Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Investor Presentation (May 2010)
41 slides from Lithia Motors's investor presentation, May 10, 2010
Slide 1: Investor Presentation May 2010
Investor Presentation May 2010
Slide 2: Forward-looking statements and non-GAAP measures
7 ae — in 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 regarding second quarter and full year 2010 results; our belief
Slide 3: 1947 Photo: Named after Lithia Springs in Ashland, OR
a 1947 Photo iS Named after Lithia Springs in Ashland, OR
Slide 4: 84 Dealerships, 12 States, 26 Brands
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Slide 5: Lithia Differentiated Business Model
Market Position Operations Small and mid- " Stable, profitable sized markets business Rural, single-point stores "Improved brand mix = Leader in used Higher demand for vehicles trucks and domestic brands Growth " Organic sales improvement Primed for strategic acquisitions = Strong financial position
Slide 6: Entrepreneurial Environment
Entrepreneurial Environment * Model Tailored to Local Administrative Functions * Cash Management * Advertising / Marketing , Markets * Accounts Payable - ~ » Empowered Store * Procurement * Centralized Management: Budgeting & Common * Accounts Receivable * Credit and Collections * Legal - Hiring Dec
Slide 7: Business Overview
Business Overview
Slide 8: Stable, Profitable Business
STABLE, PROFITABLE BUSI Auto Retailers = Retailers made money despite | a 15% dramatic decline in i a SAAR 2.9% = Retailers respond quickly to changing 10.2% market conditions Pre-tax Income % Auto Manufacturers (2007 2008 2009 SAAR 16.1 13.2 10.4 Proven business model ee ee ae es esas eer mes eal a
Slide 9: Four Separate Businesses
FOUR SEPARATE BUSINESSES 22.0% . Used Vehicles 34.7% = Diverse revenue base = Respond to shifts in consumer demand = Service business is counter cyclical New Vehicles | F&l and Other Service, Body & Parts | Note: Used vehicles includes both used and wholesale vehicles. Revenues and gross profit base
Slide 10: Geography Revenue per State
Geography Revenue per State insulates from market-specific va My ye oR ‘ 4% 2% 1% risks 14% = Target 30% new A vehicle share in 7% market 25% = Nomore than 25% 10% of revenue from one state 10% WA CA 13% Higher demand for trucks and domestic cars in our markets Note: Revenue ic hazed on results for
Slide 11: Improved Brand Mix
Import/ Luxury “THE F¥2007 FY2008 FY2009 12010 Note: Mc tazed on new vehicle unit sales. 40.5% 448% 401% 54.7% Maintaining a balanced portfolio IMPROVED BRAND MIX = Divested 21 domestic stores in past two years = Seeking no more than 20% of any one brand VWaudi Other Toyota 3.0% 13% 12.8% Chrysler M
Slide 12: Improvement in New Vehicle Performance
IMPROVEMENT IN VEHI New Vehicle Gross Margin es (Ea 8 = Same store new zs oo vehicle sales up 11.5% = Same store new a oe vehicle sales excluding eas a= Chrysler up 25.3% Average Gross Profit per Unit 2,608 268 = Gross profit per unit 2562 2522 in ee increased $60 over prior year @12009 22009 932009
Slide 13: Organic Opportunities to Grow in New Vehicles
ORGANIC OPPORTUNITIES TO GROW IN NEW VEHICLES Change in Units in Operation ‘unt (mM) Soe SB wee BERG 2004 = 2005, 2006 2007 2008 2009 © «2010E-S (2011 = “Pent-up” demand must be realized = Earnings unlocked as cost structure leveraged Given scrappage rates, SAAR levels will recover Source: Global In
Slide 14: Same store used retail sales up 22.4%
Same store used retail sales up 22.4% = Wholesaling fewer vehicles Q1'10 Used Vehicle Gross Retail / Wholesale Sales Margin Split 13.7% 69.1% 14% 11.0% ia 98% 95% 8.1% TLL Luthia Asbury AutoNation Group Penske Sonic AOS ea Higher margins as lower priced vehicles are retailed ‘Note: Same store used r
Slide 15: Organic Opportunities to Grow in Used Vehicles
ORGANIC OPPORTUNITIES TO — = GROW IN USED VEHICLES Used to New Ratio ‘AutoNation Asbury Group 1 = Improving used to new ratio = Incremental sales with no additional investment = Adaptable inventory to meet customer demand Increasing retail used vehicle sales ‘Note: Ratio isbased on new, excluding fe
Slide 16: Focus on Service, Body & Parts Business
