LAD - Earnings call transcript Q4 2021

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Operator

Good morning and welcome to the Lithia & Driveway Fourth Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I will now turn the call over to Jack Evert director of FP&A. Please go ahead.

Jack Evert

you. Thank President Bryan COO, CEO, President Tina and Lietz are Vice Holzshu, and President Corporation. Charles and Finance President Miller, Vice DeBoer, today Chris and Executive CFO, Presenting Driveway of Senior Vice 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 were 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 to posted like updated and DeBoer, Investor With have Lithia presentation fourth-quarter over on would CEO. that, highlighting I We call Bryan investor Relations.com, the website, our results. President turn an to also

Bryan Deboer

morning over welcome Earlier $XX.XX company Thank you, quarter share, adjusted and in everyone. reported year. Jack. increase today, XXX% the history per EPS at fourth highest last good And we

share. generating decreased us of navigation contributions in XXX adjusted XX.X%, to basis annual for billion profit $X.X a growing a EPS was the year, per the points adjusted gross resulting in EBITDA of successful coming supply than of $XX.X, revenues e-commerce increase and from as demand billion by acquired SG&A percentage year. better last in environment. full-year and over businesses, year's were platform $XX.XX record driven XXX% $XX.X last Our at also Record our over

leveraging Today Including year our to network. data, completed our initial generated omnichannel just an plan, efforts, company million to delinking of are is We billion follows. cadence the XXXX & performance in in where over since The a of these leveraging seeing we state and adjacencies, growing of diversified the our and revenue X of vision we for in nearly XX we under inventory and updated year our XXXX $XX our our $X from transformation from $XX revenue eclipsing annual higher-than-expected each we well the are of into scale Through beyond well launch in run historical revenue underway. are the revenue plan a dollars billion early in M&A to from launched is our and $XX EPS nationwide ago, billion in retailer billion we producing only Given of acquisitions, EPS. our as months generated in network $XX relationship of just Driveway. EPS revenue. $XX and Lithia plan rate future plan and a the constraints, provide and excited customers EBITDA EPS. grow despite earn $XX $XX billion full in annual returns now

acquired and contribute will that state in Next, Canadian $XX.X billion we have businesses entered steady the market. annualized revenues

the the XX% Our of Driveway, we inception X,XXX over month within now achieved XXX-mile of XXth January, reaches radius in physical footprint since transactions. a consumers

rate $X.XX used new the U.S. that the to considers Lithia When DFC's as our stands target believe over at and billion revenue e-commerce The portfolio increased billion Finance revenues. were in channel of $XX million revenue to blended in XX,XXX a $XX sales December annual or combined reach of Driveway addition, In or EPS. in billion factors. now run QX of Sales $XXX in LAD every XX. produce we in $XX e-commerce share. XXXX, representing in vehicle dollars market X.X% EPS, in volumes $X.XX revenue $X following we will reflect profit

and economies increased billion four a and green levels, to raises, productivity, expect improvements brand to leverage returning underutilized further profit percent We in further GPUs billion $X to as XXX from scale in pre vehicle annual meaning in do is investment continued of cars American a scale network, dilution Total of marketing revenues SG&A personnel of Next, EPS. to to -pandemic awareness Driveway of national included. driving footprint capital Acquiring complete any towards locations. of no equity the XX%. of not gross $XX further our build North out our

evaluation investment rating borrowing decrease in for buybacks cash capital M&A of the allocation disconnect. headroom investment-grade free an for Next utilization Flexibility in driving and and flows costs. and event share internal

benefits due higher carry from early Continued current reserves to drag CSO margins XX%. SG&A we lower as adjacencies And structurally a profitability penetration targeted our building of -tax of with pre X% to on DFC scale also costs. from rate finally, 's approximately that

Given that in XXXX, will outline as growth potential. fully still businesses the stages contributions extrapolate above the our be in such, EPS from doesn't new

such, and billion attained providing the of up a $X with towards X% maturity, at market along plan, are from base opportunity $XX to insights As we adjacencies. future the longer-term EPS. dollars produce revenue that those see Layering billion in reflects into on the growing benefits we each completion also of to factors for these at XXXX the in state share, to contributions revenue known U.S. other

no state future contemplates seasonal reserves. recognition with headwind the of from and financed to Our XX% income. DFC following units there the of Up outpacing recording drivers. additional are interest is the

percentage consumer such of structure horizontals optimized our to is And new beyond. specifically, a and slide and fleet provides and gross glimpse further now deck review XXXX will XX% insurance, website. are as as Please verticals finally, and lease look our profit. cost More a new a into few how LAD Our IR SG&A developed. below minutes slide XX and take in management,

market refreshed competitive also new slides timeline, in information advantages, the and the have appendices. We

physical more. emphasize network, important synergistic relationship between adjacencies DFC to Driveway expanding to our Turning the It's acquisitions. and and like

of and proportion sales higher accretive reconditioning, acquired In shipping experiences, businesses turnaround with solutions, addition quicker delivery, to faster no at being after lower enabling inception, cash and Driveways times flow positive to support fees. highly costs, in-home EPS sales logistics for a

that base third loans, life critical of we accelerating originates and the have to quarter, DFC to these the in Region expand end Together, from its $X.X Since billion are businesses revenues, to these which the throughout generate In X growth. brand density lasting Region and services, addition cycle. experiences, competitive advantages, also completed creates Southeast vehicle the acquired impressions acquisitions Central the the X. adding North annualized expected ownership

in Looking under contract forward, $X.X we have or annualized billion revenue LOI.

