Lithia Motors Reports Adjusted EPS of $1.03 for the First Quarter of 2014, an Increase of 23% Over the Prior Year

MEDFORD, OR--(Marketwired - Apr 24, 2014) - Lithia Motors, Inc. (NYSE: LAD) reported the highest first quarter adjusted net income in Company history and increased adjusted net income from continuing operations 24% for the first quarter 2014 over the prior year period.

2014 first quarter adjusted net income from continuing operations was $27.1 million, or $1.03 per diluted share. This compares to 2013 first quarter net income from continuing operations of $21.9 million, or $0.84 per diluted share.

Unadjusted net income from continuing operations for the first quarter of 2014 was $24.7 million, or $0.94 per diluted share, compared to $21.9 million or $0.84 per diluted share for the first quarter of 2013. As shown in the attached non-GAAP reconciliation tables, the 2014 first quarter adjusted income from continuing operations excluded non-core charges of $0.09 per share related to an adjustment to a reserve associated with a lawsuit filed in 2006 and settled in 2013, a loss reserve for a hailstorm in Texas and a reserve for a contract assumed in an acquistion.

First quarter 2014 revenue from continuing operations increased $175 million, or 19%, to $1.1 billion from $903 million for the first quarter of 2013.

First Quarter-over-Quarter Operating Highlights:

• Total same store sales increased 12%
• New vehicle same store sales increased 10%
• Used vehicle retail same store sales increased 19%
• Service, body and parts same store sales increased 9%
• Same store F&I per unit increased $84 to $1,200
• Adjusted SG&A expense as a percentage of gross profit decreased 60 basis points to 68.5%
  
  

"We grew same store sales in all four business lines in the first quarter," said Bryan DeBoer, President and CEO. "Notably, we saw a 9% increase in service, body and parts sales driven by an 8% improvement in customer pay work and a 17% increase in warranty activity. March was a solid month for national new car sales with a SAAR of 16.3 million, the highest level since November 2007. March was also the best month in our Company's history in both revenue and pre-tax profit. Our store leaders increased same store used unit volume 12% in the quarter as we continue our objective to sell 75 used units per store per month. We believe opportunities remain for continued improvement and are optimistic for 2014."

Chris Holzshu, SVP and CFO, said, "Our same store F&I per unit was $1,200. While this is an improvement over 2013, we believe opportunity remains, as we continue to emphasize training and adjust pricing on certain products. Our adjusted SG&A as a percentage of gross profit improved by 60 basis points to 68.5% for the first quarter of 2014. Our incremental throughput, or the percentage of incremental gross profit remaining after deducting incremental SG&A expense, was 40.8% on a same store basis in the first quarter of 2014. We continue to target incremental throughput of 50% on a same store basis and believe this remains achievable on a full year basis."

Corporate Development
In January 2014, we acquired Island Honda in Kahului, Hawaii and, in February 2014, we acquired Stockton Volkswagen in Stockton, California, with estimated total annual revenues of $50 million. In March 2014, we acquired Honolulu GMC Buick Cadillac and Honolulu Volkswagen in Honolulu, Hawaii, with estimated total annual revenues of $75 million.

In April 2014, we acquired Access Ford Lincoln in Corpus Christi, Texas and opened Lithia Chrysler Jeep Dodge Ram of Wasilla in Wasilla, Alaska with $105 million in estimated total annual revenues.

Bryan DeBoer, President and CEO, stated, "We've purchased eight stores and opened one location since October 2013, with total estimated annual revenues of $380 million. This represents an increase of 9% over our full year 2013 total revenues. With our most recent activity we now operate 100 stores in 12 states.'"

Balance Sheet Update
We ended the first quarter with $22 million in cash and $133 million in available credit on our credit facilities. Additionally, approximately $193 million of our operating real estate is currently unfinanced, which could provide an estimated additional $145 million in available liquidity, for total potential liquidity of $300 million.

Dividend Payment
Lithia announced that the Board of Directors has approved a dividend of $0.16 per share related to first quarter 2014 financial results, an increase of $0.03 from the dividend paid related to fourth quarter 2013 results. Lithia will pay the dividend May 23, 2014 to shareholders of record on May 9, 2014.

