Good morning, and welcome to the Lithia & Driveway second quarter 2022 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 would now like to turn the call over to Amit Marwaha, Director of Investor Relations. Please begin. Thank you. Presenting today are Bryan DeBoer, President and CEO, Tina Miller, Senior Vice President and CFO, Chuck Lietz, Vice President of Driveway Finance. Chris Holzshu, Executive Vice President and COO, is traveling in Canada with the FAF team. Today's discussion may include statements about future events, financial projections, and expectations about the company's products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to materially differ from the statements made. We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not 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 to our website, investors.lithiadriveway.com, highlighting our second quarter results. With that, I would like to turn the call over to Bryan DeBoer, President and CEO. Thanks, Amit, and welcome to the team. Good morning, everyone. Thank you for joining us today, and we look forward to updating you on business growth and substantial progress towards our 2025 strategic plan. Earlier, we reported second quarter adjusted earnings per share of $12.43, adjusted for foreign currency or a 12% increase compared to $11.12 per diluted share in the same period of 2021. We grew revenues to $7.2 billion, a 21% increase year-over-year, driven by continued performance of our Lithia stores, Driveway, and contributions from our newly acquired stores. Our second quarter results reaffirm our ability to leverage the value of our network to expand market share. Customers have the option of visiting our Lithia stores and their websites or accessing our e-commerce channels of Driveway and GreenCars, improving our ability to drive efficiencies in our operations. We continue to see elevated GPUs with slight normalization in used vehicles this quarter. Combined with our strong performance in after-sales, we generated over $558 million in adjusted EBITDA in the quarter. With the continued strong performance, our investments in Driveway and Driveway Finance were accelerated. We remain on track to hit our $50 billion in revenue and $55-$60 in EPS by 2025. Despite the recent volatility in capital markets and concerns around the impact of macroeconomic uncertainty, we're confident about our ability to deliver on our outlook. Now, onto a few highlights from the quarter. Total revenue increased 21% year-over-year, driven by growth across all our segments, with all channels performing strongly and successfully navigating market dynamics. On a same-store basis, total revenues and gross profit were down slightly, driven by continued new vehicle inventory availability issues. Our teams navigated the current vehicle supply environment by maintaining strong vehicle gross profits per unit and growing volumes. Total vehicle gross profit per unit increased by 14.7%, and our same store used to new ratio was 1.3- 1 in the quarter. In addition, we sold 90 used vehicles per month per location, quickly approaching our 100-unit goal. We ended the quarter with new and used vehicle day supply of 32 and 62 days, up 39% and 5% year-over-year, respectively. Driveway received 2.3 million monthly unique visitors or MUVs in the month of June. In the second quarter, Driveway retailed or wholesaled over 12,000 units that contributed over $233 million or 3% to our total revenue. We are on track to achieve our target $1 billion in incremental revenue through Driveway for the year. This represents shop transactions and subsequent retail and wholesale sale transactions, similar with what is reported by our e-commerce peers. In the quarter, Lithia and Driveway combined retailed nearly 32,000 vehicles where our customers interacted with us using one of our many e-commerce tools. Representing approximately $1.3 billion, our integration of optionality in our e-commerce tools allows us to serve a diverse and evolving set of consumer interests. Driveway Finance also continued to grow, originating over 14,500 loans totaling $483 million in the second quarter. As of the end of June, the portfolio was nearly $1.3 billion. Finally, acquisitions for the first half of 2022 totaled $2.1 billion in annualized revenues acquired. Our team has done a tremendous job generating value and developing a track record of integrating acquisitions the past couple of years. We've also managed to launch DFC, a flourishing captive financing division, and Driveway and GreenCars e-commerce offerings that continue to gain momentum. We are well-positioned to continue generating value across our entire network and all business lines. Historically, our company has operated with $1 billion in revenues, generating $1 of EPS. The design and execution of our 2025 plan in a normalized market will improve this ratio to $1 billion in revenues, generating up to $1.20 in EPS. The 10 assumptions behind our guidance can be divided into three distinct groups to follow. Starting with efficiency and operating leverage, we assume achieving a blended market share of 2.6% in the U.S. across new and used vehicles. Total vehicle GPUs returning to pre-pandemic levels or around $2,100 per vehicle. Lowering SG&A as a percentage of gross profit towards 60% through operational improvements, resulting in greater efficiency across our footprint. Secondly, our expansion plans target acquiring an incremental $9 billion-$10 billion in annual revenue to complete the build-out of our North American footprint of 400-500 locations, integrating Driveway into an omni-channel solution and reaching profitability. Continued headwinds around DFC's profitability due to building CECL reserves as we scale towards a 15% penetration rate on our loan portfolio. Contributions from adjacencies with higher pre-tax margins and operating leverage resulting in a lower base of SG&A-related expenses. Lastly, we model the following around financial discipline and capital management. No further equity capital raises, removing the overhang of dilution to earnings. An investment-grade credit rating translating into lower cost of capital. Flexibility and headroom in our capital allocation plan to allow for opportunistic share buybacks, taking advantage of divergences in valuation. I want to remind everyone that in addition to our strategy of growing through acquisitions, our strategy incorporates new businesses and adjacencies that will continue to expand our value creation well beyond our 2025 targets. We believe the growth in our business beyond the 2025 plan with the full execution of our vision and a steady state, we could produce up to $2 per share in earnings for every $1 billion in revenue. To put some context behind this statement, we assume the following. Driveway and GreenCars generating 