Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Actual results of Group 1 Automotive, Inc. may differ materially from those discussed in the forward-looking statements because of various factors. See “Cautionary Statement about Forward - Looking Statements.” Unless the context requires otherwise, references to “we,” “us” and “our” are intended to mean the business and operations of Group 1 Automotive, Inc. and its subsidiaries.
Overview
We are a leading operator in the automotive retail industry. Through our dealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and other insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our operations are aligned into three regions, which comprise our reportable segments: the U.S., U.K. and Brazil. The U.S. and Brazil segments are led by the President, U.S. and Brazilian Operations, and the U.K. segment is led by an Operations Director, each reporting directly to our Chief Executive Officer, who is the CODM. The President, U.S. and Brazilian Operations and the U.K. Operations Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management.
As of March 31, 2021, our retail network consisted of 118 dealerships in the U.S., 49 dealerships in the U.K. and 16 dealerships in Brazil. Our operations are primarily located in major metropolitan areas in 15 states in the U.S., 33 towns in the U.K. and three states in Brazil.
Long-Term Strategy
Our business strategy focuses on improving the performance of our existing dealerships and enhancing our dealership portfolio through strategic acquisitions and dispositions to achieve growth, capture market share and maximize the investment return to our stockholders. We constantly evaluate opportunities to improve the overall profitability of our dealerships. We believe that as of March 31, 2021, we have sufficient financial resources to support additional acquisitions. Further, we intend to continue to critically evaluate our return on invested capital in our current dealership portfolio for disposition opportunities.
For 2021, our priorities are growing our company through acquisitions, improving and growing sales penetration in our digital retailing platform, AcceleRide®, continuing to grow our parts and service gross profit through numerous initiatives, increasing our market share in the highly fragmented used vehicle business, continuing to leverage our SG&A as a percentage of gross profit and focusing on the retention and training of our talented dealership employees.
Strategic Acquisitions and Dispositions
We will continue to focus on opportunities to enhance our current dealership portfolio through strategic acquisitions and improving or disposing of underperforming dealerships. We believe that substantial opportunities for growth through acquisitions remain in our industry in the U.S., U.K. and Brazil. Acquisitions capitalize on economies of scale and cost savings opportunities in our existing markets in areas such as used vehicle sourcing, advertising, purchasing, data processing and personnel utilization, thereby increasing operating efficiency.
We seek to acquire large, profitable, well-established dealerships that represent growing brands in growth markets. We evaluate all brands and geographies to expand our brand, product and service offerings in our existing markets or expand into growing geographic areas we currently do not serve. During the first quarter of 2021, we acquired two Toyota dealerships in the U.S. Further, we intend to continue to critically evaluate our return on invested capital in our current dealership portfolio for disposition opportunities. Refer to Note 3. Acquisitions and Dispositions within our Notes to Condensed Consolidated Financial Statements for further discussion.
Digital Initiatives to Enhance the Customer Experience
Our digital initiatives focus on ensuring that we can do business with our customers where and when they want to do business. Our online retail platform, AcceleRide®, which was deployed to all of our U.S. dealerships in 2019, allows a customer to complete a vehicle transaction entirely online or start the sales process online and complete the transaction at one of our dealerships. The customer also has the ability to apply for financing and review and select F&I products as part of the online process. During the first quarter of 2021, U.S. total online retail unit sales increased 124.0% compared to the same period in 2020. We also completed the roll out of AcceleRide® to our U.K. dealerships in the first quarter of 2021. Our parts and service digital efforts focus on our online customer scheduling appointment system. We have seen continued growth in the percentage of appointments scheduled online over the past few years as we have continued to enhance this tool. We have also focused on improved interaction with our parts and service customers by offering preferred communication options via dealership apps, phone, text or email and online payment options. We are capitalizing on technology advances in robotic process automation and artificial intelligence to improve our marketing, call center and back office efficiency. These digital platforms were instrumental in allowing us to connect with and service our customers during the social distancing requirements imposed as a result of the COVID-19 pandemic.
21
Table of Contents
Parts and Service Growth
We remain focused on sustained growth in our higher margin parts and service operations which continue to hinge on the retention and hiring of skilled service technicians and advisors. In 2019, our U.S. service operations implemented a four-day work week for service technicians and advisors which allowed us to expand our hours of operations during the week. This change has resulted in increased service technician and advisor retention, thereby expanding our service capacity without investing additional capital in facilities. Our online service appointment platform and centralized call centers have improved the customer experience. We seek to increase the retention of our customers through more convenient service hours, training of our service advisors, selling service contracts with vehicles sales and customer relationship management software that allows us to provide targeted marketing to our customers. The increasing complexity of vehicles, especially in the area of electronics and technological advancements, is making it increasingly difficult for independent repair shops to maintain the expertise and technology to work on these vehicles and provides us the opportunity to increase our market share well into the future.
Used Vehicle Retail Growth
Used vehicle gross profit depends primarily on a dealership’s ability to obtain a high-quality supply of used vehicles at reasonable prices. Our new vehicle operations generally provide our used vehicle operations with a large supply of high-quality trade-ins and off-lease vehicles, which are our best source of used vehicle inventory. In October 2020, we introduced “Sell A Ride” to our AcceleRide® platform to increase our ability to purchase used vehicle inventory directly from customers with a cash offer within 30 minutes during business hours, home pickup and payment available within one hour. Our dealerships supplement their used vehicle inventory with purchases at auctions, including manufacturer-sponsored auctions available only to franchised dealers.
Our data driven pricing strategies ensure that our used vehicles are priced at market to generate more traffic to our websites. We review our market pricing on a constant basis and work to limit discounting from our advertised prices.
Cost Management
We continue our efforts to fully leverage our scale and cost structure. As our business evolves, we will manage our costs carefully and look for additional opportunities to improve our processes and disseminate best practices. We believe that our management structure supports rapid decision making and facilitates an efficient and effective roll-out of new processes. As part of the digital efforts discussed above, we have improved our productivity for our sales and service departments.
Employee Training and Retention
A key to the execution of our business strategy is the leverage of what we believe to be one of our key strengths — the talent of our people. We are focused on the retention and training of our talented dealership employees. We believe that we have developed a distinguished management team with substantial industry expertise. With our management structure and level of executive talent, we plan to continue empowering the operators of our dealerships to make appropriate decisions to grow their respective dealership operations and to control fixed and variable costs. We believe this approach allows us to provide the best possible service to our customers, as well as attract and retain talented employees.
Diversity, Equity and Inclusion (“DEI”)
We have a DEI council that is chaired by our President, U.S. and Brazilian Operations. The council’s mission is to foster a diverse and inclusive culture where employees of all backgrounds are respected, valued and developed. We will enhance employee engagement in the areas of diversity, equity and inclusion by offering innovative training, recruitment and career path development where a sense of belonging is apparent throughout the organization. The council has four primary areas of focus: Workforce, Workplace, Community Involvement and Women’s Initiative. The council consists of a diverse group of employees providing representation across the organization. Each area has an employee chairperson as well as an executive sponsor. In 2020, we implemented an ongoing diversity and inclusion training program led by a well-known diversity expert which was developed specifically for us.
COVID-19 Pandemic and New Vehicle Inventory Levels
The COVID-19 pandemic continues to impact our operations in all of our markets. In the U.K. our dealership showrooms were closed for the entire first quarter of 2021 and in Brazil, our dealerships were closed for portions of the first quarter of 2021 due to government mandated closures related to the pandemic. See U.K. and Brazil in Results of Operations discussions for further information.
Additionally, our manufacturers’ production is currently at reduced levels as a result of global semiconductor chip shortages, which is impacting our new vehicle sales and inventory levels in all our markets. Refer to Item 1A. Risk Factors of this Form 10-Q for additional discussion.
22
Table of Contents
Critical Accounting Policies and Accounting Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. For additional discussion of our critical accounting policies and accounting estimates, please see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our most recent Annual Report on Form 10-K.
