Good morning and welcome to the AutoNation Incorporated first quarter 2025 earnings call. My name is Harry and I will be your operator today. All lines are currently in listen-only mode and there will be an opportunity for Q&A after management's prepared remarks. If you would like to enter the queue for questions, please dial star followed by one on your telephone keypad. I would now like to hand the conference over to Derek Fiebig, Vice President of Investor Relations. Thank you. The floor is yours.

Okay. Thank you, Harry. And good morning, everyone. Welcome to AutoNation's first quarter 2025 conference call. Leading our call today will be Mike Manley, our Chief Executive Officer, and Tom Slozik, our Chief Financial Officer. Following their remarks, we'll open up the call 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 meeting 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 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.

Thank you, Derek, and good morning, everyone, and thank you for joining us today. I'm 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 and 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. New vehicles continue to perform well as unit profitability increased 13% to $1,662, reflecting our focus on margin, costs, inventory levels, and mix. Our total gross profit included wholesale increased 12% from the first quarter of 2024. Customer financial services continue 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 after-sales, which once again delivered record gross profits and expanded margin 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 million during the quarter and the business crossed over to profitability well ahead of when expected. And I would like to thank and congratulate the entire ANF 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 origination significantly reduced our credit risk exposure, which 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 million dollars of shares at an average price of 165 dollars per share and as of yesterday's close we've repurchased more than 250 million dollars worth of shares reducing our share count by four percent from january the first our q1 performance combined with our share repurchases helped us to grow our adjusted eps by four percent 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 31st, we acquired two stores in the greater Denver, Colorado area, Ford Arapaho and Mazda Arapaho, which together sold nearly 5,000 new and used vehicles in 2024 and generated approximately $220 million 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 mark the first alternation master and second alternation forward in the state, bringing our footprint in Colorado to 13 domestic, six import, and three ANUSA 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. 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 data supply, we have a level of ground inventory at pre-tariff rates that will, for certain models, sustain this momentum into Maine. This provides time for the auto tariff structures to be more clearly defined, modified and negotiated between our OEM partners and the US administration. It also enables each OEM to fully evaluate their supply chain footprint and understand what actions they can take to optimize for 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. Now in March, the light vehicle side risen to north of 17 million units, with estimates that this would come down to somewhere between 15 and 16 million 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. We're 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 vehicle 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' returns. And now with that, Tom, if you wouldn'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&L. Our total revenue for the quarter was $6.7 billion a year ago. That's 4% on a same. This was driven by a 10% increase. Same-store growth profit 3% from a year ago. This year-over-year performance included same-store used vehicles growth up 12%. percent cfs growth of six percent and after sales growth of four percent the gross profit margin of eighteen point two percent of revenue was down slightly from a year ago reflecting improvements in margins for a hundred basis points or 140 and used vehicles including wholesale which was up 90 basis points this was offset by the moderation of new vehicle new vehicle adjusted sgna of 67.5 percent of expectations. Year-over-year, the rate of non-recurring items, and going forward, we continue to expect adjusted operating margin was flat below the operating line, the floor by $3 million from a year ago, as average rates were down. Non-vehicle interest, as a reminder, we reflect a net of these, new vehicle floor plan expense totaled $13 million, down from $15 million. All in all, this resulted in adjusted net income of $184 million per year decrease, It's year-over-year decline in three years, again demonstrating the total share we purchased over the past 12 months decreased our average percent to an increase of 19 cents. Vehicle unit volumes for the longevity of government represented about eight. The unit profitability averaged $2,803 for the quarter. Down season, unit profitability was flat. New vehicle inventory ended the quarter at, this represented 38 days of supply, down six. As Mike indicated, the momentum we have seen in March has been a profitability. Provides an update on AM Finance, our captive finance company. The business's attractive offerings are direct. Share repurchases have been and will continue to be an important part of our playbook. Consider our investment-grade balance sheet and associated leverage levels five, six times. Now, let me turn the call back to Mike before we...

