Asbury Automotive Group, Inc. (NYSE:ABG) Q4 2020 Earnings Conference Call February 2, 2021 10:00 AM ET Company Participants Matt Pettoni - VP of Finance and Treasurer David Hult - President and CEO PJ Guido - CFO Dan Clara - SVP of Operations Conference Call Participants Rick Nelson - Stephens Incorporated John Murphy - Bank of America Ryan Sigdahl - Craig-Hallum Capital Group Adam Jonas - Morgan Stanley Rajat Gupta - JPMorgan Glenn Chin - Seaport Global Securities Stephanie Benjamin - Truist Bret Jordan - ...

PART I—Financial Information [Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28unaudited%29) The unaudited condensed consolidated financial statements for the period ended September 30, 2020, reflect significant asset growth, increased net income, and the impact of a franchise rights impairment charge [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Highlights (in millions) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $1,298.0 | $1,602.6 | | Goodwill | $888.6 | $201.7 | | **Total Assets** | **$3,530.6** | **$2,911.3** | | Total Current Liabilities | $1,212.7 | $1,247.0 | | Long-Term Debt | $1,174.1 | $907.0 | | **Total Liabilities** | **$2,718.7** | **$2,265.0** | | **Total Shareholders' Equity** | **$811.9** | **$646.3** | - Goodwill significantly increased from **$201.7 million** at year-end 2019 to **$888.6 million** as of September 30, 2020, primarily due to acquisitions[5](index=5&type=chunk) [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q3 2020 vs Q3 2019 Performance (in millions, except EPS) | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,845.4 | $1,842.0 | +0.2% | | Gross Profit | $335.9 | $293.1 | +14.6% | | Income from Operations | $119.1 | $82.2 | +44.9% | | **Net Income** | **$96.2** | **$45.0** | **+113.8%** | | **Diluted EPS** | **$4.96** | **$2.33** | **+112.9%** | Nine Months 2020 vs 2019 Performance (in millions, except EPS) | Metric | Nine Months 2020 | Nine Months 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $4,897.8 | $5,316.3 | -7.9% | | Gross Profit | $851.1 | $867.3 | -1.9% | | Income from Operations | $236.3 | $245.9 | -3.9% | | **Net Income** | **$165.3** | **$140.8** | **+17.4%** | | **Diluted EPS** | **$8.56** | **$7.30** | **+17.3%** | - A pre-tax gain on dealership divestitures of **$58.4 million** was recognized in the first nine months of 2020, significantly contributing to net income[7](index=7&type=chunk) - A franchise rights impairment charge of **$23.0 million** was recorded in the first nine months of 2020, impacting income from operations[7](index=7&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $625.2 | $347.7 | | Net cash used in investing activities | ($818.1) | ($206.2) | | Net cash provided by (used in) financing activities | $193.5 | ($148.0) | - Cash used in investing activities increased significantly to **$818.1 million**, primarily due to acquisitions totaling **$954.1 million**, partially offset by proceeds from divestitures of **$161.6 million**[14](index=14&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - On August 24, 2020, the company completed the acquisition of the Park Place Dealership group for a purchase price of **$889.9 million**, financed through cash, debt, and seller financing, following the termination of a previous, larger acquisition agreement with the same group in March 2020[17](index=17&type=chunk)[39](index=39&type=chunk) - Due to the adverse impact of the COVID-19 pandemic, the company performed impairment tests as of March 31, 2020, resulting in a **$23.0 million** pre-tax non-cash impairment charge on certain franchise rights[57](index=57&type=chunk)[61](index=61&type=chunk) - In February 2020, the company redeemed its **6.00%** Senior Subordinated Notes due 2024, recording a loss on extinguishment of **$19.1 million**, and issued new **4.50%** Senior Notes due 2028 and **4.75%** Senior Notes due 2030[68](index=68&type=chunk)[69](index=69&type=chunk) - During the nine months ended September 30, 2020, the company sold eight franchises and two collision centers, recording a pre-tax gain of **$58.4 million**[49](index=49&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q3 2020 performance to increased vehicle gross profit margins and cost-cutting measures, while maintaining strong liquidity and completing the Park Place acquisition [Impact of COVID-19 on Our Business](index=33&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Business) - In response to the pandemic, the company furloughed employees, reduced store hours, suspended its 401(k) match, implemented temporary pay reductions, and made a permanent workforce reduction of approximately **1,300** employees[119](index=119&type=chunk) - Despite revenue declines in most streams on a same-store basis, new and used vehicle gross profit margins increased significantly in Q3 2020 due to new vehicle supply disruptions driving up demand[120](index=120&type=chunk) - The company recorded a **$23.0 million** non-cash impairment charge on intangible manufacturer franchise rights in Q1 2020 due to the pandemic's impact[123](index=123&type=chunk) [Results of Operations - Q3 2020 vs Q3 2019](index=35&type=section&id=Results%20of%20Operations%20-%20Q3%202020%20vs%20Q3%202019) Q3 2020 vs Q3 2019 Key Metrics | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue (M) | $1,845.4 | $1,842.0 | +0.2% | | Total Gross Profit (M) | $335.9 | $293.1 | +14.6% | | Net Income (M) | $96.2 | $45.0 | +113.8% | | Diluted EPS | $4.96 | $2.33 | +112.9% | | SG&A as % of Gross Profit | 61.5% | 68.9% | -7.4% | - Gross profit per new vehicle sold (as reported) increased by **73%** to **$2,468**, driven by tight inventory levels[134](index=134&type=chunk) - Gross profit per used vehicle retailed (as reported) increased by **43%** to **$2,116**, as the used vehicle market recovered strongly[138](index=138&type=chunk) - Same-store SG&A as a percentage of gross profit decreased by **670** basis points to **62.6%**, reflecting broad cost-cutting measures and higher gross profits[145](index=145&type=chunk)[146](index=146&type=chunk) [Results of Operations - Nine Months 2020 vs 2019](index=44&type=section&id=Results%20of%20Operations%20-%20Nine%20Months%202020%20vs%202019) Nine Months 2020 vs 2019 Key Metrics | Metric | Nine Months 2020 | Nine Months 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue (M) | $4,897.8 | $5,316.3 | -7.9% | | Total Gross Profit (M) | $851.1 | $867.3 | -1.9% | | Net Income (M) | $165.3 | $140.8 | +17.4% | | Diluted EPS | $8.56 | $7.30 | +17.3% | | SG&A as % of Gross Profit | 65.0% | 68.5% | -3.5% | - Net income increased **17.4%** despite a revenue decline, largely due to a **$58.4 million** gain on divestitures, a **$20.6 million** loss on debt extinguishment, and a **$23.0 million** franchise rights impairment charge[151](index=151&type=chunk)[155](index=155&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2020, the company had total available liquidity of **$384.9 million**, consisting of **$4.1 million** in cash, **$39.8 million** in floor plan offset accounts, and availability under its revolving credit facilities[178](index=178&type=chunk) - The company was in compliance with all debt covenants as of September 30, 2020, with restricted payments like dividends or share repurchases permitted as long as the Consolidated Total Leverage Ratio does not exceed **3.0** to **1.0**[205](index=205&type=chunk)[206](index=206&type=chunk) - No shares were repurchased under the Repurchase Program during the nine months ended September 30, 2020, with **$66.3 million** remaining authorization[208](index=208&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk on its