Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Q4 2010 Earnings Presentation
37 slides from Lithia Motors's earnings presentation, Feb 24, 2011
Slide 1: Lithia Motors
SLUTHIA
Slide 2: Disclosure
[i 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 guid
Slide 3: The Beginning: Since 1946
1947 Photo LITHIA Motors CHRYSLER + pLynoury THE BEGINNING: SINCE 1946 je FOUNDED IN ASHLAND, OREGON
Slide 4: Lithia Motors Overview
4 =|.P.0. in Dec. x 1996 -5 dealerships "= The Sth largest U.S. auto retailer = Primarily exclusive franchises 83 DEALERSHIPS, 12 STATES, 25 BRANDS LITHIA MOTORS OVERVIEW
Slide 5: Industry Summary
INDUSTRY SUMMARY
Slide 6: Stable, Profitable Industry
| STABLE, PROFITABLE INDUSTRY Auto Retailers 2.0% 1.9% 15% nz: New Vehicles 52.2% m™ 19.9% (10.2)% Used Vehicles (15.0)% 30.2% F&l and Other " ‘Auto Manufacturers Service, Body & Parts 2007 2008 2009 2010 SAAR 16.1 13.2 10.4 11.6 Noe: Marg bated on epoca income 26 3 ‘garment reverse auses oe: Used v
Slide 7: Significant External Support
Fic 2 OY SIGNIFICANT EXTERNAL SUPPORT wy. 4 ee = Incentives support inventory value = National advertising campaigns = Warranties provide ongoing revenue = Support consumer, real estate & inventory financing MANUFACTURERS DEALER FRANCHISE LAWS ASSOCIATIONS: Strong state and federal = Prevent new fra
Slide 8: Unconsolidated Industry
UNCONSOLIDATED INDUSTRY Highly Fragmented Sector 18510 = $1T automotive —_ retail market = 18,000 dealerships in the country = Largest retail sector in the U.S. ABUNDANT ACQUISITION OPPORTUNITIES
Slide 9: Q4'10 Results & Outlook
Q4’'10 RESULTS & OUTLOOK
Slide 10: Lithia's Strategy
Ee 10 ie: LITHIA’S STRATEGY TARGET EXCLUSIVE FRANCHISES = Mid-sized, regional markets for domestic and import, metro markets for luxury = Insulation from competition offers pricing protection OPERATORS; ENTREPRENEURIAL CULTURE = Store focused on positive customer experience = Store ownership of mark
Slide 11: Q4'10 Financial Results
Q4’10 FINANCIAL RESULTS Revenue ($MM) Adjusted Diluted EPS 30.8% , poe Ee $424.8 ($0.03) Q4 2009 Q4 2010 4.2009 4.2010 =|ncreased same stores sales in all business lines =Largest fourth quarter net income since 2006
Slide 12: Gross Margin
111% 16.9% 16.2% f ag | 15.1% Litia—AudoNajon Asbury = Penske. Sonie L 1 Q410 409 Change New vehicle retail 78% 7.9% (10) bps Used vehicle retail 135% 13.8% (30) bps Used vehicle wholesale (0.2% % (20) bps Service, body and parts, 46.1% 458% — 30bps Overall 171% 18.2% (110) bps = Sector leading over
Slide 13: Gross Profit Analysis
New Vehicle Same Store Gross Profit Change 17% ie 31.0% 3.4)% Volume Price Margin Total Change = New vehicle same store gross profit up 31% Retail Used Vehicle Same Store Gross Profit Change 23.8% 20.5% (27)% — (0.6)% GROSS PROFIT ANALYSIS Service, Body & Parts Same Store Gross Profit Change 28%. 5.
