AutoNation, Inc.

Good morning, my name is Nadia and I'll be your conference operator today. At this time, I would like to welcome everyone to the AutoNation third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you. I would now like to turn the call over to Derek Fiebig, Vice President of Investor Relations. You may begin your conference.

Thank you, Nadia, and good morning, everyone. I'd like to welcome you to AutoNation's third quarter 22 conference call and webcast. Please ensure that your lines are muted until the operator announces your turn to ask the question. Leading our call today will be Mike Manley, our Chief Executive Officer, and Joe Lauer, our Chief Financial Officer. Following their remarks, we'll open up the call for questions. We will be available by phone after the call to address any additional questions you may have. Before beginning, let me read a brief statement regarding our forward-looking comments. Certain comments and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meeting 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 in our filings with the SEC, including our most recent filing on the report Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. With that, I'll turn the call over to Mike.

Yeah, thanks, Eric. Well, good morning, everybody, and thank you for joining us. Today, we're reporting record third quarter results with a group delivering an operating income of $523 million, which is an increase of 4%. Revenue for the quarter was $6.7 billion, an increase of 4% as well, driven by higher average selling prices of new and used vehicles, continued consistent growth in our after sales and our customer financial services, which more than offset lower sales of new and used vehicles. New vehicle demand remains strong in the quarter, and although we ended September with slightly higher inventory levels as a result of increased year-over-year shipments, new vehicle inventory continues to be a constraint, and we still remain at historically low days of supply. New vehicle margin in the quarter was up $450 per unit year-over-year, but down sequentially, driven in the main by mix rather than significant pricing actions. Used vehicle margins were down year over year, which, frankly, was to be expected because, as you'll recall, last year we were in the highly unusual situation of appreciating used vehicle values. And today and through the quarter, used wholesale dynamics have largely returned to a more normalized pattern of depreciation. Used vehicle margin, however, continues to be above the low point of Q1. Used vehicle inventory in the group is being appropriately managed, I think, with quarter end day supply of just about 30 days. Mix, however, remains a key focus for us as we continue to see availability issues in the sub-$20,000 price band, where inventory levels year over year are approximately 25% lower, which, as a result, despite continued strong demand in this part of the segment, I think is restricting overall used vehicle volumes. Notwithstanding that, I believe sourcing of used vehicle inventory remains a considerable strength within the group. Self-sourcing over 90% of used inventory from trade-ins We Buy Your Car activities and other controlled sources. Other highlights in the quarter include our continued success and growth in CFS, our customer financial services provision, which includes warranties, maintenance contracts, and vehicle protection plans in addition to traditional vehicle finance. Our discipline approach resulted in a per unit income of $2,755, which was up 7% year over year. I think this remains an exciting growth opportunity for the group, particularly as we completed, as anticipated, our acquisition of CIG Financial on October the 1st. We've already started the integration process and successfully launched group financial services in our AutoNation USA stores. Obviously, more to come on this topic, but again, I'd just like to quickly welcome all of our new colleagues from CIG. After sales remained a key focus for us and we achieved a year-over-year gross profit growth in this area, of 13%, and we're now showing consistent gains in after sales and strongly believe that there is much more to come. This remains a significant area for incremental revenue and margin, which has the potential to help offset new vehicle margin decline should that happen, and obviously help buffer the group from some of the inevitable cyclicality the industry will face should we see a recession. Moving on to costs, you'll see they remain well under control. And once again, we posted SG&A results and under 60% of gross profit. It's clear we are and will continue to face inflationary pressure, but we remain committed to maintaining the discipline the group has shown in this area and to continue to find operational efficiencies and eliminate waste. ANUSA continues its expansion with the opening of its 12th AutoNation USA store in Kennesaw, Georgia, and although we are seeing some delays in our launch schedule as a result of challenging construction markets, we have a significant number of projects underway and in our pipelines. Now, from a capital allocation perspective, in addition to completing the acquisition of CIG Capital, as I previously mentioned, we repurchased 3.8 million shares in the quarter. Year-to-date through October 25th, that means we've repurchased 13.6 million shares of common stock, or 22% of shares outstanding at the beginning of the year. We also requested and received board approval for authorization to repurchase up to an additional $1 billion of automation common stock. In other M&A activity during the quarter, We signed an agreement, obviously subject to normal terms, to acquire four dealerships representing nine franchises from the Moreland Auto Group in Colorado, which will further strengthen our position in this important market. And finally, we posted a record EPS of $6.31, an increase of 23% compared to the third quarter, 21%. Our embedded structural improvements in our performance, such as after-sales growth and cost discipline, I think create the opportunity to focus on the lifetime value of our customers and expanding and delivering solutions that enhance the customer experience. Just an example, over 50% of our unit sales originated on our digital channels for the quarter, and I think we've built and continue to build a compelling customer value proposition through the combination of our digital tools and our physical assets. I think that's critical. It's really the combination of both of those things. We leverage Automation Express, our integrated digital solution. which is powered by 11 million real-time customer insights, and we've created a personalized experience for our customers, and I think you will hear much more to come on this in the future. With significant cash flow generation and a healthy balance sheet, we're committed to be prudent with our capital and deploy to enhance shareholder returns while further positioning the company for the long-term sustained profitability that we expect. And with that, Joe, I'm going to hand it over to you. Please take everyone through the details.