SONIC AUTOMOTIVE INC

Previous wording

Unless otherwise noted, all discussion of increases or decreases are for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024. The following discussion of Franchised Dealerships Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition. The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a reported basis, except where otherwise noted. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening or acquisition. The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a reported basis, except where otherwise noted. All currently operating stores in the Powersports Segment are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition.

Current wording

Unless otherwise noted, all discussion of increases or decreases are for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The following discussion of Franchised Dealerships Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition. The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a same market basis, except where otherwise noted. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening or acquisition. The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. All currently operating stores in the Powersports Segment are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition.

Previous wording

We are one of the largest automotive retailers in the U.S. (as measured by reported total revenue). As a result of the way we manage our business, we had three reportable segments as of September 30, 2025: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of September 30, 2025, we operated 111 stores in the Franchised Dealerships Segment, 18 stores in the EchoPark Segment and 14 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 137 new vehicle franchises (representing 25 different brands of cars and light trucks) and 16 collision repair centers in 18 states. The EchoPark Segment consists of 18 stores in 10 states. The Powersports Segment consists of 41 franchises at 14 locations (11 full-service dealerships and three authorized retail outlets) in three states.

Current wording

We are one of the largest automotive retailers in the U.S. (as measured by reported total revenue). As a result of the way we manage our business, we had three reportable segments as of March 31, 2026: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of March 31, 2026, we operated 107 stores in the Franchised Dealerships Segment, 18 stores in the EchoPark Segment and 14 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 127 new vehicle franchises (representing 24 different brands of cars and light trucks) and 16 collision repair centers in 17 states. The EchoPark Segment consists of 18 stores in 10 states. The Powersports Segment consists of 41 franchises at 14 locations (11 full-service dealerships and three authorized retail outlets) in three states.

Previous wording

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of unit sales volume (the “total new vehicle SAAR”) increased 4% and 3% for the three and nine months ended September 30, 2025, respectively, to approximately 16.3 million and 16.1 million vehicles for the three and nine months ended September 30, 2025, respectively, compared to approximately 15.6 million vehicles for both the three and nine months ended September 30, 2024, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the 2025 new vehicle industry volume will be between 15.6 million vehicles (a decrease of 3% compared to 2024) and 16.3 million vehicles (an increase of 1% compared to 2024). The effects of changes in trade policy and the imposition of tariffs, interest rates, changes in consumer confidence, availability of consumer financing, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, or timing of consumer demand as a result of economic conditions, natural disasters or other unforeseen circumstances could cause the actual 2025 new vehicle industry volume to vary from expectations. Many factors, including brand and geographic concentrations as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. Our new vehicle sales strategy focuses on our retail new vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the industry retail new vehicle seasonally adjusted annual rate of unit sales volume (the “retail new vehicle SAAR”) (which excludes fleet new vehicle sales). According to PIN from J.D. Power, the retail new vehicle SAAR increased 5% and 4% to approximately 13.6 million and 13.3 million vehicles for the three and nine months ended September 30, 2025, respectively, from approximately 12.9 million and 12.8 million vehicles for the three and nine months ended September 30, 2024, respectively. We believe some of the increase in new vehicle SAAR during the three and nine months ended September 30, 2025 is attributable to advanced purchases of new vehicles ahead of changes in U.S. tariff policy announced on April 2, 2025 and purchase of electric vehicles ahead of expiration of the federal tax credit in September 2025.

Current wording

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of unit sales volume (the “total new vehicle SAAR”) decreased 7% for the three months ended March 31, 2026, to approximately 15.5 million vehicles, compared to approximately 16.6 million vehicles for the three months ended March 31, 2025, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the 2026 new vehicle industry volume will be between 15.5 million vehicles (a decrease of 5% compared to 2025) and 16.0 million vehicles (a decrease of 2% compared to 2025). The effects of tariffs and trade policies, interest rates, changes in consumer confidence, availability of consumer financing, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, or timing of consumer demand as a result of economic conditions, geopolitical disruptions, energy prices, natural disasters or other unforeseen circumstances could cause the actual 2026 new vehicle industry volume to vary from expectations. Many factors, including brand and geographic concentrations as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. Our new vehicle sales strategy focuses on our retail new vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the industry retail new vehicle seasonally adjusted annual rate of unit sales volume (the “retail new vehicle SAAR”) (which excludes fleet new vehicle sales). According to PIN from J.D. Power, the retail new vehicle SAAR decreased 9% to approximately 12.8 million vehicles for the three months ended March 31, 2026, from approximately 14.0 million vehicles for the three months ended March 31, 2025.

Previous wording

Same store retail new vehicle revenue increased 13% and 11% during the three and nine months ended September 30, 2025, driven primarily by an 8% increase in retail new vehicle unit sales volume for both the three and nine months ended September 30, 2025, driven in part by increase and in consumer demand for electric vehicles ahead of expiration of the federal tax credit in September 30, 2025, coupled with a 5% and 3% increase in retail new vehicle average selling price, respectively. Retail new vehicle gross profit remained flat and decreased 3% during the three and nine months ended September 30, 2025, respectively, due primarily to increased price competition as a result of increasing levels of available inventory and higher inventory invoice cost, which combined to drive lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $215 per unit, or 7%, to $2,852 per unit during the three months ended September 30, 2025 and decreased $352 per unit, or 10%, to $3,114 per unit during the nine months ended September 30, 2025. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 51 days as of September 30, 2025, compared to 57 days as of September 30, 2024.

