Lithia Motors, Inc (LAD)

[Drmicrocap]

Lithia Reports Adjusted EPS of $1.55 for First Quarter 2016
Lithia Increases Dividend to $0.25 per Share for First Quarter
Marketwired Lithia Motors
April 21, 2016 6:59 AM
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MEDFORD, OR--(Marketwired - Apr 21, 2016) - Lithia Motors, Inc. (NYSE: LAD) reported the highest first quarter adjusted net income in company history and increased adjusted net income 9% for the first quarter 2016 over the prior year period. 2016 first quarter adjusted net income was $40.4 million, or $1.55 per diluted share, compared to 2015 first quarter adjusted net income of $36.9 million, or $1.39 per diluted share.

Unadjusted net income for the first quarter 2016 was $40.3 million, or $1.55 per diluted share, compared to $40.7 million, or $1.53 per diluted share, for the first quarter of 2015. As shown in the attached non-GAAP reconciliation tables, the 2016 first quarter adjusted results exclude a non-core benefit related to an equity investment and the gain on the sale of a store offset by a legal reserve adjustment. These non-core items result in no change to earnings per share. The 2015 first quarter adjusted results exclude a $0.14 non-core net benefit from an equity investment and the gain on the sale of a store.

First quarter 2016 revenue increased $193.7 million, or 11%, to $2.0 billion from $1.8 billion for the first quarter 2015.

First Quarter-over-Quarter Operating Highlights:

Total same store sales increased 8%
New vehicle same store sales increased 6%
Used vehicle retail same store sales increased 12%
Service, body and parts same store sales increased 10%
Same store F&I per unit increased $111 to $1,292
Adjusted SG&A expense as a percentage of gross profit was 71.1%

"Our performance in the first quarter was solid," said Bryan DeBoer, President and CEO. "We grew adjusted earnings per share 12%, drove double digit increases in both used retail vehicle and service, body and parts sales and set a record in F&I per unit. We also continued to increase revenue and profitability in our DCH stores. While national new vehicle sales growth is moderating, we have significant opportunity to drive earnings growth through focus on growing vehicle market share and retaining service customers longer, improving store performance and targeting strategic acquisitions."

Chris Holzshu, SVP and CFO, said, "Adjusted SG&A as a percentage of gross profit was 71.1% in the first quarter of 2016, an improvement of 20 basis points over the first quarter of 2015. In the first quarter, incremental throughput, or the percentage of additional same store gross profit dollars that we retain after deducting incremental selling costs on a same store basis, was estimated at 37%. Our stores generated strong increases in gross profit and will continue to focus on controlling advertising and personnel cost to improve operating leverage."

Balance Sheet Update
We ended the first quarter with $22 million in cash and $149 million in availability under our credit facilities. Additionally, approximately $200 million of our operating real estate is currently unfinanced, which we estimate could provide an additional $150 million in available liquidity, for total potential liquidity of $321 million.

Dividend Payment and Share Repurchase
Our Board of Directors has approved a 25% increase in our quarterly dividend to $0.25 per share related to first quarter 2016 financial results. We expect to pay the dividend May 27, 2016 to shareholders of record on May 13, 2016.

Since March 31, 2016 we have repurchased approximately 157,500 shares at a weighted average price of $80.90 per share. Year to date, we have repurchased approximately 759,000 shares at a weighted average price of $79.80. Under our existing $250 million share repurchase authorization, approximately $236 million remains available.

2016 Outlook
We project 2016 second quarter earnings of $1.86 to $1.90 per diluted share and 2016 full year earnings of $7.30 to $7.50 per diluted share. Both projections are based on the following annual assumptions:

Total revenues of $8.5 to $8.6 billion
New vehicle sales increasing 4.5%
New vehicle gross margin of 5.8% to 6.0%
Used vehicle sales increasing 9.5%
Used vehicle gross margin of 11.8% to 12.0%
Service body and parts sales increasing 7.5%
Service body and parts gross margin of 48.8% to 49.0%
Finance and insurance gross profit of $1,270 to $1,290 per unit
Tax rate of 39.5%
Average diluted shares outstanding of 25.9 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.

