O’Reilly Automotive, Inc. (NASDAQ:ORLY) Q3 2023 Earnings Conference Call October 26, 2023 11:00 AM ET Company Participants Jeremy Fletcher - Chief Financial Officer Greg Johnson - Chief Executive Officer Brad Beckham - Co-President Brent Kirby - Co-President Greg Hensley - Executive Chairman David O'Reilly - Executive Vice Chairman Conference Call Participants Michael Lasser - UBS Brett Jordan - Jeffries Daniel Imbro - Stephens Zach Fadem - Wells Fargo Simeon Gutman - Morgan Stanley Christopher Hoevers - JP ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ O'REILLY AUTOMOTIVE, INC. (Exact name of registrant as specified in its charter) Missouri 000-21318 27-4358837 (State or other jurisdiction of Commission ...

O’Reilly Automotive, Inc. (NASDAQ:ORLY) Q2 2023 Earnings Conference Call July 27, 2023 11:00 AM ET Company Participants Jeremy Fletcher – Chief Financial Officer Greg Johnson – Chief Executive Officer Brad Beckham – Co-President Brent Kirby – Co-President Conference Call Participants Greg Melich – Evercore ISI Chris Horvers – JPMorgan Scot Ciccarelli – Truist Brian Nagel – Oppenheimer Kate McShane – Goldman Sachs Mike Baker – D.A. Davidson Seth Basham – Wedbush Securities Operator Welcome to the O’Reilly Au ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Address of principal executive offices, Zip code) (417) 862-6708 (Registrant's telephone number, including area code) For the transition period from ________ to ________ O'REILLY AUTOMOTIVE, INC. Not app ...

O'Reilly Automotive, Inc. (NASDAQ:ORLY) Q1 2023 Earnings Conference Call April 27, 2023 11:00 AM ET Company Participants Jeremy Fletcher – Chief Financial Officer Greg Johnson – Chief Executive Officer Brad Beckham – Co-President Brent Kirby – Co-President Conference Call Participants Scot Ciccarelli – Truist Securities Chris Horvers – JPMorgan Greg Melich – Evercore ISI Bret Jordan – Jefferies Zach Fadem – Wells Fargo Liz Suzuki – Bank of America Michael Lasser – UBS Simeon Gutman – Morgan Stanley Operator ...

OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to O'REILLY AUTOMOTIVE, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 (Exact name of registrant as specified in its charter) (State or other jurisdiction Commission file (I.R.S. Employer of incorporation or organiza ...

Financial Data and Key Metrics Changes - The company reported a comparable store sales increase of 9% in Q4 2022, with a full-year growth of 6.4%, exceeding previous guidance [6][23] - Diluted EPS increased by 8% to $33.44, representing a 3-year compounded annual growth rate of 23% [6] - The company expects 2023 EPS guidance to be between $35.75 and $36.25, indicating an 8% increase compared to 2022 [23] Business Line Data and Key Metrics Changes - The professional business led growth with double-digit comparable store sales growth, while the DIY business showed improved performance with strong average ticket growth [27][11] - Average ticket size grew in the high single digits, supported by mid single-digit growth in same SKU inflation [56] Market Data and Key Metrics Changes - The automotive aftermarket remains strong, driven by consumers keeping their vehicles longer due to vehicle scarcity [12] - The company anticipates a slight decline in DIY traffic in 2023 but expects to gain market share to offset this [14] Company Strategy and Development Direction - The company plans to invest in operational strength, focusing on team member experience, store upgrades, and technology projects [16] - The strategy includes enhancing customer service and inventory management to capitalize on market opportunities [16][58] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the automotive aftermarket's resilience despite potential economic challenges, emphasizing the non-discretionary nature of their business [13] - The company remains optimistic about growth opportunities in both DIY and professional segments for 2023 [58] Other Important Information - The company’s capital expenditures in 2022 were $563 million, with a guidance of $750 million to $800 million for 2023 [41] - Inventory per store at the end of 2022 was $730,000, up 15% from the previous year [39] Q&A Session All Questions and Answers Question: How does the company view its comp guidance for 2023? - Management clarified that the 4% to 6% comp guidance is based on a bullish outlook for the industry and not merely a necessity to cover increased costs [77] Question: What is the expected impact of lower input costs on profitability? - Management indicated that while there are some cost reductions, they remain cautious about the overall impact on margins and profitability [79] Question: What was the inflation in average hourly wage last year and expectations for this year? - The company reported mid to high-single digit wage inflation in 2022 and expects it to moderate but remain in the mid-single digit range for 2023 [95] Question: Is there any trade-down occurring among customers? - Management noted that there has not been significant trade-down behavior, with some customers trading up to higher quality products [97]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ O'REILLY AUTOMOTIVE, INC. (Exact name of registrant as specified in its charter) Missouri 000-21318 27-4358837 (State or other jurisdiction of Commi ...

