EX-99.1 2 lad2018q2-ex99_earnings.htm EXHIBIT 99.1 Exhibit


lithiamotorsinclogoa20.jpg


LITHIA REPORTS RECORD SECOND QUARTER 2018 RESULTS, INCREASES REVENUE 26%
_____________________________________________________

DECLARES DIVIDEND OF $0.29 PER SHARE FOR SECOND QUARTER

Medford, Oregon, July 25, 2018 - Lithia Motors, Inc. (NYSE: LAD) today reported the highest second quarter revenue and earnings per share in company history.

Second quarter 2018 revenue increased 26% to $3.1 billion from $2.5 billion in the second quarter of 2017.

Second quarter 2018 net income per diluted share was $2.44, a 15% increase over $2.12 per diluted share reported in the second quarter of 2017. Adjusted second quarter 2018 net income per diluted share was $2.52, a 11% increase compared to adjusted net income of $2.28 per diluted share in the same period of 2017. Second quarter 2018 net income was $61 million, a 14% increase over $53 million reported in the second quarter of 2017. Adjusted second quarter 2018 net income was $63 million, a 10% increase compared to adjusted net income of $57 million for the same period of 2017.

As shown in the attached non-GAAP reconciliation tables, the 2018 second quarter adjusted results exclude a $0.08 net non-core charge related to acquisition expenses and storm insurance reserves partially offset by a tax attribute. The 2017 second quarter adjusted results exclude a $0.16 net non-core charge related to acquisition expenses and hail storm insurance reserves.

Second Quarter-over-Quarter Operating Highlights:
•
Online traffic up 35% over prior year
•
Total retail units sold increased 21%
•
Service, body and parts sales increased 27%
•
Total same store sales increased 3%
•
New vehicle same store sales were flat
•
Used vehicle retail same store sales increased 7%
•
Same store F&I per unit was $1,305
•
Service, body and parts same store sales increased 3%

"Our stores generated strong revenue growth, both overall and on a same store basis," said Bryan DeBoer, President and CEO. "Total gross profit increased over 20% and our service operations performed well. We continue to attack the over $250 million in dry powder available in both revenue and cost management as operations season and stabilize. At the same time, we are targeting further acquisition growth and continue to invest in innovation and digital initiatives for the future."

For the first six months of 2018, revenues increased 22% to $5.8 billion, compared to $4.7 billion in the first six months of 2017.

Net income for the first six months of 2018 was $4.50 per diluted share, compared to $4.13 per diluted share for the similar period in 2017. Adjusted net income per diluted share for the first six months of 2018 increased 13% to $4.59 from $4.06 for the first six months of 2017.

Corporate Development
As previously announced, during the second quarter, we added Broadway Ford in Idaho Falls, Idaho and Buhler Ford in Eatontown, New Jersey and divested a Mitsubishi franchise in Fresno, California. In July, we opened a Chrysler Jeep Dodge location in Calallen, Texas, separated a Subaru franchise into a stand-alone facility in Utica, New York and divested an Audi franchise in Monroeville, Pennsylvania.

"Our recent actions further optimize our nationwide network of service and delivery points," said DeBoer. "We remain focused on purchasing and improving strong franchises that underperform their potential, while developing new ways to meet our consumers' personal transportation needs. Generating substantial revenue growth creates a profit engine that we can invest to accelerate innovation, build out our physical footprint and deliver compelling shareholder returns."





Balance Sheet Update
We ended the second quarter with $30 million in cash and $204 million in availability under our credit facility. Additionally, approximately $297 million of our operating real estate is currently unfinanced, which we estimate could provide $223 million in capital, for total potential liquidity of $457 million.

In June, we executed an amended and restated loan agreement modifying our existing syndicated credit facility. The amended facility includes 13 bank and seven captive finance partners, and provides up to $2.6 billion in total available credit for new vehicles, used vehicles and a working capital facility. The agreement matures in July 2023.

Dividend Payment and Share Repurchases
Our Board of Directors approved a dividend of $0.29 per share related to second quarter 2018 financial results. We expect to pay the dividend on August 29, 2018 to shareholders of record on August 15, 2018.

Year to date, we have repurchased 677,437 shares at a weighted average price of $99.57 per share. Under our existing $250 million share repurchase authorization, approximately $95 million remains available.

