Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Q4 2011 Earnings Presentation
43 slides from Lithia Motors's earnings presentation, Feb 24, 2012
Slide 1: Lithia Q4'11 Company Update
LITHIA Q4’11 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
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, 11 STATES, 25 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 Honda, 5% Subaru, 5% Mercedes, 6%
Slide 6: Sector Strengths
SECTOR STRENGTHS
Slide 7: Stable, Profitable Industry
STABLE, PROFITABLE INDUSTRY SE Q4'11 Profitability Mix Auto Retailers 49% 97% 2 ” 9% 15% 21% 2.6% 25.6% @ New Vehicles — 55.0% 8 20.0% = = g 19.7% & if Used Vehicles 99. 4oy (15.0)% (80% 0 Manufacturers Fal and Other Si Body & Parts 2007 2008 2009 «2010 = 2011 SEE BEES eT RNS SAAR 16.1 13.2 10.4 11.
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 = $1T automotive retail market = 17,700 dealerships in the country = Largest retail sector in the U.S. ABUNDANT ACQUISITION OPPORTUNITIES
Slide 10: Lithia's Strategy
LITHIA’S STRATEGY
Slide 11: Lithia's Strategy
= LITHIA’S STRATEGY 1 TARGET EXCLUSIVE FRANCHISES " Mid-sized, regional markets for domestic and import, metro markets for luxury = Insulation from competition offers pricing protection OPERATORS; ENTREPRENEURIAL CULTURE " Store focused on positive customer experience = Store ownership of marketing
Slide 12: Q4'11 Results
Q4’11 RESULTS
Slide 13: Q4'11 Financial Results
Q4’11 FINANCIAL RESULTS Revenue ($MM) Adjusted Diluted EPS $717.5 $0.49, 33% 145% $538.1 ll - Q4 2010 42011 042010 042011 oe: Se apenctr onto of ate ated EPS =Increased same store sales 23% = More than doubled diluted EPS = Record fourth quarter, second best full year
Slide 14: Q4'11 Gross Profit
14 =f 0411 GROSS PROFIT Y-o-Y Gross Profit Growth 26.6% = Insulated markets ie maintain higher al al ea overall gross margin | compared to public en ia a sone peers qe asi charge ~~” Mix shift to vehicle New vehicle retail 78% 7.6% (20)bps sales reduces Used vehicle retail 13.6% 134% (20) bps overal
Slide 15: Q4'11 Gross Profit Analysis
New Vehicle Same Store Gross Profit Change 3.8% (4.3% Volume Price Margin Total Change = New vehicle same store gross profit up 24% Retail Used Vehicle Same Store Gross Profit Change 19.4% 18% (0.3% — 20.9% Volume Price Margin Total Change = Retail used vehicle same store gross profit up 21% Fig Q4’
Slide 16: New Vehicle Sales
16 NEW VEHICLE SALES a Q4'11 Same Store Sales Growth Y-0-Y 28.7% =Q4'11 same store — sales increased 29%, i: -_ Q4'10 same store Lithia Auto Nation = = Penske sales increased 33% Q4'11 Gross Margin . . = Maintained gross margin despite sales Liiii = fee he hai Asbury Group 1 SOLID GROWTH AND PERFORM
Slide 17: Used Vehicle Sales
AWA USED VEHICLE SALES Q4'11 Same Store Sales Growth Y-o-Y . . o1.2% =As-is vehicle same a ace store sales increased 3% ] | li 7.0% 46% Y-0-Y eae cash z " As-is vehicle same Q4'11 Used to New Ratio store gross margin 20% i = Maintained 0.9:1 used i il to new ratio uthia Penske ‘Asbury Auto Nation a
Slide 18: Finance and Insurance
4 = FINANCE AND INSURANCE F&l per Unit Breakdown Insurance 2 ii5) and Other sale Penetration Rates Q4'10 a4'1 Arranged Financing 73% 73% Service Contracts A1% 41% Maintenance $536 ED Lifetime Oil and Filter 33% 35% Contracts Financial Composition Q4’10 a4'1 Sub-Prime <620 10% 12% ee $408 Non-Prime 6
Slide 19: Service, Body and Parts
=f SERVICE, BODY AND PARTS” Same Store Revenue Mix Same Store Y-o-Y Revenue Change 9.9% 10.1% 9.8% 9.5% 10.7% a410 «(Qi Q2'11 a311 a4 ie ie ee Heo a Cust P. 5.8% 78% 2.2% 25%! 3.7% ‘ustomer Pat Yo Yo Yo 1% ‘et 166% G7em 165% 69% Taam # H Warranty (3.29% 25% (139% (5. 1% a an 56.2% Leyes 56.5% 57.0%
Slide 20: SG&A Analysis
