Lithia Motors, Inc (LAD)

[Drmicrocap]

Lithia Motors Reports Adjusted EPS of $1.39 for First Quarter 2015; Revenues Increase 66%

Lithia Increases Dividend to $0.20 per Share for First Quarter

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Marketwired
Lithia Motors
April 22, 2015 7:29 AM








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MEDFORD, OR--(Marketwired - Apr 22, 2015) - Lithia Motors, Inc. ( NYSE : LAD ) reported the highest first quarter adjusted net income in Company history and increased adjusted net income from continuing operations 36% for the first quarter of 2015 over the prior year period.

2015 first quarter adjusted net income from continuing operations was $36.9 million, or $1.39 per diluted share. This compares to 2014 first quarter adjusted net income from continuing operations of $27.1 million, or $1.03 per diluted share.

Unadjusted net income from continuing operations for the first quarter of 2015 was $40.7 million, or $1.53 per diluted share, compared to $24.7 million, or $0.94 per diluted share, for the first quarter of 2014. As shown in the attached non-GAAP reconciliation tables, the 2015 first quarter per share adjusted results from continuing operations exclude a $0.09 benefit related to the gain on the sale of a store and a $0.05 benefit related to an equity investment. The 2014 first quarter per share adjusted results from continuing operations exclude a $0.09 expense related to an adjustment to a reserve associated with a lawsuit filed in 2006 and settled in 2013, a loss for a hailstorm in Texas and a reserve for a contract assumed in an acquisition.

First quarter 2015 revenue from continuing operations increased $711 million, or 66%, to $1.8 billion from $1.1 billion for the first quarter of 2014.

First Quarter-over-Quarter Operating Highlights:
•Total same store sales increased 11%
•New vehicle same store sales increased 11%
•Used vehicle retail same store sales increased 11%
•Service, body and parts same store sales increased 11%
•Same store F&I per unit increased $52 to $1,233
•Adjusted SG&A expense as a percentage of gross profit was 71.3%



"We delivered the best first quarter earnings in our Company's history, and the second best quarterly earnings ever," said Bryan DeBoer, President and CEO. "For the fourth consecutive quarter, we achieved double digit growth in same store sales in all business lines. On a continuing operations basis, we grew revenue 66% and adjusted net income 36% over the first quarter of 2014. We remain focused on capturing additional market share, improving existing store results, the continued success, integration and growth of DCH and actively seeking accretive acquisitions."

Chris Holzshu, SVP and CFO, said, "SG&A as a percentage of gross profit was 71.3% in the first quarter of 2015, slightly higher than the prior year due to the effect of the DCH acquisition, but better than our projection. We target improving SG&A as a percentage of gross profit as we integrate the 36 stores added in 2014. In the first quarter, incremental throughput, or the percentage of additional same store gross profit dollars that we retain after deducting incremental selling costs, was 45.1%. Our stores remain focused on maintaining incremental throughput of 45% to 50%, which will continue to lever our SG&A expense going forward."

Corporate Development
As previously announced, in January 2015, we opened Subaru of Clearlake, Texas. The store is a new franchise we were awarded from Subaru, which we estimate will contribute approximately $45 million in annual revenues.

Bryan DeBoer, President and CEO, stated, "The acquisition market is robust and we anticipate continued activity as independent dealers seek attractive exit strategies. We remain focused on pursuing accretive acquisitions and will continue to add locations to our portfolio in the future."

Balance Sheet Update
We ended the first quarter with $21 million in cash and $50 million in available credit from our credit facilities. Additionally, approximately $155 million of our operating real estate is currently unfinanced, which could provide an estimated additional $116 million in available liquidity, for total potential liquidity of $187 million.

Dividend Payment
Our Board of Directors has approved a 25% increase in our quarterly dividend to $0.20 per share related to first quarter 2015 financial results. We will pay the dividend May 29, 2015 to shareholders of record on May 15, 2015.