15%-20% of our total revenue. Up to 20% of all vehicles sold by Lithia and Driveway will be financed through DFC, building out our complementary profit stream without any additional spend to acquire customers. We also assume penetration rates for our used and new vehicles are at 40% and 10% respectively. Contributions from adjacent business lines requiring relatively small amounts of capital. This includes fleet and lease management, charging infrastructure for electric vehicles, consumer insurance, and business lines that leverage our network of stores, proprietary software, and regional footprints. With the scale of our revenue and previous adjacencies, we expect SG&A will be below 50% of gross profits. The framework we have presented above is designed with the ultimate goal of developing the most diversified vehicle transportation organization with simple, convenient customer experiences, fully leveraging the value of our network and infrastructure. I would like to shift the discussion to our network development or M&A strategy and provide an update on our progress acquiring and integrating new stores within the Lithia and Driveway family. Before we dive into the details, I want to step back and review the key attributes of our strategy. First, we look at locations that build out our network to achieve a target of being within 100 miles of the consumer, allowing us to conveniently reach and serve large pools of customers for their full ownership life cycle and efficiently utilize our network for vehicle distribution, restoration, and warehousing. Today, our network is made up of approximately 300 locations within 250 miles of 95% of the population in the United States and 60% of our customer base being within 100 miles of those locations. That's a considerable competitive advantage versus any of our peers. At the end of the day, we're able to service our customers quicker at lower costs and provide an in-house financing solution in-store or online. That's a powerful combination. During Q2, we acquired $1.4 billion in annualized revenues. In the first half of 2022, we acquired $2.1 billion in annualized revenues, marking 63% of our total revenues targets in our 2025 plan. We are excited to welcome all of our new team members to the Lithia & Driveway family. In the past month, we have noticed an increase in queries from investors regarding the M&A climate and pipeline for our new opportunities. Investors have been trying to understand our valuation framework, given the macro headwinds and normalization of GPUs. I want to reiterate, we are disciplined and methodical about our strategy and our pipeline of opportunities remains quite robust. A few final thoughts on M&A. One, we are a seasoned team with a track record of finding assets that fit into our investment profile and integrating new leaders into our culture. We remain disciplined in our pricing hurdle rates, targeting prices of 15%-30% of revenues, 3-7x EBITDA based on normalized earnings, and generating a minimum of 15% after-tax returns. We continue to achieve over 25% historic returns on our acquisitions. Since launching our 2025 plan just two years ago, our M&A activity has contributed to nearly $1 billion in adjusted EBITDA and $12.6 billion in revenue, a noteworthy achievement. Our approach has been highly accretive to shareholders while consistently earning above our capital costs. Alongside our strong network across North America, we see significant opportunity to build leverage through expanding verticals, which drives revenue opportunities, and horizontals, representing adjacencies that increase profitability. Our e-commerce business vertical, Driveway, builds our online presence by integrating our physical infrastructure and logistics to develop a premier omni-channel business. We reported another strong quarter of Driveway performance, demonstrating how we are making inroads finding new customers, while many of our competitors are having to reexamine their own growth strategies. Driveway is well-positioned to become the premier choice in e-commerce automotive retailing, and we remain confident with our plan to profitability in the near future. GreenCars continues to gain traction as we attract consumers with our sustainable vehicle learning center and marketplace powered by Driveway. During the second quarter, online activity on GreenCars grew to over 384,000 MUVs in June. Higher fuel prices have boosted consumer interest in all types of electric vehicles, and GreenCars provides a wealth of information on sustainable options from BEVs to hydrogen propulsion solutions centered around affordability for all customers. To date, we have installed 600 chargers supporting the adoption of sustainable vehicles. We're also training our technicians and increase our breadth of services to provide the same level of service for sustainable vehicles provided to our traditional fleet of vehicles. Driveway Finance Corp, or DFC, our most developed horizontal, posted another strong quarter, making inroads as the primary lending option for Lithia and Driveway customers. At its future state, we believe DFC can contribute approximately $650 million in incremental profits a year, and is a key contributor to driving SG&A as a percentage of gross profit down to 50%. I'm pleased with the pace of growth and our ability to not sacrifice near-term growth at the expense of adding risk to our portfolio. While remaining nimble, our conviction in the Lithia and Driveway strategy remains strong, and I'm confident we're well-positioned to deliver on our 2025 plan and beyond. Our portfolio mix, acquisition strategy, and all sales verticals are performing ahead of expectations. We're rapidly growing market share and generating some of the best returns on capital in all of retail. Our capital allocation strategy is balanced, and we're ready to take advantage of dislocations in the marketplace. We have the right team in place to respond and find opportunities in changing market conditions. We will continue to lead the growth, transformation, and consolidation of our industry, the largest retail sector in the world. With that, I'd like to turn the call over to Chuck. Thank you, Bryan. DFC continues to be Lithia & Driveway's largest lender as we accelerated our growth in originations. For the second quarter, DFC's penetration rate increased to 9.7%, up from 6.2% in the prior quarter, with an exit rate of 12.9% in June. For 2022, we are revising our full year penetration rate to between 9% and 10%, up from 7% we communicated last quarter. This would not have been possible without our stores' continued focus on retail readiness. Retail readiness is critical for DFC to realize our value proposition to maximize the revenue potential of our existing customers rather than incurring the frictional costs of new customer