Asbury Automotive Group Inc: Form 10-Q for the period ended Mar 31, 2025

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 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; and
• our estimated future capital expenditures, which can be impacted by increasing prices and labor shortages and acquisitions and divestitures

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 U.S. trade policy, including the imposition of tariffs, 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, the ongoing conflict in Russia and Ukraine and any government sanctions imposed in connection therewith, natural disasters, severe weather, civil unrest, both at home and abroad, 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 management information systems and our ability to successfully transition between key information systems, including our ability to successfully transition from our existing dealer management systems to a new DMS;
• failure of management information systems used or maintained by our third-party service providers;
• any data security breaches occurring, including with regard to PII;
• changes in laws and regulations governing the operation of automobile franchises, including trade restrictions, consumer protections, accounting standards, taxation requirements and environmental laws;
• macroeconomic and geopolitical conditions, including global trade relations, changes to consumer and business confidence, international tensions, hostilities and instability, a slowdown in U.S. or global economic growth, higher rates of unemployment, changes in interest rates, inflation, and market volatility;
• 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
• our ability to remediate material weakness and the ongoing effectiveness of internal control over financial reporting.

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. We urge you to carefully consider those factors.

Forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation to update any forward-looking statements contained herein.

OVERVIEW

We are one of the largest automotive retailers in the United States. As of March 31, 2025, through our Dealerships segment, we owned and operated 196 new vehicle franchises (150 dealership locations), representing 31 brands of automobiles, within 14 states. We also operated 37 collision centers, and Total Care Auto, Powered by Landcar ("TCA"), our F&I product provider. Our stores offer an extensive range of automotive products and services, including new and used vehicles; parts and service, which include repair and maintenance services, replacement parts and collision repair services; and finance and insurance products. The finance and insurance products are provided by both TCA and independent third parties. The F&I products offered by TCA are sold through affiliated dealerships. For the three months ended March 31, 2025, our new vehicle revenue brand mix consisted of 30% luxury, 41% imports and 30% domestic brands. The Company manages its operations in two reportable segments: Dealerships and TCA.

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" are 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. F&I products are offered by dealerships to customers in connection with the purchase of vehicles through either TCA or independent third parties. 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. Amounts presented have been calculated using non-rounded amounts for all periods presented and therefore certain amounts may not compute due to rounding.

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.

Recent Events

Macroeconomic and geopolitical considerations

The demand and availability for and pricing of our products and services may be adversely impacted by economic conditions and financial developments, including increasing interest rates, rising inflation, high energy prices, a potential recessionary environment and other factors. The automotive retail industry is influenced by general economic conditions, particularly consumer confidence and consumer spending, interest rates, fuel prices, exchange rates, technology and business model changes, supply conditions, consumer transportation preferences, credit availability, and the unemployment rate. Consumer spending can be materially and adversely impacted by periods of economic uncertainty or by consumer concern regarding manufacturer viability. In addition, local economic, competitive and other conditions affect the performance of our dealerships. Our results of operations depend substantially on general economic conditions and consumer spending in those regions where we maintain operations.

Tariffs and trade risks

A significant portion of our business involves the sale of vehicles, parts, or vehicles composed of, or maintenance and repair services including, parts that are manufactured outside the U.S. Changes or increases in tariffs, trade restrictions, fluctuations in foreign currency exchange rates, the negotiation of new trade agreements, non-tariff trade barriers, local content requirements, uncertainty surrounding global trade policies, and the imposition of new or retaliatory tariffs against certain countries or covering certain products, including vehicles and parts, may affect our competitive position and impair our ability to sell and service vehicles and parts, and have a material adverse effect on our results of operations.

In late January 2025, the U.S. government commenced a broad review of U.S. trade relations, following which it began issuing numerous executive orders and other public policy statements imposing or threatening to impose tariffs on certain countries, materials, and industries, including the automotive industry. Such tariffs include a 25% tariff on imports of automobiles and certain automobile parts. In response, impacted countries have imposed or threatened various corresponding retaliatory tariffs and other actions. If maintained, these and other newly announced tariffs and actions and the potential escalation of trade disputes are expected to affect the automotive industry generally, including manufacturers, distributors and retailers of vehicles, parts and supplies. The extent of the tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the duration of such tariffs, the responses of other countries or regions to such tariffs, the actual increases in the costs of vehicles, products and raw materials, and exemptions or exclusions that may be granted. Should tariffs increase and be sustained, our inventory acquisition and carrying costs, and the production costs for many of our manufacturer, distributor and supplier partners, may be increased, which costs may be passed on to us and consumers through higher prices for many new vehicles and certain parts we sell. These increased prices may adversely affect our new vehicle sales and related finance and insurance sales and may adversely impact demand for such vehicles and parts, and could materially and adversely affect the results of our operations.