variable-rate debt through interest rate swap agreements, mitigating potential impacts on annual interest expense - Based on **$684.1 million** of total variable interest rate debt outstanding as of September 30, 2020, a **100** basis point change in interest rates could result in a change of as much as **$6.8 million** to total annual interest expense[230](index=230&type=chunk) - The company uses four interest rate swap agreements to hedge against changes in variable rate cash flows related to the one-month LIBOR, with two initiated in July 2020[232](index=232&type=chunk)[233](index=233&type=chunk) [Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective[234](index=234&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control[235](index=235&type=chunk) PART II—Other Information [Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management does not anticipate any known claims will materially adversely affect its financial condition or operations - The company is subject to various claims and legal proceedings typical for the industry, including audits, litigation, and government proceedings[236](index=236&type=chunk) - Management does not currently expect any known claim to materially and adversely affect the company's financial condition, liquidity, or results of operations[237](index=237&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks including the COVID-19 pandemic's impact, challenges in integrating the Park Place acquisition, economic downturn sensitivity, dependence on manufacturers, and substantial indebtedness - The COVID-19 pandemic is cited as a major risk, with potential adverse impacts on sales, supply chains, and financial results, already leading to a **$23.0 million** non-cash impairment charge on franchise rights in Q1 2020[239](index=239&type=chunk)[240](index=240&type=chunk) - The integration of the Park Place acquisition presents numerous risks, including managing a significantly larger company, integrating different business cultures, and the possibility of unanticipated liabilities[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - The business is highly dependent on vehicle manufacturers, with five manufacturers (Honda, Toyota, Ford, Nissan, Mercedes-Benz) accounting for **67%** of new vehicle revenues for the nine months ended Sep 30, 2020[246](index=246&type=chunk)[247](index=247&type=chunk) - The company's substantial indebtedness could impair its ability to obtain additional financing and requires a significant portion of cash flow for debt service, making it vulnerable to interest rate increases[249](index=249&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase shares under its formal program in Q3 2020, though it repurchased shares for equity award settlements, with **$66.3 million** remaining authorized - No shares were repurchased under the company's Repurchase Program in Q3 2020, with **$66.3 million** remaining available for repurchase under the program as of September 30, 2020[259](index=259&type=chunk) [Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[260](index=260&type=chunk) [Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Park Place acquisition agreement, debt agreements, and officer certifications [Signatures](index=67&type=section&id=Signatures) The report was signed on November 3, 2020, by the Chief Executive Officer and Chief Financial Officer - The report was signed on November 3, 2020, by David W Hult, Chief Executive Officer and President, and Patrick J Guido, Senior Vice President and Chief Financial Officer[265](index=265&type=chunk)

Asbury Automotive Group, Inc. (NYSE:ABG) Q3 2020 Results Earnings Conference Call October 27, 2020 10:00 AM ET Company Participants Matt Pettoni - Vice President of Finance & Treasurer David Hult - President & Chief Executive Officer Dan Clara - Senior Vice President of Operations PJ Guido - Chief Financial Officer Conference Call Participants Rick Nelson - Stephens, Inc John Murphy - Bank of America Merrill Lynch Adam Jonas - Morgan Stanley Rajat Gupta - JP Morgan Stephanie Benjamin - SunTrust Bret Jordan ...

[PART I—Financial Information](index=4&type=section&id=PART%20I%E2%80%94Financial%20Information) This section provides unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of income, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, revenue recognition, acquisitions, debt, and other financial instruments. It highlights the financial impact of the COVID-19 pandemic and the revised Park Place acquisition [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and equity, as of December 31, 2019, and June 30, 2020 | Metric | Dec 31, 2019 (Millions) | Jun 30, 2020 (Millions) | Change (Millions) | % Change | | :----- | :---------------------- | :---------------------- | :---------------- | :------- | | Cash and cash equivalents | $3.5 | $613.2 | $609.7 | 17420% | | Inventories | $985.0 | $636.4 | $(348.6) | (35.4)% | | Total current assets | $1,602.6 | $1,591.7 | $(10.9) | (0.7)% | | Total assets | $2,911.3 | $2,934.4 | $23.1 | 0.8% | | Floor plan notes payable—trade, net | $130.3 | $57.5 | $(72.8) | (55.9)% | | Floor plan notes payable—non-trade, net | $657.7 | $468.7 | $(189.0) | (28.7)% | | Total current liabilities | $1,247.0 | $893.2 | $(353.8) | (28.4)% | | Long-term debt | $907.0 | $1,182.1 | $275.1 | 30.3% | | Total shareholders' equity | $646.3 | $713.1 | $66.8 | 10.3% | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Details the company's revenues, expenses, and net income for the three and six months ended June 30, 2020, and 2019 | Metric | 3 Months Ended Jun 30, 2020 (Millions) | 3 Months Ended Jun 30, 2019 (Millions) | % Change | 6 Months Ended Jun 30, 2020 (Millions) | 6 Months Ended Jun 30, 2019 (Millions) | % Change | | :----- | :------------------------------------- | :------------------------------------- | :------- | :------------------------------------- | :------------------------------------- | :------- | | Total Revenue | $1,445.1 | $1,803.5 | (20)% | $3,052.4 | $3,474.3 | (12)% | | Gross Profit | $242.8 | $295.0 | (18)% | $515.2 | $574.2 | (10)% | | Income From Operations | $82.2 | $85.9 | (4)% | $117.2 | $163.7 | (28)% | | Net Income | $49.6 | $54.9 | (10)% | $69.1 | $95.8 | (28)% | | Basic EPS | $2.58 | $2.87 | (10)% | $3.60 | $4.99 | (28)% | | Diluted EPS | $2.57 | $2.84 | (10)% | $3.58 | $4.96 | (28)% | [Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Reports net income and other comprehensive income items, such as changes in fair value of cash flow swaps, for the specified periods | Metric | 3 Months Ended Jun 30, 2020 (Millions) | 3 Months Ended Jun 30, 2019 (Millions) | 6 Months Ended Jun 30, 2020 (Millions) | 6 Months Ended Jun 30, 2019 (Millions) | | :----- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net income | $49.6 | $54.9 | $69.1 | $95.8 | | Change in fair value of cash flow swaps | $(0.6) | $(2.5) | $(5.1) | $(4.3) | | Income tax benefit associated with cash flow swaps | $0.2 | $0.6 | $1.3 | $1.1 | | Comprehensive income | $49.2 | $53.0 | $65.3 | $92.6 | [Condensed Consolidated Statements of Shareholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Outlines changes in shareholders' equity, including net income, share-based compensation, and stock repurchases, for the six months ended June 30, 2020 | Metric | Dec 31, 2019 (Millions) | Jun 30, 2020 (Millions) | Change (Millions) | | :----- | :---------------------- | :---------------------- | :---------------- | | Total Shareholders' Equity | $646.3 | $713.1 | $66.8 | | Net Income (6 months) | $95.8 | $69.1 | $(26.7) | | Change in fair value of cash flow swaps, net of tax benefit (6 months) | $(3.2) | $(3.8) | $(0.6) | | Share-based