Financial Performance & Growth - Adjusted operating cash flow reached $186 million in 2Q20 and $117 million in FY09[3,48] - AcceleRide® digital platform experienced a 124% year-over-year growth in 1Q21[8,21] - From 2014 to 2019, consolidated Parts & Service revenue grew at a CAGR of 61%[10] - U S F&I Gross Profit per Retail Unit (PRU) reached $1,931 in 2021 YTD[27,28] Strategic Focus - Parts & Service contributes approximately 45% of total gross profit[4,8] - The company has acquired $36 billion in revenues from 2014 to 2021 YTD through acquisitions[8] - The company's locations in Texas accounted for 40% of 1Q21 total new vehicle unit sales[7] Capital Allocation - In 2020, the company generated $426 million in adjusted free cash flow[3,8] - The company had $611 million in immediate liquidity as of March 31, 2021[8] - The company refinanced $850 million of bond debt due in 2022/23, resulting in over $15 million in annual interest savings[38] Market Position - The company is the 1 retailer in the state of Texas[3] - Franchised dealers have less than 40% market penetration in the used vehicle market[8]

Financial Performance - In 2020, total revenues decreased by 9.9% compared to 2019, with gross margins increasing from 15.1% to 16.3%, resulting in a decline in total gross profit of only 2.6%[125] - Total revenues decreased by 11.0% to $10,605.0 million in 2020 from $11,912.9 million in 2019[143] - New vehicle retail sales fell by 12.7% to $5,463.0 million, while used vehicle retail sales decreased by 9.2% to $3,023.6 million[143] - Gross profit for total revenues declined by 3.7% to $1,730.1 million, with a gross margin of 16.3% compared to 15.1% in the previous year[143] - Retail new vehicles sold decreased by 17.9% to 137,302 units, and retail used vehicles sold fell by 12.6% to 136,865 units[143] - Total gross profit in the U.S. decreased by $8.8 million, or 0.6%, while same store gross profit decreased by $23.1 million, or 1.6%[152] - Total gross profit in the U.K. decreased by $19.6 million, or 7.3%, for the year ended December 31, 2020, compared to 2019[154] - Total gross profit in Brazil decreased by $18.7 million, or 34.9%, with a gross margin increase from 12.0% to 13.9%[160] Sales and Market Trends - The annual new light vehicle unit sales in the U.S. decreased by 14.8% to 14.5 million units in 2020 compared to 2019, while new vehicle registrations in the U.K. and Brazil decreased by 29.4% and 26.6%, respectively[124] - The company expects sustained improvements in industry sales volumes in 2021 as all three markets recover from the pandemic[124] - New vehicle retail same store revenues decreased by 17.7%, with a 23.3% decline in unit sales partially offset by a 7.2% increase in average sales price per unit sold[157] Cost Management and Expenses - SG&A expenses reduced by 14.6% to $1,143.0 million, resulting in SG&A as a percentage of gross profit at 66.1%[143] - SG&A expenses decreased by $128.5 million, or 12.0%, reflecting cost management efforts[151] - Total SG&A expenses in the U.K. decreased by $45.6 million, or 19.3%, for the year ended December 31, 2020, compared to 2019[154] - Total SG&A expenses in Brazil for the year ended December 31, 2020, decreased by $14.9 million, or 32.4%, with same store SG&A expenses down $14.2 million, or 31.3%[165] Impairments and Charges - The company recorded goodwill impairment charges of $10.7 million in the Brazil reporting unit due to the impact of the COVID-19 pandemic[133] - Impairments of intangible franchise rights were recorded at $20.8 million in 2020, compared to $19.0 million in 2019, due to the adverse impact of the pandemic[134] - The company recorded a goodwill impairment charge of $10.7 million in the Brazil region for the year ended December 31, 2020, with no impairments in 2019 and 2018[93] Cash Flow and Liquidity - Cash liquidity as of December 31, 2020, was $263.7 million, including $87.3 million in cash on hand and $176.4 million in immediately available funds[126] - Net cash provided by operating activities was $805.4 million for the year ended December 31, 2020, with adjusted net cash flow of $503.7 million[185] - The company had a working capital surplus of $161.5 million as of December 31, 2020, an increase of $67.4 million from the previous year[187] Debt and Financing - The company issued $550.0 million in 4.00% Senior Notes, which are expected to lower annual interest expense by approximately $5.5 million[197] - The company fully redeemed $550.0 million of 5.00% Senior Notes and $300.0 million of 5.25% Senior Notes, recognizing losses on extinguishment of $3.3 million and $10.4 million respectively[197][198] - Total contractual obligations as of December 31, 2020, amounted to $3,207.2 million, with $1,255.9 million due within one year[206] Operational Risks and Challenges - The company experienced a material adverse impact on its business due to the COVID-19 pandemic, affecting all markets in the U.S., U.K., and Brazil, starting from mid-March 2020[96] - The company faces substantial competition in automotive sales and services, impacting sales volumes and margins[88] - The company is subject to risks from economic downturns, including declines in vehicle sales and increases in interest rates, which could adversely affect manufacturers and, in turn, the company[83] Regulatory and Compliance Issues - The company is subject to numerous laws and regulations regarding data protection, which could pose compliance risks[99] - Compliance with automotive laws and regulations is critical, as violations may lead to administrative, civil, or criminal penalties[105] - Environmental laws impose obligations that may result in significant costs and liabilities for the company[107]

Financial Data and Key Metrics Changes - Group 1 Automotive achieved record adjusted net income of $334 million for the full year 2020, a $130 million increase, representing a 64% improvement over 2019 [10] - Adjusted earnings per share reached $18.06, an increase of 65% [10] - For Q4 2020, adjusted net income was $104 million, translating to adjusted earnings per share of $5.66, an 88% increase year-over-year [14] - Adjusted SG&A was reduced by $179 million, with SG&A as a percentage of gross profit decreasing by 810 basis points to a record 65.8% [11] Business Line Data and Key Metrics Changes - In the U.S., same-store new vehicle unit sales decreased by 6%, while used vehicle retail unit sales decreased by 10% compared to the prior year [20] - New vehicle inventory levels finished the year at 48 days supply, down nearly 8,000 units from December 2019 [21] - Same-store F&I gross profit increased by 2%, with same-store F&I PRU growth of $190 to $2,027 [22] - Customer pay gross profit was up for the quarter, indicating recovery in the after-sales business [23] Market Data and Key Metrics Changes - In the U.K., dealership showrooms were closed for 41 of the 92 days in the quarter due to lockdowns, yet profitability was maintained in each month [17] - The U.K. experienced strong results in October, continuing substantial year-over-year growth from Q3 [16] - Brazil faced a 10% decline in new vehicle industry sales, but margins improved significantly, with SG&A as a percentage of gross profit at 75% [31] Company Strategy and Development Direction - The company aims to pursue external growth through acquisitions, with a preference for the U.S. market while remaining open to opportunities in foreign markets [38][44] - The focus is on maintaining a leaner operating structure and leveraging technology to improve efficiency [12] - The company has restructured its U.K. operations to centralize support functions, which has led to record profits in that region [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth prospects, citing several years of new vehicle industry growth ahead and a recovery in service business as lockdowns end [46] - The company plans to retain a significant portion of cost reductions achieved during the pandemic [12] - Management acknowledged the challenges posed by COVID-19 but highlighted the resilience of the business and the ability to adapt to changing conditions [17][60] Other Important Information - The company generated $145 million of adjusted cash flow in Q4 2020, bringing total adjusted operating cash flow for the year to $504 million [35] - Total cash liquidity reached $263 million, with additional borrowing capacity of $284 million [33] - The company disposed of underperforming assets and has been awarded two Toyota open points in Brazil, expected to activate in the first half of the year [42] Q&A Session Summary Question: What is shifting in the acquisition strategy? - Management indicated that financial stability and improved clarity on market conditions allow for more aggressive external growth, targeting $1 billion in annualized revenue through acquisitions [51] Question: What is the expected SG&A to gross ratio going forward? - Management expects to maintain a SG&A to gross ratio significantly below 70%, aiming for continued efficiency improvements [83] Question: How has the U.K. lockdown affected operations? - Management noted that while lockdowns have depressed service traffic, there is pent-up demand expected to surge once restrictions are lifted [62] Question: What is the outlook for acquisitions in the current environment? - Management acknowledged a competitive landscape for acquisitions but emphasized the importance of maintaining financial discipline and ensuring accretive deals [104] Question: How does the company view the direct-to-consumer model of EV start-ups? - Management believes that while direct sales work for some start-ups, the dealership network provides significant advantages in customer service and inventory management as demand stabilizes [96]

