Group 1 Automotive, Inc. (GPI) Earnings Call Transcript & Summary

Good morning. And welcome to Group 1 Automotive's Annual Meeting of Stockholders. I would now like to introduce the first presenter, Mr. Steve Quinn.

Good morning, and welcome to the 2021 Annual Meeting of Group 1 Automotive. I am Steve Quinn, non-Executive Chairman of the Board of Group 1 Automotive. I will preside at today's meeting, and Beth Sibley will act as Secretary. This annual meeting is held pursuant to the company's bylaws and a written notice to our stockholders. We are pleased to hold our annual meeting virtually this year accordingly, I now call the meeting to order. Let me first review some procedural points. We are recording this meeting, and you will be able to replay such recording for 1 year on the website of virtualshareholdermeeting.com. Please wait a day or so, so we can upload recording. We will conduct the business portion of our meeting first. After the formal meeting has been adjourned, we will provide some time for general questions. [Operator Instructions] We cannot guarantee that we will answer all questions, but we will answer as many appropriate stockholder submitted questions as time permits. Following the annual meeting as soon as practical, we will publish answers to appropriate questions on our Investor Relations website. You are able to vote during this meeting until we close the polls. If you have already voted in advance by using an online ballot or a physical proxy card, a vote at this meeting will supersede your earlier vote. If you have already voted, you do not need to do so again. Finally, in the event of any technical difficulties before the formal adjournment of this meeting, we may temporarily adjourn and reconvene in accordance with our bylaws. To begin, I would like to introduce the current directors of Group 1 Automotive who are participating virtually: Carin Barth; Earl Hesterberg; Steve Mizell; Lincoln Pereira; Steven Stanbrook; Charles Szews; Anne Taylor; Max Watson; MaryAnn Wright and myself. Your Board has made and will continue to make a significant commitment of time and energy towards the ongoing success of your company. We are fortunate to have a Board that works closely with their management team to improve shareholder value. On behalf of our shareholders, customers, management team and associates, I would like to thank our Board members for the continuing contributions to the success of this enterprise. We are also joined today by the following members of the executive team: Daryl Kenningham, President, U.S. and Brazilian operations; Daniel McHenry, Senior Vice President and Chief Financial Officer; Pete DeLongchamps, Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs; Frank Grese, Senior Vice President of Human Resources, Training and Operations support; Darryl Burman, Senior Vice President and General Counsel; and Mike Jones, Senior Vice President, After Sales. With the COVID crisis, 2020 was a challenging year for the world, our company and our business. On behalf of the Board of Directors, I would like to complement the Group 1 management team and all Group 1 employees who contributed to the company's success in 2020. As a result of the distressing commercial and economic consequences of the COVID-19 pandemic, beginning late in the first quarter, virtually all of our showrooms in the U.S., the U.K. and Brazil were brought into a state of closure. Such closures or limitations on business activities continue today in varying degrees in selected markets in the U.K. and Brazil. We responded by initiating a number of difficult cost-cutting measures, including salary and benefit reductions, suspension of our quarterly dividend and elimination of our share repurchase program. It also became necessary to furlough over half of our workforce as we adjusted staffing levels to sales volumes. These personnel actions were especially painful and regrettable, but were necessary steps to preserve liquidity and capital and protect the fundamentals of the enterprise during this unprecedented economic crisis. As market conditions edged back, our management team adapted by reengineering our business processes, conducted our operations to protect the health and safety of customers and employees and focus on the controllable elements of our business model, including optimizing cost control, enhancing our digital platform and capitalizing on the experience and expertise of our team. As a result, in 2020, we achieved consolidated revenues of $10.9 billion, a decrease of almost 10%, earnings per share of $15.51, an increase of 66% and significant reengineering efforts, including the enhancement and increased utilization of our digital platform, known as Acceleride, and productivity increases of salesperson and technicians of 22% and 19%, respectively. We anticipate these and other process improvements will benefit our customers and shareholders going forward. Before turning to the business of this meeting, we would like to take a moment to recognize one of our directors who is retiring, Max Watson. Max joined Group 1 Board in May 2001 and shared our compensation committee for 18 years. Max served as President, Chief Executive Officer and Chairman of the Board of BMC Software, a provider of enterprise management solutions from the early 1990s until his retirement in 2001. Max is very active in the Houston community, serving on the Board of Trustees of Texas Children's Hospital, including 2 years as Chairman and on the Board of Directors of Scenic Houston. An organization dedicated to preserving and enhancing the visual character of Houston. Max has been a strong and supportive advocate for the customers, employees, communities and shareholders of Group 1 Automotive. In May 2001, Group 1's stock price traded around $20 per share. Today's valuation reflects, in part Max's insights, wisdom, mentoring, decision-making and leadership during his tenure on the Board. Max, thank you for your significant contributions and commitment to the success of our enterprise. We wish you and your family well, you will be dearly missed. Now to our formal agenda for the meeting. In accordance with the provisions of Delaware Law and the company bylaws, the Board of Directors has appointed Jennifer Flynn, a representative from Broadridge Financial solutions to act as Inspector of Election. Ms. Flynn subscribed the [indiscernible] for office and is participating in this meeting. I request that she file her oath of office with the Secretary of the meeting for inclusion in our minutes. Also joining us virtually today are Denny Moyer and Pam Burns, representing Deloitte Touche, one of our independent registered public accounting firm. Will the Secretary please report on the proof of notice of meeting.

Thank you, Mr. Chairman. As noted in the notice and proxy statement previously furnished to you, the record date for voting at the meeting was the close of business on March 16, 2021. I have received an affidavit certifying that on or about April 6, 2021, proxy materials were made available to all stockholders who were stockholders on the record date.