Earnings Outlook
For 2018, we updated our outlook to full year revenues of $11.75 to $12.25 billion and earnings per share of $9.50. Actual results may be affected by items described under Forward-Looking Statements below. Beginning in 2019, we will no longer provide an annual earnings outlook.

Second Quarter Earnings Conference Call and Updated Presentation
The second quarter conference call may be accessed at 11:00 a.m. ET today by telephone at 877-407-8029. An updated presentation highlighting the second quarter results has been added to our investor relations website. To listen live on our website or for replay, visit www.lithiainvestorrelations.com and click on webcasts.

About Lithia
Lithia Motors, Inc. is one of the largest providers of personal transportation solutions in the United States and is among the fastest growing companies in the Fortune 500 (#294-2018). Consumers can buy, sell and service vehicles digitally or through our 188 coast to coast locations. Our mission statement, Growth Powered by People, drives us to continuously improve and to give back to our communities.

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

Lithia Motors on Facebook
www.facebook.com/LithiaMotors

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

Contact:
John North
Senior Vice President and Chief Financial Officer
(541) 618-5748

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; achieving a 2018 full year earnings target of $9.50 per diluted share and all projections set forth under the headings "Earnings Outlook";




•
Our ability to improve store performance;
•
Anticipated acquisition opportunities and additions of dealership locations to our portfolio in the future, and our ability to improve earnings and achieve returns on investments;
•
Anticipated revenues from acquired and open point stores; and
•
Anticipated availability of liquidity from our credit facility and unfinanced operating real estate.

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

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






Lithia Motors, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)
 
 
Three months ended June 30,
 
%
 
Six months ended June 30,
 
%
 
 
 
Increase
 
 
Increase
 
 
2018
 
2017
 
(Decrease)
 
2018
 
2017
 
(Decrease)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
$
1,726,803

 
$
1,384,055

 
24.8
 %
 
$
3,181,528

 
$
2,594,359

 
22.6
 %
Used vehicle retail
 
804,098

 
633,635

 
26.9

 
1,519,672

 
1,235,858

 
23.0

Used vehicle wholesale
 
85,335

 
69,512

 
22.8

 
161,290

 
141,015

 
14.4

Finance and insurance
 
114,492

 
94,851

 
20.7

 
220,997

 
181,628

 
21.7

Service, body and parts
 
311,407

 
246,005

 
26.6

 
597,104

 
478,579

 
24.8

Fleet and other
 
54,402

 
38,978

 
39.6

 
75,625

 
71,698

 
5.5

Total revenues
 
3,096,537

 
2,467,036

 
25.5
 %
 
5,756,216

 
4,703,137

 
22.4
 %
Cost of sales:
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
1,625,309

 
1,303,516

 
24.7

 
2,993,087

 
2,443,702

 
22.5

Used vehicle retail
 
716,997

 
559,129

 
28.2

 
1,358,960

 
1,092,569

 
24.4

Used vehicle wholesale
 
83,409

 
67,800

 
23.0

 
158,438

 
137,786

 
15.0

Service, body and parts
 
157,700

 
123,525

 
27.7

 
304,989

 
242,905

 
25.6

Fleet and other
 
52,395

 
37,795

 
38.6

 
71,904

 
69,252

 
3.8

Total cost of sales
 
2,635,810

 
2,091,765

 
26.0

 
4,887,378

 
3,986,214

 
22.6

Gross profit
 
460,727

 
375,271

 
22.8
 %
 
868,838

 
716,923

 
21.2
 %
SG&A expense
 
333,350

 
257,290

 
29.6

 
630,844

 
500,062

 
26.2

Depreciation and amortization
 
18,821

 
14,031

 
34.1

 
35,675

 
26,770

 
33.3

Income from operations
 
108,556

 
103,950

 
4.4
 %
 
202,319

 
190,091

 
6.4
 %
Floor plan interest expense
 
(15,634
)
 
(9,332
)
 
67.5

 
(29,168
)
 
(17,384
)
 
67.8

Other interest expense
 
(13,829
)
 
(7,169
)
 
92.9

 
(25,635
)
 
(13,840
)
 
85.2

Other income (expense), net
 
1,659

 
387

 
NM
 
3,033

 
10,232

 
NM
Income before income taxes
 
80,752

 
87,836

 
(8.1)
 %
 
150,549

 
169,099

 
(11.0
)%
Income tax expense
 
(20,092
)
 