Retail Network and Sales Performance - As of September 30, 2020, the retail network consisted of 119 dealerships in the U.S., 50 in the U.K., and 17 in Brazil[111] - New and used retail unit sales in the U.S. dropped approximately 50% in March 2020 compared to the same period in 2019, but began to recover in May 2020[119] - U.K. vehicle sales were significantly impacted by a government-mandated shutdown, resulting in approximately 35% of contracted vehicle deliveries not being fulfilled by the end of March 2020[121] - In the third quarter of 2020, U.K. operations showed a significant recovery, contributing positively to quarterly financial results, with revenues and margins increasing compared to the prior year[121] - Retail new vehicles sold decreased by 5,237 units, a decrease of 11.8%, totaling 39,152 units[131] - Retail new vehicles sold decreased by 15,737 units, or 17.6%, while retail used vehicles sold decreased by 10,135 units, or 11.2%[144] - Retail new vehicles sold decreased by 5,158 units, or 15.7%, while retail used vehicles sold decreased by 4,038 units, or 12.9%[138] Financial Performance and Revenue - Total revenues for the three months ended September 30, 2020, were $3,039.6 million, a decrease of 2.5% from $3,118.3 million in the same period of 2019[129] - Total revenues for the three months ended September 30 decreased by $123.5 million, or 4.0%, to $2,973.2 million[131] - Total revenues decreased by $1,175.0 million, or 13.3%, from $8,822.6 million to $7,647.6 million[134] - Total revenues in the U.K. for the three months ended September 30, 2020 increased by $156.2 million, or 26.7%, compared to the same period in 2019[151] - Total revenues in Brazil decreased by $56.6 million, or 51.1%, for the three months ended September 30, 2020, compared to the same period in 2019[165] - Total revenues in Brazil decreased by $143.5 million, or 43.9%, for the nine months ended September 30, 2020, compared to the same period in 2019[172] Gross Profit and Margins - The gross margin for total revenues improved to 16.8% in Q3 2020, compared to 14.9% in Q3 2019[129] - Gross profit increased by $39.5 million, an 8.6% rise, reaching $500.8 million[131] - Total gross profit fell by $81.9 million, or 6.1%, from $1,335.5 million to $1,253.6 million[134] - Total gross profit in the U.K. for the three months ended September 30, 2020 increased by $22.5 million, or 34.6%, compared to the same period in 2019[152] - Total gross profit in Brazil decreased by $5.0 million, or 36.6%, for the three months ended September 30, 2020, compared to the same period in 2019[166] - Total same store gross margin increased by 130 basis points, primarily due to higher new and used vehicle retail and wholesale margins[145] Cost Management and SG&A Expenses - SG&A expenses decreased by $49.7 million, a reduction of 14.3%, totaling $298.9 million[132] - SG&A expenses decreased by $162.5 million, or 16.2%, from $1,005.9 million to $843.4 million[134] - Total same store SG&A expenses decreased by $112.4 million, or 14.0%, for the nine months ended September 30, 2020[146] - Total SG&A expenses in the U.K. decreased by $3.9 million, or 6.8%, compared to the same period in 2019, with a constant currency decrease of 12.1%[153] - SG&A expenses as a percentage of gross profit decreased from 86.5% in Q3 2019 to 60.6% in Q3 2020[153] Strategic Initiatives and Future Outlook - The company aims to expand the "Val-U-Line®" sales program to increase used retail volume by targeting a growing customer niche[114] - The company continues to evaluate strategic acquisitions and dispositions to enhance its dealership portfolio and improve profitability[117] - The company expects used vehicle and service operations to return to near prior year levels in Q4 2020, despite uncertainties in new vehicle inventory levels[124] - The long-term impact of the COVID-19 pandemic remains uncertain, particularly with new lockdowns in the U.K. affecting vehicle sales[124] Impact of COVID-19 - The impact of the COVID-19 pandemic led to significant reductions in operating capacity, with service repair orders declining by approximately 50% in late March 2020[119] - The company furloughed or terminated approximately 8,000 employees in early April 2020, but U.S. and U.K. headcounts have since returned to about 75% of pre-COVID levels[123] - The company implemented cost reduction strategies to mitigate the negative impact of lower gross profit, including $1.2 million in severance costs due to redundancy[160] - The government mandated closure of all U.K. dealerships from March 21, 2020, to June 1, 2020, significantly impacting operations[157] Cash Flow and Liquidity - The company generated $712.7 million of net cash flows from operating activities for the nine months ended September 30, 2020, compared to $310.8 million for the same period in 2019, representing a 129.3% increase[195] - As of September 30, 2020, the company had total cash liquidity of $192.9 million and an additional $273.1 million of borrowing capacity on its Acquisition Line, bringing total immediate liquidity to $466.0 million[213] - The company announced a $200 million share repurchase program on October 6, 2020, indicating sufficient liquidity and no anticipated material liquidity constraints[123] Interest Expense and Tax Provision - Floorplan interest expense decreased by 47.1% for the three months ended September 30, 2020, compared to the same period in 2019[182] - Provision for income taxes increased by $23.6 million to $34.6 million for the three months ended September 30, 2020, and by $17.4 million to $55.8 million for the nine months ended September 30, 2020, primarily due to increases in pretax book income[186] - The effective tax rate decreased to 21.5% for the three months ended September 30, 2020, from 22.3% in the same period in 2019, and to 23.1% from 23.4% for the nine months ended September 30, 2020[186]

Financial Data and Key Metrics Changes - Group 1 Automotive reported an all-time record adjusted net income of $129 million for Q3 2020, translating to adjusted earnings per share of $6.97, a 131% increase compared to the prior year's adjusted earnings per share [10] - The adjusted profit results exclude a $3.3 million pre-tax loss related to the redemption of previously issued notes [11] - The company achieved significant profit improvement due to large new and used vehicle margin improvements and substantial cost leverage [12] Business Line Data and Key Metrics Changes - In the UK, same-store new vehicle sales increased by 11% and used vehicle sales rose by 14%, with a 26% increase in same-store gross profit on a local currency basis [15][16] - In the U.S., same-store new vehicle unit sales decreased by 16% and used vehicle unit sales decreased by 13% due to tight inventory levels [19] - New vehicle margins per unit improved by 14%, while used vehicle margins surged by 90% [17] Market Data and Key Metrics Changes - U.S. new vehicle inventories finished the quarter at approximately 17,000 units, equating to a 52-day supply [19] - The UK market has shown recovery, with parts and service revenue increasing by 4% in local currency during Q3 [16] - Brazil experienced a 22% decline in new vehicle industry sales, but the company managed to grow margins and reduce costs effectively [28] Company Strategy and Development Direction - The company is focusing on M&A to add scale, with a preference for the U.S. market but open to foreign acquisitions [34] - A digital retailing initiative, AcceleRide, has been launched to enhance customer experience and drive sales [26] - The company has implemented a major restructuring of its UK operations to improve sales and service efficiency by at least 20% [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in vehicle sales, citing strong demand and low interest rates as positive factors [52] - The company anticipates that the current high margins will continue until inventory levels normalize [42] - Management acknowledged the challenges of growing EPS in 2021 but identified potential areas for improvement, including service business recovery and UK operations [58][59] Other Important Information - The company redeemed all $550 million of its outstanding 5% notes due in 2022, funded by newly issued 4.00% notes due in 2028, saving over $15 million in annual interest expense [29][30] - As of September 30, the company had $66 million in cash and $127 million in floorplan offset accounts, totaling $193 million in cash liquidity [31] Q&A Session Summary Question: Can you discuss the impact of tight inventory on profitability? - Management acknowledged that tight inventory leads to lost sales, particularly with their largest brand, Toyota, experiencing significant inventory constraints [39] Question: How sustainable is the current performance given inventory challenges? - Management indicated that while inventory replenishment is slow, high margins are being maintained due to disciplined pricing strategies [41] Question: What is the outlook for service business recovery? - Management noted that customer pay gross profit has returned to previous levels, indicating a potential recovery as miles driven increase [74] Question: How does the company view the potential for acquisitions? - Management expressed confidence in the company's financial strength and stability, which supports a renewed focus on M&A opportunities [54] Question: What is the expectation for used vehicle supply and its impact on volumes? - Management expects used vehicle supply to improve as new vehicle sales increase, which will enhance trade-ins and overall inventory levels [78]

United States ited Kingdom GROUP 1 AUTOMOTIVE® 'VALUE DRIVEN' J.P. Morgan Auto Conference August 11, 2020 NYSE Forward Looking Statement This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which are statements related to future, not past, events and are based on our current expectations and assumptions regarding our business, the economy and other future conditions. In this context, the forward-looking statements often include s ...

