Good morning, and welcome to the Sonic Automotive's Q2 2024 earnings conference call. This conference call is being recorded today, Monday, August 5th, 2024. Presentation materials which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and Litigation Reform Act of 1995. During this call, conference call, management may discuss financial projections, information, or expectations about the company's products or market, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K, filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference. Thank you very much, and good morning, everyone, and welcome to the Sonic Automotive Q2, 2024 earnings call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on the call today is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Mr. Tim Keen; and our Vice President of Investor Relations, Mr. Danny Wieland. We would like to open the call by sincerely thanking our amazing teammates for delivering a world-class guest experience for our customers. Our EchoPark Automotive teammates achieved the top spot as the number 1 pre-owned automotive dealer in guest satisfaction, ranked by Reputation.com. Our Sonic Automotive franchise teammates have achieved among the highest customer satisfaction scores in our industry and in our company's history. Our teammates are truly living our Sonic purpose to deliver an experience for our guests and our teammates that fulfills dreams, enriches lives, and delivers happiness. We believe our strong relationship with our teammates, our manufacturer and lending partners, and our guests are key to our future success. As always, I would like to thank them all for their support and loyalty to the Sonic Automotive team. We remain focused on our ability to adapt to changing market dynamics in the near term, while positioning Sonic to achieve our long-term strategic goals. I'm pleased to report that we continue to make great progress in our EchoPark segment performance in the Q2, with record Q2 Adjusted EBITDA that outpaced our previous projections and sets the stage for continued growth in the second half of 2024 and beyond. Overall, the Sonic Automotive team continued to execute at a high level despite operational challenges in the last 12 days of the Q2 as a result of the previously announced CDK software outage. As of today, Sonic's access to these information systems provided by CDK has been restored. However, we continued to experience operational disruptions throughout July related to the functionality of certain CDK customer lead applications, inventory management applications, and related third-party application integrations with CDK. As a result of the business disruption caused by the CDK outage, we estimate our Q2 GAAP income before taxes was negatively impacted by approximately $30 million or $0.64 in diluted earnings per share, which includes approximately $11.6 million or $0.25 in EPS, related to excess compensation paid to teammates who had reduced income potential due to the CDK outage. Q2 EPS was $1.18 per share on a reported basis, and excluding the effect of certain charges as detailed in our press release this morning. Adjusted EPS was $1.47 per share, a 20% decrease year-over-year due to the effects of the CDK outage on our Q2 financial results. Prior to the CDK outage, we were tracking to have another great quarter of operating performance and financial results, and I'm confident that our team will continue to execute at a high level moving forward. Turning now to Q2 franchised dealership trends, we continued to see expansion of new vehicle inventory levels across our brand portfolio, ending the quarter with a 59-day supply of inventory, up from 50 days at the end of the Q1. This increase was driven in part by a slower sales rate in the last 12 days of the quarter, as well as certain models that were subject to stop-sale order from the manufacturer. The rate of same-store new vehicle gross profit per unit decline moderated somewhat in the quarter to $3,590 per unit. We expect this decline in new vehicle GPUs to continue throughout 2024 and exiting the Q4 in the low $3,000 range, but we continue to believe that the new normal level of new vehicle GPU will remain structurally higher than it was pre-pandemic, normalizing around $2,500-$3,000 per unit range in 2025. Additionally, our team continues to work closely with our manufacturer partners to manage new vehicle inventory levels and better align powertrain options with evolving consumer demand, which should benefit inventory day supply. Floorplan interest costs, and new vehicle GPU. In the used vehicle market, wholesale auction prices for three-year-old vehicles decreased 5% during the Q2, while our franchise dealerships average retail used pricing was flat compared to the Q1, providing stability in the used GPU at $1,524 per unit on a same-store basis. Elevated used retail prices remain a challenge for consumers, contributing to affordability concerns amid the current interest rate environment. However, the return to normal seasonal trends in the used vehicle wholesale pricing are positive for our business outlook and should benefit affordability and used vehicle sales volume going forward. Our team remains focused on driving incremental used inventory acquisition and retail sales opportunities in 2024, driving upside in this line of the business, alongside the expected normalization of used car pricing and volumes over time. Our F&I performance continues to be a strength despite elevated consumer interest rates, with same-store franchised F&I GPU