Asbury Automotive Group Inc: Form 10-Q for the period ended Jun 30, 2024

Forward-Looking Information

Certain of the discussions and information included or incorporated by reference in this report may constitute "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are statements that are not historical in nature and may include statements relating to our goals, plans and projections regarding industry and general economic trends, our expected financial position, results of operations or market position and our business strategy. Such statements can generally be identified by words such as "may," "target," "could," "would," "will," "should," "believe," "expect," "anticipate," "plan," "intend," "foresee," and other similar words or phrases. Forward-looking statements may also relate to our expectations and assumptions with respect to, among other things:

• the seasonally adjusted annual rate of new vehicle sales in the United States;
• general economic conditions and its expected impact on our revenue and expenses;
• our expected parts and service revenue due to, among other things, improvements in vehicle technology;
• our ability to limit our exposure to regional economic downturns due to our geographic diversity and brand mix;
• manufacturers' continued use of incentive programs to drive demand for their product offerings;
• our capital allocation strategy, including as it relates to acquisitions and divestitures, stock repurchases, dividends and capital expenditures;
• our revenue growth strategy;
• the growth of the brands that comprise our portfolio over the long-term;
• disruptions in the production and supply of vehicles and parts from our vehicle and parts manufacturers and other suppliers, which can disrupt our operations;
• our estimated future capital expenditures, which can be impacted by increasing prices and labor shortages and acquisitions and divestitures; and
• the impact of the CDK Global cyber incident.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual future results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited to:

• the ability to acquire and successfully integrate acquired businesses into our existing operations and realize expected benefits and synergies from such acquisitions;
• the effects of increased expenses or unanticipated liabilities incurred as a result of, or due to activities related to our acquisitions or divestitures;
• changes in general economic and business conditions, including the current inflationary environment, the current interest rate environment, changes in employment levels, consumer confidence levels, consumer demand and preferences, the availability and cost of credit, fuel prices and levels of discretionary personal income;
• our ability to generate sufficient cash flows, maintain our liquidity and obtain any necessary additional funds for working capital, capital expenditures, acquisitions, stock repurchases, debt maturity payments and other corporate purposes, if necessary or desirable;
• significant disruptions in the production and delivery of vehicles and parts for any reason, including supply shortages, natural disasters, severe weather, civil unrest, product recalls, work stoppages or other occurrences that are outside of our control;
• our ability to successfully attract and retain skilled employees;
• our ability to successfully operate, including our ability to maintain, and obtain future necessary regulatory approvals, for Total Care Auto, Powered by Landcar ("TCA"), our finance and insurance ("F&I ") product provider;
• adverse conditions affecting the vehicle manufacturers whose brands we sell, and their ability to design, manufacture, deliver and market their vehicles successfully;
• changes in the mix and total number of vehicles we are able to sell;
• our outstanding indebtedness and our continued ability to comply with applicable covenants in our various financing and lease agreements, or to obtain waivers of these covenants as necessary;
• high levels of competition in our industry, which may create pricing and margin pressures on our products and services;
• our relationships with manufacturers of the vehicles we sell and our ability to renew, and enter into new framework and dealer agreements with vehicle manufacturers whose brands we sell, on terms acceptable to us;
• the availability of manufacturer incentive programs and our ability to earn these incentives;
• failure of our, or those of our third-party service providers, management information systems;
• any data security breaches occurring, including with regard to personally identifiable information ("PII");
• changes in laws and regulations governing the operation of automobile franchises, including trade restrictions, consumer protections, accounting standards, taxation requirements and environmental laws;
• changes in, or the imposition of, new tariffs or trade restrictions on imported vehicles or parts;
• adverse results from litigation, regulatory investigations or other similar proceedings involving us, including costs, expenses, settlements and judgments related thereto;
• our ability to consummate planned or pending mergers, acquisitions and dispositions;
• any disruptions in the financial markets, which may impact our ability to access capital;
• our relationships with, and the financial stability of, our lenders and lessors;
• our ability to execute our initiatives and other strategies;
• our ability to leverage scale and cost structure to improve operating efficiencies across our dealership portfolio; and
• the completion of our investigation into the CDK Global cyber incident and the ultimate results of CDK Global's and our containment and remediation efforts.

Many of these factors are beyond our ability to control or predict, and their ultimate impact could be material. Moreover, the factors set forth under "Item 1A. Risk Factors" and other cautionary statements made in this report should be read and considered as forward-looking statements subject to such uncertainties. Forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation to update any forward-looking statement contained herein.

OVERVIEW

We are one of the largest automotive retailers in the United States. As of June 30, 2024, through our Dealerships segment, we owned and operated 204 new vehicle franchises (155 dealership locations), representing 31 brands of automobiles, and 37 collision centers within 15 states. Our stores offer an extensive range of automotive products and services, including new and used vehicles; parts and service, which includes repair and maintenance services, replacement parts and collision repair services; and finance and insurance products. The finance and insurance products are provided by both independent third parties and TCA. The F&I products offered by TCA are sold through affiliated dealerships. For the six months ended June 30, 2024, our new vehicle revenue brand mix consisted of 29% luxury, 41% imports and 29% domestic brands. The Company manages its operations in two reportable segments: Dealerships and TCA. Amounts presented have been calculated using non-rounded amounts for all periods presented and therefore certain amounts may not compute.

Our Dealerships segment revenues are derived primarily from: (i) the sale of new vehicles; (ii) the sale of used vehicles to individual retail customers ("used retail") and to other dealers at auction ("wholesale") (the terms "used retail" and "wholesale" collectively referred to as "used"); (iii) repair and maintenance services, including collision repair, the sale of automotive replacement parts, and the reconditioning of used vehicles (collectively referred to as "parts and service"); and (iv) the arrangement of third-party vehicle financing and the sale of a number of vehicle protection products. We evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold, our parts and service operations based on aggregate gross profit, and our F&I business based on F&I gross profit per vehicle sold.