Pending acquisition

On February 14, 2025, the Company, through one of its subsidiaries, entered into a Purchase and Sale Agreement (the "Transaction Agreement") with various entities that comprise the Herb Chambers automotive group (the "Herb Chambers Dealerships"). Pursuant to the Transaction Agreement, the Company is expected to acquire substantially all of the assets, including all real property and businesses of the Herb Chambers Dealerships (collectively, the "Businesses") for an aggregate purchase price of approximately $1.34 billion, which includes $750 million for goodwill, and approximately $590 million for the real estate and leasehold improvements. In addition, the Company will acquire new vehicles, used vehicles, service loaner vehicles, fixed assets, parts and supplies for a purchase price to be determined at the closing (the “Closing”) of the transactions set forth in the Transaction Agreement and will reimburse the Herb Chambers Dealerships for certain dealership construction and development costs incurred prior to the Closing. The Businesses include 33 dealerships, 52 franchises and three collision centers. Herb Chambers will retain ownership of the Mercedes-Benz of Boston dealership in Somerville, Massachusetts (the "MB Boston Dealership"). The Transaction Agreement includes certain restrictions and obligations regarding the sale of the MB Boston Dealership, including a put right obligating the Company to purchase the MB Boston Dealership during the five-year period following the Closing, absent certain circumstances. The Company's acquisition of the Businesses is anticipated to close in the second quarter of 2025 and is subject to various customary closing conditions, including approval from the applicable automotive manufacturers.

Financial Highlights

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

• Consolidated revenue for the three months ended March 31, 2025, decreased to $4.15 billion, compared to $4.20 billion for the prior year.
• Consolidated gross profit for the three months ended March 31, 2025, decreased to $724.2 million, compared to $750.0 million for the prior year.
• The decrease in consolidated revenue is primarily due to a decrease in used vehicles units sold offset by an increase in new vehicle units sold, while the decrease in consolidated gross profit is primarily due to lower gross profit per vehicle sold for both new and used as margins continue to shift downward from the historic highs in recent years. The decrease in new and used vehicle gross profit was partially offset by the growth in parts and services gross profit.

CONSOLIDATED RESULTS OF OPERATIONS

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 for same store reporting.

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

(Dollars in millions, except per share data)

NM—Not Meaningful

Total revenue for the three months ended March 31, 2025 decreased by $52.8 million (1%) compared to the three months ended March 31, 2024, due to a $121.1 million (9%) decrease in used vehicle revenue, a $2.8 million (1%) decrease in F&I, net revenue, and a $2.7 million decrease in parts and service revenue, offset by a $73.8 million (4%) increase in new vehicle revenue. The $25.8 million (3%) decrease in gross profit during the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was driven by a $19.8 million (12%) decrease in new vehicle gross profit, a $7.2 million (4%) decrease in F&I, net gross profit, a $7.4 million (10%) decrease in used vehicle gross profit, offset by an $8.5 million (3%) increase in parts and service gross profit.

Income from operations during the three months ended March 31, 2025 decreased by $28.4 million (11%), compared to the three months ended March 31, 2024, primarily due to a $25.8 million (3%) decrease in gross profit, a $14.3 million increase in asset impairments, and a $0.6 million (3%) increase in depreciation and amortization expense, partially offset by a $12.2 million (3%) decrease in SG&A expense.

Total other expenses, net decreased by $8.0 million (12%), primarily as a result of a $4.1 million increase in gain on dealership divestitures, a $2.1 million (9%) decrease in floor plan interest expense, and a decrease of $1.8 million (4%) in other interest expense, net recorded during the three months ended March 31, 2025 when compared to the same period of the prior year. Income before income taxes decreased $20.4 million (10%) to $175.4 million for the three months ended March 31, 2025. Overall, net income decreased by $15.0 million (10%) during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

New Vehicle—

(Dollars in millions, except for per vehicle data)

30

New Vehicle Metrics—

For the three months ended March 31, 2025, new vehicle revenue increased by $73.8 million (4%) as a result of a 2% increase in new vehicle units sold. Same store new vehicle revenue increased by $113.4 million (6%) as the result of a 4% increase in new vehicle units sold.