of $2,380 in the Q2, down 6% year-over-year, but up 1% sequentially from the Q1. The continued stability in F&I supports our view that F&I per unit will remain structurally higher than pre-pandemic levels, even in a challenging consumer affordability environment. Our parts and service or fixed operations business remains strong, with a 2% increase in same-store fixed ops gross profit, despite lost productivity at the end of June due to the CDK outage. We are very proud of the success our team has had in this area, and we believe there are remaining opportunities to grow our fixed ops business as we progress through 2024. As we mentioned previously, in March, we launched an initiative to increase our technician headcount by a net 300 technicians in 2024, which we expect would contribute an additional $100 million in annualized fixed ops gross profit. To date, we have increased our technician headcount by a net 131 techs and paced nearly 30 new techs per month in Q2, positioning us well to achieve this goal in the remainder of 2024. Turning now to the EchoPark segment. We are excited to report Q2 record EchoPark segment quarterly Adjusted EBITDA of $7.2 million. Excluding closed stores, EchoPark segment Adjusted EBITDA was $9 million in the Q2, in line with the Q1 and ahead of our previous guidance for a seasonally lighter Q2, despite headwinds from the CDK outage at the end of June. For the Q2, we reported EchoPark revenues of $517 million, down 14% from the prior year, and Q2 EchoPark gross profit of $51 million, which was up 91% from the prior year, despite a significant reduction in store count year-over-year. EchoPark segment retail unit sales volume for the quarter was approximately 16,600 units, down 3% year-over-year. However, on a same-store basis, which excludes closed stores, EchoPark retail unit sales volume was up 23% in the Q2. Revenue was up 10%, and gross profit was up 81%. EchoPark segment total gross profit per unit was $3,078 per unit, up $927 per unit year-over-year, and up $123 per unit from the Q1, driven by marginal improvements in used wholesale market pricing, improving inventory sales velocity, and higher F&I gross profit per unit. As discussed on our previous earnings calls, the reductions to our store footprint since the Q1 of 2023 allowed us to better allocate inventory across the platform, driving higher unit sales volume per rooftop, better total variable GPU, and a second consecutive quarter of positive adjusted EBITDA. Our unwavering confidence in EchoPark's long-term potential has allowed us to weather the challenges in the used vehicle market in recent years, and we believe our performance in the Q2 demonstrates a tremendous opportunity for this brand. A second consecutive quarter of positive segment Adjusted EBITDA for EchoPark validates the strategic adjustments we made over the past few quarters, and we look forward to resuming disciplined long-term growth for EchoPark as used vehicle market conditions continue to improve in the coming years. Turning now to our Powersports segment. For the Q2, we generated revenues of $39.6 million, gross profit of $10.7 million, and segment Adjusted EBITDA of $2.3 million. As expected, the Powersports selling season began to ramp up in April, and we are really looking forward to maximizing the benefits of this year's Sturgis Rally, which kicked off this past week. We continue to focus on identifying operational synergies within our current Powersports network while fine-tuning our Powersports playbooks. In the near term, we look forward to implementing our refined F&I sales strategy, centralized marketing and inventory management, and the rollout of sonicpowersports.com. While we are taking a disciplined approach to expansion in this segment, we remain optimistic about the future growth opportunities in this adjacent retail sector when the time is right. Finally, our diversified cash flow streams continued to benefit our overall financial position in the Q2, despite operational disruptions from the CDK outage. Turning to our balance sheet, we ended the Q2 with $885 million in available liquidity, including $467 million in combined cash and floor plan deposits on hand. We continue to maintain a conservative balance sheet approach with the ability to deploy capital strategically as the market evolves. Additionally, I'm pleased to report today that our board of directors approved a quarterly cash dividend of $0.30 per share, payable on October 15th, 2024, to all stockholders of record on September 13th, 2024. As you can see in the investment presentation we released this morning, we are reaffirming our limited financial guidance for 2024 following our Q2 results. We continue to believe that lower franchise dealership segment earnings can be at least partially offset by significant improvements in the EchoPark segment results, returning to positive EchoPark segment Adjusted EBITDA for the year, as well as a moderate increase in Powersports segment income year-over-year. Prior to the CDK outage, we were projecting a second consecutive quarter of year-over-year EPS growth, demonstrating the value of our diversified business model in the current environment compared to a traditional franchised-only model. In closing, our team remains focused on near-term execution and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long-term returns. Furthermore, we continue to believe our diversified business model provides significant earnings growth opportunities in our EchoPark and Powersports segments that may help offset any industry-driven margin headwinds we may face in the franchise business, minimizing the earnings downside to consolidated Sonic results over time. We remain confident that we have the right strategy and the right people and the right culture to continue to grow our business and create long-term value for our stakeholders. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from Bret Jordan with Jefferies. Please proceed with your question. Hey, good morning, guys. Good morning, Bret. Just sort of an economic backdrop question, and I guess maybe as it relates to customer pay service or Powersports, did you see anything notable as the quarter progressed as far as consumer deferral on the service side or, or retail traffic or conversion in Powersports? Really sort of a macro question. Not at all. This is Jeff. Not at all. As a matter of fact, on Powersports, it continued to get stronger as the quarter went on, and that continues in July and August. It's mean season for Powersports now, and with the rally going on, you know, that we are jam-packed in terms of customers coming through the rally. Okay. Then on new unit GPU, I think you're talking about settling going of $2,500-$3,000 at some point next year. Is the cadence of softening, slowing, just, you know, as a result of a slowing inventory build? I guess, you did a bit better than we were expecting on front-end GPUs in new this quarter. Sort of, what do you attribute the recent stability to? I mean, some of that is mix driven. Toyota margins are still good. They've got a 15-day supply of product on the ground, and that brand is just on fire. But quite honestly, it's a tale of two cities because you've got other brands, Stellantis, Nissan, you know, some of these brands are 100-200-day supply of product out there that are just ridiculous that we're fighting against in terms of managing age, which reduces the front-end GPU. But we should settle in that 2,500-3,000 number. I think we'll exit the year at 3,000, maybe a little bit better. And some of that's just mix driven. There's more incentives right now. Highline incentives are out there. I expect that to get even more aggressive in the Q3 and the Q4, especially as the manufacturers try to balance out some of this BEV electric vehicle inventory that they're trying to reduce day supply on. And we're starting to see some really, really aggressive... Mercedes-Benz just got super aggressive on incentives this last couple of days. So it ought to be a big, big Mercedes month and quarter. This is huge- Thank you. I really appreciate the color. If you look at Q2, the degradation in the front-end GPU was the lowest year-over-year since December of 2022, and sequentially since December of 2022. So we do see the cadence is slowing based on Q2's data. Yeah. Yeah. Thank you. Our next question comes from Rajat Gupta with J.P. Morgan. Please proceed with your question. Great. Thanks for taking the questions. You know, I just had, like, two or three ones. In the slide deck, you know, you highlighted you know, the chart on less than five-year-old supply of used cars, and it makes a ton of sense. In the past, I think you've mentioned that you feel confident navigating these supply challenges as it relates to EchoPark. So just curious, I mean, because you have that slide there, and then the chart are pretty explicit, how should we think about EchoPark volumes, you know, in 2025? Should Should we expect it to drop year-over-year because of the supply challenges, or, you know, the pace of share gains that you're seeing would help offset that? Any color you can give us on, you know, 2025 EchoPark in context of the supply would be helpful? And I have a quick follow-up. Thanks. Well, this is something we talk about a lot. You know, it's interesting that you ask this question, because, you know, what we're just talking about, the new vehicle day supply. It's actually gonna benefit EchoPark greatly. This is Jeff, Rajat. If you look at the amount of new car inventory that's out there today, you know, that just defines that there's going to be plenty of pre-owned inventory as we move into 2025. We're expecting better volumes. You know, we can buy for the 17 existing EchoPark stores pretty easily right now. That's not a problem. And I think, you know, you're seeing 5,500 to 6,000 cars a month. As the prices continue to drop, I think that group of stores can do 85 cars a month. That's 500 or so units per store, which is kind of where we were, kind of the low end of where we were on a per rooftop basis prior to COVID. That's important to know that we've actually achieved that before. Yeah. So we were in the $550 range, and I think we'll get back to that with this group of stores. And as we begin to approach that, then you'll see us begin to look at, you know, opportunities to continue to begin to open stores again and grow the brand. We're waiting patiently because I'd like to see the average cost per unit drop another $1,000-$1,500 bucks, but that's coming. With the day supplies, the manufacturers can't help themselves. We didn't learn a lesson in COVID. I wish we would have. It'd be a lot better for the industry overall, but they didn't, and you've got manufacturers out there that have just totally lost control of their day supply, and it's gonna cost them big time in terms of incentives. The winner here is the consumer. They pay a lot less for a vehicle over time, and that's gonna trickle down into the pre-owned side of the business. There's gonna be plenty of inventory. We're not concerned at all