Commercial Bancgroup (NasdaqCM:CBK) Q3 2025 Earnings Call October 28, 2025 10:00 AM ET Company ParticipantsBrett Rabatin - MD, Head of Equity ResearchAdam Robertson - Chairman of the BoardPhilip Metheny - CFOTerry Lee - President and CEOOperatorThank you for standing by. At this time, I would like to welcome everyone to the Commercial Bancgroup third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answe ...

Financial Data and Key Metrics Changes - The company reported a 13% year-over-year growth in adjusted earnings per share and a 14% increase year-to-date, exceeding target ranges [4][5] - Return on equity expanded significantly and is now at the high end of the target range [4] - Year-to-date free capital flow conversion ratio is over 90%, tracking above target [5][6] - Non-GAAP operating earnings reached $474 million, or $2.10 per share, a 19% increase year-over-year [12] - Total company managed AUM increased to $784 billion, a 4% sequential increase [14] Business Line Data and Key Metrics Changes - Workplace Savings and Retirement Solutions (WSRS) transfer deposits grew 13% year-over-year, with total Retirement Investment Solutions (RIS) sales of $7 billion, an 8% increase [7][8] - Specialty Benefits pre-tax operating earnings were $147 million, a record quarter, reflecting a 28% increase compared to the year-ago quarter [17] - Investment management gross sales reached $32 billion, up 19% year-over-year, with net cash flow of $800 million in the quarter [9][16] Market Data and Key Metrics Changes - The company experienced strong momentum in the global asset management sector, with private markets capabilities generating net inflows of $1.7 billion [9] - International pension reported record AUM of $151 billion, a 9% year-over-year increase [16] Company Strategy and Development Direction - The company is focused on three significant profit pools: the broad retirement ecosystem, small and mid-sized businesses, and global asset management [6][10] - Continued investments in modernizing recordkeeping capabilities and enhancing customer service are prioritized [21][26] - The company aims to capitalize on opportunities in the retirement solutions market and expand its asset management capabilities [10][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering full-year enterprise financial targets, supported by strong fundamentals and business momentum [19] - The current economic uncertainty has impacted employer financial inclusion programs, but there are positive signs of government and financial system support [11][12] Other Important Information - The company returned $400 million to shareholders in the quarter, including $225 million in share repurchases and raised its common stock dividend by 8% [5][13] - The company is committed to maintaining a 40% dividend payout ratio, reflecting confidence in continued growth [13][31] Q&A Session Summary Question: Expectations for margin expansion - Management expects margins to continue expanding due to strong underwriting results and disciplined expense management [21][22] Question: Free capital flow conversion trends - The company maintains a strong capital position with a capital-efficient mix of business, allowing for organic investments while returning capital to shareholders [29][30] Question: Investment management flows and client sentiment - Positive net cash flow of $800 million was reported, with strong demand in private markets and emerging market fixed income [36][37] Question: Bering Strategic Partnership and fee rates - The partnership aims to enhance private market expertise and is expected to provide unique opportunities for value creation [44][46] Question: 401(k) business and market consolidation - The company anticipates benefiting from industry consolidation, focusing on organic growth rather than large transactions [51][52] Question: Private credit market performance - The company maintains a strong credit quality in its portfolio, with no direct exposure to recent market issues [90][92] Question: Wealth management opportunity and advisor metrics - The company is building its wealth management capabilities with a focus on long-term growth and asset retention [98]

Financial Data and Key Metrics Changes - The operating return on assets was 1.37% for the third quarter, with a return on equity of 12.1% and a return on tangible common equity (ROTCE) of 17.6%, showing continued improvement over linked and prior year quarters [3] - Net income for the third quarter was $54.5 million, or $1.03 per diluted common share, with operating earnings per share at $1.05, an increase of $0.17 per share compared to the prior quarter [9] - Revenues grew approximately 9% from the prior quarter and 26% from the third quarter of the prior year, driven by improvements in net interest income [9] Business Line Data and Key Metrics Changes - Total loans increased by $1.6 billion for the year, including acquired loans from Evans Bancorp, with annualized loan growth in 2025 being approximately 1% higher from December 2024 [9] - The total loan portfolio of $11.6 billion is comprised of 56% commercial relationships and 44% consumer loans [10] - Total deposits of $13.7 billion were up $2.1 billion from December 2024, with growth in checking and money market accounts [10] Market Data and Key Metrics Changes - The company experienced solid growth in deposits in the Western region of New York post-merger with Evans Bancorp, retaining