Lithia Motors LAD Form 10-Q filing Q2 FY2026

Item Number Item Page

GLOSSARY 1

PART I FINANCIAL INFORMATION

Item 1. Financial Statements 2

Consolidated Balance Sheets (Unaudited) - June 30, 2026, and December 31, 2025 2

Consolidated Statements of Operations (Unaudited) - Three and Six Months Ended June 30, 2026 and 2025 3

Consolidated Statements of Comprehensive Income (Unaudited) – Three and Six Months Ended June 30, 2026 and 2025 4

Consolidated Statements of Equity (Unaudited) - Three and Six Months Ended June 30, 2026 and 2025 5

Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2026 and 2025 6

Condensed Notes to Consolidated Financial Statements (Unaudited) 8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results#ic069d254a33c4da9b8984885717cb3d1_94 of Operations 22

Item 3. Quantitative and Qualitative Disclosures About Market Risk 42

Item 4. Controls and Procedures 42

PART II OTHER INFORMATION

Item 1. Financial Statements

See accompanying condensed notes to consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS 3

See accompanying condensed notes to consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS 4

See accompanying condensed notes to consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS 5

See accompanying condensed notes to consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS 6

See accompanying condensed notes to consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS 7

See accompanying condensed notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. INTERIM FINANCIAL STATEMENTS

Basis of Presentation

These Consolidated Financial Statements contain unaudited information as of June 30, 2026, and for the three and

six months ended June 30, 2026 and 2025. The unaudited interim financial statements have been prepared

pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by

accounting principles generally accepted in the United States of America for annual financial statements are not

included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which

include only normal recurring adjustments) necessary for a fair presentation of the information when read in

conjunction with our 2025 audited Consolidated Financial Statements and the related notes thereto. The financial

information as of December 31, 2025, is derived from our Annual Report on Form 10-K filed with the SEC on

February 25, 2026. The results of operations for the interim periods presented are not necessarily indicative of the

results to be expected for the full year.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying Consolidated

Financial Statements to maintain consistency and comparability between periods presented. Within our

Consolidated Statements of Operations, we combined used wholesale revenue with used retail revenue and now

present these revenues collectively as used vehicle revenue. In addition, we combined fleet revenue with new retail

revenue and now present these revenues collectively as new vehicle revenue.

These changes were made to better reflect how management evaluates our revenue performance and to improve

comparability with industry practice. The reclassifications had no impact on total revenue, gross profit, operating

income, net income, or cash flows for any period presented.

NOTE 2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

The long-term portion of other receivables was included as a component of Other non-current assets in the

Consolidated Balance Sheets.

NOTE 3. INVENTORIES AND FLOOR PLAN NOTES PAYABLE

The components of inventories, net, consisted of the following:

Vehicle inventory costs are generally reduced by manufacturer holdbacks and incentives, while the related floor plan

notes payable are reflective of the gross cost of the vehicle.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9

NOTE 4. FINANCE RECEIVABLES

Interest income on finance receivables is recognized based on the contractual terms of each receivable and is

accrued until repayment, reaching non-accrual status, charge-off, or repossession. Direct costs associated with

originations are capitalized and expensed as an offset to interest income when recognized on the receivables.

The balances of finance receivables are made up of loans and finance leases secured by the related vehicles. More

than 99% of the portfolio is aged less than 60 days past due with less than 1% on non-accrual status.

Finance Receivables, net

Finance Receivables by FICO Score

1Includes legacy portfolio, loans that are originated with no FICO score available, lease receivables, and deferred origination

fees.

In accordance with FASB ASC Topic 326, the allowance for credit losses on finance receivables is estimated based

on our historical write-off experience, current conditions and forecasts, as well as the value of any underlying assets

securing these receivables. Consideration is given to recent delinquency trends and recovery rates. Account

balances are charged against the allowance upon reaching 120 days past due status.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10

Rollforward of Allowance for Credit Losses on Finance Receivables

Our allowance for credit losses on finance receivables represents the net credit losses expected over the remaining

contractual life of our managed receivables. The allowance for credit losses on finance receivables consisted of the

following changes during the period:

Charge-off Activity by Year of Origination

1Includes legacy portfolio, loans that are originated with no FICO score available, and finance lease receivables.

NOTE 5. GOODWILL AND FRANCHISE VALUE

The changes in the carrying amounts of goodwill are as follows:

1Our purchase price allocations (PPA) for the 2024 acquisitions were finalized in 2025. As a result, we added $348.2 million

of goodwill. Preliminary PPA for a portion of our 2025 acquisitions resulted in adding $34.9 million of goodwill. Our PPA for

the remaining 2025 acquisitions are preliminary and goodwill is not yet allocated to our segments. These amounts are

included in other non-current assets until we finalize our purchase accounting. See Note 12 – Acquisitions.

2Our PPA for a portion of the 2025 acquisitions were finalized in 2026. As a result, we added $71.1 million of goodwill. Our

PPA for the remainder of the 2025 acquisitions and 2026 acquisitions are preliminary and goodwill is not yet allocated to our

segments. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note 12 –

Acquisitions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11

The changes in the carrying amounts of franchise value are as follows:

1Our PPA for the 2024 acquisitions were finalized in 2025. As a result, we added $218.0 million of franchise value.

Preliminary PPA for a portion of our 2025 acquisitions resulted in adding $13.1 million of franchise value. These amounts

are included in other non-current assets until we finalize our purchase accounting. See Note 12 – Acquisitions.

2In our annual impairment testing in 2025, we determined the franchise value of one underperforming store was not

recoverable, resulting in an impairment of $5.8 million being recorded in the Consolidated Statements of Operations as

Asset impairments. Balance as of June 30, 2026 and December 31, 2025 is net of accumulated impairments of this amount

only.

3Our PPA for a portion of the 2025 acquisitions were finalized in 2026. As a result, we added $35.2 million of franchise value.

Our PPA for the remainder of the 2025 acquisitions and 2026 acquisitions are preliminary and franchise value is not yet

allocated. These amounts are included in other non-current assets until we finalize our purchase accounting. See Note 12 –

Acquisitions.

NOTE 6. INVESTMENTS

Marketable Securities

As of June 30, 2026 and December 31, 2025, marketable equity securities recorded within other current assets in

the Consolidated Balance Sheets were $8.8 million and $2.4 million, respectively. Net unrealized gains recognized

during the six months ended June 30, 2026 and 2025 on marketable equity securities held at the reporting date

were $0.3 million and $0.3 million, respectively.

Marketable debt securities accounted for as available-for-sale (AFS), and recorded within Other current assets in

the Consolidated Balance Sheets, were as follows:

1Represents total unrealized gains (losses) for securities with net gains (losses) in Accumulated other comprehensive

income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12

Proceeds from the maturity of AFS debt securities were $5.2 million and $6.2 million for the six months ended

June 30, 2026 and 2025. There were no gross realized gains or losses on the maturity of AFS debt securities for the

three and six months ended June 30, 2026 and 2025.

