Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Q2 2011 Earnings Presentation
41 slides from Lithia Motors's earnings presentation, Jul 28, 2011
Slide 1: Q2'11 Company Update
Q2’11 COMPANY UPDATE
Slide 2: Disclosure
7 i} DISCLOSURE This presentation includes “forward-looking statements" within the meaning of the "Safe-Harbor" provisions of the Private Secutities Litigation Reform Act of 1995, which managernent believes ate a benefit to shareholders. Forward-looking statements in this presentation include our gu
Slide 3: The Beginning: Since 1946, Founded in Ashland, Oregon
1947 Photo LITHIA Mo CHRYSLER = PLynoy = THE BEGINNING: SINCE 1946 | FOUNDED IN ASHLAND, OREGON
Slide 4: Lithia Motors Overview
= |.P.O. in Dec. 1996 -5 dealerships = The 9th largest U.S. auto retailer = Primarily exclusive franchises m LITHIA MOTORS OVERVIEW »~ 86 DEALERSHIPS, 12 STATES, 27 BRANDS
Slide 5: Lithia Motors Overview: Brand Mix and State Composition
Fig LITHIA MOTORS OVERVIEW i BRAND MIX AND STATE COMPOSITION Brand Mix State Mix Toyota 11% Honda7% BMW7% Ford 6% Hyundai 5%
Slide 6: Sector Strengths
SECTOR STRENGTHS
Slide 7: Stable, Profitable Industry
STABLE, PROFITABLE INDUSTRY SE Q2'11 Profitability Mix Auto Retailers 43% 5.3% x 20% 1.9% 15% 21% [2.2% 23.8% New Vehicles a. 2 51.9% 8 23.2% = = g 18.9% & if Used Vehicles 30.4% (15.0)% Si Body & Parts 2007 2008 +2009» 2010 12011 SEE BEES eT RNS SAAR 16.1 13.2 10.4 11.6 13.0 Revenue Gross Profit om
Slide 8: Significant External Support
vac 8 = SIGNIFICANT EXTERNAL SUPPORT - ee = Incentives support inventory value = National advertising campaigns = Warranties provide ongoing revenue = Support consumer, real estate & inventory financing WANUFACTURERS DEALER FRANCHISE LAWS ASSOCIATIONS = Strong state and federal = Prevent new franchi
Slide 9: Unconsolidated Industry
UNCONSOLIDATED INDUSTRY Dealerships in the U.S. Highly Fragmented Sector 21,761 21,461 20,453, I | 11 [ ; 0 2009 [ asomotie Hevea amber of Lk = $1T automotive retail market = 17,700 dealerships in the country = Largest retail sector in the U.S. ABUNDANT ACQUISITION OPPORTUNITIES
Slide 10: Lithia's Strategy
LITHIA’S STRATEGY
Slide 11: Lithia's Strategy
= LITHIA’S STRATEGY 1 TARGET EXCLUSIVE FRANCHISES " Mid-sized, regional markets for domestic and import, metro markets for luxury = Insulation from competition offers pricing protection OPERATORS; ENTREPRENEURIAL CULTURE " Store focused on positive customer experience = Store ownership of marketing
Slide 12: Q2'11 Results
Q2’11 RESULTS
Slide 13: Q2'11 Financial Results
13 My Q2'11 FINANCIAL RESULTS Revenue ($MM) Adjusted Diluted EPS % $689.1 es $0.54 $530. ot i in 022010 22011 02 2010, o2204, =|ncreased same store sales in all business lines = Largest second quarter earnings per share since 2006
Slide 14: Q2'11 Gross Margin
= Q2’11 GROSS MARGIN ‘ Gross Margin Progression 18.0% ee 174% 174% = 17.4% = Insulated markets maintain higher ozo aston ozit overall gross margin RT = Strong used vehicle New vehicle retail 8.2% 8.0% (20) bps values improved Used vehicle retail 14.5% 15.3% 80 bps gross margin Used vehicle wholesale
Slide 15: Gross Profit Analysis
