LAD - Earnings call transcript Q3 2019

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Operator

Good morning and welcome to Lithia Motors Third Quarter 2019 Conference Call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session.

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

Eric Pitt

to Motors welcome Earnings Quarter and Call. you the Third 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 third 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

joining Thank for and Good morning thank you you, Eric. us.

last today, reported Earlier third at over $X.XX highest quarter per we share, adjusted increase XX% company in a earnings the history year.

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

focused hallmark our mission of remains transparent consumer by operational the remains experiences convenient team on Our and achieve growth creating This in order excellence. to people. powered

flows, operational have This and strong cash while that we build purchase yet realize market strong continue We new low and leverage. all increased profits share, results while teams. businesses geographies, maintaining their to to look strong for in significant potential, a

experience team members. network over biggest of asset proven Our and is amazing single our XX,XXX

to that our moment for. want to work XXXX were dealerships Congratulations we best store teams such, a to you to the automotive news all. awarded As recognize take XX

and diversified creating forward on nimble model. same Our this We business six distinct lines, from store operational revenue a from a basis. be results will strong, point generate

X%, highest During the similar X%. and business our and lines saw X%, profit quarter, few the to revenues saw increases new quarters. was total total gross margin revenue grew up grow past We vehicle strong

revenues XX% accounted up revenues of XX%, our increased service and and lines approximately our for X.X%. parts F&I group Used These of gross vehicle XX% XX%, body was profit. and

model operating to spectrum is of and cycle. full vehicle built throughout products ownership Our the a provide services life

unemployment row and For The and income units. remaining strong household we a overall the lows new future, also highs, medium is the economic confidence see year fifth historic vehicles at remains consumer foreseeable in with approximately at XX environment stable strong. are all-time near million

lower addition, unique available combined consumer other In in interest a ever. unique These strategy, favorable conditions makes our rates retail models. cars specialty and to credit than affordable growth competitors Lithia economic widely opportunity compared making are most more with

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

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

us by We market. nation's of combination growth, physical modernization, our differentiations of vehicle the X% have model is these that a powered beyond network, and believe built take and people, inventory share capital, can

since a XXXX. increased rate rate of and compounded Our a XX% at of have revenue has XX% at increased growth earnings compounded annual

our XX% We XX%. is and rate over execute two-thirds with success of into to return expanding of and continue five acquiring by network our invest and our after-tax return capital physical strong beyond targeting an year We assets, after-tax XX%.

our network. into to and execute developed As metrics foundation teams reach, build new out the our national consider become strategy. the our our geographies, retain acquisition of right teams expand When to value we acquired, the moving we value-based to to continue investment strong

With adjusted leverage more and below growth million than XXX are ratio positioned times, two modernization. million free we continued well and XXX flows in for over in cash through annual available acquisitions liquidity,

revenues our annually. XX% annual revenues, as we acquisition utilize conservatively, growth. could not annual this flows than The targeted revenues far our remains add or and $X leverage add free available to Using XXX we purchased cash just million liquidity in XX% market and equity in cash have incremental seven or more of extremely investment X.X choose flows, so any XX% active could revenues in to add up More of totaling year. billion over we billion approximately stores if

Fiat we Virginia. our nationwide month, footprint Jeep Ram West to lines, the to this opportunities Subaru our continue In and six expand fully look acquired Morgantown our capitalize business in XX%. Chrysler of Morgantown reach to we of on current order Earlier beyond

our our grow and margin lines. of service we addition, density network our In better improving are to highest business the customers

This digital to Our it is leverage assets and our the to provides physical further points solutions enables supply our to ownership customer’s proximity also throughout an us network reach. experience. test to infrastructure important convenient network as expand deliver our our

behavior customer's unique ever-changing. and Each is

network in a and in physical providing that We customer convenience invest the sales strategically through vehicle results XX,XXX increases digital inventory affordability, assets to our of supports We core skilled strong leverage revenue transparency. most massive continue of our important and in solutions. profitability. evident modernization owned expands in with and is with and with choices our business their that our meet for same-store This personnel goal desire

This market incremental and to sell technology sell home through proprietary procure we used expands reach As Pittsburg minutes. from part to consumers of provide vehicle allowing offer convenient their own modernization, us vehicle. homes our in experience a the instant at just in holistic pickup customers recently our approach and service to an activated our with

ratio will this from us a our improve home technology profitable is solutions adopt. buy approaching used operational move short to to launched incrementally, leaders We modernization long-term our will we of and solution our ratio will closer desire with model X.X solution year, our scalable This by earlier the one-to-one that our X. national home from to and and to this can achieve objectives. help believe both quickly believe that Along new be sell

regenerating strategy proprietary strategy, Motors. making to that growth our In if replicate. retains it flows high closing, the capital systems, the culture management is not and and uniqueness difficult discipline business entrepreneurial world-class of attracts complex diversified proven add impossible our best to talent, An a Lithia with cash growth performance

