Core Insights - Sonic Automotive reported quarterly earnings of $1.48 per share, exceeding the Zacks Consensus Estimate of $1.46 per share, and showing an increase from $1.36 per share a year ago, representing an earnings surprise of 1.37% [1] - The company achieved revenues of $3.65 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 3.18% and increasing from $3.38 billion year-over-year [2] - Sonic Automotive has outperformed the market with a year-to-date decline of 6.8%, compared to the S&P 500's decline of 8.6% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.56 on revenues of $3.64 billion, and for the current fiscal year, it is $6.27 on revenues of $14.53 billion [7] - The estimate revisions trend for Sonic Automotive is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Industry Context - The Automotive - Retail and Whole Sales industry is currently in the top 19% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - Asbury Automotive Group, a competitor in the same industry, is expected to report quarterly earnings of $6.84 per share, reflecting a year-over-year decline of 5.1%, with revenues projected at $4.4 billion, up 4.8% from the previous year [9][10]

Financial Performance - First quarter total revenues reached $3.7 billion, an increase of 8% year-over-year; total gross profit was $566.4 million, up 6% year-over-year[2] - Reported net income for the first quarter was $70.6 million, a 68% increase year-over-year, translating to $2.04 earnings per diluted share, up 70% year-over-year[2] - Total revenues for the three months ended March 31, 2025, increased by 8% to $3,651.3 million compared to $3,384.0 million in 2024[18] - Net income for the same period rose by 68% to $70.6 million, up from $42.0 million in 2024[18] - Operating income improved by 36% to $145.0 million, compared to $106.7 million in the prior year[18] - Reported net income for Q1 2025 was $70.6 million, compared to $42.0 million in Q1 2024, representing a 68.1% increase[33] - Adjusted net income for Q1 2025 was $51.3 million, up from $47.5 million in Q1 2024, reflecting a 6.4% increase[33] Segment Performance - EchoPark Segment revenues were $559.7 million, flat year-over-year, with an all-time record quarterly gross profit of $63.9 million, up 21% year-over-year[2] - EchoPark Segment reported income was $10.3 million, compared to a segment loss of $2.9 million in the prior year, marking a 455% improvement year-over-year[2] - Adjusted EBITDA for the EchoPark Segment reached an all-time record of $15.8 million, up 116% year-over-year from $7.3 million[2] - The Franchised Dealerships Segment reported total revenues of $3,057.2 million, a 9% increase from $2,796.9 million in 2024[19] - The EchoPark Segment achieved total revenues of $559.7 million, slightly up from $559.4 million in 2024[22] - Powersports Segment achieved first quarter record revenues of $34.4 million, a 24% increase year-over-year, although it reported a segment loss of $3.5 million, a 52% increase from the prior year[11] Cash and Liquidity - As of March 31, 2025, the company had approximately $430 million in cash and floor plan deposits, with total liquidity of approximately $947 million[3] - The Board of Directors approved a quarterly cash dividend of $0.35 per share, payable on July 15, 2025[5] - The company declared dividends of $0.35 per common share, representing a 17% increase from $0.30 in the previous year[18] Sales and Profitability - Retail new vehicle revenues grew by 14% to $1,656.3 million, while total new vehicle revenues also increased by 14% to $1,678.4 million[18] - The unit sales volume for retail new vehicles in the Franchised Dealerships Segment increased by 11% to 28,082 units[19] - Gross profit per unit for retail new vehicles decreased by 17% to $3,089 compared to $3,722 in 2024[21] - EchoPark segment used vehicle unit sales rose by 7% to 18,798 units in Q1 2025 compared to 17,618 units in Q1 2024[23] - Powersports segment retail new vehicle unit sales increased by 18% to 993 units in Q1 2025 from 845 units in Q1 2024[24] Expenses and Adjustments - Total adjusted SG&A expenses decreased by 6% to $408.4 million in Q1 2025 from $385.8 million in Q1 2024[26] - Total SG&A expenses for the Franchised Dealerships Segment decreased by 4% to $325.9 million in Q1 2025 from $338.5 million in Q1 2024[27] - Total SG&A expenses for the EchoPark Segment increased by 2% to $44.8 million in Q1 2024 from $45.6 million in Q1 2023[28] - Total SG&A expenses for the Powersports Segment increased by 19% to $9.6 million in Q1 2025 from $8.1 million in Q1 2024[29] - Total pre-tax adjustments for Q1 2025 amounted to $(26.7) million, compared to $7.4 million in Q1 2024[33] - The company incurred a cyber insurance payment adjustment of $(30.0) million in Q1 2025[33] - The tax effect of adjustments in Q1 2025 was $7.4 million, compared to $(1.9) million in Q1 2024[33]

Group 1: Earnings Performance - Sonic Automotive reported quarterly earnings of $1.51 per share, exceeding the Zacks Consensus Estimate of $1.46 per share, but down from $1.63 per share a year ago, representing an earnings surprise of 3.42% [1] - The company posted revenues of $3.9 billion for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 7.84%, compared to $3.58 billion in the same quarter last year [2] - Over the last four quarters, Sonic Automotive has surpassed consensus EPS estimates three times [2] Group 2: Stock Performance and Outlook - Sonic Automotive shares have increased approximately 18% since the beginning of the year, outperforming the S&P 500's gain of 3.2% [3] - The current consensus EPS estimate for the upcoming quarter is $1.25 on revenues of $3.44 billion, and for the current fiscal year, it is $6.15 on revenues of $14.37 billion [7] - The estimate revisions trend for Sonic Automotive is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Group 3: Industry Context - The Automotive - Retail and Whole Sales industry is currently in the top 29% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Core Viewpoint - Analysts project that Sonic Automotive (SAH) will report quarterly earnings of $1.46 per share, reflecting a year-over-year decline of 10.4%, with revenues expected to reach $3.61 billion, an increase of 0.8% from the same quarter last year [1]. Earnings Projections - The consensus EPS estimate has been revised downward by 2.4% over the past 30 days, indicating a collective reassessment by analysts [2]. - Revisions to earnings projections are crucial for predicting investor behavior and are linked to short-term stock price performance [3]. Revenue Estimates - Total vehicle revenues are projected at $2.97 billion, showing a year-over-year decline of 0.4% [5]. - Powersports revenues are estimated at $28.36 million, indicating a year-over-year increase of 4.3% [5]. - New vehicles - Fleet revenues are expected to be $18.38 million, reflecting a significant decline of 15.7% year over year [5]. - New vehicles - Retail revenues are projected at $1.74 billion, suggesting a year-over-year increase of 3.3% [6]. - Same Store Revenue for New Vehicles at Franchised Dealerships is also estimated at $1.74 billion, with a year-over-year change of 3.5% [6]. - Used Vehicles Same Store Revenue is expected to reach $714.96 million, indicating a decline of 1.3% from the previous year [6]. - EchoPark revenues are anticipated to be $497.10 million, reflecting a year-over-year increase of 3.2% [7]. Gross Profit Estimates - Gross Profit Per Unit for Used Vehicles is expected to be $1,414.70, down from $1,440 in the same quarter last year [7]. - Gross Profit from Parts, Service, and Collision Repair is projected to reach $231.81 million, compared to $215.40 million a year ago [8]. - Gross Profit from EchoPark is estimated at $50.47 million, up from $38.90 million in the same quarter last year [8]. - Gross Profit from Powersports is expected to be $6.49 million, down from $7 million year-over-year [9]. - Gross Profit from New Vehicles - Retail is projected at $93.39 million, a decrease from $124.50 million in the previous year [9]. Stock Performance - Sonic Automotive shares have increased by 14.2% over the past month, outperforming the Zacks S&P 500 composite, which rose by 4.2% [10]. - The company holds a Zacks Rank of 3 (Hold), indicating it is expected to closely follow overall market performance in the near term [10].

