LAD 10-K & 10-Q changes, risk factors and insider trading

Our business is heavily dependent on consumer demand and preferences. A downturn in overall levels of consumer spending may materially and adversely affect our revenues and gross profit margins. Retail vehicle sales are cyclical and historically have experienced periodic downturns characterized by weak demand. These cycles are often dependent on general economic conditions and consumer confidence, as well as the level of discretionary personal income and credit availability. Additionally, other economic factors, such as rising and sustained periods of high crude oil and fuel prices,prices and other inflation, may impact consumer demand and preferences. As we operate internationally, including across the United States, the United Kingdom, and Canada, changes in and the severity of economic conditions may vary by market. Economic conditions may be anemic for an extended period of time,time or deteriorate in the future. This would have a material adverse effect on our retail business, particularly sales of new and used vehicles. These economic conditions and other factors may also materially impact our parts and repair and maintenance aftersales, and automotive finance and insurance (F&I) products.

The economies of the United States, the United Kingdom, and Canada have recently experienced heightened inflationary pressures, impacting the costs of labor, fuel, and other costs. Additionally, interest rates remain significantly elevated above the rates available in 2021, which has impacted new and used vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates have on customers’ borrowing capacity and disposable income. Consumer demand may be further adversely impacted if interest rates continue to increase or are sustained at current levels. In an inflationary environment, depending on automotive industry and other economic conditions, we may be unable to raise prices to keep up with the rate of inflation, which would reduce our profit margins.margins, and if we do raise prices, we may experience less demand. A period of sustained inflationary and interest rate pressures could impact our profitability.

IncreasingIntense competition among automotive retailers reducesand new brands may reduce our vehicle sales and profit margins on vehicle sales and related businesses. Further, the use of the Internet, e-commerce, and digital technology in the car purchasing process could materially adversely affect us.

Vehicle retailing is a highly competitive business. Our competitors include many publicly and privately-owned dealerships. ManyOur franchise agreements do not grant us the exclusive right to sell a manufacturer’s product within a given geographic area and many of our competitors sell the same or similar makes of new and used vehicles that we offer in our markets at competitive prices.prices, as well as competitive vehicles we may not sell. We do not have any cost advantage in purchasing new vehicles from manufacturers due to the volume of purchases or otherwise.

Changes to the automotiveretail industrydelivery model and consumerincreased viewse-commerce onand caromnichannel ownershipcompetition could materially adversely affect our business, results of operations, financial condition, and cash flows.

We compete in a dynamic industry, and we may invest significant resources to pursue strategies, develop new offerings, and enter into adjacent businesses that do not prove effective.effective or profitable.

The vehicle retailing industry is experiencing significant changes as the expectations and behaviors of vehicle customers are shifting,shifting andas e-commerce and digital technology have become a more significant part of the sales process. We have made and may continue to make significant investments to drive the development of and support of e-commerce and digital technology capabilities, including the launch of Driveway, our e-commerce home solution, and DFC, our in-house consumer financing business. We have also recently invested in a dealer-management technology business and a fleet management business. Changes or additions to our offerings or businesses may not prove sufficiently profitable,profitable attract,or attract or engage our customers, and may reduce confidence in our brands, expose us to increased market or legal risks, subject us to new laws and regulations, or otherwise harm our business.

We depend on our manufacturers to provide a supply of vehicles whichthat supportssupport expected sales levels. Any event that adversely affects a manufacturer’s ability to timely deliverdelivery of new vehicles may adversely affect us by reducing our supply of popular new vehicles, leading to lower sales in our stores during those periods than wouldmay otherwise occur. For example, the shortage of chipsemiconductor supplychips and labor disruptions induring 2021 and 2022 causedsignificantly a significant constraint inconstrained the supply of new vehicles resulting in reduced sales volumes and increased gross profit margins on retail vehicle sales. As new vehicle availability has improved, gross profit margins have been negatively impacted.

Vehicle manufacturers would be adversely affected by economic downturns or recessions, adverse fluctuations in currency exchange rates, significant declines in the sales of their new vehicles, increases in interest rates, declinesconstraints inon their credit ratings,financing, port closures, labor strikes or similar disruptions (including within their major suppliers), supply shortages or rising raw material costs, rising team member benefit costs, adverse publicity that may reduce consumer demand for their products, product defects, vehicle recall campaigns, litigation, poor product mix or unappealing vehicle design, or other adverse events. These and other risks could materially adversely affect any manufacturer and limit its ability to profitably design, market, produce or distribute new vehicles, which, in turn, could materially adversely affect our business, results of operations, financial condition, and cash flows.

