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Date
Tuesday, October 28, 2025 at 10:00 a.m. ET
Call participants
President and Chief Executive Officer — David W. Hult
Vice President of Operations — Paul Watley
Senior Vice President and Chief Financial Officer — Michael D. Welch
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Takeaways
Revenue -- $4.8 billion in revenue, cited as a record for the period, supported by the integration of the Chambers Group acquisition and higher new vehicle volumes.
Gross profit -- $803 million gross profit with a gross profit margin of 16.7%, driven by both organic and acquired store performance.
Adjusted operating margin -- Adjusted operating margin of 5.5%, reflecting operational execution amid integration and macro factors.
Adjusted earnings per share (EPS) -- Adjusted earnings per share were $7.17, including a $0.23 per share non-cash deferral headwind from TCA; excluding this, adjusted EPS would have been $7.40.
Adjusted EBITDA -- Adjusted EBITDA was $261 million, contributing to increased cash generation and deleveraging objectives.
Same-store new vehicle revenue -- Same-store new vehicle revenue was up 8% year-over-year compared to fiscal Q3 2024 (period ended September 30, 2024). Same-store new vehicle units were up 7% year-over-year compared to fiscal Q3 2024, reflecting heightened consumer demand and expiration of the EV tax credit.
EV volume -- "Our EV volume of units in fiscal Q3 compared to fiscal Q2 doubled," per Hult, pressuring overall average gross profit per vehicle (PVR).
New vehicle average gross profit per vehicle (PVR) -- Same-store new vehicle average gross profit per vehicle was $3,188.
Day supply of new inventory -- One day lower than the prior quarter, indicating ongoing disciplined inventory management.
Used vehicle unit volume -- Down 4% year-over-year, though used retail gross profit per unit rose to $1,551.
Same-store days’ supply of used inventory (DSI) -- 35 days at the end of the period.
F&I product per vehicle retail (PVR) -- F&I PVR was $2,175; would have been $2,239 without the non-cash TCA deferral.
Total yield per vehicle -- Total yield per vehicle was $4,638, down $230 sequentially from fiscal Q2 to fiscal Q3, partially due to increased EV volume.
Same-store parts & service gross profit -- Same-store parts and service gross profit was up 7% year-over-year compared to fiscal Q3 2024; customer pay gross profit was up 8% compared to fiscal Q3 2024; warranty gross profit was up 7% compared to fiscal Q3 2024; combined customer pay and warranty gross profit was up 8% compared to fiscal Q3 2024.
Parts & service gross margin -- 58.8% same-store parts and service gross profit margin. Parts and service gross margin expanded 172 basis points year-over-year, supporting the fixed absorption rate above 100%.
SG&A as percentage of gross profit -- Same-store SG&A as a percentage of gross profit was 63.6%, down 32 basis points; total company adjusted SG&A was 64.2% of gross profit, with indication of future cost reduction as Techeon rollout concludes.
Chambers Group acquisition impact -- Lifted new and used vehicle PVRs; only a partial quarter contribution recognized in this period.
Divestitures -- Four store divestitures completed in July with annualized revenue of $300 million.
Share repurchases -- $50 million repurchased; future repurchase pace will depend on portfolio activity, share price, and returns.
Adjusted net income -- Adjusted net income was $140 million, excluding significant items such as a $27 million net gain on divestitures and $9 million asset impairment.
Adjusted tax rate -- Adjusted tax rate was 25.4%, with management projecting 25.5% for the next quarter.
TCA (Total Care Auto) pretax income -- $14 million of pretax income was generated by TCA, with a negative non-cash deferral impact of $6 million.
Revised TCA EPS accretion outlook -- Management reduced the 2029 incremental EPS contribution to $0.81 from $5.69, primarily due to a lower industry SAAR projection (now mid-15 to low-16 million vehicles versus prior 17 million assumption) and delayed volume ramp from acquisitions and divestitures.
