Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record second quarter total revenue and record second quarter parts and service revenue with $581 million and gross profit of $340 million.
- Strong performance in same-store results, with parts and service pacing at 8% growth going into June before finishing with 4% growth.
- Adjusted earnings per share was $6.40 and adjusted EBITDA was $236 million.
- Repurchased 193,000 shares for $43 million during the quarter and another 160,000 shares for $36 million so far in the third quarter.
- Effective capital allocation strategy, including divesting two Nissan stores and continuously evaluating the optimal balance between acquisitions, organic investments, and share repurchases.
Negative Points
- CDK outage significantly impacted operations, affecting all Asbury stores except Koons stores, leading to a recovery process that took approximately 12 days.
- Estimated impact of the CDK outage on diluted earnings per share was between $0.95 and $1.15.
- Same-store new vehicle unit volume decreased 6% for the quarter, with new average gross profit per vehicle at $3,649.
- Same-store used vehicle unit volume decreased 2% for the quarter, with used days supply slightly higher than historical average due to the CDK incident.
- Adjusted SG&A as a percentage of gross profit was 64.8%, driven by higher compensation, third-party vendor spend, elevated advertising expenses, and other miscellaneous costs.
Q & A Highlights
Q: How much catch-up do you expect in different verticals (new, used, parts, and service) post-CDK outage?
A: Over half our competitors weren't on CDK and were functioning normally. Parts and services opportunities missed won't be recovered. Normal operations resumed in the second half of July, with steady increases in parts and service gross profit and transactional revenue compared to the previous year. - David Hult, CEO
Q: Can you provide expectations for parts and service growth in the second half of the year and into 2025?
A: We expect high-single-digit growth in parts and service gross profit. - David Hult, CEO
Q: What are your thoughts on reliance on CDK and potential investments in Clicklane?
A: Clicklane functioned well as a transactional tool but isn't a replacement for a dealer management system (DMS). We still need a DMS for accounting and data aggregation. - David Hult, CEO
Q: What drove the strong gross margin expansion in parts and services in Q2?
A: The margin increase was due to a combination of factors, including a reduction in wholesale parts sales and focused efforts on raising service margins. - David Hult, CEO
Q: What are the GPU assumptions for new and used vehicles underlying the mid-60s SG&A to gross profit expectations for the remainder of the year?
A: We expect new vehicle GPUs to continue decreasing, while used vehicle GPUs will likely remain stable. - Michael Welch, CFO
Q: Can you explain the impact of the CDK outage on sales despite having Clicklane as a transactional tool?
A: The outage affected our CRM system, Eleads, which hindered our ability to follow up on leads and deals. Clicklane worked well, but the brand mix and lack of API connections with some OEM financial arms also impacted sales. - David Hult, CEO and Daniel Clara, SVP of Operations
Q: What is the timeline for the trial of Tekion DMS, and how do you view DMS technology going forward?
A: We plan to launch four stores and our shared service center on Tekion in October, with a broader rollout starting in early 2025. We are comfortable with Tekion's cybersecurity measures. - David Hult, CEO
Q: What is the expected impact of deferred revenue headwinds from TCA on F&I PVR?
A: The deferred revenue headwind from TCA is expected to be impactful throughout 2024, contributing significantly to the decrease in F&I PVR. - Daniel Clara, SVP of Operations
Q: How did the CDK outage specifically impact your wholesale parts and services business?
A: Wholesale parts sales were flat through May but ended down 7% for the quarter, with an $8 million decrease in June. Collision services were also significantly impacted. - Daniel Clara, SVP of Operations
Q: What are your capital allocation priorities moving forward?
A: We are focused on balancing acquisitions, organic investments, and share repurchases, prioritizing the most strategic and accretive use of capital. - David Hult, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
