Asbury Automotive Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited; comparisons are with Q1 2021. Amounts are in millions unless stated otherwise.
Business context
Asbury operated 201 new-vehicle franchises across 151 dealership locations, along with used-vehicle, collision, wholesale, auction and finance-and-insurance operations. Results include a full quarter of the Larry H. Miller businesses acquired in December 2021, including Total Care Auto (TCA). Accordingly, reported year-over-year growth reflects acquisitions as well as operating performance; same-store figures provide a more comparable view.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $3,911.8 | $2,192.9 | +78% |
| Gross profit | $792.0 | $382.7 | +107% |
| Gross margin | 20.2% | 17.5% | +2.7 percentage points |
| SG&A as % of gross profit | 57.5% | 62.7% | Improved 5.2 points |
| Income from operations | $320.8 | $136.3 | +135% |
| Net income | $237.7 | $92.8 | +156% |
| Diluted EPS | $10.38 | $4.78 | +117% |
| Net cash provided by operating activities | $409.0 | $210.8 | +$198.2 |
| Capital expenditures, excluding real estate | $20.8 | $11.2 | +$9.6 |
At March 31, cash and cash equivalents were $284.3, including $137.7 held by TCA. Total debt, including current maturities and after debt issuance costs, was $3,403.3, down from $3,582.6 at year-end 2021. Net cash used in financing activities was $534.9, including $200.0 of share repurchases. Inventory was $701.1; total current assets were $1,813.9 and current liabilities were $1,584.8.
Material changes and operating performance
- Reported revenue growth included the acquired LHM dealerships; LHM contributed $1.43 billion of Q1 revenue. On a same-store basis, new-vehicle revenue declined 10% and unit sales declined 20%, while new-vehicle gross profit increased 67% and gross profit per vehicle rose 109% to $5,750.
- Used-vehicle revenue rose 96% reported and 24% same store. Same-store retail units increased 6%; same-store used retail gross profit increased 17%, while used-vehicle wholesale gross profit declined sharply.
- Parts-and-service revenue increased 95% reported and 14% same store. Same-store gross profit increased 10%.
- Finance-and-insurance revenue, net, rose 130% reported and 26% same store. Same-store F&I revenue per vehicle increased 36% to $2,376.
- Other interest expense increased $23.6 to $37.6, primarily reflecting debt incurred to finance acquisitions. A preliminary $33.1 pre-tax gain on dealership divestitures partly offset expenses; four franchises were sold during the quarter.
- Operating cash flow benefited from working-capital movements, including higher accounts payable and accrued liabilities and lower inventory. Investing cash flow included $252.2 of divestiture proceeds.
Liquidity, outlook and risks
- Management reported available liquidity of $805.2: $146.6 of cash excluding TCA, $26.6 in floor-plan offset accounts, $439.2 available under the revolving credit facility and $192.8 under the used-vehicle floor-plan facility. Management said it expects sufficient liquidity for at least the next 12 months.
- Management expects 2022 capital expenditures of approximately $175.0 for facility upgrades, new facilities, service capacity, technology and equipment. No earnings or revenue guidance was provided in the filing.
- Vehicle production and inventory remained constrained by supply-chain issues, particularly semiconductor shortages. Management said the shortages supported used-vehicle demand but could not predict when production would normalize. U.S. new-vehicle SAAR was 14.3 million versus 16.9 million a year earlier.
- Risks include acquisition integration and purchase-accounting uncertainty, vehicle and parts supply disruptions, economic and interest-rate changes, competition and margin pressure, manufacturer franchise relationships, regulatory matters, litigation and the ability to comply with debt covenants. The company was in compliance with its covenants at quarter-end.
- A 100-basis-point interest-rate change could affect annual interest expense by up to $5.0 based on $503.2 of variable-rate debt. Seven interest-rate swaps were outstanding; two new swaps had $550.0 combined notional principal.
- The company reported no known claims expected to materially adversely affect results, but stated that outcomes are uncertain. Letters of credit of $10.8 and a $16.4 surety bond line were disclosed as off-balance-sheet arrangements.
- Disclosure controls were assessed as effective. The SEC-permitted internal-control evaluation did not include acquired operations; the company reported no material control changes during the quarter.
Important facts for investors to verify
- How much of reported growth and earnings reflects the LHM acquisition versus same-store performance, and how preliminary acquisition accounting may change.
- Whether elevated vehicle gross profits and F&I performance persist as vehicle availability, demand and pricing conditions change.
- Cash generation after accounting for working-capital movements, floor-plan financing and one-time divestiture proceeds.
- Debt-service and interest-rate exposure, available borrowing capacity, and the effects of future rates despite hedges.
- Execution of the approximately $175.0 capital-expenditure plan and the effect of the additional $200.0 share-repurchase authorization approved after quarter-end.