Sonic Automotive(SAH) - 2023 Q3 - Quarterly Report

FORM 10-Q Registrant Information 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] - The registrant is a Delaware corporation with Commission File Number: 1-13395[2] 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 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][6] - 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][8] Table of Contents 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] - Part I includes Financial Statements, Management's Discussion and Analysis, Market Risk Disclosures, and Controls and Procedures[10] - Part II covers Legal Proceedings, Risk Factors, Equity Sales/Purchases, Other Information, and Exhibits[10] PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and detailed accounting notes Condensed Consolidated Statements of Operations 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 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 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 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 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 Note 1. Summary of Significant Accounting Policies 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] - 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] - 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][32] Note 2. Business Acquisitions and Dispositions 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] - 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] - 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] Note 3. Inventories 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 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] - 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] Note 5. Goodwill and Intangible Assets 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] - The annual impairment testing as of April 30, 2023, determined no impairment for goodwill or indefinite-lived franchise assets[47][48] 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 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] - 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] Note 7. Commitments and Contingencies 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] - The company retains responsibility for certain obligations under assigned/sublet real property leases post-dealership dispositions[74][75] - Maximum exposure for general indemnifications related to dealership sales was approximately $8.0 million as of September 30, 2023[76] - Guarantees floor plan commitments of a 50%-owned joint venture, amounting to approximately $4.3 million as of September 30, 2023[77] Note 8. Fair Value Measurements 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] 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 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] 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 This section analyzes Sonic Automotive's financial condition, operations, and cash flows for Q3 and YTD 2023, covering industry and segment results 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] - 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] - 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] Executive Summary Retail Automotive Industry Performance 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] Impact of COVID-19 and Supply Chain Disruptions 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] - 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] - 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] Franchised Dealerships Segment (Executive Summary) 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] - 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] - 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] - F&I revenue increased 3% (Q3) and remained flat (YTD), primarily due to decreases in F&I gross profit per retail unit[105] EchoPark Segment (Executive Summary) 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] - 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] - 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] - 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] Powersports Segment (Executive Summary) 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] - 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][116] - 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][118] Results of Operations – Consolidated New Vehicles – Consolidated 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][127] Used Vehicles – Consolidated 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][131] Wholesale Vehicles – Consolidated 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] Fixed Operations – Consolidated 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] F&I – Consolidated 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] Results of Operations – Franchised Dealerships Segment New Vehicles – Franchised Dealerships Segment 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 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 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 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 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][171] Results of Operations – EchoPark Segment Used Vehicles and F&I – EchoPark Segment 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 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 New Vehicles – Powersports Segment 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 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 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 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 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 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 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][206] Impairment Charges – Consolidated 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] - Impairment charges of approximately $62.6 million were recorded for the nine months ended September 30, 2023[207] - 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] Depreciation and Amortization – Consolidated 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] - The increase was primarily driven by acquisitions and completed construction projects and purchases of fixed assets for franchised dealerships and EchoPark stores[208] Interest Expense, Floor Plan – Consolidated 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][213] - 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][213] - 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][214] Interest Expense, Other, Net – Consolidated 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] Income Taxes 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] Liquidity and Capital Resources Floor Plan Facilities 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] 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] Long-Term Debt and Credit Facilities 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] Capital Expenditures 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] - Major allocations included $137.3 million for Franchised Dealerships, $14.1 million for EchoPark, and $2.2 million for Powersports[225] - All capital expenditures were funded through existing cash balances, with $40.9 million committed for future facility construction projects[226] Share Repurchase Program 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] - Repurchased approximately 3.3 million shares for $177.5 million in YTD 2023[227] - Remaining share repurchase authorization was approximately $286.8 million as of September 30, 2023[227] 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] - Approved a cash dividend of $0.30 per share for Q4 2023, to be paid on January 12, 2024[229] - Approximately $245.7 million of net income and retained earnings were free of dividend restrictions as of September 30, 2023[229] Cash Flows 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] - 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] - 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] - 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] 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] - Due to COVID-19, supply chain disruptions, and potential economic recession, historical seasonality may not apply to 2023[238] Future Liquidity Outlook 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] - The company does not anticipate any materially negative changes to its cost of, or access to, capital over the next 12 months[240] - Cash flows and ability to service obligations depend substantially on subsidiary operations and their ability to provide cash[239] Off-Balance Sheet Arrangements 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] - Maximum exposure for general indemnifications was approximately $8.0 million as of September 30, 2023[242] - Guarantees floor plan commitments of a 50%-owned joint venture, amounting to approximately $4.3 million[243] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses market risks, primarily from interest rate fluctuations on variable rate debt and foreign currency exchange rates Interest Rate Risk 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] - Total net outstanding balance of variable rate instruments was approximately $1.5 billion at September 30, 2023[246] - 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] Foreign Currency Risk 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] - This risk could influence manufacturers' ability to provide competitive prices and negatively impact consumer demand, potentially affecting future operating results[247] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[251] PART II – OTHER INFORMATION Item 1. Legal Proceedings 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] [Item 1A. Risk Factors](index=76&ty