AutoNation, Inc. Price & Performance (AN)

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. Yes. Thank you, Derek, and good morning, everyone, and thank you for joining us today. Going to start on the third slide. So our results for the first quarter were strong across the board. We delivered outstanding new unit growth expanded unit profitability both in used vehicles and customer financial services and achieved record after sales profits. Our operating cash generation was solid, allowing us to deploy capital for both share repurchases and accretive acquisitions. Prior to the formal announcement of tariffs, new vehicle sales were performing well tracking approximately 5% up year over year and the strong pace accelerated following the tariff announcements in late March, adding to our pace resulting in same store new vehicle unit sales increase of 7% for the quarter from prior year. Premium Luxury increased 14% Domestic 6% and Import increased 2%. Now I'm pleased to say that during the quarter, we increased our share both year over year and month over month in the markets we served. Used vehicles continue to perform well as unit profitability increased 13% to $16.62 dollars reflecting our focus on margin costs inventory levels and mix.

Our total gross profit included wholesale increased 12% from the first quarter of twenty twenty four. Customer financial services continued to deliver strong results. Per unit profitability increased from a year ago on a sequential basis for the second consecutive quarter. The sequential performance is noteworthy considering the seasonal shift. To used vehicles. Another highlight of the quarter was the performance of aftersales, which once again delivered record gross profits and expanded by 140 basis points from the previous year. We continue to grow our technician workforce while promoting and developing them internally. AM Finance also continued to develop and perform, Originations were $460,000,000 during the quarter and the business crossed over to profitability well ahead of one expected. And I would like to thank and congratulate the entire A and F team. As well as all of the dealerships that have helped them deliver that result. And in addition, the credit quality of our portfolio continues to track favorably and as discussed on our year end call, the sale of the last substantial portion of third party legacy originations significantly reduced our credit risk exposure has resulted in a meaningful reduction in delinquencies. Cash flow generation for the quarter was strong, allowing us to deploy capital for both share repurchases and attractive acquisitions.

During the quarter, we repurchased $225,000,000 of shares at an average price of $165 per share. And as of yesterday's close, we've repurchased more than $250,000,000 worth of shares reducing our share count by 4% from January 1. Our Q1 performance combined with our share repurchases have us to grow our adjusted EPS by 4% from a year ago This was the first year over year increase in adjusted EPS in eight quarters. As the post COVID normalization trend is significantly moderated. On March 31, we acquired two stores in the Greater Denver Colorado area, Ford Arapahoe and Mazda Arapahoe, which together sold nearly 5,000 new and used vehicles in 2024, generated approximately $220,000,000 of revenue. These acquisitions reflect our strategy to add store density into markets where we have a presence, It allows us to rapidly bring significant scale synergies to the acquired dealerships expanding on the current success of these stores and delivering strong returns to our shareholders. The acquisitions marked the first AutoNation Mazda and second AutoNation Ford in the state, bringing our footprint in Colorado to 13 domestic six import and three AN USA dealerships concentrated in the Greater Denver area. Now before turning the call over to Tom to take you through the quarter in greater detail, I wanted to provide some color on some of actions at AutoNation.

Clearly, in the quarter, we benefited in March from a pull in effect as buyers accelerated their planned vehicle purchases to avoid the coming tariffs. This trend continued into April, albeit at an increasingly moderating pace. And as you can see from our current days of supply, we have a level of ground inventory at pre tariff rates that will for certain models, sustain this momentum into May. This provides time for the auto tariff structures to be more clearly defined modified and negotiated between our OEM partners and the U. S. Administration. It also enables each OEM to fully evaluate their supply chain footprint and understand what actions they can take to optimize the tariff efficiency and to establish the forward pricing structures. As these actions progress towards finalization, the impact on new unit availability and pricing will become clearer as will the effects on customer demand patterns. These factors combined will establish changes, if any, to the size of the new vehicle market. And in March, the light vehicle side risen to north of 17,000,000 units with estimates that this would come down to somewhere between 31,000,000 units for the year. We expect some of these predicted declines will be cushioned by a cross shopping effect.