2015 Outlook
We project 2015 second quarter earnings of $1.55 to $1.59 per diluted share and 2015 full year earnings of $6.20 to $6.30 per diluted share. Both projections are based on the following annual assumptions:

Continuing Operations Projections
•Total revenues of $7.5 to $7.7 billion
•New vehicle sales increasing 43.5%
•New vehicle gross margin of 5.9% to 6.1%
•Used vehicle sales increasing 36.5%
•Used vehicle gross margin of 12.6% to 12.8%
•Service body and parts sales increasing 40.5%
•Service body and parts gross margin of 48.8% to 49.0%
•Finance and insurance gross profit of $1,180 per unit
•Tax rate of 40.0%
•Average diluted shares outstanding of 26.5 million
•Full year capital expenditures are $100 million



Same Store Projections
•Total revenues of $5.2 to $5.4 billion
•New vehicle same store sales increasing 7.0%
•Used vehicle same store sales increasing 10.5%
•Service body and parts same store sales increasing 8.5%
•Finance and insurance gross profit of $1,200 per unit



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.

First Quarter Earnings Conference Call and Updated Presentation
The first quarter conference call may be accessed at 10:00 a.m. ET today by telephone at 877-407-8029. An updated presentation highlighting the first quarter results has been added to www.lithiainvestorrelations.com .

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. Lithia sells 30 brands of new vehicles and all brands of used vehicles at 130 stores in 14 states. Lithia also arranges finance, warranty, and credit insurance contracts; and provides vehicle parts, maintenance, and repair services at all of its locations.

Sites
www.lithia.com
www.lithiainvestorrelations.com
www.lithiacareers.com

Lithia Motors on Facebook
http://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:
•Future market conditions;
•Expected operating results, such as improved store performance; maintaining incremental throughput between 45% and 50%; continued improvement of SG&A as a percentage of gross profit; generating second quarter earnings per share of $1.58 to 1.62 per diluted share and 2015 full year earnings of $6.20 to $6.30 per diluted share; and all projections set forth under the headings "2015 Outlook," "Continuing Operations Projections" and "Same Store Projections";
•The increase in our annual revenues that we estimate will result from the dealership that we opened as set forth under the heading "Corporate Development";
•Anticipated continued success, integration and growth of DCH;
•Anticipated ability to capture additional market share; ability to find accretive acquisitions; and additions of dealership locations to the company's portfolio in the future;
•Anticipated availability of liquidity from our unfinanced operating real estate; and
•Anticipated levels of capital expenditures in the future.



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 from continuing operations, adjusted SG&A as a percentage of revenues and gross profit, adjusted operating margin, adjusted operating profit as a percentage of gross profit, and adjusted pre-tax margin. 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 %
March 31, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 1,007,816 $ 579,522 $ 428,294 74.0 %
Used vehicle retail 462,931 301,893 161,038 53.3
Used vehicle wholesale 62,208 42,693 19,515 45.7
Finance and insurance 64,604 39,631 24,973 63.0
Service, body and parts 173,475 104,617 68,858 65.8
Fleet and other 18,144 9,750 8,394 86.1
Total revenues 1,789,178 1,078,106 711,072 66.0
Cost of sales:
New vehicle retail 946,042 540,498 405,544 75.0
Used vehicle retail 403,489 261,097 142,392 54.5
Used vehicle wholesale 60,047 41,362 18,685 45.2
Service, body and parts 89,036 53,785 35,251 65.5
Fleet and other 17,189 9,303 7,886 84.8
Total cost of sales 1,515,803 906,045 609,758 67.3
Gross profit 273,375 172,061 101,314 58.9
Asset impairments 4,130 - - NM
SG&A expense 191,618 121,829 69,789 57.3
Depreciation and amortization 9,726 5,507 4,219 76.6
Income from operations 67,901 44,725 23,176 51.8
Floor plan interest expense (4,649 ) (2,984 ) 1665 55.8
Other interest expense (4,828 ) (1,974 ) (2,854 ) 144.6
Other income (expense), net (368 ) 937 (1,305 ) NM
Income from continuing operations before income taxes 58,056 40,704 17,352 42.6
Income tax expense (17,403 ) (16,010 ) 1,393 8.7
Income tax rate 30.0 % 39.3 %
Income from continuing operations $ 40,653 $ 24,694 $ 15,959 64.6 %
Income from discontinued operations, net of tax - 40 (40 ) NM
Net income $ 40,653 $ 24,734 $ 15,919 64.4 %

