Good morning. My name is Ellen, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to the AutoNation Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you'd like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two on your telephone keypad. I'd now like to turn the call over to Derek Fiebig, Vice President of Investor Relations. You may begin your conference. Thank you, Ellen, good morning, everyone. Welcome to the AutoNation Second Quarter 2023 Conference Call. Leading our call today will be Mike Manley, our CEO, and Joe Lower, our CFO. Following their remarks, we'll open up the call for questions. Before we begin, 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 on our website, located at investors.autonation.com. With that, I'll turn the call over to Mike. Yeah, thanks, Derek. Good morning, everyone. Thanks for joining us today. As normal, Joe's gonna take you through the results in much more detail than I will. What I'd like to do is talk about the business, give you a perspective from my side. Touch on what we see as industry dynamics, then give another update on where we're heading and the channels that we are putting in place for growth of the business. As we know, there obviously continue to be mixed economic signals in the overall economy. From our point of view, the supply and demand equation, even though it is moderating, we think, does remain favorable for the business. Last quarter, I said that we thought the consumer had no way tapped out, and we still feel that's the case for sure. Now, notwithstanding the fact that higher interest rates are impacting affordability, lower unit sales over the past few years have contributed to pent-up demand, which, as we see in this inventory levels improve and some mitigation on net transaction price, continue to convert to sales in the marketplace. The aging vehicle park, which is now about twelve and a half years, as well as positive household formation, I think are additional favorable dynamics for the business, and these factors, I think, will continue to be a benefit for new and used vehicle sales going forward. Now, as in the first quarter, 2Q light industry vehicle sales increased from a year ago, both driven in this instance by an increase in fleet, but also a notable rise in retail units, which increased by about 10%. Even with these increases, light vehicle sale remains below what most of us, we've been in the business a long time, would consider trend. You know, where industry incentives and lease penetration, even though they both have been increasing as late, they're still significantly below pre-pandemic levels, which I think just give you an indication that OEMs still have a lot of additional tools to help spur demand if it's needed in the marketplace. Talking about incentives, as you know, Q2 incentives were around $1,700, which was up $700 year-over-year, but well below the $4,000 pre-pandemic high. Leasing continues to recover, but still only reached about 20% of volume versus 30% pre-pandemic. I think this channel will further grow, particularly with EVs. As we close out the year, I think we'll see that come through. For the second quarter, new vehicle sales were in line with the overall growth in retail units of the brands we represent, and gross PBRs, as expected, continued to mitigate, yet remains robust, I think, at around $4,600 for the quarter. Clearly, front-end margins have been more resilient, and most of us were expecting heading into the year. I expect margins will continue to moderate, partly to maintain current demand in this higher monthly payment environment, and partly as inventory levels continue to increase and fewer vehicles are being sold at MSRP. However, I do not expect margins to return to pre-pandemic levels for the foreseeable future, based on higher average selling prices of vehicles and continued lower industry inventory levels. Let me just move to used vehicles. Remaining consistent with the discussions we've had in this area, our focus on enhancing economics through effective self-sourcing, efficient reconditioning, and agile market pricing, I think, has helped us in the quarter in what has been a bit of a choppy market. On our Q1 call, I discussed how the lower new unit sales over the past years led to a scarcity of supply of late-model used vehicles, and this continues, obviously. In addition, the velocity of sales is also lower than normal, as fewer vehicles were sold to fleet and daily rental over the past few years, and consumers are clearly holding onto their vehicles for longer. Now, our focus at AutoNation has been on internal sourcing, asset turnover, and avoiding purchasing vehicles, which required substantial reconditioning to get them up to the AutoNation quality standards. As we look back on our first quarter results, we recognize that our lower level of used inventory, whilst bringing a number of benefits such as depreciation, lower depreciation, and funding benefits, we felt was probably constraining volumes more than it should. We spent a lot of effort in the second quarter, really redoubling our sourcing efforts, particularly in those categories that we think deliver quality inventory, so that we could progressively through the quarter regrow our inventory to get us ready for the third quarter and beyond. We did that, I think, in a very disciplined, deliberate way, and that means we exited the second quarter and now go into the third quarter with increased availability, which we expect will enable us to drive elevated unit sales. Joe will touch on that, but obviously, that work came with an investment, particularly around the development of those channels that we thought were the best places for us to increase our used inventory. As I said, Joe will touch on that a bit more. The expansion of our AutoNation USA footprint obviously remains a core tenet of our growth and densification efforts. I think densification is an important word. We added our 16th store in Colorado Springs during the quarter. As you know, we've been intensely focused on expanding the range of products and services we offer and sell to our customers. This focus for us is two-fold: the first is to increase AutoNation share of our customer spend on transportation and mobility, and the second is to continually develop and grow revenue from what we term as higher recurring revenue sources. One key component of this approach is obviously our financial services performance, and I have been very encouraged with the continued performance the teams have delivered. I know a lot of our guys and girls are on the call listening to this. Thank you for that. That's your