Good morning, ladies and gentlemen. Welcome to Group 1 Automotive’s 2019 Fourth Quarter and Full Year Financial Results Conference Call. Please be advised that this call is being recorded. I’d now like to turn the call over to Mr. Pete DeLongchamps, Group 1’s Senior Vice President of Manufacturer Relations, Financial Services and Public Affairs. Please go ahead, Mr. DeLongchamps.

Thank you, Chad, and good morning, everyone, and welcome to today’s call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we will refer to on this call for comparison purposes have been posted to Group 1’s website. Before we begin, I’d like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company’s actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to risks associated with pricing, volume and the conditions of markets. Those and other risks are described in the company’s filings with the Securities and Exchange Commission over the last 12 months. Copies of these filings are available on both the SEC and the company. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating today on the call, Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; Daryl Kenningham, our President of U.S. Operations and Brazilian Operations; and Michael Welch, our Vice President and Corporate Controller. Please note that all comparisons in the prepared remarks are to the same prior period unless otherwise stated. I'd now like to turn the call over to Earl.

Thank you, Pete, and good morning, everyone. 2019 was a record year for Group 1 Automotive, despite a weak or new vehicle industry in both of our key markets. We were able to achieve record adjusted net income of $203.6 million and record adjusted earnings per share of $10.93 per share by concentrating on areas of the business where we exert greater control, used vehicles, parts and service F&I and cost. Our adjusted net income number represented a 13.4% increase, and our adjusted earnings per share performance, a 22.7% increase over the last year. This strong performance was driven by our U.S. operations. On a full year same-store basis, we grew U.S. retail unit sales by 8.4% and after sales gross profit by 9.5%, two remarkable numbers. Along with a 4% increase in F&I penetration, this drove an overall increase of 8% in total same-store gross profit. At the same time we maintained good cost discipline in the U.S., as evidenced by our 70 basis point decline and adjusted same-store SG&A as a percent of gross profit. Our powerful U.S. performance was able to overcome the serious challenges presented by Brexit uncertainty in the UK market last year. New and used vehicle margin declines of approximately 15% in the UK last year were the result of weak overall demand in the market and excess supply. We also suffered from supply shortages of key models in our biggest business Audi, due to the latest round of new vehicle emissions regulations impacting the OEM supply chain. However, we're optimistic about the UK market in 2020, as the new and used margin declines improved to approximately 4% in the fourth quarter. The Audi supply chain issues are mostly resolved and we've seen more foot traffic in many of our stores following the December…

Thank you, Earl. We were very pleased with our record fourth quarter performance in the U.S. Due to strong growth in used vehicles F&I and after sales, we were able to generate a 9% increase in total same-store gross profit for the third consecutive quarter. During the quarter our new vehicles same-store unit sales grew by 2.5%, while the industry was down 2.1%. The new vehicle sales increase did not come at the expense of used volume, as our same-store used retail unit sales grew 8% and we're also able to expand our margins by $40 per unit. The shift of more business to the retail channel, along with our recently implemented big data driven pricing strategies have been critical, in driving used vehicle gross profit growth, which was up 12%, over the prior year on a same-store basis. As we look forward to 2020, our focus will be on continued growth with the value line initiative, an improvement in lowering discounts off as advertised pricing and further development of better sourcing alternatives. Our quarterly after sales revenue grew by 8% on the same-store basis, and gross profit increased by 12%, which again was all time record for the company. Same-store customer pay and collision gross profit both increased 13%, with warranty up 5% and wholesale parts gross up 4%. We've implemented our four-day work week in 75 stores and are thrilled with the results. It is driving better employee retention and we've increased our same-store headcount by over 300 technicians in 2019, a 13% increase. Looking forward to 2020, we would expect total after sales growth to continue to expand by at least mid-single digit grades. F&I income per retail unit for the quarter increased $57 per unit to $1,835, driven by strong product penetration and income per contract…

Thanks Daryl. As we previously mentioned, market conditions in the UK remain very challenging in the fourth quarter, primarily caused by continuing Brexit overhang. The total new vehicle industry was down roughly 2% for the quarter, but we were able to increase same-store new vehicle sales by 4.8% and used vehicle sales by 3.5%. New vehicle market pressure also resulted in continued downward pressure on vehicle margins, as we saw same-store gross profit for retail unit declines of 6% for new vehicles, and 4% for used vehicles on a constant currency basis. As I noted earlier, immediately following the election outcome in mid-December, we have noticed an uptick in new vehicle inquiries and orders. Importantly, we are seeing that improvement continue in January, so we are somewhat optimistic about the UK market in 2020. I'll now turn the call over to our CFO John Rickel to go over some of our financial results in more detail.

