Group 1 Automotive, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2022. Group 1 operates automotive dealerships and related finance, insurance, parts, and service businesses in the U.S. and U.K.; Brazil is classified as discontinued operations pending sale. The company reported 146 U.S. and 55 U.K. dealerships at quarter-end.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $3,844.4 million | $2,953.9 million | +30.1% |
| Gross profit / margin | $724.7 million / 18.9% | $481.3 million / 16.3% | +50.6%; margin +2.6 pts |
| Operating income | $285.0 million | $150.7 million | +89.1% |
| Net income | $202.9 million | $101.9 million | +99.1% |
| Diluted EPS | $11.88 | $5.52 | +$6.36 |
| Cash from operating activities | $226.8 million | $239.3 million | −5.2% |
- Revenue growth reflected acquisition activity, higher vehicle prices and sales, and improvement in parts and service and F&I. Same-store revenue increased 11.0% and same-store gross profit increased 27.8%.
- New vehicle supply constraints supported pricing: consolidated new vehicle gross profit per retail unit rose 104.4% to $5,479. Used vehicle retail gross profit per unit increased 28.7% to $2,005; wholesale gross profit per unit declined 21.2%.
- SG&A was $418.5 million, up 34.4%; SG&A as a share of gross profit improved to 57.7% from 64.7%. Other interest expense increased 32.5% to $17.4 million, primarily reflecting debt associated with the Prime acquisition and additional senior notes.
Balance sheet, debt and liquidity
- At March 31, 2022, total assets were $6.04 billion and stockholders’ equity was $1.95 billion. Total debt was $2.00 billion, versus $2.05 billion at December 31, 2021; long-term debt on the balance sheet was $1.90 billion.
- Cash and cash equivalents on the balance sheet were $16.6 million. The cash flow statement reports $31.8 million at period-end; Brazil discontinued-operations cash of $15.2 million is separately classified within assets held for sale.
- Management reported $401.3 million of available liquidity, including cash, floorplan offset accounts, and $185.1 million available under the Acquisition Line. The amended revolving credit facility was extended to March 2027, with total commitment of about $2.0 billion.
- Debt covenants were in compliance: actual total adjusted leverage ratio was 1.81 against a maximum of 5.75; fixed-charge coverage was 6.51 against a minimum of 1.20.
- Investing cash outflow was $204.5 million, including $247.7 million paid for acquisitions and $33.9 million of property and equipment purchases, partly offset by $79.5 million of disposition proceeds. Financing cash outflow was $9.7 million.
Material changes, outlook and risks
- Q1 included a U.S. Toyota dealership acquisition for $250.4 million. Prime Automotive Group, acquired in November 2021, contributed $414.1 million of revenue and $27.5 million of net income in Q1 2022.
- The company recorded $21.4 million of gains on dealership and real estate dispositions. It repurchased 638,696 shares for $115.2 million and declared a $0.36-per-share dividend. A further $103.3 million remained under the repurchase authorization at quarter-end.
- Management forecast 2022 capital expenditures of approximately $130 million, excluding real estate purchases and future acquisitions. It expected a 23.5%–24.0% effective tax rate for the remainder of 2022. The filing gives no full-year revenue or earnings guidance.
- Management said operating cash, cash on hand, and borrowing capacity should be sufficient for working capital, debt service, and recurring expenditures, with no anticipated material liquidity or covenant constraints.
- Semiconductor and parts shortages, logistics disruptions, and low new-vehicle inventories continued to constrain production and deliveries. New-vehicle supply was 11 days overall at quarter-end (9 days in the U.S.; 17 in the U.K.). Management also cited potential effects from Russia’s invasion of Ukraine, including commodity-price volatility and further supply-chain disruption.
- The Brazil sale for approximately BRL 510 million was expected to close before the end of Q2 2022. The previously recorded $77.5 million disposal loss was driven by reclassification of accumulated foreign-currency translation losses; no additional disposal loss was recognized in Q1. Sale proceeds remain exposed to currency risk despite a hedging arrangement.
- No legal proceedings were identified as reasonably expected to have a material adverse effect. The company estimated $23.2 million of remaining rental obligations on leases guaranteed after dealership sales. A seller also pursued distributor approval in litigation concerning an additional Prime dealership; the filing says the outcome could affect acquisition accounting.
Most important facts for investors to verify
- Whether unusually strong vehicle margins and per-unit profits persist as vehicle supply, pricing, and demand change.
- Completion, net proceeds, and final accounting for the Brazil disposal, including foreign-exchange and escrow exposure.
- Acquisition integration and returns, particularly from Prime and the Q1 Toyota dealership, alongside leverage and interest costs.
- Cash-flow quality: reported operating cash declined year over year, while management’s adjusted measure increased; review the floorplan-related adjustments and acquisition spending.
- Execution against the $130 million capital expenditure forecast and future share repurchases, dividends, and liquidity needs.
- Potential effects of supply-chain disruption, rising rates, and geopolitical developments on vehicle availability, costs, and financing.