For the three months ended March 31, 2025, new vehicle gross profit and same store new vehicle gross profit decreased by $19.8 million (12%) and $17.2 million (11%), respectively. Same store new vehicle gross margin for the three months ended March 31, 2025 decreased 123 basis points to 6.7% 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 three months ended March 31, 2025 was approximately 16.5 million which increased as compared to approximately 15.4 million during the three months ended March 31, 2024. The increase in SAAR period over period reflects reflects higher inventory supply and higher consumer demand for new vehicles in anticipation of increasing new vehicle selling prices due to automotive vehicle and parts tariffs. 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 decreased by $121.1 million (9%) due to a $112.5 million (9%) decrease in used vehicle retail revenue and an $8.6 million (5%) decrease in used vehicle wholesale revenue. Same store used vehicle revenue decreased by $93.4 million (7%) due to an $87.5 million (8%) decrease in used vehicle retail revenue and a $5.9 million (4%) decrease in used vehicle wholesale revenue. Total used vehicle retail unit sales decreased by 10% on an all store basis and by 8% on a same store basis, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. While revenue per used vehicle retailed increased by 1% on both an all store and same store basis, respectively, the decrease in unit volumes on both an all store and same store basis, negatively impacted used vehicle revenue for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. Used vehicle revenue has also been negatively impacted by the lack of inventory availability, especially in vehicles with lower mileage.

For the three months ended March 31, 2025, used vehicle retail gross profit margins decreased from 5.5% to 5.2%, for all stores and on a same store basis, respectively, when compared to the same period of the prior year. All store used vehicle retail gross profit decreased $8.8 million (14%) for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 and decreased $8.1 million (13%) on a same store basis for the same period. On a total company basis, our gross profit per used vehicle retailed for the three months ended March 31, 2025 decreased $59 (4%), and on a same store basis, our gross profit per used vehicle retailed decreased $83 (5%) 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 three months ended March 31, 2025, as compared to the three months ended March 31, 2024.

Parts and Service—

For the three months ended March 31, 2025 and 2024, we are presenting "Collision" as a separate line item within parts and service gross profit. In periods prior to June 30, 2024, "Collision" was included within "Customer pay". We reclassified the corresponding amounts for the three months ended March 31, 2024 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 $2.7 million decrease in parts and service revenue was primarily due to decreases of $7.8 million (6%) in wholesale parts revenue, $5.2 million (7%) in collision revenue, and $2.8 million (1%) in customer pay revenue, offset by a $13.0 million (16%) increase in warranty revenue. Same store parts and service revenue increased slightly by $8.7 million (2%) from $578.8 million for the three months ended March 31, 2024 to $587.5 million for the three months ended March 31, 2025. The increase in same store parts and service revenue was due to a $14.6 million (18%) increase in warranty revenue and a $4.7 million (2%) increase in customer pay revenue, partially offset by a $5.3 million (4%) decrease in wholesale parts revenue and a $5.2 million (7%) decrease in collision 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 March 31, 2025, total parts and service gross profit increased by $8.5 million (3%) to $342.7 million, and same store total parts and service gross profit increased by $14.9 million (5%) to $342.6 million when compared to the same period of the prior year. The all store and same store increases are 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 decreased $2.8 million (1%) during the three months ended March 31, 2025 when compared to the three months ended March 31, 2024, as a result of a 4% decrease in new and used retail unit sales.

On a same store basis, F&I revenue, net increased by $0.6 million during the three months ended March 31, 2025 when compared to the three months ended March 31, 2024. F&I gross profit, net, on a same store basis decreased by $3.9 million (2%) for the three months ended March 31, 2025 when compared to the three months ended March 31, 2024 as a result of a 2% decrease in new and used retail unit sales 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 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 three months ended March 31, 2025, TCA generated $31.0 million of revenue, consisting primarily of earned premium and $4.7 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 March 31, 2025, TCA recorded $13.1 million of cost of sales consisting primarily of claims expense, after the elimination of claims paid to affiliated dealerships. 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 54 basis points from 62.5% for the three months ended March 31, 2024 to 63.0% for the three months ended March 31, 2025, while same store SG&A expense as a percentage of gross profit increased 71 basis points to 62.9% over the same period. The increase in SG&A as a percentage of gross profit on a total company and same store basis during the three months ended March 31, 2025 is primarily the result of lower gross profits for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. In addition, higher other costs related to an increase in professional and other outside services. Offsetting these negative impacts was the cyber insurance recovery of $10.0 million in March 2025 related to the CDK outage that occurred in June 2024. On a total company basis, SG&A expense decreased by $12.2 million for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Asset Impairments—

During the three months ended March 31, 2025, we recognized asset impairment charges of $14.3 million as compared to no impairment charges during the three months ended March 31, 2024. The asset impairment charges related to five dealerships that met the criteria to be reflected as assets held for sale as of March 31, 2025 and whose franchise rights carrying values exceeded the Company's estimate of the franchise rights fair value less costs to sell.