shout- out, but please keep that going up, because our CFS PBRs is structurally higher, despite many expecting this valuable source of margin to come under significant pressure, particularly given prevailing interest rates. I think it's because our team have always taken a balanced approach, driving both finance penetration levels, but really importantly, increasing per unit product sales. You know, as such, we've increased our per unit performance, and as a result, the team delivered a record PBR of more than $2,800 for the quarter. Well done. Now, talking to higher recurring revenue streams, let me touch on after- sales. As you know, we've constantly talked about this, and we've been very deliberate in consistently growing this high margin, higher frequency business. We recorded a gross profit record of more than $540 million, which is up 13% from a year-ago. Notwithstanding the degrees in late model vehicle park, which, as you know, is where all franchise dealerships have the higher penetration and obviously lower new unit sales over the past year, I think that we have successfully been able to combat that headwind, still work in progress, but, a good result in the quarter, no doubt. A big part of that is our focus on expanding our technician workforce and serving more customers. I'm expecting to be able to talk about further growth in the future on these calls. Now, business continues to generate significant cash flow, which, when you combine it with the strength of our balance sheet, allows us to continue to invest, to change our business for the long term, obviously make investments in our core operations, but also return capital to our shareholders, and we do that through share repurchases. During the second quarter, we invested more than $200 million to repurchase over 1.5 million shares at a price of about $132 per share. Year to date, we've reduced our shares outstanding by more than 8%. As we previously said, the structural changes we have made to AutoNation during a time when the supply and demand economics have been a tailwind for our operations, will have a lasting and meaningful impact on a go-forward basis and help to continue to drive shareholder value and returns. Before I hand the call over to Joe, let me provide some updates on where we're heading and talk a little bit more about those channels for growth. As I've previously discussed, we've been very intentional, I think, at looking at areas where we can expand and grow to meet the transportation needs of our 11 million+ customers and their households. There is a very significant opportunity set of customers who really only transact with AutoNation once or twice or have become active over the years. We are commencing a much more targeted effort to engage with this customer base. I think it's an asset that we don't talk enough about, certainly externally, but very focused on internally. When you've had a business that over many years has not only built up some phenomenal franchise assets in great locations with, what I think is great density in our operations, those 11 million plus households and customers that we've interacted with represent increasingly with technology, a very, very valuable source for the company. Rich Lennox, our CMO, who joined us from Macy's, as you know, brings substantial non-automotive retail experience. He is already looking at both lifetime value and customer loyalty with his team, and I'm really excited about what I expect to come from that area. You know, because if we can extend our core business and increase the depth and breadth of our product and services offer, that will deepen and lengthen our relationship with our customers, as well as continuing to provide a convenient, trusted, and transparent customer experience, which I think is vital to be successful in the marketplace. We put a lot of time and effort, obviously, as an organization, as a group of people on those customer-centric actions. I'm very pleased to see that it hasn't been lost on some industry observers. This May, 143 of our stores were certified as 2023 Dealers of Excellence by J.D. Power. Shout out to those stores. Well done, guys. That recognizes dealers for exceptional customer service. 143 stores this year. That's up from 129 last year and 78 in 2021. great progress. I'm also very pleased with the performance of AN Finance as the group continues to expand. As Joe's often said, we're taking a measured approach and pace to make sure that we can progressively increase the penetration of this business with the vehicles sold at our AN USA stores. They are doing that, and they're also navigating, as you can imagine, quite an interesting and sometimes challenging environment with all the rate rises. With RepairSmith, I think, has extended the reach and the brand of our after-sales business, and we've begun to integrate this mobile service and repair business into AutoNation ecosystem. One of the things that I think will become increasingly obvious is as we continue to grow AN USA, it's the only standalone used car dedicated business that has one of the most convenient service and warranty provision in the entire marketplace. Imagine that, not only do you have phenomenal selection of used vehicles, great transparent pricing, great preparation, good quality vehicles, but then you also get the best convenience to have your vehicle serviced and repaired by a mobile, well-qualified technician. Really pleased about how that business is coming together. A lot of work to do, obviously, but I think, you know, it's gonna be a complement to the other things that we're doing. Talking about used car business, it's obviously grown substantially from our pre-pandemic levels, both our franchise stores and through AN USA. Sixteen locations with the addition of Colorado Springs, increases our footprint density in that area, which is another important strategy that we're focused on to drive market efficiency and economics. Over time, we expect our actions and initiatives will garner a larger share of wallet from consumers, which will reduce our relative exposure to the more cyclical parts of the business, and that approach is really centered onto that customer base I mentioned and talked a little bit about earlier, and the 11 million households that we serve. During the second quarter, we built on more customers than Q1 and now added more than 400,000 new customers for the year. We're focused on enhancing our relationship with active customers, but as I mentioned, really going back in, reactivating lapsed customers, adding products and services to our base so that we can really be that comprehensive provider to