Our market track to acquisition $XX our executing operations of we towards and look that. in inspiration. any industry considerable of both multi-decade economic just And our change, our of and team's is our as eminent. Notwithstanding remains X% positioned record us share EPS milestone right for goal national do consolidation now longer-term has

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

Chris Holzshu

Thank you, Bryan.

members the exceed of With our ways customer foundation a culture admission team be growth the performance improve of powered people profitability. each every continues high market find day as by expectations, to and and engage to share, increase to

over for season continue turn to in operating we annualized core improve billion of our to prepare operating and XXXX, They further plans them set the pull XXXX their leveraging identify earnings leaders opportunity our are potential. With remains. levers since which X annual achieve revenue store to in As Lithia values to platform. results purchased in improvement continuous significant

on income new XX% improved X%, is of X%, and business sales following total retail automotive color our quarter pretax profit lines. funnel lines grew business top the grew gross each X%. additional which increased of vehicle this In six The and

unit than Our and average X%. less selling decreases price sales increased X%,

at $XXXX down $XX. was slightly profit a compared unit Gross per of decrease last year, $XXXX

growth and Our and local balance stores regional adapt remained nimble and their volume conditions. and strategy market that the

business Used X% in was retail The used unit $X,XXX gross line selling prices. to last $XX. XX% an was XX% comprised in of increase profit vehicle per increase and sales compared average $X,XXX up of a year, increase a unit

core old, XX% of used mix eight value X vehicles years. auto was vehicles certified, XX% X to Our than years and vehicle older or XX%

home. proprietary Our allows one nearly value top to greater algorithm of of performing instant with segment an consumers vehicle activation or of our a ratio The auto valuation used used the sales. to achieved for two those comprising recent XX% operators receive single value more valuation and online into merchandize these these the will prime expand be fall vehicles the A their number locations. sell and it of further comfort own our offering in of segment core we significant vehicles auto as and of from

ability This our our reach modernization to to used in more vehicles more and network. which translates procure our stores our expands opportunities in sales

continue XX used prior we to quarter, location store year. selling result, per per a X% increase units month units As the of per reached used an least In XX month. per over we target the at

profitability penetration rates the $X,XXX growth insurance prior compared Our per we line our The financial total XX%, Overall unit per in strong year. XX%. product unit we $XXX to unit quarter, financing arrange at lifetime unit $X,XXX due and high vehicles was on offerings. per remains sold XX%, all over nearly to per an service of total increase of in on oil and the business contract on product

We helping brick-and-mortar us customer at continue consumers, the what's integrated in right the best to experience online for the and consumers the potential F&I shopping the experience providing allowed improving to capturing experience seamlessly on customize for one-stop Strategically allows additional price options to power our them. products our while focus by stores. earnings in the and integrating identify our financing right an choose and

focus unit, highest business, of unit our vehicles, profit vehicle manufacturer margin and was to opportunities our quarter, this shop. resale used through F&I greater total body remain future additional parts and sales incremental or an Overall in gross lines incentive, We is per $XXX parts One of our profit new per service $X,XXX on and this the sales growth and of trade increase the over service, year. last create of measure works. which of

create and skilled repair increasingly grow, continues park technician technology for the onboard continue maintenance certified and to complex drive recurrent As demand need more to a and opportunities. becomes the and vehicles will car

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

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

XX% stores stores Our higher. to season metric typically an and its or of acquisition and XX% of see to profit approximately gross metric profit we have with SG&A SG&A gross

until are those performance impacts stores SG&A adversely seasoned. our overall This

Our on and over of cost-saving to opportunity Considering are make to still progress advertising half up the industry on facility efforts and on down leverage stores of focus our make costs, significant remains. our teams leading which season continue SG&A. majority personnel, drive

summary, quickly scale. our leverage to to make our customers, model leverages operating to to unique us and evolving Lithia's allowing team still closest dynamics decisions In our react members market

to are the carry people steps exceed trends taking and the into plans Our annual and XXXX necessary their beyond.

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

Tina Miller

Thank you, Chris.

the Our and we foundation over on culture of X high are teams five acquired in billion execute growing revenues, rate integrating, continue performance stores. have our In operating model the our to acquiring, based return. expected and years, to our success XX% and an achieved past have

aligning needed profitable through teams key with talent operations Our execute body, success our the facing having and that we leverages model who core scalable effectively to drive non-customer in values and standardize and a support framework this that discipline size. metrics processes, teams, create the

third we $XXX compensation, paid flows the million interest, first generated and adjusted free less of stock for generated cash. define the of million income expenditures and free cash taxes, the capital During cash $XX year. in dividends based nine quarter, We EBITDA has as months flows for

million $XXX approximately have of of and end credit the we addition, quarter. cash as in the available In

obtained liquidity or future or equity has estate poised could through debt position growth. sheet to our unfinanced balance us accessing markets. support the be real strong This Additional

diversification, repurchases. investment form and We in modernization target in and XX% capital acquisitions, XX% shareholder dividends in investment and share return in expenditures, the XX% of

announced to this share our $X.XX quarter Earlier results. morning, dividend we per of the third related

under $XXX repurchase availability approximately existing our share million we authorization. have Additionally, in remaining

