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DATE

Thursday, July 24, 2025 at 10 a.m. ET

CALL PARTICIPANTS

President and Chief Executive Officer — Daryl Kenningham

Senior Vice President and Chief Financial Officer — Daniel McHenry

Senior Vice President, Manufacturer Relations, Financial Services, and Public Affairs — Pete DeLongchamps

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RISKS

Daniel McHenry stated, "Effective April 2025, the UK government increased the national minimum wage for employees and national insurance for employers. This increase resulted in approximately $4 million of additional costs in the second quarter, or 1.9% in additional SG and A as a percent of gross profit."

Daryl Kenningham indicated, "we are being somewhat cautious moving forward. Expectations remain that new and used vehicle GPUs could elevate a bit as inventories tighten from imposed tariffs. We have deferred certain capital expenditure projects and have reevaluated some discretion."

Daryl Kenningham added, "We are also evaluating our collision footprint and repurposing capacity as that segment of the industry continues to decline."

Daniel McHenry reported, "We incurred $7.6 million of restructuring costs in quarter two 2025 in relation to our ongoing UK restructuring plan."

TAKEAWAYS

Revenue: Reached a record $5.7 billion in revenue in Q2 2025, as reported by Daniel McHenry.

Gross Profit: Achieved a record gross profit of $936 million in Q2 2025.

Adjusted Net Income: Improved to $149.6 million, up 12.4% in the second quarter of 2025.

Adjusted Diluted Earnings Per Share: Adjusted diluted earnings per share from continuing operations rose 17.5% to $11.52 in the second quarter.

US New Vehicle Sales (Same-Store): Grew 6% on a same-store basis, outpacing the industry; Reported unit sales up 4.6% compared to the prior year quarter.

New Vehicle Average Selling Price (US): Increased 1.5% as reported and 1% on a same-store basis in Q2 2025.

New Vehicle Gross Profit per Unit (GPU, US): Declined 0.3% as reported and 0.9% on a same-store basis in Q2 2025, despite a sequential improvement of $211; held stable throughout the quarter.

Used Car Volumes (US, Same-Store): Rose 9.3% on a same-store basis; as-reported volume up 2.7% compared to the prior year period.

Used Vehicle GPU (US, Same-Store): Increased $29 on a same-store basis; as-reported up $25.

Used Vehicle Revenue: Noted as the third highest quarter on record; Volume in the second quarter was 11 units below the all-time high.

F and I Revenue (US): Achieved a record $199 million in F&I revenues in Q2 2025.

F and I GPU (Company-wide): Reached $2,465, just $3 off the record high in Q2 2025; up $104 as reported and $90 on a same-store basis in Q2 2025.

After-sales Gross Profit (Same-Store, US): Increased 14.3%; after-sales revenue up 12.8% on a same-store basis and 11.7% as reported for Q2 2025.

Customer Pay Revenue (US, Same-Store): Grew 13.6%; warranty revenue up 31.9% in Q2 2025, benefiting from the prior year CDK system disruption.

Same-store Repair Order (RO) Count (US): Increased 8% in customer pay in the UK in Q2 2025.

Technician Headcount (US, Same-Store): Technician headcount in the US on a same-store basis increased 6% in the second quarter.

SG and A as Percent of Gross Profit (US, Adjusted): Decreased to 64.2% for US adjusted SG&A as a percent of gross profit in Q2.

Inventory (US): Remained flat sequentially in Q2 and down nearly 15% compared to the end of 2024; day supply at 48 days.

UK Revenue and Gross Profit (Reported): UK revenues increased 96.9% and gross profit rose 109.6% year over year in Q2 due to acquisitions.

UK Gross Profit (Same-Store): Up double digits, with used vehicles, parts and service, and F&I growing 16%, 12%, and 28.7%, respectively, in Q2 2025.

UK Technician Headcount: Expanded 8% in Q2 2025.

UK Customer Pay Revenue: Customer pay increased nearly 8% in the UK business in Q2 2025.

UK SG and A as Percent of Gross (Reported): Rose to 84.3% in Q2 2025;

UK Restructuring: Removed approximately 800 headcount from the UK business following minimum wage and insurance increases as of Q2; $7.6 million of restructuring costs were incurred in Q2.