Diluted net income per share:
Continuing operations $ 1.53 $ 0.94 $ 0.59 62.8 %
Discontinued operations - - - -
Net income per share $ 1.53 $ 0.94 $ 0.59 62.8 %

Diluted shares outstanding 26,519 26,320 199 0.8 %


NM - Not meaningful




Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

Three months ended %
March 31, Increase Increase
2015 2014 (Decrease) (Decrease)
Gross margin
New vehicle retail 6.1 % 6.7 % (60) bps
Used vehicle retail 12.8 13.5 (70) bps
Used vehicle wholesale 3.5 3.1 40 bps
Finance and insurance 100.0 100.0 - bps
Service, body and parts 48.7 48.6 10 bps
Fleet and other 5.3 4.6 70 bps
Gross profit margin 15.3 16.0 (70) bps

Unit sales
New vehicle retail 30,623 17,274 13,349 77.3 %
Used vehicle retail 24,204 16,316 7,888 48.3
Total retail units sold 54,827 33,590 21,237 63.2
Used vehicle wholesale 9,144 5,853 3,291 56.2

Average selling price
New vehicle retail 32,910 33,549 (639 ) (1.9) %
Used vehicle retail 19,126 18,503 623 3.4
Used vehicle wholesale 6,803 7,294 (491 ) (6.7 )

Average gross profit per unit
New vehicle retail $ 2,017 $ 2,259 $ (242 ) (10.7) %
Used vehicle retail 2,456 2,500 (44 ) (1.8 )
Used vehicle wholesale 236 227 9 4.0
Finance and insurance 1,178 1,180 (2 ) (0.2 )
Total vehicle (1) 3,429 3,596 (167 ) (4.6 )

Revenue mix
New vehicle retail 56.3 % 53.8 %
Used vehicle retail 25.9 28.0
Used vehicle wholesale 3.5 3.9
Finance and insurance, net 3.6 3.7
Service, body and parts 9.7 9.7
Fleet and other 1.0 0.9





Adjusted
As reported


Three months ended
March 31, Three months ended
March 31,
Other metrics 2015 2014 2015 2014
SG&A as a % of revenue 10.9 % 10.9 % 10.7 % 11.3 %
SG&A as a % of gross profit 71.3 68.5 70.1 70.8
Operating profit as a % of revenue 3.8 4.5 3.8 4.1
Operating profit as a % of gross profit 25.1 28.3 24.8 26.0
Pretax margin 3.4 4.1 3.2 3.8
Net profit margin 2.1 2.5 2.3 2.3


(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


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Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)

Three months ended %
March 31, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues
New vehicle retail $ 639,501 $ 574,540 $ 64,961 11.3 %
Used vehicle retail 333,300 300,115 33,185 11.1
Used vehicle wholesale 45,055 42,649 2,406 5.6
Finance and insurance 44,136 39,355 4,781 12.1
Service, body and parts 115,325 104,000 11,325 10.9
Fleet and other 12,302 9,750 2,552 26.2
Total revenues $ 1,189,619 $ 1,070,409 $ 119,210 11.1

Gross profit
New vehicle retail $ 40,245 $ 38,638 $ 1,607 4.2 %
Used vehicle retail 44,847 40,583 4,264 10.5
Used vehicle wholesale 1,687 1,334 353 26.5
Finance and insurance 44,136 39,355 4,781 12.1
Service, body and parts 55,844 50,514 5,330 10.6
Fleet and other 777 447 330 73.8
Total gross profit $ 187,536 $ 170,871 $ 16,665 9.8

Gross margin
New vehicle retail 6.3 % 6.7 % (40) bps
Used vehicle retail 13.5 13.5 - bps
Used vehicle wholesale 3.7 3.1 60 bps
Finance and insurance 100.0 100.0 - bps
Service, body and parts 48.4 48.6 (20) bps
Fleet and other 6.3 4.6 170 bps
Gross profit margin 15.8 16.0 (20) bps

Unit sales
New vehicle retail 18,567 17,109 1,458 8.5 %
Used vehicle retail 17,237 16,204 1,033 6.4
Total retail units sold 35,804 33,313 2,491 7.5
Used vehicle wholesale 5,986 5,848 138 2.4

