Lithia Motors (LAD) 25 Oct 172017 Q3 Earnings call transcript

Company Profile

Participants

Bryan DeBoer	President & CEO
John North	SVP & CFO
Christopher Holzshu	EVP & Chief Human Resources Officer
Steve Dyer	Craig-Hallum
Rick Nelson	Stephens
James Albertine	Consumer Edge Research
Bret Jordan	Jefferies
John Murphy	Bank of America
Brett Hoselton	KeyBanc
Armintas Sinkevicius	Morgan Stanley
Chris Bottiglieri	Wolfe Research
David Whiston	Morningstar
Andrew Fung	Berenberg Capital Markets

Call transcript

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Operator

Good morning, and welcome to the Lithia Motors Third Quarter 2017 Conference Call. Management may make statements about future events, including financial projections and expectations about the company's products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that can cause actual results to differ materially from the statements made. The company discloses material risks and uncertainties in its filings with the Securities and Exchange Commission. The company urges you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. to the forward-looking date duty made which no of as of undertakes update statements, any are Management this release. discuss also may non-GAAP measures. Management financial for GAAP Please reconciliation to the of earnings refer text of measures. release comparable the a Management for call open questions. prepared will remarks provide then the and now Bryan introduce will President and I CEO. DeBoer, Mr. begin. DeBoer, you may

Bryan DeBoer

joining Good for us morning and thank today. you

of CFO. We Vice total $X.XX of third North, Senior John over the with are me and marks adjusted $XX which call share billion. record and of XX% reported Chris President per President; adjusted Earlier and our On quarter quarter anticipate we earnings X% revenue earnings Holzshu, grew our Executive consecutive and today, Vice XXXX XXth revenue performance.

Our mission is growth by simple; powered people.

our making empowered been For the success last has decisions to several entrepreneurs our customers. of high-performing, years, closest hallmark the

identify on units. impact SAAR F&I sales XX.X to an were operational had X%, vehicle for XX.X perspective And and up continue X%. We X%, fuel rates were We profitable of grew vehicle million X%. top storm used annually. operational XX as return. cycle measurement and our identify, at tasks on Adjusted virtuous further inspire powder deploy on total retail Acquisition compelling would assets the we and unlocked to drive formula sales effects, to best-in-class line and up bottom the of new leaders million target substantial basis, to our providing as engine, new we develop, a end little units parts to expected our a growth. an was to over increased same-store buy service, double-digit serve Utilizing continue earnings X%, us, integrate underperforming dry attractive growth. SAAR capital The lower us in we vehicle million increased This will quarterly From exclude well have sales and growth sales body of acquisitions. been systems, quarter. which improvement the

stores well to market and the margin held responded gross revenue. Our while growing

top-line Chris these although value moment. for core the period in store the quarter, our X%, are used plentiful. just performance last opportunities from be units control discussing with up XX sold in month, XX remain increased certified per expense comparable We vehicles We same-store pleased per units and in units units year. more a increased X% X%. In detail auto will decreased

seasoned We that are of more goal towards progress making incremental effect do. stores store, our used XX our offsetting sell used acquisitions per the of fewer than units vehicles than

in up We our continue day flat service, see which compared sales approximately by parts growth last X%. one and revenue body, which was service warranty business year, to and to reduced X% fewer despite

unlock emphasize sales, more continue increasing and share a the marketing, with expenses, We XX% to traffic on the promoting through to customers. Web now of visibility offerings the retaining like delivery experiences, our engaging easy-to-use devices. some while controlling innovating earnings I'd the were At total time, same market to parts Our vehicle and capturing connect personalized through new was greater results. few stores information vehicle in convenient take mobile and efficient the share, our unit our impacting ways. visits with continue omni-channel and customers minutes used of is and digital, targeted our online. more we and service of up focus of to our is Two-thirds technology ways and via spend marketing websites. connecting quarter of In nature our intuitive retail consumers XX%,

their hours, online customers productivity. This convenient, homes. vehicles three the initiatives consumers of Our four our facilitates to salesperson and sales reached delivery digitally more to is and boost saves directly

vehicle to respond changes and Pittsburgh, in also of dealership consumer we of of of our electric charging stay the acquired This participating stations. stores Los We're our to have metropolitan areas maintain automation. and maintenance majority preferences York, hybrid service in can evolving sustainability, New technology and involving behavioral charging strategically Angeles consumer and driven The and us by allows affordability, network. usage. platforms ahead vehicles We where with

of West our allows engage and us the to revenues Auto This us of efficiently Los along Group last we vehicles Since Additionally, serve annual learn the footprint spoke, early-adopting the we Mexico. infrastructure behaviors. from Canada Angeles allows $X the customers their needs I-X Corridor completed from estimated Coast with to of to acquisition Downtown with billion.

transaction raised far with dollars and LA utilized billion The issuance in our just term. near in acquired of revenue. XXXX, the $X.X $XXX remainder we half in deploying in debt anticipate over under Downtown the million the So we've proceeds in July,

forward, Looking a $X.XX establishing XXXX are earnings per share. of we target

We or to years seven bottom the top and are accomplished double-digit for so. growth we committed have annual the last line

in at stable as to more these continue related multiples. organic base, creative available attractive we a gives I'd our environment, stores, flattens, will in market. purchased can acquisitions We operational drive If a unlock view in the existing in incremental us growth confidence both turn the amount bottom line and become We to EBITDA in robust summary, liquidity upside unseasoned to In a growth like call most and This see our earnings history that, sector-leading acquisitions our massive acquisition augmented drivers. With a the forward prevalent. John. and with with low significant over that store performance. improvement environment, through coupled top leverage, of we

