Lithia Motors, Inc.

Greetings and welcome to Lithia Motors and Driveway first quarter 2026 results conference call. At this time, all participants are in a listen-only mode. The question 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. Please note that this conference is being recorded. I would now like to turn the conference over to Jordan Jaramillo, Senior Director of Finance. Thank you. You may begin.

Good morning. Thank you for joining us for our first quarter earnings call. With me today are Brian DeBoer, President and CEO, Tina Miller, Senior Vice President and CFO, and Chuck Leitz, Senior Vice President of Driveway Finance Corporation. 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 risk 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 that are made as of the date of this release. Our results discussed today include reference to non-GAAP financial measures. Please refer to the text of today's press release for reconciliation of comparable gap measures. We've 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.

Thank you, Jardon. Good morning, and welcome to our first quarter earnings call. In the first quarter, we again achieved record revenues reaching $9.3 billion and adjusted diluted EPS of $7.34 as our leaders demonstrated the power of our differentiated and diversified model and the operational resilience that has defined our business across all cycles. Our teams executed well despite weather challenges and a dynamic macro backdrop, delivering solid revenue growth year over year. We also generated high-quality earnings as our after-sales business continued its steady climb, used vehicle revenue grew nicely on a same-store basis, and Driveway Finance Corporation delivered another quarter of record originations. These results reflect the differentiated power of our ecosystem. When one part of the business faces a little bit of pressure, our omnichannel platform creates opportunities that sustain earnings and cash flow generation. Across our network, our store teams and department leaders are leaning into what they do best, winning customers, growing share, and finding new ways to drive profitability through volume, pricing discipline, and cost efficiency. Every incremental customer we bring into our ecosystem multiplies the opportunity ahead of us, creating more DFC originations, stronger after-sales retention, and a deeper waterfall of future used vehicle trade-ins. During the quarter, our same-store revenues were down 1.7% and total gross profit was down 2.3%, reflecting resilient results against a very difficult year-over-year comparison to the strong first quarter of 2025. Total vehicle GPU was 3928, essentially flat sequentially, from 3946 in the fourth quarter, a positive signal heading into the seasonally stronger months ahead. Our diversified earnings mix continued to provide balance as used vehicle revenues grew 4.6% on a same store basis. After sales growth grew 5.7% and F&I per unit held steady at 1813. Note that all vehicle operation results will be on the same store basis from this point forward as well. New vehicle revenue declined 7.1% on a 7.1% decline in units. which reflected the challenging comparison to the first quarter of 2025 due to tariff avoidance pull forward last March. New vehicle GPU was $27.22 or down $227 year over year, but down only modestly from $27.66 in the fourth quarter. Luxury brand revenue was down 10.2%, domestic down 8.7%, and imports down 5.4% year over year. We continue to see these conditions as cyclical and our teams are focused on operational discipline as the market stabilizes. Our used retail performance continued its industry leading trajectory with used revenue of 4.6% and unit growth of 0.6%. Used GPU was 1680 down $115 year over year, but up meaningfully on a sequential basis from 1575 in the fourth quarter. This reflects the early results of our efforts around more dynamic used vehicle pricing and finding higher demand vehicles. Our focus on this high ROI area provides a stable anchor to offset new vehicle cycles and bring more customers into our ecosystem, leading to growth in our F&I, after sales, and DSC business lines over time. F&I per retail unit was 1813, essentially flat year over year, with solid underlying product attachment and pricing. As we have shared previously, record DFC penetration in the quarter intentionally shifted a portion of our finance gross profit from F&I to our captive finance platform, where it generates reoccurring higher quality and counter-cyclical earnings over the life of the loan. Adjusting for mix shift, our F&I performance was up nicely and continued to build momentum. Inventory levels improved during the quarter, the new vehicle day supply at 49%. days down from 54 days at the end of the fourth quarter, and used inventory was at 47 days compared to 48 days last quarter. After sales continues to be highlighted with revenues up 3.8%, gross profit up 5.7%, and we saw margins expand again year over year to 58.7%. Growth was consistent across key categories with customer pay gross profit up 6.5%, and warranty gross profit up 5%. This stable, broad-based growth demonstrates the underlying strength of our after-sales business and its ability to generate predictable, high-margin earnings through every part of the cycle. Adjusted SG&A as a percentage of gross was 71.5%, and while we historically see this metric increase in the first quarter, this year we held essentially flat sequentially, a sign that the cost discipline is gaining traction. Our sales departments are responding to the challenge we set for them, finding ways to operate more efficiently while continuing to grow volume and serve our customers. The structural improvements we are making across our network, from technology investments to vendor consolidation to back office automation, will continue to build on a foundation for a stronger future. In the UK, our teams delivered strong results, with gross profit of 12.5%, And SG&A has a percentage of gross profit improving 440 basis points year over year. Adjusted pre-tax income for the quarter grew 78%, building on the momentum we saw in 2025 as we continue to optimize our international platforms. Our digital platforms also continue to increase our reach and enhance our customer experiences, making shopping, financing, and service simpler and faster. Our partnership with Pinewood AI continues to support our strategic vision to transform the customer experience, and we are jointly working to bring the Pinewood AI platform to all of the North American stores. Pinewood AI will reduce complexity and place team members in the same platform as our customers, increasing retention, supporting operational efficiency, and reinforcing the power of our integrated ecosystem. Driveway Finance Corporation continued to scale profitably with financing operation income of $21 million for the quarter of 71% year-over-year, driven by record originations and improving loss provisions. With a steadily growing portfolio now at $5 billion, increasingly efficient securitizations, and clear runway for penetration growth towards our long-term 20-plus target, DFC is delivering on its promise to convert more of our vehicle sales into reoccurring counter-cyclical income. Now, turning to capital allocation. Our philosophy remains very consistent. Deploy capital where it generates the highest returns for shareholders. With our shares continuing to trade at a significant discount to our intrinsic value, we maintained our aggressive repurchase pace. retiring approximately 4% of our outstanding shares in the quarter with total repurchases of $259 million. Our strong cash generation and integrated ecosystem positions us to continue returning meaningful capital to shareholders while simultaneously growing through acquisitions when it makes sense. In the first quarter, we were disciplined and strategic in our acquisition activity adding import and luxury franchises in attractive US markets while continuing to diversify our UK portfolio with the addition of emerging Chinese OEM brands. This helps us establish broader relationships to capture growth as these manufacturers expand their presence internationally. Our acquisition results over the past decade have yielded high rates of return, consistently exceeding our 15% after-tax hurdle rates through consistent and disciplined underwriting, targeting purchase prices at 15% to 30% of revenue, or three to six times normalized EBITDA. As we look ahead, we also stay disciplined in balancing repurchases, acquisitions, organic investments, and balance sheet strength with a continued bias towards repurchasing while our shares are trading at a discount. Our confidence in the path ahead is grounded in the same strategic pillars that have driven our growth as follows. Lifting store-level productivity, expanding our footprint and digital reach, scaling DFC penetration, improving cost efficiencies through scale, and growing contributions from our omni-channel adjacencies. Each of these levers builds momentum, and as they compound together, they reinforce our conviction in the long-term target of $2 of EPS for $1 billion of revenue. The work our teams are doing today lays the groundwork for durable EPS and cash flow growth in the quarters and years ahead. With that, I'll turn the call over to Tina.