PART I [Business Overview](index=4&type=section&id=Item%201.%20Business) Sonic Automotive operates as a major U.S. automotive retailer with Franchised Dealerships and EchoPark segments, offering vehicle sales, fixed operations, and F&I products, with 2020 operations impacted by COVID-19 and an ongoing EchoPark expansion - Sonic Automotive operates two reportable segments: **Franchised Dealerships** (84 stores, 96 new vehicle franchises, 14 collision repair centers in 12 states) and **EchoPark** (16 stores)[16](index=16&type=chunk) - The COVID-19 pandemic negatively impacted global economy and company operations in 2020, leading to decreased revenues in Q1 (-3%), Q2 (-19%), and Q3 (-6%) compared to prior year quarters, but Q4 saw a **2% increase**[18](index=18&type=chunk)[20](index=20&type=chunk) - The company recorded a non-cash goodwill impairment charge of **$268.0 million** in Q1 2020 due to the decline in market value caused by the COVID-19 pandemic[24](index=24&type=chunk) - EchoPark Segment revenue represented approximately **14.5% of total revenue in 2020**, up from 11.1% in 2019, with plans to open **25 additional EchoPark stores annually** from 2021 to 2025, aiming for a 140-plus point nationwide network[30](index=30&type=chunk)[31](index=31&type=chunk) New Vehicle Revenues by Brand (2020) | Brand Category | Percentage of New Vehicle Revenues (2020) | | :--------------- | :---------------------------------------- | | Total Luxury | 63.2 % | | Total Mid-line Import | 25.0 % | | Total Domestic | 11.8 % | | **Total** | **100.0 %** | - The company focuses on increasing sales of higher-margin products and services, including Finance, Insurance and Other Aftermarket Products, Parts, Service and Collision Repair, and Certified Pre-Owned Vehicles[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - As of December 31, 2020, the company employed approximately **8,100 associates** and offers comprehensive benefits including health insurance, 401(k) with matching, paid leave, and tuition assistance[77](index=77&type=chunk)[79](index=79&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including those related to growth strategies, industry competition, manufacturer relationships, financing, liquidity, and extensive governmental regulations - Investments in new business strategies, such as EchoPark expansion, are inherently risky and could divert management resources or fail to generate sufficient returns[86](index=86&type=chunk) - The company's ability to make acquisitions and grow organically is restricted by capital availability, terms of long-term debt, and the need for manufacturer consent[87](index=87&type=chunk)[90](index=90&type=chunk) - The COVID-19 pandemic caused supply chain disruptions, production delays, and reduced economic activity, which could continue to adversely impact the business, financial condition, and cash flows[97](index=97&type=chunk) - The retail automotive industry is subject to extensive federal, state, and local laws and regulations, with violations potentially leading to significant liabilities or operational restrictions[98](index=98&type=chunk)[100](index=100&type=chunk) - Increasing competition from other dealerships, online services, and new technology-focused entrants can reduce profit margins and challenge existing business models[103](index=103&type=chunk)[105](index=105&type=chunk)[109](index=109&type=chunk) - The company's significant indebtedness, approximately **$2.0 billion** as of December 31, 2020, could adversely affect financial health, limit future financing, and prevent fulfillment of financial obligations[139](index=139&type=chunk) - Concentration of voting power by Class B Common Stockholders and anti-takeover provisions may reduce the likelihood of a third-party change of control[156](index=156&type=chunk)[158](index=158&type=chunk) - Impairment of goodwill, as experienced in Q1 2020 with a **$268.0 million charge**, could materially adversely impact earnings[180](index=180&type=chunk) [Unresolved Staff Comments](index=27&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are reported [Properties](index=28&type=section&id=Item%202.%20Properties) The company's principal executive offices are in Charlotte, NC, with dealerships strategically located, many of which are leased or pledged as security - Principal executive offices are located at 4401 Colwick Road, Charlotte, North Carolina[185](index=185&type=chunk) - Dealerships are generally located along major U.S. or interstate highways, with location being a principal factor in acquisition evaluation[186](index=186&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 and mortgage financing[187](index=187&type=chunk) [Legal Proceedings](index=28&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is cross-referenced to Item 7, Management's Discussion and Analysis [Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section details common stock trading, outstanding shares, dividend policy, and share repurchase activities for Q4 2020 - Class A Common Stock trades on the NYSE under the symbol 'SAH'; Class B Common Stock is not publicly traded[191](index=191&type=chunk) Common Stock Outstanding (as of February 18, 2021) | Class of Stock | Shares Outstanding | | :--------------- | :----------------- | | Class A Common Stock | 29,797,727 | | Class B Common Stock | 12,029,375 | - The Board of Directors approved quarterly cash dividends of **$0.40 per share** for 2020 and **$0.10 per share** for Q1 2021, subject to business judgment and compliance with debt covenants[193](index=193&type=chunk) Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :-------------- | :--------------------- | :--------------------------- | | October 2020 | 333,103 | $38.67 | | November 2020 | 55,000 | $36.20 | | December 2020 | — | — | | **Total** | **388,103** | | - As of December 31, 2020, the remaining share repurchase authorization was approximately **$69.5 million**[194](index=194&type=chunk) [Selected Financial Data](index=30&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable to the company [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's 2020 financial condition, operations, and cash flows, covering segment performance, expenses, impairment, taxes, and liquidity - U.S. retail automotive industry new vehicle unit sales volume decreased **8.1% in 2020** to **12.4 million