Group 1 Automotive(GPI) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents the unaudited condensed consolidated financial statements for the quarter ended September 30, 2021 Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $296.9 | $87.3 | | Inventories | $850.8 | $1,468.0 | | Total Current Assets | $1,570.8 | $2,004.2 | | Goodwill | $1,034.5 | $997.1 | | Total Assets | $4,757.6 | $5,089.4 | | Liabilities & Equity | | | | Floorplan notes payable, net | $318.0 | $1,095.1 | | Total Current Liabilities | $1,046.1 | $1,842.7 | | Long-term debt | $1,276.3 | $1,294.7 | | Total Stockholders' Equity | $1,918.6 | $1,449.6 | Condensed Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $3,509.2 | $3,039.6 | $10,219.7 | $7,861.7 | | Gross Profit | $653.2 | $512.0 | $1,805.1 | $1,287.2 | | Income from Operations | $246.8 | $187.1 | $665.3 | $336.0 | | Net Income | $172.1 | $126.4 | $465.0 | $186.4 | | Diluted EPS | $9.33 | $6.83 | $25.21 | $10.08 | - As of September 30, 2021, the company's retail network consisted of 117 dealerships in the U.S., 55 in the U.K., and 16 in Brazil[25] - During the first nine months of 2021, the company acquired nine dealerships (two in the U.S., seven in the U.K.) for a total of $74.6 million[36] - On September 13, 2021, the company entered an agreement to acquire Prime Automotive Group for approximately $880 million, which includes 30 dealerships[38] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Details management's perspective on financial performance, strategic initiatives, and segment results Overview and Long-Term Strategy Outlines the company's strategy of acquisitions and digital platform growth amid semiconductor shortages - The company's 2021 priorities include growing through acquisitions, improving the AcceleRide® digital platform, and growing parts and service gross profit[98] - The pending Prime Automotive Group acquisition for ~$880 million is expected to add 30 dealerships and $1.8 billion in annual revenues[100] - The AcceleRide® online retail platform saw U.S. total online retail unit sales increase by 67.8% in Q3 2021 compared to Q3 2020[104] - Global semiconductor chip shortages have severely impacted new vehicle inventory, with days' supply dropping to approximately 14 days at the end of Q3 2021[112] Results of Operations - Consolidated Reports a 15.4% consolidated revenue increase in Q3 2021, driven by strong used vehicle sales and higher new vehicle margins Consolidated Operating Highlights - Q3 2021 vs Q3 2020 (Reported) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $3,509.2M | $3,039.6M | 15.4% | | Total Gross Profit | $653.2M | $512.0M | 27.6% | | New Vehicle Units Sold | 35,126 | 39,869 | (11.9)% | | Used Vehicle Retail Units Sold | 43,240 | 38,347 | 12.8% | | New Vehicle Gross Profit per Unit | $4,773 | $2,489 | 91.8% | | Used Vehicle Retail Gross Profit per Unit | $2,279 | $1,854 | 23.0% | | SG&A as % of Gross Profit | 59.0% | 59.7% | (0.8)% | Consolidated Operating Highlights - Nine Months 2021 vs 2020 (Reported) | Metric | Nine Months 2021 | Nine Months 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $10,219.7M | $7,861.7M | 30.0% | | Total Gross Profit | $1,805.1M | $1,287.2M | 40.2% | | New Vehicle Units Sold | 114,882 | 101,701 | 13.0% | | Used Vehicle Retail Units Sold | 126,301 | 105,665 | 19.5% | | SG&A as % of Gross Profit | 59.8% | 67.7% | (7.8)% | Results of Operations - U.S. Segment The U.S. segment's total revenues grew 18.6% in Q3 2021, driven by strong used vehicle sales and higher new vehicle margins U.S. Segment Operating Highlights - Q3 2021 vs Q3 2020 (Reported) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,662.4M | $2,244.6M | 18.6% | | Total Gross Profit | $535.0M | $415.7M | 28.7% | | New Vehicle Units Sold | 25,984 | 27,980 | (7.1)% | | New Vehicle Gross Profit per Unit | $5,388 | $2,852 | 88.9% | | F&I PRU | $2,261 | $2,030 | 11.4% | - U.S. new vehicle inventory supply was only 11 days at September 30, 2021, a sharp decrease from 41 days in the prior year[127] Results of Operations - U.K. Segment The U.K. segment's revenues rose 1.3% in Q3 2021, though