LAD - Earnings call transcript Q3 2021

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning and welcome to the Lithia & Driveway third quarter 2021 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 Jack Evert, Director of FP&A. Please begin.

Jack Evert

to & welcome XXXX third and call. earnings you the Driveway Lithia quarter Thank Bryan and Senior DeBoer, Executive are today Presenting President and CFO. and and Vice CEO, COO Tina President Miller, Vice President Holzshu, Chris Today's discussions events, and growth. about expectations and about company's markets financial products, projections the include may statements future to subject the from statements forward-looking Such and that materially statements and are could differ uncertainties risks to cause actual results made. and filings Exchange uncertainties we deem be with those the disclose our Securities risks and We Commission. material to in you urge these and We carefully to disclosures on not consider reliance undue forward-looking to place statements. update We undertake no forward-looking are duty date release. to made the as of this any of which statements

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

our Bryan posted to updated CEO. President highlighting that, have lithiainvestorrelations.com, presentation results. to on like I third would We over DeBoer, investor our call website, quarter With and the an turn also

Bryan DeBoer

everyone. adjusted and navigation you Earlier from $XX.XX a Thank and last successful acquired reported XX% billion history Record of abnormal were increase by quarter and year's per supply $X.X in third the driven primarily at share, revenues over the Jack. environment company we today, results. earnings strong of Good demand morning welcome businesses. highest contributions

while decrease income, F&I body relatively modest quarter, growth in a up revenue increase vehicle our gross in During by a revenue profit XX% parts new revenues. used X% XX% increase and the led vehicles same-store and in total XX%, grew total increased X% basis, revenues XX%. On a a service, followed

increased profit gross same-store Additionally, XX%.

of manner. vehicles recondition inventory our a in procurement a Our large model to best-in-class cost-effective executed source used operational highly and used volume teams

network within technology to our Driveway quarter. inventory optimal and ability procurement Our levels throughout the vehicles our reposition for allowed nationwide

Through continued likely helpful towards government network of adjacencies. vehicle side, The further vehicle in additional details franchises, vehicle our than offset new deploy in we significant moments. equity next from to more operational margins we and a EBITDA, using us sustainable vehicles. be inventory our have increased our engine./ to Elevated capital be the work with highlights additional same-store acquiring expansion rapidly are our on decline generated to and into increased demand few scale providing supply subsidies, tight new network expanding the providing saw coupled to strength in levels customer drivers, our Chris to by and and few trade-ins. levels year as the driven accelerating the volume. Driveway, GPUs by quarter, in demand greater new will driven omnichannel consumers their the return robust strategy miles due full exploration sales, in the increased the and continue accelerating In size XXXX quarters third savings, before million quarter capital rates history lower also travel while and in adjusted was $XXX we growing our these and than continued into any in high our On interest third

solutions, anticipate transitions more and will to As mobility this and our industry and towards proactively empowered and electrification convenient execute adapt change. lead LAD

trends full with here & exceed $XX in life changing XXXX to and on EPS and the Driveway's reach offerings plan revenue XXXX, and year to to cycle evolving to these $XX other designed was preferences. in in adjacencies plan, Lithia are by Our billion mind. our from respond as referred consumer

share longer our to create further term. to growing digital educational replicate and adjacencies leasing Finance, and mobility seeds presence design vehicles, the expansive today further Driveway quickly how solutions difficult we and marketplace diversified operations in greencars, continuing Beyond incrementally can a includes over and international fintech growth the highly complex, channels similar sustainable applied Lithia to a to are elements unveiled have months, that foremost be industries the growing past a establish look to design of to broad-based & Driveway XX for Canadian for fleet multisector We our the company. forward disruptive

traditional Lithia offerings. are Our their business now evolving

Given and our brands the When of customers' omnichannel belief stores' existing stores the digital that strategy, local offerings given solutions know to consideration implement our omnichannel our that many decentralized to autonomy Lithia culture operate markets they meet as already that their best, their solutions local our was careful needs. utilized. with end-to-end e-commerce designing

experiences. to and are than a developing seeing LAD conjunction e-commerce Lithia in-home our teams optionality leadership, of and retail Driveway experiences, lifecycle with retail demand continuing of In are in-store engineering online of having cost acceleration consumers provided the solutions peers. Driveway software consumer brand independent and in-home used-only we these to that broader dedicated the Lithia both attract benefits and grow also consumer of lower to While consumer incremental and complete for any proprietary massive unique marketing LAD. for with experiences, established as experiences a This

design our Our businesses expand guide with to initial Lithia and interact continue consumers. learnings Driveway and how from early

While and incremental were digital revenue that through local, XXX-plus to remiss our websites. sharing continues attentions its Lithia our turned have Lithia experiences been in provide regional growth, to we business completely Driveway's

successful all few the estimated in channel. are five accounted quarterly our strategy, experiences our strength and total portion omnichannel XX% visitors X.XX%, illustrate These than unique attributed more share billion to e-commerce visitors. for e-commerce our a growing LAD perspective, with are Lithia used-only retailers. was a e-commerce call to shopping For will unique a when Lithia level visitors annualized represents simply and what revenues traditional to successes retailed at sales sales just that or of the we the or these to sales Lithia is we websites Driveway's addition $X.X To times unique into peers. connected e-commerce channels, X.XX% percentage third of ratio. a customers To put performance quarter, other further from the moments. of in associated as million used XX.X of This ratio our quarter units compared digital-only this XX,XXX of our in digital these all golden online nearly golden established Lithia These monthly similar