vehicles**[203](index=203&type=chunk)[204](index=204&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - The COVID-19 pandemic significantly impacted operations, with initial demand suppression and supply chain disruptions, but vehicle sales and fixed operations began to improve in late Q2 and Q3 2020[20](index=20&type=chunk)[220](index=220&type=chunk) Consolidated Revenue and Gross Profit Percentages (2020 vs. 2019) | Metric | 2020 | 2019 | | :-------------------------------------- | :------ | :------ | | Revenues: | | | | New vehicles | 43.8 % | 46.8 % | | Used vehicles | 36.5 % | 33.4 % | | Wholesale vehicles | 2.0 % | 1.9 % | | Parts, service and collision repair | 12.6 % | 13.3 % | | Finance, insurance and other, net | 5.0 % | 4.6 % | | Total revenues | 100.0 % | 100.0 % | | Cost of sales | 85.4 % | 85.5 % | | Gross profit | 14.6 % | 14.5 % | | Selling, general and administrative expenses | 10.5 % | 10.5 % | | Impairment charges | 2.8 % | 0.2 % | | Depreciation and amortization | 0.9 % | 0.9 % | | Operating income (loss) | 0.3 % | 2.9 % | | Interest expense, floor plan | 0.3 % | 0.5 % | | Interest expense, other, net | 0.4 % | 0.5 % | | Other (income) expense, net | 0.0 % | 0.1 % | | Income (loss) from continuing operations before taxes | (0.4)% | 1.9 % | | Provision for income taxes for continuing operations - (benefit) expense | 0.2 % | 0.5 % | | Income (loss) from continuing operations | (0.5)% | 1.4 % | Consolidated Same Store New Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $4,258,098 | $4,654,982 | $(396,884) | (8.5)% | | Gross profit | $231,871 | $223,661 | $8,210 | 3.7 % | | Unit sales | 92,445 | 106,170 | (13,725) | (12.9)% | | Revenue per unit | $46,061 | $43,845 | $2,216 | 5.1 % | | Gross profit per unit | $2,508 | $2,107 | $401 | 19.0 % | | Gross profit as % of revenue | 5.4 % | 4.8 % | 60 bps | | Consolidated Same Store Retail Used Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $3,358,527 | $3,370,272 | $(11,745) | (0.3)% | | Gross profit | $97,920 | $129,428 | $(31,508) | (24.3)% | | Unit sales | 149,429 | 155,031 | (5,602) | (3.6)% | | Revenue per unit | $22,476 | $21,739 | $737 | 3.4 % | | Gross profit per unit | $655 | $835 | $(180) | (21.6)% | | Gross profit as % of revenue | 2.9 % | 3.8 % | (90) bps | | Consolidated Same Store Fixed Operations Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Total revenue | $1,219,196 | $1,337,711 | $(118,515) | (8.9)% | | Total gross profit | $590,413 | $639,121 | $(48,708) | (7.6)% | | Total gross profit as % of revenue | 48.4 % | 47.8 % | 60 bps | | Consolidated Same Store F&I Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $448,098 | $444,751 | $3,347 | 0.8 % | | Total combined retail new and used vehicle unit sales | 240,532 | 258,569 | (18,037) | (7.0)% | | Gross profit per retail unit (excludes fleet) | $1,863 | $1,720 | $143 | 8.3 % | EchoPark Segment Reported Retail Used Vehicle and F&I Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------------------- | :------- | | Used vehicle revenue | $1,218,896 | $996,505 | $222,391 | 22.3 % | | Used vehicle gross profit (loss) | $(16,950) | $(145) | $(16,805) | NM | | Used vehicle unit sales | 57,161 | 49,520 | 7,641 | 15.4 % | | Used vehicle revenue per unit | $21,324 | $20,123 | $1,201 | 6.0 % | | F&I revenue | $132,026 | $113,834 | $18,192 | 16.0 % | | Combined used vehicle gross profit and F&I revenue | $115,076 | $113,689 | $1,387 | 1.2 % | | Total used vehicle and F&I gross profit per unit | $2,013 | $2,296 | $(283) | (12.3)% | Consolidated SG&A Expenses (2020 vs. 2019) | Expense Category | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :--------------- | :----------------- | :----------------- | :------------------- | :------- | | Compensation | $659,834 | $733,925 | $74,091 | 10.1 % | | Advertising | $42,186 | $60,831 | $18,645 | 30.7 % | | Rent | $54,494 | $54,611 | $117 | 0.2 % | | Other | $272,152 | $250,007 | $(22,145) | (8.9)% | | **Total SG&A** | **$1,028,666** | **$1,099,374** | **$70,708** | **6.4 %**| - Impairment charges were **$270.0 million** in 2020, primarily due to a **$268.0 million goodwill impairment charge** for the Franchised Dealerships Segment[287](index=287&type=chunk) - Net cash provided by operating activities was **$281.1 million** in 2020, up from $170.9 million in 2019, driven by net income (less non-cash items), decreased receivables, and decreased inventories[349](index=349&type=chunk) Liquidity Resources Available (as of December 31, 2020 vs. 2019) | Resource | 2020 ($ thousands) | 2019 ($ thousands) | | :---------------------------------------- | :----------------- | :----------------- | | Cash and cash equivalents | $170,313 | $29,103 | | Availability under 2016 Revolving Credit Facility | 214,672 | 230,689 | | Availability under used vehicle floor plan facilities | — | 17,090 | | Availability under 2019 Mortgage Facility | 11,272 | 3,090 | | Availability under 2020 Line of Credit Facility | 56,973 | — | | Floor plan deposit balance | 73,180 | — | | **Total available liquidity resources** | **$526,410** | **$279,972** | Future Contractual Obligations (as of December 31, 2020) | Obligation Category | 2021 ($ thousands) | Thereafter ($ thousands) | | :-------------------------------------- | :----------------- | :----------------------- | | Notes payable - floor plan | $1,324,244 | — | | Long-term debt (principal) | 68,244 | 659,686 | | Letters of credit | 12,999 | — | | Estimated interest payments on floor plan facilities | 3,113 | — | | Estimated interest payments on long-term debt | 29,536 | 121,098 | | Operating leases (net of sublease proceeds) | 53,979 | 383,385 | | Construction contracts | 56,891 | — | | Other purchase obligations | 9,979 | 1,514 | | Liability for uncertain tax positions | 500 | 4,076 | | **Total** | **$1,559,485** | **$1,169,759** | [Overview](index=31&type=section&id=Overview) Sonic Automotive is a major U.S. automotive retailer with Franchised Dealerships and EchoPark segments, offering diverse vehicle sales and services with expansion plans - Sonic Automotive is one of the largest automotive retailers in the U.S., operating **84 Franchised Dealerships** and **16 EchoPark stores** as of December 31, 2020[201](index=201&type=chunk)[202](index=202&type=chunk) - The Franchised Dealerships Segment offers new and used car sales, parts and service, and F&I products, while the EchoPark Segment focuses on used car sales and F&I products in specialty retail locations[202](index=202&type=chunk) - The company announced an accelerated EchoPark growth plan in 2020, aiming to open **25 additional stores annually** from 2021 to 2025, building a 140-plus point nationwide network[202](index=202&type=chunk) [Executive Summary](index=31&type=section&id=Executive%20Summary) The U.S. retail automotive industry saw a 14.7% decrease in new vehicle sales in 2020 due to COVID-19, with a 2021 recovery anticipated despite ongoing uncertainties - U.S. retail automotive industry's total new vehicle unit sales volume decreased by **14.7% in 2020** to **14.5 million vehicles**, with retail new vehicle unit sales volume decreasing **8.1% to 12.4 million vehicles**[203](index=203&type=chunk)[204](index=204&type=chunk)[221](index=221&type=chunk) - For 2021, analysts' industry expectation for new vehicle SAAR ranges from **14.5 million to 16.0 million vehicles**; Sonic Automotive estimates **15.5 million to 16.0 