Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Investor Presentation (May 2010)
46 slides from Lithia Motors's investor presentation, May 25, 2010
Slide 1: Investor Presentation May 2010
Investor Presentation May 2010
Slide 2: Disclosure
DISCLOSURE his 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: 1947 Photo
2 1947 Photo Named after Lithia Springs in Ashland, OR
Slide 4: 84 Dealerships, 12 States, 26 Brands
Seattie U1, i pan cities strech oregon Eugene/Sprngi aH rans pu tobe tama Falsi® wpocs eet IF Poca | eaigg NEVADA ——— semarasafiie (Shane) aay: © etoncond tt Feapachire Seaside tala *Fresnelsl fy cocanne: CALIFORNIA NORTH DAKOTA Grand Forks [3] = OWA Cader Rapa EBesWoines [31 ly» Ablene 1 a so ope B
Slide 5: Market Position
Market Position Small and mid- sized markets = Rural, single-point stores = Higher demand for trucks and domestic brands = Organic sales improvement = Primed for strategic acquisitions = Strong financial position Growth Operations Stable, profitable business Improved brand mix = Leader in used vehic
Slide 6: Centralized administrative processes promote entrepreneurial store management
Centralized administrative processes promote entrepreneurial store management Administrative Functions | Entrepreneurial Environment * Cash Management * Model Tailored to Local * Advertising / Marketing Markets * Accounts Payable = + Empowered Store * Procurement Centralized Management: * Accounts R
Slide 7: Business Overview
Business | Overview
Slide 8: Auto Retailers
Auto Retailers = Retailers made 2.0% 19% 13 money despite dramatic decline in |_| SAAR “2.9% = Retailers respond Pre-tax income % quickly to changing “10.2% market conditions 15.0% Auto Manufacturers 2007 2008 2009 SAAR 16.1 13.2 10.4 Proven business model Note: Margin based on reported pre-tax inco
Slide 9: Diverse revenue base
22.0% . used Vehicios (EER = Diverse revenue base = Respond to shifts in consumer demand New Vehicles = Service business is counter cyclical F&l and Other Service, Body & Parts Revenue Gross Protit Note: Used vehicles includes both used and wholesale vehicles. Revenues and gross profit based onthe t
Slide 10: Unique Market Position
SITION UNIQUE MARKET PO =e Geography Revenue per State insulates from market-specific wo M9 o OR 1 4% 4 1% Ms risks Con 14% = Target 30% new vehicle share in market x 25%) = No more than 25% of revenue from one state 10% en
Slide 11: Improved Brand Mix
IMPROVED BRAND MIX = Divested 21 domestic stores in past two years = Seeking no more than 20% of any one brand Import/ Weaudi Othe Pp. 405% 468% gay Sas t. Luxury n1% 51.7% Hor A sB5r iyul Domestic o si am, Fi Ge *y200/ FY2008 FY2009 a1 2010 a 56 Note: Mixbased on new vehicle uit sales Note: Grand m
Slide 12: New Vehicle Gross Margin
New Vehicle Gross Margin 85% 3.2% Same store new vehicle sales up 11.5% 71% 21% 6.8% Same store new — @ Bt vehicle sales excluding Teen ea Chrysler up 25.3% 2.608 _ Bees Gross profit per unit S increased $60 over prior year
Slide 13: Organic Opportunities to Grow in New Vehicles
ORGANIC OPPORTUNITIES TO GROW IN NEW VEHICLES Change in Units in Operation = “Pent-up” demand must be realized = Earnings unlocked as cost structure leveraged Given scrappage rates, SAAR levels will recover Source: Global insight, NADA, RL Polk &Co.; Forward scrappage numbers provided by equity rese
Slide 14: Leader in Used Vehicle Sales
LEADER IN USED VEHICLE SAE = Same store used retail sales up 22.4% = Wholesaling fewer vehicles Q110 Used Vehicle Gross Retail / Wholesale Sales Margin Split 13.7% 69.1% 11.0% 98% 9.5% [ 81% 7.9% Lithis Asbury AutoNation Group — Penske Sonic al 20a" QI 2a19
Slide 15: Organic Opportunities to Grow in Used Vehicles
ORGANIC OPPORTUNITIES TO GROW IN USED VEHICLES Used to New Ratio 12x 0.9K tl [| ok OTe 0.7K 0.7 Lithia Sonic AutoNation Asbury Group Penske = Improving used to new ratio = Incremental sales with no additional investment = Adaptable inventory to meet customer demand Increasing retail used vehicle sal
Slide 16: Focus on Service, Body & Parts Business
FOCUS ON SERVICE, BODY & PARTS BUSINESS Revenues (SM) r, . sa $733, SB gay gg = 35% of retail vehicle customers purchase Lifetime oil contracts = Emphasis on customer 012009 022009032009 na2009 a1 2010 pay and accessories Gross Profit (SM) and Margin = Declining units in $35.1 5357 $384 gang 93319 O
Slide 17: Shift in Age of Vehicles Serviced
SSS SHIFT IN AGE OF VEHICLES Mees SERVICED = Consistent number of vehicles serviced per month despite decline in SAAR = 20% increase in serviced vehicles at least 4 years old SAAR & Passenger Miles Age of Serviced Vehicles 169 169 Avg # of Vehicles Serviced per Month 102) net 84,040 83,525 83,267 83
Slide 18: Acquisition Opportunities
ACQUISITION OPPORTUNITIES The industry is poised for consolidation = Top 10 groups only 8%!) of $1 trillion market!) = Targeted brands: We HyunoAl 6 & & © @ O 2 = Opportunities for acquisition as current ownership ages = Additional economies of scale leveraged with growth Current timing = attractive
Slide 19: Proven Acquisition Strategy & Strong Management Team
PROVEN ACQUISITION STRATEGY & STRONG MANAGEMENT TEAM = Growth since IPO MLITHIA = Purchased over 100 stores in 12 years = Recession tested improvement in Net Income 1 proven management Year After Acquisition . oo 5 = Energetic group of new leaders in place = Operators rather than Hees 2 2 consolidat
