UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-14733

Lithia Motors, Inc.

(Exact name of registrant as specified in its charter)


Oregon			93-0572810
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
150 N. Bartlett Street	Medford,	Oregon	97501
(Address of principal executive offices)			(Zip Code)

(541) 776-6401

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock without par value

LAD

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer

Accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, ~~2022,~~2023, there were ~~28,933,642~~27,527,767 shares of the registrant’s common stock outstanding.

LITHIA MOTORS, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS


Item Number	Item	Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets (Unaudited) - March 31, ~~2022,~~2023, and December 31, ~~2021~~2022	1
	Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	2
	Consolidated Statements of Comprehensive Income (Unaudited) – Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	3
	Consolidated Statements of Equity and Redeemable Non-controlling Interest (Unaudited) - Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	4
	Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	5
	Condensed Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3932
Item 4.	Controls and Procedures	3932

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	4032
Item 1A.	Risk Factors	4033
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4134



Item 6.	Exhibits	4234

SIGNATURE		4335


CONSOLIDATED BALANCE SHEETS	CONSOLIDATED BALANCE SHEETS					CONSOLIDATED BALANCE SHEETS
(In millions; Unaudited)	(In millions; Unaudited)	March 31, 2022		December 31, 2021		(In millions; Unaudited)	March 31, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash, restricted cash, and cash equivalents		$	161.4	$	174.8
Accounts receivable, net of allowance for doubtful accounts of $18.7 and $17.3		923.8		910.0
Cash and restricted cash						Cash and restricted cash	$	299.4	$	246.7
Accounts receivable, net of allowance for doubtful accounts of $3.1 and $3.1						Accounts receivable, net of allowance for doubtful accounts of $3.1 and $3.1	843.1		813.1
Inventories, net	Inventories, net	2,697.3		2,385.5		Inventories, net	3,855.6		3,409.4

Other current assets	Other current assets	102.1		63.0		Other current assets	149.6		161.7

Total current assets	Total current assets	3,884.6		3,533.3		Total current assets	5,147.7		4,630.9

Property and equipment, net of accumulated depreciation of $445.6 and $422.6		3,244.5		3,052.6
Property and equipment, net of accumulated depreciation of $618.9 and $526.8						Property and equipment, net of accumulated depreciation of $618.9 and $526.8	3,719.7		3,574.6
Operating lease right-of-use assets	Operating lease right-of-use assets	393.1		395.9		Operating lease right-of-use assets	473.9		381.9
Finance receivables, net of allowance for estimated losses of $82.2 and $69.3						Finance receivables, net of allowance for estimated losses of $82.2 and $69.3	2,584.8		2,187.6
Goodwill	Goodwill	1,019.3		977.3		Goodwill	1,516.2		1,460.7
Franchise value	Franchise value	956.7		799.1		Franchise value	1,929.0		1,856.2

Other non-current assets	Other non-current assets	2,582.6		2,388.7		Other non-current assets	1,050.1		914.7
Total assets	Total assets	$	12,080.8	$	11,146.9	Total assets	$	16,421.4	$	15,006.6

Liabilities and equity	Liabilities and equity					Liabilities and equity
Current liabilities:	Current liabilities:					Current liabilities:
Floor plan notes payable	Floor plan notes payable	$	388.2	$	354.2	Floor plan notes payable	$	999.3	$	627.2
Floor plan notes payable: non-trade	Floor plan notes payable: non-trade	1,002.8		835.9		Floor plan notes payable: non-trade	1,664.9		1,489.4
Current maturities of long-term debt	Current maturities of long-term debt	282.7		223.7		Current maturities of long-term debt	35.9		20.5
Current maturities of non-recourse notes payable						Current maturities of non-recourse notes payable	46.2		—
Trade payables	Trade payables	260.5		235.4		Trade payables	320.0		258.4
Accrued liabilities	Accrued liabilities	890.9		753.6		Accrued liabilities	881.7		782.7

Total current liabilities	Total current liabilities	2,825.1		2,402.8		Total current liabilities	3,948.0		3,178.2

Long-term debt, less current maturities	Long-term debt, less current maturities	3,395.2		3,185.7		Long-term debt, less current maturities	5,066.0		5,088.3
Non-recourse notes payable, less current maturities						Non-recourse notes payable, less current maturities	779.2		422.2
Deferred revenue	Deferred revenue	200.2		191.2		Deferred revenue	234.0		226.7
Deferred income taxes	Deferred income taxes	203.7		191.0		Deferred income taxes	290.6		286.3
Non-current operating lease liabilities	Non-current operating lease liabilities	357.2		361.7		Non-current operating lease liabilities	427.7		346.6
Other long-term liabilities	Other long-term liabilities	156.8		151.3		Other long-term liabilities	194.1		207.2
Total liabilities	Total liabilities	7,138.2		6,483.7		Total liabilities	10,939.6		9,755.5

Redeemable non-controlling interest	Redeemable non-controlling interest	34.9		34.0		Redeemable non-controlling interest	40.9		40.7

Equity:	Equity:					Equity:
Preferred stock - no par value; authorized 15.0 shares; none outstanding	Preferred stock - no par value; authorized 15.0 shares; none outstanding	—		—		Preferred stock - no par value; authorized 15.0 shares; none outstanding	—		—
Common stock - no par value; authorized 125.0 shares; issued and outstanding 29.4 and 29.5		1,656.3		1,711.6
Common stock - no par value; authorized 125.0 shares; issued and outstanding 27.5 and 27.3						Common stock - no par value; authorized 125.0 shares; issued and outstanding 27.5 and 27.3	1,105.5		1,082.1

Additional paid-in capital	Additional paid-in capital	51.8		58.3		Additional paid-in capital	54.2		76.8
Accumulated other comprehensive income (loss)		4.9		(3.0)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(4.9)		(18.0)
Retained earnings	Retained earnings	3,191.4		2,859.5		Retained earnings	4,282.5		4,065.3
Total stockholders’ equity - Lithia Motors, Inc.	Total stockholders’ equity - Lithia Motors, Inc.	4,904.4		4,626.4		Total stockholders’ equity - Lithia Motors, Inc.	5,437.3		5,206.2
Non-controlling interest	Non-controlling interest	3.3		2.8		Non-controlling interest	3.6		4.2
Total equity	Total equity	4,907.7		4,629.2		Total equity	5,440.9		5,210.4
Total liabilities, redeemable non-controlling interest and equity	Total liabilities, redeemable non-controlling interest and equity	$	12,080.8	$	11,146.9	Total liabilities, redeemable non-controlling interest and equity	$	16,421.4	$	15,006.6

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF OPERATIONS	CONSOLIDATED STATEMENTS OF OPERATIONS		CONSOLIDATED STATEMENTS OF OPERATIONS
		Three Months Ended March 31,							Three Months Ended March 31,
(In millions, except per share amounts; Unaudited)	(In millions, except per share amounts; Unaudited)			2022		2021		(In millions, except per share amounts; Unaudited)		2023		2022
Revenues:	Revenues:							Revenues:
New vehicle retail	New vehicle retail			$	3,061.8	$	2,193.2	New vehicle retail		$	3,278.9	$	3,061.8
Used vehicle retail	Used vehicle retail			2,234.5		1,352.2		Used vehicle retail		2,227.5		2,234.5
Used vehicle wholesale	Used vehicle wholesale			385.8		135.2		Used vehicle wholesale		356.7		385.8
Finance and insurance	Finance and insurance			313.2		198.4		Finance and insurance		318.3		313.2
Service, body and parts	Service, body and parts			627.8		404.0		Service, body and parts		736.3		627.8
Fleet and other	Fleet and other			82.2		60.0		Fleet and other		56.1		82.2
Total revenues	Total revenues			6,705.3		4,343.0		Total revenues		6,973.8		6,705.3
Cost of sales:	Cost of sales:							Cost of sales:
New vehicle retail	New vehicle retail			2,660.5		2,036.5		New vehicle retail		2,945.1		2,660.5
Used vehicle retail	Used vehicle retail			2,010.7		1,216.0		Used vehicle retail		2,061.8		2,010.7
Used vehicle wholesale	Used vehicle wholesale			378.1		130.6		Used vehicle wholesale		359.5		378.1
Service, body and parts	Service, body and parts			298.8		185.8		Service, body and parts		341.9		298.8
Fleet and other	Fleet and other			79.1		58.6		Fleet and other		54.0		79.1
Total cost of sales	Total cost of sales			5,427.2		3,627.5		Total cost of sales		5,762.3		5,427.2
Gross profit	Gross profit			1,278.1		715.5		Gross profit		1,211.5		1,278.1

Financing operations (loss) income								Financing operations (loss) income		(20.8)		5.0

Selling, general and administrative	Selling, general and administrative			726.1		450.4		Selling, general and administrative		764.4		739.9
Depreciation and amortization	Depreciation and amortization			39.2		26.8		Depreciation and amortization		47.3		36.5
Operating income	Operating income			512.8		238.3		Operating income		379.0		506.7
Floor plan interest expense	Floor plan interest expense			(4.9)		(6.8)		Floor plan interest expense		(27.7)		(4.9)
Other interest expense, net	Other interest expense, net			(30.1)		(23.5)		Other interest expense, net		(39.0)		(26.2)
Other income (expense), net	Other income (expense), net			(8.0)		3.4		Other income (expense), net		2.0		(5.8)
Income before income taxes	Income before income taxes			469.8		211.4		Income before income taxes		314.3		469.8
Income tax provision	Income tax provision			(126.2)		(55.2)		Income tax provision		(84.7)		(126.2)
Net income	Net income			343.6		156.2		Net income		229.6		343.6
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest			(0.5)		—		Net income attributable to non-controlling interest		(0.7)		(0.5)
Net income attributable to redeemable non-controlling interest	Net income attributable to redeemable non-controlling interest			(0.9)		—		Net income attributable to redeemable non-controlling interest		(0.2)		(0.9)
Net income attributable to Lithia Motors, Inc.	Net income attributable to Lithia Motors, Inc.			$	342.2	$	156.2	Net income attributable to Lithia Motors, Inc.		$	228.7	$	342.2

Basic earnings per share attributable to Lithia Motors, Inc.	Basic earnings per share attributable to Lithia Motors, Inc.			$	11.59	$	5.86	Basic earnings per share attributable to Lithia Motors, Inc.		$	8.32	$	11.59
Shares used in basic per share calculations	Shares used in basic per share calculations			29.5		26.6		Shares used in basic per share calculations		27.5		29.5

Diluted earnings per share attributable to Lithia Motors, Inc.	Diluted earnings per share attributable to Lithia Motors, Inc.			$	11.55	$	5.81	Diluted earnings per share attributable to Lithia Motors, Inc.		$	8.30	$	11.55
Shares used in diluted per share calculations	Shares used in diluted per share calculations			29.6		26.9		Shares used in diluted per share calculations		27.5		29.6

Cash dividends paid per share	Cash dividends paid per share			$	0.35	$	0.31	Cash dividends paid per share		$	0.42	$	0.35

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		Three Months Ended March 31,						Three Months Ended March 31,
(In millions; Unaudited)	(In millions; Unaudited)		2022		2021		(In millions; Unaudited)		2023		2022
Net income	Net income		$	343.6	$	156.2	Net income		$	229.6	$	343.6
Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:							Other comprehensive income, net of tax:
Foreign currency translation adjustment	Foreign currency translation adjustment		4.0		—		Foreign currency translation adjustment		13.1		4.0
Gain on cash flow hedges, net of tax expense of $1.4, and $0.6, respectively			3.9		1.8
Gain on cash flow hedges, net of tax expense of none and ($1.4) respectively							Gain on cash flow hedges, net of tax expense of none and ($1.4) respectively		—		3.9
Total other comprehensive income, net of tax	Total other comprehensive income, net of tax		7.9		1.8		Total other comprehensive income, net of tax		13.1		7.9
Comprehensive income	Comprehensive income		351.5		158.0		Comprehensive income		242.7		351.5

Comprehensive income attributable to non-controlling interest	Comprehensive income attributable to non-controlling interest		(0.5)		—		Comprehensive income attributable to non-controlling interest		(0.7)		(0.5)
Comprehensive income attributable to redeemable non-controlling interest	Comprehensive income attributable to redeemable non-controlling interest		(0.9)		—		Comprehensive income attributable to redeemable non-controlling interest		(0.2)		(0.9)
Comprehensive income attributable to Lithia Motors, Inc.	Comprehensive income attributable to Lithia Motors, Inc.		$	350.1	$	158.0	Comprehensive income attributable to Lithia Motors, Inc.		$	241.8	$	350.1

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST
Three Months Ended March 31,
(In millions; Unaudited) 2022 2021
Total equity, beginning balances $ 4,629.2 $ 2,661.5
Common stock1, beginning balances
1,711.6 788.2
Compensation for stock and stock option issuances and excess tax benefits from option exercises 17.0 13.4
Issuance of stock in connection with employee stock plans 7.8 4.2
Repurchase of common stock (80.1) (15.9)
Common stock1, ending balances
1,656.3 789.9
Class B common stock1, beginning balances
— —
Class B common stock converted to class A common stock1
— —
Class B common stock1, ending balances
— —
Additional paid-in capital, beginning balances 58.3 41.4
Compensation for stock and stock option issuances and excess tax benefits from option exercises (6.5) (5.4)
Additional paid-in capital, ending balances 51.8 36.0
Accumulated other comprehensive loss, beginning balances (3.0) (6.3)
Foreign currency translation adjustment 4.0 —
Gain on cash flow hedges, net of tax expense of $1.4, and $0.6, respectively 3.9 1.8
Accumulated other comprehensive income (loss), ending balances 4.9 (4.5)
Retained earnings, beginning balances 2,859.5 1,838.2
Net income attributable to Lithia Motors, Inc. 342.2 156.2
Dividends paid (10.3) (8.2)
Retained earnings, ending balances 3,191.4 1,986.2
Non-controlling interest, beginning balances 2.8 —
Net income attributable to non-controlling interest 0.5 —
Non-controlling interest, ending balances 3.3 —
Total equity, ending balances $ 4,907.7 $ 2,807.6
Redeemable non-controlling interest, beginning balances $ 34.0 $ —
Net income attributable to redeemable non-controlling interest 0.9 —
Redeemable non-controlling interest, ending balances $ 34.9 $ —

1 Prior to June 7, 2021, common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred in connection with the elimination of our classified common stock structure following the conversion of all Class B common stock to Class A common stock.


CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST
	Three Months Ended March 31,
(In millions; Unaudited)		2023		2022
Total equity, beginning balances		$	5,210.4	$	4,629.2

Common stock, beginning balances		1,082.1		1,711.6
Stock-based compensation expense		31.7		17.0
Issuance of stock in connection with employee stock purchase plans		6.1		7.8


Repurchase of common stock		(14.4)		(80.1)

Common stock, ending balances		1,105.5		1,656.3





Additional paid-in capital, beginning balances		76.8		58.3
Stock-based compensation expense		(22.6)		(6.5)


Additional paid-in capital, ending balances		54.2		51.8

Accumulated other comprehensive loss, beginning balances		(18.0)		(3.0)
Foreign currency translation adjustment		13.1		4.0
Gain on cash flow hedges, net of tax expense of none and ($1.4), respectively		—		3.9
Accumulated other comprehensive (loss) income, ending balances		(4.9)		4.9

Retained earnings, beginning balances		4,065.3		2,859.5

Net income attributable to Lithia Motors, Inc.		228.7		342.2
Dividends paid		(11.5)		(10.3)

Retained earnings, ending balances		4,282.5		3,191.4

Non-controlling interest, beginning balances		4.2		2.8
Distribution of non-controlling interest		(1.3)		—
Net income attributable to non-controlling interest		0.7		0.5
Non-controlling interest, ending balances		3.6		3.3

Total equity, ending balances		$	5,440.9	$	4,907.7

Redeemable non-controlling interest, beginning balances		$	40.7	$	34.0

Net income attributable to redeemable non-controlling interest		0.2		0.9
Redeemable non-controlling interest, ending balances		$	40.9	$	34.9

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS					CONSOLIDATED STATEMENTS OF CASH FLOWS
		Three Months Ended March 31,					Three Months Ended March 31,
(In millions; Unaudited)	(In millions; Unaudited)	2022		2021		(In millions; Unaudited)	2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	343.6	$	156.2	Net income	$	229.6	$	343.6
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments		—		—
Adjustments to reconcile net income to net cash used for operating activities:						Adjustments to reconcile net income to net cash used for operating activities:

Depreciation and amortization	Depreciation and amortization	39.2		26.8		Depreciation and amortization	49.6		39.2
Stock-based compensation	Stock-based compensation	10.5		8.0		Stock-based compensation	9.1		10.5

Loss on disposal of other assets	Loss on disposal of other assets	0.9		0.3		Loss on disposal of other assets	0.1		0.9
(Gain) loss on disposal of franchise		(10.0)		0.7
Gain on disposal of franchise						Gain on disposal of franchise	(7.2)		(10.0)
Unrealized investment loss	Unrealized investment loss	14.9		0.3		Unrealized investment loss	0.5		14.9
Deferred income taxes	Deferred income taxes	11.3		10.4		Deferred income taxes	14.5		11.3

Amortization of operating lease right-of-use assets	Amortization of operating lease right-of-use assets	3.6		8.2		Amortization of operating lease right-of-use assets	15.7		3.6
(Increase) decrease (net of acquisitions and dispositions):	(Increase) decrease (net of acquisitions and dispositions):					(Increase) decrease (net of acquisitions and dispositions):
Accounts receivable, net	Accounts receivable, net	(80.4)		(126.7)		Accounts receivable, net	23.9		(80.4)
Inventories	Inventories	(244.9)		244.6		Inventories	(56.9)		(244.9)
Finance receivables						Finance receivables	(397.0)		(201.4)
Other assets	Other assets	(256.6)		(59.0)		Other assets	14.1		(55.2)
Increase (decrease) (net of acquisitions and dispositions):	Increase (decrease) (net of acquisitions and dispositions):					Increase (decrease) (net of acquisitions and dispositions):
Floor plan notes payable	Floor plan notes payable	33.7		107.3		Floor plan notes payable	38.9		33.7
Trade payables	Trade payables	26.0		47.8		Trade payables	(10.0)		26.0
Accrued liabilities	Accrued liabilities	111.6		76.7		Accrued liabilities	31.7		111.6
Other long-term liabilities and deferred revenue	Other long-term liabilities and deferred revenue	22.9		(2.1)		Other long-term liabilities and deferred revenue	(5.6)		22.9
Net cash provided by operating activities		26.3		499.5
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(49.0)		26.3
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Capital expenditures	Capital expenditures	(60.7)		(50.0)		Capital expenditures	(38.9)		(60.7)
Proceeds from sales of assets	Proceeds from sales of assets	6.8		—		Proceeds from sales of assets	0.8		6.8
Cash paid for other investments	Cash paid for other investments	(9.8)		(9.6)		Cash paid for other investments	(11.1)		(9.8)
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	(326.5)		(383.5)		Cash paid for acquisitions, net of cash acquired	(387.4)		(326.5)
Proceeds from sales of stores	Proceeds from sales of stores	32.9		0.3		Proceeds from sales of stores	22.7		32.9
Net cash used in investing activities	Net cash used in investing activities	(357.3)		(442.8)		Net cash used in investing activities	(413.9)		(357.3)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayments on floor plan notes payable, net: non-trade		177.1		(74.8)
Borrowings on floor plan notes payable, net: non-trade						Borrowings on floor plan notes payable, net: non-trade	187.6		177.1
Borrowings on lines of credit	Borrowings on lines of credit	2,295.0		79.3		Borrowings on lines of credit	3,462.9		2,295.0
Repayments on lines of credit	Repayments on lines of credit	(2,029.8)		(18.3)		Repayments on lines of credit	(3,503.3)		(2,029.8)
Principal payments on long-term debt and finance lease liabilities, scheduled	Principal payments on long-term debt and finance lease liabilities, scheduled	(62.9)		(8.3)		Principal payments on long-term debt and finance lease liabilities, scheduled	(8.7)		(23.6)
Principal payments on long-term debt and finance lease liabilities, other	Principal payments on long-term debt and finance lease liabilities, other	(12.5)		—		Principal payments on long-term debt and finance lease liabilities, other	(3.4)		(12.5)
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	16.2		—		Proceeds from issuance of long-term debt	10.4		16.2
Principal payments on non-recourse notes payable						Principal payments on non-recourse notes payable	(76.5)		(39.3)
Proceeds from issuance of non-recourse notes payable						Proceeds from issuance of non-recourse notes payable	479.7		—
Payment of debt issuance costs	Payment of debt issuance costs	—		(0.1)		Payment of debt issuance costs	(3.7)		—
Proceeds from issuance of common stock	Proceeds from issuance of common stock	7.8		4.2		Proceeds from issuance of common stock	6.1		7.8
Repurchase of common stock	Repurchase of common stock	(60.9)		(15.9)		Repurchase of common stock	(14.4)		(60.9)

