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Text: Presenting today are Bryan DeBoer, President and CEO; Chris Holzshu, Executive Vice President and COO; and Tina Miller, Senior Vice President and CFO.
Today's discussions may include statements about future events, financial projections, and expectations about the company's products, markets and growth.
We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission.
Our results discussed today include references to non-GAAP financial measures.
Earlier today, we reported the highest adjusted first quarter earnings in company history at $5.89 per share, a 193% increase over last year and record revenues of $4.3 billion.
These results were driven by strong operational performance across all business lines and channels, an acceleration of acquisitions and the strengthening retail environment.
During the quarter, total revenue grew 55% over last year and 52% over 2019, while total gross profit increased 55% over last year and 58% compared to 2019.
As a reminder, the pandemic only impacted our first quarter 2020 results for the last two weeks of March.
New vehicle revenue increased 60%; Used vehicle increased 55%; F&I increased 63%; and service, body, and parts increased 30% compared to the first quarter of 2020.
Total vehicle gross profit per unit for the quarter increased to $4,392 per unit, a $692 increase over last year, driven largely by a 24% increase in new vehicle gross profit per unit.
Chris will be giving our same-store sales results and further color on inventory levels and their respective impact on vehicle margins in just a few moments.
Earlier this month, we announced one of the largest acquisitions in the history of the automotive industry.
The Suburban Collection adds $2.4 billion in annual revenues, over 2,000 team members, 34 locations and is a key pillar of the Lithia & Driveway footprint in our most sparse North Central Region 3.
With nearly $6.5 billion in expected annualized revenues purchased since the launch of our five-year plan in July 2020, we are considerably ahead of our expectations.
The combination of elevated gross profit levels in the new and used vehicles, rapid integration of high-performing acquisitions, incremental lift from the new Driveway channel, significant improvements in all business lines, and strategic cost savings measures instituted last year led us to earning over $250 million of adjusted EBITDA in the quarter.
Entering our 75th year in operations, we reflect on how our history of exponential growth, coupled with our team's ability to execute, has positioned us to pragmatically and profitably disrupt the status quo of the industry.
Our multifaceted strategy for disruption begins by combining our proprietary technology with the scale of our people, inventory, and network to modernize the industry.
As we continue to develop and enhance our digital home solutions, our Lithia & Driveway teams are ready to serve not only our traditional customers, but incremental e-commerce customers as well.
Our focus on the most expansive addressable market of any retailer in the automotive space allows us to leverage our massive competitive advantages to demonstrate that e-commerce can be highly profitable and ultimately yield the highest possible EBITDA returns in this space.
The used car business lacks barriers to entry.
However, success requires infrastructure, financing solutions for all customers, reconditioning expertise and the procurement of high-demand scarce vehicles to quickly achieve scale with smooth execution, all of which Lithia & Driveway have established and have proven to be effective at executing on since 1946.
Hopefully, Dick Heimann, our former COO is listening in today, as the 1946 comment was especially made for him.
Building on the broadest nationwide network and multi-year design and technology development of Driveway, we are excited by our initial success and continue to enhance the most comprehensive e-commerce home solution in the automotive retail space.
Our proprietary consumer applications are maturing and now ready to quickly scale across our existing network that is the broadest in the country.
Now entering our second quarter with a full spectrum of offerings, Driveway is empowering consumers to simply and transparently shop, sell, and service their vehicles from the convenience of their homes.
The Driveway brand was designed to attract a different and incrementally new consumer than the Lithia channel.
This is the first time in our history that we've been able to market and deliver our 77,000-vehicle inventory to the entire country under a single brand name and experience.
We knew our used inventory was broader and more scarce than our competitors and we are now realizing these advantages as evidenced in our same-store and margin results.
While Driveway's full spectrum offerings have only been live for a few months, our early learnings and data are showing a clear pathway for Driveway to become the brand of choice for online buying, selling, and servicing, both domestically and internationally.
We are on target to achieve a run rate of 15,000 Driveway shop and sell transactions by year-end.
