[FORM 10-Q](index=1&type=section&id=FORM%2010-Q) [Registrant Information](index=1&type=section&id=Registrant%20Information) This section details Sonic Automotive, Inc.'s corporate information, including its Delaware incorporation, filer status, and outstanding common stock - Sonic Automotive, Inc. filed a Quarterly Report on Form 10-Q for the period ended September 30, 2023[2](index=2&type=chunk) - The registrant is a Delaware corporation with Commission File Number: **1-13395**[2](index=2&type=chunk) Filer Status and Common Stock Outstanding | Category | Status | | :--- | :--- | | Filer Status | Large accelerated filer | | Class A Common Stock Outstanding (Oct 24, 2023) | 21,857,279 shares | | Class B Common Stock Outstanding (Oct 24, 2023) | 12,029,375 shares | [Uncertainty of Forward-Looking Statements and Information](index=2&type=section&id=UNCERTAINTY%20OF%20FORWARD-LOOKING%20STATEMENTS%20AND%20INFORMATION) This section cautions that forward-looking statements involve risks and uncertainties, with actual results potentially differing materially from projections - The report includes forward-looking statements, which are not guarantees of future performance and actual results may differ materially[5](index=5&type=chunk)[6](index=6&type=chunk) - Key risk factors include new and used vehicle sales volume, ability to fund expansion and operations, EchoPark store operations, vehicle manufacturer reputation and financial condition, relationships with manufacturers, legal proceedings, changes in laws/regulations, supply chain disruptions, general economic conditions (interest rates, inflation, consumer spending), high competition, and control by principal stockholders[6](index=6&type=chunk)[8](index=8&type=chunk) [Table of Contents](index=3&type=section&id=TABLE%20OF%20CONTENTS) This section outlines the Form 10-Q's structure, detailing financial and other information items with their corresponding page numbers - The report is structured into two main parts: Part I – Financial Information and Part II – Other Information[10](index=10&type=chunk) - Part I includes Financial Statements, Management's Discussion and Analysis, Market Risk Disclosures, and Controls and Procedures[10](index=10&type=chunk) - Part II covers Legal Proceedings, Risk Factors, Equity Sales/Purchases, Other Information, and Exhibits[10](index=10&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and detailed accounting notes [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Three Months Ended September 30 (in millions) | Metric | 2023 | 2022 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Revenues | $3,643.5 | $3,448.1 | +5.7% | | Gross Profit | $582.2 | $580.7 | +0.3% | | Operating Income | $137.4 | $148.9 | -7.7% | | Net Income | $68.4 | $87.3 | -21.7% | | Basic EPS | $1.96 | $2.28 | -14.0% | | Diluted EPS | $1.92 | $2.23 | -13.9% | Nine Months Ended September 30 (in millions) | Metric | 2023 | 2022 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Revenues | $10,787.6 | $10,410.5 | +3.6% | | Gross Profit | $1,704.6 | $1,740.9 | -2.1% | | Operating Income | $322.1 | $458.1 | -29.7% | | Net Income | $139.5 | $279.4 | -50.1% | | Basic EPS | $3.94 | $7.09 | -44.5% | | Diluted EPS | $3.85 | $6.90 | -44.2% | [Condensed Consolidated Statements of Comprehensive Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Operations) Three Months Ended September 30 (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income | $68.4 | $87.3 | | Other Comprehensive Income (Loss) | $0.2 | $— | | Comprehensive Income | $68.6 | $87.3 | Nine Months Ended September 30 (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income | $139.5 | $279.4 | | Other Comprehensive Income (Loss) | $1.1 | $0.5 | | Comprehensive Income | $140.6 | $279.9 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023 vs. December 31, 2022 (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | **Assets:** | | | | | Total Current Assets | $2,241.5 | $2,206.3 | +$35.2 | | Total Assets | $5,050.3 | $4,978.3 | +$72.0 | | **Liabilities & Equity:** | | | | | Total Current Liabilities | $2,009.2 | $1,845.4 | +$163.8 | | Long-Term Debt | $1,623.1 | $1,672.2 | -$49.1 | | Total Stockholders' Equity | $857.5 | $895.2 | -$37.7 | | Total Liabilities and Stockholders' Equity | $5,050.3 | $4,978.3 | +$72.0 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2023 vs. Dec 31, 2022, in millions) | Metric | Dec 31, 2022 | Sep 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $895.2 | $857.5 | -$37.7 | | Net Income | - | $139.5 | +$139.5 | | Purchases of Treasury Stock | - | $(177.5) | -$177.5 | | Dividends Paid (Class A & B) | - | $(29.7) | -$29.7 | | Stock Compensation Expense | - | $17.3 | +$17.3 | | Effect of cash flow hedge instruments, net of tax | - | $1.1 | +$1.1 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Nine Months Ended September 30 (in millions) | Cash Flow Activity | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $104.2 | $645.4 | -$541.2 | | Net Cash Used in Investing Activities | $(171.4) | $(276.1) | +$104.7 | | Net Cash Used in Financing Activities | $(127.4) | $(529.7) | +$402.3 | | Net Decrease in Cash and Cash Equivalents | $(194.6) | $(160.4) | -$34.2 | | Cash and Cash Equivalents, End of Period | $34.6 | $139.0 | -$104.4 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Summary of Significant Accounting Policies](index=10&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the basis of financial statement presentation, GAAP adherence, key revenue recognition policies, and a goodwill impairment test date change - The financial statements are unaudited and prepared in accordance with GAAP for interim financial information[27](index=27&type=chunk) - The company voluntarily changed its annual goodwill and other intangible assets impairment test date from October 1 to April 30, effective Q1 2023, for better alignment with financial information availability[29](index=29&type=chunk) - Revenue is recognized when a customer obtains control of promised goods or services, with material streams identified as new/used vehicle sales, wholesale vehicle sales, F&I product arrangements, and vehicle maintenance/repair services[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 2. Business Acquisitions and Dispositions](index=11&type=section&id=Note%202.%20Business%20Acquisitions%20and%20Dispositions) This note details Q3 2023 acquisitions and dispositions, including a Powersports business purchase and charges from EchoPark store suspensions and closures - Acquired one Powersports business (five locations) for approximately **$75.1 million** during the nine months ended September 30, 2023[38](index=38&type=chunk) - Disposed of three franchised dealerships (one luxury, one domestic, one mid-line import) for approximately **$52.2 million** in net cash during the nine months ended September 30, 2023[40](index=40&type=chunk) - Recorded a total charge of approximately **$75.2 million** in Q2 2023 and an additional **$4.8 million** in Q3 2023 related to indefinitely suspending operations at eight EchoPark locations and closing three Northwest Motorsport stores[40](index=40&type=chunk) [Note 3. Inventories](index=12&type=section&id=Note%203.%20Inventories) This note details the increase in inventories, primarily new vehicle stock, as of September 30, 2023, compared to year-end 2022 Inventories (in millions) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | New vehicles | $637.7 | $449.3 | | Used vehicles | $523.4 | $534.0 | | Service loaners | $173.9 | $143.8 | | Parts, accessories and other | $98.9 | $89.7 | | **Total Inventories** | **$1,433.9** | **$1,216.8** | [Note 4. Property and Equipment](index=12&type=section&id=Note%204.%20Property%20and%20Equipment) This note details the increase in net property and equipment, capital expenditures, and impairment charges from EchoPark store closures Property and Equipment, Net (in millions) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Land | $487.8 | $478.2 | | Buildings and improvements | $1,404.0 | $1,365.3 | | Furniture, fixtures and equipment | $557.3 | $504.1 | | Construction in progress | $69.7 | $57.0 | | Total, at cost | $2,518.8 | $2,404.6 | | Less accumulated depreciation | $(907.7) | $(842.9) | | Subtotal | $1,611.1 | $1,561.7 | | Less assets held for sale | $(11.9) | $— | | **Property and equipment, net** | **$1,599.2** | **$1,561.7** | - Capital expenditures were approximately **$153.6 million** for the nine months ended September 30, 2023, primarily for real estate, new store construction, and building improvements[43](index=43&type=chunk) - Fixed asset impairment charges of approximately **$32.5 million** were recorded for the nine months ended September 30, 2023, mainly due to EchoPark store closures[44](index=44&type=chunk) [Note 5. Goodwill and Intangible Assets](index=12&type=section&id=Note%205.%20Goodwill%20and%20Intangible%20Assets) This note details the increase in goodwill from Powersports acquisitions and confirms no impairment was found in the annual test as of April 30, 2023 - Goodwill is tested for impairment at least annually (as of April 30) or more frequently if indications exist[45](index=45&type=chunk) - The annual impairment testing as of April 30, 2023, determined no impairment for goodwill or indefinite-lived franchise assets[47](index=47&type=chunk)[48](index=48&type=chunk) Changes in Goodwill (in millions) | Segment | Dec 31, 2022 | Additions (2023) | Reductions (2023) | Prior Year Allocations (2023) | Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $221.8 | $— | $(1.8) | $(0.4) | $219.6 | | EchoPark | $— | $— | $— | $— | $— | | Powersports | $9.2 | $11.9 | $— | $2.9 | $24.0 | | **Total** | **$231.0** | **$11.9** | **$(1.8)** | **$2.5** | **$243.6** | [Note 6. Long-Term Debt](index=13&type=section&id=Note%206.%20Long-Term%20Debt) This note details the decrease in long-term debt, various credit facilities, and compliance with financial covenants as of September 30, 2023 Long-Term Debt (in millions) | Debt Type | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | 4.625% Senior Notes due 2029 | $650.0 | $650.0 | | 4.875% Senior Notes due 2031 | $500.0 | $500.0 | | 2019 Mortgage Facility | $315.0 | $327.0 | | Mortgage notes to finance companies (fixed rate) | $166.3 | $186.6 | | Mortgage notes to finance companies (variable rate) | $76.8 | $116.0 | | **Total Debt (net of issuance costs)** | **$1,683.5** | **$1,751.7** | | Less current maturities | $(60.4) | $(79.5) | | **Long-term debt** | **$1,623.1** | **$1,672.2** | - The 2021 Revolving Credit Facility has **$288.9 million** remaining borrowing availability as of September 30, 2023[55](index=55&type=chunk) - The company was in compliance with all financial covenants under the 2021 Credit Facilities and the 2019 Mortgage Facility as of September 30, 2023[70](index=70&type=chunk) [Note 7. Commitments and Contingencies](index=16&type=section&id=Note%207.%20Commitments%20and%20Contingencies) This note outlines legal proceedings, guarantees, and indemnification obligations, with management not expecting a material adverse financial effect - Management believes current and threatened legal proceedings will not have a material adverse effect on Sonic's business or financial results[78](index=78&type=chunk) - The company retains responsibility for certain obligations under assigned/sublet real property leases post-dealership dispositions[74](index=74&type=chunk)[75](index=75&type=chunk) - Maximum exposure for general indemnifications related to dealership sales was approximately **$8.0 million** as of September 30, 2023[76](index=76&type=chunk) - Guarantees floor plan commitments of a **50%**-owned joint venture, amounting to approximately **$4.3 million** as of September 30, 2023[77](index=77&type=chunk) [Note 8. Fair Value Measurements](index=17&type=section&id=Note%208.%20Fair%20Value%20Measurements) This note compares fair values to carrying values for financial instruments, noting fixed-rate long-term debt's fair value is generally lower - Fair values of most financial instruments (receivables, floor plan notes, revolving credit borrowings) approximated their carrying values[82](index=82&type=chunk) Fair Value vs. Carrying Value of Fixed Rate Long-Term Debt (in millions) | Debt Type | Sep 30, 2023 Fair Value | Sep 30, 2023 Carrying Value | Dec 31, 2022 Fair Value | Dec 31, 2022 Carrying Value | | :--- | :--- | :--- | :--- | :--- | | 4.875% Notes | $397.5 | $500.0 | $390.3 | $500.0 | | 4.625% Notes | $536.3 | $650.0 | $519.5 | $650.0 | | Mortgage Notes | $159.0 | $166.3 | $174.0 | $186.6 | [Note 9. Segment Information](index=18&type=section&id=Note%209.%20Segment%20Information) This note details the performance of Franchised Dealerships, EchoPark, and Powersports segments, highlighting revenue and income trends - Sonic Automotive has three operating segments: Franchised Dealerships, EchoPark, and Powersports[85](index=85&type=chunk) Segment Revenues (Three Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $2,959.8 | $2,840.3 | $119.5 | 4% | | EchoPark | $626.7 | $590.8 | $35.9 | 6% | | Powersports | $57.0 | $17.0 | $40.0 | 235% | | **Total Consolidated** | **$3,643.5** | **$3,448.1** | **$195.4** | **6%** | Segment Income (Loss) (Three Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $101.5 | $146.3 | $(44.8) | (31)% | | EchoPark | $(16.9) | $(31.1) | $14.2 | 46% | | Powersports | $6.6 | $1.2 | $5.4 | 450% | | **Income before taxes** | **$91.2** | **$116.4** | **$(25.2)** | **(22)%** | Segment Revenues (Nine Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $8,773.8 | $8,511.9 | $261.9 | 3% | | EchoPark | $1,877.8 | $1,873.7 | $4.1 | 0% | | Powersports | $136.0 | $24.9 | $111.1 | 446% | | **Total Consolidated** | **$10,787.6** | **$10,410.5** | **$377.1** | **4%** | Segment Income (Loss) (Nine Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $357.2 | $472.2 | $(115.0) | (24)% | | EchoPark | $(116.5) | $(100.6) | $(15.9) | (16)% | | Powersports | $9.2 | $0.9 | $8.3 | 922% | | **Income before taxes** | **$187.3** | **$372.5** | **$(185.2)** | **(50)%** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Sonic Automotive's financial condition, operations, and cash flows for Q3 and YTD 2023, covering industry and segment results [Overview](index=21&type=section&id=Overview) This section provides an overview of Sonic Automotive's business, including its operating segments and store count as of September 30, 2023 - Sonic Automotive is one of the largest automotive retailers in the U.S., operating three reportable segments: Franchised Dealerships, EchoPark, and Powersports[94](index=94&type=chunk) - As of September 30, 2023, the company operated **108** Franchised Dealerships (**134** new vehicle franchises), **25** EchoPark stores (including **7** Northwest Motorsport locations), and **13** Powersports stores[94](index=94&type=chunk) - Each segment offers distinct services: Franchised Dealerships (new/used cars, Fixed Operations, F&I), EchoPark (used cars, F&I, no customer-facing Fixed Operations), and Powersports (new/used powersports vehicles, Fixed Operations, F&I)[95](index=95&type=chunk) [Executive Summary](index=22&type=section&id=Executive%20Summary) [Retail Automotive Industry Performance](index=22&type=section&id=Retail%20Automotive%20Industry%20Performance) This section details the U.S. retail automotive industry's new vehicle sales growth and provides full-year 2023 volume estimates U.S. New Vehicle SAAR (in millions of vehicles) | Metric | Q3 2023 | Q3 2022 | Q3 % Change | YTD 2023 | YTD 2022 | YTD % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Retail new vehicle SAAR | 12.6 | 11.2 | 13% | 12.7 | 11.8 | 8% | | Fleet new vehicle SAAR | 2.9 | 2.2 | 32% | 2.8 | 1.9 | 47% | | Total new vehicle SAAR | 15.5 | 13.4 | 16% | 15.5 | 13.7 | 13% | - Full year 2023 new vehicle industry volume is estimated to be between **15.5 million** and **16.0 million** vehicles, representing a **13%** to **17%** increase compared to 2022[96](index=96&type=chunk) [Impact of COVID-19 and Supply Chain Disruptions](index=22&type=section&id=Impact%20of%20COVID-19%20and%20Supply%20Chain%20Disruptions) This section discusses supply chain disruptions, their impact on production and pricing, and risks from the ongoing UAW strike - Global automotive supply chain disruptions, especially in semiconductors, have resulted in lower production and volatile new/used vehicle pricing[97](index=97&type=chunk) - New vehicle and parts production levels improved in the first nine months of 2023, but higher production may not translate to incremental retail sales[97](index=97&type=chunk) - The UAW strike against certain manufacturers could decrease vehicle and parts