Earnings call transcript Q4 2022

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Operator

Good morning. And welcome to the Lithia & Driveway Fourth Quarter 2022 Conference Call. All lines have been placed on mute to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session.

I would now like to turn the call over to Amit Marwaha, Director of Investor Relations. begin. Please

Amit Marwaha

Chuck me Vice DeBoer, Miller, President President CFO; With Chris and Senior are President and Executive Vice Holzshu, and and today you. Finance. President Bryan CEO; Vice of Thank Driveway Senior Lietz, COO; Tina

made. statements and actual from Today’s markets and financial projections company’s Such uncertainties to results risks statements differ are that future and discussion about statements events, cause about to expectations materially the may the subject could include growth. products, forward-looking and

disclose uncertainties the forward-looking material and this as made you We and undue in forward-looking We our disclosures date Exchange release. the urge reliance of be risks deem to place statements. these undertake those we We not which consider filings Securities to of any no statements, are to on update and duty with carefully Commission. to

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

posted Presentation updated also We Investor results. website on investors.driveway.com, our quarter have an highlighting fourth our

I to President turn DeBoer, over Bryan to CEO. and like that, would the call With

Bryan DeBoer

Amit, to Thanks, our earnings. you everyone. good We progressing. growth joining appreciate record strategy of posted business differentiated how is updating and our on look and another and us today and you year morning, forward We revenues

XXXX, grew $XX.X revenues billion, to up In we XX% from XXXX.

to our continued and investments on positioned well from XXXX and a XXXX three Over interact to company profitability, customer the in have billion we plan, our attract $XX.XX doubled we and a and to back growth. in over EPS culture expand the XXXX, size are have adjacencies of of $XX.XX focus team and from driven with in in years our $XX.X past launch customers, performance, nearly by revenues optionality the a for high of since quadrupled

continue by the to a team network We that to constructed our we network, are massive America. in scale our North With have and mission with experienced, knowledgeable people. nimble nationwide and expansive growth capacity truly most living powered combines a customer-centric platform the diversified of

key been brands What and has as products, is consolidate towards technology, innovative growth diversified financial foundation our industry. with platform a solutions. fragmented moving a platform regional and to a results, began consistent global to This ability highly

the reported $X.XX. adjusted In we quarter, fourth of EPS

Our used teams through navigating market calls. at shared the previous orderly it gradual are pace as and rebalances vehicle on a as

operations, of gross a was excluding vehicle Our two our SG&A percentage rates burn the adjacencies. XX%, as of

two impacted having our was Secondly, by volumes at domestic mix, tepid revenue vehicle our of partners. new manufacturer

at varied but less by New and car rebuilding, is uniform rate inventory OEM. a also

XXXX, lowest experienced new in SAAR and After XX million to vehicle between million since the XXXX units. we be anticipate SAAR XX.X

averaged between lift industry future XX XXXX conquesting of million XXXX market implying to share. the a perspective, XX% to a vehicle addition in As SAAR

home color back to have We to the minutes. in a few provide on at Chris additional have pleased quarter call this

Our vehicle retail operations continue to lead evolution. the omni-channel auto

infrastructure options of footprint, their cycle. with ranging omni-channel Driveway store technologies and combined customers to growing quickly flexible offered by a Our of ownership vehicle stores to our provide variety throughout GreenCars options to from life physical

remains and performance to of operating and costs highest strong the lowest growth produce massive operations margins and industry. store the core Our in continues SG&A one

Moving to channels. our digital

with quarter, unique last the only XX to Our in reached our of XX% average an increase XX%. compared visitors combined million increasing year monthly spend

during to inventory products channels robust a and momentum driven strong, continues visitors and the digital nearly Traffic gain X.X growing XXX% and a to Driveway traffic all was GreenCars month experiences. across million variety quarter. particularly selection per of by

shy in sold utilizing our vehicles of representing revenue. of billion $X XX% in just our omni-channel GreenCars, were year, the to stores, Driveway During just our technology customers and -- $X

experience of our online conquest LAD being with stores generated customers over million revenues continues customers expands within country our miles XXXX. experience of of XXX decade. last nearly XX% of with This in now. the within platform Driveway, a to combination Driveway reach innovative network negotiation-free with the Driveway new in with our shopping $XXX options coming interacting selling new technology vehicle fully our and our to and from over customers of the XX% in-store its business

XX% our to Driveway lender The the for Corporation quarter. XX,XXX positioning Finance or originated year loans from previous the basis Moving DFC fourth penetration and operations. the our at points solidly DFC XXX billion in over as to network. rose short, over $X quarter rate the financing in largest ended receivables, over we in

KBRA. strength, only by we retailers captive week, believe and rating Last and arms. our decision our with the Moody’s finance this nature by and We investment-grade from used an our finance making disciplined captive the both quality third completed other reiterates accompanied differentiation ABS securitization of