key lending relationships despite approximately $30 million of net contractual runoff in the portfolio [6] - The new Malta, New York branch near GlobalFoundries is seeing excellent traffic and growth, while the Hudson Valley market is experiencing positive demographic shifts [7] Company Strategy and Development Direction - The company plans to open a financial center in Rochester during 2026 and is exploring locations in the Finger Lakes to enhance its branch network [6] - The company is focused on scaling operations in New Hampshire and optimizing branch locations to remain agile and responsive to market needs [8] - The management is interested in fill-in strategies for M&A opportunities with like-minded community banks to expand the franchise [33] Management's Comments on Operating Environment and Future Outlook - Management expressed that recent and expected changes to Fed funds rates may challenge future margin improvements compared to recent quarters [4] - The company is in a strong capital position and has growth opportunities across all markets, well-positioned to take advantage of them [15] - Management anticipates low to mid-single-digit loan growth rates in early to mid-2026, with a robust pipeline of lending opportunities [20] Other Important Information - The company announced an 8.8% improvement to its dividend to shareholders, marking the 13th consecutive year of increases [5] - Total operating expenses, excluding acquisition expenses, were $110 million for the quarter, reflecting a full quarter of Evans activity [14] Q&A Session Summary Question: What are the expectations for cost savings and total expenses moving forward? - Management indicated that cost savings have been achieved during the third quarter, and the run rate of $110 million is expected to be appropriate going forward, with typical expense increases running between 3.5% and 4.5% [18] Question: What is the outlook for loan growth in the coming quarters? - Management expects low to mid-single-digit growth rates for loans, with a strong pipeline and good activity levels in the markets [20] Question: What is the expected number of new branches and talent recruitment? - Management anticipates adding four to six new branches per year to improve market concentration and has been productive in recruiting talent in the Western region of New York [28] Question: Is the company considering additional M&A deals? - Management is open to fill-in strategies for M&A opportunities with smaller community banks to expand their franchise [33] Question: What are the expectations for margin pressure in the near term? - Management indicated potential margin pressure in the fourth quarter due to deposit repricing dynamics, but there may be opportunities for margin improvement in 2026 [34][76]

Financial Data and Key Metrics Changes - The company reported record-setting third quarter net sales and earnings results, achieving a year-over-year top-line growth of 10% [4][5] - Consolidated adjusted EBITDA increased by 6%, while adjusted net earnings per share rose by 13% [5][20] - Free cash flow grew significantly, with a double-digit increase both in the quarter and year-to-date [5][20] Business Line Data and Key Metrics Changes - In the Mineral Fiber segment, net sales increased by 6% year-over-year, driven by strong average unit value (AUV) growth and positive sales volume contributions [8][17] - The Architectural Specialties segment saw a net sales increase of 18%, supported by acquisitions and solid organic growth [12][19] Market Data and Key Metrics Changes - The company noted stabilizing market conditions, with no anticipated softening in discretionary renovation activity, contrary to earlier expectations [28][89] - The office market showed signs of recovery, with declining vacancy rates for Class A offices and increased renovation activity expected for Class B spaces [30][31] Company Strategy and Development Direction - The company remains focused on operational efficiency, commercial execution, and growth initiatives to navigate a dynamic macroeconomic environment [7][8] - Investments in digital growth initiatives like ProjectWorks and Canopy are expected to drive volume and contribute to margin expansion [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong results for the remainder of 2025, with expectations for continued double-digit growth in net sales and adjusted EBITDA [24][27] - The outlook for 2026 remains positive, with expectations for growth driven by market penetration and share acquisition [71] Other Important Information - The company announced a 10% increase in its quarterly dividend, marking the seventh consecutive annual increase since the inception of its dividend program [24] - The acquisition of Geometric, a Canadian wood ceiling manufacturer, was completed for $7.5 million, enhancing the company's product offerings and geographic diversification [23][14] Q&A Session Summary Question: Can you talk about the benefit from new products and their impact on AUV? - Management noted strong performance at the high end of the portfolio, with innovation driving double-digit growth in both Mineral Fiber and Architectural Specialties [39][40] Question: What is the outlook for Architectural Specialties margins? - Management expects to maintain organic margins around 20% while continuing to drive growth through market penetration [42][43] Question: Can you elaborate on the timing-related cost headwinds affecting EBITDA margins? - Higher SG&A costs were attributed to increased incentive compensation and atypical medical claims, which are not expected to persist [50][61] Question: What is the outlook for the education and healthcare segments? - Both segments are stabilized, with healthcare remaining slightly positive, while the data center market continues to show robust opportunities [52][53] Question: How does the company view the potential for Mineral Fiber margins to exceed pre-pandemic levels? - Management believes that continued focus on pricing, productivity, and innovation will support further margin improvements [98][99]

