Lithia Motors, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Financial comparisons are against Q1 2023 unless otherwise noted. Lithia operated 482 locations representing 51 brands in three countries at quarter-end.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $8.562 billion | $6.974 billion | +22.8% |
| Gross profit | $1.335 billion | $1.212 billion | +10.2% |
| Operating income | $341.4 million | $379.0 million | −9.9% |
| Net income attributable to Lithia | $162.6 million | $228.7 million | −28.9% |
| Diluted EPS | $5.89 | $8.30 | −29.0% |
| Gross margin | 15.6% | 17.4% | −180 bps |
| Operating margin | 4.0% | 5.4% | −140 bps |
Revenue growth primarily reflected acquisitions, alongside organic growth in new-vehicle retail and service, body and parts. Acquisitions contributed $985.4 million in revenue and $13.6 million in operating income after acquisition dates. Management attributed lower net income principally to normalization of vehicle margins, higher interest expense, and SG&A rising as a share of gross profit. Adjusted diluted EPS, a non-GAAP measure, was $6.11 versus $8.44.
Vehicle retail volumes increased, but per-unit economics weakened: new-vehicle average gross profit per unit fell 30.0% and used-vehicle average gross profit per unit fell 15.9%. Same-store revenue declined 1.9% and same-store gross profit declined 7.2%; same-store new-vehicle gross profit per unit fell 29.7%. Service, body and parts remained a relative strength, with same-store gross profit up 6.6% and gross margin up 180 bps.
Cash flow, debt and liquidity
- Operating cash flow was $292.4 million, versus cash used of $49.0 million in Q1 2023. Investing cash outflow was $1.266 billion, including $1.074 billion paid for acquisitions and $79.6 million in capital expenditures. Financing cash inflow was $445.0 million.
- Cash, restricted cash and cash equivalents on the balance sheet totaled $404.6 million at March 31, down from $941.4 million at December 31, 2023. The cash-flow statement’s $440.5 million ending figure also includes $35.9 million of restricted cash in reserve accounts.
- Management reported $1.284 billion of immediately available funds: $264.4 million unrestricted cash, $49.9 million marketable securities and $969.8 million available credit. It also cited approximately $0.3 billion of potential liquidity from unfinanced real estate.
- Total debt, net, as presented in the MD&A, was $12.553 billion, including floor-plan financing, non-recourse notes and other debt. The balance sheet showed $4.962 billion of floor-plan debt and $1.832 billion of non-recourse notes payable. Q1 cash interest paid was $165.8 million, up from $95.7 million.
- Inventory increased to $5.862 billion from $4.754 billion at year-end. Floor-plan interest expense rose to $60.7 million from $27.7 million, reflecting higher rates and increased inventory.
Material developments, outlook and risks
- Lithia acquired Pendragon’s UK Fleet Management and UK Motor Divisions in January and Carousel Motor Group in February. Cash paid, net of cash acquired, was $1.074 billion; the acquisitions included $868.1 million of assumed floor-plan debt. Purchase price allocations remain preliminary for some acquired businesses.
- The company amended its U.S. Bank facility, increasing financing commitments to $6.0 billion, with potential expansion to $6.5 billion subject to conditions. It also amended its JPMorgan and Mizuho warehouse facilities and extended the maturity of its Bank of Nova Scotia facility.
- Financing Operations reported a $1.7 million loss, improved from a $20.8 million loss, primarily due to the UK business and higher borrower contract rates. U.S. DFC loan originations declined to $492.8 million from $629.1 million; annualized net credit losses were 2.4% of average managed receivables versus 2.3%.
- Management provided no specific near-term earnings or revenue guidance in the supplied filing text. It described a capital allocation framework of 50–60% for acquisitions, 25% for capital expenditures, innovation and diversification, and 15–25% for shareholder returns. The company expects first-quarter results to be seasonally lower than later quarters.
- Key risks include continued vehicle-margin normalization, elevated interest rates and borrowing costs, consumer demand and credit conditions, inventory levels, acquisition integration and execution, and market and currency exposure across its geographies. The company also noted ordinary-course litigation, whose outcomes it cannot predict with certainty. It said it believed funding sources were sufficient for the next 12 months and longer term, while cautioning that additional financing sources may not be available on acceptable terms.
Important facts for investors to verify
- Whether same-store vehicle margins and SG&A as a percentage of gross profit improve after the sharp Q1 deterioration.
- How the acquired UK and U.S. operations perform relative to purchase assumptions, including the effect of preliminary purchase accounting and assumed debt.
- Whether acquisition spending, inventory growth and interest costs can be supported by operating cash flow and available credit.
- Trends in DFC loan originations, delinquencies, charge-offs, recovery rates and allowance adequacy as the finance portfolio grows.
- That Q1 share repurchases were limited to 45,516 shares withheld for employee tax obligations; none were made under the public repurchase authorization.