This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good day and welcome to the Asbury Automotive Group Q4 2021 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Karen Reed. Please go ahead, ma'am.
spk02: Thanks, operator, and good morning, everyone. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's fourth quarter 2021 earnings call. The press release detailing Asbury's fourth quarter and full year results was issued earlier this morning and is posted on our website at asburyauto.com. Participating with me today are David Holt, our President and Chief Executive Officer, Dan Clara, our Senior Vice President of Operations, and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions. I will be available later for any follow-up questions that you may have. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature, which may include financial projections, forecasts, and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 2020, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, we provide reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on our website. We have also posted an updated investor presentation on our website, asburyauto.com, highlighting our fourth quarter and full year results. It is my pleasure to now hand the call over to our CEO, David Holson. David?
spk07: Thank you, Karen, and good morning, everyone. Welcome to our fourth quarter earnings call. In the fourth quarter, we closed on the transformative acquisitions of Larry H. Miller and Total Care Auto, powered by Landcar, Carlo Chrysler Jeep Dodge, Arapaho Hyundai Genesis, and the Stevenson Automotive Group. representing approximately 6.6 billion in annualized revenue. These acquisitions represent the right brands in high growth markets and are aligned with Asbury's culture. We look forward to deploying our joint capabilities and growing together. And I'm excited to have our new team members as part of the Asbury family. 2021 was an all-time record year for Asbury. For the full year, we grew adjusted EBITDA by 94% and adjusted EPS by 112%. We delivered an operating margin adjusted at 8.1%. We succeeded in adding great stores in targeted high-growth markets, and we completed the rollout of our online transactional tool, Clicklane, to all the legacy Asbury stores. In a challenging new vehicle environment, we delivered record profitability by improving our new vehicle margin, increasing our used vehicle sales, and growing our parts and service business, all while maintaining our improved employee productivity levels and using our strong cash flow for acquisitions. Our multiple business lines allow us to adapt and continue to deliver strong earnings in any business environment. We will also deploy Total Care Auto into our legacy stores and roll out click lane into our recent acquisitions, allowing us to further grow our earnings. Due to our record performance and strong cash flow, our balance sheet remained solid. Our adjusted operating cash flow for 2021 was $632 million, an increase of $189 million over 2020. Our net leverage ended this quarter at 2.7 times, We will continue to use our free cash flow to manage our leverage and maximize shareholder return through share buybacks and acquisitions. In our earnings release this morning, we also announced that our Board of Directors has approved an increase in our share repurchase authorization by $100 million to $200 million. Now I'd like to give you a quick update on our five-year plan. Our same store adjusted revenue grew almost 12% last year, exceeding expectations. ClickLane continues to deliver impressive metrics, generating over 570 million in additional revenue for three quarters in 2021. Despite lower new vehicle levels, inventory levels, ClickLane contributed an incremental 7% to our same store growth. As previously noted, we had a very successful year regarding acquisitions. With these results, we maintain full confidence in the execution of our growth strategy. Based upon our results in 2021, we will update our five-year plan during our Q1 2022 earnings call. I will now hand the call over to Dan to discuss our operating performance. Dan?
