AutoNation, Inc.

AutoNation's third quarter 2023 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. During the call, if you'd like to register a question, please press star followed by one on your headphone keypad. I would now like to turn the call over to Derek Fiebig, Vice President of Investor Relations. You may begin your conference.

Thank you, Ellen, and good morning, everyone. Welcome to AutoNation's third quarter 2023 conference call. Leading our call today will be Mike Manley, our Chief Executive Officer, and Tom Slozek, our Chief Financial Officer. Following their remarks, we will open up the call for questions. Before we begin, I'd like to remind you that 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 today and in our filings with SEC. Certain non-GAAP financial measures, as defined under SEC rules, will be discussed on this call. Reconciliations are provided in our materials and on our website located at investor.autonation.com. With that, I'll turn the call over to Mike. Yeah, thanks, Eric, and good morning, everyone.

Thank you for joining us today. I'm going to start on slide three, and I'm going to provide some opening remarks before Tom takes you through the third quarter results in great detail. So, as we all know, there continues to be mixed economic signals in the economy, but despite concerns over affordability, consumer demand for vehicles remains relatively healthy. And during the quarter, partly because of improved new vehicle supply and stable used vehicle inventory, we saw double-digit year-over-year growth in new vehicle sales and strong sequential growth in used vehicle volume. And frankly, this is the first time in eight consecutive quarters that we've seen growth in combined new and used vehicle volumes for alternation. So I think that's very positive. We also continue to see significant benefits of our clear focus on after sales, which delivered a record quarter for revenue and margin. And as a result, automation delivered a solid performance in this evolving operating environment. So I'm just going to quickly look at the performance by business, and I'll start with new vehicle sales, where volume was up 12% in total and 9.5% on a same-store basis. And as forecasted, new vehicle margin was down sequentially in the quarter, but remained above $4,000 a unit. Now, during the quarter, we did see some mixed impact on our margin, and that was driven by significant year-over-year volume growth in our import franchises, which benefited from improved inventory flow, releasing some of the pent-up demand for those brands. And I'll touch on the inventory numbers in a minute. But basically, everything that we got, we sold. So we saw quite a large increase in our import dealership volumes in the quarter. But I would say, you know, our sales team tend to look at every potential deal in a very balanced way. And you'll see our combined margin performance across new and used, which included CFS income, held up very well. In fact, relatively industry in the quarter and remains well above pre-pandemic levels. I mentioned earlier inventory levels, so let me touch on that. Obviously, they've increased from a year ago, but they remain less than 35 days supply. But we have a lot of variation, frankly, amongst branding categories. We have 51 days of domestic brands. So that probably answers one of the questions about what's happening in my previous hometown. So we have 51 days of domestic brands as we sit, 33 days of luxury and 17 days of import brands. Now, moving on to used vehicles. As you'll recall, at the beginning of the year, we spent some time talking about the fact that used vehicle inventory would be harder to source and obviously critical to success this year. So knowing that, we've made continued investments to maintain and grow used vehicle inventory. I think the team in the quarter did a good job sourcing retail quality used vehicles, and to facilitate this, we've increased our investment in We Buy Your Car marketing and infrastructure, which you're obviously going to see in our SG&A. In addition, we have our teams looking at every potential sale in a much more holistic way, considering not just the vehicle margin, but also the income from CFS, And additional consideration is the sale yields of retailable trade. Now, as a result, used inventory has been stable, which has helped us post a sequential used vehicle sales increase of over 5%, which would not be possible without a daily focus on vehicle sourcing, which, by the way, resulted in over 90% of our total used vehicles being self-sourced in the quarter. Now, as you know, Vehicle volume new or used is important for many reasons, but a key one for us is our industry leading performance in customer financial services, which again continue to deliver in the quarter. I think the team has done a great job to overcome a significantly higher interest rate environment and lower finance penetration by continuing to maintain and grow product sales per unit sold. Now moving on to after sales, here the business continues to be one of our brightest spots. Revenue was up 12% and our gross profit was up 14%. The greater complexity of vehicles is leading to higher values per repair order, and we've also been keenly focused on growing our technician workforce, which is allowing us to serve more customers. I was also pleased with the operating cash generation in our business. It was another great quarter of cash conversion relative to net income, which Tom will no doubt talk more about later. Okay, but aside from the solid quarter from a financial perspective, there are a few other highlights I'd like to touch on before handing over. Our 11 million plus customers are our core focus, and we're extending our product offerings and reach into more recurring revenue streams, and we're adding new customers every day across all of our channels. And during the quarter, we increased the penetration of Alternation Finance at our ANUSA stores, where we're now financing roughly one in four ANUSA vehicle sales, and we have also expanded into our franchise stores. So Alternation Finance continues to be integrated at a thoughtful and measured pace, and is in fact ahead of where we thought it would be, which is why we expanded it to our franchise businesses. We're also actively launching supplementary products and services to meet our customers' needs, which supports consumer vehicle usage and also attracts new customers to us. And we launched a micro-lease business called Alternation Mobility and an e-commerce parts and accessory platform called AlternationParts.com. These businesses, along with Alternation's recently acquired mobile repair service, complements our traditional dealership model, while expanding our reach into the transportation industry. We expanded our Alternation USA footprint with our 17th store on Hilton Head Island, and this was the fourth opening of the year, and we expect four more openings in the fourth quarter, including our Fort Myers facility, which opened this week. Now, as you can imagine, it's not an easy task to get these greenfield businesses open and up and running, and I'd like to congratulate and thank the teams that continue to work incredibly hard on this. I'm also pleased to say that so far these businesses are standing ahead of plan and are showing considerable growth year over year. And by the way, since this project with A&USA was started, they've now sold over 70,000 vehicles. So that's not bad for organic growth, I think. So moving on. The exceptional service we provide to our customers did not go unnoticed as AutoNation was recognized as the top public franchise dealer group by reputation in 2023 Automotive Reputation Report And that's an honor that we have had four out of the last five years. And of course, that is only possible because of the 24,000 plus dedicated AutoNation associates who work tirelessly in our business and whom I would like to thank. So thank you all if you're listening. And I'll thank you in person as I get out into the business more. And finally, we were named best companies to work for list by US News and World. So you can see customers at the center of what we do. We are focused on growth, outstanding customer service and operational excellence throughout our business. And we're also looking to the future, how the industry will evolve and what the needs of our customers will be. There is clearly an opportunity for Alternation to capitalise on our strong brand and footprint to retain and reactivate customers and provide them with more value and garner a larger share of wallet over a longer period of time. And now, Tom will take you through the financials in greater detail. Tom.