BEV Mandate Impact (UK): Daryl Kenningham explained, "There's also a drag on gross profits due to the BEV mandates in the UK."

UK BEV Government Subsidy: Subsidies up to £3,750 for BEV vehicles newly announced.

Cash Flow Generation: $350 million of adjusted operating cash flow in Q2 2025; $267 million in free cash flow after $83 million of capital expenditure in Q2 2025.

Acquisitions: Three dealerships acquired in Q2 2025, adding $330 million in revenue; footprint expanded in Austin, Texas, and Fort Myers, Florida.

Share Repurchases: Bought back 3% of shares in the first half of 2025 for $167.3 million, including $45 million in Q2 at an average price of $387.39.

Liquidity: $1.1 billion, comprising $374 million in cash and $739 million available under the acquisition line as of June 30, 2025.

SUMMARY

The company delivered record revenue and gross profit for Q2 2025, driven by broad-based growth across all business segments in the US and substantial acquisition-driven expansion in the UK. Executive management signaled a disciplined approach to further investment and capital deployment due to tariff-induced inventory uncertainty and increased UK wage pressures. Leadership confirmed expectations for margin pressure ahead, citing both industry-wide cost inflation and the potential for ongoing shifts in new vehicle contenting strategies by automakers. Portfolio optimization continued with selected store closures and targeted acquisitions to enhance scale within strategically important markets. Management expressed confidence in long-term productivity investments, including technology and AI integration, while preparing for further market volatility and shifting regulatory landscapes.

President Kenningham stated, "We have deferred certain capital expenditure projects and have reevaluated some discretion." highlighting a shift toward defensive financial management under market uncertainty.

Chief Financial Officer McHenry emphasized, "We incurred $7.6 million of restructuring costs in Q2 2025 in relation to our ongoing UK restructuring plan," underscoring cost containment responses to regulatory and economic headwinds.

Leadership confirmed operational focus on customer retention, particularly targeting owners of vehicles older than four years, aiming to increase after-sales penetration.

The company reported ongoing balance sheet strength, supported by a rent-adjusted leverage ratio of 2.72 times and a significant portion of debt on fixed terms as of June 30, 2025.

INDUSTRY GLOSSARY

PRU: Per Retail Unit; key profitability metric showing gross profit per vehicle sold, commonly referenced across new, used, and F&I sales in auto retail.

GPU: Gross Profit per Unit; measure of profitability per vehicle sold, reflecting realized margin after direct costs of sale.

RO: Repair Order; the work ticket generated each time a vehicle is serviced, central to parts and service revenue tracking.

CP: Customer Pay; portion of after-sales (service) revenue paid by retail customers, excluding warranty or fleet work.

SAR: Seasonally Adjusted Annual Rate; annualized vehicle sales rate, a core indicator of auto market strength.

BEV: Battery Electric Vehicle; fully electric vehicles, significant in regulatory and incentive contexts, especially in the UK market analysis.

SG and A: Selling, General, and Administrative expenses; cost category capturing overhead and operational spending exclusive of cost of goods sold.

F and I: Finance and Insurance; segment derived from arranging vehicle financing and insurance product sales, key to dealership profitability.

Plate Change Month (UK): The biannual period in the UK when new vehicle registration plates are introduced, causing temporary spikes in sales and cost metrics.

Floor Plan Debt: Short-term financing used by dealerships to fund new and used vehicle inventory prior to sale.

Full Conference Call Transcript

Participating with me on today's call are Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, our Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Daryl Kenningham: Good morning, everyone. Our US performance was excellent in the second quarter, while growing our business and our UK team is navigating the integration of operations in a challenging UK market backdrop. Our adjusted net income from continuing operations improved 12.4% in the quarter, and EPS improved 17.5% on the same basis. Starting with our US business, new car sales were up 6% on a same-store basis, outpacing the industry. Our PRUs held up versus the second quarter of 2024, and they were up $211 sequentially. Our inventories were flat versus the quarter and down nearly 15% compared to the end of 2024, and day supply is healthy at 48 days.

