Good morning, and welcome to the Lithia & Driveway fourth quarter 2021 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'll now turn the call over to Jack Evert, Director of FP&A. Please go ahead. Thank you. Presenting today are Bryan DeBoer, President and CEO, Chris Holzshu, Executive Vice President and COO, Tina Miller, Senior Vice President and CFO, and Chuck Lietz, Vice President of Driveway Finance Corporation. Today's discussions 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 fourth quarter results. With that, 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 fourth quarter EPS in company history at $11.39 per share, 109% increase over last year. Our full year adjusted EPS was also a record, coming in at $40.03, 120% increase over last year's $18.19 per share. Record annual revenues of $22.8 billion were driven by contributions from acquired businesses, our growing e-commerce platform, and successful navigation of the supply and demand environment. SG&A, as a percentage of gross profit, decreased to 57.2%, 730 basis points better than last year, resulting in us generating over $1.8 billion in adjusted EBITDA for the year. Given the higher- than- expected EBITDA generated and our M&A cadence since the launch of the plan, we are excited to provide an updated 2025 plan and our vision of the future state for Lithia & Driveway. 18 months ago, we launched our plan to grow from just under $13 billion in revenue and $12 in EPS to $50 billion in revenue and $50 in EPS. The transformation of our company into a diversified omnichannel retailer, leveraging our nationwide network and over 7 million annual customers, is now well underway. Today, we are eclipsing our initial plan and seeing early returns from leveraging our scale, adjacencies, data, and growing network. Through these efforts, we are de-linking the historical relationship of each $1 billion of revenue, producing only $1 of EPS as follows. We just completed a year where, despite inventory constraints, we generated nearly $23 billion in revenue and earned $40 in EPS. Including a full year of performance from 2021 acquisitions, our annual run rate is well beyond $25 billion in revenue. Next, we have acquired businesses that will contribute $11.1 billion in annualized steady-state revenues and entered the Canadian market. Our physical footprint now reaches 95% of consumers within a 250-mile radius. In January, the 13th month since the inception of Driveway, we achieved over 2,000 transactions. In addition, 28,000 of our Lithia channel sales in Q4 were e-commerce, representing a combined annual revenue run rate of $6 billion in LAD e-commerce revenues. Driveway Finance, or DFC's portfolio, stands at over $700 million as of December 31. When we reach $50 billion in revenue in 2025, we now believe that every $1 billion in revenue will produce $1.10-$1.20 in EPS, or $55-$60 in EPS. The increased profit target considers the following factors: Sales volumes reflect a blended 2.5% new and used vehicle U.S. market share. Next, continued investment to scale Driveway and GreenCars is included. Total vehicle GPUs returning to pre-pandemic levels. Improvements in personnel productivity. Increased leverage of our underutilized network. Economies of scale in marketing from national brand awareness, driving SG&A as a percentage of gross profit towards 60%. Acquiring a further $9-$10 billion in annual revenues to complete the build-out of our North American footprint of 400-500 locations. We do not expect any further equity capital raises, meaning no further dilution of EPS. Next, an investment-grade rating and utilization of free cash flows for M&A and internal investment, driving decreased borrowing costs. Flexibility and headroom in capital allocation for share buybacks in the event of valuation disconnect. Continued drag on DFC's profitability due to building of CECL reserves as we scale from our current penetration rate of approximately 4% to a targeted 15%. Finally, early benefits from adjacencies with higher pre-tax margins that also carry structurally lower SG&A costs. Given that the contributions from new businesses will still be in growth stages in 2025, as such, the above outline doesn't fully extrapolate our EPS potential. As such, we are also providing insights into a longer-term future state that reflects the contributions from these factors at maturity, along with other known adjacencies. Layering those benefits onto the $50 billion in revenue base attained at the completion of the 2025 plan and growing towards 5% U.S. market share, we see opportunity for each $1 billion of revenue to produce up to $2 in EPS. Our future state contemplates the following additional drivers. Up to 20% of units are financed with DFC, and there is no headwind from recording the CECL reserves outpacing the recognition of interest income. Our cost structure is optimized to below 50% SG&A as a percentage of gross profit. Finally, our horizontals such as fleet and lease management, consumer insurance, and new verticals are further developed. Please take a few minutes and review our new slide deck and IR website. More specifically, slide 10 now provides a glimpse into how LAD will look in 2025 and beyond. We have also refreshed the timeline, competitive advantages, and new market information slides in the appendices. Turning to acquisitions, it's important to emphasize the synergistic relationship between our expanding physical network, Driveway, and adjacencies like DFC and more. In addition to being cash flow positive and highly accretive to EPS at inception, acquired businesses support Driveway's in-home solutions, enabling faster delivery, after-sales experiences, quicker turnaround times for reconditioning, lower logistics costs, and a higher proportion of sales with no shipping fees. In addition to these competitive advantages, acquired businesses also expand the base from which DFC originates loans, accelerating its growth. Together, these create services, experiences, and lasting brand impressions throughout the vehicle ownership life cycle. Since the end of the third quarter, we have completed acquisitions that are expected to generate $1.4 billion in annualized revenues, adding critical density to the North Central Region 3 and the Southeast Region 6. Looking forward, we have $1.1 billion in annualized revenue under contract or LOI. In addition, our active deal pipeline has grown to over $13 billion. We remain confident in our ability to find deals that build out our physical network and that are priced at 15%-30% of revenues or 3x-7x EBITDA. This discipline ensures that we will meet our after-tax return threshold of 15% in a post-pandemic profit environment. LAD is known in the industry as the buyer of choice due to smooth manufacturer approvability, timely, confidential, and certain completion of transactions, and retaining over 95% of its employees. Last month, we shared that Driveway had significantly outperformed its December volume target by 32% with 1,650 transactions. This momentum continued into January with over 2,000 transactions, taking us one step closer to our 2022 target of over 40,000 transactions or an estimated $1 billion in revenue. With a little over a year since Driveway entered the marketplace, we are excited with the positive response it's receiving from consumers, the growing brand