all of those customers that either are part of our active customer base or hopefully will be reactivated through the work and the products and services that were added. We think that these actions will add to the structural changes that we've brought to the business over the past few years. Now, that said, I have to say we are very focused on the franchise business and supporting our vehicle manufacturers partners. We are in a privileged position to have a lot of great relationships with some of the best automotive brands in the world. I'm pleased to say in June, we added to our franchise density in Southern California with the purchase of Bob Baker Auto Group in Carlsbad. Welcome, everybody. Very pleased to have you on board. You guys are gonna bring at least $300 million, hopefully more, of annual revenue and five great stores, and then obviously help us with building our customer base, as I said. With that, Joe, I'm gonna hand it over to you to take us through the details. Thank you. Thank you, Mike, good morning, everyone. As Mike described, this quarter's results were really driven by healthy margins, record after- sales performance, record CFS PBRs, disciplined expense management, and our balanced capital deployment strategy, which largely offset used unit sales, lower growth PBRs, and higher financing costs. The result was second- quarter adjusted EPS of $6.29 per share, just below last year's record EPS of $6.48, above the $6.07 we reported in the first quarter of this year. Second quarter total revenue of $6.9 billion was essentially flat from a year ago, as increases in new vehicle volume and the continued growth of our after- sales business offset lower used vehicle sales. AutoNation's new unit sales increased by 8% in the quarter, which, as Mike mentioned, was largely in line with the overall industry when adjusted for brand mix. This increase in volume partially offset lower new vehicle PBR margins, which, although moderating, still remains healthy at $4,600. Inventory for new vehicles increased by one day from the first quarter to 26 days. As is the case with the overall industry, we have a wide dispersion of inventory levels by brand and model. Import brands are generally below the company average, domestic brands, generally above, and premium luxury, it's generally in line with the average. The overall new vehicle market remained healthy during the quarter, as almost 40% of our vehicles were sold at MSRP, which continues to be far higher than pre-pandemic levels. This is down from about 45% in Q1. Our total used vehicle gross profit decreased by 14% from a year ago, reflecting lower unit sales and used PBR margins, which declined slightly from a year ago. We continue to support our used vehicle economics through effective sales sourcing, which was above 90% during the quarter. After sales, gross profit grew 13% year-over-year as we continued to drive strong performance in this key area of our business. Customer pay, warranty, internal, and collision all experienced double-digit growth year-over-year. The recurring revenue stream from after sales continues to grow, with our trailing 12-month gross profit up nearly $400 million or more than 24% since 2019. CFS performance also remains very strong, and we continue to lead the sector with PBRs exceeding $2,800 for the quarter. We are pleased that our product penetration of more than two contracts per vehicle pushed the percentage of CFS profit from products above 70% and outpaced lower profits associated with the finance portion of our service offerings. Customers continue to invest in products which will protect both the performance and appearance of their vehicles. As Mike mentioned, we're very pleased with the performance of AutoNation Finance and the progress we have made integrating the business into our operations. We will continue to grow this business in a measured manner, supporting our AutoNation stores. AutoNation Finance represented over 20% of new loans originated in our AutoNation USA stores in the month of June, which is facilitating our shift to a higher-tier credit customer. Moving to costs, SG&A as a percentage of gross was 61.9% for the quarter, remaining significantly below pre-pandemic levels and reflecting permanent structural changes to our cost basis. SG&A, as a percentage of gross profit, was slightly higher than recent periods, reflecting investments in technology and new business initiatives as we expand our offerings to customers, as well as additional advertising support for our We'll Buy Your Car program, as Mike referenced earlier. As noted in today's press release, we excluded $12.4 million of after-tax expense from our second quarter results. These expenses are related to weather events, including major hailstorms in the quarter, that damaged more than 2,800 vehicles. In comparison, there were no such weather-related losses last quarter or in the year-ago quarterly period. Second quarter floorplan interest expense was $33 million, impacted by both higher rates and increased inventory levels. This all culminated in adjusted net income for the second quarter of $285 million or $6.29 per share. As Mike referenced, our cash generation remains robust and, combined with the strength of our balance sheet, provides us significant capacity to deploy capital into our businesses and return capital to our shareholders. Our cash flow from operations, incorporating proceeds from additional floorplan, was almost $240 million in the quarter, and that included cash tax payments of $190 million. During the quarter, we invested more than $180 million in our business operations, including the acquisitions of five new dealerships, as Mike mentioned, and over $100 million of a capital expenditure. We also continue to expand our AutoNation USA footprint with our third new location this year, which increases our offerings in a key strategic market. The AutoNation USA stores play an integral part in both our long-term growth plans and the achievement of scale, scope, and density in our markets to better serve our customers. We also continue to return capital to AutoNation shareholders through share repurchase. Year to date, we have now repurchased four million shares, or 8% of the shares outstanding at the beginning of the year. The pace of share repurchase is down slightly from previous two years, but still very significant by any comparable measure. We currently have approximately $670 million of remaining authority for share repurchase. We ended the second quarter with total liquidity of approximately $1.4 billion. Our covenant leverage of debt to EBITDA was slightly below two times