Good morning, welcome to the Lithia & Driveway Q2 2021 conference Call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question-and-answer session. I will now like to turn the call over to Jack Evert, Director of FP&A. Thank you, sir. Please begin. Thank you. Welcome to the Lithia & Driveway Q2 2021 Earnings Call. Presenting today are Bryan DeBoer, President and Chief Executive Officer, Chris Holzshu, Executive Vice President and Chief Operating Officer, and Tina Miller, Senior Vice President and Chief Financial Officer. Today's discussion may include statements about future events, financial projections, and expectations about the company's products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to differ materially 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 discussed today include references to non-GAAP financial measures. Please refer to the text of today's press release for a reconciliation to comparable GAAP measures. We have also posted an updated investor presentation on our website, lithiainvestorrelations.com, highlighting our Q2 results. I would like to turn the call over to Bryan DeBoer, President and CEO. Thank you, Jack. Good morning, and welcome everyone. Earlier today, we reported the highest adjusted Q2 earnings in company history at $11.12 per share, a 199% increase over last year, including the impact of the two recent equity offerings. Record revenues of $6 billion were driven by robust consumer demand and an acceleration of acquisitions to produce strong operational performance across all business lines and channels. During the quarter, total revenue grew 87% over 2019, while total gross profit increased 125% compared to 2019. On a same-store basis compared to 2019, we recorded a 20% increase in new vehicle revenues, 49% increase in used vehicle revenues, 39% increase in F&I income, and 3% increase in service body and parts revenues. Comparisons to 2020 can be found in the financial performance tables of our press release. Our operational teams continue to excel in procuring used vehicles, delivering impressive gross margins, and continuing to grow the business. Chris will be providing additional details on our same-store sales results, inventory levels, and other operational results in a few moments. Reflecting back on the 1st year of our 5-year plan, we are considerably ahead of schedule and have the required capital to carry us to and beyond $50 in EPS and $50 billion in revenue. At $8 billion in added revenue since plan inception, we have acquired 40% of our targeted $20 billion in annualized revenues. In addition, both Driveway and our core business are contributing at higher than expected levels as we enter our 2nd year of the plan. We remain disciplined in our execution and actively focused on adjacencies, cost management, and leveraging our network to increase productivity and lower SG&A costs. Despite the cost of the acquisition integration and Driveway's development and expansion, our SG&A as a percentage of gross profit was 55.7% during the quarter. This level of SG&A is typical of our top quartile of locations in a pre-COVID environment. Our fifty/fifty plan, which is a base case, assumes mid to low 60% SG&A, though our management team is constructively focused on greater aspirations. Our past few decades have yielded a $1 of EPS for every $1 billion in revenue. We believe that there is significant potential in increasing profitability and constructively changing the calculus so that $1 billion of revenue can produce more than $1 of EPS. To follow are some thoughts on just how much more than $50 in EPS can be generated from $50 billion in revenue. First, with capital raises behind us, there is no further drag on EPS from equity dilution. Second, we can leverage our underutilized network by substantially increasing the volumes that are being produced by them. In service, the magnitude increase is 4x, and in sales, 2x. Improving personnel productivity by associate and consumer utilization of technology to improve and simplify experience and workflows. Next, we are in the early innings of our exploration in high margin and low cost adjacencies such as our Driveway Financial Fintech, consumer insurance, and fleet management. National advertising now driving economies of scale through greater brand awareness. Lastly, an investment-grade credit rating will further decrease our borrowing costs. As a reminder, our base 5-year plan assumes a pre-COVID business environment, margins, and growth rates. We are not assuming that the current margin levels will continue and most likely will subside by early next year. In the recently released Fortune 500, we jumped considerably to number 231. We are particularly proud of our performance on three metrics demonstrating our proven ability to grow our top line, increase earnings, and create long-term shareholder value. We were number 12 in 10-year annual growth in revenues of 19.9%. LAD was number two in 10-year annual growth in EPS with 43.7% growth, more than double what we achieved in revenues, demonstrating our ability to integrate and increase profitability. Finally, we were number three in 10-year total return to shareholders reflecting a 36.7% return rate, which speaks for the ability to transform and execute. This growth continues as our current annual run rate is approximately $21 billion as compared to $12 billion in the base year of our plan. Slide 11 of our investor presentation has been updated with our progress, and we look forward to sharing further updates as they are solidified. In May, we raised $1.3 billion in equity and $500 million in net additional debt and plan to deploy this over the next two to four quarters. Along with the cash flows generated from our existing business and future acquisitions, we have the funds necessary to execute all aspects of our 5-year plan and do not expect to return to the capital equity markets aside from a transformative acquisition. Across the board, our teams are focused on execution through both channels. We continued to rapidly integrate recent acquisitions and Driveway expanded offerings are attracting incremental customers who are seeking to fully transact online. Together, we generated approximately $492 million of adjusted EBITDA in the Q2. Our unique high-growth strategy with a massive regenerating capital engine is speeding towards our goal of $50 billion in revenue and over $50 in EPS. Driveway is empowering consumers to simply and transparently shop, sell, and service their vehicles from the convenience of their home. The Driveway experience is designed to attract a different and incrementally new consumer than the Lithia channel. We can now market and deliver our 57,000 vehicle inventory to the entire country under a single brand name and negotiation-free experience. Leveraging our nationwide network and Driveway's broad functionality, we are excited with our endless growth possibilities. Our used inventory is broader and more scarce, addressing over 4x the number of customers than the e-commerce retailers focused on selling only one- to-five year old used vehicles. We are now realizing these advantages as evidenced by our same-store sales growth and strength in margins. We are on target to achieve an annual run rate of 15,000 Driveway shop and sell transactions in the month of December. Important to note, this target does not include Driveway Finance and service transactions. On our pathway towards this volume milestone that took other e-commerce used-only retailers two to three years to reach, there are several interesting early trends we'd like to share with you today. Driveway generated over 350,000 monthly unique visitors in June. Driveway eclipsed the 500 unit milestone with 550 transactions in June, only six months after launch. 98% of our Driveway customers during our Q2 were incremental and have never done business with Lithia or Driveway before. 