Lkq Corporation · NASDAQ:LKQ
Lkq — J.P. Morgan 2017 Auto Conference
47 slides from Lkq's conference presentation, Aug 9, 2017
Slide 1: J.P. Morgan 2017 Auto Conference
J.P. Morgan 2017 Auto Conference
Slide 2: Forward Looking Statements
Forward Looking Statements Statements and information in this presentation that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act. Forward-looking statements i
Slide 3: Mission Statement
Mission Statement To be the leading global value-added distributor of vehicle parts and accessories by offering our customers the most comprehensive, available and cost effective selection of part solutions while building strong partnerships with our employees and the communities in which we operate
Slide 4: LKQ's Evolution
LKQ’s Evolution Wholesale Salvage Self Serve Keystone / Paint Reman-US Europe-Benelux Rhiag / PGW 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Aftermarket Refurbished Wheels Heavy Duty Europe-UK Keystone Specialty Collision 2003 2007 2011 2017* Total Revenue Total Revenue To
Slide 5: Operating Unit Overview
Operating Unit Overview North America • Collision – Aftermarket automotive products – Automotive glass distribution – Recycled & Refurbished • Mechanical – Recycled engines & transmissions – Remanufactured Engines Europe • Mechanical – 175,000+ small part SKUs – Brakes, filters, hoses, belts, etc. •
Slide 6: LKQ's Acquisition Philosophies
LKQ’s Acquisition Philosophies Strong Brands • Markets where we can be #1 or #2 • Strong and experienced management • Opportunities for growth & synergies • Financial returns – IRR (mid-teens over 10 years) – ROIC (10 years’ average >10%) • Integrity • Criteria in new markets – Among the leaders in
Slide 7: Historical Financial Performance
Historical Financial Performance ($ in Millions) Revenue** Segment EBITDA** $10,000 $9,159 $1,200 $8,584 $1,065 $1,005 $8,000 $7,193 $1,000 $855 $6,740 $791 $800 $6,000 $5,063 $629 $4,123 $600 $515 $4,000 $400 $2,000 $200 $- $- 2012 2013 2014 2015 2016 TTM Q2 2012 2013 2014 2015 2016 TTM Q2 2017 201
Slide 8: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q2 2017 Revenue* YTD 2017 Revenue* • Organic growth of parts and services revenue of 3.8% on a reported • Organic growth of parts and services revenue of 4.1% basis; 4.9% on a same day basis • Income from continuing operations $291.7 million YTD 2017 vs.
Slide 9: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q2 2017* YTD 2017* Diluted EPS Adjusted Diluted EPS Diluted EPS Adjusted Diluted EPS * Earnings per share figures refer to income from continuing operations ** Adjusted Diluted EPS is a non-GAAP measure. Refer to page 35 for Adjusted Diluted EPS reconcili
Slide 10: Operating Segments
Corporation Operating Segments
Slide 11: Large & Fragmented US Market
Large & Fragmented US Market Automotive Repair Market $243 bn Do It For Me (DIFM) DIY $194 bn $49 bn Retail Collision Mechanical Price $46 bn $148 bn Parts & Collision Parts Labor Mechanical Parts Labor Labor $25 bn $21 bn $81 bn $67 bn Collision Markup Mechanical Markup (Wholesale) (Wholesale) $27
Slide 12: Collision Products, a $17 Billion Industry
Collision Products, a $17 Billion Industry Insurance Companies (Indirect Customers) New OEM Manufacturers 63% Repair Shop Refurbished & Recycled OEM Optional OE 12% Products Aftermarket 6% 19% Alternative parts = 37% of parts costs Source: CCC Information Services –Crash Course 2016. 11
Slide 13: Clear Value Proposition
Clear Value Proposition 2015 Chrysler Town & Country 2006 Chevrolet Silverado 2012 Chevrolet Malibu Wheel Engine Bumper Cover New OEM $380 $5,896 $335 Remanufactured $261 $2,069 $209 Recycled OEM $85 $1,090 $175 New A/M N/A N/A $209 Average Savings 55% 73% 59% …and Improved Cycle Time for Repairs No
Slide 14: Shift Toward Alternative Parts Usage
Shift Toward Alternative Parts Usage Average Parts Used Per Claim 2011 2012 2013 2014 2015 2016 10.0 9.4 8.0 8.0 6.5 6.0 5.8 4.0 2.9 2.2 2.0 0.0 OEM Alternative Parts Total Over 20 million vehicle claims Source: CCC Information Services Inc. 13
Slide 15: Regional Distribution Improves Fulfilment
Regional Distribution Improves Fulfilment • Highly fragmented space • 20X size of next competitor • Consistent nationwide coverage and warranty • Strong management team • Strong logistics & footprint • Industry leading fill-rates – Aftermarket: 95% – Salvage • Competitor: 25% • LKQ Single Site: 35%
Slide 16: Wholesale North America Footprint
Wholesale North America Footprint 15
Slide 17: LKQ's Collision "Sweet Spot" is Growing
