LAD - Earnings call transcript Q2 2022

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Operator

Good morning, and welcome to the Lithia & Driveway Second Quarter 2022 Conference Call. [Operator Instructions] I would now like to turn the call over to Amit Marwaha, Director of Investor Relations. Please begin.

Amit Marwaha

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

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

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

Bryan DeBoer

revenues foreign $X.X increase or continued for contributions from of compared stores. in grew acquired the a team. Amit, XXXX $XX.XX XX% second to look morning, to billion, earnings of Good adjusted everyone. to Thank same you we our currency per period quarter increase stores, year-over-year, We substantial updating XXXX. towards driven diluted Driveway and per XX% welcome of on and $XX.XX Thanks, for a and we forward by share reported us Lithia plan. growth Earlier, progress and today, the share adjusted joining you strategic performance business to our our newly

our websites our drive Customers our to our in our the operations. channels visiting second or to Our option our reaffirm share. their GreenCars, efficiencies Driveway to and e-commerce stores value quarter results have accessing in improving of Lithia network the ability ability expand market leverage of of

slight we over the see this to in quarter. in with aftersales, million our We elevated vehicles with strong $XXX generated in continue EBITDA in performance adjusted used GPUs quarter. Combined normalization

billion in markets in performance, EPS of Despite on continued $XX to to revenue Driveway our around deliver $XX our in our recent concerns and the remain and on We by investments track capital Finance volatility hit and were confident the impact accelerated. we're our $XX to in strong XXXX. outlook. about With ability uncertainty, Driveway macroeconomic the

a driven revenue growth vehicle from quarter. across profit Total on revenues all by gross On the to basis, availability successfully with slightly, dynamics. continued year-over-year, total performing all new and strongly XX% our increased highlights driven by few issues. segments, a Now navigating market were down same-store and inventory channels

unit vehicle current by ratio environment our maintaining Our per gross vehicle growing volumes. teams quarter. profit per navigated supply Total unit profit by the X.X:X in the same-store and vehicle increased was used-to-new gross strong and XX.X%,

and goal. we or Driveway units respectively. XX used day June. per X.X quarter, used $XXX new the total supply XX location, ended over unique second of million received contributed XX,XXX MUVs, over that our monthly Driveway of month In or addition, million up wholesaled visitors, the our XX% and retailed X% with in revenue. approaching days, We sold X% or to year-over-year, per the quickly vehicle In month vehicles and XXX-unit quarter XX

over quarter. diverse serve the million XX,XXX $XXX our of continued e-commerce retailed quarter, $X retail subsequent to is using nearly in many customers transactions shop optionality totaling with of similar us to consumer one interests. of and loans by with our and We where the wholesale target Finance This transactions, e-commerce tools year. grow, to achieve vehicles, billion, & what approximately track are a Lithia e-commerce billion allows Driveway our tools. the represents second XX,XXX revenue our in on for Driveway incremental Driveway and set In peers. our evolving sale through interacted in reported $X.X also us our Representing combined integration originating

of was end nearly the portfolio June, of $X.X As billion. the

Finally, acquired. revenues half for first totaled acquisitions annualized 'XX in of billion $X.X the

generating has flourishing that team acquisitions captive the and of track Driveway and financing a continue e-commerce We've division momentum. developing past integrating a done couple GreenCars to record job value also to and a offerings DFC, managed tremendous gain launch Our of years.

We positioned execution assume: with entire improvements, returning market design billion follow. XX EPS. to up efficiency into resulting Starting a SG&A we groups lines. our greater gross generating will through EPS. blended around company across total across U.S. can pre-pandemic divided in this generating our per new three to footprint. towards and across to market XX% X.X% in vehicles; a our GPUs ratio leverage, and business normalized plan billion or network a lowering of in to levels $X the as vehicle; operated operational Historically, and The operating revenues, be are all $X,XXX well value assumptions achieving vehicle $X of our $X.XX continue profit of percentage generating distinct to used has revenues, $X with in of guidance XXXX efficiency The in our improve in and behind share

to towards margins Secondly, expenses. footprint annual $X building to higher XXX solution XXX a omnichannel rate an North lower in Driveway operating $XX reserves from contributions pretax to acquiring of penetration due of and billion our our profitability and revenue DFC's plans as portfolio; of to into resulting XX% leverage on scale American CECL in a around loan expansion an our base complete billion with reaching adjacencies profitability; incremental headwinds we target SG&A-related the locations; build-out continued integrating

I business assume per for & put earnings of GreenCars by total plan to to full strategy translating XX% well sold we XXXX adjacencies of growth the buybacks, our following: will every of allow advantage of stream businesses taking will the incorporates execution everyone we our addition that some investment-grade our spend to cost divergences state, continue valuation. for expand be financed of following complementary allocation beyond and $X in the our earnings; targets. with the no in that to context plan want the billion XX% vision share new growing opportunistic further credit Driveway without Lithia in capital to in up XX% all DFC, and dilution capital beyond of remind value model our financial management: strategy out this XXXX vehicles up to through rating revenue; and equity acquisitions, our generating our revenue. We behind a creation discipline the flexibility headroom in removing profit any in To share lower and believe capital; to Driveway and we additional our statement, steady produce Lastly, to a raises; acquire to capital of could into around customers. our through building an overhang $X

lines leverage We relatively consumer also includes new contributions that small This at XX% electric business and of capital. footprints. and vehicles software assume management, and amounts and penetration rates for vehicles, insurance our lines respectively; of adjacent lease charging for proprietary used stores, business XX%, our from fleet and infrastructure network requiring are regional

M&A shift revenue within the of With we our developing new transportation family. network the update XX% we scale would our an acquiring the & below most value strategy The and or our progress on the and be convenient SG&A vehicle network Lithia Driveway organization customer of diversified with and to of is the framework the leveraging stores development profits. previous will fully discussion adjacencies, like provide I simple, and to ultimate our have gross expect experiences, designed above goal of with presented infrastructure. integrating

we want details, of step the and I attributes back Before the dive our into to key review strategy.

serve customer in the XX% XX% the being restoration considerable target ownership within solution versus of pools we're financing online. our the being of out customers for large At at those Today, that XXX our is achieve network States First, combination. network XXX to United the full to build or any we of a our a distribution, of cycle a a to our of powerful XXX miles quicker costs locations warehousing. us reach in-house life locations day, our miles look customers and provide locations. made able consumer, within and population an of service lower of up approximately vehicle and That's store utilize advantage for and XXX their efficiently within of peers. base allowing our network competitive conveniently miles and That's end at in of of

the XX% of marking acquired During our annualized of billion we $X.X revenues, billion in XXXX total targets in In half XXXX, first revenues we revenues. QX, our annualized acquired in plan. $X.X

team have and our quite reiterate, Investors understand opportunities. trying One, the track a remains and fit that of of an We family. we new we few about on new of climate & are culture. of thoughts into of into GPUs. our given we team a Xx queries been We the headwinds A robust. disciplined past EBITDA have after-tax excited in normalization welcome a our opportunities our rates, Xx macro our leaders from framework, month, seasoned generating strategy our increase and XX% XX% and disciplined pipeline of members to remain valuation our integrating methodical revenues, of with earnings hurdle to I final investors to Lithia on all pipeline noticed profile to want In and in are returns. our for targeting XX% and the M&A. investment to pricing based M&A prices to normalized the new are finding record Driveway assets regarding minimum

plan XXXX historic two our in adjusted acquisitions. XX% ago, and just activity We contributed billion $XX.X our continue returns a to EBITDA has years $X over noteworthy achievement. to launching our achieve M&A Since billion in nearly on revenue,

has profitability. network above America, drives significant North been leverage through increase strong while shareholders Alongside we horizontals adjacencies opportunity representing and approach across capital that opportunities highly which earning verticals, consistently expanding Our build cost. to revenue accretive our to our see

our how We we strategies. growth their our of our are customers, logistics the is new of develop making as with we online retailing. to Driveway the having reexamine to are by traction plan choice GreenCars vertical, sustainable while marketplace performance, many own another confident in premier competitors by Driveway. well automotive e-commerce e-commerce, profitability we to and consumers omni-channel And vehicle powered a our reported remain infrastructure with integrating future. gain demonstrating Our and premier continues learning our to Driveway finding business. become inroads builds business attract to Driveway, strong in presence center physical near quarter positioned

MUVs our most year strong contribute quarter, option a horizontal primary sacrifice hydrogen ability DFC, for boosted information to the grew in quarter, of or down from a GreenCars second growth types prices and fleet on GreenCars risk Higher interest BEVs key DFC percentage During lending state, on XXX,XXX future over have with to million the consumer to customers. of SG&A sustainable activity the and traditional to Corp., June. developed expense and the to provided vehicles vehicles, sustainable posted affordability & solutions of to a options same vehicles. electric portfolio. technicians as in propulsion in the is its breadth $XXX fuel wealth Driveway all our around online level Driveway sustainable growth services pace Finance have of our our of to as and to profit XXX We're driving all of pleased Lithia XX%. also we I'm increase for gross centered To of adoption contributor chargers making for can adding of provide incremental vehicles. inroads service installed profits supporting a the another we at At customers. training of approximately our not date, believe provides near-term our

and Lithia & our I'm in deliver remaining Driveway and strategy While conviction confident beyond. strong, we're plan to remains on well the XXXX nimble, positioned our

all acquisition the Our of of market sales mix, expectations. performing best returns growing retail. are verticals ahead some in strategy of rapidly all on and share portfolio capital and generating We're

is allocation balanced, marketplace. in strategy take of and ready advantage capital Our dislocations we're to the

in We place changing have conditions. and right opportunities respond find the team market in to

consolidation largest continue to call of like With growth, retail sector world. over the the to will to lead in We and turn the Chuck. transformation that, industry, I'd the our

Chuck Lietz

accelerated growth Bryan. you, DFC Driveway's our in originations. largest lender we as be continues Thank to Lithia &

rate of DFC's X.X% the rate quarter quarter, in with X.X%, to June. an penetration For XX.X% second active prior from up increased the in

our up X% readiness than acquisition. communicated customer the from customers full our Retail been have to X% rate DFC possible revising our quarter. new value focus XX%, our readiness. last of rather of are between not without and to we cost year stores' for maximize the on potential retail realize proposition revenue XXXX, For to penetration This we incurring continued existing would critical frictional is

maintain fully on by originate as We finance continue an the is Xx to partners. on contracts which, we appropriate return third-party lending as average, loans risk-adjusted profitable originated

impacts of will DFC and our achieving guidance we Bryan penetration consistently expectation $XXX to contribute Lithia will margin state of the was of industry average second As to From to weighted XX% quarter seasoned quarter, be weighted look future Driveway interest on in increase fluctuations. the rates we negative FICO both our a higher Last, Driveway. as FICO quality increase and are revenues. economic primarily maintaining originations quality of with of potential potential modest rising is our sales on this credit able credit predicated a respectively. spread quality billion XXX year reaffirming of we of the mature portfolio continue & true base a noteworthy first a earlier, credit of origination leverage basis all our top-of-funnel a XXX the compression to DFC rate impact & million XX of being interest environment, any indicated a that after score to earnings we in in attributable by the a captive. The in minimum in experienced $XX particularly Lithia average to points This and perspective, and DFC mitigate rates from as

Miller. a and financial I'll increase short sacrificing yield our basis by will spread compression conditions. We real-time targets balanced monitor against without risk-adjusted turn maintaining total our targets. rates rate the CFO, market over ability the in rates internal market yield in achieve to mitigate risk-adjusted our now to continue call to Increases our will portfolio and rates term on Tina DFC's

Tina Miller

for profit was quarter XX%. a Thank SG&A you, as gross second quarter, of the Chuck. percentage In the

steps across across Driveway our with gain costs take to basis the management our and We're enable utilize drivers margins and to lower reduction were platform Finance leverage investments our our of teams Driveway-related in reporting in across necessary points. advertising main their insights contributing Our performance Driveway XXX the the confident network. to and ability to operating

as less in adjusted to $XXX benefit EBITDA, million flow gross favorable positive our of XX% operating XXXX stock-based the same and in normalizing in the profit taxes, a last define adjusted interest, and realizing flow. of XX% plus quarter, capital leverage expenditures. a free still see generated GPUs, income period compensation, over the EBITDA as to second are over free $XXX dividends SG&A year We cash following we which, due We paid increase cash: we elevated in time, In plan. the cash million percentage items

not EBITDA of $XXX within X.X in $XXX does full cash average the X.X% purchased opportunistic contribution at the per an we number include of quarter, of this or reminder, months. forma million last a Year-to-date, acquisitions flow. generated As shares our We share. a free XX pro outstanding the price repurchasing shares have nearly were of million in

on million $XXX under just have available We authorization. our

shareholder balance Our acquisitions, and to investments as internal capital allocation and such Driveway continues DFC return. strategy

that Shifting personal positions Our be approach come. strategy durable in is us the to a leader balance years to sheet. space to well a for the transportation

debt net the We our quarter, X.Xx. adjusted our the investment-grade maintain At discipline. continue to was of end to EBITDA

an generating the possible In position, to Our allocate liquidity and particularly are our the shareholders. we auto capital macroeconomic hypothetical returns puts of in for effectively changes in us and volatility sector. around underway poised manage attractive to team's environment advantage take risk of ability and conclusion,

into balanced approach and capital $XX in Our with the open now and the $XX revenue would up concludes to our significant from billion $XX runway We growth audience. to This our the us XXXX Operator? EPS towards plan remarks. achieve to call in prepared to questions of sets like returning future.

Operator

proceed Our Stephens Instructions] first Imbro with Inc. question with question. Daniel your is Please [Operator from

Daniel Imbro

for to Thanks unit the new on want taking questions. guys. morning, start Good side. I Bryan, the

bit in just bit down the around there, weaker about same-store that by of maybe driven quarter? the drove second think that you little just than the you maybe the Was Can in for a a think one, any a particular? industry. OEM here industry surprise XX%, I what underperformance talk

Bryan DeBoer

our which our us called market down our something actually X% relationship the help We industry, compared were market Daniel. called franchise sales measure in as the do and in actually percent that, new share vehicles. doesn't is XX-plus Actually, share. MSR Sure, read-through the to in And actually brands, efficiency. which mix of up show year-over-year we to in manufacturers

Daniel Imbro

it. That's Got helpful.

Tina, So moving SG&A. maybe just a mix to shift.

called Finance points curious, But can of I you SG&A I'm you think last XXX quantify impact impact think out I advertising. as reserves, is? what the Driveway flowing net of from said you CECL basis Driveway build quarter, the line. that's a you through loss

impact the yes, that, quantifying help quarter? any Just the in

Tina Miller

Yes.

Driveway and at it's when we look impact SG&A about So XXX combined, to basis combined. Driveway Finance, point

we by most that So reserves driven CECL take Driveway Finance, that's to of need upfront. those

the there's interest obviously receiving. those offset that some loans, As income from we originate we're

Bryan DeBoer

the net $X.X was P&L I think rate. in the burn impact to million quarter in amount

Tina Miller

DFC. for Yes,

Bryan DeBoer

For DFC.

Daniel Imbro

And wrap And credit think, at this Finance. point just internally. just mentioned then going kind I you're plan FICO modeling then, Great. to I do cycle up up. the just kind curious expectations earnings. piece related, almost disclosing some Can average XX% -- as profile? you as on Just a it's in of out trying a your you penetration. such bigger you of follow-up or are that the how remind guys of charge-offs forward a start it credit delinquencies? becomes have that as But to guys Driveway when what are to to up about credit for was think those modeling the us Chuck, mean of metrics

Chuck Lietz

Daniel. you, Thank Yes.

into prime I based upper target sort my the lower the of of credit the of are of economic to market. just spectrum. in terms near of credit our up looking environment, scale comments, profile, portion the we sort as the to is indicated on really In our be move on tier clearly But

upper order just prudent be that, XXXs. even weighted our over that's in FICO say fully And metrics. return achieve our to low time think would XXXs, migrating maybe I the risk-adjusted should average burdened to So we

Bryan DeBoer

terms timing then And to... want do in for reporting, Tina, of you

Tina Miller

Yes.

portfolio end see reporting I -- the and hit that we that sheet our time. but probably the think the getting as year-end be of we our do the disclosures XX-Q, in already plan with QX disclosures year-end of DFC's Obviously, adding some balance part we have toward cycle, as the a disclosures around we cycle. grows, on reporting to larger

Daniel Imbro

best all I'll queue, in appreciate but luck. I the the Great. hop back color. of

Bryan DeBoer

Daniel. Thanks,

Operator

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

Rajat Gupta

you gross -- question does question economy into the or boundaries Thanks the what for that today the vehicle F&I? to or moderate mild close XX than scenarios? follow-up. first good do maybe levels business million you point like expected, planning normalize just earnings SAAR prior pre-pandemic severe environment, XX scenario probably given or recession? taking GPUs and Can question, downturns? different go so operation in should some back starting the for us like? the up to I give about SG&A is how you how a and color might million, around to And first we if a have does that, new power on the which recession a in of faster earnings power is the like the How Maybe the morning. in Bryan, a than are on If Any think look look in end different

Bryan DeBoer

Bryan. This Rajat. Understood, is

Driveway the Lithia see loss in helps backfill over most importantly, think the added I and than $XX.X from -- little that two GPU recessions. remember we'll Motors now, less which revenue years billion a last that has

our And the steps importantly, mentioned, our burned or tone Tina organization. of most million initiatives. the some almost look first think basis levers last And different back are as points probably rate on new or reduce good something that little at a we to XXX of which slower. initiatives organic ad I and in are getting can think $XX I maybe budgets and we quarter of is lower, back so, DFC bit burn million And now taper $XX important. around to we're that from we we a million out Driveway.com pretty growing $XX couple

capital of $X.X to war lever depending to found in of the And the robust allows big with, and terms pricing those in allows billion productivity. increase on in $X our billion a be into -- the of lot right to processes type billion of share efficiencies a to lower big in say, chest us earnings ability also quite environment, in would and we're us within cash businesses that's deploy to somewhere simplify now. in billion which what a our revenue always That's we best buy that's I do. then going flows, generating And push think to we of pricing. terms between think and costs, even transactions $X $X.X personnel on is I I operations, practices relaxation

deck. dotted and look would how So lot point do It's section like also on things can thoughts see what that some what maybe there's help a you we with it that Slide the we you, originally would a a try slower model to would be that. in like, out to and little to of to investor okay? X anyone of give for do that, highlighted to lower that able closer. Rajat, sure did white to a you I GPUs can We to model environment

Operator

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

ChrisBottiglieri

Thanks for taking the questions.

those understand have balance just kind the path your ask return first to you I ABS I receivables bankers for you What like market? want of $X expect unsecuritized markets? want looks to business telling are like Like question with is, sheet in do ABS ability environment? your current current about that what you to loan conversations to auto when tap terms The today. of to your is of on billion it in to liquidity

Chuck Lietz

Yes. the answering Chuck question Chris, here.

capacity Driveway strategy. of deployment primarily planning strategy and terms In Finance for a the really our Corporation, it's four-pronged capital

volatility of market parties fair rates. with term lot in obviously, that a speaking into interested see the as in and then mean, an transitory conduit combination moving investors for our conduit experienced as facility our ABS really other market. as has require well warehouse of But of terms First, obviously, primary the the ABS that ABS of amount of I will financing And liquidity. a amount a market, some of we lending

stability terms apparent. rates However, sufficient have more short the to become midterm. taper to more off see term capital and do There's liquidity like market curves interest markets, yield that in feel to and we is do those longer-term still plenty active. and as term maintain starting Fed We start of the ABS in clear both of investors and

that we other make or longest look see our we form we both structure arrangements perhaps have the forward then will fund that to DFC. to flow liquidity, do requirement. the highest as So And of portfolio forms of for sales sure capital the last, or a robust capital

ChrisBottiglieri

Got credit, to you, help question, moving should could on forward? unrelated that's kind semi-related still then -- And really guess, floor or thinking Are about I walk contra went I SOFR? as helpful. in you that plan that LIBOR-based have went higher. Are we or somebody through right COGS, even interest but of those expense still points be me lower shows how like so actually offsets systems, you it a as expense now? of there think, four moved And looks then COGS. And quarter-on-quarter any think rates I get

So just understand how bit go interest as to forward moving rates a little higher. benchmark trying model plan floor expense to

Tina Miller

question. is this Chris, Thanks Tina. for the

yes, floor to and LIBOR, be that's SOFR, So benchmark facility, so a our we'll recently our move of debt. didn't plan rate with to off using our we of credit majority the that for most amendment

captive few that plan different a have We I silos rates. think as have well floor

correct. plan of to do of plan floor some some floor goes actually off to model SOFR then from of financing a think perspective. cost money prime. that assistance from you're And get manufacturers. probably of. I sale, our are though, But really A majority We is lot our presentation of a really

So, expense is the But and looks I interest of The that a number the expense sales. are really Qs actually know what a sort Ks past there. reminder plan that just we've cost of disclosed like. in interest in within floor pure credits our

velocity at just it's levels. the the inventory stores inventory speed through our managing selling through So managing which are and and and

Bryan DeBoer

Chris. Thanks,

Operator

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

John Murphy

morning, Good everybody.

XX stuff what a the finished I like be curious might over that and just you that little vehicle days. it's at be side. on might a not I'm first think Just and little manage seems might so process that a inventory on down might question about be time. bit It total you mean, it in used goods, how bit high that

Bryan DeBoer

joining us is today. John, thanks for This Bryan.

I think at cars. I pretty have in on That's of to GreenCars we and that it's push XX, inventory we to are is today level brands a And two COVID. we're knowing the additional comfortable. think where were find used what normalized efforts national vehicle Driveway, real trying pre our ability

used-only I that some our expands it to all are our grow ability because quite e-commerce we're think customers starting importantly, to also important really it's of to important just is selection Most our inventory note when channels. to through now peers that the three peers our are of see struggling getting inventory.

softness again, are market we're XX-day that summer. the and conditions XX-, we're that there the towards what adjust in will But supply heading a fall to X-month about some supply, probably talking market come comfortable that is according we'll things know at pretty So and winter. into and late

John Murphy

on kind that where Is you on that to could efficiencies online the thing think of get on the XX% the mean, to target potentially cetera? Okay. SG&A et question business actual is a second I of know and ramp around a basis, a as could get base through you to of It comp XX% down seems on like where an is mix lower selling, have what basis, relative burdens. And gross. DFC ramps that that up majority up materially lower But from and coming that then and just could SG&A. just below longer-term other I that efforts retail store sort basis? is could like-for-like

Bryan DeBoer

XX% number. adjacencies, and is DFC, fleet you from we DFC That's in horizontal, drop that call really of would I a part leasing X,XXX disconnect, the that a probably say operations realistic in from big the the that it's and which it. alone, XXX is other to I one points believe, just companies the SG&A basis And in what now, the to comes SG&A and verticals XX% okay? as mentioned,

new levels still be can e-commerce Now we working we're obviously, okay? going but today, to the units were in associate under the X, about again, under about centers per the to you sub-XX% at and years system but be talking the going XX still And should we're that, into platforms, have to efficiencies disconnects. other rates per Driveway, get and ratios. that's expand as program, beta horizontals our into about our start But to care modeling, we're stages they're place on, in us okay? the in other remember, large a that think obviously okay? well we're penetration that's a able CRM that learning we require we When two little if developed the month, closing increase to and originally, still sit We as possible and just think we we've

John Murphy

and is Bryan, even them. around day-to-day than concern the your Because could new have like Okay, that's consumers. buyer vehicle on your just your I and and used risk there's I guys maybe wanting lastly, and just seems that you mean, vehicle pricing pretty damn you can comment the then, of helpful. And lot contact but you of consumer your if curious a mean, recession, this with a still I'm get buyer. vehicles for strong of just more consumer state it grosses, with

healthy. your still view wanted I here, take mean, your to crosscurrents new the of is lot going. So and and there's used vehicle where seems of relatively just like this get it buyer I a is but

Bryan DeBoer

mean, in said, in backlog John. there's most vehicles. new still a manufacturers I Well

and getting a the used seven from I'm had are them guess the of probably away to other high just buying to are further in that on still added days country little parts vehicles but Our at rate. this centers vehicles. a we going to we've quite because reconditioning then supply fine vehicles turning to five expand

So quite states, I vehicles days consumer see than about we but considerably we still still the were think peak about on still backlog and Obviously, when at that's the and think are as that and normalized we're in is impact healthy. the new, okay? I demand of mean, strong, years, levels what, down, on GPUs higher supply, high. quite $XXX we

highlights. of couple a Just

XX days. around is new on supply days domestic Our

every we is though Really at about softness supply, we luxuries we we in as days them flow sitting and about have our really good XX-day in-transit as a our XX-day pretty which can quick a are at our are we're So where sitting imports, get is that there's some supply supply. in on even that. get car which selling

John Murphy

are a just actually people for waiting And on right is buying systematic where Okay. data vehicle, of you well commitments? almost up or vehicles there of somebody maybe build-to-order for sort operation ahead of could the these and any just anecdotal kind highlight showing points

Bryan DeBoer

on say product of new coming in. one-third would that's about Sure. presold our vehicles, is I

The the So lot that's number. relative where And website, up of think probably still visitors on I at massively. good it's pretty stuff So okay? unique wait-listed the a good. vehicles. money it's have we but car, high-demand not you presold our if consumers, it's of and to a The rest maybe that's our look

because I a mean, year, trade-in something cars same transportation years, $XX,XXX around us cars are they're consumers in the is turned buying examples the their that affordability is still on for are there when those vehicle when cars vehicle lucrative and So sales the on playing sold the to of some their $X,XXX that people within we new paid for they've the cars bought MSRP now than think used -- consumers. delta buying have capped remember direct to uncapped north highly important commodity quite trade-in new the it's and what more so vehicles, that is at from for valued new X.X almost either used really between last or they're vehicle good is the needs. and demand of they I and And vehicles.

that that neat they the win, see cars new buying consumers can it's are car to for MSRP. if really where especially south somewhere new been price capped So the of has

John Murphy

seems good it of that good. and the the Yes, so That's that's guide. a Appreciate insight. rates, impact really towards

Bryan DeBoer

John. Thanks,

Operator

Our question. next Wells question is with from Please Colin Fargo. Langan with proceed your

Colin Langan

taking questions. for my Thanks

Just on a follow-up comment. your

several months? now Has vehicles everything that I thought Has last right to get to three of you over think almost the of are said any now. car Is that changed? one-third XX%? six -- months that actually was had you presold. wait changed to I kind

Bryan DeBoer

days things, franchises cars has XX up, But the affected data. we I ground. environment and hit it say the a through ago, don't wants would we definitely by it yes, got have to year, rest -- So the exact that supply robust close will quite still lines And drive those We imagine drive XX% since but are or Colin, bit it the remain of somewhere. next someone of it's have it's was continue it a rates frenzy. the waiting year. come if tight again, pretty most QX where to it's that going knowing okay? a still interest that especially car car, QX manufacturers and to two to there's and until the other And of same for people

Colin Langan

That's that are different noticed, talking to QX. sort automakers to on really they're pricing very mean, I've or I helpful starting down mechanisms. I is to going that also of the slightly a it. heard close from take a the slight but record that And how perspective? new GPUs they Got your still driving about levels through are color. from Is Is from dealers rounding weakness error happen? nitpick,

Bryan DeBoer

price are complexity welcome think good manufacturer price than prices, and still I pricing will with occurring price And fear towards parts I just There's complex. the We it if and relationship for to moving consumers believe rounding negotiations. will two the away they most transparency what's there's on we're then a chooses transaction. away and of a my their if by probably with take that latter, the do don't say on something because move tighter and I pricing market on error. long trained It's yet. different negotiate in at uncertainty can to of closer front-end then it's manufacturers' stabilization with finance against a believe a lot model today, how we based and that that deal are as levels. markets is can the regions unless margins it that, do help network, be X-price own. and they manufacturers. a would gets to that the which a we though, higher it fluid consumer. And moving freedom not states. for normal throw about deal done, can trade bad a probably manufacturers deal pricing I having think that where that's of ability something stabilize price does with I better we'd transaction transactions a consumers I actual for because in take off manufacturers, When so I and quite way, all have want and that believe that that adjusted we that tending to been quite say that most this, type

there's that one two know to or arena important of that pushes So outside European in big not the manufacturers.

Colin Langan

on? there lastly, there's maybe know Is just F&I commentary that it And other was the you a those factors this because I or driver takes and the going bit. it. down do -- that that profits. Is of attributed some Got away I when main missed DFC, to in the

Bryan DeBoer

driven to as increase of extent, It to as F&I, I subside that GPUs supply this mean, demand you you'll subside, and they're some is. I saw start environment. type both I think GPUs And off think F&I increase. see

that seeing $XXX. last in difference I about you're think the quarters the few is

XX% mentioned, the that which XX% taken F&I of pushing were our out F&I business rate, Chuck and as number. diluting So means we being now of penetration is

and per Is $XXX unit. right, about it's So Tina Chuck? that

Tina Miller

year-to-date. Yes,

Bryan DeBoer

it's Year-to-date, about $XXX. Year-to-date.

almost Chuck were see if which month in of go our the June. penetration you So mentioned, we okay, XX% levels up,

to going little you're a in to F&I continue effect. drag see from So that

Operator

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

Bret Jordan

Good morning, guys.

look at gross a I $X,XXX to sort SG&A guess, to of XX% as and Would continues to gross. levels the expect in materially GPU, GPUs returning for guess higher the levels, pre-pandemic looking GPUs. we at spend at and looking Obviously, development a the you're lot outlook On I a of your SG&A you to interim? 'XX, you're return

As shorter manage of we sort Or model it, do interim? of term? should those XXs in in some the investment costs the around you mid-upper DFC we think down

Bryan DeBoer

Yes.

fast internally, how think supply quickly the way those is about that demand we think and and how does do it rescind. levels I GPU change

a quarter-over-quarter normal that camp if the higher that's there's declines we in back GPUs. we're rescission some and it's than I where will of that really normal the think level believe to state month-over-month not I declines, get

XX% that little the if in start in the adjust drive and SG&A in that four as we some months. to some of pretty way, our it real tone part we $X,XXX can the were to $X,XXX we SG&A in It's Now big extent the $X,XXX, little be our see $X,XXX to back But to further that we And profitability can in of knowing slow, that typically. in way. operational may we're impacts that so that manage a the a harder can to to a a with to level three excessive business shoot pre-pandemic probably a that range. DFC, growth SG&A, interest percentage Chuck economic can event or those subsides rates it bit in horizontal methodical demand few large to there's growth with on rates get ultimately, operations if normalized finance going you can increases get for we're If now about months confident company. affects a a

Bret Jordan

last going But environment question. then normal Or $X,XXX the of months, I in which clearly see values And mix to, an swim Okay, on spike where the Slide equity returns? in upstream reason... a depreciation have negative we're guess, to as a XX that have equity. against great. commented that you I the given growing XX, average is XX, negative you has about been Do in you environment. guess, value, this

Bryan DeBoer

values, mentioned about I haven't to one-fourth I think type Good But of insight, calculated Bret. we've trade that that today, mean, remember transacted GPU of was consumers also higher Yes. higher by in like a the I offset John. environment. it

$X,XXX, down we have can't sure allows think will those ability what in with is with that pre new okay, down their us that we to in I well difference a consumers eventually vast where incentives because used that equity which are at the your that and difference car some XX% again in that. because to best new normally net would cash we consumers buying. and you when clear there XX% trade-ins this two-third mainstream our cars that is this lower-demand average at trade car is being cars equity, we price they now typically our to variance of in have of find over the talking consumers a of this because And have your car that's from absorb of $X,XXX normalized are pandemic, dealers of $X,XXX remember, to very to debt that advantage cash inventory something over there's get Lithia, to this this cars. about late-model we model of have it little important that. So think sit okay? about delta that most though about of and But trade-in, or them, $X,XXX.So, dealer, Driveway that new that, so also And means note to to only carry saw absorb cash XX% $X,XXX debt on equity a from ultimately to or it's $X,XXX you're around or the or cars of today, you you're this down, have we And will importantly, times. could can know are of equity that used have and make I the that's the our probably new have you easiest of that why, vehicles north The $X,XXX okay, equity of of come plays a what in call averaging car equity,

Bret Jordan

Right.

the situation COVID? that pre equity better than years, So next expect you would be of couple would negative

Bryan DeBoer

disequity save some $X,XXX, should It talking in the be We $X,XXX would there'll rather which worse. a a guess delta people probably than push per $X,XXX down people unit, will you're little vehicles. about We're okay? hope tax Maybe more probably between and a savings, be mainstream going to so new more. into little cash a

Operator

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

Ryan Sigdahl

Good little a guys. dig DFC to more. Curious, want into just bit morning,

penetration so to much other expectation the $XX reserves million in higher, last those though, that from of on Penetration XXXX $X loss higher loss quarter for the million that X% How is to increased X% So versus change now. year assumptions? CECL XX%. from to

Chuck Lietz

the Ryan, a by of say this was amount in There is I the small much Chuck. volume. of pretty spread increase it. offset that was majority vast would compression

majority vast it was planning for losses. that the So just of future

Bryan DeBoer

from volume came of from loss business, not That expectations.

Chuck Lietz

Correct.

Bryan DeBoer

below think, had ratios actually I you me loss we had mentioned Chuck, reserved for. are what to running that the

Chuck Lietz

Correct.

as And thanks, so again, we move -- up Bryan.

going As reserves quality as down. we obviously, credit our move loss a the are percentage spectrum, up

a And increase, so as improve even though rates growing we're as the book but continues basis, percentage we going to slightly our on down portfolio we're credit again dramatically provision pretty quality. either overall that static or

Ryan Sigdahl

Great. Then used. on just one

a Lithia the your position is those do relative starting peer pricing particularly So little potentially mix down and dealerships, how group? to bit come here. to value, of how But you core segments you do legacy at overweight your think

Bryan DeBoer

makes Ryan. that today. will know auto up about business question, value Good of someday, cars our I it XX% because everyone sell

we high-demand vehicles trade-ins I lesser all from core the demand of really business. to that create better used that's XX% only XX% up and But than and with sales price the sell today, our of just that business. in volumes attractive think our our heartbeat those at our margins the comes CPO enamored cars more ability that thrust make of real is dealers. get a That's

we went get, really hard think about they're the we through even hard recondition. higher more maybe if that, or vehicles, And with think aged importantly to I to value than okay? auto So always what cycles they're

still and able have little because those technician tools bit requires mix be typically mix that our tool be we're to double X% rooms peers, it to versus that. in the to look our that older cars to obviously, they and to X% XX more don't car have cars years our triple at we usually sitting retailers, at to fix used ability are diagnostic sitting a recondition experienced to do able They're auto The of rates. when at those value we So, typically. our

don't for mass get $XXX getting sensor if actually that us, that higher and be else a a front taken that keep or don't we cost flow The can trade, that means typically just other decides okay? them be can the that the okay? person we're a what repair auto sensors $XXX those into is cars how to to there's off auto value an simple modifies are the a So typically light. to light are check engine cars street, which them okay? to send people on check mind or there's that the Now we on get value in us business OX anyone issue So on it line. turn working would check sometimes to because something. most really buy those, A vehicle to engine And the example only drivability

of that far creates for that into are enough mantra Driveway lots easy & affordability cars our value that things life cycle So move a the get profits is to been as begin we into Lithia we an autos it upstream starts that level highest others because that area as simple well has consumer demand that the pretty decades. the of really

Operator

with Our is Benchmark. Please next with question. Michael your from question proceed Ward

Michael Ward

$X of on saying from were that to morning, and the get new in per in Bryan. about you you down want billion per unit purpose Good profit earnings I you everyone. correct? were can gross Is for was When clarify something, that Thanks. to going share revenue. talking used when $X.XX $X,XXX, just solely

Bryan DeBoer

Correct.

Michael Ward

Okay.

more saying be new why have So that are any going there out than basis to go there materially in you environment, inventory as a vehicle the reason higher historical. they forward, past? XX% normalized is grosses below that whatever, levels In everyone be, is wouldn't on been

Bryan DeBoer

price that because and okay? have think a that's reflection okay? supply GPUs, that transparency and higher, better a environment, direct supply days don't of build that to is do normalized I greater in out. demand that to something know think We I see And grosses though the market, ability of a mainly we'll remain will

before the you levels run like a and the decade similar days as we a We run if haven't supplies pandemic seen Subaru them our for at ran today. because the teens with with past we've correlation a in manufacturer, -- we remember,

direct and believe consumers from our So, manufacturers trade working correlation. obviously, I that of consumers there's values on can extent, transparency the for efforts and factory is to our and do transparent we beneficial a And way so taking a know to ideas ability, deal with with simple in with don't that price I some focus the finance negotiation, to of away that. driveway. the the are ideas

GPUs, will a in probably bigger I role days think stabilization will. above of play normalized that levels than supply

Michael Ward

than model? it Is from it discount for And become like be shop may a converting vehicle they're norm, though order months of to more which pick a a would more come the going isn't they're and more so wait three environment going in, shop profitable it and to and pick? consumers would that type if a be it, where where just of

Bryan DeBoer

to building I think would want. something adds that value you there's specific for what

flexibility. production and manufacturers, to have with most deal though, their think production I capacities then their

going so and blue still America systems facilities And order, that cars new consumer lot one inventory America look your there's most are selection. of to on. to built in than a with are manufacturers to where cool XX% today and Western at a building constraints the space be and think United States little different wants do do at have I to the of a consumers where and the in like typically because drive wants electric in the look to Europe, it's we one

United environment bit the little different a in So here States.

to that be think inventories come. I on-ground still years they'll for

Operator

question. Silverberg is question next with from proceed with Evan your Our Morgan Stanley. Please

Adam Jonas

Adam Silverberg. It's Evan for actually on Jonas

forward XQ of backlog insight, having or look, irrelevant So about the We length volume you high But car of back new not dealers great you visibility some businesses how preordered think, the gives question, your being ask good really into it's the cancellations. and never half given thought to an on of preordered, I and the portion vehicles, your preorder have is that demand. year. or much a into of

change on order falling, data to what stable? rate any can of us comment tell cancellations a Is Or about the of that kind on to length us I'm of little rising, daily? you there on time, color one tracking delivery give sure the any that? you're So

Bryan DeBoer

Sure.

built the little a that demand are they When we bit I well. sitting that order peak it's the them were Adam, and X% new XXXs I were so product, now think to probably few typically And in softer XX% XX%, Wranglers do of XX% to probably experience We around fit. higher own end things are. way in our up we more our to one-third a sure habits know MXs, and have things, on vehicle when okay? of personality better optionality own months are at at around normalized and hope XX% maybe level for the their of environment, but did order. bank. preorders, sales their It's we we type like sales a consumers and as ago to typically stabilizing about driving BMW a things are

Operator

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

David Whiston

morning. Good Thanks.

falling there. will side, strong. spend but is we've copper some mixed mean, about Just but wages, on on think going overall Also still inflation Consumers we've how auto recession? demand heading got high do labor Or oil you might do negative the think very vehicles. the maybe the the macro in economy market. shape I signals tight want strong? still prices falling bad on back earlier, into there's to But market and be remain you you prices a we're rising so positive were money got side, talking

Bryan DeBoer

really that built them won day, make the each responds the David, we rely Growth decisions. our and Great from ones those the the team of mission runs to very what individual on we customers obviously try responded keep an on at by the Powered were just we we able differently a have where field those closest country can local a be we control, knew and to and location, part levels that to we proactive and People eye that's our organization that learned Recession, as that and to each

maximize actual hold have do imbalance price to not through demand returns I do nicely to our our than I strategy question. that this maximize think inflation a the that little level see Lithia supply And & we've subside. a which return answered rates is know that we creating interest to developed, and grow as inflation, execute I probably soften we'll a to to your Driveway Now okay, believe in country if and demand see the is will further recession, with of and normality. that's that think to some or shareholder I that may hope are to and different inflation I take do ability either largest a the become inflation, automotive continue its world. positioned adjacency retailer believe

Operator

with Our Taykowski is Suisse. from question. your with next question Please Credit Josh proceed

Josh Taykowski

me here. thanks Hi, in for sneaking

for one me. had Just

volumes. I could the dynamics to understand function you XX% how of expenses Is that? better. GPU same-store of bit through about but previous some year-over-year, that GPUs based trying historical a think commentary used still elevated flattish just a and added same-store talk Maybe your still should kind like in of used down are used prices or appreciate on year-over-year Just selling a see what average missing that I'm looks being procurement from obviously higher but standpoint, something, if wanted XX% to just on we

Bryan DeBoer

Josh, Sure, it's again. Bryan

I think a car down pretty portion. most market importantly, used the is good

a So level. of those and pretty different GreenCars. multiple was channels being Driveway flat, and good thought, we of pushing we're out

a days with times, network move those our I got there, though, and Mid-Atlantic you're hours, another all we build even seven taking we we're -- recondition reconditioning with buying little takes the away stores, to we centers, though And XX unfortunately, us I cars six, we're then be in able basically the that longer at think buy and most BMW a is cars us get stuff. reconditioning to further a it cars to when XXX sitting and importantly, most three, as own which from cars do to then does in that Lamborghini miles. it is broad

in still knowing of building is the momentum that devaluations environment, we'd really building GPUs push the out inventory, building that and XX-day we on Driveway think exposures knowing We in window. quite that like are is be ideas knowing those that side our strong rather I used. price any GreenCars that momentum, to inventories is So a can in

Operator

Thank for comments. you. floor over There closing are the no further to questions at this any DeBoer time. I would to like Bryan back turn

Bryan DeBoer

today. you We're in everyone, to you, then. joining again for Thank look best. forward back us going All get the and with October to up catching

Operator

This concludes today's conference.

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

Lithia Motors (LAD) 20 Jul 222022 Q2 Earnings call transcript