Lithia Motors, Inc. · NYSE:LAD
Lithia Motors — Q2 2012 Earnings Presentation
42 slides from Lithia Motors's earnings presentation, Jul 25, 2012
Slide 1: Q2'12 Company Update
LITHIA Q2’12 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 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, Founded in Ashland, Oregon
1947 Photo B= 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 LITHIA MOTORS OVERVIEW »~ 85 DEALERSHIPS, 11 STATES, 27 BRANDS
Slide 5: Lithia Motors Overview: Brand Mix and State Composition
Ly LITHIA MOTORS OVERVIEW r BRAND MIX AND STATE COMPOSITION Brand Mix State Mix Ford, 5% BMW, 6% Non poe lowa, 5% Nevada, 4% Idaho, 6%
Slide 6: Sector Strengths
SECTOR STRENGTHS
Slide 7: Stable, Profitable Industry
STABLE, PROFITABLE INDUSTRY ‘Auto Retailers Q2'12 Profitability Mix 2.0% 1.9% 1.5% # 25% 25.1% ey New Vehicles é 55.5% 8 23.2% 2 Saniteangrss | 20.4% = (10.2)% Used Vehicles 5g yay, Pofteeneuton (NF to Manufacturers fe ae net festa Service, Body & Parts 2007 «2008 =. 2009S 2010 2011 SAAR 16.1 13.2 1
Slide 8: Significant External Support
— = SIGNIFICANT EXTERNAL SUPPORT = = 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 franchises in
Slide 9: Unconsolidated Industry
i UNCONSOLIDATED INDUSTRY Dealerships in the U.S. Highly Fragmented Sector 21761 21,461 | ; i lil = $1T automotive retail market = 17,900 dealerships in the country = Largest retail sector in the U.S. ABUNDANT ACQUISITION OPPORTUNITIES
Slide 10: Lithia's Strategy
LITHIAS STRATEGY
Slide 11: Lithia's Strategy
= LITHIA’S STRATEGY 1 TARGET EXCLUSIVE FRANCHISES = Mid-sized, regional markets for domestic and import, metro markets for luxury = Insulation from competition offers pricing protection OPERATORS; ENTREPRENEURIAL CULTURE = Store focused on positive customer experience = Store ownership of marketing
Slide 12: Q2'12 Results
Q2’12 RESULTS
Slide 13: Q2'12 Financial Results
13 Q2’12 FINANCIAL RESULTS Revenue ($MM) Adjusted Diluted EPS 26% 8847-1 41% sae, $672.5 _ Set os 2.2011 2.2012 3014 3008 Nee: See sepa raceonaten of apeee ates EPS «Increased same store sales 25% "Highest second quarter EPS in Company history
Slide 14: Q2'12 Profitability
14 = 2’ "12 PROFITABILITY fo a Same Store Gross Profit Growth Y-o-Y 151% 177% 183% =~ 47.0% = Focus on growing ple overall gross profit nl dollars to leverage zit ost ast are scale Adjusted Net Profit Margin = Highest net profit margin in Company history; improved 30 bps over prior year a2 aan art 2
Slide 15: Q2'12 Gross Profit Analysis
1 Q2’12 GROSS PROFIT ANALYSIS. \y' I New Vehicle Same Store Retail Used Vehicle Same Service, Body & Parts Gross Profit Change Store Gross Profit Change Same Store Gross Profit Change 32.0% 10% (11.8)% 25% — (2.9)% 60% em —“Weh 61% 17.3% 16.9% 22.1% I Volume Price Margin Total Volume Price Margin To
Slide 16: New Vehicle Sales
16 NEW VEHICLE SALES SE Same Store Sales Growth Y-o-Y 33.9% "Focus on increasing our market share «Decline in gross profit per vehicle due Same Store Gross Profit per s . Vehicle to normalization of 2304 Japanese inventory 211 att std att2 ata 2,606 2,582 2,606 9.439 211 att att atta ata SOLID GROWT
Slide 17: Used Vehicle Sales
USED VEHICLE SALES 16 Same Store Sales Growth Y-o-Y 21.7% 18.9% 19.8% I I il l | L l aan ani 212 Store Average Used Retail Units Sold per Month 47 39 40 40 ; [ a2 a3 aan art 212 CONTINUED FOCUS AND STRONG EXECUTION =Value auto same store sales increased 30% Y-o-Y; gross margin 21% = Sold 47 used veh
Slide 18: Finance and Insurance
18 4 FINANCE AND INSURANCE Same Store Sales Growth Y-o-Y 38.0% 34.3% 28.6% 26.8% 20.8% Penetration Rates 241212 Arranged Financing 73% 76% Service Contracts 40% 40% Lifetime Oil and Filter 37% 36% az aati ait art2 22 Financial Composition _Q2’11 Q212 Same Store F&I per Unit Trend ‘Sub-Prime <620 14%
Slide 19: Service, Body and Parts
=f SERVICE, BODY AND PARTS Same Store Revenue Mix Same Store Y-o-Y Revenue Change 9.2% 87% 9.8% 11.1% 9.9% 2711311411 Q112_—Q242 17.2% 17.6% 18.3% 49.4% 17.9% i Sg 9 g Y x 1 ier © eae arse ae 16% Customer Pay 2.0% 25% 3.3% 64%! 8.0 Warranty (2.1)% (4.8)% (11.6)% (11.8)% | (6.7) ' Wholesale Parts 10.