same-store sales declined due to severe new vehicle supply constraints U.K. Segment Operating Highlights - Q3 2021 vs Q3 2020 (Reported) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $750.4M | $740.8M | 1.3% | | Total Gross Profit | $103.7M | $87.6M | 18.3% | | New Vehicle Units Sold | 7,381 | 10,689 | (30.9)% | | New Vehicle Gross Profit per Unit | $2,910 | $1,571 | 85.2% | | F&I PRU | $857 | $739 | 15.9% | - On a constant currency basis, U.K. same-store revenues decreased 14.6% in Q3 2021, driven by a 38.6% drop in new vehicle unit sales[143] Results of Operations - Brazil Segment The Brazil segment showed strong recovery in Q3 2021, with revenues increasing 77.7% as operations normalized post-COVID Brazil Segment Operating Highlights - Q3 2021 vs Q3 2020 (Reported) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $96.4M | $54.3M | 77.7% | | Total Gross Profit | $14.5M | $8.6M | 68.7% | | New Vehicle Units Sold | 1,761 | 1,200 | 46.8% | | New Vehicle Gross Profit per Unit | $3,510 | $2,196 | 59.8% | | SG&A as % of Gross Profit | 60.9% | 79.9% | (19.0)% | - On a constant currency basis, Brazil's same-store revenues increased 73.1% in Q3 2021, reflecting a strong recovery[155] Liquidity and Capital Resources The company maintains a strong liquidity position with sufficient capital to fund operations and the upcoming Prime Acquisition - As of September 30, 2021, the company had $296.9 million of cash on hand and total immediate liquidity of $913.9 million[195] - The company generated $593.8 million in adjusted net cash from operating activities for the nine months ended September 30, 2021[180][182] - A commitment letter for a $250.0 million unsecured bridge loan has been secured to partially finance the Prime Acquisition[193] - During the first nine months of 2021, the company repurchased $18.6 million of common stock and paid dividends totaling $17.2 million[197][198] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from interest rate fluctuations and foreign currency exchange rate changes - A 100 basis-point change in interest rates would impact annual interest expense by approximately $1.2 million[201] - A hypothetical 10% devaluation of the GBP and BRL would have decreased nine-month 2021 revenues by $181.9 million and $20.7 million, respectively[204] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and internal controls over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[206] - No material changes in internal control over financial reporting were identified during Q3 2021[208] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not a party to any legal proceedings expected to have a material adverse effect on its financial results - The company is not party to any legal proceedings expected to have a material adverse effect on its business[210] Item 1A. Risk Factors Highlights significant risks from the semiconductor shortage, the Prime Acquisition, and potential changes to sales models - The global semiconductor chip shortage has reduced new vehicle days' supply to 14 days, posing a material risk to financial results[214] - The Prime Acquisition presents numerous risks, including integration difficulties and potential for unanticipated liabilities[220][221] - There is a risk that the company may not obtain necessary manufacturer approvals for the Prime Acquisition dealerships[217][219] - Vehicle manufacturers in the U.K. are exploring an agency model for new vehicle sales, which could alter the company's business model[216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and no share repurchases during the third quarter of 2021 - No shares of common stock were repurchased during the three months ended September 30, 2021[228] - As of September 30, 2021, the company had $150.1 million available under its current share repurchase authorization[228] Item 6. Exhibits Lists key exhibits filed with the Form 10-Q, including agreements for the Prime Acquisition and required certifications - Key exhibits filed include the Purchase Agreement for the Prime Acquisition, a financing Commitment Letter, and CEO/CFO certifications[231]