LAD - Earnings call transcript Q2 2019

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Operator

Good morning and welcome to Lithia Motors second quarter 2019 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn the conference over to your host, Eric Pitt, Vice President of Investor Relations and Treasurer. Please begin.

Eric Pitt

to Motors welcome earnings quarter and call. you the second Lithia XXXX Thank Bryan CEO; and President Vice today DeBoer, Presenting are and Tina Senior President Miller, Chris Vice President CFO. and Executive Holzshu,

risks statements about the the from actual forward-looking uncertainties results could in about markets and and Today's discussions to products, disclose statements may futures including made. and and filings company's statements financial Such our growth. to materially Securities cause risks deem to the be Exchange events, We and subject Commission. and differ expectations projections are those we that include uncertainties material with

which urge you the date made this place We to forward-looking as release. We not of statements. carefully statements, to undertake no disclosures update are and reliance to on these of undue duty consider forward-looking any

results today’s comparable Our text measures. the financial include reconciliation non-GAAP to a to today refer GAAP measures. to Please references press for release of

website, updated We our an have results. also second posted on investor lithiainvestorrelations.com, quarter highlighting our presentation

With Bryan DeBoer, that, CEO. call over and to to like I President the turn would

Bryan DeBoer

today, Good Earlier for a history increase $X.XX share, thank reported the quarter you in joining at per us. adjusted company year. last morning over XX% earnings highest and second we

by driven Our earnings lines. business the revenue billion X.X growth all with for revenues were record same of quarter in sales store

our generate teams that cash our management maintaining excellence value yet and realize This also operational profitability. focusing utilizing their to As to low and a proprietary share achieve significant performance enables growth convenient combination experiences growth build excellence company, to systems while leverage. market powered increase customer by by and flows, based of strategy people have and strong potential. in innovation, and we businesses purchase operational transparent We on

them understanding Vice We and We acute Vice recently both our team George leadership to accelerate Their their continue and teams promoted our to our Innovation Hines positioned Miller Officer model to our look contributions. welcome to Senior and dynamic have Chief to and and President and impact leadership, Senior them forward of senior operational Officer. President and Technology with performance. Financial to growth continued Chief Tina

forward Our a basis. will be operational this from store results same point on

X%. the X% During gross profit revenue grew and total quarter, we

and lines up New with XX%, XX% margin of F&I vehicle approximately increasing our XX%. accounted vehicle were up gross highest parts service, revenues for our all slightly revenues XX% double used body business revenues up were revenue profit. digits XX% lines and These revenues of and growing our and

offerings, specifically auto lifecycle consumer to distinct ownership oil six From service built used operating model core from stop touch and vehicles is the to lifetime income We generate value and our and entire types. all one contracts businesses. vehicle of

service, profit used results combined New vehicle strategy models. other and and and competitive in parts. a in our This strength streams insurance body creates vehicle growth diversification revenue sales, finance and opportunity, our with unique sales, and most unlike

more generate in value. allowing flows than XXX expand and We shareholder innovation million cash adjacencies deliver free network, invest us annually, and our to in

higher margin also our Our further This reach. touch supply and infrastructure F&I and to customer’s line. our to digital used our the experience convenient network expand throughout physical network ownership to drive service an us deliver business parts solutions points enables provides

through XX% of acquiring capital of revenues. two-thirds investment physical targeted We target investing at expanding into of our a equity our network assets average anticipated strong

cash revenues million. billion XX% add leverage we not chose could if $XXX could Our annually. Combined more free approximately and $X.X and add than free $XXX XX% benefits we growth. we million revenues illustrate just to with of model, in any for flows the utilize in cash in our incremental flows, acquisitions, billion grow annual To current further add available liquidity is over $X or

this Rover $XXX Freedom Land in national Honda West and year, over New The purchased a the Mission as Jersey; so far reach Hamilton we we in in Virginia, XX%. robust, to million annual Hamilton be expanding us, market state continues Viejo, purchased our Jaguar for Ford California. have Morgantown, Township, to second revenues acquisition In in quarter, new

excited Lithia family the welcome to Jaguar and a to partners, these new and Rover. with forward new teams our we performer are Land We manufacturer to becoming look top

We optimize continue our to network. nationwide

During year. we the divested totaling XX past the quarter, two in locations, smaller

these open of part acquired As acquisition points. a as stores as reminder, all or previous group of were a originally

to States, XXX,XXX opportunity owned online United vehicles one marketplace the three million vehicles remains. auto offering still As than year, in top of than inventory annually, groups second X.X a the largest and retailing largest grow the more more servicing

than highly more is no controlling than which Combined, dealership the XX new X% market. US the top vehicle industry X% fragmented of is vehicle annually, we Our vehicle used represent addressable the single new of over market used company less with of and groups X and controlling the trillion market X.X%.

our Over acquisition XX% an achieved targets. of disciplined forward success the our historically that quarters, continuing coming we to nationwide exceeding aftertax to ROE strategy through our expand footprint has rate look

