Penske Automotive Group, Inc. (NYSE:PAG) Q2 2023 Earnings Conference Call July 26, 2023 2:00 PM ET Company Participants Anthony Pordon - EVP of IR and Corporate Development Roger Penske - Chairman and CEO Shelley Hulgrave - EVP and CFO Richard Shearing - North American Operations Randall Seymore - International Operations Conference Call Participants John Murphy - Bank of America Rajat Gupta - JPMorgan Daniel Imbro - Stephens David Whiston - Morningstar Operator Ladies and gentlemen, good afternoon. Thank y ...

SECOND QUARTER 2023 FINANCIAL RESULTS Audi North Scottsdale FREIGHTLINER TRUCK SALES PARTS & SERVICE Statements in this presentation may involve forward-looking statements, including forward-looking statements regarding Penske Automotive Group, Inc.'s financial performance and future plans. Actual results may vary materially because of risks and uncertainties that are difficult to predict. These risks and uncertainties include, among others, those related to macro-economic, geo-political and industry condit ...

[PART I — FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated condensed financial statements, including balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of equity, along with detailed notes explaining accounting policies, revenue recognition, leases, inventories, business combinations, intangible assets, vehicle financing, earnings per share, long-term debt, commitments, equity, and segment information for Penske Automotive Group, Inc. for the period ended March 31, 2023 [Consolidated Condensed Balance Sheets](index=4&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) Inventories (Millions) | Metric | March 31, 2023 (Millions) | December 31, 2022 (Millions) | Change (Millions) | | :----- | :------------------------ | :--------------------------- | :---------------- | | Total Assets | $14,395.8 | $14,114.6 | +$281.2 | | Total Liabilities | $10,044.4 | $9,939.8 | +$104.6 | | Total Equity | $4,351.4 | $4,174.8 | +$176.6 | | Inventories | $3,630.4 | $3,509.1 | +$121.3 | | Property and equipment, net | $2,566.8 | $2,496.5 | +$70.3 | [Consolidated Condensed Statements of Income](index=5&type=section&id=Consolidated%20Condensed%20Statements%20of%20Income) Consolidated Condensed Statements of Income (Millions) | Metric | 3 Months Ended Mar 31, 2023 (Millions) | 3 Months Ended Mar 31, 2022 (Millions) | Change (Millions) | % Change | | :----- | :----------------------------------- | :----------------------------------- | :---------------- | :------- | | Total Revenues | $7,339.0 | $6,975.4 | +$363.6 | +5.2% | | Gross Profit | $1,252.3 | $1,231.7 | +$20.6 | +1.7% | | Operating Income | $373.5 | $402.0 | -$28.5 | -7.1% | | Net Income Attributable to PAG Common Stockholders | $298.3 | $367.9 | -$69.6 | -18.9% | | Basic Earnings Per Share | $4.31 | $4.76 | -$0.45 | -9.4% | | Diluted Earnings Per Share | $4.31 | $4.76 | -$0.45 | -9.4% | | Cash Dividends Per Share | $0.61 | $0.47 | +$0.14 | +29.8% | - Floor plan interest expense increased significantly from **$7.5 million** in Q1 2022 to **$27.9 million** in Q1 2023, a **272%** increase[13](index=13&type=chunk) - Equity in earnings of affiliates decreased from **$119.6 million** in Q1 2022 to **$82.1 million** in Q1 2023, a **31.4%** decrease[13](index=13&type=chunk) [Consolidated Condensed Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Condensed%20Statements%20of%20Comprehensive%20Income) Consolidated Condensed Statements of Comprehensive Income (Millions) | Metric | 3 Months Ended Mar 31, 2023 (Millions) | 3 Months Ended Mar 31, 2022 (Millions) | Change (Millions) | % Change | | :----- | :----------------------------------- | :----------------------------------- | :---------------- | :------- | | Net Income | $299.6 | $369.5 | -$69.9 | -18.9% | | Foreign Currency Translation Adjustment | $18.3 | -$28.5 | +$46.8 | N/A | | Comprehensive Income Attributable to Penske Automotive Group Common Stockholders | $321.1 | $338.6 | -$17.5 | -5.2% | [Consolidated Condensed Statements of Cash Flows](index=7&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) Consolidated Condensed Statements of Cash Flows (Millions) | Metric | 3 Months Ended Mar 31, 2023 (Millions) | 3 Months Ended Mar 31, 2022 (Millions) | Change (Millions) | | :----- | :----------------------------------- | :----------------------------------- | :---------------- | | Net Cash Provided by Operating Activities | $311.2 | $380.6 | -$69.4 | | Net Cash Used in Investing Activities | -$105.5 | -$149.8 | +$44.3 | | Net Cash Used in Financing Activities | -$211.8 | -$159.1 | -$52.7 | | Net Change in Cash and Cash Equivalents | -$5.9 | $69.6 | -$75.5 | | Cash and Cash Equivalents, End of Period | $100.6 | $170.3 | -$69.7 | - Cash paid for interest increased from **$24.7 million** in Q1 2022 to **$47.7 million** in Q1 2023, a **93.1%** increase[17](index=17&type=chunk) [Consolidated Condensed Statement of Equity](index=8&type=section&id=Consolidated%20Condensed%20Statement%20of%20Equity) Consolidated Condensed Statement of Equity (Millions) | Metric | Balance Dec 31, 2022 (Millions) | Balance Mar 31, 2023 (Millions) | Change (Millions) | | :----- | :------------------------------ | :------------------------------ | :---------------- | | Total Penske Automotive Group Stockholders' Equity | $4,148.0 | $4,323.3 | +$175.3 | | Retained Earnings | $4,483.3 | $4,635.8 | +$152.5 | | Accumulated Other Comprehensive Income (Loss) | -$335.3 | -$312.5 | +$22.8 | - The company repurchased **890,327 shares** of common stock for **$111.3 million** during Q1 2023[19](index=19&type=chunk) - Dividends paid totaled **$42.3 million** in Q1 2023[19](index=19&type=chunk) [Notes to Consolidated Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) [Note 1. Interim Financial Statements & Business Overview](index=9&type=section&id=Note%201.%20Interim%20Financial%20Statements) This note provides an overview of Penske Automotive Group's diversified international transportation services, including retail automotive and commercial truck dealerships, commercial vehicle distribution, and a significant equity investment in Penske Transportation Solutions (PTS). It also covers the basis of financial statement presentation, key accounting estimates, fair value measurements, and recent accounting pronouncements - PAG is a diversified international transportation services company, operating dealerships in the US, UK, Canada, Germany, Italy, and Japan, and is a major commercial truck retailer in North America[24](index=24&type=chunk) - PAG holds a **28.9%** ownership interest in Penske Transportation Solutions (PTS), which manages over 419,000 trucks, tractors, and trailers[24](index=24&type=chunk)[31](index=31&type=chunk) - Retail automotive dealership revenue in Q1 2023 was **54%** from the U.S. and **46%** from outside the U.S., with **72%** of franchised dealership revenue generated from premium brands[25](index=25&type=chunk) - Beginning in 2023, Mercedes-Benz U.K. dealerships transitioned to an agency model, where PAG receives a fee for facilitating new vehicle sales rather than recording the full vehicle sale price as revenue[26](index=26&type=chunk) - The fair value of fixed rate debt (senior subordinated notes and mortgage facilities) is estimated using Level 2 inputs[36](index=36&type=chunk) [Note 2. Revenues](index=12&type=section&id=Note%202.