Good morning. Welcome to Lithia & Driveway Second Quarter 2023 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 for joining us for our Second Quarter Earnings Call for 2023. 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 discussed today include references to non-GAAP financial measures. Please refer to the text of today's press release for a reconciliation to comparable GAAP measures. We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our Q2 results. With that, I would like to turn the call over to Bryan DeBoer, President and CEO. Thank you, Amit. Good morning, and welcome to our Second Quarter Earnings Call. We appreciate everyone joining us today and for the opportunity to update you on our business strategy, growth, and progress towards our 2025 plan and beyond. In Q2, Lithia & Driveway grew revenues to $8.1 billion, up 12% from 2022, resulting in adjusted diluted earnings per share of $10.91. Sequentially, GPUs were a little stronger than expected for both new and used vehicles, and F&I margins remained stable. Thus far in 2023, GPUs for new vehicles have come down approximately $100 per month, half of our original expectations. We remain focused on growth and profitability, we look to gain further efficiencies across our businesses. Our model is dynamic and diversified, allowing our vehicle operations and stores to adjust with local market dynamics. This provides customers a variety of products and services, allowing us to serve customers across a wide set of demographics and manufacturing partners. By offering a variety of channels to interact with customers, our model fosters a responsive and adaptive culture that consistently delivers the best experience for our customers wherever, whenever, and however they desire. Sustainable vehicle sales continued to gain momentum in the quarter, up almost 50% over the prior year, and now representing nearly 10% of our overall new and used vehicle sales. MUVs on our GreenCars.com channel was also up 73%, which reinforces the propensity for consumers to continue to explore sustainable options for their next vehicle purchase. In Q2, SG&A, as a percentage of gross profit, was 60.4% versus 62.7% sequentially. Adjusted for the impact of our adjacencies, our core business SG&A, as a percentage of gross profit, was approximately 58% in the quarter. This demonstrates the effectiveness of our cost-cutting efforts, and they're flowing through to our operating results while still executing on our overall strategy. Our captive finance arm, Driveway Finance Corporation or DFC, continued to show steady growth, with total receivables now over $2.8 billion. We're well capitalized and on our way to becoming systematic ABS issuers by year-end, and we're managing our loan loss provisions in line with expectations. We are balancing the pace of originations with profitability to prudently grow the lending portfolio, expand our net margins while improving our liquidity and capital costs. Both Chris and Chuck will be sharing further details on the results of both vehicle and financing operations later in the call. Acquisitions are fundamental to our customer-centric strategy, enabling regular touchpoints with our customers and ultimately providing them with a convenient set of solutions throughout the ownership lifecycle. Our network aims to place us within 100 miles of consumers, which allows us to leverage our physical infrastructure as we continue to lessen our mix in the Western region while diversifying our network, which also aligns with the expansion of our national brand and growing our omnichannel presence. Our focus and discipline remains targeted on the most profitable regions in our country, like the Southeast and South Central, where we have plenty of runway to expand relative to our peers. Acquisitions are a core competency of Lithia & Driveway, and we are proactively looking to new opportunities that can be complementary to our business. Our investment threshold remains consistent, both in the near term and for the balance of our 2025 plan. Specifically, we target after-tax returns of 15% or more and aim to acquire for 15%-30% of revenues or three to seven times EBITDA based on normalized earnings. Life to date, our acquisitions are now yielding a 98% success rate. We continue to be disciplined in our acquisition strategy, balancing valuations with future returns and the potential for increasing cash flow generation. We are patient and have the flexibility to manage the pace at which we decide to acquire businesses that fit within our network development strategy, and most importantly, return expectations. During the Q2, we completed 2 acquisitions in the United States, which are expected to generate approximately $1.5 billion in annualized revenues. The first purchase was the high-performing Priority Automotive Group in the Mid-Atlantic, where we acquired 13 stores and over $1.2 billion in annualized revenues. Our latest acquisition, Wade Ford, expands our footprint in the Southeast city of Atlanta, enhancing our position in one of the fastest-growing and most lucrative regions in the United States. Year to date, we have already acquired nearly $3.6 billion, more than all of last year's activities. I'm glad to welcome our new associates to the Lithia team and expand our nationwide presence and continue our growth throughout the rest of the year. We're well on our way to achieving the upper range of our acquisition target of $3 billion-$5 billion in acquired revenues per year. Our priority remains acquiring stores in the United States, but attractive valuations and opportunistic transitions, actions may warrant exploring other opportunities as well. Selling decisions are driven by succession planning, monetization, and sellers that wish to partner with us, and Lithia's long tenure of successfully completing deals in a timely and confidential manner. We're proud of our track record of executing and integrating multiple transactions as we make our way towards our $50 billion in revenue target and beyond. Now, on to an update on our strategy and plan. We just passed the midpoint since launching our initial plan, and we are on track to achieve the objectives we outlined in the market in July of 2020. Since the launch, we have acquired now over $17.5 billion in revenues. Driveway Finance Corporation, our captive finance division, continues to make steady inroads as our top finance partner. Despite the initial headwinds of starting DFC, our investment will realize its potential and contribute massively to