Adjusted operating cash flow (year-to-date) -- $543 million of adjusted operating cash flow year-to-date. Adjusted operating cash flow was up 11% year-to-date over the comparable prior period.
Capital expenditure guidance -- $175 million anticipated for 2025 CapEx, excluding real estate purchases; some projects may carry into 2026 with additional guidance forthcoming.
Free cash flow -- Free cash flow was $438 million year-to-date, $50 million higher compared to the same period in 2024.
Liquidity at quarter end -- $686 million of liquidity at quarter end, comprising floor plan offset, credit availability, and cash (excluding TCA cash).
Transaction-adjusted net leverage ratio -- Transaction adjusted net leverage ratio was 3.2 times at quarter end, following the Chambers acquisition; management plans meaningful deleveraging over the next year.
Techeon rollout progress -- 23 stores integrated (19 Coons stores, 4 CDK); enabling software and labor efficiency gains as legacy DMS systems are eliminated.
Efficiency improvement outlook -- Management expects Techeon-driven SG&A savings and productivity gains to fully materialize by the end of 2027, with early adopters benefitting in mid-2026.
Summary
The quarter featured record consolidated revenue and Chambers Group integration boosted new and used vehicle metrics and gross profit per vehicle. Management cited a significant shift in the TCA earnings outlook, reducing the 2029 accretion estimate by roughly $4.88 (from $5.69 to $0.81 per share) due to weaker industry volume assumptions, portfolio changes, and delayed store rollouts. Cash flow improved year-to-date, supporting ongoing investments in technology and capital returns to shareholders. Expected to generate substantial SG&A savings and productivity benefits after transitional costs subside. Management indicated upcoming quarters may see expense timing effects as store integration and system migrations accelerate.
Michael D. Welch said, "To get to the high five EPS, we need the 17 million SAAR. You need that volume level. Now you can."
Customer pay and warranty fixed ops growth split was described by Hult as "a little bit more, I would say, 60% dollars and 40% traffic growth."
Hult noted, "We lose 70% of those bolt-ons with Techeon," highlighting substantial third-party software cost reduction and employee productivity improvement potential.
Share repurchases were identified as a higher near-term capital priority, with debt reduction progressing on schedule, supported by improved cash generation over the next twelve months.
Industry glossary
TCA (Total Care Auto): Asbury’s proprietary bundled service and F&I product offering, generating recurring pretax income and featuring deferred revenue recognition tied to service contract sales.
Techeon: Asbury’s cloud-based, digital dealership management platform designed to streamline operations, reduce software costs, and enhance employee productivity versus legacy DMS systems.
SAAR (Seasonally Adjusted Annual Rate): Industry forecast metric estimating total annualized new vehicle sales volume in the U.S. automotive market.
DMS (Dealer Management System): Core software platform used by automotive retailers for sales, service, inventory, and back-office operations management.
PVR (Per Vehicle Retail): Average gross profit or F&I income earned by the company per vehicle sale.
DSI (Days’ Supply of Inventory): Inventory management metric showing average days required to sell existing stock at the current sales rate.
SG&A (Selling, General & Administrative Expenses): Operating cost category encompassing employee compensation, facility, and administrative expenses, measured as a percentage of gross profit for efficiency tracking.
Fixed absorption rate: Ratio indicating the extent to which parts and service gross profit covers the dealership’s fixed operating expenses.
Full Conference Call Transcript
David W. Hult: 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 Techeon will transform how we sell and service vehicles and deliver a superior guest experience. Our litigation with CDK has reached the point where we can continue migrating stores onto the new DMS. 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.
Our new vehicle performance, on an all-store basis, highlights the impact of our Herb Chambers 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 deleveraging 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%. Our adjusted earnings per share were $7.17, and our adjusted EBITDA was $261 million. At the end of my remarks, I traditionally hand the call 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 Watley, 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 Watley: 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 Techeon 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 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 EVs to take advantage of the expiring tax credit and significant increases in EV volumes 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 September. One day less than the previous quarter. 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 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 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 and proving further into '27 and '28. Our teams are focused on driving profitable volume growth over the coming quarters. Shifting to F&I. We earned an F&I PVR of $2,175, only $4 less than last year, and it would have been higher by $64 to $2,239 without the non-cash deferral impact of TCA. In October, we finished the rollout of the Kuhn stores to TCA following the completion of the Techeon conversion at those locations. Michael will walk you through additional details regarding TCA.