Floor Plan Interest Expense—

Floor plan interest expense decreased by $2.1 million (9%) to $20.7 million during the three months ended March 31, 2025 compared to $22.8 million during the three months ended March 31, 2024 primarily due to higher balances held in our floor plan offset accounts during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Other Interest Expense—

Other interest expense, net decreased $1.8 million (4%) from $44.1 million during the three months ended March 31, 2024 to $42.3 million during the three months ended March 31, 2025. This decrease was primarily due to the $2.1 million decrease in our credit facility interest expense resulting from lower interest rates during the three months ended March 31, 2025 as compared to the same period in the prior year.

Gain on Dealership Divestitures, net—

During the three months ended March 31, 2025, we sold one Nissan franchise (one dealership location) in Denver, Colorado and one Volvo franchise (one dealership location) in Greenville, South Carolina. The Company recorded a pre-tax gain totaling $4.1 million, which is presented in our accompanying condensed consolidated statements of income as a gain on dealership divestitures, net.

During the three months ended March 31, 2024, we sold one Lexus franchise (one dealership location) in Wilmington, Delaware due to OEM requirements in connection with the Koons acquisition. The carrying value of assets, net of liabilities sold, approximated the sales price.

Income Tax Expense—

The $5.4 million (11%) decrease in income tax expense was primarily the result of a $20.4 million (10%) decrease in income before income taxes. For the three months ended March 31, 2025 and 2024, our effective income tax rate was 24.7% and 24.9%, 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, 2025 at approximately 25.2%.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2025, we had total available liquidity of $963.7 million, which consisted of cash and cash equivalents of $87.4 million (excluding $37.2 million held by TCA), available funds in our floor plan offset accounts of $116.7 million, $485.9 million of availability under our revolving credit facility and $273.7 million of availability under our used vehicle floor plan facility. The borrowing capacities under our revolving credit facility and our used vehicle revolving 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 March 31, 2025, 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 March 31, 2025.

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.

There were no share repurchases or retirements during the three months ended March 31, 2025. During the three months ended March 31, 2024, the Company repurchased and retired 239,790 shares of our common stock under our share repurchase program. The cash paid for these share repurchases was $50.0 million for the three months ended March 31, 2024.

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 March 31, 2025, the Company had $275.9 million remaining on its share repurchase authorization. The extent that the Company repurchases its shares, the number of shares and the timing of any repurchases will depend on general market conditions, legal requirements and other corporate considerations. The repurchase program may be modified, suspended or terminated at any time without prior notice.

During the three months ended March 31, 2025 and 2024, the Company repurchased 42,780 and 45,399 shares of our common stock for $12.5 million and $9.8 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 statements 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 flow 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. 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 $225.0 million and $177.1 million, for the three months ended March 31, 2025 and 2024, respectively. Adjusted cash flow provided by operating activities totaled $187.4 million and $208.7 million, for the three months ended March 31, 2025 and 2024, 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 $21.3 million decrease in adjusted cash flow provided by operating activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, was primarily the result of the following:

• decrease of $10.8 million in net income and non-cash adjustments to net income;
• $35.7 million decrease related to sales volume and the timing of collection of accounts receivable and contracts-in-transit during 2025 as compared to 2024;
• decrease of $70.2 million in other current assets, net;
• $3.0 million decrease related to other long term assets and liabilities, net and
• decrease of $0.4 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.

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

• increase of $99.2 million related to accounts payable and accrued liabilities.

Investing Activities—

Net cash used in investing activities totaled $0.5 million for the three months ended March 31, 2025 compared to net cash used in investing activities of $13.6 million for the three months ended March 31, 2024. Capital expenditures, excluding the purchase of real estate, were $21.4 million and $25.7 million for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we sold one Nissan franchise (one dealership location) in Denver, Colorado and one Volvo franchise in Greenville, South Carolina for proceeds of $33.5 million. During the three months ended March 31, 2024, we sold one Lexus franchise (one dealership location) in Wilmington, Delaware for an aggregate purchase price of $102.0 million.