acquisition. We continue to maintain an appropriate, fully risk-adjusted return on the finance contracts we originate, which on average is three times as profitable as loans originated by third-party lending partners. As Bryan indicated earlier, we are reaffirming our guidance of the future state expectation that DFC will contribute $650 million in earnings to Lithia and Driveway. This would be predicated on DFC maintaining a seasoned and mature portfolio after consistently achieving penetration rates of 20% of all Lithia and Driveway sales, with a minimum base of $50 billion in revenues. From a credit quality perspective, DFC was able to increase our weighted average FICO score by 28 basis points from 690 in our first quarter this year originations to a weighted average FICO of 718 as we continue to leverage the top of funnel potential of being a true captive. The increase in credit quality is particularly noteworthy as we look to mitigate any potential negative impact of economic and industry fluctuations. Last, in the second quarter, we experienced a modest compression on both interest margin and spread rates, primarily attributable to the higher credit quality of our originations and the impacts of a rising interest rate environment, respectively. We continue to monitor market rates on a real-time basis and will increase DFC's yield rates by maintaining our internal risk-adjusted total rate targets balanced against market conditions. Increases in yield rates will mitigate spread compression in the short term without sacrificing our ability to achieve our portfolio and risk-adjusted financial targets. I'll now turn the call over to our CFO, Tina Miller. Thank you, Chuck. In the second quarter, SG&A as a percentage of gross profit for the quarter was 58%. Our investments across Driveway and Driveway Finance were the main drivers of the reduction in margins, with Driveway-related advertising contributing 160 basis points. We're confident in our ability to gain operating leverage across our platform and utilize our performance management and reporting insights to enable our teams to take the necessary steps to lower costs across their networks. We are still realizing the favorable benefits of positive operating leverage due to elevated GPUs, which over time, we see normalizing to 60% SG&A as a percentage of gross profit in our 2025 plan. In the second quarter, we generated $558 million in adjusted EBITDA, a 14% increase over the same period last year, and $192 million in free cash flow. We define free cash flow as adjusted EBITDA plus stock-based compensation, less the following items paid in cash, interest, income taxes, dividends, and capital expenditures. As a reminder, this number does not include a pro forma of the full EBITDA contribution of acquisitions purchased within the last twelve months. Year-to-date, we have generated nearly $653 million in free cash flows. We were opportunistic in the quarter, repurchasing 1.9 million shares or 6.5% of our outstanding shares at an average price of $284 per share. We have just under $100 million available on our authorization. Our capital allocation strategy continues to balance acquisitions, internal investments such as DFC and Driveway, and shareholder return. Our approach is a durable strategy that positions us well to be a leader in the personal transportation space for years to come. Shifting to the balance sheet, we continue to maintain our investment-grade discipline. At the end of the quarter, our net debt to adjusted EBITDA was 1.7 times. Our team's ability to allocate capital and manage risk effectively puts us in an attractive position, particularly around liquidity and generating returns for our shareholders. In conclusion, we are poised to take advantage of possible volatility of the macroeconomic environment and hypothetical changes underway in the auto sector. Our balanced approach toward growth and returning capital sets us up to achieve our 2025 plan of $50 billion in revenue and $55-$60 in EPS, with significant runway into the future. This concludes our prepared remarks. We'll now like to open the call to questions from the audience. Operator? Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that 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 keys. One moment, please, while we poll for questions. Thank you. Our first question is from Daniel Imbro with Stephens Inc. Please proceed with your question. Yeah. Hey, good morning, guys. Thanks for taking our questions. Good morning, Daniel. Bryan, I want to start on the new unit side. You know, I think a little bit. Sure of a surprise there, just the same store down around 27%, a bit weaker than the industry. Was that driven by any one maybe OEM in particular, or can you just talk about what you think maybe drove that underperformance versus the industry here in the second quarter? Sure, Daniel. Actually, our franchise mix in relationship to the industry, and we actually measure something called market share, and our manufacturers actually help us do that, which is called MSR sales efficiency. We were actually up year-over-year 5% in market share as compared to our brands, which, you know, doesn't show in the read-through of the downturn, you know, 20%+ in new vehicles. Got it. That's helpful. Just a mix shift. Thanks for that. Tina, maybe moving to SG&A. I think you called out 160 basis points of impact from Driveway advertising. I'm curious, can you quantify what the impact of Driveway Finance is? I think last quarter you said as you build CECL reserves, that's a net loss flowing through the SG&A line. Just any help quantifying that, the impact in the quarter? Yeah. Combined, when we look at Driveway and Driveway Finance, it's about 185 basis point impact to SG&A, you know, combined. Driveway Finance, most of that's driven by those CECL reserves that we need to take upfront as we originate those loans. There's obviously some offset from the interest income that we're receiving. I think the net amount in the quarter, impact to P&L was $3.5 million. Yep. in burn rate. Yep, for DFC. For DFC. Great. Just to follow up, to wrap up on Driveway Finance, you know, can you remind us just what your expectations are at this point in the credit cycle for kind of the credit profile? Chuck, I think, mentioned, you know, average FICO was up, but just kinda curious how you guys are modeling that internally. As related, you know, you're up to almost 13% penetration. I mean, when do you guys have a plan to start disclosing some of those credit metrics, such as charge-offs or delinquencies? Just trying to think about modeling that out going forward as it becomes a bigger piece of the earnings. Yeah. Thank you, Daniel. In terms of our credit profile, our target is really to be on the upper sort of scale of the near prime portion of the credit spectrum. As