Good morning, welcome to the Lithia & Driveway First Quarter 2023 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 would now like to turn the call over to Amit Marwaha, Director of Investor Relations. Please begin. Thank you. With me today are Bryan DeBoer, President and CEO, Chris Holzshu, Executive Vice President and COO, Tina Miller, Senior Vice President and CFO, and Chuck Lietz, Senior Vice President of Driveway Finance. 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 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 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, investors.lithiadriveway.com, highlighting our first quarter results. With that, I would like to turn the call over to Bryan DeBoer, President and CEO. Thanks, Amit. Good morning, and welcome to our first quarter earnings call. We appreciate everyone joining us today and the opportunities to update you on our business strategy, growth, and progress towards our 2025 plan. In Q1, Lithia & Driveway grew revenues to $7 billion, up 4% from 2022, resulting in adjusted diluted earnings per share of $8.44. Sequentially, GPUs were more resilient than expected across new and used and F&I, and we continued to focus on profitability, driving high performance and improved efficiency. Our model and vehicle operations allowed our stores to be nimble while offering customers a variety of products and services to fit all budgets. By managing a wide variety of channels to interact with our customers, our responsiveness and adaptable model delivers the best experiences for our customers wherever, whenever, and however they desire. Our store teams continue to proactively respond to the varying climate in each of our regions. Our captive finance operations, Driveway Finance Corporation or DFC, continues to grow at a balanced pace with nearly $630 million in originations in loans in the quarter, with a weighted average rate of 9%. Our focus remains on selectively growing the portfolio and increasing our net margin as we continue to invest in this adjacency. DFC continues to mature with near-term performance reflecting the investment related to CECL reserves for a growing portfolio. We have a clear line of sight to how DFC will meaningfully increase our profitability over time. I'll let Chris and Chuck provide more details on the results of both vehicle and financing operations later in the call. Acquisitions are the foundation to how we build convenient proximity to our consumers and fundamental to our strategy. Our target of being within 100 miles of consumers allows us to leverage our physical infrastructure for vehicle procurement logistics, utilize our reconditioning and storage network, and expand our captive finance arm as we grow our customer base. Our team and core competencies are executing a consistent acquisition cadence, and we remain unchanged in our hurdle rates, seeking after-tax returns of 15% or more and targeting of 15%-30% of revenues or 3x-7x EBITDA normalized earnings. For the quarter, our acquisitions have yielded a 95% success rate as compared to mid-80 rate this time last year. In the first quarter, we completed two acquisitions, including our entrance into the United Kingdom market with our purchase of Jardine Motors Group, which operates more than 37 premium luxury retail locations and over 50 franchises. It is expected to generate over $2 billion in annualized revenues. Our strong cultural alignment, drive to provide exceptional customer service, and focus on OEM partnerships make this the ideal platform to enter the United Kingdom. Like our purchase of the Pfaff Group in Canada a couple years ago, this team provides a launchpad to extend our growth in the coming years. We are excited to welcome Neil and his team to the LAD family and look forward to working together and learning from each other. We expect to achieve a historical acquisition annual run rate of $3 billion-$5 billion in acquired revenues a year with a continued prioritization to the United States. Whether motivated by succession planning or monetization, sellers are attracted by LAD's track record of completing deals in a timely and confidential manner, retaining over 95% of their employees, and becoming part of this industry's future. We are confident in our ability to execute, integrate smoothly, and reach our $50 billion revenue target as planned in 2025. Now, onto an update on our five-year plan. We have just passed the halfway mark and are well underway towards achieving the objective we originally outlined in July of 2020. Since the launch of our plan, we have acquired nearly $16 billion in revenues. Our captive finance arm, DFC, has established itself as the top lender in our network and are through the painful days of heavy capital requirements and extreme CECL reserves. Though DFC is still a drag to earnings today, this investment drives our future profitability as loans, on average, are 3x more profitable over its lifetime compared to third-party finance commissions. Lastly, our omni-channel strategy is resonating with consumers and gaining traction across North America. LAD is truly an international omni-channel mobility provider with an expanding strategy set to service consumers across all segments and markets. Key to our plan is delinking $1 of EPS for every $1 billion in revenue and achieving $1.10-$1.20 for every $1 billion by 2025. This will be driven by several key factors as follows. Achieving a blended U.S. market share of 2.5% or more through both acquisitions, channel expansion and same store growth improvements. Secondly, driving SG&A as a percentage of gross profit to 60% through increased leverage of our cost structure in a normalized GPUs environment and optimized networks. Continuing to scale DFC and achieving profitability in 2024. Driveway.com continuing to expand revenue and consumer optionality by attracting 98% new consumers through a simple and transparent one-price experience directly to your home. Size and scale will continue to drive down borrowing costs. Achieving an investment grade rating will help as well. Finally, continued return of value to shareholders through dividends and flexibility in capital allocations for share buybacks when it makes sense. Layering on the contributions of additional future aspirations, we see opportunity for each $1 billion in revenue to produce $2 of EPS in a normalized environment. Key factors underlying our future state and totally within our control are as follows. Optimizing our network through divesting of small, less efficient locations, expanding reach of our omni-channel platform, maximizing leverage of our physical infrastructure