Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Q3 2011 Earnings Presentation
43 slides from Lithia Motors's earnings presentation, Oct 26, 2011
Slide 1: Q3'11 Company Update
Q3’11 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 5 : ~~ franchises m LITHIA MOTORS OVERVIEW » 86 DEALERSHIPS, 11 STATES, 28 BRANDS
Slide 5: Brand Mix and State Composition
Fig LITHIA MOTORS OVERVIEW i BRAND MIX AND STATE COMPOSITION Brand Mix State Mix Chrysler 34%
Slide 6: Sector Strengths
SECTOR STRENGTHS
Slide 7: Stable, Profitable Industry
STABLE, PROFITABLE INDUSTRY SE Q3'11 Profitability Mix Auto Retailers 49% 57% a 2.0% 15% 21% | By 24.2% a New Vehicles 53.0% 8 22.1% £ x g 19.2% & if Used Vehicles 30.6% (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 11.6 12
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 = $1T automotive retail market = 17,700 dealerships in the country = Largest retail sector in the U.S. ABUNDANT ACQUISITION OPPORTUNITIES
Slide 10: Lithia's Strategy
LITHIA’S STRATEGY
Slide 11: Lithia's Strategy
= LITHIA’S STRATEGY 1 TARGET EXCLUSIVE FRANCHISES " Mid-sized, regional markets for domestic and import, metro markets for luxury = Insulation from competition offers pricing protection OPERATORS; ENTREPRENEURIAL CULTURE " Store focused on positive customer experience = Store ownership of marketing
Slide 12: Q3'11 Results
Q3’11 RESULTS
Slide 13: Q3'11 Financial Results
Q3°11 FINANCIAL RESULTS _ Revenue ($MM) Diluted EPS 29%...00* % 69% $0.61 $573.0 A 7 982010 982011 23 2010 032011 =|ncreased same store sales in all business lines = Largest third quarter earnings per share since 2005; second best quarter in company history
Slide 14: Q3'11 Gross Margin
14 ==, Q3’11 GROSS MARGIN Gross Margin Progression 80% rae rae = Mix shift to new inl vehicle sales reduces overall margin =Insulated markets maintain higher Q3'10 Q3"11 Change New vehicle retail 83% 77% — (60)bps overall gross margin Used vehicle retail 14.7% 14.5% — (20) bps compared to public Use
Slide 15: Q3 Gross Profit Analysis
New Vehicle Same Store Gross Profit Change 4.2% 24.2% 17.4% (11.0% Volume Price Margin Total Change = New vehicle same store gross profit up 17% Retail Used Vehicle Same Store Gross Profit Change 45% 11% 15.3% 9.7% Volume Price Margin Total Change = Retail used vehicle same store gross profit up 15%
Slide 16: New Vehicle Sales
16 NEW VEHICLE SALES a Same Store Sales Growth Y-0-Y 41.3% 34.6% i =|mport same store | unit sales increased cee 2% Y-0-Y a 310 0410 arn I I = Truck sales increased 40% Y-o-Y 83% 7.8% 7.4m 80% = 7.7% = New vehicle same store unit sales increased 24% Y-o-Y a3s10 sto tT att att Gross Margin SOLID GROW
Slide 17: Q3 Used Vehicle Sales
AWA ¢ Q3 USED VEHICLE SALES Same Store Sales Growth Y-o-Y 19.7% casio 4.1x at0 20.9% 16.7% | 16.0% — 4450, “aso ant ¥ E zt 1 a3 i Used to New Ratio = As-is same store vehicle sales increased 40% Y-0-Y = As-is same store vehicle gross margin 21% = Maintained 0.9:1 ratio despite strong new vehicle sal
Slide 18: Finance and Insurance
4 = FINANCE AND INSURANCE F&l per Unit Breakdown Insurance and Other $118 a Penetration Rates Q310 3°11 Arranged Financing 72% 74% Service Contracts 40% 40% Maintenance $509 Lifetime Oil and Filter 34% 36% Contracts $544 Financial Composition QW10 Q3'11 Sub-Prime <620 11% «12% Reson: > | $995 Non-Pr
Slide 19: Service, Body and Parts
=f SERVICE, BODY AND PARTS” Same Store Revenue Mix Same Store Y-o-Y Revenue Change 9.4% 10.7% 10.6% 10.1% 10.0% Q310 Q440 «111 Q2"11 a3"11 16.4% 17.0% 18.2% 17.2% 17.4% 5 = Be oS ey, 16 taal en a usiomeye ay ‘ ‘a a # Warranty (6.3)% (3.5)% 2.3% (0.9)% 57.0: sso ll <3 7c fl 56.3% 0.730 Wholesale Part