Lastly, incremental it's experienced spending that from third-party have vendors e-commerce as to new and are constraints stores' franchise earnings we peers- leveraging inflated tools our incurring are to from that similar we our greatly margins. ahead significantly our vehicle efforts vehicle plan, on note XXXX everyone remind inventory our are important are not drag pacing we we e-branding revenues Though of

of available are elevated humble factors are we pleased revenue remain to considerably poised of Finally, this past ahead to plan. that and few levels control in quarters capture by remain is of every us our the channel and that and the to outside driven market. We adjacency possible margin earnings report and every mindful

national $X of to and the three as As personnel and expanding in meaning to investment the $X with plan times in sales case experienced existing a productivity, EPS. equity most spring marketing produce no costs view this base and more network the of awareness, from a are lower level rating of EPS, sales to grade and drivers a borrowing dilution our focused of a XXXX scale our we leaders reminder, brand a The next vehicle on than in revenue pre-COVID delinking assumes rapid that and business Key and underutilized adjacency Finance with since XXXX of billion leveraging to service improvements importantly, Internally, the are increase higher support economies parts credit network, taking raises, cost. execution no Driveway plan margins through four two are rates. we margins reduce growth further environment, an in growth is our to in increase has SG&A and adjacencies further along to times further structurally DFC XXXX. capital furthest or further

a million. DFC loans quarter, and has $XXX now X,XXX the During portfolio originated

with ADS to frontloading our provides the the sales. fully potential a captives The than We of includes. which We the Important with profitably are can base Finance Driveway companies, a to contracts volumes. is our end and to discounted earns scale peers Driveway retail finance M&A note our business. used-only allow plan as certified offering leases lender Driveway originated Finance and that basis. when by consumer of the and finance our third-party financing believe will of from the This lower will always and manufacturer account planning unit year, term our percentage earned larger current lending portion is penetrate on and what XXXX of for three market that for to times a with quickly a we arrange subvented contribution new us increases financed loan XX% draw sizable amount future above enter Finance a

engagement our and during were quarter. expectations an launched about frictionless consumer Driveway excited Xth over Vegas increase score digital September, and unique Monthly of indicate XXX,XXX for for a recently is XXth marketing our continued it's Driveway increased building from reputation with in Driveway reviews and Driveway growth Las customers and XX interest transactions the and Phoenix, fully of generated in consumers. the a transactioned monthly net Google June. and our over are Strong seeing XX% Facebook and the XX% Lithia shop never of experience. exceeding promoter before. online or markets. had a visitors Driveway XX% incremental We We

markets. Dallas, with pace year. of center third We support the golden early in opening improved the we consumer of anticipate in September. Driveway and entering which further markets existing Driveway new To to on demand, marketing next our new dilution in from the nationwide occurred improvement our Continued two expand the even soon markets end our by care accelerated remain these overall ratio

care annual traffic In to to run have support months. expect three well-positioned for the addition, increased zones we hiring XX,XXX transaction the rate coming all exiting in volume Driveway at and is centers track on December. of are its target ramped of believe XXXX see we we time

our the as with now Driveway with dealership's or and no shipping golden will ratio. our to to retain ever dedicated are Driveway fee. consumers This website to the are them to and omnichannel customers forecasting to testing teams Driveway's to in consumers we the Driveway that XXXX, which tools existing another are X.X our delivered forward XX,XXX interacting sell lowest aligned new well-positioned ways ability management, them feature. consumer one evolving together, with increase to Viewing and new dealership transactions new engineering and they continuously This a the we offers their experiences the powerful enhance enables ratio. by times delivery marketing sort are distance. and and decrease learning deploying are by in operation, fastest with shop proximity vehicles feature recently closest Looking preferences. see

our or network us enable expand to choose the not U.S., convenient digital scale and market lack to our realizing physical across from to footprint our state, strategy, be affordable a of business will lines, In experiences we us Acquisition in backbone in-home nationwide effectively U.S. free timely, network to will Additionally, our or future and/or in-store our the brand. whether XXX This infrastructure to resources conquest approximately growth, that network negotiation enables expect to the share while the consumers. offer empowered, that to our from we stores economies to physical come nationwide continues commit optimal XXX of support all in-home. invest placing and within of miles us transparent, solutions to attract customers. believe a of all technologies competitors incremental

market fragmented deals groups only XX%. While the XX were announced and retail several remains highly the unconsolidated of largest with at large automotive industry about share recently, the

$X.X find in fit return annual closing over XX% remain to buyer of employees. We as to transactions. that billion retaining in of seven & timely choice, known of and ensures after-tax deals three the as Lithia in the revenues environment. revenue excludes and and and meet in EBITDA. pipeline, times to over as a are our well XX% post-pandemic our peers' disappointed are the obtaining best $XX certain transactions XX% industry our of we Driveway profit our are billion This threshold XX% commitments approval, of have ability confident which regional strategy We network in that large nearly the priced manufacturer

his quarter, With in in are revenues Canada's annualized that strong join and excited we us. have Automotive Chris in the made billion. total, and acquisition $X.X During Toronto, Included completed largest expected we to with our are Pfaff year-to-date acquisitions Canada. we to first teams generate have a presence we the billion $X.X partnering market, in international Pfaff completed high-performing

Pfaff its operates In addition furthering to a our synergistic leasing learnings business stores, adjacencies. of

come. complex, executing In of Georgia any track our Alabama with record markets. our for fast-moving to our we closing, entering focused omnichannel expanded team earnings growth decades may is multiple continue Region also U.S. hyper in to We together plan are the acutely proactive footprint, challenge particularly competitor. ready strategy revenue and Southeast our on working for our the seem Though X, and or Mobile, Atlanta, decades and designed

We a customers I meeting decade. low for exceed while XXXX plan. well share, maintaining With leverage and to wherever, whenever, industry have however of gain over grown our nearly With outperform various we times exponentially call the to they desire, two channels to market Chris. that, turn around positioned the our would like are