XX, vehicle plan of As floor of as debt. outstanding we and of unique in financing with $X.X aspect vehicle September financing. industry floor is inventory debt the used A had billion plan our

an the operations calculation. associated these is financing treats the expense our this the as by integral sheet and operating set to EBITDA interest excludes expense collateralized assets, in our our balance As and from industry leverage

of as total targeted adjusted three an adjusted, items is times. the low our these end overstated expense, at of to On our X.X times to net debt at Adjusted two debt-to-EBITDA times. is operating two EBITDA our range to treat

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

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

Operator

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

Rick Nelson

learnings early where tours there to I updates Any provide rolled some like to technology those be out any metrics Baierl. on and follow-up can you've on would great? you

Bryan DeBoer

for Pittsburgh Bryan. joining This today. thanks The us is market is nicely. Rick, progressing Sure

but we modernization rollout building your some proprietary. are were is know, a able tools fully primarily we a last that incremental, our us you from of vehicle solution further strategy that's As to to home, month the as

now the In the very us days took initial different results engine, past, that. it's in us. And strong is outside well. from a good that we definitely and all to our It are built and rate there excited Pittsburgh off with to procuring were cars using at do we're about by leadership fairly wanting that of our a as kick other teams XX demand

doing since car to It's the start to of from digital comfort terms the buy it home been the buy own progressing from of a the be able solutions well. year. your In and consumers home to still of or expand the affect utilized deal not in option, future. current believe will consumers time at that really, by though we market seems are that our and being they and as enjoying much as the It it's share that's the chosen our

Rick Nelson

Also curious shift plan use you're or shift, to using technology shift about a from standpoint? how

Chris Holzshu

Chris. is This Yes.

vehicles leveraging we purchase. provided thing the customer is, used off over XX,XXX online to Bryan that tied a the big think offers just just what said I purchase actually quarter weren't of in for

channels our those are third which of partnership sell.baierl.com that other that three offers the available from then solutions shift channel, and have now, already all so right with is parties. And by came we the

Rick Nelson

the several and on years. improvements the we the DCH think you've know where interested very the are made with progress saw value. might of tail which laggards you those you of extracting nice I been there terms lot inquisitive seeing - SG&A of a last most where you've front, And and be where with progress the in acquisitions are

Chris Holzshu

is Rick, Chris again. this

normally in over as lot five are strong a in stores. we last remarks, it the season revenue us our the times of and acquired years. to know, to typically you three we over by you we've billion And assets as that So, five in prepared stated those X recall, front, SG&A underperforming takes years

stores bring at running or day run XX they are and the range. So, higher you one, low season growth SG&A we as know, percentage XX% in to in typically on our those stores

as and growth where So stores drive in goal XX I'd all is the we're we'll of we're the kind to of say as to, at on in SG&A that to our far down inning, mid SG&A percentage low our innings continue combine of range.

Operator

proceed Steve question Our your next is from Dyer with Craig question. Please with Hallum.

Steve Dyer

If quarter, were I could the business, sales in better. start in GPU obviously very your strong but much used the performed

cetera. one any initiatives peers wondering used? who are it's yesterday, you driving of better reported if position, seeing whether or acquired some that stores just think your specific I that inventory are that there's et What of improvement, in

Bryan DeBoer

know, make older our of those and almost Steve, items, you an vehicle, gross our this about really which We many value actually value auto XX%. is on and is Bryan. is $XXX that eight-year-old We're were pleased XX%. per autos unit on more as up margins

margin think so much to mine we on opened channels talk really on five cars the to cars. it's our is that's have that retail really that that, about our up. of And day offerings think that procure a ability standpoint. driven the every of not coming the and about provide those we cars ability we we It's some used but So I from being go

the I that are be I party, idea third that private country to tap think to And solutions the now the or understand we're in do private massive that procure people to intellectual about think able going that to property, be channel sold vehicles really to facilities, a as have through consumers able able we we into means the be cars. the well to and digital are that how of there's to a that party as sold which this have and those perfect that and

retail. and to as on we're and And margins have more center to to going those cars I get our you'll ability lots screen that put front generate higher of we're see what will our able to think choices because

Steve Dyer

terms you are pieces you looking of and of bits all Pittsburgh Pittsburgh it to is and the beyond that have sort the plan online a all products guess move of functionality started in guess And in and suite then of what's nationwide or are before then some place. I your cadence in of in beyond initiatives, different move - you rollout out of that those technologies I Pittsburgh Maybe, market? your rolling the

Bryan DeBoer

right, It's questions again. All good Steve. Bryan

I modernization, we do the the redeploy meaning we let are next is base think it to happen we happens, innovation We this throughout this we it there organization. initiative things that at we if as don’t about when and growth step. going we foster and that as look do innovation in and organically

as proprietary I be can is of network deployed that the country think our really Pittsburgh throughout hotbed our reach. looked XX% for at digital in solutions the entire the not Lithia only

put where label But to also stores utilizing it's well. scenario be of it a ethereal just of as white network into type be able that do can to an