compensation (6 months) | $6.8 | $6.6 | $(0.2) | | Repurchase of common stock (6 months) | $(16.3) | $(5.1) | $11.2 | [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020, and 2019 | Metric | 6 Months Ended Jun 30, 2020 (Millions) | 6 Months Ended Jun 30, 2019 (Millions) | Change (Millions) | | :----- | :------------------------------------- | :------------------------------------- | :---------------- | | Net cash provided by operating activities | $554.6 | $160.5 | $394.1 | | Net cash provided by (used in) investing activities | $36.1 | $(92.3) | $128.4 | | Net cash provided by (used in) financing activities | $19.0 | $(66.9) | $85.9 | | Net increase in cash and cash equivalents | $609.7 | $1.3 | $608.4 | | Cash and cash equivalents, end of period | $613.2 | $9.6 | $603.6 | [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of the company's business, significant accounting policies, acquisitions, debt, and the impact of the COVID-19 pandemic - As of June 30, 2020, the company operated **102** new vehicle franchises (**83** dealership locations) representing **31** automobile brands and **24** collision repair centers in **16** metropolitan markets within nine states. New vehicle revenue brand mix was **44%** imports, **33%** luxury, and **23%** domestic brands[14](index=14&type=chunk)[16](index=16&type=chunk) - On July 6, 2020, the company entered into a **Revised Asset Purchase Agreement** to acquire **12** new vehicle dealership franchises, two collision centers, and an auto auction from the Park Place Dealership group for approximately **$685.0 million** of goodwill and **$50.0 million** for parts, fixed assets, and leaseholds[37](index=37&type=chunk)[40](index=40&type=chunk) - During the six months ended June 30, 2020, the company acquired three franchises (one dealership location) for **$63.6 million** and divested seven franchises (six dealership locations) and one collision center, recording a pre-tax **gain of** **$33.7 million**[53](index=53&type=chunk) - A **$23.0 million** pre-tax non-cash **impairment charge** was recognized for certain franchise rights as of March 31, 2020, due to the adverse impact of the COVID-19 pandemic[60](index=60&type=chunk) - The company redeemed its **6.00%** Senior Subordinated Notes due **2024** and issued new **4.50%** Senior Notes due **2028** and **4.75%** Senior Notes due **2030**. A special mandatory redemption of **$245.0 million** of **2028** Notes and **$280.0 million** of **2030** Notes occurred due to the termination of the initial Park Place acquisition[61](index=61&type=chunk)[63](index=63&type=chunk)[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook. It details the impact of the COVID-19 pandemic on operations, the status of the Park Place acquisition, and a comprehensive analysis of revenue, gross profit, and expenses for both the three and six months ended June 30, 2020, compared to the prior year. It also covers liquidity, capital resources, and cash flow activities [Forward-Looking Information](index=33&type=section&id=Forward-Looking%20Information) Discusses expectations regarding future sales, financial performance, capital expenditures, and economic conditions, along with key associated risk factors - Forward-looking statements include expectations on declines in sales and service revenue due to COVID-19, the financial performance of the Park Place Dealership group, future capital expenditures, and general economic conditions[96](index=96&type=chunk) - Key risk factors include the adverse impact of COVID-19, the ability to consummate and integrate the Revised Transaction, changes in economic conditions, disruptions in vehicle production, and compliance with financing covenants[97](index=97&type=chunk)[98](index=98&type=chunk) - The company expressly disclaims any obligation to update forward-looking statements contained in the report[100](index=100&type=chunk) [OVERVIEW](index=34&type=section&id=OVERVIEW) Describes the company's operational footprint, revenue streams, gross profit margin drivers, and flexible cost structure as of June 30, 2020 - As of June 30, 2020, the company operated **102** new vehicle franchises (**83** dealership locations) representing **31** automobile brands and **24** collision repair centers in **16** metropolitan markets within nine states[101](index=101&type=chunk) - New vehicle revenue brand mix for the six months ended June 30, 2020, consisted of **44%** imports, **33%** luxury, and **23%** domestic brands[103](index=103&type=chunk) - Revenue is primarily derived from new vehicle sales, used vehicle sales (retail and wholesale), parts and service, and finance and insurance (F&I) products[104](index=104&type=chunk) - Gross profit margin is expected to increase when used vehicle, parts and service, and F&I revenue increase as a percentage of total revenue, as these segments generally yield higher gross profit margins than new vehicle sales[105](index=105&type=chunk) - The company's cost structure is flexible, with significant portions being variable (e.g., sales commissions) or controllable (e.g., advertising), allowing adaptation to changes in the retail environment[105](index=105&type=chunk) [Impact of COVID-19 on Our Business](index=36&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Business) Details the adverse effects of the pandemic on sales and operations, management's cost mitigation strategies, and the company's liquidity position - The COVID-19 pandemic adversely impacted business operations, store traffic, and sales, with the seasonally adjusted annual rate (SAAR) of new vehicle sales in the U.S. for Q2 2020 at **11.3 million**, down from **17.1 million** in Q2 2019[108](index=108&type=chunk) - In response, management implemented various cost mitigation actions, including furloughing approximately **2,300** employees, reducing store hours, suspending **401(k)** match, temporary pay reductions, and a permanent workforce reduction of **1,300** employees[109](index=109&type=chunk)[110](index=110&type=chunk) - Cost-saving measures, such as reduced marketing expenses, deferred capital expenditures, and negotiated vendor discounts, led to profitability in May and June 2020 exceeding the prior year period[111](index=111&type=chunk) - A **$23.0 million** non-cash **impairment charge** related to intangible manufacturer franchise rights was recorded during Q1 2020 due to the adverse impact of the COVID-19 pandemic[112](index=112&type=chunk) - As of June 30, 2020, the company had **$746.9 million** in **total available liquidity**, comprising **$613.2 million** in cash and cash equivalents, **$116.7 million** in floor plan offset accounts, and **$17.0 million** in used vehicle revolving floor plan facility availability[113](index=113&type=chunk) [Park Place Acquisition](index=37&type=section&id=Park%20Place%20Acquisition) Outlines the termination of the initial agreement and the subsequent revised agreement for the acquisition of Park Place Dealership group, including financing details - The initial **Asset Purchase Agreement** for the Park Place Dealership group was terminated on March 24, 2020, resulting in a **$10.0 million** liquidated damages payment[117](index=117&type=chunk) - On July 6, 2020, a **Revised Asset Purchase Agreement** was entered into to acquire **12** new vehicle dealership franchises, two collision centers, and an auto auction from the Park Place Dealership group[118](index=118&type=chunk) - The **purchase price** for the Revised Transaction is approximately **$685.0 million** for goodwill and **$50.0 million** for parts, fixed assets, and leaseholds (excluding vehicle inventory), to be