Q2 2024 Lithia Motors Inc Earnings Call

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Unknown Executive: Good morning, ladies and gentlemen, and thank you for standing by.

Unknown Executive: Welcome to the Lithium Motors' second quarter, 2024, earnings conference call. At this time, all participants are going to listen-only mode.

Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Lithia Motors second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Unknown Executive: A question and an intercession will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded.

Operator: Should you require operator assistance during the conference, please press star 0 to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Jardon Jaramillo, Senior Director, Investor Relations. Thank you.

Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Jardon Jaramillo, Senior Director, Investor Relations. Thank you. You may begin.

Rajat: Thanks, Rajat.

Jardin Jameo: I will now turn the conference over to your host, Jardin Jameo, Senior Director, Investor Relations.

Bryan Deboer: However, they have very high levels of service expectations for their drivers, and I challenge all of us on the Lithia and driveway teams to be able to meet those demands because it is a different level of service than, probably, even what our retail customers get. So most importantly, for us to realize the synergies in the partnership with Wheels, which is primarily the ability to sell some new vehicles to them to help embellish the fleets that they service, okay, that's an important thing.

Unknown Executive: Thank you. He may begin.

Jardin Jameo: Good morning. Thank you for joining us for our second quarter earnings call. With me today are Bryan DeBoer, President and CEO; Chris Holzshu, Executive Vice President; Tina Miller, Senior Vice President and CFO; Chuck Lietz, Senior Vice President of Drive-Way Finance; and finally, Adam Chamberlain, Chief Operating Officer. Today's discussion may include statements about future events, financial projections, and expectations about the company's products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to materially differ from the statements made. We disclose those risks and uncertainties we deemed to be material in our filings with the Securities and Exchange Commission.

Speaker Change: Good morning. Thank you for joining us for our second quarter earnings call.

Speaker Change: With me today are Bryan DeBoer, President and CEO , Chris Holzshu, Executive Vice President,

Speaker Change: Tina Miller, Senior Vice President and CFO .

Chuck Lietz: Chuck Lietz

Speaker Change: Senior Vice Presidents of Driveway Finance, and finally, Adam Chamberlain, Chief Operating Officer.

Jardon Jaramillo: Today's discussion may include statements about future events, financial projections, and expectations about the company's products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to materially differ from those made. We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements.

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

Chuck Lietz: We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission.

Jardin Jameo: We urge you to carefully consider these disclosures and not to place under reliance on forward-looking statements. We undertake no duty to update any forward-looking statements which are made as of the date of this release. Our results discussed today include references to non-GAAP financial measures. Please refer to the text of today's press release for reconciliation of comparable GAAP measures. We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our second quarter results.

Chuck Lietz: We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. We undertake no duty to update any forward-looking statements which are made as of the date of this release.

Jardon Jaramillo: We undertake no duty to update any forward-looking statements which are made as of the date of this recording. Please refer to the text of today's press release for reconciliation of comparable gap measures. We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our second quarter results. With that, I would like to turn the call over to Bryan DeBoer, President and CEO.

Chuck Lietz: Our results discussed today include references to non-GAAP financial measures.

Chuck Lietz: Please refer to the text of today's press release for reconciliation of comparable GAAP measures . We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our second quarter results.

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

Bryan Deboer: They divest somewhere around 100,000 vehicles a year, which if we can do a good job and play the pay market and build driveway green cars in the Lithia, you know, channels to be able to attract more customers and, obviously, we've now got a pipeline of vehicles that maybe competitors don't have. Ultimately, we'll have to be the highest payers for those, but those relationships can grow and build and bond. In addition, they maintain all those cars, okay, and that is maintained through multiple different networks of retailers today.

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

Bryan Deboer: Thanks, Jardon. Good morning and welcome to our second quarter earnings call. Our lithium driveway teams continue to drive results as we mature our unique and profitable mobility ecosystem. Our associates met the operational challenge we faced in the quarter and delivered much improved operating results and execution of our strategy, with an adjusted diluted earnings per share of $7.87, a 30% improvement sequentially, despite the CDK outage. We achieved our highest ever quarterly revenue, our first quarter of profitability in financing operations, and laid the foundation for continued growth in our ecosystem as we serve customers wherever, whenever, and however they desire.

Bryan Deboer: Thanks, Jordan. Good morning and welcome to our second quarter earnings call. Our Lithia and driveway teams continue to drive results as we mature our unique and profitable mobility ecosystem.

Bryan Deboer: We achieved our highest-ever quarterly revenue, our first quarter of profitability in financing operations, and laid the foundation for continued growth in our ecosystem as we serve customers wherever, whenever, and however they desire. I'm proud of the way our team responded, quickly pivoting to create solutions and continuing operations across our network. We will talk about the impact on results and operations in a moment, but I want to recognize the impressive efforts of our team members who rose to the challenge, serving our customers 24-7. We've achieved the first promised stage of the 60-day plan that aimed to create at least $150 million in annualized SG&A cost savings that will be fully realized during Q3.

Bryan Deboer: We strategically used the higher profits and capital of recent years to grow scale revenue and earnings by nearly three times since COVID began, plus built, acquired, and funded all our crucial differentiating strategic adjacencies: driveway, green cards, DFC, PVM, and now will. These important design and scale advantages built and assembled during a period of low cost capital have paved the highway to higher margin and a lower cost business with unlimited potential to capture market share. This quarter brought a unique challenge when CDK faced a cyber attack that impacted many of ours and others' dealer management systems. I'm proud of the way our team responded quickly, pivoting to create solutions and continuing operations across our network.

Chuck Lietz: These important design and scale advantages built and assembled during a period of low-cost capital have paved the highway to higher margin and a lower-cost business with unlimited potential to capture market share.

Chuck Lietz: We are now focused on growing this market share, leveraging our scale, realizing all the potential we have built, and delivering operational efficiencies through customer experiences across our ecosystem.

Chuck Lietz: I'm proud of the way our team responded, quickly pivoting to create solutions and continuing operations across our network.

Bryan Deboer: We will talk about the impact on results and operations in a moment, but I want to recognize the impressive efforts of our team members who rose to the challenge, serving our customers 24-7. We continue to make significant progress with large sequential improvements in profitability, even after the impacts of CDK. We've achieved the first promise stage of the 60-day plan that aimed to create at least $150 million in annualized SG&A cost savings that will be fully realized during Q3. Looking forward, we now believe there is potential to double this amount, primarily driven from inventory reductions and are expected to occur by year end.

Bryan Deboer: We've achieved the first promised stage of the 60-day plan that aimed to create at least $150 million in annualized SG&A cost savings that will be fully realized during Q3.

Bryan Deboer: Looking forward, we now believe there is potential to double this amount, primarily driven from inventory reductions, and this is expected to occur by year end. During Q2, we made significant progress in areas such as personnel, advertising, and corporate-level expenses and implemented a redesign of leadership roles to focus on maximizing profitability while leveraging our ecosystem. Wills is one of, if not the largest, fleet management companies in North America, with a best-in-class management team, strong performance, and surrounded by a robust competitive moat.

Chuck Lietz: Looking forward, we now believe there is potential to double this amount, primarily driven from inventory reductions, and are expected to occur by year-end.

Bryan Deboer: During Q2, we may significant progress in areas such as personnel, advertising and corporate level expenses, and implemented a redesign of leadership roles to focus on maximizing profitability while leveraging our ecosystem. We are pleased to announce that we have purchased a minority stake in Wills in partnership with Meribany Corporation. Wills is one of, if not the largest fleet management companies in North America, with the best-in-class management team's strong performance and surrounded by a robust competitive mode. This investment in a high margin and highly profitable fleet management operator has the potential to create transformative synergies between our retail and their fleet platforms. Alongside PVM and fast leasing, Will's completes our global omnichannel strategy focused on a complete mobility ecosystem.

Chuck Lietz: During Q2, we made significant progress in areas such as personnel, advertising and corporate-level expenses and implemented a redesign of leadership roles to focus on maximizing profitability while leveraging our ecosystem.

Speaker Change: We are pleased to announce that we have purchased a minority stake in wills in partnership with Marabini Corporation.

Bryan Deboer: Wills is one of, if not the largest, fleet management company in North America with a best-in-class management team, strong performance, and surrounded by a robust competitive moat.

Bryan Deboer: Alongside PVM and fast leasing, Wheels completes our global omni-channel strategy focused on a complete mobility ecosystem. Lithium driveway grew revenues to $9.2 billion, up 14% from Q2 of last year. While vehicle operations experienced headwinds as a result of the CDK outage, prior to the outage, Q2 had strong improvements in our same store sales and delivered good momentum in our cost savings efforts. Diving into same-store sales performance, total same-store revenues were down 6.4%, and gross profits declined 12.5%.

Bryan Deboer: Alongside PVM and fast leasing, Wheels completes our global omni-channel strategy focused on a complete mobility ecosystem.

Bryan Deboer: Now, on to key results for the second quarter. Lithian driveway grew revenues to 9.2 billion, up 14% from Q2 of last year. While vehicle operations experience headwind as a result of the CDK outage, prior to the outage, Q2 had strong improvements in our same-store sales and delivered good momentum in our cost savings efforts. Diving into same-store sales performance, total same-store revenues were down 6.4%, and gross profits declined 12.5%. Consumers remain resilient despite recent trends that reflect challenges from affordability and higher interest rates, with unit sales in the quarter down only 3%. Total vehicle gross profit per unit remain resilient in the quarter at 47.62, similar to last quarter and down $951 compared to the same period a year ago.

Bryan Deboer: Now, on to key results for the second quarter.

Speaker Change: Lithium Driveway grew revenues to $9.2 billion, up 14% from Q2 of last year.

Speaker Change: Diving into the same store sales performance, total same store revenues were down 6.4% and gross profits declined 12.5%.

Bryan Deboer: Consumers remain resilient despite recent trends that reflect challenges from affordability and higher interest rates, with unit sales in the quarter down only 3%. Total vehicle gross profit per unit was resilient in the quarter at $47.62, similar to last quarter and down $951 compared to the same period a year ago. Our after-sales business was down 1.4% in the quarter. This decline is primarily related to CDK, which drove after-sales down almost 40% during the 12 days of the outage.

