Greetings and welcome to the Asbury Automotive Group 4th Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. 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 Holt, 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 Holt.

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 3.2 times versus our forecast of 3.5 times. 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 Techion during the quarter, ending the year with 38 stores operating on our new VMS. 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 and 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 for its prior year, reflecting the impact of lower new vehicle profitability. We remain committed to operating our business in the most efficient way possible and will continue to adjust our cost structure as business conditions change. Moving to capital allocation. We divested four stores in the quarter and are on track to divest another nine 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 tradeoffs with strategic tuck and 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 am 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.

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 Tech Young to an additional 15 stores during the quarter, and in January added eight 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 PBRs. 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 a SAR contraction of 5%. We faced a tough comfortable 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 D.C. 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 three segments were at lower day supply versus the previous quarter, led by several luxury brands in the domestics. Through To 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 use 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 PBR of $2,335. The non-cash 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 and service. our same-store parts and 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 On an all-store basis, this was a record fourth quarter for our parts and service business as total revenue grew 12% to $658 million. We remain optimistic about the trends we see supporting the long tail of parts and service operations. The average age of the car on the road, combined with the increasing complexity of technology and 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 in 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 non-cash deferral headwind due to TCA this quarter was $0.31 per share. Our adjusted EPS would have been $6.98 without. Adjusted net income for the fourth quarter of 2025, $87 million. For Chambers Automotive Group, realized revenue of $150 million. Adjusted SG&A's percentage of gross profit on a same-store basis came in at $64. We feel confident in our ability to manage overall cost over the next few quarters as we progress the Techeon implementation across our stores and navigate normalizing new vehicle unit profitability. The adjusted tax rate for the quarter, we estimate the full year of 2020. TCA generated $12 million of pre-taxed income in the fourth quarter. The negative non-cash 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, 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 haven't 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 availability on both our transaction adjustments at the end of the year. Our result, I believe, gives us room to continue with our path of discipline, strategic capital. Before I finish our prepared remarks, I want to thank our team members, 25, and we look forward to 2027. With that, this concludes our prepared remarks. We will now turn the call over to the operator to take questions.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

One moment, please, while we poll for questions. Thank you. Our first question is from Jeff Lick with Stephen Sink.

Good morning, everyone. Thanks for taking the question. This is maybe for David and Daniel. You know, kind of pack a few questions into one. And I guess if, you know, if you look at 2025 as your base year, obviously it's like three or four years inside of that year. You know, as you now look at 2026, lapping tariffs, lapping the EV credit, you've got lease returns, potentially maybe there's, you know, you guys have highlighted some more GPU normalization. Maybe you can just kind of give us a little roadmap to, you know, how you see things playing out and maybe, you know, if you could give some granularity in terms of the first half and the second half, just the, you know, kind of the qualitative path of travel, you know, 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. You know, I think we're forecasting to go slightly backwards in star, but star is an overall number that includes, you know, fleet and wholesale, and I think it's going to vary by brands. We have a lot of Stellantis stores that were, you know, 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. You know, 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 and service business and where that's headed. We've had a lot of distractions in 25 between the acquisition and rolling out Techion. now having a third of the company on Techion 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 It's a software and efficient on it. So we think all this blocking and taping and the heavy lifting we're doing is going to pay dividends going into the future. For us, we've probably got, you know, five, six, seven months of bumpiness and distraction of going through all of it. But we know the outcome will be very beneficial for Asbury.

Jeff, good morning. Maybe just a quick – hi, Daniel. Thank you. 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 turnings 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 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, you know, north of that $2,500 to $3,000 kind of settling range you've talked about. I guess, where do you see, you know, let's say, you know, you get to the middle of that range, 2750. Where does that come from? How does that decline in GPU manifest itself? Is that more inventory, you know, finally getting 3 million units on the ground? Is that because Toyota gives a little back? I'm just curious, you know, what, because you guys have been pretty steadfast to that 2500 to 3000 mark. I'm just curious, where do you see that further adjustment to come?

It's a great question, Jeff. You know, 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, you know, our percentage of luxury goes up, you know, from 32 to probably about 36 percent, which benefits us overall. You know, I would say if the SAR was going to stretch and the inventories were going to grow, that puts the most pressure on margins. But where most OEMs are predicting a flat or a little bit backwards year, 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 two. I think we're conservative in our approach when we give estimates of $25,000 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. It's the high cost of sale. You know, for new, we're over $52,000 in the quarter. And, you know, 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. And I don't know if you have anything you want to add.

Well, thank you for taking my question, and best of luck in 2026.

Thank you, Jeff.

Our next question is from Rajat Gupta with J.P. Morgan.

Hey, thanks for taking the question. And, you know, I just wanted to follow up on parts and service. the customer pay growth was a little weaker than we would have expected. I understand the warranty comms. I know you mentioned it had a tough comm, 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? have a quick follow-up. Thanks.

Good morning, 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 renew strategy in fixed operations that we feel very confident in executing. 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.

Rajad, this is David. I would add, you know, in previous quarters, and I think it's the case for our peers, but I'm not confident, you know, the growth in parts and service has been more top-heavy on dollars than actual cars coming through the service drive or repair orders. Right. 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 per 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, you know, when we talk about, you know, how much we're generating per ticket, you know, a combustible engine is over $550. You know, 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, November with the dollars being spent. It rebounded in December. In January, 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 all the weather.