John North

Thanks provide Bryan. I'd more on the detail in the to results quarter. like

quarter, basis. Our new point this numbers vehicle increased from revenue on same-store forward the be will a X%. In

year. national Our the unit from decreased X% which than flat, prior better results were sales

prices. was XXXX, selling Gross selling in to Retail was XXXX. compared to profit third increased new sales price of retail increased which vehicle quarter quarter X% greater compared vehicle $X,XXX unit due of for $X,XXX used the X% X% a Our X%. in of to third average decrease X% to revenues increase and of

per of $XX. to increase an last and ratio to was used unit profit $X,XXX new $X,XXX Our year, X. compared Gross X.XX was

F&I quarter, on financing compared $X,XXX and vehicle oil $X,XXX XX%, or sold service a Other a sold to on a decrease was XX% arranged $XX. last year we sold of Our contract in product lifetime on vehicles we per XX%. the

decreased for points blended penetration basis decreased to basis decrease for of oil gross basis profit for and financing, unit overall third per XX $X,XXX contracts XXX year, XX contract. increased points Our $XX the last lifetime unit. points service was $X,XXX rate the quarter, a per compared to In

and and parts our increased increased X%, pay shops body the over X% body of XXXX, wholesale third increased X% service, parts Our was increased flat, work quarter customer revenue warranty X%.

same XX to due from XX.X%, year the an primarily basis points period of last Our total gross was margin mix. increase

in year all XX, a vehicle XX days. quarter, At Used cash X of as we to liquidity days to well XX, real billion. $XXX unfinanced were could day XX compliance of an September million of at covenants. supply as that inventories we XX, of estimated credit, our over $XXX of for estate As $X.X September new total XXXX, consolidated had of million day approximately from were were and a increase of days available an At vehicle of inventories in the ago. third debt in end provide another a the XX, at an X supply increase

million EBITDA EBITDA defined were leveraged for of quarter million Our used XXXX. as the third $XX quarter. and adjusted interest leveraged the was $XXX expenditures, Capital capital We XXXX. of floorplan $XX expenditures for predict in less EBITDA, nearly million

$XXX flow, Our in expenditures flow free the XXXX. capital presentation, for quarter We investor after $XX predict million outlined cash cash as nearly of of our was million in XXXX. third free

and Our net debt X.X among to of our times. our to range times, sector is which remains EBITDA X within in lowest X.X targeted the

target Bryan for earnings our expect share our billion to XXXX provide third earnings. $XX approximately XX% $X.XX. in range for And next will Chris. few growth per Achieving year Adjusting share. $X.XX from XXXX As of mentioned revenues to a quarter target results, revenue now earlier, billion of for comments earnings the $XX.X and $X.XX and of per both is we our

Christopher Holzshu

structure. Thank of on We This a lines John. cultivating to powered while in opportunities foundation cost the is our focused core growth people. high-performing remain leveraging business culture by you, our generate

We that over members success. team have drive XX,XXX our

and continue that develop talent. to depth our training, of growth tools, opportunities the We accelerate

the to making who group to their proven of motivating have improve mentioned, team. interactions new Bryan we core to technology Earlier and increase stores the of remain presidents our this at dynamic productivity. on store leadership strong vice development are existing integrating to to core customer a continued and focused leaders year, success performance. use the innovating helping group stores accelerating within improve level potential. As operational we We leadership realigned investments store is This our and achieve and

X to skills have that cohort third program future or trainings In consideration develop general is XX been This inaugural Our positions. leadership to for better the to Accelerated its Program leadership is team AMP of position members Management managers. XXXX, promoted of as designed store individuals. participants welcoming attended

Additionally by have management filled number our XX%. the year-to-date, we company positions over increased within from of

As depreciation and headwinds on. to interest the increased Brian estimate in in-service adjustments, charges accelerated in corporate quarter dates more we'd associated opportunity expense. some provide life expenses flooring mentioned, modified a We like we associated in asset areas quarter had atypical $X.XX with related of reserve and with few color to and in approximately the

was XX.X%. adjusted same-store a SG&A as basis of profit percentage Third gross quarter on a

expenses and While advertising. to this in leverage is an remains industry-leading performance, opportunity better personnel

are and working to We our have of these opportunity improve aggressively identified areas performance.

We in target operating gross to continue the mid-XX% margins. and sector-leading SG&A to range

allows model acquired development. has Our and operational closest decisions highest includes newly autonomy level systems, market top The leaders, have store and the different oversight level to third by dynamics who we within expertise leaders personnel thirds. stores the influence received identified identify our Partners opportunities, our middle of our bottom further are and underlying attention empowers most members develop and us the Utilizing at newly trends third our the Group managers president, frequent store levels and which The receive manage and our challenge and to or strategy. the from Lithia dynamic vice general typically best-in-class customers. stores operating to more of installed in measurement

us and allows the quarter identified to respond system third we to measurement Our in our performance. opportunities reporting

We emphasize This entrepreneurial question. the our of our prepared teams, Operator? and values now spirit, open every like each day. a live concludes to and employees call culture high-performing innovative to core continue and we'd to remarks, who

Operator

with Please question. Dyer Steve from comes Craig-Hallum. question first proceed Our your with Instructions] [Operator

Steve Dyer

quarter. drill cent acquisition closed to trying end of in the bit then, on time the little and delta, the down mid-August Just between $X.XX I the guess, you the a

self-insurance As you you sort look period that of at is color, time? a of of in give reserves, around what sort calculation or change more that that the could little bit