Bryan Deboer: Our after-sales business was down 1.4% in the quarter. This decline is primarily related to CDK, which drove after-sales down almost 40% during the 12 days of the outage. We expect some of the work will be deferred into early July as our systems and processes were turned to normal. Our teams have been nimble and responsive, and we do not expect any long-term impacts. Our investments in adjacencies are maturing nicely as they move towards sustainable and considerable profitability. Financing operations produce strong results with income of $7.2 million in the quarter compared to an $18.7 million loss last year, achieving profitability earlier than expected.

Bryan Deboer: Driveway and green cars' burn rates have also been reduced by 40% compared to a year ago as we continue to refine our e-commerce strategies, improve operating and advertising efficiencies, and convert new customers. All in, we generated adjusted deluding earnings per share of $7.87, a decrease of 28% from Q2 of last year, with an estimated $1.10 impact from the CDK outage. We saw clear strength and operational performance in the second quarter and were on pace for nearly a 50% increase in sequential EPS. We continue to focus on unlocking the profitability of our ecosystem by decisively acting to meet customer demands and operate efficiently by delivering on our core strength execution, moving on to our unique and extremely difficult to replicate strategy.

Speaker Change: We saw clear strength in operational performance in the second quarter and were on pace for nearly a 50% increase in sequential EPS.

Bryan Deboer: Moving on to our unique and extremely difficult-to-replicate strategy, we continue to build the most extensive physical network in North America and the UK, adding new stores, foundational adjacencies, and strategic partnerships such as Wheels to expand our customer experiences and diversify our portfolio. Operating in the largest addressable retail market in the world, we continue to strengthen our ability to profitably grow across all elements of our business. Our strategy to expand and create customer solutions that are simple, convenient, and transparent, allowing us to capture more of the customer's wallet share, remains unchanged.

Bryan Deboer: Moving on to our unique and extremely difficult to replicate strategy.

Bryan Deboer: The foundation of the lab strategy is our vast physical network built upon the industry's most talented people, highest demand inventory, and dense physical network. We continue to build the most extensive physical network in North America and the UK, adding new stores, foundational adjacencies, and strategic partnerships such as wheels to expand our customer experiences and diversify our portfolio. Operating in the largest addressable retail market in the world, we continue to strengthen our ability to profitably grow across all elements of our business. Our strategy to expand and create customer solutions that are simple, convenient, and transparent, allowing us to capture more of the customers while its shares remains unchanged.

Bryan Deboer: The foundation of the LADD strategy is our vast physical network built upon the industry's most talented people, highest demand inventory, and dense physical network.

Bryan Deboer: These solutions integrate digital solutions and create sticky natural retention of customers within our ecosystem, while magnetic brands like Driveway and Green Cars provide access to 50 times more customers than our core physical businesses do. The lab ecosystem, including driveway, showed a 2% increase in total MUVs year over year, reaching 12 million per month, with green cars contributing over 900,000 MUVs. MUV effectiveness is also building momentum, where we saw over 38,000 digital units in the second quarter, of 5% compared to last year. Our teams have made great strides in our digital channels, with a Google rating of 4.7 out of 5 year to date and renewed focus on reaching profitability and expanding market share.

Bryan Deboer: These solutions integrate digital solutions and create sticky, natural retention of customers within our ecosystem, while magnetic brands like driveway and green cars provide access to 50 times more customers than our core physical businesses do. MUV effectiveness is also building momentum, where we saw over 38,000 digital units in the second quarter, up 5% compared to last year. Life to date, our acquisitions have yielded over 95% success rates and after-tax returns of over 25%, demonstrating that LAD is not your typical high-risk roll-up strategy. This quarter, we welcome two stores from the Sunrise Group in Tennessee and the Woodbridge Hyundai store located in the Greater Toronto Area to Lithian Drive.

Bryan Deboer: These solutions integrate digital solutions and create sticky natural retention of customers within our ecosystem, while magnetic brands like driveway and green cars provide access to 50 times more customers than our core physical businesses do.

Bryan Deboer: As emphasized by recent events with CDK, technology provides an avenue for sizable increases in productivity within our business. We are excited about the progress, or Lithia UK platform is making with Pinewood Technologies as we can continue to convert our stores there onto a single platform. Solutions such as Pinewood Systems bring the ability to place customers and associates in the same ecosystem in order to increase productivity, substantially improve our current customer experience, and enhance our operational resiliency. This quarter, our investment in Pinewood Technologies generated a nice return, which reflects the market's positive view of the platform's possibilities.

Bryan Deboer: These strengths, combined with our mission grow powered by people, financial discipline, and regenerative free cash flows, enable us to quickly respond to local market dynamics. This capability allows us to increase touch points throughout the customer's life cycle across our adjacent seas and equip our stores with the tools to improve market share, loyalty, and ultimate profitability. Acquisitions continue to be a core competency, and we remain disciplined as we look for creative opportunities that can improve our network focused on the United States. As a reminder, we target a minimum after-tax return on 15% or greater and acquire for 15 to 30% of revenues or 3 to 6 times normalized deep data.

Bryan Deboer: These strengths combined with our mission growth powered by people financial discipline and regenerative free cash flows enable us to quickly respond to local market dynamics. This capability allows us to increase touch points throughout the customers' lifecycle across our adjacencies and equips our stores with the tools to improve market share loss.

Bryan Deboer: L T and ultimate profitability.

Bryan Deboer: Acquisitions continued to be a core competency and we remain disciplined as we look for accretive opportunities that can improve our network focused on the United States.

Speaker Change: As a reminder, we target a minimum after tax return of 15% or greater and acquire for 15% to 30% of revenues are three to six times normalized EBITDA.

Bryan Deboer: We reiterate our expectations that estimated future annual acquired revenues will be in the range of 2 to 4 billion dollars per year. Life-to-date, our acquisitions have yielded over 95% success rate and after-tax returns to over 25%, demonstrating that LAD is not your typical high-risk roll-up strategy. This quarter we welcomed two stores from the Sunrise Group in Tennessee and the Woodbridge Hyundai store located in the greater Toronto Area to Lithia and Driveway. To date, in 2024, we have acquired $5.6 billion in annualized revenues. I would like to personally welcome all our new associates to the Lithia and Driveway family.

Bryan Deboer: We reiterate our expectations that estimated future annual acquired revenues will be in the range of $2 billion to $4 billion per year.

Speaker Change: Life to date, our acquisitions have yielded over 95% success rate and after tax returns to over 25% demonstrating that ladder is not your typical high risk rollout strategy. This quarter, we welcomed two stores from the Sunrise group in Tennessee, and the Woodbridge Hyundai store located in the greater Toronto area.

Speaker Change: Here to lithium driveway to date in 2024, we have acquired five $6 billion in annualized revenues.

Bryan Deboer: To date, in 2024, we have acquired $5.6 billion in annualized revenue. With the capital engine we have built, we are able to deploy our free cash flows to drive the greatest returns responsive to market conditions. Continuing to improve our operational performance by realizing the massive potential that we have built in our existing stores. This includes increasing our share of Wallet through greater customer lifecycle interactions, sustained productivity gains in growing each store's new, used, and after-sales market share, and increasing profitability. Continued cost efficiencies combined with the technology catalyst created by customers and team members coexisting in the same solutions will help as well. Today, we have a combined new and used vehicle market share of 1.1%.

Bryan Deboer: I would like to personally welcome all our new associates to the Lithia and driveway family.

Bryan Deboer: We are growth-oriented and see industry consolidation as a driver of strong long-term returns. With the capital engine we have built, we are able to deploy our free cash flows to drive the greatest returns responsive to market conditions. As discussed last quarter, we have adjusted our capital allocation targets to equally balanced acquisitions and share-backs. During the quarter, we were purchased 202 million or 2.9% of our outstanding shares. We continue to monitor valuations on both acquisitions and share-weep purchase and remain opportunistic.

Bryan Deboer: We are a growth oriented and see industry consolidation as a driver of strong long term returns with.

Bryan Deboer: With the capital engine, we have built we are able to deploy our free cash flows to drive the greatest returns responsive to market conditions.

Bryan Deboer: As discussed last quarter, we have adjusted our capital allocation targets to equally balance acquisitions and share buybacks during the quarter, we repurchased $202 million or two 9% of our outstanding shares we continue to monitor valuations on both acquisitions and share repurchase and remain.

Bryan Deboer: Opportunist to Nasdaq.

Bryan Deboer: Weaving these elements together and assuming a normalized SAR and GPU environment, we see more clearly a pathway to generating $2 of EPS for every billion dollars in revenue, as we illustrated in slide 14 of our investor presentation. The key factors underlying our future steady state are now totally within our control as follows. First, continuing to improve our operational performance by realizing the massive potential that we have built in our existing stores. This includes increasing our share of wallet through greater customer lifecycle interactions, sustained productivity gains, and growing each store's new used in after sales market share, increasing profitability with continued cost efficiencies combined with the technology catalyst created by customers and team members of co-existing in the same solutions will help as well.

Speaker Change: Weaving these elements together and assuming a normalized SAR and GPU environment, we see more clearly a pathway to generating $2 of EPS for every $1 billion in revenue as we illustrated in slide 14 of our Investor presentation.

Bryan Deboer: Key factors underlying our future steady state are now totally within our control as follows.

Bryan Deboer: First continuing to prefer improve our operational performance by realizing the massive potential that we have built in our existing stores.

Bryan Deboer: This includes increasing our share of wallet through greater customer lifecycle interactions sustained productivity gains and growing each store's new used and after sales market share increasing profitability with.

Speaker Change: Continued cost efficiencies combined with the technology catalyst created by customers and teams members are coexisting in the same solutions will help as well.

Bryan Deboer: Through these levers in our business, we see a pathway to achieve SGNA as a percentage of gross profit with adjacencies in the mid 50% range. Second, optimising our network by acquiring and driving high performance in larger automotive retail stores in the stronger profitability regions of the Southeast and Central United States. We also expect further growth in our digital channels to increase our market share to ultimately reach a blended US market share of 5%. Today, we have combined new and used vehicle market share of 1.1%. Third, financing up to 20% of units with DFC and maturing beyond the headwinds associated with Cecil reserves.

