Lithia Reports Record Second Quarter 2017 Results

Declares Dividend of $0.27 Per Share for Second Quarter

MEDFORD, Ore.--()--Lithia Motors, Inc. (NYSE: LAD) today reported the highest second quarter revenue and earnings per share in company history, the 27th consecutive quarter of record results.

Second quarter 2017 net income per diluted share increased 5% to $2.12 from $2.01 for the second quarter of 2016. Adjusted net income per diluted share increased 16% to $2.28 from $1.96 for the same period in 2016. Second quarter 2017 net income increased 3% to $53.2 million from $51.4 million for the second quarter of 2016. Adjusted net income increased 14% to $57.2 million compared to second quarter 2016 adjusted net income of $50.2 million.

As shown in the attached non-GAAP reconciliation tables, the 2017 second quarter adjusted results exclude $0.16 per share in non-core charges related to acquisition expenses and a hail storm insurance reserve. The 2016 second quarter non-core adjustments exclude a $0.05 benefit associated with an equity investment.

Second quarter 2017 revenue increased 16% to $2.5 billion from $2.1 billion in the second quarter of 2016.

Second Quarter-over-Quarter Operating Highlights:

  • Total same store sales increased 3%
  • New vehicle same store sales increased 1%
  • Used vehicle retail same store sales increased 4%
  • Service, body and parts same store sales increased 7%
  • Same store F&I per unit increased $81 to $1,352
  • Adjusted SG&A expense as a percentage of gross profit was 67.0%

For the first six months of 2017, revenues increased 14% to $4.7 billion, compared to $4.1 billion in the first six months of 2016. Net income for the first six months of 2017 was $4.13 per diluted share, compared to $3.56 per diluted share for the similar period in 2016. Adjusted net income per diluted share for the first six months of 2017 increased 15% to $4.06 from $3.52 for the first six months of 2016.

"We continue to execute our strategy of acquiring strong franchises that underperform their potential and improving earnings as they season," said Bryan DeBoer, President and CEO. "We increased quarterly revenues 16% and adjusted earnings 14% over last year, driven by our significant acquisition cadence. On a same-store basis, we grew new vehicle sales slightly, increased used vehicle sales over 4%, and grew service and parts over 7%. We recently raised $300 million in senior notes and anticipate deploying the capital for acquisition growth in the future. As we integrate acquisitions and seek to improve their earnings, we increase future cash flow and produce greenfield-like returns."

Corporate Development

As previously announced in May 2017, we completed the acquisition of the Baierl Auto Group in Pittsburgh, Pennsylvania, comprised of Toyota, Honda, Subaru, Ford, Chevrolet, Acura, Kia and Cadillac locations. On an annualized basis, the Baierl Auto Group is estimated to generate $500 million in revenue and $0.15 in earnings per share. In May, we also opened Portland Chrysler Jeep Dodge Ram, an open point awarded by Fiat Chrysler Automobiles, which is expected to generate $80 million in annualized revenue.

Balance Sheet Update

We ended the second quarter with $31 million in cash and $185 million in availability under our credit facility. Additionally, approximately $256 million of our operating real estate is currently unfinanced, which we estimate could provide $192 million in capital, for total potential liquidity of $408 million.

After the end of the second quarter, we completed a $300 million aggregate principal amount offering of 5.25% senior notes due 2025 in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended. We intend to use the net proceeds for general corporate purposes, which may include funding acquisitions, capital expenditures and debt repayment. Pending final application, all or a portion of the $295 million in net proceeds will be applied to reduce indebtedness.

Dividend Payment

Our Board of Directors has approved a dividend of $0.27 per share related to second quarter 2017 financial results. We expect to pay the dividend on August 25, 2017 to shareholders of record on August 11, 2017.

2017 Earnings Guidance

We project 2017 full year earnings of $8.35 to $8.50 per diluted share. This projection is based on the following annual assumptions:

  • Total revenue of $9.6 to $9.9 billion
  • New vehicle same store sales increasing 1.0%
  • New vehicle gross margin of 5.6% to 5.8%
  • Used vehicle same store sales increasing 5.0%
  • Used vehicle gross margin of 11.5% to 11.7%
  • Service body and parts same store sales increasing 7.0%
  • Service body and parts gross margin of 48.5% to 49.0%
  • Finance and insurance same store gross profit of $1,325 to $1,350 per unit
  • Tax rate of 39.5%
  • Average diluted shares outstanding of 25.1 million

These projections exclude the impact of future acquisitions, dispositions and non-core items. Actual results may be affected by items described under Forward-Looking Statements below.

Second Quarter Earnings Conference Call and Updated Presentation

The second quarter conference call may be accessed at 10:00 a.m. ET today by telephone at 877-407-8029. An updated presentation highlighting the second quarter results has been added to our investor relations website.