Our used car volumes were up nearly 4% year over year, and gross profits were up $29. Our S and I performance in the quarter was very solid as well, up $90 per unit. Our after-sales business is an area we continue to invest in and believe still has a great deal of opportunity. In the quarter, our after-sales gross profit was up 14.3%. Customer pay revenue was up 13.6% and warranty up 31.9%. We certainly benefited from an easier comp versus the June 2024 CDK event, our after-sales business was strong throughout the quarter. Our May quarter-to-date performance saw CP revenues up 10.2% and warranty up 28.7%. We saw an 8% increase in same-store RO count for the quarter.

We continue to believe that the potential of the after-sales business warrants additional investment, and we've continued forward on this front. Our flexible scheduling, all-day Saturday focus, improving tech and technician productivity, give us significant physical capacity to increase after-sales business in our existing dealerships. By the end of 2025, 90% of all Group 1 technicians in the US will work in an air-conditioned shop. It's a boost to productivity, employee retention, and technician safety. We are also evaluating our collision footprint and repurposing capacity as that segment of the industry continues to decline. Lastly, we increased our technician headcount by 6% in the US on a same-store basis.

We've continued our branding efforts in the US, a number of our dealerships will be rebranded with the Group 1 name. This project, when combined with our integrated marketing and customer data, will open opportunities across our footprint. It's important to note that we continue to believe that the retail automotive business is a local business and that's where we'll put our emphasis. We've learned a great deal about this rebranding from our UK business where all of our dealerships are already branded with the Group 1 name. There remains movement in the new administration's policies and uncertainty for US trade partners, automotive retailers, OEMs, and consumers.

We continue to see demand across all lines of service and are focused on remaining operationally agile. However, we are being somewhat cautious moving forward. Expectations remain that new and used vehicle GPUs could elevate a bit as inventories tighten from imposed tariffs. We have deferred certain capital expenditure projects and have reevaluated some discretion. We also have contingency plans in place should we see a marked change in the competitive environment. That being said, we are taking advantage of our strengths during this time.

By refocusing our efforts on improving productivity, we recognize our consumers are under pressure from car prices and other costs, which have outpaced wage growth and higher interest, virtually double the rates we saw just a few years back. I'll speak more on these efforts shortly. Now shifting to our UK business, the UK business was managed well compared to the broader market, which continues to face macroeconomic challenges such as weak economic growth and inflation levels exceeding the Bank of England expectations. We recognize that our customers in the UK share many of the same adverse economic impacts as our US customers. There's also a drag on gross profits due to the BEV mandates in the UK.

However, the UK government did announce subsidies of up to £3,750 on BEV vehicles. This is a great first step. In terms of our costs in the UK, without the benefit of a plate change in the second quarter, our SG and A percentage of gross rose to 84.3%. We also absorbed some new government-required costs for insurance and wages. We continue to work on our cost structure in the UK, and Daniel McHenry will have more to discuss on this topic. We're seeing the benefits of continued progress on our process alignment in the UK and cost reductions.

We performed well in used vehicle volumes, and we also added 8% more technicians, driving a customer pay increase of nearly 8% in our UK business. Our FNI PRU in the UK was up 27% in the quarter. This quarter, we also marked a major milestone with the opening of our new UK headquarters in Milton Keynes, centrally located with strong transport links and proximity to the key OEM partners like Mercedes Benz and the Volkswagen Group. The site reflects our deep commitment to the UK market, our employees, and our manufacturer partners.

I'm incredibly proud of the work our UK team has done, and we're confident Group 1 UK is well-positioned for long-term growth as a leading force in the UK motor trade. Now shifting to capital allocation, we acquired three dealerships in the quarter, further strengthening our partnership with Mercedes Benz, Lexus, and Acura. These dealerships expand existing footprints in Austin, Texas, and Fort Myers, Florida, adding more scale in these proven markets consistent with our cluster strategy. We are consistently balancing acquisitions and dispositions, with repurchasing our shares in the first half of 2025, bought back 3% of the company for $167.3 million. We will continue to optimize our portfolios in the US and the UK.

Since the beginning of 2023, we bought assets generating $5.4 billion in annual revenue and disposed of assets generating $1.3 billion in revenue. We will continue to be acquisitive, but we are also being very disciplined in valuing acquisitions, engaging only in deals that we feel provide long-term value for Group 1 shareholders. Let me close with a word about the future. Our belief is that in the future, those retailers who can drive scale, productivity, and lower cost per transaction will be the winners. Our customers can no longer simply absorb higher pricing, and in turn, that will create margin pressure.

