Good morning. My name is Charlie, and I will be your conference operator today. At this time, I would like to welcome everyone to the AutoNation Fourth Quarter 2021 Earnings Conference Call. Thank you. I would now like to turn the call over to Rob Quartaro, Vice President of Investor Relations. You may begin your conference.

Thank you. Good morning, and welcome to AutoNation's fourth quarter and full year 2021 conference call and webcast. Leading our call today will be Mike Manley, our Chief Executive Officer; and Joe Lower, our Chief Financial Officer. Following their remarks, we will open up the call for questions. I will be available by phone following the call to address any additional questions that you may have. Before we begin, let me read our brief statement regarding forward-looking comments. 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 earlier today and our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. And now I'll turn the call over to AutoNation's Chief Executive Officer, Mike Manley.

Yes. Thank you, Rob. Well, good morning, everybody, and thank you for joining us. Obviously, the main focus for today's call is the presentation of AutoNation's fourth quarter results, which we'll also touch on for the full year as well, which Joe and I are going to discuss in detail. But as this is my first call, I was also trying to think about what may be helpful for me to touch on in addition to the financial results. And I thought that, firstly, I'm going to give a brief overview of some of the things that I've been doing over the last three months. And then I'm going to go through the highlights of the group's performance and hand over to Joe who will give you more detail. After that, I'm going to address a number of the key topics that have gained attention over the last few weeks. And in closing, before our Q&A, I thought I may give a nod to the future, albeit just a summary of some of my preliminary observations. So as you can imagine, when you join an organization, particularly one that has a broad national footprint of retail locations and over 20,000 people in the field, you spend quite a lot of time traveling around the country. Today, I have the opportunity to visit a number of our franchise dealerships, including our most recent acquisitions, many of our AutoNation USA stores, our auction sites, and a number of our collision centers from coast to coast. Now obviously, I knew from our previous life that AutoNation was the largest automotive retailer in the United States, and it also begun to build additional brand businesses and capabilities at scale. But I have to genuinely say that reading about it on paper does not do it justice to what has been built and the talent that the organization possesses. When I think about the 330 franchises in our dealerships, not only do the brands we represent account for 99% of all new vehicles sold in the U.S., but we're also fortunate to have a superbly balanced portfolio of the best automotive brands in the world, located in some of the most exciting franchise territories. In addition to visiting our retail businesses, I've also met with several of our OEM partners. I have been incredibly encouraged by our conversations, where we've had what I would consider very frank exchanges of views. Importantly, I've been able to see the brand and product plans for the future. This makes our fantastic brands even more exciting when you understand what's coming through the pipeline. Our franchise dealerships are a critical core part of our group, and our scale gives us significant opportunities. We're also developing businesses and platforms that will significantly expand our reach, giving us the opportunity to take advantage of things as they unveil in the future. We're building a strong focus used car brand with AutoNation USA. As Joe will tell you shortly, all our stores, including those added in 2021, are up and running, profitable, ahead of our expectations, and adding happy customers to our growing family on a daily basis. The one thing you get a true feel for once you're on the inside is the quality and passion of the AutoNation team. It doesn't matter where I've been, in our dealerships, collision centers, or our corporate office, there is a clear will to win and a customer and community-focused culture. I do have to say I've never heard an incoming CEO speak poorly about the team he or she inherited, especially not in the first call. Still, my comment goes beyond platitudes. Given our strong performance, I am very pleased with the team's delivery of the seventh consecutive record quarter, during very unusual times with significant disruption from lack of supply, winter COVID spikes, and competition everywhere. My comments reflect both the performance the team delivered and the selfless work they do in our communities, like the AutoNation’s Drive Pink campaign. I was amazed to see how many of our associates get involved in their own time to support Drive Pink and fight against cancer. Today, the people of AutoNation have raised over $30 million for research, treatment, and care, and I am already very proud of that team. So just to give you a brief flavor of my first three months, now I'm going to turn to our results. You've seen from the numbers, we delivered another outstanding quarter and a very strong year. We report our seventh consecutive record quarterly results with adjusted EPS of $5.76, reflecting an increase of $137, and revenue increasing by $797 million or 14% compared to the prior year. This was driven by robust growth in used vehicle sales, consumer finance services, and aftersales. Total units for the quarter declined by 1%, driven by new vehicle sales, down 20%, offset by an increase of 21% in used vehicle volume compared to the prior year. With strong consumer demand, we continue to focus on our sourcing capabilities for used vehicles, strengthening both our franchise dealerships and AutoNation USA businesses. Nearly 90% of all preowned vehicles retailed in the quarter were self-sourced, including all trade-ins and our 'We Buy Your Car' program, which processes directly from customers. Consequently, used vehicle revenue increased by 55% for the quarter. As I previously mentioned, AutoNation USA is a successful part of our plan. In November, we opened AutoNation USA Avondale in Phoenix and recently entered the new market with our 10th AutoNation USA store in Charlotte. Each new store opened in 2021 has exceeded expectations and has been profitable in the first four months of operation, as we remain on target to open 12 additional new stores in the next 12 months. Our focus on margin expense control significantly contributed to our performance, highlighted by a strong margin in used finance and insurance, which increased year-over-year along with an 11% increase in gross profit in our aftersales business. We also have ongoing expense control, something I consider structural in our business, helping contribute to an overall increase in total store profits by over 150%. I am going to hand you over to Joe, who will take you through the detailed financials.

