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Good morning, ladies and gentlemen. Welcome to Group 1 Automotive, Inc.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Thank you, Nick, 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 at Group 1 Automotive, Inc.'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, Inc. 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, inventory supply, conditions of markets, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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 reconciliation of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me on today's call are Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Thank you, Pete, and good morning, everyone. In 2025, Group 1 Automotive, Inc. achieved record revenues across all major business lines and record growth gross profits in parts and service and F&I, underscoring the strength and resilience of our diversified business model and our relentless focus on operational excellence. During the quarter, we delivered impressive parts and service results and strong F&I performance in both the U.S. and the UK. Parts and service continue to be a differentiator for Group 1 Automotive, Inc., providing both growth and stability while we leverage our scale and execution flexibility to further build out our used vehicle business. Our F&I teams have done an outstanding job maintaining gross profit discipline while driving higher product penetrations across nearly all categories. For the full year, we generated an all-time high gross profit of more than $3.6 billion, including record parts and service gross profit of nearly $1.6 billion. We sold 459,000 new and used vehicles in 2025, another record. In the U.S., new vehicle PRUs moderated by just $62 sequentially, reflecting a slower pace of normalization. Throughout the year, we remained focused on deploying capital toward the highest and best use for our shareholders. 2025 was a great example of that strategy. In the U.S., we acquired outstanding brands in growth markets: Lexus and Acura of Fort Myers, Florida, and Mercedes-Benz dealerships in Austin, Texas, and Atlanta, Georgia. In the UK, we acquired three Toyota and one Lexus dealership. We expect these acquisitions to generate approximately $40 million in annual revenue. At the same time, we disposed of 13 dealerships comprising 32 franchises, which had generated approximately $775 million in annualized revenue. In addition, we repurchased more than 10% of our outstanding shares in 2025. In the UK, the macroeconomic environment remains challenging, with weak economic growth, persistent inflation, increased competition from new entrants, and margin pressure from the BEV mandate. In response, we've reduced headcount by an additional 537 positions in 2025. And during the quarter, we continued to execute on our previously announced restructuring initiatives, including working with a number of interested parties on the exit of the JLR brand. We also completed our UK systems integration, which we expect will improve visibility, operational consistency, and data-driven decision-making across the business. In addition, we consolidated 10 customer contact centers into two and fully onshored our transactional accounting operations. We continue to focus on opportunities to further shape our UK portfolio and improve operations, consistent with the playbook we have successfully executed in the U.S. We are seeing the positive impact of our U.S. operating practices in the UK, particularly in aftersales. On a same-store basis, we increased our technician headcount by 9.5% in the UK, reducing customer wait times and driving a nearly six percentage point increase in customer pay mix and higher fixed absorption. We've made changes to our service pricing to move more closely to the aftermarket. At the same time, we've eliminated diagnosis fees in many brands. Daniel McHenry will speak to the positive results that these initiatives are having on our RO count. In F&I, PRU increased 13% in the UK, or $123, largely through better adoption of all of our products. Our focus in the UK remains on driving this type of operational improvement across the entire business. We realize there is still more work to do. In the U.S., the macroeconomic environment remains dynamic, with volumes and GPUs continuing to normalize from post-pandemic highs, particularly in the luxury segment. While the policy and trade uncertainty we saw last year has largely subsided, as macroeconomic conditions evolve, we remain vigilant and focused on staying nimble. In response, our teams remain disciplined and agile, sharpening execution at the dealership level, managing our costs, and prioritizing the areas of the business that generate the most durable returns. We believe this focus on controlling what we can control, from inventory and pricing discipline to aftersales performance, capital allocation, and costs, positions Group 1 Automotive, Inc. to navigate near-term challenges while continuing to build a stronger, more resilient platform for the long term. I'll now turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Thank you, Daryl, and good morning, everyone. In 2025, Group 1 Automotive, Inc. reported revenues of $5.6 billion, gross profit of $874 million, adjusted net income of $105 million, and adjusted diluted EPS of $8.49 from continuing operations. Starting with our U.S. operations, fourth-quarter performance was strong across all lines of business, with a slight decline in new vehicle sales. New vehicle unit sales declined both on a reported and same-store basis. Average selling prices continue to increase, and consumers are increasingly concerned