Thank you, Earl. Good morning, everyone. For the fourth quarter of 2019, our adjusted net income increased $12.5 million or 28.6% over our comparable 2018 results, to a fourth quarter record of $56.3 million. These 2019 adjusted quarterly results exclude $8.2 million of net after tax charges, more than explained by $8.8 million of non-cash asset impairments, primarily resulting from our annual franchise valuation modeling. On a fully diluted per share basis, adjusted earnings increased 30.3% to $3.01, a fourth quarter record. Floorplan interest expense decreased by $1.9 million or 12% from prior year, to $14.6 million, primarily explained by lower U.S. interest rates. We should continue to see a year-over-year benefit from lower rates in the first three quarters of 2020. Other interest expense increased by $600,000 or 3% from the prior year to $19 million, primarily reflecting higher acquisition line borrowings. Our consolidated adjusted effective tax rate for the fourth quarter was 23.5%, bringing our 2019 full year adjusted rate to 23%. This would be a rough expectation for 2020 as well. Turning to our consolidated liquidity and capital structure. As of December 31, we had $24 million of cash on hand and another $111 million that was invested in our Floorplan offset accounts, bringing total cash liquidity to $135 million. In addition, there was $265 million of additional borrowing capacity on our U.S. syndicated acquisition line, bringing total immediate liquidity to $400 million. Our U.S. credit facility, rent adjusted leverage ratio decreased to 3.26 times at the end of the fourth quarter, leaving plenty of flexibility for capital deployment. During the fourth quarter, we used $5.5 million to pay dividends of $0.29 per share, which is currently an annualized yield of approximately 1.1%. We also repurchased 163,000 shares of our common stock at an average price of $98.28 per share during December and January for a total of $16.1 million. We have $58.9 million of our board authorization remaining. Total CapEx for 2019 came in at $95 million and we're targeting $125 million or less for 2020. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release, as well as the investor presentation posted on our website. I'll now turn the call back over to Earl.

Thanks, John. Related to our corporate development efforts, as previously announced in the fourth quarter we purchased two Lexus dealerships in New Mexico, and opened a Jaguar/Land Rover dealership in northwest London. For the full year of 2019, we acquired 15 franchises that will generate approximately $430 million in revenues. We also disposed the 12 franchises that generated $240 million in trailing 12 months revenues. Finally, before I turn the call over to the operator for your questions, let me update our market outlook for 2020. For the U.S. we expect to again see a slight pullback in the overall new vehicle industry. Total new vehicle sales in 2019 came in at 17 million units, and we're anticipating about a 2% decline in 2020, to around 16.7 million units. For the UK, the new vehicle industry declined 2% in 2019 to 2.3 million units. We expect the 2020 industry to grow in the low single digits to around 2.4 million units, as the industry recovers from emissions legislation related supply shortages, and as we see the overhang from Brexit finally start to ease. And for Brazil, the market improved by nearly 8% in 2019, to almost 2.7 million units. Given the positive signals we continue to see in the economy, we expect this trend to continue with an increase of another 5% or so, to around 2.8 million units. In this environment, we remain confident that we can continue to grow earnings. We see opportunities to further grow after sales in used vehicles in all three markets. In addition with a firm direction for Brexit, we believe significant improvements are available from our UK operations. This concludes our prepared remarks. I will now turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] And the first question will come from John Murphy with Bank of America. Please go ahead.

Good morning, guys this Yarden on for John. First question on the Floorplan interest expense, given it was much lower this quarter. Was this a function of lower rates or are there any specific actions you're taking in terms of inventory management or maybe it was something else?

Yes, this is John Rickel. The team has done a good job of managing the inventory, but it's basically kind of flat on a year-over-year basis. So, the improvement is all basically attributed to lower U.S. LIBOR rates, the Fed has cut rate. So, we anticipate that that will continue into 2020 at least for the first three quarters.

Okay, great. Thank you. And then for the used vehicle business, can you maybe talk about The key drivers of the improvement in the margins? And to what extent was that impacted by value line?