During the three months ended March 31, 2024, we acquired real estate properties for $67.4 million and also purchased previously leased real estate properties for $11.9 million. We did not acquire real estate properties during the three months ended March 31, 2025.

We purchased $58.6 million and $20.1 million of debt securities during the three months ended March 31, 2025 and 2024, respectively.

We received proceeds of $46.0 million and $9.5 million from the sale of debt securities during the three months ended March 31, 2025 and 2024, respectively.

We expect that capital expenditures during 2025 will total approximately $260.3 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 $169.3 million and $180.2 million for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025 and 2024, we had non-trade floor plan borrowings, excluding floor plan borrowings associated with acquisitions, of $2.14 billion and $2.53 billion, respectively, and non-trade floor plan repayments, excluding floor plan repayments associated with divestitures, of $2.26 billion and $2.63 billion, respectively.

During the three months ended March 31, 2025 and 2024, we had non-trade floor plan repayments associated with dealership divestitures of $17.4 million and $6.9 million, respectively.

Repayments of borrowings totaled $13.6 million and $14.7 million for the three months ended March 31, 2025 and 2024, respectively.

There were $302.7 million borrowings and $302.7 million repayments under our Revolving Credit Facility during the three months ended March 31, 2025. During the three months ended March 31, 2024, there were $582.8 million borrowings and repayments under our Revolving Credit Facility.

During the three months ended March 31, 2025, we repurchased 42,780 shares of our common stock for $12.5 million from employees in connection with a net share settlement feature of employee equity-based awards. During the three months ended March 31, 2024, we repurchased 239,790 shares of our common stock under our Repurchase Program for a total of $50.0 million and repurchased 45,399 shares of our common stock for $9.8 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 13 "Commitments and Contingencies" of the Company's condensed consolidated financial statements.

Guarantor Financial Information

As of March 31, 2025, 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)

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, 2024. Our critical accounting policies and estimates have not changed materially during the three months ended March 31, 2025.

Interest Rate Risk

We are exposed to risk from changes in interest rates on a significant portion of our outstanding indebtedness. Based on $1.49 billion of total variable interest rate debt, which includes our floor plan notes payable, amounts drawn on our used vehicle floor plan, revolver and certain mortgage liabilities, outstanding as of March 31, 2025, a 100 basis point change in interest rates would result in a change of $14.9 million in annual interest expense.

We periodically receive floor plan assistance from certain automobile manufacturers, which is primarily accounted for as a reduction in our new vehicle inventory cost. Floor plan assistance reduced our cost of sales for the three months ended March 31, 2025 and 2024 by $25.6 million and $23.0 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.

As of March 31, 2025 we had five interest rate swap agreements. These swaps are designed to provide a hedge against changes in variable rate cash flows regarding fluctuations in SOFR. The following table provides information on the attributes of each swap as of March 31, 2025:

(In millions)

(In millions)

(In millions)

These interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income and reclassified to other interest expense in the same period or periods during which the hedged transactions affect earnings. For additional information about the effect of our derivative instruments, please refer to Note 10 "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 as of the end of such period such disclosure controls and procedures were not effective, solely as a result of a previously reported material weakness.

Notwithstanding the foregoing, there were no changes to previously issued financial statements and management did not identify any misstatements in our financial statements as a result of this material weakness. Our principal executive officer and principal financial officer believe that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with United States Generally Accepted Accounting Principles ("US GAAP").

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the material weakness is due to control deficiencies in information technology general controls ("ITGCs") identified at Jim Koons Dealerships ("Koons") that we acquired in December 2023. Specifically, the material weakness is due to insufficient control activities at a third-party software vendor for the Dealer Management System ("DMS") utilized by Koons. The third-party software vendor who supports the DMS on behalf of Koons does not have a Service Organization Control ("SOC") report that covers the DMS currently being utilized. The ineffective ITGCs limited the level of assurance over the completeness and accuracy of information derived from the affected IT application used in automated and manual business process controls at Koons. Refer to Item 9A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 for more information.

As previously described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, management is in the process of implementing its remediation plan. Our remediation efforts include the transition of Koons to another DMS in 2025. We expect that the material weakness will be remediated in 2025, once Koons has transitioned to another DMS and the ITGCs have operated for a sufficient period for management to conclude, through testing, that the controls are designed and operating effectively.

Changes in Internal Control Over Financial Reporting

Other than with respect to the remediation efforts described above, there were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company's 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, 2024. 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.