inventory, leading to higher prices, though Sonic's diversified brand portfolio may mitigate some risk[98](index=98&type=chunk) [Franchised Dealerships Segment (Executive Summary)](index=22&type=section&id=Franchised%20Dealerships%20Segment%20(Executive%20Summary)) This section summarizes the Franchised Dealerships Segment's performance, noting revenue growth but declining gross profit in new vehicles - Retail new vehicle revenue increased **15%** (Q3) and **12%** (YTD) due to higher unit sales volume and average selling prices[101](index=101&type=chunk) - Retail new vehicle gross profit decreased **21%** (Q3) and **20%** (YTD) due to higher inventory invoice costs and increased price competition, leading to a **30%** (Q3) and **26%** (YTD) decrease in gross profit per unit[101](index=101&type=chunk) - Fixed Operations revenue and gross profit increased **8%** (Q3) and **9%** (YTD), driven by higher repair order volume and increased parts/labor costs passed to consumers[104](index=104&type=chunk) - F&I revenue increased **3%** (Q3) and remained flat (YTD), primarily due to decreases in F&I gross profit per retail unit[105](index=105&type=chunk) [EchoPark Segment (Executive Summary)](index=24&type=section&id=EchoPark%20Segment%20(Executive%20Summary)) This section summarizes the EchoPark Segment's performance, noting revenue growth in Q3 but flat YTD, and significant charges from store closures - Reported EchoPark Segment revenues increased **6%** (Q3) and remained flat (YTD), driven by increased retail used vehicle unit sales volume, partially offset by decreased average unit selling prices[108](index=108&type=chunk) - Reported total gross profit increased **22%** (Q3) but decreased **11%** (YTD), influenced by retail used vehicle gross profit per unit and inventory valuation adjustments[108](index=108&type=chunk) - Combined retail used vehicle and F&I gross profit per unit decreased **$101** (Q3) and **$680** (YTD), primarily due to higher inventory acquisition costs[110](index=110&type=chunk) - Same market total revenues increased **73%** (Q3) and **50%** (YTD), with total gross profit up **126%** (Q3) and **92%** (YTD), driven by higher retail used vehicle unit sales[112](index=112&type=chunk) [Powersports Segment (Executive Summary)](index=25&type=section&id=Powersports%20Segment%20(Executive%20Summary)) This section summarizes the Powersports Segment's substantial revenue and gross profit growth, primarily driven by recent acquisitions - Powersports Segment reported total revenue of **$57.0 million** (Q3) and **$136.0 million** (YTD), with total gross profit of **$20.8 million** (Q3) and **$43.4 million** (YTD)[114](index=114&type=chunk) - Retail new vehicle gross profit per unit was **$4,213** (Q3) and **$3,680** (YTD), while retail used vehicle gross profit per unit was **$2,833** (Q3) and **$2,407** (YTD)[115](index=115&type=chunk)[116](index=116&type=chunk) - Fixed Operations revenue was **$21.6 million** (Q3) and **$38.6 million** (YTD), with F&I revenue at **$2.4 million** (Q3) and **$5.9 million** (YTD)[117](index=117&type=chunk)[118](index=118&type=chunk) [Results of Operations – Consolidated](index=26&type=section&id=Results%20of%20Operations%20%E2%80%93%20Consolidated) [New Vehicles – Consolidated](index=26&type=section&id=New%20Vehicles%20%E2%80%93%20Consolidated) Consolidated new vehicle revenue increased, but gross profit decreased significantly due to higher inventory costs and increased price competition Consolidated New Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total New Vehicle Revenue | $1,596.7 | $1,403.8 | $192.9 | 14% | | Total New Vehicle Gross Profit | $132.3 | $163.5 | $(31.2) | (19)% | | Total New Vehicle Unit Sales | 28,729 | 25,448 | 3,281 | 13% | | Total Gross Profit per New Unit | $4,607 | $6,426 | $(1,819) | (28)% | Consolidated New Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total New Vehicle Revenue | $4,694.8 | $4,137.4 | $557.4 | 13% | | Total New Vehicle Gross Profit | $414.0 | $501.3 | $(87.3) | (17)% | | Total New Vehicle Unit Sales | 84,171 | 75,344 | 8,827 | 12% | | Total Gross Profit per New Unit | $4,918 | $6,653 | $(1,735) | (26)% | - Retail new vehicle gross profit as a percentage of revenue decreased by **340 basis points** (Q3) and **330 basis points** (YTD)[126](index=126&type=chunk)[127](index=127&type=chunk) [Used Vehicles – Consolidated](index=29&type=section&id=Used%20Vehicles%20%E2%80%93%20Consolidated) Consolidated retail used vehicle revenue decreased despite higher unit sales, with gross profit per unit also declining due to market challenges Consolidated Retail Used Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,340.4 | $1,355.8 | $(15.4) | (1)% | | Gross Profit | $52.3 | $50.9 | $1.4 | 3% | | Unit Sales | 45,428 | 42,069 | 3,359 | 8% | | Gross Profit per Unit | $1,150 | $1,211 | $(61) | (5)% | Consolidated Retail Used Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,991.2 | $4,174.4 | $(183.2) | (4)% | | Gross Profit | $113.8 | $145.3 | $(31.5) | (22)% | | Unit Sales | 133,931 | 128,906 | 5,025 | 4% | | Gross Profit per Unit | $849 | $1,127 | $(278) | (25)% | - Used vehicle prices reached an all-time high in 2022 and remain elevated, but the current wholesale vehicle price environment is not sustainable long-term and is expected to return to normalized levels[129](index=129&type=chunk)[131](index=131&type=chunk) [Wholesale Vehicles – Consolidated](index=30&type=section&id=Wholesale%20Vehicles%20%E2%80%93%20Consolidated) Consolidated wholesale vehicle revenue decreased significantly due to lower revenue per unit, though gross profit (loss) showed some improvement Consolidated Wholesale Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $79.3 | $114.7 | $(35.4) | (31)% | | Gross Profit (Loss) | $(1.4) | $(2.1) | $0.7 | 33% | | Unit Sales | 7,996 | 8,263 | (267) | (3)% | | Gross Profit (Loss) per Unit | $(180) | $(264) | $84 | 32% | | Gross Profit (Loss) as % of Revenue | (1.8)% | (1.9)% | 10 bps | | Consolidated Wholesale Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $256.3 | $404.8 | $(148.5) | (37)% | | Gross Profit (Loss) | $0.5 | $0.6 | $(0.1) | (17)% | | Unit Sales | 25,203 | 27,229 | (2,026) | (7)% | | Gross Profit (Loss) per Unit | $24 | $17 | $7 | 41% | | Gross Profit (Loss) as % of Revenue | 0.2% | 0.1% | 10 bps | | - Wholesale vehicle prices and supply have experienced volatility since March 2020, and average wholesale pricing is expected to return toward normalized levels in Q4 2023 and potentially beyond[131](index=131&type=chunk) [Fixed Operations – Consolidated](index=31&type=section&id=Fixed%20Operations%20%E2%80%93%20Consolidated) Consolidated Fixed Operations revenue and gross profit increased, driven by customer pay revenue and a recovery in activity Consolidated Fixed Operations Performance (Three Months Ended Sep 30, in millions) | Metric | 2023 Revenue | 2022 Revenue | % Change | 2023 Gross Profit | 2022 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Customer pay | $209.7 | $171.9 | 22% | $118.0 | $100.8 | 17% | | Warranty | $62.0 | $60.4 | 3% | $36.6 | $34.2 | 7% | | Wholesale parts | $51.3 | $49.9 | 3% | $9.1 | $9.1 | 0% | | Internal, sublet and other | $130.4 | $126.0 | 3% | $61.6 | $58.7 | 5% | | **Total Revenue/Gross Profit** | **$453.4** | **$408.2** | **11%** | **$225.3** | **$202.8** | **11%** | | Total Gross Profit as % of Revenue | 49.7% | 49.7% | 0 bps | | | | Consolidated Fixed Operations Performance (Nine Months Ended Sep 30, in millions) | Metric | 2023 Revenue | 2022 Revenue | % Change | 2023 Gross Profit | 2022 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Customer pay | $621.1 | $501.2 | 24% | $348.0 | $290.2 | 20% | | Warranty | $180.1 | $168.2 | 7% | $105.7 | $98.3 | 8% | | Wholesale parts | $159.3 | $149.9 | 6% | $28.3 | $27.0 | 5% | | Internal, sublet and other | $367.1 | $369.3 | (1)% | $176.6 | $172.9 | 2% | | **Total Revenue/Gross Profit** | **$1,327.6** | **$1,188.6** | **12%** | **$658.6** | **$588.4** | **12%** | | Total Gross Profit as % of Revenue | 49.6% | 49.5% | 10 bps | | | | - Recovery in Fixed Operations activity, particularly customer pay repairs, is above pre-pandemic levels and expected to continue[135](index=135&type=chunk) [F&I – Consolidated](index=33&type=section&id=F%26I%20%E2%80%93%20Consolidated) Consolidated F&I revenue increased due to higher unit sales, but gross profit per retail unit decreased, indicating lower per-unit profitability Consolidated F&I Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $173.7 | $165.6 | $8.1 | 5% | | Total Combined Retail New and Used Vehicle Unit Sales | 73,688 | 66,845 | 6,843 | 10% | | Gross Profit per Retail Unit | $2,357 | $2,477 | $(120) | (5)% | Consolidated F&I Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $517.7 | $505.3 | $12.4 | 2% | | Total Combined Retail New and Used Vehicle Unit Sales | 216,602 | 202,796 | 13,806 | 7% | | Gross Profit per Retail Unit | $2,390 | $2,492 | $(102) | (4)% | - F&I revenues are recognized net of actual and estimated future chargebacks, resulting in a **100%** gross margin for F&I[137](index=137&type=chunk) [Results of Operations – Franchised Dealerships Segment](index=34&type=section&id=Results%20of%20Operations%20%E2%80%93%20Franchised%20Dealerships%20Segment) [New Vehicles – Franchised Dealerships Segment](index=35&type=section&id=New%20Vehicles%20%E2%80%93%20Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment saw new vehicle revenue increase, but gross profit and gross profit per unit declined significantly Franchised Dealerships Segment Reported New Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total New Vehicle Revenue | $1,569.9 | $1,391.6 | $178.3 | 13% | | Total New Vehicle Gross Profit | $126.4 | $162.0 | $(35.6) | (22)% | | Total New Vehicle Unit Sales | 27,338 | 24,913 | 2,425 | 10% | | Total Gross Profit per New Unit | $4,627 | $6,501 | $(1,874) | (29)% | Franchised Dealerships Segment Same Store New Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Retail New Vehicle Revenue | $1,538.1 | $1,341.9 | $196.2 | 15% | | Retail New Vehicle Gross Profit | $125.0 | $158.8 | $(33.8) | (21)% | | Retail New Vehicle Unit Sales | 26,727 | 23,816 | 2,911 | 12% | | Retail Gross Profit per New Retail Unit | $4,678 | $6,666 | $(1,988) | (30)% | Franchised Dealerships Segment Same Store New Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Retail New Vehicle Revenue | $4,491.8 | $3,995.7 | $496.1 | 12% | | Retail New Vehicle Gross Profit | $392.2 | $488.8 | $(96.6) | (20)% | | Retail New Vehicle Unit Sales | 77,567 | 71,986 | 5,581 | 8% | | Retail Gross Profit per New Retail Unit | $5,056 | $6,790 | $(1,734) | (26)% | [Used Vehicles – Franchised Dealerships Segment](index=39&type=section&id=Used%20Vehicles%20%E2%80%93%20Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment reported decreases in retail used vehicle revenue and gross profit due to lower unit sales and prices Franchised Dealerships Segment Reported Retail Used Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $780.7 | $842.4 | $(61.7) | (7)% | | Gross Profit | $42.6 | $45.4 | $(2.8) | (6)% | | Unit Sales | 25,541 | 26,647 | (1,106) | (4)% | | Gross Profit per Unit | $1,666 | $1,704 | $(38) | (2)% | Franchised Dealerships Segment Same Store Retail Used Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $775.4 | $829.2 | $(53.8) | (7)% | | Gross Profit | $42.3 | $44.5 | $(2.2) | (5)% | | Unit Sales | 25,371 | 26,122 | (751) | (3)% | | Gross Profit per Unit | $1,668 | $1,704 | $(36) | (2)% | Franchised Dealerships Segment Same Store Retail Used Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $2,288.8 | $2,524.3 | $(235.5) | (9)% | | Gross Profit | $126.4 | $133.5 | $(7.1) | (5)% | | Unit Sales | 74,631 | 80,221 | (5,590) | (7)% | | Gross Profit per Unit | $1,694 | $1,664 | $30 | 2% | [Wholesale Vehicles – Franchised Dealerships Segment](index=43&type=section&id=Wholesale%20Vehicles%20%E2%80%93%20Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment saw wholesale vehicle revenue decrease significantly, though gross profit (loss) showed improvement Franchised Dealerships Segment Reported Wholesale Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $51.4 | $75.8 | $(24.4) | (32)% | | Gross Profit (Loss) | $(1.5) | $(2.1) | $0.6 | 29% | | Unit Sales | 5,163 | 5,813 | (650) | (11)% | | Gross Profit (Loss) per Unit | $(288) | $(356) | $68 | 19% | | Gross Profit (Loss) as % of Revenue | (2.9)% | (2.7)% | (20) bps | | Franchised Dealerships Segment Same Store Wholesale Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $51.3 | $75.1 | $(23.8) | (32)% | | Gross Profit (Loss) | $(1.4) | $(1.9) | $0.5 | 26% | | Unit Sales | 5,131 | 5,738 | (607) | (11)% | | Gross Profit (Loss) per Unit | $(274) | $(333) | $59 | 18% | | Gross Profit (Loss) as % of Revenue | (2.7)% | (2.5)% | (20) bps | | Franchised Dealerships Segment Same Store Wholesale Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $163.3 | $258.2 | $(94.9) | (37)% | | Gross Profit (Loss) | $— | $(2.5) | $2.5 | 100% | | Unit Sales | 15,921 | 18,164 | (2,243) | (12)% | | Gross Profit (Loss) per Unit | $1 | $(138) | $139 | 101% | | Gross Profit (Loss) as % of Revenue | 0% | (1.0)% | 100 bps | | [Fixed Operations – Franchised Dealerships Segment](index=45&type=section&id=Fixed%20Operations%20%E2%80%93%20Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment reported increases in Fixed Operations revenue and gross profit, driven by customer pay activity Franchised Dealerships Segment Reported Fixed Operations Performance (Three Months Ended Sep 30, in millions) | Metric | 2023 Revenue | 2022 Revenue | % Change | 2023 Gross Profit | 2022 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Customer pay | $205.2 | $186.6 | 10% | $115.3 | $105.5 | 9% | | Warranty | $61.5 | $60.0 | 3% | $36.3 | $34.0 | 7% | | Wholesale parts | $51.1 | $49.7 | 3% | $9.1 | $9.0 | 1% | | Internal, sublet and other | $114.0 | $108.4 | 5% | $54.4 | $52.5 | 4% | | **Total Revenue/Gross Profit** | **$431.8** | **$404.7** | **7%** | **$215.1** | **$201.0** | **7%** | | Total Gross Profit as % of Revenue | 49.8% | 49.7% | 10 bps | | | | Franchised Dealerships Segment Same Store Fixed Operations Performance (Three Months Ended Sep 30, in millions) | Metric | 2023 Revenue | 2022 Revenue | % Change | 2023 Gross Profit | 2022 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Customer pay | $203.9 | $184.2 | 11% | $114.5 | $104.3 | 10% | | Warranty | $61.0 | $59.0 | 3% | $36.0 | $33.4 | 8% | | Wholesale parts | $51.0 | $49.2 | 4% | $9.1 | $8.9 | 2% | | Internal, sublet and other | $113.3 | $106.6 | 6% | $53.8 | $51.4 | 5% | | **Total Revenue/Gross Profit** | **$429.2** | **$399.0** | **8%** | **$213.4** | **$198.0** | **8%** | | Total Gross Profit as % of Revenue | 49.7% | 49.6% | 10 bps | | | | Franchised Dealerships Segment Same Store Fixed Operations Performance (Nine Months Ended Sep 30, in millions) | Metric | 2023 Revenue | 2022 Revenue | % Change | 2023 Gross Profit | 2022 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Customer pay | $603.2 | $542.4 | 11% | $337.9 | $303.1 | 11% | | Warranty | $175.7 | $164.1 | 7% | $103.4 | $96.2 | 7% | | Wholesale parts | $157.6 | $147.9 | 7% | $28.0 | $26.5 | 6% | | Internal, sublet and other | $336.2 | $312.5 | 8% | $161.6 | $151.3 | 7% | | **Total Revenue/Gross Profit** | **$1,272.7** | **$1,166.9** | **9%** | **$630.9** | **$577.1** | **9%** | | Total Gross Profit as % of Revenue | 49.6% | 49.5% | 10 bps | | | | [F&I – Franchised Dealerships Segment](index=48&type=section&id=F%26I%20%E2%80%93%20Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment reported flat F&I revenue and decreased gross profit per unit, influenced by higher interest rates Franchised Dealerships Segment Reported F&I Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $126.0 | $125.8 | $0.2 | 0% | | Total Combined Retail New and Used Vehicle Unit Sales | 52,410 | 50,888 | 1,522 | 3% | | Gross Profit per Retail Unit | $2,403 | $2,473 | $(70) | (3)% | Franchised Dealerships Segment Same Store F&I Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $125.4 | $122.2 | $3.2 | 3% | | Total Combined Retail New and Used Vehicle Unit Sales | 52,098 | 49,938 | 2,160 | 4% | | Gross Profit per Retail Unit | $2,407 | $2,525 | $(118) | (5)% | Franchised Dealerships Segment Same Store F&I Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $370.9 | $369.7 | $1.2 | 0% | | Total Combined Retail New and Used Vehicle Unit Sales | 152,198 | 152,207 | (9) | 0% | | Gross Profit per Retail Unit | $2,437 | $2,429 | $8 | 0% | - The decrease in finance contract penetration rate is attributed to higher average interest rates, leading some customers to opt for cash purchases or