Whereby demand for lesser impacted brands and models will supplant that for those more affected counterparts. In this situation, we often hold both sides of the trade, not always equally weighted, but our broad portfolio of brands and models gives us an advantage here. Also confident that our OEM partners will be keen to protect their market share regardless of total size of market. There are a number of areas in our business that are less impacted by tariffs including used cars, customer financial services, parts and service, and we continue to focus and drive our performance in these areas. For example, we have made a concerted effort to increase our used car inventory and are now carrying the highest level of vehicles since December 2023. We are also continuing to drive service lane traffic and our momentum continues to improve as we get further into the year. We remain focused on controlling costs within the company, generating cash flow and deploying capital to generate shareholders' return. And now with that, Tom, if you don't mind taking the call over and going through our results. Yeah. Thank you, Mike.

I'm turning to Slide four to discuss our first quarter P and L. Our total revenue for the quarter was $6,700,000,000 an increase of 3%. From a year ago. That's 4% on a same store basis. This was driven by a 10% increase in same store new vehicle revenue as we increased new unit volumes across all three segments. Same store gross profit of $1,200,000,000 increased by 3% from a year ago This year over year performance included same store used vehicles growth of 12% CFS growth of 6% and after sales growth of 4%. The gross profit margin of 18.2% of revenue was down slightly from a year ago reflecting improvements in margins for aftersales which was up 100 basis points or 140 on a same store basis. And used vehicles including wholesale which was up 90 basis points. This was offset by the moderation of new vehicle unit profitability. Adjusted SG and A of 67.5% of gross 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 SG and A as a percentage of gross profit to be between the 66% to 67% range for the full year, reflecting our focus on driving operational efficiency.

Adjusted operating margin was flat from the fourth quarter at 5% of revenue. Below the operating line, the floor plan interest expense decreased by $3,000,000 from a year ago as average rates were down approximately 100 basis points more than offsetting the higher average outstanding borrowings. Non vehicle interest expense decreased $2,000,000 from a year ago reflecting lower average outstanding balances. As a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $31,000,000 compared to $32,000,000 a year ago, And net of these OEM incentives, new vehicle floor plan expense totaled $13,000,000 down from $15,000,000 last year. All in all, this resulted in adjusted net income of $184,000,000 compared to $190,000,000 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 significantly moderated. Total shares repurchased over the past twelve months decreased our average shares outstanding for the quarter by 7% to 39,400,000.0 shares. Benefiting our adjusted earnings per share which was $4.068 for the quarter an increase of $0.19 or 4% from the first quarter of twenty twenty four. Slide five provides some color more color for our new vehicle performance.

New vehicle unit volumes were a strong point for the quarter. Increasing more than 6% from a year ago on a total store basis and 7% on a same store basis. Full store unit sales were up across our three segments with import units up 2% premiumluxury up 14% and domestic up 6%. Reflecting strong supply better incentives and good performance by our commercial teams. By powertrain, hybrid vehicle unit sales were up approximately 50% from the 20% of our unit sales and 10% of our ending inventory. The BEV vehicle sales were also up nearly 50% from a year ago, reflecting OEM actions with incentives, and uncertainty regarding longevity of government incentives for BEVs. BEVs represented about 8% of our sales for the quarter and 8% of our ending inventory. Internal combustion engine unit sales were down 4% for the quarter. Our new vehicle unit profitability averaged $2,803 for the quarter down seasonally from the fourth quarter which is a normal trend reflecting higher premium luxury weighting in the fourth quarter. Unit profitability was flat for the third quarter of last year. New vehicle inventory ended the quarter at 39,000 units up by about 1,000 units from a year ago.

This represented thirty eight days of supply down six days from the first quarter of last year reflecting strong new vehicle sales for the quarter. Looking ahead, as Mike indicated, the momentum we have seen in March has continued into April. Albeit at a moderating pace. Turning to Slide six, the used vehicle unit profitability was up 13% from a year ago. And 8% from the fourth quarter. We are executing much better on vehicle acquisition reconditioning, inventory velocity and pricing. Total used gross profit was up 12% reflecting this unit this retail unit profitability. As well as better wholesale results. Lower priced vehicles continue to perform well with unit volume increasing in that band 10% from the fourth quarter. In the sub-twenty thousand dollars band. Supply availability remains a challenge particularly for the mid and higher priced years consistent with the past few quarters. Driven by lower new vehicle production during COVID. 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 We'll Buy Your Car program. During the quarter, we opened two AN USA stores in Texas adding density to the Houston and Dallas markets and bringing our ANUSA store count.