I of our think definitely about That consumers. our So into we're is when Pittsburgh whether application programming say and yes. is on for I an it we that think innovation would hotbed the most doing where that,

And entrepreneurship is where we think at our and special innovation is the best what's here any Medford. in organization really anywhere occurring in model shares practices But time built then Lithia stores. locations that XXX I innovation within one everywhere about which and given around that's our

Steve Dyer

are utilizing your be that from in missed the home months of is someone however last have in yourself you proprietary else's may this technology I then that? back technology built you And the that end to just something sell but many clear -

Bryan DeBoer

it were about built Technology shocked took ability and go do type Hines were towards on able which market we move build & driven. I well. our to as things and to the Officer. be we Chief quickly. able to It that’s that think of It’s see George solution you'll things us his ramped have and We side proprietary a And XX really days kudos same to the the up to we Lithia to and to our team, as modify Motors sell XXX% Innovation

Steve Dyer

some do you of avenue? yourselves is the your to that on that look keep you at auction. side that recondition expectation How we’ll of cars monetizing business them and procure of the most see And that will you sort or

Bryan DeBoer

what get we available, and usually sell you model deep to those not sell people to I of quickly try willing a is that to into trade-in brand in this their single of even a Typically, I think fight proactive. they that of any mix or sell new. buy model the the a but off state Lithia can't mean I path, they is and underperforming buying mental time that is endear takes that’s think you thing really when stores. to ability learn those cars live And every there stores belief which whereas in part typically you the day. dealerships like have those vehicle, outside most that when people you're is go defined market to they're is

that highest have our many customer’s best to meet the level. The pick turn going going you Whereas be able get the and that to to needs now at to vehicles the you’re can are vehicles so margin are and quickest going choose.

Operator

Armintas comes proceed Morgan question your with Stanley. from next from Our question. Sinkevicius Please

Armintas Sinkevicius

the in update philosophy an - your with acquisition strategy us the on you growth coming provide accelerate quarters. well-position could to the mentioned you Maybe

about be deal is could perhaps but there you've leverage the I of are or - a some with are Southeast. you targeting update the any us low-end of vocal would - Maybe your at not think update potentially helpful? provide obstacles maybe You that delaying been the range an

Bryan DeBoer

strategy in of this different core done activity there. is this of favorite of part seven and so about We well far Southeast, year excited went topics deals. really Awesome, its West million entered. We only about states, haven't metros into as Atlantic so the some a lot central of to kind and one how into We’ve a of there our we’re that looking heavily value considerable of are new state Virginia There is XXX as our vest. we out obviously that. the

I The we would far plentiful, go deals that as the acquisitions even can stacked to are and choosy. are be as up extremely say

rates actually equity about on hurdle our our whereas years obviously targeting always we beyond return Now are XX%. high five pretty achieve XX%

we So able say we when together. there of and the operational that tuned geographies it. successful up team, a I’d how to in acquisitions any transactions business model attract cushion the put those be type believe And to to stay add have of the fair right we step management able culture to we teams be able and and be our I and be amount have find should to mean, really and and we at

Armintas Sinkevicius

question, priority And you does digital, et how other expanding that into separate just thinking acquisition, being where your about one rank are adjacencies among cetera?

Bryan DeBoer

with I Most think when transparency also of about a of are the competitive us of be consumers acquisitions, is us competitive And extract on and our we because can strategy stream. more our the provides more purchasing of speed. out we diversified more greater it value adjacencies type and helps it businesses. focused if think makes that idea around

while being pretty at a still maintain those to to return thresholds It XX% exorbitant grow us able XX% allows to rate.

Operator

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

John Murphy

on and used. sort a the the of Just service first the and parts connection question with

and If you recon for vehicle and just gross How your that of give the parts you vehicles. are booking doing internal kind way way the doing your service accounting? could used idea you're an – you're for in us much per

parts your of continue we'll XXXX seems the service XXXX a time? something in Is of like that bucks, much how it's is to grow to help to that and over and gauge trying ballpark to -

Tina Miller

This is Tina, John.

gross is – into we internal So vehicles the reclassify based new for used on internal work that and actually profit reconditioning, where done. our

Bryan DeBoer

John, we've done that forever well. as

John Murphy

looking your in whatsoever at? parts far as and no there what internal So we're recon service, is as

Bryan DeBoer

Yes.