Financial Data and Key Metrics Changes - Adjusted net income increased 48% year over year to $45.2 million or $0.52 per share [6] - Organic deposits grew $212 million or 7% annualized, including $80 million in non-interest-bearing deposits [6][15] - Loan production showed organic growth of 8% on an annualized basis [6] - Net interest income was $133.5 million, a 5% increase from the prior quarter, and net interest margin expanded 3 basis points to 3.32% [6][8] Business Line Data and Key Metrics Changes - Wealth management achieved a record-breaking quarter with $258 million in new assets under management (AUM) [9] - Non-interest income, excluding securities activity, was $24.7 million, a 5% increase from the prior year quarter [9] - Non-interest expense increased to $102 million, including $10.8 million in merger-related expenses [10] Market Data and Key Metrics Changes - The loan pipeline increased 30% to $1.2 billion, indicating strong demand across markets [11] - Non-performing loans declined by $3.6 million, representing only 0.55% of total loans [13] - Customer transaction accounts made up 48% of total deposits, reflecting a strong relationship-focused approach [14] Company Strategy and Development Direction - The company is focused on enhancing its return profile while delivering strong growth on both sides of the balance sheet [2] - The Villages acquisition is expected to enhance liquidity and provide significant growth opportunities [3][12] - The company aims to maintain a disciplined, conservative credit culture while diversifying its loan portfolio [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth outlook and ability to deliver improvements and returns into 2026 [4][16] - The company anticipates continued high single-digit organic loan growth in the coming quarters [11] - Management noted that the market remains strong with broad-based demand across various sectors [45] Other Important Information - The company completed the acquisition of Heartland Bank shares, adding four branches and approximately $824 million in assets [7] - The technology conversion for the Heartland acquisition was fully completed in the third quarter [7] - The company expects to exit the year with a core net interest margin of approximately 3.45% [8] Q&A Session Summary Question: Growth outlook and pipeline momentum - Management highlighted impressive growth despite ongoing acquisitions and expressed confidence in maintaining high single-digit growth [22][24] Question: Expansion into Atlanta - Management discussed the strategy for expanding into Atlanta, focusing on commercial real estate and building a presence in the market [30][32] Question: Update on The Villages deal - Management reported a smooth integration process and emphasized the importance of a seamless conversion for customers [40][42] Question: Loan pricing and spreads - Management noted that credit spreads are tight and competitive, but they are navigating this carefully [86] Question: Impact of rising insurance costs in Florida - Management indicated that insurance premiums are stabilizing and not significantly impacting operations [90][91]

Financial Data and Key Metrics Changes - NAREIT FFO was reported at $0.56 per share for the third quarter, driven by same-property NOI growth of 4% [12] - Base rent growth decreased to a 270 basis point contribution due to a 150 basis point drop in billed occupancy compared to the same quarter last year [12][15] - The company expects base rent growth to accelerate into 2026 as billed occupancy rebounds [12] Business Line Data and Key Metrics Changes - The company executed 1.5 million square feet of new and renewal leases at a blended cash spread of 18% [6] - New leases were signed at a record rate of $2,585 per square foot, with small shop occupancy hitting a record of 91.4% [6][7] - The signed but not yet commenced rent pipeline remains above $60 million, with $22 million of ABR commenced during the quarter [7][13] Market Data and Key Metrics Changes - The percentage of ABR from grocery anchor tenants is now at 82%, with a 35% increase in year-over-year traffic when a grocer is added [9] - The company closed on the $223 million acquisition of LaCenterra at Cinco Ranch, with seven new leases signed or in process [10] Company Strategy and Development Direction - The company continues to focus on executing its business plan, with a strong emphasis on leasing and redevelopment [5][11] - The redevelopment platform is delivering low-risk, compelling returns with several years of runway for future growth [11] - The company is positioned to recycle capital from low-growth assets into those with higher growth potential [11][33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the leasing environment, noting that the pipeline is higher than a year