To 26. Moving to slide seven, customer financial services. Momentum in CSS performance continued during the quarter. Apart from the overall strength in vehicle sales, our product attachment rate was strong remaining above two products per vehicle sold. More than 70% of our CFS income comes from product attachment. Also, our finance penetration rate through the first quarter continued north of 70%. Our CFS PVR of $2,703 for the quarter was up 3% from $2,615 a year ago. Due to increased profit per contract sold and higher average amounts financed. The unit profitability growth in CFS is even more impressed considering the growth of Aon Finance. Which while superior in long term profitability dilutes our CFS PBR margin. Slide eight provides an update on AN Finance, captive finance company. The business' attractive offerings are driving strong customer take and we continue to expect strong ROEs in the business. During the first quarter, we originated $460,000,000 in loans up approximately $100,000,000 from the fourth quarter and $300,000,000 from the first quarter of twenty twenty four. We had approximately $100,000,000 in customer repayments in the quarter. The quality of the portfolio continues to improve Our credit and performance metrics are improving with average FICO scores on originations of six ninety five for the first quarter compared to six fifty nine in the first quarter of twenty twenty four six eighty four in the fourth quarter of twenty twenty four.

Delinquency rates at 2% are solid reflecting the shift in our targeted borrower base. As well as the fourth quarter sale of the substantive remainder of the legacy subprime portfolio inherited with the CIGX. Acquisition. Aon Finance generated operating profitability in the first quarter and is our expectation that it will be profitable for the full year. 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. We are getting great support from our warehouse lenders as we begin to establish a regular ABS funding cadence, expect 74% funding level to continue increasing. We're actively preparing for our inaugural ABS funding program, which we expect to close in the next couple of quarters. Moving to Slide nine, after sales representing nearly one half of our gross profits, continued their revenue and margin momentum and gross profit was once again a record for AutoNation. Same store gross profit increased by 4% from a year ago with gross profit per day up 5% from a year ago. The increase was driven by an increase in gross per repair order and a modest increase in total repair orders.

For the first quarter, our margin rate was 48.8% up 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. We continue to develop and promote our technician workforce The quarter end technician headcount was up 3%, and our technician continues to improve.

Looking ahead, we expect our after sales business will grow roughly mid single digits each year. To slide 10, we continue to see a consistent and attractive conversion of income into cash. Adjusted free cash flow for the quarter totaled $237,000,000 compared to $257,000,000 a year ago. Our cash flow conversion remained robust at 129% of net income adjusted net income. We're focused on sustaining this performance through the cycle time enhancement initiatives as well as on prudent allocation of capital to CapEx. For the first quarter, our capital expenditures to depreciation ratio was 1.2x compared to 1.6x. A year ago. And as a reminder, our second quarter cash flow is typically the lowest of the year reflecting seasonal tax payments and other timing items. We continue to expect healthy free cash flow conversion for the full year. Slide 11, capital allocation. As we've discussed in the past, we consider capital allocation opportunity to either reinvest in the business in the form of CapEx or M and A or to return capital to our shareholders via share repurchase. CapEx is mostly maintenance related compulsory spending totaled $75,000,000 for the first quarter and was 20% lower. Than the first quarter of twenty twenty four.

We continue to actively explore M and A opportunities and Mike mentioned, we acquired two stores in Colorado during the quarter for $70,000,000 These Mazda and Ford stores are located adjacent to our existing stores and increase our density within the market. As previously discussed, we are a competitive buyer where we are confident in achieving year three returns greater than our weighted average cost of capital for core franchise opportunities. This hurdle is higher for non franchise acquisitions. Share repurchases have been and will continue to be an important part of our playbook. During the first quarter, we purchased $225,000,000 worth of shares at an average price of $165 per share. During April, we have made additional repurchases bringing our year to date repurchases to the $254,000,000 or 4% of shares outstanding at the end of of shares outstanding at the end of twenty twenty four. Our capital allocation decisions, we also continually 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. Now let me turn the call back to Mike before we address your questions.