Sales Performance - AcceleRide® online sales increased by 190% year-over-year during Q2 2020[102] - U.S. new and used retail unit sales dropped approximately 50% in March 2020 compared to the same period in 2019[109] - U.K. dealerships were closed from late March 2020 through May 18, 2020, resulting in the inability to deliver approximately 35% of contracted vehicles[110] - New vehicle retail sales decreased by 32.1% to $1,062.7 million compared to $1,565.4 million in the previous year[118] - Used vehicle retail sales fell by 23.6% to $641.2 million from $838.9 million year-over-year[118] - Retail new vehicles sold dropped by 37.1% to 26,472 units from 42,093 units year-over-year[118] - Retail used vehicles sold decreased by 23.2% to 30,528 units from 39,745 units in the previous year[118] - New vehicle retail sales dropped by $610.5 million, or 20.7%, from $2,943.4 million in 2019 to $2,332.9 million in 2020[123] - Used vehicle retail sales fell by $258.0 million, or 15.8%, from $1,631.0 million in 2019 to $1,373.1 million in 2020[123] Revenue and Profit Decline - Total revenues declined by 29.1% to $2,131.2 million, down from $3,005.7 million in the same period last year[118] - Total revenues decreased by $894.7 million, or 30.2%, from $2,966.9 million in 2019 to $2,072.2 million in 2020[120] - Total revenues decreased by $1,051.5 million, or 18.4%, from $5,725.9 million in 2019 to $4,674.4 million in 2020[123] - Total gross profit decreased by 21.0% to $358.8 million compared to $454.3 million in the prior year[118] - Total gross profit decreased by $99.3 million, or 22.1%, from $449.3 million in 2019 to $349.9 million in 2020[120] - Total gross profit decreased by $121.4 million, or 13.9%, from $874.2 million in 2019 to $752.8 million in 2020[123] Cost Management and SG&A Expenses - The company has furloughed or terminated approximately 8,000 employees to reduce costs and preserve liquidity[112] - SG&A expenses decreased by $104.4 million, or 31.3%, from $333.9 million in 2019 to $229.5 million in 2020[120] - SG&A expenses in the U.S. decreased by $63.5 million, or 12.1%, for the six months ended June 30, 2020, compared to the same period in 2019[135] - SG&A expenses decreased by $30.7 million, or 52.1%, from $59.0 million to $28.3 million[137] - SG&A expenses as a percentage of gross profit increased by 440 basis points to 90.1% due to the decline in gross profit[149] Digital Initiatives and Strategic Focus - The company emphasizes digital initiatives to improve customer experience and facilitate online transactions[102] - The focus on parts and service operations aims to increase retention of service technicians and advisors, enhancing service capacity without additional capital investment[104] - Strategic acquisitions and dispositions are planned to enhance the dealership portfolio and improve underperforming locations[107] - The company aims to expand the "Val-U-Line®" sales program to increase used retail volume by targeting a specific customer niche[104] - Future growth opportunities through acquisitions remain in the U.S., U.K., and Brazil as the economy recovers from the pandemic[107] Impact of COVID-19 - The COVID-19 pandemic significantly impacted operations, with a sharp decline in sales and service repair orders in March 2020[108] - The overall decline in revenues and profits was attributed to reduced demand and inventory shortages caused by the COVID-19 pandemic[126] - The company’s operations were significantly impacted by reduced demand due to the COVID-19 pandemic and government restrictions[140] - The COVID-19 pandemic significantly impacted dealership operations, leading to government-mandated closures affecting all U.K. dealerships[146] Financial Position and Cash Flow - The company reported a working capital surplus of $59.5 million as of June 30, 2020, down from $94.0 million at the end of 2019, a decrease of $34.5 million[186] - For the six months ended June 30, 2020, the company generated $688.2 million in net cash flows from operating activities, a 172.1% increase from $252.9 million in the same period in 2019[184] - The company used $579.0 million in net cash flows from financing activities for the six months ended June 30, 2020, compared to $157.8 million in the same period in 2019[191] - Total cash liquidity as of June 30, 2020, was $373.8 million, including $72.7 million in cash and $193.3 million in additional borrowing capacity[199] Tax and Compliance - The effective tax rate for the three months ended June 30, 2020, increased to 28.7% from 22.2% in the same period in 2019, primarily due to increased excess compensation[175] - The company expects its effective tax rate for the remainder of 2020 to be between 23.0% and 24.0%[176] - The company has initiated preparations to comply with Brazil's General Data Protection Act (GDPA), which will take effect in May 2021, potentially impacting operations[208] - The U.S. Environmental Protection Agency has set new CAFE and GHG emissions standards, increasing stringency by 1.5% annually through model year 2026, which may lead to legal challenges[209]

Financial Data and Key Metrics Changes - The company reported an adjusted net income of $69.6 million and adjusted earnings per share of $3.70, representing increases of 32% and 33% respectively compared to the same quarter last year, despite a 29% decrease in total revenues [9][10] - Adjusted SG&A expenses were reduced by 33%, demonstrating effective cost-cutting measures [13] Business Line Data and Key Metrics Changes - U.S. new vehicle volumes declined by 28%, while used vehicle volumes were down 14% due to inventory shortages. However, new vehicle gross profit per unit increased by 40% [15] - The after-sales business saw a decline of 19% overall, but June showed a significant recovery with total after-sales revenue down less than 2% [16] Market Data and Key Metrics Changes - The U.K. market faced significant challenges with service departments closed until mid-May and showrooms until June 1, leading to minimal gross profit generation during the quarter [12] - Brazil experienced a small loss during the quarter but turned profitable in June as the macro environment improved [19] Company Strategy and Development Direction - The company plans to leverage its leaner cost structure and maintain lower SG&A as a percentage of gross profit going forward [20] - The focus remains on enhancing the AcceleRide platform to improve customer experience and operational efficiency, with plans to launch it in the U.K. by the end of the year [18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unprecedented challenges faced due to COVID-19 but expressed optimism about the company's resilience and ability to adapt [9][10] - The company expects to continue seeing strong performance in the U.S. and U.K. markets, with a focus on used vehicles and service as key growth areas [32] Other Important Information - The company had $73 million in cash and $108 million in floorplan offset accounts, totaling $181 million in cash liquidity as of June 30 [22] - The CFO announced his retirement, with Daniel McHenry set to take over the position, ensuring continuity in leadership [31] Q&A Session Summary Question: Strategic opportunities in the U.S. market - Management believes the U.S. market remains a priority, focusing on used vehicles and service rather than expanding physical locations [36] Question: Sustainability of cost savings - Management confirmed that the efficiency improvements achieved during the crisis are expected to be permanent, with a projected 20% increase in efficiency [39] Question: AcceleRide's impact on productivity - AcceleRide is enhancing sales team productivity and is expected to reduce headcount in the long term [50] Question: Trends in the U.K. and U.S. markets - Both markets are showing strong momentum, with the U.K. particularly benefiting from pent-up demand [58] Question: Supply constraints and profitability - Management anticipates easing supply constraints by the end of the quarter, which should positively impact profitability [64]