Our TCA segment revenues, reflected in F&I revenue, net, are derived from the sale of various vehicle protection products including vehicle service contracts, GAP, prepaid maintenance contracts, and appearance protection contracts. These products are sold through company-owned dealerships. TCA's F&I revenues also include investment gains or losses and income earned associated with the performance of TCA's investment portfolio.

Our TCA segment gross profit margin can vary due to incurred claims expense and the performance of our investment portfolio. Certain F&I products may result in higher gross profit margins to TCA. Therefore, the product mix of F&I products sold by TCA can affect the gross profits earned. In addition, interest rate volatility, based on economic and market conditions outside the control of the Company, may increase or reduce TCA segment gross profit margins as well as the fair market values of certain securities within our investment portfolio. Fair market values typically fluctuate inversely to the fluctuations in interest rates.

Selling, general, and administrative ("SG&A") expenses consist primarily of fixed and incentive-based compensation, advertising, rent, insurance, utilities, and other customary operating expenses. A significant portion of our cost structure is variable (such as sales commissions) or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long-term. We evaluate commissions paid to salespeople as a percentage of retail vehicle gross profit, advertising expense on a per vehicle retailed basis, and all other SG&A expenses in the aggregate as a percentage of total gross profit.

Our continued organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy, the continued strength of our brand mix and the production and allocation of desirable vehicles from the automobile manufacturers whose brands we sell. Our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions, including consumer confidence, availability of consumer credit, fuel prices and employment levels.

In addition, our ability to sell certain new and used vehicles can be negatively impacted by a number of factors, some of which are outside of our control. Certain manufacturers continue to be hampered by the lack of availability of parts and key components from suppliers which has impacted new vehicle inventory levels and availability of certain parts. We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these production slowdowns or when normalized production will resume at these manufacturers.

CDK Outage

During June 2024, one of the Company’s vendors (CDK Global) experienced a cyber-incident impacting certain services provided to the Company and many other automotive retailers, including the Company’s sales, service, inventory, customer relationship management, and accounting functions. Upon discovery of the incident, we took immediate precautionary steps to protect our systems. Beginning on June 19, 2024, the outage affected all Asbury locations, with the exception of our Koons stores which utilize a different dealer management system. All functions of CDK were not fully restored for us until July 8, 2024, with other plug-ins and bolt-on applications coming back online in the weeks thereafter. The CDK outage had a negative impact on our financial results during the quarter ended June 30, 2024 as a result of fewer new and used vehicle sales, which also impacted our F&I business, a reduction in parts and service volumes and certain one-time expenses related to our recovery efforts.

We have cybersecurity insurance coverage of $15.0 million, with a $2.5 million deductible. The likelihood and timing of recovering some portion of our losses through insurance or other recoveries is difficult to predict. The insurance recoveries we receive, if any, may not occur for several quarters or longer.

Jim Koons Acquisition

On December 11, 2023, the Company completed the acquisition of substantially all of the assets, including all real property and businesses of the Jim Koons Dealerships ("Koons") pursuant to a Purchase and Sale Agreement with various entities that comprise the Jim Koons automotive dealerships group (the "Koons acquisition"). The Koons acquisition comprised 20 new vehicle dealerships and six collision centers.

Financial Highlights

Highlights related to our financial condition and results of operations include the following:

• Consolidated revenue for the six months ended June 30, 2024 was $8.45 billion, compared to $7.32 billion for the prior year.
• Consolidated gross profit for the six months ended June 30, 2024 was $1.48 billion, compared to $1.41 billion for the prior year.
• The increase in consolidated revenue and gross profit is primarily due to the effects of the Koons acquisition, offset by the negative impact of the CDK outage in June 2024 as well as lower gross profit per vehicle sold for both new and used vehicles as margins continue to shift downward from the historic highs in recent years.
• Our capital allocation priorities were supported by the repurchase of 432,389 shares for $93.2 million during the six months ended June 30, 2024.

CONSOLIDATED RESULTS OF OPERATIONS

The Company's operating results for the three and six months ended June 30, 2024 include the results of the Koons dealerships acquired in the fourth quarter of 2023. Accordingly, the increases in revenue and gross profit for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 are largely a result of this acquisition. Additionally, during the three months ended June 30, 2024, we recorded asset impairments of $135.4 million related to franchise rights impairments for certain underperforming stores, limited primarily to one brand.

We assess the organic growth of our revenue and gross profit on a same store basis. We believe that our assessment on a same store basis represents an important indicator of comparative financial performance and provides relevant information to assess our performance. As such, for the following discussion, same store amounts consist of information from dealerships for identical months in each comparative period, commencing with the first full month we owned the dealership. Additionally, amounts related to divested dealerships are excluded from each comparative period.

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

(Dollars in millions, except per share data)

NM—Not Meaningful

Total revenue during the second quarter of 2024 increased by $503.7 million (13%) compared to the second quarter of 2023, due to a $222.2 million (11%) increase in new vehicle revenue, a $200.7 million (18%) increase in used vehicle revenue, a $54.7 million (10%) increase in parts and service revenue and a $26.0 million (16%) increase in F&I, net revenue. During the three months ended June 30, 2024, gross profit increased by $17.6 million (2%) driven by a $47.9 million (16%) increase in parts and service gross profit and a $9.5 million (6%) increase in F&I gross profit partially offset by a $29.9 million (16%) decrease in new vehicle gross profit and a $9.8 million (14%) decrease in used vehicle gross profit. The increase in revenue and gross profit is largely attributable to the Koons acquisition and is offset by the negative impact of the CDK outage. The CDK outage had a negative impact on our financial results during the quarter ended June 30, 2024 as a result of fewer new and used vehicle sales, which also impacted our F&I business, and a reduction in parts and service volumes.

Income from operations during the second quarter of 2024 decreased by $187.2 million (65%) compared to the second quarter of 2023, primarily due to $135.4 million in asset impairments and a $68.0 million (17%) increase in SG&A expense, partially offset by $17.6 million (2%) increase in gross profit.