%20Revenues) This note details the company's revenue recognition policies across its segments, including dealership vehicle sales, parts and service, finance and insurance, and commercial vehicle distribution. It also disaggregates retail automotive and commercial truck dealership revenues by product type and geography, and summarizes contract balances - Revenue is recognized upon satisfaction of performance obligations, with vehicle sales recognized at delivery and service/parts revenue recognized over time as work is completed[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) - Finance and insurance commissions are recorded at the point of contract execution, net of estimated chargebacks[43](index=43&type=chunk)[44](index=44&type=chunk) Retail Automotive Dealership Revenue by Product Type (3 Months Ended March 31) | Product Type | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----------- | :-------------- | :-------------- | :---------------- | :------- | | New vehicle | $2,721.3 | $2,445.5 | +$275.8 | +11.3% | | Used vehicle | $2,297.1 | $2,422.9 | -$125.8 | -5.2% | | Finance and insurance, net | $206.8 | $217.3 | -$10.5 | -4.8% | | Service and parts | $683.0 | $586.2 | +$96.8 | +16.5% | | Fleet and wholesale | $391.6 | $357.3 | +$34.3 | +9.6% | | **Total** | **$6,299.8** | **$6,029.2** | **+$270.6** | **+4.5%** | Retail Automotive Dealership Revenue by Geographic Location (3 Months Ended March 31) | Region | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----- | :-------------- | :-------------- | :---------------- | :------- | | U.S. | $3,378.2 | $3,343.6 | +$34.6 | +1.0% | | U.K. | $2,472.4 | $2,262.9 | +$209.5 | +9.3% | | Germany, Italy, and Japan | $449.2 | $422.7 | +$26.5 | +6.3% | | **Total** | **$6,299.8** | **$6,029.2** | **+$270.6** | **+4.5%** | Retail Commercial Truck Dealership Revenue by Product Type (3 Months Ended March 31) | Product Type | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----------- | :-------------- | :-------------- | :---------------- | :------- | | New truck | $600.2 | $471.7 | +$128.5 | +27.2% | | Used truck | $49.5 | $100.3 | -$50.8 | -50.6% | | Finance and insurance, net | $5.0 | $6.4 | -$1.4 | -21.9% | | Service and parts | $228.0 | $197.0 | +$31.0 | +15.7% | | Other | $12.9 | $16.9 | -$4.0 | -23.7% | | **Total** | **$895.6** | **$792.3** | **+$103.3** | **+13.0%** | - Commercial vehicle distribution and other revenue decreased by **6.7%** to **$143.6 million** in Q1 2023 from **$153.9 million** in Q1 2022[54](index=54&type=chunk) Contract Balances (Millions) | Metric | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :---------------- | | Accounts receivable | $902.5 | $895.8 | | Unearned revenues | $280.6 | $291.7 | [Note 3. Leases](index=15&type=section&id=Note%203.%20Leases) This note describes the company's operating lease arrangements for land and facilities, including dealerships and office space. It details lease terms, discount rates, and financial covenants, and provides a summary of net operating lease costs and cash flow information - Total undiscounted rent obligations under operating leases are estimated at **$5.2 billion** as of March 31, 2023[60](index=60&type=chunk) - Weighted-average remaining lease term for operating leases is **25 years**, with a weighted-average discount rate of **6.5%**[65](index=65&type=chunk) Net Operating Lease Cost (3 Months Ended March 31) | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----- | :-------------- | :-------------- | :---------------- | :------- | | Operating lease cost | $64.4 | $63.4 | +$1.0 | +1.6% | | Sublease income | -$4.2 | -$5.1 | +$0.9 | -17.6% | | **Total lease cost** | **$60.2** | **$58.3** | **+$1.9** | **+3.3%** | [Note 4. Inventories](index=17&type=section&id=Note%204.%20Inventories) This note provides a breakdown of the company's inventory composition as of March 31, 2023, and December 31, 2022, across retail automotive, retail commercial truck, and commercial vehicle distribution segments Inventories (Millions) | Inventory Type | March 31, 2023 | December 31, 2022 | Change (Millions) | | :------------- | :------------- | :---------------- | :---------------- | | Retail automotive dealership new vehicles | $1,429.1 | $1,326.5 | +$102.6 | | Retail automotive dealership used vehicles | $1,285.5 | $1,279.6 | +$5.9 | | Retail automotive parts, accessories, and other | $147.5 | $145.6 | +$1.9 | | Retail commercial truck dealership vehicles and parts | $483.3 | $506.2 | -$22.9 | | Commercial vehicle distribution vehicles, parts, and engines | $285.0 | $251.2 | +$33.8 | | **Total Inventories** | **$3,630.4** | **$3,509.1** | **+$121.3** | - Credits from vehicle manufacturers reduced cost of sales by **$13.3 million** in Q1 2023, down from **$15.2 million** in Q1 2022[67](index=67&type=chunk) [Note 5. Business Combinations](index=17&type=section&id=Note%205.%20Business%20Combinations) This note states that no acquisitions were made in the three months ended March 31, 2023. It also provides pro forma results for acquisitions made in Q1 2022, including TEAM Truck Centres - No acquisitions were made in Q1 2023[68](index=68&type=chunk) - In Q1 2022, the company acquired TEAM Truck Centres for **$93.6 million**[68](index=68&type=chunk) Pro Forma Results for Q1 2022 Acquisitions (Millions, except per share) | Metric | 3 Months Ended Mar 31, 2022 (Pro Forma) | | :----- | :------------------------------------ | | Revenues | $7,223.9 | | Net income attributable to Penske Automotive Group common stockholders | $372.1 | | Net income per diluted common share | $4.82 | [Note 6. Intangible Assets](index=18&type=section&id=Note%206.%20Intangible%20Assets) This note summarizes the changes in goodwill and other indefinite-lived intangible assets during the three months ended March 31, 2023, primarily due to foreign currency translation adjustments Goodwill and Other Indefinite-Lived Intangible Assets (Millions) | Metric | Balance Jan 1, 2023 | Foreign Currency Translation | Balance Mar 31, 2023 | | :----- | :------------------ | :--------------------------- | :------------------- | | Goodwill | $2,154.7 | $7.8 | $2,162.5 | | Other Indefinite Lived Intangible Assets | $690.9 | $1.4 | $692.3 | - Goodwill is primarily allocated to Retail Automotive (**$1,626.5 million**) and Retail Commercial Truck (**$462.4 million**) segments[69](index=69&type=chunk) [Note 7. Vehicle Financing](index=18&type=section&id=Note%207.%20Vehicle%20Financing) This note describes the company's financing arrangements for vehicle inventories, primarily through floor plan and other revolving arrangements with various lenders. It highlights the variable interest rates and the classification of floor plan notes payable - Substantially all commercial vehicles, new retail vehicles, and a portion of used vehicle inventories are financed through floor plan and revolving arrangements[70](index=70&type=chunk) - The weighted average interest rate on floor plan borrowings increased significantly from **1.2%** in Q1 2022 to **4.0%** in Q1 2023[72](index=72&type=chunk) - Floor plan notes payable to non-manufacturers or for pre-owned vehicles are classified as 'Floor plan notes payable — non-trade' and related cash flows as financing activities[72](index=72&type=chunk) [Note 8. Earnings Per Share](index=18&type=section&id=Note%208.%20Earnings%20Per%20Share) This note explains the calculation of basic and diluted earnings per share and provides a reconciliation of the weighted average shares outstanding for the three months ended March 31, 2023, and 2022 Weighted Average Shares Outstanding (3 Months Ended March 31) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Weighted average number of common shares outstanding | 69,201,232 | 77,224,165 | -8,022,933 | -10.4% | | Weighted average number of common shares outstanding, including effect of dilutive securities | 69,218,861 | 77,249,165 | -8,030,304 | -10.4% | [Note 9. Long-Term Debt](index=19&type=section&id=Note%209.