New physical to customers with digital seek capture enable and access selection and broad with retail earnings. provide specialized us experience technologies We additional blended expertise activate seamless, to and our network physical knowledge. to further online and

hallmark of retail full growth. used to ability is age Our our range a vehicles of a

line. drives the this vehicle of Sourcing right used business

to new will This one have our used technology decisions Technology national now also drive to the us procurement and to used the to of of of supports help to X.X combination leaders us guiding us by to right towards aptitude Our new more ratio operational taken X. one ratio. vehicle.

volume unit rating of of half and finance insurance almost To XX% of have plentiful. grow, continue but equity. The and further, illustrate consumers a Our of and credit with per purchase, our monthly help increase structure XXX to and or below potential rating, majority negative can profits credit have desired need customers remain a consumers affordable their equity negative trade-ins who balances to our that opportunities [ph] specialists payment. F&I our an financing obtain vehicle vehicle

have throughout to transact convenient, strength this for customers solutions and also vehicle will Alongside a digital age of the to number greater expand the creating reach that while benefit online. our financing continue financial combination vehicles and digital and flexibility complete with to of selling economic maximize of are specialists along network. a grow expertise, those These This the spectrum. profits us the transparent credit this allows full environment entire channel,

We Our their digital purchasing partnership car to with experiences. Shift continues solutions learn mature. are from the simplifying and that selling

differently we of evolution, sharing as to vendor team strategic industry technologies a retailer. inspires knowledge lender are synergies. Shift Thus we aspect think supports and us Shift, This to far, Our as our continue physical data, or network one relationships. provides create partnership as to

the Then, we on each of proven two flows to to our cash generate and our companies the like consolidation diversification opportunity, relative and network have creation value the differences with combine these reflect significant components. in our ability other creates only apparent. and value business profitability growth, six existing of industry add or closing, that this one lines In to potential, become

We XX page investor have included our on of further details presentation. online

EPS forward market us $X meaningful beyond. drive of our trillion and customer operational to the new used our springboards reach vehicle Combined, and much to share innovative unique a continuing We excellence, offerings strategy $XX of more milestone network this solutions. towards the further of look our with and achievement and expand

I'd the Chris. like to turn that, call to over With

Chris Holzshu

people the high performance Thank is culture. foundation of you, our Bryan. powered Lithia’s growth by mission of

customer to embrace improve. our our members Our continuously environment focused and value promote team

our are drive acquiring, operating key growing utilizes the driven store This Our SPS align term short and with performance integrating model, our values results our model that metrics or long success. by which core to our stores. scorecard combines our and

since us at acquisition, been experience our members location. our With find team our information improve operations improve recent to seasoned that with this to inception, the customer store leverage ways each XX,XXX has and

non-customer for for to store facing of aspects business, on need the processes, creating our focused removing personnel they manage life. so customers standardized we administrative can stay the Additionally,

total the quarter, by same profit vehicles, sales grew Turning performance total and strong gross body and to service, in store F&I used increased reflecting in and X%, parts. X% results,

earlier, following of driver overall business our on these is built lines, additional and operating detail each independent As six model Bryan the lines. is upon that our performance mentioned

which top in business retail slightly. new automotive of the The is line, funnel grew

X% compared unit profit selling average of unit year, an increase in increased with and SAAR. Our $X,XXX last sales per decreased $X,XXX Gross line price to was $XX. X% retail

nimble sales to increased X%. unit and and growth local volume market profit to and increased remained Our year, selling $X,XXX decrease while revenues unit compared of their regional a stores adapt average XX%, strategies vehicle XX%, prices per in conditions. $X,XXX last retail remain was Retail gross Used used flat.

sell miles. quarter used and old to years value vehicles over vehicle remain We the of of unit at XX% the our in procurement value auto auto vehicles with and more vehicles opportunity X and to sales mid-teens. Both continue see these or growth or of core rooftops. mix to core was XX% in Our X focused XX% XX,XXX most units on these the certified,

innovation leaders in more different Our channels store sell to procure used overall. investment vehicles and leverage help technology

and functionality offering. options, our payment quotes vehicles creating and Most instant add trade incorporated price have recently, retail continued additional and financing store’s used physical in in free a blended directed certain product progress financing markets mark customer online for insurance negotiation monthly we that on These online experience. ins changes

provide, help personal customers needs their financing that meets solution With specialists that a our the gain customers budget. faster additional through information specific personalized insights guide and

of F&I product unit. we on we oil per the XXXX, nearly compared contract XX% the in in per location at on least $XXX per to Of reached was $X,XXX our sold we sold per XX increase sold continue vehicles lifetime per over we per used the all strong of a the penetration remained Overall an result, increase quarter prior product F&I XX%. month. for profitability our of XX and due In store a higher financing improving on arranged As year. $X,XXX, month, growth at second XX%, X% in quarter, of to target an to vehicle units service the quarter offerings. a units selling rates,

to the continue F&I we mentioned, leveraging relationships earnings by right provide additional to current consumers, partners. specialists while capture leveraging F&I Bryan to As products potential our F&I with the in

