Q1 2025 AutoNation Inc Earnings Call
John Fiebig, John Fiebig, John Fiebig, John Fiebig, John
Harry: Good morning and welcome to the Alternation Incorporated First Quarter 2025 earnings call. My name is Harry and I will be your operator today. All lines are currently in listener 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 style style followed by one on your telephone keypad. I would now like to hand the conference over to Derek Fiebig by present on investor relations. Thank you, the floor is yours.
Derek Fiebig: Okay, thank you, Harry, and good morning, everyone. Welcome to AutoNation's first quarter of 2025 conference call. Leaving our call today will be Mike Manley, our Chief Executive Officer, and Thomas Szlosek, our Chief Financial Officer. Following their remarks, we'll open up the call questions.
Speaker Change: 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 meeting of the Federal Private Security's litigation reform act of 1995.
Speaker Change: Additional discussions with factors that could cause our actual results different materially are contained in our press release issue today and in our filings with the SEC.
Speaker Change: Certain non-GAAP financial measures as defined under FEC rules will be discussed on this call. Reconciliation are provided in our materials and on our website located at investors.autonation.com. With that, I'll turn the call over to Mike.
Mike: Thank you, Derek, and good morning, everyone, and thank you for joining us today.
Speaker Change: I'm going to start on the third slide. So, our result of 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.
Speaker Change: Operating cash generation was solid, allowing us to deploy capital for both share repurchases and accretive acquisitions.
Speaker Change: 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.
Speaker Change: Freeman Luxury increased 14%, Domestic, 6% and Import increased 2%
Speaker Change: 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. Use vehicles continue to perform well as unit profitability increased 13% to $1,662 reflecting our focus on margin costs, inventory levels and mix.
Speaker Change: A total gross profit included wholesale increased 12% from the first call trip 2024.
Speaker Change: Customer Financial Services continue 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 not worthy considering the seasonal shift to use vehicles.
Speaker Change: Another highlight of the course was the performance of Arthur 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.
Speaker Change: Pay and Finance also continued to develop and perform. Originations were $460 million during the quarter and the business crossed over the profitability well ahead of one expected and I would like to thank and congratulate the entire ANF team as well as all of the dealerships that helped them deliver that result.
Speaker Change: 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 exposure, which has resulted in a meaningful reduction in delinquencies.
Speaker Change: Cash Regeneration for the Court was strong, allowing us to deploy capital for both Sherry purchases and attractive acquisitions.
Speaker Change: During the call to be repurchased $225 million of shares at an average price of $165 per share and as of yesterday's close we've repurchased more than $250 million with the shares reducing our share count by 4% from January 1st.
Speaker Change: Q1 performance combined with ushery purchases 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 opposed to COVID normalisation trend significantly moderated.
Speaker Change: On March 31st, we acquired two stores in the Greater Denver, Colorado area, Ford, Arapao, and Mazda, Arapao, which together sold nearly 5,000 new and used vehicles in 2094 and generated approximately $220 million of revenue.
Speaker Change: These acquisitions reflect our strategy to add stored 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.
Speaker Change: The acquisitions mark the first AutoNation Master and second AutoNation Ford in the state, bringing our footprint in Colorado to 13 domestic six-import and three ANUSA dealerships concentrated in the greatest Denver area.
Speaker Change: Now, before I turn in the call notes, Thomas takes you through the call to ingrate a detail. I wanted to provide some color to some of our actions at AutoNation.
Speaker Change: Clearly in the quarter, we've benefited in March from a pull-in effect as buyers accelerated their plan vehicle purchases to avoid becoming tariffs.
Speaker Change: This trend continued into April will be 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 put certain models sustain this momentum into mine.
Speaker Change: This provides time for the auto-tanner of structures to be more clearly defined, modified and negotiated between our OEM partners and the US administration.
Speaker Change: It also enables each OEM to fully evaluate their supply chain footprint and understand what actions they can take to optimize the tariff efficiency and to establish the full price
Speaker Change: As these actions progress towards finalisation, 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.
Speaker Change: where estimates that this would come down to somewhere between 15 and 16 million units for the year.
Speaker Change: We expect some of these predicted declines will be push-ins by a cross-shopping effect whereby demand for lesser impacted brands and models will supplant that for those more affected
Speaker Change: In this situation, we often hold both sides of the trade. It's not always equally weighted, but our broad portfolio of brands and models gives us an advantage here. We're also confident that OEM partners will be keen to protect their market share regardless of total size of market.
Speaker Change: There are a number of areas in our business that are less impacted by tariffs, including use cars, customer financial services, parts and service, and we continue to focus and drive our performance in these areas.
