AutoNation, Inc. 2021 Form 10-K Summary
Business context and reporting period
AutoNation is the largest U.S. automotive retailer, operating 339 new-vehicle franchises across 247 stores, 57 collision centers, 9 AutoNation USA used-vehicle stores, 4 auctions, and 3 parts distribution centers as of December 31, 2021. The filing covers the fiscal year ended December 31, 2021; the supplied period designation of “2021 Q4” refers to the fourth quarter within this annual filing.
Operations are reported through Domestic, Import, and Premium Luxury segments. The Company sells new and used vehicles, parts and service, and finance and insurance products. Approximately 65% of revenue was generated in Florida, Texas, and California.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $25.844 billion | $20.390 billion | +26.7% |
| Gross profit | $4.953 billion | $3.566 billion | +38.9% |
| Operating income | $1.903 billion | $563.2 million | +237.9% |
| Net income | $1.373 billion | $381.6 million | +259.8% |
| Diluted EPS | $18.31 | $4.30 | +325.8% |
| Net cash from operating activities | $1.628 billion | $1.208 billion | +34.8% |
- Gross margin was approximately 19.2%, compared with 17.5% in 2020. Operating margin was approximately 7.4%, compared with 2.8%.
- New-vehicle revenue increased 16.0% to $12.082 billion, while new-vehicle gross profit increased 105.7% to $1.202 billion. New-vehicle gross profit per vehicle rose to $4,579 from $2,340.
- Used-vehicle revenue increased 54.2% to $8.639 billion, and used-vehicle gross profit increased 49.9% to $688.1 million.
- Parts and service revenue increased 13.8% to $3.707 billion, with gross profit of $1.673 billion and a 45.1% gross margin.
- Finance and insurance revenue and gross profit increased 30.7% to $1.385 billion; gross profit per vehicle retailed increased to $2,443 from $2,158.
- SG&A increased to $2.876 billion, primarily from performance-driven compensation, but declined to 58.1% of gross profit from 67.9%.
- Cash and cash equivalents were $60.4 million at year-end, compared with $569.6 million in 2020. Available revolving credit capacity was approximately $1.760 billion, before considering outstanding letters of credit.
- Capital expenditures were $231.9 million. Cash used for acquisitions was $432.7 million, and the Company purchased 20 stores and 4 collision centers.
- Total vehicle floorplan payable was $1.458 billion, compared with $2.760 billion in 2020. Non-vehicle debt was approximately $3.2 billion, including $2.881 billion of long-term debt and $340.0 million of commercial paper.
- The Company reported leverage and capitalization ratios of 1.48x and 52.7%, respectively, versus maximum covenant levels of 3.75x and 70.0%; it was in compliance with its debt covenants.
- The Company repurchased 22.3 million shares for $2.303 billion, reducing period-end common shares outstanding to 62.6 million. No cash dividends were paid or anticipated for the foreseeable future.
Material changes versus the prior comparable period
- Results benefited from strong demand, historically low new-vehicle inventory, supply-chain disruptions, and component shortages. New-vehicle inventory declined to 10,090 units, or 9 days of supply, from 43,747 units, or 42 days, at December 31, 2020.
- Higher vehicle prices and gross profit per vehicle more than offset constrained new-vehicle unit availability. New-vehicle unit sales rose 5.1% to 262,403, while used-vehicle unit sales rose 26.2% to 304,364.
- 2020 included $318.3 million of goodwill impairment, $57.5 million of franchise-rights impairment, and $36.7 million of charges related to closing the aftermarket collision parts business. No goodwill or franchise-rights impairment was recorded in 2021.
- Corporate and other losses improved to $270.8 million from $720.4 million, principally due to the absence of the 2020 impairment and ACP closure charges.
- The Company issued $400 million of 1.95% senior notes due 2028 and $450 million of 2.4% senior notes due 2031, and repaid $300 million of 3.35% senior notes due 2021.
- The Company appointed Michael Manley as CEO in November 2021. President and COO James Bender notified the Company of his planned retirement effective March 4, 2022.
Guidance, outlook, commentary, risks, and unusual items
- Management expected new-vehicle inventory shortages to continue well into 2022, while noting substantial uncertainty regarding the duration and magnitude of elevated profitability.
- AutoNation plans to expand AutoNation USA to more than 130 stores by the end of 2026 and expected to open 17 stores during 2021 and 2022. Estimated initial investment per store was approximately $10 million to $12 million.
- Key risks include economic conditions, interest rates, consumer demand, vehicle affordability, manufacturer production and allocation, semiconductor and supply-chain shortages, manufacturer franchise restrictions, competition from online platforms and direct sales, and changing vehicle technologies.
- Other material risks include cybersecurity breaches, regulatory and consumer-protection compliance, litigation, natural disasters, climate-related requirements, variable-rate debt, covenant compliance, and potential impairment of goodwill or franchise rights.
- Legal proceedings are ongoing, but management reported no indication at year-end of a reasonable possibility of material loss beyond recorded accruals. The filing states that ultimate outcomes cannot be predicted with certainty.
- Two multiemployer pension plans were in “red zone” status. Estimated withdrawal liabilities were approximately $16 million for one plan and $4 million for the other.
- Unusual 2021 items included $13.3 million of net gains from store and collision-center divestitures, $10.9 million of after-tax gains related to minority equity investments, and $5.2 million related to a legal settlement.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The audit’s critical matter involved valuation of franchise rights.
Important facts for investors to verify
- Whether elevated new- and used-vehicle gross profit per vehicle is sustainable after inventory shortages and supply-chain constraints normalize.
- The Company’s cash position, refinancing requirements, variable-rate exposure, commercial paper maturities, and compliance with leverage and capitalization covenants.
- The effect of $2.303 billion of 2021 share repurchases on per-share value, liquidity, leverage, and future capital allocation.
- Execution, capital requirements, and returns from the planned AutoNation USA expansion and 2021 acquisitions.
- Exposure to vehicle manufacturers, including franchise performance requirements, manufacturer financial condition, inventory allocation, and captive-finance relationships.
- Potential chargebacks, self-insurance costs, tax examinations, litigation, multiemployer pension withdrawal liabilities, and other commitments totaling approximately $6.399 billion in disclosed material cash requirements.
- Sensitivity of goodwill and franchise-rights valuations to changes in revenue growth, operating margins, discount rates, and broader automotive market conditions.