Asbury Automotive Group, Inc. Stock

Greetings, and welcome to the Asbury Automotive Group Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Investor Relations. Thank you, sir. You may begin.

Thanks, 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 Second Quarter 2026 Earnings Call. The press release detailing Asbury's second quarter results was issued earlier this morning and is posted on our website at investor.asburyauto.com. Participating with me today are Dan Clara, our President and Chief Executive Officer; 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 will be available later today for any follow-up questions. .

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 is 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 31, 2025, and 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. Comparisons will be made on a year-over-year basis unless we indicate otherwise.

We've also posted an updated investor presentation on our website, investors.asburyauto.com, highlighting our second quarter results. It is my pleasure to now hand the call over to our President and CEO, Dan Clara. Dan?

Thank you, Chris, and good morning, everyone. Welcome to our second quarter earnings call. I want to begin my first earnings call as Asbury's CEO, by thanking our team members across the country for the work they do every day to serve our guests and support one another. Your commitment, resilience and focus on continuous improvement are what makes this company strong. As we noted in our prior quarter commentary, 2026 is a year of transition for Asbury as we finalized the rollout of Tekion across our store base, focus on growth through operational improvements and continue our balanced approach to capital allocation. .

Our results continue to reflect the investments associated with completing the Tekion rollout while simultaneously operating our legacy systems. This investment positions us to capture meaningful operating efficiencies as we anticipate completion of the rollout by October of this year. Rolling out a new DMS at this scale is a significant undertaking, I am proud of our team members' commitment to making this transition successful. Crossing the 70% implementation milestone is important because an increasing percentage of our store base is now positioned to benefit from a common operating platform.

Importantly, the operational improvements we're seeing are not isolated. Markets that have been on Tekion the longest continue to demonstrate better productivity, stronger customer pay performance, higher technician efficiency and improving sales effectiveness. For example, our Koons, Georgia and Florida markets have at least 5 months post conversion under their belts. Just looking at the month of June, those stores grew average units per salesperson by 12% and increased the dollar per technician by 10%. These are just a few of the operating metrics we expect it to improve as stores mature on the platform.

Our strategic initiatives, which I will refer to as our 5 pillars are focused on increasing new vehicle market share, reestablishing consistent growth in customer pay gross profit, driving profitable volume growth in used vehicles, managing SG&A and leveraging technology. A successful migration to Tekion remains a top priority as we approach our final remaining stores. Collectively, these pillars are not a changing direction. They represent a sharpened way of executing the priorities that will drive growth and returns for our shareholders.

On the capital allocation front, we continue deploying capital into our own shares because we believe our stock represents an attractive long-term investment while maintaining ample liquidity and flexibility. In the first 2 quarters combined, we have repurchased 7% of our 2025 ending share count. Michael will provide additional details on our approach to capital allocation.

And now I will speak to our operational results on a same-store basis unless otherwise noted. Starting with new vehicles. New units were down 6%, new PVRs were $3,896 on a same-store basis and $3,124 on an all-store basis. with flattening sequential declines indicating we are near normalized levels. We ended the quarter with new day supply of 53 days, a healthy level that supports stabilizing PVR.

Next, turning to used vehicles. We earn the used retail PVR of $1,927, a sequential increase of 5% on effectively the same store volume as the first quarter. Our used vehicle strategy is already producing sequential improvement while positioning us for higher volume over time. As a reminder, our used vehicle strategy has been focused on maintaining discipline rather than chasing volume for volume's sake with an emphasis on maximizing gross profit. In May, we began shifting our approach towards driving higher used vehicle volume while still maintaining multi PVRs. We are beginning to see positive results from this strategy. As we continue deploying this used vehicle strategy across the organization, I expect to see increased used vehicle volume as we move into the fourth quarter of 2026.

We're also continuing to invest in our appraisal and pricing tools while maintaining discipline in our sourcing of vehicles from consumers, off-lease channels, along with strategic acquisitions through the office. Finally, we ended the quarter with a 37-day supply.

Moving to F&I. We earned an F&I PVR of $2,214, and finally, in the second quarter, our total front-end yield per vehicle was $4,698. Next, on parts and service. Our customer pay business was flat year-over-year, and our overall parts and service gross profit was slightly down. As I mentioned earlier, it takes 5 to 6 months to see operational improvements from our DMS change. A large number of transition stores are still within this window, and we expect a return to normalized growth levels in the coming quarters. We did see better traction in June, where total same-store fixed gross profit was up 4%.

Now I'd like to quickly talk about continued focus on operational efficiency. Along with growing gross profit, cost discipline remains a top priority, and we measure ourselves on how well we contain expenses in order to drive a strong operating margin. Our same-store adjusted SG&A as a percentage of gross profit was 65.3% in the quarter. Once all stores are converted to Tekion and we begin to gain all its efficiencies, we believe our SG&A can get to the low 60% range by the end of 2027.

We also continue to invest in AI across every department in the company. Whether in operations or support, we've seen meaningful opportunities to improve efficiency as same-store team members and enhance the guest experience. As we enter the second half of the year, we have greater visibility into the completion of our technology rollout, encouraging operational trends in our mature tech end markets, a healthy balance sheet meaningful liquidity and significant flexibility to continue investing in our business while returning capital to our shareholders. We believe that the foundation we're building today positions us very well for long-term value creation.

And with that, I'll now pass the call to Michael to discuss our financial results for the quarter. Michael?

Thank you, Dan, and good morning, everybody. I'll start with our high-level financial results for the second quarter. We generated $4.4 billion in revenue, earned a gross profit of $753 million and a gross profit margin of 17.2%, and we delivered an adjusted operating margin of 5.3%. Our adjusted net income was $125 million. Our adjusted EBITDA was $235 million and adjusted EPS was $6.82 for the quarter.

In addition, the noncash deferral headwind due to TCA this quarter was $0.66 per share. Our adjusted EPS would have been $7.48 without the deferral impact. Adjusted net income for the second quarter of 2026 excludes net of tax, $4 million related to Tekion implementation expenses, $3 million of noncash asset impairments weather-related losses and $1 million related to duplicate DMS related expenses. Adjusted SG&A as a percentage of gross profit on an all-store basis came in at 66%, in line with our expectations, a 260 bps improvement over the first quarter of this year. We expect gradual improvement throughout the year in our SG&A leverage.

There are some frictional costs of our Tekion rollout not associated with the implementation or duplicative costs that are short term in nature that ease over time as the stores become more efficient with the technology, as Dan mentioned. With 30% of our store base remain to be rolled out as of today, the third quarter will be a little heavier lift compared to the second quarter in order to complete the rollout. We have already transitioned 13 stores in July. We see a path to start realizing some of the cost savings in late 2026 and into 2027.

Next, the adjusted tax rate for the quarter was 24.3%, and upside to our initial forecast, we expect the effective tax rate to be approximately 25% for the remainder of the year. TCA generated $5 million of pretax income in the second quarter. The negative noncash deferral impact for the quarter net of tax, about $12 million. We anticipate implementing TCA to the chamber stores in the second half of this year to complete the rollout to the company. We generated $305 million of adjusted operating cash flow year-to-date. Excluding real estate purchases, we spent $117 million of capital expenditures in the first half of the year and still anticipate approximately $250 million in CapEx spend for the full year 2026.

Adjusted free cash flow was $188 million through the end of June. We ended the quarter with $966 million of liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding cash in Total Care Auto. Our transaction adjusted net leverage ratio was 3.4x at the end of the second quarter. As Dan mentioned, we took the opportunity to lean more heavily in the buybacks during the quarter, purchasing 668,000 shares for $131 million. On a year-to-date basis, we have bought back 1.35 million shares for $278 million. We made the strategic decision for temporarily higher leverage given the valuation of our shares and the performance outlook of our business, our target of 3.0x is still a priority for us, and we plan to reach it in early to mid 2027.

And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?

[Operator Instructions] Our first question comes from Jeff Lick with Stephens Inc.

Congrats on the progress. Dan or Michael, I was wondering if you start off with you, just talk about compared to Q1, what's changed and what's evolved? And if you could build into that, your -- the negative 6% same-store new maybe just drill down into what parts of that are kind of Tekion related versus other type of market factors and whatnot.

Yes. I think the things that changed a little bit as first quarter had the noise from the weather in January and February. So this is kind of, I'll call it, a normal quarter in terms of weather-related and those impacts. You saw a little bit of a decline in new vehicle PBR as expected, we still think 3,000 is probably the right long-term number. So we saw a little bit of a decline there, but nothing out of the ordinary.

And then on SG&A, with the higher gross profits this quarter, and a little bit of an improvement on some of the stores that kind of are in that 5- to 6-month window. We saw the SG&A come down to 66%. so those are the big ones, fixed ops. We still have a lot of stores in the heart of the Tekion transition. So we're seeing the impact of fixed op still, but expect more positive results that we saw in June, we talked about the 4% growth in June. And so we expect to see continued improvement on fixed ops going forward this year. But again, we're right in the heart of the tech on rollout phase right now.

Jeff, just to add to Michael's comments, too, on the new car side, down 6% to your point, what percentage of that is Tekion and what could be some market conditions or OEM mix. From a Tekion conversion, as I stated last quarter, we still -- we don't see the immediate impact that we see with customer pay. We're technicians on the muscle memory, but there is still an adaptation period for sales managers and salespeople on just the basic blocking and tackling of Internet lead follow-up et cetera. And it is not so much about -- they know what to do. Of course, they do, but it is more about just learning the new system and navigating through it. So we see a little bit of a dip in sales when we install a new store, but it is a much faster recovery than we do on the fixed side.

On the other side of the equation, too, is we had an impact on steel on the Salento stores. down 28% over last quarter. We are starting to see improvements on the inventory mix of those stores. But as you know, that takes time for it to really replace the old high-priced inventory to where -- to the new inventory that is coming in. And then the last one that I'll mention is also in some of the imports we have seen a pretty significant drop in volume, some of it having to do with the rush that there was last year to buy some of the EVs due to the incentives going away.

And then just a quick follow-up on used use grew or shrank faster, call it, same-store down 14% versus same-store down 6% for new. A lot of us tend to use that ratio of, hey, you're -- if your trade-ins or your inventory availability should maybe grow at the same rate or shrink at the same rate as new -- there's a bit of a spread there, I'm assuming that you alluded to it in the call or our prepared remarks about Tekion, maybe you can just kind of reconcile that for us and then talk about how the new strategy of ramping up volume a little bit is helping that?

Absolutely. Yes. Part of -- to your point, I mean, part of the decrease in used cars is you sell less new cars, you're going to take in less trades. And so some of that is part of that. But I would tell you, the biggest impact is just the slow but very methodical and strategic approach to moving from a strategy that we're not chasing volume and maximizing gross profit to a strategy where we are going to go more aggressively after the volume while maintaining healthy PVRs. And that has to be done in a very slow, methodical approach, because let's not forget that September is right around the corner. We all know what happens to used car valuations when September comes.

And so going in and aggressively acquiring inventory just to hit a outline volume number and then having to liquidate all the agent inventory come September, October does not make sense. So the approach that we have taken is strategically acquiring inventory. We bought approximately 6,500 cars from auction last quarter. You can see the impact in our day supply from a 30 to 37 days supply. And we still have a healthy inventory where 70% of our inventory is less than 30 days.

So we're starting to see the improvements. You look at also the impact that additional inventory is having in our internal gross profit. It is having a nice impact there. And as we continue to execute on this methodical approach, that's where I feel comfortable that by the -- going into the fourth quarter, you will start to see the increase in volume in year-over-year.

Our next question comes from Rajat Gupta with JPMorgan.

Just wanted to follow up on the SG&A comments and some of the Koons and Florida stores on Tekion. Given like those stores have had a bit of a larger period of seasoning with Tekion, are you able to share what the SG&A to gross is for those stores versus pre Tekion? Any directional color on that would be helpful. And then just to clarify, you are suggesting that asset growth will continue to decline in 3Q and 4Q? Just wanted to clarify that. And I have a quick follow-up.

