Ladies and gentlemen, good afternoon. Welcome to the Penske Automotive Third Quarter 2023 Earnings Conference Call. Today’s call is being recorded and will be available for replay approximately 1 hour after completion through November 2, 2023, on the company’s website under the Investors tab at www.penskeautomotive.com. I’d now like to introduce Anthony Pordon, the company’s Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Leah. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group’s third quarter 2023 financial results was issued this morning and is posted on our website, along with the presentation designed to assist you in understanding the company’s results. Joining me for today’s call is Roger Penske, our Chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing of North American Interoperations; Randall Seymore, International Operations; and Tony Facione, our Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, future events, growth plans, liquidity, and assessment of business conditions. We may also discuss certain non-GAAP financial measures, such as earnings before interest, taxes, depreciation, and amortization or EBITDA and our leverage ratio. Our future results may vary from our expectation because of risks and uncertainties outlined in today’s press release under Forward-Looking Statements. I’d also direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations. At this time, I will now turn the call over to Roger.

Thank you, Tony. Good afternoon, everyone, and thanks for joining us today. Our diversified business really produced another solid quarter, driven by strong performance from our North American Automotive and Commercial Truck Operations. The strong performance in North America was partially offset by lower earnings from our U.K. Automotive Operations, higher interest expense, and lower equity earnings from our investment in Penske Transportation Solutions. As previously announced, third quarter results include approximately $6.2 million of costs related to the loss of inventory, property damage, and business disruption from a hailstorm in Austin, Texas. It impacted our Texas Toyota, Honda, and Hyundai dealership, 750 vehicles worth $27 million in inventory. During the third quarter, total units delivered increased 12% to 122,000, which includes 8,695 agency units. Revenue increased 8% to $7.4 billion and our same-store retail revenue in automotive increased 9%, including a 9% increase in service and parts. Our net income was $263 million, and earnings per share was $3.92. Last week, we increased the dividend by $0.07 per share to $0.79 per share. Let me now turn to our auto operations. Demand for new vehicles remains solid and availability is improving. We continue to take forward orders. Our U.S. presold inventory remains approximately 40% to 50%. In the U.K., our forward order book is 24,300 units and gross is only down 2%, representing about $98 million. Automotive operations in the U.K. during the third quarter were impacted by supply challenges, stop sales, and a challenging used vehicle market. Orders for 493 new vehicles were unable to be delivered in September. In addition, same-store used vehicle gross profit declined 30% as pricing challenges impacted the used market. Total units delivered increased 10%, service and parts revenue increased 9%, and gross profit was up 10%. Our variable gross profit remains strong and higher than historical levels. Let me now talk a little bit about Penske Transportation Solutions. We own 28.9% of PTS, which provides us with equity income, cash distributions, and cash tax savings. PTS currently manages a fleet of over 442,000 trucks, tractors, and trailers. In the third quarter, operating revenue increased 4% to $2.8 billion. Our logistics revenue increased 2%, while rental declined 9%. PTS generated $291 million of net income. Our share of PTS earnings was $84 million, which declined by $51 million compared to Q3 last year. However, the positive is our share of PTS earnings increased $11 million sequentially compared to Q2 of 2023. The decline in PTS earnings was mainly impacted by supply constraints and lease extensions that increased the number of older units in operation and drove higher maintenance costs of $40 million in Q3. We also granted 18,000 lease extensions so far this year and 37,000 over the last 21 months. Commercial rental utilization was 80%, compared to 84% in the third quarter. Our full-service long-term contract business remains strong, increasing 13% in Q3. We believe the supply of new trucks is stabilizing and will provide PTS with an opportunity to replace the older vehicles in the fleet in the near future, which will drive lower maintenance expense. I remain confident in our model and the performance of the business. Thanks for joining us today. I look forward to your questions.

Thank you, Roger. Our Premier Truck Dealership business represents 44 locations in North America and is an important part of our diversification. Earlier this year, we expanded into the Greater Winnipeg, Manitoba market area, acquiring five new locations and $180 million in estimated annualized revenue. These new dealerships have been fully integrated into our existing operations in Canada and are performing to expectations, significantly expanding our operations in Canada. New Commercial Truck demand remains solid and continues to be driven by replacement demand. Our Class 8 allocation for 2023 remains sold out. Through September 30th, North American Class 8 retail truck sales were up 13% to 248,000 units. However, during the third quarter, same-store retail unit sales decreased 11% when compared to the prior year due to production timing and delivery delays in calendar year 2022, resulting in higher-than-normal retail sales later in the year. However, same-store gross profit increased 6% as gross margin increased on both new and used truck sales. Service and parts represented 65% of total gross profit and covered 132% of fixed costs in the third quarter. Q3 EBT increased 16% to a record $61 million and was the highest EBT quarter in the company's history. As we look forward to 2024, our order book recently opened, and we are securing orders and expect another strong year of Class 8 sales. Additionally, after nearly two years of declining freight rates, a recovery is also forecasted in calendar year 2024.

