Greetings. Welcome to Lithia Motors and Driveway's 2025 second quarter earnings call. At this time, all participants are in listen-only mode. A question- and- answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that today's conference is being recorded. I'll now turn the conference over to Jardon Jaramillo, Senior Director of Finance. Thank you. You may begin. Good morning. Thank you for joining us for our second quarter earnings call. With me today are Bryan DeBoer, President and CEO, Tina Miller, Senior Vice President and CFO, and Chuck Lietz, Senior Vice President of Driveway Finance Corporation. 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 reconciliation of comparable GAAP measures. We have also posted an updated investor presentation on our website investors.lithiadriveway.com highlighting our second quarter results. With that, I'd like to turn the call over to Bryan DeBoer, President and CEO. Thank you, Jardon. Good morning and welcome to our second quarter earnings call. The first half of 2025 reaffirms the strength of our strategy with a 29% increase in EPS on a year-over-year basis, vastly outpacing the industry's profitability growth. Lithia and Driveway's strong earnings growth is enabled by an operational focus powered by our people and the profitability of our ecosystem and adjacencies. Our integrated physical and digital network services customers while scaling a platform designed to compound value and earnings power with a diverse and resilient ecosystem. In the second quarter, we delivered record revenue of $9.6 billion and 4% year-over-year same-store revenue increase, reflecting our continued ability to grow, share, and enhance the profitability of our platform. In addition, diluted earnings per share for the quarter was $9.87 and $10.24 on an adjusted basis, an increase of 25% and 30% year-over-year, respectively. We saw strength across the business with record profitability in financing operations, expanding after-sales margins, and flat SG&A despite pressures from lower GPUs. We're encouraged by our adjacencies that are now contributing meaningfully to both earnings and consumer engagement. These businesses are not just supporting core operations, they are expanding unit economics, reinforcing loyalty, and widening the profit gap between Lithia and the marketplace. As we look to the second half of 2025 and beyond, our focus remains on store performance, scaling high-margin adjacencies, deepening customer relationships across the ecosystem, and deploying capital in a way that is most valuable to our shareholders. Our combination of local execution, integrated technology, and capital discipline positions us to grow profitably, take share, and advance to our long-term targets while continuing to lead the industry in innovation. We're pleased to see increasing momentum in our high-margin business lines, including financing operations and after-sales, which expands our unit economics and adds consistency to our earnings profile. Our stores are adapting in real- time to demand shifts, supported by their understanding of customer needs and OEM dynamics. We continue to monitor and respond to the evolving tariff landscape and broader consumer trends. We have diversified our earnings stream, and as a reminder, over 60% of our net profit comes from the after-sales operations. Our OEM partners have responded nicely, maintaining affordability and price stability with a broad product mix. We are well positioned to serve customers across all segments and affordability levels while continuing to build upon the customer life cycle with high margin adjacencies to further improve the profit equation. What differentiates us is how our components work together. A national footprint with local autonomy, integrated digital tools, high margin adjacencies that scale earnings across the ownership life cycle while also being the preferred acquirer of businesses in the industry. In a fragmented sector, our ability to acquire, integrate, and operate at scale remains a key focus and competitive advantage. This quarter we added stores in targeted high return markets, continued optimizing our existing portfolio, and embedded adjacencies more deeply into our daily operations. Our omnichannel platform is expanding both engagement and reach. Tools like the My Driveway portal are strengthening customer retention and digital brands like Driveway and GreenCars as they continue attracting new customers into the ecosystem, all while improving the customer experience and driving margin. In July we completed a transaction to transfer our North American joint venture back to Pinewood AI, paving the way for Pinewood's full rollout of the industry's pinnacle cloud-based solution across North America. In addition to our high margin adjacencies, we have a set of operational levers that tighten costs and lift throughput at the store level. Today My Driveway's customer portal reduces service costs and drives higher retention. Soon Pinewood AI will allow us to replace multiple legacy and third-party solutions, allowing both customers and our team members to operate in the same environment. This will improve the sales experience, streamline workflows, and further reduce our cost structure. Layer onto that scale-driven advantageous pricing as we unlock meaningful SG&A leverage while freeing store teams to focus on selling and servicing vehicles. Together, these abilities give Lithia a structural edge that supports sustained margin consistency and growth. This strategy is producing results and creates a foundation of tremendous potential and a more resilient and rewarding earnings model. This enables us to grow through volatility, allocate capital with confidence, and advance towards our long-term targets with clarity. Strategic acquisitions remain a core pillar of our growth model and a proven differentiator of Lithia. Our history of sustainable, high return and virtually risk free growth has grown our revenue from $13 billion in 2019 to become the largest global auto retailer quickly approaching $40 billion in revenue. EPS has grown at a similar rate and we remain excited to operate and grow in one of the most unconsolidated sectors in the country. Our scaled, diverse strategy and cash engine now have the flexibility to not only accelerate share buybacks but also continue to grow both organically and through acquisitions with a disciplined approach. We continue to target high quality assets in the U.S. that strengthen our network, especially in the Southeast and South Central where population growth and operational profits are the highest. We aim to acquire at 15%- 30% of revenue or 3x- 6x normalized EBITDA with a 15% minimum after tax hurdle rate. Our track record reflects a 95% success rate of above target returns. Today we are in a position of strength. Our growing capital engine and consistent free cash flow gives us the flexibility to allocate where returns are most attractive while waiting for market valuations on acquisitions to reset, the relative value of our own shares supports a more aggressive buyback strategy which Tina will be discussing further. In the first half of the year we repurchased 3% of our