or at the bottom of our historical 2x-3x range. Earlier this month, we successfully amended and extended our credit facility. The new five-year facility has similar pricing to the prior facility, while increasing our revolving borrowing capacity by $100 million- $1.9 billion and increasing the flexibility of our financial covenants. Looking ahead, we will continue to focus on operational excellence and disciplined capital allocation, supporting growth to drive long-term shareholder value. With that, I will turn it back over to Mike. Yeah. Thanks, Joe. Before just taking your questions, obviously, what I want to do is to thank the people that every single day deliver results for us, and that's our 24,000 associates. Thank you for what you've done in the quarter. Also, as you know, in May, we announced that Joe will be moving to a newly created role, which is basically going to oversee all of the business transformation initiatives for the company. Joe will continue to report directly to me, and he's going to coordinate the execution and integration of our business transformation products, really with a focus on process improvement, operational efficiency, and I think as a result of that, will help accelerate our growth. Now, I can tell you that since I joined the organization in late 2021, Joe, in a very short space of time, has been a trusted advisor for me and business partner. I'm incredibly pleased and excited as he moves into this new role to be continuing to work with him. I think he's done a tremendous job in the management of our balance sheet and guiding our capital deployment. You also need to look below that and really look at what the business and how the business was performing in terms of some of the efficiencies, some of the cost base, and everything else. You can see the lasting effect that him and his team, in conjunction with their operational people, have added to our business, and I think it's absolutely tremendous. Now, in August, Tom Szlosek will join us and replace Joe Lower. Many of you know Tom Szlosek. He's helped drive change and innovation across medical, technology, and manufacturing industries, and frankly, like Joe Lower, the best-in-class Fortune 500 CFO. Tom Szlosek's going to be responsible for continuing our focus on operational excellence, obviously the development of our company, as well as making sure we continue with a really balanced but focused capital allocation approach. Just a quick update on those things. With that, should we open up to questions? Yep. Yes, Ellen, if you could please remind people how to get in queue. Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the one on your telephone keypad. We'll pause for just a moment to compile a Q&A roster, the first question comes from John Murphy from Bank of America. John, your line is now open. Please go ahead. Good, good morning, everybody. You know, Joe Lower, congrats on the new role. I'll start with that. You know, Mike Manley and Joe Lower, as you look at this, you know, there's incremental dollars being spent here. Just curious if you could talk about what those were in the quarter for these initiatives, but also maybe more, more broadly, when you got 11 million customers, you know, in your Rolodex there, as we would say in the olden days, that you can really leverage and potentially engage with for a longer period of time. You know, as you're going through this exercise of transformation, you know, what does that mean? I mean, and could it mean that you're, you know, holding on to these customers in that vehicle for 10 years as opposed to, you know, five years, and the, you know, the profit opportunity is 2x or maybe more? I mean, how are you kind of thinking about this holistically as the sort of the addressable market of what you could get after? Is it more traditional things like another used vehicle sale and extended parts and service, and then CIG and doing some, you know, more financing, or are there other things that are potentially entering the equation as you look at the opportunity set? John, I'm gonna start with that, and then Joe can talk about the investments that we've made. When you look at our customer base that we have built up, there are a number of things that I think are really relevant. Firstly, the percentage of active customers within there, and we could define an active customer by somebody that has a transaction within a period of time. If you took active customers, including service, the actual percentage of active customers in the 11 million is well below 50%. Well below 50%. You have to ask yourself, why do you get that level of attrition with the rest of the customers? If you look at our reputation scores and our customer satisfaction scores, it's purely not because of that, and it's because circumstances and needs change within that customer base. That may well be that their geographic position to our dealerships has changed, they're further away, or as the vehicles age, they've decided to take a non-franchise solution to service and repairs, or a whole host of different reasons. As we've looked at that and spent time working with that customer base, identifying what is driving that, we're adding and it building our business so that we can offer products and services that meet their changing needs from when they maybe originally bought the vehicle. More convenience in terms of service and repair, so that, for example, if they are 20-25 mi away from a dealership and just looking for a quick oil change, we can provide that at a great level of convenience for them as well, as well as then build out different products. We, you know, we've added the finance company. That was really twofold. One, because it's a deep relationship with customers, obviously, and secondly, it was a perfect match for the growth that we were trying to achieve and are achieving with AN USA. Without taking too much of the call, I think in the question itself, you answered a lot of it, and that is, big percentage of those customers are one and done. And there's an opportunity for us there. A big percentage of those customers have needs outside of themselves in their household, whether it is family members or whether it is, relatives. What we are striving to do through the expansion of our products and services is increase the average length of the relationship that we have, and of all of the spend they make on transportation or mobility, however you want to define it, and I'm not too interested in what word you used, that we want more of that and earn more of that because of the quality of service, the price of our service, and the transparency of