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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2023
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-31262
ASBURY AUTOMOTIVE GROUP, INC.
(Exact name of Registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
| Delaware | | 01-0609375 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
| | | | | |
| 2905 Premiere Parkway NW, | Suite 300 | | | |
| Duluth, Georgia | | 30097 | |
| (Address of principal executive offices) | | (Zip Code) | |
(770) 418-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| | Trading | | |
Title of each class | | Symbol(s) | | Name of each exchange on which registered |
Common stock, $0.01 par value per share | | ABG | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
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Large Accelerated Filer | ☒ | | Accelerated Filer | ☐ |
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Non-Accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |
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| | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: The number of shares of common stock outstanding as of April 25, 2023 was 21,534,085.
ASBURY AUTOMOTIVE GROUP, INC.
TABLE OF CONTENTS
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PART I—Financial Information |
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| PART II—Other Information | |
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value and share data)
(Unaudited) | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 296.8 | | | $ | 235.3 | |
Short-term investments | 5.5 | | | 5.4 | |
Contracts-in-transit, net | 156.3 | | | 220.8 | |
Accounts receivable, net | 166.6 | | | 171.9 | |
Inventories, net | 1,081.4 | | | 959.2 | |
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Assets held for sale | 44.9 | | | 29.1 | |
Other current assets | 298.8 | | | 288.1 | |
Total current assets | 2,050.2 | | | 1,909.8 | |
INVESTMENTS | 280.8 | | | 235.0 | |
PROPERTY AND EQUIPMENT, net | 1,930.5 | | | 1,941.0 | |
OPERATING LEASE RIGHT-OF-USE ASSETS | 239.7 | | | 235.4 | |
GOODWILL | 1,783.4 | | | 1,783.4 | |
INTANGIBLE FRANCHISE RIGHTS | 1,800.1 | | | 1,800.1 | |
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OTHER LONG-TERM ASSETS | 98.1 | | | 116.7 | |
Total assets | $ | 8,182.8 | | | $ | 8,021.4 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
CURRENT LIABILITIES: | | | |
Floor plan notes payable—trade, net | $ | 45.6 | | | $ | 51.0 | |
Floor plan notes payable—non-trade, net | — | | | — | |
Current maturities of long-term debt | 83.1 | | | 84.5 | |
Current maturities of operating leases | 22.6 | | | 23.6 | |
Accounts payable and accrued liabilities | 672.2 | | | 645.0 | |
Deferred revenue—current | 221.8 | | | 218.9 | |
Liabilities associated with assets held for sale | 23.1 | | | 10.5 | |
Total current liabilities | 1,068.3 | | | 1,033.4 | |
LONG-TERM DEBT | 3,194.8 | | | 3,216.8 | |
LONG-TERM LEASE LIABILITY | 224.2 | | | 218.4 | |
DEFERRED REVENUE | 491.9 | | | 495.0 | |
DEFERRED INCOME TAXES | 99.3 | | | 100.7 | |
OTHER LONG-TERM LIABILITIES | 55.1 | | | 53.5 | |
COMMITMENTS AND CONTINGENCIES (Note 13) | | | |
SHAREHOLDERS' EQUITY: | | | |
Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued or outstanding | — | | | — | |
Common stock, $.01 par value; 90,000,000 shares authorized; 43,549,857 and 43,593,809 shares issued, including shares held in treasury, respectively | 0.4 | | | 0.4 | |
Additional paid-in capital | 1,288.0 | | | 1,281.4 | |
Retained earnings | 2,763.3 | | | 2,610.1 | |
Treasury stock, at cost; 22,015,888 and 22,024,479 shares, respectively | (1,064.3) | | | (1,063.0) | |
Accumulated other comprehensive gain | 61.8 | | | 74.4 | |
Total shareholders' equity | 3,049.2 | | | 2,903.5 | |
Total liabilities and shareholders' equity | $ | 8,182.8 | | | $ | 8,021.4 | |
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
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| | | For the Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
REVENUE: | | | | | | | |
New vehicle | | | | | $ | 1,767.7 | | | $ | 1,855.6 | |
Used vehicle | | | | | 1,126.5 | | | 1,350.9 | |
Parts and service | | | | | 515.6 | | | 501.9 | |
Finance and insurance, net | | | | | 172.5 | | | 203.4 | |
TOTAL REVENUE | | | | | 3,582.3 | | | 3,911.8 | |