FOCUS ON SERVICE, BODY & PARTS BUSINESS Revenues ($M) $739 $733 S758 $721 799 12003 22009 © q32009 42009 ai 2010 Gross Profit (SM) and Margin gana $357 $364 gag tid 12009 422009 Q32009 442009 ai 2010 Gross Profit. — ~~ Margin = 35% of retail vehicle customers purchase Lifetime oil contracts = Emphas
Slide 17: Capital to buy stores at attractive multiples
Capital to buy stores at attractive multiples Access to capital markets allows quick growth Operating leverage improves with scale, drives costs down Purchase and improve underperforming stores Strong balance sheet Provide stable returns for shareholders
Slide 18: Acquisition Opportunities
ACQUISITION OPPORTUNITIES The industry is poised for consolidation = Top 10 groups only 8%) of $1 trillion market(2) = Targeted brands: We» HyunoAl o£ 6 Oo ® ®@ 2 = Opportunities for acquisition as current ownership ages = Additional economies of scale leveraged with growth Current timing = attracti
Slide 19: Proven Acquisition Strategy & Strong Management Team
PROVEN ACQUISITION STRATEGY & ha STRONG MANAGEMENT TEAM = Growth since IPO MLITHIA = Purchased over 100 stores in 12 years = Recession tested Improvement in Net Income 1 proven management Year After eas @ Cah a = Energetic group of new leaders in place = Operators rather than consolidators i al | 20
Slide 20: Acquisition Criteria
ACQUISITION CRITERIA 100% 5-year after-tax ROI = Target underperforming stores = Accretive in first year = Small to medium rural markets for domestic and import stores = Metro markets for luxury stores Balance brand mix through growth
Slide 21: Performance at a Glance
Performance at a Glance
Slide 22: Q1 2010 Financial Results
Revenue ($M) Gross Profit (SM) Adjusted Diluted EPS $463.4 $86.6 $0.09 eel ae $408.6 $8000 fo 12008 12010 12008 12010 = Strong new and used vehicle retail sales growth = Continued discipline in cost management = Exceeded upper end of guidance by $0.03 Note: See append for reconciliation of adjusted
Slide 23: Revenue, Gross Margin and Profit by Segment
Revenue ($M) Gross Margin $217.4 a1. 2009 48.7% $194. 475% sarz00 $136.9 $109. 12.5903.7% we??? s155 87% 85% 166 142 * | 25% 16% i i=, | —_ New Used-Retail Used-WS SB&P FB and Other New Used-Retail Used - Ws sear Gross Profit (SM) Adjusted Net Income ($M) $35.1 $22 $22 $33.9 siod > se7 s15a 30.0 2 $
Slide 24: Continued Cost Discipline
CONTINUED COST DISCIPLINE Adjusted SG&A and Revenues ($M) Se $447.3 $428.2 $463.4 = SG&A relatively flat for last 5 quarters = Cost leverage unlocked as revenues increase = Target low 70’s for SG&A as a % of gross Strong profitability as market recovers sss
Slide 25: 4-Quarter Rolling Revenues and Adjusted EBITDA
4-Quarter Rolling Revenues ($M) & Adjusted EBITDA i i i | a1 2003 @3 2009 42009 12010 Consistent improvement despite flat revenues = “Right-sizing” nearly complete Well positioned for economic recovery ‘Note: Adjusted EBITA\s calculated based on a rling 4-quarters. See append: for reconciliation of
Slide 26: Financial Position
Financial Position
Slide 27: Changes in Cash
Changes in Cash = Strong cash flow from operations = Reducing debt until higher returns are available Note: Adjusted cash flow from operations includes cash flow from operations and cash flow fom fleeing notes payable—non-rade g
Slide 28: Disciplined Debt Structure
DISCIPLINED DEBT STRUCTURE Minimal near-term debt maturities = No debt except mortgages and new vehicle financing = Current Ratio of 1.30 = Comfortably in compliance with covenants Future Mortgage Debt Maturities ($M) eB B88 EBS
Slide 29: Strong Balance Sheet
STRONG BALANCE SHEET Liquidity available for future growth Immediately Available Funds (SM) March 31, 2010 Cash and Cash Equivalents $11.4 Availability on Line of Credit 47.2 Unfinanced New Vehicles 32.2 Total $90.8 Line of credit undrawn at quarter end No bonds, notes or convertible debt outstandin
Slide 30: Stable Balance Sheet
STABLE BALANCE SHEET Significant tangible net worth compared to our peers = Tangible net worth is defined as equity less goodwill and franchise value = Goodwill written off, minimal franchise value ‘Auto Lithia Asbury Nation __Group1__ Penske __Sonic Stock Price (5/5) $8.06 $14.60 $20.01 $30.18 $13.
