ASBURY AUTOMOTIVE GROUP, INC. Forward-Looking Information Certain of the discussions and information included or incorporated by reference in this report may constitute "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are statements that are not historical in nature and may include statements relating to our goals, plans and projections regarding industry and general economic trends, our expected financial position, results of operations or market position and our business strategy. Such statements can generally be identified by words such as "may," "target," "could," "would," "will," "should," "believe," "expect," "anticipate," "plan," "intend," "foresee," and other similar words or phrases. Forward-looking statements may also relate to our expectations and assumptions with respect to, among other things: •the seasonally adjusted annual rate of new vehicle sales inthe United States ; •general economic conditions and its expected impact on our revenue and expenses; •our expected parts and service revenue due to, among other things, improvements in vehicle technology; •our ability to limit our exposure to regional economic downturns due to our geographic diversity and brand mix; •manufacturers' continued use of incentive programs to drive demand for their product offerings; •our capital allocation strategy, including as it relates to acquisitions and divestitures, stock repurchases, dividends and capital expenditures; •our revenue growth strategy; •the growth of the brands that comprise our portfolio over the long-term; •disruptions in the production and supply of vehicles and parts from our vehicle and parts manufacturers and other suppliers due to any ongoing impact of the global semiconductor shortage, which can disrupt our operations; •disruptions in our operations, the operations of our vehicle and parts manufacturers and other suppliers, vendors and business partners, and the global economy in general due to the global COVID-19 pandemic, including due to any new strains of the virus and the efficacy and rate of vaccinations; and •our estimated future capital expenditures, which can be impacted by increasing prices and labor shortages. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual future results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited to: •the degree to which disruptions in our operations, the operations of our vehicle and parts manufacturers and other suppliers, vendors and business partners, and the global economy in general due to any ongoing effects of the COVID-19 pandemic may adversely impact our business, results of operations, financial condition and cash flows;
•the effects of increased expenses or unanticipated liabilities incurred as a result of, or due to activities related to our acquisitions or divestitures;
•changes in general economic and business conditions, including changes in
employment levels, consumer confidence levels, consumer demand and preferences,
the availability and cost of credit, fuel prices, levels of discretionary
personal income and interest rates;
•our ability to generate sufficient cash flows, maintain our liquidity and
obtain any necessary additional funds for working capital, capital expenditures,
acquisitions, stock repurchases, debt maturity payments and other corporate
purposes, if necessary or desirable;
•significant disruptions in the production and delivery of vehicles and parts
for any reason, including the COVID-19 pandemic, supply shortages (including
semiconductor chips), natural disasters, severe weather, civil unrest, product
recalls, work stoppages or other occurrences that are outside of our control;
•our ability to execute our automotive retailing and service business strategy
while operating under restrictions and best practices imposed or encouraged by
governmental and other regulatory authorities;
25
--------------------------------------------------------------------------------
Table of Contents
•our ability successfully to attract and retain skilled employees;
•adverse conditions affecting the vehicle manufacturers whose brands we sell,
and their ability to design, manufacture, deliver and market their vehicles
successfully;
•changes in the mix, and total number, of vehicles we are able to sell;
•our outstanding indebtedness and our continued ability to comply with
applicable covenants in our various financing and lease agreements, or to obtain
waivers of these covenants as necessary;
•high levels of competition in our industry, which may create pricing and margin
pressures on our products and services;
•our relationships with manufacturers of the vehicles we sell and our ability to
renew, and enter into new framework and dealer agreements with vehicle
manufacturers whose brands we sell, on terms acceptable to us;
•the availability of manufacturer incentive programs and our ability to earn
these incentives;
•failure of our, or those of our third-party service providers, management
information systems;
•any data security breaches occurring, including with regard to personally
identifiable information ("PII");
•changes in laws and regulations governing the operation of automobile
franchises, including trade restrictions, consumer protections, accounting
standards, taxation requirements and environmental laws;
•changes in, or the imposition of, new tariffs or trade restrictions on imported
vehicles or parts;
•adverse results from litigation or other similar proceedings involving us;
•our ability to consummate planned mergers, acquisitions and dispositions;
•any disruptions in the financial markets, which may impact our ability to
access capital;
•our relationships with, and the financial stability of, our lenders and
lessors;
•our ability to execute our initiatives and other strategies;
•our ability to leverage gains from our dealership portfolio; and
•our ability to successfully integrate businesses we may acquire, or that any
business we acquire may not perform as we expected at the time we acquired it.
Many of these factors are beyond our ability to control or predict, and their
ultimate impact could be material. Moreover, the factors set forth under "Item
1A. Risk Factors" and other cautionary statements made in this report should be
read and considered as forward-looking statements subject to such uncertainties.
Forward-looking statements speak only as of the date of this report. We
expressly disclaim any obligation to update any forward-looking statement
contained herein.
OVERVIEW
We are one of the largest automotive retailers inthe United States . As ofSeptember 30, 2021 , we owned and operated 112 new vehicle franchises (91 dealership locations), representing 31 brands of automobile, 25 collision centers, and one auto auction in 15 metropolitan markets within nine states. Our stores offer an extensive range of automotive products and services, including new and used vehicles; parts and service, which includes repair and maintenance services, replacement parts, and collision repair services; and finance and insurance products. For the nine months endedSeptember 30, 2021 , our new vehicle revenue brand mix consisted of 45% luxury, 40% imports and 15% domestic brands. Our retail network is made up of dealerships operating primarily under the following locally-branded dealership groups: •Coggin dealerships operating primarily inJacksonville ,Fort Pierce andOrlando, Florida ; •Courtesy dealerships operating inTampa, Florida ; •Crown dealerships operating inNorth Carolina ,South Carolina andVirginia ; •Greenville Automotive dealerships operating inGreenville, South Carolina ; •Hare and Estes dealerships operating in theIndianapolis, Indiana area; 26 -------------------------------------------------------------------------------- Table of Contents •McDavid dealerships operating in metropolitanAustin andDallas-Fort Worth, Texas ; •Mike Shaw dealerships in theDenver, Colorado area; •Nalley dealerships operating in metropolitanAtlanta, Georgia ; •Park Place dealerships operating in theDallas-Fort Worth, Texas area; and •Plaza dealerships operating in metropolitanSt. Louis, Missouri . Our revenues are derived primarily from: (i) the sale of new vehicles; (ii) the sale of used vehicles to individual retail customers ("used retail") and to other dealers at auction ("wholesale") (the terms "used retail" and "wholesale" collectively referred to as "used"); (iii) repair and maintenance services, including collision repair, the sale of automotive replacement parts, and the reconditioning of used vehicles (collectively referred to as "parts and service"); and (iv) the arrangement of third-party vehicle financing and the sale of a number of vehicle protection products (defined below and collectively referred to as "F&I"). We evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold, our parts and service operations based on aggregate gross profit, and our F&I business based on F&I gross profit per vehicle sold. Our gross profit margin varies with our revenue mix. Sales of new vehicles have historically resulted in a lower gross profit margin than used vehicle sales, sales of parts and service, and sales of F&I products. As a result, when used vehicle, parts and service, and F&I revenue increase as a percentage of total revenue, we expect our overall gross profit margin to increase. Selling, general, and administrative ("SG&A") expenses consist primarily of fixed and incentive-based compensation, advertising, rent, insurance, utilities, and other customary operating expenses. A significant portion of our cost structure is variable (such as sales commissions) or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long-term. We evaluate commissions paid to salespeople as a percentage of retail vehicle gross profit, advertising expense on a per vehicle retailed ("PVR") basis, and all other SG&A expense in the aggregate as a percentage of total gross profit. Our continued organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy, the continued strength of our brand mix, and the production and allocation of desirable vehicles from the automobile manufacturers whose brands we sell. Our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions, including consumer confidence, availability of consumer credit, fuel prices, and employment levels. Our vehicle sales may also be impacted by manufacturer imposed stop-sales or open safety recalls. Our ability to sell certain new and used vehicles can be negatively impacted by a number of factors, some of which are outside of our control. Significant shortages of semiconductor chips and other component parts and supplies have forced many automotive manufacturers and their suppliers to suspend or curtail production. Furthermore, as a result of the COVID-19 global pandemic, certain vehicle manufacturers and their suppliers slowed or temporarily halted production for the safety of their workers. The impact of these factors has negatively impacted our new vehicle inventory