Current wording

Same store retail new vehicle revenue decreased 8% during the three months ended March 31, 2026, driven primarily by a 10% decrease in retail new vehicle unit sales volume, partially offset by a 3% increase in average selling price per new retail unit for the three months ended March 31, 2026. Retail new vehicle gross profit decreased 14% during the three months ended March 31, 2026, due primarily to the effects of tariffs on inventory invoice cost and lower consumer demand as a result of pre-tariff demand in the first quarter of 2025, which combined to drive lower retail new vehicle gross profit per unit for the three months ended March 31, 2026. Retail new vehicle gross profit per unit decreased $133 per unit, or 4%, to $3,002 per unit during the three months ended March 31, 2026. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 58 days as of March 31, 2026, compared to 51 days as of March 31, 2025.

Previous wording

Same store retail used vehicle revenue increased 10% and 4% during the three and nine months ended September 30, 2025, respectively, driven primarily by a 6% and 5% increase in retail used vehicle average selling prices, respectively, coupled with a 3% increase in retail used vehicle sales volume in the three months ended September 30, 2025, and partially offset by a 1% decrease in retail used vehicle sales volume in the nine months ended September 30, 2025. Retail used vehicle gross profit increased 13% and 2% during the three and nine months ended September 30, 2025, respectively, primarily due to higher retail used vehicle sales volume in the three months ended September 30, 2025 and higher retail used vehicle gross profit per unit. Retail used vehicle gross profit per unit increased $136 per unit, or 10%, to $1,530 per unit during the three months ended September 30, 2025 and increased $47 per unit, or 3%, to $1,565 per unit during the nine months ended September 30, 2025. Same store wholesale vehicle gross loss worsened by approximately $1.4 million, to a gross loss of approximately $2.6 million during the three months ended September 30, 2025, and worsened by approximately $2.7 million, to a gross loss of approximately $4.3 million during the nine months ended September 30, 2025, due primarily to a $263 per unit, or 113%, worsening of wholesale vehicle gross loss per unit, and a $135 per unit, or 121%, worsening of wholesale vehicle gross loss per unit, respectively, as a result of changes in pricing and demand for vehicles at wholesale auction. We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 34 days as of both September 30, 2025 and 2024.

Current wording

Same store retail used vehicle revenue increased 2% during the three months ended March 31, 2026, driven primarily by a 3% increase in retail used vehicle unit sales volume. Retail used vehicle gross profit decreased 1% during the three months ended March 31, 2026, primarily due to lower retail used vehicle gross profit per unit. Retail used vehicle gross profit per unit decreased $59 per unit, or 4%, to $1,533 per unit during the three months ended March 31, 2026. Same store wholesale vehicle gross loss worsened by approximately $1.0 million, to a gross loss of approximately $1.7 million during the three months ended March 31, 2026, due primarily to a $239 per unit, or 168%, worsening of wholesale vehicle gross loss per unit as a result of changes in pricing and demand for vehicles at wholesale auction. We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 32 days as of March 31, 2026, compared to 31 days as of March 31, 2025.

Previous wording

Same store Fixed Operations revenue increased 6% and 7% during the three and nine months ended September 30, 2025, respectively, driven primarily by increased service capacity as a result of additional technician headcount, and higher parts and labor costs that were passed along to consumers. Same store Fixed Operations gross profit increased 8% and 9% during the three and nine months ended September 30, 2025, respectively, driven primarily by higher warranty revenue contribution and higher warranty gross margin. Same store Fixed Operations gross margin increased 100 basis points, to 51.2%, during the three months ended September 30, 2025, and increased 90 basis points, to 51.1%, during the nine months ended September 30, 2025, primarily driven by an increase in warranty revenue contribution and higher warranty gross margin.

Current wording

Same store Fixed Operations revenue increased 5% during the three months ended March 31, 2026, driven primarily by increased service capacity as a result of additional technician headcount, and higher parts and labor costs that were passed along to consumers. Same store Fixed Operations gross profit increased 5% during the three months ended March 31, 2026, driven primarily by higher customer pay revenue contribution and higher internal, sublet and other gross margin contribution. Same store Fixed Operations gross margin increased 40 basis points, to 51.1%, during the three months ended March 31, 2026.

Previous wording

Same market total revenues decreased 4% and 1% during the three and nine months ended September 30, 2025, respectively, attributable to a 4% decrease in total vehicle unit sales volume in the three months ended September 30, 2025, and a 4% decrease in average selling price per used retail unit, partially offset by a 2% increase in total vehicle unit sales volume, in the nine months ended September 30, 2025. Same market total gross profit decreased 4% and increased 11% during the three and nine months ended September 30, 2025, respectively, primarily driven by a 4% decrease in total vehicle unit sales volume, and a 12% increase in combined retail used vehicle and F&I gross profit per unit.

Current wording

Same market total revenues increased 4% during the three months ended March 31, 2026, attributable to a 2% increase in total vehicle unit sales volume (retail used vehicles plus wholesale used vehicles) in the three months ended March 31, 2026, and a 1% increase in average selling price per used retail unit in the three months ended March 31, 2026. Same market total gross profit increased 6% during the three months ended March 31, 2026, primarily driven by a 2% increase in total vehicle unit sales volume (retail used vehicles plus wholesale used vehicles), and a 3% increase in combined retail used vehicle and F&I gross profit per unit.

