LKQ Corporation · NASDAQ:LKQ
LKQ — FY2023 Earnings Presentation
59 slides from LKQ's earnings presentation, February 2024
Slide 1: Fourth Quarter & Full Year 2023 Investor Presentation
Fourth Quarter & Full Year 2023 Investor Presentation
Slide 2: Forward Looking Statements & Non-GAAP Financial Measures
Forward Looking Statements & Non-GAAP Financial Measures 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
Slide 3: Our Mission
Our Mission To be the leading global value-added and sustainable distributor of vehicle parts and accessories by offering our customers the most comprehensive, available and cost-effective selection of parts and service solutions while building strong partnerships with our employees and the communit
Slide 4: GEAR forward provides a strong framework to define a clear strategic roadmap
To achieve this mission, GEAR forward provides a strong framework to define a clear strategic roadmap Grow Expand Adapt Rationalize Diversified Offerings Global Footprint To Evolving Technology Asset Base Grow offerings including Identify and analyze new Monitor megatrends, assess Examine current bu
Slide 5: What Binds the Generations together?
What Binds the Generations together? Development Leadership Excellence Integrity & trust Value-added Resourceful Embracing change Sustainability 5
Slide 6: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks
Slide 7: LKQ's Evolution
LKQ’s Evolution Wholesale Keystone/ Remanufactured Self Serve Europe-Sator Europe-Rhiag Services Uni-Select Salvage Paint US 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Aftermarket Refurbished Keystone/ Europe- Heavy Duty Europe-ECP Collis
Slide 8: Overview of LKQ
Overview of LKQ Company Overview Segment Overview Mechanical LKQ is a global distributor of vehicle products, including replacement parts, Recycled engines & transmissions components and systems used in repair and maintenance of vehicles, and specialty products and accessories to improve the p
Slide 9: We aligned our Financial Policy to Corporate Strategy
We aligned our Financial Policy to Corporate Strategy Operational Excellence (2019 – Future) North America & Specialty witnessed highest margins in the company’s history Strategy • Drive operational excellence throughout the enterprise Made permanent cost structure changes, while navigating the pand
Slide 10: Call to Action
Call to Action Profitable Enhanced Cash Flow Talent Growth Margins Generation Development Built on a foundation of Safety and Integrity 10
Slide 11: ESG Focus Areas
ESG Focus Areas Carbon Footprint Employee Talent & Recycling Engagement Development Diversity, Equity Sustainable Community & Inclusion Supply Chain Support 11
Slide 12: Our Sustainability Goals
Our Sustainability Goals Our Our People — Environment: Employee Engagement: 30% By 2030, reduce global Scope 1 & 73% Scope 2 emissions by 30% compared By 2025, achieve 73% participation in to the 2021 baseline relative to our employee engagement survey & revenue. overall engagement score of 76. Net
Slide 13: 2023 Revenue
2023 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Foreign Organic Divestiture Exchange Total(1) Wholesale - North America 8.2% 10.3% (0.2)% 18.2% Europe 6.9% 1.3% 2.1% 10.4% Specialty (10.1)% 3.6% (0.3)% (6.9)% Self Service 2.4% —% —% 2.4% Parts and Services 4.7% 4.8% 0.9
Slide 14: 2023 Capital Allocation
2023 Capital Allocation ($ in millions) $299 $(302) $(38) $(76) Operating cash flows: • Operating cash flows of $1,356 million represent an 8%, or $106 million, increase year over year primarily driven by improved inventory management in our Europe segment and higher purchasing levels in the prior p
Slide 15: Annual Free Cash Flow Generation
Annual Free Cash Flow Generation 120% $1,600 $1,444 110% Free Cash Flow(1) $1,367 $1,356 $1,400 Operating Cash Flow $1,271 100% $1,250 2022 FCF / Adjusted EBITDA(1) 98% $1,200 90% $1,064 $1,074 $1,028 $998 $1,000 80% $798 70% $800 $711 66% 60% 60% 60% 59% $600 $461 50% $400 40% 41% $200 30% 20% $0 2
Slide 16: Leverage & Liquidity
Leverage & Liquidity ($ in millions) ($ in millions) Total Capacity(1) $4,281 $3,150 $2,662 $2,500 $2,500 2.3x 1.5x (4) (2) Effective borrowing rate for Q4 2023 was 5.8%(3) (1) Total capacity includes our senior secured and unsecured credit facilities (revolver and term loan) (2) Total leverage per
Slide 17: Liquidity as of December 31, 2023
Liquidity as of December 31, 2023 • Rated Baa3 (investment grade) by Moody's; Outlook Neutral Credit Rating • Rated BBB- (investment grade) by S&P Global Ratings; Outlook Neutral • Rated BBB- (investment grade) by Fitch; Outlook Positive • Fixed Rate Instruments: ◦ $1.4 billion in aggregate ($800 mi
