Greetings. Welcome to Asbury Automotive Group third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Paran Patel, Vice President of Finance and Treasurer. Thank you. You may begin.

Thanks, operator, and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Ashbury Automotive Group's third quarter 2026 earnings call. The press release detailing Ashbury's third quarter results was issued earlier this morning and is posted on our website at investors.ashburyauto.com. Participating with me today are Dan Clara, our President and Chief Executive Officer, and Michael Welch, our Senior Vice President and Chief Financial Officer. At the conclusion of our remarks, we will open up the call for questions and will be available later for any follow-up questions. Before we begin, we must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements Those which are historical in nature, which may include financial projections and current expectations, each of which are subject to significant uncertainties. For information regarding certain of the risks that may cause actual results to differ materially from these statements, please see our filings with the SEC from time to time, including our Form 10-K for the year ended December 31, 2025, any subsequently filed quarterly reports on Form 10-Q, and our earnings release issued earlier today. We expressly disclaim any responsibility to update forward-looking statements. In addition, non-GAAP financial measures as defined may be discussed on this call. As required by applicable SEC rules, we provide conciliations of any such non-GAAP financial measures for the most directly comparable GAAP measures on our website. Comparisons will be made on a year-over-year basis unless we indicate otherwise. We have also posted an updated investor presentation on our website, investors.ashburyauto.com, highlighting our third quarter results. And now, it is my pleasure to hand over the call to our president and CEO, Dan Clara. Dan?

Thank you, Farheen, and good morning, everyone. Welcome to our third quarter earnings call. I am pleased to share that we have reached a defining milestone. Every active Asbury store is now operating on Techia, our single modern technology platform. After several years of planning and execution, we now run the entire company on one system, giving us a common foundation to operate more efficiently, make decisions faster, and serve our customers. This milestone is one part of a broader strategy. Anchored in our five pillars, which aligns the organization on operational excellence within the following five priorities. Growing new vehicle market share, driving profitable volume growth in used vehicles, reestablishing consistent growth in customer pay growth profit, disciplined management of SG&A, and leveraging technology. On the technology pillar, we converted 47 stores to Techion in the third quarter. Our largest single quarter ever and completed the final 10 dealerships in October. Our longest tenured Techion stores in Georgia and at Kuhn's are giving us an early read on the platform's impact. In the third quarter, customer pay gross profit grew 7% versus the total company's same store being flat. Total fixed-off gross grew 5%. versus total company same store down 2%. Units per salesperson increased 4% and gross profit per technician improved by 9%, both outpacing the rest of the company. As we have shared before, it takes time for team members to build the muscle memory that comes with a new platform before taking it to another level. These stores have had the time and we believe the same opportunity exists and the rest of our stores to improve efficiency, enhance the guest experience and drive value for our shareholders. This was a major lift for our organization. Our store teams learned a new system while continuing to sell, service and care for our guests every day. And our support teams worked alongside them at every step. I am grateful to them and to our partners at Techion for getting us across the finish line. With the conversion behind us, the time and resources we dedicated to implementation can now go back into running and growing the business. Our teams have done the hard work. Now it is time to put the technology to work. It has been a busy few months for our teams. In addition to converting 47 stores to Tech Yacht in the third quarter, we also implemented Total Care Auto to our 30 plus herb chamber stores. which completed our TCA rollout to all of Asbury. And now I will speak to our operational results on a same store basis unless otherwise noted. I will note that our herb chamber stores are included in same store results for August and September only. Starting with new vehicles, our new vehicle business continue to perform in line with our expectations this quarter. On an all-store basis, new PVRs were $2,949, down 6% sequentially. These PVRs are well within the range where we expect them to remain going forward. Same-store new units were down 8% against a tough prior year comparison as we were lapping the expiration of federal and state BEV tax credit eligibility in 2025. The sharp decrease in EV volume accounted for 5% of this 8% change year-over-year, mostly driven by Colorado, which had a robust state EV incentives last year. We closed the quarter with a well-managed inventory position of 53 day supply, in line with the second quarter and setting us up well for the fourth quarter. Next, turning to used vehicles. Our used vehicle business continued to build momentum this quarter, and we are encouraged by the progress. Used retail gross profit grew 3% over last year, and we grew used retail PVR by 10% to $1,777, reflecting our focus on growing volume profitably. Our strategy and retailing process improvements are taking hold and driving a stronger pre-owned business. On an all-store basis, our used retail volume increased 4.5% over the second quarter. With our discipline processes in place, we anticipate use volume to increase on a year-over-year basis as we move into the fourth quarter. And we ended the quarter with a 41-day supply, keeping us well positioned heading into the fourth quarter. Moving to F&I. Our F&I business performed well at the dealership level this quarter, where F&I PVR was up year-over-year. On a reported basis, F&I PVR was $2,177, down $19 from the prior year. But that decline was driven entirely by the non-cash TCA deferral, which represented $138 of impact. Excluding the TCA deferral, our F&I PVR was $2,453, up $119 year-over-year. Our front end yield per vehicle was $4,583 in the third quarter. Next, parts and service. Our customer pay revenue was up 2% with gross profit flat year over year. Warranty gross profit was down 1%. Overall, parts and service was not where we wanted it to be. But now, with a heavy lift of rolling out a new DMS behind us, we are optimistic in our ability to get back to consistent growth while delivering an exceptional guest experience. And quickly, on operational efficiencies. Our same store adjusted SG&A as our percentage of gross profit was 67% in the quarter. With the TechYon conversion now complete, we believe our SG&A can reach the low 60% range by the end of 2027, driven by efficiency gains as our teams become more productive on the platform. As we enter the fourth quarter, I am encouraged by what I see. Our used business has improved for several quarters in a row. And with our TechYon rollout now behind us, our teams can turn their full attention to serving our guests and executing our five pillar strategy. We will remain disciplined in allocating capital. Our priority is to bring net leverage below three times. We believe we are well positioned to finish the year strong and look forward to one platform to achieve our goals in 2027. Most of all, I want to thank our team members. They took on one of the largest changes in our company's history. and delivered it while keeping our guests at the center of everything we do. We are now positioned to see the benefits of their hard work. And before I pass to Michael, one additional item worth noting. In early October, the FTC administrative proceeding against the company was dismissed. The outcome is consistent with our long-held view that our F&I sales practice have been and continue to be sound, lawful, and in compliance with applicable regulations. We remain focused on serving our guests with the integrity and transparency that we have always defined how we do business. And with that, I'll now hand the call over to Michael to discuss our financial results for the quarter.

