AutoNation, Inc.

Hello, and welcome to the AutoNation Incorporated Q3 earnings call. My name is Harry, and I'll 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 queue for questions, please press star followed by one on your telephone keypad. I will now hand the conference over to Derek Fiebig, VP of Investor Relations. Please go ahead.

Thanks, Harry, and good morning, everyone. Welcome to AutoNation's third 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 will 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 Litigations 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 at investors.autonation.com. With that, I'll turn the call over to Mike.

Yeah, thank you, Derek. Good morning, everybody. Thank you for joining us today. And as usual, I'm going to start on the third slide. Firstly, we were very pleased to report our strong third quarter. We delivered 25% adjusted EPS growth generated strong cash flow and deployed significant capital for share repurchases and acquisitions, while maintaining our leverage at the lower half of our targeted range. Now, overall market conditions for new and used vehicles we think are reasonable and holding up well. Industry inventory of about 2.6 million units remains well below the 4 million units, which was the norm ahead of the pandemic. And units are down about 6% year-to-date. I think OEMs have been adding some production, but overall inventory levels are in good shape. New vehicle sales remain below historical standards, with the year-to-date light vehicle sire averaging 16.3 million units, and the retail sire averaging around 13.6. Our industry sales are up 5% year-to-date, with about half of that increase attributable to a strong performance in March and April. But we think comparisons will probably get tougher in the fourth quarter as we lap SARS of 16.7 million and 13.9 million, respectively. The tariff story continues to evolve. Most of the negotiations with major trading partners are nearing completion, and the effects on the auto industry, I think, are becoming clearer. The impact on the OEM profitability is significant and well-chronicled. but they're clearly not standing still. There'll be manufacturing relocations and other actions to drive a more efficient power supply chain, and the knock-on impact for the dealers and consumers are beginning to play out as well. We expect decontenting and reductions in trim levels, additional fees and moderation in incentives and marketing spend. Now, in the third quarter, we've already started to experience a reduction in certain types of incentive spending, which I will discuss a little bit more shortly. Our same-store sales of new vehicles increased 4.5%, largely in line with the overall industry, and unit growth was led by our domestic segment, which increased 11% from a year ago on a same-store basis. Import brands also increased and premium luxury was slowing down. With the expiration of government incentives for EVs on September 30th, There was a significant increase in sales of hybrid vehicles, which were up 25% from a year ago, and VEVs, which increased 40%. With the incentive exploration in mind, we reduced our VEV inventory by approximately 55% from year end to around 1,550 units for less than 20 days of supply at quarter end. New vehicle profitability moderated in a quarter as one might have expected, with the mix of ourselves being more heavily weighted to VEV and domestic vehicles. And as I mentioned, incentive spending played a part in here as well. Now, it is worth noting over the course of the quarter, we did see an improvement in unit profitability with September closing out more strongly than the average. Used vehicle gross profit increased 3%, which was 2% on the same store basis year over year, as we benefited from stronger unit sales and improved performance in wholesale. Our unit sales increased 4% overall and more than 2% on the same store basis, outpacing the industry. We had strong performances for the over $40,000 price point. In terms of acquisition, the team did a nice job acquiring vehicles through trade-ins and directly from consumers through our We Buy Your Car efforts. And these channels accounted for around 90% of the vehicles acquired in the quarter. We ended September with over 27,000 used vehicles and inventory, which is positioned as well for the fourth quarter this year. Customer financial services gross profit was the highest we have ever reported. reported in a quarter, increasing 12% from a year ago. We continue to attach more than two products per vehicle, with extended service contracts continuing to be the top offering, which is, of course, fantastic for our future after-sales revenue and customer retention. Our finance penetration was higher from a year ago, with around three-quarters of units being installed with financing, and we benefited from improved margins on vehicle service contracts. The momentum in after sales continued. We delivered a record third quarter revenue and gross profit. Total gross profit increased by 7%. The total gross profit margins expanded by 100 basis points from a year ago. Our growth was led by customer pay, which reflects our ongoing customer retention efforts. We continue to focus on our technician workforce by recruiting, retaining, and developing our technicians. And I think we're continuing to see positive signs here. Turnover has decreased. and franchise technician hand count increased 4% from a year ago on the same store basis. Now, the strong momentum at AM Finance continued. Originations have nearly doubled from a year prior, and we continue to scale the business with the portfolio now exceeding more than $2 billion. The portfolio on balance continues to perform in line with our expectations from a delinquency and a loss perspective, and the business's base costs have remained reasonably stable. enabling good profit scaling as the portfolio grows. Our Q3 performance combined with our share repurchases helped us to grow our adjusted EPS by 25% from a year ago. This was the third consecutive year-over-year increase in adjusted EPS. Cash flow for the quarter and year-to-date was also strong. On a year-to-date basis, our adjusted free cash flow is 1.7 times that of 2024, and Tom will talk a little bit more about that after me. Our investment grade credit rating and balance sheet, which, as you know, is really anchored around a low net capital, high free cash flow model, enabled us to once again deploy significant capital in the quarter for both share repurchases and acquisitions to improve our franchise density and portfolio in existing markets. We've expanded our presence in two key markets, including the acquisition of a Ford and a Mazda store in Denver, as well as an Audi and a Mercedes store in Chicago. All in all, I think, really good results and good progress from the automation team. And as usual, it is their results that have delivered this, so thank you all. Many of you listened. With that, Tom, I'm going to hand it over to you to take everyone through the results in more detail.