Lithia Motors, Inc.

Greetings. Welcome to Lithia Motor and Driveways second quarter 2026 results call. At this time, all participants are in a listen-only mode. A 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 this conference is being recorded. I will now turn the conference over to Jardon Jaramillo, Director of Finance. Thank you. You may begin.

Good morning. Thank you for joining us for our second quarter earnings call. With me today are Bryan DeBoer, President and CEO, Tina Miller, Senior Vice President and CFO, and Chuck Lietz, Senior Vice President of DriveAway 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 risks and uncertainties that could cause actual results to materially differ from 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 today include references to non-GAAP financial measures. Please refer to the text of today's press release for reconciliation of comparable GAAP measures. We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our second quarter results. With that, I would like to turn the call over to Bryan.

Thank you, Jardon. Good morning, and welcome to our quarterly earnings call. The second quarter was another record for Lithian Driveway. We delivered revenues of $9.8 billion, an adjusted diluted EPS of $10.03, up 9% from last year as our leaders continue to demonstrate the earnings power of our diversified model in a somewhat dynamic environment. The quality of these earnings is what really stands out to me. New vehicle margins continue to be stable, used vehicle profitability strengthened considerably, and we drove meaningful sequential improvements in SG&A as a percentage of gross profit. Driveway Finance Corporation delivered another quarter of record originations, growing income more than 70% over last year. Our ecosystem is built so that each business line reinforces the others, and this quarter, every part of the engine contributed. Our growth is powered by our people and winning share in our local markets, alongside improved pricing and cost efficiencies that flow straight to the bottom line. What's so special is that each of those relationships compounds. The customer we finance through DFC today becomes tomorrow's service visit and eventually the trade-ins for our used inventory. During the quarter, same-store revenues declined 1.6% and total gross profit declined 2.7%. This was quite resilient performance against our toughest comparison of the year as we lapped an exceptionally strong second quarter of 2025. Total vehicle GPUs rose to $4,119, up nearly $200 sequentially from the first quarter, giving us real momentum. As a reminder, all vehicle operations results from this point forward are on a same-store basis. Our diversified earnings mix again provided balance, with used vehicle gross profit up 1.2%, and after-sales gross profit up 3.1%, both on the strength of improved margins. New vehicle revenue declined 1.5% on 2.2% lower units, solid performance against a demanding comparison to last year's Q2 tariff pull forward. New vehicle GPU of 2718 was essentially flat with the first quarter, making it the third consecutive quarter of stability. Looking at brand mix, Imports grew 5% while domestic declined 7% and luxury declined 4%. We view these conditions as cyclical, and with the most difficult comparison now behind us, our teams carry the momentum into the second half of the year. In used vehicles, our profitability strategy is delivering and a real testament to our ecosystem, AI, and people all working closely together. Used GPU of $2,019 improved $339 sequentially from the first quarter and total gross profit grew 1.2%. The work on dynamic pricing we discussed earlier this year is taking hold and used as one of the highest return areas of our business and a stable anchor through new vehicle cycles. It is also a key entry point into our ecosystem for all affordability levels and a feeder to grow F&I after sales and DSC over time. F&I was consistent at $1,811 showing strong product attachment and total financing penetration rising 140 basis points. Keep in mind that DSC's growing penetration intentionally moves a portion of the finance gross profit out of F&I and into our captive platform where it converts into reoccurring counter cyclical income that is three times more profitable over the life of each loan. Adjusted for this shift, F&I continued to build momentum and grow. After sales continues to be a source of resiliency, high quality earnings, and substantial and predictable gross profit that converts into considerable operating profits. Gross profit grew 3.1% on revenue growth of 1%, with margins expanding 120 basis points year-over-year to 59.2% and customer pay gross profit growing 2.6% and warranty up 5.4%. After Sales earns its margin on every vehicle in operations, not just every vehicle sold by us, giving us a dependable earnings base through every phase of the cycle, creating consistency through intentional design. After Sales continues to be our largest business line, contributing 42.2% of our gross profit with significantly lower SG&A than retail vehicles and driving the majority of our operating profit. Adjusted SG&A as a percentage of gross profit was 68.6%, a 290 basis point improvement from the first quarter. More importantly, the costs were completed thus far is now visible in absolute dollars, with same store