financed through a combination of cash, debt, and seller financing[119](index=119&type=chunk) - The Revised Transaction is subject to customary closing conditions, including approval from applicable automotive manufacturers, and is not subject to any financing condition[119](index=119&type=chunk) [RESULTS OF OPERATIONS (Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019)](index=38&type=section&id=RESULTS%20OF%20OPERATIONS%20(Three%20Months%20Ended%20June%2030%2C%202020%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030%2C%202019)) Analyzes the company's financial performance, including revenue, gross profit, and expenses, for the second quarter of 2020 versus 2019 | Metric | Q2 2020 (Millions) | Q2 2019 (Millions) | Change (Millions) | % Change | | :----- | :----------------- | :----------------- | :---------------- | :------- | | Total Revenue | $1,445.1 | $1,803.5 | $(358.4) | (20)% | | New Vehicle Revenue | $761.8 | $965.2 | $(203.4) | (21)% | | Used Vehicle Revenue | $447.5 | $533.6 | $(86.1) | (16)% | | Parts and Service Revenue | $169.2 | $224.5 | $(55.3) | (25)% | | F&I, net Revenue | $66.6 | $80.2 | $(13.6) | (17)% | | Total Gross Profit | $242.8 | $295.0 | $(52.2) | (18)% | | New Vehicle Gross Profit | $38.6 | $38.3 | $0.3 | 1% | | Used Vehicle Gross Profit | $37.1 | $35.9 | $1.2 | 3% | | Parts and Service Gross Profit | $100.5 | $140.6 | $(40.1) | (29)% | | F&I, net Gross Profit | $66.6 | $80.2 | $(13.6) | (17)% | | SG&A Expense | $152.2 | $200.7 | $(48.5) | (24)% | | Net Income | $49.6 | $54.9 | $(5.3) | (10)% | | Diluted EPS | $2.57 | $2.84 | $(0.27) | (10)% | | Floor Plan Interest Expense | $4.1 | $10.5 | (61)% | | Other Interest Expense, net | $11.8 | $13.6 | (13)% | | Income Tax Expense | $16.7 | $18.6 | (10)% | | Effective Tax Rate | 25.2% | 25.3% | (0.1)% pts | - New vehicle inventory ended Q2 2020 with approximately **52 days of supply**, below the target range of **70-75 days**, due to assembly line disruptions from the COVID-19 pandemic[130](index=130&type=chunk) - Used vehicle inventory ended Q2 2020 with **26 days of supply**, slightly below the target of **30-35 days**[134](index=134&type=chunk) - Wage guarantees to certain skilled technicians negatively impacted parts and service gross margin[137](index=137&type=chunk) - The decrease in SG&A was a result of employee furloughs, temporary pay reductions, negotiated vendor discounts, and reduced advertising and travel expenses. The company anticipates SG&A expense as a percentage of gross profit to return to the mid-to-upper **60%** range in future quarters[141](index=141&type=chunk) [RESULTS OF OPERATIONS (Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019)](index=49&type=section&id=RESULTS%20OF%20OPERATIONS%20(Six%20Months%20Ended%20June%2030%2C%202020%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030%2C%202019)) Provides a comprehensive analysis of the company's financial results, including revenue, gross profit, and net income, for the first half of 2020 compared to 2019 | Metric | H1 2020 (Millions) | H1 2019 (Millions) | Change (Millions) | % Change | | :----- | :----------------- | :----------------- | :---------------- | :------- | | Total Revenue | $3,052.4 | $3,474.3 | $(421.9) | (12)% | | New Vehicle Revenue | $1,583.9 | $1,837.0 | $(253.1) | (14)% | | Used Vehicle Revenue | $940.7 | $1,043.5 | $(102.8) | (10)% | | Parts and Service Revenue | $390.8 | $442.1 | $(51.3) | (12)% | | F&I, net Revenue | $137.0 | $151.7 | $(14.7) | (10)% | | Total Gross Profit | $515.2 | $574.2 | $(59.0) | (10)% | | Income From Operations | $117.2 | $163.7 | $(46.5) | (28)% | | Net Income | $69.1 | $95.8 | $(26.7) | (28)% | | Diluted EPS | $3.58 | $4.96 | $(1.38) | (28)% | | Franchise Rights Impairment | $23.0 | $0.0 | $23.0 | | Other Operating Expense, net | $8.9 | $1.2 | $7.7 | | Floor Plan Interest Expense | $11.1 | $20.7 | (46)% | | Loss on Extinguishment of Debt, net | $20.6 | $0.0 | $20.6 | | Gain on Dealership Divestitures, net | $33.7 | $11.7 | $22.0 | | Income Tax Expense | $21.3 | $31.4 | (32)% | | Effective Tax Rate | 23.6% | 24.7% | (1.1)% pts | | SG&A Expense | $346.9 | $391.7 | (11)% | | SG&A as % of Gross Profit | 67.3% | 68.2% | (0.9)% pts | - The seasonally adjusted annual rate (SAAR) of new vehicle sales in the U.S. for H1 2020 was **13.2 million**, a **22%** decrease from **17.0 million** in H1 2019[155](index=155&type=chunk) - As of June 30, 2020, the company had a **26-day supply** of used vehicle inventory, slightly below the targeted range of **30** to **35 days**[158](index=158&type=chunk) - Wage guarantees to certain skilled technicians negatively impacted the parts and service gross margin[162](index=162&type=chunk) - Other operating expense, net, included an **$11.6 million** charge related to the termination of the initial Park Place planned acquisition[168](index=168&type=chunk) - The **loss on extinguishment of debt** included a **$19.1 million** loss from redeeming **$600 million** **6%** Notes and a **$1.5 million** write-off of debt issuance costs due to the special mandatory redemption of new senior notes[169](index=169&type=chunk)[170](index=170&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=61&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Assesses the company's financial resources, including available liquidity, debt structure, and ability to meet future obligations - **Total available liquidity** as of June 30, 2020, was **$746.9 million**, consisting of **$613.2 million** in cash and cash equivalents, **$116.7 million** in floor plan offset accounts, and **$17.0 million** of availability under the used vehicle revolving floor plan facility[173](index=173&type=chunk) - The company believes it will have sufficient liquidity to meet its debt service, working capital, commitments, acquisitions, and capital expenditures for at least the next twelve months[175](index=175&type=chunk) - The termination of the initial Park Place acquisition led to a special mandatory redemption of **$245.0 million** of **2028** Notes and **$280.0 million** of **2030** Notes[176](index=176&type=chunk) - The **2019** Senior Credit Facility includes a **$250.0 million** Revolving Credit Facility (with **$237.0 million** outstanding and **$12.7 million** in letters of credit as of June 30, 2020), a **$1.04 billion** New Vehicle Floor Plan Facility (**$393.7 million** outstanding net of offset), and a **$160.0 million** Used Vehicle Floor Plan Facility (**$75.0 million** outstanding)[181](index=181&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) - New Senior Notes include **$280.0 million** of **4.50%** Senior Notes due **2028** and **$320.0 million** of **4.75%** Senior Notes due **2030** (after mandatory redemption)[190](index=190&type=chunk)[191](index=191&type=chunk) [Covenants](index=64&type=section&id=Covenants) Confirms the company's compliance with all debt and lease agreement covenants as of June 30, 2020 - The company was in compliance with all customary operating and restrictive covenants in its various debt and lease agreements as of June 30, 2020[196](index=196&type=chunk) [Share Repurchases and Dividend Restrictions](index=64&type=section&id=Share%20Repurchases%20and%20Dividend%20Restrictions) Details the company's share repurchase program authorization and restrictions on capital distributions imposed by debt covenants - The company's ability to repurchase shares or pay dividends is subject to debt covenants, requiring the **Consolidated Total Leverage Ratio** not to exceed **3.0** to **1.0** on a pro forma basis[196](index=196&type=chunk)[197](index=197&type=chunk) - As of June 30, 2020, **$66.3 million** **remained