and maintaining a portfolio of high-performing locations. Financing of up to 20% of our units through DFC and maturing beyond the headwind of the recording of CECL reserves. Leveraging our cost structure and customer life cycle design to reduce our SG&A as a percentage of gross profit to 50%. Finally, maturing contributions from other horizontals, fleet lease management, charging infrastructure, consumer insurance, and other future new verticals. In closing, Lithia & Driveway is a unique mobility platform that provides various transportation solutions and redefining customer experience, revenue scale, and the profitability equation. We have built a strong foundation through growing our network, meeting shifting consumer preference with our variety of online and in-store experiences, and investing in adjacencies like DFC, all while navigating the current environment. With this unique formula and our experienced team, we're confident in our ability to reach $50 billion in revenue by 2025, equating to $55+ in dollars of EPS, and ultimately targeting $1 billion in revenue translating into $2 in EPS. With that, I'd like to turn the call over to Chris. Thank you, Bryan. Good morning. I want to start by acknowledging our operational team's continued focus on executing our plan with a disciplined and pragmatic approach to deliver our customer-centric omni-channel operating model. There is no doubt our associates will continue to execute at a high level as we march towards achievement of our $50 billion in revenue and $55+ EPS milestone. We recently gathered in person with our top-performing operators to share best practices and gain insights into the steps we need to continue to reinforce to ensure success. We left our time together confident in our ability to drive results at the local market level and live our culture of high performance under our mission of growth powered by people for Lithia & Driveway. As it relates to the quarter. Overall, results were as expected as we continue to see a rebalancing of supply and demand in the new vehicle market, coupled with affordabilities associated with rising interest rates. Consistent with last quarter, there was a disproportionate number of fleet vehicles being transacted outside the retail network as national fleet was up 60%, which significantly impacts comparability with several of our OEMs when considering the total US versus retail SAR. As a result, overall customer incentives remain limited. Consequently, while inventory availability is improving, several OEMs have not invested in additional consumer incentives to meet the retail demand. We expect incentives to increase throughout the year, which should have a positive impact on new car volumes. Varying regional performance continues to impact where we operate. For example, our West and North Central regions, which we refer to as regions 1, 2 and 3, continue to see a negative growth trend in the quarter as total same-store new vehicle sales fell 6% compared to our eastern and south central regions, which we refer to as regions 4, 5, and 6, that were up 2%, a delta of 8 percentage points. We continue to rely on local market leaders to dominate market share regardless of the economic environment, and are proud that our teams achieved record market share according to our reports from our OEMs. Even though some of our markets may have registered a lower number of vehicles, we're gaining a larger market share, up 5 percentage points in the most recent reporting periods. The dynamics we have seen play out over the past several years is a major reason for our diversified network development strategy that allows us to spread our investment across multiple unique markets. 10 years ago, for example, the western region made up 80% of our revenue. Even with the growth we have seen in that region, it now makes up 44% of our revenue. We will continue to be disciplined in our growth strategy. Our focus on the highly profitable regions, like the Southeast, where we have a limited footprint compared to our peers, will continue. Same-store new vehicle revenues were down 3% for the quarter, driven by unit volume declining 6%, offset by ASPs increasing 3%. New vehicle GPUs, including F&I, were 7,500 per unit, down from 7,719 in Q4 and 8,555 in Q1 of 2022. As touched on previously, affordability is a focus for consumers as interest rates for new and used vehicles have increased 3 percentage points since last year, factory incentives have yet to match relative demand. With early recovery in new vehicle inventory in most domestic and luxury nameplates, modest increase in incentives, strong used vehicle trade-in values, a decrease in the average amount financed leave consumers' monthly payments relatively flat year-over-year. Shifting to used vehicles, same-store used vehicle revenues were down 9%, driven by unit volumes declining 2% and ASPs decreasing 7%. Including F&I, GPUs were $4,028, flat compared to Q4 and down from $5,196 in the prior year. In March, we continued to see improvement in the used vehicle market as inventory adjustments were made to meet demand of lower priced units. Used vehicle ASPs have declined $2,000 since Q1 of last year and $1,000 since Q4 2022. Growing our franchise dealer network, which maximizes top-of-funnel inventory procurement from trade-ins, off-lease, and closed OEM auctions, is a key differentiator compared to used-only retailers. In the quarter, this top-of-funnel position resulted in solid performance in our certified segment, or like-brand-new vehicles, typically 3 years or newer, which were up 7%, compared to our core and value auto segments that were down 2% in volume. Our used strategy will continue to focus on the massive network of procurement specialists we have in the local markets, certified and trained technicians that can service all makes and models, specialty tools that moat the capability of competitors to repair and recondition the technologically complex vehicles being produced, while continuing to support our ability to create inventory stocking plans that match all levels of affordability. In addition, Driveway's seller procurement channel helped us resupply inventory in the quarter and will continue to contribute to the competitive advantage of our omni-channel strategy as the vehicles purchased on Driveway.com contributed an additional $400 in Gross Profit per Unit over our auction purchases. At the end of March, new and used vehicle inventory days supply were 52 days compared to 47 days and 55 days at the end of the fourth quarter. In this constantly changing environment, our decentralized model and culture of taking