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Text: Please ensure that your lines are muted until the operator announces your turn to ask a question.
Leading our call today will be Mike Manley, our chief executive officer; and Joe Lower, our chief financial officer.
I will be available by phone following the call to address any additional questions that you may have.
But as this is my first call, I was also trying to think about what may be helpful for me to touch on in addition to the financial results.
And I thought that, firstly, I'm going to give a brief overview of some of the things that I've been doing over the last three months.
And then I'm going to go through the highlights of the group's performance and hand over to Joe who will give you more of the fine detail.
After that, I'm going to touch on a number of the key topics I gained attention over the last few weeks.
And in closing, before our Q&A, I thought I may give a knock to the future, which will albeit just a summary of some of my preliminary observations.
So as you can imagine, when you join in the organization, particularly one that has a broad national footprint of retail locations and over 20,000 people in the field, you spend quite a lot of time traveling around the country.
And today, I have the opportunity to visit a number of our franchise dealerships, including our most recent acquisitions, many of our AutoNation USA stores, our auction sites and a number of our collision centers from coast to coast.
Now obviously, I knew from our previous life that AutoNation was the largest automotive retailer in the United States, and that it also begun to build additional brand businesses and capabilities at scale.
But I have to genuinely say that reading about it on paper actually doesn't do it justice to what has been built and the talent that the organization possesses, that could actually see, feel, and get a sense of by actually visiting the locations.
I think when you get the opportunity to travel to our dealerships and businesses, you really start to recognize the incredible assets that the group has been able to build, acquire and develop.
When I think about the 330 franchises in our dealerships, not only do the brands we represent account for 99% of all new vehicles sold in the U.S., but we're also fortunate to have a superbly balanced portfolio of the best automotive brands in the world.
And they are located in some of the most exciting franchise territories.
In addition to visiting our retail businesses, I've also met with a number of our OEM partners.
And I have to say, unfortunately, I haven't been able to get around all of them.
So for me, this is a big clear to do and finish list.
And I'm looking forward to meeting with our partners that I haven't met yet.
But I have to say the ones and have now been incredibly encouraged by our conversations.
We've had what I would consider very frank exchange of views.
And very importantly, I've been able to see the brand and the product plans for the future.
And for me, just makes representative fantastic brands even more exciting when you understand what's actually coming through the pipeline.
Now obviously, our franchise dealerships is an important core part of our group, and our scale gives us significant opportunities.
But it's also clear that we're also developing businesses and platforms that will significantly expand our reach, and I think give us the opportunity to take advantage of things as they unveil in the future.
As you know, we're building a strong focus used car brand with AutoNation USA.
And as Joe will tell you in a minute, all of the stores we have, including those added in 2021, are up and running.
They're profitable, ahead of our expectations, and adding happy customers to our growing family on a daily basis.
And finally, and I think this is really important, the one thing you really do get a true feel of once you're on the inside on a day-to-day basis is the quality and the passion of the AutoNation team.
It doesn't matter where I've been, either in our dealerships, our collision centers and our corporate office, I think there's really a clear will to win and a customer and community-focused culture.
So on this point, as a reality check, I do have to say I've never heard an incoming CEO say anything bad about the team he or she walked into.
Certainly, not at least on the first.
But and you know doubt probably expected me to complement our people.
But my comment actually goes well beyond platitudes.
Because you can imagine, our strong performance, how pleased I am with the team's delivery of the seventh consecutive record quarter.
And I think we have to remember, this is still delivered during very unusual times, with significant disruption from lack of supply, winter COVID spikes and competition everywhere.
And my comments actually go beyond that.
They're made as much for the performance the team delivered as they are for the less visible selfless work they do in our communities and the fight against cancer.
AutoNation's Drive Pink campaign was a true revelation to me.
Not in the center, an organization was involved in social and community projects or charity works, because actually, I think that's what organizations are supposed to do.
But I was amazed to see just how many of our associates get involved on their own time to support Drive Pink and drive out cancer.
Today, the people of AutoNation have raised over $30 million, which has been plowed into research, treatment and care.
Now that is a team that I can tell you, I'm already very proud of.
So just give you a brief flavor of my first three months, and now I'm going to turn to our results.
So you've seen from the numbers, we delivered another outstanding quarter and a very strong year.
And today, as I already mentioned, we report our seventh consecutive record quarterly results with adjusted earnings per share of $5.76, which is an increase of $137, and revenue increasing by $797 million or 14% compared to the prior year.
Now this was driven by robust growth in used vehicle sales, consumer finance services and aftersales.
Total units for the quarter declined by 1%.
And that was driven by new vehicle sales, down 20%, which was largely offset by an increase in 21% of used vehicle volume compared to the prior year.