Yes. Thank you, Tom. Obviously, tariffs and their impact are going to continue to dominate the discussion in the coming weeks. And clearly, getting to a workable resolution is paramount, and we know all of our OEMs are working on that. But beyond the fact of tariffs, AutoNation delivered a great start to 2025. Robust performance across all business lines, which I think shows progress in key areas of our operation. 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 are running our business well. So going to continue to positively contribute to our cash generation, and Tom took you through that. And through that, enables us to focus on how we can use that cash the benefit of our shareholders. That's what we're going to continue to do going forward. So with that, let's open the lines for questions if there are any.

Okay. Thanks, Mike. Harry, if you could please remind the people how to ask questions.

Yes, of course. And for our first question today, we will be going to the line of John Murphy with Bank of America. Please go ahead. Your line is open.

Good morning, Just wanted to stay on the controllable side of things for a second here. Obviously, and I PBR was a real good guy, think one of the highest levels we've ever seen. Except maybe some real peaks in 2022 and 2023. Just curious in that context and maybe Tom you can give us some details on this. How much of a weight was the AutoNation Finance ramp to that number? Because I mean, I know that's a little bit of a drag to the F and I PVR number at the moment. Is it the book is building as you think about that inaugural ABS, how much room and flexibility you have in the warehouse facility? If market conditions remain a little bit wonky over time, I'm sure they'll be fine. You'll get something out there. Just curious how much flexibility you have in when you launch that inaugural ABS? Thanks. Thanks, John. Good to hear from you. In terms of the the PBR for CFS, you're you're right. The the the 3% growth was impressive. As I pointed out in my commentary, we are overcoming the shift of some of our financing to our end finance portfolio, which as we've talked about gives us a superior long term return.

But it does have a short term impact on CFS. It was roughly I'd say, 150 for the the quarter. So you can of adding that to the 3% and get a real appreciation for the the growth that we had there. In terms of the funding of the portfolio, Until we have ABS, we're very, very comfortable with capacity and availability of warehousing. In fact, we increased our capacity in the quarter 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 on that transaction. There's a lot that goes into it, as you know, a lot of modeling. A lot of work with your rating agencies and your banks We're at the pace we thought we'd be. Markets seem to be cooperating reasonably well in the last few days. And so, you know, we're we're looking forward to being successful in that. We we are hoping to, you know, get something north of 500,000,000 but we'll see we'll see how that plays out. Hopefully, helps answer your question. And and, Mike, yeah, that's great.

Mike, I just had one follow-up question on your commentary of what appears to be some pull forward demand at the March and into April and maybe in May. There's more than $10,000,000 of pent up demand at least by our estimates out there. So I mean although we may have a little bit of pull forward in these kind two to three months here as we get resolution on the tariffs, 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 sort of the pre tariff dust up and this could be pretty solid year. I mean, there's a lot of opinions on this, lot of people taking their numbers down significantly. I think you made a very, very good point on there being some substitution that might occur keep sales going. So I'm just curious sort of your thoughts on is there are we staring down the barrel of big payback or maybe not because there's so much pent up demand? So the way that I think about it is, I think that we saw well, I believe we saw momentum in the marketplace January through February, which we expected.

So if I just put tariffs to one side at this moment, I think that the market was headed for a significant improvement year over year.

And to your point, therefore, what we saw and we call it a a pull forward wouldn't necessarily have delivered a full payback in the balance of the year absent of tariffs anyway because I think that there is pent up demand in the marketplace. And I think that there was that momentum coming into it. [indiscernible] a very strong personal opinion on what I think the impact of tariffs may well be. And yes, I do believe that because of the nature and the dynamics of the market and how tariffs will impact everybody in a different fashion, that there is going to be significant cushioning to the full impact on the total volume in the marketplace. I do think you're going to see a lot of market share swapping and moving. But just to summarize my answer, not everything that we saw come into the quarter was was indeed pull forward. And it's for sure, in my view, absent of tariff, will not be all given back in the back half of the year. We will never know, of course, because no one will be able to get the perfect science, but that's my view.

Extremely helpful. Thank you, guys. [indiscernible] The next question today will be from the line of Rajat Gupta. With JPMorgan. Please go ahead. Your line is open.

