Q3 2024 Lithia Motors Inc Earnings Call

Unknown Executive: Greetings and welcome to Lithia Motors' third quarter 2024 earnings conference call. At this time, all participants are on the listen-and-only mode.

Greetings and welcome to Lithia Motors third quarter 'twenty 'twenty four earnings conference call. At this time, all participants are on a listen only mode.

Unknown Executive: A question and answer session will follow the formal presentation.

<unk> and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Unknown Executive: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: As a reminder, this conference is being recorded I would now like to turn the conference over to your host Dr. Don John Melo. Thank you you may begin.

Jordan Miller: I would now like to turn the conference over to your host, Jordan, Jordan Miller. Thank you, you may begin. Good morning. Thank you for joining us for our third quarter earnings call.

Okay.

Speaker Change: Good morning, Thank you for joining us for our third quarter earnings call with me today are Bryan Deboer, President and CEO, Adam Chamberlain, Chief Operating Officer, Tina Miller, Senior Vice President and CFO, and finally, Chuck Lietz Senior Vice President of driveway finance.

Jordan Miller: With me today are Bryan DeBoer, President and CEO, Adam Chamberlain, Chief Operating Officer, Tina Miller, Senior Vice President and CFO, and finally, Chuck Leitz, Senior Vice President of Driveway Finance. 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. We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements.

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.

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

Speaker Change: 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.

Jordan Miller: We undertake no duty to update any forward-looking statements which are made as of the date of this release.

Jordan Miller: 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.

Speaker Change: Our results discussed today include references to non-GAAP financial measures.

Speaker Change: Please refer to the text of today's press release for a reconciliation of comparable GAAP measures.

Jordan Miller: We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our third quarter results.

Speaker Change: We have also posted an updated investor presentation on our website investors dull lithia driveway dot com highlighting our third quarter results with that I would like to turn the call over to Bryan Deboer, President and CEO.

Bryan Deboer: With that, I would like to turn the call over to Bryan DeBoer, President and CEO. Thank you, Jardin. Good morning and welcome to our third quarter earnings call. Our Lithian driveway teams continue to deliver strong results as we advance the growth of our unique, integrated, and profitable mobility ecosystem. This quarter, our team demonstrated exceptional focus and execution, driving continued improvement as we achieved adjusted diluted earnings per share of $8.21. As the industry continues to normalize, we gain momentum and reinforced our strategy to serve customers wherever, whenever, and however they desire, positioning us well for future growth.

Bryan Deboer: Thank you Dr. Don Good morning, and welcome to our third quarter earnings call. Our lithium driveway teams continued to deliver strong results as we advance the growth of our unique integrated and profitable mobility ecosystem.

Bryan Deboer: This quarter, our team demonstrated exceptional focus and execution driving continued improvement as we achieved adjusted diluted earnings per share of $8 and 21.

Bryan Deboer: As the industry continues to normalize we gained momentum and reinforced our strategy to serve customers wherever whenever and however, they desire positioning us well for future growth.

Bryan Deboer: Over the past several years, we have effectively leveraged robust earnings and capital to significantly scale and diversify our business. Through disciplined execution, we have nearly tripled revenue and earnings since 2019. While building our industry differentiating strategic adjacencies, DFC, driveway, and green cars, world-class technology and fleet management. These foundational assets provide us an unmatched capabilities to drive continued growth, industry consolidation, margin expansion, and cost efficiencies. As we look ahead, our focus remains to deliver operational efficiencies that enhance customer loyalty, capture market share, and maximize the value of our ecosystem.

Bryan Deboer: For the past several years, we have a fish effectively leveraged robust earnings and capital to significantly scale and diversify our business.

Bryan Deboer: Through disciplined execution, we have nearly tripled revenue and earnings since 2019, while building our industry differentiating strategic Adjacencies, Dfc driveway and Green cars World Class Technology and fleet management.

Bryan Deboer: These foundational assets provide us an unmatched capabilities to drive continued growth industry consolidation margin expansion and cost efficiencies. As we look ahead, our focus remains to deliver operational efficiencies that enhance customer loyalty capture market share and maximize the value of.

Bryan Deboer: Customs. Now, on to key results for the third quarter. Lithian driveway grew revenues to a record 9.2 billion and 11% increase from Q3 of last year. We continued to make significant progress with sequential improvements in cost efficiency, driving adjusted SGNA from 67.9% of gross profit in Q2 to 66% this quarter. We achieved 200 million dollars in annualized cost savings, mostly coming from personnel-related reductions. The 60-day plan has now evolved into the everyday plan, embedding consistent cost-discipline into our daily operations. As we move into 2025, we see even more opportunities for savings, productivity improvements, and ongoing inventory reductions, all made possible by the focused execution of our team.

Bryan Deboer: Our ecosystem.

Now onto key results for the third quarter.

Bryan Deboer: Lithium driveway grew revenues to a record $9 2 billion, an 11% increase from Q3 of last year.

Bryan Deboer: We continued to make significant progress with sequential improvements in cost efficiency driving adjusted SG&A from 67, 9% of gross profit in Q2 to 66% this quarter.

Bryan Deboer: We achieved $200 million in annualized cost savings, mostly coming from personnel related reductions.

60 day plan has now evolved into the everyday plan embedding consistent cost discipline into our daily operations as.

Bryan Deboer: As we move into 2025, we see even more opportunities for savings productivity improvements and ongoing inventory reductions all made possible by the focused execution of our team.

Bryan Deboer: We are pleased by the ongoing strength and new GPUs, but continue to expect combined vehicle GPUs to normalize in the coming quarters to between $4,200 and $4,500, including F&I. Our after sales business performed well this quarter, which reflects the strength of our teams and their ownership of making decisions closest to our customers. Our investments in adjacencies are progressing towards sustainable and meaningful profitability. Finding operations delivered another profitable quarter, demonstrating the strong earnings trajectory of that platform. Additionally, burn rates for both driveway and green cars were down nearly 40% year over year, as we continue to refine our e-commerce strategies, enhance operating and advertising efficiencies, and bring in new customers as part of our omnichannel strategy.

Bryan Deboer: We are pleased by the ongoing strength in new Gpus, but continue to expect combined vehicle Gpus to normalize in the coming quarters to between 4200 $4500, including F&I.

Bryan Deboer: Our after sales business performed well this quarter, which reflects the strength of our teams and their ownership of making decisions closest to our customers.

Bryan Deboer: Our investments in Adjacencies are progressing towards sustainable and meaningful profitability financing operations delivered another profitable quarter, demonstrating the strong earnings trajectory of that platform. Additionally, burn rates for both driveway and green cards were down nearly 40% year over year as.

Bryan Deboer: We continue to refine our e-commerce strategies enhance operating an advert and advertising efficiencies and bring in new customers as part of our Omnichannel strategy.

Bryan Deboer: This quarter also had our first strong returns on our wheels investment, and we look forward to realizing the synergies presented by this new partnership. We saw the direct results of improving the operating effectiveness of our cost structure, shown in SDNA as a percentage of growth, which decreased 190 basis points sequentially, and we continue to focus on unlocking the profitability of our ecosystem by decisively acting to meet customer demands and operate efficiently, delivering on our core strength of execution.

This quarter also had our first strong returns on our wheels investment and we look forward to realizing the synergies presented by this new partnership.

Bryan Deboer: We saw the direct results of improving the operating effectiveness of our cost structure shown in SG&A as a percentage of gross which decreased 190 basis points sequentially and we continue to focus on unlocking the profitability of our ecosystem by decisively acting to meet customer demands and.

Bryan Deboer: Operate efficiently delivering on our core strength of execution.

Bryan Deboer: Turning to our unique and difficult to replicate strategy. The foundation of the lab strategy lies in our vast physical network supported by the industry's most talented people, high demand inventory, and dense door footprint. We continue to expand this network, adding new locations, developing key adjacencies, and forming strategic partnerships like Pinewood Technologies and Wheels, all aimed at enhancing customer experiences and diversifying our portfolio. We operate in one of the largest addressable retail markets globally, and our ability to grow profit will be across every aspect of our business remains stronger than ever. As a reminder, in addition to being the largest retail market, auto is also one of the least consolidated, which is why being the most competitive buyer in the space is a key competitive advantage.

Bryan Deboer: Turning to our unique and difficult to replicate strategy.

Bryan Deboer: The foundation of the lab strategy lies in our vast physical network supported by the industry's most talented people high demand inventory and dense store footprint. We continue to expand this network, adding new locations developing key adjacencies and forming strategic partnerships.

Bryan Deboer: Pinewood technologies and wheels, all aimed at enhancing customer experiences and diversifying our portfolio. We operate in one of the largest addressable retail markets globally, and our ability to grow profit will be across every asset specht of our business remains stronger than ever as a reminder.

Bryan Deboer: In addition to being the largest retail market.

Bryan Deboer: <unk> is also one of the least consolidated which is why being the most competitive buyer in this space is a key competitive advantage.

Bryan Deboer: College. Our strategy of delivering customer solutions that are simple, convenient, and tense parent is steadfast, enabling us to capture a greater share of the customer's wallet and create infectious loyalty. These solutions are tightly integrated with our digital platforms, fostering a natural and lasting retention of our consumers within our ecosystem, while brands like Driveway and Green Cars significantly extend our reach to 50% times more consumers than our core physical businesses provide. The lab digital ecosystem continued to show positive momentum, with continued year-over-year growth to 12 million monthly unique visitors, with driveway and green cars contributing 3 million MUVs.

Bryan Deboer: Our strategy of delivering customer solutions that are simple convenient and transparent is steadfast, enabling us to capture a greater share of the customer's wallet and create infectious loyalty. These solutions are tightly integrated with our digital platforms, fostering a natural and lasting retention.

Bryan Deboer: Our consumers within our ecosystem, while brands like driveway and green cars significantly extend our reach to 50 times more consumers than our core physical businesses provide.

Bryan Deboer: The lab digital ecosystem continued to show positive momentum with continued year over year growth to 12 million monthly unique visitors with.

Bryan Deboer: With driveway and green cars contributing $3 million <unk>.

Bryan Deboer: We continue to see strong MUV effectiveness translating to 25,000 digital units in the third quarter. Our teams continue to deliver exceptional customer experiences with a clear focus on expanding market share on our way towards profitability. We are excited about the progress our partnership with Pinewood Technologies has made within Lithia, UK, as we now have over 90% of our stores operating effectively on their platform. These technology solutions enable us to place both consumers and our team members within a unified ecosystem, boosting productivity, significantly enhancing the customer experience and strength of our customers.

Bryan Deboer: We continue to see strong <unk> effectiveness translating to 25000 digital units in the third quarter.

Bryan Deboer: Our teams continued to deliver exceptional customer experiences with a clear focus on expanding market share on our way towards profitability. We are excited about the progress of our partnership with Pinewood technologies has made within Lithia U K as we now have over 90% of our stores operating <unk>.

Bryan Deboer: Secondly on their platform.

Bryan Deboer: These technology solutions enable us to place both consumers and our team members within a unified ecosystem boosting productivity significantly enhancing the customer experience and strengthening our operational resiliency.

Bryan Deboer: The strengthening our operational resiliency. The strength of these platforms, financial discipline, regenerative free cash flows, and a culture that drives growth powered by people enables us to be agile in responding to local market dynamics. Our strategic position and expansion of the my driveway consumer portal allows us to increase touch points throughout the customer's life cycle across our adjacency and equipped our stores with tools to improve market share, loyalty, and ultimate profitability.

Bryan Deboer: The strength of these platforms financial discipline regenerative free cash flows and a culture that drives growth powered by people enables us to be agile in responding to local market dynamics, our strategic position and expansion of the my driveway consumer portal allows us.

Bryan Deboer: To increase touch points throughout the customers' lifecycle across our adjacency and equipped our stores with tools to improve market share loyalty and ultimate profitability.

Bryan Deboer: Acquisition remains a core competency of LAD, and we continue our disciplined approach to look for creative opportunities that can improve our network, focusing on the United States. We target a minimum after-tax return of 15% and acquiring for 15 to 30% of revenues or 3 to 6 times normalized EBITDA. We iterate our expectation that estimated future annual acquisition revenues will be in the range of $2 to $4 billion per year. Life to date, our acquisitions have yielded over 95% success rate and after-tax returns of over 25%, demonstrating that LAD is not your typical high-risk roll-up strategy.