authorized** under the share repurchase program[199](index=199&type=chunk) - During the six months ended June 30, 2020, the company **repurchased** **56,467** shares for **$5.1 million** from employees in connection with net share settlements of equity-based awards[200](index=200&type=chunk) [Cash Flows](index=65&type=section&id=Cash%20Flows) Explains the classification of floor plan notes payable and the use of a non-GAAP adjusted operating cash flow measure for internal forecasting - Floor plan notes payable to manufacturer-affiliated lenders ('Trade') are classified as operating activities, while those to unaffiliated lenders ('Non-Trade') and for used vehicles are classified as financing activities[201](index=201&type=chunk)[202](index=202&type=chunk) - The company uses a non-GAAP measure, 'cash provided by operating activities, as adjusted,' to include non-trade floor plan borrowings and repayments (excluding acquisitions/divestitures and used vehicle inventory) for better comparability and internal forecasting[203](index=203&type=chunk)[204](index=204&type=chunk) [Operating Activities](index=66&type=section&id=Operating%20Activities) Analyzes the changes in cash generated from core business operations, highlighting key drivers for the increase in adjusted operating cash flow | Metric | H1 2020 (Millions) | H1 2019 (Millions) | Change (Millions) | | :----- | :----------------- | :----------------- | :---------------- | | Net cash provided by operating activities (as reported) | $554.6 | $160.5 | $394.1 | | Net cash provided by operating activities (as adjusted) | $255.4 | $85.4 | $170.0 | - The increase in adjusted operating cash flow was primarily due to a **$70.9 million** increase related to lower balances of accounts receivable and contracts-in-transit, a **$28.6 million** increase in other current assets, and an **$85.9 million** increase related to the change in inventory, net of floor plan borrowings[208](index=208&type=chunk) [Investing Activities](index=66&type=section&id=Investing%20Activities) Details cash flows related to acquisitions, divestitures, and capital expenditures, including the funding of franchise acquisitions and proceeds from sales | Metric | H1 2020 (Millions) | H1 2019 (Millions) | Change (Millions) | | :----- | :----------------- | :----------------- | :---------------- | | Net cash provided by (used in) investing activities | $36.1 | $(92.3) | $128.4 | | Capital expenditures (excl. real estate) | $(18.2) | $(15.5) | $(2.7) | | Acquisitions | $(63.1) | $(118.5) | $55.4 | | Divestitures proceeds | $115.5 | $39.1 | $76.4 | - Acquired three franchises (one dealership location) for **$63.6 million**, funded with **$34.5 million** cash and **$27.1 million** floor plan borrowings[209](index=209&type=chunk)[210](index=210&type=chunk) - Sold seven franchises (six dealership locations) and one collision center for an aggregate **purchase price** of **$115.5 million**[212](index=212&type=chunk) - Expected capital expenditures for **2020** will total approximately **$29.3 million** for facility upgrades, new constructions, service capacity expansion, and technology/equipment investments[209](index=209&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk) [Financing Activities](index=67&type=section&id=Financing%20Activities) Summarizes cash flows from debt activities, including floor plan borrowings, repayments, and common stock repurchases related to employee awards | Metric | H1 2020 (Millions) | H1 2019 (Millions) | Change (Millions) | | :----- | :----------------- | :----------------- | :---------------- | | Net cash provided by (used in) financing activities | $19.0 | $(66.9) | $85.9 | | Non-trade floor plan borrowings (excl. acquisitions) | $1,633.8 | $2,044.9 | $(411.1) | | Non-trade floor plan repayments (excl. divestitures) | $(1,858.0) | $(2,121.2) | $263.2 | | Proceeds from borrowings | $1,424.7 | $0.0 | $1,424.7 | | Repayments of borrowings | $(1,157.2) | $(7.9) | $(1,149.3) | | Repurchases of common stock (employee awards) | $(5.1) | $(16.3) | $11.2 | - Proceeds of **$7.3 million** were received related to a sale and leaseback of real estate in Plano, Texas[218](index=218&type=chunk) [Off Balance Sheet Arrangements](index=67&type=section&id=Off%20Balance%20Sheet%20Arrangements) Discloses the company's off-balance sheet commitments, primarily letters of credit and surety bonds, as of June 30, 2020 - The company had no off-balance sheet arrangements during the periods presented other than those disclosed in Note **12** 'Commitments and Contingencies'[91](index=91&type=chunk) - As of June 30, 2020, these included **$12.7 million** of letters of credit and a **$5.3 million** surety bond line[219](index=219&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk on its variable interest rate debt, with a **100** basis point change potentially impacting annual interest expense by **$9.3 million** based on **$926.5 million** of variable debt as of June 30, 2020. To mitigate this, the company uses interest rate swap agreements that qualify for cash flow hedge accounting [Interest Rate Risk](index=68&type=section&id=Interest%20Rate%20Risk) Discusses the company's exposure to interest rate fluctuations on variable debt and the use of interest rate swaps for hedging purposes - A **100** basis point change in interest rates could result in a change of as much as **$9.3 million** to total annual interest expense, based on **$926.5 million** of **total variable interest rate debt** outstanding as of June 30, 2020[221](index=221&type=chunk) - The company uses interest rate swap agreements to mitigate exposure to fluctuations in interest rates, which qualify for cash flow hedge accounting treatment[223](index=223&type=chunk) - **Notional values** of interest rate swap agreements as of June 30, 2020, were **$77.2 million** (maturing February 2025) and **$50.8 million** (maturing September 2023)[224](index=224&type=chunk)[225](index=225&type=chunk) [Item 4. Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, providing reasonable assurance that information required for SEC reports is recorded, processed, summarized, and reported timely. No material changes in internal control over financial reporting occurred during the quarter [Disclosure Controls and Procedures](index=68&type=section&id=Disclosure%20Controls%20and%20Procedures) Confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2020, ensuring timely and accurate reporting - The company's **disclosure controls and procedures** were evaluated and concluded to be effective as of June 30, 2020, ensuring timely and accurate reporting of information required by the Exchange Act[227](index=227&type=chunk) - Management acknowledges that control systems provide reasonable, not absolute, assurance and have inherent limitations, meaning they cannot prevent all possible errors or fraud[227](index=227&type=chunk) [Changes in Internal Control Over Financial Reporting](index=68&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) States that no material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020 - There were **no changes** in the company's internal control over financial reporting during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[228](index=228&type=chunk) [PART II—Other Information](index=69&type=section&id=PART%20II%E2%80%94Other%20Information) This section covers legal proceedings, additional risk factors, equity security sales, mine safety disclosures, and a list of exhibits [Item 1. Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) The company and its dealerships are periodically involved in various claims and legal proceedings, including audits by manufacturers/lenders and litigation related to administrative fees, employment, and financing. While loss contingency reserves are established for probable and estimable outcomes, **no known claim is anticipated to materially adversely affect** financial condition, liquidity, or results of operations - The company is involved in various claims and legal proceedings, including financial and other audits by vehicle manufacturers or lenders, and litigation related to administrative fees, employment-related matters, and truth-in-lending practices[229](index=229&type=chunk) - Loss contingency reserves are established based on outcomes believed to be probable and reasonably estimable[230](index=230&type=chunk) - Currently, **no known claim is anticipated to materially adversely affect** the company's financial condition, liquidity, or results of operations, though the outcome of any matter cannot be predicted with certainty[230](index=230&type=chunk) [Item 1A. Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) This section highlights additional risk factors, primarily focusing on the Revised Transaction (Park Place acquisition). Key risks include the complexities of integration, potential for unanticipated liabilities, challenges in managing a larger and more diversified business, retaining personnel, and the possibility of the **purchase price** increasing from estimates - The Revised Transaction (Park Place acquisition), if consummated, will create numerous risks and uncertainties, including significant capital expenditure and management attention required for integration[232](index=232&type=chunk)[233](index=233&type=chunk) - Integration difficulties include managing a significantly larger company, the effects of unanticipated liabilities, integrating separate business cultures, attracting and retaining necessary personnel, and creating uniform systems[234](index=234&type=chunk)[235](index=235&type=chunk) - Failure to realize anticipated cost savings or operational improvements from the proposed transaction could result in increased costs and adversely affect the combined company's financial results and prospects[236](index=236&type=chunk) - Post-closing recourse for liabilities related to the Park Place Dealership group is limited, and unknown or contingent liabilities could have a material adverse effect on the business[237](index=237&type=chunk) - The **purchase price** for the Revised Transaction could increase significantly from current estimates due to fluctuations in vehicle inventory value, potentially impacting the company's liquidity[240](index=240&type=chunk)[241](index=241&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) As of June 30, 2020, the company had **$66.3 million** **remaining authorization** under its **$100.0 million** share repurchase program. **No shares were repurchased** under this program during the three months ended June 30, 2020, but **2,552** shares were **repurchased** for **$0.1 million** from employees for net share settlements of equity-based awards - As of June 30, 2020, the company had **remaining authorization** to repurchase **$66.3 million** in shares of its common stock under the Repurchase Program[242](index=242&type=chunk) - During the three months ended June 30, 2020, the company did **not repurchase** any shares under the Repurchase Program[242](index=242&type=chunk) - During the three months ended June 30, 2020, **2,552** shares of common stock were **repurchased** for **$0.1 million** from employees in connection with net share settlements of employee equity-based awards[242](index=242&type=chunk) [Item 4. Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is **not applicable** to the company - This item is **not applicable** to the company[243](index=243&type=chunk) [Item 6. Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the **Asset Purchase Agreement** for the Park Place acquisition, **CEO and CFO certifications** (Sarbanes-Oxley Act), and **XBRL-related documents** - Exhibit **2.1**: **Asset Purchase Agreement**, dated July 6, 2020, related to the Park Place acquisition[245](index=245&type=chunk) - Exhibits **31.1**, **31.2**, **32.1**, **32.2**: **Certificates of Chief Executive Officer and Chief Financial Officer** pursuant to the Securities Exchange Act of **1934** and the Sarbanes-Oxley Act of **2002**[245](index=245&type=chunk) - Exhibits **101.INS**, **101.SCH**, **101.CAL**, **101.DEF**, **101.LAB**, **101.PRE**, **104**: **XBRL Instance Document and Taxonomy Extension Documents**[245](index=245&type=chunk) [Signatures](index=74&type=section&id=Signatures) The report is signed by **David W. Hult**, Chief Executive Officer and President, and **Patrick J. Guido**, Senior Vice President and Chief Financial Officer, on July 31, 2020 - The report was signed by **David W. Hult**, Chief Executive Officer and President, and **Patrick J. Guido**, Senior Vice President and Chief Financial Officer, on July 31, 2020[248](index=248&type=chunk) [Index to Exhibits](index=75&type=section&id=Index%20to%20Exhibits) Provides a detailed index of all exhibits filed with the Form 10-Q, reiterating the information from Item 6 - Provides a detailed index of all exhibits filed with the Form **10-Q**, including the **Asset Purchase Agreement**, **CEO/CFO certifications**, and **XBRL documents**[249](index=249&type=chunk)

Financial Data and Key Metrics Changes - The company achieved record second quarter results with an adjusted EPS of $2.52, up 6% from the prior year despite a 20% decrease in revenue and an 18% decrease in gross profit due to COVID-19 impacts [8][14][15] - Operating margin reached a record 5.7%, with SG&A as a percentage of gross profit decreasing to 62.7%, down 530 basis points from the prior year [8][14][15] - Gross margin expanded by 40 basis points to 16.8% driven by proactive inventory management [14] Business Line Data and Key Metrics Changes - New vehicle sales volume decreased by 23% year-over-year, but gross profit per vehicle increased by $436, or 30% [11] - Used vehicle gross profit margin was 7.5%, up 30 basis points, with gross profit per vehicle at $1,690 [12] - Parts and service revenue decreased but rebounded in June, ending flat in gross profit compared to the prior year [13] Market Data and Key Metrics Changes - The SAAR (Seasonally Adjusted Annual Rate) for the quarter dropped 34% to 11.3 million units [8] - The company noted that the retail SAAR was down 24% for the quarter, indicating a challenging market environment [11] Company Strategy and Development Direction - The company is focused on deleveraging and enhancing its omnichannel tools to become the most guest-centric automotive retailer [10] - The Park Place acquisition is on track to close in late August under more flexible financing terms, which is expected to enhance the company's market position [10][17] - The company aims to refine its omnichannel strategy, with 20% of used vehicle purchases completed online [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current environment and anticipates inventory normalization by September [20] - The company expects SG&A as a percentage of gross profit to be in the mid to high 60s for the full year 2020, indicating a return to more typical expense levels as the market stabilizes [15][22] - Management remains cautious about the future, particularly regarding potential impacts from the pandemic in the fall [25] Other Important Information - The company ended the quarter with approximately $747 million in liquidity, including $613 million in cash [16] - The net leverage ratio stood at 1.5 times, well below the target leverage of 3.0 times, providing