spk05: Thank you, David, and good morning, everyone. Before I share our operating performance, I would like to thank all our teammates in the field for their hard work, dedication, and commitment to delivering an exceptional guest experience. In our earnings release this morning, we reported adjusted EPS of $7.46, a fourth quarter record of 68% over the prior year. We delivered strong results, enabling us to deliver an impressive gross margin of 20.4%, an all-time record, and an expansion of 370 basis points versus the fourth quarter last year. Our teams continue to maximize productivity per employee, resulting in adjusted SG&A as a percentage of gross profit of 54.3%, a 710 basis point improvement versus prior year. Our total revenue for the quarter was up 19% year over year, and total gross profit was up 46%. We improved our adjusted operating margins for the quarter from 6% in 2020 to 8.9% in 2021, and will continue to optimize our portfolio in the future. Now, I will turn to our same-store performance compared to the fourth quarter of 2020, unless stated otherwise. Starting with new vehicles. Based on current market conditions, we continue to be focused on being opportunistic with our inventory and improving grosses to maximize profits. Our new average gross profit per vehicle was $6,335, up $3,441, or 119%, from the prior year period. All segment margins were up significantly from the prior year period. At the end of December, our total new vehicle inventory was $207 million, and our day supply was at eight days, down 32 days from the prior year. we expect the day supply to remain low as we progress into 2022, trending up moderately towards the end of the year. Turning to used vehicles, our used retail volume increased 15%, while gross margin was 8.2%, representing an average gross profit per vehicle of $2,623. As a result of our performance, our retail gross profit was up 64%. Our total used vehicle inventory ended the quarter at $402 million, which represents a 34-day supply of three days from the prior year. Our used to new ratio for the quarter was 109%. Shifting to F&I, our strong, consistent, and sustainable growth in F&I delivered an increase of $213 to $1,961 per vehicle retailed from the prior year quarter. In the fourth quarter, our front-end yield per vehicle increased $2,169 per vehicle to an all-time record of $6,362. And now to parts and service. Our parts and service revenue increased 13% in the quarter. The warranty revenue dropped 19%. Our customer pay revenue continues its healthy recovery, posting a 17% growth. We achieved over 149,000 online service appointments, an all-time record, and a 16% increase over the prior year quarter. Some of the benefits of increasing online service appointments include enhancement to the customer experience, higher customer retention, higher conversion rates, higher margins, and higher returns to our shareholders. With three full quarters of click lane at all legacy stores under our belt, We would like to share some performance metrics. We sold over 5,000 vehicles through ClickLink in Q4, of which 47% of them were new vehicles and 53% used. 91% of our transactions this quarter were with customers that were new to Asbury's dealership network. Average transaction time continues to be consistent with previous quarter, eight minutes for cash deals and 14 minutes for finance deals. Total variable front-end yield of $4,298 and F&I front-end yield of $1,846. Average credit score is higher than the average credit score at our stores. 80% of consumers seeking financing received instant approval, while an additional 10% require some offline assistance. 90% of those that applied were approved for financing. 43% of ClickLane sales had trade-ins, with 78% of such trades reconditioned and retailed to consumers with a total front-end yield of $4,490. And 92% of our ClickLane deliveries are within a 50-mile radius of our stores, thus allowing us the opportunity to retain our new customers in our parts and service departments. As expected, Clicklane customers are converting at greater rates than traditional internet leads. During our first few months after launching Clicklane, approximately 60% of our sales were new vehicles. Until inventory levels somewhat normalize, we will not be able to fully assess the full potential of Clicklane. We remain quite excited about the continued growth of Clicklane. Lastly, I would like to extend a warm welcome to our new team members. All of you have built tremendous organizations that properly align with our North Star of being the most guest-centric automotive retailer. Our future is bright, and I look forward to meeting all of you. I will now hand the call over to Michael to discuss our financial performance. Michael?
spk06: Thank you, Dan. To our investors, analysts, and other participants on our call, good morning. I would like to provide some financial highlights which marked yet another record quarter for our company. For additional details on our financial performance for the quarter, please see our financial supplement to our press release today and our investor presentation on our website. Overall, compared to the fourth quarter of last year, our actions to manage gross profit and control expenses resulted in a fourth quarter adjusted operating margin of 8.9%, an increase of 209 basis points above the same period last year, and an all-time record. Adjusted net income increased 89% to $163 million, and adjusted EPS increased 68% to $7.46. Net income for the fourth quarter of 2021 was adjusted for acquisition expenses and acquisition-related financing expenses of $289 million, or $1.02 per dilutive share. Net income for the fourth quarter of 2020 was adjusted for a gain on dealership divestiture of 3.9 million, or 15 cents per diluted share. In addition to the net income adjustments mentioned above, our fourth quarter 2021 EPS was negatively impacted by the interest and additional shares issued as part of the acquisition financing that was completed prior to the acquisition closing. If the financing had closed simultaneously with the Larry H. Miller acquisition, our adjusted EPS for the fourth quarter would have been positively impacted by 87 cents as a result of lower interest expense and fewer outstanding shares. Now for the full year 2021 results compared to 2020. Adjusted operating margin was 8.1%, an increase of 240 basis points and an all-time record. Adjusted net income increased 120% to $549 million, and adjusted EPS increased 112% to $27.29. Our effective tax rate was 23.7% for 2021, compared to 24.8% in 2020. This quarter, we acquired $6.6 billion in annualized revenue. In order to finance the acquisitions, we completed debt and equity offerings totaling approximately $2.1 billion, a syndicated mortgage facility of approximately $700 million, and borrowed under our upside syndicated credit facility. In addition, we spent approximately $34 million of capital expenditures in the quarter. We generated $632 million of adjusted operating cash flow for the year. Our balance sheet remains healthy as we ended the quarter with approximately $437 million of liquidity comprised of cash, excluding cash at total care auto, floor plan offset accounts, and availability on both our use line and revolving credit facility. Also at the end of the quarter, our net leverage ratio stood at 2.7 times, below our targeted net leverage of three times. As David stated earlier, today we announced that our board has approved an increase to our share repurchase authorization by $100 million to $200 million. For 2022, we are planning for a tax rate of approximately 25% to 26% and capex of approximately $150 million. This amount excludes real estate purchases and potential lease buyout opportunities that we consider to be financing transactions. In closing, I would like to thank our teams across the business who continue to work hard to ensure our current and long-term success. I would also like to welcome our new team members. Now I'll turn the call back over to David to discuss our 2022 objectives and expectations. David.