To listen live on our website or for replay, visit www.lithiainvestorrelations.com and click on webcasts.

About Lithia

Lithia Motors, Inc. is one of the largest automotive retailers in the United States and is among the fastest growing companies in the Fortune 500 with 160 stores in 18 states. We offer 30 brands of new vehicles and all brands of used vehicles in our stores and online at over 200 websites. We sell new and used vehicles and replacement parts, provide vehicle maintenance, warranty, paint and repair services, arrange related financing, and sell service contracts, vehicle protection products and credit insurance.

Sites

www.lithiamotors.com
www.lithiainvestorrelations.com
www.lithiacareers.com

Lithia Motors on Facebook
www.facebook.com/LithiaMotors

Lithia Motors on Twitter
http://twitter.com/lithiamotors

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as "project," "outlook," "expect," "anticipate," "intend," "plan," "believe," "estimate," "may," "seek," "would," "should," "likely," "goal," "strategy," "future," "maintain," "continue," "remain," "target" or "will" and similar references to future periods. Examples of forward-looking statements in this press release include, among others, statements regarding:

  • Expected operating results, such as improved store efficiency and performance; generating 2017 full year earnings of $8.35 to $8.50 per diluted share and all projections set forth under the headings "2017 Earnings Guidance";
  • Our ability to improve store performance;
  • Anticipated acquisition opportunities and additions of dealership locations to our portfolio in the future, and our ability to improve earnings and achieve returns on investments;
  • Anticipated revenues from acquired and open point stores; and
  • Anticipated availability of liquidity from our credit facility and unfinanced operating real estate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity and development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements in this press release. The risks and uncertainties that could cause actual results to differ materially from estimated or projected results include, without limitation, future economic and financial conditions (both nationally and locally), changes in customer demand, our relationship with, and the financial and operational stability of, vehicle manufacturers and other suppliers, risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms), government regulations, legislation and others set forth throughout "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and in "Part I, Item 1A. Risk Factors" of our most recent Annual Report on Form 10-K, and from time to time in our other filings with the SEC. We urge you to carefully consider this information and not place undue reliance on forward-looking statements. We undertake no duty to update our forward-looking statements, including our earnings outlook, which are made as of the date of this release.

Non-GAAP Financial Measures

This press release and the attached financial tables contain non-GAAP financial measures such as adjusted net income and diluted earnings per share, adjusted SG&A as a percentage of revenue and gross profit, adjusted operating margin, adjusted operating profit as a percentage of gross profit, adjusted pre-tax margin, EBITDA, adjusted EBITDA, leveraged cash flow and adjusted total debt. Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We present cash flows from operations in the attached tables, adjusted to include the change in non-trade floor plan debt to improve the visibility of cash flows related to vehicle financing. As required by SEC rules, we have reconciled these measures to the most directly comparable GAAP measures in the attachments to this release. We believe the non-GAAP financial measures we present improve the transparency of our disclosures; provide a meaningful presentation of our results from core business operations, because they exclude items not related to core business operations and other non-cash items; and improve the period-to-period comparability of our results from core business operations. These presentations should not be considered an alternative to GAAP measures.

 
Lithia Motors, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands except per share data)

 
      Three months ended         %
June 30, Increase Increase
2017     2016 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 1,384,055 $ 1,209,037 $ 175,018 14.5 %
Used vehicle retail 633,635 553,647 79,988 14.4
Used vehicle wholesale 69,512 66,714 2,798 4.2
Finance and insurance 94,851 81,043 13,808 17.0
Service, body and parts 246,005 202,265 43,740 21.6
Fleet and other   38,978     20,633     18,345   88.9  
Total revenues 2,467,036 2,133,339 333,697 15.6 %
Cost of sales:
New vehicle retail 1,303,516 1,136,175 167,341 14.7
Used vehicle retail 559,129 486,422 72,707 14.9
Used vehicle wholesale 67,800 65,228 2,572 3.9
Service, body and parts 123,525 103,666 19,859 19.2
Fleet and other   37,795     19,812     17,983   90.8  
Total cost of sales   2,091,765     1,811,303     280,462   15.5  
Gross profit 375,271 322,036 53,235 16.5 %
Asset impairments 3,498 (3,498 ) (100.0 )
SG&A expense 257,290 215,526 41,764 19.4
Depreciation and amortization   14,031     12,503     1,528   12.2  
Income from operations 103,950 90,509 13,441 14.9 %
Floor plan interest expense (9,332 ) (6,209 ) 3,123 50.3
Other interest expense (7,169 ) (5,502 ) 1,667 30.3
Other (expense) income, net   387     (1,495 )   (1,882 ) NM  
Income before income taxes 87,836 77,303 10,533 13.6 %
Income tax expense (34,636 ) (25,875 ) 8,761 33.9
Income tax rate   39.4 %   33.5 %    
Net income $ 53,200   $ 51,428   $ 1,772   3.4 %
 
Diluted net income per share:
Net income per share $ 2.12 $ 2.01 $ 0.11 5.5 %
 
Diluted shares outstanding 25,106 25,534 (428 ) (1.7 )%
 

NM - not meaningful

 
 
Lithia Motors, Inc.