Speaker Change: For example, we have made a concerted effort to increase our use car inventory and are now carrying the highest level of vehicle 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.
Speaker Change: We remain focused on controlling costs within the company, generating cash flow and deploying capital to generate shareholders return.
And now with that, Tom, if you're in mind, take in.
Tom: The cool over and down to our results. Yeah, thank you, Mike. I'm pairing the slide four to discuss our first quarter P&L.
Tom: K-Store Girls' Profit of 1.2 billion increased by 3% from a year ago.
Tom: This year over your performance included pain store used vehicles growth of 12% CFS growth at 6% and after sales growth of 4%.
Tom: The gross profit margin of 18.2% of revenue was down slightly from a year ago, reflecting improvements in margins for our after sales, which was up a hundred basis points or a hundred and forty on the same store
Tom: and used vehicles including wholesale, which was up 90 basis point. This was offset by the moderation of new vehicle unit profitability.
Tom: Adjusted SGNA of 67.5% of rural's profit was in line with our first quarter expectations, year over year, the rate was adversely impacted by some timing and non-recurring items and going forward we continue to expect.
Tom: SCNA as a percentage of growth profits would be between the 66% to 67% range for the full year reflecting our focus on
Tom: Adjusted operating margin was flat from the fourth quarter at 5% of revenue.
Tom: Below the operating line, the floor plan interest expense decreased by $3 million from a year ago, as average rates were down approximately 100 basis points, more than offsetting the higher average outstanding priorities.
Tom: Non-vehicle interest expense decreased $2 million from a year ago, reflecting lower average outstanding
Tom: As a reminder, we reflect full plan assistance received from OEMs in Gross Margin. This assistance totaled $31 million compared to $32 million a year ago, and net of these OEM incentives.
Tom: All in all, this resulted in an adjusted net income of $184 million compared to $190 million a year ago. This 3% year-over-year decrease itself is the smallest year-over-year decline in three years, again demonstrating that post-COVID-profit normalization trend has significant moderating.
Tom: Total sheriff repurchased over the past 12 months decreased our average sheriff outstanding for the quarter by 7% to 39.4 million sheriff.
Tom: and a fitting hour, Jessica Reinsper share, which was four hours and 68 cents for the quarter, an increase of 19 cents or four percent from the first quarter of 2024.
Tom: A slight size surprise from color, more color for a new vehicle's performance.
Tom: New Vehicle Unit Vines for a strong point for the Corps, increasing more than 6% from a year ago on a total store basis and 7% on a same store basis.
Tom: Foldestore Units sales were up across our three segments with import units up 2% premium luxury up 14% and the metric up 6% with letting strong supply better incentives and food performance by our commercial team.
Tom: BEV is represented about 8% of our sales recorder and 8% of our ending inventory. Internal combustion engine unit sales were down 4% for the court.
Tom: Our new vehicle unit profitability averaged $2,800 for the quarter, down seasonally from the fourth quarter, which is as you know is a normal trend reflecting higher premium luxury weighting in the fourth quarter.
Tom: New Vehicle Inventory and a Decorder at 39,000 units, up by about 1,000 units from a year ago. This represented 38 days of supply, down six days from the first quarter last year, reflecting strong new vehicle sales in the order.
Tom: Looking ahead, as Mike indicated, the momentum we have seen in March has continued into April , albeit at a moderating pace.
Tom: Turning slide six, the used vehicle unit profitability was up 13% from a year ago and 8% from the fourth floor. We are executing much better on vehicle acquisition, reconditioning, inventory velocity and pricing.
Tom: Total use goes profit was up 12% reflecting this unit, this retail unit profitability as well as better wholesale results.
Tom: Lower price vehicle continued to perform well with unit volume increasing in that band 10% from the fourth quarter in the $2,000 band.
Tom: Supply Hill Availability Remains Challenge, particularly for the mid and higher price gears consistent with the past few quarters, driven by lower new vehicle production during COVID.
Tom: We continue to be competitive in securing trade-ins from new vehicle buyers and to source more than 90% of our vehicles internally, including through our will-by-your-car program.
Tom: Moving to slide 7, customer financial services, momentum and CFS performance continue during the course. Apart from the overall strength and vehicle sales, our product attachment rate was strong remaining above two products for vehicle sales.
Tom: more than 70% of our CFS income comes from product attachment. Also, our finance penetration rate for the first quarter continues north of 70%.
Tom: Our CFS PBR, a $2,703 record, was up 3% from $2,615 a year ago to increase profit-for-contract sold in higher-average amounts than that.