Outlook for 2014
We project 2014 second quarter earnings of $1.18 to $1.20 per diluted share and full-year 2014 earnings of $4.57 to $4.65 per diluted share. These projections are based on the following annual assumptions about 2014 performance:

• Total revenues of $4.6 to $4.7 billion
• New vehicle same store sales increasing 8.0%
• New vehicle gross margin of 6.5% to 6.7%
• Used vehicle same store sales increasing 9.5%
• Used vehicle gross margin of 13.3% to 13.5%
• Service body and parts same store sales increasing 7.5%
• Service body and parts gross margin of 48.4% to 48.6%
• Finance and insurance gross profit of $1,175 per unit
• Tax rate of 39.5%
• Average diluted shares outstanding of 26.2 million 
• Capital expenditures of $92 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 11:00 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 the eighth largest automotive retailer in the United States. Lithia sells 28 brands of new vehicles and all brands of used vehicles at 100 stores in 12 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
www.assuredservice.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" 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 performance, maintaining incremental throughput above 50%, strategy for customer retention, growth and financial results and all projections set forth under the heading "Outlook for 2014"; and
• Anticipated availability of liquidity from our 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 Annual Report on Form 10-K for the year ended December 31, 2013 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
			2014				2013				(Decrease)				(Decrease)
Revenues:
New vehicle retail			$	579,522			$	493,441			$	86,081			17.4	%
Used vehicle retail				301,893				239,228				62,665			26.2
Used vehicle wholesale				42,693				39,506				3,187			8.1
Finance and insurance				39,631				31,663				7,968			25.2
Service, body and parts				104,617				90,440				14,177			15.7
Fleet and other				9,750				8,802				948			10.8
	Total revenues			1,078,106				903,080				175,026			19.4
Cost of sales:
New vehicle retail				540,498				458,794				81,704			17.8
Used vehicle retail				261,097				204,255				56,842			27.8
Used vehicle wholesale				41,362				38,532				2,830			7.3
Service, body and parts				53,785				46,661				7,124			15.3
Fleet and other				9,303				8,400				903			10.8
	Total cost of sales			906,045				756,642				149,403			19.7
Gross profit				172,061				146,438				25,623			17.5
SG&A expense				121,829				101,131				20,698			20.5
Depreciation and amortization				5,507				4,721				786			16.6
Income from operations				44,725				40,586				4,139			10.2
Floor plan interest expense				(2,984	)			(3,449	)			(465	)		(13.5	)
Other interest expense				(1,974	)			(2,361	)			(387	)		(16.4	)
Other income, net				937				801				136			17.0
Income from continuing operations before income taxes				40,704				35,577				5,127			14.4
Income tax expense				(16,010	)			(13,695	)			2,315			16.9
Income tax rate				39.3	%			38.5	%
Income from continuing operations			$	24,694			$	21,882			$	2,812			12.9	%
Income from discontinued operations, net of tax				40				173				(133	)		(76.9	)
Net income			$	24,734			$	22,055			$	2,679			12.1	%
Diluted net income per share:
Continuing operations			$	0.94			$	0.84			$	0.10			11.9	%
Discontinued operations				-				0.01				(0.01	)		(100.0	)
Net income per share			$	0.94			$	0.85			$	0.09			10.6	%
Diluted shares outstanding				26,320				26,054				266			1.0	%