We're committed to lowering our transaction costs for productivity gains by increasing our use of technology, first-party data, and process improvements throughout our enterprise. We're making investments in technology to improve our customer experience and drive industry-leading productivity. We believe artificial intelligence has the capability to improve our business, including elevating the customer experience within the sales and service processes. Utilizing robotics to automate operational functions, transaction processing, and analysis. With AI, we can connect with and interact with our customers anytime they want to do business. We're testing some very exciting things which will help us elevate the customer experience at Group 1.

Now I'd like to turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Daniel McHenry: Thank you, Daryl, and good morning, everyone. In the second quarter of 2025, Group 1 Automotive reported quarterly record revenues of $5.7 billion, quarterly record gross profit of $936 million, adjusted net income of $149.6 million, and quarterly adjusted diluted earnings per share from continuing operations of $11.52. Starting with our US operations, revenue growth on an as-reported and same-store basis occurred across all lines of business over the comparable prior year quarter. Notably, parts and service revenues reached a quarterly high, increasing 11.7% and 12.8% on an as-reported and same-store basis, respectively, over the prior year comparable quarter, and F and I revenues reached a quarterly high of $199 million.

We experienced higher new vehicle units sold on a national reported and same-store basis of 4.6% and 6%, respectively, over the comparable prior year quarter. This reflects the resiliency of demand on our operational execution and the value generated from the ability to drive incremental volume through our dealership acquisitions. At the same time, volumes increased, we saw prices increase by 1.5% and 1% on a reported and same-store basis, coupled with a slight decline in GPUs of 0.3% and 0.9%, respectively. The higher volume more than offset the lower GPUs and contributed to as-reported and same-store gross profit increases of 4.3% and 5%, respectively, versus the prior year comparable period.

Used vehicle revenues for the third highest quarter on record, and volume in the second quarter was 11 vehicles shy of the quarterly record, growing 2.7% and 9.3% on an as-reported and same-store basis versus the prior year comparable period, respectively. GPUs were also up, increasing $25 and $29 on an as-reported and same-store basis. Our processes, discipline, and use of technology with pricing of used vehicles helped create this gross profit growth while driving volume against higher prices versus the prior year comparable period. Our second quarter FNI GPUs of $2,465 was just $3 off the quarterly record high and is up $104 and $90 on an as-reported and same-store basis versus the prior year comparable period, respectively.

Our performance by our FNI professionals has been outstanding to maintain GPU discipline and drive product penetration. Shifting gears to after-sales, after-sales revenues had double-digit increases of 11.7% and 12.8% on an as-reported and same-store basis, respectively. These revenue increases, coupled with slight margin increases, generated gross profit growth of 13.1% and 14.3% on a reported and same-store basis, respectively. Same-store customer pay and warranty revenues comprised 72.2% of same-store after-sales revenues for the second quarter versus 69.1% for the prior comparable quarter. Customer pay dollars per RO increased 7.4% over the prior year, reflecting the aging US car park and increasing prices partly due to higher prices from tariffs. Warranty work is up for Toyota, BMW, and Honda.

Warranty work continues to increase due to the number of new vehicles sold in recent years requiring warranty service and an increase in the warranty recall campaigns by manufacturers. Recent examples include the Tundra and GM engine recalls. Ford recently announced a recall of up to 850,000 vehicles. Wrapping up the US, let's shift to SG and A. US adjusted SG and A as a percent of gross profit decreased by two to 64.2%. We are seeing the benefits of our refocusing efforts on operational efficiency and resource management to bring these metrics in line with recent historical levels.

Turning to the UK, acquisition activity led to a 96.9% and 109.6% increase year over year in revenues and gross profit, respectively. We are pleased with double-digit growth in gross profit on a same-store basis, with used vehicles, parts and service, and F and I growing 16%, 12%, and 28.7%, respectively. Same-store retail used vehicle units sold increased over 8% year over year, but GPUs remained relatively flat. Same-store wholesale losses per unit improved to $414 from $842 compared to the prior year quarter, respectively.

