Asbury Automotive Group achieves record $4.8 billion revenue in Q3 2025, driven by acquisition growth and strong luxury vehicle demand, while managing macro headwinds.

OPERATOR - (00:01:20)

Greetings and welcome to the Asbury Automotive Group Q3 2025 earnings conference call and webcast. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing Star1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press Star zero. It's now my pleasure to turn the call over to Chris Reeves, Vice President, Finance and Investor Relations. Please go ahead Chris.

Chris Reeves - Vice President, Finance and Investor Relations - (00:01:52)

Thanks Operator and good morning. As noted, today's call is being recorded and will be available for replay later this afternoon. Welcome to Asbury Automotive Group's third quarter 2025 earnings call. The press release detailing Asbury's third quarter results was issued earlier this morning and is posted on our website at investors.asburyauto.com participating with me today are David Holt, our President and Chief Executive Officer, Paul Whatley, our Vice President of Operations, 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 other than those which are historical in nature, which may include financial projections, forecasts 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, 2024 and 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, certain non GAAP financial measures as defined under SEC rules may be discussed on the call as required by applicable SEC rules. We provide reconciliations of any such non GAAP financial measures to 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, highlighting our third quarter results. It is now my pleasure to hand the call over to our CEO David Holt.

David Holt - President and Chief Executive Officer - (00:03:45)

David thank you Chris and good morning everyone. Welcome to our third quarter earnings call. Our acquisition of the Chambers Group has already had a positive impact on many of our operating metrics and while it is still early in the integration process, I am pleased with how our teams are coming together. We've talked many times in the past about how our transition to Techyon system will transform how we sell and service vehicles and deliver a superior guest experience. Our litigation with CDK Global has reached the point where we can continue migrating stores onto the new DMS (Dealer Management System), moving on to our operating performance for the quarter. Pent up consumer demand and the expiration of the EV tax credit drove strong new volumes on our new vehicle. Performance on an all store basis highlights the impact of our Chambers Group acquisition and the heavier weighting towards luxury brands. In the near term, we'll be opportunistic and react to what the market gives us. Our parts and service business delivered consistent results once again with same store gross profit up by 7% and the customer pay segment up by 8% in the quarter. As referenced earlier, growing the business while avoiding expense leakage is a top priority for the team. In the third quarter, our same store SG&A as a percentage of gross profit was 63.6%, a decrease of 32 basis points. Our strategy for deploying capital to its highest and best use has primarily emphasized large transformative acquisitions that expand our portfolio in the most desirable markets. Going forward, we are focused on delevering the balance sheet, optimizing the makeup of our portfolio and being opportunistic with share repurchases. As a reminder, we divested four stores in July with annualized revenue of $300 million. In keeping with our disciplined approach to portfolio management, we resumed opportunistic share repurchases, buying back $50 million in shares in the quarter. The pace of future share repurchases will be dictated by portfolio management activities, share price levels and returns offered by organic and inorganic opportunities. And now for our consolidated results. For the third quarter, we generated a record 4.8 billion in revenue, had a gross profit of 803 million, and a gross profit margin of 16.7%. We delivered an adjusted operating margin of 5.5% and our adjusted earnings per share was $7.17 and our adjusted EBITDA was $261 million. At the end of my remarks, I traditionally hand the call over to Dan Clara to walk through our operational performance. However, Dan was not able to be with us today, so I'll hand the call over to Paul Whatley, Vice President of Operations, who's been doing a phenomenal job running our stores. Now Paul will discuss our operational performance in more detail.