95% of our dealership network is actively participating in Driveway with reconditioning, logistics, transaction fulfillment, inventory procurement, and last mile delivery. We continue to build on our online reputation with an average Google review score of 4.98 stars out of five. In addition, our Driveway Google domain authority score, which ranks online search, is now a 57, which is higher than all three used-only e-commerce competitors who have also been in operation for significantly longer than Driveway. Driveway receives continuous enhancements that are released every two weeks throughout the year, and we recently launched three powerful new features. First, customers can now shop and filter our nationwide inventory by price or monthly payment. Remember that over 80% of customers purchase a vehicle based on monthly payment, and this provides them upfront transparency and allows customers to focus their search. Second, Driveway now offers a budget and payment calculator. Once a customer has selected a vehicle and obtained a trade-in value, the calculator allows them to adjust down payment and term to see how these affect their monthly payments. Finally, prior to submitting a credit application, our instant AI financing feedback tool informs consumers of the likelihood their credit will be approved based on their identified down payment, loan term, and credit profile. The tool provides customers with the opportunity to modify key terms to increase their likelihood, providing them with the confidence that they will be approved prior to running a formal credit check. This predictive indicator is essential to improving the consumer's progress through a technology happy path and our care associates' productivity levels. While our entire inventory is available nationwide, we are currently reaching approximately 25% of the population with Driveway advertising, though we are far from saturating these markets. We are targeting our marketing dollars and believe that our omni-channel offerings enable us to scale on a cost-effective and highly competitive basis. We continue to measure the impact of both our own and e-commerce competitors' marketing dollars using what we call the golden ratio, the relationship between monthly unique visitors and completed sales. Our decision to expand Driveway advertising to additional markets will be based on achieving certain golden ratio levels, and we expect the next level of scaling to occur by the end of this year. This is expected to be the final increase in marketing needed to fully assess and most effectively deploy nationwide marketing. We anticipate nationwide marketing occurring in the second half of 2022, allowing considerably more time for all markets to season prior to completion of our five-year plan. Today, our team of Driveway engineers, data scientists, procurement specialists, care center associates, and Driveway Finance associates number over 300 and are growing rapidly to mirror the exponential growth in consumer demand. We have developed a suite of consumer solutions and functionality that provide the first complete end-to-end digital ownership experience spanning the full vehicle ownership life cycle. The foundation of our omni-channel plan is the growth, expansion, and leveraging of our physical network to provide consumers convenient access to all of our business lines in-store and home through Driveway. Our highly fragmented industry provides ample opportunity to grow and accretively invest in increasing the reach and density of our physical network. For decades, we have demonstrated the ability to successfully purchase and integrate acquisitions with an over 80% success rate of exceeding our 15% return threshold and actual after-tax returns averaging 25%. During the quarter, we completed acquisitions which are expected to generate $3.7 billion in annualized revenues, and year-to-date, we have acquired $4.4 billion. We expanded our national footprint, entering the Detroit, Las Vegas, and Jackson, Mississippi markets, substantially increasing our density and reach in North Central Region three, Southwest Region two, and Southeast Region six. It's important to note that automotive, the largest retail segment in the country, remains totally unconsolidated. We believe consolidation can be accomplished in a highly accretive way, and these cash flow-positive businesses can further add to our massive cash engine and consumer offerings. Our pipeline for acquisitions remains full, and we are focused on continuing to improve the density of our network to ensure a full and convenient lifetime of consumer experiences. Despite a slightly more competitive environment, we continue to successfully target after-tax returns of 15%-plus, investments of 15%-30% of revenues, and 3-7 times EBITDA. The higher end of the range is reserved for targets located in key markets that strategically increase our network density, and the lower end of our range is paid when density is already achieved. Even with our pace being well ahead of schedule, we continue to replenish our more than $2 billion under LOI and the more than $15 billion pipeline of potential acquisitions that we believe are priced to meet our return thresholds. We are expecting the acquisition cadence for the remainder of 2021 to remain strong as we build out our network within the U.S. and potentially internationally with a focus on English-speaking countries. As our nationwide network continues to grow in each of our six regions, we continue to target a 100-mile reach to allow for convenient, affordable, and timely consumer service experiences during and after the purchase of their vehicles. As a reminder, infrastructure costs for delivering a Driveway e-commerce experience are zero, as they reside in the underutilized capacity of our growing network. Key to our design three years ago was allowing for the flexibility to adjust investments between channels and multiple business lines to align with consumer demand, weather any economic cycle, compete with any future competitor, and grow our cash engine to expand into further adjacencies. These, combined with our many other competitive advantages, strongly position us to gain a meaningful portion of the market and lead our industry's continued transformation. In closing, we continue to seek new ways to improve and remain tenaciously committed to growing and finding new opportunities. The advantages of our responsive and adaptable team with a multi-decade track record of executing together is the driving force behind our ability to outperform and compete in any environment. With our technology poised for rapid scalability across our existing and future network, we are positioned to lead Lithia & Driveway's progress towards $50 billion in revenue to produce more than $50 of EPS, the first leg of our journey. With that, I'd like to turn the call over to Chris. Thank you, Bryan. As we live our mission of growth powered by people, we are once again humbled by our extraordinary team of almost 20,000 associates that in the Q2 more than doubled our previous earnings records. As we navigate the back half of 2021, we are confident that the demand from consumers remains strong for both in-home and in-network solutions, and the acceleration of Driveway's incremental sales in key strategic markets will be well received. Each day, our leaders are rising to the challenge of achieving or exceeding our fifty-fifty plan, evolving their skills, growing their teams, and navigating the unprecedented operating environment experienced in the first half of 2021. Our team remains humbled and never satisfied as they look to continued record performance levels and massive growth throughout the back half of 2021. Following is a discussion about quarterly results and is reported on a same-store basis. As Bryan mentioned earlier, we are providing comparisons against 2019, as 2020 results are not meaningful. For the three months ended June 30, 2021, total same-store sales increased 26% over 2019. These increases were driven by a 20% increase in new vehicle sales, a 49% increase in used vehicle sales, a 39% increase in F&I revenue, and a 3% increase in service body and parts revenues. For the quarter, our new vehicle average selling price increased 13% and