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 31 brands of new vehicles and all brands of used vehicles at 138 stores in 15 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
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 2016 second quarter earnings per share of $1.86 to $1.90 per diluted share and 2016 full year earnings of $7.30 to $7.50 per diluted share and all projections set forth under the headings "2016 Outlook";
Anticipated ability to improve store performance;
Anticipated additions of dealership locations to our portfolio in the future; 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 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
2016 2015 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 1,096,055 $ 1,007,816 $ 88,239 8.8 %
Used vehicle retail 532,726 462,931 69,795 15.1
Used vehicle wholesale 65,146 62,208 2,938 4.7
Finance and insurance 77,638 64,604 13,034 20.2
Service, body and parts 196,675 173,475 23,200 13.4
Fleet and other 14,621 18,144 (3,523 ) (19.4 )
Total revenues 1,982,861 1,789,178 193,683 10.8
Cost of sales:
New vehicle retail 1,029,289 946,042 83,247 8.8
Used vehicle retail 468,449 403,489 64,960 16.1
Used vehicle wholesale 63,316 60,047 3,269 5.4
Service, body and parts 100,556 89,036 11,520 12.9
Fleet and other 14,069 17,189 (3,120 ) (18.2 )
Total cost of sales 1,675,679 1,515,803 159,876 10.5
Gross profit 307,182 273,375 33,807 12.4
Asset impairments 3,498 4,130 (632 ) NM
SG&A expense 219,106 191,618 27,488 14.3
Depreciation and amortization 11,663 9,726 1,937 19.9
Income from operations 72,915 67,901 5,014 7.4
Floor plan interest expense (5,909 ) (4,649 ) 1,260 27.1
Other interest expense (5,459 ) (4,828 ) 631 13.1
Other expense, net (1,526 ) (368 ) 1,158 NM
Income before income taxes 60,021 58,056 1,965 3.4
Income tax expense (19,751 ) (17,403 ) 2,348 13.5
Income tax rate 32.9 % 30.0 %
Net income $ 40,270 $ 40,653 $ (383 ) (0.9 )%

Diluted net income per share:
Net income per share $ 1.55 $ 1.53 $ 0.02 1.3 %

Diluted shares outstanding 25,973 26,519 (546 ) (2.1 )%

NM - not meaningful



Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

Three months ended
March 31, Increase %
Increase
2016 2015 (Decrease) (Decrease)
Gross margin
New vehicle retail 6.1 % 6.1 % -- bps
Used vehicle retail 12.1 12.8 (70 )
Used vehicle wholesale 2.8 3.5 (70 )
Finance and insurance 100.0 100.0 --
Service, body and parts 48.9 48.7 20
Fleet and other 3.8 5.3 (150 )
Gross profit margin 15.5 15.3 20

Unit sales
New vehicle retail 32,749 30,623 2,126 6.9 %
Used vehicle retail 27,431 24,204 3,227 13.3
Total retail units sold 60,180 54,827 5,353 9.8
Used vehicle wholesale 9,513 9,144 369 4.0

Average selling price
New vehicle retail $ 33,468 $ 32,910 $ 558 1.7 %
Used vehicle retail 19,421 19,126 295 1.5
Used vehicle wholesale 6,848 6,803 45 0.7

Average gross profit per unit
New vehicle retail $ 2,039 $ 2,017 $ 22 1.1 %
Used vehicle retail 2,343 2,456 (113 ) (4.6 )
Used vehicle wholesale 192 236 (44 ) (18.6 )
Finance and insurance 1,290 1,178 112 9.5
Total vehicle(1) 3,498 3,429 69 2.0

Revenue mix
New vehicle retail 55.3 % 56.3 %
Used vehicle retail 26.9 25.9
Used vehicle wholesale 3.3 3.5
Finance and insurance, net 3.9 3.6
Service, body and parts 9.9 9.7
Fleet and other 0.7 1.0

Adjusted As reported
Three Months Ended
March 31, Three months ended
March 31,
Other metrics 2016 2015 2016 2015
SG&A as a % of revenue 11.0 % 10.9 % 11.0 10.7 %
SG&A as a % of gross profit 71.1 71.3 71.3 70.1
Operating profit as a % of revenue 3.9 3.8 3.7 3.8
Operating profit as a % of gross profit 25.1 25.1 23.7 24.8
Pretax margin 3.3 3.4 3.0 3.2
Net profit margin 2.0 2.1 2.0 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



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

Three months ended
March 31, Increase %
Increase
2016 2015 (Decrease) (Decrease)
Revenues
New vehicle retail $ 1,062,335 $ 1,000,768 $ 61,567 6.2 %
Used vehicle retail 516,277 459,192 57,085 12.4
Used vehicle wholesale 63,805 61,949 1,856 3.0
Finance and insurance 75,365 64,206 11,159 17.4
Service, body and parts 189,968 172,116 17,852 10.4
Fleet and other 14,583 18,145 (3,562 ) (19.6 )
Total revenues $ 1,922,333 $ 1,776,376 $ 145,957 8.2