Paul Whatley - Vice President of Operations - (00:07:17)

Thank you, David and good morning everyone. Over the past few months, we've integrated a large acquisition with the Chambers Group. We've divested stores and we've rolled out Techyon system to 19 stores and we still grew our business in new volume, fixed operations and overall same store gross profit. I'm pleased the team has been able to successfully grow the business and maintain our margin profile while undertaking these large objectives for long term success. And now I'm going to provide some updates on our same store performance which includes dealerships and Total Care Auto (TCA) on a year over year basis unless stated otherwise. Starting with new vehicles, same store revenue was up 8% year over year and units were up 7%. We did see elevated consumer demand for electric vehicles (EVs) to take advantage of the expiring tax credit and significant increases In EV volume versus quarter two new average gross profit per vehicle was $3,188 as the increase in EV sales and their lower PVR profile slightly pulled down. Our overall PVR brand unit performance varied widely depending on availability and consumer demand within certain OEMs. We continue to have relatively low day supply at key brands. Across all brands. Our same store new day supply was 58 days at the end of September, one day less than the end of Q2. We've generally been pleased with inventory balances against consumer demand. While it's been a stronger start to the year and inventory levels remained in check, we do expect headwinds through year end with a softening labor market and challenges with vehicle affordability. Turning to used vehicles, third quarter unit volume was down 4% year over year and used retail GPU was $1,551, a slight increase over the prior year. For the quarter, our team sourced over 85% of our used vehicles from internal channels. The largest portion of this comes from customer trade ins which tend to be our most profitable acquisition channel. Our same store DSI was 35 days at the end of the quarter and we remain diligent on maintaining a healthy velocity of sales to manage inventory. Stepping back for a moment, we see our performance in used vehicles as our biggest opportunity to improve execution. The pool of available used cars starts to recover in 2026, improving further into 27 and 28. Our teams are focused on driving profitable volume growth over the coming quarters. Shifting to F&I (Finance and Insurance). We earned an F&I (Finance and Insurance) PBR of $2,175, only $4 less than last year and it would have been higher by $64 to 2239 without the non cash deferral impact of T. In October we finished the rollout of the Kuhn's stores to Total Care Auto (TCA) following the completion of the Techyon system conversion at those locations. Michael will walk you through additional details regarding Total Care Auto (TCA) despite macro challenges of consumer affordability, we continue to see a healthy adoption rate of Total Care Auto (TCA) products. Historically, the average customer chooses about two products per deal and that number sells steady even as pricing challenges have become more acute. And finally, in the third quarter our total front end yield per vehicle was $4,638, down $230 sequentially partially due to increased EV volume. Now moving to parts and service. As David mentioned earlier, our same store parts and service gross profit was up 7% year over year and we generated a gross profit margin of 58.8%, an expansion of 172 basis points. And once again our fixed absorption rate was over 100%, a key measure for the strength of our business when looking at customer pay and warranty performance. Customer pay gross profit was up 8% with warranty gross profit higher by 7% were on a combined basis up 8%. Lapping, tough comps and warranty from recall work across multiple brands in 2024. We believe our stores are well positioned for growth trends within parts and service. We continue to invest in improved facilities and technology and in training for our people and Before I pass the call to Michael, I want to share a couple of highlights from the Chambers platform. Looking at overall store numbers, the heavier luxury weighted mix lifted PBRs for both new and used. It's even more impressive considering that it was only for a partial quarter performance. I am very optimistic about how Asbury has strategically set itself up for long term success by continuously improving our operations today. I will now hand the call over to Michael to discuss our financial performance.

Michael Welch - Senior Vice President and Chief Financial Officer - (00:12:45)