John North

could was our SG&A, adjustments. $X.XX accounting in if was two the think it into is bifurcate reserve we and it two I really $X.XX About buckets. really

we've where portfolio One some values of finance needed seen our medical our and reserve one on and pickup. repossessions lower expense auction auto on

half about it. of that's So

other flooring. evenly interest The is than in two in in we depreciation expense little the half about moved LIBOR split our around expected. lines, higher expense and a other one different

Our got The D&A, our bit assumptions and driver in supply we around of a that had on and useful some to variance. flooring was the days side. that $X and so and was we some stores there, adjustments building of more than caused little anticipated, a land the we’ve about billion made lives

So $X.XX that's see more out. little want opportunities SG&A of the kind Chris, I you think maybe a And, you called broadly bit to and we there. about talk the

Christopher Holzshu

just of that. kind think going of off I

on going on to our on billion a we on in to five integrate when to know XX% opportunity going is SG&A which focus we which basis are One with driving that range when of opportunities our gross top we think running do that $X.X we our we're personnel prepared the we're that range, the that of the platform at mid-XX of cost we continue said partner is getting range, in we and advertising, continue what to to down historically in that take to basis. percentage to the of an those line store leverage then whether of three that diligent that in and that being you stores gross of our growth. seasoned the we focused Lithia and to range. on new focus down we And where XX% to the store to between the we've an all in over is gross. And stay existing differences XX% they're group and about you on to down integrations newer $X.X driving individual And kind opportunity which that, SG&A, it's can have as billion to in or range level SG&A and we XX% drive the remarks we said majority have of annualized and execute of remain continue years have an which we in the stores store, are the to continue the gross things look SG&A focused

So anomalies in in we we focus opportunities the And forward looking of the broadly ahead speaking, lots quarter, and have us. on. opportunity of but XXXX, some to we have realize some XXXX, we XXXX, in have

Steve Dyer

the anything group And overall, I softer then I F&I there? a so you're you and to because all acquired as give Could to newly looked your guess the down acquired, was dealerships. partner's then I it particularly seeing than a there into if what way just think quarter, of some the color changing dive profitable, and just sort the little anticipated could it bit in bit it's newly like

Christopher Holzshu

of same from thing got newly of It's those. our $XXX, And on each line platforms I acquired it south similar a being north of $X,XXX. I – are that, our business, mean of we that the incremental Lithia $X,XXX F&I kind $XXX well copy SG&A. anywhere stores are running F&I. And focus of to mean on in a have one you've season

sure And where deliver up now. products and so, on continue that plans compensation standards are have industry to we to drive to to customers the making to right remain right the right the and the people right the with focused we

Steve Dyer

trend-wise? on But necessarily otherwise there basis you're copy - anything per not nothing seeing shifting a

Christopher Holzshu

No, nothing all. at

Steve Dyer

that's as inventory, it touch maybe In to anticipated. holiday side, But it it do than and a sales, you're like just used tick there? relates about say to I'm guessing the comfortable how it you or going that guys for at, sounds year-end? like, then looking opportunity that for. you what think on going me, continues was color particularly level that's you for it – Lastly into Any forward higher up. you'll a is

John North

question. great a it's really, think, I

Let’s talk about the use specifically.

point You we're do. are important to we lower to think new significantly it’s use typically than that stores buying out, volume doing

as mentioned doing a the X.X So we're X company, I prepared as remarks. in to

many X.X X. in cases, to than less doing acquisitions, Our

ramp inventory hasn't on and used And the caught cost sales yet. side up so, as you the up that to

We investments. trying we’re see can dry days supply. that you really tickup the with those think incremental You comfortable in When level overall, the aging at are we’re look a the That’s is. unlock. powder where to

we they at choose we side, and a at pretty little a supply, occasionally new Again, up. think basis pretty stock the at and our On through more around stores to can XX I We're any give a autonomy, quickly. anomalies it's days’ work comfortable store-by-store level.

say a So, that's concern. I that wouldn't

I our are conservative area modeling going But around think do wasn't it an to maybe quickly. was stores pretty enough get it – we'll our where what returns our operationally. just

Operator

next question. Our comes question your with Nelson from Please proceed Rick Stephens. with

Rick Nelson

will and onetime and depreciation. an what be $X.XX that transitory you nature and reserve is do you think called or the out floorplan expense? adjustment Curious, in for the what ongoing

John North

business. to to the hard when every transitory. been something levels going when not up come. they're have are but in they're prospectively. adjustments see assumed Obviously, up, the The necessarily guidance or be quarter. increase update already to depreciation we made. pick inventory predict reserve are our to mean, core that in we to in we they That's the provided going them in It's But have is adjustments crop I they

that today. So, calculus of come we've to where we all with kind balanced are up

Rick Nelson

acquired And hit you based what guidance estimates, acquisitions is to-date? those for on next what's the Do need or year? it you've to

John North

when in I we and how it I seeing can color, then outlook. he talk our maybe think Bryan think but evolution you're has done, we're Maybe an I about add in, if jump can some

is see, as I stable. think the you market pretty

without acquisitions, that is there's in expectation power company. Our double-digit any earnings our

market. So out get the we what and large are lay opportunity. in broader idea there are catalyzed acquisitions we is what how of terms the Conversely, in quickly to by part the can happens in going

on sidelines year, even to more. this is as to conversely, that's down, going if or the And is bit And plateauing if acquisitions SAAR a going so acquisitions. strong, maybe seen the the we've keep increase slowing it's SAAR maybe

the the we're And is flat, we're I think is attack the think the we're business. things trying to out of to think trying end we're managing dry explain of trying environment. with us to lay deliver think we so can for powder that's instead every what and achieve I how the we're line that. bottom double-digit we're runway company And XXXX the managing to as and acquisitions, top I how update beyond. you but current of laying are do And growth I kind is out running, GDP vision Clearly, which where trying quarter to long as in