New Vehicle Same Store Gross Profit Change 3.9% 20.4% i | || 19.7% (4.6)% Volume Price Margin Total Change = New vehicle same store gross profit up 20% Retail Used Vehicle Same Store Gross Profit Change 7.9% 24.1% 1.7% | 14.5% $f Volume Price Margin Total Change = Retail used vehicle same store gros
Slide 16: New Vehicle Sales
\ NEW VEHICLE SALES Same Store Sales Growth Y-0-Y 41.5% 34.4% i] 1 = Domestic same store sales i 5% . increased 34% | am. orto arn I = Truck sales increased 32% Gross Margin = Sequential margin 82% 83% 7am ey 8.0% . improvement due to | | scarcity of import inventory 210 310-40 att tt SOLID GROWTH A
Slide 17: Used Vehicle Sales
@ USED VEHICLE SALES AWA Same Store Sales Growth Y-o-Y 19.5% 21.2% 14.9% wee eek ® As-is vehicle sales [ l | increased 84% Y-0-Y ff Ef EF HE = Retail gross margin 15% oz aso SCC ibised tu New Rutics * As-is vehicle gross margin 22% TO MK ge, 8 SALON os te . : Dee " Maintained 0.9:1 ratio despite str
Slide 18: Finance and Insurance
4 = FINANCE AND INSURANCE F&l per Unit Breakdown Insurance and Other Ee $108 Penetration Rates Q210 Q2"11 Arranged Financing 72% 73% Service Contracts 40% 40% Maintenance 9516 Lifetime Oil and Filter 34% 37% Contracts $607 Financial Composition _Q2°10 Q2"11 eon Sub-Prime <620 10% 13% ' Non-Prime 620
Slide 19: Service, Body and Parts
=f SERVICE, BODY AND PARTS” ™ ee Same Store Revenue Mix Same Store Y-o-Y Revenue Change 8.7% 9.3% 10.6% 10.5% 10.0% Q210 Q340 4140 Q111 Q2"11 16.2% 163% = 16.9% = 18.1% 917.2% 17.4% = 17.3% 16.6% 17.6% 16.4% peel 2.2%) Customer Pay 57% 59% 54% Warranty (9.8)% (6.2)% (3.1)% 1)%} | oo on oe oe oe Whol
Slide 20: SG&A Analysis
SG&A ANALYSIS Adjusted SG&A as a % of % of Gross Profit Q240 Q21 Change Gross Profit Personnel 47.71% 46.8% (90) bps Advertising 71% 56% (150) bps 7B8% Rent 4.0% 33% — (70)bps 77.0% Facllty Cost 58% 54% (40) bps 714% Other 12.4% 10.3% (210) bps a Total 77.0% 71.4% (660) bps Q2 2009 Q2 2010 Q2 2011 (
Slide 21: Gross Profit Retention
21 a c = GROSS PROFIT RETENTION $M Q210 © 9211 % Change Gross Profit $950 $119.7 — 26.0% 02°F incremental Throughput $M. Personnel $452 $56.0 23.9% Advertising $67 $67 (1.0)% Change in Gross Profit $247 Rent $38 $3.9 43% Change in Adj SG&A $12.4 Facility Cost $5.6 $65 17.0% Other $118 $12.4 5.3% % I
Slide 22: Growth Opportunities
22 S GROWTH OPPORTUNITIES Internal Initiatives Funds for Growth = Increase new vehicle sales ($MM) att _Q2"11_Change 5% above 2011 market Cash and Cash Equivalents $13.1 $117 $(1.4) increase Availability on Line of Credit 376 78 (298) Unfinanced New Vehicles 522 444 (4441 = |ncrease used vehicle sal
Slide 23: Acquisition Growth
\y, ACQUISITION GROWTH ° Acquisition Objectives 2011 Recap = Targets for initial investment: Portland Acquisition $M___ Multiple = 75-100% 5-year after-tax ROI Net Invested Capital" $373 . . Annualized EBITDA 10.8 34x s 2x-4x EBITDA, including Annualized Revenues** $205.9 18% flooring interest “ater
Slide 24: Updated 2011 Guidance
24 a c =f UPDATED 2011 GUIDANCE Projected Q3’11 - $0.45 - $0.47 earnings range*: FY 2011 - $1.67 - $1.73 ASSUMPTIONS = Total revenues in range of $2.6 to $2.7 billion = New vehicle same store sales increasing 23% New vehicle gross margin from 7.5% to 7.7% Used vehicle same store sales increasing 17%
Slide 25: Appendix
APPENDIX
Slide 26: New Vehicle Supply
