Group 1 Automotive, Inc.

Good morning, ladies and gentlemen, and welcome to Group 1 Automotive's 2022 Fourth Quarter and Full Year 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. And good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results that we referred to on the call this morning 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. The step-forward 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 harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume, inventory supply due to increased customer demand and reduced manufacturing production levels due to component shortages, conditions of markets, and adverse developments in the global economy and resulting impacts on demand for new and used vehicle and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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 non-GAAP financial measures to the most direct comparable GAAP measures on its website. Participating with me on the call today, Darrell Cunningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Darrell.

Thank you, Pete. Good morning, everyone. 2022 was a record year for Group 1 Automotive, driven by outstanding after-sales growth, strong margins, all-time profitability, record profitability in our UK operation, and disciplined expense control. Adjusted net income grew 15% to a record $729 million. Adjusted EPS grew 32% to an all-time high of $45.71. 2022 was also another strong year of external growth for Group 1. We acquired nearly $1 billion of revenue in 2022 and have now acquired over $3 billion in revenues over the past 15 months. We also returned meaningful capital to our shareholders by repurchasing $521 million in shares during the calendar year. Over the past 15 months, we've now repurchased over 22% of the company's outstanding shares. Our strong cash flow and leverage position, which Daniel will cover in a moment, will continue to allow for significant capital allocation flexibility in 2023. Turning to our fourth quarter results, I'm pleased to report that for the quarter, Group 1 generated adjusted net income from continuing operations of $158 million, or $10.86 per diluted share in EPS, an increase of 15% over the fourth quarter last year. Our adjusted results exclude non-core items totaling $1.7 million of after-tax losses, which primarily resulted from the pending disposition of two U.S. franchise points. Starting with our U.S. operations, as of December 31st, we had 8,000 new vehicles in inventory, representing a 21-day supply up six days from September. This inventory increase was primarily in our domestic brands, as import brands remained very constrained. Thirty percent of our U.S. business is Toyota and Lexus, which continues to be very tight at a combined four days' supply. We expect a gradual decline in new vehicle margins over the course of 2023, as inventory continues to recover. We do, however, expect normalized new vehicle margins to eventually settle above our pre-pandemic levels. One of the continued challenges we faced in the quarter was a decline in industry used vehicle pricing, which resulted in a used vehicle sequential margin decline of $235 to roughly $1,350. Partially offsetting this was an 8% increase in same-store used vehicle unit sales. Our organic sourcing efforts, including the acquisition of over 10,300 vehicles from individuals through Acceleride, continue to minimize our reliance on public auctions. We maintained our discipline with a 28-day supply of used inventory, which is within our target of 30 days. And the F&I business has remained strong at $2,369 per unit. showing only a minimal sequential decline. Looking forward, we do expect some modest headwinds due to pressure on finance penetration rates. Turning to after sales, our U.S. performance was outstanding once again, generating double-digit same-store revenue growth following high teen growth comps a year ago. Our customer pay business generated 13% same-store growth, Collision increased 14%, warranty 8%, and wholesale parts 3%. Through our technician recruiting and retention efforts, we increased our same store technician headcount by 16% in 2022. We foresee after sales continuing to be a strength over the course of 2023 for Group 1. We continue to maintain cost discipline despite the decline in new and used vehicle margins. Our fourth quarter U.S. adjusted SG&A's percentage of gross profit was 61 percent, an increase of only one percentage point from the prior year, and down from 71 percent in pre-pandemic 2019. A material portion of these cost savings will be permanent as we continue to leverage technology to drive customer and employee efficiencies. In the fourth quarter, we sold an all-time record 10,100 vehicles through Acceleride, 15% of our total US retail sales, also an all-time record. Over 75% of our customers used Acceleride in their transaction in some way in the fourth quarter, a percentage that continues to increase. We're also looking to our full integration of Acceleride with our DMS, CRM, and credit software. We continue to test it in several dealerships and expect a full rollout this year. Our early results are very positive and we expect this will provide faster and more transparent transactions for our customers. Now turning to the UK. Vehicle demand remains steady and new vehicle availability is still constrained. Our new vehicle order bank at year end was approximately 16,000 units over six months worth of sales. which remained fairly consistent with the prior quarter. As a reminder, our UK business mix is predominantly luxury, and those consumers are more resilient during times of economic uncertainty. We continue to believe that pent-up demand built over the past several years due to both Brexit and the very strict pandemic lockdowns will help drive strong UK vehicle demand throughout 2023. Our after-sales growth in the U.K. has been just as strong as the U.S., with same-store gross profit growth on a local currency base of 13% for both the fourth quarter and the full year of 2022. And finally, we expect the Acceleride platform in the U.K. to be fully integrated in the second quarter of this year. Now to provide a balance sheet and liquidity overview, I'll turn the call over to our CFO, Daniel McHenry.