%20Long-Term%20Debt) This note details the company's long-term debt obligations, including credit agreements in the U.S., U.K., and Australia, senior subordinated notes, and mortgage facilities. It also outlines recent amendments to credit agreements and associated covenants Long-Term Debt (Millions) | Debt Type | March 31, 2023 | December 31, 2022 | Change (Millions) | | :-------- | :------------- | :---------------- | :---------------- | | 3.50% senior subordinated notes due 2025 | $546.5 | $546.2 | +$0.3 | | 3.75% senior subordinated notes due 2029 | $495.2 | $495.1 | +$0.1 | | Mortgage facilities | $590.9 | $494.3 | +$96.6 | | **Total Long-Term Debt** | **$1,701.3** | **$1,622.1** | **+$79.2** | - The U.S. Credit Agreement was amended on April 20, 2023, increasing borrowing capacity from **$800 million** to **$1.2 billion** and transitioning to SOFR-based loans[76](index=76&type=chunk)[77](index=77&type=chunk) - The U.K. credit agreement was amended on January 31, 2023, expanding the facility from **£150.0 million** to **£200.0 million** and extending the term to January 2027[81](index=81&type=chunk) - As of March 31, 2023, the company had no outstanding borrowings under the U.S. or U.K. credit agreements[80](index=80&type=chunk)[81](index=81&type=chunk) [Note 10. Commitments and Contingent Liabilities](index=21&type=section&id=Note%2010.%20Commitments%20and%20Contingent%20Liabilities) This note discusses the company's involvement in litigation, lease-related financial covenants, liabilities for sold dealerships, and repurchase commitments under floor plan agreements - The company is involved in litigation but does not expect any material adverse effect on results, financial condition, or cash flows[89](index=89&type=chunk) - Lease agreements include financial covenants (rent coverage, debt to EBITDA ratios) which, if breached, could lead to termination or acceleration of payments[90](index=90&type=chunk) - The company has repurchase commitments for dealer vehicles under floor plan agreements with Mercedes-Benz Financial Services Australia and New Zealand[92](index=92&type=chunk) [Note 11. Equity](index=21&type=section&id=Note%2011.%20Equity) This note details common stock repurchases and the remaining authorization under the securities repurchase program - During Q1 2023, the company repurchased **890,327 shares** of common stock for **$110.2 million** at an average price of **$123.76** per share[94](index=94&type=chunk) - As of March 31, 2023, **$214.1 million** remained outstanding under the **$250 million** additional share repurchase authority approved in February 2023[94](index=94&type=chunk) [Note 12. Accumulated Other Comprehensive Income (Loss)](index=22&type=section&id=Note%2012.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note provides a breakdown of changes in accumulated other comprehensive income (loss) by component, primarily foreign currency translation adjustments, for the three months ended March 31, 2023, and 2022 Accumulated Other Comprehensive Income (Loss) (Millions) | Metric | Balance Dec 31, 2022 | Foreign Currency Translation | Other | Balance Mar 31, 2023 | | :----- | :------------------- | :--------------------------- | :---- | :------------------- | | Total | -$335.3 | $18.0 | $4.8 | -$312.5 | [Note 13. Segment Information](index=22&type=section&id=Note%2013.%20Segment%20Information) This note outlines the company's four reportable segments: Retail Automotive, Retail Commercial Truck, Other (commercial vehicle and power systems distribution), and Non-Automotive Investments (equity method investments). It provides revenue and segment income for each segment - The company operates in four reportable segments: Retail Automotive, Retail Commercial Truck, Other, and Non-Automotive Investments[97](index=97&type=chunk) Segment Revenues (3 Months Ended March 31) | Segment | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :------ | :-------------- | :-------------- | :---------------- | :------- | | Retail Automotive | $6,299.8 | $6,029.2 | +$270.6 | +4.5% | | Retail Commercial Truck | $895.6 | $792.3 | +$103.3 | +13.0% | | Other | $143.6 | $153.9 | -$10.3 | -6.7% | | **Total Revenues** | **$7,339.0** | **$6,975.4** | **+$363.6** | **+5.2%** | Segment Income (3 Months Ended March 31) | Segment | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :------ | :-------------- | :-------------- | :---------------- | :------- | | Retail Automotive | $256.7 | $309.9 | -$53.2 | -17.2% | | Retail Commercial Truck | $57.1 | $58.5 | -$1.4 | -2.4% | | Other | $12.1 | $10.5 | +$1.6 | +15.2% | | Non-Automotive Investments | $81.0 | $118.7 | -$37.7 | -31.8% | | **Total Segment Income** | **$406.9** | **$497.6** | **-$90.7** | **-18.2%** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2023. It covers business overview, market outlook, detailed analysis of segment performance, critical accounting policies, liquidity and capital resources, related party transactions, and factors influencing the business such as cyclicality, seasonality, and inflation [Overview](index=24&type=section&id=Overview) This section provides a high-level overview of the company's business, including its diversified international transportation services, retail automotive and commercial truck dealerships, and commercial vehicle distribution. It also discusses the outlook for its key segments, highlighting market trends, inventory levels, and the impact of the agency model - Total revenue for Q1 2023 was **$7.3 billion**, with retail automotive dealerships contributing **$6.3 billion** (**85.8%** of total revenue) and **$1.1 billion** (**84.9%** of total gross profit)[102](index=102&type=chunk)[105](index=105&type=chunk) - U.S. industry new light vehicle sales increased **8.4%** year-over-year in Q1 2023, and U.K. new vehicle registrations increased **18.4%** year-over-year[109](index=109&type=chunk) - New vehicle days' supply was **26** as of March 31, 2023, while used vehicle days' supply was **39**[109](index=109&type=chunk) - North American sales of Class 6-8 medium- and heavy-duty trucks increased **23.3%** year-over-year in Q1 2023[112](index=112&type=chunk) - Penske Transportation Solutions (PTS) expanded its managed fleet to over 419,000 units, but equity earnings decreased due to lower gains from vehicle sales and decreased rental utilization, coupled with increased costs[108](index=108&type=chunk)[115](index=115&type=chunk) - Foreign currency fluctuations decreased revenue by **$294.2 million** and gross profit by **$43.9 million** in Q1 2023. Excluding this impact, revenue increased **9.4%** and gross profit increased **5.2%**[120](index=120&type=chunk) [Critical Accounting Policies and Estimates](index=27&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section reaffirms that there have been no material changes in critical accounting policies and estimates, which include revenue recognition, goodwill and other indefinite-lived intangible assets, investments, income taxes, and lease recognition - No material changes in critical accounting policies and estimates were reported for the quarter[128](index=128&type=chunk) - Key accounting policies dependent on estimates include revenue recognition, goodwill and other indefinite-lived intangible assets, investments, income taxes, and lease recognition[127](index=127&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of the company's operating performance for the three months ended March 31, 2023, versus 2022, broken down by segment and product type, including same-store comparisons and the impact of the agency model [Retail Automotive Dealership New Vehicle Data](index=28&type=section&id=Retail%20Automotive%20Dealership%20New%20Vehicle%20Data) New retail unit sales increased by 4.7% overall, driven by acquisitions and same-store growth, particularly internationally. New sales revenue increased by 11.3%, but average gross profit per new vehicle (excluding agency) decreased by 7.7% due to increasing supply of certain premium brands Retail Automotive New Vehicle Performance (3 Months Ended March 31) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | New retail unit sales | 47,662 | 45,528 | +2,134 | +4.7% | | Same-store new retail unit sales | 46,200 | 45,246 | +954 | +2.1% | | New agency unit sales | 6,933 | — | +6,933 | N/A | | New sales revenue (Millions) | $2,721.3 | $2,445.5 | +$275.8 | +11.3% | | Same-store new sales revenue (Millions) | $2,646.8 | $2,434.7 | +$212.1 | +8.7% | | New retail sales revenue per unit (excluding agency) | $56,822 | $53,714 | +$3,108 | +5.8% | | Gross profit — new (Millions) | $313.8 | $311.4 | +$2.4 | +0.8% | | Average gross profit per new vehicle (excluding agency) | $6,315 | $6,840 | -$525 | -7.7% | - Same-store new retail unit sales increased **12.1%** internationally but decreased **3.2%** in the U.S[133](index=133&type=chunk) - The increase in same-store comparative average retail selling price (excluding agency) is primarily due to prolonged low supply of certain non-premium new vehicles and manufacturer cost increases[134](index=134&type=chunk) [Retail Automotive Dealership Used Vehicle Data](index=29&type=section&id=Retail%20Automotive%20Dealership%20Used%20Vehicle%20Data) Used retail unit sales decreased slightly, primarily due to a decline in same-store sales in the U.S., impacted by higher interest rates and inflation. Used retail sales revenue and gross profit both decreased significantly, with average gross profit per unit down 20.8% Retail Automotive Used Vehicle Performance (3 Months Ended March 31) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Used retail unit sales | 67,836 | 68,231 | -395 | -0.6% | | Same-store used retail unit sales | 65,545 | 67,029 | -1,484 | -2.2% | | Used retail sales revenue (Millions) | $2,297.1 | $2,422.9 | -$125.8 | -5.2% | | Used retail sales revenue per unit | $33,863 | $35,510 | -$1,647 | -4.6% | | Gross profit — used (Millions) | $122.6 | $155.8 | -$33.2 | -21.3% | | Average gross profit per used vehicle retailed | $1,808 | $2,284 | -$476 | -20.8% | - Same-store used retail unit sales decreased **6.5%** in the U.S. but increased **1.2%** internationally[138](index=138&type=chunk) - The decrease in average gross profit per used vehicle is primarily due to increased acquisition costs for used vehicles and reduced affordability for consumers[140](index=140&type=chunk) [Retail Automotive Dealership Finance and Insurance Data](index=30&type=section&id=Retail%20Automotive%20Dealership%20Finance%20and%20Insurance%20Data) Finance and insurance revenue decreased by 4.8%, with same-store revenue down 7.1%. Revenue per unit (excluding agency) decreased by 7.2%, attributed to rising interest rates impacting customer affordability Retail Automotive Finance & Insurance Performance (3 Months Ended March 31) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Finance and insurance revenue (Millions) | $206.8 | $217.3 | -$10.5 | -4.8% | | Same-store finance and insurance revenue (Millions) | $200.4 | $215.8 | -$15.4 | -7.1% | | Finance and insurance revenue per unit (excluding agency) | $1,773 | $1,910 | -$137 | -7.2% | - Same-store finance and insurance revenue per unit (excluding agency) decreased **3.1%** in the U.S. and **9.1%** in the U.K[141](index=141&type=chunk) [Retail Automotive Dealership Service and Parts Data](index=31&type=section&id=Retail%20Automotive%20Dealership%20Service%20and%20Parts%20Data) Service and parts revenue increased significantly by 16.5%, with same-store revenue up 10.4%. Gross profit also increased by 13.8%, driven by increased customer pay, warranty, and vehicle preparation/body shop revenue, reflecting vehicles remaining on the road longer and inflationary effects Retail Automotive Service & Parts Performance (3 Months Ended March 31) | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----- | :-------------- | :-------------- | :---------------- | :------- | | Service and parts revenue | $683.0 | $586.2 | +$96.8 | +16.5% | | Same-store service and parts revenue | $642.9 | $582.6 | +$60.3 | +10.4% | | Gross profit — service and parts | $398.9 | $350.5 | +$48.4 | +13.8% | | Same-store service and parts gross profit | $379.1 | $348.2 | +$30.9 | +8.9% | - Same-store service and parts revenue increased **12.4%** in the U.S. and **24.2%** internationally[144](index=144&type=chunk) - The increase in same-store revenue is attributed to vehicles remaining on the road longer, increased customer pay service work, and higher labor rates and parts costs due to inflation[144](index=144&type=chunk) [Retail Commercial Truck Dealership New Commercial Truck Data](index=31&type=section&id=Retail%20Commercial%20Truck%20Dealership%20New%20Commercial%20Truck%20Data) New retail unit sales increased by 17.2%, and new retail sales revenue increased by 27.2%, driven by replacement demand and higher prices. Gross profit from new trucks increased by 12.1%, despite a slight decrease in average gross profit per unit due to sales mix Retail Commercial Truck New Truck Performance (3 Months Ended March 31) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | New retail unit sales | 4,517 | 3,855 | +662 | +17.2% | | Same-store new retail unit sales | 4,332 | 3,822 | +510 | +13.3% | | New retail sales revenue (Millions) | $600.2 | $471.7 | +$128.5 | +27.2% | | New retail sales revenue per unit | $132,884 | $122,357 | +$10,527 | +8.6% | | Gross profit — new (Millions) | $32.5 | $29.0 | +$3.5 | +12.1% | | Average gross profit per new truck retailed | $7,190 | $7,511 | -$321 | -4.3% | - The increase in same-store new retail unit sales is primarily due to replacement demand for medium- and heavy-duty trucks[147](index=147&type=chunk) [Retail Commercial Truck Dealership Used Commercial Truck Data](index=32&type=section&id=Retail%20Commercial%20Truck%20Dealership%20Used%20Commercial%20Truck%20Data) Used retail unit sales decreased significantly by 21.7%, and used retail sales revenue dropped by 50.6%. Gross profit from used trucks decreased by 66.0%, with average gross profit per unit down 56.8%, primarily due to increasing new truck supply and declining freight spot rates reducing demand and value for used trucks Retail Commercial Truck Used Truck Performance (3 Months Ended March 31) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Used retail unit sales | 655 | 837 | -182 | -21.7% | | Same-store used retail unit sales | 642 | 831 | -189 | -22.7% | | Used retail sales revenue (Millions) | $49.5 | $100.3 | -$50.8 | -50.6% | | Used retail sales revenue per unit | $75,640 | $119,847 | -$44,207 | -36.9% | | Gross profit — used (Millions) | $5.4 | $15.9 | -$10.5 | -66.0% | | Average gross profit per used truck retailed | $8,195 | $18,961 | -$10,766 | -56.8% | - The decrease in used truck sales and profitability is attributed to increasing new truck inventory supply and lower spot freight rates[151](index=151&type=chunk)[153](index=153&type=chunk) [Retail Commercial Truck Dealership Service and Parts Data](index=33&type=section&id=Retail%20Commercial%20Truck%20Dealership%20Service%20and%20Parts%20Data) Service and parts revenue increased by 15.7%, with same-store revenue up 11.2%. Gross profit increased by 17.3%, driven by increased customer pay and warranty revenue, reflecting prolonged truck replacement cycles and higher utilization Retail Commercial Truck Service & Parts Performance (3 Months Ended March 31) | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----- | :-------------- | :-------------- | :---------------- | :------- | | Service and parts revenue | $228.0 | $197.0 | +$31.0 | +15.7% | | Same-store service and parts revenue | $215.3 | $193.6 | +$21.7 | +11.2% | | Gross profit — service and parts | $98.3 | $83.8 | +$14.5 | +17.3% | | Same-store service and parts gross profit | $92.2 | $82.5 | +$9.7 | +11.8% | - The increase in same-store service and parts revenue is driven by prolonged truck replacement cycles, higher utilization of existing trucks, and