Penske Automotive Group, Inc.

Ladies and gentlemen, good afternoon. Thank you for standing by and welcome to the Penske Automotive Group second quarter 2023 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour after completion through August 2nd, 2023 on the company's website under the investors tab at www.penskeautomotive.com. If you would like to ask a question, please press one then zero on your telephone keypad. You may remove yourself from queue by repeating the same one zero command. I will now introduce Anthony Porton, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Leah. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter 2023 financial results was issued this morning. and is posted on our website along with the 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 Prensky, our chair and our CEO, Shelly Holgrave, EVP and chief financial officer, Rich Shearing, North American Operations, Randall Seymour, International Operations, and Tony Petroni, our vice president and 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 earnings before interest, taxes, depreciation and amortization, or EBITDA, and our leverage ratio. We have prominently displayed or presented the comparable GAAP measures and have reconciled the non-GAAP measures in this morning's press release and investor presentation, which are available on our website for the most directly comparable GAAP measures. Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward-looking statements. I direct you to our SEC filings, including our Form 10-K and our previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations. I will now turn the call over to Roger.

Thank you, Tony. Good afternoon, everyone, and thanks for joining us today. Before we discuss our second quarter results, I wanted to welcome Randall Seymour and Rich Shearing to the call today. As you may recall earlier this year, we added additional depth to our leadership team. Randall Seymour, formerly Executive Vice President, Global Operations for Commercial Trucks and Power Systems, will now support our international operations. Rich Shearing, formerly president of Premier Truck Group, supports our North American automotive and commercial truck operations. These roles will work in tandem with me, our president, Rob Kernick, and our executive leadership team, while building further depth to ensure we have the best leadership team in place. Let me now discuss PAG's financial results for the second quarter. I'm really pleased to report strong second quarter performance from our diversified business model. As we will discuss, the quarter was highlighted by the performance of our automotive and commercial truck operations, which partially was offset with higher interest expense and lower equity earnings for our investment in Penske Truck Leasing. During the second quarter, total units delivered increased to 123,879 units, which includes 8,900 units which were agency in the UK. Revenue increased 8% to a quarterly record OF 7.5 BILLION. OUR SAME STORE RETAIL REVENUE INCREASED 6%, INCLUDING AN 11% INCREASE IN SERVICE IN PARTS. SAME STORE VARIABLE GROWTH PROFIT PER UNIT RETAILED INCREASED $163 WHEN COMPARED TO THE FIRST QUARTER OF 2023. SG&A AS A PERCENTAGE GROWTH PROFIT WAS 67.4% AND IMPROVED 10 basis points sequentially. That income was $301 million, and earnings per share was $4.41. Year-to-date through June 30th, we've repurchased 2.6 million shares for $350 million. Let me now turn to our automotive operations. Our demand for new vehicles remains strong, and new vehicle availability is improving. We expect supply to remain below historical averages during 2023 for most of the brands that we represent. We continue to take forward orders and continue to see strong vehicle demand. In the UK, our forward order bank represents 29,000 units. Grocers on these forward orders is approximately 132 million compared to 109 million at the same time in 2022. In the US, our current pre-sold activity is approximately 50%. Beginning in the first quarter of 2023, we transitioned certain brands in the UK to an agency model for new vehicle sales. Under agency, we receive a fee from the manufacturer for the sale and delivery of each new vehicle, which is recorded in gross profit. We do not record revenue for the price of these vehicles. Looking at our retail automotive operations on the same store basis for Q223 versus Q222, total units delivered increased 6%, new retail up 9%, used retail down 8%. Retail automotive revenue, however, increased 6%, including an 11% increase in service and parts. Service and parts is being driven by an increase of 10% in customer pay, 13% in our warranty business, and 14% in collision repair. In fact, many of our operations experience record months in service and parts during the quarter. Variable gross profit remains strong and higher than historical levels. For example, variable gross profit per vehicle with $5,612 is more than $2,138 higher than it was in Q2 of 2019. Taking a look at car shop, our unit sales were 18,206, down 10%, as the continued availability of late-model, lower-model vehicles remains very challenging. Revenue increased 2% to $475 million, and variable gross profit per vehicle per unit declined 1%. To continue to focus on vehicle sourcing, and the cost improvement programs including digitization to improve efficiency. We operate 20 locations and remain committed to the car shop brand. We have one store ready to open in the UK when the used vehicle availability improves. Let's turn to our retail commercial truck business now. Our premier truck dealership business represents 44 locations in North America and is an important part of our diversification. During the second quarter, we expanded into greater Winnipeg, Manitoba market area, acquiring five new locations and $180 million in estimated annualized revenue. New commercial truck demand remains solid as being driven by replacement demand. In fact, you look at our entire allocation of Class 8 product for 2023 is sold out. To June 30th, North American Class 8 retail truck sales were up 18% to 165,000 units. The current industry Class 8 backlog is 175,000 units, representing approximately six months of sales. During the second quarter, same-store unit sales were up 25%. Same-store revenue was up 19%, including a 4% increase in service and parts. Same-store growth profit increased 7%, looking at parts and service that represented 65% of total gross profit and covered 128% of the fixed costs for the business in the second quarter. Service and parts represented 65% of total gross profit and covered 128%, as I said earlier, in the second quarter. Q2EBT was $56 million, up $3 million when compared to the second quarter last year. As a data point, June 2023 was the second best month of EBT in a company's history. Let me now turn to Penske Transportation Solutions. PAG Group, as you know, owns 28.9% of PTS, which provides us with equity income, cash distributions, and cash savings. PTS currently manages a fleet of over 431,000 trucks, tractors, and trailers, The goal of increasing the fleet to 500,000 by 2025. Excuse me. The second quarter operating revenue increased 6% to 2.7 billion. Full service lease and contract revenue increased 14%. Logistics revenue increased 6%. Rental declined 6%. PTS generated 253 million of income. Our share at PTS declined by 63 million. The decline in earnings is mainly impacted by four particular items. We have over 40,000 units on order with a factory. That's the OM factory. As a result of supply constraints, we have 17,000 lease extensions so far this year and 36,000 extensions over the last 18 months. The older units in operation obviously drove higher maintenance costs of 65 million in Q2. Our commercial rental utilization declined 410 basis points to 77.8. Really, that's still a strong number at 77 or 78%. Interest expense increased $47 million due to a higher average outstanding debt from the growth of the fleet combined with $1.5 billion in refinancing of the overall high interest with overall high interest rates and a lower gain on sale of $55 million when compared to the record performance in 2022. As we look forward, we believe the supply of new trucks is stabilizing, which will provide PTS an opportunity to replace some of the leased extension and certainly will lower maintenance expense. At this point, I'll turn it over to Randall Seymour to discuss our Penske Australia business.