Average selling price
New vehicle retail $ 34,443 $ 33,581 $ 862 2.6 %
Used vehicle retail 19,336 18,521 815 4.4
Used vehicle wholesale 7,549 7,293 256 3.5

Average gross profit per unit
New vehicle retail $ 2,168 $ 2,258 $ (90 ) (4.0) %
Used vehicle retail 2,602 2,505 97 3.9
Used vehicle wholesale 283 228 55 24.1
Finance and insurance 1,233 1,181 52 4.4
Total vehicle(1) 3,656 3,599 57 1.6


(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 %
March 31, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues
Domestic $ 691,404 $ 568,930 $ 122,474 21.5 %
Import 758,638 351,061 407,577 116.1
Luxury 336,922 158,611 178,311 112.4
Total segment revenues $ 1,786,964 $ 1,078,602 $ 708,362 65.7
Corporate and other 2,214 (496 ) 2,710 546.4
Total revenues $ 1,789,178 $ 1,078,106 $ 711,072 66.0

Segment Income(1)
Domestic $ 27,129 $ 22,421 $ 4,708 21.0 %
Import 16,100 9,265 6,835 73.8
Luxury 5,899 2,185 3,714 170.0
Total segment income $ 49,128 33,871 15,257 45.0
Corporate and other 8,928 6,833 2,095 30.7
Income from continuing operations before income taxes $ 58,056 $ 40,704 $ 17,352 42.6

(1) Segment income is defined as operating income less floor plan interest expense

Retail New Vehicle Unit Sales
Domestic 10,043 8,634 1,409 16.3 %
Import 16,774 7,139 9,635 135.0
Luxury 3,865 1,595 2,270 142.3
Total 30,682 17,368 13,314 76.7
Allocated to management (59 ) (94 ) (35 ) (37.2 )
Total retail new vehicle unit sales 30,623 17,274 13,349 77.3




Lithia Motors, Inc.
Other Highlights (Unaudited)

As of
March 31, December 31, March 31,
2015 2014 2014
Days Supply(1)
New vehicle inventory 62 62 69
Used vehicle inventory 49 53 46


(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 March 31, 2014
Current ratio Not less than 1.10 to 1 1.21 to 1
Fixed charge coverage ratio Not less than 1.20 to 1 3.15 to 1
Leverage ratio Not more than 5.00 to 1 2.19 to 1
Funded debt restriction Not more than $600 million $417.4 million




Lithia Motors, Inc.
Other Highlights (Unaudited)

Three months ended
March 31,
2015 2014
New vehicle unit sales brand mix
Honda, Acura 21.9 % 7.8 %
Chrysler 19.1 29.5
Toyota 18.9 13.7
General Motors 8.9 14.0
Subaru 7.2 9.8
BMW, MINI 5.8 6.0
Ford 4.6 6.0
Nissan 4.0 3.8
Volkswagen, Audi 2.8 2.3
Hyundai 2.1 3.1
Mercedes 1.6 2.3
Kia 1.3 0.9
Lexus 1.2 -
Other 0.6 0.8

Three months ended
March 31,
2015 2014
Revenue geographic mix
California 22.2 % 13.3 %
Oregon 16.8 22.2
Texas 15.7 23.9
New Jersey 13.7 -
Montana 5.8 8.3
Washington 5.1 7.3
Alaska 5.1 6.7
Nevada 3.2 4.8
Idaho 3.1 4.7
Iowa 2.8 4.3
New York 2.7 -
North Dakota 1.5 2.2
Hawaii 1.4 0.7
New Mexico 0.9 1.6

As of April 22, 2015
Current store count mix # of stores % of total
Chrysler, Fiat 25 19.2 %
Honda, Acura 21 16.2
Toyota, Lexus 19 14.6
General Motors 16 12.3
BMW, MINI 11 8.5
Volkswagen, Audi 8 6.2
Nissan 6 4.6
Ford 6 4.6
Subaru 6 4.6
Hyundai 5 3.8
Mercedes 3 2.3
Other 4 3.1




Lithia Motors, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands)

March 31, 2015 December 31, 2014
Cash and cash equivalents $ 21,023 $ 29,898
Trade receivables, net 290,638 295,379
Inventories, net 1,286,614 1,249,659
Other current assets 32,498 32,010
Assets held for sale 4,026 8,563
Total current assets $ 1,634,799 $ 1,615,509