Yeah, 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, Alternation delivered a great start for 2025 with 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 of running our business well is 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 for the benefit of our shareholders and that's what we're going to continue to do going forward so with that like harry if you could please remind the people how to ask questions yes of course if you would like 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 star followed by two and finally when preparing to ask your question please ensure that your phone

is unmuted locally and for our first question today we will be going to the line of john murphy with bank of america john please go ahead your line is opened uh good morning guys um just wanted to stay on the controllable side of things for for a second here um obviously fni pbr was a real good guy i think one of the highest levels we've ever seen um except maybe some some real peaks in 22 and 23. Just curious in that context, and maybe Tom, you can give us some details on this. How much of a weight was the automation finance ramp to that number? Because I mean, I know that's a little bit of a drag to the F&I PBR number at the moment as the book is building.

And as you think about that inaugural ABS, you know, how much room and flexibility you have in the warehouse facility if market conditions remain a little bit wonky, you know, over time, I'm sure they'll be fine you'll get something out there but just curious how much flexibility you have and when you launch that inaugural abs uh thanks thanks john uh good to hear from you um in terms of the um the pbr for cfs you're you're right uh the the three percent growth was impressive as i point out in my commentary we are you know overcoming the shift uh i think 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 quarter, so you can think of adding that to the 3% and get a real appreciation for the growth that we had there. In terms of the funding of the portfolio. Until we have ABS, we're very comfortable with capacity and availability of warehousing. In fact, we increased and will continue to do so. Not an issue at all. In terms of ABS, it's exciting for us to be pursuing that, working diligently right now 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, where we thought we'd be. Markets seem to be cooperating reasonably well in the last few days. And so we're going to get something in the question.

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 end of March and into April and maybe in May. There's more than 10 million units of pent-up demand, at least by our estimates out there. So, I mean, although we may, quote unquote, have a little bit of pull forward in these kind of, you know, 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, you know, dust up and this could be a pretty solid year? I mean, there's a lot of opinions on this, a lot of people taking their numbers down significantly, but I think you made a very, very good point on, you know, there being some, you know, substitution that might occur and keep sales going. So I'm just curious on sort of your thoughts on, you know, is there, are we staring down the barrel of big payback or maybe not just 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 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. I have, obviously, I have a very strong personal opinion on what I think the impact of tariffs may well be. And, yeah, 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 indeed pulled forward, and it's for sure, in my view, absent of tariffs, 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 a perfect sign, but that's my view.

Extremely helpful. Thank you, guys.

The next question today will be from the line of Rajat Gupta with JP Morgan. Please go ahead, your line is over.

Great, thanks for the question. I just want to follow up on John's question earlier around the comments you made, Mike, earlier that you expect the OEMs to remain competitive on pricing, competitive on market share. I was curious, how do you think that manifest in terms of front end grosses for the dealers? Would the OEMs expect dealers to absorb some of this inflation, maybe in the form of higher invoice pricing versus MSRP or maybe more dealer discounting versus incentives? Just curious how you see that might play out and have a quick follow up on EM finance.

Thanks for the question and it's great to have you on the call. So I state the obvious 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 terrorists are 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 competitive 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 is going to mean that, in my view, the last lever that's pulled is net transaction price appreciation. And because of that, I think clearly 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 support because it's in their interest as well. And I am expecting that. We are prepared for that. We are looking at what we need to do to support our OEMs in that. And I think that's natural and what's going to happen. It's a relationship and it's a partnership. So 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 balanced weighted way, of course. But when I I look individually across our relative positions, the 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 market share and their markets as well. Not all dealers are in this position that we're in. And because of that, as I've said, you're going to see, I think, net transaction 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 a great color and very clear.

Thanks for the comments there.

Just one follow-up on A&E Finance. You know, you hit the break even a month sooner than expected. Curious, Tom, like what drove that? You know, was it just better loan performance? It seems like you're still, your net interest margins are still pretty high, you know, relative to the new book that you're rolling on. Curious is, you know, as that, some of the legacy loans still roll off, you know, how might that play into the quarterly trajectory here? given you're already achieved profitability here in the first quarter.