I'll let Dan hit a few of the detailed numbers, but I don't have -- we don't have -- I don't know the SG&A by store in front of me. But just as a reminder, the Koons stores have been on it for about a year. So they're the most seasoned of the stores. The Atlanta stores went on December. So they're just in that 6-month mark at the very end of the quarter. And then the Florida stores went on in January and February. So they're really in that -- right at the end of the quarter, they hit the 5-month mark. So I'll say of that -- those 3 buckets that we gave you, one, season well past the time frame, the other ones just hit the end of that time frame right at the end of the quarter. So again, as we talked about the numbers, those are kind of the spectrum of where we are in the kind of process.

From an SG&A perspective, next quarter is a pretty heavy quarter for implementations, but we still think we'll be able to shrink the SG&A percentage of growth in the third quarter. And then you'll see a continued kind of decline in fourth quarter and then into the first and second quarter. And we think we get to that low 60s number kind of in the -- towards the end of 2027 is kind of where we're projecting. So that's kind of the -- you'll see a steady decline each quarter as we go through from an SG&A perspective.

But Dan, is there maybe a few more numbers on the on the sales side. But again, I just don't have the SG&A number by store in front of me.

Rajat, I'll give you -- I'll share a little bit more information. But before I share that, I can't stress enough how excited we are that 70% of our stores have already converted to Tekion, we believe this investment will deliver meaningful long-term value not just by enhancing the guest experience but also making us a lot more efficient. And so when you look out here with you a few other numbers that we have not quoted in the past. From a unit per sales manager, I'm just going to focus on Koons on a quarter-over-quarter increased 14.2% in productivity.

Another number that I'll give you also is units per F&I manager again on a quarter-over-quarter sequential increase. this will be Koons increased in F&I 15.2%. So we're seeing healthy efficiencies coming from the variable and the fixed side of it. and we just cannot be more excited to finish the completion and have all the stores operating under 1 DMS so that we can gain the efficiencies and get back to normalized growth levels.

Got it. That's helpful color. And then just to follow up on the Parts & Services comments. We appreciate the comment on June, plus 4%. Is it safe to assume that the third quarter should be at least at or above 4% given the run rate? And then just zooming out is it still safe to assume that the normalized growth rate is like mid-single digits for the business. I mean we have been hearing say, like some data points around maybe labor rates are peaking out. And we are seeing consumers just downshift a bit. given affordability concerns. Curious to get your thoughts on that and obviously, the third quarter.

Yes. I'll start on the service part of it, and then Michael can jump in as well. On the first question was what do we expect for Q3. As I mentioned, as I shared in the month of June 4%, July is starting pretty similar to what -- not starting, we're almost done, but it's very similar to what we saw in June. So it's very exciting to see some level of consistency there. And as we move into the third quarter, we believe that, that low to mid-single digit in customer pay is achievable.

Then you had asked me -- can you repeat the second question? There was a second part to it, please.

Just like one of the broader Parts & Services question in terms of medium, long-term normalized growth rate. We have been hearing some data points where we suggested that it's becoming harder to increase the labor rates and also some impact to traffic because of consumers down shifting due to affordability concerns. I'm just curious if you're viewing any of that at your stores.

We have not seen much of that, but I will tell you one of the good opportunities as you roll out a new DMS is it really allows you the opportunity to adjust the labor rates as you need to and in our approach is not so much about maximizing the ticket with the consumer where we only see that consumer one time is more about growing the customer payer account and growing net retention basis. so that we can have sustainable growth as we move forward. We have been able to adjust labor rates as we are rolling out Tekion. And we see that as another one of the impacts that we have of rolling out a new DMS.

And when I say adjusting labor rates, obviously, is not about going up on the expense side of, it is more how can we provide a good value for the guests, while being a great guest experience. and allowing them to keep coming back from a retention basis and grow the customer pay accounts. So there is some pressure on the consumer availability out there but not that it has been impactful in our service, right?

Our next question comes from Alex Perry with Bank of America. .

I guess, first, just starting on used. I wanted to dig in a little more on your thoughts around the used vehicle procurement environment and how that should impact volumes and GPUs in the back half. Obviously, you have the sort of shifted strategy internally, but with a lot of the off-lease supply coming into the market, maybe you could just talk about how that may sort of impact GPUs and volumes in the back half?

Alex. The -- our approach to going away strategy-wise of not chasing the volume was all well thought out, trying to time with the market as to when the lease returns were going to start to come back in because we know -- the one thing that you guarantee when you go and buy a car, the auction is you're the last person standing. That means you pay the most of that car. And so realizing the margins that we expect is a little bit tougher or very tough when you're the last person standing at the auction.

So therefore, when you think about our strategic approach, as we start to get this lease turns to come in, it definitely gives us the ability to enhance the amount of inventory that we have turn it faster at a better acquisition price point than if we go to the auction. And that's one of the benefits of being a franchise dealer. Those leased earnings come in. We got the first rather refusal for a lack of a better term.

So that fits straight into our strategy. There's quite a few electric vehicles that are coming off lease right now. we didn't plan for the gas prices to be where they are right now, but it's actually a nice mix because we're seeing those cars coming in and also being retail in the used car market. So I see it as a benefit that we have these costs coming in. I don't see a negative impact to the gross profit.

Now keep in mind, as we get more aggressive and we go after the volume, there will be an impact in the margins, but we're still going to run a healthy PVR. And as I mentioned last quarter, we have done the stress analysis. And for every additional, call it, 500 used cars that we sell, we have the ability to drop about $200, $250 a car. So we're really managing that accordingly to make sure that we get the best return for our shareholders.

That's incredibly helpful. Really good color. I guess just shifting to the new side. Can you talk a little bit more about sort of the performance by segment, especially luxury versus non-luxury and what you're seeing there and sort of expectations as we trend through the balance of the year on some of the luxury versus non luxury?

Yes. In the second quarter, luxury, from a volume standpoint, we were down 10% in luxury where imports from a unit basis on quoting same-store, we were flat. And then on domestic we were down 16%. We all know that luxury is really more of a tail end of the third quarter and going into the fourth quarter is really where luxury takes off. I don't see anything out there that is of major concern from a luxury standpoint, I believe, Lexus, BMW, Mercedes, I mean all the OEMs in the luxury arena for the most part are performing well. There's nice influx of inventory coming in, and I expect the third quarter to continue to deliver, like they always have.

From an import standpoint, we're seeing a little bit of margin compression a little bit, slightly in some of the OEMs, but Toyota is still averaging 12 to 15 days supply. It is positioned for a healthy margin. So imports, I think that we have hit a stabilized level and not much fluctuation to come from where we have been.

Our next question comes from Robert Saltzman with UBS.

Is the first 1 on the pace of the Tekion rollout. So you're now at 70% of stores that's versus over 50% mentioned on the Q1 call and more than 25% in Q4. So 20% of total stores added in the quarter. by a slight slowdown from that Q1 pace positions. Any reason for that slowdown? Or is that just in line with your kind of internal rollout plan and expectations kind of add that extra 30% here between now and October.

Yes. So that was kind of the plan all along. We rolled out Herb Chambers in March and April. As part of the Herb Chambers rollout, we also rolled them out on some of our standard processes, our shared service center. So there's a lot of change for that group. And so we took the month of May pretty much off from rolling out stores to just help that group kind of absorb the change. And so that was strategic just kind of thinking through the timing and all the change for that our acquisition last summer there was a lot of change besides just Tekion that we had to do with them. We rolled out Tekion. So that was strategic to try to take the month of May of help support that platform and then kind of kick it back off in June to July. .

Super helpful. And just one follow-up for me would just be Suprep disclosure just kind of on the efficiencies for tech driving by Tekion, kind of in that double-digit percent range. Does that mean if composition goes as planned, all else equal in parts and service, you see a double-digit revenue growth opportunity there as all of these stacks get rolled on and exactly what is driving the efficiency per technician with the new DMS system kind of get to that double-digit level.

Yes, Robert, I'll take -- I'll start and then Michael can add. On the -- our approach and our guidance continues to be the same in India single-digit growth in fixed operations and customer pay. When you talk about what is driving the efficiencies, when you have -- when we have the old DMS or the stores that still have the old DMS, you have multiple log-ins to operate what you do as a technician or what you do as an adviser. As you log in into the DMS, but then you also have to log into a bolt-on. It might be x time or MyCarma, whatever you decide to do all great tools. but it does have as a technician at to migrate from 1 system to the other. And here is all one ecosystem and all the communication flows from the adviser to the technician and to the parts department and vice versa, all through the all through the one ecosystem.

So that ability to not have to be jumping from one to the other has become a lot more efficient. We're seeing the dollars per technician are the numbers that I quoted, where we're seeing the improvement. And keep in mind also having one ecosystem to do the media, whether it is photos or video or both in that one ecosystem just enhances the guest experience. it improves the time to market, meaning the time that we present the information to the guest, and we know the faster that we present the information to the guest, the higher the propensity for that guest to approve the additional services recommended and then that leads into additional dollars per ticket or for technician like I have quoted on the previous information.

Our next question comes from Daniela Haigian with Morgan Stanley. .

I wanted to double-click on that used vehicle strategy evolution. You've talked a little bit how sourcing has changed. -- off-lease volumes have improved, but are you feeling any impact from increased competition from used car retailers becoming more price competitive?

I have not -- no. I have not felt that impact. And the -- the 1 advantage that we have, and I did not mention is also another source is we have a big fleet of long cars as well. in the loaners, obviously, we keep them in there to serve our guests. But then at some point, we retire them and put them for sale in the used car use our inventory. So that gives us a pretty nice advantage. Most of those cars, I would say, the vast majority of them are sold as certified. And that's another key item of being able to be a franchise dealers were able to differentiate ourselves from a certification versus a sort of a car out there. So overall, no, I have not seen any margin pressure from the other used car competitors. .

Got it. Yes. And you can definitely see that in the GPU results. So that's great. I also wanted to ask on the FTC pricing rules, where do things to now, any remaining exposure? Or have you seen a change in competitive dynamics on advertised pricing versus a year ago with this?

No. We have always conducted business the legal and ethical way. So there has been no change from our perspective. I think the only change that I would tell you from a market level is excited to the fact that they put therapy in a level playing field. And I think that it is very well received and the right thing to do, not just for the industry, but for the consumer.

Our next question comes from John Babcock with Barclays. .

I just want to quickly hit on parts and service here. So obviously, the margin has been quite good for the last year or so. And I'm just wondering how much more you might be able to squeeze out of that and especially if you do see a reverse on warranty, which seems like it's still growing, at least in the low single digits. And -- on top of that, if you could also just talk about -- because in the slide deck, I noticed you provide something that shows the dollars per repair order for plug-in hybrid EVs and also battery EVs. And I was just wondering how we should think about gross margins for those? Like if that necessarily means that gross margins are higher or maybe we shouldn't look that way.

Yes. I think I think gross margins will kind of hang where they're at. The only caveat to that is as we continue to increase used vehicles, because we have to eliminate the revenue on used vehicles but keep the gross profit in there. that has a pretty meaningful impact on increasing the gross margin as we increase the used vehicle volume. As we go into the fourth quarter, then on to 2027 and kind of crank up the volume on used, that will help the margin partner service because it's kind of gross profit with no revenue.

John, on the -- just to give you some color on the BEV dollars per RO, we're averaging about, call it, $350 or more higher than the average ICE vehicle .

And the margins and -- the margins are probably pretty similar between the buckets. It's just the amount of work that has to be done on those EVs right now. We do expect over time as the technology gets better and better that the they kind of come more in line with each other. But right now, there is, I'll call it, lots of early-stage repairs that have to be done because of this new technology.