Key Performance Metrics (Unaudited)

 
      Three months ended         %
June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

Gross margin

New vehicle retail 5.8 % 6.0 %

(20

)bps

Used vehicle retail 11.8 12.1 (30 )
Used vehicle wholesale 2.5 2.2 30
Finance and insurance 100.0 100.0
Service, body and parts 49.8 48.7 110
Fleet and other 3.0 4.0 (100 )
Gross profit margin 15.2 15.1 10
 

Unit sales

New vehicle retail 40,876 36,059 4,817 13.4 %
Used vehicle retail 32,171 27,716 4,455 16.1
Total retail units sold 73,047 63,775 9,272 14.5
Used vehicle wholesale 10,906 9,774 1,132 11.6
 

Average selling price

New vehicle retail $ 33,860 $ 33,529 $ 331 1.0 %
Used vehicle retail 19,696 19,976 (280 ) (1.4 )
Used vehicle wholesale 6,374 6,826 (452 ) (6.6 )
 

Average gross profit per unit

New vehicle retail $ 1,970 $ 2,021 $ (51 ) (2.5 )%
Used vehicle retail 2,316 2,425 (109 ) (4.5 )
Used vehicle wholesale 157 152 5 3.3
Finance and insurance 1,298 1,271 27 2.1
Total vehicle(1) 3,444 3,491 (47 ) (1.3 )
 

Revenue mix

New vehicle retail 56.1 % 56.7 %
Used vehicle retail 25.7 26.0
Used vehicle wholesale 2.8 3.1
Finance and insurance, net 3.8 3.8
Service, body and parts 10.0 9.5
Fleet and other 1.6 0.9
 
Adjusted As reported
Three months ended

Three months ended

June 30,

June 30,

Other metrics

2017 2016 2017 2016
SG&A as a % of revenue 10.2 % 10.1 % 10.4 % 10.1 %
SG&A as a % of gross profit 67.0 66.9 68.6 66.9
Operating profit as a % of revenue 4.5 4.4 4.2 4.2
Operating profit as a % of gross profit 29.3 29.2 27.7 28.1
Pretax margin 3.8 3.9 3.6 3.6
Net profit margin 2.3 2.4 2.2 2.4
 
(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
 
 
Lithia Motors, Inc.

Same Store Operating Highlights (Unaudited)

 
      Three Months Ended         %
June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

Revenues

New vehicle retail $ 1,217,563 $ 1,208,561 $ 9,002 0.7 %
Used vehicle retail 575,410 552,634 22,776 4.1
Used vehicle wholesale 57,789 66,583 (8,794 ) (13.2 )
Finance and insurance 87,653 80,988 6,665 8.2
Service, body and parts 216,112 201,863 14,249 7.1
Fleet and other   32,818     20,633     12,185   59.1
Total revenues $ 2,187,345 $ 2,131,262 $ 56,083 2.6
 

Gross profit

New vehicle retail $ 71,492 $ 72,759 $ (1,267 ) (1.7 )%
Used vehicle retail 69,273 67,121 2,152 3.2
Used vehicle wholesale 1,377 1,528 (151 ) (9.9 )
Finance and insurance 87,653 80,988 6,665 8.2
Service, body and parts 107,604 98,437 9,167 9.3
Fleet and other   951     822     129   15.7
Total gross profit $ 338,350 $ 321,655 $ 16,695 5.2
 

Gross margin

New vehicle retail

5.9

%

6.0

%

(10

)bps
Used vehicle retail 12.0 12.1 (10 )
Used vehicle wholesale 2.4 2.3 10
Finance and insurance 100.0 100.0
Service, body and parts 49.8 48.8 100
Fleet and other 2.9 4.0 (110 )
Gross profit margin 15.5 15.1 40
 

Unit sales

New vehicle retail 35,893 36,042 (149 ) (0.4 )%
Used vehicle retail 28,937 27,657 1,280 4.6
Total retail units sold 64,830 63,699 1,131 1.8
Used vehicle wholesale 8,912 9,754 (842 ) (8.6 )
 

