Lithia Motors, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial results are unaudited and compared with Q1 2021. Lithia operated 281 locations across 25 states and three Canadian provinces at quarter-end.
Financial performance
- Revenue: $6.705 billion, up 54.4% year over year. Growth reflected acquisitions and higher sales across vehicle retail, finance and insurance, and service.
- Gross profit: $1.278 billion, up 78.6%; gross margin rose to 19.1% from 16.5%. New-vehicle retail gross margin increased to 13.1% from 7.1%; used-vehicle retail margin was 10.0% versus 10.1%.
- Operating income and margin: $512.8 million versus $238.3 million; operating margin was 7.6% versus 5.5%. SG&A was $726.1 million, or 56.8% of gross profit, compared with $450.4 million, or 62.9%.
- Net income and EPS: Net income was $343.6 million; net income attributable to Lithia was $342.2 million. Diluted EPS was $11.55, versus $5.81.
- Cash flow: Operating cash flow was $26.3 million versus $499.5 million. Management’s adjusted operating cash flow measure was $155.8 million versus $355.4 million. Investing cash outflow was $357.3 million, including $326.5 million of acquisition payments and $60.7 million of capital expenditures.
- Liquidity and debt: Cash, restricted cash and equivalents on the balance sheet totaled $161.4 million. Available credit was $1.456 billion, for total reported current available funds of $1.617 billion. Total debt was $5.069 billion, including floor-plan financing. The company reported compliance with its credit-facility covenants.
Changes versus Q1 2021
- Same-store revenue rose 11.7% and same-store gross profit rose 32.2%. Same-store new-vehicle retail units fell 17.4%, while average selling prices rose 17.9%; used-vehicle retail revenue increased 30.6%.
- Total retail units increased 20.6% for new vehicles and 24.8% for used vehicles. Acquisitions contributed materially to reported growth; six locations were acquired in Q1 2022.
- New-vehicle supply remained constrained by manufacturer component shortages. Management said reduced availability was expected to continue throughout 2022, while strong demand contributed to higher selling prices and per-unit gross profits.
- Operating cash flow declined substantially, primarily reflecting increased inventory and other assets. Inventory rose to $2.697 billion from $2.386 billion at year-end.
- Other interest expense increased to $30.1 million from $23.5 million, primarily due to senior notes issued in 2021. Other income/expense included a $14.9 million unrealized loss on the Shift Technologies investment.
Outlook, risks and unusual items
- The filing provides no specific quarterly or full-year financial guidance. Management discusses its 2025 strategy, acquisitions, digital retail and finance businesses, and a targeted capital allocation framework; these are plans, not guaranteed outcomes.
- Management cited vehicle supply constraints, consumer demand and pricing, interest rates, economic conditions, and seasonal fluctuations as factors that may affect results. The company expects the first quarter historically to be weaker than later quarters, although reported Q1 results were strong.
- Q1 included $6.6 million of acquisition-related expense and a $10.0 million net gain on store disposals in SG&A, as well as the $14.9 million investment loss. Adjusted results are non-GAAP measures.
- Credit facilities carry financial and restrictive covenants; a breach could lead to remedies including acceleration of debt and seizure of collateral. Management expected continued compliance but gave no assurance.
- The company is party to ordinary-course legal proceedings and said it did not anticipate a material adverse effect, while noting outcomes cannot be predicted with certainty.
Important facts for investors to verify
- How much reported growth and earnings depend on acquisitions versus sustainable same-store performance.
- Whether vehicle supply, selling prices and per-unit margins normalize, and the effect on earnings and inventory requirements.
- Why operating cash flow weakened and whether working-capital investment converts into cash in subsequent periods.
- Debt, borrowing availability, interest-rate exposure and covenant headroom, including the maturity of the securitization facility in July 2022.
- The effect of acquisition spending, share repurchases and dividends on liquidity and future returns; $659.5 million remained under the repurchase authorization at quarter-end.