Important to note that this target does not include Driveway finance and service transactions.
On our pathway toward this first volume milestone that took other e-commerce use-only competitors two to three years to reach, we are finding several interesting early trends we'd like to share with you today.
First, 97.8% of our Driveway customers during our first quarter were incremental and had never done business with a Lithia dealership before.
Second, we are seeing that it is taking 19 minutes on average for a customer to complete a full vehicle purchase transaction online with financing included.
We are also seeing that about 15% of all credit decisions are auto-approved.
An overwhelming majority of our consumers still need help from our Driveway Care Center to structure their purchase, balance their credit with their desires, and get through the financing process.
43% of our sales are out of region and our average shipping distance is 732 miles with an average shipping fee of $477.
Lastly, we continue to build our online reputation, with an average Google Reviews Score of 4.98 stars out of 5.
During the first quarter, Driveway also became the first e-commerce retailer in the country to offer negotiation-free new vehicles with free in-home delivery and a 7-day money back guarantee at a national level.
Driveway's financing solutions with new vehicle leasing and captive manufacturer financing now totals 29 lenders and are available to consumers with auto approvals in a matter of seconds.
This lease and finance auto approval optionality was released two quarters ahead of our previously shared plans.
Driveway now offers the largest selection of negotiation-free, new and used vehicles of any retailer in the country.
Our new vehicle inventory represents all major brands and our selection of used vehicles spans the entire spectrum from certified used vehicles to 20-year-old value autos.
Today, consumers can purchase any vehicle accompanied with our full brand guarantees, subscribe to full ownership, repair and maintenance options, and receive in-home delivery anywhere in the country.
In addition, our marketing dollars have recently expanded outside the original Portland and Pittsburgh markets.
As such, our Driveway brand marketing is now live in Tampa Bay, Dallas, Houston, Metro New York and New Jersey, Los Angeles, Riverside, Oxnard, Des Moines and the surrounding markets.
With these recent market launches, the Driveway brand message is now reaching over 67 million individuals or 21% of the population, a 16-fold increase over our two initial launch markets.
As we continue to perfect our execution in these markets, our innovation and product teams are working relentlessly on improving the Driveway experience.
Driveway receives continuous enhancements that will be released every two weeks throughout the year and is on its way to becoming the e-commerce leader of automotive retail.
During the quarter, LAD's fintech arm, Driveway Finance Corporation, originated over 1,000 loans per month across the channels.
We continue to see Driveway's fintech platform elevating the experience for consumers with the ability to capture up to 20% of all vehicle sales transactions, further differentiating LAD in profitability.
Today, our team of 110 Driveway engineers and data scientists have developed a suite of consumer solutions and functionality that provides the first complete end-to-end digital ownership experience spanning the full vehicle ownership lifecycle.
In addition, our exclusive Driveway Care Center and inventory procurement teams are growing rapidly to mirror the exponential growth in consumer demand.
The foundation to our omni-channel plan is the growth and expansion of our physical network.
Having the ability for consumers to conveniently access all of our business lines and for us to store and recondition vehicles closer to them ensures a highly profitable digital experience across the United States.
The opportunities for rapid consolidation within our industry remain plentiful and our acquisition pipeline remains full.
For more than a decade, we have successfully purchased and integrated acquisitions that have yielded an after-tax return of over 25% annually.
During the quarter, we completed the acquisition of the Fields Auto Group in the Greater Orlando market, the Fink Auto Group in Tampa, Florida area, and Avondale Nissan in Phoenix, Arizona.
We also opened a previously awarded Infiniti location in downtown Los Angeles.
As mentioned earlier, we completed the acquisition of The Suburban Collection in the Detroit, Michigan area earlier this month, adding a massive platform of 34 locations to our North Central Region.
Combined, these acquisitions strengthened our strategic network density in regions 2, 3, and 6 and are anticipated to generate nearly $3.1 billion in annualized steady state revenues.
Since launching our five-year plan nine months ago, this brings our total network expansion to over $6.5 billion, adding more than $4 in future annualized EPS.
