Well, good morning. We appreciate everyone attending. My name is Brian Nagel. I'm a Senior Equity Research Analyst here at Oppenheimer, covering consumer growth and e-commerce. So this marks day two of our 26th annual Oppenheimer Consumer Growth and E-commerce Conference. Again, thank you, everyone, for turning it in. So I'm very pleased to have with us today our first presenting company, Monroe, and three of the company's senior executives, CEO Peter Fitzsimmons, CFO Brian D'Ambrosia, and the head of investor relations, Felix Veskler. So gentlemen, thank you for joining us. We very much appreciate it. So we're going to structure this as an informal fireside chat with me asking the Monroe team questions and then responding with answers. But I think, Peter, you want to start with some opening comments, maybe on recent results, and we'll jump into the questions.

Terrific, Brian, and thank you for inviting us to participate. Many of you know that I joined Monroe as CEO about 14 months ago, and I'm sure many of you know that Monroe is one of the nation's largest full-service auto aftermarket businesses. We have 1,115 locations in 32 states. And our business is 50% replacement tires and 50% preventive maintenance. And by that, I mean doing things for a car that keeps the car in good shape. Oil changes, brake jobs, replacing batteries, ride control, those types of preventive maintenance services. Maybe, Brian, just a little bit about my background for those who don't know me. I've worked in performance improvement and turnaround for many years, including about 20 years with the consulting firm Alex Partners, where I was a partner and managing director. I've also worked as a PE investor for seven years. So I have experience with capital allocation. I invested successfully in the auto space, and that gives me a perspective on not only what we need to do to make the company better every day, but how investors are thinking about our business. I know retail and the auto aftermarket really well, and during my career, I've been CEO for a collision repair business. I've been CEO for a retail business. I've been CFO and COO for an auto parts distributor, and I've advised many auto aftermarket and automotive manufacturing businesses over the decades. So I really know this space well. And that made me appreciate Monroe's current challenges as well as the opportunity to grow this business. So I was thrilled to be asked to be part of the senior management team last spring, that is, spring of 2025. The first thing that we did when I joined the company was a diagnostic in April and May of last year. And from that diagnostic, we developed four work streams. Many of you have heard this. We've talked about it in our earnings calls. But just to review, the four work streams included evaluating the store portfolio to make sure that every one of the locations in our network deserved to be there and could meet our profit expectations. The second was to improve our merchandising capability. The third work stream was to invest in marketing because I felt that the company had under-invested in marketing recently. And the fourth was to improve the performance in the stores. I've worked in retail, as I've told you, for many years, and it's very difficult, particularly in a service business, to get all of your stores humming at the same time. So I knew there was an opportunity to continue to improve all of our stores across the country. Today, we're going to focus on the last three of those four initiatives because, as you may remember, we closed 145 stores in May of last year, so just about a year ago. That was done very efficiently. We returned or moved the inventory around our system, so there was very little write-off. and we've subsequently been able to monetize the real estate in a way that's generated more than 25 million in proceeds for the company so the the store closings went well i know we're going to get into the initiatives during this discussion brian so i want to wait till you ask me whatever questions you want to ask but i do want to emphasize that it's the combination of the three remaining initiatives that i think will continue to create value for this company and that is to keep it real simple right now in marketing we've invested in digital marketing but also customer relationship marketing and we're every week finding better ways to allocate those dollars in the stores after we closed 145 stores we realigned the field and we've invested in coaching and training and technology to enable our field leadership to drive better performance in all of our stores. And then in merchandising, and we'll get to this a little bit later, I feel very good about having built good relationships with all of our key vendors. This business is pretty simple. There are six or eight tire vendors that really matter, and then there are a handful of part suppliers. And if we have good relationships with all of those vendors we can really continue to hone what it is we offer our guests and make sure that it's in the stores when they're ready to use one of our services so maybe brian i'll stop there and uh turn it over to you i'm sure you have some questions for us you know peter thank you that's a great opening so i get the first question i'll ask very much a follow-up to you know your commentary there so you've been in the company now you're still new but you've been in the company for a little while.

So I guess the question I'll ask is, you know, what have been the biggest surprises, either positive or negative, as you've really gotten indoctrinated within the run?

