Greetings, and welcome to the Asbury Automotive Group Q3 2025 Earnings Conference Call and Webcast. 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 discussed many times in the past 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. 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. 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. Traditionally, I 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 to 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. 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 cars 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 deferral 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. 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 has stayed 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. 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%, or 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. 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.

Thank you, Paul, and good morning to our team members, analysts, investors, and other participants on the call. 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 $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 expenses, 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 of the 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 level, 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 floor plan offset accounts, availability on both our used line and revolving credit facility and cash, excluding the 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. Finally, before I finish our prepared remarks, I want to thank our team members, and we look forward to finishing the year strong. With that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions.

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 we will pick up in the fourth quarter. At this point, we think our margins will hold up well in the fourth quarter. But again, it is 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 have been the lead platform in our organization. They do a fantastic job generating growth on both sides. You can 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 the 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. Those will have an impact. We'll lose that volume in the future but get the lack of the deferral hit. You see those two pieces on the acquisition and disposal side. Also, Koons was originally projected to roll out early this year. It rolled out in October. 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. Now the projection is closer to high 15s to low 16s during that time frame. That cumulative effect on SAAR should be considered. We still expect to get back to that $5 of EPS. It’s just going to be delayed until SAAR fully recovers. The biggest impact is just the SAAR piece of that equation.

So we can basically assume just kick it out 2 years from the previous assumptions to get back to that EPS $5 plus?

Yes, it's probably around 2031. 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 the volume necessary to achieve 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 it take longer? 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. You can also get there with future acquisitions and adding additional stores, but you need a total volume level to drive the products through the system. Thus, we have to get there with the 17 million SAAR or through 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 believe gross profit is going to do on the new vehicle side. We think fourth quarter hangs in there on 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 percentages of gross levels. But again, this depends on your view on where new vehicle PVR shakes out. Once we pass the Tekion rollout, we will have some one-time costs if we experience that rollout phase. We pulled those out as adjusted items this quarter, and will continue to do so in future quarters. Once we get past the Tekion rollout, there are opportunities for productivity gains and cost savings because of the Tekion piece that will help us drive that number down.

Our next question is from Rajat Gupta from JPMorgan.

Great. I had a question on just the total contribution from 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 that 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. It’s probably a little bit above that, but in that ballpark. We did sell the Toyota and Lexus stores, so those were solid EBITDA stores. But yes, in that ballpark point, a touch above that number.

Understood. That's helpful. Just a broader 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. 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. The generated cash from that will be a heavy focus on share repurchases. Debt will take care of itself over the next 12 to 18 months in paying down. If we think our share price is at an attractive price, that would probably be #1. If for some reason that isn't the case, then naturally paying down debt will be it. We generate a lot of cash, and that will continue through next year. I would say share repurchase is first, followed by debt; they could trade places depending on what's going on at a moment in time.

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 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 say, Bret, this is David. It's more brand-specific 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 choppy 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. If we were higher in warranty, that would have driven our overall fixed number higher, 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?

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 were Reynolds and 4 CDK. We start rolling out CDK stores in this quarter. 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. Employees have to have multiple screens open to service one customer. We lose 70% of those bolt-ons with Tekion. It makes it more efficient for our folks to communicate and be more transparent with our guests, but also raises our productivity per employee. There are 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 DMSs, I thought the understanding of migration to the software would be fast. It's been fast for someone who is new to the automotive business or hasn’t been on one of the traditional DMSs. They pick up Tekion fast. Our folks who have been on CDK for over 20 years have taken a little bit longer to get comfortable and used to Tekion. It takes about 6 or 7 months for them to really become efficient with the software. If it's a new hire who doesn't know the industry or the software, they are adapting to it extremely fast. I just think this will take some time. When we get past the rollout and all the expenses involved, there will absolutely be SG&A savings from a software standpoint and third-party software standpoint in what I call fees for API connections that we had with the legacy DMS.

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

Yes, there will definitely be savings. As we look ahead to the next 6 to 9 months during the rollout of the remaining stores, we expect to fully realize the savings from the software costs by the end of the fourth quarter. By the end of the first quarter of 2027, you should start to see efficiency gains with Tekion. Not all markets are adopting at the same pace; early adopters transitioning to the software may see benefits by mid-next year, while those integrating later will see improvements in early 2027.

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 old-fashioned marketing versus digital marketing to get more vehicles on the 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 leads that are specifically for selling cars, not necessarily buying anything from us, but that's the number one portion of the effort. The second place is our service drive, and those are where we're focusing. We also have the opportunity; we think in the lower end or lower-priced cars with retaining more of our wholesale cars, and we're focusing on that as well.

And 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 raises your SG&A. 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%, 3%, or 4% in volume but backwards in profitability. 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 built back then, '26 will have more used cars in the market, '27 will improve further, and '28 will see a return to a normalized market. I think you'll naturally see lifts in volumes as you go forward. The key is acquisitions because your gross profit is 100% determined by 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.