outstanding shares. Over the long term we continue to target acquiring $2 billion- $4 billion in revenue annually and we'll continue to deploy capital where it compounds value most effectively. We have clear line of sight to our long- term revenue and EPS growth targets powered by five strategic levers: improving store level performance, expanding our footprint and digital reach to grow U.S. market share from 1.1%- 5%, financing up to 20% of units through scaling DFC reducing costs through scale efficiencies in SG&A and a disciplined capital structure, and finally capturing growing contributions from omnichannel adjacencies like e-commerce, fleet, software, and insurance. Let's turn to our key operating results and how the performance is being driven at the store and departmental level. This quarter marked another meaningful step forward in the consistency of our performance. We delivered year-over-year growth, particularly in after-sales, and continue to see sequential improvements in used autos, especially in the value auto segment. While the June 2024 outage contributed to softer comps in the prior year, this quarter's results reflect operational progress, yielding organic revenue growth through each month of the quarter, supported by disciplined SG&A control and strong execution across our stores. As we move through the rest of 2025, our focus remains on the fundamentals: expanding market share, improving throughput, and maintaining cost efficiency to reach our potential. Turning to same-store sales performance, total revenues and gross profit both increased by just over 4% due to sequential strength across all business lines that are partially offset by declining GPUs. Total vehicle gross profit of $4,318 was down $128 compared to the same period last year. New vehicle units increased 2% year-over-year with front-end GPUs at $3,175, up slightly. Sequentially, used vehicle units increased 4% year-over-year. Our value auto sales continued to trend impressively with 50% same-store sales improvement versus last year. Front-end GPUs for used vehicles were flat year-over-year at $1,900. We saw a slight increase in new vehicle inventory day supply of 63 at quarter end. This compares to an unusually strong sales month in March with absolute inventory increasing by only 5% sequentially. Used vehicle DSO increased slightly to 48 days from 45 days in Q1. Flooring interest savings were significant this quarter with a 28% decline year-over-year. F&I delivered 4.5% year-over-year growth in same-store sales, gross profit, and $1,841 on a per unit basis, a $25 year-over-year increase reflecting the continued steady growth of this high profitability area. After-sales was once again a key earnings driver. Same-store after-sales gross profit grew 8.5% year-over-year, helped by solid momentum in both customer pay and warranty work. Gross profit expanded even faster at 11.9% as the segment's gross profit margin widened to 57.8%, a 188 basis point increase from last year, reflecting stronger mix and operating efficiency. Warranty remains a standout with gross profit up 21.9% on elevated OEM service activity and higher technician productivity. With after-sales now contributing more than 60% of the net income of our company, we see continued headroom to compound growth and earning stability in 2025 and beyond. With the foundation of our strategy now in place, Lithia Motors Driveway differentiated model is delivering results leveraging our national physical network throughout the customer life cycle with inventory and network scale advantages, industry leading digital customer solutions and deepening customer economics through captive finance and expanding after-sales all underscore the consistency, resiliency, flexibility and potential of our model. Our leaders are executing across the network by driving towards store potential, integrating adjacencies and creating memorable customer engagements across the ownership journey. Our integrated ecosystem is delivering tangible results and we are confident in our ability to lead the industry in consistency, profitability and long term value creation. Before turning things over to Tina, I would like to thank and congratulate Gary Glandon, our Chief People Officer, on his upcoming retirement. His leadership is leveraging LAD's greatest strength, our people, and is a perfect exclamation point on an illustrious 25 year career as head of people functions in his five years here at LAD. We look forward to seeing our people and culture teams that Gary has built, led by Katie Macadino, continue to flourish and drive our mission of growth Powered by People. With that, I'll turn the call over to Tina. Thank you, Bryan. Our momentum in the second quarter translates into improving financial leverage with continued year-over-year EPS improvement, the highest quarterly income to date for financing operations, powered by strong fundamentals and a focus on identifying ways to generate SG&A efficiency and free cash flow generation that funded the repurchase of 1.5% of shares in the quarter. These results underscore how ongoing cost control actions, a maturing captive finance platform, and balanced capital deployment are accelerating value creation. Adjusted SG&A as a percentage of gross profit was 67.7%, down from 67.9% a year ago. On a same-store basis, SG&A ticked up to 67.4% from 66.4%, reflecting cost pressures as we navigate declining front-end GPUs. We're pushing levers to reclaim operating margin by increasing productivity through performance management and technology, optimizing our tech stack and retiring duplicate systems, renegotiating national vendor contracts, and automating back office workflows. These actions, combined with ongoing U.K. network rationalization, are designed to bend the SG&A curve lower again while giving store teams more time with customers. We expect the benefits to build each quarter, controlling SG&A even if front-end GPUs continue to normalize. DFC continues to scale profitably, demonstrating the differentiation of our model. Financing operations income more than doubled year-over-year from $7 million- $20 million, supported by a 50 basis point expansion in net interest margin to 4.6%. Disciplined underwriting remains the cornerstone, with second quarter originations of $731 million carrying an average FICO score of 747. This was achieved while increasing U.S. penetration to 15%, up 240 basis points versus last year. The optimization of risk and reward in recent vintages is driving improved performance, passing more of that spread through to earnings. Our market position at the top of the consumer funnel and high-quality originations keeps credit risks low and preserves balance sheet capacity for continued growth. With managed receivables now above $4 billion, our mature portfolio can continue to deliver outsized profitability relative to indirect lending, reinforcing our earnings growth trajectory. Strong origination flow, improving margins, and runway to increase retail penetration demonstrate a clear path to our long-term profitability targets. Now moving on to our cash flow and balance sheet health, we reported adjusted EBITDA of $489 million for the second quarter, a 20% increase year-over-year driven by increased earnings. During the quarter we generated free cash flows of $269 million. Our business continues to convert operating momentum into healthy free cash flow, giving us the flexibility to pursue a balanced strategy of buying back shares, funding accretive store acquisitions, and investing in the customer experience, all while preserving a strong balance sheet profile. The steady self-funded cash engine lets us stay nimble in challenging markets and deploy capital where it will compound shareholder value fastest. This quarter we continued our balanced approach to capital allocation. We deployed approximately 1/3 of cash flows to share buybacks at an average price of $306, representing 1.5% of outstanding shares. 