Despite macro challenges of consumer affordability, we continue to see a healthy adoption rate of TCA products. Historically, the average customer chooses about two products per deal and that number has held steady even as pricing challenges have become more acute. And finally, in the third quarter, our total 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 about 7% or 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, 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 PVRs for both new and used. It's even more impressive considering 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?
Michael D. Welch: 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, and adjusted EPS was $7.17 for the quarter. In addition, a 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 of 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 expenses related to the deferred tax true-up for the Chambers acquisition, and $2 million related to the Techeon implementation expenses. Adjusted SG&A is a percentage of gross profit for the total company which came in at 64.2%.
While we are confident in our ability to reduce SG&A expenses, there may be transition-related expenses pulled forward over the next couple of quarters as we roll out Techeon 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 pretax 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 noted at the time. With our recent acquisition and divestiture activity. Delayed rollout of our Coons stores, and lower projected 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 SAAR estimates. Our initial projections were based on a fast return to 17 million SAAR levels.
While the latest publicly available forecast indicates 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, an 11% increase over the comparable period last year. Excluding real estate purchases, we spent $104 million in capital expenditures so far this year. We now anticipate approximately $175 million of 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 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, and cash excluding cash of Total Care Auto. Our transaction adjusted net leverage ratio was 3.2 times on September 30. Following the Chambers acquisition. We believe our business model's ability to generate cash efficiently will help us reduce our leverage over the next six to twelve. Next twelve months while remaining agile enough to be opportunistic with share repurchases. The decisions we made 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?
Operator: Thank you. We will now be conducting a question and answer session. If you'd like to be placed in the question queue, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. Once again, that's 1 to be placed in the question queue. Our first question today is coming from Jeff Lick from Stephens Bank. Your line is now live.
Jeffrey Francis Lick: Morning, everybody. Thanks for taking my question. Paul, welcome to the call.
Paul Watley: Thank you.
Jeffrey Francis Lick: David, I was wondering, does obviously, with the Chambers acquisition and everything that was going on in Q3 with EVs, you know, and obviously, some of your competitors have talked about of all the attention on EVs. I'm just wondering if you could kind of unpack you know, maybe the ICE incentive scenario being a little different in Q3. Where you see new GPUs going in Q4 as we you know, get into the all-important luxury season?
David W. Hult: 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, and 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.
Jeffrey Francis Lick: And as it relates to Chambers, when that gets into the 4Q will be the first quarter where it's, you know, all the way in there. Just based on the 8-Ks that you guys filed, it would appear that Chambers will have a slightly accretive effect on new GPUs. Is that correct?
David W. Hult: Absolutely. Well, you know, so far since we've acquired them, their gross profit on new vehicles and used vehicles is the lead platform. In our organization. They do a fantastic job generating gross 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.
Jeffrey Francis Lick: Awesome. Thanks very much, and good luck on the fourth quarter.
David W. Hult: Thank you.
Operator: Thank you. Next question today is coming from Ryan Sigdahl from Hallum Capital Group. Your line is now live.
Ryan Ronald Sigdahl: Good morning. Wanna 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 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 SAAR 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 SAAR assumption.
Michael D. Welch: Yeah. So on that number, it's TCA, we have a couple of things in there. One, the Chambers acquisition will have that deferral headwind when we roll that out. Starting kind of mid next year. Also, we disposed of some, you know, pretty good stores out West in terms of the Toyota stores in California and the Lexus stores. And those will have, you know, an impact. We'll get the lock 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 Coons, we originally projected to roll out early this year. It rolled out in October.