Sure. I also want to talk about the consumer backdrop at some point, but starting with the surprises, I think there's two positive ones. The first would be the speed with which our July to December marketing investment drove incremental sales and gross margin dollars as we've told people before and again we may expand on this a little bit later we invested in about 125 or 150 stores using a variety of digital technologies including google search and that showed increased sales and gross margin dollars with each of the tranches over the six months and continues to be a valuable part of attracting new traffic. The second thing I would point out is the speed with which we've renewed very good relationships with key vendors, tires and parts. And those relationships are really important to what we do. So those would be two positive things that worked out, I would say, significantly better than I might have guessed a year ago on the negative side look and this relates to the consumer backdrop it is interesting in a non-essential category like what we do we have lots of customers out there there is an ability at any point in time to defer maintaining work on your vehicle though in the long run Clearly, people will take care of their vehicles. And that's sort of been a little bit of a surprise in the last 12 months. I do think that there are some things I'd like to point out now that have been nice successes from what we've done. One, we've been able to generate four consecutive quarters of positive comp store sales. And we had, for the first time in three years, positive comps for all of fiscal 26. even with that tricky fourth quarter that we recently talked about. And there are a number of other things that we might get to, but I do want to talk about the quality of our people in the field, the stronger leadership team we have. And related to the comment about closing stores efficiently, we have a much cleaner inventory today. We reduced our inventory by about 14 million, sorry, 14%, 26 million would be the number. And that enables us to offer even better product to our guests going forward. So more things that I think have gone pretty well for us, but certainly there are challenges in any business, and you have to be ready to adapt all the time.

Very helpful, Peter. So you mentioned the consumer backdrop. Let's maybe take a moment to discuss that more in depth.

And I know from our equity research standpoint, we've done a lot of work lately on what we view is to be a more difficult, potentially accelerated difficulty. if you will in the consumer in the consumer backdrop i'd love to hear just kind of what you're seeing and what impact that's having upon growth sure well first of all let me say having worked in the united states for decades the american consumer is remarkably resilient and i think they're going to continue to be when you reflect on things that have happened in the last five or eight years that have included disruptions from covid uh you know a recession turmoil in other parts of the world, the U.S. consumer, I think, will continue to be resilient. Having said that, recently, I believe there's been pocketbook pressure on many consumers as a result of sudden increases in gas prices, which together with rising health care costs and still some tariff-related cost increases, have meant that many of our customers, and I think customers of other consumer businesses have to make more difficult decisions about how to allocate available dollars, even with non-discretionary items like car care. So in the last three months, I think we've seen more difficulty with how do I spend the dollars that are available to me. For full-service auto aftermarket, one area where you can see that, and I know you're aware of this, is that there's been a decline in tire unit sales really since January and a movement a bit towards Tier 4. Having said that, we've done quite well at both ends of the spectrum. Our product offering serves those customers who want a Tier 4 product, but we also have really good performance, including in the last five months, in Tier 1. Having said all of this, again, my view would be that this is temporary. I'm sure many of you saw the article in the Wall Street Journal on Saturday about that tailwinds in the auto aftermarket, and especially the service sector where we specialize. And those tailwinds can include the average car is now 13 years old. A new car costs more than $50,000. And so those same consumers that are watching their dollars carefully every week are less able to buy a new car. And there's 280 million vehicles on the road. Those are tailwinds that make this business really attractive. And as you've heard me say before, what really excites me about Monroe is we are a full-service automotive business. We can replace your tires, but we can also fix your car. And when you have a trusted team in every one of your locations that does that, you have the type of customers that really drive our business to growth and profitability. So in the short term, we've seen some, I think, challenges in the consumer market. But in the longer term, I think what we do is a really important offering, and I like what we've been able to do in the last 14 months to build a foundation that will enable us to grow. I'll stop there, Brian.

No, so as you look at those, the more challenging backdrop you highlight here, just discuss maybe the levers that, you know, the newer term levers that Monroe can pull, you know, to sort of say adapt better to what's likely a more challenging backdrop.