flexibility for acquisitions [17] Q&A Session Summary Question: Inventory normalization timeline and GPU sustainability - Management believes inventory normalization will begin around September, with GPUs expected to remain high in the near term [20][21] Question: SG&A to gross profit ratio sustainability - Management indicated that while the current SG&A ratio is low, some expenses will return as the environment normalizes [22][23] Question: Outlook for parts and service growth - Management expects incremental growth in parts and service, excluding collision, which has been lagging [25] Question: Impact of COVID-19 on Florida operations - Management reported no material impact on Florida operations despite the pandemic, indicating strong performance [28] Question: Industry consolidation and acquisition considerations - Management does not foresee significant consolidation due to franchise agreements and market dynamics [30][31] Question: Digital initiatives and omnichannel strategy - Management is focused on enhancing digital capabilities and believes online transactions can reduce SG&A over time [34][35] Question: Used vehicle pricing dynamics - Management noted strong used vehicle pricing due to supply constraints and pent-up demand, but future pricing trends remain uncertain [40][84]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements for Asbury Automotive Group, Inc. as of March 31, 2020, and for the three-month period then ended, along with management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Asbury Automotive Group, Inc. as of March 31, 2020, and for the three-month period then ended, including balance sheets, statements of income, comprehensive income, shareholders' equity, and cash flows, along with accompanying notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of March 31, 2020, shows a significant increase in cash and cash equivalents to $388.6 million from $3.5 million at year-end 2019, primarily driven by increased borrowings. Total assets grew to $3.07 billion, while long-term debt also increased substantially to $1.12 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $388.6 | $3.5 | | Inventories | $1,059.7 | $985.0 | | Total current assets | $1,753.2 | $1,602.6 | | Total assets | $3,069.2 | $2,911.3 | | **Liabilities & Equity** | | | | Total current liabilities | $1,181.9 | $1,247.0 | | Long-term debt | $1,117.5 | $907.0 | | Total liabilities | $2,408.3 | $2,265.0 | | Total shareholders' equity | $660.9 | $646.3 | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the first quarter of 2020, total revenues decreased by 3.8% to $1.61 billion compared to the same period in 2019. Net income saw a significant drop of 52.3% to $19.5 million, largely due to a $23.0 million franchise rights impairment charge and a $20.6 million loss on debt extinguishment, partially offset by a $33.7 million gain on dealership divestitures Q1 2020 vs Q1 2019 Income Statement (in millions, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Revenue | $1,607.3 | $1,670.8 | | Gross Profit | $272.4 | $279.2 | | Income from Operations | $35.0 | $77.8 | | Franchise rights impairment | $23.0 | $0.0 | | Loss on extinguishment of long-term debt, net | $20.6 | $0.0 | | Gain on dealership divestitures, net | $(33.7) | $0.0 | | Net Income | $19.5 | $40.9 | | Diluted EPS | $1.01 | $2.11 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2020, net cash from operating activities nearly doubled to $127.7 million from $65.2 million in the prior year period. Investing activities provided $45.2 million in cash, a reversal from a $127.0 million use of cash in 2019, mainly due to proceeds from divestitures. Financing activities provided $212.2 million, primarily from new debt proceeds used for debt redemption and to bolster liquidity Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $127.7 | $65.2 | | Net cash provided by (used in) investing activities | $45.2 | $(127.0) | | Net cash provided by financing activities | $212.2 | $64.4 | | **Net increase in cash and cash equivalents** | **$385.1** | **$2.6** | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on significant accounting policies, acquisitions and divestitures, debt refinancing, and the impact of COVID-19. Key events include the acquisition of three franchises in Denver, the divestiture of seven franchises, the termination of the Park Place acquisition, a $23.0 million franchise rights impairment charge, and significant debt restructuring - As of March 31, 2020, the company operated **102 new vehicle franchises** across **83 dealership locations** and **24 collision centers** The new vehicle revenue mix was **43% imports**, **34% luxury**, and **23% domestic**[14](index=14&type=chunk) - In Q1 2020, the company acquired three franchises in Denver for **$63.6 million** and sold seven franchises in Georgia and Mississippi, recording a pre-tax gain of **$33.7 million**[37](index=37&type=chunk)[42](index=42&type=chunk) - The company terminated the planned acquisition of Park Place Dealerships on March 24, 2020, resulting in a **$10.0 million** liquidated damages payment, recorded as an operating expense[44](index=44&type=chunk) - Due to the adverse impact of the COVID-19 pandemic, the company performed impairment tests and recognized a **$23.0 million** pre-tax non-cash impairment charge on certain franchise rights[52](index=52&type=chunk)[57](index=57&type=chunk) - The company redeemed its **$600 million** 6.00% Notes due 2024, incurring a **$19.1 million** loss on extinguishment It also issued new 4.50% Notes due 2028 and 4.75% Notes due 2030, and subsequently completed a special mandatory redemption of a portion of these new notes following the termination of the Park Place acquisition[65](index=65&type=chunk)[66](index=66&type=chunk)[68](index=68&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant negative impact of the COVID-19 pandemic on Q1 2020 results, particularly in late March. The report details a 4% decline in total revenue and a 52% drop in net income year-over-year. Key events analyzed include a franchise rights impairment, a gain on divestitures, and major debt refinancing. The company also outlines its response to the pandemic, including cost-cutting measures and actions to enhance liquidity, such as drawing down on credit facilities [Impact of COVID-19 and Company Response](index=30&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Business) The COVID-19 pandemic severely impacted business operations in late March, causing significant declines in vehicle sales and service traffic. In response, management furloughed approximately 2,300 employees, reduced store hours, implemented temporary pay reductions, and suspended the 401(k) match. To preserve liquidity, the company also reduced marketing expenses, deferred capital expenditures, and drew down an additional $237 million from its Revolving Credit Facility and $110 million from its Used Vehicle Floor Plan Facility - The pandemic led to significant declines in new and used vehicle sales in late March, with the new vehicle SAAR for the month dropping to **11.4 million**[112](index=112&type=chunk)[119](index=119&type=chunk) - In response to the downturn, the company took actions including furloughing **~2,300 employees**, reducing pay for all employees and directors, and suspending the 401(k) match[113](index=113&type=chunk) - As a precautionary measure, the company borrowed an additional **$237 million** under its Revolving Credit Facility and **$110 million** under its Used Vehicle Floor Plan Facility[116](index=116&type=chunk) - A **$23.0 million** non-cash impairment charge was recorded on intangible