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Good morning, and thank you for joining AutoNation's fourth quarter 2024 earnings call. My name is Harry, and I will be your operator. All lines are currently in listen-only mode, and there will be an opportunity for Q&A after management's prepared remarks. I would now like to hand the conference over to Derek Fiebig, VP of Investor Relations. Thank you. You may proceed.

Thank you, Harry, and good morning, everyone. Welcome to AutoNation's fourth quarter 2024 conference call. Joining me today are Mike Manley, our Chief Executive Officer, and Tom Szlosek, our Chief Financial Officer. Following their remarks, we'll open up the call to questions. Before beginning, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the federal Private 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, and good morning, everyone, and thank you for joining us today. I'm going to dive in on the third slide. So we're almost halfway through the first quarter of 2025, and it feels a little bit strange talking about the previous year. That said, 2024 was a good year for AutoNation, highlighted by what I think was a super fourth quarter. At the end of the year, there were several uncertainties that were difficult to plan for, and these obviously included the US election, the debate and discussion about new vehicle pricing normalization and how that would play out, just to name a few. But adding to that uncertainty was the early summer business interruption from the CDK outage, which, as you know, had a significant impact spanning both quarter two and quarter three. Now we'll get into the fourth quarter details in a moment, but for me, the key highlight of the quarter was the delivery of 12% same-store new unit volume growth. New vehicle sales are the front end of our profit cycle, and volume growth in this area bodes well for the future of our after-sales and financial services, which provide approximately 75% of our gross profit. Speaking about the sales, the second highlight was achieving year-over-year 5% same-store gross profit growth and improving our gross margin by 110 basis points. Importantly, the growth was principally driven by external customer channels, warranty, and customer pay, delivering improvements in gross per repair order and growth in the number of repair orders. The third highlight was the performance of AutoNation Finance, which was introduced in late 2022. Now you will notice in our annual report, which we expect to file later this week, that we're giving more prominence to it. So I'd like to take a little bit more time discussing this business than I normally would. We'll also go into more detail in a few minutes. AutoNation Finance had an outstanding 2024, growing its originations by three times over 2023, building a portfolio that now stands north of $1.1 billion. Notwithstanding the significant growth, which came solely from originations from our retail stores, AutoNation Finance only has a 12% penetration of our franchise store finance volume and approximately a 30% penetration of our ANUSA finance volume. So there is plenty of headroom for further growth. But as you know, it's not just about origination and volume growth. The quality of your portfolio is critical. And in this area, our performance is encouraging. Throughout the year, we meaningfully improved the average credit rating and quality of our portfolio, significantly derisking the business. As a result of disciplined origination growth, highly focused portfolio servicing, and a planned well-executed sale of the majority of the legacy subprime book, which was inherited when we acquired the business, year-end delinquencies are less than 3%. Now AutoNation Finance continues to gain scale, we were able to reduce our operating expenses from 2023 to 2024, driving a 40% increase in interest income. This is helping us to rapidly march towards profitability in AutoNation Finance, which we expect to achieve on a run-rate basis by the end of 2025. Now in previous calls, you've heard Tom referring to the impact on our CFS profitability because of AutoNation Finance growth. When CFS finances a deal with a third-party lender, the lender typically provides an upfront payment or reserve fee. But AutoNation Finance pays a similar upfront incentive to AutoNation at the onset of each deal, that incentive is eliminated for accounting purposes as the transaction is all within AutoNation. We have confidence, however, that the incremental net interest income over the life of each loan far outweighs the small company. One final point, the relative capital required for this portfolio continues to decline. The portfolio is currently funded 75% by nonrecourse financing, which rate we expect to continue increasing. As a result, we expect the return on equity will become highly accretive to AutoNation's ROE as the portfolio grows. Now moving on from AutoNation Finance, we also took important action with our investor capital, selling off eight stores that did not fit into our model and were delivering substandard returns. We sold these businesses at extremely attractive valuations. We were then able to deploy this capital into further share repurchases, which I will touch on later. Lastly, we're once again recognized by Fortune magazine as one of the world's most admired companies, with the highest ranking among automotive retailers. This marks the eighth year in a row that AutoNation has been America's most admired automotive retailer. A strong testament to our unrelenting focus on our customers, associates, and communities we live in and serve. And, again, I'd like to thank the AutoNation team and congratulate them for that achievement. So all of the guys and girls that are listening to this, thank you so much. Turning to our fourth quarter overview on slide four. Last quarter, I mentioned some trends that we found encouraging, including the reduction in interest rates helping to improve affordability miles for both new and used vehicles. And actions we were seeing from a number of OEM partners to balance demand and production, either through initiatives to make things more affordable or moderating production, and these were well received. And both trends played out and contributed to our fourth quarter results. Fourth quarter new vehicle sales were strong. As I mentioned, we grew unit sales by 12% on a same-store basis and, like the third quarter, gained share in our markets. Sales for the quarter were particularly strong for hybrid vehicles and battery electric vehicles, and Tom's gonna take you through that in greater detail. Domestic segment new vehicle unit sales increased 17%. Import segment sales increased 5%. Premium luxury segment achieved beyond the typically strong seasonal performance, growing unit sales by 12% from a year ago with particularly strong performance in some of the upper-end vehicle trends. Premium luxury was a key driver in our overall new vehicle unit profitability, which improved on a sequential basis from Q3 for the first time since the fourth quarter of 2021. Our used gross profit increased 14% from the fourth quarter a year ago as our actions to manage inventory and vehicle turn rates resulted in higher unit profitability. We delivered unit sales volume performance in line with the overall used retail in the Right. For CFS, we retained our leading position in the industry as unit profitability increased both year-over-year and sequentially. More than 70% of our CFS income comes from product attachment. For the fourth quarter, we attached more than two products per contract on average, a nice improvement from the preceding two quarters, which were adversely impacted by the CDK outage. Already covered my thoughts on AutoNation Finance, which is now exclusively focused on our AutoNation franchise and AutoNation USA customers. Our after-sales teams continue to deliver strong growth with same-store gross profit up more than 5% from a year ago and achieved AutoNation's total store records for gross profit for both the fourth quarter and the full year. Total store results included fourth-quarter margin expansion of 110 basis points from a year ago, 70 basis point expansion for the full year. Looking back to 2019, we've grown after-sales annual gross profit nearly $600 million, expanded margin by nearly 250 basis points. This more recurrent revenue portion of our business is a key part of our customer retention efforts. We remain focused on the development and retention of our technicians and continue to actively hire. Finally, as you saw in our press release, we repurchased approximately $100 million of shares during the fourth quarter, and the average price of $166 per share bringing our full-year share repurchases to $460 million or nearly 2.9 million shares. Represented a 7% reduction in shares during the year. The $460 million returned to our shareholders during 2024 represented 58% of our capital deployment and this compared to 56% in 2023. So with that now, Tom, I'm gonna turn the call over to you to take us through the results in more detail.