COST OF SALES: | | | | | | | |
New vehicle | | | | | 1,588.8 | | | 1,631.6 | |
Used vehicle | | | | | 1,049.5 | | | 1,251.6 | |
Parts and service | | | | | 233.5 | | | 225.4 | |
Finance and insurance | | | | | 14.3 | | | 11.2 | |
TOTAL COST OF SALES | | | | | 2,886.1 | | | 3,119.8 | |
GROSS PROFIT | | | | | 696.2 | | | 792.0 | |
OPERATING EXPENSES: | | | | | | | |
Selling, general, and administrative | | | | | 403.0 | | | 455.5 | |
Depreciation and amortization | | | | | 16.7 | | | 18.4 | |
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Other operating income, net | | | | | — | | | (2.7) | |
INCOME FROM OPERATIONS | | | | | 276.5 | | | 320.8 | |
OTHER EXPENSES: | | | | | | | |
Floor plan interest expense | | | | | 0.6 | | | 2.6 | |
Other interest expense, net | | | | | 37.3 | | | 37.6 | |
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Gain on dealership divestitures, net | | | | | — | | | (33.1) | |
Total other expenses, net | | | | | 38.0 | | | 7.1 | |
INCOME BEFORE INCOME TAXES | | | | | 238.5 | | | 313.7 | |
Income tax expense | | | | | 57.1 | | | 76.0 | |
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NET INCOME | | | | | $ | 181.4 | | | $ | 237.7 | |
EARNINGS PER SHARE: | | | | | | | |
Basic— | | | | | | | |
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Net income | | | | | $ | 8.42 | | | $ | 10.43 | |
Diluted— | | | | | | | |
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Net income | | | | | $ | 8.37 | | | $ | 10.38 | |
WEIGHTED AVERAGE SHARES OUTSTANDING: | | | | | | | |
Basic | | | | | 21.6 | | 22.8 |
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Performance share units | | | | | 0.1 | | 0.1 |
Diluted | | | | | 21.7 | | 22.9 |
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
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| | | For the Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Net income | | | | | $ | 181.4 | | | $ | 237.7 | |
Other comprehensive income: | | | | | | | |
Change in fair value of cash flow swaps | | | | | (19.4) | | | 42.2 | |
Income tax benefit (expense) associated with cash flow swaps | | | | | 4.7 | | | (10.4) | |
Gains (losses) on available-for-sale debt securities | | | | | 2.5 | | | (2.2) | |
Income tax (expense) benefit associated with available-for-sale debt securities | | | | | (0.5) | | | 0.2 | |
Comprehensive income | | | | | $ | 168.7 | | | $ | 267.5 | |
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(Unaudited)
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Shares | | Amount | | | | Shares | | Amount | | |
Balances, December 31, 2022 | 43,593,809 | | | $ | 0.4 | | | $ | 1,281.4 | | | $ | 2,610.1 | | | 22,024,479 | | | $ | (1,063.0) | | | $ | 74.4 | | | $ | 2,903.5 | |
Comprehensive Income: | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 181.4 | | | — | | | — | | | — | | | 181.4 | |
Change in fair value of cash flow swaps, net of reclassification adjustment and $4.7 million tax benefit | — | | | — | | | — | | | — | | | — | | | — | | | (14.6) | | | (14.6) | |
Unrealized gain on changes in fair value of debt securities, net of reclassification adjustment and $0.5 million tax expense | — | | | — | | | — | | | — | | | — | | | — | | | 2.0 | | | 2.0 | |
Comprehensive income | — | | | — | | | — | | | 181.4 | | | — | | | — | | | (12.6) | | | 168.7 | |
Share-based compensation | — | | | — | | | 8.6 | | | — | | | — | | | — | | | — | | | 8.6 | |
Issuance of common stock, net of forfeitures, in connection with share-based payment arrangements | 120,575 | | | — | | | — | | | — | | | — | | | — | | | — | | | |
Share repurchases | — | | | — | | | — | | | — | | | 110,323 | | | (20.7) | | | — | | | (20.7) | |
Repurchase of common stock associated with net share settlement of employee share-based awards | — | | | — | | | — | | | — | | | 45,613 | | | (10.9) | | | — | | | (10.9) | |
Retirement of common stock | (164,527) | | | — | | | (2.0) | | | (28.2) | | | (164,527) | | | 30.2 | | | — | | | — | |
Balances, March 31, 2023 | 43,549,857 | | | $ | 0.4 | | | $ | 1,288.0 | | | $ | 2,763.3 | | | 22,015,888 | | | $ | (1,064.3) | | | $ | 61.8 | | | $ | 3,049.2 | |
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Shares | | Amount | | | | Shares | | Amount | | |
Balances, December 31, 2021 | 45,052,293 | | | $ | 0.4 | | | $ | 1,278.6 | | | $ | 1,881.3 | | | 21,914,251 | | | $ | (1,044.1) | | | $ | (0.7) | | | $ | 2,115.5 | |