Results of Operations
The “same store” amounts presented below include the results of dealerships and corporate headquarters for the identical months in each period presented in comparison, commencing with the first full month in which the dealership was owned by us and, in the case of dispositions, ending with the last full month it was owned by us. For example, the results for a dealership acquired on August 15, 2020 will appear in our same store comparison beginning in 2021 for the period September 2021 through December 2021, when comparing to September 2020 through December 2020 results. If we disposed of a store on August 15, 2020, the results from this store would be excluded from same store results beginning in August 2020 as July 2020 was the last full month the dealership was owned by us. Same store results provide a measurement of our ability to grow revenues and profitability of our existing stores and also provide a metric for peer group comparisons. For these reasons, same store results allows management to manage and monitor the performance of the business and is also useful to investors.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than USD using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures. Our management also uses constant currency and adjusted cash flows from operating, investing and financing activities in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures and the related reconciliations, because we believe investors use these metrics in evaluating longer-term period-over-period performance. These metrics also allow investors to better understand and evaluate the information used by management to assess operating performance.
Certain amounts in the financial statements may not compute due to rounding. All computations have been calculated using unrounded amounts for all periods presented.
23
Table of Contents
The following tables summarize our operating results on a reported basis and on a same store basis:
Reported Operating Data — Consolidated
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 1,543.4 $ 1,342.2 $ 201.2 15.0 % $ 13.3 14.0 %
Used vehicle retail sales 898.8 779.0 119.7 15.4 % 10.4 14.0 %
Used vehicle wholesale sales 80.2 86.5 (6.3) (7.2) % 1.4 (8.8) %
Total used 979.0 865.6 113.5 13.1 % 11.8 11.7 %
Parts and service sales 360.6 370.6 (10.0) (2.7) % 2.0 (3.2) %
F&I, net 127.0 112.5 14.5 12.9 % 0.5 12.5 %
Total revenues $ 3,010.0 $ 2,690.8 $ 319.2 11.9 % $ 27.8 10.8 %
Gross profit:
New vehicle retail sales $ 99.0 $ 62.8 $ 36.2 57.7 % $ 0.5 56.9 %
Used vehicle retail sales 59.6 42.1 17.5 41.4 % 0.3 40.7 %
Used vehicle wholesale sales 3.9 1.0 2.9 293.5 % (0.1) 300.7 %
Total used 63.5 43.1 20.4 47.3 % 0.2 46.7 %
Parts and service sales 201.1 198.0 3.0 1.5 % 1.5 0.8 %
F&I, net 127.0 112.5 14.5 12.9 % 0.5 12.5 %
Total gross profit $ 490.7 $ 416.5 $ 74.2 17.8 % $ 2.7 17.2 %
Gross margin:
New vehicle retail sales 6.4 % 4.7 % 1.7 %
Used vehicle retail sales 6.6 % 5.4 % 1.2 %
Used vehicle wholesale sales 4.9 % 1.2 % 3.8 %
Total used 6.5 % 5.0 % 1.5 %
Parts and service sales 55.8 % 53.4 % 2.3 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 16.3 % 15.5 % 0.8 %
Units sold:
Retail new vehicles sold 36,863 35,360 1,503 4.3 %
Retail used vehicles sold 38,059 36,790 1,269 3.4 %
Wholesale used vehicles sold 9,812 12,086 (2,274) (18.8) %
Total used 47,871 48,876 (1,005) (2.1) %
Average sales price per unit sold:
New vehicle retail $ 41,868 $ 37,957 $ 3,910 10.3 % $ 362 9.3 %
Used vehicle retail $ 23,615 $ 21,175 $ 2,440 11.5 % $ 274 10.2 %
Gross profit per unit sold:
New vehicle retail sales $ 2,687 $ 1,777 $ 910 51.2 % $ 13 50.5 %
Used vehicle retail sales $ 1,566 $ 1,146 $ 420 36.7 % $ 8 36.0 %
Used vehicle wholesale sales $ 401 $ 83 $ 319 384.8 % $ (7) 393.5 %
Total used $ 1,327 $ 883 $ 445 50.4 % $ 5 49.8 %
F&I PRU $ 1,695 $ 1,559 $ 137 8.8 % $ 6 8.3 %
Other:
SG&A expenses $ 318.4 $ 328.0 $ (9.5) (2.9) % $ 1.9 (3.5) %
SG&A as % gross profit 64.9 % 78.7 % (13.8) %
Floorplan expense:
Floorplan interest expense $ 7.6 $ 12.9 $ (5.3) (41.2) % $ 0.1 (41.9) %
Less: floorplan assistance (1)
13.2 10.6 2.6 24.9 % — 24.9 %
Net floorplan expense $ (5.6) $ 2.3 $ (7.9) (345.5) % $ 0.1 (349.3) %
(1) Floorplan assistance is included within New vehicle retail sales Gross profit above and New vehicle retail sales Cost of sales in our Condensed Consolidated Statements of Operations.
24
Table of Contents
Same Store Operating Data — Consolidated
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 1,542.9 $ 1,332.0 $ 210.8 15.8 % $ 13.3 14.8 %
Used vehicle retail sales 898.2 770.5 127.7 16.6 % 10.4 15.2 %
Used vehicle wholesale sales 80.2 85.5 (5.4) (6.3) % 1.4 (7.9) %
Total used 978.4 856.1 122.3 14.3 % 11.8 12.9 %
Parts and service sales 358.1 364.2 (6.1) (1.7) % 1.9 (2.2) %
F&I, net 127.0 111.5 15.5 13.9 % 0.5 13.5 %
Total revenues $ 3,006.3 $ 2,663.7 $ 342.6 12.9 % $ 27.6 11.8 %
Gross profit:
New vehicle retail sales $ 99.1 $ 62.2 $ 36.9 59.4 % $ 0.5 58.6 %
Used vehicle retail sales 59.6 41.9 17.7 42.3 % 0.3 41.5 %
Used vehicle wholesale sales 4.0 1.0 3.0 295.2 % (0.1) 301.0 %
Total used 63.6 42.9 20.7 48.2 % 0.3 47.7 %
Parts and service sales 200.0 194.7 5.3 2.7 % 1.4 2.0 %
F&I, net 127.0 111.5 15.5 13.9 % 0.5 13.5 %
Total gross profit $ 489.6 $ 411.3 $ 78.4 19.1 % $ 2.7 18.4 %
Gross margin:
New vehicle retail sales 6.4 % 4.7 % 1.8 %
Used vehicle retail sales 6.6 % 5.4 % 1.2 %
Used vehicle wholesale sales 5.0 % 1.2 % 3.8 %
Total used 6.5 % 5.0 % 1.5 %
Parts and service sales 55.8 % 53.5 % 2.4 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 16.3 % 15.4 % 0.8 %
Units sold:
Retail new vehicles sold 36,851 35,082 1,769 5.0 %
Retail used vehicles sold 38,027 36,331 1,696 4.7 %
Wholesale used vehicles sold 9,799 11,921 (2,122) (17.8) %
Total used 47,826 48,252 (426) (0.9) %
Average sales price per unit sold:
New vehicle retail $ 41,868 $ 37,969 $ 3,899 10.3 % $ 361 9.3 %
Used vehicle retail $ 23,621 $ 21,209 $ 2,412 11.4 % $ 273 10.1 %
Gross profit per unit sold:
New vehicle retail sales $ 2,689 $ 1,772 $ 917 51.7 % $ 13 51.0 %
Used vehicle retail sales $ 1,567 $ 1,153 $ 414 35.9 % $ 8 35.2 %
Used vehicle wholesale sales $ 408 $ 85 $ 323 380.8 % $ (6) 387.9 %
Total used $ 1,330 $ 889 $ 441 49.6 % $ 5 49.0 %
F&I PRU $ 1,696 $ 1,561 $ 135 8.6 % $ 6 8.2 %
Other:
SG&A expenses $ 317.3 $ 322.3 $ (4.9) (1.5) % $ 1.8 (2.1) %
SG&A as % gross profit 64.8 % 78.4 % (13.6) %
25
Table of Contents
Reported Operating Data — U.S.