And with strong consumer demand, we continue to focus on our sourcing capabilities to used vehicles, which further strengthened both our franchise dealerships and our AutoNation USA businesses.
When I look at that, nearly 90% of all pre-owned vehicles retailed in the quarter were self-sourced prior acquisition strategy, which obviously includes all of the trade-ins, but now increasingly, our we buy your car program, which processes directly from customers.
And as a result, used vehicle revenue increased 55% for the quarter.
Now as I previously mentioned, AutoNation USA is a successful part of our plan.
And in November, we opened AutoNation USA Avondale and Phoenix and recently entered the new market with our 10 AutoNation store, USA store in Charlotte.
Now each new store opened in 2021 has exceeded expectation, and as I said, profitable in the first four months of operation.
And we remain on target to open 12 additional new stores over the next 12 months.
I think our focus on margin expense control significantly contributed to our performance as strong new used finance and insurance margin per unit, up significantly year over year and in the quarter, and continued our improvement in our after sales business, which delivered an 11% increase in gross profit.
I know it's been discussed over, the ongoing expense control, something which, frankly, I consider structural in the business now helped contribute to an overall increase in total store profits by over 150%.
Now with that, I'm going to hand you over to Joe, who's going to take you through the detail of the financials.
Today, we reported fourth quarter total revenue of $6.6 billion, an increase of 14% year over year, driven by impressive growth in used vehicles of 55% as well as double-digit growth in both customer financial services and aftersales.
This was partially offset by a 7% decline in new vehicle revenue due to the continuing supply chain disruption to new vehicles production.
Strong consumer demand and tight new vehicle inventories continued to support new vehicle margins in the fourth quarter.
We expect demand to continue to achieve supply well into 2022.
In addition, many consumers have shifted to used vehicles due to limited availability of new, which has been very beneficial as we continue to demonstrate exceptional growth, supported by our self-sourcing capabilities and ongoing expansion of our AutoNation USA footprint.
For the quarter, total variable gross profit increased 49% year over year, driven primarily by an increased total variable PBR of $2,026 or 50% increase, with a slight decline in total units of 1%.
As Mike mentioned, 21% growth in used units year over year largely offset a 20% decline in new units over the same period.
We also demonstrated strong growth in aftersales gross profit, which increased 11% year over year.
Taken together, our total gross profit increased 34% compared to the fourth quarter of 2020.
Fourth quarter adjusted SG&A as a percentage of gross profit was 56.7%, a 710 basis point improvement compared to the year ago period.
As measured against gross profit on an adjusted basis, our metrics improved across all key categories, with overheads decreasing 370 basis points, compensation decreasing 230 basis points and advertising decreasing 110 basis points year over year.
Longer term, we expect normalized SG&A to gross profit to be in the mid-60% range, well below our pre-pandemic levels that were consistently above 70%.
This improvement is the result of structural changes that we have made to our business model.
Floor plan interest expense decreased to $5 million in the fourth quarter of 2021 due primarily to lower average floor plan balances.
Combined with the lower effective tax rate and fewer shares outstanding, we reported adjusted net income of $380 million or $5.76 per share, a 130% increase year over year.
This results our seventh consecutive all-time high full earnings per share result.
Our strong operating performance and cash flow generation continue to provide us a significant capacity to deploy capital.
During the fourth quarter, we closed on the previously announced acquisition of Priority 1 Automotive Group, adding $420 million in annual revenue.
We remain focused on identifying additional acquisitions that allow us to expand our current portfolio and offer attractive long-term financial returns.
As Mike discussed, we continue to see a tremendous opportunity to capture a larger share of the used vehicle market by leveraging our sourcing capabilities, rich data analytics and AutoNation USA growth strategy.
We recently opened our 10th AutoNation USA store in Chile, North Carolina and expect to open 12 more stores over the next 12 months.
Longer term, we continue to target over 130 stores by the end of 2026.
We also continued to repurchase our own shares.
During the fourth quarter, we repurchased 3.1 million shares for an aggregate purchase price of $382 million.
This represents a 5% in shares outstanding from the end of the third quarter.
The company has approximately $776 million available for additional share repurchase at this time.
As of February 15, there were approximately 62 million shares outstanding.
We ended the fourth quarter with total liquidity of approximately $1.5 billion.
And our covenant leverage ratio of debt-to-EBITDA of 1.5 times remains well below our historical range of two to three times.
Looking ahead, we will continue our disciplined capital allocation strategy, leveraging our strong balance sheet and cash flows to invest in our business and drive long-term shareholder value.
So strong results, as you can see.
And again, congratulations to all of the AutoNation team, and their delivery is fantastic.
So I do just want to add a couple of points I think are important.
When I step back and think about the business and our results, I look to understand which of the key profit drivers are, let's say, circumstantial to varying degrees and which are the drivers are now structurally embedded in the group.