Rick Nelson

just and you continue expectations final to how Group, Auto question coming and $X.XX accretion is in a expect And there. on that your L.A. to do relative the

Bryan DeBoer

much like customers is able and Downtown little a get on bit to poised of and L.A. a and really people about our They're care believe L.A. DCH out savvy feet market. L.A. attack like underneath with our about her really team. came the Eli they with market. to through culture started which that We're teams. target. be pleased they're But it difficult care downtown XX-day much tech very Lithia September your you. month be we They to can that really always Motors

vertically deter base body which to entry going because market barriers and isn’t. of as means going to downtown I additional not the know, location real that L.A. the that into going to all And we things able marketplace that estate. we're grow think be and competition some that in growing of forever meaning we the pre-key not critical have to on estate is the other is – that, customer cost our real that of is downtown probably come were are L.A. the

where So and to at pretty pleased that, we're and growth should platform. and acquisition be that from develop able base like on expand we're another

Operator

from question James with Edge Our with proceed Research. Consumer Please Albertine next question. comes your

James Albertine

down as with what the vehicles you business? Wanted drivers the slightly Can to Thanks. - could. as on customer little than see historical marry you you ask bit business a to I little about get retain talk opportunities bit the comp your and can of And are drill more that your of outlook older if service, well, maybe to X.X% that And pay sort growth? then parts to average? if perhaps body in particularly a that

Bryan DeBoer

we we when through continuation convenience - that business? and consumers. offerings to and process service anytime And cost at body of approach our think We it a do we how I service, as retain do cycle. parts of the we that larger portion business, the our look buying effective

I of branded retain become and and end bit past parts can place vehicle about move closer get because that periods when only have we've our on non-OEM we're part as we to the in little them. OEM warranty So But restricted, the customer. parts life budgets and attract spoke to think the of be a to we the focus able the we to we more then becomes own

We maintained. Web a dealership the in also homes draw cars back spend fully the fair their amount keep into on of them time customers’ to to

they they we make can experience a batteries So can work. they one-shop-stop do their it wipers maintenance warranty call tires they can do and where and their new and do shopping can and do

loaner in we cars stores many of interim. We our pick take we home the in go in which delivery cars up also means and do

So convenient. X%, work. pay a think I mostly driven it's and when and by sales same-store customer that's parts, growth in we body service rate look And very at X%

warranty Our mentioned. as flat, John was rate

that more better through this a experience. and shopping it's experience well-rounded So one-stop it's a coming idea service

partners the it keep in the X% get retention of is minus seasoned okay? and average we are Now, bit XX%; buy, of upwards Jamie, for a last mind, based of the where we after And typically this little on is of retention to service consumer spoke years other we to stores look stores that Lithia the and XX%. their years, at SG&A, Chris on base to a couple the they're experience, if our thing of about XX about

why dry to make still able able to grow be think attack are good I moves elixir in same-store so acquisitions able the year first pretty be sales critical we're in powder some and two to of that's So that growth. and to the future same-store to or be sales,

James Albertine

doing up your spending Can Understood, on advertising particularly to made related and think the and parts help I business should on you of it break – or the Chris advertising in some outlook and some I new Thanks. to the different body, side on of extraordinarily we to relates and investments, advertising service, within helpful. that side. service, your body, parts Is you're comments on and fueling vehicle on If incremental the side? down terms may that of the relative SG&A, it as things material sort us sort follow of think advertising used buckets the advertising? about how

Bryan DeBoer

marketing, you This X% is prepared sales, to typically down service, is other means our broken Bryan. targeting and at It And comments decision. when Web body, The point mail I that be I When of it’s mean, moving certain we direct about part. consumers advertising we to processes manufacturers. our okay? it's mentioned scheduling of means of service marketing, the a body, with targeted in when about advertising part, vehicle vehicle two-thirds we And SEO, is the convenience-type about at of sites, making side percent the service, to budget and SEM, able be look the e-mail. in on and can typically XX-plus keep which which spend and parts. think they’re is XX%

five to between versus a Web was is ago, other If XX/XX, of one-third lot split look development. and traditional production about back traditional. as we budget The years that well things, split three as

stores many are their moving budget digital. a and more of So spending XX%, of it is XX% of upwards to on world, of digital our

Operator

Bret Jordan question next Jefferies. your comes question. from Please Our with proceed with

Bret Jordan

asset acquisition of transaction quicker more? tied could recently writing bit expenses, little down to you unusual you On lives the buildings. particular useful there or that that or the a mentioned because Is any anything of explain on you're sort

Bryan DeBoer

It's assumptions. really And good a your Bret, leasehold you you around you just improvement and make. a intent, periodically make be would evaluate intent and example

If renewal. you going longer lease renewal then maybe relocate, reason you're are for to and the keep to particular you're going no expecting a a lease

to need accelerate You'll depreciation.

the So can off on if related mean in it's want We don't it. into go weeds want, line with I I that. you to like get but primarily things

Bret Jordan

question a follow-up a on XXXX then And guide. the on earlier,

think the I you've get out that earnings business. could you digit core double said growth of

guiding you're into implies to think you year? I so next that XX, that So, do not built have acquisitions

John North

think I a I trying what want really And is a terms mean in environment. to relatively that's dynamic I delivering the for the to in outlook but is build of achieving company communicate idea we're stable quarter, manage growth team. we the the to economic trying we're want a communicate we're here what management we to as think question

moderating dealers to a operationally, frankly, function seeing If going there the when and bigger acquisitions number. how of we're so, And If be the part performing. they smaller also good are in is mean that are a the And be I it's going then SAR part profitability is a come progress healthy of making to it. and would SAR is they're scenario private a of and be decline, acquisitions both.