Acquisition remains a core competency of Lad and we continue our disciplined approach to look for accretive opportunities that can improve our network focusing on the United States.

We target a minimum after tax return of 15% and acquiring for 15% to 30% of revenues are three to six times normalized EBITDA.

Bryan Deboer: We reiterate our expectation that estimated future annual acquisition revenues will be in the range of $2 billion to $4 billion per year life to date, our acquisitions have yielded over 95% success rate and after tax returns of over 25% demonstrating that lad.

Bryan Deboer: Is not your typical high risk roll up strategy.

Bryan Deboer: This quarter, we welcome three stores from Duval Motor Company in Northern Florida to Lithia and Driveway. To date in 2024, we have acquired just shy of $6 billion in annual revenues. I would like to personally welcome all our new team members to the Lithia and Driveway families. Additionally, we are pleased to report that our Southeast US stores and our teams are safe and came through the storms with minimal impact. We remain focused on growth and view industry consolidation as a driver of continued strong long-term returns. With the capital engines we built, we were able to deploy our free cash flows to generate the highest returns, remaining flexible to market conditions.

Bryan Deboer: This quarter, we welcomed three stores from Duval Motor company in Northern Florida to lithium driveway to date in 2024, we have acquired just shy of $6 billion in annual revenues.

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

Additionally, we are pleased to report that our southeast U S stores and our teams are safe and came through the storms with minimal impact.

Bryan Deboer: We remain focused on growth and view industry consolidation as a driver of continued strong long term returns with the capital engines. We built we were able to deploy our free cash flows to generate the highest returns remaining flexible to market conditions.

Bryan Deboer: As outlined last quarter, we have adjusted our capital allocations to balance acquisitions and share buybacks equally, especially given the attractive relative valuation of our own shares. During the quarter, we repurchased $54 million, or .7% of our astounding shares. We continue to evaluate acquisitions and share repurchases and believe in the near term that 30 to 40% of our free cash flows will be deployed to share buybacks. These elements combine for a clear and compelling pathway to generating $2 of EPS for every billion dollars in revenue in a normalized environment, as illustrated in slide 14 of our investor presentation.

Bryan Deboer: As outlined last quarter, we have adjusted our capital allocations to balance acquisitions and share buybacks equally, especially given the attractive relative valuation of our own shares.

Bryan Deboer: During the quarter, we repurchased $54 million or 7% of our standing shares we continue to evaluate acquisitions and share repurchases and believe in the near term that 30% to 40% of our free cash flows will be deployed to share buybacks.

Bryan Deboer: These elements combined for a clear and compelling pathway to generating $2 of EPS for every $1 billion in revenue in a normalized environment as illustrated in slide 14 of our Investor presentation.

Bryan Deboer: The key factors underlying our future steady state are now dealt totally within our control and include the following. First, continue 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, cost efficiencies, and growing each store's new used in after sales market share. Through these levers in our business, we see a pathway to achieve SGNA as a percentage of gross profit in the mid 50% range. Second, optimizing our network by acquiring and driving high performance in larger automotive retail stores in the stronger profitability regions of the Southeast and South Central United States.

Bryan Deboer: The key factors underlying our future steady state are now tell totally within our control and include the following.

Bryan Deboer: First continue 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 cost efficiencies and growing each store's new used and after sales market share through these levers in our business, we see a pathway to achieve SG&A as a percentage of <unk>.

Bryan Deboer: <unk> profit in the mid 50% range.

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

Bryan Deboer: This, alongside our digital channels, will bring our blended US market share to 5%. Today we have a combined new and used vehicle market share of 1.1%. Third, financing up to 20% of units with DFC, Driveway Financial Corporation and maturing beyond the headwinds associated with CSO reserves. Our financing operations continued profitability in Q3 and is expected to have consistent profitability going forward. Fourth, through scale we are driving down vendor pricing and solutions with solutions like Pinewood, leveraging corporate efficiencies and lowering borrowing costs as we path towards an investment-grade credit rating. Fifth, maturing contributions from our horizontals including fleet management, DMS software, charging infrastructure, and captive insurance.

Bryan Deboer: This alongside our digital channels.

Bryan Deboer: We'll bring our blended U S market share to 5% today, we have a combined new and used vehicle market share of one 1%.

Bryan Deboer: Third financing up to 20% of units with Dfc driveway financial Corporation, and maturing beyond the headwinds associated with seasonal reserves.

Bryan Deboer: Our financing operations continued profitability in Q3 and is expected to have consistent profitability going forward.

Bryan Deboer: Fourth through scale, we are driving down vendor pricing and solutions with solutions like pinewood, leveraging corporate efficiencies and lowering borrowing costs as we path towards an investment grade credit rating.

Bryan Deboer: Fifth maturing contributions from our Horizontals, including fleet management.

Bryan Deboer: Ms software charging infrastructure and captive insurance.

Bryan Deboer: And finally, delivering ongoing return on capital to shareholders through increased share buybacks and dividends.

Bryan Deboer: And finally, delivering ongoing return on capital to shareholders through increased share buybacks and dividends.

Bryan Deboer: End. We are continuing our journey to build a complete mobility ecosystem and are well-positioned to leverage our unique scale and capabilities to deliver more frequent, meaningful, and durable customer experiences throughout the entire ownership life cycle. With the foundational design elements of our strategy firmly in place, we are now fully focused on execution, where we are confident in our ability to drive to new levels of performance and set the standard for the industry.

Bryan Deboer: We are continuing our journey to build a complete mobility ecosystem and are well positioned to leverage our unique scale and capabilities to deliver more frequent meaningful and durable customer experiences throughout the entire ownership lifecycle.

Speaker Change: With the foundational design elements of our strategy firmly in place. We are now fully focused on execution, where we are confident in our ability to drive to new levels of performance and set the standard for the industry now I'd like to turn the call over to Adam for an overview of store performance in key <unk>.

Adam Chamberlain: Now I'd like to turn the call over to Adam for an overview of store performance and key operating results. Thank you, Bryan. Our team responded decisively this quarter to improve our operating excellence.

Speaker Change: Operating results.

Adam Chamberlain: Thank you Brian.

Team responded decisively this quarter to improve our operating excellence and I'd like to focus today on three key areas revenue and gross profit.

Adam Chamberlain: I'd like to focus today on three key areas: revenue and growth profit, SG&A execution, and inventory trends. As Bryan mentioned, we achieved record total company revenue this quarter with positive contributions from new vehicles, after sales and value autos, also supported by sustained new vehicle GPU strength. We are confident in our ability to continue delivering on our growth strategy in the month ahead. Our focused approach to cost and inventory management has provided a strong foundation to address our opportunities, particularly in the area of vehicle sales. By staying agile and focused, we're positioning ourselves to ignite our potential in the month ahead.

Adam Chamberlain: SG&A execution and inventory trends.

Adam Chamberlain: As Brian mentioned, we achieved record total company revenue this quarter with positive contributions from new vehicles after sales and value autos also all supported by sustained new vehicle GPU strength.

Adam Chamberlain: We are confident in our ability to continue delivering on our growth strategy in the months ahead.

Adam Chamberlain: Our focused approach to cost and inventory management has provided a strong foundation to address opportunities, particularly in the area of vehicle sales.

Adam Chamberlain: By staying agile and focused we're positioning ourselves to ignite our potential in the months ahead.

Adam Chamberlain: Let's now turn to our same store sales performance, where we saw strong performance in new vehicles and value autos as year-over-year GPUs continue to return to historical levels. Total revenue is declined by 6% and gross profits declined 8%, which may mostly outrun through strong focus in cost reductions. Total unit sales decreased 4% in the quarter, while total vehicle gross profit of $4,631 was consistent with the prior sequential quarter and was down $589 compared to the same period last year. New vehicle units increased 2% year-over-year, with particular strength in import manufacturers. Our front-end GPUs remain resilient at $3,188, decreasing sequentially from $3,378.

Adam Chamberlain: Let's now turn to our same store sales performance, where we saw strong performance in new vehicles and value will chase.

Adam Chamberlain: <unk> continued to return to historical levels.

Adam Chamberlain: Total revenues declined by 6% and gross profit declined, 8%, which mean, mostly run through strong focus and cost reductions.

Adam Chamberlain: Total unit sales decreased 4% in the quarter, while total vehicle gross profit of $4631 was consistent with the price sequential quarter and was down $599 compared to the same period last year.

Adam Chamberlain: New vehicle units increased 2% year over year with particular strength in import manufacturers are front end Gpus remained resilient at $3188 decreasing sequentially from $3378.

Adam Chamberlain: Use vehicle units for down 9.6% year-over-year. These declines are focused in certified units, which were down 16.4%, and core units down 12.9%. While some of the decreases that due to a decrease in vehicle availability, we know there is a large opportunity in use vehicles and this will be a primary focus in our months ahead. We are really encouraged by our performance in value autos, which are up 14% year-over-year. Frontend GPUs for use vehicles were stable at $2,136 flat sequentially year-over-year and a peer to have stabilized.

Adam Chamberlain: Usually it because the units were down nine 6% year over year.

Adam Chamberlain: These declines are focused and certified units, which were down 16, 4% on coal units down 12, 9%.

Adam Chamberlain: While some of the decreases are due to a decrease in vehicle availability, we know theres a large opportunity in used vehicles and this will be a primary focus and are months ahead.

Adam Chamberlain: We are really encouraged by performance in value waters, which are up 14% year over year.

Adam Chamberlain: Front end Gpus for used vehicles was stable at $2136 flat sequentially year over year and appear to have stabilized.

Adam Chamberlain: Our after-sales performance was a key driver of broke this quarter, with after-sales revenues up 5.1% compared to the prior year. We've seen solid momentum in customer pay and warranty work and delivered a 56% gross profit margin. Our ability to manage technician headcounts and drive operational efficiencies has positioned us well to meet ongoing demand, while also maintaining a strong focus on providing exceptional customer experiences in our after-sales department.

Adam Chamberlain: Our after sales performance was a key driver of growth this quarter with after sales revenue is up five 1% compared to the prior year, we have seen solid momentum in customer pay and warranty work and delivered a 56% gross profit margin.

Our ability to manage technician head count and drive operational efficiencies has positioned us well to meet ongoing demand while also maintaining a strong focus on providing exceptional customer experiences in our after sales departments.

Adam Chamberlain: As Bryan mentioned, the execution on our cost savings plan and everyday efficiency efforts was strong in quarter three. Our adjusted SGNA as a percentage of Grace Profit was 66% during the quarter and 64% on the same store basis, a 240 basis point, same store decline from quarter two. This quarter we eclipsed our original target of $150 million annualized cost savings by reaching $200 million in North America. We should continue to opportunity to improve our cost structure and potential to emulate an additional $100 million throughout 2025.

Speaker Change: As Brian mentioned, the execution on our cost savings plan and everyday efficiency efforts with strong in quarter three.

Speaker Change: Our adjusted SG&A as a percentage of gross profit was 66% during the quarter and 64% on a same store basis of 240 basis points same store decline from quarter two.

Speaker Change: This quarter, we eclipsed our original target of $150 million annualized cost savings by reaching $200 million in North America, we see continued opportunity to improve our cost structure and potential tumor <unk>, an additional $100 million throughout 2025.

Adam Chamberlain: In our UK network, optimization continues, including streamlining operations and divesting, merging or closing targeted doors. This quarter we saw significant improvement in our new vehicle inventory, with DSO improving from 87 days at quarter two to 68 days at quarter three. Used inventory remain consistent at 68 days. We are pleased with the reduction in new vehicle inventory compared to last quarter as you make progress on achieving flooring interest expense savings. We continue pursuing a target of reducing new vehicle inventory by an additional $540 million and see significant opportunity on the use side as well.

Speaker Change: Our U K network optimization continues, including streamlining operations and divesting merging or closing targeted stores.

Speaker Change: This quarter, we saw significant improvement in our new vehicle inventory with DSO, improving from 87 days at quarter, two to 68 days in quarter three.