Thank you, Dan, and good morning, everyone. I'll start with our high-level financial results for the third quarter. We generated $4.4 billion in revenue, earned a gross profit of $732 million, and gross profit margin of 16.6%. And we delivered an adjusted operating margin of 4.9%. Our adjusted income was $111 million. Our adjusted EBITDA was $218 million. And adjusted EPS was $6.16 for the quarter. In addition, a non-cash deferral headwind due to TCA this quarter was 69 cents per share. Our adjusted EPS would have been $6.85 without the deferral impact. Adjusted net income for the third quarter, 2026, excludes net of tax, $6 million related to the Techion implementation expenses, $1 million related to duplicate DMS-related expenses, and $1 million related to the net gain on divestitures. Adjusted SG&A as a percentage of gross profit on an all-store basis was 67.4%. This reflected the peak of our Techion conversions with 47 stores converting in the quarter and a number of stores still early in the adoption. We expect SG&A leverage to improve in the fourth quarter with cost savings continuing in the 2027. Next, the adjusted tax rate for the quarter was 24.5%. We estimate our effective tax rate for the full year to be approximately TCA generated $5 million of pre-tax income in the third quarter versus $14 million in the prior year. The negative non-cash deferral impact of the quarter net of tax was about $12 million compared to $4 million in the third quarter of 2025. TCA's rollout to Chambers Group has been completed, and now all Asbury platforms are enabled with this differentiated asset. As previously noted, we are assessing the next phase for TCA following its full rollout. We generated $525 million of adjusted operating cash flow year to date. Excluding the real estate purchases, we spent $190 million in capital expenditures in the first three quarters of this year. We are updating our view for the full year CapEx in 2026 to be approximately $27 million, or $275 million. Adjusted free cash flow was $336 million through the end of September. We ended the quarter with $1 billion liquidity comprised of floor plan offset accounts, availability on both our use line and revolving credit facility, and cash, excluding cash at total care audits. Our transaction adjusted net leverage ratio was 3.5 times at the end of the third quarter. Our target of three times remains a priority for us, and we plan to reach it by mid-2027. Driving operational excellence and reducing leverage is our focus. Once there, we will look for opportunities for share buybacks and tuck-in acquisitions. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions. Operator?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. for participants using speaker equipment. It may be necessary to pick up your handset before pressing the start keys. Our first question is from Jeff Lick with Stevens Inc. Please proceed.