personal ownership at the local market level allows our teams to proactively manage inventory, focus on market share, and drive profitability. Combining our in-store footprint of over 300 locations with our in-home e-commerce channel, we offer convenience to our consumers and optionality to the retail experience they desire. In the quarter, Lithia & Driveway's online channels averaged 11 million unique visitors, an increase of nearly 96% over the same period last year, with essentially the same advertising spend, demonstrating a continued demand by consumers to expand the shopping experience from home. Reinforcing Driveway's model is incremental to the overall network of sales we generate. The average distance for deliveries was over 900 miles, and over 98% of those consumers had never shopped with us before. This means that we have expanded our network reach nearly 30 x and are able to connect with 50 x more consumers without fixed investment as we continue to expand the power of Driveway. Leveraging our underutilized network to facilitate the majority of the auto retail retail transaction is critical to delivering a profitable online and in-home experience. During the quarter, service body and parts delivered strong same-store growth, up over 9%. Customer pay, which represents the majority of our after-sales business, was up 9%, while warranty sales were up 15%. With the continued aging units in operation, which is now over 13 years in North America, and the increasing complexity of vehicles, our certified factory-trained technicians are well-positioned to continue to meet the customer's after-sales needs. This will ensure that the consumer life cycle and overall retention from our sales to service continues to grow. The design and extension of our F&I product offerings that promote the retention of customers help us maintain the relationship through the entire life cycle of the vehicle for consumers at all affordability levels. Excluding Driveway, we report our SG&A as a percentage of gross profit close to 60%, or 62.7% on a consolidated basis. This does not include the full benefit of the cost reduction plans discussed on our February call. During the month of March, we began to see the early signs of the benefits flowing to the bottom line, particularly amongst our lowest quartile group of stores, and are confident that we now have captured over 30% of our stated target. We're confident in our ability to get our bottom quartile stores to at least an average level of operating leverage. As a reminder, we targeted savings of $150 million or about 250 basis points, and our largest and highest performing stores are achieving an SG&A level of 46%. In closing, it's good to reflect that over the past decade, we've acquired over $20 billion in revenues and more than doubled the average revenue per store to $100 million by growing, acquiring, and operating larger locations with more efficient structures, often in sizable metropolitan markets. Our goal is to continue improving our performance and optimizing the network where it makes sense by continuing to attract and grow the best-performing leaders. In each location, our leaders are navigating the current operating environment by expanding consumer optionality in sales and service, utilizing services like at-home solutions, while integrating acquisitions and leveraging costs across the network, all focus areas for 2023. This will undoubtedly ensure we deliver on our 2025 plan. With that, I'd like to turn the call over to Chuck. Thanks, Chris. DFC had another consistent quarter and continued as Lithia & Driveway's number one lender. This is a testament to the entire DFC team, which delivers a superior value proposition to our dealerships as a captive finance company balanced against managing portfolio risk. Our near-term objectives continue to be growing the portfolio of high credit quality paper, creating a systemic and scalable capital structure, and providing accretive financial returns. In Q1, the portfolio grew to over $2.4 billion, driven by the quarterly originations of $629 million, which equated to a 14% penetration rate. We originated contracts with a weighted average FICO of 731, we're able to achieve this while continuing to increase average yield, which ended at 9%. For the quarter, our financing operations achieved a net interest margin of $16 million with a loss of $21 million. DFC is a drag to earnings today, as Bryan mentioned, this investment drives our future profitability as each loan is 3x more profitable at full maturity, which more than offsets the upfront $26 million provision accruals included in our loss. From a portfolio performance management perspective, DFC continues to leverage the positive impact of moving upmarket in terms of credit quality. The portfolio average FICO scores increased to 713 from 679 a year ago. We also reduced front-end LTVs for four consecutive quarters with Q1 originations at 95.9%, a 130 basis point reduction sequentially, and an over 800 basis point reduction from Q1 2022. At the end of March, our allowance for loan losses as a percentage of managed receivables remained at 3.1%. Overall, delinquency rates improved in the first quarter as our 30-day-plus delinquency fell approximately 40 basis points to 3.7%. This was driven by a combination of DFC's improved credit quality, investments in servicing technology, and a positive impact from first quarter seasonality. Net charge-offs declined quarter-over-quarter on a dollar basis, primarily because of the impact of the shift to higher credit quality contracts, but also due to the changes in our repossession strategy and a modest improvement in used vehicle auction values. In addition, originations from 2022 forward have a lower average LTV, which will help mitigate reductions in used car values going forward. DFC continues to be active in the ABS term market, closing our 3rd offering in February. DFC remains committed to utilizing the ABS term market as its primary near-term source of capital, as this is a critical step towards becoming a materially self-funding entity. We expect to complete at least two additional ABS term offerings later this year. Becoming a programmatic ABS term issuer will lessen DFC's reliance on parent company capital and support becoming a self-funding entity. DFC will continue to assess and adjust our short-term capital sources to ensure that we have a diversified and adequate capital structure. The 2023 business fundamentals across DFC continue to focus on profitability by increasing spread rate, mitigating credit risk by improving both credit quality and structure of our contracts, and