about affordability. While new vehicle GPUs continue to moderate from the highs of the past few years, we have maintained strong operational discipline through effective cost management and process consistency. Our used vehicle operations performed well, holding volumes basically flat versus the comparable year quarter while increasing revenues approximately 41% on an as-reported and same-store basis. GPUs declined approximately 8% on a same-store basis, reflecting higher costs to acquire used inventory. We continue to leverage our scale and operational flexibility to strengthen used vehicle acquisition while executing disciplined sourcing and pricing in an increasingly competitive market. Our fourth-quarter F&I GPUs grew nearly 3%, or $67 and $65 on a reported and same-store basis versus the prior year comparable period, respectively. The disciplined performance by our F&I professionals and improvements to our virtual finance operations have helped grow GPUs while driving higher product penetration across nearly all product categories. Aftersales again stood out as a major contributor. Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity, and closing collision centers where the returns do not meet our requirements. Revenues from customer pay and warranty increased approximately 511%, respectively, and gross profits from customer pay and warranty increased over 813%, respectively. Our technician recruiting and retention efforts continue to pay off, with same-store technicians up 2.3% year over year. Overall, our U.S. business continues to perform exceptionally well, demonstrating both the resiliency of customer demand and the effectiveness of our disciplined, process-driven operating model. Wrapping up the U.S., let's shift to SG&A. While U.S. adjusted SG&A percent of gross profit increased 200 basis points sequentially to 67.8%, higher employee expense was the primary driver. We continue to focus heavily on resource management and technology investments to try to maintain SG&A as a percent of gross profit below pre-COVID levels as vehicle GPUs continue to normalize. Turning to the UK, results reflected the ongoing challenge of the UK operating environment. However, same-store revenues grew almost across every business line. New vehicle same-store volumes declined 8.2%, and local currency GPUs moderated 3.2% versus the prior year quarter, leading to an 11% decline in local currency same-store new revenues. Used vehicle same-store revenues were up over 9% on a local currency basis, with volumes up nearly 8%. Same-store GPUs declined almost 19% on a local currency basis, leading to a decline in used vehicle GP, reflecting the ongoing challenging used market in the UK. Aftersales and F&I delivered year-over-year growth in both revenue and gross profit on an as-reported and same-store basis. The aftersales business remains an important stabilizer within UK operations, and along with F&I, it's a key area of focus as we work to enhance profitability. We saw an outsized uplift in RO count of nearly 36% year over year as we bring best practices from the U.S. Same-store technicians are up 9.5%, reflecting significant capacity to our shops. Customer pay revenue was up 9% year over year. Same-store F&I PRU reached $1,060, with an as-reported and same-store PRU increasing over percent year over year. On expenses, SG&A declined from the prior year, reflecting cost improvements despite significant headwinds from inflation and cost increases, some of which is government-imposed through payroll tax and related charges. While we've executed targeted restructuring initiatives to improve efficiency and return the business to more sustainable cost levels, the environment remains difficult. During the quarter, we incurred modest nonrecurring restructuring costs tied to our restructuring efforts. We are executing additional restructuring plans in future periods as we exit select OEM sites. We are continuously taking decisive actions in the UK to control costs, strengthen operational efficiency, and position the business for improved returns as market conditions stabilize. Turning to our balance sheet and liquidity, our strong balance sheet, cash flow generation, and leverage position continue to support a flexible capital allocation approach. As of December 31, our liquidity of $883 million was comprised of accessible cash of $537 million and $346 million available to borrow on our acquisition line. Our rent-adjusted leverage, as defined by our U.S. credit facility, was 3.1 times at the December. Cash flow generation year-to-date 2025 yielded $699 million of adjusted operating cash flow and $494 million of free cash flow after backing out $205 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases, and dividends, including the acquisition of $640 million of revenues through December 31, $555 million repurchasing approximately 1.3 million shares at an average price of $413.05, and $26 million in dividends to our shareholders. Subsequent to the fourth quarter, we repurchased an additional 71,750 shares under a Rule 10b5-1 trading plan at an average price per common share of $394.20, for a total cost of $28.3 million, resulting in an approximate 0.6% reduction in our share count since January 1. We currently have $350 million remaining on our Board-authorized common share repurchase plan. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to our news release as well as our investor presentation posted on our website. I will now turn the call over to the operator to begin the question and answer session.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and 2. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster.