unit sales increased 6% over 2019. Total gross profit per unit, including F&I, was $6,123, an increase of $2,463 per unit, or 67%. Excluding F&I, we earned $4,266 of gross profit per unit, a 10.1% margin. Strong consumer demand as we exit the pandemic has accelerated inventory turns and increased new vehicle gross profit levels. For used vehicles, total gross profit per unit, including F&I, was $5,227, an increase of $1,658, or 46%. Our used vehicle sales mix in the quarter was 19% certified, 60% core, or vehicles three to seven years old, and 21% Value Auto, or vehicles older than eight years years. With over 60% of the 40 million used vehicles sold in the U.S. being nine years and older, our continued strategy of selling deeper into the used vehicle age spectrum and our ability to procure the right scarce vehicles remain the catalyst for future success and growth of Lithia & Driveway. In the quarter, our average used units per rooftop was 96 units, a strong push towards our goal of 100 units per rooftop that we raised in 2020. We had 21,000 new vehicle units, a 23-day supply, and 36,000 used vehicle units, a 58-day supply. As a reminder, these amounts do not include in-transit units. Our success in procuring used vehicle inventory allows us to offer customers a wide spectrum of vehicles and mitigate potential sales leakage due to a tight new vehicle supply. Our 900 used vehicle procurement specialists have been working diligently to enable us to navigate the current demand environment with their focus on procuring scarce, high-demand used vehicles through the most profitable channels. Our model gives us access to customer trade-ins as well as first look at lease returns and service loaners, minimizing our reliance on auctions and other third-party purchases. In the Q2, only 14% of our used vehicles were acquired through the auction, and over 50% of our inventory came from passive channels only available to new car dealers. New and used vehicle sales are supported by our experienced financing specialists that help match the complexity of a consumer's financial position with lending options at over 180 financial institutions, including Driveway Financial. In the quarter, our finance and insurance business line continued to show a substantial improvement, averaging $1,818 per retail unit compared to $1,458 per unit in 2019, an increase of $360. While we are pleased with this progress, we acknowledge that F&I remains an area of opportunity to expand additional product offerings, and we remain focused on continuing to improve penetration of our protection products. New and used vehicle sales create incremental profit opportunities through the resale of trade-in vehicles, greater manufacturer incentives, F&I sales, and future parts and service work. We continue to monitor this through the growth of our total gross profit per unit, which was $5,778 this quarter, an increase of $2,118 per unit, or 58% over 2019. Our stores remain focused on the highest margin business lines, service body and parts, which increased 3.4% in revenue and 11% in gross profit as consumers return to work and travel the roads in the comfort and safety of their vehicle. The recovery was driven by an 11% increase in customer pay and a 6% increase in wholesale parts, offset by a 10% decrease in warranty and an 8% decrease in body shop revenue. We expect these trends to continue into the 3rd quarter as the economy reopens further. As a reminder, our service body and parts business see over 5 million paying consumers and brand impressions annually, which generate over 50% margins and remain a huge competitive advantage for Lithia & Driveway. Same store SG&A to gross profit was 56.4% in the quarter, an improvement of 1,440 basis points over 2019. While we expect SG&A to gross profit to normalize as new vehicle supply and gross margins balance back to historical levels, we continue to benefit from the permanent headcount reductions of 20% or almost 300 basis points of SG&A and other efficiency measures implemented last year. Given these improvements to our model and the realization that our highest performing stores consistently maintain an SG&A to gross profit metric in the mid-50s pre-pandemic, we believe that we are well on our way to exceeding our 5-year plan and look to improve beyond our top quartile. The opportunity to leverage our cost structure will further be enhanced as we maximize the utilization of our existing locations with our digital home solution Driveway, and continue to add incremental sales. Turning to Driveway, the recently launched features Bryan spoke to earlier provide consumers with a massive selection with upfront transparency that allows you to solve your financing needs quickly, easily and independently. While financing is one of the most complex components of the vehicle buying process, the changes have already enabled us to see better qualified leads and increased transaction efficiency. Driveway's financing solutions, which include new vehicle leasing and captive OEM finance options, now represent 29 lenders that are fully integrated with Driveway technology and are available to consumers with approvals that can occur in a matter of seconds. With a variety of financing sources to match consumers' needs, our offerings are uniquely positioned and difficult to replicate. We also want to welcome our second Driveway care center in New Jersey. We plan to add an additional care center location by the end of the year as we scale to supporting growing consumer demand. We anticipate expanding our Driveway support teams 10 times by the end of 2022 to support expected demand. During the quarter, LAD's fintech arm, Driveway Finance Corporation, originated over 1,500 loans per month, resulting in a 400% increase in business over 2020. At quarter end, our loan portfolio exceeded $370 million. Our underwriting decisioning is supported by Driveway Finance's proprietary credit scoring model, which is supported by years of historical data, allowing us to offer the customer attractive rates and mitigating the risk of loss. Driveway Finance allows us to synergistically retain more of the profits generated from our existing retail businesses, is another example of the further diversity available to our business model. We continue to see Driveway's Fintech platform elevating the experience for consumers, and our goal over the next five years is to scale Driveway Finance to capture 20% of all vehicle sales transactions. Given the acceleration of acquisitions, we are expanding the base for Driveway Finance Corp to draw from. In summary, our teams remain humble and responsive to the changing environment and the opportunities available to continuously improve the evolving consumer demand in personal transportation. We are innovating and meeting consumers' increasing digital and in-home expectations, and are focused on meeting the preferences of our consumers wherever, whenever and however they desire. With the integration of several regional platforms that transitioned with strong operational leaders and customer-focused teams, we remain humble and confident that we can continue to deliver industry-leading results while pragmatically modernizing automotive retail. We are focused on our five-year plan to achieve $50 billion in revenue and exceed $50 of earnings per share. With that, I'd like to turn the call over to Tina. Thank you, Chris. For the quarter, we generated over $492 million of adjusted EBITDA, an increase of 284% compared to 2019, and $282 million of free cash flows, defined as adjusted EBITDA plus stock-based compensation, less the following items paid in cash: interest, income taxes, dividends and capital expenditures. As a result, we ended the quarter with $2.6 billion in cash and available credit. In addition, our unfinanced real estate could provide additional liquidity of approximately $655 million for a combined nearly $3.3 billion of liquidity. As of June 30th, we had $4.3 billion outstanding in debt, of which $1.3 billion was floor plan, used vehicle and service loaner financing. The