Thanks, Mike. I'm turning to slide five to discuss our fourth quarter P&L. Our total revenue for the quarter was $7.2 billion, an increase of 7% from a year ago. That's 8% on a same-store basis. This was driven by a 12% increase in new vehicle revenue, that's 13% same-store, as we increased new unit volumes across all three segments, as Mike mentioned. Gross profit of $1.24 billion increased by 5% on a sequential basis and 3% from a year ago on a same-store basis. The year-over-year growth was driven by used vehicles, which was up 14%, CFS which was up 6%, and after-sales, which was up 5% all on a same-store basis. The gross profit margin of 17.2% of revenue was down slightly from a year ago reflecting the moderation in new vehicle unit profitability partially offset by improvements in after-sales, which was up 110 basis points and used vehicles retail, which was up 40 basis points. Adjusted SG&A was 66.3% of gross profit, down more than 100 basis points from the third quarter. Adjusted operating income increased sequentially to just over 5% of revenue. Now below the operating line, our fourth-quarter results were impacted by higher interest expense from floor plan debt, which is a reflection of recovering new vehicle inventory levels. The fourth-quarter floor plan interest expense of $55 million was up $9 million from a year ago but down from the $61 million in the third quarter of 2024, reflecting lower short-term interest rates and inventory levels. Now as a reminder, we reflect floor plan assistance received from OEMs in gross margins. This assistance totaled $35 million, which was up $2 million from a year ago. So net of these OEMs, net new vehicle floor plan expense totaled $18 million, which was up nearly $9 million from a year ago. Going forward, we'll continue to focus on maintaining optimal levels of new and used inventory to balance the opportunity to drive future sales growth and the desire to keep net financing costs in check. All in, these resulted in adjusted net income of $199 million as compared to $216 million a year ago. As Mike mentioned, total shares repurchased over the twelve months decreased our weighted average shares outstanding by 7% to 40.1 million shares in the fourth quarter. This was a benefit for our adjusted EPS, which was $4.97 for the quarter, five cents below the fourth quarter of 2023. Let me go deeper on some of these results. Slide six provides some more color for new vehicle performance. New vehicle unit volumes were a strong point for the quarter, increasing more than 10% a year ago on a total store basis and nearly 12% on a same-store basis. Sold store unit sales were up across our three segments with import units up 5%, premium luxury up 12%, and domestic up 17%. Results reflecting stronger supply, better incentives, and good performance by our commercial team. By powertrain, hybrid vehicles unit sales were up approximately 50% from the fourth quarter of a year ago, and represented nearly 20% of our unit sales and 10% of our ending inventory. Battery electric vehicle sales were up more than 25% from a year ago and represented about 8% of our sales for the quarter and 8% of ending inventory. OEM actions with incentives and uncertainty regarding the longevity of government incentives for BEV likely contributed to stronger BEV sales from traditional OEMs during the quarter. Internal combustion engine unit sales were up about 3% in the quarter. Our new vehicle unit profitability averaged $2,969 for the quarter, up $165 from the third quarter, led by the performance of our premium luxury vehicles and marked the first sequential increase since the fourth quarter of 2021, as Mike noted earlier. On average, new vehicle unit revenue increased 2% from a year ago while our cost per vehicle retailed increased 3% resulting in a year-over-year moderation in our new vehicle unit profitability. On the balance sheet, our 39 days supply of new vehicle inventory at year-end was down 25% or 13 days from the third quarter. The new vehicle inventory ended the year below 43,000 units, which was up from 35,000 units a year ago but down from the 46,000 units at the end of September. The strong new vehicle sales contributed in part to these reductions but also our operating teams have been more selective in the OEM allocation process. Looking ahead in the first quarter, we expect a normal seasonal shift back to import vehicles which have lower selling prices and gross profit per vehicle than the premium luxury brand. Turning to slide seven. Our used unit sales were flat year-over-year, tracking in line with the overall market. Sequentially, we were down 2% from the third quarter while the market was down 11% on the same basis. Supply availability has continued to be a challenge, particularly for the mid and higher-priced tiers consistent with the past few quarters. Driven by lower new vehicle production during COVID. We continue to source more than 90% of our vehicles internally, with our "We’ll Buy Your Car" program helping to offset the headwinds we are experiencing from lower lease returns. Used vehicle inventory levels were approximately 34,000 units at year-end, up from 32,000 units at the end of September. This represents 37 days sales, roughly the same at the end of September. Used vehicle sales and profitability continue to be a big area of focus for us as we emphasize effective sourcing, pricing, and speed while optimizing customer satisfaction. Looking ahead, we expect the normal seasonal swing to use vehicles for the spring selling season to occur and that used vehicle unit sales will perform accordingly. In November, we opened our 24th AutoNation USA store in Chandler, Arizona. It was the fifth store opened during 2024, in addition to one in Las Vegas and three in North Florida. With all the store additions adding density to our existing markets. And in January, we opened two additional AutoNation USA stores in Texas. I'm now on slide eight, customer financial services. On the last call, we described the momentum our CFS operations had in August and September. That performance continued during the fourth quarter. Our product attachment rate was strong, ending up being above two products per vehicle. Also, our finance penetration for the fourth quarter increased more than 200 basis points for new vehicles and 70 basis points for used vehicles from the period a year ago. Our CFS PVR, $2,686, was up about $100 sequentially from the third quarter. And it also increased from the fourth quarter last year. We continue to grow our finance business, which provides superior long-term value but creates a short-term CFS PVR headwind as Mike explained earlier. The year-over impact from this headwind was approximately $120 per unit in the fourth quarter. Now slide nine is a new one for us. You will see in our form 10-K, which we expect to file on Friday. And we've enhanced the disclosures for AutoNation Finance given its growth and its status as a separate reportable segment in the company. AutoNation Finance originated $1.1 billion of loans during 2024, including $360 million in the fourth quarter. The quality of the portfolio also continues to improve. Our credit and performance metrics are improving with average FICO scores on originations of 678 for the year, compared to 623 in 2023. This includes FICO scores in the fourth quarter of 684 compared to the sub-650 in the fourth quarter of 2023. Delinquency rates at 2.6% are solid reflecting our proprietary underwriting standards and fourth-quarter sale of the substantive remainder of the legacy subprime portfolio inherited with the CIG acquisition. This sale resulted in a $7.4 million pre-tax gain during the quarter. From a funding perspective, 75% of our portfolio balance is funded with nonrecourse debt as of year-end. This is up from 57% a year ago and obviously freed up capital for us to deploy elsewhere. Getting great support from our warehouse lenders. As we begin to establish a regular ABS funding cadence. We expect this 75% funding level to continue increasing. We anticipate our inaugural ABS offering in the second quarter. As we continue to grow the AutoNation Finance portfolio, the accounting impact from the upfront life of loan credit provisioning, which is a non-cash item, will be a continued headwind to the P&L of AutoNation Finance, but this will begin to balance out as the portfolio reaches scale. It is our expectation that AutoNation Finance will become profitable by the end of 2025. Moving to slide ten, after-sales representing nearly one-half of our gross profits. Continued its revenue and margin momentum. Same-store gross profit increased by more than 5% from a year ago led by warranty and customer pay. Growth was driven equally by volume, mix, and pricing. Mike mentioned that our after-sales gross profit margin has increased nearly 250 basis points since 2019. For the fourth quarter, our margin rate was 48.4% up 110 basis points from a year ago, reflecting improved parts and labor rates, higher tech efficiency, leverage, and higher value repair orders. We continue to develop and promote our technician workforce, which has led year-to-date increases in our master and certified technician headcount and our overall technician headcount increased nearly 2% on a same-store basis. So looking ahead, we expect after-sales business will grow roughly mid-single digits each year. On slide eleven, we continue to generate a consistent and attractive conversion of income into cash. Adjusted free cash flow for 2024 was $750 million compared to $969 million a year ago. While the quantum of free cash flow normalized in line with new vehicle unit profitability, the efficiency of our cash generation as measured by the conversion of net income into free cash flow improved to 105% from 94% in 2023. Which is in part attributable to our focus on measuring and reducing our particularly in customer deal billing and financing. As well as optimizing inventory levels. We are focused on sustaining this operational performance as well as on the prudent allocation of capital to CapEx. Let me wrap up with a capital allocation slide twelve before I turn it back over to Mike. We consider capital allocation in two categories. One, reinvesting in the business in the form of CapEx or M&A, or two, returning capital to our shareholders via share repurchase. CapEx is mostly maintenance-related compulsory spending, totaling $329 million for 2024 and was 20% lower than 2023. Spending is expected to settle in this range. We continue to actively explore M&A opportunities, many on the franchise store side. We are competitive buyers when it comes to achieving year-three returns greater than our weighted average cost of capital for core franchise acquisition opportunities. This hurdle rate is a bit higher for non-franchise. It's difficult to predict the timing of M&A opportunities as you know during the second half of 2024, the landscape was improving. We are starting to see a more regular flow of potential opportunities. Share repurchases have been and will continue to be an important part of our playbook. During the fourth quarter, we purchased more than $100 million worth of shares at an average price of $166 per share. This brought our full-year share repurchases to $460 million, nearly 2.9 million shares, or about 7% of our shares outstanding at the start of the year. Our capital allocation decisioning also continually considers our investment-grade balance sheet and associated leverage level. At quarter-end, our leverage was 2.45 times EBITDA, which modestly improved from Q3 and was in line with our two to three times EBITDA long-term target. During the year, we reduced our non-vehicle debt by $268 million and received more than $150 million in store sale proceeds. Now let me turn the call back to Mike before we address your questions.