Lithia Motors, Inc.
Key Performance Metrics (Unaudited)
		Three months ended												%
		March 31,								Increase				Increase
		2014				2013				(Decrease)				(Decrease)
Gross margin
New vehicle retail			6.7	%			7.0	%			(30) bps
Used vehicle retail			13.5				14.6				(110) bps
Used vehicle wholesale			3.1				2.5				60 bps
Finance and insurance			100.0				100.0				- bps
Service, body and parts			48.6				48.4				20 bps
Fleet and Other			4.6				4.6				- bps
Gross profit margin			16.0				16.2				(20) bps
Unit sales
New vehicle retail			17,274				14,720				2,554			17.4	%
Used vehicle retail			16,316				13,661				2,655			19.4
Total retail units sold			33,590				28,381				5,209			18.4
Used vehicle wholesale			5,853				5,324				529			9.9
Average selling price
New vehicle retail		$	33,549			$	33,522			$	27			0.1	%
Used vehicle retail			18,503				17,512				991			5.7
Used vehicle wholesale			7,294				7,420				(126	)		(1.7	)
Average gross profit per unit
New vehicle retail		$	2,259			$	2,354			$	(95	)		(4.0)	%
Used vehicle retail			2,500				2,560				(60	)		(2.3	)
Used vehicle wholesale			227				183				44			24.0
Finance and insurance			1,180				1,116				64			5.7
Total vehicle(1)			3,596				3,603				(7	)		(0.2	)
Revenue mix
New vehicle retail			53.8	%			54.6	%
Used vehicle retail			28.0				26.5
Used vehicle wholesale			4.0				4.4
Finance and insurance, net			3.7				3.5
Service, body and parts			9.7				10.0
Fleet and other			0.8				1.0
		Adjusted								As reported
		Three months ended March 31,								Three months ended March 31,
Other metrics		2014				2013				2014				2013
SG&A as a % of revenue			10.9	%			11.2	%			11.3	%		11.2	%
SG&A as a % of gross profit			68.5				69.1				70.8			69.1
Operating profit as a % of revenue			4.5				4.5				4.1			4.5
Operating profit as a % of gross profit			28.3				27.7				26.0			27.7
Pretax margin			4.1				3.9				3.8			3.9
Net profit margin			2.5				2.4				2.3			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												%
		March 31,								Increase				Increase
		2014				2013				(Decrease)				(Decrease)
Revenues
New vehicle retail		$	542,975			$	493,441			$	49,534			10.0	%
Used vehicle retail			285,204				239,228				45,976			19.2
Used vehicle wholesale			41,122				39,481				1,641			4.2
Finance and insurance			37,430				31,670				5,760			18.2
Service, body and parts			98,929				90,443				8,486			9.4
Fleet and other			9,751				8,802				949			10.8
Total revenues		$	1,015,411			$	903,065			$	112,346			12.4
Gross profit
New vehicle retail		$	36,693			$	34,647			$	2,046			5.9	%
Used vehicle retail			38,809				34,966				3,843			11.0
Used vehicle wholesale			1,313				1,032				281			27.2
Finance and insurance			37,430				31,670				5,760			18.2
Service, body and parts			47,918				43,825				4,093			9.3
Fleet and other			449				403				46			11.4
Total gross profit		$	162,612			$	146,543			$	16,069			11.0
Gross margin
New vehicle retail			6.8	%			7.0	%			(20) bps
Used vehicle retail			13.6				14.6				(100) bps
Used vehicle wholesale			3.2				2.6				60 bps
Finance and insurance			100.0				100.0				- bps
Service, body and parts			48.4				48.5				(10) bps
Fleet and Other			4.6				4.6				- bps
Gross profit margin			16.0				16.2				(20) bps
Unit sales
New vehicle retail			15,944				14,720				1,224			8.3	%
Used vehicle retail			15,255				13,661				1,594			11.7
Total retail units sold			31,199				28,381				2,818			9.9
Used vehicle wholesale			5,551				5,323				228			4.3
Average selling price
New vehicle retail		$	34,055			$	33,522			$	533			1.6	%
Used vehicle retail			18,696				17,512				1,184			6.8
Used vehicle wholesale			7,408				7,417				(9	)		(0.1	)
Average gross profit per unit
New vehicle retail		$	2,301			$	2,354			$	(53	)		(2.3)	%
Used vehicle retail			2,544				2,560				(16	)		(0.6	)
Used vehicle wholesale			237				194				43			22.2
Finance and insurance			1,200				1,116				84			7.5
Total vehicle(1)			3,662				3,605				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.
Other Highlights (Unaudited)
		As of
		March 31,		December 31,		March 31,
		2014		2013		2013
Days Supply(1)
New vehicle inventory		69		74		71
Used vehicle inventory		46		63		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 1.20 to 1		1.37 to 1
Fixed charge coverage ratio		Not less than 1.20 to 1		4.09 to 1
Leverage ratio		Not more than 5.00 to 1		1.39 to 1
Funded debt restriction		Not more than $375 million		$168.8 million