As call. are the the has results later extremely how I’d outlook laid team our the on and for more Chuck, the expanding pleased foundation entire in profitability such, we adjacency our this commend DFC providing who will like with be color future. to in and

acquisitions. portfolio our made in Now fourth Star quarter, Worth four the CDJR and the earnings dealership further expanding the area, its in Ferrari call. Denver, including of footprint Freedom in kind Rockies, acquisitions, state, Dallas-Fort the we turning in Central Glenn’s our to notable finally, the CJDR mentioned sole we Lone In last on of the Airstream Kentucky, Meador

to acquiring kept through another XXXX far we annualized million pace year in the we with revenues have in the off. built start So XXXX, $XX momentum

year another We expect this to network. of be for growth the significant

Investor billion recently company of in public over XXXX slide the of nearly the during Presentation. shown and revenues $X.X year, full all annualized our activity year for as on M&A our acquired updated We XX

plan five-year billion acquired $XX by targeted Since $XX.X total mid-XXXX, originally the of of XXXX. launching billion, total XX% a we have our in

approach by earnings to acquisitions and maintaining to massive levels. our methodology long environment continues of consistent value Our multi-decade valuation patience, X towards generate disciplined normalized times times X

We have the flows than down our towards conscious a paying utilize acquisitions to rather primarily made redistributing of or cash towards majority decision them shareholders debt.

interest establish to size, will costs, optionality and the levels, continue consumer we competitive attachment. profitability foundation importantly, and and most leverage, have for SG&A we advantages in cost massive such, As scale,

clear we XXXX to sight of we plan, the billion As the target. and hit $XX our durable achieving confident midpoint that have strategy our remain revenue is

new Our and translates in and XXXX, $X.XX billion on focus future to by from achieve EPS $X better historical the ratio eventually up with in portfolio revenue for EPS our ability profitability $X the EPS up to leverage adjacencies drive into target. in operating $X in of mix,

outline Let to few me plan. and our achieve drivers take moments a XXXX the

operational platforms. First, efficiency to optionality, drive we continue all across consumer

profitability our cost network and optimize structure. options omni-channel integrate which We in as result are prioritizing our margins leverage and and goals we improved our will

as profit below XX% of will enhanced environment, normalized continually gross SG&A in a percentage help to a liquidity addition flow and In driving cash performance, high this generation. drive GPU continued

diversify Second, our our grow the DFC earnings power portfolio. our will in investment and financing operations

by demonstrated are DFC capital moving As effectively managing sustainable to maturing DFC’s self-funding, is its structure and growth.

we XX% to at vehicles this We DFC, by and our are rate way a driven targeting to well profitability later penetration primarily used are on XX% year.

strong Third, gives we the backbone the the within to poor the performing to physically life ownership It of through continue strategic our physical a network continue timely, reach business. the and core of to that growing value of within returns, our with miles the XXX profitable generate two-hour throughout stores lack our XX% while to Growth network, be of consistently smaller network. cycle network creates of customers competency to optimizing our our acquisitions. us of Acquisitions strategic reach ability foundation cadence plan of LAD their our consumers proximity. divestitures

shareholders. financially our strategy the focused remain best for strong we committed on Lastly, to disciplined with risk sheet reward balance and a capital allocation

growth, reduced have through returns through leverage in our network our We past captive growing over quarters several growing repurchase. while the omni-channel dividends share and finance meaningful business our still tools, We and generated invested acquisitions. shareholder

underway in longer balance decade term between gains strategy, diversified geographies. As to mobility and continue positioning. towards building differentiated transportation shorter across a Lithia and believe & crafted long-term a smaller while the a we is platform half Driveway strategic multiple term a ago, finding well

our We arm. focusing types hassle a owning finance owners with the of and making e-commerce position platforms including strategically free network designed captive have for on our options easy vehicle across all and of experience and

business our every of $X Core billion $X revenue. term for to on continue is plan execute $XX to highly reach we profitable as longer our XXXX of EPS in billion ambition and revenue delivering our growth, to in

will over call Chris. I the that, to turn With

Chris Holzshu

to results and everyone operating Thank of on you, areas discuss call It’s the good Bryan. today brief XXXX. our our overview join focus for to a provide

and generated Lithia the among their However, franchise in, highest of independent before solid These teams exceptional stores levels jumping I’d leaders better of congratulate These location. like LPG. XXXX Partners size, XX Group performance our last internally consumer market or their store with and representation geographic led as year, profitability. share peers their known satisfaction class to winners

team of eligible leaders majority and attaining supporters our all home service of key leaders. have delivery Driveway, of growing XX% also teams LPG we to our store over this GreenCars, were years. and and We and in our DFC of the executed status future look our status now all future forward coveted at pickup mobile attaining There

we trends in GPU gross expected of recovery declined declines the per out coded offset XX% not quarter. profit as the Now the vehicle Overall, new or as retail same-store transitioned did to in profit volume unit vehicle the fueled environment. gross

down prior at per over vehicle were $X,XXX compared $X,XXX just quarter. were $X,XXX results the GPUs, from unit, the down $X,XXX including to including vehicle year. prior to Used from strong year. F&I, the New was in unit, F&I, per GPUs, $X,XXX $X,XXX previous F&I

levels XXXX new As around above returned of $X,XXX vehicle a per levels. GPUs to GPU used levels have unit, pre-COVID still significantly our from reminder, vehicle are historical while

in digits, on offset basis. import combined growing sales, same-store During vehicle over the relatively quarter, low-single fell sales strong, by the a were and domestic luxury XX% which

additional XX% lines, starting OEMs certain a to the of we market into are domestic continues. While expect normalization incentives which up to on see we vehicle from about product continue new these XXXX shift our sales, as towards in make OEMs

