Lithia Motors, Inc.

Good morning, and welcome to the Lithia and Driveway first quarter 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I would now like to turn the call over to Amit Marwaha, Director of Investor Relations. Please begin.

Thank you. With me today are Brian DeBoer, President and CEO, Chris Holshut, Executive Vice President and COO, Tina Miller, Senior Vice President and CFO, and Chuck Leeds, 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 deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. We undertake no duty to update any forward-looking statements which are made as of the date of this release. Our results today include references to non-GAAP financial measures, Please refer to the text of today's press release for reconciliation to comparable gap measures. We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our first quarter results. With that, I would like to turn the call over to Brian DeBoer, President and CEO.

Thanks, Amit. Good morning and welcome to our first quarter earnings call. We appreciate everyone joining us today and the opportunities to update you on our business strategy, growth, and progress towards our 2025 plan. In Q1, Lithium driveway grew revenues to $7 billion, up 4% from 2022, resulting in adjusted diluted earnings per share of $8.44. Sequentially, GPUs were more resilient than expected across new and used and F&I, and we continue to focus on profitability, driving high performance, and improved efficiency. Our model and vehicle operations allowed our stores to be nimble while offering customers a variety of products and services to fit all budgets. By managing a wide variety of channels to interact with our customers, our responsiveness and adaptable model delivers the best experiences for our customers wherever, whenever, and however they desire. Our store teams continue to proactively respond to the varying climate in each of our regions. Our captive finance operations, driveway finance corporation, or DFC, continues to grow at a balanced pace with nearly $630 million in originations and loans in the quarter, with a weighted average rate of 9%. Our focus remains on selectively growing the portfolio and increasing our net margin as we continue to invest in this adjacency. DFC continues to mature with near-term performance reflecting the investment related to CECL reserves for a growing portfolio. We have a clear line of sight to how DFC will meaningfully increase our profitability over time. I'll let Chris and Chuck provide more details on the results of both vehicle and financing operations later in the call. Acquisitions are the foundation to how we build convenient proximity to our consumers and fundamental to our strategy. Our target of being within 100 miles of consumers allows us to leverage our physical infrastructure for vehicle procurement logistics, utilize our reconditioning and storage network, and expand our captive finance arm as we grow our customer base. Our team and core competencies are executing a consistent acquisition cadence, and we remain unchanged in our hurdle rates, seeking after-tax returns of 15% or more, and targeting of 15 to 30% of revenues or 3 to 7 times EBITDA normalized earnings. For the quarter, our acquisitions have yielded a 95% success rate as compared to mid-80 rate this time last year. In the first quarter, we completed two acquisitions, including our entrance into the United Kingdom market with our purchase of Jardine Motors Group, which operates more than 37 premium luxury retail locations and over 50 franchises and is expected to generate over $2 billion in annualized revenues. Our strong cultural alignment, drive to provide exceptional customer service, and focus on OEM partnerships make this the ideal platform to enter the United Kingdom. Like our purchase of the Fath Group in Canada a couple years ago, this team provides a launch pad to extend our growth in the coming years. We are excited to welcome Neil and his team to the Ladd family and look forward to working together and learning from each other. We expect to achieve a historical acquisition annual run rate of $3 to $5 billion in acquired revenues a year with a continued prioritization to the United States. Whether motivated by succession planning or monetization, sellers are attracted by Ladd's track record of completing deals in a timely and confidential manner, retaining over 95% of their employees, and becoming part of this industry's future. The deal pipeline remains robust, and we are confident in our ability to execute, integrate smoothly, and reach our $50 billion revenue target as planned in 2025. On to an update on our five-year plan. We have just passed the halfway mark and are well underway towards achieving the objective we originally outlined in July of 2020. Since the launch of our plan, we have acquired nearly $16 billion in revenues. Our captive finance arm, DFC, has established itself as the top lender in our network and are through the painful days of heavy capital requirements and extreme CECL reserves. Though DFC is still a drag to earnings today, this investment drives our future profitability as loans, on average, are three times more profitable over its lifetime compared to third-party finance commissions. Lastly, our omnichannel strategy is resonating with consumers and gaining traction across North America. LAT is truly an international omnichannel mobility provider. with an expanding strategy set to service consumers across all segments and markets. Key to our plan is de-linking $1 of EPS for every $1 billion in revenue and achieving $1.10 to $1.20 for every billion dollars by 2025. This will be driven by several key factors as follows. Achieving a blended US market share of 2.5% or more through both acquisitions channel expansion, and same-store growth improvements. Secondly, driving SG&A as a percentage of gross profit to 60% through increased leverage of our cost structure in a normalized GPUs environment and optimized networks. Continuing to scale DFC and achieving profitability in 2024. Driveway.com continuing to expand revenue and consumer optionality by attracting 98% new consumers through a simple and transparent one price experience directly to your home. Size and scale will continue to drive down borrowing costs and achieving an investment grade rating will help as well. And finally, continued return of value to shareholders through dividends and flexibility in capital allocations for share buybacks when it makes sense. Layering on the contributions, of additional future aspirations, we see opportunity for each billion dollars in revenue to produce $2 of EPS in a normalized environment. Key factors underlying our future state and totally within our control are as follows. Optimizing our network through divesting of small, less efficient locations, expanding reach of our omnichannel platform, Maximizing leverage of our physical infrastructure and maintaining a portfolio of high-performing locations. Financing of up to 20% of our units through DFC and maturing beyond the headwind of the recording of CECL reserves. Leveraging our cost structure and customer lifecycle design to reduce our SG&A as a percentage of gross profit to 50%. And finally, maturing contributions from other horizontals, fleet lease management, charging infrastructure, consumer insurance, and other future new verticals. In closing, Lithia in Driveway is a unique mobility platform that provides various transportation solutions and redefining customer experience, revenue scale, and the profitability equation. We have built a strong foundation through growing our network meeting shifting consumer preference with our variety of online and in-store experiences, and investing in adjacencies like DSC, all while navigating the current environment. With this unique formula and our experienced team, we're confident in our ability to reach $50 billion in revenue by 2025, according to $55 plus in dollars of EPS, and ultimately targeting $1 billion in revenue, translating into $2 in EPS. With that, I'd like to turn the call over to Chris.