Bryan Deboer: Through these levers in our business, we see pathway to achieve SG&A as a percentage of gross profit with adjacencies in the mid 50% range.

Bryan Deboer: Second optimizing our network by acquiring and driving high performance in larger automotive motive retail stores in the stronger profitability regions of the South East and South Central United States.

Bryan Deboer: We also expect further growth in our digital channels to increase our market share to ultimately reach a blended U S market share a 5% today, we have combined new and used vehicle market share of one 1%.

Bryan Deboer: Third financing up to 20% of units with D F C and maturing beyond the headwinds associated with <unk> or.

Bryan Deboer: Our financing operations achieve profitability in Q2 and is expecting to continue consistent profitability growth going forward. Fourth, through scale and size, drive down vendor pricing with solutions like Plinewood, improved corporate efficiencies to save costs, and lowering borrowing costs as we pass towards an investment-grade credit rating. Fifth, maturing contributions from our horizontals including fleet management, DMS software, charging infrastructure, and captive insurance. And finally, deliver ongoing return of capital to shareholders through increased share buybacks and dividends. We continue our journey in building a total mobility ecosystem, and our well-positioned to maximise our unique and powerful scale and reach to deliver more frequent and richer customer experiences throughout the ownership life cycle at global scale.

Speaker Change: Our financing operations achieve profitability in Q2 and is expecting to continue.

Bryan Deboer: System profitability growth going forward.

Bryan Deboer: Four through scale and size drive down vendor pricing with solutions like Pinewood improved corporate efficiencies to save cost and lowering borrowing costs as we path towards an investment grade credit rating.

Bryan Deboer: Fifth maturing contributions from her horizontals, including fleet management, Dms software charging infrastructure and captive insurance and finally deliver ongoing return of capital to shareholders through increased share buybacks and dividends.

Bryan Deboer: And finally, deliver an ongoing return of capital to shareholders through increased share buybacks and dividends. I am very excited to announce the promotion of Adam Chamberlain to Chief Operating Officer. Diana DePries will step into the Chief Customer Officer role, partnering with Adam and Operations to continue to build out the driveway channel along with our customer ecosystem and related experiences in our after sales business. With these changes, Chris Holzshu will be handing the baton to Adam, allowing Chris to strengthen our ecosystem to spark growth and serve as the company appointee on the boards of Pinewood Technology and Wheels. Chris has been instrumental in our growth, and we are excited to see his continuing contributions to expand our partnership and enhance the company.

Bryan Deboer: We continue our journey in building, a total mobility ecosystem and are well positioned to maximize our unique and powerful scale and reach to deliver more frequent and Richard customer experiences throughout the ownership life cycle at global scale.

Bryan Deboer: Our original design elements are now firmly in place, and we look forward to focusing all of our attentions on execution to establish new levels of performance for our industry.

Speaker Change: Our original design elements are now firmly in place and we look forward to focusing all of our attention on execution to establish new levels of performance for our industry.

Bryan Deboer: Now, before we move on, I would like to share some organizational changes that I spoke to that are designed to support our evolving company, delivering at a high level of performance. I am very excited to announce the promotion of Adam Chamberlain to Chief Operating Officer. Adam's leadership as Chief Customer Officer and Eastern Regional President since 2022, combined with his extensive experience in the automotive industry, positions him perfectly for this new role. Adam's commitment to improving operations in creating a customer-centric culture will be instrumental in driving him more connected and convening experience across our ecosystem. Diana Deprees will step into the Chief Customer Officer role-partening with Adam and operations to continue to build out driveway channel along with our customer ecosystem and related experiences in our after sales business.

Bryan Deboer: Now before we move on I would like to share some organizational changes that I spoke to that are designed to support our evolving company delivering at a high level of performance.

Speaker Change: I am very excited to announce the promotion of Adam Chamberlain to Chief operating Officer, Adam's leadership, as Chief customer officer, and Eastern Regional Presidents. Its 2022 combined with his extensive experience in automotive industry positions him perfectly for this new role Adams commitment.

Bryan Deboer: Two improving operations and creating customer centric culture will be instrumental in driving a more connected and convenient experience across our ecosystem.

Speaker Change: Diana Dupree will step into the chief customer officer role partnering with Adam and operations to continue to build out driveway channel along with our customer ecosystem and related experiences in our after sales business.

Bryan Deboer: With these changes, Chris Holzshu will be handing the baton to Adam, allowing Chris to strengthen our ecosystem to spark growth and serve as the company appointee on the boards of Pinewood Technology and Wheels. It is designed to deliver best-in-class results and continue to execute on our strategy. Driving profitability through seamless customer experience across our unique ecosystem and aligns our future success in differentiation. Congratulations, Diana, Chris, and Adam.

Speaker Change: With these changes Chris Holzschuh will be handing the baton to Adam, allowing Chris to strengthen our ecosystem to spark growth and serve as the company appointee on the boards of Pinewood technology and wheels.

Speaker Change: Chris has been instrumental in our growth and we are excited to see his continuing contributions to expand our partnership and enhanced the company.

Speaker Change: These changes provide the organizational leadership and design to deliver best in class results and continued to execute on our strategy driving profitability through a seamless customer experience across our unique ecosystem and aligns our future success and their differentiation concur.

Speaker Change: Congratulations Diana Chris and Adam.

Adam Chamberlain: Thank you, Bryan. It's an honour to be stepping into this new role. I look forward to leading our drive to operational excellence and enhancing our focus on creating a customer-centric culture.

Brian: Thank you Brian.

Diana: It's an honor to be stepping into this new role I look forward to leading our drive to operational excellence and enhancing our focus on creating a customer centric culture.

Adam Chamberlain: Thank you also, Chris, for the operational foundation that you've built, and I'm excited to use this to springboard our company to the next level. We have the team and clear strategy to grow our market share and achieve store potential within a few years. I'm excited for the team to execute at high levels of performance and realize the massive profitability opportunity our ecosystem provides.

Bryan Deboer: Thank you also, Chris, for the operational foundation that you've built, and I'm excited to use this to springboard our company to the next level.

Will: Thank you will say Chris to the operational foundation that you felt and I'm excited to use this to springboard our company to the next level.

Speaker Change: We have the team and a clear strategy to grow our market share and achieve store potential within a few few years.

Speaker Change: I'm excited for the team to execute at high levels of performance and realize the massive profitability opportunity our ecosystem provides.

Bryan Deboer: Thank you, Adam, Diana, Chris. I'm excited and looking forward to accelerating our journey to reach our potential.

Tina Miller: Thank you Adam Diana, Chris I'm excited and looking forward to accelerating our journey to reach our potential now I'd like to turn the call over to Tina Thanks, Brian and thank you everyone. Joining us today, our financing operations segment, primarily driven by Dfc continued its upward trajectory and achieve profitability.

Tina Miller: Now I'd like to turn the call over to Tina. Thanks, Bryan, and thank you everyone joining us today. Our financing operations segment, primarily driven by DSC, continued its upward trajectory and achieved profitability earlier than expected, with income in the second quarter of 7.2 million compared to a loss of 18.7 million in the second quarter of last year. This adjacency continues to grow, and we are seeing the benefits of diversity in our business model as we increase penetration rates and are now past many of the initial headwinds from Cecil Reserve. We continue to strategically balance yields growth and risk through our underwriting and focus on high-preddit quality loans at market rates of interest.

Speaker Change: Earlier than expected with income in the second quarter of 722 million compared to a loss of $18 7 million in the second quarter of last year.

Speaker Change: This adjacency continues to grow and we are seeing the benefits of diversity in our business model as we increase penetration rates and are now past many of the initial headwinds from CFO Richard.

Speaker Change: We continue to strategically balance yield growth and risks through our underwriting and focus on high credit quality loans at market rates of interest.

Tina Miller: DSC portfolio balance has now grown to over 3.6 billion, with origination volumes of 562 million during the quarter. Originations were consistent this quarter in the prime credit quality band, similar with other quarters. Overall, our financing operations business continues to perform better than expected. We reiterate that we expect to continue profitability in 2024 and remain confident in the ability for financing operations to deliver long-term earnings growth with a fully scaled and seasoned portfolio. As a reminder, each loan originated by DSC is expected to contribute up to three times more profitability compared to traditional indirect lending and present significant upside potential to our profitability and as a key element as we move toward our 2-1 EPS revenue target.

Brian: The portfolio balance has now grown to over $3 6 billion with origination volumes of $562 million during the quarter originations were consistent this quarter and the prime credit quality band similar with other quarters.

Brian: Overall, our financing operations business continues to perform better than expected. We reiterate that we expect to continue profitability in 2024 and remain confident in the ability for financing operations to deliver long term earnings growth with a fully scaled and seasoned portfolio as a reminder, each loan originated by <unk>.

Diana: <unk> is expected to contribute up to three times more profitability compared to traditional indirect lending and presents significant upside potential to our profitability and is a key element as we move toward our two to one EPS revenue target.

Tina Miller: Moving on to SGNA, adjusted SGNA as a percentage of growth profit was 67.9% during the quarter, which reflects the impact of the CDK event, and 67% on a same-store basis, which excludes the higher expense profile of our UK. Business. We continue execution of our UK network optimization, including streamlining operations and divesting, merging, and closing targeted stores. Moving on to our balance sheet and cash flow performance, we reported adjusted EBITDA of 435 million in the second quarter driven by the impact of the CDK outage on unit sales, lower new vehicle GPUs as supply normalized, and higher interest expense.

Speaker Change: Moving on to SG&A adjusted SG&A as a percentage of gross profit was 67, 9% during the quarter, which reflects the impact of the CDK event and 67% on a same store basis, which excludes the higher expense profile of our UK business.

Diana: We continue execution of our UK network optimization.

Diana: <unk> streamlining operations and divesting merging in closing targeted stores.

Brian: Moving onto our balance sheet and cash flow performance, we reported adjusted EBITDA of $435 million in the second quarter driven by the impact of the CDK outage on unit sales lower new vehicle Gpus at supply normalized and higher interest expense.