And -- and my next and last question is just on the M&A front. And I know you talked -- have talked in the past about pulling back on that this year, just given leverage and you're at 3.4x now. So still a little bit above your target. But on the other hand, dealers have talked about how the M&A market looks pretty good and there's a decent amount of assets out there. And so I was just wondering how you're thinking about the M&A side of things for the balance of the year.

We review the deals that are out there. We have reviewed a few deals during the quarter. But again, our priorities are very clear to us. And right now, it is to complete the roll out of Tekion. And then number 2 is to improve operational improvement specifically on our same stores. And the good news is Chambers is about to be counted as a same store here as we go into the fourth quarter. So we continue to see them if -- and we continue to analyze them, but that is where our key priority they are right now on those 2 key topics that I'll give you.

And I'll let Michael expand on it from a capital allocation as well .

And then we've kind of shifted to a more balanced approach on capital allocation between share buybacks and acquisitions, along with delevering. [indiscernible]. When you look at the last quarter in terms of share price, it's kind of hard to justify an acquisition versus buying back your own shares, just at the price we're trading at. And so I think as prices get back to normalized levels, I think the acquisition or share buybacks of equation may change a little bit. But definitely, the current pricing, our thinking is the share buyback represent a better return for our shareholders than some of the acquisitions we've seen.

[Operator Instructions] Our next question comes from David Whiston with Morningstar.

I was just curious on negative equity. Has that become more of a problem this year than last year as used vehicle pricing has come down just a little, and is it at all particularly a pressure point in certain light truck segments?

David, this is Dan. For as long as I have been in the industry, when I was selling cars, negative equity has been a part of the business. I have not seen anything of an uptick that is outside of the norms. So no. And we have as you know, there's different ways to help the consumer have a negative equity, but you're always going to have the one-off scenario where somebody has too much negative equity that they can't trade at that particular time. on this, it requires a tremendous amount of cash down, but nothing that is out of the ordinary of what the averages have been in the past.

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

When I look at Total Care Auto and I look at your slide of the CONE noncash deferral, last quarter, you were expecting negative $0.66 -- sorry, excuse me, you're expecting a negative now positive for the year. I'm curious what changed there and then you're not putting out the outyears anymore, but I guess, is it reasonable to assume that we stay positive in out years? Or was this just a deferral as you focus on Tekion and the other things going on?

I mean this is -- it's just the volume. The volume plays out with the Sorbent a little bit lower. -- and then used vehicle volume being lower than we anticipated. That had a positive impact on TCA deferral as we crank up the used vehicle volume in the fourth quarter and then on into next year. you'll see -- we'll probably go back to a negative position at some point. And then also we roll out chambers later this year as well, which will have a hit on the deferral.

So we still think we're negative in the out years. We're waiting to see kind of a SAAR forecast for the 27%, 2029. So as we get towards the third quarter, fourth quarter as we have a better view of those out years, so our forecast looks like. we'll update the out years at that point. Just right now, it's kind of hard to look and say what SAAR going to be in '27 and '28. So it's more a volume difference, were just lower volume than we anticipated. That has a benefit or results in a lesser deferral impact on TCA until that volume starts to catch up to us.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Dan Clara for closing comments.

Thank you for joining our second quarter earnings call. We look forward to seeing you in the third quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Asbury Automotive Group First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Chris Reeves, Vice President of Finance and Treasurer. Thank you, sir. You may begin.

Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to the Asbury Automotive Group's First Quarter 2026 Earnings Call. The press release detailing Asbury's first 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 Chief Operating Officer; 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 and will be available later for any follow-up questions.

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 31, 2025, 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. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated Investor Presentation on our website, investors.asburyauto.com, highlighting our first quarter results.

It is my pleasure to now hand the call over to our CEO, David Hult. David?

Thank you, Chris, and good morning, everyone. Welcome to our first quarter earnings call. Our first quarter results highlighted efforts to transform our business by optimizing our portfolio and successfully migrating to Tekion. Today, over 50% of our stores are running on Tekion. We remain on track and anticipate to be fully converted by the fall of this year, after which time we expect to begin fully realizing the cost and efficiency benefits enabled by the new technology platform.

The first and second quarter of this year represent the peak in terms of number of stores making the transition. As a result, costs related to integration and temporary disruption to store operations will also remain elevated as team members become fully acclimated to the new technology. Michael will provide additional color behind the transition and its impact on our financial performance.

The first quarter also showcased a number of capital allocation decisions, which Asbury -- which position Asbury for future success while also returning capital to our shareholders. We divested 10 dealerships and a collision center at attractive multiples, representing approximately $600 million in annualized revenue. $147 million of the proceeds went towards repurchasing 678,000 shares of our stock with the rest directed towards reducing our debt. In our view, our trading price undervalues the earning potential of the company, and we took advantage of this price-to-value dislocation to accelerate our repurchase activity.

Moving on to our first quarter 2026 operational performance. Our results reflect the expected decrease in volumes as consumer demand moderated from last year's tariff-driven spike in sales. More challenging weather was also a factor as was the temporary disruption for the stores going through the Tekion conversion.

While new vehicle volumes were down, gross profit on a per unit basis held up well. On an all-store basis, new vehicle PVRs were down just $73 sequentially and $177 on a year-over-year basis, an indication profitability is beginning to approach normalized levels. Similarly, used vehicle PVRs on an all-store basis was $1,847, which is up sequentially 5% and 16% year-over-year as the team continues to execute our strategy to maximize per unit profitability.

Parts & Service had a more challenging quarter, driven by a variety of factors, including weather, a more cautious consumer and temporary disruption from our DMS transition. That said, we still expect fixed operations gross profit to grow at mid-single-digit rate over time.

And now for our consolidated results for the first quarter. We generated $4.1 billion in revenue, had a gross profit of $727 million, a gross profit margin of 17.7%, an expansion of 22 basis points. We delivered an adjusted operating margin of 5%. Our adjusted earnings per share was $5.37, and our adjusted EBITDA was $207 million.

Before I hand the call over to our incoming Chief Executive Officer, Dan Clara, I want to take a moment to thank our team members for helping to make Asbury Automotive the company that it is today. Together, we have transformed our organization from a regional player to one with national scale in highly desirable markets, a balanced portfolio and a leader in technology-focused investments. It has been an honor and a privilege to serve as the steward of this business for the past 8.5 years.

And I know our best days are ahead with Dan running the company. Dan, I will hand things over to you to discuss our operational performance in more detail.

Good morning, everyone. Thank you, David, for the kind words. I feel I can speak for everyone here in saying that Asbury would not be as strong as it is today without your vision for growth and seeing the potential in this company. We all wish you the best in your next role as Executive Chairman.

And now moving on to the quarter. I would also like to thank the team members for handling the challenges that were thrown at them this quarter, including severe winter weather in nearly all our markets and across multiple weekends. Our teams have been working diligently to make the transition to Tekion a smooth process, and we are pleased with the early progress our stores are making.

Changing the DMS is a complex endeavor for any dealership group, let alone one of our size, but it is necessary in order to elevate the guest experience and enhance our capabilities for strong operational performance. As an example, we converted the Koons dealerships last summer, and they are starting to show the power of the software. For that specific group in March, we saw gross dollars per technician up 21% year-over-year and average productivity per service adviser up 16%. We are seeing efficiencies extend beyond the service bay as support costs in the stores decreased by 5% at the same time.

And now I am going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis, unless stated otherwise. Starting with new vehicles. Same-store revenue year-over-year was down 9%. While we believe the winter weather impacted sales activity, we are also monitoring consumer behavior in light of ongoing geopolitical events. New gross profit per vehicle was $3,061 as luxury maintained GPUs in line with the prior year and import and domestic moderated as expected. On an all-store basis, which includes the positive impact of the Chambers platform, new gross profit per unit was $3,271, only down $177 year-over-year. Across all brands, our same-store new day supply was a healthy 54 days at the end of March, which we believe support resilient gross profit per unit.

Turning to Used Vehicles. First quarter total used gross profit was up 1% sequentially. Used retail gross profit per unit was up 12% at $1,828, a $201 increase over the prior year and a $79 increase over our reported fourth quarter 2025 number. Our efforts in used continue to pay off. This represented our second consecutive quarter of progress in growing GPUs. We have seen sequential increases in GPUs in 6 out of the last 7 quarters, thanks to our teams executing more consistently. We anticipate the pool of used vehicles will increase through the year, aided by lease return activity, which can give us the opportunity to increase volume and maintain this level of PVR. Finally, our same-store used DSI was 30 days at the end of the quarter, down from 35 days at the end of the fourth quarter.

Shifting to F&I. We earned an F&I PVR of $2,307. The non-cash deferral impact of TCA was $45. So without the year-over-year impact, the PVR would have been $2,351. We are on track to implement TCA in the Chambers stores by year-end, which will complete our rollout across all our platforms. And finally, in the first quarter, our total front-end yield per vehicle was $4,806. On an all-store basis, our front-end yield was up $70 year-over-year at $4,921.

Now moving to Parts & Service. Our same-store Parts & Service gross profit was down slightly year-over-year due to slowdowns associated with the winter storms. In addition, it is also important to note that when we convert stores to Tekion, there is a short-term effect of adjusting to the new software at the store level. We believe it takes about 4 to 6 months to overcome the muscle memory of the legacy software and start to see efficiencies take hold like those I mentioned earlier.

Now going back to the quarter's results. Customer pay gross profit was up 1% with warranty gross profit higher by 3%. During the month of March, we generated 4% growth for both customer pay and warranty gross, which was encouraging to see. April to date is trending similar to March. Overall, we believe our stores are well positioned for the extended period of growth within Parts & Service, supported by the aging car park and increased vehicle complexity.

Before I pass the call to Michael, I want to thank the team again for your hard work to deliver a guest-centric experience and striving for improvement to unlock further performance. And with that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Dan, and good morning to our team members, analysts, investors and other participants on the call. For our financial performance in the first quarter, adjusted net income was $102 million. Adjusted EPS was $5.37 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.26 per share. Our adjusted EPS would have been $5.63 without the deferral impact.

Adjusted net income for the first quarter of 2026 excludes net of tax net gain on divestitures of $94 million, $5 million related to Tekion implementation expenses, $3 million of weather-related losses and $1 million related to the duplicate DMS-related expenses. In our consolidated results, we estimate that the weather-impacted gross profit by $19 million and EPS by $0.56.

As stated in our press release this morning, during the quarter, we divested 10 dealerships and terminated 7 franchises, which included exiting the Alfa Romeo and Maserati brands. Combined, these stores generated an estimated annualized revenue of $625 million. Adjusted SG&A as a percentage of gross profit on a same-store basis came in at 66.9%, which includes $2 million related to legal expenses for a specific matter. In March, we saw adjusted same-store SG&A in the low 60s. So we believe the SG&A number would have been more solidly within our expectations for mid-60s range without the severe weather headwinds.

As Dan mentioned, there are some frictional costs associated with changing our DMS that will take time to work out. In the short term, the stores are slightly less efficient in the first 2 months of operating in the new DMS. In months 4 to 6, we see this work become more efficient. It is encouraging to see our team members lean into the tool and embracing the operational improvements the new platform can provide. Overall, we believe any short-term headwinds are outweighed by the benefits to come.

Before I move on, I will note that the onetime implementation costs at the stores and the cost of duplicate software have been adjusted out of our non-GAAP SG&A numbers as shown in our press release this morning.

Next, the adjusted tax rate for the quarter was 25.1%. We also estimate the full year 2026 effective tax rate to be approximately 25%. TCA generated $15 million of pretax income in the first quarter. The negative noncash deferral impact for the quarter was $7 million. We generated $166 million of adjusted operating cash flow during the quarter. Excluding real estate purchases, we spent $46 million on capital expenditures in the first quarter and still anticipate approximately $250 million of CapEx spend for both 2026 and 2027.

Adjusted free cash flow was $120 million for the first quarter. We ended the quarter with $1.2 billion in liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding cash at Total Care Auto. Our transaction adjusted net leverage ratio was 3.2x at the end of the first quarter.