outside financing[169](index=169&type=chunk)[171](index=171&type=chunk) [Results of Operations – EchoPark Segment](index=50&type=section&id=Results%20of%20Operations%20%E2%80%93%20EchoPark%20Segment) [Used Vehicles and F&I – EchoPark Segment](index=51&type=section&id=Used%20Vehicles%20and%20F%26I%20%E2%80%93%20EchoPark%20Segment) The EchoPark Segment saw retail used vehicle revenue increase, but combined gross profit per unit decreased due to higher acquisition costs EchoPark Segment Reported Retail Used Vehicle and F&I Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Retail Used Vehicle Revenue | $554.8 | $511.4 | $43.4 | 9% | | Retail Used Vehicle Gross Profit (Loss) | $7.3 | $4.9 | $2.4 | 49% | | Retail Used Vehicle Unit Sales | 19,050 | 15,245 | 3,805 | 25% | | F&I Revenue | $45.3 | $38.9 | $6.4 | 17% | | Combined Retail Used Vehicle and F&I Gross Profit per Unit | $2,767 | $2,868 | $(101) | (4)% | EchoPark Segment Same Market Retail Used Vehicle and F&I Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Retail Used Vehicle Revenue | $469.9 | $268.0 | $201.9 | 75% | | Retail Used Vehicle Gross Profit (Loss) | $5.0 | $(2.0) | $7.0 | 350% | | Retail Used Vehicle Unit Sales | 17,480 | 9,412 | 8,068 | 86% | | F&I Revenue | $41.7 | $22.8 | $18.9 | 83% | | Combined Retail Used Vehicle and F&I Gross Profit per Unit | $2,672 | $2,209 | $463 | 21% | EchoPark Segment Same Market Retail Used Vehicle and F&I Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Retail Used Vehicle Revenue | $1,274.1 | $818.6 | $455.5 | 56% | | Retail Used Vehicle Gross Profit (Loss) | $(4.3) | $(13.7) | $9.4 | 69% | | Retail Used Vehicle Unit Sales | 46,997 | 27,911 | 19,086 | 68% | | F&I Revenue | $114.9 | $70.0 | $44.9 | 64% | | Combined Retail Used Vehicle and F&I Gross Profit per Unit | $2,352 | $2,015 | $337 | 17% | [Wholesale Vehicles – EchoPark Segment](index=55&type=section&id=Wholesale%20Vehicles%20%E2%80%93%20EchoPark%20Segment) The EchoPark Segment's wholesale vehicle revenue decreased significantly, though gross profit (loss) improved in Q3 EchoPark Segment Reported Wholesale Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $26.6 | $38.9 | $(12.3) | (32)% | | Gross Profit (Loss) | $0.2 | $— | $0.2 | 100% | | Unit Sales | 2,740 | 2,449 | 291 | 12% | | Gross Profit (Loss) per Unit | $23 | $(44) | $67 | NM | | Gross Profit (Loss) as % of Revenue | 0.2% | (0.3)% | 50 bps | | EchoPark Segment Same Market Wholesale Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $16.0 | $14.8 | $1.2 | 8% | | Gross Profit (Loss) | $— | $(0.1) | $0.1 | 100% | | Unit Sales | 2,305 | 1,495 | 810 | 54% | | Gross Profit (Loss) per Unit | $15 | $(86) | $101 | 117% | | Gross Profit (Loss) as % of Revenue | 0.2% | (0.9)% | 110 bps | | EchoPark Segment Same Market Wholesale Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $56.4 | $73.0 | $(16.6) | (23)% | | Gross Profit (Loss) | $1.1 | $2.0 | $(0.9) | (45)% | | Unit Sales | 7,010 | 5,828 | 1,182 | 20% | | Gross Profit (Loss) per Unit | $170 | $349 | $(179) | (51)% | | Gross Profit (Loss) as % of Revenue | 2.1% | 2.8% | (70) bps | | [Results of Operations – Powersports Segment](index=57&type=section&id=Results%20of%20Operations%20%E2%80%93%20Powersports%20Segment) [New Vehicles – Powersports Segment](index=57&type=section&id=New%20Vehicles%20%E2%80%93%20Powersports%20Segment) The Powersports Segment reported substantial growth in new vehicle revenue and gross profit, driven by recent acquisitions Powersports Segment Reported Retail New Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $26.8 | $10.6 | $16.2 | 153% | | Gross Profit | $5.9 | $2.1 | $3.8 | 181% | | Unit Sales | 1,391 | 490 | 901 | 184% | | Gross Profit per Unit | $4,213 | $4,304 | $(91) | (2)% | | Gross Profit as % of Revenue | 21.9% | 20.0% | 190 bps | | Powersports Segment Reported Retail New Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $72.5 | $13.0 | $59.5 | 458% | | Gross Profit | $14.3 | $2.7 | $11.6 | 430% | | Unit Sales | 3,894 | 579 | 3,315 | 573% | | Gross Profit per Unit | $3,680 | $4,742 | $(1,062) | (22)% | | Gross Profit as % of Revenue | 19.8% | 21.0% | (120) bps | | [Used Vehicles – Powersports Segment](index=58&type=section&id=Used%20Vehicles%20%E2%80%93%20Powersports%20Segment) The Powersports Segment's retail used vehicle revenue and gross profit increased significantly due to acquisitions, despite a decline in gross profit per unit Powersports Segment Reported Retail Used Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $4.9 | $2.0 | $2.9 | 145% | | Gross Profit | $2.4 | $0.6 | $1.8 | 300% | | Unit Sales | 837 | 177 | 660 | 373% | | Gross Profit per Unit | $2,833 | $3,328 | $(495) | (15)% | | Gross Profit as % of Revenue | 48.8% | 28.8% | 2,000 bps | | Powersports Segment Reported Retail Used Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $17.1 | $5.0 | $12.1 | 242% | | Gross Profit | $4.7 | $1.4 | $3.3 | 236% | | Unit Sales | 1,972 | 353 | 1,619 | 459% | | Gross Profit per Unit | $2,407 | $3,677 | $(1,270) | (35)% | | Gross Profit as % of Revenue | 27.7% | 26.0% | 170 bps | | [Wholesale Vehicles – Powersports Segment](index=59&type=section&id=Wholesale%20Vehicles%20%E2%80%93%20Powersports%20Segment) The Powersports Segment reported a significant increase in wholesale vehicle revenue due to acquisitions, but gross profit saw a decrease in Q3 Powersports Segment Reported Wholesale Vehicle Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1.3 | $— | $1.3 | 100% | | Gross Profit (Loss) | $(0.1) | $— | $(0.1) | (100)% | | Unit Sales | 93 | 9 | 84 | 933% | | Gross Profit (Loss) per Unit | $(188) | $— | $(188) | (100)% | | Gross Profit (Loss) as % of Revenue | (1.3)% | 0% | (130) bps | | Powersports Segment Reported Wholesale Vehicle Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1.9 | $0.3 | $1.6 | 533% | | Gross Profit (Loss) | $— | $— | $— | 0% | | Unit Sales | 150 | 29 | 121 | 417% | | Gross Profit (Loss) per Unit | $(344) | $(2,095) | $1,751 | 84% | | Gross Profit (Loss) as % of Revenue | (2.8)% | (1.0)% | (180) bps | | [Fixed Operations – Powersports Segment](index=60&type=section&id=Fixed%20Operations%20%E2%80%93%20Powersports%20Segment) The Powersports Segment experienced substantial growth in Fixed Operations revenue and gross profit, primarily due to acquisitions Powersports Segment Reported Fixed Operations Performance (Three Months Ended Sep 30, in millions) | Metric | 2023 Revenue | 2022 Revenue | % Change | 2023 Gross Profit | 2022 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Customer pay | $4.5 | $1.6 | 181% | $2.7 | $0.9 | 200% | | Warranty | $0.5 | $0.2 | 150% | $0.3 | $0.2 | 50% | | Wholesale parts | $0.2 | $0.1 | 100% | $— | $— | 0% | | Internal, sublet and other | $16.4 | $1.6 | 925% | $7.2 | $0.7 | 929% | | **Total Revenue/Gross Profit** | **$21.6** | **$3.5** | **517%** | **$10.2** | **$1.8** | **467%** | | Total Gross Profit as % of Revenue | 47.1% | 51.8% | (470) bps | | | | Powersports Segment Reported Fixed Operations Performance (Nine Months Ended Sep 30, in millions) | Metric | 2023 Revenue | 2022 Revenue | % Change | 2023 Gross Profit | 2022 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Customer pay | $10.5 | $3.1 | 239% | $6.0 | $1.9 | 216% | | Warranty | $1.3 | $0.4 | 225% | $0.7 | $0.3 | 133% | | Wholesale parts | $0.5 | $0.1 | 400% | $0.1 | $— | 100% | | Internal, sublet and other | $26.3 | $1.6 | NM | $11.7 | $0.5 | NM | | **Total Revenue/Gross Profit** | **$38.6** | **$5.2** | **642%** | **$18.5** | **$2.7** | **585%** | | Total Gross Profit as % of Revenue | 47.8% | 51.1% | (330) bps | | | | [F&I – Powersports Segment](index=62&type=section&id=F%26I%20%E2%80%93%20Powersports%20Segment) The Powersports Segment's F&I revenue increased significantly due to acquisitions, though gross profit per retail unit decreased Powersports Segment Reported F&I Performance (Three Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $2.4 | $0.9 | $1.5 | 167% | | Unit Sales | 2,228 | 667 | 1,561 | 234% | | Gross Profit per Retail Unit | $1,075 | $1,297 | $(222) | (17)% | Powersports Segment Reported F&I Performance (Nine Months Ended Sep 30, in millions, except unit data) | Metric | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $5.9 | $1.4 | $4.5 | 321% | | Unit Sales | 5,866 | 932 | 4,934 | 529% | | Gross Profit per Retail Unit | $1,006 | $1,445 | $(439) | (30)% | [Segment Results Summary](index=63&type=section&id=Segment%20Results%20Summary) This section summarizes the performance of the Franchised Dealerships, EchoPark, and Powersports segments, highlighting revenue and income trends Segment Revenues (Three Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $2,959.8 | $2,840.3 | $119.5 | 4% | | EchoPark | $626.7 | $590.8 | $35.9 | 6% | | Powersports | $57.0 | $17.0 | $40.0 | 235% | | **Total Consolidated** | **$3,643.5** | **$3,448.1** | **$195.4** | **6%** | Segment Income (Loss) (Three Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $101.5 | $146.3 | $(44.8) | (31)% | | EchoPark | $(16.9) | $(31.1) | $14.2 | 46% | | Powersports | $6.6 | $1.2 | $5.4 | 450% | | **Income before taxes** | **$91.2** | **$116.4** | **$(25.2)** | **(22)%** | Segment Revenues (Nine Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $8,773.8 | $8,511.9 | $261.9 | 3% | | EchoPark | $1,877.8 | $1,873.7 | $4.1 | 0% | | Powersports | $136.0 | $24.9 | $111.1 | 446% | | **Total Consolidated** | **$10,787.6** | **$10,410.5** | **$377.1** | **4%** | Segment Income (Loss) (Nine Months Ended Sep 30, in millions) | Segment | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchised Dealerships | $357.2 | $472.2 | $(115.0) | (24)% | | EchoPark | $(116.5) | $(100.6) | $(15.9) | (16)% | | Powersports | $9.2 | $0.9 | $8.3 | 922% | | **Income before taxes** | **$187.3** | **$372.5** | **$(185.2)** | **(50)%** | [Selling, General and Administrative ("SG&A") Expenses – Consolidated](index=65&type=section&id=Selling%2C%20General%20and%20Administrative%20(%22SG%26A%22)%20Expenses%20%E2%80%93%20Consolidated) Consolidated SG&A expenses increased in dollar amount and as a percentage of gross profit, driven by IT, salaries, severance, and lease exit charges Consolidated SG&A Expenses (Three Months Ended Sep 30, in millions) | Category | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Compensation | $256.0 | $255.2 | $(0.8) | 0% | | Advertising | $22.5 | $21.1 | $(1.4) | (7)% | | Rent | $11.7 | $11.9 | $0.2 | 2% | | Other | $119.4 | $110.8 | $(8.6) | (8)% | | **Total SG&A Expenses** | **$409.6** | **$399.0** | **$(10.6)** | **(3)%** | | Total SG&A Expenses as % of Gross Profit | 70.4% | 68.7% | (170) bps | | Consolidated SG&A Expenses (Nine Months Ended Sep 30, in millions) | Category | 2023 | 2022 | Change (YoY) | % Change | | :--- | :--- | :--- | :--- | :--- | | Compensation | $775.8 | $774.1 | $(1.7) | 0% | | Advertising | $71.4 | $72.8 | $1.4 | 2% | | Rent | $34.5 | $38.3 | $3.8 | 10% | | Other | $332.5 | $303.6 | $(28.9) | (10)% | | **Total SG&A Expenses** | **$1,214.2** | **$1,188.8** | **$(25.4)** | **(2)%** | | Total SG&A Expenses as % of Gross Profit | 71.2% | 68.3% | (290) bps | | - Increases in SG&A were primarily due to higher IT and salary expenses, severance charges (**$0.9 million** in Q3, **$3.1 million** YTD), and lease exit charges (**$3.9 million** in Q3, **$3.9 million** YTD), partially offset by a **$20.7 million** gain on disposal of franchises (YTD)[205](index=205&type=chunk)[206](index=206&type=chunk) [Impairment Charges – Consolidated](index=66&type=section&id=Impairment%20Charges%20%E2%80%93%20Consolidated) No impairment charges were recorded in Q3 2023, but YTD charges totaled $62.6 million, mainly from EchoPark store suspensions and closures - No impairment charges were recorded for the three months ended September 30, 2023[207](index=207&type=chunk) - Impairment charges of approximately **$62.6 million** were recorded for the nine months ended September 30, 2023[207](index=207&type=chunk) - These charges were related to fixed assets, lease right-of-use assets, and other contractual obligations due to EchoPark location suspensions and Northwest Motorsport store closures[207](index=207&type=chunk) [Depreciation and Amortization – Consolidated](index=66&type=section&id=Depreciation%20and%20Amortization%20%E2%80%93%20Consolidated) Consolidated depreciation and amortization expense increased due to acquisitions, completed construction projects, and fixed asset purchases - Depreciation and amortization expense increased by approximately **$2.4 million** (**7%**) for Q3 2023 and **$11.7 million** (**12%**) for YTD 2023[208](index=208&type=chunk) - The increase was primarily driven by acquisitions and completed construction projects and purchases of fixed assets for franchised dealerships and EchoPark stores[208](index=208&type=chunk) [Interest Expense, Floor Plan – Consolidated](index=66&type=section&id=Interest%20Expense%2C%20Floor%20Plan%20%E2%80%93%20Consolidated) Consolidated floor plan interest expense increased significantly due to rising average interest rates, impacting both new and used vehicle financing - New vehicle floor plan interest expense increased by approximately **$9.0 million** (Q3) and **$26.6 million** (YTD)[210](index=210&type=chunk)[213](index=213&type=chunk) - The increase in new vehicle floor plan interest was mainly due to higher average interest rates (**$6.5 million** in Q3, **$22.3 million** YTD) and increased average new vehicle floor plan notes payable balance (**$2.5 million** in Q3, **$4.3 million** YTD)[210](index=210&type=chunk)[213](index=213&type=chunk) - Used vehicle floor plan interest expense (net of floor plan deposit interest) decreased by approximately **$1.2 million** (Q3) but increased by **$1.6 million** (YTD)[211](index=211&type=chunk)[214](index=214&type=chunk) [Interest Expense, Other, Net – Consolidated](index=67&type=section&id=Interest%20Expense%2C%20Other%2C%20Net%20%E2%80%93%20Consolidated) Consolidated other interest expense, net, increased due to higher interest rates on variable rate mortgage debt and increased borrowings Consolidated Interest Expense, Other, Net (in millions) | Metric | Q3 2023 | Q3 2022 | Q3 % Change | YTD 2023 | YTD 2022 | YTD % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Stated/coupon interest | $22.9 | $18.0 | (27)% | $68.3 | $52.0 | (31)% | | Deferred loan cost amortization | $1.6 | $1.5 | (7)% | $4.9 | $3.8 | (29)% | | Interest on finance lease liabilities | $4.8 | $3.7 | (30)% | $13.7 | $9.3 | (47)% | | **Total Interest Expense, Other, Net** | **$29.0** | **$22.9** | **(27)%** | **$86.2** | **$65.1** | **(32)%** | - The increases were primarily related to higher interest rates on variable rate mortgage debt and finance lease liabilities, and increased borrowings under the 2019 Mortgage Facility[215](index=215&type=chunk) [Income Taxes](index=67&type=section&id=Income%20Taxes) The effective income tax rate for Q3 and YTD 2023 remained consistent with the prior year, varying based on taxable income and state distribution Effective Income Tax Rate | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | 25.0% | 25.0% | | Nine Months Ended Sep 30 | 25.5% | 25.0% | - The effective income tax rate varies annually based on taxable income, distribution of income between states, and other tax adjustments[216](index=216&type=chunk) [Liquidity and Capital Resources](index=68&type=section&id=Liquidity%20and%20Capital%20Resources) [Floor Plan Facilities](index=68&type=section&id=Floor%20Plan%20Facilities) This section details the company's floor plan financing, noting a significant increase in weighted-average interest rates and manufacturer assistance - All new and certain used vehicle inventory are financed through floor plan facilities with manufacturer captive finance companies and a syndicate of banks[220](index=220&type=chunk) Weighted-Average Interest Rate for Floor Plan Facilities (Net of Deposit Interest) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | 4.96% | 3.42% | | Nine Months Ended Sep 30 | 4.87% | 2.40% | Weighted-Average Interest Rate for Floor Plan Facilities (Excluding Deposit Interest) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | 6.39% | 3.73% | | Nine Months Ended Sep 30 | 6.24% | 2.64% | - Manufacturer assistance received for floor plans was approximately **$14.7 million** (Q3) and **$42.9 million** (YTD) in 2023, up from **$12.6 million** and **$38.1 million** in 2022, respectively[221](index=221&type=chunk) [Long-Term Debt and Credit Facilities](index=69&type=section&id=Long-Term%20Debt%20and%20Credit%20Facilities) This section references Note 6 for details on long-term debt and confirms compliance with all restrictive covenants as of September 30, 2023 - The company was in compliance