Total other expenses, net increased by $35.9 million (135%) during the second quarter of 2024 as compared to the second quarter of 2023, primarily as a result of a $20.2 million increase in floor plan interest expense and a $9.9 million decrease in gain on dealership divestitures. Income before income taxes decreased $223.1 million (85%) to $38.0 million for the three months ended June 30, 2024. Overall, net income decreased by $168.2 million (86%) during the second quarter of 2024 as compared to the second quarter of 2023.

New Vehicle—

(Dollars in millions, except for per vehicle data)

31

New Vehicle Metrics—

For the three months ended June 30, 2024, new vehicle revenue increased by $222.2 million (11%) due to a $132.2 million (17%) increase in import brands revenue and a $90.6 million (17%) increase in domestic brands revenue, partially offset by a $0.6 million decrease in luxury brands revenue. Same store new vehicle revenue decreased by $112.9 million (6%) primarily driven by a $82.1 million (15%) decrease in domestic brands revenue, a $19.8 million (3%) decrease in luxury brands revenue and an $11.0 million (1%) decrease in import brands revenue.

For the three months ended June 30, 2024, new vehicle gross profit and same store new vehicle gross profit decreased by $29.9 million (16%) and $54.1 million (29%), respectively. Same store new vehicle gross margin for the three months ended June 30, 2024 decreased 239 basis points to 7.1%. A similar decrease was seen in new vehicle gross profit margins, as reported. The decrease in our new vehicle gross profit margin was primarily attributable to the easing of new vehicle inventory constraints which softened the historically high new vehicle margins seen in recent years. Additionally, the CDK outage had a negative impact on our new vehicle revenue and gross profit during the quarter ended June 30, 2024 as a result of fewer new vehicle sales.

The seasonally adjusted annual rate ("SAAR") for new vehicle sales in the U.S. during the three months ended June 30, 2024 was approximately 15.6 million which increased as compared to approximately 15.5 million during the three months ended June 30, 2023. The increase in SAAR period over period reflects higher inventory supply coupled with continued consumer demand for new vehicles but new vehicle sales volumes were tempered by the CDK cyber-security incident which impacted industry wide sales in the latter part of June. We also continue to be impacted by the significant variation in new vehicle days supply among brands and models.

Used Vehicle—

(Dollars in millions, except for per vehicle data)

Used Vehicle Metrics—

Used vehicle revenue increased by $200.7 million (18%) compared to the same period of the prior year, primarily due to a $153.9 million (15%) increase in used vehicle retail revenue and a $46.9 million (50%) increase in used vehicle wholesale revenue. Same store used vehicle revenue decreased by $64.2 million (6%) largely due to a $75.0 million (7%) decrease in used vehicle retail revenue, partially offset by a $10.8 million (12%) increase in used vehicle wholesale revenue. Total used vehicle retail unit sales increased by 22% due to the Koons acquisition while same store retail used vehicle unit sales decreased by 2% during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. Revenue per used vehicle retailed have continued to contract as seen in the second quarter of 2024, along with margins on both an all store and same store basis. Used vehicle revenue and unit volumes have been negatively impacted by the lack of inventory availability, especially in vehicles with lower mileage. For the three months ended June 30, 2024, total Company and same store used vehicle retail gross profit margins decreased by 166 basis points and 139 basis points, respectively, as compared to the three months ended June 30, 2023. Decreases in used vehicle gross margins, on both a total Company and same store basis, was largely driven by a tighter market for used vehicles during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

For the three months ended June 30, 2024, used vehicle retail gross profit margins decreased from 6.5% to 4.8% and 6.5% to 5.1% respectively, for all stores and on a same store basis when compared to the same period of the prior year. Used vehicle retail gross profit decreased $9.4 million (14%) for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 and decreased $17.8 million (27%) on a same store basis for the same periods. On a total company basis our gross profit per used vehicle retailed decreased $618 (30%), and on a same store basis, our gross profit per used vehicle retailed decreased $532 (26%) when compared to the prior year period which was primarily driven by decreases in used vehicle market prices. Additionally, the CDK outage had a negative impact on our used vehicle revenue and gross profit during the quarter ended June 30, 2024 as a result of fewer used vehicle sales.

Parts and Service—

For the three months ended June 30, 2024 and 2023, we are presenting "Collision" as a separate line item within parts and service gross profit. In prior periods, "Collision" was included within "Customer pay". We reclassified the corresponding amounts for the three months ended June 30, 2023 to conform to current year presentation.

(Dollars in millions)

34

* Reconditioning and preparation represents the gross profit earned by our parts and service departments for internal work performed and is included as a reduction of Parts and Service Cost of Sales in the accompanying Condensed Consolidated Statements of Income upon the sale of the vehicle.

The $54.7 million (10%) increase in parts and service revenue was primarily due to a $40.7 million (15%) increase in customer pay revenue, a $13.1 million (20%) increase in warranty revenue, a $1.0 million (1%) increase in wholesale parts revenue, partially offset by a $0.1 million decrease in collision revenue. Same store parts and service revenue decreased by $9.9 million (2%) to $510.8 million during the three months ended June 30, 2024 from $520.6 million during the three months ended June 30, 2023. The decrease in same store parts and service revenue was due to an $8.0 million (7%) decrease in wholesale parts revenue, a $7.5 million (11%) decrease in collision revenue, partially offset by a $4.6 million (7%) increase in warranty revenue and a $1.0 million increase in customer pay revenue. Consumers are owning a vehicle for longer periods of time due to various factors, including the higher cost of vehicles, higher interest rates, as well as the vehicle inventory constraints experienced in the automotive industry in recent years.

For the three months ended June 30, 2024, total parts and service gross profit increased by $47.9 million (16%) to $339.9 million and same store total parts and service gross profit increased by $10.5 million (4%) to $299.9 million when compared to the same period of the prior year. The all store increase is primarily due to the Koons acquisition and reconditioning and preparation, while the same store increase is primarily a result of increased customer pay and warranty volume, which is in line with the increasing trend of aged vehicles. Additionally, the CDK outage had a negative impact on our parts and service revenue and gross profit during the quarter ended June 30, 2024 as a result of a reduction in parts and service volumes.