Each of our stores operates pursuant to a franchise agreement with each of the respective manufacturers for which it serves as franchisee. Each of our stores may obtain new vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ brandbrands only to the extent permitted under these agreements. As a result of the terms of our franchise agreements, manufacturers exert significant control over the day-to-day operations at our stores. Such agreements contain provisions for termination or non-renewal for a variety of causes, including service retention, facility compliance, customer satisfaction, and sales and financial performance. From time to time, certain of our stores have failed to comply with certain provisions of their franchise agreements, and we cannot ensure that our stores will be able to comply with these provisions in the future.

Generally, state dealer laws restrict the ability of vehicle manufacturers to directly enter the retail market. Manufacturer lobbying efforts and lawsuits have led to the repeal or revision of these laws. For example, Tesla received a favorable ruling in certain states allowing direct to consumer sales and service. In addition, some states arehave consideringpassed, introducingor may consider introducing, legislation to permit direct to consumer auto sales in certain circumstances, allowing additional electric vehicle manufacturers such as Rivian to enter the market. OtherIn manufacturers,2025, suchScout Motors Inc. secured a dealer license in Colorado allowing it to sell vehicles directly to customers until October 2026, providing a temporary but official pathway to engage in direct-to consumer sales, which may serve as Scout have signaled a desirecatalyst tofor commencethe aexpansion of the direct-to-consumer sales model. If manufacturers obtain the ability to directly retail vehicles in our markets, our role in the auto retail market would change and we could experience a loss of revenue and profits and could experience other negative impacts that have a material adverse effect on our business, results of operations, financial condition, and cash flows.

In addition, other changes by manufacturers to their distribution models may impact our operations in the United Kingdom. Certain manufacturers, such as Honda, Volvo, Volkswagen, Mini, Mercedes-Benz and Smart, have already transitioned to an agency model in the United Kingdom, whereby the consumer places an order directly with the manufacturer and names a preferred delivery dealer. We have such an agency relationship with Mercedes-Benz with our U.K. dealers. Other manufacturers have announced their intentions to transition to an agency model in coming years, including, among others, BMW, Ford, Jeep, Peugeot, Citroen, Jaguar and Land Rover. Under an agency model, our dealerships receive a fee for facilitating the sale by the manufacturer of a new vehicle but do not hold such vehicle in inventory. The agency model will reduce reported revenues (as only the fee we receive, and not the price of the vehicle, will be reported as revenue), reduce SG&A expenses, and reduce floorplan interest expense, although the other impacts to our results of operations remain uncertain. If manufacturers continue to transition to an agency model in the United Kingdom or another new model is implemented in the United Kingdom or other countries and regions in which we operate, including in the United States and Canada, for the sale of electric or other vehicles, it could negatively affect our revenues, results of operations, and financial condition.

•reduced funds available for our operations and other purposes, as a larger portion of our cash flow from operations would be dedicated to the payment of principal and interest on our indebtedness; and

•exposure to the risk of increasing interest rates as certain borrowings are, and will continue to be, at variable rates of interest.interest; and

We may experience greater credit losses in DFC’s portfolio of finance receivablesreceivable portfolio than anticipated.anticipated, which will create losses for us.

Customers who finance a vehicle purchase or lease a vehicle through a DFC auto loan or lease may be unable to repay the loans based on the original terms and that the fair value of the vehicles used as collateral against the loans may not be sufficient to ensure full repayment. Credit and residual value losses are an inherent risk of our finance receivable portfolio and could result in a material adverse effect on our results of operations.

We estimate an allowance for credit losses based on a variety of assumptions about DFC’s portfolio of finance receivables. Although management prepares an estimate it believes appropriate based on available information, this allowance for credit losses may not be a sufficient reserve for loan and lease losses. For example, sudden economic changes such as an economic downturn or a change in consumer spending may result in additional losses incurred that we did not estimate in our original allowance for credit losses. Losses in excess of our allowance for credit losses could have a material adverse effect on our business and results of operations. In addition, finance companies are highly regulated by governmental authorities, as discussed in the risk factors under the heading, “Regulatory Risks.”