remaining portion of our debt is primarily related to senior notes and financed real estate, as we own over 85% of our physical network. The current environment offers attractive returns on lending, and to expand our reach, last month we increased the financing available on our ABS warehouse line from $150 million to $300 million, with the ability to expand the line to $400 million. We expect to enter the ABS term market late this year. That, along with the efficiencies that would be realized upon attaining an investment-grade credit rating, will further increase our returns on the Driveway Finance portfolio. A unique aspect of debt in our industry is the financing of vehicle inventory with floor plan debt. This financing is integral to our operations and collateralized by these assets. The industry treats the associated interest expense as an operating expense in EBITDA and excludes this debt from balance sheet leverage calculations. Unadjusted, our total debt to EBITDA is overstated at 3.37 times. Adjusted to treat these items as an operating expense, our net debt to adjusted EBITDA is 1.25 times. As a reminder, our disciplined approach is to maintain leverage between two and three times as we continue to progress toward another sizable competitive cost advantage of achieving an investment-grade credit rating. Our capital allocation priorities for deployment of our annual free cash flows generated remains unchanged. We target 65% investment in acquisitions, 25% internal investment, including capital expenditures, modernization and diversification, and 10% in shareholder returns in the form of dividends and share repurchases. Earlier this morning, we announced a $0.35 per share dividend related to our Q2 performance. With the capital raise completed, we are well positioned for accelerated disciplined growth. We continue to make strong progress in modernizing an omni-channel consumer experience, both in store and through Driveway. Combined with a robust balance sheet, we are well-positioned to be the leader in consolidating this massive industry, all while progressing toward our 5-year plan of achieving $50 billion in revenue and exceeding $50 in earnings per share. This concludes our prepared remarks. We would now like to open the call to questions. Operator? Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You can press star 2 if you would 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 star keys. In the interest of time, we do ask that you please limit yourself to one question. Again, that is star one to register a question at this time. Our first question today is coming from Rick Nelson of Stephens. Please go ahead. Thanks. Good morning and congrats on another great quarter. Thanks, Rick. Curious, as you march toward this $50 billion target, are you running into any challenges at all with the OEMs in terms of approvals? Rick, this is Bryan. We are not running into any challenges. The pathway has been paved with them over the last couple decades of really buying underperforming stores and really showing that we can put the right people in place to be able to improve the performance at substantial levels. That's really helped with those relationships. Plus, myself and Chris and our group leaders are actively involved with the relationship with those manufacturers and don't foresee that as an inhibition to achieving the fifty/fifty plan. Okay. Can I just follow up the pricing environment on acquisitions. Some of your peers are saying it's really frothy. The data you provided this morning, 3 to 7x EBITDA sounds more rational than that. Any commentary about pricing would be helpful. Sure. That there is some frothiness, there's no question, Rick. When you have a $15-plus billion pipeline, there's enough stuff to choose that's appropriately priced, and most of that is all within that 3 to 7x range. It's surprising that with capital gains increases looming, that the number of acquisitions out there just continues to grow, and we're really sitting there at about a 120-day window that deals have to be completed for them to occur during this calendar year. That's helping maintain pricing at some level of reasonableness. As we think about our growth strategies, it's really about the network and ensuring that the density of the network, like the Mississippi deal and a few others that we've got working in the southeast, are filled in and allows us the ability to be able to service our customers throughout the entire life cycle of their ownership experience. Great. Thanks for the commentary, and good luck. Thanks, Rick. Thank you. Our next question is coming from Rajat Gupta of JP Morgan. Please go ahead. Hi, good morning, and thanks for taking the questions. You're welcome. congrats on a pretty strong quarter. I wanted to start with a question on the SG&A. Could you give us a sense of, the number of employees at the company today, based on like the recent acquisitions? Yeah. Good morning. This is Chris. Currently, we're running around 20,000 employees in the network. Yeah. Rajat, let me also add that we had permanently reduced headcounts by 20% back last March and April, and those, that it was about 2,800 people at that time, are still permanent, okay, which is about a 300 point reduction in overall SG&A costs. Okay. Most of the increases are just coming from buying the new businesses. We have acquired $8 billion in revenue over the last 12 months or so, which is really where those that overall increase has happened. The discipline in terms of cost management and headcount is still quite high, and the productivities continues to grow. Got it. Yeah. The reason I was asking the number is, I mean, looks like versus 2Q 2019 levels, I believe you were around 14,000 employees. It looks like your employee headcount is up roughly 30%-35%. Your combined units have grown 65% since 2Q 2019. Is that kind of productivity level sustainable going forward? Do you think you need more people at a store just from a customer experience standpoint? Just curious as to, like, how we should think about sustainability of this, of this kind of productivity. Yeah. We actually added some things to slide 16, which is our network costs, which includes those people, okay. We really believe that technology as well as the consumers spending more time on working through their transactions on their own is going to be able to continue to increase productivity levels. On a finite basis, pre-COVID, we were at about 15,000 employees, and we dropped to around 9,000, if you remember, of which half of that 6,000 drop was furloughs, okay, and those are all back now. The other 3,000 is what's permanent. On a if you're using a 14,000 base, okay, that would be probably relative to about 11,500 is the net employee count at on a same store basis at that level. When we think about our ability to constructively drive down SG&A, we don't know how low is low. I mean, what we know is that the top quartile of our stores perform at a sub 55% level in a pre-COVID environment, and they're operating about 1,000 basis points below that, so let's say a mid-40% range. What we know is our network is quite optimized and has a lot of good businesses that all should be able to perform at that, and we really haven't started to really constructively change the economics in terms of how do we manage the ultimate business. We believe in and we're up for the challenge to be able to drive down SG&A in a massive amount and really de-link that idea of $1 billion in revenue produces $1 of EPS. We hope it can produce $1.20 or more and Driveway has a lot of that ability to gain that leverage because we've never really sat here with a national brand and had the advantages of scale and leveraging that inventory and that infrastructure that we've built. Got it. Th at's helpful. Just a question on Driveway as well. Could you give us a sense of based on the regions that you have launched that platform, how many of the stores are opting in onto Driveway? Relatedly, how are the in-person store sales force incentivized to list on Driveway? Is it based on procurement