$XXXX, negative with opportunities averaging As XX% have help accelerate needs to trade-ins of sales equity our and meet consumers associates customers our tremendous buying experienced our their growth. have

through of used the over $XXX gross incentive, New of quarter, of our future this and to greater unit sales additional trade or measure profit the this in sales One is works. total manufacturer incremental $X,XXX which opportunities resale per parts of per an service was XXXX. growth and vehicles, vehicle F&I create and increase unit, profit

in service, parts. accelerate of We our continue highest business, growth margin to line body and

As complex, certified our in technicians drive and vehicles will skilled onboard service. the for continue demands need to becomes technology increasingly

with continues repair In age an the are staying vehicles more car years, road and average as XX more park addition, maintenance to opportunities. almost the recurring on creating grow of longer,

over the work, and which fixed year. of XX% operations increase body grew our and XX% shops revenue service, prior Customer stream Our a increased half increased body and increased parts revenue wholesale represents X% X%. over pay Warranty X%. our parts

gross was second of Same points store XX.X%, profit quarter adjusted an to the SG&A year. of last to XXX compared improvement basis

we we X the five last gross billion mid over the range. high to profit in SG&A As the metric in an XX% to work acquisitions completed integrate years, target to

on savings made have and which advertising personnel, progress XX% teams over Our on facility and efforts SG&A. makeup focus cost cost, of continue to

Lithia’s model quickly our our employees to to dynamics scale. our leverage customers, allowing and decisions market still to us to unique make closest operating leverages react

year XXXX the exceed the of carry into the of the annual plans, taking are employees Our potential and half capture to the rest beyond. first store and trends their necessary of steps

our to Now, growth to you years and our look XX powered to to people. over wanted operational together. of promotion. I continued and leadership We mission on forward watch the over by it's with I you years, your value Working it past great congratulations many success see say more live embrace been before your of you turn Tina,

Tina Miller

you, Chris. Thank

strong fortunate our a each work are and them is operational We finance accounting, tech, with team partner in an talented a FP&A. and company honor and with team. to of and have great It to support have to

for for with approximately an We approximately credit. XX of real had half XXX could cash in XXX for of quickly and million first estimated the provide year. quarter and of million. we free million total liquidity the million an additional cash XXX XX, us estate available As generated June XXX flows the million of Unfinanced

income less free cash. and taxes, EBITDA define plus flow based stock adjusted dividends compensation, paid expenditures interest, cash We in capital as

of our in strategy capital deployment our growth. in and $X.XX form support is diversification shareholder catalyst dividend repurchases. return and investment acquisitions, investment announced capital to to in of XX% target second innovation related share the Our dividends in XX% Earlier XX% We this a we quarter the per expenditures, morning, share and results.

Because with remaining share our Additionally, is aspect approximately debt. debt authorization. is vehicle XXX inventory of under unique financing plan existing A have availability of million the the industry the in we in to financing our repurchase integral Vehicle floor leveraged operating in operations assets. an these associated calculation. EBITDA and this expense nature, this expense balance our excludes sheet interest the collateralized and of by as industry debt treats from

As used these X.X X.X billion our had our of overstated X end floor is operating X.X low times. June targeted Adjusted items of as XX, EBITDA X total as times. to debt and EBITDA our of debt net outstanding at we Unadjusted, adjusted the financing. to treat range vehicle plans expense, is to times at to

driven XX.X%, changes basis tax enacted adjusted by states in up rate was Our last XXXX, to compared primarily certain late XXX year. points

questions. like would We remarks. to This open Operator? concludes the call to prepared our now

Operator

question first comes Our Nelson Rick from with Stephens. Instructions] [Operator

Rick Nelson

on quarter. a and Good morning great congrats

Bryan DeBoer

Rick. Thanks,

Rick Nelson

Bryan, today and or pipeline the how you more you type the in kind discuss environment, paying Lithia looks acquisition the metro are opportunities can of, markets area?

Bryan DeBoer

well. in is seeing pipeline. parts This activity ago. the was other a amount we in years little larger that it's them ROE say, Rick. tight of have outside are three Bryan. all things as would of fair I matter amount bit the it fair of four We're a good pretty expectations. and There market. to typical on just is sometimes thus done million Thanks, a or a deals XXX far our We've the of pricing where It's

little a bit So watch we those. sit and

in and number as start of about to a into a things our of better have starting focus We in that the to nation, is will hopefully quarters southeast footprint, think be bit come year. we or a the to area we as that number little next also, come

Rick Nelson

Okay, nice SG&A, to ask XX.X%. thanks for narrowing a this we that quarter, color. saw Also about like

forward SG&A? talk could for and drivers outlook as you the push If the there about we

Chris Holzshu

Chris. Rick. Good morning, Yeah. This is

five Bryan over As but are at our year, and over XXX more. high purchased on purchased last team as bringing mentioned, or the And, strong last in as revenues. that stores in XX% the billion but underperforming those levels X million are SG&A we rev typically assets, in we've running years, we're

stores, is, to generate growth we what expenses. much so, growth and optimize do And line as continue as top then can leverage those we for

to focused other mid-XX% range our incremental And advertising costs SG&A so, through three to the core there, we personnel, continue down areas, really that and we're on. drive that

