Business Overview and History Asbury Automotive Group was organized as a Delaware corporation in 2002 and has since grown to become one of the largest automotive retailers in the United States. The company's operations are conducted through its wholly-owned subsidiaries, offering an extensive range of automotive products and services, including new and used vehicles, parts and service, and finance and insurance (F&I) products. Asbury's diversified revenue base and commitment to operational excellence across its dealership portfolio provide a resilient business model and strong profit margins.

In 2021, Asbury made a significant acquisition by purchasing the Larry H. Miller Dealership family of entities, which included the Total Care Auto, Powered by Landcar business. This acquisition led to the creation of Asbury's TCA segment, diversifying the company's geographic footprint and expanding its F&I product offerings. The integration of TCA's products across Asbury's dealership portfolio has been a key strategic focus for the company.

Asbury's growth strategy has included both acquisitions and selective divestitures to optimize its dealership portfolio. In 2023, the company completed the acquisition of the Jim Koons Automotive Companies, adding 20 new vehicle dealerships and 6 collision centers in the greater Washington-Baltimore region. This move further strengthened Asbury's presence in the area and enhanced its operational capabilities. In 2024, as part of its portfolio optimization efforts, the company divested 5 franchises across 5 dealership locations.

Despite facing industry challenges such as supply chain disruptions, Asbury has maintained its focus on delivering exceptional customer service, driving operational efficiency, and prudently allocating capital. These factors have been instrumental in the company's success over the years and have helped solidify its position as a leading automotive retailer.

Financial Performance and Metrics Asbury's financial performance has been consistently strong, with the company reporting impressive results in recent years. For the fiscal year ended December 31, 2024, the company reported total revenue of $17.19 billion, a significant increase from $14.80 billion in the prior year. Net income for the same period was $430.3 million, or $21.50 per diluted share, compared to $602.5 million, or $28.74 per diluted share, in 2023.

The company's operational efficiency is evident in its steady gross profit margins, which stood at 17.2% in 2024, down from 18.6% in the previous year. Asbury's adjusted EBITDA, a non-GAAP measure, reached $919.3 million in 2024, reflecting the company's ability to generate strong cash flows.

For the most recent quarter (Q4 2024), Asbury reported revenue of $4.50 billion and net income of $128.8 million. The company achieved year-over-year revenue growth of 18.0% in this quarter, primarily driven by growth in new vehicle revenue, used vehicle revenue, and parts and service revenue. The Koons acquisition in late 2023 contributed significantly to this revenue growth.

In terms of cash flow, Asbury generated operating cash flow of $671.2 million and free cash flow of $526.0 million for the fiscal year 2024.

Liquidity

Asbury's balance sheet remains healthy, with a transaction-adjusted net leverage ratio of 2.85x as of December 31, 2024. The company's liquidity position is also robust, with $828 million in available liquidity at the end of the year, consisting of floorplan offset accounts, availability on its used vehicle floor plan and revolving credit facility, and cash (excluding cash at Total Care Auto).

As of December 31, 2024, Asbury reported cash and cash equivalents of $69.4 million and $486.0 million available under its revolving credit facility. The company's debt-to-equity ratio stood at 1.51, while its current ratio was 1.11 and quick ratio was 0.41.

Operational Highlights and Strategic Initiatives Asbury's operational performance has been characterized by its ability to navigate industry challenges and capitalize on emerging trends. The company's same-store new vehicle unit sales increased by 7% year-over-year in the fourth quarter of 2024, driven by strong demand and improved inventory availability across several key brands.

The company's Parts and Service business has been a consistent source of strength, with same-store gross profit growing by 11% in 2024. Asbury's focus on providing exceptional customer service, retaining technicians, and upgrading equipment has allowed it to capitalize on the increasing complexity of vehicles and the growing average age of the car parc.

Asbury's strategic initiatives have also included the ongoing rollout of its Tekion dealer management system (DMS) pilot, which has demonstrated the potential to enhance operational efficiency, improve the customer experience, and generate cost savings. The company expects to complete the Tekion rollout across its entire dealership network by the end of 2025.

The company's acquisition of the Herb Chambers Dealerships, announced in early 2025, represents a significant milestone in its growth strategy. This $1.34 billion transaction will expand Asbury's presence in the New England region, adding 33 dealerships, 52 franchises, and 3 collision centers to its portfolio. The integration of the Herb Chambers operations is expected to contribute to Asbury's long-term revenue and earnings growth.

Risks and Challenges As with any automotive retailer, Asbury faces a range of risks and challenges that could impact its future performance. These include:

1. Dependence on Manufacturer Relationships: Asbury's success is closely tied to its relationships with the various vehicle manufacturers whose brands it represents. Any disruptions in these relationships or changes in the manufacturers' policies could have a material adverse effect on the company's business.

