Group 1 Automotive, Inc.

Good morning, ladies and gentlemen, and welcome to Group 1 Automotive's 2020 fourth quarter and full year financial results conference call. All participants will be in a listen-only mode. Should you need assistance, you may see a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the comments call over to Mr. Pete Belongshaw, Group 1's Senior Vice President of Manufacturer Relations, Financial Services, and Public Affairs. Sir, please go ahead.

Thank you, Jamie. And good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related presentation that includes Reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to Group 1's website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking that are made pursuant to the Safe Harbors Provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ material from forecast results. Those risks include, but are not limited to, risks associated with pricing, volume, conditions of markets, adverse developments in the global economy, as well as the public health crisis related to the COVID-19 virus, and resulting impacts on demand for new and used vehicles and related services. Uncertainty regarding the duration and severity of COVID-19 and its impact on U.S. and international authorities and its current restrictions on various commercial and economic activities. And uncertainty regarding the timing, pace, and extent of an economic recovery in the U.S. and elsewhere from the unknown current and future impacts of COVID-19 and unknown future impacts of oil producers and the effects such can have on travel, transportation, and oil prices, which in turn will likely adversely affect demand for our vehicles and services. Those and other risks are described in the company's filings with the Securities and Exchange Commission over the last 12 months. Copies of these filings are available from both the SEC and the company. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me on today's call Earl Hesterberg, our President and Chief Executive Officer, Darrell Kenningham, our President of U.S. and Brazilian Operations, Daniel McHenry, Senior Vice President and Chief Financial Officer, and Michael Welch, our Vice President and Corporate Controller. I'd now like to hand the call over to Earl.

Thank you, Pete, and good morning, everyone. The fact that 2020 was a record year for Group 1 Automotive is nothing short of astounding, given the outlook we faced in late March and early April. For the full year, we were able to achieve record adjusted net income of $334 million, an increase of $130 million, which equates to a 64% improvement over our 2019 results. This translates to record adjusted earnings per share of $18.06, an increase of 65%. This profit performance was largely driven by our swift cost cutting actions at the onset of the pandemic and the continued rationalization of our cost structure throughout the year. As a company, we reduce adjusted SG&A by $179 million, reducing our adjusted SG&A as a percent of gross profit by 810 basis points to a record 65.8%. And the U.S. number reached an even more impressive level at 63.4% of gross profits. In the U.S., by the fourth quarter of 2020, we had improved the productivity of our technicians by 25% and the productivity of our salespeople by more than 33%. Looking forward, we expect to retain a material amount of these cost reductions with a leaner operating and support structure, as well as increasing our use of technology. Before turning to our Q4 results, I must thank all of our employees for the hard work and sacrifices this year. We faced ongoing business disruptions throughout the year in all of our markets. In the UK, our showrooms have been required to close on at least three different occasions for a total of well over three months, yet our employees remain resilient and our business remains solid. All Group 1 employees are putting the safety of our customers, and our colleagues first, and we owe them a great deal of thanks. Turning to our fourth quarter results, I'm pleased to report that for the quarter, Group 1 generated adjusted net income of $104 million. This equates to adjusted earnings per share of $5.66 for diluted share, an increase of 88 percent over the prior year. Our adjusted net income results excluded $10.2 million in tangible asset impairment arising from our annual testing procedures, partially offset by a $4 million net gain on dealership and real estate transactions, and a $2.1 million benefit from legal settlements. These results were especially impressive given the fact that our regional U.S. and U.K. lockdowns increased in our markets in the fourth quarter, hampering our vehicle sales, and especially our after-sales traffic. In the U.S., we were able to return to our revenue levels of the prior year, and despite a continued small decline in our overall service business, we were able to actually grow customer-pay gross profit versus the fourth quarter of last year. These are very encouraging signs for continued improvement in 2021. In the U.K., our October results were very strong, and continued the substantial year-over-year growth we realized in the third quarter. However, COVID cases increased rapidly across the UK, especially around London where we operate, and mandatory lockdowns began on November 5th. In total, most of our UK dealership showrooms were closed 41 of the 92 days in the quarter. Yet we were able to remain profitable in the UK in each month of the quarter. This is another example of our flexible cost structure and the resilience of our management team. I should also point out that throughout 2020, we restructured our UK operation in its entirety to centralize more support functions and improve the efficiency of our operations by leveraging more of our skill. This paid off with record UK profits in 2020 and will serve us well in the future. To provide some color on our U.S. and Brazil fourth quarter performance, I'll now turn the call over to General Cunningham.