Thanks. Just before going over to questions, I want to talk a little bit about some of the thoughts for 2025. Obviously, there are multiple unknowns regarding the economy and geopolitical factors. And, obviously, depending on how they play out, they may have an impact on our business. However, when I think about new vehicles, I believe there is pent-up demand still. And as a result, I think if the economic environment continues on its recent trend, we're going to see moderate unit growth from 2024 also in the first half, less so in the second half. But I think I anticipate moderation in unit profitability to support that growth. Pocket per unit, however, will eventually stabilize above historical levels. I think our efforts to manage used vehicle costs, pricing, and inventory levels will result in continued stabilization in unit profitability in what I think will be a stable used car market. We expect our CFS volumes and unit profitability to remain resilient and we continue to offer valuable products to customers to aid in their overall cost of vehicle ownership. As part of our CFS performance, we'll continue to grow our AutoNation Finance business. I previously mentioned the penetration opportunities and the associated benefits from scale that we should expect to progressively unlock. Throughout the year for after-sales, obviously, it's a big focus for us, and we're gonna remain very focused on that. Particularly around technician recruitment, retention, and development of our technicians, and this, as you know, remains a highly competitive market. With limited labor resources, and I don't expect that to change at all as we get deeper into this year. Our efforts to drive a strong cash conversion of our profits to cash will continue, as Tom mentioned, and a 100% conversion on our adjusted net income, I think, is a good starting point. In summary, I think with the strength and diversification of our business, AutoNation has proven its ability to deliver strong results, profits, and cash flow during a broad range of economic backdrops, which is our expectation for the coming year. Our capital allocation activities are most focused on opportunities that drive the highest returns for our shareholders on invested capital, and that will not change. And now with that, I'm gonna open the lines to your questions.