Our internal and third-party systems have been and may in the future be subject to cyber-attacks, viruses, malicious software, ransomware, break-ins, theft, computer hacking, phishing, exploitation of system vulnerabilities or misconfigurations, team member error, or malfeasance or other security breaches or loss of service. We invest in commercially reasonable security technology to protect our data and business processes against many of these risks. We also purchase insurance to mitigate the potential financial impact of many of these risks. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events. Any security breach or event resulting in the misappropriation, loss, or other unauthorized disclosure of confidential information, or degradation or loss of services provided by critical business systems, whether by us directly or our third-party service providers, or any other loss of access to such critical business systems, could adversely affect our business operations, sales, reputation with current and potential customers, associates or vendors, as well as other operational and financial impacts derived from investigations, litigation, imposition of penalties or other means. While we have policies and procedures in place for mitigating the impact of a cybersecurity event on our business, which adhere to widely recognized standards for managing cybersecurity risk, these policies and procedures may not ultimately be sufficient or otherwise as effective as intended to eliminate, or in some cases reduce or mitigate, the impact of a cybersecurity event on our business. For example, in June 2024, one of our third-party providers, Global CDK (CDK), suspended information systems used by us in response to a cybersecurity incident impacting CDK. While we activated our cyber incident response procedures as a result of the incident, we still experienced disruption to our business in North America, including to our CDK hostedCDK-hosted dealer management system, which temporarily resulted in declines in same store sales during that time. For more information regarding our cybersecurity policies and procedures, see Item 1C. CybersecurityCybersecurity.

Our dealerships and our new vehicle sales model may not be protected if U.S. or Canadian state or provincial dealer laws are repealed or weakened, a manufacturer becomes bankruptbankrupt, or there is a shift to other sales models.

State and provincial dealer laws generally provide that a manufacturer may not terminate or refuse to renew a franchise agreement unless it has first provided the dealer with written notice setting forth good cause and stating the grounds for termination or non-renewal. Certain U.S. state dealer laws allow dealers to file protests or petitions or attempt to comply with the manufacturer’s criteria within the notice period to avoid the termination or non-renewal. If dealer laws are repealed in the states wherein which we operate, manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or a showing of good cause. In Canada, although laws differ by province, provincial law generally provides that both a manufacturer and dealer each has a common law and statutory duty of good faith and fair dealing in performance and enforcement of any franchise agreement. Disputes are generally handled through the National Automobile Dealer Arbitration Program (NADAP). If a manufacturer wished to terminate a franchise, there is no guaranty that we would win such a dispute. Without the protection of state and provincial dealer laws, it may also be more difficult to renew our franchise agreements upon expiration or on terms acceptable to us.

Import product restrictions, currency valuations, tariffs, U.S. and foreign trade policies and risks may impair our ability to sell foreign vehicles or parts profitably.

A significant portion of the vehicles we sell are manufactured outside of the geographic regions in which we operate, and all of the vehicles we sell include parts manufactured outside of the geographic regions in which we operate. As a result, our operations are subject to customary risks of importing merchandise, including currency fluctuation, import duties,duties or tariffs, exchange rates, trade restrictions, work stoppages, transportation costs, natural or man-made disasters, and general political and socioeconomic conditions in other countries. The United States or the countries from which our products are imported, may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duties or tariffs, which may affect our operations and our ability to purchase imported vehicles and/or parts at reasonable prices. Changes in U.S. trade policies, including the U.S.-Mexico-Canada Agreement or policies intended to penalize foreign manufacturing or imports, and policies of foreign countries in reaction to those changes, could increase the prices we pay forfor, someor oflimit the supply of, the new vehicles and parts we sell. Any changes that increase the costs of vehicles and parts generally, to the extent passed on to customers, could negatively affect customer demand and our revenues and profitability. If not passed on to our customers, any cost increases will adversely affect our profitability. Any cost increase that disproportionately applies to manufacturers that sell to us could adversely affect our business compared to other vehicle retailers.