Financial Data and Key Metrics Changes - The company reported a 7.6% increase in comparable store sales, resulting in a two and three-year comp sales stack of 14.3% and 31.2% respectively [8] - Gross margin for the third quarter was 50.9%, a decrease of 132 basis points from the previous year, but in line with guidance expectations [27] - Diluted EPS for the third quarter increased to $9.17, a 14% increase year-over-year, and a 22% increase on a three-year compounded basis [28] - Full year 2022 EPS guidance was increased to $32.35 to $32.85, reflecting year-to-date results and fourth quarter expectations [29] - Free cash flow for the first nine months of 2022 was $1.9 billion, with an increase in expected full year free cash flow guidance to a range of $1.8 billion to $2.1 billion [79] Business Line Data and Key Metrics Changes - The professional business outperformed, producing double-digit comparable store sales growth driven by increases in ticket counts and average ticket size [15] - The DIY business showed positive results against difficult comparisons, with comparable store sales increases driven by growth in average ticket, despite traffic pressures [16][17] - Combined DIY and professional comparable store sales growth was driven by strength in average ticket, approximately 10% on both sides of the business [18] Market Data and Key Metrics Changes - Sales volumes accelerated throughout the quarter, with September being the strongest month [14] - Performance was consistent across market areas, with widespread outperformance versus expectations [21] - The company experienced broad-based support across its business categories, particularly benefiting from warm weather at the beginning of the quarter [21] Company Strategy and Development Direction - The company aims to continue consolidating the industry and growing its professional share, focusing on customer service and inventory availability [15] - The company plans to open 180 to 190 net new stores in 2023, expanding its footprint across the US and Mexico [53] - Investments are being made to enhance the distribution network and local inventory position to improve overall inventory availability [56] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the impact of inflation, consumer spending pressures, and weather dynamics on future performance [23][24] - The company remains confident in the health of the automotive aftermarket, supported by recovery in miles driven and favorable vehicle fleet dynamics [25] - Management noted that consumers are prioritizing maintenance of existing vehicles due to high inflation and economic uncertainty [26] Other Important Information - The company opened 37 net new stores in the third quarter, bringing the year-to-date total to 154 net new store openings [52] - The average inventory per store was $697,000, up 10% from the previous year [55] - The company retired $300 million of maturing senior notes, resulting in an adjusted debt-to-EBITDA ratio of 1.84 times [80] Q&A Session Summary Question: Current trends into the quarter - Management indicated that trends are measured against expectations and comparisons, with a focus on two-year and three-year performance [85][86] Question: Inflation and average ticket size between Pro and DIY - Management noted similar inflation benefits across both segments, with the professional side benefiting from the Pro pricing initiative [88][89] Question: Trade down observations - Management has not seen any material trade down, with movements being more related to supplier performance and inventory availability [91] Question: Cadence and performance expectations for the fourth quarter - Management expressed caution due to unknowns and volatility, particularly regarding consumer behavior and inflation during the holiday season [96][97] Question: Gross margin expectations and LIFO impacts - Management expects some headwinds to ease but remains cautious about significant improvements in gross margin due to ongoing cost pressures [99][100] Question: Pricing and inflation outlook - Management anticipates that pricing will remain rational and resilient, with no dramatic rollbacks expected in inflation [120][121] Question: Growth potential in 2023 - Management has not guided for 2023 yet but expects to continue passing through modest inflation to customers [131]