with completion of as employees. out of is X ability approvability, and industry choice, meet In target XX% with environment. taking to into momentum to priced marketplace. of This that XX% XX% network smooth of in to active will Driveway times entered X,XXX revenues year of find confidential remain January its in grown over physical EBITDA. after-tax at confident by transactions, or XX% timely in one manufacturer that pipeline addition, known are the volume return the transactions. month, us XX% discipline our in We step to buyer our has $XX closer and certain our threshold post-pandemic that the retaining had deal continued Last to XX,XXX we profit December shared LAD over over build-out deals we due that X performance transactions significantly our billion. XXXX to Driveway ensures This a since our

were channel positive and our in never or beyond it growing the past XX markets with incremental Over brand we're our transactions to reach expanding have how Driveway consumers, is operates. years. our responses awareness, local XX% excited the in and are receiving with of transacted the Lithia Lithia We from the which us

be distances In miles, to will addition, and out XXX shipping normal, is return shipping average the our was network believe once distance meaningfully inventories we though built fully less.

our We continue and new improve, Driveway.com. platform proprietary robust we a done, car finance team. to and launched pre-qualification George to functionality this learn, and fully year, add module. more well new Earlier

rates parity our in side, advanced the These e-commerce peers consumer or country. sale optionality. every Driveway the of enable now further functionality by our continues us provide expanding significantly new at to our features On in-home market with shop and delivery part been that is vehicle our to used our increase and will longer. to more technology have conversion

and and U.S. XX% to totaling the in markets reaching our expanded X the of quarter, nine During Regions now population. marketing XX X another markets located

to advertising year roll-out the key expand our we campaign recently radio, the on nationwide sports markets, progresses. continuing nationwide While full launched laying advertising for groundwork budgets of as in first the

Our conversion Driveways improving and rates, in centers. our targeting performance on laser-focused care three increasing is advertising spend, team

the overseen executive generated adjacency President mature the EPS. recognition level e-commerce the and the quarters joins expected XXXX, DFC's of leadership, in in For billion shop of transactions a grown inaugural the with Under of insights or is by reflects the most XXXX. dollars. and amount the vehicles massively be with our on This Driveway experience just from nearly billion potential along the peers. revenue a on DFC development and to three to the that portfolio since DFC, similar expansion of completed $X moment. Chuck revenue revenue Vice this associated the additional Chuck us a has DFC early DFC decades procured and his performance have Driveway. represents in or call providing is revenues today Driveway used-only Lietz of and of we will today contributed wholesaling offering by disconnect space, retailing subsequent Finance with to our has

closing, of -- and feature model. the to evolution on electrification evo want industry I sales Before future current briefly touch potential

more sustainable seamless the ownership and We continue to future transportation, are convenient lead excited experiences. and we'll to and move

educational are the vehicles and sustainable To performance, research educating adoption launched drive for is the future it's good planet. XXXX, in our vehicles. consumers LAD greater the consumers good we leading for that that First, marketplace sustainable end, affordability environmental to business, not benefits, our for believes to and just greencars.com, of and site that

new be will by we increase champion up industry-leading sustainable about in supported marketing technology. spend to and GreenCars XXXX, 's proprietary vehicle This ownership. Driveway the our Marketplace will end-used powering During XX-fold education further a with be upgrading

shown that convert early buyers cost affinity have e-commerce other a amount our these In the of addition, and about our rate, learnings leads. half higher at

sustainable years appear to vehicles of ownership. sales, Moving after on to first to maintenance XX repair their needs have and comparable X ICE vehicles through than lower

through PHEVs, there one will the even battery affordability ownership residuals, still longer streams is with retain we both and service are income and impact limited replacement and battery expanded in-home competitors. business sales clear. that or warranty for BEV reconditioning, sustainable replacement windows enable periods customer data vehicles and third-party the Combined from retention on ultimate costs, much Now replacements become Today proprietary will to service from approaching total us offerings, expected on on have battery Gen diagnostic conquest it and LAD after will equipment, values. salvage

are on They friction not leverage XXXX removing for just Driveways we Second, believe and consumers. state-by-state franchisers establish is the company part built integral and thesis by that view so a laws the design and in to massive any our Unlike seamless growing targets be dynamic them the track business public technology, removal but into national plan, determined not our and many environment high-growth dealers, LAD and and the customer Financial. other history just company, and plan benefit while XX and framework of from proprietary and XX retail sectors, launch Delighting industries, build benefits the an That trends these and next our activate environment. XX-year Vice LAD the network branding. optionality DNA, for years any of and beginning record diversifying are transformative strong Driveway over few our with we model’s is a plan like responding for those closing, totally U.S. the providing to we to the customers the a and in here consumer and President data of through inception it becoming customer XXXX Southern Chuck franchise In more revenue possible just of in thrives execution and automotive years With economy. the Though its potential creating future I'd is from components laws, a of mobility. demonstrated beyond the we possess, as could different. since experience being of evolution adjacency, what's integrate experience a retail franchise to exceeding in first and our turn has model. was of driven franchisees profitability no to since to since Leads, our will various our evolving unconsolidated in of XXXX holistic, XXXX in a Oregon. our call and that, cohesive, the is growing months

Chuck Lietz

of Thank is designed options provide credit economic you, consumers by to periods internal an proposition stress. flows while minimizing to Bryan. DFC's governed to our risk value during risk-adjusted financing maximize cash appetite volatility seamless

portfolio, near-prime XXXX, financial the the credit November inaugural are of earned. we're reaction excited we we full with risk spectrum we our targeting and completed We credit the a which deal. pricing and with feel ABS of lender offering In market's appropriately balanced spread

loans, our Of to growth penetrating lender. going a originated loan. XXXX, of was largest X% allowing $XX,XXX, we forward, the During in XXXX, 's portfolio XX,XXX issuer DFC reserves and balance recognize average LAD the income X%, the and of standards in and interest loan average approximately the became origination originated life rate over adopted We've us capital become the retail interest We risk. QX the programmatic the retail with units plan credit the of the loans accounting ABS required amount upon to was the and FICO average loss where score XXX. CSO record loan was over

earnings until second year. loans result, to a the As generally accretive not are individual

XXXX origination our however, profits. future we clear. will and Given our to is loss faster plan In DFC's beyond, state, be ramp growing than through contribution reserves

penetration on partners. pre penetration with between rate and Assuming a could X.X earnings XXX,XXX DFC's not annually. million million XXX,XXX lending relationship believe -tax sold, $XXX XX% our We will to up XX% rate to of our DFC impact and units targeted contribute originate loans

future significantly enable capital incremental The to the DFC's a revenue. and state of by will contributions. us alone EPS grow cost-effective in DFC than to has faster potential DFC at and Looking the further LAD manner. transform amount generated grow

Next, I like turn to to over the call would Chris.