Thank you, Mike, and good morning, everyone. Today, we reported fourth quarter total revenue of $6.6 billion, an increase of 14% year-over-year, driven by impressive growth in used vehicles of 55%, alongside double-digit growth in both customer financial services and aftersales. This was partially offset by a 7% decline in new vehicle revenue due to ongoing supply chain disruptions in new vehicle production. Strong consumer demand and tight inventories continued to support new vehicle margins in the fourth quarter, and we expect demand to continue to outpace supply well into 2022. Additionally, many consumers have shifted to used vehicles due to limited availability of new models, which has been very beneficial as we continue to demonstrate exceptional growth backed by our self-sourcing capabilities and ongoing expansion of AutoNation USA. For the quarter, total variable gross profit increased by 49% year-over-year, driven primarily by an increase in variable profit per vehicle retailed of $2,026, which is a 50% increase, despite a slight decline in total units of 1%. As Mike mentioned, 21% growth in used units year-over-year largely offset a 20% decline in new units during that same period. We also achieved strong growth in aftersales gross profit, which increased 11% year-over-year. Our total gross profit increased by 34% compared to the fourth quarter of 2020. Moving to costs, fourth quarter adjusted SG&A as a percentage of gross profit was 56.7%, a 710 basis point improvement compared to the year-ago period. Our metrics improved across all key categories, with overheads decreasing by 370 basis points, compensation decreasing by 230 basis points, and advertising decreasing by 110 basis points year-over-year. Long term, we expect normalized SG&A to gross profit to be in the mid-60% range, well below our pre-pandemic levels, which were consistently above 70%. This improvement is the result of structural changes made to our business model. Floor plan interest expense decreased to $5 million in the fourth quarter of 2021 due to lower average floor plan balances. Combined with a lower effective tax rate and fewer shares outstanding, we reported adjusted net income of $380 million or $5.76 per share, which represents a 130% increase year-over-year. This results in our seventh consecutive all-time high full earnings per share result. Our strong operating performance and cash flow generation provide us with significant capacity to deploy capital. During the fourth quarter, we closed on the previously announced acquisition of Priority 1 Automotive Group, adding $420 million in annual revenue. We remain focused on identifying additional acquisitions that can expand our current portfolio and offer attractive long-term financial returns. As Mike discussed, we continue to see tremendous opportunities to capture a larger share of the used vehicle market by leveraging our sourcing capabilities, rich data analytics, and AutoNation USA growth strategy. We recently opened our 10th AutoNation USA store in Charlotte, North Carolina, and expect to open 12 more stores over the next 12 months, with a longer-term target of more than 130 stores by the end of 2026. Additionally, we continued to repurchase our shares, having repurchased 3.1 million shares for an aggregate purchase price of $382 million during the fourth quarter. This represents a 5% decrease in shares outstanding from the end of the third quarter. The company currently has approximately $776 million available for additional share repurchases. As of February 15, there were approximately 62 million shares outstanding. We ended the fourth quarter with total liquidity of approximately $1.5 billion, and our covenant leverage ratio of debt-to-EBITDA is 1.5x, well below our historical range of 2x to 3x. Looking ahead, we will continue our disciplined capital allocation strategy, leveraging our strong balance sheet and cash flows to invest in our business and drive long-term shareholder value. With that, I will turn the call back over to Mike.