$XX,XXX, prices vehicle averaged last from X% year. Used up nearly

pricing continued on top-of-funnel a trades rising offered, interest external we we channels use with new as continues well retaining aggressive inventory remain rate supply. the on the as as are inventory procurement dealer, environment vehicle all of even from recovering franchise pressure and As

on pricing a depressed and environment carry the on and vehicles vehicles issues supply a of should late-model used we from vehicle takes SAAR impact to XX-day abnormally pressure than new minimal the normalize. have years XXXX, as less Transitory used shortage

including XX days, days represented compared volume. days price XX and appreciate XX is of used day to all levels, our the at the of auto value used our the and to Customers days range were vehicle sales option new vehicles service third the XX quarter. At purchase as end at which products to end vast years segment, XX December, of XX% older vehicle and our and and supply up of in

set diverse the aligned net network demographics preferences local to a market team. cast by leadership, and all us purchasing nationwide geographies execution one wide allows across with of with Our and service a

local experience XXX delivered or we providing vehicles process a individually together, America to and ship pathway. Driveway by can is Working markets as average in consumers miles, their service free the a where empowerment negotiated Driveway over or allows represented regionally distance across channel local negotiation our the national network and choose through option the North

As our to product price and further our network. demand and the more will on in significantly market, time, Over we between making resulting to insights to leverage stores merchandise consumers translate relationship in our platforms, product decisions by continue are across better gain economics. this the better

X.X% Our aftersales lines, up business all across strong quarter. the business remains in

record over XX we anticipate the an and age average of vehicle XXXX. growth operation continued units years, in throughout With

growth SG&A generated below adjacencies, excluding as a operations, Core XX% of on percentage the SG&A. to quarter. Shifting

the remains geography our of ample lower However, operating improve quartile core which in there size. stores, our leverage segments across even to and vary opportunity in business,

down enhance can this XXX $XXX achieve points are We of improve or an growth, innovative profitability utilization our focused stores continue of estimate to to to by of topline and moving average productivity, bottom basis boost drive we in level million solely These solutions. upward there’s expected technology quartile additional performance. cost

improving SG&A XX% of As to attainment these operations at aligned SG&A on team best results illustrated, to better. cluster stores environment focused our Conversely, of LPG a our and is growth in locations. gross or the with stores this at operating there’s achieved XX%

sense million invested Over years, million nearly past in in XX it network high level quartile M&A upper cadence many with locations revenue replaced and we revenue the with our to have makes store growth cases. our forward trajectory. $XXX of larger performance them remain look diligent average per optimizing over in and stores our where three continuing on $XX an and averaging We

day, is the the of In to summary, our challenge in the each of aggressively needs meet team to ever-changing consumers automotive rising future retail.

more navigating to look by become motivated core evolution diversified, transformation have our a We to forward greater consumer the through business company. in the and optionality

profit team levels our leveraging every eventually all bottomline up cost and is across generate. readiness, revenue structure looking translate for new improve our in in billion the digital business driving retail incremental The $X to at our leveling EPS to will of lines that we to $X

to at-home plan. look will efforts towards solutions our and focused and in-store we meet evolve We to on they choose. Their consumers however whenever humble continue remain year our and laser another and achieving strong wherever, remain

I’d that, call over turn to With like Chuck. to the

Chuck Lietz

DFC Thanks, continues to a premier finish the & lender solid posted to for Driveway. year and be Lithia Chris. the

while Our continue being lender. business the strategies remain benefits to economic managing consistent returns of leveraging a as risk, we the maximize captive by

the of to help We terms quality overall in continue to move mitigate risk portfolio. upmarket the credit in

in segment be to growing portfolio, objectives and creating the profitability near-term achieving capital Our a systematic scalable and structure XXXX. continue

which billion, APR originations a over $XXX by the weighted with while increases our measured X.X%, originations, of driven the in rose portfolio by to funds X.X% $X Quarterly million. QX, recent just loan growth the average cost rate of grew in Reserve. totaled Federal In to line had

quality continued underwriting have at customers standards. incremental increases along our degradation credit to or We pass rate an to our without to rate

of the interest a with a expenses achieved million quarter, margin $XX $XX For loss million, including of of financing operations $X million. net our provision

In year. just the averaged rose the XX% penetration full and over over for DFC to fourth quarter, XX% rate