Michael thank you Paul and good morning to our team members, analysts, investors and other participants on the call. And now on to our financial performance for the third quarter. Adjusted net income was $140 million. Adjusted EPS was $7.17 for the quarter. In addition, the non cash deferral headwind due to TCA this quarter was $0.23 per share. Our adjusted EPS would have been $7.40 without the deferral impact. Adjusted net income for the third quarter 2025 excludes net of tax, $27 million in net gain on divestitures, $9 million related to the non cash asset impairment related to a pending disposal, $7 million of professional fees related to the acquisition of Chambers, $2 million in income tax expense related to the deferred tax true up for the Chambers acquisition and $2 million related to the techie online implementation expenses. Adjusted SG&A (Selling, General and Administrative) as a percentage of gross profit for the total company came in at 64.2%. While we are confident in our ability to reduce SG and A expense, there may be transition related expenses pulled forward over the next couple of quarters as we roll out Techyon system to a greater number of stores. As it relates to new vehicle GPUs, we believe those will continue settling to our estimated range of 2,500 to $3,000. However, the trajectory and timing of this normalization would be sensitive to macro elements and it may be difficult to pinpoint a solid time frame for when this occurs. The adjusted tax rate for the quarter was 25.4%. We estimate the fourth quarter effective tax rate to be approximately 25.5%. TCA generated 14 million of pre tax income in the third quarter. The negative non cash deferral impact for the quarter was about $6 million at the beginning of this year. We provided an outlook for TCA and the impact on earnings per share through 2029 based on information known at the time. With our recent acquisition and divestiture activity, delayed rollout of our COON stores and lower Projected Seasonally Adjusted Annual Rate (SAAR) through 2030, we have revised our estimate for the TCA business. As shown in our presentation on Slide 18, we now expect less of the deferred revenue impact over the next several years, primarily as a result of changes in the Seasonally Adjusted Annual Rate (SAAR) estimates. Our initial projections were based on a faster return to 17 million saar levels, while the latest publicly available forecasts indicate something closer to high fifteens to low 16 million range. Now moving back to our results, we generated $543 million of adjusted operating cash flow year to date and 11% increase over the comparable period last year. Excluding real estate purchases, we spent $104 million on capital expenditures so far this year. We now anticipate approximately $175 million in CapEx spend for 2025. This amount will depend on the timing of certain projects before year end and we expect some capex in 2026 associated with Chambers. We will provide a more robust view on 2026 CapEx following our Q4 results. Free cash flow was $438 million through the first 3/4 of 2025, $50 million higher than 2024. We ended Q3 with $686 million of liquidity comprised of floor plan offset accounts availability on both our used line and revolving credit facility cash excluding cash at Total Care Auto. Our transaction adjusted net leverage ratio was 3.2 times on September 30th following the Chamber's acquisition. We believe our business model's ability to generate cash efficiently will help us reduce our leverage over the next 12 months while remaining agile enough to be opportunistic with share repurchases. The dealerships we sold this year enabled us to avoid lower return capex while also providing additional liquidity to reduce leverage and repurchase shares. We will continue to review our portfolio for similar opportunities. And finally, before I finish our prepared remarks, I want to thank our team members and we look forward to finishing the year strong. And with that, this concludes our prepared remarks. We will now turn the call over to the operator and take your questions.

OPERATOR - (00:17:14)

Operator thank you. We will now be conducting a question and answer session. If you'd like to be placed into question queue, please press star1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. Once again, that's Star one to be placed in the question queue. Our first question today is coming from Jeff Lick from Stevens Bank. Your line is now live.

Jeff Lick - Equity Analyst at Stevens Bank - (00:17:40)

Good morning everybody. Thanks for taking my question. Paul, welcome to the call.

Paul Whatley - Vice President of Operations - (00:17:44)

Thank you.

Jeff Lick - Equity Analyst at Stevens Bank - (00:17:46)

David, I was wondering just obviously with the Chambers acquisition and everything that was going on in Q3 with electric vehicles (EVs), you know, and obviously some of your competitors have talked about maybe the Internal Combustion Engine (ICE) incentive scenario being a little different in Q3 because of all the attention on electric vehicles (EVs), I'm just wondering if you could kind of unpack where you see new GPUs going in Q4 as we get into the all important luxury season.

David Holt - President and Chief Executive Officer - (00:18:14)

Sure. Jeff, this is David, you know, traditionally the fourth quarter is a great quarter for luxury and specifically in December. So we don't see any indications where that wouldn't be the case. Now our EV volume of units in Q3 compared to Q2 doubled and our EV average gross profit per car sold is significantly lower than what the hybrid and combustible engine gross profit is. So while that will probably slow down a little bit, even though they're still incentivized from the manufacturers, luxury we think will pick up in the fourth quarter. At this point, we think our margins will hold up well in the fourth quarter, but again, difficult to predict not knowing what macro events could happen.