Speaker Change: Used inventory remained consistent at 68 days.

Speaker Change: We are pleased with the reduction in inventory compared to last quarter as you make progress on achieving fluid flooring interest expense savings, we continue pursuing a target of reducing new vehicle inventory by an additional $540 million and see significant opportunity on the east side as well.

Adam Chamberlain: I'm really proud of our team to relentless focus on delivering exceptional customer experiences and executing efficiency efficiently across our business this quarter. I'm confident in our outlook for the remainder of 2024 and beyond.

Speaker Change: I'm really proud of our team's relentless focus on delivering exceptional customer experiences and executing efficiently efficiently across our business this quarter.

Speaker Change: <unk> and our outlook for the remainder of 2024 and beyond.

Tina Miller: I will now turn the call over to Tina to walk us through our key financial highlights. Thank you, Adam. The operating efficiencies Adam mentioned have been supported by continued momentum in financing operations and focus balance sheet and capital management where we will turn to next. Starting with our financing operations segment, primarily driven by DFC, we continue to see solid progress, with profitability of a million dollars this quarter compared to a loss of four million in the same quarter last year. As this element of our strategy matures, we clearly see the benefits of diversification with portfolio growth, seasoning beyond Federal Reserve headwinds, and approved efficiency in our securitization.

Speaker Change: Now I'll turn the call over to Tina to walk through our key financial highlights.

Tina Miller: Thank you Anna the operating efficiencies Adam mentioned have been supported by continued momentum in financing operations and focused balance sheet and capital management, where we will turn to next starting with our financing operations segment, primarily driven by Dfc, we continue to see solid progress with profitability of $1 million this quarter.

Speaker Change: <unk> compared to a loss of $4 million in the same quarter last year.

Speaker Change: As this element of our strategy matures, we clearly see the benefits of diversification with portfolio growth seasoning beyond federal reserve headwinds and improved efficiency in our securitization.

Tina Miller: 2024 has been the turning point with overall expected profitability for the full year and a continued growth trajectory in 2025. We operate to balance yields, growth, and risk with an emphasis on high quality loans and disciplined underwriting. The financing operations portfolio balance has now grown to over 3.8 billion, with DFC originating 518 million during the quarter. Originations were consistent this quarter in the prime credit quality band. In October, we launched our ninth securitization, pricing 615 million in collateralized debt at a weighted average interest rate of 4.76%. And over collateralization of 5.4%, demonstrating our track record as a programmatic issuer.

Speaker Change: 2024 has been the turning point with overall expected profitability for the full year and a continued growth trajectory in 2025, we operate to balance yield growth and risk with an emphasis on high quality loans and disciplined underwriting.

Speaker Change: Our financing operations portfolio balance has now grown to over $3 8 billion with DSC originating $518 million during the quarter originations were consistent this quarter and the prime credit quality band.

Speaker Change: In October we launched our ninth securitization pricing $615 million in collateralized debt at a weighted average interest rate of 476% and overcollateralization of five 4% demonstrating our track record as a programmatic issuer. This offering was significantly oversubscribed and we are please.

Tina Miller: This offering was significantly oversubscribed, and we are pleased with the market's growing confidence in our performance and servicing operations. Overall, our financing operations business continues to perform well and deliver on financial milestones ahead of schedule. This adjacency is a key element of our $2 of EPS for every 1 billion of revenue target, as each loan originated by DFC contributes up to 3 times more profitability compared to traditional indirect lending. We remain confident in the financing operations' long-term earnings growth with a fully scaled and seasoned portfolio.

Speaker Change: With the market's growing confidence in our performance and servicing operations.

Speaker Change: Overall, our financing operations business continues to perform well and deliver on financial milestones ahead of schedule. This adjacency is a key element of our $2 of EPS for every $1 billion of revenue target as each loan originated by Dfc contribute up to three times more profitability compared to traditional indirect lending.

Speaker Change: We remain confident in the financing operations long term earnings growth with a fully scaled and seasoned portfolio now moving onto our cash flow performance and balance sheet, we reported adjusted EBITDA of $421 million in the third quarter, driven by improved SG&A efficiencies offset by lower new vehicle Gpus.

Unknown Executive: Radio.

Tina Miller: Now moving on to our cash flow performance and balance sheet. We reported adjusted EBITDA of 421 million in the third quarter, driven by improved S-GNA efficiencies, offset by lower new vehicle GPUs as supply normalized and higher interest expense year over year. During the quarter, we generated free cash flows of 273 million. Free cash flows were impacted by declining EBITDA due to decreasing margins and higher floor plan interest expense, with increased capital expenditures compared to the prior year, mainly related to construction to meet manufacturer requirements at recently acquired locations. Our capital allocation strategy focuses on the efficient allocation of our businesses' regenerative cash flows, preserving the quality of our balance sheet while supporting our growth initiatives and allowing us to respond opportunistically to a complex environment.

Speaker Change: At supply normalized and higher interest expense year over year.

Speaker Change: During the quarter, we generated free cash flow of $273 million free cash flows were impacted by declining EBITDA due to decreasing margins and higher floorplan interest expense with increased capital expenditure compared to the prior year, mainly related to construction to meet manufacturer requirements at recently acquired locations our capital allocation.

Speaker Change: <unk> strategy focuses on the efficient allocation of our businesses regenerative cashflows preserving the quality of our balance sheet, while supporting our growth initiatives and allowing us to respond opportunistically to a complex environment.

Tina Miller: This quarter we continued our focus on closely balancing acquisitions with shareholders' return, as we see elevated pricing on store acquisitions as margins normalized compared to our shares' current valuations. Prospectively, we looked to allocate 30 to 40% of free cash flows to share repurchases. As a result of the rebalance focus in the third quarter, we repurchased 0.7% of our outstanding shares at a weighted average price of $274. Capital allocation this quarter also included $250 million for our investment in wheels and the purchase of the Duval's doors. $561 million remains available under our share repurchase authorization. We ended the quarter with net leverage of 2.7 times, in line with our long-term target of 3 times and well below our bank covenant requirement of 5.75 times.

Speaker Change: This quarter, we continued our focus on closely balancing acquisitions with shareholder return as we see elevated pricing on store acquisitions as margins normalized compared to our shares current valuation prospectively, we look to allocate 30% to 40% of free cash flow to share repurchases as a result of the <unk>.

Speaker Change: Rebalanced focus in the third quarter, we repurchased 7% of our outstanding shares at a weighted average price of $274.

Speaker Change: Capital allocation. This quarter also included $250 million for investment in wheels, and the purchase of the Duvall stores.

Speaker Change: $551 million remains available under our share repurchase authorization.

Speaker Change: We ended the quarter with net leverage of two seven times in line with our long term target of three times and well below our bank covenant requirement of 575 times, while we opportunistically allocated capital during Q3, we maintain our long term focus financial discipline to support our planned growth and target leverage below three.

Tina Miller: While we opportunistically allocated capital during Q3, we maintain our long-term focused financial disciplines to support our plan growth and target leverage below 3 times. These metrics adjust for the impact of floor plan debt, which is unique to our industry and relate 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 the debt from balance sheet leverage calculations. Similarly, we have ABS warehouse lines and issuances to capitalized CFC, which are also excluded from our leverage calculations.

Speaker Change: Time.

Speaker Change: These metrics adjust for the impact of floor plan debt, which is unique to our industry and relate 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 calculation.

Speaker Change: Similarly, we have ABS warehouse lines and issuances to capitalize Dfc, which are also excluded from our leverage calculation. Our strategy is to achieve strong growth and best in class shareholder returns and we have the right team and tools in place to drive both revenues and margins in our core business and Adjacencies are diverse and.

Tina Miller: Our strategy is to achieve strong growth and fast and class shareholder returns, and we have the right team and tools in place to drive both revenues and margins in our core business and adjacencies. Our diverse and talented team is committed to delivering exceptional customer experiences, and we have the foundation to ignite our potential for the rest of 2024 and beyond.

Talented team is committed to delivering exceptional customer experiences and we have the foundation to ignite our potential for the rest of 2024 and beyond this concludes our prepared remarks with that I'll turn the call over to the operator for questions.

Unknown Executive: This concludes our prepared remarks.

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

Unknown Executive: Operator? Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. As a reminder, we ask you to please limit to one question and one follow-up. A confirmation, Tom, will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start. Keys.

Speaker Change: Operator.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad. As a reminder, we ask that you. Please limit to one question and one follow up.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Unknown Executive: One moment, please, while we follow up for questions.

Ryan Sigdahl: My first question comes from Ryan Sigdahl, with Craig Hallum Capital Group. Please proceed with your question. Hey, good morning, Brian, Tina, Adam.

Speaker Change: Our first question comes from Ryan <unk> with Craig Hallum Capital Group. Please proceed with your question.

Ryan <unk>: Hey, good morning, Bryan Tina Adam.

Adam Chamberlain: I want to start with used inventory, so better progress on the news side, bringing down inventory day supply, but curious any further detail on the strategy and what you guys are working on on the use side, given day supply actually increased sequentially, and given some underperformance for the industry on the unit sale standpoint. So I guess the question is, what are you guys working on, what didn't go right in the quarter, and where's that focus going forward to reduce and refresh that inventory?

Speaker Change: With used.

Speaker Change: Inventory, so better progress on the new side, bringing down inventory days supply, but curious any further detail on the strategy and what you guys are working on on the used side given the supply actually increased sequentially and given some underperformance versus the industry on the unit comp sales standpoint, So I guess.

Speaker Change: Question is what are you guys working on what Didnt go right in the quarter and Where's that focus going forward to reduce and refresh that inventory.

Adam Chamberlain: Hey, Ryan, it's Adam. Yeah, I think first of all, I start the question by saying, because we're a top-of-final retailer, we still derive about 54% of our inventory three trade-ins, right, which places us in a relatively strong position. Nonetheless, we weren't able to shift our used inventory down alongside in the same manner that we did with our new cars. Actually, on a unit basis, it's down about 3,000; it's actually the values that's up slightly, and I think the biggest challenge is being sourcing core models. The industry's sour as probably missing about 10 to 12 million cars.

Adam Chamberlain: Hey, Brian it's Adam.

Adam Chamberlain: Yes, I think I think first of all I'll start the question by saying because we are a top of funnel retailer, we still derive about 54% of our inventory through trade ins right.

Adam Chamberlain: To us in a relatively strong.

Adam Chamberlain: Physician Nonetheless.

Adam Chamberlain: Nonetheless, we weren't able to shift our used inventory down alongside the same amount of it we did without with a new cost.

Adam Chamberlain: On a unit basis is down about 3000. This actually the value of this up slightly and I think the biggest challenge has been sourcing cost.

Adam Chamberlain: Co models, you know the industry saw was probably missing about 10 to 12 million cars. If you look back at a pre COVID-19 average about $17 million, we've been around about the fourteens and now touching the fifteens right for the last four years. So we're missing those.

Adam Chamberlain: If you look back at a pre-Covid average of about 17 million, we've been around about the 14s, and now section of the 15s, right, for the last four years. So we're missing those trading cars, for sure. What I would say to you is that our value water grew by 14.4% in the quarter, and it's now up to about 16% of our mix, where it was only 12% last year. Cores are core drops, so that's the real focus area: core drops from 68 to 64%, certified remains flat at around 20%.

Adam Chamberlain: Trading costs for sure.

Adam Chamberlain: But what I would say to you is that value will take grew by 14, 4% in the quarter and is now up to about 16% of our mix, whereas any 12% last year course, holding a core dropped so thats the real focus area code dropped from 68%, 64% certified remains flat at around 20%.

Adam Chamberlain: So real focus with the team, looking at store-by-store, we've got our obsolete ship really focused on performance opportunities, and we've been to Coda for on Coda 1.

Adam Chamberlain: So real focus with the team.

Adam Chamberlain: Looking at our store by store.

Adam Chamberlain: Ops leadership really focused on performance opportunities can move into quarter, four and quarter one.

Adam Chamberlain: Right and one, or just add on there is we were up about 3% on total acquisitions from customers.

Speaker Change: Brian I wonder.

Speaker Change: Just to add on there.