Great. Thanks for taking the question. Just one clarification. Could you give us a sense of, you know, what the impairments were tied to this quarter? I know we had a large one last quarter. But were there any significant assets or brands that the impairment was tied to this quarter? And I have a follow-up. Thanks.

Hi, Rajat. It's Daniel. We do an annual impairment for all of our assets within quarter four on an annual basis. The impairments related virtually totally to the U.S. business as the impairments in quarter three were related to the UK business. You know, the principal brand, I guess, that we had impairments within was within the Audi brand. And, you know, we've had various discussions on that on previous calls. You know, other impairments, the Maryland stroke DC market has been a difficult market, I think, for both us and the other consolidators this year, and there was an impairment taken within that market.

Understood. That's very clear. Maybe, you know, a bit of a broader question, you know, as we go into 2026, around SG&A. I know you've talked about a lot of initiatives in the UK, just both of the productivity side and, you know, some of the cost action. But curious, you know, are there any specific productivity type actions that you might be undertaking in the U.S. today that could meaningfully move the meter especially with, you know, more and more AI tools like you get deployed. I'm curious, like, where do you see the opportunity? Are you already working on some? And how should we, you know, think about, you know, the impact to the SG&A to gross?

Rajat, we are using AI in every part of our business, both customer interface as well as in our back office. And we're also deploying productivity tools in a number of areas. Like, as an example, when you look at our aftersales growth this quarter, it's 6% up, 5% up on a same-store on customer pay, and nine on warranty. We only added two and a half percent to our technician base. Our technicians are more productive now. One of the reasons is because our turnover is down 10 points when our technician population, which we've been working on. We've talked to you about the investments and things like air and things like that in our shops. And so we're seeing tangible results, which is resulting in less turnover and more productivity and takes the pressure off of all the hiring to do on technicians. So that's a productivity gain for us. Initiatives like virtual F&I, which we've got in a ton of stores now. We're rolling that out nationwide. We're seeing lower cost per transaction on virtual F&I across our footprint. Wide adoption there. And we are using AI in our sales operations with lead management and CRM control. We're using it in parts and service and in marketing and reaching out to customers and using more predictive analytics in that area. And so as we've made investments especially in marketing where we're now owning our own data, managing our own customer data, it's going to allow us to be much more efficient with how we reach customers and what our costs are and we hope in a more productive way than in the past. So the answer is yes. We're using it. We're using it in a number of areas. Offline. Be happy to talk to you more specifically about it.

The next question will come from Bret Jordan with Jefferies. Please go ahead.

Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our questions. As we look at the UK restructuring plan, spoke a bit about recent progress there. Could you talk a bit more about what inning that's in and how long of a process do you expect that to be? And I guess, is there a lot of front-loaded progress there? Or is there more of a steady schedule of work to be done?

There's more work to do. We don't see it's a dynamic environment, especially Europe. And so we adjust, you know, every quarter with our expectations. And we will get us to a place where it has to be to make that business at an acceptable profit level for us. So I would say we're in the earlier innings, not the later innings. And Daniel has some thoughts too.

Brett, you know, the one thing that I would add was, you know, the cost came out in 2024 over the year. It wasn't all really front-loaded into, you know, quarter one, let's say, of 2025. So as we roll into 2026, we should see the benefit of those costs that have been taken out throughout the year, you know, fully baked in for the year in 2026.

Got it. That's helpful. And I guess staying on the UK here, could you talk a bit more about the dynamics between the broader economy headwinds versus increased penetration from Chinese OEMs? Any way to quantify the headwinds between the two?

Well, the Chinese OEMs are their Q4 share leveled off at around a little under 12%. You know, they had a big spike from Q4 2024 to Q4 2025 that leveled off a bit. They're not slowing down. I don't mean to make that sound that way, but we're not expecting they will. But it appears that it's leveled off. When we look at the brands we're in, we feel like we're well-positioned because we're heavy luxury, which typically the Chinese aren't in at this point. And so it's something we're continuing to watch, and I expect we'll continue to make moves to try to offset that specific impact. I mean, their market share, I think, speaks the most. And, you know, they're using a dealer model, which is, you know, I think good news for dealers. So as long as there's a viable model there, we're looking at that business.

Great. That's all for us. Thanks, guys.

The next question will come from John Sager with Evercore ISI. Please go ahead.

Hey, guys. Thanks for taking my question. Obviously, a lot of focus on the portfolio management in the UK. Can you give us a sense of the magnitude of restructuring as you see it today? Or are we talking, you know, anywhere near the $28 million that we saw this quarter?