Tom: The EU's profitability growth since the FS is even more impressive considering the growth of an influence which, while superior in long-term profitability, dilutes our CFS DVR margins.
Tom: Slide 8 provides an update on AN Finance, our Capital Finance Company. The business attractive offerings are driving strong customer take-up and we continue to expect strong offerings are always in the business.
Tom: During the first quarter, we originated $460 million in loans, up approximately $100 million from the fourth quarter, and $300 million from the first quarter of 2024. We had approximately $100 million in customer repayment in the quarter.
The quality of the portfolio continues to improve.
Tom: Our credit and performance metrics are improving with average Michael scores on origination of $6.95 for the first quarter compared to $659 in the first quarter of 2024 and $684 in the fourth quarter of 2024.
Tom: The electricity rates at 2% are solid, reflecting the shift in our targeted viral base, as well as the fourth quarter sale of the substantive remainder of the legacy sub-flying portfolio and the CIT Act leadership.
Tom: and Finance-generated operating profitability in the first quarter, and is our expectation that it will be possible for the full year.
Tom: From a funding perspective, 74% of our portfolio balance is funded with non-recourse debt. This is up from 61% a year ago and is freeing up capital for us to reinvest.
Tom: We are getting great support from our warehouse landers. As we begin to establish a regular ADS funding cadence, we expect 74% funding level to continue increasing.
Tom: We're actively preparing for our inaugural ABS funding program which we expect to close in the next couple of quarters.
Tom: Moving to slide nine after sales, representing nearly one half of our girls' profits continued their revenue in marginal momentum, and girls' profit was once again a record for automation.
Tom: Same-store growth profit increased by 4% from a year ago, with growth profit per day up 5% from a year ago. The increase was driven by an increase in growth per repair order and a modest increase in total repair orders.
Tom: For the first quarter, our margin rate was 48.8% of 140 basis points on a same store basis from a year ago, reflecting improved parts and labor rates, higher tech efficiency, scale benefits, and higher value orders.
Tom: We continue to develop and promote our technician workforce. The quarter end technician head count was up 3% and our technician efficiency continues to improve. Looking ahead, we expect our after sales business will grow roughly made single digits each year.
to slide 10.
Tom: adjusted pre-cashable for the core total $237 million compared to $257 million a year ago and our cash flow conversion remained robust at 129% of net income adjusted net income.
Tom: We're focused on sustaining this performance through the cycle time enhancement initiatives, as well as on proven allocation of capital.
up to Kappa X.
Tom: From the first quarter, our capital expenditure to depreciation ratio was 1.2x compared to 1.6x a year ago.
Tom: And as a reminder, our second quarter cash flow is typically the lowest of the year, reflecting seasonal tax payment and other timing items. We continue to expect healthy pre-cash flow conversion for the full year.
Tom: Slide 11, capital allocation. As we've discussed in the past, we consider capital allocation an opportunity to either reinvest in the business in the form of CapEx or M&A, or to return capital to our shareholders, be a share of repurchase.
Tom: Capac is mostly maintenance related, compulsory spending, total 75 million for the first quarter and was 20% lower than the first quarter of 2024.
Tom: We continue to explore MNA opportunities and as Mike mentioned, we acquired two stores in Colorado during the quarter for $70 million. These Mazda and Ford stores are located adjacent to our existing stores and increase our density within the market.
Tom: as previously discussed. We are competitive buyers where we are confident in achieving three of year three returns greater than our way to average across the capital for poor franchise and opportunities to serve those higher for non-francised acquisition.
Thank you.
Tom: Sherry Purchases have been and will continue to be an important part of our playbook for the first quarter we purchased it.
Tom: We purchased $225 million worth of shares in average price of $165 per share.
Tom: During April , April , we have made additional repurchases bringing our year-to-day repurchases to the $2504 million or 4% of share of house standing.
Tom: at the end of Sheriff's Office saying at the end of 2024.
Tom: In our CAPO allocation decisions, we also continue to consider our investment grade balance sheet and associated leverage levels. At quarter end, our leverage was 2.56 times EBITDA in the middle of our two to three times EBITDA long term target.
Speaker Change: Now, let me turn the call back to Mike, the poll you addressed your question.
Yes, thank you, John .
Speaker Change: and clearly, again, to a workable resolution is paramount, and we know all of our idioms are working on that. So, beyond the fact of tariffs,
Speaker Change: Delivered a great dust 2025 with robust performance across all business lines, which I think shows progress in key areas of our operation.
Speaker Change: and many of these areas are going to continue to deliver benefits to our company, regardless of the resolution on tariffs. And as a result, these initiatives combined with our day-by-day job of running our business well are going to continue to positively contribute to our cash generation, and Tom took you through that.