Sure. Well, as it relates to marketing, which is one of the places where we've invested and that's an important piece of growing traffic, both new traffic and old traffic, what I've said and we continue to do every week is optimize that spend. What does that mean? Well, last year we talked about investing in digital marketing, and we continue to do that, particularly with Google pay-per-click, because that drives people who are interested in a specific product, tires, oil, to come into your stores when they're looking for that. But we've also developed and refined further our CRM, which is designed to bring existing customers back into the store. We can decide where we want to spend the money, how much we invest every month, where we're seeing returns, how to change what we're doing. And so that would be one area where you can pull back a little bit in the short term without losing momentum. You don't want to pull all the way back. Because once you've gained some momentum in the story you're telling to consumers, you want to keep that story going. That'd be one area. A second thing would be getting labor right in all your locations is an art form. You've got to have the right folks ready to serve the guest when they come in seven days a week and give the guest a great experience. And so you always want to have a little bit of slack in the system. But when you see that maybe people are backing off a little bit, you can adjust overtime, you can adjust some of the part-time labor. And so both of those things would be levers, to your word, that we can pull in this environment to make sure we're adjusting for what I believe is a short-term problem. Those would be the things that spring to mind. Brian, would there be anything else you would want to add?

I would. But I think that if you look at what we've done so far in the new tire assortment, it really is responsive to the environment that we're in and could be in for a little bit as we think about that pressured consumer looking for value. And by enhancing our Tier 4 offerings, providing a better opening price point, and then allowing ourselves to price up off of that, thereby deriving a little more margin from our existing Tier 4 offering and even up into our Tier 3 offerings, we've developed a better step up off of that new opening price point that we brought in. And so I think that the enhancement of our tire mix in the bottom half of our screen is important. We've talked a lot over the last year or two about Monroe taking share in the tier one through three tires and but giving up some share in tier four. We've now positioned ourselves to be able to, you know, compete, I think, more effectively at the tier four, the tier four tier.

So I guess when you're looking at marketing, maybe you're talking a little bit longer term. You've been, you just mentioned this a moment ago, Peter, about moving to digital. But I would love to chat further about just some of the structural shifts, I guess you say, you made in your marketing and how you're connecting better with either existing or new customers.