Equity Method Investments

Our common stock voting interests in Pinewood Technologies, PLC (PINE.L), a U.K.-based automotive dealership

management system provider, increased from 25.50% to 31.95% in July 2025. The investment is accounted for as

an equity method investment. The investment is measured at fair value based on quoted market prices, and all fair

market value changes in the investment are recorded as unrealized gains or losses as a component of Other

income (expense), net in the Consolidated Statements of Operations. The fair value of our investment was $129.5

million and $177.2 million as of June 30, 2026 and December 31, 2025, respectively. See Note 11 – Fair Value

Measurements.

Our investment in Wheels, Inc., an automotive fleet management provider, through Lithia Marubeni Mobility

Holdings (LMMH) consists of 26.5% of the common stock voting interests accounted for as an equity method

investment. The investment is measured at cost plus or minus our share of equity method investee income or loss

as a component of Other non-current assets in the Consolidated Balance Sheets. The book value of our investment

was $217.0 million and $222.0 million as of June 30, 2026 and December 31, 2025, respectively. We received a

dividend of $9.8 million during the six months ended June 30, 2026. Using the cumulative earnings approach, this

dividend is classified within Operating Activities in the Consolidated Statements of Cash Flows, as it is less than our

cumulative equity in the investee's earnings.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Contract Liabilities

We retain the obligation for various contracts sold to our customers and assumed in acquisitions. These amounts

are recorded as a contract liability. At the time of sale, we defer the full sale price and recognize the revenue based

on the rate at which we expect to incur further costs.

The amount of revenue recognized related to aftersales contract liabilities is calculated, net of cancellations, using

an input method, which most closely depicts performance of the contracts. Our contract liability balances associated

with aftersales were $532.7 million and $501.5 million as of June 30, 2026, and December 31, 2025, respectively;

we recognized $33.5 million and $68.3 million of revenue in the three and six months ended June 30, 2026, related

to our opening contract liability balances associated with aftersales.

The amount of revenue recognized related to operating lease vehicle contract liabilities is recognized evenly over

the life of the related lease contracts. Our contract liability balances associated with operating lease vehicles were

$144.7 million and $136.4 million as of June 30, 2026, and December 31, 2025, respectively; we recognized $14.5

million and $32.2 million of revenue in the three and six months ended June 30, 2026, related to our opening

contract liability balances associated with operating lease vehicles.

Our contract liability balances are included in Accrued liabilities and Deferred revenue.

Litigation

We are party to numerous legal proceedings arising in the normal course of our business. Although we do not

anticipate that the resolution of legal proceedings arising in the normal course of business will have a material

adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with

certainty.

NOTE 8. DEBT

Credit Facilities

US Bank Syndicated Credit Facility

On February 27, 2026, we amended our existing syndicated credit facility with US Bank as agent (USB credit

facility), now comprised of 18 financial institutions, including six manufacturer-affiliated finance companies, maturing

February 27, 2031. The amendment extended the maturity date, converted the existing used vehicle floorplan and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13

service loaner floorplan facilities to VIN-specific facilities, eliminated the credit spread adjustment of 0.10%, and

reduced the margin on used vehicle floor plan financing from 1.40% to 1.20%.

This USB credit facility provides for a total financing commitment of $6.5 billion, which may be further expanded,

subject to lender approval and the satisfaction of other conditions, up to a total of $7.0 billion. The allocation of the

financing commitment is for up to $2.7 billion in new vehicle inventory floorplan financing, up to $1.3 billion in used

vehicle inventory floorplan financing, up to $150 million in service loaner vehicle floorplan financing, and up to

$2.4 billion in revolving financing for general corporate purposes, including acquisitions and working capital. We

have the option to reallocate the commitments under this USB credit facility, provided that the aggregate revolving

loan commitment may not be more than 50% of the amount of the aggregate commitment. All borrowings from, and

repayments to, our lending group are presented in the Consolidated Statements of Cash Flows as part of Net cash

provided by (used in) financing activities.

Our obligations under our USB credit facility are secured by a substantial amount of our assets, including our

inventory (including new and used vehicles, parts and accessories), equipment, accounts receivable (and other

rights to payment), real property, and our equity interests in certain of our subsidiaries.

The interest rate on the USB credit facility varies based on the type of debt, with the rate of Daily Simple SOFR plus

a margin of 1.10% for new vehicle floor plan financing, 1.20% for used vehicle floor plan financing, 1.20% for

service loaner floor plan financing, and a variable interest rate on the revolving financing ranging from 1.00% to

2.00% depending on our leverage ratio. The annual interest rates associated with our commitments are as follows:

Bank of Nova Scotia Syndicated Credit Facility

On February 27, 2026, we amended our syndicated credit agreement with The Bank of Nova Scotia as agent (BNS

credit facility), which is comprised of six financing institutions, including two manufacturer-affiliated finance

companies. The amendment extended the maturity date, converted the existing used vehicle floorplan facility to a

VIN-specific facility, and reduced the margin on used vehicle floor plan financing from 1.25% to 1.10%.

The BNS credit facility provides for a total financing commitment of approximately $1.1 billion CAD, including a

working capital revolving credit facility of up to $125 million CAD, a wholesale flooring facility for new vehicles up to

$375 million CAD, used vehicle flooring facility of up to $100 million CAD, wholesale leasing facility of up to $500

million CAD, and daily rental vehicle facility up to $25 million CAD.

The interest rate on the BNS credit facility varies based on the type of debt, using either the Term or Daily

Compounded rate of the Canadian Overnight Repo Rate Average (CORRA) plus a credit spread adjustment of

0.30% plus a margin of 1.25%-2.25%. The annual interest rates associated with our commitments are as follows:

All BNS facilities other than the wholesale and used flooring facilities, which are demand facilities, mature on

March 18, 2029. The credit agreement includes various financial and other covenants typical of such agreements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14

Non-Recourse Notes Payable

In 2026, we issued $1,057.7 million in non-recourse notes payable related to asset-backed term funding

transactions.

Below is a summary of outstanding non-recourse notes payable issued:

NOTE 9. RETIREMENT PLANS AND POSTRETIREMENT BENEFITS

Company-Sponsored Defined Benefit Pension Plan

We maintain two company-sponsored defined benefit plans applicable to a portion of salaried past and present

team members, which are closed to future accrual.

Net Periodic (Benefit) Cost

Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the

passage of time. The expected return on plan assets reflects the computed amount of current-year earnings from

the investment of plan assets using an estimated long-term rate of return.