ago despite signing 10% more in GLA this year [38] - The company anticipates significant tailwinds from 2025 rent commencements and a strong signed but not yet commenced rent pipeline [16] - Management expects lease settlement income to be a headwind to 2026 FFO growth but remains confident in the overall outlook [15][44] Other Important Information - The company announced a 7% increase in its annual dividend to a rate of $1.23, allowing for maximum flexibility in capital markets [15] - The SEC shelf registration statement is due to expire next month, and a replacement will be filed [14] Q&A Session Summary Question: Factors contributing to same-store NOI growth acceleration in Q4 - Management highlighted the commencement of $22 million of rent in the quarter and an additional $19 million expected to commence between Q3 and Q4 [19][20] Question: Future occupancy levels and reinvestment pipeline - Management noted that there is room for improvement in shop occupancy, with several hundred basis points more to run [26] Question: Acquisition pipeline and cap rates - Management indicated that the market remains competitive, focusing on value-add opportunities and strong growth potential in acquisitions [32][33] Question: Leasing pipeline and retailer expansion - Management remains optimistic about retailer expansion, with a strong pipeline and positive conversations with tenants [38] Question: Tenant health and bad debt expense - Management expressed confidence in tenant credit quality and noted a significant reduction in exposure to at-risk tenancy [48] Question: Yield expectations for redevelopment projects - Management stated that the average yield for redevelopment projects remains in the high single-digit to low double-digit range, with no changes to their thresholds [72][73] Question: Capital recycling and disposition pipeline - Management emphasized the importance of recycling capital from low-growth assets into higher-growth opportunities [84][86]

Financial Data and Key Metrics Changes - The company reported a third-quarter operating EBITDA growth of over 15% and free cash flow growth of nearly 33% [8] - Total company operating EBITDA margin reached 30.6%, the best quarterly result in history, with the legacy business achieving a margin of 32% [19][24] - Free cash flow for the first nine months of 2025 grew 13.5% to $2.11 billion, with operating EBITDA to free cash flow conversion approaching 42% [21][24] Business Line Data and Key Metrics Changes - The collection and disposal business contributed more than half of the year-over-year increase in operating EBITDA, with MSW and special waste volumes growing by 5% and 5.5% respectively [8][14] - Operating EBITDA margins in the collection and disposal business expanded by 100 basis points to a record 38.4%, with operating EBITDA growing more than 7% [14] - The healthcare solutions segment's operating EBITDA margin improved to 17.5% as integration efforts progressed [20] Market Data and Key Metrics Changes - The company experienced strong organic revenue growth driven by disciplined pricing and improving volume trends, with core price at 6% [15] - Landfill volumes rose by 5.2%, with broad strength across MSW, special waste, and construction and demolition [16] - Recycling segment's operating EBITDA grew by 18% despite a nearly 35% decline in recycled commodity prices [10] Company Strategy and Development Direction - The company is focused on maximizing customer lifetime value through pricing strategies and leveraging technology to optimize costs [9] - Strategic investments in technology and automation are expected to yield benefits in 2026, with free cash flow projected to approach $3.8 billion [11][12] - The company remains disciplined in capital allocation, expecting to translate performance into returns for shareholders [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term value of the healthcare solutions acquisition, despite a more measured revenue growth pace than initially projected [22][23] - The company anticipates achieving operating EBITDA and free cash flow guidance for the remainder of the year, with margin expectations raised to between 29.6% and 30.2% [24] - Management highlighted the importance of operational efficiency and customer relationships in driving future growth [18] Other Important Information - The company has returned $1 billion to shareholders in dividends and allocated over $400 million to solid waste acquisitions through the first three quarters of 2025 [22] - The CFO announced retirement plans, expressing confidence in the incoming CFO and the company's future [25] Q&A Session Summary Question: How much has the company benefited from one-time cleanup work at the landfill? - The company indicated that total revenues from wildfire volumes were around $115 million for the year, with a significant EBITDA growth in solid waste results without meaningful impacts from wildfires [30] Question: What were the charges this quarter related to the plastics film plant and landfill closure? - The plastics film plant was idled due to market conditions, while the landfill impairment was related to a long-term pursuit of expansion that was deemed no longer viable [32] Question: What factors will contribute to the expected free cash flow improvement in 2026? - The expected improvement will come from the wind-down of sustainability investments, strong performance from the legacy business, and contributions from healthcare solutions [33][35] Question: How is the healthcare solutions business performing regarding pricing increases? - The company is deferring price increases to ensure customer satisfaction and stabilize revenue, with confidence in achieving mid-single-digit revenue growth in the long term [58][65] Question: What is the outlook for yield and pricing in 2026? - The company is optimistic about maintaining a good spread between core price and operating expenses, with strong performance expected in the collection and disposal business [70][72]