awareness, and how it is expanding our reach beyond the local markets in which our Lithia channel operates. Over 97% of our transactions were incremental to Lithia or Driveway and have never transacted with us in the past 15 years. In addition, our average shipping distance was 932 miles, though we believe once the network is fully built out and inventories return to normal, shipping distances will be meaningfully less. We continue to learn, improve, and add new functionality to driveway.com. Earlier this year, we launched our fully proprietary new car platform and a more robust finance prequalification module. Well done, George and team. On the used vehicle side, our technology is now more advanced or at parity with our e-commerce peers that have been in the market significantly longer. These new features will enable us to increase our conversion rates by further expanding our consumer optionality. Driveway continues to provide shop and sale functionality and in-home delivery to every part of our country. During the quarter, our marketing expanded to another nine markets located in Regions 4 and 6, now totaling 19 markets and reaching 27% of the U.S. population. While continuing to expand budgets in key markets, we recently launched our first nationwide advertising campaign on sports radio, laying the groundwork for the full rollout of nationwide advertising as the year progresses. Our team is laser focused on targeting advertising spend, increasing conversion rates, and improving performance in our three Driveway care centers. For 2022, the expected $1 billion in revenues contributed by Driveway represents the amount generated from shop transactions along with the revenue associated with the subsequent retailing or wholesaling of vehicles procured by Driveway. This reflects similar revenue recognition to our e-commerce used-only peers. Driveway Finance, or DFC, is the adjacency that is the most mature and has the potential to massively disconnect revenue and EPS. Chuck Lietz, our Vice President of DFC, with decades of executive-level experience in this space, has overseen the development and expansion of DFC since early 2019. Under his leadership, we completed the inaugural offering and today have grown the DFC portfolio to nearly 3/4 of $1 billion. Chuck joins us today on the call and will be providing additional insights on DFC's performance in just a moment. Before closing, I want to briefly touch on electrification and potential future evolution of the current industry sales model. We are excited and will continue to lead the future move to sustainable transportation and more seamless and convenient ownership experiences. First, LAD believe that sustainable vehicles are the future and that educating consumers to drive greater adoption is not just good for our business, it's good for our planet. To that end, in 2019, we launched greencars.com, the leading educational site and marketplace for consumers to research the environmental benefits, performance, and affordability of sustainable vehicles. During 2022, we will be further upgrading and powering up the GreenCars marketplace with Driveway's industry-leading proprietary new and used technology. This will be supported by a 20-fold increase in our marketing spend to champion education about sustainable vehicle ownership. In addition, our early learnings have shown that these affinity buyers convert at a higher rate and cost about half the amount of our other e-commerce leads. Moving on to after-sales. Sustainable vehicles appear to have lower repair and maintenance needs than comparable ICE vehicles through their first seven to 10 years of ownership. Now that we are approaching the expected battery replacement windows for Gen 1 BEV and PHEVs, ultimate affordability will become much clearer. Today, there is still limited data on battery replacement and the impact it will have on total ownership cost, residuals, or even salvage values. Combined with income streams from battery replacements and reconditioning, LAD's in-home service offerings, proprietary diagnostic service equipment, and expanded customer retention through longer warranty periods on sustainable vehicles will enable us to both retain and conquest business from third-party after-sales competitors. Second, franchise laws are determined state by state and are an integral part of the U.S. economy. They establish a framework not just for dealers, but for franchisors and franchisees in many industries, not just mobility. Though we believe we could benefit from the removal of franchise laws, we view the model's future evolution being driven by removing friction and creating a more seamless experience from build to Driveway for consumers. The design thesis of our 2025 plan was built on providing consumer optionality and diversifying LAD so that it thrives in any environment. In closing, our company is just beginning to leverage the benefits of the massive customer data we possess and proprietary technology, growing adjacency, and what's possible with a national network and branding. Unlike other retail sectors, automotive retail is totally unconsolidated, and our 2025 plan is the first to activate the potential of these various components and integrate them into a cohesive, holistic, dynamic, and transformative customer experience and business model. LAD has a track record of exceeding targets through strong execution in any environment, as demonstrated in the 18 months since the launch of its 2025 plan, the 25 years since becoming a high-growth public company, and our 75-year history since our inception here in Southern Oregon. Delighting our customers and responding to evolving trends while growing revenue and profitability is in our DNA. The next few years, and those beyond 2025, will be no different. With that, I'd like to turn the call over to Chuck Lietz, our Vice President of Driveway Financial. Thank you, Bryan. DFC's value proposition is to provide seamless financing options to consumers governed by an internal credit risk appetite designed to maximize our risk-adjusted cash flows while minimizing volatility during periods of economic stress. We are a full credit spectrum lender targeting a near-prime portfolio, which we feel appropriately balance credit risk with the financial spread we earn. In November of 2021, we completed our inaugural ABS offering, and we're excited with the market's reaction and pricing of the deal. During 2021, DFC originated over 21,000 loans, penetrating approximately 4% of our retail units, and in Q4, became LAD's largest retail lender. We plan to become a programmatic ABS issuer going forward, allowing us to balance the growth of the portfolio with capital required and credit risk. Of the loans originated in 2021, the average loan amount was $33,000, the average interest rate was 8%, and the average FICO score was 670. We have adopted the CECL accounting standards, where we record loan loss reserves upon origination and recognize the interest income over the life of the loan. As a result, individual loans generally are not accretive to earnings until the second year. Given our plan to ramp origination through 2025 and beyond, we'll be growing loss reserves faster than profits. In our future state, however, DFC's contribution is clear. Assuming a 15%-20% penetration rate on 1.5 million units sold, DFC could originate between 