Good morning. Thanks for taking my question and congrats on getting the Techion installation out of the way. Dan and Michael, I was wondering if maybe you could just, you've given some Techion stats in terms of SG&A of the stores that are starting to see the benefit or productivity of technicians or salespeople. I was wondering if you could just break apart a little bit more what the tech-eon stores look like versus the non-tech-eon stores and then, you know, what the rollout or when we'll start to see the benefit of the stores that were, you know, still within that, call it that, you know, six to 12 month timeframe of installation.

Jeff, good morning. Thank you for the call. Thank you for the question.

Yes, as I stated, the customer pay gross profit grew 7% in the Coons and the Georgia stores.

And the reason why I'm focusing on that is consistent with what we have been stating in the past, which it takes six months for the muscle memory to kick in. And those stores have definitely been in the six-month time frame. So we're excited what we see. I will give you a little bit more color as well. When you look at ROs per advisor per day, we're seeing about a 9% increase. When you look at dollars per technician, we're seeing about a high single-digit growth to a low double-digit growth. And then from a unit per salesperson standpoint, were saying about a mid single digit improvement from an efficiency standpoint. As I stated at the beginning of the call, we rolled 47 stores in the quarter. So it's gonna take us six months to get the muscle memory in those stores to be able to see the efficiencies that I just mentioned. But we are very excited with what we see, the hard work that the team members have put together alongside our partner, Techion, and excited for the future. And as you stated at the beginning, I appreciate your congrats. It's been a heavy lift, but excited that it is behind us.

And Jeff, just one more thing on that for a minute. From an SG&A percentage growth perspective, We're down 329 basis points in the quarter on a same-store basis. The two groups, Coons and Georgia, who have been on the longest, one of those platforms was actually improved on an SG&A percentage of growth basis, and the other one was with the decline in PBRs, it was down or increased on an SG&A percentage of growth basis, but about a third, of what the rest of the company did. So we are seeing the impact on SG&A as well. And so it's a two-sided coin. It's a gross profit item. So it helps on the gross profit, but it also helps on the efficiency. And so we're seeing that on the SG&A side, percentage of gross on those two markets as well.

In terms of just the store composition, what's the number of stores that at this point you'd say They were in the Techion beneficiary column versus the, you know, the Techion, hey, we're still working through it, or it's a net drag on productivity and SG&A measures.

Yeah, so, Jeff, if I look at the Coons and the Georgia markets, we're probably talking 35 to 40 stores that have reached the 6%. The dynamic of SG&A is obviously a little more noticeable when the SG or the GP dollars come from service in parts.

Can you kind of get, is there a bit of a double whammy impact on SG&A in terms of getting better? Because obviously not only is Techion going to help your SG&A in general, but it helps your service and parts gross as well. Can you talk about that a little bit?

Yeah, 100%. That's really our focus is as we get back to be able to, you know, we're growing, growing profit again, coming out of Techion, the goal is to be productive with our people. And so don't put the cost back in that go with that gross profit growth. And so that's really what the focus is. It's some cost cuts, some benefits for AI, but it's really getting back to growing gross profit and maintaining the cost structure to go with that. So if we're trying to chase reducing gross profit, it's just hard to get that SG&A number. So it's two pieces. And we talk about low 60s, I'd say half of that comes from gross profit growth and the other half comes from true SG&A safes.

Great, thanks very much for taking my questions. Best of luck in Q4. Thank you.

Our next question is from Rajat Gupta with JPMorgan. Please proceed.

Great, thanks for taking the question. Just on the metrics you provided on the Coons and the Georgia stores, that is just on a same store basis versus last year, third quarter, correct? Just to clarify. Correct. And if you look at it, you know, on a dollar basis, pre-tachyon versus, you know, post-tachyon seasoning, I mean, are those metrics still higher year over year or we're still working through more progress for those stores on the parts and services side? And I have a quick question.

Yeah, parts and services is higher. We think there's still room to go. And we are seeing, you know, if you think about the layers, Kuhn's is farther ahead than Georgia because it's been on it longer and so as we as we see the stores work through the system we are seeing those kind of improvements and they can kind of hit on you know those pieces because we have some you know Florida just kind of got over the six month mark at the very end of the quarter and so there's some there's some numbers there that we're seeing you we're starting to see it on Florida at the very end of the quarter as well.