increased mileage accumulation[155](index=155&type=chunk) [Commercial Vehicle Distribution and Other Data (Penske Australia)](index=33&type=section&id=Commercial%20Vehicle%20Distribution%20and%20Other%20Data) Penske Australia's revenue decreased by 6.7% due to supply chain disruptions, but gross profit increased by 7.3% due to higher margin service and parts sales and remanufacturing Penske Australia Performance (3 Months Ended March 31) | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----- | :-------------- | :-------------- | :---------------- | :------- | | Sales revenue | $143.6 | $153.9 | -$10.3 | -6.7% | | Gross profit | $42.7 | $39.8 | +$2.9 | +7.3% | | Commercial vehicle units (wholesale and retail) | 279 | 338 | -59 | -17.5% | | Power system units | 304 | 335 | -31 | -9.3% | - Excluding unfavorable foreign currency fluctuations, revenue decreased **0.5%** due to supply chain disruptions, while gross profit increased **14.3%** due to higher margin service and parts sales[158](index=158&type=chunk) [Selling, General, and Administrative Data](index=34&type=section&id=Selling,%20General,%20and%20Administrative%20Data) Total SG&A expenses increased by 5.9%, with same-store SG&A up 2.3%. SG&A as a percentage of gross profit increased to 67.5% from 64.8% in the prior year, primarily due to inflationary effects on personnel, rent, and other expenses SG&A Expenses (3 Months Ended March 31) | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----- | :-------------- | :-------------- | :---------------- | :------- | | Total SG&A expenses | $844.9 | $797.8 | +$47.1 | +5.9% | | Same-store SG&A expenses | $808.3 | $790.2 | +$18.1 | +2.3% | | Total SG&A expenses as % of gross profit | 67.5% | 64.8% | +2.7% | +4.2% | - The increase in SG&A as a percentage of gross profit is primarily due to the inflationary effect on personnel, rent, and other expenses[159](index=159&type=chunk) [Depreciation](index=34&type=section&id=Depreciation) Depreciation expense increased by 6.3% due to both same-store increases and net acquisitions Depreciation (Millions) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Depreciation | $33.9 | $31.9 | +$2.0 | +6.3% | [Floor Plan Interest Expense](index=34&type=section&id=Floor%20Plan%20Interest%20Expense) Floor plan interest expense surged by 272.0% due to increases in applicable interest rates and higher average outstanding amounts under floor plan arrangements Floor Plan Interest Expense (Millions) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Floor plan interest expense | $27.9 | $7.5 | +$20.4 | +272.0% | - The increase is primarily due to higher interest rates and increased average outstanding amounts under floor plan arrangements[161](index=161&type=chunk) [Other Interest Expense](index=35&type=section&id=Other%20Interest%20Expense) Other interest expense increased by 26.1% due to higher applicable rates and increased average revolver borrowing amounts Other Interest Expense (Millions) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Other interest expense | $20.8 | $16.5 | +$4.3 | +26.1% | - The increase is primarily due to increases in applicable rates and average revolver borrowing amounts outstanding[162](index=162&type=chunk) [Equity in Earnings of Affiliates](index=35&type=section&id=Equity%20in%20Earnings%20of%20Affiliates) Equity in earnings of affiliates decreased by 31.4%, primarily due to a decline in earnings from the investment in Penske Transportation Solutions (PTS), driven by lower gains from vehicle sales, decreased rental utilization, and increased costs Equity in Earnings of Affiliates (Millions) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Equity in earnings of affiliates | $82.1 | $119.6 | -$37.5 | -31.4% | - The decrease is primarily due to lower earnings from the PTS investment, attributed to decreased gains from vehicle sales, reduced rental utilization, and higher costs for inflation and interest[163](index=163&type=chunk) [Income Taxes](index=35&type=section&id=Income%20Taxes) Income taxes decreased by 16.2% due to a decrease in pre-tax income. The effective tax rate increased slightly to 26.4% from 25.7%, influenced by geographic pre-tax income mix and an increase in the U.K. corporate tax rate Income Taxes (Millions) | Metric | 2023 | 2022 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Income taxes | $107.3 | $128.1 | -$20.8 | -16.2% | - The effective tax rate increased to **26.4%** in Q1 2023 from **25.7%** in Q1 2022, primarily due to geographic pre-tax income mix and a higher U.K. corporate tax rate[164](index=164&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash requirements, sources of liquidity, and capital commitments, including working capital, acquisitions, debt service, and dividends. It highlights the sufficiency of current resources and potential needs for additional capital - Cash requirements are primarily for working capital, inventory financing, acquisitions, facility improvements, debt service, dividends, and share repurchases[165](index=165&type=chunk) - Liquidity is expected to be sufficient for the next twelve months, funded by cash flow from operations, PTS distributions, and existing credit facilities[166](index=166&type=chunk) - As of March 31, 2023, the company had **$100.6 million** in cash and cash equivalents[170](index=170&type=chunk) - Available borrowing capacity included **$800.0 million** under the U.S. credit agreement, **£200.0 million** (**$246.7 million**) under the U.K. credit agreement, AU **$35.8 million** (**$23.9 million**) under the Australia credit agreement, and **$43.0 million** under the revolving mortgage facility[170](index=170&type=chunk) [Securities Repurchases](index=36&type=section&id=Securities%20Repurchases) This section details the company's securities repurchase program, including the recent increase in authorization and the amount remaining for repurchases - In February 2023, the Board authorized an additional **$250 million** for securities repurchases[171](index=171&type=chunk) - As of March 31, 2023, **$214.1 million** of this authority remained outstanding[171](index=171&type=chunk) - During Q1 2023, **890,327 shares** were repurchased for **$110.2 million**[171](index=171&type=chunk) [Securities Trading Policy and Rule 10b5-1 Trading Plans](index=36&type=section&id=Securities%20Trading%20Policy%20and%20Rule%2010b5-1%20Trading%20Plans) This section describes the company's securities trading policy, which restricts trading by directors, officers, and employees while in possession of material nonpublic information, prohibits certain hedging activities, and requires pre-approval for trading and 10b5-1 plans - The policy prohibits hedging, short sales, and other offsetting trading techniques without General Counsel approval[172](index=172&type=chunk) - Advance approval is required for any securities trading plan under SEC Rule 10b5-1[172](index=172&type=chunk) - No officers or directors implemented Rule 10b5-1 trading plans in the past quarter[172](index=172&type=chunk) [Dividends](index=37&type=section&id=Dividends) This section lists the cash dividends paid per share on common stock for 2022 and Q1 2023, and states the expectation to continue comparable dividends Cash Dividends Per Share | Period | Dividend Per Share | | :----- | :----------------- | | Q1 2022 | $0.47 | | Q2 2022 | $0.50 | | Q3 2022 | $0.53 | | Q4 2022 | $0.57 | | Q1 2023 | $0.61 | - The company expects to continue paying comparable quarterly dividends, subject to various factors[174](index=174&type=chunk) [Long-Term Debt Obligations](index=37&type=section&id=Long-Term%20Debt%20Obligations) This section provides a summary of outstanding long-term debt as of March 31, 2023, and confirms compliance with all debt covenants Long-Term Debt Obligations (Millions) | Debt Type | March 31, 2023 | | :-------- | :------------- | | 3.50% senior subordinated notes due 2025 | $546.5 | | 3.75% senior subordinated notes due 2029 | $495.2 | | Australia credit agreement | $26.2 | | Mortgage facilities | $590.9 | | Other | $42.5 | | **Total Long-Term Debt** | **$1,701.3** | - The company was in compliance with all debt covenants as of March 31, 2023, and expects to remain so for the next twelve months[175](index=175&type=chunk) [Short-Term Borrowings](index=37&type=section&id=Short-Term%20Borrowings) This section identifies the company's principal sources of short-term borrowings, including revolving credit lines and floor plan agreements, and notes the variability of outstanding commitments - Principal short-term borrowing sources include revolving credit lines (U.S., U.K., Australia) and floor plan agreements for vehicle inventories[176](index=176&type=chunk) - Outstanding revolving commitments varied significantly during Q1 2023 across different credit agreements[177](index=177&type=chunk) [PTS Dividends](index=39&type=section&id=PTS%20Dividends) This section explains the company's pro rata cash distributions from its 28.9% ownership in Penske Transportation Solutions (PTS), noting the distribution requirements and historical amounts received - The company receives pro rata cash distributions from PTS quarterly, subject to PTS's financial performance and debt agreements[180](index=180&type=chunk) - In 2022, the company received **$356.6 million** in cash distributions from PTS[180](index=180&type=chunk) [Sale/Leaseback Arrangements](index=39&type=section&id=Sale%20Leaseback%20Arrangements) This section mentions the company's past and potential future use of sale-leaseback transactions to finance property acquisitions and capital expenditures - The company uses sale-leaseback transactions to finance property acquisitions and capital expenditures, generating proceeds that vary by period[181](index=181&type=chunk) [Operating Leases](index=39&type=section&id=Operating%20Leases) This section reaffirms the total estimated rent obligations under operating leases and confirms compliance with associated financial covenants - Total estimated rent obligations under operating leases are **$5.2 billion**[182](index=182&type=chunk) - The company was in compliance with all financial covenants under its operating leases as of March 31, 2023[182](index=182&type=chunk) [Supplemental Guarantor Financial Information](index=39&type=section&id=Supplemental%20Guarantor%20Financial%20Information) This section provides summarized financial information for Penske Automotive Group (PAG) and its 100% owned U.S. guarantor subsidiaries, which guarantee the senior subordinated notes - Senior subordinated notes are guaranteed by **100%** owned U.S. subsidiaries on an unsecured senior subordinated basis[184](index=184&type=chunk) PAG and Guarantor Subsidiaries Condensed Income Statement (Millions) | Metric | 3 Months Ended Mar 31, 2023 | 12 Months Ended Dec 31, 2022 | | :----- | :-------------------------- | :--------------------------- | | Revenues | $3,937.7 | $16,093.8 | | Gross profit | $729.3 | $3,003.6 | | Equity in earnings of affiliates | $80.8 | $490.0 | | Net income | $204.2 | $1,081.7 | PAG and Guarantor Subsidiaries Condensed Balance Sheet (Millions) | Metric | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :---------------- | | Current assets | $2,542.8 | $2,600.2 | | Equity method investments | $1,676.4 | $1,593.5 | | Current liabilities | $2,015.9 | $2,147.5 | | Noncurrent liabilities | $4,099.4 | $3,993.9 | [Cash Flows](index=40&type=section&id=Cash%20Flows) This section summarizes the changes in cash flows from operating, investing, and financing activities, providing a reconciliation of operating cash flows including all floor plan notes payable Summary of Cash Flows (3 Months Ended March 31) | Activity | 2023 (Millions) | 2022 (Millions) | Change (Millions) | | :------- | :-------------- | :-------------- | :---------------- | | Net cash provided by operating activities | $311.2 | $380.6 | -$69.4 | | Net cash used in investing activities | -$105.5 | -$149.8 | +$44.3 | | Net cash used in financing activities | -$211.8 | -$159.1 | -$52.7 | [Cash Flows from Operating Activities](index=40&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This sub-section explains that operating cash flows include net income adjusted for non-cash items and working capital changes, noting that floor plan notes payable with manufacturers are reported as operating activities - Cash flows from operating activities decreased from **$380.6 million** in Q1 2022 to **$311.2 million** in Q1 2023[190](index=190&type=chunk) Net Cash Provided by Operating Activities (Including All Floor Plan Notes Payable) (Millions) | Metric | 2023 | 2022 | Change | | :----- | :--- | :--- | :----- | | As reported | $311.2 | $380.6 | -$69.4 | | Floor plan notes payable — non-trade as reported | -$133.1 | $6.5 | -$139.6 | | **Including all floor plan notes payable** | **$178.1** | **$387.1** | **-$209.0** | [Cash Flows from Investing Activities](index=41&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This sub-section details cash flows from investing activities, primarily capital expenditures for facility improvements and acquisitions - Capital expenditures increased from **$56.2 million** in Q1 2022 to **$102.4 million** in Q1 2023[195](index=195&type=chunk) - No acquisitions were made in Q1 2023, compared to **$93.6 million** used for acquisitions in Q1 2022[195](index=195&type=chunk) [Cash Flows from Financing Activities](index=41&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This sub-section covers cash flows from financing activities, including debt borrowings/repayments, floor plan notes payable non-trade, stock repurchases, and dividends - Net borrowings of debt were **$75.8 million** in Q1 2023, compared to net repayments of **$9.9 million** in Q1 2022[197](index=197&type=chunk) - Net repayments of floor plan notes payable non-trade were **$133.1 million** in Q1 2023, compared to net borrowings of **$6.5 million** in Q1 2022[197](index=197&type=chunk) - Stock repurchases totaled **$110.2 million** in Q1 2023, down from **$119.2 million** in Q1 2022[197](index=197&type=chunk) - Cash dividends paid increased from **$36.4 million** in Q1 2022 to **$42.3 million** in Q1 2023[197](index=197&type=chunk) [Related Party Transactions](index=41&type=section&id=Related%20Party%20Transactions) This section describes various related party interests and transactions, including the stockholders agreement, common officers and directors with Penske Corporation, and the company's investment in Penske Transportation Solutions (PTS) and other joint ventures - Roger Penske, CEO, is also CEO of Penske Corporation and the largest stockholder (**51%**)[198](index=198&type=chunk) - The company owns **28.9%** of PTS, which is also owned by Penske Corporation (**41.1%**) and Mitsui (**30.0%**)[202](index=202&type=chunk) - The PTS partnership agreement was amended in February 2023 to replace the advisory committee with an eleven-member Advisory Board, with PAG retaining the right to appoint one member[202](index=202&type=chunk) - The company has automotive joint ventures in Connecticut, Northern Italy, Frankfurt, and Barcelona, with varying ownership interests[203](index=203&type=chunk) [Cyclicality](index=42&type=section&id=Cyclicality) This section discusses the historical cyclical nature of motor vehicle sales, particularly new vehicles, which fluctuate with general economic conditions, consumer confidence, and other factors. The company attempts to mitigate this through diversification - Unit sales of motor vehicles are historically cyclical, influenced by economic conditions, consumer confidence, discretionary spending, inflation, fuel prices, interest