During the six months ended June 30, 2026, funding of pension plans was $4.0 million. For the remainder of 2026,

we estimate approximately $4.2 million of cash contributions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15

NOTE 10. EQUITY

Repurchases of Common Stock

Repurchases of our common stock occurred under a repurchase authorization granted by our Board and related to

shares withheld as part of the vesting of RSUs.

In May 2026, our Board approved an additional $500 million repurchase authorization of our common stock. This

authorization, when added to the amounts previously authorized by the Board for repurchase, brings the total

authorizations up to $3.7 billion. Share repurchases under our authorizations were as follows:

1Price excludes excise taxes imposed under the Inflation Reduction Act of $4.8 million for the six months ended June 30,

As of June 30, 2026, we had $620.5 million available for repurchases pursuant to our share repurchase

authorizations from our Board in 2026 and prior years.

In addition, during 2026, we repurchased 115,286 shares at an average price of $332.28 per share, for a total of

$38.3 million, related to tax withholding associated with the vesting of RSUs. The repurchase of shares related to

tax withholding associated with stock awards does not reduce the number of shares available for repurchase as

approved by our Board.

NOTE 11. FAIR VALUE MEASUREMENTS

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad

categories:

• Level 1 - quoted prices in active markets for identical securities;
• Level 2 - other significant observable inputs, including quoted prices for similar securities, interest rates,

prepayment spreads, credit risk; and

• Level 3 - significant unobservable inputs, including our own assumptions in determining fair value.

We determined the carrying value of cash, restricted cash, cash equivalents, accounts receivable, trade payables,

accrued liabilities, finance receivables, and short-term borrowings approximate their fair values because of the

nature of their terms and current market rates of these instruments. We believe the carrying value of our variable

rate debt approximates fair value.

We have money market securities, which include restricted cash from collections on finance receivables, recorded

as a component of Cash, restricted cash, and cash equivalents in our Consolidated Balance Sheets, as well as

restricted cash on deposit in reserve accounts, recorded as a component of Other non-current assets in our

Consolidated Balance Sheets. These money market securities consist of highly liquid investments with original

maturities of three months or less and are classified as Level 1.

We have investments consisting of equity securities, available for sale debt securities, and equity method

investments with a fair value election. We calculated the estimated fair value of the equity securities, equity method

investments, and U.S. Treasury debt securities using quoted market prices (Level 1). The fair value of corporate and

municipal debt securities are measured using observable Level 2 market expectations at each measurement date.

See Note 6 – Investments.

We have fixed rate debt primarily consisting of amounts outstanding under our senior notes, non-recourse notes

payable, and real estate mortgages. We calculated the estimated fair value of the senior notes using quoted prices

for the identical liability (Level 1). The fair value of non-recourse notes payable are measured using observable

Level 2 market expectations at each measurement date. The calculated estimated fair values of the fixed rate real

estate mortgages and finance lease liabilities use a discounted cash flow methodology with estimated current

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16

interest rates based on a similar risk profile and duration (Level 2). The fixed cash flows are discounted and

summed to compute the fair value of the debt.

We have derivative instruments consisting of an offsetting set of interest rate caps. The fair value of derivative

assets and liabilities are measured using observable Level 2 market expectations at each measurement date and is

recorded as other current assets, current liabilities and other long-term liabilities in the Consolidated Balance

Sheets.

Nonfinancial assets such as goodwill, franchise value, or other long-lived assets are measured and recorded at fair

value during a business combination or when there is an indicator of impairment. We evaluate our goodwill and

franchise value using a qualitative assessment process. If the qualitative factors determine that it is more likely than

not that the carrying value exceeds the fair value, we would further evaluate for potential impairment using a

quantitative assessment. The quantitative assessment estimates fair values using unobservable (Level 3) inputs by

discounting expected future cash flows of the store for franchise value, or reporting unit for goodwill. The forecasted

cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates,

margins, working capital requirements, and cost of capital, for which we utilize certain market participant-based

assumptions we believe to be reasonable. We estimate the value of other long-lived assets that are recorded at fair

value on a non-recurring basis on a market valuation approach. We use prices and other relevant information

generated primarily by recent market transactions involving similar or comparable assets, as well as our historical

experience in divestitures, acquisitions and real estate transactions. Additionally, we may use a cost valuation

approach to value long-lived assets when a market valuation approach is unavailable. Under this approach, we

determine the cost to replace the service capacity of an asset, adjusted for physical and economic obsolescence.

When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and

brokers, to corroborate our estimates of fair value. Real estate appraisers’ and brokers’ valuations are typically

developed using one or more valuation techniques including market, income and replacement cost approaches.

Because these valuations contain unobservable inputs, we classified the measurement of fair value of long-lived

assets as Level 3.

There were no changes to our valuation techniques during the six-month period ended June 30, 2026.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17

Below are our assets and liabilities that are measured at fair value:

1Excluding unamortized debt issuance costs

NOTE 12. ACQUISITIONS

In the first six months of 2026, we completed the following acquisitions:

• In February 2026, Mercedes-Benz of Medford in Oregon.
• In March 2026, Toyota of Gallatin in Tennessee.
• In March 2026, Read Motor Group in the United Kingdom.
• In April 2026, Agility Fleet in the United Kingdom.
• In May 2026, Kia of North Tucson in Arizona.
• In May 2026, Preston, Chester & Derby Group 1 Jaguar Land Rover in the United Kingdom.

The acquisitions were accounted for as business combinations under the acquisition method of accounting. The

results of operations of the acquired stores are included in our Consolidated Financial Statements from the date of

acquisition.

Revenue and operating income contributed by the 2026 acquisitions subsequent to the date of acquisition were as

follows (in millions):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18

The following tables summarize the consideration paid for the 2026 acquisitions and the PPA for identified assets

acquired and liabilities assumed as of the acquisition date:

(In millions) Consideration

Cash paid, net of cash acquired $221.7

Total consideration transferred $221.7

The PPA for the 2026 acquisitions is preliminary, as we have not obtained and evaluated all of the detailed

information necessary to finalize the opening balance sheet amounts in all respects. We recorded the PPA based

upon information that is currently available and recorded unallocated items as a component of Other non-current

assets in the Consolidated Balance Sheets.

We expect all of the goodwill related to U.S. acquisitions in 2026 to be deductible for U.S. federal income tax

purposes.

In the three and six-month period ended June 30, 2026, we recorded $0.4 million and $0.7 million in acquisition-

related expenses as a component of SG&A expense. Comparatively, we recorded $0.1 million and $0.3 million of

acquisition-related expenses in the same period of 2025.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three and

six-month periods ended June 30, 2026 and 2025 had occurred on January 1, 2025:

We calculated these amounts by applying our accounting policies and estimates. The results of the acquired stores

have been adjusted to reflect the following: depreciation on a straight-line basis over the expected lives for property

and equipment, accounting for inventory on a specific identification method, and recognition of interest expense for

real estate financing related to stores where we purchased the facility. No nonrecurring proforma adjustments

directly attributable to the acquisitions are included in the reported proforma revenues and earnings.