Slide 20: Acquisition Criteria
ACQUISITION CRITERIA 100% 5-year after-tax ROI Target underperforming stores Accretive in first year Small to medium rural markets for domestic and import stores Metro markets for luxury stores Balance brand mix through growth
Slide 21: Financials at a Glance
ata Glance
Slide 22: Revenue, Gross Profit, Adjusted Diluted EPS
Revenue ($M) Gross Profit (SM) Adjusted Diluted EPS eter $36.6 $0.09 A ssay/ a saose / $80.0 y 12009 022020 ai 2009 12010 = Strong new and used vehicle retail sales growth = Continued discipline in cost management = Exceeded upper end of guidance by $0.03 Note: See append for reconciliation of adjus
Slide 23: Revenue, Gross Margin, Gross Profit, Adjusted Net Income
Revenue (SM) Gross Margin e203 32.2 12010 S108 166 Sia. set he | | = B ae New Used -Aotay) Ube SRP Fans OW Now Use Retar sil 5 sak Gross Profit (SM) Adjusted Net Income ($M) Sasa $22 $22 $339 Rete $18.7 $194 $00 $13, $140 - J I (50.2) $0404 z = (514) ae New Used-Retayl Used-WS- SERB Bland Other Cont
Slide 24: Continued Cost Discipline
CONTINUED COST DISCIPLINE Adjusted SG&A and Revenues (SM) $463.4 $447.3 54282 sake 5023 2 ari009 022009 222008 032009 612019 = SG&A relatively flat for last 5 quarters = Cost leverage unlocked as revenues increase = Target low 70’s for SG&A as a % of gross Strong profitab as market recovers "Note: S
Slide 25: 4-Quarter Rolling Revenues & Adjusted EBITDA
4-Quarter Rolling Revenues (SM) & Adjusted EBITDA Z Qi20i0 sm 42009 12009 22009 932009 = Consistent improvement despite flat revenues “Right-sizing” nearly complete Well positioned for economic recover (Note: Adjusted EBA s calculated based on 2 roling -quarters Hoorplan interest expenses included 2
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Slide 27: Q1 2010 Liquidity Developments
Q1 2010 Liquidity Developments ($M) ($1.0) 1 Cash outflow ee 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 low from flooring notes payable —non-trade
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 (SM)
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 outst
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 $13.92
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 2005 2006 2007 2003 2008
Slide 32: Assumptions
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 14.2% to 14.5% Service body and parts same store sales decreasing 3.0% Service
Slide 33: Lithia Advantages
LITHIA ADVANTAGES = 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 34: 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 r
Slide 35: Appendix
Appendix
Slide 36: Current Chrysler Relationship
CURRENT CHRYSLER RELATIONSHIP Chrysler’s future still uncertain = Chrysler ahead of plan shared late 2009 = Lithia prepared for worst case = 26 current locations, down from high of 39 in June 2008 Lithia seeing positive operational trends
Slide 37: Current Chrysler Relationship
CURRENT CHRYSLER RELATIONSHIP = Ram/Jeep trucks represent 86% of our Chrysler sales Most profitable store in March was a Chrysler franchise Chrysler National Share! Lithia’s Chrysler Units Sold 855830 893, January February March Aovil aye Note: = Chrysler units sold represent # of new Chrysler, Jep
Slide 38: Fiat/Chrysler Partnership
FIAT/CHRYSLER PAR = Global relationship with Chrysler Meet worldwide volume required for survival Produce 5-6 million vehicles by 2014 = Key synergies = Unlock economies of scale = Leverage existing US dealer network = Share fuel efficient technologies = Introduce Chrysler products to Europe
Slide 39: Integration of Products
INTEGRATION OF PRODUCTS = Position Jeep as global brand = Combine Chrysler and Lancia = Maintain Dodge as performance brand = Integrate selected Chrysler products into Fiat brands = Bring Fiat 500 to US market = 16 all new or refreshed products in 2010 39
Slide 40: Positive Chrysler Q1'10 Results
POSITIVE CHRYSLER Q1’10 RESULTS = Operating Profit of $143 million = Cash strengthened to $7.4 billion with total available liquidity of $9.8 billion = Confirmed targets for the year, including break-even operating results in 2010 = Reduced incentives by $1,500 per vehicle from pre- bankruptcy level
Slide 41: Pre-tax income / Net income / EPS reconciliation
Pre-tax income [Net income / (Loss) share Continuing Operations 12010 _a12008_ _@12010 12009 2010 _at As reported $2,186 $(1,388) $1942 $0773) $005 (0.04) Impairments and disposal gain 1189 (2,056 mt 4447 003 006 Reserve adjustments 258 3 160 = ont . Gain on extinguishment of debt (4,086) __(607) _
Slide 42: Continuing Operations reconciliation 2009
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) (277
Slide 43: Continuing Operations reconciliation 2008
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 1213112008 (3.008) 4,147 (3,605) (6,466) 42
Slide 44: 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 deb
Slide 45: EBITDA - Qtr Rolling
EBITDA - 4 Qtr Rolling 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
Slide 46: Adjusted cash flow from operations
2009 2008 2007 Cash flows from operations 9,934 85,165, (49,211) Flooring notes payable: non-trade 31,417 (16,803) 69,540 ‘Adjusted cash flow from operations 41,351 68,362 20,329