Speaker Change: We were we were up about 3% on total acquisitions from customers. We were at 72, 2% of our vehicles that we sold came from customers. So 54% on trade in and then an additional percentages on private party being being a one sided transaction as well as buying cars.

Adam Chamberlain: We were at 72.2% of our vehicles that we sold came from customers. So 54% on trade-in, and then an additional percentage is on private party, being a one-sided transaction, as well as buying cars through Driveway and off-lease vehicles. Helpful.

Speaker Change: Through driveway in off lease vehicles.

Helpful switching over to Dfc good to see positive operating income for a second consecutive quarter there.

Chuck Lietz: Switching over to DFC, good to see positive operating income for a second consecutive quarter there. Despite, I believe a higher revision, well, dollars certainly, but as a percent of antirecieve, both it seems like the assumptions maybe went a little higher there, but I guess can you talk through what you're seeing from the provision and any ventages you're particularly concerned about there?

Speaker Change: Despite I believe a higher revision.

Speaker Change: <unk> dollar certainly, but as a percent of managed receivables. It seems like the assumptions, maybe you went a little higher there, but I guess can you talk through what youre seeing from.

The provision in any vintages, you are particularly concerned about there.

Chuck Lietz: Yeah, hey Ryan, this is Chuck. I think in general that the market is definitely seen, you know, sometimes the stress, but it's primarily in the subprime segment with regards to delinquencies, and obviously that's only 5% of approximately our portfolio because, you know, we really have taken advantage of being a true captive lender and really tried to de-risk our portfolio by moving up and staying consistent in the prime segment. I think with regards to the provision expense, you know, we are seeing some signs of increase in delinquency and stress in the prime portfolio, but for the most part, it's still seasonal, and we see that that hopefully should start to temper itself as we go forward in the remainder of the year.

Speaker Change: Yeah, Hey, Ryan this is Chuck.

Speaker Change: I think in general the market is definitely seeing some signs of stress, but it's primarily in the subprime segments with regards to delinquencies and obviously, that's only 5% of approximately our portfolio because we really have taken advantage of being a true captive lender and really try to derisk.

Speaker Change: Our portfolio by moving up and staying consistent in the Prime segment I think with regards to the provision expense. We are seeing some signs of increase in delinquency and stress in the prime portfolio, but for the most part it's still seasonal and we see that that hopefully should start to temper itself as.

Speaker Change: As we go forward in the remainder of the year. So we feel confident that the provision the portfolio is well provisioned and should not have an impact on profitability going forward.

Chuck Lietz: So we feel confident that the provision, the portfolio is well provisioned and should not have an impact on profitability going forward.

Ryan Sigdahl: Thanks, Chuck. Thanks, job, guys, on the operational improvements. I'll pass it on to the others. Thanks, Ryan.

Speaker Change: Thanks, Chuck Nice job guys on the operational improvements I'll pass it onto the others.

Bryan Deboer: Thanks, Brian.

John Murphy: Our next question is from John Murphy with Bank of America. Please proceed with your question. Good morning, everybody.

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

John Murphy: Good morning, everybody just a first question on the cost cutting.

John Murphy: Just a first question on the cost cutting and the fact that you're kind of exceeding your current target. You're sort of running around 200 million versus the target of 150. Then Adam, you're sort of mentioning that you're going to do another 100 million next year. I'm just curious why you've exceeded your targets so quickly. You know, how comfortable you are with that 100 million next year? Maybe there could be more.

John Murphy: The fact that youre kind of exceeding your current targets.

John Murphy: Sort of run rating around 200 million versus the target of a $1 50.

John Murphy: Then Adam Youre sort of mentioning that you're going to do another $100 million next year I'm just.

John Murphy: <unk> why you exceeded your targets so quickly.

John Murphy: How comfortable you are with that $100 million next year, maybe there could be more and then also maybe Tina as we model. This I mean, there's a lot of puts and takes in SG&A to growth, but let's say we finished this year around 67, and a half or mid 60 sevens.

Tina Miller: And then, you know, also maybe Tina, as we model this, I mean, there's a lot of puts and takes an S-T-N-A to gross. But let's say we finished this year around 67 and a half or mid-67s for the full year. Would you sort of take that number and model that out next year and then take out the 100 million, or would there be other puts and takes you think about?

John Murphy: For the full year would you sort of take that number and model that out next year and then take out the 100 million or would there be other puts and takes you'd think about.

Bryan Deboer: John, this is Brian. Thanks, thanks for the question and joining us today. What we've found is that the organization responded quite quickly and well from operations all the way into the home office in return, in terms of cost reduction. And I'd say today that it's almost infectious with the team that they're looking for more. Okay, and I think, as Adam mentioned, we've done 200 million now. We originally set out to do 150 on the minimum level, with an upside of 250. We believe now it's in excess of 300 million, of which the remaining 100 million is some about a quarter of it is coming from further cost reductions that will impact SGNA, like productivity increases in personnel, like marketing, like vendor contracts.

Bryan Deboer: John This is Bryan.

Bryan Deboer: Thanks for the question and joining us today.

Bryan Deboer: What we've found is that the organization responded quite quickly.

Bryan Deboer: And well from operations all the way into the home office and retire in terms of cost reduction and I'd say today that it's almost infectious with the team there.

Bryan Deboer: Theyre looking for more okay, and I think as Adam mentioned, we've done $200 million now we originally set out to do $1 50 on the minimum level with an upside of $2 50, we believe now its in excess of $300 million.

Bryan Deboer: Of which the remaining $100 million is some about a quarter of it is coming from further cost reductions that will impact SG&A like productivity increases in personnel like marketing like vendor contracts. Okay. The remaining 75% if youre modeling it is interest costs on <unk>.

Bryan Deboer: Okay, the remaining 75% if you're modeling it is interest costs on flooring. Okay, we've still got a long way to go. And as Ryan mentioned, those higher day supplies do impact our ability to bring money to the bottom line. That's something that we are getting more efficient at. We're using our AI and other technologies to help guide the stores and should be able to curb that. But it's probably going to take us into queue late Q1 before we actually see most of the impact of that remaining approximately 75 million dollars. Primarily because you've still got seasonality coming, meaning Q4 and Q1 are typically a little softer quarters.

Speaker Change: Flooring, Okay, we've still got a long ways to go and as Ryan mentioned, those those higher days supplies do impact our ability to bring money to the bottom line. That's something that we are getting more efficient at we are using our AI and other technologies to help guide the stores and should be able to curb that but.

Speaker Change: It's probably going to take us into Q late Q1, before we actually see most of the impact of that remaining approximately $75 million.

Speaker Change: Primarily because you've still got seasonality.

Speaker Change: Coming meaning Q4, and Q1 are typically a little softer quarters, we do still have a fair amount of snow about exposure, which creates a little bit more seasonality for us and what the what the sector does as a whole.

John Murphy: We do still have a fair amount of snow about exposure, which creates a little bit more seasonality for us and what the sector does as a whole. Okay, that's helpful.

Speaker Change: Okay. That's helpful and just a second question.

John Murphy: And just a second question, or you said this is out there with a lot of incentives and a lot of offers for the dealers and the consumers. It seems like the ram brand or the ramp pickups are responding fairly fairly quickly, and there seems like almost a surge of demand there. I'm just curious what you're seeing in your and your sort of cheap RAM crisis stores and then also, you know, as you think about this, you know, is there a broader impact on pricing in the industry?

Speaker Change: Or are.

Speaker Change: <unk> is out there.

Speaker Change: With a lot of incentives.

Speaker Change: And a lot of offers for the dealers and the consumers.

Speaker Change: It seems like the Ram.

Speaker Change: Brand or the Ram pickups are responding fairly fairly quickly and it seems like almost a surge of demand there I'm just curious what you're seeing.

Speaker Change: In your.

Speaker Change: And you're sort of Jeep Ram <unk>.

Speaker Change: Chrysler stores and then also.

Speaker Change: As you think about this is there a broader impact.

Speaker Change: On pricing in the industry. It doesn't seem like it's created a more promotional environment across the board, but just trying to understand how isolated as may be just Atlantis.

John Murphy: It doesn't seem like it's created a more promotional environment across the board, but you know, just try and understand how isolated this may be to glance.

John Murphy: Great, John.

Great John maybe I answered this to Lance's question I'll, let Adam provide you some insights on the general new car environment.

Bryan Deboer: Maybe I answer this to Lance's question, and I'll let Adam provide you some insights on the general nuclear environment and what's happening with incentives. For us, to Lance has been one of the more difficult manufacturers that, in terms of year-over-year sales. For the quarter, we were basically where we were for the first nine months of the year, so it's very similar at a pretty good decline relative to the other two domestics that were actually up. We were actually down. The good news is, in September we did see half of that decline curbed. Okay, so that's a good sign that we're only down a mid-single digits with Stellantis, so a little bit better.

Speaker Change: And what's happening with incentives.

Adam Chamberlain: For us to Lantus has been one of the more difficult manufacturers that.

Speaker Change: In terms of year over year sales.

Speaker Change: For the quarter, we were basically where we were for the first nine months of the year. So it is very similar at a pretty good decline.

Speaker Change: Relative to the other two domestics that were actually up we were actually down. The good news is in September we did see half of that decline curbed. Okay. So that's a good sign that we're only down.

Speaker Change: Mid single digits.

Speaker Change: Mr. Lantus, so a little bit better we think that the demand for the products is good with to Lantus. We think that they are building the right sustainability vehicles. So we think it's truly just that pricing is.

Bryan Deboer: We think that the demand for the products is good with Stellantis. We think that they're building the right sustainability vehicles. So we think it's truly just that pricing is, did outpaced what the affordability of their products could command, and they've got to adjust that to be able to make a difference in their market share.

Adam Chamberlain: It outpaced what the affordability of their products could command and they've got to adjust that to be able to make a difference in their market share. Adam do you want to add a little bit about the general market, Yeah, Hey, John just a little bit more color I think the other challenge with Epsilon the incentives have been incredibly short term. So we've seen some strong coupons to get them to get vehicles wholesale.

Adam Chamberlain: Adam, you want to add a little bit about the general market.

Adam Chamberlain: Hey John, just a little bit more color.

Adam Chamberlain: I think the other challenge with Aberstlancer is that the incentives have been incredibly short-term. So we've seen some strong coupons to get that get vehicles wholesale and then into the retail environment. So that's been mixed, depending on your appetite to wholesale for more cars if that makes sense to you.

Speaker Change: The retail environment. So that's been mixed depending on you.

Speaker Change: Your appetite to wholesale more cause if it makes sense to you.

Adam Chamberlain: Overall, overall John, I'd say to you that if you remember pre-COVID, the industry was running about 10, 10 and a half percent of MSRP in the context of incentives. That dropped down to about one and a half, two through COVID. The latest information that I have is it's ticked up about 1% at one whole percentage point in quarter three to about 7.3% of MSRP at the end of quarter three. It was running at 6.4 at the end of quarter two. So we are seeing incentives return. I think it's kind of a pretty broad spectrum, and a lot of them are incredibly short term tactical just to move cars.

Adam Chamberlain: Overall, John I'd say to you that if you remember pre COVID-19.

Speaker Change: The industry was running about 10% 10, 5%.

Speaker Change: <unk> in the context of incentives that dropped down to about one one and a half to three <unk> with the latest information that I have is it ticked up about 1% of one whole percentage point in quarter three to about seven 3% of MSRP at the end of quarter. Three it was running a six four at the end of quarter. Two so we are seeing incentives return I think.

Speaker Change: It's I think it's.

Speaker Change: Kind of a pretty broad spectrum in a lot of them are incredibly short term tactical just to move move cost or are you seeing on the on the best for example, some incredible offers on the.

Adam Chamberlain: So you're seeing on the beds, for example, some incredible offers on the particularly the import beds. So I think that we are moving back to a more incentivized environment, for sure.

Speaker Change: Particularly the input labs, so I think that.

Speaker Change: Moving back to a more incentivize environment for sure is that does that answer your question.

Adam Chamberlain: Is that answer your question? Absolutely, but it seems like ASPs are holding up reasonably. It's sort of on a net basis in light of that. So it's kind of a balancing of MSRP and those incentives. Is that a fair statement? I mean, it seems like pregnant.