As David mentioned, we took opportunities to optimize our portfolio through strategic transactions. Our divestitures in the quarter also reduced our CapEx burden, further allowing us to deploy cash to higher return options. The proceeds of the divestitures, combined with the robust cash flow in our business allowed us to balance our capital allocation priorities, both reducing our debt level and repurchasing 678,000 shares. Our diluted share count is approximately 18.6 million shares before adjusting for any future buybacks.

And finally, before we open to Q&A, I would like to thank David for his years of valuable leadership. David guided Asbury through a new level of growth and instilled the team focused and guest-centric culture that makes Asbury what it is today. And with that, this concludes our prepared remarks.

We will now turn the call over to the operator and take your questions. Operator?

[Operator Instructions] Our first question comes from the line of Jeff Lick with Stephens.

David, I just want to extend my thanks and you'll be missed. But since we've got you, I was wondering if -- look, 1Q was obviously a pretty noisy quarter on a variety of fronts, weather being one of the most. I wonder if you can maybe just give a state of the union of kind of where we are for yourselves and the industry in 2Q, just thinking about new and then new has some implications for used. And then obviously, Service & Parts was a little lumpy. I mean you did mention it was up in March. But just kind of where do you think things stand now that the tax refund season is over? And obviously, we're not going to be getting any more the rest of this year.

Sure, Jeff. I'll take a shot and Dan can jump in. January and February were really rough for us from a weather perspective, and we got far behind the April at that point. Before the weather started hitting in mid-January, we were actually pacing well in the first half of January. And then once we got hit with all the weather, we kind of didn't recover.

March was a good sign for us. Last March and April were extremely strong with the tariff presales for lack of a better term, but we really bounced back. And to Michael's comment, being in the low 60s for SG&A from March was a tell-tale sign for us.

We see the same going into April. Very difficult to predict much beyond that with what's going on with the war and gasoline prices and other things and how long that lingers. One would think the longer that lingers, the more impactful that's going to be on our business. We're definitely feeling the slowdown. It's not all the same by brand, but we're still seeing a slowdown in new car sales into April as well.

And just think, top-level, we're essentially back about 4,300 units or so in the quarter on new on a same-store basis. Roughly, you're going to take in $2,300 to $2,500 trade-ins on those $4,000 and you're going to retail 80% of those cars. So there's a chunk of preowned that we normally have internally to sell that we don't have. So it will be a balancing act in the next few quarters if new doesn't pop back where we're going to source vehicles, but I think Parts & Services is going to bounce back nicely and continue to grow as the year goes on.

It does take us 4 to 6 months with Tekion to get the muscle memory right in the stores. It doesn't matter the market or the brand. It's just human behavior takes time. But once you get past that 6-month window, you can really start to see some efficiencies as to why we would make this change in the DMSs. We do believe it makes our folks more efficient and more productive while certainly lowering our costs at the same time. I don't know if there's any you want to add?

I think you covered it well. Nothing to add.

And then just a quick follow-up for Dan maybe is as you -- I wonder if you could just give us one thing with Tekion where you look at it and say it manifests itself in financial benefit where you say, you know what, we're making the right decision here. Yes, it might be a little noisy for 4 to 6 months. But when you start to look at our P&L a year or 2 years from now, we made the right decision. I was wondering if there's one thing you could highlight.

Yes. I think, Jeff, I think I covered it just one example of several that we're seeing earlier today. When you think about the efficiencies to -- that the new software brings, when you look at the gross dollars per technician being up 21% at Koons and the average productivity per service adviser up 16%. And then you add the fact that support cost has also decreased, it's a pretty nice mix and aligned with what we expected. And then to put icing on the cake, the guest experience is definitely improved upon by the ease of use in the technology, the ability to enhance how fast that guest can be served. So we believe that it definitely gives us a competitive advantage that we need for the future, and it is definitely the right thing to do.

Our next question comes from the line of Rajat Gupta with JPMorgan.

And David, best of luck and hope to catch up at some point again. I wanted to just follow up on some of the first quarter results, especially around the new car units and even used car. Of the 11% same-store decline and the 12% in used, is there any way to break up how much of it was weather? How much of it was just the Tekion productivity? And then how much of it was market? Any way to parse that out would be helpful. And I have a quick follow-up on SG&A.

Yes. Raj, this is Dan. I'll start it. On the -- when you look at the weather impact, I'm talking about from a same-store basis, we believe the snow closure in Q1 affected us somewhere in the 500 car range and similarly in used car volume. And then when you go down to the fixed revenue as well, obviously, that had a tremendous impact, somewhere on a same-store basis, somewhere around a $13 million impact. So it was a significant impact.

And as you know, when we have weather-related issues, it's not just the day that we're closed, it's the days leading up to with all the media frenzy that happens and the days after the fact recovering. David was in the Northeast at that time. And as you know, the Northeast was hit pretty severely and there were piles and piles of snow. So it was definitely a big impact. But glad that it's behind us and glad that March showed that we are directionally correct and glad that April is similar to March so that we can continue to build on the momentum.

And how much do you think you lost due to like just the Tekion rollout in 1Q because you'll probably close the store for like a day and like the Monday. I'm curious if that had any meaningful impact on the units. I know it probably impacted services, but anything on the units that you could flag?

So yes, on the -- I don't have the exact number, Michael, we have not shared that number. But on -- you bring up an excellent point because when we roll out the Tekion stores, we go through the conversion Saturday and Sunday, and we close operations on that Monday. So that is definitely a day that we lose from being able to serve our guests. And then Tuesday, we reopened. But again, that's a completely new system. We're much lower than what we used to be until we develop that muscle memory that like I explained earlier, it takes between 4 to 6 months to get back to the efficiency levels.

Got it. Got it. And just to clarify on Mike's comments on SG&A on the call -- in the prepared remarks, I think you mentioned mid-60s, excluding the weather headwinds. I just want to make sure we heard that correctly. And is it mid-60s even excluding some of the productivity losses from the DMS transition? I'm curious like what's a good steady-state number post Tekion? If you did not have weather, if you did not have DMS transition, what would have been a good steady-state SG&A to gross number in the quarter?

Yes. I think based on the March results that we saw that we were in the low 60s, I think mid-60s without the weather would have been the right number for the first quarter. So we're still comfortable in that mid-60s range going forward. And then at some point in the back half of the year as we start to see the Tekion efficiencies come through. I don't know if that's fourth quarter or where that shakes out, but sometime we'll start seeing an approach toward the mid-60s after we get the Tekion efficiencies running through the system.

Got it. Got it. Just a final one on buybacks. Given the fact that you're ramping up buybacks here, while EBITDA is coming down, I'm curious, is this just -- is this you taking a view on the benefits of the Tekion rollout and the benefits you might see into '27 and beyond that's giving you that confidence given like the cyclical backdrop still looks a bit choppy here. So curious like just the thinking around the buybacks ramping up.

So a couple of things in there. In the first quarter, we disposed of the stores, and so we used those proceeds to buy additional shares in the quarter. But also as the share price continue to dislocate and get to low levels and attractive prices for us, we took a view that we needed to take advantage of that stock price. We do think the back half of this year and into '27, the EBITDA comes up dramatically with the Tekion rollout behind us. And so we're kind of trying to balance the leverage ratio and the share buybacks. And if the share price is low, we're going to lean in a little bit on share buybacks.

[Operator Instructions] Our next question comes from the line of Glenn Chin with Seaport Research.

Just another follow-on related to Tekion. Can you just confirm for us sort of the contour of the Tekion impact throughout the year? Do the costs and inefficiencies from the transition peak in 2Q?

No. So if you think about just the stack-up effect, we have first quarter was pretty heavy rollouts. 2Q has a decent amount of rollouts and then we go kind of handle the west in 3Q. And so just the stack of all the stores, if you think about that 4- to 6-month window, it will probably peak in 3Q. At some point, call it, sometime in 4Q, we should be able to flip over the -- we have more stores that are past the 4 to 6 months. But I would say the peak of it is going to be very late 2Q into 3Q is kind of where the peak will be.

Okay. Very good. And then I understood that you're going to adjust out sort of the explicit costs from Tekion those time line around those, Michael, is also same?

No, it should be similar. 2Q and 3Q, 2Q probably has a few less stores in it and 3Q has a few more. So just from an implementation cost perspective, it will be in a similar ballpark to 1Q, but maybe a little lighter in 1Q and similar in 3Q when you compare it to 1Q.

Okay. Very good. And then I think, Dan, you mentioned in your prepared remarks as well as last quarter, just hesitation around the consumer with respect to Parts & Service. Can you just -- any further elaboration on that, if you will?

Yes, Glenn, we saw a pullback, as you mentioned, in Q4 going into Q1, there's a lot of uncertainties going on out there. So I would say that it is somewhat consistent, but there's -- keep in mind, there's a new war that has started that is with oil prices at an all-time high, is just keeping people on more of the defensive side of it. But again, when I go back into my remarks earlier today, it's encouraging to see what we saw in April, customer pay up and seeing that same trend going into April -- I'm sorry, in March going into April.

David, we'll miss you. Good luck with everything and your new position.

Our next question comes from the line of Alex Perry with Bank of America.

I guess just first, I wanted to double-click a little bit more on sort of the current state of demand with where gas prices have gone and just the impact of consumer confidence. On the new vehicle side, when did you start to see the slowdown? Is that more sort of an April comment? And is that just on new? Are you seeing any impact to mix yet in terms of the mix of vehicles that consumers are buying? And what are you sort of seeing on used?

Yes. On the new car, it really goes back to -- I mentioned this on the fourth quarter. There was -- we didn't really get the pop for a lack of a better term that we get in December. January, as David mentioned earlier today, the first half of January before we got hit with the weather, we were pacing okay. And then we just never recovered from the weather.

So from a new car perspective, I will tell you that really after the weather never recovered, February about the same in March, the same trend continued. From a mix, typically, when you see gas prices hit the levels where we are right now, it usually takes 5 to 6 months for consumers to start really changing their buying habits. We have not seen that. And what I mean by that is the consumer that is going to trade in a Chevy Tahoe for a Honda Civic or what have you. We have not seen that, but the longer the war goes, I think the closer we're going to be getting to see a shift in consumer behavior, but we're not there yet.

And from a used car standpoint, the demand of used cars is there, especially with the difference in the cost of sale between a new and used car. When you factor in all the items that have gone up, insurance rates, the average cost of maintaining a car. When you look at all that, the demand is definitely there for used cars. We strategically have made the decision to not chase the volume and to maximize the gross profit.

And as we showed in Q4, we were ahead in gross profit. Q1, when you look at March, again, even though we were backwards in volume, our gross profit was ahead year-over-year for used cars. So we believe strongly that, that is the right strategy to continue to execute. And as the availability of used cars become readily available as we move throughout the year, then we can pull that lever while still protecting the margins that we have delivered over the last few quarters.

Got you. Got you. That makes a lot of sense. And then I guess I just wanted to ask a little bit more on the parts and service trend. If we think about comps from here, I think you mentioned them rebounding earlier in the call. Is that primarily a factor of just getting past the weather impact? Is there something you're seeing in terms of sort of delayed effect from people that would have came in the first quarter starting to come in? Like can you just maybe talk about how you think about the Parts & Service and what sort of drives that rebound?

Yes. The Parts & Service, we've always been saying mid-single digit. We have a -- we've developed a very strategic plan to go and grow our fixed operations, meaning Parts & Service. And no different than what we've done with used cars. It's about the execution.

When you think about -- and you can see it on the IR deck, the average miles coming through our shop are -- continue to be in that 70,000 mile range. So that gives us a lot of stability that we are retaining the guests and obviously, that we have the opportunity to continue to maintain those cars for those customers.

And the last factor that I see tremendous potential is growing the CPRO count and really focusing on what we call the cycle time, how fast can we serve our guests, which is also one of the benefits that I mentioned earlier of going to Tekion. The faster we get that guest in and out, the higher the retention and the higher propensity for that customer to come back and do business with us and the more throughput that we can push through our service departments.