spk07: Thanks, Michael. Turning to 2022, our key objectives are continue our smooth transition with all of our new valued team members. Execute superior allocation of capital to maximize shareholder return. Continue the innovation and growth of Clicklane, rolling out this fully transactional tool coast-to-coast into our recent acquisitions. Integrate our insurance and F&I product provider, Total Care Auto, across the entire Asbury platform of dealerships, which will allow us to expand our F&I PVR. execute our company-wide training initiative to continue the development and growth of our teammates, and maintain our best-in-class operating margins in SG&A. I would also like to make a few comments regarding our expectations for this year. We are excited about 2022. We see good opportunities for automotive retail, and we expect that demand will continue to exceed supply for most of the year. We do anticipate a gradual recovery in inventory levels in the second half of 22 as OEM production improves. As a result, we are planning our business for a SAR of 15.5 to 16 million units and vehicle margins consistent with 2021. We will remain nimble and vigilant to adapt as conditions evolve. SG&A as a percentage of gross profit should continue to benefit from active expense management and improved employee productivity. We look forward to continuing to deliver strong results for our shareholders, be outstanding partners with our OEMs to steward their great brands, and offer an environment where our team members can thrive while providing the most guest-centric experience in automotive retail. Finally, I'd like to address all of my teammates at Asbury. Our ability to add quality stores who, like us, care about serving our guests and being highly engaged in our communities could not have happened without you. You all have given us the ability to thoughtfully grow our core business because you aligned behind our vision. I appreciate all of you, and I am thankful to be a part of this team. People make the difference in any organization, and you are making us a better place to work, and you are creating an environment where people want to do business. Thank you for everything. This concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?
spk03: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone the opportunity to signal. We'll take our first question from the line of Rick Nelson with Steven. Please go ahead. Your line is open.
spk01: Thanks a lot. Good morning. Another great quarter. I'd like to ask you about the acquired stores. If they operate at a higher front end yield and lower SG&A than the core Asbury. I looked at the consolidated You know, the SG&A, for example, was slightly lower than the same store.
spk07: Rick, this is David. I'll start, and Michael can certainly jump in. As when we announced the deals, the comment was made they're accretive to Asbury. You know, it's early on in the fourth quarter. I think we had maybe 12 or 13 days in the quarter with Larry H. Miller numbers. And then you add in the holidays, there's probably 10 or 11 days. So those acquisitions, as stated before, are accretive to Asbury in what you acknowledge and recognize as accurate.
spk01: Are there opportunities to improve performance of the acquired stores, or is the bigger opportunity rolling TCA, for example, across the Asbury chain?
spk07: It's a great question. A couple things. You know, the best operation in the world has plenty of room for improvement, and we certainly do at our core stores and our new acquisitions. We certainly have an opportunity to continue to grow our used car performance, and with the rollout of Total Care into the Asbury stores, that will certainly boost our F&I numbers as well, while parts and service continues to grow at a steady rate.
spk06: One other thing to add, Rick, is another opportunity for us is putting ClickBlane in those acquisitions, and that will just give them some technology they didn't have before, so that is an opportunity for us to just help them from a technology perspective.
spk01: Okay, Trent, thanks for that. Also, we'd like to gauge your appetite now to do more acquisitions to your Do you slow things here temporarily, integrate what you've got, or is there an appetite to do something over the near term?