our we've in or And we're deliver been if delivering different think and last I I the couple our XX% can years, you at but we to there? the XX% that. growth top there's So look how mean, trends average. line three we And confident two delivering continue XX%-plus to EPS growth back path on years to a $X.XX frankly, and get come. a do hopefully is intention better historical

Bret Jordan

Great. And then…

Bryan DeBoer

to milestone do And combination targeting difficult I a would about is I obviously used And when there's think thinks ago, those Ultimately, think number years about can is we be growth can at able that and it think work times. can we like the not it and management a would then accomplish One I team this DCH waves can so that to accelerate of our XXX think off more it to I about a there, larger a pull two different of than acquisitions the we transformative-type we come milestone and And when levers include when things. to additional it or our think in powder be of of comment, target can it but a be difficulty, even think or dry development, or acquisition our possibly on. that. target a that. targets

Bret Jordan

one on John, last or repo not are what's you is some seeing just more that those value question. in coming side? mix, auction then mentioned And getting lower you of out and some cars the vehicles, passenger that and values seeing changing

John North

I mean auction kind kind post really of has up specific. it's of back case value picked a And obviously, Harvey.

the repossessions be anticipate fluid years So be at a to next market. to going be, proceeds at it's the what a portfolio delinquencies going to trying pretty looking what and and over are are We're four what our auction. are to going

we best can. the using We’re information

But mix there's been of of dynamics significant the there that also we’re analytics, of layers peel and pretty the well of sharing really back. recently. it’s the shifts the hard you're it's so aware underwriting function market to think I So that kind and also a some without onion

So, front, pretty on think it's stay that tuned manageable. but we

Operator

proceed comes John from question next America. Murphy Bank with Our question. with of Please your

John Murphy

less you'll just But if acquisitions; your if on better, baseline. recognizing what First question sales, next variable. the But, at is maybe as could just of tougher, and curious a curious on process do thought outlook more know year. you'll XXXX kind and do sort you're it's to look it targets, I alluded the it's you XXXX for acquisitions. mean, just as I'm of what I there And market thinking you size be U.S.

Bryan DeBoer

broad XX.X in the in target pretty three we've that's of within think SAAR a set million range. I –XX.X now SAAR. to floating We're years of that stability million

capture pretty it a storm ability and range, broad gave the any. more that our every individual we was the about single didn't that think ultimately affect differently. but powder. responds It's to execution us range think that that I it's around within dry I color – And market

an the from additional come XXX,XXX that So, month I any units mean, we to didn't so. or over pop may get next in XXX,XXX

John Murphy

in in automakers how of if in then a little business, market? decide, and SAAR, consider might the have are mean, to and aggressive or what a would bit price I they And that incentives response more or impact you do but doing any whatever actions increase incremental this, take seeing we any incentives run slowing you the on they're way the

Bryan DeBoer

November incentives pretty for of and John, year. really typically, good this in luxuries time, It's and typical close the run a have look time out December.

DTLA the some adding we and So have highline obviously that quarter, going large, tailwind stores. at fourth into

we're a good forward them. looking close to So, by

just our supply when more anything that really there from think think us bumps about I some demand, management incentives, it it looks a of helps our incentives I help out keeps are than out manufacturers as peaks retailer, to that and I valleys. way. team And way, think and at stores at balance us to and we hitting take the and and look it think

John Murphy

efforts. Then just and your used a in-store just I opportunity. three there efforts mean, second question your like on things, seemed the there's mean, online I

there's a better over acquired the next Second, to getting years. lease coming of then to new three maybe sort sort at off of snuff of and your are tsunami time. you two where over stores of to And vehicles even probably up X.X:X really

it how in over is factors for of opportunity, it, As think as really do big few this advantage you at you these attack and next to of it the how an roll couple you're opportunity take look kind years? you going and

Bryan DeBoer

that do certified I sales, you years the job about volume, because certified little drive have two our car to we to three is of bit what a like that it's line keep about this okay? down a and trades. in need ultimately think going environment, think of that actually used three those which the quarter mind was is better full, And quarter, Because okay? is I just we're SAAR - we stable mentioned, to a years supply generates because if

coming XX depressed. to stores. includes sells is Our to get store somewhat and vehicles to XX we is eight-year-old opportunity used And our we that's up buy some those okay? buy, in three- think Keep that that that vehicle, per units We and XX, store. the I sell buy level mind when going we of per next take really still which store underperformance, stores, in what's to us that typical okay?

to over happen think contrast that it a to that's we when product believe want we’re whether is that's different with growth joining achievable difference environment at the well early retailers or the of buying used vehicle that And that of specifically to value compare customers auto chain. be comes Motors into retailers and those Lithium growth that in growth to Motors make able That's vehicle food new that that I is number as to that used capture from businesses. we go start to the top XX and older. So going as cycle. market static and I and Lithium built-in And core the mean years you sure and deep eight which their

and disposable eventually, their cars can stabilize cars incomes. their or begin lives certified buy So they new to they as

John Murphy

inventory. even direction? there automakers I has back know expense higher maybe to floor plan guys the as lastly, assistance. in you LIBOR are slightly out interest plan any been plan doing on just But up is or going on pull changes help any in highlighted the it to floor just anything And and inside then, just floor

John North

I think every refreshed model that's year.