1/3 was allocated to acquisitions of high quality stores in targeted geographic regions, with the remaining capital invested in store CapEx, the customer experience, and opportunities to improve operating efficiency. Our capital allocation philosophy is to act opportunistically and with leverage comfortably below our target and ample liquidity. We're accelerating our share repurchases to target up to 50% of free cash flows and capitalize on what we view as a meaningful disconnect between our stock price and intrinsic value. This stepped up buyback pace allows us to compound returns for shareholders while still preserving capacity for high return strategic acquisitions. Our strategy remains anchored in consistent differentiated profitable growth powered by an omnichannel platform that now delivers tangible earnings at every step of the ownership journey. Our passionate teams, differentiated digital and financial capabilities, and sound balance sheet provide the foundation to scale both core operations and high margin adjacencies, unlocking the next chapter of value creation in 2025 and beyond as we continue our progress to creating $2 of EPS per billion in revenue. This concludes our prepared remarks. With that, I'll turn the call over to the operator for questions. Operator, thank you. We'll now be conducting a question- and- answer session. If you'd like to ask a question, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from the line of Ryan Sigdahl with Craig-Hallum. Please proceed with your questions. Hey, good morning, guys. Morning. Morning, Ryan. I want to start with SG&A-to-gross profit. Certainly making good progress on the adjacencies and the operating efficiencies. I hear you from an operational standpoint, but when I look at the numbers, it's a little bit worse than we were expecting from an SG&A-to-gross profit leverage despite better GPUs. Can you talk through the operational improvements and then the financial implications, and maybe with some guardrails to help the street and myself think about how this layers into the income statement of the model as it relates to the second half of this year and then 2026. Sure. Ryan, this is Tina. I'll start with that question. I mean, I think when we think about SG&A, as we've talked about before, a lot of it is driven by volume on the top line and making sure we're really driving that growth in terms of units and where that's happening in our stores. That continues to be the focus as we look at our leaders that we have in our stores, our department managers, and making sure they're really driving to get that market share and that growth that's available in their market, and then looking at productivity and cost controls on that line as we look at SG&A. I think as a combined effort in both, we continue to pay a lot of attention to it, drive discipline through it, and making sure we have the right leaders who are able to look at that as we look at the rest of the year. We did increase the outlook slightly as we think about SG&A, just sort of balancing what's already occurred in the first half with continued discipline in the second half. As we've talked about, that continued pace that we see, it needs to be that glide path down to getting toward that long-term target of 55% SG&A as a percentage of gross profit. It's a diligence on it that we need to do every quarter. Very good. I don't believe you commented on the U.K. specifically, so I'll ask it here. Very challenging conditions from an industry standpoint, changing EV mandates, etc. How do you feel about the U.K. from an industry overall and then where your business stands from, whether it be cost or operational standpoint? Thanks for the question, Ryan. I think the U.K. for us has been performing as expected. We were actually up profitability wise by about 3% year-over-year, which was a nice number relative to what's happening in the marketplace. Neil and his teams there understand that top line is most critical, and they're obviously growing their businesses and doing a nice job at cost management and so on. We're pretty pleased with where we sit today, and I think it took a year to get the network fairly well cleaned up, and they sit with a nice clean portfolio with a lot of really great people that understand the consumers and understand the competition and should continue to flourish in the future. Great. I'll turn it over to the others. Thanks, Bryan and Tina. Thanks Ryan. Thanks. The next questions are from the line of Michael Patrick Ward with Citi Research. Please receive your questions. Thanks very much. Good morning, Bryan. Good morning, Tina. Maybe just following up on the SG&A side with the addition of Pendragon, it kind of distorts some of the comps in 2Q in particular. How does the U.S. alone look on SG&A? This is Tina. I mean, our U.S. business continues to be strong on the SG&A side, and as you know, the SG&A footprint in the U.K. is just higher. When we look at our blended number, I think both of the teams on both sides, I would say, continue to focus on SG&A, and it's an area that we see long- term continued opportunity to drive that down over time. Our U.S. business continues to do well on the SG&A front. I think it's also important. It's easy to get caught up in one number or another, but there's a lot of factors that go into how you think about your business and how you grow your business. It's easy to get caught up in what's happening quarter over quarter or year-over-year or so on, but Lithia and Driveway has built an organization that is focused on multiple assets of the customer life cycle to expand the wallet share of a consumer and staying in our ecosystem for a longer period of time. It's shocking the microscopic views that the market is taking on what we're doing when we've grown our organization threefold in revenue and threefold in earnings and have all of the levers and the dry powder in our adjacencies to continue to do the same thing, let alone in our M&A strategies of how we attack the marketplace. We don't have blips in terms of how we buy and how we operate because we didn't pay based off COVID-level earnings. We don't have write-offs as two of our peers just had. For some reason everyone keeps discounting those type of things and, you know, Lithia and Driveway as it continues to plod along as the largest now auto retailer in the country and continuing to separate ourselves in terms