LKQ’s Collision “Sweet Spot” is Growing Age & Size of U.S. Car Parc 5 year time horizon 180 160 60 Number of Vehicles (Millions) 140 121 118 119 114 117 120 112 108 106 103 101 101 101 103 100 40 80 60 20 40 17 17 16 17 16 14 16 15 13 13 13 20 10 12 0 - 2009 2010 2011 2012 2013 2014 2015 2016 2017 2
Slide 18: Crash Avoidance Systems Growing…
Crash Avoidance Systems Growing… (24.3%) CY 2050 U.S. EIA Energy Outlook 2014 Light Duty Vehicle Sales by Energy Use (20.8%) CY 2045 (17.3%) CY 2040 (13.8%) CY 2035 22% CCC estimates (10.3%) CY 2030 a 10.3% impact (6.8%) CY 2025 to losses in (3.3%) CY 2020 next 15 years 78% (0.7%) CY 2015 (0.4%) CY
Slide 19: But impact coming slowly…
But impact coming slowly… Average age of US Car Parc is 11.4 years 18 Source: Progressive
Slide 20: Europe - Market Observations
Europe - Market Observations Large Car Parc Supplier Fragmented [Tex Segmentation t] Industry “Country Low Collision [Tex Champion” t] in APU Key Markets DIFM Focused 19
Slide 21: Large European Market
Large European Market Automotive Repair Market €198B Do It For Me (DIFM) DIY (1) €188B €10B Retail Collision Mechanical Price €30B €158B Parts & Collision Parts Labor Mechanical Parts Labor €22B €8B €120B €38B Labor Collision Mechanical Markup Markup (Wholesale) €8B (Wholesale) €42B €14B €78B Market
Slide 22: LKQ's European Platform Acquisitions
LKQ’s European Platform Acquisitions October 2011 April 2013 March 2016 December 2016 • Leading distributor • Leading distributor • Leading automotive • The leading of automotive of automotive aftermarket independent car aftermarket aftermarket mechanical parts parts and service mechanical parts in
Slide 23: Top European Players
Top European Players € 3.6 MEKO € 0.6 € 3.0 € 1.6 € 1.5 € 1.4 € 1.3 € 1.1 € 0.8 € 0.7 € 0.6 (1) (2) (3) (3) LKQ AAG Stahlgruber WM Autodis Intercars Swiss Auto Parts Mekonomen Europe Group Alliance (€ in billons) Source: Company filings and websites; amounts are approximate. 22 Note: EUR in billions
Slide 24: LKQ's European Footprint
LKQ’s European Footprint Sweden Norway UK Netherlands Poland Belgium Czech Ukraine Republic Slovakia Switzerland Hungary Romania Italy Bulgaria 23
Slide 25: Highly Fragmented with many "Country Champions"
Highly Fragmented with many “Country Champions” Selected Market Players * Selected Pan European Platforms • LKQ—Central and Eastern Europe, Italy, the Netherlands and the United Kingdom • Alliance Automotive—France, Germany and the United Kingdom Source: Company filings, press releases, FactSet, Orb
Slide 26: T2 Rationale
T2 Rationale • Supports business growth – In Logistics this means increased throughput and storage requirement • Supports business integration – Total proposition under one roof e.g. paints, e-comm, mechanical parts • More efficient logistics – Reduced double handling & transport costs – Higher pick
Slide 27: The T2 Site
The T2 Site • 90K tonnes of soil moved • 3K tonnes of steel used • 778K square feet warehouse with mezzanine • Main build contractor Winvic • 80K tones of concrete poured • Automation and fit out: TGW 26
Slide 28: T2 Automation
T2 Automation Fast Tote Pick Miniload System Very Narrow Aisles • High Bay (16m) Pallet storage area • Pick Rate Age 800 cases/hr • 582k totes storage • 13 rack level of various heights • 600 Fast tote Pick Faces • 15 Aisles and 36 levels • 68k pallet location • Average Daily 89k (31.5%) cases pick
Slide 29: Specialty
Specialty Specialty Overview Specialty Directly Addressable Market (1) ($ in billions) • Leading distributor and marketer of specialty aftermarket Wheels, Tires & Accessory and equipment, accessories, and products in North America Suspension Appearance • Critical link between 800+ suppliers and appr
Slide 30: Consistent Business Model and Strategy
Consistent Business Model and Strategy Niche and Fragmented Markets High Industry Leading Fulfillment Management Rates Attractive Synergy and Adjacent Leverage Markets Opportunities Sustainable Growth and Margin Expansion 29
Slide 31: Financial Overview
Corporation Financial Overview
Slide 32: History of Strong Organic Growth
History of Strong Organic Growth Organic Revenue Growth Rates(1) 12.0% 11.0% 10.0% 9.0% 7.9% 8.0% 7.0% 6.6% 6.0% 6.0% 4.8% 4.0% 2.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 (1) Parts and services only. 31
Slide 33: Q2 2017 Revenue Growth
Q2 2017 Revenue Growth Revenue Changes by Source: Foreign Organic Acquisition Exchange Total(1) North America 2.8% 2.9% (0.2)% 5.5% Europe 4.1% 10.0% (6.2)% 7.9% Specialty 5.9% 0.1% (0.5)% 5.5% Parts and Services 3.8% 5.1% (2.5)% 6.4% Other Revenue 11.4% 0.4% (0.2)% 11.6% Total 4.2% 4.9% (2.4)% 6.7%
