Lithia Motors, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Lithia operated 292 locations across 40 brands in 25 states and three Canadian provinces.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $7,240.1 million | $6,009.4 million | $13,945.4 million | $10,352.4 million |
| Gross profit | $1,350.7 million | $1,110.6 million | $2,628.9 million | $1,826.1 million |
| Operating income | $528.3 million | $446.3 million | $1,041.1 million | $684.7 million |
| Net income attributable to Lithia | $331.3 million | $304.9 million | $673.5 million | $461.1 million |
| Diluted EPS | $11.60 | $10.75 | $23.15 | $16.69 |
| Gross margin | 18.7% | 18.5% | 18.9% | 17.6% |
| Operating margin | 7.3% | 7.4% | 7.5% | 6.6% |
Q2 revenue increased 20.5% year over year and first-half revenue increased 34.7%. Growth reflected acquisitions and higher used-vehicle, finance and insurance, and service revenue. First-half gross profit rose 44.0%; Lithia-attributable net income rose 46.1%.
For Q2, same-store revenue declined 1.2%, including a 16.9% decline in new-vehicle revenue, while same-store gross profit decreased 0.8%. New-vehicle unit volume fell 27.2% same-store, partly offset by higher selling prices and gross profit per unit. Used-vehicle retail and service activity supported results. Used-vehicle retail gross margin fell to 9.5% from 12.9% in Q2.
Cash flow, debt and liquidity
- First-half operating cash flow was negative $263.1 million, versus positive $1,271.0 million a year earlier. Management cited inventory and other-asset growth as the main factors. Adjusted operating cash flow, including specified floor-plan financing adjustments, was negative $82.7 million.
- Investing cash outflow was $782.7 million, including $706.0 million net cash paid for acquisitions and $136.6 million of capital expenditures. Financing provided $984.6 million.
- At June 30, cash, restricted cash and cash equivalents on the balance sheet were $113.2 million. The company reported total current available funds of $846.5 million, including $733.3 million of available credit.
- Total debt was $6,313.0 million, including $1,060.2 million of non-trade floor-plan debt and $1,158.5 million drawn on revolving lines of credit. The company reported $703.8 million of remaining availability in the debt summary.
- The company was in compliance with its credit covenants: fixed-charge coverage ratio was 2.80 against a 1.20 minimum; leverage ratio was 1.46 against a 5.75 maximum.
- Share repurchases were $623.4 million in the first half; $114.1 million remained under the authorization at June 30. Dividends paid were $0.77 per share for the half-year.
Business developments, outlook and risks
- Lithia completed 22 location acquisitions in the first half, paying $706.0 million net of acquired cash. Acquisitions contributed $341.2 million of revenue and $17.6 million of operating income after their acquisition dates. Purchase-price allocations remained preliminary.
- Management said new-vehicle supply constraints, driven in part by manufacturer component shortages, were expected to continue through 2022. Strong demand and limited supply had supported elevated selling prices and new-vehicle gross profit per unit. This is not a quantified earnings or revenue forecast.
- The company described its capital-allocation targets as 65% of free cash flow for acquisitions, 25% for internal investment and 10% for shareholder returns. It also discussed its 2025 strategy, acquisition growth, Driveway and Driveway Finance; these are strategic aims, not specific financial guidance in this filing.
- Q2 other expense included an $18.1 million unrealized loss on the Shift Technologies investment and a $7.2 million foreign-exchange loss. First-half figures were $33.0 million and $3.6 million, respectively. The company also terminated an interest-rate collar, reclassifying $2.7 million to floor-plan interest expense.
- Risks include vehicle supply and demand changes, used-vehicle price volatility, interest rates, consumer confidence and debt levels, acquisition execution, credit availability, and compliance with debt covenants. The company noted routine legal proceedings and stated it could not predict their resolution with certainty.
Important facts for investors to verify
- Whether supply constraints and vehicle pricing remain supportive, and how lower new-vehicle volumes affect gross profit and same-store performance.
- Whether used-vehicle margins, inventory levels and operating cash conversion stabilize; first-half operating cash flow was negative.
- Acquisition integration, returns and final purchase-price allocations, alongside the company’s significant acquisition-related financing needs.
- Debt, available borrowing capacity and covenant headroom as interest rates and financing costs change.
- The effect of the Shift investment valuation and other unusual items on reported earnings; compare GAAP results with management’s adjusted measures.
- The filing provides no specific quantified full-year earnings or revenue guidance; verify subsequent company updates before relying on strategic targets as forecasts.