Harry, if you could please remind participants how to get in queue for the question and answer, please.

Yes, of course. To ask a question, please dial star followed by one on your telephone keypad now. If you change your mind and would like to exit the queue, please dial star followed by two. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. Our first question will be from the line of John Murphy with Bank of America. Please go ahead. Your line is open.

Good morning, guys. You know, Mike, I just wanted to ask a first question, and this is for lack of a better term, the Trump bump we've seen post-election. You know, it seems like there's kind of a benefit on the luck side as, you know, consumer sentiment or at least, you know, I mean, whether it be measured or not, improved dramatically, but also EVs and hybrids for fear of the, you know, the cancellation of the $7,500 IRA incentive. So it seems like it's kinda helped, you know, in both directions. I'm just curious if you're seeing that extend into early 2025, and also, are the automakers realistic about what happened or what's happening with EVs here and they're not stuffing more back into the channel and everybody's using this as an opportunity to maybe clear the decks and get those inventories in balance. So will that Trump bump be extended and what's happened on the EV side?

Yeah. Thanks, John. Good morning to you. Well, if I think about the pattern of let's focus on new vehicle sales. If I think about the pattern on new vehicle sales, the industry obviously was running something around 16 million pre-election, and then you saw progressively improvements in the overall industry with what I think is a very strong exit rate. And that ultimately is just two things. I think, firstly, the uncertainty of the election and the confidence in terms of the target for the economic environment obviously helped people, I think, make the decision to purchase. And then secondly, as I've mentioned before, we are seeing improved affordability on a monthly payment basis, I think, for consumers. So the question is, will that industry level continue? So to use a different term, what's the underlying run rate rather than is it a bump? I think we already saw in January where, from memory, the retail start saw was something north of 13.3, 13.4, something like that, which was significantly above prior year. I think that if I think that that has the opportunity to continue through Q1, less so in Q2. On a year-over-year comp, and then you'll see a flattening as we get into Q3 into Q4. So I'm optimistic on, as I said, the year-over-year comps in Q1, and I think the industry is in good shape. What was the second question, John? Sorry.

Just, I mean, you've also gotten a spot on EV sales. I mean, is everybody kind of buying into this and thinking this is the new world order? Or are they using this as an opportunity to hopefully clear the decks on some of that inventory and not restock?