Daryl Kenningham, here. One area of significant focus for us is, we price our vehicles to the market from the day that they are available for sale. And in concert with that, we try to limit the discounts that we offer, following that. So, the better you price your vehicles to market and then the fewer discounts you offer, the better your gross profit is, and we saw some improvement in that during the quarter. We continue to work on sourcing efforts and that's a continual focus for us as well. Those were two of the larger drivers in that gross profit improvement in the U.S.

Okay. And then just a quick follow up, given how well value was doing for you guys last year, would you consider expanding it to other regions as well?

Expanding what other regions? I missed that.

Value line?

We’re experimenting with it in Brazil. And Earl can of course, speak to the UK, but we're looking at in Brazil. We have some other things in Brazil going on though that wouldn't be a full rollout.

Yes, we do test a bit of that in the UK, but the UK used car market is structured differently. Dealerships, generally retail used cars of the brand, they represent with a new car franchise. So, what we've tested is putting our non-franchise used cars into a separate location. So, for example, if you have a Mercedes dealership you put your BMW and Land Rover trades onto a separate lot. And so, we're taking a look to see if that makes sense, as opposed to really focusing on low price used cars. Most of our franchises in the UK are luxury brand franchises, so our used vehicles tend to be more luxury brand.

And the next question comes from Rajat Gupta with JPMorgan. Please go ahead.

Hey, thanks for taking my questions. Good morning. I just had a question on the big main you know, on the 2020 moving parts on the earning bridge. You've talked about your expectations for new vehicle sales. I think you briefly mentioned your expectation for parts and services. And clearly, you're seeing a lot of strength on the used vehicle side as well, from a gross profit perspective based on all the initiatives in 2019. F&I seem to continue to grow from a GPU perspective. You have tailwind from Floorplan and interest. I mean, would it be unreasonable to expect similar to better earnings growth year-over-year in 2020 versus 2019 or is there anything different that we should be expecting, just broadly?

This is Earl. My recollection and my assumption so far with only one month under our belt is the market is quite stable. And, I don't see any major shifts occurring at the moment. So, the way we're approaching the business is kind of steady as she goes relative to what we did last year. There's a great used car market that's been out there for more than a year and a lot of that has to do with the relative value of a used car compared to the rising prices of new cars. And there's still massive service capacity for us and potential. So, we don't see a big change in the market as we sit here today. The biggest change in our business overall as we think we'll have a lot more potential in the UK and the year ahead.

Got it. And from an SG&A to gross perspective, is there any range that we should be expecting for 2020? I mean, obviously, pretty good performance in 2019, despite the headwinds in the UK. Should we expect this to continue to step down further in 2020?

Yes, Rajat, this is John Rickel. We think that as long as we're able to continue to grow gross profit, Darryl, outlined the opportunities in the U.S. continue to be in parts and service and used. We think we can certainly leverage that if we're able to grow gross profit there. Clearly, with our outlook for the UK we definitely anticipate being able to deliver some SG&A leverage there as well. I would think that if you get the market rebound and the cost cutting that we're working on, we ought to be able to get that back to at least 2018 levels. And then the Brazilian team you saw, really good progress in the fourth quarter there. So, when you add all that together, I do think we'll be able to continue to show leverage in 2020 on SG&A as a percent of gross.

Got it. Just one last one for me, an unrelated question to the earnings. But, a lot of the OEMs are set to launch some new electric vehicle products in this year and next year. You already had the experience with e-tron at our Audi stores. How are you preparing for the surge in terms of any CapEx investments that might be required or like choosing capacity or technician training? Would we expect this to move the needle significantly from a CapEx or SG&A perspective, just to get you prepared for the surge? That's it. Thanks.

This is Daryl. I don't see any material CapEx or investment required to move with the auto manufacturers as they shift toward more electric vehicle offerings. We put in charging stations, we trained technicians, and there are some tools and such, but, this is kind of a slow steady migration. And it's been underway for more than a year and we can go back to the Nissan Leaf good number years ago. So, we don't see that as an obstacle in our business.

The next question will come from our Armintas Sinkevicius with Morgan Stanley. Please go ahead.

Great, thank you for taking the question. As I look at the parts and services growth in the U.S., the same-store sales revenue growth, there was a bit of a detail in the fourth quarter relative to the third quarter, the cost roughly similar, just hoping for more color on that. And then, what gives you confidence into 2020?