working with AutoNation. A long answer to your question, but hopefully, that'll add some color. Let me try to put some quantification behind that, John. If you think about really what Mike was saying, to deliver that, it's investments in technology, it's investments in people, capabilities, incubation of businesses, and marketing. I mean, those are the kind of the buckets that we look at as we are developing solutions, developing capabilities, developing businesses. The cost of that, as I indicated last quarter, is tracking basically between 100- 200 basis points as a percentage of growth. In this quarter, it was about 150 basis points. When you look at our 61.9 as a percent, about 150 basis points of that are those types of costs that I've tracked, that we kind of deemed the support of these critical initiatives, which I think will, as Mike referenced, position us fundamentally different going forward. Yeah, thanks for that, Joe. John, just one last- That's good. Sorry, John, go on. I didn't mean to interrupt you. What were you saying? No, no, go. No, finish up. I'm sorry. I just had one quick other one. Yeah. What I think is important is that what we're talking about is a progressive expansion of our business. This isn't a light switch because those customers that have become inactive are obviously transacting with someone else or a different way. Maybe they're getting a service or part now from a non-franchised, family-owned store. The reality is, they are continuing to transact. This is not a light switch. All of a sudden, okay, you know what, come back to us, everything changes. You will see a progressive development of this part of the business, I think what's really important is it hasn't just begun. If you look at the investments AutoNation pre me, have been making, for example, in their after-sales business and the development of their technicians. All of that type of business, I think, adds stability in times when new vehicle sales are up or down, and margins are really in the hands of someone else, and continues to lay down a base of profitability that enables us to develop great cash flow so that we can invest in these businesses. It is not a short, quick burn flash. It's a longer burn part of the business, John. I think that's important for me to say that as well. Yeah, that's very helpful. Just real quickly on inventory levels and, you know, the potential for a UAW strike, which seems like it's fairly likely. You know, Mike, I mean, obviously, in your former life, you're close to this stuff. I wouldn't say, you know, it's probably near your heart, but not dear to it. This is, yeah, this situation is gonna be pretty difficult, and it sounds like we're gonna have some level of an extended strike at one, if not all, of the D3. You know, how are you setting up to handle that and what kind of implications might that have as we go through the end of the year for the business? Yeah, obviously, John, we're watching it very closely, as I'm sure a lot of people are. I think your overview of the situation is probably right. Having been on one side of that table, I think ultimately, what needs to prevail is the fact that the interests need to be balanced and ultimately get aligned. Whether that is a strike or prolonged strike or they get to an agreement beforehand, I don't know. What I can tell you is, if you look at the inventory development, the biggest growth in inventory that we've had is in our domestics. That, to me, gives me a level of comfort. We know we can survive on inventory levels way below the ones that we have today, and it looks as if it will continue to build as we get through the summer before the summer shutdown in the plant. I think you need to look at that. The distribution of our day supplies is much lower in other of our divisions. The second thing, and I touched on this before, the good news about a balanced business, the really good news about a balanced business is we have different sources. As I mentioned, we came out the first quarter, I was pleased with the efficiency of our stock turn on our used vehicles, but I did think, and the team felt, that we probably constrained ourselves, so we spent a lot of time rebuilding that. You'll see quite a change in our used vehicle inventory from the end of Q1 through to the end of Q2. That process isn't finished because I still think that we can put more inventory in there because I think the market's robust. Obviously, if we do see a shortfall in terms of our domestic businesses on new vehicle sales, because we get to a level of inventory that really is constraining sales to a large extent, we will have the ability to switch on and refocus on our used sales, as well as that increase in after-sales that we're seeing. I will tell you, I think it's gonna be an interesting summer, and yeah. Nothing to add apart from that. Great. Thank you very much. Yeah, thank you very much, guys. I appreciate it. Thank you. Our next question is from Daniel Imbro from Stephens. Daniel, your line is now open. Please go ahead. Yeah, good morning, everybody. Thanks for taking our questions. Look, I want to follow up on that last question around the used business. Obviously, end market demand is choppy, and you guys are moving your inventory around to address it. I guess two questions on that side. I guess one, just what is your outlook on when that affordability issue starts to get fixed? Are we seeing lenders extending terms any further? I'm just curious, kind of, how you position the inventory. If you could expand on that, if there's any assumption there. Then strategically, last quarter, you guys, I felt like, focused more within a per unit profitability, maybe less focused on unit growth. GPU stepped down a bit more than we thought they would this quarter. Just kind of any change in your strategic thinking there around market share versus profitability per unit, and then how do you weigh those two factors in this current backdrop? Yeah, thanks, Daniel. Well, firstly, on the affordability, what we're seeing is that mix is changing. You saw the average price of used retail coming down. That's pure mix change. We're seeing prices, wholesale prices mitigating. They peaked in March. The last few months, they're trending down, much more normal depreciation pattern, which is bringing down net prices on used as well. Our terms, our periods are remaining solid, but we do know that we are competing against lenders that have increased the term that they're prepared to offer in the marketplace to keep them balanced, our monthly payments. You know, at the end of the day, the equation, whether it's price, whether it's