future profitability. As a reminder, the average loan we originate at DFC is three times more profitable over its lifetime relative to the fees we receive from third-party commissions. Finally, our omnichannel presence continues to gain momentum as customer traffic to our various channels grows amongst consumers across North America and abroad. LAD is well underway to become the international omnichannel mobility provider, with an assortment of offerings for a diverse set of consumers. Key to the plan is changing the economics of automotive retail by increasing overall margins and lowering SG&A through growth, efficiency, and diversification. These design enhancements will delink our traditional $1 of EPS being produced for every $1 billion of revenue. Our first step is achieving $1.10 to $1.20 for every billion dollars by 2025. This is being driven by several key factors as follows: First, achieving through scale a blended US market share of 2.5% or more through acquisitions, channel expansion, and same-store growth improvements in a normalized SAR environment. Driving SG&A as a percentage of gross profit to 60% through increased leverage of our cost structure in a normalized GPU environment and optimizing our network. Maturing our first adjacency, 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 in a more efficient manner. Finally, returning value to shareholders through dividends and flexibility in capital allocations for share buybacks when it makes sense. We have created a unique foundation, possessing a culture built on growth and higher performance, with a capital engine annually generating significant free cash flows in an unconsolidated industry. This positions us well for future growth, where $1 billion in revenue generates two dollars in EPS, twice the amount of earnings and cash flows in a normalized, steady-state environment. Key factors underlying our future state and totally within our control are as follows: Optimizing our network through gradually lowering our West Coast mix of business by focusing on buying in other regions, divesting of small, less efficient locations, expanding reach with our omnichannel platform, maximizing leverage of our physical infrastructure, and maintaining a portfolio of high-performing businesses and locations. Second, financing up to 20% of units with DFC and maturing beyond the headwinds associated with CECL Reserves. Size and scale will continue to drive down vendor pricing, develop competencies internally to save costs, and lowering borrowing costs as we path towards an investment-grade credit rating. Maturing contributions from other horizontals, including fleet, lease management, charging infrastructure, consumer insurance, and other new verticals. Finally, including the things above, we will leverage our cost structure and customer lifecycle design to reduce our SG&A as a percentage of gross profit to 50% or below. These assumptions are based on a normalized GPU and SAR, and finally, a steady state for each of our business lines. In closing, Lithia & Driveway provides a unique mobility platform that manages various transportation solutions and creates a great customer experience, boosting revenues, scale, and profitability. Our strong acquisition cadence, combined with improved productivity and efficiency, are helping us to outrun the normalizing market conditions. Our foundation is durable, and our network is diversified and vast, meeting the shifting needs of consumers with both online and in-store solutions, coupled with financing solutions like DFC. The combination of our strategy and experienced team gives us the confidence in our ability to achieve the $50 billion in revenues by 2025, equating to $55+ dollars of EPS, with the goal of $1 billion in revenues, translating into $2 in EPS in the long term. Ultimately, we're focused on delivering value and returns to our shareholders over time. With that, I'll turn the call over to Chris. Thank you, Bryan, and good morning. We appreciate the efforts our operational teams put forth in the first half of 2023, and their continued drive towards executing on our strategic plan. We remain disciplined on delivering a customer-centric experience with the convenience of an omnichannel offering that drives profitability, cash flows, sustained growth, and the best-in-class returns to our shareholders. As it relates to the Q2, several factors led to our better-than-expected results. These include a progressive focus on consumer optionality in sales and service, sustained pent-up interest in new and used vehicles, better-than-expected resilience in GPUs, sustained strength in our high-margin fixed operations business, and improvements in our cost structure. We continue to see healthy demand for new vehicles, even as rates and average vehicle prices continue to rise, as customer resiliency and continued investment in transportation needs moderate the related increases in monthly payments. We're also seeing inventory availability at all OEMs improve, and gradual increases in incentives continue to give relief to consumers impacted by the higher rate environment. The gradual rebuilding of new inventories underway will continue as the year progresses, which will give consumers more selection and will continue to support pent-up demand. We continued to outperform in most markets and saw favorable market conditions in our Northeast, Southeast, and South Central regions, or Regions Four, Five, and Six. We also saw some recovery in the Southwest, or Region Two, our largest region. The Northwest and North Central regions, or Regions One and Three, continue to experience tepid growth, but our specific locations outperform the market and gain share. Regardless of the macro or market-level dynamics, our focus remains on local leadership, who are accustomed to delivering market share gains and improving operating leverage and profitability throughout the business cycle. Our ability to adapt to these local market dynamics allows our team to adjust quickly and effectively, which we continuously see translating into high performance. Same-store new vehicle revenues were up 7% for the quarter due to unit volumes increasing 3.6% and AFPs rising 3.3%. New vehicle GPUs, including F&I, remain elevated at $7,112 per unit, down from $7,500 in Q1 of 2023, and $8,415 in Q2 of 2022. Consumers are focused on finding affordable vehicles and have the ability to choose from a massive influx of new models. We anticipate incentives will continue to grow to support demand for new vehicles, and