After-sales is continuing on a positive growth path, with a 2.4% increase in same-store revenues on a constant currency basis and almost a 6% increase in same-store gross profit on a currency basis over the prior year quarter. Same-store adjusted SG and A as a percent of gross profit increased to 16 basis points versus the prior year quarter. However, on a year-to-date basis, adjusted SG and A as a percent of gross profit was 78.6%, an increase of only 70 basis points. Reported adjusted SG and A as a percent of gross profit was 84.3%. However, on a year-to-date basis, adjusted SG and A as a percent of gross profit was 81%, near the 80% expectation we believe achievable.

Effective April 2025, the UK government increased the national minimum wage for employees and national insurance for employers. This increase resulted in approximately $4 million of additional costs in the second quarter, or 1.9% in additional SG and A as a percent of gross profit. To date, we have removed approximately 800 headcount from the UK business post-increases, lowering our overall costs and reducing the exposure to these government mandates. We will continue to focus on cost control and business process efficiency as we execute our business integration activities in order to offset some of these increases in employee compensation. We incurred $7.6 million of restructuring costs in quarter two 2025 in relation to our ongoing UK restructuring plan.

Turning to our balance sheet and liquidity, our strong balance sheet, cash flow generation, and leverage position will continue to support a flexible capital allocation approach. As of June 30th, our liquidity of $1.1 billion was comprised of accessible cash of $374 million and $739 million available to borrow on our acquisition line. Our rent-adjusted leverage ratio, as defined by our US syndicated credit facility, was 2.72 times at the end of June. Cash flow generation through the second quarter of 2025 yielded $350 million of adjusted operating cash flow and $267 million of free cash flow after backing out $83 million of capital expenditure.

This capital was deployed in the quarter through a combination of acquisitions, share repurchases, and dividends, including the acquisition of $330 million in revenues, $45 million repurchasing approximately 115,000 shares at an average price of $387.39, and $6.5 million in dividends to our shareholders. As of June 30th, approximately 60% of our $5.2 billion in floor plan and other debt was fixed, resulting in an annual EPS impact of about $1.31 for every 100 basis points increase in the secured overnight funding rate. For detail regarding our financial condition, please refer to the schedules of additional information in our news release as well as our investor presentation posted on our website.

I will now turn the call over to the operator to begin the Q&A section.

Operator: We'll now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. Your first question today will come from Rajat Gupta with JPMorgan. Please go ahead.

Rajat Gupta: Great. Thanks for taking the questions. And good results. Had one question on the new car GPUs. Pretty strong pickup sequentially here in the quarter. Could you give us a sense of how those GPUs progressed through the course of the quarter? Maybe, like, how was April, May, June? Before averaging out to the $3,665 that you reported for the quarter. And I have a quick follow-up. Thanks.

Daryl Kenningham: We can get you a little more detail on that after, but they were fairly strong all quarter. We didn't see a spike due to necessarily any change in inventories or any change in manufacturing incentives, support, or anything like that. So they stayed fairly strong through the quarter.

Rajat Gupta: Understood. And just I just had a couple, like, clarifications on the UK. It looks like you took up your cost-out target there from £22 to £27 for the full year and just comparing the two slide decks. Could you is that primarily to offset some of the government-imposed cost increases or are there other changes you're making just in light of the weak macro backdrop there? And just one more quick follow-up on the UK.

Daniel McHenry: Yeah. Rajat, it's Daniel here. We expanded, I guess, some of our headcount reduction. The headcount reduction now today is circa 800 people. That's higher than we initially projected. A couple of reasons for that is that we have decided to close a couple of very close to other stores of the same brand that we have.

Rajat Gupta: Got it. Got it. Okay. Yep. Good. Roger.

Daryl Kenningham: This is Daryl. I just confirmed on the new car PRU in the US. There wasn't any spike between the months. It was fairly even. April was actually pretty good, but May and June held up very well. So pretty flat through the quarter.

Rajat Gupta: Understood. Thanks for clarifying that quickly. And just lastly, just on the parts and services business in the UK, it's pretty strong, constant currency growth there, 6%. Given the productivity improvements, you're starting to see at inch case, any color you could give us as to the expected run rate here on that into the second half, maybe early next year. Is this a sustainable number? Could it accelerate further? Any color there would be helpful. Thank you.

