AutoNation, Inc.

Good morning and welcome to the AutoNation Incorporated first quarter 2025 earnings call. My name is Harry and I will be your operator today. All lines are currently in listen-only mode and there will be an opportunity for Q&A after management's prepared remarks. If you would like to enter the queue for questions, please dial star followed by one on your telephone keypad. I would now like to hand the conference over to Derek Fiebig, Vice President of Investor Relations. Thank you. The floor is yours.

Okay, thank you Harry and good morning everyone, welcome to AutoNation's first quarter 2025 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 for 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 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 investors.autonation.com. With that, I'll turn the call over to Mike.

Thank you, Derek, and good morning, everyone, and thank you for joining us today. I'm going to start on the third slide. So our results for the first quarter was strong across the board. We delivered outstanding new unit growth, expanded unit profitability both in used vehicles and customer financial services, and achieved record after-sales profits. Our operating cash generation was solid, allowing us to deploy capital for both share repurchases and accreted acquisitions. Prior to the formal announcement of tariffs, new vehicle sales were performing well, tracking approximately 5% up year over year, and the strong pace accelerated following the tariff announcements in late March, adding to our pace, resulting in same-store new vehicle unit sales increase of 7% for the quarter from prior year. Premium and luxury increased 14%, domestic 6%, and import increased 2%. Now, I'm pleased to say that during the quarter, we increased our share both year over year and month over month in the markets we served. Used vehicles continued to perform well as unit profitability increased 13% to $1,662, reflecting our focus on margin, costs, inventory levels, and mix. Our total gross profit included wholesale increased 12% from the first quarter of 2024. Customer financial services continued to deliver strong results. Per unit profitability increased from a year ago on a sequential basis for the second consecutive quarter. The sequential performance is noteworthy considering the seasonal shift to used vehicles. Another highlight of the quarter was the performance of after sales, which once again delivered record gross profits and expanded margin by 140 basis points from the previous year. We continue to grow our technician workforce while promoting and developing them internally. AM Finance also continued to develop and perform. Originations were $460 million during the quarter, and the business crossed over to profitability well ahead of when expected. And I would like to thank and congratulate the entire ANF team, as well as all of the dealerships that have helped them deliver that result. And in addition, The credit quality of our portfolio continues to track favorably, and as discussed on our year-end call, the sale of the last substantial portion of third-party legacy origination significantly reduced our credit risk exposure, which has resulted in a meaningful reduction in delinquencies. Cash flow generation for the quarter was strong, allowing us to deploy capital for both share repurchases and attractive acquisitions. During the quarter, we repurchased $225 million of shares at an average price of $165 per share. And as of yesterday's close, we have repurchased more than $250 million worth of shares, reducing our share count by 4% from January 1st. Our Q1 performance combined with our share repurchases helped us to grow our adjusted EPS by 4% from a year ago. This was the first year-over-year increase in adjusted EPS in eight quarters, as the post-COVID normalization trend is significantly moderated. On March 31st, we acquired two stores in the greater Denver, Colorado area, Ford Arapaho and Mazda Arapaho, which together sold nearly 5,000 new and used vehicles in 2024 and generated approximately $220 million of revenue. These acquisitions reflect our strategy to add store density into markets where we have a presence. It allows us to rapidly bring significant scale synergies to the acquired dealerships expanding on the current success of these stores and delivering strong returns to our shareholders. The acquisitions mark the first AutoNation Mazda and second AutoNation Ford in the state, bringing our footprint in Colorado to 13 domestic, six import, and three ANUSA dealerships concentrated in the greater Denver area. Now, before turning the call over to Tom to take you through the quarter in greater detail, I wanted to provide some color on some of our actions at AutoNation. Clearly, in the quarter, we benefited in March from a pull-in effect as buyers accelerated their planned vehicle purchases to avoid the coming tariffs. This trend continued into April, albeit at an increasingly moderating pace. As you can see from our current data supply, we have a level of ground inventory at pre-tariff rates that will, for certain models, sustain this momentum into May. This provides time for the auto tariff structures to be more clearly defined, modified, and negotiated between our OEM partners and the U.S. administration. It also enables each OEM to fully evaluate their supply chain footprint and understand what actions they can take to optimize for tariff efficiency and to establish the forward pricing structures. As these actions progress towards finalization, the impact on new unit availability and pricing will become clearer, as will the effects on customer demand patterns. These factors combined will establish changes, if any, to the size of the new vehicle market. In March, the light vehicle side risen to north of 17 million units, with estimates that this would come down to somewhere between 15 and 16 million units for the year. We expect some of these predicted declines will be cushioned by a cross-shopping effect, whereby demand for lesser impacted brands and models will supplant that for those more affected counterparts. In this situation, we often hold both sides of the trade, not always equally weighted, but our broad portfolio of brands and models gives us an advantage here. We're also confident that our OEM partners will be keen to protect their market share, regardless of total size of market. There are a number of areas in our business that are less impacted by tariffs, including used cars, customer financial services, parts and service, and we continue to focus and drive our performance in these areas. For example, we have made a concerted effort to increase our used car inventory and are now carrying the highest level of vehicles since December 2023. We are also continuing to drive service lane traffic, and our momentum continues to improve as we get further into the year. We remain focused on controlling costs within the company, generating cash flow, and deploying capital to generate shareholders' returns. And now with that, Tom, if you wouldn't mind taking