Chris Holzshu

customer automotive exceeding that retail record Thank expectations, quarter XX,XXX teams our market already final includes evolving their future, This to store ensuring to behind share to you leaders profitability. embrace XXXX, transformation markets Bryan. us, the improving continue plan. and the lines challenge our increasing respective the associates all year achieve continue while and XXXX in Entering with of lead another of the their digital business

As most third to by our new volume partners of shortages manufacturer vehicles quarter. demand and are microchip of a customer supply you aware, sufficient impacted during to the were meet struggle

result, the decrease. in quarter XX% to were the nationwide third with second variable consistent and offset units, compared a in a in of decreased in X% year. $X,XXX the We XXXX total $X,XXX quarter and SAAR same-store volume in able to the new unit $X,XXX higher As averaging sales prior GPUs, revenue vehicle decreased with

XX, September excludes XX-day new of vehicles a we the of on ground, which had As in-transits. supply

inventory vehicle XXXX revenue a a June saw increase us quarter positioned XX-day XX% in on vehicle new day for we in well supply used the While environment third challenging, of exiting was our the units. where increase supply XX%

to off In by units car profitability. will such maintaining wide to of we and XX-day at at spectrum look channels our continue personnel We mitigate of we dealers vehicle funnel consumer, first to XX% Our dealers as sit used the the levels the be new customers anticipate from XX% where inventory or vehicles as X,XXX-plus on us enabling get pipeline. third meeting we sourcing were of procurement solid did other lease strong Only used vehicles a all used of and such vehicles trade-ins sourced a quarter, auctions, direct procured supply excellent of offer work currently vehicles, pressure and of other our used wholesalers. top franchise as from affordability. able supply vehicle comps

the we vehicles $X,XXX During average sourced gross earned used in from third profit turned channels on which of customer quarter, an in XX-days.

hand, unit in For used per vehicles earned sourced from other profit demonstrates channels omni on for gross XX-days $X,XXX those turned Lithia an Driveway. benefits of strategy an of channel the we again & the and other average in which

yield under also fastest largest highest and the manufacturer-certified those priced in franchises the of the offer allow Our most $XX,XXX of and levels Driveway us new these with expanding network vehicle physical or number affordability of offer vehicles vehicles inventory We Again, XX meet diverse percentages. the pre-owned vehicles over and turned the to years America. all old. both that North benefits margin

dealer anally network first the creates units and mix. better shot our opportunity Additionally, versus internal move own we us demand effectively wholesale retail increase to XXX,XXX at to an allows network match and to cost which vehicles have our wholesale our supply for trade

With will anticipate believe further these our that These the parts growth highest on line. margins service Turning the of rebounds least fixed a or and are over personnel, are driven lines substantial normalized profit our service. We actions XXXX XXX our except benefiting points across gross The actions XX% basis business we into warranty. throughput X.X% at investments distributed all and last and pre-COVID leveraging year. gross levels in SG&A Same-store business SG&A, well We was increased when to miles in margin our tailwind below improve focused revenues subside. positions approximately profit reduce expenses. of targeting productivity as improving to marketing continued levels losses profit.

channel wherever, customers remain on however investment their XXXX to aligned topline further ensure that prepare As productivity they that and our operating the improvements whenever our hyper with result omni is in teams model plans, in efforts growth plan. annual increase from to additional executing focused With our profit potential our of turn choose. along to drive over These XXXX Tina. to the I that, call adjacencies translate with leverage expected like and would to exploration significant as

Tina Miller

Chris. Thank you

For stock-based could the following income growth we if expenditures. compensation support $X.X flows which and EBITDA, annualized interest, in dividends the up quarter, EBITDA billion adjusted of generated of taxes, and plus cash, $XXX and to to We paid $X.X adjusted quarter items cash XXXX over over $XXX increase million as credit network billion purchase million the a deployed in cash XXX% defined capital ended available less in revenues. free with

September The senior of $X.X As and was loan physical our billion XX, own in used plan remaining financed vehicle we network. over and $X to debt floor of which notes XX% our and debt real outstanding of we service have estate relates primarily billion as of financing. or portion

is two credit three an Our obtained. our once competitive and rating obtaining advantage which investment disciplined approach leverage to as of part could be maintain another commitment to grade between times sizable

X.XX quarter-end, of our of adjusted debt to EBITDA is ratio As net times.

Driveway an the and announced of repurchases. cash Driveway buildout deployment XXX year and raises in and year-to-date. investment With and for form this dividend in a The capital investment DFC over continued including morning, per the costs unchanged. for flows free period acquisitions, share who and target elevated we incremental IT completed XX% returns of cost $X.XX performance. marketing support as scaling free and modernization for generation to and most future the of our in QX provides priorities current support new importantly earlier %XX the and investment the incurring million expenditures related DFC, of personnel remains capital a We profitability. result annual investment this internal we allocation associates environment, generated capital share are development headwinds XX% and our foundation Driveway Our expenditures, capital XX% state buildout Earlier in and dividends the our flows our a SG&A and for diversification accelerated current shareholder generated cash the over of

We $XX the concludes are $XX to exceed open XXXX. and remarks. by Operator? on the per growth to call prepared toward well-positioned We our This for questions. reach achieving plan accelerated billion now the would up revenue to of earnings like path our of year share disciplined

Operator

Instructions]. [Operator

question first Nelson with Our Please from Rick is Stephens. proceed.

Rick Nelson

Thanks. Good another Congrats quarter. on morning. nice

Bryan DeBoer

Thanks Rick.

Rick Nelson

ask about I supply we want inventory XX-days from I can confidence, the the of tighter? levels? you to that here? to quarter Do curious trends inventory end quarter? the quarter. from new I where get Do fourth the we the car in in start of guess, go stars lead into continue some things saw fourth Your build am QX

Bryan DeBoer

believe those continue do trends strength the I Sure fourth Rick. that into quarter.