Previous wording

Reported retail used vehicle revenue decreased 7% and 4% during the three and nine months ended September 30, 2025, respectively, driven primarily by an 8% and 1% decrease in retail used vehicle unit sales volume, respectively, coupled with a 4% decrease in average selling price per used retail unit in the nine months ended September 30, 2025, partially offset by a 1% increase in average selling price per used retail unit in the three months ended September 30, 2025. F&I revenue increased 4% and 15% during the three and nine months ended September 30, 2025, respectively, driven primarily by a 13% and 16% increase in F&I gross profit per unit, respectively, partially offset by an 8% decrease in total retail units in the three months ended September 30, 2025. Reported combined retail used vehicle and F&I gross profit per unit increased $248 per unit, or 8%, to $3,359 per unit during the three months ended September 30, 2025, and increased $456 per unit, or 15%, to $3,503 for the nine months ended September 30, 2025 due primarily to increases in F&I gross profit per unit during the three and nine months ended September 30, 2025.

Current wording

Same market retail used vehicle revenue increased 4% during the three months ended March 31, 2026, driven primarily by a 3% increase in retail used vehicle unit sales volume, coupled with a 1% increase in average selling price per used retail unit in the three months ended March 31, 2026. F&I revenue increased 4% during the three months ended March 31, 2026, driven primarily by a 3% increase in retail used vehicle unit sales and a 1% increase in F&I gross profit per unit in the three months ended March 31, 2026. Same market combined retail used vehicle and F&I gross profit per unit increased $86 per unit, or 2.5%, to $3,518 for the three months ended March 31, 2026 due primarily to increases in retail used vehicle unit sales volume during the three months ended March 31, 2026.

Previous wording

Reported wholesale vehicle gross loss worsened by approximately $0.5 million and $0.6 million during the three and nine months ended September 30, 2025, respectively, primarily due to a decline in wholesale vehicle gross loss per unit during both the three and nine months ended September 30, 2025. We generally focus on maintaining EchoPark Segment used vehicle inventory days’ supply in the 30- to 40-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported EchoPark Segment used vehicle inventory days’ supply was approximately 37 and 33 days as of September 30, 2025 and 2024, respectively.

Current wording

Same market wholesale vehicle gross profit improved by approximately $0.4 million during the three months ended March 31, 2026, primarily due to a 227% increase in wholesale vehicle gross profit per unit during the three months ended March 31, 2026. We generally focus on maintaining EchoPark Segment used vehicle inventory days’ supply in the 30- to 40-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported EchoPark Segment used vehicle inventory days’ supply was approximately 40 and 35 days as of March 31, 2026 and 2025, respectively.

Previous wording

Same store retail new vehicle revenue increased 33% and 20% during the three and nine months ended September 30, 2025, respectively, driven by a 21% and 11% increase in retail new vehicle unit sales volume, respectively, coupled with an 11% and 8% increase in retail new vehicle average selling price during the three and nine months ended September 30, 2025, respectively. Retail new vehicle gross profit increased 38% and 22% during the three and nine months ended September 30, 2025, respectively, as a result of the increase in retail new vehicle unit sales volume and an increase in gross profit per unit. Retail new vehicle gross profit per unit increased $430 per unit, or 13%, to $3,693 for the three months ended September 30, 2025 and increased $278 per unit, or 10%, to $3,112 per unit for the nine months ended September 30, 2025. On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 75 and 121 days as of September 30, 2025 and 2024, respectively, varying based on manufacturer production levels and consumer demand.

Current wording

Same store retail new vehicle revenue increased 19% during the three months ended March 31, 2026, driven by a 16% increase in retail new vehicle unit sales volume, coupled with a 2% increase in retail new vehicle average selling price during the three months ended March 31, 2026. Retail new vehicle gross profit increased 23% during the three months ended March 31, 2026, as a result of the increase in retail new vehicle unit sales volume and a 7% increase in same store retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit increased $182 per unit, or 7%, to $2,891 per unit for the three months ended March 31, 2026. On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 162 and 166 days as of March 31, 2026 and 2025, respectively, varying based on manufacturer production levels and consumer demand.

Previous wording

Same store Fixed Operations revenue increased 15% and Fixed Operations gross profit increased 18% for the three months ended September 30, 2025, driven primarily by higher repair order volume during the quarter. Same store Fixed Operations revenue increased 8% and Fixed Operations gross profit increased 10% during the nine months ended September 30, 2025, driven by higher repair order volume for the year-to-date period. Fixed Operations gross margin increased 90 basis points, to 47% and increased 110 basis points to 48% during the three and nine months ended September 30, 2025, respectively, driven primarily by an increase in warranty and internal, sublet and other revenue contribution and customer pay gross margin.

Current wording

Same store Fixed Operations revenue increased 12% and Fixed Operations gross profit increased 9% during the three months ended March 31, 2026, driven by higher repair order volume for the three months ended March 31, 2026. Fixed Operations gross margin decreased 100 basis points to 48% during the three months ended March 31, 2026, respectively, driven primarily by a decrease in warranty revenue contribution and warranty, internal, sublet and other gross margin contribution.