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 1,246.0 $ 988.4 $ 257.7 26.1 %
Used vehicle retail sales 696.5 570.3 126.2 22.1 %
Used vehicle wholesale sales 50.4 46.8 3.6 7.6 %
Total used 746.9 617.1 129.8 21.0 %
Parts and service sales 296.3 304.6 (8.3) (2.7) %
F&I, net 115.1 97.4 17.7 18.1 %
Total revenues $ 2,404.3 $ 2,007.6 $ 396.8 19.8 %
Gross profit:
New vehicle retail sales $ 80.9 $ 47.3 $ 33.6 71.1 %
Used vehicle retail sales 50.3 31.9 18.4 57.6 %
Used vehicle wholesale sales 3.9 0.8 3.1 374.6 %
Total used 54.3 32.8 21.5 65.6 %
Parts and service sales 165.1 163.5 1.6 1.0 %
F&I, net 115.1 97.4 17.7 18.1 %
Total gross profit $ 415.3 $ 340.9 $ 74.3 21.8 %
Gross margin:
New vehicle retail sales 6.5 % 4.8 % 1.7 %
Used vehicle retail sales 7.2 % 5.6 % 1.6 %
Used vehicle wholesale sales 7.8 % 1.8 % 6.0 %
Total used 7.3 % 5.3 % 2.0 %
Parts and service sales 55.7 % 53.7 % 2.0 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 17.3 % 17.0 % 0.3 %
Units sold:
Retail new vehicles sold 29,152 24,495 4,657 19.0 %
Retail used vehicles sold 30,431 27,668 2,763 10.0 %
Wholesale used vehicles sold 6,440 7,027 (587) (8.4) %
Total used 36,871 34,695 2,176 6.3 %
Average sales price per unit sold:
New vehicle retail $ 42,743 $ 40,350 $ 2,393 5.9 %
Used vehicle retail $ 22,888 $ 20,613 $ 2,275 11.0 %
Gross profit per unit sold:
New vehicle retail sales $ 2,774 $ 1,929 $ 845 43.8 %
Used vehicle retail sales $ 1,654 $ 1,154 $ 499 43.3 %
Used vehicle wholesale sales $ 610 $ 118 $ 492 417.9 %
Total used $ 1,471 $ 944 $ 527 55.8 %
F&I PRU $ 1,931 $ 1,868 $ 64 3.4 %
Other:
SG&A expenses $ 261.7 $ 257.5 $ 4.2 1.6 %
SG&A as % gross profit 63.0 % 75.5 % (12.5) %
26
Table of Contents
Same Store Operating Data — U.S.
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/(Decrease) % Change
Revenues:
New vehicle retail sales $ 1,245.7 $ 979.3 $ 266.4 27.2 %
Used vehicle retail sales 696.4 562.8 133.6 23.7 %
Used vehicle wholesale sales 50.4 45.9 4.5 9.8 %
Total used 746.8 608.7 138.1 22.7 %
Parts and service sales 295.5 301.9 (6.4) (2.1) %
F&I, net 115.1 96.6 18.5 19.2 %
Total revenues $ 2,403.1 $ 1,986.5 $ 416.6 21.0 %
Gross profit:
New vehicle retail sales $ 80.9 $ 46.7 $ 34.3 73.4 %
Used vehicle retail sales 50.3 31.8 18.6 58.6 %
Used vehicle wholesale sales 3.9 0.8 3.1 367.2 %
Total used 54.3 32.6 21.7 66.5 %
Parts and service sales 164.7 161.8 2.9 1.8 %
F&I, net 115.1 96.6 18.5 19.2 %
Total gross profit $ 415.0 $ 337.6 $ 77.4 22.9 %
Gross margin:
New vehicle retail sales 6.5 % 4.8 % 1.7 %
Used vehicle retail sales 7.2 % 5.6 % 1.6 %
Used vehicle wholesale sales 7.8 % 1.8 % 6.0 %
Total used 7.3 % 5.4 % 1.9 %
Parts and service sales 55.7 % 53.6 % 2.1 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 17.3 % 17.0 % 0.3 %
Units sold:
Retail new vehicles sold 29,148 24,271 4,877 20.1 %
Retail used vehicles sold 30,425 27,280 3,145 11.5 %
Wholesale used vehicles sold 6,440 6,897 (457) (6.6) %
Total used 36,865 34,177 2,688 7.9 %
Average sales price per unit sold:
New vehicle retail $ 42,738 $ 40,349 $ 2,389 5.9 %
Used vehicle retail $ 22,890 $ 20,631 $ 2,259 10.9 %
Gross profit per unit sold:
New vehicle retail sales $ 2,777 $ 1,923 $ 854 44.4 %
Used vehicle retail sales $ 1,655 $ 1,164 $ 491 42.2 %
Used vehicle wholesale sales $ 612 $ 122 $ 489 400.3 %
Total used $ 1,473 $ 954 $ 519 54.4 %
F&I PRU $ 1,931 $ 1,873 $ 58 3.1 %
Other:
SG&A expenses $ 262.0 $ 253.9 $ 8.1 3.2 %
SG&A as % gross profit 63.1 % 75.2 % (12.1) %
27
Table of Contents
The following discussion of our U.S. operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.
Revenues
Total revenues in the U.S. during the three months ended March 31, 2021 increased $396.8 million, or 19.8%, as compared to the same period in 2020. Total same store revenues in the U.S. during the three months ended March 31, 2021 increased $416.6 million, or 21.0%, as compared to the same period in 2020, driven by increases in all of our revenue streams, with the exception of parts and service sales. The increase of 27.2% in new vehicle retail same store sales was driven by a 20.1% increase in same store new vehicle retail unit sales coupled with a 5.9% increase in same store new vehicle average sales price per retail unit reflecting increased demand at our dealerships and lower vehicle inventory supply as a result of the OEMs producing and delivering fewer vehicles to dealerships due to a global semiconductor chip shortage. At March 31, 2021, our U.S. new vehicle inventory stood at a 34 day’s supply, which was 87 days lower than the same period last year and 14 days lower than December 31, 2020 days’ supply of 48. While we anticipate inventories remaining tight in the near term, we will continue to adjust our operations as necessary. Used vehicle retail same store sales increased 23.7% driven by an 11.5% increase in used vehicle retail same store unit sales coupled with a 10.9% increase in used vehicle same store average price per retail unit reflecting increased demand and lower inventory levels. Sell A Ride, a tool from our online digital platform, AcceleRide® which enables a customer to sell their vehicle from the comfort of their home, was instrumental in alleviating some of our used vehicle supply constraints. Adding to the increase in our new and used vehicle retail same store sales were sales from AcceleRide®. Several technological enhancements made during the first quarter of 2021 to our online platform helped bolster these results. Used vehicle wholesale same store sales increased 9.8% driven by a 17.5% increase in used vehicle average same store price per wholesale unit which was partially offset by a 6.6% decrease in used vehicle same store wholesale units. The increase in our same store average used vehicle wholesale price was the result of a 19.8% increase in average used vehicle market prices in 2021 as compared to the first quarter of 2020, as reflected in the Manheim Index. Parts and service same store revenues decreased by 2.1% for the quarter ended March 31, 2021 as compared to the same period in 2020, driven by a 11.7% decline in warranty revenues and a 14.5% decline in collision revenues which were partially offset by a 5.2% increase in customer pay revenues while our wholesale revenues remained flat. Our Texas and Oklahoma stores were adversely impacted by a record-setting winter storm in the middle of February, which essentially shut down most of our parts and service business for approximately a week and dampened our parts and service same store revenues. F&I same store revenues increased 19.2% driven primarily by a 15.6% increase in same store total retail unit sales and higher income per contract on finance and many of our other insurance product offerings, which were partially offset by lower penetration rates and an increase in our overall chargeback experience.