rates, and credit availability[205](index=205&type=chunk)[206](index=206&type=chunk) - The company attempts to reduce negative impacts through geographic diversification, focus on higher-margin service and parts, and customer base diversification[207](index=207&type=chunk) [Seasonality](index=43&type=section&id=Seasonality) This section explains the modest seasonality of the company's business, with higher U.S. vehicle sales in Q2 and Q3, and higher U.K. new vehicle sales in Q1 and Q3, influenced by consumer trends and registration practices - U.S. operations generally see higher vehicle sales in Q2 and Q3 due to consumer buying trends and new model introductions[208](index=208&type=chunk) - U.K. operations generally see higher new vehicle sales in Q1 and Q3 due to new vehicle registration practices[208](index=208&type=chunk) [Inflation](index=43&type=section&id=Inflation) This section addresses the impact of high inflation rates on vehicle prices, parts, employee pay, credit availability, and consumer demand, noting potential adverse effects on the company - High inflation rates affect vehicle and parts prices, employee pay, consumer credit, and demand, potentially increasing costs and adversely affecting the company[209](index=209&type=chunk) - Used vehicle prices experienced high inflation rates in 2022[209](index=209&type=chunk) [Forward-Looking Statements](index=43&type=section&id=Forward-Looking%20Statements) This section provides a cautionary statement regarding forward-looking statements, outlining various known and unknown risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements are subject to risks and uncertainties, including macro-economic and geo-political conditions, vehicle supply chain disruptions, changes in retail models (e.g., agency model, EVs), interest rates, and regulatory changes[210](index=210&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) - Key risks include the impact of the COVID-19 pandemic, vehicle production issues, the rate of EV adoption, liquidity, performance of joint ventures (PTS), foreign currency rates, legal proceedings, and regulatory changes (e.g., bans on gasoline engines)[213](index=213&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) [Item 3. Quantitative & Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20%26%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, specifically from changes in interest rates on its variable-rate debt and fluctuations in foreign currency exchange rates [Interest Rates](index=46&type=section&id=Interest%20Rates) This sub-section details the company's exposure to variable interest rates on credit agreements and floor plan financing, quantifying the potential impact of a 100-basis-point change on annual interest expenses - A **100-basis-point** change in interest rates would result in an approximate **$3.8 million** change to annual other interest expense[219](index=219&type=chunk) - A **100-basis-point** change in interest rates would result in an approximate **$27.7 million** change to annual floor plan interest expense[220](index=220&type=chunk) - The company manages interest rate exposure through a mix of fixed and variable rate debt and authorized derivative instruments, prohibiting speculative use[221](index=221&type=chunk)[223](index=223&type=chunk) [Foreign Currency Exchange Rates](index=46&type=section&id=Foreign%20Currency%20Exchange%20Rates) This sub-section explains the company's exposure to foreign currency fluctuations due to its international operations, noting that a 10% change in average exchange rates could significantly impact revenues - A **10%** change in average exchange rates versus the U.S. Dollar would result in an approximate **$321.4 million** change to revenues for Q1 2023[224](index=224&type=chunk) - The company's international operations in the U.K., Germany, Italy, Japan, Canada, Australia, and New Zealand expose it to foreign currency exchange rate volatility[222](index=222&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) This section states that management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of the end of the reporting period. No material changes in internal control over financial reporting occurred - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[227](index=227&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter[227](index=227&type=chunk) [PART II — OTHER INFORMATION](index=48&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is involved in various litigation but does not expect any individual or aggregate legal proceeding to have a material adverse effect on its financial condition or results of operations - The company is involved in litigation but does not expect a material adverse effect on its financial condition or results of operations[229](index=229&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors from the Annual Report on Form 10-K, focusing on regulatory issues related to vehicle emissions standards and the potential impact on demand for vehicles and commercial trucks - New and proposed regulations in the U.S. and internationally aim to increase electric vehicle adoption and ban gasoline/diesel engines, potentially affecting demand and prices of vehicles sold[230](index=230&type=chunk) - Commercial trucks are also subject to new greenhouse gas emission standards, which could hinder the company's or PTS's ability to maintain, acquire, sell, or operate trucks[231](index=231&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on common stock repurchases made during the three months ended March 31, 2023, under the approved securities repurchase program, and the remaining authorization Common Stock Repurchases (3 Months Ended March 31, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining (Millions) | | :----- | :------------------------------- | :--------------------------- | :-------------------------------------------- | | Jan 1 to Jan 31, 2023 | 609,000 | $116.04 | $3.6 | | Feb 1 to Feb 28, 2023 | — | $— | $253.6 | | Mar 1 to Mar 31, 2023 | 281,327 | $140.47 | $214.1 | | **Total** | **890,327** | | | - An additional **$250 million** in repurchase authority was delegated in February 2023, with **$214.1 million** remaining as of March 31, 2023[233](index=233&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including amendments to credit agreements, certifications, and XBRL documents - The exhibit list includes the Tenth Amendment to the Fifth Amended and Restated Credit Agreement and various certifications (Rule 13(a)-14(a)/15(d)-14(a), Section 1350)[236](index=236&type=chunk)

DISCLAIMER A Diversified Transportation Services Company Headquartered in Bloomfield Hills, MI USA Diversified business mix provides multiple opportunities for growth Cars, Best Value COMPANY OVERVIEW commercial vehicle, power system & parts distribution locations Retail automotive segment focused on Premium/Luxury brands which generate more than 70% of automotive revenue Capital allocation focused on acquisitions, cash dividends, and securities repurchases Record first quarter revenue; increased 5% 7 7 Sam ...

Penske Automotive Group, Inc. (NYSE:PAG) Q1 2023 Earnings Conference Call April 26, 2023 2:00 PM ET Company Participants Anthony Pordon - Investor Relations Roger Penske - Chairman and Chief Executive Officer Shelley Hulgrave - Executive Vice President and Chief Financial Officer Tony Facione - Vice President and Corporate Controller Conference Call Participants John Murphy - Bank of America Daniel Imbro - Stephens Mike Ward - Benchmark Rajat Gupta - JPMorgan David Whiston - Morningstar Operator Good aftern ...

Table of Contents 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 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-12297 Penske Automotive Group, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of ...