Lithia Motors, Inc.
Other Highlights (Unaudited)
		Three months ended March 31,
		2014			2013
New vehicle unit sales brand mix
Chrysler		29.5	%		31.3	%
General Motors		14.0			15.9
Toyota		13.7			14.9
Subaru		9.8			7.7
Honda, Acura		7.8			6.8
BMW, MINI		6.0			6.3
Ford		5.9			5.9
Nissan		3.8			2.7
Hyundai		3.0			2.9
Mercedes		2.3			2.2
Volkswagen, Audi		2.3			1.8
Kia		0.9			0.6
Mazda		0.4			0.5
Other		0.6			0.5
		Three months ended March 31,
		2014			2013
Revenue geographic mix
Texas		23.9	%		25.7	%
Oregon		22.2			20.8
California		13.3			10.7
Montana		8.3			9.0
Washington		7.3			8.2
Alaska		6.7			7.1
Nevada		4.8			4.7
Idaho		4.7			5.2
Iowa		4.3			4.5
North Dakota		2.2			2.4
New Mexico		1.6			1.7
Hawaii		0.7			0.0
		As of April 24, 2014
Current store count mix		# of stores			% of total
Chrysler		24			24.0	%
General Motors		14			14.0
Honda, Acura		11			11.0
Toyota		10			10.0
BMW, MINI		9			9.0
Ford		6			6.0
Subaru		5			5.0
Hyundai		5			5.0
Volkswagen, Audi		5			5.0
Nissan		4			4.0
Mercedes		4			4.0
Other		3			3.0

Lithia Motors, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands)
		March 31, 2014				December 31, 2013
Cash and cash equivalents		$	22,340			$	23,686
Trade receivables, net			182,777				170,519
Inventories, net			935,850				859,019
Deferred income taxes			1,316				1,548
Other current assets			12,564				15,251
Assets held for sale			12,703				11,526
Total current assets		$	1,167,550			$	1,081,549
Property and equipment, net			493,171				481,212
Goodwill			56,787				49,511
Franchise value			73,502				71,199
Deferred income taxes			14,374				10,256
Other non-current assets			38,892				31,394
Total assets		$	1,844,276			$	1,725,121
Floor plan notes payable		$	19,978			$	18,789
Floor plan notes payable: non trade			744,786				695,066
Current maturities of long-term debt			7,340				7,083
Trade payables			54,052				51,159
Accrued liabilities			107,130				94,143
Liabilities related to assets held for sale			7,142				6,271
Total current liabilities		$	940,428			$	872,511
Long-term debt			269,760				245,471
Deferred revenue			46,238				44,005
Other long-term liabilities			31,013				28,412
Total liabilities		$	1,287,439			$	1,190,399
Class A common stock			267,071				268,255
Class B common stock			319				319
Additional paid-in capital			24,392				22,598
Accumulated other comprehensive loss			(1,389	)			(1,538	)
Retained earnings			266,444				245,088
Total liabilities & stockholders' equity		$	1,844,276			$	1,725,121

Lithia Motors, Inc.
Summarized Cash Flow from Operations (Unaudited)
(In thousands)
			Three months ended
			March 31,
			2014				2013
Net income			$	24,734			$	22,055
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization				5,507				4,721
Stock-based compensation				1,538				1,140
Loss (gain) on disposal of assets				20				(19	)
Deferred income taxes				1,866				(206	)
Excess tax benefit from share-based payment arrangements				(5,846	)			(2,937	)
(Increase) decrease:
	Trade receivables, net			(12,259	)			(960	)
	Inventories			(56,748	)			7,890
	Other current assets			1,660				5,757
	Other non-current assets			(3,950	)			(424	)
Increase (decrease):
	Floor plan notes payable, net			1,675				2,257
	Trade payables			1,774				(410	)
	Accrued liabilities			12,521				6,188
	Other long-term liabilities and deferred revenue			5,121				4,705
Net cash provided by (used in) operating activities			$	(22,387	)		$	49,757

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			2014				2013
As reported			$	(22,387	)		$	49,757
	Floor plan notes payable, non-trade, net			51,783				953
Adjusted			$	29,396			$	50,710

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