PART I - FINANCIAL INFORMATION This section covers unaudited interim financial statements and management's analysis of financial condition and operations [ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)](index=4&type=section&id=ITEM%201%20-%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section presents unaudited condensed consolidated financial statements and detailed notes for June 30, 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the Company's assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $253,904 | $362,113 | | Total current assets | $4,799,872 | $4,504,262 | | Total assets | $12,067,689 | $11,718,707 | | Accounts payable | $5,258,712 | $4,695,312 | | Total current liabilities | $6,413,189 | $5,874,615 | | Long-term debt | $4,669,833 | $3,826,978 | | Total shareholders' deficit | $(1,107,430) | $(66,423) | - **Total assets** increased by **$348,982K** from December 31, 2021, to June 30, 2022, primarily driven by an increase in inventory[10](index=10&type=chunk) - **Long-term debt** significantly increased by **$842,855K**, and **total shareholders' deficit** widened from **$(66,423)K** to **$(1,107,430)K**[10](index=10&type=chunk) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section details the Company's revenues, expenses, net income, and earnings per share Condensed Consolidated Statements of Income (in thousands, except per share data) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales | $3,670,737 | $3,465,601 | $6,966,748 | $6,556,500 | | Gross profit | $1,884,718 | $1,826,378 | $3,592,790 | $3,467,173 | | Operating income | $798,550 | $795,583 | $1,468,080 | $1,486,688 | | Net income | $576,760 | $585,451 | $1,058,640 | $1,087,060 | | Earnings per share-basic | $8.86 | $8.41 | $16.08 | $15.53 | | Earnings per share-assuming dilution | $8.78 | $8.33 | $15.94 | $15.39 | - **Sales** increased by **6%** for both the three and six months ended June 30, 2022, compared to the prior year[13](index=13&type=chunk) - **Net income** decreased by **1%** for the three months and **3%** for the six months ended June 30, 2022, year-over-year, while **Diluted EPS** increased by **5%** and **4%** respectively, primarily due to share repurchases[13](index=13&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents net income and other comprehensive income items, reflecting total non-owner equity changes Condensed Consolidated Statements of Comprehensive Income (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $576,760 | $585,451 | $1,058,640 | $1,087,060 | | Foreign currency translation adjustments | $(1,875) | $3,707 | $3,188 | $(436) | | Comprehensive income | $574,885 | $589,158 | $1,061,828 | $1,086,624 | - **Comprehensive income** for the six months ended June 30, 2022, was **$1,061,828K**, a slight decrease from **$1,086,624K** in the prior year[16](index=16&type=chunk) - **Foreign currency translation adjustments** resulted in a loss of **$1,875K** for the three months ended June 30, 2022, but an income of **$3,188K** for the six months ended June 30, 2022[16](index=16&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Deficit)) This section outlines changes in the Company's shareholders' equity or deficit over the reporting period Changes in Shareholders' Equity (Deficit) for Six Months Ended June 30, 2022 (in thousands) | Item | Shares | Par Value | Additional Paid-In Capital | Retained Deficit | Accumulated Other Comprehensive Loss | Total | | :------------------------------------------------------------------------------------------------ | :----- | :-------- | :------------------------- | :--------------- | :----------------------------------- | :------------ | | Balance at December 31, 2021 | 67,029 | $670 | $1,305,508 | $(1,365,802) | $(6,799) | $(66,423) | | Net income | — | — | — | 1,058,640 | — | 1,058,640 | | Total other comprehensive income | — | — | — | — | 3,188 | 3,188 | | Share repurchases, including fees | (3,386) | (33) | (67,263) | (2,083,946) | — | (2,151,242) | | Balance at June 30, 2022 | 63,753 | $638 | $1,286,651 | $(2,391,108) | $(3,611) | $(1,107,430) | - **Total shareholders' deficit** significantly increased from **$(66,423)K** at December 31, 2021, to **$(1,107,430)K** at June 30, 2022[19](index=19&type=chunk) - **Share repurchases**, including fees, amounted to **$2,151,242K** for the six months ended June 30, 2022, significantly impacting retained deficit[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,391,973 | $1,712,832 | | Net cash used in investing activities | $(224,865) | $(220,892) | | Net cash used in financing activities | $(1,275,489) | $(1,325,880) | | Net (decrease) increase in cash and cash equivalents | $(108,209) | $165,978 | | Cash and cash equivalents at end of the period | $253,904 | $631,618 | - **Net cash provided by operating activities** decreased by **$320,859K** for the six months ended June 30, 2022, compared to the same period in 2021, primarily due to changes in