Great. Thanks for the question. I just wanted to follow-up on John's question earlier around, you know I think some of the comments you made, Mike, earlier that you expect, you know, the OEMs to to remain competitive on pricing, you know, competitive on market share. I was curious, like, how do you think that manifests in terms of you know, front end grosses? For the dealers, you know, would it would would the OEMs expect dealers to absorb some of this inflation, you know, you know, maybe in the form of you know, higher invoice pricing versus MSRP or or, you know, maybe more dealer discounting versus incentives? Just curious, you know, how you see that might play out. And I have a quick follow-up on e n finance.

Thanks for the question, and it's great to have you on the call.

So I'll state the obvious, and and 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 certain things. As we know, the tariffs are not going to be they're not going to have a uniform impact across OEMs and they're not going to have a uniform impact within OEMs' model ranges. And I think because of that, the key question is what is going to be the resulting competitive position of a vehicle in a segment against its competitors. So relevant competitive position becomes primary for all of the OEMs and that's an obvious statement. 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 going to mean that in my view, the last lever that's pulled is net transaction price appreciation. Because of that, I think [indiscernible] the impact on the market from some of the projections that I've seen is probably overstated. Notwithstanding what I've 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 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 OEMs because it's in their interest as well. I am expecting that we are prepared for that are looking at what we need to do to support our OANs in that. And I think that's natural and what's going to happen. It's a relationship and it's a part partnership. 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. 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 weighted balanced weighted way, of course, but when I look individually across our relative positions as 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.

So in answer to your question, I'm hoping I'm answering your question. If not, feel free to redirect. I think dealers will step into it as well. I think they should step into it as well. I think it will be proportionate and I think the payback will come in protection of their in their markets as well. Not all dealers are in this position that we are in. Because of that, as I've said, you're going to see, I think, net transactions price increases the last lever that's pulled, but it will have to be pulled in certain circumstances to different degrees by different OEMs.

Understood. That's great color. And very clear. Thanks for the comments there. Just one follow-up on AN finance. You hit the breakeven much sooner than expected. Curious, Tom, like, what drove that? You know, was it just better than performance? It seems like you still your your net interest margins are still pretty high. You know, relative to the new book that you're rolling on. Curious if if, you know, as that some of the legacy loans still roll off, you know, how might that play into the quarterly trajectory or given you already, like, achieved profitability here in the first quarter? Thanks.

Tom. Before you answer that question, I'm just going to dive in here for a second. I'll tell you what delivered it. Was a great team of people doing a great job for us. Being fully supported by our dealerships. If you look at the 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. Congratulations, But on a serious note, if you look at what happened in that business, we all know that business relies heavily on SG and A leverage and that relies on building a a book with the lowest risk possible. That's what they've been able to do and they've done it, I think, very well and very Because of that, they've maintained what I think is is good interest margin and we're now beginning to see two effects. One is strong SG and A leverage flow through and secondly, combined with much lower delinquency rates. Some of that delinquency a large portion of that delinquency is because of the significant reduction in the proportion of third party originations that we have, which has now dropped to a very, very low number in terms of the overall book.

Secondly, because obviously, what we're focused on as you can imagine, is making sure our processes 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. I think it's a combination of those things that pulled forward their breakeven. And my expectation is that it continues again in a way because we're very focused on the buy box we have 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 and more volume. And we think that we're going to continue that way. We have We have an overall portfolio growth pace that I think is is right for us. It's right for the capital we have to deploy for it and going to continue on that pace and we will adjust and flex depending on what happens in the marketplace with tariffs. So Tom do you want to answer the Yeah. I think my yeah. You you you heard it.

It on it all. And also, Mike, congratulations to the team. But, you know, Rajat, you had you had mentioned that the net net income sorry, the interest margin seems high. And you're asking whether it was related to legacy portfolio. Pretty much the portfolio we have now is completely clean of of [indiscernible] portfolio or the the book that we acquired back in 02/2022, think it's probably $25,000,000 left or so or less than that. So really the margins being driven by all the business that we've written as Aon Finance with AutoNation. And it's 100% automation, you know, captive dealership book. We we no longer, you know, do any of the third party stuff. As you you've seen, the credit profile has continued to improve. So I'd attribute all of the performance on interest margin to what we've done and what we've underwritten since we acquired the company.