Finance and Insurance, net—

(Dollars in millions, except for per vehicle data)

F&I revenue, net increased by $26.0 million (16%) during the second quarter of 2024 when compared to the second quarter of 2023, as a result of a 16% increase in total retail units sold offset by a $212 (9%) decrease in F&I per vehicle retailed.

On a same store basis, F&I revenue, net decreased by $7.7 million (5%) during the second quarter of 2024 when compared to the second quarter of 2023, as a result of a 5% decrease in total retail units sold and an 11% decrease in F&I per vehicle retailed. We are seeing slightly lower penetration rates in our F&I products as customers look for ways to manage lower monthly payments in a high interest rate environment. Additionally, the CDK outage had a negative impact on our financial results during the quarter ended June 30, 2024 as a result of fewer new and used vehicle sales, which also affected our F&I business.

The financial results of the TCA segment, after dealership eliminations, are as follows:

(Dollars in millions)

35

TCA offers a variety of F&I products, such as extended vehicle service contracts, prepaid maintenance contracts, GAP, appearance protection contracts and lease wear-and-tear contracts. TCA's products are sold through our automobile dealerships.

Revenue generated by TCA is earned over the period of the related product contract. The method for recognizing revenue is assigned based on contract type and expected claim patterns. Premium revenues are supplemented with investment gains or losses and income earned associated with the performance of TCA's investment portfolio. During the three months ended June 30, 2024, TCA generated $37.7 million of revenue, consisting primarily of earned premiums and $4.4 million investment income from the investment portfolio.

Direct expenses incurred for the acquisition of F&I contracts on which revenue has not yet been recognized have been deferred and are amortized over the related contract period. During the three months ended June 30, 2024, TCA recorded $17.7 million of cost of sales consisting primarily of claims expense. Commissions expense paid by TCA to our affiliated dealerships and reflected as F&I revenue in our Dealerships segment is eliminated in the TCA segment upon consolidation.

As we continue to integrate TCA, we expect a rollout of TCA products to our remaining stores by the end of 2024. With the ownership of TCA, while the combined profitability of the transaction is higher, the timing of revenue and cost recognition is deferred and amortized over the life of the contract. We expect that this rollout will result in lower F&I revenue and gross profit over the next two to three years due to the change in how these contracts are earned.

Selling, General, and Administrative Expense—

(Dollars in millions)

SG&A expense as a percentage of gross profit increased 792 basis points from 57.3% for three months ended June 30, 2023 to 65.2% for three months ended June 30, 2024, while same store SG&A expense as a percentage of gross profit increased 778 basis points to 64.9% over the same period in 2024. The increase in SG&A expense as a percentage of gross profit on a total company basis during the three months ended June 30, 2024 is primarily the result of higher cost in personnel and other categories in SG&A expense partially offset by higher gross profits for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase in SG&A as a percentage of gross profit on the same store basis during the three months ended June 30, 2024 is primarily the result of lower gross profits for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 . On a total company basis, SG&A expense increased by $68.0 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 primarily due to the Koons acquisition in December 2023. Additionally, during the three months ended June 30, 2024 and 2023, we incurred $3.1 million and $4.3 million, respectively, of losses related to hail damage at certain dealerships.

Asset Impairments —

During the three months ended June 30, 2024, we recognized asset impairments of $135.4 million as compared to no impairment charges during the three months ended June 30, 2023. The asset impairments resulted from our interim franchise rights impairment tests for certain underperforming stores, limited primarily to one brand.

Floor Plan Interest Expense —

Floor plan interest expense increased by $20.2 million to $21.0 million during the three months ended June 30, 2024 as compared to $0.8 million for the three months ended June 30, 2023 due to less cash held in the floor plan offset account during the three months ended June 30, 2023.

Other Interest Expense —

Other interest expense increased $5.8 million (15%) during the three months ended June 30, 2024 from $39.3 million during the three months ended June 30, 2023 to $45.1 million. This increase was primarily due to a $6.3 million increase in our credit facility interest expense, $1.2 million increase in loaner payable interest expense driven by higher loaner vehicle balances as well as a $0.8 million decrease in interest income, partially offset by a decrease of $1.0 million in mortgage interest expense and a decrease of $0.9 million in amortization of capitalized interest expense.

Gain on Dealership Divestitures —

During the three months ended June 30, 2024, we sold one Nissan franchise (one dealership location) in Denver, Colorado and one Nissan franchise (one dealership location) in Atlanta, Georgia. The Company recorded a pre-tax gain totaling $3.6 million, which is presented in our accompanying condensed consolidated statement of income as a gain on dealership divestitures.

During the three months ended June 30, 2023, we sold one Acura franchise (one dealership location) in Austin, Texas. The Company recorded a pre-tax gain totaling $13.5 million, which is presented in our accompanying condensed consolidated statement of income as a gain on dealership divestitures.

Income Tax Expense —

The $54.9 million (85%) decrease in income tax expense was primarily the result of a $223.1 million (85%) decrease in income before income taxes. Our effective tax rate for the three months ended June 30, 2024 was 26.1% compared to 24.8% in the prior comparative period, which differed from the U.S. statutory rate primarily due to the favorable effects of the windfall component of equity compensation, a discrete item, and unfavorable effects of various permanent tax adjustments such as executive compensation. We estimate our effective tax rate for the year ended December 31, 2024 at 25.0%.

CONSOLIDATED RESULTS OF OPERATIONS

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

(Dollars in millions, except per share data)

NM—Not Meaningful

Total revenue for the six months ended June 30, 2024 increased by $1,122.6 million (15%) compared to the six months ended June 30, 2023, due to a $518.8 million (14%) increase in new vehicle revenue, a $431.1 million (19%) increase in used vehicle revenue, a $129.5 million (12%) increase in parts and service revenue and a $43.2 million (13%) increase in F&I, net revenue. The $71.4 million (5%) increase in gross profit during the six months ended June 30, 2024 was driven by a $99.9 million (17%) increase in parts and service gross profit and a $32.4 million (10%) increase in F&I, net gross profit, partially offset by a $46.0 million (13%) decrease in new vehicle gross profit and a $15.0 million (10%) decrease in used vehicle gross profit. The increase in revenue and gross profit is largely attributable to the Koons acquisition and is offset by the negative impact of the CDK outage. The CDK outage had a negative impact on our financial results during the quarter ended June 30, 2024 as a result of fewer new and used vehicle sales, which also impacted our F&I business, and a reduction in parts and service volumes.