Slide 14: New Vehicle Sales
\ NEW VEHICLE SALES Same Store Sales Growth Gross Margin 34.4% 85% 79, tm I 87% 6.5% | i i 1 u 1% iia Asbuy Group Sonie AufoNaton Penske Penske Littia AutoNation Astury Sonic = Truck unit sales increased 45% = Maintained strong gross margin while increasing sales 34% SOLID GROWTH AND PERFORMANCE
Slide 15: Used Vehicle Sales
4 USED VEHICLE SALES = Selling more trade-ins to retail customers; wholesaling fewer vehicles = Maintained highest sector used to new ratio despite substantial new vehicle sales increase = Retail gross margin 13.5% in Q4’'10 Retail/Wholesale a Used to New Ratio 675% Oox 410 ‘Sonic AutoNation Penske
Slide 16: Service, Body and Parts
=f SERVICE, BODY AND PARTS» wy. Ls Same Store Revenue Mix Same Store Y-o-Y Revenue Change 95% 96% 8.6% 91% 10.4% Q4’09 Q110 Q2140 310 16.4% 16.3% 16.4% 17.2% 6 18.6% ie5% Customer Pay (0.7)% 06% 56% 59% Warranty (12.7)% (13.4)% (10.0)% (6.7)% 56.1% 545% 5T9% 56.0% Wholesale Parts (8.7)% (11.6)% (3.1
Slide 17: Finance and Insurance
== | FINANCE AND INSURANCE 17 F&l per Unit Breakdown Penetration Rates Q4'09 Q4'10 Arranged Financing 67% 73% Insurance ‘S107 no Service Contracts 40% 41% and Other Lifetime Oil and Filter 34% 33% Maintenance = 0, : z plead = 12% of financing to subprime customers = 25% increase in closing rate for
Slide 18: SG&A Analysis
18 4 2G&A ANALYSIS Adjusted Gross Profit ($MM) & % of Gross Profit 4709 = 410s Change AAS BOE Personnel 527% 50.2% (250) bps ats 85.3% wane Advertising 55% 7.8% 230bps Rent 45% 3.5% (100) bps Facility Cost 84% 6.4% (200) bps \ws) {706 Other 14.2% 12.9% (130) bps 24 2008, 4 2009 242010 Total 85.3% 80
Slide 19: Gross Profit Retention
19 EA =f GROSS PROFIT RETENTION $M Q4'09 410 % Change 4°10 Incremental Throughput $M Adj Gross Profit $78.6 $95.9 22.0% Change in Gross Profit $17.3 Personnel $414 $48.2 16.3% Change hh SOR pallos % Incremental Throughput 39.9% Advertising $43. $74 72.4% Rent $36 $33 (6.0)% Q4'10 Incremental Through
Slide 20: Growth Opportunities
20 Py GROWTH OPPORTUNITIES ey IMMEDIATELY AVAILABLE FUNDS ~—_ INTERNAL INITIATIVES $MM) 409 __Q4'10_Chan = Increase new vehicle sales Cash and Cash Equivalents $128 $9.3 $(3.5) 5% above 2011 market Availability on Line of Credit 27 233 © (24) increase Unfinanced New Vehicles 357 656 299 Total $742 $
Slide 21: Acquisition Objectives
\y ACQUISITION OBJECTIVES = Targets for initial investment: = 75-100% 5-year after-tax ROI = 2x-4x EBITDA, including flooring interest = 10%-20% of annual revenues = Seeking no more than 20% of any one franchise = Balancing brand mix through acquisitions Were 6 & ACQUISITION GROWTH ee 21 2010 RECAP
Slide 22: Increased 2011 Guidance
22 INCREASED 2011 GUIDANCE | Projected Q1’11 - $0.19 - $0.21 earnings range*: FY 2011 - $1.20 - $1.28 ASSUMPTIONS = Total revenues in range of $2.3 to $2.45 billion = New vehicle same store sales increasing 16.0% = New vehicle gross margin from 7.9% to 8.1% = Used vehicle same store sales increasing
Slide 23: Appendix
APPENDIX
Slide 24: Non-Operating Assets
NON-OPERATING ASSETS __ as = Mitigated 29% of non-operating properties in 2H’10; estimated savings of $0.03 per share in 2011 = 57% of remaining non-operating assets under advanced negotiations; representing estimated annual cost of $0.04 - $0.05 per share Property, Plant and As of Equipment (SMM) _
Slide 25: Chrysler Update
25 4 CHRYSLER UPDATE = 75% of unit volume from Ram and Jeep lines = Chrysler stores comprise 27% of current store count Brand Mix Chrysler Unit Sales Q4'10 All Other Ram Pickup 52% A” seep Models 23% > Charger/Challenger/300 9% y rome Minivan 6% ert, Hyundai 6% Other 10% Kia 2% 6% anarest Total 100%
Slide 26: Service Trend Analysis
Pm SERVICE TREND ANALYSIS 6+ Yrs 4-5 Yrs 2-3 Yrs 0-1 Yrs More older vehicles being serviced Age of Serviced Vehicles Avg # of Vehicles Serviced per Month = Consistent number of vehicles serviced per month Increasing average sale per repair order indicates some deferred maintenance recovery Average S