manufacturer franchise rights due to the pandemic's impact[115](index=115&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q1 2020 total revenue decreased 4% to $1.61 billion, while gross profit fell 2% to $272.4 million. New vehicle revenue dropped 6% on a 9% unit decline, though gross profit per unit increased. Used vehicle revenue fell 3%, with gross profit down 11%. Parts and service revenue grew 2%, but gross profit was flat. SG&A expenses increased to 71.5% of gross profit, up from 68.4% in the prior year, reflecting the decline in gross profit Revenue by Segment (in millions) | Segment | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | New vehicle | $822.1 | $871.8 | (6)% | | Used vehicle | $493.2 | $509.9 | (3)% | | Parts and service | $221.6 | $217.6 | 2% | | Finance and insurance, net | $70.4 | $71.5 | (2)% | | **Total Revenue** | **$1,607.3** | **$1,670.8** | **(4)%** | Gross Profit by Segment (in millions) | Segment | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | New vehicle | $36.4 | $37.9 | (4)% | | Used vehicle | $30.7 | $34.5 | (11)% | | Parts and service | $134.9 | $135.3 | —% | | Finance and insurance, net | $70.4 | $71.5 | (2)% | | **Total Gross Profit** | **$272.4** | **$279.2** | **(2)%** | - SG&A as a percentage of gross profit increased by **310 basis points** to **71.5%**, primarily due to the decline in gross profit caused by the COVID-19 pandemic[141](index=141&type=chunk) - Other operating expense of **$10.2 million** included an **$11.6 million** charge related to the terminated Park Place acquisition[143](index=143&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of March 31, 2020, the company had total available liquidity of $581.1 million, consisting of $388.6 million in cash, $180.0 million in floor plan offset accounts, and $12.5 million in credit facility availability. The company terminated the Park Place acquisition, leading to a partial redemption of newly issued senior notes. Cash flow from operations increased to $127.7 million, and the company believes it has sufficient liquidity for the next twelve months - Total available liquidity was **$581.1 million** as of March 31, 2020, composed of cash, floor plan offset funds, and used vehicle facility availability[147](index=147&type=chunk) - The company terminated the Park Place acquisition and, as a result, conducted a special mandatory redemption of **$245.0 million** of its 2028 Notes and **$280.0 million** of its 2030 Notes[149](index=149&type=chunk)[150](index=150&type=chunk) - Net cash provided by operating activities increased to **$127.7 million** for Q1 2020, compared to **$65.2 million** in Q1 2019[182](index=182&type=chunk) - The company did not repurchase any shares under its Repurchase Program in Q1 2020 It had **$66.3 million** remaining under the authorization as of March 31, 2020[175](index=175&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to interest rate risk on its variable-rate debt, which totaled $1.18 billion as of March 31, 2020. A 100 basis point change in interest rates could alter annual interest expense by approximately $11.8 million. To mitigate this risk, the company utilizes two interest rate swap agreements with a combined notional value of $130.3 million - The company has significant exposure to interest rate changes on **$1.18 billion** of variable-rate debt, including floor plan notes[195](index=195&type=chunk) - A hypothetical **100 basis point (1%)** change in interest rates would result in an estimated **$11.8 million** change to annual interest expense[195](index=195&type=chunk) - The company uses two interest rate swap agreements to hedge against variable rate cash flow fluctuations, with notional values of **$78.5 million** and **$51.8 million** as of March 31, 2020[198](index=198&type=chunk)[199](index=199&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2020. There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[201](index=201&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2020, that materially affected or are likely to materially affect the company's internal controls[202](index=202&type=chunk) [PART II. OTHER INFORMATION](index=52&type=section&id=PART%20II%E2%80%94Other%20Information) This section covers legal proceedings, risk factors, equity security sales, mine safety disclosures, and a list of exhibits filed with the report [Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various routine claims and legal proceedings arising from its business operations. Management evaluates these claims and establishes reserves when losses are probable and estimable. Currently, the company does not anticipate that any known claim will have a material adverse effect on its financial condition, liquidity, or results of operations - The company is subject to various claims from its business, including audits by manufacturers and lenders, and litigation related to employment, financing, and other matters[203](index=203&type=chunk) - Management does not currently expect any known claim to materially and adversely affect the company's financial condition, liquidity, or results of operations[204](index=204&type=chunk) [Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) This section highlights that the COVID-19 global pandemic is a material risk factor expected to continue adversely impacting the business. The pandemic has disrupted operations, reduced consumer demand, and affected supply chains. It led to a franchise rights impairment charge in Q1 2020 and may result in additional charges. The full extent of the impact remains uncertain and depends on the pandemic's duration and severity - The COVID-19 global pandemic is identified as a significant risk factor with an expected continued material adverse impact on business, financial condition, and results of operations[206](index=206&type=chunk) - Risks include operational disruptions from 'shelter in place' orders, reduced consumer spending due to unemployment and fear, and supply chain interruptions from manufacturer production slowdowns[208](index=208&type=chunk)[209](index=209&type=chunk)[211](index=211&type=chunk) - The pandemic's impact on profitability and market capitalization increases the risk of future impairment charges, following the **$23.0 million** charge recorded in Q1 2020[212](index=212&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the first quarter of 2020, the company did not repurchase any shares of its common stock under its formal Repurchase Program. However, it did repurchase 53,915 shares for $5.0 million from employees to settle tax obligations related to equity-based awards. As of March 31, 2020, $66.3 million remained authorized for future repurchases under the program - No shares were repurchased under the formal Repurchase Program during the three months ended March 31, 2020[215](index=215&type=chunk) - The company repurchased **53,915 shares** for **$5.0 million** from employees in connection with net share settlements of equity awards[215](index=215&type=chunk) - As of March 31, 2020, the company had **$66.3 million** remaining under its share repurchase authorization[215](index=215&type=chunk) [Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[216](index=216&type=chunk) [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including indentures for new senior notes, credit agreements, officer certifications required by the Sarbanes-Oxley Act, and XBRL data files - Lists various agreements and certifications filed as exhibits, including indentures for the 2028 and 2030 Senior Notes, credit agreements, and Sarbanes-Oxley certifications[218](index=218&type=chunk)[223](index=223&type=chunk)