levels. We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these shortages or when normalized production will resume at these manufacturers. We also cannot predict the duration or scope, and future effects, of the impacts from the COVID-19 global pandemic, which may adversely impact our financial condition, liquidity and cash flow. Vaccine efficacy to new strains of the virus, the public's willingness to get vaccinated, and government imposed vaccine mandates on the workforce all remain challenges, which could lengthen the duration of the impacts of the pandemic. We continue to monitor and respond as necessary to the Company's operational needs and financial flexibility during the ongoing outbreak of the COVID-19 global pandemic and the resulting economic uncertainty. Our top priority continues to be the safety and protection of our customers, team members and their families. We have modified certain business practices to conform to government restrictions and are taking precautionary measures as directed by government and regulatory authorities. We continue to believe that any future negative trends in new vehicle sales caused by lack of inventory availability would be partially mitigated by (i) increased demand and higher margins on pre-owned vehicles, (ii) the expected relative stability of our parts and service operations over the long-term, (iii) the variable nature of significant components of our cost structure, and (iv) our diversified brand and geographic mix. The seasonally adjusted annual rate ("SAAR") of new vehicle sales in theU.S. during the three months endedSeptember 30, 2021 was 13.4 million compared to 15.5 million during the three months endedSeptember 30, 2020 . On a same-store basis, all of our revenue streams increased from the prior year quarter and we experienced a significant increase in both new and used vehicle gross profit during the three months endedSeptember 30, 2021 when compared to the prior year period. New vehicle supply disruptions as a result of the semiconductor chip shortage and the COVID-19 global pandemic have reduced the availability of new vehicle inventory, which has driven up demand for used vehicles. Our parts and service business has returned to pre-pandemic levels of activity and profitability. 27 -------------------------------------------------------------------------------- Table of Contents We had total available liquidity of$776.6 million as ofSeptember 30, 2021 , which consisted of cash and cash equivalents of$330.6 million ,$46.8 million of funds in our floor plan offset accounts,$190.0 million availability under our new vehicle floor plan facility that is able to be converted to our revolving credit facility,$49.2 million of availability under our revolving credit facility, and$160.0 million of availability under our used vehicle revolving floor plan facility. For further discussion of our liquidity, please refer to "Liquidity and Capital Resources" below. We believe we will have sufficient liquidity to meet our debt service and working capital requirements; commitments and contingencies; debt repayment, maturity and repurchase obligations; acquisitions; capital expenditures; and any operating requirements for at least the next twelve months. Equity Purchase Agreement, Real Estate Purchase Agreement and Insurance Purchase Agreement OnSeptember 28, 2021 ,Asbury Automotive Group, LLC ("Purchaser"), aDelaware limited liability company and a wholly-owned subsidiary ofAsbury Automotive Group, Inc. , aDelaware corporation (the "Company"), entered into (i) a Purchase Agreement (the "Equity Purchase Agreement") with certain members of the Larry H. Miller Dealership family of entities; (ii) a Real Estate Purchase and Sale Agreement (the "Real Estate Purchase Agreement") withMiller Family Real Estate, L.L.C. and (iii) a Purchase Agreement (the "Insurance Purchase Agreement" and together with the Equity Purchase Agreement and the Real Estate Purchase Agreement, the "Transaction Agreements") with certain equity owners of the Total Care Auto, Powered by Landcar ("TCA") insurance business affiliated with the Larry H. Miller Dealership family of entities. Pursuant to the Transaction Agreements, Purchaser will acquire the equity interests of, and the real property related to (collectively, the "Transactions"), the businesses of the Larry H. Miller Dealerships and TCA (collectively, the "Businesses"), each described in the Equity Purchase Agreement, the Real Estate Purchase Agreement and the Insurance Purchase Agreement, for an aggregate purchase price of approximately$3.2 billion ,which includes approximately$740.0 million of real estate and leasehold improvements. The Transaction Agreements contain customary representations and warranties made by each of the parties. The parties have also agreed to various covenants in the Transaction Agreements, including covenants by the sellers, the various seller affiliates and the principal to conduct the material operations of the Businesses in the ordinary course of business consistent with past practice and to cooperate with the Company's efforts to secure permanent financing prior to closing of the Transactions. Purchaser and Sellers have agreed to indemnify one another against certain damages (subject to certain exceptions and limitations). The closing of the Transactions is subject to various customary closing conditions, including (i) receipt of approval of the Transactions by certain automotive manufacturers, (ii) receipt of certain governmental clearances, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and certain required approvals related to the insurance business, (iii) the continued accuracy of the representations and warranties of the parties (subject to specified materiality standards) and (iv) the absence of a material adverse effect with respect to the Businesses. The Transaction Agreements are not subject to any financing condition. The closing of the Transactions is expected to be consummated during the fourth quarter of 2021, subject to receipt of regulatory and other approvals and customary closing conditions. Other acquisitions under contract As ofSeptember 30, 2021 , the Company was under contract to acquire ten dealerships with combined annual revenues of approximately$900 million . These acquisitions are expected to close during the fourth quarter of 2021 and are subject to customary closing conditions. Park Place Acquisition OnJuly 6, 2020 , the Company, through two of its subsidiaries, entered into an Asset Purchase Agreement with certain members of the Park Place Dealership group, to acquire substantially all of the assets of, and lease the real property related to, 12 new vehicle dealership franchises (eight dealership locations), two collision centers and an auto auction (collectively, the "Park Place acquisition"). ThePark Place acquisition was completed onAugust 24, 2020 and financed through a combination of cash, floor plan facilities and seller financing. The seller financing comprised$150.0 million in aggregate principal amount of a 4.00% promissory note dueAugust 2021 and$50.0 million in aggregate principal amount of 4.00% promissory note dueFebruary 2022 (collectively, the "Seller Notes"). InSeptember 2020 , the Company redeemed the Seller Notes with proceeds from the offering of 4.50% Notes due 2028 and 4.75% Notes due 2030. 28
-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 For the Three Months Ended September 30, Increase % 2021 2020 (Decrease) Change (Dollars in millions, except per share data) REVENUE: New vehicle$ 1,129.5 $ 957.9 $ 171.6 18 % Used vehicle 879.0 569.5 309.5 54 % Parts and service 297.1 237.2 59.9 25 % Finance and insurance, net 100.4 80.8 19.6 24 % TOTAL REVENUE 2,406.0 1,845.4 560.6 30 % GROSS PROFIT: New vehicle 126.0 60.6 65.4 108 % Used vehicle 72.2 49.2 23.0 47 % Parts and service 181.4 145.3 36.1 25 % Finance and insurance, net 100.4 80.8 19.6 24 % TOTAL GROSS PROFIT 480.0 335.9 144.1 43 % OPERATING EXPENSES: Selling, general, and administrative 268.7 206.5 62.2 30 % Depreciation and amortization 10.7 9.8 0.9 9 % Other operating (income) expense, net (0.4) 0.5 (0.9) (180) % INCOME FROM OPERATIONS 201.0 119.1 81.9 69 % OTHER EXPENSES (INCOME): Floor plan interest expense 1.5 3.0 (1.5) (50) % Other interest expense, net 14.8 12.9 1.9 15 % Gain on dealership divestitures, net (8.0) (24.7) 16.7 (68) % Total other expenses (income), net 8.3 (8.8) 17.1 (194) % INCOME BEFORE INCOME TAXES 192.7 127.9 64.8 51 % Income tax expense 45.7 31.7 14.0 44 % NET INCOME$ 147.0 $ 96.2 $ 50.8 53 % Net income per common share-Diluted$ 7.54 $ 4.96 $ 2.58 52 % 29
--------------------------------------------------------------------------------
Table of Contents
For the Three Months Ended
2021 2020
REVENUE MIX PERCENTAGES:
New vehicle 46.9 % 51.9 %
Used vehicle retail 34.3 % 27.4 %
Used vehicle wholesale 2.3 % 3.4 %
Parts and service 12.3 % 12.9 %
Finance and insurance, net 4.2 % 4.4 %
Total revenue 100.0 % 100.0 %
GROSS PROFIT MIX PERCENTAGES:
New vehicle 26.3 % 18.0 %
Used vehicle retail 14.3 % 12.8 %
Used vehicle wholesale 0.7 % 1.8 %
Parts and service 37.8 % 43.3 %
Finance and insurance, net 20.9 % 24.1 %
Total gross profit 100.0 % 100.0 %
GROSS PROFIT MARGIN 20.0 18.2
SG&A EXPENSE AS A PERCENTAGE OF GROSS PROFIT 56.0 % 61.5 %
Total revenue during the third quarter of 2021 increased by $560.6 million (30%)
compared to the third quarter of 2020, due to a $171.6 million (18%) increase in
new vehicle revenue, a $309.5 million (54%) increase in used vehicle revenue, a
$59.9 million (25%) increase in parts and service revenue and a $19.6 million
(24%) increase in F&I, net revenue. During the three months ended September 30,
2021 , gross profit increased by $144.1 million (43%) driven by an $65.4 million
(108%) increase in new vehicle gross profit, a $23.0 million (47%) increase in
used vehicle gross profit, an $36.1 million (25%) increase in parts and service
gross profit and a $19.6 million (24%) increase in F&I gross profit.
Income from operations during the third quarter of 2021 increased by $81.9
million (69%) compared to the third quarter of 2020, primarily due to the $144.1
million (43%) increase in gross profit, partially offset by a $62.2 million
(30%) increase in SG&A expense, a $0.9 million (9%) increase in depreciation and
amortization expenses partially offset by a $0.9 million (180%) increase in
other operating (income) expense, net. Total other expenses, net increased by
$17.1 million (194%), primarily due to a $16.7 million (68%) decrease on the
gain on dealership divestitures, $1.9 million (15%) increase in other interest
expense, net partially offset by a $1.5 million (50%) decrease in floor plan
interest expense during the third quarter of 2021. As a result, income before
income taxes increased $64.8 million (51%). Overall, net income increased by
$50.8 million (53%) during the third quarter of 2021 as compared to the third
quarter of 2020.