Understood. So so, I mean, it feels like, you know, you should I mean, it's it's hard to imagine it goes you know, below breakeven and you you're probably gonna only improve profitability you know, from these levels if if these are the right level of net interest margins. Irrespective of the fact that you're gonna still, like, have new originations to increase. Is that is that a fair fair statement? Or do you disagree? Absolutely. Absolutely. I I would agree with that.

Awesome. Great. Thanks for all the color and good work.

The next question today will be from the line of Michael Ward with Citi Research. Please go ahead. Your line is open. Thanks very much. Good morning, everyone.

On the it sounds like 2Q, one way or another, you have a demand pull forward. To some extent strong underlying demand, whatever it is. That should have positive implications on the cash flow side to take out some of that seasonality. Am I reading that rightly?

Yeah. I I I agree with that, Mike. As you know, we we have well, first of all, there's there's [indiscernible] first quarter cash was very strong as we mentioned. We have close to 130% conversion So it was reflective of our net income and our net income obviously was reflective both the the pull forward impact we talked about.

There's not a lot of timing differential in terms of you know, cash flow Probably the the last week of the quarter was probably more robust than any of our more recent quarters. So timing wise, it could be a little bit of you know, cash pent up that comes in, you know, the second quarter. But as you know, as I reminded everybody, the second quarter is when we make our tax payments. And some other things. So the benefit that we get from from any first quarter residual will you know, be netted into our normal second quarter cadence.

Okay. But then you get the Sorry. Yeah. Carry on. I didn't mean to interrupt you.

No. No. No. Go ahead, please.

I would the only thing I was gonna mention on the call forward is obviously, you can look at the total number of days supply that we finished the quarter with, and that will that will decrease. But you're also what's in there, as you think about how that continues, talked about the fact that it obviously is going to moderate as you go forward as the mix changes in your residual ground stock.

So when we think about cash generation, agree with that Tom said, including the [indiscernible] [indiscernible] But clearly, you need to just factor in mix for that per ground stock that we closed the second quarter with.

Yes. But one way or another, you're in a demand pull environment, and that's positive for pricing. Right?

Yes. For sure. Usually, a demand for the environment is positive. For pricing. I would agree entirely with that. But it is not it doesn't have the same pricing dynamics that you saw in a COVID situation, for example.

Right. Right. Because the supply supply is okay.

Exactly. Yeah. Exactly. So Okay. So it just tying the piece together on the cash side. So the other missing link is as you get your ABS completed, that frees up some of your cash that we see on the operating side. Instead of that being, you know, drain last year of almost 900,000,000 offset by the the debt. Right? So that starts to turn positive. So on on the operating cash flow side, see a positive delta, call it 500,000,000 from the ABS. Right?

Yes, of course. I would consider it, Mike, to be a replacement of warehouse A replacement. Finance. Right. [indiscernible] but, you know, the point is that it's it's you know, and I'm just making up numbers here, but if I had a loan that was 80% funded, under the warehouse, that might be 95%.

Right. So it does free up.

Okay. Okay. And just just one last thing. Give us a direction on floor plan.

Interest.

Okay.

Mike, this is Derek. Just we have a reconciliation in the deck which shows what the change in auto loans receivable net is.

So you can see that if we adjust our operating cash flow for that. So that's how we look at it internally. Because that's the cash available to us.

Thank you for that, Corey, Derek.

One of things that's important, and this is, again, it's it frees up cash on a static book. Yes. And it's in in the your net cash position has to take into account your growing book. Obvious statement, so just to close off that conversation.

Yes. Thank you. And just lastly, on the floor plan interest it sounds like it goes down again in 2Q year over year.

Right? I think model text line. I think modeling it at a pace that similar to q one is probably in order for now until we kind of see the impacts of Right. [indiscernible] Yeah.

All right. Fantastic.

Thank you.

The next question today will be from the line of Daniela Hagian with Morgan Stanley. Please go ahead. Your line is now open.

Hi, thanks.

So what does your age mix in used look like with the newer used vehicle supply still tight even with mitigating factors you mentioned in house sourcing, also a consumer pressure by affordability. Do you see opportunity moving older used vehicles to meet demand?