Speaker Change: Yeah, absolutely, but it seems like Asps are holding up reasonably well sort of on a net basis and in light of that right. So it's kind of a balancing of MSRP or.

Speaker Change: And on those incentives that is that a fair statement I mean, it seems like Prudential.

Adam Chamberlain: That's a fair statement, John. I think ASPs sequentially quarter over quarter were down 7,800 bucks on new, which all in all is up a fair amount on average.

Speaker Change: That's a fair statement, John I think asps sequentially.

Speaker Change: Sequentially quarter over quarter were down seven 800 Bucks on new.

Speaker Change: All in all it's still up up a fair amount on average selling prices.

Unknown Executive: Awesome.

Unknown Executive: Thank you so much, guys.

Speaker Change: Awesome. Thank you so much guys.

Rajat Gupta: Our next question comes from Rajat Gupta with JP Morgan. Please proceed with your question. Great.

Speaker Change: Our next question comes from Rajat Gupta with Jpmorgan. Please proceed with your question.

Rajat Gupta: Oh, great. Thanks for taking the question.

Rajat Gupta: Thanks for taking the question. Just first one on STNA. He had a first one on STNA.

Rajat Gupta: Just first one Raj SG&A.

Speaker Change: Hey, Brian.

Rajat Gupta: Just first one on SG&A.

Rajat Gupta: You obviously saw some meaningful improvements from cheap to 3Q, total dollars down sequentially. Given you've just recently finished the 200 million of implementation. Is there another step down expected here in the fourth quarter? Outside of what you would see from a normal seasonality perspective. And then the remaining 25 million that you talked about will be seen more of that in the first quarter next year.

Rajat Gupta: You know you obviously saw some meaningful improvements from ticketing <unk> total dollars down sequentially. Given you just recently finished the $200 million of implementation.

Rajat Gupta: Is there another step down expected here in the fourth quarter I get outside of what you would see.

Rajat Gupta: From a normal seasonality perspective.

Rajat Gupta: And then the remaining $25 million that you talked about.

Rajat Gupta: Or would you see more of that in the first quarter next year I'm just trying to understand.

Rajat Gupta: Just trying to understand the cadence here and any kind of framework around, and she needs to grow as well for the fourth quarter of 2025. at this point.

Rajat Gupta: The cadence here any kind of framework around and shooting to gross as well for the fourth quarter or 2025 at this point.

Bryan Deboer: Sure, Roger.

Bryan Deboer: This is Brian. I think I made the comment about that we do have some snow belt exposure. So I think the 200 basis point basic drop, you should still apply that, assuming some seasonality occurs in Q4 and Q1. We ended the quarter at what 66% on a total company basis and 64% on a same store basis. I would say that most of the 200 million initial was realized in Q3. Okay, so you're seeing the benefits of that at the 200 basis points sequential drop that I mentioned in the call, and Adam mentioned in the call.

Rajat Gupta: Sure Roger this is Brian.

Brian: I think I made the comment about that we do have some snow belt exposure. So I think that 200 basis point basic drop you should still apply that assuming some seasonality occurs in Q4 and Q1.

Rajat Gupta: We ended the quarter at $1, 66%.

Rajat Gupta: On a on a total company basis and 64% on a same store basis.

Rajat Gupta: I would say that most of the $200 million initial was realized in Q3. Okay. So you are seeing the benefits of that at the 200 basis points sequential drop.

Rajat Gupta: That I mentioned in the comment Adam mentioned in the call.

Bryan Deboer: Whether we can get more or not, that's still to be determined. So, on an SGNA basis, you're talking about about 25 million dollars. That's a small portion of, I would say, about 50 basis points in SGNA as a percentage of growth. And I think that seasonality drops because of a lower selling volume in the snow belt states will probably increase our SGNA slightly. Okay, meaning that if it's 66 today, it's probably 66 and a half to 67 and a half is probably the right number for Q4, Q1.

Rajat Gupta: Whether we can get more or not.

That's that's still to be determined so on an SG&A basis youre talking about about $25 million. That's a small portion of I would say about 50 basis points in SG&A as a percentage of growth.

Rajat Gupta: And and I think that seasonality drops because of a lower sales volume in the snow belt States will probably.

Rajat Gupta: Increase our SG&A slightly.

Rajat Gupta: Yes.

Speaker Change: Okay, meaning that if it's 66 today at probably 66, 5% to 67 and a half is probably the right number for Q <unk> Q1.

Rajat Gupta: I understand. That's helpful, and that's clear.

Speaker Change: Understood understood that's helpful.

Speaker Change: Clear.

Rajat Gupta: And just follow up on the buyback in the pretty explicit comment, you know, around the 30 to 40%. In the near term, you know, they're like still a lot of the pipeline from an M&A perspective that gives you confidence around the Q4 billion.

Speaker Change: And just a follow up on the buyback pretty pretty explicit comment no around a 40% to 40%.

Speaker Change: In the near term.

Speaker Change: Is there still a lot of the pipeline from an M&A perspective.

Speaker Change: That gives you confidence you're under $2 4 billion I'm just curious you know.

Bryan Deboer: I'm just curious, you know, how flexible is that 30 to 40%? Could it go higher? You know, if it didn't find the right deal, you know, anything you can elaborate on that would be helpful. Sure, Roger.

Speaker Change: How flexible is that 30% to 40% could it go higher.

Did find their ideal.

Speaker Change:

Speaker Change: If you can elaborate on that would be helpful. Sure.

Bryan Deboer: I think it's, it's important to level set here that we basically brought our leverage up to be able to buy the Florida transactions, Penn Dragon and Wheels. Okay, so we started at kind of a mid-up arrange of what our leverage was. And now our rebuilding capital, it's why we only purchased a little over 50 million dollars last quarter when we purchased 200 million in the Q4 before. But now every dollar a cash flow that comes out, we think it should be in the 30 to 40 percent of total cash flow. We produce somewhere around 90 to 100 million dollars a month.

Speaker Change: Roger I think it's important to level set here that we basically brought our leverage up to be able to buy the Florida transactions Pendragon and wheels.

Speaker Change: Okay. So we started that kind of a mid upper range of what our leverage was and now are rebuilding capital. It's why we only purchased a little over $50 million last quarter, when we purchased $200 million in the quarter before but now every dollar of cash flow that comes out we think it should be in the 30% to four.

Speaker Change: The percent of total cash flow, we produced somewhere around $90 million to $100 million a month.

Bryan Deboer: Okay, which is a pretty good number to be able to be constructive.

Which is a pretty good number to be able to be constructive now how do we balance that with M&A. The M&A market. Today, we believe is starting to loosen up.

Bryan Deboer: Now, how do we balance that with M&A? The M&A market today, we believe, is starting to loosen up. But what we're also seeing is that it may take a few more quarters, okay? A lot of things sold for exorbitant pricings. Now Lithia and Driveway didn't pay exorbitant pricings on anything that it purchased. But there are still buyers in the marketplace over the last quarter or two that now are starting to soften their approach on buying, where you're starting to look at normalized earnings rather than the last three years of earnings. And hopefully the messaging is you already realized as a seller the three years of inflated earnings, which is equivalent to a couple of turns of earnings.

Speaker Change: But what we're also seeing is that it may take a few more quarters okay.

Speaker Change: A lot of things sold for exorbitant pricing now lithium driveway didn't pay exorbitant pricings on anything that it purchased but there are still buyers in the marketplace over the last quarter or two that now are starting to soften their approach on buying where youre starting to look at normalized earnings.

Speaker Change: Other than the last three year of earnings and hopefully the messaging is you already realized as a seller. The three years of inflated earnings which is equivalent to a couple of turns of earnings why are you now asking for it. If you want to sell you are going to need to ask a multiple of true multiple off of your actual earnings.

Bryan Deboer: Why are you now asking for it if you want to sell? You're going to need to ask a multiple, a true multiple, off of your actual earnings of what they will be normalized.

Speaker Change: What they will be normalized.

Bryan Deboer: We think it's still a few quarters away, which gives us some time to be able to buy shares back. So we believe that so long as share price remains hyper depressed like it's been, okay, then we'll prefer to buy shares back, and I would say there's a greater likelihood in the short term to be able to buy a greater portion of shares back than the 30 to 40 percent than in the longer term when pricing of acquisitions also likely goes down.

We think it's still a few quarters away, which gives us some time to be able to buy shares back. So we believe that so long as share price remains hyper depressed like it's been Okay. Then we will prefer to buy shares back and I would say there is a greater likelihood in the short term to be.

Speaker Change: To buy a greater portion of shares back in the 30% to 40% then in the longer term when pricing of acquisitions also likely goes down and I would think that at some point the world figures out that lithium driveway has designed what we believe could be a sector killer that our ability.

Bryan Deboer: And I would think that at some point the world figures out that lithium driveway has designed what we believe could be a sector killer that our ability to buy acquisitions in this space and consolidate the most unconsolidated retail space and the largest in the world. can be done by having a more efficient mouse trap, which if you look on page 14 and I mentioned this in my prepared comments, page 14 is the map that basically allows us to produce 30 to 50% more profitability than what our average competitor can do. Okay, meaning in theory that we can achieve the same ROI is on acquisitions, but we in theory could pay 30 to 50% more for those acquisitions, making us continue to be the preferred provider in the space and the aggregator in the space.

To buy acquisitions in this space and consolidate the most of them consolidated retail space and the largest in the world.

Speaker Change: It can be done by having a more efficient mousetrap, which if you look on page 14, and I mentioned this in my prepared comments page 14 is the map that basically allows us to produce 30% to 50% more profitability than what our average competitor can do okay, meaning in theory that we can achieve the same.

Speaker Change: Rois on acquisitions.

Speaker Change: But we in theory could pay 30% to 50% more for those acquisition, making us continued to be the preferred provider in this space in the aggregator in this space.

Speaker Change: Understood that's very clear thanks for all the color.

Rajat Gupta: That's very clear.

Rajat Gupta: Thanks for all the color.

Unknown Executive: You bet, Rajat.

Speaker Change: You bet Roger.

Chris Baudelaire: Our next question comes from Chris Baudelaire with B&P. Please proceed with your question.

Speaker Change: Our next question comes from Chris Butler, Larry with BNP. Please proceed with your question.

Chris Baudelaire: Okay, thanks for taking the question. Just wanted to ask about wholesale. It would be volatile, but it looks like the revenue really jumped this quarter. The losses were only up slightly, but is that CDK fallout or just like kind of as you're trying to clean up the inventory? Is that just a reflection of that? What can you tell us about wholesale?

Speaker Change: Hey, Thanks for taking the question.

Speaker Change:

Chris Butler: Just wanted to ask about wholesale I know it can be volatile, but it looks like the revenue really jumped this quarter. The losses were only up slightly but does that CDK fallout or or is it just like kind of.

Chris Butler: As you are trying to clean up the inventories is that just a reflection of that what can you tell us about wholesale.

Adam Chamberlain: Hi, Chris. Thanks for the question, buddy. I think it's normal, normal seasonality. It's not; I don't believe it's something to do with CDK.

Speaker Change: Hi, Chris Thanks for the question, but I think it's normal normal seasonality, it's not I don't believe it's something to do with CDK did you see anything there Adam.

Adam Chamberlain: Did you see anything there, Adam? No. Okay.

Chris Butler: Yes.

Chris Baudelaire: All right. And then just longer term picture question on the used GPU. Like some of your independent, you know, used only peers and seeing GPUs are done up a lot, you know, over the last year or two. It's certainly a lot of pre-COVID viewers are still sitting about $300 a unit below pre-COVID.

Speaker Change: Alright, and then.

Speaker Change: Just longer term picture question on the used GPU.

Speaker Change: Some of your independent used only peers seeing gpus have gone up a lot.

Speaker Change: Last year or two certainly relative to pre COVID-19.

Speaker Change: We're still sitting about $300 a unit below pre COVID-19. So just kind of want to hear about like what do you think this goes in the next one to two years.

Bryan Deboer: So it's going to want to hear about, like where do you think this goes in the next one to two years? What do you think you need? What needs to happen in the industry or for Lithia specifically free to get there? Yeah.

Speaker Change: What do you think you need what needs to happen in the industry or for lithium specifically for you to get there.