Comprehensive Income: | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 237.7 | | | — | | | — | | | — | | | 237.7 | |
Change in fair value of cash flow swaps, net of reclassification adjustment and $10.4 million tax expense | — | | | — | | | — | | | — | | | — | | | — | | | 31.8 | | | 31.8 | |
Unrealized loss on changes in fair value of debt securities, net of reclassification adjustment and $0.2 million tax benefit | — | | | — | | | — | | | — | | | — | | | — | | | (2.0) | | | (2.0) | |
Comprehensive income | — | | | — | | | — | | | 237.7 | | | — | | | — | | | 29.8 | | | 267.5 | |
Share-based compensation | — | | | — | | | 7.0 | | | — | | | — | | | — | | | — | | | 7.0 | |
Issuance of common stock, net of forfeitures, in connection with share-based payment arrangements | 115,435 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Share repurchases | — | | | — | | | 1.4 | | | — | | | 1,069,203 | | | (200.0) | | | — | | | (198.6) | |
Repurchase of common stock associated with net share settlements of employee share-based awards | — | | | — | | | — | | | — | | | 53,810 | | | (8.9) | | | — | | | (8.9) | |
Retirement of common stock | (1,069,203) | | | — | | | (12.9) | | | (187.1) | | | (1,069,203) | | | 200.0 | | | $ | — | | | $ | — | |
Balances, March 31, 2022 | 44,098,525 | | | $ | 0.4 | | | $ | 1,274.1 | | | $ | 1,931.9 | | | 21,968,061 | | | $ | (1,053.0) | | | $ | 29.1 | | | $ | 2,182.5 | |
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See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited) | | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2023 | | 2022 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 181.4 | | | $ | 237.7 | |
Adjustments to reconcile net income to net cash provided by operating activities— | | | |
Depreciation and amortization | 16.7 | | | 18.4 | |
Share-based compensation | 8.6 | | | 7.0 | |
Deferred income taxes | 2.8 | | | (0.4) | |
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Unrealized (gains) losses on investments | (3.1) | | | 3.3 | |
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Loaner vehicle amortization | 6.7 | | | 3.2 | |
Gain on divestitures, net | — | | | (33.1) | |
Change in right-of-use assets | 6.3 | | | 7.3 | |
Other adjustments, net | 0.8 | | | 0.4 | |
Changes in operating assets and liabilities, net of acquisitions and divestitures— | | | |
Contracts-in-transit | 64.5 | | | (1.8) | |
Accounts receivable | 5.2 | | | 35.7 | |
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Inventories | (33.3) | | | 70.3 | |
Other current assets | (109.5) | | | (82.5) | |
Floor plan notes payable—trade, net | (5.4) | | | (22.0) | |
Deferred revenue | (0.2) | | | 15.5 | |
Accounts payable and accrued liabilities | 33.8 | | | 163.0 | |
Operating lease liabilities | (5.9) | | | (7.0) | |
Other long-term assets and liabilities, net | 2.3 | | | (6.0) | |
Net cash provided by operating activities | 171.7 | | | 409.0 | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | |
Capital expenditures—excluding real estate | (15.2) | | | (20.8) | |
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Divestitures | — | | | 252.2 | |
Purchases of debt securities—available-for-sale | (44.1) | | | (12.3) | |
Purchases of equity securities | — | | | (3.3) | |
Proceeds from the sale of debt securities—available-for-sale | 3.5 | | | 12.2 | |
Proceeds from the sale of equity securities | 0.6 | | | 3.3 | |
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Net cash (used in) provided by investing activities | (55.2) | | | 231.3 | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | |
Floor plan borrowings—non-trade | 1,799.6 | | | 1,873.7 | |
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Floor plan repayments—non-trade | (1,798.2) | | | (2,004.1) | |
Floor plan repayments—divestitures | — | | | (19.9) | |
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Repayments of borrowings | (15.3) | | | (7.7) | |
Proceeds from revolving credit facility | — | | | 320.0 | |
Repayments of revolving credit facility | — | | | (489.0) | |
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Proceeds from issuance of common stock | — | | | 1.4 | |
Payment of debt issuance costs | — | | | (0.4) | |
Purchases of treasury stock | (30.2) | | | (200.0) | |