Speaker Change: and through that enables us to focus on how we can use that cash for the benefit of our shareholders. And that's what we're going to continue to do going forward. So with that, let's open the line for questions, if there are any. Okay, thanks, Mike. Harriet, if you could please remind the people how to ask questions.
Harry: Yes, of course, if you would like to ask a question, please dial StarFulled by one on your telephone keypad now. If you change your mind, I would like to exit the queue, please dial StarFulled by two. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally.
Speaker Change: And for our first question today, we will be going to the line of John Murphy with Bank of America. John , please go ahead your line is opened.
John Murphy: Good morning guys, just wanted to stay on the controllable side of things for a second here.
Speaker Change: Obviously, FNIPVR was a real good guy. I think one of the highest levels we've ever seen, except maybe some real peaks in 22 and 23.
Speaker Change: I'm just curious in that context, and maybe time you can give us some details on this, how much of a weight was the automation finance ramp to that number, because I know that's a little dry of a dry to the FNI PVR number at the moment is the focus building.
Speaker Change: and as you think about that inaugural ABS, how much room and flexibility you have in the warehouse facility, if marketing conditions remain a little bit wonky, over time I'm sure they'll be fine, you'll get something out there, but just curious how much flexibility you have when you launch that inaugural ABS.
Speaker Change: Thanks, John . Good to hear from you. In terms of the...
David.
Speaker Change: but it does have a short-term impact on the CFS. It was roughly, I'd say, $150 for the quarter so you can think of adding that to the 3% and get a real appreciation for the growth that we had there. In terms of...
Speaker Change: capacity and availability of warehousing and interact with increased our capacity and the core for the warehousing facility, and we'll continue to do so, not an issue at all. And in terms of ABS, it's...
Exciting for us to be pursuing that. We're
Working diligently right now on that transaction.
Speaker Change: There's a lot that goes into it. You know, a lot of modeling, a lot of work with the rating agencies and your tanks. We're at the pace where we thought we'd be. Mark, it seemed to be cooperating reasonably well in the last few days.
Speaker Change: and so we're looking forward to being successful in that we are hoping to get something in the north of 500 million, but we'll see how that plays out.
I hope that helps answer your question. Okay, and it might get [inaudible]
Speaker Change: Yeah, that's great. Mike, did you have one follow-up question on your commentary of what appears to be?
Speaker Change: Some pull forward, the man at the end of March and into April and maybe in May. There's more than ten million to pent up demand at least by our estimates out there. So I mean, although we may quote unquote have a little bit of pull forward in these kind of two to three months here as we get resolution on the tariffs.
Speaker Change: Do you think there's going to be significant payback in the months after that or could we continue to ride at sort of the 16 to 16 5 we saw?
Speaker Change: so that the pre-tariff dust up, and this could be a pretty solid year. There's a lot of opinions on this, a lot of people taking their numbers down significantly.
Speaker Change: I think you made a very, very good point on, you know, there being some substitution that might occur and keep sales going. So I just curious on sort of your thoughts on, you know, is there, are we staring down the barrel of big payback or maybe not just because there's so much pent up demands.
Speaker Change: and to your point, therefore, what we saw and we call it a pull forward.
Speaker Change: Well, it wouldn't necessarily have delivered a full payback in the balance of the year action as tariffs anyway because I think that there is pen-up demand in the marketplace and I think that there was that momentum coming into it.
Speaker Change: The full impact on the total volume in the marketplace. I do think you're going to see a lot of market shares swapping and moving.
Speaker Change: We will never know of course, because no one will be able to get a perfect sign, but that's my view.
Extremely helpful. Thank you guys.
Thanks, John.
Speaker Change: The next question today will be from the line of Rajat Gupta with JP Morgan. Please go ahead, your line is open.
Speaker Change: You expect the OEMs to remain competitive and pricing, competitive and market share. I was curious like how do you think that manifests in terms of front and grosses? For the dealers, would the OEMs expect?
Speaker Change: dealers to absorb some of this inflation, you know, you know, maybe the form of, you know, higher invoice pricing versus MSRP or, you know, maybe more dealer discounting versus incentives. Just here, you know, how you see that might play out and have a quick follow-up on Ian.
Thank you.
Speaker Change: But thanks for the question and it's great to have you on the call.
M.
Speaker Change: I would say the obvious, and by the way, I've read a number of the commentary from a lot of people on this call who I think have a very good perspective on this, but forgive me if what I say is just repetitive to some things, as we know.