Income from operations during the six months ended June 30, 2024 decreased by $200.9 million (36%), compared to the six months ended June 30, 2023, primarily due to a $135.4 million increase in franchise rights impairment and a $133.6 million (16%) increase in SG&A expense and a $3.4 million (10%) increase in depreciation and amortization expense, partially offset by a $71.4 million (5%) increase in gross profit.

Total other expenses, net increased by $64.8 million (100%), primarily as a result of a $42.4 million increase in floor plan interest expense, an increase of $12.6 million (16%) in other interest expense, net and a $9.9 million (73%) decrease in gain on dealership divestitures, recorded during the six months ended June 30, 2024 when compared to the same period of the prior year. Income before income taxes decreased $265.8 million (53%) to $233.9 million for the six months ended June 30, 2024. Overall, net income decreased by $202.5 million (54%) during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

New Vehicle—

(Dollars in millions, except for per vehicle data)

40

New Vehicle Metrics—

For the six months ended June 30, 2024, new vehicle revenue increased by $518.8 million (14%) as a result of a 15% increase in new vehicle units sold. Same store new vehicle revenue decreased by $125.7 million (3%) as the result of a 3% decrease in new vehicle units sold.

For the six months ended June 30, 2024, new vehicle gross profit and same store new vehicle gross profit decreased by $46.0 million (13%) and $94.8 million (26%), respectively. Same store new vehicle gross margin for the six months ended June 30, 2024 decreased 232 basis points to 7.5% driven by the continued easing of new vehicle inventory constraints which softened the historically high new vehicle margins seen in recent years.

The seasonally adjusted annual rate ("SAAR") for new vehicle sales in the U.S. during the six months ended June 30, 2024 was approximately 15.5 million which increased as compared to approximately 15.3 million during the six months ended June 30, 2023. The increase in SAAR period over period reflects higher inventory supply coupled with continued consumer demand for new vehicles. However, we continue to be impacted by the significant variation in new vehicle days supply among brands and models.

Used Vehicle—

(Dollars in millions, except for per vehicle data)

Used Vehicle Metrics—

Used vehicle revenue increased by $431.1 million (19%) due to a $323.6 million (16%) increase in used vehicle retail revenue and a $107.5 million (54%) increase in used vehicle wholesale revenue. Same store used vehicle revenue decreased by $85.1 million (4%) due to a $120.6 million (6%) decrease in used vehicle retail revenue, partially offset by a $35.5 million (18%) increase in used vehicle wholesale revenue. Total used vehicle retail unit sales increased by 21% due to the Koons acquisition while same store used vehicle retail unit sales decreased by 2% during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. Revenue per used vehicle retailed have continued to contract as seen in the second quarter of 2024, along with margins on both an all store and same store basis. Used vehicle revenue and unit volumes have been negatively impacted by the lack of inventory availability, especially in vehicles with lower mileage.

For the six months ended June 30, 2024, used vehicle retail gross profit margins decreased from 6.7% to 5.1% and 6.7% to 5.3%, respectively, for all stores and on a same store basis when compared to the same period of the prior year. Used vehicle retail gross profit decreased $15.1 million (11%) for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 and decreased $34.9 million (26%) on a same store basis for the same period. On a total company basis, our gross profit per used vehicle retailed decreased $556 (26%), and on a same store basis, our gross profit per used vehicle retailed decreased $516 (24%) when compared to the prior year period which was primarily driven by decreases in used vehicle market prices. Decreases in used vehicle gross margins, on both a total Company and same store basis, was largely driven by a tighter market for used vehicles during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Parts and Service—

For the six months ended June 30, 2024 and 2023, we are presenting "Collision" as a separate line item within parts and service gross profit. In prior periods, "Collision" was included within "Customer pay". We reclassified the corresponding amounts for the six months ended June 30, 2023 to conform to current year presentation.

(Dollars in millions)

* Reconditioning and preparation represents the gross profit earned by our parts and service departments for internal work performed is included as a reduction of Parts and Service Cost of Sales in the accompanying Condensed Consolidated Statements of Income upon the sale of the vehicle.

The $129.5 million (12%) increase in parts and service revenue was primarily due to a $89.1 million (16%) increase in customer pay revenue, a $27.7 million (21%) increase in warranty revenue, a $7.9 million (4%) increase in wholesale parts revenue and a $4.7 million (3%) increase in collision revenue. Same store parts and service revenue decreased slightly by $0.6 million from $1.03 billion for the six months ended June 30, 2023 to $1.03 billion for the six months ended June 30, 2024. The decrease in same store parts and service revenue was due to a $10.7 million (5%) decrease in wholesale parts revenue and a $10.7 million (8%) decrease in collision revenue, partially offset by a $10.7 million (8%) increase in warranty revenue and a $10.0 million (2%) increase in customer pay revenue. Consumers are owning a vehicle for longer periods of time due to various factors, including the higher cost of vehicles, higher interest rates, as well as the vehicle inventory constraints experienced in the automotive industry in recent years.

For the six months ended June 30, 2024, total parts and service gross profit increased by $99.9 million (17%) to $674.0 million, and same store total parts and service gross profit increased by $26.3 million (5%) to $594.7 million when compared to the same period of the prior year. The all store increase is primarily due to the Koons acquisition, while the same store increase is primarily a result of increased customer pay and warranty volume and reconditioning and preparation, which is in line with the increasing trend of aged vehicles.

Finance and Insurance, net—

(Dollars in millions, except for per vehicle data)

F&I revenue, net increased $43.2 million (13%) during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023, as a result of a 17% increase in new and used retail unit sales, partially offset by a 6% decrease in F&I per vehicle retailed.