Important to note that the consolidation of the largest retail segment in the country can be accomplished in a highly accretive way and these cash flow positive businesses further add to our massive capital engine.
We are in the most active consolidation environment that we have seen in the last two decades.
Even with the pace being well ahead of schedule, we continue to replenish the more than $3 billion in revenue still under LOI and the more than $15 billion pipeline of potential acquisitions that we believe are priced to meet our disciplined hurdle rates.
As such, we are expecting our network expansion in 2021 to far exceed our record levels achieved last year as we seek to continue improving our network density, especially in the Central and Southeastern regions.
As our top priority for allocating capital continues to be to accretively expand our network with new locate -- new vehicle locations, it is important to highlight the competitive advantages and points of differentiation for Lithia & Driveway's network growth strategy.
First, new vehicle franchises create an accretive growth model with the self-generating profit engine of nearly $1 billion of EBITDA annually.
Second, network costs are considerably lower investment when compared to any new entrants into the industry.
High ticket new vehicle margins are quite strong at 10% and the carrying costs are subsidized by our manufacturer partners.
Upstream procurement from new and certified vehicle trade-ins have more attractive valuations than direct from consumer or auction purchases.
Fifth, affordable offerings at all levels allows the customers to remain in the Lithia & Driveway ecosystem their entire lives with vehicles and services that match a full spectrum of income and credit levels that change over time.
A sophisticated reconditioning network with specialized diagnostic equipment located closest to the customer to eliminate any logistics costs.
These reconditioning centers are also utilized for the industry's highest or 50% margin service, body, and parts businesses.
These businesses bring 10 times the consumer lifecycle touch points as compared to used-vehicle-only retailers and allow for substantially lower marketing cost per vehicle sold.
Captive leasing through our OEM-affiliated partners provides new vehicles with attractive competitively priced monthly payments when compared to one- to three-year-old used vehicles.
Additional financing support from our manufacturer partners through rate subvention with their captive financing arm and new vehicle incentives or rebates that allow for the highest level of financibility, and absorption of negative equity, plus lower down payments for our consumers.
Tenth, a diverse upstream offering of zero-emission products and supporting repair and maintenance services through manufacturer partners' product lines.
Also, leading advocacy for lower and zero-emission vehicle, ownership with a comprehensive resource center, providing education on vehicles, incentives, charging infrastructure, ownership, affordability guides, and a sustainable vehicle marketplace through green cars.
Lastly, new vehicle franchises create loaner and fleet management opportunities to build a factory-like used vehicle inventory pipeline.
As our nationwide network continues to grow in each of our six regions, we continue to target a 100-mile reach to allow for convenient, affordable, and timely consumer servicing experiences during and after the purchase of their vehicle.
As a reminder, infrastructure costs for delivering the Driveway e-commerce experience are zero as it resides in the underutilized capacity of our growing network.
Key to our design three years ago was allowing the flexibility to adjust our investments between channels and multiple business lines to align with consumer demand, whether any economic cycle compete with any future competitor and expand our cash engines to expand into further adjacencies.
These combined with our many competitive advantages strongly position us to achieve our five-year plan and pave the way to even greater aspirations.
In closing, our first quarter results doubled the previous highest first quarter earnings in our history as we live our mission of Growth Powered by People.
We continue to seek new ways to improve and remain tenaciously committed to growing and finding new opportunities.
The advantages of a responsive and adaptable team with a multi-decade track record of executing together is the driving force behind our ability to outperform and compete in any environment.
With our technology poised for rapid scalability across our existing and future network, we are positioned to as quickly as possible lead Lithia & Driveway's progress toward $50 billion in revenue and $50 of earnings per share the first leg of our journey.
We continued the momentum from last year and delivered another record performance in the quarter.
The demand from consumers remained strong for both in-home and in-network solutions and we accelerated the rollout of Driveway through our key strategic markets and our platform.
Each day, our leaders are rising to the challenge of achieving our 50/50 plan, evolving to meet consumer demand, developing our talent and living our mission of Growth Powered by People.