225,000 and 300,000 loans and contribute up to $650 million of pre-tax earnings annually. We believe DFC's targeted penetration rates will not impact our relationship with our lending partners. Looking at the future state in DFC's contributions, DFC alone has the potential to significantly grow EPS faster than revenue. The amount of incremental capital generated by DFC will enable us to further grow and transform LAD in a cost-effective manner. Next, I would like to turn the call over to Chris. Thank you, Chuck. We appreciate the job you and your team have done to scale and integrate this adjacency within LAD's powerful network. This will be a huge complement to our core business and a massive profit engine for Lithia & Driveway. Looking back on one of the most challenging years ever in automotive retail, I'd like to acknowledge and thank the achievements of our 22,000 team members. Despite the impacts of the pandemic and inventory shortages, the Lithia channel achieved record levels of profitability and continued to evolve the business to ensure that all customers can buy, sell, or service their vehicles wherever, whenever, or however they desire. This also enabled the company to significantly outperform our 2021 annual operating plans and set us up for another year of high performance in 2022. I also want to congratulate our LAD Partners Group or LPG winners for their exceptional performance in 2021. Recognition of an LPG member is a highly coveted award and represents the pinnacle of our mission of growth powered by people. Though high performance resides throughout LAD, these locations demonstrate a relentless and elevated focus on culture, customer experience, and continuous improvement to create the highest level of execution in automotive retail. Looking forward to 2022 and beyond, our leaders continue to evolve our business practices to address changing consumer preferences, what we call retail readiness. That means upping our game on how we present vehicles in-store or online, how we price and recondition vehicles, and how we use technology to elevate transparency and convenience in the sales and service experience. These actions will drive higher volumes in store and nationwide on Driveway, increase customer satisfaction, and decrease SG&A as a percentage of gross profit. New vehicle sales volumes continue to be impacted in the fourth quarter by the current supply-demand environment, with same-store revenues decreasing 8% and volumes decreasing 21% compared to last year, consistent with the decrease in national SAR. Volume declines were offset by higher gross profit per unit, including F&I, which increased 84% over last year. Our teams excelled in increasing used vehicle volumes to offset the decline in new volumes, with same-store sales revenues up 39% and volumes up 11% compared to last year. Used vehicle gross profit per unit, including F&I, increased 37% over last year. As of December 31st, we had 24 days supply of new vehicles and a 61 days supply of used vehicles. From an inventory procurement perspective, our store leadership team is taking actions that are within their control. For new vehicles, this means increasing our sales velocity and exceeding manufacturer expectations, allowing us to take market share and obtain incremental allocations. For used vehicles, it's increasing the proportion of vehicles we're sourcing directly from the consumer and vehicles we retail versus wholesale and retain in our network. For the fourth quarter, we sourced 74% of used vehicles direct from consumers and 26% were from other channels such as auctions, other dealers, or wholesalers. In the fourth quarter, we increased the percentage of vehicles we sourced from consumers by 8%, earned over $1,400 more in gross profit, and turned them 14 days faster. Turning to service, body and parts, same-store revenues grew 12%, which was driven by an 18% increase in customer pay work and a 27% increase in wholesale parts, offset by a 9% decline in warranty and a 2% decline in body shops. As consumers return to normal driving habits, hold onto vehicles longer while waiting for new vehicle supply to recover, we anticipate this positive trend to continue. Same-store SG&A as a percentage of gross profit for the fourth quarter was 58.2%, a 320 basis point improvement over last year. This metric benefited from the incremental throughput of elevated gross profit dollars, offset by investment costs to grow Driveway and DFC. The $45 million incurred during the quarter are a headwind to our SG&A, but lay the foundation for significantly increasing profitability in the future that Bryan shared with you. In summary, our teams remain hyper-focused on executing at the highest level possible in this unusual operating environment. Focusing on retail readiness, supporting adjacencies, and continuing to outperform their local markets in all business lines will translate to continued opportunities to increase leverage and drive additional profitability as expected in our 2025 plan and beyond. With that, I'd like to turn the call over to Tina. Thank you, Chris. For the quarter, we generated $538 million of adjusted EBITDA, a 118% increase over 2020, and $304 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. We ended the quarter with $1.5 billion in cash and available credit, which, if deployed today, would support network growth of up to $6 billion in annualized revenues. We target maintaining leverage between 2x and 3x and remain committed to obtaining an investment-grade credit rating, which would be another sizable competitive cost advantage. As of quarter end, our ratio of net debt to adjusted EBITDA was 1.35x Our targets for the deployment of our free cash flows remain unchanged at 65% toward acquisitions, 25% toward internal investment in Driveway and DFC, along with capital expenditures, modernization, and diversification, and 10% towards shareholder return in the form of dividends and share repurchases. With recent market volatility, we believed it was prudent to opportunistically repurchase shares. In the fourth quarter and to date in 2022, we've repurchased approximately 912,000 shares, representing 3% of our outstanding shares at an average price of $284. In November, we obtained an additional $750 million repurchase authorization from the board, and as of today, have a remaining availability of $679 million. Deployment of capital for acquisitions and internal investment is always preferred as they reinvest and grow our business. However, we had excess cash generated from our 2021 performance and saw an opportunity where the returns generated from repurchasing our stock, which has no integration risk, exceeded the return hurdle rate ranges for acquisitions. Opportunistic share repurchases allow us to efficiently provide immediate shareholder returns. Additionally, earlier this morning, we announced a $0.35 per share dividend related to our Q4 performance. We remain well-positioned for accelerated disciplined growth on the path toward achieving our plan to reach $50 billion of revenue and $55-$60 of EPS by 2025, with even more significant upside into the future. This concludes our prepared remarks. We would now like to open the call to questions. Operator? Thank you. At this time, we'll be conducting a question- and- answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Rick