Jeff Lick - Equity Analyst at Stevens Bank - (00:19:02)

And as it relates to Chambers, when that gets into the four, Q will. Be the first quarter where it's all. The way in there. Just based on the 8-Ks that you guys filed, it would appear the Chambers will have a slightly accretive effect on new GPUs.

David Holt - President and Chief Executive Officer - (00:19:17)

Is that correct? Absolutely, Will. You know, so far, since we've acquired them Their gross profits on new vehicles and used vehicles is the lead platform in our organization. They do a fantastic job generating growth on both sides. And you look at our numbers in Q3 on an all store basis, they pulled up our PVRs on new and used. So we're very pleased with the operators and how they run their business.

Jeff Lick - Equity Analyst at Stevens Bank - (00:19:44)

Awesome. Thanks very much and good luck on fourth quarter.

David Holt - President and Chief Executive Officer - (00:19:48)

Thank you. Thank you.

OPERATOR - (00:19:50)

Next question today is coming from Ryan Sigdal from Craig Hallum Capital Group. Your line is now live.

Ryan Sigdal - Equity Analyst at Craig Hallum Capital Group - (00:19:56)

Hey, good morning guys. Want to dig into tca? Just given the change or updated outlook here. So if I look at the previous assumptions from a year ago, this time when you originally gave them it was $5.69 of EPS accretion or incremental in 2029, now it's $0.81. I guess a 6% reduction in SAR assumption. 17 million to 16 million has that type of impact on EPS. But I guess, can you help me walk through really the next several years and what's changing? I assume there has to be more changing there than just the SAR assumption.

Michael Welch - Senior Vice President and Chief Financial Officer - (00:20:34)

Yeah. So on that number tca, we have a couple things in there. One, the Chamber's acquisition will have that def headwind when we roll that out starting kind of mid next year. Also we disposed of some pretty good stores out west in terms of the Toyota stores in California and the Lexus stores. And those will have an impact. We'll get the lack of the deferral hit, but you basically lose that volume in the future. So you have those two pieces on the acquisition disposal side and then Kuhn's's, we originally projected to roll out early this year. It rolled out in October. And so that's a delay on that kind of deferral hit. But the biggest One is just Seasonally Adjusted Annual Rate (SAAR). We had assumed that we'd be back to 17 million Seasonally Adjusted Annual Rate (SAAR) in 2027 and then kind of stay at those levels for a couple years. And now the projection is kind of high 15s to low 16s during that time frame. And that cumulative effect on Seasonally Adjusted Annual Rate (SAAR), the difference between the 17 and kind of the high 15 to 16 hits you every year and just kind of rolls out. We still expect to get back to that $5 of EPS. It's just going to be delayed until Seasonally Adjusted Annual Rate (SAAR) fully recovers. And so biggest impact is just the Seasonally Adjusted Annual Rate (SAAR) piece of that equation. And you know, you looked at the numbers next year's numbers significantly lower from a deferral hit. Again, just the Seasonally Adjusted Annual Rate (SAAR) being delayed has a big impact on the negative deferral hit that we expected next year.

Ryan Sigdal - Equity Analyst at Craig Hallum Capital Group - (00:22:04)

So. We can basically assume just kick it out two years kind of from the previous assumptions to get back to that EPS five plus dollars.

Michael Welch - Senior Vice President and Chief Financial Officer - (00:22:12)

Yeah, yeah, it's probably 2031, 2032. Again, depends on when you think we get back to that high 16, 17 million Seasonally Adjusted Annual Rate (SAAR) range. We really have to get back to those levels to drive that volume necessary to be at those level.

Ryan Sigdal - Equity Analyst at Craig Hallum Capital Group - (00:22:27)

And then maybe one more follow up and then I'll leave this one. But would you eventually get there with the 16 million Seasonally Adjusted Annual Rate (SAAR)? It just will take longer. Or do you actually need 17 million Seasonally Adjusted Annual Rate (SAAR) type volume to get to that level?