or turnover, et cetera? Just curious if you can share any thoughts on that. Thanks. Sure. We have 95% of the traditional Lithia network that's participating in Driveway. We also, when we think about what the store's participation is, it is a non-customer facing role other than the last mile delivery that's completed by a non-negotiating valet, which makes up about two-thirds of our employee base. It's typically that the store is doing some level of paperwork. They're doing reconditioning, they're procuring inventory, really they're doing behind the scenes VSC stuff for purchasing a vehicle. We keep it pretty straightforward that the stores continue to sell cars under their traditional model. We do share best practices, hopefully, over time, they're able to take some of the costs out of their traditional model. Ultimately, today, we're asking them to continue to sell and service cars the way that they traditionally do. Now, they're also beginning to behaviorally shift into in-home service, and we have a little over half of our stores that are performing in-home service for their traditional customers. Remember, at Lithia & Driveway, most all of our service experiences are one price, so those are very transferable into the Driveway experience as well. Whereas our sales experiences have some level of negotiation, and obviously in today's hyperinflated demand environment, there's probably a little less negotiation than normally occurs in the network. Got it. Right. All right, great. That's helpful. Thanks for all the color and good luck. Thanks, Rajat. Thank you. Our next question is coming from Ryan Sigdahl of Craig-Hallum. Please go ahead. Good morning. Congrats on another quarter of great results and progress. Hey, Ryan. Curious, a couple questions on Driveway. You mentioned 550 transactions in June. Curious how that compares to April and May 1st. Those volumes increased month-over-month by about 15%. Gotcha. You mentioned 5% of dealers not participating at this time on Driveway. I guess, is the expectation that eventually they will? What is stopping those dealers from coming on? It's a small amount. The main reason it's stopping them is the ability to break down price into a rebate and a accessory level. It's more about legalities in certain states, as to why they don't participate. There is a little bit of a propensity for people to be a little territorial on inventory right now when we sit at a 23-day supply on new. We do have another 20 days in transit, so for a total of about 43 days on new. We are sitting at 58-day supply on used, which is quite nice. Still there is some stores that have tendencies to wanna service their local consumers and not, at the current time because of that tighter inventory supply, participate in Driveway. It's a small amount of about, maybe about 10, 15 stores today. Yeah. On the auto approval for financing, it was down from 20% to 15% quarter-over-quarter. Is that just normal variability, low numbers, or have you recalibrated the algorithms to effectively auto-approve less? No, the algorithms are working the same. We also have the diagnostic AI now that's helping guide consumers. It's really just the makeup of a consumer doesn't allow them to get auto-approved, and that's where the care centers are having to be built at faster levels than we expected because it does take constructive time to guide consumers through the process and help them understand their cash requirements, their just equity situations and their credit needs. Fantastic. I'll turn it over to others. Nice job, guys. Good luck. Thanks, Ryan. Thanks, Ryan. Thank you. Our next question is coming from John Murphy of Bank of America. Please go ahead. Good morning, guys. I have about 50 questions, but I'm gonna put them into one bucket, so I'll try to be efficient, I apologize. That's okay. On the transformation of the company here, there were a couple things that just seemed a little interesting, and I just wonder if you'd clarify and comment on them. First, you mentioned that you could do equity for a transformative acquisition and then also mentioned that you were considering English-speaking countries. I mean, both of those can mean a lot. I just wonder if you could maybe give us a little bit of clarity on that. Also on the captive finco, you're up to $370 million on the books right now. I'm just curious, as you build Driveway Financial and go out to the ABS market, what size deals we should be thinking of and when that'll come. On the 500 transactions that were done on Driveway, it sounds like that's ramping quickly. I mean, that's a small number now, but that will get much bigger over time. Just curious, the interaction other than full transactions getting executed on Driveway, if you have any other metrics on how much consumers are working down the purchase funnel, and then maybe coming into the showroom or interacting with an associate to actually get the deal done. Those three transformative comments or data points you gave us on the call, any clarity? Those are good questions, John. Hopefully, hopefully, I can remember all four, okay? First and foremost, the equity that we raised in the last two offerings, takes us up substantially to about $1.5 billion in total cash flows as a company. That $1.5 billion, once the capital is deployed over the next two to four quarters, gives us the ability to really grow at about a $7 billion-$8 billion annual clip without adding leverage to the balance sheet. That can get us somewhere in the 20%-25% level, which should cover everything other than a transformative acquisition that would require us to maintain leverage of below three times. Okay. That's why we kinda note that even though the likelihood of that is obviously still low. The English-speaking countries comment, I mean, really we're talking about, this is the order of priority. Canada is our number one target. We've spent the last five years getting to know the dealer body there, and have pretty good relationships with most of the large groups and believe that something is imminent in that country. If it comes to the U.K. or Australia, those are a little less, less relevant at today's date. Those are probably two to five years out, kinda where Canada was a few years ago. Nothing urgent. We really look at Canada as an extension of the United States. It has similar economic backgrounds. It has similar governmental regulation and so on. We feel very comfortable in that. Chris, do you wanna quickly talk about the captive and what our timeframe looks like on ABS and the scale of that? Yeah, you bet, Bryan. As far as our Driveway Finance team, we're really proud of the job that they're doing, being up over 400% year-over-year in originations at 4,400 in a quarter. Ultimately, when we started this strategy, the goal was to get 20% of our finance business. As we continue to ramp up our acquisitions and our partnerships with new teams, obviously that pool of business continues to grow. As far as the ABS market's concerned, a lot of it's gonna be dependent on the capital that we generate and the capital we deploy in other means. We're anticipating something around Q4 of this year that we would do our first ABS launch. John, one other quick thing on that would be that we expect it to be in the $400 million range, okay, as the first tranche. It's quite good credit. It's a little higher than what we expected. Stay tuned on that, but that should grow momentum. One other quick comment is our base case on the fifty/fifty plan. We only assumed a $12 billion base of business that's being generated and contributing to the fifty/fifty plan, when the fifty/fifty plan ultimately is about 4x larger than that. Again, that's a way to constructively separate that EPS from revenue and be able to bring more money to the bottom line. The last thing that you had asked about was the ramp-up of the Driveway business and the 550 units. It's important to remember that that level of volume is nearly 2 to 3x what our e-commerce used-only competitors were at in their 6th month of business. We are trending at a much better