Gross Profit
Total gross profit in the U.S. during the three months ended March 31, 2021 increased $74.3 million, or 21.8%, as compared to the same period in 2020. Total same store gross profit in the U.S. during the three months ended March 31, 2021 increased $77.4 million, or 22.9%, as compared to the same period in 2020, driven by increases in all of our operations. New vehicle same store gross profit increased 73.4%, reflecting a 44.4% increase in new vehicle same store gross profit per unit sold, coupled with a 20.1% increase in same store new vehicle retail units sold. The increase in new vehicle retail same store gross profit per unit sold reflects strong consumer demand along with inventory supply constraints. Used vehicle retail same store gross profit increased 58.6%, reflecting an increase of 42.2% in used vehicle retail same store gross profit per unit sold coupled with an 11.5% increase in used vehicle retail same store unit sales over the same period in 2020. The increase in used vehicle retail same store gross profit per unit sold reflects higher market prices stemming from tight inventory levels. Used vehicle wholesale gross profit increased as industry supply shortages drove up auction prices as reflected in the Manheim Index. Parts and service same store gross profit increased 1.8% primarily due to an increase in customer pay gross profit. New F&I same store gross profit increased 19.2% driven by the increases in revenue discussed above. Total same store gross margin increased 30 basis points driven by higher new and used vehicle margins because of vehicle supply constraints and higher parts and service margin due to improvements in customer pay.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses (which includes legal, professional fees and general corporate expenses). Total SG&A expenses in the U.S. during the three months ended March 31, 2021 increased $4.2 million, or 1.6%, as compared to the same period in 2020. Total same store SG&A expenses in the U.S. during the three months ended March 31, 2021 increased $8.1 million, or 3.2%, as compared to the same period in 2020 primarily driven by an increase in personnel costs due to growth in variable commission payments as a result of improvements in new and used vehicle retail sales volume and gross profit. Total 2021 same store SG&A expenses in the U.S. included $2.2 million in disaster pay and insurance deductible expense associated with the February winter storm in Texas and a $1.0 million gain related to a non-core legal settlement. Total same store SG&A as a percent of gross profit decreased from 75.2% in the first quarter of 2020 to 63.1% for the same period of 2021, driven by higher vehicle margins and gains in our salesperson and technician productivity rates.
28
Table of Contents
Reported Operating Data — U.K.
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 263.2 $ 296.3 $ (33.1) (11.2) % $ 21.4 (18.4) %
Used vehicle retail sales 191.6 188.8 2.8 1.5 % 13.0 (5.4) %
Used vehicle wholesale sales 27.8 35.8 (8.0) (22.4) % 1.9 (27.6) %
Total used 219.4 224.6 (5.2) (2.3) % 14.9 (8.9) %
Parts and service sales 56.5 56.4 — 0.1 % 3.9 (6.9) %
F&I, net 10.6 13.3 (2.8) (20.7) % 0.8 (26.8) %
Total revenues $ 549.6 $ 590.7 $ (41.0) (6.9) % $ 41.2 (13.9) %
Gross profit:
New vehicle retail sales $ 14.8 $ 12.1 $ 2.7 22.6 % $ 1.3 11.8 %
Used vehicle retail sales 8.2 9.2 (1.0) (10.8) % 0.6 (17.0) %
Used vehicle wholesale sales (0.2) — (0.1) (412.9) % — (305.7) %
Total used 8.0 9.1 (1.1) (12.2) % 0.5 (18.1) %
Parts and service sales 32.6 30.3 2.3 7.6 % 2.3 0.1 %
F&I, net 10.6 13.3 (2.8) (20.7) % 0.8 (26.8) %
Total gross profit $ 66.0 $ 64.8 $ 1.2 1.8 % $ 4.9 (5.8) %
Gross margin:
New vehicle retail sales 5.6 % 4.1 % 1.5 %
Used vehicle retail sales 4.3 % 4.9 % (0.6) %
Used vehicle wholesale sales (0.6) % (0.1) % (0.5) %
Total used 3.7 % 4.1 % (0.4) %
Parts and service sales 57.8 % 53.7 % 4.1 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 12.0 % 11.0 % 1.0 %
Units sold:
Retail new vehicles sold 6,540 8,894 (2,354) (26.5) %
Retail used vehicles sold 7,112 8,024 (912) (11.4) %
Wholesale used vehicles sold 3,138 4,584 (1,446) (31.5) %
Total used 10,250 12,608 (2,358) (18.7) %
Average sales price per unit sold:
New vehicle retail $ 40,240 $ 33,314 $ 6,926 20.8 % $ 3,279 10.9 %
Used vehicle retail $ 26,941 $ 23,528 $ 3,413 14.5 % $ 1,829 6.7 %
Gross profit per unit sold:
New vehicle retail sales $ 2,261 $ 1,356 $ 905 66.8 % $ 200 52.0 %
Used vehicle retail sales $ 1,149 $ 1,141 $ 8 0.7 % $ 81 (6.4) %
Used vehicle wholesale sales $ (51) $ (7) $ (44) (649.3) % $ (11) (492.7) %
Total used $ 782 $ 724 $ 58 8.0 % $ 53 0.7 %
F&I PRU $ 773 $ 787 $ (14) (1.8) % $ 59 (9.3) %
Other:
SG&A expenses $ 49.6 $ 59.8 $ (10.2) (17.0) % $ 3.5 (23.0) %
SG&A as % gross profit 75.2 % 92.3 % (17.1) %
29
Table of Contents
Same Store Operating Data — U.K.
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 263.0 $ 295.2 $ (32.2) (10.9) % $ 21.4 (18.2) %
Used vehicle retail sales 191.1 187.8 3.4 1.8 % 13.0 (5.1) %
Used vehicle wholesale sales 27.8 35.8 (8.0) (22.4) % 1.9 (27.6) %
Total used 218.9 223.6 (4.7) (2.1) % 14.8 (8.7) %
Parts and service sales 54.7 52.7 2.0 3.9 % 3.8 (3.3) %
F&I, net 10.5 13.2 (2.7) (20.1) % 0.8 (26.3) %
Total revenues $ 547.2 $ 584.7 $ (37.5) (6.4) % $ 41.1 (13.4) %
Gross profit:
New vehicle retail sales $ 14.8 $ 12.0 $ 2.8 23.1 % $ 1.3 12.3 %
Used vehicle retail sales 8.1 9.1 (0.9) (10.4) % 0.6 (16.6) %
Used vehicle wholesale sales (0.1) — (0.1) (208.2) % — (147.1) %
Total used 8.0 9.1 (1.0) (11.2) % 0.5 (17.3) %
Parts and service sales 32.0 28.7 3.2 11.2 % 2.3 3.4 %
F&I, net 10.5 13.2 (2.7) (20.1) % 0.8 (26.3) %
Total gross profit $ 65.3 $ 63.0 $ 2.3 3.7 % $ 4.9 (4.1) %
Gross margin:
New vehicle retail sales 5.6 % 4.1 % 1.6 %
Used vehicle retail sales 4.3 % 4.8 % (0.6) %
Used vehicle wholesale sales (0.4) % (0.1) % (0.3) %
Total used 3.7 % 4.0 % (0.4) %
Parts and service sales 58.4 % 54.5 % 3.9 %
F&I, net 100.0 % 100.0 % — %
Total gross margin 11.9 % 10.8 % 1.2 %
Units sold:
Retail new vehicles sold 6,532 8,840 (2,308) (26.1) %
Retail used vehicles sold 7,086 7,953 (867) (10.9) %
Wholesale used vehicles sold 3,125 4,549 (1,424) (31.3) %
Total used 10,211 12,502 (2,291) (18.3) %
Average sales price per unit sold:
New vehicle retail $ 40,262 $ 33,397 $ 6,866 20.6 % $ 3,280 10.7 %
Used vehicle retail $ 26,975 $ 23,612 $ 3,363 14.2 % $ 1,829 6.5 %
Gross profit per unit sold:
New vehicle retail sales $ 2,260 $ 1,356 $ 904 66.7 % $ 200 51.9 %
Used vehicle retail sales $ 1,149 $ 1,142 $ 7 0.6 % $ 80 (6.4) %
Used vehicle wholesale sales $ (34) $ (8) $ (27) (348.7) % $ (7) (259.6) %
Total used $ 787 $ 724 $ 63 8.7 % $ 54 1.3 %
F&I PRU $ 774 $ 786 $ (12) (1.5) % $ 59 (9.1) %
Other:
SG&A expenses $ 48.2 $ 57.8 $ (9.6) (16.6) % $ 3.4 (22.6) %
SG&A as % gross profit 73.8 % 91.8 % (18.0) %
30
Table of Contents
The following discussion of our U.K. operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings. The U.K. experienced a surge in COVID-19 cases at the end of 2020, which led to a government-mandated closure of all non-essential businesses beginning January 4, 2021 through April 12, 2021. The national lockdown impacted our new and used vehicle sales as our showrooms were closed the entire first quarter of 2021, but had a lesser impact on our service operations as they remained open.