Yes. Thanks, Joe. Strong results, as you can see. And again, congratulations to all of the AutoNation team for their fantastic delivery. I want to add a couple of points I think are important. When I step back and think about the business and our results, I look to understand which of the key profit drivers are circumstantial to varying degrees and which are structurally embedded in the group. It's clear to me that some are mistakenly discounting all of the performance improvements as temporary and preferring to rely on 2019 as a more reliable baseline. This is wrong because we can see structural improvements translating into long-term value. The business drivers that I consider in that category are improvements in F&I performance, used volume related to sales effectiveness and operational focus, as well as additional USA stores, and finally, the SG&A control Joe mentioned. We clearly see the benefits of that coming through in our net income margin, which should continue to translate into value and not be so quickly discounted as situational at this time. This brings us to the biggest variable: new vehicle margin. Naturally, there's a lot of debate about where this may go in the future. In my opinion, even though we will see some mitigation in per unit margin as supplies return to normal, I believe that given all that we’ve learned through the pandemic and the recent supply and demand dynamics, we will not return to excessively high inventory levels that depressed new vehicle margins for both dealers and OEMs. In the fourth quarter, we delivered a SAAR around $13 million, which was well below what anyone could have forecasted. The profitability for both OEMs and dealers shows the benefits of selling vehicles at MSRP. While we're on the subject of retail price, we've seen comments about vehicles sold above MSRP and the potential adverse impacts on brands and customers, which I understand. Last year, less than 2% of all the new vehicles sold by AutoNation were above MSRP. This discussion highlights my optimism regarding new vehicle margins going forward. It's clear that significant discounting and high incentives can also damage a brand, which is another reason for our industry to balance supply and demand appropriately, leading to expectations for higher new vehicle margins than we have historically seen pre-COVID. Looking ahead, I think the industry will undergo significant transformation, not just in terms of product and powertrain but in many other ways as well. When COVID is behind us, we'll see the emergence of additional mobility models and changes in how customers approach vehicle ownership. We will progressively see changes in how dealers and OEMs compete. I feel this is an exciting time and offers many more opportunities for growth. I'm more convinced than ever, having seen under the hood of AutoNation, that the group is well positioned to continue to grow and thrive. AutoNation has been known for its innovation and progressive approach, and we will definitely be taking this approach to the next level. As it stands today, we have over 11 million customers in our family already, with an additional 3 million interactions each year. We have the opportunity not only to leverage our brand, scale, and strong physical presence but also to build on our growing digital capabilities and expand our business model for greater autonomy and control in our future. There's much more to come in the coming months. I'd like to announce the creation of a new executive role, and I'm delighted to announce that Gianluca Kaplan will be joining the group from March 1 as EVP, Head of Mobility, Business Development and Strategy, and COO of Precision Parts. This role will report directly to me. Gianluca will sit on our Executive Committee. He joins AutoNation from McKinsey, where he was most recently a senior partner and leader of advanced industry global practice and the private equity industrial practice in North America. He orchestrated a company-wide $1 billion digital business building program and led a global team on numerous billion-dollar mergers in the automotive sector. He has led a significant dealer performance transformation at a leading North American commercial vehicle manufacturer and redesigned a multibillion-dollar used car business for a global auto manufacturer. I am incredibly excited about the future and am absolutely delighted that Gianluca has agreed to join our executive team. This bodes well for what I am confident we can do at AutoNation for a great future. Demand for vehicles continues to be strong, used vehicle growth is robust, and we will continue our expansion of AutoNation USA stores. We aim to aggressively pursue opportunities to expand our customer-centric transport solutions. I'll end my prepared remarks here and open the floor for questions.