Financial Data and Key Metrics Changes - NBT Bancorp reported net income of $54.5 million, or $1.03 per diluted common share, with operating earnings per share at $1.05, an increase of $0.17 compared to the prior quarter [10] - Operating return on assets was 1.37%, return on equity was 12.1%, and ROTCE was 17.6%, showing continued improvement [3] - Tangible book value per share increased by 7% year-over-year to $25.51 [4] Business Line Data and Key Metrics Changes - Total loans increased by $1.6 billion year-over-year, with a diversified portfolio comprising 56% commercial and 44% consumer loans [11] - Total deposits rose to $13.7 billion, up $2.1 billion from December 2024, with growth in checking and money market accounts [12] - Non-interest income represented 28% of total revenues, with fee income increasing by 9.8% compared to the previous quarter [14][13] Market Data and Key Metrics Changes - The Western region of New York saw solid growth in deposits post-Evans Bancorp merger, with plans for new branches in Rochester and other areas [6][8] - The company is exploring new locations in the Finger Lakes and plans to break ground on a new branch near the Micron chip fabrication site in Clay, New York [8] Company Strategy and Development Direction - The company aims to support organic growth and maintain a strong capital position, with a renewed share repurchase authorization of 2 million shares through the end of 2027 [5] - NBT Bancorp is focused on filling in its franchise through opportunistic M&A and branch expansion, particularly in underrepresented markets [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining a strong capital position and identified growth opportunities across all markets [16] - Future margin improvements may be challenged due to expected changes in Fed funds rates, but there is optimism for potential margin recovery in 2026 [31][58] Other Important Information - The company announced an 8.8% dividend increase, marking the 13th consecutive year of increases [5] - Total operating expenses for the quarter were $110 million, reflecting a 4.4% increase from the prior quarter [15] Q&A Session Summary Question: What are the expectations for cost savings and total expenses moving forward? - Management indicated that cost savings from the Evans integration are largely achieved, with a run rate of $110 million expected going forward, alongside typical expense increases of 3.5% to 4.5% [18][19] Question: What is the outlook for loan growth in the coming quarters? - Management anticipates low to mid-single-digit growth rates for loans, with a strong pipeline and good activity levels in the markets [20][21] Question: Are there plans for additional M&A deals? - The company is open to opportunistic M&A to fill in its franchise and is in discussions with like-minded community banks [29] Question: What is the current status of solar loans and auto loan delinquencies? - Management noted no significant pressure on auto loan delinquencies and indicated that solar loans are performing as expected, despite market volatility [35][36] Question: What is the outlook for fee income and insurance growth? - The insurance business is expected to grow at a rate of high mid-single digits, with seasonally strong performance in the third quarter [48][49] Question: What are the expectations for margin pressure and potential improvements? - Management expects some initial pressure on margins but sees potential for improvement in 2026 if the yield curve steepens [57][58]

Financial Performance - The company reported third-quarter sales of $943 million, a year-over-year increase of 4%, and EPS of $0.94, a 15% increase over 2024 [4][10] - North America sales grew 6%, primarily due to pricing actions and strong commercial water heater and boiler volumes [4][10] - Operating cash flow grew 21% to $434 million, and free cash flow grew 35% to $381 million during the first nine months of 2025 compared to the same period last year [11] Business Line Performance - North America water heater sales increased by 6%, driven by pricing actions and higher commercial water heater volumes [5][10] - North America boiler sales increased by 10% compared to the third quarter of 2024, led by pricing actions and higher volumes of high-efficiency boilers [6][10] - North America water treatment sales decreased by 5% in the third quarter, as growth in priority channels was offset by a decrease in the retail channel [6][10] Market Performance - Local currency sales in China decreased by 12% due to economic challenges and reduced government subsidy programs [5][10] - The legacy India business continued strong growth, delivering 13% growth in local currency [5][10] - The company expects a decline of approximately 10% in local currency sales in China for 2025 [17][19] Company Strategy and Industry Competition - The company is committed to sustainability