over time, this additional new vehicle supply will improve the related headwind in the used car market. Shifting to used vehicles, same-store used vehicle revenues were down 15.8%, driven by unit volumes declining 11.6% and AFPs decreasing 4.7%. The recent decline in used car prices is a result of higher interest rates and gradual pace of new vehicle inventory improving. However, the U.S. car parc lost approximately 8 million units during the production declines in the COVID pandemic, which will provide years of demand tailwinds for used vehicle inventory. This scenario again highlights the benefits of being a top-of-funnel new car dealer, where access to customer trades and off-lease products from our partner OEMs is a massive differentiator as it represents over 75% of our used vehicle sales. Currently, we have a robust supply of late-model inventory and continue to work all our procurement channels to improve our core inventory product for three to seven-year-old vehicles, which are the hardest vehicles to find and make up 60% of our total volume. Including F&I, GPUs were $4,280, up 6% compared to Q1 of 2023, but down from $5,122 in the prior year. Overall, low inventories continue to support GPUs and overall prices, which again, we expect will take several years to rationalize. At the end of June, vehicle inventory day supply was 51 days for new and 58 days for used, compared to 32 days and 62 days this time last year. We are managing our inventory to balance with our local demands and remain conservative in our outlook for margins. Combining our in-store footprint of over 340 locations with our in-home and e-commerce channels, we offer convenience to our customers and optionality to the retail experience they desire. In the quarter, Lithia & Driveway's online channels averaged 11 million monthly unique visitors, an increase of 42% from the same period last year, with advertising spend down 10%. Total e-commerce sales during the quarter were over 36,000 units, or up 14%. Our efforts to improve economics at Driveway and our brand recognition remains on the right track as we continue to focus on improving the consumer shopping experience. Reinforcing Driveway's model continues to be incremental to our overall sales, with the average distance for deliveries being over 803 miles from the selling store location, and 98% of those consumers had never shopped with us before. Our national network reaches vast, giving us the ability to touch 50 times more customers without fixed investment as we continue to expand the power of omnichannel with Driveway. We are leveraging our underutilized network to facilitate more auto-related transactions as we move towards delivering a profitable online and in-home experience. During the quarter, service body and parts delivered strong same-store sales, rising 5.8% from the same period in 2022. Customer pay, which represents 57% of our after-sales business, was up 6.1%, while warranty sales were up 11%. With the average age of vehicles rising, coupled with the increasing complexity of new vehicles, our team of certified factory-trained technicians are working hard to deliver on the massive demand for services from our customers. Excluding adjacencies, we reported SG&A as a percentage of gross profit at 58% versus 60.4% on a consolidated basis. We continue to see operating improvements and better throughput, and thus far in 2023, we have reduced overall SG&A by almost 300 basis points, translating into a throughput rate of 60%. This implies our cost reduction initiatives are driving operating leverage and improvements in productivity within our sales force. Our top quartile of store continues to realize even greater results, delivering SG&A to gross profit below 50%, setting the bar for what we expect all of our locations to achieve over time. We are confident we have implemented the changes necessary to realize the cost savings of $150 million annually laid out in Q1. To summarize, we are focused on improving our performance, integrating new locations, and attracting more consumers into our omnichannel offerings. Our leaders are navigating the current operating environment and expanding consumer optionality and the related services in sales and service, and we'll continue to focus on executing our plan in the back half of 2023 and beyond. With that, I'd like to turn the call over to Chuck. Thanks, Chris. Since launching our captive finance division over three years ago, DFC has continued to refine its underwriting process to align with current market conditions. Early last year, we pivoted towards underwriting higher quality paper to mitigate stress in the general economy and potential volatility in the used vehicle market. To put this into perspective, on a year-over-year basis, the portfolio weighted average FICO score increased from 684 to 715, and the front-end LTVs have fallen from nearly 101.4% to 95.8%. DFC was able to improve credit quality while at the same time increasing our yield as the year-to-date portfolio weighted average APR rose from 8.3% to 8.8%. As the captive lender for Lithia & Driveway, combined with our proprietary data, this enable us to outperform traditional lenders, giving us the opportunity to earn a higher return on assets over time. It's important to remember DFC is part of a broader customer-centric strategy for Lithia. It complements the core dealership business and our omnichannel strategy at Driveway. We're well positioned for further growth as Lithia moves into other mobility verticals and regions. Ultimately, a robust captive finance business provides LAD with a countercyclical and diversified earning stream that also increases customer attachment and retention rates. Turning to the quarter results, the portfolio grew to over $2.8 billion. We originated $558 million in loans, equivalent to a penetration rate of 12.1%. For the full year, we expect penetration rates to be approximately 12%. We realized a 53 basis point increase in the weighted average APR sequentially. The reduction in the penetration rate from the previous quarter is primarily a result of the focus on yield, along with units acquired through the purchase of Jardine. As a reminder, we are presently not originating loans in the UK. In Q2, DFC posted a net interest margin of $18 million and an operating loss of $19 million. The provision expense was $25.8 million, which included the impact of the non-cash special reserves taken at origination and an increase in our provision rate. At the end of the quarter, we increased our