accrued payroll/benefits and inventory investment[22](index=22&type=chunk)[96](index=96&type=chunk) - **Net cash used in financing activities** decreased by **$50,391K**, attributable to net proceeds from the issuance of long-term debt, partially offset by increased common stock repurchases[22](index=22&type=chunk)[98](index=98&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the financial statements [NOTE 1 – BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) This note describes the accounting principles and scope for the unaudited interim financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and do not include all footnotes required for complete financial statements[23](index=23&type=chunk) - The statements include the accounts of the Company and its wholly-owned subsidiaries, with all inter-company balances and transactions eliminated[24](index=24&type=chunk) [NOTE 2 – VARIABLE INTEREST ENTITIES](index=10&type=section&id=NOTE%202%20%E2%80%93%20VARIABLE%20INTEREST%20ENTITIES) This note details investments in unconsolidated tax credit fund entities and associated loss exposure - The Company invests in four unconsolidated tax credit fund entities that are considered Variable Interest Entities (VIEs)[26](index=26&type=chunk) - The Company concluded it was not the primary beneficiary of these VIEs and accounts for these investments using the equity method[26](index=26&type=chunk) - The **maximum exposure to losses** associated with these VIEs is generally limited to its net investment, which was **$23.6 million** as of June 30, 2022[26](index=26&type=chunk) [NOTE 3 – FAIR VALUE MEASUREMENTS](index=10&type=section&id=NOTE%203%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS) This note explains fair value measurement methodology and disclosures for financial instruments - The Company uses a fair value hierarchy (Level 1, 2, 3) to measure financial instruments, prioritizing quoted prices in active markets (Level 1)[27](index=27&type=chunk)[29](index=29&type=chunk) Estimated Fair Value of Marketable Securities (Level 1, in thousands) | Date | Total | | :--------------- | :------ | | June 30, 2022 | $47,468 | | December 31, 2021 | $52,456 | Carrying Amount and Estimated Fair Value of Senior Notes (Level 2, in thousands) | Date | Carrying Amount | Estimated Fair Value | | :--------------- | :-------------- | :------------------- | | June 30, 2022 | $4,669,833 | $4,501,833 | | December 31, 2021 | $3,826,978 | $4,135,629 | [NOTE 4 – LEASES](index=13&type=section&id=NOTE%204%20%E2%80%93%20LEASES) This note provides information on the Company's lease arrangements, costs, and cash payments Total Lease Cost (in thousands) | Period | 2022 | 2021 | | :----------------------- | :------- | :------- | | Three Months Ended June 30 | $115,797 | $110,484 | | Six Months Ended June 30 | $230,595 | $220,382 | - **Cash paid for operating leases** for the six months ended June 30, 2022, was **$180,558K**, an increase from **$169,864K** in the prior year[36](index=36&type=chunk) [NOTE 5 – FINANCING](index=13&type=section&id=NOTE%205%20%E2%80%93%20FINANCING) This note outlines the Company's long-term debt, credit facilities, and debt covenant compliance Long-Term Debt (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Total principal amount of debt | $4,700,000 | $3,850,000 | | Total long-term debt | $4,669,833 | $3,826,978 | - On June 15, 2022, the Company **issued** **$850 million** aggregate principal amount of unsecured **4.700%** Senior Notes due 2032[43](index=43&type=chunk) - The Company has a **$1.8 billion** **unsecured revolving credit facility**, with no outstanding borrowings as of June 30, 2022, and was in compliance with all covenants[38](index=38&type=chunk)[39](index=39&type=chunk)[41](index=41&type=chunk) [NOTE 6 – WARRANTIES](index=15&type=section&id=NOTE%206%20%E2%80%93%20WARRANTIES) This note details changes in the Company's aggregate product warranty liabilities Changes in Aggregate Product Warranty Liabilities (in thousands) | Item | Amount | | :---------------------------------- | :------- | | Warranty liabilities, balance at December 31, 2021 | $77,199 | | Warranty claims | $(69,978) | | Warranty accruals | $74,055 | | Warranty liabilities, balance at June 30, 2022 | $81,285 | - **Warranty liabilities** increased by **$4,086K** from December 31, 2021, to June 30, 2022[46](index=46&type=chunk) [NOTE 7 – SHARE REPURCHASE PROGRAM](index=17&type=section&id=NOTE%207%20%E2%80%93%20SHARE%20REPURCHASE%20PROGRAM) This note describes share repurchase activities and remaining authorization under the program - The Board of Directors approved an **additional $1.5 billion