30
--------------------------------------------------------------------------------
Table of Contents
New Vehicle-
For the Three Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions, except for per vehicle data)
As Reported:
Revenue:
Luxury $ 508.1 $ 345.9 $ 162.2 47 %
Import 459.0 414.0 45.0 11 %
Domestic 162.4 198.0 (35.6) (18) %
Total new vehicle revenue $ 1,129.5 $ 957.9 $ 171.6 18 %
Gross profit:
Luxury $ 60.2 $ 28.4 $ 31.8 112 %
Import 50.1 19.3 30.8 160 %
Domestic 15.7 12.9 2.8 22 %
Total new vehicle gross profit $ 126.0 $ 60.6 $ 65.4 108 %
New vehicle units:
Luxury 7,972 6,157 1,815 29 %
Import 13,491 13,818 (327) (2) %
Domestic 3,300 4,580 (1,280) (28) %
Total new vehicle units 24,763 24,555 208 1 %
Same Store:
Revenue:
Luxury $ 371.3 $ 334.5 $ 36.8 11 %
Import 452.1 413.9 38.2 9 %
Domestic 162.4 192.6 (30.2) (16) %
Total new vehicle revenue $ 985.8 $ 941.0 $ 44.8 5 %
Gross profit:
Luxury $ 43.3 $ 27.3 $ 16.0 59 %
Import 49.4 19.4 30.0 155 %
Domestic 15.7 12.4 3.3 27 %
Total new vehicle gross profit $ 108.4 $ 59.1 $ 49.3 83 %
New vehicle units
Luxury 5,918 5,951 (33) (1) %
Import 13,329 13,818 (489) (4) %
Domestic 3,300 4,464 (1,164) (26) %
Total new vehicle units 22,547 24,233 (1,686) (7) %
31
--------------------------------------------------------------------------------
Table of Contents
New Vehicle Metrics-
For the Three Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
As Reported:
Revenue per new vehicle sold $ 45,612 $ 39,010 $ 6,602 17 %
Gross profit per new vehicle sold $ 5,088 $ 2,468 $ 2,620 106 %
New vehicle gross margin 11.2 % 6.3 % 4.9 %
Luxury:
Gross profit per new vehicle sold$ 7,551 $ 4,613 $ 2,938 64 % New vehicle gross margin 11.8 % 8.2 % 3.6 %
Import:
Gross profit per new vehicle sold$ 3,714 $ 1,397 $ 2,317 166 % New vehicle gross margin 10.9 % 4.7 % 6.2 %
Domestic:
Gross profit per new vehicle sold$ 4,758 $ 2,817 $ 1,941 69 % New vehicle gross margin 9.7 % 6.5 % 3.2 % Same Store: Revenue per new vehicle sold$ 43,722 $ 38,831 $ 4,891 13 % Gross profit per new vehicle sold$ 4,808 $ 2,439 $ 2,369 97 % New vehicle gross margin 11.0 % 6.3 % 4.7 %
Luxury:
Gross profit per new vehicle sold$ 7,317 $ 4,587 $ 2,730 60 % New vehicle gross margin 11.7 % 8.2 % 3.5 %
Import:
Gross profit per new vehicle sold$ 3,706 $ 1,404 $ 2,302 164 % New vehicle gross margin 10.9 % 4.7 % 6.2 %
Domestic:
Gross profit per new vehicle sold$ 4,758 $ 2,778 $ 1,980 71 % New vehicle gross margin 9.7 % 6.4 % 3.3 % New vehicle revenue increased by$171.6 million (18%) due to a$162.2 million (47%) increase in luxury brands revenue, a$45.0 million (11%) increase in import brands revenue partially offset by a$35.6 million (18%) decrease in domestic brands revenue. Luxury brand revenue benefited from the acquisition of the Park Place Dealership group which occurred during the third quarter of 2020. The 18% increase in new vehicle revenue is the result of a 1% increase in new vehicle units sold and a 17% increase in revenue per new vehicle sold. Same store new vehicle revenue increased by$44.8 million (5%) due to a$36.8 million (11%) increase in luxury brands revenue, a$38.2 million (9%) increase in import brands revenue partially offset by a$30.2 million (16%) decrease in domestic brands revenue. New vehicle gross profit increased by$65.4 million (108%) for the three months endedSeptember 30, 2021 and same store new vehicle gross profit increased$49.3 million (83%) over the same period. Same store new vehicle gross profit margin for the three months endedSeptember 30, 2021 increased 470 basis points to 11.0%. The increase in our same store gross profit margin was primarily attributable to our efforts to focus on optimizing margin as new inventory levels declined as a result of manufacturer production disruptions. We ended the quarter with approximately 12 days of supply of new vehicle inventory, well below our target range of 70-75 days. Our new vehicle inventory levels have been negatively impacted by production disruptions at the manufacturers caused primarily by the semiconductor chip shortage. 32 --------------------------------------------------------------------------------
Table of Contents
Used Vehicle-
For the Three Months Ended September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions, except for per vehicle data)
As Reported:
Revenue:
Used vehicle retail revenue $ 823.7 $ 507.4 $ 316.3 62 %
Used vehicle wholesale revenue 55.3 62.1 (6.8) (11) %
Used vehicle revenue $ 879.0 $ 569.5 $ 309.5 54 %
Gross profit:
Used vehicle retail gross profit $ 68.7 $ 43.3 $ 25.4 59 %
Used vehicle wholesale gross profit 3.5 5.9 (2.4) (41) %
Used vehicle gross profit $ 72.2 $ 49.2 $ 23.0 47 %
Used vehicle retail units:
Used vehicle retail units 27,761 20,464 7,297 36 %
Same Store:
Revenue:
Used vehicle retail revenue $ 728.2 $ 496.1 $ 232.1 47 %
Used vehicle wholesale revenue 38.4 61.4 (23.0) (37) %
Used vehicle revenue $ 766.6 $ 557.5 $ 209.1 38 %
Gross profit:
Used vehicle retail gross profit $ 61.1 $ 42.2 $ 18.9 45 %
Used vehicle wholesale gross profit 2.6 5.9 (3.3) (56) %
Used vehicle gross profit $ 63.7 $ 48.1 $ 15.6 32 %
Used vehicle retail units:
Used vehicle retail units 25,442 20,050 5,392 27 %
Used Vehicle Metrics-
For the Three Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
As Reported:
Revenue per used vehicle retailed $ 29,671 $ 24,795 $ 4,876 20 %
Gross profit per used vehicle retailed $ 2,475 $ 2,116 $ 359 17 %
Used vehicle retail gross margin 8.3 % 8.5 % (0.2) %
Same Store:
Revenue per used vehicle retailed $ 28,622 $ 24,743 $ 3,879 16 %
Gross profit per used vehicle retailed $ 2,402 $ 2,105 $ 297 14 %
Used vehicle retail gross margin 8.4 % 8.5 % (0.1) %
Used vehicle revenue increased by $309.5 million (54%) due to a $316.3 million
(62%) increase in used vehicle retail revenue partially offset by a $6.8 million
(11%) decrease in used vehicle wholesale revenue. Same store used vehicle
revenue increased by $209.1 million (38%) due to a $232.1 million (47%) increase
in used vehicle retail revenue, partially offset a $23.0 million (37%) decrease
in used vehicle wholesale revenue. Total used vehicle retail unit sales
increased by 36% while same store retail used vehicle unit sales increased by
27% during the three months ended September 30, 2021 as compared to the three
months ended September 30, 2020 . Used vehicle revenues and unit sales benefited
from the decline in new vehicle inventory availability during the third quarter
of 2021.
33
--------------------------------------------------------------------------------
Table of Contents
For the three months ended September 30, 2021 , total Company and same store used
vehicle retail gross profit margins decreased by 20 basis points and 10 basis
points, respectively, as compared to the prior year quarter. The Company's
wholesale revenue and gross profit declined as a result of our efforts to retail
more used units due to the new vehicle supply shortage.
Our 28 days of supply of used vehicle inventory as of September 30, 2021 , is
slightly below our historic targeted range of 30 to 35 days.
Parts and Service-
For the Three Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions)
As Reported:
Parts and service revenue $ 297.1 $ 237.2 $ 59.9 25 %
Parts and service gross profit:
Customer pay 109.3 84.0 25.3 30 %
Warranty 23.7 25.7 (2.0) (8) %
Wholesale parts 8.7 5.8 2.9 50 %Parts and service gross profit, excluding reconditioning and preparation
$ 141.7 $ 115.5 $ 26.2 23 %
Parts and service gross margin, excluding reconditioning and preparation
47.7 % 48.7 % (1.0) %
Reconditioning and preparation * $ 39.7 $ 29.8 $ 9.9 33 %
Total parts and service gross profit $ 181.4 $ 145.3 $ 36.1 25 %
Same Store:
Parts and service revenue $ 256.0 $ 232.5 $ 23.5 10 %
Parts and service gross profit:
Customer pay 92.5 82.3 10.2 12 %
Warranty 19.7 25.0 (5.3) (21) %
Wholesale parts 7.7 5.7 2.0 35 %Parts and service gross profit, excluding reconditioning and preparation
$ 119.9 $ 113.0 $ 6.9 6 %
Parts and service gross margin, excluding reconditioning and preparation
46.8 % 48.6 % (1.8) %
Reconditioning and preparation * $ 36.0 $ 29.2 $ 6.8 23 %
Total parts and service gross profit $ 155.9 $ 142.2 $ 13.7 10 %
* Reconditioning and preparation represents the gross profit earned by our parts
and service departments for internal work performed and is included as a
reduction of Parts and Service Cost of Sales in the accompanying Condensed
Consolidated Statements of Income upon the sale of the vehicle.
The $59.9 million (25%) increase in parts and service revenue was due to an
$47.7 million (30%) increase in customer pay revenue, a $14.9 million (47%)
increase in wholesale parts revenue partially offset by a $2.7 million (6%)
decrease in warranty revenue. Same store parts and service revenue increased by
$23.5 million (10%) to $256.0 million during the three months ended
September 30, 2021 from $232.5 million during the three months ended
September 30, 2020 . The increase in same store parts and service revenue was due
to a $20.7 million (13%) increase in customer pay revenue, a $11.1 million (35%)
increase in wholesale parts revenue partially offset by a $8.3 million (18%)
increase in warranty revenue.
During the three months ended September 30, 2021 , parts and service gross
profit, excluding reconditioning and preparation, increased by $26.2 million
(23%) to $141.7 million and same store parts and service gross profit, excluding
reconditioning and preparation, increased by $6.9 million (6%) to $119.9
million . We attribute much of this increase to consumer driving habits returning
to pre-pandemic levels. We continue to focus on increasing our customer pay
parts and service revenue over the long-term by upgrading equipment, improving
the customer experience, providing competitive benefits to our technicians and
capitalizing on our dealership training programs.
34
--------------------------------------------------------------------------------
Table of Contents
Finance and Insurance, net-
For the Three Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions, except for per vehicle data)
As Reported:
Finance and insurance, net $ 100.4 $ 80.8 $ 19.6 24 %
Finance and insurance, net per vehicle sold $ 1,912 $ 1,795 $ 117 7 %
Same Store:
Finance and insurance, net $ 93.8 $ 79.7 $ 14.1 18 %
Finance and insurance, net per vehicle sold $ 1,955 $ 1,800 $ 155 9 %
F&I, net revenue increased by $19.6 million (24%) during the third quarter of
2021 as compared to the third quarter of 2020 and same store F&I, net revenue
increased by $14.1 million (18%) over the same period. We attribute the increase
in all stores' F&I, net revenue to a 17% increase in total retail units sold and
a 7% improvement in F&I PVR.