NOTE 13. EARNINGS PER SHARE

We calculate basic EPS by dividing net income attributable to Lithia Motors, Inc. by the weighted average number of

common shares outstanding for the period, including vested RSU awards. We calculate diluted EPS by dividing net

income attributable to Lithia Motors, Inc. by the weighted average number of shares outstanding, adjusted for the

dilutive effect of unvested RSU awards and employee stock purchases.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19

The following is a reconciliation of net income attributable to Lithia Motors, Inc. and weighted average shares used

for our basic EPS and diluted EPS:

We evaluated the effect of antidilutive securities on common stock for the three and six-month periods ended

June 30, 2026 and 2025 and determined the effect to be immaterial.

NOTE 14. SEGMENTS

We operate in two reportable segments: Vehicle Operations and Financing Operations. Our Vehicle Operations

consists of all aspects of our auto merchandising and aftersales operations, excluding financing provided by our

Financing Operations. Our Financing Operations provides financing to customers buying and leasing retail vehicles

from our Vehicle Operations, as well as leasing vehicles from our fleet management services provider.

All other remaining unallocated corporate overhead expenses and internal charges are reported under Corporate

and Other. We do not utilize asset information by segment for purposes of assessing performance or allocating

resources and, as a result, we do not present such information.

The reportable segments identified above represent our business activities for which discrete financial information is

available and for which operating results are regularly provided and reviewed by our CODM to allocate resources

and assess performance. Our CODM is our Chief Executive Officer. The CODM assesses segment performance

using segment income, which is measured as net segment profit before taxes on a U.S. GAAP basis.

We do not regularly provide total asset information by segment to our CODM or utilize the information for purposes

of assessing performance or allocating resources and, as a result, we do not present such information. Certain

financing operations asset information including total managed receivables are used by the financing operations

segment manager to manage operations and are included in various reports regularly provided to our CODM. See

Note 4 – Finance Receivables.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20

Certain financial information on a segment basis is as follows:

(1) Other vehicle operations expenses includes management fees, data processing fees, outside services fees, insurance

expense, office and other supplies expense, banking expense, and certain overhead expenses.

(2) Other financing operations expenses includes personnel expense, data processing fees, outside services fees, expenses

attributable to underwriting, funding, and loan servicing, and certain overhead expenses.

(3) Corporate and other includes management fee income.

The following table presents revenue by geographic area:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21

NOTE 15. RECENT ACCOUNTING PRONOUNCEMENTS

In November 2024, the FASB issued ASU 2024-03 related to the disaggregation of certain income statement

expenses. The amendments in this update require public entities to disclose incremental information related to

purchases of inventory, team member compensation, and depreciation, which will provide investors the ability to

better understand entity expenses and make their own judgments about entity performance. The amendments in

this update are effective for fiscal years beginning after December 15, 2026. We plan to adopt this pronouncement

and make the necessary updates to our disclosures for the year ending December 31, 2027, and, aside from these

disclosure changes, we do not expect the amendments to have a material effect on our financial statements.

In December 2025, the FASB issued ASU 2025-11 that included amendments to improve the organization of

required interim disclosures and clarified the scope of their applicability. The amendments in this update are

effective for fiscal years beginning after December 15, 2027. We plan to adopt this pronouncement and make the

necessary updates to our disclosures for the year ending December 31, 2028, and, aside from these disclosure

changes, we do not expect the amendments to have a material effect on our financial statements.

In December 2025, the FASB issued ASU 2025-12 intended to make financial reporting more straightforward by

addressing 33 specific issues within the FASB ASC. The amendments in this update are effective for fiscal years

beginning after December 15, 2026. We plan to adopt this pronouncement and make the necessary updates to our

disclosures for the year ending December 31, 2027, and, aside from these disclosure changes, we do not expect

the amendments to have a material effect on our financial statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS 22

Item 1A. Risk Factors

The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in

our 2025 Annual Report on Form 10-K, which was filed with the SEC on February 25, 2026. We have described in

our 2025 Annual Report on Form 10-K, under Risk Factors in Item 1A, the primary risks related to our business and

securities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS 23

strive for diversification in our products, services, brands, and geographic locations to reduce dependence on any

one manufacturer, reduce susceptibility to changing consumer preferences, manage market risk and maintain

profitability. Our diversification, along with our operating structure, provides a resilient and nimble business model.

We seek to provide customers with a seamless, blended online and physical retail experience, broad selection, and

access to specialized expertise and knowledge. Our comprehensive network provides convenient touch points for

customers and provides services throughout the vehicle life cycle. We seek to increase market share and optimize

profitability by focusing on the consumer experience and applying proprietary performance measurement systems

fueled by data science. Our Driveway and GreenCars brands and online customer portal complement our in-store

experiences in the United States and provide convenient, simple, and transparent platforms that serve as our e-

commerce home solutions and allow us to deliver differentiated, proprietary digital experiences. Enhancing our

business, our captive auto financing division allows us to provide financing solutions for customers and diversify our

business model with adjacent products.

Our long-term strategy to create value for our customers, team members and shareholders includes the following

elements:

Driving operational excellence, innovation and diversification

LAD builds magnetic customer loyalty across our 467 stores, our Driveway and GreenCars e-commerce platforms,

and our entire omnichannel ecosystem by focusing on convenient and transparent experiences supported by

proprietary data science. Our entrepreneurial model that emphasizes personal accountability for our team powers

efficient operations and allows dynamic responsiveness to each of our local markets. Our best-in-class performance

management reporting provides the foundation to enable high-performing teams to drive our platform’s full potential.

Investments across our ecosystem built a framework that is responsive to evolving consumer preferences, providing

a foundation that supports our current business and our ongoing expansion. These investments, particularly in our

digital strategies, connect our experienced, knowledgeable team members with our expansive inventory and

physical network of stores to ensure we are agile and adaptable. Additionally, we systematically explore and invest

in transformative adjacencies that are synergistic and complementary to our existing business, such as our captive

auto finance and fleet management offerings.

These investments support the foundational elements of our strategy. We seek to create durable customer loyalty in

our stores and our digital platforms, such as our My Driveway customer portal. These experiences and offerings,

backed by our extensive physical network, broad geographic reach, and customized digital offerings, empower our

people to provide transparent, flexible, and simple retail experiences.

Our performance-based culture is geared toward an incentive-based compensation structure for a majority of our

personnel. We develop pay plans that measure factors such as customer satisfaction, profitability, and individual

performance metrics. These plans reward team members for creating customer loyalty, achieving store potential,

developing high-performing talent, meeting and exceeding manufacturer requirements, and living our core values.