Chris, some think all income could quarters credits that a renew a to if I looking sudden upon but be of be dependent more XXXX. more is which of because continued of for what I the for catalyst now they few middle we maybe have we us? a throughout happens income for those going in that at packages do pockets you stimulus job know demand are have income string specifics lower know lot and with also this a you

Chris Holzshu

is, murky said, one what's bit think I inventories mean supply you on. we part as sight of on of actually line which quarter. a and and last I day XX-day a kind manufacturer-by-manufacture the Rick, of had up of But are day-by-day kind was are from we still morning. going this good Yes. on

uses XX-day back. supply days our look However, a

which when quarter. trend, a are we XX-day So that declining is have apples-to-apples last that to you sales indicate volumes you when an compare looking would supply at

So obviously pipeline in great. is more inventory the

benefits benefits it the massive out that that revenue, volume the cars a cars. really run, dealer trends we right are top Now and sales a we out comes XX% up pace side some have XX-day of comps used new the that the do across franchise of of can XX% industry of is vehicles we flip when year-over-year, to the see you of supply is, used kind I funnel we that some that of the we being now had, think see evident feeling are when and in in of in

Rick Nelson

Finance, We a in Thanks like on for would future? and the there per toward shift follow F&I used unit, you drive impact how Also, I I that away to or despite unit it saw expect that guess to it from impacting Driveway is uptick color. F&I. per mix how will up new the DFC,

Chris Holzshu

Good is Yes. morning. Rick, this again. Chris

competitors out of plans see F&A is and concerned, as talked obviously around far that F&I and years, I driving of been people, we has as as obviously on continue where several the have mean those focus So some our process, the lagging last for up. our trends a this far focusing progress about we that comp products came as to performance

used seeing prepared benefits mentioned coming our vehicles in well are obviously products customers the that vehicle his their give We that economic to purchase. in in in chance valuations Bryan that some remarks a invest support that protection as indicators from are as

today. ramp as see far deals Driveway confident record they are unit are is on a some of the captive finance impact probably finance to $XX the we their revenue, we over of continue companies overall are a about going record that outweigh coming the seeing As right Driveway they into portfolio, But right definitely to benefits time that transaction. seeing up now the having are now somewhere as we business, around as Finance concerned, per headwinds

Rick Nelson

much Thanks push Great. as good and we very luck forward.

Bryan DeBoer

Rick Thanks

Chris Holzshu

Rick Thanks

Operator

Ryan Sigdahl Please Capital with is Our Group. next proceed. Craig-Hallum question from

Ryan Sigdahl

morning Good Congrats really strong guys. another on quarter.

Bryan DeBoer

Hi Ryan.

Ryan Sigdahl

M&A. on Curious

seems like of it lot but followed peers going talked rather guys there still about your of a lot activity, increased suit opportunity out there. multiples You late confidently have and higher

negotiations some the that at in valuations? you good and change the guys continuing So M&A the are confidence does having of

Bryan DeBoer

is this Ryan, Yes. Bryan.

and referred what billion XX/XX I to think set XXXX to mile two to XXX as services where to we about plan that most That's that really reach. to in achieve to or within or be we to store able importantly, get now on consumers deliver XXX goal. $XX locations would eye ultimate were we products plan the the our out hour about the keep targeting a our

We $XX our of the multiples attractive we almost fortunate book months last revenue XX that able billion to in were that of three seven are times very middle over EBITDA to worth XX, we to now very a at paid larger for we at those looking post-COVID deals And are what that close as are especially probably or on multiples we in, multiple to double range per-COVID two a those assets. range.

I that think you are Lithia about okay. what know we disciplined, Driveway very & is

have with find that can that. the assuming that in of We we around major in two them and and the gems enough close on that's billion the group the wish two funnel still opportunities that peer $XX our best now deals the

Ryan Sigdahl

like better it and and was then GPU, seemed on QX into can strong new by get then well you exceptionally And trumped $X,XXX things over QX.

sustainable? directional helpful. is that's So mentioned there. new of inventory, think quarters. kind obvious two? levels blend margins the any several Or you do strength these would for between of continuing out kind in be But it help are Lack next a the you But QX of

Bryan DeBoer

Yes.

the believe I the think and XX% terms XX-days. of remaining troughing at in have and that troughed either or as now manufacturers Chris XX% least in we next they are probably mentioned, the inventory we of

some when at used now predict. and $X,XXX, $X,XXX what once mean inventories F&I that XX.X% never really at, new vehicle pushing point predicted flirting $X,XXX massive it's like hard on margins another below XX%. have would even margins margins we pre-COVID believe we to to pretty and return QX. we that total new. That's could were we I And QX I with and should just including really start maybe sitting say, be So levels more

but of going supply there. manufacturers aren't margins term are this than isn't levels is really XX-day the we indicative do run anything. for based and long to have because dilemma a what have days say And an that's that supply supply is many measure margins being demand we you remind at So decades would these we more caused also it somewhat and based

day constructively So term, the hopefully, automatic in there's increases. have doesn't can a supply disconnect. it short yes, lower But profit into translate but substantial we

Ryan Sigdahl

will Nice turn to guys. I Thanks. job others. it the over

Bryan DeBoer

Ryan. Thanks

Chris Holzshu

Thanks Ryan.

Operator

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

TT Fletcher

Hi. is on morning Murphy. Fletcher, for This Good everyone. John TT

Sorry.

Bryan DeBoer

Hi TT.