prudently managing our SG&A expenses. DFC's unique position as a true captive lender gives us a proven competitive advantage to be agile to quickly mitigate volatility in the general economy and capital markets. In closing, in another quarter that had instability in the financial markets, DFC continues to manage risk effectively, which is the key to meeting our financial objectives. Once fully scaled past the startup investment phase with a mature portfolio, DFC will generate more than $650 million in pre-tax income, which represents a material contribution towards LAD's future state of generating $2 of earnings per share for every $1 billion in revenue. I'll now turn the call over to Tina. Thanks, Chuck, and thank you everyone for joining us today. In the first quarter, we reported Adjusted EBITDA of $406 million, down 26% from last year. This result was driven by normalizing GPUs, impact of higher flooring interest costs driven by both rate and increasing inventory levels, and continued investments associated with growing our adjacencies. We ended the quarter with net leverage, excluding the floor plan and debt related to DFC at 1.6x, essentially unchanged from last quarter. During the quarter, we generated free cash flow of $323 million and remain committed to our capital allocation strategy of 65% of our free cash flows targeted to acquisitions, 25% for internal investment, including capital expenditures, and 10% for shareholder return in the form of dividends and share repurchases when they are opportunistic. The acquisitions completed in the first quarter were funded through a combination of using free cash flows and working capital facilities. Additionally, we increased our dividend 19% to $0.50 per share for the quarter. We're committed to achieving an investment-grade rating over time with a prioritization of growth and acquisitions in the near term. During our growth, our goal is to maintain financial discipline with leverage below 3x. After reviewing feedback from our investors, we decided to simplify our reporting prospectively, flowing through all activity tied to DFC through the financing operations income loss line, ultimately making it easier for investors to compare results between our peers. We've added a slide with information on this topic in the appendix of our investor presentation. For 2023, we expect a loss of $40 million from financing operations. This compares to a total $47 million loss in 2022, which was presented as a $4 million financing operations loss that excluded $43 million in expense for net charge-offs presented as part of SG&A. We reaffirm the expected DFC future state contribution of $650 million at a fully mature portfolio on a $50 billion base of revenue. We are confident we are positioned with sufficient liquidity to achieve our 2025 plan. We focus on continued acquisition growth while preserving the quality of the balance sheet and achieving profitability in our maturing adjacencies. As we work toward achieving $55-$60 in earnings per share as part of our 2025 plan and driving further profitability in the long term, we are committed to growing our company and generating value for our shareholders. This concludes our prepared remarks. With that, I'll turn the call over to the audience for questions. Operator? Thank you. We will 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 your line is in the question queue. You may press star two to remove yourself 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 your questions. As a reminder, we do ask that you please limit yourself to one question. Our first question comes from the line of Daniel Imbro with Stephens. Please proceed with your question. Yep. Hey, good morning, everybody. Thanks for taking our questions. I had two questions. If I could start over in the U.K. You know, I wanted to ask about the flow-through that you'd expect there. Bryan, you mentioned, you know, overall maybe $1.10, $1.20 for every $1 billion in revenue. But given that it's a new market and given that I think historically the U.K. carries higher expenses, should we maybe anticipate a lower flow-through in the near term as you ramp up Jardine? How quickly would you expect to add scale over there, as you're just kinda learning the market and getting your feet wet over there? I do have a follow-up. Great, Daniel. This is Bryan. I think most importantly, this is planting seeds into Western Europe. Our primary focus is still domestically in the United States, and we'll have a good year of acquisitions here as well. Remember also that Jardine is a lot of premium luxury, a lot of Porsche, a lot of Mercedes, a lot of Audi, and some other even higher luxury brands like Ferrari and stuff. Their margins historically, even pre-COVID, were at pretty high levels. We do not see any differentiation between it and what we see in the United States. Most importantly, the economics on what we paid were about 40% discount off of the same type of franchises that we're typically seeing in the United States. you know, Neil and his team are a great cultural fit, and we think that have all the abilities to be able to, you know, exemplify what our beliefs are in people and what our offerings are to our consumers. Great. That's really helpful color, Bryan. Maybe just one on DFC. The most common kind of investor question today focused around kind of the DFC outlook. If I look at the slides, you know, next year dropped a little over, I think, $100 million in earnings. Could we just dig into what the assumptions are? The KPIs look similar, 2.5% losses, normalized spreads in future, but obviously substantially lower earnings. Penetration looks like it's going down, that shouldn't be a headwind anymore. Can we kind of just walk through what the changes were between the $105 million and maybe the $1 million next year in DFC earnings if loss expectations are the same and everything else feels more similar, w hat changed? Thanks, Daniel. This is Chuck. Thanks for your question. As we look out, you have to remember, first of all, that Lithia & Driveway is gonna continue to grow. A lot of this, as we look forward to next year, is the incremental notional originations that still is gonna require a larger CECL reserve to take the provision accrual for future expected losses. When we sort of break out that next year number, profitability will go down as a result of that headwind. You know, as that portfolio starts to, you know, amortize and starts to generate positive returns and normalizes out those CECL reserves, it should be accretive as on a forward-looking basis. There's been no change to what you think, like, the core loss expectation of your customer would be given the macro changes, Chuck? Sorry, to squeeze one more in there. Yeah. I think from, you know, a forward-looking perspective, we're fairly conservative in how we're managing forward-looking risks. First, you know, our primary strategy has been to move upmarket. We still feel very confident that that's the right strategy. When we look at sort of the core fundamentals in terms of the FICO score, as well as our structure, you know, that's really borne out by the lower delinquency rates that we're really starting to experience. You know, we already have a little bit of conservatism, you know, in over-provisioning versus what our models are saying, and we feel that that's prudent both today and on a go-forward basis. Great. I appreciate all the color and best of luck. Thanks, Daniel. 