spk07: Rick, this is David. I'll start and Michael might jump in. Our goal was never to grow to be the largest or grow the fastest. It was really about being opportunistic and finding groups that really aligned with us. we allow them to continue to operate as they have been. So it's a much longer integration period to get to know each other and integrate everything over. We feel like our stock price is extremely cheap right now, and we're trading at an extremely low multiple, and we want to be great capital allocators. So that could be a potential for some acquisitions of buying back our stock. But it's tough to say how the year will play out. If something comes up that's accretive to our company and for our shareholders, we'll certainly act upon it. And if it makes sense, if we feel like our stock price is being devalued, we'll certainly acquire some of our stock back.
spk01: Great. And the expectation for stable GPUs in 2022, what is the thought there that things would advance? maybe in the front end of the year, and then we'd see some pressure on the back end, given your expectations for inventories to normalize.
spk07: Sure. You know, the good news is in the last year, everyone's been wrong all the time about inventory and trying to figure it out. But the way we see 22 as we sit here today, when you look at 21, the first two quarters inventory levels were higher and margins were a little bit lower. And then that reversed itself in the second half of 21. Inventory really came down and margins went up. We see the reverse of that in 22. Don't know that we'll be right, but we think the first half of 22 will certainly have elevated margins like we saw in the fourth quarter. And then the second half of the year might look a little bit like the first half of 21. Really difficult to gauge what's going to happen between the pandemic and the chip shortage and everything else, but as we sit here today, that's the way we see it.
spk01: Great. Thanks for the color and good luck.
spk07: Thank you.
spk03: We'll take our next question from the line of John Murphy with Bank of America. Please go ahead. Your line is open.
spk09: Good morning, everybody. Maybe follow up on, good morning. Maybe just to follow up on Rick's just last question there. I mean, where do you think inventory is going to normalize? I know, I mean, obviously calling the second half this year, it's tough, right? Because it's a very tough thing to call the timing. But when things, the logjam is broken here, what do you think the level is the automakers are going to go back to? And what do you think it means for promotions? Is it somewhere between, you know, here and where it used to be? Or is it all the way back to where it used to be?
spk07: Very tough to predict. It's a competitive world, and you never know what someone's going to do to try and gain market share and grow their business. I think everyone's learned from the concept that we can be effective with a lower day supply, and everyone can benefit from that. Does that mean we'll stabilize at a 35, 40-day supply compared to a 65 or 70? I think it's too early to tell, but to me, the demand seems so high right now even when they're able to start catching up on the inventory between, you know, the rental car companies and fleet businesses and everything else, I just don't see the demand settling until sometime into 23.
spk09: Yeah, I generally agree with you there. It's going to be a while before things normalize. On the SP&A front, you know, the absolute, you know, dollars as well as the percent of gross is pretty impressive. Is there... a way to think about that going forward. Is it tied more towards units than the grosses or, or is there a way to, for you to maybe link it a little bit more to grosses so we don't have this kind of variability in the numerator and denominator and stays a little bit more static and yet, and yet you keep, you know, more of the gross consistently over time.
spk07: Yeah, I would, it's a tough one, John. I would tell you, um, prior to the pandemic, we were focused on our productivity per employee, um, and that generally keeps your costs down. However, if margins certainly start to go backwards a lot, there will be some leakage into SG&A. I also think as technology continues to evolve over the next few years, that gives you an opportunity to hit new ceiling levels with production per employee. So we see it as a pretty stable environment, and as margins start to come back and, say, call it 23 at this point, again, who knows, but if it's 23, We also think we're going to be that much more productive per employee in 23. So we think we run lean and mean, and the stores do a tremendous job at keeping their expenses down and operating extremely efficiently, whether it's our marketing dollars that we spend or how we staff the stores. We just think it's a discipline and a core behavior of ours.
spk09: Okay, and then just lastly, could you just kind of remind us exactly what's going on in total care auto at Larry Miller's? And really, you know, is there an opportunity, is this kind of shedding light on not just, as Rick mentioned, spreading it across stores, but maybe even doing more on F&I and becoming sort of your own underwriter in some cases? Because that's, you know, some of your peers are looking at this stuff, and it seems like it might be an incremental opportunity, but also a little bit touchy because you don't want to compete with the captives.