And model-specific, by So adjusted. model then it's it's if by make. year,

because It's the as and increase of the leaders of like into the from vehicles inventory out, pricing that we'll come up. have our that's what think units they better And see are assistance so, most helpful operational the you XXXX cost price insight certainly look for kind next to going our if OEM, raises flooring I of year.

we rates to We flooring positive were is net the what expense see on than on acquisitions to pay these a cost that even assistance baked gone what a provide tailwind. as even cheaper And dealer our that in, group still credit of typical facility private is would funds some given our should platform relative it of dealers. significantly our extent So interest have gets up.

it's and So, I we'll pretty looks healthy what think XXXX see like.

Operator

question. question with comes KeyBanc. Brett proceed next from Hoselton Our your Please with

Brett Hoselton

I SG&A. dive kind you could was into hoping Chris, of

You're at XX.X%.

of of to might mid-XX% What Is XX-year? You Do are kind a that able about of any that be range? talked expectations a have to you the when or or five-year formal as kind thoughts achieve your targeting range. mid-XX% one-year you a sort there?

Christopher Holzshu

I in store store, right it the But I diagnose the each store leaders our working order has thirds unique. where I look that is depends may which local targets. priority, and then what's then the a potential generating of our those on it a cost opportunity talked all on a the then opportunity kind mean, longer at basis, think bit is just the about. depends. regular depends fine-tune to store in hit at maybe time. I move a that’s to growth happening of they're on those structure. XXX store it in one again, But, locations little mean, its to and all more mean, reached we platform at growth, that's We top individual take on results on first line

diving it’s years. an So, X-year you outlook of that and going we’re that we’re I I confident and or can to quickly. diligently are every whether But have XX don’t into X-year execute day each tell or

John North

and able probably new growth of process level, move doesn't you're dry it, in, which and level retailers used my XX, this little bit I from don't to anything. that built in-service that store And XX and ability that $X.XX XX SG&A that in XX cut most we When for as improvement, that X% them there's retention that comes It through F&I at understands And that's share or I'm big develop the comes Chris’ people going A from have buy our we units Lithia minus you're But XX% improvements of to It makes relying a we okay, minus when that of other is moving I factor linearly. it to to be comes mission the cost if we okay? units. that on buy and to there's XX% $XX.XX people gets to get color to be comes join fair, a from industries vehicle when it about. more it's new line what seasoned from team that and a platforms plus partner. gross to tons most performance management think buy manage powered to talking expense reductions, a when from market that really a that SG&A, to new by think on they top of about saying. a of other or matter, vehicle Chris unique powder operations we are us, is the of moves are the gain car it's be levers It like driven profit to you trends The about five to – underperformance, level. has hard remember, at a that SG&A monitor call and and or think lot It people, margin. level are move over a what the I a years And John's slowest very meaning doggedly would is and need able plus to business. which, extract be improvement the pulled always six to because or, from you used a different I at stores that because build to okay? and we even a XX, and or and so X an XX% buy ways And that that growing other think budget, very eventually is have by about comes rates, so we units choose we that. adds

Brett Hoselton

on sure calculation, the the day, idea would – selling and mentioned you've were John, sales you you to look you were that you're service selling purchase for have of I'm an once, up number what if do like? X% side, day at this same-store you to look of And, kind adjust that done

John North

the and mean, of there's service days typically X% XX is – rule month quarter. so it’s I thumb in about a a

Brett Hoselton

Got it.

John North

XX it’s days. So

X%. a lose you If day, it’s about

John North

X%. From X% to

Operator

next Adam question Please question. with from comes Our with proceed your Stanley. Jonas Morgan

Armintas Sinkevicius

– not But by in the the I potential is Armintas markets market? that that I were hoping to the Adam. is storms. M&A This impact affected having you're for any was know

Bryan DeBoer

to We haven't seen the market. impact any M&A

the in I this we that in $X.X Houston is I it don't the think done revenue a a those hopper. we've year look any be the but of really and dealers able M&A billion great of what that in and is by was storm to believe you few market far is see had terms other any pricing we part. surrounding some seems M&A. like lot It there subsided to thus think at have the When markets, opportunity effect for into things do market robust large in have still pull specific in extremely growth. there some, markets, of inventory on The a replace

Armintas Sinkevicius

remind looking be track assets And us But them you acquisition up. fix here can underperforming acquisitions? looking should you criteria? you your I to know we what what and for get and for the are

John North

comes at out EBITDA stores with XX% to investor. us That at to of on which to investment. a return tax. all-in XX% to typically We our number XX% around So know, for future stores X after annual ultimately as choose combine about we're us purchase times returns X revenue investment value XX% or to you a

Armintas Sinkevicius

sales SAAR And mentioned the excluding then XX.X been you last would the million. have to today? million consumer one, XX.X that of storm just you I health talk about of the just Can know below impact,

John North

Sure.

XXX,XXX July If August you as you gets to to about had which million think from XX.X And an million. that, And was units X.X about XX.X-ish if back low-XX calculated and – had roughly XX.X were market about obviously that went the into then million which we market believe there Christi that's quarter, that came million I we Houston or units a about Corpus the nation. range. you annualize the

XX.X with You SAAR in put million a range the more our XX.X of million, to X of we or that XX.X a that end and up the lower million – towards as number. million at end XX together natural

well being towards we of Now, of there to stable August to nice bit but XX.X% drought the again, that’s as marketplace. strong a how little have adjusted that probably we a that was may for look But got that at expectation. XX.X% end as

Operator

question. with Chris your Research. with proceed Wolfe comes question next Please Bottiglieri from The

Chris Bottiglieri

$XX question. strategic this Cascades portfolio? quarter million like $XX provision, – a for this referenced business of guess Was was the of you more have with I I million, last