Dividends paid	Dividends paid	(10.3)		(8.2)		Dividends paid	(11.5)		(10.3)
Payment of contingent consideration related to acquisitions	Payment of contingent consideration related to acquisitions	(3.7)		(1.4)		Payment of contingent consideration related to acquisitions	(14.0)		(3.7)

Net cash provided by (used in) financing activities		316.0		(43.5)
Effect of exchange rate changes on cash and cash equivalents		1.7		—
Increase in cash, restricted cash, and cash equivalents		(13.3)		13.4
Cash, restricted cash, and cash equivalents at beginning of year		178.5		162.4
Cash, restricted cash, and cash equivalents at end of period		$	165.2	$	175.8
Other financing activity						Other financing activity	(1.3)		—
Net cash provided by financing activities						Net cash provided by financing activities	509.9		316.0
Effect of exchange rate changes on cash and restricted cash						Effect of exchange rate changes on cash and restricted cash	6.2		1.7
Increase (decrease) in cash and restricted cash						Increase (decrease) in cash and restricted cash	53.2		(13.3)
Cash and restricted cash at beginning of year						Cash and restricted cash at beginning of year	271.5		178.5
Cash and restricted cash at end of period						Cash and restricted cash at end of period	$	324.7	$	165.2

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
		Three Months Ended March 31,					Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		(In millions)	2023		2022
Reconciliation of cash, restricted cash, and cash equivalents to the consolidated balance sheets
Cash and cash equivalents		$	131.6	$	170.3
Restricted cash from collections on auto loans receivable		29.8		5.5
Cash, restricted cash, and cash equivalents		$	161.4	$	175.8
Reconciliation of cash and restricted cash to the consolidated balance sheets						Reconciliation of cash and restricted cash to the consolidated balance sheets
Cash						Cash	$	184.9	$	131.6
Restricted cash from collections on auto loans receivable and customer deposits						Restricted cash from collections on auto loans receivable and customer deposits	114.5		29.8
Cash and restricted cash						Cash and restricted cash	299.4		161.4
Restricted cash on deposit in reserve accounts, included in other non-current assets	Restricted cash on deposit in reserve accounts, included in other non-current assets	3.8		—		Restricted cash on deposit in reserve accounts, included in other non-current assets	25.3		3.8
Total cash, restricted cash, and cash equivalents reported in the Consolidated Statements of Cash Flows		$	165.2	$	175.8
Total cash and restricted cash reported in the Consolidated Statements of Cash Flows						Total cash and restricted cash reported in the Consolidated Statements of Cash Flows	$	324.7	$	165.2

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid during the period for interest	Cash paid during the period for interest	$	29.3	$	30.0	Cash paid during the period for interest	$	95.7	$	29.3
Cash paid during the period for income taxes, net	Cash paid during the period for income taxes, net	5.1		2.5		Cash paid during the period for income taxes, net	5.2		5.1
Floor plan debt paid in connection with store disposals		—		1.4
Debt paid in connection with store disposals						Debt paid in connection with store disposals	1.6		—

Non-cash activities:	Non-cash activities:					Non-cash activities:

Debt assumed in connection with acquisitions						Debt assumed in connection with acquisitions	$	365.4	$	—
Acquisition of finance leases in connection with acquisitions	Acquisition of finance leases in connection with acquisitions	59.0		—		Acquisition of finance leases in connection with acquisitions	—		59.0

Right-of-use assets obtained in exchange for lease liabilities	Right-of-use assets obtained in exchange for lease liabilities	8.5		3.4		Right-of-use assets obtained in exchange for lease liabilities	103.8		8.5
Unsettled repurchases of common stock	Unsettled repurchases of common stock	19.1		—		Unsettled repurchases of common stock	—		19.1

See accompanying condensed notes to consolidated financial statements.

FINANCIAL STATEMENTS

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Note~~NOTE 1. ~~Interim Financial Statements~~INTERIM FINANCIAL STATEMENTS

Basis of Presentation

These condensed Consolidated Financial Statements contain unaudited information as of March 31, ~~2022,~~2023, and for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our ~~2021~~2022 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, ~~2021,~~2022, is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February ~~18, 2022.~~24, 2023. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain ~~immaterial~~ reclassifications of amounts previously reported have been made to the accompanying ~~condensed~~ Consolidated Financial Statements to maintain consistency and comparability between periods presented. We reclassified certain components within our Consolidated Statements of Cash Flows, to present activity associated with Finance Receivables and Non-Recourse Notes Payable. We also reclassified components of our Consolidated Statements of Operations to present Finance Operations Income, and to change our presentation of segment reporting.

~~Note 2. Contract Liabilities and Assets~~

~~Contract Liabilities~~

We are the obligor on our lifetime oil contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The amount of revenue recognized is calculated, net of cancellations, using an input method, which most closely depicts performance of the contracts. Our contract liability balances were $249.9 million and $239.0 million as of March 31, 2022, and December 31, 2021, respectively; and we recognized $11.1 million of revenue in the three months ended March 31, 2022 related to our contract liability balance at December 31, 2021. Our contract liability balance is included in accrued liabilities and deferred revenue.

~~Contract Assets~~

Revenue from finance and insurance sales is recognized, net of estimated charge-backs, at the time of the sale of the related vehicle. We act as an agent in the sale of these contracts as the pricing is set by the third-party provider, and our commission is preset. A portion of the transaction price related to sales of finance and insurance contracts is considered variable consideration and is estimated and recognized upon the sale of the contract. Our contract asset balances associated with future estimated variable consideration were $9.8 million and $9.6 million as of March 31, 2022 and December 31, 2021, respectively; and are included in trade receivables and other non-current assets.

~~NOTES TO FINANCIAL STATEMENTS~~

~~Note 3. Accounts Receivable~~NOTE 2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:


(in millions)	(in millions)	March 31, 2022		December 31, 2021		(in millions)	March 31, 2023		December 31, 2022
Contracts in transit	Contracts in transit	$	367.3	$	304.9	Contracts in transit	$	397.1	$	432.5
Trade receivables	Trade receivables	128.5		125.5		Trade receivables	135.2		122.6
Vehicle receivables	Vehicle receivables	126.5		106.6		Vehicle receivables	136.2		105.4
Manufacturer receivables	Manufacturer receivables	140.5		120.5		Manufacturer receivables	173.1		151.9
Auto loan and lease receivables		1,036.4		829.2
Other receivables		18.5		43.2
Other receivables, current						Other receivables, current	4.6		3.8
		1,817.7		1,529.9			846.2		816.2
Less: Allowance for doubtful accounts	Less: Allowance for doubtful accounts	(18.7)		(17.3)		Less: Allowance for doubtful accounts	(3.1)		(3.1)
Less: Long-term portion of accounts receivable, net1		(875.2)		(602.6)
Total accounts receivable, net	Total accounts receivable, net	$	923.8	$	910.0	Total accounts receivable, net	$	843.1	$	813.1

The long-term portions of accounts receivable and allowance for doubtful accounts were included as a component of other non-current assets in the Consolidated Balance Sheets.

~~Accounts receivable classifications include the following:~~

NOTE 3. INVENTORIES AND FLOOR PLAN NOTES PAYABLE

•~~Contracts in transit are receivables from various lenders for the financing~~The components of ~~vehicles that we have arranged on behalf~~inventories, net, consisted of the ~~customer~~following:


(in millions)	March 31, 2023		December 31, 2022
New vehicles	$	2,139.7	$	1,679.8
Used vehicles	1,502.2		1,529.3
Parts and accessories	213.7		200.3
Total inventories	$	3,855.6	$	3,409.4

The new vehicle inventory cost is generally reduced by manufacturer holdbacks and incentives, while the related floor plan notes payable are ~~typically received approximately ten days after selling a vehicle.~~

•Trade receivables are comprised of amounts due from customers for open charge accounts, lenders for the commissions earned on financing and others for commissions earned on service contracts and insurance products.

•~~Vehicle receivables represent receivables for the portion~~reflective of the ~~vehicle sales price paid directly by~~gross cost of the ~~customer.~~vehicle.


(in millions)	March 31, 2023		December 31, 2022
Floor plan notes payable: non-trade	$	1,664.9	$	1,489.4
Floor plan notes payable	999.3		627.2
Total floor plan debt	$	2,664.2	$	2,116.6

NOTES TO FINANCIAL STATEMENTS

•~~Manufacturer receivables represent amounts due from manufacturers, including holdbacks, rebates, incentives and warranty claims.~~

•~~Auto loan receivables include amounts due from customers related to vehicle sales financed through Driveway Finance Corporation.~~

•~~Lease receivables include amounts related to vehicles leased to customers through Pfaff Leasing.~~NOTE 4. FINANCE RECEIVABLES

Interest income on ~~auto loan~~finance receivables is recognized based on the contractual terms of each loan and is accrued until repayment, reaching non-accrual status, charge-off, or repossession. Direct costs associated with loan originations are capitalized and expensed as an offset to interest income when recognized on the loans. ~~All other receivables are recorded at invoice and do not bear interest until they are 60 days past due.~~

The balances of ~~auto loan and lease~~finance receivables are made up of loans and leases secured by the related vehicles. More than 99% of the portfolio is aged less than 60 days past due with less than 1% on non-accrual status.

(Dollars in millions) March 31, 2022 December 31, 2021
Total Auto loan and lease receivables $ 1,036.4 $ 829.2
Less: Allowance for loan and lease losses (29.4) (25.0)
Auto loan and lease receivables, net $ 1,007.0 $ 804.2
Finance receivables consisted of the following:


(in millions)	March 31, 2023		December 31, 2022
Asset-backed term funding	$	993.0	$	482.1
Warehouse facilities	1,254.9		1,383.9
Other managed receivables	419.1		390.9
Total finance receivables	2,667.0		2,256.9
Less: Allowance for finance receivable losses	(82.2)		(69.3)
Finance receivables, net	$	2,584.8	$	2,187.6

Our allowance for loan and lease losses represents the net credit losses expected over the remaining contractual life of our managed receivables. The allowances for credit losses related to finance receivables consisted of the following changes during the period:


	Three Months Ended March 31,
(in millions)	2023		2022
Allowance at beginning of period	$	69.3	$	25.0
Charge-offs	(24.8)		(10.3)
Recoveries	11.4		4.3
Provision expense	26.3		10.4
Allowance at end of period	$	82.2	$	29.4

Charge-off activity by year of origination:


	Three Months Ended March 31,
(in millions)	2023		2022
2023	$	0.1	$	—
2022	14.2		—
2021	8.9		7.1
2020	1.0		1.8
Other finance receivables 1	0.6		1.4
Total charge-offs	$	24.8	$	10.3

1Includes legacy portfolio, loans that are originated with no FICO score available, and lease receivables.

Ending auto loan receivables (principal balances) by FICO score:


	As of March 31, 2023
	Year of Origination
($ in millions)	2023		2022		2021		2020		Total
<5991	$	24.1	$	59.1	$	26.7	$	4.1	$	114.0
600-699	181.8		613.6		218.1		23.7		1,037.2
700-774	190.5		543.0		88.2		8.7		830.4
775+	163.0		340.4		19.5		4.1		527.0
Total auto loan receivables	$	559.4	$	1,556.1	$	352.5	$	40.6	2,508.6
Other finance receivables 1									158.4
Total finance receivables									$	2,667.0

NOTES TO FINANCIAL STATEMENTS

~~Below is a breakdown of the current and long term portions of our auto loan and lease receivables:~~

(Dollars in millions) March 31, 2022 December 31, 2021
Current portion of auto loan and lease receivables, net of allowance of $15.5 and $13.6 $ 157.2 $ 224.5
Long term portion of auto loan and lease receivables, net of allowance of $13.9 and $11.4 849.8 579.7
Auto loan and lease receivables, net $ 1,007.0 $ 804.2

Our allowance for loan and lease losses represents the net credit losses expected over the remaining contractual life of our managed receivables. The allowances for credit losses related to auto loan and lease receivables consisted of the following changes during the period:

Three Months Ended March 31,
(Dollars in millions) 2022 2021
Allowance for loan losses at beginning of period $ 22.5 $ 12.4
Charge-offs (10.3) (3.4)
Recoveries 4.2 1.9
Provision expense 9.8 1.1
Allowance for loan losses at end of period 26.2 12.0
Allowance for lease losses 3.2 —
Total allowance for loan and lease losses balance at end of period $ 29.4 $ 12.0

~~Ending auto loan receivables (principal balances) by FICO score:~~


(Dollars in millions)		March 31, 2022		December 31, 2021
							As of December 31, 2022
							Year of Origination
($ in millions)						($ in millions)	2022		2021		2020		Total
<5991	<5991	$	85.8	$	83.2	<5991	$	63.0	$	30.3	$	4.8	$	98.1
600-699	600-699	547.4		437.6		600-699	652.6		243.4		27.2		923.2
700-774	700-774	238.3		166.8		700-774	575.9		97.9		10.0		683.8
775+	775+	56.7		37.4		775+	369.5		21.5		4.5		395.5
Total auto loan receivables	Total auto loan receivables	928.2		725.0		Total auto loan receivables	$	1,661.0	$	393.1	46.6		2,100.6
Lease portfolio and accrued interest		108.2		104.2
Total auto loan and lease receivables		$	1,036.4	$	829.2
Other finance receivables 1						Other finance receivables 1							156.3
Total finance receivables						Total finance receivables							$	2,256.9

1Includes legacy portfolio, loans that are originated with no FICO score ~~available.~~available, and lease receivables.

In accordance with Topic 326, the allowance for loan and lease losses is estimated based on our historical write-off experience, current conditions and forecasts, as well as the value of any underlying assets securing these loans. Consideration is given to recent delinquency trends and recovery rates. Account balances are charged against the allowance upon reaching 120 days past due status. The annual activity for charges and subsequent recoveries is immaterial. The remainder of our receivables are due primarily from manufacturer partners and various third-party lenders. The historical losses related to these balances are immaterial.

~~The long-term portion of accounts receivable was included as a component of other non-current assets in the Consolidated Balance Sheets.~~

~~Note 4. Inventories~~

~~The components of inventories, net, consisted of the following:~~

(in millions) March 31, 2022 December 31, 2021
New vehicles $ 950.5 $ 812.9
Used vehicles 1,580.2 1,418.3
Parts and accessories 166.6 154.3
Total inventories $ 2,697.3 $ 2,385.5

~~NOTES TO FINANCIAL STATEMENTS~~

~~Note~~NOTE 5. ~~Goodwill and Franchise Value~~GOODWILL AND FRANCHISE VALUE

The changes in the carrying amounts of goodwill are as follows:


(in millions)	(in millions)	Domestic		Import		Luxury		Consolidated		(in millions)	Vehicle Operations		Financing Operations		Consolidated
Balance as of December 31, 2020 ¹		$	204.5	$	287.9	$	100.6	$	593.0
Balance as of December 31, 2021 ¹										Balance as of December 31, 2021 ¹	$	977.3	$	—	$	977.3

Additions through acquisitions 2	Additions through acquisitions 2	101.0		188.7		105.8		395.5		Additions through acquisitions 2	483.4		17.0		500.4
Reductions through divestitures	Reductions through divestitures	(1.5)		(8.4)		(1.3)		(11.2)		Reductions through divestitures	(17.9)		—		(17.9)

Balance as of December 31, 2021 ¹		304.0		468.2		205.1		977.3
Currency translation										Currency translation	0.7		0.2		0.9
Balance as of December 31, 2022 ¹										Balance as of December 31, 2022 ¹	1,443.5		17.2		1,460.7

Additions through acquisitions 3	Additions through acquisitions 3	11.2		21.2		13.3		45.7		Additions through acquisitions 3	56.5		—		56.5
Reductions through divestitures	Reductions through divestitures	(3.7)		—		—		(3.7)		Reductions through divestitures	(1.1)		—		(1.1)

Balance as of March 31, 2022 ¹		$	311.5	$	489.4	$	218.4	$	1,019.3
Currency translation										Currency translation	0.1		—		0.1
Balance as of March 31, 2023 ¹										Balance as of March 31, 2023 ¹	$	1,499.0	$	17.2	$	1,516.2

1Net of accumulated impairment losses of $299.3 million recorded during the year ended December 31, 2008.

2Our purchase price allocation for the ~~2020~~2021 acquisitions were finalized in ~~2021.~~2022. As a result, we added ~~$395.5~~$500.4 million of goodwill.

3Our purchase price allocation for a portion of the ~~2021~~2022 acquisitions ~~was~~were finalized in ~~2022.~~2023. As a result, we added ~~$45.7~~$56.5 million of goodwill. Our purchase price allocation for the remaining ~~2021~~2022 and ~~2022~~2023 acquisitions are preliminary and goodwill is not yet allocated to our ~~reporting units.~~segments. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note ~~12.~~11 – Acquisitions.

The changes in the carrying amounts of franchise value are as follows:


(in millions)	Franchise Value
Balance as of December 31, ~~2020~~2021	$	~~350.2~~799.1

Additions through acquisitions 1	~~459.7~~1,088.4
Reductions through divestitures	~~(8.9)~~(33.6)

~~Reductions from impairments~~Currency translation	~~(1.9)~~2.3
Balance as of December 31, ~~2021~~2022	~~799.1~~1,856.2

Additions through acquisitions 2	~~158.3~~81.1
Reductions through divestitures	~~(0.7)~~(8.5)

Currency translation	0.2
Balance as of March 31, ~~2022~~2023	$	~~956.7~~1,929.0

1Our purchase price allocation for the ~~2020~~2021 acquisitions were ~~finalized in 2021. As a result, we added $459.7 million of franchise value.~~

2 ~~Our purchase price allocation for a portion of the 2021 acquisitions was~~ finalized in 2022. As a result, we added ~~$158.3~~$1.1 billion of franchise value.

2Our purchase price allocations for a portion of the 2022 acquisitions were finalized in 2023. As a result, we added $81.1 million of franchise value. Our purchase price allocation for the remaining ~~2021~~2022 and ~~2022~~2023 acquisitions are preliminary and franchise value is not yet allocated to our reporting units. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note ~~12.~~11 – Acquisitions.

NOTES TO FINANCIAL STATEMENTS

NOTE 6. NET INVESTMENT IN OPERATING LEASES

Net investment in operating leases consists primarily of lease contracts for vehicles with individuals and business entities. Assets subject to operating leases are depreciated using the straight-line method over the term of the lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned.

Net investment in operating leases was as follows:


(in millions)	March 31, 2023		December 31, 2022
Vehicles, at cost 1	$	93.0	$	92.2
Accumulated depreciation 1	(8.3)		(7.6)
Net investment in operating leases	$	84.7	$	84.6

1Vehicles, at cost and accumulated depreciation are recorded in other current assets on the Consolidated Balance Sheets.

~~Note 6. Equity and Redeemable Non-Controlling Interest~~NOTE 7. COMMITMENTS AND CONTINGENCIES

Contract Liabilities

~~Repurchases~~We are the obligor on our lifetime oil contracts. Revenue is allocated to these performance obligations and is recognized over time as services are provided to the customer. The amount of ~~Common Stock~~

~~Repurchases~~revenue recognized is calculated, net of ~~our common stock occurred under a repurchase authorization granted by our Board~~cancellations, using an input method, which most closely depicts performance of ~~Directors~~the contracts. Our contract liability balances were $293.4 million and $284.3 million as of March 31, 2023, and December 31, 2022, respectively; and we recognized $14.7 million of revenue in the three months ended March 31, 2023 related to ~~shares withheld as part of the vesting of restricted stock units (RSUs). On November 30, 2021,~~ our Board of Directors approved an additional $750 million repurchase authorization of our common stock, increasing our total repurchase authorization to $1.25 billion combined with the amount previously authorized by the Board for repurchase. Share repurchases under this authorization were as follows:

Repurchases Occurring in 2022 Cumulative Repurchases as of March 31, 2022
Shares Average Price Shares Average Price
Share Repurchase Authorization 218,245 $ 289.66 4,694,176 $ 125.79
contract liability balance at December 31, 2022. Our contract liability balance is included in accrued liabilities and deferred revenue.