Slide 20: SG&A Analysis
20 4 2G&A ANALYSIS Adjusted SG&A as a % of % of Gross Prot Q241.-@242_— Change Gross Profit Personnel 46.8% 45.4% (140) bps 167%: Advertising 55% 5.8% 30bps Rent 3.1% 3.2% 10 bps 712% Facility Cost 5.4% 4.4% (100) bps S968 Other 10.4% 10.8% 40 bps | Total 71.2% 69.6% (160) bps 210 211 Q212 [Nole: Se
Slide 21: Q2'12 Gross Profit Retention
(Q2’12 GROSS PROFIT RETENTION ™ ee $MM Q211 Q212 % Change Q2'12 Incremental Throughput SMM Gross Profit $1171 $138.2 18.0% Change in Gross Profit $214 Personnel $548 © $627 14.4% Advertising $64 $81 25.3% Change in Adj SG&A $12.9 Rent $37 $44 20.3% % Incremental Throughput 39% Facility Cost $62 $6.4
Slide 22: Incremental Throughput Trends
~ INCREMENTAL THROUGHPUT TRENDS a = Q2'12 throughput impacted by $1.7MM in insurance items; excluding these items, same store throughput would have been 52% = Target same store throughput of 50% Quarterly Same Store Incremental Throughput Trend 56.3% a 57.0% 56.8% Target: Sie = - [ il il | I I I [ l
Slide 23: Funds for Growth / Focused Capital Deployment
4 Funds for Growth (SMM) Qt'12 Q2'12_ Change Cash and Cash Equivalents $9.0 $16.2 $7.2 Availability on Line of Credit 16.9 757 58.8 Unfinanced New Vehicles 76.2 = (76.2) Total $102.1 $91.9 $(10.2) Capital Uses (SMM) FY 2011 FCST2012 Capital Expenditures New Facilities and Remodels $20 $32 HQ Consoli
Slide 24: Growth Opportunities
24 Px 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 = Increase used vehicle sales * 2x-4x EBITDA, including through sales of 3 to 7 year flooring interest old u
Slide 25: Acquisition Growth
25 ACQUISITION GROWTH ee \y, 2012 Update = Added Scion franchise in Billings, MT Fresrio Acquisition $MM _Muttiple = Opened stand alone Mini store in Net Invested Capital $25 Portland, OR Annualized EBITDA 11 23x = Opened stand alone Subaru store in ‘Annualized Revenues* $28.1 9% Spokane, WA = Purch
Slide 26: Increased 2012 Guidance
= INCREASED 2012 GUIDANCE 26 PROJECTED EARNINGS RANGE* = Q3'12: $0.74 - $0.76 = FY 2012: $2.69 - $2.75 ASSUMPTIONS = Total revenues in range of $3.2 to $3.3 billion New vehicle same store sales increasing 22.0% New vehicle gross margin from 7.3% to 7.6% Used vehicle same store sales increasing 16.0%
Slide 27: Appendix
APPENDIX
Slide 28: Impact of Rising Gas Prices
React OF RISING GAS PRICES © = Spikes cause initial decline in truck sales = Truck mix recovers before gas price drops 5 eeTruck % of Total Gas Price per Gallon g g 2 Truck % of New and Used Sales g z 5 ¢ $250 8 a ill 51.50 Oct-07 Feb-08 Jun08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun10 Oct-10 Feb-11 J
Slide 29: Impact of Rising Gas Prices: Demographic Shift
IMPACT OF RISING GAS PRICES ~ Truck Buyer Demographic Mix 135% 13.1% 19.2% 2001 2002 2003 2004 2005 2006 2007 2008 2011 Work Use "Fleet © Recreational Use = Fewer “aspirational” truck owners = Majority of 2011 sales for functional use DEMOGRAPHIC SHIFT REDUCES VOLATILITY
Slide 30: New Vehicle Supply
30 NEW VEHICLE SUPPLY New Vehicle Days Supply 120 = New vehicle days 90 supply: 74 days 0 = Used vehicle days » TT L supply: 52 days a Import Luxury ADEQUATELY POSITIONED FOR NEAR TERM
Slide 31: Service Trend Analysis
31 hy SERVICE TREND ANALYSIS = More older vehicles being serviced = Average sale per repair order down due to more commodity sales and routine maintenance Age of Serviced Vehicles Average Sale per RO Avg # of Vehicles Serviced per Month Wauv fear 48.170 48,286 60,100 67,615 67,394 (Aged) 2008 ©«©200
Slide 32: Stable Balance Sheet
