Group 1 Automotive(GPI) - 2020 Q1 - Quarterly Report

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