Michael Welch - Senior Vice President and Chief Financial Officer - (00:22:39)

To get to the high five EPS? We need the 17 million Seasonally Adjusted Annual Rate (SAAR) because you need that volume level now. You can also get there with future acquisitions and adding additional stores, but you need a total volume level to drive the price products going through the system. So we have to get there with the 17 million Seasonally Adjusted Annual Rate (SAAR) or additional acquisitions.

Ryan Sigdal - Equity Analyst at Craig Hallum Capital Group - (00:23:02)

Gotcha. Just for my follow up SG&A (Selling, General and Administrative), just curious if I look kind of on an adjusted basis gross profit up similar sequentially as sga. I guess. Just curious from an SG&A (Selling, General and Administrative) to gross profit leverage as you look into Q4 and even into 26. Any comments would be helpful.

Michael Welch - Senior Vice President and Chief Financial Officer - (00:23:24)

I think it all depends on what you think gross profit is going to do on the new vehicle side. We think fourth quarter hangs in there on gross profit, so we should be able to maintain these SG and A levels going into next year. We should still be able to maintain these SG&A (Selling, General and Administrative) percentage of gross levels, but again depends on what your view is on where new vehicle PBR shakeout going out. Beyond that, once we get past the Techyon system rollout, we will have some kind of one time costs if we go through that rollout phase. We pulled those out as adjusted items this quarter. We'll continue to do that in future quarters. Once we get past the Techyon system rollout, there's opportunities for productivity gains and cost savings because of the Techyon system piece. That will help us drive that number down.

Ryan Sigdal - Equity Analyst at Craig Hallum Capital Group - (00:24:09)

Great. Thanks guys. Good luck. Thank you.

Michael Welch - Senior Vice President and Chief Financial Officer - (00:24:13)

Thank you.

OPERATOR - (00:24:13)

Next question today is coming from ajak Gupta from JPMorgan. Your line is now live.

Rajat Gupta - (00:24:19)

Great. Thanks for taking the question. I had a question on just the total contribution from just the total acquisitions net of divestitures. If I look at the 8K it looks like when you do the adjustment on the leverage calculation, you're adding roughly 78 million of net EBITDA. You know, for the acquisition divestitures it would seem like the third quarter contribution is more like 25, 26 million. I mean, is it like 100 million ish kind of annualized run rate, EBITDA net? Of all the divestitures that you've done with Herb Chambers, is that a reasonable run rate to assume for the total for all the deals this year? I just want to clarify that and have a quick follow up.

Michael Welch - Senior Vice President and Chief Financial Officer - (00:25:13)

Yeah, it's probably a little bit above. That, but in that ballpark we sold the Toyota and Lexus stores, so those were good EBITDA stores. But yeah, in that ballpark part a touch above that number.

Rajat Gupta - (00:25:29)

Understood, that's helpful. Just a broader question on capital allocation. Was a bit surprised to see the buyback this quarter. Just given you just integrated Herp Chambers, I'm curious if you're able to rank order what your priorities are going forward. Should we think about excess free cash flow going more into just delevering and buyback from here, or is MA still within the rank order? I'm just curious if you could rank order those.

David Holt - President and Chief Executive Officer - (00:26:02)

Thanks, Rajat. This is David. I'll take a crack at it and then Michael can respond. You know, I think some of the divestitures that you've seen and I talked about in my script as far as organic or inorganic will continue to balance our portfolio. We'll generate cash with that and you know, I think there'll be a heavier focus on share repurchases. Debt will take care of itself over the next 12 to 18 months and paying itself down. If we think our share price is at an attractive price, that would probably be number one. And if for some reason that isn't the case, then naturally buying down debt will be it. But we generate a lot of cash that will continue through next year. So I would say share repurchase is debt, but they could trade places depending upon what's going on at a moment in time.

Rajat Gupta - (00:26:53)

Understood. Great. Thanks for all the color and best of luck.

