Lithia Motors(LAD) - 2024 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for H1 2024 show increased revenues but a decline in net income and diluted EPS for Lithia Motors, Inc Consolidated Balance Sheets (Unaudited) Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2024 | December 31, 2023 | Change ($M) | | :------------------------------------ | :------------ | :---------------- | :---------- | | Total Assets | $23,205.2 | $19,632.5 | $3,572.7 | | Inventories, net | $6,242.9 | $4,753.9 | $1,489.0 | | Property and equipment, net | $4,615.2 | $3,981.4 | $633.8 | | Total Liabilities | $16,766.6 | $13,349.6 | $3,417.0 | | Floor plan notes payable | $2,590.1 | $1,347.0 | $1,243.1 | | Long-term debt, less current maturities | $6,071.5 | $5,483.7 | $587.8 | | Total Equity | $6,392.4 | $6,238.9 | $153.5 | Consolidated Statements of Operations (Unaudited) Consolidated Statements of Operations Highlights (in millions, except per share amounts) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change ($M) | Change (%) | | :----------------------------------------- | :------------------------------- | :------------------------------- | :---------- | :--------- | | Total Revenues | $9,231.8 | $8,111.5 | $1,120.3 | 13.8% | | Gross Profit | $1,423.9 | $1,385.1 | $38.8 | 2.8% | | Operating Profit | $393.6 | $475.8 | ($82.2) | (17.3)% | | Net Income Attributable to Lithia Motors, Inc. | $214.2 | $297.2 | ($83.0) | (27.9)% | | Diluted Earnings Per Share | $7.87 | $10.78 | ($2.91) | (27.0)% | | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change ($M) | Change (%) | | :----------------------------------------- | :----------------------------- | :----------------------------- | :---------- | :--------- | | Total Revenues | $17,793.6 | $15,091.0 | $2,702.6 | 17.9% | | Gross Profit | $2,759.1 | $2,596.3 | $162.8 | 6.3% | | Operating Profit | $735.0 | $854.6 | ($119.6) | (14.0)% | | Net Income Attributable to Lithia Motors, Inc. | $376.7 | $525.9 | ($149.2) | (28.4)% | | Diluted Earnings Per Share | $13.75 | $19.08 | ($5.33) | (27.9)% | Consolidated Statements of Comprehensive Income (Unaudited) Consolidated Statements of Comprehensive Income Highlights (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change ($M) | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :---------- | | Net Income | $216.6 | $301.1 | ($84.5) | | Foreign currency translation adjustment | ($0.9) | $16.1 | ($17.0) | | Comprehensive income attributable to Lithia Motors, Inc. | $213.1 | $313.3 | ($100.2) | | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change ($M) | | :---------------------------------------------- | :----------------------------- | :----------------------------- | :---------- | | Net Income | $381.5 | $530.7 | ($149.2) | | Foreign currency translation adjustment | ($17.1) | $29.2 | ($46.3) | | Comprehensive income attributable to Lithia Motors, Inc. | $359.2 | $555.1 | ($195.9) | Consolidated Statements of Equity and Redeemable Non-controlling Interest (Unaudited) Consolidated Statements of Equity Highlights (in millions) | Metric | June 30, 2024 | December 31, 2023 | Change ($M) | | :------------------------------------ | :------------ | :---------------- | :---------- | | Total equity, ending balances | $6,392.4 | $6,238.9 | $153.5 | | Retained earnings, ending balances | $5,361.8 | $5,013.3 | $348.5 | | Common stock, ending balances | $924.0 | $1,100.6 | ($176.6) | | Repurchase of common stock (6 months) | ($218.7) | ($14.5) | ($204.2) | | Accumulated other comprehensive income (loss) | $2.6 | $20.1 | ($17.5) | Consolidated Statements of Cash Flows (Unaudited) Consolidated Statements of Cash Flows Highlights (in millions) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change ($M) | | :---------------------------------------- | :----------------------------- | :----------------------------- | :---------- | | Net cash provided by (used in) operating activities | $144.0 | ($298.7) | $442.7 | | Net cash used in investing activities | ($1,515.1) | ($1,000.2) | ($514.9) | | Net cash provided by financing activities | $1,117.6 | $1,248.5 | ($130.9) | | Decrease in cash, restricted cash, and cash equivalents | ($256.6) | ($42.3) | ($214.3) | | Cash, restricted cash, and cash equivalents at end of period | $715.4 | $229.2 | $486.2 | - Capital expenditures increased to $209.7 million in H1 2024 from $97.1 million in H1 2023, reflecting increased investment in existing business. Cash paid for acquisitions, net of cash acquired, rose to $1,169.5 million in H1 2024 from $978.5 million in H1 2023[11] Condensed Notes to Consolidated Financial Statements (Unaudited) NOTE 1. INTERIM FINANCIAL STATEMENTS - The unaudited interim financial statements for June 30, 2024, and for the three and six months ended June 30, 2024 and 2023, are prepared under Form 10-Q rules, including only normal recurring adjustments[13] - Interim operating results are not necessarily indicative of full-year results[13] - Reclassifications were made to disaggregate 'lease income' from 'interest, fee, and lease income' for consistency and comparability[14] NOTE 2. ACCOUNTS RECEIVABLE Accounts Receivable, Net (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Total accounts receivable, net | $1,242.9 | $1,123.1 | | Allowance for doubtful accounts | ($2.6) | ($7.1) | NOTE 3. INVENTORIES AND FLOOR PLAN NOTES PAYABLE Inventories, Net (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :------------------ | :------------ | :---------------- | | New vehicles | $3,892.0 | $2,886.3 | | Used vehicles | $2,060.0 | $1,637.5 | | Parts and accessories | $290.9 | $230.1 | | Total inventories | $6,242.9 | $4,753.9 | Floor Plan Debt (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Floor plan notes payable | $2,590.1 | $1,347.0 | | Floor plan notes payable: non-trade | $2,697.4 | $2,288.5 | | Total floor plan debt | $5,287.5 | $3,635.5 | NOTE 4. FINANCE RECEIVABLES Finance Receivables, Net (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Total finance receivables | $3,739.7 | $3,348.7 | | Less: Allowance for finance receivable losses | ($115.8) | ($106.4) | | Finance receivables, net | $3,623.9 | $3,242.3 | - More than 99% of the finance receivables portfolio is aged less than 60 days past due, with less than 1% on non-accrual status[18] Allowance for Credit Losses Changes (in millions) - Six Months Ended June 30 | Metric | 2024 | 2023 | | :------------------------------------ | :--- | :--- | | Allowance at beginning of period | $106.4 | $69.3 | | Charge-offs | ($65.6) | ($50.1) | | Recoveries | $30.1 | $23.6 | | Provision expense | $45.2 | $52.0 | | Allowance at end of period | $115.8 | $97.1 | NOTE 5. GOODWILL AND FRANCHISE VALUE Goodwill (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Balance | $2,118.1 | $1,930.6 | | Additions through acquisitions | $142.7 | $519.1 | Franchise Value (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Balance | $2,568.1 | $2,402.2 | | Additions through acquisitions | $172.5 | $556.5 | NOTE 6. INVESTMENTS - The captive insurance subsidiary began investing in marketable securities (AFS debt and equity securities) in January 2024[25] Marketable Securities and Equity Method Investment (in millions) - June 30, 2024 | Metric | Fair Value | | :--------------------------------- | :--------- | | Equity securities | $2.1 | | Marketable debt securities (AFS) | $49.3 | | Equity Method Investment (PINE.L) | $100.0 | - An unrealized gain of $29.5 million was recognized on the Pinewood Technologies Group PLC (PINE.L) equity method investment for the six months ended June 30, 2024[27] NOTE 7. NET INVESTMENT IN OPERATING LEASES Net Investment in Operating Leases (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Vehicles, at cost | $308.6 | $102.7 | | Net investment in operating leases | $288.1 | $91.5 | NOTE 8. COMMITMENTS AND CONTINGENCIES Contract Liabilities (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Contract liability balances | $394.4 | $317.0 | - The company recognized $36.5 million of revenue in the six months ended June 30, 2024, related to contract liabilities for lifetime oil and at-home valet services[29] - Lease agreements often include renewal options extending from one to 56 years or more, and some include purchase options[30] - The company is party to numerous legal proceedings in the normal course of business, which are not anticipated to have a material adverse effect[31] NOTE 9. DEBT - The USB credit facility was amended on February 23, 2024, increasing the total financing commitment to $6.0 billion (expandable to $6.5 billion) and maturing on February 23, 2029[32][33] - The JPM warehouse facility was amended on February 23, 2024, providing initial commitments for borrowings