Tina Miller: We ended the quarter with net leverage of approximately 2.3 times, comfortably below our target of 3 times and our bank covenant requirements of 5.75 times. Women's Tain are financial discipline, even with planned growth and target leverage below 3 times. These figures adjust for the impact of floor plan debt, which is unique to our industry and related to the financing of vehicle inventory. This financing is integral to our operations and collateralized by these assets. The industry treats the associated interest as an operating expense in EBITDA and excludes this debt from balance sheet leverage calculations. Similarly, we have ABS warehouse lines and issuances to capitalize BFC, which are also excluded from our leverage calculations.

Bryan Deboer: We ended the quarter with net leverage of approximately 2.3 times, comfortably below our target of 3 times, and our bank covenant requirements of 5.75 times. We maintain our financial discipline even with planned growth and target leverage below 3 times. These figures adjust for the impact of floor plan debt, which is unique to our industry and related to the financing of vehicle inventory. This financing is integral to our operations and collateralized by these assets.

Brian: We ended the quarter with net leverage of approximately two three times comfortably below our target of three times and our bank Covenant requirement of 575 times, we maintain our financial discipline, even with planned growth and target leverage below three times.

Diana: These figures adjust for the impact of floor plan debt, which is unique to our industry and related to the financing of vehicle inventory. This financing is integral to our operations and collateralized by these assets the industry treats the associated interest as an operating expense in EBITDA and excludes this debt from balance sheet leverage calculations.

Bryan Deboer: The industry treats the associated interest as an operating expense in EBITDA and excludes this debt from balance sheet leverage calculations. Similarly, we have ABS warehouse lines and issuances to capitalize BFC, which are also excluded from our leverage calculation.

Diana: Similarly, we have ABS warehouse lines and issuances to capitalize Dfc, which are also excluded from our leverage calculation during the quarter. We generated free cash flows of $127 million free cash flows were impacted by declining EBITDA due to decreasing margins. The CDK outage in June and an increase in capital expenditures compared to prior.

Tina Miller: During the quarter, we generated free cash flows of 127 million. Free cash flows were impacted by declining EBITDA due to decreasing margins, the CDK outage in June, and an increase in capital expenditures compared to prior year, mainly related to construction at recently acquired locations to meet manufacturer requirements. Our capital allocation strategy focuses on the regenerative cash flows from our business, which preserve the quality of our balance sheet while supporting our growth initiatives and navigating today's complex environment. Earlier this year, we adjusted our capital allocation strategy to more closely balance acquisitions and the shareholder return. As a result of the rebalance focused in the second quarter, we repurchased 2.9% of our outstanding shares at a weighted average price of $256.

Diana: Here, mainly related to construction at recently acquired locations to meet manufacturing requirements are.

Diana: Our capital allocation strategy focuses on the regenerative cash flows from our business, which preserve the quality of our balance sheet, while supporting our growth initiatives and navigating today's complex environment.

Diana: Earlier this year, we adjusted our capital allocation strategy to more closely balance acquisitions with shareholder return.

Diana: As a result of the rebalance focused in the second quarter, we repurchased two 9% of our outstanding shares at a weighted average price of $256 approximately $615 million remains available under our share repurchase authorization.

Tina Miller: Approximately 615 million remains available under our share repurchase authorization. Our vision and ability to deliver on synergies through a positive growth remains unchanged, and our team has the necessary infrastructure and tools to drive revenues and margins toward our long-term target of achieving $2.00 in EPS per $1 billion in revenue. Our culture and business is designed to grow and deliver consistent, strong performance. Couples with a diverse and talented members of our team, this gives us the necessary foundation to achieve our plan and to continue driving value for our shareholders.

Diana: Our vision and ability to deliver on our synergies through acquisitive growth remains unchanged and our team has the necessary infrastructure and tools to drive revenues and margins toward our long term target of achieving $2 in EPS for $1 billion in revenue our culture and business is designed to grow and deliver consistent strong performer.

Diana: Coupled with a diverse and talented members of our team. This gives us the necessary foundation to achieve achieve our plan and to continue driving value for our shareholders.

Unknown Executive: This concludes our prepared remarks.

Speaker Change: This concludes our prepared remarks with that I'll turn the call over to the audience for questions operator.

Unknown Executive: With that, I'll turn the car over to the audience for questions.

Unknown Executive: Operator. Thank you. At this time, we will be conducting a question-to-answer session. If you would like to ask a question, please press star one under the telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. One moment, please. We'll be pulled for questions.

Speaker Change: Thank you at this time, we will be conducting a question and answer session.

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.

Diana: A confirmation tone will indicate your line is in the question queue.

Diana: If at any time, you wish to remove your question from the queue. Please press star two.

Speaker Change: For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment. Please let me pull for questions.

Ryan Sigda: Our first question is from Ryan Sigda with Craig Hallum. Hey, good morning, guys.

Ryan <unk>: Our first question is from Ryan <unk> with Craig Hallum.

Ryan: Hey, good morning, guys Congrats Adam.

Adam Chamberlain: Congrats, Adam.

Ryan Sigda: Thank you, Ryan. Good morning, Ryan.

Brian: Thank you Brian.

Diana: Ryan.

Ryan Sigda: Bryan, I want to start with something that you're prepared to mark. I believe I caught it right, but you said we're on pace for a nearly 50% increase in sequential EPS. Guess if, am I looking at the $7.87 in the quarter into Q3 for that 50% or I guess some context around that statement would be helpful. Ryan, so the concept was CDK costs us $1.10. Add the $1.10 onto the $7.87. And you get what our tracking would have been without the CDK event, which is almost 50% and just a little over 40% excluding the Pinewood impact.

Ryan: Brian I want to start with something you said in your prepared remarks.

Ryan: I believe I caught it right that you said were on pace for a nearly 50% increase in sequential EPS guess, if am I looking at the $7.87 in the quarter into Q3 for that 50% or I guess, some context around that statement would be helpful. Ryan. So the concept was is it <unk>.

Ryan: Dk causes $1.10 add the dollars 10 onto the 787 and you get what are tracking would've been without the CDK event, which is almost 50%.

Speaker Change: Just just a little over 40%, excluding the pinewood impact.

Ryan: Impact.

Ryan Sigda: So that's Q2 versus Q1, correct? That 50% is what you're referring to?

unknown: So that's Q2 versus Q1, correct? That 50% is what you're referring to? Yeah, that's exactly right. Okay, thank you.

Speaker Change: So thats Q2 versus Q1, correct that <unk> got and so what you're referring to exactly right. Yeah. Thank you.

Ryan Sigda: Thank you. Then looking at slide 14 from my follow up, midterm, I believe is a new kind of statement in there, and it's for 40 to 50 billion of sales, which isn't far away from where you guys are today. So I guess any timeframe around what type of timeframe we're looking at for midterm, or I guess is it really just for reaching that revenue range and you can get the $2.20 or $30 of EPS?

Brian: Thank you Brian.

Speaker Change: Then looking at slide 14 for my follow up.

Speaker Change: Mid term I believe is a new kind of statement in there and it's for $40 billion to $50 billion of sales, which isn't far away from where you guys are today, so I guess any timeframe around it.

Speaker Change: What type of timeframe, we're looking at for midterm or I guess is it really just about reaching that revenue range and you can get the dollar $20 30 of EPS.

Bryan Deboer: Yeah, I think when we think about midterm, we think two to four years, and if we think long term, it's five to eight years. So I think that's the appropriate way to look at this. I think we're probably going to be able to eclipse those numbers a little bit quicker, and as you saw in the quarter, we got some pretty good tailwinds. We made some pretty good improvements in operations, and I think most importantly, of the four peer groups that have been announced so far, our SGNA as a percentage of growth was the lowest on the same store basis of all four, which is much different than it was even last quarter.

Speaker Change: Yeah, I think when we think about midterm, we think two to four years and if we think long term, it's five to eight years.

Speaker Change: So I think that's the appropriate way to look at this I think we're probably going to be able to eclipse those numbers, a little bit quicker and as you saw in the quarter. We've got some pretty good tailwind as we made some pretty good improvements in our operations and I think most importantly of the of the four peer groups that have been announced so far.

Speaker Change: Our SG&A as a percentage of gross was the lowest on a same store basis of all four which is much different than it was even last quarter. So you're starting to see the impact of the 60 day plan start to take hold in that 60 day plan Youre going to we're gonna be realizing most of that starting on July 1st like we said last quarter.

Bryan Deboer: So you're starting to see the impact of the 60-day plan start to take hold, and that 60-day plan. You're going to, we're going to be realizing most of that starting on July 1st, like we said last quarter. Good to see.

Speaker Change: Good to see I'll turn it over to the others. Thanks, guys. Good luck. Thanks Ryan.

Ryan Sigda: I'll turn it over to the others. Thanks, guys. Good luck.

Bryan Deboer: Thanks, Ryan.

Rajat Gupta: Our next question is from Raza Gupta with JP Morgan. Great. Thanks for being the question. I just had a couple just following up on the SGNA in the cost reduction plan, you know, given like 60 days were complete on the 150 million. Is there a good framework to think about, you know, SGNA to gross in the third quarter? I think previously it's cited something like 64 to 67. Are we going to be within that range in the court quarter itself? Or is it going to be, you know, later in the year, or maybe next year?

Speaker Change: Our next question is from Rajat Gupta with JP Morgan.

unknown: Great. Thanks for taking the questions. I just had a couple.

Rajat Gupta: Oh, great. Thanks for taking the questions just had a couple.

Rajat Gupta: Just following up on the SG&A and the cost reduction plan.

Speaker Change: Given like 60 days, we're complete on the $150 million.

Rajat Gupta: Is there a good framework to think about SG&A to gross.

Speaker Change: Third quarter I think previously you cited something like 64 to 67.

Speaker Change: Or are we going to be within that range in the third quarter itself.

Speaker Change: Or is it going to be a later in the year or maybe next year.

Rajat Gupta: Maybe you should clarify that and have a follow-up. Sure. Sure, Raza.

Bryan: Maybe if you could clarify that and I have a follow up sure sure Rajat. This is Bryan I hope all is well I think most importantly, when we think about SG&A going forward I think what youre seeing is the momentum start to build remember this in Q3, I would say that we'll probably end up somewhere around where we were this quarter in Q3.