AsLeases

We lease certain dealerships, office space, land and equipment. Leases with an initial term of ~~March 31, 2022,~~12 months or less are not recorded on the balance sheet; we ~~had $659.5 million available~~recognize lease expense for ~~repurchases pursuant~~these leases on a straight-line basis over the lease term. We have elected not to ~~our share repurchase authorization.~~bifurcate lease and non-lease components related to leases of real property.

~~In addition, during 2022, we repurchased 56,779 shares~~Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 24 years or more. The exercise of lease renewal options is at ~~an average price~~our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of ~~$296.97 per share,~~assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for ~~a total of $16.9 million, related to tax withholding associated~~inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Our finance lease liabilities are included in long-term debt, with the ~~vesting~~current portion included in current maturities of ~~RSUs.~~long-term debt. The ~~repurchase~~related assets are included in property, plant and equipment, net of ~~shares related~~accumulated amortization. These amounts are included in other non-current assets until we finalize our purchase accounting.

We rent or sublease certain real estate to third parties.

Litigation

We are party to numerous legal proceedings arising in the normal course of our business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty.

NOTES TO FINANCIAL STATEMENTS

~~tax withholding associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors.~~NOTE 8. DEBT

~~ATM Equity Offering~~Credit Facilities

US Bank Syndicated Credit Facility

On ~~July 24, 2020,~~February 9, 2023, we ~~entered into an ATM Equity Offering Sales Agreement, which allows us to offer and sell, from time to time, shares~~amended our existing syndicated credit facility (USB credit facility), comprised of our common stock, no par value, having an aggregate gross sales price of up to $400 million. The shares will be issued pursuant to a registration statement on Form S-3 (File No. 333-239969), which became effective upon its filing on July 21, 2020. Under this agreement, we may enter into forward share purchase transactions. As of March 31, 2022, no amounts have been issued in relation to the ATM Equity Offering Sales Agreement.20 financial institutions, including eight manufacturer-affiliated finance companies, maturing April 29, 2026.

~~Redeemable Non-Controlling Interest~~

~~On August 30, 2021, we~~This USB credit facility provides for a total financing commitment of $4.5 billion, which may be further expanded, ~~into Canada through~~subject to lender approval and the satisfaction of other conditions, up to a ~~partnership with Toronto-based Pfaff Automotive Partners. As part~~total of $5.5 billion. The allocation of the ~~acquisition, we were granted~~financing commitment is for up to $800 million in used vehicle inventory floorplan financing, up to $1.70 billion in revolving financing for general corporate purposes, including acquisitions and working capital, up to $1.95 billion in new vehicle inventory floorplan financing, and up to $50 million in service loaner vehicle floorplan financing. We have the ~~right~~option to ~~purchase (Call Option), and granted Pfaff Automotive a right to sell (Put Option),~~reallocate the ~~remaining interest after a three-year period, with a purchase price based on Pfaff’s pro rata share of assets at~~commitments under this USB credit facility, provided that the ~~date of exercise~~aggregate revolving loan commitment may not be more than 40% of the ~~Call or Put Option, as applicable. As a result~~amount of ~~this redemption feature, we recorded redeemable non-controlling interest, at its preliminary estimate~~the aggregate commitment, and the aggregate service loaner vehicle floorplan commitment may not be more than the 3% of ~~acquisition-date fair value, that is classified as mezzanine equity~~the amount of the aggregate commitment. All borrowings from, and repayments to, our lending group are presented in the ~~accompanying~~ Consolidated ~~Balance Sheets. The non-controlling interest is adjusted each reporting period for income (loss) attributable to the non-controlling interest and adjustments in fair value.~~Statements of Cash Flows as financing activities.

Our obligations under our USB credit facility are secured by a substantial amount of our assets, including our inventory (including new and used vehicles, parts and accessories), equipment, accounts receivable (and other rights to payment) and our equity interests in certain of our subsidiaries. Under our USB credit facility, our obligations relating to new vehicle floor plan loans are secured only by collateral owned by borrowers of new vehicle floor plan loans under the USB credit facility.

The interest rate on the USB credit facility varies based on the type of debt, with the rate of one-day SOFR plus a credit spread adjustment of 0.10% plus a margin of 1.10% for new vehicle floor plan financing, 1.40% for used vehicle floor plan financing, 1.20% for service loaner floor plan financing, and a variable interest rate on the revolving financing ranging from 1.00% to 2.00% depending on our leverage ratio. The annual interest rates associated with our floor plan commitments are as follows:


Commitment			Annual Interest Rate at March 31, 2023
New vehicle floor plan			6.07%
Used vehicle floor plan			6.37%
Service loaner floor plan			6.07%
Revolving line of credit			5.97%

Non-Recourse Notes Payable

In February 2023, we issued approximately $480 million in non-recourse notes payable related to the asset-backed term funding transaction. Below is a summary of outstanding non-recourse notes payable issued:


($ in millions)	Balance as of March 31, 2023		Initial Principal Amount		Issuance Date	Interest Rate	Final Distribution Date
LAD Auto Receivables Trust 2021-1 Class A	$	92.7	$	282.8	11/24/21	1.300%	08/17/26
LAD Auto Receivables Trust 2021-1 Class B	18.3		18.3		11/24/21	1.940%	11/16/26
LAD Auto Receivables Trust 2021-1 Class C	26.0		26.0		11/24/21	2.350%	04/15/27
LAD Auto Receivables Trust 2021-1 Class D	17.2		17.2		11/24/21	3.990%	11/15/29
LAD Auto Receivables Trust 2022-1 Class A	182.0		259.7		08/17/22	5.210%	06/15/27
LAD Auto Receivables Trust 2022-1 Class B	15.5		15.5		08/17/22	5.870%	09/15/27
LAD Auto Receivables Trust 2022-1 Class C	23.0		23.0		08/17/22	6.850%	04/15/30
LAD Auto Receivables Trust 2023-1 Class A-1	46.2		75.1		02/14/23	4.929%	02/15/24
LAD Auto Receivables Trust 2023-1 Class A-2	242.0		242.0		02/14/23	5.680%	10/15/26
LAD Auto Receivables Trust 2023-1 Class A-3	74.4		74.4		02/14/23	5.480%	06/15/27
LAD Auto Receivables Trust 2023-1 Class B	20.1		20.1		02/14/23	5.590%	08/16/27
LAD Auto Receivables Trust 2023-1 Class C	36.7		36.7		02/14/23	6.180%	12/15/27
LAD Auto Receivables Trust 2023-1 Class D	31.3		31.3		02/14/23	7.300%	06/17/30
Total non-recourse notes payable	$	825.4	$	1,122.1

NOTES TO FINANCIAL STATEMENTS

~~Note 7. Fair Value Measurements~~NOTE 9. EQUITY AND REDEEMABLE NON-CONTROLLING INTERESTS

Repurchases of Common Stock

Repurchases of our common stock occurred under a repurchase authorization granted by our Board of Directors and related to shares withheld as part of the vesting of restricted stock units (RSUs). On November 1, 2022, our Board of Directors approved an additional $450 million repurchase authorization of our common stock. This new authorization is in addition to the amount previously authorized by the Board for repurchase. Share repurchases under our authorization were as follows:


	Repurchases Occurring in 2023			Cumulative Repurchases as of March 31, 2023
	Shares	Average Price		Shares	Average Price
Share Repurchase Authorization	—	$	—	6,904,781	$	173.59

As of March 31, 2023, we had $501.4 million available for repurchases pursuant to our share repurchase authorization.

In addition, during 2023, we repurchased 70,395 shares at an average price of $204.75 per share, for a total of $14.4 million, related to tax withholding associated with the vesting of RSUs. The repurchase of shares related to tax withholding associated with stock awards does not reduce the number of shares available for repurchase as approved by our Board of Directors.

NOTE 10. FAIR VALUE MEASUREMENTS

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

•Level 1 - quoted prices in active markets for identical securities;

•Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment spreads, credit risk; and

•Level 3 - significant unobservable inputs, including our own assumptions in determining fair value.

We determined ~~that~~ the carrying value of ~~cash equivalents,~~ accounts receivable, trade payables, accrued liabilities, finance receivables, and short-term borrowings approximate their fair values because of the nature of their terms and current market rates of these instruments. We believe the carrying value of our variable rate debt approximates fair value.

We have investments primarily consisting of our investment in Shift Technologies, Inc. (Shift), a San Francisco-based digital retail company. Shift has a readily determinable fair value following Shift going public in a reverse-merger deal with Insurance Acquisition, a special purpose acquisition company, in the fourth quarter of 2020. We calculated the fair value of this investment using quoted prices for the identical ~~security~~asset (Level 1) and recorded the fair value as part of other non-current assets. An additional component of our investment in Shift consists of shares in escrow subject to release upon certain market conditions being met. The fair value of this component of our investment in Shift is measured using observable Level 2 market expectations at each measurement date and is recorded as part of other non-current assets. For the ~~three months~~three-month period ended March 31, ~~2022 and March 31, 2021,~~2023, we recognized a ~~$14.9 million and a $0.3~~$0.5 million unrealized investment loss related to ~~Shift, respectively.~~Shift. For the three-month period ended March 31, 2022, we recognized a $14.9 million unrealized investment loss related to Shift. These amounts were recorded as a component of Other ~~income (expense),~~expense, net.

We have fixed rate debt primarily consisting of amounts outstanding under our senior notes, non-recourse notes payable, and real estate mortgages. We calculated the estimated fair value of the senior notes using quoted prices for the identical liability (Level 1) ~~and~~. The fair value of non-recourse notes payable are measured using observable Level 2 market expectations at each measurement date. The calculated ~~the~~ estimated fair ~~value~~values of the fixed rate real estate mortgages ~~using~~and finance lease liabilities use a discounted cash flow methodology with estimated current interest rates based on a similar risk profile and duration (Level 2). The fixed cash flows are discounted and summed to compute the fair value of the debt. ~~As of March 31, 2022, our real estate mortgages and other debt, which includes capital leases, had maturity dates between April 1, 2022, and July 1, 2038.~~

We have derivative instruments consisting of an offsetting set of interest rate ~~collars.~~caps. The fair value of derivative assets and liabilities are measured using observable Level 2 market expectations at each measurement date and is recorded as other current assets, current liabilities and other long-term liabilities in the Consolidated Balance Sheets.

NOTES TO FINANCIAL STATEMENTS

1112

~~liabilities and other long-term liabilities in the Consolidated Balance Sheets. See Note 11 for more details regarding our derivative contracts.~~

Nonfinancial assets such as goodwill, franchise value, or other long-lived assets are measured and recorded at fair value during a business combination or when there is an indicator of impairment. We evaluate our goodwill and franchise value using a qualitative assessment process. If the qualitative factors determine that it is more likely than not that the carrying value exceeds the fair value, we would further evaluate for potential impairment using a quantitative assessment. The quantitative assessment estimates fair values using unobservable (Level 3) inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, and cost of capital, for which we utilize certain market participant-based assumptions we believe to be reasonable. We estimate the value of other long-lived assets that are recorded at fair value on a non-recurring basis on a market valuation approach. We use prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as our historical experience in divestitures, acquisitions and real estate transactions. Additionally, we may use a cost valuation approach to value long-lived assets when a market valuation approach is unavailable. Under this approach, we determine the cost to replace the service capacity of an asset, adjusted for physical and economic obsolescence. When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and brokers, to corroborate our estimates of fair value. Real estate appraisers’ and brokers’ valuations are typically developed using one or more valuation techniques including market, income and replacement cost approaches. Because these valuations contain unobservable inputs, we classified the measurement of fair value of long-lived assets as Level 3.

There were no changes to our valuation techniques during the three-month period ended March 31, ~~2022.~~2023.

Below are our ~~investments~~assets and liabilities that are measured at fair ~~value~~value:


	As of March 31, 2023								As of December 31, 2022
($ in millions)	Carrying Value		Level 1		Level 2		Level 3		Carrying Value		Level 1		Level 2		Level 3
Recorded at fair value
Investments
Shift Technologies, Inc.	$	1.3	$	1.3	$	—	$	—	$	1.8	$	1.8	$	—	$	—

Derivatives
Derivative assets	19.0		—		19.0		—		22.1		—		22.1		—
Derivative liabilities	19.0		—		19.0		—		22.1		—		22.1		—

Recorded at historical value
Fixed rate debt 1
4.625% Senior notes due 2027	400.0		368.0		—		—		400.0		364.0		—		—
4.375% Senior notes due 2031	550.0		460.6		—		—		550.0		448.3		—		—
3.875% Senior notes due 2029	800.0		684.0		—		—		800.0		656.0		—		—
Non-recourse notes payable	825.4		—		814.3		—		422.2		—		411.8		—
Real estate mortgages and other debt	488.9		—		419.9		—		489.0		—		399.0		—

1Excluding unamortized debt issuance cost

NOTE 11. ACQUISITIONS

In the first three months of 2023, we completed the following acquisitions:

•In February 2023, Thornhill Acura in Canada.

•In March 2023, Jardine Motors Group in the United Kingdom.

Revenue and operating income contributed by the 2023 acquisitions subsequent to the date of acquisition were as follows (in millions):

~~Fair Value at~~Three Months Ended March 31, ~~2022~~

~~Level 1~~

~~Level 2~~

~~Level 3~~2023

~~Measured on a recurring basis:~~

~~Investments~~Revenue

~~26.1~~

—

Fair Value at December 31, 2021 Level 1 Level 2 Level 3
Measured on a recurring basis:
Investments $ 40.4 $ 0.5 $ —

~~Below are our derivative assets and liabilities that are measured at fair value (in millions):~~


~~Fair Value at March 31, 2022~~	~~Level 1~~		~~Level 2~~		~~Level 3~~
~~Measured on a recurring basis:~~
~~Derivative asset~~	$	—	$	~~18.6~~	$	—127.7
~~Derivative liability~~Operating income	—		~~15.9~~		—


~~Fair Value at December 31, 2021~~	~~Level 1~~		~~Level 2~~		~~Level 3~~
~~Measured on a recurring basis:~~
~~Derivative asset~~	$	—	$	~~6.4~~	$	—
~~Derivative liability~~	—		~~8.9~~		—10.5

~~A summary~~In the first three months of 2022, we completed the ~~aggregate carrying values, excluding unamortized debt issuance cost, and fair values of our long-term fixed interest rate debt is as follows:~~

(in millions) March 31, 2022 December 31, 2021
Carrying value
4.625% Senior notes due 2027 $ 400.0 $ 400.0
4.375% Senior notes due 2031 550.0 550.0
3.875% Senior notes due 2029 800.0 800.0
Non-recourse notes payable 278.3 317.6
Real estate mortgages and other debt 515.2 477.6
$ 2,543.5 $ 2,545.2
Fair value
4.625% Senior notes due 2027 $ 396.0 $ 420.0
4.375% Senior notes due 2031 528.0 583.0
3.875% Senior notes due 2029 760.3 815.0
Non-recourse notes payable 271.8 316.8
Real estate mortgages and other debt 474.5 488.7
$ 2,430.6 $ 2,623.5

~~NOTES TO FINANCIAL STATEMENTS~~

~~Note 8. Net Income Per Share~~

We compute net income per share using the two-class method. Under this method, basic net income per share is computed using the weighted average number of common shares outstanding during the period excluding common shares underlying equity awards that are unvested or subject to forfeiture. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the common shares issuable upon the net exercise of stock options and unvested RSUs and is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.

Prior to June 7, 2021, our common stock was classified as Class A common stock. The Class A common stock reclassification as common stock occurred pursuant to an amendment and restatement of our Articles of Incorporation in connection with the elimination of the Company’s classified common stock structure following the conversion of all Class B common stock to Class A common stock. Prior to the reclassification, except with respect to voting and transfer rights, the rights of the holders of our Class A and Class B common stock were identical. Under our Articles of Incorporation, the Class A and Class B common stock shared equally in any dividends, liquidation proceeds or other distribution with respect to our common stock and the Articles of Incorporation can only be amended by a vote of the shareholders. Additionally, Oregon law provides that amendments to our Articles of Incorporation that would adversely alter the rights, powers or preferences of a given class of stock, must be approved by the class of stock adversely affected by the proposed amendment. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. Because the liquidation and dividend rights were identical, the undistributed earnings are allocated on a proportionate basis.

~~The following is a reconciliation of net income and weighted average shares used for our basic earnings per share (EPS) and diluted EPS:~~

Three Months Ended March 31, 2022 2021
(in millions, except per share amounts) Common Stock Class A Class B
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - basic $ 342.2 $ 155.8 $ 0.4
Conversion of class B common shares into class A common shares — 0.4 —
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders - diluted $ 342.2 $ 156.2 $ 0.4
Weighted average common shares outstanding – basic 29.5 26.6 0.1
Conversion of class B common shares into class A common shares — 0.1 —
Effect of employee stock purchases and restricted stock units on weighted average common shares 0.1 0.2 —
Weighted average common shares outstanding – diluted 29.6 26.9 0.1
Basic earnings per share attributable to Lithia Motors, Inc. $ 11.59 $ 5.86 $ 5.86
Diluted earnings per share attributable to Lithia Motors, Inc. $ 11.55 $ 5.81 $ 5.81

~~The effect of antidilutive securities on Class A and Class B common stock was evaluated for the three-month periods ended March 31, 2022, and 2021 and was determined to be immaterial.~~

~~Note 9. Segments~~

While we have determined that each individual store is a reporting unit, we have aggregated our reporting units into 3 reportable segments based on their economic similarities: Domestic, Import and Luxury.

Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Stellantis, General Motors and Ford. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Hyundai, Subaru, Nissan and Volkswagen. Our Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by BMW, Mercedes andacquisitions:

NOTES TO FINANCIAL STATEMENTS

~~Lexus. The franchises in each segment also sell used vehicles, parts and automotive services, as well as automotive finance and insurance products.~~

Corporate and other revenue and income includes the results of operations of our stand-alone body shops offset by unallocated corporate overhead expenses, such as corporate personnel costs, and certain unallocated reserve and elimination adjustments. Additionally, certain internal corporate expense allocations increase income for Corporate and other while decreasing segment income for the reportable segments. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters who perform certain dealership functions.

We define our chief operating decision maker (CODM) to be certain members of our executive management group. Historical and forecasted operational performance is evaluated on a store-by-store basis and on a consolidated basis by the CODM. We derive the operating results of the segments directly from our internal management reporting system. The accounting policies used to derive segment results are substantially the same as those used to determine our consolidated results, excepted for the internal allocation within Corporate and other discussed above. Our CODM does not regularly review capital expenditures on a reporting unit level. Performance measurement of each reportable segment by the CODM are based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance of and to allocate resources, mainly associated with expected inventory and working capital requirements, to each of the reportable segments.