of up to $1.0 billion, maturing on July 18, 2025[36] - The Mizuho warehouse facility was amended on February 16, 2024, providing initial commitments for borrowings of up to $750 million, maturing on July 20, 2026[37] - The BNS credit facility was amended on May 14, 2024, extending the maturity date and providing a total financing commitment of approximately $1.1 billion CAD[37][38] - In 2024, the company issued $739.0 million in non-recourse notes payable related to asset-backed term funding transactions[39] NOTE 10. RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - The acquisition of Pendragon PLC's UK divisions in January 2024 included the assumption of a defined benefit plan, increasing defined benefit obligations by $465.7 million and plan assets by $466.4 million[40] Net Periodic (Benefit) Cost (in millions) - Six Months Ended June 30, 2024 | Metric | Amount | | :-------------------------- | :----- | | Interest cost | $13.2 | | Expected return on plan assets | ($14.4) | | Net periodic benefit | ($1.2) | - Approximately $2.2 million in cash contributions to pension plans are estimated for the remainder of 2024[40] NOTE 11. EQUITY - On June 4, 2024, the Board of Directors approved an additional $350 million share repurchase authorization[41] Share Repurchase Activity (Six Months Ended June 30, 2024) | Metric | Shares Repurchased | Average Price Paid per Share | | :------------------------------------ | :----------------- | :--------------------------- | | Under repurchase authorization | 788,569 | $256.25 | | Related to RSU tax withholding | 45,817 | $328.72 | - As of June 30, 2024, $614.9 million was available for repurchases under the authorization[41] NOTE 12. FAIR VALUE MEASUREMENTS - Fair value measurements utilize Level 1 (quoted prices in active markets), Level 2 (other significant observable inputs), and Level 3 (significant unobservable inputs) categories[43] - Equity securities, U.S. Treasury debt securities, and the PINE.L equity method investment are valued using Level 1 inputs[44][48] - Corporate and municipal debt securities, non-recourse notes payable, real estate mortgages, finance lease liabilities, and derivative instruments are measured using Level 2 market expectations[44][45][46][48] - Goodwill and franchise value impairment assessments, if quantitative, use Level 3 inputs by discounting expected future cash flows[47] NOTE 13. ACQUISITIONS - In the first six months of 2024, Lithia completed several acquisitions, including Pendragon PLC's UK divisions, Carousel Motor Group, Pine View Hyundai Store, and Sunrise Chevrolet Buick GMC stores[49] Acquisition Contributions (Six Months Ended June 30, 2024) | Metric | Amount (in millions) | | :---------------- | :------------------- | | Revenue | $2,393.0 | | Operating income | $19.9 | Consideration Paid and Assets Acquired (in millions) - 2024 Acquisitions | Metric | Amount | | :------------------------------------ | :----- | | Cash paid, net of cash acquired | $1,169.5 | | Inventories, net | $999.5 | | Property and equipment | $535.7 | | Floor plan notes payable assumed | ($868.1) | - Acquisition-related expenses for the six months ended June 30, 2024, were $9.5 million, compared to $5.7 million in the same period of 2023[52] NOTE 14. EARNINGS PER SHARE Earnings Per Share (in millions, except per share amounts) - Six Months Ended June 30 | Metric | 2024 | 2023 | | :----------------------------------------- | :--- | :--- | | Net income attributable to Lithia Motors, Inc. | $376.7 | $525.9 | | Basic earnings per share | $13.77 | $19.11 | | Diluted earnings per share | $13.75 | $19.08 | | Weighted average common shares outstanding – diluted | 27.4 | 27.6 | NOTE 15. SEGMENTS - The company operates in two reportable segments: Vehicle Operations and Financing Operations[54] Segment Financial Information (in millions) - Six Months Ended June 30 | Metric | 2024 | 2023 | | :----------------------------------- | :--- | :--- | | Vehicle Operations Revenue | $17,793.6 | $15,091.0 | | Vehicle Operations Gross Profit | $2,759.1 | $2,596.3 | | Vehicle Operations Income | $579.0 | $862.5 | | Financing Operations Income (Loss) | $5.4 | ($39.5) | | Total Segment Income | $584.4 | $823.0 | - Financing Operations income improved significantly from a loss in the prior year, driven by increased interest margin and the addition of the UK Financing