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 question around Bryan, you're sort of opening, in your kind of opening statement, you sort of seemed to voice some frustration with a lack of incentives. It sounded like you expect more to come, but also expect it sounded like you were pushing for those a little bit as well to help move the metal to some degree. I'm just curious, you know, what your take is if incentives don't step up, what it means for pricing and grosses and why you think they really should just given what's going on in a reasonably tight market. John, why don't I let Chris handle that? He has a pretty good grasp on that and some different reference points with some of the domestics as well. Hey, John. Good morning. It's Chris. I think kind of looking back a little bit historically where incentives were at, looking back to 2021, you know, lease incentives are probably in line with where we've been historically. They're still about 10% off of where we've been, you know, leasing only about 20% of our overall mix and really focus more on our luxury brands, right? When you look at finance incentives, they're still 50% of what they were two years ago. When you see that we have inventory on the ground right now, especially in the domestic lines, that is not moving, it's starting, you know, our day supply is building, and you look at the fleet business, which was up 60% in the quarter, you start to see that there's a timing, you know, of when incentives are definitely gonna have to flow back to the consumers, which is gonna help us, you know, drive more retail. I think we feel like that's gonna continue to improve throughout the year just based on looking at historical trends and just, you know, the discussions that we have in local markets. The other big thing that we've seen when we talk about, you know, the Western Region is one thing, but when we talk about our North Central Region, which is basically Michigan, you're starting to see a lot of domestic manufacturers come back, or all three domestic manufacturers coming back with their employee programs. John, as you know, every single resident in Michigan seems to be an employee or an affiliated employee of an OEM, a domestic OEM. Just to follow-up to that, do you think there's an expectation? I mean, a UAW strike in September is almost a foregone conclusion at this point. Do you think there's any view that they are building inventory in front of that to prep for it? Because, I mean, if you have a one or two-month strike, I mean, you're down 30 to 60 days of inventory in a, you know, in a very quick period of time. I mean, is there any view that you have that may be what's going on and why they're not coming back in with aggressive incentives right now? John, I think your line of sight on that is probably better than ours. I just know at the ground level, you know, in the network, we definitely have inventory that can move, and we're starting to see incentives come back. It's hard for me to answer that question directly. Chris also shared with me that the pipeline for the fleets are finally starting to fill as well. We had actually seen in some of the domestic manufacturers and in the Western region, 60% of their mix was actually fleet, when the rest of the country was sitting at 25%-28%, showing that there's a little weakness in the Western region. Also we're thinking that once we get the data in from April, that hopefully that's come down again, which means that the log jam a little bit with some of the domestics is starting to loosen up. You know? We'll, it could be beneficial on the strikes. I guess we have less insights of that, and ultimately, you know, we have one goal: retail cars, so. Bryan, just one follow-up to that. When we looked at 2010 and 2011, fleet was really the driver of the recovery, and then retail came after. Do you kind of think that that may be what's going on right now in the cycle? If fleet activity is picking up, that means commercial activity is picking up, which should drive the economy, and which should drive the retail sales. I mean, do you kind of have a vision that may be what's going on right here? No. I think that is 100% accurate. I think there's been a lot of noise, and chatter around the idea of moving back to incentives and being able to control inventories. That I think is something that's, you know, making it even more of a future vision that, you know, that they let's avoid the price and finance incentives because they're less visible to the consumer, okay. For the time being, let's work on lease incentives, like Chris said. Okay. Thank you very much. Thanks, John. Thank you. Our next question comes from the line of Ryan Sigdahl with Craig-Hallum. Please proceed with your question. Good morning. Thanks for taking our questions. wanna start with Driveway.com. I don't believe you quantified the loss in the quarter. Are you willing to do that or at least state if it was higher or lower than the past few? Sure. Ryan, this is Bryan. You can actually get there. We gave you the SG&A of 60% without Driveway. We gave you the SG&A with Driveway at 62.7%. What we're seeing in Driveway today, which equates to approximately $32 million in SG&A costs. On a positive note, our burn rate month-over-month in March, we're finally gaining some traction, was actually down 25% month-over-month. Big change. The volume was up 75% year-over-year in March. Was up about 25% month-over-month in March, just so you're comparing apples to apples to that burn rate, which is good signs. You know, it's about 10% in actual SG&A savings. It's about a 10%-15% in improvement in gross. You expect DFC to inflect profitably in 2024. I guess, do you have any commentary on Driveway.com on when that could potentially inflect positively to profitability? Well, in terms of