We are subject to federal, state, and local laws and regulations in the geographic regions in which we operate, such as those relating to franchising, motor vehicle sales, retail installment sales, leasing, F&I, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety.safety, as well as consumer financing as discussed above. In addition, with respect to employment practices, we are subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws. New laws and regulations are enacted on an ongoing basis. With the number of stores we operate, the number of personnel we employ and the large volume of transactions we handle, it is possible that technical mistakes will be made. These regulations affect our profitability and require ongoing training. Current practices in stores may become prohibited. We are responsible for ensuring that continued compliance with laws is maintained. If there are unauthorized activities, the jurisdictional authorities have the power to impose civil penalties and sanctions, suspend or withdraw dealer licenses or take other actions. These actions could materially impair our activities or our ability to acquire new stores in those states where violations occurred. Further, private causes of action on behalf of individuals or a class of individuals could result in significant damages or injunctive relief.

In the United Kingdom, the Financial Conduct Authority (FCA) regulates financial services firms and financial markets, including the practice of dealerships acting as the broker in arranging the financing for vehicle sales. The FCA is investigating the historic use of discretionary commission arrangements amid concerns that this practice may have been unfair to customers. We await the outcome of the FCA’s investigation which is expected sometime in 2025.2026. Any regulatory or judicial outcome that ultimately results in the refund of historical commissions paid to us or that reduces the commissions paid to us could materially and adversely affect us. Similarly, the U.S. Federal Trade Commission recently has attempted to prohibit certain automotive sales and marketing practices and establish significant new dealer disclosure and record-keeping requirements broadly applicable throughout the car-buying process. Depending on the results of ongoing litigation, regulatory review, and the final scope and implementation of the proposed rule, we may be subject to new administrative burdens that would likely increase our costs and could expose us to significant damages, other penalties, and/or adverse publicity.

We are a global automotive retailer ranked #140124 on the Fortune 500 in 2024.2025. As of February 24,25, 2025,2026, we offered 5254 brands of new vehicles and all brands of used vehicles in 460458 stores in the United States, the United Kingdom, and Canada and online at nearlyover 400 websites. We offer a wide range of products and services including new and used vehicles, F&I products, and vehicle repair and maintenance aftersales.

We experienced revenue growth of revenue inacross all major business lines in 20242025 compared to 2023, primarily2024, driven by increasessame instore volumegrowth related to acquisitions,and complemented by organicacquisitions. growthImprovements in newsame vehicles,store aftersales and aftersales.third-party Acquisitionfinance volumeand insurance gross profit contributed to growth of our total company gross profit,profit growth, partially offset by a decreasedecreases in new and used vehicle gross profit. On a same store basis, new and used vehicle retail gross profitsprofit experienceddeclined declinesdue primarilyto driven by decreases inlower gross profit per unit as margins continued to normalize totoward pre-pandemic levels. NetThe decline in net income decline was primarily driven by this margin normalization, increased interest expense, and increasedhigher SG&A as a percentage of gross profit.profit, and a higher effective income tax rate, partially offset by lower interest expense.

(1)Includes the sales and gross profit related to new, used retail, used wholesaleused, and F&I and unit sales for new and used retail

(1)Includes the sales and gross profit related to new, used retail, used wholesaleused, and F&I and unit sales for new and used retail

New vehicle revenue grewincreased 17.5%,2.1%, resulting from a 15.7% increase in unit sales due to acquisitions, complemented by a 1.6%an increase in average selling prices.prices of 2.5%, offset by a decrease in unit sales of 0.9%. Same store new vehicle revenue was primarily impacted by a 3.4% increase in unit sales, complemented by an increase in average selling prices of 2.0%.2.0%, offset by a decrease in unit sales of 1.2%.

New vehicle gross profit declineddecreased 11.7%, primarily9.0%, due to a 23.7% decrease in average gross profit per unit,unit partiallyof offset8.2% byand a 15.7% increasedecrease in unit sales drivenof by acquisitions.0.9%. On a same store basis, gross profit per new vehicle decreased 24.1%.8.5%, continuing to normalize to pre-pandemic levels.

Used vehicle grossrevenues profitsincreased decreased5.9%, 12.6%,resulting duefrom toan aincrease 16.4%in decreaseretail unit sales of 3.3% and an increase in average grossselling profitprice per unit,retail partiallyunit offsetof by a 4.5% increase in units sold.2.8%. On a same store basis, used vehicle grossrevenues profitincreased decreased5.8%, 23.0%,due ledto byan aincrease decreasein retail unit sales of 3.6% and an increase in average grossselling profitprice per retail unit of 18.6%.2.4%.