term, whether it's accessories, the reality of what's not changing is, not changing very much, is the monthly payment available. As always, we're finding ways to still be able to maintain sales, and I think that will continue. Secondly, no, I still think we've got a very robust margin. It's not a change in our focus at all. Even with that, I still think it's important that we balance the volume that we want to achieve, as well as taking, I think, a very deliberate approach to maintaining used margin. I was pleased with the margin. I think that there was more volume without an impact on. A significant impact on margin. You know, we are in a period now where we're seeing, as I said, a return to what we would consider more traditional, depreciation in the used market, and we just have to stay very agile with pricing. You're gonna see, as you always do, fluctuations in margin, but we want quality business, but we want our fair share of business. I don't want a constraint being the fact that we don't have enough used vehicles to meet the demand. It's always a balance, but it's not a change in strategy. Perfect. That's helpful color. Then maybe just to follow up on the new side. Inventory obviously still tight at 26 days, but GPUs were under a bit more pressure than expected. Is that just a certain brand mix issue that kind of pulled down the sequential step down in GPUs relative to the day in inventory? Just trying to help better understand the sensitivity of maybe how quickly GPUs will compress as inventory builds from here, given that move this quarter sequentially. Thanks. No, I don't think. Well, a number of things are happening, aren't they? You talked about affordability on used vehicles. You have the same impact on new vehicles. As availability picks up, obviously maintaining momentum in the new vehicle market is important. Net transaction prices are clearly coming down. Some of that was expected from a margin compression. Frankly, I think where we're at is probably better margins than I expected coming into the year, which is why I made the statement that I think margin compression will continue, but won't reach the levels certainly this year, in my opinion, that we saw pre-pandemic. What I would say is. By the way, that's also on the OEM side. The increase we saw in incentives, the move to leasing, are all about affordability issues, all about maintaining momentum in the new vehicle market. I think that there are plenty of tools available to maintain that going forward, but it's driven by not just improved supply of inventory, but it's also driven by making sure that some of the issues and pressure on affordability are mitigated in certain ways. As I said, we expect to see ongoing mitigation of margin, but not to the levels yet that we saw pre-pandemic. Perfect. I appreciate all the color, and best of luck. Thank you. Our next question comes from Rajat Gupta from JP Morgan. Raja, your line is now open. Please go ahead. Great. Good Good morning, thanks for taking the questions, and congrats, Joe, on the new role. I had a first question on parts and service. Yep, thank you. I had a first question on parts and services, you know, the growth there accelerated, you know, from 1Q to 2Q, you know, both revenue and gross profit. Are there any specific areas you would attribute that to? Is it just broader industries trend? You know, was there anything AutoNation specific, you know, perhaps RepairSmith is beginning to contribute? You know, if you could just get a little more granularity there, would be helpful, and I have a follow-up. Thanks. Yeah, it's Mike. I think there are really three things at play. The first thing goes back to some of the things that we're talking about before, and that's being really looking at the penetration of our franchise businesses in the areas that they're responsible for, and recognizing that if the branded vehicle park, which is the primary target for a franchise dealership, offers a lot of opportunity in exactly the same way you consider market share. It's really the teams focus very much on where is our service and parts market share, where do we want to take it? That leads you to the second part, and that is, do you have the capacity? We certainly have the physical capacity because OEMs, for many, many, many, many years, oversized their dealerships, which means that we have physical capacity already paid for and installed, and we've been very focused on increasing our human capacity to be able to take advantage of improvements in penetration. The real effect that we're seeing, I think, is a return to... Obviously, you've got more knowledge- driven, you've got longer ownership of vehicles, and therefore, there is more work being done on a per- vehicle basis. It's a combination of those things that have delivered the result. You're not seeing the effect of RepairSmith yet. That will take some time to be integrated into the bussiness, as we've said on many occasions. Our focus on those three areas that I touched on is what's driving it, and hopefully will continue to drive it for a little while yet. Got it. Got it. That's helpful. Maybe a follow-up on, you know, AN Finance. You know, the loss rate there, it seemed it improved quite a bit, from 1Q to 2Q, and just the total contribution from that, unless I'm missing anything else in the other line item there. Curious, if you could clarify that, and then any color you could share on, you know, how delinquencies or charge-offs, track sequentially, in that portfolio, and any near-term trends, have changed your view around the ramp-up of that business, and how do you view penetration there, you know, progressing through the course of the year? Thanks. Just one or two questions there, Rajat? I'm happy to talk about AN Finance. It is progressing. As you know, we kind of stepped into some headwinds, but it's progressing with a lot of attention in a very positive direction. We are very deliberately increasing the penetration within the AutoNation USA stores, as I mentioned, and, you know, 20% of the loans now are coming of the AutoNation stores are through AN Finance. That's allowed us to drive down costs, it's allowed us to improve credit quality. In a marketplace that generally, you know, delinquencies have been a challenge for the industry, continue to be a challenge, but we've mitigated that by expense discipline. We've mitigated that by portfolio pruning, and being very deliberate in, you know, how we continue to build the book. That book is very, rapidly becoming a AN Finance, dominator, or AN AutoNation-dominated book, which will continue, as that really is obviously aligned with our