Our next question comes from the line of John Babcock with Barclays.

I guess just first of all, I was wondering if you could talk about Herb Chambers, how the integration is going there and if there's anything new to share on that front? And then also, if you can just remind us when you're planning on implementing Tekion into that business.

Herb Chambers integration is going well. We are very happy with the talent, the people. We got some great team members, great stores. And what they have built together is impressive and now is up to all of us to work together as a team to take it to the next level. Tekion rollout at Chambers started last month. We've already converted. I think we have 22 stores, 22 or 24 stores, call it, in the 20 range. With the rest of the stores, I think we have 8 more that are going to be converting in the month of May -- or June, I'm sorry, in the month of June. So by June, Chambers will be completely converted to Tekion.

Okay. And the next question, just on GPUs because you do break it out across luxury, imports and also domestic. And it seems like quarter-over-quarter, there was pretty good stability in luxury and imports, but domestic was down a decent bit. Is there anything we should take note of from those trends or...

Listen, the biggest impact that I'm seeing on domestic side is we still have the headwind of Stellantis. We are well aware of it. We're focusing on performing better with Stellantis, getting that inventory turned and maximizing the gross profit. But it really -- the biggest impact in the domestic was our Stellantis stores.

Okay. Very helpful. And then just my last question. Just I was wondering if you could share how much, if any, shares you bought back in April?

Yes, any shares we would have bought back in April would have been disclosed as part of the press release. So we did our share buybacks early on in the quarter, took advantage of some share prices then. And so that all those shares were kind of purchased January through March.

Our next question comes from the line of Bret Jordan with Jefferies.

On the Stellantis, are you seeing any improvement in the trend? I mean it seems as if maybe they're making some product adjustments or maybe pricing adjustments. Are you seeing any traction there? Or is it pretty much the same?

From a high level, there is -- there are changes being made that make total sense and it is a step in the right direction. But it's a double-edged sword because when they make those changes, I'll give you an example, they adjust the pricing for the new models coming in, but we still have the same model that is a year older and that is more expensive than the new model coming in. And so that is where there is some pressure to the margins to be able to make sure that we liquidate that old inventory under the old pricing structure to make room for the new decisions that the management team is making.

Okay. And then I guess on the Parts & Service side of the business, you had a pretty hard warranty comp year-over-year. Could you sort of talk about what you're seeing? Are there any major warranty programs that are popping up that might give you some tailwinds in volumes in the balance of this year?

Yes. We had some big warranty comps. I'll tell you one of the -- I don't want to say surprises, but one of the, I guess, obstacles that we faced is one of our import OEMs had a major decrease in warranty issues last quarter, which obviously, warranty is something that we don't control. So we happily service the customers when they come in, but it's really outside of our control.

Moving forward, we've seen some of the domestics that have issued some recalls and some additional warranty work. But it's hard to tell. Like I said, warranty is important. I pay attention to it, but I cannot control it. That's why our focus is always on the customer pay. We'll just happily serve the guests when the OEMs have any warranty issues.

Our next question comes from the line of Ryan Sigdahl with Craig-Hallum.

This is Matthew Raab on for Ryan. Just want to go back to the new GPUs, maybe putting a finer point there. We've talked in the past about settling out in that $2,500 to $3,000 range. You're at $3,271, it feels like inventory is pretty rational and you're certainly getting the benefit of the Herb Chambers mix. I mean at this point, is there any reason why GPUs can't settle out near the higher end of that range? And if you have any expectation for new GPUs for '26, whether it's a year-end number or a quarter-over-quarter decline through the rest of the year, that would be great.

Matt, thank you. Great question. And I agree with you. I think for the last several quarters, we've been talking about $2,500 to $3,000. We believe now that, that number is moderating, and it is closer to that $3,000 range. So to your point, excellent question.

We have no further questions at this time. Mr. Hult, I'd like to turn the floor back over to you for closing comments.

Thank you, operator. We appreciate everyone joining our first quarter earnings call, and the team here looks forward to discussing our second quarter results in the future. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to the Asbury Automotive Group Fourth Quarter 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Chris Reeves, Vice President of Finance and Treasurer. Please go ahead.

Thanks, 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 fourth quarter 2025 earnings call. The press release detailing Asbury's fourth 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 Chief Operations Officer, 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 be available later for any follow-up questions.

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 upcoming Form 10-K for the year ended December 31, 2025, 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. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated Investor Relations presentation on our website, investors.asburyauto.com, highlighting our fourth quarter results.

It is now my pleasure to hand the call over to our CEO, David Hult. David?

Thank you, Chris, and good morning, everyone. Welcome to our fourth quarter earnings call. As I said in our earnings release, 2025 was a productive year for Asbury. We grew the size of our business, both in terms of revenue and in the geographic areas of the country in which we operate, acquiring $2.9 billion in revenue. More importantly, the composition of our portfolio continued to improve through strategic divestitures. Because of the discipline in running our business, we were ahead of where we thought we would be from a leverage perspective at 3.2x versus our forecast of 3.5x.

We deployed $186 million in CapEx and continued our share repurchase efforts, buying back $50 million in shares for the quarter and $100 million for the full year. We transitioned 15 additional stores onto Tekion during the quarter, ending the year with 38 stores operating on our new DMS. Managing our portfolio and allocating capital to areas that generate the greatest returns for the business and our shareholders has long been a core pillar of Asbury's strategic plan, and I am proud of the team's efforts to both grow the company and maintain our focus on expense control. Moving into 2026, we are confident these collective investments and the strength of our team position us to win, delivering value to our guests and returns to our shareholders.

Next, I'd like to highlight some same-store operating metrics for the quarter. New Vehicle sales volume were a reflection of prior year post-election surge. PVRs on new vehicles continue to normalize, and we reiterate our view that new vehicle profitability will eventually stabilize in the $2,500 to $3,000 range. In Used Vehicles, we are beginning to see the results of our efforts to improve our performance. And while volumes continue to reflect a supply-constrained environment, gross profit rose 6% year-over-year with Used Vehicle retail PVRs up 18%. On the ground, we noticed a pullback in consumer spending in Parts & Service. However, we are optimistic about the outlook and positioning of our fixed operations business. Later in the call, Dan will provide additional details on our operational performance.

Our same-store adjusted SG&A as a percentage of gross profit was up 162 basis points versus prior year, reflecting the impact of lower New Vehicle profitability. We remain committed to operating our business in the most efficient way possible, and we'll continue to adjust our cost structure as business conditions change.

Moving to capital allocation. We divested 4 stores in the quarter and are on track to divest another 9 stores by the end of the first quarter. These 13 transactions collectively representing $750 million of annualized revenue, are at attractive multiples and will further accelerate our path to reducing our leverage, giving us additional flexibility to pursue share repurchases. We expect to continue our repurchasing activity in 2026, the pace of which will be dictated by our share price, leverage profile, economic conditions and trade-offs with strategic tuck-in acquisition opportunities.

And now for our consolidated results for the fourth quarter. We generated a fourth quarter record of $4.7 billion in revenue at a gross profit of $793 million, also a fourth quarter record, a gross profit margin of 17%, an expansion of 31 basis points. We delivered an adjusted operating margin of 5.4% and our adjusted earnings per share was $6.67. Our adjusted EBITDA was $250 million. I'm proud of what the team accomplished in 2025. And with the foundational investments we've made in our business, I'm excited about the path ahead for 2026. Now Dan will discuss our operational performance in more detail. Dan?

Thank you, David, and good morning, everyone. I would like to start off with a thank you to the team for the positive momentum going into this year as we undertook a number of growth objectives in 2025. Thank you.

Looking back at the fourth quarter, we increased our same-store used gross profit, thanks to our continued progress and execution by our team members. We also rolled out Tekion to an additional 15 stores during the quarter and in January, added 8 more stores, which brings our current count to 46 or more than 25% of our portfolio. And on an all-store basis, we can see the positive lift from the Chambers Group in our new and used PVRs. And now I'm going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis unless stated otherwise.

Starting with New Vehicles. Same-store revenue year-over-year was down 6%, which followed the SAAR contraction of 5%. We faced a tough comparable from last year's post-election surge and the pull-forward effect of demand earlier in the year. We did see some disruptions in our DC market as expected. New average gross profit per vehicle was $3,135, a slight decrease sequentially as import brand PVRs gave some ground but were offset by the seasonal strength in luxury. Across all brands, our same-store new day supply was 49 days at the end of December versus 58 days at the end of the third quarter. All 3 segments were at lower days supply versus the previous quarter, led by several luxury brands in the domestics. Through 2026, we will manage our business based on what we're seeing in our markets and execute accordingly.

Turning to Used Vehicles. Fourth quarter total used gross profit was up 6% year-over-year. Used retail gross profit per unit was up 18% at $1,749, a $271 increase over the prior year and a $198 increase over our reported third quarter 2025 number. Our same-store used DSI was 35 days at the end of the quarter, in line with our DSI at the end of the third quarter.

Shifting to F&I. We earned an F&I PVR of $2,335. The noncash deferral impact of TCA was $105. So without the year-over-year impact, the PVR would have been $2,440. We plan to implement TCA to the Chamber stores by year-end to complete our rollout across all platforms. And finally, in the fourth quarter, our total front-end yield per vehicle was $4,897, up $259 sequentially.

Now moving to Parts & Service. Our same-store Parts & Service gross profit was up 2% year-over-year. When looking at our customer pay and warranty performance, customer pay gross profit was up 3% with warranty gross profit higher by 6%. We lapped tough double-digit comps in both customer pay and warranty, which in 2024 were up 13% and up 26%, respectively. For the quarter, we generated a gross profit margin of 58.1%, an expansion of 13 basis points. On an all-store basis, this was a record fourth quarter for our Parts & Service business as total revenue grew 12% to $658 million. We remain optimistic about the trends we see supporting the long tail of Parts & Service operations. The average age of the car on the road, combined with the increasing complexity of technology in vehicles positions us to reap the benefits of this large addressable market. We believe we're well positioned to unlock meaningful efficiencies as we navigate our journey to becoming the most guest-centric automotive retailer, enabled by the hard work of our team members and continued investment in technology. Thank you.

And with that, I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Dan, and good morning to our team members, analysts, investors and other participants on the call. For our financial performance in the fourth quarter, adjusted net income was $129 million. Adjusted EPS was $6.67 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.31 per share. Our adjusted EPS would have been $6.98 without the deferral impact. Adjusted net income for the fourth quarter of 2025 excludes net of tax, noncash asset impairments of $87 million, net gain on divestitures of $26 million, $5 million related to the Tekion implementation expenses, $3 million related to noncash fixed asset write-offs and $1 million of professional fees related to the acquisition of Herb Chambers Automotive Group.

We divested 4 stores in the quarter, which generated an estimated annualized revenue of $150 million. Adjusted SG&A as a percentage of gross profit on a same-store basis came in at 64.1%. We feel confident in our ability to manage overall cost over the next few quarters as we progress the Tekion implementation across our stores and navigate normalizing New Vehicle unit profitability.

The adjusted tax rate for the quarter was 25.8%. We estimate the full year 2026 effective tax rate to be approximately 25.5%. TCA generated $12 million of pretax income in the fourth quarter. The negative noncash deferral impact for the quarter was $8 million. Our updated TCA slide in our presentation reflects the rollout to Chambers during 2026, the disposal of our held-for-sale assets and revised our estimates based on external forecast. Now moving back to our results.

We generated $651 million of adjusted operating cash flow during 2025. Excluding real estate purchases, we spent $186 million in capital expenditures this year. The assets we sold and have been held for sale allow us to avoid some low-return CapEx to deploy cash for more strategic capital decisions. We anticipate approximately $250 million in CapEx spend for both 2026 and 2027. Adjusted free cash flow was $465 million for the year. We ended the year with $927 million of liquidity comprised of floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding the cash at Total Care Auto.