Previous wording

The following table depicts the breakdown of our Franchised Dealerships Segment new vehicle revenues by brand for the three and nine months ended September 30, 2025 and 2024:

Current wording

The following table depicts the breakdown of our Franchised Dealerships Segment new vehicle revenues by brand for the three months ended March 31, 2026 and 2025:

Previous wording

Finance, insurance and other, net revenues include commissions for arranging third-party vehicle financing and insurance, sales of third-party extended warranties and service contracts for vehicles, and sales of other aftermarket products. In connection with vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the third-party providers for originating these contracts. F&I revenues are recognized net of actual and estimated future chargebacks and other costs associated with originating contracts (as a result, reported F&I revenues and F&I gross profit are the same amount, resulting in a 100% gross margin for F&I). F&I revenues are affected by the level of new and retail used vehicle unit sales volume, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives, and our F&I penetration rate for each type of F&I product. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

Current wording

Finance, insurance and other, net revenues include commissions for arranging third-party vehicle financing and insurance, sales of third-party extended warranties and service contracts for vehicles, and sales of other aftermarket products. In connection with vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the third-party providers for originating these contracts. We do not have direct credit risk for the vehicle financing, extended warranties and service contracts that we sell. F&I revenues are recognized net of actual and estimated future chargebacks and other costs associated with originating contracts (as a result, reported F&I revenues and F&I gross profit are the same amount, resulting in a 100% gross margin for F&I). F&I revenues are affected by the level of new and retail used vehicle unit sales volume, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives, and our F&I penetration rate for each type of F&I product. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

Previous wording

Retail used vehicle revenue increased approximately $75.5 million, or 4%, driven primarily by an 5% increase in retail used vehicle average selling prices, partially offset by a 1% decrease in retail used vehicle unit sales volume. Retail used vehicle gross profit increased approximately $2.3 million, or 2%, driven primarily by a 3% increase in retail used vehicle gross profit per unit, offset partially by a 1% decrease in retail used vehicle unit sales volume during the nine months ended September 30, 2025.

Current wording

Retail used vehicle revenue increased approximately $13.7 million, or 2%, driven primarily by a 3% increase in retail used vehicle unit sales volume. Retail used vehicle gross profit decreased approximately $0.2 million, or 1%, driven primarily by a 4% decrease in retail used vehicle gross profit per unit, offset by a 3% increase in retail used vehicle unit sales volume.

Previous wording

The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for Fixed Operations:

Current wording

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for Fixed Operations:

Previous wording

Fixed Operations revenue increased approximately $94.8 million, or 7%, and Fixed Operations gross profit increased approximately $60.0 million, or 9%. Customer pay gross profit increased approximately $19.4 million, or 6%, warranty gross profit increased approximately $33.8 million, or 28%, wholesale parts gross profit decreased approximately $2.3 million, or 9%, and internal, sublet and other gross profit increased approximately $9.1 million, or 5%. Our Fixed Operations business has benefited from a higher level of vehicle recalls and warranty repairs, as well as additional technician headcount that has driven an increase in customer pay service capacity.

Current wording

Fixed Operations revenue increased approximately $21.3 million, or 5%, and Fixed Operations gross profit increased approximately $12.6 million, or 5%. Customer pay revenue increased approximately $12.3 million, or 6%, and customer pay gross profit increased approximately $6.0 million, or 5%. Warranty revenue increased approximately $4.9 million, or 6%, and warranty gross profit increased approximately $3.6 million, or 7%. Wholesale parts revenue increased approximately $1.7 million, or 4%, and wholesale parts gross profit remained flat. Internal, sublet and other revenue increased approximately $2.4 million, or 2.0%, and internal, sublet and other gross profit increased approximately $3.0 million, or 5%. Our Fixed Operations business has benefited from a higher level of vehicle recalls and warranty repairs, as well as additional technician headcount that has driven an increase in customer pay service capacity.

Previous wording

Finance contract revenue for combined retail new and used vehicles increased 14%, due primarily to a 6% increase in gross profit per finance contract and a 7% increase in finance contract volume. Service contract revenue for combined retail new and used vehicles increased 14%, due primarily to a 7% increase in gross profit per service contract and a 7% increase in service contract volume. Other aftermarket contract revenue for combined retail new and used vehicles increased 8%, primarily to a 7% increase in total contracts, a 1% increase in gross profit per other aftermarket contract, and a 240-basis point increase in the other aftermarket contract penetration rate.

Current wording

Finance contract revenue for combined retail new and used vehicles increased 1%, due primarily to a 280 basis point increase in penetration rate and a 2% increase in gross profit per finance contract. Service contract revenue for combined retail new and used vehicles increased 2%, due primarily to a 160 basis point increase in penetration rate and a 2% increase in gross profit per service contract, partially offset by a 1% decrease in service contract volume. Other aftermarket contract revenue for combined retail new and used vehicles decreased 6%, primarily to a 7% decrease in aftermarket contract volume and a 540 basis point decrease in penetration rate, partially offset by a 2% increase in gross profit per other aftermarket contract.

Previous wording

Retail used vehicle revenue decreased approximately $31.1 million, or 7%, due primarily to an 8% decrease in retail used vehicle unit sales volume, offset partially by a 1% increase in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue decreased approximately $1.5 million, or 3%, due primarily to a 1,404, or 8%, decrease in retail used vehicle unit sales, offset partially by a 5% per unit increase in combined retail used vehicle and F&I gross profit. The increasein combined retail used vehicle and F&I gross profit per unit was due primarily to higher F&I penetration rates, changes to our F&I product cost structure, an improvement in inventory acquisition costs as a result of sourcing a higher percentage of inventory from non-auction sources, and expanding our inventory to include older vehicles, which typically earn a higher gross profit per unit.

Current wording

Retail used vehicle revenue increased approximately $18.1 million, or 4%, due primarily to a 3% increase in retail used vehicle unit sales volume, paired with a 1% increase in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue increased approximately $3.5 million, or 5%, due primarily to a 3% increase in retail used vehicle unit sales volume, along with a 3% increase in combined retail used vehicle and F&I gross profit per unit. The increasein combined retail used vehicle and F&I gross profit per unit was due primarily to higher F&I penetration rates, changes to our F&I product cost structure, an improvement in inventory acquisition costs as a result of sourcing a higher percentage of inventory from non-auction sources, and expanding our inventory to include older vehicles, which typically earn a higher gross profit per unit.