Slide 31: Reinstated Dividend
REINSTATED DIVIDEND = Declared $0.05 dividend based on Q1 results = Targeting 20-30% direct return of profits to shareholders = First public auto retailer to reinstate dividend Annual Dividend
Slide 32: Projected earnings range for Q2'10 and 2010
Projected earnings range of $0.19 - $0.21 for Q2’10 and $0.63 - $0.69 for 2010 Assumptions Total revenues at $1.90 to $1.95 billion New vehicle same store sales increasing 5.9% New vehicle gross margin from 8.3% to 8.5% Used vehicle same store sales increasing 11.2% Used vehicle gross margin from 14
Slide 33: Mission Statement
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 they re
Slide 34: Appendix
Appendix
Slide 35: Chrysler posted operational profit in Q1'10
= Chrysler posted operational profit in Q1’10 = Improved liquidity position = 24.8% Y-o-Y improvement in Chrysler April unit sales(?) Chrysler National Share ) Lithia’s Chrysler Units Sold ee om es “08% ae, am 1) ill Gey tere ween ey Optimistic about Chrysler’s future (2) Bloomberg "Note: Chrysler u
Slide 36: Pretax Income and Net Income Reconciliation
Pretax Income ‘Net income / (Loss share ‘Continuing Operations at 2010 a1 2009 _@iz010 _a12009_ _a1.2010__a1 2009 As reported $2,186 $(1,386) 31382 S73) $005 $0.04) Impairments and disposal gain 4169 -2,056 m1 4447 030.06 Reser adjustments 258 2 160 A oot zZ Gain on extinguishment of debt = (1,986)
Slide 37: Continuing Operations
Continuing Operations Pre-tax income — as reported Asset Impairments Reserve adjustments, Gain on Extinguishment of Debt Pre-tax income (loss) - non-GAAP Income (loss), net of tax - non-GAAP Implied Tax Rate Diluted net income per share - non-GAAP Dilutive shares outstanding 1213112009 (2,887) (27)
Slide 38: Continuing Operations
Continuing Operations Pre-tax income — as reported Asset Impairments Gain on Extinguishment of Debt Pre-tax income (loss) -non-GAAP Income (loss), net of tax - non-GAAP Implied Tax Rate Diluted net income per share - non-GAAP Dilutive shares outstanding 121312008 (3,008) 4,147 (3,605) (6,466) (3.421
Slide 39: EBITDA - Quarterly
EBITDA - Quarterly Income from continuing operations Addback: Taxes Other interest exp Depreciation — building Depreciation and amortization - other Adjustments: Goodwill impairment Franchise value impairments Other impairments & reserve adjustments Gain on asset sales Gain on extinguishment of debt
Slide 40: EBITDA - Qtr Rolling
EBITDA - 4 Qtr Rolling Income from continuing operations Addback: Depreciation - building Depreciation and amortization - other Adjustments: Goodwill impairment Franchise value impairments Other impairments & reserve adjustments Gain on asset sales Gain on extinguishment of debt EBITDA 12/31/2009 25
Slide 41: Adjusted cash flow from operations
2009 2008 2007 Cash flows from operations 9,934 85,165, (49,211) Flooring notes payable: non-trade 31417 (16,803) 69,540 ‘Adjusted cash flow from operations 41,351 68,362 20,329