Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Q3 2010 Earnings Presentation
41 slides from Lithia Motors's earnings presentation, Oct 27, 2010
Slide 1: Q3 2010 Company Update
It lL 311 0 COMPANY UPDATE
Slide 2: Disclosure
DISCLOSURE This presentation includes “forward-looking statements” within the meaning of the “Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. Forward-looking statements in this presentation include our guidance
Slide 3: The Beginning: Since 1946
1947 Photo Lit a Maas CHRYSLER « p THE BEGINNING: SINCE 1946 fe FOUNDED IN ASHLAND, OREGON
Slide 4: Lithia Motors Overview
=|.P.O. in Dec. 1996 - 5 dealerships = The 9th largest U.S. auto retailer = Fortune 800 Company a LITHIA MOTORS OVERVIEW 85 DEALERSHIPS, 12 STATES, 26 BRANDS
Slide 5: Differentiated Model
Operations Market Position Growth "Stable, profitable | =Mid-sized = Organic sales business regional markets improvement = Leader in used = Rural, single- = Acquire vehicles point stores underperforming = Improved brand = Higher demand stores mix for trucks and = Strong financial domestic brands pos
Slide 6: Focused Centralization Promoting Entrepreneurial Management
CORPORATE Cash Management Advertising / Marketing Accounts Payable Procurement Accounts Receivable Credit and Collections Legal Tax / Accounting Information Systems Payroll / Benefits Inventory Management Human Development Human Resources CUSTOMER-FACING CENTRALIZED BUDGETING & COMMON MEASUREMENT LJ
Slide 7: Performance at a Glance
PERFORMANCE AT A GLANCE
Slide 8: Q3'10 Financial Results
Revenue ($MM) Adjusted Income from Continuing Operations ($MM) 147%, oe : L : a i a3 2009 3 2010 93.2009 93 2010 Not: See appenafrrconcaton of used neane ‘omconnug operators = Same store sales increased 12% = Same store service, body and parts revenues increased 2.5% = Exceeded high end of guidance
Slide 9: Gross Profit Analysis
New Vehicle Same Store Gross Profit Change 10.5% (8.3)% —(0.3)% (2.5)% Volume Price Margin Total Change = New vehicle same store gross profit flat Retail Used Vehicle Same Store Gross Profit Change 18.7% 11% _(3.3)% 16.5% Service, Body & Parts Same Store Gross Profit Change 26% (0.1)% Volume Price M
Slide 10: New Vehicle Sales
NEW VEHICLE SALES SHIFT TOWARDS TRUCKS INCREASING ASP Average Selling Price per Unit = New vehicles same store sales up 8%, despite difficult comparison due to am om ate awa “Cash for Clunkers” . in 2009 Vehicle Sales Mix =Gross profit per unit increased $57 over prior year arto 0 aso 32200 3132 309
Slide 11: Used Vehicle Sales
= Used vehicle same store sales up 20% =Wholesaled 3% fewer units than in Q3’09 =Sold 2,100 ‘As-Is’ used cars in the quarter Retail/Wholesale Split Used to New Ratio 65.7% 70.5% 1 4.0x 44x a i I | l l Q310 Q309 Q4°09 Qt10 Q210 Q310 2 USED VEHICLE SALES CONTINUED FOCUS AND STRONG EXECUTION
Slide 12: Service, Body and Parts Revenue Mix by Component
SF SERVICE, BODY AND PARTS “ 4 REVENUE MIX BY COMPONENT | Same Store Revenue Mix 90% «96% = 97% = 86% 8% =Same store sales 16.7% 16.3% 17.2% 16.1% 16.4% a a nc ee growth of 2.5% in g a | a ce entan 55 5% 56.1% 545% 57.9% 57.3% = Sequential 932009 © @42009 © Q12010 © 22010 © Q3 2010 improvement in al
Slide 13: Service Trend Analysis