Selling, General, and Administrative Expense-
For the Three Months Ended September 30, % of Gross
% of Gross % of Gross Increase Profit Increase
2021 Profit 2020 Profit (Decrease) (Decrease)
(Dollars in millions)
As Reported:
Personnel costs $ 133.9 27.9 % $ 106.5 31.7 % $ 27.4 (3.8) %
Sales compensation 48.6 10.1 % 32.4 9.6 % 16.2 0.5 %
Share-based compensation 3.8 0.8 % 2.6 0.8 % 1.2 - %
Outside services 30.9 6.4 % 21.9 6.5 % 9.0 (0.1) %
Advertising 7.4 1.5 % 6.3 1.9 % 1.1 (0.4) %
Rent 8.3 1.7 % 8.1 2.4 % 0.2 (0.7) %
Utilities 5.0 1.0 % 4.2 1.3 % 0.8 (0.3) %
Insurance 3.3 0.7 % 3.3 1.0 % - (0.3) %
Other 27.5 5.9 % 21.2 6.3 % 6.3 (0.4) %
Selling, general, and administrative
expense $ 268.7 56.0 % $ 206.5 61.5 % $ 62.2 (5.5) %
Gross profit $ 480.0 $ 335.9
Same Store:
Personnel costs $ 118.5 28.1 % $ 104.7 31.8 % $ 13.8 (3.7) %
Sales compensation 44.0 10.4 % 31.9 9.7 % 12.1 0.7 %
Share-based compensation 3.8 0.9 % 2.7 0.8 % 1.1 0.1 %
Outside services 27.6 6.5 % 21.4 6.5 % 6.2 - %
Advertising 6.9 1.6 % 6.0 1.8 % 0.9 (0.2) %
Rent 8.2 1.9 % 8.0 2.4 % 0.2 (0.5) %
Utilities 4.4 1.0 % 4.1 1.2 % 0.3 (0.2) %
Insurance 2.4 0.6 % 3.1 0.9 % (0.7) (0.3) %
Other 23.8 5.8 % 20.7 6.5 % 3.1 (0.7) %
Selling, general, and administrative
expense $ 239.6 56.8 % $ 202.6 61.6 % $ 37.0 (4.8) %
Gross profit $ 421.8 $ 329.1
SG&A expense as a percentage of gross profit decreased 550 basis points from
61.5% for the third quarter of 2020 to 56.0% for the third quarter of 2021. Same
store SG&A expense as a percentage of gross profit decreased 480 basis points,
from 61.6% for the third quarter of 2020 to 56.8% over the same period in 2021.
The decrease in SG&A expense as a percentage of gross
35
--------------------------------------------------------------------------------
Table of Contents
profit is primarily the result of higher gross profits on new and used vehicle
sales. On a same store basis our personnel costs decreased by 370 basis points
as a percentage of gross profit in the third quarter of 2021 as compared to the
same quarter in the prior year. The Company has also focused on retaining the
efficiencies and productivity gained during the COVID-19 downturn and has been
judicious with adding headcount. Sales compensation as a percentage of gross
profit increased on both a total and same store basis for the three months ended
September 30, 2021 as compared to the three months ended September 30, 2020 , due
to increased commission expense as a result of our profitability. During the
three months ended September 30, 2021 and 2020 the Company incurred $3.5 million
and $1.3 million , respectively, in professional fees related to acquisitions.
Other Operating (Income) Expense, net -
Other operating expense (income), net includes gains and losses from the sale of
property and equipment, and other operating items not considered core to our
business. During the three months ended September 30, 2020 , we recorded an
impairment charge of $0.7 million related to property and equipment reflected in
Assets held for sale included in the Condensed Consolidated Balance Sheet as of
September 30, 2020 .
Floor Plan Interest Expense -
Floor plan interest expense decreased by $1.5 million (50%) to $1.5
million during the three months ended September 30, 2021 as compared to $3.0
million for the three months ended September 30, 2020 , primarily due to lower
average new vehicle inventory levels.
Other Interest Expense, net -
The $1.9 million (15%) increase in other interest expense, net is primarily the
result of higher average outstanding debt during the three months ended
September 30, 2021 due to the $250.0 million September 2020 offering of the
Senior Notes and the 2021 Bank of America Real Estate Facility as compared to
the same period in the prior year.
Gain on Dealership Divestitures, net-
During the three months ended September 30, 2021 , we sold one franchise (one
dealership location) in the Charlottesville, Virginia market and recorded a
pre-tax gain of $8.0 million .
During the three months ended September 30, 2020 we sold one franchise (one
dealership location) in the Greenville, South Carolina market and recorded a
pre-tax gain of $24.7 million .
Income Tax Expense -
The $14.0 million (44%) increase in income tax expense was primarily the result
of a $64.8 million (51%) increase in income before income taxes. Our effective
tax rate for the three months ended September 30, 2021 was 23.7% compared to
24.8% in the prior comparative period. We expect our effective tax rate for 2021
to be around 25%.
36
--------------------------------------------------------------------------------
Table of Contents
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September
30, 2020
For the Nine Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions, except per share data)
REVENUE:
New vehicle $ 3,649.6 $ 2,541.8 $ 1,107.8 44 %
Used vehicle 2,386.1 1,510.2 875.9 58 %
Parts and service 851.5 628.0 223.5 36 %
Finance and insurance, net 295.7 217.8 77.9 36 %
TOTAL REVENUE 7,182.9 4,897.8 2,285.1 47 %
GROSS PROFIT:
New vehicle 325.6 135.6 190.0 140 %
Used vehicle 211.5 117.0 94.5 81 %
Parts and service 527.1 380.7 146.4 38 %
Finance and insurance, net 295.7 217.8 77.9 36 %
TOTAL GROSS PROFIT 1,359.9 851.1 508.8 60 %
OPERATING EXPENSES:
Selling, general, and administrative 778.2 553.4 224.8 41 %
Depreciation and amortization 30.6 29.0 1.6 6 %
Franchise rights impairment - 23.0 (23.0) (100) %
Other operating (income) expense, net (4.6) 9.4 (14.0) (149) %
INCOME FROM OPERATIONS 555.7 236.3 319.4 135 %
OTHER EXPENSES:
Floor plan interest expense 6.5 14.1 (7.6) (54) %
Other interest expense, net 43.2 41.7 1.5 4 %
Loss on extinguishment of long-term debt - 20.6 (20.6) (100) %
Gain on dealership divestitures, net (8.0) (58.4) 50.4 86 %
Total other expenses, net 41.7 18.0 23.7 132 %
INCOME BEFORE INCOME TAXES 514.0 218.3 295.7 135 %
Income tax expense 122.1 53.0 69.1 130 %
NET INCOME $ 391.9 $ 165.3 $ 226.6 137 %
Net income per share-Diluted $ 20.10 $ 8.56 $ 11.54 135 %
37--------------------------------------------------------------------------------
Table of Contents
For the Nine Months Ended September
30,
2021 2020
REVENUE MIX PERCENTAGES:
New vehicle 50.8 % 51.9 %
Used vehicle retail 30.5 % 28.0 %
Used vehicle wholesale 2.7 % 2.9 %
Parts and service 11.9 % 12.8 %
Finance and insurance, net 4.1 % 4.4 %
Total revenue 100.0 % 100.0 %
GROSS PROFIT MIX PERCENTAGES:
New vehicle 23.9 % 15.9 %
Used vehicle retail 14.0 % 12.5 %
Used vehicle wholesale 1.6 % 1.3 %
Parts and service 38.8 % 44.7 %
Finance and insurance, net 21.7 % 25.6 %
Total gross profit 100.0 % 100.0 %
GROSS PROFIT MARGIN 18.9 % 17.4 %
SG&A EXPENSE AS A PERCENTAGE OF GROSS PROFIT 57.2 % 65.0 %
Total revenue for the nine months ended September 30, 2021 increased by $2.29
billion (47%) compared to the nine months ended September 30, 2020 , due to a
$1.11 billion (44%) increase in new vehicle revenue, a $875.9 million (58%)
increase in used vehicle revenue, a $223.5 million (36%) increase in parts and
service revenue and a $77.9 million (36%) increase in F&I, net revenue. The
$508.8 million (60%) increase in gross profit during the nine months ended
September 30, 2021 was driven by a $190.0 million (140%) increase in new vehicle
gross profit, a $146.4 million (38%) increase in parts and service gross profit,
a $94.5 million (81%) increase in used vehicle gross profit and a $77.9 million
(36%) increase in F&I, net gross profit.
Income from operations during the nine months ended September 30, 2021 increased
by $319.4 million (135%), compared to the nine months ended September 30, 2020 ,
due to the $508.8 million (60%) increase in gross profit, a $23.0 million
franchise right impairment charge recorded in 2020, a $14.0 million (149%)
decrease in other operating expense, net, partially offset by a $224.8 million
(41%) increase in SG&A expense and a $1.6 million (6%) increase in depreciation
and amortization expense.
Total other expenses, net increased by $23.7 million (132%), primarily as a
result of a $50.4 million decrease in the gain on dealership divestitures, net
during the first nine months of 2021 when compared to the first nine months of
2020 and a $1.5 million (4%) increase in other interest expense, net partially
offset by a $7.6 million (54%) decrease in floor plan interest expense and no
loss on extinguishment of debt. Income before income taxes increased $295.7
million to $514.0 million for the nine months ended September 30, 2021 . Overall,
net income increased by $226.6 million (137%) during the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 .