Speaker Change: The terrorists are not going to have a uniform impact across OEMs and they're not going to have a uniform impact within OEM's model ranges and I think because of that
Speaker Change: The key question is what is going to be the resulting competitive position of ABIC, or in A segment against its competitive. So, relevant competitive position becomes primary for all of the OEMs and that's an obvious statement.
Speaker Change: But because that's true, and no OEM wants to give up market share, and every single vehicle sold has a cross-shop counterpart, that alone is going to mean that, in my view, the last lever that's pulled is net transaction price appreciation, and because of that, I think
Clearly, the impact on the market.
Speaker Change: from some of the projects that I've seen is probably I was stated.
Speaker Change: No, no, it's standing what I said. What that's going to mean is there are some OEMs that are in a very difficult position compared to others and there are some vehicles within OEMs ranges that are in difficult positions compared to others. So you are I think going to see
Speaker Change: Quite a degree of cross-shopping activity which is going to be supported through the full value chain so OEMs are going to look for support from their dealers during this period of time and dealers quite rightly are going to give their OEM support because it's in their interest as well.
Speaker Change: and I am expecting that, we are prepared for that, we are looking at what we need to do to support our OAN, didn't that, and I think that's natural and what's going to happen, it's a relationship and it's a partnership.
Speaker Change: So they're going to be clear, regardless of the total industry, I think they're going to be clear segment by segment vehicle by vehicle winners and losers based upon that relevant competitive position.
Speaker Change: as I mentioned at the beginning obviously because of the broad portfolio that we have got to some extent we hold both sides of that trade not in a fully balanced weighted way of course.
Speaker Change: But when I look individually across our relative positions, the stronger positions that we've had, and I look at the OEMs and we discuss with them what their plans are, I think if I was in their shoes I would be doing exactly what most of them are doing.
Speaker Change: In answer to your question, I'm hoping I might answer your question if not feel free to redirect.
Speaker Change: I think he'll as well step into it as well, I think they should, step into it as well, I think it will be.
Speaker Change: Proportionate, and I think the payback will come in protection of their market share and their markets as well not all dealers are in this position that we are in and because of that as I've said you're going to see I think net transaction pricing increases the last lever that's pulled but it will have to be pulled in certain circumstances for different degrees by different OEMs.
Speaker Change: Anderson, that great color and very clear, thanks for the comments there. Just one follow up on A&D Finance, you know, you use it to break even much sooner than expected. I curious, Tom, like what would you draw that, you know, was it just better on performance?
Speaker Change: It seems like you're netting these margins are still pretty high relative to the new book that you're rolling on. Curious, as some of the legacy loans still roll off, how might that blame to the quarterly trajectory? Yeah.
Speaker Change: and given your order, you'd like to choose Crawford Lady here in the first quarter. Thanks.
[inaudible]
Speaker Change: Aton, before you answer that question, I'm just going to dive in in for a second. I tell you what delivered it was a great team of people doing a great job for us being fully supported by our dealerships.
Speaker Change: If you look at it, if you and congratulations to them, thank you for delivering that and by the way as I said to Jeff Butler who runs that business for us basically what he's done is just reset his budget for the rest of the year upwards so congratulations Jeff.
Speaker Change: But on a serious note, if you look at what's happening in that business, we all know that business relies heavily on S-DNA leverage.
Speaker Change: and that relies on building a book with the lowest risk possible and that's what they've been able to do and they've done it I think very well and very provenly and because of that
Speaker Change: Beth Maintain, what I think is good interest margin and we're now beginning to see.
Speaker Change: Two effect, one is strong SGA leverage flow through and secondly combine with much lower delinquency rates and some of that delinquency, a large portion that delinquency is because of the significant reduction in the proportion of third party.
Speaker Change: Originations that we have, which is now dropped to a very, very low number in terms of the overall book.
Speaker Change: and the discipline we have in place to service our customers and to service the collection of their payments continues to improve and continues to be a daily focus, and I think it's a combination of those things.
Speaker Change: We're very focused on the buy box we have. We don't want to go outside of that buy box because we're clear on the return on equity. We think that will deliver. That return on equity will be improved as we get into the ABS market in more volume. And we think that we're going to continue that way.
Speaker Change: is right for us, it's right for the capital we have to be employed for and we're going to continue on that pace and we will adjust and flex depending on what happens in the marketplace with terrorists. So, Tom, do you want to answer the question? Yeah, I think you did it a lot and I also like the regulators to the team.
Speaker Change: You know, the book that we acquired back in 2022, I think it's probably 25 million less than that.
Automation.