Revenues
Total revenues in the U.K. during the three months ended March 31, 2021 decreased $41.0 million, or 6.9%, as compared to the same period in 2020. Total same store revenues in the U.K. during the three months ended March 31, 2021 decreased $37.5 million, or 6.4%, as compared to the same period in 2020. On a constant currency basis, total same store revenues decreased 13.4% driven by declines in all of our revenue streams. During the first quarter of 2021, our U.K. operations relied heavily on online selling by rolling out AcceleRide®, our online new and used vehicle sales platform. New vehicle retail same store revenues on a constant currency basis decreased 18.2% driven by a 26.1% decline in new vehicle retail same store unit sales, partially offset by a 10.7% increase in average new vehicle retail same store sales price. On a constant currency basis, used vehicle retail same store revenues decreased 5.1% as used vehicle retail same store unit sales declined 10.9%, partially offset by a 6.5% increase in average used retail same store sales price. The declines in new and used vehicle retail same store unit sales reflect limitations on selling vehicles without a showroom or the ability to conduct test drives as our showrooms were closed for the entire first quarter as discussed above. The increases in average new and used vehicle retail same store sales prices reflect lower vehicle inventory supply as OEMs are producing and delivering fewer vehicles due to a global semiconductor chip shortage. At March 31, 2021 our U.K. new vehicle inventory stood at a 28 days’ supply, which was 8 days lower than the same period last year and 74 days lower than December 31, 2020 days’ supply of 102. While we anticipate inventories remaining tight in the near term, we will continue to adjust our operations as necessary. Parts and service same store revenues decreased 3.3% on a constant currency basis, as a 1.3% increase in customer-pay business was more than offset by declines in our other parts and service businesses. F&I same store revenues on a constant currency basis decreased 26.3%, as a decline in retail unit sales volumes coupled with lower penetration rates were partially offset by a decrease in our overall chargeback experience.
Gross Profit
Total gross profit in the U.K. during the three months ended March 31, 2021 increased $1.2 million, or 1.8%, as compared to the same period in 2020. Total same store gross profit in the U.K. during the three months ended March 31, 2021 increased $2.3 million, or 3.7%, as compared to the same period in 2020. On a constant currency basis, total same store gross profit decreased 4.1%, driven by declines in our used vehicle retail and F&I operations. New vehicle retail same store gross profit increased 12.3% on a constant currency basis, driven by a 51.9% increase in new vehicle retail same store gross profit per unit, partially offset by a 26.1% decrease in new vehicle retail same store unit sales. The increase in new vehicle gross profit per unit primarily reflects supply constraints. On a constant currency basis, used vehicle retail same store gross profit decreased 16.6%, reflecting a 10.9% decline in used vehicle retail same store unit sales, coupled with a 6.4% decrease in used vehicle retail same store gross profit per unit sold. The decline in used vehicle retail same store gross profit per unit sold reflects our efforts to refresh inventory as we pushed to sell older units in stock. Parts and service same store gross profit on a constant currency basis increased 3.4%, as most of the service repair work performed in the quarter was higher margin, as customers have deferred lower margin regular maintenance during the lockdown period. F&I same store gross profit on a constant currency basis decreased 26.3% as previously discussed.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses (which includes legal, professional fees and general corporate expenses). Total SG&A expenses in the U.K. during the three months ended March 31, 2021 decreased $10.2 million, or 17.0%, as compared to the same period in 2020. Total same store SG&A expenses in the U.K. during the three months ended March 31, 2021, decreased $9.6 million, or 16.6%, as compared to the same period in 2020. On a constant currency basis, total same store SG&A expenses decreased 22.6%, driven by the continual execution of cost reduction strategies as a response to the COVID-19 pandemic coupled with a temporary suspension of city tax. We have strived to retain our lower operating cost structure and have continued to benefit from these cost cutting measures in the first quarter of 2021. As a percentage of gross profit, total same store SG&A expenses decreased from 91.8% for the first quarter of 2020 to 73.8% for the same period of 2021.
31
Table of Contents
Reported Operating Data — Brazil
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 34.1 $ 57.5 $ (23.3) (40.6) % $ (8.1) (26.5) %
Used vehicle retail sales 10.7 19.9 (9.3) (46.5) % (2.6) (33.6) %
Used vehicle wholesale sales 2.0 3.8 (1.8) (47.6) % (0.5) (34.6) %
Total used 12.7 23.8 (11.1) (46.7) % (3.1) (33.7) %
Parts and service sales 7.9 9.6 (1.7) (17.6) % (1.9) 2.3 %
F&I, net 1.4 1.7 (0.3) (19.9) % (0.3) (0.7) %
Total revenues $ 56.1 $ 92.5 $ (36.5) (39.4) % $ (13.4) (24.9) %
Gross profit:
New vehicle retail sales $ 3.4 $ 3.5 $ (0.1) (3.5) % $ (0.8) 19.6 %
Used vehicle retail sales 1.1 1.1 0.1 5.5 % (0.3) 30.1 %
Used vehicle wholesale sales 0.2 0.2 — (17.0) % — 1.5 %
Total used 1.3 1.3 — 1.8 % (0.3) 25.5 %
Parts and service sales 3.3 4.2 (0.9) (20.3) % (0.8) (1.0) %
F&I, net 1.4 1.7 (0.3) (19.9) % (0.3) (0.7) %
Total gross profit $ 9.4 $ 10.7 $ (1.3) (12.1) % $ (2.3) 8.9 %
Gross margin:
New vehicle retail sales 9.9 % 6.1 % 3.8 %
Used vehicle retail sales 10.4 % 5.3 % 5.1 %
Used vehicle wholesale sales 8.4 % 5.3 % 3.1 %
Total used 10.1 % 5.3 % 4.8 %
Parts and service sales 42.5 % 43.9 % (1.4) %
F&I, net 100.0 % 100.0 % — %
Total gross margin 16.7 % 11.5 % 5.2 %
Units sold:
Retail new vehicles sold 1,171 1,971 (800) (40.6) %
Retail used vehicles sold 516 1,098 (582) (53.0) %
Wholesale used vehicles sold 234 475 (241) (50.7) %
Total used 750 1,573 (823) (52.3) %
Average sales price per unit sold:
New vehicle retail $ 29,159 $ 29,169 $ (11) — % $ (6,926) 23.7 %
Used vehicle retail $ 20,662 $ 18,154 $ 2,508 13.8 % $ (5,004) 41.4 %
Gross profit per unit sold:
New vehicle retail sales $ 2,894 $ 1,782 $ 1,112 62.4 % $ (693) 101.3 %
Used vehicle retail sales $ 2,148 $ 957 $ 1,191 124.5 % $ (502) 176.9 %
Used vehicle wholesale sales $ 725 $ 430 $ 295 68.6 % $ (161) 106.1 %
Total used $ 1,704 $ 798 $ 906 113.6 % $ (396) 163.2 %
F&I PRU $ 816 $ 560 $ 256 45.7 % $ (196) 80.6 %
Other:
SG&A expenses $ 7.1 $ 10.6 $ (3.5) (33.1) % $ (1.6) (18.0) %
SG&A as % gross profit 75.5 % 99.1 % (23.7) %
32
Table of Contents
Same Store Operating Data — Brazil
(In millions, except unit data)
Three Months Ended March 31,
2021 2020 Increase/ (Decrease) % Change Currency Impact on Current Period Results Constant Currency % Change
Revenues:
New vehicle retail sales $ 34.1 $ 57.5 $ (23.3) (40.6) % $ (8.1) (26.5) %
Used vehicle retail sales 10.7 19.9 (9.3) (46.5) % (2.6) (33.6) %
Used vehicle wholesale sales 2.0 3.8 (1.8) (47.6) % (0.5) (34.6) %
Total used 12.7 23.8 (11.1) (46.7) % (3.1) (33.7) %
Parts and service sales 7.9 9.6 (1.7) (17.6) % (1.9) 2.3 %
F&I, net 1.4 1.7 (0.3) (19.9) % (0.3) (0.7) %
Total revenues $ 56.1 $ 92.5 $ (36.5) (39.4) % $ (13.4) (24.9) %
Gross profit:
New vehicle retail sales $ 3.4 $ 3.5 $ (0.1) (3.5) % $ (0.8) 19.6 %
Used vehicle retail sales 1.1 1.1 0.1 5.5 % (0.3) 30.1 %
Used vehicle wholesale sales 0.2 0.2 — (17.0) % — 1.5 %
Total used 1.3 1.3 — 1.8 % (0.3) 25.5 %