Nelson with Stephens Inc. Please proceed with your question. Thanks. Good morning. Congrats on a great quarter and another record 2021, and thanks for the detail on the long-term outlook. Along those lines, I'd like to just follow up on DFC. You had significant pretax income targets. If you could review the math that goes into that long-term target that I think you said $650 million pretax. Thanks for joining us today, Rick. This is Bryan. I'm gonna actually let Chuck handle the DFC question since he's an expert at this. Yep. Thank you, Bryan. Chuck Lietz. Relative to the $650 million, that's really predicated upon achieving a penetration rate across the Lithia network of between 15% and 20%. That really would equate to a significant amount of loans that we would contribute to our pretax income, and we'd be originating somewhere in the neighborhood of $3.5 billion-$4 billion a year in overall originations. The other big part of that would just be leveraging the economies of scale as we continue to grow our portfolio, and that would hopefully generate a significant amount of pretax earnings. Okay. Thanks for that. Also with this long-term outlook, Bryan, there's new horizontals, verticals that's referred to in the slide deck. If you could give us some ideas, what you're thinking along those lines. Sure, Rick. Most importantly are our horizontals, because that's really what we're focusing on for the next three to four years, with obviously the first being DFC and probably the largest contributor to the disconnect between $1 billion and, you know, $1 of EPS generation from that. Then followed by that, we obviously have fleet and leasing companies, almost a quarter billion dollars in our portfolio at this stage, and we intend to grow that out as well. That's maybe could be as big as a horizontal, but that's yet to be determined. Obviously, consumer insurance is another horizontal that we are in pilot stages in a few of our stores. As well as possibly charging networks to really utilize the infrastructure that we built in our 300 locations and the density that we had to make sure that we're moving forward in a sustainable manner as well. Now, in terms of the verticals, we refer to adjacencies as both. The verticals are more mobility verticals, and we've talked about those in the past, which would be like power sports or construction equipment or farming equipment or long-haul trucking or any of those type of verticals. Those are really things that we're really looking at beyond the 2025 plan. We started to layer in into this future state idea because obviously, if you think about the horizontals or you think about the strengths of Lithia and Driveway, it's pretty easy to be able to leverage those into a business that has the same four business lines of new, used, service and parts. Great. Thanks for that color. If I could ask a near-term question as well. On your demand, are you seeing any hesitation at all among consumers to the elevated prices? Is the lower-end consumer constrained at all along those lines? Yeah. Hey, good morning, Rick. This is Chris. I think the easy answer is absolutely not. You know, as fast as we're replenishing our new car inventory, which started off January probably in the best position that we've seen since last summer, we're able to retail out of those units at, you know, the consistent margins that we've seen really in the back half of the year. Demand is very high right now, and we're taking advantage as much as possible in both new and used in that capacity. All right. Good to hear. Thanks. Good luck. Thanks, Rick. Thank you. Our next question comes from the line of Rajat Gupta with JP Morgan. Please proceed with your question. Oh, great. Thanks for taking the questions. You know, just a couple. You know, first on Driveway. You know, the platform is still, you know, in the early innings here, but how do we get comfortable around scaling it from roughly $1 billion in revenue this year to $9 billion by 2025? Can you give us any color on how the store culture is evolving, you know, alignment with the store personnel and the centralized location? Any updates, changes to the advertising strategy? You mentioned nationwide branding. Maybe any further updates coming to the platform, you know, integrations, et cetera. I have a follow-up. Thanks. Sure, Rajat. Great question, too. It's probably the part of the plan that we're starting to get more comfortable with, but it's still probably the most cloudy because it is a startup. Like you said, we're into our thirteenth month live with our consumers, and we're quite excited about what we're initially seeing in our thesis related to about 50% of the markets looking for something that's an out-of-dealership experience and more of an in-home type of environment. We do believe that there are three basic drivers, and we can talk about this store a little bit as well and the network and how it supports it. Fundamentally, when we built Driveway, our belief in growth revolved around incremental consumers and the ability to find incremental inventory. If you think about the Driveway model versus any of the used car peer competitive group, our big model difference is that we have 1,200 people on the ground buying cars out on the street and not going to auctions. Now, we're also able to procure a lot larger portion of cars directly from consumers. Our ability to scale that depends on our ability to source cars as close to the customer as possible. Obviously, starting with the customer, then moving to customer trade-ins that are across the street at a competitive dealer, and then working through your different channels of fleet and leasing, and then lastly, auction type of vehicles. In terms of scaling, that's critical, okay? Now, let's move up funnel real quickly and let's talk about what we're seeing in MUVs because I think if you think about how do we get to a couple hundred thousand units instead of a couple of thousand units, I really believe that the brand of Driveway is gaining momentum, okay? We moved from our December monthly unique visitors of about 725,000 visitors in January to almost 865,000 visitors. That's a massive move, okay? That's a 30% increase in traffic, a little less than that, okay? With the marketing budget that only went up 8% month-over-month. What we're starting to see is the organic or the awareness of Driveway becoming more prevalent, okay? We did move to a little bit of national advertising and sports radio, and we'll be moving throughout the year into more national programs which obviously expands total market reach when today our marketing budget outside that sports radio is really only touching about a quarter of the population in the country. Some different things to think about that. Now, in terms of our network, the network is very supportive. As Chris had mentioned, we just announced our 52 LPG members and wanna really congratulate them for their exceptional leadership in retail readiness, to be able to take us into the future in both channels. That is something that we spent, you know, three years prior to rollout trying to help our network understand that this is all about the consumer and when, where, and how they choose, okay? We're getting good traction in virtually every store and the support is there. We now have layered that in with stock grants that are Driveway