Our transaction adjusted net leverage ratio was 3.2x at the end of the year. Our results were better than expected from a leverage standpoint, which we believe gives us room to continue with our path of disciplined strategic capital decisioning. And finally, before I finish our prepared remarks, on behalf of everyone, I want to thank our team members for their hard work in 2025, and we look forward to 2026. With that, this concludes our prepared remarks. We will now turn the call over to the operator to take questions. Operator?

[Operator Instructions] Our first question is from Jeff Lick with Stephens Inc.

This is maybe for David and Daniel, kind of pack a few questions into one. I guess if you look at 2025 as your base year, obviously, it's like 3 or 4 years inside of that year. As you now look at 2026 lapping tariffs, lapping the EV credit, you got lease returns, potentially maybe there's -- you guys have highlighted some more GPU normalization. Maybe you could just kind of give us a little road map to how you see things playing out? And maybe if you could give some granularity in terms of the first half and the second half, just kind of the qualitative path of travel, what we should look for as the year progresses?

Thanks, Jeff. This is David. I'll start and Dan can jump in, if he wants. I think we're forecasting to go slightly backwards in SAAR, but SAAR is an overall number that includes fleet and wholesale. And I think it's going to vary by brands. We have a lot of Stellantis stores that were a percentage of our business that were challenging for us in '25. All brands are cyclical, and we believe Stellantis will come back. So hopefully, that will turn into a tailwind for us in '26. we have over 50 stores now in the Northeast. January has been ridiculously tough with weather. So it's been a challenge starting off the year, and we've even had a challenging weather in the Southeast as well.

I would say the first half will probably be a little bit more of a struggle and the second half should start to free up a little bit. I don't know that the tariffs have fully settled across all brands. There's still movement on pricing, and it's yet to be known what incentives will look like in the future. We're optimistic about our Parts & Service business and where that's headed. We've had a lot of distractions in '25 between the acquisition and rolling out Tekion. Now having 1/3 of the company on Tekion and the rest of the company being rolled out by the fall. We think that's going to really bode well for us, not only from a cost perspective, but an efficiency perspective going into '27.

We will have some headwind in '26 paying for both DMSs. And as you can imagine, when you transition a store into a new DMS other than the excessive cost for a period of time, there's a transition getting everyone comfortable with the software and efficient on it. So we think all this blocking and tackling and the heavy lifting we're doing is going to pay dividends going into the future. For us, we probably got 5, 6, 7 months of bumpiness and distraction of going through all of it, but we know the outcome will be very beneficial for Asbury.

And maybe just a quick -- go ahead, Jeff.

No, go ahead.

I was just going to add to David's comments on the -- when you think about from a Used Car standpoint, what we're expecting in the second half with lease earnings coming in, you can see the results of our renewed strategy and execution by the team. So we are very confident that it is working, and that has paved the way for a lack of a better term, to when that influx of inventory coming in that we can pull that lever and execute accordingly while still remaining disciplined to maximizing the gross profit per unit.

And then just a quick follow-up. I mean, because your GPUs are still north of that $2,500 to $3,000 kind of settling range you've talked about. I guess, where do you see -- let's say, you get to the middle of that range, $2,750, where does that come from? How does that decline in GPU manifest itself? Is that more inventory finally getting 3 million units on the ground? Is that because Toyota gives a little back? I'm just curious what -- because you guys have been pretty steadfast to that $2,500 to $3,000 mark. I'm just curious where do you see that further adjustment to come?

It's a great question, Jeff. I think as long as the inventory stays somewhat balanced the way they are, we kind of look at our brand mix and the way the incentives have been tracking. With the divestitures we've had and the several that are coming, our percentage of luxury goes up from 32% to probably about 36% which benefits us overall. I would say if the SAAR was going to stretch and the inventories were going to grow, that puts the most pressure on margins. But we're -- most OEMs are predicting a flat or a little bit backwards here.

We don't anticipate sitting on a high day supply. Now the winter months, you tend to sit on a high day supply because you're coming off a busy fourth quarter and things slow down. But that should normalize over the next quarter or 2. I think we're conservative in our approach when we give estimates at $2,500 to $3,000 based upon our brand mix, but it's also difficult to predict the future. I think the biggest thing that's going to govern the volume this year is what we've all been talking about is the high cost of sale for New, we're over $52,000 in the quarter, and that's a stretch. So when people are stretching into purchasing, it tends to put pressure on margins as well to try and consummate the deal. Dan, I don't know if you have anything you want to add?

No, nothing to add.

Our next question is from Rajat Gupta with JPMorgan.

I just wanted to follow up on Parts & Service. The customer pay growth was a little weaker than we would have expected. I understand the warranty comps. I know you mentioned like you had a tough comp, but I also felt fourth quarter of '24 had some easy compares from fourth quarter of '23 because of the DMS transition. So I'm curious if the customer pay number is satisfactory to you? I mean, is there more opportunity there? Any sense you can give us around the outlook for '26? And I have a quick follow-up.

Rajat, this is Dan. No, we're not satisfied with the customer pay growth. We -- just as it is with Used Cars, we have a renewed strategy in fixed operations that we feel very confident in executing. There -- when you look at the age of the car on the road and then you look at all the technology enhancement that is coming with the new product, we know and we're ready to take advantage of that part of the market. So our forecast remains the same as it's been in the mid-single digits in customer pay like we have been talking about over the last few quarters.

Rajat, this is David. I would add in previous quarters, and I think it's the case for our peers, but I'm not confident, the growth in Parts & Service has been more top heavy on dollars than actual cars coming through the service drive or repair orders. And I made the comment in my remarks, the traffic counts were okay and normal for us. And based upon that, we should have been higher on the dollars. We saw less dollars being spent for the consumer. So it wasn't so much the traffic that took a hit as much as it did what the consumers were willing to spend. And as you can see, because I think we have it in our IR deck, when we talk about how much we're generating per ticket, combustible engine is over $550. These numbers keep going up, which is great, but it also puts a limit a little bit on customers.

But I was shocked to see the pullback in October and November with the dollars being spent. It rebounded in December and January is starting off, the dollars are pretty good again. So I can't explain what happened in October and November. The biggest headwind we have in January is the traffic because of the weather.

Got it. Any preview on the renewed strategy for Parts & Service that you can give us going forward?

I would tell you, Rajat, the biggest thing is there's a massive difference between our current DMS and Tekion, and there's a learning curve there. And our original stores that went on it a year ago are performing better than most of our stores in our company because of the efficiencies and benefits of the software. But when these stores transition to the new software, and now we're up to over 40 stores, it takes them a few months. We actually become less efficient for the first couple of months as they're trying to get used to the software and work out the kinks. So we'll finish the Tekion rollout late in the fall. I look at '27 as a really efficient, productive year for us that you'll notice in both our production with Tekion, but our cost control with Tekion as well.

Understood. That's helpful. And maybe just a follow-up question, maybe for Mike around the leverage. Good to see the progress there. I believe you do have a few more divestitures in the pipeline that you're looking to execute. Any update on that? And how soon can you get below 3x? Is it earlier than '26? Any time line around that would be helpful. And then just related to that, how should we think about free cash flow deployment priorities as well in '26?

Yes. So from a -- we talked about the 9 divestitures that we have out there that will close in the first quarter. And that will free up some cash to get our leverage down some more. So we think kind of by the summer, we'll be below 3x. The only caveat to that would be with where our share price is, we think there's some opportunities to deploy some cash for share buybacks. And so our goal is still to get below 3x by the end of the year. And if we can do that and buy some shares back along the way, we'll kind of balance that as we go throughout the year. But if we just took the cash from the disposals and the free cash flow and put that toward the leverage, we'd be able to get there by kind of the summer of this year.

Our next question is from Glenn Chin with Seaport Research Partners.

Can you just clarify for us the path forward for Tekion? How many more stores you have to transition? It sounds like it will be done by fall of this year. And then to what extent you will incur these double expenses for running two DMSs simultaneously?

Glenn, this is Dan. So we have 125 more stores to roll out. We have 8 more going out -- being rolled out this weekend and then another 8 following the following week. But like David stated, we'll be done by the third quarter of this year. As far as the expense, I'll let Michael give clarity on that.

Yes. So once we roll out a store, you have to kind of -- you can't cancel it right away. You have to kind of roll it out, make sure everything is working, all the data comes across and then we can go cancel the other products. So there's a couple of months of duplicated costs in there when we roll it out. So the first half of this year, you'll see kind of a hit on SG&A for this duplicated cost plus the implementation fees. By the time we get to kind of midyear, we'll roll over and the savings from Tekion will more than offset the duplicated costs. So it's, I'll call it, a front half hit to SG&A and then a back half benefit to SG&A.

And then to David's point, when we get to '27, the efficiency that we're going to see from it, you'll start seeing those as well. So it's -- that's kind of the pace is duplicate costs first half, savings from the software in the second half and then those efficiencies will come in during 2027.

Okay. But then Michael, to clarify, it looks like you adjusted it out for the dual expense you adjusted out this quarter, I guess...

We only adjust out the implementation costs, the cost of having to pay, to do the implementations. And then also in third and fourth quarter of '25, because of the SOX requirements from internal controls around the Tekion software, we had a pretty heavy lift on just, I'll call it, auditors and all those type of IT folks, third parties to help us get over the hump with the initial year of SOX compliance on Tekion. So those Tekion costs is heavy, heavy SOX control and then the implementation cost. We have not been adjusting out the duplicated cost of the software.

Okay. So it sounds like we should expect it to hit even adjusted numbers in the first half. And can you quantify for us how much that might be?

We have not quantified that number, but we can -- we'll work on that for first quarter to give you guys, an insight into the first quarter. It wasn't that material for fourth quarter because we didn't roll out a ton of stores, and we only rolled them out at the very end of December. But in the first quarter, we'll kind of give you how much that -- how much of an impact that was.

Okay. Yes, that would be helpful. Okay. And David, will you be on future earnings calls?

I think I'll be on the next earnings call, and that will probably be it for me.

[Operator Instructions] Our next question is from John Babcock with Barclays.

I did want to ask, I know it's still early in the Tekion rollout here, but with some of the first stores that were put on the system, are you starting to see benefits? Or is it still too early to tell?

John, this is Dan. Yes, we had the first 4 stores where we rolled it out, they were here in Atlanta, and we are seeing the benefits from an efficiency standpoint, from a productivity standpoint, from a guest experience standpoint. And then you can also see the flexibility that it gives us because it is a cloud-based DMS when you're talking about enhancing technology and AI, in conjunction with our internal development team, you get rid of all the bolt-ons and it's a lot easier to enhance the technology to improve the guest experience and efficiencies across the store. So yes, we are...

I'm sorry, Dan. John, one thing I would add, every store we roll out, technicians don't like change. They hate the new software. It's a lot of key changes and it's difficult. But If you went back to the original 4 stores, they would tell you they wouldn't work at a store that didn't have Tekion. So it makes the employees more productive. It increases the transparency between departments, and it also increases the transparency with consumers, which you can visually share with them. So there's a lot of benefits. There's cost savings for sure, but there's productivity benefits as well.

Human behavior takes a little while to change and get used to a new software a new language for lack of a better term. But the early adopting stores that we have are really running efficiently well on it. Costs are lower, productivity is up, which is everything we anticipated.

Okay. And then just next question. I was wondering if you could talk about how -- just broadly how the demand environment feels right now, both for New and Used, if there's any discrepancy between the two? Just generally want to get a sense for what you're hearing from the dealership.

Yes. John, I'll start and David can add. if he wants to. I'll tell you for January, the beginning of January was good until we got hit by the weather. And so that pullback that we saw October, November was not there the first few weeks in January. But after the weather hit us, it impacted us pretty big because that storm came in through Texas, and it basically just follow our path of where we have stores all the way to the Northeast.

Our next question is from Ryan Sigdahl with Craig-Hallum.