TT Fletcher

Hi.

like start, your vehicle this So you the increasing I on a of bit focus and how on market to your to new comps do touched used have used diverging performance little you same-store much initiatives typically vehicle guess the guys and get down a pervasive attribute on but So versus more into a of given new to you consumers various auto kind transitory? structural just trying value it's inventory of used shifting whether versus shift the more shortage? think sense

Bryan DeBoer

Sure. TT, again. this Bryan is

We ones I their that recondition think & is greater going on it's to are the most. hit at to focus different in and channels specifically expand little procurement the same-store are would rate. actually major important driver that that then the of to a able remember we Driveway vehicles model, than that the our procurement performances is I those be Lithia the that of are can a vehicles sales find say

the inventory trade-ins. auctions directions. lease. probably off high cars mentioned is we that had hit our we And and transport only pay of at and come both also actually all-time vehicles fees XX% which an importance important mix. our our don't we XX% come used from So retailer than of private coming X% We from much lead different directly of procured a from party. consumers maybe Chris had another another And most And is have only channels the we auction low to XX% ever thing in a is, the look and had that that of we consumer procurement that had XX%

that three quarters that. of in cars on make channel $X,XXX that can about and So relate we more you

we quite XX% at volume explored increases and attractive that's the influence whether or creating sale functionality Driveway's on of functionality time. coming important months keep mind would that of current we sale was until haven't in inventory what or that and is attribute about that terms in it really Now channel ago channel was another shop overall okay, the sale from nine our a is to in the more business, same-store

TT Fletcher

That or Driveway quarter of the on you Got how a that of core about Lithia Is investment? Was do or then it. sense. cash-off whether to investment last to it makes there Okay. realized unrealized housekeeping the any it non-core business in think that non-cash assume be And on the nature And over fair just kind questions. time, the shift? lot loss model? of & would investment

Bryan DeBoer

a stock, other a the had was value that was we performance get of shift large off level. reach the possibility the shares they the based well traded of So the of to company there of didn't adjustment the as what but that shift as

So that that? anything add we adjusted Tina, basically to balance. just that on

Tina Miller

valuation That's of escrow to didn't the metrics. It's were No. meet had correct. tied some then to that that shifts Bryan in price. held as the mentioned, And performance we shares stock related

TT Fletcher

I you. Thank understand. all for me. That's Okay.

Bryan DeBoer

TT. Thanks

Operator

proceed. next with Please question Chris Bottiglieri is BNP Our from Paribas.

Chris Bottiglieri

Hi taking everyone. Thanks for the call.

Bryan DeBoer

Chris. Hi

Chris Bottiglieri

I wanted to ask about the used business.

consistent? about growth XX.X% a as then are inventory but October? strong the two-year fared the the X% share for feel give in were they with Was not it? how into you are QX. related, you sense strong relatively just and levels volatile? you using pretty quarter market. CAGR us Can and So throughout that it And the monthly it good still Was as Do

Bryan DeBoer

are saw throughout good. we consistency I though supply. lower the at and quarter, quarter exiting the even Chris XX-day We feel

our considerably. If quarter-over-quarter, you used up were sales take the even increase car

was verses actual were And exiting and into buy XX-day to our account as actually were continuing looking numbers when static same about quarter, they look that Also, the okay. is our we which back QX quarter-over-quarter I that like are more. everyone XXXX, we October would remind you a take that So good. inventory back good look pretty that

that was one half because where we really were quarter which about stopped basically shut of XXXX regulatory talking for when we of not we it's had a QX quarter So closures.

Chris Bottiglieri

impressive. really That's Yes.

then want confident? just improvement like at So Driveway confident of be in structural on structural business is, can XXX least my to making seem you normalizes, it least you I of I the maybe sense make separately, some and question the cost XXX? too. if you the $XX just see inventory of lot more like split becoming level correctly, sounds two, sure the retain you do million, takeout. of you next investments are to versus SG&A Of And more incremental what scaling the basis is give what the I making CapEx? then correctly. and It of heard if like a and point speak you heard seems at that to you kind What pre-COVID. the ever then And like for

Bryan DeBoer

Yes.

Chris, an growing. is this investment future importantly, most in a that's think in our channel I

the Nevada future So And our has $XX markets XXX did million we into is which associates Las was the one-third investments or it reached actually one into and are of The our scaling. our Arizona about think golden our Vegas, actual two the have, building we markets, XXth and initial million, see expansion next which two is point right our it's Phoenix X.X of Xth the market those of now of was we including because Portland level that for. $XX remainder Pittsburgh and ratio CapEx. of

month next the in imminent looks trajectory one's or other two. The

are ago. the that time expected fortunate So we months hyper-inflated than we flexibility we more profit us to gross expand that. initially appropriate little expand an business environment And are felt XX was a which we allows it to probably a at in a rate that rapid somewhat

Chris Bottiglieri

That's it.

Okay. you appreciate it. the I Thank tine. for

Bryan DeBoer

Thanks Chris.

Operator

Rajat next Gupta is Our JPMorgan. question with Please from proceed.

Rajat Gupta

M&A the general. in Thanks capital just Hi. on had just questions. question allocation Great. environment the I and for taking a

billion in You May. raised so $X.X or

if seeing you that you So like you far, how are LOI closed for deals the to and have you what given I capital capital acquisitions do do other And Or be have there not the at capital raised? you still right to are multiples, some in a lot need finding deploy of so right a would go you raised. more think And that need sources do, follow-up. you uses? into that that or would quickly had all you think like just the you Thanks. other Or that finish to what capital? how that you

Bryan DeBoer

on remaining need cash about commitments mentioned would about spent the our strategy mentioned of at because the And $X billion value is And we believe okay. about strategy the it's pay that billion and We is about those than deals peers network the all say this or two-thirds traditionally. quarter do, with as if have that plus the do on maybe Rajat we a of not Tina under network more important okay maybe M&A. and this, two if that were as Rajat, of for would pretty them the we billion what didn't is we the two in approximately Understood. flows capital capital how again. have what were paying best that look Bryan been $X.X we of deployed also strategy $X.X wish but because of which amount growth we contracted, was we and raises $X.X internal larger based We had is the off you at we hyper it was things. for aggressive off Obviously, we we what XXX% $X way of which as billion maybe us one $X.X we could the as the billion, good expected. to disciplined our we I that are active well. that we buy network of

really sellers pay, much environment So those I little about about are say, teams transactions to $X.X that quarters and you what those think culture and for, there their how the for probably about more what bit. that to $X do for chance provide four just to aren't our change exist post-signing deploy and or takes two remaining, plenty billion have or an good that's It Remember the $XX And to that Driveway two plan.. there's least value XXXX succession their a company, decades. last core volume achieve our there's for & M&A of years is that coming the okay. in billion is experienced billion Lithia that pipeline, the at there and $XX quarters in things. company the of may let's dealers us we you remember But a the billion a remaining the you the that the it's also that what achieve and over looking ability