Operations business[54] NOTE 16. RECENT ACCOUNTING PRONOUNCEMENTS - The company adopted ASU 2023-07 (improvements to reportable segment disclosures) for fiscal years beginning after December 15, 2023[55] - The company plans to adopt ASU 2023-09 (improvements to income tax disclosures) for fiscal years beginning after December 15, 2024[56] - Neither pronouncement is expected to have a material effect on the financial statements, aside from disclosure changes[55][56] NOTE 17. SUBSEQUENT EVENTS - On July 17, 2024, Lithia purchased a minority stake in Wheels, Inc., a North American fleet management company, for approximately $205 million[57] - The interim financial statements are unaudited and prepared under Form 10-Q rules, reflecting normal recurring adjustments, and should be read in conjunction with the 2023 audited Consolidated Financial Statements[13] - Certain reclassifications were made, including disaggregating 'lease income' from 'interest, fee, and lease income' for consistency[14] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis covers Lithia's business, financial performance, and strategic initiatives Forward-Looking Statements and Risk Factors - The report contains forward-looking statements regarding future market conditions, business strategy, financial targets, and capital allocation, which are subject to known and unknown risks and uncertainties[57] - Readers are cautioned not to place undue reliance on these statements and should refer to the 2023 Annual Report on Form 10-K for detailed risk factors[57][58] Overview - Lithia and Driveway (LAD) is a global automotive retailer operating 470 locations across 52 brands in the United States, the United Kingdom, and Canada as of June 30, 2024[59] - The company offers a wide array of products and services throughout the vehicle ownership lifecycle, including new and used vehicles, financing, insurance, and repair/maintenance[60] - LAD aims for diversification in products, services, brands, and geographic locations to reduce dependence on any one manufacturer and manage market risk[60] - The company provides a seamless, blended online and physical retail experience through its comprehensive network and e-commerce platforms like Driveway and GreenCars[61] Long-Term Strategy - The long-term strategy includes driving operational excellence, innovation, and diversification, supported by proprietary data science and an entrepreneurial model[62] - Investments in modernization and digital strategies combine the workforce with owned inventory and physical network to adapt to consumer preferences[63] - Growth through acquisition focuses on new vehicle franchises in diverse markets, targeting an annual after-tax return of over 15% (averaged over 25% by the third year)[66] - The free cash flow deployment strategy has shifted to 50-60% investment in acquisitions, 25% in capital expenditures/innovation/diversification, and 15-25% in shareholder return (dividends/repurchases)[68] - As of June 30, 2024, available liquidity was approximately $1.3 billion, comprising unrestricted cash, marketable securities, and credit facility availability[68] Financial Performance Year-to-Date Financial Performance (Six Months Ended June 30) | Metric | 2024 | 2023 | Change ($M) | Change (%) | | :----------------------------------------- | :--- | :--- | :---------- | :--------- | | Revenue ($B) | $17.8 | $15.1 | $2.7 | 17.9% | | Net income attributable to Lithia Motors, Inc. ($M) | $376.7 | $525.9 | ($149.2) | (28.4)% | | Diluted earnings per share | $13.75 | $19.08 | ($5.33) | (27.9)% | - Revenue growth in 2024 was primarily driven by increases in volume related to acquisitions[71] - Net income declined due to margin normalization, increased interest expense, and higher selling, general and administrative (SG&A) expenses as a percentage of gross profit[71] - The 2024 revenue mix was dominated by new vehicles (50.4%) and used vehicles (35.4%), while gross profit mix was led by service, body and parts (37.3%) and finance and insurance (25.3%)[72][73][74] - Geographically, the United States accounted for 77.9% of revenue and 83.6% of gross profit in 2024[75][76] Vehicle Operations Vehicle Operations Key Metrics (Six Months Ended June 30, in millions, except per unit values) | Metric | 2024 | 2023 | Change (%) | | :----------------------------------- | :--- | :--- | :--------- | | Total