spk06: Yeah, I mean, Total Care Auto is a full F&I product supplier, so they take the place of some of the third parties out there, and so we basically retain all the profitability that used to go to the third parties. The other benefit is because we control both sides of the equation, we have the F&I side and we have the sale and the parts and service side, it allows us to kind of hold the customer throughout the whole process and really provide a better customer experience. So there is some tremendous upside for us as we roll this out to our stores. One thing we'll have to do just in next quarter just for transparency is we're going to have to be able to show you guys dealership operations, TCA operations, and then the consolidated operations and make sure we kind of present that to you guys in a way that you can really see the impact. So you'll see that coming next quarter when we have a full quarter of operations with TCA. So we'll hopefully be able to give you guys the transparency to kind of see the see the benefits of that on operations.
spk07: And then one quick comment on top of that. TCA is an extremely mature insurance company that's been in business over 30 years and is AM Best rated. It's woven into the fabric and DNA of the Miller organization and their stores. For that benefit, they have increased penetrations in product sales compared to the legacy Asbury stores. So we feel confident as that gets rolled into Asbury. we will see the benefit as well in future improved product sales.
spk09: So that functions as offshore self-insurance. Is that essentially kind of what's going on there with TCA?
spk06: It's onshore. It's just a, again, it's just the underwriter behind the F&I products like vehicle service contracts, maintenance contracts, things like that on the F&I side.
spk09: Okay. All right. Thank you very much.
spk07: Thank you, Jerry.
spk03: We'll take our next question from the line of Raja Gupta with JP Morgan. Please go ahead. Your line is now open.
spk04: Hi. Thanks for taking the question. I was just hoping maybe you could provide us a quick preview of what to expect during the first quarter print with regard to the long-term plan. Clearly, acquisitions are well ahead of plan. Overall, cumulative cash generation is going to be much higher than what you had in mind. when you put up those targets. Look, I talked about, you know, a number of horizontal, vertical adjacencies. You already have TCA and Salty. Is captive finance next on the cards? Maybe any color on what could be that extra use of that cash. You obviously have the buyback. And could that be a more consistent and bigger portion of the capital allocation mix going forward? I'm going to have a follow-up. Thanks.
spk06: I'll just hit on the capital allocation portion. I think with the share price, we always look at share buybacks and acquisitions in terms of the best return for the shareholder. Of course, at these share prices, share buybacks look pretty attractive. We have that kind of built into the five-year model too, but it's hard to say where the share price is going to trade and where the acquisitions are going to price at. you know, three, four years into the future. So it's the same capital deployment we've always looked at in terms of what's the share price versus what's acquisitions add. So no changes there, just, you know, more, like you said, more cash flow to put into both those buckets. On the five-year plan, on the update, the key there is we did more acquisitions than we originally anticipated up front. And so that will, of course, give us a larger base to do same store off of and click lane. So I don't see a bunch of changes in terms of the path we're looking to go down. It's just the numbers will get updated with the larger base.
spk07: And your comment regarding the finance company, I would say, you know, we're in the really early stages of investigating and looking at it and see if that's something that makes sense for us or not. It's too early to tell at this point. We're clearly going to generate a lot more cash this year. We will pay down mortgages and some debt that we have available. And whether it's through acquisitions or buybacks, really depending upon what the market gives us and what acquisitions are out there. We've seen a lot of opportunities for acquisitions already this year. And we've passed on them just because it doesn't fit our threshold and our discipline look at finding stores that are creative to our company.
spk03: We'll take our next question from the line of Stephanie Moore with Trist. Please go ahead. Your line is now open. Hi, good morning.
spk01: Good morning.
spk00: I wanted to touch on Quicklane and what your expectations are for marketing and advertising in 2022 and just increasing awareness for the platform.
spk07: Yeah, this is David. Stephanie, I would tell you, you know, we started off 21 thinking We were gonna spend a chunk of money marketing Clicklane and we quickly canceled all of that because it didn't make sense with the lack of inventory that we have. We constantly look at the tools that are out there. We still believe we have the best tool in the market and it's a fully transactional tool. The benefit to that is the consumer experience. The downside to that is integrating that into new stores takes a little bit longer. than if it was simply a lead generator and overlaying it into a website. So it's going to take us a little time to integrate the rest. I would tell you the marketing dollars won't pick up until the inventory levels are there. You know, the software right now, because we don't want to ruin the experience for the consumer, you could go on a website in one of our stores and see some stores has the click lane on the vehicle display page and some don't. And the reason that is, it's really availability of the product. We don't want to ruin the experience and have someone purchase a car that isn't available. And while you have seasoned professional salespeople in the stores that can see inventory coming a month ahead of time, they're pre-selling into the pipeline, which is really shrinking the inventory availability for click lane. So it's just not prudent to spend the money right now to market it. We'll wait for inventory to catch up.