Daryl Kenningham: We believe there's more room to run in the quarter. We added 8% more technicians to our technician base. The increase that we saw in after-sales there was actually a decline in warranty in the quarter in the UK. Was more than offset by a higher increase in CP of 8%. We do have the opportunity to increase our customer count, Rajat. There's a lot of that increase that we saw was per RO dollars. So what we are focused on is trying to drive more car count, especially since we have 8% more technicians to be able to accommodate it.

Operator: Your next question today will come from Daniela Haigian with Morgan Stanley. Please go ahead.

Daniela Haigian: Hi. Good morning. So parts and service tends to be a balance for Group 1. You see continued strength, customer pay, margins up, technician headcounts up, but thinking out the next one to three years or so, what are the key puts and takes to think about the top line? You have on one hand vehicle unaffordability weighing on SAR, which can increase mileage, create demand for reconditioning, but it also may limit the origination of newer cars that tend to have that stickiness on the service side. So what are the critical vintages to look out for, and how can Group 1 navigate that period of turbulence?

Daryl Kenningham: A key to growth in the next three years and after-sales, Daniela, in the US specifically, is us reaching deeper into the owner base in terms of people who have owned their cars longer. We have to be able to increase our share of that market. So call it four-plus years of ownership. We need to be able to reach into that market deeper, penetrate it deeper, increase our penetration there, increase our spend there. Ways to do that are we're looking at making sure our labor rates are attractive to that customer segment. It's a sensitive customer segment on pricing. We have to make sure that we're attractive.

We have to make sure that we're not overpriced for what they're looking for. And then also, the restructuring of our marketing at Group 1 to where we're now using first-party data, we know more about those customers than we ever have. So our focus, and I think success moving into the years ahead, is going to be how do we reach out to those customers who've owned their cars longer than three years? That's what we're putting a lot of focus on right now.

Daniel McHenry: Daniela, just to add to what Daryl said, the average car coming into our store is a 2022 vehicle versus a 2019 vehicle, which is the average age, average model of the age of a car within our store. It's over a third higher, the average RO value that we get from that vehicle. So it's highly important that we keep those within our ecosystem.

Daniela Haigian: Got it. Makes sense. Second question is around the used business. A large online-only retailer growing volumes 50% year over year in the market. They're pushing for three million cars sold annually in the next five to ten years. I know it's an incredibly fragmented market. How do you view the competition from the likes of these online pure-play retailers, and is there greater opportunity to grow and consolidate in the used business?

Daryl Kenningham: There's probably an opportunity to consolidate, yes. Agreed. We try to learn from those online retailers. They're great competitors, especially in the shopping process. Those are things that we pay attention to and try to learn from. We feel like at least today, we still have tremendous opportunity to grow our used business inside the footprint of our stores today, especially as used car sales become more digital. They're as good as any part of our business today. We feel like we can still grow inside of our footprint. We have grown. If you were to look at our use-to-new ratio, five years ago, it was much less than it is today.

We've improved our used car performance, but there's still room to run. I think you're right. I think those digital retailers are proving that.

Operator: Your next question today will come from Federico Mirendi with Bank of America. Please go ahead.

Federico Mirendi: Good morning, guys. So we've heard that OEMs for model year 2026 may take some of the features that in the prior model year were basically standard and put them as optional. So basically, there will be a higher price to get the same features of last year's vehicle. What have you seen on your order sheets so far?

Daryl Kenningham: Federico, this is Daryl Kenningham. They're just announcing the 2026 contenting and some pricing. Some are still waiting to see what happens with the tariffs. I mean, the Japan announcement this week, and there's still not enough specifics around it. I don't think for the OEMs to make pricing decisions. Europe is supposed to be finalized very soon. What we believe will happen, and I think this will absolutely happen, is you will see OEMs play with trim levels, contenting, repricing, price walks between grades, things like that to optimize margins and reduce the impact of the tariffs. So what you stated in your question, I think, is absolutely true, and I think that will happen.

Standard equipment may become optional in the future in order to keep the base car more competitively priced.

Federico Mirendi: Thank you, Daryl. My follow-up would be on parts and service. You did a great job to increase your headcount. I was wondering for every 1% of incremental headcount, what's the translation into earnings or gross profit for every technician that you add to your account, basically?