Average selling price

New vehicle retail $ 33,922 $ 33,532 $ 390 1.2 %
Used vehicle retail 19,885 19,982 (97 ) (0.5 )
Used vehicle wholesale 6,484 6,826 (342 ) (5.0 )
 

Average gross profit per unit

New vehicle retail $ 1,992 $ 2,019 $ (27 ) (1.3 )%
Used vehicle retail 2,394 2,427 (33 ) (1.4 )
Used vehicle wholesale 155 157 (2 ) (1.3 )
Finance and insurance 1,352 1,271 81 6.4
Total vehicle(1) 3,545 3,491 54 1.5
 
(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
 
 
Lithia Motors, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands except per share data)

 

              %
Six months ended June 30, Increase Increase
2017     2016 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 2,594,359 $ 2,305,092 $ 289,267 12.5 %
Used vehicle retail 1,235,858 1,086,373 149,485 13.8
Used vehicle wholesale 141,015 131,860 9,155 6.9
Finance and insurance 181,628 158,681 22,947 14.5
Service, body and parts 478,579 398,940 79,639 20.0
Fleet and other   71,698     35,254     36,444   103.4  

Total revenues

4,703,137 4,116,200 586,937 14.3 %
Cost of sales:
New vehicle retail 2,443,702 2,165,464 278,238 12.8
Used vehicle retail 1,092,569 954,871 137,698 14.4
Used vehicle wholesale 137,786 128,544 9,242 7.2
Service, body and parts 242,905 204,222 38,683 18.9
Fleet and other   69,252     33,881     35,371   104.4  
Total cost of sales   3,986,214     3,486,982     499,232   14.3  
Gross profit 716,923 629,218 87,705 13.9
Asset impairments 6,996 (6,996 ) (100.0 )
SG&A expense 500,062 434,632 65,430 15.1
Depreciation and amortization   26,770     24,166     2,604   10.8  
Income from operations 190,091 163,424 26,667 16.3
Floor plan interest expense (17,384 ) (12,118 ) 5,266 43.5
Other interest expense (13,840 ) (10,961 ) 2,879 26.3
Other income (expense), net   10,232     (3,021 )   (13,253 ) NM  
Income before income taxes 169,099 137,324 31,775 23.1
Income tax expense (65,172 ) (45,626 ) 19,546 42.8
Income tax rate   38.5 %   33.2 %    
Net income $ 103,927   $ 91,698   $ 12,229   13.3 %
 
Diluted net income per share:
Net income per share $ 4.13 $ 3.56 $ 0.57 16.0 %
 
Diluted shares outstanding 25,177 25,754 (577 ) (2.2 )%
 

NM - not meaningful

 
 
Lithia Motors, Inc.

Key Performance Metrics (Unaudited)

 
              %
Six months ended June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

Gross margin

New vehicle retail 5.8 % 6.1 % (30 )bps
Used vehicle retail 11.6 12.1 (50 )
Used vehicle wholesale 2.3 2.5 (20 )
Finance and insurance 100.0 100.0
Service, body and parts 49.2 48.8 40
Fleet and other 3.4 3.9 (50 )
Gross profit margin 15.2 15.3 (10 )
 

Unit sales

New vehicle retail 76,492 68,808 7,684 11.2 %
Used vehicle retail 62,954 55,147 7,807 14.2
Total retail units sold 139,446 123,955 15,491 12.5
Used vehicle wholesale 21,746 19,287 2,459 12.7
 

Average selling price

New vehicle retail $ 33,917 $ 33,500 $ 417 1.2 %
Used vehicle retail 19,631 19,700 (69 ) (0.4 )
Used vehicle wholesale 6,485 6,837 (352 ) (5.1 )
 

Average gross profit per unit

New vehicle retail $ 1,970 $ 2,029 $ (59 ) (2.9 )%
Used vehicle retail 2,276 2,385 (109 ) (4.6 )
Used vehicle wholesale 148 172 (24 ) (14.0 )
Finance and insurance 1,302 1,280 22 1.7
Total vehicle(1) 3,434 3,494 (60 ) (1.7 )
 

Revenue mix

New vehicle retail 55.2 % 56.0 %
Used vehicle retail 26.3 26.4
Used vehicle wholesale 3.0 3.2
Finance and insurance, net 3.9 3.9
Service, body and parts 10.2 9.7
Fleet and other 1.4 0.8
 
Adjusted As reported
Six Months Ended June 30, Six months ended June 30,

Other metrics

2017 2016 2017 2016
SG&A as a % of revenue 10.5 % 10.5 % 10.6 % 10.6 %
SG&A as a % of gross profit 68.9 68.9 69.8 69.1
Operating profit as a % of revenue 4.2 4.2 4.0 4.0
Operating profit as a % of gross profit 27.4 27.2 26.5 26.0
Pretax margin 3.5 3.6 3.6 3.3
Net profit margin 2.2 2.2 2.2 2.2
 
(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
 
 
Lithia Motors, Inc.