XXXX, into stable penetration remain XX% Going expect rates to and between XX%. we

adjust year profile. in stems pace our our growth, Our near-term, the portfolio goal the maintaining originations decision to risk of achieving particularly profitability current of this and from

from from in originations XX.X%, the period. up QX with XXX XXX, reduced from originated reduction QX increased reduction front-end same nearly a for to average a of portfolio three sequentially Total and The was score loans points weighted QX. scores over XXXX. in for XXX XXX-basis-point average XXX FICO at XXX consecutive LTVs FICO QX quarters basis during We

total of as QX in of by XX-plus ends million. December, our credit $XX.X have deployment of is bringing where to allowance stability seeing to quality approximately percentage we Overall, of This the rose delinquency delinquency receivables X.X%. a allowance rates, losses expectations slightly, telephony a X.X%, loan in of At especially our driven system at with end but fell for combination managed line signs some tail DFC’s advanced and basis in points the improved primarily XX QX. to

wholesale in values recovery net our a but Net result of charge-offs rapid increased vehicle deterioration was which also auction the declined. slightly a primarily quarter-over-quarter, portfolio, in growth rates as

recovery with due to the While growth XXXX was rapid while the will values. charge-offs lower waiting to the continue increase originations mitigate portfolio in in car we of net average expected, activities to used a help LTV optimize for vehicle reductions

ABS primary first a term we a KBRA. is our is term near-term source ABS towards significant for a allowed both this and the utilizing week, critical capital offering offering in remains materially carried AAA this Moody’s offering to third million. materially rated DFC to tightening pricing ABS particularly as $XXX a oversubscribed, of closed rated The as market as step which Last entity. DFC’s where spreads market term all of receptive being was with This by credit becoming guidance. self-funding tranches versus committed initial final our tranche

term periodic initiatives. will deploy looking towards reliance allowing a programmatic parent Becoming other lessen company liquidity capital, on growth LAD ABS issue to DFC’s thereby forward

prominent should result The XXXX DFC across in in a profitability. business near-term fundamentals

DFC’s our basis. on either of profitability performance cost further could credit impact results DFC’s in negative the impact forward-looking of However, volatility funds or a

up closing, this results has by In point. DFC are excited we the achieved to

million $XX state income moves which portfolio result reaches and on should revenues, as of reserves. of constructive in $XXX a once a rates as excess vessel LAD the DFC XX% pre-tax of in penetration hitting steady by normalizes towards achieving are billion We XXXX reminder,

future contributor $X will of of $X every end a revenue. earnings billion share generated per LAD’s become DFC’s state major to is were for

XXXX We this our and are visibility to particularly is financial foundational breakout to excited about goal. achieving we in milestone a meet segment profitability of provide as the results look

while KPIs balancing managing towards forward. approach achieve positions prudent to DFC risk, Our credit going growth our

over Tina. now Financial turn Chief call our the will to Officer, I

Tina Miller

Thank you today. Chuck. for us Thanks, again joining

as have the support DFC. financial expansion navigate our We outlined XXXX and within and plan, from our the investors of levers patience received multiple feedback and growth we your appreciate great we

operations adding have of operations, With our restated financing DFC. the vehicle greater we and operational visibility that, results segments to to

result a leasing This in of to depreciation statement. earned a SG&A provision income our from DFC have operations our financing change line income with we this, expense the As the line added expenses income interest interest the and portfolio. and associated loss represents less associated directly

Most these assist on items, impact our re-classes, these Presentation to slide reconciliation the depreciation we within SG&A. of in previously except Investor of were added reported have understanding XX. a To

quarter, we the flat XX% XXXX. The year down times, in million, from prior attributable leverage was as last fourth ended for the with costs with headroom providing and EBITDA profit quarter We associated gross in growth higher and DFC During the decline $XXX at grows. of change portfolio substantial a adjusted interest reported year. the to with X.X

free During third billion in our acquisitions over of half in repurchasing in approximately deployed cash flow toward and the this the went we and X% share capital. float generated approximately toward in $X year, $X.X billion over amount, This buybacks. of a XXXX. Of resulted

us opportunity increased an value strong growth through provided dividend, repurchases while strong concurrently shareholders share earnings maintaining Our to acquisitions. through and to return year the