Speaker Change: You know, captive dealerships both, you know, do any of the third card and stuff, but if you...
that you've seen the credit. [inaudible]
Speaker Change: ProFile has continued to approve, so I'd attribute all of the performance on interest margin to what we've done and what we've underwritten since we've acquired the company.
Speaker Change: I mean, it feels like, you know, you should, I mean, it's a touch of magic and it goes.
Speaker Change: You know, Bill Breakey and then you're probably going to only improve profitability from these levels if these are the right level of net interest margins.
Speaker Change: Irrespective of the fact that you're going to still like have new originations to increase, is that a fair statement or a free disagree? Absolutely, absolutely. I would agree to that. Awesome.
Great. Thanks for all the color and good luck.
Michael Ward: The next question today will be from the line of Michael Ward with City Research. Please go ahead, your line is open.
Michael Ward: Yeah, I would agree with that, Mike, that you know we have...
Speaker Change: Well, first of all, the first quarter cash was very strong as we mentioned.
We talked about. There's not. There's not.
Speaker Change: A lot of timing differential in terms of your cash flow, probably the-
Speaker Change: The last week of the quarter was probably more robust than any of our recent quarter, so timing-wise it could be a little bit of cash kind of that comes in the second quarter. But as you know, as I remind everybody, the second quarter is only make our tax payments.
Okay, but then you get the...
Hi, Mike.
Mike: Sorry, get carry on, I didn't mean to interrupt you. No, no, no, go ahead, please please.
Mike: The only thing I'm going to mention on the poll forward is, obviously you can look at the total number of days that we've finished the quarter with and that will, that will.
Mike: Decrease, but what's in there is you think about how that continues. I talked about the fact that obviously it's going to moderate as you go forward as the mix changes in your residual ground stock. So when we think about cash generation, I agree with everything that Tom said, including the season all.
Thank you very much.
Speaker Change: Yeah, but one way or another you're in a demand pull environment, and that's positive for pricing, right?
Yeah.
Speaker Change: For sure, usually a different political environment is positive for pricing. I would agree entirely with that, but it doesn't have the same pricing dynamics that you saw in a COVID situation, for example. Right, right, and that's why that's plus good, okay.
Exactly, yeah, exactly.
Speaker Change: Okay, so just tying the piece together on the cash side. So the other missing link is as you get your ABS completed.
Speaker Change: That frees up some of your cash that we see on the operating side. Instead of that being a drain last year of almost 900 million offset by the debt. So that starts to turn positive.
Speaker Change: So on the operating cash flow side, you see a positive delta, call it 500 million from the ABS, right?
Speaker Change: The point is, and I'm just making up numbers here, but if I had a loan it was 80% funded under the warehouse, that might be 95%.
Thank you.
Speaker Change: And just one last thing, can you give us a direction on floor plan?
Okay.
Speaker Change: Mike, this is Derek. We have a reconciliation in the deck which shows what the change in auto loans receivable net is. So, you can see that. You just are operating cash flow for that. So that's all we look at internally because that's the cash flow available to us.
Speaker Change: Thank you very much. One of our things is important, and this is again.
Speaker Change: It frees up cash on a static book, and your net cash position has to take into account your growing book, obvious statement, so I'm just to close off that conversation.
Speaker Change: I think modeling it at a pace that's similar to Q1 is probably in order for now until we kind of see the impacts of
All right, fantastic. Thank you.
Speaker Change: The next question today will be from the line of Daniela Hagen with Morgan Stanley . Please go ahead, your line is now open.
Daniela Hagian: Hi, thanks. So what does your age mix in used look like with the newer used vehicle supply still tight, even with mitigating factors like you mentioned in house sourcing and also a consumer pressure by affordability. Do you see opportunity moving into older youth vehicles to meet demand.
Daniela Hagian: I think Tom talked about the fact that lower price, sometimes older, sometimes higher margin vehicles continues to be strong demand and I think that that for sure is going to continue.
Daniela Hagian: As we mentioned in the opening comments, we deliberately increased our use vehicle stock at mix.
Daniela Hagian: as best you can in this period because we think that it's an opportunity for us going forward and we can build on our Q1 results. So yeah, we think that will continue to be in demand on $20,000 vehicles.
Daniela Hagian: and it is a focus for us both in terms of self-sourced and other sourcing activities that we have.
Speaker Change: Thanks. And then just on after sales, you spoke to, you know, increased tax increase.
Speaker Change: Productivity. What does capacity, excess capacity look like today, and how much room is there left? I know you got it to, you know, moderate growth over the next few years, but how much on top of that can you get to with the capacity that you have.
Speaker Change: So I can tell you in terms of physical installed capacity. On average, every dealership is slightly different. On average, we have plenty of capacity.
in a cute position.