GLOSSARY OF DEFINITIONS The glossary defines key terms and abbreviations, including financial standards, geographical terms, and company-specific operational metrics - The glossary provides definitions for key terms and abbreviations used throughout the report, including financial accounting standards (**ASC, ASU, FASB**), geographical and economic terms (**Brexit, COVID-19, EU, U.K., U.S., WHO**), and company-specific operational metrics (**EPS, F&I, OEM, PRU, ROU, RSA, SG&A**)[9](index=9&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Group 1 Automotive's unaudited condensed consolidated financial statements for Q1 2020 and 2019, including balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) ASSETS (In millions) | ASSETS (In millions) | March 31, 2020 | December 31, 2019 | | :-------------------------------------------------------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $19.2 | $23.8 | | Contracts-in-transit and vehicle receivables, net | $115.5 | $253.8 | | Accounts and notes receivable, net | $177.1 | $225.1 | | Inventories, net | $1,992.6 | $1,901.7 | | TOTAL CURRENT ASSETS | $2,399.3 | $2,516.3 | | Property and equipment, net | $1,549.0 | $1,547.1 | | Operating lease assets | $218.7 | $220.1 | | Goodwill | $999.8 | $1,008.3 | | Intangible franchise rights | $251.7 | $253.5 | | TOTAL ASSETS | $5,441.1 | $5,570.2 | LIABILITIES AND STOCKHOLDERS' EQUITY (In millions) | LIABILITIES AND STOCKHOLDERS' EQUITY (In millions) | March 31, 2020 | December 31, 2019 | | :-------------------------------------------------------------------------------- | :------------- | :---------------- | | Floorplan notes payable — credit facility and other, net | $1,168.6 | $1,144.4 | | Floorplan notes payable — manufacturer affiliates, net | $484.9 | $459.9 | | Current maturities of long-term debt | $354.7 | $59.1 | | Accounts payable | $410.7 | $527.5 | | TOTAL CURRENT LIABILITIES | $2,640.4 | $2,422.3 | | Long-term debt | $1,137.7 | $1,432.1 | | Long-term interest rate swap liabilities | $41.7 | $4.4 | | TOTAL STOCKHOLDERS' EQUITY | $1,174.6 | $1,255.7 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $5,441.1 | $5,570.2 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (In millions, except per share data) | (In millions, except per share data) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $2,690.8 | $2,808.4 | | Total cost of sales | $2,274.3 | $2,376.9 | | GROSS PROFIT | $416.5 | $431.5 | | Selling, general and administrative expenses | $328.0 | $327.7 | | INCOME (LOSS) FROM OPERATIONS | $69.9 | $86.8 | | INTEREST EXPENSE: | | | | Floorplan interest expense | $12.9 | $15.7 | | Other interest expense, net | $18.1 | $18.9 | | NET INCOME (LOSS) | $29.8 | $38.6 | | BASIC EARNINGS (LOSS) PER SHARE | $1.62 | $2.09 | | DILUTED EARNINGS (LOSS) PER SHARE | $1.61 | $2.08 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Consolidated Statements of Comprehensive Income (Loss) (In millions) | (In millions) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | NET INCOME (LOSS) | $29.8 | $38.6 | | Other comprehensive income (loss), net of taxes: | | | | Foreign currency translation adjustment | $(27.9) | $3.6 | | Net unrealized gain (loss) on interest rate risk management activities, net of tax | $(31.1) | $(4.6) | | OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | $(59.0) | $(1.0) | | COMPREHENSIVE INCOME (LOSS) | $(29.3) | $37.7 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Consolidated Statements of Stockholders' Equity (In millions, except share data) | (In millions, except share data) | Balance, Dec 31, 2019 | Net Income (Loss) | Other Comprehensive Income (Loss), net of taxes | Purchases of Treasury Stock | Net Issuance of Treasury Shares to Stock Compensation Plans | Stock-based Compensation | Dividends Declared | Balance, Mar 31, 2020 | | :------------------------------- | :-------------------- | :---------------- | :---------------------------------------------- | :-------------------------- | :---------------------------------------------------------- | :----------------------- | :----------------- | :-------------------- | | Total Stockholders' Equity | $1,255.7 | $29.8 | $(59.0) | $(48.9) | $(2.5) | $5.1 | $(5.5) | $1,174.6 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (In millions) | (In millions) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $44.1 | $127.9 | | Net cash provided by (used in) investing activities | $(31.1) | $(6.8) | | Net cash provided by (used in) financing activities | $(18.5) | $(102.5) | | Effect of exchange rate changes on cash | $(3.4) | $(0.5) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(8.9) | $18.1 | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $19.2 | $36.9 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. INTERIM FINANCIAL INFORMATION](index=10&type=section&id=1.%20INTERIM%20FINANCIAL%20INFORMATION) - Group 1 Automotive, Inc. operates in the automotive retailing industry across the U.S., U.K., and Brazil, selling new/used vehicles, arranging financing, selling service/insurance contracts, and providing maintenance/repair services and parts[24](index=24&type=chunk) - As of March 31, 2020, the Company's retail network included **119 dealerships in the U.S., 50 in the U.K., and 17 in Brazil**[25](index=25&type=chunk) - The COVID-19 pandemic significantly impacted operating results starting in March 2020, leading to reduced vehicle sales, parts and service, and F&I revenues, as well as supply chain disruptions[27](index=27&type=chunk) - The Company incurred **$0.9 million** in employee termination benefits, **$4.8 million** in used vehicle inventory reserves, and **$0.4 million** in allowance for doubtful accounts reserves due to the pandemic[28](index=28&type=chunk) - The Company performed an interim impairment assessment of goodwill and intangible franchise rights but concluded **no impairment** as of March 31, 2020, based on the belief that the COVID-19 impact is temporary[28](index=28&type=chunk) - The FASB issued ASU 2020-04, Reference Rate Reform, providing optional expedients for contracts referencing LIBOR, which the Company expects to adopt as arrangements are modified[35](index=35&type=chunk) [2. REVENUES](index=12&type=section&id=2.%20REVENUES) Revenues by Source and Geographical Segment (In millions) | Revenue Source | U.S. (2020) | U.K. (2020) | Brazil (2020) | Total (2020) | U.S. (2019) | U.K. (2019) | Brazil (2019) | Total (2019) | | :--------------- | :---------- | :---------- | :------------ | :----------- | :---------- | :---------- | :------------ | :----------- | | New vehicle retail sales | $988.4 | $296.3 | $57.5 | $1,342.2 | $1,031.7 | $318.6 | $64.2 | $1,414.5 | | Used vehicle retail sales | $570.3 | $188.8 | $19.9 | $779.0 | $594.4 | $203.6 | $21.2 | $819.2 | | Used vehicle wholesale sales | $46.8 | $35.8 | $3.8 | $86.5 | $42.8 | $45.3 | $4.1 | $92.1 | | Parts and service sales | $304.6 | $56.4 | $9.6 | $370.6 | $297.6 | $59.6 | $12.0 | $369.2 | | Finance, insurance and other, net | $97.4 | $13.3 | $1.7 | $112.5 | $96.2 | $15.2 | $2.0 | $113.4 | | **Total revenues** | **$2,007.6** | **$590.7** | **$92.5** | **$2,690.8** | **$2,062.8** | **$642.2** | **$103.4** | **$2,808.4** | - Total revenues decreased by **$117.6 million (4.2%)** from **$2,808.4 million** in Q1 2019 to **$2,690.8 million** in Q1 2020, primarily due to declines in new and used vehicle retail sales across all segments, partially offset by a slight increase in parts and service sales[16](index=16&type=chunk)[37](index=37&type=chunk) [3. ACQUISITIONS AND DISPOSITIONS](index=12&type=section&id=3.%20ACQUISITIONS%20AND%20DISPOSITIONS) - During Q1 2020, the Company had **no acquisition or disposition activity**[39](index=39&type=chunk) - In Q1 2019, the Company opened **one dealership in the U.S.** and **one in the U.K.**, while disposing of **three dealerships (six franchises) in the U.S.