allowance for loan losses as a percent of receivables to 3.2% as a result of declining used vehicle prices. Delinquency rates fell by 73 basis points from the previous year due to an improvement in our credit quality of our portfolio, coupled with enhancements in our operations. On a side note, in the Q2, 30-day-plus delinquency rates increased sequentially by 40 basis points, this was expected and consistent with historical seasonal trends. Halfway through 2023, DFC has incurred larger losses than originally forecasted, and we now expect to incur a loss in the range of $50 million-$55 million for the full year. However, losses are expected to decrease sequentially, and we are confident the business is on track to break even in 2024, and over time, realize the expected future state of $650 million of earnings on a fully mature portfolio. We believe now is the right time to invest in DFC during this startup period, which will bring us closer to achieving our future state profitability goals. In addition, DFC has an ability to improve Lithia's capital costs and operating leverage, which should, over time, materially improve Lithia's ratio of revenues relative to earnings per share. With that, I'd like to turn the call over to Tina. Thanks, Chuck, and thank you everyone for joining us today. In the Q2, we reported adjusted EBITDA of $503 million, down 9% from last year. This result was driven by the impact of higher flooring interest costs and investments across our adjacencies, offset by the strength in new vehicle demand and parts and service. We ended the quarter with net leverage, excluding floor plan and debt related to DFC, at 2 times. During the quarter, we generated free cash flows of $354 million and $731 million year-to-date. We have defined free cash flows as EBITDA plus stock-based compensation and reduced by interest and income taxes paid in cash. We're on track to deploy these cash flows in line with our capital allocation strategy, namely 65% toward acquisitions, 25% directed to internal investments, including capital expenditures, and 10% for shareholder return in the form of dividends and share repurchases when they are appropriate and opportunistic. The acquisitions completed in Q2 were funded through a combination of free cash flows and our working capital facilities. We reiterate our goal to maintain financial discipline with leverage below 3x and remain committed to achieving an investment-grade credit rating over time while prioritizing growth and acquisitions in the near term. Through the first half of 2023, we have seen more orderly trends around inventory, resulting in GPU declines being slower than originally anticipated. While DFC has a slightly larger loss outlook, Chuck mentioned earlier, we expect this to be offset by the positive top-line trends and our ability to continue to leverage our cost structure and drive profitability. We are well positioned and have sufficient liquidity to achieve our 2025 plan. We remain focused on our growth trajectory while preserving the quality of the balance sheet and reaching profitability in our maturing adjacencies. As we work toward achieving over $55 in EPS as part of our 2025 plan and further profitability expansion in the long term, we are driven by our culture of growth and high performance to generate 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. 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 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow-up question. Our first question is from Daniel Imbro with Stephens. Please proceed. Hey, good morning, everybody. Thanks for taking our questions. Good morning, Daniel. Bryan, I want to start on the new side of the business. You know, obviously, you mentioned GPUs have held in better than feared, and maybe even despite the inventory build, GPUs have hung in better than some of your peers. Just curious, can you talk about any updated thinking on the pace of reduction? You mentioned right now it's been about $100 a month. Then how have inventories trended here into July? Any notable change in any of your OEM mix, year quarter to date? Great. I'll let Chris speak to inventory in just a second. I think in terms of looking forward on where we see GPUs going, I think we still are in the camp that GPUs will normalize. We still believe it's somewhere between $300-$500 above pre-COVID levels. That feels like the right number of what the supply and demand will, once it eventually levels out, will look like. I would say in the shorter term, I think the $100 reduction, about half of what we originally expected throughout the rest of summer and probably into early fall, is a good number in terms of GPU reductions on new cars. I think once we hit October, November, December again, and we get normal seasonality, I think the $200 helps take us back closer to that normalized state that I spoke to at the start. Chris, you want to talk about inventories? Yeah. Good morning, Daniel, this is Chris. You know, the inventory question is hard to answer only because, you know, when you look at an average day supply, the split on that goes from a six-day supply on, you know, a mainline import and then an 83-day supply on, you know, a large domestic. You know, what it is, it's the give and the takes between all the M's that make an average. What we do know is, you know, the lower-priced vehicles that are affordable for consumers, and the affordability is a big piece of this, that are on the ground are turning faster than, you know, heavy content vehicles and more expensive vehicles. That's where our inventory sits today. Great. That's helpful. Then from a follow-up, want to touch on SG&A, maybe Tina or Bryan. You know, SG&A really impressed, beat our numbers even as GPUs normalized. Was there anything anomalous in the results this quarter to call out that was one time, or are you just capturing more efficiencies? If you are, maybe can you talk about when we think about the stores, other than headcount reductions, can you offer examples of maybe where you're improving the cost structure, just as we try to underwrite or think about sustainability? Hi, Daniel, this is Brian. There are no anomalies in the SG&A in the quarter. More importantly, that $150 million in the stores that we had earmarked... what, three quarters ago? The $15 million in support services are pretty well underway. We think that we've got that now all under control. I think the thing that maybe was slightly different than what we expected, we did see a little bit better strength in what