Asbury Automotive Group, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 1, 2021. The filing is an annual report, not a separate fourth-quarter report. Asbury operated 112 franchises across 91 dealership locations, plus 25 collision centers and an auto auction at year-end.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $7.132 billion | $7.210 billion |
| Gross profit / margin | $1.223 billion / 17.2% | $1.169 billion / 16.2% |
| Operating income | $370.8 million | $325.0 million |
| Net income | $254.4 million | $184.4 million |
| Diluted EPS | $13.18 | $9.55 |
| Cash provided by operating activities | $652.5 million | $349.8 million |
- Revenue declined 1%, while gross profit rose 5% and net income rose 38%. Gross margin expanded 100 basis points; SG&A declined to 63.9% of gross profit from 68.4%.
- New vehicle revenue fell 2%, with units down 10%; supply constraints lifted reported gross profit per new vehicle 51%. Used vehicle revenue rose 2% and used retail gross margin increased to 7.5% from 6.9%. Parts and service revenue declined 1%; F&I revenue declined 3%.
- Investing cash outflow was $820.8 million, mainly reflecting acquisitions; financing cash inflow was $166.2 million. Management’s adjusted operating cash flow measure, which includes specified floor-plan financing flows, was $497.2 million versus $155.1 million in 2019; it is a non-GAAP measure.
- Year-end cash was $1.4 million. Reported available liquidity was $461.9 million, including floor-plan offset balances and borrowing availability. Working capital was $182.3 million, down from $355.6 million.
- Year-end total debt was approximately $1.21 billion, excluding floor-plan notes; floor-plan notes payable were $702.2 million. Total debt increased from $967.5 million in 2019. A 100-basis-point increase in market rates was estimated to raise annual interest expense by up to $6.8 million.
Material changes and significant transactions
- Asbury completed its revised Park Place acquisition on August 24, 2020, for $889.9 million, acquiring 12 franchises, two collision centers and an auto auction. The acquired business contributed $589.6 million of revenue and $27.6 million of net income from closing through year-end. The company also acquired Denver franchises for $63.6 million.
- The original Park Place transaction was terminated in March for $10.0 million in liquidated damages; related notes were partially redeemed. The company refinanced debt, redeemed its 6.0% notes due 2024, and issued senior notes due 2028 and 2030. A $20.6 million loss on extinguishment of debt was recorded.
- Dealership divestitures generated $177.9 million of proceeds and a $62.3 million pretax gain. The gain and lower floor-plan interest expense were significant contributors to improved pretax income.
- Same-store new vehicle revenue fell 9%, and same-store parts and service revenue fell 8%; strong per-vehicle gross profit helped offset lower volumes. The U.S. new-vehicle SAAR was 14.6 million, versus 17.1 million in 2019.
Outlook, risks and other notable items
- Management’s five-year plan targets $20 billion in annual revenue by 2025, through same-store growth, acquisitions and Clicklane. Clicklane was in about one-third of stores by February 19, 2021, with rollout expected by the end of first-quarter 2021. This is a target, not a guarantee.
- Management expected approximately $55 million in 2021 capital expenditures and an effective tax rate of about 25%. It anticipated SG&A as a percentage of gross profit would gradually rise as vehicle inventory normalized.
- COVID-19 disrupted vehicle production and inventory, reduced customer traffic and parts/service demand, and prompted workforce and cost reductions. New vehicle inventory was 40 days at year-end versus a 70–75-day target. Management said parts and service was approaching pre-pandemic levels by year-end, but could not predict the pandemic’s duration or financial effects.
- A $23.0 million non-cash franchise-rights impairment was recorded in first-quarter 2020; no additional franchise-rights impairment was identified in 2020. Park Place integration, realization of expected synergies, vehicle supply, consumer demand and debt/covenant compliance remain important risks.
- The company reported compliance with debt covenants at year-end and believed liquidity was adequate for at least the next 12 months. It paid no dividends and made no repurchases under its share repurchase program in 2020. Known legal matters were not expected by management to have a material effect, though outcomes remain uncertain.
Investor verification points
- Assess how much 2020 earnings growth depended on the $62.3 million divestiture gain, unusually high vehicle gross profits and lower floor-plan interest expense.
- Review Park Place integration results, acquisition-related debt and lease obligations, and whether anticipated synergies are being achieved.
- Track vehicle inventory recovery, gross profit per vehicle, unit volumes and the return of parts and service demand toward pre-pandemic levels.
- Reconcile reported operating cash flow with the company’s adjusted measure and evaluate liquidity after acquisition spending and debt service.
- Review the assumptions behind the $20 billion 2025 revenue target, planned 2021 capital expenditures, and any future franchise-rights impairment testing.
- Note that the auditor gave an unqualified opinion on the financial statements and internal control; the acquired operations, representing $1.016 billion of assets and $687.1 million of 2020 revenue, were excluded from management’s internal-control assessment and the auditor’s internal-control audit.