(34,636
)
 
(42.0
)
 
(37,828
)
 
(65,172
)
 
(42.0
)
Income tax rate
 
24.9
%
 
39.4
%
 


 
25.1
%
 
38.5
%
 
 
Net income

$
60,660

 
$
53,200

 
14.0
 %
 
$
112,721

 
$
103,927

 
8.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share
 
$
2.44

 
$
2.12

 
15.1
 %
 
$
4.50

 
$
4.13

 
9.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted shares outstanding
 
24,882
 
25,106
 
(0.9)
 %
 
25,028
 
25,177
 
(0.6
)%
NM - not meaningful




Lithia Motors, Inc.
Key Performance Metrics (Unaudited)
 
 
Three months ended June 30,
 
%
 
Six months ended June 30,
 
%
 
 
 
Increase
 
 
Increase
 
 
2018
 
2017
 
(Decrease)
 
2018
 
2017
 
(Decrease)
Gross margin
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
5.9
%
 
5.8
%
 
10
bps
 
5.9
%
 
5.8
%
 
10
bps
Used vehicle retail
 
10.8

 
11.8

 
(100
)
 
10.6

 
11.6

 
(100
)
Finance and insurance
 
100.0

 
100.0

 
—

 
100.0

 
100.0

 
—

Service, body and parts
 
49.4

 
49.8

 
(40
)
 
48.9

 
49.2

 
(30
)
Gross profit margin
 
14.9

 
15.2

 
(30
)
 
15.1

 
15.2

 
(10
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Unit sales
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
49,027

 
40,876

 
19.9
 %
 
90,524

 
76,492

 
18.3
 %
Used vehicle retail
 
39,096

 
32,171

 
21.5

 
75,210

 
62,954

 
19.5

Total retail units sold
 
88,123

 
73,047

 
20.6

 
165,734

 
139,446

 
18.9

 
 
 
 
 
 
 
 
 
 
 
 
 
Average selling price
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
$
35,221

 
$
33,860

 
4.0
 %
 
$
35,146

 
$
33,917

 
3.6
 %
Used vehicle retail
 
20,567

 
19,696

 
4.4

 
20,206

 
19,631

 
2.9

 
 
 
 
 
 
 
 
 
 
 
 
 
Average gross profit per unit
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
$
2,070

 
$
1,970

 
5.1
 %
 
$
2,082

 
$
1,970

 
5.7
 %
Used vehicle retail
 
2,228

 
2,316

 
(3.8
)
 
2,137

 
2,276

 
(6.1
)
Finance and insurance
 
1,299

 
1,298

 
0.1

 
1,333

 
1,302

 
2.4

Total vehicle(1)
 
3,461

 
3,444

 
0.5

 
3,457

 
3,434

 
0.7

 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue mix
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
55.8
%
 
56.1
%
 
 
 
55.3
%
 
55.2
%
 
 
Used vehicle retail
 
26.0

 
25.7

 
 
 
26.4

 
26.3

 
 
Used vehicle wholesale
 
2.8

 
2.8

 
 
 
2.8

 
3.0

 
 
Finance and insurance, net
 
3.7

 
3.8

 
 
 
3.8

 
3.9

 
 
Service, body and parts
 
10.1

 
10.0

 
 
 
10.4

 
10.2

 
 
Fleet and other
 
1.6

 
1.6

 
 
 
1.3

 
1.4

 
 
 
 
Adjusted
 
As reported
 
Adjusted
 
As reported
 
 
Three months ended June 30,
 
Three months ended June 30,
 
Six months ended June 30,
 
Six months ended June 30,
Other metrics
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
SG&A as a % of revenue
 
10.6
%
 
10.2
%
 
10.8
%
 
10.4
%
 
10.9
%
 
10.5
%
 
11.0
%
 
10.6
%
SG&A as a % of gross profit
 
71.3

 
67.0

 
72.4

 
68.6

 
72.1

 
68.9

 
72.6

 
69.8

Operating profit as a % of revenue
 
3.7

 
4.5

 
3.5

 
4.2

 
3.6

 
4.2

 
3.5

 
4.0

Operating profit as a % of gross profit
 
24.6

 
29.3

 
23.6

 
27.7

 
23.8

 
27.4

 
23.3

 
26.5

Pretax margin
 
2.8

 
3.8

 
2.6

 
3.6

 
2.7

 
3.5

 
2.6

 
3.6

Net profit margin
 
2.0

 
2.3

 
2.0

 
2.2

 
2.0

 
2.2

 
2.0

 
2.2

(1) 
Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail




Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)
 