We centralize many administrative functions to drive efficiencies and streamline store-level operations. These

efficiencies allow our local managers to focus on serving customers to increase revenues and gross profit. Our

operations are supported by regional and corporate management, as well as dedicated training and personnel

development programs which allow us to share best practices across our network and develop talent.

Growth through acquisition and network optimization

Our acquisition growth strategy has diversified our business and been financially and culturally successful. Our

disciplined approach focuses on acquiring new vehicle franchises, which operate in markets ranging from mid-sized

regional markets to metropolitan markets. Acquisition of these businesses increases our proximity to consumers

throughout North America and the United Kingdom. While we target annual after tax return of more than 15% for our

acquisitions, we have averaged over a 25% return by the third year of ownership due to a disciplined approach

focusing on accretive, cash flow positive targets at reasonable valuations. In addition to being financially accretive,

acquisitions aim to drive network growth that improves our ability to serve customers through vast selection, greater

density, easy access, and the ability to leverage national branding and advertising.

As we focus on expanding our physical network of stores, one of the criteria we evaluate is a valuation multiple

between 3x to 6x of investment in intangibles to estimated annualized adjusted EBITDA, with various factors

MANAGEMENT’S DISCUSSION AND ANALYSIS 24

including location, ability to expand our network and talent considered in determining value. We also target an

investment in intangibles as a percentage of annualized revenues in the range of 15% to 30%.

We regularly optimize and balance our network through strategic divestitures to ensure continued high performance.

We believe our disciplined approach provides us with attractive acquisition opportunities and expanded coast-to-

coast coverage.

Thoughtful capital allocation

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 six months of 2026, we

utilized $153.4 million for capital expenditures investing in our existing business and $221.7 million expanding our

network through acquisitions. We also provided shareholder return in the form of $25.7 million in dividends and

$534.0 million in share repurchases. As of June 30, 2026, we had available liquidity of approximately $1.3 billion,

which was comprised of $110.3 million in unrestricted cash, $67.0 million in marketable securities, and $1.1 billion

availability on our credit facilities.

Financial Performance

We experienced growth of revenue in 2026 compared to 2025, primarily driven by increases in used vehicle and

aftersales volume related to acquisitions. Total gross profit grew in 2026 compared to 2025, primarily driven by

acquisition growth and supported by same store increases in aftersales. New vehicle gross profit decreased

compared to 2025 due to continued normalization of margins. Net income declined in 2026 compared to 2025,

primarily as a result of our increase in SG&A as a percentage of gross profit and equity method investment losses.

MANAGEMENT’S DISCUSSION AND ANALYSIS 25

Vehicle Operations

Key performance metrics for revenue and gross profit were as follows:

1Includes the sales and gross profit related to new, used, and finance and insurance and unit sales for new and used retail.

MANAGEMENT’S DISCUSSION AND ANALYSIS 26

Same Store Operating Data

We believe that same store comparisons are an important indicator of our financial performance. Same store

measures demonstrate our ability to grow revenues in our existing locations. As a result, same store measures have

been integrated into the discussion below.

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 May 2025 would be included in

same store operating data beginning in June 2026, after its first complete comparable month of operation. The

second quarter operating results for the same store comparisons would include results for that store in only the

month of June for both comparable periods.

1Includes the sales and gross profit related to new, used, and finance and insurance and unit sales for new and used retail.

New Vehicles

We believe that our new vehicle sales create incremental profit opportunities through certain manufacturer incentive

programs, arranging of third-party financing, vehicle service and insurance contracts, future resale of used vehicles

acquired through trade-in, and aftersales. Our leaders in each market continue to adapt to changing conditions,

respond to customer needs and manage inventory availability and selection.

MANAGEMENT’S DISCUSSION AND ANALYSIS 27

Q2 2026 vs. Q2 2025

New vehicle revenue for the three months ended June 30, 2026 increased 2.7% compared to the same period of

2025, driven by acquisition activity. Same store new vehicle revenue decreased 1.5% due to a decrease in unit

volume of 2.2%, partially offset by an increase in average selling prices of 0.1%.

Same store new vehicle gross profit per unit decreased 11.1%, driven by a decrease in new vehicle gross profit

margins of 80 bps. Total same store new vehicle gross profit per unit, which includes the finance and insurance

revenue generated from the sales of new vehicles, decreased $352 to $4,812.

YTD 2026 vs. YTD 2025

New vehicle revenue for the six months ended June 30, 2026 decreased 0.8% compared to the same period of

2025, primarily due to same store performance, offset by acquisition activity. Same store new vehicle revenue

decreased 4.1% due to a decrease in unit volume of 4.5% and a decrease in average selling prices of 0.4%.

Same store new vehicle gross profit per unit decreased 9.5%, driven by a decrease in new vehicle gross profit

margins of 60 bps. Total same store new vehicle gross profit per unit, which includes the finance and insurance

revenue generated from the sales of new vehicles, decreased $249 to $4,831.

Used Retail Vehicles

Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles:

manufacturer certified pre-owned (CPO) vehicles; core vehicles, or late-model vehicles with lower mileage; and

value autos, or vehicles with over 80,000 miles. We continue to focus on procuring vehicles across the full spectrum

of the addressable used vehicle market to provide customers with a wide selection meeting all levels of affordability,

driving increased used vehicle unit volumes. Our used vehicle operations provide an opportunity to generate sales

to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle

franchise(s) and increase sales from finance and insurance and aftersales.

Q2 2026 vs. Q2 2025

Used vehicle retail revenue for the three months ended June 30, 2026 increased 1.4% compared to the same

period of 2025 driven by acquisition activity. On a same store basis, used vehicle retail revenue decreased 2.2%

due to a decrease in unit volume of 6.1%, partially offset by an increase in average selling prices of 4.2%.

Total same store used vehicle retail gross profit per unit, which includes the finance and insurance revenue

generated from the sales of retail used vehicles, increased $138 to $3,621.

YTD 2026 vs. YTD 2025

Used vehicle retail revenue for the six months ended June 30, 2026 increased 4.3% compared to the same period

of 2025 driven by acquisition activity and supported by same store performance. On a same store basis, used

vehicle retail sales increased 1.2% due to an increase in average selling prices of 4.0%, partially offset by a

decrease in unit volume of 2.5%. 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 $7 to $3,438.

Finance and Insurance

We believe that arranging vehicle financing is an important part of our ability to sell vehicles, and we attempt to

arrange financing for every vehicle we sell. We also offer related products such as extended warranties, insurance

contracts and vehicle and theft protection which promotes continued engagement with the consumer throughout the

ownership lifecycle.

Q2 2026 vs. Q2 2025

Total finance and insurance income decreased 2.0% in the three months ended June 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 5.2%. On a same store basis, our finance and insurance revenue per retail unit

decreased $3 to $1,811.