rate. It is ramping up at an accelerated pace, as Chris Holzshu mentioned, a lot of this now is really behind the scenes. It's care center involvement, where now we just opened in South Amboy, South Jersey, our 2nd care center. Even though it would seem like you'd only need one or two, we believe that the care centers need to compete because it's young for us and it's new to us, that we want those care centers competing. Eventually we'll be opening a mega care center in Texas, which is a good Central Time zone, and it has lots of staffing ability and should be able to take us upwards of those targets that Chris had outlined for year-end and then 12 months following that. It's an exciting time in Driveway, and our early learnings are that consumers are willing to transact without viewing the vehicle, okay, which is quite nice. We are selling a lot more used cars, so our used-to-new ratio is around 5.5 to 1, whereas at Lithia it's one to one approximately, and that was expected. We believe that as our technology by year-end becomes better at the auto approval process, meaning that consumers are able to take it even another step further, where we're actually approving the actual credit and there's not a predictive indicator, where it's actually doing it all for them, which is We'll be the first in the industry to be able to crack that code. So hopefully that gives you enough color on the, on the few questions. John, any follow-ups on that? Just as far as the interaction, though, I mean, it just seems like there's a lot more going on than just the 500, the 550 that you mentioned. I mean, are there any other metrics of 90% of your consumers are starting on Driveway, and then you fulfill them via your omni-channel or physical stores or associates? I'm just trying to understand how many of your customers are starting in Driveway and then ultimately fall into your lap in other avenues? Yeah. Fully transacting. John, there's zero intermissions or intermittence between channels. There is no relationship at all. There is no mechanisms in the care center to send it back to the store. It stays within Driveway the entire life of that customer, okay? We're very fortunate that in our 1st, six months, our Q2 data, we were 97.5% of customers in Driveway were entirely new to Lithia & Driveway. It's an important part of the design and an important delineation between any of the competition that there is no overlap between the channels. It's an entirely independent, experience for the consumers that's negotiation-free. That is the cost of our ability to get to a 4.98 Yahoo and Google rating, which that experience has to be pure. It makes it much easier to be able to do that. We are delivering cars at a lot further radius. If you remember last quarter, we were at 740 miles or so. We're at 930 miles. With scarcity of vehicles, there's definitely consumers that are more apt to turn to the internet to find inventory, just because there's just a massive shortage, and that increased the average logistics cost of the consumer from about $440 to a little over $550 for their actual out-of-pocket on that. Great. Thank you very much, guys. Thanks, John. Thank you. Our next question is coming from Adam Jonas of Morgan Stanley. Please go ahead. Hey, everybody. Really great information. Very, very exciting times for you. So Bryan, a lot of investors are asking us, seemingly daily, when would Driveway be at a condition where it could be spun off, separated, financially, for valuation appraisal by the capital markets? I realize that's an insanely premature question. Sure. You did 550 vehicles. How do you respond to that kind of question? It is there may be some merit to this at a time and a place or not, but just would love to hear how you think about it, what your message would be on that level of financial independence and what it needs to happen between now and then if we get there, I have a follow-up. Sure, Adam. This is Bryan again. At 550 transactions per month, we are about the size of what two of the three publics were when they went public. There is the ability to do that, and that's important to keep in mind. I would also reiterate that the model was built in a way that the two channels highly support each other. Though many believe that the three e-commerce retailers do not have infrastructure, it's important to note on page 16 that their infrastructure costs today are about the same as what Lithia & Driveway's are. The idea of bifurcating that, I believe that it could be done, but I don't believe that it's a necessary thing. Lithia Motors and Driveway has proven that it has the ability to execute, that it's developed a plan that's much different and is very difficult to replicate for anyone else coming into the space. It's important to remember that the competitive advantages of being a new car dealer are hyper important to the overall model of things. That over time the world will see that infrastructure is important and that the traditional business has the ability to recondition closer to consumers. Our new cars generate trade-ins that other independent used car dealers will never be able to get, giving us a massive cost advantage. There's other benefits that over time, the two organizations behave best together. Now, we have built everything so it could be bifurcated in the event that we're not able to see separation in values or stock value. We'll take that as time dictates and as our valuations really end up. Appreciate that answer, Bryan. Just a quick follow-up. When you mentioned transformative acquisition, and you said low probability, and that's totally fair. Are we thinking horizontal like another dealer group, which is how people interpreted your comments when you said something similar a quarter or two ago? Or could a transformative acquisition be something non-horizontal, non-dealer group, but it's filling in an important technological or infrastructure capability? Great, great question, Adam. I believe that it would be something within the current realm, which would be another new car dealer, where you're adding physical network and the ability to service the entire customer's life cycle. I would also say that Lithia Motors and Driveway is a fairly conservative company that's had to stretch to be able to think about its Driveway strategies three to five years ago and redesigned how we approach that. It's important to remember that those 300 associates are additional SG&A costs today, and we've built that to be able to scale to nearly 300,000 units over the remaining four years of our five-year plan. We have plenty of what I would call headroom to be able to grow, and most importantly, leverage the infrastructure to be able to constructively drive down SG&A. Any type of transformative acquisition would most likely be in our wheelhouse. We think that we've built what we need to build to constructively and meaningfully aggregate this unconsolidated space. As such, we like where we really sit and don't believe that there's anything that needs to be added materially to be able to execute on the 50/50 plan or beyond. Thanks, Bryan. Thanks, Adam. Appreciate it. Thank you. Our next question is coming from Nick Jones of Citi. Please go ahead. Great. Thanks for taking the questions. 