F&I revenue increased 6.0%,3.9%, primarily due to increased volumeunit sales related to acquisitions. On a same store basis, F&I revenue decreasedincreased 4.6%,3.1%, to $2,011$1,863 per unit. This decreaseincrease was driven by a decline in service contract penetration rates and lowerhigher finance reserve paid per unit from third-party lenders as a result of the higher interest rate environment.lenders.

F&I revenue increased 4.0%,6.0%, primarily due to increased volumeunit sales related to acquisitions. On a same store basis, F&I revenue decreased 3.6%,4.6%, to $2,152$2,017 per unit.

Our aftersalesAftersales revenue growthincreased was7.0%, primarily driven by increases in warranty and customer pay and warranty service work, primarily due to our strategic acquisition growth.work. On a same store basis, aftersales revenue increased 2.9%,6.3%, primarily driven by an increase in warranty revenue of 14.0%13.9% and customer pay of 1.8%. Performance in body shop saw a decrease of 2.8%. Same store aftersales gross profit increased 4.7%. Our gross margins continue to increase as our mix has shifted towards customer pay and warranty, which has higher margins than other service work.7.1%.

Aftersales revenue grewincreased 19.1%, experiencing growth in all areas, primarily due to acquisition growth. On a same store basis, aftersales revenue and gross profit increased 5.8%2.7% and 7.9%,4.5%, respectively.

See Note 19 – Segments of Notes to Consolidated Financial Statements for additional information on Financing Operations income and Note 5 – Finance Receivables of Notes to Consolidated Financial Statements for information on finance receivables, including credit quality.

(1)Excludes Canadian and U.K. portfolios (2)Units financed as a percentage of total U.S. new and used vehicle retail units sold.

(5)Past due is defined as loans that have been on the books greater than or equal to 3 months and are 30 or more days delinquent (6)The average recovery rate represents the average percentage of the outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at wholesale auctions.delinquent.

SG&A increased 14.0%,5.0%, or $460.4$189.5 million, primarily due to increased personnel and other costs resulting from our growth through acquisitions. Other expenses in 20242025 included acquisition expenses of $10.0$17.0 million and $6.1$6.7 million of storm related insurance charges. We also recognized a net gain on the disposal of stores of $8.2$20.3 million.

SG&A increased 8.2%,14.0%, or $250.7$460.4 million, primarily due to increased personnel costs and other costs which resulted from our growth through acquisitions. Other expenses in 20232024 included acquisition expenses of $27.2 million, one-time contract buyouts of $14.3$10.0 million, and $5.4$6.1 million of storm related insurance charges, offset by a $31.2 million net gain on the disposal of stores.stores of $8.2 million.

On a same store basis and excluding non-core charges, adjusted SG&A as a percentage of gross profit increased across all categories to 61.9%66.1% from 59.5%62.3% in the prior year. We also recognized a gain on the disposal of stores of $31.2 million.

Floor plan interest expense increaseddecreased $127.9$50.6 million, primarily due to higherlower interest rates and increasesdecreases in average vehicle inventory levels fromthroughout acquisitions.the year. Floor plan interest expense increaseddecreased 41.5%16.8% due to higherlower interest rates,rates 38.9%and 1.3% due to acquisition volume, and 4.4% due to increasesdecreases in inventory at existingour locations.stores.

Floor plan interest expense increased $112.1$127.9 million, primarily due to higher interest rates,rates and increases in vehicle inventory levels from acquisitions as well as at existing locations recovering from prior year inventory shortages.locations.

Acquisition activity contributed to the increases in depreciation and amortization in 2025 compared to 2024 and in 2024 compared to 2023 and in 2023 compared to 2022.2023. We acquired approximately $409.5$121.8 million and $260.5$409.5 million of depreciable property as part of our 20242025 and 20232024 acquisitions, respectively. Capital expenditures totaled $351.4$350.9 million and $230.2$351.4 million, respectively, in 20242025 and 2023.2024. These investments increaseincreased the amount of depreciable assets. See the discussion under “Liquidity and Capital Resources” for additional information.

The increase in other interest expense was due to higherthe interestissuance ratesof and$600 increasedmillion borrowingsin aggregate principal amount of 5.500% senior notes due 2030 issued in September 2025, as well as new mortgages on ourowned creditreal facilities.estate. See also Note 10 – Credit Facilities and Long-Term Debt of Notes to Consolidated Financial Statements for additional information.

Other Income (Expense),Income, Net

Other income (expense),income, net primarily includes other income associated with investment income and other non-recurring transactions.