and plans to publish a sustainability progress report [8][9] - The company is actively assessing strategic opportunities and has sufficient resources for acquisitions that meet its strategic and financial criteria [12][19] - The company is focusing on operational excellence and innovation to drive future growth [64] Management Commentary on Operating Environment and Future Outlook - Management noted ongoing economic challenges in China and a cautious outlook for the U.S. residential water heater market due to lower new home construction completions [16][34] - The company is encouraged by resilient demand in the commercial water heater market and has increased its projection for commercial water heater industry volumes [16][19] - Management expressed confidence in navigating the tariff and competitive landscape in core water heater and boiler businesses [24] Other Important Information - The board approved a 6% increase in the quarterly dividend to $0.36 per share, marking the 32nd consecutive year of dividend increases [12] - The company repurchased approximately 5 million shares of common stock for a total of $335 million in the first nine months of 2025 [12] Q&A Session Summary Question: Could you talk about your performance versus the overall market in China? - Management indicated that the market continues to face challenges, with increased competitive intensity and promotional activities due to the discontinuation of government subsidies [26] Question: What is driving the strength in North America commercial water heater sales? - Management attributed the strength to a strong market backdrop and competitive product offerings, including the launch of the Flex commercial water heater [27][29] Question: Can you provide an update on the China strategic review? - Management stated that it is still early in the process and no outcomes have been narrowed down yet [31] Question: How do you see the U.S. residential water heater market playing out? - Management noted a slight decrease in expectations due to pressures from new home construction completions [34] Question: What are the expectations for the fourth quarter in China? - Management expects an uptick in volume compared to the third quarter, but overall outlook remains cautious due to the discontinuation of the subsidy program [58]

Financial Data and Key Metrics Changes - The company generated a record $4.8 billion in revenue for Q3 2025, with a gross profit of $803 million and a gross profit margin of 16.7% [7] - Adjusted earnings per share (EPS) was $7.17, with adjusted EBITDA at $261 million [7][15] - Adjusted net income for the quarter was $140 million, excluding various non-cash impacts [15] - Same-store SG&A as a percentage of gross profit was 64.2%, indicating a focus on cost management [16] Business Line Data and Key Metrics Changes - Same-store revenue for new vehicles increased by 8% year over year, with unit sales up by 7% [9] - Used vehicle unit volume decreased by 4% year over year, but used retail gross profit per unit increased to $1,551 [10] - Parts and service gross profit rose by 7% year over year, with a gross profit margin of 58.8% [12] Market Data and Key Metrics Changes - The company experienced elevated consumer demand for electric vehicles (EVs), with new EV unit sales doubling compared to Q2 [9][23] - Same-store new day supply was 58 days at the end of September, indicating inventory management aligned with consumer demand [10] Company Strategy and Development Direction - The company is focused on deleveraging the balance sheet and optimizing its portfolio while being opportunistic with share repurchases [5][19] - The acquisition of the Herb Chambers Group is expected to enhance operating metrics and contribute positively to gross profits [4][24] - The company aims to continue integrating Techyon to improve operational efficiency and customer experience [4][53] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are macroeconomic challenges, they remain optimistic about maintaining margins and performance in the luxury vehicle segment [23][46] - The company anticipates a recovery in the used vehicle market starting in 2026, with expectations for improved inventory levels [11][61] Other Important Information - The company divested four stores in July, generating annualized revenue of $300 million, as part of its disciplined portfolio management strategy [6] - The rollout of Techyon is ongoing, with expectations for efficiency gains and cost savings once fully implemented [54][56] Q&A Session Summary Question: Impact of Chambers acquisition on new GPUs - Management confirmed that the Chambers acquisition will have a positive effect on new gross profits per vehicle [24] Question: Changes in TCA outlook and EPS impact - Management explained that the revised TCA outlook is primarily due to changes in the SAR assumption and the timing of rollouts [28][30] Question: Capital allocation priorities - Management indicated a focus on share repurchases and debt reduction, with M&A remaining a consideration depending on market conditions [40] Question: Trends in luxury vehicle sales - Management noted that luxury vehicle sales remain strong, with no significant changes in consumer demand observed [46] Question: Marketing strategies for used vehicles - Management highlighted the use of digital platforms and service drives to acquire more used vehicles, while balancing volume and profitability [60][61]