Overall, X% to XXXX, For we to our X%. remains optimistic. SAAR outlook expect used new vehicle constructive and and grow

earnings by will As are a impacted following. declining believe GPUs and reminder, be we the assuming

each in year GPU vehicle with pre-pandemic the a and navigate to demand to this throughout month continue single the high-single about moderate, the a digits, new new environment of and digits would this unit end mid-to-low for assuming $X,XXX levels. normalizing, decline in as will used little above $XXX growth supply GPUs we average a unit and Same-store per transitory XXXX, of

and rising rates affordability to year. impacted unit and estimated interest per be X,XXX around by for the may F&I are consumer be

with We grow levels. revenues historical expect the service margins and consistent parts in single digits with to body mid-to-high

as we impact of range of XX% strategic are target percentage future. XX%, which to the making in we investments SG&A finally, a the of the includes And gross profit for

of cash billion estimate of flow free revenues. our dividends we rates, cash $X assumptions, to net represent these expenditures in disciplined Given would free At billion capital $X of all annualized exceed hurdle deployment XXXX. in and roughly acquisitions to our

our billion and growth to returns $XX in for Balancing are us revenue. shareholders pillars reaching

through grow fully consistent provides acquisitions, proven in-store significantly like optimize ability channels. with to and margins in profitability online strategy our the expanding and Incorporating and leverage diversifies size for business scale underlies foundation our and our our DFC to Our and adjacencies us the future. lays

we historical long-term Our of growth in launch EPS strong XXXX revenue, in line the plan. balance profitability well increasing $X up to EPS billion generating capital from EPS us since sight billion in generation positions the of our continue see by the and have sheet -- a in revenue. $X and to in and $X achieved to long clear generating to ambitious the in $X per in XXXX $X.XX We

remarks. call questions. for our that, the Operator? prepared concludes over turn audience will This to With I the

Operator

first you. question from Your go Thank comes Instructions] Stephens. ahead. [Operator Daniel Imbro with Please

Daniel Imbro

everybody. to question. SG&A. start want I Yeah. Good my taking morning, Bryan, Thanks for on

of how there. given was GPU the a stayed, bit it strong surprising just think I some deleverage

looking what was to that rate back could you forward, quantify burn that your growth maybe what prepared the you growth from gives your there. But remarks, sub-XX% XXXX those least than adjacencies mentioned rate I be that to two think a within adjacency other confidence couple maybe to and get of then able to help of Thanks. towards hundred at deleverage in DFC, points basis targets? some you SG&A of were burn

Bryan DeBoer

morning, good and Daniel, Sure, everyone.

in made total was most was those think, year-over-year our had that we massive down XX%. domestic about growth and importantly, two in sales. drops their their It saw volume those up of what almost on manufacturers quarter XX% I manufacturers the

direct you it topline the it’s grows have of hard reflection SG&A a -- that to does fairly think SG&A. a it on to So was XX% big impact how amount we impact, made XX% when and down, outpace that does the and about number But SG&A. which up goes estimating

rest sector is right continue long coming we adjacencies before, from the those think like to have competitive marketplace. the okay? that, we are we the be really about two-third is adjacencies able remaining of answers So of to term to a The a it and really I advantage aggregate mean, the believe third versus show and discussed that the

that still okay? about In looking about GPUs gets then, have new have than forward, as at little a the decrease obviously, down are approximate higher pre-pandemic levels -- bit Tina And we we the $X,XXX for an terms on of and F&I, down well. modeling throughout mentioned remarks, little as $XXX in a the looking bit year, year, us prepared

talk higher it the that I the But react mean, others -- X different Chris have those it about fortunate domestic if bit, but now just a domestic all wasn’t going we of inventories starting have in manufacturers two to all, little in may space. they little some in and those to the a than of is to look

Daniel Imbro

think, the SG&A guys that that had from And that there somewhere last SG&A, any maybe clarify, was could Bryan, investment if that you shift charge options was of flowing the the else? or investment. P&L up down through, guess, of can I I to just this follow on in is any on Was my kind from understanding, quarter, was it write I you

Tina Miller

shift This that actually Tina. on be Any flow through it Daniel. investment, the within line. adjustments make SG&A is they others, so won’t Hey, we

Bryan DeBoer

$X The on remaining answer investment and is about I don’t only quarter believe million the any on... there’s we for that had

Tina Miller

It the minor the amount. pro press it forma a Yeah. in release. was out called in We adjustments

Bryan DeBoer

Yeah.

Daniel Imbro

Perfect. it. back to Thanks, I guys. one will hop queue. Got the in will I question. stay

Operator

go Next JPMorgan. question comes Rajat Gupta from with Please ahead.

Rajat Gupta

I that network score any just perplexed would or by with range? was little have average X.X% a And to the taking to higher XQ. shift is XX% more do to XXXX it lower helpful? in use the that. was taking FICO of coupon greater Is step in XX% Thanks On is it on I this color a a looks it mix follow-up. Why be DFC, to the Great. than bit mix, for like question. the something

Chuck Lietz

Chuck. This the as the Raj. price had Hey, Yeah. on eight rate. second in to monitor of for the and the to continuing have your we we DFC, to Reserve question. closely is what’s With increase Thanks year happening Federal regards half yields continues marketplace have increases in

terms probably near-term of X% out the in to is in leveling eventually In that XX%. where yields our see we

So we still that we ways continue to got to go we but move monitor, will the moves. move to up as market as

Rajat Gupta

it. Got fact -- will mentioned, the a sizable it. I Got you have will you step that it this you Tina is for I or X,XXX pretty year down think to have numbers a on F&I, DFC fewer follow-up full the loans understand, taking into a just that more account seems trying have average. like like

just So through of progresses DFC the impact and year how the curious that orders?