** and **one in the U.K.**, resulting in a net pre-tax gain of **$5.2 million**[40](index=40&type=chunk)[41](index=41&type=chunk) [4. SEGMENT INFORMATION](index=13&type=section&id=4.%20SEGMENT%20INFORMATION) - The Company operates in **three reportable segments**: U.S., U.K., and Brazil, each comprising retail automotive franchises[43](index=43&type=chunk) Reportable Segment Revenues and Income (Loss) Before Income Taxes (In millions) | Segment | Total Revenues (Q1 2020) | Income (Loss) Before Income Taxes (Q1 2020) | Total Revenues (Q1 2019) | Income (Loss) Before Income Taxes (Q1 2019) | | :------ | :----------------------- | :------------------------------------------ | :----------------------- | :------------------------------------------ | | U.S. | $2,007.6 | $42.2 | $2,062.8 | $46.4 | | U.K. | $590.7 | $(2.7) | $642.2 | $6.2 | | Brazil | $92.5 | $(0.6) | $103.4 | $(0.4) | | **Total** | **$2,690.8** | **$38.9** | **$2,808.4** | **$52.2** | - Q1 2020 income before income taxes for the U.K. and Brazil segments turned to a loss or increased loss, respectively, with the U.K. reporting **$(2.7) million** (vs. $6.2 million in Q1 2019) and Brazil reporting **$(0.6) million** (vs. $(0.4) million in Q1 2019), partly due to a **$0.9 million severance expense** in Brazil related to COVID-19[44](index=44&type=chunk) [5. EARNINGS PER SHARE](index=13&type=section&id=5.%20EARNINGS%20PER%20SHARE) Earnings Per Share Calculation (In millions, except share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Weighted average basic common shares outstanding | 17,763,451 | 17,797,318 | | Weighted average dilutive common shares | 17,808,261 | 17,849,334 | | Net income (loss) available to basic common shares | $28.7 | $37.2 | | Basic earnings (loss) per common share | $1.62 | $2.09 | | Diluted earnings (loss) per common share | $1.61 | $2.08 | - Basic EPS decreased from **$2.09** in Q1 2019 to **$1.62** in Q1 2020, and Diluted EPS decreased from **$2.08** to **$1.61**, reflecting a decline in net income[47](index=47&type=chunk) [6. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS](index=14&type=section&id=6.%20FINANCIAL%20INSTRUMENTS%20AND%20FAIR%20VALUE%20MEASUREMENTS) - The Company's financial instruments are measured at fair value using a three-level hierarchy, with cash, receivables, payables, and variable-rate debt approximating carrying values due to their short-term nature or variable interest rates[49](index=49&type=chunk) Carrying Value and Fair Value of Fixed Rate Long-Term Debt (In millions) | Debt Type | March 31, 2020 Carrying Value | March 31, 2020 Fair Value | December 31, 2019 Carrying Value | December 31, 2019 Fair Value | | :---------------- | :------------------------------ | :------------------------ | :------------------------------- | :----------------------- | | 5.00% Senior Notes | $546.8 | $510.4 | $546.4 | $559.5 | | Real estate related | $39.3 | $38.9 | $40.7 | $41.1 | | **Total** | **$586.1** | **$549.3** | **$587.1** | **$600.6** | - The Company uses interest rate swaps to hedge against LIBOR variability, designating them as cash flow hedges[54](index=54&type=chunk) - As of March 31, 2020, **29 swaps** with a notional value of **$786.2 million** fixed LIBOR at **1.91%**, and **13 additional swaps** with a notional value of **$580.8 million** had forward start dates from April 2020 at **1.60%**[55](index=55&type=chunk) Impact of Interest Rate Swaps (In millions) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Unrealized income (loss), net of tax, recognized in Other Comprehensive Income (Loss) | $(31.6) | $(4.2) | | Amount of income (loss) reclassified from Other Comprehensive Income (Loss) into Statements of Operations (Net) | $(0.7) | $0.4 | | Net amount of loss expected to be reclassified in next twelve months | $4.4 | N/A | [7. RECEIVABLES AND CONTRACT ASSETS, NET](index=16&type=section&id=7.%20RECEIVABLES%20AND%20CONTRACT%20ASSETS%2C%20NET) Financial Assets Measured at Amortized Cost (In millions) | Asset Type | March 31, 2020 | December 31, 2019 | | :------------------------------------------ | :------------- | :---------------- | | Contracts-in-transit and vehicle receivables, net | $115.5 | $253.8 | | Accounts and notes receivables, net | $177.1 | $225.1 | | Total contract assets, net | $22.7 | $21.6 | | **Total Allowance for Doubtful Accounts** | **$3.7** | **$3.1** | - The Company adopted the CECL model (ASC 326) on January 1, 2020, for estimating credit losses[60](index=60&type=chunk) - An adjustment of approximately **$0.4 million** for expected credit losses was recorded as of March 31, 2020, due to adverse economic conditions from the COVID-19 pandemic, primarily impacting non-past due receivables[62](index=62&type=chunk)[63](index=63&type=chunk) [8. INTANGIBLES](index=17&type=section&id=8.%20INTANGIBLES) - The Company evaluates indefinite-lived franchise rights and goodwill for impairment annually or more frequently if circumstances indicate, performing an interim assessment as of March 31, 2020, due to the COVID-19 pandemic's impact on operations[64](index=64&type=chunk)[65](index=65&type=chunk) - The assessment concluded that goodwill and intangible franchise rights were **not more-likely-than-not impaired** as of March 31, 2020, based on the belief that the pandemic's impact is temporary, though changes in assumptions could lead to future impairment[66](index=66&type=chunk) [9. DEBT](index=18&type=section&id=9.%20DEBT) Long-Term Debt (In millions) | Debt Type | March 31, 2020 | December 31, 2019 | | :------------------------------------------ | :------------- | :---------------- | | 5.00% Senior Notes due June 1, 2022 | $550.0 | $550.0 | | 5.25% Senior Notes redeemed April 2, 2020 | $300.0 | $300.0 | | Acquisition Line | $68.1 | $72.5 | | Real estate related | $455.9 | $453.3 | | Finance leases | $87.4 | $83.0 | | Other | $38.4 | $42.8 | | **Total debt** | **$1,499.8** | **$1,501.7** | | Less: current maturities | $(354.7) | $(59.1) | | **Long-term debt** | **$1,137.7** | **$1,432.1** | - On April 2, 2020, the Company fully redeemed **$300.0 million** of its 5.25% Senior Notes due June 2023 at a premium, totaling **$307.9 million**, funded by Acquisition Line borrowings, mortgage borrowings, and excess cash, expected to lower annual interest expense by approximately **$8.5 million**[71](index=71&type=chunk)[168](index=168&type=chunk) - Additional mortgage loans totaling approximately **$130 million** were entered into in the U.S. from April 1, 2020, to provide supplemental liquidity[71](index=71&type=chunk) [10. FLOORPLAN NOTES PAYABLE](index=19&type=section&id=10.%20FLOORPLAN%20NOTES%20PAYABLE) Floorplan Notes Payable (In millions) | Type | March 31, 2020 | December 31, 2019 | | :------------------------------------------ | :------------- | :---------------- | | Floorplan notes payable — credit facility and other, net | $1,168.6 | $1,144.4 | | Floorplan notes payable — manufacturer affiliates, net | $484.9 | $459.9 | | **Total Floorplan Notes Payable** | **$1,653.5** | **$1,604.3** | - The Company has a **$1.75 billion** revolving syndicated credit arrangement (Revolving Credit Facility) maturing June 27, 2024, consisting of a **$1.70 billion Floorplan Line** and a **$349.0 million Acquisition Line**[75](index=75&type=chunk) - The Floorplan Line bears interest at LIBOR plus **110-140 basis points**, with a weighted average rate of **1.76%** as of March 31, 2020, while the Acquisition Line bears interest at LIBOR or equivalent plus **100-200 basis points**[76](index=76&type=chunk) - Offset accounts, totaling **$82.8 million** as of March 31, 2020, are immediately available cash used to pay down floorplan notes, serving as primary short-term investment for excess cash[78](index=78&type=chunk)[151](index=151&type=chunk) [11. CASH FLOW INFORMATION](index=20&type=section&id=11.