~~NOTES TO FINANCIAL STATEMENTS~~

~~Certain financial information on a segment basis is as follows:~~

Three Months Ended
March 31,
(in millions) 2022 2021
Revenues:
Domestic
New vehicle retail $ 935.6 $ 614.6
Used vehicle retail 746.4 462.2
Used vehicle wholesale 128.1 36.2
Finance and insurance 89.4 58.6
Service, body and parts 187.6 120.8
Fleet and other 54.0 17.6
2,141.1 1,310.0
Import
New vehicle retail 1,288.4 968.1
Used vehicle retail 895.9 562.1
Used vehicle wholesale 131.8 58.3
Finance and insurance 170.4 105.5
Service, body and parts 243.1 156.7
Fleet and other 10.0 14.1
2,739.6 1,864.8
Luxury
New vehicle retail 836.5 614.1
Used vehicle retail 596.6 331.2
Used vehicle wholesale 107.1 39.8
Finance and insurance 62.4 36.9
Service, body and parts 183.1 121.7
Fleet and other 17.3 27.8
1,803.0 1,171.5
6,683.7 4,346.3
Corporate and other 21.6 (3.3)
$ 6,705.3 $ 4,343.0
Segment income1:
Domestic $ 130.5 $ 73.9
Import 245.8 101.5
Luxury 130.3 44.1
Total segment income for reportable segments $ 506.6 $ 219.5

1~~Segment income for each of the segments is a Non-GAAP measure defined as Income from operations before income taxes, depreciation and amortization, other interest expense and other income, net.~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~Reconciliation of total segment income for reportable segments to our consolidated income before income taxes:~~

Three Months Ended
March 31,
(in millions) 2022 2021
Total segment income for reportable segments $ 506.6 $ 219.5
Corporate and other 40.5 38.8
Depreciation and amortization (39.2) (26.8)
Other interest expense (30.1) (23.5)
Other income (expense), net (8.0) 3.4
Income before income taxes $ 469.8 $ 211.4

~~Total assets by reportable segments is as follows:~~

(in millions) March 31, 2022 December 31, 2021
Total assets:
Domestic $ 1,831.9 $ 1,574.7
Import 2,106.3 1,858.1
Luxury 1,494.4 1,407.1
Corporate and other 6,648.2 6,307.0
$ 12,080.8 $ 11,146.9

~~Note 10. Leases~~

We lease certain dealerships, office space, land and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We have elected not to bifurcate lease and non-lease components related to leases of real property.

~~Most leases include 1 or more options to renew, with renewal terms that can extend the lease term from~~ ~~one~~ to 25 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Our finance lease liabilities are included in long-term debt, with the current portion included in current maturities of long-term debt. The related assets are included in property, plant and equipment, net of accumulated amortization. These amounts are included in other non-current assets until we finalize our purchase accounting.

~~We rent or sublease certain real estate to third parties.~~

~~Note 11. Derivative Financial Instruments~~

We account for derivative financial instruments by recording the fair value as either an asset or liability in our Consolidated Balance Sheets and recognize the resulting gains or losses as adjustments to accumulated other comprehensive income (loss). We do not hold or issue derivative financial instruments for trading or speculative purposes. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (AOCI) in equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.

In 2019, to hedge the business exposure to rising interest rates on a portion of our variable rate debt, we entered into a five-year, zero-cost interest rate collar, with an aggregate notional amount of $300 million, effective June 1, 2019. This instrument hedges interest rate risk related to a portion of our $1.0 billion of non-trade floor plan notes payable.

~~NOTES TO FINANCIAL STATEMENTS~~

~~The table below presents the liabilities related to the zero-cost interest rate collar:~~

(Dollars in millions) Accrued Liabilities Other Long-Term Liabilities Other Non-Current Assets Total
Balance as of December 31, 2020 $ (2.6) $ (6.0) $ — $ (8.6)
Amounts reclassified from AOCI to floorplan interest expense 0.7 — — 0.7
Loss recorded from interest rate collar (0.6) 2.4 — 1.8
Balance as of March 31, 2021 (2.5) (3.6) — (6.1)
Amounts reclassified from AOCI to floorplan interest expense 0.7 — — 0.7
Loss recorded from interest rate collar (0.7) 0.2 — (0.5)
Balance as of June 30, 2021 (2.5) (3.4) — (5.9)
Amounts reclassified from AOCI to floorplan interest expense 0.7 — — 0.7
(Loss) gain recorded from interest rate collar (0.7) 0.7 — —
Balance as of September 30, 2021 (2.5) (2.7) — (5.2)
Amounts reclassified from AOCI to floorplan interest expense 0.7 — — 0.7
(Loss) gain recorded from interest rate collar (0.1) 2.0 — 1.9
Balance as of December 31, 2021 (1.9) (0.7) — (2.6)
Amounts reclassified from AOCI to floorplan interest expense 0.7 — — 0.7
(Loss) gain recorded from interest rate collar 1.2 0.7 2.7 4.6
Balance as of March 31, 2022 $ — $ — $ 2.7 $ 2.7

As of March 31, 2022, the amount of net gain we expect to reclassify from AOCI into interest expense in earnings within the next twelve months is $0.1 million. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

In 2020, we entered into 2 offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to a securitization facility, effective October 2, 2020. We purchased and sold offsetting interest rate caps, both of which have a five-year term with notional amounts of $100 million.

In 2021, we entered into 2 additional offsetting derivative arrangements that do not qualify for hedge accounting. These are both related to a securitization facility, effective June 15, 2021. We purchased and sold offsetting interest rate caps, both of which have a five-year term with notional amounts of $100 million.

~~As of March 31, 2022, the balance on all 4 agreements was an offsetting $6.4 million and was located in other current assets and accrued liabilities, respectively.~~

~~See Note 7 for information on the fair value of the derivative contracts.~~

~~Note 12. Acquisitions~~

~~In the first three months of 2022, we completed the following acquisitions:~~

•In January 2022, John L. Sullivan Chevrolet, John L. Sullivan Chrysler Dodge Jeep Ram, and Roseville Toyota in California.

•In March 2022, Sahara Chrysler Dodge Jeep Ram, Desert 215 Superstore, and Jeep Only in Nevada.

~~Revenue and operating income contributed by the 2022 acquisitions subsequent to the date of acquisition were as follows (in millions):~~


~~Three Months Ended March 31,~~	~~2022~~
~~Revenue~~	$	~~90.7~~
~~Operating income~~	~~4.9~~

~~In the first three months of 2021, we completed the following acquisitions:~~

•~~In February 2021, Fields Chrysler Jeep Dodge Ram and Land Rover Orlando in Florida.~~

~~NOTES TO FINANCIAL STATEMENTS~~

•~~In March 2021, Fink Auto Group in Florida.~~

•~~In March 2021, Avondale Nissan in Arizona.~~

All acquisitions were accounted for as business combinations under the acquisition method of accounting. The results of operations of the acquired stores are included in our Consolidated Financial Statements from the date of acquisition.

The following tables summarize the consideration paid for the ~~2022~~2023 acquisitions and the preliminary purchase price allocations for identified assets acquired and liabilities assumed as of the acquisition date:


(in millions)	Consideration
Cash paid, net of cash acquired	$	~~318.3~~387.4





Total consideration transferred	$	387.4


(in millions)	Assets Acquired and Liabilities Assumed
Trade receivables, net	$	52.4
Inventories ~~net~~	~~93.6~~

~~Property and equipment, net~~	~~111.1~~
~~Other non-current assets~~	~~173.3~~

~~Debt and finance lease obligations~~	~~(59.0)~~

~~Other long-term liabilities~~	~~(0.7)~~397.2


Property and equipment	166.2
Operating lease right-of-use assets	86.7
Other assets	254.2
Floor plan notes payable	(329.0)
Borrowings on lines of credit	(36.4)

Deferred taxes, net	10.0
Other liabilities	(213.9)
Total net assets acquired and liabilities assumed	$	~~318.3~~387.4

The purchase price allocations for the acquisitions from the second quarter of ~~2021~~2022 through the first quarter of ~~2022~~2023 are preliminary, and we have not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts in all respects. We recorded the purchase price allocations based upon information that is currently ~~available. Unallocated~~available and recorded unallocated items ~~are recorded~~ as a component of other non-current assets in the Consolidated Balance Sheets.

We do not expect ~~substantially~~ all of the goodwill related to acquisitions completed in ~~2022~~2023 to be deductible for federal income tax purposes.

In the three-month period ended March 31, ~~2022,~~2023, we recorded ~~$6.6~~$1.3 million in acquisition-related expenses as a component of selling, general and administrative expense. Comparatively, we recorded ~~$1.3~~$6.6 million, of acquisition-related expenses in the same period of ~~2021.~~2022.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three-month periods ended March 31, ~~2022~~2023 and ~~2021,~~2022 had occurred on January 1, ~~2021:~~2022:


		Three Months Ended March 31,						Three Months Ended March 31,
(in millions, except per share amounts)	(in millions, except per share amounts)		2022		2021		(in millions, except per share amounts)		2023		2022
Revenue	Revenue		$	6,724.4	$	4,396.2	Revenue		$	7,385.5	$	7,222.9
Net income attributable to Lithia Motors, Inc.	Net income attributable to Lithia Motors, Inc.		345.5		160.2		Net income attributable to Lithia Motors, Inc.		236.8		352.9
Basic earnings attributable to Lithia Motors, Inc. per share	Basic earnings attributable to Lithia Motors, Inc. per share		11.70		6.02		Basic earnings attributable to Lithia Motors, Inc. per share		8.61		11.95
Diluted earnings attributable to Lithia Motors, Inc. per share	Diluted earnings attributable to Lithia Motors, Inc. per share		11.66		5.96		Diluted earnings attributable to Lithia Motors, Inc. per share		8.60		11.91

These amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: depreciation on a straight-line basis over the expected lives for property and equipment, accounting for inventory on a specific identification method, and recognition of interest expense for real estate financing related to stores where we purchased the facility. No nonrecurring proforma adjustments directly attributable to the acquisitions are included in the reported proforma revenues and earnings.

~~Note 13. Net Investment in Operating Leases~~

~~In the third quarter of 2021, we purchased a leasing entity and the sales-type financing and operating leases it manages.~~

NOTES TO FINANCIAL STATEMENTS

1814

to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned.NOTE 12. EARNINGS PER SHARE

~~Net investment in operating leases was as follows:~~We calculate basic earnings per share (EPS) by dividing net income attributable to Lithia Motors, Inc. by the weighted average number of common shares outstanding for the period, including vested RSU awards. Diluted EPS is calculated by dividing net income attributable to Lithia Motors, Inc. by the weighted average number of shares outstanding, adjusted for the dilutive effect of unvested RSU awards and employee stock purchases.

(in millions) March 31, 2022 December 31, 2021
Vehicles, at cost1
$ 75.8 $ 66.0
Accumulated depreciation1
(4.8) (0.9)
Net investment in operating leases $ 71.0 $ 65.1
The following is a reconciliation of net income attributable to Lithia Motors, Inc. and weighted average shares used for our basic EPS and diluted EPS:


Three Months Ended March 31,	Three Months Ended March 31,
(in millions, except per share amounts)		2023		2022
Net income attributable to Lithia Motors, Inc. and applicable to common stockholders		$	228.7	$	342.2

Weighted average common shares outstanding – basic		27.5		29.5
Effect of employee stock purchases and restricted stock units on weighted average common shares		—		0.1
Weighted average common shares outstanding – diluted		27.5		29.6

Basic earnings per share attributable to Lithia Motors, Inc.		$	8.32	$	11.59
Diluted earnings per share attributable to Lithia Motors, Inc.		$	8.30	$	11.55

1
~~Vehicles, at cost~~

The effect of antidilutive securities on common stock was evaluated for the three-month periods ended March 31, 2023, and ~~accumulated depreciation~~2022 and was determined to be immaterial.

NOTE 13. SEGMENTS

We operate in two reportable segments: Vehicle Operations and Financing Operations. Our Vehicle Operations consists of all aspects of our auto merchandising and service operations, excluding financing provided by our Financing Operations. Our Financing Operations segment provides financing to customers buying and leasing retail vehicles from our Vehicle Operations.

All other remaining unallocated corporate overhead expenses and internal charges are ~~recorded in other current assets, on the Consolidated Balance Sheets.~~reported under “Corporate and Other”. Asset information by segment is not utilized for purposes of assessing performance or allocating resources and, as a result, such information has not been presented.

NOTES TO FINANCIAL STATEMENTS

1915

Certain financial information on a segment basis is as follows:


	Three Months Ended March 31,
(in millions)		2023		2022
Vehicle operations revenue		$	6,973.8	$	6,705.3

Vehicle operations gross profit		1,211.5		1,278.1
Floor plan interest expense		(27.7)		(4.9)
Vehicle operations selling, general and administrative		(822.6)		(790.9)
Vehicle operations income		361.2		482.4

Financing operations interest margin:
Interest, fee, and lease income		53.9		22.4
Interest expense		(37.5)		(3.8)
Total interest margin		16.4		18.6
Selling, general and administrative		(8.6)		(7.2)
Total pre-provision income		7.8		11.4
Provision expense		(26.3)		(3.7)
Depreciation and amortization		(2.3)		(2.7)
Financing operations (loss) income		(20.8)		5.0

Total segment income for reportable segments		340.4		487.4

Corporate and other		58.2		51.0
Depreciation and amortization		(47.3)		(36.5)
Other interest expense		(39.0)		(26.2)
Other income (expense), net		2.0		(5.8)
Income before income taxes		$	314.3	$	469.8

NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2022, the FASB issued an accounting pronouncement (ASU 2022-02) related to troubled debt restructurings (“TDRs”) and vintage disclosures for financing receivables. We adopted this pronouncement and made the necessary updates to our vintage disclosures for the interim period beginning January 1, 2023, and, aside from these disclosure changes, the amendments did not have a material effect on our financial statements.

NOTES TO FINANCIAL STATEMENTS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Risk Factors

Certain statements under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Generally, you can identify forward-looking statements by terms such as “project,” “outlook,” “target,” “may,” “will,” “would,” “should,” “seek,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “likely,” “goal,” “strategy,” “future,” “maintain,” and “continue” or the negative of these terms or other comparable terms. Examples of forward-looking statements in this Form 10-Q include, among others, statements we make regarding:

•Future market conditions, including anticipated car and other sales levels and the supply of inventory

•Our business strategy and plans, including our achieving our 2025 Plan ~~(or “50/50” Plan)~~and related targets

•The growth, expansion and success of our network, including our finding accretive acquisitions and acquiring additional stores

•Annualized revenues from acquired stores

•The growth and performance of our Driveway e-commerce home solution and Driveway Finance Corporation (DFC), their synergies and other impacts on our business and our ability to meet ~~Driveway-related~~Driveway and DFC-related targets

•Our capital allocations and uses and levels of capital expenditures in the future

•Expected operating results, such as improved store performance, continued improvement of selling, general and administrative expenses ~~(“SG&A”)~~(SG&A) as a percentage of gross profit and any projections

•Our anticipated financial condition and liquidity, including from our cash and the future availability of our credit ~~facility,~~facilities, unfinanced real estate and other financing sources

•Our continuing to purchase shares under our share repurchase program

•~~Impacts from the continued COVID-19 pandemic on the national and local economies in which we operate, our business operations and consumer demand~~

•Our compliance with financial and restrictive covenants in our credit ~~facility~~facilities and other debt agreements

•Our programs and initiatives for employee recruitment, training, and retention

•Our strategies for customer retention, growth, market position, financial results and risk management

The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our actual results to materially differ from the results expressed or implied by these statements. Certain important factors that could cause actual results to differ from our expectations are discussed in the Risk Factors section of our ~~2021~~2022 Annual Report on Form 10-K, as supplemented and amended from time to time in Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission (SEC).

By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. You should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We assume no obligation to update or revise any forward-looking statement.

Overview

Lithia &and Driveway (LAD) is a premier automotive retailer, offering a wide selection of vehicles across global carmakers and providing a full suite of financing, leasing, repair, and maintenance options. Purchasing and owning a vehicle is easy and hassle-free with convenient solutions offered through our comprehensive network of locations, e-commerce platforms, and captive finance division. We deliver profitable growth ~~company focused on profitably consolidating~~through consolidation in the ~~largest~~automotive retail sector ~~in North America. We are among~~and modernizing the ~~fastest growing companies in the Fortune 500 (#2 on 10-year EPS Growth, #3 on 10-Year TSR~~retail experience to be wherever, whenever and ~~#12 on 10-year Revenue growth in 2021).~~however our consumers desire. As of March 31, ~~2022,~~2023, we operated ~~281~~332 locations representing 4050 brands in ~~25 states and 3 Canadian provinces.~~three countries.

We offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle including new and used vehicles, financing and insurance products and automotive repair and maintenance. We strive for diversification in our products, services, brands and geographic locations to reduce dependence on any one manufacturer, reduce susceptibility to changing consumer preferences, manage market risk and maintain profitability. Our diversification, along with our operating structure, provides a resilient and nimble business model.

We seek to provide customers with a seamless, blended online and physical retail experience, broad selection and access to specialized expertise and knowledge. Our comprehensive network enables us to provide convenient

MANAGEMENT’S DISCUSSION AND ANALYSIS

2017

touch points for customers and provides services throughout the vehicle life cycle. We seek to increase market share and optimize profitability by focusing on the consumer experience and applying proprietary performance measurement systems fueled by data science. Our ~~omni-channel strategy is designed~~Driveway and GreenCars brands compliment our in-store experiences in the United States and provide convenient, simple and transparent platforms that serve as our e-commerce home solutions and allow us to ~~pragmatically disrupt the industry by leveraging~~deliver differentiated, proprietary digital experiences. Diversifying our ~~experienced teams, vast owned inventories, technology, and physical network. We continue to lead the industry’s consolidation and, combined~~business with ~~Driveway’s e-commerce in-home experiences and~~ Driveway Finance ~~Corporation’s growing~~Corporation (DFC), our captive auto ~~loan portfolio, further accelerate~~finance division, allows us to provide financing solutions for customers and diversify our ~~massive profit and capital engine. Together, these endeavors create a unique and compelling high-growth strategy that provides transportation solutions wherever, whenever and however consumers desire.~~ business model with an adjacent product.

Our long-term strategy to create value for our customers, employees and shareholders includes the following elements:

Driving operational excellence, innovation and diversification

LAD builds magnetic brand loyalty in our ~~281~~332 locations ~~within our Lithia channel~~ and with Driveway, our e-commerce home delivery experience, and GreenCars, our electric vehicle learning resource and marketplace. Operational excellence is achieved by focusing the business on convenient and transparent consumer experiences supported by proprietary data science to improve market share, consumer loyalty, and profitability. By promoting an entrepreneurial model with our in-store experiences, we build strong businesses responsive to each of our local markets. Utilizing performance-based action plans, we develop high-performing teams and foster manufacturer relationships.

In response to evolving consumer preferences, we invest in modernization that supports and expands our core business. These digital strategies combine our experienced, knowledgeable workforce with our owned inventory and physical network of stores, enabling us to be agile and adapt to consumer preferences and market specific conditions. Additionally, we systematically explore transformative adjacencies, which are identified to be synergistic and complementary to our existing business such as ~~Driveway Finance Corporation,~~DFC, our captive auto loan portfolio.

Our investments in modernization are well under way and are taking hold with our teams as they provide digital shopping experiences including finance, contactless test drives and home delivery or curbside pickup for vehicle purchases. Our people and these solutions power our national brands, overlaying our physical footprint in a way that we believe attracts a larger population of digital consumers seeking transparent, empowered, flexible and simple buying and servicing experiences.

Our performance-based culture is geared toward an incentive-based compensation structure for a majority of our personnel. We develop pay plans that are measured based upon various factors such as customer satisfaction, profitability and individual performance metrics. These plans serve to reward team members for creating customer loyalty, achieving store potential, developing high-performing talent, meeting and exceeding manufacturer requirements and living our core values.

We have centralized many administrative functions to drive efficiencies and streamline store-level operations. The reduction of administrative functions at our stores allows our local managers to focus on customer-facing opportunities to increase revenues and gross profit. Our operations are supported by regional and corporate management, as well as dedicated training and personnel development programs which allow us to share best practices across our network and develop management talent.

Growth through acquisition and network ~~development~~optimization

~~The foundation of our omni-channel plan is the~~Our acquisition growth strategy has been successful both financially and ~~expansion of our physical network to provide consumers convenient access to all of our business lines in-store or through Driveway. Acquiring~~culturally. Our disciplined approach focuses on acquiring new vehicle franchises, which operate in markets ranging from mid-sized regional markets to metropolitan ~~markets, provides us a cash generating and profitable model to expand our network~~markets. Acquisition of ~~locations. In addition to being financially accretive,~~ these businesses ~~improve~~increases our ~~ability~~proximity to serve customers through wider selection, greater density and convenient access to vehicle repair services, our highest margin offerings. Our physical footprint currently reaches 95% of American consumers within an average radius of 250 miles.

consumers. While we target an annual after tax return of more than 15% for our acquisitions, we have averaged over a 25% return by the third year of ownership due to a disciplined approach focusing on accretive, cash flow positive targets at reasonable valuations. ~~Culturally,~~In addition to being financially accretive, acquisitions aim to drive network growth that improves our ability to serve customers through vast selection, greater density and access to customers and ability to leverage national branding and advertising.