This is Matthew Raab on for Ryan. Just quick on TCA. It looks like the SAAR assumptions were changed very slightly in '26 and '27 and the noncash deferral was raised a little bit through 2029. Just what drove that change? And just talk about where TCA stands today? Any color there would be great.

Yes. So on that one, we just looked at the third-party kind of different -- your guys' assessments and the other third-party providers out there for their SAAR projections, and most of the people were coming up 15.8% kind of 16.2% And we originally had that forecast in there based on those third parties at 15.7%. So we just bumped a little bit to 15.9% to reflect kind of the additional color out there from the third parties. And also, that's what we use kind of the base our budget off of, for '26 is that 15.9% number. So small adjustment there just as kind of SAAR, our projections came up a little bit during the fourth quarter.

And the TCA, we talked about it on the earlier in our comments. Our last platform to roll out is Herb Chambers. We're going to roll them out on Tekion, and then following the Tekion rollout, we'll roll them out on TCA, so sometime this late summer probably. And that will complete the rollout to all the stores and then we'll be done with kind of the TCA rollout side of it.

Our next question is from Daniela Haigian with Morgan Stanley.

So kind of on that point of adjusting SAAR forecast, we also saw that Used, you made a comment about supply remains tight. How -- what kind of assumptions are you baking in on affordability, what the consumer is facing this year, consumer credit availability? And how does that flow through into Used? We definitely saw stronger Used margin and then a bit weaker on the volume side. So how does that play out into '26 in your view?

Yes, Daniela, this is Dan. We continue to stick to our strategy of not chasing volume and maximizing gross profit. There's several items that we have been executing on, really limiting the number of acquisitions through the auction and improving the number of cars that we take through the trades or that we purchase from -- directly from our guests. And that is working well. That's where you see how we're maximizing the PVRs and the impact that it had in the fourth quarter. There -- the average cost of our used car being over $30,000 is definitely something that we're focused to bring down because we know that the lower the cost of sale, the faster that inventory turns.

And we believe that the opportunity to do that is going to be on the second half of the year, as lease turn-ins start to come in, we have better availability of inventory flowing and then we can really pull the lever if the availability of inventory is there, we can pull the lever of going after the volume while still maintaining our strict discipline on the gross profit per unit.

;

Got it. And then second is just on your EV outlook for the year. Obviously, there's a big deceleration following the removal of the tax credits. Do you believe your inventory levels here are sufficiently rightsized? Or is there more room for that to play out?

I will tell you that overall company-wide, I would like -- I would say our EVs inventory is rightsized. There we have pockets, specifically Colorado, where there was a high demand for EVs that we have a little bit more inventory than I would like to. But overall, it's been rightsized. And in the fourth quarter of '24, our EV sales were like 5% of the total sales. And in the fourth quarter of '25, it was about 2%. So -- and I would expect that to continue as we go into '26.

There are no further questions at this time. I would like to turn the floor back over to David Hult for any closing comments.

Thank you. We appreciate everyone joining our fourth quarter earnings call. We look forward to speaking with you after the first quarter. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

Greetings, and welcome to the Asbury Automotive Group Q3 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It's now my pleasure to turn the call over to Chris Reeves, Vice President, Finance and Investor Relations. Please go ahead, Chris.

Thanks, 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 2025 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; Paul Whatley, our 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 and will be available later for any follow-up questions.

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 31, 2024, and 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 the 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. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website, investors.asburyauto.com highlighting our third quarter results.

It is now my pleasure to hand the call over to our CEO, David Hult. David?

Thank you, Chris, and good morning, everyone. Welcome to our third quarter earnings call. Our acquisition of the Chambers Group has already had a positive impact on many of our operating metrics. And while it is still early in the integration process, I am pleased with how our teams are coming together.

We've talked many times in the past about how our transition to Tekion will transform how we sell and service vehicles and deliver a superior guest experience. Our litigation with CDK has reached a point where we can continue migrating stores onto the new BMS.

Moving on to our operating performance for the quarter. Pent-up consumer demand and the expiration of the EV tax credit drove strong new volumes. And our new vehicle performance on an all-store basis highlights the impact of our Herb Chambers acquisition and the heavier weighting towards luxury brands. In the near term, we'll be opportunistic and react to what the market gives us.

Our parts and service business delivered consistent results once again with same-store gross profit up by 7% and the customer pay segment up by 8% in the quarter. As referenced earlier, growing the business while avoiding expense leakage is a top priority for the team. In the third quarter, our same-store SG&A as a percentage of gross profit was 63.6%, a decrease of 32 basis points. Our strategy for deploying capital to its highest and best use has primarily emphasized large transformative acquisitions that expand our portfolio in the most desirable markets.

Going forward, we are focused on delevering the balance sheet, optimizing the makeup of our portfolio and being opportunistic with share repurchases. As a reminder, we divested 4 stores in July with annualized revenue of $300 million in keeping with our disciplined approach to portfolio management. We resumed opportunistic share repurchases, buying back $50 million in shares in the quarter. The pace of future share repurchases will be dictated by portfolio management activities, share price levels and returns offered by organic and inorganic opportunities.

And now for our consolidated results for the third quarter. We generated a record $4.8 billion in revenue, had a gross profit of $803 million, and a gross profit margin of 16.7%. We delivered an adjusted operating margin of 5.5% and our adjusted earnings per share was $7.17, and our adjusted EBITDA was $261 million.

At the end of my remarks, I traditionally hand the call over to Dan Clara to walk through our operational performance. However, Dan was not able to be with us today. So I'll hand the call over to Paul Whatley, Vice President of Operations, who's been doing a phenomenal job running our stores. Now Paul will discuss our operational performance in more detail.

Thank you, David, and good morning, everyone. Over the past few months, we've integrated a large acquisition with the Chambers Group. We've divested stores, and we've rolled out Tekion into 19 stores, and we still grew our business and new volume, fixed operations and overall same-store gross profit. I'm pleased the team has been able to successfully grow the business and maintain our margin profile while undertaking these large objectives for long-term success.

And I'm going to provide some updates on our same-store performance, which includes dealerships and TCA on a year-over-year basis unless stated otherwise. Starting with new vehicles. Same-store revenue was up 8% year-over-year and units were up 7%. We did see elevated consumer demand for EVs to take advantage of the expiring tax credit and significant increases in EV volume versus quarter 2. New average gross profit per vehicle was $3,188 as the increase in EV sales and their lower PVR profile slightly pulled down our overall PVR.

Brand unit performance varied widely depending on availability and consumer demand within certain OEMs. We continue to have relatively low day supply in key brands. Across all brands, our same-store new day supply was 58 days at the end of September, one day less than the end of Q2. We've generally been pleased with inventory balances against consumer demand. While it's been a stronger start to the year and inventory levels remained in check, we do expect headwinds through year-end with a softening labor market and challenges with vehicle affordability.

Turning to used vehicles. Third quarter unit volume was down 4% year-over-year and used retail GPU was $1,551, a slight increase over the prior year. For the quarter, our team sourced over 85% of our used vehicles from internal channels. The largest portion of this comes from customer trade-ins, which tend to be our most profitable acquisition channel. Our same-store DSI was 35 days at the end of the quarter and we remain diligent on maintaining a healthy velocity of sales to manage inventory.

Stepping back for a moment, we see our performance in used vehicles as our biggest opportunity to improve execution. The pool of available used car starts to recover in 2026, improving further into '27 and '28. Our teams are focused on driving profitable volume growth over the coming quarters.

Shifting to F&I. We earned an F&I PVR of $2,175, only $4 less than last year, and it would have been higher by $64 to $2,239 without the noncash impact of TCA. In October, we finished the rollout of the Koons stores to TCA following the completion of the Tekion conversion at those locations. Michael will walk you through additional details regarding TCA.

Despite macro challenges of consumer affordability, we continue to see a healthy adoption rate of TCA products. Historically, the average customer chooses about 2 products per deal and that number fell steady even as pricing challenges have become more acute. And finally, in the third quarter, our total front-end yield per vehicle was $4,638, down $230 sequentially partially due to increased EV volume.

Now moving to parts and service. As David mentioned earlier, our same-store parts and service gross profit was up 7% year-over-year, and we generated a gross profit margin of 58.8%, an expansion of 172 basis points. And once again, our fixed absorption rate was over 100%, a key measure for the strength of our business. When looking at customer pay and warranty performance, customer pay gross profit was up 8%, with warranty gross profit higher about 7%, were on a combined basis up 8%, lapping tough comps and warranty from recall work across multiple brands in 2024.

We believe our stores are well positioned for growth trends within parts and service. We continue to invest in improved facilities and technology and in training for our people. And before I pass the call to Michael, I want to share a couple of highlights from the Chambers platform.

Looking at our overall store numbers, the heavier luxury weighted mix lifted PVRs for both new and used. It's even more impressive considering that it was only for a partial quarter performance. I am very optimistic about how Asbury has strategically set itself up for long-term success by continuously improving our operations today.

I will now hand the call over to Michael to discuss our financial performance. Michael?

Thank you, Paul, and good morning to our team members, analysts, investors and other participants on the call. And now on to our financial performance. For the third quarter, adjusted net income was $140 million, adjusted EPS was $7.17 for the quarter. In addition, the noncash deferral headwind due to TCA this quarter was $0.23 per share. Our adjusted EPS would have been $7.40 without the deferral impact. Adjusted net income for the third quarter of 2025 excludes net of tax of $27 million in net gain on divestitures, $9 million related to the noncash asset impairment related to a pending disposal, $7 million of professional fees related to the acquisition of Chambers, $2 million in income tax expense related to the deferred tax true-up for the Chambers acquisition, and $2 million related to the Tekion implementation expenses.

Adjusted SG&A as a percentage of gross profit for the total company came in at 64.2%. While we are confident in our ability to reduce SG&A expense, there may be transition-related expenses pulled forward over the next couple of quarters as we roll out Tekion to a greater number of stores. As it relates to new vehicle GPUs, we believe those will continue settling to our estimated range of $2,500 to $3,000. However, the trajectory and timing of this normalization would be sensitive to macro elements, and it may be difficult to pinpoint a solid time frame for when this occurs.

The adjusted tax rate for the quarter was 25.4%. We estimate the fourth quarter effective tax rate to be approximately 25.5%. TCA generated $14 million of pretax income in the third quarter. The negative noncash deferral impact for the quarter was about $6 million. At the beginning of this year, we provided an outlook for TCA and the impact on earnings per share through 2029 based on information known at the time. With our recent acquisition and divestiture activity, delayed rollout of our Koons stores, and lower projected SAAR through 2030, we have revised our estimate for the TCA business, as shown in our presentation on Slide 18.

We now expect less [indiscernible] deferred revenue impact over the next several years, primarily as a result of changes in the SAAR estimates. Our initial projections were based on a faster return of 17 million SAAR levels. While the latest publicly available forecast indicates something closer to high 15 million to low 16 million range.

Now moving back to our results. We generated $543 million of adjusted operating cash flow year-to-date, an 11% increase over the comparable period last year. Excluding real estate purchases, we spent $104 million in capital expenditures so far this year. We now anticipate approximately $175 million of CapEx spend for 2025. This amount will depend on the timing of certain projects before year-end, and we expect some CapEx in 2026 associated with Chambers. We will provide a more robust view on 2026 CapEx following our Q4 results.

Free cash flow was $438 million through the first 3 quarters of 2025, $50 million higher than 2024. We ended Q3 with $686 million of liquidity, comprised of [indiscernible] accounts, availability on both our used line and revolving credit facility and cash, excluding cash of Total Care Auto.

Our transaction adjusted net leverage ratio was 3.2x on September 30, following the Chambers acquisition. We believe our business model's ability to generate cash efficiently will help us reduce our leverage over the next 12 months while remaining agile enough to be opportunistic with share repurchases. The dilutions we sold this year enabled us to avoid lower return CapEx while also providing additional liquidity to reduce leverage and repurchase shares. We will continue to review our portfolio for similar opportunities.