stock grants to align everyone. We've issued those at a one-year cadence instead of a three-year cadence. To be able to reinforce whatever retail readiness we believe our future holds. All in all, we think that we've got the stars aligned to really take massive market share in the areas of the country that we don't currently sell cars in and hopefully penetrate towards that 2.5%-5% market share over the coming five to 10 years. Got it. Great. That's really helpful color. Maybe just a question on capital allocation. Slide 18 mentions that, you know, you're targeting $2 billion-$4 billion in revenue this year, acquired revenue this year. Probably similar run rate over the next two, three years as well to get to the $20 billion. You know, however, it seems like we are going to be in this elevated level of new vehicle gross margins for a while, which means it seems like 2021 could be another record year, which would mean excess free cash flow once again. You did not change your capital allocation framework in your slide deck, but as Tina mentioned, could we expect a continued larger focus on the buyback here in the near term, you know, before you shift back to your traditional plan? You know, just curious how to think about that cadence here going forward, particularly in the context of, you know, like $55, $100 EPS targets that you have. Thanks. Thanks, Rajat. This is Tina. Great question. You know, I think we have our capital allocation that we've been steadily doing for a long time, 65% toward acquisitions and then the 25% toward internal investment. You know, as I mentioned in the remarks, that is our best way to use our capital to really reinvest in that capital engine as acquisitions are accretive and generate even more free cash flow. I think, you know, similar to our history and what we've demonstrated with share repurchases, when there's a disconnect in the price, when the math makes sense, right, you know, you will see us go opportunistically buy back shares. You know, it's something that we'll watch with the price, and you can see, you know, in Q4 as well as beginning of this year, we've done some active share repurchases, I think repurchasing about 3% of our outstanding float to date. You know, I think we'll continue to watch that. I think we stay really disciplined and have a good structure around, you know, driving those returns for our shareholders and balancing that with that excess free cash flow. It just gives us a lot of freedom to make choice in terms of where we're investing. Got it. Is that return map driven more by, you know, just the near term EPS expectations, you know, like next 12 months versus, you know, what the M&A returns could generate? Just curious like what kind of valuation levels, you know, we should be watching for that buyback program. Rajat, this is Bryan again. I think most importantly, when we think about share buybacks, we balance it with acquisitions, okay? Right now we are seeing decent pricing still on acquisition. Even on a steady state earnings basis, it still looks pretty good. Obviously with $13 billion in the pipeline, we can pick and choose acquisitions to achieve our $2 billion-$4 billion a year that are remaining over the final couple of years of the 2025 plan, okay? It really boils back down to once you run those calculations, can we get a higher return on buying our own stock back? Absolutely right now, okay? It shouldn't be that way, but if the world doesn't see what our company's dry powder is and what the potential is in Driveway or DFC or further adjacencies, then we obviously will lean towards the buybacks to be able to do that. We actually apply about a 25% premium over what we buy shares back of the company, saying that basically buying shares back isn't as important to us as getting to the 2.5%-5% market share in the future. We wanna be able to buy them back more constructively than what acquisitions are. That's kind of a simple way to look at it in terms of acquisition, and obviously, you know, I think we all believe that the stock is vastly undervalued. Got it. Great. That's clear. Thanks for all the color and good luck. Thanks, Rajat. Thank you. Our next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question. Good morning. Congrats on the results. Good morning, Ryan. Thank you. Starting on GreenCars, I guess looking out to your 2025 targets, you show incremental revenue for the GreenCars initiatives, but it doesn't appear to be detracting from the traditional core Lithia business. I guess can you talk through the puts, takes, and how you think about potential cannibalization there? Sure. I think first and foremost, GreenCars is an educational site to be able to be a catalyst to the conversion to sustainable transportation, okay? That's first and foremost. Anytime I'm talking about, you know, what's our lead conversion ratios or those type of things on GreenCars, know that the educational component is almost 5x that number of customer base, okay? It's primarily there to educate consumers. Outside of that, we really look at GreenCars as a lead generation source for Driveway, and later in the next few months, we'll be upgrading the GreenCars website with all the Driveway proprietary technology, both new and used, as well as the functionalities of shop, sell, and service, okay? It's actually effectuated and the logistics and everything are done exactly the same as what we're doing in Driveway. There is no network changes that need to happen, or there's no structural changes in terms of logistics or customer guarantees. It's all the same as Driveway, okay? Keep that in mind. Now, we are finding that the GreenCars marketplace, the leads that are coming through that, while still getting the educational lift that we get from the site, are costing about half the price of what they're costing in our e-commerce channels of Driveway. Okay? We like the fact that it's an affinity brand, that we do get these benefits. What we're really saying is our budget, our marketing budget for Driveway, that we can divert some of that marketing budget into the affinity brand GreenCars and get more effective funnel utilization throughout the entire model. Great. Then switching over to the potential for an agency model and OEMs going more direct relationships. On slide 18, you note that that's potentially a 2035 for certain manufacturers. Any idea, I guess, on which ones or how much of the market could potentially go that direction? Secondly, why is that a, you know, 15 years out versus the next five years? And then lastly, can you talk through the economic differences of the dealer versus agency model and the puts and takes to you guys? Sure. I think most importantly, we have to remember that franchise laws are state by state, and that's how they change. We haven't had franchise law changes in about five years. In 2017, when the one state in the country allowed both legacy manufacturers and new startups to be able to direct sale to consumers, and we've seen no attrition by any of the traditional OEMs to move to a direct sale in that state. Okay? Keep that in mind as you're thinking about this. We believe this is very slow. If you look into Eastern and Western Europe, there is acceleration of the agency model, and they're working out those agreements now. Many of the European manufacturers primarily are talking about moving