DFC, we still are looking towards the end of 2024 profitability, okay? I think as Chuck mentioned, we did have a faster growth rate in DFC because of those two factors. Obviously, our overall growth as an organization, but our penetration rate was forecasted internally at 12%, and we were at 14%. The primary reason was because there was better economics in what we saw looking forward. As Chuck mentioned, the delinquencies were down and look good. I think the fundamental driving factor is at 3 x more profit over the life of that loan, it's an annuity that we're really paying for that even though it may hurt the quarter a little bit, it is the right answer. Especially since we use the same or better, buying decisioning, and the criteria is more selective, and that's why we share with you both the loan -to-values as well as, our FICO scores, so you can definitely see that. I think as we continue to mature DFC, it's a lot easier to be able to make those structural changes that are best for the long game rather than just what happens in a quarter. Great. If I can sneak one more quick one in. Just a slight change in wording around the 2025 plan. You said the word goals. I don't believe you previously referred to it that way. I guess, has your confidence changed in achieving those targets on that timeline by 2025, or am I just kind of overreading into that? Oh, that's probably just vernacular. I have very little doubt in our ability to achieve the $50 billion in revenue. You can look at our slide deck. We did tweak some of the channels a little bit in terms of what their contributions are, and you can see that in the idea of getting to $55+ dollars in EPS, is still a hundred. We're very confident in that strategy. Most importantly, it's important to remember that though it may appear to be a little bit tougher quarter, the things in our ability to execute are quite strong as an organization because we're building the foundation to do something that no one has really been able to do, and that's constructively improve our margin formula as well as our cost formula to drive to the $2 of EPS beyond the 2025 plan. Over the coming quarters, again, we'll be able to share more information. You know, we all know that what DFC can do, okay? We've just went through the biggest downdraft in interest rates that we probably could ever feel. You know, our standing here is stronger than ever in that part of the organization. You know, we're curbing our burn rates in Driveway, which allows us the ability to touch 50 x more customer than our traditional store network touches. You know, we've got a pretty good game plan on our, on our green car strategies as, you know, sustainability continues to gain market share in mobility. We're pretty excited of what's happening and, you know, look forward to continued growth as an organization. Very good. Best of luck, guys. Thanks. Thanks, Ryan. Thank you. Our next question has come from the line, Rajat Gupta with J.P. Morgan, please proceed with your questions. Well, hey, good morning. Thanks for taking the question. Just had one quick clarification on DFC. The change in the 2023 guidance, you know, from $10 million profit to the $40 million loss, is that all just the change in reporting, or is there an assumption of higher charge-offs there as well? Hi, Rajat, this is Tina. There's a couple things. It's mainly driven by the change in presentation as we've taken the investor feedback and really appreciated all of that so that we clearly are combining, you know, what's related to DFC to give clear line of sight of that business. Most of that is the, you know, net charge-off reclassification, which in the investor deck, we do have a slide that articulates and sort of demonstrates what that looks like. That's the majority of it. The other thing is we did update the modeling, which is what the actual loans are looking like. With the rising interest rates, there's been a little bit of net interest margin compression. In the forecasting, we've actually rolled that through as well as we have, you know, clear line of sight as to what the loans look like, and it's built to date. Those are the two main factors that are driving the change in the outlook. I got it. And for 2024, you know, just to follow up on Daniel's question earlier, is there a combination of the restatement there as well, or is that more purely fundamentals? I think for 2024, we see a, you know, more stabilization of both DFC in terms of our fundamentals and our growth rate seems to be consistent, you know, on a notional basis with 2023. You know, I think it is, again, primarily as I stated earlier, primarily just the organic growth or notional growth as Lithia & Driveway continues to grow. We're just gonna see higher originations on a notional basis, and that's just really going to drag down the overall profitability in 2024. Understood. Maybe, you know, just to follow up on, you know, the guidance you'd provided on the prior earnings call. You'd given us some high-level puts and takes across, you know, different businesses for the year, you know, including like SG&A to growth in the 61%-64% range. Wondering if there's any update to that. You know, do you still feel comfortable with those with those ranges, you know, including SG&A to growth and the $1 billion free cash flow? You know, any updated color you can give us on that would be helpful. Rajat, we're very comfortable with the previous guidance in that 61-64 and the other relative guidance that we've given. I mean, we keep our head down and continue to execute on the plan and, you know, not a lot's changed other than GPUs are still planning on normalizing, and they were actually a little stronger than what we actually had expected. We were expecting about a $200 decline in new vehicle grosses. That was offset by some stabilization in the used vehicles as well, but very comfortable with where we sit and what we're guiding. The 61-64, is that slightly better than previously, just because some of the SG&A is now moving into the DFC line, you know, or are you still, like, maintaining that range, irrespective of the reporting change? Well, let me. Sure, Rajat. Bryan again. If you go back a few quarters or even a few years, we did take 200 basis points out of our cost structure in terms of personnel. But the most important driver, and we'll be able to give you more insights into this, is that our network is way cleaner than it was pre-COVID. I mean, we were doing 64%-65% SG&A as a percentage of growth in mid-2014, 2015, 2016, if you go back and look at any of our filings, okay? And today, our average store size, and that's why Chris