%20CASH%20FLOW%20INFORMATION) - Cash, cash equivalents, and restricted cash at the end of Q1 2020 was **$19.2 million**, down from **$36.9 million** in Q1 2019[22](index=22&type=chunk) Non-Cash Activities (In millions) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | ROU assets obtained in exchange for lease obligations: | | | | Operating leases, initial recognition | $0.1 | $4.3 | | Operating leases, modifications and remeasurements | $11.9 | $0.7 | | Finance leases, initial recognition | $10.0 | $— | | Finance leases, modifications and remeasurements | $(1.5) | $— | | Net increase (decrease) in accrual for capital expenditures | $0.7 | $(4.1) | - Cash paid for interest decreased from **$21.9 million** in Q1 2019 to **$19.9 million** in Q1 2020[83](index=83&type=chunk) - The Company received a net tax refund of **$6.2 million** in Q1 2020, compared to **$1.2 million** paid in Q1 2019[83](index=83&type=chunk) [12. COMMITMENTS AND CONTINGENCIES](index=20&type=section&id=12.%20COMMITMENTS%20AND%20CONTINGENCIES) - As of March 31, 2020, the Company was not party to any legal proceedings expected to have a **material adverse effect** on its financial condition or results of operations[85](index=85&type=chunk)[192](index=192&type=chunk) - The Company remains liable for **$38.5 million** in remaining lease payments for certain disposed dealerships, with **$6.1 million** in associated letters of credit as collateral[86](index=86&type=chunk) [13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)](index=21&type=section&id=13.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME%20%28LOSS%29) Changes in Accumulated Other Comprehensive Income (Loss) (In millions) | Component | Balance, Dec 31, 2019 | Net Current Period Other Comprehensive Income (Loss) | Balance, Mar 31, 2020 | | :------------------------------------------ | :-------------------- | :--------------------------------------------------- | :-------------------- | | Accumulated income (loss) on foreign currency translation | $(142.9) | $(27.9) | $(170.8) | | Accumulated income (loss) on interest rate swaps | $(4.1) | $(31.1) | $(35.2) | | **Total** | **$(147.0)** | **$(59.0)** | **$(206.0)** | - Accumulated other comprehensive income (loss) significantly decreased from **$(147.0) million** at December 31, 2019, to **$(206.0) million** at March 31, 2020, primarily due to negative foreign currency translation adjustments and unrealized losses on interest rate swaps[87](index=87&type=chunk) [Cautionary Statement about Forward-Looking Statements](index=22&type=section&id=Cautionary%20Statement%20about%20Forward-Looking%20Statements) - The report contains forward-looking statements regarding future operating performance, sales volumes, margins, cash flows, acquisitions, and the impact of the COVID-19 pandemic[88](index=88&type=chunk)[89](index=89&type=chunk) - Significant risks and uncertainties include adverse global economic developments, the duration and severity of the COVID-19 pandemic, its impact on demand and supply chains, oil price fluctuations, regulatory changes, manufacturer quality issues, and the ability to maintain liquidity and debt covenant compliance[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - Readers are cautioned not to place undue reliance on these statements, and the Company disclaims any duty to update them, except as required by law[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2020 financial condition and operations, focusing on COVID-19 impact, strategic initiatives, and liquidity management [Overview](index=25&type=section&id=Overview) - Group 1 Automotive, Inc. is a leading automotive retail operator with dealerships in the U.S., U.K., and Brazil, selling vehicles, arranging financing, and providing services[96](index=96&type=chunk) - As of March 31, 2020, the Company operated **119 dealerships in the U.S., 50 in the U.K., and 17 in Brazil**[97](index=97&type=chunk) [Long-Term Strategy](index=25&type=section&id=Long-Term%20Strategy) - The Company's long-term strategy focuses on: - **Used Vehicle Retail Growth**: Leveraging trade-ins, off-lease vehicles, data-driven pricing, and expanding the 'Val-U-Line®' sales program - **Parts and Service Growth**: Increasing retention and hiring of service technicians/advisors, extending service hours, and utilizing CRM software - **Digital Initiatives**: Enhancing customer experience through online platforms like AcceleRide® for vehicle transactions and online scheduling for parts and service - **Cost Management**: Leveraging scale, improving processes, and disseminating best practices - **Employee Training and Retention**: Empowering dealership operators and attracting/retaining talented employees - **Strategic Acquisitions and Dispositions**: Enhancing the dealership portfolio through strategic acquisitions and disposing of underperforming dealerships[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) [COVID-19 Pandemic Impact and Response](index=26&type=section&id=COVID-19%20Pandemic%20Impact%20and%20Response) - The COVID-19 pandemic significantly impacted operations globally starting in March 2020, leading to shutdowns or reduced operating capacity across all dealerships in the U.S., U.K., and Brazil[104](index=104&type=chunk) - In the U.S., sales dropped approximately **50%** and service repair orders declined by **50%** in the last two weeks of March 2020 compared to 2019, though signs of improvement were seen by late April[106](index=106&type=chunk) - U.K. dealerships were mandated to close on March 21, 2020, preventing delivery of approximately **35%** of contracted new vehicles[109](index=109&type=chunk) - Brazil dealerships also closed effective March 20, 2020, with service operations resuming in April[110](index=110&type=chunk) - Aggressive cost-cutting actions included furloughing or terminating over **40% of the workforce in the U.S.**, over **90% in the U.K.**, and over **45% in Brazil**[111](index=111&type=chunk) - Management compensation was reduced by up to **50%**, Board of Directors' compensation by **100%**, and advertising expense by over **75%**[111](index=111&type=chunk) - The Company suspended its dividend and canceled its share repurchase program in April 2020, and deferred capital expenditures to preserve liquidity[111](index=111&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) [Consolidated Operating Data](index=29&type=section&id=Consolidated%20Operating%20Data) Reported Consolidated Operating Data (In millions, except unit and per unit amounts) | Metric | Q1 2020 | Q1 2019 | % Change | | :------------------------------------------ | :------ | :------ | :------- | | Total revenues | $2,690.8 | $2,808.4 | (4.2)% | | Total gross profit | $416.5 | $431.5 | (3.5)% | | Gross margin | 15.5% | 15.4% | 0.1% | | Retail new vehicles sold | 35,360 | 38,874 | (9.0)% | | Retail used vehicles sold | 36,790 | 38,836 | (5.3)% | | New vehicle retail gross profit per unit | $1,777 | $1,836 | (3.3)% | | Used vehicle retail gross profit per unit | $1,146 | $1,231 | (6.9)% | | F&I PRU | $1,559 | $1,459 | 6.8% | | SG&A expenses | $328.0 | $327.7 | 0.1% | | SG&A as % gross profit | 78.7% | 75.9% | 2.8% | | Net floorplan expense | $2.3 | $5.2 | (56.0)% | Same Store Consolidated Operating Data (In millions, except unit and per unit amounts) | Metric | Q1 2020 | Q1 2019 | % Change | | :------------------------------------------ | :------ | :------ | :------- | | Total revenues | $2,602.2 | $2,759.0 | (5.7)% | | Total gross profit | $402.8 | $424.9 | (5.2)% | | Gross margin | 15.5% | 15.4% | 0.1% | | Retail new vehicles sold | 34,154 | 37,906 | (9.9)% | | Retail used vehicles sold | 35,669 | 38,043 | (6.2)% | | New vehicle retail gross profit per unit | $1,747 | $1,859 | (6.0)% | | Used vehicle retail gross profit per unit | $1,140 | $1,245 | (8.4)% | | F&I PRU | $1,581 | $1,477 | 7.0% | | SG&A expenses | $315.0 | $323.4 | (2.6)% | | SG&A as % gross profit | 78.2% | 76.1% | 2.1% | - Consolidated total revenues decreased by **4.2% (3.2% constant currency)** and gross profit decreased by **3.5% (2.7% constant currency)** year-over-year, primarily due to the COVID-19 pandemic's impact on vehicle sales[119](index=119&type=chunk) - SG&A expenses remained relatively flat on a reported basis but increased as a percentage of gross profit (**78.7% vs. 75.9%**) due to declining gross profit[119](index=119&type=chunk) [U.S. Operating Data](index=32&type=section&id=U.S.