Our team remains humble and never satisfied as they look to continue record performance levels throughout 2021 and beyond.
Following is a discussion about our quarterly results and is on a same-store basis.
And as Bryan mentioned earlier, the pandemic impacted only the last two weeks of our first quarter 2020 results.
For the three months ended March 31, 2021, total same-store sales increased 28% over last year.
These increases were driven by a 29% increase in new vehicle sales, a 32% increase in used vehicle sales, a 30% increase in F&I revenue, and a slight increase in service, body, and parts revenues.
Comparing our 2021 results to a 2019 baseline, first quarter same-store sales increased 28% with new vehicle revenue up 23%, used vehicle revenue up 43%, F&I increased 32%, and service, body and parts increasing 6%.
For the quarter, our new vehicle business line increased 29% over last year.
Our average selling price increased 6% and unit sales increased 22%.
Gross profit per unit increased to $2,979 compared to $2,188, a $791 increase or up 36%.
Total new vehicle gross profit per unit, including F&I, was $4,778, an increase of $897 per unit or 23%.
At approximately $4,800 of gross profit per unit, new vehicles remain highly profitable with a 12% margin, similar selling cost per unit as used vehicles, and inventory carrying costs that are subsidized by our manufacturer partners.
As of the end of the quarter, we had a 41-day supply of new vehicle inventory, excluding in-transit orders, indicating we have well over a month's supply of vehicles on the ground and an adequate supply of in-transit that are replenishing our on-ground inventory every day.
However, new vehicle margins may remain elevated in the near term due to continued microchip and other supply chain shortages, coupled with elevated consumer demand levels driven by additional stimulus funds.
While select OEMs are experiencing reduced level of inventory, we currently have sufficient inventory to balance the current supply and demand trends expected over the coming months.
For used vehicles, we saw a 32% increase in revenues for the quarter.
Gross profit per unit for the quarter was $2,426, an increase of 14% or $295 over last year.
Total used vehicle gross profit per unit, including F&I, was $3,994, an increase of $421 or up 12%.
Total used vehicle gross profit per unit began to normalize early in the quarter, but accelerated again in March finishing at $4,384 per unit.
Our used vehicle sales mix in the quarter was 20% certified, 59% core are vehicles three to seven years old and 21% value auto or vehicles older than eight years.
With over 60% of the annual 40 million used vehicles sold in the US being nine years or older, our continued strategy of selling deeper into the used vehicle age spectrum and our ability to procure the right scarce vehicles from multiple channels remains the catalyst for the future success and growth of Lithia & Driveway.
As of March 31, we had a 42-day supply of used vehicles and our 800 used vehicles procurement specialists are working diligently to ensure we are meeting the current demand environment with our focus on procuring scarce high demand used vehicles through the most profitable channels.
As a top of funnel new car dealer, 80% of our inventory comes from non-auction sources, which allows us to meet consumer demand in a low supply environment.
New and used vehicle sales are supported by our 1,500 experienced finance specialists that help match the complexity of consumers' financial position with lending options at over 150 financial institutions, including Driveway Financial.
In the quarter, our finance and insurance business line continued to show substantial improvement averaging $1,674 per retail unit compared to $1,557 the prior year, an increase of $117 per unit.
New and used vehicle sales create incremental profit opportunities through the resale of trade-in vehicles, greater manufacturer incentives, F&I sales, and future parts and service work.
We continue to monitor this through the growth of our total gross profit per unit, which was $4,388 this quarter, an increase of $664 per unit or 18% over last year.
Our stores remain focused on the highest margin business lines, service, body, and parts, which decreased 1% for the quarter.
Adjusting for one less day of production compared to last year, service, body, and parts saw a slight increase for the quarter.
This was driven by a 7% increase in customer pay, a 12% decrease in warranty, a 6% decrease in wholesale parts, and a 14% decrease in body shop revenues.
But in March, we saw double-digit increases in service, body, and parts driven by a 32% increase in our highest margin customer pay work.