Chris Holzshu

LAD integrate This have We be for powerful a will Lithia adjacency and and to our you, team huge and a the scale Thank complement network. massive you to within Chuck. core business this Driveway. appreciate profit job your engine done and

locations however retail, all evolve also Despite business for year channel to of of XXXX. inventory of our Lithia ensure coveted highly for is performance plans execution high-performance and This acknowledge company and and winners of relentless pandemic the by award culture, like of automotive I whenever, Looking automotive achieved to most congratulate to also continuous a the highest throughout on record vehicles pinnacle the experience, want group, in the and impacts resides of performance I'd elevated the enabled on a our back to levels growth members. continued -- mission the represents our XXXX. the set our focus and us one of team an they Recognition customer can years their profitability XXXX powered challenging LPG and thank create wherever, the people. operating up of improvement Though and to sell, our these LAD, in demonstrate their or service and high achievements another member in the buy, partners ever shortages, exceptional to that customers level the or of outperform significantly LAD desire. LPG annual XX,XXX retail.

on to convenience and That our in-store or address we game how beyond, nationwide we how our in service how volumes decreased retail price to upping forward and business will practices call experience. and technology recondition elevate preferences, vehicles what of we profit. we to Driveway, increased and Looking the in readiness. online, higher and to XXXX in on our use changing leaders customer percentage gross store means drive evolve continue a consumer SG&A vehicles, present actions as sales These satisfaction and transparency

offset by year. quarter demand volumes the year, and with were gross last per XX% over continued compared including decrease sales Volume national the revenues XX% profit the environment which higher decreasing same-store X% consistent SAAR. vehicle unit, current volumes last be in by with in fourth to increased to impacted New supply F&I, declines decreasing

with year. profit used in decline volumes the unit, up last same-store vehicle XX% offset over revenues increased and F&I new sales gross in to volumes XX% vehicle teams Our compared XX% excelled Used up last volumes to increasing including year. per

actions team we XX, vehicles new used From had store inventory XX As their supply our procurement supply is of days’ days’ leadership of and perspective, taking of within control. December vehicles. XX are an that a

our us to expectations, market For and incremental increasing velocity new share this allocations. exceeding manufacturer and sales means allowing vehicles, obtain take

and vehicles we're the we network. the from used retail retaining it's our consumer of directly sourcing wholesale versus and increasing For vehicles proportion vehicles

XX% of direct fourth or such the channels fourth vehicles earned we other quarter, from from we profit sourced increased wholesalers. faster. we $X,XXX of gross in as In were from For vehicles the turn more dealers, and XX auctions, sourced XX% used the other days consumers, quarter, consumers X% by percentage over them and

by decline and wholesale warranty XX%, was decline and XX% XX% increase by offset X% grew body service a a to driven increase Turning shops. customer revenues in in which in in X% parts, pay same-store and parts work an body a

and return habits, while of XXX-basis anticipate over supply longer investment fourth benefited vehicles grow SG&A, incremental to unusual In teams gross on vehicle for a summary, consumers foundation the a for this incurred percentage DFC. quarter hyper profit as of the new hold this last increasing in dollars operating on costs to was offset at shared As quarter Driveway waiting $XX positive executing the are million in The to gross future significantly remain trend by SG&A possible normal elevated continue. profit throughput to improvement profitability the the you. environment. a for to to but our This highest lay driving level year. the from that our with Bryan we Same-store focused headwind recover, metric XX.X%, point during

to to drive our retail local as markets Tina. beyond. and translate Focusing and all I'd With in continuing adjacencies, continued profitability readiness, will to over their turn that, expected lines like outperform increase plan and the opportunities additional XXXX on and supporting business to call to leverage

Tina Miller

Chris. you, Thank

plus following if in support of $XXX X less increase obtaining credit growth defined cash XXXX, billion committed capital to stock-based and another remain adjusted EBITDA in credit, For ratings cash target the up the cost compensation, of today which times leverage between $X.X over a with items grade maintaining paid advantage. competitive as to network flows revenues. $XXX cash, and investment and and We would million the We $X and free available XXX% quarter X with income an of deployed dividends, in annualized be sizable taxes, we interest, EBITDA, adjusted quarter expenditures. ended million generated billion which

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

internal date expenditures, toward fourth XX% the share unchanged XX% Our market the cash DFC quarter free of returns the and XXX,XXX a believed is additional flows repurchased business. XXXX, from repurchase along diversification, at million and capital recent of of modernization, November, and in reinvest we our deployment $XXX. of approximately shares grow always they for board today, it of targets $XXX capital as and Deployment towards toward for shareholder as and volatility, with million. outstanding X% our obtained of remaining shares. we in at to preferred XX% acquisitions, Driveway internal to opportunistically and remain dividends and was have price In representing In average proven have form investment we acquisitions $XXX our repurchases. in With an and repurchase availability of shares, the an authorization investment

integration return immediate stock, us shareholder excess rate had saw we XXXX allow the performance returns generated for hurdle repurchasing from no repurchases exceeded risk, our to return. provide an the our opportunity share from which where efficiently generated Opportunistic ranges cash acquisitions. has However, and

accelerated upside our $X.XX on QX now to future. to of by remarks. even per the to related We remain XXXX the $XX to path well-positioned to achieving Operator. of revenue prepared morning, our would disciplined billion call this with the announced This and our EPS concludes We more dividend $XX questions. like toward our we open into for plan significant growth earlier $XX reach share Additionally, performance.