Rajat, good morning. On Michael's comment, I'll just give you a few more numbers on what we saw at the end of September from a fixed operations gross profit. Florida, which just hit the mark, was up 3%. I'll give you Coons as well, which I've already mentioned before, but Coons just for September was up 9%, and then Georgia was up 7%. So that gives you a pretty good indication of the efficiencies and the gains that we're getting once the muscle memory takes place.

Understood. That's helpful. And then, you know, just on TCA, I know like in the past, you know, there's been some chatter around maybe potentially You know, disentangling that, you know, from the company. I'm curious, you know, as you've spent more time evaluating, you know, if the business needs to be core and in-house, you know, what's been, you know, what's been the outcome? Do you still think like TCA is better, you know, as an in-house captive or a hybrid model that serves better? Thanks.

We... We really love the TCA business. We love what it does for us long term and the cash flow that it provides. And also just owning the guest experience all the way through the cycle. But once we've rolled it out fully to all the groups, we have to evaluate, keep it as is, grow it through other channels outside our dealerships, or to your point, flip it out to have it be an outside company to kind of get rid of the accounting noise. We're still in the valuation phase of that. Again, we love the business, love what it does for us, love the cash flow. Very, very solid business for us. But just, again, trying to think through the next steps for that company.

And Rajat, one thing I'd like to add to Michael's comment is, to his point, we love the business. And when you think about the cash flow that it generates, it is also one part of the business that does not require heavy capex or any capex for that matter. So we really like what it generates from a cash flow standpoint. But as Michael mentioned, those are the three options on the table that we are always analyzing.

Understood. Thanks for the call, and good luck. I'll jump back in queue.

Our next question is from Glen Ginn with Seaport Research Partners. Please proceed.

Good morning. Thank you, and congrats on completing the rollouts of both Techion and PCA. I'm glad to see all the benefits starting to come through. First, just on Can you tell us what you saw with the consumer in the quarter? You know, there was a lot of noise and chatter of volatility. And I mean, glad to see that parts and service still grew, same story, but margins compressed a bit. Can you tell us what happened there?

Yes, I'll start with the last question, margin compression and fixed operations. That is a product of what I just mentioned, the six months that it takes of muscle memory to be developed as we roll out Techion. And to be more specific, think about this. You just got used to, you're used for 20, 30 years as an advisor to process customers one way under CDK. Your world is turned upside down. You're learning a new system. You have five, six customers waiting for you The path of least resistance, which I don't blame team members to take in, they start discounting just to make sure that we take care of the guests. As that muscle memory starts to come in, the discounts start to go away, and then the margin starts to stabilize and get back to its normal state. and more. So, not concerned about that. That's going to get back to normal and we're already seeing the progress being made. On the first part of the question on consumer affordability, I will tell you that we saw from a customer pay standpoint, we measure both BEV, I mean, we'll measure all of them. We measure BEV, plug-in hybrid and internal combustion and the dollars per ticket have stayed flat. In some cases, they've gone up a little bit here and there. So that gives us good indication that things are working properly and the consumer is still spending money with us. I will tell you that on a customer paid traffic or customer paid traffic for the quarter, meaning the repair order account was down 1.9%. But I think I've answered your question. If you have any other follow-ups, happy to take them as well.

Glenn, then one other thing on the margin. Internals is highly accrued to the gross margin on parts and service because there's no revenue for it. It's just all gross profit. As we continue to grow the used car business, especially in the fourth quarter and in the 20s, 27. That will also help the fixed ops margin as we get that used car volume back through and get that recon work through the fixed ops side. Okay, very good. Thanks for all the color.

And then just on used, I mean, good to see the progress there, you know, the improvement in comps. Can you just tell us what we might expect going forward just with respect to the balance between volume versus GPUs?

Yes, we, at the end, I cannot remember when it was, it might have been May or June, but we announced that our strategy was shifting. For years, we had been protecting gross profit and not chasing the volume. As a reminder, we shifted that strategy in May because we knew that these returns were coming and it was a good time to start going after a little bit of the volume while protecting the profitability of the used car department. So when you think about 70 to 75% of our cars that we retail come from either it is trade-ins or acquisitions from guests or loaner cars, that puts us in a pretty good place to continue to grow that business. And then about 15, 20% of them come from acquisition at the auction, which we have made the concerted effort to go after to grow the volume. So I will tell you that we are fully committed to growing the volume while protecting the gross profit. And we expect in the fourth quarter to be ahead year over year compared to last year.