On a same store basis, F&I revenue, net decreased by $24.5 million (7%) during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023, as a result of a 3% decrease in new and used retail unit sales and an 8% decrease in F&I per vehicle retailed. We are seeing slightly lower penetration rates in our F&I products as customers look for ways to manage lower monthly payments in a higher interest rate environment.

The financial results of the TCA segment, after dealership eliminations, are as follows:

(Dollars in millions)

TCA offers a variety of F&I products, such as extended vehicle service contracts, prepaid maintenance contracts, GAP, appearance protection contracts and lease wear-and-tear contracts. TCA's products are sold through our automobile dealerships.

Revenue generated by TCA is earned over the period of the related product contract. The method for recognizing revenue is assigned based on contract type and expected claim patterns. Premium revenues are supplemented with investment gains or losses and income earned associated with the performance of TCA's investment portfolio. During the six months ended June 30, 2024, TCA generated $68.4 million of revenue, consisting primarily of earned premium and $8.6 million investment income from the investment portfolio.

Direct expenses incurred for the acquisition of F&I contracts on which revenue has not yet been recognized have been deferred and are amortized over the related contract period. During the six months ended June 30, 2024, TCA recorded $26.3 million of cost of sales consisting primarily of claims expense. Commissions expense paid by TCA to our affiliated dealerships and reflected as F&I revenue in our Dealerships segment is eliminated in the TCA segment upon consolidation.

Selling, General, and Administrative Expense—

(Dollars in millions)

SG&A expense as a percentage of gross profit increased 624 basis points from 57.6% for the six months ended June 30, 2023 to 63.8% for the six months ended June 30, 2024, while same store SG&A expense as a percentage of gross profit increased 617 basis points to 63.5% over the same period. The increase in SG&A as a percentage of gross profit on a total company basis during the six months ended June 30, 2024 is primarily the result of higher cost in personnel and other categories in SG&A expense partially offset by higher gross profits for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The increase in SG&A as a percentage of gross profit on the same store basis during the six months ended June 30, 2024 is primarily the result of lower gross profits for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 and higher other costs related to an increase in loaner vehicle expenses and professional and other outside services. On a total company basis, SG&A expense increased by $133.6 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 primarily due to the Koons acquisition in December 2023. Additionally, during the six months ended June 30, 2024 and 2023, we incurred $3.1 million and $4.3 million, respectively, of losses related to hail damage at certain dealerships.

Asset Impairments —

During the six months ended June 30, 2024, we recognized asset impairment charges of $135.4 million as compared to no impairment charges during the six months ended June 30, 2023. The asset impairments resulted from our interim franchise rights impairment tests for certain underperforming stores, limited primarily to one brand.

Floor Plan Interest Expense—

Floor plan interest expense increased by $42.4 million to $43.8 million during the six months ended June 30, 2024 compared to $1.5 million during the six months ended June 30, 2023 due to higher levels of new inventory on hand and lower balances held in our floor plan offset accounts during the six months ended June 30, 2024 as compared to six months ended June 30, 2023.

Other Interest Expense —

Other interest expense increased $12.6 million (16%) during the six months ended June 30, 2024 from $76.6 million during the six months ended June 30, 2023 to $89.2 million. This increase was primarily due to the $12.2 million increase in our credit facility interest expense, $3.0 million increase in loaner payable interest expense driven by higher loaner vehicle balances as well as a $1.9 million decrease in interest income, partially offset by a decrease of $2.3 million in mortgage interest expense and a decrease of $1.7 million in amortization of capitalized interest expense.

Gain on Dealership Divestitures —

During the six months ended June 30, 2024, we sold one Lexus franchise (one dealership location) in Wilmington, Delaware due to OEM requirements in connection with the Koons acquisition, one Nissan franchise (one dealership location) in Denver, Colorado and one Nissan franchise (one dealership location) in Atlanta, Georgia. The Company recorded a pre-tax gain totaling $3.6 million, which is presented in our accompanying condensed consolidated statement of income as a gain on dealership divestitures.

During the six months ended June 30, 2023, we sold one Acura franchise (one dealership location) in Austin, Texas. The Company recorded a pre-tax gain totaling $13.5 million, which is presented in our accompanying condensed consolidated statement of income as a gain on dealership divestitures.

Income Tax Expense—

The $63.2 million (52%) decrease in income tax expense was primarily the result of a $265.8 million (53%) decrease in income before income taxes. For the six months ended June 30, 2024 and 2023, our effective income tax rate was 25.1% and 24.4%, respectively, which differed from the U.S. statutory rate primarily due to the favorable effects of the windfall component of equity compensation, a discrete item, and unfavorable effects of various permanent tax adjustments such as executive compensation. We currently estimate our effective tax rate for the year ended December 31, 2024 at approximately 25.0%.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2024, we had total available liquidity of $806.0 million, which consisted of cash and cash equivalents of $52.6 million (excluding $14.7 million held by TCA), available funds in our floor plan offset accounts of $411.4 million, $56.0 million of availability under our revolving credit facility and $286.1 million of availability under our used vehicle floor plan facility. The borrowing capacities under our revolving credit facility and our used vehicle floor plan facility are limited by borrowing base calculations and, from time-to-time, may be further limited by our required compliance with certain financial covenants. As of June 30, 2024, these financial covenants did not further limit our availability under our other credit facilities.

We continually evaluate our liquidity and capital resources based upon (i) our cash and cash equivalents on hand, (ii) the funds that we expect to generate through future operations, (iii) current and expected borrowing availability under our 2023 Senior Credit Facility, (iv) amounts in our new vehicle floor plan notes payable offset accounts, and (v) the potential impact of our capital allocation strategy and any contemplated or pending future transactions, including, but not limited to, financings, acquisitions, dispositions, equity and/or debt repurchases, dividends, or other capital expenditures. We believe we will have sufficient liquidity to meet our debt service and working capital requirements; commitments and contingencies; debt repayment, maturity and repurchase obligations; acquisitions; capital expenditures; and any operating requirements for at least the next twelve months and the foreseeable future.

Covenants

We are subject to a number of customary operating and other restrictive covenants in our various debt and lease agreements. We were in compliance with all of our covenants as of June 30, 2024.