I indicated in my comments, just based on sort of the economic environment, we are clearly looking to move up into the lower tier market. I would say our weighted average FICO over time should be migrating to the upper 600s, maybe even low 700s. We just think that that's prudent in order to achieve our risk-adjusted, fully burdened return metrics. Then in terms of timing for reporting, Tina, do you want to cover that? Yeah. I think as DFC's portfolio grows, you know, we plan on adding some disclosures probably toward the end, you know, with the Q4 reporting cycle, around that time. You know, obviously we have the balance sheet disclosures already in our 10-Q, but we do see that getting to be a larger part of our disclosures as we hit year-end and the year-end reporting cycle. Great. I appreciate all the color. I'll hop back in the queue, but best of luck. Thanks, Daniel. Thank you. Our next question is from Rajat Gupta with JP Morgan. Please proceed with your question. Oh, hey, thanks for taking the question, and good morning. Yeah. Hi, Rajat. Maybe the first question is just, you know, how are you planning for the operation if the economy does go into a mild or moderate or severe recession? Can you give us some boundaries around, you know, what the earnings power might look like in different scenarios? You know, if you do end up in a new vehicle SAAR environment, you know, which is probably close to like 12-13 million in a recession and GPUs normalize back to pre-pandemic levels, you know, faster than expected, you know, how does the earnings power of the business look like? You know, any color on, you know, SG&A to gross in that scenario or F&I? You know, how should we think about that given the starting point today is so different than prior downturns? I have a follow-up. Thanks. Understood, Rajat. This is Bryan. I think most importantly, remember that Lithia Motors and Driveway has added $12.5 billion in revenue over the last a little less than two years now, which helps backfill the loss that we'll see from GPU rescissions. I think most importantly, we look at a couple different levers in our organization. As Tina mentioned, we burned almost 185 basis points or $25 million last quarter on the new initiatives. I think our first steps are to tone back some of the initiatives, and maybe we're growing DFC a little bit slower. You know, we are now getting pretty good organic out of Driveway.com that we can probably taper back ad budgets and reduce that burn rate from 25 to, you know, something lower around 15 or so, which is important. I think also in terms of operations, we've found a lot of efficiencies within our businesses in terms of personnel costs, and that's the big push, is to share best practices and simplify those processes to increase productivity. You know, that's always a big lever into what we do. I think with the relaxation in pricing on transactions allows us the ability to deploy our, you know, our war chest of capital that's quite robust right now. Even in a lower earnings type of environment, we're gonna be generating, you know, $1.2 billion-$1.5 billion in cash flows, which allows us to buy somewhere between, you know, $3 billion and $7 billion in revenue, depending on pricing. There's a lot of things that we can do to be able to do that. I would also point you, Rajat, to slide seven of the investor deck. We did originally model out what lower GPUs and what a slower environment would look like, okay? It's highlighted in a dotted white section for anyone that would like to see it to give you some thoughts on how maybe to model that, and we can sure try to help you with that a little closer. Thank you. Our next question is from Chris Bottiglieri with BNP. Please proceed with your question. Hey, guys. Thanks for taking the question. The first question I want to ask is, it looks like you have about $1 billion of unsecuritized auto loan receivables on balance sheet today. Just want to understand kind of what your path to creating liquidity for that business is in the current environment. Like, you know, when do you expect to return to ABS market? What are your conversations with like, ABS bankers telling you in terms of your ability to tap those markets? Hi, Chris. Chuck answering the question here. In terms of our, you know, capital deployment, strategy and capacity planning for primarily the Driveway Finance Corporation, it's really a four-prong strategy. First, obviously, that will require some amounts of liquidity, but we really see the primary, you know, conduit of our financing as a combination of an ABS warehouse conduit facility for transitory lending and then moving into the ABS term market. In speaking with a lot of our investors as well as other interested parties in the ABS market, I mean, obviously that market has experienced a fair amount of volatility in terms of rates. However, we do see that starting to taper off as more stability in terms of longer-term, yield curves and Fed interest rates start to become more clear and apparent. We still feel like the ABS term market is active, there's plenty of liquidity, and investors do have sufficient capital to maintain those markets both in the short term and midterm. We do see that as the longest or the highest form of our capital requirements. Last, we will look for other forms of liquidity, perhaps a forward flow arrangement or, you know, bulk portfolio sales to make sure that we have a robust capital structure to fund DFC. Got you. That's really helpful. Unrelated or semi-related question, I guess it's still on credit, but could somebody help walk me through kind of how we should be thinking about floorplan interest expense moving forward? Are those still LIBOR-based, or have you moved to SOFR? It looks like that expense actually went lower quarter on quarter even as rates went higher. Are there any offsets right now? I think you get floorplan assistance, so that shows in COGS, I think, as a contra COGS. Just trying to understand how to model, you know, floorplan interest expense moving forward as you know, benchmark rates go a little bit higher. Hi, Chris, this is Tina. Thanks for the question. Yes, most recently with our amendment to our credit facility, we did move to SOFR, so off of LIBOR. That's the benchmark rate that we'll be using for a majority of our floorplan debt. You know, we have a few captive floorplan silos as well that I think, you know, have different rates. I think some are prime, but you know, really SOFR is probably a majority of our floorplan financing to really model off of. Then you're correct, we do get floorplan assistance from some of our manufacturers. A lot of that money actually goes to cost of sales, though, from a presentation perspective. You know, I know we've disclosed in our Qs and Ks in the past sort of what that looks like, but just