20 SG&A ANALYSIS Adjusted SG&A as a % of % of Gross Prot, —«Q410.—««Q411._— Change Gross Profit Personnel 504% 48.3% (210) bps 85.1% Advertising 78% 56% (220) bps BOT Rent 33% 3.6% 30bps Facllty Cost 63% 5.3% (100) bps 74.6% Other 129% 118% (110) bps Total 80.7% 74.6% (610) bps Q4 2009 Q4 2010 Q4 20
Slide 21: Q4'11 Gross Profit Retention
£y P* 21 =i Q4’11 GROSS PROFIT RETENTION $M @410 9411 % Change Qe'11 Incremental Throughput sm AdjGross Profit $928 $1175 26.6% Change in Adj Gross Profit $247 Personnel $408 $568 21.4% Advertising $72 $65 (9.2% Changain Ad Sess SIRE Rent $3.4 $43 39.9% % Incremental Throughput 48% Facility Cost $8
Slide 22: Incremental Throughput Trends
“S INCREMENTAL THROUGHPUT TRENDS ee Quarterly Same Store Incremental Throughput Trend : cm %% sr seoy ~~ 4 CONSECutive quarters 7 sous : ers Sao of incremental | | i throughput above 55% Qr10 210 Qs10 asi0 artt 211 ast ast = FY 2011 same store SG&A as a % of Gross Profit throughput of 58% sia tox 73
Slide 23: Capital Deployment
| CAPITAL DEPLOYMENT 23 Funds for Growth (SMM) 311-411 Change Cash and Cash Equivalents. $159 $20.9 $5.0 Availability on Line of Credit 28.8 10.4 (18.4) Unfinanced New Vehicles 487 659 172 Total $93.4 $97.2 $3.8 Capital Uses ($MM) FY 2011 FCST 2012 Capital Expenditures New Facilities and Remodels $2
Slide 24: Growth Opportunities
24 Py GROWTH OPPORTUNITIES a Internal Initiatives Acquisition Objectives = Increase new vehicle sales = Targets for initial investment: 5% above market increase = 75-100% 5-year after-tax ROE = 2x-4x EBITDA, including = |ncrease used vehicle sales x EE flooring interest through sales of 3 to 7 year
Slide 25: Acquisition Growth
25 Fig ACQUISITION GROWTH ' ee 2011 Recap = BMW/MINI and 2 Mercedes-Benz isiamatn Oper Point SM_Muttiple stores in Portland, OR area Net Invested Capital $16 = Subaru/Mitsubishi store in Fresno, CA annualized EBITDA 05 32x = Ford open point in Klamath Falls, OR Annualized Revenues* $204 8% 2012 Upda
Slide 26: Updated 2012 Guidance
2 el — UPDATED 2012 GUIDANCE 26 PROJECTED EARNINGS RANGE*: = Q112: $0.41 - $0.43 = FY 2012: $2.06 - $2.16 ASSUMPTIONS = Total revenues in range of $2.9 to $3.1 billion New vehicle same store sales increasing 10.8% New vehicle gross margin from 7.4% to 7.6% Used vehicle same store sales increasing 10
Slide 27: Appendix
APPENDIX
Slide 28: New Vehicle Supply
28 ) NEW VEHICLE SUPPLY 120 New Vehicle Days Supply 90 | 60 -LEL Li. s Toyota Honda esa ad eater Ford All Other = On-Ground = In-Transit = Import supply still constrained = New vehicle days supply ~ 62 days a Used vehicle days supply ~ 52 days ay eupty ara ofbecember 3,011 ADEQUATELY POSITIONED FOR
Slide 29: Service Trend Analysis
29 My SERVICE TREND ANALYSIS = More older vehicles being serviced = Increasing average sale per repair order indicates some deferred maintenance recovery Age of Serviced Vehicles Average Sale per RO Avg # of Vehicles Serviced per Month Model Year 81326 78558 82,887 89,665 (Aged) 2008 2009 2010 2011
Slide 30: Stable Balance Sheet
a = STABLE BALANCE SHEET 30 = No mortgages due in 2012 = Extended several mortgage maturities in Q4'11 Future Mortgage Debt Maturities ($MM) 50 40 atlbeds 2012 2013 2014 2015 2016 2017 2018 Beyond MINIMAL NEAR TERM DEBT MATURITIES
Slide 31: Chrysler Update
31 CHRYSLER UPDATE = Majority of Lithia’s sales from Ram Pickup and Jeep Units = 88% increase in Chrysler car and 15% increase in Ram Pickup sales over prior year Chrysler Unit Sales aan Chrysler Same Store Sales Y-o-Y Ram Pickup 43% Jeep Models 26% 77.8% Charger/Challenger/300 10% 62.5% rer Durango
Slide 32: Balance Sheet
r j Assets Current Assets: Cash and cash equivalents Accounts receivable Inventories, net Other current assets Deferred income taxes Total Current Assets Property and equipment, Goodwill Franchise value Deferred income taxes Other non-current assets Total Assets December 31, 2014 2010 $ 20861 § 9,30