Our first question comes from Rick Nelson of Stephens. Please go ahead.

Thanks a lot, great quarter, and nice insights. I'd like to follow up on capital allocation priorities. Historically, it's favored stock buybacks. I'm curious about the shift towards acquisitions and how you see that evolving.

Yes, thanks for that question. I think that's a great observation. Share repurchase has been the largest deployment of capital. As the group has developed, they have continued to invest in maintenance capital on existing businesses to grow them and build the brand. However, there is no doubt that returning capital to shareholders is key. In 2021, we made maintenance investments and growth capital acquisitions, focusing on very specific, high-quality targets, while continuing with our share repurchase program. I believe you will see a rebalancing of our capital deployment moving forward. We will maintain our strategy of repurchase while also looking for growth opportunities both organic and inorganic. This will lead to a shift in capital allocation percentages. We have significant headroom to pursue those opportunities while keeping the group set up for the future.

That's helpful. I’m also curious about how you see the dealership model evolving over the next, say, five to ten years, especially with OEMs potentially moving direct-to-consumer.

Yes, it's an interesting question. The evolution will be driven by changes in customer buying patterns and expectations. Although this will certainly change how dealers and OEMs work together, customers still appreciate a bricks-and-mortar experience. I don't see OEMs completely taking the direct route due to existing franchise regulations in the U.S. Instead, our collaboration with OEMs should create a seamless purchasing experience and help ensure that we are designing with service in mind.

Congrats on the role, Mike. I have a question about F&I. Given the pricing dynamics today, what should we consider a normalized level going forward?

The F&I income structure considers that while we might see a drop in rate spread due to interest rate increases, we have focused on improving penetration of ancillary products. The price movements in the market won't necessarily hit our F&I income adversely if we can help customers see the value in those products. Important to note that 70% of our F&I income comes from products rather than financing.

Absolutely, Mike. To remind folks, 70% of our F&I comes from product sales, not from financing, which is quite different from our peers.

That makes sense. As a follow-up, can you provide metrics around sales force productivity compared to pre-COVID levels?

Yes. Sales force productivity has improved due to the deployment of digital tools that provide our teams with better access to information. We have also seen increased productivity from our single pricing system for used vehicles, minimizing negotiation time. As we move forward and customers increasingly use digital channels, we expect productivity to continue to grow. However, as we transition into electrification, our sales teams will spend more time educating customers about the differences and benefits associated with electric vehicles.

Good morning, Mike. With this new role for Gianluca, are you focusing more on optimization for incremental opportunities rather than a complete overhaul of the business?

Yes, that's a valid characterization. We have a strong core business that requires optimization to remain competitive five to ten years down the line. The new role will help us strategize around emerging opportunities while ensuring we maintain our core business growth.

I appreciate the perspective on selling above MSRP. Some OEMs have called it unethical, and I'm curious if you share that sentiment.

In specialized vehicle categories where demand outstrips supply, selling above MSRP has been standard. However, in mass market vehicles, it’s important to maintain pricing integrity. The way to address this issue is through existing frameworks between OEMs and dealers. Keeping healthy relationships and discourse is vital to resolving discomfort regarding pricing.

I want to clarify how you weight investment between used vehicle and franchise new dealerships, and what peripheral businesses you might explore.

Between 2021's capital deployment, around 20% was used for growth and acquisition. Moving ahead, we will rebalance and prioritize growth while also deploying capital for returning to shareholders. It is essential that we sort through investments that ensure beneficial returns. Our current infrastructure allows for both maintenance and expansion in the used vehicle market.

With recent consumer dynamics, could we expect those who purchased vehicles out of necessity to look for replacements sooner when inventory improves, and will negative equity affect their decisions?

Yes, it’s certainly possible for consumers to want to trade up and replace vehicles they didn’t ideally want. The interest rate environment will play a role in their decisions to enter the market again, with pricing and trade-in values impacting what they decide.

There are no further questions at this time. Mr. Manley, I turn the call back over to you.

Thank you all for being on the call, and I appreciate your questions. Good to hear voices from the past. Thank you once again, and enjoy the rest of your day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.