We expect these trends to continue into the second quarter, as the economy reopens further and consumers look to get back on the road and return to the normal routines.
As a reminder, our service, body, and parts business see over 5 million paying consumers and brand impressions annually, which generate over 50% margins and remain a huge competitive advantage for Lithia & Driveway.
Same-store adjusted SG&A to gross profit was 64% in the quarter, an improvement of 990 basis points over the prior year, driven largely by the gross profit expansion in our new and used vehicles segment and recovery in service, body, and parts.
We expect to see the normalization of SG&A to gross profit as supply constraints are alleviated later in the year and gross margins return to normalized levels.
With our highest performing stores consistently maintaining an SG&A to gross profit metric in the mid 50s, our five-year plan continues to target an SG&A to gross profit level in the low 60% range.
As we continue to profitably modernize the consumer experience, the opportunity to leverage our cost structure will continue as we maximize the utilization and the integration of our existing location and as our digital home solution, Driveway, adds meaningful additional incremental sales.
In summary, our teams continue to be responsive to the changing environment and the opportunities available to continuously improve in the evolving personal transportation industry.
We are innovating and meeting consumers increasing digital and in-home expectations and are focused on meeting the preferences of our consumers wherever, whenever, and however they desire.
With the integration of several regional platforms that come with performing teams, including strong operational leaders and customer-focused associates, we remain humble and confident that we continue to deliver industry-leading results, while pragmatically modernizing automotive retail.
For the quarter, we generated nearly $265 million of adjusted EBITDA, an increase of 154% compared to 2020 and $189 million of free cash flows, defined as adjusted EBITDA plus stock-based compensation, less the following items paid in cash, interest, income taxes, dividends, and capital expenditures.
As a result, we ended the quarter with $1.4 billion in cash and available credit.
In addition, our unfinanced real estate could provide additional liquidity of approximately $552 million for a combined nearly $2 billion of liquidity.
As of March 31, we had $4 billion outstanding of debt, of which $1.8 billion was floor plan, used vehicle, and service loaner financing.
The remaining portion of our debt is primarily related to senior notes and the financing of real estate as we own over 85% of our physical network.
A unique aspect of debt in our industry is the financing of vehicle inventory with floor plan debt.
The financing is integral to our operations and collateralized by these assets.
The industry treats the associated interest expense as an operating expense in EBITDA and excludes this debt from balance sheet leverage calculations.
On adjusted, our total debt to EBITDA is overstated at 4.3 times.
Adjusted to treat these items as an operating expense, our net debt to adjusted EBITDA is 1.7 times.
This means we could add over $1.2 billion in additional debt, which equals acquiring $4.8 billion in annualized revenues at our 25% purchase price to revenue metric, while remaining within our targeted range.
If our network growth and associated planned capital deployment would increase our leverage beyond 3 times for a sustained period, we would look to deleverage quickly through the equity capital market.
As a reminder, our disciplined approach is to maintain leverage between 2 and 3 times, as we continue to progress toward another sizable competitive cost advantage of achieving an investment-grade credit rating.
Our capital allocation priorities for deployment of our annual free cash flows generated remain unchanged.
We target 65% investment in acquisitions, 25% in internal investment, including capital expenditures, modernization and diversification, and 10% in shareholder return in the form of dividends and share repurchases.
Even with the acquisition of The Suburban Collection announced earlier this month, we continue to have the capacity to grow and are well positioned for accelerated disciplined growth.
We continue to make strong progress in modernizing the consumer experience through Driveway and building a robust balance sheet, positioning us to be the leader in consolidating this massive industry, all while progressing toward our five-year plan of achieving $50 billion in revenue and $50 of earnings per share.

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compname says q1 adjusted earnings per share $5.89.
compname reports highest first quarter earnings in company history; increases revenue 55% and earnings per share 195%.
q1 adjusted earnings per share $5.89.
q1 2021 revenue increased 55% to $4.3 billion from $2.8 billion in q1 of 2020.

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