with all restrictive covenants under its debt agreements as of September 30, 2023[223](index=223&type=chunk) [Capital Expenditures](index=69&type=section&id=Capital%20Expenditures) Capital expenditures for YTD 2023 totaled $153.6 million, primarily for Franchised Dealerships, funded by existing cash, with future commitments - Capital expenditures for the nine months ended September 30, 2023, were approximately **$153.6 million**[225](index=225&type=chunk) - Major allocations included **$137.3 million** for Franchised Dealerships, **$14.1 million** for EchoPark, and **$2.2 million** for Powersports[225](index=225&type=chunk) - All capital expenditures were funded through existing cash balances, with **$40.9 million** committed for future facility construction projects[226](index=226&type=chunk) [Share Repurchase Program](index=69&type=section&id=Share%20Repurchase%20Program) During Q3 and YTD 2023, the company repurchased 1.7 million and 3.3 million shares, respectively, with $286.8 million remaining authorization - Repurchased approximately **1.7 million** shares for **$86.7 million** in Q3 2023[227](index=227&type=chunk) - Repurchased approximately **3.3 million** shares for **$177.5 million** in YTD 2023[227](index=227&type=chunk) - Remaining share repurchase authorization was approximately **$286.8 million** as of September 30, 2023[227](index=227&type=chunk) [Dividends](index=69&type=section&id=Dividends) The Board approved Q3 and Q4 2023 cash dividends, with approximately $245.7 million of retained earnings free of restrictions - Approved a cash dividend of **$0.29** per share for Q3 2023, paid on October 13, 2023[229](index=229&type=chunk) - Approved a cash dividend of **$0.30** per share for Q4 2023, to be paid on January 12, 2024[229](index=229&type=chunk) - Approximately **$245.7 million** of net income and retained earnings were free of dividend restrictions as of September 30, 2023[229](index=229&type=chunk) [Cash Flows](index=70&type=section&id=Cash%20Flows) Net cash from operating activities significantly decreased YTD 2023 due to increased inventories, while investing and financing activities saw changes - Net cash provided by operating activities was approximately **$104.2 million** (YTD 2023), a significant decrease from **$645.4 million** (YTD 2022), primarily due to an increase in inventories[231](index=231&type=chunk) - Net cash used in investing activities was approximately **$171.4 million** (YTD 2023), compared to **$276.1 million** (YTD 2022), driven by acquisitions and property purchases offset by dealership sales[232](index=232&type=chunk) - Net cash used in financing activities was approximately **$127.4 million** (YTD 2023), down from **$529.7 million** (YTD 2022), mainly due to net borrowings on non-trade floor plans offsetting treasury stock purchases and debt payments[233](index=233&type=chunk) - If all floor plan changes were classified as operating activities, net cash provided by operating activities would be approximately **$257.7 million** (YTD 2023) and **$426.6 million** (YTD 2022)[234](index=234&type=chunk) [Seasonality](index=72&type=section&id=Seasonality) Operations are subject to seasonal variations, but historical patterns may not apply to 2023 due to ongoing market disruptions - Operations are subject to seasonal variations, with Q1 historically having lower operating profit and Q4 having the highest[238](index=238&type=chunk) - Due to COVID-19, supply chain disruptions, and potential economic recession, historical seasonality may not apply to 2023[238](index=238&type=chunk) [Future Liquidity Outlook](index=72&type=section&id=Future%20Liquidity%20Outlook) The company expects to rely on cash flows, credit facilities, and asset sales for liquidity, anticipating no material negative changes to capital access - Primary liquidity sources include cash flows from operations, floor plan facilities, revolving credit facilities, mortgage financing, asset sales, and debt/equity offerings[239](index=239&type=chunk) - The company does not anticipate any materially negative changes to its cost of, or access to, capital over the next **12** months[240](index=240&type=chunk) - Cash flows and ability to service obligations depend substantially on subsidiary operations and their ability to provide cash[239](index=239&type=chunk) [Off-Balance Sheet Arrangements](index=72&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has off-balance sheet arrangements including guarantees and indemnification obligations, with a maximum exposure of $8.0 million - The company has guarantees and indemnification obligations related to operating leases and dealership dispositions[241](index=241&type=chunk) - Maximum exposure for general indemnifications was approximately **$8.0 million** as of September 30, 2023[242](index=242&type=chunk) - Guarantees floor plan commitments of a **50%**-owned joint venture, amounting to approximately **$4.3 million**[243](index=243&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=73&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section discusses market risks, primarily from interest rate fluctuations on variable rate debt and foreign currency exchange rates [Interest Rate Risk](index=73&type=section&id=Interest%20Rate%20Risk) The company is exposed to interest rate risk from variable rate debt, with a 100-basis point change impacting interest expense by millions - The company is exposed to interest rate risk from variable rate floor plan facilities, the 2021 Revolving Credit Facility, the 2019 Mortgage Facility, and other variable rate notes[246](index=246&type=chunk) - Total net outstanding balance of variable rate instruments was approximately **$1.5 billion** at September 30, 2023[246](index=246&type=chunk) - A **100-basis point** decrease in rates would reduce interest expense by approximately **$10.0 million**, while a **100-basis point** rise would increase it by approximately **$7.4 million** for the nine months ended September 30, 2023, with the difference due to interest rate hedges[246](index=246&type=chunk) [Foreign Currency Risk](index=73&type=section&id=Foreign%20Currency%20Risk) The company faces foreign currency risk from purchasing vehicles and parts from foreign manufacturers, potentially affecting pricing and demand - The company purchases new vehicle and parts inventories from foreign manufacturers, exposing it to foreign exchange rate risk[247](index=247&type=chunk) - This risk could influence manufacturers' ability to provide competitive prices and negatively impact consumer demand, potentially affecting future operating results[247](index=247&type=chunk) [Item 4. Controls and Procedures](index=74&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control - Disclosure controls and procedures were evaluated and concluded to be effective as of September 30, 2023[250](index=250&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[251](index=251&type=chunk) [PART II – OTHER INFORMATION](index=75&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=75&type=section&id=Item%201.%20Legal%20Proceedings.) Legal proceedings information is referenced to Note 7, 'Commitments and Contingencies,' in the financial statements - Legal proceedings information is detailed in Note 7, 'Commitments and Contingencies,' of the financial statements[255](index=255&type=chunk) [Item 1A. Risk Factors](index=76&ty

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________ FORM 10-Q ______________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-13395 ______________________________________ SONIC A ...

Financial Data and Key Metrics Changes - Sonic Automotive reported record quarterly total revenues of $3.7 billion, a 4% increase from last year [110] - Second quarter EPS was $0.65 per share, which includes $75 million in charges related to the suspension of operations at certain EchoPark locations [110] - Adjusted EPS was $1.83 per share, a decrease from $2.45 in the prior year, primarily due to normalizing new vehicle margins and higher interest rates [110] - Franchise dealerships F&I gross profit per unit improved to an all-time record of $2,516 per unit, up $156 sequentially from the first quarter [96] Business Line Data and Key Metrics Changes - EchoPark segment retail unit sales volume for the quarter was approximately 17,100 units, up 4% year-over-year [19] - EchoPark segment adjusted EBITDA was a loss of $31.8 million, an improvement from a loss of $36.9 million in the first quarter [114] - The parts and service business saw a 9% year-over-year increase in fixed gross profit, driven by an 11% growth in customer pay business [17] Market Data and Key Metrics Changes - Wholesale auction prices for three-year-old vehicles decreased by 6% in the second quarter, with July month-to-date prices down nearly 4% [111] - The company expects used vehicle prices to decline further in the remainder of the year [5] Company Strategy and Development Direction - The decision to suspend operations at certain EchoPark locations is aimed at improving near-term financial performance and achieving breakeven adjusted EBITDA by Q1 2024 [7][97] - The company plans to roll out its EchoPark national branding strategy as market conditions improve, aiming to reach 90% of the U.S. population [113] - The focus remains on maximizing profitability in the near term while positioning for long-term strategic goals [146] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about improving market conditions, expecting more inventory availability and lower prices as the year progresses [12][66] - The company is focused on maintaining a strong balance sheet and is prepared for future growth opportunities as the market normalizes [82][84] Other Important Information - The company ended the quarter with $864 million in available liquidity, including $407 million in cash and floor plan deposits [8] - A quarterly cash dividend of $0.29 per share was approved, payable on October 13, 2023 [8] Q&A Session Summary Question: What led to the decision to suspend operations at certain EchoPark locations? - Management indicated that the decision was necessary due to current used vehicle market conditions and aimed at improving financial performance [97] Question: How does the company plan to achieve breakeven EBITDA in the EchoPark segment? - Management stated that they expect to sell more cars from the remaining locations than from the closed ones, with a target of 7,200 cars to reach breakeven [121] Question: What is the outlook for used vehicle pricing and inventory? - Management expects continued normalization of used vehicle prices and improved inventory availability, which should benefit consumer affordability and demand [111][66] Question: How is the company managing its capital allocation strategy? - The company is focused on maintaining cash reserves and reducing debt while being prepared for future growth opportunities [82][143]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Sonic Automotive, Inc. reported increased revenues but significantly decreased net income and negative operating cash flow in Q1 2023 [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2023 vs Q1 2022 Statement of Operations Highlights | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$3,491.2** | **$3,456.2** | **+1.0%** | | Gross Profit | $553.5 | $571.3 | -3.1% | | Operating Income | $106.4 | $154.4 | -31.1% | | **Net Income** | **$47.7** | **$97.3** | **-51.0%** | | Diluted EPS | $1.29 | $2.33 | -44.6% | - The decline in profitability was driven by a decrease in gross profit from **$571.3 million** to **$553.5 million**, coupled with an increase in SG&A expenses from **$387.0 million** to **$412.8 million** and higher interest expenses[14](index=14&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Highlights (as of March 31, 2023 vs Dec 31, 2022) | Account | March 31, 2023 (in millions) | Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $160.2 | $229.2 | | Inventories | $1,462.6 | $1,216.8 | | **Total Assets** | **$5,148.0** | **$4,978.3** | | Total Current Liabilities | $2,057.0 | $1,845.4 | | Long-Term Debt | $1,650.8 | $1,672.2 | | **Total Liabilities** | **$4,293.2** | **$4,083.1** | | **Total Stockholders' Equity** | **$854.8** | **$895.2** | - Inventories increased significantly by **$245.8 million**, while cash and cash equivalents decreased by **$69.0 million** from the end of 2022[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 vs Q1 2022 Cash Flow Summary | Cash Flow Activity | Q1 2023 (in millions) | Q1 2022 (in millions) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(34.0) | $252.5 | | Net cash used in investing activities | $(107.5) | $(80.3) | | Net cash provided by (used in) financing activities | $72.5 | $(111.4) | | **Net (Decrease) Increase in Cash** | **$(69.0)** | **$60.8** | - The significant shift in operating cash flow from positive **$252.5 million** in Q1 2022 to negative **$34.0 million** in Q1 2023 was primarily due to a **$234.6 million** increase in inventories, compared to a **$72.2 million** decrease in the prior-year period[23](index=23&type=chunk) - Financing activities provided cash, mainly from net borrowings on non-trade floor plan notes (**$188.8 million**), which was partially offset by purchases of treasury stock (**$90.7 million**)[23](index=23&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail a goodwill impairment test date change, a powersports acquisition, financial covenant compliance, and segment performance, highlighting EchoPark's loss - The company voluntarily changed the date of its annual goodwill and other intangible assets impairment test from October 1 to April 30 to better align with the availability of prospective financial information[26](index=26&type=chunk) - During Q1 2023, Sonic acquired one powersports business (five locations) for an aggregate gross purchase price of approximately **$75.1 million**[35](index=35&type=chunk) Segment Income (Loss) Before Taxes (Q1 2023 vs Q1 2022) | Segment | Q1 2023 (in millions) | Q1 2022 (in millions) | | :--- | :--- | :--- | | Franchised Dealerships | $109.8 | $163.8 | | EchoPark | $(46.8) | $(35.3) | | Powersports | $0.6 | $0.4 | | **Total Income Before Taxes** | **$63.6** | **$128.9** | - As of March 31, 2023, the company was in compliance with all financial covenants under its 2021 Credit Facilities and 2019 Mortgage Facility, with a Consolidated Total Lease Adjusted Leverage Ratio of **2.58** against a maximum of **5.75**[60](index=60&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2023 performance to a mixed industry, with slight revenue growth but declining profitability from margin pressure in Franchised Dealerships and EchoPark losses [Executive Summary](index=20&type=section&id=Executive%20Summary) - The U.S. retail automotive industry's total new vehicle unit sales volume increased by **7%** in Q1 2023 compared to Q1 2022, reaching approximately **15.3 million** vehicles (SAAR)[88](index=88&type=chunk) - Franchised Dealerships Segment: Same-store retail new vehicle revenue increased **5%**, but gross profit per unit decreased **17%** to **$5,434** due to higher inventory costs and price competition[92](index=92&type=chunk)[95](index=95&type=chunk] Fixed Operations revenue grew **11%**[95](index=95&type=chunk) - EchoPark Segment: Reported total revenue increased **5%**, but total gross profit decreased **9%**[98](index=98&type=chunk] Combined retail used vehicle and F&I gross profit per unit fell **28%** to **$1,906** due to higher inventory acquisition costs[99](index=99&type=chunk) - Powersports Segment: In Q1 2023, the newly expanded segment generated **$34.0 million** in total revenue and **$9.8 million** in gross profit, following the acquisition of a business with five locations[102](index=102&type=chunk) [Results of Operations – Consolidated](index=22&type=section&id=Results%20of%20Operations%20%E2%80%93%20Consolidated) Consolidated Reported Results by Category (Q1 2023 vs Q1 2022) | Category | Revenue (in millions) | Gross Profit (in millions) | | :--- | :--- | :--- | | **New Vehicles** | | | | Q1 2023 | $1,461.6 | $139.0 | | Q1 2022 | $1,369.5 | $168.5 | | **Used Vehicles (Retail)** | | | | Q1 2023 | $1,344.9 | $30.0 | | Q1 2022 | $1,370.1 | $47.8 | | **Fixed Operations** | | | | Q1 2023 | $430.5 | $212.9 | | Q1 2022 | $381.2 | $186.9 | | **F&I, net** | | | | Q1 2023 | $168.6 | $168.6 | | Q1 2022 | $166.6 | $166.6 | - Consolidated new vehicle gross profit per unit decreased by **21%** to **$5,325**, while retail used vehicle gross profit per unit fell **42%** to **$660**[114](index=114&type=chunk)[117](index=117&type=chunk) - Fixed Operations showed strong performance with a **13%** revenue increase and a **14%** gross profit increase, driven by a **15%** rise in customer pay revenue[123](index=123&type=chunk) [Results of Operations by Segment](index=27&type=section&id=Results%20of%20Operations%20by%20Segment) Franchised Dealerships saw pre-tax income decline from margin pressure, EchoPark's loss widened, and the new Powersports segment contributed a small profit Segment Performance Summary (Q1 2023) | Segment | Revenues (in millions) | Income (Loss) Before Taxes (in millions) | | :--- | :--- | :--- | | Franchised Dealerships | $2,806.7 | $109.8 | | EchoPark | $650.5 | $(46.8) | | Powersports | $34.0 | $0.6 | - Franchised Dealerships (Same Store): Retail new vehicle gross profit per unit decreased by **$1,104** (**17%**) to **$5,434**[131](index=131&type=chunk)[134](index=134&type=chunk] Retail used vehicle gross profit per unit decreased by **$208** (**12%**) to **$1,560**[134](index=134&type=chunk) - EchoPark (Same Market): Combined retail used vehicle and F&I gross profit per unit decreased by **$862** (**31%**) to **$1,940**, primarily due to higher inventory acquisition costs[155](index=155&type=chunk)[156](index=156&type=chunk) [Selling, General and Administrative (SG&A) Expenses](index=45&type=section&id=Selling%2C%20General%20and%20Administrative%20%28SG%26A%29%20Expenses) - Total SG&A expenses increased by **7%** to **$412.8 million** in Q1 2023 from **$387.0 million** in Q1 2022[179](index=179&type=chunk) - As a percentage of gross profit, SG&A increased significantly from **67.7%** to **74.6%**, indicating pressure on operating leverage[179](index=179&type=chunk) - The increase was primarily driven by higher compensation expense due to wage inflation and a **22%** increase in 'Other' SG&A, which includes higher IT and customer-related costs[179](index=179&type=chunk)[180](index=180&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) Available Liquidity Resources | Resource | March 31, 2023 (in millions) | | :--- | :--- | | Cash and cash equivalents | $160.2 | | Floor plan deposit balance | $272.0 | | Availability under 2021 Revolving Credit Facility | $294.0 | | Availability under 2019 Mortgage Facility | $166.4 | | **Total available liquidity resources** | **$892.6** | - The company repurchased approximately **1.6 million** shares of Class A Common Stock for **$90.7 million** during Q1 2023[198](index=198&type=chunk] As of March 31, 2023, the remaining share repurchase authorization was approximately **$373.6 million**[198](index=198&type=chunk) - A cash dividend of **$0.28** per share was approved for Q1 2023, and a dividend of **$0.29** per share was approved for Q2 2023[200](index=200&type=chunk) - Capital expenditures for Q1 2023 were **$37.2 million**, primarily for facility construction projects and real estate acquisitions[196](index=196&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks, primarily from interest rate fluctuations impacting interest expense and foreign currency exchange rates affecting manufacturer pricing - The company's primary market risk is interest rate risk, stemming from variable rate debt including floor plan facilities, the 2021 Revolving Credit Facility, and the 2019 Mortgage Facility[218](index=218&type=chunk) - A hypothetical **100 basis point** change in the underlying interest rate would have caused a change in interest expense of approximately **$4.7 million** for the three months ended March 31, 2023[218](index=218&type=chunk) - Foreign currency risk could adversely affect operating results if exchange rate volatility impacts manufacturers' ability to provide products at competitive prices in the U.S.[220](index=220&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[223](index=223&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[224](index=224&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management does not expect them to have a material adverse effect on its financial position or results - The company is involved in various legal proceedings but does not expect them to have a material adverse effect on its financial condition or results[67](index=67&type=chunk)[228](index=228&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the previously disclosed risk factors were reported in the Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes in risk factors were reported compared to those in the Annual Report on Form 10-K for the year ended December 31, 2022[231](index=231&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q1 2023, Sonic Automotive repurchased 1.6 million shares for $90.7 million, with $373.6 million remaining under its share repurchase authorization Share Repurchases in Q1 2023 | Month | Total Shares Purchased (in millions) | Average Price Paid per Share | | :--- | :--- | :--- | | January 2023 | 0.2 | $49.15 | | February 2023 | 0.3 | $57.21 | | March 2023 | 1.1 | $55.14 | | **Total** | **1.6** | **N/A** | - As of March 31, 2023, the remaining availability under the share repurchase program was **$373.6 million**[233](index=233&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications required by Sarbanes-Oxley Act - The exhibits include the company's articles of incorporation, bylaws, and certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906[236](index=236&type=chunk)

Financial Data and Key Metrics Changes - The company reported record first-quarter total revenues of $3.5 billion and record first-quarter EchoPark segment revenues of $651 million, with first-quarter GAAP EPS at $1.29 per share and adjusted EPS at $1.33 per share [42][87] - The EchoPark segment adjusted EBITDA loss was $36.9 million, compared to a loss of $25.4 million in the fourth quarter and $29.5 million in the same period last year [46][87] - The company ended the fourth quarter with $893 million in available liquidity, including $432 million in cash and floor plan deposits [5] Business Line Data and Key Metrics Changes - The EchoPark segment retail unit sales volume reached a record of 19,980 units, up 15% from the fourth quarter and up 34% year-over-year [58] - The average used vehicle selling price in the EchoPark segment decreased by 3% from the fourth quarter but remained 10% to 15% above targeted affordability levels at $28,650 per unit [58] - The parts and service business saw a 12% year-over-year increase in gross profit, indicating strong performance in this area [86] Market Data and Key Metrics Changes - Wholesale auction prices for 3-year-old vehicles rose over 6% since the beginning of the year, while used vehicle retail average selling prices declined approximately 1% year-to-date [1] - The company noted that the supply of new vehicles is improving, which is expected to relieve pressure on used vehicle pricing and enhance consumer affordability [44][45] Company Strategy and Development Direction - The company is focused on optimizing inventory sourcing and expanding affordability by including older vehicles in its inventory mix [3] - The company aims to achieve breakeven adjusted EBITDA for the EchoPark segment by the first quarter of 2024, maintaining a long-term view and a disciplined capital allocation strategy [4][61] - The integration of the Powersports segment is seen as a diversification opportunity, with plans to enhance operational synergies [60] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in adapting to market changes and highlighted ongoing macroeconomic uncertainties, including rising interest rates affecting consumer demand [55][57] - The company anticipates that used vehicle prices will decline as new vehicle inventory supply grows, benefiting both consumer affordability and inventory costs [44][45] - Management noted that the demand for vehicles remains strong, particularly for trucks, despite supply chain challenges [74] Other Important Information - The Board of Directors approved a 3.6% increase in the quarterly cash dividend to $0.29 per share, payable on July 14, 2023 [48] - The company repurchased approximately 1.6 million shares for $91 million during the first quarter, representing about 5% of shares outstanding at the end of 2022 [5] Q&A Session Summary Question: What drove the increase in SG&A expenses? - Management clarified that the increase was due to investments in IT and facility enhancements, along with the impact of Stellantis on the franchise side [37][26] Question: What is the expectation for used vehicle supply and pricing? - Management expects supply to improve gradually, leading to a decrease in pricing as the year progresses [11][13] Question: How is the company addressing affordability issues for consumers? - Management noted that many consumers are waiting for prices to come down, and the company is focused on providing options that meet affordability targets [18][102] Question: What is the outlook for the Powersports segment? - Management indicated that they are taking a cautious approach to expansion in the Powersports segment, focusing on execution and learning the business [100][116]

PART I [Business Overview](index=4&type=section&id=Item%201.%20Business) Sonic Automotive, Inc. is a major U.S. automotive retailer across three segments, focusing on diverse revenue streams and omnichannel capabilities - Sonic Automotive, Inc. operates **111 Franchised Dealerships**, **52 EchoPark stores**, and **8 Powersports stores** as of December 31, 2022, making it one of the largest automotive retailers in the U.S[14](index=14&type=chunk) - The company acquired RFJ Auto Partners, Inc. in December 2021, adding **33 automotive retail locations** (22 franchised, 11 EchoPark) across seven states[17](index=17&type=chunk) - The COVID-19 pandemic continued to disrupt the global automotive supply chain in 2022, particularly semiconductor production, leading to lower new vehicle and parts inventory, increased demand, and higher pricing[18](index=18&type=chunk)[19](index=19&type=chunk) - Business strategy includes maintaining diverse revenue streams, executing EchoPark expansion to reach **90% of the U.S. population by 2025**, expanding omnichannel capabilities, and optimizing its brand portfolio, with **82.7% of new vehicle revenue from luxury and mid-line import dealerships in 2022**[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) 2022 Segment Revenue Contribution | Segment | % of Total Revenue (2022) | % of Total Revenue (2021) | | :----------------------- | :------------------------ | :------------------------ | | EchoPark Segment | 17.6% | 18.9% | | Powersports Segment | 0.4% | 0.0% | Franchised Dealerships Segment New Vehicle Revenue by Brand (2022) | Brand Category | Percentage of New Vehicle Revenues (2022) | | :--------------- | :---------------------------------------- | | Luxury | 60.5% | | Mid-line Import | 22.2% | | Domestic | 17.3% | | **Total** | **100.0%** | [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks related to growth strategy, industry dynamics, manufacturer relationships, financing, and common stock ownership - Growth strategy risks include challenges in obtaining capital for acquisitions and EchoPark expansion, restrictions from debt instruments, and the need for manufacturer consent for acquisitions[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - Retail automotive industry risks encompass dependence on global supply chains, extensive governmental regulations, increasing competition, and reliance on consumer demand and manufacturer supply for specific vehicles[83](index=83&type=chunk)[84](index=84&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[94](index=94&type=chunk) - Risks related to manufacturer relationships include potential termination or non-renewal of franchise agreements, control over dealership operations, and the impact of manufacturers adopting 'agency' sales models[104](index=104&type=chunk)[105](index=105&type=chunk)[108](index=108&type=chunk) - Financial and liquidity risks involve significant indebtedness of **$3.0 billion as of December 31, 2022**, potential inability to meet repayment obligations, and exposure to interest rate fluctuations, including the transition from LIBOR[122](index=122&type=chunk)[128](index=128&type=chunk)[136](index=136&type=chunk) - Risks related to common stock ownership include concentrated voting power by Class B stockholders, which may deter or influence change of control transactions, and potential conflicts of interest with officers or directors[137](index=137&type=chunk)[138](index=138&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC regarding the company's filings - No unresolved staff comments were reported[163](index=163&type=chunk) [Properties](index=26&type=section&id=Item%202.%20Properties) The company's principal executive offices are in Charlotte, North Carolina, with dealerships strategically located along major U.S. highways, many leased from affiliates and owned properties pledged as security - Principal executive offices are located at 4401 Colwick Road, Charlotte, North Carolina 28211[166](index=166&type=chunk) - Dealerships are generally located along major U.S. or interstate highways, with location being a principal factor in acquisitions[167](index=167&type=chunk) - Many dealership properties are leased from affiliates of Capital Automotive Real Estate Services, Inc. and other entities, while owned properties are pledged as security for credit facilities or other mortgage financing[167](index=167&type=chunk) [Legal Proceedings](index=26&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from the "Legal Proceedings" discussion within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" - Information on legal proceedings is discussed under the heading 'Legal Proceedings' in 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations'[168](index=168&type=chunk) [Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable[168](index=168&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A Common Stock trades on the NYSE under 'SAH', with **24,013,107 Class A shares** and **12,029,375 Class B shares** outstanding as of February 9, 2023, and a **$500.0 million share repurchase authorization** approved in July 2022 - Class A Common Stock is traded on the New York Stock Exchange (NYSE) under the symbol 'SAH', while Class B Common Stock is not publicly traded[171](index=171&type=chunk) - Subsequent to December 31, 2022, a cash dividend of **$0.28 per share** was approved for payment on April 14, 2023[173](index=173&type=chunk) - The Board of Directors increased the share repurchase authorization by **$500.0 million** in July 2022, with **$464.3 million** remaining available as of December 31, 2022, and an additional **194,294 shares** repurchased post-December 31, 2022, for approximately **$9.6 million**[174](index=174&type=chunk) Common Stock Outstanding (as of Feb 9, 2023) | Class | Shares Outstanding | | :---- | :----------------- | | Class A | 24,013,107 | | Class B | 12,029,375 | Quarterly Cash Dividends Declared Per Share | Year | Dividend Per Share | | :--- | :----------------- | | 2022 | $1.03 | | 2021 | $0.46 | | 2020 | $0.40 | Share Repurchase Program Activity (Q4 2022) | Period | Shares Purchased (millions) | Average Price Paid Per Share | | :------------ | :-------------------------- | :--------------------------- | | October 2022 | — | $— | | November 2022 | — | $— | | December 2022 | 352.9 | $47.23 | | **Total** | **352.9** | | [Reserved](index=28&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Sonic Automotive, Inc.'s financial condition and results for 2022, covering segment performance, revenue, gross profit, expenses, impairment charges, and liquidity, highlighting overall revenue growth despite unit sales decreases and significant impairment charges - The company is one of the largest automotive retailers in the U.S., operating three reportable segments: Franchised Dealerships (**111 stores, 142 franchises**), EchoPark (**52 stores**), and Powersports (**8 stores**)[180](index=180&type=chunk) Consolidated Revenue and Gross Profit Percentage of Total Revenues | Item | 2022 | 2021 | 2020 | | :------------------------------------ | :------ | :------ | :------ | | Revenues: | | | | | New vehicles | 40.9 % | 41.3 % | 43.8 % | | Used vehicles | 3

Sonic Automotive, Inc. (NYSE:SAH) Q4 2022 Earnings Conference Call February 15, 2023 11:00 AM ET Company Participants David Smith - Chairman & CEO Jeff Dyke - President Heath Byrd - CFO Danny Wieland - VP of IR Conference Call Participants John Murphy - Bank of America Merrill Lynch Daniel Imbro - Stephens Rajat Gupta - JPMorgan Bret Jordan - Jefferies Diego Ortega - Morgan Stanley Operator Good morning, and welcome to the Sonic Automotive Fourth Quarter 2022 Earnings Conference Call. This conference call i ...