%20Operating%20Data) Same Store U.S. Operating Data (In millions, except unit and per unit amounts) | Metric | Q1 2020 | Q1 2019 | % Change | | :------------------------------------------ | :------ | :------ | :------- | | Total revenues | $1,969.7 | $2,042.6 | (3.6)% | | Total gross profit | $333.6 | $343.8 | (3.0)% | | Gross margin | 16.9% | 16.8% | 0.1% | | Retail new vehicles sold | 24,154 | 26,145 | (7.6)% | | Retail used vehicles sold | 27,210 | 28,868 | (5.7)% | | New vehicle retail gross profit per unit | $1,867 | $1,930 | (3.3)% | | Used vehicle retail gross profit per unit | $1,142 | $1,315 | (13.1)% | | F&I PRU | $1,880 | $1,736 | 8.3% | | SG&A expenses | $252.0 | $256.2 | (1.6)% | | SG&A as % gross profit | 75.5% | 74.5% | 1.0% | - U.S. same store revenues decreased **3.6%**, driven by declines of **5.2%** in new vehicle retail sales and **5.1%** in used vehicle retail sales, due to reduced demand from COVID-19[125](index=125&type=chunk) - Parts and service revenues increased **1.6%**, and F&I revenues increased **1.1%**[125](index=125&type=chunk) - U.S. same store gross profit decreased **3.0%**, with new vehicle retail gross profit down **10.6%** and used vehicle retail gross profit down **18.1%**[126](index=126&type=chunk) - Parts and service, and F&I gross profit increased by **0.9%** and **1.1%** respectively[126](index=126&type=chunk) - U.S. same store SG&A expenses decreased **1.6%** due to cost reduction strategies (furloughs, reduced advertising) in response to COVID-19, but SG&A as a percent of gross profit increased by **100 basis points**[127](index=127&type=chunk) [U.K. Operating Data](index=35&type=section&id=U.K.%20Operating%20Data) Same Store U.K. Operating Data (In millions, except unit and per unit amounts) | Metric | Q1 2020 | Q1 2019 | % Change (Constant Currency) | | :------------------------------------------ | :------ | :------ | :--------------------------- | | Total revenues | $539.9 | $616.4 | (10.5)% | | Total gross profit | $58.5 | $68.6 | (12.7)% | | Gross margin | 10.8% | 11.1% | (0.3)% | | Retail new vehicles sold | 8,029 | 9,635 | (16.7)% | | Retail used vehicles sold | 7,361 | 8,117 | (9.3)% | | New vehicle retail gross profit per unit | $1,379 | $1,680 | (14.5)% | | Used vehicle retail gross profit per unit | $1,157 | $983 | 19.4% | | F&I PRU | $786 | $830 | (3.0)% | | SG&A expenses | $52.4 | $55.7 | (4.4)% | | SG&A as % gross profit | 89.5% | 81.3% | 8.2% | - U.K. same store revenues decreased **12.4% (10.5% constant currency)**, with new vehicle retail sales down **9.0%** and used vehicle retail sales down **9.9% (constant currency)**, primarily due to government-mandated dealership closures and travel restrictions[132](index=132&type=chunk) - U.K. same store gross profit decreased **14.7% (12.7% constant currency)**[133](index=133&type=chunk) - New vehicle retail gross profit decreased **28.8% (constant currency)**, while used vehicle retail gross profit increased **8.3% (constant currency)** due to normalized PRUs[133](index=133&type=chunk) - U.K. same store SG&A expenses decreased **6.0% (4.4% constant currency)** due to cost reduction strategies, but SG&A as a percentage of gross profit increased by **8.2%**[134](index=134&type=chunk) [Brazil Operating Data](index=39&type=section&id=Brazil%20Operating%20Data) Same Store Brazil Operating Data (In millions, except unit and per unit amounts) | Metric | Q1 2020 | Q1 2019 | % Change (Constant Currency) | | :------------------------------------------ | :------ | :------ | :--------------------------- | | Total revenues | $92.5 | $100.0 | 8.7% | | Total gross profit | $10.7 | $12.6 | (0.2)% | | Gross margin | 11.5% | 12.6% | (1.0)% | | Retail new vehicles sold | 1,971 | 2,126 | (7.3)% | | Retail used vehicles sold | 1,098 | 1,058 | 3.8% | | New vehicle retail gross profit per unit | $1,782 | $1,803 | 16.2% | | Used vehicle retail gross profit per unit | $957 | $1,323 | (14.8)% | | F&I PRU | $560 | $613 | 7.4% | | SG&A expenses | $10.5 | $11.4 | 9.4% | | SG&A as % gross profit | 98.7% | 90.9% | 7.8% | - Brazil same store revenues decreased **7.4% (increased 8.7% constant currency)**, driven by a **15.5% increase** in new vehicle retail average sales price and a **14.6% increase** in used vehicle retail average sales price (constant currency), despite a **7.3% decline** in new vehicle retail unit sales due to COVID-19[139](index=139&type=chunk) - Brazil same store gross profit decreased **14.9% (decreased 0.2% constant currency)**[140](index=140&type=chunk) - New vehicle retail gross profit increased **7.7% (constant currency)** due to higher manufacturer incentives, while used vehicle retail gross profit decreased **11.6% (constant currency)** as profit was sacrificed for volume[140](index=140&type=chunk) - Brazil same store SG&A expenses decreased **7.7% (increased 9.4% constant currency)**, with a **780 basis point increase** in SG&A as a % of gross profit, largely due to **$0.9 million** in severance costs related to COVID-19[141](index=141&type=chunk) [Consolidated Financial Items](index=42&type=section&id=Consolidated%20Financial%20Items) - Depreciation and amortization expense increased from **$17.0 million** in Q1 2019 to **$18.6 million** in Q1 2020, primarily due to increased investment in U.S. dealership real estate and facility improvements[144](index=144&type=chunk) - Floorplan interest expense decreased **18.1%** in Q1 2020 compared to Q1 2019, mainly due to lower weighted average interest rates (LIBOR decline) and reduced inventory levels in the U.S.[146](index=146&type=chunk) - Other interest expense, net, decreased from **$18.9 million** to **$18.1 million**, driven by lower LIBOR rates, partially offset by higher real estate related debt borrowings[147](index=147&type=chunk) - Provision for income taxes decreased **$4.4 million** to **$9.1 million**, with the effective tax rate falling from **25.9%** to **23.4%**, primarily due to lower pre-tax income and higher tax deductions from RSA vesting[148](index=148&type=chunk) - The Company expects its full-year 2020 effective tax rate to be between **23.0% and 24.0%**, with no material impact from the COVID-19 pandemic[149](index=149&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company's liquidity is derived from cash on hand, floorplan offset accounts, operations, credit facilities, and debt/equity offerings, with management believing it has adequate cash flow and borrowing capacity for the next 12 months[150](index=150&type=chunk) - As of March 31, 2020, total cash liquidity (cash on hand + floorplan offset) was **$101.8 million**, with an additional **$257.8 million** available on the Acquisition Line, bringing total immediate liquidity to **$359.6 million**[170](index=170&type=chunk) Adjusted Cash Flows (In millions) | Cash Flow Activity | Q1 2020 (GAAP) | Q1 2020 (Adjusted) | Q1 2019 (GAAP) | Q1 2019 (Adjusted) | | :------------------------------------------ | :------------- | :----------------- | :------------- | :----------------- | | Net cash provided by (used in) operating activities | $44.1 | $51.9 | $127.9 | $132.0 | | Net cash provided by (used in) investing activities | $(31.1) | $(31.1) | $(6.8) | $(22.5) | | Net cash provided by (used in) financing activities | $(18.5) | $(26.4) | $(102.5) | $(90.8) | - Working capital deficit was **$241.0 million** at March 31, 2020, a decrease of **$335.1 million** from December 31, 2019, primarily due to the reclassification of **$297.5 million** of 5.25% Senior Notes to current maturities[157](index=157&type=chunk) - Capital expenditures for 2020 are forecast to be less than **$70 million**, a reduction