Repurchases of common stock, including amounts associated with net share settlements of employee share-based awards | (10.9) | | | (8.9) | |
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Net cash used in financing activities | (55.0) | | | (534.9) | |
Net increase in cash and cash equivalents | 61.5 | | | 105.4 | |
CASH AND CASH EQUIVALENTS, beginning of period | 235.3 | | | 178.9 | |
CASH AND CASH EQUIVALENTS, end of period | $ | 296.8 | | | $ | 284.3 | |
See Note 11 "Supplemental Cash Flow Information" for further details
See accompanying Notes to Condensed Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Asbury Automotive Group, Inc., a Delaware corporation organized in 2002, is one of the largest automotive retailers in the United States. Our store operations are conducted by our subsidiaries.
As of March 31, 2023, we owned and operated 184 new vehicle franchises (139 dealership locations), representing 31 brands of automobiles, and 32 collision centers in 14 states. For the three months ended March 31, 2023, our new vehicle revenue brand mix consisted of 34% luxury, 38% imports and 28% domestic brands. 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 (collectively referred to as "parts and services" or "P&S"); and finance and insurance ("F&I") products, including arranging vehicle financing through third parties and aftermarket products, such as extended service contracts, guaranteed asset protection ("GAP") debt cancellation and prepaid maintenance. The finance and insurance products are provided by independent third parties and Total Care Auto, Powered by Landcar ("TCA"). The Company reflects its operations in two reportable segments: Dealerships and TCA.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and reflect the consolidated accounts of Asbury Automotive Group, Inc. (the "Company") and our wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. If necessary, reclassifications of amounts previously reported have been made to the accompanying condensed consolidated financial statements in order to conform to current presentation.
In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair statement of the condensed consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, have been included, unless otherwise indicated. Amounts presented in the condensed consolidated financial statements have been calculated using non-rounded amounts for all periods presented and therefore certain amounts may not compute or tie to prior year financial statements due to rounding.
The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any other interim period, or any full year period. Our condensed consolidated financial statements should be read together with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ materially from these estimates. Estimates and assumptions are reviewed quarterly and the effects of any revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Estimates made in the accompanying condensed consolidated financial statements include, but are not limited to, those relating to inventory valuation reserves, reserves for chargebacks against revenue recognized from the sale of finance and insurance products, reserves for self-insurance programs, and certain assumptions related to goodwill and dealership franchise rights intangible assets.
Share Repurchases
Share repurchases may be made from time-to-time in open market transactions or through privately negotiated transactions under the authorization approved by the Board of Directors. Periodically, the Company may retire repurchased shares of common stock previously held by the Company as treasury stock. In accordance with our accounting policy, we allocate any excess share repurchase price over par value between additional paid-in capital, which is limited to amounts initially recorded for the same issue, and retained earnings. During the three months ended March 31, 2023 and 2022, the Company repurchased 110,323 and 1,069,203 shares and retired 164,527 and 1,069,203 shares, of our common stock under our share repurchase program, respectively. The cash paid for share repurchases was $20.7 million and $200.0 million for the three months ended March 31, 2023 and 2022, respectively. From April 1, 2023 through April 27, 2023, the Company repurchased 149,765 shares for $28.7 million pursuant to a 10b5-1 agreement.
Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted-average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average common shares and common share equivalents outstanding during the period. The Company excluded 4,005 and 2,123 restricted share units and 476 and 533 performance share units issued under the Asbury Automotive Group, Inc. 2019 Equity and Incentive Compensation Plan from its computation of diluted earnings per share for the three months ended March 31, 2023 and 2022, respectively, because they were anti-dilutive. For all periods presented, there were no adjustments to the numerator necessary to compute diluted earnings per share.
Recent Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-04, Liabilities-Supplier Finance Programs. This standard serves to improve transparency about supplier finance programs. The ASU requires certain disclosures around key terms of outstanding supply chain finance programs and changes in obligations during a reporting period related to vendors participating in these programs. The new disclosure requirements do not affect the recognition, measurement or financial statement presentation of any amounts due. The guidance is effective for fiscal years beginning after December 15, 2022, except for rollforward information, which is effective in the first quarter of 2024. Early adoption is permitted. The adoption of this new guidance on January 1, 2023 did not have a material impact on our condensed consolidated financial statements. Refer to Note 8, "Floor Plan Notes Payable."
2. REVENUE RECOGNITION
Disaggregation of Revenue
Revenue from contracts with customers for the three months ended March 31, 2023 and 2022 consists of the following: | | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2023 | | 2022 |
| (In millions) |
Revenue: | | | |
New vehicle | $ | 1,767.7 | | | $ | 1,855.6 | |
Used vehicle retail | 1,021.6 | | | 1,217.0 | |
Used vehicle wholesale | 104.9 | | | 134.0 | |
New and used vehicle | 2,894.2 | | | 3,206.5 | |
Sale of vehicle parts and accessories | 126.0 | | | 130.2 | |
Vehicle repair and maintenance services | 389.6 | | | 371.7 | |
Parts and service | 515.6 | | | 501.9 | |
Finance and insurance, net | 172.5 | | | 203.4 | |
Total revenue | $ | 3,582.3 | | | $ | 3,911.8 | |
Contract Assets
Changes in contract assets during the period are reflected in the table below. Contract assets related to vehicle repair and maintenance services are transferred to receivables when a repair order is completed and invoiced to the customer. Certain incremental sales commissions payable to obtain an F&I revenue contract with a customer have been capitalized and are amortized using the same pattern of recognition applicable to the associated F&I revenue contract.
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| Vehicle Repair and Maintenance Services | | Finance and Insurance, net | | Deferred Sales Commissions | | Total |
| (In millions) |
Balance as of January 1, 2023 | $ | 14.7 | | | $ | 14.7 | | | $ | 37.2 | | | $ | 66.6 | |
Transferred to receivables from contract assets recognized at the beginning of the period | (14.7) | | | (3.0) | | | — | | | (17.7) | |
Amortization of costs to obtain a contract with a customer | — | | | — | | | (2.0) | | | (2.0) | |
Costs incurred to obtain a contract with a customer | — | | | — | | | 8.6 | | | 8.6 | |
Increases related to revenue recognized, inclusive of adjustments to constraint, during the period | 16.3 | | | 2.8 | | | — | | | 19.1 | |
Balance as of March 31, 2023 | $ | 16.3 | | | $ | 14.5 | | | $ | 43.8 | | | $ | 74.6 | |
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Contract Assets (current), March 31, 2023 | 16.3 | | | 14.5 | | | 12.9 | | | 43.7 | |
Contract Assets (long-term), March 31, 2023 | — | | | — | | | 30.9 | | | 30.9 | |
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Deferred Revenue
The condensed consolidated balance sheets reflect $713.7 million and $713.9 million of deferred revenue as of March 31, 2023 and December 31, 2022, respectively. Approximately $62.4 million of deferred revenue at December 31, 2022 was recorded in finance and insurance, net revenue in the condensed consolidated statements of income during the three months ended March 31, 2023.