million vehicles**[203](index=203&type=chunk)[222](index=222&type=chunk) - Ongoing effects of the COVID-19 pandemic, consumer confidence, financing availability, manufacturer production levels, and natural disasters could cause 2021 SAAR to vary from expectations, with Texas locations already affected by extreme winter weather in February 2021[203](index=203&type=chunk) [Franchised Dealerships Segment Summary](index=33&type=section&id=Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment saw new vehicle revenue decrease by 8.5% in 2020, while new vehicle gross profit increased due to higher per-unit profit, and F&I revenue also grew - New vehicle revenue for the Franchised Dealerships Segment decreased **8.5% in 2020**, primarily due to a **12.9% decrease in new vehicle unit sales volume**, largely impacted by the COVID-19 pandemic[206](index=206&type=chunk) - New vehicle gross profit increased **3.7% in 2020**, driven by a **19.0% increase in new vehicle gross profit per unit to $2,508**, mainly due to inventory shortages and higher average selling prices[206](index=206&type=chunk) - Retail used vehicle revenue decreased **1.9%**, and gross profit decreased **12.8%** due to a **$112 per unit (8.8%) decrease** in gross profit per unit, reflecting significant price fluctuations during the pandemic[207](index=207&type=chunk) - Fixed Operations revenue decreased **9.5%** and gross profit decreased **7.7%**, primarily due to lower consumer demand for repairs; however, Fixed Operations gross margin increased **100 basis points to 49.9%**[208](index=208&type=chunk) - F&I revenue increased **1.2% in 2020**, with F&I gross profit per retail unit increasing **$161 (10.1%) to $1,748**, attributed to proprietary software, playbook processes, and a guest-centric selling approach[209](index=209&type=chunk) [EchoPark Segment Summary](index=33&type=section&id=EchoPark%20Segment) The EchoPark Segment's total revenues increased by 22.1% in 2020 due to expansion, despite a 12.3% decrease in combined retail used vehicle and F&I gross profit per unit - Total EchoPark revenues increased **22.1% in 2020**, driven by new store openings, increased retail used vehicle unit sales volume, and average selling price[210](index=210&type=chunk) - Combined retail used vehicle and F&I gross profit per unit decreased **$283 (12.3%) to $2,013 in 2020**, primarily due to higher inventory acquisition costs from increased wholesale auction market demand[211](index=211&type=chunk) - Wholesale vehicle gross loss improved by **75.3% to $0.1 million** in 2020, attributed to higher average wholesale prices[212](index=212&type=chunk) - EchoPark's used vehicle inventory days' supply was approximately **41 days** as of December 31, 2020, exceeding the target 30-35 day range due to inventory for three new stores opened in Q4 2020[213](index=213&type=chunk) [Results of Operations - Consolidated](index=34&type=section&id=Results%20of%20Operations%20-%20Consolidated) Consolidated 2020 results show a revenue mix shift towards used vehicles and F&I, with a stable gross profit margin, reflecting varied COVID-19 impacts across revenue streams Consolidated Revenue and Gross Profit Percentages (2020 vs. 2019) | Metric | 2020 | 2019 | | :-------------------------------------- | :------ | :------ | | Revenues: | | |\n| New vehicles | 43.8 % | 46.8 % |\n| Used vehicles | 36.5 % | 33.4 % |\n| Wholesale vehicles | 2.0 % | 1.9 % |\n| Parts, service and collision repair | 12.6 % | 13.3 % |\n| Finance, insurance and other, net | 5.0 % | 4.6 % |\n| Total revenues | 100.0 % | 100.0 % |\n| Cost of sales | 85.4 % | 85.5 % |\n| Gross profit | 14.6 % | 14.5 % |\n| Selling, general and administrative expenses | 10.5 % | 10.5 % |\n| Impairment charges | 2.8 % | 0.2 % |\n| Depreciation and amortization | 0.9 % | 0.9 % |\n| Operating income (loss) | 0.3 % | 2.9 % |\n| Interest expense, floor plan | 0.3 % | 0.5 % |\n| Interest expense, other, net | 0.4 % | 0.5 % |\n| Other (income) expense, net | 0.0 % | 0.1 % |\n| Income (loss) from continuing operations before taxes | (0.4)% | 1.9 % |\n| Provision for income taxes for continuing operations - (benefit) expense | 0.2 % | 0.5 % |\n| Income (loss) from continuing operations | (0.5)% | 1.4 % | Consolidated Same Store New Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $4,258,098 | $4,654,982 | $(396,884) | (8.5)% | | Gross profit | $231,871 | $223,661 | $8,210 | 3.7 % | | Unit sales | 92,445 | 106,170 | (13,725) | (12.9)% | | Revenue per unit | $46,061 | $43,845 | $2,216 | 5.1 % | | Gross profit per unit | $2,508 | $2,107 | $401 | 19.0 % | | Gross profit as % of revenue | 5.4 % | 4.8 % | 60 bps | | Consolidated Same Store Retail Used Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $3,358,527 | $3,370,272 | $(11,745) | (0.3)% | | Gross profit | $97,920 | $129,428 | $(31,508) | (24.3)% | | Unit sales | 149,429 | 155,031 | (5,602) | (3.6)% | | Revenue per unit | $22,476 | $21,739 | $737 | 3.4 % | | Gross profit per unit | $655 | $835 | $(180) | (21.6)% | | Gross profit as % of revenue | 2.9 % | 3.8 % | (90) bps | | Consolidated Same Store Wholesale Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $192,531 | $195,233 | $(2,702) | (1.4)% | | Gross profit (loss) | $(678) | $(3,714) | $3,036 | 81.7 % | | Unit sales | 31,089 | 31,888 | (799) | (2.5)% | | Revenue per unit | $6,193 | $6,122 | $71 | 1.2 % | | Gross profit (loss) per unit | $(22) | $(116) | $94 | 81.0 % | | Gross profit (loss) as % of revenue | (0.4)% | (1.9)% | 150 bps | | Consolidated Same Store Fixed Operations Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Total revenue | $1,219,196 | $1,337,711 | $(118,515) | (8.9)% | | Total gross profit | $590,413 | $639,121 | $(48,708) | (7.6)% | | Total gross profit as % of revenue | 48.4 % | 47.8 % | 60 bps | | Consolidated Same Store F&I Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $448,098 | $444,751 | $3,347 | 0.8 % | | Total combined retail new and used vehicle unit sales | 240,532 | 258,569 | (18,037) | (7.0)% | | Gross profit per retail unit (excludes fleet) | $1,863 | $1,720 | $143 | 8.3 % | [Results of Operations - Franchised Dealerships Segment](index=44&type=section&id=Results%20of%20Operations%20-%20Franchised%20Dealerships%20Segment) The Franchised Dealerships Segment saw new vehicle revenue decline by 8.5% in 2020 due to COVID-19, yet new vehicle gross profit increased, and F&I revenues also grew Franchised Dealerships Segment Same Store New Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $4,258,098 | $4,654,982 | $(396,884) | (8.5)% | | Gross profit | $231,871 | $223,661 | $8,210 | 3.7 % | | Unit sales | 92,445 | 106,170 | (13,725) | (12.9)% | | Revenue per unit | $46,061 | $43,845 | $2,216 | 5.1 % | | Gross profit per unit | $2,508 | $2,107 | $401 | 19.0 % | | Gross profit as % of revenue | 5.4 % | 4.8 % | 60 bps | | - New vehicle inventory days' supply for franchised dealerships was approximately **38 days** as of December 31, 2020, below the target level due to manufacturer supply chain disruptions[249](index=249&type=chunk) Franchised Dealerships Segment Same Store Retail Used Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $2,332,150 | $2,376,141 | $(43,991) | (1.9)% | | Gross profit | $117,903 | $135,259 | $(17,356) | (12.8)% | | Unit sales | 100,983 | 105,639 | (4,656) | (4.4)% | | Revenue per unit | $23,094 | $22,493 | $601 | 2.7 % | | Gross profit per unit | $1,168 | $1,280 | $(112) | (8.8)% | | Gross profit as % of revenue | 5.1 % | 5.7 % | (60) bps | | - Used vehicle inventory days' supply for franchised dealerships was approximately **30 days** as of December 31, 2020, in line with the target of 30 to 35 days[252](index=252&type=chunk) Franchised Dealerships Segment Same Store Wholesale Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $167,794 | $172,306 | $(4,512) | (2.6)% | | Gross profit (loss) | $(520) | $(3,382) | $2,862 | 84.6 % | | Unit sales | 24,701 | 26,114 | (1,413) | (5.4)% | | Revenue per unit | $6,793 | $6,598 | $195 | 3.0 % | | Gross profit (loss) per unit | $(21) | $(130) | $109 | 83.8 % | | Gross profit (loss) as % of revenue | (0.3)% | (2.0)% | 170 bps | | Franchised Dealerships Segment Same Store Fixed Operations Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Total revenue | $1,184,428 | $1,309,201 | $(124,773) | (9.5)% | | Total gross profit | $590,946 | $640,015 | $(49,069) | (7.7)% | | Total gross profit as % of revenue | 49.9 % | 48.9 % | 100 bps | | Franchised Dealerships Segment Same Store F&I Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $335,695 | $331,860 | $3,835 | 1.2 % | | Total combined retail new and used vehicle unit sales | 192,086 | 209,177 | (17,091) | (8.2)% | | Gross profit per retail unit (excludes fleet) | $1,748 | $1,587 | $161 | 10.1 % | [Results of Operations - EchoPark Segment](index=51&type=section&id=Results%20of%20Operations%20-%20EchoPark%20Segment) The EchoPark Segment's retail used vehicle revenue increased 22.3% in 2020, driven by new stores, despite a 12.3% decrease in combined gross profit per unit EchoPark Segment Reported Retail Used Vehicle and F&I Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------------------- | :------- | | Used vehicle revenue | $1,218,896 | $996,505 | $222,391 | 22.3 % | | Used vehicle gross profit (loss) | $(16,950) | $(145) | $(16,805) | NM | | Used vehicle unit sales | 57,161 | 49,520 | 7,641 | 15.4 % | | Used vehicle revenue per unit | $21,324 | $20,123 | $1,201 | 6.0 % | | F&I revenue | $132,026 | $113,834 | $18,192 | 16.0 % | | Combined used vehicle gross profit and F&I revenue | $115,076 | $113,689 | $1,387 | 1.2 % | | Total used vehicle and F&I gross profit per unit | $2,013 | $2,296 | $(283) | (12.3)% | - Reported finance contract gross profit increased **14.3%**, service contract gross profit increased **14.5%**, and other aftermarket product gross profit increased **24.1%** in 2020 for the EchoPark Segment[269](index=269&type=chunk) - EchoPark's used vehicle inventory days' supply was approximately **41 days** as of December 31, 2020, higher than the target 30-35 day range due to new store openings[270](index=270&type=chunk) EchoPark Segment Reported Wholesale Vehicle Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $28,723 | $22,926 | $5,797 | 25.3 % | | Gross profit (loss) | $(82) | $(332) | $250 | 75.3 % | | Unit sales | 7,178 | 5,774 | 1,404 | 24.3 % | | Revenue per unit | $4,002 | $3,971 | $31 | 0.8 % | | Gross profit (loss) per unit | $(11) | $(57) | $46 | 80.7 % | | Gross profit (loss) as % of revenue | (0.3)% | (1.4)% | 110 bps | | EchoPark Segment Reported Fixed Operations Performance (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $39,341 | $28,753 | $10,588 | 36.8 % | | Gross profit (loss) | $(789) | $(943) | $154 | 16.3 % | | Gross profit (loss) as % of revenue | (2.0)% | (3.3)% | 130 bps | | [Segment Results Summary](index=56&type=section&id=Segment%20Results%20Summary) In 2020, Franchised Dealerships revenue decreased by 10.2% to $8.3 billion, while EchoPark revenue increased by 22.1% to $1.4 billion, with consolidated income before taxes showing a loss due to impairment charges Segment Revenues and Income (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------------------- | :------- | | Franchised Dealerships Segment revenues | $8,348,056 | $9,292,325 | $(944,269) | (10.2)% | | EchoPark Segment revenues | $1,418,986 | $1,162,018 | $256,968 | 22.1 % | | Total consolidated revenues | $9,767,042 | $10,454,343 | $(687,301) | (6.6)% | | Franchised Dealerships Segment income | $231,175 | $211,267 | $19,908 | 9.4 % | | EchoPark Segment income | $4,078 | $9,146 | $(5,068) | (55.4)% | | Total segment income (loss) | $235,253 | $220,413 | $14,840 | 6.7 % | | Impairment charges | $(270,017) | $(20,768) | $(249,249) | NM | | Income (loss) from continuing operations before taxes | $(34,764) | $199,645 | $(234,409) | (117.4)% | - Franchised Dealerships Segment income for 2020 includes a **$4.0 million** pre-tax net gain on disposal of dealerships[281](index=281&type=chunk) - EchoPark Segment income for 2020 includes a **$5.2 million** pre-tax net gain on disposal of land and buildings[282](index=282&type=chunk) - Impairment charges for 2020 include **$270.0 million** for the Franchised Dealerships Segment, primarily goodwill impairment[283](index=283&type=chunk) [Selling, General and Administrative ("SG&A") Expenses - Consolidated](index=57&type=section&id=Selling,%20General%20and%20Administrative%20(%22SG%26A%22)%20Expenses%20-%20Consolidated) Consolidated SG&A expenses decreased by 6.4% to $1.03 billion in 2020, primarily due to reduced compensation and advertising, remaining flat as a percentage of gross profit Consolidated SG&A Expenses (2020 vs. 2019) | Expense Category | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :--------------- | :----------------- | :----------------- | :------------------- | :------- | | Compensation | $659,834 | $733,925 | $74,091 | 10.1 % | | Advertising | $42,186 | $60,831 | $18,645 | 30.7 % | | Rent | $54,494 | $54,611 | $117 | 0.2 % | | Other | $272,152 | $250,007 | $(22,145) | (8.9)% | | **Total SG&A** | **$1,028,666** | **$1,099,374** | **$70,708** | **6.4 %**| - Overall SG&A expenses decreased by **6.4%** and were flat as a percentage of gross profit (**72.3%**) in 2020, primarily due to reduced compensation and advertising expenses[285](index=285&type=chunk) - Other SG&A expenses increased due to a **$76.0 million** pre-tax net gain on disposal of franchised dealerships in 2019, which offset current year reductions in loaner vehicle and other fixed costs[285](index=285&type=chunk)[286](index=286&type=chunk) [Impairment Charges - Consolidated](index=57&type=section&id=Impairment%20Charges%20-%20Consolidated) Consolidated impairment charges surged to $270.0 million in 2020, primarily from a $268.0 million goodwill impairment for the Franchised Dealerships Segment - Impairment charges were approximately **$270.0 million** in 2020, a substantial increase from $20.8 million in 2019[287](index=287&type=chunk) - The 2020 impairment charges include **$268.0 million** related to goodwill for the Franchised Dealerships Segment and **$2.0 million** for abandoned construction projects[287](index=287&type=chunk) [Depreciation and Amortization - Consolidated](index=58&type=section&id=Depreciation%20and%20Amortization%20-%20Consolidated) Consolidated depreciation expense decreased by $2.1 million (2.3%) in 2020, mainly due to franchised dealership dispositions - Depreciation expense decreased by approximately **$2.1 million (2.3%)** in 2020, mainly due to the disposition of franchised dealerships[288](index=288&type=chunk) [Interest Expense, Floor Plan - Consolidated](index=58&type=section&id=Interest%20Expense,%20Floor%20Plan%20-%20Consolidated) Consolidated