Okay. Very good. Thanks, Yeoman. Good luck.

Our next question is from Alex Perry with Bank of America. Please proceed.

Hi, thanks for taking our questions here. Just wanted to follow up on the last question, actually. So just on the customer pay RO count being down, I think you said 2%, do you think there is share loss happening to cheaper independents for some of the P&S work given some of the affordability constraints on the consumer right now? Are you seeing any sort of evidence of work deferrals, you know, given some of the affordability challenges? Thanks.

Morning, Alex. On the work deferrals, the measurements that I had when I compare what we call declined work from our customers, I have not seen an increase in that. So that gives us some level of comfort that nothing is changing materially. On the first question in regards to maybe a loss of share, I'll tell you that it's more than a fair question. But when you look at the average miles that are coming through our shop at 70,000 miles, I would argue that we do a pretty good job of retaining that test. for the manufacturer's warranty expires. The 1.9%, like anything, I would not make a big deal about it. It is a seasonality. Obviously, when you roll 47 stores in Techion in the quarter, and I can't stress it enough, the heaviest lift of the entire rollout of Techion, you will see an impact in traffic because people's muscle memory gets lost. They don't move as fast. The efficiency is not there. but that will all come as we have proven after six months of the muscle memory taken back.

That's really helpful. And then my follow-up was just on the FTC enforcement actions. Can you, you know, what impact are those enforcement actions sort of having on your business? You know, did you have to take advertised prices up at all? Do you think it's impacting your used volume sales? And then, you know, what do you think happens to some of those dock fees? Do you think they get, you know, dropped over time? Or how do you think this all sort of plays out? Thanks.

Yeah, on the impact that we've had is more of a level playing field. We've always done things the legal, ethical way, full transparency. As a reminder, when the FTC came with this notification at the beginning of the year, Asbury did not receive a letter because we have always been compliant. And some of our major markets, such as Georgia, Colorado, and Massachusetts, it was already state law to have that doxy included in the price. So we've been operating under that policy. under those circumstances for years. As far as what does it do, I think that it is great for the industry. I think that being transparent, no hitting charges is what the consumer deserves. It level sets the playing field for all of us out there. So I view this as very positive. It will continue to enhance the guest experience and those that don't want to abide are gonna be left behind.

That's really helpful. Best of luck going forward.

Our next question is from Michael Ward with Citigroup. Please proceed.

Thanks very much. Good morning, everyone. First thing, could you put some numbers on the BED sales year over year?

Sorry, you cut off a little bit on the electric sales.

You mentioned that was about half of the new unit declined. So could you put some actual numbers on the number of units you sold last year and then this year?

Yeah. So I have the – yes, I can do that for you. In Q3 of 2026 – My electric vehicles were 2.1% of the total units sold. I'll tell you that from a year-over-year basis, we were down 76% in EV sales, Q3 of 25 versus Q3 of 26.

Okay. And now, I always thought the BEV profitability was lower than ICE. So, you know, with that decline, you would expect to see a little stronger gross new vehicle gross than we saw. Was there something else in there in the quarter? Was there a sell down on some of the late models that kind of compressed gross that maybe turns as we go into 4Q and into the first half?

It's a great question, an excellent point. You are correct. The PBR in ICE is higher than EV. I will tell you that what impacted the drop in PBR It really came down from imports. We're seeing additional pressure with some of the OEMs, Hyundai being one of them. And then obviously you can see at the domestic side of the equation as well, we still continue to have headwinds with Stellantis. Although I will tell you that from an inventory management standpoint, we have and many more. Thank you very much.

Thank you. Very good color. I appreciate that. And just lastly on Techion, because I know we've hit it hard, but I think it is important. The muscle memory that you talked about, so about a third of the stores just got converted in October. So some of that muscle memory lags. Then from November, December, and into the first half, we should start to see some pretty good benefits, particularly since you have a good track record behind it. Is that the right way to look at it?

Yeah, I think you're looking at it right. I would just say that... It'll be more into the tail end of Q1, beginning of Q2. Listen, nobody's more anxious and wants to get the benefits of all the hard work than us. But we do know after rolling out 157 dealerships that it does take six months of the muscle memory to kick in. And we're just going to be there continuing to train, mentor, and develop our team members to provide the best guest experience.

I really appreciate it. Thanks very much.

Our next question is from Rob Sussman with UBS. Please proceed.