Chris Holzshu

Chris. morning. is Good This Yeah.

drop trying rate a what nothing and impact bit environment, of in F&I little anticipate what probably with I at have the like proactive to little what we couple we to and conservative a things years a the last able have to be off rising trying about look really think in $XXX absorb DFC. here, consumers might X,XXX, is to operationally are F&I in on do where XXXX is in which of seen just

Operator

from John Bank Murphy comes Please ahead. of question Next go America. with

John Murphy

a because to kind there’s just think there’s up wanted I moving on of to guys. I morning, SG&A of gross, and pieces here Good a the lot of lot confusion. follow

or wrong, there’s down GPU natural we just new it’s sort kind forget be for on a I just SG&A decline want second, the thinking standard, am a I I adjacencies XXXX think clarify think, or of on about way think correct down naturally should me go a of really response, a particularly grows, how works about of of of to of a understand we if year-over-year if dollar GPUs if should As as trying about of about being about just we sort much that SG&A typically XX% XX%, think just right? on level I sort And sort in absolute to then of if how aggregate am about it’s gross, that. does sort clarify, that adjacencies of I of comp XXX we XXXX the because will rule the sort off? down here just am in also an and spend could basis thumb that variable up subsequently versus we of

Chris Holzshu

John. Yeah. Good is This Chris. morning,

think have right. you I

I have is or gross profit way we kind think overall in of profit our our the at expectation improvement, the at our minimum stores that what look gross XX% that the we meaning either a we direction. in or incremental in that the dollar call in that profit net dollar throughput, see that lose for of you should every XX% you every least gross, at impact gross decline

now high impacted, things I laid where But the kind lack years slide stores. the and out realize as structure for this a opportunity environment supply, like the gross of that we we we nine We operations is a kind on on negatively overall the of in will productivity of lot just in think, core of alignment of slide focus COVID of compensation last where the new kind deck, to in been have couple there’s reset have I and that minute. cost our of off

launched of QX, not SG&A on the to even make we operationally initiative contribution late see that a focus gross and And those an on of all average to well basis to bring but in of what stores stores, below have we it’s can line. they kind falling you internally profit starting bottom that big a them, are number and

annually savings basis from expect the have XXX XXX we points probably should points the launching QX, initiatives in so of basis in up to okay? pick that the by we we end that And core business,

leaves kind SG&A Bryan adjacencies. I our core XX% I business going the reiterated is about be a that, and both adjacencies to factors Bryan And needs talk that of as to the now about then running at that by have X%, outside about and explained and other of gross. to right am That

Bryan DeBoer

I as that land built adjacencies the your model John, we Chris. built that our forward, Thanks, or that, promised mid-state which the we okay? understand are adjacencies in returns a entire at will future know And to and the question. take have we someday, think is to whether advantages I state to these going how XXXX about us important that a going think, a around beyond believe yield foundation was of It’s long-term. higher the that’s

should okay? down two-third remember. from is okay, those up about know have if impact okay? important on to think the in to be built Finance, about how still coming throttle think SG&A those adjacencies of We the that Driveway, that Driveway Finance we that XXXX, not came also most quarter, from and and profitable you Driveway We in

the is outside the to $X.XX $X.XX million, a which $XXX by going a in make Driveway is and $X.XX EPS $X.XX XXXX, of EPS. future the $XXX has lift to state on of it’s on lift future to And Finance million to

where okay? So it’s it’s CECL going have this, we on we you as build punitive clear. But you reserves, see, as quite very know

starts to revenue, to we side, the and build to some potential to and depending SG&A -- in that to and differentiated On in money space. from were decisions okay? over towards, that of down the XXX,XXX that And if made solutions in the others the believe Driveway that basis we billion market it extent throttle to quite more able omni-channel on it solution us cost does we number be layer in that ourselves those clear up decisions a we the to conditions of and XXX what has on produce get which that’s to it nice how have $XX do quarter brand, EPS have the that of lot fundamentally, believe cost points finding will continue efficiently you a trajectory give an because we to $X the

Operator

you. Thank

with Please go Bottiglieri Our Chris ahead. comes Paribas. question from BNP next

Chris Bottiglieri

Hi. questions, I last to on quick quarters. losses step a just my of follow-up this at it’s I for the a the materially question. One the asked quarter, Did big -- am a two clinical one, Thanks to taking looking own inflection just the ex-DFC, couple pretty one you gross Driveway see I they model, growth. up like Auto over

big up Just a quarter? losses you trying saw some step Driveway Auto, reason, understand there if to this for

Bryan DeBoer

ago. There step-up was in quarters losses a two

into had hard We had losses. hit see increases started and QX ramped QX, and pretty wholesale been to other a okay? in continued few that things our So we gross in profits

few seasonality has We about the Driveway are us mentioned typically and valuations. fortunately, time, QX of this have we valuations it used our of that and cars, of believe stabilized this even helps that on in and and weeks, think or I wholesale last until through few stabilization our we the which terms typically over months seen we market terms going in in continues on pricing