 
Three months ended June 30,
 
%
 
Six months ended June 30,
 
%
 
 
 
Increase
 
 
Increase
 
 
2018
 
2017
 
(Decrease)
 
2018
 
2017
 
(Decrease)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
$
1,380,947

 
$
1,375,444

 
0.4
 %
 
$
2,563,814

 
$
2,576,578

 
(0.5
)%
Used vehicle retail
 
673,955

 
629,198

 
7.1

 
1,296,344

 
1,224,239

 
5.9

Finance and insurance
 
95,177

 
94,244

 
1.0

 
185,668

 
180,322

 
3.0

Service, body and parts
 
251,449

 
243,603

 
3.2

 
487,260

 
472,987

 
3.0

Total revenues
 
2,515,454

 
2,450,671

 
2.6

 
4,727,682

 
4,665,925

 
1.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
$
79,141

 
$
79,830

 
(0.9)
 %
 
$
147,226

 
$
148,887

 
(1.1
)%
Used vehicle retail
 
76,447

 
74,102

 
3.2

 
142,323

 
142,359

 
—

Finance and insurance
 
95,177

 
94,244

 
1.0

 
185,668

 
180,322

 
3.0

Service, body and parts
 
124,751

 
121,368

 
2.8

 
240,773

 
233,025

 
3.3

Total gross profit
 
378,843

 
372,424

 
1.7

 
721,509

 
710,221

 
1.6

 
 
 
 
 
 
 
 
 
 
 
 
 
Gross margin
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
5.7
%
 
5.8
%
 
(10
)bps
 
5.7
%
 
5.8
%
 
(10
)bps
Used vehicle retail
 
11.3

 
11.8

 
(50
)
 
11.0

 
11.6

 
(60
)
Finance and insurance
 
100.0

 
100.0

 
—

 
100.0

 
100.0

 
—

Service, body and parts
 
49.6

 
49.8

 
(20
)
 
49.4

 
49.3

 
10

Gross profit margin
 
15.1

 
15.2

 
(10
)
 
15.3

 
15.2

 
10

 
 
 
 
 
 
 
 
 
 
 
 
 
Unit sales
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
39,619

 
40,655

 
(2.5)
 %
 
73,489

 
76,031

 
(3.3
)%
Used vehicle retail
 
33,328

 
31,933

 
4.4

 
65,005

 
62,337

 
4.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Average selling price
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
$
34,856

 
$
33,832

 
3.0
 %
 
$
34,887

 
$
33,889

 
2.9
 %
Used vehicle retail
 
20,222

 
19,704

 
2.6

 
19,942

 
19,639

 
1.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Average gross profit per unit
 
 
 
 
 
 
 
 
 
 
 
 
New vehicle retail
 
$
1,998

 
$
1,964

 
1.7
 %
 
$
2,003

 
$
1,958

 
2.3
 %
Used vehicle retail
 
2,294

 
2,321

 
(1.2
)
 
2,189

 
2,284

 
(4.2
)
Finance and insurance
 
1,305

 
1,298

 
0.5

 
1,341

 
1,303

 
2.9

Total vehicle(1)
 
3,458

 
3,442

 
0.5

 
3,447

 
3,431

 
0.5

(1) 
Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail




Lithia Motors, Inc.
Other Highlights (Unaudited)
 
As of
 
June 30,
 
December 31,
 
June 30,
 
2018
 
2017
 
2017
Days Supply(1)
 
 
 
 
 
New vehicle inventory
77
 
69
 
75
Used vehicle inventory
62
 
67
 
60
(1) Days supply calculated based on current inventory levels, excluding in-transit vehicles, and a 30-day historical cost of sales level.