of scale and size that we get into. These microscopic views of SG&A was 0.5 a point higher than it should have been. Same-store sales might have been a little worse when our same-store sales revenue growth in used cars was the best in the sector so far. Last quarter and the quarter before it wasn't. The gaps that we're realizing because of the ecosystem are quite there. Tina and the teams are working diligently on SG&A and we're going to be able to deliver the performance. This quarter we felt that we picked up some of the gaps in where we stand and there is no question that we have a greater portion of our business that's sitting in blue states where population growth is not as exorbitant or robust as what it is in the Southeast and South Central. We've been very fortunate to be able to change our mix, to be able to expand where we sit. As such we're more excited than ever about what we've built and the potential what we have. Mike, thanks for letting me get on my soapbox for a few minutes. That's fine. It's sure frustrating as a management team that you build something and all you do is get the penalties of it. When there's one number out of 17 that seems to jump out, people forget what we've accomplished as a management team, and more importantly, what the foundational elements of what we built have the capacity to do in the future. My point was, it was better than it looks because the U.K. kind of distorts, so the performance is actually better than it was in 2Q. To that end, it looks like Driveway Finance has turned the corner. Tina, is $20 million, $30 million the new run rate per quarter? Is that what we're looking at? $100+ million contribution, like $26. Hey, Mike, this is Chuck. DFC is on a very specific growth trajectory. Yes, we feel, as you said, DFC has definitely got out of the startup phase and continues to execute our strategy of being top of funnel and getting preferential loan selection. We see just that continued growth rate trend continuing for the next foreseeable quarters going forward. Yes, definitely expect to see that level of run rate going forward. Chuck's being very humble because I think the $20 million that we did was 3x what we did in the previous year. The spreads are there. Our delinquency rates continue to strengthen and become better, which is great. I think it's easy to forget that we made $20 million in the quarter, and I think we're targeting $60 or something $70 million for the year. Ultimately, at the current revenue base where we finance vehicles, which is in the U.S., we're about $32 billion in revenue, which is about $320 million in profitability at scale at just that revenue base. We've continued to say that at a $50 billion domestic revenue base, we're going to make $0.5 billion. That's real money that our competitors at this stage don't have. It's important to clarify that we're not getting valued on that. In fact, for the last two years we've been penalized for it. I think there's a lot of confusion out there that it takes a lot of capital and a lot of courage and bold planning to be able to execute on the things that we're executing on, to be able to bring you what is now a company that has the ability to compete in acquisitions, in consolidation, and then the bottom line, profitability in ways others can't. It's a marathon, not a sprint. Thank you. Some of us still cheering for you, Bryan. Thank you. All right, bye-bye. The next questions are from the line of Rajat Gupta with JP Morgan. Please receive their questions. Great. Thanks for taking the question and I'm sorry, I have to apologize in advance. I want to follow up on Mike's question and your response. It looks like, I mean, Bryan, like, you've obviously done a lot of acquisitions since the pandemic. You have grown your company threefold, as you've said. I think it's been a couple years since you've had those under the hood, and I think it's been 10 quarters now since the same-store metrics have underperformed your peer group. I don't know if, like, 1.5 years is enough time or we need to see more time before that starts to recover. Could you give us some visibility on when we should see your organic performance? I understand the adjacencies. I think DFC is great. Just the store performance metrics, when should we see that recoupling or doing better than peers? I have a quick follow-up. Thanks. Rajat, I think if you look back three quarters, our performance has bridged a lot of that gap. Like I said, in used cars, we were number one in revenue growth. Number one. In service, we were middle of the pack. Remember that service is based off of smaller units in operation growth than what others are. We believe it's somewhere between 3% and 3.5% difference just from units in operation. We were about 1.5%- 2% below what the peer group was. When it comes to new car sales, you know what? Stellantis is still struggling a little bit, and we still got a fairly large portion of that like AutoNation does, and the rest is yet to be seen. If you want to view the world as that, go ahead. It's one part of who we are as an organization. The ecosystem is beginning to perform. The same-store sales growth is starting to bridge the gaps that are there. I can't change overnight where our footprint is. If you remember, we were 80% West Coast based before our acquisition of DCH. At the same time, we were almost 75% domestic manufacturers. Today we sit at less than 30% of our mix being domestic. We sit with over 40% of our mix being in the Southeast and South Central. That automatically yields over double the operating margins of what the western two regions perform at. If you want to just compare apples to apples, then you need to do deeper dives into what the marketplace is doing, where population growth is, and how operational profits and doc fees impact the operation. Those operating profits. Understood. If you do have a line of sight and a lot of these gaps narrowing and getting better over the next few years, could we see a more aggressive pivot to, given the fact that you're at a significant discount to your peer group, or could we see a more aggressive pivot to stock buyback at least in the interim before the market can give you credit? Sure, Raj. Good insight. I think when we're trading at a 20%- 30% discount to the peer group and we've got somewhere between 20% and 40% upside just from our adjacencies that are not fully realizing their potential and the trajectory is there. Absolutely. As Tina mentioned, we're now allocating 50% of our capital to buybacks. I'm imagining we're in the market today buying, and we're going to continue to buy back until the world understands that what we built is something special and that the performance on each of these side metrics that. I get that there's metrics, but you still have to look at the totality of what is being accomplished and not lose sight of that. This is about TSR, it's about shareholder return and the ability to grow a company, both top and bottom line. We'll be rewarded for it. We're confident of that. As a management team, it's easy to get frustrated that the boldness that we took and the steps that we took to reinvent basically the industry and our