John North

That’s portfolio. sub-prime right. million $XX loan running it since XXXX. to been $XX It’s million the We've

Chris Bottiglieri

small. the road? just still Are of As pretty long view to you the you Is need of do your XXXX? sale? Do you’re want to overall used Just kind incremental why you with vision what’s a something to here it this? down pick But there. end Okay. time, up this? with it? trying get Like, want exploring That’s do

John North

auto strategic out that from lay think we're ancillary you is, can we're obviously of I and it in We a category. looking a might wonderfully portfolio opportunities those part size as respected with mean, of perspective, business. we I the think in our that We're experimenting see deck. time investor subprime for over it I see develop, a in has And a great some at there's loan really studying peer always that's it. with and comfortable clearly and CarMax great the

can our forward, management of them. component augment to to change do a is gradual group. if that. out to Now, is drive it balanced we're going and a and buy But go doesn't from to which consistent what this very to we're going expect to be done profitability, that with business pace mean stores that a think and it's come as going time going you integrate But I at look over and us to underperforming strategy we

Chris Bottiglieri

used And to a bit dig on wanted little I further. then

is us like car tell and more on underlying was what I quarters. unit volume imagine first sense time can mix your trend. looks core helped seeing to your kind you mix there I used the for maybe decelerating, of the it less So CPO volumes a wanted like, the view less GPU positive you're get would value and with, for in of there. seven probably

Bryan DeBoer

up X% in in Revenues I up were that reason auto our to and margin is units. right. X% total, well, because vehicles there margin was which were up as X%. was up the make good mean X%. and XX,XXX those were Value on growth X% absolutely in typically Core, the revenue mix. we of XX,XXX, units You're Relative we X%. the was

is flat So I of margin think saw I continue think should and that you growth that's the because of certified a now why primary driver supply. likely

typically continue though that's we core quickly what find still actual X% take to about really not tweaks value X%, you many DCH on drives and much new we which stores cars. auto XX% profit your that XX% about that’s that We make the still hold certified, it. should we value like that of our see We find, in starts as opportunity growing quite to if assessed. biggest margin, had And there. So so think our core on mix about gross on like make is you

Chris Bottiglieri

on follow-up then is you a keep CPO question of - referencing that supply flat. question just And of the kind

want at looking lease is more like than it certified Maybe just to there's more when the there that writing just numbers, flat? Is or directionally. obviously the going So this of lease become kind cars be that trade-ins rental like it just more OEM or guess? was demand-driven, I supply comment off to and has and off they what level CPO the certify saturating that’s been is on

Bryan DeBoer

us doesn't hit once, with all I it static. mean, of those. I mean, of three I and of think now a I it’s combination really believe pretty obviously at all years it’s supply,

extent, happens always the So there, every is to it month. and fallacy, single off-lease some of vehicles

prices But we affect a used So It attack. on it's not can a have remember, our like that is if this is supply bit. month-and-a-half cars. some heart it little

not it's a really to relative retailer. So

to when of think cars. is they're off-lease we means as our make cars, can about our plentiful, now, used certified most pretty spend of when to used retailer which idea and think the Well, mining okay, do are on they we money. which of we what a we value easy I is core product of mine going and us supply, are just time is which find, So another where vehicles product and avenue all

it's ago. think three no three a I supply transition years having buckets in to all healthy So

Operator

Morningstar. proceed with your Our next Please from with David question question. is Whiston

David Whiston

are just you I'm or for, a things say, that examples say, you the makes to you're away. what underperformance. to walk we deciding talk specific can group, yes, wanted – of idea a things should that you what we to whether Can some go I buying you looking versus is fix not when buy that back make bit see about something

Bryan DeBoer

David, we fun get have here. to

as country meetings have week, for. we the that our combine of manufacturer which with or are at the organization That underperforming. information, as we will what with little acquisition well of state. actually people we by we okay? stores. So market get undervalued, So, everyone that different indication our find market a parts. at look us what success that do registrations typically okay? we to the store is we used We and things, that driver, brokers into in in Once dealer, as and what our indications us in look it's gives We the every understands entire active dealer share target those right, of primary share vehicle or once bit We to that then research, play, and And our a give go look relative other in deeper actually couple dive very then specifically efforts retention the does service run it's okay?

that in we the are together vehicle into able how or sales. the for we're us. following that factors me? first And who look can that not people quickly we in growth Then to is and extrapolate that at those not I parts service powder that the things or to whether get look much be able Are is quickly event to real people immediately? estate. who store units the be do rent own combine to would mitigation also a then new those So, store, to things what are dry for market, and people have relative it’s we operation thing developed you plans are all our And in at able in capture

done decision get of because the we typically from two we most a seller. we've can before even within make leg So, days a to three work P&Ls

pre-tax sells basis. potential. that a in performing easy a of need quarter the and earnings and last, times time to we or ultimately So, stores two between five lot at about somewhere between of at is down and numbers boils market at buy looking to times on we stores four the seven it's on a forward half that see that It because spend Then, this. store pre-tax don’t process. opportunity a pretty The we

So unless any spend they’re vastly underperforming, those stores. need to we on time don’t

Now, of number, what a that miss we a you bit know are. but can give the strong assets little

have and talk underperforming are we specifically people the that’s able right the why I be a consumer base then assets still market powder. a we’ve to stores think to within ultimately the in targeted this strong dry or these So it’s we and strong that right between underperformance XXX but that to believe fundamentally with formula franchise fall so extract

David Whiston

in work the process? owners those improve doing late point – all they’re what you the to you’re looking to - sure can the be So metrics, to people that to they going that or at be willing switch stores early and with