Financial covenants
 
 
 
 
Requirement
 
As of June 30, 2018
Current ratio
Not less than 1.10 to 1
 
1.25 to 1
Fixed charge coverage ratio
Not less than 1.20 to 1
 
2.59 to 1
Leverage ratio
Not more than 5.00 to 1
 
3.52 to 1





Lithia Motors, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
 
 
June 30, 2018
 
December 31, 2017
Cash and cash equivalents
 
$
29,991

 
$
57,253

Trade receivables, net
 
483,995

 
521,938

Inventories, net
 
2,333,112

 
2,132,744

Other current assets
 
46,231

 
70,847

Total current assets
 
$
2,893,329

 
$
2,782,782

 
 
 
 
 
Property and equipment, net
 
1,232,054

 
1,185,169

Intangibles
 
478,065

 
443,297

Other non-current assets
 
560,714

 
271,818

Total assets
 
$
5,164,162

 
$
4,683,066

 
 
 
 
 
Floor plan notes payable
 
2,018,068

 
1,919,026

Other current liabilities
 
394,143

 
381,955

Total current liabilities
 
$
2,412,211

 
$
2,300,981

 
 
 
 
 
Long-term debt
 
1,295,077

 
1,028,476

Other long-term liabilities and deferred revenue
 
296,006

 
270,391

Total liabilities
 
$
4,003,294

 
$
3,599,848

 
 
 
 
 
Stockholder's Equity
 
1,160,868

 
1,083,218

Total liabilities & stockholders' equity
 
$
5,164,162

 
$
4,683,066






Lithia Motors, Inc.
Summarized Cash Flow from Operations (Unaudited)
(In thousands)
 
 
Six months ended June 30,
 
 
2018
 
2017
Net income
 
$
112,721

 
$
103,927

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
35,675

 
26,770

Stock-based compensation
 
6,837

 
5,432

(Gain) loss on disposal of assets
 
(78
)
 
256

Loss on sale of franchise
 
380

 
—

Deferred income taxes
 
345

 
(1,156
)
(Increase) decrease:
 
 
 
 
Trade receivables, net
 
47,915

 
70,908

Inventories
 
(35,530
)
 
(36,078
)
Other assets
 
20,588

 
479

Increase (decrease):
 
 
 
 
Floor plan notes payable, net
 
15,056

 
1,330

Trade payables
 
2,929

 
414

Accrued liabilities
 
5,463

 
(3,684
)
Other long-term liabilities and deferred revenue
 
24,030

 
9,957

Net cash provided by operating activities
 
$
236,331

 
$
178,555




Lithia Motors, Inc.
Reconciliation of Non-GAAP Cash Flow from Operations (Unaudited)
(In thousands)
 
 
Six months ended June 30,
Net cash provided by operating activities
 
2018
 
2017
As reported
 
$
236,331

 
$
178,555

Floor plan notes payable, non-trade, net
 
85,763

 
(32,124
)
Less: Borrowings on floor plan notes payable, non-trade associated with acquired new vehicle inventory
 
(120,899
)
 
—

Adjusted
 
$
201,195

 
$
146,431






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

 
 
Three Months Ended June 30, 2018
 
 
As reported
 
Insurance reserves
 
Acquisition expenses
 
Tax attributes
 
Adjusted
Selling, general and administrative
 
$
333,350

 
$
(1,490
)
 
$
(3,251
)
 
$
—

 
$
328,609

 
 
 
 
 
 
 
 
 
 
 
Income from operations
 
108,556

 
1,490

 
3,251

 
—

 
113,297

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
$
80,752

 
$
1,490

 
$
3,251

 
$
—

 
$
85,493

Income tax benefit (expense)
 
(20,092
)
 
(389
)
 
(853
)
 
(1,409
)
 
(22,743
)
Net income
 
$
60,660

 
$
1,101

 
$
2,398

 
$
(1,409
)
 
$
62,750

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
2.44

 
$
0.04

 
$
0.10

 
$
(0.06
)
 
$
2.52

Diluted share count
 
24,882

 
 
 
 
 
 
 
 

 
 
Three Months Ended June 30, 2017
 
 
As reported
 
Insurance reserves
 
Acquisition expenses
 
Adjusted
Selling, general and administrative
 
$
257,290

 
$
(3,878
)
 
$
(2,137
)
 
$
251,275

 
 
 
 
 
 
 
 
 
Income from operations
 
103,950

 
3,878

 
2,137

 
109,965

 
 
 
 
 
 
 
 
 
Income before income taxes
 
$
87,836

 
$
3,878

 
$
2,137

 
$
93,851

Income tax expense
 
(34,636
)
 
(1,231
)
 
(821
)
 
