Asbury Automotive Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Comparisons are with the corresponding 2021 periods. The December 2021 Larry H. Miller (LHM) acquisition materially affects year-over-year comparability; 2022 results include acquired operations, while 2021 results do not.
Business context
Asbury operated 198 new-vehicle franchises at 148 locations in 15 states, plus collision centers, used-vehicle businesses, and Total Care Auto (TCA), its finance and insurance product provider. Following the LHM acquisition, it reported Dealerships and TCA segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $3,950.2 million | $2,584.0 million | $7,862.0 million | $4,776.9 million |
| Gross profit | $802.7 million | $497.2 million | $1,594.7 million | $879.9 million |
| Gross margin | 20.3% | 19.2% | 20.3% | 18.4% |
| Operating income | $335.5 million | $218.4 million | $656.3 million | $354.7 million |
| Net income | $201.4 million | $152.1 million | $439.1 million | $244.9 million |
| Diluted EPS | $9.07 | $7.80 | $19.52 | $12.56 |
- Q2 revenue rose 53% and net income rose 32%; first-half revenue rose 65% and net income rose 79%. Acquisitions contributed substantially to reported growth.
- Q2 revenue increased across new vehicles, used vehicles, parts and service, and finance and insurance. In same-store results, new-vehicle revenue fell 22% and new-vehicle units fell 31%; used-vehicle retail gross profit fell 21%, while parts-and-service revenue rose 10% and F&I revenue rose 8%.
- Q2 SG&A increased 66% to $448.3 million; it was 55.8% of gross profit versus 54.2% a year earlier. Management cited higher personnel costs. Other interest expense rose 161% to $37.6 million, primarily reflecting acquisition-related debt.
- First-half operating cash flow was $496.6 million, versus $587.3 million. The company’s adjusted operating cash flow, a non-GAAP measure, was $543.9 million versus $245.1 million. Investing activities provided $344.2 million, including $379.7 million of divestiture proceeds; financing activities used $919.6 million. Cash and cash equivalents declined $78.8 million to $100.1 million.
Debt, liquidity, and capital allocation
- Total debt outstanding was $3,415.5 million at June 30, 2022, compared with $3,614.5 million at December 31, 2021. Long-term debt, including current maturities and net of issuance costs, was $3,385.1 million; current maturities were $69.6 million.
- Reported available liquidity was $1.01 billion, including cash, floor-plan offset balances, and available credit facilities. The cash and offset amounts in this liquidity calculation exclude amounts held by TCA. Management said it expected sufficient liquidity for at least the next 12 months; the filing notes availability can depend on borrowing bases and covenant compliance.
- The company repurchased $200 million of shares under its program in the first half; $200 million of authorization remained at June 30. It reported compliance with debt covenants.
- During Q2, the company amended LIBOR-based debt arrangements and swaps to use SOFR. It had $139.2 million of variable-rate debt; management estimated a 100-basis-point rate change could affect annual interest expense by up to $1.4 million.
Outlook, risks, and unusual items
- No full-year earnings or revenue guidance is provided. Management expected 2022 capital expenditures of approximately $120 million and an effective tax rate around 25%.
- Management cited semiconductor and other component shortages constraining new-vehicle inventory; inventory supply at quarter-end was approximately 13 days for new vehicles and 34 days for used vehicles. U.S. new-vehicle SAAR was 13.5 million in Q2, versus 17.1 million a year earlier.
- Used-vehicle margins had compressed from prior-year levels. Inflation, rising interest rates, vehicle and parts supply disruptions, economic conditions, acquisition integration, staffing, and regulatory or manufacturer-related matters are among the disclosed risks.
- Q2 included a preliminary $28.7 million loss on dealership divestitures; the first half overall recorded a $4.4 million gain. Some divestiture accounting remained preliminary pending final LHM purchase accounting. The LHM acquisition’s purchase-price allocation was also preliminary.
- The company said known legal matters were not expected to materially affect results, but noted that outcomes are uncertain. It disclosed $12.7 million of letters of credit and a $16.0 million surety-bond line as off-balance-sheet arrangements.
Important facts for investors to verify
- Separate acquisition-driven growth from underlying same-store trends, particularly new-vehicle unit sales and used-vehicle margins.
- Track whether vehicle and parts supply constraints ease and whether elevated vehicle gross profits and F&I performance persist.
- Review debt service and interest-rate exposure alongside the composition and availability of the stated $1.01 billion liquidity.
- Confirm final LHM purchase accounting and divestiture results, including the Q2 loss and first-half gain.
- Compare actual capital spending, cash generation, and share repurchases with management’s stated outlook and capital allocation plans.