Other income (expense),income, net increaseddecreased $17.3$21.9 million in 20242025 compared to 2023,2024, primarily as a result of increasesa decrease in equity method investment income and insurance proceeds,income, partially offset by foreign currency translation losses and reduced interest income from foreign currency deposit accounts.gains.

Other income (expense),income, net increased $65.2$17.3 million in 20232024 compared to 2022,2023, primarily as a result of aan reductionincrease in equity method investment losses,income, offset by foreign currency translation gains, and interest income from foreign currency deposit accounts.losses.

Our effective income tax rate was 23.8%25.5% for 20242025 compared to 25.7%23.8% for 2023.2024. Our effective income tax rate was positivelynegatively affected by ana increasedecrease in general business credits and tax basis differences on divested assets, offset by a reduction in valuation allowance.

Adjusting for non-deductible acquisition costscosts, tax basis differences on divested assets, and the benefit of transferable federal tax credits during 2024,2025, our effective income tax rate excluding non-core items iswas 24.7%,25.1%, aan decreaseincrease of 6050 basis points compared to the effective income tax rate excluding non-core items for 2023.2024.

Our effective income tax rate in 20232024 was positively affected by aan reductionincrease in thegeneral currentbusiness and deferred state tax rate, due to changing state mix,credits and a reduction in valuation allowance. The decrease in tax rate was offset by non-deductible acquisition costs recorded during the period.

WeCanada analyzedand the taxU.K. impacthave ofenacted legislation implementing the OECD’s Pillar Two regimeglobal basedminimum tax framework, effective beginning January 1, 2024. Based on availablethe guidanceCompany’s andanalysis determinedof Pillar Two provisions, these rulestax dolaw changes did not have a material impacteffect on our overall effective tax rate.

We manage our liquidity and capital resources in the context of our overall business strategy, continually forecasting and managing our cash, working capital balances, and capital structure to meet the short-term and long-term obligations of our business while maintaining liquidity and financial flexibility. Our free cash flow deployment strategy targets an allocation of 35%25% to 45%35% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification, and 30%40% to 40%50% in shareholder return in the form of dividends and share repurchases.repurchases based on current valuation trends in acquisitions relative to stock price performance.

Cash provided by operating activities increaseddecreased $897.5$68.4 million in 20242025 compared to 2023,2024, primarily as a result of maturation of our financing receivables portfolio and a decrease in inventory levels at our seasoned stores, partially offset by net changes in floor plan notes payablepayable, finance receivables, and reducedother netassets, income.partially offset by changes in inventories, trade receivables, and other long-term liabilities and deferred revenue.

Lithia and Driveway (NYSE: LAD) is the largest global automotive retailer providing an array of products and services throughout the vehicle ownership lifecycle. Simple, convenient and transparent experiences are offered through our comprehensive network of physical locations, e-commerce platforms, captive finance solutions, fleet management offerings, and other synergistic adjacencies. We have delivered consistent profitable growth in a massive and unconsolidated industry. Our highly diversified and competitively differentiated design provides us the flexibility and scale to pursue our vision to modernize personal transportation solutions wherever, whenever and however consumers desire. As of MarchJune 31,30, 2026, we operated 465467 locations representing 5759 brands in the United States, the United Kingdom, and Canada.

We manage our liquidity and available cash to support our long-term plan focused on growth through acquisitions and investments in our existing business, technology and adjacencies that expand and diversify our business model. In the current market of elevated acquisition pricing, we have adjusted our free cash flow deployment strategy. Under current conditions, including recent trends in our stock price, we may consider repurchases as a more attractive use of funds than acquisitions. Our current free cash flow deployment strategy includes a target allocation of 25% to 35% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification and 40% to 50% in shareholder return in the form of dividends and share repurchases based on current valuation trends in acquisitions relative to stock price performance. During the first threesix months of 2026, we utilized $97.1$153.4 million for capital expenditures investing in our existing business and $145.3$221.7 million expanding our network through acquisitions. We also provided shareholder return in the form of $12.8$25.7 million in dividends and $297.0$534.0 million in share repurchases. As of MarchJune 31,30, 2026, we had available liquidity of approximately $1.4$1.3 billion, which was comprised of $160.8$110.3 million in unrestricted cash, $55.9$67.0 million in marketable securities, and $1.2$1.1 billion availability on our credit facilities.