Operator

session. question we'll indicate this At conducting [Operator will question-and-answer tone Instructions]. queue. be A [Operator the line you. is Instructions]. your Thank a time, confirmation in

of participants Thank follow-up. we up star speaker In to each pressing you time, question equipment, For using the keep that pick the be before one ask it may and key. handset you. one to interest necessary your

question. Our Inc. first Rick Nelson line with of proceed question with comes your the Please from Stephens

Rick Nelson

for the follow [Indiscernible] who's Congrats on just income detail a DFC quarter along morning. pre Good 's [Indiscernible] targets. XXXX on on great -tax term record and Thanks. significant thanks up

If you goes long-term that you could million I think $XXX -tax. review said that target, pre into math that

Bryan Deboer

handle for expert Thanks I'm DFC the Rick, is joining let Bryan. today, an questions to actually Chuck going at us he's since this this.

Chuck Lietz

you, Thank Yeah. Lietz. Bryan. Chuck

across that billion pretax $X XX%. $XXX our of Lithia rate network million, really equate That would and billion a and the loans a to origination. to year we that's somewhere neighborhood penetration overall upon of $X.X originating contribute between relative the a predicated in achieving amount significant So the income, in to really to XX% would of

earnings. we The just hopefully significant would other big of our generate portfolio, grow part amount that and to economies the of as continue scale of leveraging that be would a pretax

Rick Nelson

Also, long-term with to outlooks, referred for deck. slide verticals horizontals, that. new in Bryan the Thanks those that's there's

give what If ideas you could you're thinking along us some lines? those

Bryan Deboer

horizontals our what really the obviously probably importantly, first Most because we're Rick. the next being three that's to largest disconnect Sure, focusing with years the contributor four the to for DFC on and

Bryan Deboer

big is dollars that's and well. maybe at followed obviously, by in and we that. possibly in as fleet be yet to our insurance pilot And as billion had as of well moving consumer then companies, our sure out the XXX dollars obviously built dollar the a from that EPS have few stores, infrastructure are and we density horizontal in sustainable utilize as networks leasing we're that we as could then we grow well. a manner that determined. that almost charging in we another but stages of our that, horizontal, forward as in in And that locations that intend really in portfolio make billion accorded to between And stage to this the generation a be to

future verticals, farming like really of things terms about trucking as are which verticals, the more idea. of horizontals we beyond the same those and those about of Parts. pretty started be think that verticals XXXX business this we're layering talked the and four has it's a leverage be if any the adjacencies new you and the really Service think Driveway, you plan we've the mobility able at of & to and those equipment obviously business or in lines looking in verticals to refer Because or or Lithia are about or in equipment we those and construction easy of type to state the would The Now, both. used sports into power long-haul that past, or strengths

Rick Nelson

Thanks you for On And the color. at Great. all term ask saying well. are at lines? that along could is near as demand, I has attention constrained if [Indiscernible] a to lower-end elevated question consumer prices all a among those consumers

Chris Holzshu

This good Hey, morning, Rick. is Chris.

the think our car which answer fast inventory, absolutely in we've January is best probably the position started easy we summer. seen last as since I off replenishing not that as are new

are consistent able units in the back year. we've margins those the the out seen at half We of retail to that of really

capacity. very So, in in taking possible demand that high both is right and now advantage new we're much and used as as

Rick Nelson

good it. hear to Thanks, luck. and Good

Bryan Deboer

Thanks, Rick.

Operator

you. Thank

proceed your from of Please comes question next with Rajat Our line JP the question. with Gupta Morgan.

Rajat Gupta

Great. taking the Thanks for questions.

Just a couple.

First platform, anodizing etc. integration, on you a updates, give locations, to -- I platform how evolving any changes is have store it alignment by Thanks. And is mentioned roughly color personnel the with culture this maybe store decentralized you any to in and comfortable nationwide the branding, innings the do any us still how $X follow. in the on but get further updates around billion scaling XXXX. strategy, coming the from we any year Driveway. revenue in early $X to the billion here, Can The

Bryan Deboer

question, and out most it's startup. And more our dealership the market Related consumers Great too. our of into month that's it starting comfortable of the an you we're still in we're is plan like live environment. Rajat. cloudy probably and is looking we're a more because of something Sure, XXth part excited type quite thesis. said, experience of get our it's of with, to of initially probably seeing for we're And but the in-home that about an with XX% what to the

and our that are and a believe talk we fundamentally, inventory. do around So, growth three built and about the ability it. basic in can revolved consumers as how supports to Driveway the find drivers, there incremental little we we But it network well incremental when bit store and the belief

car on to think if model people the on the out versus have So, street any and auctions. ground that is about we model buying you going competitive used difference peer the our Driveway of not the big group, cars X,XXX

we're of also cars able larger a procure Now for portion consumers. lot to directly

So, our across the competitive our source to of are your close working type customer vehicle. fleet is ability customer moving auction that of trade-ins scale ability at starting on the then that in and then to Obviously, depends different customer possible. leasing, channels cars the as with to to a dealer street then lastly, and through

terms scaling, critical. in So, of that's

Okay.

we in get XXX increase unique in of That's a I massive than you think XX% less gaining about Now, about do of think brand to our a quickly let's little That's move MEVs, because a visitors. believe December couple traffic, January XXX,XXX visitors of that visitors instead thousand that. units. a up about I is funnel real and let's moved how of thousand talk what a of Driveway move. couple we're momentum. the units in seeing really from monthly We almost to XXX,XXX if

the With is becoming the Driveway to only went more marketing up over month we're of starting budget that What awareness prevalent. or the month. organic X% see

expands more today, Okay. of a market And -- year reach obviously into bit throughout which touching win programs, we population quarter be only total of advertising And we'll that the national marketing in sports to little did and sports the really country. about a budget outside radio. our moving national the to move is radio

that. about different think to things So, some

is terms in Now, of supportive. network, our network very the

take And to they announced to is really Chris that and we years in XX rollout, members congratulate LPG want into and all this As about able retail where, and prior choose. how that something both help spent when, consumer three to to channels. that in the their readiness we be trying them I for network us is understand had future our exceptional leadership the just mentioned, to

virtually that our Okay. whatever getting to traction one-year we there, is grants and at we've every issued retail grants to believe support those everyone cadence a have reinforce align that stock in now be future holds. we're stock in cadence the to readiness a store we And layered Driveway and with good instead of able three-year are

we X% five share we and all-in-all, the aligned don't country towards the that that to we've to X.X% take market the market got years. ten cars currently really to So that of share sell penetrate stars massive in coming areas the hopefully think over and