authorization** on May 16, 2022, increasing the **cumulative authorization** to **$20.3 billion**[47](index=47&type=chunk) Share Repurchases (in thousands, except per share data) | Period | Shares Repurchased | Average Price Per Share | Total Investment | | :----------------------- | :----------------- | :---------------------- | :--------------- | | Three Months Ended June 30, 2022 | 2,219 | $620.27 | $1,376,013 | | Six Months Ended June 30, 2022 | 3,386 | $635.40 | $2,151,209 | - As of June 30, 2022, **$1.4 billion** **remained under the share repurchase authorization**[48](index=48&type=chunk) [NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE LOSS](index=17&type=section&id=NOTE%208%20%E2%80%93%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) This note presents the components and changes in accumulated other comprehensive loss Accumulated Other Comprehensive Loss (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Accumulated other comprehensive loss | $(3,611) | $(6,799) | | Change in accumulated other comprehensive loss (6 months) | $3,188 | $(436) | - **Accumulated other comprehensive loss** improved from **$(6,799)K** at December 31, 2021, to **$(3,611)K** at June 30, 2022, primarily due to foreign currency translation adjustments[49](index=49&type=chunk) [NOTE 9 – REVENUE](index=18&type=section&id=NOTE%209%20%E2%80%93%20REVENUE) This note disaggregates the Company's revenues by major customer type Revenues Disaggregated by Major Customer Type (in thousands) | Customer Type | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Sales to do-it-yourself customers | $3,828,037 | $3,780,567 | | Sales to professional service provider customers | $2,970,540 | $2,623,303 | | Total sales | $6,966,748 | $6,556,500 | - **Sales to professional service provider customers** increased by **$347,237K (13.2%)** for the six months ended June 30, 2022, compared to the prior year[51](index=51&type=chunk) [NOTE 10 – SHARE-BASED COMPENSATION AND BENEFIT PLANS](index=18&type=section&id=NOTE%2010%20%E2%80%93%20SHARE-BASED%20COMPENSATION%20AND%20BENEFIT%20PLANS) This note provides details on share-based compensation expenses and employee benefit plans Share-Based Compensation Expense (in thousands) | Plan Type | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $10,210 | $10,367 | | Employee Stock Purchase Plan (ESPP) | $1,601 | $1,432 | | Restricted shares awarded | $891 | $776 | | 401(k) matching contributions | $17,800 | $15,900 | | Deferred Compensation Plan matching contributions | $100 | $100 | | Stock appreciation rights (benefit/expense) | $(100) | $400 | - The **weighted-average grant-date fair value of stock options granted** increased to **$216.87** for the six months ended June 30, 2022, from **$144.30** in the prior year[56](index=56&type=chunk) - The **liability for the nonqualified deferred compensation plan** was **$47.5 million** as of June 30, 2022[60](index=60&type=chunk) [NOTE 11 – EARNINGS PER SHARE](index=23&type=section&id=NOTE%2011%20%E2%80%93%20EARNINGS%20PER%20SHARE) This note explains the calculation of basic and diluted earnings per share Earnings Per Share (in thousands, except per share data) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $576,760 | $585,451 | $1,058,640 | $1,087,060 | | Weighted-average common shares outstanding – basic | 65,116 | 69,618 | 65,840 | 69,997 | | Weighted-average common shares outstanding – assuming dilution | 65,686 | 70,264 | 66,434 | 70,640 | | Earnings per share-basic | $8.86 | $8.41 | $16.08 | $15.53 | | Earnings per share-assuming dilution | $8.78 | $8.33 | $15.94 | $15.39 | - **Diluted EPS** increased by **5%** to **$8.78** for the three months and **4%** to **$15.94** for the six months ended June 30, 2022, despite a decrease in net income, due to fewer weighted-average common shares outstanding[62](index=62&type=chunk)[93](index=93&type=chunk) [NOTE 12 – LEGAL MATTERS](index=23&type=section&id=NOTE%2012%20%E2%80%93%20LEGAL%20MATTERS) This note discloses litigation involvement and management's assessment of potential financial impact - The Company is involved in litigation incidental to its ordinary business and accrues for probable and estimable losses[65](index=65&type=chunk) - Management does not believe these legal matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows[65](index=65&type=chunk) [NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS](index=23&type=section&id=NOTE%2013%20%E2%80%93%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This note addresses the impact of recent accounting pronouncements on financial statements - No recent accounting pronouncements or changes have occurred