Chris Bottiglieri

to Got question. my you. leads That next

spoke dealers was as would a do what declines? of everyone what have just you this like, volumes on seeing, to up seeing Sorry, to kind a seems Are this wondering or unused clear cadence business pretty the inventory pricing used It what CAGR you year, of am a temporary carry throughout kind of industry and frame signs one into of like What three-year have a from one we big or like, it depleting QX the given is seen somehow is January. that and being were kind be. you like your in in QX. consultants you of one corner used February? -- inflection January turned I

Bryan DeBoer

Yeah.

previous to remember bit Chris, back to you go in stores, QX. had QX, little think, to to got I but -- in year start good important a subside comps and it we to it’s we pretty the have on look the comps at that same

an at annual sales increase looking have cars. on of high-single digits We same-store used

some as at used, an believe April. you yes, happening market increasing in to update far give will share So, what’s we the extent in January, and recover and we looking have we will our on market as

Operator

Bret ahead. go Jefferies. Next Please with Jordan question,

Bret Jordan

morning, Good guys. Hey.

Bryan DeBoer

Good morning, Bret.

Bret Jordan

you to that. least side getting As on or historic call, level pre-COVID GPUs Do levels? GPUs the inventory maybe and you quarter think, past recoveries back about to back as on longer I new sustainably a are prior talked guess, look you to XXXX, incentives out above and or us new that take at our briefly below you we going term, third going the look maybe the

Chris Holzshu

Bret. Chris. Good morning, Yeah. This is Yeah.

the kind month, basis I year-over-year. dropping rest for GPUs our new on the think $X,XXX for that’s an for that this forecast why kind year on of about year Tina will of kind at $XXX be about the out impact which laid of of average a

and specifically, are an quarter, as gross in pretty our profit. Ford overall on pointed a though think, Bryan the sales our had impact, as our domestic Stellantis. I We you tell specifically will when OEMs, I sales in which two out, volumes I our XX% with it drop saw that think of of of kind big alluded domestic, outsized to, overall Bryan

as the have have. have what inventory out far you, to move seen XXXX those is in of that pretty tell model pivot inventory, will February, overall a I in they as which we doing OEMs about we massive though, XX% specifically year starting

seen expectation moderate we support And supply we so will incentives, that on in on based in we to last now the with of couple product et in our see XXXX, equation impact line, moderating additional OEM, this XXXX. demand rebates, that overall help kind have feel of kind that cetera, in years of kind haven’t of is that and the us going based

Operator

Next question go comes from Colin Langan with ahead. Wells Please Fargo.

Colin Langan

Thanks the Great. for taking Oh! questions.

Bryan DeBoer

Hi, Colin.

Colin Langan

GPU I kind and having that affect on volume. the thought of Ford confused Stellantis is follow-up, it’s sales. a lower would per Just unit of because I would down,

If higher two? you kind maybe connect at could be of if sell would the a to lower those had you Yeah, able volume, GPU? you

Bryan DeBoer

Yeah. Sure, Colin.

GPUs, to and SG&A of GPUs your it’s as product your terms help okay? and to And costs move Bryan overall it’s reduce I down trying have XX% that it are think, Inventories SG&A. the on this our drop, in our such, as so you XX% down on, and on -- talking. gross okay, The overall such, Stellantis, Ford. the interest is was on impact, and -- Chrysler, building, was just

the you your leverage adjusting structure cost structures compensate have able that and You to quickly not cost as have. to to be

Colin Langan

Got it.

Yeah. Okay. Thanks.

for And a lower So GPU just sites. then also… those

Bryan DeBoer

Yeah.

Colin Langan

question. another up …

sort COVID variable You to for because What added every a be quite had that are be from are commission. sales me out have about GPUs SG&A Is $X,XXX, about? of XX% thinking those talked like SG&A we high new should that you talking that almost dollar accurate, because $X,XXX up growth. would that since of seems costs that come

Chris Holzshu

both most to again. that been couple I’d in of over has This is Good of XX% cases, is supply GPUs last And of the commission Yeah. given high and recovery we our had the years. that, in GPU say line pretty ultimately, the on that difficult high sight morning. commissions, translate personnel based, SG&A Chris is that okay.