Same Store Operating Highlights (Unaudited)

 
            %
Six months ended June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

Revenues

New vehicle retail $ 2,314,266 $ 2,302,695 $ 11,571 0.5 %
Used vehicle retail 1,137,210 1,083,257 53,953 5.0
Used vehicle wholesale 120,921 131,596 (10,675 ) (8.1 )
Finance and insurance 169,784 158,446 11,338 7.2
Service, body and parts 426,953 397,751 29,202 7.3
Fleet and other   61,565     35,253     26,312   74.6
Total revenues $ 4,230,699 $ 4,108,998 $ 121,701 3.0
 

Gross profit

New vehicle retail $ 135,303 $ 139,512 $ (4,209 ) (3.0 )%
Used vehicle retail 134,190 131,217 2,973 2.3
Used vehicle wholesale 2,803 3,380 (577 ) (17.1 )
Finance and insurance 169,784 158,446 11,338 7.2
Service, body and parts 210,754 194,160 16,594 8.5
Fleet and other   2,056     1,371     685   50.0
Total gross profit $ 654,890 $ 628,086 $ 26,804 4.3
 

Gross margin

New vehicle retail 5.8 % 6.1 % (30 )bps
Used vehicle retail 11.8 12.1 (30 )
Used vehicle wholesale 2.3 2.6 (30 )
Finance and insurance 100.0 100.0
Service, body and parts 49.4 48.8 60
Fleet and other 3.3 3.9 (60 )
Total gross profit 15.5 15.3 20
 

Unit sales

New vehicle retail 68,108 68,729 (621 ) (0.9 )%
Used vehicle retail 57,438 54,977 2,461 4.5
Total retail units sold 125,546 123,706 1,840 1.5
Used vehicle wholesale 18,506 19,242 (736 ) (3.8 )
 

Average selling price

New vehicle retail $ 33,979 $ 33,504 $ 475 1.4 %
Used vehicle retail 19,799 19,704 95 0.5
Used vehicle wholesale 6,534 6,839 (305 ) (4.5 )
 

Average gross profit per unit

New vehicle retail $ 1,987 $ 2,030 $ (43 ) (2.1 )%
Used vehicle retail 2,336 2,387 (51 ) (2.1 )
Used vehicle wholesale 151 176 (25 ) (14.2 )
Finance and insurance 1,352 1,281 71 5.5
Total vehicle(1) 3,521 3,497 24 0.7
 
(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
 
 
Lithia Motors, Inc.

Segment Operating Highlights (Unaudited)

 
      Three months ended         %
June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

Revenues

Domestic $ 954,949 $ 830,410 $ 124,539 15.0 %
Import 1,101,314 930,317 170,997 18.4
Luxury   413,088     371,866     41,222   11.1
Total segment revenues 2,469,351 2,132,593 336,758 15.8
Corporate and other   (2,315 )   746     (3,061 ) NM
Total revenues $ 2,467,036 $ 2,133,339 $ 333,697 15.6
 

Segment Income(1)

Domestic $ 27,857 $ 28,999 $ (1,142 ) (3.9 )%
Import 32,465 29,680 2,785 9.4
Luxury   10,088     9,730     358   3.7
Total segment income 70,410 68,409 2,001 2.9
Corporate and other 38,239 28,394 9,845 34.7
Depreciation and amortization (14,031 ) (12,503 ) 1,528 12.2
Other interest expense (7,169 ) (5,502 ) 1,667 30.3
Other (expense) income, net   387     (1,495 )   (1,882 ) NM
Income before income taxes $ 87,836 $ 77,303 $ 10,533 13.6
 

(1) Segment income for each of the segments is defined as Income before income taxes, less Depreciation and amortization, Other interest expense and Other income, net.

 

Retail New Vehicle Unit Sales

Domestic 13,256 11,712 1,544 13.2 %
Import 23,287 20,080 3,207 16.0
Luxury   4,423     4,317     106   2.5
Total 40,966 36,109 4,857 13.5
Allocated to management   (90 )   (50 )   (40 ) NM
Total retail new vehicle unit sales 40,876 36,059 4,817 13.4
 

NM - not meaningful

 
 
Lithia Motors, Inc.