Parts and service sales 3.3 4.2 (0.9) (20.4) % (0.8) (1.1) %
F&I, net 1.4 1.7 (0.3) (19.9) % (0.3) (0.7) %
Total gross profit $ 9.4 $ 10.7 $ (1.3) (12.2) % $ (2.3) 8.9 %
Gross margin:
New vehicle retail sales 9.9 % 6.1 % 3.8 %
Used vehicle retail sales 10.4 % 5.3 % 5.1 %
Used vehicle wholesale sales 8.4 % 5.3 % 3.1 %
Total used 10.1 % 5.3 % 4.8 %
Parts and service sales 42.5 % 44.0 % (1.5) %
F&I, net 100.0 % 100.0 % — %
Total gross margin 16.7 % 11.5 % 5.2 %
Units sold:
Retail new vehicles sold 1,171 1,971 (800) (40.6) %
Retail used vehicles sold 516 1,098 (582) (53.0) %
Wholesale used vehicles sold 234 475 (241) (50.7) %
Total used 750 1,573 (823) (52.3) %
Average sales price per unit sold:
New vehicle retail $ 29,159 $ 29,169 $ (11) — % $ (6,926) 23.7 %
Used vehicle retail $ 20,662 $ 18,154 $ 2,508 13.8 % $ (5,004) 41.4 %
Gross profit per unit sold:
New vehicle retail sales $ 2,894 $ 1,782 $ 1,112 62.4 % $ (693) 101.3 %
Used vehicle retail sales $ 2,148 $ 957 $ 1,191 124.4 % $ (502) 176.9 %
Used vehicle wholesale sales $ 725 $ 430 $ 295 68.6 % $ (161) 106.1 %
Total used $ 1,704 $ 798 $ 906 113.5 % $ (396) 163.1 %
F&I PRU $ 816 $ 560 $ 256 45.7 % $ (196) 80.6 %
Other:
SG&A expenses $ 7.1 $ 10.5 $ (3.4) (32.2) % $ (1.6) (16.8) %
SG&A as % gross profit 76.2 % 98.7 % (22.5) %
33
Table of Contents
The following discussion of our Brazil operating results is on a same store basis. The difference between reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings. During the first quarter of 2021, Brazil saw a rise in COVID-19 cases partially due to a new variant that is rapidly spreading through the country and overwhelming the healthcare system. To contain the spread of the virus, the government canceled Carnival in 2021 and implemented various lockdowns for non-essential businesses. As such, many of our showrooms were closed periodically throughout the quarter impacting our ability to sell new and used vehicles.
Revenues
Total and same store revenues in Brazil during the three months ended March 31, 2021 decreased $36.5 million, or 39.4%, as compared to the same period in 2020. On a constant currency basis, total same store revenues decreased 24.9% driven by declines in all business lines except parts and services, resulting from the continued negative impact of the COVID-19 pandemic. New vehicle retail same store revenues on a constant currency basis decreased 26.5%, as a 40.6% decrease in new vehicle retail same store unit sales was partially offset by a 23.7% increase in new vehicle retail same store average sales price per unit sold. Used vehicle retail same store revenues on a constant currency basis decreased 33.6%, reflecting a 53.0% decrease in used vehicle retail same store unit sales partially offset by a 41.4% increase in used vehicle retail same store average sales price per unit sold. Used vehicle wholesale same store revenues decreased 34.6% on a constant currency b asis, reflecting a 50.7% decline in wholesale used vehicle same store unit sales. Reduced demand, limited availability of inventory and closure of our dealerships during the COVID-19 lockdown drove the reduction in new and used vehicle same store unit sales. The increases in new and used vehicle retail same store average sales price per unit is the result of higher transaction prices due to lower inventory supply in the market as OEMs are producing and delivering fewer vehicles due to a global semiconductor chip shortage. Parts and service same store revenues on a constant currency basis increased 2.3%, driven by increases in customer-pay and warranty revenues, which were partially offset by declines in collision revenues. F&I same store revenues on a constant currency basis remained relatively flat as an increase in finance income per contract was offset by the decline in retail unit sales.
Gross Profit
Total and same store gross profit in Brazil during the three months ended March 31, 2021 decreased $1.3 million as compared to the same period in 2020. On a constant currency basis, total same store gross profit increased 8.9% driven by increases in new vehicle, used vehicle retail and used vehicle wholesale, partially offset by declines in parts and services. New vehicle retail same store gross profit on a constant currency basis increased 19.6% driven by a 101.3% increase in new vehicle retail same store average gross profit per unit sold, partially offset by a 40.6% decline in new vehicle retail same store unit sales. Used vehicle retail same store gross profit on a constant currency basis increased 30.1%, reflecting the 176.9% increase in used vehicle retail same store average gross profit per unit sold partially offset by the 53.0% decline in used vehicle retail same store unit sales. The improvement in new and used same store retail gross profit per retail unit was a direct result of supply constraints. Parts and service same store gross profit on a constant currency basis decreased 1.1% driven by declines in our warranty and customer-pay margins. F &I same store gross profit on a constant currency basis remained flat compared to the same period a year ago.
SG&A Expenses
Our SG&A expenses consist primarily of personnel costs, including salaries, commissions and incentive-based compensation, as well as rent and facility costs, advertising and other expenses (which includes legal, professional fees and general corporate expenses). Total SG&A expenses in Brazil during the three months ended March 31, 2021 decreased $3.5 million, or 33.1%, as compared to the same period in 2020. Total same store SG&A expenses in Brazil during the three months ended March 31, 2021 decreased $3.4 million, or 32.2%, as compared to the same period in 2020. On a constant currency basis, total same store SG&A expenses decreased 16.8% while total same store gross profit increased 8.9%, resulting in a 2,250 basis points decrease in total same store SG&A as a percentage of gross profit. The decrease in same store SG&A is explained by expense control measures taken by management due to COVID-19, primarily driven by a decrease in personnel expense. Total same store SG&A expenses in 2020 included $0.9 million of severance costs associated with the termination of employees as a result of the COVID-19 pandemic.
34
Table of Contents
The following table (in millions) and discussion of our results of operations is on a consolidated basis, unless otherwise noted.
Three Months Ended March 31,
2021 2020 Increase/ (Decrease) % Change
Depreciation and amortization expense $ 19.5 $ 18.6 $ 0.9 4.7 %
Floorplan interest expense $ 7.6 $ 12.9 $ (5.3) (41.2) %
Other interest expense, net $ 13.8 $ 18.1 $ (4.3) (23.9) %
(Benefit) provision for income taxes $ 29.4 $ 9.1 $ 20.3 223.0 %
Depreciation and Amortization Expense
Total depreciation and amortization expense during the three months ended March 31, 2021 increased $0.9 million, or 4.7%, as compared to the same period in 2020. The slight increase is attributed to an increase in property and equipment in our U.K. segment.
Floorplan Interest Expense
Total floorplan interest expense during the three months ended March 31, 2021 decreased $5.3 million, or 41.2%, as compared to the same period in 2020. Our floorplan interest expense fluctuates with changes in our borrowings outstanding and interest rates, which are based on LIBOR, Prime rate or a benchmark rate. To mitigate the impact of interest rate fluctuations, we employ an interest rate hedging strategy, whereby we swap variable interest rate exposure on a portion of our borrowings for a fixed interest rat e. The decrease is primarily due to lower floorplan borrowings as a result of lower inventory levels and lower weighted average interest rates mainly due to a decline in LIBOR, partially offset by higher expense on our interest rate swaps.