gu = STABLE BALANCE SHEET 32 = No mortgage maturities until 2015; revolving credit facility committed through 2017 = Strategically retired $23 million in mortgages in Q2 = Refinanced $70 million to extend maturity dates Future Mortgage Debt Maturities ($MM) 60 50 40 30 20 , [| Lal o! a a 2012 2013 «
Slide 33: Chrysler Update
CHRYSLER UPDATE = Majority of Lithia’s sales from Ram Pickup and Jeep Units = 60% increase in Chrysler car and 49% increase in Ram Pickup sales over prior year Chrysler Unit Sales Q212 Chrysler Same Store Sales Y-o-Y Ram Pickup 41% may Jeep Models 28% Charger/Challenger/300 1% 39.2% “0% Durango/Jour
Slide 34: Balance Sheet
34 AS of As of As of As of June December June December 30, 31, 30. 34 (sk) 2012 2011 cc) 2012 2011 Assets Liabilities and Stockholders’ Equity CurrentAssets: (Current Liabilities: Cashandcashequvalents § ©=—16,247 § © 20,851 Floor plan notes payable S$ 13783 «$114,760 Accounts receivable 147,747 99,
Slide 35: 2012 Income Statement
35 (sk) ari FY 2012 Newvehicle 470,428 404,288 874,712 Usedvehicle 212,767 195,421 408,188 Wholesale usedvehicles 36,083 34,336 70,419 Finance andinsurance 27,870 25,420 53,290 Service, body andparts 88,585 86,448 175,033, Fleet and other 11,394 12,981 24,375 Total Revenues 847,123 758,894 1,606,017
Slide 36: 2011 Income Statement
36 (sk) arti ari an ari FY 2011 Newvehicle $394,570 $383,951 «$347,727 —«$300,840 «$1,426,888 Usedvehicle 175,284 187,443 176,691 156,478 695,796 Wholesale usedvehicles 35,925 36,105 29,153 29,537 130,720 Finance andinsurance 22,920 22,787 20,886 49,299 85,852 Service, body andparts 84,799 86,161 80
Slide 37: 2010 Income Statement
cs) Newvehicle Usedvehicle Wholesale usedvehicles Finance andinsurance Senvice, body andparts, Fleet and other Total Revenues Costof Goods Sold Newvehicles Retall usedvehicles Wholesale usedvehicles Finance andinsurance Senvice, body andparts, Fleet and other Gross Profit ‘Assetimpairmentcharges SGA
Slide 38: Supplemental Information: Quarterly Same Store Revenue Changes
MF SUPPL 2012 Newvehicles Retallusedvehicles Wholesale usedvehicles Finance andinsurance Service, body andparts Fleet andother Total 2011 Newvehicles Retailusedvehicles Wholesale usedvehicles Finance andinsurance Service, body andparts Fleet and other Total 2010 Newvehicies Retailusedvehicles Wholes
Slide 39: Quarterly Gross Margins
39 Quarterly Gross Margins a3 Qt Y 2012 Newvehicles 74% 7.1% = 7.5% Retail usedvehicles 14.9% 14.8% 14.9% Wholesale usedvehicles 08% © 1.2% © 1.0% Finance andinsurance 100.0% 100.0% 100.0% Service, body andparts 48.8% 48.1% 48.5% Fleet andother 3.4% 3.1% © 3.2% Total 16.3% 16.8% — 16.6% 2011 Newvehi
Slide 40: 2012 Adjusted Income Statement Detail
40 Asset YTD impairments yD 6130/2012 and disposal Equity 63072012 (sk) Asrepored gain investment Tax atirbute Adusted ai ‘at oi a Assetimpairments 115 (ts) Seling, general and administrative 187,787 739 2 - ~ 188,496 Income fromoperations, 69,728 (624) 8 - = 69,108 ‘ther income, net 1319 - (244) -
Slide 41: 2011 Adjusted Income Statement Detail
M1 ym yD yae12011 Reserve srst2011 (se) Asreported __Assetimpairments and disposalgains/osses _ _Adustments__Stock based comp shortfal__ Adusted ai a2 a4 4 ai a2 Gross Proft 457,538 950 458,488 Assetimpairments 1,376 (382) (490) (504) : Seling, general and administrative 327,545 @ 580 6301 334426 In
Slide 42: 2010 Adjusted Income Statement Detail
42 yo yo yarsi2010 sai2010 (sk) Asreported __Assetimpaitments and disposal ains/losses Reserve adjustments Adjusted ai a2 ‘a4 a a2 Gross Proft 369,859 2 2 2 > > 4040 370,899 Assetimpairments 415,201 (14st) (13,280) (650) 5 5 2 = ‘Seling, general and administrative 290,833, are @ a (258) (1,078) 6 29