sector, we've been pretty much penalized for, for the last 2.5 years. This is a hell of a buying opportunity because at those kind of discounts, we're going to back up the truck and continue to buy shares back. Understood. Thanks for the answers and good luck. Thanks, Rajat. Thank you. Next questions are from the line of Daniela Haigian with Morgan Stanley. Please proceed with your question. Hi, Bryan. Just a quick one. On used car availability and growth, what's the mix or strength coming from across CPO, core and value autos? You cited 70% self sufficiency, which is really strong in this fragmented used car market. How do you view competition from the likes of the online pure play retailers, and is there greater opportunity to grow and consolidate here? Great question, Daniela. I think as we think about our mix, what we're seeing and part of the reason for the outperformance in used vehicles on same-store is because we're growing our over nine-year-old bucket quite nicely. It was up 50% year-over-year. That obviously means that the other buckets didn't grow quite as fast, but that's because the supply in those buckets really isn't there. We are purchasing over two-thirds of our vehicles directly from consumers. Those are yielding almost a $1,700 price difference between those vehicles purchased from auctions or on the street. That's a massive competitive advantage over used-only retailers that are not up funnel quite as much. One of the other notes that I think is important to understand is that in our ecosystem Driveway actually purchased over double the amount of vehicles through our AI valuations and those purchasing metrics. Quite a difference year-over-year, and that's starting to impact our ability to find the vehicles to be able to meet our consumers' demand at the right affordability levels. Got it, thank you. Can you just comment on the M&A environment? I know you have the target for $2 billion- $4 billion in annual acquired revenues per year. Does the policy uncertainty change that? More or less dealers to the table this year, next year, etc. Any comments around that? Sure. We've done just over $0.5 billion so far this year. We have a considerable amount under contract. I would state this: we don't flex on pricing. We watch the market come to us. We act when there's opportunities that make a good ROI sense. I said in my prepared remarks that we're 95% successful on acquisitions. We're actually 99% successful now that we purged some of the smaller stores that were in groups, which created that extra 4%. This is a pretty easy roll up strategy, and we believe the market will come back to us as profits begin to normalize, which they've done nicely. We need that to happen for a couple of years because that's what determines pricing. There is an advantage to having a discounted stock price that in the event that M&A is a little pricier, then we can buy our shares back. I think, Danielle, to summarize, we should be able to achieve the low end of that $2 billion- $4 billion range by year end and have a fair amount of stuff that have come into play over the last few months. Thanks, Brian. You bet. The next questions are from the line of Mark David Jordan with Goldman Sachs. Please receive your questions. Hey, thanks for taking my question. For the after-sales segment, how much of the stronger same-store sales growth can you attribute to lapping last year's CDK issues? Is there any additional color you can provide regarding how the different channels performed? Really, really good question. I would say that the lapsing of performance in same-store sales was driven by a little better than 50% by the easy lapse of comp. I don't know what the other peers had communicated, with the rest coming from outperformance where a lot of it's being driven by customer pay and some by warranty. Okay, perfect. Did you benefit in after-sales from any tariff-related inflation pass-through during the quarter, and is that factored into your full-year outlook for mid single-digit comp for the segment? Mark, we don't. I would say that there's slight impacts from tariffs, but most manufacturers have controlled their pricing on parts as well. Now, going forward there may be implications there, but we didn't see impact from tariffs at any scale. You can see that we were up, what, 1.5% in margin in after-sales, which usually is indicative that there was a higher mix of labor, which is a 60%- 65% margin business, rather than a 30%- 35% margin business, which is parts. Without having the specific tariff-related data, I would say that it had minimal impact. Excellent. Thank you very much. Mark, t hanks for your question. The next question is from the line of Ronald John Jewsikow with Guggenheim Securities. Please proceed with your questions. Yeah, good morning team and thanks for taking my questions. Hey Bryan, wanted to start with kind of the DFC growth this quarter and then especially after another strong quarter for DFC. I guess the back half guide does imply a pretty meaningful step down versus what you did this quarter. Trying to understand what's informing that because NIMS and credit performance both still look strong. I don't know if this is just a lean towards conservatism. It looks like you still want to grow the book pretty aggressively but it's tough for us to bridge to certainly the low end of the range at least. Yep. This is Chuck, great question. First, I think you actually hit on some of it in that, you know, again, one of the great things about DFC is we've grown our penetration rates. We're getting very close to hitting that consistently, that 15% penetration rate, and then hopefully we can build on that to 20%. As you know, as we continue to ramp up those originations, that can have a drag on some of our, you know, near-term profitability when we have to take that cessile reserve up front. Secondarily, there is some seasonality in our numbers. The summer months generally are those months that consumers don't necessarily pay their auto loans. If you look at some of the published reports, you are seeing delinquency rates tick up. Once you kind of get past the summer months, we hope that those start to tick down a little bit and don't start, you know, weighing us down with actual charge-offs. Somewhat of it is due to the growth rates. The other part would be seasonality. Our 3.1% loss ratio includes and assumes that seasonality, but it does change the profit equation. If you look at the first quarter, you can't just take it times four and say we're looking at. Okay, no, that's super helpful. Color. Bryan, you might have a chance to get back on your soapbox here, but on SG&A you laid out a bunch of buckets you're targeting to start taking costs out and improve efficiencies. Any way to think about the cost savings potential for some of the things you laid out? Performance management, tech stack, vendor contracts, automating workflows, and then the U.K. I know it's a lot, but just Kind of how you. I think most importantly when you think about SG&A costs, we're obviously trying to grow our top line, most importantly because that's what generates the net profit as an organization. Because if I grow top line in new and used