Previous wording

Same market wholesale vehicle revenue increased approximately $6.6 million, or 28%, due primarily to a 19% increase in wholesale vehicle unit sales volume, and an 8% increase in wholesale vehicle revenue per unit. As we adjust the inventory mix of nearly new versus older model year vehicles sold at retail going forward, the levels of wholesale vehicle revenue and gross profit may vary.

Current wording

Wholesale vehicle revenue increased approximately $0.1 million due primarily to a 1% increase in wholesale vehicle revenue per unit, offset partially by a 1% decrease in wholesale vehicle unit sales volume. As we adjust the inventory mix of nearly new versus older model year vehicles sold at retail going forward, the levels of wholesale vehicle revenue and gross profit may vary.

Previous wording

As a result of the acquisition and termination of certain powersports stores in 2024 and 2025, the change in reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. Our Powersports Segment results are subject to seasonal variations, such that the second and third quarters are generally expected to contribute higher revenues and segment income than the first and fourth quarters.

Current wording

As a result of the acquisition or termination of certain powersports stores in 2025 and 2026, the change in reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. Our Powersports Segment results are subject to seasonal variations, such that the second and third quarters are generally expected to contribute higher revenues and segment income than the first and fourth quarters.

Previous wording

Retail used vehicle revenue increased 67%, due primarily to a 56% increase in retail used vehicle unit sales volume, and a 7% increase in retail used vehicle average selling prices. Retail used vehicle gross profit increased approximately $0.9 million, or 22%, as a result of higher retail used vehicle unit sales volume. Retail used vehicle gross profit per unit decreased $558 per unit, or 22%, to $1,993 per unit.

Current wording

Retail used vehicle revenue increased 77%, due primarily to a 56% increase in retail used vehicle unit sales volume, and a 14% increase in retail used vehicle average selling prices. Retail used vehicle gross profit increased 60% as a result of higher retail used vehicle unit sales volume and higher retail used gross profit per unit. Retail used vehicle gross profit per unit increased $141 per unit, or 8%, to $1,938 per unit.

Previous wording

Same store wholesale vehicle revenue increased approximately $0.1 million, primarily due to a 53% increase in wholesale vehicle unit sales volume. Same store wholesale vehicle gross profit loss remained flat during the nine months ended September 30, 2025.

Current wording

Wholesale vehicle revenue decreased approximately $0.6 million, primarily due to a 54% decrease in wholesale vehicle revenue per unit. Same store wholesale vehicle gross loss remained flat during the three months ended March 31,.

Previous wording

The following tables provide a reconciliation of Powersports Segment reported basis and same store basis for Fixed Operations:

Current wording

The following table provides a reconciliation of Powersports Segment reported basis and same store basis for Fixed Operations:

Previous wording

Same store Fixed Operations revenue increased approximately $3.0 million, or 15%, and same store Fixed Operations gross profit increased approximately $1.5 million, or 18%. Customer pay revenue increased approximately $0.3 million, or 11%, and customer pay gross profit increased approximately $0.2 million, or 17%. Warranty revenue increased approximately $0.1 million, or 9%, and warranty gross profit increased approximately $0.1 million, or 13%. Wholesale parts revenue decreased approximately $0.1 million, or 50%, and wholesale parts gross profit decreased approximately $0.1 million, or 100%. Internal, sublet and other revenue increased approximately $2.7 million, or 17%, and internal, sublet and other gross profit increased approximately $1.3 million, or 19%.

Current wording

Fixed Operations revenue increased approximately $0.8 million, or 12%, and Fixed Operations gross profit increased approximately $0.3 million, or 9%. Customer pay revenue increased approximately $0.2 million, or 14%, and customer pay gross profit increased approximately $0.2 million, or 40%. Warranty revenue remained flat, and warranty gross profit remained flat. Wholesale parts revenue increased approximately $0.1 million, or 100%, and wholesale parts gross profit remained flat. Internal, sublet and other revenue increased approximately $0.5 million, or 13%, and internal, sublet and other gross profit increased approximately $0.1 million, or 5%.

Previous wording

Same store F&I revenue increased approximately $0.9 million, or 17%, due primarily to a 26% increase in retail new and used vehicle unit sales volume, partially offset by a 7% decrease in F&I gross profit per retail unit. F&I gross profit per retail unit decreased $79 per unit, or 7%, to $1,049 per unit, due primarily to a decrease in gross profit per finance and service contracts.

Current wording

F&I revenue increased $0.4 million, or 29%, due primarily to a 30% increase in retail new and used vehicle unit sales volume, partially offset by a 5% decrease in F&I gross profit per retail unit. F&I gross profit per retail unit decreased $45 per unit to $907 per unit, primarily due to higher unit sales volume for finance contracts, service contracts and aftermarket products, higher penetration rates and gross profit per contract for finance contracts and aftermarket products, and changes to our F&I product cost structure.

Previous wording

Same store finance contract revenue increased 12%, due primarily to a 30% increase in combined new and used vehicle finance contract volume, offset partially by a 14% decrease in gross profit per finance contract. Service contract revenue increased 3%, due primarily to a 22% increase in retail new and used vehicle service contract unit sales volume, offset partially by a 15% decrease in gross profit per service contract. Other aftermarket contract revenue increased 56%, driven primarily by a 27% increase in other aftermarket contract volume, a 23% increase in gross profit per other aftermarket contract, and a 20-basis point increase in the other aftermarket contract penetration rate.