26 ) NEW VEHICLE SUPPLY 120 New Vehicle Days Supply 90 84 69 60 51 31 30 ze at me -LEL o | ie —_— — _| Toyota Honda Nissan Subaru Chrysler Ford All Other = On-Ground = In-Transit = Import supply still constrained = On ground new vehicle days supply ~ 68 days . Used vehicle days supply ~ 56 days aye
Slide 27: Non-Operating Assets
fq NON-OPERATING ASSETS 27 = Mitigated 56% of non-operating properties since Q2’10; estimated annual savings of $0.06 per share = 17% of remaining non-operating assets under advanced negotiations Property, Plant and As of Equipment (SMM) Jun 30, 2011 Vacant Facilities & Real Estate $353.4 Bare'Land,
Slide 28: Stable Balance Sheet
a STABLE BALANCE SHEET 28 = Paid off $8.0MM in mortgages during Q2’11 = $3MM mature in 2011; no mortgages due in 2012 Future Mortgage Debt Maturities ($MM) 40 30. 20 ll 10 .—_ ss mm 2011 2012-2013 20142018 2016 2017 Beyond MINIMAL NEAR TERM DEBT MATURITIES
Slide 29: Chrysler Update
CHRYSLER UPDATE = Majority of Lithia’s sales from Ram Pickup and Jeep Units = 30% increase in Chrysler car sales over prior quarter, truck sales relatively flat. Chrysler Unit Sales Q2'11 Ram Pickup 39% Jeep Models 27% Charger/Challenger/300 10% Durango/Journey 7% Minivan 6% Other 11% Total 100% Chr
Slide 30: Consolidated Balance Sheet
r j tune 30, 204 Assets Current Assets: Cash and cash equivalents 3 11738 Trade Receivables, net of allowance for doubt accounts of $195 and $190 88,793 Invertaries, net 497,530 Deferred Income taxes 341 ther Current Assets 9473 Total Current Assets 607.178 Property and Equipment, net of accumulated
Slide 31: Income Statement
31 co) a a New vehiole $357698 $909,792 $000,890 Used vehicle 120099 © 159.569 © 339,008 Wholesale used vehicles 29,701 30273 59,974 Finance and insurance non 19752 41123 Service, hady and parts 83128 75903159031 Fleet and other 17491 3142 20233 Total Revenues casos = S97831 1,286,800 Cost of Goods
Slide 32: Quarterly Income Statement 2010
32 co) oro. [ecu wi. arm. YID- New vehicle $288,000 «$290,880 «$266,780 «$213,501 $1,059,287 Used vehicle 138,801 187,638, 145,788 134,995 617,218 ‘Wholesale used vehicles, 28,116 30,760 26,601 23,393 407,760 Finance and insurance 47447 18,788 16,168 14,631 66,624 Service, body and parts, 76,549 76,
Slide 33: Quarterly Income Statement 2009
co) New vehicle Used vehicle ‘Wholesale used vehicles, Finance and insurance Service, body and parts, Fleet and other Total Revenues Cost of Goods Sold New vehicles Retall used vehicles Wholesale used vehicles Finance and insurance Service, body and parts, Fleet and other Gross Profit ‘Asset impamen
Slide 34: Quarterly Same Store Revenue Changes
34 Quarterly Same Store Revenue Changes OF ‘Os a2. Qt YID. 2011 New vehicles 24.9% © 41.5% 31.9% Retail used vehicles 16.2% 18.8% 18.6% Wholesale used vehicles 143% 307% = 221% Finance and insurance 28.0% 380% 326% Service, body and parts, 47% 8.4% 6.5% Total 19.0% 28.6% «= 23.5% 2010 New vehicles 3
Slide 35: Quarterly Gross Margins
35 Quarterly Gross Margins OF as a2 Qt VID. 2011 New vehicles 8.0% 7.8% 11% Retail used vehicles 153% = 14.7% 15.0% Wholesale used vehicles 0.9% 1.3% 11% Finance and insurance 100.0% 100.0% — 100.0% Service, body and parts, 491% 48.5% 48.8% Total 74% 174% 17. 2010 New vehicles 7.8% 8.3% 8.2% 8.6% 8.