38
--------------------------------------------------------------------------------
Table of Contents
New Vehicle-
For the Nine Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions, except for per vehicle data)
As Reported:
Revenue:
Luxury $ 1,634.3 $ 865.9 $ 768.4 89 %
Import 1,454.5 1,114.1 340.4 31 %
Domestic 560.8 561.8 (1.0) - %
Total new vehicle revenue $ 3,649.6 $ 2,541.8 $ 1,107.8 44 %
Gross profit:
Luxury $ 166.8 $ 62.1 $ 104.7 169 %
Import 112.2 42.5 69.7 164 %
Domestic 46.6 31.0 15.6 50 %
Total new vehicle gross profit $ 325.6 $ 135.6 $ 190.0 140 %
New vehicle units:
Luxury 26,568 15,508 11,060 71 %
Import 45,125 37,886 7,239 19 %
Domestic 12,054 13,198 (1,144) (9) %
Total new vehicle units 83,747 66,592 17,155 26 %
Same Store:
Revenue:
Luxury $ 1,064.8 $ 829.8 $ 235.0 28 %
Import 1,443.6 1,098.3 345.3 31 %
Domestic 556.0 532.7 23.3 4 %
Total new vehicle revenue $ 3,064.4 $ 2,460.8 $ 603.6 25 %
Gross profit:
Luxury $ 103.2 $ 59.3 $ 43.9 74 %
Import 111.4 42.3 69.1 163 %
Domestic 46.3 29.3 17.0 58 %
Total new vehicle gross profit $ 260.9 $ 130.9 $ 130.0 99 %
New vehicle units:
Luxury 17,795 14,851 2,944 20 %
Import 44,885 37,383 7,502 20 %
Domestic 11,953 12,558 (605) (5) %
Total new vehicle units 74,633 64,792 9,841 15 %
39
--------------------------------------------------------------------------------
Table of Contents
New Vehicle Metrics-
For the Nine Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
As Reported:
Revenue per new vehicle sold $ 43,579 $ 38,170 $ 5,409 14 %
Gross profit per new vehicle sold $ 3,888 $ 2,036 $ 1,852 91 %
New vehicle gross margin 8.9 % 5.3 % 3.6 %
Luxury:
Gross profit per new vehicle sold$ 6,278 $ 4,004 $ 2,274 57 % New vehicle gross margin 10.2 % 7.2 % 3.0 %
Import:
Gross profit per new vehicle sold$ 2,486 $ 1,122 $ 1,364 122 % New vehicle gross margin 7.7 % 3.8 % 3.9 %
Domestic:
Gross profit per new vehicle sold$ 3,866 $ 2,349 $ 1,517 65 % New vehicle gross margin 8.3 % 5.5 % 2.8 % Same Store: Revenue per new vehicle sold$ 41,060 $ 37,980 $ 3,080 8 % Gross profit per new vehicle sold$ 3,496 $ 2,020 $ 1,476 73 % New vehicle gross margin 8.5 % 5.3 % 3.2 %
Luxury:
Gross profit per new vehicle sold$ 5,799 $ 3,993 $ 1,806 45 % New vehicle gross margin 9.7 % 7.1 % 2.6 %
Import:
Gross profit per new vehicle sold$ 2,482 $ 1,132 $ 1,350 119 % New vehicle gross margin 7.7 % 3.9 % 3.8 %
Domestic:
Gross profit per new vehicle sold$ 3,874 $ 2,333 $ 1,541 66 % New vehicle gross margin 8.3 % 5.5 % 2.8 % For the nine months endedSeptember 30, 2021 , new vehicle revenue increased by$1.11 billion (44%) as a result of a 26% increase in new vehicle units sold and a 14% increase in revenue per new vehicle sold. For the nine months endedSeptember 30, 2021 , same store new vehicle revenue increased by$603.6 million (25%) as the result of a 15% increase in new vehicle units sold and a 8% increase in revenue per unit sold. For the nine months endedSeptember 30, 2021 , new vehicle gross profit and same store new vehicle gross profit increased by$190.0 million (140%) and$130.0 million (99%), respectively. Same store new vehicle gross margin for the nine months endedSeptember 30, 2021 improved 320 basis points to 8.5%. The seasonally adjusted annual rate ("SAAR") of new vehicle sales in theU.S. during the nine months endedSeptember 30, 2021 was 15.8 million compared to 14.0 million during the nine months endedSeptember 30, 2020 , a 13% increase. The Company experienced continued strength in new vehicle sales for the nine months endedSeptember 30, 2021 , building on the new vehicle sales recovery in the latter part of 2020. The increase in new vehicle sales revenue for the nine months endedSeptember 30, 2021 over the same period in the prior year is also attributable to the acquisition of thePark Place Dealership Group inAugust 2020 and a significant decline in new vehicle sales duringApril 2020 as a result of the COVID-19 pandemic. On a same store basis, we experienced an increase in gross profit margin across all three of our new vehicle categories which we largely attribute to the scarcity of new vehicle inventory as a result of manufacturer production challenges arising from the semiconductor chip shortage. 40 --------------------------------------------------------------------------------
Table of Contents
Used Vehicle-
For the Nine Months Ended September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions, except for per vehicle data)
As Reported:
Revenue:
Used vehicle retail revenue $ 2,190.6 $ 1,366.0 $ 824.6 60 %
Used vehicle wholesale revenue 195.5 144.2 51.3 36 %
Used vehicle revenue $ 2,386.1 $ 1,510.2 $ 875.9 58 %
Gross profit:
Used vehicle retail gross profit $ 189.7 $ 106.1 $ 83.6 79 %
Used vehicle wholesale gross profit 21.8 10.9 10.9 100 %
Used vehicle gross profit $ 211.5 $ 117.0 $ 94.5 81 %
Used vehicle retail units:
Used vehicle retail units 78,136 59,151 18,985 32 %
Same Store:
Revenue:
Used vehicle retail revenue $ 1,837.1 $ 1,311.7 $ 525.4 40 %
Used vehicle wholesale revenue 127.9 140.4 (12.5) (9) %
Used vehicle revenue $ 1,965.0 $ 1,452.1 $ 512.9 35 %
Gross profit:
Used vehicle retail gross profit $ 162.1 $ 102.7 $ 59.4 58 %
Used vehicle wholesale gross profit 15.3 11.0 4.3 39 %
Used vehicle gross profit $ 177.4 $ 113.7 $ 63.7 56 %
Used vehicle retail units:
Used vehicle retail units 69,250 56,884 12,366 22 %
41
--------------------------------------------------------------------------------
Table of Contents
Used Vehicle Metrics-
For the Nine Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
As Reported:
Revenue per used vehicle retailed $ 28,036 $ 23,093 $ 4,943 21 %
Gross profit per used vehicle retailed $ 2,428 $ 1,794 $ 634 35 %
Used vehicle retail gross margin 8.7 % 7.8 % 0.9 %
Same Store:
Revenue per used vehicle retailed $ 26,529 $ 23,059 $ 3,470 15 %
Gross profit per used vehicle retailed $ 2,341 $ 1,805 $ 536 30 %
Used vehicle retail gross margin 8.8 % 7.8 % 1.0 %
Used vehicle revenue increased by $875.9 million (58%) due to a $824.6 million
(60%) increase in used vehicle retail revenue, and a $51.3 million (36%)
increase in used vehicle wholesale revenue. Same store used vehicle revenue
increased by $512.9 million (35%) due to a $525.4 million (40%) increase in used
vehicle retail revenue partially offset by a $12.5 million (9%) decrease in used
vehicle wholesale revenues.
For the nine months ended September 30, 2021 , gross profit margins increased by
90 basis points to 8.7%. Due to the new vehicle inventory shortages that have
arisen due to manufacturer challenges, we continue to see an increased demand
for used vehicles. Used vehicle gross profit increased for the nine months ended
September 30, 2021 by $94.5 million (81%) on an all store basis and $63.7
million (56%) on a same store basis as compared to the nine months ended
September 30, 2020 .
42--------------------------------------------------------------------------------
Table of Contents
Parts and Service-
For the Nine Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions)
As Reported:
Parts and service revenue $ 851.5 $ 628.0 $ 223.5 36 %
Parts and service gross profit:
Customer pay 313.2 216.1 97.1 45 %
Warranty 74.8 65.7 9.1 14 %
Wholesale parts 23.7 15.6 8.1 52 %Parts and service gross profit, excluding reconditioning and preparation
$ 411.7 $ 297.4 $ 114.3 38 %
Parts and service gross margin, excluding reconditioning and preparation
48.3 % 47.4 % 0.9 %
Reconditioning and preparation * $ 115.4 $ 83.3 $ 32.1 39 %
Total parts and service gross profit $ 527.1 $ 380.7 $ 146.4 38 %
Same Store:
Parts and service revenue $ 700.0 $ 607.9 $ 92.1 15 %
Parts and service gross profit:
Customer pay 252.5 209.4 43.1 21 %
Warranty 57.9 63.3 (5.4) (9) %
Wholesale parts 20.1 15.1 5.0 33 %Parts and service gross profit, excluding reconditioning and preparation
$ 330.5 $ 287.8 $ 42.7 15 %
Parts and service gross margin, excluding reconditioning and preparation
47.2 % 47.3 % (0.1) %
Reconditioning and preparation * $ 100.8 $ 80.5 $ 20.3 25 %
Total parts and service gross profit $ 431.3 $ 368.3 $ 63.0 17 %
* Reconditioning and preparation represents the gross profit earned by our parts
and service departments for internal work performed is included as a reduction
of Parts and Service Cost of Sales in the accompanying Condensed Consolidated
Statements of Income upon the sale of the vehicle.
The $223.5 million (36%) increase in parts and service revenue was primarily due
to a $168.1 million (40%) increase in customer pay revenue, a $40.8 million
(47%) increase in wholesale parts revenue and a $14.6 million (12%) increase in
warranty revenue. Same store parts and service revenue increased by $92.1
million (15%) from $607.9 million for the nine months ended September 30, 2020
to $700.0 million for the nine months ended September 30, 2021 . The increase in
same store parts and service revenue was due to a $72.9 million (18%) increase
in customer pay revenue, a $28.8 million (34%) increase in wholesale parts
revenue partially offset by a $9.6 million (8%) decrease in warranty revenue.
Parts and service gross profit, excluding reconditioning and preparation,
increased by $114.3 million (38%) to $411.7 million , and same store gross
profit, excluding reconditioning and preparation, increased by $42.7 million
(15%) to $330.5 million . The parts and service business was negatively impacted
by "shelter in place" orders issued in response to the COVID-19 pandemic in 2020
but has since returned to pre-pandemic levels.
43--------------------------------------------------------------------------------
Table of Contents
Finance and Insurance, net-
For the Nine Months Ended
September 30, Increase %
2021 2020 (Decrease) Change
(Dollars in millions, except for per vehicle data)
As Reported:
Finance and insurance, net $ 295.7 $ 217.8 $ 77.9 36 %
Finance and insurance, net per vehicle sold $ 1,827 $ 1,732 $ 95 5 %
Same Store:
Finance and insurance, net $ 271.6 $ 212.2 $ 59.4 28 %
Finance and insurance, net per vehicle sold $ 1,888 $ 1,744 $ 144 8 %
F&I revenue, net increased $77.9 million (36%) during the nine months ended
September 30, 2021 when compared to the nine months ended September 30, 2020 ,
and same store F&I revenue, net increased by $59.4 million (28%) over the same
period. F&I revenue, net increased as a result of the increase in new and used
retail unit sales for the nine months ended September 30, 2021 as compared to
the nine months ended September 30, 2020 . For the nine months ended
September 30, 2021 , the Company was able to improve the F&I PVR by $95 per unit
(5%) over the comparable prior year period.