Financial Data and Key Metrics Changes - Sonic Automotive achieved record third quarter revenues of $3.4 billion, up 12% year-over-year [7] - The company reported record gross profit of $581 million, an increase of 23% year-over-year [7] - Net income reached $87 million, translating to $2.23 per diluted share [7] Business Line Data and Key Metrics Changes - Franchised Dealerships segment revenues were $2.8 billion, up 18% from the prior year, with segment income increasing by 1% to $146 million [13] - EchoPark reported revenues of $608 million, down 8% year-over-year, but gross profit increased by 88% to $49 million [18] Market Data and Key Metrics Changes - New vehicle sales volume decreased year-over-year due to supply chain constraints, while used vehicle sales volume reflected industry trends amid affordability concerns [9][15] - The Franchised Dealerships segment had approximately 18 days supply of new vehicle inventory, unchanged from the previous quarter [16] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet while pursuing strategic growth in both Franchised Dealerships and EchoPark [12][31] - EchoPark is expanding its distribution network and digital footprint, aiming to reach over 90% of the U.S. population by 2025 [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term prospects despite current macroeconomic challenges, including rising interest rates and inflation [10][11] - The company plans to take a disciplined approach to growth, particularly in the EchoPark segment, while monitoring market conditions [40][44] Other Important Information - The Board of Directors approved an increase in the quarterly cash dividend to $0.28 per share [30] - The company repurchased approximately 3.1 million shares for about $151.5 million during the third quarter [27] Q&A Session Summary Question: Inventory restocking and market conditions - Management noted that supply chain issues persist, particularly for import brands, but expect improvements in inventory levels moving into 2023 [35][36] Question: Capital allocation and share repurchase strategy - The company maintains a balanced approach to capital allocation, focusing on share repurchases when the stock is undervalued while also considering M&A opportunities [60][63] Question: EchoPark's path to breakeven EBITDA - Management indicated that achieving breakeven will depend on volume increases and improved wholesale prices, with expectations for positive EBITDA by mid-2023 [66][70]

Financial Data and Key Metrics Changes - Sonic Automotive achieved record quarterly revenues of $3.7 billion, a 9% increase year-over-year, with net income of $94.8 million or $2.33 per diluted share. Adjusted net income, excluding a one-time charge, was $99.2 million or $2.45 per diluted share [6][27] - The company ended the second quarter with $755 million in available liquidity, including $453 million in cash and floor plan deposits [25] Business Line Data and Key Metrics Changes - Franchised Dealerships segment revenues were $3 billion, up 8% year-over-year, while segment income decreased by 2% to $162.1 million. Adjusted EBITDA for this segment was $216.3 million, up 9% [9] - EchoPark reported record quarterly revenues of $665.6 million, a 12% increase from the prior year, but retail sales volume decreased by 22% year-over-year to 16,608 units [15] Market Data and Key Metrics Changes - Same-store basis for franchised dealerships showed a 12% decrease in revenues year-over-year, with a 20% decrease in industry new vehicle volume due to production constraints [10][12] - Same-store retail new vehicle gross profit per unit increased by 77% year-over-year to $6,905, despite a 33% decrease in same-store retail new vehicle unit sales volume [13] Company Strategy and Development Direction - The company is focused on maintaining strong liquidity and balance sheet position while identifying cost management measures and balancing growth plans amid macroeconomic challenges [7][9] - EchoPark is expanding strategically, aiming for 50% U.S. population coverage by the end of the year and 90% by 2025, while also enhancing its e-commerce platform [16][18] Management's Comments on Operating Environment and Future Outlook - Management noted persistent consumer demand despite macroeconomic headwinds and emphasized the importance of adaptability in achieving growth and profitability targets [8][28] - The company expects improvements in EchoPark's profitability in the second half of the year, with a return to breakeven or profitability anticipated in early 2023 [20][58] Other Important Information - The company repurchased approximately 1.4 million shares for $59.4 million during the second quarter, with a total of 5% of shares outstanding repurchased year-to-date [26] - The Board of Directors increased the share repurchase authorization by $500 million, totaling $633 million in remaining authorization, and approved a quarterly cash dividend of $0.25 per share [27] Q&A Session Summary Question: What is the current state of EchoPark's unit sales and demand? - Management confirmed that demand remains strong, but supply constraints have led to a pullback in unit sales. The transition to 5-plus-year-old vehicles is expected to improve results [34][36] Question: What is the expected trajectory for EchoPark's EBITDA? - Management anticipates that EchoPark will see reduced losses in the third quarter and expects to reach breakeven or profitability in the first or second quarter of 2023, depending on inventory availability [56][58] Question: How is the company addressing parts and services growth? - Management highlighted strong growth in fixed operations, with an 11% increase in customer pay gross profit, and emphasized the importance of brand mix in performance [65][67]

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q%20Filing%20Information) This section details the administrative and identification information for Sonic Automotive, Inc.'s Form 10-Q filing for the quarter ended June 30, 2022 [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides the basic identification details for Sonic Automotive, Inc.'s Form 10-Q filing, including its state of incorporation, address, and stock exchange listings - Filing is a Quarterly Report (**Form 10-Q**) for the period ended **June 30, 2022**[2](index=2&type=chunk) - Registrant: SONIC AUTOMOTIVE, INC., incorporated in Delaware[2](index=2&type=chunk) Outstanding Common Stock as of July 26, 2022 | Class | Shares Outstanding | | :---- | :----------------- | | Class A Common Stock | 27,236,398 | | Class B Common Stock | 12,029,375 | [Filer Status](index=1&type=section&id=Filer%20Status) Sonic Automotive, Inc. is classified as a 'Large accelerated filer' and has filed all required reports and interactive data files during the preceding 12 months - The registrant is a **Large accelerated filer**[4](index=4&type=chunk) - All required reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 have been filed during the preceding **12 months**[3](index=3&type=chunk) - All Interactive Data Files required by Rule 405 of Regulation S-T have been submitted electronically during the preceding **12 months**[3](index=3&type=chunk) [Uncertainty of Forward-Looking Statements and Information](index=2&type=section&id=UNCERTAINTY%20OF%20FORWARD-LOOKING%20STATEMENTS%20AND%20INFORMATION) This section outlines the cautionary statements regarding forward-looking information, emphasizing potential material differences from actual results due to various risks and uncertainties [Forward-Looking Statements Disclaimer](index=2&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section serves as a cautionary statement regarding forward-looking statements, indicating that actual results may differ materially from projections due to various risks and uncertainties - The report contains 'forward-looking statements' as defined by the Private Securities Litigation Reform Act of 1995, identifiable by words like 'may,' 'will,' 'expect,' 'estimate,' etc[5](index=5&type=chunk) - These statements are based on current estimates and assumptions, involve risks and uncertainties, and are not guarantees of future performance; actual results could differ materially[6](index=6&type=chunk) - The company undertakes no obligation to revise or update these statements, except as required by federal securities laws[7](index=7&type=chunk) [Factors Affecting Future Results](index=2&type=section&id=Factors%20Affecting%20Future%20Results) Key factors that could cause actual results to differ from projections include fluctuations in vehicle sales, ability to secure financing for expansion, business strategies, manufacturer relationships, legal proceedings, regulatory changes, supply chain disruptions, economic conditions, competition, and the integration of acquisitions - Factors include new and used vehicle sales volumes, ability to fund EchoPark expansion and other capital needs, and overall business and growth strategies[8](index=8&type=chunk) - Risks also involve vehicle manufacturer reputation, financial incentives, ability to deliver vehicles, and relationships with manufacturers affecting inventory and acquisitions[8](index=8&type=chunk) - General economic conditions (interest rates, inflation, consumer spending), high competition, and the severity/duration of the COVID-19 pandemic and its impact on supply chains are significant factors[8](index=8&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Sonic Automotive, Inc. for the three and six months ended June 30, 2022 [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Sonic Automotive, Inc. for the three and six months ended June 30, 2022 and 2021 [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, highlighting revenue growth and varied income trends for the three and six months ended June 30, 2022 Key Financial Highlights (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | Change (%) | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Total Revenues | $3,652.8 | $3,352.2 | 9% | | Gross Profit | $588.8 | $510.8 | 15.3% | | Operating Income | $154.8 | $165.4 | (6.4%) | | Income from Continuing Operations | $94.8 | $114.0 | (16.8%) | | Net Income | $94.8 | $113.8 | (16.7%) | | Diluted EPS | $2.34 | $2.63 | (11.0%) | Key Financial Highlights (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | Change (%) | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Total Revenues | $7,239.4 | $6,139.0 | 18% | | Gross Profit | $1,160.1 | $911.7 | 27.2% | | Operating Income | $309.2 | $253.3 | 22.1% | | Income from Continuing Operations | $192.1 | $167.7 | 14.5% | | Net Income | $192.1 | $168.1 | 14.3% | | Diluted EPS | $4.67 | $3.87 | 20.7% | [Condensed Consolidated Statements of Comprehensive Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Operations) This section presents the company's comprehensive income, showing a decrease for the three months and an increase for the six months ended June 30, 2022 Comprehensive Income (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | Change (%) | | :------------------- | :-------------- | :-------------- | :--------- | | Net Income | $94.8 | $113.8 | (16.7%) | | Other Comprehensive Income (Loss) | $0.3 | $0.4 | (25.0%) | | Comprehensive Income | $95.1 | $114.2 | (16.7%) | Comprehensive Income (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | Change (%) | | :------------------- | :-------------- | :-------------- | :--------- | | Net Income | $192.1 | $168.1 | 14.3% | | Other Comprehensive Income (Loss) | $0.5 | $0.6 | (16.7%) | | Comprehensive Income | $192.6 | $168.7 | 14.2% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section outlines the company's financial position, showing an increase in total assets and stockholders' equity as of June 30, 2022, compared to December 31, 2021 Key Balance Sheet Items (June 30, 2022 vs. December 31, 2021) | Metric | June 30, 2022 (Millions) | Dec 31, 2021 (Millions) | Change (%) | | :-------------------------- | :----------------------- | :---------------------- | :--------- | | Total Assets | $5,023.5 | $4,975.1 | 1.0% | | Total Current Assets | $2,070.9 | $2,084.1 | (0.6%) | | Total Liabilities | $3,853.5 | $3,898.7 | (1.2%) | | Total Stockholders' Equity | $1,170.0 | $1,076.4 | 8.7% | - Cash and cash equivalents increased to **$327.1 million** at June 30, 2022, from $299.4 million at December 31, 2021[17](index=17&type=chunk) - Inventories slightly decreased to **$1,240.4 million** at June 30, 2022, from $1,261.2 million at December 31, 2021[17](index=17&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details the changes in stockholders' equity, which increased to $1,170.0 million by June 30, 2022, driven by net income and stock-based compensation, partially offset by treasury stock purchases and dividends Changes in Stockholders' Equity (Six Months Ended June 30, 2022) | Item | Amount (Millions) | | :------------------------------------ | :---------------- | | Balance at December 31, 2021 | $1,076.4 | | Shares awarded under stock compensation plans | $1.3 | | Purchases of treasury stock | $(93.1) | | Effect of cash flow hedge instruments, net of tax expense | $0.5 | | Restricted stock amortization and stock option amortization | $13.1 | | Net income | $192.1 | | Class A dividends declared | $(14.3) | | Class B dividends declared | $(6.0) | | Balance at June 30, 2022 | $1,170.0 | - Treasury stock purchases amounted to **$93.1 million** for the six months ended June 30, 2022[20](index=20&type=chunk) - Dividends declared for Class A and Class B Common Stock totaled **$14.3 million** and **$6.0 million**, respectively, for the six months ended June 30, 2022[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the company's cash flow activities, showing a significant improvement in operating cash flow for the six months ended June 30, 2022, with net cash increasing by $27.7 million Cash Flow Summary (Six Months Ended June 30) | Activity | 2022 (Millions) | 2021 (Millions) | Change (Millions) | | :-------------------------------- | :-------------- | :-------------- | :---------------- | | Net cash provided by (used in) operating activities | $306.3 | $(34.6) | $340.9 | | Net cash used in investing activities | $(118.8) | $(129.2) | $10.4 | | Net cash provided by (used in) financing activities | $(159.8) | $233.1 | $(392.9) | | Net increase in cash and cash equivalents | $27.7 | $69.3 | $(41.6) | | Cash and cash equivalents, end of period | $327.1 | $239.6 | $87.5 | - Operating cash flow improvement was driven by net income, depreciation, and favorable changes in receivables and inventories, partially offset by changes in floor plan notes payable[22](index=22&type=chunk) - Cash paid for interest increased to **$52.6 million** in 2022 from $29.6 million in 2021, and income taxes paid increased to **$59.0 million** from $54.4 million[22](index=22&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the unaudited condensed consolidated financial statements, covering significant accounting policies, business acquisitions, inventory breakdown, property and equipment, goodwill and intangible assets, long-term debt, commitments and contingencies, fair value measurements, segment information, and subsequent events [1. Summary of Significant Accounting Policies](index=10&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the accounting principles used for the unaudited interim financial statements, highlighting the ongoing impact of the COVID-19 pandemic on the automotive supply chain and detailing revenue recognition policies - Unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information[23](index=23&type=chunk) - COVID-19 continues to disrupt the global automotive supply chain, causing lower new vehicle and parts inventory, strong consumer demand, and high vehicle pricing[24](index=24&type=chunk) - Material revenue streams include sales of new vehicles, retail used vehicles, wholesale used vehicles, arrangement of vehicle financing/insurance, and vehicle maintenance/repair services[29](index=29&type=chunk) [2. Business Acquisitions and Dispositions](index=11&type=section&id=2.%20Business%20Acquisitions%20and%20Dispositions) During the six months ended June 30, 2022, Sonic acquired one franchised dealership for approximately $20.9 million, including a $14.7 million post-close adjustment related to the RFJ Auto Partners, Inc. acquisition from December 2021 - Acquired one franchised dealership for approximately **$20.9 million** during the six months ended June 30, 2022, including a **$14.7 million** post-close adjustment for the RFJ Auto acquisition[35](index=35&type=chunk)[37](index=37&type=chunk) - The acquisition's gross purchase price allocation included **$3.1 million** for inventory, **$0.1 million** for property and equipment, **$2.5 million** for franchise assets, and **$0.5 million** for goodwill[35](index=35&type=chunk) - No dispositions occurred in the first six months of 2022, compared to the disposition of one luxury franchised dealership for **$3.8 million** in the same period of 2021[36](index=36&type=chunk) [3. Inventories](index=12&type=section&id=3.%20Inventories) Net inventories decreased slightly to $1,240.4 million at June 30, 2022, from $1,261.2 million at December 31, 2021, primarily driven by a decrease in used vehicle inventory, partially offset by an increase in new vehicle inventory Inventories Breakdown (Millions) | Category | June 30, 2022 | December 31, 2021 | | :-------------------- | :-------------- | :---------------- | | New vehicles | $321.5 | $273.1 | | Used vehicles | $719.8 | $807.2 | | Service loaners | $118.8 | $106.3 | | Parts, accessories and other | $80.3 | $74.6 | | **Net inventories** | **$1,240.4** | **$1,261.2** | [4. Property and Equipment](index=12&type=section&id=4.%20Property%20and%20Equipment) Net property and equipment increased to $1,491.6 million at June 30, 2022, from $1,458.8 million at December 31, 2021, with capital expenditures of $100.4 million primarily for real estate and construction Property and Equipment, Net (Millions) | Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :---------------- | | Land | $451.2 | $447.4 | | Buildings and improvements | $1,319.5 | $1,240.5 | | Furniture, fixtures and equipment | $485.0 | $451.2 | | Construction in progress | $37.9 | $68.1 | | Less accumulated depreciation | $(796.4) | $(746.2) | | **Property and equipment, net** | **$1,491.6** | **$1,458.8** | - Capital expenditures for the six months ended June 30, 2022, were **$100.4 million**, mainly for real estate, new store construction, and improvements[41](index=41&type=chunk) - No fixed asset impairment charges were recorded for the six months ended June 30, 2022 and 2021[42](index=42&type=chunk) [5. Goodwill and Intangible Assets](index=12&type=section&id=5.%20Goodwill%20and%20Intangible%20Assets) Total goodwill increased to $423.5 million at June 30, 2022, from $416.4 million at December 31, 2021, with increases in both segments and no impairment charges recorded Goodwill Carrying Amount (Millions) | Segment | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :---------------- | | Franchised Dealerships Segment | $219.8 | $213.5 | | EchoPark Segment | $203.7 | $202.9 | | **Total goodwill** | **$423.5** | **$416.4** | - Indefinite-lived franchise assets were approximately **$486.6 million** at June 30, 2022, up from $480.2 million at December 31, 2021[44](index=44&type=chunk) - No impairment charges were recorded for goodwill or intangible assets as of June 30, 2022, or December 31, 2021[44](index=44&type=chunk) [6. Long-Term Debt](index=13&type=section&id=6.