(36,688
)
Net income
 
$
53,200

 
$
2,647

 
$
1,316

 
$
57,163

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
2.12

 
$
0.11

 
$
0.05

 
$
2.28

Diluted share count
 
25,106

 
 
 
 
 
 





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

 
 
Six Months Ended June 30, 2018
 
 
As reported
 
Insurance reserves
 
Acquisition expenses
 
Tax attributes
 
Adjusted
Selling, general and administrative
 
$
630,844

 
$
(1,490
)
 
$
(3,251
)
 
$
—

 
$
626,103

 
 
 
 
 
 
 
 
 
 
 
Income from operations
 
202,319

 
1,490

 
3,251

 
—

 
207,060

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
$
150,549

 
$
1,490

 
$
3,251

 
$
—

 
$
155,290

Income tax benefit (expense)
 
(37,828
)
 
(389
)
 
(853
)
 
(1,409
)
 
(40,479
)
Net income
 
$
112,721

 
$
1,101

 
$
2,398

 
$
(1,409
)
 
$
114,811

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
4.50

 
0.04

 
$
0.11

 
$
(0.06
)
 
$
4.59

Diluted share count
 
25,028

 
 
 
 
 
 
 
 

 
 
Six Months Ended June 30, 2017
 
 
As reported
 
Insurance reserves
 
Acquisition expenses
 
OEM settlement
 
Adjusted
Selling, general and administrative
 
$
500,062

 
$
(3,878
)
 
$
(2,137
)
 
$
—

 
$
494,047

 
 
 
 
 
 
 
 
 
 
 
Income from operations
 
190,091

 
3,878

 
2,137

 
—

 
196,106

 
 
 
 
 
 
 
 
 
 
 
Other income (expense), net
 
10,232

 
—

 
—

 
(9,111
)
 
1,121

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
$
169,099

 
$
3,878

 
$
2,137

 
$
(9,111
)
 
$
166,003

Income tax benefit (expense)
 
(65,172
)
 
(1,231
)
 
(821
)
 
3,423

 
(63,801
)
Net income
 
$
103,927

 
$
2,647

 
$
1,316

 
$
(5,688
)
 
$
102,202

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
4.13

 
$
0.11

 
$
0.05

 
$
(0.23
)
 
$
4.06

Diluted share count
 
25,177

 
 
 
 
 
 
 
 






Lithia Motors, Inc.
Adjusted EBITDA and Leveraged Free Cash Flow (Unaudited)

 
 
Three months ended June 30,
 
%
 
Six months ended June 30,
 
%
 
 
 
Increase
 
 
Increase
 
 
2018
 
2017
 
(Decrease)
 
2018
 
2017
 
(Decrease)
EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
60,660

 
$
53,200

 
14.0
 %
 
$
112,721

 
$
103,927

 
8.5
 %
Other interest expense
 
13,829

 
7,169

 
92.9

 
25,635

 
13,840

 
85.2

Income tax expense
 
20,092

 
34,636

 
(42.0
)
 
37,828

 
65,172

 
(42.0
)
Depreciation and amortization
 
18,821

 
14,031

 
34.1

 
35,675

 
26,770

 
33.3

EBITDA
 
$
113,402

 
$
109,036

 
4.0
 %
 
$
211,859

 
$
209,709

 
1.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Other adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Less: used vehicle line of credit interest
 
$
(22
)
 
$
(1,131
)
 
(98.1
)
 
$
(535
)
 
$
(2,157
)
 
(75.2
)
Add: insurance reserve
 
1,490

 
3,878

 
(61.6
)
 
1,490

 
3,878

 
(61.6
)
Add: acquisition expenses
 
3,251

 
2,137

 
52.1

 
3,251

 
2,137

 
52.1

Less: OEM legal settlements
 
—

 
—

 
NM
 
—

 
(9,111
)
 
(100.0
)
Adjusted EBITDA
 
$
118,121

 
$
113,920

 
3.7
 %
 
$
216,065

 
$
204,456

 
5.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Leveraged EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
118,121

 
$
113,920

 
3.7
 %
 
$
216,065

 
$
204,456

 
5.7
 %
Less: Capital expenditures
 
(30,369
)
 
(16,227
)
 
87.2

 
(72,373
)
 
(32,266
)
 
124.3

Leveraged EBITDA
 
$
87,752

 
$
97,693

 
(10.2)
 %
 
$
143,692

 
$
172,190

 
(16.6)
 %