Rick Nelson

use can Finally, using Baierl, and you if standpoint. if a you're dealerships update technology how on from could ask digital on in what front, you an Shift, the planning technology if us I you're update or their or there, planning there's your learning to

Bryan DeBoer

I We've again. say, market Bryan lot them. well. perspective to pretty to Shift really a is clear of go big a partnership should our is partnership We The and with consumers This from, would expanded going in the way. learn how a

selling purchasing back If you have data vehicles collaborating in in us we with we’re and either they purchased now then one for sharing in May. Oregon. that and locations vehicles the California, the three announced remember, We that

many their storing and that we're to we reconditioning in then as grow, plans grow. continue continuing see their getting growth those to cases, facilities well as And as of

think it's Baierl.com And showing we the success look note into is good channel It's on that sales. Pittsburgh bit can pretty vehicle their used I we're is in our about, as strategy at and that, its on get doing asked little space new as their developing vehicles to more for there. digital we own. market we whereas the And you and an signs that important a the of elaborate the independent strategy as strategy us.

Operator

comes with Armintas question Stanley. Morgan next Sinkevicius Our from

Armintas Sinkevicius

running used opportunity talked at sales car softer side? strength teens, could lower delta help you've versus low the the procurement at bridge strong I a in a about on and store on least look growth versus bit in little same the in consensus emphasis with but store touch sales then around same vehicles, you GPU Maybe coming the of expectations. see the procurement me I the When GPUs an

Bryan DeBoer

this is Sure, Bryan.

cost with, average, I total quarter. recognize off always based our over it's $XXXX expense this important that to we base and a structure think begin was little which deal to

because isn't as at bottom the relevant drive individual looking will percentages on line that So looking that, profitability. margins as at

I that's a we to in ability our think and when of to got to procure, us personnel spend think to new dollars that you ratio. about procure X lot costs to X used

and are helping digital used I target with I car plays think we what solutions. scarcity. specifically the is do we're new seeing for from now activating you're lifting on right differently much the other pure, selling personnel retailers used. It's and inventory, of either look heavy separation pure retailers, car us that the that some just most new or What is or think then than

when and So build primarily, at value of and where about Okay? you're growth, we our we which is do looking build core through profit numbers our look you sales. gross at XX% and margin auto

Okay? those cost to that procure. are are And difficult very cars lower

trade So And of new here, those in we're first vehicles, mean, margins producing, very in cycle a at is over I cars being shot little of core let's you and gross funnel bucket. the XX% if our because top terms those important in are that those remember see vehicles. of certified core

that a XX,XXX primarily gross that value the we're vehicle, margins, massive procure able way the XX% is to that's which auto car only and which Okay? is And is base. producing on

five the running quicker? And We're wider querying and a By web those able finding, scarcity to they finding and solutions we that stores about find and to the cars those about year vehicle. different things back to think find pointing digital eBay more right it's we're using to means other people we types that products and our in sell used older as So older Manheim, the things which in on spectrum through be digital solutions, of can pointing for hopefully do vehicle. customers sources. or or where of how Craigslist or

Armintas Sinkevicius

Baierl.com, you're looking appears a in pilot you lithia.com? think about be broader limited was quite as timeline of, about mode, the website on How expanding bit to do a at I it's inventory the to do think but that the And, nice website. how you the

Chris Holzshu

Chris. is This

for kind a right on Pittsburgh I those that unseen steps of customer's things and end too to happening data a we kind how pricing purchase early the Nationwide, lot for site a out. a to out salesperson all online actually vehicle, are purchasing or we're a things consumers example, offers visits that lot for in like, buying have on think figure of next streamlined a going are we what now looking the directly positive when things fixed mean, I mean, baierl.com to even delivery, end can the these leverage F&I now taking I little focusing to products for home we're at take like purchase having that the have. baierl.com vehicle And without we expand seeing start evolution do XXXX online of unique generating to the right in it's specifically. to gauge of of us market site. a to or

think I as so feedback on signs got there. seeing well. early more But some that's we're Bryan's And that

Bryan DeBoer

I it's learning how important in what we to do we As look about we're innovation. how at think we think Pennsylvania think about the leverage market,

development. And to are our consumers. to model that, I because way decentralized we about think decisions important have working more we of get a made the we always because innovation, think closest practices a that XXX have centers more that We best on our incremental around country is which want

for begin on the to like that's We that the those silver it's other stores going to in happening really what's work there's is Pennsylvania to solutions. bullet So some same believe not catalyst massive change world.

the of which a to very the, to in short, months far with X% pull starting a at about the we point, I up a trigger is Pennsylvania, national their they nice in move, they're that a or we have so next in when they’re were leadership that lithia.com we've is previously sales, now, move for a footprint to for really wave XX% operating leverage teams think in of network. were the in good tune with profitability, Right margin, be branding party some up and type are quarter half able third produce, and At pretty within have together and will but digital consumers they either that inventory was our the the personnel that with XX almost been which retail. X% them of

Operator

Steve from Dyer Our next question Craig-Hallum. comes with

Steve Dyer

first welcome all. aboard, of Tina,

that much Secondly, units kind you strong you going just little what products could with F&I Obviously, the if as of just wondering down, growth? bit really same XX%, drove number. strength. Maybe of could that bucket of store in so is go as up attachment a more the basis, that new well if sort to make of, how to some ancillary up really,