%20Long-Term%20Debt) Total long-term debt, net of current maturities, decreased to $1,462.0 million at June 30, 2022, and the company was in compliance with all financial covenants under its credit facilities and mortgage facility Long-Term Debt Breakdown (Millions) | Debt Instrument | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :-------------- | :---------------- | | 4.625% Senior Notes due 2029 | $650.0 | $650.0 | | 4.875% Senior Notes due 2031 | $500.0 | $500.0 | | 2019 Mortgage Facility | $84.5 | $90.0 | | Mortgage notes to finance companies (fixed rate) | $198.5 | $213.4 | | Mortgage notes to finance companies (variable rate) | $128.3 | $132.8 | | **Total debt (net of issuance costs)** | **$1,538.5** | **$1,561.3** | | Less current maturities | $(76.5) | $(50.6) | | **Long-term debt** | **$1,462.0** | **$1,510.7** | - As of June 30, 2022, the company had **$269.3 million** remaining borrowing availability under the 2021 Revolving Credit Facility and **$27.7 million** under the 2019 Mortgage Facility[48](index=48&type=chunk)[56](index=56&type=chunk) - The company was in compliance with all financial covenants under its 2021 Credit Facilities and 2019 Mortgage Facility as of June 30, 2022, including liquidity, fixed charge coverage, and total lease adjusted leverage ratios[62](index=62&type=chunk) [7. Commitments and Contingencies](index=16&type=section&id=7.%20Commitments%20and%20Contingencies) This section outlines the company's various guarantees and indemnification obligations, primarily related to operating lease agreements, dealership dispositions, and legal matters, with reserves held for pending cases - The company generally indemnifies lessors for use of leased premises and buyers for liabilities post-sale, with environmental exposure for dispositions at **$0 million** as of June 30, 2022[65](index=65&type=chunk)[67](index=67&type=chunk) - A guarantee of **$4.3 million** for the floor plan commitments of a 50%-owned joint venture was outstanding at June 30, 2022, and December 31, 2021[68](index=68&type=chunk) - Reserves for pending legal proceedings were approximately **$1.6 million** (current) and **$0.3 million** (long-term) as of June 30, 2022[70](index=70&type=chunk) [8. Fair Value Measurements](index=17&type=section&id=8.%20Fair%20Value%20Measurements) The company's financial instruments generally approximate their carrying values, though significant fixed-rate long-term debt had fair values below carrying values at June 30, 2022, reflecting market conditions - Fair values of most financial instruments (receivables, floor plan notes, etc.) approximated their carrying values due to short maturities or variable interest rates[73](index=73&type=chunk) Fair Value vs. Carrying Value of Fixed Rate Long-Term Debt (Millions) | Debt Instrument | June 30, 2022 Fair Value | June 30, 2022 Carrying Value | Dec 31, 2021 Fair Value | Dec 31, 2021 Carrying Value | | :---------------- | :----------------------- | :--------------------------- | :---------------------- | :-------------------------- | | 4.875% Notes | $376.3 | $500.0 | $504.8 | $500.0 | | 4.625% Notes | $503.8 | $650.0 | $655.9 | $650.0 | [9. Segment Information](index=18&type=section&id=9.%20Segment%20Information) Sonic Automotive operates two reportable segments: Franchised Dealerships and EchoPark, with the Franchised Dealerships Segment generating higher revenues and income, while EchoPark reported a loss for the three months ended June 30, 2022 - Sonic has two operating segments: Franchised Dealerships (new/used vehicles, parts, service, F&I) and EchoPark (pre-owned vehicle specialty retail)[76](index=76&type=chunk) Segment Revenues (Three Months Ended June 30, 2022 vs. 2021) | Segment | 2022 (Millions) | 2021 (Millions) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Franchised Dealerships Segment | $2,987.2 | $2,756.6 | 8% | | EchoPark Segment | $665.6 | $595.6 | 12% | | **Total consolidated revenues** | **$3,652.8** | **$3,352.2** | **9%** | Segment Income (Loss) (Three Months Ended June 30, 2022 vs. 2021) | Segment | 2022 (Millions) | 2021 (Millions) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Franchised Dealerships Segment | $162.1 | $165.4 | (2%) | | EchoPark Segment | $(34.9) | $(14.4) | (142%) | | **Income from continuing operations before taxes** | **$127.2** | **$151.0** | **(16%)** | [10. Subsequent Events](index=20&type=section&id=10.%20Subsequent%20Events) Subsequent to June 30, 2022, Sonic's Board of Directors increased the share repurchase authorization by $500.0 million, bringing the total remaining availability to approximately $633.1 million - Board of Directors increased share repurchase authorization by **$500.0 million** after June 30, 2022[82](index=82&type=chunk) - Current remaining share repurchase availability is approximately **$633.1 million**[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion and analysis of Sonic Automotive, Inc.'s financial condition and results of operations for the three and six months ended June 30, 2022, highlighting the impact of acquisitions and supply chain disruptions [Overview](index=21&type=section&id=Overview) Sonic Automotive is a major U.S. automotive retailer operating two segments: Franchised Dealerships and EchoPark, with plans to expand its EchoPark network to reach 90% of the U.S. population by 2025 - Sonic Automotive is one of the largest automotive retailers in the U.S., with two reportable segments: Franchised Dealerships and EchoPark[87](index=87&type=chunk) - As of June 30, 2022, the company operated **111** Franchised Dealership stores (**141** new vehicle franchises) and **50** EchoPark stores[87](index=87&type=chunk) - EchoPark growth plan aims to expand its nationwide distribution network to reach **90%** of the U.S. population by 2025[87](index=87&type=chunk) [Executive Summary](index=21&type=section&id=Executive%20Summary) The U.S. retail automotive industry experienced significant SAAR decreases in Q2 2022 due to ongoing COVID-19 impacts and supply chain disruptions, leading to low inventory and high vehicle pricing, with varied segment performance influenced by the RFJ Auto Acquisition U.S. Retail Automotive Industry SAAR (Millions of Vehicles) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | Retail new vehicle SAAR | 11.6 | 15.6 | (25.6%) | | Total new vehicle SAAR | 13.5 | 17.0 | (20.6%) | - COVID-19 and supply chain disruptions, especially semiconductor shortages, continue to cause low new vehicle inventory and high new/used vehicle pricing[91](index=91&type=chunk)[92](index=92&type=chunk) - Franchised Dealerships Segment: Retail new vehicle gross profit per unit increased significantly (**77%** in Q2, **98%** in H1) due to higher average selling prices from inventory shortages, despite lower unit sales volume[95](index=95&type=chunk) - EchoPark Segment: Total revenue increased (**12%** in Q2, **17%** in H1) driven by network expansion and higher average retail used vehicle selling prices. Combined retail used vehicle and F&I gross profit per unit increased (**82%** in Q2, **44%** in H1) due to strategic actions to reduce inventory acquisition costs[100](index=100&type=chunk)[101](index=101&type=chunk) [Results of Operations – Consolidated](index=23&type=section&id=Results%20of%20Operations%20%E2%80%93%20Consolidated) Consolidated results show a 9% increase in total revenues for Q2 2022 and an 18% increase for H1 2022, with new vehicle gross profit surging due to higher gross profit per retail unit despite lower unit sales [New Vehicles – Consolidated](index=23&type=section&id=New%20Vehicles%20%E2%80%93%20Consolidated) Consolidated new vehicle revenue increased 3% in Q2 2022 and 15% in H1 2022, primarily due to higher average selling prices, with gross profit surging despite decreased unit sales Consolidated New Vehicle Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Total new vehicle revenue | $1,510.7 | $1,462.9 | 3% | | Total new vehicle gross profit | $169.2 | $118.4 | 43% | | Retail new vehicle unit sales | 24,427 | 30,257 | (19%) | | Gross profit per new retail unit | $6,890 | $3,903 | 77% | Consolidated New Vehicle Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Total new vehicle revenue | $3,010.6 | $2,619.2 | 15% | | Total new vehicle gross profit | $337.8 | $187.9 | 80% | | Retail new vehicle unit sales | 49,114 | 54,074 | (9%) | | Gross profit per new retail unit | $6,841 | $3,464 | 97% | - The brand mix of new vehicle revenues for the Franchised Dealerships Segment shifted, with Luxury brands decreasing (**53.3%** in Q2 2022 vs. 65.3% in Q2 2021) and Domestic brands increasing (**26.4%** in Q2 2022 vs. 9.1% in Q2 2021), largely due to the RFJ Acquisition[106](index=106&type=chunk) [Used Vehicles – Consolidated](index=26&type=section&id=Used%20Vehicles%20%E2%80%93%20Consolidated) Consolidated retail used vehicle revenue increased 13% in Q2 2022 and 18% in H1 2022, driven by higher revenue per unit, with gross profit per unit rising despite a 10% decrease in unit sales volume for both periods Consolidated Retail Used Vehicle Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $1,449.4 | $1,281.2 | 13% | | Gross profit | $47.1 | $35.1 | 34% | | Unit sales | 44,764 | 49,811 | (10%) | | Gross profit per unit | $1,053 | $698 | 51% | Consolidated Retail Used Vehicle Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $2,820.2 | $2,384.1 | 18% | | Gross profit | $95.2 | $65.7 | 45% | | Unit sales | 86,837 | 96,717 | (10%) | | Gross profit per unit | $1,097 | $679 | 62% | - Used vehicle prices reached an all-time high in Q1 2022 and remained elevated in Q2, influenced by low new vehicle inventory and high demand[114](index=114&type=chunk) [Wholesale Vehicles – Consolidated](index=27&type=section&id=Wholesale%20Vehicles%20%E2%80%93%20Consolidated) Consolidated wholesale vehicle revenue increased significantly by 43% in Q2 2022 and 82% in H1 2022, driven by higher revenue per unit, but gross profit decreased significantly, reflecting market volatility Consolidated Wholesale Vehicle Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $121.4 | $84.8 | 43% | | Gross profit (loss) | $1.2 | $4.5 | (73%) | | Unit sales | 8,545 | 9,631 | (11%) | | Gross profit (loss) per unit | $129 | $470 | (73%) | Consolidated Wholesale Vehicle Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $290.2 | $159.6 | 82% | | Gross profit (loss) | $2.6 | $5.4 | (52%) | | Unit sales | 18,966 | 19,324 | (2%) | | Gross profit (loss) per unit | $139 | $278 | (50%) | - Wholesale vehicle prices and supply have experienced volatility since the COVID-19 pandemic, and the current pricing environment is not expected to be sustainable long-term[116](index=116&type=chunk) [Fixed Operations – Consolidated](index=28&type=section&id=Fixed%20Operations%20%E2%80%93%20Consolidated) Consolidated Fixed Operations revenue increased 15% in Q2 2022 and 19% in H1 2022, with gross profit increasing 13% in Q2 and 16% in H1, driven by strong customer pay growth Consolidated Fixed Operations Revenue (Three Months Ended June 30) | Category | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Customer pay | $168.0 | $152.1 | 10% | | Warranty | $54.7 | $58.2 | (6%) | | Wholesale parts | $50.2 | $39.6 | 27% | | Internal, sublet and other | $125.2 | $96.2 | 30% | | **Total revenue** | **$398.1** | **$346.1** | **15%** | Consolidated Fixed Operations Gross Profit (Six Months Ended June 30) | Category | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Customer pay | $187.6 | $163.4 | 15% | | Warranty | $64.1 | $64.9 | (1%) | | Wholesale parts | $17.9 | $13.0 | 38% | | Internal, sublet and other | $115.2 | $89.5 | 29% | | **Total gross profit** | **$384.8** | **$330.8** | **16%** | - The company expects continued optimization of service capacity and growth in parts and service business due to extended new vehicle warranty periods and certified pre-owned vehicle warranties[120](index=120&type=chunk) [F&I – Consolidated](index=30&type=section&id=F%26I%20%E2%80%93%20Consolidated) Consolidated F&I revenue decreased 2% in Q2 2022 but increased 6% in H1 2022, with gross profit per retail unit increasing by 13% in Q2 and 17% in H1, despite lower unit sales volume Consolidated F&I Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $173.2 | $177.2 | (2%) | | Total combined new and used vehicle retail unit sales | 69,191 | 80,068 | (14%) | | Gross profit per retail unit (excludes fleet) | $2,503 | $2,214 | 13% | Consolidated F&I Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $339.7 | $321.9 | 6% | | Total combined new and used vehicle retail unit sales | 135,951 | 150,791 | (10%) | | Gross profit per retail unit (excludes fleet) | $2,499 | $2,135 | 17% | - F&I revenues are recognized net of actual and estimated future chargebacks, resulting in a **100%** gross margin for F&I[123](index=123&type=chunk) [Results of Operations – Franchised Dealerships Segment](index=30&type=section&id=Results%20of%20Operations%20%E2%80%93%20Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment reported increased total new vehicle revenue for Q2 and H1 2022, driven by acquisitions and higher gross profit per unit, despite decreased same-store retail new vehicle revenue and unit sales [New Vehicles – Franchised Dealerships Segment](index=31&type=section&id=New%20Vehicles%20%E2%80%93%20Franchised%20Dealerships%20Segment) Reported total new vehicle revenue increased 3% in Q2 2022 and 15% in H1 2022, largely due to acquisitions, while same-store retail new vehicle gross profit per unit surged by 77% in Q2 and 98% in H1 despite lower unit sales Franchised Dealerships Segment Same Store Retail New Vehicle Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $1,126.3 | $1,447.5 | (22%) | | Gross profit | $139.0 | $117.4 | 18% | | Unit sales | 20,135 | 30,129 | (33%) | | Gross profit per new retail unit | $6,905 | $3,897 | 77% | Franchised Dealerships Segment Same Store Retail New Vehicle Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $2,236.0 | $2,578.2 | (13%) | | Gross profit | $276.9 | $186.2 | 49% | | Unit sales | 40,418 | 53,865 | (25%) | | Gross profit per new retail unit | $6,851 | $3,458 | 98% | [Used Vehicles – Franchised Dealerships Segment](index=37&type=section&id=Used%20Vehicles%20%E2%80%93%20Franchised%20Dealerships%20Segment) Reported retail used vehicle revenue increased 14% in Q2 2022 and 21% in H1 2022, primarily due to acquisitions, with same-store gross profit per unit showing mixed trends despite decreased unit sales Franchised Dealerships Segment Same Store Retail Used Vehicle Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $751.5 | $758.8 | (1%) | | Gross profit | $38.2 | $54.5 | (30%) | | Unit sales | 23,555 | 28,429 | (17%) | | Gross profit per unit | $1,622 | $1,915 | (15%) | Franchised Dealerships Segment Same Store Retail Used Vehicle Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $1,474.5 | $1,417.9 | 4% | | Gross profit | $77.5 | $89.0 | (13%) | | Unit sales | 46,272 | 55,549 | (17%) | | Gross profit per unit | $1,674 | $1,602 | 4% | - The segment aims to maintain used vehicle inventory days' supply in the **25- to 35-day range**; it was approximately **31 days** as of June 30, 2022 and 2021[97](index=97&type=chunk)[142](index=142&type=chunk) [Wholesale Vehicles – Franchised Dealerships Segment](index=39&type=section&id=Wholesale%20Vehicles%20%E2%80%93%20Franchised%20Dealerships%20Segment) Reported wholesale vehicle revenue increased 26% in Q2 2022 and 56% in H1 2022, driven by higher revenue per unit, but reported gross profit decreased significantly, resulting in a gross loss Franchised Dealerships Segment Same Store Wholesale Vehicle Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $55.4 | $62.7 | (12%) | | Gross profit (loss) | $(0.4) | $4.1 | (110%) | | Unit sales | 4,313 | 6,729 | (36%) | | Gross profit (loss) per unit | $(75) | $619 | (112%) | Franchised Dealerships Segment Same Store Wholesale Vehicle Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $138.1 | $118.7 | 16% | | Gross profit (loss) | $(0.8) | $4.9 | (116%) | | Unit sales | 9,675 | 13,532 | (29%) | | Gross profit (loss) per unit | $(72) | $363 | (120%) | [Fixed Operations – Franchised Dealerships Segment](index=42&type=section&id=Fixed%20Operations%20%E2%80%93%20Franchised%20Dealerships%20Segment) Reported Fixed Operations revenue increased 15% in Q2 2022 and 19% in H1 2022, with gross profit increasing 13% in Q2 and 16% in H1, driven by acquisitions and strong customer pay growth Franchised Dealerships Segment Same Store Fixed Operations Revenue (Three Months Ended June 30) | Category | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Customer pay | $171.0 | $151.0 | 13% | | Warranty | $51.7 | $57.8 | (11%) | | Wholesale parts | $46.5 | $39.4 | 18% | | Internal, sublet and other | $92.9 | $96.7 | (4%) | | **Total revenue** | **$362.1** | **$344.9** | **5%** | Franchised Dealerships Segment Same Store Fixed Operations Gross Profit (Six Months Ended June 30) | Category | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Customer pay | $187.4 | $162.6 | 15% | | Warranty | $60.0 | $64.5 | (7%) | | Wholesale parts | $16.7 | $12.9 | 29% | | Internal, sublet and other | $86.8 | $88.8 | (2%) | | **Total gross profit** | **$350.9** | **$328.8** | **7%** | - Fixed Operations activity, particularly customer pay repairs, has recovered above pre-pandemic levels, with elevated levels expected to continue in 2022[149](index=149&type=chunk)[150](index=150&type=chunk) [F&I – Franchised Dealerships Segment](index=45&type=section&id=F%26I%20%E2%80%93%20Franchised%20Dealerships%20Segment) Reported F&I revenue increased 5% in Q2 2022 and 16% in H1 2022, driven by acquisitions, while same-store F&I gross profit per retail unit increased by 15% in Q2 and 19% in H1 despite lower retail unit sales volume Franchised Dealerships Segment Same Store F&I Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $106.6 | $123.7 | (14%) | | Total combined retail new and used vehicle unit sales | 43,690 | 58,558 | (25%) | | Gross profit per retail unit (excludes fleet) | $2,440 | $2,113 | 15% | Franchised Dealerships Segment Same Store F&I Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $209.1 | $221.0 | (5%) | | Total combined retail new and used vehicle unit sales | 86,690 | 109,414 | (21%) | | Gross profit per retail unit (excludes fleet) | $2,412 | $2,020 | 19% | - F&I gross profit per retail unit increased due to higher gross profit per finance contract and increased penetration rates for service and other aftermarket contracts[155](index=155&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) [Results of Operations – EchoPark Segment](index=47&type=section&id=Results%20of%20Operations%20%E2%80%93%20EchoPark%20Segment) The EchoPark Segment reported an 11% increase in retail used vehicle revenue for Q2 2022 and 14% for H1 2022, driven by new market expansion and higher revenue per unit, with combined used vehicle gross profit and F&I revenue increasing significantly [Used Vehicles and F&I – EchoPark Segment](index=47&type=section&id=Used%20Vehicles%20and%20F%26I%20%E2%80%93%20EchoPark%20Segment) Reported used vehicle revenue increased 11% in Q2 2022 and 14% in