Daryl Kenningham: We can get you some more detail around it, but generally, at Group 1, how we look at a technician, they're worth about $15,000 in gross profit per month, average across our brands. Some brands, it's more. Some brands, it's less. But when we can put a technician in a stall and have them work for a month, that's like another $15,000 in gross profit. That's how we look at our cost. Look at the cost of not having a technician rather than the cost of what it costs to acquire a technician. Daniel can give you some more depth on that later today if you like.

Operator: Your next question today will come from Michael Ward with Citi Research. Please go ahead.

Michael Ward: Thanks very much. Good morning, everyone. How do the BEV mandates in the UK affect your gross? What happens there?

Daryl Kenningham: A lot of the BEV volume, Mike, is going into corporate fleets. If you were to look at the retail mix of the BEV mix and just the straight retail consumer, it's like 10%, 11% of the mix. If you look at it in the corporate fleets, it's much higher than that. It blends out at like 26% today. When we sell cars to the corporate fleets, we still make a positive margin on it, but it's less than what we make at retail.

Michael Ward: I see. As long as there's all that.

Daryl Kenningham: It's kind of like in the US when they're putting a lot of BEVs in rental car service right now, similar. So it's just corporate fleets there, and it drives the margin down as a result.

Michael Ward: Okay. You made a few more acquisitions in 2Q. What is the environment like out there? Are there big lumpy acquisitions out there? I mean, the Herb Chambers is one that Hasbury Tipple's a big chunk. Are there any big acquisition opportunities out there, do you think? Or is it gonna be more tuck-ins that we're seeing?

Daryl Kenningham: Well, I think as a general statement, I think there will be in the next few years, there'll be larger ones. Interesting. Up to right now, the year has been fairly quiet because of the uncertainty. It feels like in the last couple of weeks, there's a little more activity. We're starting to see some more inbound here, I mean, literally in the last few days. We'll see if that is a blip or a harbinger of getting more active. We'll see. I'm not sure yet.

Operator: Your next question today will come from Jeff Licht with Stephens Inc. Please go ahead.

Jeff Licht: Good morning, guys. Congrats on a great quarter. Again. So I was just kind of curious this quarter, you know, the metrics were getting a little more variable if you would, you know, if you'll try to predict all these. You know, if you look at new gross, new units, service and parts used, I'm just kind of curious as you which one surprised you the most. As we look into Q3 and Q4, which ones are sustainable and kind of predictive for our models and which ones might tail off?

Daryl Kenningham: I wouldn't say we were really pleased with the after-sales performance in both markets. I cannot tell you that we would expect to maintain what was it, 13% customer pay growth on an ongoing basis. Generally, we plan for mid-single digits, maybe high mid-single digits on that. I wouldn't lean on the current after-sales growth like it is. You look at the warranty numbers, they won't be 31% in the quarters ahead. I don't think. It might be great if they are, but we wouldn't plan on it. I think there's resilience in the new car margin, Jeff.

It's held up now for a year and doesn't seem to be weakening, and the day supply in total anyway is still reasonable, and the OEMs seem to be managing that well. Pete may have some comments on F and I and used cars in terms of.

Pete DeLongchamps: Sure. Jeff, I think that, you know, I wouldn't say that we were surprised. We've got our processes in place. The team is in place, and I think we've executed on a strategy that we've laid out, you know, to you over the last few years. So the demand is still there for use. Acquisition is very difficult. We ended the quarter with a 31-day supply. So we were consistent there. Then I think if you look at, you know, the F and I when whether it's the revenue that we're getting from the finance piece of the business, along with our increased margins or increased percentages on product, it turned out to be a great quarter for us.

So, you know, I think there's still demand out there for used and facilitation of financial insurance.

Daniel McHenry: Jeff, that's not really the only thing I would add to our end to SG and A. UK in particular, there wasn't a plate change month this quarter. So I'd expect SG and A as a percent of gross to come down slightly in quarter three versus quarter two. Just because of that additional growth. Then just a quick follow-up. The lease return issue obviously, this year, you know, down below a million. It looks like they're down, you know, 30%, 40% year over year. That should flip, you know, depending on what the buyout turn-in rate is next year, but it's gonna be up. That should be a good source of traffic.

I don't think, you know, solely focused on 2026 that much given what's going on in 2025. But if you could just fix it how you guys think that we turn an issue how that plays out and what effect it has in 2026.