Share Repurchases and Dividend Restrictions

Our ability to repurchase shares or pay dividends on our common stock is subject to our compliance with the covenants and restrictions in our various debt and lease agreements.

During the three and six months ended June 30, 2024, we repurchased 192,599 and 432,389 shares of our common stock under our repurchase program for a total of $43.2 million and $93.2 million. On May 15, 2024, the Company announced that its Board of Directors approved an increase of $256.2 million in the Company's common share repurchase authorization to $400.0 million (the "New Share Repurchase Authorization"). As of June 30, 2024, we had $365.6 million remaining under its share repurchase authorization.

The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchase will depend on such factors as Asbury’s stock price, general economic and market conditions, the potential impact on its capital structure, the expected return on competing uses of capital such as strategic dealership acquisitions and capital investments and other considerations. The program does not require the Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without further notice.

During the three and six months ended June 30, 2024, we repurchased 262 and 45,661 shares of our common stock for $0.1 million and $9.9 million, respectively, from employees in connection with a net share settlement feature of employee equity-based awards.

Cash Flows

Classification of Cash Flows Associated with Floor Plan Notes Payable

Borrowings and repayments of floor plan notes payable through our 2023 Senior Credit Facility ("Non-Trade"), and all floor plan notes payable relating to used vehicles (together referred to as "floor plan notes payable—non-trade"), are classified as financing activities on the accompanying condensed consolidated statements of cash flows, with borrowings reflected separately from repayments. The net change in floor plan notes payable to a lender affiliated with the manufacturer from which we purchase a particular new vehicle (collectively referred to as "floor plan notes payable—trade") is classified as an operating activity on the accompanying condensed consolidated statements of cash flows. Borrowings of floor plan notes payable associated with inventory acquired in connection with all acquisitions and repayments made in connection with all divestitures are classified as a financing activity in the accompanying condensed consolidated statement of cash flows. Cash flows related to floor plan notes payable included in operating activities differ from cash flows related to floor plan notes payable included in financing activities only to the extent that the former are payable to a lender affiliated with the manufacturer from which we purchased the related inventory, while the latter are payable to our 2023 Senior Credit Facility that includes lenders affiliated with the manufacturers and lenders not affiliated with the manufacturers from which we purchased the related inventory. The majority of our floor plan notes are payable to our 2023 Senior Credit Facility, with the exception of floor plan notes payable relating to the financing of new Ford and Lincoln vehicles and certain loaner vehicle programs.

Floor plan borrowings are required by all vehicle manufacturers for the purchase of new vehicles, and all floor plan lenders require amounts borrowed for the purchase of a vehicle to be repaid within a short time period after the related vehicle is sold. As a result, we believe that it is important to understand the relationship between the cash flows of all of our floor plan notes payable and new vehicle inventory in order to understand our working capital and operating cash flow and to be able to compare our operating cash flow to that of our competitors (i.e., if our competitors have a different mix of trade and non-trade floor plan financing as compared to us). In addition, we include all floor plan borrowings and repayments in our internal operating cash flow forecasts. As a result, we use the non-GAAP measure "Adjusted cash flow provided by operating activities" (defined below) to compare our results to forecasts. We believe that splitting the cash flows of floor plan notes payable between operating activities and financing activities, while all new vehicle inventory activity is included in operating activities, results in significantly different operating cash flows than if all the cash flows of floor plan notes payable were classified together in operating activities.

Adjusted cash flow provided by operating activities includes borrowings and repayments of floor plan notes payable non-trade and used floor plan notes payable borrowing base changes. Adjusted cash flow provided by operating activities may not be comparable to similarly titled measures of other companies and should not be considered in isolation, or as a substitute for analysis of our operating results in accordance with GAAP. In order to compensate for these potential limitations, we also review the related GAAP measures. We believe that the adjustments related to cash flows associated with our used vehicle borrowing base, floor plan offset accounts and the impact of acquisitions and divestitures eliminates cash flow volatility and provides an adjusted operating cash flow metric that best reflects our results of operations and our management of inventory and related financing activities.

We have provided below a reconciliation of cash flow provided by operating activities as if all changes in floor plan notes payable, except for (i) borrowings associated with acquisitions and repayments associated with divestitures and (ii) borrowings and repayments associated with the purchase of used vehicle inventory and (iii) changes in the floor plan offset accounts were classified as an operating activity for both floor plan notes payable - non-trade and floor plan notes payable - trade.

(In millions)

Operating Activities—

Net cash provided by operating activities totaled $22.7 million and $221.7 million, for the six months ended June 30, 2024 and 2023, respectively. Adjusted cash flow provided by operating activities totaled $402.0 million and $418.3 million, for the six months ended June 30, 2024 and 2023, respectively. Adjusted cash flow provided by operating activities includes net income, adjustments to reconcile net income to net cash provided by operating activities, changes in working capital, changes in used vehicle borrowing base, changes in floor plan notes payable—non-trade and trade, excluding the impact of offsets, and excluding operating cash flows associated with acquisitions and divestitures related to loaner vehicles and new vehicle inventories financed through floor plan notes payable—trade.

The $16.3 million decrease in adjusted cash flow provided by operating activities for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, was primarily the result of the following:

• decrease of $34.0 million in net income and non-cash adjustments to net income;
• decrease of $59.0 million in inventory, net of floor plan notes payable, including both trade and non-trade, excluding offset and including used vehicle borrowing base changes adjusted for acquisitions and divestitures; and
• decrease of $19.5 million in other current assets, net.

The decrease in our adjusted cash flow provided by operating activities was partially offset by:

• $71.3 million increase related to accounts payable and accrued liabilities;
• $15.7 million increase related to other long term assets and liabilities, net; and
• $9.7 million increase related to sales volume and the timing of collection of accounts receivable and contracts-in-transit during 2024 as compared to 2023.

Due to the CDK outage in June 2024, our accounts payable and floor plan payable balances were higher than expected as of June 30, 2024 since certain amounts that would have typically been paid in June 2024 were not paid until July 2024.