2 for me. First, you're pacing ahead of or you're pacing nicely against the 5-year plan, a year in. How are you thinking about maybe updating the plan, either shortening it or increasing the numbers of what the targets are? I don't know if it's still too early, but given kind of the progress, just curious on how you're thinking about that. The second question is nationwide advertising back half of next year, how should we think about that in terms of the impact on margins? Do we expect a tick up? I guess, what kind of population coverage are you expecting when you launch that? Is it 55%? Are you expecting maybe something closer to 70 or higher? How should we think about that nationwide launch? Thanks. Sure. Nick, you're correct, we are ahead of the 5-year plan. What we tried to do on this call was to help you understand that we've always sat at $1 of EPS is generated from $1 billion of revenue. We laid out those six items that can constructively disconnect that formula or that ratio to be able to do that. I would say that our next update will be about how do we turn $50 billion of revenue into something greater than $50 in EPS. I know when we first designed the strategy a few years ago, it was really easy to have that 1-to-1 ratio. Today, now that we see the synergies and adjacencies that are occurring and the ability to leverage a national brand in Driveway, that's gonna be pretty easy to be able to adjust that. That's an easier part of the formula than saying that the network should grow bigger than $50 billion, even though it very likely will need to or can, especially when you start to look at areas internationally to be able to do that. In terms of part 2 of the question, which is the nationwide advertising. What you will see is that Lithia Motors and Driveway will constructively manage marketing budgets according to the golden ratio and according to what our lead costs are to do what's best for the long-term health of the organization, while still building an e-commerce presence that is competitive and is well aware of any of the competitors that may be out there. I would say that when we move to national marketing, that should look like a different metric at inception, which is basically seasoning those markets to be able to improve the golden ratio. Whereas today we sit at 0.05 golden ratio at about 350,000 leads a month, okay, or unique visitors. Okay. Whereas at national presence, it's tenfold of that, which obviously has implications in terms of the overall business model. Whereas those initial eight markets will most likely be into the $2 per lead instead of $4-$6 a lead, like leads cost when we first move into a marketplace. In the fifty-fifty plan for Driveway, we have $1,000 built into year five for marketing, which is basically a 0.2 golden ratio or about 0.05 lower than what our peer group is doing in e-commerce. They run at about 0.25, we're pretty conservative there. That means you need about 500 leads for every one sale, okay? At $2 a unique visitor, you're talking about $1,000. That $1,000 in marketing costs, we believe ultimately can be much lower than that over time. The other $1,000 in the SG&A cost is really built off personnel expenses, and then there's a small incremental amount on network for the care centers and the innovation hub. That gets you to around 57% SG&A as a percentage of gross, okay? Again, we think that's hyper-conservative relative to the numbers that we're constructively working towards on an aspirational basis. Great. Thank you. Thanks, Nick. Thank you. Our next question is coming from Christopher Bottiglieri of Exane BNP Paribas. Please go ahead. Hey, good morning, everybody. Thanks for taking the questions. First off, I agree with you that, like, I would never break these two businesses up with the Driveway, just given the sourcing and infrastructure advantages. I guess my question to you would be, why not do the opposite and bring them closer together? It seems like e-commerce businesses are more about scale, network effects, and customer acquisition. The Lithia business is one of the largest dealership networks in the country. Why not leverage that scale? Sure. Just based on your early learnings from Driveway today, like have you begun to think about this longer term and any benefits of bringing the two together? Yeah, Chris, that's a great, that's a great insight. When we think about the idea of the channels becoming similar, when we began the behavioral transformation of the organization a couple years ago and began to talk about incentivizing the existing network for those that procure the inventory get the profit, that was instrumental in gaining the buy-in from them. I believe over time, the best practices will be shared by the different channels, and that stores may make the decision to be able to transition. Constructively, to be able to drive down SG&A, it may have to be done in a way that you're motivating the stores to do it, much like we do with the profitabilities from Driveway. I also know that the existing model is highly profitable. It has massive advantages in terms of financeability, in terms of face-to-face presence with the consumer that keep those channels independent. We always say we're going to provide solutions to consumers when, where, and how they choose. There is a large portion of the consuming public that today like the ideas of negotiation. They like the ideas of face-to-face test drives and they need help with financeability. We'll know if there's a right time and place, but today there is no constructive plan to bring those together, even though the constructive plan is provide multiple solutions to consumers and drive down SG&A costs as low as we can possibly get to. Some of that idea of combination of the channels will occur over time. We also most likely will modify some of the new car network with Driveway brand names over the coming quarters and years. Okay. That may be an easier way to gain the scale and leverage the national brand across new car franchises as well with those manufacturers that allow the branding of Driveway, which is about 75% of the manufacturers. Got you. Okay. Just quick follow-up. Obviously one of the plans is to make the store dealership network more efficient. It seems like the Driveway website's getting a lot better. You have a lot more technology. It's leading to greater efficiency. How challenging of an exercise would it be to take that Driveway infrastructure from the website and kind of create a homogenized, like, standardized website for your local dealerships? I know they would keep the same brand they have today, but is it even technologically feasible to create, like, a common architecture that's creates more of the process online for the local dealerships? How do you think about that over time? That's accurate, Chris. I mean, we designed it so it's transferable. When you think about the proprietary technology of Driveway, it does wrap around two things. One is a transparent buying process that is negotiation-free, and then secondarily is the in-home convenience of having that delivery model. We do have on the roadmap the ability to apply the proprietary technology to the local brands. That will start with the stores that have similar buying practices, which today we have probably six stores. Is that about right, Chris? Yeah, that's exactly right. That are really a one price or low haggle type of model and do a lot of their business in-home. Also on the roadmap is really powering up GreenCars, which is another affinity brand that now makes up about, it was about 5.8% of our total volume is made up of a sustainable vehicle as a company. In the West, GreenCars are quite important and our states out here are a little bit more electrified and that's a big part of it as well. That is all roadmapped into the design. As stores' processes become more similar to Driveway, if they choose to do that, then the technology can be ramped up and obviously replicated in those environments. We can replicate the process even in a negotiated type of environment where a consumer can actually complete end-to-end transaction. It just means that the datasets have to allow for some input. When price isn't typically determined by the consumer, it's a little tricky to do it. In a consultative environment where consumers are coming in to the stores, it's easy for an associate to be able to work through with a consumer a negotiated price and input that variation in pricing. Got you. Very helpful. Thank you. Thank you. Excuse me. Our next question is coming from Bret Jordan of Jefferies. Please go ahead. Hey, good morning, guys. Good morning, Bret. Hi, Bret. Hey. As you look at the inventory and you say you've got 20 days in transit, could you talk about the cadence of the in transit? Are you seeing supply coming back at all? Maybe if you could give us a feeling for when you see the low water mark in new