a reminder that the floorplan interest expense is really a pure interest expense number there. The credits actually are within cost of sale. It's managing through, you know, the inventory and the velocity and speed at which our stores are selling through it and just managing inventory levels. Got you. Okay. Thank you. Thanks, Chris. Thank you. Our next question is from John Murphy with Bank of America. Please proceed with your question. Good morning, everybody. Just a first question on used vehicle inventory at 62 days. It seems like it's a little bit on the high side. I mean, that might be, you know, total and not, you know, finished goods, you know, stuff that might be in process. It might be a little bit inflated. I'm just curious what you think about that, you know, and how you might manage that down over time. Hi, John. Thanks for joining us today. This is Bryan DeBoer. I think on used vehicle inventory at 62, we're pretty comfortable. That's a real normalized level of where we were pre-COVID. I think today, knowing that we have, you know, two additional national brands in GreenCars and Driveway, it's what our efforts are trying to push is the ability to find cars. I think it's also important to note that our ability to grow inventory is quite important because it expands the selection to our customers through all 3 of our channels. Most importantly, when we're starting to see now some of our e-commerce peers or used only peers that are really struggling just getting inventory. We're pretty comfortable at that 61-62 day supply, and know that there is probably, you know, some softness that will come in the market towards late summer. Again, we're talking about a 2-month supply, and we'll adjust things according to what the market conditions are heading into fall and winter. Okay. Then just a second question around SG&A. I mean, I know the longer term target is 50% or potentially lower relative to gross. It seems like the majority of that is coming from business mix as DFC ramps up and other efforts ramp up that have lower SG&A burdens. You know, what could you think is sort of on a store basis, on an actual, you know, retail basis where that could get to and where that could comp down to based on, you know, efficiencies, you know, through online selling, et cetera? Is that the kind of thing that could get below 60% materially just on a like for like basis? I would say that it's a 60%-62% SG&A in operations in what we call the verticals now, okay? That's probably the realistic number. The disconnect, as you mentioned, really comes from DFC, the fleet and leasing companies, and then the other adjacencies. That DFC alone, I believe is 800-1,000 basis points drop in SG&A just from that one horizontal, which is a big part of it. Now obviously, the other horizontals that we're working on, we're still modeling, we're still learning about, and they're in beta stages, but can obviously be the other large disconnects. When we start to think about the e-commerce platforms, if you remember originally we were talking about sub-60% levels in Driveway, okay? We think that that's still possible, but that's gonna require us to get to 12 units per associate per month, okay? Today we sit at a little under nine. Okay. Again, we're just under two years into the program, and we have a new CRM system going into place that we've developed and should increase the efficiencies in the care centers as well as you know be able to expand our penetration rates and our closing ratios. Okay, that's helpful. Bryan, just lastly, I mean, there's a lot of concern around the consumer and risk of a recession, but you guys have, you know, day-to-day contact with your consumers. I'm just curious if you could maybe comment on the state of your new vehicle buyer and your used vehicle buyer because, I mean, it just seems like with this pricing and grosses that your consumer is still pretty damn strong and wanting more vehicles than you can even get for them. I mean, you know, there's a lot of, you know, crosscurrents here, but it seems like the new and used vehicle buyer is still relatively healthy. I just wanted to get your take and your view of where this is going. Well said, John. I mean, there's still a backlog in most manufacturers in new vehicles. Our used vehicles are still turning at quite a high rate. I'm gonna guess on this, but we probably added 5-7 days supply just from buying vehicles in other parts of the country and then getting them to reconditioning centers that are a little further away because we've had to expand to find vehicles. I think when we think about the consumer impact on day supply, the demand is strong. Okay. I mean, we were down about $200 in GPUs and used, but that's still considerably higher than normalized states, and we still see that as quite healthy. Obviously, on new we're still at, you know, at peak levels and the backlog of vehicles is quite high. Just a couple highlights. Our domestic day supply on new is around 60 days. So we have pretty good flow even though there's some in-transit on that. Really our softness in day supply, which is where we really are selling every car that we get about as quick as we can get them, is in our imports, which we're sitting at a 16-day supply, and our luxuries are sitting at about a 29-day supply. Okay. Just are there any anecdotal or maybe systematic data points you could like kind of highlight just on people waiting for vehicles and right, sort of, you know, almost a build-to-order operation where somebody's, you know, buying well ahead of the vehicle actually showing up or at least committing to it? Sure. I would say on new vehicles, about a third of our product is pre-sold, that's coming in, so, that's good. I think it's a lot of high-demand vehicles. The rest of the stuff may be wait-listed, but it's not pre-sold where we have money on the car. Okay. That's probably a pretty good relative number. The consumers, and if you look at our unique visitors to our website, it's still up massively. There is still good demand for vehicles. I think it's important to remember in affordability that when people are buying new vehicles, their used cars are so highly valued. Mm-hmm That the delta between the trade-in and the vehicle they're buying when the new vehicle is capped at MSRP and the used vehicle is uncapped is quite lucrative for the consumers. I mean, we have examples of some consumers that bought cars, new cars from us within the last year and a half, and they've now turned around and sold those same cars either on trade-in or direct sales for something north of $5,000-$10,000 more than what they paid because they're really playing a commodity almost on their transportation needs. It's neat to see that the consumers can win, especially if they are buying new cars where that, you know, price for the new car has