to an agency model, and we'll get to see a little bit more about what those margins and stuff look like as they move into 2023 and 2024, which is really their time horizons that they're looking at. Now, in Eastern Europe and in other parts of the world where there is light agency models, primarily only with the European manufacturers, okay, it looks like that the margins are somewhere between 6%-10% on the front-end margin of the business. Okay? So remember that. The F&I, some of the F&I is also being reduced in the agency model. I think if I was going to extrapolate something out, what we know is that one of the German manufacturers is fairly aggressive here, but they just recommitted to the U.S. while also saying that they know franchise laws doesn't allow them to move to an agency model. They basically committed to margins being stable for the next five years. Okay? Beyond that, they made the comment that agency model isn't really in the horizon because franchise laws don't allow for it. I think most importantly, if we think about the speed of change, I think it's gonna be driven by the consumer. Okay? I think as we built our model, that's all we thought about, is how do we position ourselves to be in congruency with the manufacturers, and how do we provide our consumers a better experience? Obviously, Driveway is the most transparent and seamless and convenient experience really in the country on the new car space. Okay? As such, we believe that we can be the best partner for any of our manufacturers in the event that they ultimately choose this pathway or are able to choose that pathway. I would say in 2035, there's a chance that 5%-10% of our volume is in an agency- type of environment. If you take that 6%-10% in a pre-COVID environment, that was higher margins than what we made. Remember, about half of our SG&A costs in terms of personnel in sales are for what? It's for negotiations. Okay? Then below the line in SG&A, our interest costs of carrying cars are pretty massive, okay, and flooring costs. It's what drives our leverage ratio up and takes a lot of our capital. I think when you think about that part of the model, we would really be shifting, in the event that this did occur, really to a high margin and low SG&A type of model rather than a lower margin and higher SG&A type of model. We think that we're nicely positioned, but I think most importantly, I'll leave you with the fact that we don't think that this is going to change that constructively. A lot of the discussions that are out there aren't really factual as who's going DTC. There is not a manufacturer today in the United States outside Tesla and now Rivian, I believe, sold a modest 1,000 units last quarter. Okay? Outside of that, there isn't a DTC. Okay? Even Polestar and Hummer aren't true DTCs and issued a type of franchise agreement where we get an override on profitability, okay, and they're going through their traditional dealer network. Keep those things in mind. Stay grounded, okay? This is a slow process that I believe will be driven off of consumer demand. As always, very helpful, Bryan. Thanks. Good luck. Thanks, Ryan. Thanks, Bryan. Thank you. Our next question comes from the line of Chris Bottiglieri with BNP Paribas. Please proceed with your question. Hey, guys. Thanks for taking the questions. Hey, Chris. Hey, just wanna run through some numbers. It sounds like the financing business, you know, you're saying that you'll sell 1.5 million units. I wanna kinda focus on that number a little bit. Like, how do you get there? I think you're running like 550,000 units today, roughly speaking, using the Q4 and annualizing that. Like, how do you get that incremental roughly 1 million units from now to 2025 year- end? Like, how much of that's Driveway? How much of that's same store? How much is acquisition? Chris, can you help bridge that for us? Sure. Let's start with Lithia. Obviously, we have a same store sales growth rate built in. We're utilizing basically a normalized environment in all of our assumptions as well, assuming that the current situation of short supply in new vehicles will return. Okay? We look at that. Lithia ends up. Tina, do I have that right here? Hold on. I gotta get this. Okay, so the Lithia core business, which includes all businesses prior to July 2020, okay, is around 500,000 units, so about a 1/3 of the business. The network development, which was originally estimated at around $20 billion-$22 billion, which was all the acquisitions post that July 2020, makes up for around 600,000 and some thousand, okay? The remainder is Driveway, okay? Those Driveway units are really the exponential lift that will come through the e-commerce and conquesting market share outside of the network growth and the core business that sits there. Okay. Then obviously in terms of the financability of that, when we start to extrapolate the 15%-20% penetration rates, you can start to get to those numbers. We do use a little bit higher penetration rate on our used vehicle business. When we get to that state, we're almost 1.5 used to new ratio. It's a little bit different than what you know you would look at today when we're sitting at you know 1.1: 1 used to new ratio. Got you. There was another question I had. The penetration seems a little conservative. I guess if I take your used ratio, like typically 75%-80% of customers take financing. I would think your CPO penetration is roughly 30%. So roughly there's like 45% of customers that get financing elsewhere. So it seems like you're still using like a pretty conservative market share of that last 40%-45%. Like, of that 40%-45% that you're not financing, like where is the gap? Is it there's certain ends of the credit spectrum that you don't want to finance? Is it you just expect to have a competitive platform with a lot of partners? Maybe just help us think through, like, why that can't be higher. Yeah. Let me start by saying it could be higher. I mean, we use 15% as our penetration rate in the 2025 and use an upside of 20% when we talk about future state or steady state. Obviously that CECL reserve has a big drag on things until you ever get to steady state and maybe you really never do. I think most importantly, when we start to think about the penetration rates, our manufacturer partners take the lead on all new cars, okay? We currently penetrate at about 27% of our product is leased. Okay. I don't see that changing materially. That's how we retain our customers and keep them in that brand for a longer period of time. Beyond that, there's a large portion that's financed, and then there's that 15% of consumers on new that truly pay cash. We think that we probably are really sitting at a 10%-15% penetration rate, best case, in terms of new. On the used car side, it is a lot deeper penetration. We're actually only selling about 24%-25% of our cars in certified. The certified penetration levels of captives is pretty low still. It's not the same penetration rates. In theory, if it grows, yeah, you're right, we may be able to do 40%-50% penetration in used vehicles. But again, we wanna illustrate what is the most likely case, okay, knowing that we're now talking out, you know, three to four years or even up to 10 years when we start to think a little longer. Chuck Lietz, do you have anything to add on that? We wanna continue also to