It's Daniel. I don't see it as being anything like that this quarter or this year, 2026. You know, we've done significant work. You know, Daryl talked about it in the call earlier today. Around what we've done around our DMS, what we've done around our property portfolio. You know, the JLR, you know, the decision that we took to dispose of those stores over the next period. You know, a lot of that heavy lifting and cost has gone effectively. In terms of restructuring, that was restructuring costs that were taken in 2025.

Okay. Makes sense. And then, you know, post-restructuring, what's a good trend or range going forward for used GPUs and also SG&A as a percent of GP? Could you give us a sense of a range there and then the timing that it will take to get there?

Is that the UK specific or U.S.?

Both. But I guess, primarily, I was focused on the UK there.

Well, you know, our used GPUs in the U.S. are higher today for pre-COVID. They're lower than they were a year ago. We'd like to see some improvement in this, and we definitely know we have some upside in UK GPUs in pre-owned. We're trying to instill a different level of discipline in our pre-owned business in the UK. And we expect the output of that to be better GPU performance. On SG&A, what we've talked about historically in the UK is 80% on a long-range basis. It will be higher than that in the non-plate change quarters and will be hopefully lower than that in the plate change quarters. So those are kind of round numbers what we've targeted.

In terms of the U.S., you know, you would think, you know, mid to high 60% for the U.S. on an annualized basis. So, you know, some are below seventy.

Okay. Thanks, guys.

The next question will come from David Whiston with Morningstar. Please go ahead.

Just looking at your store disposal activity last year, I mean, by definition, there's always going to be, say, a bottom 10% or bottom quartile. But by divesting these stores, you are raising that the low end of the bar, so to speak, higher and higher. So do you see the need to do a lot of divestitures every year or do you think '25 is more of an outlier year?

I think '25 was more of an outlier to your I'll say it. You know, much of our disposition work was in the UK. Around underperforming stores, around consolidation efforts in concert with our OEM partners. There will be some more of that in '26, but on a long-term basis, it won't be nearly that active. In the U.S., we're still, you know, we still dispose of some stores that are in markets that aren't favorable for us or are underperforming. We had relatively few in 2025 in the U.S. But we will always want to have that discipline to review our portfolio and stores that don't help us on SG&A leverage or don't help us on EPS contribution are subject to us disposing.

Alright. Thanks. And on capital allocation for this year, any strong preference between acquisitions, buybacks, or perhaps reducing leverage below three?

Let's go from the leverage first. You know, our preference is to keep our leverage below three times, and we're going to continue to work to that. You know, in terms of capital allocation, we really want to grow the company and continue to grow the company through acquisition. We are not going to, however, buy stores that aren't instantly accretive to us as a company in terms of EPS, and we're not going to overpay for acquisitions whenever you look at the valuation of our company. In terms of where it's currently sitting. We were very active in terms of buybacks last year, buying back over 10% of the company. You can see in the first quarter so far, we bought back, you know, 0.6% of the company in, you know, circa twenty days. And we will continue to be aggressive in both terms of acquisitions and buybacks as and when the time is right.

Okay. Thank you.

The next question will come from Jeffrey Lick with Stephens Inc. Please go ahead.

Good morning. Thanks for taking the question. Daryl and team, was wondering if you just take 2025 as your baseline year, obviously, was an awful lot that went on this year with tariffs, the EV tech credit expiration, the UK and whether it was the road tax, Chinese OEMs. You look at 2025 as your base year and you think about working through 2026, maybe just talk about how you see the year progressing in terms of GPU, you know, lapping the EV tax credit, you know, where do you see kind of the easier part of the year versus the harder part of the year?

Well, I think on the EV question, last quarter, our EV mix was 1.3%. That's down a little, I mean, we were 3% ish before that. So for us, the EV impact, just given our footprint in the United States anyway, is not that big. The margins on EVs are not bad now, you know, compared to where they were a year ago when they were a disaster. So, hopefully, that is a tailwind a little bit. It's on a very small part of our volume, though. On the rest of it, you know, yeah, plenty of uncertainty out there. Obviously, and you know, what we try to focus our teams on is stay focused on what we can control. Because there's plenty of distractions and plenty of things that can lead you to focus on things outside of what we can affect. You know, what we're hoping for is to build on 2025 to try to get to your question, Jeff. We want to build on 2025. We want to grow. If that's organically growing, we feel like there's opportunity at Group 1 Automotive, Inc. to organically grow, especially in the UK. But we still have opportunities in our business in the U.S. too. As well as we perform in aftersales and F&I. You know, there's still opportunities in our used car business and so we and in our cost structure. So we're continuing to feel like there's opportunity in 2026 almost in the U.S.