SERVICE TREND ANALYSIS “ BUSINESS REMAINS STABLE DUE TO MIX SHIFT ——————————————ad = Consistent number of vehicles serviced per month = More older vehicles being serviced = Declining average sale per RO indicates some deferral of maintenance Age of Serviced Vehicles Average Sale per RO Avg # of Vehi
Slide 14: Finance and Insurance
Penetration Rates Q3°09 Q3'10 Finance and Insurance 67% 72% = F&l per unit, excluding Service Contracts 40% 40% ‘As-ls’ units, is $1 081 Lifetime Oil and Filter 31% 34% , , = Sold an average of $65 in FG! per Unit Breakdown additional service work on sue each lifetime oil change in Insurance 594 : a
Slide 15: SG&A Analysis
Gross Profit ($MM) & Adjusted SG&A a = Year-over-year ~~ fae declines in adjusted = al | SG&A as a % of Q3 2008 Q3 2009 Q3 2010 gross profit for s Ix scmsrot —Aasctaseaxorce consecutive quarters % of Gross Profit Q309-Q310 Change = Additional advertising Personnel 47.2% 45.1% (210) Bps to increase m
Slide 16: Gross Profit Retention
$M Q3'09 -Q3'10 % Change Gross Profit $95.5 $104.9 9.9% Personnel $451 $47.3 49% Advertising $49 $7.0 44.1% Rent $37 $35 — (6.5)% Facility Cost $55 $6.0 8.4% Other $120 $137 14.5% Adj SG&A $712 $77.5 8.9% Not: See apper for econtaton ot agusea SCBA. = Retained 33% of each incremental gross profit do
Slide 17: Book Value Per Share
BOOK VALUE PER SHARE “ STOCK TRADING BELOW TANGIBLE BOOK VALUE ae = 83% of book value in tangible assets = Balance sheet risk mitigated = $9MM increase in intangibles from acquisitions $MM, except per share Book Value amounts Assets Liabilities _NetValue___per Share Cash/CIT $44.0 Es $44.0 $1.68 Inv
Slide 18: Financial Position
FINANCIAL POSITION
Slide 19: Current Liquidity
CURRENT LIQUIDITY INCREASED THROUGHOUT 2010 Immediately Available Funds ($MM) Q4'09 Q3'10 Change Cash and Cash Equivalents $12.8 $15.3 $2.5 Availability on Line of Credit 25.7 30.4 47 Unfinanced New Vehicles 35.7 65.2 29.5, Total $74.2 $110.9 $36.7 =Projected 2010 free cash flow* of $35MM = YTD adju
Slide 20: Stable Balance Sheet
STABLE BALANCE SHEET ° MINIMAL NEAR TERM DEBT MATURITIES =No debt except mortgages and new vehicle financing = Comfortably in compliance with all financial covenants Future Mortgage Debt Maturities ($M) ‘Avg Annual Adj CF from Ops = = is 2010 2011 2012 2013 2014 2015 2016 Beyond
Slide 21: Increased 2010 Guidance
21 fq INCREASED 2010 GUIDANCE Projected Q4’10 - $0.11 - $0.13 earnings range*: FY 2010 - $0.84 - $0.86 ASSUMPTIONS = Total revenues in range of $1.95 to $2.0 billion = New vehicle same store sales increasing 15.7% = New vehicle gross margin from 8.1% to 8.3% = Used vehicle same store sales increasin
Slide 22: 2011 Guidance
22 FA c =f 2011 GUIDANCE A ——— | Projected Q1’11 - $0.15 - $0.17 earnings range*: FY 2011 - $1.03 - $1.11 ASSUMPTIONS = Total revenues in range of $2.2 to $2.35 billion = New vehicle same store sales increasing 10.0% = New vehicle gross margin from 8.0% to 8.2% = Used vehicle same store sales increa
Slide 23: Mission Statement
23 i: MISSION STATEMENT TO BE THE PREFERRED PROVIDER OF CARS AND TRUCKS AND RELATED SERVICES IN NORTH AMERICA OUR VALUES EARN CUSTOMERS FOR LIFE Let's listen and understand our customers’ needs. Know that you are empowered to ‘do the right thing.’ Let's make sure our customers are so satisfied that