Chris Holzshu

Steve. Yeah. Chris. Good morning, This is

work to continue kind of that the last have probably F&I focus over We component revenue years, disparity the in that in and we is that and bucks, stores mean, of more recent our integrating XXX or up as legacy the some we billion on the X acquisitions, core and XXX between attachment stores, newer picked a five our acquisitions. a to there I that have upside. of between of XXXX are up or top continue still XXX, lines. lot business virtually at and our stores to of a We in do lot we closer see to one cases did the bottom which every are that rates we XXX performing see

And, that offerings customers’ strength ways leverage protect their and sorry. to to out finance all needs, figure continue we out put product, there product of customers to our our specialists So, business buy. the of want to the vehicles, meet

in store continue improve process people, So, we a that to it's the to F&I. really sure making around have that good and products

Steve Dyer

that, guess what in work the and are primarily there a newer in of thing a the that standard like lot and quarter? to was warranty newly that be service, up around stores stores I of jumped particular out then acquired really or parts that anything is bringing up same anything consider And you’d just sort to

Bryan DeBoer

nice. our most commodity We're in the I customer more good into is most up seeing quarter. it's Steve, offerings the lines, all And was other of number. our it strides the type is strength business Bryan. importantly, which X% that big businesses across deeper a Hey, think we're more But in pay CP this environment or types digging the affordable much value to convenient base. transparent and where speaks of and type service customer than That's where

we've remember, parts for doing you decade. If been non-OEM now a over

warranty the to that And really with see to it. of really is is you're about becomes as from what as separation, So, extract see that that F&I average terms higher which We're lot to over then some able profit in in well, expires, speaking but XX% businesses the attachments premium to starting prevalent. at Chris those starts our and more customers. we was is of of experiences retaining a that our that what we’re margin want that

Operator

Our Gupta next question comes with from Rajat Morgan. JP

Rajat Gupta

for Tina appointment. the question my congratulate and also Thanks on to wanted taking

the that first to I tracking up parts parts versus out and little question, follow and independent there. expect you how parts warranty are transactions much we we then shifts profit digits assets much and of second versus so the you how versus color bit in gross should And or service a of could price that seeing on the get there. any market trend obviously in half. half? up lot and services is and services on break that share or is Could volumes how a out within the double to wanted mean, far the Just or revenue has

Bryan DeBoer

Bryan. is this Rajat, Hey,

in XX% shop in parts revenue terms areas, in quarter of Warranty or XX%, pay department, X%. the and So wholesale mix parts is customer those is the XX% of us service body exactly mix. is a

XXX%. at from warranty the and look shop profit XX% imagine, gross you is as only to gross can of you X%. by the and coming you profit low gets followed X% are the from XX% and at parts really body mix, pay, margin that So When customer

year. we than we last actually If that less year we extrapolate day did had forward, this service one

be believe service provides results. with our looking those to of continues affordable to win So experiences. the that we're services see and drives pretty back us We warranty we pleased other and and consumers forward, that opportunities vehicles to as in with upsell provide still strength convenient more them complexity something

And little way a is life commodity customer think about I as terms of our we than something throughout and keep it to I them of sales, new different think part those is the of experience. dealers, a the because full it car in their is think cycle family that most really entire

So, they're from used us. new hopefully, buy to or able another car

Rajat Gupta

quarter? So, is just just on to price? get that the there that follow of sales, trended same you high that, much distinguish if some mean, way on store mean, growth can how the up of single I versus digit on I that, in is a color to how volume

Bryan DeBoer

stores, they range. at less Why important him don't when Eric, XX buy you units it's typically perform which is a back service model I think to we about XX% when operations, in operation, units comes remember their that circle with that? on we and it than to can to we get average that information. ability And year

average. season, So doing -- and once better they XX% a almost than they're get to

think you having out building stores. those That always lack lanes in we're those So departments models. about offerings one as experiences of of the is pent those keep we mind that service drivers demand up because buy and in service of in your when lack that of some

Rajat Gupta

by on in F&I speed acquisitions driven the the versus break follow could recent a quarter growth internal out up GPUs to getting is up of much new already being and prior the in then strength well-established GPUs, how dealership? the there And you just [indiscernible]

Chris Holzshu

GPU but GPUs seeing and similar the dollar we're segments the growth so are used Yeah, both a opportunity overall little than bit new on vehicles in and about amount. higher vehicles,

was And your – second question, sorry,

Bryan DeBoer

we $XXX that a take XXXX the F&I is selling first that comes if we that When Bryan. in doubling more half average stores or did, me this the you back and in a transparent the reflect X through about about process usually months, average, typically it XX of get F&I. Rajat, of the on to is Let $XXX we second about car. And that's buy question, again,

our If pricing our you recall, F&I across we have products in fixed XXX% network.

really to customers’ that's easy where our pretty to most and we talk be And able needs. about benefits of that. that's So meet get

rest process. over and couple the comes transparent, years vehicle it next what the well would as believe call, I I of through more we of that personnel get as purchasing better

if is their a they're vehicle they're do. you combative as at they're And to attachments on in on it as service this you're sales, buying because control sell or easy going less the on So of better. not push the open because that to something consumer the finance, F&I pushing that, experience comfortable on they're a their idea product, is, extra because of once budget more contract and of actually product or $XX Whereas, the smart more is then looking and vehicle becomes F&I to it's experience.