spk00: Understood. And then shifting gears, I think we're all pretty aware that the majority of the OEMs are exploring pretty aggressive EV expansion goals as well as a lot of kind of new exciting models. Maybe you could talk a little bit about the conversations you're having with the OEMs about new models, particularly around EVs, new selling methods, direct to consumer, and just kind of in general how you're preparing yourself as dealers to meet a lot of these new models in the years ahead? Thanks.
spk07: Sure. We started about almost four years ago now starting to install charging stations at our facilities and so on and getting up to speed on training as new product has come out. A few years ago, there was some concern about the consumer adoption to EVs. You can really feel the wave now coming where the consumers are being far more accepting of EVs and we're excited about the opportunity to sell some of these products. We believe some of the electric cars that are coming out from some of the legacy OEMs, their quality and fit and finish to us is superior than some of the startups that we've seen touched as far as their products. So we're adapting and we're healthy and we're ready to go. We're still of the belief that as far as the supply chain goes from the legacy OEMs and the franchise dealer is the best model for the consumer. These cars are complex and they need people locally that they can count on to help them when issues arise. On a quarterly basis, we track in our service departments combustible engine dollars spent per repair order, hybrid, and then fully electric. And it's still consistently the same. Right now, the highest dollars spent per repair order on the fully electric cars. And you'd expect that with the new technology that's coming out. So that'll improve over time as well. We think by having a tool like Clicklane that is a complete transactional tool, not a lead generator that's going to get back to you, that really negates the need to sell direct to consumer from some of these electric car companies. And as inventory becomes available and card companies have to compete with one another, the differentiator they have is the people on the ground selling the product. So we like our position. We believe as long as we take care of our consumers and we offer them a high level of service, that the franchise model makes a lot of sense.
spk00: Great. No, that's all very helpful. Thank you so much.
spk07: Absolutely.
spk03: We'll take our next question from the line of Brett Jordan with Jefferies. Please go ahead. Your line is now open.
spk10: Hey, good morning, guys. How should we think about used vehicle valuations as the year progresses? Is it just sort of an inverse as new supply comes up, used comes down? Or do you think used can soften before that? And then the follow-through on that is sort of as in the click lane mix as you're selling 53% used, is it a different profile car than what you would be selling on average? You say the FICO score is higher. Is this a younger, higher value used car?
spk05: Greg, good morning. This is Dan. I'll address the first one, the first question regarding the values. It's hard to tell, but we see the values starting in November, December have adjusted, meaning that they're not growing exponentially as they were before. And until the inventory levels, our belief is until the inventory levels for new cars somewhat stabilize, the used car valuation is going to remain where it is right now. And we don't believe that when there's a correction that it'll be an immediate correction. It's going to be a gradual correction. But we do believe that it's going to be dependent on the new DSI, new car DSI. On the second question, as far as click lane sales, we're selling a low cost of sale car under, call it $10,000, $8,000, and we're selling the high cost of sales certified pre-owned luxury vehicle in our click lane tool. So no different than what we're selling in our stores, just a much better experience and a much faster transaction.
spk07: I would add the down payments are higher on Clickland, the credit scores are higher for this simple reason, Brett. It's consumers that have the ability and aren't worried about financing, but they value their time. And they realize that it's a full transactional tool, that they can get the purchase done in a 15-minute span, and they move on. We certainly have a seven-day buyback, no questions asked, which probably gives them some level of comfort But I think at the end of the day, it's clearly about convenience, which is what's driving the higher credit scores.
spk10: Okay. And then you called out a $4,400-plus GPU on the click lane used. Was that just the used cars you were selling that you'd taken on trade via click lane as well? So you built really sort of well-sourced inventory?
spk07: Yeah. So that was a consumer who purchased a new vehicle on click lane, traded a car. And we took that trade, reconditioned, and sold it. Okay, great. Thank you.