floor plan interest expense significantly decreased in 2020, driven by lower average interest rates for both new and used vehicle floor plans - New vehicle floor plan interest expense decreased by **$20.7 million (49.2%)** in 2020, driven by a lower average interest rate (**1.72% vs. 3.03%**) and a **$145.5 million decrease** in average notes payable balance[289](index=289&type=chunk) - Used vehicle floor plan interest expense decreased by **$0.6 million (9.2%)** in 2020, due to a lower average interest rate (**2.02% vs. 3.10%**), partially offset by an **$82.3 million increase** in average notes payable balance[290](index=290&type=chunk) [Interest Expense, Other, Net - Consolidated](index=58&type=section&id=Interest%20Expense,%20Other,%20Net%20-%20Consolidated) Consolidated other net interest expense decreased by $11.4 million (21.5%) in 2020, primarily due to lower stated interest from debt repurchases Consolidated Interest Expense, Other, Net (2020 vs. 2019) | Expense Category | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | % Change | | :------------------------------ | :----------------- | :----------------- | :------------------- | :------- | | Stated/coupon interest | $33,723 | $49,291 | $15,568 | 31.6 % | | Deferred loan cost amortization | $2,900 | $2,478 | $(422) | (17.0)% | | Interest rate hedge expense (benefit) | $(339) | $(2,876) | $(2,537) | (88.2)% | | Capitalized interest | $(774) | $(1,583) | $(809) | (51.1)% | | Interest on finance lease liabilities | $5,432 | $5,097 | $(335) | (6.6)% | | Other interest | $630 | $546 | $(84) | (15.4)% | | **Total interest expense, other, net** | **$41,572** | **$52,953** | **$11,381** | **21.5 %**| - The decrease was primarily due to lower stated/coupon interest from the repurchase of **5.0% Senior Subordinated Notes due 2023** in December 2019[291](index=291&type=chunk) [Provision for Income Taxes - Consolidated](index=58&type=section&id=Provision%20for%20Income%20Taxes%20-%20Consolidated) The effective tax rate from continuing operations was (45.7%) in 2020, significantly impacted by a $20.9 million federal discrete charge from non-deductible goodwill impairment - The overall effective tax rate from continuing operations was **(45.7%) in 2020**, compared to 27.6% in 2019[292](index=292&type=chunk) - Income tax expense for 2020 includes a **$20.9 million** federal discrete charge related to the non-deductible portion of the **$268.0 million goodwill impairment charge**[292](index=292&type=chunk) [Discontinued Operations](index=59&type=section&id=Discontinued%20Operations) Income from discontinued operations was a loss of $1.002 million in 2020, with no significant future activity anticipated due to accounting standard changes Income (Loss) from Discontinued Operations Before Taxes (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | | Income (loss) from discontinued operations | $(1,002) | $(554) | | Lease exit accrual adjustments and charges | — | — | | **Income (loss) from discontinued operations before taxes** | **$(1,002)** | **$(554)** | - The company does not expect significant activity in discontinued operations in the future due to the change in the definition of a discontinued operation as a result of ASU 2014-08[293](index=293&type=chunk) [Use of Estimates and Critical Accounting Policies](index=59&type=section&id=Use%20of%20Estimates%20and%20Critical%20Accounting%20Policies) Financial statement preparation requires significant management estimates and subjective judgments for critical accounting policies, including intangible assets, deferred taxes, and various reserves - Financial statements rely on management estimates and assumptions, particularly for intangible asset values, deferred tax assets, tax reserves, legal and insurance reserves, and retrospective F&I revenue[294](index=294&type=chunk)[295](index=295&type=chunk) [Goodwill and Other Intangible Assets](index=59&type=section&id=Goodwill%20and%20Other%20Intangible%20Assets) A $268.0 million goodwill impairment charge was recorded in Q1 2020 for the franchised dealership reporting unit due to COVID-19, with no further impairment identified by year-end - Goodwill is tested for impairment at least annually (October 1) or more frequently if impairment indicators exist[296](index=296&type=chunk) - A **$268.0 million** non-cash goodwill impairment charge was recorded in Q1 2020 for the franchised dealership reporting unit due to the COVID-19 pandemic's impact on market capitalization[298](index=298&type=chunk) - As of December 31, 2020, the carrying value of goodwill was **$214.0 million** (**$147.3 million** for franchised dealerships, **$66.7 million** for EchoPark)[297](index=297&type=chunk) - Franchise assets, totaling **$64.3 million** at December 31, 2020, are evaluated annually for impairment using a DCF model; no impairment charges were recorded in 2020[302](index=302&type=chunk) [Finance, Insurance and Service Contracts](index=60&type=section&id=Finance,%20Insurance%20and%20Service%20Contracts) The company earns F&I commissions, recognizing retrospective revenues based on expected value and recording them net of estimated chargebacks, which totaled $34.2 million at year-end 2020 - Commissions are earned from arranging vehicle financing and selling third-party extended warranties, service contracts, and other aftermarket products[303](index=303&type=chunk) - Retrospective F&I revenues are recognized based on the expected value method, using historical and projected data, and are constrained to prevent significant reversals[303](index=303&type=chunk) - Commission revenue is recorded net of estimated chargebacks, which were approximately **$34.2 million** as of December 31, 2020; a **100-basis point change** in estimated chargeback rates would impact the reserve by approximately **$3.2 million**[304](index=304&type=chunk) [Insurance Reserves](index=61&type=section&id=Insurance%20Reserves) The company maintains self-insured programs, accruing $25.8 million in reserves for estimated ultimate claim liabilities as of December 31, 2020, based on actuarial analyses - The company uses self-insured and high deductible insurance programs, requiring estimates for ultimate claim liabilities[305](index=305&type=chunk) - As of December 31, 2020, the estimated ultimate liability for these programs was between **$24.2 million and $26.7 million**, with **$25.8 million reserved**[305](index=305&type=chunk) - A **10% change** in the volume of claims would have a proportional effect on recorded reserves[305](index=305&type=chunk) [Legal Proceedings](index=61&type=section&id=Legal%20Proceedings) The company is involved in various legal proceedings, with $0.5 million reserved for pending matters as of December 31, 2020, though a wider loss range is uncertain - The company is involved in various legal and administrative proceedings, including regulatory investigations and private civil actions[306](index=306&type=chunk) - As of December 31, 2020, approximately **$0.5 million** was reserved for pending proceedings; a range of reasonably possible loss in excess of this amount cannot be estimated with certainty[307](index=307&type=chunk) [Income Taxes](index=61&type=section&id=Income%20Taxes) Income taxes are provided for current and deferred effects, with $4.6 million reserved for uncertain tax positions and a $5.2 million