Slide 33: 2011 Quarterly Results
33 co) ori ait a ari FY 2011 New vehicle $394,570 $383,951 $347,727 «$300,640 91,426,888 Used vehicle 175,284 187,443, 176,691 156,478 695,798 Wholesale used vehicles 36,925 36,105 29,183 29,637 130,720 Finance and insurance 22,920 22,147 20,888 19,299 25,862 Service, body and parts, 84,799 86,161 8
Slide 34: 2010 Quarterly Results
34 co) orto. ori. 10. ari0. FY 2010 New vehicle 9280487 $284,301 $263,014 $210,449 $1,038,227 Used vehicle 136,008 154,875 143,227 132,693 566,803 Wholesale used vehicles 27,882 30,204 25,188 22,782 108,714 Finance and insurance 16,778 18,387 15,883 14,268 65,274 Service, body and parts, 74,184 74,7
Slide 35: 2009 Quarterly Results
35 co) Qyr09 Qa09. az09. arog. FY 2009 New vehicle $206,066 $258,629 $205,637 $186,764 $857,006 Used vehicle 109,344 126,639 122,984 106,064 466,001 Wholesale used vehicles AT187 19,893 ATATA 16,085 70,899 Finance and insurance 12,009 15,288 14,479 13,199 54,953 Service, body and parts, 68,244 71,34
Slide 36: Quarterly Same Store Revenue Changes
36 Quarterly Same Store Revenue Changes cr as a Qt FY 2011 New vehicles 28.7% 275% 223% 39.6% 29.0% Retall used vehicles 21.2% 14.2% 15.8% 16.5% 16.9% Wholesale used vehicles 23.3% 14.6% 13.8% 31.0% — 20.2% Finance and insurance 37.9% 20.8% © 27.3% «374% © 30.3% Service, body and parts, 27% 29% 4.8%
Slide 37: Quarterly Gross Margins
37 Quarterly Gross Margins ry as a Qt xd 2011 New vehicles 78% 78% 81% 75% 77% Retall used vehicles 134% 146% 183% 147% 14.5% Wholesale used vehicles 01% © -0.2% 0.9% 1.4% 0.4% Finance and insurance 100.0% 100.0% 100.0% 100.0% 100.0% Service, body and parts, 46.9% 48.6% 49.0% 48.5% 48.2% Fleet and o
Slide 38: 2011 Non-GAAP Reconciliation
38 eh ri Ost az art FY 2011 Cost of goods sold - service, hody and parts As reported $45,009 $44,287 $41,242 $38,000 $168,538 Lifetime oil and fter reserve 960 E s 3 960) Adjusted $44,059 $44,287 $47,242 $38,000 $167,588, Selling, general & administrative As reported $81,396 $86,247 $82,768 $77,134
Slide 39: 2010 Non-GAAP Reconciliation
39 cs) arin ast a240ar1OFY2010 Cost of goods sold - service, ody and parts As reported $40,035 $38,149 $35,164 $33,771 $147,119 Lifetime oil and fter reserve 4,040) é i = 1,40) Adjusted $38,995 $38,149 $35,164 $33,771 $146,079 Selling, general & administrative As reported 874,751 $74,921 $72,498 $68
Slide 40: 2009 Non-GAAP Reconciliation
oh Qros asso COS «FY. 2009 Cost of goods sold - service, hody and parts As reported $37,046 $36,929 $35,402 $36,459 $145,836 Lifetime oil and fter reserve (1.400) : (1,400) Adjusted $35,646 «$36,029 «$35,402 $36,450 $144,436 Selling, general & administrative As reported $65,321 $68,758 $85,231 $66,0
Slide 41: 2011 Quarterly Adjusted Income & Diluted EPS
“1 Net incomei(loss) ($k) Diluted earnings per share ori asi aaa rat orn ast ana ortt Continuing Operations As reported $16,363 $16,330 $14,686 $8,388 $062 $061 $055 $0.31 Impairments and disposal (gain loss (3,908) : 63) 229 0.18) : : oot Reserve adjustments a1 : : - 0.02 - : - Stock based comp tax
Slide 42: 2010 Quarterly Adjusted Income & Diluted EPS
42 Net incomei(loss) ($K) Diluted earnings per share ori 0340 240 O10 or aso O10 O10 Continuing Operations As reported $4,239 $9,472 §(1,548) $1,388, $016 © $0.38 (0.06) $0.05, Impaiments and disposal loss 436 - 8,043 688 0.02 2 oat O04 Reserve adjustments 773 : 560 163 0.02 - 0.02 - Adjusted BeaT §
Slide 43: 2009 Quarterly Adjusted Income & Diluted EPS
43 Net incomei(loss) ($K) Diluted earnings per share Qros asa az09arO9 Qros ays az09aro9 Continuing Operations ‘As reported S(1,760) $6,584 $2,454 $558) 80.07) 8031 $0.12 $00.03) Impairments and disposal (gain ) loss (7) 1882-2035 1,202 : oor 0.09 0.08 Reserve adjustments 4,102 : : - 04 - - - Gain o