Bryan Deboer: This is Brian Hope as well. I think most importantly when we think about SGNA going forward, I think what you're seeing is the momentum start to build. Remember this in Q3. I would say that we'll probably end up somewhere around where we were this quarter in Q3 for two reasons, even though right sizing and the 60-day plan are taking hold. Okay. And I can give you some specifics on that in just a second. It's important to remember that we still have the possibility that new car GPUs are a little bit inflated still. So that could offset it.

Speaker Change: For two reasons, even though right sizing and the 60 day plan are taking hold.

Speaker Change: Can I can give you some specifics on that in just a second it is important to remember that we still have the possibility that new car Gpus are a little bit inflated still so that could offset it and by the time you hit September October you start to feel that going into the winter seasonality.

Bryan Deboer: And by the time you hit September, October, you start to feel that going into the winter seasonality. I would also say this. So we did eclipse the first half of what we've now called the 60-day plan. We've earmarked 150 million, and we eclipse that on July first. I got the report yesterday. We're now over $200 million that will be realized, primed mostly in Q3. Okay. With the remaining difference of about $100 million coming primarily from inventory reductions, which we've got lots of opportunity to improve there, and it may take us closer to the end of the year.

Speaker Change: I would also say this so we did eclipse the first half of what we have now called the 60 day plan, we've earmarked $150 million and we eclipsed that on July 1st I got to report yesterday, we're now over $200 million that will be realized a prime mostly.

Speaker Change: In Q3, Okay with the remaining difference of about $100 million coming primarily from inventory reductions, which we've got lots of opportunity to improve there and it may take us closer to the end of the year. So I would say if we're lucky we'll get to realize some of that in Q4, but.

Bryan Deboer: So I would say if we're lucky, we'll get to realize some of that in Q4, but definitely into 2025. We'll get the benefits of most of that.

Speaker Change: <unk> into into into 2025 will get that will get the benefits of most of that.

Rajat Gupta: Got it, that's very clear.

Speaker Change: Got it that's very clear and then just from parts and services.

Rajat Gupta: And then just from parking services, you know, Terry, you know, June was impacted, you know, by CDK. I was curious if we could give us a sense, a sense of the runway to saw in April May and maybe, what are you seeing in July. And also, you know, I love to know like if there's any opportunity to take more price and perhaps some of the acquired stores over the last couple years, you know, where they might not have been as proactive or opportunistic, you know, like the legacy stores. Thanks. Yeah, I think if we think about our potential, which I think is what you're indicating on the newly acquired stores, we spent now four and a half years being able to add almost $25 billion in revenue of some good stores, but a lot of stores that have massive potential.

Jeremy: Jeremy June was impacted by CDK.

Speaker Change: I'm just curious if you could give us a sense.

Speaker Change: Our sense of the run rate you saw in April may and maybe what.

Speaker Change: What are you seeing in July.

Speaker Change: And also you know well enough to know like if there's any opportunity to take more price.

Speaker Change: Perhaps some of the acquired stores over the last couple of years, you know where they might not have been as proactive or opportunistic.

Speaker Change: No.

Speaker Change: The legacy stores.

Speaker Change: Yeah, I think if we think about our potential which I think is what you're indicating on on the newly acquired stores.

Speaker Change: We've spent now what four and a half years being able to add almost $25 billion in revenue of.

Speaker Change: Of some good stores, but a lot of stores that have massive potential and I think to highlight that if you get a little more detailed into our numbers our value auto sales, which is over nine year old vehicles is now only 12% of our mix it used to be in the mid 20% of our mix, meaning that we're not selling those things.

Bryan Deboer: And I think to highlight that, if you get a little more detailed into our numbers, our value auto sales, which is over nine-year-old vehicles. It's now only 12% of our mix. It used to be in the mid-20% of our mix, meaning that we're not selling those things that Lithia typically does. So that's one of the opportunities. Obviously, in service body and parts, there's further opportunities to be able to grow that, and obviously the leverage of the whole gets there. Now, in terms of parts and service, which was the first part of your question, pre-CDK event, we were tracking in the mid to low single digits on a same store sales basis.

Speaker Change: Lithia typically does so that's one of the opportunities obviously in service body and parts. There's there's further opportunities to be able to grow that and obviously the leverage of the the whole gets there now in terms of parts and service, which was the first part of your question.

Speaker Change: Pre CDK event, we were tracking.

Speaker Change: In the mid to low single digits on a same store sales basis, and then obviously when your handwriting or owes its a little bit more difficult that we did we did get most of the business that we had during that 12 day period into the books in June. However, there was a little carryover for the first.

Bryan Deboer: And then obviously, when you're handwriting our owes, it's a little bit more difficult. That we did, we did get most of the business that we had during that 12-day period into the books in June. However, there was a little carryover for the first 10 days or so. So we are seeing a little bit of lift in July. However, July also has two extra days relative to last year. So anything that I give you, it automatically should be up about 8% or 9% just because of the fact that we've got 23 days instead of 21 days in July.

Speaker Change: 10 days or so so we are seeing a little bit of lift in July. However July also has two extra days relative to last year. So anything that I give you it automatically should be up about 8% or 9% just because of the fact that we've got 23 days instead of 21 days in July.

Rajat Gupta: Thanks, Rajan. Thank you.

Roger: Thanks Roger.

Roger: Got it thank you.

Bret Jordan: Our next question is from Brett Jordan with Jeffries. Hey, good morning, guys. Hi, Brett. I think you just said the quote, "the possibility that new card GPUs are a little inflated still." Could you sort of talk about where you see that glide path now and maybe the cadence in the quarter on GPU? Sure, sure. We were fortunate that June ended up looking pretty darn good. And if you look sequentially quarter over quarter, we were basically the same as we were last quarter on our total vehicle GPU. Now, going back five years, okay, we were about 3,500 to 3,700 in total GPUs, including FNI.

Roger: Our next question is from Bret Jordan with Jefferies.

Bret Jordan: Hey, good morning, guys.

Brett Bryan: Brett Bryan I think you just said of course, the possibility that new car Gpus are a little inflated still could you sort of talk about where you see that glide path now and maybe the cadence in the quarter on GPU.

Speaker Change: Sure sure. We were fortunate that June ended up ended up looking pretty darn, good and if you look sequentially quarter over quarter.

Speaker Change: We were basically the same as we were last quarter on our total vehicle GPU.

Speaker Change: Now going back five years, Okay. We were about 3500 3700 in total gpus, including F&I.

Bryan Deboer: Today, we said it 4700 still. Okay, we do know that our FNI is structurally different than it was before. Because of and the ability to improve for five years. So we think that there's a couple hundred dollars there that would have taken our FNI from 1600 up to about $1800.

Speaker Change: Today, we sit at 4700 still okay. We do know that our that our F&I is structurally different than it was before.

Speaker Change: Because of the ability to improve for five years. So we think that there's a couple of hundred dollars. There that would have took in our F&I from 600 up to about $800 and then the single biggest difference and this is a big difference when you start to think about your SG&A as well as we now have a good portion of our business in the high margin <unk>.

Bryan Deboer: And then the single biggest difference, and this is a big difference when you start to think about your SNA as well, is we now have a good portion of our business in the high margin regions of the Southeast and South Central, which has higher FNI, less regulation, a lot higher average store size, which really helps us a ton. So we think that our normalized total vehicle gross profit with FNI is somewhere between 42 and $4500, meaning that if we're still sitting at 4700, there's a chance that two to $500 still has to come out, but we're going to do everything in our power.

Speaker Change: <unk> of the southeast and South Central which has higher F&I less regulation, a lot higher average store size, which really helps us a ton. So we think that our normalized total vehicle.

Speaker Change: Gross profit with F&I is somewhere between 42 and $4500, meaning that if we're still sitting at 4700 Theres a chance that two to $500 still has to come out, but we're going to do everything in our power and I would say this we believe we are starting to believe that.

Bryan Deboer: And I would say this: we believe we're starting to believe that we could be at the bottom, which is great. Now we can actually build back up because everything that we're talking about does get diluted a little bit by this overhang of GPUs, but I do think that we've got the ability to be able to power through this now and be able to grow earnings and grow our same store sales base from this point forward. So there's kind of, there's kind of offset between the two, whether we decrease a little bit sequentially, but we also expect with base supply, we expect some of the OEMs to be stepping up incentive levels as well.

Speaker Change: That we could be at the bottom, which is great now we can actually build back up because everything that we're talking about does get.

Speaker Change: Diluted a little bit by this overhang of Gpus, but I do think that we've got the ability to be able to to power through this now and be able to grow earnings and grow our same store sales base from this point forward.

Speaker Change: Okay, and then a quick question on that Adam.

Speaker Change: I haven't had a little bit more to share with you two on that Brett, Okay, Hey, Brad Hey, Brian just to add to that in a pre COVID-19 we were seeing.

Speaker Change: Incentives as a percentage of MSRP and the kind of 10% to 11% range right now we've climbed kind of slowly through the year, we're running about 6% to six 5%. So if you take then the delta to pre COVID-19 levels of about 4% to 5% that could be another two to 2500 based on the average selling price of the car.

Speaker Change: Sort of mid to late forties, so that makes sense. So there's kind of this kind.

Speaker Change: Offset between the two whether that whether we.

Speaker Change: The decrease a little bit sequentially, but we also expect with a supply we expect some of the Oems to be stepping up incentive levels as well.

Unknown Executive: OK. All right.

Speaker Change: Okay.

Speaker Change: Alright.

Tina Miller: On the CDK dollar 10, as far as dinner, business interruptions, insurance, or is there a piece of that you can bring back and maybe timing that that was that can fall within this year if you get some recovery? Yeah, Brett, this is Tina. We do have cyber insurance, and obviously are going to work with our carriers around that. It does take some time to put that claim together and work that through. So hopefully there's something there, but we didn't record anything in the second quarter. All right.

Speaker Change: On the the CDK dollars 10.

Speaker Change: As far as been or a business interruption insurance or is there a piece of that you can bring back and maybe timing that that is that going to fall within this year. If you get some recovery.

Speaker Change: Yes, Brett this is Tina we do have cyber insurance, and obviously aren't going to work with our carriers around that it does take some time to put that claim together and work that through with though.

Speaker Change: Hopefully there is something there, but we didn't record anything in the second quarter.

