Asbury Automotive Group Inc

Greetings and welcome to Asbury Automotive Group third quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this call over to your host, George Velsata. Senior Vice President and Chief Legal Officer. Thank you. You may begin.

Thank you, Operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's third quarter 2023 earnings call. The press release detailing Asbury's third quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com. Participating with me today are David Hult, 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 the call up for questions, and we will be available for any follow-up questions later. Before we begin, we 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, including our Form 10-K for the year ended December 2022, and any subsequently filed quarterly reports on Form 10-Q and our earnings press 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 also have posted an updated investor presentation on our website at investors.asburyauto.com, highlighting our third quarter results. Now, it is my pleasure to hand the call over to our CEO, David Hult.

Thank you, George. Good morning, everyone. Welcome to our third quarter earnings call. First, I'd like to commend the resiliency and strong efforts of our team members as they work diligently to deliver the most guest-centric experience in automotive retail. They have executed efficiently to maintain cost control as our business has scaled. I remind everyone, in the span of two years, we doubled the size of our company. The team has worked very hard to set up infrastructure to integrate processes, increase productivity, and drive performance. Now onto our consolidated results for the third quarter. We delivered $3.7 billion in revenue, had an adjusted SCNA as a percentage of gross profit of 58.4%, had a gross profit margin of 18.4%. We generated an adjusted operating margin of 7.2%. Our adjusted EBITDA was $280 million. and our adjusted EPS was $8.12. I'll touch on some areas where we did well, and other areas where we know we have work to do. As expected, this quarter we saw some headwinds, beginning with brand and model mix in new vehicles. While day supply remains at a healthy level, we are seeing some cases where high demand models are selling well, though difficult to replenish, while others remain at elevated day supply. On the use side, we continue to see a challenging market for sourcing those vehicles. We are seeing a continuation of PVRs as a whole trending to a more sustainable level. Our parts and service business showed year-over-year growth, yet this is an area that was disproportionately impacted by the integration activities we mentioned last quarter. Demand remains strong, and we are confident in the longer-term trend of our parts and service business. Turning to F&I. I'll highlight two areas in the quarter. We are seeing slightly lower penetration rates in our F&I products as customers look for ways to manage lower monthly payments in a rising rate environment. Second, the way in which we account for TCA will result in a negative drag on results over the next two years as the products roll out across the legacy Ashbury stores. The impact is driven by the way in which sales from the products are recorded over time, rather than upfront like a third party provider. Michael will cover in more detail in his section. Finally, our SG&A levels in the quarter demonstrated our commitment to manage our cost structure to the performance of the business. I'm encouraged by the progress and direction of our operations and strategic initiatives. We are enthusiastic about the pending acquisition of the Jim Coons Automotive Group, a well-respected group with a phenomenal set of team members and leaders. The group generates over $3 billion in annual revenue and averages over $140 million in revenue per rooftop. Amidst the evolving backdrop of our space, I am optimistic about automotive retail and our diversified business model. We have strategically purchased quality assets, making us a stronger company. Part of our long-term plan to deploy capital to its best and highest use. We have entered into growing strategic markets that we haven't operated in before, and we continue to integrate and grow the business. We operate in an environment where the average age of the car is 12 and a half years. And while SAR levels have been trending higher, It is important to note we are still below historical levels. Our parts and service business will remain a critical element of our success well into the future, repairing older vehicles, addressing the complexity of newer cars, and supporting numerous EV models rolling out over the next few years. Overall, we are focused on achieving our long-term strategic goals. We plan to fund the pending Coons acquisition with existing liquidity and capacity. Our strong balance sheet and reliable cash flow has enabled us to undertake this deal without the need to raise additional debt or issue equity. We are well aware that interest rates have moved up and we have adjusted our return assumptions accordingly. We will remain strategic with our capital allocation decisioning with a focus on paying down debt in 2024. As we are winding down on year three of our five-year plan, I am proud of the progress we have made in transforming the size and scale of our business. In just a few short years, we have grown revenue from $7 billion to $15 billion, or $18 billion pending the Coons acquisition. Increased adjusted EPS from nearly $13 to over $34 per share. Generated over $400 million in adjusted operating cash flow to now just over $700 million before the pending Coons acquisition. increased adjusted EBITDA from $400 million to an annualized run rate of $1.2 billion. We acquired an insurance company, Total Care Auto, and introduced ClickLane, tools which fundamentally changed the buying experience. Our 2025 growth objectives will be updated after our year-end results and the planned closing of the Coons acquisition to provide a clearer roadmap for our long-term growth trajectory. I'll now hand the call over to Dan to discuss our operating performance. Dan?