really been capped somewhere, you know, south of MSRP. Yeah. It seems that dwarfs the impact of rates. That's good. That's a really good guide. Appreciate the insight. Thank you so much. Thanks, John. Thank you. Our next question is from Colin Langan with Wells Fargo. Please proceed with your question. Oh, thanks for taking my questions. Just to follow up on your comment, I think you said one-third of vehicles now are pre-sold. Has that changed? I actually kind of thought almost everything was you had to wait several months to get any car right now. Is that changed over the last 3-6 months? Is that, you know, 50%? Colin, yeah. We don't have the exact data. We got it by franchises somewhere. But I would say it was close to 50% 90 days ago. Okay. Since interest rates have come up, it definitely has affected things, but it's pretty, it's still a robust environment where those cars hit the ground, and it's someone that wants to drive the car, and there's two other people waiting to drive the same car. It's still a bit of a frenzy, and we imagine that it'll continue through the rest of the year, especially knowing that supply lines for most manufacturers are going to remain quite tight until Q1 or Q2 of next year. Got it. That's helpful color. I also noticed, I mean, new GPU is still very close to record levels on nitpick, but they are down slightly from Q1. I've heard automakers are talking about how they're gonna take pricing from the dealers through different mechanisms. Is that starting to happen? Is that driving the slight weakness? Or is that really sort of a rounding error from your perspective? I would probably say it's closer to the latter, the rounding error. I believe that manufacturers' transparency on pricing and stabilization on pricing will help stabilize front-end margins at something higher than normal levels. I don't believe that that's what's occurring quite yet. It's just not how transactions are done unless a manufacturer chooses to move to a one price type model for their network, which, you know, we'd probably welcome because it does take away complexity in the relationship with the consumer. When today we do deal with two different moving parts of a transaction. You know, we deal with financability, and then we deal with price negotiations, and then throw in a trade, and it gets quite complex. If we can take away that uncertainty about price by having it tighter to actual transaction prices, we're all for moving towards that as manufacturers. I will say this, most manufacturers, though, are tending against that because they fear that they want a fluid market where consumers have been trained for so long that there's a good price and a bad price, and I can do better if I negotiate on my own. You know, that a lot of consumers still think that way, and I think most manufacturers believe that the freedom of pricing is something that can be adjusted based off markets and regions and states. Important to know that there's not big pushes in that arena outside one or two of the European manufacturers. Got it. Just lastly, F&I was down a bit. Is that attributed to? Maybe I missed this in the commentary because I know that when you do the DFC, it takes away some of those profits. Is that the main driver there or is other factors going on? It is. I mean, I think you saw F&I increase as GPUs increase, and I think as GPUs start to subside, you'll see F&I to some extent subside, that they're both driven off this supply and demand type of environment. I think the difference that you're seeing in the last few quarters is about $130. As Chuck mentioned, we were at, you know, we were pushing 10% penetration rate, which means that now 10% of our business is being taken out of F&I and diluting the F&I number. It's about $100 per unit. Is that right, Tina and Chuck? Yep. Year to date? Year to date. Year to date, it's about $130. If you see our penetration levels go up, okay, which Chuck mentioned, we were almost 13% in June the month of June. You're gonna continue to see a little drag in F&I from that effect. Got it. All right. Thanks for taking my questions. Thanks, Colin. Thank you. Our next question is from Bret Jordan with Jefferies. Please proceed with your question. Hey, good morning, guys. On the GPU, I guess, SG&A to gross and your outlook for GPUs returning to pre-pandemic levels, I guess, as we look at 2025, you're looking at a 60%-ish SG&A to gross. Would you expect sort of materially higher levels in the interim? Obviously a lot of the development spend continues, and you're looking at a return to $2,100 GPUs. You know, as we model it, should we think sort of mid-upper 60s% in the shorter term, or do you manage down some of those investment costs around DFC in the interim? Yeah. I think internally, the way that we think about it is how fast does demand and supply change, and how quickly do those GPU levels recede. I think we're in the camp that if there's a normal recession where it's quarter-over-quarter declines and not month-over-month declines, I really believe that we will get back to some level that's higher than the normal state of GPUs. Now, we were about $2,600-$2,700 pre-pandemic, so we're gonna shoot in the $3,000-$3,200 range is probably a normalized level if it subsides, you know, in a slow, methodical way. If there's some large economic event or further, you know, excessive increases in interest rates that affects demand in a big way, it may be a little harder to manage for a few months. Ultimately, we're pretty confident that we can get our operational part of the business to that 62% SG&A as a percentage of growth with knowing that if Chuck can tone back our growth rates a little bit on DFC, you know, we can get those to profitability in 3-4 months, typically. Now you start to see the real impacts that can drive SG&A, and we can adjust SG&A in operations to some extent with the horizontal in the finance company. Okay. Great. Then a question. I guess on slide 14, you have the mix of value, which has clearly been growing in this environment. You comment about a $5,100 average negative equity. Do you see an environment where, given the spike in values in the last 18, 24 months, that we're gonna have to, I guess, swim upstream against negative equity as, you know, normal depreciation returns, or is that reasonable? Good insight, Bret. Yeah. I think today we've calculated that about a quarter of the consumers have transacted in a higher GPU type of environment. Remember also that it was offset by higher trade values, like I mentioned to John. Though we know that, and today we sit at about 35% of consumers have this equity, and it's around $2,000 of this equity. They also have now over $2,000 of cash down, okay, which is a vast difference from what we are normally at pre-pandemic, okay, where we saw 71% of our consumers with this