Slide 20: SG&A Analysis
SG&A ANALYSIS Adjusted SG&A as a % of Gross Profit 74.7% [ 73.9% 93 2009 3 2010 70.8% 03.2011 9% of Gross Profit Q310 311 Change Personnel 45.2% 45.5% — 30bps Advertising 6.6% 5.4% (120) bps Rent 3.3% 3.2% — (10) bps Facility Cost 5.7% 4.9% (80)bps Other 13.1% 11.8% (130) bps Total 739% 70.8% (310)
Slide 21: Gross Profit Retention
21 a c =e GROSS PROFIT RETENTION $M 9310 © Q3'11 % Change 03°11 incremental Throughput om Gross Profit $1032 $1237 19.8% Change in Gross Profit $205 Personnel $465 $563 20.9% Advertising $6.9 $07 — (2.9)% Change in SG&A $114 Rent $34 $40 17.5% % Incremental Throughput 44% Facility Cost $59 $60 22% S
Slide 22: Capital Deployment
22 | CAPITAL DEPLOYMENT 2011 Summary Funds for Growth * Invested $60 5WM inthe il aca acquisition of 4 stores and 1 Availability on ted Credit 78 28.8" 21.0 open point Unfinanced New Vehicles 414 487 18 = Including the November TT $608 pasa _$828 Sudan SSBNM in = Projected 2011 free cash flow* ivide
Slide 23: Growth Opportunities
23 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 ROI = 2x-4x EBITDA, including = |ncrease used vehicle sales x EE flooring interest through sales of 3 to 7 year
Slide 24: Acquisition Growth
24 Fig ACQUISITION GROWTH , ee 2011 Recap Kile fh Of Point $M Multipl = Purchased 4 stores and added eee ue an open point Net Invested Capital $16 = BMW/MINI and 2 Mercedes- Annualized EBITDA 05 3.2% Benz stores in Portland, Annualized Revenues* $20.1 8% Oregon area = Subaru/Mitsubishi store in Fres
Slide 25: Updated 2011 Guidance
a c 25 a UPDATED 2011 GUIDANCE ee = Q4'11: $0.37 - $0.39 = FY 2011: $1.86 - $1.88 ASSUMPTIONS = Total revenues in range of $2.6 to $2.7 billion New vehicle same store sales increasing 26% New vehicle gross margin from 7.5% to 7.7% Used vehicle same store sales increasing 16% Used vehicle gross margi
Slide 26: New 2012 Guidance
2 el — NEW 2012 GUIDANCE 26 PROJECTED EARNINGS RANGE*: = Q112: $0.37 - $0.39 = FY 2012: $1.95 - $2.05 ASSUMPTIONS = Total revenues in range of $2.9 to $3.0 billion New vehicle same store sales increasing 9% New vehicle gross margin from 7.5% to 7.7% Used vehicle same store sales increasing 8.5% Used
Slide 27: Appendix
APPENDIX
Slide 28: New Vehicle Supply
28 ) NEW VEHICLE SUPPLY 120 New Vehicle Days Supply 90 73 60 30 i: = 3 il é | | "Toyota Honda Nissan _ eater Ford All Other = On-Ground = In-Transit = Import supply still constrained = New vehicle days supply ~ 66 days a Used vehicle days supply ~ 53 days cay eupty aa orSepember 0, 2011 ADEQUATELY P
Slide 29: Service Trend Analysis
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 6+ Vrs
Slide 30: Stable Balance Sheet
a STABLE BALANCE SHEET 30 = Extended $6.9MM in mortgages during Q3'11 = $3MM mature in 2011; no mortgages due in 2012 Future Mortgage Debt Maturities ($MM) 70 60 50 40 30 20 10 .. | =z | = 2011 2012-2013 2014 2015 2016 2017 Beyond MINIMAL NEAR TERM DEBT MATURITIES
Slide 31: Chrysler Update
31 CHRYSLER UPDATE = Majority of Lithia’s sales from Ram Pickup and Jeep Units = 43% increase in Chrysler car and 19% increase in Ram Pickup sales over prior year Chrysler Unit Sales Q3711 Chrysler Same Store Sales Y-o-Y Ram Pickup 43% Jeep Models 26% 77.8% 62.5% Charger/Challenger/300 9% 54.1% Dura
Slide 32: Balance Sheet
r j Assets Current Assets: cash and cash equivalents Trade receivables, net of allowance fer doubt accounts of $247 and $190 Invertaries, net Other curent assets Deferred income taxes ‘Assets held for sale Total Current Assets Property and equipment, net of accumulated Uepreciation of $98,514 and $9