Same store measures reflect results for stores that were operating in each comparison period and only include the months when operations occurred in both periods. For example, a store acquired in FebruaryMay 2025 would be included in same store operating data beginning in MarchJune 2026, after its first complete comparable month of operation. The firstsecond quarter operating results for the same store comparisons would include results for that store in only the month of MarchJune for both comparable periods.

New vehicle revenue for the three months ended MarchJune 31,30, 2026 decreasedincreased 4.4%2.7% compared to the same period of 2025, primarily due to same store performance, offsetdriven by acquisition activity. Same store new vehicle revenue decreased 7.1%1.5% due to a decrease in unit volume of 7.1%2.2%, andpartially aoffset decreaseby an increase in average selling prices of 1.0%.0.1%.

Used vehicle retail revenue for the three months ended MarchJune 31,30, 2026 increased 7.3%1.4% compared to the same period of 2025 driven by same store performance and supported by acquisition activity. On a same store basis, used vehicle retail salesrevenue increaseddecreased 4.6%2.2% due to a decrease in unit volume of 6.1%, partially offset by an increase in average selling prices of 4.2% and an increase in unit volume of 0.6%. Total same store used vehicle retail gross profit per unit, which includes the finance and insurance revenue generated from the sales of used retail vehicles, decreased $134 to $3,279.4.2%.

Total finance and insurance income decreased 1.3%2.0% in the three months ended MarchJune 31,30, 2026 compared to the same period of 2025, driven by same store performance, offset by acquisition activity. Same store finance and insurance revenues decreased 3.7%.5.2%. On a same store basis, our finance and insurance revenue per retail unit increaseddecreased $1$3 to $1,813.$1,811.

Our aftersales revenue increased 6.1%3.9% in the three months ended MarchJune 31,30, 2026 compared to the same period of 2025, driven by same store performance and supported by acquisition activity. Same store aftersales revenue increased 3.8%, driven by an increase in customer pay revenues of 4.8% and an increase in warranty revenues of 4.0% compared to the prior year.

Same store aftersales gross profit increased 5.7%.3.1%. This increase was primarily due to increased volumevolumes of customer pay and warranty transactions. Overall same store aftersales gross margins increased 100120 bps, primarily as a result of increased customer pay marginsgross margin of 120110 bps and increased warranty gross marginsmargin of 50150 bps.

Financing operations recorded higher income in the three months ended MarchJune 31,30, 2026 compared to the same period of 2025, primarily due to the increased interest income resulting from the growth of the portfolio and a decreased cost of funds, resultingwhich incollectively an expansion ofexpanded total interest margin to 4.8%.

Loan originations increased in the three months ended June 30, 2026 compared to the same period of 2025, and our penetration rate increased due to increased engagement with our stores. The weighted average contract rate onof loans originated in the three months ended MarchJune 31,30, 2026 decreased to 7.9%,8.0%, compared with 9.1%8.7% in the same period of 20252025, asprimarily we decreased ratesdue to maintainour competitivenessmaintaining competitive pricing following Federal Reserve rate cuts. The decrease in provisionannualized expensenet charge-offs of past due accounts as a percentage of ending managed receivables compared to the prior year reflected lower net charge-offs, attributable toreflects the increased credit quality of the portfolio and improved servicing, as well as aimproved decrease in the percentageexecution of endingour managedcollateral receivablesmanagement constituted by the allowance for loan losses. Other financing operations expenses as a percentage of average managed receivables was flat with the same period of 2025 despite significant portfolio growth, reflecting improved operational performance and economies of scale.team.

SG&A as a percentage of gross profit was 73.0%67.8% for the three months ended MarchJune 31,30, 2026 compared to 67.5%68.3% for the same period of 2025,2025. drivenSG&A byexpense remained flat, including increases in alladvertising, expenserent, categoriesand outpacingfacility thecosts increasedue to acquisitions, and offsetting decreases in grosspersonnel profit.and other SG&A costs.

On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was 71.8%68.6% compared to 67.4%67.2% for the same period of 2025. The increase was primarily related to SG&A growth outpacing gross profit growth in the period.

Adjusted SG&A for the three months ended MarchJune 31,30, 2026 excludes $20.3a $15.1 million net gain on store disposals, $2.3 million in one-timestorm contractinsurance buyoutscharges, and $0.3$0.4 million in acquisition-related expenses.