As we ~~have~~focus on expanding our physical network of stores, one of the criteria we evaluate is a ~~greater than 95% acquisition employee retention rate, demonstrating~~valuation multiple between 3x to 7x of investment in intangibles to estimated annualized adjusted EBITDA, with various factors including location, ability to expand our network and talent considered in determining value. We also target an investment in intangibles as a percentage of annualized revenues in the ~~valuable career opportunities we provide~~range of 15% to ~~our employees.~~ 30%.

MANAGEMENT’S DISCUSSION AND ANALYSIS

We regularly optimize and balance our network through strategic divestitures to ensure continued high performance. We believe our disciplined approach provides us with attractive acquisition opportunities and expanded coast-to-coast coverage.

Thoughtful capital allocation

We manage our liquidity and available cash to support our long-term plan focused on growth through acquisitions and investments in our existing business, technology and adjacencies that expand and diversify our business model. Our free cash flow deployment strategy targets an allocation of 65% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification and 10% in shareholder return in the form of dividends and share repurchases. During 2023, we utilized $38.9 million for capital expenditures investing in our existing business and paid $11.5 million in dividends. As of March 31, 2023, we had available liquidity of $1.4 billion, which was comprised of $184.9 million in cash and $1.2 billion availability on our credit facilities. In addition, our unfinanced real estate could provide additional liquidity of approximately $0.5 billion.

Financial Performance

We experienced growth of revenue in 2023 compared to 2022, primarily driven by increases in volume related to acquisitions, complemented by organic growth in service, body and parts sales.

MANAGEMENT’S DISCUSSION AND ANALYSIS

2119

~~Thoughtful capital allocation~~

Our capital deployment strategy targets deployment of 65% of free cash flows generated toward acquisitions, 25% toward capital expenditures, innovation and diversification and 10% in shareholder return in the form of dividends and share repurchases. As we identify acquisition opportunities that further enhance our business, we may consider other potential sources of capital, including financing of real estate and proceeds from debt or equity offerings. This disciplined approach, combined with our ability to successfully integrate newly-acquired locations, drives growth and profitability.

~~Key Revenue and Gross Profit Metrics~~Vehicle Operations

Key performance metrics for revenue and gross profit were as follows:


		Three Months Ended March 31,										Three Months Ended March 31,
($ in millions)			2022			2021			Change
($ in millions, except per unit values)											($ in millions, except per unit values)		2023			2022			Change
Revenues	Revenues										Revenues
New vehicle retail	New vehicle retail		$	3,061.8		$	2,193.2		39.6	%	New vehicle retail		$	3,278.9		$	3,061.8		7.1	%
Used vehicle retail	Used vehicle retail		2,234.5			1,352.2			65.2		Used vehicle retail		2,227.5			2,234.5			(0.3)

Finance and insurance	Finance and insurance		313.2			198.4			57.9		Finance and insurance		318.3			313.2			1.6
Service, body and parts	Service, body and parts		627.8			404.0			55.4		Service, body and parts		736.3			627.8			17.3
Total Revenues			6,705.3			4,343.0			54.4

Total revenues											Total revenues		6,973.8			6,705.3			4.0

Gross profit	Gross profit										Gross profit
New vehicle retail	New vehicle retail		$	401.3		$	156.7		156.1	%	New vehicle retail		$	333.8		$	401.3		(16.8)	%
Used vehicle retail	Used vehicle retail		223.8			136.2			64.3		Used vehicle retail		165.7			223.8			(26.0)

Finance and insurance	Finance and insurance		313.2			198.4			57.9		Finance and insurance		318.3			313.2			1.6
Service, body and parts	Service, body and parts		329.0			218.2			50.8		Service, body and parts		394.4			329.0			19.9
Total Gross Profit			1,278.1			715.5			78.6

Total gross profit											Total gross profit		1,211.5			1,278.1			(5.2)

Gross profit margins	Gross profit margins										Gross profit margins
New vehicle retail	New vehicle retail		13.1		%	7.1		%	600	bps	New vehicle retail		10.2		%	13.1		%	(290)	bps
Used vehicle retail	Used vehicle retail		10.0			10.1			(10)		Used vehicle retail		7.4			10.0			(260)

Finance and insurance	Finance and insurance		100.0			100.0			—		Finance and insurance		100.0			100.0			—
Service, body and parts	Service, body and parts		52.4			54.0			(160)		Service, body and parts		53.6			52.4			120
Total Gross Profit Margin			19.1			16.5			260

Total gross profit margin											Total gross profit margin		17.4			19.1			(170)

Retail units sold	Retail units sold										Retail units sold
New vehicles	New vehicles		64,942			53,864			20.6	%	New vehicles		67,796			64,942			4.4	%
Used vehicles	Used vehicles		73,689			59,027			24.8		Used vehicles		78,142			73,689			6.0

Average selling price per retail unit	Average selling price per retail unit										Average selling price per retail unit
New vehicles	New vehicles		$	47,146		$	40,718		15.8	%	New vehicles		$	48,364		$	47,146		2.6	%
Used vehicles	Used vehicles		30,323			22,907			32.4		Used vehicles		28,506			30,323			(6.0)

Average gross profit per retail unit	Average gross profit per retail unit										Average gross profit per retail unit
New vehicles	New vehicles		$	6,179		$	2,910		112.3	%	New vehicles		$	4,924		$	6,179		(20.3)	%
Used vehicles	Used vehicles		3,037			2,307			31.6		Used vehicles		2,120			3,037			(30.2)
Finance and insurance	Finance and insurance		2,260			1,757			28.6		Finance and insurance		2,181			2,260			(3.5)
Total vehicle1	Total vehicle1		6,825			4,392			55.4		Total vehicle 1		5,585			6,825			(18.2)

1Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Same Store Operating Data

We believe that same store comparisons are an important indicator of our financial performance. Same store measures demonstrate our ability to grow revenues in our existing locations. As a result, same store measures have been integrated into the discussion below.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Same store measures reflect results for stores that were operating in each comparison period and only include the months when operations occurred in both periods. For example, a store acquired in February ~~2021~~2022 would be included in same store operating data beginning in March ~~2022,~~2023, after its first full complete comparable month of operation. The first quarter operating results for the same store comparisons would include results for that store in only the month of March for both comparable periods.


		Three Months Ended March 31,										Three Months Ended March 31,
($ in millions)			2022			2021			Change
($ in millions, except per unit values)											($ in millions, except per unit values)		2023			2022			Change
Revenues	Revenues										Revenues
New vehicle retail	New vehicle retail		$	2,022.3		$	2,076.6		(2.6)	%	New vehicle retail		$	2,900.4		$	2,996.8		(3.2)	%
Used vehicle retail	Used vehicle retail		1,654.1			1,266.8			30.6		Used vehicle retail		1,990.9			2,184.9			(8.9)
Finance and insurance	Finance and insurance		218.4			187.3			16.6		Finance and insurance		284.7			305.6			(6.8)
Service, body and parts	Service, body and parts		437.4			386.0			13.3		Service, body and parts		669.9			612.6			9.4
Total Revenues			4,584.0			4,103.6			11.7
Total revenues											Total revenues		6,218.2			6,555.5			(5.1)

Gross profit	Gross profit										Gross profit
New vehicle retail	New vehicle retail		$	272.5		$	149.3		82.5	%	New vehicle retail		$	295.3		$	392.3		(24.7)	%
Used vehicle retail	Used vehicle retail		163.5			127.5			28.2		Used vehicle retail		148.4			218.3			(32.0)
Finance and insurance	Finance and insurance		218.4			187.3			16.6		Finance and insurance		284.7			305.6			(6.8)
Service, body and parts	Service, body and parts		238.6			208.9			14.2		Service, body and parts		355.6			321.2			10.7
Total Gross Profit			897.2			678.8			32.2
Total gross profit											Total gross profit		1,082.7			1,248.2			(13.3)

Gross profit margins	Gross profit margins										Gross profit margins
New vehicle retail	New vehicle retail		13.5		%	7.2		%	630	bps	New vehicle retail		10.2		%	13.1		%	(290)	bps
Used vehicle retail	Used vehicle retail		9.9			10.1			(20)		Used vehicle retail		7.5			10.0			(250)
Finance and insurance	Finance and insurance		100.0			100.0			—		Finance and insurance		100.0			100.0			—
Service, body and parts	Service, body and parts		54.6			54.1			50		Service, body and parts		53.1			52.4			70
Total Gross Profit Margin			19.6			16.5			310
Total gross profit margin											Total gross profit margin		17.4			19.0			(160)

Retail units sold	Retail units sold										Retail units sold
New vehicles	New vehicles		42,232			51,145			(17.4)	%	New vehicles		59,440			63,439			(6.3)	%
Used vehicles	Used vehicles		54,813			55,304			(0.9)		Used vehicles		70,157			71,890			(2.4)

Average selling price per retail unit	Average selling price per retail unit										Average selling price per retail unit
New vehicles	New vehicles		$	47,885		$	40,602		17.9	%	New vehicles		$	48,795		$	47,238		3.3	%
Used vehicles	Used vehicles		30,177			22,906			31.7		Used vehicles		28,377			30,393			(6.6)

Average gross profit per retail unit	Average gross profit per retail unit										Average gross profit per retail unit
New vehicles	New vehicles		$	6,453		$	2,919		121.1	%	New vehicles		$	4,968		$	6,183		(19.7)	%
Used vehicles	Used vehicles		2,983			2,305			29.4		Used vehicles		2,116			3,037			(30.3)
Finance and insurance	Finance and insurance		2,251			1,759			28.0		Finance and insurance		2,197			2,259			(2.7)
Total vehicle1	Total vehicle1		6,767			4,401			53.8		Total vehicle 1		5,596			6,830			(18.1)

1Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail.

During the three months ended March 31, 2022, we had net income of $343.7 million, or $11.55 per share on a diluted basis, compared to net income of $156.2 million, or $5.81 per share on a diluted basis, during the same period of 2021.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

New Vehicles

We believe that our new vehicle sales create incremental profit opportunities through certain manufacturer incentive programs, arranging of third-party financing, vehicle service and insurance contracts, future resale of used vehicles acquired through trade-in, and parts and service work. Same store new vehicle revenue decreased 2.6% for the three-month period ended March 31, 2022 compared to the same period in 2021. This was due to a decrease in unit volume of 17.4%, offset by an increase in average selling prices of 17.9%, in the three-month period ended March 31, 2022 compared to the same period of 2021. Our leaders in each market continue to adapt to changing conditions, respond to customer needs and manage inventory availability and selection.

~~While consumer demand remains high~~

MANAGEMENT’S DISCUSSION AND ANALYSIS

YTD 2023 vs. YTD 2022

New vehicles revenue for the three months ended March 31, 2023 increased 7.1% compared to the same period of 2022 due to acquisition activity and increased average selling prices. Same store new vehicle revenue decreased 3.2% due to a decrease in ~~2022, there continues to be a shortage~~unit volume of ~~available new vehicles for sale driven largely~~6.3%, offset by ~~certain component shortages~~an increase in ~~the manufacturers’ supply chains. This imbalance has resulted in higher than normal~~ average selling prices ~~and gross profits per unit. The reduced levels~~ of ~~new vehicle availability are expected to continue throughout 2022.~~3.3%.

Same store new vehicle gross profit per unit ~~increased 121.1%, increasing new vehicle~~decreased 19.7% due to a 6.3 % decrease in units sold and a 290 bps decrease in gross ~~profit margins 630 bps in the three-month period ended March 31, 2022 compared to the same period of 2021.~~

margins. Total same store new vehicle gross profit per unit, which includes the finance and insurance revenue generated from the sales of new vehicles, ~~increased $4,012~~decreased $1,055 to ~~$8,817 for the three-month period ended March 31, 2022 compared to the same period of 2021.~~$7,500.

Used Vehicles

Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: manufacturer certified pre-owned (CPO) vehicles; core vehicles, or late-model vehicles with lower mileage; and value autos, or vehicles with over 80,000 miles. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wide selection meeting all levels of affordability, driving increased used vehicle unit volumes. Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s) and increase sales from finance and insurance and parts and service.

We have established a company-wide target of achieving a per store average of 100 used retail units per month. Strategies to achieve this target include reducing wholesale sales and selling the full spectrum of used units, from late model CPO models to vehicles up to twenty years old. ~~During~~For the trailing twelve months ended March 31, 2023, our stores sold an average of 90 used vehicles per store per month.

YTD 2023 vs. YTD 2022

Used vehicle revenue for the three months ended March 31, ~~2022, our stores sold an average of 91 used vehicles per store per month, compared to 83 used vehicles per store per month for the same period ended March 31, 2021.~~

Used vehicle demand remains high, due in part to the lower levels of new vehicle inventory available for sale. This demand is resulting in higher than normal average selling prices and gross profits per unit for the three-month period ended March 31, 2022.

~~Used vehicle revenue for the three-month period ended March 31, 2022 increased 65.2%~~2023 decreased 0.3% compared to the same period of ~~2021~~2022 due to ~~a combination of strong same store performance and~~decreased average selling prices, partially offset by increased volume due to acquisition activity. On a same store basis, used vehicle sales ~~for the three-month period ended March 31, 2022 increased 30.6%, as compared~~decreased 8.9% due to ~~the same period~~a decrease of 2021, driven by increases in our core vehicle category of 35.8%. Our core vehicle category had growth in unit sales of 2.4%, with improvements in average selling price per vehicle of 32.7% for the three-month period ended March 31, 2022. Our value auto vehicles also experienced strong demand with an increase in unit sales of 3.5% and an increase6.6% in average selling prices and decreased volume of ~~32.1% for the three-month period ended March 31, 2022, compared to the same period~~2.4%. Volume decreases were driven by decreasing volumes associated with core vehicles and value autos, partially offset by increasing volume of 2021. Our CPO vehicle unit sales decreased 13.5% for the three-month period ended March 31, 2022, as compared to the same period of 2021. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wide selection meeting all levels of affordability, driving increased used vehicle unit volumes.

Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s) and increase sales from finance and insurance and parts and service.

certified vehicles. Total same store used vehicle gross profit per unit, which includes the finance and insurance revenue generated from the sales of retail used vehicles, ~~increased 30.4%, or $1,200,~~decreased $1,325 to ~~$5,146 for the three-month period ended March 31, 2022 as compared to the same period of 2021.~~$3,982.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Finance and Insurance

We believe that arranging vehicle financing is an important part of our ability to sell vehicles, and we attempt to arrange financing for every vehicle we sell. We also offer related products such as extended warranties, insurance contracts and vehicle and theft protection which drive continued engagement with the consumer throughout the ownership lifecycle.

YTD 2023 vs. YTD 2022

Total finance and insurance income increased ~~57.9%~~1.6% in the ~~three-month period~~three months ended March 31, ~~2022~~2023 compared to the same period of ~~2021.~~2022. Same store finance and insurance revenues ~~increased 16.6% for~~decreased 6.8%. Revenue decreases were highlighted by a decline in finance reserve revenues as we increase our penetration rates associated with Financing Operations and the ~~three-month period ended March 31, 2022 compared to the same period~~growth of ~~2021, driven~~our captive auto loan and lease portfolio businesses, partially offset by revenue increases inassociated with service ~~contract revenue of 16.6%.~~contracts. On a same store basis, our finance and insurance revenue per retail unit ~~increased $492~~decreased $62 to ~~$2,251 in the three-month period ended March 31, 2022 compared to the same period of 2021.~~$2,197.

Service, body and parts

We provide automotive repair and maintenance services for customers for the new vehicle brands sold by our stores, as well as service and repairs for most other makes and models. These after sales services are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from after sales continue to prove to be more resilient during economic downturns, when owners tend to repair their existing vehicles rather than buy new vehicles.

YTD 2023 vs. YTD 2022

Our service, body, and parts revenue increased ~~55.4%~~17.3% in the ~~three-month period~~three months ended March 31, ~~2022~~2023 compared to the same period of ~~2021,~~2022, driven by acquisitions, as well as increases in customer pay revenues. We believe the increased number of units in operation will continue to benefit our service, body and parts revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance.

MANAGEMENT’S DISCUSSION AND ANALYSIS

We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts. ~~In the three-month period ended March 31, 2022, the~~The largest contribution to our service, body and parts revenue was same store customer pay revenue of ~~$254.9~~$369.7 million.

Same store service, body and parts gross profit increased ~~14.2% in the three-month period ended March 31, 2022 compared to the same period of 2021. The~~10.7%. This increase was primarily due to increased volumes of customer pay transactions. Overall same store service, body, and parts gross margins increased 5070 bps, ~~in the three-month period ended March 31, 2022 compared to the same period of 2021,~~ primarily as a result of our mix continuing to shift towards customer pay, which has higher margins than other service work. Same store customer pay gross margin increased ~~210 bps~~50 bps.

Financing Operations

Financing Operations offers loans and leases to consumers across the full credit spectrum for both new and used vehicles through two entities, DFC and Pfaff Leasing. DFC is a captive lender, originating loans only from stores in the ~~three-month period ended March 31, 2022 compared~~United States and Driveway. Pfaff Leasing originates loans and leases from both our Canadian stores and third-party dealerships. Our stores do not exclusively finance vehicles through DFC or Pfaff Leasing, rather originations are earned on a competitive basis with other lenders. We target growing penetration to 15% of retail units by 2025.

Financing Operations income reflects the ~~same period~~interest, fee, and lease income generated by DFC and Pfaff Leasing’s portfolio of ~~2021.~~auto loan and lease receivables less the interest expenses associated with the debt utilized to fund the lending, a provision for estimated loan and lease losses that include the effect of net charge-offs, depreciation on vehicles leased via operating leases and directly-related expenses.

Selected Financing Operations Financial Information

~~Segments~~


	Three Months Ended March 31,
($ in millions)		2023		% 1	2022		% 1
Interest margin:
Interest, fee, and lease income		$	53.9	8.9	$	22.4	9.7
Interest expense		(37.5)		(6.2)	(3.8)		(1.7)
Total interest margin		$	16.4	2.7	$	18.6	8.1


Provision expense		$	(26.3)	(4.3)	$	(3.7)	(1.6)

Financing operations income (loss)		$	(20.8)	(3.4)	$	5.0	2.2

Total average managed finance receivables		$	2,461.9		$	932.0

~~Certain financial information by segment is as follows:~~1Annualized percentage of total average managed finance receivables.

Three Months Ended
March 31, Increase % Increase
(in millions) 2022 2021
Revenues:
Domestic $ 2,141.1 $ 1,310.0 $ 831.1 63.4 %
Import 2,739.6 1,864.8 874.8 46.9
Luxury 1,803.0 1,171.5 631.5 53.9
6,683.7 4,346.3 2,337.4 53.8
Corporate and other 21.6 (3.3) 24.9 NM
$ 6,705.3 $ 4,343.0 $ 2,362.3 54.4 %
DFC Portfolio Information1

~~NM - not meaningful~~


	Three Months Ended March 31,
($ in millions)		2023			2022
Loan origination information
Net loans originated		$	629.1		$	294.5
Vehicle units financed		20,928			8,680
Total penetration rate 2		14.3		%	6.3		%
Weighted average contract rate		9.0		%	7.9		%
Weighted average credit score 3		731			690
Weighted average FE LTV 4		95.9		%	104.3		%
Weighted average term (in months)		73			73

Loan performance information
Total ending managed receivables		$	2,516.0		$	928.2
Total average managed receivables		$	2,312.7		$	826.5
Allowance for loan losses		$	78.0		$	26.2
Allowance for loan losses as a percentage of ending managed receivables		3.1		%	2.8		%
Net credit losses on managed receivables		13.4			6.1
Net credit losses as a percentage of total average managed receivables		0.6		%	0.7		%
Past due accounts as a percentage of ending managed receivables 5		3.7		%	4.0		%
Average recovery rate 6		53.9		%	67.5		%

MANAGEMENT’S DISCUSSION AND ANALYSIS

2523

Three Months Ended
March 31, Increase % Increase
(in millions) 2022 2021
Segment income1:

Domestic $ 130.5 $ 73.9 $ 56.6 76.6 %
Import 245.8 101.5 144.3 142.2
Luxury 130.3 44.1 86.2 195.5
506.6 219.5 287.1 130.8
Corporate and other 40.5 38.8 1.7 4.4
$ 547.1 $ 258.3 $ 288.8 111.8

1~~Segment income for each~~Excludes Pfaff Leasing Portfolio

2Units financed as a percentage of total new and used vehicle retail units sold.