spoke to this idea of bigger stores have better leverage on their cost structures, that we believe there's somewhere between 300 and 500 basis points in improved SG&A that are coming from a cleaner network. Meaning we have less stores that are achieving SG&A of 80%+ because we sold off 30-35 stores and we bought things, what we would call in the three strongest regions, which is regions 4, 5 and 6, primarily 5 and 6. Okay. Excuse me, 4 and 6, which is the South Central and the Southeast, where if you remember back in 2014 and 2015, we had 0 presence in the most profitable automotive retail markets in the country, which is in regions four and six. Got it. Got it. That's helpful. Just one last one, you know, on the new vehicle same store number. You know, the minus 6%, you know, when we look at like the overall industry, you know, even excluding fleet, it still, you know, seems to be a few hundred basis points below the industry average. I mean, is that just because of, you know, your regional presence or, you know, or within the regions, you know, metro versus non-metro locations, you know, where that disconnect is coming from? You know, just curious, like, because you mentioned you were gaining market share, so it was just hard to reconcile with the overall industry numbers. Any clarification on that would be helpful. Thanks. Rajat, this is Chris. What we're saying exactly is, you know, we're seeing the Western region have an outsized proportion of a declining sales volume on the new vehicle side right now. At the same time, our market effectiveness or our representation of the brands that we represent actually gain share. We're getting a bigger piece of a smaller pie, which is exactly what we expect our operators to do when they focus on new vehicles. Then the expectation after that is to focus on, you know, obviously used vehicles and our after sales business and leverage the expenses to bring, you know, more net to the bottom line, which helps us drive that SG&A number Bryan was referring to. Got it. Great. Thanks for all the color. Okay, Rajat. Thank you. Our next questions come from the line of Brett Jordan with Jefferies. Please proceed with your questions. Hey, good morning, guys. Morning, Brett. You talked a couple of times about sort of normalized GPU environment and maybe GPU is a bit better than expected now. Could you sort of give us a ballpark for what a normal GPU is expected to look like? I think in the third quarter call last year, you talked about maybe back to pre-COVID levels, but what's your expectation now? Yeah. We've definitely indicated that we believe that normalized levels could be $300-$500 better between both F&I and the vehicle gross profit, which would put us into the low $4s with F&I. We still believe that that can probably hold true, okay? It may be on a lower base of business, but we also know that there's still about 20% lift in the current SAR environment, you know, in the new car side, and there's about a 12% lift in the used car side to get back to normal volumes, and we'll see what that looks like. It sure looks like we've structurally changed some of the things in the industry to realize a normalized level that's a little higher than where we were going into COVID. I will say this, we're not modeling a lot of that into our assumptions for 2025 and beyond because we don't know that yet. I think ultimately we need to see that structural change occur before we actually start to model that. Okay. A quick question on the cadence of used ASPs. I mean, they've been declining. They had that pop, or the Manheim had did in February. What do you see sort of the balance of 2023 outlook on used ASPs? Is there a real downside or is the lack of new car supply gonna support them? Yeah, it's Chris. I think ASPs are gonna continue to moderate throughout the year, you know, especially based on where credit quality is with consumers. I mean, it's a, it's a, it's a market-driven phenomenon. When interest rates go up, you know, affordability issues get constrained and, you know, it flips the market a little bit. As you saw and we talked about coming out of Q4, you know, we saw some inventory issues that we had to work through. You know, looking on a same store basis right now, we had, I think 26% of our inventory was aged over 60 days, you know, coming into Q1, and that number is down to about 12%. We had a lot of work to do to kinda right-size the inventory based on kind of the market adjustments that you see. Yeah, I mean, if interest rates kinda stabilize where they're at, I think ASPs can moderate, especially with the lack of, what did we lose? 4 million units in production over the last 3 years because of chip shortages and other issues that's gonna create that demand on, you know, on overall used car values. Thank you. Our next question has come from the line of Chris Bottiglieri with BNP Paribas. Please proceed with your question. Hi, guys. Thanks for the questions. Hey, Chris. Clerical—h ey. Hey, Bryan. A quick clerical one up front. What was the APR on originations this quarter? Sorry, Chris. APR on originations. The APR was just over 9%. Just over 9%? Yeah. Okay. I think last quarter you guided DFC income as 8.5%-10% of managed receivables. It seems like you reiterated that again this quarter. You know what? I would think at a 9%, when I look at some of your peers, they're a lot higher than that, with similar, albeit slightly lower FICO scores. I would think there's an ability to kind of move that up, that portfolio average up. Like, how do you, how do you think of the cadence from here in terms of how fast you're going to raise your APR and what that means to your weighted average portfolio yield over the balance of 2023? Yeah. Thanks. Thanks, Chris. This is Chuck. Great question. We definitely are laser-focused on our yields and making sure that as we originate loans, that number one, you know, we look at each individual contract to make sure it's accretive using the current models for our, you know, cost of funds, risk-adjusted, you know, sort of basis. You know, the second thing is that we are the closest or one of the closest to the market in terms of the amount of information that we see, and we put that all into, you know, how we look at originations to make sure that we can increase yields as quickly as possible without, you know, damaging the overall franchise. We expect our yields to push up, though probably still in that 8%-10% range. We're now over 9%. It'll probably be a gradual process just to make sure that, you know, we don't, you know, damage the ability for our dealerships, as Chris mentioned, to finance customers, but balance that against the economic returns for DFC. Gotcha. Okay. That's really helpful. Just a second and final unrelated question. You know, I would imagine that you are one of the top three largest dealers of Asian imports in the country. Hopefully, some pretty good communication with those OEMs. Like, what's your sense on their production plans? At what point do you foresee them getting new vehicle production inventory days up to where the domestics are? That to me, like you have more exposure to those relative to the publics. I think once the Nissans and the Hondas of the world get production about big incentives normalize, that's probably what it takes, would be my view. Curious to see how you're thinking about that. Hey, Chris, this is Chris again. You know, you're right. 