John Murphy: Thank you. Our next question is from John Murphy with Bank of America. Good morning, everybody. I just had two questions for you guys. In first brain on the Wheels Incat acquisition or sort of tie up here, I'm just curious when you think about fleet management. How does it kind of dovetail into the core business? Is it something where you sell the new vehicles and you manage them, and then you're able to sell them out of the fleet into your business and then retail them? What's the general, the general take care on fleet management?

Brett: Alright, thank you.

Speaker Change: Our next question is from John Murphy with Bank of America.

John Murphy: Hi, good morning, everybody.

John Murphy: Two questions for you guys in first Brian on the.

John Murphy: Well didn't get acquisition or sort of tie up here I'm just curious when you think about fleet management.

John Murphy: How does it kind of dovetail into the core business is it something where you.

John Murphy: You sell the new vehicles and you manage them and then you you were able to sell them out of the fleet and into your business and then retail them I mean whats the general the general take you on fleet management.

Bryan Deboer: Yeah, I may have Chris jump in a little bit on this, but let me just let me take a shot at this. OK, I think most importantly in the relationship, we look at the synergies first. First, however, they have very high levels of service expectations for their drivers, and I challenge all of us on the Lithian driveway teams to be able to meet those demands because it is a different level of service than probably even what our retail customers get. So most importantly for us to realize this energies in the partnership with Wheels, which are primarily the ability to sell some of some new vehicles to them to help and bell us the fleets that they service.

John Murphy: Yes, I may have jumped Chris jump in a little bit on this but let me just let me take a shot at this okay. I think most importantly, and the relationship we look at the synergies first.

Speaker Change: However, they have very high levels of service expectations for their drivers and I challenge all of us on the lithium driveway teams to be able to meet those those demands because it is a different level of service than probably even with our retail customers get so most importantly for us to realize the synergies in the park.

Speaker Change: <unk> shipped with wheels, which are primarily the ability to sell some of the some new vehicles to them to help embellish the fleets that they service. Okay. That's an important thing they divest somewhere around 100000, plus vehicles, a year, which if we can do a good job in play pay market and build.

Bryan Deboer: Okay, that's an important thing. They divest somewhere around a hundred thousand plus vehicles a year, which if we can do a good job and pay market and build driveway green cars in the Lithia, you know, channels to be able to track more customers and obviously we've now got a pipeline of vehicles that maybe competitors don't have. Ultimately, we'll have to be the highest payers for those. But those relationships can grow. And build and bond. In addition, they maintain all those cars. Okay, and that is maintained through multiple different networks of retailers today.

Speaker Change: Driveway green cars in the Lithia.

Speaker Change: Channels to be able to attract more customers and obviously, we've now got a pipeline of vehicles that maybe competitors don't have.

Speaker Change: Ultimately, we will have to be the highest payers for those but those relationships can grow and build.

John Murphy: And bond. In addition, they maintain all those cars, okay and that is maintained through multiple different networks of retailers today, if we could get some of that business, where all of that it's a massive lift to service and parts long term.

Bryan Deboer: If we could get some of that business or all that, it's a massive lift to service in parts long term. That's where we start with the synergies.

Bryan Deboer: If we could get some of that business or all of that, it's a massive lift for service in parts, long term. That's where we start with the synergies. The other neat part about it is when I talk about the service level that they provide for their drivers... We were inspired when Chris and I met with them, what, almost 16, 17 months ago now.

Speaker Change: That's where we start with the synergies.

Bryan Deboer: The other neat part about it is when I talk about the service level that they provide their drivers, we were inspired, Chris and I, when we met with them what almost 16, 17 months ago now, at their ability to provide services to consumers to their drivers that we have never even contemplated. Okay, they've got the relationships, the APIs and their apps, the pricing methodology and the contracts negotiated where you get into more of subscription services like what we try to do with service contracts, but these are big dollar amounts. Their business is based off small dollar amounts, such as selling people toll services where a customer says, "I want my tolls to be done on my app."

Speaker Change: The other neat part about it is when I talk about the service level that they provide their drivers.

Speaker Change: We were inspired Chris and I, when we met with them what almost 16 17 months ago now at their ability to provide services to consumers to their drivers that we have never even contemplated.

Speaker Change: They've got the relationships the API is in their apps the pricing methodology and the contracts negotiated where you get into more of subscription services like what we try to do with service contracts, but these are big dollar amount their businesses based on small dollar amounts.

Speaker Change: Jazz.

Speaker Change: Selling people total services, where a customer says I want my tools to be done on my App, Okay, I want to pay for everything in one spot rather than to have to go into the toll companies or those municipalities. They don't have to do that okay, and they negotiate with municipalities discounts off that on that and then pass.

Bryan Deboer: Okay, I want to pay for everything in one spot rather than to have to go into the toll companies or those municipalities; they don't have to do that. Okay, and they negotiate with municipalities, discounts on that, and then pass some of the discounts along to their users. So it's pretty exciting.

Speaker Change: Some of the discounts along to their their users.

Speaker Change: So it's pretty exciting there's probably half a dozen examples like that that we believe could be monetize able within lithia and driveway portals to be able to access and B E.

Bryan Deboer: There's probably a half a dozen examples like that that we believe could be monetizable within the Lithia and Driveway portals to be able to access and be a, you know, a con do it to further growth in our FNI products or subscription services, creating greater ties with our consumers and more touch points than what we currently have. That's incredibly helpful.

Speaker Change: Conduit to further growth in our F&I products or our subscription services, creating greater ties with our consumers and more touch points than what we currently have.

Speaker Change: That's incredibly helpful and just a second question on interest rates, which is an obvious question but.

Tina Miller: And just a second question on interest rates, which isn't an obvious question, but you guys have not really addressed too much. I think here is, I mean, if you look at what's happened in the last two and a half years, we have a basically about a 400 basis for maybe a little more, you know, rate increase to the auto consumer. And, you know, everything that you've done over that timeframe is just better and better, and the industry is putting up record profits. There's no real discussion about how big a benefit that could be if rates come back down and people look about, you know, ASPs and your GPUs and say they're just not sustainable, but they've been sustainable and very strong in the face of that.

Speaker Change: You guys have not really address too much I think yours.

Speaker Change: If you look at what's happened in the last two and a half years, we have basically about a 400 basis points, maybe a little more.

Speaker Change: <unk> increased due to the auto consumer and.

Speaker Change: Everything that you've done over that time frame is just better and better in the industry is putting up record profits. There is no real discussion about how big a benefit that could be as rates come back down and people look about.

Speaker Change: Asps in your Gpus and so they are just not sustainable, but they've been sustainable and very strong in the face of that.

Tina Miller: And, you know, effectively, you're looking at something that's almost the 15% hickey or incremental to the ASP. So I'm just curious, you know, as a, on the good guy side of this, you know, how do you guys think about what the potential could be here? And, you know, I think you're maybe conservative on your GPU and ASP assumptions in the face of this. What's your take?

Speaker Change: Effectively youre looking at something that is almost a 15% hickey or incremental to the ISP.

Speaker Change: So I'm just curious as.

Speaker Change: On the good guys side of this thing.

Speaker Change: About what the potential could be hearing.

Speaker Change: Maybe conservative on your GPU at ANP assumptions in the face of this what's your take.

Tina Miller: John, this is Tina. I mean, on the interest side, and I'll start maybe with just our business, right? We obviously have several levels of variable debt, so there is a tailwind that we can get as rates get cut from that perspective. You know, around consumer affordability, you know, it's impacted, and we've talked about that in the past around what that monthly payment is, and then I think that gives, you know, a good strength and tailwind for consumers going forward since they're monthly payment shoppers. And Bryan, I don't know if you have anything to add to that, but you know, I think affordability is something we've always commented on.

Tina Miller: John This is Tina I mean on the interest side and I'll start maybe with just our business right. We obviously have several relative variable debt. So there is a tailwind that we can get as rates get cut from that perspective around consumer affordability impacted and we've talked about that in the past.

Brian: Around what that monthly payment is and then I think that gives good strength in tailwind for consumers going forward since their monthly payment shopper and Brian I don't know if you have anything to add to that but I think affordability is something we've always commented on thats important that drive their business John I think when we think it from a <unk>.

Bryan Deboer: That's important. That's right for business.

Bryan Deboer: John, I think when we think it from an impact and magnitude to the organization, and I'm sitting here next to Adam who spent a lot of his career with manufacturers. His focus and the operational teams' focus of our presidents and regional vice presidents. We have tons of opportunity in terms of inventory, and being able to control inventory. And now that the ecosystem is fairly well-behaved and built, and our people are out there swinging, and they get this. We're talking about almost a billion dollar cut in total inventory between new and used by year end, while still maintaining our same growth rates, okay?

Brian: Impact in magnitude to the organization and I'm sitting here next to Adam who spend a lot of his career with manufacturers.

Adam Chamberlain: His focus and the operational teams focus of our presidents and regional Vice presidents.

Speaker Change: We have tons of opportunity in terms of inventory.

Speaker Change: And being able to control inventory and now that the ecosystem is fairly well built and our people are out there swinging and they get this we're talking about almost a $1 billion cut in total inventory between new and used by year end, while still maintaining our same growth rates, okay and if nothing.

Bryan Deboer: And if nothing else, improving velocity of our turns to be able to improve that. But, you know, we're talking that that's almost a hundred million dollars in interest rate savings at today's rate, compounded with the things that teenagers spoke to.

Tina Miller: Els improving velocity of our turns to be able to improve that but we're talking to that that's almost $100 million in interest rate savings at todays rate compounded with the things that Tina just spoke to.

Douglas Dutton: Okay, thank you very much, guys.

Speaker Change: Okay. Thank you very much guys.

Tina Miller: Thanks, John. Our next question is from Douglas Dutton with Evercore. Hey, team. Thanks for taking my question here. Just had a question on the buyback. Obviously, a very strong quarter there, about 200 million in repo. So, you know, is that what would you handicap as the new normal there going forward, Q3, Q4 and 25? Do you think high eight-figure, low nine-figure buyback could be the norm? Or are we going to go back to that, you know, 10 to 12 percent level of free cash?

John Murphy: Thanks, John.