During the three months ended March 31, 2022, we sold one franchise (one dealership location) in St. Louis, Missouri, and three franchises (three dealership locations) in the Denver, Colorado market. The Company recorded a pre-tax gain totaling $33.1 million, for the three months ended March 31, 2022, which is presented in our accompanying condensed consolidated statements of income as gain on dealership divestitures, net. There were no divestitures during the three months ended March 31, 2023.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
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| As of |
| March 31, 2023 | | December 31, 2022 |
| (In millions) |
Vehicle receivables | $ | 48.1 | | | $ | 50.4 | |
Manufacturer receivables | 42.1 | | | 43.3 | |
Other receivables | 78.6 | | | 80.5 | |
Total accounts receivable | 168.9 | | | 174.1 | |
Less—Allowance for credit losses | (2.3) | | | (2.2) | |
Accounts receivable, net | $ | 166.6 | | | $ | 171.9 | |
5. INVENTORIES
Inventories consisted of the following: | | | | | | | | | | | |
| As of |
| March 31, 2023 | | December 31, 2022 |
| (In millions) |
New vehicles | $ | 643.0 | | | $ | 527.7 | |
Used vehicles | 308.5 | | | 304.4 | |
Parts and accessories | 129.9 | | | 127.2 | |
Total inventories, net (a) | $ | 1,081.4 | | | $ | 959.2 | |
____________________________ (a) Inventories, net as of March 31, 2023 and December 31, 2022, excluded $5.0 million and $3.4 million classified as assets held for sale, respectively.
The lower of cost and net realizable value reserves reduced total inventories by $9.5 million and $10.7 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, certain automobile manufacturer incentives reduced new vehicle inventory cost by $4.0 million and $2.7 million, respectively, and reduced new vehicle cost of sales for the three months ended March 31, 2023 and 2022 by $22.3 million and $25.5 million, respectively.
6. ASSETS AND LIABILITIES HELD FOR SALE
Assets and liabilities classified as held for sale include (i) assets and liabilities associated with pending dealership disposals, (ii) real estate not currently used in our operations that we are actively marketing to sell and (iii) the related mortgage notes payable, if applicable.
A summary of assets held for sale and liabilities associated with assets held for sale is as follows:
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| As of |
| March 31, 2023 | | December 31, 2022 |
| (In millions) |
Assets: | | | |
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Inventory | $ | 5.0 | | | $ | 3.4 | |
Loaners, net | 0.9 | | | 0.9 | |
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Property and equipment, net | 36.0 | | | 24.0 | |
Operating lease right-of-use assets | 2.1 | | | — | |
Goodwill | 0.9 | | | 0.9 | |
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Total assets held for sale | 44.9 | | | 29.1 | |
Liabilities: | | | |
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Floor plan notes payable—non-trade | 4.2 | | | 2.8 | |
Loaners notes payable | 1.0 | | | 0.8 | |
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Current maturities of long-term debt | 1.0 | | | 0.6 | |
Current maturities of operating leases | 0.5 | | | — | |
Long-term debt | 14.8 | | | 6.2 | |
Operating lease liabilities | 1.6 | | | — | |
Total liabilities associated with assets held for sale | 23.1 | | | 10.5 | |
Net assets held for sale | $ | 21.8 | | | $ | 18.7 | |
As of March 31, 2023, assets held for sale consisted of one franchise (one dealership location), real estate associated with five used vehicle stores, one collision center, and one real estate property not currently used in our operations.
As of December 31, 2022, assets held for sale consisted of one franchise (one dealership location) in addition to one real estate property not currently used in our operations.