3The credit scores represent FICO scores and reflect only receivables with obligors that have a FICO score at the time of application. For receivables with co-borrowers, the FICO score is the primary borrower’s. FICO scores are not a significant factor in our proprietary credit model, which relies on information from credit bureaus and other application information as discussed in Note 4 – Finance Receivables.

4Front-end loan-to-value represents the ratio of the ~~segments~~amount financed to the total collateral value, which is ~~a Non-GAAP measure~~measured as the vehicle selling price plus applicable taxes, title and fees.

5Past due is defined as ~~Income from operations before income taxes, depreciation~~loans that have been on the books greater than or equal to 3 months and ~~amortization, other interest expense and other income, net. See Note 9~~are 30 or more days delinquent

6The average recovery rate represents the average percentage of the ~~Condensed Notes to the Consolidated Financial Statements for additional information.~~outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at wholesale auctions.

Three Months Ended
March 31, Increase % Increase
2022 2021
Retail new vehicle unit sales:
Domestic 18,012 13,065 4,947 37.9 %
Import 35,053 30,454 4,599 15.1
Luxury 12,297 10,495 1,802 17.2
65,362 54,014 11,348 21.0
Allocated to management (420) (150) 270 NM
64,942 53,864 11,078 20.6 %

~~NM – Not meaningful~~

~~Domestic~~

~~A summary of financial information for our Domestic segment follows:~~

Three Months Ended
March 31, Increase % Increase
($ in millions) 2022 2021
Revenue:
New vehicle retail $ 935.6 $ 614.6 $ 321.0 52.2 %
Used vehicle retail 746.4 462.2 284.2 61.5
Used vehicle wholesale 128.1 36.2 91.9 253.9
Finance and insurance 89.4 58.6 30.8 52.6
Service, body and parts 187.6 120.8 66.8 55.3
Fleet and other 54.0 17.6 36.4 NM
$ 2,141.1 $ 1,310.0 $ 831.1 63.4
Segment income $ 130.5 $ 73.9 $ 56.6 76.6
Retail new vehicle unit sales 18,012 13,065 4,947 37.9 %

~~NM - not meaningful~~

Our Domestic segment revenue increased 63.4% in the three-month period ended March 31, 2022 compared to the same period of 2021, driven by increases across all business lines. The acquisition of 18 stores in 2021 and five stores in 2022 was the primary contributor to these increases.

Our Domestic segment income increased 76.6% in the three-month period ended March 31, 2022 compared to the same period of 2021, primarily due to gross profit growth of 62.0%. Total Domestic SG&A as a percentage of gross profit decreased from 63.4% to 60.9% for the three-month period ended March 31, 2022, compared to the same period of 2021. The decrease for the three-month period ended March 31, 2022 was primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Domestic stores increased 32.9% for the three-month period ended March 31, 2022 compared to the same period of 2021.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Import~~

~~A summary of financial information for our Import segment follows:~~

Three Months Ended
March 31, Decrease % Increase
($ in millions) 2022 2021
Revenue:
New vehicle retail $ 1,288.4 $ 968.1 $ 320.3 33.1 %
Used vehicle retail 895.9 562.1 333.8 59.4
Used vehicle wholesale 131.8 58.3 73.5 126.1
Finance and insurance 170.4 105.5 64.9 61.5
Service, body and parts 243.1 156.7 86.4 55.1
Fleet and other 10.0 14.1 (4.1) NM
$ 2,739.6 $ 1,864.8 $ 874.8 46.9
Segment income $ 245.8 $ 101.5 $ 144.3 142.2
Retail new vehicle unit sales 35,053 30,454 4,599 15.1 %

~~NM - not meaningful~~

Our Import segment revenue increased 46.9% in the three-month period ended March 31, 2022 compared to the same period of 2021, driven by increases in all major business lines. The acquisition of 34 stores in 2021 and one store in 2022 was the primary contributor to these increases.

Our Import segment income increased 142.2% in the three-month period ended March 31, 2022 compared to the same period of 2021, due to gross profit growth of 83.7%. Total Import SG&A as a percentage of gross profit decreased from 66.2% to 57.7% for the three-month period ended March 31, 2022 compared to the same period of 2021. The decrease for the three-month period ended March 31, 2022 was primarily driven by increased gross profit without proportional increases in all SG&A costs. In addition, floor plan interest expense for Import stores decreased in the three-month period ended March 31, 2022 compared to the same period of 2021.

~~Luxury~~

~~A summary of financial information for our Luxury segment follows:~~

Three Months Ended
March 31, Increase (Decrease) % Increase
($ in millions) 2022 2021
Revenue:
New vehicle retail $ 836.5 $ 614.1 $ 222.4 36.2 %
Used vehicle retail 596.6 331.2 265.4 80.1
Used vehicle wholesale 107.1 39.8 67.3 169.1
Finance and insurance 62.4 36.9 25.5 69.1
Service, body and parts 183.1 121.7 61.4 50.5
Fleet and other 17.3 27.8 (10.5) NM
$ 1,803.0 $ 1,171.5 $ 631.5 53.9
Segment income $ 130.4 $ 44.1 $ 86.3 195.7
Retail new vehicle unit sales 12,297 10,495 1,802 17.2 %

~~NM - not meaningful~~

Our Luxury segment revenue increased 53.9% in the three-month period ended March 31, 2022 compared to the same period of 2021, driven by increases in all major business lines. The acquisition of 26 stores in 2021 was the primary contributor to these increases.

Our Luxury segment income increased 195.7% for the three-month period ended March 31, 2022 compared to the same period of 2021, due to gross profit growth of 93.0%. Total Luxury SG&A as a percentage of gross profit decreased from 70.7% to 58.6% for the three-month period ended March 31, 2022 compared to the same period of 2021. The decrease for the three-month period ended March 31, 2022 was primarily driven by increased gross profit without proportional increases in all SG&A costs. Floor plan interest expense for Luxury stores decreased 0.2% for the three-month period ended March 31, 2022 compared to the same period of 2021.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Corporate and Other~~

Revenues attributable to Corporate and other include the results of operations of our stand-alone body shops and centralized used vehicle team, offset by certain unallocated reserves and elimination adjustments related to vehicle sales.

Three Months Ended
March 31, Increase % Increase
(in millions) 2022 2021
Revenue, net $ 21.6 $ (3.3) $ 24.9 NM
Segment income $ 40.5 $ 38.8 $ 1.7 4.4 %

~~NM - not meaningful~~

The change in Corporate and other revenue in the three-month period ended March 31, 2022 compared to the same period of 2021 was primarily related to increased used vehicle wholesales associated with our centralized used vehicle team and changes to certain reserves that were not specifically identified with our Domestic, Import or Luxury segment revenue, such as our reserve for revenue reversals associated with unwound vehicle sales.

Income attributable to Corporate and other includes amounts associated with the operating income from our stand-alone body shops, centralized used vehicle team and certain internal corporate expense allocations that reduce reportable segment income but increase Corporate and other income. These internal corporate expense allocations are used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience. Examples of these internal allocations include internal rent expense, internal floor plan financing charges, and internal fees charged to offset employees within our corporate headquarters who perform certain dealership functions. Income attributable to Corporate and other also includes gains on the divestiture of stores.

Corporate and other income increased $1.7 million for the three-month period ended March 31, 2022, compared to the same period of 2021, primarily due to a decrease in internal floor plan financing charges received from dealerships and an increase in internal finance reserve paid to dealerships.

Operating Expenses

Selling, General and Administrative Expense (SG&A)

SG&A includes salaries and related personnel expenses, advertising (net of manufacturer cooperative advertising credits), rent, facility costs, and other general corporate expenses.

Three Months Ended
March 31, Increase (Decrease) % Increase
(in millions) 2022 2021
Personnel $ 517.7 $ 314.0 $ 203.7 64.9 %
Advertising 58.4 29.5 28.9 98.0
Rent 17.8 11.3 6.5 57.5
Facility costs1
35.8 24.2 11.6 47.9
(Gain) loss on sale of assets (9.0) 1.0 (10.0) NM
Other 105.4 70.4 35.0 49.7
Total SG&A $ 726.1 $ 450.4 $ 275.7 61.2 %

YTD 2023 vs. YTD 2022


	Three Months Ended March 31,				Increase (Decrease)		% Increase (Decrease)
($ in millions)	2023		2022
Personnel	$	509.0	$	514.2	$	(5.2)	(1.0)	%
Advertising	59.9		58.4		1.5		2.6
Rent	18.9		17.6		1.3		7.4
Facility costs 1	41.3		35.7		5.6		15.7
Gain on sale of assets	(7.1)		(9.0)		1.9		NM
Other	142.4		123.0		19.4		15.8
Total SG&A	$	764.4	$	739.9	$	24.5	3.3	%

1Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.

NM - not meaningful

Three Months Ended
March 31, Increase (Decrease)
As a % of gross profit 2022 2021
Personnel 40.5 % 43.9 % (340) bps
Advertising 4.6 4.1 50
Rent 1.4 1.6 (20)
Facility costs 2.8 3.4 (60)
(Gain) loss on sale of assets (0.7) 0.1 (80)
Other 8.2 9.8 (160)
Total SG&A 56.8 % 62.9 % (610) bps


	Three Months Ended March 31,				Increase
As a % of gross profit	2023		2022
Personnel	42.0	%	40.2	%	180	bps
Advertising	4.9		4.6		30
Rent	1.6		1.4		20
Facility costs	3.4		2.8		60
(Gain) loss on sale of assets	(0.6)		(0.7)		10
Other	11.8		9.6		220
Total SG&A	63.1	%	57.9	%	520	bps

SG&A as a percentage of gross profit was ~~56.8%~~63.1% for the ~~three-month period~~three months ended March 31, ~~2022~~2023 compared to ~~62.9%~~57.9% for the same period of ~~2021.~~2022. Total SG&A expense increased ~~61.2%~~3.3%, driven by increases in most areas, primarily as a result of our network expansion in 2022, partially offset by efforts in personnel efficiency.

On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was 63.3% compared to 57.9% for the ~~three-month~~same period ~~ended March 31,~~of 2022. The increase was impacted by both increased SG&A costs and decreased gross profit.

SG&A expense adjusted for non-core charges was as follows:

MANAGEMENT’S DISCUSSION AND ANALYSIS

2824

YTD 2023 vs. YTD 2022 compared to the same period of 2021. Overall, SG&A expense increased in all areas, primarily as a result of our network expansion in 2021. However, as a percentage of gross profit we experienced improvements in all areas of SG&A due in part to increased gross profits as well as continuing to focus on our cost structure.

On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was 57.5% for the three-month period ended March 31, 2022 compared to 62.5% for the same period of 2021. The decrease for the three-month period ended March 31, 2022 was primarily related to increased gross profit without proportionate increases in SG&A costs.

~~SG&A expense adjusted for non-core charges was as follows:~~


		Three Months Ended March 31,				Increase				% Increase			Three Months Ended March 31,						Increase (Decrease)				% Increase (Decrease)
(in millions)		2022		2021
($ in millions)												($ in millions)	2023				2022		Increase (Decrease)				% Increase (Decrease)
Personnel	Personnel	$	517.7	$	314.0			$	203.7					64.9	%	Personnel	$	509.0			$	514.2
Advertising	Advertising	58.4		29.5		28.9				98.0	%	Advertising	59.9				58.4		1.5				2.6	%
Rent	Rent	17.8		11.3		6.5				57.5	%	Rent	18.9				17.6		1.3				7.4	%
Facility costs1	Facility costs1	35.8		24.2		11.6				47.9	%	Facility costs1	41.3				35.7		5.6				15.7	%
Adjusted loss on sale of assets	Adjusted loss on sale of assets	1.0		0.3		0.7				NM		Adjusted loss on sale of assets	0.1				1.0		(0.9)				NM
Adjusted other	Adjusted other	98.8		68.3		30.5				44.7	%	Adjusted other	130.9				116.4		14.5				12.5	%
Adjusted total SG&A	Adjusted total SG&A	$	729.5	$	447.6	$	281.9			63.0	%	Adjusted total SG&A	$	760.1			$	743.3	$	16.8			2.3	%

1Includes variable lease costs related to the reimbursement of actual costs incurred by our lessors for common area maintenance, property taxes and insurance on leased property.

NM - not meaningful


		Three Months Ended March 31,				Increase (Decrease)			Three Months Ended March 31,				Increase (Decrease)
As a % of gross profit	As a % of gross profit	2022		2021				As a % of gross profit	2023		2022
Personnel	Personnel	40.5	%	43.9	%	(340)	bps	Personnel	42.0	%	40.2	%	180	bps
Advertising	Advertising	4.6		4.1		50		Advertising	4.9		4.6		30
Rent	Rent	1.4		1.6		(20)		Rent	1.6		1.4		20
Facility costs	Facility costs	2.8		3.4		(60)		Facility costs	3.4		2.8		60
Adjusted loss on sale of assets		0.1		—		10
Adjusted gain on sale of assets								Adjusted gain on sale of assets	—		0.1		(10)
Adjusted other	Adjusted other	7.7		9.6		(190)		Adjusted other	10.8		9.1		170
Adjusted total SG&A	Adjusted total SG&A	57.1	%	62.6	%	(550)	bps	Adjusted total SG&A	62.7	%	58.2	%	450	bps

Adjusted SG&A for the ~~three-months~~three months ended March 31, 2023 excludes $10.1 million in one-time vendor contract buyouts, $1.3 million in acquisition-related expenses, $0.1 million in storm insurance reserve charges, and a $7.2 million net gain on store disposals.

Adjusted SG&A for the three months ended March 31, 2022 excludes $6.6 million in acquisition-related expenses and a $10.0 million net gain on store disposals.

Adjusted SG&A for the three-months ended March 31, 2021 excludes $0.8 million in storm insurance reserve charges, $1.3 million in acquisition-related expenses, and a $0.7 million net loss on store disposals.

See “Non-GAAP Reconciliations” for more details.

~~Depreciation and Amortization~~

Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or improvements, furniture, tools, equipment, signage, and amortization of certain intangible assets, including customer lists.

Three Months Ended
March 31, Increase % Increase
(in millions) 2022 2021
Depreciation and amortization $ 39.2 $ 26.8 $ 12.4 46.3 %

Acquisition activity contributed to the increase in depreciation and amortization in 2022 compared to 2021. We acquired approximately $525 million of depreciable property as part of our acquisition activity over the last twelve months ended March 31, 2022. For the three-months ended March 31, 2022, we invested $60.7 million in capital expenditures. These investments increased the amount of depreciation expense in the three-month period ended March 31, 2022. See the discussion under “Liquidity and Capital Resources” for additional information.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Operating Margin~~

~~Operating income as a percentage of revenue, or operating margin, was as follows:~~

Three Months Ended
March 31,
2022 2021
Operating margin 7.6 % 5.5 %
Operating margin adjusted for non-core charges 1
7.6 % 5.6 %

1 ~~See “Non-GAAP Reconciliations” for more details.~~

Operating margins increased 210 bps in the three-month period ended March 31, 2022 compared to the same period in 2021. The increase in operating margins for the three-month period ended March 31, 2022 was primarily due to increased gross profit of 78.6% with an offsetting increase to SG&A of 61.2%, respectively, compared to the same period in 2021.

Floor Plan Interest Expense and Floor Plan Assistance

Three Months Ended
March 31,
(in millions) 2022 2021 % Change
Floor plan interest expense (new vehicles) $ 4.9 $ 6.8 (27.9) %

Floor plan interest expense decreased $1.9 million in the three-month period ended March 31, 2022 compared to the same period of 2021. This decrease is primarily due to increased inventory levels, partially offset by increases from acquisition volume and interest rate fluctuations.

Floor plan assistance is provided by manufacturers to support store financing of new vehicle inventory and is recorded as a component of new vehicle gross profit when the specific vehicle is sold. However, because manufacturers provide this assistance to offset inventory carrying costs, we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our new vehicle sales relative to stocking levels.

~~The following table~~Shown below, are the details ~~the~~for carrying costs for new vehicles ~~and includes new vehicle floor plan interest~~ net of floor plan assistance ~~earned.~~earned:

Three Months Ended
March 31, %
(in millions) 2022 2021 Change Change
Floor plan interest expense (new vehicles) $ 4.9 $ 6.8 $ (1.9) (27.9) %
Floor plan assistance (included as an offset to cost of sales) (31.2) (24.8) (6.4) 25.8
Net new vehicle carrying costs $ (26.3) $ (18.0) $ (8.3) NM
YTD 2023 vs. YTD 2022


	Three Months Ended March 31,						%
($ in millions)	2023		2022		Change		Change
Floor plan interest expense (new vehicles)	$	27.7	$	4.9	$	22.8	465.3	%
Floor plan assistance (included as an offset to cost of sales)	(34.5)		(31.2)		(3.3)		10.6
Net new vehicle carrying costs	$	(6.8)	$	(26.3)	$	19.5	(74.1)

NM - Not meaningful

~~Other Interest Expense~~

~~Other~~Floor plan interest expense ~~includes~~increased $22.8 million in the three months ended March 31, 2023 compared to the same period of 2022. This increase was due to rising interest ~~on senior notes, debt incurred related to acquisitions, real estate mortgages, our used~~rates and ~~service loaner vehicle~~increased inventory ~~financing commitments, and our revolving lines of credit.~~

Three Months Ended
March 31, Increase (Decrease) % Increase (Decrease)
(in millions) 2022 2021
Mortgage interest $ 5.5 $ 6.8 $ (1.3) (19.1) %
Other interest 25.1 17.1 8.0 46.8
Capitalized interest (0.5) (0.4) 0.1 NM
Total other interest expense $ 30.1 $ 23.5 $ 6.6 28.1 %

~~NM - not meaningful~~levels.

~~Other interest~~Depreciation and Amortization

Depreciation and amortization is comprised of depreciation expense ~~for the three-month period ended March 31, 2022 increased $6.6 million primarily~~ related to ~~the additional interest expense associated with the senior notes issued in May 2021.~~

buildings, significant remodels or improvements, furniture, tools, equipment, signage, and amortization of certain intangible assets, including customer lists.

MANAGEMENT’S DISCUSSION AND ANALYSIS

3025

YTD 2023 vs. YTD 2022


	Three Months Ended March 31,				Increase		% Increase
($ in millions)	2023		2022
Depreciation and amortization	$	47.3	$	36.5	$	10.8	29.6	%

Acquisition activity contributed to the increases in depreciation and amortization in 2023 compared to 2022. We acquired approximately $391 million of depreciable property as part of our acquisition activity over the twelve months ended March 31, 2023. For the three months ended March 31, 2023, we invested $38.9 million in capital expenditures. These investments increased the amount of depreciation expense in the three months ended March 31, 2023. See the discussion under “Liquidity and Capital Resources” for additional information.

Operating Income

Operating income as a percentage of revenue, or operating margin, was as follows:

YTD 2023 vs. YTD 2022


	Three Months Ended March 31,
	2023		2022
Operating margin	5.4	%	7.6	%
Operating margin adjusted for non-core charges 1	5.5	%	7.5	%

1See “Non-GAAP Reconciliations” for more details.

Operating margin decreased 220 bps in the three months ended March 31, 2023 compared to the same period in 2022, primarily due to a 5.2% decrease in gross profit and a 3.3% increase in SG&A.

Non-Operating Expenses

Other Interest Expense

Other interest expense includes interest on senior notes, debt incurred related to acquisitions, real estate mortgages, used and service loaner vehicle inventory financing commitments, and revolving lines of credit.

YTD 2023 vs. YTD 2022


	Three Months Ended March 31,				Increase		% Increase
($ in millions)	2023		2022
Mortgage interest	$	7.9	$	5.4	$	2.5	46.3	%
Other interest	31.9		21.3		10.6		49.8
Capitalized interest	(0.8)		(0.5)		0.3		NM
Total other interest expense	$	39.0	$	26.2	$	12.8	48.9	%

NM - not meaningful

Other interest expense for the three months ended March 31, 2023 increased $12.8 million related to increased borrowings and interest rates compared to the same period of 2022.