with being able to supply EchoPark and/or our franchise stores as we move forward into 2025. The picture is getting better, not getting worse, as we watch new car inventories grow in the marketplace. Yeah, I think also, just to add this, as Heath, is that I think we've done a better job of buying cars off the street, so we're not so dependent on the, on wholesaling. And, we also, we don't have the rental cars in the, in the auction lanes any longer, so it makes it a lot easier to, to get enough vehicles to staff that EchoPark. Got it. Got it. That's clear. And, did you quantify, like, the CDK impact on EchoPark volumes in the quarter in any way? Is there any way to, like, judge that? Yeah. So kind of, kind of overall, it's about 500 units or so for the EchoPark brand, and about 3,000 units new and used, 1,500 a piece on the franchise side. Got it. Got it. Just, just one, one quick follow-up on the F&I. You know, what's, what's driving this continued pickup there? Is it, is it attach rate? And, and specifically on EchoPark, I mean, is it the attach rate that's going up? You know, is there, like, some price increases on the products itself? You know, I know, like, CarMax recently raised prices for their MaxCare products. So I was just curious, like, if you could, like, you know, help us bridge that a little more. Thanks. It's product penetration, and that's just it. We're selling more warranties, selling more products per car. Our team's executing at a very high level, and that makes, you know, a big difference in terms of our performance on the back end. Got it. Got it. Great. Thanks for all the color. I'll jump back in queue. I think, again, this is David. I think it, you know, I noted on my opening remarks about the, you know, being number one. EchoPark team is number one in the pre-owned market and guest experience. And, you know, when you're offering that kind of, you know, world-class guest experience, that's certainly going to contribute to that GPU. Got it. Got it. Great. Thanks for the color and good luck. Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from John Murphy with Bank of America. Please proceed with your question. Good morning, guys. This is Billy Healy on for John. Good morning. Good morning. So I just wanted to ask you guys, if you can talk to what you're seeing on the overall health of the consumer and new vehicle demand, and what have the trends been in terms of, like, mix and trim levels, and what do you expect for new vehicle pricing for the rest of the year? Thanks. This is Jeff Dyke. So I've you know, with the day supply going up, pricing is gonna come down, incentives are gonna get better, so better for the consumer. Mix is good. I mean, there's just tons of inventory, and you look at our Chrysler brand north of a 200-day supply, our Nissan brand around a 100-day supply, which is just absurd for the industry. But I think, like I said earlier, the consumer wins here. The import brands are doing a very, very good job of controlling their inventory. Toyota's in really great shape for us, around 15 days. Honda's sitting between 30 and 40 days. Hyundai in the 50-day range, Subaru in the 30-day supply range. So they're doing a really, really good job. The highlines are fighting a little bit. I mean, there are a couple that are out there that are a little higher. Mercedes is, you know, running in the upper 80-day supply range, 90-day supply. BMW is doing a great job keeping their day supply low. Audi, you know, sitting at a higher day supply with new mix coming in here, hopefully, towards the end of the year or the Q1. But you know, overall, we're sitting at a 60-some-odd day supply of new vehicles. And inventory is very healthy, obviously, with that amount of cars on the ground. BEV mix is gonna get a little bit better. I think as the year goes on, manufacturers are really starting to move towards eliminating some of their day supply of electric vehicles, which is great. We're sitting at some 14, 15, maybe close to 20-day supply on electric vehicles across the board. I expect that to continue to drop off and to really sort of meet demand. So I think the manufacturers in the industry learned a big lesson, overproducing a lot of electric vehicles when the consumer demand was not there. Obviously, higher on the West Coast, higher on the coasts, but not in the middle of the country. I think that rightsize is between now and the end of the year, which is great. Hopefully, you know, the manufacturers get a big wake-up call with some of the incentive dollars that they're gonna have to spend between now and the end of the year to rightsize. Some of the manufacturers to rightsize their inventory. Again, Toyota, Honda, those guys are doing a fantastic job in managing day supply. So, I think it's a bright picture between now and the end of the year. I think there's gonna be front-end margin pressure along with margin pressure at the manufacturer level to reduce inventory levels. And hopefully, you know, they can look back and say, "You know, we really did learn a good lesson during COVID. We need to control our inventory better," than what they've been controlling it, you know, over the last quarter or two, because it's, in many, many cases, it's been just a complete shit show, if you will. All right, thanks. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to David Smith for closing comments. Great. Thank you very much. Thank you, everyone. We appreciate you, and we'll talk to you on the next call. Thanks. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.