valuation allowance for state net operating loss carryforwards - The company is regularly audited by tax authorities and maintains reserves for uncertain tax positions, totaling approximately **$4.6 million** as of December 31, 2020[308](index=308&type=chunk)[309](index=309&type=chunk) - As of December 31, 2020, a valuation allowance of approximately **$5.2 million** was recorded for state net operating loss carryforwards, as realization was deemed unlikely[313](index=313&type=chunk) - The company has approximately **$203.5 million** in gross state net operating loss carryforwards expiring between 2021 and 2039[545](index=545&type=chunk) [Recent Accounting Pronouncements](index=62&type=section&id=Recent%20Accounting%20Pronouncements) The company adopted ASU 2016-13 with no material impact and is evaluating ASU 2020-04 regarding LIBOR transition - Adopted ASU 2016-13, 'Financial Instruments - Credit Losses,' on January 1, 2020, with no material impact on consolidated financial statements[315](index=315&type=chunk) - Evaluating ASU 2020-04, 'Reference Rate Reform,' for potential accounting impacts related to LIBOR transition, but currently has no modified contracts[316](index=316&type=chunk) [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) The company relies on diverse funding sources, was compliant with debt covenants at year-end 2020, and saw total available liquidity resources increase significantly to $526.4 million - The company relies on cash flows from operations, credit facilities, mortgage financing, asset sales, and debt/equity offerings for liquidity[317](index=317&type=chunk) - As of December 31, 2020, the company was in compliance with all debt covenants and had approximately **$303.3 million** of net income and retained earnings free of restrictions[317](index=317&type=chunk) Liquidity Resources Available (as of December 31, 2020 vs. 2019) | Resource | 2020 ($ thousands) | 2019 ($ thousands) | | :---------------------------------------- | :----------------- | :----------------- | | Cash and cash equivalents | $170,313 | $29,103 | | Availability under 2016 Revolving Credit Facility | 214,672 | 230,689 | | Availability under used vehicle floor plan facilities | — | 17,090 | | Availability under 2019 Mortgage Facility | 11,272 | 3,090 | | Availability under 2020 Line of Credit Facility | 56,973 | — | | Floor plan deposit balance | 73,180 | — | | **Total available liquidity resources** | **$526,410** | **$279,972** | [Long-Term Debt and Credit Facilities](index=63&type=section&id=Long-Term%20Debt%20and%20Credit%20Facilities) The company's long-term debt and credit facilities, including the 2016 Credit Facilities and 6.125% Senior Subordinated Notes, are subject to specific covenants and restrictions - The 2016 Credit Facilities (revolving credit and floor plan) were amended in September 2020 to extend maturity to **November 30, 2022**[321](index=321&type=chunk) - As of December 31, 2020, the 2016 Revolving Credit Facility had **$214.7 million** in borrowing availability, and the 2016 Floor Plan Facilities had a combined limit of up to **$966.0 million**[322](index=322&type=chunk)[323](index=323&type=chunk) - The **6.125% Senior Subordinated Notes due 2027** have an aggregate principal amount of **$250.0 million** and are unsecured[325](index=325&type=chunk) - The 2019 Mortgage Facility has a maximum borrowing limit of **$112.2 million**, with **$11.3 million** available as of December 31, 2020, and matures in November 2024[329](index=329&type=chunk)[330](index=330&type=chunk) - The 2020 Line of Credit Facility provides up to **$57.0 million** in borrowing availability for general corporate purposes, maturing in June 2021[335](index=335&type=chunk) - All debt agreements contain covenants restricting indebtedness, liens, dividends, capital expenditures, and material dispositions/acquisitions[324](index=324&type=chunk)[327](index=327&type=chunk)[332](index=332&type=chunk)[336](index=336&type=chunk) - The weighted-average interest rate for new and used vehicle floor plan facilities was **1.78% in 2020**, down from 3.04% in 2019[337](index=337&type=chunk) [Covenants and Default Provisions](index=66&type=section&id=Covenants%20and%20Default%20Provisions) The company was in compliance with all restrictive and financial covenants under its Significant Debt Agreements as of December 31, 2020, with non-compliance posing acceleration and cross-default risks - The company was in compliance with all restrictive and financial covenants under its Significant Debt Agreements as of December 31, 2020[339](index=339&type=chunk)[340](index=340&type=chunk) Financial Covenants Compliance (as of December 31, 2020) | Covenant | Required Ratio | December 31, 2020 Actual | | :-------------------------------------- | :------------- | :----------------------- | | Minimum Consolidated Liquidity Ratio | 1.05 | 1.18 | | Minimum Consolidated Fixed Charge Coverage Ratio | 1.20 | 2.07 | | Maximum Consolidated Total Lease Adjusted Leverage Ratio | 5.75 | 2.78 | - Non-compliance with covenants could result in acceleration of repayment obligations and cross-defaults across various debt agreements[339](index=339&type=chunk) [Acquisitions and Dispositions](index=66&type=section&id=Acquisitions%20and%20Dispositions) In 2020, the company acquired two pre-owned businesses for $19.7 million and disposed of one franchised dealership, generating $9.6 million in net cash - In 2020, the company acquired two pre-owned businesses for approximately **$19.7 million**[341](index=341&type=chunk) - Disposed of one mid-line import franchised dealership and terminated two luxury franchises in 2020, generating net cash of approximately **$9.6 million**[341](index=341&type=chunk) - Dealership acquisitions are restricted by the 2016 Credit Facilities if aggregate costs exceed specific amounts without lender consent[342](index=342&type=chunk) [Capital Expenditures](index=67&type=section&id=Capital%20Expenditures) Capital expenditures totaled $127.2 million in 2020, primarily for facility construction and real estate, with $53.1 million financed by mortgages and $56.9 million committed for future projects - Capital expenditures for 2020 were approximately **$127.2 million**, with **$92.3 million** for Franchised Dealerships and **$34.9 million** for EchoPark[344](index=344&type=chunk) - Expenditures included **$72.6 million** for facility construction, **$33.2 million** for real estate acquisitions, and **$21.4 million** for other fixed assets[344](index=344&type=chunk) - Approximately **$53.1 million** of capital expenditures were funded through mortgage financing, and **$74.1 million** from cash from operations[345](index=345&type=chunk) - Commitments for facility construction projects totaled approximately **$56.9 million** as of December 31, 2020[345](index=345&type=chunk) [Share Repurchase Program](index=67&type=section&id=Share%20Repurchase%20Program) In 2020, the company repurchased 2.2 million Class A Common Stock shares for $71.7 million, with $69.5 million remaining under authorization, subject to debt restrictions - In 2020, the company repurchased approximately **2.2 million shares** of Class A Common Stock for **$71.7 million**[346](index=346&type=chunk) - An additional **$60.0 million** share repurchase authorization was approved in 2020, with **$69.5 million** remaining as of December 31, 