Some of the detail was a little lighter of warranty work in the fourth quarter, than we've seen in the last three quarters. So, that was the main driver behind that. We're happy with our customer pay growth and we continue to see benefits from the four-day work week in the capacity we're adding there, and we continue to see upside there.

Okay. And how do you think about the various growth components or the various business components? How they project to grow in 2020?

I think, Armintas, as you look at it, you're talking about parts and service. Clearly, we're going to continue to drive customer pay. We had a lot of success there in 2019 with the capacity we've added, with the expansion of hours, we think there's certainly more to go there. Collision continue to also be a bright spot for us so, we think there's opportunities to grow that. Warranty, somewhat at the manufacturers mercy as the recalls were announced but, there seems to always be some of those coming up. And then wholesale is another where we can continue to move the needle. But, I'd say our primary focus is on customer pay.

Okay. And then, when you mentioned 13% growth in technician count, what's the reason that parts and services can't grow 30%? Is it just the mix of customer pay -- the proportion that customer pay makes up relative to the rest of the business or any other moving pieces to be mindful of?

Yes, I mean, that's some of it, there's also ramp up with getting the technicians fully productive.

Okay. And then last one here. With regards to the UK, you mentioned that, there's opportunity here and the cost cutting benefits will pay in 2020. Just trying to think through, are there any initiatives that you are looking to take now that we have more certainty around the environment that had been put on hold and now you're able to sort of move forward with them?

I would say, the biggest changes, we should have a better environment to trim our portfolio up a bit. There are probably some dispositions we need to make, based on some large acquisitions we made in the previous three years and there hasn't been much of a seller's market in the UK the last year or two. So, we're still in a consolidating mode. In the UK, we need to right size our portfolio a bit. But, what we're encouraged by and it's probably too early to go crazy on this, it's simply the order taken our major brands for the last six weeks or so. March will be the key as it is in the U.S. and the UK for us to see, how much true growth there is in the market, but we're fairly optimistic at the moment.

And the next question comes from Rick Nelson with Stephens. Please go ahead.

Thanks, good morning. Earl, I want to ask you about the acquisition environment. You acquired two stores in December, 15 stores in 2019. How you see the environment, the multiples, and your appetite in the U.S., UK sounds like you're consolidating in the UK versus acquiring maybe Brazil kind of commentary as well?

Hi Rick, it's Earl. There is a good supply of acquisitions in the U.S. However, we are very cautious about acquisitions in the U.S. Clearly, we found some that meet our needs and hurdles in the last year or so. But it's very possible that you can destroy capital in a market that’s settling down as the U.S. new vehicle market has been in the last three years plus. So, we're, opportunistic, and we're interested in growing in the U.S. But, we're not going to be too aggressive. We want to make sure we get a good return on our capital and the pricing, I see in most of these deals wouldn't make that possible. The UK, I wouldn't say we wouldn't expand because; we have some of our OEM partners that want us to expand. But, as I mentioned a few minutes ago, we're more in a right sizing mode there right now. We probably need to do a couple dispositions more than we need to do acquisitions. And relative to Brazil, we're willing to grow there with the cash flow we generate in that market, which we are generating cash there. But, acquisitions are more difficult in Brazil, because asset purchases are unusual, and you frequently inherit liabilities from the seller and we don't do that. So, yes, we want to grow the company and we clearly have the financial wherewithal to do it, but, we are very cautious these days on that.

Thanks for the color. And then for Daryl, better GPUs in the U.S., where you've started year-over-year improvement on the new car side, I think you addressed the used side earlier. You know the technically side of slower here is that a specific brand that drove the performance or any color around that would be helpful.

Good morning Rick. It was across the board on brands and geography. And what I attributed to was a lot of the digital efforts that the team has worked on to drive. We quoted some of our traffic counts on organic traffic and website traffic, and I believe, that's really helping us drive lot more people in our dealerships. So, that’s what I attributed to.

And then any comments within the U.S. on Texas would be interesting.

I'm sorry, on Texas?

How that performed versus the rest of the trend?

Rick, it's John Rickel. Texas was basically in line with the rest of our operations did. But, you know, since we are pretty heavy with the Texas footprint that kind of gives you some idea, and we clearly outperformed the U.S. market with our results. End of Q&A

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Earl Hesterberg, for any closing remarks.

Okay, thanks to everyone for joining us today. We look forward to updating you on our first quarter earnings call in April. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.