Adjusted SG&A for the three months ended MarchJune 31,30, 2025 excludes $0.2a $7.2 million innet acquisition-relatedloss expenses,on $0.4store disposals, $2.4 million in storm insurance charges, and a $9.4$0.1 million netin gainacquisition-related on store disposals.expenses.

Floor plan interest expense decreasedincreased $1.2$14.7 million in the three months ended MarchJune 31,30, 2026 compared to the same period of 2025 due to a decrease in interest rates, offset by an increase in floored inventory levels.levels, as a result of our converting used inventory‑secured revolvers to floorplan facilities during the year.

Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or improvements, furniture, tools, equipment, signage, and amortization of certain intangible assets, including customer lists.assets.

Acquisition activity contributed to the increaseincreases in depreciation and amortization in 2026 compared to 2025. We acquired $147.0$158.3 million of depreciable property as part of our acquisition activity over the trailing twelve months ended MarchJune 31,30, 2026. For the threesix months ended MarchJune 31,30, 2026, we invested $97.1$153.4 million in capital expenditures. These investments increased the amount of depreciation expense in the three months ended March 31, 2026. See the discussion under Liquidity and Capital Resources for additional information.

Operating margin decreasedincreased 8020 bps in the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, primarily due to increaseddecreased SG&A ofas 8.9%,a partially offset by increased gross profitpercentage of 0.8%revenue and improved profitability of our Financing Operations.Operations, partially offset by a decrease in gross margin.

Other interest expense for the three months ended MarchJune 31,30, 2026 increaseddecreased $4.8$4.0 million related to increaseddecreased borrowings on ourused warehouseinventory‑secured facilitiesrevolvers compared to the same period of 2025, andpartially offset by an increase from our September 2025 issuance of senior notes due 2030.

Other Income (Expense) Income,, net

Other (expense) income, net in the three months ended MarchJune 31,30, 2026 decreased $68.4$12.3 million compared to the same period of 2025, primarily as a result of foreign currency remeasurements and fair market value changes in our investment in Pinewood Technologies Group PLC.

Our effective income tax rate for the threesix months ended MarchJune 31,30, 2026 compared to last year was negatively affected by the geographic mix of earnings during the period and a decrease in general business credits.credits, offset by tax basis differences on divested assets in 2025. Excluding non-core charges and acquired general business credits, we estimate our annual effective income tax rate to be 27.1%.

(1) Investment losses (gains) retrospectively included in adjusted non-GAAP financial measures presentedpresented.

Cash providedused byin operating activities for the threesix months ended MarchJune 31,30, 2026 decreased $430.5$505.5 million compared to the same period of 2025, primarily related to changes in inventories, net income, and floorfinance plan notes payable,receivables, partially offset by changes in trade payables, unrealized investment loss, and tradeother receivablesassets compared to the same period of 2025.

(1) Includes the impact of converting inventory‑secured revolvers to floorplan facilities during the quarter,2026, increasing net floorplan borrowings and adjusted operating cash flows by $1,138.3 million.

Net cash used in investing activities totaled $240.5$351.8 million and $117.1$315.5 million, respectively, for the threesix months ended MarchJune 31,30, 2026 and 2025.

Capital expenditures for the threesix months ended MarchJune 31,30, 2026, compared to the same period of 2025 were lowerhigher for existing facility purchases, maintenance, newexisting operations purchases and improvements,improvements and information technology, and higherlower infor existingnew operations purchases and improvements.

Our Board has approved share repurchase authorizations totaling up to $3.2$3.7 billion of our common stock. We repurchased a total of 1,057,2071,910,777 shares of our common stock at an average price of $280.91$282.28 in the first threesix months of 2026, consisting of 115,228115,286 related to tax withholding on vesting RSUs, and 941,9791,795,491 related to our repurchase authorizations. As of MarchJune 31,30, 2026, we had $362.9$620.5 million remaining available for repurchases and the authorizations do not have expiration dates.

In the first threesix months of 2026, we declared and paid dividends on our common stock as follows:

(1)As of MarchJune 31,30, 2026, we had a $2.7 billion new vehicle floor plan commitment as part of our US Bank syndicated credit facility, and a $375 million CAD wholesale floorplan commitment as part of our Bank of Nova Scotia syndicated credit facility.

(3)Available credit is based on the borrowing base amount effective as of FebruaryMay 28,31, 2026. This amount is reduced by $6.3$6.2 million for outstanding letters of credit.