Slide 24: Appendix
APPENDIX
Slide 25: Non-Operating Assets
j NON-OPERATING ASSETS 2 CONTINUED PROGRESS CONVERTING ASSETS =Mitigated 24% of non-operating assets in Q3, estimated annual savings of $0.03 per share = 29% of remaining non-operating assets under advanced negotiations Property, Plant and As of Equipment ($MM) Sept 30, 2010 Vacant Facilities & Land
Slide 26: Chrysler Update
4 CHRYSLER UPDATE ENCOURAGING DEVELOPMENTS AND TRENDS 26 =Chrysler new vehicle same store sales up 11%; better than total new vehicle same store sales =Chrysler stores comprise 27% of current store count Stand Alone Chrysler Chrysler Unit Sales Q3'10 Stores Ram Pickup 51% Jeep Models 21% I~ Charger/
Slide 27: Vehicle Reconditioning
= Sector currently presents the ‘Assumptions: elimination of vehicle Revenue from Used Vehicle Sale to Customer $18,000 reconditioning using 3 methods Used Vehicle Cost (excluding Vehicle Recon) $14,000 ‘Service Revenue for Internal Prep $2,000 ‘Service Cost for Internal Prep $1,000 LITHIA’S METHOD
Slide 28: Vehicle Reconditioning: Summary of Sector Presentation Methods
METHOD 2 = Vehicle reconditioning revenues and costs are eliminated in SB&P. Gross profit remains in SB&P METHOD 3 = Vehicle reconditioning revenues are eliminated in new and used revenue and cost. SB&P. revenues and cost increased Used Car Revenue ‘SB&P Revenue Total Revenue Used Car Cost ‘SB&P Cos
Slide 29: 2010 Quarterly Income Statement
2010 Quarterly Income Statement 29 310 2'10 10 New vehicle "293,231 268,721 215,617 Used vehicle 158,798 146,836 135,899 Wholesale used vehicles 30,869 25,570 23,465 Service, body and parts 77,733 71,996 68,797 Finance and insurance 18.928 © 16,274 14,638 Fleet and other 3122 4,704 803 Total Revenue
Slide 30: 2009 Quarterly Income Statement
2009 Quarterly Income Statement 30 OF 05. 3°09 (2°09 ‘arog New vehicle ‘210454 "266,765 ‘211,760 192,306 Used vehicle 112,051 129,857 126,256 109,089 Wholesale used vehicles 18,212 20,223 17.751 16,513 Service, body and parts 71,268 74.538 72312 72,957 Finance and insurance 12,299 15,704 14,857 13,5
Slide 31: 2008 Quarterly Income Statement
2008 Quarterly Income Statement 31 aF08 (3°08 708 ‘aros New vehicle 207,378 310,655 332,629 316,870 Used vehicle 94,789, 127,179 123,150 124,485 Wholesale used vehicles 14,871 24,959 25,417 31,229 Service, body and parts 74211 76,470 75.528 77387 Finance and insurance 13,819 20,870 21373 21,441 Flee
Slide 32: 2007 Quarterly Income Statement
2007 Quarterly Income Statement 32 aro 307 Qz07 ‘aror New vehicle 338,888 ‘413,082 432,163 360,264 Used vehicle 114,517 146,098 158,910 135,904 Wholesale used vehicles 28,810 39,308 33,246 32,498 Service, body and parts 75,393, 77101 76,876 73,442 Finance and insurance 20,053, 22 27.670 24,602 Fleet
Slide 33: Quarterly Same Store Revenue Changes
33 Quarterly Same Store Revenue Changes at 3 ‘a2 ar 2010 New vehicles 8.0% 26.3% 1.7% Retail used vehicles 19.8% 15.0% 22.0% Wholesale used vehicles 51.8% 42.1% A11% ‘Service, body and parts 25% 02% 6.0% Finance and insurance 18.8% 15.2% 03% Total 12.2% 19.1% 12.1% 2009 New vehicles 1.1% -35.9% -39.