John Murphy

floor what plan that interest better that. expense a managing expecting. you just curious, look floor bit obviously at plan were rates little big I'm going a we with question down, sort than as leaner coming forward Then second rate how on was we'll potentially little coming on and opportunity Are the of and there even a is your any in on down get there floors impact an to have Evergreen reduction facilities, rates inventory? or an bit

Chris Holzshu

I manage to is have we inventory that try mean Chris. obviously to regardless the continue rates. this John, levels we interest of

Just a sure have supply, stores. inventory all that manage of appropriately to make good we but day our the in

rates plan increase as As with impact far million. affect XX of can line, the $X billion interest floor our basis about or points $XX reduction by P&L

So current benefit I the TVD. the interest but we in in at anticipating and this think on based time are outlook it's some rates, future, point

John Murphy

there of on those are floors is – what no on And spread or the there rate – any reference the is? lines sort

Chris Holzshu

Chris, John this no. is

John Murphy

the from their or as purchasing think for you're significant in vehicle home. you if then target and as who we used you vehicles on that as in you value online you're core about look sitting house. vehicles I acquisitions people And mean, those, doing at are referenced

I of mean, algos a the that buffer putting for sort are larger how accurate there and is that appraisal. you're in so far,

– has quality so gets as older? huge given the the like So vehicle a it of dispersion

Bryan DeBoer

John, Bryan. is this question, that's great a

within pretty and car different algorithms hundred knowledge multiple are based think managers used dollars couple another. tight. I were we stores or way We times our of off one them tested valuation the in a of

you nailed range you spectrum price to quality. just more thing, down as the start which move and that get I condition, think is disparity about question most when important in the you you no think is our there

And do only that's I that solutions something think digital so much. can

appearance that we've learned mechanical touch, able think and The just of You smell digital lost pure vehicle. get competitive have be have a And likely people we understand to quality will the to play. feel be vehicle, and most to think that. do understand operations physical the I more general a a the of I that in that

John Murphy

allowing that And an is there adjustment for. you're factor

that's worse online? actual how say give in that you $XX,XXX to and that's are the or demonstrably somebody $XXX online, up car you else wear bid that or if show has you I how somebody tear number of mean to can and that you $X,XXX you something the committed off If a that. tight knock given

Bryan DeBoer

have got Francisco partnership - both our I John, actually San Silicon the Valley I've very company. similar with looking shifts that numbers in are

good as of averaging what darn our condition the seeing digitally. about up going we purchasing so in bid questions. them early vehicles, well that car. arrive As physically when pick are own about XX And most to when are consumers and from disparity or the of But we're seeing $XXX the we give our through we stages we're pretty online –

of of purchases. is six at somewhere on news about between exciting and side. to we're that, The seven is five higher out out than XX purchases Lithia the Shift nine XX

somewhere really able around While still a That's being condition at that vehicle. adjust $XXX to a good insight you there. saw

John Murphy

that incentives, of cash hearing there they dealer something sort we're And around, it bit pullback that to little is support, some trunk, Is whatever the Nissan way like with about in that's a heard the lastly, mean is that you're this yesterday? sounds dealers? that of it. seeing want of and bit very little time call trend a a out particularly I Or unique then just noise you space Nissan in kind situation claw as of try automakers from back profitability of the a we to

Bryan DeBoer

is This again. Bryan

that our Nissan. cherish partnership think I with we

I those this inherent manufacturers. that profitability other they'll Nissan. been seeing work prevalent a through but very the industry. is has imagine I within and to as not well And something able We're have Nissan, small to opportunities just to It's of adjust in be We believe that not portion volume.

Operator

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

Chris Bottiglieri

a just if does of unit - then if like to more prevalent? that being you part the base much and how kind offset performed of Can the Baierl who that an becomes first little think level. of of you than brick build at overtime bit. want done kind deliveries Hi, kind the is as local the and motor like, two delivery. And different about there bit a market us little what into How walk through kind is

Chris Holzshu

is Chris. this Yes,

sale.baierl.com far as doing specifically offers related is. as the is So what - to we're purchase

chooses. You the it do have options way the to that customer really

from So, they into minutes actually And a out can give bank. redeem dealerships your or car home, actually an then if of either them do typically you your we XX our can or come takes quick it to they send one a quick and that less. drive, we they choose test offer a valet deliver inspection, U.S.

it's very and that So we very early positive. seamless from finding have the quick and adoptions is consumers a process we're

our sell concerned, proprietary is As we're Currently far a the side the other sell third-party on can and on supported use the being side. we're as side earlier, now, sell on technology mentioned Baierl that own by working our vendor platforms. developing in we right as future Bryan

Bryan DeBoer

Chris, this Bryan. things, one quick other is

longer I market own a to we we to I really think different able take think being consumers in meet so how and do consumers of they're think And think however to whenever, term to about our We think able another. from action when they retail about as how one own environment, solution. software a respond, nimbleness go be about today's key our proprietary you how demands our wherever, they and when little choose.