Bryan DeBoer

we people important know formula, because know We underlying the a that’s perform. So David, it’s less asset can us. to

hitting acquisitions is the people mentioned accomplish XX-plus-percent it’s on remember right this success matter our So that over XXX targets and these of a can the ago. rate right or of and that growing finding little is XXXX I people ROE a since bit that

part comes later, So the of okay. it people

better the in inspire general there people do growth to Now, people is is our best. the is model there we’re are there believe and powered we general by know about we’re believe our service believe means whatever what and become manager and of business, We going diagnostics fundamentally manager, as thing better. today. some obviously hire challenge want person. manager, to only as remember the we and is, it which But who sales to of to whoever they that approach leaders are no they organization the to such have We that than that

the that, usually of of can because people. continuous idea we that of type out of And improvement, extract any Okay?

a greenfield-like formula call And pretty and XX-plus why hitting integration So really acquisitions because at the little high success we the that at growth is percent, than people there's those rather risk. ROE that's irrelevant. part rate is very it targets, of

Christopher Holzshu

add And high-performance with to of in culture on the the in people mean, on bridge people higher one of ideas, year, historically practices, measurements based the work with to the our have. that that an us a we clear local there side. had best year, what or five get to to where the and to XX% level stay and later. group do Just individual we stores majority is acquisition that the acquisition we culture a motivate performance are years on an share market each come we really I associates over the peer with three

David Whiston

And, you. more one for you Chris, Actually, program earlier. AMP the mentioned

Lithia curious, the versus Just approach you balance culture to decentralized stores give that do into and training how the program some autonomy? put you company's

Christopher Holzshu

that's work that's overseeing So, that's general first their coming AMP anybody either their they operational the platform. the the leader existing market, program manager at store, coming from recommendation is off, into or for a that

group their we're open what a people the in performance different doing so as are order and together have what like in see is doing them peer minds we're organization. And other markets looks what in to really to them bringing

just the when working candidate manager not We're qualified general they're them we're new so, make the sure taking that to organization. inspire at And to in becomes that away best level. local position training a open the

Operator

Our Markets. Please Andrew Capital Berenberg comes with question. next proceed your Fung from with question

Andrew Fung

SG&A that? wondering to and working are provide platforms, guys in-house opportunities could with was you And guys you digital a initiatives for do the You also of I color aspect opportunities had around leverage. capabilities additional mentioned then versus a have you from third-party some around that what come on. if lot preference regards

Bryan DeBoer

into growing or our SG&A, our think delivery into it into transitioned store, stores season, a do the okay? begin will and will things, of our different And we consumers think becomes are will much strategies a Web where think the Most when I those Meaning, consumers in a that's site, have home each go-to-market and and store think I that deeper that consumers in to about brick-and-mortar. delivery digital they’re store organization. within prevalent. a team platform have leadership digital stores type multiple-point business, about has come we deeper more as that of and individually

can I that think store, do in to blocking tackling. and the develop they you when also important ability start it's the

it’s going. young answer get that SG&A to more So when or people friendly dollars that through okay? want? typically I inviting accomplish our And and that attitude, our about come the how have stores, an we can service storerooms, phones takes does And visit

your done it can you become on lean-out and As get seasoned, dollars able meaning tackling SG&A the more you more the and fact appropriately. to utilize targeted, you're blocking rely that that

affect than how third-party XXX are decisions doing, own things developed how industry manner. terms is of the with radius, service we is the stores in online they SG&A, and in-house, vendors, of provide and X,XXX color and a need stores when in we is your every are with used ultimately call become does to takes we’re robust changing to downstream now many out, attached cars And share, But you miles software partners there, adds e-mail is anchor digital occurring in how rather our our Andrew. that they that And we that their develop, is solution automotive every that solutions make to and customers you when systems an become. as move those to site, and developed vendors they to or believe telephone or people are what market the that expand what market quickly enough easy be and would use So you about But is what have you that vendor boat proprietary and them, want per are chatting you for how But environment different. or have developing I wonderful which retail look end-all whether we time, Hopefully is which to is terms a individual I of their parts. outdated. ability? think that in that UIO whether stores it’s that and use efficient began at happens are what think effect communications touching when

Andrew Fung

or contribution noticed guess softened quarter. a that lastly, should contribution I how the about in term, I the the is new then, over of it dry third certain powder year? it longer your think profitability few recent the years, new a guess initiatives, of from is of a a acquisitions we in And see, as that is guess, unit something follow-up I unit, equal this parts kind reflection cadence the I then next a vehicle we bit Is the or larger And else? should

John North

flat sales and up storm price we've anomaly. remember, about on of or the so market, because if numbers volume. Andrew, you were it had all – X% that down they new the and given were but also X% The same-store used was

calculated it and was we that So X%. X% down between had somewhere

our and are we at same-store – fully. got were not numbers I we're that sure that, looking but we flat still general. are So I numbers I'm question in growing answered your

Bryan DeBoer

on I vehicle. think question the was

Andrew Fung

The unit profitability.

Bryan DeBoer

function was little same-store I think, X.X%, were and on minus, just was market down, plus a up Net-net, of X%, It F&I basis or and down a we the bit. down basically $XX used a was is which, mix. but

say So, structural no, there. I a shift wouldn't there's

Operator

the session. question-and-answer comments. to Bryan closing I'd call Ladies and DeBoer back to gentlemen, turn like for the of reached end we've the

Bryan DeBoer

Thank to on our you, bye. February. again forward look you We updating everyone, Bye, results joining today. us for in

Operator

conference. today's concludes This

And thank you participation. may your this we your lines You at time. disconnect for

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