2020[346](index=346&type=chunk) - Share repurchases are subject to debt agreement restrictions and management's business judgment[346](index=346&type=chunk)[347](index=347&type=chunk) [Dividends](index=67&type=section&id=Dividends) The Board approved $0.40 per share in quarterly cash dividends for 2020, with future declarations subject to financial performance and debt covenant compliance - The Board approved **$0.40 per share** in quarterly cash dividends for 2020 and a **$0.10 per share** dividend for Q1 2021[348](index=348&type=chunk) - Future dividends are subject to Board discretion, financial performance, and compliance with debt covenants, including restrictions from the 2016 Credit Facilities and 6.125% Notes indenture[348](index=348&type=chunk) - As of December 31, 2020, **$303.3 million** of net income and retained earnings were free of dividend restrictions[348](index=348&type=chunk) [Cash Flows](index=67&type=section&id=Cash%20Flows) Net cash from operating activities increased to $281.1 million in 2020, while investing activities used $100.2 million and financing activities used $39.7 million - Net cash provided by operating activities was **$281.1 million** in 2020, up from $170.9 million in 2019[349](index=349&type=chunk) - Net cash used in investing activities was **$100.2 million** in 2020, primarily for purchases of land, property, equipment, and businesses[354](index=354&type=chunk) - Net cash used in financing activities was **$39.7 million** in 2020, mainly due to treasury stock repurchases and debt repayments[356](index=356&type=chunk) - If all changes in floor plan notes payable were classified as operating activities, net cash provided by operating activities would have been **$341.9 million** in 2020[353](index=353&type=chunk) [Adjusted EBITDA](index=68&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA, a non-GAAP measure, increased to $370.3 million in 2020, with the Franchised Dealerships Segment contributing $360.3 million Adjusted EBITDA (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | | Net income (loss) | $(51,385) | $144,137 | | Provision for income taxes | $15,619 | $54,954 | | Income (loss) before taxes | $(35,766) | $199,091 | | Non-floor plan interest | $38,672 | $50,475 | | Depreciation & amortization | $93,922 | $95,646 | | Stock-based compensation expense | $11,704 | $10,797 | | Asset impairment charges | $270,017 | $20,768 | | Loss (gain) on franchise and real estate disposals | $(8,247) | $(74,812) | | **Adjusted EBITDA** | **$370,302** | **$308,485** | - Adjusted EBITDA increased to **$370.3 million** in 2020, with Franchised Dealerships contributing **$360.3 million** and EchoPark contributing **$11.0 million**[359](index=359&type=chunk) [Future Liquidity Outlook](index=69&type=section&id=Future%20Liquidity%20Outlook) The company's liquidity relies on operations, credit facilities, and asset sales, with $1.32 billion in floor plan notes and $68.2 million in long-term debt due in 2021 - Primary liquidity sources include cash flows from operations, credit facilities, mortgage financing, asset sales, and capital market offerings[363](index=363&type=chunk) Future Contractual Obligations (as of December 31, 2020) | Obligation Category | 2021 ($ thousands) | Thereafter ($ thousands) | | :-------------------------------------- | :----------------- | :----------------------- | | Notes payable - floor plan | $1,324,244 | — | | Long-term debt (principal) | 68,244 | 659,686 | | Letters of credit | 12,999 | — | | Estimated interest payments on floor plan facilities | 3,113 | — | | Estimated interest payments on long-term debt | 29,536 | 121,098 | | Operating leases (net of sublease proceeds) | 53,979 | 383,385 | | Construction contracts | 56,891 | — | | Other purchase obligations | 9,979 | 1,514 | | Liability for uncertain tax positions | 500 | 4,076 | | **Total** | **$1,559,485** | **$1,169,759** | [Seasonality](index=70&type=section&id=Seasonality) Operations are seasonal, with Q4 typically yielding the highest operating profit, influenced by weather, manufacturer incentives, and model changeovers - Operations are seasonal, with Q1 historically having lower operating profit, Q2 and Q3 higher, and Q4 the highest[364](index=364&type=chunk) - Seasonality is influenced by weather, manufacturer incentive programs, and model changeovers, affecting vehicle demand and profitability[364](index=364&type=chunk) - Parts and service demand remains stable throughout the year[364](index=364&type=chunk) [Guarantees and Indemnification Obligations](index=70&type=section&id=Guarantees%20and%20Indemnification%20Obligations) The company has various guarantees and indemnification obligations, including retained lease responsibilities and environmental exposure, with a maximum exposure of $25.0 million - The company retains responsibility for lease obligations when properties are subleased to buyers of disposed dealerships; future gross minimum lease payments for these totaled **$29.9 million** at December 31, 2020[365](index=365&type=chunk) - Indemnifies buyers of dealerships for certain liabilities, including environmental exposure, with a maximum exposure of approximately **$25.0 million** at December 31, 2020[366](index=366&type=chunk) - Guarantees floor plan commitments of its 50%-owned joint venture, amounting to approximately **$4.3 million** at December 31, 2020[367](index=367&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to interest rate risk from $1.2 billion in variable rate debt, mitigated by interest rate cap agreements, and foreign currency risk - The company's variable rate debt, approximately **$1.2 billion** at December 31, 2020, exposes it to interest rate fluctuations; a **100 basis point change** in interest rates would impact interest expense by approximately **$19.8 million** in 2020[370](index=370&type=chunk) - Interest rate cap agreements are used to limit exposure to increases in LIBOR rates, designated as cash flow hedges[372](index=372&type=chunk) Interest Rate Cap Agreements (as of December 31, 2020) | Notional Amount ($ millions) | Cap Rate | Receive Rate | Start Date | Maturing Date | | :--------------------------- | :------- | :-------------- | :----------- | :------------ | | $225.0 | 3.000% | one-month LIBOR | July 1, 2020 | June 30, 2021 | | $150.0 | 2.000% | one-month LIBOR | July 1, 2020 | July 1, 2021 | | $250.0 | 3.000% | one-month LIBOR | July 1, 2021 | July 1, 2022 | - The company faces foreign currency risk from purchasing new vehicle and parts inventories from foreign manufacturers, which could affect competitive pricing and consumer demand[374](index=374&type=chunk) [Financial Statements and Supplementary Data](index=73&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements and notes are located starting on page F-4 (document page 85) of this Annual Report [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=73&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure have occurred [Controls and Procedures](index=73&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes in Q4 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2020[378](index=378&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[380](index=380&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter ended December 31, 2020[382](index=382&type=chunk) [Other Information](index=73&type=section&id=Item%209B.%20Other%20Inf