44
--------------------------------------------------------------------------------
Table of Contents
Selling, General, and Administrative Expense-
For the Nine Months Ended September 30, % of Gross
% of Gross % of Gross Increase Profit Increase
2021 Profit 2020 Profit (Decrease) (Decrease)
(Dollars in millions)
As Reported:
Personnel costs $ 383.5 28.2 % $ 273.3 32.1 % $ 110.2 (3.9) %
Sales compensation 137.6 10.1 % 84.6 9.9 % 53.0 0.2 %
Share-based compensation 12.2 0.9 % 9.2 1.1 % 3.0 (0.2) %
Outside services 81.1 6.0 % 60.3 7.1 % 20.8 (1.1) %
Advertising 24.0 1.8 % 17.9 2.1 % 6.1 (0.3) %
Rent 28.7 2.1 % 20.8 2.4 % 7.9 (0.3) %
Utilities 13.8 1.0 % 11.6 1.4 % 2.2 (0.4) %
Insurance 16.8 1.2 % 12.0 1.4 % 4.8 (0.2) %
Other 80.5 5.9 % 63.7 7.5 % 16.8 (1.6) %
Selling, general, and administrative
expense $ 778.2 57.2 % $ 553.4 65.0 % $ 224.8 (7.8) %
Gross profit $ 1,359.9 $ 851.1
Same Store:
Personnel costs $ 323.9 28.4 % $ 265.1 32.1 % $ 58.8 (3.7) %
Sales compensation 120.2 10.5 % 81.8 9.9 % 38.4 0.6 %
Share-based compensation 12.2 1.1 % 9.3 1.1 % 2.9 - %
Outside services 68.5 6.0 % 58.1 7.0 % 10.4 (1.0) %
Advertising 20.9 1.8 % 16.7 2.0 % 4.2 (0.2) %
Rent 28.2 2.5 % 20.6 2.5 % 7.6 - %
Utilities 11.5 1.0 % 11.1 1.3 % 0.4 (0.3) %
Insurance 13.2 1.2 % 11.1 1.3 % 2.1 (0.1) %
Other $ 66.1 5.7 % $ 62.1 7.7 % 4.0 (2.0) %
Selling, general, and administrative
expense $ 664.7 58.2 % $ 535.9 64.9 % $ 128.8 (6.7) %
Gross profit $ 1,141.2 $ 825.1
SG&A expense as a percentage of gross profit decreased 780 basis points from
65.0% for the nine months ended September 30, 2020 to 57.2% for the nine months
ended September 30, 2021 , while same store SG&A expense as a percentage of gross
profit decreased 670 basis points to 58.2% over the same period. The decrease in
SG&A as a percentage of gross profit during the nine months ended September 30,
2021 , is primarily the result of higher sales volume and gross profits earned on
new and used vehicle sales. On an as-reported basis, Personnel costs and Sales
compensation increased by $110.2 million and $53.0 million , respectively, for
the nine months ended September 30, 2021 as compared to the nine months ended
September 30, 2020 , primarily due to the inclusion of the Park Place acquisition
in year-to-date 2021 results. We also attribute the increase to higher sales
commissions related to the increase in gross profit earned during the nine
months ended September 30, 2021 .
Franchise Rights Impairment-
During the nine months ended September 30, 2020 , we recorded a franchise rights
impairment charge of $23.0 million . As a result of the COVID-19 pandemic, we
performed a quantitative impairment analysis of certain franchise rights assets
and determined that their carrying values exceeded their fair value by $23.0
million as of March 31, 2020 . We did not perform impairment testing related to
franchise rights for the nine months ended September 30, 2021 as no triggering
events had occurred.
Other Operating Expense, net-
Other operating expense, net includes gains and losses from the sale of property
and equipment, and other operating items not considered core to our business.
During the nine months ended September 30, 2021 , the Company recorded other
operating income, net of $4.6 million , primarily related to a $3.5 million gain
arising from legal settlements and a $1.9 million gain on divestitures of
certain real estate, partially offset by $1.3 million of real estate related
charges. Included in the $9.4 million of other operating expense, net for the
nine months ended September 30, 2020 , was an $11.6 million charge related to
certain
45
--------------------------------------------------------------------------------
Table of Contents
financing transactions related to, as well as the initial termination of, the
Park Place acquisition, partially offset by a $2.1 million gain related to legal
settlements and a $0.3 million gain related to the sale of vacant real estate.
Floor Plan Interest Expense-
Floor plan interest expense decreased by $7.6 million (54%) to $6.5 million
during the nine months ended September 30, 2021 compared to $14.1 million during
the nine months ended September 30, 2020 primarily as a result of lower new
vehicle inventory levels.
Loss on Extinguishment of Debt-
On March 4, 2020 , the Company redeemed its $600 million 6% Notes scheduled to
mature in 2024 at 103% of par, plus accrued and unpaid interest. We recorded a
loss on extinguishment of the 6% Notes of $19.1 million which comprised a
redemption premium of $18.0 million and the write-off of the unamortized premium
and debt issuance costs totaling $1.1 million , net.
As a result of the termination of the Asset Purchase Agreement (the "2019 Asset
Purchase Agreement"), dated as of December 11, 2019 , among the Company, Park
Place and the other parties thereto, the Company delivered a notice of special
mandatory redemption to holders of its $525.0 million aggregate principal amount
of Senior Notes due 2028 (the "Existing 2028 Notes") and $600.0 million
aggregate principal amount of Senior Notes due 2030 (the "Existing 2030 Notes")
pursuant to which it would redeem on a pro rata basis (1) $245.0 million of the
Existing 2028 Notes and (2) $280.0 million of the Existing 2030 Notes, in each
case, at 100% of the respective principal amount plus accrued and unpaid
interest to, but excluding the special mandatory redemption date. On March 30,
2020 , the Company completed the redemption and recorded a write-off of
unamortized debt issuance costs of $1.5 million .
Gain on Dealership Divestitures, net-
During the nine months ended September 30, 2021 , we sold one franchise (one
dealership location) in the Charlottesville, Virginia market and recorded a
pre-tax gain of $8.0 million .
During the nine months ended September 30, 2020 , we sold one franchise (one
dealership location) in the Atlanta, Georgia market, six franchises (five
dealership locations) and one collision center in the Jackson, Mississippi
market, and one franchise (one dealership location) in the Greenville, South
Carolina market. The Company recorded a net pre-tax gain totaling $58.4 million .
Income Tax Expense-
The $69.1 million increase in income tax expense was primarily the result of a
$295.7 million increase in income before income taxes. Our effective tax rate
for the nine months ended September 30, 2021 was 23.8% compared to 24.3% in the
prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2021 , we had total available liquidity of $776.6 million ,
which consisted of $330.6 million of cash and cash equivalents, $46.8 million of
available funds in our floor plan offset accounts, $190.0 million availability
under our new vehicle floor plan facility that is able to be converted to our
revolving credit facility, $49.2 million of availability under our revolving
credit facility, and $160.0 million of availability under our used vehicle
revolving floor plan facility. The borrowing capacities under our revolving
credit facility and our used vehicle revolving floor plan facility are limited
by borrowing base calculations and, from time to time, may be further limited by
our required compliance with customary operating and other restrictive
covenants. As of September 30, 2021 , these covenants did not further limit our
availability under our credit facilities. For more information on our covenants,
see "Covenants" and "Share Repurchases and Dividend Restrictions" below.
On September 28, 2021 , the Company entered into the Transaction Agreements to
acquire the Larry H. Miller family of dealerships including the associated real
estate and Total Care Auto, Powered by Landcar. In connection with entering into
the Transaction Agreements, the Company entered into a commitment letter, dated
September 28, 2021 (the "Commitment Letter"), with Bank of America, N.A ., BofA
Securities, Inc. and JPMorgan Chase Bank N.A . (collectively, the "Commitment
Parties"), pursuant to which, among other things, the Commitment Parties have
committed to provide debt financing for the Transactions, consisting of (i) a
$2.35 billion bridge loan (the "HY Bridge Facility"); and (ii) a $900.0 million
364-day bridge loan (the "364-Bridge Facility"), on the terms and subject to the
conditions set forth in the Commitment Letter. Each of the HY Bridge Facility
and 364-Day Bridge Facility is subject to reduction as set forth in the
Commitment Letter upon the completion of certain debt and equity financings, as
applicable, and upon other specified events. The obligation of the Commitment
Parties to provide this
46
--------------------------------------------------------------------------------
Table of Contents
debt financing is subject to a number of customary conditions, including,
without limitation, execution and delivery of certain definitive documentation.
We continually evaluate our liquidity and capital resources based upon (i) our
cash and cash equivalents on hand, (ii) the funds that we expect to generate
through future operations, (iii) current and expected borrowing availability,
(iv) amounts in our new vehicle floor plan notes payable offset accounts, and
(v) the potential impact of our capital allocation strategy and any contemplated
or pending future transactions, including, but not limited to, financings,
acquisitions, dispositions, equity and/or debt repurchases, dividends, or other
capital expenditures. We believe we will have sufficient liquidity to meet our
debt service and working capital requirements; commitments and contingencies;
debt repayment, maturity and repurchase obligations; acquisitions; capital
expenditures; and any operating requirements for at least the next twelve
months.
Material Indebtedness
We currently are party to the following material credit facilities and
agreements, and have the following material indebtedness outstanding. For a more
detailed description of the material terms of these agreements and facilities,
and this indebtedness, please refer to Note 13 "Debt" in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2020 .
•2019 Senior Credit Facility-On September 25, 2019 , the Company and certain of
its subsidiaries entered into the third amended and restated credit agreement
with Bank of America , as administrative agent, and the other lenders party
thereto (the "2019 Senior Credit Facility"). The 2019 Senior Credit Agreement
provides for the following:
Revolving Credit Facility-A $250.0 million Revolving Credit Facility for, among
other things, acquisitions, working capital and capital expenditures, including
a $50.0 million sub-limit for letters of credit. As described below, as of
September 30, 2021 , we converted $190.0 million of aggregate commitments from
the Revolving Credit Facility to our New Vehicle Floor Plan Facility, resulting
in $60.0 million of borrowing capacity. In addition, we had $10.8 million in
outstanding letters of credit as of September 30, 2021 , resulting in $49.2
million of borrowing availability as of September 30, 2021 .
New Vehicle Floor Plan Facility-A $1.04 billion New Vehicle Floor Plan Facility
which allows us to transfer cash as an offset to floor plan notes payable. These
transfers reduce the amount of outstanding new vehicle floor plan notes payable
that would otherwise accrue interest, while retaining the ability to transfer
amounts from the offset account into our operating cash accounts. As a result of
the use of our floor plan offset account and the reduction in LIBOR rates, we
experienced a reduction in Floor Plan Interest Expense on our Condensed
Consolidated Statements of Income. As of September 30, 2021 , we had $116.1
million outstanding under the New Vehicle Floor Plan Facility, which is net of
$45.2 million in our floor plan offset account.