That’s managers, of unusual and kind high commissions have not general demand supply been operators, for of just managers, our store inflated management our this to for but F&I those things for team, equation. our salespeople, due our all

back people represents expectation though, pay coming the commission cycle, of that going change that we kind look cycle, our because you if so, on you a And from do historically, car didn’t basis on what out a when a of well for think example, that into math if GPUs of quick number as single in on other GPU go going as you to paid it’s Obviously, the direction, about the drop drop. growth on deal, the

And that so, is yeah, XX% expectation throughput. our

launched it We on team historically, we in we manage focus while should that get have our done why it whole that. and didn’t operationally at we operational thought have we those that QX, it level didn’t stores see to we the that’s

nine, can of them. all as And you slide it’s on not see

footprint have fixing quickly is see that and which other to that gross gross several year. store XX% what are will have us translate are SG&A our stores the also those I of XX% and the have stores throughput back XX% that last number. stores, on XX% is to between larger running we that think that to we XX%, through to that, And focused that we We SG&A especially side in getting

Operator

comes Jonas ahead. with Please Next Stanley. Adam question Morgan from go

Unidentified Analyst

Hi. This is Jonas. [ph] Adam on for Danielle Hagen

wanted a ask Manheim been heard Recent used has prints conversations about we that volumes So and with I about market question the used show used to prices. some firming up.

car trend this -- how do see is can recent you you So used long this how last? think what and strength driving do

Chris Holzshu

This Chris is morning. Good Yeah. again.

think biggest in carry XX-day a directions used seasonality. good is the it pretty mean, see we I driver get and XX-day, moderation in we the to is was of pipeline. the the see quickly as Index the both us fluctuations nice cleared through inventory, Manheim I that now right car news only the supply for

about And it were think I like something. was but still think Tina quarter you, tell ASPs so or I in the X% up can

car bigger fundamental Our How CPO? trade? inventory. How to see that impact as you recovery does in impact is, start a does that new

higher vehicles core that and value advantageous a impact are fall really auto going have those all used for because longer which to driver consumers gross does our lines, volumes, us return generate to How their continue because actually in car profitability, drive about for profit, is might us. more product be it’s our which biggest to much ability that which into held

recovery that’s to but great new, be in volume, not like be So it’s F&I. the feel for we have very about optimistic we used for going great to going just and

Operator

Whiston David Morningstar. question, ahead. with Please Next go

Bryan DeBoer

Good morning, David.

David Whiston

I from have Hey, you saying, everyone. just hear because much this some of am concentration love just your sure you I’d get but in to geographic there that, can’t ask goal, hearing approval, that, one with billion factory wanted market. take is guess, question guys, $XX their am brand that? I because disagree to I too to on a I clients they getting well, Lithia out critics

Bryan DeBoer

they it’s that at I three been ago, billion $XX years were David. since fun. anyway haven’t think And saying Sure, we so,

achieve We to can in the currently actually data. able we have have agreements okay? and all domestic we modeling framework billion, and that off between billion beyond okay, through of framework So have share. $XX we should of you actual some market believe $XX based be run And place, agreements grow that those the revenue that

by can to quite of able we believe, still that little be to the you billion really is years performance, have maximize but we $XX So those get It to last numbers. does bit optimization few achievable, easily require XXXX. okay, that the seen over a

David Whiston

this you have So as been given absolutely right? on, the from you you factories have getting citing, the framework doing resistance have no

Bryan DeBoer

make same that last we the over at the excuses they mean involved and years. structurally call typically of to not have attractive all back they as to about half other why buy group XX have deals. what because can’t is peer usually buys because Lithia in seller the every we country No. with I public would deals the It’s

slide was, it’s think that slide it the XX that, XXXX to on the bought same what do for We okay, domestically. I manufacturer, have some we manufacturers. with are but that and $XX not we will illustrates at grow publics deals have to decade XX, some messaging the other look before slide, heard towards we mean, billion billion the again, when with problems problems continue any do $XX I

David Whiston

the one I the to the just Okay. deck national there’s and ASP which Can use real overall The pre-pandemic little now that’s slide autos. clarity. just ASPs according about question is a for ask value appreciate XX,XXX quick, I about on on used less. average

to curious, much that vehicle struggling customers? So relative customer now of how used demographic particular other just I the right am

Bryan DeBoer

Bryan it’s again. David,

want. bucket, value to per higher our XX,XXX $XX million unit, than and cars think or XX,XXX through believe what pre-pandemic unit would million it’s is buy like just what that’s would. have typically I we okay? little the those we quite of we it have we difficult has to So we in per channel always typically XX,XXX $XX were at I a them seeing to getting the per less than unit,

But matter really, cars it’s expensive. are cost a the of just more of that the

consumers sales we old bring affordability try coming price almost from and vehicle, as even to in affordable fifth used points. be to be difficult and though and have older to a nine-year the it do as is of unfortunately, not to we still at our we everything all it’s So, able can

monthly volume. as payment engine other pretty we about a but average in quickly were X% which sustainable, sold we year fun instead a X.X%, is though more, grew total for it expensive $XXX to cool is X% okay, more they cars fund little that BEVs. more okay an learned, ice of our over expensive on of kind is, an even is so $XXX, we little have that kind a the note One $XXX that XX% car of our that of sell about about of BEV at And

Operator

the for Bryan to over floor will you. Thank now remarks. turn closing I

Bryan DeBoer

to you All Excellent. on look in quarter for best. the April. you & Well, thank and forward us today joining Driveway’s first results we updating Lithia

Operator

teleconference. today’s concludes This

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

Lithia Motors (LAD) 15 Feb 232022 Q4 Earnings call transcript