Current wording

Finance contract revenue increased 61%, due primarily to a 55% increase in combined new and used vehicle finance contract volume, a 880 basis point increase in penetration rate and a 3% increase in gross profit per finance contract. Service contract revenue decreased 3%, due primarily to a 23% decrease in gross profit per service contract and a 110 basis point decrease in penetration rate, partially offset by a 25% increase in retail new and used vehicle service contract unit sales volume. Other aftermarket contract revenue increased 51%, due primarily to a 38% increase in other aftermarket contract volume, a 10% increase in gross profit per other aftermarket contract, and a 260 basis point increase in penetration rate.

Previous wording

(2)For the nine months ended September 30, 2025, amount includes $40.0 million of pre-tax benefit from cyber insurance proceeds related to a cybersecurity incident impacting certain of our information systems provided by CDK Global in the second quarter of 2024, approximately $5.0 million of pre-tax charges related to storm damage, approximately $165.9 million of non-cash pre-tax franchise asset impairment charges, approximately $5.5 million of pre-tax loss related to dispositions, and approximately $0.7 million of pre-tax legal expenses. For the nine months ended September 30, 2024, amount includes approximately $13.0 million of pre-tax charges related to excess compensation related to the CDK outage, approximately $5.1 million of pre-tax charges related to storm damage, approximately $2.2 million of pre-tax charges for severance and long-term compensation expense and approximately $1.0 million of non-cash pre-tax impairment charges related to property and equipment. Due to rounding, segment level financial data may not sum to consolidated results.

Current wording

(2)For the three months ended March 31, 2026, amount includes approximately $5.1 million of pre-tax gain related to dispositions. For the three months ended March 31, 2025, amount includes approximately $30.0 million of pre-tax benefit in cyber insurance proceeds related to a cybersecurity incident impacting certain of our information systems provided by CDK Global in the second quarter of 2024, approximately $0.9 million of pre-tax charges related to storm damage, and approximately $0.3 million of pre-tax charges related to disposition losses.

Previous wording

(4)For the three months ended September 30, 2025, amount includes approximately $0.2 million of pre-tax charges related to dispositions.

Current wording

(3)For the three months ended March 31, 2026, amount includes approximately $3.6 million of pre-tax gain related to the termination of leases. For the three months ended March 31, 2025, amount includes approximately $0.2 million of pre-tax gain on sale of EchoPark property.

Previous wording

(5)For the nine months ended September 30, 2025, amount includes approximately $0.2 million of non-cash pre-tax property and equipment impairment charges for real estate held for sale in the EchoPark Segment and approximately $7.2 million of non-cash pre-tax franchise asset impairment charges for the Powersports Segment, $0.4 million of non-cash pre-tax property, equipment and right-of-use asset impairment charges for the Powersports Segment, and approximately $165.9 million of non-cash pre-tax franchise asset impairment charges for the Franchised Dealerships Segment. For the nine months ended September 30, 2024, amount includes approximately $1.4 million of non-cash pre-tax property and equipment impairment charges for real estate held for sale in the EchoPark Segment and approximately $1.0 million of non-cash pre-tax impairment charges for the Franchised Dealerships Segment. Due to rounding, segment level financial data may not sum to consolidated results.

Current wording

(5)For the three months ended March 31, 2026, amount includes approximately $0.4 million of non-cash pre-tax impairment charges related to construction-in-progress projects for the Franchised Dealerships Segment. For the three months ended March 31, 2025, amount includes approximately $0.2 million of pre-tax property and equipment charges for real estate held for sale in the EchoPark Segment and approximately $1.1 million of pre-tax property, equipment and right-of-use asset charges for the Powersports Segment.

Previous wording

Overall SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, primarily due to higher compensation expense as a result of higher gross profit levels, partially offset by a $40.0 million benefit from cyber insurance proceeds recorded in other SG&A expenses. Compensation expense increased in dollar amount but decreased as a percentage of gross profit, based on the variable nature of our sales associate pay plans and higher gross profit levels. Advertising expense increased in both dollar amount and as a percentage of gross profit, as a result of adapting our advertising spending to current retail automotive market conditions. Rent expense increased in both dollar amount and as a percentage of gross profit, primarily due to the increase in leased dealerships as a result of acquisitions from the fourth quarter of 2024 as well as newly acquired leased dealerships during the current year. Other SG&A expenses decreased in both dollar amount and as a percentage of gross profit, primarily due to the benefit of cyber insurance proceeds.

Current wording

Overall SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to a $30.0 million pre-tax benefit from cyber insurance proceeds related to the CDK outage recorded in other SG&A expenses during the prior year period. Compensation expense increased in both dollar amount and as a percentage of gross profit, based on the variable nature of our sales associate pay plans. Advertising expense increased in both dollar amount and as a percentage of gross profit, as a result of adapting our advertising spending to current retail automotive market conditions. Rent expense decreased in both dollar amount and as a percentage of gross profit, primarily due to the termination of leases. Other SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to the benefit of cyber insurance proceeds received in the prior year.