Douglas Dutton: Thank you very much, guys. Our next question is from Douglas Dutton with Evercore. Hey team, thanks for taking my question here. I just had a question.

Douglas <unk>: Our next question is from Douglas <unk> with Evercore.

Douglas: Hey team. Thanks for taking my question here.

Douglas <unk>: Just had a question on the buyback obviously, a very strong quarter, there about $200 million in repo is that what would you handicap is the new normal there going forward Q3, Q4, and 25 do you think high eight figure low nine figure buyback could be the norm or are we going to go back to that 10% to 12% level of free cash.

John Murphy: <unk>.

Tina Miller: Yeah, I mean, I mean, for us, this is Tina. When we think about capital allocation, it really is balancing valuations that we're seeing out there from an M&A perspective, as well as the stock price and how we can be doing opportunistic in it. And so, you know, from our perspective, it's always running that math as we look at what the opportunities are. M&A, as you know, is core to our business and our strategy, and we see, you know, really strong value and continue to grow the footprint. Our focus is here in North America, especially in the United States where there's lots of opportunity in the fragmented market.

John Murphy: Yes.

John Murphy: For us this is Tina when we think about capital allocation really is balancing valuations that we're seeing out there from an M&A perspective, as well as in stock price and how we can be opportunistic in it and so from our perspective, it's always running that math as we look at what the opportunities are M&A. As you know is core to our business and our strategy and we see really strong value and contained.

John Murphy: Grow the footprint our focus this year in North America, especially in the United States, where there's lots of opportunity in the fragmented market. So we don't really set sort of a set dollar amount on our approach is really looking at what is that opportunistic purchase that we can make compared to our stock versus the M&A activity out there.

Bryan Deboer: So, you know, we don't really set sort of a set dollar amount on our approach. It's really looking at what is that opportunistic purchase that we can make, you know, compared to our stock versus the M&A activity out there. You know, from that perspective, Brian.

John Murphy: From that perspective.

Brian: Brian continuing R&D embellish, a little bit on that too.

Bryan Deboer: Tina, I mean, I belch a little bit on that, too. Keep this in mind as well, Doug. The marketplace is pricing acquisitions close to three years' average earnings on inflated earnings. So, when we look at that and the opportunity, that's not that appealing because we typically look at pretty high returns on what we expect to be able to buy things through. We think that will subside. Okay, and I think our standard line is, "You already got that earnings." Why do you expect us to pay for it? But we are competitive buyers, and we'll continue to grow and find opportunistic acquisitions, expecting somewhere between two and four billion dollars in the years to come.

unknown: Do you want me to embellish a little bit on that too? Keep this in mind as well, Doug; the marketplace is pricing acquisitions. We talk about capital efficiencies that Tina just spoke about and the idea of using some of the capital for share repurchases, especially if we're going to be penalized this much, okay, that's another 25 to 35 cents, okay, massive amounts as well. We haven't even got into the new adjacency that Chris is going to be working on with wheels and pine wood and the things that we don't even really share with the world, that are the advantages of what Lithia and Driveway built in an ecosystem that is totally different than what anyone else in the space has.

Brian: Keep keep this in mind as well, Doug the marketplace is pricing acquisitions.

Brian: Close to three years average earnings an inflated earnings so when we look at that and the opportunity. That's that's not that appealing because we typically look at pretty high returns on what we expect to be able to buy things through we think that will subside, okay and I think our standard line as you already got that earnings why do you.

John Murphy: You expect us to pay for it but we are we are competitive buyers and will continue to grow and find opportunistic acquisitions expecting somewhere between two and $4 billion in the years to come more.

Bryan Deboer: More importantly than that. The value that our stock trades at now, one of the lowest in the sector, so we would say we're at trough earnings potential, okay, we're also at trough multiples, so when we look at the fact that I can look around this room with the six of us in here and confidently say that the $2 of EPS for every billion dollars of revenue is a very high probability of success in them in the mid to long-term range, okay, and you can see the reconciliation on page 14. We updated the slide because our forecasting is quite clear on it, we've now disseminated through the organization, it's clear that we're about 80 cents right now in that ratio, so about a point eight to one rather than a two to one. We've got somewhere around 60 to 70 cents that we think can be realized in the potential within our stores as well as the acquisitions that come from the capital that we've allocated and that I just walk through with you. Our financing operations of what Chuck talked about at maturity gets us to 22 to 25 additional cents. We talk about capital efficiencies that Tina just spoke to and the idea of using some of the capital for share repurchases, especially if we're going to be penalized this much, okay, that's another 25 to 35 cents, okay, massive amounts as well. We haven't even got into the new adjacency that Chris is going to be working on with wheels and pinewood and the things that we don't even really share with the world that the advantage is of what Lithia and driveway built in an ecosystem that is totally different than what anyone else in the space has and now you're starting to see that realization come true and as long as operation can keep going which I know it will under Adam's leadership that we'll be able to take that potential and realize the true potential of what we've built over the last eight to 10 years.

Speaker Change: Fortunately then that the value that our stock trades at now one of the one of the lowest in the sector. So we would say we're at trough earnings potential Okay, and we're also at trough multiples. So when we look at the fact that I.

John Murphy: I can I can look around this room with the six of us in here and confidently say that the $2 of EPS for every billion dollars of revenue is a very high probability of success in the in the mid to long term range. Okay and you can see the reconciliation on page 14, we updated the slide because.

Speaker Change: Our forecasting is quite clear on it we've now disseminated through the organization. It's clear that we're about 80 cents right now in that ratio. So about one eight to one rather than a two to one we've got somewhere around 60 to 70 <unk> that we think can be realized and the potential within our stores as well as the ACA.

unknown: <unk> that come from the capital that we've allocated in that I just walked through with you our financing operations of what Chuck talked about at maturity gets us to 22% to 25 additional sense, we talk about capital efficiencies that Tina just spoke to and the idea of using some of the capital for share repurchases, especially if we're.

unknown: Gonna be panelized. This much okay. That's another 25 to 35.

unknown: Okay massive amounts as well.

unknown: We haven't even got into the new adjacency that Chris is going to be working on with wheels, and pinewood and the things that we don't even really share with the world. That's the advantages of what Lithia and driveway bilking built in an ecosystem that is totally different than what anyone else in this space has and now youre starting to see that.

unknown: And now you're starting to see that realization come true. And as long as operations can keep going, which I know they will under Adam's leadership, we'll be able to take that potential and realize the true potential of what we've built over the last 8 to 10 years.

unknown: That realization come through and as long as operation can keep going which I know it will under Adam's leadership that we will be able to take that potential and realize the true potential of what we've built over the last eight to 10 years.

Douglas Dutton: Awesome, I appreciate the detailed answer there, and you actually answered my follow-up as part of that, so I will turn it over. Thanks, Tina. Great, Doug, thanks.

Speaker Change: Awesome I appreciate the detailed answer there and you actually answered my follow up is part of that so I will turn it over thanks team.

Speaker Change: Great. Thanks.

Colin Langan: Our next question is from Colin Langen with Wells Fargo. Oh great, thanks for taking my questions. Can I just follow up on your comments on, you addressed sort of new GPU coming down only, I think you said two to five hundred dollars; that did include when you quoted at FNI.

Speaker Change: Our next question is from Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my questions.

Speaker Change: Follow up on your comments on.

Speaker Change: You addressed sort of new GPU coming down only I think you said two to $500 did include when you quoted at F&I I think in the past you've talked pretty clearly how you think new GPU at least alone would.

Bryan Deboer: I think in the past you've talked pretty clearly how you think new GPU at least alone would normalize the pre-COVID level, so has that part of a change, is it just FNI is offsetting some of that and if it's changing, why has it changed, thanks. So in my comment, when I said we're at 4700 and we're going to go to 40, we think we're going to be at 42 to 45, five, that was total GPU, okay, between you and you. We do believe that the way that you get there, that two to five hundred dollars, is some recovery of use vehicles, which are still at depressed levels, below where they were pre-COVID, okay, and if we can get more into the value auto cars at Lithia, we're making about two hundred dollars more on every value auto car and turning about three to four times as fast, okay, than what we do on a certified car. So we think that there's a lot of opportunity there, so it's probably, I would say three to five hundred dollars return of use vehicles and maybe eight to a thousand drops still in new vehicles.

unknown: normalize at pre-COVID levels. So has that part of it changed? Is it just F&I is offsetting some of that? And if it's changing, why is it changing?

Speaker Change: Normalized pre COVID-19 levels. So has that part of the change is it just F&I is offsetting some of that.

unknown: And then if it's Sean.

Speaker Change: Hi, Hasnt changed.

Speaker Change: So in my comment when I when I said, we're at 4700 and we're going to go to 40, we think we're going to be at 42% to 45 five that was total GPU, okay between new and used we do believe that the way that you get there that two to $500 is some recovery of used vehicles, which are still at <unk>.

Speaker Change: <unk> levels below where they were pre COVID-19, okay, and if we can get more into the value auto cars at Lithia.

Speaker Change: We're making about $200 more on every value auto car and turning about three to four times as fast. Okay. Then what we do on a certified car. So we think that Theres a lot of opportunity. There. So it's probably I would say three to $500 return of used vehicles and maybe to a thousand dropped still in new vehicles.

Colin Langan: If we can prevent that, then that's the upside. But I think we're real close to normalization at this stage, you know, not assuming some macro factor that changes things. Okay, but we feel real comfortable with where we're sitting today, that it's been a softer landing, rather than a pretty abrupt landing. Got it. That's a helpful clarification. And then you mentioned a $1.20 CDK impact. I think the question earlier is, you know, recovery. How should we think about that instead of insurance recovery? I was sort of wondering how much of that lost sales that's in a $1.10 in a quarter is a good portion recoverable?

Adam: If we can prevent that then that's the upside, but I think we're real close to normalization at this stage I'm not assuming some macro factor that changes things, okay, but we feel real comfortable with where we're sitting today that it's it's been a softer landing rather than a pretty abrupt landing.

Speaker Change: Got it that's a helpful clarification, and then you mentioned a $1 20 CDK impact I think the question earlier was recovery how should we think about that.

Speaker Change: Instead of insurance recovery I am sort of wondering how does it how much of that loss sales.