Thanks. Hey, 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 them, 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 so congratulations Jeff but on a serious note if you look at what's happened in that business we all we all know that business relies heavily on SG&A leverage and and that relies on building a book with the lowest risk possible and that's what they've been able to do and they've done it I think very well and very prudently and because of that they've maintained what I think is good interest margin. And we're now beginning to see two effects. One is strong SG&A leverage flow through, and secondly, combined with much lower delinquency rates. And 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. And secondly, because obviously what we've 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. And I think it's a combination of those things that pulled forward their break even. And my expectation is that it continues, but continues again in a disciplined way, because we're very focused on the buy box we have. We 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 in more volume. And we think that we're going to continue that way. We have an overall portfolio growth pace that I think is right for us. It's right for the capital we have to deploy for it. And we're 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 that?

Yeah, I think, Mike, you hit it on it all. And also, Mike, you had mentioned that the interest margin seems high was related to legacy portfolio. Pretty much the portfolio we have now, we acquired, really the margin is being driven by all the tenants. You've seen the credit profile has continued to improve. So I'd attribute...

Understood. So, I mean, it feels like you should... I mean, it's hard to imagine it goes you know below break even and you're probably going to only improve profitability uh there from these levels if these are the right level of net interest margins irrespective of the fact that you're going to still like have new originations to increase uh is that is that a fair statement uh or do you disagree absolutely absolutely i would agree with that awesome great thanks for all the color and good luck the next question today will be from the line of michael ward with city research please go ahead your line is open thanks very much uh good morning everyone um 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 130 percent conversion so it was reflective of our net income there's not there's not a lot of timing differential um in terms of um you know cash flow so timing wise it could be a little bit

okay but then you get the hey mike sorry yeah carry on i didn't mean to interrupt you no no no go ahead please the only thing i was going to mention on the pull forward is um obviously you can look at the total number of days of supply that we finished the quarter with and that will decrease. But you're also, what's in there is you think about how that continues. I 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, I agree with everything that Tom said, including the seasonal 2Q tax payments. But clearly, you need to just factor in mix for that ground stock that we close the second quarter with.

Yeah, but one way or another, you're in a demand pull environment, and that's positive for pricing, right?

Yeah, for sure. Usually, a demand pull 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 should be okay. Exactly, yeah, exactly.

Okay, so 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 a drain last year of almost $900 million offset by the debt. So that starts to turn positive. So on the operating cash flow side, you see a positive delta, call it $500 million, from the ABS, right?

Yeah, of course. I would consider it, Mike, to be a replacement of warehouse finance. Okay. But, you know, the point is that it's, you know, and I'm just making up numbers here, but if I had a loan that was...

So it does free up?

Yeah.

And just one line of things, give us a direction on floor plan interest.

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. We adjust our operating cash flow for that. So that's how we look at it internally, because that's the cash that's available to us.

Thank you for that, Colleen. One of the things that's important, and this is, again, it frees up cash on a static book. Your net cash position has to take into account your growing book. Obvious statement. So just to close off that comment.

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 modeling it at a pace that's similar to Q1 is probably…

Very fantastic.

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

Hi. So what does your age mix in used look like with the newer used vehicle supply still tight, even with mitigating factors like you mentioned in-house sourcing and also a consumer pressured by affordability. Do you see opportunity moving into 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, and I think that for sure is going to continue. The teams that look after our mix are modeling demand as far up the demand and funnel that they can to try and make sure that they still maintain a balance. As we mentioned in the opening comments, 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, yeah, we think that will continue to be in demand, sub-$20,000 vehicles, and it is 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 increased tax, increased productivity. What does excess capacity look like today and how much room is there left? I know you've got it to 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've added to that capacity in various fashions where it has been in acute position we continue we added four percent 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 labour resource into our net because one of the big areas for us, if I just break down our vehicle parks into 0 to 3, 3 to 7, we continue to make progress and penetration of those aged vehicles in the vehicle park. The area that is traditionally more difficult to unlock is obviously 7-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 to 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 physical ramps etc, 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.