since the Annual Report on Form 10-K for the year ended December 31, 2021, that are of material significance to the Company[66](index=66&type=chunk) [ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=24&type=section&id=ITEM%202%20-%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section reviews financial condition, operations, and liquidity, including industry drivers and capital resources [FORWARD-LOOKING STATEMENTS](index=24&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section identifies forward-looking statements and outlines key risks and uncertainties - The report contains forward-looking statements, identified by words such as 'estimate,' 'may,' 'could,' 'will,' 'believe,' 'expect,' and 'anticipate,' which are subject to risks and uncertainties[68](index=68&type=chunk) - Key risks include the COVID-19 pandemic, general economic conditions, inflation, product demand, competition, supply chain disruptions, and governmental regulations[68](index=68&type=chunk) [OVERVIEW](index=24&type=section&id=OVERVIEW) This section describes the Company's business, market strategy, store operations, and demand drivers - O'Reilly Automotive is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States and Mexico, employing a 'dual market strategy' serving both DIY and professional service provider customers[69](index=69&type=chunk) - As of June 30, 2022, the Company operated **5,873** stores in 47 U.S. states and 27 stores in Mexico[71](index=71&type=chunk) - Key drivers of demand include **U.S. miles driven** (increased **3.8%** year-to-date through May 2022), the **total number of registered vehicles** (**279 million** by end of 2021), and the **average vehicle age** (increased to **12.1 years** in 2021)[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - Inflationary cost pressures are impacting the business, but historically the Company has been able to pass along cost increases through higher selling prices[72](index=72&type=chunk)[77](index=77&type=chunk) [RESULTS OF OPERATIONS](index=28&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes sales, gross profit, operating income, and net income, highlighting performance drivers Key Financial Results (in millions, except per share data) | Item | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Sales | $3,670 | $3,466 | $6,967 | $6,557 | | Comparable store sales growth | 4.3% | 9.9% | 4.5% | 16.5% | | Gross profit | $1,885 | $1,826 | $3,593 | $3,467 | | Gross profit as % of sales | 51.3% | 52.7% | 51.6% | 52.9% | | SG&A expenses | $1,086 | $1,031 | $2,125 | $1,980 | | Operating income | $799 | $796 | $1,468 | $1,487 | | Net income | $577 | $585 | $1,059 | $1,087 | | Diluted EPS | $8.78 | $8.33 | $15.94 | $15.39 | - **Sales** increased by **6%** for both the three and six months ended June 30, 2022, driven by store growth and **comparable store sales increases** of **4.3%** and **4.5%**, respectively[81](index=81&type=chunk)[82](index=82&type=chunk) - **Gross profit as a percentage of sales decreased** due to a strategic professional pricing initiative and a higher mix of professional service provider sales, which carry lower gross margins[87](index=87&type=chunk) - **Operating income** for the six months ended June 30, 2022, decreased **1%** to **$1.47 billion**, and **net income** decreased **3%** to **$1.06 billion**, primarily due to increased SG&A from payroll, benefits, and fuel costs[88](index=88&type=chunk)[89](index=89&type=chunk)[92](index=92&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=32&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses cash flows, debt compliance, and strategies for funding operations and growth Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,391,973 | $1,712,832 | | Net cash used in investing activities | $(224,865) | $(220,892) | | Net cash used in financing activities | $(1,275,489) | $(1,325,880) | | Free cash flow | $1,153,153 | $1,471,642 | - **Net cash provided by operating activities** decreased primarily due to a larger decrease in accrued payroll and benefits and a smaller decrease in net inventory investment[96](index=96&type=chunk) - The Company's **consolidated fixed charge coverage ratio** was **6.89x** (minimum **2.50x**) and **consolidated leverage ratio** was **1.84x** (maximum **3.50x**) as of June 30, 2022, indicating compliance with all debt covenants[101](index=101&type=chunk)[102](index=102&type=chunk) - The Company's long-term business strategy requires capital for new stores, acquisitions, distribution expansion, and opportunistic share repurchases, funded by business operations and its unsecured revolving credit