Hey, team. Thanks for the time. So you mentioned that you expect to exit that low 60% range on estimated gross value of Q4. So that's the exit rate. How are you thinking about the trajectory of that metric into 2027, assuming a stable operating environment? And then what could that number look like maybe in the back half of 2026? after that six-month transition period you mentioned starts to abide after the large Q3 rollout. Thanks.

Just to clarify, we expect to be in the low 60s by the end of 27. So we'll get a little bit better in fourth quarter and then kind of progress through it as we go through next year. And to Dan's point, kind of two cues when we start getting most of the stores into that six-month window. So you'll see it in the back half of the year next year when we get kind of fully on and again it's both a combination of increasing the gross profit which will help the SG&A and making sure we get the cost out that will help the SG&A so it's both pieces but it's it's definitely you know low 60s by the end of 27 is the goal.

Thanks and then just one follow-up would just be obviously SG&A but any sort of high level thoughts on the business here into 2027? How are you thinking about the trajectory and kind of how are you thinking about the rest of the business heading into next year? There are just some early high-level puts and takes you guys are thinking about as you start to plan.

Yeah, it's really hard right now. We're still, you know, it feels like from a new vehicle perspective, it's probably going to be, you know, similar in terms of volume. PBRs, you know, kind of $2,750 to $3,000 is kind of where we see the range, and we're kind of in that range now. So I think that's kind of a range for next year. Used cars, we talked about we're going to push on the volume side of the equation. PBRs should kind of be in the range that they're at now, somewhere in that $1,750 range. F&I, from a TCA perspective, we'll see some continued headwinds in the next year. And so we think the dealerships will have some improvements in F&I, but TCA will kind of offset that and make A little bit of a drag next year. And then fixed ops, we think we can get back to growing fixed ops in that mid-single-digit range next year. And that will put us, G&A, kind of in that, you know, it will move throughout the year, but by the end of the year in that low 60s. But, you know, starting off, you know, mid-60s and then kind of working its way down.

Thanks, Dean. Appreciate the time.

Our next question is from Daniela Hulligan. with Morgan Stanley. Please proceed.

Thank you. I think that was a really helpful overview of thoughts into next year. I'll kind of step back and ask more of a macro question. Have you seen any change in consumer behavior, whether that's trade down or substitution from new into used or deferring some service work? I know we've talked a little bit about this, but any greater sensitivity than you've seen in prior quarters?

Good morning, Daniel. Yes, we've seen a little bit of a change. I think the longer that it goes with the high gas prices that we have, I mentioned this in the last earnings call that based on prior history, it takes about six months for consumers to decide whether they're going to get rid of the gas guzzlers or not. And we're starting to see a little bit more of that. Ironically, they're trading for from a big SUV, V8 or what have you into still an SUV, but maybe in this case a hybrid SUV that affords them the size, but still a much better miles per gallon. And then from a decline service, I mentioned this earlier, based on what I track, I have not seen a drop in decline services staying pretty consistent. So I'm not seeing a change there from a consumer behavior.

Thank you. That's very helpful. And then on the used vehicle side, you said pushing volumes more. Is that a function of more off-lease supply coming online, so now you have more access to trade-ins, or are you seeing greater competition to try and access those volumes?

It's more about... tweaking the way that we appraise cars, improving our look to book, which basically what that means is if I appraised 100 cars, how many did I trade for? It's a metric that we pay close attention to working with our great operators on improving that metric and then obviously taking full advantage of the cars that we can buy through the service drive with the internal processes that we have.

Great. Thank you very much.

Our next question is from John Babcock with Barclays. Please proceed.

Morning, and thanks for taking my questions. Just firstly on the used vehicle market, it generally sounds like the wholesale market's been pretty soft there. What impact did that have on the GPUs? And also, if you can just broadly talk about what's driving that, that would be helpful.

Yeah, you know, it didn't have much of an impact on our market. on our PBR. As I mentioned before, 75% to 80% of our inventory comes from trade-ins, loaner cars, and cars that we acquire internally. I will tell you that it is a metric that I measure every single week, and it is how much PBR do we make on a car that we traded in versus a car that we bought at the auctions. The one thing that is guaranteed when you buy a car at the auction is you're the one that pays the most money for the car because you're the last one standing with your arm up. So naturally your PBR is not going to be the same, but we normally make about 50% less than we make on a car that we trade in. But there's a benefit. You get the internal gross profit. You get another unit in operation. You get to certify the car. And then you get also the opportunity to protect the investment by offering the vehicle service contract or any of the other products that we offer.