Previous wording

For the Franchised Dealerships Segment, SG&A expenses for the nine months ended September 30, 2025 included approximately $40.0 million of pre-tax benefit from cyber insurance proceeds related to the CDK outage in the second quarter of 2024, approximately $5.0 million of pre-tax charges related to storm damage, approximately $5.5 million of pre-tax charges related to dispositions, and approximately $0.7 million of pre-tax legal expenses. For the Franchised Dealership Segment, SG&A expenses for the nine months ended September 30, 2024, included approximately $11.0 million of pre-tax charges related to excess compensation as a result of the CDK outage, approximately $5.1 million of pre-tax charges related to storm damage, and approximately $2.2 million of pre-tax charges related to severance and long-term compensation expense. For the EchoPark Segment, SG&A expenses for the nine months ended September 30, 2025 included approximately $0.9 million of pre-tax gain on dispositions. For the EchoPark Segment, SG&A expenses for the nine months ended September 30, 2024 included approximately $3.0 million of pre-tax gain on exit of leased properties, approximately $2.9 million of pre-tax charges for severance and long-term compensation expense, approximately $2.9 million of pre-tax gain on real estate dispositions, approximately $2.1 million of pre-tax charges related to closed store accrued expenses related to indefinite suspension of operations at certain EchoPark locations, and approximately $0.4 million of pre-tax charges related to excess compensation as a result of the CDK outage. For the Powersports Segment, SG&A expenses for the nine months ended September 30, 2025 included approximately $1.1 million of pre-tax loss related to dispositions.

Current wording

For the Powersports Segment, SG&A expenses for 2025 included approximately $0.9 million of pre-tax loss related to dispositions.

Previous wording

We typically maintain a floor plan deposit balance (as shown in the table below under the heading “Liquidity and Capital Resources”) that earns interest income based on the used floor plan interest rate, effectively reducing net used vehicle floor plan interest expense. The floor plan deposit balance was $175.0 million and $400.0 million as of September 30, 2025 and September 30, 2024, respectively, and was $340.0 million and $345.0 million as of December 31, 2024 and December 31, 2023, respectively. Our interest expense, floor plan fluctuates with changes in our outstanding borrowings and associated interest rates, which are variable based on one-month Term SOFR or the U.S. prime rate, plus credit spreads specified in the applicable agreements.

Current wording

We typically maintain a floor plan deposit balance (as shown in the table below under the heading “Liquidity and Capital Resources”) that earns interest income based on the used floor plan interest rate, effectively reducing net used vehicle floor plan interest expense. The floor plan deposit balance was $375.0 million and $365.0 million as of March 31, 2026 and March 31, 2025, respectively, and was $300.0 million and $340.0 million as of December 31, 2025 and December 31, 2024, respectively. Our interest expense, floor plan fluctuates with changes in our outstanding borrowings and associated interest rates, which are variable based on one-month Term SOFR or the U.S. prime rate, plus credit spreads specified in the applicable agreements.

Previous wording

Interest expense, floor plan for new vehicles decreased $5.7 million. The average interest rate applied to the new vehicle floor plan decreased in the nine months ended September 30, 2025, driving $10.6 million of the net decrease. The average new vehicle floor plan notes payable balance increased $101.7 million, offsetting $4.9 million of the overall decrease.

Current wording

Interest expense, floor plan for new vehicles decreased $1.1 million. The average interest rate applied to the new vehicle floor plan decreased in the three months ended March 31, 2026, driving $2.2 million of the overall decrease. The average new vehicle floor plan notes payable balance increased $77.4 million, offsetting $1.0 million of the overall decrease.

Previous wording

Interest expense, floor plan for used vehicles increased $2.5 million including the effect of interest income earned on the floor plan deposit balance, which increased net interest expense $5.5 million. Excluding that effect, interest expense, floor plan for used vehicles decreased $3.0 million. The average interest rate applied to the used vehicle floor plan decreased in the nine months ended September 30, 2025, driving $2.6 million of that decrease. The average used vehicle floor plan notes payable balance decreased $7.5 million, driving $0.4 million of that decrease.

Current wording

Interest expense, floor plan for used vehicles increased $0.5 million, including the effect of interest income earned on the floor plan deposit balance, driving $1.0 million of the increase. Excluding the effect of the floor plan deposit balance, interest expense, floor plan for used vehicles decreased $0.5 million. The average interest rate applied to the used vehicle floor plan decreased in the three months ended March 31, 2026, driving $1.0 million of that decrease. The average used vehicle floor plan notes payable balance increased $28.0 million, offsetting $0.5 million of that decrease.

Previous wording

The overall effective income tax rate was 34.3% and 27.9% for the three and nine months ended September 30, 2025, respectively, and a benefit of 22.0% and expense of 9.6% for the three and nine months ended September 30, 2024, respectively. The effective income tax rate in the three and nine months ended September 30, 2025 was impacted by the effect of the non-cash impairment charges related to indefinite lived franchise assets, the effect of certain permanent items on relatively low pre-tax income amounts and discrete tax charges booked in the current year quarter. During the three month period ended September 30, 2024, Sonic recognized a $31.0 million discrete tax benefit associated with the impairment of franchise assets in 2022 resulting in a favorable rate impact of 51.0% and 17.8% for the three and nine months ended September 30, 2024 respectively. Sonic’s effective income tax rate generally varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

Current wording

The overall effective income tax rate was 28.5% and 27.5% for the three months ended March 31, 2026 and 2025, respectively. Sonic’s effective income tax rate generally varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

Previous wording

We require cash to service debt, meet lease obligations, manage working capital requirements, make facility and other capital improvements, pay dividends on our common stock, finance acquisitions and otherwise invest in our business. We rely on cash flows from operations, borrowings under our revolving credit and floor plan facilities, real estate mortgage financing, asset sales and offerings of debt and equity securities to meet these requirements. However, our liquidity could be negatively affected by business performance and could result in failure to comply with the financial covenants in our existing debt obligations or lease arrangements. After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of September 30, 2025, we had approximately $409.8 million of net income and retained earnings free of such restrictions. Cash flows provided by our dealerships are derived from various sources. The primary sources include individual consumers, automobile manufacturers, automobile manufacturers’ captive finance subsidiaries and other financial institutions. Disruptions in these cash flows could have a material adverse impact on our operations and overall liquidity.