Slide 33: 2011 Quarterly Income Statement
33 co) wii wii ari YID- New vehicle $387,120 $254,578 «$306,550 $1,052,252 Used vehicle 189,238 178,481 168,120 626,019 ‘Wholesale used vehicles, 36,612 29,409 29,881 95,882 Finance and insurance 23,029 21,200 19,588 63,815 Service, body and parts, 87,669 82,344 75,135 245,148 Fleet and other 10,133
Slide 34: 2010 Quarterly Income Statement
34 co) ori. [ecu [oa ar. YID- New vehicle $285,513 $288,125 $264,771 212,113 $1,050,922 Used vehicle 137,648 156,639 144,691 133,988 61272 ‘Wholesale used vehicles, 27.804 30,414 25,288 23,228 106,699 Finance and insurance 17.010 18,629 16,039 14,428 66,108 Service, body and parts, 75,836 76,169 70,
Slide 35: 2009 Quarterly Income Statement
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 36: Quarterly Same Store Revenue Changes
36 Quarterly Same Store Revenue Changes OF ‘Os a2. Qt YID. 2011 New vehicles 284% 241% 41.3% 30.5% Retail used vehicles 142% 16.0% 187% = 18.5% Wholesale used vehicles 166% 142% «= 29.9% = 19.3%, Finance and insurance 208% 27.8% 37.9% 27.9% Service, body and parts, 3.0% 4.8% 8.6% 5.3% Total 20.2% =
Slide 37: Quarterly Gross Margins
37 Quarterly Gross Margins OF as a2 Qt VID. 2011 New vehicles 11% 8.0% 74% 11% Retail used vehicles 145% 153% = 147% 14.8% Wholesale used vehicles 0.29% 0.9% 1.4% 0.8% Finance and insurance 100.0% 100.0% 100.0% 100.0% Service, body and parts, 48.8% «49.0% «= 48.5% 48.7% Total 168% 17.4% 717.2% 2010
Slide 38: 2011 Adjusted Income Statement Detail
38 ost wal ori 0) Selling, general & administrative As reported $87,595 $84,213 «$78456 $250,264 Impairments and disposal gain/loss - el - 560 Adjusted ga7ao5 84793 ~—«7BABG «S2SOBAG Income from operations As reported S31875 $29,736 «$20,088 $81 699 Impairments and disposal gain/loss - felt 382 292
Slide 39: 2010 Adjusted Income Statement Detail
39 ori O30 O20 ori 0) Selling, general & administrative As reported 876073 «875.211 «873.589 «$89,842 $295,895, Impairments and disposal gain/loss a7 - Q 367 412 Resetve adjustments 56 - (1,076) (258) (1,238) Adjusted 76216 211-8724 909,951 294,869) Income from operations As reported s12617 $22,796,
Slide 40: 2009 Adjusted Income Statement Detail
or09 03709 O29 ares 0) Selling, general & administrative As reported 05463 §70037 SE7.588 «= 867,823 8271611 Resetve adjustments (a5) - - - (454) Adjusted 5009 «70087 sersee g67823 271,187 Income from operations As reported $3,193 $17,493 99,626 $4267 $34,579 Impairments and disposal gain/loss 77) 2
Slide 41: 2011 Quarterly Adjusted Income & Diluted EPS
“1 Net income/(loss) ($K) Diluted earnings per share am a2 arti YTD an an ari YTD Continuing Operations As reported $16,939 $14,687 $8,405 $39,432 soe1 8055 8031 81.47 Asset impairments - 3) 228 178 - - 001 oot Reserve adjustments - : - - - : - - Stock based compensation tax shortfall - (185) 186 -
Slide 42: 2010 Quarterly Adjusted Income & Diluted EPS
42 Net income/(loss) ($K) Diluted earnings per share ari 0310210110 «YTD Ori aso 210 O10 «YTD Continuing Operations As reported $4361 $9,559 §(1,640) $1,373 $13,653 80.16 $0.35 $0.06) $005 $082 Asset impairments 436 - 8,042 732 9.210 0.02 - 031 O04 0.35 Reserve adjustments 772 - 560 163 1,495 0.02 -
Slide 43: 2009 Quarterly Adjusted Income & Diluted EPS
43 Net income/(loss) ($K) Diluted earnings per share ars 0309209 OT09_“YTD ars as09 209 O09 YTD Continuing Operations As reported 81799) $6852 $2404 $851) $5,408 $0.07) 8031 $011 $0.04) $0.29 Asset impairments @3) 1570-2095 1,385 4971 - 007 a10 0.06 0.23 Resetve adjustments 4402 - - = 4102 aoa - - :