I think the OEMs are taking an incredible I think the OEMs are all over this topic. Frankly, they must have had multiple, multiple meetings in terms of their product capacity and what they're gonna do to balance because I think everybody's clear that the next four years are gonna be different to their anticipation. Should a different outlook happen. And they are already, I think, pivoting in terms of their products, in terms of their powertrains, in terms of how they think the market will play out. So yes, there was an element of clearing the decks and urgency around Q4 in BEVs and hybrids. But remember, we've seen hybrid. We have seen BEVs kinda settle in at 6 to 8% of the marketplace. Hybrids had a very strong year last year as people recognize the benefits of both combustion and battery power. But there was I and I look at this in a positive fashion. There was a degree of clearing decks particularly with inventory, and we ended the year I think, in a really good balance with what I think is gonna be probably an underlying given our state and our distribution geographically, an underlying battery electric market. We're short on hybrids because the demand significantly above what the pipeline has been able to keep up with it with very high turn rates. So I think from a balanced perspective, we ended the year in a better shape than I had anticipated midyear. And that, I think, was driven by expectations that the environment's gonna change in terms of subsidies and targets. And then just a second quick follow-up on the gross. I mean, you mentioned a fade, and it sounds like more on a new GPU side. But, you know, front-end gross is kinda how a deal is traditionally, I think, worked. In the dealership. You know, as you look at that, yeah, I think it was $4,974 in the fourth quarter. It's $4,748 in the first three quarters, you know, of the year. I mean, what is the opportunity that a salesperson or GM has to work that front-end gross to maybe offset some of that pressure on new? And that pressure on new has really not been that great. But, I mean, are there ways that through the used transaction, the F&I, they might be able to help offset that and stay closer to, you know, the high four thousands as opposed to dipping down to where we were before?

The reality of pricing in the marketplace is one of those areas that there's so much transparency your ability in terms of being able to influence automatically as a dealer is relatively small. And I think the way that well, I've talked about this before and the way that I think about this is that there are many elements that go into putting together a transaction with a customer that meets what they need. In 90% of the cases when I've been involved in it, it is around monthly payments, to make sure that you give the customer what they are looking for, not just in their vehicle, but also in product to help manage their cost of ownership during that period of time. And our teams are focused on trying to come up with the best blend for that individual customer. You may expect me as a CEO of an automotive retail group to put it in that fashion, but, genuinely, that is the best way, not just to sell a car, but also to keep customers happy. And if you look at some of the things that we've been able to do, that's how it is done. And, you know, at the end of the day, obviously, our team is focused on trying to maintain profitability of transactional but they really do understand the value of continuing to grow our customer base and continuing to make sure our customers come back in our service and parts departments to look after their vehicle. So I don't think it's necessarily as controllable as your question suggests. I think they genuinely try and put together a package that meets what the customer's looking for, and then we can sell a car.

Great. Thank you very much.

Thanks, John.

Next question will be from the line of Rajat Gupta with JPMorgan. Please go ahead. Your line is open.

Great. Thanks for taking the question. I had one question on AutoNation Finance. Based on your expectations for loan origination, it just saying in 2025 and the fact that your equity funding is, I mean, the combination of that, would you be able to size, you know, how much funding, you know, would you need for AutoNation Finance this year? And I have a quick follow-up on parts and services. Thanks.

So, Rajat, you're talking about the absolute level of nonrecourse financing for the portfolio. So that was Oh, yes. I I'm just saying the equity the equity funding, you know, how much of your own balance should you be using to fund that.

Right.

Right. And as we talked about, we went from, you know, roughly 60% funding, nonrecourse funding at the end of 2023 to, you know, around 75% in 2024. As that matures, as that continues to mature, we work with just the warehouse lenders in increasing that percentage. So we'll get some benefit there. I think the bigger benefit will come from on the ABS side. I think you could start with, you know, 90% and work your way up there depending on, you know, the way that the rating agencies rate the portfolios, which is we've tried to emphasize we think it's pretty strong. So we think we'll get, you know, good funding rates. It just depends on the, you know, the amount of and the quantum of the funding depends upon the, you know, the growth of the portfolio. The originations have continued to be very strong. They improved month over month throughout 2024. That has continued in 2025. So we'll, you know, at the current pace, we'll outpace originations in 2024, which will mean more funding on a quantum basis, but in terms of the coverage by nonrecourse net, that will continue to grow from 75%. I can't give you an exact number because, you know, the size of the ABS transaction will be meaningful. And, you know, the outcome on the advanced funding on that will be determined in terms of, you know, what our overall funding is. But I starting with, you know, 90% kind of assumption on what we do on the ABS side.

Understood. That's helpful, color. And then just on parts and services, you mentioned, I think, in the prepared remarks that, you know, you expect mid-single-digit growth. No. The medium term presumably, you know, 2025 would be higher because you have some easy compares CDK from Q2 and Q3. Can you give us a little more color on what makes up, you know, the medium jump targets and maybe a little more granularity on 2025? And what kind of, you know, technician, you know, headcount addition are you baking in, you know, within that framework? Thanks.