David Holt - President and Chief Executive Officer - (00:26:57)

Thank you. Thank you.

OPERATOR - (00:26:59)

As a reminder that Star one to be placed into question queue, our next question is coming from Brett Jordan from Jeffries. Your line is now live.

Brett Jordan - Equity Analyst at Jeffries - (00:27:08)

Hey, good morning, guys.

OPERATOR - (00:27:09)

Hey, good morning.

Brett Jordan - Equity Analyst at Jeffries - (00:27:11)

A few of your peers who have reported we're sort of talking cautiously about recent luxury trends sort of at the consumer level. And it sounds like you guys really aren't seeing that. Is that more brand specific or region specific around luxury performance?

David Holt - President and Chief Executive Officer - (00:27:25)

Yeah, I would Brent this David. I would say it's more brand than region specific. You know, on a same store basis, I think we're back 1% in the quarter on volume. So we don't think that's material. Naturally Lexus is probably the hottest luxury brand out there right now, but they're all performing fairly well. And we traditionally going into a quarter that does well with luxury. It may be choppy October, November, but we still anticipate at this point a strong luxury end to the quarter. We're not seeing any material change in traffic or desire with the luxury consumer.

Brett Jordan - Equity Analyst at Jeffries - (00:28:03)

Great, thank you. And then on parts and service and customer pay, could you sort of parse out what was price versus units in that 8% growth? Sure.

David Holt - President and Chief Executive Officer - (00:28:14)

Almost half and half. It was a little bit more, I would say 60% dollars and 40% traffic growth. So it's always nice to see the growth in traffic that we have from what we call a repair order count, you know, up 6, 7% in the quarter for warranty is light compared to our peers. That would have if we were higher in warranty, that would have drove our overall fixed number higher, obviously. But we came off heavy comps last year from warranty. When did the comp peak last year in warranty?

Brett Jordan - Equity Analyst at Jeffries - (00:28:47)

There are some big recalls late in the year. Is the fourth quarter the hardest warranty compare?

David Holt - President and Chief Executive Officer - (00:28:53)

You're testing my memory, but I'm pretty sure it is. Yeah.

Brett Jordan - Equity Analyst at Jeffries - (00:28:57)

Okay, great. Thank you.

Michael Welch - Senior Vice President and Chief Financial Officer - (00:29:02)

Thank you.

OPERATOR - (00:29:02)

Next question Today is coming from Glenn Chin from Seaport Research Partners. Your line is now live.

Glenn Chin - Research Analyst at Seaport Research Partners - (00:29:09)

Good morning, gentlemen. Thank you. Just a couple questions on Techeon. David, I think you mentioned it's been rolled out to 19 stores. If you can just give us an update on how it's going. Any surprises favorable and or unfavorable and the pace at which we should expect it to continue to be rolled out. And then lastly, any changes on the prospects for savings there?

David Holt - President and Chief Executive Officer - (00:29:36)

SG&A (Selling, General and Administrative)ure. If I missed something, Glenn, just circle back around. We have 23 stores on tachyon. The 19 stores that we did with Kuhn's was Reynolds and four CDK Global. We start rolling out CDK Global stores in this quarter. SG&A (Selling, General and Administrative)o we anticipate, hopefully towards the end of next year we'll be done rolling out all the stores. From an efficiency standpoint, when you think about CDK Global or traditional dms, most dealers have a lot of bolt on. SG&A (Selling, General and Administrative)o for your employees, they have to have multiple screens open to service one customer. We lose 70% of those bolt ons with Techeon. SG&A (Selling, General and Administrative)o it makes it more efficient for our folks to communicate and be more transparent with our guests, but also raise their productivity per employee. SG&A (Selling, General and Administrative)o there's some good tailwinds there. SG&A (Selling, General and Administrative)ome things that were a little surprising to me and maybe I just didn't think it through. Well, because it's cloud based software and it's extremely intuitive compared to the traditional DMSG&A (Selling, General and Administrative)s, I thought the understanding and migration to the software would be fast. It's been fast. For someone that is new to the automotive business or hasn't been on one of the traditional DMSG&A (Selling, General and Administrative)s, they pick up Techyon system fast. For our folks that have been on CDK Global for 20 plus years or Reynolds, it's taken them a little bit longer to get comfortable and used to Techyon system. And I would say for a traditional person that's been on one of the legacy dmss for a long time, it's about six or seven months before they really become efficient with the software, where I thought it would have been closer to three months. If it's a new hire that doesn't know the industry or the software, they are adapting to the software extremely fast. SG&A (Selling, General and Administrative)o I just think it's going to take some time. When we get past the rollout and all the expenses that are involved in the rollout, there are absolutely be SG&A (Selling, General and Administrative)GA savings from a software standpoint, from a third party software standpoint in what I would call fees for API connections that we had with the legacy dms. Okay.