Gross profit
New vehicle retail $ 64,818 $ 61,278 $ 3,540 5.8 %
Used vehicle retail 62,543 59,026 3,517 6.0
Used vehicle wholesale 1,755 2,222 (467 ) (21.0 )
Finance and insurance 75,365 64,206 11,159 17.4
Service, body and parts 92,956 83,749 9,207 11.0
Fleet and other 544 956 (412 ) (43.1 )
Total gross profit $ 297,981 $ 271,437 $ 26,544 9.8

Gross margin
New vehicle retail 6.1 % 6.1 % -- bps
Used vehicle retail 12.1 12.9 (80 )
Used vehicle wholesale 2.8 3.6 (80 )
Finance and insurance 100.0 100.0 --
Service, body and parts 48.9 48.7 20
Fleet and other 3.7 5.3 (160 )
Total gross profit 15.5 15.3 20

Unit sales
New vehicle retail 31,779 30,391 1,388 4.6 %
Used vehicle retail 26,531 23,972 2,559 10.7
Total retail units sold 58,310 54,363 3,947 7.3
Used vehicle wholesale 9,255 9,063 192 2.1

Average selling price
New vehicle retail $ 33,429 $ 32,930 $ 499 1.5 %
Used vehicle retail 19,459 19,155 304 1.6
Used vehicle wholesale 6,894 6,835 59 0.9

Average gross profit per unit
New vehicle retail $ 2,040 $ 2,016 $ 24 1.2 %
Used vehicle retail 2,357 2,462 (105 ) (4.3 )
Used vehicle wholesale 190 245 (55 ) (22.4 )
Finance and insurance 1,292 1,181 111 9.4
Total vehicle(1) 3,507 3,435 72 2.1

(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
2016 2015 (Decrease) (Decrease)
Revenues
Domestic $ 768,902 $ 690,682 $ 78,220 11.3 %
Import 865,743 760,080 105,663 13.9
Luxury 346,813 336,993 9,820 2.9
Total segment revenues 1,981,458 1,787,755 193,703 10.8
Corporate and other 1,403 1,423 (20 ) (1.4 )
Total revenues $ 1,982,861 $ 1,789,178 $ 193,683 10.8

Segment Income(1)
Domestic $ 21,730 $ 27,294 $ (5,564 ) (20.4) %
Import 22,633 17,063 5,570 32.6
Luxury 4,235 6,645 (2,410 ) (36.3 )
Total segment income 48,598 51,002 (2,404 ) (4.7 )
Corporate and other 30,071 21,976 8,095 36.8
Depreciation and amortization (11,663 ) (9,726 ) (1,937 ) 19.9
Other interest expense (5,459 ) (4,828 ) (631 ) 13.1
Other expense, net (1,526 ) (368 ) (1,158 ) NM
Income before income taxes $ 60,021 58,056 $ 1,965 3.4

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

Retail New Vehicle Unit Sales
Domestic 10,649 10,012 637 6.4 %
Import 18,114 16,805 1,309 7.8
Luxury 4,063 3,865 198 5.1
Total 32,826 30,682 2,144 7.0
Allocated to management (77 ) (59 ) (18 ) NM
Total retail new vehicle unit sales 32,749 30,623 2,126 6.9

NM - not meaningful


Lithia Motors, Inc.
Other Highlights (Unaudited)

As of
March 31, December 31, March 31,
2016 2015 2015
Days Supply(1)
New vehicle inventory 78 67 62
Used vehicle inventory 53 55 49

(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, 2016
Current ratio Not less than 1.10 to 1 1.25 to 1
Fixed charge coverage ratio Not less than 1.20 to 1 2.87 to 1
Leverage ratio Not more than 5.00 to 1 1.75 to 1
Funded debt restriction Not more than $600 million $414.4 million



Lithia Motors, Inc.
Other Highlights (Unaudited)

Three months ended
March 31,
2016 2015
New vehicle unit sales brand mix
Honda, Acura 23.2 % 22.0 %
Toyota, Lexus 19.7 20.1
Chrysler 18.6 19.1
General Motors 8.8 9.0
Subaru 7.3 7.2
BMW, Mini 5.5 5.8
Ford 5.2 4.6
Nissan 3.8 4.0
Volkswagen, Audi 2.7 2.8
Hyundai 1.9 2.1
Mercedes Benz 1.3 1.6
Kia 1.3 1.3
Other 0.7 0.4