Used Vehicle Floor Plan Facility-A $160.0 million Used Vehicle Floor Plan
Facility to finance the acquisition of used vehicle inventory and for, among
other things, working capital and capital expenditures, as well as to refinance
used vehicles. We began the year with nothing drawn on our used vehicle floor
plan facility and there was no activity during the nine months ended September
30, 2021 . Our borrowing capacity under the Used Vehicle Floor Plan Facility was
$160.0 million based on our borrowing base calculation as of September 30, 2021 .
Subject to compliance with certain conditions, the 2019 Senior Credit Agreement
provides that we have the ability, at our option and subject to the receipt of
additional commitments from existing or new lenders, to increase the size of the
facilities by up to $350.0 million in the aggregate without lender consent.
At our option, we have the ability to re-designate a portion of our availability
under the Revolving Credit Facility to the New Vehicle Floor Plan Facility or
the Used Vehicle Floor Plan Facility. The maximum amount we are allowed to
re-designate is determined based on aggregate commitments under the Revolving
Credit Facility, less $50.0 million . In addition, we are able to re-designate
any amounts moved to the New Vehicle Floor Plan Facility or the Used Vehicle
Floor Plan Facility back to the Revolving Credit Facility. On April 6, 2021 ,
$190.0 million of our availability under the Revolving Credit Facility was
re-designated to the New Vehicle Floor Plan Facility to take advantage of lower
commitment fee rates.
Borrowings under the 2019 Senior Credit Facility bear interest, at our option,
based on LIBOR or the Base Rate, in each case, plus an Applicable Rate. The Base
Rate is the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Bank of
America prime rate, and (iii) one month LIBOR plus 1.00%. Applicable Rate means
with respect to the Revolving Credit Facility, a range from 1.00% to 2.00% for
LIBOR loans and 0.15% to 1.00% for Base Rate loans, in each case based on the
Company's consolidated total lease adjusted leverage ratio. Borrowings under the
New Vehicle Floorplan Facility bear interest, at our option, based on LIBOR plus
1.10% or the Base Rate plus 0.10%. Borrowings
47
--------------------------------------------------------------------------------
Table of Contents
under the Used Vehicle Floorplan Facility bear interest, at our option, based on
LIBOR plus 1.40% or the Base Rate plus 0.40%.
In addition to the payment of interest on borrowings outstanding under the 2019
Senior Credit Facility, we are required to pay a quarterly commitment fee on
total unused commitments thereunder. The fee for unused commitments under the
Revolving Credit Facility is between 0.15% and 0.40% per year, based on the
Company's total lease adjusted leverage ratio, and the fee for unused
commitments under the New Vehicle Facility Floor Plan and the Used Vehicle
Facility Floor Plan Facility is 0.15% per year.
•Manufacturer affiliated new vehicle floor plan and other financing
facilities-We have a floor plan facility with the Ford Motor Credit Company
("Ford Credit") to purchase new Ford and Lincoln vehicle inventory. Our floor
plan facility with Ford Credit was amended in July 2020 and can be terminated by
either the Company or Ford Credit with a 30-day notice period. We have also
established a floor plan offset account with Ford Credit, which operates in a
similar manner to our floor plan offset account with Bank of America . As of
September 30, 2021 , we had $22.1 million , which is net of $1.6 million in our
floor plan offset account, outstanding under our floor plan facility.
Additionally, we had $129.8 million , outstanding under our 2019 Senior Credit
Facility and facilities with certain manufacturers for the financing of loaner
vehicles, which are presented within Accounts payable and accrued liabilities in
our Condensed Consolidated Balance Sheets. Neither our floor plan facility with
Ford Credit nor our facilities for loaner vehicles have stated borrowing
limitations.
•The New Senior Notes-On February 19, 2020 , the Company completed its offering
of senior unsecured notes, consisting of $525.0 million aggregate principal
amount of the Existing 2028 Notes and $600.0 million aggregate principal amount
of the Existing 2030 Notes. The Existing 2028 Notes and Existing 2030 Notes
mature on March 1, 2028 and March 1, 2030 , respectively.
On March 24, 2020 , the Company delivered notice to the sellers terminating the
2019 Asset Purchase Agreement and the Real Estate Purchase Agreement. As a
result, the Company redeemed $245.0 million aggregate principal million of the
Existing 2028 Notes and $280.0 million aggregate principal amount of the
Existing 2030 Notes pursuant to the Special Mandatory Redemption.
In September 2020 , the Company completed an add-on issuance of $250.0 million
aggregate principal amount of additional senior notes consisting of $125.0
million aggregate principal amount of additional Existing 2028 Notes at a price
of 101.0% of par, plus accrued interest from September 1, 2020 , and $125.0
million aggregate principal amount of additional Existing 2030 Notes (together
with the additional 2028 Notes, the "Additional Notes") at a price of 101.75% of
par, plus accrued interest from September 1, 2020 .
•Mortgage notes-As of September 30, 2021 , we had $73.1 million of mortgage note
obligations. These obligations are collateralized by the associated real estate
at our dealership locations.
•2013 BofA Real Estate Facility-On September 26, 2013 , we entered into a real
estate term loan credit agreement (the "2013 BofA Real Estate Credit Agreement")
with Bank of America, N.A . ("Bank of America "), as lender, providing for term
loans in an aggregate amount not to exceed $75.0 million , subject to customary
terms and conditions (the "2013 BofA Real Estate Facility"). As of September 30,
2021 , we had $31.7 million of outstanding borrowings under the 2013 BofA Real
Estate Facility. There is no further borrowing availability under this
agreement.
•2015 Wells Fargo Master Loan Facility-On February 3, 2015 , certain of our
subsidiaries entered into an amended and restated master loan agreement (the
"2015 Wells Fargo Master Loan Agreement") with Wells Fargo Bank, National
Association ("Wells Fargo"), as lender, which provides for term loans to certain
of our subsidiaries that are borrowers under the 2015 Wells Fargo Master Loan
Agreement in an aggregate amount not to exceed $100.0 million (the "2015 Wells
Fargo Master Loan Facility"). Borrowings under the 2015 Wells Fargo Master Loan
Facility are guaranteed by us and are collateralized by the real property
financed under the 2015 Wells Fargo Master Loan Facility. As of September 30,
2021 , the outstanding balance under this agreement was $54.5 million . There is
no further borrowing availability under this agreement.
•2018 Bank of America Facility-On November 13, 2018 , we entered into a real
estate term loan credit agreement (as amended, restated or supplemented from
time to time, the "2018 BofA Real Estate Credit Agreement") with Bank of
America , as lender, providing for term loans in an aggregate amount not to
exceed $128.1 million , subject to customary terms and conditions (the "2018 BofA
Real Estate Facility"). Our right to make draws under the 2018 BofA Real Estate
Facility terminated on November 13, 2019 . All of the real property financed by
an operating dealership subsidiary of the Company under the 2018 BofA Real
Estate Facility is collateralized by first priority liens, subject to
48
--------------------------------------------------------------------------------
Table of Contents
certain permitted exceptions. As of September 30, 2021 , we had $80.1 million of
outstanding borrowings under the 2018 Bank of America Facility .
•2018 Wells Fargo Master Loan Facility-On November 16, 2018 , certain of our
subsidiaries entered into a master loan agreement (the "2018 Wells Fargo Master
Loan Agreement") with Wells Fargo as lender, which provides for term loans to
certain of our subsidiaries that are borrowers under the 2018 Wells Fargo Master
Loan Agreement in an aggregate amount not to exceed $100.0 million (the "2018
Wells Fargo Master Loan Facility"). As of September 30, 2021 , we had $83.1
million , outstanding borrowings under the 2018 Wells Fargo Master Loan Facility.
There is no further borrowing availability under this agreement.
•2021 BofA Real Estate Facility-On May 20, 2021 , the Company and certain of its
subsidiaries borrowed $184.4 million under a real estate term loan credit
agreement, dated as of May 10, 2021 (the "2021 BofA Real Estate Credit
Agreement"), by the Company and certain of its subsidiaries, Bank of America,
N.A ., as administrative agent and the various financial institutions party
thereto, as lenders, which provides for term loans in an aggregate amount equal
to $184.4 million , subject to customary terms and conditions (the "2021 BofA
Real Estate Facility"). The Company used the proceeds from these borrowings to
finance the exercise of its option to purchase certain of the leased real
property related to the Park Place dealerships. The Company completed the
purchase of the leased real property on May 20, 2021 . As of September 30, 2021 ,
we had $182.5 million of outstanding borrowings under the 2021 BofA Real
Estate Facility. There is no further borrowing availability under this
agreement.
Term loans under our 2021 BofA Real Estate Facility bear interest, at our
option, based on (1) LIBOR plus 1.65% per annum or (2) the Base Rate (as
described below) plus 0.65% per annum. The Base Rate is the highest of (i) the
Federal Funds rate plus 0.50%, (ii) the Bank of America prime rate, and (iii)
one month LIBOR plus 1.0%. We will be required to make 39 consecutive quarterly
principal payments of 1.00% of the initial amount of each loan, with a balloon
repayment of the outstanding principal amount of loans due on the maturity date.
The 2021 BofA Real Estate Facility matures ten years from the initial funding
date. Borrowings under the 2021 BofA Real Estate Facility are guaranteed by us
and each of our operating dealership subsidiaries that leased the real estate
now financed under the 2021 BofA Real Estate Facility, and are collateralized by
first priority liens, subject to certain permitted exceptions, on all of the
real property financed thereunder.
The representations and covenants in the 2021 BofA Real Estate Credit Agreement
are customary for financing transactions of this nature, including, among
others, a requirement to comply with a minimum consolidated current ratio,
minimum consolidated fixed charge coverage ratio and maximum consolidated total
lease adjusted leverage ratio, in each case as set out in the 2021 BofA Real
Estate Credit Agreement. In addition, certain other covenants could restrict our
ability to incur additional debt, pay dividends or acquire or dispose of assets.
The 2021 BofA Real Estate Credit Agreement also provides for events of default
that are customary for financing transactions of this nature, including
cross-defaults to other material indebtedness. Upon the occurrence of an event
of default, we could be required by the 2021 BofA Real Estate Credit Agreement
to immediately repay all amounts outstanding thereunder.
Covenants
We are subject to a number of customary operating and other restrictive
covenants in our various debt and lease agreements. We were in compliance with
all of our covenants as of September 30, 2021 .