Pete DeLongchamps: I think it's gonna be better. Jeff, this is Pete. It's gonna it's difficult to forecast that because you don't know what the equity situation is going to look like next year. It could be very good on especially the ICE vehicles. I think the wildcard of that is what the BEV lease returns look like. But, you know, with the situation with acquisition and availability, you know, we're taking as many off of these vehicles as possible, and I think that'll continue through next year, depending on pricing.

Operator: Your next question today will come from David Whiston with Morningstar. Please go ahead.

David Whiston: Thanks. Good morning. I was just curious on the divestiture of those two UK Mercedes stores. Is that more of a geographic reason, a factory reason, or are you not happy with Mercedes prospects in the UK going forward?

Daryl Kenningham: We're very happy with Mercedes Benz in the UK. We're the largest Mercedes retailer in the UK, and we're happy about that. We have a terrific relationship with the OEM. There were some in those two cases, those stores closer to other stores that we owned and just in partnership with the OEM. We closed those, consolidated them into another point.

Daniel McHenry: Yeah. You know, the one store in particular was only seven miles away from another one of our stores. We're actually gonna redevelop that store into a larger store in the coming future. So we see some cost benefit from that, and we don't expect to lose any of our customer base.

David Whiston: Okay. Just curious, your Toyota inventory is abnormally too low given any rough by them to export vehicles from Japan right now.

Daryl Kenningham: Well, it's low. Basically, what we have is Tacomas and Tundras. We like a little more? Yeah. We probably would, but we're okay with tight supply at Toyota. That's for sure.

Operator: Your next question today will come from Ron Jewsikow with Guggenheim Securities. Please go ahead.

Ron Jewsikow: Yeah. Good morning, team. Nice quarter, and thanks for taking my question. On the UK SG and A piece, Daniel, I think you mentioned $4 million of higher costs related to required national insurance contribution changes. Is there anything else noteworthy this quarter? Because I know you've kind of had this ongoing integration effort post-inscaping cost savings underway. But dollars were up more than that $4 million sequentially despite lower gross profit.

Daniel McHenry: You know, when I looked at the dollars, I think some of it is January and February is generally a lower cost base. It's kind of more even in quarter two. The expectation always was that we would be slightly above 80% SG and A as a percent of gross on the basis on an annualized basis. We expected it to be closer to 80. But there's nothing really unusual in there apart from the increases in national insurance and national minimum wage.

Ron Jewsikow: Okay. No. That's super helpful. Then on parts and service, Slack, just kind of if warranty slows, and I understand there are probably structural tailwinds for warranty going forward. But in the event warranty work slows, just trying to stress test our model. Are you confident there's kind of enough built-up demand from customer pay to offset if there is a slowdown in warranty work or how we think about the two? I'm just not sure if you're wall to wall your service departments right now or how to think about that.

Daryl Kenningham: You know, I don't think we can cover a 31% increase in warranty with CP, but we think there's still room to improve CP. As we look back on prior quarters where warranty was lower, we were able to deliver CP growth there as well. I can't tell you it'd be dollar for dollar, but we certainly think there's room there. We generally feel like capacity is the key to driving after-sales growth.

Operator: Your next question today will come from Bret Jordan with Jefferies. Please go ahead.

Bret Jordan: Hey, good morning, guys. On the GPU, I guess you saw a $29 lift in comp. Was that pulled forward or was there demand surge around liberation day, or do you see this GPU sort of able to stable or expand from here?

Pete DeLongchamps: I think, you know, if you take a look at our trend, it's been pretty consistent on the used, and I would expect that to continue. In the used business, it's all about the acquisition, and our team's done a spectacular job of navigating whether it's trades, auction purchases, or outside purchases. So I think from a gross profit standpoint, it's been pretty consistent over the last year.

Bret Jordan: Okay. Then I guess parts and service, can you sort of carve out how much was the benefit of CDK? Sort of obviously late in the quarter. Last year, there was very little parts and service.

Daniel McHenry: You know, for us as a company, I think whenever we made our earnings call last year, we said that the fact that the CDK for parts and service specifically was about $12 million in terms of pre-tax income. So I would run that kind of estimate, Bret.

Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.