Three months ended
March 31,
2016 2015
Revenue geographic mix
California 23.0 % 22.2 %
Oregon 16.8 16.8
Texas 14.0 15.7
New Jersey 13.9 13.7
Montana 6.3 5.8
Washington 5.4 5.1
Alaska 4.7 5.1
Nevada 3.2 3.2
New York 3.0 2.7
Idaho 2.8 3.1
Iowa 2.5 2.8
Hawaii 2.0 1.4
North Dakota 1.2 1.5
New Mexico 0.9 0.9
Massachusetts 0.3 --

As of March 31, 2016
Current store count mix # of stores % of total
Chrysler 27 19.6 %
Honda, Acura 21 15.2
Toyota, Lexus 20 14.5
General Motors 16 11.6
BMW, Mini 11 8.0
Subaru 8 5.8
Volkswagen, Audi 8 5.8
Ford 7 5.1
Nissan 6 4.3
Hyundai 4 2.9
Mercedes Benz 4 2.9
Other 6 4.3



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

March 31, 2016 December 31, 2015
Cash and cash equivalents $ 21,559 $ 45,008
Trade receivables, net 286,292 308,462
Inventories, net 1,541,085 1,470,987
Other current assets 50,473 54,408
Total current assets $ 1,899,409 $ 1,878,865

Property and equipment, net 882,405 876,660
Goodwill 213,934 213,220
Franchise value 161,668 157,699
Other non-current assets 110,202 100,855
Total assets $ 3,267,618 $ 3,227,299

Floor plan notes payable $ 55,836 $ 48,083
Floor plan notes payable: non trade 1,296,751 1,265,872
Current maturities of long-term debt 33,721 38,891
Trade payables 78,250 70,871
Accrued liabilities 179,145 167,108
Total current liabilities $ 1,643,703 $ 1,590,825

Long-term debt 595,663 606,463
Deferred revenue 70,066 66,734
Deferred income taxes 59,134 53,129
Other long-term liabilities 84,375 81,984
Total liabilities $ 2,452,941 $ 2,399,135

Class A common stock 213,699 258,410
Class B common stock 219 316
Additional paid-in capital 34,866 38,822
Accumulated other comprehensive loss (114 ) (277 )
Retained earnings 566,007 530,893
Total liabilities & stockholders' equity $ 3,267,618 $ 3,227,299



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

Three Months Ended
March 31,
2016 2015
Net income $ 40,270 $ 40,653
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments 3,498 4,130
Depreciation and amortization 11,663 9,726
Stock-based compensation 3,149 2,727
Gain on disposal of assets (3,391 ) 8
Gain on sale of franchise (1,087 ) (3,349 )
Deferred income taxes 10,261 3,863
Excess tax benefit from share-based payment arrangements (4,379 ) (4,733 )
(Increase) decrease:
Trade receivables, net 25,564 7,569
Inventories (73,744 ) (39,460 )
Other assets (4,705 ) (2,078 )
Increase (decrease):
Floor plan notes payable, net 7,753 1,092
Trade payables 920 6,799
Accrued liabilities 13,425 4,444
Other long-term liabilities and deferred revenue 5,396 6,838
Net cash provided by operating activities $ 34,593 $ 38,229



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

Three Months Ended
March 31,
Net cash provided by operating activities 2016 2015
As reported $ 34,593 $ 38,229
Floor plan notes payable, non-trade, net 38,626 (21,984 )
Adjusted $ 73,219 $ 16,245



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

Three Months Ended March 31, 2016
As reported Disposal gain on sale of store Equity investment fair value adjustment Legal reserve adjustment Adjusted
Asset impairments $ 3,498 $ -- $ (3,498 ) $ -- $ --

Selling, general and administrative 219,106 1,087 -- (1,906 ) 218,287

Income from operations 72,916 (1,087 ) 3,498 1,906 77,233

Other expense, net (1,526 ) -- 2,066 -- 540

Income before income taxes $ 60,021 $ (1,087 ) $ 5,564 $ 1,906 $ 66,404
Income tax expense (19,751 ) 426 (5,945 ) (747 ) (26,017 )
Net income $ 40,270 $ (661 ) $ (381 ) $ 1,159 $ 40,387

Diluted earnings per share $ 1.55 $ (0.03 ) $ (0.01 ) $ 0.04 $ 1.55
Diluted share count 25,973
Three Months Ended March 31, 2015
As reported Disposal gain on sale of store Equity investment fair value adjustment 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 expense, net (368 ) -- 1,732 1,364

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

Diluted earnings per share $ 1.53 (0.09 ) $ (0.05 ) $ 1.39
Diluted share count 26,519
Contact:

John North
VP Finance and Chief Accounting Officer
[phone]