our automotive think to that are and see traditional build do but not traditional buyers that you that the experience automotive I technology than those we're for at we go And strategies do how attract we a retail really looking only unfold. and want as channel, our channel. So looking traditional attract the different how an really is through

segments help leverage partnership brands they're and end may consumer vehicles able spread that that to that up our really attract looking most XX,XXX have what where that for. specifics and able may have see have different vehicles multiple wings We and the we groups are the find create bifurcating growing things people ability or we’re You'll And may we our to that be with experiences to really consumer. importantly drives to those consumers. that knowledge XX,XXX great have and sell that

to affordable just it. we to convenient do and have Now find transparent an way

Chris Bottiglieri

alluding my there - of was is as actually like guess online That were mostly great brand. question creating I seems the technology follow-up but an possibility the we

flywheels decentralized like like the and with that and of this scale maybe can or kind come is How given of from online that you do traffic of kind So model? benefit of about think quicker of you all that. kind kind

Bryan DeBoer

when you're This the think and future, that about Whether it’s think but the definitely pricing, that occurs on whether the management it’s digital its Bryan looking decisioning. the valuation, is into whether window workflow it’s our drive think to think is I I you solutions. engines I

I these we things do internally. where that be think to to that you think about able have

people. be You in have and all to be to lines good have business diversification able things to all adjacencies to

see see to to able And I I to think do separation XX Motors begin know that that have not think that going you will have you'll you something system won't that. you from are XX to we sales we’re we that to how and and it's think going this then that to on to that's in solution be same-store hear It's go going our it’s be Lithia okay. incremental And stores results.

go to which see You'll and urge in incremental we that. which try sell to the barrel.com information is everyone our provide we that

sit were able and to from we Think about we than programming where of days way, less XX those today. in achieve buttons it start that to touching this

leverage the to throughout able quickly. positioned we move speed and be to curb we’re able to pretty our things that So network. nicely do be think to can these And

Operator

Please Our next your Gupta Rajat question. comes from with with proceed question JPMorgan.

Rajat Gupta

strike and an here a you have how should you then follow-up impact I curious Just the services, we have as on October and expect impact wanted do and with your yes mean fourth to follow-ups? in couple extending I warranty June about growth seen all or just business. if through quarter on at any to parts see And think the to

Bryan DeBoer

many whether our really as doing Rajat different multiple pay exponential we’re parts up it's items things X% were commodity initially pleased was rate warranty pricing was the you remember Customer that our are planned. up at growing business if of of and more we that business whole and XX. Sure service very a than a our

pretty of similar which static terms So they're at we that. in and they where love were

with [indiscernible]. the it are to they assisted. hold as you think area to to be really in in service really an and like starting solutions we wings look digital take well this is parts want are Some as Chris, sure mobile more I our And asking that spread can way touched of consumers that the to we service start really that seems area. forward and

Chris Holzshu

Specifically XX% in makes XX% revenue. actually XX% of on the in total less GM a revenue, we’re Motors trends aware the the over up overall in revenue sure side General over is quarter rough as in because and XX% that month than but GM net quarter. I we warranty up base am our in In specifically asked about

the warranty saw actually trends positive rolling the in work quarter. we into So

service or what whether parts traditionally new of day the is what to work on supply plenty supplement there no have a non-warranty. and the we the to finding on repairs is we on would are aftermarket vehicle use parts on and part schedule side have used are for OEM delayed We we inventory, issue that able out it’s

is move us Motors forward focus they big with them forward exciting behind dealerships that and seeing in get down to our our to signed So the get so the and us products forward. you move road with offer look General contract the this have

Rajat Gupta

for a have And from upside the I there other should used seasoning, is Great be the technology that to you're acquisition the think into GPUs lot as follow-up you should of here technology start across the we other mean thanks just should - it that I clarifying longer-term? just expand other this from about that but expect extending how regions stores on we to How know to regions. from on impact sell retail that. your then and

Bryan DeBoer

it believe Rajat, it GPUs doesn't a really affects that Bryan, this volumes. is affect I just actually lot

more value to see a as it's sales into or what this to product and to So further We’ll on to to growth. utilize home. be from query same-store And as whether get be for details we to really propensity information able able core you provide tool a attention able what this. be have more we to consumers the is pay data happened product really certified close vehicle or our

Rajat Gupta

in already incrementally that to just are not help you I wouldn’t from mean probably and that that the it? not it selling sourcing would direct way auction right given just is about think assume that some the ways mix or - is

Bryan DeBoer

don't consumers I vehicles this of only from Bryan over X% X% this little incremental of procurement think coming right now is again/ our think consumers. is now I used all Yes, to from direct is

an make will buying that at we to typically those want it us So we more take from from I better it what than where. see away incrementally don't trade-ins where we we wholesalers And to think five even procuring able us or auctions the dealers I adjunct be think And better from. be procured expand that vehicles or buying think other in is ultimately you'll business. and or will auctions have past channels had at from

bad looking cars believe five most to believe buy think to to they that for buy a place old auctions we place great stores are vehicles. that if year buy I when one people are I car you're

you're that's I looking the think old heavy year all to is do is if very where done that another to the be money difficult five lifting plus able vehicles for and made that. story

do to Our that. able best stores are

new achieve. vision two And all to of said think they’re a one that job. and of massive and amount use inspire XX% core nice the mix selling ratios I the that to of Chris our as we their upwards a And doing of stores products selling

