Penske Automotive Group, Inc.

Good afternoon, ladies and gentlemen. Welcome to the Penske Automotive Group second quarter 2021 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour after completion through August 4th, 2021 on the company's website under the investor tab at www.penskeautomotive.com. I will now introduce Anthony Pordon, the company's executive vice president and of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Sarah. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter 2021 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the company's results. As always, I'm available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, our Chair and CEO, Shelley Hulgrave, our Chief Financial Officer, and Tony Ficcioni, Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, future events, growth plans, liquidity, and assessment of business conditions. We may also discuss certain non-GAAP financial measures, such as adjusted income from continuing operations and related adjusted earnings per share, earnings before interest, taxes, depreciation, and amortization, or EBITDA, and adjusted EBITDA. We have prominently presented the comparable gap measures and have reconciled the non-gap measures in this morning's press release and the investor presentation, which are available on our website to the most directly comparable gap measures. Our actual results may vary because of risks and uncertainties outlined in today's press release, which may cause the actual results to differ materially from expectations. I direct you to our SEC filings, including our Form 10-K, for additional discussion and factors that could cause results to differ materially. I'd now like to turn the call over to Roger.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report all-time record second quarter results for PAG. These results were driven by outstanding performance across all parts of our business. Our revenue increased 91% to $7 billion. An income from continuity operations before taxes increased 658% to $464 million. An income from continuity operations increased 653% to $339 million. And related earnings per share increased 650% to $4.20. Our earnings growth was driven by strong business conditions across all areas of our operations, including stronger unit sales, higher gross profit per unit retailed, increasing service and parts gross profit, and the continuing expense leverage and lower interest costs. I'm particularly pleased today with the continued expense discipline driving an 1,860 basis point improvement in SG&A as a percentage of gross profit to 63.4%. Additionally, earnings before taxes from our commercial truck dealerships improved 172%, and the earnings from Penske Transportation Solutions increased 243%, demonstrating the strength of the company's diversified business model. Looking at our retail automotive operations, on the same store basis for Q1-21 versus Q2-20. Unit sales increased 82% to 131,000. Our new was up 92% on the same store basis. Used was up 75%. Retail revenue increased 98%. New vehicles up 105%. Used vehicles up 99%. Our finance and insurance increased 119%. and service and parts was up 60%. Our gross profit increased 124%, including a 69% increase in service and parts. Variable gross profit increased 45% to $5,169 per unit, compared to $3,562 a unit. Comparing Q221 to Q219, same-store retail revenue Units increased 6%, revenue increased 23%, new unit vehicle was up 26%, used vehicles up 26%. Finance and insurance was up 29%, and service and parts was up 2%. Our gross profit increased 35%, including 5.5% in service and parts. I might note that during the second quarter of 21, we experienced showroom closures in the UK and Europe, which obviously impacted our comparisons. We opened two locations for car shop during the second quarter, and we now operate 19 locations. During the second quarter, car shop unit sales increased 184% to 18,742 units, and revenue improved 208% to over 400 million, and gross profit per unit retail increased 17% to $2,700. We improved vehicle sourcing by increasing the volume of trade-ins purchased and also from the consumers and our franchise dealerships using our proprietary internal online transfer portal. Based on current sales rates since reopening in the UK, Supercenter showrooms on April 12th were forecasting a current run rate of approximately 80,000 units annually. Turning to our retail commercial truck dealership business, Primer Truck Group represented 9% of our revenue, and the return on sales in the quarter was 6.3%. During the quarter, we completed the acquisition of Kansas City Freightliner, which is expected to add $450 million in annualized revenue. We sold over 4,100 new and used trucks, and vehicle margins increased versus the same time Last year, due to stronger market conditions, same-store service and parts gross profit increased 18%. Total service and parts operations represented 65% of the total gross profit and fixed cost absorption was 133%. As a result of these items, our earnings before taxes for Premier Truck increased 172%, to $39.7 million for the quarter. The Class 8 commercial truck market remains very strong, as expected to continue for the near future. During the second quarter, North American Class 8 net orders increased 205 percent, retail sales increased 63 percent, and the backlog increased to 253,000, which represents approximately a 10-month supply. ACT Resources forecasting A 29% in retail sales increase to approximately 300,000 units compared to 233,000 in 2020. We expect the strong market will provide tailwinds to our commercial truck and our truck leasing businesses for the remainder of 21 and 22. Moving on to Penske Transportation Solutions. As you know, we own 28.9% of PTS, which provides us with equity income. Cash Distributions and Cash Savings. PTS currently operates a fleet of over 330,000 vehicles and Q2 PTS generated $2.8 billion in revenue, an income of $354 million or a return of 15.4% on sales. As a result, our equity earnings increased 243% to $102.5 million Our full-surface leasing and contract sales were up 11%. Our commercial rental revenue was up 62%. We had a utilization all-time high of 87%. Consumer one-way rental was up 71%, and the demand remains very strong. Our logistics increased 45%, including the recent Black Horse Carriers acquisitions, which we expect to add at least $600 million in revenue for PTS. The gain on sale of used trucks is up 245% to $45 million, a strong freight environment and shortage of buy of used trucks and new trucks is driving the demand for used vehicles. I'd now like to turn the call over to Shelly Hulgrave, who assumed the Chief Financial Officer role on June 1st to discuss the balance sheet and cash flows. We're very fortunate to have Salman with her experience and tenure with our company Thank you, Roger.