Group 1 Automotive, Inc.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's 2021 First Quarter Financial Results Conference Call. Please be advised, today's conference call is being recorded. At this time, I'd like to turn the conference call over to Mr. Pete DeLongshaw, Group 1 Senior Vice President of Manufacturer Relations, Financial Services, and Public Affairs. Please go ahead, Mr. DeLongshaw.

Thank you, Jamie. Good morning, everyone, and welcome to today's call. The earnings release we issued this morning and the related slide presentation that include 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 statements that are made pursuant to the safe harboring provisions 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 and future peers to differ materially 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 COVID-19, 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 to ease current restrictions on various commercial and economic activities. Uncertainty regarding the timing, pace, and extent of 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 of such can have on travel, transportation, oil prices, which in turn will likely adversely affect demand for our vehicles and service. Also, our ability to obtain and inventory desirable new and used vehicles and the impact of supply chain disruptions which may occur from time to time. Also, our ability to maintain vehicle margins and implement and maintain expense controls and maintain sufficient liquidity to operate. Those risks 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 take the time to hand the call over to Earl.

Thanks, Pete, and good morning, everyone. I'm pleased to report that for the quarter, Group 1 generated adjusted net income of $103 million. This equates to adjusted earnings per share of $5.57 per diluted share, an increase of 236% over the prior year, and an increase of 170% over the pre-pandemic first quarter of 2019. Our adjusted net income results exclude non-core items of $1.7 million of after-tax disaster pay provided to employees who couldn't work during our February Texas store closures, partially offset by an $800,000 after-tax benefit from legal settlements and a $200,000 after-tax net gain on dealership and real estate transactions. These profit results were particularly impressive given the fact that our Texas operations, which typically represent around 40% of our total revenues, were severely impacted due to a record-setting February winter weather event. Our stores effectively lost about the equivalent of a full week of business. It is likely that vehicle sales were largely deferred into subsequent months, but the available service job hours were permanently lost. Also, the UK remained under lockdown throughout the entire first quarter. With so many restrictions in all our markets in 2020, it was difficult to generate revenue growth. Therefore, the 11.9% increase in our total consolidated revenue in the first quarter was a welcome improvement in our trend line. This improvement was driven by new and used vehicle revenue increases in the US of well over 20% in the first quarter. Of course, we should remember that the pandemic did start to negatively impact traffic and sales during the second half of March last year. But the important fact is that consumer demand for vehicles in the U.S. remains extremely strong and hits an even higher year in March. It is true that sales have and will be hampered to a certain degree by low inventory levels, but this continues to support above average margin levels. Daryl will speak more about our inventory situation shortly. Our after-sales business has suffered throughout the pandemic from less driving and a variety of lockdown conditions in all our markets. In particular, our U.S. business started 2021 very slowly in January but exploded in March. Again, Darrell will provide more detail, but this gives us great confidence that we will enjoy very strong parts and service business this spring and summer in both the U.S. and also likely the U.K. as those facilities are now completely open. In the U.S., we are especially pleased that our service results have now returned to pre-pandemic levels. On a same-store basis, our U.S. total after-sales gross profit increased 3% versus the first quarter of 2019, and customer pay gross profit increased 14% over that same pre-pandemic time period. These are very encouraging signs for continued after-sales improvement in 2021. Daryl will provide more detail on our U.S. results in a moment. Relative to the U.K., mandatory lockdowns began on November 5, 2020, and lasted through the entire first quarter. They have since been lifted as of April 12. Like the U.S., our U.K. operations have shifted heavily to online selling via our Acceleride platform since our showrooms have been closed for five months. Despite not having the benefit of physical sales departments or the ability to conduct test drives, we were able to deliver over 13,000 new and used vehicles during the quarter. Limited new vehicle availability increased our same store new vehicle margins by 160 basis points to 5.6% during the first quarter. Our after-sales margin increased by almost 400 basis points to 58.4% as most service work at our dealerships was heavy repair work as customers chose to defer routine maintenance until after the lockdown. The strong new vehicle and after-sales margins combined with strong cost discipline evidenced by an 1,800 basis point same-store SG&A improvement over last year enabled us to generate a meaningful level of profit in the UK despite closed showrooms. As we were permitted to open showrooms again on April 12th, we've seen very strong sales and service traffic levels back in our dealerships. This gives us a high level of confidence in our UK business during the remainder of 2021. To provide some color on the US and Brazil first quarter performances, I will now turn the call over to Daryl Scanninghack.