Rajat Gupta

is been coming - GPU in of penetration rates I XQ? any started on lower increases more mean driver one from it mainly help have is F&I what’s way seasoning last products one the to Just the the in of of the key acquisition or

Chris Holzshu

thing I this one awareness. think really mean around Yes, I is the number is Chris.

acquire As F&I in do when we’ve the $XXX from seeing range. to typically the we averages we’re prior stores said dealers $XXX

other that but stores thing to XXXX XXXX do what F&I. copy same show a same doing that is so, stores make, region And in so are are not first in the our we hypothetical actually models, same

last And that bring makes pricing just sure make have people in our then the that actually our the I stores. at that more sure deliver it make then do does on the the right our products. up and profitable because market more right for wakes the price. leverage people we we and And get products of that And that we right is think we competitive thing size

that is to transaction it $XXXX. our Now negative back comes the when other people of of thing XX% equity big have over

sure to be continue is acquisition team the still the at F&I around we recent F they range of as see several $XXXX same meet PVRs us make so, their think up customers when our platforms a the consistently And to But time F&I I at And we driven there opportunity over that really look have to $XXXX buying professionals we F&I to to bring and in know to for able needs. of last awareness help that lot have have what’s we to our our as capture more several significant us this. years. is

Operator

Bret [Operator Please Instructions] with question Jefferies. Jordan next from proceed question. Our with comes your

Bret Jordan

sell A question from again I the guess conversion the rate. home on

you make out appraisal the you. that that sell or XX% to questionnaire? transact XX% are to logging filling said of ultimately the the of process sell from think XX% those in the I Is in the people to on XX% and XX% you XX% the offers you in home to of folks lose platform do

Bryan DeBoer

said the XX% my are sell is car. to Bryan. to this Bret, those yes The people that XX% want I

of We’re okay. closing XX% XX% to those

of XX% within are out side delivered go they about or shift initially another haven't the they week to about XX stores’ closing where to they to two their seven then a back location. and On XX% home

Bret Jordan

Okay.

Bryan DeBoer

that of we definitely that. Outside see before attrition

sell mentioned getting I people XX,XXX for cars. Chris unique So over think that requests we’re to their

cost that helpful become So find build I those we but as think proprietary But its are those which more will effective. solutions SEM cars. SEO of a lot pay to and be that is for more having to leads a lot we of to able

see our a XX%. percent at think in advertising which was I of to while some up you the traffic our if X% year-over-year is signs advertising like same-store XX%, we’d look almost that as early growth still

Bret Jordan

XX% who a people to lot you to your offer. car an have bit of XX% down the received those So their made brought

the you screen originally seen said about below you've they saw once they transact? I XXX it the think average and is it what still and touch on

Bryan DeBoer

algorithm Then on they time them down they they doing okay within that yes out yes okay. give necessarily to automatically respond or to they have able bring them a quickly reach seconds the so we okay. We hit it It’s to or really so are don’t if okay. Yes, no an schedule us. to offer it

of five So out saying we’re once they that to times we’re get six able hit that car. yes

Bret Jordan

is competition? And then lot obviously the independent claims driving - is than business it up that being of pushing What’s that than on the labor side repairable the a more question access getting you programs better of some certification growth. you better are volume a XX or always shop to body it

Bryan DeBoer

It’s with it’s us. biggest to to We've This again good Bryan companies. is building Bret. the driver with repair body direct contracts partnerships really out to job of that it's say pretty I our of a things national business. those get reaching coming about shop leads the insurance into means a would typically different different our and that done insurance providers dream couple

would say shop was it our at if look year body you down this I same-store also sales last in okay.

the shop people and on performance. by and comp sky to those people our nice high we to and probably see powered really body had So it's really in reaching in easy hold growth body shops running fairly that are believe a take that the starting for

Operator

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

Derek Glynn

And Big types tried to just as you or opportunities. M&A you as aggressively today as respect pursue public of success you these why competitor acquisitions peers or curious view what had have? haven't pursuing of think your lithium your replicate the picture model the these do advantage given with to you sourcing

Bryan DeBoer

Bryan one is not question. This this is again, a answer and

five I you So give reasons to why am unreplicable. going six it’s different or

has low. create been first that flow that affordable and XX that very the acquisition makes leverage engine over it it to an returns cash acquisition strategy and are that and think target specific yield with I years keeps that foremost starts developed going

to is are to support have able to manufacture strategy a understand secure ready are a to or for going challenge value-based acquisition that have sometimes average. that starts way people which things that a that that I only performing and broken to with the and be do believe you are high of Secondly, that culture team buy and and you're

customer people that not highly market Southeast our And probably about our into grow try you to imprint built to rather pretty darn We proprietary on - about we and crucial stay in are not grow our care them okay. that anyone And but complex measurement but little okay. make is profitability, earlier. to personal strive good, attraction taking that the even are to assets. to life ability great customers things expand discipline can to around pretty spoke ownership, a continuously that that the that a And value levity business. of for growth, creates do very that an and and amazing is should take improving bit wrapped something lightly. Chris having great It's to to focused that They're there and fun. simple, there operating base things loyalty, simple systems they're care share expanding them with

to assets. think I just able be you And those to have Okay. find

in the an is the their believes market also achieve. that inspiration can and believe share aligned we the that X% team more, incomes, and national that XXX% more We there's importantly strategy executive that that we have believes

the go things. to the we capital shoes to to that fill sure the have able find discipline able that off and the the don't capital make of be always the to to be do able We to we're able be ready go that rails next to people are

Okay.