Revenues | $17,793.6 | $15,091.0 | 17.9% | | New vehicle retail gross profit margin | 7.3% | 9.9% | (260) bps | | Used vehicle retail gross profit margin | 6.5% | 8.1% | (160) bps | | Service, body and parts gross profit margin | 55.3% | 54.4% | 90 bps | | Total gross profit margin | 15.5% | 17.2% | (170) bps | | New vehicles retail units sold | 178,191 | 151,334 | 17.7% | | Used vehicles retail units sold | 211,685 | 158,715 | 33.4% | | Average gross profit per new retail unit | $3,457 | $4,764 | (27.4)% | | Average gross profit per used retail unit | $1,787 | $2,384 | (25.0)% | Same Store Vehicle Operations Key Metrics (Six Months Ended June 30, in millions, except per unit values) | Metric | 2024 | 2023 | Change (%) | | :----------------------------------- | :--- | :--- | :--------- | | Total Revenues | $14,113.5 | $14,748.5 | (4.3)% | | New vehicle retail gross profit margin | 7.1% | 9.9% | (280) bps | | Used vehicle retail gross profit margin | 7.5% | 8.1% | (60) bps | | Service, body and parts gross profit margin | 55.8% | 54.5% | 130 bps | | Total gross profit margin | 16.2% | 17.2% | (100) bps | | New vehicles retail units sold | 146,830 | 148,262 | (1.0)% | | Used vehicles retail units sold | 152,867 | 155,024 | (1.4)% | | Average gross profit per new retail unit | $3,411 | $4,754 | (28.2)% | | Average gross profit per used retail unit | $2,107 | $2,383 | (11.6)% | - Same store new vehicle unit volumes in North America were negatively impacted by a two-week CDK Global software platform shutdown due to a cyber incident in June 2024[81][82] - Service, body, and parts revenue increased 20.9% for the six months ended June 30, 2024, driven by acquisitions and increased same store warranty and customer pay revenues, with overall gross margins increasing by 130 bps[91] Financing Operations - Financing Operations recorded income of $5.4 million for the six months ended June 30, 2024, a significant improvement from a loss of $39.5 million in the prior year[93] - This improvement was primarily due to increased interest income from portfolio growth, higher customer rates, decreased cost of funds, and a decrease in provision expense[95][96] - The weighted average contract rate on loans originated increased to 10.0% for the six months ended June 30, 2024, compared to 9.2% in the same period of 2023[96] - The decrease in provision expense reflected a release of allowances for credit losses, driven by increased credit quality and tightening underwriting standards[96] Operating Expenses Selling, General and Administrative (SG&A) Expense (in millions) - Six Months Ended June 30 | Metric | 2024 | 2023 | Increase ($M) | % Increase | | :-------------------------- | :--- | :--- | :------------ | :--------- | | Personnel | $1,225.9 | $1,065.4 | $160.5 | 15.1% | | Rent | $63.3 | $40.7 | $22.6 | 55.5% | | Facility costs | $119.6 | $86.5 | $33.1 | 38.3% | | Total SG&A | $1,909.5 | $1,606.6 | $302.9 | 18.9% | - SG&A as a percentage of gross profit increased to 69.2% for the six months ended June 30, 2024, from 61.9% in the prior year, an increase of 730 basis points[101] - The increase in SG&A was primarily a result of the company's growth in the United Kingdom[101] - Adjusted SG&A for the six months ended June 30, 2024, excludes $9.5 million in acquisition-related expenses and $6.0 million in storm insurance charges[106] Floor Plan Interest Expense and Floor Plan Assistance Net New Vehicle Carrying Costs (in millions) - Six Months Ended June 30 | Metric | 2024 | 2023 | Change ($M) | % Change | | :------------------------------------ | :--- | :--- | :---------- | :--------- | | Floor plan interest expense (new vehicles) | $137.3 | $62.3 | $75.0 | 120.4% | | Floor plan assistance | ($82.6) | ($75.7) | ($6.9) | 9.1% | | Net new vehicle carrying costs (benefit) | $54.7 | ($13.4) | $68.1 | (508.2)% | - Floor plan interest expense increased significantly due to rising interest rates and increased inventory levels[110] Depreciation and Amortization Depreciation and Amortization (in millions) - Six Months Ended June 30 | Metric | 2024 | 2023 | Increase ($M) | % Increase | | :-------------------------- | :--- | :--- | :------------ | :--------- | | Depreciation and amortization | $120.0 | $95.6 | $24.4 | 25.5% | - The increase was primarily due to acquisition activity, with $0.7 billion of depreciable