Bryan Deboer: I think it's important to message Chris that everyone's accounting is different. Okay. Most importantly, some GPUs are including income from finance. Okay. And a finance company. So ours is just peer-driven off of the vehicle. Okay. We are still about $300 below. The good news is that it stabilized at that level. I believe that when supply begins to return over the next couple of years. And as that, what, 11 to 12 million units that are now not in the used car inventory environment starts to push into the core product. Then what we should see is a return to normalized GPUs.

Speaker Change: Yes, I think it's important to mention message, Chris that everyone's accounting is different okay. Most importantly, some gpus are including income from finance, Okay, and a finance company.

Speaker Change: So ours is just peer.

Speaker Change: It will be driven off of the vehicle. Okay. We are still about $300 below the good news is is that it's stabilized at that level I believe that when supply begins to return over the next couple of years and as that what 11 to 12 million units that are now not in the used car.

Speaker Change: Inventory environment starts to push into the core product.

Speaker Change: Then what we should see is a return to normalized Gpus, we believe that lithia and driveways normalized GPU unused as of couple of hundred dollars higher than it is normally again coming from the strength and the change of our mix from the from the West coast stores and snowbelt stores into the <unk>.

Bryan Deboer: We believe that Lithia and Driveways' normalized GPU on use is a couple hundred dollars higher than it is normally. Again, coming from the strength and the change of our mix from the West Coast stores and snow belt stores into the Southeast and South Central that produces higher vehicle grosses and produces higher FNI grosses. We also, if you remember, move from; we almost doubled our luxury presence in our mix. And again, those generate higher GPUs as well. Even though the carrying cost of those cars can be a little bit higher than what they typically are. Thanks, Chris.

Speaker Change: Southeast and south central that produces higher vehicle grosses and produces higher F&I grosses. We also if you remember moved from Ah.

Speaker Change: We almost doubled our luxury presence in our mix and again those generate higher gpus as well, even though the carrying cost of those cars can be a little bit higher than what they typically are.

Chris Baudelaire: Thank you.

Speaker Change: Thanks, Chris.

Speaker Change: Thank you.

Jeff Lake: Our next question comes from Jeff Lake with Stevens. Please proceed with your question.

Speaker Change: Our next question comes from Jeff Lick with Stephens. Please proceed with your question.

Jeff Lake: Good morning, everyone.

Speaker Change: Good morning, everyone. Thanks for taking the question.

Jeff Lake: Thanks for taking the question. Hi, Jeff. Hi.

Jeff Lick: Jeff Brian.

Jeff Lick: Alright, So <unk> was maybe a little more volatile than a typical quarter CDK in the beginning.

Bryan Deboer: So, you know, 3Q is maybe a little more volatile than a typical quarter, you know, in CDK in the beginning, you know, BMW stops sales, you know, Stellantis issues in the end. I mean, Stellantis was kind of all the way through.

Jeff Lick: W stop sales still Anna's tissues in the endometrial and this was kind of all the way through I'm. Just curious if you can maybe talk.

Bryan Deboer: I'm just curious if you can maybe talk talk, you know, about, you know, the exit conditions, you know, in 3Q and then going into 4Q, you know, in terms of whether it's GP, you sales cadence, and if there'd be, you know, any variable, you're looking at, you know, OEM circumstance that's going to give them more disproportionate effect as we get into Q4 and maybe into early 2025. Great question, Jeff. This is Brian again.

Jeff Lick: The exit conditions in <unk>, and then going into <unk>.

Jeff Lick: In terms of whether its GPU sales cadence and if there'd be.

Jeff Lick: Any variable year looking at OEM circumstance.

Jeff Lick: And we'll have a more disproportionate effect as we get into Q4 and maybe into early 2025.

Bryan Deboer: Great question, Jeff. This is Bryan again I think.

Bryan Deboer: I think it's easy to get into the sound bites of stop sales and inventory problems or recalls and these types of things. Ultimately, in Q2, we're going to be able to talk a little bit more about what we're going to do. Q3, towards the end of the quarter, we did have a certain amount of stop sales, but I would urge everyone to think of this as a very positive event. And the reason is, is because even though the vehicle gross profits are deferred or revenues are deferred quarter over quarter, they're still there. You're going to get them; they're pent up, they're sold or orders, those type of things. But more importantly than that, the after sales profitability that is generated from stop sales and recalls are massive.

Bryan Deboer: It's easy to get into the sound bites of stop sales and inventory problems or recalls and these type of things ultimately in Q3 towards the end of the quarter. We did have a fair amount of stop sales, but I would urge everyone to think of this as a very positive.

Bryan Deboer: Live event and the reason is because even though the vehicle gross profits are deferred revenues are deferred quarter over quarter. They are still there youre going to get them their pent up theyre sold orders those type of things, but more importantly than that the after sales profitability that is generated from stop <unk>.

Bryan Deboer: <unk> and recalls are massive okay. We just were notified in mid Q3 that one of the Koreans has entire engine platform of the last three years of product that every single engine needs to be replaced entirely replace so we've got.

Bryan Deboer: Okay, we just, we're notified in mid Q3 that one of the Koreans has an entire engine platform of the last three years of product that every single engine needs to be replaced, entire replace. So we've got engines sitting out in different parts of the country that are backlogged for months and quarters ahead. It could be a year before we could replace all those engines of three years of product mix. One of the Japanese imports also had one of their main three products that they sell have the same recall, full engine recalls on those products, which again is probably going to backlog us for a few quarters, if not a few years.

Bryan Deboer: Engine sitting out in different parts of the country that are backlog for months and quarters ahead. It could be a year before we could replace all those engines of three years of product product mix one of the Japanese import also had one of their main three products that they sell and have the <unk>.

Bryan Deboer: Recall full engine recalls on those products, which again is probably going to backlog logos for a few quarters. If not a few years just like the airbags did many years ago. When we had that that issue. So this idea of stop sales of recall it as a positive.

Bryan Deboer: Just like the airbags did many years ago when we had that issue.

Bryan Deboer: So this idea of stop sales or recall, it's a positive thing for new car dealers, primarily because it's the catalyst to after sales growth. And as you know, we were a little over 5%, and I think our gross profit was almost 7% up in the same store basis on after sales. So we really see a good number of years, especially as products begin to evolve and change to different propulsion systems that we're sitting nicely as dealers, being able to reap the rewards of after sales business, even though the sound bites of new car sales and stop sales can sound a little bit negative.

Bryan Deboer: The thing for new car dealers, primarily because it's the catalyst to after sales growth and as you know we were a little over 5% and I think our gross profit was almost 7%.

Bryan Deboer: In a same store basis on after sales. So we really see a good number of years, especially as products begin to evolve and change to different propulsion systems that were sitting nicely as dealers being able to reap the rewards of after sales business, even though the sound bite of new car sales.

Bryan Deboer: And stop sales can sound a little bit negative.

Jeff Lake: And then just a quick follow-up, and I'm surprised that we got this far into the call and no one's asked, right? But, you know, your thoughts on, you know, new GPUs look sequentially, you know, down to 41 from Q2 is actually pretty good. Most people are, I think, signal again. is going to be more than $100 a month again.

Speaker Change: And then just a quick follow up and I'm surprised we got this far into the call and no one's asked right, but your thoughts on new Gpus sequentially down.

Speaker Change: Down $2 41 for Q2 was actually pretty good in most people I think signaling it was going to be more than $100 a month again.

Bryan Deboer: I'm just kind of curious where, you know, you think things might level and why, and, you know, historic, you know, go back a couple quarters, you'd once said, you thought there could be an overshoot; my guess is you don't think that anymore. So if just any kind of pontification would be great, you know, given your experience in the industry. Yeah, if I think I think that that's a fair statement, that the more that they stabilize that above normal levels of which today we still said at six to seven hundred dollars above, as an industry, we only sit as a company we believe because of that change in mix from the Southeast to South Central and luxury.

Speaker Change: I'm just kind of curious where you think things might level and why an historic go back a couple of quarters. You had once said you thought there could be an overshoot. My guess is you don't think that anymore. So just any kind of quantification would be great.

Speaker Change: Given your experience in the industry.

Speaker Change: Jeff I think I think that that's a fair statement that the more that they stabilize at above normal levels of which today, we still set at 6% to $700 above as an industry. We only sit as a company we believe because of that that change in mix from the southeast south central and luxury.

Bryan Deboer: We think we only sit at a few hundred dollars, somewhere between four and five hundred dollars, above a normalized state.

Speaker Change: We think we only sit at a few hundred dollars somewhere between four and $500.

Speaker Change: Of a normalized state.

Bryan Deboer: I'm really pleased to see that it stabilized because I think there is a possibility of a nice soft landing, you know, over the next few quarters, which is positive. I mean, at one time, we thought that the margins would rescind at almost two hundred dollars a unit per month. Okay, then we were sent; we reduced that to a hundred dollars per unit per month, and we're sitting at around $60 a unit over the last year. So, you know, we're real pleased that our manufacturer partners, as Adam said, have increased incentives back to at least seven percent.

Speaker Change: I'm really pleased to see that it's stabilized because I think there is a possibility of a nice soft landing.

Speaker Change: Over the next over the next few quarters.

Speaker Change: Which is positive at one time, we thought that the margins would rescind it almost $200 a unit per month. Okay. Then we rescinded we we reduced that to $100 per unit per month, and we're sitting at around $60 a unit over the last year or so.

Speaker Change: We're real pleased that our manufacturer partners as Adam said have increased incentives back to at least 7% now hopefully we can get back to the 10, 11% because ultimately that helps make the soft landing for retailers, even a little bit better.

Jeff Lake: Now, hopefully we can get back to the 10-11 percent because ultimately that helps make the soft landing for retailers even a little bit better. Awesome. Thanks. Congrats on a nice quarter. Thanks, Jeff.

Speaker Change: Awesome. Thanks, Congrats on a nice quarter.

Speaker Change: Thanks, Jeff.

Douglas Dutton: Our next question comes from Douglas Dutton with Evercore. Please proceed with your question. Hey, team.

Speaker Change: Our next question comes from Douglas Dutton with Evercore. Please proceed with your question.

Douglas Dutton: Congrats on the nice quarter here. Just curious on the new vehicle GPS to follow up the last question. With the reason for the step down, the $241 sequentially. Was there some element of trading profitability for, you know, sales velocity early in the quarter while CDK was still experiencing the downtime?

Douglas Dutton: Hey, Jamie Congrats on the nice quarter here.

Just curious on the new vehicle Gpus to follow up the last question was the reason for the step down the $241 sequentially.

Douglas Dutton: Was there some element of trading profitability for sales velocity early in the quarter, while CDK was still experiencing downtime.

Bryan Deboer: Doug, this is Brian. I think if you think about the scale of the organization, we try to drive resolve in an individual store by an individual brand and an individual marketplace. So, I would say there's no consorted effort to give up some gain volume for some level of GPU degradation. That's a decision that the store and the marketplace and competition really determine. So, I think the answer is no on that.

Douglas Dutton: Doug This is Brian I think if you think about the scale of the organization.

Douglas Dutton: We try to drive result in an individual store by an individual brand in the individual marketplace. So I would say theres no consorted effort to give up.

Douglas Dutton: Some are gained volume for some level of GPU degradation.

Douglas Dutton: Decision that the store in the marketplace and competition really determined so I think the answer is no on that debt.

Bryan Deboer: That, you know, I think it will begin to normalize, and we'll have a better indication of that later this week and next week when some of the peers also report.

Douglas Dutton: Think it will begin to normalize and we will we'll have a better indication of that later this week and next week when some of the peers also report.

Douglas Dutton: Okay, sure thing. And then not to eat a dead horse here, but just a little more on the repo math. If that 30 to 40% target is sort of comprehended for the full year of 24 conservatively, that's somewhere around 350 or 400 million this year, probably a little greater.

Douglas Dutton: Okay sure and then not to beat a dead horse here, but just a little more on the repo math.

Speaker Change: Is that 30% to 40% target is.

Speaker Change: It sort of comprehended for the full year of 24 <unk>.

Speaker Change: Conservatively, that's somewhere around 350 or 400 million this year, probably a little greater.