YTD 2026 vs. YTD 2025

Total finance and insurance income decreased 1.6% in the six months ended June 30, 2026 compared to the same

period of 2025, driven by same store performance, offset by acquisition activity. Same store finance and insurance

MANAGEMENT’S DISCUSSION AND ANALYSIS 28

revenues decreased 4.4%. On a same store basis, our finance and insurance revenue per retail unit decreased $4

to $1,809.

Aftersales

We provide automotive repair and maintenance services for customers for the new vehicle brands sold by our

stores, as well as service and repairs for most other makes and models. These aftersales services are an integral

part of our customer retention and the largest contributor to our overall profitability. Earnings from aftersales

continue to prove to be more resilient during economic downturns, when owners tend to repair their existing

vehicles rather than buy new vehicles. We believe the increased number of units in operation will continue to benefit

our aftersales revenue in the coming years as more late-model vehicles age, necessitating repairs and

maintenance.

Q2 2026 vs. Q2 2025

Our aftersales revenue increased 3.9% in the three months ended June 30, 2026 compared to the same period of

2025, driven by same store performance and supported by acquisition activity.

We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing

efforts. Customer pay revenue accounted for the largest share of our same-store aftersales revenue, representing

56.7% of the total.

Same store aftersales gross profit increased 3.1%. This increase was primarily due to increased volumes of

customer pay and warranty transactions. Overall same store aftersales gross margins increased 120 bps, primarily

as a result of increased customer pay gross margin of 110 bps and increased warranty gross margin of 150 bps.

YTD 2026 vs. YTD 2025

Our aftersales revenue increased 5.0% in the six months ended June 30, 2026 compared to the same period of

2025, driven by same store performance and supported by acquisition activity. Same store aftersales revenue

increased 2.4%, driven by an increase in customer pay revenues of 2.8% and an increase in warranty revenues of

3.4% compared to the prior year.

Same store aftersales gross profit increased 4.4%. This increase was primarily due to increased volume of

customer pay transactions. Overall same store aftersales gross margins increased 110 bps, primarily as a result of

increased customer pay margins of 110 bps and increased warranty gross margins of 100 bps.

Financing Operations

In the United States, Financing Operations is a captive lender, originating loans only from our stores and Driveway.

In Canada, Financing Operations originates loans and leases from both our Canadian stores and third-party

dealerships. In the United Kingdom, Financing Operations is related to our fleet funding and management division.

These product offerings add diversity to the business model and provide an opportunity to capture additional profits,

cash flows, and sales while managing our reliance on third-party finance sources.

Financing Operations income reflects the interest and fee income generated by the portfolio of auto loan and

finance lease receivables, plus the lease income generated by our net investment in operating leases, less the

interest expense associated with the debt utilized to fund the lending, including internal capital, a provision for

estimated loan and lease losses, depreciation on vehicles leased via operating leases, and directly-related

expenses.

MANAGEMENT’S DISCUSSION AND ANALYSIS 29

Selected Financing Operations Financial Information

1Annualized percentage of total average managed finance receivables.

DFC Portfolio Information1

1Excludes Canadian and U.K. portfolios

2Units financed as a percentage of total U.S. new and used vehicle retail units sold.

3The credit scores represent FICO scores and reflect only receivables with obligors that have a FICO score at the time of

application. For receivables with co-borrowers, the FICO score is the primary borrower’s. FICO scores are not a significant

factor in our proprietary credit model, which relies on information from credit bureaus and other application information.

4Front-end loan-to-value represents the ratio of the amount financed to the total collateral value, which is measured as the

vehicle selling price plus applicable taxes, title and fees.

5Past due means loans at least 3 months old that are 30 or more days delinquent.

6The 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.

Q2 2026 vs. Q2 2025

Financing operations recorded higher income in the three months ended June 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, which collectively expanded 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 of

loans originated in the three months ended June 30, 2026 decreased to 8.0%, compared with 8.7% in the same

period of 2025, primarily due to our maintaining competitive pricing following Federal Reserve rate cuts. The

decrease in annualized net charge-offs of past due accounts as a percentage of ending managed receivables

MANAGEMENT’S DISCUSSION AND ANALYSIS 30

compared to the prior year reflects the increased credit quality of the portfolio as well as improved execution of our

collateral management team.

YTD 2026 vs. YTD 2025

Financing operations recorded higher income in the six months ended June 30, 2026 compared to the same period

of 2025, primarily due to increased interest income resulting from the growth of the portfolio and a decreased cost of

funds, resulting in an expansion of total interest margin to 4.8%.

The weighted average contract rate on loans originated in the six months ended June 30, 2026 decreased to 8.0%,

compared with 8.9% in the same period of 2025 as we decreased rates to maintain competitiveness following

Federal Reserve rate cuts. The decrease in provision expense as a percentage of receivables compared to the prior

year reflected lower net charge-offs, attributable to the increased credit quality of the portfolio and improved

servicing, as well as a decrease in the percentage of ending managed receivables 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.

Operating Expenses

Selling, General and Administrative Expense

SG&A includes salaries and related personnel expenses, advertising (net of manufacturer cooperative advertising

credits), rent, facility costs, and other general corporate expenses.

Q2 2026 vs. Q2 2025

SG&A as a percentage of gross profit was 67.8% for the three months ended June 30, 2026 compared to 68.3% for

the same period of 2025. SG&A expense remained flat, including increases in advertising, rent, and facility costs

due to acquisitions, and offsetting decreases in personnel and other SG&A costs.

On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was 68.6%

compared to 67.2% for the same period of 2025. The increase was primarily related to SG&A growth outpacing

gross profit growth in the period.

MANAGEMENT’S DISCUSSION AND ANALYSIS 31

YTD 2026 vs. YTD 2025

SG&A as a percentage of gross profit was 70.3% for the six months ended June 30, 2026 compared to 67.9% for

the same period of 2025, driven by increases in all expense categories outpacing the increase in gross profit. Total

SG&A expense increased 4.3%, driven by all areas as a result of our acquisition activity.

On a same store basis and excluding non-core charges, SG&A as a percentage of gross profit was 70.1%

compared to 67.3% for the same period of 2025. The increase was related to SG&A growth outpacing gross profit

growth in the period.

SG&A expense adjusted for non-core charges was as follows:

Q2 2026 vs. Q2 2025

Adjusted SG&A for the three months ended June 30, 2026 excludes a $15.1 million net gain on store disposals,

$2.3 million in storm insurance charges, and $0.4 million in acquisition-related expenses.

Adjusted SG&A for the three months ended June 30, 2025 excludes a $7.2 million net loss on store disposals,

$2.4 million in storm insurance charges, and $0.1 million in acquisition-related expenses.