All right. Thanks for that. And then next on M&A, I was wondering if you might be able to talk about what you're seeing in the market right now, both in terms of prospects and valuations and also When we should expect you to get more active there?

Like Michael and I stated earlier, we have two major priorities right now. Our number one priority is operational excellence, now that the rollout is behind us. The second priority is with the operational excellence comes additional EBITDA and free cash flow. We want to go ahead and pay down the debt to get below three times. In the M&A, I've been seeing some deals still hitting the market. As you can see, those deals, I'm sure that you see what they're bringing. And I'd like to expand a little bit on this one, because I would say that the private market transactions in our industry, they continue to show the value that buyers place on high quality dealership portfolios. We believe that Asbury stacks up very well with a strong mix of luxury and import franchises. We have very attractive markets and very valuable owned real estate. And I can't stress it enough, we own over 80% of our real estate. And we have TCA, which gives us with a nice growing streams, which we believe the market does not give us full credit for that business. So therefore, when you put all that together, we believe our current share price does not reflect the underlying value of the business that we're seeing in some of these private markets deals that are going out there.

Okay. And then just last question quickly. You mentioned operational excellence, and obviously you have the Techion benefits rolling through next year. Could you maybe talk about what other opportunities you have here to help take costs out on the SG&A line and or you know just broadly to help improve you know volumes within the business.

Yeah so on the SGA side you know not only the Techion just makes us more efficient but also just a lot of stuff going on with AI really helps us with those efficiencies as well and being able to automate some functions with that technology and Techion allows us the ability to deploy that AI easier but really it's we've been This sounds bad, but we've been devoting a lot of our resources to getting Techion rolled out. And so being able to deploy all those resources back into the five pillars where it's growing new vehicles, growing fixed jobs, growing used cars, like that focus and not being, I won't say distracted, but just we've been having to put a lot of resources toward just the rollouts. That's just going to allow us to push the volume on the gross profit growth. And that's really, if we get back to growing gross profit and solid numbers and keep the expenses lean, that has a big benefit on the SG&A number, or SG&A percentage of gross number.

Okay, very helpful. Thank you.

Our next question is from David Winston with Morningstar. Please proceed.

Thanks, good morning. Could you just talk a bit about what effect, if any, interest rates and negative equity is having, both for buying used and new vehicles and for making additional purchases in the service lane?

Yeah, I will tell you that the biggest impact that I have seen, or the one that comes up the most, is negative equity. You know, there's, we're starting to see cars that were sold during the pandemic that are starting to come in. And so there is that negative equity that definitely impacting some brands more than others. From a interest rate perspective, you know, we have not seen a major shift, although I'm curious to see when OEMs Just because of the affordability that it allows somebody to get a newer car for less of a monthly payment.

Then on the brands where it is having an issue, are you losing those sales? Are you able to figure something out?

Listen, it's hard to tell because, as you know, it is based on the consumer credit. If the consumer credit is You know, it's called a 700 plus FICO score. Your loan to value is going to be a lot more flexible. You can put that deal together depending on how much negative equity we're talking about. But that's on a case by case scenario. And in some cases, if you have somebody that maybe is subprime or does not have a lot of down payment. Yeah, you do miss that deal or always try to find a solution. Is there a car that came out, a loaner car that maybe puts you in a better book position that you can trade them out of it? And we explore every option available for us.

And then on the balance sheet, you talked about wanting to do some tuck-in acquisitions, but also paying down debt to get the leverage ratio to your target. So would the tuck-in deals involve touching the credit line or would it be entirely internally funded without debt?

Our first priority is getting the leverage down. And then at the current share price, it'd be share buybacks. And then tuck-in acquisitions would be the last of what we use the capital for. But the goal is in the future, we should be able to do tuck-in acquisitions. Well, we should be able to do share buybacks and tuck-in acquisitions with our free cash flow. We want to get back to that below three times just to have the optionality when something comes up to be able to go after it. Right now, you know, we're just a little limited in terms of where the leverage is.

Okay, thank you.

Our next question is from Ryan Siegdahl with Craig Hallam Capital Group. Please proceed.

Hey, good morning, guys. Two clarifications for us or follow-ons, but on the dock fees, I appreciate the more transparent approach relative to many of your peers. but curious on it from an absolute standpoint if you expect dock fees to go lower from here for Asbury or if you think most of that is already built into at this moment and then maybe just talk to the GPU 3000 from a new standpoint normalization and if dock fees impact that from here.