Operator

comes next with Bottiglieri Our from question Wolfe Research. Chris

Chris Bottiglieri

Wanted to prolific. that's on back and services, the circle pretty parts

than Just us. the through to underappreciated wondering think of that that imagine us if incremental contextualize business, way there's a way business. Any for to business. auto higher the margins I much help would of probably your piece

Chris Holzshu

in XXX on the I the Bryan we, think We hit a items parts our and line. in lot impact in gross they way million of service. profit mean, margins and had I the bottom

growth. see to continue We

to in advancements see and on go to we vehicles technology focus certified any Our the to to we that our The to UIO continues repairs sales. for of technicians kind make commodity continue grow. continue place significant

to and we continue growth we're service business what do. expect to core area. continued a going So to that in And part of I that think see is have we parts the

Chris Bottiglieri

much sale, I when help more like simple? that there parts, when today you perspective, an us more incremental through incremental curious, any is From you thumb SG&A rule through is of think how drive was to is push

Chris Holzshu

our overall goal continue XX% again. I try our in that and leverage what is throughput. we we all of Yeah, Chris mean, stores to have is this call

profit So continue gross for throughput about look we – each that as And a you we of if that's service, that in parts see is growth incremental on million the we've line. and dollar want but to on hit to a least company, come target that opportunity generate, we saw the and overall bottom our and our it that that line. to XX% is exceed incremental of way higher, it, $XX throughput the in bit focus to seem in does at XX% the target XX% we a quarter, we little

Chris Bottiglieri

be acceptable. to I more through warranty more wanted plus that's then any period of how other just But campaigns, the is stores it, flat for kind help factors of XX%, the not us just pretty X now, contracts warranty just through months prior like and like there it's by easy forecast Can specifically, sold, to help is that next driving And being driven over think about there of much would that’s lumpy. insurance right, are think to time XX a or helpful. to legs CPL of growth call way us it's this? like talk to are you kind all scripted, given the know it

Chris Holzshu

just to again, manufacturers. Chris. isn't all mainline is our by we a the of It's mainline major warranty you and tear to on pretty a that and wear growth remember just work Yeah, happens manufacturers, a covered saw vehicles warranty this Overall, problem. are work got general of much that function good in and pretty

work the road they CPE a down we in come UIO, on nice the seeing to all is do an overall of the the do grow vehicle service another job departments back that work the lifecycle increase warranty warranty manufacturer. our in to are good warranty acquisition, they’d really push we when as retention, the if increase component is on retention in past So, trying to of in and sales, focus retain work. driving goal we lift in the in a increased good which we're customer big their continue And satisfaction, for

Operator

Jordan question Jefferies. Bret next with from comes Our

Bret Jordan

DCH, weakness I regional sort did you in or of question, dispersion strength dispersion, any store? You well. New particular a being performance within Pennsylvania or maybe see standpoint, X% an guess upstate then regional what your that stores demand sort York saying with talked the as about from of follow up trajectory with A and are underlying on EBIT, you and

Bryan DeBoer

country, This XX%, was was great. X%. XX. Bret. Alaska We're was growth balanced up store across the seeing up which is sales Bryan, same pretty Iowa Montana is up

XX. was Jersey up Washington up XX. was New

did a well and see digit bottom country that think the also as kind well. in as line as brands, as So I We across the better BMW of numbers, broadly translated which similarly. follow some some you're the the few And seeing that Subaru other profits was and spread numbers pre-tax into strength of luxury, nice. double such

X%. In terms I was margins, of, Chris, DCH of I each those, Baierl operating on do you somewhere. that believe have the their numbers at four. acquisitions, is the other saw pushing DCH,

upstate to to break we a that. close in there New would it's bit, got weakness able opportunities some to we Our is which in which see still really York, is grow. good liked But to one have little isn't where Carbone, even, be up

Chris Holzshu

in was Yeah, already market the Day incremental lift that that the and acquisition. seeing one mentioned there we're the that Baierl one with Bryan right Pennsylvania other

again, and people. to down it comes So,

that we then extremely on. opportunities So, then have we stores look continue we of can specific you talk couple as are regions, about of the and but region pockets doing well, within stores focus that and a to

Operator

Derek Edge question next Research. Consumer from Our comes with Glynn

Derek Glynn

low your think times to at range still of expectation pretty Could the may robust context have you end which cycle? of at leverage, be or the target in a of you about a two you star, Do opportunity? to have new just three M&A this that a turning, be the point preference pipeline in