MANAGEMENT’S DISCUSSION AND ANALYSIS 32

YTD 2026 vs. YTD 2025

Adjusted SG&A for the six months ended June 30, 2026 excludes $20.3 million in one-time contract buyouts,

$2.3 million in storm insurance charges, $0.7 million in acquisition-related expenses, and a $15.0 million net gain on

store disposals.

Adjusted SG&A for the six months ended June 30, 2025 excludes $2.8 million in storm insurance charges,

$0.3 million in acquisition-related expenses, and a $2.2 million net gain on store disposals.

Adjusted SG&A is a non-GAAP measure. See Non-GAAP Reconciliations for more details.

Floor Plan Interest Expense

Below are the details for carrying costs for vehicle inventory:

Q2 2026 vs. Q2 2025

Floor plan interest expense increased $14.7 million in the three months ended June 30, 2026 compared to the same

period of 2025 due to an increase in floored inventory levels, as a result of our converting used inventory‑secured

revolvers to floorplan facilities during the year.

YTD 2026 vs. YTD 2025

Floor plan interest expense increased $13.6 million in the six months ended June 30, 2026 compared to the same

period of 2025 due to an increase in floored inventory levels, as a result of our converting used inventory‑secured

revolvers to floorplan facilities during the year.

Depreciation and Amortization

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.

Q2 2026 vs. Q2 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS 33

YTD 2026 vs. YTD 2025

Acquisition activity contributed to the increases in depreciation and amortization in 2026 compared to 2025. We

acquired $158.3 million of depreciable property as part of our acquisition activity over the trailing twelve months

ended June 30, 2026. For the six months ended June 30, 2026, we invested $153.4 million in capital expenditures.

These investments increased the amount of depreciation expense in the three and six months ended June 30,

2026. See the discussion under Liquidity and Capital Resources for additional information.

Operating Income

Operating income as a percentage of revenue, or operating margin, was as follows:

Q2 2026 vs. Q2 2025

1See Non-GAAP Reconciliations for more details.

Operating margin increased 20 bps in the three months ended June 30, 2026 compared to the same period in 2025,

primarily due to decreased SG&A as a percentage of revenue and improved profitability of our Financing

Operations, partially offset by a decrease in gross margin.

YTD 2026 vs. YTD 2025

1See Non-GAAP Reconciliations for more details.

Operating margin decreased 30 bps in the six months ended June 30, 2026 compared to the same period in 2025,

primarily due to increased SG&A as a percentage of revenue and a decrease in gross margin, partially offset by

increased profitability of our Financing Operations.

Non-Operating Expenses

Other Interest Expense

Other interest expense includes interest on senior notes, debt incurred related to acquisitions, real estate

mortgages, used and service loaner vehicle inventory financing commitments, and revolving lines of credit.

Q2 2026 vs. Q2 2025

Other interest expense for the three months ended June 30, 2026 decreased $4.0 million related to decreased

borrowings on used inventory‑secured revolvers compared to the same period of 2025, partially offset by an

increase from our September 2025 issuance of senior notes due 2030.

MANAGEMENT’S DISCUSSION AND ANALYSIS 34

YTD 2026 vs. YTD 2025

Other interest expense for the six months ended June 30, 2026 increased $0.7 million related to our September

2025 issuance of senior notes due 2030, offset by a decrease in borrowings on used inventory‑secured revolvers

compared to the same period of 2025.

Other Income (Expense), net

Q2 2026 vs. Q2 2025

Other income, net in the three months ended June 30, 2026 decreased $12.3 million compared to the same period

of 2025, primarily as a result of foreign currency remeasurements and fair value changes in our investment in

Pinewood Technologies Group PLC.

YTD 2026 vs. YTD 2025

Other (expense) income, net in the six months ended June 30, 2026 decreased $80.8 million compared to the same

period of 2025, primarily as a result of fair value changes in our investment in Pinewood Technologies Group PLC

and foreign currency remeasurements.

Income Tax Provision

Our effective income tax rate was as follows:

1See Non-GAAP Reconciliations for more details.

Our effective income tax rate for the six months ended June 30, 2026 compared to last year was negatively affected

by a decrease in general business 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%.

MANAGEMENT’S DISCUSSION AND ANALYSIS 35

Non-GAAP Reconciliations

Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to

similarly titled measures used by other companies. We caution you not to place undue reliance on such non-GAAP

measures and to consider them together with the most directly comparable GAAP measures. We believe each of

the non-GAAP financial measures below improves the transparency of our disclosures, provides a meaningful

presentation of our results from the core business operations because they exclude items not related to our ongoing

core business operations and other non-cash items, and improves the period-to-period comparability of our results

from the core business operations. We use these measures in conjunction with GAAP financial measures to assess

our business, including our compliance with covenants in our credit facility and in communications with our Board

concerning financial performance. These measures should not be considered an alternative to GAAP measures.

The following tables reconcile certain reported non-GAAP measures, which we refer to as “adjusted,” to the most

comparable GAAP measure from our Consolidated Statements of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS 36

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

Liquidity and Capital Resources

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 in a way that we believe will meet the short-

term and long-term obligations of our business while maintaining liquidity and financial flexibility. 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.

We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in

the longer term. Cash flows from operations and borrowings under our credit facilities are our main sources for

liquidity. In addition to the above sources of liquidity, potential sources to fund our business strategy include

MANAGEMENT’S DISCUSSION AND ANALYSIS 37

financing of real estate and proceeds from debt or equity offerings. We evaluate all of these options and may select

one or more of them depending on overall capital needs and the availability and cost of capital, although no

assurances can be provided that these capital sources will be available in sufficient amounts or with terms

acceptable to us.

Available Sources

Below is a summary of our immediately available funds:

Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows. The

following table summarizes our cash flows:

Operating Activities

Cash used in operating activities for the six months ended June 30, 2026 decreased $505.5 million compared to the

same period of 2025, primarily related to changes in inventories, net income, and finance receivables, partially

offset by changes in trade payables, unrealized investment loss, and other assets compared to the same period of

Borrowings from and repayments to our syndicated credit facilities related to our vehicle inventory floor plan

financing are presented as financing activities. To better understand the impact of changes in inventory, other

assets, and the associated financing, we also consider our adjusted net cash provided by operating activities to

include borrowings or repayments associated with our vehicle floor plan commitment and exclude the impact of our

finance receivables activity. Adjusted net cash provided by operating activities, a non-GAAP measure, is presented

below:

(1) Includes the impact of converting inventory‑secured revolvers to floorplan facilities during 2026, increasing net floorplan

borrowings and adjusted operating cash flows by $1,138.3 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS 38

Investing Activities

Net cash used in investing activities totaled $351.8 million and $315.5 million, respectively, for the six months ended

June 30, 2026 and 2025.

Below are highlights of significant activity related to our cash flows from investing activities:

Capital Expenditures

Below is a summary of our capital expenditure activities ($ in millions):

Many manufacturers provide assistance in the form of additional incentives or assistance if facilities meet specified

standards and requirements. We expect that certain facility upgrades and remodels will generate additional

manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce

the overall investment needed and encourage accelerated project timelines.