Speaker Change: We continue to be out at 4%, I think it was increasing technicians in Q1. That is a big focus for us because there are still productivity that we can.
Speaker Change: We turn unlock through training and development of our technicians that we want to add, physical labor resource.
Speaker Change: into our map because one of the big areas for us.
Speaker Change: If I just break down our vehicle parks into 0-3-3-7, we continue to make progress in penetration of those aged vehicles in the vehicle park.
Speaker Change: is obviously seven-year-plus vehicles. There is plenty of opportunity for us to progressively unlock that and to do that we need to think about pricing, we need to think about convenience, we need to think about a whole host of things, one of which means we'll continue to need
Speaker Change: In stool capacity, we have a lot of physical rank etc. We have the headroom we require, we constantly are growing our technicians and in terms of work that's available with different degrees of addressability there's opportunity to grow in the park.
Thank you.
Speaker Change: The next question will be from the line of Colin Langan with Wells Fargo. Please go ahead, your line is now open.
Colin Langan: Oh, great. Thanks for taking my questions. I didn't want to clarify. I mean, so I think in your, your earlier Q&A, you'd mention that you think this is our kind of balls to 15, 16 paces. Is that your view for the full year or that after April ? We have the post forward. That's where you think it settles in at.
Colin Langan: and then, you know, I wasn't also sure your comments on pricing, you think, I guess your numbers out there, 9-10% would be needed to fully pass that on, you don't think that will be seen in the industry and that...
Colin Langan: Both the automakers would have to raise price a little and you guys would take some on the GPU. Is that the right way to interpret all those comments?
Thank you.
Colin Langan: It's right way to interpret some of the comments. Firstly, what I said was that I think some of the full cast in terms of impact on the saw.
Colin Langan: were probably overstated because of the fact that different models in different segments will have different net terms.
Transaction Impact, and therefore, cross-shopping to some extent would...
Colin Langan: and then secondly, what I said was, I believe the last lever of our OEMs will pull will be one that affects that transaction price and therefore they're going to be looking at suppliers, their own cost base, their own infrastructure, including their dealers.
Colin Langan: to develop a best strategy they can based upon the individual circumstances.
Colin Langan: to, I think, really balance the impact on dealers, the impact on themselves, and, of course, their market share. And in that instance,
Colin Langan: There is no doubt in my mind that dealers will be asked to participate in that, but I think it will be in a balanced way, and I think the end result will be, as I said that cushioning in fact on the total industry, I do think the total side will drop, but I think some of the numbers out there are overstated.
about it. Okay.
Speaker Change: and then just on the buyback pace it seemed to sort of jump up a bit. I mean how should we think about it with all the tariff uncertainty or are you going to continue with this kind of pace? How is the M&A market? Is that maybe where you want to pivot more or are you kind of on pause given there is so much uncertainty out there?
Yes, thanks. Thanks, John Lee.
Speaker Change: We've got a couple of Christmas thoughts there. First of all, all of our capital allocation is based on where we think we can develop the greatest returns.
Speaker Change: You know, as it happened in the quarter, we identified, you know, some good acquisition opportunities. We also see our shares and...
Speaker Change: The intrinsic value is higher than where we're trading and so we think that has continued to be a buying opportunity for us.
Speaker Change: and so we're deploying capital to the, you know, extent we think prudent, well managing our
Speaker Change: and so those are, you know, those are three factors. I don't see a material change in.
Speaker Change: Our cash flow is under different scenarios and feel pretty confident that we'll be able to continue to generate good cash flow and be able to have the opportunity to make the decisions on where to deploy the capital.
Got it. All right. Thanks for taking my questions.
Thanks a lot.
Speaker Change: The next question today will be from the line of Bret Jordan with Jeffries. Please go ahead, your line is now open.
Hey, good morning guys.
Speaker Change: In after sales, could we get some color as price versus car count and did the mobile service initiative, contribute to the after sales growth in the quarter?
Speaker Change: There was volume increase, which was high and Tom just correct me. We have volume increase and a price increase about a third volume, two thirds.
Speaker Change: Price increased, some of that was makeshift by the way, it wasn't pure, it wasn't pure, how it sold apart, sold pricing.
Speaker Change: that was quite a bit of a shift in which helped us as well in that piece.
Speaker Change: My Law Service did contribute to the total hours to the total hours sold. They did not contribute to our net income because it is still a business that we are investing in for growth but it contributes at a growth level.
Tom, did I get that? I think that's...
Speaker Change: Okay, and then a question of minutes before it gets back to tariffs and you think about the after sales business.