7. INVESTMENTS
Our investment portfolio is primarily funded by product premiums from the sale of our TCA F&I products. The amortized cost, gross unrealized gains and losses and estimated fair values of debt securities available-for-sale, equity securities, and other investments measured at net asset value are as follows:
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| As of March 31, 2023 |
| Amortized Cost | | | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In millions) |
Short-term investments | $ | 5.5 | | | | | $ | — | | | $ | — | | | $ | 5.5 | |
U.S. Treasury | 11.9 | | | | | 0.1 | | | (0.1) | | | 11.9 | |
Municipal | 28.3 | | | | | 0.2 | | | (0.2) | | | 28.3 | |
Corporate | 93.8 | | | | | 0.6 | | | (1.4) | | | 93.0 | |
Mortgage and other asset-backed securities | 96.5 | | | | | 0.6 | | | (1.1) | | | 96.0 | |
Total debt securities | 236.0 | | | | | 1.5 | | | (2.8) | | | 234.6 | |
Common stock | 51.7 | | | | | — | | | — | | | 51.7 | |
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Total investments | $ | 287.7 | | | | | $ | 1.5 | | | $ | (2.8) | | | $ | 286.3 | |
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| As of December 31, 2022 |
| Amortized Cost | | | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In millions) |
Short-term investments | $ | 5.4 | | | | | $ | — | | | $ | — | | | $ | 5.4 | |
U.S. Treasury | 11.8 | | | | | — | | | (0.2) | | | 11.6 | |
Municipal | 22.8 | | | | | — | | | (0.4) | | | 22.4 | |
Corporate | 81.8 | | | | | 0.2 | | | (2.3) | | | 79.7 | |
Mortgage and other asset-backed securities | 73.8 | | | | | 0.3 | | | (1.4) | | | 72.7 | |
Total debt securities | 195.5 | | | | | 0.5 | | | (4.4) | | | 191.7 | |
Common stock | 48.7 | | | | | — | | | — | | | 48.7 | |
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Total investments | $ | 244.2 | | | | | $ | 0.5 | | | $ | (4.4) | | | $ | 240.4 | |
The Company had an unrealized gain of $2.6 million and an unrealized loss of $0.4 million related to equity securities held as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023 and December 31, 2022, the Company had $1.5 million and $1.3 million of accrued interest receivable, which is included in other current assets on the condensed consolidated balance sheets. The Company does not consider accrued interest receivable in the carrying amount of financial assets held at amortized cost basis or in the allowance for credit losses.
A summary of amortized costs and fair value of investments by time to maturity, is as follows:
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| As of March 31, 2023 |
| Amortized Cost | | Fair Value |
| (In millions) |
Due in 1 year or less | $ | 5.5 | | | $ | 5.5 | |
Due in 1-5 years | 87.7 | | | 87.0 | |
Due in 6-10 years | 44.0 | | | 43.9 | |
Due after 10 years | 2.3 | | | 2.3 | |
Total by maturity | 139.5 | | | 138.7 | |
Mortgage and other asset-backed securities | 96.5 | | | 96.0 | |
Common stock | 51.7 | | | 51.7 | |
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Total investment securities | $ | 287.7 | | | $ | 286.3 | |
There were no gross losses and $0.1 million gross gains realized related to the sale of available-for-sale debt securities carried at fair value for the three months ended March 31, 2023. There were no gross gains or losses realized related to the sale of equity securities carried at fair value for the three months ended March 31, 2023.
The following tables summarize the amount of unrealized losses, defined as the amount by which the amortized cost exceeds fair value, and the related fair value of investments with unrealized losses. The investments were segregated into two categories: those that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months. The reference point for determining how long an investment was in an unrealized loss position was March 31, 2023.
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| As of March 31, 2023 |
| Less than 12 Months | | Greater than 12 Months | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| (In millions) |
Short-term investments | $ | 4.0 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4.0 | | | $ | — | |
U.S. Treasury | 7.4 | | | (0.1) | | | 0.1 | | | — | | | 7.5 | | | (0.1) | |
Municipal | 14.8 | | | (0.1) | | | 0.9 | | | — | | | 15.7 | | | (0.2) | |
Corporate | 52.4 | | | (0.8) | | | 9.5 | | | (0.6) | | | 61.9 | | | (1.4) | |
Mortgage and other asset-backed securities | 55.3 | | | (0.9) | | | 3.5 | | | (0.3) | | | 58.8 | | | (1.1) | |
Total debt securities | $ | 133.9 | | | $ | (1.9) | | | $ | 13.9 | | | $ | (0.9) | | | $ | 147.8 | | | $ | (2.8) | |
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| As of December 31, 2022 |
| Less than 12 Months | | Greater than 12 Months | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| (In millions) |
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U.S. Treasury | $ | 9.2 | | | $ | (0.2) | | | $ | — | | | $ | — | | | $ | 9.2 | | | $ | (0.2) | |
Municipal | 19.0 | | | (0.4) | | | — | | | — | | | 19.0 | | | (0.4) | |
Corporate | 66.2 | | | (0.1) | | | 5.2 | | | (0.3) | | | 71.4 | | | (0.4) | |
Mortgage and other asset-backed securities | 51.4 | | | (1.3) | | | 1.5 | | | (0.2) | | | 52.9 | | | (1.5) | |
Total debt securities | |