So that's a good play on that kind of deferral hit. But the biggest one is just SAAR. We had assumed that we'd be back 17 million SAAR in 2027. And it kinda stay at those levels for a couple of years. And now the projection is kind of high fifteens to low during that time frame. And that cumulative effect on SAAR of the difference between 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 gonna be delayed until SAR fully recovers. So the biggest impact is just the SAAR piece of that equation.
And, you know, you looked at the numbers. Next year's number is significantly lower from a deferral hit. Again, just the SAAR being delayed. Has a big impact on the negative deferral hit that we expected next year.
Ryan Ronald Sigdahl: So we can basically assume just kick it out two years kind of from the previous assumptions to get back to that EPS you know, 5 plus dollars. Yeah.
Michael D. Welch: Yeah. It's probably 2031. 2032. Again, depends on when you think we get back to that high 16 to 17 million SAAR range. We really have to get back to those levels to drive that volume necessary to be at those levels.
Ryan Ronald Sigdahl: And then maybe one more follow-up, and then I'll leave this one. But would you eventually get there with the 16 million charges? Will take longer, or do you actually need 17 million SAAR type volume to get to that level?
Michael D. Welch: To get to the high five EPS, we need the 17 million SAAR. 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 products going through the system. So you, you know, you have to get there with the 17 million SAAR or additional acquisitions.
Ryan Ronald Sigdahl: Got you. Just for my follow-up, SG&A, curious, if I look kind of on an adjusted basis, gross profit up similar sequentially as SG&A. I guess just curious from kind of an SG&A to gross profit leverage as you look into Q4 and even into 2026, any comments would be helpful.
Michael D. Welch: I think, you know, it all depends on what you think gross profit is gonna do on the new vehicle side. We think the fourth quarter hangs in there on gross profit, so we should be able to maintain these SG&A levels. Going into next year, you know, we should still be able to maintain these SG&A percentage of gross levels. But, again, depends on what your view is on where new vehicle PVR shakes out. Going out, you know, beyond that, once we get past the Techeon rollout, we will have some one-time costs as we go through that rollout phase. We pull those out as adjusted items this quarter. We'll continue to do that in future quarters.
Once we get past the Techeon rollout, there's opportunities for productivity gains and cost savings because of the Techeon piece that will help us drive that number down.
Ryan Ronald Sigdahl: Great. Thanks, guys. Good luck.
Michael D. Welch: Thank you.
Operator: Thank you. Next question today is coming from Rajat Gupta from JPMorgan. Your line is now live.
Rajat Gupta: Great. Thanks for taking the question. I had a question on just the total contribution from, you know, you know, just the total know, just the acquisitions net of divestitures. If I look at the 8-K, 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 to $26 million. I mean, 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 D. Welch: Yeah. I mean, it's probably a little bit above that, but in that ballpark. We, you know, we did sell the Toyota and Lexus stores, so those were, you know, good EBITDA stores. But, yeah, in that ballpark part, a touch above that number.
Rajat Gupta: Understood. That's helpful. Just a broader question on capital allocation. I was a bit surprised to see the buyback this quarter. You know, just given you disintegrated Herb Chambers. I'm curious, you know, if you're able to rank order what your priorities are going forward, should we think about, you know, excess free cash flow going more into the delevering and buyback from here? Is M&A still within the rank order? I'm just curious, you know, what's if you could rank order those. Thanks.
David W. Hult: Rajat, this is David. I'll take a crack at it, and 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, we'll 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 in 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'll continue through next year. So I would say share repurchases debt. But they could trade places depending upon what's going on at a moment in time.
Rajat Gupta: Understood. Great. Thanks for all the color, and best of luck.
David W. Hult: Thank you.
Operator: Thank you. Our next question is coming from Bret Jordan from Jefferies. Your line is now live.
Bret David Jordan: Hey. Good morning, guys.
David W. Hult: Hey. Good morning. Here.