Yeah, so we had reduced the marketing investment purposely before I arrived. And it was pretty promotional. and so we weren't driving the type of customer we're really looking for one of the first things that we did in the spring and early summer last year was look at our customer base and segment it and we identified the type of customer that's the best customer for our business of course we welcome anybody who wants to come to one of our locations but the best customers come to us because they trust us and we provide really good service and they buy tires from us when they need tires. They listen to our advice. They're not sure what they want on tires or other products, but they listen to our advice. And they also need to keep their car safe by coming in for oil changes, by listening to our advice when we've done an inspection. And we'll talk a little bit about our Confidrive inspection tool, I hope, before we're done. And so identifying that preferred customer, which we call a deal-seeking bundler, doesn't mean that somebody's looking for the bottom price. It means they're looking for a relationship with good value and will come to visit us on a regular basis. And so a fair amount of both our digital and CRM marketing has been designed to attract and retain that type of customer. I mentioned that we invested significantly in digital, not just in Google search, but also in other awareness marketing, which includes YouTube and streaming, so people know what we're about. We have gotten better at changing the content in that type of digital marketing. So when it's tire season, we can focus on tires. when it's oil or service season we can focus on that we've learned that combinations of marketing in some markets are driving really good outcomes for example in some markets where we're trying to build our oil traffic we've used a combination of some kind of a offer it might be everyday low price it might be some type of coupon that provides you with a better oil price. And together with using incremental Google pay-per-click in that market, we've seen a significant improvement in oil sales. So as I've said before, with every passing month, you have more information about what's working and not working. And I feel really good about what we've learned and how we're optimizing our digital marketing and then a focal point right now has been on our customer relationship marketing and that enables us to be very targeted to a customer who we think is ready for an oil change who we might have advised based on what we know through our inspection tool that in another 5,000 miles they might need to replace a tire or two and when you have that information again which our inspection tool enables us to collect, you can better anticipate what the guest wants and reach out to them proactively to get them to come back to your store. So it's a combination of things that we've learned about our customers and learned about our customer patterns over a number of years that have enabled us to really position our marketing in a way that I think will continue to drive more business so you mentioned a moment ago uh some of the new technologies you're using uh in your stores i personally think this is one more exciting aspects of the reposition when you're open let's talk about that i mean how what the technologies are and how those are allowing you to sort of say commit connect with or speak better with those core customers so um everybody in the world talks about ai and machine learning i'm going to come to that That is maybe the third of three technologies that I would like to share with you and all of the participants in today's fireside chat. The first, which I've referenced already in this call and before, is our Confidrive inspection tool. That's been available now for probably two, two and a half years. And I would say in the year prior to my starting at the company, the field came to appreciate that it was important. Um, what we do now is there are four things that matter to give a guest a great experience. Um, one is to say yes to what the guest wants. The second and third all relate, both relate to, um, using the inspection tool to provide the customer with information that makes them able to make good decisions about what to And that inspection is free for anybody coming in for any service. It is done with a tablet or iPhone. It enables us to not only look under the car, but also take photos to demonstrate what specifically the guests should be thinking about. and this the the third of our four focal points is to present that information to the customer in a way that helps them make the right decision of course the best is if you spot something when you're doing the inspection during an oil change is to point that out and have the guest decide that maybe they they do want to do that right now but what i love about this tool is it also gives us the ability to draw the customer back into our location if they don't have the time to do something else that might keep their car safe and so it's not just the inspection tool but using it as a way to provide more information to the customer in this information age and we can do it digitally and if we can't present it to the customer in the store we can send it to them through email after they've left the store maybe they're picking up the car and we have the opportunity to communicate that with them digitally after they've they've left by the way the fourth of the focal points in the stores would be offering financing particularly in this environment there's some customers who really know they need to do a couple of things to their vehicle but are looking for some support with financing and so that's the fourth important thing that we think is critical to giving the guests the right information to make good decisions when they visit. So that's the first thing that I would point to as a technology that's important to our growth. The second would be an analytical tool that we've developed in the last six months called the District Manager Toolkit. I would say that this company has good information that enables us to look every day at what happened in the stores and know what progress we made or need to make. The toolkit allows the district manager, so the 74 people who are really running the 1,115 stores across our network, with specific information about a specific store. So you can see what two or three things that store needs to do to drive better profitability. And at the moment, we're using it to make sure that we're making good decisions about gross margin. We're making sure we look at what the discounts are. We're making sure that we return inventory that was ordered but not used. It's blocking and tackling but with a really, really good tool that gives the district managers visibility to what's going on with the store. Twelve months ago, while we had this information, it wasn't organized in a way that was easy to use. Now it's very easy to use, and it's driving performance improvement in many of our stores. In fact, we've rolled out this focus on improving gross margin within stores to about 150 stores. We've seen good results in the last six to eight weeks. And so as we roll it out to more stores, I think that tool will drive performance in the store well. The third thing, and I would like to share with you why we've been able to be practical about using artificial intelligence, is the pricing tool that we developed and put into place October, November last year. And this enables us to look every week at what's happening in different regions of the country. And if we need to adjust the price because something has happened in Florida or California or upstate New York that you need to be aware of in the market, we can make those regional adjustments using this machine learning-based pricing tool. So that is now another element of being right on what's going on in every market every week. The final thing that I would mention to you is like many, many other companies, I don't think it will be long before we're also using agentic AI in our call centers to enable the call center and the guests to connect and solve problems quickly and efficiently. customers will always have the opportunity to speak directly to a store but i think between the increase in online appointment making and in the interest in gathering information by calling someone and getting the basic information before you engage with the store we'll be able to use that element of machine learning to improve our business and the experience with our customers who

are interested in information those would be the things that i would say are important technology enhancements and there's others that we're working on but those are currently except the identic ai already operational so if you look at copy drive uh is there a way to quantify you know still still relatively early in its rollout so to say is there a way to quantify the potential benefit on sales i mean what i'm asking is if you you know if you look at you know in an interaction where your coffee drops a piece of it? Is there a better sale, better conversion number that you'd give us?