spk03: We'll take our next question from the line of David Whiston with Morningstar. Please go ahead. Your line is open.
spk08: Thanks. Good morning. On the M&A front, have you noticed so far this year any difference in seller asking prices compared to 2021?
spk07: It's a great question, David. I would say it's really depending upon the brand and the location of where it's at. In what I would call some markets that are not growing at some rate as others and weaker brands, they're bringing lower multiples for sure. But in those highly desirable markets and big stores, they're still bringing a premium at this point in time.
spk08: Do you see a lot of sellers being unreasonable, though, thinking, well, look at the margins now. I should be able to assume that into perpetuity, and you're having to push back?
spk07: I think when anyone's selling anything and then you have a buyer, everyone's going to take their position, and the seller certainly wants to assume that. I think you also have some people maybe that aren't fully sellers. They're just testing the waters in the markets to see what valuations are and what they could possibly get. We don't spend a lot of time looking at a lot of deals. We say no pretty fast, and we really only spend time on the deals that we think make sense for us. So it's hard to really say. I could tell you the activity we've seen in the last 60 days has been every bit as great as it has been for the last 12 months. Okay.
spk08: And on the TCA restricted cash, I was just curious if there ever is a really bad crisis like when the pandemic first hit or Lehman collapsing, is there any way you could access that cash for general liquidity if you needed to?
spk06: On TCA cash?
spk08: Yeah.
spk06: No, the TCA cash, most of that cash is for investments that have to be there for insurance purposes to cover future claims. We do pull the cash from The excess cash gets pulled from TCA and pulled over to Asbury to use for general corporate purposes as it earns out. So every month we're pulling kind of the excess cash out of the business. So what's left there is just investments that are needed for future claims.
spk08: Okay. And finally, the special item in the quarter on the bridge commitment fee, was that for GAAP booked an interest expense?
spk06: Yes, and that was, I think I may have misspoke when I read it. I think I said $289 million. It's $28.9 million if I misspoke that one. So, yeah, that is an interest expense for GAAP.
spk08: Okay, thank you. Thank you, David.
spk03: Once again, if you'd like to ask a question, please press star one. We'll take our next question from the line of Raja Gupta with JP Morgan. Please go ahead. Your line is now open.
spk04: Great. Thanks for getting me back in the queue. I was accidentally on mute before my follow-up in the previous question. I just had a question on the news week of business. Clearly, you know, nice execution there. You know, things have started to improve, you know, in terms of the overall same store performance, you know, after some mixed quarters in the past. What would you attribute that to, you know, anything company specific, you know, that is driving that turnaround and just how do you view the sustainability of that going forward? Thanks. And it's also like a major part of it or not. Thanks.
spk07: I'll start and then Dan can finish with that. You know, your, your, your point was obvious. We had lower comp numbers, so that certainly helped. There has been a gained focus at our stores. But I'll tell you, we're more of a conservative than an aggressive group. And what I mean by that, you know, 36 years in automotive for me, the pricing valuation right now is hard to get my head around because I haven't seen numbers like this before. So we try and stay disciplined at a 30-day supply or 30 to 35-day supply. Could we have a 45, 50, 60-day supply of used cars? Sure. But if the market swings, that would put us in a tougher position. So we really like that discipline of having a lower day supply. I think it'll continue. In the acquisitions that we have that are coming on, I made the comment earlier, they're more accretive to our company. One of the big areas of opportunity that they have, their use to new ratios are lower than the core legacy Asbury stores. So there's an opportunity to grow used car sales there. But your behavior doesn't change overnight. It's going to take some time to work on that with them and get the potential out of those stores with pre-owned.
spk05: Rajat, I would add to, you know, it's been a main focus of us as an entire team, but more importantly, the operators at the store level getting behind their vision and executing. And what I mean by that is, Anything from a used car perspective is really about having the right car at the right store where it turns the fastest and for the highest margin. And we have the tools and the historical that shows that, and we maximize it on a month-to-month basis to put the cars where they belong and turn them at a faster pace. So very pleased with what the operators have done. I cannot thank them enough, but we've got plenty of room to continue improving.
spk04: Got it. Great. Thanks for that, Tyler, and good luck.
spk07: Thank you. Thank you. This concludes our discussion today. We appreciate your participation and look forward to discussing our first quarter results in April. Have a great day.
Disclaimer