vehicle sales, I get the 62% of my net profit that's generated from assets. A massive point to remember and obviously to be able to grow the after-sales, you got to spend money to do it. Our SG&A is made up primarily of personnel expenses in the sales department. Anything that occurs there is going to pay later in after-sales. Important to remember that as we think about driving down our cost structures in sales and in the service advisor pay, which makes up the small portion of SG&A personnel costs. Those are productivity jobs. What we're pretty excited about is the Pinewood AI that we have a partnership and now I think in a couple weeks or whatever we'll have about a third ownership in that company. That AI technology is going to put our customers and our sales associates in both the service and sales departments into the same environment, which helps us to drive down personnel costs. A lot of the 700 basis points that we're looking at achieving is coming from AI improvements and then skinning up how we look at staffing those departments. A big part of that, the remaining couple 100 basis points, is coming from vendor and scale and other types of things. We're really looking at gaining productivity in both sales and service in those productive jobs and hopefully at some point, which some of the AI is helping us today. Ultimately that's the stuff that's embedded in the Pinewood system that we're helping co-develop with them. Yeah, that's super helpful. I appreciate the detail on the AI sourcing of vehicles as well. Interesting anecdote. Thanks. It's interesting, Ron, because when you think about AI, I think when we started on this journey 10 years ago, we thought technology was there to bring customers in and to be able to touch customers throughout their life cycle. Today, when we look at what technology and engineers and these partnerships with great companies like Pinewood can do, it's incremental simplification of simple things like scheduling appointments. If we can have AI schedule appointments, which is as simple as what we now have in our My Driveway portal, that allows consumers in all of our stores other than three to be able to schedule appointments, that takes off the load of the BDCs and the service advisors. What we have to do a better job of is looking at productivity metrics and then driving those cost reductions into the store. Now the 60 day plan and the everyday plan started on that venture, but it's easy to get sloppy and it's easy to think that top line growth is going to also fix your SG&A costs when ultimately you still have to force the cost savings. We're encouraging our store leaders and our department leaders to do such and they get it. It's important that we lead the pack in all these categories and we'll continue to be able to drive those costs down. Yeah, that's great color, and thanks for taking my questions. You bet, Ron. Thanks. The next questions are from the line of Jeff Lick with Stevens. Please receive your questions. Good morning everybody. Congrats on a nice quarter. Bryan, I was wondering just if we could talk a little bit, tapping into your historic expertise and experience here. When we talk, if we assume that a 15% tariff is probably going to be where we end up just across the board, you know, on a high cost of goods unit like a car is, you know, 85%, 87%, whatever cost of goods sold, you know, the price increase required, you know, at the invoice level. The OEM invoice level is pretty substantial. At some point someone on the units that are tariffed, there's going to have to be conversations. I'm just curious, how do you see those playing out? What will be the mechanism? I mean, at some point the OEMs have to go to the dealers and say, look, you've got to show the pain. I'm just curious how you see that playing out. Sure, Jeff. I think, let me answer first your direct question and then let me embellish a little bit on how we think about it as a mitigation strategy. The most important thing is our manufacturers are all competing to sell cars, so it's important to keep that in play. Only about half of the vehicles that we sell on a new car basis are being impacted by tariffs. The rest are not. When we think about the remaining half, what happens? I believe that manufacturers have already begun to either decontent cars or not charge for other upgrades. I believe that consumers can save other dollars. When you think about a 15% increase, they're thinking about, you know, that I don't have to pay for as much gas because we now have, what, 30%, 36% of our vehicle sales are sustainable vehicles that get better gas mileage. I think Chuck would sit here and argue that DFC has the ability to help with financing and manufacturers can subsidize in the financing capacities. We've now got our government that's allowing us to write off certain interest costs on auto loans and there's a lot of other moving parts. A finite 15% increase, when we think about the tariff on the 50% of our inventory that influences things, is just another thing in our daily lives. Each of our stores will respond to that. Now, in terms of who is Lithia Motors and Driveway and how do we respond to it, I think if you look at our profit equation today and compare it to that of our peer group, we're already diversifying that portfolio with 60%+ of our net profits being directly attributed to after-sales. With less than 20% of our net profit currently being attributed to new vehicle sales, including F&I. As a retailer, we think about those equations and I think as you look at going forward and you push through all the differences in the dry powder within the adjacency, that 61%, 62% that's being derived from after-sales of our net profit starts to become even higher. New cars are just a pathway to be able to get to your high margin businesses of financing and servicing parts, cars, and trucks. It's an interesting time in the industry, but to me, pretty exhilarating. Our ability to deal with these situations, we've got all the levers to pull. As the world moves on and as these things start to change the industry, those with more cash and more ability to code solutions for customers that make it easier are those that are going to be able to grow market share and be less impacted by whatever changes do come from tariffs or our model or franchise laws or whatever might else be there. In one follow up, while I've got you in this kind of big picture mode here, for the first time we heard as it relates to the U.K. the notion that Chinese OEMs, which none of the publics have any Chinese OEM franchises in the U.K., that those are starting to maybe represent some formidable competitive pressures and maybe it mucks things up for the other OEMs or other brands. I'm just curious your take on the, you know, the Chinese OEMs and if you wanted to go one step further and say, you know, when do they, what's the implications? Do they eventually wash up on U.S. shores? Yeah, sure. Happy to hear that one too. I mean we'll have to see what happens in tariff and I think U.S. consumer sentiment may be different than what the U.K. is. I think it's also important to remember that our presence in the United Kingdom does