Slide 34: Q2 2017 Operating Highlights
Q2 2017 Operating Highlights North America • Procurement initiatives provided $4.0 million of incremental QTD cost savings • Delivery route initiatives, including Roadnet, are ongoing • Continued to expand acreage for car holding and increased production which will allow us longer hold times of cars
Slide 35: 2017 Capital Allocation - Continuing operations
2017 Capital Allocation - Continuing operations $ in millions • Operating cash flows: - Increase driven primarily by higher cash earnings in YTD 2017 - $53M net cash outflow from operating assets and liabilities due mainly to an increase of $81M of receivables and an increase of $16M of inventory pa
Slide 36: Leverage & Liquidity
Leverage & Liquidity Total ($ in millions ) ($ in millions ) Capacity(1) 2.7x 2.5x Effective borrowing rate for Q2 2017 was 3.0% (1) Total capacity includes our term loans and revolving credit facilities (*) Net leverage per bank covenants is defined as Net Debt/EBITDA. See the definitions of Net De
Slide 37: Key Return Metrics
Key Return Metrics Return on Equity Return on Invested Capital* * Amortization of intangibles has been excluded from the calculation of Return on Invested Capital 36
Slide 38: Guidance 2017
Guidance 2017 (effective only on the date issued: July 27, 2017) Full Year 2016 Full Year 2017 ($ in millions excluding EPS) Actual Guidance(1) Organic Growth, Parts and Services 4.8% 4.0% - 5.25% Income- continuing operations $456 $515 - $540 Adjusted Income- continuing operations(2) $522 $570 - $5
Slide 39: 2017 Adjusted Diluted EPS Guidance Bridge
2017 Adjusted Diluted EPS Guidance Bridge* * Adjusted net income and adjusted diluted earnings per share are non-GAAP measures. See page 37 for reconciliation of forecasted adjusted net income from continuing operations and forecasted adjusted diluted earnings per share from continuing operations **
Slide 40: Why Invest in LKQ?
Why Invest in LKQ? Leading Positions Diversified Revenue Expanding Alternative Clear Solid Financial Metrics In Large Markets Stream Parts Usage Value Proposition • Largest participant in • Global balance with • Increasing availability • Insurers focused on • History of delivering each market served
Slide 41: Appendix 1 - Constant Currency Reconciliation
Appendix 1- Constant Currency Reconciliation • The following unaudited table reconciles consolidated revenue growth for Parts & Services to constant currency revenue growth for the same measure: Three Months Ended Six Months Ended June 30, 2017 June 30, 2017 Consolidate Consolidate d Europe d Europe
Slide 42: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Six Months Ended June 30* June 30* % of % of % of % of (in millions) 2017 revenue 2016 revenue 2017 revenue 2016 revenue Revenue North America $1,206.5 $1,137.4 $2,414.8 $2,218.2 Europe 889.8 824.2 1,710.7 1,371.0 Specialty 363.5
Slide 43: Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended Six Months Ended June June 30** 30** (in millions) 2017 2016 2017 2016 Net income $150.9 $142.8 $287.2 $255.0 Subtract: Income (Loss) from discontinued operations, net of tax — 5.0 (4.5) 5.0 Income from continu
Slide 44: Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3- Reconciliation of Net Income to EBITDA and Segment EBITDA We have presented EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our operating performance and the value of our business. We calcul
Slide 45: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income
Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from continuing operations Three Months Ended Six Months Ended June 30* June 30* (in millions, except per share data) 2017 2016 2017 2016 Net income $150.9 $142.8 $287.2 $255.0 Subtract: Income (Loss) from disc
Slide 46: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income
Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from continuing operations We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations as we believe these measures are useful for evaluating the core operating perf
Slide 47: Appendix 5 - Forecasted EPS reconciliation
Appendix 5 - Forecasted EPS reconciliation* For the year ending December 31, 2017 (in millions, except per share data) Minimum Guidance Maximum Guidance Income from continuing operations $515 $540 Adjustments: Amortization of acquired intangibles 93 93 Restructuring and acquisition related expenses