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

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

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