include BYD and MG with five total stores. We are getting to see what's occurring there. It's still, it's pretty bumpy. If you remember we started out pretty strong with BYD but it came to a dull roar in about a quarter and a half, you know, and now there's another surge out there and it's starting to impact the marketplace. Again, in the U.K. it's pretty easy to adapt. It's still not a material amount of our profitability equation as to how we think about it. I'd still go back to it, 110% tariffs today with the Chinese and a BYD price competitive wise in the United Kingdom isn't much less than what a BMW or a Mercedes is for the same type of equipment and same type of propulsion. You know, we'll continue to be diversified and we'll continue to keep our pulse on what occurs in the United States and look to whether or not those models are including dealers or if they do even come to the United States. There's been now three failed attempts by large Chinese manufacturers coming into the U.S. that have not really yielded their results the same as a lot of other places in the world. Awesome. Thanks for taking the questions. Thanks, Jeff, appreciate your insights. Our next questions are from the line of Federico Merendi with Bank of America. Please receive your questions. Good morning, everybody. Earlier you mentioned the 55% SG&A target long term, and I appreciate the commentary on the actions to reduce the SG&A, but it seems to me that an important part of the equation is also this footprint, your size. I was wondering how much larger has Lithia Motors become to enable that target reach. Federico, congratulations too, on taking over the research, and welcome to the space. I think when we think about our trajectory and our timing of SG&A, we're looking out a half a decade to be able to accomplish it, because it's easy for us to say that we can reduce our personnel expenses, which makes up most of the SG&A costs. Ultimately, if we're not competitive in terms of salaries and compensation with what the industry is, you ultimately can lose your people. If we can provide solutions that allow our people to be more productive and ultimately make more money than the industry, then the throughput that we gain from that can create the disconnect in profitability. We can move a little bit ahead of where the industry's at, but not massively ahead of the industry. I think when we think about the trajectory on that, about half of the improvements do need to come from personnel costs, and they are focused in the sales and service departments, on the support staffs. That's something that I think I challenge my stores to be thinking about. What do we have for BDCs? Twenty years ago, we didn't have BDCs, and they're great in certain locations where you have massive amounts of volumes. The department leaders have figured out ways to get productivity out of both. In many situations, we added business development centers in service and sales that are basically doing the same job that our advisors and our sales associates are doing. Lots of opportunities to be able to attack that. The remaining portion of that is coming from scale and is coming from the adjacencies of what they provide with lower marketing costs, more efficient inventory, and so on. Thank you, Bryan. My last question would be on the omnichannel initiatives. Could you give us an update on also how you fare compared to your competitors? Sure. I'm not sure that everyone counts the same, but some of the facts that I do know, at least in terms of us, I'll try to avoid any direct comparisons. We sold over 25.5% of our vehicles through omnichannel sources with digital support or 45,000 vehicles in the quarter. That's up considerably from where we've been in the past. Our Driveway channel continues to be over 97% new customers to the ecosystem, which is quite effective. We continue to drive that channel. I believe more importantly than ever, having an omnichannel solution within our stores. A lot of the reasons that a BDC was developed is because sales people weren't as equipped to be able to deal with Internet leads 15, 20 years ago. Today they're equipped to be able to do it. Our IT solutions are able to use AI to be able to sort leads, to be able to do a lot of the communications and work for us, to be able to catalyze the change, to be able to drive those costs down. In terms of digital solutions, it kind of goes hand in hand with our SG&A solutions. We're pretty excited where we've been able to grow and build Driveway and we sit here today with a My Driveway portal that has, I'm not 100% sure on this, but I believe it was 137,000 users. Remember that went live in December of last year. We're about seven, eight months in and that's growing and consumers are now doing more of the stuff themselves in a simple, transparent and empowered way. Thank you, guys, and look forward to working with you. Thanks, Frederico. Our next questions are from the line of Christopher Bottiglieri with BNP Paribas. Please receive your questions. Hey guys, thanks for taking the question. Hi Chris. The first one I want to follow up was on you raised the GPU guide by about $200 a unit to midpoint, and there's been some strength kind of year to date. How do you think about tariffs impacting that outlook? What do you expect the industry to do from inventory levels, like brand mix and incentive levels, as this trend is to 2025 and 2026? Do you have any view on the drivers of those? Sure, Chris. I think when we think about the impacts of tariffs, we got to go back to affordability because I think we still have the ability to order cars. We still have the ability to guide and support manufacturers on decontenting cars and to be able to keep affordability front and center. It's easy to get lost in that these increases are going to create this higher price level. We make 5%- 7% on the new vehicles that we sell and have carrying costs and so on and so on. There is structural support within the industry and across competition that we're not here to kill each other. There is only so much margin in cars and 5%- 7% is pretty small. Manufacturers are going to have to respond where, you know, we continue to believe that incentives are going to have to grow again. I think as we think about how that shakes out, each of the manufacturers in each of the segments are going to have to think about how they go to market to be able to respond to that. As a side note, for the quarter, incentives were only up about 0.5%. They went to 6.5% of the price of a vehicle from 6% in the previous quarter. I think there's still a lot of room there as manufacturers think about their own P&L and think about the market share and the future of where they want to sit and how they capture customers to be able to sell them another car four to five years from now. We think we're pretty insulated from the impacts of tariffs and it's easy for us to get confused with what manufacturers have to do versus what a retailer has to do. We're quite diversified and you can see as we think about our model just move downstream. Whether it's decontent new cars or whether it's more mainstream new cars or whether it's selling more value auto