we call our Region Two, which was the Southwest. Which was nice to see, if you remember last quarter, we were getting hit pretty hard in the upper Midwest and the two western regions. Now we're only getting hit, you know, a little bit in the upper Midwest and the Northwest. That's good signs. I think when you think about the structural changes that we can make in the business going forward, I think it boils down to the two-thirds of our SG&A costs on our variable personnel expenses. I think what Driveway does and what our other strategies employ are thinking about the cost and improving the productivity of those people. What we know is we have the best people in the industry, they're very efficient, they understand how to respond to the marketplace, and maybe most importantly, they measure their success not solely by the financial results, but also by the trust they earn in their customers. That's a little different of how to get there. When you focus on that, you do start to focus on high performance, and you're able to then reduce those bottom third of associates that maybe aren't getting there and redeploy them or move them on to some other, some other place, you know. Whatever, whatever our future holds, it is focused on the personnel costs and making sure that we leverage the best talent within our organization at a higher level. You know, I think that's what we're really seeing in the quarter. Our next question is from Rajat Gupta with J.P. Morgan. Please proceed. Great. Good morning, and thanks for taking the question. I wanted to ask, you know, the first one on used car, and used cars. You know, obviously, like, to Daniel's question, like, the GP has rebounded off a lower base, and we saw that at some of the independent peers as well. Any way to think about the trajectory, of, you know, the trade-off between, you know, volumes versus GPUs, for the remainder of the year, you know, as you get more trades, but then, you know, lower leases. Is there any opportunity to do more active sourcing, to drive more volumes? You know, any thoughts on that would be helpful. I have a follow-up. Yeah. Rajat, good morning. It's Chris. you know, great question. I think all this right now really comes back to the whole idea of the consumer and the affordability for consumer. I think the example that we see on that on new is, you know, our luxury sales are up 15%, you know, import sales up 5, domestic down 6. I mean, that tells you kind of where the consumers are at on the new car side and what we're seeing on volumes. We see the same thing on the used car side. When you look at your CPO volumes, they're down 2%, but our core product or that kind of 3-7-year-old product, which is 60% of our sales, is down 18%. That really comes back to your point on procurement. Really, you know, those high-demand vehicles, which I think are the most competitive set right now, that you have not only for new car dealers but also standalone used car dealers, it's a procurement, you know, opportunity for us in a time when consumers are kind of taking a headwind a little bit on where things are going with interest rates, where they're at with negative equity, being that they bought a lot of vehicles three to, you know, four years ago, or I should say one to three years ago, when the market was really hot on the new car side. It's trying to figure out how do we, you know, provide the right vehicle to the right customer at the right time. I think that's the huge benefit that we have as an omnichannel retailer, where we have 1,400 finance specialists that help, you know, identify the right vehicles with the customer that they can afford at the right time. You know, procurement is a big piece of this. You know, as we mentioned, you know, 70% of our used inventory is coming in off of trade, so the 30% that we have to go get outside of the trade channels is what we need to continue to focus on, and accelerate. Got it. Got it. Do you see the used car comps, you know, getting better here going forward, or do you think, like, it's going to remain like, you know, tough for a bit, you know, taking into account, like, some of the procurement initiatives that you have? Rajat, this is Bryan again. I think definitely. If you remember, it was two quarters ago that we said that we had difficult used car comps coming in. When we had a shortage of new cars, all of our stores converted to selling used cars, which inflated those numbers. If you think about it from a supply chain as well, we got 8 million vehicles that aren't in the marketplace that are used. As supply comes back, more people can trade in cars that they've held on to a year to two years longer than they typically would hold on to them. A really important thing to realize is that as SAR returns back to 17 million, that frees up the used car inventories and the core product that Chris was speaking to. Our next question is from John Murphy with Bank of America. Please proceed. Good morning, everybody. Just a first question. You said something very interesting about the success of your acquisitions, and externally, it looks like everything is going very well and, you know, it clearly is going pretty well. You mentioned you had 98% success rate. I'm just curious how you measure that, and call, you know, an acquisition a success, and what the other 2% that may not be considered a success, what does that mean? When you think about what's going on with the integration of Jardine, maybe you can give us an update of how that's going or progressing. ... Great. Hi, John, this is Bryan. I think it's important to remember that we've always established a 15% after-tax return as the definition of success. Typically, we were running at about 85% success rate. We optimized our network, meaning we sold, what? 34 stores over the last three years, which took out a lot of what we would call the underperforming smaller stores. I think our average store size, other than two, was about a $20 million revenue store, when our average revenue in currently of our business is about a $100 million. We got rid of the stores that were underperforming. We do measure the stores that are currently within our network, not the stores that we divested. There is another 5%-8% that came through the selling of those stores. Today, we do sit at 98%. Yes, earnings may be still a little bit high, but generally speaking, virtually all of those stores are considerably above the 15%. I mean, we have transactions that are returning today, okay, at almost 80%-90% after tax, okay? Meaning that