I areas nation that things before. of that probably where and to really probably to just And in importantly touch clearer think the allow to enough. that of ever never we to doesn't it the And or I able network us intense I about X% expand have lastly currently is most wings think than is been is digital roadway that leverage now our that because solutions we've leverage talked your ability

Operator

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

David Whiston

that was wondering hear contributed to bit shift tech from Little you partners surprised development? any at if developed. XXX% in Lithia say sell home was you're to I your way

Bryan DeBoer

their excited would what a I year resistance I David. for saw we I had that needs. is many is anything together that than future to think there is full ideas two only thirsting new sharing And interact. to the buckets we're to able be continue to practice that of is between consumers, our sharing say are learned best question, would we there it interact and with light grow. organizations to about consumers able to when really that that mobility of a amazing. way We've being Great comes more say definitely

see what our was realized had think we is than probably working one on because I means that to something are little to working fits come we're the ultimately size with idea multifaceted and as And wanting solutions But that partnerships pathway, them. parties. partnership can believe which a third shoe more been sent we we all this we rather ability that unique in consumers all with to us what down already up going other bit than a be nimble respond quickly we important on do best, ultimately because

David Whiston

hear Did correctly of auction? that only I your the X% XX% used procurements,

Bryan DeBoer

Okay.

that back me up. Let

that know, You Chris. give let me to It's XX% auction. not

Go get Chris. We have ahead five channels that we it from.

Chris Holzshu

Yes, Dave.

vehicles trading So we vehicles used are only sell, XX% of the represent auctions XX%.

car from buy You lot new bring off a game. of the the quarters know, really on a the we're six vehicles, approximately us adding to that solutions color our also we are come. in dealers our X% then and would vehicles have of other used about car the that so with used more we street the say six And vehicles provide online, wholesalers and then do new in we'll I But channel five channels from X%. our number channels aren't digital

Bryan DeBoer

the Exactly. all aren't growing time, we're Chris, we? that love I

David Whiston

Okay.

with problem. from to you home recon what up from any Bay, serious at vehicle with you in or person's So the your on pick you're seller any that sell you if the you sold your is once vehicle, you more stuck on seller up a are price, and you it? you that money the there agree much of Do back can get point pick a home the recourse realize then have you

Bryan DeBoer

David, Bryan. this is

meaning I a think buyers. we look at mature we're things that pretty broadly,

We have experience know and should knowledge things. certain that we

do we back to no, the So consumers. not go

for get my vehicles Okay. career decades. for - doing we've for been we like three If we well that in what see just they choose us, matter as to to sell what

in understanding up the risks, rewards as the it well work out. as That understand Okay. where we're grown those doesn't that instances

vehicle Fortunately, is seems in it used that be there in that enough sales all to comes good growth profitable. through and

Chris Holzshu

plate couple only to takes David, the to Chris. mean, go mentioned actually as get I a this and offer it the actually is get and license then existing offer sell.baierl.com works. your you It's how encourage have I your can or if vehicle earlier, you see do and a on minutes your process pretty in minutes an on vehicle you Bryan vehicle slick. to

Bryan DeBoer

make And us. you sell we to won't it

just can You it. test

car. the want probably we though Even Okay.

Okay.

David Whiston

some Last Okay, pull now two vehicles, paper? people the back partners called are still great getting you numbers it pretty at the these going question, Chris, on in letting concerned Aren't cool. negative you've it's equity. high. that these like I to point negative calls, And out writing looks but think you're equity that past are

Chris Holzshu

Chris. is much not, or years. David, the hasn't that changed this Believe it over

than in the call to amount wanted we the So just it teams it. insurance takes and all our of better as to provide we they and do and teams, what and and just other job out into goes we're that out, season better of solutions. of context our work The train lending lot they calling continue it get at to a have work finance

and a the new finance of funnel. consumer think the it. advantage of But it all are And Yes. into play to I for that you advantage at being with better and getting of come work vehicles consumers, available and actually rebates of those that come having top big incentives that keep do the the when we

Operator

closing we like I of gentleman, DeBoer question-and-answer turn and would Bryan Ladies to back for now the reached the session. the call to end comments.

Bryan DeBoer

everyone forward in fourth results quarter to Bye-bye. us we updating February. you and you Thank today, on our look joining for

Operator

concludes conference. This today's

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

Lithia Motors (LAD) 23 Oct 192019 Q3 Earnings call transcript