The Secretary has the list of holders of record of common stock of the company at the close of business on March 16, 2021. For the past 10 days, the list of stockholders has been available for examination at the company during ordinary business hours. The list can be found on the meeting website and is available for inspection by our stockholders during the meeting. The Secretary will please file a copy of this list of stockholders with the records of the company. The first order of business is to establish that there has been proper notice of this meeting and that a quorum is present. Ms. Sibley?

Thank you, Mr. Chairman. On March 16, 2021, the record date for this annual meeting, there were outstanding and entitled to vote a total of 18,152,926 shares of common stock. The inspector of election has determined that a sufficient number of shares entitled to vote at this meeting are present in person or by proxy to constitute a quorum, and we may proceed with business.

Thank you, Ms. Sibley. On the basis of the report of the Secretary and the Inspector of Election, I find that proper notice has been given and that a quorum is present. Accordingly, this meeting had properly convened. I also request that the Inspector of Election's report on the existence of a quorum be filed with the minutes of this meeting. At this time, I declare the polls open for voting on all matters brought before this meeting. All Group 1 stockholders entitled to vote at this meeting have the ability to do so online. If you are a stockholder entitled to vote and have not yet voted or if you want to change your previously cast vote, you may do so via the website used to access this meeting. Please remember that if you have already voted by proxy, it is not necessary to vote again. After the voting has been completed on all matters on the agenda, we will close the polls, and the inspector of election will provide the preliminary report. We move now to review the proposals. The first proposal to come before the meeting is the election of directors. At this meeting, we'll be electing each of 9 directors for a 1-year term expiring at the 2022 annual meeting of stockholders. The nominees are: Carin Barth; Earl Hesterberg, Steve Mizell; Lincoln Pereira, Steven Stanbrook, Charles Szews; Anne Taylor; MaryAnn Wright; and myself, Steve Quinn. The information concerning their principal occupations, service as Group 1 board members, skills and qualifications and other matters which may be of interest are contained in the proxy statement. No other nominations were received prior to the deadline established in the company's bylaws. Therefore, no additional nominations may be made at this meeting, and I declare the nominations to be closed. Proposal 2 asks stockholders to approve an advisory resolution on the fiscal 2020 compensation of the named executive officers as described in our proxy statement. Although nonbinding, the vote will provide information to our compensation and Human Resources Committee and our Board of Directors regarding investor sentiment about our executive compensation philosophy, policies and practices. Such feedback will be considered when making future executive compensation decisions. Proposal 3, asks stockholders to ratify the appointment of Deloitte Touche as the company's independent registered public accounting firm. The Board of Directors recommends the ratification of the appointment of Deloitte to serve as the company's independent registered public accounting firm and to audit the company's financial statements for the fiscal year ending December 31, 2021. The polls are about to close. So if you've not yet voted, please do so. [Voting]

It is time, I declare the polls closed. The inspector of election will now tabulate the votes. We will now proceed with a report of the voting.

Mr. Chairman, the votes on the 3 proposals have been tabulated. Based on the inspector of election's preliminary report, I am pleased to announce that the 9 Director nominees were elected. The proposal concerning approval of executive compensation has been approved, and the ratification of Deloitte Touche has been approved. The final voting results will be certified made a part of the record of the annual meeting and subsequently announced in accordance with the requirements of the Securities and Exchange Commission.

Thank you, Ms. Sibley. That concludes the business for the meeting. I declare that the formal meeting is adjourned.

However, for the benefit of our stockholders, we'll continue informally with a question-and-answer session. Please follow the instructions provided on the virtual meeting screen to submit questions. Please note only confirms stockholders of record are permitted to ask questions. We will attempt to answer as many questions as time allows. Any questions that we do not get to will be addressed on the company's website. Earl, our first question is one that we often get from investors, what is your current approach to capital allocation?

Our top priority for capital allocation remains growing our company through the acquisition of additional dealerships, which meet our return on investment hurdle rates. Additionally, we're prioritizing investments in our existing businesses to increase our sales and service capacity. Should we be unable to find investments that meet our return on investment hurdle rates will consider returning capital to shareholders, either through share repurchases or increasing our cash dividend.

Thank you, Earl. Our next question asks, how do you see the U.S. Auto Market recovery this year and the auto manufacturers ability to meet demand?

I think it's been well chronicle that demand for automobiles in the U.S. is at an extremely high level right now. Consumer spending is very strong, and interest rates are low. There is, however, a problem in terms of supply from many of our auto manufacturers. This is primarily due to a shortage of computer chips, which are required to produce vehicles. We see this reducing our inventory level to a point as we move through the second quarter and perhaps early in the third quarter that could mitigate our sales volumes compared to what we would normally expect. However, this is a top priority for all auto manufacturers in the economy overall. So we expect it will be solved as we move later into the year.

Thank you, Earl. We have time for one final question. How do you expect the growth of electric vehicles to impact your business?

Electric vehicles do not really present any significant problem to us as members of the automotive distribution channel. We've been selling electric vehicles for more than 5 years through our Chevrolet, BMW and Nissan franchises in fairly good numbers. It's basically just a different powertrain in terms of the vehicles we've historically sold. The key to us is to be able to sell what customers want to buy, and we do expect a shift toward more battery electric vehicles in the future, but this will be market-driven and is not a problem for us.

Thank you, Earl. This concludes the question-and-answer session, which is the last item on our agenda. The informal portion of the meeting is now over. If you submitted a question that was not addressed, please refer to our company website. I want to thank everyone, especially our stockholders, for their time and participation. It's our pleasure and privilege to be involved with this company. On behalf of employees of group 1 automotive, I want to thank you for your attendance.

Thank you. The Group 1 Automotive Annual Meeting of Stockholders has now come to an end. Thank you for attending. You may now disconnect.