Speaker Change: Do you have a feeling for what percentage of your parts mix might see tariff exposure?
Speaker Change: Yeah, with the analysis that we've done is to look at the distinction between a captive part and a competitive part. It doesn't mean to say that competitive parts will not get price increases. I think this isn't just OEM parts, they're going to be effective.
Speaker Change: Wrath majority of non-OEM parts have an income, have an import situation as well, have an import situation as well with them. So there is, in terms of by the way of analysis between the non-Captive and non-Captive,
Speaker Change: and therefore they will have different situations in terms of the competitive nature of the marketplace and again you see very similar lever on part that you will see on New Vehicle
Speaker Change: There are consequential benefits of that. They may well be captive, but for example we have seen
throughout the bulk of 2024 and coming into 2025.
Speaker Change: where we are seeing more total losses than retired vehicles and part of that.
Speaker Change: is because of increases in captive parts and obviously changes in residual values so even though it is a captive part it isn't just a hey this is a captive part let's pass it on that's not how it happens in my opinion.
Speaker Change: and other considerations are in there, but that's how we think about it, and I think OEMs are probably thinking about it similar way.
Great. I appreciate that. Thank you.
Speaker Change: Our last question today will be from the line of David Wiston with Morningstar. Please go ahead, your line is now open.
David Whiston: Thanks. Good morning. The first sticking with tariffs, you know, some German tree production isn't USMCA compliant, and I'm just curious, do you think your customers at those stores have willingness to incur larger price increases and say a GM customer or a Toyota customer
David Whiston: Let me just soak on that question for a second to try and give you a balanced answer to it.
David Whiston: At the end of the day, there is always an alternative to what you want to buy.
David Whiston: and it's going to be a decision, an individual customer, customer decision of whether they want to switch to an alternative in the marketplace, that is to them a lesser price, and I think they're going to have, I think they're going to have that option.
He's more able to-
David Whiston: Game pricing in the market, in place then, let me say a much more competitive segment. That's always in the case and will be the case going forward.
David Whiston: That's the best I can give you at the top of my head.
Speaker Change: Appreciate it. Just one question on buybacks. It's a very long-term outlook question here, but I'm just curious how low are you guys willing to take the share account by 10 years from now? And if there is a floor, would a regular dividend at that point get serious consideration?
Excellent question, Derek.
Speaker Change: You know, what want to drive returns, you know, through, you know, balanced capital allocation. I mean, it just so happens that, you know, the more the better opportunities have been in. [inaudible]
Sherry Purchases, but, you know, you're confident that-
Speaker Change: The M&A market itself will present opportunities for us, particularly to take advantage of the footprint that we have, and to drive synergies.
Speaker Change: and to drive scale. I'd be hesitant to give you what we think the golden number of shares is there's a
Speaker Change: and very liquid set of shares, and we'll continue to pursue it. I don't think it's...
Speaker Change: You know, critical that, you know, we have an end target in mind in terms of the shares I would say. It will always be there as an opportunity for us, give them the clarity. The end target we are going to mind is, this is absolutely the best. I shall return with you into the book.
Thanks guys.
Thank you.
Speaker Change: Thank you, this concludes Q&A, and I will now hand the call back to CEO Mike Manley for closing remarks.
Speaker Change: As I mentioned, as we finished the segment, obviously, during this period of time, it's completely natural discussions on a lot of discussions on tariffs and the potential impact.
Speaker Change: In the next weeks I'm really going to be very helpful in terms of seeing what will actually transpire in the marketplace but I do think and I'll repeat some of the things that I said during my opening comments.
Speaker Change: Did you look at our quarter and you look at where our business is developing? There are plenty of areas within our business that are less impacted by tariffs that continue to develop in a positive way. And many of those areas still have a lot of opportunity for us and the team to further develop whether it's in after sales, for example, or the continually growth.
Speaker Change: and Development of A.M. Finance and their areas that clearly, regardless of the tariff situation are things that teams focused on and more remain focused on those things.
Speaker Change: and as Tom said clearly and naturally we look at different potential scenarios going forward to make sure that we are.
Speaker Change: taking the appropriate steps in our view to position AutoNation in the best possible way we can, display the environment, and one thing that is true about this organisation is...
Speaker Change: This business was the first of this type of business and they have proven in virtually every economic cycle that they've been into at a robust business model.
Speaker Change: as consistently delivered and consistently grown and with that we'll end the call. I'd like to thank you all for your time and your questions today. Thank you.
Speaker Change: This concludes the Alternation Incorporated First Call to the 2025 earnings call. Thank you to everyone who is able to join us today. You may now disconnect your lines.