Segment Operating Highlights (Unaudited)

 
              %
Six months ended June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

Revenues

Domestic $ 1,854,707 $ 1,602,312 $ 252,395 15.8 %
Import 2,072,787 1,793,060 279,727 15.6
Luxury   776,891     718,679     58,212   8.1
Total segment revenues 4,704,385 4,114,051 590,334 14.3
Corporate and other   (1,248 )   2,149     (3,397 ) NM
Total revenues $ 4,703,137 $ 4,116,200 $ 586,937 14.3
 

Segment Income(1)

Domestic $ 53,299 $ 52,129 $ 1,170 2.2 %
Import 54,637 53,943 694 1.3
Luxury   14,801     14,312     489   3.4
Total segment income 122,737 120,384 2,353 2.0
Corporate and other 76,740 55,088 21,652 39.3
Depreciation and amortization (26,770 ) (24,166 ) 2,604 10.8
Other interest expense (13,840 ) (10,961 ) 2,879 26.3
Other income (expense), net   10,232     (3,021 )   (13,253 ) NM
Income before income taxes $ 169,099 137,324 $ 31,775 23.1
 

(1) Segment income for each of the segments is defined as Income before income taxes, less Depreciation and amortization, Other interest expense and Other income (expense), net.

 

Retail New Vehicle Unit Sales

Domestic 25,496 22,441 3,055 13.6 %
Import 43,122 38,114 5,008 13.1
Luxury   8,039     8,380     (341 ) (4.1 )
Total 76,657 68,935 7,722 11.2
Allocated to management   (165 )   (127 )   (38 ) NM
Total retail new vehicle unit sales 76,492 68,808 7,684 11.2
 

NM - not meaningful

 
 

Lithia Motors, Inc.

Other Highlights (Unaudited)

 
    As of
June 30,     December 31,     June 30,
2017 2016 2016

Days Supply(1)

New vehicle inventory 75 68 77
Used vehicle inventory 60 56 57
 

(1) Days supply calculated based on current inventory levels, excluding in-transit vehicles, and a 30-day historical cost of sales level.

 

Financial covenants

Requirement As of June 30, 2017
Current ratio Not less than 1.10 to 1 1.28 to 1
Fixed charge coverage ratio Not less than 1.20 to 1 2.96 to 1
Leverage ratio Not more than 5.00 to 1 2.02 to 1
Funded debt restriction Not more than $900 million $518.8 million
 
 
Lithia Motors, Inc.

Other Highlights (Unaudited)

 
      Three months ended June 30,     Six months ended June 30,
2017     2016 2017     2016

New vehicle unit sales brand mix

Honda, Acura 23.3 % 23.8 % 23.1 % 23.5 %
Toyota, Lexus 19.1 19.8 18.4 19.7
Chrysler, Fiat 17.3 19.1 17.8 19.0
General Motors 8.3 8.7 8.6 8.8
Subaru 8.2 6.8 8.4 7.0
Ford 6.8 4.6 7.0 4.9
Nissan 3.9 3.8 4.1 3.8
BMW, Mini 4.1 5.3 4.0 5.4
Volkswagen, Audi 3.7 2.9 3.6 2.8
Hyundai 2.3 2.1 2.2 2.0
Kia 1.7 1.3 1.5 1.3
Mercedes Benz 1.1 1.3 1.0 1.3
Other 0.2 0.5 0.3 0.5
 
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016

Revenue geographic mix

California 21.7 % 22.5 % 22.3 % 22.7 %
Oregon 14.8 16.7 15.3 16.7
New Jersey 13.6 14.4 13.0 14.2
Texas 11.1 13.7 11.5 13.8
New York 7.3 3.0 7.4 3.0
Montana 5.6 6.4 5.7 6.4
Washington 4.6 5.2 4.7 5.3
Alaska 4.3 5.1 4.2 4.9
Nevada 2.7 2.9 2.8 3.1
Idaho 2.7 2.7 2.7 2.7
Hawaii 2.4 2.0 2.6 2.0
Iowa 2.4 2.7 2.3 2.6
Pennsylvania 2.8 1.5
North Dakota 1.2 1.4 1.2 1.3
Vermont 0.9 0.9
New Mexico 0.7 0.8 0.8 0.9
Massachusetts 0.7 0.5 0.6 0.4
Wyoming 0.5 0.5
 
As of July 28, 2017

Current store count mix

# of stores % of total
Chrysler, Fiat 29 18.1 %
Honda, Acura 24 15.0
Toyota, Lexus 22 13.8
General Motors 19 11.9
Ford 13 8.1
BMW, Mini 11 6.9
Volkswagen, Audi 10 6.3
Subaru 10 6.3
Nissan 7 4.4
Hyundai 5 3.1
Kia 4 2.5
Mercedes Benz 4 2.5
Other 2 1.1
 
 
Lithia Motors, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands)