Other Income (Expense), net

Three Months Ended
March 31, Decrease % Decrease
(Dollars in millions) 2022 2021
Other Income (Expense), net $ (8.0) $ 3.4 $ (11.4) (335.3) %

YTD 2023 vs. YTD 2022


	Three Months Ended March 31,				Decrease		% Decrease
($ in millions)	2023		2022
Other income (expense), net	$	2.0	$	(5.8)	$	7.8	(134.5)	%

Other income (expense), net in the ~~three-month period~~three months ended March 31, ~~2022,~~2023 was primarily related to certain manufacturer incentives, offset by a $0.5 million unrealized investment loss associated with the change in fair value of our investment in Shift Technologies, Inc. and a $1.1 million loss due to foreign currency exchange. These

MANAGEMENT’S DISCUSSION AND ANALYSIS

compare to a $14.9 million unrealized investment loss associated with the change in fair value of our investment in Shift Technologies, Inc. and a $3.6 million gain due to foreign currency exchange in the three months ended March 31, 2022.

Income Tax Provision

Our effective income tax rate was as follows:


		Three Months Ended March 31,						Three Months Ended March 31,
			2022		2021				2023		2022
Effective income tax rate	Effective income tax rate		26.8	%	26.1	%	Effective income tax rate		26.9	%	26.8	%
Effective income tax rate excluding other non-core items	Effective income tax rate excluding other non-core items		26.1	%	26.1	%	Effective income tax rate excluding other non-core items		26.9	%	26.1	%

Our effective income tax rate for the ~~three-month period~~three months ended March 31, ~~2022~~2023 compared to last year was negatively affected by a decrease in tax benefit from stock awards vesting in the current period, a decrease in forecasted pre-tax income, and valuation allowance ~~established~~recorded for certain deferred tax assets not expected to be realized. The ~~increase in~~valuation allowance impact to the 2023 effective income tax rate was ~~offset by stock awards vesting in~~less than the ~~current period.~~impact to the 2022 effective income tax rate. Excluding the valuation allowance and other non-core charges, we estimate our annual effective income tax rate to be 27.0%.

Non-GAAP Reconciliations

Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We believe each of the non-GAAP financial measures below improves the transparency of our disclosures, provides a meaningful presentation of our results from the core business operations because they exclude items not related to our ongoing core business operations and other non-cash items, and improves the period-to-period comparability of our results from the core business operations. We use these measures in conjunction with GAAP financial measures to assess our business, including our compliance with covenants in our credit facility and in communications with our Board of Directors concerning financial performance. These measures should not be considered an alternative to GAAP measures.

The following tables reconcile certain reported non-GAAP measures, which we refer to as “adjusted,” to the most comparable GAAP measure from our Consolidated Statements of Operations.


	Three Months Ended March 31, 2023
(in millions, except per share amounts)	As reported		Net disposal gain on sale of stores		Investment loss		Insurance reserves		Acquisition expenses		Vendor contract buyouts		Adjusted

Selling, general and administrative	$	764.4	$	7.2	$	—	$	(0.1)	$	(1.3)	$	(10.1)	$	760.1
Operating income (loss)	379.0		(7.2)		—		0.1		1.3		10.1		383.3
Other income (expense), net	2.0		—		0.5		—		—		—		2.5

Income (loss) before income taxes	$	314.3	$	(7.2)	$	0.5	$	0.1	$	1.3	10.1		$	319.1
Income tax (provision) benefit	(84.7)		1.9		—		—		(0.2)		(2.7)		(85.7)
Net income (loss)	229.6		(5.3)		0.5		0.1		1.1		7.4		233.4
Net income attributable to non-controlling interest	(0.7)		—		—		—		—		—		(0.7)
Net income attributable to redeemable non-controlling interest	(0.2)		—		—		—		—		—		(0.2)
Net income (loss) attributable to Lithia Motors, Inc.	$	228.7	$	(5.3)	$	0.5	$	0.1	$	1.1	$	7.4	$	232.5

Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	$	8.30	$	(0.19)	$	0.02	$	—	$	0.04	$	0.27	$	8.44
Diluted share count	27.5

MANAGEMENT’S DISCUSSION AND ANALYSIS

3127

Three Months Ended March 31, 2022
(in millions, except per share amounts) As reported Net disposal gain on sale of stores Investment loss Acquisition expenses Adjusted
Selling, general and administrative $ 726.1 $ 10.0 $ — $ (6.6) $ 729.5
Operating income (loss) 512.8 (10.0) — 6.6 509.4
Other (expense) income, net (8.0) — 14.9 — 6.9
Income (loss) before income taxes $ 469.8 $ (10.0) $ 14.9 $ 6.6 $ 481.3
Income tax provision (benefit) (126.2) 2.6 — (1.9) (125.5)
Net income (loss) 343.6 (7.4) 14.9 4.7 355.8
Net income attributable to non-controlling interest (0.5) — — — (0.5)
Net income attributable to redeemable non-controlling interest (0.9) — — — (0.9)
Net income (loss) attributable to Lithia Motors, Inc. $ 342.2 $ (7.4) $ 14.9 $ 4.7 $ 354.4
Diluted earnings (loss) per share attributable to Lithia Motors, Inc. $ 11.55 $ (0.25) $ 0.50 $ 0.16 $ 11.96
Diluted share count 29.6


		Three Months Ended March 31, 2021										Three Months Ended March 31, 2022
(in millions, except per share amounts)	(in millions, except per share amounts)	As reported		Net disposal loss on sale of stores		Investment loss		Insurance reserves		Acquisition expenses			Adjusted		(in millions, except per share amounts)	As reported		Net disposal gain on sale of stores		Investment loss		Acquisition expenses		Adjusted

Selling, general and administrative	Selling, general and administrative	$	450.4	$	(0.7)	$	—	$	(0.8)	$	(1.3)		$	447.6	Selling, general and administrative	$	739.9	$	10.0	$	—	$	(6.6)	$	743.3
Operating income (loss)	Operating income (loss)	238.3		0.7		—		0.8		1.3			241.1		Operating income (loss)	506.7		(10.0)		—		6.6		503.3
Other (expense) income, net	Other (expense) income, net	3.4		—		0.3		—		—			3.7		Other (expense) income, net	(5.8)		—		14.9		—		9.1

Income (loss) before income taxes	Income (loss) before income taxes	$	211.4	$	0.7	0.3		$	0.8	$	1.3		$	214.5	Income (loss) before income taxes	$	469.8	$	(10.0)	14.9		$	6.6	$	481.3
Income tax provision (benefit)		(55.2)		(0.2)		(0.1)		(0.2)		(0.4)			(56.1)

Income tax (provision) benefit															Income tax (provision) benefit	(126.2)		2.6		—		(1.9)		(125.5)
Net income (loss)															Net income (loss)	343.6		(7.4)		14.9		4.7		355.8
Net income attributable to non-controlling interest															Net income attributable to non-controlling interest	(0.5)		—		—		—		(0.5)
Net income attributable to redeemable non-controlling interest															Net income attributable to redeemable non-controlling interest	(0.9)		—		—		—		(0.9)
Net income (loss) attributable to Lithia Motors, Inc.	Net income (loss) attributable to Lithia Motors, Inc.	$	156.2	$	0.5	$	0.2	$	0.6	$	0.9		$	158.4	Net income (loss) attributable to Lithia Motors, Inc.	$	342.2	$	(7.4)	$	14.9	$	4.7	$	354.4

Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	$	5.81	$	0.02	$	0.01	$	0.02	$	0.03		$	5.89	Diluted earnings (loss) per share attributable to Lithia Motors, Inc.	$	11.55	$	(0.25)	$	0.50	$	0.16	$	11.96
Diluted share count	Diluted share count	26.9													Diluted share count	29.6

Liquidity and Capital Resources

We manage our liquidity and capital resources in the context of our overall business strategy, continually forecasting and managing our cash, working capital balances and capital structure in a way that we believe will meet the short-term and long-term obligations of our business while maintaining liquidity and financial flexibility. Our capital deployment strategy for our free cash flows targets an allocation of 65% investment in acquisitions, 25% internal investments including capital expenditures, Driveway and Driveway Finance Corporation and 10% in shareholder return in the form of dividends and share repurchases.

We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. Cash flows from operations and borrowings under our credit facilities are our main sources for liquidity. In addition to the above sources of liquidity, potential sources to fund our business strategy include issuing equity through our $400 million ATM Equity Offering Agreement, financing of real estate and proceeds from debt or equity offerings. We evaluate all of these options and may select one or more of them depending on overall capital needs and the availability and cost of capital, although no assurances can be provided that these capital sources will be available in sufficient amounts or with terms acceptable to us.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Available Sources

Below is a summary of our immediately available funds:


(in millions)		March 31, 2022		December 31, 2021		Change		% Change

Cash, restricted cash, and cash equivalents		$	161.4	$	174.8	$	(13.4)	(7.7)	%

($ in millions)										($ in millions)	March 31, 2023		December 31, 2022		Change		% Change
Cash										Cash	$	184.9	$	168.1	$	16.8	10.0	%
Available credit on credit facilities	Available credit on credit facilities	1,455.9		1,344.8		111.1		8.3		Available credit on credit facilities	1,168.8		1,419.4		(250.6)		(17.7)
Total current available funds	Total current available funds	$	1,617.3	$	1,519.6	$	97.7	6.4	%	Total current available funds	$	1,353.7	$	1,587.5	$	(233.8)	(14.7)	%

Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows. The following table summarizes our cash flows:


		Three Months Ended March 31,				Increase (Decrease)			Three Months Ended March 31,				Change
(in millions)	(in millions)	2022		2021		in Cash Flow		(in millions)	2023		2022		in Cash Flow
Net cash provided by operating activities		$	26.3	$	499.5	$	(473.2)
Net cash (used in) provided by operating activities								Net cash (used in) provided by operating activities	$	(49.0)	$	26.3	$	(75.3)
Net cash used in investing activities	Net cash used in investing activities	(357.3)		(442.8)		85.5		Net cash used in investing activities	(413.9)		(357.3)		(56.6)
Net cash provided by (used in) financing activities		316.0		(43.5)		359.5
Net cash provided by financing activities								Net cash provided by financing activities	509.9		316.0		193.9

Operating Activities

Cash provided by operating activities for the ~~three-month period~~three months ended March 31, ~~2022~~2023 decreased ~~$473.2~~$75.3 million compared to the same period of ~~2021,~~2022, primarily related ~~to an~~growth in our financing receivables as we increase ~~in inventories~~our auto loan portfolio and ~~other assets, partially offset by increased~~decreased net income ~~and collection on trade receivables~~ compared to the same period of ~~2021.~~

Borrowings from and repayments to our syndicated credit facility related to our new vehicle inventory floor plan financing are presented as financing activities. To better understand the impact of changes in inventory and the associated financing, we also consider our adjusted net cash provided by operating activities to include borrowings or repayments associated with our new vehicle floor plan commitment.

~~Adjusted net cash provided by operating activities is presented below:~~

Three Months Ended March 31, Increase (Decrease)
(in millions) 2022 2021 in Cash Flow
Net cash provided by operating activities – as reported $ 26.3 $ 499.5 $ (473.2)
Less: Net repayments on floor plan notes payable, non-trade 177.1 (74.8) 251.9
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory (47.6) (69.3) 21.7
Net cash provided by operating activities – adjusted $ 155.8 $ 355.4 $ (199.6)

~~Investing Activities~~

~~Net cash used in investing activities totaled $357.3 million and $442.8 million, respectively, for the three-month period ended March 31, 2022 and 2021.~~

~~Below are highlights of significant activity related to our cash flows from investing activities:~~

Three Months Ended March 31, Increase (Decrease)
(in millions) 2022 2021 in Cash Flow
Capital expenditures $ (60.7) $ (50.0) $ (10.7)
Cash paid for acquisitions, net of cash acquired (326.5) (383.5) 57.0
Cash paid for other investments (9.8) (9.6) (0.2)
Proceeds from sales of stores 32.9 0.3 32.6

2022.

MANAGEMENT’S DISCUSSION AND ANALYSIS

3328

Borrowings from and repayments to our syndicated credit facilities related to our new vehicle inventory floor plan financing are presented as financing activities. To better understand the impact of changes in inventory, other assets, and the associated financing, we also consider our adjusted net cash provided by operating activities to include borrowings or repayments associated with our new vehicle floor plan commitment and exclude the impact of our financing receivables activity.

To better understand the impact of these items, adjusted net cash provided by operating activities, a non-GAAP measure, is presented below:


	Three Months Ended March 31,				Change
(in millions)	2023		2022		in Cash Flow
Net cash (used in) provided by operating activities – as reported	$	(49.0)	$	26.3	$	(75.3)
Adjust: Net borrowings on floor plan notes payable, non-trade	187.6		177.1		10.5
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory	(3.7)		(47.6)		43.9
Adjust: Financing receivables activity	397.0		201.4		195.6
Net cash provided by operating activities – adjusted	$	531.9	$	357.2	$	174.7

Investing Activities

Net cash used in investing activities totaled $0.4 billion and $0.4 billion, respectively, for the three months ended March 31, 2023 and 2022.

Below are highlights of significant activity related to our cash flows from investing activities:


	Three Months Ended March 31,				Change
(in millions)	2023		2022		in Cash Flow
Capital expenditures	$	(38.9)	$	(60.7)	$	21.8
Cash paid for acquisitions, net of cash acquired	(387.4)		(326.5)		(60.9)
Cash paid for other investments	(11.1)		(9.8)		(1.3)
Proceeds from sales of stores	22.7		32.9		(10.2)

Capital Expenditures

Below is a summary of our capital expenditure ~~activities:~~activities ($ in millions):

Three Months Ended March 31,
(in millions) 2022 2021
Post-acquisition capital improvements $ 10.9 $ 2.2
Facilities for open points — 0.1
Purchase of facilities for existing operations 0.5 10.3
Existing facility improvements 19.7 20.3
Maintenance 29.6 17.1
Total capital expenditures $ 60.7 $ 50.0

Many manufacturers provide assistance in the form of additional incentives or assistance if facilities meet specified standards and requirements. We expect that certain facility upgrades and remodels will generate additional manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce the overall investment needed and encourage accelerated project ~~timeliness.~~timelines.

MANAGEMENT’S DISCUSSION AND ANALYSIS

We expect to use a portion of our future capital expenditures to upgrade facilities that we recently acquired. This additional capital investment is contemplated in our initial evaluation of the investment return metrics applied to each acquisition and is usually associated with manufacturer standards and requirements.

The ~~increase~~decrease in capital expenditures for the ~~three-month period~~three months ended March 31, ~~2022,~~2023, compared to the same period of ~~2021~~2022 related primarily to ~~higher~~lower existing ~~facility capital improvements.~~operations improvements and maintenance.

If we undertake a significant capital commitment in the future, we expect to pay for the commitment out of existing cash balances, construction financing and borrowings on our credit facility. Upon completion of the projects, we believe we would have the ability to secure long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended, although no assurances can be provided that these financings will be available to us in sufficient amounts or on terms acceptable to us.

Acquisitions

We focus on acquiring stores at attractive purchase prices that meet our return thresholds and strategic objectives. We look for acquisitions that diversify our brand and geographic mix as we continue to evaluate our portfolio to minimize exposure to any one manufacturer and achieve financial returns.

We are able to subsequently floor new vehicle inventory acquired as part of an acquisition; however, the cash generated by this transaction is recorded as borrowings on floor plan notes payable, non-trade.

Adjusted net cash paid for acquisitions, as well as certain other acquisition-related information is presented below:


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Number of locations acquired	Number of locations acquired	6		8		Number of locations acquired	37		6

(in millions)	(in millions)					(in millions)
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired	$	(326.5)	$	(383.5)	Cash paid for acquisitions, net of cash acquired	$	(387.4)	$	(326.5)
Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory	Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory	47.6		69.3		Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory	3.7		47.6

Cash paid for acquisitions, net of cash acquired – adjusted	Cash paid for acquisitions, net of cash acquired – adjusted	$	(278.9)	$	(314.2)	Cash paid for acquisitions, net of cash acquired – adjusted	$	(383.7)	$	(278.9)

We evaluate potential capital investments primarily based on targeted rates of return on assets and return on our net equity investment.

Financing Activities

Adjusted net cash provided by financing activities, a non-GAAP measure, which is adjusted for borrowings and repayments on floor plan facilities: non-trade and borrowings and repayments associated with our Financing Operations segment was as follows:


	Three Months Ended March 31,				Change
(in millions)	2023		2022		in Cash Flow
Cash provided by financing activities, as reported	$	509.9	$	316.0	$	193.9
Add (less): Net borrowings on floor plan notes payable: non-trade	(187.6)		(177.1)		(10.5)
Add (less): Net (borrowings) repayments on non-recourse notes payable	(403.2)		39.3		(442.5)
Cash (used in) provided by financing activities, as adjusted	$	(80.9)	$	178.2	$	(259.1)

Below are highlights of significant activity related to our cash flows from financing activities, excluding borrowings and repayments on floor plan notes payable: non-trade and non-recourse notes payable, which are discussed above:

MANAGEMENT’S DISCUSSION AND ANALYSIS

3430

~~Financing Activities~~

~~Net cash provided by (used in) financing activities, adjusted for borrowing on floor plan facilities: non-trade was as follows:~~

Three Months Ended March 31, Increase (Decrease)
(in millions) 2022 2021 in Cash Flow
Cash provided by (used in) financing activities, as reported $ 316.0 $ (43.5) $ 359.5
Adjust: Repayments on floor plan notes payable: non-trade (177.1) 74.8 (251.9)
Cash provided by (used in) financing activities – adjusted $ 138.9 $ 31.3 $ 107.6

~~Below are highlights of significant activity related to our cash flows from financing activities, excluding net repayments on floor plan notes payable: non-trade, which are discussed above:~~


		Three Months Ended March 31,				Increase (Decrease)			Three Months Ended March 31,				Change
(in millions)	(in millions)	2022		2021		in Cash Flow		(in millions)	2023		2022		in Cash Flow
Net borrowings on lines of credit	Net borrowings on lines of credit	$	265.2	$	61.0	$	204.2	Net borrowings on lines of credit	$	(40.4)	$	265.2	$	(305.6)
Principal payments on long-term debt and capital leases, unscheduled		(12.5)		—		(12.5)
Principal payments on long-term debt and finance lease liabilities, other								Principal payments on long-term debt and finance lease liabilities, other	(3.4)		(12.5)		9.1
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	16.2		—		16.2		Proceeds from issuance of long-term debt	10.4		16.2		(5.8)
Repurchases of common stock		(60.9)		(15.9)		(45.0)
Principal payments on non-recourse notes payable								Principal payments on non-recourse notes payable	(76.5)		(39.3)		(37.2)
Proceeds from the issuance of non-recourse notes payable								Proceeds from the issuance of non-recourse notes payable	479.7		—		479.7
Repurchase of common stock								Repurchase of common stock	(14.4)		(60.9)		46.5
Dividends paid	Dividends paid	(10.3)		(8.2)		(2.1)		Dividends paid	(11.5)		(10.3)		(1.2)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	7.8		4.2		3.6		Proceeds from issuance of common stock	6.1		7.8		(1.7)

Equity Transactions

In November 2021, our Board of Directors authorized the repurchase of up to $750 million of our Common Stock, increasing our total repurchase authorization to $1.25 billion combined with the amount previously authorized by the Board for repurchase. We repurchased a total of ~~275,024~~70,395 shares of our Common Stock at an average price of ~~$291.17~~$204.75 in the first three months of ~~2022. This included 218,245 shares as part of our repurchase authorization at an average price per share of $289.66 and 56,779 shares~~2023, all related to tax withholding on vesting RSUs, ~~at an average price of $296.97 per share.~~none related to our repurchase authorization. As of March 31, ~~2022,~~2023, we had ~~$659.5~~$501.4 million remaining available for repurchases and the authorization does not have an expiration date.