vehicle inventory. Yeah, Bret. Good morning. It's Chris. The clarity in all of that is not perfect because every OEM has a different allocation method for giving you kind of what that in-transit number looks like. Generally speaking, we expect, inventories to continue to normalize throughout the back half of 2021 and into the first part of 2022. As far as the low water mark is concerned, I mean, by indications of what we're getting and what we're seeing in allocations, July and August should be the low water mark, and we should see improvement after that, just based on the increasing allocations that we're seeing in certain OEMs already. As far as, like, specifics are concerned, the leanest inventory that we're running right now is with, Toyota, Subaru, and General Motors. All indications from them seem to make us believe that we're gonna see improvement in those allocations over the next couple of months. Okay. I guess the recent move of OEs or a few OEs to restrict lease returns to franchised same brand dealerships, is that a real positive, or were not a lot of vehicles going back to say, used only or outside brand dealerships? That the idea around it makes sense, and there is gonna be some lift if you have a lease return at a typical OEM. Typically the, t he home OEM is or the home brand or the home store is the one that's actually taking, first shot at those vehicles anyway. While there might be some incremental lift, and it should support some off-lease vehicles going to our existing stores, I don't think it's gonna be that meaningful for us to really comment on today. Okay. one last question on supply. I guess, as you've seen a lot of M&A activity or in your, in your pipeline, you must have some visibility as to broader day sales and inventory out there. Would you say the smaller dealerships are materially different inventory levels than some of the public dealer groups we see numbers on? Bret, this is Bryan. I When we look at the businesses that we're buying, we're not seeing major differences in inventories. I would say if anything, it may be more geographically dispersed because you still have to remember that the pandemic is still about 60 days out of the box in the Western states that were a little slower to reopen. Their inventories probably look a little better than the Texas' and Florida's that went hog wild, 4-6 months ago. I would say that's probably more of the dissimilarities. We do sit at that 23 day supply, which is quite nice, and have that in transit. That should all look good. Obviously, with 58 day supply on used, we sit quite nicely going into Q3 and into Q4. I will say this is as much a demand-driven environment than it is a supply or chip-driven shortage, okay. Obviously now with the child credits that just started and are going to carry through the end of the year, we see no reason why demand shouldn't be strong. Obviously, the manufacturers are scrambling from other parts of the world that have higher COVID numbers and are able to pull some units. Like Chris said, we've seen the worst of things and should be able to offset any differentiation in new cars with used car sales. Great. Thank you. You bet, Bret. Thank you. Our next question is coming from David Whiston of Morningstar. Please go ahead. Thanks. Good morning. On slide 15, you're talking about the average FICO score for Driveway customer being lower than the typical Lithia customer. I'm just curious, how much of that FICO difference is because Driveway is much more heavily used vehicles versus just Driveway's getting a totally different customer? I don't know if it's possible to slice it that fine. Sure, David. This is Bryan. Our average Driveway FICO score is 670, and at Lithia it's 717. It is a little bit different. What our original findings are, and this was part of the original thesis, is we believe that one of the major groups of consumers in e-commerce is people looking for financeability. There's been a lot of pain felt by consumers over the last number of decades on their financeability, and that it's easier for a consumer to turn to a transparent online experience and not have to deal with the battering from traditional dealers in terms of their credit, which drives that more than anything. Remember, the online inventory is about matched for Lithia and Driveway. There is no material difference, okay? It's something more about who the consumer is rather than what the inventory is. We are selling a lot more used cars than new cars, even though the new car inventory is online. That's really a function of the financability of the consumer that is really out there. Lithia is financing about 66% of its sales, whereas Driveway is at about 73%. That lower credit is more of a behavior of people don't want to have to uncover difficult circumstances that they may have had that caused the credit impairment. This is an easier way to deal with it, and our care centers are highly acutely aware of that and spend that time consulting and helping people feel comfortable in the Driveway environment. That's helpful. Thank you. On the auto world after the chip shortage, I'd like to get your opinion on where should inventory go in terms of that old benchmark of 60 days? As you know, GM and Ford have committed to being a lot less, doing a lot less inventory after, once this is all resolved. Somewhat related to that is, do you want to see the American auto industry go back to a much more build-to-order model like it was a long time ago, or do you like the current setup? That if the industry could move to a build to order, much like Western Europe, which has higher real estate costs, then it would be very beneficial to the overall model. I find it difficult to believe that competitive manufacturers, though, are going to build the correct number of cars and have always traditionally overproduced, even though we'll hope that they're able to do that. I find it hard to believe that that will occur, and I believe that new car inventories of 60, 70-day supply is probably pretty typical. Those manufacturers that are pretty savvy on inventory and always have been, like most of the Japanese imports, probably will continue to be in the 30- to 45-day supply like we normally realize in more of a build-to-order model or a little bit less complex, build-able orders than what the domestic manufacturers that really have a broader product array with many more options when it comes to the pickups and SUVs. Related to that, though, what's your opinion on the American consumer? Can they be patient enough to do a build to order, or are they going to want to have that vehicle on a lot when they go to the store or the website? That there's a big way between a 60, 70-day supply and a zero-day supply. I mean, at even a 23-day supply, consumers are able to get immediate gratification. That'll be for the consumers to decide, "Am I looking for an exclusive built car that's specifically me, or am I where I'm willing to wait, or am I going to take something that's on the lot?" that's to each their own to make that decision. I do believe you're right, David, that there is an immediate gratification in this idea that you're going to have 100 cars to choose from that are all quite similar that Americans seem to like. We'll have to balance that, and the consumers will ultimately determine that by not buying cars on the lot that are run-of-the-mill and rather get that additional, individuality that maybe they're looking for, which some consumers, but it's difficult to speak to that in generalities. Okay. Thank you. Appreciate it. Thanks, David. Thank you. This brings us to the end of our question and answer session. I would like to turn the floor back over to Mr. DeBoer for closing comments. Thanks, Donna. Thanks everyone for joining us today and look forward to updating you on our Lithia and Driveway third quarter results in October. Bye-bye. Ladies and gentlemen, thank you for your participation and interest in Lithia. This does conclude today's event. You may disconnect your lines or log off the webcast at this time, and have a wonderful day.