I don't expect dog fees to go down. Our approach has always been very simple with dog fees. We've never wanted to be the highest in the markets that we operate. We've always been in the middle, for lack of a better term. So we're positioned the right way. Don't expect that to go down. And we'll continue to obviously to operate India with full transparency. The second part of the question, can you please remind me? Oh, new vehicle PVR. Yeah, at $3,000. You know, for several quarters, we've been talking about our projection of anywhere between $2,750 to $3,000. You can see that, actually, I believe new car PVR sequentially, quarter over quarter, went up $6 a car, if I remember correctly. So I believe that we're stabilizing there and it fits well within the range that Michael and I have been talking about it. The one thing that is important to consider here is it doesn't mean that it's going to be a flat line. You know, there's going to be ups and downs, seasonality, OEMs, incentives and what have you. But I think that, you know, that target that you see is pretty much what we're seeing moving forward.

Appreciate that. Then maybe just a quick one on SG&A to gross profit. Appreciate the commentary and kind of glide path from mid-60s to low-60s exiting next year. But are you willing to say at least directionally if you think 28 and beyond, you can go below the low-60s if it's kind of a linear improvement from there? Thanks.

Well, so I guess we're going to take it in stages. So we have, you know, with all the AI and tech stuff that gets us into the low-60s, there's some things we're looking at in terms of I'll call it the digital vehicle transaction. And depending on where that goes, that could give us the ability to kind of push it below 60%. But I wouldn't say that's a linear path. That's more of a next step path. And we just got to kind of figure out how that works with the software and the consumer and kind of how the consumer wants to behave online and digital type transactions. So that's a below 60s with that new phase of digital vehicle sales transactions.

So reasonable to assume kind of a low 60s is the right run rate kind of in all years?

Yeah, until we kind of cross the bridge on, I mean, we're hoping 28, 29, but we got to do some homework and feeling out on how the consumer reacts to that and test it before we pull the trigger on that. but yeah, I think low 60s until we can make that change.

Helpful, appreciate it. Thanks, good luck guys. Yes.

Our next question is from Raja Gupta with JP Morgan. Please proceed.

Hey, thanks for taking the follow-up. I just wanted to follow up on parts and services. I think you talked about getting back to mid-single digit range at some point next year. Are you already starting to see some signs of turnaround, you know, like in the fourth quarter here, you know, from down 2%, same store in the third quarter? Do you think you're going to be back in positive territory here in the fourth quarter? Just trying to understand the path to a segment single-digit range. Is it market-driven? Is it TK on productivity-driven? And then I have a very quick follow-up. Thanks.

Just a reminder, 47 stores went live this quarter. and the rest of it. But, you know, fourth quarter is still a pretty heavy Techion impacted quarter just because of the amount of stores that went live this quarter.

I agree with Michael. And Rajat, just to give you more color again, you know, on, yes, we're seeing progress in the stores or the markets that have been for six months or more. And just as I repeated earlier, Florida, which just crossed a six-month target, the market was up 3% in September. That was just for the month of September. And then Georgia was up for the month of September 6.6%. So very encouraged by what we see, but I can't stress it enough. Please don't forget that we rolled out 47 stores in the third quarter. All those stores are not going to be in the six-month threshold that we require and that we have seen the progress being made until end of Q1. So you will see progress in Q4, meaning in the stores that continue to roll into the six-month threshold, but we're not going to realize the full benefit of this until we go into the end of Q1 and Q2 of 2027. Understood.

And then just on F&I, you know, we have been hearing, you know, at least from some private dealers that, you know, warranty attach rates are just taking a bit of like a hit given affordability pressures. I'm curious if you're observing any of that, you know, at your stores, like how do you think F&I progresses, excluding obviously the TCA accounting noise, just on a core basis, you know, what's your view there?

Yeah, so we have seen a little bit of a drop in terms of our mix of the products versus the financing side of the equation. But this quarter, we still grew F&I PBR at the store level, like excluding the TCA deferral. We grew it $119. So we're still able to grow the F&I number. We have the headwind of TCA deferral going through there. but we're still seeing nice progress at the store level on the F&I side so we haven't seen a decrease on PBRs at the store level.

Understood. That's very helpful. Great. Thanks for the questions again and good luck.

Thank you. This concludes today's call. Thank you very much and we look forward to seeing you after Q4.

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