Yes. This is Mike. Obviously, we were I think we tried to be as transparent as possible regarding the impact of CDK both over Q2 and Q3, and I think Tom did a good job of isolating that out. And, obviously, our expectation is that that so that will not be a repeatable event this year. So you can just look back and look at some of the commentary we had in those quarters to see how it impacted our business in what area. In terms of the way that we think about after-sales opportunity going forward, I've talked a lot about our penetration in the vehicle parks that we have. It is still a great opportunity for us, and the teams are focused on breaking it out into addressable sub and segments. So zero to three years, obviously, being the most addressable is an area where I think there's continued opportunity for us to grow. And if you look at a couple of things, our underlying activity in our business is good. I think with training, and I think with the way that we approach loading our workshop, there's opportunity to grow that a little bit more. We certainly have a better utilization where we can increase the productivity of our assets. That's not in question at all. And, fundamentally, unlocking this will be two things. One will be encouraging customers to return back to a franchise environment, so that's all conquest business. That's not easy to do. We will not try and do that through price. What we will try and do that is through added service and value. Price for me will not be a driver of that, but it will come with some impact on gross because the added service and value to me is important to encourage customers to come back. But to your point, the constraint as I see it will be technician count and technician numbers. We had moderate growth in technicians in 2024. We in-house all of our recruitment during 2024 with Lisa and her team, and I think they've done a really strong job. And thank you, Lisa, for that. But I think she if she was on this call, she would tell you it's a big, big focus for her to drive up those recruitment numbers. I think from memory and, Derek, you need to circle back because I don't wanna give wrong information. From memory, I think our total technician growth was somewhere in the order of 2 to 3% coming like that for the year. Yep. When I look at that, I would say my expectation and what I want the team to do is to try and grow that at a higher rate. It is gonna be difficult. I mean, you also saw the national campaign from CarMax, I'm sure, in terms of their recruitment on technicians, the National Recruitment Month, and everything else. It is a limited resource out there in a competitive marketplace. And when you get those situations, obviously, that can come with some additional costs. So a long answer to a very, I think, straightforward question, which I apologize for, I'd like to see our techs all try and summarize. Big focus for us, three to seven years. Our penetration is in line with the industry. Which means that we're all average, and I think we wanna be better than average there. To really unlock that it's conquest business, bringing people back. That's not easy. But the constraint is in technician count. I think our productivity, we can squeeze some additional hours out of that. But we and the teams do a good job there. It's a big focus on recruitment. Last year, we ended at 2%. I'd like to end above that. And the CDK thing, you know, we'll see I think we'll see the benefits of not having obviously in Q2. Remember the big impact of last month, the quarter, and rolling to Q3. So hopefully, that answers your question.

No. That's great color. I appreciate it. Thank you, and good luck.

Our next question will be from the line of Douglas Dutton with Evercore ISI. Go ahead. Your line is open.

Yep. Hey. Good morning, team. Congrats on the great prints. My first question is just on SG&A, and it looks like it took a meaningful step down here versus what we saw in the earlier part of the year. You know, is there anything structural changing there where this might be lower into 2025, whether that's, you know, lower promotional dollars, advertising, something else. Thanks, Just kinda mind. And by the way, congratulations on the addition to the family. Hope you're Thank you very much.

Yeah. I'm I think when you look at the fourth quarter, very strong gross profit wise when we talk about all the factors that, you know, contributed. So I think it was more of leveraging in the fourth quarter, you know, very strong new unit vehicle sales. And, you know, good performance, you know, on CFS, and some of the pricing portfolio that drove that growth up. It had the effect of, you know, a modest impact on the overall ratio. As we go forward to, you know, 2025, I you know, we do expect, you know, modest improvement in the ratio as we continue to drive growth. And to pay close attention to some of the cost drivers, the more meaningful cost drivers, but I think on balance, you know, we'll make the progress that, you know, gonna be notable, but I wouldn't say it's gonna be radical in terms of its impact on any given quarter. But it's for the slow steady improvement in that ratio.

Okay. Great. And then just another quick one for me on after-sales gross margins and the improvement there. So 110 bps driven by some of those input costs being lower according to the presentation, you know, labor, parts, is this sort of strong pass-through of costs and the associated revenue gonna be able to continue while keeping those, you know, repair tickets higher. At some point, is there a natural limit in what your customers are gonna accept paying for these repair orders and costs will normalize a bit lower in terms of the top line?

I think you have to consider the mix of the growth in the quarter for sure. A lot of good external-based revenue in the quarter between warranty and customer pay. Do those can influence the margin rates. And I think, you know, when you when we talked about the contributions to the gross profit improvement, it was a combination of that more favorable mix, but also, you know, the productivity points that we talked about, as well as, you know, higher value type orders. So mix amongst customer pay, warranty, are definitely favorable to internal type work. So, you know, productivity as well as some of the other initiatives as well. It will enable us to, you know, keep growing that but I wouldn't count on 110 basis points on a continual basis.