property acquired over the trailing twelve months, and $209.7 million in capital expenditures during the six months ended June 30, 2024[112] Operating Income Operating Margin - Six Months Ended June 30 | Metric | 2024 | 2023 | | :----------------------------------------- | :--- | :--- | | Operating margin | 4.1% | 5.7% | | Operating margin adjusted for non-core charges | 4.2% | 5.7% | - Operating margin decreased by 160 basis points for the six months ended June 30, 2024, primarily due to increased SG&A (18.9% increase) outpacing gross profit growth (6.3% increase)[115] Non-Operating Expenses Other Interest Expense, Net (in millions) - Six Months Ended June 30 | Metric | 2024 | 2023 | Increase ($M) | % Increase | | :-------------------------- | :--- | :--- | :------------ | :--------- | | Total other interest expense | $124.8 | $83.0 | $41.8 | 50.4% | | Other income, net | $30.4 | $12.0 | $18.4 | 153.3% | - Other interest expense increased due to increased borrowings and interest rates[118] - Other income, net, included $29.5 million in unrealized investment gains, primarily from the PINE.L investment, and $5.6 million of interest income, partially offset by a $7.5 million loss due to foreign currency exchange[120] Income Tax Provision Effective Income Tax Rate - Six Months Ended June 30 | Metric | 2024 | 2023 | | :----------------------------------------- | :--- | :--- | | Effective income tax rate | 24.2% | 26.4% | | Effective income tax rate excluding non-core items | 25.3% | 26.3% | - The effective income tax rate was positively affected by a reduction in current and deferred state tax rates due to global network expansion, filing elections, and statutory rate changes, as well as increased tax benefits from stock awards and general business credits[121] Non-GAAP Reconciliations - Non-GAAP financial measures, referred to as 'adjusted,' are used to improve transparency and comparability by excluding items not related to ongoing core business operations and other non-cash items[122] Adjusted Financial Metrics (in millions, except per share amounts) - Six Months Ended June 30, 2024 | Metric | As Reported | Adjustments | Adjusted | | :----------------------------------------- | :---------- | :---------- | :------- | | Selling, general and administrative | $1,909.5 | ($15.5) | $1,894.0 | | Operating income | $735.0 | $15.5 | $750.5 | | Income before income taxes | $503.3 | $15.5 | $518.8 | | Net income attributable to Lithia Motors, Inc. | $376.7 | $6.1 | $382.8 | | Diluted earnings per share | $13.75 | $0.22 | $13.97 | - Adjustments for the six months ended June 30, 2024, primarily include excluding $9.5 million in acquisition-related expenses and $6.0 million in storm insurance charges[106][125] Liquidity and Capital Resources - The company's free cash flow deployment strategy has shifted to 50-60% investment in acquisitions, 25% in capital expenditures, Driveway and Driveway Finance Corporation, and 15-25% in shareholder return (dividends and share repurchases)[128] - The company believes it has sufficient sources of funding to meet business requirements for the next 12 months and longer term, primarily from cash flows from operations and credit facilities[129] Immediately Available Funds (in millions) | Metric | June 30, 2024 | December 31, 2023 | Change ($M) | % Change | | :-------------------------- | :------------ | :---------------- | :---------- | :--------- | | Cash and cash equivalents | $516.4 | $825.0 | ($308.6) | (37.4)% | | Marketable securities | $51.4 | — | $51.4 | — | | Available credit on credit facilities | $781.2 | $870.4 | ($89.2) | (10.2)% | | Total current available funds | $1,349.0 | $1,695.4 | ($346.4) | (20.4)% | Cash Flow Summary (in millions) - Six Months Ended June 30 | Metric | 2024 | 2023 | Change ($M) | | :---------------------------------------- | :--- | :--- | :---------- | | Net cash provided by (used in) operating activities | $144.0 | ($298.7) | $442.7 | | Net cash used in investing activities | ($1,515.1) | ($1,000.2) | ($514.9) | | Net cash provided by financing activities | $1,117.6 | $1,248.5 | ($130.9) | - Adjusted net cash provided by operating activities increased to $952.7 million in 2024 from $499.7 million in 2023[133] - Capital expenditures increased by $112.6 million to $209.7 million, and cash paid for acquisitions, net of cash acquired, increased