And finally, before I finish our prepared remarks, I want to thank our team members, and we look forward to finishing the year strong. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?

[Operator Instructions] Our first question today is coming from Jeff Lick from Stephens Inc.

Paul, welcome to the call. David, I was wondering just, obviously, with the Chambers acquisition and everything that was going on in Q3 with EVs and obviously, some of your competitors have talked about maybe the ICE incentive scenario being a little different in Q3 because of all the attention on EVs. I'm just wondering if you could kind of unpack where you see new GPUs going in Q4 as we get into the all-important luxury season?

Sure. Jeff, this is David. Traditionally, the fourth quarter is a great quarter for luxury and specifically in December. So we don't see any indications where that wouldn't be the case now. Our EV volume of units in Q3 compared to Q2 doubled and our EV average gross profit per car sold is significantly lower than what the hybrid and combustible engine gross profit is. So while that will probably slow down a little bit, even though they're still incentivized from the manufacturers in luxury, we think will pick up in the fourth quarter. At this point, we think our margins will hold up well in the fourth quarter. But again, difficult to predict not knowing what macro events could happen.

And as it relates to Chambers when that gets into the 4Q will be the first quarter where it's all the way in there, just based on the 8-K that you guys filed, it would appear that Chambers will have a slightly accretive effect on new GPUs. Is that correct?

Absolutely. So far, since we've acquired them, their gross profits on new vehicles and used vehicles as the lead platform in our organization. They do a fantastic job generating growth on both sides. And you look at our numbers in Q3 on an all-store basis, they pulled up our PVRs on new and used. So we're very pleased with the operators and how they run their business.

Awesome. Good luck on fourth quarter.

Our next question today is coming from Ryan Sigdahl from Craig-Hallum Capital Group.

I want to dig into TCA just given the change or updated outlook here. So if I look at the previous assumptions from a year ago this time when you originally gave them, it was $5.69 of EPS accretion or incremental in 2029. Now it's $0.81. I guess, a 6% reduction in SAAR assumption, 17 million to 16 million has that type of impact on EPS. But I guess, can you help me walk through really the next several years? And what's changing? I assume there has to be more change in there than just the SAAR assumption?

So on that number, TCA, we have a couple of things in there. One, the Chambers acquisition will have that deferral headwind when we roll that out starting kind of mid next year. Also, we disposed of some pretty good stores out West in terms of the Toyota stores in California and the Lexus stores. And those will have an impact. We'll get the lack of the deferral hit, but you basically lose that volume in the future. So you have those 2 pieces on the acquisition and disposal side.

And then Koons, we originally projected to roll out early this year. It rolled out in October. And so that's a delay on that kind of deferral hit. But the biggest one is just SAAR, we had assumed that we'd be back to 17 million SAAR in 2027 and then kind of stay at those levels for a couple of years. And now the projection is kind of high 15s to low 16s during that time frame. And that cumulative effect on SAAR [indiscernible] and kind of the high 15 to 16 hits you every year and just kind of rolls out. We still expect to get back to that $5 of EPS. It's just going to be delayed until SAAR fully recovers. And so the biggest impact is just the SAAR piece of that equation. And you looked at the numbers, next year's number is significantly lower from a deferral hit. Again, just the SAAR being delayed has a big impact on the negative deferral hit that we expected next year.

So we can basically assume just kick it out 2 years kind of from the previous assumptions to get back to that $5-plus [indiscernible]?

Yes. Yes, it's probably 2031, 2030, again, it depends on when you think we get back to that high 16 million, 17 million SAAR range. We really have to get back to those levels to drive that volume necessary to get those levels.

And then maybe one more follow-up and then I'll leave this one. But would you eventually get there with the 16 million SAAR or just will take longer? Or do you actually need 17 million SAAR type volume to get to that level?

To get to the high $5 EPS, we need the 17 million SAAR because you need that volume level. Now you can also get there with future acquisitions and adding additional stores, but you need a total volume level to drive the products going through the system. So we have to get there with the 17 million SAAR or additional acquisitions.

Got you. Just for my follow-up, SG&A. Just curious, if I look kind of on an adjusted basis, gross profit up similar sequentially as SG&A. I guess just curious from kind of an SG&A to gross profit leverage as you look into Q4 and even into '26. Any comments would be helpful.

I think -- it all depends on what you think gross profit is going to do on the new vehicle side. We think fourth quarter hangs in there on a gross profit, so we should be able to maintain these SG&A levels. Going into next year, we should still be able to maintain these SG&A percentage of gross levels. But again, depends on what your view is on where new vehicle PVR shake out.

Going out beyond that, once we get past the Tekion rollout, we will have some kind of onetime costs if we go through that rollout phase. We pulled those out as adjusted items this quarter. We'll continue to do that in future quarters. Once we get past the Tekion rollout, there's opportunities for productivity gains and cost savings because of the Tekion piece that will help us drive that number down.

Next question today is coming from Rajat Gupta from JPMorgan.

Great. I had a question on just the total contribution from -- just the total -- just the acquisitions net of divestitures. If I look at the 8-K, it looks like when you do the adjustment on the leverage calculation, you're adding roughly $78 million of net EBITDA for the acquisition divestitures. It would seem like the third quarter contribution is more like $25 million, $26 million. I mean is it like $100 million-ish kind of annualized run rate EBITDA net of all the divestitures that you've done with Herb Chambers? Is that a reasonable run rate to assume for the total sold deals this year? I just want to clarify that. I have a quick follow-up.

Yes. I mean it's probably a little bit above that, but in that ballpark. We did -- we sold the Toyota and Lexus stores, so those were good EBITDA stores. But yes, in that ballpark point, it will touch above that number.

Understood. That's helpful. Just one question on capital allocation. I was a bit surprised to see the buyback this quarter just given you just integrated Herb Chambers. I'm curious if you're able to rank-order what your priorities are going forward, should we think about excess free cash flow going more into the delevering and buyback from here? Or is M&A still within the rank order? I'm just curious what -- if you could rank order those?

Rajat, this is David. I'll take a crack at it, and then Michael can respond. I think some of the divestitures that you've seen, and I talked about in my script as far as organic or inorganic, we'll continue to balance our portfolio will generate cash with that. And I think there'll be a heavier focus on share repurchases. Debt will take care of itself over the next 12 to 18 months in paying itself down. if we think our share price is at an attractive price, that would probably be #1. And if for some reason, that isn't the case, then naturally buying down debt will be it. But we generate a lot of cash. That will continue through next year. So I would say share repurchase is debt, but they could trade place it depending upon what's going on at a moment in time.

[Operator Instructions] Our next question is coming from Bret Jordan from Jefferies.

A few of your peers who have reported were sort of talking cautiously about recent luxury trends sort of at the [indiscernible] and it sounds like you guys really aren't seeing that. Is that more brand-specific or region-specific around luxury performance?

Yes. I would -- Bret, this is David. I would say it's more brand than region specific. On a same-store basis, I think we're back 1% in the quarter on volume. So we don't think that's material. Naturally, Lexus is probably the hottest luxury brand out there right now, but they're all performing fairly well. And we're traditionally going into a quarter that does well with luxury -- it may be trophy October, November, but we still anticipate at this point, a strong luxury into the quarter. We're not seeing any material change in traffic or desire with the luxury consumer.

Great. And then on parts and service and customer pay, could you sort of parse out what was price versus units in that 8% growth?

Sure. Almost half and half. It was a little bit more, I would say, 60% dollars and 40% traffic growth. So it's always nice to see the growth in traffic that we have from what we call our repair order count. Up 6%, 7% in the quarter for warranties like compared to our peers, that would have, if we were hiring warranty, that would have drove our overall fixed number higher, obviously, but we came off heavy comps last year from warranty.

When did the comp peak last year in warranty? There were some big recalls late in the year. Is the fourth quarter the hardest warranty compare?

You're testing my memory, but I'm pretty sure it is.

Next question today is coming from Glenn Chin from Seaport Research Partners.

Just a couple of questions on Tekion. David, I think you mentioned it's been rolled out to 19 stores. If you can just give us an update on how it's going? Any surprises favorable and/or unfavorable and the pace at which we should expect to continue to be rolled out? And then lastly, any changes on the prospects for savings there?

Sure. If I missed something, Glenn, just circle back around. We have 23 stores on Tekion. The 19 stores that we did with Koons was Reynolds and 4, CDK. We start rolling out CDK stores in this quarter. So we anticipate, hopefully, towards the end of next year, we'll be done rolling out all the stores. From an efficiency standpoint, when you think about CDK or traditional DMS, most dealers have a lot of bolt-ons. So for your employees, they have to have multiple screens open to service one customer. We lose 70% of those bolt-ons with Tekion. So it makes it more efficient for our folks to communicate and be more transparent with our guests, but also raised our productivity per employee. So there's some good tailwinds there.

Some things that were a little surprising to me, and maybe I just didn't think it through well because it's cloud-based software, and it's extremely intuitive compared to the traditional DMS', I thought the understanding of migration to the software would be fast. It's been fast for someone that is new to the automotive business or it hasn't been on one of the traditional DMSs. They pick up Tekion fast. For our folks that have been on CDK for a 20-year-plus years or Reynolds, it's taken them a little bit longer to get comfortable and used to Tekion. And I would say for a traditional person that's been on one of the legacy DMS for a long time. It's about 6 or 7 months before they really become efficient with the software where I thought it would have been closer to 3 months.

If it's a new hire that doesn't know the industry or the software, they are adapting to the software extremely fast. So I just think it's going to take some time. When we get past the rollout and all the expenses that are involved in the rollout, there are absolutely be SG&A savings from a software standpoint, from a third-party software standpoint in what I would call fees for API connections that we had with the legacy DMS.

And any change in those prospects for savings dated given it sounds like somewhat of a longer tail as far as adoption or efficiency gains?

Yes, there'll definitely be savings. I think we'll start to -- who knows how things go the next 6 to 9 months rolling out the rest of the stores. But as we sit here today, fourth quarter, we should fully realize the savings of the software cost. And then I would say the end of the first quarter of '27, you should really start to see the efficiency gains with Tekion. And look, not all horses are equal, not all markets are rolling out at once. So the early adopters or transitioning to the software will probably see gains middle of next year, while the stores that go on the back end of integration, we'll experience it in early '27.

Next question today is coming from David Whiston from Morningstar.

Just focusing on used vehicles. You hear all the time, everyone wants to get more of that volume, especially around buying off the street to avoid auction, it's obviously a great opportunity, but what more can you guys be doing in terms of marketing both [indiscernible] marketing versus digital marketing to get more vehicles on street?

David, this is Paul. We've got our Clicklane acquisition tool, which is one tool that we use to buy cars off the street. It's a digitally marketed platform that creates [indiscernible] that are specifically for selling cars, not necessarily buying anything from us, but that's the #1 portion of the -- the second place is a service [indiscernible] and those [indiscernible]. We also have opportunity, we think, in the lower end or lower price cars with retaining more of our wholesale cars and we're more focused on that as well.

And David, I would add, we believe, from our standpoint, one of the benefits that we continue to lead this space in SG&A, sometimes volume doesn't create more profitability. Larger used car volume at lower gross profits, raise your SG&A. And while it's a very competitive market for preowned right now, because the pool is so shallow, it just doesn't make sense from our perspective to chase volume and be up 2% or 3% or 4% volume but backwards in profitability. So we're trying to balance that as best we can.

As Paul said in his script, just because of the COVID hangover and the lack of cars being built back then, '26, there'll be more used cars in the market, '27 gets even better and '28, you're back to a normalized market. So I just think naturally, you'll see lifts in volumes as you go forward. The key is acquisitions because your gross profit is 100% determined on what you acquire the vehicle for.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to David for any further closing comments.

Thank you, operator. This concludes today's call. We look forward to speaking with you all after the fourth quarter earnings. Have a great day.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.