H1 2022, driven by new market expansion and higher revenue per unit, while combined used vehicle gross profit and F&I revenue increased significantly, with gross profit per retail unit surging due to strategic actions to reduce inventory acquisition costs EchoPark Segment Reported Used Vehicle and F&I Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Used vehicle revenue | $577.5 | $519.7 | 11% | | F&I revenue | $43.4 | $53.2 | (18%) | | Combined used vehicle gross profit and F&I revenue | $46.8 | $33.1 | 41% | | Total used vehicle and F&I gross profit per retail unit | $2,804 | $1,537 | 82% | EchoPark Segment Reported Used Vehicle and F&I Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :--------------------------------- | :-------------- | :-------------- | :--------- | | Used vehicle revenue | $1,094.5 | $961.0 | 14% | | F&I revenue | $83.5 | $100.3 | (17%) | | Combined used vehicle gross profit and F&I revenue | $88.1 | $78.9 | 12% | | Total used vehicle and F&I gross profit per retail unit | $2,774 | $1,922 | 44% | - EchoPark's operating strategy focuses on maximizing total used vehicle-related gross profit rather than traditional front-end retail used vehicle gross profit per unit[160](index=160&type=chunk) [Wholesale Vehicles – EchoPark Segment](index=51&type=section&id=Wholesale%20Vehicles%20%E2%80%93%20EchoPark%20Segment) Reported wholesale vehicle revenue increased 94% in Q2 2022 and 159% in H1 2022, driven by new market expansion and higher revenue per unit, though gross profit showed mixed trends EchoPark Segment Reported Wholesale Vehicle Performance (Three Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $42.2 | $21.8 | 94% | | Gross profit (loss) | $1.7 | $3.0 | (43%) | | Unit sales | 2,694 | 2,878 | (6%) | | Revenue per unit | $15,656 | $7,592 | 106% | EchoPark Segment Reported Wholesale Vehicle Performance (Six Months Ended June 30) | Metric | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $104.7 | $40.5 | 159% | | Gross profit (loss) | $3.5 | $3.2 | 9% | | Unit sales | 6,343 | 5,739 | 11% | | Revenue per unit | $16,502 | $7,049 | 134% | - The increase in revenue per wholesale unit was due to the stabilization of excess demand in the wholesale vehicle auction market, which drove record high wholesale vehicle pricing[171](index=171&type=chunk)[172](index=172&type=chunk) [Segment Results Summary](index=54&type=section&id=Segment%20Results%20Summary) This section summarizes the consolidated revenues and income (loss) from continuing operations before taxes for both the Franchised Dealerships and EchoPark segments, showing overall revenue growth but varied income trends Consolidated Revenues and Income (Loss) by Segment (Three Months Ended June 30) | Metric | Franchised Dealerships (Millions) | EchoPark (Millions) | Total Consolidated (Millions) | | :--------------------------------- | :------------------------------ | :------------------ | :---------------------------- | | Revenues | $2,987.2 | $665.6 | $3,652.8 | | Income (Loss) from continuing operations before taxes | $162.1 | $(34.9) | $127.2 | Consolidated Revenues and Income (Loss) by Segment (Six Months Ended June 30) | Metric | Franchised Dealerships (Millions) | EchoPark (Millions) | Total Consolidated (Millions) | | :--------------------------------- | :------------------------------ | :------------------ | :---------------------------- | | Revenues | $5,948.5 | $1,290.9 | $7,239.4 | | Income (Loss) from continuing operations before taxes | $326.0 | $(69.9) | $256.1 | - Total retail new and used vehicle unit sales volume decreased by **14%** in Q2 2022 and **10%** in H1 2022, with both segments contributing to the decline[175](index=175&type=chunk)[177](index=177&type=chunk) [Selling, General and Administrative (SG&A) Expenses – Consolidated](index=55&type=section&id=Selling,%20General%20and%20Administrative%20(SG%26A)%20Expenses%20%E2%80%93%20Consolidated) Consolidated SG&A expenses increased by 26% in Q2 2022 and 29% in H1 2022, primarily due to the RFJ Acquisition and higher overall gross profit levels, with compensation and advertising expenses also rising Consolidated SG&A Expenses (Three Months Ended June 30) | Category | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Compensation | $266.4 | $213.8 | (25%) | | Advertising | $25.6 | $15.3 | (67%) | | Rent | $13.7 | $13.7 | 0% | | Other | $97.1 | $77.8 | (25%) | | **Total SG&A expenses** | **$402.8** | **$320.6** | **(26%)** | Consolidated SG&A Expenses as a % of Gross Profit (Six Months Ended June 30) | Category | 2022 (%) | 2021 (%) | Change (bps) | | :-------------------------- | :------- | :------- | :----------- | | Compensation | 44.7% | 44.1% | (60) | | Advertising | 4.5% | 3.0% | (150) | | Rent | 2.3% | 3.0% | 70 | | Other | 16.6% | 16.8% | 20 | | **Total SG&A expenses as a % of gross profit** | **68.1%** | **66.9%** | **(120)** | - The increase in SG&A was primarily due to the RFJ Acquisition and higher overall gross profit levels, with advertising expense increasing due to focused marketing at EchoPark[180](index=180&type=chunk)[181](index=181&type=chunk) [Impairment Charges – Consolidated](index=57&type=section&id=Impairment%20Charges%20%E2%80%93%20Consolidated) No impairment charges were recorded for the three and six months ended June 30, 2022, or 2021 - No impairment charges were recorded for the three and six months ended June 30, 2022, or 2021[182](index=182&type=chunk) [Depreciation and Amortization – Consolidated](index=57&type=section&id=Depreciation%20and%20Amortization%20%E2%80%93%20Consolidated) Depreciation and amortization expense increased by 26% for both the three and six months ended June 30, 2022, primarily due to acquisitions, completed construction projects, and purchases of fixed assets - Depreciation and amortization expense increased by approximately **$6.4 million (26%)** in Q2 2022 and **$12.7 million (26%)** in H1 2022[183](index=183&type=chunk) - The increase was primarily due to acquisitions and completed construction projects, along with purchases of fixed assets for franchised dealerships and EchoPark stores[183](index=183&type=chunk) [Interest Expense, Floor Plan – Consolidated](index=57&type=section&id=Interest%20Expense,%20Floor%20Plan%20%E2%80%93%20Consolidated) Floor plan interest expense for new vehicles decreased by 21% in Q2 2022 and 41% in H1 2022, mainly due to lower average interest rates, while used vehicle floor plan interest expense increased significantly by 112% in Q2 and 105% in H1 due to higher average interest rates and increased notes payable balances - New vehicle floor plan interest expense decreased by **$0.5 million (21%)** in Q2 2022, primarily due to a lower average interest rate (**0.62%** vs. 0.81%)[184](index=184&type=chunk) - Used vehicle floor plan interest expense increased by **$2.3 million (112%)** in Q2 2022, driven by a higher average interest rate (**2.91%** vs. 1.67%) and increased notes payable balance[185](index=185&type=chunk) - For H1 2022, new vehicle floor plan interest expense decreased by **$2.3 million (41%)**, while used vehicle floor plan interest expense increased by **$3.9 million (105%)**[186](index=186&type=chunk)[187](index=187&type=chunk) [Interest Expense, Other, Net – Consolidated](index=58&type=section&id=Interest%20Expense,%20Other,%20Net%20%E2%80%93%20Consolidated) Other interest expense, net, increased significantly by 111% in Q2 2022 and 106% in H1 2022, primarily due to the issuance of Senior Notes in October 2021, increases in variable rate mortgage debt, and higher interest on finance lease liabilities Consolidated Interest Expense, Other, Net (Three Months Ended June 30) | Category | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Stated/coupon interest | $17.0 | $7.5 | (127%) | | Interest on finance lease liabilities | $2.9 | $1.7 | (71%) | | **Total interest expense, other, net** | **$21.3** | **$10.1** | **(111%)** | Consolidated Interest Expense, Other, Net (Six Months Ended June 30) | Category | 2022 (Millions) | 2021 (Millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :--------- | | Stated/coupon interest | $34.0 | $15.2 | (124%) | | Interest on finance lease liabilities | $5.6 | $3.3 | (70%) | | **Total interest expense, other, net** | **$42.1** | **$20.4** | **(106%)** | - The increases were primarily due to the issuance of the 4.625% and 4.875% Senior Notes in October 2021, increases on variable rate mortgage debt, and higher interest on finance lease liabilities due to a rising interest rate environment[189](index=189&type=chunk) [Income Taxes](index=58&type=section&id=Income%20Taxes) The overall effective tax rate from continuing operations was 25.5% for Q2 2022 and 25.0% for H1 2022, showing a slight increase from the prior year's Q2 rate but remaining consistent for H1 Effective Tax Rate from Continuing Operations | Period | 2022 (%) | 2021 (%) | | :-------------------------- | :------- | :------- | | Three Months Ended June 30 | 25.5% | 24.5% | | Six Months Ended June 30 | 25.0% | 25.0% | - The effective tax rate varies based on taxable income levels, distribution of taxable income between states, and other tax adjustments[190](index=190&type=chunk) [Liquidity and Capital Resources](index=58&type=section&id=Liquidity%20and%20Capital%20Resources) Sonic Automotive relies on cash flows from operations, credit facilities, mortgage financing, asset sales, and debt/equity offerings to fund its operations, with total available liquidity resources increasing to $749.6 million as of June 30, 2022 Available Liquidity Resources (Millions) | Resource | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $327.1 | $299.4 | | Availability under 2021 Revolving Credit Facility | $269.3 | $281.4 | | Availability under 2019 Mortgage Facility | $27.7 | $22.2 | | Floor plan deposit balance | $125.5 | $99.8 | | **Total available liquidity resources** | **$749.6** | **$702.8** | - The company was in compliance with all restrictive covenants under its debt agreements as of June 30, 2022[191](index=191&type=chunk) - Approximately **$367.6 million** of net income and retained earnings were free of restrictions on dividend payments under debt agreements as of June 30, 2022[191](index=191&type=chunk) [Floor Plan Facilities](index=59&type=section&id=Floor%20Plan%20Facilities) Sonic Automotive finances its new and certain used vehicle inventory through floor plan facilities, with the weighted-average interest rate increasing to 1.39% in Q2 2022, and manufacturer assistance totaling $12.7 million in Q2 2022 - New and certain used vehicle inventory is financed through floor plan facilities with variable interest rates based on LIBOR or prime[194](index=194&type=chunk) Weighted-Average Floor Plan Interest Rate | Period | 2022 (%) | 2021 (%) | | :-------------------------- | :------- | :------- | | Three Months Ended June 30 | 1.39% | 1.07% | | Six Months Ended June 30 | 1.24% | 1.20% | - Manufacturer assistance received for floor plans was approximately **$12.7 million** in Q2 2022 and **$25.5 million** in H1 2022, recorded as a reduction of cost of sales upon vehicle sale[195](index=195&type=chunk) [Long-Term Debt and Credit Facilities](index=59&type=section&id=Long-Term%20Debt%20and%20Credit%20Facilities) This section refers to Note 6 for a detailed discussion of the company's long-term debt, mortgage notes, credit facilities, and compliance with debt covenants - Refer to Note 6 for detailed information on long-term debt, mortgage notes, credit facilities, and compliance with debt covenants[196](index=196&type=chunk) [Capital Expenditures](index=59&type=section&id=Capital%20Expenditures) Capital expenditures for the six months ended June 30, 2022, totaled approximately $100.4 million, allocated between the Franchised Dealerships and EchoPark segments, primarily for facility construction, real estate acquisitions, and other fixed assets, all funded through cash from operations - Capital expenditures for H1 2022 were approximately **$100.4 million**, allocated between Franchised Dealerships (**$52.0 million**) and EchoPark (**$48.4 million**)[198](index=198&type=chunk) - Expenditures were primarily for facility construction projects (**$59.0 million**), real estate acquisitions (**$19.1 million**), and other fixed assets (**$22.3 million**)[198](index=198&type=chunk) - All capital expenditures in H1 2022 were funded through cash from operations, and commitments for future projects totaled approximately **$22.0 million**[199](index=199&type=chunk) [Share Repurchase Program](index=60&type=section&id=Share%20Repurchase%20Program) During Q2 2022, Sonic repurchased approximately 1.4 million shares of Class A Common Stock for $59.4 million, with the remaining share repurchase authorization subsequently increased to $633.1 million after the quarter end - Repurchased approximately **1.4 million shares** of Class A Common Stock for **$59.4 million** in Q2 2022[200](index=200&type=chunk) - Remaining share repurchase authorization was **$133.1 million** as of June 30, 2022[200](index=200&type=chunk) - Subsequent to June 30, 2022, the Board of Directors increased the authorization by **$500.0 million**, bringing total availability to **$633.1 million**[200](index=200&type=chunk) [Dividends](index=60&type=section&id=Dividends) A cash dividend of $0.25 per share on Class A and Class B Common Stock was approved for Q2 2022 and paid on July 15, 2022, with another $0.25 per share dividend approved for Q3 2022, subject to debt agreement restrictions and Board discretion - A cash dividend of **$0.25 per share** was approved for Q2 2022 and paid on July 15, 2022[202](index=202&type=chunk) - Another cash dividend of **$0.25 per share** was approved for Q3 2022, to be paid on October 14, 2022[202](index=202&type=chunk) - Dividend declarations are subject to debt agreement restrictions (e.g., no event of default, compliance with financial covenants) and the Board of Directors' business judgment[202](index=202&type=chunk) [Cash Flows](index=60&type=section&id=Cash%20Flows) Net cash provided by operating activities was $306.3 million for H1 2022, a significant improvement from net cash used in the prior year, with investing activities using $118.8 million and financing activities using $159.8 million - Net cash provided by operating activities was **$306.3 million** in H1 2022, compared to net cash used of $34.6 million in H1 2021[203](index=203&type=chunk) - Net cash used in investing activities was **$118.8 million** in H1 2022, primarily for purchases of land, property, equipment, and businesses[204](index=204&type=chunk) - Net cash used in financing activities was **$159.8 million** in H1 2022, mainly due to net repayments on non-trade floor plan notes, treasury stock purchases, and long-term debt payments[205](index=205&type=chunk) - If all changes in floor plan notes payable were classified as an operating activity, net cash provided by operating activities would have been approximately **$281.4 million** in H1 2022[207](index=207&type=chunk) [Adjusted EBITDA (Non-GAAP)](index=61&type=section&id=Adjusted%20EBITDA%20(Non-GAAP)) Adjusted EBITDA, a non-GAAP financial measure, was $188.4 million for Q2 2022, a slight decrease from Q2 2021, but increased to $371.4 million for H1 2022, with the Franchised Dealerships Segment contributing positively while EchoPark reported negative Adjusted EBITDA Adjusted EBITDA by Segment (Three Months Ended June 30) | Segment | 2022 (Millions) | 2021 (Millions) | | :-------------------------- | :-------------- | :-------------- | | Franchised Dealerships Segment | $216.3 | $199.3 | | EchoPark Segment | $(27.9) | $(9.4) | | **Total Adjusted EBITDA** | **$188.4** | **$189.7** | Adjusted EBITDA by Segment (Six Months Ended June 30) | Segment | 2022 (Millions) | 2021 (Millions) | | :-------------------------- | :-------------- | :-------------- | | Franchised Dealerships Segment | $428.4 | $303.7 | | EchoPark Segment | $(57.0) | $(3.2) | | **Total Adjusted EBITDA** | **$371.4** | **$301.0** | - Adjusted EBITDA is used by management to measure operating performance for each reportable segment and on a consolidated basis[207](index=207&type=chunk) [Future Liquidity Outlook](index=62&type=section&id=Future%20Liquidity%20Outlook) The company anticipates its primary liquidity sources will continue to be cash flows from operations, borrowings under credit facilities, real estate mortgage financing, asset sales, and capital market offerings, with no materially negative changes to its cost of or access to capital expected - Primary liquidity sources include cash flows from operations, credit facilities, mortgage financing, asset sales, and capital market offerings[212](index=212&type=chunk) - No materially negative changes to the cost of or access to capital are anticipated over the next **12 months** or after[213](index=213&type=chunk) [Seasonality](index=62&type=section&id=Seasonality) Historically, the first quarter has contributed less operating profit, while the fourth quarter has contributed the highest, but the abnormal effects of the COVID-19 pandemic on the automotive supply chain and inventory levels may disrupt this historical seasonality for 2022 - Historically, Q1 has lower operating profit, and Q4 has the highest operating profit[214](index=214&type=chunk) - COVID-19's impact on the automotive supply chain and inventory levels may disrupt historical seasonality for 2022[214](index=214&type=chunk) - Weather, manufacturer incentives, and model changeovers cause seasonality and can affect profitability, while parts and service demand typically remains stable[214](index=214&type=chunk) [Off-Balance Sheet Arrangements](index=62&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has various off-balance sheet arrangements, primarily guarantees and indemnification obligations related to operating leases and dealership dispositions, including retaining responsibility for lease obligations and guaranteeing floor plan commitments for a 50%-owned joint venture - The company retains responsibility for certain lease obligations when subleasing properties to buyers of sold dealerships, with future gross minimum lease payments of approximately **$12.0 million** as of June 30, 2022[215](index=215&type=chunk) - Indemnifies buyers from certain liabilities and costs post-sale, including environmental exposure, with no material environmental exposure at June 30, 2022[216](index=216&type=chunk) - Guarantees **$4.3 million** in floor plan commitments for its 50%-owned joint venture as of June 30, 2022, and December 31, 2021[217](index=217&type=chunk) [PART II – OTHER INFORMATION](index=66&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity security sales, market risk disclosures, controls and procedures, and exhibits for the Form 10-Q filing [Item 1. Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 7, 'Commitments and Contingencies,' in the unaudited condensed consolidated financial statements for information regarding legal proceedings - Information on legal proceedings is provided in Note 7, 'Commitments and Contingencies,' of the financial statements[231](index=231&type=chunk) [Item 1A. Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes in risk factors from those included in the Annual Report on **Form 10-K** for the year ended **December 31, 2021**[234](index=234&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended