- Earnings call transcript Q3 2022

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Operator

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

You may begin.

Amit Marwaha

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

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

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

Bryan DeBoer

growing This EPS $XX.XX diluted continued adjusted earnings DFC was year. third X.X%, the compared platform for to while past on the us by And progress of XXXX. adjusted with results foreign used Thanks, measured e-commerce XX%. period expansion sales excellence share look towards the quarter everyone. and billion beyond. Amit. XXXX third updating and integration Good achieving in growth forward stores driven Lithia Earlier morning, Driveway, you up our we were reported plan today. XXXX. body on revenues business of and were same third stores, up in we from at were quarter to to and our X%, We you over per of service of per by were the billion share quarter parts acquired operational $X.X reported solid, new increasing total $X.X focus $XX.XX X%, revenue numbers vehicles our our Same-store of $XX.XX, today joining XX% growth was currency appreciate up We

Foreign profit inventory Cyclical platform EPS headwind a impacted distributed with at by efficiency vehicle tempering experienced that gross SG&A and currency network. agile and with building physical DFC our negative own combines investments $X.XX. workforce was knowledgeable an We're and our reducing of along results. inflationary pressures Driveway

provide couple Our platform doubled geographies diversification drivers a to years over the in with conditions. has us platforms. footprint per experiences we Digital up and advantage traffic XX% transportation Gross GreenCars the the to and responding past be digital retailer, products, flexible that of leading quarter. This was brands, a them across options, for consumer across allows investments find competitive Driveway their is our quickly our needs. and right as industry preferences and customer market channels. customer unit were fit profit continue in Both to educate make on various helping mixed

arm. Average on $XXX price New contributing and closed year-ago. year XX $X,XXX $X,XXX third vehicle the year-ago. or compared second of nearly visitors. F&I the rose the of quarter transactions Lithia of including transactions to originated Driveway quarter including to Driveway omni-channel on from supply. year-ago. billion we during over almost than quarter total color totaled third Shifting a In e-commerce Driveway in $XXX and third F&I million XX,XXX for shop quarter rose This XX the our was around we Year-to-date, $XXX down million. the average and GPUs performance per over million. loan Congratulation the some September, 'XX. X will loans XX,XXX XX.X% over from XX,XXX totaling and from out quarter, of retailed retailed $X,XXX. reported growth unique finance at Chuck be and transactions. strategies. more Used or and and at of new to both Driveway day days averaging September, have days, the was were Driveway XX revenues end unit finance used the a of sale vehicles end accounts monthly unit, DFC's our in Penetration additional receivables. to wholesale units captive a QX and we vehicles portfolio and tools. At teams to moment. Shifting X% F&I DFC Lithia $X,XXX third $XXX the $X,XXX from $X,XXX wholesaled total GPUs across DFC, our progress At of outstanding vehicles XX million and the over made subsequent of and in Driveway revenue. over the providing the up $X,XXX, were per X.X used over a end XX% new Year-to-date, rate last September. vehicle across retail we've

M&A, Moving to on quarter. we busy had another

perform to middle acquired Our we annualized plan off total and invested is have XXXX. $XX.X our XXXX revenues, valuation of billion in well. since discipline of billion on returns in the continue $X.X in revenue paying a our Year-to-date, capital initiating and

remains important trend. value, acquiring to We're which consistent continue equipped adding business into translated think highlight robust stores, our it's is incremental well consistent the returns cycle. I we track this of and the throughout record market

our retailer the the our network As infrastructure. auto in optionality existing space, leverages effectively and leader

stores and portfolio shifts in with X liquidity seller retailers leading outlook Northwest for towards States. sellers. acquired raised a Pacific of in The from Wilde direct-to-consumer United in in locations M&A the projected are In Stakes of constructive. combined constraints quarter, the Adventures, commerce, Lithia remains $XXX for opportunities revenues. been the omni-channel airstreams During with annualized The have also with Airstream Group. acquired the generate we to October, the million Wisconsin

capitalize Despite update into for have in on EPS. the taking many durable, necessary levers on in I $XX the place the presented we the to translating are an well-positioned auto our to rebalancing want and currents back in XXXX billion industry Stepping $XX of We moment, us. $XX to the plan. strategy our some and cross our provide opportunities economy, to to confident we're achieve revenue target, macro is a

so us billion level a will up plan $X our on up, factors. few of mix XXXX by $X.XX will will portfolio of historical revenue profitability Achievement EPS, $X Our our driven be in in from EPS. and set in focus generate

moment me our Let a hit to strategy to take outline these targets.

of we credit reducing measures as into growing e-commerce plan portfolio. platform, across Margins stores operational cost at vehicles. First, with XXXX, friction improve stores leverage structure to integrate the our we're and and the drive efficiency taking towards will retail Heading size to and accelerate our our online platform. right our costs while proactive purchasing the divisions, we

goals XX%, than to in our cash of volume e-commerce strong help our our and rather continue Combined, prioritizing as profits are towards will divisions. SG&A breakeven captive generation. and gross liquidity enhance percentage We drive a finance profitability this

$XX produced As when annual in a was a more billion revenue, EPS. reminder, it only resulting we $XX years X in little ago in than

out Second, DFC grow to we're targeting into meaningfully XXXX.

our and gradually given with penetration the we We've rates. As towards in narrowing credit increase large portfolio been to our and risk XX% liquidity in interest to loans pricing plan swings options tactful we the risk. manage XX%, being

and seasoned reserves securities, visibility to becomes issuer CECL DFC we economics resulting and spreads a better in and normalize backed expect interest margins. asset of As

within sector. consolidator of to the choice we Third, will our be continue

this Our locations. our towards of a solidify retailer. This approximately we XX% the within results share seeks targeted as in our to X.X% market XXX reach plan of customers will drive our presence national XXX XXXX footprint believe auto and miles and

is financial Fourth, integrating Additionally, creating our on our physical focused our and incremental our Driveway our will growth. risk strategy network shareholders. continue vast physical ultimately best revenue is platforms, And structure reward GreenCars, discipline stores e-commerce conservative. leveraging allocation the our capital for and

lowered the targets. our not do and have equity leverage sheet to balance We fund on our growth require

to weigh maintain balance material time upside that earnings. from approach. and our maintaining and shareholders and have ahead. and limit continue We hurdles We economic the friction with over discipline environment adding feedback this our be we responsive to investments any continue our appreciate to to get our support pre-COVID M&A We're buybacks to

with our Lithia strategy utilizing and vehicle a our financial to breadth a that capital. continue creating objectives of Driveway low will of is The our the transportation full We goal for with experience amazing of growth customers, maintaining cost balance network. provides discipline network the diversified while

place have of will to market, the our take in turn continue transformation sector. to team in the call advantage over and dislocations to With the Chuck. to like in the lead right We I'd that,

Chuck Lietz

Thank number the We DFC quarter posted at one lender strong Driveway. be you, and Bryan. continue another as to Lithia for we

markets. basis which resulted DFC lending environment trend X.X%, of X.X%, has continue upward. the portfolio up in a in healthy weighted $XX.X penetration points the of million. In At in average contract third had net from quarters, prior $X.X year-to-date capital continues of market interest million, a XX.X%, quarter, last up the increased translates X.X% DFC's to approximately XXX contracts target approximately full we will to end and achieve originated. track for XX% which by XXXX. rates million the quarter, second assets year. realized at our pace In margin pre-tax raised macro $X shift from to rate quarter portfolio result of our in $XXX in the funds we Our the XXXX loss which rate changes the billion year to the to Recent to yield end, portfolio driven on grow that a of penetration despite which quarter to cost of remain in average rate, a

execute to strategy of resulted FICO increasing Over credit the of the which the quarter we of third past a continued volatility, in mitigating by our scores primarily originations, our weighted have average year, risk XXX. FICO in

originations quarter than XX%, increases portfolio XXXX. spread down we half cost raise monitor rates environment. interest loan continued to Current the greater the to during have to nearly reduce composed XXX. spread FICO to of yields reacting is future in period which to originations, compression. we our same funds at to a rate loan from of increases as is could we're DFC Today, rates scores values rate growth, and mitigate temper Additionally, maintain for XXX% rising on in our and strive in and continues the

headwind the but earnings a and $XX quarter, provisions DFC during receivables, the stable, In decline quarter. the quarter averaging in X.X%. million and benchmark continue loan DFC remain third did approximately impact Delinquency in year-to-date. near-term, DFC DFC the rates of rates our a remain as below see month-over-month to expected, across increased managed have the a provisions internal totaling track industry disproportionate for As overall, percentage continues a to September in rates. on

to our DFC's continued growth. We support ensure continue liquidity forward to looking to expand capital structure

of look the our term in the of issuances and We our XXXX. have short-term size will size cadence conduit and ABS increased facilities, to increase

the separate [technical nonprime a and in result both forward offerings with capital In point structure its into a prime addition, better DFC ABS which our difficulty] may where bifurcating could portfolio term that feasible, nearing aligns sheet is and growth. balance design issuances looking earnings be increasing

into cash to XXXX, efforts will from return DFC our originations away flow. on the accelerating portfolio improving focus Going growth profitable a achieving free and

while manage we now mitigate risk, risk portfolio risk our expectation, its spread As Lithia plan in data a our maintaining market are guidance I'll on earlier, reaffirming Tina DFC fully levels which DFC credit We're with XX% and can disciplined financial continues Bryan to return our Miller. to XXXX $XX capital compression add the growing the over and call structure. moving in driven rates revenues achieving In closing, With on after credit should billion. result future CFO, without the diversifying the earnings state curve monitor $XXX at to using consistent penetration our of predicated our our and that, again million Driveway, seasoning appetite, turn indicated goals. DFC's DFC Lithia of credit down rate approach a to

Tina Miller

quarter, inflationary through was flowing in reported third from million, $XXX SG&A DFC of line. EBITDA profits our gross year. and Thank and you, primarily same the a of we Chuck. Driveway our X% vehicle and the This down result adjusted last approximately In period investments pressures

from QX, Driveway $XX During million, last and $XX was advertising year. expense up personnel million

allocation. XXXX, a $XXX flows, a year-over-year. As Lithia Thus to share. average million free million capital far was Shifting X.XX price SG&A repurchased nearly Year-to-date, cash at percentage of XX.X%. per shares we've in points XX% in generated up XXX basis up of $XXX gross weighted profit, has to

of and cost million the allocations During of We the I outstanding repurchased shares an capital program. per have for currently remain with internal clarify purchased XX to we our an repurchases, XXX,XXX allocation shareholder share. investments X.X% having this average return. Overall, quarter, additional shares at want direction a remaining sharing take comfortable of year. strategy M&A, moment toward balance we our current to across and $XXX

some of higher and towards focus we operational interest vehicle of profit to levels. efficiency our gross Given headwinds near-term namely the shifting our the environment, adjusted macro sector, improving some normalizing have rates offset our facing

curbing to these refine proactively trends and are to discretionary in structure response working realigning with plans. spending cost compensation our We

ahead, our GPU likely decline of balance think and quality we the liquidity sheet. prudent Given our the maintain and months it's volume in the to strengthen

for We expect to M&A we over risk against time remain business goal of downside the on share XXXX model that cash flows The strong. our expand X.X%. across free returns opportunities our portfolio. scenarios, achievement to to adjusted generate and We Based will opportunities market are our regularly compare plan. assess long-term our comfortable this support is

in a give our arm. our us the of plenty with coupled by to Combined, $XX foundation to strategy Our these omni-channel revenue levers captive international decade. presence think finance mid reach optionality billion is we

rates buyback we dynamics interest the rising are on market used potentially a program. our generating market, to will through risk approach we managing premium weigh As on our in we work returns toward higher apply The conservative and of the could equity. normalization

call expand X.Xx respectively. the and have over X.Xx, normalization In cash Leverage ability in a and and GPUs. I'll environment Balancing work to In shifting are dynamics the per growth was conclusion, and remarks. prepared current QX, a to $XX to the liquidity with pillars have This share. we of questions. the turn to in our our continued earnings leverage. right of we're returning marginally experience $XX trends time. flows With that, earnings towards We the Operator? audience over and free XXXX of underway. result and achieving to instruments to and level concludes conservative confident plan rose macroeconomic for ratios through we This capital shareholders key our consumer

Operator

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

Joe Enderlin

This guys. Joe Hi, for Daniel. is Enderlin on

Bryan DeBoer

Hi, Joe.

Joe Enderlin

the Driveway penetration So while was the finance end penetration was of at of XX.X%. XX.X% June September, you noted end

thinking how Just wondering desired increasing? change delinquencies you're year, if next these as or are about last least cadence X at months penetration the

Chuck Lietz

your question. Thank you, for Chuck. Joe This is

of Our that in the the stay portfolio. of we as to is viewpoint of XX% XX% to light penetration to feel current comfortable that on environment. want economic We in continue and pretty sort current range as derisk sort

XX% target still that to to our looking year, However, next in range we could we forward XXXX. believe XX% that is achieve still

Joe Enderlin

Thank you. it. That super Got is helpful.

if has your are from consumers just picked all? a vehicles wondering, I sourcing was follow-up, you're same lanes As auction as still prices sourcing depreciating. gotten up the the challenging in more amount wondering at if activity wholesale or

Bryan DeBoer

Hi, Joe. bit is This a up Bryan. We little were in the auction lanes.

procured XX% from was about inventory XX% moved we think to I of our auctions. from mix

total inventory Our And XX% I from procurement. main we of source as all to our a know around of believe, peak is that dropped procurement at inventory XX% from, our consumers.

Joe Enderlin

you Great. That Thank is guys. us. for all

Bryan DeBoer

Thanks, Joe.

Operator

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

John Murphy

And There exactly and state so the going at new those ops on on used guys. you on seeing what are. the traffic Good anecdotal on in is Bryan? true and tough you're stories new used at -- of what morning, been and side, to showroom have your new and traffic, demand of gauge mean, supply As is of really demand from look both vehicles because for or I Driveway used, the sort tight, take the weakness kind what of moment? stores, in your but it's consumer general how and what's

Bryan DeBoer

John. Good question,

is lookers big. demand the importantly, most think I

we're year, vehicles We of sitting which a doesn't a used really It's traffic and well. year-over-year, We bigger are domestics in supply Unfortunately, mainly that have. have are today. starting we up more new up over pretty, as domestics the But backlogs a good pretty really Koreans at. sales to And inventory inventories is inventory that manufacturers, that really have XX% as starting the number. we're match just in some XX% are a see we don't to point at the whole. number. quarter our we Year to were in good digital had big on that a the is for unit our better time were almost which mentioned that pretty the a

of a up are We points. percentage couple

see we're inventory to vehicles, in starting bit. loosen the to a all, starting little all in So, new

on quarters. were We about also, first in I $XXX GPUs is which noted, used, few as our the down a

to should it's vehicle seeing or to note, margins, we're as still important see both margins that subside I not On end real is weakness. items to back start used think we we're that well. front remaining So pre-COVID the vehicles, strong, okay? is But basically on win level, F&I

$XXX clients think per which And nice obviously, we is, as of the were begins is that between some the volume see to a In almost up -- number quarter, those GPUs. the helps drop big inventory loosening, fact, well. as that we in unit, offset with starting thing starting we're in hopefully, inventory loosen correlation to in they're GPUs some up, that increases to and

John Murphy

then Okay, Bryan. that's question, a helpful. second just And

As room question, about on would about maybe sorry, and vibes. model, testing downside? do there or you a think go-forward. year, you the the if inventories specific think vehicle. could you're of but I as But stress I’m just tight thinking on maybe risks a and thinking frame better? if downside could and level how not new we're of I’m is much lot sort in EPS even about but there's model model, that a how the kind of mean stress volume you be, downside Unit up sort what it, if it's is venture testing alluded, just guess an about of already your you not recession at you using open-ended your

Bryan DeBoer

Sure, John.

some the look and a more we're quarters at the and over that normalization was costs at Driveway, the design game original are take do part with of we And know we've built few redesign bit bit we, of a a a next little financial, to -- as lower businesses lower look little our the long things game is a to outcome that of costs Driveway that it's business. that about more at balls basically other we of juggle, business just in of the we business SG&A are thinking now GPUs, what help the things. to stresses but more ultimately, that few longer and a of fact a the our that Driveway.com, SG&A into to play lot and there Lithia think have there seeing a XXXX view environment can short-term margin And with plan going there's we're businesses. with relieve obviously where tend I and traditional a and we're higher volatile designed what on a have low really margin

doesn't of your that Now, really the question quarters. few over answer happens next what

$XX different $X shine. the that's to billion $XX plan or towards expertise wasn't conditions a EPS okay? goal of is was that breached about is in think can a the the $XX on was though EPS market caused ability we in $X.XX the our the that where And steady by really I to -- with for state I where that And contemplated. of to maybe And billion think, that's basis, at dynamics we've ago, type built our seem our even that And every in through XXXX though, different going original revenue that $XX of to at to what plan market years But is to good, of drive I that think, is -- achieve EPS not -- announced and get playing, to quite think that that $X conditions. quarter-over-quarter target I we production revenue. we're navigate by environments little ability of help operational game through okay? have it. X-year for That every in weren't to do I probably that's current our where $X to future EPS EPS mean, we for a we're of $XX way us experts managing X.X a look expected I XXXX. that's believe

John Murphy

network Historically, a lot receptive now like OEMs I even I'm Okay. but you're characterize how you building if that and ways. or growing build to reallocating encouraging have some sort curious sort and in changed And with to receptive they're of can time? lastly, they roadblocks, then to network just you and mean, relationship automakers over to been you of out you almost generating capital the that's the to are seems it just how encouraging of this out network. this

Bryan DeBoer

John. Sure,

done a ever I the took And, were has it's things. of others our think I the with and key far Driveway it's $X.X off important foundation accelerator our we've our earn noted we of of relationships grow had that really And great terms back this we're loyalty primarily manufacturers share in to digital a how GreenCars. prepared strategies was remember Driveway.com are billion that market aren't. and because $X.X we year thus haven't foot in Basically our growth. before of theory, M&A. build they're really when that mix and buy a able that's long-term the year typically off design mean, that Finance, and And are the environment and the retailers approvable billion building all $X.X for the creates that approvable as with I that and the time we're as but year. most manufacturers customers of coming an times we're where we a of those there's manufacturer, every And think And the we a usually the of in for year out group almost our not, products and most supportive. meaning there pause a to little in franchises bit then that remarks, before and encoding we billion have where

John Murphy

much. Thank you great. Okay, very

Bryan DeBoer

Thanks, John.

Operator

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

Ryan Sigdahl

for morning. Good questions. our taking Thanks

Bryan DeBoer

Hi, Ryan.

Ryan Sigdahl

used I inventory. on want to start

look that out core several or of kind the and the and pricing biggest over composition months. current as you have you're where So seeing then value the currently next you CPO versus margin of risk of kind

Bryan DeBoer

don't why get jump you Chris, this. in. Let me just

You've got that.

Chris Holzshu

this would is that right any like. we've XX% Chris, don't having that I previously. the with used especially right looks a changes channel from Driveway say big vehicles stock of have, environment, kind the think omni-channel benefits major what our we have didn't we in This Yes. now, of on came we of that I that one is about now. composition seen have

are we the to that whether car work and first obviously, we are the a being have, having new line funnel continue multiple think opportunity I for in channels be trade-ins top huge dealer of so And more any in, to to as difficult And environment. [ph] then XX% the trades that but huge. in sources, that after of our a it's coming third inventory using Driveway the the secondary being traditional now source sale, stock

So continue that we'll up going to work forward.

Ryan Sigdahl

advantages of that mileage less, versus you and today? have CPO or consumer get kind you others where more more value seeing are have Curious the in core pricing given been current more kind inventory you to skew pressure of newer guess, pressure structural those you are I the procuring. of Yes, to skew the the more guys margin you and dynamics to more and the of vehicles. light the seeing model with or Where what

Chris Holzshu

about what shift a of today. auto is. in not major It's Yes, used our -- XX% value inventory overall XX%

of But been, higher than again, historically. were of been through inventory end. means we've already that, at think ASP inventory just inventory of we a costs all where and XX% the supply ASPs speaking, of pricing up XX-day are turned us carrying carrying sets those I a they've because quarter generally at has and carrying that

in and the I sources to in dynamics pricing changed the what the dynamics hasn't to we market as costs think and then carrying And fall adjusts. the in continue the inventory going have is so

Bryan DeBoer

note, other a giving Chris lower breather. in up probably to just I is and add One of okay? day value me they're XX% that's on we swings in It's typically what total or our about positive real least which Chris, supply is inventory, what think And the are, mix because priced market that. sign. scarcity, highest which a said, the exposure positive little a to thanks to for thing our they're

normality. On things to side, and about new the think most in have the incentivize manufacturers probably oversupply which volatile level CPO, to some coming opposite And of return your you the type how begin car is to of inventories as those quarters. ads,

Ryan Sigdahl

Thanks. Yes, more I that at. was was me. One getting for what

about more opportunity, you is an in opportunity you health about there capital that M&A regard? acquire but priority, Just is as technology how expansion, think a dealership to I think allocation, do know which in also

Bryan DeBoer

Great quite are different on adjacencies question, the we different idea data both focused that think verticals I built I internationally. thesis. begin of network to and our think about But the sharing and as across obviously growth, domestically horizontals we the The us. into design important mean, Ryan. to are is

to those that So when ability or we be able we the made of stuff whether to customer the begin build, we're knowing whether systems at both glue know high, help really argument know referring type or cleaner could that and to we and to the think of We experiences important the that growth to throughout already, so abilities critical there's we platforms taking on how able their think forefront things and good okay? that, I XXX a consumer. things other got really build of buy be and and that share do could the lot on things data about And -- look our be find design a the may parts one engineers steps some M&A. value holistic be point of to maximize accelerate approach most staff really to chance do are that it's growth that are to or to at together we things of maybe cycle maximize or our of we and think our I and a CRM systems possibly or that quite DMS to creating. There we could life back that at a really

Ryan Sigdahl

and Bryan Thanks, Chris. Great.

Bryan DeBoer

Ryan. Thanks,

Operator

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

Rajat Gupta

Good taking morning. Hi. the Thanks question. for

Bryan DeBoer

Rajat.

Rajat Gupta

vehicle on maybe level into keep boundaries any maybe $XX.X in are and power? new a think current follow-up or is reset could EPS next think trough other SAAR Or would does there would be And and earlier. considerably, slowed you improve John's that car million, question year? this a new does in GPUs order F&I or expectations or and you already a help can there scenario have Is on about demand used for any I for maybe SG&A slide mind? to not parts boundaries wanted has If any grow services investors million help in follow-up. down just about to us $XX a demand of where to the say, to, normalized, should economy from us Maybe that and draw levels, closer recession metrics Thanks. you just card

Bryan DeBoer

Raj. Sure,

because I at increase think we most new really the and that is basing really and unused going at believe a used our really is scenario you we a that pent-up we X% the looking X% $XX over are $XX in environment's way inventory that to a of little and about look XXXX, okay, the into put expectations levels, both which on little to that. SAAR million over million likely

you will demand a think to know to they to on aged very we know I up and mobility doesn't know And negative. and like about of months, most are expertise increase I we're XX% And XX average control. I the level ex-revenue. tell decontenting probably and the where we believe think to sit I'd that that I dramatically. if people's quarter than lot to at think other SAAR that, play. a more I be the parts can and beyond of affordability drop come macro love in subside Lithia we it's there's Motors try I to are blip that are We a okay? that it clearly And cars two. change by for ex-EPS how the the that GPUs midyear. leaning pre-COVID think Now mean cars by And you cars than a when were we other just And going likely, I things stress went we able We that or know are focus the a think moving that positive rather of the test about into more that's towards of going there. drivers we you're okay? there. Because a ultimately, indicating, XX.X%, begin GPUs world, where is

strong. a I out F&I, hope that's that's anomaly it and what mean best important, looks going the obviously, we're going recarved is And we're SG&A, deploy to are in it here the it we little there, And has think resources savvy bumpy profit the there, like. profile and can Tina we getting of in that's stays teams teams okay? be to terms that that possible matter operational may support going it I no do and the okay? the Chris to country are something quite Medford and throughout our quite market and and and are best what in savvy our the us. managing way on, our delivers

Rajat Gupta

follow-up a as just Maybe on SG&A.

of changes composition a You thinking How you you a I are just about mentioned Tina already to forward? store the People think some have light new proactively the that going and to in make Officer. change? compensation Chief do at macro. How expect level starting that you're

it that little bit going more any as should where if And would into elaborate a SG&A going forward, is you pre-pandemic? be to that around store maybe How Just what's growth on. look was Thanks. on well, on like if you a could that which tie helpful. level could boundaries

Bryan DeBoer

you, the love constructive Gary future our fun to no could and be accomplished, think could we ability the of glad time of better back stores, were the -- it's because for that our did for to Officer When range. as join we in couple our that are one mission Sure, team things help our important have Gary Raj. by We SG&A ago culture will to we the a everyone into a guide Chief do recession, XX to and and high that people. imagine, so to a it's growth grow we in percentile the him. And people personnel. years I that the Hey, into that. together and cuts remember knows, think going powered Glandon some lead understands People able about be too. is Maybe have put I'd you parts also little put really

makes And labor. a up of variable because cost personnel service in sales that's our costs, primarily cost that's personnel the two-thirds of Our SG&A that remember about departments, departments, okay?

basis costs other are there's of XXX also of out another there's many labor, okay? points was part personnel the that worked Ultimately, So know But synergies cost in that that we on the okay? cut our we of today. that

Chris GPU once I a work really we're did think and our guess between all we normalized can on are spreads stores. level. be days percentage somewhere extent that what levels a -- F&I, gross on looking think level may some few XX% to a the So normalize SG&A on ago of as to a at and some what cool I And as impacts at XX% and

little to have as our over in buying -- top in -- this those percentage we have. and amount that have costs inventory, a XX% long-term And future. stores, and SG&A other of growth. state, Overlay we've smallest SG&A on hopefully, said XX% Sub of the we have you gives in being We entire as the that get normalized from our okay? in of stores, lower an that okay? smallest some think talking reduction spectrum, XX% e-commerce XX% XX% DFC strategy network. which okay? levels, than XXX we in of an have a It's a Rajat, percentage X bigger efforts are and before the really hopefully bit fair better nice growth, you're participating, I numbers about begin efforts, top point the is sub-XX%. times, gross. you the our And going that company people and years XX% developed Long-term, stores around we've basis looking, overlaying a come of execution what and And our of side the we've our so the of SG&A, perspective the that the the overlay additional the To our as it DFC where even [ph]. that stores something are get but realize of and believe stores some which sub it's compare contrast we it's like normalized top And leverage a size about and the to think the a growth, of XX% on design really other top SG&A about of to last we're XX% horizontals a horizontals profit, the SG&A about percentage Chuck is is wide looks

don't rates things state has Driveway steady or in Now burn state, the we of that occurring. or are future the CECL other economy to that DFC have drags and in reserves and the be

Rajat Gupta

helpful good color. Thanks it. That’s and luck. Got

Bryan DeBoer

Thanks, Sure. Rajat.

Operator

question next Please Ali comes from question. with Guggenheim Our your Faghri Partners. with proceed

Ali Faghri

you more those strong great like range guess cuts my a demand come morning is won't years, were be and very you and GPU headcount Good and be where thanks last in cost you guess normal to a the can from costs It in supply confidence headcounts big what a what also demand. are environment improvement even on would lot hear by it I That's gross profit. you gives question My actually It's gives but questions. need a competed what XX% normal with a low taking environment. for away. to first driven backdrop? to constrained we the back keep that are in of over its pre-COVID. seems confidence these the reductions few SG&A supply don't structural and those I

Bryan DeBoer

some inflationary we I e-commerce mean, the model way take be salaries pretty that higher the it's in they both for benefits affect entire SG&A to confident time, that that over think complexities think developed. end designed obviously But and solutions have going our the of Ali. inventories while back as fair well. are that pressures we The insights, consumer that's I are that each we've facing way to and got of the a we some important part have in out us maintain costs grow simplified we and same simpler managers so okay, those ability productivity in to thinking the model. hopefully and store doing to where realizes that is model person, future, of the that of still thing a spreading about general our stores, different negotiate we've operations running the a with and can design the then their we are ability organization an hopefully couple

growth. that pretty with realistic confident up I did So adjacencies even for think I in stores And like we are to mean, COVID-based And off, few even remember, environment, look we the revenue. a the a in the as it's are percentage those our network, next years. clean may though important were we we some sell our sold XX% are having And drag SG&A did numbers revenues okay? bit it little that million of $XXX pushing a we almost even

back the ago So efficient way X, that were even in now. we some years fat had model more X

to rather that We our able are find more the network optimize -- than a those better, numbers to drive help bigger we numbers. lot store partners we and store closer those are numbers smaller

Ali Faghri

car used almost appreciating sense Bryan. levels, is we since That's back longer guess in question color. no Thanks, helpful to which pricing my on XXXX next used GPU. an are environment. very makes It's I

So XXXX I time. levels more to of used to car GPU what's on could the there used in side. car as think it risk normal pricing and the decline below spreads the that was fair go coming to period to meaningfully perhaps downside a used assume back starts But go should for your overshoot quarters

Bryan DeBoer

mean, that’s has average don't I that a ever anyone's when Again, spike. the it I back, a likelihood. at it And obviously seen level. think comes a graph stops

side. think both So on are and we new I that car contemplating used the

ask dealerships, dealership We down. in had be loan, I And are the where the disequity if may push offset times. so, normalized to of which we've environment remember, buy our because be happened car about sell $X,XXX is meaning down we to by saying absorb absorb cash cash into design disequity. all really have are find what has margin of the But to an and into hundred really had of ability the sitting of equity, I consumer them and and means and true demand X, And are been walk that car in think year been think today coming additional $X,XXX a That's okay? got average over months new don't this some high is has for the the new car or they $X,XXX where that equity down, and whatever staple then whoever cars offset car the future, XX% in advantage to the will normalized in at $X,XXX Today you can now have that many them in quarters, really more a this there's going and last more the pure have not the transacted X ago they by their not retailers the sitting used to massive average times, the quarter only disequity that moves has absorbed absorb disequity equity the to that X greater that of advantage. to years you to people or is that why. new financing the pre-COVID and that to into disequity of going point, and any want and again a they of a disequity have at and transposed consumers last eventually they want. amount of what's cars the average consumer, diet, you $XX disequity incentives cash that consumers to on be some over down, portion the this around disequity a

those cars, So or that that for lot XX-year-old remember sell Book. quite with over full a disequity and because we greater cars chance And cash are scarce Kelly sold people and that Blue substantially those cars paying or good ACVs there the like that or of valuations that are typically XX-year-old have for credit of X to have really the cars environment. a zeros

Ali Faghri

changed? $XX that prior your have supposed changed was Driveway. view? still last EPS. have if EPS XXXX the the that of don't you here, $XX you're reiterating the is that I of to see asking great Or blocks but that think about roughly have I'm building expectation to target of my on confidence come the blocks from guess helpful, because It's from target? $XX target, Do mind, And is That's you the that that's to building I Bryan. question appropriate

Bryan DeBoer

Yes.

ball. I think looking and obviously years, a that can X that were out when we cloudy goals, crystal we gave those be

reiterating numbers. I the are think we overall

be some from terms comes revenue the the from. right. comes you're where adjustment EPS where think definitely and I could in of There

I and and the And about are some to on we think Driveway quick especially to But to though are And will we I another are in Senior still the capital of us. our that I the complex management Vice that's of people to. now of it's may may working constraints other a profitable our metrics Carol one ABS though through. the from improving where there's efforts the we conservative DFC a efforts things positions of leads touch are reach my retailers the team sitting okay? side at, only what to seem probably it's year all that at and important then in And and more there, e-commerce capital message have we're And in terms profitability what I probably knowing from the heavy have we XXXX. other attentions could at experts those standing us, think way that market just day and I it office. there's that that President the and come the reaching be possible its profitability. work to profitability It's contributions ultimately. be will lifting and still obviously, a again, our end, Deacon, manner, a think even lot our turn it's end XXXX think by hopefully most of So of our of

Ali Faghri

appreciate color. Thanks, that Bryan. all I

Bryan DeBoer

Ali. Thanks, insight. Good

Operator

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

Colin Langan

for Thanks questions. Great. taking my

Just tick a think mentioned investors I would struggling wanted to rise environment. in you thought did that with But SAAR recessionary you guess are inventory follow-up, I up.

XX about flat reported volumes I think quarter-over-quarter. days you fairly look and your

numbers you sort think decline the the then percent So presold. seen on quarter, gave Have measurement in why seen haven't of, of inventory some as with And also, I a well? helpful near-term volume a that? increase in uptick last a the you with we inventory that's presold

Bryan DeBoer

is Bryan Colin, This hi. again.

between whole okay? vehicles the we and got? that we’ve last have if seen This sector X%? remember, same-store XX%, looking X%, down think at in sales of unit down, I what it I new because you down quarter, XX% are quarter, was Is

Tina Miller

New units.

Bryan DeBoer

it. Got

units, New okay.

digits. think it's I high single So

a XX%? So Down it's pretty [indiscernible].

Chuck Lietz

Yes, down XX%.

Bryan DeBoer

quarter-over-quarter a XX% Down XX%. sequentially improvement. That's

think year-end, I And going beginning to see are that. we So I are think we recovery. by to some see

XX.X I depressed level XX%. think by remember a that SAAR is almost

can't fence pricing, that itself I that I a they for there's if the in for idea car sitting believe pent-up the us relaxation So tailwind think the -- there's that future. a recessionary a people of enough in that MSRP And weren't consumers paying will demand on that rationalize are because is a be they of level. -- in

Colin Langan

Okay.

than bring the the also same-store up You is did worse unit sort market. XX.X% decline. of That

is X%. large Is it market the quarter? mix, is delta any drivers brand it geographic this think I there? underperformance Why of mix, down only

Bryan DeBoer

more at Colin, it's partially down XX.X%, as mix, is but the the than look market retail numbers well.

down XX% So in -- domestic. we up are we are

off the are imports We off were we most, we Japanese remember, X% that off in up imports, okay, in which are okay, means luxury. were in XX% the import. And XX% are Korean that ones X%, the the

Colin Langan

Okay.

-- was was than market retail worse saying overall the the are the market industry? You with retail

Bryan DeBoer

peek take a those You and can at pull numbers it. probably

Colin Langan

Okay.

with Because imagine I interest of rates think scrutinizing there. the in slides Okay. start we may recession? how and sort And lastly, customers you that in mean, I about in you holding just mean, recession, is F&I mentioned -- up. F&I a should said that a I payment, rising,

should bit? any softens seen or haven't maybe anticipate kind evidence that a we You of

Bryan DeBoer

and the we Colin, the of it's able to the on that. do start at I that because ourselves really for make that consumers. to creates there's about we Yes. currently that our recession, prolonged important is we CECL ultimately under And once to looking contract say, there gap back It's and people DFC. a our I our are following what's level when know are know opportunity, more holding a volatility are think we mean, us also massive and DFC. $X,XXX, There's interest okay, reserves if next fair okay. that Xx get that pace when be normalized capitalize think DFC still make know Xx over usually impact -- we to on usually But and our at it's the I we lenders. we that the that's to X,XXX. I change would such I year, about we I it happening. uncertainty, spreads the whether expectations year around our loan, or get probably $XXX control the third-party from the life We believe And

the So like spreads we'll have on don't they once good pretty rates growth still. some DFC tailwinds today at point the are outrun

Colin Langan

Thanks taking my Okay. All right. for questions.

Bryan DeBoer

Thanks. Colin. bet, You

Operator

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

Bret Jordan

Hey, good morning, guys.

Bryan DeBoer

Hi, Bret.

Bret Jordan

a RV versus dozen are Is valuations in the RV at recently. bought a You strategy change how all? a dealerships that on half dealerships And automotive?

Bryan DeBoer

yes, it's good. Yes,

with the help It's now a a best is with from all it And can RV little it's beta greatest really dynamic like. level because out that a really look Ted based cost years it's of talked test. of wonderful X exclusivity. pictures could paint channels. what low X really obviously the think manufacturer leader the and mobility idea It's of Portland. It's a us asset. different I we've okay? He's of investment to effort takes here, about

are like the it's the volatility and X/X little little almost which over domestic that bit a in it our decades, model. space, country, I those our the team many be spending are an other industries are how mobility more of time car believe, in run things. It of or people terms and cool digest shares than great I very believes that mobility ultimately, look these same that to special of focus to these company normal though in impactful than roads world very the has for business, of with And RV And more less for Some is a people said, investment. again, it modifies is But to by it business may the travel these cyclical woods captain the all was the this. out small feel and based I pretty an already different grow know really and which just types airstreams he other America upfitting because are what think some difference. has where a and understand help the RV we the been a organ and a moved of all sells on teams basic could doing darn of the that what real are airstreams, like. a and no is quite get business small initiative to to create to verticals relative of But other we company

Bret Jordan

Okay. guess in restricting as F&I. sales, And place? weren't you then you Or what transactions I see as products something of far typically those first some the a F&I quick we DFC's proposing follow-up product should on are about? given [ph] as worry the that the do including in that

Bryan DeBoer

there's that Yes. home there they're is create subscription really we that a important F&I certain our a for be help most CFPB. services a thing eliminated, or we experience into dealership convenient hybrids consumer what reconditioning looking are learned that the out whatever happens the with products that we've becomes for or for that's transparency with bond future more coming than F&I products usually one of the I in conduit believe that Bret, in cars is products And importantly, will and an in electric part. that think for or are vehicles where if other there's

nimble For us, depending adjust, we accordingly to will and adjust being what again at determinations final able are pretty are. on their we

value are I we transparent think the treat a fairly always sure that big environment. in them in they're what make provide and everyone for keys looking

Bret Jordan

you. great. Okay, Thank

Bryan DeBoer

Bret. Thanks,

Operator

comes question with proceed your Adam next Morgan question. Please with Our from Jonas Stanley.

Adam Jonas

Hey, everybody.

Bryan DeBoer

Hey, Adam.

Adam Jonas

So Bryan. Hi. Hi, thanks.

my was So question the taken. CFPB on

had the deals My will a have or chance any follow-up. brief loss to couple I on I quick just deals ones any Have So made your got made either a you you you have new have you. to first question. true-ups changes or existing reserves just for of

Bryan DeBoer

Chuck will quick. take let I that real

Chuck Lietz

provisions, looking I your stayed assets at we Yes, total this are to percentage our relative for they Thanks X.X% definitely question. the the Adam. quarter but management. under at mean, constant of

increase Right But provisions deteriorate, certainly monitoring feel very if continue obviously We now, to market we accordingly. we say that, I that would the correct amount. obviously, pretty closely. comfortable will that's conditions are

Bryan DeBoer

are FICO score scores a job. our remember, points. has Chuck if done XX LTV a or points pretty Adam, you basis nice And average amount. FICO in up XX we is good almost down

possible. front it as best So of he stayed in as

Adam Jonas

the you ratio. earlier -- asked about preorder last one, Agreed, agreed. And the were just

was to your believe for quarter it think new, I quarter, but it last used be was about you said XX%, -- last I XX%.

Bryan DeBoer

XX%. XX%, Yes, exactly.

Adam Jonas

Yes. What's that that? is trending it What's to? now? doing that What

Bryan DeBoer

pretty at we those earlier Tacoma So comment and high big we Wranglers really and just-in-time demand and but I vehicles still Broncos the that that made have still a inventory, are have now those vehicles like high we are day backlogs, an also supply in good and environment products that as there free domestic are in flow, where But a we many aren't okay? of have the a demand.

Adam Jonas

Okay.

much. so you Thank after. follow-up will We

Bryan DeBoer

Thanks, Adam.

Operator

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

David Whiston

Thanks. Good morning.

got the particular, turmoil a you're over but strong I you be said you time, maybe in more but to would thinking wanting so for dollar, the to go time if macro the were in very stability environment, M&A the And more into probably know investor of good to value it's long-term, Europe, the U.K., on perhaps a on there? we've U.K., curious at Just a more same lot there. wait

Bryan DeBoer

a and if the able good have that dealership as of than think multiples stack that that is pretty pretty a a million some European $XX most there business us at what helps are PAG was cost and they typically that help We because the like in Group can And over was there about is Western we competitors the getting on level fleet have do read-throughs And and about to find dollars seems what a consumer there good open there, that right pretty DMS think experiences on that of that's it annual and what the to time up two we $XXX they at I strong and share. front those savvy Yes, in rumors as some are project of lower lot the that it's that's of United dealerships dealerships like I a we if our our assets of now a that half from are system able wasn't Western be know States. and assets. the trade probably a positive so a States. was Europe, alleged One of some and some traded value get, there's clear it, can looks to ability at United us or with that importantly, dollar, to the trade of type the new team horizontal I think amount. a of read-throughs may decade were were million It raw working us that And DMS there. or talking David, today, it exposure save be that raw our when may just think as those the happening okay? That's we may I about about things big and that leasing well and not couple

So billion in at $XX double you that. can revenue,

more that what like. Western that like maybe do look things consumer and efficient some a insights a we're maybe what could look give can good model constructive So but more we into us some experience streamlined pretty there's can Europe believe at, looking pretty

David Whiston

that. And and shifting for pure over transactions. omni-channel to gears just Thanks digital

XX past have or skip seen months more to so, past? you consumers the willing are drive Over perhaps test than in the the

Bryan DeBoer

That's a being the of that a world do here test to comfortable vehicle portion data of are home consumers good the don't greater the that a there have question. getting but -- car. idea becoming and believe having delivered to a right the I and with is that I i.e., I do me, more believe with not drive

that really, comfortable and it which there's retailers, able So that and lot a with there's drives, is But of at I be pockets those mean, help in Driveway and I penetrate bit to e-commerce And makes test we without little a lot really through the We pockets which the think transacting home. the did then okay? early it strength cool, digital of vehicles And us are doing market pretty with easier XX,XXX and and are environment, also adopters GreenCars to we our people for change other that. know sold comfort that a aren't where it. Driveway there's good experiences, easier.

back. I ask of car do is take quite where take the it, a first drive other helps isn't simple the back that own have and they the consumer that keep test they and it, bring think we car the happy X-day thing return, No we questions type want they and way. if all with their it to when

David Whiston

people particular are don't necessarily You or to are want you talking mentioned a online. there about particular there a some demographic go area or? where areas Is customer

Bryan DeBoer

We we bit a saw Arizona propensity and want Southeast underbelly push the to and that noticed a on, that e-commerce been big longer be we of Southeast where a little little in Georgia where Southwest portion for in, that consumers' less market. the And just way. dollars marketing had in of to to time. the And basic really had one the was it presence thesis of and bit takes of some their to it softer transact early greater retailers able of period had this a began customers. and

explain You don't the to story. have

have experience snow quite don't as quite as in belt hard the the you hasn't what as You really sell the prevalent. where to guarantees in-home e-commerce been do

David Whiston

much. very you Thank Okay.

Bryan DeBoer

Thanks, David.

Operator

question comes Omega from final Cooperman Our of Please Lee the with line your Office. with question. Family proceed

Lee Cooperman

obviously is In view cyclical and do opportunity. in your of business, you business, the as cyclical trough any earnings, you concept a what earnings, earnings [Indiscernible] earnings? which normalized trough peak are

Bryan DeBoer

Offline, okay.

morning, tomorrow right? get to we think talk I

Lee Cooperman

asked Yes. line. your All question I figure right. open on I

Bryan DeBoer

bet. You

Lee Cooperman

So your of earnings? view a trough you have

Bryan DeBoer

We take will offline. it

Lee Cooperman

in be got disappointed secondly, to And you very obviously okay. on. Offline, what's going

than You plus buying it a now. of and you're bought ton now is less back higher stock XX%

well? assume be you out a take turning environment we offline anticipated? the as that bit little I Can to is than So different

Bryan DeBoer

I was in our the over I'm was on is was phone. to finance talking Trent our His of like, quite still do last thinking mean, at think about we international he terms anyway, focusing yesterday great America are are is it happening. for can strategy not starting to And that's earnings, and going results about was all. of long on. course. levels, with what focused He's me, talking talking began are they're and like, winning to the on with that son my that elevated really to different I info. I manage matter turned see think we on And I in don't as about areas everything taking the the what they most control, approach name power quite that the what's really day-to-day that the that we we've is when the takes mean, we And Driveway of and It last we're business, this knowing been of something the a business decades stay long-term the Lithia environment while anyone that no, and look to Europe expected in two what the normalization quite overall our no, how our GPUs and in No, approach and I happy does reactive Western year. mantra oh, quarterly okay? whereas execution has 'XX these are not happens into I of at is insightful. economy because think normalize. isn't

business. really I think that's Lithia thinks how and its Driveway about

forward and specifics. into to we look we tomorrow So get can talking more, more

Operator

turn We have Marwaha over question-and-answer Amit call reached comments. back the now to the end I'd session. closing to for of like the

Amit Marwaha

good We Thanks Thanks. that, in you meeting with today. to weeks. wish us forward I for joining the day. everyone look many next of With a

Operator

conference. today's concludes This

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

Lithia Motors (LAD) 19 Oct 222022 Q3 Earnings call transcript