maintain our banking relationships with our existing lending partners. You know, they provide a lot of other services to us, and that's another reason why our penetration rates are a little on the conservative side. Great. Thanks for that. Thanks, guys. Thanks, Chris. Thank you. Our next question comes from the line of John Murphy with Bank of America. Please proceed with your question. Good morning, guys. Just a sort of overarching question. You kind of went through this with a previous question, but just, you know, as you look what the automakers are doing in trying to capture more revenue beyond point of sale, you know, I think some people are. You know, you call it agency model, whatever you wanna call it. I mean, there's a question of semantics here. It looks like they're trying to, with your help, replicate the direct-to-consumer model, in some form or fashion, which you're already, you know, doing yourselves, you know, in some ways, sort of the online efforts that look similar to that. Just curious, do you view them as, you know, partners in this or foes? I mean, it seems like they wanna leverage you and your expertise more as partners and leverage your networks by giving you maybe, you know, greater share of revenue over time in the back end and maybe take a little bit in the front end, but the net of it would be a positive for you. How do you know, kinda see this developing? Because, I mean, there's a lot of semantics of what you call it and all this stuff, but it seems like this is gonna play to your strength as a large, you know, network in the country, in the U.S. John, we believe so, too. I think that the dealers and the manufacturers, they trust each other, okay? They understand what the fundamentals are, and they're trying to find simpler ways and more transparent ways to meet their customers, okay? I think the ideas of trying to replicate a Driveway like what GM may be doing right is something that I think helps educate them that, you know, the customer-facing part of the entire formula is something that is involved with one-on-one relationships and communities and so many more things that dealers bring to the equation. When you think about the total profit equation, I think we all get to this idea that the dealers are gonna be disintermediated. I don't think most manufacturers think that way. Okay. I think that they are exploring the ways of how can they make the experience more transparent from start to finish. I think we as dealers feel the exact same thing and want to achieve the exact same things. Now, if you think about it from maybe other perspectives where they're going, "Okay, this is the start of DTC," or, "This is the start of a total new channel." I don't believe that that's where it's at. I think manufacturers have large challenges to be able to build sustainable vehicles and compete with some of the new entrants into this space like Tesla, okay? That they have plenty to do rather than worry about what happens post-sale. I think when we think and dissect the profit margins of what a manufacturer is making and then the normalized amount that a dealer makes in this equation, it's less than 20% of what the dealer makes. Let's keep this all relative that this isn't a big thing. I think there's a difference, like you said, between trying and actually achieving. It takes the partnership to be able to have massive competitive advantages over those DTC manufacturers that do have some advantage today. The fact that, you know, the consumer can buy transparently in a one-price environment when many dealerships are closed. I think together, we as the traditional OEMs and ourselves, it's more important that our consumers can buy in a time when the dealerships are closed. That was the foundation of Driveway, and I imagine is the foundation of CarBravo. Together, we'll find the right way to maintain or grow our market share in the traditional OEMs. Hey, John, as an opportunity just to call out to our general managers that run in our decentralized model. I mean, they are the ones that are empowered to create that relationship with our OEM partners as friends. You know, making sure that we, you know, improve turn rates as inventory comes back online, we focus on customer satisfaction, which is important to the OEM in both sales and service. Even more importantly, getting service retention back where those consumers that do buy, you know, new and CPO vehicles come back online for service is something that, you know, we put squarely on the shoulders of our operations leaders. That partner group, you know, recognition that we give is focused on that. You know, thanks for the question. I think we definitely look at them as friends. Just to follow up on that, two specific things with the DRP at GM and CarBravo. I mean, it seems like they're launching these and they're constructing them as they're being implemented. I think the end game is not, you know, set yet as to where they wanna go with these things. You know, in CarBravo, my understanding is that they wanna go to 10- to 15-year-old vehicles potentially, which really is getting to the second or third or really getting to the third owner, you know, of the vehicle, the third term in the life of the vehicle. I mean, do you think, one, what is, I mean, how does that impact your business, you know, maybe just CarBravo specifically? Because it seems like it's somewhat of a tool by which the GM vehicles are then recaptured in-network, and you still maintain the large portion of the economics, and it might help drive your used volumes up. I'm just trying to understand how you perceive that because it's pretty opaque at the moment. It seems like it's gonna be a positive for the GM dealers, but what is your take? I think it does build a marketplace to have visibility. I would also go back to, I wouldn't be fearful as a dealer about it because ultimately, who controls the inventory? The dealers are the ones that have the inventory. We really looked at it initially as, okay, it's probably a way for them to learn about end-to-end or beginning- to- end type of process again, even though many manufacturers have done this in the past and haven't been hyper successful in that type of venue. What they're gonna find is that I believe they sit there much like a Cars.com or a CarGurus, that if you don't have the inventory, what part of the profit equation can you ultimately demand? If it's really this 10- to 15-year-old vehicles, I do know that they control their pipeline of off-lease cars in the event that we don't take them in on trade and early terminate those leases. In the 10- to 15-year-old model, they need us, okay, and we need them. You know, I would say more so the small dealer rather than the Lithia & Driveway, which we're building our own brand impression. I would imagine even when we look back two- to five years from now, Driveway will have a larger inventory of selection of that 10- to 15-year-old vehicle than even the aggregated GM dealers will have. Okay. I'm sorry, one more follow-up on that. I mean, do you believe that just means that your network is that much more powerful than it is otherwise, and the smaller dealers as this organization occurs, whether it be through you or the automakers, is then, you know, further disenfranchised or, you know, put at a disadvantage, if you will? I mean, or does this actually