Lithia Motors(US:LAD)2022-02-09 20:18Financial Data and Key Metrics Changes - The company reported the highest adjusted fourth quarter EPS in history at $11.39 per share, a 109% increase year-over-year [4] - Full-year adjusted EPS reached a record $40.3, up 120% from last year's $18.19 per share [4] - Annual revenues hit $22.8 billion, driven by acquired businesses and a growing e-commerce platform [4] - Adjusted EBITDA for the year was over $1.8 billion, with SG&A as a percentage of gross profit decreasing to 57.2%, a 730 basis point improvement [4][28] Business Line Data and Key Metrics Changes - New vehicle sales volumes decreased by 21% year-over-year, with same-store revenues down 8% [24] - Used vehicle sales revenues increased by 39%, with volumes up 11% compared to last year [25] - E-commerce sales accounted for 28,000 transactions in Q4, representing an annual revenue run rate of $6 billion [6] - Driveway Finance Corporation (DFC) originated over 21,000 loans in 2021, becoming the largest retail lender for the company [21] Market Data and Key Metrics Changes - The company achieved a physical footprint that reaches 95% of consumers within a 250-mile radius [6] - The average shipping distance for transactions was 932 miles, expected to decrease as inventory normalizes [14] - The company expanded its marketing to nine additional markets, now reaching 27% of the U.S. population [14] Company Strategy and Development Direction - The company aims to grow from under $13 billion in revenue to $50 billion by 2025, with a focus on becoming a diversified omnichannel retailer [4][5] - Plans include acquiring additional businesses to complete the North American footprint and investing in sustainable vehicle education through GreenCars.com [16][18] - The company is exploring new horizontals such as fleet management and consumer insurance, as well as verticals in mobility [35][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current supply-demand environment and achieving high performance in 2022 [24] - The company anticipates continued growth in service and parts revenues as consumers hold onto vehicles longer [27] - Management highlighted the importance of consumer education in driving sustainable vehicle adoption and the potential for higher conversion rates from affinity buyers [17] Other Important Information - The company ended the quarter with $1.5 billion in cash and available credit, targeting a leverage ratio between 2 and 3 times [28] - A $0.35 per share dividend was announced related to Q4 performance, with a focus on maintaining disciplined capital allocation [29] Q&A Session Summary Question: Follow-up on DFC's pre-tax income targets - Management explained that the $650 million pre-tax income target is based on achieving a penetration rate of 15% to 20% across the Lithia network, equating to $3.5 billion to $4 billion in overall loan origination [31][34] Question: Insights on new horizontals and verticals - Management discussed focusing on DFC, fleet and leasing, consumer insurance, and potential charging networks as part of their growth strategy [35][36] Question: Consumer hesitation regarding elevated prices - Management indicated that there is currently no hesitation among consumers, with strong demand for both new and used vehicles [37] Question: Scaling Driveway from $1 billion to $9 billion in revenue - Management highlighted the importance of sourcing cars directly from consumers and the growth in unique visitors to the Driveway platform as key drivers for scaling [41][43] Question: Capital allocation and share buybacks - Management reiterated their capital allocation strategy of 65% towards acquisitions and 25% towards internal investments, while remaining opportunistic with share buybacks when pricing disconnects occur [45][47]