Tina Miller: Is there, is that should that be taking as a signal that we see maybe a little bit elevated repo in Q4 to hit the low end of that target? I think you're talking about repurchases. I just want to clarify. Yeah, correct, correct. Yeah, so from a repurchase perspective, I mean, we have spent a significant amount in the year. When you look at both what we did in Q2 as well as in Q3. So, you know, we've invested 273 million year to date, repurchasing 3.6% of our outstanding shares, which was a big flag. And so we look at it, you know, more on an annualized basis.

Speaker Change: Is there is that should that be taken as a signal that we see maybe a little bit elevated repo in Q4 to hit the low end of that target.

Speaker Change: I think you were talking about repurchases I just want to clarify yes, correct correct, yes from a repurchase perspective I mean, we have spent a significant amount in the year. When you look at what we did in Q2 as well as in Q3.

Speaker Change: We've invested $273 million year to date repurchasing three 6% of our outstanding shares which was a big flag and so we look at it in a more annualized basis.

Tina Miller: And as Brian's go to earlier, we'll continue to balance what our cash generation is or leverage, as well as what a pipeline is for other avenues that will deploy capital, but we'll try to be very focused on returns for our shareholders. So, I think we're going to be able to do that.

Speaker Change: As Brian noted earlier, we will continue to balance what our cash generation is our macro hedge as well as a pipeline for other other avenues that will deploy capital, but we'll try to be very focused on returns for our shareholders.

Speaker Change: Okay.

Douglas Dutton: Thanks, Doug. Okay.

Speaker Change: Thanks, Doug Okay. Thanks, Steve.

Tina Miller: Thanks, Dean.

Michael Ward: Our next question comes from Michael Ward with Freedom Capital. Please proceed with your question.

Speaker Change: Our next question comes from Michael Ward with Freedom Capital. Please proceed with your question.

Michael Ward: Thank you.

Michael Ward: Good morning, everyone.

Michael Ward: Thank you.

Michael Ward: Morning, everyone.

Bryan Deboer: I wonder if I could talk about the implications of lower interest rates across the organization, the Consumer Plan DFC?

Michael Ward: I Wonder if you could talk about the implications of lower interest rates across the organization with consumer floor plan Dfc.

Bryan Deboer: Sure.

Bryan Deboer: Sure. This is Bryan again, Mike Thanks for your question.

Bryan Deboer: This is Bryan again, Mike. Thanks for your question. We've now rethought about our interest rate sensitivities, and for every hundred basis points of rate improvements, which we have a good portion of our debt that is interest rate sensitive that is unfixed, is somewhere around 70 cents on a quarterly basis on a quarterly basis. So it's a pretty big impact to us as an organization. Obviously, as we continue to grow and produce capital, it's less so. So I think the headwinds of interest rate increases are going to quickly turn into a tailwinds for us and can make a make make quite a difference.

Bryan Deboer: We've now.

Bryan Deboer: Rethought about our interest rate sensitivities.

Bryan Deboer: And for every 100 basis points of rate improvements, which we have a good portion of our of our debt that is interest rate sensitive that is in fixed is somewhere around 70.

Speaker Change: Uh huh.

Speaker Change: On a on a.

Speaker Change: That's a quarterly basis on a quarterly basis, so, it's a pretty big impact to us as an organization.

Speaker Change: Obviously as as we continue to grow and produce capital it's less so so I think the good.

Speaker Change: The headwinds of interest rate increases are going to quickly turn into a tailwind for us and can make them make make quite a difference.

Bryan Deboer: Can you talk a little bit about the integration of Penn Dragon?

Speaker Change: Secondly, can you talk a little bit about the integration of <unk> you.

Bryan Deboer: You've had great success in the past with gaining operating efficiencies in Penn Dragon in such a big acquisition. Do you have a similar opportunity?

Speaker Change: <unk> had great success in the past with gaining operating efficiencies.

Speaker Change: Pendragon is such a big acquisition do you have a similar opportunity.

Bryan Deboer: Mike, this is Bryan. Yes, we do believe that there's similar opportunities. We now have full scale of what we were looking for in the United Kingdom as attentions in M&A all turn to the United States. The team there is doing a good job. They exited the quarter with a really solid month. Even though September and March are typically the biggest months, they actually perform better than what they expected, which was great to see. Maybe more importantly, I think the big synergies are; they're starting to get the idea of personnel make a difference.

Bryan Deboer: Mike This is Brian.

Bryan Deboer: Yes, we do believe that there is similar opportunities. We now have full scale of what we were looking for in the United Kingdom as attentions M&A I'll turn to the United States.

Bryan Deboer: The team there is doing a good job they exited the quarter with a really with a really solid month, even though September and March typically the biggest month, they actually perform better than than what they expected which was great to see.

Bryan Deboer: Maybe more importantly, I think the big synergies are starting to get the idea of personnel and make a difference. Okay. How do you motivate teams to reach their potential you do it through changing their mindset and changing that something that they believe they can't do into something they believe they can do that sits.

Bryan Deboer: How do you motivate teams to reach their potential? You do it through changing their mindsets and changing something that they believe they can't do into something they believe they can do. That sits right next to network optimization. If you recall, we were going to divest, combine, or sell approximately 40 assets of the 160 that we purchased. We're now up to between 40 and 50 assets that we're selling, or combining, or closing. Most of that has now been completed. We have six stores that are still on the market and available for sale. Everything else should be completed and either closed or sold by the end of November.

Bryan Deboer: Right next.

Speaker Change: Network optimization, if you recall, we were going to divest combine or sell approximately 40 assets of the 160 that we purchased.

Speaker Change: We're now up to between 40 and 50 assets that we're selling.

Or or combining or closing.

Speaker Change: Most of that has now been completed we have six stores that are still on the market and available for sale.

Speaker Change: Everything else should be completed in.

Either closed or sold.

Speaker Change: By the end of November so we look quite good some other little key highlights in the quarter. We saw a nice F&I improvement I think that speaks to help.

Bryan Deboer: So we look quite good.

Bryan Deboer: Some other little key highlights in the quarter. We saw a nice F&I improvement. I think that speaks to helping teams do things that they don't believe that they can. They moved their F&I year-to-date from an 824 to 903 in the quarter. That's a nice 75-point move. That's a great start, and it's more indicative of what are two peers that also have exposure in Great Britain. Okay, so it sounds like there's an opportunity to get ten dragon closer to the performance of what you see in the US. I think that Mike, I think that it's always going to be slightly lower margins, and if you look at some of the segment reporting from our peers, it's hard to say that I really believe that we could get operating margins to a five handle, which is where we're really looking at the US.

Helping teams do things that they don't believe that they can they move their F&I our year to date from an <unk> 2004 to 903 in the quarter. That's a nice 75 point move.

Speaker Change: That's a great start and it's more indicative of what our two peers that also have exposure in great Britain.

Speaker Change: Okay. So it sounds like there was an opportunity to get Pendragon.

Speaker Change: Closer to the performance of what you see in the U S.

Speaker Change: I think that Mike I think that it's always going to be slightly lower margins and if you look at some of the segment reporting from our peers. It's hard to say that I that I really believe that we can get operating margins too.

Speaker Change: <unk> handle which is where we're really looking at the U S. But the idea of getting them to have that are two 5% to 3% I believe is achievable it will take us quarters, and maybe even years to be able to touch.

Bryan Deboer: But the idea of getting them to half that are two and a half to three percent, I believe, is achievable. It will take us quarters and maybe even years to be able to achieve that. Remember also that F&I there is the biggest differential that drops directly to the bottom line. It's highly regulated in the United Kingdom, and you can see that again in the other peers that that's the big differentiation. And again, I'd reiterate that even as we look at the US and the Southeast and South Central, the biggest differentiation of profitability when I talk about that opportunity is the fact of regulation that we have massive dock fees in the Southeast and Southwest that create automatic throughput on high profitability items. Okay, same thing occurs in the negative sense in the United Kingdom.

Speaker Change: To achieve that remember also that F&I. There is the biggest differentiator that drops directly to the bottom line. It is highly regulated in the United Kingdom and you can see that again in the other peers that that's the big differentiation and again I would reiterate that even as we look at the U S. In the south.

Speaker Change: <unk> in south central the biggest differentiation of profitability when I talk about that opportunity is the fact of regulation that we have massive dock fees in the southeast and southwest that create automatic throughput on high profitability items. Okay same thing occurs in the negative sense in the United Kingdom.

Speaker Change: <unk>.

Michael Ward: Thank you. Thank you very much, Brian. Thanks, Mike.

Thank you. Thank you very much Brian Thanks, Mike.

Brett Jordan: Our next question comes from Brett Jordan with Jeffries. Please proceed with your question.

Speaker Change: Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Brett Jordan: Hey, good morning, guys. Hey, Brett. You know, I guess looking at regional and brand dispersion in front NGPUs, I mean, you've talked about Southeast and South Central being more profitable but a bit more on the F&I side. Could you talk about sort of what the underperforming or outperforming markets or brands are? Sounds like Stolantis is underperforming and maybe the Northwest is, but you know some magnitude.

Bret Jordan: Hey, good morning, guys.

Hi, Brett.

Bret Jordan: I guess looking at regional and brand dispersion in front end Gpus, I mean, you've talked about southeast and south central being more profitable, but a bit more on the F&I side could you talk about sort of what the underperforming or outperforming markets or brands or it sounds likes to Lantus is underperforming and maybe the northwest is but sort of a magnitude.

Adam Chamberlain: Hey, Brett, it's Adam. I'll start with that. And then we see, as we've reported, I think probably fairly consistently this year, we see real strong performance in the Southwest, the Southeast, and the Northeast, with maybe the kind of Northwest and South Central. I was getting confused in this action. Apologies, Brett. But those regions struggling a little bit more. We've seen, and as it relates to many factories, we've seen, you know, as Brian said, we've seen Stolantis make double digits down for us. But we've seen the other two domestic spelling resilient. But most of all, most of all, we've seen a real resilience from the imports.

Bret Jordan: Hey, Brian It's Adam I'll start with that and then we see.

Adam Chamberlain: As we reported I think probably fairly consistent this year, we see real strong performance in the southwest southeast and southeast in the northeast with maybe the the kind of.

Bret Jordan: Northwest and <unk>.

Bret Jordan: And.

Bret Jordan: South Central Central I always got muses manufacturing policies breath.

Bret Jordan: This region is struggling a little bit more.

Bret Jordan: We've seen as it relates to manufacturers we've seen.

Speaker Change: As Brian said, we've seen still anticipate double digits down for us, but we've seen the other two domestic fairly resilient, but most of most of what we've seen a real resilience from the imports. So our input inputs for about eight 8% up quarter on quarter and about 7% up year on year, So assuming the real strength in the luxury is kind of at the same level.

Adam Chamberlain: So our imports are about 8.8% up quarter on course and about 7% up year on year. So we've seen real strength there. And the luxury is kind of at the same level.

Bryan Deboer: That was great, Adam. I'd embellish one point. The differentiation across our six regions domestically have changed. Okay, if you remember a year, year and a half ago, the Western regions were performing at negative double-digit declines and same store sales. Their profitability, their GPU, all of those things were behaving much differently. The differentiation between the Northwest and the North and the South Central is not as badting more. Okay, we're talking about single digit percentage differences and same store sales and other things where the country has now flattened, including the idea that the South Central now has become one of the worst performing regions.

Bryan Deboer: That was great Adam I'd I'd embellish, one point the differentiation across our six regions domestically.

Bryan Deboer: Have changed Okay. If you remember a year year and a half ago. The western regions were performing at at negative double digit declines in same store sales their profitability. Their GPU all of those things were behaving much differently the differentiation between the northwest and this and the <unk>.

Bryan Deboer: And the south central is not as bad anymore. Okay. We're talking about single digit percentage differences in same store sales and other things where the country has now flattened, including the idea that the sell through that south Central now has become one of the one of the worst performing region.

Bryan Deboer: Okay, but again, it's only a few points, not massive differentiation between the different regions. Okay.

Bryan Deboer: Okay, but again, it's only a few points not massive differentiation between between the different regions.