Bret David Jordan: A few of your peers who have reported were sort of talking cautiously about recent luxury trends sort of at the and it sounds like you guys really aren't seeing that. Is that more brand specific or region specific around luxury performance?
David W. Hult: Yeah. I would, Bret, this is 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're 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.
Bret David Jordan: 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?
David W. Hult: Sure. Almost half and half. It was, yeah, 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 account. You know, up six, 7% in the quarter for warranty is light compared to our peers. That would've if you were a higher warranty, that would've drove our overall fixed number higher, obviously. But we came off heavy comps last year from warranty.
Bret David Jordan: When did the comp peak last year in warranty? There's some big recalls late in the year.
David W. Hult: You're testing my memory, but I'm pretty sure it is. Yeah.
Bret David Jordan: Okay. Great. Thank you.
David W. Hult: Yep.
Operator: Thank you. Next question today is coming from Glenn Chin from Research Partners. Your line is now live.
Glenn Chin: Good morning, gentlemen. Thank you. Just a couple of 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 W. Hult: Sure. If I missed something, Glenn, just circle back around. We have 23 stores on 19 stores that we did with Coons was Reynolds and four CDK. We start rolling out CDK stores in this quarter. So we anticipate hopefully, towards the end of next year, we'll be done rolling out all the stores. From an efficiency standpoint, you know, when you think about CDK, or traditional DMS, most dealers have a lot of bolt-ons. So for your employees, they have to have multiple screens open to service one customer. We lose 70% of those bolt-ons with Techeon.
So it makes it more efficient for our folks to communicate and be more with our guests but also raise their productivity per employee. So there's some good tailwinds there. Some things that were a little surprising to me, and maybe I just didn't think it's through well. Because it's cloud-based software and it's extremely intuitive compared to the traditional DMS'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 those traditional DMS's. They pick up Techeon fast.
For our folks that have been on CDK for twenty plus years or rentals, it's taken them a little bit longer to get comfortable and used to, Techeon. And I would say for a traditional person that's been on one of the legacy DMS's 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. So I just think it's gonna take some time.
When we get past the rollout and all the expenses that are involved in the rollout, there are definitely SG&A 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.
Glenn Chin: Okay. And any changes in those prospects for savings data given the sound from a somewhat of a longer tail as far as adoption or efficiency gains?
David W. Hult: Yeah. Well, there'll definitely be savings. I think we'll start this you know, who knows how things go the next, you know, six to nine months rolling out the rest of the stores. But as we sit here today, in the fourth quarter, we should fully realize the savings of the software cost. And then I would say the end of the '27 you should really start to see the efficiency gains with Techeon. And look, not all horses are equal. Not all markets are rolling out at once.
So the early adopters or transitioning to the software will, you know, probably see gains in the middle of next year while the stores that go on the back end of integration will experience it, you know, in early twenty seven.
Glenn Chin: Okay. Great. Thank you for all the color.
David W. Hult: Thank you.
Operator: Thank you. Next question today is coming from David Whiston from Morningstar. Your line is now live.
David Whiston: Hi. Good 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 of, you know, old fashioned marketing versus digital marketing to get more vehicles off the street?
Paul Watley: David, this is Paul. We've got our Clicklane 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 opportunities, we think, in lower end or lower priced cars. With retaining more of our wholesale cars, and we're more focused on that. As well.
David W. Hult: And, David, I would add, you know, we believe from our standpoint, one of the benefits that we can continue to lead the space in SG&A, you know, sometimes volume doesn't create more profitability. You know, larger used car volume at lower gross profits raise your SG&A. 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 two or three or 4% in 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. In '28, you're back to a normalized market. So I just think naturally, you'll see lifts in volume as you go forward. The key is acquisitions because your gross profit is 100% determined on what you acquire the vehicle for.
David Whiston: Thanks, guys.
Paul Watley: Thank you.
Operator: 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 W. Hult: Thank you, operator. This concludes today's call. We look forward to speaking with you all after the fourth quarter earnings. Have a great day.
Operator: 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.