Speaker Change: <unk> 10 in the quarter.

Speaker Change: <unk> is a good portion recoverable as it most kind of just sort of lost and youre not going to see any sort of benefit into Q3 is maybe things are deferred how should we be thinking about what kind of maybe a quick question call last quarter.

Colin Langan: Is it most kind of just sort of lost and you're not going to see any sort of benefit into Q3 as maybe things are deferred? How should we think about that?

Bryan Deboer: What kind of maybe a good question, Colin? Yeah, so it was a $1.10, and I would think that a portion of it, and I would say less than the majority, is probably recoverable. It may be as little as 10 to 20 cents. A lot of it is really service in parts that was backlogged in terms of production levels. But you have to remember this: even though CDK had this event. 55% of the industry wasn't on CDK in the United States, okay? So understand that customers don't typically wait around for 12 to 15 days to buy another car.

Speaker Change: Yeah. So it was $1 10, and I would think that a portion of it and I would say less than the majority.

unknown: Is probably recoverable it may be as little as 10 to 20 <unk> a lot of it is really service and parts that was backlogged in terms of production levels, but you have to remember this even though CDK had this event, 55% of the industry wasn't on CDK in the United State.

Speaker Change: It's okay. So.

Speaker Change: Understand that that customers don't typically wait around for 12 to 15 days to buy another car. They may wait a round a little bit on service just because it may be they are only service point, especially 40% of our stores are in isolated markets.

Colin Langan: They may wait around a little bit on service just because it may be their only service point, especially 40% of our stores are in isolated markets. Okay, so that probably helps a little bit. But ultimately, those new and used car customers probably bought. Okay, most customers buy within 72 hours of making the decision to buy, even though they may research for two to four weeks. They typically buy when they want to buy. So I don't believe there's a ton of that $1.10 that's sitting out there. Unfortunately. Kind of very helpful. Thanks for taking my question.

Speaker Change: So that probably helps a little bit but.

unknown: But ultimately those new and used car customers probably bought.

Speaker Change: Most customers buy within 72 hours of making the decision to buy even though they may research for two to four weeks. They typically buy when they want to buy so I don't believe there is a ton of that $1 10, that's sitting out there. Unfortunately.

Speaker Change: Got it very helpful. Thanks for taking my question.

Colin Langan: Thanks, Colin.

Colin: Thanks Colin.

James Michael: Our next question is from Ron Josie with Citigroup. Hi, this is James Michael on the Ron two-part question here focused on your evolving omnichannel strategies. So first up, can you talk about any shifts you're seeing in the broader online competitive environment and any update on marketing ROI or underlying conversions across your driveway and green cars digital sales channels. Secondly, how are you balancing investments to tackle that 50x online customer TAM while at the same time cutting burn rates by 40%? Thank you. Thanks for the question, James. I think when we think about our green cars and our driveway channels.

unknown: Our next question is from Ron Josey with Citigroup.

unknown: Hi, This is James Michael on for Ron two part question here focused on your evolving Omnichannel strategies. So first up can you talk about any shifts you are seeing in the broader online competitive environments.

Speaker Change: Any update on marketing ROI or underlying conversions across your driveway and green cards digital sales channels.

Speaker Change: Lee how rebalancing investments to tackle that <unk> customer Tam while at the same time cutting burn rates by 40%.

Speaker Change: Thanks for the question James I think when we think about our our green cars in our driveway channels were quite pleased to see that our top of funnel is staying pretty consistent while still reducing marketing budgets by over 50%.

James Michael: We're quite pleased to see that our top of funnel is staying pretty consistent while still reducing marketing budgets by over 50%. So we're pleased with that. We think that we're ready to turn the afterburners on on both of those channels again because what we were struggling with was customer retention and satisfaction, where we were at a 3.7 Google score last year, which is a shift, meaning that our ability to grow and improve what we used to call a golden ratio, which is the bottom of funnel relative to the top of funnel, can be massive now that we've got satisfied customers, which you get is repeat and referral business that start to come back now.

unknown: So we're pleased with that we think that we're ready to turn the the afterburners on on both of those.

unknown: Channels again, because what we were struggling with was customer retention and.

unknown: Yeah.

Speaker Change: Satisfaction, where we were at a $3 seven Google score last year year to date, so far were at a $4 seven I'd congratulate our green cars in our driveway teams massively that's a massive shift meaning that our ability to grow and improve what we used to call a golden ratio, which is the bottom of funnel.

unknown: Relative to the top of funnel can be massive now that we've got satisfies customers' what you get is repeat and referral business.

Speaker Change: To come back now Okay. That's how you access the <unk> 50 times more customers than what our core businesses typically touch. Okay. We are still seeing that 98 plus percent of our customers and driveway and green cars are new to Lithia and green cars and drive away so that.

James Michael: That's how you access the 50x or 50 times more customers than what our core businesses typically touch. We are still seeing that 98 plus percent of our customers in driveway and green cars are new to Lithia and green cars and driveway. That's really exciting to still be able to have, but we built a channel with an experience that's transparent, convenient, and simple, and it's a great way to be able to access this, especially as our procurement of used cars and our ability to really leverage the network that we built start to take hold in the overall ecosystem.

Speaker Change: That's really exciting to still be able to have but we built a channel with a experienced that's transparent convenient and simple and it's a it's a great way to be able to access this especially as our procurement of used cars and our ability.

unknown: To really leverage the network that we built start to take hold in the overall ecosystem.

James Michael: System. Very helpful. Thank you.

unknown: Yes.

Speaker Change: Very helpful. Thank you.

Rajat Gupta: Thanks, James. Our next question is a follow-up from Rosat Gupta with JP Morgan. Great. Thanks for squeezing me again. I just have a question on the used car GPUs in the second quarter. It looks like the same store numbers are up sequentially. The overall numbers took a big dip.

James: Thanks James.

unknown: Our next question is a follow up from Rajat Gupta with Jpmorgan.

Speaker Change: Alright, great. Thanks for squeezing me in again I just had a question on the used car Gpus in the second quarter.

Speaker Change: It looks like the same store numbers are up sequentially, but the overall numbers took a big dip.

Rajat Gupta: I mean, I'm sure like UK had like a bit of a mixed impact, but I was curious, were there any kind of like one-time liquidation type events in the UK that might have driven that production? And actually think about just used car GPUs going forward. Thanks.

Speaker Change: I'm sure like UK had like a bit of a mix impact, but I was curious were there any kind of like one time liquidation type.

Speaker Change: Events in the UK that that might have driven that reduction and how should we think about just used car gpus going forward. Thanks.

Rajat Gupta: Roger, you nailed it. That was a great summation that you had there on used car GPUs. We do think that there's opportunity for growth, but again, operationally, we have to get back to selling and keeping those value auto cars that yield the big profits and turn so quickly. That will lift our overall GPUs back up, and they're way less sensitive to market conditions. But no, there wasn't any one-times or anything like that. That was true market conditions. Got it. Okay. Thank you.

Rajeev: And then Rajeev you nailed it there was a great summation that you had there on unused card Gpus, we do think that there's opportunity for growth, but again operationally, we have to get back to selling and keeping those value auto cars that yield the big profits in turn so quickly that will lift our overall.

Speaker Change: Gpus backup in their way less sensitive to market conditions, but no. There wasn't any any one times or anything like that that was true market conditions.

Speaker Change: Got it okay. Thank you thanks.

Roger: Thanks Roger.

Speaker Change: Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Bryan Deboer for closing remarks.

Unknown Executive: Thanks, and answer session.

Bryan Deboer: I would like to turn the call back to Brian DeVore for closing remarks. Thank you, everyone, for joining us today. We really look forward to updating you again and seeing the impacts of the 60-day plan really take hold. We'll talk again in October for the third quarter result.

unknown: Just, you know, following up on the SG&A and the cost reduction plan, you know, given that 60 days we're complete on the $150 million.

unknown: Thanks.

Speaker Change: Thank you everyone for joining us today, we really look forward to updating you again seeing the impacts of the 60 60 day plan really take hold.

unknown: So, in my comment, when I said we're at $4,700 and we think we're going to be at $4,200 to $4,500, that was total GPU, okay, between new and used. We do believe that the way that you get there, that $2,000 to $5,000, is some recovery of used vehicles, which are still at depressed levels below where they were pre-COVID, okay? And if we can get more into the value auto cars at Lithia, we're making about $200 more on every value auto car and turning about three to four times as fast as what we do on a certified car.

unknown: So, we think that there's a lot of opportunity there. So, it's probably, I would say, a $300 to $500 return on used vehicles and maybe eight to a thousand drops still on new vehicles. If we can prevent that, then that's the upside, but I think we're real close to normalization at this stage, you know, not assuming some macro factor that changes things, OK, but we feel real comfortable with where we're sitting today. It's been a softer landing rather than

Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host. I understand that customers don't typically wait around for 12 to 15 days to buy another car. They may wait around a little bit for service just because it may be their only service point, especially 40% of our stores are in isolated markets. Okay, so that probably helps a little bit.

unknown: But ultimately, those new and used car customers probably bought. OK, most customers buy within 72 hours of making the decision to buy, even though they may research for two to four weeks. They typically buy when they want to buy. So I don't believe there's a ton of that $1.10 that's sitting out there, unfortunately.

Ron Josey: Our next question is from Ron Josey with Citigroup.

James: Very helpful. Thank you. Thanks, James.

unknown: Great. Thanks for squeezing me in again. I just have a question on the used car GPUs in the second quarter.

unknown: Thank you everyone for joining us today. We really look forward to updating you again and seeing the impacts of the 60 day plan really take hold. We'll talk again in October for the third quarter results. Bye-bye.

unknown: We will talk again in October for the third quarter results Bye bye.

Unknown Executive: Bye-bye.

Unknown Executive: This concludes today's conference. Thanks for your participation. You may disconnect your lines at this time.

Speaker Change: This concludes today's conference.

Speaker Change: Thank you for your participation you may disconnect your lines at this time.

unknown: [music].

unknown: Yes.

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unknown: Okay.

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unknown: Yes.

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unknown: Sure.

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Unknown Executive: Michael Dutton, John Murphy, John Murphy, John Murphy, John Murphy, John Murphy, John Murphy, John Murphy.