42% of our overall sales come from the import brand. Obviously, you know, heavily weighted towards imports, which has been great. I mean, phenomenal product, you know, low day supply and awesome margins still in this environment. As far as line of sight, it seems to depend on the month where, you know, the production cycle that we get, you know, allocation off of, you know, is probably 60 days out at best. So, you know, line of sight on that is tough. I think that things are gonna continue to improve though throughout the year on the import side, like they have already for domestics and luxury. We expect it to improve throughout the back half of the year. Big tailwind coming. Gotcha. Okay. Thank you. Thanks, Chris. Thank you. Our next question has come from the line of Adam Jonas with Morgan Stanley. Please proceed with your questions. Hey, thanks, everybody. Good morning. Just wanted to go back to the DFC, just one fine point. Of the $100 million reduction for fiscal 2024, obviously you had some prior assumption for CECL reserves there, and I understand the accounting change. I'm just curious, isolating the reserves, what can you... it's hard for me to tell whether you made a change from 4Q to 1Q, irrespective of the accounting change. To tell us what that level, what that provision is right now. Is it 2.7 on the whole book? Adam, thanks for your question. This is Chuck. The provision rate is 3.1% of the book. That's where we're at. We feel that in our internal models would actually indicate something a little lower than that, but from a conservatism perspective, you know, we want a little bit of cushion in there. Relative to the first part of your question, which had to do with 2024, you know, yes, obviously there are some adjustments relative to the spread rate compression that Tina mentioned earlier in her comments. You know, we adjusted that in. We factored in clearly some of the impacts of, you know, what's happened to our cost of funds with regards to sort of the capital markets. You know, again, the preponderance of what that change is in 2024 is again, you know, the moving of the CECL reserves back into DFC profitability, as Tina mentioned. Got it. I appreciate that. Just as a follow-up, the size of the book reduction from, to $4 billion from $6 billion. If you addressed it, I'm sorry if I missed it. If it was addressed earlier, why the $2 billion reduction in the size of the outstanding balance? Thanks. Yep. Adam, this is Chuck again. Part of that is a function of our prepayments. Given that, we're in a higher credit quality class of contracts, our prepayment rates are a little higher than what we would have projected with the prior credit quality mix that we're originating. That's one of the reasons. We have moderated, you know, our percentage originations of the total Lithia & Driveway book. You know, we were saying going up to 15%, now we're moderating that back more in the, you know, 13%-14% range. That's clear. Thank you. Thanks, Adam. Thank you. Our next question has come from the line of Colin Langan with Wells Fargo. Please proceed with your questions. Hey guys, this is Kosta Tasoulis filling in for Colin Langan. My first question, following the Silicon Bank situation, there's been some issues getting ABS funding and just general volatility in credit markets. I wanted to see if you guys can frame for us the impact that it's had on DFC. Thanks. This is Chuck again. You know, first I'd point you to, you know, our issuance, and I know it's pre Silicon Valley Bank, but our first quarter issuance. That deal was incredibly oversubscribed, 6x oversubscribed on certain tranches. And I think that's really a testament to sort of the DFC value proposition and just sort of where we sit in terms of the economics. As a fairly new issuer, the loss curves that we're assigned from the credit ratings tend to be very conservative. From a risk-return perspective, our paper on a notional apples-to-apples basis looks far more attractive than other more seasoned issuers that have a very tight spread rate. We feel very confident even with the, you know, sort of frothiness in the current capital markets, that the DFC value proposition, being a true captive lender, as well as some of the, you know, technical, considerations of our portfolio, will continue to allow when we go to the term market, a significant amount of demand for our paper going forward. Cool, thanks. My last question is, I think you guys guided SG&A to 61%-64% in 2023. You guys are in that range and then 50% in 2025. I think last quarter you highlighted an opportunity to reset the cost structure. Colin, not 50% in 2025. 50% in the future. 60% in 2025. Oh, okay. Yeah, just to clarify. Keep going. Fair. Thanks. Yeah, so last quarter you guys highlighted an opportunity to reset the cost structure to get a offset of 50% of lost gross profit, driven by commissions. I think it's been lower last several quarters. What was the cadence of kind of getting that offset for the rest of the year in 2024? Yeah, Colin, this is Chris. I mean, we've been heavily focused on kind of this right-sizing in certain pockets that, you know, have drove up our SG&A in a declining GPU environment and sales environment that we had to adapt to. You know, since we last spoke and coming off of Q4's call, we've eliminated about 1,000 positions in the field and have rightsized a lot of pay plans to kind of getting folks ready for this new environment that, you know, helps us leverage, you know, the gross and the net. You know, March actually, we saw a lot of that come through the bottom line and we're anticipating, you know, additional kind of strength coming into Q2, which we hope to share with you in July. Thanks, Colin. Thank you. There are no further questions at this time. With that, this does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.