Adam Chamberlain: And then a quick question on the service side of the business. And customer pay, could you talk about the break out between car counts and price in that comp? It's $18.00 on the customer pay because that's the business that keeps on coming back concurrently and recurring, right? And I'm pleased to report that on a quarter to a customer put it up at $3.60 and it's up about the same on a year-to-day level. So we've grown the both the customer pay and the warranty business. In the customer pay, though, what's price versus traffic? Our car counts up as well, or is there more price in that comp?

Speaker Change: Okay, and then a quick question on the service side of the business and customer pay could you talk about the breakout between car counts and price in that comp.

Speaker Change: Do you have after sales stuff yeah, yeah for sure. So as you saw our customer pay.

Speaker Change: Total revenues were $5 one please.

Speaker Change: Pleasingly, our customer pay warranty was up 15% and Brian talked a little bit about the stop sale and the significant impact that has.

Speaker Change: On the revenue, but importantly, so it was important to maintain a focus on the customer pay because that's a business that keeps on coming back.

Speaker Change: <unk> right and I am pleased to report the.

Speaker Change: Quarter to quarter customers was up three six and its up about the same on a year to date level. So we've grown that both the customer pay on the warranty business.

Speaker Change: <unk> costs were paid on what's price versus traffic our car counts op as well or is there more price in that comp.

Adam Chamberlain: Flat rate ads are about flat. So price is up a little bit in that count, absolutely. Okay. Great. Thank you.

Speaker Change: Flat rate is about flat.

So if prices up a little bit in that account absolutely.

Speaker Change: Okay, great. Thank you.

Brett Jordan: Thanks, Bret.

Speaker Change: Thanks, Brett.

Colin Langan: Our next question comes from Colin Langan with Wells Fargo. Please proceed with your question. Oh, great. Thanks for taking my questions. You know, after sale margins are 56 percent; they've been quite high. I think the long-term targets on, I think, side 21, 51 to 54.

Speaker Change: Our next question comes from Colin Langan with Wells Fargo. Please proceed with your question.

Colin Langan: Oh, great. Thanks for taking my questions.

Colin Langan: After sale margins or 56% they've been quite high I think the long term targets on I think slide 21, 51 to 54. So what is driving the strong margins and how should we think about or is it sustainable near term and we're just thinking midterm that kind of feedback or.

Colin Langan: So, what is driving the strong margins? And how should we think about it as sustainable near-term, and we're just thinking midterm they kind of fade back? Or, yeah, any color there? Good question, Colin. And thanks for joining us today. The reason that we believe that margins will come down is truly just the mix between parts, which has a 30 percent approximate margin because it's an inventory-based business. Okay. And we believe as sustainable vehicles become more prevalent, there's more parts or repair and replaces we call it, where there's a higher portion of your business that becomes parts.

Speaker Change: Yes, I mean any color there yeah. Good question, Colin and thanks for joining us today.

Speaker Change: The reason that we believe that margins will come down is truly just the mix.

Speaker Change: Between parts, which has a 30% approximate margin because it is an inventory base business, Okay, and we believe as sustainable vehicles become more prevalent theres more parts or repair and replace as we call it where there's a higher portion of your business that becomes parts, whereas labour.

Colin Langan: Whereas labor is a 65 percent margin business. Okay. And that becomes lessened as such; we believe that the margins would drop to 51 to 54. Now, on a positive note, Colin, those new propulsion systems, when the cars break, the average cost of the repair is substantially higher than what it is on an ICE engine. So even though your margins may drop a couple of points. Okay. The overall same store sales should grow, and your overall growth profits should grow as well. Okay.

Speaker Change: A 65% margin business.

Speaker Change: And that becomes less and as such we believe that the margins would drop to 51% to 54 now on a positive note collyn those new propulsion systems when the cars break the average cost of the repair is substantially higher than what it is on an ice engine so even though.

Speaker Change: Your margins May drop a couple of points.

Speaker Change: The overall same store sales should grow in your overall gross profit should grow as well, okay, and we will be sharing more information on that and I think everyone's running their numbers of the implications on Bev then plug ins and all of these different propulsion systems on the after sales business, but the days of us believing.

Colin Langan: And we'll be sharing more information on that. And I think everyone's running their numbers of the implications on beds and plugins and all these different propulsion systems on the after sales business. But the days of us believing that their headwinds is no longer. We think we've got at least a decade of tailwinds, and they could be much larger than what we think that will carry us through until the point when beds need battery replacements or hybrids or plug-in hybrids need battery replacements. And then all the numbers blow up for new car dealers, making it quite attractive to be a new car dealer.

Speaker Change: That there are headwinds is no longer we think we've got at least a decade of tailwind and they could be much larger than what we think that will carry us through until the point when beds need battery replacements or hybrids or plug in hybrid need battery replacements, and then all of the numbers blow up for new car dealer.

Speaker Change: Making it quite attractive to be a new car dealer.

Colin Langan: Got it, the top of the color. Then just one clarification. If I go to that same slide, 21, I think you're targeting normalized new of $2,500 to $2,700. That's about $600 below where your GPU is right now. I think you just said earlier about $400 to $500 further decline. Is that just rounding, or is there a class area we're talking about slightly different things? No, the $42 to $4,500 is aggregated new and used. So the used will come back $200 to $300 at least; that will offset the difference of the $150 to $200. Okay, so it's fair to think you're thinking another maybe 600ish on the news side.

Speaker Change: Got it that's helpful color.

Speaker Change: Just one clarification if I go to that same slide 21, I think you're targeting normalized new Gpus.

Speaker Change: 2500 2700.

Speaker Change: That's about $600 below where your GPU is right now I think you just said earlier about four to $500. Further decline is there is that just rounding or is there a class or you're talking about slightly different things.

Speaker Change: The 42 to 4500 is aggregated new and used so the used will come back two to $300 at least that will offset the difference of the 150 $200 in your math.

Colin Langan: Okay. So it's fair to think Youre thinking another maybe 600 ish on the news side, yes, yes, okay, yes, okay alright, thanks for the clarification. Thank for taking my questions Colin I appreciate it.

Colin Langan: Yes, yes. Okay, all right. Thanks for the clarification. I think it's taking my question. Thank you, Colin. Appreciate it.

Ron Josie: Our next question comes from Ron Josie with City. Please proceed with your question.

Speaker Change: Our next question comes from Ron Josey with Citi. Please proceed with your question.

James Michael: Hi, this is James Michael on for Ron. First of all, with online monthly unique slide, quote, unquote, how are you evolving with broader on the channel strategy and any platform changes or invest in plans to accelerate the online sales channel, particularly in context of the advertising fishing to be seen with burn rates down 4%. I'm going to have a good follow up, you know, asking them. Great, James. If you, if you remember the prepared remarks, we've seen nice growth in our overall e-commerce business. Most importantly, our driveway and green cars have really turned the corner that we're at a point that we've got our expenses skinny down to the appropriate levels to be able to now constructively scale at some point again.

Speaker Change: Hi, This is James Michael on for Ron.

Speaker Change: First of all with online monthly uniques flat quarter over quarter. How are you involved in with broader omni channel strategy and platform changes in reimbursement landscape. Following the online sales channel, particularly in context of the Abu Dhabi <unk> run rate standpoint.

Speaker Change: And then I have a quick follow up.

What I'm asking.

Speaker Change: Great James.

Speaker Change: If you if you remember the prepared remarks, we've seen nice.

Growth in our overall E Commerce business, most importantly, our driveway and green cars have really turned the corner that were at a point that we've got our expenses skinny down to the appropriate levels to be able to now constructively scale at some point again.

Bryan Deboer: Our effectiveness within the funnel is still has lots of opportunities from for growth. We're actually at a point 0.08 what we call golden ratio, which means 0.08 of every customer actually buys a car, which is what one out of about every 400, something like that. Okay, buys a car. The good news is that almost nine out of every 10 customers is giving us a five-star rating, which is hyper positive. So we think that our ability to now capture more market share that 50 times more customers than what our stores touch is readily available. We also have great support from the infrastructure and the stores now that they're starting to get it that let driveway and green car sell the car.

Speaker Change: Our effectiveness within the funnel is still has lots of opportunity for growth. We're actually at a 0.8, what we call the golden ratio, which means point OA of every customer actually buys a car, which is what one out of about every 400, something like that okay buys a car.

Speaker Change: The good news is it almost nine out of every 10 customers is giving us a five star rating, which is hyper positive. So we think that our ability to now capture more market share that 50 times more customers than what our stores touch is readily available. We also have great support from the <unk>.

Speaker Change: The structure and the stores now that they're starting to get it that let driveway and green car sell the car I can replace it by going and find it either through trade and through buying cars from customers or if theyre going to the auctions or buying them from wholesalers or other dealers. So we are quite pleased with what we're seeing in our E Commerce platform.

Bryan Deboer: I can replace it by going and find it either through trade ends, through buying cars from customers, or through going to the auctions, or buying them from wholesalers or other dealers. So we're quite pleased with what we're seeing in our e-commerce platform, knowing that that pedal of gas is still there to step on. We just got to decide the right time. We were down about 40% in burn rate. I will also say this that burn rate has no attributed sales, meaning anything that sold by driveway or anything that is bought by driveway and then sold by the stores.

Speaker Change: Knowing that that pedal of gas is still there to step on we just got to decide the right time, we were down about 40% in burn rate I will also say this that burn rate has no attributed sales, meaning anything thats sold by driveway or anything that is bought by <unk>.

Speaker Change: <unk> and then sold by the stores or anything that the stores sell them Green cars is not attributed to that burn rate. Okay. We actually think that if you attribute the gross profit on all of those sales. It's quite large it's almost 3000 units a month, okay and you can do your math on 3800 dollar.

Bryan Deboer: Or anything that the stores sell in green cars is not attributed to that burn rate. Okay, we actually think that if you attribute the growth profit on all of those sales, it's quite large. It's almost 3,000 units a month. Okay, and you can do your math on $3,800 a unit. Okay, but you quickly get to some real nice numbers that driveway and green cars may not really have a burn rate. It's just what do you want to attribute directly to that? Thank you.

Speaker Change: As a unit, okay, but you quickly get to some real nice numbers that driveway and green cars may not really have a burn rate. It's just what do you want to attribute directly to that.

Speaker Change: Got it thanks.

Speaker Change: Just high level question are you seeing any changes in competitive landscape cost driving in green cards from either offline or online retail competitors. Thank you.

Speaker Change #100: Good follow up James I think most importantly, we don't see impacts from the online retailers directly would drive way, where we see impact is what our new car dealers in used cars dealers doing because if you remember most of the people that were selling to today. It's a.

Speaker Change #100: Finance equation of finding the right car that fits their current equity or dis equity situation and their down payment to match that okay. So when we think about how do we find customers, it's really matching customers finance ability with picking the right car out of our inventory. So our algorithms are really trying.

To steer customers into those areas and that's what we've been able to really perfect over the last few years, okay, but really the competition. It really comes from a person shopping physically at multiple locations and finally getting tired of that and being told no because they happened to pick a car that may be too high.

Speaker Change #100: <unk> for this equity situation, okay that they happen to be able to shop 10, 15 vehicles on our website and finally happened to match a car that meets their credit needs.

Speaker Change #101: Understood. Thank you.

Speaker Change #102: Thanks James.

Unknown Executive: We have reached the end of the question and answer session.

Speaker Change #103: We have reached the end of the question and answer session I'd now like to turn the call back over to Bryan Deboer for closing comments.

Bryan Deboer: I'd now like to turn the call back over to Brian DeBore for closing comments. Thank you for joining us today. And we look forward to seeing you on another Lithian driveway call in the fourth quarter, which I believe is February. See you all soon. Bye-bye.

Bryan Deboer: Thank you for joining us today, and we look forward to seeing you on another lithium driveway call in the fourth quarter, which I believe is February so you all soon bye bye.

Unknown Executive: Just includes today's conference.

This concludes today's conference you may disconnect your lines at this time.

Unknown Executive: You may disconnect your lines at this time. And we thank you for your participation. Today's conference call has ended.

Speaker Change #104: We thank you for your participation.

Speaker Change #104: Yeah.

Speaker Change #105: Today's conference call has ended please.

Speaker Change #104: You disconnect your lines at this time.