2. Regulatory and Legal Environment: The automotive industry is heavily regulated, and Asbury must navigate a complex web of federal, state, and local laws and regulations. Failure to comply with these requirements could result in fines, penalties, or other legal actions.

3. Macroeconomic Factors: The automotive industry is sensitive to changes in economic conditions, consumer confidence, and other macroeconomic variables. A downturn in the economy or a shift in consumer preferences could adversely impact Asbury's sales and profitability.

4. Inventory Management Challenges: Asbury's ability to maintain the right mix of new and used vehicle inventory is crucial to its success. Imbalances in inventory levels or a mismatch between supply and demand could negatively affect the company's gross profit margins.

5. Cybersecurity Risks: As a technology-driven business, Asbury is exposed to the risk of data breaches, cyber attacks, and other IT-related disruptions, which could compromise customer information and disrupt operations.

Outlook and Guidance Looking ahead, Asbury remains cautiously optimistic about the automotive industry's prospects. The company expects the recent election and the shift in the political landscape to be a tailwind, as the new administration is viewed as more business-friendly. Additionally, the continued aging of the vehicle parc, with the average age of cars on the road reaching 12.5 to 13 years, is expected to drive sustained demand for the company's parts and service offerings.

For the fiscal year 2025, Asbury has provided the following guidance:

• New vehicle gross profit per unit in the range of $2,500 to $3,000, though this may not be achieved until later in 2025 or early 2026
• SG&A as a percentage of gross profit expected to be in the mid-60s, given the projected glide path of new vehicle GPUs and investments in the business
• TCA pre-tax income of approximately $8 million, with a non-cash deferral impact of $62 million or $2.35 per diluted share
• Capital expenditures of approximately $250 million

The company expects the rollout of Total Care Auto (TCA) in Florida in Q1 2025 and the Koons platform in Q2 2025 to be a headwind to earnings. The company's strategic focus on operational efficiency, cost discipline, and disciplined capital allocation is expected to support its financial performance and maintain its competitive edge in the industry.

Segment Information

Asbury Automotive Group operates in two reportable segments: Dealerships and TCA.

The Dealerships segment is responsible for the majority of Asbury's revenue and operations. This segment oversees the company's network of 198 new vehicle franchises across 152 dealership locations, representing 31 brands of automobiles in 14 states. The new vehicle franchises generate revenue from the sale of new vehicles, which accounted for 51.5% of total revenue in 2024. Asbury's new vehicle revenue brand mix consisted of 41% imports, 30% luxury, and 29% domestic brands.

The used vehicle retail and wholesale operations within the Dealerships segment contributed 26.8% and 3.6% of total revenue, respectively, in 2024. Asbury focuses on maintaining an optimal mix of new and used vehicle inventory to meet customer demand. The company has been able to leverage its dealership network and strategic vendor relationships to source a diverse, high-quality used vehicle inventory.

The parts and service business, which includes vehicle repair and maintenance services, replacement parts, and collision repair services, generated 13.7% of Asbury's total revenue in 2024. This division has historically provided stable and recurring revenue streams due to the increasing complexity of vehicle technology and the growing number of vehicles on the road. Asbury continues to invest in technician training and equipment upgrades to capitalize on this revenue stream.

The finance and insurance (F&I) operations within the Dealerships segment contributed 4.5% of total revenue in 2024. This includes revenue from arranging vehicle financing through third-party providers and selling various aftermarket products, such as extended service contracts and protection plans, to customers. Asbury's ability to offer a comprehensive suite of F&I products has allowed it to generate higher profitability per vehicle sold.

The TCA segment represents Asbury's proprietary finance and insurance product provider, Total Care Auto, Powered by Landcar. TCA offers a variety of vehicle protection products, including extended service contracts, prepaid maintenance contracts, and guaranteed asset protection, that are primarily sold through Asbury's affiliated dealerships.

In 2024, the TCA segment generated $120.6 million in revenue, or 0.7% of Asbury's total revenue. While a smaller contributor to overall sales, the TCA business provides Asbury with higher-margin finance and insurance products that complement the retail operations of the Dealerships segment. The company continues to focus on integrating TCA's offerings across its full dealership portfolio to increase penetration and profitability of these value-added products.

Conclusion

Asbury Automotive Group has established itself as a formidable player in the automotive retail industry, demonstrating resilience and adaptability in the face of evolving market conditions. The company's diversified revenue streams, strategic acquisitions, and focus on operational excellence have positioned it for continued success. While the industry faces its share of risks and challenges, Asbury's strong financial profile, experienced management team, and well-executed growth strategy suggest that the company is poised to capitalize on the industry's long-term opportunities.

The company's diverse business model, with the Dealerships segment as the primary revenue driver and the TCA segment providing higher-margin F&I products, has allowed Asbury to navigate industry challenges and deliver consistent financial performance. The company's focus on enhancing the customer experience, investing in technology, and expanding its F&I offerings positions Asbury for continued growth and profitability in the competitive automotive retail landscape.