Current wording

We require cash to service debt, meet lease obligations, manage working capital requirements, make facility and other capital improvements, pay dividends on our common stock, finance acquisitions and otherwise invest in our business. We rely on cash flows from operations, borrowings under our revolving credit and floor plan facilities, real estate mortgage financing, asset sales and offerings of debt and equity securities to meet these requirements. However, our liquidity could be negatively affected by business performance and could result in a failure to comply with the financial covenants in our existing debt obligations or lease arrangements. After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of March 31, 2026, we had $282.0 million of net income and retained earnings free of such restrictions. Cash flows provided by our dealerships are derived from various sources including, primarily, individual consumers, automobile manufacturers, automobile manufacturers’ captive finance subsidiaries and other financial institutions. Disruptions in these cash flows could have a material adverse impact on our operations and overall liquidity.

Previous wording

We maintain a floor plan deposit balance (as shown in the table above) that offsets interest based on the agreed upon floor plan interest rate, effectively reducing net used vehicle floor plan interest expense. This deposit balance is not designated as a prepayment of notes payable - floor plan, nor is it our intent to use this amount to settle principal amounts owed under notes payable - floor plan in the future, although we have the right and ability to do so. The deposit balances of $175.0 million as of September 30, 2025 and $340.0 million as of December 31, 2024 are classified as other current assets in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024.

Current wording

We maintain a floor plan deposit balance (as shown in the table above) that offsets interest based on the agreed upon floor plan interest rate, effectively reducing the net used vehicle floor plan interest expense. This deposit balance is not designated as a prepayment of notes payable - floor plan, nor is it our intent to use this amount to settle principal amounts owed under notes payable - floor plan in the future, although we have the right and ability to do so. The deposit balances of $375.0 million as of March 31, 2026 and $300.0 million as of December 31, 2025 are classified as other current assets in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2026 and December 31, 2025.

Previous wording

The weighted-average interest rates for our combined new and used vehicle floor plan facilities were 5.65% and 6.60% for the three months ended September 30, 2025 and 2024, respectively, and 5.66% and 6.66% for the nine months ended September 30, 2025 and 2024, respectively. Excluding the effect of interest income earned on the floor plan deposit balance, the weighted-average interest rates for our combined new and used vehicle floor plan facilities were 5.67% and 6.68% for the three months ended September 30, 2025 and 2024, respectively, and 5.70% and 6.72% for the nine months ended September 30, 2025 and 2024, respectively.

Current wording

The weighted-average interest rates for our combined new and used vehicle floor plan facilities were 5.02% and 5.70% for the three months ended March 31, 2026 and 2025, respectively. Excluding the effect of interest income earned on the floor plan deposit balance, the weighted-average interest rates for our combined new and used vehicle floor plan facilities were 5.06% and 5.75% for the three months ended March 31, 2026 and 2025, respectively.

Previous wording

We receive floor plan assistance in the form of direct payments or credits from certain manufacturers. Floor plan assistance received is capitalized in inventory and recorded as a reduction of cost of sales when the associated inventory is sold. We received approximately $17.3 million and $16.7 million in manufacturer assistance in the three months ended September 30, 2025 and 2024, respectively, and approximately $49.3 million and $45.7 million in manufacturer assistance in the nine months ended September 30, 2025 and 2024, respectively. We recognized in cost of sales approximately $17.2 million and $16.3 million in manufacturer assistance in thethree months ended September 30, 2025 and 2024, respectively, and$49.0 million and $46.8 million in manufacturer assistance in thenine months ended September 30, 2025 and 2024, respectively. Interest payments under each of our floor plan facilities are due monthly and we are generally not required to make principal repayments prior to the sale of the associated vehicles.

Current wording

We receive floor plan assistance in the form of direct payments or credits from certain manufacturers. Floor plan assistance received is capitalized in inventory and recorded as a reduction of cost of sales when the associated inventory is sold. We received approximately $14.5 million and $15.9 million in manufacturer assistance in the three months ended March 31, 2026 and 2025, respectively. We recognized in cost of sales approximately $13.9 million and $15.4 million in manufacturer assistance in thethree months ended March 31, 2026 and 2025, respectively. Interest payments under each of our floor plan facilities are due monthly and we are generally not required to make principal repayments prior to the sale of the associated vehicles. The total notes payable - floor plan balance of approximately $2.0 billion as of March 31, 2026 is classified as current liabilities in the accompanying unaudited consolidated balance sheet as of such date.

Previous wording

Capital expenditures in the nine months ended September 30, 2025 were approximately $112.6 million, including approximately $109.3 million related to our Franchised Dealerships Segment, approximately $1.1 million related to our EchoPark Segment and approximately $2.2 million related to our Powersports Segment. Of the total capital expenditures, approximately $62.2 million was related to facility construction projects, approximately $13.3 million was related to acquisitions of real estate (land and buildings) and approximately $37.1 million was for other fixed assets utilized in our operations.

Current wording

Capital expenditures in the three months ended March 31, 2026 were approximately $37.0 million, including approximately $35.9 million related to our Franchised Dealerships Segment, approximately $0.7 million related to our EchoPark Segment and approximately $0.4 million related to our Powersports Segment. Of the total capital expenditures, approximately $17.4 million was related to facility construction projects, approximately $2.8 million was related to real estate projects (buildings and improvements) and approximately $16.8 million was for other fixed assets utilized in our operations.