I think Tom talked about the fact that lower price sometimes older, sometimes higher margin vehicles continues to be strong demand. I think that's [indiscernible] sure is going to continue. The teams that look after our mix are modeling demand as far up the demand funnel that they can try and make sure that they still maintain a balance we mentioned in the opening comments, we we deliberately increased our used vehicle stock at mix 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 yes, we think that continue to be in demand, sub-twenty thousand dollars vehicles. And it is a focus for us both in terms of self sourced and other sourcing activities that we have.

Thanks. And then just on after sales, you spoke to, you know, in increased tax, increased productivity. What does capacity excess capacity look like today, and how much room is there left? I know you guided 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?

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 terms of installed ramps and we have added to that capacity in various fashions where it has been in acute position. We continue we added 4%. I think it was increasing technicians in Q1. That is a big focus for us because there are still productivity that we can we can unlock through training and development of our technicians but we want to add physical labor resource into our net because one of the big areas for us if you if if I just break down our vehicle parks into zero to three, three to seven, we continue to make progress in penetration of those aged vehicles in the vehicle part. The area that is traditionally more difficult to unlock 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 think about a whole host of things, one of which means we'll continue to need technicians. So installed capacity, we have a lot of of physical ramps, etcetera. We have a 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.

The next question will be from the line of Colin Langan with Wells Fargo.

Please go ahead. Your line is now open.

Great. Thanks for taking my questions. I just want to clarify. I mean, so I think in your your earlier Q and A, you had mentioned that think the SAAR falls to 15, 16 pace. Is that your view for full year? Or is that after April and we have the pull forward, that's where you think it's settles in at? And then you know, I wasn't also sure your comments on pricing. You think I I guess there's numbers out there. Nine, 10% would be needed to fully pass that on. You don't think will be seen in the industry and that both automakers would have to raise price a little and you guys would take some on the GPU. Is that is that right way to interpret all those comments?

It's the right way to interpret some of the comments. Firstly, what I said was that I think some of the forecast in terms of impact on the SAAR were probably overstated because of the fact that different models in different segments will have different net [indiscernible] transaction impacts. And therefore, cross shopping to some extent would would soften the full impact on the total industry. That was my first point. I didn't give you a total industry forecast for the year, and I will not give you a total industry forecast for the year. And then secondly, what I said was I believe the last lever of our OEMs will pull will be one that affects net transaction price. And therefore, they're going to be looking at suppliers, their own cost base, their own infrastructure, including their dealers to develop a best strategy they can based upon the individual circumstances to I think really balance the impact on dealers, the impact on themselves and of course their market share. And in that instance, 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 I said, that cushioning effect on the total industry. I do think the total SAAR will drop. But I think some of the numbers out there are overstated.

Got it. Okay.

Then just on the buyback pace, it seemed to sort of jump up a bit. I mean, should we think about it with all the tariff uncertainty? Are you going to continue this kind of pace? How is the M and A market? Is that maybe where you'd want to pivot more? Or are you kinda on pause given there is so much uncertainty out there?

Yeah. Thanks. Thanks, Colin. The [indiscernible] thoughts there. The first of all, all of our capital allocation is based on where we think we can develop the greatest returns As it happened in the quarter, we identified, you know, some good acquisition opportunities We also see our shares as [indiscernible] is higher than you know, where we're trading and so we think that has continued to be a buying opportunity for us. And so we're deploying capital to the extent we think prudent, while managing our balance sheet leverage. And so those are the three factors I I don't see a material change in you know, things that had our normal run rate. We'll see how tariffs play out. But we've we've done stress tests of our P and L and of our our cash flows 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 make those decisions on where to deploy the capital. Got it. Alright. Thanks for taking my questions.

Thanks, next question today will be from the line of Bret Jordan with Jefferies. Go ahead. Your line is now open.

Good morning guys.

In after sales, could we get some color as price versus car count? And did the mobile service contribute to the after sales growth in the quarter?

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. Price increase. Some of that was mix shift by the way. It wasn't pure power sold or parts sold pricing. Was quite a bit of mix shifting, which helped us as well in that piece. Mobile service did contribute [indiscernible] to the total hours sold They did not contribute to our net income because it is still a business that we're investing in for growth, but it contributes at a gross level.