 
      June 30, 2017     December 31, 2016
Cash and cash equivalents $ 31,177 $ 50,282
Trade receivables, net 359,010 417,714
Inventories, net 1,878,780 1,772,587
Other current assets   54,801   46,611
Total current assets $ 2,323,768 $ 2,287,194
 
Property and equipment, net 1,067,104 1,006,130
Goodwill 259,399 259,399
Franchise value 184,763 184,268
Other non-current assets   141,461   107,159
Total assets $ 3,976,495 $ 3,844,150
 
Floor plan notes payable $ 99,932 $ 94,602
Floor plan notes payable: non trade 1,534,715 1,506,895
Current maturities of long-term debt 20,901 20,965
Trade payables 89,795 88,423
Accrued liabilities   212,309   211,109
Total current liabilities $ 1,957,652 $ 1,921,994
 
Long-term debt 777,814 769,916
Deferred revenue 92,335 81,929
Deferred income taxes 57,919 59,075
Other long-term liabilities   102,948   100,460
Total liabilities $ 2,988,668 $ 2,933,374
 
Class A common stock 158,527 165,512
Class B common stock 157 219
Additional paid-in capital 34,280 41,225
Retained earnings   794,863   703,820
Total liabilities & stockholders' equity $ 3,976,495 $ 3,844,150
 
 
Lithia Motors, Inc.

Summarized Cash Flow from Operations (Unaudited)

(In thousands)

 
      Six Months Ended June 30,
2017     2016
Net income $ 103,927 $ 91,698

Adjustments to reconcile net income to net cash provided by operating activities:

Asset impairments 6,996
Depreciation and amortization 26,770 24,166
Stock-based compensation 5,432 6,018
(Gain) loss on disposal of assets 256 (4,512 )
Gain on sale of franchise (1,102 )
Deferred income taxes (1,156 ) 5,704
(Increase) decrease:

Trade receivables, net

70,908 6,564
Inventories (36,078 ) (114,052 )
Other assets 479 5,652
Increase (decrease):
Floor plan notes payable, net 1,330 8,685
Trade payables 414 6,678
Accrued liabilities (3,684 ) 17,595
Other long-term liabilities and deferred revenue   9,957     10,668  
Net cash provided by operating activities $ 178,555   $ 70,758  
 
 
Lithia Motors, Inc.

Reconciliation of Non-GAAP Cash Flow from Operations (Unaudited)

(In thousands)

 
      Six Months Ended June 30,

Net cash provided by operating activities

2017     2016
As reported $ 178,555 $ 70,758
Floor plan notes payable, non-trade, net (32,124 ) 58,622
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory       (4,854 )
Adjusted $ 146,431   $ 124,526  
 
 
Lithia Motors, Inc.

Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)

(In thousands, except for per share data)

     
Three Months Ended June 30, 2017
As reported    

Reserve
adjustments

   

Acquisition
expenses

    Adjusted
Selling, general and administrative $ 257,290 $ (3,878 ) $ (2,137 ) $ 251,275
 
Income from operations 103,950 3,878 2,137 109,965
 
Other (expense) income, net 387 387
 
Income before income taxes $ 87,836 $ 3,878 $ 2,137 $ 93,851
Income tax expense (34,636 )   (1,231 )   (821 )   (36,688 )
Net income $ 53,200   $ 2,647   $ 1,316   $ 57,163  
 
Diluted earnings per share $ 2.12 $ 0.11 $ 0.05 $ 2.28
Diluted share count 25,106
 
Three Months Ended June 30, 2016
As reported

Equity
investment
fair value
adjustment

Adjusted
Asset impairments $ 3,498 $ (3,498 ) $
 
Selling, general and administrative 215,526 215,526
 
Income from operations 90,509 3,498 94,007
 
Other (expense) income, net (1,495 ) 2,065 570
 
Income before income taxes $ 77,303 $ 5,563 $ 82,866
Income tax expense   (25,875 )   (6,837 )   (32,712 )
Net income $ 51,428   $ (1,274 ) $ 50,154  
 
Diluted earnings per share $ 2.01 $ (0.05 ) $ 1.96
Diluted share count 25,534
 
 
Lithia Motors, Inc.

Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)

(In thousands, except for per share data)

 
      Six Months Ended June 30, 2017
As reported    

Reserve
adjustments

   

Acquisition
expenses

   

OEM
settlement

    Adjusted
Selling, general and administrative $ 500,062 $ (3,878 ) $ (2,137 ) $ $ 494,047
 
Income from operations 190,091 3,878 2,137 196,106
 
Other income (expense), net 10,232 (9,111 ) 1,121
 
Income before income taxes $ 169,099 3,878 $ 2,137 $ (9,111 ) $ 166,003
Income tax expense   (65,172 )   (1,231 )   (821 )   3,423     (63,801 )
Net income $ 103,927     2,647   $ 1,316   $ (5,688 ) $ 102,202  
 
Diluted earnings per share $ 4.13 0.11 $ 0.05 $ (0.23 ) $ 4.06
Diluted share count 25,177
 
Six Months Ended June 30, 2016
As reported

Disposal
gain on sale
of store

Equity
investment
fair value
adjustment

Legal
reserve

Adjusted
Asset impairments $ 6,996 $ $ (6,996 ) $ $
 
Selling, general and administrative 434,632 1,087 (1,906 ) 433,813
 
Income from operations 163,424 (1,087 ) 6,996 1,906 171,239
 
Other income (expense), net (3,021 ) 4,131 1,110
 
Income before income taxes $ 137,324 $ (1,087 ) $ 11,127 $ 1,906 $ 149,270
Income tax expense   (45,626 )   426     (12,782 )   (747 )   (58,729 )
Net income $ 91,698   $ (661 ) $ (1,655 ) $ 1,159   $ 90,541  
 
Diluted earnings per share $ 3.56 $ (0.03 ) $ (0.06 ) $ 0.05 $ 3.52
Diluted share count 25,754
 
 
Lithia Motors, Inc.

Adjusted EBITDA and Leveraged Free Cash Flow (Unaudited)

 
      Three months ended         %
June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

EBITDA and Adjusted EBITDA

Net income $ 53,200 $ 51,428 $ 1,772 3.4 %
Other interest expense 7,169 5,502 1,667 30.3
Income tax expense 34,636 25,875 8,761 33.9
Depreciation and amortization   14,031     12,503     1,528   12.2
EBITDA $ 109,036   $ 95,308   $ 13,728   14.4 %
 
Other adjustments:
Less: used vehicle line of credit interest expense (1,131 ) (873 ) (258 ) 29.6
Add: equity investment fair value adjustment 5,563 (5,563 ) (100.0 )
Add: acquisition expenses 2,137 2,137 NM
Add: insurance reserve   3,878         3,878   NM
Adjusted EBITDA $ 113,920   $ 99,998   $ 13,922   13.9 %
 
 

Leveraged Free Cash Flow

Adjusted EBITDA $

113,920

$ 99,998 $ 13,922 13.9 %
Less: Capital expenditures   (16,227 )   (27,347 )   11,120   (40.7 )

Leveraged free cash flow

$ 97,693   $ 72,651   $ 25,042   34.5 %
 
 
Lithia Motors, Inc.

Adjusted EBITDA and Leveraged Free Cash Flow (Unaudited)

 
              %
Six months ended June 30, Increase Increase
2017     2016 (Decrease) (Decrease)

EBITDA and Adjusted EBITDA

Net income $ 103,927 $ 91,698 $ 12,229 13.3 %
Other interest expense 13,840 10,961 2,879 26.3
Income tax expense 65,172 45,626 19,546 42.8
Depreciation and amortization   26,770     24,166     2,604   10.8
EBITDA $ 209,709   $ 172,451   $ 37,258   21.6 %
 
Other adjustments:
Less: used vehicle line of credit interest expense (2,157 ) (1,690 ) (467 ) 27.6
Add: equity investment fair value adjustment 11,127 (11,127 ) (100.0 )

Less: OEM Settlements

(9,111

)

(9,111

)

NM

Add: acquisition expenses 2,137

2,137 NM
Add: insurance reserve   3,878         3,878   NM
Adjusted EBITDA $

204,456

  $

181,888

  $

22,568

 

12.4

%

 

Leveraged Free Cash Flow

Adjusted EBITDA $

204,456

$ 181,888 $

22,568

12.4

%
Less: capital expenditures   (32,266 )   (43,247 )   10,981   (25.4 )

Leveraged free cash flow

$

172,190

  $ 138,641   $

33,549

 

24.2

%
 
 
Lithia Motors, Inc.

Ratio of Adjusted Total Debt to Adjusted EBITDA (Unaudited)

 
    As of
June 30, 2017     June 30, 2016
Total Debt $ 2,433,362 $ 2,025,978
Less: floor plan notes payable (99,932 ) (56,767 )
Less: floor plan notes payable: non-trade (1,534,715 ) (1,316,747 )
Less: used vehicle line of credit   (213,093 )   (190,313 )
Adjusted total debt $ 585,622   $ 462,151  
 
Annualized adjusted EBITDA $

408,912

$ 363,776
Ratio of adjusted total debt to adjusted EBITDA

1.43

1.27
 

Contacts

Lithia Motors, Inc.
John North, 541-618-5748
Senior Vice President and Chief Financial Officer

Contacts

Lithia Motors, Inc.
John North, 541-618-5748
Senior Vice President and Chief Financial Officer