Other Interest Expense, Net
Total other interest expense, net during the three months ended March 31, 2021 decreased $4.3 million, or 23.9%, as compared to the same period in 2020. Other interest expense, net consists of interest charges primarily on our Senior Notes, real estate related debt and other debt, partially offset by interest income. The decrease was primarily attributable to lower interest rates achieved through refinancing our debt in the previous year, including the redemption of $300.0 million in aggregate principal of our 5.25% Senior Notes on April 2, 2020, which was funded at lower interest rates through increased borrowings on our real estate related debt and Acquisition Line, and the redemption of $550.0 million aggregate principal of our 5.00% Senior Notes on September 2, 2020, which was funded through the issuance of $550.0 million aggregate principal amount of our 4.00% Senior Notes on August 17, 2020.
Provision for Income Taxes
Provision for income taxes of $29.4 million during the three months ended March 31, 2021 increased by $20.3 million, or 223.0% , as compared to the same period in 2020. The increase was primarily due to higher pretax book income. For the three months ended March 31, 2021, our effective tax rate decreased to 22.4% from 23.4% as compared to the same period in 2020. This decrease was primarily due to decreases in valuation allowances provided for net operating losses in Brazil as compared to the same period in 2020.
We expect our effective tax rate for the remainder of 2021 will be between 23.0% and 24.0%. We believe that it is more-likely-than-not that our deferred tax assets, net of valuation allowances provided, will be realized, based primarily on assumptions of our future taxable income, considering future reversals of existing taxable temporary differences.
Liquidity and Capital Resources
Our liquidity and capital resources are primarily derived from cash on hand, cash temporarily invested as a pay down of our U.S. Floorplan Line and FMCC Facility levels (refer to Note 10. Floorplan Notes Payable in our Notes to Condensed Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, which provide vehicle floorplan financing, working capital, dealership and real estate acquisition financing and proceeds from debt and equity offerings. Based on current facts and circumstances, we believe we will have adequate cash flow, coupled with available borrowing capacity, to fund our current operations, capital expenditures and acquisitions for the next 12 months. If economic and business conditions deteriorate or if our capital expenditures or acquisition plans for 2021 change, we may need to access the private or public capital markets to obtain additional funding. Refer to Sources and Uses of Liquidity from Investing Activities below for further discussion of expectations regarding future capital expenditures.
35
Table of Contents
Cash on Hand
As of March 31, 2021, our total cash on hand was $82.9 million. The balance of cash on hand excludes $244.8 million of immediately available funds used to pay down our U.S. Floorplan Line and FMCC Facility as of March 31, 2021. We use the pay down of our U.S. Floorplan Line and FMCC Facility as a channel for the short-term investment of excess cash.
Cash Flows
We utilize various credit facilities to finance the purchase of our new and used vehicle inventory. With respect to all new vehicle floorplan borrowings in the normal course of business, the manufacturers of the vehicles draft our credit facilities directly with no cash flows to or from us. With respect to borrowings for used vehicle financing, we finance up t o 85% o f the value of our used vehicle inventory in the U.S., and the funds flow directly between us and the lender.
We categorize the cash flows associated with borrowings and repayments on these various credit facilities as Cash Flows from Operating Activities or Cash Flows from Financing Activities in our Condensed Consolidated Statements of Cash Flows. All borrowings from, and repayments to, lenders affiliated with our vehicle manufacturers (excluding the cash flows from or to manufacturer-affiliated lenders participating in our syndicated lending group) are presented within Cash Flows from Operating Activities in the Condensed Consolidated Statements of Cash Flows in conformity with U.S. GAAP. All borrowings from, and repayments to, the Revolving Credit Facility (refer to Note 10. Floorplan Notes Payable in the Notes to Condensed Consolidated Financial Statements for additional information) (including the cash flows from or to manufacturer-affiliated lenders participating in the facility) and other credit facilities in the U.K. and Brazil unaffiliated with our manufacturer partners (collectively, “Non-OEM Floorplan Credit Facilities”), are presented within Cash Flows from Financing Activities in conformity with U.S. GAAP. However, the incurrence of all floorplan notes payable represents an activity necessary to acquire inventory for resale, resulting in a trade payable. Our decision to utilize our Revolving Credit Facility does not substantially alter the process by which our vehicle inventory is financed, nor does it significantly impact the economics of our vehicle procurement activities. Therefore, we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity. As a result, we use the non-GAAP measure “Adjusted net cash provided by/used in operating activities” and “Adjusted net cash provided by/used in financing activities” to further evaluate our cash flows. We believe that this classification eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP and avoids the potential to mislead the users of our financial statements.
In addition, for dealership acquisitions and dispositions that are negotiated as asset purchases, we do not assume transfer of liabilities for floorplan financing in the execution of the transactions. Therefore, borrowings and repayments of all floorplan financing associated with dealership acquisitions and dispositions are characterized as either Cash Flow from Operating Activities or Cash Flow from Financing Activities in our Condensed Consolidated Statements of Cash Flows presented in conformity with U.S. GAAP, depending on the relationship described above. However, the floorplan financing activity is so closely related to the inventory acquisition process that we believe the presentation of all acquisition and disposition related floorplan financing activities should be classified as investing activity to correspond with the associated inventory activity, which more closely reflects the cash flows associated with our acquisition and disposition strategy and eliminates excess volatility in our operating cash flows prepared in accordance with U.S. GAAP. We have made such adjustments in our adjusted operating cash flow presentations.
36
Table of Contents
The following table reconciles cash flows provided by (used in) operating, investing and financing activities on a U.S. GAAP basis to the corresponding adjusted amounts (in millions):
Three Months Ended March 31,
2021 2020 % Change
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities: $ 239.3 $ 44.1 443.2 %
Change in Floorplan notes payable — credit facilities and other, excluding floorplan offset and net acquisitions and dispositions (79.6) 11.8
Change in Floorplan notes payable — manufacturer affiliates associated with net acquisitions and dispositions and floorplan offset activity (3.1) (3.9)
Adjusted net cash provided by (used in) operating activities $ 156.6 $ 51.9 201.5 %
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by (used in) investing activities: $ (76.7) $ (31.1) (146.6) %
Change in cash paid for acquisitions, associated with Floorplan notes payable 5.3 —
Change in proceeds from disposition of franchises, property and equipment, associated with Floorplan notes payable (5.4) —
Adjusted net cash provided by (used in) investing activities $ (76.8) $ (31.1) (147.1) %
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by (used in) financing activities: $ (165.6) $ (18.5) (796.6) %
Change in Floorplan notes payable, excluding floorplan offset 82.9 (7.9)
Adjusted net cash provided by (used in) financing activities $ (82.8) $ (26.4) (214.0) %
Sources and Uses of Liquidity from Operating Activities
For the three months ended March 31, 2021, we generated $239.3 million of net cash flows from operating activities. On an adjusted basis for the same period, we generated $156.6 million in net cash flows from operating activities, primarily consisting of $101.9 million in net income, coupled with non-cash adjustments related to depreciation and amortization of $19.5 million and stock-based compensation of $6.4 million. Adjusted net cash flows from operating activities also included an $18.0 million adjusted net change in operating assets and liabilities, including cash inflows of $149.3 million from decreases in inventory levels and $18.3 million from increases in accounts payable and accrued expenses. These cash inflows were partially offset by cash outflows of $83.2 million from adjusted net floorplan repayments and $43.5 million from net increases in contracts-in-transit and vehicle receivables.
For the three months ended March 31, 2020, we generated $44.1 million of net cash flows from operating activities. On an adjusted basis for the same period, we generated $51.9 million in net cash flows from operating activities, primarily consisting of $29.8 million in net income, coupled with non-cash adjustments related to depreciation and amortization of $18.6 million, operating lease assets of $6.4 million and stock-based compensation of $5.1 million. Adjusted net cash flows from operating activities also includes an $8.9 million adjusted net change in operating assets and liabilities, including cash outflows of $125.7 million from an increase in inventory levels, $98.1 million from decreases in accounts payable and accrued expenses and $7.3 million from the decrease in operating lease liabilities. These cash outflows were partially offset by cash inflows of $135.2 million from net decreases in contracts-in-transit and vehicle receivables, $43.8 million from an adjusted net increase of floorplan borrowings and $41.6 million from decreases in accounts and notes receivable.