We expect to use a portion of our future capital expenditures to upgrade facilities that we recently acquired. Our

initial evaluation of the investment return metrics applied to each acquisition contemplates this additional capital

investment, which is usually associated with manufacturer standards and requirements.

Capital expenditures for the six months ended June 30, 2026, compared to the same period of 2025 were higher for

existing facility purchases, maintenance, existing operations improvements and information technology, and lower

for new operations purchases and improvements.

If we undertake a significant capital commitment in the future, we expect to pay for the commitment out of existing

cash balances, construction financing and borrowings on one of our credit facilities. Upon completion of the

projects, we believe we would have the ability to secure long-term financing and general borrowings from third party

lenders for 70% to 90% of the amounts expended, although no assurances can be provided that these financings

will be available to us in sufficient amounts or on terms acceptable to us.

Acquisitions

We focus on acquiring stores at attractive purchase prices that meet our return thresholds and strategic objectives.

We look for acquisitions that diversify our brand and geographic mix as we continue to evaluate our portfolio to

minimize exposure to any one manufacturer and achieve financial returns.

We are able to subsequently floor new vehicle inventory acquired as part of an acquisition; however, the cash

generated by this transaction is recorded as borrowings on floor plan notes payable, non-trade.

MANAGEMENT’S DISCUSSION AND ANALYSIS 39

Adjusted net cash paid for acquisitions, a non-GAAP measure, as well as certain other acquisition-related

information is presented below:

We evaluate potential capital investments primarily based on targeted rates of return on assets and return on our

net equity investment.

MANAGEMENT’S DISCUSSION AND ANALYSIS 40

Financing Activities

Adjusted net cash provided by financing activities, a non-GAAP measure, which is adjusted for borrowings and

repayments on floor plan facilities: non-trade and borrowings and repayments associated with our Financing

Operations segment was as follows:

(1) Includes the impact of converting inventory‑secured revolvers to floorplan facilities during 2026, increasing net floorplan

borrowings and adjusted operating cash flows by $1,138.3 million.

Below are highlights of significant activity related to our cash flows from financing activities, excluding borrowings

and repayments on floor plan notes payable: non-trade, which are discussed above:

Equity Transactions

Our Board has approved share repurchase authorizations totaling up to $3.7 billion of our common stock. We

repurchased a total of 1,910,777 shares of our common stock at an average price of $282.28 in the first six months

of 2026, consisting of 115,286 related to tax withholding on vesting RSUs, and 1,795,491 related to our repurchase

authorizations. As of June 30, 2026, we had $620.5 million remaining available for repurchases and the

authorizations do not have expiration dates.

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

We evaluate performance and make a recommendation to the Board on dividend payments on a quarterly basis.

MANAGEMENT’S DISCUSSION AND ANALYSIS 41

Summary of Outstanding Balances on Credit Facilities and Long-Term Debt

Below is a summary of our outstanding balances on credit facilities and long-term debt:

(1) As of June 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.

(2) The amount available on this credit facility is limited based on borrowing base calculations and fluctuates monthly.

(3) Available credit is based on the borrowing base amount effective as of May 31, 2026. This amount is reduced by $6.2 million

for outstanding letters of credit.

(4) Debt issuance costs are presented on the balance sheet as a reduction from the carrying amount of the related debt liability.

(5) Non-GAAP financial measure.

Financial Covenants

Our credit facilities, non-recourse notes payable, and senior notes contain customary representations and

warranties, conditions and covenants for transactions of these types.

Recent Accounting Pronouncements

See Note 15 – Recent Accounting Pronouncements for discussion.

Critical Accounting Policies and Use of Estimates

There have been no material changes in the critical accounting policies and use of estimates described in our 2025

Annual Report on Form 10-K filed with the SEC on February 25, 2026.

Seasonality and Quarterly Fluctuations

Our North American operations generally experience lower volumes in the first quarter of each year due to

consumer purchasing patterns and inclement weather in certain of our markets. As a result, financial performance is

expected to be lower during the first quarter than during the second, third and fourth quarters of each fiscal year.

Our U.K. operations generally experience higher volumes in the first and third quarters of each year, due primarily to

new vehicle registration practices in the United Kingdom. We believe that interest rates, levels of consumer debt,

consumer confidence and manufacturer sales incentives, as well as general economic conditions, also contribute to

fluctuations in sales and operating results.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or

future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,

liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of

our 2025 Annual Report on Form 10-K, which was filed with the SEC on February 25, 2026.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We evaluated, with the participation and under the supervision of our Chief Executive Officer and our Chief

Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by

this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial

Officer concluded that our disclosure controls and procedures are effective to ensure that information we are

required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and

communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as

appropriate to allow timely decisions regarding required disclosure and that such information is recorded,

processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recent fiscal

quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial

reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are party to numerous legal proceedings arising in the normal course of our business. Although we do not

anticipate that the resolution of legal proceedings arising in the normal course of business will have a material

adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with

certainty.

Item 1A. Risk Factors

The information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in

our 2025 Annual Report on Form 10-K, which was filed with the SEC on February 25, 2026. We have described in

our 2025 Annual Report on Form 10-K, under Risk Factors in Item 1A, the primary risks related to our business and

securities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We repurchased the following shares of our common stock during the second quarter of 2026:

1On May 26, 2026, our Board approved an additional $500 million repurchase authorization of our common stock. This

authorization is in addition to the amount previously authorized by the Board for repurchase, which brings the total

authorizations to $3.7 billion. There are no expiration dates for the share repurchase authorizations.

2Of the shares repurchased in the second quarter of 2026, 58 shares were related to tax withholding upon the vesting of

RSUs.

Item 5. Other Information

Rule 10b5-1 Trading Plans of Directors and Section 16 Officers

During the fiscal quarter ended June 30, 2026, none of our directors or officers (as defined in Rule 16a-1 under the

Exchange Act) adopted, modified or terminated any Rule 10b5-1 plan or any non-Rule 10b5-1 trading arrangement.

Item 6. Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index.

Exhibit Number Exhibit Description Incorporated by Reference / Form Incorporated by Reference / File Number Incorporated by Reference / Exhibit Incorporated by Reference / Filing Date Filed or Furnished Herewith

3.1 Restated Articles of Incorporation of Lithia Motors, Inc. 10-Q 001-14733 3.1 07/28/21 3.2 Bylaws of Lithia Motors, Inc. 8-K 001-14733 3.1 02/20/26 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. X 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. X 32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. X 32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. X (101) Inline XBRL Document Set for the consolidated financial statements and accompanying notes to consolidated financial statements. X (104) Cover page formatted as Inline XBRL and contained in Exhibit 101. X