Any preview, you know, on the renewed strategy for parking services that you can give us going forward?

You know, I would tell you, Rajat, the biggest thing is there's a massive difference between our current EMS and TechEon, and there's a learning curve there. And, you know, 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, you know, now we're up to over 40 stores, it takes them a few months. We actually become less efficient for the first couple months as they're trying to get used to the software and work out the kinks. So we'll finish the Techeon 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 Techeon but our cost control with Techeon as well.

Understood.

That's helpful.

And maybe just a follow-up question, you know, 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. You know, any update on that? And, you know, how soon can you get below three times? You know, is it earlier than 26? You know, any timeline around that would be helpful. And then just related to that, how should we think about, you know, free cash flow deployment priorities as well in 26?

Yeah, so from a, you know, we talked about the nine divestitures that we have out there, and that will free up source. We think, you know, kind of about some of that would be, you know, with where it's our goal still to get below three times by the end of the year. and if we can do that and buy some shares back along the way. But if we just took the cash from the disposals and the pre-cash on the summer of...

Understood. Thanks for all the color and good luck and best of luck.

Thank you, Rajat.

Now our next question is from Glenn Chin with Seaport Research Partners.

Good morning. Thanks, folks. Can you just clarify for us the path forward for Techion? How many more stores do 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 DNSs simultaneously?

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

Yeah, so once we, you know, roll out a store, you have to kind of, you know, you can't cancel it right away. You have to kind of roll it out and make sure that we can go cancel the other products of duplicated cost. And then when we roll it, you'll see kind of a hit on SG&A for this duplicated cost. kind of mid-year will roll over and the savings from Techeon will more than offset the duplicated come hit to SG&A and then to David's point we get a 27 the efficiency that we're going to see from it you'll start seeing those as well so it's you know okay cost first half of savings from the software the second half and then those efficiencies will come in during 2027 okay but then

And, Michael, to clarify, it looks like you adjusted it out for the dual expense. You adjusted it out this quarter, I guess.

We only adjust out the implementation costs, the costs I'm having to pay to do the implementations. And then also in third and fourth, because of the SOX requirements from internal controls around the Techeon software, we had a pretty heavy lift on IT folks the initial year of SOX compliance on Techeon. So those tech-yong costs is heavy, heavy SOX control, and then the implementation costs. We have not been adjusting out the duplicated cost.

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're going to give you guys an insight into the first quarter. It wasn't that material. I only rolled them out at the very end of December. But in the first quarter, we'll kind of give you how much of an impact.

Okay, yeah, that would be helpful. Thank you. Okay, and David, will you be on future earnings calls?

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

Okay, very good. Well, hope you're doing well there.

I appreciate it.

That's it for me.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question is from John Babcock with Barclays.

Thanks for taking my question. I did want to ask, I know it's still early in the TechYan 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?

Good morning, John. This is Dan. Yeah, we had the first four 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 know, you can also see the flexibility that it gives us because it is a cloud-based DMS. Yes, 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 doing that.

I'm sorry, Dan. John, one thing I would add. You know, 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 four stores, they would tell you they wouldn't work at a store that didn't have TechYon. 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. Well, you know, 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, thanks. And then just next question, I was wondering if you could talk about how, you know, 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.

John, I'll start, and David can add if he wants to. I'll tell you, you know, for January, the beginning of January was good until we got hit by the weather. And so, you know, 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, you know, that storm came in through Texas, and it basically just followed our path of where we have stores all the way to the northeast.

Thanks for the call. That's all I have.

Thank you.

Our next question is from Ryan Stigdell with Craig.

Hey, great. This is Matthew Robb. On for Ryan. Just quick on TCA, it looks like the SAR assumptions were changed very slightly in 26 and 27. and then non-cash deferral was, you know, raised a little bit in, you know, through 2029. Just what drove that change and just talk about where TCA stands today. Any color there would be great.

Yeah, so on that one, we just looked at the, you know, your guys' assessments and, you know, most of the people were coming up, you know, 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 it a little bit to 15-9 to reflect kind of the additional color out there from the third parties. And also, you know, that's what we use kind of to base our budget off of for 26 is that 15-9 number. So small adjustment there just as kind of saw projections came up a little bit during the fourth quarter. And the TCA, you know, we talked about it on TechEon, and then following the TechEon rollout, we'll roll them out on TCA, so sometime this, you know, late summer probably. And that will complete the rollout to all the stores. and then we'll be done with the kind of TCA rollout side of it.

Understood. Thank you very much.

Our next question is from Daniela Huygen with Morgan Stanley.

Hi. Thanks for taking the question. So kind of on that point of adjusting SAR forecasts, we also saw that you made a comment about supply remains tight. 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 a stronger used margin and then a bit weaker on the volume side. So how does that play out into 26 in your views?

Yeah, Daniela, good morning. This is Dan. You know, 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 directly from our guests. And that is working well. That's where you see how we're maximizing the PBRs and the impact that it had in the fourth quarter. their, you know, 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 turnings 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. Thank you. 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 right-sized, or is there more room for that to play out?

I will tell you that overall, company-wide, I would say our EVs' inventory is right-sized. 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 right-sized. And, you know, 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 I would expect that to continue as we go into 26.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to David Holt 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.