strategy of penetration of the customer. From a contribution standpoint, you're correct in that it's had sequential improvement in each of the quarters. I expect that to continue, but as we've indicated, it will be at a very governed pace, given the environment and given kind of our strategic initiatives. Is there anything else on AutoNation Finance I can address for you? No, I think, that's very clear. Appreciate it. I'll get back in queue. Thank you. Thanks, Rajat. Our next question comes from Michael Ward from Benchmark. Michael, please go ahead. Your line is now open. Thanks. Good morning, everyone. First off, Mike, you mentioned that you thought maybe the vehicle manufacturers might turn a little bit more to interest rate or lease incentives. Certainly you're down at lows, and we'll see that increase. Does that have any impact, positive or negative, on your F&I or variable gross margins on the new? OEMs are very, very adept and well-practiced at making sure that the pressure is equally borne, unfortunately. Okay. Now, Joe, you talked about operating cash flow being $240 million. I think from what I can tell, that most of the inventory increase was on the used side, and that's probably largely financed by non-trade floor plan, which is below the operating line. Are you including any of that increase in floor plan in your operating cash flow number of $240? You are correct, and you understand the nuances of the accounting associated with trade and non-trade. When we talk about it, and we're going to try to make sure we clarify this further. When we talk about the $230 million, that does have used floor plan in it, and that is the benefit of the increase of the used floor plan. It's really a matter of tracking both what shows up in operations on the cash flow statement and effectively paid through of the cash flow, which is the financing activity. You are correct. You also had the seasonal $190 million in the cash side? Yeah, that's. On the cash side. The way that, Yeah, as you know, the way that the tax payments go, Q2 is an opportunity to contribute to our government. That is always going to be the quarter where we have there's a substantial tax payment. The operating cash flow number we see is from a seasonal standpoint, and then from the floor plan standpoint, is going to be lower than we thought when the Q comes out later today. All things being equal, it's normal course of operations. It's definitely normal course, and you can see then the $236 million, it does include the tax payments, right? That's buried in the operating cash flows. Okay. I think pretty clearly- Okay when you look at what's reported from cash from ops and you look at new and used floor plan, I think you'll pretty quickly get to the $236 million number. Okay. Just one last thing on the off- lease. I think we're anniversaried up to a three-year type period with COVID, where you probably have no vehicles coming back off lease or very little. Was that one of the things that contributed to the when you look at the retail on the used side, underperforming the overall market? Yeah, I mean, there were a couple of things that happened. Firstly, to your point, there weren't many vehicles that were put on lease. Secondly, because of the appreciation of used vehicles, many customers, for one of two reasons, were buying their own vehicle off the end of the lease, either because they didn't want to step into the market and wanted the market to mitigate from a price point of view. Or secondly, they did want to step into the market and then see if they could maximize their margin on their own vehicle. I think some of those things are now dissipating, and we will see. The reality is there is that shortfall that in the marketplace of those vehicles now aged 1 to 3, 4 years old. You've seen all of the retailers step up their activity to self-source those vehicles to fill the hole. I think we've done a great job in Q2. That will continue to be a focus. It does come with some incremental cost from a marketing and development perspective. I think that is an investment well worth making. As I said, you know, as you get through in the summer months, who knows what's going to happen? We touched on a potential headwind in terms of the negotiations. We want to make sure that we have things that we can turn to and sell effectively. It's always a balance. Thank you very much. Thank you. Our next question comes from Colin Langan from Wells Fargo. Colin, your line is now open. Please go ahead. Thanks for taking my questions. Just wanted to follow up in the commentary you mentioned, SG&A was impacted by investments in technology and new business initiatives. Any sizing of the impact, and is that sort of in a go-forward rate, or is that more of a one-time sort of, a cost? Yeah, as I mentioned, you know, We just had this kind of earlier question on the nature of it. It is people, it's technology, it's capability, it's business. ...As we've indicated previously, it's 100-200 basis points as a percentage of gross. In this quarter, it was about 150 basis points as a percentage of gross. We track it that way, and we'll track it that way going forward. Got it. All right, I appreciate it. Sorry, I missed that. Then in the past, you've talked about, I think it's. Just to be clear. AutoNation. Yes, sir. I was just gonna say, just to be clear, we anticipate that spend will continue. We're gonna continue to invest in the business. What I did reference or referenced earlier and referenced in my comments, was the one element of SG&A that was higher than I anticipated going forward was advertising. That was, you know, 75 basis points or so higher than you would expect from us on a going-forward basis, really associated with some of the unique things we did in the quarter. That I would not expect to continue at that level going forward. Got it. Okay, thank you. Then in the past, I think you put out by 2026 for AutoNation USA, 130 stores. I mean, I think you're at 16 now. I mean, any color on how we should be thinking about it and when maybe the ramp will start to re-accelerate? I touched on this somewhat last year and earlier, and what I said was, and I, and maybe I wasn't clear enough, and I apologize for that. We will get to 130. I'm not gonna be governed by a timeline that as things develop in the marketplace, make that 130 the wrong thing to do for the business. We're very clear on the locations we wanna be on. We have a fantastic strategy and team working on it. We're very clear now, having opened 16 of these, that we've learned a lot, frankly, from opening 16, both on the size, the footprint, the capital involved, but