Thanks for taking my questions. I just want to clarify. I mean, so I think in your earlier Q&A, you mentioned that you think the SAR kind of falls to 15, 16 pace. Is that your view for the full year? Or is that after April and we have the pull forward, that's where you think it settles in at? And then, you know, I wasn't also sure of your comments on pricing. You think, I guess there's numbers out there, 9%, 10% would be needed to fully pass that on. You don't think that will be seen in the industry and that both the automakers would have to raise price a little and you guys would take some on the GPU? Is that the right way to interpret all those comments?

It's the right way to interpret some of the comments. And firstly, what I said was that I think some of the forecasts in terms of impact on the SAR were probably overstated because of the fact that different models in different segments will have different net transaction impacts, and therefore cross-shopping to some extent 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 any 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, as I said, that cushioning effect on the total industry. I do think the total SAR will drop, but I think some of the numbers out there are overstated.

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

Yeah, thanks. Thanks, Colin. A couple of thoughts there. 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 some good acquisition opportunities. We also see our shares, the intrinsic value is higher than 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. Those are the three factors. I don't see a material change in things at our normal run rate. We'll see how the tariffs play out. But we've done stress tests of our P&L and of our cash flows under different scenarios to generate good cash flow and be able to have the opportunity to make those decisions on where to deploy the cash flow.

Got it. All right. Thanks for taking my questions.

The next question today will be from the line of Brett Jordan with Jefferies. Please go ahead. Your line is now open.

Hey, good morning, guys. in after sales could we get some color as price versus car count and did the mobile service initiative contribute to the after sales growth in the quarter there was volume increase um which was i and um tom just correct me with volume increase and a price increase about a third volume two-thirds um price increase some of that was makeshift by the way it wasn't pure it wasn't secure hours sold or part sold pricing, there was quite a bit of mixed shifting, which helped us as well in that piece. Our service did contribute to the total hours, 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 that? Okay.

And then a question, I mean, it sort of gets back to tariffs. And you think about the after sales business the percentage of parts that you are selling either into a repair order or out the door and wholesale that are imported um you know obviously a few years back you guys went with a private label parts around the auto nation usa strategy um do you have a feeling for what percentage of your parts mix might see tariff exposure uh yeah with the analysis that we've done is to look at the the distinction between a captive part and a competitive part it doesn't mean to say that competitive parts will not get price increases I think because it isn't just OEM parts they're going to be affected the vast majority of non-OEM parts have an income

an import situation as well have an import situation as well with them so there is in terms of by the way of that analysis between captive and non-captive of our part sales roughly 40% you can think of are 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, and again, you see a very similar lever on parts that you will see on new vehicle 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 throughout the bulk of 2024 and coming into 2025, where we are seeing more total losses than repaired vehicles. And 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. And other considerations are in there, but that's how we think about it. And I think OEMs are probably thinking about it a similar way.

Great. I appreciate that.

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

First, sticking with tariffs, as you know, some German 3 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 than, say, a GM customer or a Toyota customer does?

So 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 the end of the day, there is always an alternative to what you want to buy. and it's going to be a decision, 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, and I 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 to gain pricing in the marketplace than, let me say, a much more competitive segment. That's always been the case and will be the case going forward. That's the best I can give you off the top of my head.

Appreciate it. Just one question on buybacks. It's a very long-term outlook question here, but I'm just curious, how low are you guys willing to take the share count five, 10 years from now And if there is a four, would a regular dividend at that point get serious consideration?

Our management team and the board, you know, continue to want to drive returns, you know, through, you know, balanced capital allocation. I mean, it's just so the better opportunities have been in, you know, share repurchases. But, you know, we're confident that particularly to take advantage of the footprint that we have and to drive synergies and to drive scale. So I'd be hesitant to give you, like, what we, you know, the end target we got in mind

is absolutely the best shareholder return we can deliver.

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

Yeah, thanks, Harry. As I mentioned as we finished the segment, obviously, during this period of time, it's completely natural, 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 marketplace. 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, the continued growth and development of AM Finance and their areas that clearly regardless of the tariff situation and things the team's focused on will remain focused on those things. And as Tom said clearly and naturally we look at different potential scenarios going forward to make sure that we are taking the appropriate steps in our view to position alternation 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 of 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 and 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 automation incorporated first quarter 2025 earnings call thank you to everyone who's able to join us today you may now disconnect your lines.