Rajat Gupta

That's really just the in helpful revenue, driving similar billion. XX $X this capital $X Probably the well that three Great. Slide next are acquired billion question maybe you're as to run targeting but get two, rate you a year. to on color. $XX over years to And allocation. mentioned

like year, However, be which while, -- XXXX it free this it would seems elevated new means to flow Waco of which we're seems a could like record margins level be excess again. once in going gross another for cash mean

like slide you mentioned, on particularly expect near-term how But as allocation of change curious you than EPS buyback think there here going Thanks. back shift you could before focus Tina in not framework Just your targets to to as context $XX, traditional capital about continue forward, the $XXX So, your deck. to cadence have. that plan? the did we in your larger in the

Tina Miller

This Rajat. is question. Tina. Great Thanks,

and time, internal we've a toward for then capital our XX% that XX% think I we allocation the doing been investment. acquisitions, steadily have long towards

engine As capitals is best acquisitions way our reinvest in generate I as free remarks, use even really are are to flow. the more cash that and our accretive mentioned that capital in

demonstrated a and sense, the see our price, And well in shares, this us something price. math makes with with date. right? repurchases, outstanding back to opportunistically of the watch our about history there's the that as share to similar think I QX we've repurchasing still X% think I active we'll it's share when see when You as will we've of can float repurchases, some you buy what disconnect beginning in done year, and

we'll to think I continue that. So, watch

us gives excess stay to of a those in flow and where freedom cash have lot investing. shareholders, make for around driving good that I think and really we disciplined with we're returns that of structure terms balancing just free a a choice our

Rajat Gupta

near-term return versus that the that returns like Got curious, we're watching more we Just by next like generating? expectations, driven program? M&A should what levels is of months buyback XX be it. kind And the math EPS for valuation what

Bryan Deboer

$X Rajat, buybacks, Bryan we billion this couple $X is good can acquisitions billion pretty about with a that pick with the and it pricing it's a of over now achieve I are in looks on we when and still okay, seeing the the think decent is, basis again, share billion think years earnings right pipeline, and importantly, most remaining to this even steady-state our still we obviously, final XXXX or are year on acquisition, choose balance to we acquisitions, XX of plan.

Okay.

powder dry we get do Driveway share about shares run the getting able our the apply basically what once And X% then that. calculations, on right towards We XX% to back will the world really in potential in us boils now. those future. company's if buybacks our buying back? a of to to as back down it own to it be or shares a you that doesn't can actually that X, we what and buying So, is further lean to return to see DFC way. important company the shouldn't we adjacencies, or the saying be is higher premium buy X/X% the what Absolutely stock isn't obviously as over back market But

more them to buy be what So, acquisitions we than able to constructively are. want back

acquisition of all the believe way So we stock simple to and look in that's of undervalued. I think is vastly kind that obviously, terms it a at

Rajat Gupta

luck. Great. good Thanks color and the all That's good. for

Bryan Deboer

Thanks, Rajat.

Operator

you. Thank

Please comes Sigdahl Our with from Ryan Craig-Hallum the of with your question. proceed Capital Group. line next question

Ryan Sigdahl

results. morning. Good on the Congrats

Bryan Deboer

morning, Good Thank you. Ryan.

Ryan Sigdahl

Starting on it doesn't targets, GreenCars, Lithia from I XXXX the traditional incremental guess looking appear revenue out be to to your business. for core detracting of but initiative, the GreenCars show you

the Just talk about puts, and you how can think you cannibalization there. through takes, potential

Bryan Deboer

Sure.

to able and to in GreenCars be catalyst conversion site to think a to be transportation. the sustainable first foremost, I is educational

Okay.

that's So foremost. and first

of talking educational are that GreenCars. XX. customer anytime base. Know ratios number are of what's those So type the lead things I'm about our conversion components That on almost

upgrading later GreenCars service. GreenCars shops consumers, actually a done the doing outside all the primarily lead for it's look generation really next the and educate as of we in website be to few sell as we'll logistics So, Driveway proprietary and source we're of as Driveway, months, as there the with the the technology, that, used what both are functionalities same everything it's new and But and and effectuated well Driveway. exactly at in

guarantees, changes same no is that structural logistics changes So, need or terms in all no or network there's the customer as of happen it's there Driveway. to

that keep mind. in So,

that about our lift Marketplace, the the that still costing Now, GreenCars from through finding of Driveway. in what site, we the the that, of educational channels e-commerce get leads are are are getting we coming that costing price they're while the half

brand that So, affinity that benefits. we these do an get we the fact like it's

So, GreenCars, we're entire into budget of -- and get really marketing affinity that divert we marketing utilization throughout for Driveway budget funnel is, the that our more what saying some effective the budget brand model. can our

Ryan Sigdahl

potentially the the the the on and to differences going note takes more you which you potential the that manufacturers. And how and old of on or certain Slide ones versus for talk it five years much idea that dealer for then direct that's puts over economic XX why the Secondly, model relationships XX, switching years? can could Then OEMS of is guys? Any through model that versus lastly, go Great. potentially an market direction? you agency agency XXXX next

Bryan Deboer

Sure.

they have franchise to importantly, and most change. state-by-state, are that how we think that's I laws remember

traditional to move and the And sale years. attrition We be to In consumers. state haven't when the XXXX, sale in OEMs country five franchise allows new by legacy startups law we've both about in able to to direct direct a had to changes that any the seen state. manufacturers no of and one

about keep in this. as mind you're thinking So, that

we So, believe this is slow. very

that a really bit as is you they looking primarily moving Western more horizons If agency which Eastern to to little and we'll European working those Europe, the agreements about out talking into of many there like their of move agency what about the and XX get look time those and now, are and at. see model, model an manufacturers margins they're they're into XX, and and acceleration stuff is look

Eastern Europe manufactures. are there the light and where models, in parts agency European the of with Now world other primarily in only

somewhere Okay, of X% between it the looks on XX% front-end like that and business. margins margin the are the

Okay.

So, remember the is the F&I F&I of that some also agency -- being reduced the in model.

know the going to know think move they out, is for we to the if five fairly to they just they extrapolate of years. doesn't also basically laws that was aggressive saying U.S. I the to agency recommitted allow an while but something next being I German manufacturers one franchise is to committed that here, So, what them stable model, margins

isn't Okay. because beyond it. made that horizon And comment that, allow they don't really laws model then agency franchise the for the in

ourselves the and car the Driveway be consumers transparent think the the about most provide position obviously, really going driven think by thought as a new the how our speed that's importantly, And of seamless how we if I to is is we country with we about most I I do to in it's be change, our all convenient and the built in and experience. do consumer. on congruency model, we space. manufactures, think think experience And we better

of believe any the this to as pathway. that that they for such, and or that in pathway event Okay ultimately choose we choose our can partner manufacturers be best able the we

terms an And a SG&A than that volume XX% six of take what in I sales type personnel is of agency our margins was made. you our to in So, X% environment for would we say for are XX% if And what? higher that a there's in to remember pre-COVID in chance about costs in of of half that environment. negotiations. XXXX, It's

are massive. cars in our interest below And line SG&A, the Okay? then cost pretty of carrying

is drives capital. and our of lot a ratio take our leverage flooring and costs Okay, up what

think I thinking model. margin in higher event SG&A than that type when be we shifting low of SG&A occur model, lower of the a this type that really a about would rather did the to So, you part and really and of high-margin model

the think as change are discussions there aren't Rivian, factual that, think now United this States So, I There we who's that we're Tesla that of the leave positioned, you is we isn't modest a DTC. most is not really lot that outside and a last thousand unit’s manufacturer with constructively. going think there importantly, believe, but fact Outside out quarter. going a And the sold I'll DTC. today of that nicely don't to a I in that

profitability, issued agreement a franchise on traditional we Polestar and Okay. of an network. and going DTCs type Even dealer and where through they're get their Hummer override aren't two

be This is So, slow grounded. driven demand. in keep I that those consumer will believe mind, process things of stay off a

Ryan Sigdahl

As always, very helpful, Bryan. Thanks. luck. Good

Bryan Deboer

Thanks, Ryan.

Operator

you. Thank

Chris Paribas. your comes proceed Please of Bottiglieri with line question from next Our question. the BNP with

Chris Bottiglieri

question. guys, Hey, taking thanks for the

Bryan Deboer

Chris. Hey,

Chris Bottiglieri

Hey, to just numbers. run want through some

units much for acquisition? bridge of from QX we that like roughly Driveway, I saying how units that's that's now how So, is roughly it how units, you're annualizing of X.X XXX,XXX a get the sounds there? today, Like using get million of million running number sell Like how that same-store, that that Can on financing Like like the incremental think don't and you you're focus so us? you'll speaking, business, much you to do help much that. why 'XX kind how do you bit? little year-end?

Bryan Deboer

Sure.

as we Lithia. current utilizing a environment with We're return. have same-store sales Obviously, built in the short start assuming rate Let's new in. all growth situation and normalized that in supply will of well, assumptions vehicles a basically our

have that. here? -- So, Lithia at I I get got on, do we look to Hold up ends that Tina, right this.

Okay.

which originally to acquisitions of business. the The core July $XX And X/X so estimated market July hits that core sits exponential at outside to XXX So, which around all the really and conquesting are around and units, that million the businesses network a XXXX which there. through third is about post will around the development, includes Driveway Lithia the $XX e-commerce XXXX those the was network remainder all billion, in business, makes prior was business units growth Driveway. the for some thousand up and come the share is that of of

numbers. those bit get Okay to rate penetration the start little start to do extrapolate vehicle obviously the financeability of to XX% rates, you higher terms can to We and our then use in penetration business. that, XX% a we on of used when

we're X.X state, we ratio. when used almost So, get to that new to

to a new used bit one would different when today ratio. to what we're X.X look at So, than sitting little at it's you

Chris Bottiglieri

used is Got you. question mean take roughly [Indiscernible] another a financing. There little conservative, customers your I take that, I'd would XX%. penetration your seems Typically, of I XX% penetration CPO you is ratio. had the think

So there's XX% like roughly that elsewhere. get financing customers of

that to to higher. still XX, you're Is gap? why using XX. you conservative last like that like there's just a XX is seems partners? that the share it to ends us of where think you're certain help you like just competitive it or can't [Indiscernible] Of it So, finance? that Is XX financing, that the pretty of expect platform Maybe don't a have through want credit spectrum not be

Bryan Deboer

Yes.

[Indiscernible] do. big or use let really you reserve a it could steady maybe me we and talk penetration XX% We And saying to as upside So rate steady-state XXXX in never when state. start used be state higher. you things and XX% drag the on about of future get obviously by our has ever that an until

how partners think penetration that's our our customers new them all XX% manufacturer the penetrated we cars of keep we and product that currently about about and that the brand I period on lead time. rates, is when take we in longer importantly, for most a see materially, of think retain I leased. to our start changing don't

there's a cash. that new large that's portion that, financed Beyond then that pay XX% on and there's of consumers truly

that are really a we case, we XX% best terms of So, new. think penetration in at probably rate sitting XX% to

penetration a not captives our is it's of is only and of selling We're XX%, the certified the about used it pretty lot levels low rates. XX% the still, car On and penetration. deeper penetration certified side, cars same actually

to to is the it most want if do likely grows, theory, But able what out on that? do knowing to anything that We in in used be when longer. you're a years penetration right. you again, years add XX% we Chuck, may illustrate we're yes, to So, case, start or XX%, talking vehicles. even up have think now to three to little four XX we

Chuck Lietz

to also partners. that want continue banking lending relationships to our we again, existing maintain Just, with our

our other the they provide another little of so, a and reason conservative why side. rates us a on lot services penetration And that's are to

Chris Bottiglieri

Makes perfect Thanks, sense. guys.

Bryan Deboer

Chris. Thanks,

Operator

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

John Murphy

an Good This morning, question. is overarching guys.

this over you previous as trying just more what point the question, through look went are capture the automakers but and revenue beyond of to doing You sale.

the that it, doing -- some You direct-to-consumer with of like call fashion are look want But I to, model to is rep it already you similar help, which your looks yourselves, whatever a replicate mean question trying in efforts, you models, form this ways, sort call agency here. they're semantics the in of or that. to it online some the

In Do expertise time. networks in or this it would going you like U.S.? how positive mean, curious. like But over greater this revenue leverage backend the may you you a as giving as of developing? the large call is this there's end. partners little the but How as you Just be and in front stuff, of and foes? it of in net play what to a maybe view share country, thinks this maybe you. more all I bit a partners and your and want them for your leverage take a of It your by network seems they to see Because lot to demand the strengths seems in do the you

Bryan Deboer

to about more most way. them other. a think something and think trying ideas dealers customers. the fundamentals that communities all trying to I think doing think ways find be and And too. I the something what the maybe they're meet transparent the total what helps to that like manufacturers things equation, that dis-intermediate. ways GM and bring And that is the are simpler the that entire I I so to idea each don't I is the you believe get to the relationships dealers think the customer-facing of going trust understand think profit that we Driveway, their They with and replicate think manufacturers, educate more one-on-one and are involved to they formula many part of dealers we is this When equation. so that John, right,

that ways make want they of we to start thing can the to think think they and feel -- from exact experience I the more are dealers transparent the finish, as same achieve the how exploring and same exact things. I we're

it start Now, at. start channel, believe is if about it's maybe new is of they're or that's where this you that don't perspectives total other the where of think from going, okay, a DTC the this I

in sustainable space be about some the compete plenty I think to happens do to able Tesla, this have have than like in with to that of manufacturers what profit large think XX% making they then entrants And and manufacturer new build post-sale. is I challenges less worry rather what vehicles dealer that this what the and the is of think when we dissect than the and makes. normalized makes equation a amount a dealer of margins

we'll And car the closed. share right call was find with it's to our decentralized imagine that when that big friends. to and and that are DTC manufacturers buy Hey, that grow traditional our buy are think foundation create in trying have relationship think And the maintain the to to transparently it's as is I massive fact competitive So, let's when takes and OEMS a one-price keep dealerships and that thing difference, this And more it said, all over are way can And running as partners our do to And bravo. have in ourselves, this able of traditionally many the closed. They Driveway there that advantages actually I relative isn't consumers partnership I you environment, model. OEMS. the important is that the today. OEM ones is those achieving. opportunity to dealerships a the a be in between some out managers the our that an consumer and the market foundation John, general or are are like together, the the advantage our we time can of together power

sales CPO making online those vehicles come buy that new OEM service recognition more that put shoulders leaders sure to which squarely back group, and back partner getting improve but and on do something is that both we focused that we for focus turn so, rates that. And even back satisfaction, we as importantly consumers and services, where give operations in the our important retention that the comes on online, on is of we service, customer inventory

thanks question, as the look And so, for them we at friends. definitely

John Murphy

and them then they're And specific with they're the follow-up being constructing and two just launching these seems -- like it implemented. as CarBravo, a [Indiscernible] they've things they're

or like tool by it's of for they I vehicles want a CarBravo want to it's is where think I'm somewhat to GM -- network just the moment. it's does vehicle in second -- the maintain how that go large it really third set it's pretty just the think owner, getting still vehicles how your going of And portion in yet these seems the the really which like help and go does economics end might GM used game the is the specifically, is my dealers, -- seems CarBravo, are not you to it are vehicle. potentially to to which to things. Do what at the third as recaptured to because they XX-year-old XX- getting a opaque the impact business? is and -- but your the to take? the it then to perceive -- what understanding you that term trying that third Maybe your drive up. you because with volumes positive understand In be of that life the

Bryan Deboer

back that build I ultimately, have does dealers because to visibility, marketplace but be it the inventory? about also inventory. have ones it the dealer a would -- the think are to go I who a The fearful as controls wouldn't I

as, we two that XX- on than I inventory, need vehicles, in like though the What that the and So, a even XX- leases. if okay, this to so they is going the looked about demand? haven't in the beginning impression & pipeline even take CarGurus really if we a I there profit part Driveway XX-year-old to But they terminate them really our at dealer have event they're would of trade learn of a us them dealers back of hyper brand from sit and even I cars can much many we them. will we type to Cars.com you have you imagine in say again, or this to done that the type larger I small to to those they off lease in the years initially rather venue. Driveway than of which And equation probably and of building it's And that do have. XX-year-old selection manufacturers past XX-year-old inventory ultimately their that it been we're to aggregated when way it's don't for and end now, more successful early vehicle have Lithia five that control GM what model, the know find don't in believe process of XX- would the look will own need

John Murphy

disenfranchised you or means whether a disadvantage -- automakers, or is the them? this I I'm powerful this the mean, occurs, means just to understand that. on just what that be believe the Okay really landscape. otherwise will if then or and organization more full more network actually at further for that one trying for it just put dealers helps communities is and smaller as you does it follow-up you that Do much your

Bryan Deboer

for to around vehicle It has the something may going think of inventory back and The importantly, done be that's least to with most that at the somewhere. reconditioning compete but dealers I that Driveway, that that smaller design entire to consumer logistics a then venue procurement thesis site, procurement. the remember the give is to and

profit the and to used you space. to the that networks and have the equation when into So, about those the the at ends be of the up entrants price with to distributed how know the dealers the be to ones closest model technicians, of works that and the where being, expertise, think competitive affordable highly consumer new it vehicle able end do an keep cars maybe the

You have down -- a

John Murphy

Great. Okay.

Bryan Deboer

thanks. welcome. You're

John Murphy

Thank you much. Okay. very

Operator

Thank you.

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

Bret Jordan

Hey. Good guys. morning,

Bryan Deboer

Bret. Hi,

Bret Jordan

way -pandemic think, could to go I to talk levels? record about all the GPUs In from see Hey. you 'XX share think Do levels. GPUs? prepared you at talked and think remarks, think X.X% that they'll it's the I having about -pandemic a back model the pre you said you realistic market the current the that how pre the And cadence, you step-down

Bryan Deboer

that and the by demand that let believe and is start the on that are little not ultimately inventories, glimpses Driveway out, to bit improvement, focusing Bret We question, me supply. margins has spoke we Great question. okay? still I Chris we a Lithia & ultimate and made think things that's on the -- saying history what can the outpacing but seeing of to sidestep their So control,

or all increased recognition Bret are extra XXXX X probably margins or adjacencies the there's does like no it it's level, the so window we event things to next whether us margins, million and show model, build paying it's new we would don't benefit them to and the there that for event different do ways customers would whether we in they it be the that find our budgets seem thing brand cost to network longer on. our but that annually or a maintaining like capital day may like, and in than have for of marketing some for service in normalized return it's growth to every can the whether So the leverage lower and the to big that that elevated do they And consumers some

cases about even likely our or we model, the may right, think model. most try is, outline than do what state of what best a as we now, think I or So, be discussions XXXX of you steady-state our is best but future what about case to type rather more maybe

Bret Jordan

north the opening pay, Okay, in Obviously, service the that normal on you you've the the issues where new supply or in market customer that the something chain get more service is that of they that related dealer growth the after-market? side to pay. And because is summary parts fourth of business, seen is is obviously cadence a in parts could And quarter. being customer great. then then hit you the talked XX, double-digit about of of independent can't buying

Chris Holzshu

This is Chris.

side that to OEM we're really rather demand, what's side of really seeing warranty year-over-year, the high impact also new allocation vehicle than what the is parts, was warranty. function electronic OEM of specifically production are -- where which even sitting a for you are think I that in up seeing on going our business you're parts part parts where down saw is translating on is over non happening wholesale on - the the into

our levels. I and that setting for for up And have is customers the best record think better, age I back is nicely where best road, miles vehicles having do of stores, is us so, wholesale, coming think the driven we on the side, the retail at products, for recovery are as being is increasing, both on offerings, in part OEM the which good, the wholesale

I it a good and tailwind XXXX for up beyond. sets us nicely for think

Bryan Deboer

this so by amount, -- less key needed Bret, in be basically small X%. day a in same-store sales affects we were Hey, quarter of -- about the one where year, that incremental sale tailwind. XXXX. or filled were flat We're There number that were wind a other and other still a we with keep previous Chris. to was than that lot couple Good, we that one points. X.X%, in Also mind, it's in the from

So, those it's more said. than probably but XX, Chris similar all -- to are things around XX what the

Bret Jordan

Thank Okay, you. great.

Bryan Deboer

Thanks, Bret.

Operator

Thank you.

from Fargo. question. Colin question final comes proceed of with this morning Langan Please Wells Our your with the line

Colin Langan

for questions. Thanks my taking Great.

above and selling allocations. automakers XX% these of and and recently MSRP One, MSRP? might concerned you comment dealers made pull You just pricing The you they're of concerns? are one above as XX be actually maybe is, a dealers that there are the that's dealers are charging sounded -- on in margins down coming a little the low, future tracking other that of you on based think where industry those maybe payback kinds do about

Bryan Deboer

question. really Colin, good Sure

field. that that doing. what they I do decisions big in claim to and make based stores fame our Driveway's those think supply off are & their their And is one competitors the Lithia of

So yes, specific what close demand is MSRP. specifically customer we network charging do have some numbers the allow in supply track don't our is over what it to decisions and stores local to make we the we We as that are have and because that don't market. their base because

Colin Langan

Driveway increased that then in upfront or booking thinking impact of the a be that losses Financial. broken And this is your Is of segments, year, it's scope company? Is out some the book? the in in of Financial also, Driveway or recorded -- mentioned where and losses used, all You SG&A in -- commentary, that material in for we new exactly the immaterial is that or is it entire advertising, the the or a the where on should

Bryan Deboer

run for Tina let okay. through going I'm that you

Tina Miller

it so Yes. I time. mean, on to DFC not this in net we're business, the point not with impact at income the amount SG&A out. The break statement DFC and is we material do within required

well those building so And reserve, [Indiscernible]. that and the SG&A is as that of the costs as any headwinds of impacting from increasing our [Indiscernible] actually

for can augment an our you businesses it's to stores. advertising think those Similar trends continue doing. over to and about the how as build time these spend also we That's And we those Driveway as it's that it. really SG&A well built within so see what brands all as investment, so we're

Colin Langan

taking All questions. my right. Thanks for

Bryan Deboer

Colin. Thanks,

Operator

you. Ladies session. comments. Thank our back DeBoer and that for turn concludes gentlemen, will Mr. any question-and-answer final I floor to the

Bryan Deboer

And all. us Driveway just few Thank months. you look in and to for the first Lithia Bye-bye today joining you, for thank a & you on updating quarter Melissa. we forward

Operator

Thank you. concludes today's This conference.

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

Bryan DeBoer	President and Chief Executive Officer
Chris Holzshu	Executive Vice President and Chief Operating Officer
Tina Miller	Senior Vice President and Chief Financial Officer
Chuck Lietz	Vice President, Driveway Finance Corporation
Jack Evert	Director of Financial Planning and Analysis
Rick Nelson	Stephens, Inc.
Rajat Gupta	JPMorgan
Ryan Sigdahl	Craig-Hallum Capital Group
Chris Bottiglieri	BNP Paribas
John Murphy	Bank of America
Bret Jordan	Jefferies
Collin Langan	Wells Fargo

Lithia Motors (LAD) 9 Feb 222021 Q4 Earnings call transcript