equity averaging $5,100, average cash down of only $1,800. You're talking about a $3,500 delta, so there's probably 25% of consumers that could have something a little north of that. Remember, that plays well to new car dealers or Driveway and Lithia, most importantly because of why? The easiest vehicles to absorb this equity on are ultimately new cars and late model used cars. The best is what we would call mainstream or lower demand new cars that eventually will have incentives again or will have price variance in them that allows us to absorb that $5,000 in disequity or that net difference of $3,500 with their cash down to make sure that we can get that. I think that's very important to note in the model that our ability to find used cars come from trade-in, okay? Those trade-ins are about two-thirds of our inventory in normalized times. You know, I think that's the advantage of being a new car dealer, that when there is negative equity, it means you typically have to trade in your car because you can't clear your debt, because you have to carry over some of the debt to the car that you're buying. Right. You would expect that the next couple of years, negative equity situation would be better than pre-COVID? It would probably be a little worse. We're gonna probably guess in the 5,500 per unit. Okay. We hope people will save a little more. Maybe there'll be some tax savings. You're talking about a $4,000 delta between cash down and disequity rather than a $3,500, which should push more people into you know mainstream new vehicles. Great. Thank you. Thanks, Bret. Thank you. Our next question is from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question. Good morning, guys. Curious, just wanna dig into DFC a little bit more. The loss expectation on the year increased from $9 million last quarter for 2022 to $20 million now. Penetration higher though, 7%, 9%-10%. How much of that loss change is from that higher penetration in those CECL reserves versus other assumptions? Hey, Ryan, this is Chuck. I would say the vast majority of it. You know, there was a small amount of spread compression that was pretty much offset by the increase in volume. The vast majority of it was just that planning for future losses. That came from volume of business, not from loss expectations. Correct. I think, Chuck, you had mentioned to me that, the loss, ratios are actually running below what we had reserved for. Correct. Again, as we move up the credit quality spectrum, you know, obviously our loss reserves as a percentage are going down. Thanks, Bryan. Even though we're growing our provision rates pretty dramatically as the overall portfolio book continues to increase, but on a percentage basis, we're either static or slightly going down as we again improve that credit quality. Great. Just one on used. Pricing's starting to potentially come down a little bit here. How do you think your overweight mix of core and value, particularly at the legacy Lithia dealerships, how do those segments position you relative to your peer group? Thanks. Oh, good question, Ryan. I know that someday everyone will sell Value Auto cars because it makes up about 17% of our business today. You know, I think we all just get enamored with the CPO sales that make up 20% of our business. Our real thrust is in our core business. That's 63% of our volumes today, and that's really the heartbeat that comes from those trade-ins of high demand vehicles that create better margins and the ability to sell lesser demand cars at a more attractive price than used only dealers. I think if we think about what cycles we went through with Value Auto or the higher age vehicles, they're always hard to get, okay. Maybe even more importantly than that, they're really hard to recondition. When we look at our mix of Value Auto versus our peers, we're usually sitting at double to triple our mix rates. They're sitting at 5%-6% typically. The used car retailers, obviously, they don't have the ability to recondition those cars because it typically requires diagnostic tools that are, you know, 10 years and older that we still have in our tool rooms to be able to fix those cars and a little bit more experienced technician to be able to do that. We don't mind that other people get into that business 'cause most Value Auto cars are taken in on trade, okay? We don't typically buy those on the street, okay? We're actually getting those, which means that anyone else that decides to keep the Value Auto cars typically send them to us if there's a drivability issue or there's a higher cost repair on the vehicle for them to get it to the front line. You know, a simple example would be a check engine light. The only person that can turn off a check engine light is us, okay? Sometimes that can be $400-$600 to really just check an O2 sensor and modify, you know, how the flow mass sensors are working or something. Lots of simple things that we are far enough upstream that we get the profits as others begin to move into Value Autos as well, because it is a pretty easy area of the highest demand cars that creates an affordability level that starts that consumer into the Lithia and Driveway life cycle that has really been our mantra for decades. Thanks, Bryan. Chuck, good luck, guys. Thank you. Our next question is from Michael Ward with Benchmark. Please proceed with your question. Thanks. Good morning, everyone. I just want to clarify something, Bryan. When you were talking about gross profit per unit on new and used going down to $2,100. That was solely for the purpose of when you were saying you can get $1.20 in earnings per share from $1 billion in revenue. Is that correct? Correct. Okay. As you go forward, everyone out there is saying that inventory levels on a more normalized basis are gonna be, whatever, 30% below historical. In that environment, is there any reason why new vehicle grosses wouldn't be materially higher than they have been in the past? We do think that grosses will remain higher, mainly because of greater per price transparency and a better ability to build the market. Okay. I don't know, though, that in a normalized supply and demand environment, that day supply is a direct reflection of GPUs, okay? I think that's something that we'll have to see out. We haven't seen the correlation in the past because if you remember, we've run with our like Subaru as a manufacturer. We ran at teens day supplies. Right For a decade before the pandemic, you know, we run at similar levels with them today. I don't know that there's a direct correlation. I do believe that the ideas of price transparency and taking away the ideas of negotiation to some extent, so we can deal with affordability, trade values, and working with the consumers in a transparent and simple way is beneficial for the consumers from factory to