Tom, did I get the picture I think that's And then a question and then it sort of gets back to tariffs. When you think about the after sales business, the percentage of parts that you were selling either into a repair order or out the door in wholesale that are imported Obviously, a few years back, you guys went with a private label parts around the AutoNation USA strategy. Do you have a feeling for what percentage of your parts mix might see tariff exposure?

Yes. The analysis that we've done is 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. Think because it isn't just OEM parts. Are going to be affected. The vast majority of non OEM parts have an income have an import situation as well.

Have an import situation as well with them. There is in terms of, by the way, of that analysis captive and non captive, of our part sales roughly 40% you can think of what OEMs consider to be captive and 60% are non captive. And therefore, they will have different situations. In terms of the competitive nature of the marketplace. Again, you see very similar lever on parts that you will see on new vehicle sales. What I would tell you on captive parts is it's not automatic that parts increases or costs flow through to the customer because there are consequential benefits of that. They may well be captive, but for example, we have seen pretty strong mitigation in collision business through out the bulk of 2024 and coming into 2025. Where we are seeing more total losses than repaired vehicles. Part of that is because of increases in captive parts and obviously changes in residual value. 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. Other considerations are in there, but that's how we think about it.

I think OEMs are probably thinking about it similar way.

Great. Appreciate that. Thank you.

Our last question today will be from the line of David Whiston with Morningstar. Please go ahead. Line is now open.

Thanks. Good morning. First, sticking with tariffs. As you know, some German three 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 Toyota customer does.

So let me let me just soak on that question for a second to try and give you a balanced answer to it. So, obviously, the best answer I can give you is it goes back to what I said. At end of the day, there is always an alternative to what you wanna buy. And, it's going to be a a a decision, a an individual customer by customer decision of whether they want to switch to an alternative in the marketplace that is to them a lesser price. I think they're going to have think they're going to have that option. Typically, as you know, a model line or a brand that has a premium is more able [indiscernible] is more able to gain pricing in the marketplace than, let me say, a more much more competitive segment. That's always been the case and will the case going forward. The best I can give you off the top of my Appreciate it. Just one question on buybacks. It's a very long term outlook question here, but just curious how low are you guys willing to take the share count five, ten years from now? And if there is a four, would a regular dividend at that point get serious consideration?

Excellent question, David. Yeah. I I I think our management team and the board you know, continue to you know, 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 you know, share repurchases. But, you know, we're we're that you know, the m and a market itself will will present opportunities for us.

Particularly to take advantage of of the footprint that we have and to drive synergies and to drive scale. I I'd be hesitant to to give you, like, what we what we think the golden number of shares is. Does it go down to one? Yeah. I I couldn't tell you, but you know, the the when you look at our shareholder base, we have you know, a very liquid set of shares, and, you know, we'll continue to pursue it. Don't think it's you know, critical that we have an end target in mind in terms of shares outstanding. It will always be there as an opportunity for us given the liquidity.

I think the end target we got in mind is absolutely the best shareholder return we can deliver.

Thanks, guys.

Thank you. This concludes Q and A, and I will now hand the call back to CEO, Mike Manley, for closing remarks.

Yes. Thanks, Harry. As I mentioned in as we finished the segment, obviously, during this period of time, it's completely natural. A lot of discussions on a lot of discussions on tariffs and the potential impact.

In the next weeks are really going to be very helpful in terms of seeing what will actually transpire in the market But I do think, and I'll repeat some of the things that I said during my opening comments, If you look at our quarter and you look at the way 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 continued growth and development of AM Finance. And there are areas that clearly, regardless of the tariff situation and things the team is focused on and we'll remain focused on those things. And as Tom said, clearly and naturally, look different potential scenarios going forward to make sure that we are taking the appropriate steps in our view to position AutoNation in the best possible way we can despite the environment. And one thing that is true about this organization is this business was the first of the this type of business and they have proven in virtually every economic cycle that they've been in to have a robust business model that has consistently delivered and consistently grown.

With that, we'll end the call. I'd like to thank you all for your time and your questions today. Thank you.

This concludes the AutoNation Incorporated first quarter twenty twenty five earnings call. Thank you to everyone who's able to join us today. You may now disconnect your lines.