But then I'm just gonna add in there as well if I may to. I'm just gonna cut of things. Obviously, when you talk about mix, I think we should point out that, obviously, wholesale parts had a tough year across the industry, particularly around collision shops and actual repair order volume, which has been widely reported. And that business is lower margin. So you saw the benefit as a you saw the benefit of that come through in terms of margin, and obviously, I think collision will recover a little bit as you come into here, which will again, change the mix as you get into this it's 2025 degree to the year. I think it is competitive. You asked the question about is there a limit that customers compared. The fact of the matter is we don't try and push that limit. I think if you if you if you found out what that means, you probably got your you probably got yourself a problem on your end. I think what we do is we regularly look at the market, but it's both on franchise and non-franchise service providers. And understand the value we add as a franchise and a non-franchise service provider. And try and make sure that we're priced effectively in the marketplace for what we're trying to do. And as everything you know, at the end of the day, elasticity in service, applies in the same way as it does on vehicle sales. So Christian and his team are very, very focused on that. And, you know, I talked at length about three to seven years. And that's obviously one of the three categories he's focused on at. And part of that will make sure that we're competitive clearly from a price point of view, but very, very competitive from a service point of view. And that's part of his aspirations for this year. So a combination of Tom and my answer, hopefully, gives you the detail you need.

Yeah. Perfect. Congrats again, gents, and great quarter here.

Next question will be from the line of Bret Jordan with Jefferies. Please go ahead. Your line is open.

Hey. Good morning, guys. You talked about stabilization in youth. Morning. When you talk about stabilization and used, I guess looking back ten years, the margin rates in used obviously could approach double digits. You think we are forever less profitable in the on the margin rate of those units now just given the competition for inventory and price transparency from online product search or is the stabilization used also maybe some meaningful upside in those unit profit?

No. I think that the way that you use class of transaction in the marketplace is always with reference to the actual retail price and then all of the people that buy used cars invariably would accept of some specialists and some very niche products step off of that price. And it has been a pricing model that whether you have come to market with a disruptive model or a more traditional model, has remained and been pervasive. And I think because of that, when I think about use margin as a percentage, as a percentage basis, it's been moderated, and that's why I tend to talk about used margin on a dollar basis rather than a percentage basis. And I think that's what's gonna continue because as we've said in the past, and I think we've debated at length, wholesale and retail prices. There's a short time difference between the effect of changes in wholesale prices into retail, but they are in lockstep. You just need to take the time period into account.

Okay. And then in your prior question, I think you mentioned you talked about collision being a challenging compare, but you expected some recovery. Are you seeing that yet? Is it seasonal recovery just as you lap what was a very mild winter last year? Or is there something more structural that might be improving the collision trend?

Alright. So as we really through the summer and as we closed out the year, what we were seeing was that the repair order as a percentage of collisions was dropping. And that was, as more vehicles, either the size of the impact or the value of the vehicle, more total losses and therefore less work flowing into the shops in the industry. And that has continued. So that was really my reference with regard to that. But I think from my point of view, as you get through the winter months and you get into spring, you naturally see an improvement in terms of your collision business. And for us in particular, given the fact that we've got a big collision business at well over fifty collision centers around. Our focus has gotta be regardless of what's happening, with regard to that ratio of repair to crashed vehicles growing our share. So again, big focus on share regardless of the sector of the business.

Great. Thank you.

The next question today will be from the line of Jeff Lick with Stevens Inc. Please go ahead. Your line is open.

Good morning, guys. Congrats on an impressive fourth quarter. Wondering if you can just talk a little bit about capital allocation. You know, it looks like AutoNation Finance won't be as onerous this year, you know, is needy in the just kinda just wondering how you think about share repurchases versus an M&A. Can that share repurchase level kind of know, is the $400 to $500 million a steady state? And then I guess Mike, the one thing I'd be curious about is what would it take for you guys to do a fairly sizable acquisition?

The parameters upon which we and Tom, you can obviously overlay the parameters upon which we make that decision are identical, and that's what's the benefit to our what's the biggest benefit to our shareholders? So what would make us do a very sizable acquisition is a lot of confidence that the return on invested capital from doing that and then the appreciation in the resulting appreciation in the per share price outweighs the other uses of that capital very simply. And we've thought before that some of the pricing we've seen for M&A in the marketplace transfers all of the value to the seller and keeps the buyer with zero value. And while that provides, then we'll find better uses for our capital. But that dynamic is changing to some extent. We think it will continue to change as we get into this year and as opportunities come across our desk, we will compare them in exactly the same way as we do, and that's on the basis the same way the shareholder does. And, Tom, you can add to that.

No. I think the I mean, it all starts with strong free cash flow generation. We're confident we'll continue to deliver on that as long as the business is performing, you know, like we think they will. That will give us optionality. Obviously, we have, you know, CapEx obligations to fund, and I think we'll be on order of what we were in 2024 in terms of OEM requirements. And so putting that aside, that leaves you with, you know, ample capacity to, you know, deploy to M&A. The pipeline, as Mike alluded to earlier, is it hasn't, like, opened the gates aren't flooding open, but we are seeing, you know, some more levels of opportunities present themselves to us and, you know, we pursue those in full organization that's dedicated to that. And we're active in those pursuits. As Mike said, we have plenty of opportunity as well on, you know, on our returning capital to shareholders to each type of thing. We can drive a better return.