SG&A declining year over year, led by nearly a 3% reduction in personnel costs, and June's SG&A percentage improved versus the prior year. This is exactly the exit rate we wanted heading into the second half of 26. These results reflect real structural changes, not one-time cuts. Our sales departments are re-architecting how they operate, with combined roles removing layers, remote functions, and extending leaders across multiple stores and departments. Our back office continues to get leaner through automation and vendor consolidation as we prepare for a simpler technology future led by the early contributions from AI tools in the UK. Each quarter of this execution moves us closer to our sub 60% SG&A target and as vehicle margins stabilize and volumes improve, that leverage flows straight to earnings. In the UK, the momentum keeps building. Gross profit grew 12% and adjusted pre-tax income rose 78% while SG&A as a percentage of gross improved 200 basis points year over year. Used vehicles led the way with gross profit up nearly 33% and new vehicle units grew 16% driven by a strong execution and expanding Chinese OEM partnerships. The past few focused years of network optimization is translating into consistent and profitable growth globally. On the digital front, we keep making it simpler, faster and more transparent for our customers to shop, finance and service with us in whatever channel they choose. The centerpieces today are Lithia, DFC, driveway and green cars, and beginning to be amplified by our partnership with Pinewood AI. Its industry-leading DMS and AI solutions are in full swing in the United Kingdom, with the North American rollout just around the corner later this year. The power of Pinewood's technology and AI bring a potential 10x scale multiplier to Lithia and Driveways Global Cost Savings. We are pleased that Ridgeview Partners is acquiring Pinewood AI and our strategic alignment is unchanged. We continue to build an even stronger technology future on the same platform with the same shared priorities. Ridgeview arrives with the conviction to accelerate what Pinewood AI has built and we expect the transaction to generate a meaningful valuation gain on our investment. By moving our team members onto the same AI native environment, cost and complexity is taken out of the business, deepens retention and strengthens the connective tissue of our ecosystem, all while empowering both our team members and customers to create unique and trusted relationships. Driveway Finance Corporation continues to scale exponentially and profitably. Financing operations income reached $37 million for the quarter, with DFC more than doubling its profitability. This growth was driven by record originations of $884 million, net interest margin expansion of 20 basis points to 4.8%, and continued strong credit experience from a captive high-quality portfolio. With managed receivables now above $5 billion and penetration climbing towards our target of 20% or more, DSC is doing exactly what we built it to do, converting vehicle sales into reoccurring countercyclical income with considerably greater customer impressions and earnings power. Turning to capital allocation, our philosophy is consistent and simple. Deploy capital where it generates the highest returns for our shareholders. With our shares trading well below intrinsic value, repurchases remain our top priority. We bought back $242 million of stock in the quarter, retiring approximately 4% of our outstanding shares, and our share count is now 17% less than it was just one year ago. Our strong cash generation allows us to both return meaningful capital to shareholders and grow our network when the opportunity is right. In the first half of the year, we made strategic acquisitions of $765 million in revenue and divested $120 million of underperforming revenue that also generated extra capital to put to work more efficiently in other places. We continue to diversify our UK portfolio with emerging Chinese OEMs and expanding our presence with existing brands. These early Chinese OEM partnerships capture growth, and position us to both learn and become larger partners if we choose as these manufacturers expand their presence internationally. This growth is always underwritten with discipline and consistent execution. We target purchase prices of 15 to 30% of revenue or three to six times normalized EBITDA. This framework has delivered returns of more than 25% for more than a decade well above our stated 15% after-tax hurdle rate. That's pretty good in an unconsolidated industry. Looking ahead, we will keep balancing share repurchases, acquisitions, organic investment, and our balance sheet strength, strategically generating the highest returns for our shareholders. Our confidence is reinforced by this quarter's results all nicely coming together, with sequential SG&A improvement, record DFC income, a used vehicle engine gaining momentum and strength in after sales all creating improved earning quality. As these levers compound alongside opportunistic capital allocation, they keep us squarely on the path to our longer term target of $2 of VPS for every $1 billion of revenue. Our teams are building that future one customer at a time as our differentiated and highly diversified model shifts into high gear. With that, I'll turn the call over to Tina.