we paid six to eight months of revenue or of earnings for those businesses, like those Kia stores in Texas, okay? There's a number of examples. So when we think about the success rate, it is truly of the portfolio that's sitting there. In terms of Jardine, I think that was the second question. I think it's neat to see that the trough SAR is recovering. We have a big tailwind that's occurring in the United Kingdom, which is nice to see. I think there's some supply issues. We're getting some early reads on what agency could look like with Mercedes efforts in the United Kingdom, which is great learnings in terms of the entire customer life cycle and how a manufacturer and a retailer can work together to create better experiences for our consumers. It's great. Chris and I were actually over in the United Kingdom. What was it? Three weeks ago? Yep. Three weeks ago, Neil, our CEO, our President in the United Kingdom, had a leadership conference that he invited us to, and we got to do a really fun song, you know, song and dance on stage with Neil and then hang out with his leadership team. We bought a wonderful organization that is culturally a perfect fit for our organization. In fact, Neil brought his family over for, what, two weeks? Was really excited to be able to go to Redding, California, because he has a Reading, U.K. You know, anyway, he didn't actually end up going there, really good combination of people, we really look forward to the continued development of its customer base and growth in Western Europe and the United Kingdom over the next half decade or so. If I can squeeze in one follow-up. You mentioned it sounds like Chrysler inventory or Stellantis inventory is on the high side. I'm just curious if you're seeing any pricing pressure or incentives coming in to help move that, or is it clear to you that this is sort of buffer stock in front of a potential UAW strike in September? I think the big thing to keep in mind there, John, that UAW strike, it could help stabilize our margins, which is quite nice. Yeah. It may be part of the reason why... I may hedge a little bit of that $100, you know, declines. If, if we do get that strike with certain manufacturers, it could be a nice thing to help stabilize those GPUs for a little bit longer. All in all, I mean, they are on the right pathway. You know, they, it's interesting. Chris, do you have anything to add on that? No, I just John, I didn't actually say Stellantis, good guess on that one. I really think it is about inventory mix and incentives. As they continue to recover, we are seeing a recovery, but, you know, the general incentives are down still, you know, 50% of what they were kind of pre-COVID. I think as you see supply come back, and fleet kind of rebuild, that's the other side of it. As the fleet cycle gets filled, I think you're going to see a lot more incentives come back to consumers, which goes back to supporting, you know, the affordability question that, you know, our finance specialists continue to try to answer for each of our consumers. Thanks, John. Our next question is from Colin Langan with Wells Fargo. Please proceed. Oh, great. Thanks for taking my questions. Maybe just to follow up on that, any color on how the GPUs on new for domestic import and luxury are trending? I mean, if inventory is pretty close to back to normal, are the domestics kind of back to pre-COVID levels and the imports are where margins are keeping elevated margins? I think, again, this is Chris. It's a mixed bag. I mean, when you look at what's happening on, you know, let's say General Motors. General Motors sales, you know, up 3% versus, you know, Chrysler sales down 14 for us. The GPUs kind of follow the general trends that you're seeing based on supply and demand. More inventory generally means more discounting. You know, we're kind of watching it out. Like I said, there's a day supply shift or differential between six days on an import and 83 days on a domestic, kind of everything falls out in between there. Here, we can give you some basics. On domestic, gross profit, this is not GPUs, this is gross profit. Oh, this is GPU. Oh, great. Domestics are down 9%. Imports, we're finally starting to get a pretty good amount of supply. I mean, I think in the month of May, we were up 53% in Honda sales, and Toyota sales were quite strong in June, so their recovery was quite nice too. Our import GPUs are down 25%. A lot of that is just having the supply to loosen up, loosen things up a little bit, and luxury is down about the same as imports. If you think about the big push that we have right now from our OEMs, it's turn. As they're building more inventory, we're expected to turn it. As soon as vehicles are on the ground, you know, in order to earn your allocation, the way the system works is you have to move them faster than your competition. There's a lot of incentive right now to, you know, meet that affordability equation for consumers. Got it. Thanks for that color. Maybe if we talk about DFC, I think the last guidance was a $40 million loss. Now it's $50 million-$55 million. I think you're close to $40 million already. Does that mean we start seeing improvements already in Q3? Any color when that actually we should kind of think of it as turning positive? Yep. Thanks, Colin. This is Chuck. Your numbers that you quoted are correct. Last quarter, we were giving loss guidance of around $40 million, and now we've moved that up to $50-$55 million. That's really being caused by three primary issues. The first of which is just the decline in used car wholesale values. If you look at sort of some of the used car indices, year-over-year, used car values are down about 10%, and we're definitely seeing the effects of that on some of our recovery trends, which is really driving the majority of that moving off the profit guidance. In terms of when this will turn around, we still feel very confident and that it'll be next year when we start to see really a breakeven point for DFC. That puts us well on our way to achieving the end state goal of $650 million that we still confirmed in our comments. [crosstalk] Our next question is from Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed. Good morning, guys. Just want to ask one more on used. I know we talked a lot about it, but when I look at you guys versus the peers that have reported this quarter, I mean, very divergent trends here with nice sequential improvement for you guys, contrary to them and what we're seeing in the industry. I guess, any finer point that you