Slide 27: Stable Balance Sheet
a\ STABLE BALANCE SHEET = Extended 5 loans to maturities 2018 or beyond = $3MM mature in 2011; no mortgages due in 2012 Future Mortgage Debt Maturities (SMM) 2011 2012 2013 2014 2016 2017 Beyond ces8 es esa MINIMAL NEAR TERM DEBT MATURITIES
Slide 28: 2010 Quarterly Income Statement
New vehicle Used vehicle Wholesale used vehicles ‘Service, body and parts, Finance and insurance Fleet and other Total Revenues Cost of Goods Sold New vehicles Retail used vehicles Wholesale used vehicles Service, body and parts, Finance and insurance Fleet and other Gross Profit, ‘Asset impairment
Slide 29: 2009 Quarterly Income Statement
29 2009 Quarterly income Statement ($K) OF09. O50 0209. ‘ares New vehicle SHOAM $266,769 — $211 760 — $192,306 Used vehicle 112051 129857 126.256 -——+109,089 Wholesale used vehicles 49212 20.2237 751 16513 ‘Service, body and parts 71,268 74,538 72,312 72,957 Finance and insurance 12209 © 18,704 1485
Slide 30: Quarterly Same Store Revenue Changes
30 Quarterly Same Store Revenue Changes. 2010 New vehicles 34.4% 80% 263% = 11.7% Retail used vehicles 211% 19.8% 150% 22.0% ‘Wholesale used vehicles 514% = 518% = 42.1% = 41.1% Service, body and parts, 54% 25% 02% 6.0% Finance and insurance 340% «188% = 14.5% 2.9% Total 26.1% 12.39% 19.0% + 12.2% 2
Slide 31: Quarterly Gross Margin
31 Uy ar 2010 New vehicles 7.8% 8.3% 8.2% 8.5% Retail used vehicles 135% 147% «= 145% «= 13.7% Wholesale used vehicles (0.2)% 0.1% 12% 1.6% Service, body and parts 46.1% 49.0% 49.1% = 48.8% Finance and insurance 100.0% 100.0% 100.0% 100.0% Total 171% 18.0% = 17.9% = 18.7% 2009 New vehicles 7.9% 8.9%
Slide 32: 2010 Proforma Adjustments
32 2010 Proforma Adjustments (SK) 10 310 2710 10 ‘Selling. general & administrative As reported $77,292 ST7.A68_ «$74,813 $71,039 Impairments and disposal gain 48 - Q) 367 Lease termination and severance Teserve 96. = 1.076) (258) Adjusted $7,436 S17468__ $73,735 $71,148, Income from operations As r
Slide 33: 2009 Proforma Adjustments
33 2009 Proforma Adjustments (SK) 09 309 2709 709 ‘Selling. general & administrative As reported $67,507 $71,165 «$68,694 $68,655 Impairments and disposal gain - - - - Lease termination (454) = = = Adjusted ‘367,053 871,165 $68,094 $68,055 Jncome from operations As reported $3,226 $18,086, $9,946 $4
Slide 34: 2008 Proforma Adjustments
34 2008 Proforma Adjustments (SK) OF08 Q3'08 22°08 ars Selling, general & administrative As reported 969,427 $77,986 $79,896 $83,676 Impairments = = (4,527) = Adjusted 969427 $77,986 $75,369 $83,676 Income from operations As reported $3,269 89,352 (322,227) $8,854 Impairments and disposal gain 1158
Slide 35: 2010 Quarterly Adjusted Net Income & Diluted EPS
35 2010 Quarterly Adjusted Net Income (SK) & Diluted EPS Net incomei(loss) Diluted earnings per share ari asi0 210 Oro OF 0 0310 Q2"10 ari Continuing Operations, As reported $4379 $9,792 (1,514) $1,443, $0.16 $037 ——_§(0.06) $0.06 Impairments and disposal gain 401 - 8,046 732 0.02 - 031 0.03 Lease t
Slide 36: 2009 Quarterly Adjusted Net Income & Diluted EPS
36 2009 Quarterly Adjusted Net Income (SK) & Diluted EPS Net incomel{ioss) Diluted earnings per share aF0s__a309 209 TOS FOS ‘03°09 709 ‘arog Continuing Operations As reported $1,814) $6,975 $2,539 $784) $(0.07) $0.33 $0.12 $(0.04) Impairments and disposal gain 34) 1,570 2,057 1,374 - 007 0.10 0.07
Slide 37: 2008 Quarterly Adjusted Net Income & Diluted EPS
37 2008 Quarterly Adjusted Net Income ($K) & Diluted EPS Net incomei(loss) Diluted earnings per share are (308 02°08 ‘ros QF0s ‘03°08. (208 ‘ros Continuing Operations, As reported S(1.174) $1,021 §(224,393) _$(586) (0.06) $0.05 §(11.18) —$(0.03) Impairments and disposal gain (68) 1,826 27,322 - - 0.