AutoNation, Inc.

Good morning, my name is Candice and I will be your conference operator today. At this time, I would like to welcome you to the AutoNation second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press start followed by one on your telephone keypad. If you would like to withdraw your question, please press Start followed by 2. Thank you. I would now like to turn the call over to Ankur Shah, Director of Investor Relations. You may now begin your conference.

Good morning and welcome to AutoNation's second quarter 2022 conference call and webcast. 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 Lauer, our Chief Financial Officer. Also joining the call is Eric Siebig, Vice President of Investor Relations. Following their remarks, we will open up the call for questions. We will be available by phone after the call to address any additional questions that you may have. Before beginning, let me read our brief statement regarding forward-looking comments. Certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Security Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued earlier today and our SEC filings, including our most recent annual report on Form 10-K subsequent quarterly reports on Form 10Q and current reports on Form 8K. With that, I'll turn the call over to AutoNation's Chief Executive Officer, Mike Manley. Thanks, Ankur.

Well, good morning, everyone, and thank you for joining us. Firstly, I really do want to just spend a little bit of time to thank all of the team at AutoNation for continuing to deliver great results in the quarter, which obviously enabled Joe and I to report another record performance. As usual, Joe is going to take you through the numbers in detail, and I'll begin with a general overview of performance. So from a substantially flat year-over-year revenue of $6.9 billion, we were able to increase our operating income by 5% to $558 million, which, as I already mentioned, is a record for the group. Our earnings per share for the quarter was also a record of $6.48, a year-over-year increase of 34%. Now, as you can see, total new volume was down 25%, which, when you consider our low level of new inventory and our high inventory turn rates, was, in my view, purely a result of continued constrained supply. And as you can see, volume was substantially offset with strong margins, up 47% compared to the prior year, and stable quarter over quarter. Again, I think an indication that demand for new vehicles remains strong. Used revenue in the quarter was 13% above the prior year, However, from a volume perspective, total used sales were down 4% and down 9% on the same store basis. And all of the volume reduction was in our entry selection of vehicles, which are priced at $20,000 and below. And when you look at our performance, our mid and premium used vehicle categories both increased in volume year over year, which I think indicated the strength in demand in those price bands. What is clear to me, though, is that our year-over-year volume change, even though it was basically in line with the industry, I do believe we had some volume upside, which, frankly, we left on the table in the quarter. Historically, about 40% of our sales have been in the entry category, and clearly that is a segment that's under pressure. We've already shown we can improve our mids, particularly in the mid-price bands, and the teams are now very focused on that. And as I said, these segments increased year-over-year. Now, you may remember during our last call, I talked about our focus on improving use margins, and as you can imagine, I'm pleased with the progress we've made since the end of that quarter, and this continues to be a daily focus. Our F&I teams continue to prove they're the best in the business with another strong performance this quarter. I think what is important to note is the main driver of our performance is the penetration we achieve with optional products, such as service plans and extended warranties. And as a result, the announcement we made today regarding our agreement to acquire CIG Financial It's not only complimentary to what we're doing today, but will also over time bring significant upside. In previous calls, I've made a point to talk about the structural changes we've made in our business, but in my opinion, I don't really think we get sufficient recognition for. And the first is our ability to generate used vehicles. I think this is a considerable strength and an advantage over some of our single focus competitors. During the quarter, we self-sourced either from trades, lease returns, or our very successful We Buy Your Car program over 90% of our used vehicle inventory. And this strength continues to put more of our destiny in our own hands. Other areas of structural change include our after-sales operation. Our intense focus on our customers created double-digit growth of 11% in after-sales gross profit. 11%, and this is part of our business that I think we are further upside in. In the past, we've also discussed our discipline approach to cost management, And as you can see, again, in these results, the benefit this continues to bring to the business. Moving on to Automation USA business, today we announced our plans to open a new Automation USA store in Georgia. This will happen in the third quarter. This will be our 12th store. And just to remind everybody, our objective remains to have over 130 of these stores in operation from coast to coast by the end of 2026. As I briefly touched on earlier, Today we announced that we've entered into an agreement to acquire CIG Financial, and subject to normal closing conditions, we expect to close in the next 90 days. The acquisition of CIG Financial aligns with our strategic business model and singular focus on personalized finance and mobility solutions that are easy, transparent, and customer-centric. This acquisition provides capabilities, footprint, technology, and most importantly, a proven, motivated team with great leadership. CIG has everything we need to scale and improve our financial performance with modest upfront investment and little risk. While this is an important addition to our growth strategy, we have no present intention to displace or replace existing captive financing with our OEM partners. Our intention is that we'll focus our new captive finance house on our AutoNation USA business and the great book of business that CIG has developed with its many retail partners. Now, from ANUSA perspective, there's already a strong overlap from a FICO point of view, from a geographic perspective, and a business development focus that has ensured the success and growth of CIG over about the last two decades. This will be a great addition to the group, and as I mentioned earlier, we'll, over time, unlock significant upside in our already industry-leading F&I performance. So I want to formally welcome 160 new members of the AutoNation family I can tell you we have very much been looking forward to this day. And with that, Joe, I'm going to hand it over to you.