Rajat Gupta

it. Got

So it one of capital. the number fro use M&A that priority is like like looks still the

a done online? curious I Is you maybe like Could just define transaction? on Or transactions e-commerce Just peers? few do us part units. comparable you baseline it your of the online? that versus being any off So one like XX,XXX had good how on question parts just

Bryan DeBoer

we years like did in and when apologize I We six looking is is Raja what it much that right, to it All we a part This funnel assumed had sale, just like e-commerce So, we at we ago, our design business retail were about like the everyone. engagement much something our aggregated of is not. like it's was and instead. part of any channel. digital of when xx a it at really are model discounted through X% the It's do. not proprietary our just business we under this one own Driveway to that provide or and volume a just our it's that Driveway. time that since of e-commerce okay, under It a do end just But umbrella or end our that grown that partners solutions is created total it's to competitors way at Roadster, X% solutions. digital

Lithia as XXX e-commerce business the brands. well in So local and regional brands it's all direct the as

Rajat Gupta

necessarily transaction just the it. consumer the It's car -- the more online there. of full doing booking just But not getting is Got

Bryan DeBoer

to cars. Rajat, to our sell are are e-commerce competitors either okay. at Yes. not consumers they need that able or let's retailers wouldn't remember this, those be The XX,XXX employees

the remember So efficacy. funnel

are way okay. within remember, X% consumers seeing whole e-commerce stay XXX% solution, through our Driveway savvy that's of the We technology that are and that a happy-path, in the

that And share, keep chat do some as transactions to email disequity, I involvement, this whether to anyone human calls a because phone Driveway Remember that our in mind. channels. be would of that. like, also, it's numbers the Lithia require if comparison traditional through So a through surely or or whether it's of of lot to able can

Rajat Gupta

Got it.

last one. one Just

XX% are it help little it's Is reduce rate? just the from and in we that way there? credit what's approvability increase seems that the And Finance the for On versus peers below financing, maybe heard have also? mix that coming friction? a what approvability but can that's Or you customer that something not help Driveway other like-for-like, seeing

Bryan DeBoer

Sure.

actually forward with approval XX% given a approval there between difference meaning the okay, is Rajat, rate buy was and X% consumers rate, actually okay. that So, carry them, that

So in keep to want don't I mind. there. confuse anyone that

averaging will lower XX financials Driveway exactly we in and FICO of in terms points but the just our a funnel bit I influence In Driveway are comment seeing little efficacy average on is a that scores. consumer Driveway, on second, the their consumer

consumers XXX the okay. Lithia. a at in difference customers, believe most But So a financed buy be customers higher of new XXX would versus a Lithia I financial have to is primarily okay. accredit to there spectrum, okay, higher which that a that car have will XX% That in new, or are We to customers. and Driveway finance did able wherewithal at percentage of credit XX% only

So there there. is difference a little a bit of

are the all we ratio they time, what are notice when in there or ADS us it what do would to standard months, lending, means that and individual we few that have allow we that And that meaning the you next could you golden Now, at get not. okay. has to is terms if is call lend don't And our to difference. that of portfolio talk that a market get standards we about lending the customer And okay. not one-to-one you they meet it, basically above lend, approved, a not on in

on a that. meaning But Driveway pace. directly dramatic don't three of to something today ability an are that is And So they we row called efficacy But approvability example to it that's broad-based the finance will It's lender. that just do approved, the in is a what's that lending, a where of our software. one will building we what that if were technology do some the or have is API four in and was the be specific the competitors the funnel below two that above pretty some roadmap lenders, that customers backend this Finance. that got if to require in loan called technically major Finance, gets the okay. of from initiatives keep one have We 'portfolio to we does allow at that improved choose that are other do Driveway one at our standard, funneling customer and portfolio you lending customers standard

lending. a one-to-one remember, lenders remember XX Rajat, are that Now, have API. you But it's

how that So will to seem also Lithia raw getting the we you to as business standpoint retailer say us from okay. have traditional do way a at would equitable that you from used what an pretty dilemma, are we And okay. there that I it at numbers people you is a count, are is in to. still like different traditionally this, way, look

Rajat Gupta

for color all Thanks the luck. and Great. good understood. I

Bryan DeBoer

Rajat. Thanks, bet. You

Operator

Citigroup. Our next question Please proceed. is Jones with Nick from

Nick Jones

taking maybe like questions. I take bigger Thanks or question. a will guess, here a picture bigger view picture I a the for Great.

consolidate on mean, once about U.S. insurance earlier from footprint, XX%? maybe to talked top which I you wanting have auto strategy build closer that how thinking or from you you we do or be of are about footprint, You all to like So there should around to that out about you how Once I miles of or your you like more top footprint XXX across to take a XX, capacity guess think this the is XX% environment consolidation consolidating like think Thanks. touched there? kind the share? volume shoppers. XX, maybe kind broadly, And the XX% and share? continue increase have can of

Bryan DeBoer

This is Bryan Nick. again. Sure,

providing gets to how that that believe are could new when that X% is your say consumers in When cycle offerings where, interactions to of to us that. we miles that the let's choose, consumers, us share. the country, XXX X.X% the important life be expanded. with we I of wonderful would about that with XXX the locations that market remember customer and So the But about because car solutions think

manufacturer much of many have our a that also a U.S. they little you of then, that get existing past, bit in would vehicles market used, which new, new get of make I XX%. share XX% footprint. get X% is two a X% to say, And this allocated, somewhere I Now both restricted that ability by assume could north through all, in are those partnerships new can then would the you and throughput national to on stores, bit our if you their Remember times comment okay, okay. little

It's So, are not where like XX to of XX% country. the manufacturers control. in could get you top insurance like greenfielding business do the

believe to in could Now, theory, XX% further procurement. have car But be really yes. got the if inventory kind that it's to used hand-in-hand all the Remember And also capture side, are don't those able marketplace of do to is that the more about of are some extent. up ones and to that funnel go going market. okay. that, reconditioning that cost ever them are used I that lower unified, each on one Those car

But I see and group our step by top XX buy that they that are own manufacturers. where there peer that yield that with to those of three to performance and with remember is those say So and what could a day two and probably or as dependent are the that actually to stride performance it's in relationship XX%. And levels all XX% ability looking upon as partners. okay there collaborative relationship term, long is manufacturer at manufacturers get the fair with

Nick Jones

follow-up. guess I And it. maybe Got a

way that more -- XXX think of is of DXC Driveway lot you the the and Is happen? get around of will of So toward what a objective Or of being naturally as every kind kind that M&A investment slows in to kind from that presumably, then miles kind will about there approach. consumer, right and

Bryan DeBoer

me of start strategy move you that, seeds able was let deploy Canada be to on to to now share adjacencies capital. part can capital internationally that planting obviously that But of could domestically the take the Nick, as well. Yes. some

mobility that, and there our that underlying as opportunities strategy is farming and than our digital believe importantly mobility we into strategies overlay to More tractor-trailer well network mobility. two-wheel e-commerce as the the

the have new network, based type in start have customer plant overlaid some industries then okay off be point seeds sales. into disposing of three are the in disciplines begin through new having in which at that and retail, domestically, us is as well. the as operations see the proactive think of we body could what to will and areas we terms service, you used that's where desirability, the most automotive okay, would business other So are strategy is grow which those in you same four they those because And same like your vehicle vehicles, of domestically vehicle much to parts I

Nick Jones

Great. question. taking Thanks for the

Bryan DeBoer

bet, You Nick. Thanks.

Operator

Jordan is Bret Our next question Jefferies. with Please proceed. from

Bret Jordan

morning guys. Good Hi.

Bryan DeBoer

Bret. Hi,

Bret Jordan

consolidation? all manufacturer a push the on you any have seen you Have lot. at Obviously, done back

as there of up. the it franchises? far Some more complicated any Is in are any of as ramping or your conversations transfer involved conversation peers

Bryan DeBoer

hasn't change. No. been There a really

a I agreement you our what's called certain long most to you of our because level. in are have to grow with performance that a achieve contractual ability as standards, relationships as manufacturers their the think that framework

So that impediment. usually us their an And don't able hang-up which performance buying see I get to others, to if enough to they able or groups. as the to broad to are you when brands, are that’s to a really level large okay, is multiple be buy

Bret Jordan

slowdown that a go the XX. structural question Okay. change the you old forward labor of And going higher levels? couple profit think I of anything little hundred then, model, sort about you historic GPUs that there GPU, the when on profitability I hundred, guess points few is talked under normal back guess, post-XXXX do is about and a of from a Or new environment, cyclical new the in forever? to in sort we

Bryan DeBoer

to clearly give okay. April, But coming profit it February the I in negotiated negotiation-free in models or plan, sale that old the of though margin you quarter, transactions, XX% okay. it's of So goes levels. predict some of fixed-price And expansion than little even dealers, in the a to won't color be expansion. we in post-negotiated today, define areas. updating prices okay, up to I that be that the want XXXX prices probably the approximately higher makes generating There We $XXX which back will can may are very margin

business becomes case with okay, that, more world go be think our transacted could pricing through is gap more away. a is that becomes I believe transparent that there believes likely ultimately most that which made, and as transparent will and So e-commerce, that but more team I the

able compete give to we at a are have tidbit our buy be price customers, able if Chris, to closer there to to ways information. hopefully, Now, lower margins did gives you that. But color are then on be that that? to and able and will something add recondition more you you logistically and to a expand cars those we to of

Chris Holzshu

Yes.

today out prior Just, margin that, seeing XX% is these as on call I average. at of we own running mean, levels dealers a historically, to team at maybe to where levels, our our were top are our things SG&A

So of I have we out kind better that longer focus is continue facilities that term. as personnel something that would level levels, expectation as to But see this mid-term to margins see marketing our maintain that our and normalized to than leveraging on think to obviously, of return we our and goal. we called our XX% is it like profitability

Bret Jordan

And a data Great. just point.

of Driveway, the about are talked we customers calls, that quarter? have third I the geographic far reach think, have buying. in how you past number Do for

Bryan DeBoer

do. I

did And And versus in inventory, higher, than mile And as information percentage to okay. XX%. quarter continues fee last It's that it back, Driveway, quarter. was incrementally, new to bit one In was it something little does there really we bit other customers that about from it's to we read it last again. One fact, shipping was $XXX say XX% little the do actually I before provide shortages to the it's was was of down are last that, long The average miles inventories as is year. thinking one that shrink further new actually grow $XXX build start that a that piece start a that quarter. the distance. is would XX.X% to used drop and XXX so average Lithia & point

really we where back are repeat an that's good it's notation and to I So between portion think e-commerce that important business. Lithia which pleased business has of QX our was, a

as specifically overlap we strong we was that already Driveway consumers wings before. designed get have start and with touched to new once and even spread incrementally our that's holding to customers Our

for customer that So it's is a or new it okay, needing of getting are experience a and the correct is a in that's truly them looking the in-home tech assistance, vehicle financial of type either the transparent of consumer more for convenience empowered, that delivery.

