AutoNation, Inc.

Good morning. Thank you for attending the AutoNation 2Q24 earnings call. My name is Alyssa, and I will be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the call to our host, Derek Feebick with AutoNation. Please go ahead.

Thank you, Alyssa, and good morning, everyone. Welcome to AutoNation's second quarter 2024 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'll open up the call to questions. Before beginning, 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 measures, as defined under SEC rules, will be discussed on this call. Reconciliations are provided in our materials and on our website located at investors.autonation.com. With that, I'll turn the call over to Mike.

Thank you, Derek, and good morning, everyone. Thanks for joining us today. As I mentioned in today's press release, the CDK outage masked what was developing into a very positive quarter for Autonation. April and May new unit sales were up about 5%. Used unit sales were flat but accelerating in June. After sales growth was consistent with first quarter trends. and margin trends in many of our business lines were moving positively. And I was certainly encouraged with where the quarter was sitting when the CDK outage hit us on June 19th. Now, as usual, Tom is going to take you through more details of our performance during the quarter in his section, but I did want to give you a summary of the scope of the impact on our business. Before I do that, however, I think it's important to state that as of the last week of July, the incident with regard to its operational impact on our business is now behind us. Now, to give you a sense of scope, virtually all of our business processes, including CRM, deal processing, financial services, inventory management, after-sales systems, and accounting, are tied in one form or another to the CDK background, and therefore, we're all immediately impacted. Now, naturally, we worked with each of our business units to put in place interim solutions, some of which were off the shelf and some of which had to be developed. Now, each solution, based upon the discipline involved, returned our business to some level of functionality and productivity, but the workaround processes were in large part manual. For example, we manually processed close to 60,000 repair orders during the outage, and you can imagine this slowed things down tremendously. Now, main functionality of CDK was brought back online in late June. However, there were some ancillary integrations which have only recently been restored. Now, as a direct outcome, our second quarter results were adversely impacted by approximately $1.55 per share, which includes the lost revenue and margins during the outage, as well as the impact of certain one-time costs incurred, including a pay guarantee for our variable compensation-based associates. Now, notwithstanding the aforementioned, there were a number of really encouraging areas in our performance in the second quarter, which I'm going to highlight. Let me start with new vehicles. you can see that margins are stabilizing. And following two quarters of sequential margin decline of more than $300 per quarter, second quarter margins declined to $3,108, or $220 during the period, and were basically flat May to June. Now, although for the quarter, new vehicle sales were down 2%, even with the outage, we grew units of our import brands by 6%. In used vehicles, Total used vehicles for the quarter decreased by 8% from a year ago on a same store basis until the units were 5% lower, and that benefited from the growth of our ANUSA footprint. And to date, as you know, we've opened four new ANUSA stores. Used car demand remains relatively strong, certainly through the quarter, although demand by price point changed to move into lower price bands, but total demand volume is healthy. Our pace of used car inventory sourcing slowed significantly in the second half of June, now improving, and I expect it to return to normal levels of used car inventory in the second half of August. Our PDRs continue to recover in the quarter, increasing by $165 on a sequential basis. And you'll recall that earlier this year we discussed the actions our operating teams are taking to better align inventory and increase terms And I'm pleased to note the continued recovery in margins, which is not coming at the expense of the slowing turn rate. Customer Financial Services, or CFS, continued to deliver in the quarter. We did see some moderation in product sold per unit sale, which dropped approximately 10% from last year. Now, we progressively took actions to address this, and I'm saying we've seen an increase throughout July back to what we consider normalized levels. Now, as part of our CFS strategy, we remain focused on driving penetration of alternation finance. A&F originated over $240 million of loans during the quarter, almost four times higher than the second quarter of 2023. And the portfolio balance now exceeds $700 million. Now, for our shareholders, this means a shift to a model that on a lifetime basis is two and a half to three times more profitable than that of the traditional third-party finance offerings. While this focus can have a short-term adverse impact on CFS PVRs and cash flows, we're pleased with the enhanced long-term value creation by the more regular contact with our customers that this model naturally provides. After sales delivered another good quarter, tracking around 10% growth for the quarter through May, we ended basically flat as a result of the loss of productivity in the second half of June. During the quarter, we improved service effectiveness and delivered a positive mix shift, which enabled a year-over-year 60 basis point increase in gross margin to 48% for the quarter. Now, this business represents close to half of our profitability and is a key part of our continued engagement with our customers. We continue to focus on technician development, productivity, and retention, as well as capacity utilization to support the continued growth of the business, which we expect to deliver increasingly in the second half. Importantly, our total technician workforce increased 3% from a year ago, and this was achieved in a labor market that remains very competitive. We also joined forces with the US Army to create job opportunities for soldiers through the Partnership for Your Success program. The strength of our balance sheet and cash generation continue to give us optionality for capital deployment. As planned, we're spending more modestly on CapEx, and to date through the second quarter, we purchased $350 million of AutoNation shares at an average price of $159 per share. This reduced share count by more than 5% since the beginning of the year. Our leverage remains within our targeted range. Inventory levels of new vehicles are almost fully restored to pre-COVID levels. and I'm happy with where we're positioned in our new vehicle business, and as such, I'm expecting to recover market share in the second half of the year. As you know, while new vehicle sales generate a small portion of our gross profit, around 16%, they start the flywheel for all our other businesses, something which we're acutely focused on. We acquire trade into sellers used, we attach product penetration and finance offerings, and it leads to after-sales business. So these continued strong trends for new vehicle sales are encouraging for that. And with that, I'm going to hand over to you, Tom.