Thank you, Rich. Good afternoon, everyone. I would now like to walk you through several key financial highlights and discuss the strength of our balance sheet. We continue to focus on operational efficiencies through cost reductions, automation, and other improvements gained over the last several years to help us maintain lower levels of SG&A to gross profit than historical averages. SG&A to gross profit was 69.9% in the third quarter, which is 800 basis points below the 77.9% in 2019. SG&A includes costs related to hail damage sustained during the quarter, which represented approximately 50 basis points of SG&A to gross profit. As a result of our efforts to gain efficiencies and control expenses, the compensation to gross profit ratio has improved by 30 basis points, while service and parts absorption has improved 240 basis points when compared to last year. During this period, we generated over $1 billion in cash flow from operations. Last week, we increased the dividend by almost 10% to $0.79 per share. So far this year, we have increased the cash dividend by 39% from $0.57 to $0.79. We continue to maintain a disciplined and balanced approach to capital allocation. Year-to-date, we have acquired $320 million in estimated annualized revenue and we have a pipeline of more than $2.5 billion under consideration. Our trailing 12-month EBITDA is nearly $1.8 billion. At the end of the quarter, our long-term debt was $1.7 billion. Approximately $1 billion of the long-term debt represents our subordinated notes with $550 million maturing in 2025 and the other $500 million maturing in 2029. The average interest rate on these notes is 3.6%. Debt-to-total capitalization improved to 27.3% from 28.3% at the end of the second quarter. Leverage sits at 1x at the end of September. We also have the ability to flex our leverage up to 4x, leaving significant opportunity for acquisitions and returning capital to shareholders. Our U.S. credit agreement provides for up to $1.2 billion in revolving loans, fully available at the end of September. At September 30th, we had $104 million in cash, $415 million in vehicle equity, and $1.4 billion in availability under our credit agreement. Total inventory was $3.7 billion, representing an increase of $200 million from December 31st. Our current days supply of new battery electric vehicles is 52 days in the U.S. and 38 days in the U.K. Used vehicle inventory had a 38-day supply. At this time, I will turn the call back to Roger for some final remarks.

Thank you, Shelley. As she mentioned, our balance sheet is strong, safe, and secure, with a capitalization ratio of 27% and a leverage ratio of 1.0x, allowing us to maximize capital allocation. Since 2018, we have returned over $2.5 billion to our shareholders. For the nine months ended September 30, 2023, we generated $1.2 billion in earnings before taxes and approximately double the earnings before taxes generated for the full year in 2019. Our results demonstrate the benefit of our diversification across retail, automotive, commercial truck industries, cost control, and a disciplined capital allocation strategy. We remain focused on simplification, optimization, and digitization to drive efficiency. Thanks for joining us today. I look forward to your questions.

And our first question is from John Murphy. Please go ahead.

Good afternoon, Roger and team. You guys talked about this a bit, but as far as inventory levels, how much were you hampered by shortages? I think people are thinking that the chip shortage is done, but there are still hiccups there. When do you think those get resolved, and what kind of impacts are these having on the business?

Let’s put it in perspective, John. Our total inventory at the end of nine months only went up $200 million. We are still in a tight inventory situation. The impact in the third quarter was significant. Our inventory, obviously, is not much when you look at nine months. Our U.S. inventory today is at 2 million units, while pre-pandemic it was at 3.6 million. Our competitors may experience bigger swings than we do. In the U.K., we had almost 500 units affected. I will let Rich talk about the truck inventory and where you see it going forward.

We have seen a steadier supply this year of the Commercial Trucks. The comparison to the third quarter of last year was related to the peak end supply chain challenges at the beginning of 2022. Now that we are back to a more normal distribution of delivery from the OEMs, the comparisons look down compared to Q3 of last year. However, we have had minor cancellations that have been absorbed by other customers. We are seeing the construction delays improve, which is a positive sign for the future.

Your parts and service were particularly strong in the quarter. Can you talk about the different channels, customer pay, warranty? What should we think about going forward?

The same-store service and parts revenue was up 9.5% and gross profit was 10.3%. We are implementing AI that’s driving better customer engagement and service appointment rates. The effective labor rate is up 5%. Our tech count is also increasing, which contributes to our positive outlook.

Just one follow-up on that. Is the ELR for warranty work up in a similar rate, or is it different from customer pay?

The warranty rate is determined by the manufacturer and tends to follow our established door rate, which means it increases but may not be as quick.

Next, we will go to the line of Michael Ward. Please go ahead.

It looks like some of the supply constraints on the heavy-duty truck side are impacting you both on PTS and auto retail trucks. Is there any reason we won’t continue to see growth in PTS profitability? What can we expect for that moving forward?

We want to be at 500,000 units in our fleet by 2025. Growth will be more consistent in our outfits. I see no reason not to continue growth. Our contract business remains strong, and we have a trailing opportunity for additional revenue.

The supply side is still a mix of constrained parts. End-of-year comparisons can be challenging based on the production cycles but overall, we see improvement as OEMs work through their supply chains.

Next, we go to Rajat Gupta. Please go ahead.

Could you unpack the SG&A to gross for the quarter a bit? What influenced the sequential move?

SG&A to gross was 69.9%, with the decline attributed to three main areas: hail damage costs, service loaners, and personnel costs. We're comfortable it will normalize around the historical average.

Any updated learnings from the agency model in the U.K., specifically how profitability has evolved and whether you've found efficiencies?

The agency model has allowed us to reduce our costs while increasing our margins, despite some transitions. We expect further learnings as we move forward.

What are your thoughts on the UAW impact on the industry? Could the strike raise margins higher in the short term?

Our brand mix protects us from UAW impacts currently; however, high costs would affect the Big Three's margins going forward.

And we have no further questions. I will turn the conference back over to Mr. Penske for closing remarks.

Thanks, everybody, for joining us. We look forward to seeing you at the end of the next quarter. Have a great day.