Bryan DeBoer

Derek, this Bryan. is

years, and number we to indicators -- that the times headroom that that that if covenants a that years to up to times. it's headroom I is think have of and late I to which I have million cycle, want way at think stars the look most we stable want all way five X think pointing are we the still there if couple go next X we target our our still we is XX of as have pretty for towards are

that at So grow rate a to come gives that way be down, pricing deals is one us when we on maybe which the it. at believe look to able ability to quicker

an we digital part activate ability geographic is our positioning, to think the basis. of about think important southeast our I as solutions on national a

can the be able we're we that model that So typical our apply a middle if southeast, think I based so find value range, into to to hopefully then opportunity and to do of in push can willing go right the footprint get that. we the

Operator

Our Global. next Seaport Ward question Michael comes with from

Michael Ward

-- Tina, quarter? you what do you acquisitions an the -- can spend provide second in the you

Tina Miller

me Give minute. Sure. a

as associated in So, any we invested deployed acquisitions from XX million well that. capital prior as year with of about in terms expenditures acquisitions associated the with capital

Michael Ward

Okay. share And there no repurchase? was

Tina Miller

we've of associated stock compensation with that’s been The that year in first have half the only share repurchases had vested. the

share opportunistic repurchases. So, no

Michael Ward

Okay.

I of of So acquisitions with strategy, can up average. was and the like corporate company made, if before some to this quarter, the comments two the it back get to completed acquisition tie of more year, were think other kind the the been made have one letting last sounds in the together I you you years close that to season that

it now like now statement? shift towards through growth so And looks fair the Is that acquisition. a is

Bryan DeBoer

this Michael, Bryan. is

I are balanced in approach. think we terms our of always

stopped it stores stores a, we're think more we XXXX, somewhat stock stock were we back. to we buy us price it potential there's in we than of. our attractive I than We again we performance respectable -- think stock there we more was don't disconnect made that that the has rather a trying own I did other that believe to in -- buy the recovered capture of buy of own And in acquisitions. So level, you're seeing was a acquisitions. that for doing turn maybe that believe lapse why, that acquisitions because that have to a now existing our stock buying And to belief price are a to our

to robust, or even what stores, look returns out generate more ultimately us currently number I is activate we'll will it able does because find solutions always a higher I our to ways there's be lot forecast more at. at we've forecasted how out good believe we think after at of network XX%, the two make of things, kind balance that pretty our a is and achieved. that digital with do to to XX% to more things But up be and ROI those we that find profit adjacencies as it's deals looked still there just of profitability the So our tax we than forward. market to is competitive,

Michael Ward

If with a the you specifically back the last couple the of look getting at as like stores to closer getting sounds they're the Can growth? average. SG&A stores, the they're SG&A, corporate average -- the years, corporate percentage levels over acquired it at to acquired get XXXX of and the

Bryan DeBoer

range. we mean, we Bryan XXXX can a were back stores, believe of that Yes. corporate to – bought This where so range, billion fair get that the before we stores level Mike, this and in the revenue $X it the really mid-XX% I again. that buying I is our XX SG&A the was amount in mean, operate mid in best to remember high percentile

typically So at when stores, we buy XX%. they're

that be And business. car that grows our F&I, to really the able your things it's over grow units grow and your those and new So equation then of parts brings peer so more our model profitability, used based combined entire lower and business, ultimately peer to leverage together which their to along our to times is five while group, operations two your three car able the four years, being to the service business, drive the much value growing rest why and than still at group. to even create than remain faster two times of of basis four ratios

Michael Ward

question. last One

stores. it missed currently working correct I think, three have Shift I may is that more is this, now? or with Is

Bryan DeBoer

three four, Oregon. and it’s It's California in in one

Operator

Our Bank next question with America Merrill Lynch. Murphy John comes of from

Unidentified Analyst

This is [indiscernible] on for John.

about efforts? maybe bit this when you think it to I shortly I portfolio starting your you give upon mentioned year a update focus touched us can was an opening more underperforming on So you ago, remarks, but in optimization you're on a your stores. think divesting

this are So respect process? what we with to innings

Bryan DeBoer

is we is keeps it important, -- Bryan. This high. our is performance really network bar This Sure. that calling because believe the out really

XX we months. last the So, XX in stores sold

market. or stores Pittsburgh to was purchased to was in We small group They the were level. that those, those ones of some all what underperforming a other of XX All with this points were sold okay. and the quarter. in Falls, very One Great in were two open

that's that think it's what do. But we say I would part we a always I this, something minor and -- do. will So of

that we probably assets the to as XX over we believe pretty dozen a probably a of we're you're inning. if seventh in are good within stores that ROE mean, success darn I hitting if innings, strong you typically have And not recall, a we to achievement talking XX% nine eighth period. percent about rate as have buy. And eight, year we plus half that five

network, occasionally we're So and those capturing of to we typically every fit always but test make are we believe the that that we growth these quite try don't part just can. sure that outliers and

Unidentified Analyst

the I the you the front more do expressed an then prioritize expanding or internationally acquisitions? you've option or is broadly, you potentially past UK, interest to in Canada are an domestic think in M&A still on guys still considering And this

Bryan DeBoer

makes especially This more is really the sense is prioritize other dollars the countries and the closer XX plentiful, get lucrative, definitely so to XX, XX% market go, to Bryan domestically, We today. only when and we We than at it's domestic hard acquisitions look want it's that so again. this to of touch and really country when deploying percentile.