Slide 36: GAAP Reconciliation: 2011 Adjusted Income Statement Detail
36 wal ori 0) Selling, general & administrative As reported $84,955 $79,185 $164,140 Impairments and disposal gain/loss ul - 560 Adjusted 905535 «979,185 $164.70 Income from operations As reported $29,988 © §20.288 = $80,276 Impairments and disposal gain/loss 0 382 292 Adjusted 39698 <§20670 $60,568
Slide 37: GAAP Reconciliation: 2010 Adjusted Income Statement Detail
37 ori O30 O20 ori 0) Selling, general & administrative As reported 876696 © S75843 874155 70.417 $298,111 Impairments and disposal gain/loss a7 - Q 367 412 Resetve adjustments 96 - (1,076) (258) (1,238) Adjusted 376609 ORAS 873077 $70,826 297,285 Income from operations As reported 12747 $23,083, 93
Slide 38: GAAP Reconciliation: 2009 Adjusted Income Statement Detail
or09 03709 O29 ares 0) Selling, general & administrative As reported 905941 $70,557 $68,091 968,043 $273,632 Resetve adjustments (a5) : - - (a5) Adjusted 905,487‘ S70587 ‘$68,097 3804S 273,178 Income from operations As reported $3357 $17,789 99,786 $476 ($35,308 Impairments and disposal gain/loss 77
Slide 39: GAAP Reconciliation: 2011 Quarterly Adjusted Income & Diluted EPS
39 Net income/(loss) ($K) Diluted earnings per share an ori YTD a Orit YTD Continuing Operations As reported $14,630 $8,528 $23,358 9055 $032 S087 Asset impairments 3) 228 180 - 001 oo Stock based compensation tax shortfall (186) 186 - 01) - - Adjusted 914595 98943 23.538 w54 9053 s088 Discontinued
Slide 40: GAAP Reconciliation: 2010 Quarterly Adjusted Income & Diluted EPS
40 Net income/(loss) ($K) Diluted earnings per share ari 0310210110 «YTD Ori aso 210 O10 «YTD Continuing Operations As reported $4445 $9,608 §(1,563) $1,409 $13,980 80.17 $0.37 $0.06) $005 $083 Asset impairments 436 - 8,043 732 9.211 0.02 - 031 O04 0.35 Reserve adjustments 772 - 560 1641496 0.02 : 0
Slide 41: GAAP Reconciliation: 2009 Quarterly Adjusted Income & Diluted EPS
“1 Net income/(loss) ($K) Diluted earnings per share ars 0309209 OT09_“YTD ars as09 209 O09 YTD Continuing Operations As reported (1.714) $6814 $2473 $809) 85,754 $0.07) 8032 $012 $04) 80.31 Asset impairments @0) 1569 «207713544970 - 007 a0 = oa? 0.22 Resetve adjustments 4,408 - - = 4103 aoa - - : 0