Driveway. Obviously, our efforts with our manufacturers are to focus on that. I think that will play a bigger role in stabilization of GPUs above normalized levels than probably a day supply will. Is it converting though, from more of like a shop and pick where it would be a discount type model, and so where consumers come in, if they're gonna order a vehicle and they're gonna wait three months for it, which may become more the norm, isn't that a more profitable environment than it would be just shop and pick? I would think that there's value adds for building something specific to what you want. I think most manufacturers, though, have to then deal with their production capacities and their production flexibility. I think most manufacturers are still gonna be building lots of inventory in the United States because we do have facilities to do that, and consumers in America like selection. It's a little different than Western Europe, where there's space constraints and, you know, 70% of your cars are typically build to order, where a consumer in America today wants to look at the blue one and wants to look at the one with, you know, with the cool, you know, the cool new electric drive systems and so on. A little bit different environment here in the United States. I think that they'll still be on ground inventories for years to come. Thank you. Our next question is from Evan Silverberg with Morgan Stanley. Please proceed with your question. How you doing? It's Adam Jonas, actually, on for Evan Silverberg. How you doing, Bryan? Hey, Adam. Hey, look, having the really high portion of your new volume being pre-ordered vehicles gives you some great insight, I think, on forward demand. You know, we never thought to ask car dealers about pre-order backlog or the length of that or cancellations, but it's not an irrelevant question given how much of your businesses is pre-ordered. You have a good visibility in the 3Q and into the back half of the year. What can you tell us about that? Is there any rate of change on the length of the order to delivery time, rising, falling, stable, or any kinda comment on cancellations to give us a little color among data that I'm sure you're tracking daily? Sure. I think in a normalized environment, Adam, we were probably around 5%-10% of our new vehicle sales were pre-orders, typically on things like Wranglers and 911s and BMW M3, that higher demand type of product, okay? We are sitting at about a third of our sales now are order bank. When we did peak a few months ago at probably around 50%. It's a little bit softer, but maybe we end up, you know, stabilizing in the 15%-20% level and more things are built to order. We sure hope they are. I know when consumers have the optionality to do things, you know, the way that their own personality and their own driving habits fit, it's typically a better experience for them as well. Thank you. Our next question is from David Whiston with Morningstar. Please proceed with your question. Thanks, Adam. Thanks. Good morning. Just going back earlier, you were talking about how demand is still very strong, consumers still wanna spend money on vehicles. Also on the positive side, we've got rising wages, tight labor market, but on the negative macro side, we've got inflation high, but falling oil prices and falling copper prices. Yeah. There's some mixed signals there. I mean, do you think we're heading into recession, or do you think maybe the overall economy might be in bad shape, but the auto market will remain strong? You know, David, we try to keep our eye on what we can control, and we obviously have a very proactive field team that runs each individual location and each part of the country responds differently, just as we learned from the Great Recession, where we knew that, you know, those that responded at the local levels closest to our customers were the ones that really won the day. We built an organization and a mission that's growth powered by people and rely on them to be able to make those decisions. Now, I know that may not have answered your question. I do believe that demand will soften as interest rates and inflation, you know, either take hold further or hope to subside. I do believe that this is a supply and demand inflation imbalance that's creating inflation, which is a little different than actual price inflation, okay, that I think we'll see return to some level of normality, you know. If we do see a recession, I think Lithia & Driveway are nicely positioned with its adjacency to continue to execute through our strategy that we've developed to maximize shareholder returns and maximize our ability to grow to become the largest, you know, automotive retailer in the country and probably the world. Thank you. Our next question is from Josh,Taykowski with Credit Suisse. Please proceed with your question. Hi. Thanks for sneaking me in here. Just had one for me. Just trying to understand the year-over-year dynamics in used a bit better. Maybe I'm missing something. I appreciate that GPUs are obviously still elevated from a historical standpoint, but just wanted to see if you could talk through same store used 18% higher, average selling price is still year-over-year, but GPU down 14% on what looks like kind of flattish used volumes. Is that a function of just added procurement expenses based on some of your previous commentary, or how should we think about that? Sure, Josh, it's Bryan again. I think most importantly, the used car market is down a pretty good portion. Being flat, we thought was a pretty good level, and we're pushing those out of multiple different channels of Driveway and GreenCars. I think most importantly, though, it is taking us a little longer as we buy cars further away from our reconditioning centers, that even though we're sitting with you know, with a broad network to be able to recondition cars when we're buying cars you know, in the Mid-Atlantic, and I got a BMW and a Lamborghini store is basically all we own there. We got to move those cars 300 miles. Unfortunately, that takes us 6-7 days to do at times. You're reconditioning in 72 hours, which is another three, that it does build stuff. I think we'd rather be on the side that knowing that exposures to price devaluations in our inventories is really a 60-day window. We like the ideas of building inventory, knowing that Driveway is building momentum and GreenCars is building momentum, that we can push those out in any environment knowing that GPUs are still quite strong in used. Thank you. There are no further questions at this time. I would like to turn the floor back over to Bryan DeBoer for any closing comments. Thank you, everyone for joining us today. We're gonna get back with you in October and look forward to catching up again then. All the best. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.