And then just a quick follow-up. This year, we're going to see a lot of lease returns actually. You know, percentages could be, you know, pretty big as we get into the back half. Curious, Daryl, in your career if you've seen anything similar to this. I mean, we're going to be talking about lease returns in excess of 30, 40%, you know, what that's going to mean for your business, you know, both in terms of ups and also in terms of your potential used car supply? How big of a deal do you view this? You know, am I thinking about it maybe, you know, in two grandiose terms? And if, you know, any kind of historical context would be very helpful.

Well, I think two things will happen this year, which will help the use of our business. One is the uptick in lease returns, which a good solid controlled source of premium used cars is really great. If you look at the kind of used cars we sell today compared to what we sold pre-COVID, we're selling a much richer mix of pre-owned cars. And the profits are good on those cars. So I hope and expect that that will help us later in the year. Another thing is there's a lot of discussion around the tax returns and tax refunds in the first and second quarter. And what kind of impact will that have on the used car business. And we're hopeful it buoys it, you know, and how much I don't know. But there's plenty of optimism around that. So we'll see how that affects us. We continue to focus heavily on sourcing, especially organic sourcing out of our service drives. And out of our trade processes with appraisals and capture, and we continue to put a ton of focus on that using technology to try to increase that as well.

Well, thanks so much for taking my questions, best of luck this year.

Thank you, Jeff.

The next question will come from John Babcock with Barclays. Please go ahead.

Hey, good morning, and thanks for taking my questions. Just firstly on the used vehicle market in the U.S., at least the indicators that we've seen seem to show that volumes have been pretty good to start the year. But I'm just kind of curious, what are you guys seeing? And what are your expectations for the year? And particularly as we, you know, as you remember, like last year, there were the tariffs that impacted timing in March and April, kind of curious how you're thinking about the cadence of that demand and whether you think it's sustainable from current levels?

Sure. John, this is Pete DeLongchamps. I'll take that question. So we, certainly bullish on the used car opportunity this coming year. And you're correct. January, as traditionally does start off well because you get the nice trades from November and December that you can work with. And then, you know, you're ready for the spring selling season, which kicks off about President's Day through March. So I think the volumes are sustainable, and I think that what we're really focusing on is disciplined acquisition, whether that's service to sales coming out of the lane. We've got to be smarter this year. We're using AI to know exactly what cars to buy from the auction, not just based on personal preference. So there's things that we've put in place that we think that will continue to help our used business grow. But, you know, all in all, you always have to remember this is a, you know, 38 to 40 million car market, and we talk about SAR 16 and retail at 13 for new. But the used car market is continually a great source for our company's revenue and gross profits.

Okay. Thanks for that. And then, just my last question. Just on GPUs, they were down in 4Q and I think at least most of the people I talked to expected a recovery in the quarter. Obviously, luxury demand was a little bit soft and, you know, I had heard that there was some increased competition at least among dealers just given the broadly softer volumes. I'm just kind of curious, were there any other factors that were missing that maybe we should be paying attention to? And what should we be mindful of in terms of thinking about GPUs in 1Q and 2026 more broadly?

Is your question on new car GPUs or used car? Sorry.

Yeah. New car specifically.

You know, we saw some softening on the luxuries in the fourth quarter. GPUs, and that was, you know, affected us more than normal. You know, I would think that we'll see some moderation of that. I don't know that they'll stay where they were. And the Mercedes of the world, their inventory is in much better shape today than it was a year ago. And BMW's inventory is in really good shape with some new products coming out this year. So I believe that we'll see, you know, firming of the luxury. And the mass market GPUs are holding up pretty well. I mean, our big brand is Toyota held up pretty well.

Okay. Thanks.

This will conclude our question and answer session. I would like to hand the call back over to Mr. Daryl Kenningham for any closing remarks.

Thank you. In summary, we remain committed to our strategic initiatives. We focus on our local customers' operating excellence, differentiated aftersales, and disciplined capital management. We'll continue to build on the strong operating results in the U.S. The UK remains a priority as we execute on restructuring initiatives, improving operating discipline, and shaping the portfolio to drive better returns. We believe consistent execution against these priorities positions Group 1 Automotive, Inc. to navigate near-term challenges while continuing to build long-term value for our shareholders. Thank you all for joining the call.