Group 1 Automotive, Inc.

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's fourth quarter and full year 2023 financial results conference call. Please be advised for this call is being recorded. I would now like to turn the floor 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 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 the 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 harbor provisions of the Private Security 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 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. Conditions of markets and adverse developments in the global economy and resulting impacts on demand for new and used vehicles 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 such non-GAAP financial most directly comparable GAAP measures on its website. Participating with me on the call today, Darrell Kenningham, our President and Chief Executive Officer, and Daniel McHenry, our Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Darrell.

Good morning. In the fourth quarter of 2023, Group 1 Automotive reported $131.2 million in adjusted net income and delivered quarterly adjusted diluted EPS from continuing operations of $9.50. Current year total revenues of $17.9 billion were the highest in company history, supported by all lines of business, and total gross profit exceeded $3 billion, an all-time record. driven by parts and service growth profit of $1.2 billion. Start with our U.S. operations. New vehicle units sold outpaced the industry. We were up 14% on a same store basis and up 19% on an as reported basis. During the fourth quarter, 24% of our new vehicle sales in the U.S. were pre-sales. down from 30% in the prior quarter. These strong unit sales reflect the resiliency of demand and our emphasis on driving volume. Gross profits performed about as expected and continue on their slow glide path down as inventories return. In used cars, retail used vehicle GPUs performed well in the quarter, increasing $160 over the prior year quarter with unit sales remaining flat. giving the speed and depth that the industry-used car valuations declined in the U.S. during the fourth quarter, we're pleased with our ability to hold volume and increase margin. We believe this is testament to our process discipline with pricing and our use of technology. Our F&I gross profit per unit of $2,342 only minimally declined on a same-store sequential quarter basis. It appears that finance attachment rates in used cars have now leveled off, while new vehicle finance attachment is increasing again. We expect some continued pressure on finance penetration due to existing interest rates and slightly tighter lender requirements for some buyers. Our after-sales fourth quarter revenues and gross profits outperformed the prior year as customer pay was up nearly 7%. and we achieved record annual parts and service revenues and gross profit in excess of a billion dollars for the full year of 2023. We continue to believe that after sales is an area for Group 1 to differentiate, and we will continue to invest in that part of our business. Our focus is on the after sales impact of the customer journey, specifically increasing customer attention through more convenient service hours, training of our service advisors and technicians, flexible work schedules, improved customer relationship management software, and more innovative marketing using data science and technology to reach our customers in a more relevant and timely way. As inventories return, it's clear that some customers may trade in their vehicles rather than service them. However, we still see significant opportunities to drive after sales growth in our business. As an example, We booked over 10,000 customer appointments in the quarter using artificial intelligence, helping to meet our customers when and where they want to engage and to do business with us. Wrapping up the U.S., let's shift to SG&A. U.S. suggested SG&A as a percentage of gross increased 260 basis points to 63.8%, down considerably from pre-COVID levels of around 70%. Despite this fact, we believe we can do more to provide value to our shareholders. We're renewing our focus on controlling costs in this inflationary environment and investing to add to the structural cost improvements made since the pandemic. Leveraging our local and national scale, we will engage in new actions to unlock key synergies through smart standardization across our network. Now turning to the UK. The UK underperformed in the fourth quarter. largely due to a difficult used car market, underperformance in new vehicle sales volume, and a lack of cost control. This underperformance should not overshadow what was otherwise a stellar year for our UK business. Our UK team delivered record full-year revenues driven by all lines of service and record gross profit driven by new vehicles, parts, and service. We believe vehicle demand remains resilient and new vehicle availability is still constrained, keeping new vehicle pricing and GPUs strong. As of December 31st, our new vehicle order bank was approximately 13,000 units, nearly five months of backlog. As a reminder, our UK business is predominantly luxury, and those customers are more resilient during times of economic uncertainty. Our UK operations began a rebalancing of its used vehicle inventory during the fourth quarter that will continue into the first quarter of 2024. This rebalancing resulted in a $1,300 loss per vehicle sold through our wholesale channels. UK adjusted SG&A as a percentage of gross profit increased 850 basis points sequentially and 1,040 basis points year over year. As a reminder, During the last half of 2023, we appointed a new UK managing director and a new UK CFO, both of whom are deeply experienced in the retail automotive business. During the quarter, we started to implement a number of corrective actions to address our performance. We are revamping our marketing spend and approach, launching a new digital retail initiative, restructuring our used car operations to focus on more proactive sourcing, valuation, and pricing. In addition, we are consolidating our customer contact center and reducing our overall headcount by 10%. We expect these actions to produce material improvement in the months ahead. Now turning to capital allocation. We deploy a return-focused capital allocation strategy that balances portfolio management and the return of capital to shareholders through quarterly dividends and share buybacks. During the year, we acquired expected annual revenues of $1.1 billion. We spent $173 million to repurchase 5.1% of our outstanding common shares. We paid dividends of $25 million. We continue to explore ways to consolidate our holdings in highly profitable, scalable dealerships and dealership clusters. As an example, in 2023, We disposed of 11 dealerships with an average revenue of $37 million, and we acquired six dealerships with an average revenue of $183 million. We believe the dealership business is the best use of capital, and we have demonstrated our ability to successfully integrate acquisitions very quickly. We continue to explore opportunities to capture immediate growth through acquisition. and we also believe divesting smaller, underperforming stores and brands is a critical part of our strategy as well. We believe this approach is critical to our growth story, which leverages our scale and proven integration capabilities, optimizes our rooftop performance, and grows the company in a meaningful and incremental manner. I will now turn the call over to our CFO, Daniel McHenry, to provide a balance sheet and liquidity overview. Daniel.