can put on kind of your outperformance on the used GPU side? I think, Ryan, most importantly, we continue to grow our e-commerce business. Even though Driveway is 98% all new customers, it does set a new bar for our stores in how they think about optionality and their offerings to their consumers, which is helping them expand their reach in their local markets as well, meaning that they'll deliver cars. I think we delivered 6% of our total vehicle population to people's homes, which is different than it was four years ago, which allows us to expand that reach, which is the original intent of the strategy. It's neat to think, Ryan, about our future because it's filled with massive opportunities and determination. I think most importantly, it's both an iterating and an unwavering commitment to our strategy. That's what Lithia & Driveway is all about. You bring it up as, are there other things that we do as used? I think most importantly, the Lithia strategy, though, you know, maybe back in 2020, it sounded complex. We're at execution phase today, okay? The things that Chuck talked about are part of who we are today, okay? It's going to bring an additional 20%-30% profit, which builds that flywheel effect of what Lithia & Driveway are all about, which allows us to be more competitive on acquisitions, provide greater service through the life cycle to the consumers, and ultimately builds a model in an industry that's totally unconsolidated, that's different, and is going to be more difficult as time goes on and as our strategies begin to take hold and become profitable. That competitors will eventually see that the plan that we've developed and are now fully executing on, is a good strategy, a right strategy, a safe strategy, and ultimately a great strategy for the consumer. Hey, Bryan, I'd add to that, just kind of more on the tactical side operationally. Bryan's pretty humble in this, but he was a big used car dealer, and the DNA and the organization that we had as Bryan kind of transitioned into his leadership role, was really to focus us all in every one of our locations on used car procurement. The idea that, you know, used cars is a big part of the focus that we have operationally in every single meeting and every single store. It's a big part of the DNA that we, you know, that we have across the organization now in North America with Canada, and then now into the UK with Neil. I think, you know, it's a big focus area for us as well. Thanks for that, Bryan. Thanks, Ryan. Our next question is from Kate McShane with Goldman Sachs. Please proceed. Hi, good morning. Thanks for taking our questions. We were wondering if you were seeing any issues with prospective customers getting approved for financing at current rates, or if you're seeing just more cash buyers in the current environment? Hey, Kate, this is Chuck. From a financing perspective, we're not really seeing a major shift in terms of cash buyers versus finance buyers. I mean, our overall credit quality tends to be more in the mid-tier prime segment, and that segment is stressed. The reality is that, you know, on an average loan, the average monthly payment increase on a $30,000 vehicle is only about $40, and usually a consumer can still cash flow that. We haven't really seen a big shift towards more cash buyers. Most of our consumers are able to get financing, but we are seeing a little bit higher percentage of shift vehicles, where they might have to move off of the vehicle that they initially started on, onto a more affordable vehicle. That really goes back to what Chris talked about earlier about the shift more to affordable vehicles. We don't really see a big trend, though, in the financing mix. Thanks for your question. Our next question is from Bret Jordan with Jefferies. Please proceed. Hey, good morning, guys. Hey, Bret. Good morning, Bret. Could you talk about what you're seeing on lease origination trends as inventory comes back? Are you seeing more of an OE push to lease cars? Yeah, this is Chris again. I mean, absolutely. I think that is a really big focus that we have from all of our OEMs right now, to try to get back to leasing penetrations that we lost really kind of in that COVID environment. Yeah, across the board, leasing is a big focus because, you know, everybody's focused on this whole idea of customer life cycle and loyalty, and leasing definitely gives you a higher propensity to stay attached to that consumer and, you know, regenerate future sales, as you transition into leasing. There's another interesting nuance about pricing. By giving incentives on LEVs or lease multiple factors, which is the equivalent interest rate, it's not as conspicuous as it is to put $2,000 on the hood of a truck. Are you following me? It is a way to be able to stabilize margins and maybe help create an experience for the consumer that's more focused on the product and a little less focused on the negotiations, which is a really important thing that we're all working on to try to combat the effects of the direct-to-consumer manufacturers that really get to just sell the product, okay? I think the more that we can do as an industry to align with our manufacturer partners, to take away the price negotiation as much as we possibly can and focus it on how great a products our manufacturers are building, because they are quite special. As we commented on, we're now at 10% sustainable vehicle sales as a company, and it's actually close to 15% on new vehicles, which is totally faster than I think any of us thought that that could happen. We're obviously fairly centered in the West Coast, which has higher penetration rates as well. Our next question is from Adam Jonas with Morgan Stanley. Please proceed. Hey, Bryan. Thanks, everybody. Congrats on you and the team for making the skeptics look like total fools. It comes naturally to me, Bryan. It comes naturally to me. Thanks, Adam. Yeah. Two questions. First, on used, it seems like a bit of a buyer's strike at the margin in the market due to higher prices. I would be interested in what your team prioritizes going forward in terms of, if I gave you the choice between boosting affordability while sacrificing some GPU versus looking to protect the nice GPU and sacrificing some of the volume. Sure. -to do so. I know you can toggle, but just curious where would be leaning? I think, Adam, the way that we designed our model is to make sure that we have all levels of affordability covered. We're not in that category, that if they don't buy a new car, we don't get