also the cadence of opening. One of the things I said was that you'll see a mitigation in terms of the speed we're opening our AN USA, so that what we don't do is disrupt the existing growth and development of the AN USA stores, number one. Two, we don't force a bad decision, a bad location because of some aspirational timeline to achieve 130. We will achieve 130. You'll probably see seven more through the balance of this year. Will you see an acceleration? Only if I believe, and the team believe, operationally, we can cope with it, and that it is the right location at the right capital cost. Got it. All right, thanks for taking my questions. Thank you. Our next question comes from Bret Jordan from Jefferies. Brett, the line is now open. Please go ahead. Hey, good morning, guys. On the AutoNation USA service penetration, I guess, how does that compare to the used cars sold out of the franchise stores? I mean, the mobile vans are still ramping, but are you seeing those customers coming back after the purchase at the rate you see them at the legacy business? No, no. We do have a penetration. It depends on the densification that we have or the density we have of other businesses in the marketplace. If we have appropriate franchise businesses, then we maintain or hand off the service work effectively. There's an important percentage of customers that find, have historically found an alternative to look after their servicing and warranty needs. Progressively going forward, they won't need to do that because they'll have access to RepairSmith. RepairSmith will effectively become increasingly become the service and parts arm for AutoNation USA. Okay, a question, I guess the domestic inventory build, you know, given your background, do you think it's strategic that the big three are building given UAW risk, or are they building for the sake of building? I think that, obviously, I can't get into their, I can't get into their minds, but I would certainly be building in this way. I think it's, I think it's prudent build, frankly. You know, when I look at the mix of vehicles that are being produced, and I think about the turn rate that we're still able to achieve with those vehicles, you know, I'm comfortable, and I think it's the right thing that's happening. You know, we're still only sat at 43 days with the domestics. I mean, I have to say, embarrassingly, in my time, you know, we were up at 130. When we talk about build, I think we still have to remind ourselves and ground ourselves that, particularly for the domestics, high levels of inventory, spot deliveries, is what most of the customers are used to and expect in those businesses. Yes, we are talking about a build, but we're only at 43 days. Great. Thank you. Thank you. Our next question comes from Daniel Whiston from Morningstar. Daniel, your line is now open. Please go ahead. Thanks. Good morning. Wanted to ask about your advertising spend. You've got a lot of mileage out of it recently, with the Panthers making it sound like a final year F1 partnership and now Messi at the DRV PNK Stadium, and particularly with the F1 deal, just that's a global sport, as you know. I'm just curious if you're laying the ground for international expansion? Well, that's a good question. you know, I got to tell you that, if you look at the relationships that have been built up over many years within AutoNation and consider those as assets, I think our team have done, you know, a great job. you occasionally trip over an amazing opportunity, as you've seen with Inter Miami. you know, I think at the end of the day, it's gonna be fantastic for the sport, it's gonna be fantastic for the region, and obviously, with our name all over it's gonna have big benefits for us, and we're already seeing quite a diverse change in some of the hits that we're achieving on our, on our media channels. As we've said, you've got to put it into the category of what is, what is, good luck, and what is good strategy? Messi, genuinely, falls into the category of good luck. With that, I think that's the best answer I can give you. Okay, with trade-in values and everything else going on in the economy, I'm just curious, are you at all concerned that at some point, trade-in values for consumers are going to come down while new vehicle pricing stays elevated to the point that it does hurt new vehicle affordability? Trade-in values are heading down now. They've been heading down since February, March, and I think they'll continue on that, on that normal pattern. What's also happening is you're seeing increases in incentive rates. You're seeing mitigation in new vehicle margins. You're seeing an offset. And as I said, that's, that's kind of the three-legged stool balance to get to a monthly payment that customers are looking for. I still think if you look at pre-pandemic levels, purely on the, on the new vehicle, pricing and incentive side, we're still a long, long way from that, and there are a number of levers that can be pulled. Yeah, I think you will continue to see trade-in values decline in a normal fashion, but I think there's plenty of tools, particularly with the OEMs, that they can deploy if they want to stimulate and maintain demand. Just one more question on the on Elon's massive discounting of the Model Y. Do that at all hurt any particular brand for you guys, either on the premium side or volume brand in your crossovers? No, I think there's no doubt it ripples through the marketplace, and had a big ripple effect. I think one of the things, it's so fluid at this moment in time. You saw the announcement from Ford, obviously, and there are other pricing adjustments that are going on that don't necessarily get the headlines that those do. I think what we're sat right now is a drive to really try and understand what is the right net price for those vehicles in the market at the volume the OEMs want to sell. I think as a result of that, you're gonna see constant adjustments, whether it is headline adjustments with MSRP or less visible adjustments with incentives. I think what's important, and where we're being incredibly cautious, is in the used market, because whatever is adjusted on MSRP or incentives on the front end immediately impacts the back end. If you look at our inventory, for example, one of the things that we are really focused on is if we have EVs in stock, which we do, because, you know, there is a marketplace for those, that we are very focused on what price and what term rates. All right. Thank you. All right. Thank you. Thank you. Thanks, everyone, for joining us on the call today. I look forward to speaking with you after next week.