I think it's hard to quantify, and I do want to say that it's a piece of the better experience with the guest that it's most important for. I think last year we saw increases in certain service categories, including brakes and ride control. Right now, we're seeing significant increases in battery sales, and it's because we can provide the guests with objective information about something in their vehicle that they should address. And that has helped us drive better comps, particularly through December of last year. But I do want to point out that even though there's been some softness across the network, we have regions and districts right now in this challenging environment that are consistently growing sales positive comps i can think of a number right now and those sales are what i described we're looking for tires are up oil changes are up brakes and ride control are up batteries are up that's where the inspection tool works really well because it presents to the guests all the things they should be thinking about and when presented well that's the second and third steps in our overall four-step process they know they need to make decisions about what to do they might decide they can't buy those two other tires for their vehicle right now but we know and they know and they'll come back so while it's hard to say it's x in in of an increase in comp store sales, it's the Confidrive that enables us to have a better relationship with the customer.

That's very helpful. Our time is going to start to wind down here. So there's a couple more financial questions I want to make sure we work into the conversation. So first off, with regard to just kind of how as investors we should think about the intermediate longer term margin potential of the one. So I guess if you look at the business now, like we've been discussing here, there's definitely been some bright spots with sales and margins but brian i'll move over to you is but we're still operating well below your prior peak levels so as we think about this the repositioning continue to take shape assuming we continue to get in progress here how should we think about that that longer term you know margin profile of the business yeah it's a great great question and i think that you know first and foremost um comp growth uh leads to significant fixed cost leverage for us, not only in gross margins, but all the way down, which I think you're referring to operating margins.

So, you know, the company has done a really good job historically of keeping SG&A dollars flat, and we expect to be able to continue to execute against productivity improvements in our back office to be able to do that. This upcoming year, we're obviously making the marketing investments, which we've said are going to put some pressure on our ability to leverage fixed costs in FY27. But at the same time, you know, those investments will pay off over the longer term, which is the nature of your question. So our belief is a growing top line driven by a balance between traffic and ticket growth will allow the fixed cost leverage in both COGS and G&A to deliver operating margin expansion. As it relates to our variable margins, which are a big piece of that, you know, in 2027, our fiscal 27, we've said we expect some, a little bit of pressure in maybe the material costs, as we've seen oil and other input costs in relation to oil increase, those will make their way in. but we're seeing productivity gains in labor as we continue to not only drive more sales through the stores, but also optimize our labor footprint. So our belief is that variable costs will be a more difficult environment, maybe neutral to 2026 in FY27. But at the same time, over the longer term, with our assortment, with our marketing efforts and our focus on Comfort Drive and expanding our service categories, we expect that to be a talent as well. So long and short, I think as we kind of position the business for what the future can hold, we're obviously setting our eyes on getting back to double-digit EBITDA margins. And we'll see where that goes from there.

That's helpful. Then look, the final question is on capital allocation. So historically, you've generated a nice sum of cash. You pay a healthy dividend. So I guess the way I frame the question is, in the current environment and maybe long term, how do you view capital allocation in the funding of the dividend for the company?

Yeah, we have significant cash flow, as you said, despite some of the operating challenges we've had from an operating income standpoint and the pressure on that line. Our free cash flow has been significant, adding to that some of the proceeds from the divestitures that Peter mentioned earlier really has been a robust cash flow for us, allowing us to fund all of our capital allocation priorities, including the dividend. And that's our intent going forward. The board makes always a quarterly decision on the dividend. That is a quarterly review. It has been for many, many years, and that won't change going forward.

All right, guys. Is there anything we should have discussed, we did not discuss, we won't throw over here in the last couple of minutes?

No, I think your questions have been pretty comprehensive. Maybe I would say, as a last thought, that over time, there are parts of our country that we don't have a presence in. um and i'd like to have a presence in the southwest no stores in texas no stores in arizona no stores in colorado no stores in utah those are growing regions and what we've done in the last 14 months is strengthen the foundation for a company that historically has been able to grow through a combination of green fielding and acquisition and so one of our objectives over the next period of time, always hard to say exactly when, would be to further add units one way or the other in parts of the country where we don't yet have a presence.

Well, I appreciate your time. We very much enjoyed hosting you here at our conference. Best of luck here in the continued reposition of WinnerOp. Thank you.

Brian, thank you for asking us to participate. Great to be with you.