Share Repurchases and Dividend Restrictions
Our ability to repurchase shares or pay dividends on our common stock is subject
to our compliance with the covenants and restrictions in our various debt and
lease agreements.
Our 2019 Senior Credit Facility and our Indentures permit us to make an
unlimited amount of restricted payments, such as share repurchases or dividends,
so long as our Consolidated Total Leverage Ratio, as defined in those
agreements, does not exceed 3.0 to 1.0 on a pro forma basis after giving effect
to any proposed payments. As of September 30, 2021 , our Consolidated Total
Leverage Ratio did not exceed 3.0 to 1.0.
On January 27, 2021 , the Board of Directors increased the Company's share
repurchase authorization under our current share repurchase program (the
"Repurchase Program") by $33.7 million to $100 million , for the repurchase of
our common stock in open market transactions or privately negotiated
transactions from time to time. The extent to which the Company repurchases its
shares, the number of shares and the timing of any repurchases will depend on
general market conditions, legal requirements and other corporate
considerations. The repurchase program may be modified, suspended or terminated
at any time without prior notice.
49
--------------------------------------------------------------------------------
Table of Contents
During the nine months ended September 30, 2021 , we did not repurchase any
shares of our common stock under the Repurchase Program and had remaining
authorization to repurchase $100.0 million in shares of our common stock under
the Repurchase Program.
During the three and nine months ended September 30, 2021 , we repurchased 96 and
65,123 shares, of our common stock for $0.1 million and $10.3 million ,
respectively, from employees in connection with a net share settlement feature
of employee equity-based awards.
Cash Flows
Classification of Cash Flows Associated with Floor Plan Notes Payable
Borrowings and repayments of floor plan notes payable to a lender unaffiliated
with the manufacturer from which we purchase a particular new vehicle
("Non-Trade"), and all floor plan notes payable relating to used vehicles
(together referred to as "Floor Plan Notes Payable-Non-Trade"), are classified
as financing activities in the accompanying Condensed Consolidated Statements of
Cash Flows, with borrowings reflected separately from repayments. The net change
in floor plan notes payable to a lender affiliated with the manufacturer from
which we purchase a particular new vehicle (collectively referred to as "Floor
Plan Notes Payable-Trade") is classified as an operating activity in the
accompanying Condensed Consolidated Statements of Cash Flows. Borrowings of
floor plan notes payable associated with inventory acquired in connection with
all acquisitions and repayments made in connection with all divestitures are
classified as a financing activity in the accompanying Condensed Consolidated
Statements of Cash Flows. Cash flows related to floor plan notes payable
included in operating activities differ from cash flows related to floor plan
notes payable included in financing activities only to the extent that the
former are payable to a lender affiliated with the manufacturer from which we
purchased the related inventory, while the latter are payable to a lender not
affiliated with the manufacturer from which we purchased the related inventory.
The majority of our floor plan notes are payable to parties unaffiliated with
the entities from which we purchase our new vehicle inventory, with the
exception of floor plan notes payable relating to the financing of new Ford and
Lincoln vehicles.
Floor plan borrowings are required by all vehicle manufacturers for the purchase
of new vehicles, and all floor plan lenders require amounts borrowed for the
purchase of a vehicle to be repaid within a short time period after the related
vehicle is sold. As a result, we believe that it is important to understand the
relationship between the cash flows of all of our floor plan notes payable and
new vehicle inventory in order to understand our working capital and operating
cash flow and to be able to compare our operating cash flow to that of our
competitors (i.e., if our competitors have a different mix of trade and
non-trade floor plan financing as compared to us). In addition, we include all
floor plan borrowings and repayments in our internal operating cash flow
forecasts. As a result, we use the non-GAAP measure "cash provided by operating
activities, as adjusted" (defined below) to compare our results to forecasts. We
believe that splitting the cash flows of floor plan notes payable between
operating activities and financing activities, while all new vehicle inventory
activity is included in operating activities, results in significantly different
operating cash flow than if all the cash flows of floor plan notes payable were
classified together in operating activities.
Cash provided by operating activities, as adjusted, includes borrowings and
repayments of floor plan notes payable to lenders not affiliated with the
manufacturer from which we purchase the related new vehicles. Cash provided by
operating activities, as adjusted, has material limitations, and therefore, may
not be comparable to similarly titled measures of other companies and should not
be considered in isolation, or as a substitute for analysis of our operating
results in accordance with GAAP. In order to compensate for these potential
limitations we also review the related GAAP measures.
We have provided below a reconciliation of cash flow from operating activities,
as if all changes in floor plan notes payable, except for (i) borrowings
associated with acquisitions and repayments associated with divestitures and
(ii) borrowings and repayments associated with the purchase of used vehicle
inventory, were classified as an operating activity.
For the Nine Months Ended
September 30,
2021 2020
(In millions)
Reconciliation of Cash provided by operating activities to Cash provided by
operating activities, as adjusted
Cash provided by operating activities, as reported $ 958.6 $ 625.2
New vehicle floor plan repayments -non-trade, net (520.7) (207.4)
Cash provided by operating activities, as adjusted $ 437.9 $ 417.8
50-------------------------------------------------------------------------------- Table of Contents Operating Activities- Net cash provided by operating activities totaled$958.6 million and$625.2 million , for the nine months endedSeptember 30, 2021 and 2020, respectively. Net cash provided by operating activities, as adjusted, totaled$437.9 million and$417.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The$20.1 million increase in our net cash provided by operating activities, as adjusted, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily the result of a$226.6 million increase in net income and increase of$24.0 million related to the lower balances of accounts receivable and contracts-in-transit around the period end, offset by a$87.6 million decrease related to the change in inventory, net of floor plan, a$66.5 million decrease in other current assets, a decrease in accounts payable and other current liabilities of$76.8 million and an increase in non-cash reconciling adjustments to net income of$15.0 million . Investing Activities- Net cash used in investing activities totaled$248.6 million for the nine months endedSeptember 30, 2021 compared to cash used in investing activities of$818.1 million , for the nine months endedSeptember 30, 2020 . Capital expenditures, excluding the purchase of real estate, were$49.4 million and$27.5 million for the nine months endedSeptember 30, 2021 and 2020, respectively. We expect that capital expenditures for 2021 will total approximately$50.9 million to upgrade or replace our existing facilities, construct new facilities, expand our service capacity, and invest in technology and equipment. During the nine months endedSeptember 30, 2021 , we acquired the assets of one franchise (one dealership location) in theDenver, Colorado market for a purchase price of$15.9 million . We funded this acquisition with an aggregate of$15.6 million of cash and$0.3 million of floor plan borrowings for the purchase of the related new vehicle inventory. During the nine months endedSeptember 30, 2021 , we released$1.0 million of purchase price holdbacks related to a prior year acquisition. During the nine months endedSeptember 30, 2020 , we acquired substantially all of the assets of, and leased the real property related to 12 new vehicle dealership franchises (8 dealership locations), two collision centers and an auto auction comprising the Park Place Dealership group for a purchase price of$889.9 million . We funded this acquisition with$527.4 million of cash,$200.0 million of Seller Notes,$127.5 million of floor plan borrowings for the purchase of the related new vehicle inventory and$35.0 million of floor plan borrowings for the purchase of the related used vehicle inventory. We also acquired the assets of three franchises (one dealership location) in theDenver, Colorado market for a purchase price of$63.6 million . We funded this acquisition with an aggregate of$34.5 million of cash and$27.1 million of floor plan borrowings for the purchase of the related new vehicle inventory. In the aggregate, this acquisition included purchase price holdbacks of$2.0 million for potential indemnity claims made by us with respect to the acquired franchises. In addition to the acquisition amounts above, we released$2.5 million of purchase price holdbacks related to a prior year acquisition. During the nine months endedSeptember 30, 2021 , we sold one franchise (one dealership location) in theCharlottesville, Virginia market for a purchase price of$21.3 million . In addition, during the nine months endedSeptember 30, 2021 , we received cash proceeds of$21.5 million from the sale of real estate properties. During the nine months endedSeptember 30, 2020 , we sold one franchise (one dealership location) in theAtlanta, Georgia market, six franchises (five dealership locations) and one collision center in theJackson, Mississippi market, and one franchise (one dealership location) in theGreenville, South Carolina market for an aggregate purchase price of$161.6 million . In addition, during the nine months endedSeptember 30, 2020 , we received cash proceeds of$4.2 million from the sale of vacant properties. During the nine months endedSeptember 30, 2021 and 2020, purchases of real estate, including previously leased real estate, totaled$7.8 million and$2.3 million , respectively. As part of our capital allocation strategy, we continually evaluate opportunities to purchase properties currently under lease and acquire properties in connection with future dealership relocations. No assurances can be provided that we will have or be able to access capital at times or on terms in amounts deemed necessary to execute this strategy. Financing Activities- Net cash used in financing activities totaled$380.8 million for the nine months endedSeptember 30, 2021 . Net cash provided by financing activities totaled$193.5 million for the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2021 and 2020, we had non-trade floor plan borrowings, excluding floor plan borrowings associated with acquisitions, of$3.40 billion and$2.84 billion , respectively, and non-trade floor plan repayments, excluding floor plan repayments associated with a divestiture, of$3.93 billion and$3.00 billion , respectively. 51 -------------------------------------------------------------------------------- Table of Contents During the nine months endedSeptember 30, 2021 and 2020 we had floor plan borrowings of$0.3 million and$131.6 million , respectively, related to acquisitions. During the nine months endedSeptember 30, 2021 and 2021, we had non-trade floor plan repayments associated with divestitures of$0.8 million and$55.3 million , respectively. Repayments of borrowings totaled$33.7 million and$1.60 billion for the nine months endedSeptember 30, 2021 and 2020, respectively. In addition, payments of debt issuance costs totaled$3.1 million for the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2020 , we had proceeds of$7.3 million related to a sale and leaseback of real estate inPlano, Texas . During the nine months endedSeptember 30, 2021 , we did not repurchase any shares of our common stock under our Repurchase Program but repurchased 65,123 shares of our common stock for$10.3 million from employees in connection with a net share settlement feature of employee equity-based awards. Off Balance Sheet Arrangements We had no off balance sheet arrangements during any of the periods presented other than those disclosed in Note 12 "Commitments and Contingencies" within the accompanying Condensed Consolidated Financial Statements. Critical Accounting Policies and Estimates For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . Our critical accounting policies and estimates have not changed materially during the nine months endedSeptember 30, 2021 . 52
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