Bret Jordan

you. Thank Great.

Bryan DeBoer

questions. Thanks Bret. You for bet, the

Operator

proceed. Ali from is with question Guggenheim. next Please Our Faghri

Ali Faghri

me Good Ali from Faghri in. squeezing for morning. It's Thanks Guggenheim.

Bryan DeBoer

Ali. Hi

Ali Faghri

got I So I confirm numbers just all the want correct. M&A to

of over have quarters. you think likely And Do that under So acquire billion $XX can maybe imminently. quarters all a contract I next pipeline sometime sounds It will $X.X M&A those then the billion close numbers correct? to $X about have you four billion. you two total in like

Bryan DeBoer

You that could do, $X capital We have $X the acquire billion. other said billion $X.X than that we in billion.

So be that believe we we since the giving not achieve much we network are year, start last other billion okay, in anymore, July, need the to billion that as coverage of to to of $XX forward-looking XXX. aggregate to able add $XX than

is is $XX two $X $XX you the if billion the Now our add that I $XX the And the billion, confidence from probably enough in deals more billion. peers there large fairly it's reticent, to would you give the billion like deals. than

problems, be to things. hyperactive. looking the parts that the eloquently have diamond there the of kind over personnel if country, billion pipeline good couple either which So think, billion, able levels those accomplished we to $XX are in I after-tax had many return they or to that their decades. the we XX% out rough type have of that that of last the in that of so quarter for similar COVID are to means are get maintain that the And deals opportunities we priced so of have almost always is to market added in $X the earnings to There is

Ali Faghri

on Great. Driveway. That just of here then makes a lot And as a sense. follow-up

business? about a XX,XXX used car XX% to implies about to that it year. next to units think Because right year. is that used and shop the next your incremental I as way talked You sell of majority your roughly the Is volumes think car

about those transactions? you trying sure to kind of how just So make XX,XXX think

Bryan DeBoer

Sure.

ratio to think the did shop Thanks, XX% would X.X sell I add portion, to you assuming, we XX% Chris, new have about, units about the Ali. will are one those can okay. assume Okay. assume, to on of that shop something be that? to incremental okay. is I And customers, that you

Operator

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

David Whiston

Thanks. Good morning.

was also used was a imbalance. there. far a on for new decision XX% a the GPU of gap time at give basis But between conscious on great up maybe just and about Or there on understand new it’s part Looking and Just the a more your used, is competitive? Obviously, pricing? used same-store trying used. X% to is

Chris Holzshu

mean Yes. make and overall Good of more we mean, a those good decisions, think volume going the did of by each from that the we level of something local And that to each And I kind just corporate expect stores our but new-car model and This operating it's conditions morning, obviously stores that market our engage Chris. and market seeing. scarcity is they at driven answer are I used. we independent made obviously, are hard and of expect on David. continue. reacting in seeing to across to margins specifically is where our to generically local to the of pricing. kind back we domestics luxury, country, new decisions are I

David Whiston

Okay. guess, on And I inventory a question two-part procurement.

specifically, there you about a mostly how XX% Is that are you extra high inventory of consumers. get to the push coming stores do don't And sensing want. talked on ensure that Driveway, you doing with left Driveway You the advertising some your that that of ratio? undesirable inventory from are

Bryan DeBoer

two things. So,

is inventory the Driveway each other. stores' leverage inventory Let's remember that that they

inventory would want. do they they left get that with So not never

from that we comes and channels, ability to valuations our primarily provide. through of our to the terms three cars the ability customer that buy In cars procure

specifically don't in do traditional market our we channel. market We channel. Driveway So, specifically in our

the we I mid-quarter, the valuations fact, the giving lightly, were shop And okay. now, it actually our had In sell ratio everyone curtailed with think, affected that assuming trades this do up we have drops time to caught that to on be and obviously the else, we being the to we first that. last as and that there quarter into well early supply typically And sensitive is are to quarter, able price year happen of seasonally.

well. into So we the give guidance sale which field or in as those algorithms did valuation adjust does algorithms some pricing on Driveway, our

David Whiston

year, compared want And Okay. to, and a vehicle, they to now, perhaps finally, if say, saying, when used going especially, few in more to than shortage consumers they willing walk wait more a a are few end ago new this are way out? chip the other were to or months earlier coming they go months they I the am ago? stubborn for Or just are more they

Bryan DeBoer

where cars manufacturers, do up pipeline, with are days advance. we to fortunate So our XXX have those especially very we domestic are spoken into that days to the for in visibility XX

So that pipeline full. is

in converting at vehicle Driveway, framework, our new vehicle financeability used new an end see And more of in as That we ultimately, from used that's the we typically, transition obviously, a it, which we When early a we current from used decision it with individual to a but consumer. margin of new. at to national a GPUs. that or help by vehicle has look because said, able those again, the to year can Chris disclosed next isn't does our to consumers terms as have as have by new be year, as vehicle, do you a But be vehicle, from individual In by discussions consumer. type with deal to should do and or that end time, able next will the Driveway year past. technology of of in you scale on consumers, reaches

David Whiston

you. Thank Okay.

Bryan DeBoer

Thanks, David.

Operator

the to over management reached closing have I to the for We like session. question-and-answer comments. end turn our back conference of would

Bryan DeBoer

on us on fourth-quarter started. And would all. I today you also, and Lithia joining look and on, for thank are this comment, Thank results forward XX-XX you we and again, just a update Thanks little Cherie. hold to you getting make we February the Driveway's updating in plan.

Operator

conclude does Thank you. This conference. today's

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

Lithia Motors (LAD) 20 Oct 212021 Q3 Earnings call transcript