help them? I'm just trying to understand what this really means for the whole landscape as well. It may give a venue for smaller dealers to at least compete with the Driveway. Most importantly, remember that the entire design thesis is around inventory procurement, the logistics of that procurement to the reconditioning site, and then that vehicle going back to the consumer. I think that's something that has to be done somewhere. When you think about how the model works and where the profit equation ends up being, know that the dealers are the ones that have the technicians, the expertise, and the distributed networks to be able to keep those cars closest to the consumer and do it at an affordable price to be highly competitive with maybe new entrants into the used vehicle space. You have it down. Okay. Great. You're welcome. Thanks. Okay. Thank you very much. Thank you. Our next question comes from the line of Bret Jordan with Jefferies. Please proceed with your question. Hey, good morning, guys. Hi, Bret. In the prepared remarks, you talked about t he 2025 model having a 2.5% market share, and I think that you said GPUs at pre-pandemic levels. Do you think it's realistic to think that they go all the way back to pre-pandemic GPUs? I think, you know, could you talk about the cadence, how you see the step down from the current record levels? Great question, Bret, and I think. Let me start by saying Lithia & Driveway has made their history on focusing on what things we can control, okay? That's not to sidestep the question. We believe that the margins and ultimate inventories, and Chris spoke to that a little bit, that we are seeing glimpses of improvement, but ultimately, the demand is out, still outpacing the supply. In the 2025 model, there's no benefit for us to show a big, you know, the margins maintaining that. In the event that they do, and, you know, every day it does seem like the window for increased, you know, elevated margins are probably there for longer than we all would like or our consumers would like. It may be that they don't return to some normalized level, Bret. In that event, we have some extra capital to do different things of whether it's the adjacencies, or whether it's the network growth, or whether it's the next thing that we can leverage our 7 million, you know, paying customers annually, to find new ways to service them and build brand recognition and, you know, lower cost marketing budgets and so on. You may be right, okay. I think what we try to do is outline what our best most likely case is rather than maybe what best case is as we think about our 2025 model, or now even the discussions about future state or more of a steady state type of model. Okay, great. On the service side of the business, you hit double-digit in customer pay. Could you talk about the cadence of customer pay? You obviously have sort of seen some reopening in the fourth quarter, and then the parts growth obviously being north of 20%. Is that something that is a new normal, or is that related to supply chain issues, where more of the independent service market is buying dealer parts because they can't get it in the aftermarket? Yeah, this is Chris. You know, I think what we're really seeing is the impact that you're seeing on the new vehicle side is also translating over to what's happening on, even on the wholesale parts side, where, you know, non-OEM parts are in high demand, where you saw our warranty business was down, you know, year-over-year, which was really a function of, I think, the allocation of OEM parts, specifically, you know, electronic parts that are going into production rather than, you know, sitting up for warranty. I think on the wholesale parts side, I think having that good, better, best, the best being the OEM products is offerings, which we do have in our stores both for retail and for wholesale, is setting us up nicely for the recovery, as customers are coming back on the road, you know, miles driven is increasing, the age of vehicles is, you know, at record levels. I think it set us up nicely for a good tailwind for, you know, 2022 and beyond. Good, Chris. Hey, Brett, a couple of other key points. We're still basically flat from where we were in 2019. You know, there was a lot of wind in our sails that needed to be filled with that tailwind. Also, keep this in mind, and it's a small incremental amount. We were one less day in the quarter than we were in the previous year. Okay, so that affects that same store sales number by about 1.5%-2%. Okay, so it's probably more around 10 than 12. Okay, but those are all the things similar to what Chris said. Okay, great. Thank you. Thanks, Bret. Thank you. Our final question this morning comes from the line of Colin Langan with Wells Fargo. Please proceed with your question. Oh, great. Thanks for taking my questions. Yeah, just firstly, one of the automakers made a comment that 20% of dealers are charging above MSRP, and they're tracking these dealers and that there might be future payback on allocations. I mean, one, are you selling above MSRP? The 20% actually I thought sounded a little low. Do you think that's where the industry is? Are you concerned about maybe margins coming down as other dealers maybe pull in pricing based on those kind of concerns? Sure, Colin. Really good question. I think one of Lithia's and Driveway's big claim to fame is that our stores make those decisions in the field, okay? They do that based off their supply and what their competitors are doing. Okay, so yes, we do have some stores that are charging over MSRP. We don't have specific numbers 'cause we don't specifically track it because we allow our network to make the decisions closest to what their customer base is and what the supply and demand is in that local market. Okay. You had mentioned in your commentary increased advertising and then some of the losses for upfront booking of sort of losses on the Driveway Finance. I mean, is that a material impact that we should be thinking in SG&A this year, or is that all kinda immaterial in the scope of the entire company? Just also, where exactly is the Driveway Finance book? Is that recorded in the broken out in the segments if it's a new or used, or is it where would we- Colin, I'm gonna let Tina run through that for you, okay? Yeah. I mean- Sure. -on the DFC business, we do net the income statement impact of DFC within SG&A at this point in time. The amount is not material, and so we're not required to break it out. Any of those headwinds from the CECL reserves as well as the building of that is actually impacting our SG&A and increasing that cost. Yep. It's really an investment is how we think about it. Similar to the advertising spend, you know, for Driveway as well as our stores, that's also all within SG&A. You can see those trends over time, as we continue to build those brands and build these businesses that augment what we're doing. Okay. All right. Thanks for taking my questions. Thanks, Colin. Thank you. Ladies and gentlemen, that concludes our question- and- answer session. I'll turn the floor back to Mr. DeBoer for any final comments. Thank you, Melissa. Thank you for joining us today, and we look forward to updating you on Lithia & Driveway for the first quarter in just a few months. Bye-bye, all. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.