Property and equipment, net 828,707 816,745
Goodwill 199,286 199,375
Franchise value 150,856 150,892
Other non-current assets 110,737 98,411
Total assets $ 2,924,385 $ 2,880,932

Floor plan notes payable $ 42,139 $ 41,047
Floor plan notes payable: non trade 1,113,428 1,137,632
Current maturities of long-term debt 40,543 31,912
Trade payables 76,517 70,853
Accrued liabilities 154,786 153,661
Deferred income taxes 3,140 2,603
Liabilities related to assets held for sale 2,688 4,892
Total current liabilities $ 1,433,241 $ 1,442,600

Long-term debt 621,890 609,066
Deferred revenue 56,849 54,403
Deferred income taxes 41,474 42,795
Other long-term liabilities 63,094 58,963
Total liabilities $ 2,216,548 $ 2,207,827

Class A common stock 272,625 276,058
Class B common stock 319 319
Additional paid-in capital 31,364 29,775
Accumulated other comprehensive loss (787 ) (926 )
Retained earnings 404,316 367,879
Total liabilities & stockholders' equity $ 2,924,385 $ 2,880,932




Lithia Motors, Inc.
Summarized Cash Flow from Operations (Unaudited)
(In thousands)

Three months ended
March 31,
2015 2014
Net income $ 40,653 $ 24,734

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Asset impairment 4,130 -
Depreciation and amortization 9,726 5,507
Stock-based compensation 2,727 1,538
Loss on disposal of assets 8 20
Gain on sale of franchise (3,349 ) -
Deferred income taxes 3,863 1,866
Excess tax benefit from share-based payment arrangements (4,733 ) (5,846 )
(Increase) decrease:
Trade receivables, net 7,569 (12,259 )
Inventories (39,460 ) (56,748 )
Other assets (2,078 ) (2,290 )
Increase (decrease):
Floor plan notes payable, net 1,092 1,675
Trade payables 6,799 1,774
Accrued liabilities 4,444 12,521
Other long-term liabilities and deferred revenue 6,838 5,121
Net cash provided by (used in) operating activities $ 38,229 $ (22,387 )




Lithia Motors, Inc.
Reconciliation of Non-GAAP Cash Flow from Operations (Unaudited)
(In thousands)

Three months ended
March 31,
Net cash provided by (used in) operating activities 2015 2014
As reported $ 38,229 $ (22,387 )
Floor plan notes payable, non-trade, net (21,984 ) 51,783
Borrowings on floor plan notes payable associated with acquired inventory - (19,525 )
Adjusted $ 16,245 $ 9,871




Lithia Motors, Inc.
Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)
(In thousands, except for per share data)

Three Months Ended March 31, 2015
As reported Gain on sale of stores Equity Investment Adjusted
Asset impairments $ 4,130 $ - $ (4,130 ) $ -
Selling, general and administrative 191,618 3,349 - 194,967

Income from operations 67,901 (3,349 ) 4,130 68,682

Other income (expense) (368 ) - 1,732 1,364

Income from continuing operations before income taxes $ 58,056 $ (3,349 ) $ 5,862 $ 60,569
Income tax expense (17,403 ) 1,004 (7,250 ) (23,649 )
Net income from continuing operations $ 40,653 $ (2,345 ) $ (1,388 ) $ 36,920

Diluted earnings per share from continuing operations $ 1.53 $ (0.09 ) $ (0.05 ) $ 1.39
Diluted share count 26,519




Three Months Ended March 31, 2014
As reported Reserve adjustments Adjusted
Selling, general and administrative 121,829 (3,931 ) 117,898

Income from operations 44,725 3,931 48,656

Income from continuing operations before income taxes $ 40,704 $ 3,931 $ 44,635
Income tax expense (16,010 ) (1,546 ) (17,556 )
Net income from continuing operations $ 24,694 $ 2,385 $ 27,079

Diluted earnings per share from continuing operations $ 0.94 $ 0.09 $ 1.03
Diluted share count 26,320








Contact:


John North
VP Finance and Chief Accounting Officer
[phone]