufacturer relationships and franchise rules, competition including direct-to-consumer sales, and acquisition integration. Toyota and Lexus represented 27% of new-vehicle revenue; no other manufacturer group exceeded 12%.
- Asbury recorded $117.2 million of impairments, including $73.1 million on franchise rights and $44.1 million associated with disposal groups. Management noted that Arizona and Utah goodwill reporting units had fair values less than 5% above carrying value, making future impairment a monitoring point.
- After year-end, FTC staff proposed a consent order and draft complaint alleging violations related to sales of add-on products at three dealerships. Asbury disputes the allegations and is in discussions with the FTC; it said the outcome and any loss range could not be reasonably estimated. The FTC’s CARS Rule, published in January 2024, was stayed pending judicial review of its original effective date.
- A material weakness in IT general controls identified in 2022 was reported as remediated in 2023. Management and the auditor concluded internal control over financial reporting was effective at year-end; however, the auditor’s control audit excluded Koons, whose results were included in the consolidated statements.
Important facts for investors to verify
- Whether Koons integration, preliminary purchase accounting and planned synergies meet management’s expectations, and how acquisition financing affects leverage and cash flow.
- Progress in vehicle availability, new- and used-vehicle unit margins, affordability and customer demand, including the effect of higher interest rates.
- Actual 2024 capital spending, liquidity and leverage, alongside the timing and scale of share repurchases.
- The scope, resolution and potential financial or reputational impact of the FTC investigation, and the status and implementation requirements of the CARS Rule.
- Whether the Arizona and Utah reporting units, and other franchise rights, maintain sufficient fair-value headroom to avoid further impairment.
- The financial effects of TCA’s dealership rollout and the related timing shift in recognized F&I revenue and gross profit.