Financial Data and Key Metrics Changes - The company reported a record revenue increase of 11% to $7 billion in Q4 2022, with earnings per share rising 6% to $4.21 [19] - For the full year 2022, revenue increased by 9% to nearly $28 billion, and earnings before taxes rose 16% to $1.9 billion [18] - The company repurchased approximately 2.5 million shares for $284 million during Q4 2022, totaling $887 million for the year, representing 11% of shares outstanding at the beginning of 2022 [25][19] Business Line Data and Key Metrics Changes - Retail automotive revenue increased by 4%, and when excluding foreign exchange effects, it rose by 10% [6] - CarShop unit sales increased by 12% to 71,242 units, with revenue rising 16% to $1.7 billion, although variable gross profit per unit declined by 19% [7] - Service and parts revenue increased by 6%, and when excluding foreign exchange, it increased by 11% [21] Market Data and Key Metrics Changes - The company’s forward order bank in the U.K. is 23% higher than the previous year, representing 31,800 units or GBP 100 million of forward gross profit [20] - Used vehicle inventory had a 53-day supply, while new vehicle inventory had a 25-day supply [26] Company Strategy and Development Direction - The company aims to leverage artificial intelligence to improve operational efficiencies and reduce costs [28] - The focus remains on disciplined capital allocation, with a target of 5% growth through acquisitions and organic growth [45] - The company is committed to increasing its Penske Transportation Solutions fleet from over 414,000 units to 500,000 by 2025 [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for premium vehicles despite supply constraints expected to continue into 2023 [5] - The company anticipates that the current business environment for leasing, maintenance, and logistics will remain strong in 2023 [9] - Management noted that affordability issues have not significantly impacted premium customers, who continue to show strong demand [34] Other Important Information - The company’s long-term debt was reported at $1.6 billion, with 35% fixed debt and an average interest rate of 3.8% [12] - The company has $107 million in cash and over $1.1 billion in liquidity, indicating a strong balance sheet [27] Q&A Session Summary Question: What is the outlook for consumer demand in 2023? - Management noted that demand for new vehicles remains strong, particularly in the premium luxury segment, and inventory turnover is quick [33] Question: How is the company managing SG&A expenses? - SG&A expenses increased due to higher compensation in the U.K., but management is focused on operational efficiencies and AI to reduce costs [38][64] Question: How did the company achieve sales growth despite supply constraints? - The company benefited from a strong mix of premium luxury vehicles and a favorable market environment in the U.K. [42] Question: What are the priorities for excess cash in 2023? - The company plans to maintain a balanced approach between shareholder returns and growth investments, with a focus on selective acquisitions [45][46] Question: How does the company view the truck business compared to light vehicles? - Management indicated that truck acquisitions have lower CapEx requirements and are currently more attractive due to lower multiples compared to light vehicles [92]

Financial Data and Key Metrics Changes - Revenue increased 7% to $6.9 billion, while EBT decreased 2% to $467 million and net income declined 4% to $340 million, with earnings per share increasing 3% to $4.61 [8] - Excluding foreign exchange impacts, revenue increased 12% to $7.3 billion, EBT increased 1% to $481 million, net income decreased 1% to $351 million, and earnings per share increased 7% to $4.75 [9] - Year-to-date EBITDA reached $1.6 billion, a 21% increase compared to the same period last year, with trailing 12-month EBITDA at $2.1 billion [19] Business Line Data and Key Metrics Changes - Retail Automotive operations saw new units decline 6% due to supply constraints, while used units declined 11% due to challenges in acquiring affordable inventory [10][11] - Retail automotive revenue declined 3%, but increased 4% when excluding FX, with variable gross profit per unit increasing $70 to $5,830 [12] - CarShop unit sales were 16,400 with revenue of $380 million, but profitability was impacted by vehicle acquisition prices and reconditioning costs [13] - Retail Commercial Truck dealership business saw total unit sales increase 25% to 6,031, with revenue increasing 42% to $1 billion and gross profit increasing 21% to $140 million [14] Market Data and Key Metrics Changes - In the U.K., the forward order bank is over 60% higher than the previous year, representing 36,000 units and $101 million in gross profit [11] - Penske Transportation Solutions (PTS) revenue increased 19% to $3.5 billion, with profit increasing 15% to a record $468 million [17] Company Strategy and Development Direction - The company is focused on operational efficiencies and has implemented AI to improve customer interactions and streamline processes [27][90] - Sustainability initiatives include building infrastructure for electric vehicles and installing over 1,500 charging stations [30] - The company plans to maintain a balanced capital allocation strategy, focusing on growth and shareholder returns [96] Management's Comments on Operating Environment and Future Outlook - Management expects supply constraints to persist for the next 9 to 12 months, but demand for new vehicles remains strong [11] - The company is confident in its diversified business model and ability to manage macro challenges [25] - Management remains optimistic about the premium luxury market, with strong pre-orders and minimal cancellations [52] Other Important Information - The company repurchased 2.8 million shares for $309 million in Q3, with a total of $675 million in share repurchases year-to-date [21] - The quarterly dividend was increased by 24% to $0.57 per share, with $114 million paid in dividends through September 30 [22] Q&A Session All Questions and Answers Question: What is the outlook on new vehicle grosses? - Management indicated that new vehicle grosses have remained high due to tight inventory and strong demand, with expectations for this to continue for the next 6 to 12 months [35][40] Question: How does the company view the used vehicle market? - Management acknowledged challenges in the used vehicle market due to a shortage of affordable inventory and indicated a focus on technology to improve customer engagement and sales [41][47] Question: Can you discuss the recent acquisition in the U.K.? - The acquisition of five Mercedes-Benz dealerships and three service centers is expected to generate $550 million in revenue and fits well within the company's existing operations [57][60] Question: What are the risks associated with proposed F&I legislation? - Management supports the elimination of unfair practices but noted uncertainty regarding the impact of proposed rules on the business [73][75] Question: What is the current state of SG&A and productivity? - SG&A is expected to normalize between 70% and 72%, with improvements in sales force productivity driven by AI and automation initiatives [81][83]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-12297 Penske Automotive Group, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of i ...

Financial Data and Key Metrics Changes - Revenue for Q2 2022 was $6.9 billion, a decline of 1% year-over-year, impacted by foreign exchange losses of $245 million; excluding FX, revenue increased by 2% [8] - Earnings before taxes increased by 8% to $500 million, net income from continuing operations rose by 10% to $374 million, and earnings per share increased by 17% to $4.93; excluding FX, EBT was up 10% to $511 million [9] Business Line Data and Key Metrics Changes - Retail automotive operations saw a 17% decline in total unit sales due to supply constraints; automotive revenue declined by 8%, but gross profit only decreased by 3% [10] - CarShop unit sales increased by 7% to 20,000 units, with revenue rising by 15% to $468 million; however, same-store variable gross profit per unit retail decreased to $2,145 from $2,714 year-over-year [11] - The retail commercial truck dealership business experienced a 23% increase in revenue to $769 million, with unit sales rising to 4,174 units [13] Market Data and Key Metrics Changes - Penske Transportation Solutions (PTS) reported a 20% increase in revenue to $3.3 billion, with profit rising by 33% to $472 million; equity earnings increased by $34 million to $137 million year-to-date [15] - New vehicle supply in the US is at 12 days, while used vehicle inventory has a 42-day supply [22][23] Company Strategy and Development Direction - The company is focused on sustainability initiatives, including electrification and the installation of over 1,300 charging stations across its network [27][28] - The company has completed acquisitions and new open points representing $745 million in annual revenue, with plans to acquire five Mercedes-Benz dealerships in the UK expected to generate approximately $550 million in revenue for 2022 [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for vehicles despite supply constraints and expects current supply challenges to persist for the next nine to twelve months [23] - The company aims to maintain a disciplined capital allocation strategy, focusing on opportunistic acquisitions, investments, and shareholder returns [19][20] Other Important Information - The company returned $437 million to shareholders in 2022, representing 59% of net income, and increased its quarterly dividend by 15% [18] - Long-term debt remains below $1.5 billion, with a leverage ratio of 0.7x, providing flexibility for future acquisitions [21] Q&A Session Summary Question: Concerns about SG&A costs as volumes recover - Management indicated that SG&A costs have decreased from 78% of gross pre-COVID to 66% currently, with expectations to stabilize in the low 70s as business normalizes [38][39] Question: Opportunities for leveraging capital for buybacks or acquisitions - Management emphasized a cautious approach to leverage, preferring to maintain flexibility while considering both buybacks and acquisitions [46][54] Question: Trends in PTL and gain on sale impact - The gain on sale in Q2 was $140 million, up $95 million year-over-year, with PAG's share being $27 million [63] Question: Impact of electric vehicles on dealership operations - Management acknowledged the need for training and facility changes to accommodate electric vehicles, which will require more educational support for customers [65] Question: Visibility into inventory and demand for the back half of the year - Management reported strong forward sold orders in both the US and UK, with a positive outlook for demand in the commercial truck sector [72][74] Question: Affordability issues impacting CarShop customers - Management confirmed that affordability issues are more pronounced for CarShop customers compared to franchise-level customers, affecting margins [84] Question: SG&A cost reduction without headcount reduction - Management indicated that there are still opportunities to reduce costs through technology and improved efficiency, despite rising costs in other areas [89][90]