And I think this is important because it's clear to me that some are mistakenly discounting all of the improvements in performance is totally temporary.
And they're preferring to rely on 2019 as a more reliable baseline.
And I think this is wrong.
Because now, you can see there are clearly structural improvements that should translate into long-term value.
So the business drivers that I consider in that category are improvements in F&I performance, which is more driven by a focus on product penetration rather than rate, by used volume, which is more related to sales effectiveness, operational focus as well as additional USA stores, and finally, the SG&A control that Joe just mentioned again.
And we can clearly see the benefits of that coming through in our net income margin.
And in my view, we should continue to translate into value and not be so quickly discounted as situational at this time.
So obviously, that leads one of the biggest variables, which is clearly new vehicle margin.
And naturally, there's a lot of debate where this may go in the future.
And I remember in my previous life, on quarterly discussions on calls like this, we spent a lot of time talking about breakeven points and what level of SAAR can you still make a profit or level of SAAR can't you make a profit.
And if you look at the fourth quarter, we delivered a SAAR around that $13 million from my estimate, well below anyone would have been able to forecast.
And the levels of profitability for both OEMs and dealers clearly show the benefits of selling vehicles at MSRP.
And what a concept, right, selling at MSRP.
So if that's the learning, I think, has got to do that.
By the way, while we're on the subject of retail price, we've seen a number of comments about vehicles being sold above MSRP, quoting the potential adverse impacts on brands and customers, which I understand.
And by the way, last year, less than 2% of all the new vehicles sold by AutoNation were above MSRP.
But this discussion on MSRP branded customers actually also adds to my optimism regarding new vehicle margins going forward.
Because I think it's equally clear that significant discounting and high incentives can also damage a brand, which is another reason for our industry to balance appropriately supply and demand, and another reason why we may expect higher new vehicle margins than we have historically seen pre-COVID.
So finally, let me briefly turn to the future.
I think everybody recognizes the industry will go through a significant transformation.
And that's not just in terms of product and powertrain, but in many other ways as well.
When COVID is behind us, we'll see the emergence of additional mobility models and choices.
We'll see changes in the way customers approach vehicle ownership and usage.
And we will progressively see changes in how dealers and OEMs are traditionally competed.
And for me, this is an exciting time and offers many more opportunities and downsides.
And now I'm more convinced than ever, having seen under the hood of AutoNation, that the group can be well placed and positioned to continue to grow and thrive.
AutoNation in the past has been known for its innovation and progressive approach.
And you can be certain we're going to be taking this approach to the next level.
As we see it today, we have over 11 million customers in our family already, and every year, an additional three million interactions.
So we have the opportunity not only to leverage our brand, our scale, our strong bricks and mortar footprint, but also to build on our growing digital capabilities and expand our business model to ensure we have greater autonomy and control in our future.
So obviously, a lot more to come in the coming months.
But I'd like to make one announcement that will help indicate some of what the future may hold for AutoNation.
And that is, I'm now creating a new executive role.
And I'm delighted to announce Gianluca Camplone will be joining the group from March 1 and assuming the position of EVP, head of mobility, business development and strategy, and COO of Precision Parts.
This role will report directly to me.
Gianluca will sit on our executive committee.
And I'm sure several of you will already know Gianluca Camplone.
But for those who do not know him, he joined AutoNation from McKinsey, where he was most recently serving as senior partner and leader of the advanced industry global practice and private equity industrial practice in North America.
Gianluca orchestrated a companywide $1 billion digital business building program.
And he spearheaded a global team on multiple billion-dollar mergers in the automotive sector.
He's led a major dealer performance transformation at a leading North American commercial vehicle manufacturer.
And in addition, very relevantly, he redesigned the multibillion dollar used car business and multichannel environment for a global auto manufacturer.
So as you can tell, I'm incredibly excited about the future.
I'm absolutely delighted that Gianluca has agreed to join our executive team.
And I think, as you can tell, it bodes well for some of the things that I'm certain AutoNation and we can do that not only will give us a great future, but as I said, give us a lot more autonomy and control over where we're going.
So let me close.
I think demand for vehicles continues to be strong.
Used vehicle growth is robust.
And the -- we are going to continue, as Joe said, AutoNation USA store expansion.
And obviously, we're going to look aggressively opportunities to expand our customer-centric personal transportation solutions.

user
compname reports q4 revenue was $6.6 billion, up 14%.
q4 revenue was $6.6 billion, up 14%.
q4 earnings per share $5.87; q4 adjusted earnings per share $5.76.
q4 new vehicle revenue declined 7% and used vehicle revenue increased 55%.
expect consumer demand for personal vehicle ownership to remain strong for the foreseeable future.

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