Slide 34: Quarterly Gross Margins
34 Quarterly Gross Margins ar 3 ‘a2 ar 2010 New vehicles 83% 82% 85% Retail used vehicles 14.7% 14.5% 13.7% Wholesale used vehicles 0.1% 12% 1.6% Service, body and parts 49.0% 49.1% 48.8% Finance and insurance 100.0% 100.0% 100.0% Total 18.0% 17.9% 18.7% 2009 New vehicles 1.9% 8.9% 82% 87% Retail us
Slide 35: Q3'10 Adjusted Diluted EPS
Continuing Operations ‘As reported Impairments and disposal gain Lease termination and severance reserve Gain on extinguishment of debt Adjusted Discontinued Operations As reported Impairments and disposal (gain) ‘Three Months Ended September 30, Net incomei(loss) Diluted earnings per share 2010 200
Slide 36: 2009 Quarterly Adjusted Net Income & Diluted EPS
36 2009 Quarterly Adjusted Net Income & Diluted EPS Net incomei{loss) Diluted earnings per share aF0s 309209 TOS FOS ‘3°09 709 arog Continuing Operations GAAP Basis, $1,814) $6,975 $2,539 $784) $(0.07) $0.33 $012 (0.04) Impairments and disposal gain (81) 1571 2,057 1,374 (0.01) 007 0.10 0.07 Lease t
Slide 37: 2008 Quarterly Adjusted Net Income & Diluted EPS
37 2008 Quarterly Adjusted Net Income & Diluted EPS Net incomei{loss Diluted earnings per share ar0s QF08 a208___ OT 08 Ors. ‘Q308 (az08 ars. Continuing Operations GAAP Basis 81,174) $1,021 (224,393) _-$(586) (0.06) $0.05 — §(11.18) $0.03) Impairments and disposal gain 917 1,668 227,652 - 0.04 0.08
Slide 38: 2010 Selected Income Statement Detail
38 2010 Proforma Adjustments. s10 (a2"70 ‘ari Selling, general & administrative As reported STTA6B $74,813 $71,039 Impairments and disposal gain - Q) 367 Lease termination and severance reserve = 1,076) (258) Adjusted S77 Aes $73,735 $71,148 Income from operations. As reported $23,238 «$3,268 «$8,62
Slide 39: 2009 Selected Income Statement Detail
39 2009 Proforma Adjustments. as 05 ‘03°09 ‘a7'09 Aros. Selling, general & administrative GAAP Basis, $67,508 $71,557 $68,854 $69,058 Impairments and disposal gain - (393) (160) (403) Lease termination (454) = = = Adjusted 367,054 $71,164 $68,694 $68,655 Income from operations GAAP Basis, $3,227 $18
Slide 40: 2008 Selected Income Statement Detail
40 2008 Proforma Adjustments 08 308 1208 08. ‘Selling. general & administrative GAAP Basis, $69,427 $78,136 $80,314 ‘$83,676 Impairments = 150) (418) = Adjusted 369427 $17,986 $79,896 83,676 income from operations GAAP Basis, $3,268 $9,352 §(322,227) $8,854 Impairments and disposal gain 1157, 2405 3
Slide 41: Adjusted Cash Flow from Operations
41 Proforma Cash Flow fro! a m Operations YrD 20102009 2007 Cash flow from Operations GAAP Basis $(16,760) $9,934 $85,165 sett) Flooring Notes Payable, non-trade 43,807 31417 16,803) Adjusted 32,953) $47,351 $08,362 a or) GAAP RECONCILIATION ADJUSTED CASH FLOW FROM OPERATIONS