Investing Activities—

Net cash used in investing activities totaled $18.0 million and $62.5 million for the six months ended June 30, 2024 and 2023, respectively. Capital expenditures, excluding the purchase of real estate, were $65.4 million and $40.8 million for the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024, we acquired real estate properties for $67.4 million and also purchased previously leased real estate properties for $11.9 million.

During the six months ended June 30, 2024, we sold one franchise (one dealership location) in Wilmington, Delaware, one franchise (one dealership location) in Denver, Colorado and one franchise (one dealership location) in Atlanta, Georgia for an aggregate purchase price of $149.3 million.

We purchased $39.4 million and $124.2 million of debt securities during the six months ended June 30, 2024 and 2023, respectively.

We received proceeds of $21.5 million and $17.7 million from the sale of debt securities during the six months ended June 30, 2024 and 2023, respectively. We also received proceeds of $51.8 million from the sale of equity securities during the six months ended June 30, 2023.

We expect that capital expenditures during 2024 will total approximately $200.0 - $225.0 million to upgrade or replace our existing facilities, construct new facilities, expand our service capacity, and invest in technology and equipment. In addition, as part of our capital allocation strategy, we continually evaluate opportunities to purchase properties currently under lease and acquire properties in connection with future dealership relocations. No assurances can be provided that we will have or be able to access capital at times or on terms in amounts deemed necessary to execute this strategy.

Financing Activities—

Net cash used in financing activities totaled $16.7 million and $316.9 million for the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024 and 2023, we had non-trade floor plan borrowings, excluding floor plan borrowings associated with acquisitions, of $4.83 billion and $3.72 billion, respectively, and non-trade floor plan repayments, excluding floor plan repayments associated with divestitures, of $5.08 billion and $3.72 billion, respectively.

During the six months ended June 30, 2024, we had $26.1 million non-trade floor plan repayments associated with divestitures.

Repayments of borrowings totaled $37.6 million and $82.8 million for the six months ended June 30, 2024 and 2023, respectively.

There were $1,013.5 million borrowings and $582.8 million repayments under our Revolving Credit Facility during the six months ended June 30, 2024.

During the six months ended June 30, 2024, we repurchased 432,389 shares of our common stock under our Repurchase Program for a total of $93.2 million. In addition, we repurchased 45,661 shares of our common stock for $9.9 million from employees in connection with a net share settlement feature of employee equity-based awards. During the six months ended June 30, 2023, we repurchased 1,070,126 shares of our common stock under our Repurchase Program for a total of $220.3 million and repurchased 45,992 shares of our common stock for $11.0 million from employees in connection with a net share settlement feature of employee equity-based awards.

Off Balance Sheet Arrangements

We had no off balance sheet arrangements during any of the periods presented other than those disclosed in Note 14 "Commitments and Contingencies" within the accompanying condensed consolidated financial statements.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Our critical accounting policies and estimates have not changed materially during the six months ended June 30, 2024.

Guarantor Financial Information

As of June 30, 2024, the Company had outstanding $405.0 million of 4.500% Senior Notes due 2028 and $445.0 million of 4.750% Senior Notes due 2030. The Senior Notes have been fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by each existing and future restricted subsidiary of the Company (the “Guarantor Subsidiaries”), with the exception of Landcar Administration Company, Landcar Agency, Inc. and Landcar Casualty Company and their respective subsidiaries (collectively, the “TCA Non-Guarantor Subsidiaries"). The 2028 Notes and the 2030 Notes were required to be registered under the Securities Act of 1933 within 270 days of the closing date for the offering of each respective series. The Company completed the registration of the 2028 Notes and 2030 Notes in October 2020.

The following tables present summarized financial information for the Company and the Guarantor Subsidiaries on a combined basis after elimination of (i) intercompany transactions and balances among Asbury and the Guarantor Subsidiaries and (ii) assets, liabilities, and equity in earnings from and investments in any non-guarantor subsidiaries.

Summarized Balance Sheet Data of Asbury and Guarantor Subsidiaries:

(In millions)

Summarized Statement of Operations Data for Asbury and Guarantor Subsidiaries:

(In millions)

50

Interest Rate Risk

We are exposed to risk from changes in interest rates on a portion of our outstanding indebtedness. Based on $1.85 billion of total variable interest rate debt outstanding as of June 30, 2024 which includes our floor plan notes payable, amounts drawn on our used vehicle floor plan, and certain mortgage liabilities, net of interest rate swaps, a 100 basis point change in interest rates could result in a change of as much as $18.5 million to our total annual interest expense in our condensed consolidated statements of income.

We periodically receive floor plan assistance from certain automobile manufacturers, which is accounted for primarily as a reduction in our new vehicle inventory cost. Floor plan assistance reduced our cost of sales for the six months ended June 30, 2024 and 2023 by $46.3 million and $43.4 million, respectively. We cannot provide assurance as to the future amount of floor plan assistance and these amounts may be negatively impacted due to future changes in interest rates.

As part of our strategy to mitigate our exposure to fluctuations in interest rates, we have various interest rate swap agreements. All of our interest rate swaps qualify for cash flow hedge accounting treatment and do not contain any ineffectiveness.

We currently have six interest rate swap agreements. Each of these swaps were designed to provide a hedge against changes in variable rate cash flows regarding fluctuations in the SOFR rate. The following table provides information on the attributes of each swap as of June 30, 2024:

(In millions)

(In millions)

(In millions)

For additional information about the effect of our derivative instruments, see Note 11 "Financial Instruments and Fair Value" within the accompanying condensed consolidated financial statements.

Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2024.

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2024, as part of our integration activities following the acquisition of the Jim Koons Dealerships (“Koons”) in December 2023, we implemented changes related to Koons’ business process controls, IT general controls and IT infrastructure to more closely align with the standards of the Company’s controls environment. In accordance with our integration efforts, we plan to incorporate Koons’ operations into our internal control over financial reporting program within the time provided by the applicable rules and regulations of the U.S. Securities and Exchange Commission.

There were no other changes in our internal control over financial reporting during the quarter ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors that affect our business and financial results that are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2023. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. There have been no material changes to such risk factors.