the business. If they don't buy a certified car, we get the business, right? They move to core product like Chris talked to. If they can't afford a core product, they move to value auto, which goes all the way up to 20 years old. We, as a, as a retailer and as a broad band retailer, I think, don't worry as much about the affordability cycles because we do offer such a differing range of affordability. I mean, at the top end of the range, you got BEVs that are averaging about, what? About $900 a unit if they're leased, and about $800 a unit on a payment basis if they're financed. You go all the way down to the over eight-year-old bucket, which is an average of less than $380 payment. A lot of different abilities to be able to maintain customers within the Lithia & Driveway and GreenCars portfolios. Where we don't have to deal with that quite as much as a retailer, as maybe a manufacturer does when they're thinking about their product cycles seven years out. Our next question is from Ron Josey with Citi. Please proceed. Great, thanks. Hi, Ron. Yeah, the underutilized network. Ron, your phone is cutting out. We're not hearing you very well. Good. I'm sorry. Is now better? Yes, thank you. Oh, great. Sorry. Chris, I was wondering if you could just talk a little bit more about the improvements you've made to the broader network of for online. I just had another question, just about 14% from e-commerce units. Okay, well, we heard part of that. I think you were asking the question, this is Bryan, about our underutilized network. I think most importantly, when we did our original design eight, nine years ago, and this is pre-COVID levels of inventories, remember this, okay? We were utilizing about 50% of our storage capacity in our company. Okay? Meaning that we could sell twice as many cars through the same infrastructure. Part of our design thesis, part of why we went online, part of why we're expanding our customer reach with Driveway and Green Cars. On the service side, we were only utilizing about a quarter to a third of our total capacity, meaning we could recondition a lot more cars or gain or conquest a lot more service business by going in-home to consumers. I think that's where we really sit today. I think in terms of the network outside of that, we have tried to diversify away from the West, which is one of the least profitable regions domestically in our country, in a normalized basis, okay? Tried to focus a little bit more of our attentions on purchasing businesses in the Southeast and the South Central, and that's working out real well. I didn't hear the 14% number of what he was saying. Maybe if you can hear me now, maybe this is better? If otherwise, I'll just. It is. Good. Oh, great. Sorry about the connectivity. Just I think I heard 14 growth in e-commerce units. I was wondering if this was a result of just the transition to more national advertising spends and greater awareness overall, given, I think the comment was 80% have never stopped it. Any insights on that 14% growth in e-commerce units would be helpful. Thank you, guys. Yeah. Thank you. Yeah, this is Chris. I mean, I think our big focus continues to be on how do we leverage the whole omnichannel experience for the consumers. The, you know, the 14% that we're referring to was both our Driveway channel, our GreenCars channel, and our store channels that, you know, also do a lot of e-commerce business and a lot of online advertising and, you know, direct-to-consumer advertising. You know, as we continue to figure out the right way to do exactly what Bryan said, which leverage our facilities in the most effective way possible, we can, you know, be kind of where our customer want us to be at any point in time. That whole idea of wherever, whenever, and however. That'll be a continued push for us. I think it's a continued trend that we're gonna see as we'll get more e-commerce transactions for the entire Lithia & Driveway platform over time. Our final question is from David Whiston with Morningstar. Please proceed. Hi, David. Hey, Brian. Hey, everyone. Question, you call your Lithia Partners Group recently, and how the store GM gets a large amount of Lithia stock if they qualify for that. I'm just curious, beyond the stock award, what are the main incentives for a store GM to want to be in that? Is it all monetary? Is it prestige with senior leadership? If you could just talk about that a bit. Thanks. You bet, David. The key monetary factor is what you said. They get about twice as much ownership in our stock, which is special. Most importantly, though, they are our guiding light for all stores, so they get to do, like, on in-store visits. They get to mentor new people. They get to go on a trip, which is a big deal, once a year. They get to set the tone when it comes to policy or it comes to consumer optionality. We look to them to help guide our future. They also get to be involved with anything to do with their manufacturers, or they can choose to go and be part of NADA or NCM 20 Groups. They basically get to behave and act like a dealer, like they own the store. The neat part is now most many of the LPG members are now multi-store leaders, meaning that they have an assistant GM or something underneath them, that they're growing, okay, which is helping us reduce our ultimate costs. That additional, you know, cost that comes with the stock that we give them. Now they're starting to distribute their costs, and we're leveraging them to oversee two, three, four, five stores. They're also great recruiters of people because of that autonomy that goes back to our value of growth or our mission of growth powered by people and the value of take personal ownership. They epitomize that, and our goal is that 100% of our stores and businesses achieve Partners Group award level. Today, we're at about 41% of our qualified stores. You have to be with us for a full year before you actually qualify, okay? Then once you're a partner, you have to win once every three years to be able to maintain the level of LPG member or Lithia Partners Group member that you currently reside at. Really fun opportunity. Thanks for your question, David, and thanks everyone for joining us today. We look forward to talking to you again in October. I would like to turn the conference back over to Amit for a closing comment. Well, I guess Brian stole my words, but thank you everybody for joining us and look forward to speaking to you soon. Thanks, all. Have a good day. Bye-bye. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.