facility[94](index=94&type=chunk) [ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=37&type=section&id=ITEM%203%20-%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section assesses market risks, including interest rate and foreign currency, with no material changes reported - The Company is subject to interest rate risk from variable-rate borrowings on its unsecured revolving credit facility, but had no outstanding borrowings as of June 30, 2022[109](index=109&type=chunk) - Foreign currency exposure arises from Mexican peso-denominated revenues and profits; a **10%** change in exchange rates would result in an approximate **$15.7 million** **potential loss** in the net assets of Mexican subsidiaries[111](index=111&type=chunk)[112](index=112&type=chunk) - The Company's market risks have not materially changed since those discussed in its Annual Report on Form 10-K for the year ended December 31, 2021[113](index=113&type=chunk) [ITEM 4 - CONTROLS AND PROCEDURES](index=37&type=section&id=ITEM%204%20-%20CONTROLS%20AND%20PROCEDURES) This section details disclosure controls evaluation and confirms no material changes in internal control [EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES](index=37&type=section&id=EVALUATION%20OF%20DISCLOSURE%20CONTROLS%20AND%20PROCEDURES) This section reports on management's assessment of disclosure controls and procedures effectiveness - Management, under the supervision of the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of June 30, 2022[114](index=114&type=chunk) - It was concluded that the disclosure controls and procedures are functioning effectively to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[116](index=116&type=chunk) [CHANGES IN INTERNAL CONTROLS](index=39&type=section&id=CHANGES%20IN%20INTERNAL%20CONTROLS) This section confirms no material changes in internal control over financial reporting during the quarter - There were no changes in the Company's internal control over financial reporting during the fiscal quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[117](index=117&type=chunk) PART II - OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits [ITEM 1 - LEGAL PROCEEDINGS](index=40&type=section&id=ITEM%201%20-%20LEGAL%20PROCEEDINGS) This section discloses ordinary course litigation, with accruals for probable losses and no material adverse effect anticipated - The Company is currently involved in litigation incidental to the ordinary conduct of its business[119](index=119&type=chunk) - Accruals are made for litigation losses where an adverse outcome is probable and estimable, and management does not believe these matters will have a material adverse effect[119](index=119&type=chunk) [ITEM 1A - RISK FACTORS](index=40&type=page&id=ITEM%201A%20-%20RISK%20FACTORS) This section states no material changes to risk factors previously disclosed in the Annual Report on Form 10-K - As of June 30, 2022, there have been no material changes to the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[120](index=120&type=chunk) [ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=40&type=section&id=ITEM%202%20-%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section reports no unregistered equity sales and details common stock repurchases - The Company had no sales of unregistered securities during the six months ended June 30, 2022[121](index=121&type=chunk) Common Stock Repurchases (in thousands, except per share data) for Three Months Ended June 30, 2022 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Investment | | :-------------------------------- | :----------------------------- | :--------------------------- | :--------------- | | April 1, 2022, to April 30, 2022 | 166 | $696.61 | $115,737 | | May 1, 2022, to May 31, 2022 | 1,047 | $611.67 | $640,400 | | June 1, 2022, to June 30, 2022 | 1,006 | $616.63 | $619,876 | | Total as of June 30, 2022 | 2,219 | $620.27 | $1,376,013 | [ITEM 6 - EXHIBITS](index=41&type=section&id=ITEM%206%20-%20EXHIBITS) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance and certifications - Exhibits include the Second Amended and Restated Articles of Incorporation, Fourth Amended and Restated Bylaws, Fourth Supplemental Indenture, and certifications from the Chief Executive Officer and Chief Financial Officer[123](index=123&type=chunk) [SIGNATURE PAGES](index=42&type=section&id=SIGNATURE%20PAGES) This section contains the required signatures for the Form 10-Q, certifying its submission - The report was signed on August 8, 2022, by Gregory D. Johnson, President and Chief Executive Officer, and Jeremy A. Fletcher, Executive Vice President and Chief Financial Officer[127](index=127&type=chunk)