In the first three months of ~~2022,~~2023, we declared and paid dividends on our Common Stock as follows:


Dividend paid:	Dividend paid:	Dividend amount per share		Total amount of dividend (in millions)		Dividend paid:	Dividend amount per share		Total amount of dividend (in millions)
March 2022		$	0.35	$	10.3
March 2023						March 2023	$	0.42	$	11.5

We evaluate performance and make a recommendation to the Board of Directors on dividend payments on a quarterly basis.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Summary of Outstanding Balances on Credit Facilities and Long-Term Debt

Below is a summary of our outstanding balances on credit facilities and long-term debt:


		As of March 31, 2022						As of March 31, 2023
(in millions)	(in millions)	Outstanding		Remaining Available			(in millions)	Outstanding		Remaining Available
Floor plan note payable: non-trade	Floor plan note payable: non-trade	$	1,002.8	$	—	1	Floor plan note payable: non-trade	$	1,664.9	$	—	1
Floor plan notes payable	Floor plan notes payable	388.2		—			Floor plan notes payable	999.3		—
Used and service loaner vehicle inventory financing commitments	Used and service loaner vehicle inventory financing commitments	730.0		55.2		2	Used and service loaner vehicle inventory financing commitments	843.6		5.9		2
Revolving lines of credit	Revolving lines of credit	257.1		1,400.7		2, 3	Revolving lines of credit	1,012.4		1,117.1		2, 3
Real estate mortgages		573.8		—
Finance lease obligations		112.1		—
Warehouse facilities							Warehouse facilities	875.0		45.8
Non-recourse notes payable	Non-recourse notes payable	278.3		—			Non-recourse notes payable	825.4		—
4.625% Senior notes due 2027	4.625% Senior notes due 2027	400.0		—			4.625% Senior notes due 2027	400.0		—
4.375% Senior notes due 2031	4.375% Senior notes due 2031	550.0		—			4.375% Senior notes due 2031	550.0		—
3.875% Senior notes due 2029	3.875% Senior notes due 2029	800.0		—			3.875% Senior notes due 2029	800.0		—
Other debt		1.7		—
Finance leases and other debt							Finance leases and other debt	651.5		—
Unamortized debt issuance costs	Unamortized debt issuance costs	(25.1)		—		4	Unamortized debt issuance costs	(30.6)		—		4
Total debt		$	5,068.9	$	1,455.9
Total debt, net							Total debt, net	$	8,591.5	$	1,168.8

1As of March 31, ~~2022,~~2023, we had a ~~$2.2~~$2.0 billion new vehicle floor plan commitment as part of our US Bank credit facility, and a $500 million CAD wholesale floorplan commitment as part of our Bank of Nova Scotia credit facility.

2The amount available on the credit facility is limited based on a borrowing base calculation and fluctuates monthly.

3Available credit is based on the borrowing base amount effective as of February 28, ~~2022.~~2023. This amount is reduced by ~~$40.4~~$36.1 million for outstanding letters of credit.

4Debt issuance costs are presented on the balance sheet as a reduction from the carrying amount of the related debt liability.

~~Credit Facility~~

On April 29, 2021, we amended our existing syndicated credit facility (credit facility), comprised of 20 financial institutions, including eight manufacturer-affiliated finance companies, extending the maturity date to April 2026.

This credit facility provides for a total financing commitment of $3.75 billion, which may be further expanded, subject to lender approval and the satisfaction of other conditions, up to a total of $4.25 billion. The initial allocation of the financing commitment is for up to $336 million in used vehicle inventory floorplan financing, up to $434 million in revolving financing for general corporate purposes, including acquisitions and working capital, up to $2.88 billion in new vehicle inventory floorplan financing, and up to $100 million in service loaner vehicle floorplan financing. We have the option to reallocate the commitments under this credit facility, provided that each of the used vehicle floor plan commitment and the aggregate revolving loan commitment may not be more than the 20% of the amount of the aggregate commitment, and the aggregate service loaner vehicle floorplan commitment may not be more than the 3% of the amount of the aggregate commitment. All borrowings from, and repayments to, our lending group are presented in the Consolidated Statements of Cash Flows as financing activities.

Financial Covenants

Our ~~obligations under our~~ credit ~~facility are secured by a substantial amount~~facilities, non-recourse notes payable, and senior notes contain customary representations and warranties, conditions and covenants for transactions of ~~our assets, including our inventory (including new and used vehicles, parts and accessories), equipment, accounts receivable (and other rights to payment) and our equity interests~~these types. As of March 31, 2023 we were in certain of our subsidiaries. Under our credit facility, our obligations relating to new vehicle floor plan loans are secured only by collateral owned by borrowers of new vehicle floor plan loans under the credit facility.

~~The interest rate on the credit facility varies based on the type of debt,~~compliance with the rate of one-month LIBOR plus 1.10% for new vehicle floor plan financing, one-month LIBOR plus 1.40% for used vehicle floor plan financing, 1.20% for service loaner floor plan financing and a variable interest rate on the revolving financing ranging from the one-month LIBOR plus 1.00% to 2.00% depending on our leverage ratio. The annual interest rates associated with our floor plan commitments are as follows:


~~Commitment~~			~~Annual Interest Rate at March 31, 2022~~
~~New vehicle floor plan~~			~~1.56%~~
~~Used vehicle floor plan~~			~~1.86%~~
~~Service loaner floor plan~~			~~1.66%~~
~~Revolving line of credit~~			~~1.46%~~

all financial covenants.

MANAGEMENT’S DISCUSSION AND ANALYSIS

3631

Under the terms of our credit facility we are subject to financial covenants and restrictive covenants that limit or restrict our incurring additional indebtedness, making investments, selling or acquiring assets and granting security interests in our assets.

~~Under our credit facility, we are required to maintain the ratios detailed in the following table:~~

~~Debt Covenant Ratio~~

~~Requirement~~

~~As of March 31, 2022~~

~~Current ratio~~

~~Not less than 1.10 to 1~~

~~1.60 to 1~~

~~Fixed charge coverage ratio~~

~~Not less than 1.20 to 1~~

~~5.19 to 1~~

~~Leverage ratio~~

~~Not more than 5.75 to 1~~

~~1.16 to 1~~

As of March 31, 2022, we were in compliance with all covenants. We expect to remain in compliance with the financial and restrictive covenants in our credit facility and other debt agreements. However, no assurances can be provided that we will continue to remain in compliance with the financial and restrictive covenants.

If we do not meet the financial and restrictive covenants and are unable to remediate or cure the condition or obtain a waiver from our lenders, a breach would give rise to remedies under the agreement, the most severe of which are the termination of the agreement, acceleration of the amounts owed and the seizure and sale of our assets comprising the collateral for the loans. A breach would also trigger cross-defaults under other debt agreements.

Although we refer to the lenders’ obligations to make loans as “commitments,” each lender’s obligations to make any loan or other credit accommodations under the credit facility is subject to the satisfaction of the conditions precedent specified in the credit agreement including, for example, that our representations and warranties in the agreement are true and correct in all material respects as of the date of each credit extension. If we are unable to satisfy the applicable conditions precedent, we may not be able to request new loans or other credit accommodations under our credit facility.

~~Floor Plan Notes Payable~~

We have floor plan agreements with manufacturer-affiliated finance companies for certain new vehicles and vehicles that are designated for use as service loaners. The interest rates on these floor plan notes payable commitments vary by manufacturer and are variable rates. As of March 31, 2022, $388.2 million was outstanding on these agreements. Borrowings from, and repayments to, manufacturer-affiliated finance companies are classified as operating activities in the Consolidated Statements of Cash Flows.

~~Other Credit Facilities and Lines of Credit~~

Our other lines of credit include a commitment of up to $60.0 million with Ford Motor Credit Company, secured by certain assets from all Ford locations. These other lines of credit mature in 2022 and have interest rates up to 6.01%. As of March 31, 2022, no amounts were outstanding on these other lines of credit.

On July 14, 2020, we entered into a five-year real-estate backed facility with eight financial institutions, including two manufacturer affiliated finance companies, maturing in July 2025. The real-estate backed credit facility provides a total financing commitment of up to $235.6 million in working capital financing for general corporate purposes, including acquisitions and working capital, collateralized by real estate and certain other assets owned by us. The interest rate on this credit facility uses one-month LIBOR plus a margin ranging from 2.00% to 2.50% based on our leverage ratio, or a base rate of 0.75% plus a margin. The facility includes financial and restrictive covenants typical of such agreements, lending conditions, and representations and warranties by us. Financial covenants include requirements to maintain minimum current and fixed charge coverage ratios, and a maximum leverage ratio, consistent with those under existing syndicated credit facility with U.S. Bank National Association as administrative agent. As of March 31, 2022, no amounts were outstanding on the real-estate backed facility.

On July 31, 2020, we entered into a securitization facility which provides initial commitments for borrowings of up to $300 million and matures in July 2022. As of March 31, 2022, we had $125.0 million drawn on the securitization facility, which is included as part of “Revolving lines of credit” in the “Summary of Outstanding Balances on Credit Facilities and Long-Term Debt” table above.

On April 12, 2021, we entered into a credit agreement with Ally Bank (Ally Capital in Hawaii, Mississippi, Montana and New Jersey), as lender. The credit agreement matures in April 2023 and provides for a revolving line of credit facility (Ally credit facility) of up to $300.0 million and is secured by real estate owned by us. The Ally credit facility

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

bears interest at a rate per annum equal to the greater of 3.00% or the prime rate designated by Ally Bank, minus 25 basis points. The Ally credit facility includes financial and restrictive covenants typical of such agreements, lending conditions, and representations and warranties. Financial covenants, including the requirements to maintain minimum current and fixed charge coverage ratios, and a maximum leverage ratio, are the same as the requirements under our existing syndicated credit facility with U.S. Bank National Association. The covenants restrict us from disposing of assets and granting additional security interests. As of March 31, 2022, no amounts were outstanding on the Ally credit facility.

On August 30, 2021, we entered into a credit agreement with The Bank of Nova Scotia. The credit agreement makes available three primary lines of credit including a working capital revolving credit facility of up to $50 million CAD, up to $300 million CAD floor plan financing for new and used vehicles; and $350 million CAD to provide wholesale lease financing. The credit facilities accrue interest at rates equal to the Lender’s prime lending rate or the Canadian Dollar Offered Rate plus, in each case, a spread, with the spreads ranging from 0.25% per annum to 1.50% per annum. The credit agreement includes various financial and other covenants typical of such agreements. All indebtedness under this agreement is due on demand.

~~Senior Notes~~

We have issued senior notes to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. Interest accrues on the notes and is payable semiannually. We may redeem the notes in whole or in part, on or after the redemption dates, at the redemption prices set forth in the Indentures. Prior to the redemption dates set forth in the Indentures, we may redeem the notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus make-whole premiums set forth in the Indentures. Upon certain change of control events (as set forth in the Indentures), the holders of the notes may require us to repurchase all or a portion of the notes at a purchase price of 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase.

~~Below is a summary of outstanding senior notes issued:~~


~~Description~~	~~Maturity Date~~	~~Interest Payment Dates~~	~~Principal Amount~~
~~4.625% Senior notes due 2027~~	~~December 15, 2027~~	~~June 15, December 15~~	~~$400 million~~
~~4.375% Senior notes due 2031~~	~~January 15, 2031~~	~~January 15, July 15~~	~~$550 million~~
~~3.875% Senior notes due 2029~~	~~June 1, 2029~~	~~June 1, December 1~~	~~$800 million~~

~~Real Estate Mortgages, Finance Lease Obligations, and Other Debt~~

We have mortgages associated with our owned real estate. Interest rates related to this debt ranged from 2.5% to 5.0% at March 31, 2022. The mortgages are payable in various installments through July 1, 2038. As of March 31, 2022, we had fixed interest rates on 70.0% of our outstanding mortgage debt.

We have finance lease obligations with some of our leased real estate. Interest rates related to this debt ranged from 1.9% to 8.5% at March 31, 2022. The leases have terms extending through August 2037.

~~Our other debt includes sellers’ notes. The interest rates associated with our other debt ranged from 5.0% to 10.0% at March 31, 2022. This debt is due in various installments through April 2027.~~

~~LIBOR Transition~~

We are working closely and cooperatively with our lending partners to update LIBOR-based agreements. We expect to transition all of our LIBOR-based agreements to appropriate replacement rates well before the June 30, 2023 LIBOR cessation. We do not anticipate this transition to have any material impact on our results of operations or financial position.

Recent Accounting Pronouncements

~~None.~~See Note 14 – Recent Accounting Pronouncements for discussion.

Critical Accounting Policies and Use of Estimates

There have been no material changes in the critical accounting policies and use of estimates described in our ~~2021~~2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February ~~18, 2022.~~24, 2023.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Seasonality and Quarterly Fluctuations

Historically, our sales have been lower in the first quarter of each year due to consumer purchasing patterns and inclement weather in certain of our markets. As a result, financial performance is expected to be lower during the first quarter than during the second, third and fourth quarters of each fiscal year. We believe that interest rates, levels of consumer debt, consumer confidence and manufacturer sales incentives, as well as general economic conditions, also contribute to fluctuations in sales and operating results.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of our ~~2021~~2022 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on February ~~18, 2022.~~24, 2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We evaluated, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

MANAGEMENT’S DISCUSSION AND ANALYSIS

Item 1A. Risk Factors

The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in our ~~2021~~2022 Annual Report on Form 10-K, which was filed with the SEC on February ~~18, 2022.~~24, 2023. We have described in our ~~2021~~2022 Annual Report on Form 10-K, under “Risk Factors” in Item 1A, the primary risks related to our business and securities. We provide below the material changes to our risk factors described in that report.

Risks associated with our U.K. operations may negatively affect our business, results of operations and financial condition.

Following completion of our acquisition of Jardine Motors Group in the United Kingdom in March 2023, we own and operate dealerships in the U.K. in addition to operations in the United States and Canada. These dealerships are the first operations we have managed outside of North America. While our operations outside of the United States currently represent a smaller portion of our revenue, we anticipate that our international operations will continue to expand. We face regulatory, operational, political and economic risks and uncertainties with respect to our international operations as outlined under “Risks associated with our international operations may negatively affect our business, results of operations and financial condition” in our 2022 Annual Report on Form 10-K, which was filed with the SEC on February 24, 2023, under “Risk Factors” in Item 1A.

We are also subject to certain additional risks specific to our U.K. operations. For example, our operations in the U.K. are subject to numerous laws and regulations that may differ from those applicable to our operations in the United States and Canada, including relating to data privacy, health and safety, and environmental protection. Future laws and regulations or changes in existing laws and regulations, or interpretations thereof, in the U.K. could further impact our operations. For example, the U.K. government has proposed a ban on the sale of gasoline engines in new cars and new vans that would take effect as early as 2030 and a ban on the sale of gasoline hybrid engines in new cars and new vans as early as 2035. Such laws and proposed regulations would pose increasingly complex and costly compliance challenges or could also adversely affect demand for certain vehicles or the products we currently sell.

Further, changes by manufacturers to their distribution models may impact our operations in the U.K. Certain manufacturers are moving to an agency model in other countries, whereby the consumer places an order directly with the manufacturer and names a preferred delivery dealer. The agency model is being used by Mercedes-Benz in the U.K. and other European regions. Under an agency model, our dealerships receive a fee for facilitating the sale by the manufacturer of a new vehicle but do not hold the vehicle in inventory. The agency model will reduce reported revenues (as only the fee we receive, and not the price of the vehicle, will be reported as revenue), reduce SG&A expenses, and reduce floor plan interest expense, although the other impacts to our results of operations remain uncertain. If the agency model or another new model is implemented in the U.K. or other countries or regions in which we operate for the sale of electric or other vehicles, it could negatively affect our revenues, results of operations and financial condition.

The majority of our dealerships in the U.K. operate under franchise agreements with vehicle manufacturers, however, unlike in the United States, the U.K. generally does not have automotive dealership franchise laws and, as a result, our U.K. dealerships operate without these types of specific protections that exist in the United States. In addition, our U.K. dealerships are also subject to U.K. antitrust regulations prohibiting certain restrictions on the sale of new vehicles and spare parts and on the provision of repairs and maintenance. For instance, authorized dealers are generally able to, subject to manufacturer facility requirements, relocate or add additional facilities throughout the European Union, offer multiple brands in the same facility, allow the operation of service facilities independent of new car sales facilities and ease restrictions on cross supplies (including on transfers of dealerships) between existing authorized dealers within the European Union. However, under the EU Motor Vehicle Block Exemption Regulation, which was retained in U.K. law following U.K.’s exit from the European Union on January 31, 2020, certain restrictions on dealerships are permissible in franchise agreements provided certain conditions are met. In October 2022, the Competition and Markets Authority of the U.K. published recommendations to introduce an updated U.K. equivalent broadly similar to the EU Motor Vehicle Block Exemption Regulations, however, changes to these protections or rules could negatively affect our revenues, results of operations and financial condition.

4033

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We repurchased the following shares of our common stock during the first quarter of ~~2022:~~2023:

For the full calendar month of
Total number of shares purchased2
Average price paid per share
Total number of shares purchased as part of publicly announced plans1
Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands)1
January 211,659 $ 287.39 154,923 $ 678,776
February 333 304.45 322 678,678
March 63,032 303.78 63,000 659,540
Total 275,024 $ 291.17 218,245 $ 659,540


For the full calendar month of	Total number of shares purchased2	Average price paid per share		Total number of shares purchased as part of publicly announced plans1	Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands)1
January	70,350	$	204.72	—	$	501,368
February	—	—		—	501,368
March	45	255.18		—	501,368
Total	70,395	204.75		—	501,368

1The current share repurchase plan has no expiration date.

2Of the shares repurchased in the first quarter of ~~2022, 56,779~~2023, all were related to tax withholding upon the vesting of RSUs.

Item 6. Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index.


~~3.1~~			~~Restated Articles of Incorporation of Lithia Motors, Inc. (incorporated by reference to exhibit 3.1 to the Company’s Form 10-Q filed July 28, 2021).~~
~~3.2~~			~~Second Amended and Restated Bylaws of Lithia Motors, Inc. (incorporated by reference to exhibit 3.2 to the Company’s Form 8-K filed April 25, 2019).~~
~~10.1~~			Amendment No. 1 to Credit Agreement, dated February 8, 2022, among Lithia Motors, Inc., the subsidiaries of Lithia Motors Inc. party thereto from time to time, the lenders party thereto from time to time, and Wells Fargo Bank, National Association.
~~31.1~~			~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.~~
~~31.2~~			~~Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.~~
~~32.1~~			~~Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.~~
~~32.2~~			~~Certification of Principal Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.~~
~~101.INS~~			~~Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.~~
~~101.SCH~~			~~Inline XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~			~~Inline XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~			~~Inline XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~			~~Inline XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~			~~Inline XBRL Taxonomy Extension Presentation Linkbase Document.~~
~~104~~			~~Cover page formatted as Inline XBRL and contained in Exhibit 101.~~

Incorporated by Reference

Filed or Furnished Herewith

Exhibit Number

Exhibit Description

Form

File Number

Exhibit

Filing Date

3.1

Restated Articles of Incorporation of Lithia Motors, Inc.

10-Q

001-14733

3.1

07/28/21

3.2

Second Amended and Restated Bylaws of Lithia Motors, Inc.

8-K

001-14733

3.2

04/25/19

10.1

Fourth Amendment to Fourth Amended and Restated Loan Agreement, dated February 9, 2023, among Lithia Motors, Inc., the subsidiaries of Lithia Motors, Inc. listed on the signature pages of the agreement or that thereafter become borrowers thereunder, the lenders party thereto from time to time, and U.S. Bank National Association.*

8-K

001-14733

10.1

02/15/23

10.2

Form of Restricted Stock Unit Agreement (Time-Vesting) for awards beginning in 2023 (for Directors)

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

32.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

101

Inline XBRL Document Set for the consolidated financial statements and accompanying notes to consolidated financial statements

104

Cover page formatted as Inline XBRL and contained in Exhibit 101.

*Certain confidential and immaterial terms redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

4234

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: April 28, ~~2022~~2023	LITHIA MOTORS, INC.
	Registrant

	By:	/s/ Tina Miller
		Tina Miller
		Chief Financial Officer, Senior Vice President, and Principal Accounting Officer

4335


	Repurchases Occurring in 2022			Cumulative Repurchases as of March 31, 2022
	Shares	Average Price		Shares	Average Price
Share Repurchase Authorization	218,245	$	289.66	4,694,176	$	125.79


Fair Value at December 31, 2021	Level 1		Level 2		Level 3
Measured on a recurring basis:
Investments	$	40.4	$	0.5	$	—