from the previous **$125 million** forecast due to the COVID-19 pandemic[160](index=160&type=chunk) - The Company repurchased **597,764 shares** of common stock for **$48.9 million** in Q1 2020[172](index=172&type=chunk) - A quarterly cash dividend of **$0.30 per share ($5.5 million total)** was paid[173](index=173&type=chunk) - On April 7, 2020, the share repurchase program was canceled, and the quarterly dividend was suspended due to COVID-19 impacts[174](index=174&type=chunk) U.S. Credit Facilities Position (In millions) as of March 31, 2020 | Facility | Total Commitment | Outstanding | Available | | :-------------------------- | :--------------- | :---------- | :-------- | | Floorplan line | $1,396.0 | $1,125.1 | $270.9 | | Acquisition line | $349.0 | $91.2 | $257.8 | | FMCC facility | $300.0 | $235.4 | $64.6 | | **Total U.S. credit facilities** | **$2,045.0** | **$1,451.7** | **$593.3** | - As of March 31, 2020, the Company was in compliance with all financial covenants under its debt agreements, with a total adjusted leverage ratio of **3.31** (required < 5.50) and a fixed charge coverage ratio of **2.92** (required > 1.20)[169](index=169&type=chunk)[170](index=170&type=chunk) [Supplemental Guarantor Financial Information](index=47&type=section&id=Supplemental%20Guarantor%20Financial%20Information) - The 5.00% Senior Notes are fully and unconditionally guaranteed by the Company's wholly-owned domestic subsidiaries (Guarantors), with no significant restrictions on distributions between the Parent and Guarantors[176](index=176&type=chunk) Summarized Balance Sheets (Parent and Guarantors, In millions) | Metric | March 31, 2020 | December 31, 2019 | | :---------------- | :------------- | :---------------- | | Current assets | $1,956.3 | $2,024.6 | | Long-term assets | $2,545.0 | $2,506.5 | | Current liabilities | $2,137.5 | $1,874.7 | | Long-term liabilities | $1,401.7 | $1,644.9 | Summarized Statements of Operations (Parent and Guarantors, In millions) | Metric | Three Months Ended March 31, 2020 | Year Ended December 31, 2019 | | :-------------------------- | :-------------------------------- | :--------------------------- | | Revenues | $2,007.6 | $9,184.2 | | Gross profit | $340.9 | $1,494.8 | | Income (loss) from operations | $70.2 | $354.0 | | Net income (loss) | $64.1 | $354.8 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the Company's exposure to market risks, including interest rate and foreign currency exchange rate risks, and their management strategies - The Company is exposed to interest rate risk on its variable-rate debt, primarily the Floorplan Line, where a **100 basis-point change** in interest rates would result in an approximate **$19.7 million change** to annual interest expense, after considering interest rate swaps[180](index=180&type=chunk) - The majority of the Company's debt is benchmarked to LIBOR, which is expected to be discontinued after 2021, and the transition to an alternative rate could increase interest expense and amendment costs[181](index=181&type=chunk) - The Company's exposure to foreign currency exchange rate risk relates to its U.K. (GBP) and Brazil (BRL) subsidiaries[184](index=184&type=chunk) - A **10% devaluation** in GBP and BRL exchange rates would have decreased Q1 2020 revenues by **$53.7 million** and **$8.4 million**, respectively[184](index=184&type=chunk) - The Company does not currently hedge foreign exchange risk[184](index=184&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) This section outlines the Company's evaluation of disclosure controls and internal control over financial reporting, confirming effectiveness and addressing COVID-19 remote work impacts - Management concluded that the Company's disclosure controls and procedures were **effective** as of March 31, 2020, providing reasonable assurance that required information is accumulated and reported timely[186](index=186&type=chunk) - Business continuity plans were activated to mitigate the impact of remote work due to COVID-19 on the control environment, operating procedures, data, and internal controls, ensuring remote execution with secure data access[187](index=187&type=chunk) - There were **no material changes** in internal control over financial reporting during the three months ended March 31, 2020[189](index=189&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms no material legal proceedings are expected to adversely affect the Company's financial condition or operations - As of March 31, 2020, the Company was not party to any legal proceedings, including class action lawsuits, that are reasonably expected to have a **material adverse effect** on its results of operations, financial condition, or cash flows[192](index=192&type=chunk) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, focusing on the material adverse effects and uncertainties of the COVID-19 pandemic on the Company's business and financial stability - The COVID-19 pandemic has materially disrupted operations and adversely affected financial condition, leading to significant reductions in vehicle sales, parts and service, and F&I revenues, as well as impacts on the supply chain[194](index=194&type=chunk) - The pandemic's impacts could make it difficult to raise additional capital, affect the acquisition strategy, and may not be sufficiently mitigated by cost-cutting measures, dividend suspension, and share repurchase cancellations[196](index=196&type=chunk) - The potential long-term impact and duration of the COVID-19 pandemic are uncertain, and changes in assumptions regarding its temporary nature or recovery strength could lead to impairment of goodwill and indefinite-lived intangibles[197](index=197&type=chunk)[199](index=199&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on equity security activities, detailing common stock repurchases during the quarter and the subsequent cancellation of the repurchase program - No unregistered sales of equity securities or use of proceeds were reported[200](index=200&type=chunk)[201](index=201&type=chunk) Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | January 1 - January 31, 2020 | 149,284 | $98.12 | | February 1 - February 29, 2020 | 119,575 | $94.42 | | March 1 - March 31, 2020 | 328,905 | $69.86 | | **Total (Q1 2020)** | **597,764** | **$81.83** | - During Q1 2020, the Company repurchased **597,764 shares** of common stock for a total of **$48.9 million**[202](index=202&type=chunk) - As of March 31, 2020, **$77.0 million** remained authorized under the repurchase program[203](index=203&type=chunk) - However, the program was canceled on April 7, 2020, due to the adverse impacts of the COVID-19 pandemic[203](index=203&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and XBRL interactive data files - The exhibit index includes corporate documents (Amended and Restated Certificate of Incorporation, Third Amended and Restated Bylaws), a list of subsidiary guarantors, certifications from the CEO and CFO (Sarbanes-Oxley Act Sections 302 and 906), and XBRL interactive data files[207](index=207&type=chunk) [SIGNATURE](index=52&type=section&id=SIGNATURE) This section contains the official signature block, confirming the due authorization and filing of the report by Group 1 Automotive, Inc.'s Senior Vice President and CFO - The report was signed on **May 8, 2020**, by John C. Rickel, Senior Vice President and Chief Financial Officer of Group 1 Automotive, Inc., confirming its due authorization[211](index=211&type=chunk)

Group 1 Automotive, Inc. (NYSE:GPI) Q1 2020 Earnings Conference Call May 5, 2020 10:00 AM ET Company Participants Pete DeLongchamps – Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs Earl Hesterberg – President and Chief Executive Officer John Rickel – Senior Vice President and Chief Financial Officer Daryl Kenningham – President-U.S. and Brazilian Operations Michael Welch – Vice President and Corporate Controller Conference Call Participants Rajat Gupta – JP Morgan Rick ...