of there solutions, we’ll type marketing activate the to footprint be digital country benefit. be entire of those that able to able have these gain personnel the can leverage to to you or co-develop to begin benefits many we as other So in

Unidentified Analyst

And with XX. XQ us how in value share sales then can finally, were auto you big maybe

was think sales vehicle this used XX% you I quarter. of said total it

that have business Just idea better a of trying is evolving. how to

Bryan DeBoer

important nicely. So over that about And of is of what would retailers very our we safe of play for including a stores Part in, auto a pure call the plan, it's vehicle. because of still evolving super the used game. that is, play the don't fifth this, business now, value really And say in to to of tier used the sales other car retailers. in cars. most difficult reason very the It's it's standards. play sell It's right somewhere us, third reconditioning it's also I our waterfall. don't total half

a typically our that And store those jumping wholesale into car are street or better to that retail what down still place we used than and is this, offerings buy consumers our aren't what of type find typically our condition, technicians for I And space the but to found type those aren't the to used think guarantees sales much people looking selling our those cars. at And XX,XXX which don't fix is typically car people want over miles. used of that kind in new to dealerships car of stores.

to you're in be working three have So, maximize to adjacency on in different that stream dichotomies to able work that benefit. that

in think about, throw I'll one thing more okay. to

type that specialist to part Lithia the about core that financing product, you ability Motors car, finance year ability sell three at. and to of the think old As is a to or that five those the for cars matter is something

So have meet XXX needs. we to each lenders nearly out are there individual's that specific

think I consumers believe of to do XX% it's, and we it's digitally online get going able Okay, easy all buy really that. when only to to distracted can the that that be consumers are

loan number that's I was a situation think really a the in at. their the and important, That's And looking that purchasing. have one of find this which that the of the trade car credit whatever because get have Chris equity score, trade with ins of that really on that that's to for it Combine our their in, on that in. they're consumers car consumers about that that thought financing -- Lithia help their XX% they're need type things equity to I And the into of translates value vehicle mentioned them you trading means of really expertise of okay, XX% customers. big they're large

those consumers $XXXX. in equity More is importantly on our company average the than that,

think if you of equity position ability new for core products the to auto get vehicles, now capital requires a that or matter, value so about into even lot certified down. an Okay,

is Okay, where what value with are and trying loan fit scores really that's to and specialists consumer able credit buy. to the to

Operator

next with question Whiston David comes from Morningstar. Our

David Whiston

selling me nothing were are to pursuing or I a it enough store, confirm about making, you're source confusing guess with gross like just you me. like some purely all and vehicle X it was like there if that's managers think that was on sounded Congratulations. really terms they even group the is a don't the add-ons. to those choice two that the at smaller you it’s smaller I'm saying he prevents focus want is that sounds to would And saying Chris something earlier, Tina, a go F&I structural that you yeah, acquire, market in right. stores store one dealer, what more, you would surprising of just X what’s but I XXX% basically F&I. because just trying do that I and they -- business, from profit Wanted just to back what's see level store, and at understand to it

Chris Holzshu

Chris. is This

scale think and perspective, choice. correct. the I work bottom other partly size is products create a cost thing that that the to vendor That's do national to to to bring with able But the is a really, incremental gross it leverage from our we're line. profit

difficult revenue an So, do. dealer comparing to individual to our of XX network billion in is very

it's an I brands tailor so the many. $XXXX pass specifically, traditional our constant which And source we on to on of newer our earlier, key that the focus obviously individual XXXX a unit regions, LAD, of and individual and do, for individual the difficult area scorecard, the copy people opportunity center almost offerings the we definitely sure catalyst that and which store the this in an and and have, dealer in individual is the radar, it that markets, our performance then to is stores, it's partly think certain versus but I stores trying a front mentioned per there offerings, be discussion, our the the to acquisitions, make really more on may price mark, product, we it’s is is Lithia for

Bryan DeBoer

to all line. bottom It the drops

David Whiston

electric any from you in feedback from truck, have pickup [indiscernible]? whether are there just of or there? any customers at pickup two, on Is – truck in much customers, trucks they to the even the change yet how gotten perhaps there and trucks slightly moving light light your enthusiasm your Is it's waning a part terms in any margin interested customer question -- your a pure two any and especially Is preferences? there for

Bryan DeBoer

the really is, that your Bryan. David, It's question about there's in this trucks, interest and your virtually in of features the The electric see build that adapt, time, the to plant in answer you been makes get think the and weakness truck. different truck the power I the just some the about at you more utilization time in game for we a the in the least we'll domestic first truck and that answer And as trucks not becomes and is of truck to than But, it's no believe a no from change that there's around. is, consumers. to side. move second sedan it the over that available it that and and people can demand will over

Operator

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

Bryan DeBoer

quarter you updating forward October. and results for on third everyone today you us Rob to thank in we Thanks, look joining and

Operator

today’s concludes This conference.

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

Lithia Motors (LAD) 24 Jul 192019 Q2 Earnings call transcript