Working Capital
At March 31, 2021, we had a $198.6 million surplus of working capital. This represents an increase of $37.2 million from December 31, 2020, when we had a $161.5 million surplus of working capital. Changes in our working capital are typically explained by changes in floorplan notes payable outstanding. Borrowings on our new vehicle floorplan notes payable, subject to agreed-upon pay-off terms, are equal to 100% of the factory invoice of the vehicles. Borrowings on our used vehicle floorplan notes payable, subject to agreed-upon pay-off terms, are limited to 85% of the aggregate book value of our used vehicle inventory, except in the U.K. and Brazil. At times, we have made payments on our floorplan notes payable using excess cash flows from operations and the proceeds of debt and equity offerings. As needed, we re-borrow the amounts later, up to the limits on the floorplan notes payable discussed above, for working capital, acquisitions, capital expenditures or general corporate purposes.
37
Table of Contents
Sources and Uses of Liquidity from Investing Activities
During the three months ended March 31, 2021, we used $76.7 million in net cash flow for investing activities. On an adjusted basis for the same period, we used $76.8 million in net cash flows from investing activities, primarily consisting of $44.6 million used for acquisition activity and $37.3 million used for purchases of property and equipment and to construct new and improve existing facilities, partially offset by cash inflows of $5.0 million related to the disposition of franchises and property and equipment. Of the $37.3 million in property and equipment purchases, $22.2 million was used for non-real estate related capital expenditures, $17.5 million was used for the purchase of real estate associated with existing dealership operations and $2.4 million represented the net increase in the accrual for capital expenditures from fiscal year-end.
During the three months ended March 31, 2020, we used $31.1 million in net cash flows from investing activities on both an unadjusted and adjusted basis, which represents $31.6 million used for purchases of property and equipment partially offset by cash inflows of $0.5 million related to the disposition of property and equipment. Of the $31.6 million in property and equipment purchases, $21.2 million was used for non-real estate related capital expenditures, $11.2 million was used for the purchase of real estate associated with existing dealership operations and $0.7 million represents the net increase in the accrual for capital expenditures from fiscal year-end.
Capital Expenditures
Our capital expenditures include costs to extend the useful lives of current facilities, as well as to start or expand operations. In general, expenditures relating to the construction or expansion of dealership facilities are driven by dealership acquisition activity, new franchises being granted to us by a manufacturer, significant growth in sales at an existing facility, relocation opportunities or manufacturer imaging programs. We critically evaluate all planned future capital spending, working closely with our manufacturer partners to maximize the return on our investments. We forecast our capital expenditures for the full year of 2021 will be approximately $110 million excluding expenditures related to real estate purchases and future acquisitions, which could generally be funded from excess cash.
Acquisitions
We evaluate the expected return on investment in our consideration of potential business purchases. Cash needed to complete our acquisitions generally comes from excess working capital, operating cash flows of our dealerships and borrowings under our floorplan facilities, term loans and our Acquisition Line.
Sources and Uses of Liquidity from Financing Activities
For the three months ended March 31, 2021, we used $165.6 million in net cash flows from financing activities. On an adjusted basis for the same period, we used $82.8 million in net cash flows from financing activities, primarily related to cash outflows of $68.4 million in net repayments on our U.S. Floorplan Line (representing the net cash activity in our floorplan offset account) and $5.6 million in dividend payments.
For the three months ended March 31, 2020, we used $18.5 million in n et cash flows from financing activities. On an adjusted basis for the same period, we used $26.4 million in net cash flows from financing activities, primarily related to cash outflows of $48.9 million related to the repurchase of our common stock and $5.5 million in dividend payments, partially offset by $20.2 million in net borrowings on our U.S. Floorplan Line (representing the net cash activity in our floorplan offset account) and $10.5 million in net borrowings on other debt.
38
Table of Contents
Credit Facilities, Debt Instruments and Other Financing Arrangements
Our various credit facilities, debt instruments and other financing arrangements are used to finance the purchase of inventory and real estate, provide acquisition funding and provide working capital for general corporate purposes.
The following table summarizes the commitment of our credit facilities as of March 31, 2021 (in millions):
Total
Commitment Outstanding Available
U.S. Floorplan Line (1)
$ 1,396.0 $ 576.6 $ 819.4
Acquisition Line (2)
349.0 65.8 283.2
Total revolving credit facility 1,745.0 642.4 1,102.6
FMCC Facility (3)
300.0 69.6 230.4
Total U.S. credit facilities (4)
$ 2,045.0 $ 712.0 $ 1,333.0
(1) The available balance at March 31, 2021 includes $231.9 million of immediately available funds. The remaining available balance can be used for inventory financing.
(2) The outstanding balance of $65.8 million is related to outstanding letters of credit of $17.8 million and $48.0 million in borrowings as of March 31, 2021. The borrowings outstanding under the Acquisition Line included no U.S dollar borrowings and £ 35 million of GBP borrowings translated at the spot rate on the day borrowed, solely for the purpose of calculating the outstanding and available borrowings under the Acquisition Line. The available borrowings may be limited from time to time, based on certain debt covenants.
(3) The available balance at March 31, 2021 includes $12.9 million of immediately available funds. The remaining available balance can be used for Ford new vehicle inventory financing.
(4) The outstanding balance excludes $297.9 million of borrowings with manufacturer-affiliates and third-party financial institutions for foreign and rental vehicle financing not associated with any of our U.S. credit facilities.
We have other credit facilities in the U.S., U.K. and Brazil with third-party financial institutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and rental vehicle inventories. In addition, we have outstanding debt instruments, including our 4.00% Senior Notes, as well as real estate related and other debt instruments. Refer to Note 9. Debt in our Notes to Condensed Consolidated Financial Statements for further information.
Covenants
Our Revolving Credit Facility, indentures governing our senior notes and certain mortgage term loans contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness, create liens or to sell or otherwise dispose of assets and to merge or consolidate with other entities. Certain of our mortgage agreements contain cross-default provisions that in the event of a default of certain mortgage agreements and of our Revolving Credit Facility, could trigger an uncured default.
As of March 31, 2021, we were in compliance with the requirements of the financial covenants under our debt agreements. We are required to maintain the ratios detailed in the following table:
As of March 31, 2021
Required Actual
Total adjusted leverage ratio < 5.50 1.98
Fixed charge coverage ratio > 1.20 4.81
As of March 31, 2021, we had $82.9 million of cash on hand and an additional $244.8 million invested in our floorplan offset accounts, bringing total cash liquidity to $327.7 million. In addition, we had $283.2 million of additional borrowing capacity on our Acquisition Line, bringing total immediate liquidity to $610.9 million as of March 31, 2021. Based on our position as of March 31, 2021 and our outlook as discussed within Management's Discussion and Analysis of Financial Condition and Results of Operations, we have sufficient liquidity currently and do not anticipate any material liquidity constraints or issues with our ability to remain in compliance with our debt covenants.
Refer to Note 9. Debt and Note 10. Floorplan Notes Payable in our Notes to Condensed Consolidated Financial Statements for further discussion of our debt instruments, credit facilities and other financing arrangements existing as of March 31, 2021.
39
Table of Contents
Share Repurchases and Dividends
Our Board of Directors from time to time, authorizes the repurchase of shares of our common stock up to a certain monetary limit. During the first quarter of 2021, we had no repurchase of shares of our common stock. As of March 31, 2021, we had $168.7 million available under our current share repurchase authorization.
For the first quarter of 2021, our Board of Directors approved a quarterly cash dividend of $0.31 per share on all shares of our common stock, which resulted in $5.4 million paid to common shareholders and $0.2 million to unvested RSA holders.
Future share repurchases and the payment of any future dividends are subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance, current economic environment and other factors considered relevant.
40
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.