cars, retailers are pretty adaptable. Gotcha. Real helpful. On the credit side, I mean, your own credit performance has been pretty spectacular. You've grown the portfolio a lot. Just curious what you're seeing to peel the onion back. Are you noticing any differences between the 2021-2022 vintages and the 2023-2024s? Are you noticing any differences between borrowers that have student debt and those that don't? It just seems like the broader credit environment's a little bit choppier. Yours looks really great to see what we can learn from you. Yeah, Chris, this is Chuck. Great question. Yeah, that 2021 vintage, both for us as well as the market, really was one that's not performing as well as we all, I think, would hope in the industry and the segments. That really led for us to take that major shift for us to move up market and really try to derisk our portfolio. As you said, we're really starting to see that start to flow through in our 2023, 2024, and even into our 2025 vintages. We really feel strongly that we are starting to see separation on preferential selection from some of the key metrics like delinquency and some of the default rates. We expect that preferential selection to continue as we go forward and hopefully see the results of that as we go forward in the market and our financials. I love how Chuck is so humble on things. I think it's important to note that when you think about the different vintages of our portfolio. Remember this at 15% penetration rate, that was our mid and long term goal, and we accomplished that by lowering our LTV by 1% -9 0% to less than 95%. Our original targets were 100%- 105% LTVs. More importantly than that, our average FICO score on our incoming business this quarter was 746. That's 36 points higher than what our original forecast had established at 710. We were also 15%, 15 points higher FICO this year over last year. When we think about our loss ratios, we're able to skin better and better paper from our stores, and they're doing an excellent job at giving us first look, and we're going to continue the pathway towards the 20%, which is our super long term goal. We're pretty excited of what we see, and we're bucking the trends. Two years ago we bucked the trend, last year, and we're bucking the trend this year, and we're not seeing any softness across our portfolio, and it's continuing to add value to our ecosystem and to our customers' relationships. That was great. Thanks, guys. Thanks Chris. The next question is from the line of Douglas Dutton with Evercore ISI. Please proceed with your questions. Yep, just a quick one for me. Team, curious on something that was contradictory here. We have in the Q2 deck for Driveway Finance Corporation $50 million- $60 million of finance operations income targeted for 2025 is the estimate. Something that was spoken to earlier was that $20 million in the second quarter and $33 million year to date is going to continue to grow. Those things are sort of at odds. I was just curious if you could clarify which one of these is correct. Yeah, Doug, this is Chuck. Our financing income is actually our segment. We do have a couple of other businesses that are increasing. Notably, we do have a finance company in Canada as well as a fleet management company in the U.K. that also does financing that does get consolidated into that. I think if you were to peel back, sometimes we do refer just to the DFC, which is the U.S. portion of our business for some of our numbers. The $20 million and the $7 million that Bryan referenced was for our financing income segment. Hopefully that clears up that question. Remember, Chuck Lietz talked about the seasonality, and when we talk about improvements, it's year-over-year improvements. I mean, we made $10 million last year in Driveway Finance Corporation as a whole, and we're going to make $60 million- $70 million this year. Okay, that's helpful. That was my only one. Thanks, team. Thanks, Doug. Thank you. Our final question is from the line of Michael Albanese with Benchmark. Please proceed with your questions. Yeah. Hey guys, thanks for taking my question and really appreciate all the great commentary on this call. I just had a quick one on new vehicle volumes. Obviously pulled back your guide from mid- single- digits on the year to low- single- digits. Is this just a reflection of updated Q2 results? Essentially, change in the base going forward. Is it more company specific? Obviously regional and brand mix play a role here. Or macro related? Obviously thinking tariffs and pricing implications on the consumer in the second half. If you could just comment on your rationale there, that'd be helpful. Sure. Mike, I think if you take the first half of the year of the entire sector and then annualize it, you're going to get to a smaller number. You do have more difficult comps coming in July because of the CDK event. It's more of an industry thing. We just wanted to make sure that we fine tuned it for you. Got it. Thank you. That's helpful. Just another one here. Switching gears to Pinewood right now that that's positioned for growth. Could you just maybe kind of frame your expectations or timeline in terms of the rollout across your base and beyond? Maybe a better way to ask that would be how should we be, you know, sitting in an analyst seat here, how should we be measuring success in that rollout? Sure. I'll give lots of kudos to Pinewood. They're good at coding, they're good at capturing market share. They're now almost a third of the market share in the United Kingdom. They're growing globally. It's pretty exciting what they're doing. That gives them the capital to be able to do what they need to do in North America. Our rollout schedule is a couple stores by the end of the year with two specific manufacturers. We should have another 15- 25 stores next year with full rollout in 2027 and 2028. I think the Pinewood teams are ready and supportive of that. We're pretty excited about it. One other thing to note as well is there was a mark-to-market adjustment, but we still beat the street by almost $1 after that, which was a pretty big number relative to where we sit today. The other thing is we have not recorded the North American JV equity. That is not in that number. That's coming in future quarters. This is an exceptional investment that's embedded into our ecosystem even though not all of our stores are on it yet. The United Kingdom is doing absolutely phenomenally and a lot of their improvements, a lot of the gains that they're going to be making in SG&A now can be pushed through the utilization of the Pinewood AI solutions to be able to take them up a step while that helps pathway us in North America for the bigger platform and portfolio to be able to be successful in the upcoming years. Awesome. Really helpful. Thanks, guys. Next quarter. Thanks, Mike. Thank you. This now concludes our question- and- answer session. I'd like to turn the floor back over to Bryan DeBoer for closing comments. Thanks Rob. Thank you everyone for joining us today. We really look forward to seeing you on our third quarter call in October. All the best. Bye-b ye. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.