AutoNation, Inc.

Good morning and thank you for joining AutoNation's fourth quarter 2024 earnings call. My name is Harry and I will be your operator today. All lines are currently in listen-only mode and there'll be an opportunity for Q&A after management's prepared remarks. If you would like to enter the key for questions, please dial star followed by one on your telephone keypad. I would now like to hand the conference over to Derek Beebig, VP of Investor Relations. Thank you. You may proceed.

Thank you, Harry, and good morning, everyone. Welcome to AutoNation's fourth 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 Securities 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 the SEC. Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials and our website located at investors.autonation.com. With that, I'll turn the call over to Mike.

Yeah, thanks, Eric, and good morning, everyone, and thank you for joining us today. I'm going to dive in on the third slide. So we're almost halfway through the first quarter of 2025, and it feels a little bit strange talking about the previous year, but that said, 2024 was a good year for alternation, highlighted by what I think was a super fourth quarter. Heading into the year, there were several uncertainties that were difficult to plan for, and these obviously included the U.S. election, The debate and discussion about new vehicle pricing normalization and how would that play out, just to name a few. But adding to that uncertainty was the early summer business interruption from the CDK outage, which, as you know, had a significant impact spanning both quarter two and quarter three. Now, we'll get into the fourth quarter details in a moment, but to me, the key highlight of the quarter was the delivery of 12% same-store new unit volume growth. New vehicle sales is the front end of our profit cycle, and volume growth in this area bodes well for the future of our after sales and financial services business, which provide approximately 75% of our gross profit. Speaking of after sales, the second highlight was achieving year-over-year 5% same-store gross profit growth and improving our gross margin by 110 basis points. Importantly, the growth was principally driven by external customer channels, warranty and customer pay, delivering improvements in gross per repair order and growth in number of repair orders. The third highlight was the performance of AM Finance, which was introduced in late 2022. Now, you will notice in our annual report, which we expect to file later this week, that we're giving more prominence to it, so I'd like to take a little bit more time discussing this business than I normally would. Tom will also go into more detail in a few minutes. AM Finance had an outstanding 2024, growing its originations by three times over 2023 and building a portfolio that now stands north of $1.1 billion. Notwithstanding the significant growth, which came solely from originations from our retail stores, AutoNation Finance only had a 12% penetration of our franchise store finance volume and approximately a 30% penetration of our ANUSA finance volume. so there is plenty of headroom for further growth. But as you know, it's not just about origination and volume growth. The quality of the portfolio is critical, and in this area, our performance is encouraging. Throughout the year, we meaningfully improved the average credit rating and quality of our portfolio, significantly de-risking the business. As a result of disciplined origination growth, highly focused portfolio servicing, a planned, well-executed sale of the majority of the legacy subprime books, which was inherited when we acquired the business, our year-end delinquencies are less than 3%. Now AM Finance continues to gain scale. We were able to reduce our operating expenses from 2023 to 2024 while driving a 40% increase in interest income. This is helping us to rapidly march towards profitability in AM Finance, which we expect to achieve on a run rate basis by the end of 2025. Now, in previous schools, you've heard Tom referring to impacts on a CFS profitability because of AM Finance growth. When CFS finances a deal with a third-party lender, the lender typically provides an upfront payment or reserve fee. When AM Finance pays a similar upfront incentive to alternation at the onset of each deal, that incentive is eliminated for accounting purposes as the transaction is all within alternation. We have confidence, however, that the incremental net interest income over the life of each loan far outweighs this foregone fee. One final point, the relative capital required for this portfolio continues to decline. The portfolio is currently funded 75% by non-recourse financing, which rate we expect to continue increasing. As a result, we expect that the return on equity will become highly accretive towards the nation's ROE as the portfolio matures. Now, moving on from AM Finance, we also took important action with our invested capital, selling off eight stores that did not fit into our model and were delivering substandard returns. We sold these businesses at extremely attractive valuations. We were then able to deploy this capital into further share repurchases, which I will touch on later. Lastly, we were once again recognized by Fortune magazine as one of the world's most admired companies, with the highest ranking among automotive retailers. This marks the fifth year in a row that AutoNation has been America's most admired automotive retailer, a strong testament to our unrelenting focus on our customers, associates, and the communities we live in and serve. And again, I'd like to thank the AutoNation team and congratulate them for that achievement. So all of the guys and girls that are listening to this, thank you so much. Turning to our fourth quarter overview on slide four, last quarter I mentioned some trends that we found encouraging, including the reduction in interest rates helping to improve affordability and lift demand for both new and used vehicles. And actions we were seeing from a number of our OEM partners to balance demand and production, either through initiatives to make vehicles more affordable or adjusting inventory levels by moderating production, and these were well received. And both trends played out and contributed to our fourth quarter results. Fourth quarter new vehicle sales were strong. As I mentioned, we grew unit sales by 12% on the same store basis, and like the third quarter, gained share in our markets. Sales for the quarter were particularly strong for hybrid vehicles and battery electric vehicles, and Tom's going to take you through that in greater detail. Domestic segment new vehicle unit sales increased 17%. Import segment sales increased 5%. Our premium luxury segment achieved beyond its typically strong seasonal performance, growing unit sales by 12% from a year ago, with particular strong performance in some of the upper-end vehicle trends. Premium luxury was a key driver in our overall new vehicle unit profitability, which improved on a sequential basis from Q3 for the first time since the fourth quarter of 2021. Our used vehicle gross profit increased 14%. the fourth quarter a year ago as our actions to manage inventory and vehicle turn rates resulted in higher unit profitability and we delivered unit sales volume performance in line with the overall used retail industry for cfs we retained our leading position in the industry as unit profitability increased both year over year and sequentially more than 70 percent of our cfs income comes from products attachment for the fourth quarter we attach more than two products per contract on average a nice improvement from the preceding two quarters, which were adversely impacted by the CDK outage. I've already covered my thoughts on AN Finance, which is now exclusively focused on our AutoNation franchise and AN USA customers. Our after-sales teams continue to deliver strong growth, with same-store gross profit up more than 5% from a year ago and achieved AutoNation's total store records for gross profit for both the fourth quarter and the full year. Total store results included fourth quarter margin expansion of 110 basis points from a year ago and 70 basis point expansion for the full year. Now, looking back to 2019, we've grown after sales annual gross profit by nearly $600 million and expanded margin by nearly 250 basis points. This more recurring revenue portion of our business is a key part of our customer retention efforts. We remain focused on the development and retention of our technicians and continue to actively hire. Finally, as you saw in our press release, we repurchased approximately $100 million of shares during the fourth quarter, an average price of $166 per share, bringing our full-year share repurchases to $460 million, or nearly 2.9 million shares. This represented a 7% reduction in shares during the year. The $460 million returned to our shareholders during 2024 represented 58% of our capital deployment, and this compared to 56% in 2023. So with that now, Tom, I'm going to turn the call over to you to take us through the results in more detail. Thanks, Mike.