Glenn Chin - Research Analyst at Seaport Research Partners - (00:31:54)

And any change in those prospects for savings data given the sounds like somewhat of a longer tail as far as adoption or efficiency gains.

David Holt - President and Chief Executive Officer - (00:32:08)

Yeah, there'll definitely be savings. I think we'll start this, you know, who knows how things go the next six to nine months rolling out the. Rest of the stores. But as we sit here today, you know, fourth quarter, we should fully realize the savings of the software costs. And then I would say the end of 1Q27, you should really start to see the efficiency gains with Techyon. And look, not all horses are equal, not all markets are rolling out at once. So the early adopters are transitioning to the software will, you know, probably see gains middle of next year while the stores that go on the back end of integration will experience it in early 27.

Glenn Chin - Research Analyst at Seaport Research Partners - (00:32:58)

Okay, great. Thank you for all the color.

David Holt - President and Chief Executive Officer - (00:33:00)

Thank you.

OPERATOR - (00:33:03)

Thank you. Next question today is coming from David Whiston from Morningstar. Your line is now live.

David Whiston - Equity Analyst at Morningstar - (00:33:10)

Thank you. Morning. Just focusing on used vehicles you hear all the time. Everyone wants to get more of that volume, especially around buying off the street to avoid auction. It's obviously a great opportunity, but what more can you guys be doing in terms of marketing, both old fashioned marketing versus digital marketing to get more vehicles off the street.

Paul Whatley - Vice President of Operations - (00:33:42)

David, this is Paul. We've got our Quicklane acquisition tool which is one tool that we use to buy cars off the street. It's a digitally marketed platform that creates leads that are specifically for selling cars, not necessarily buying anything from us. But that's the number one portion. The second place is the service drive and those are where we're focusing. We also have opportunity, we think in lower end or lower price cars with retaining more of our wholesale cars. And we're more focused on that as well.

David Holt - President and Chief Executive Officer - (00:34:20)

And David, I would add, you know, we believe from our standpoint, one of the benefits that we continue to lead the space in sga, you know, sometimes volume doesn't create more profitability. You know, larger used car volume at lower gross profits raise your sga. And while it's a very competitive market for pre owned right now, because the pool is so shallow, it just doesn't make sense from our perspective to chase volume and be up 2, 3 or 4% volume but backwards in profitability. So we're trying to balance that as best we can. As Paul said in his script, just because of the COVID hangover and the lack of cars being built back then, 26, there'll be more used cars in the market. 27 gets even better. And 28, you're back to a normalized market. So I just think naturally you'll see lifts in volumes as you go forward. The key is acquisitions because your gross profit is 100% determined on what you acquire the vehicle for.

David Whiston - Equity Analyst at Morningstar - (00:35:21)

Thanks, Gus.

David Holt - President and Chief Executive Officer - (00:35:22)

Thank you.

OPERATOR - (00:35:24)

Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to David for any further closing comments.

David Holt - President and Chief Executive Officer - (00:35:31)

Thank you, operator. This concludes today's call. We look forward to speaking with you all after their fourth quarter earnings. Have a great day.

OPERATOR - (00:35:40)

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.