by $191.0 million to $1,169.5 million for the six months ended June 30, 2024[134] - The company repurchased 834,386 shares of common stock in the first six months of 2024, with $614.9 million remaining available for repurchases[140] - Total debt, net, was $13,475.7 million as of June 30, 2024[141] Recent Accounting Pronouncements - Refers to Note 16 for discussion on recent accounting pronouncements[143] Critical Accounting Policies and Use of Estimates - There have been no material changes in the critical accounting policies and use of estimates described in the 2023 Annual Report on Form 10-K[144] Seasonality and Quarterly Fluctuations - Historically, sales are lower in the first quarter due to consumer purchasing patterns and inclement weather[145] - Financial performance is influenced by interest rates, consumer debt levels, consumer confidence, manufacturer sales incentives, and general economic conditions[145] Off-Balance Sheet Arrangements - The company does not have any off-balance sheet arrangements that are material or reasonably likely to have a material current or future effect on its financial condition or results of operations[146] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's reported market risks or risk management policies since the filing of its 2023 Annual Report on Form 10-K - No material changes in market risks or risk management policies have occurred since the 2023 Annual Report on Form 10-K[147] Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024. No material changes in internal control over financial reporting occurred during the quarter - The Chief Executive Officer and Chief Financial Officer evaluated and concluded that disclosure controls and procedures were effective as of June 30, 2024[148] - There were no material changes in internal control over financial reporting during the most recent fiscal quarter[149] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in numerous legal proceedings arising in the normal course of business, which are not anticipated to have a material adverse effect on its financial condition or results of operations - The company is party to numerous legal proceedings arising in the normal course of its business[150] - The resolution of these legal proceedings is not anticipated to have a material adverse effect on the company's business, results of operations, financial condition, or cash flows[150] Item 1A. Risk Factors This Form 10-Q should be read in conjunction with the risk factors and information disclosed in the company's 2023 Annual Report on Form 10-K - Readers should refer to the 'Risk Factors' section in the 2023 Annual Report on Form 10-K for primary risks related to the company's business and securities[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2024, the company repurchased 788,569 shares of common stock under its publicly announced plans, with an additional $350 million repurchase authorization approved in June 2024 - The company repurchased 788,569 shares of common stock during the second quarter of 2024 as part of publicly announced plans, at an average price of $256.25 per share[151] - On June 4, 2024, the Board of Directors approved an additional $350 million repurchase authorization for common stock, which has no expiration date[151] - As of June 30, 2024, $614,923 thousand (approximately $614.9 million) remained available for repurchases under the publicly announced plan[151] Item 5. Other Information No director or officer adopted or terminated any Rule 10b5-1 plan or non-Rule 10b5-1 trading arrangement during the second quarter of 2024 - No director or officer adopted or terminated any Rule 10b5-1 plan or non-Rule 10b5-1 trading arrangement during the second quarter of 2024[152] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, certifications of the Chief Executive Officer and Chief Financial Officer, and Inline XBRL documents - Exhibits include the Second Amendment to Credit Agreement (Bank of Nova Scotia syndicated credit facility) and certifications of the Chief Executive Officer and Chief Financial Officer[153] - The filing also includes an Inline XBRL Document Set for the consolidated financial statements and accompanying notes[153] SIGNATURE - The report was signed on August 8, 2024, by Tina Miller, Chief Financial Officer, Senior Vice President, and Principal Accounting Officer[154]