But it's not just about M&A. It's also about our portfolio review. I mean, I talked about the fact that we divested of a number of stores where we thought the ownership of those stores was better elsewhere from our shareholder point of view. And the reality is that freed up significant invested capital that we were not getting returns that we felt were required from those businesses, and they didn't fit into our model in terms of where AutoNation has great value. Which is dense markets, good processes, a lot of optimization that we can bring, and therefore, we freed up that capital. So it isn't just about M&A and the free cash flow we generate, which by the way, I agree with you, fundamentally starts the whole wheel turning. Also about constantly reviewing how we've deployed capital in the business and what's the best use of it. And I think it's the combination of those things. And from you and your team, you do a great job reviewing portfolio performance as well as in conjunction with Gianluca, reviewing opportunities that come across the desk and that's gonna continue in 2025 and beyond.

Awesome. That's helpful, Collin. Just a quick clarification follow-up on a previous questioner's call. Or question. When you had mentioned, SG&A as a percent of gross, improving, was that or were you indicating that, you know, the 66.6% you did in 2024, like, the objective be below that in 2025.

Yeah. I mean, that's a good question, Jeff. I mean, you know the normal seasonality of the SG&A from, you know, Q4, Q1. I mean, we do see an increase in that ratio. But, yeah, if I look at, yeah, I'd say first quarter, I'd say, will be mid-67% kind of area. And then, you know, obviously, the increase from the fourth quarter reflects the normal seasonal impacts. Yes. Yes. You have payroll taxes. You have long-term, you know, compensation that has, you know, profound impact on Q1. And then as the year progresses, that's when you'll start to see improvement. You know, that I talked about when you get to the first quarter, the things out of the way.

Oh, yeah. Just to be clear, I thought the 66.6% was great. And if you could even hold that year. That's that was great. That's why I was just a little taken. I don't want to make a little clarification on that, but great work on that front.

You and I have the same view on it. I was interested in just what Tom answered your question. I was you can't unfortunately, this is not a video call because you couldn't see me smiling as Tom danced around the question. That you asked him, but I thought the result was good. I agree with you. There's gonna be pressure as a percentage in Q1 as we get there. But again, it's you know, we are also making investments in our business to try and grow in other areas, and they will have an impact on our SG&A. And as those investments pan out and start producing results, they'll be beneficial. If they don't pan out, they'll obviously stop the investment. So you know, we run our businesses as Tom said, to generate, I think, great cash flow for the business, but also gives us optionality, not just in M&A and returning capital to our shareholders that we talked about, but there are other things that we are doing because AutoNation over its entire history has been an innovative company. And that we have to continue to make sure that we do innovate it's appropriate for us. And that brings an SG&A burden in the early stages, as you know.

Yeah. Awesome. I appreciate the opportunity to ask the question. Best of luck. I'm in the Q1 in 2025. Thanks very much. Hey, Harry. I think we have time for one more.

We will take our next question, which is from the line of Colin Langan with Wells Fargo. Go ahead. Your line is open.

Oh, great. Thanks for taking my questions. You commented that you expect normalization of new GPU. How any color on how we should think about it? I feel like in the past, you've talked about, like, a hundred, a hundred and fifty decline a month. It sounds like the improvement here was mostly the mix of log three. Should we expect that moderation to continue at that pace into Q1? Or are we getting close to the floor? And when you talk about normalization, are you kinda talking about as a percent in history where you're getting fairly close now or dollars? Versus history of GPU. How are you kinda referring to that thing?

Good question. I think the way when we talk about normalization, when you just look at this, the last couple of years, if you look at 2023, we average about a, you know, 10% decline a quarter and sequentially. In PVRs. That definitely moderated in 2024 to the point where as we said, it was positive in the fourth quarter. But it was probably half of the rate of decline that you had in 2023. In 2024. So that's the height and weight of the moderation. Going forward, Mike can share his thoughts on this as well, but it's definitely market-driven. And we're gonna be competitive in the market. And, you know, there's quite a bit of transparency when it comes to, you know, new vehicle selling prices. So to be competitive, you're gonna need to reflect those realities. But of course, I mean, our opportunities are, you know, where the other 75% of our gross profit is, which is financial services. And on after-sales. And, you know, our focus is driving the installed base to be able to benefit from those profit streams.

Oh, it's not a direct phone. Thank you. And I guess second question is on tariffs. How do you see it how do you see that risk from your perspective? Obviously, it's more of your customer, but any thoughts if there's tariffs on Mexico or Europe, how that might impact your volume and sort of mixed potential. How are you framing that?

I mean, there's obviously potential for tariffs to impact your volume to impact your margin. I think that I think I mean, if I look back at 2018 and what happened during that period of time, what we saw was the tariff impact come through in wholesale prices and ultimately through into retail prices. But after a period of time, they began to be mitigated either through actions from the manufacturer in terms of their ability to drive cost efficiency elsewhere or just to maintain volumes in the marketplace. So the 2018 experience of tariffs was there was an impact on the marketplace from a price point of view, which did impact subsequently volume, but that was I think, from memory, maybe a year, two years lived. Difficult to call because I think we ran straight into COVID and everything changed, but you were already beginning to see the mitigation of wholesale prices and retail prices as those tariffs were absorbed in the system and manufacturers were finding different ways of being able to mitigate those in some form of fashion to maintain some volume in the marketplace. I think if and I'm not an expert in this area, but if I was looking at it, that's how I would be thinking about it.

Got it. Alright. Thanks for taking my questions.

Great. Well, thanks, everyone, for joining us on the call today. And let's forward to speaking with you over the course of the quarter.