Slide 18: Outlook 2024
Outlook 2024(1) (effective only on the date issued: February 22, 2024) Full Year 2024 Outlook Organic parts and services revenue growth 3.5% to 5.5% Diluted EPS(2) $3.43 to $3.73 Adjusted Diluted EPS(2)(3) $3.90 to $4.20 Operating cash flow $1.35 billion Free cash flow(4) $1.0 billion Free cash flow
Slide 19: 2024 Adjusted EPS Guidance Walk
(1) 2024 Adjusted EPS Guidance Walk (2) $4.05 Operational improvements and post-acquisition synergies to drive solid growth in 2024 despite continued headwinds related to commodities pricing (1) Adjusted Diluted EPS is a non-GAAP measure. Refer to Appendix 5 for reconciliation of forecasted Adjusted
Slide 20: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks
Slide 21: LKQ's Operating Segments Demonstrate Attractive Growth and Margin Profiles
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview Wholesale - North America 0.9% (13.7%) 5.8% 11.4% 8.2% Collision 17.6% 18.7% 18.5% Aftermarket automotive products 16.5% 14.2% Recycled & Refurbished Mechanical Recycled engines &
Slide 22: LKQ's Operating Segments Demonstrate Attractive Growth and Margin Profiles
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview Specialty (0.7%) 3.0% 20.2% (9.9%) (10.1%) • Performance products 11.0% 12.0% 11.1% 10.8% • Appearance & accessories 8.0% • RV, trailer & other • Specialty wheels & tires • Marine 2019 2020
Slide 23: A North American leader for Alternative Parts, Recycled OEM, Remanufacturing
A North American leader for Alternative Parts, Recycled OEM, Remanufacturing, & Diagnostics Services 2023 Revenue: $5.3 billion | 2023 Segment EBITDA Margin: 18.5% | ~16k Employees | 555 Locations What we do… Aftermarket Recycled OEM • Aftermarket collision repair • 250k vehicles / 5 M parts parts •
Slide 24: LKQ Wins Through Scale, Strong Value Proposition, & Strategic Partnerships
LKQ Wins Through Scale, Strong Value Proposition, & Strategic Partnerships Extensive distribution network Value proposition 2014 GMC 2014 Ford F-150 2018 Nissan Altima Sierra 1500 95% of customers delivered Hood Headlamp Transmission by LKQ’s fleet (over 4,000 vehicles) New OEM $1,050 $471 $3,193 Re
Slide 25: Key Market Trends Create Opportunities for Growth
Key Market Trends Create Opportunities for Growth Trend Opportunity Trend Opportunity NiMH Battery Vehicle Electrification Reconditioning Vehicle Technology Remote | Mobile Services & Installation 8+ yrs of age US BEV VIO in M US Market for Diagnostics, Calibration & Complex Sublet Repairs in $Bn 1.
Slide 26: LKQ Europe
LKQ Europe 2023 Revenue: $6.3 billion | 2023 Segment EBITDA Margin: 9.7% | ~29k Employees | 20+ Countries Key Facts UK & ROI Ranking in Europe #1 Netherlands, Belgium and France Italy Countries 20+ DACH Branches 900+ Central and Eastern Europe Scandinavia Franchise Workshops 7,900 Independent Worksh
Slide 27: LKQ Europe
LKQ Europe Strengths of LKQ Europe Product Range Brakes Electrics & Electronics Collision & Cooling Improved synergies Strengthened market position Accessories, Engine Chassis Chemicals & Lubricants Performance & Leisure Multicultural teams Pooled strengths We speak over 20 Languages One team Tools
Slide 28: Electrification of Parts
Electrification of Parts New Categories of Service Parts For Electrified Vehicles Price Premium Multiple Range Nickel Metal Hydride of Hybrid to ICE Components Battery Remanufacturing Electric Battery Electric Turbo Electric Main Coolant Pump Chargers Coolant Pump 7.0x 6.0x Electric A/C Electric Mot
Slide 29: Specialty Overview
Specialty Overview 2023 Revenue ~$1.7 billion | 2023 Segment EBITDA Margin 8.0% | 2,600+ Employees Key Facts Customers: 19,000+ Suppliers: 1,250+ Stocking SKUs: 150,000+ 8 DCs 35 Cross Docks Locations 8 Call Centers 3 Manufacturing • Distributor in Specialty Aftermarket #1 • Distributor in RV Afterm
Slide 30: LKQ's Self Service segment has the largest national footprint
LKQ’s Self Service segment has the largest national footprint with opportunity for continued growth 2023 Revenue: $597 million | 2023 Segment EBITDA Margin: 6.0% | ~1,750 Employees | 65 Locations Self Serve Statistics Competition Vehicles procured 491K National • Schnitzer Scrap (tons) 733K • Nucor
Slide 31: LKQ's Acquisition Philosophies
LKQ’s Acquisition Philosophies Markets where we Financial returns can be #1 or #2 • IRR (mid-teens over 10 years) • ROIC (10 years’ average >10%) Strong and experienced management Criteria in existing markets • “Tuck in” companies • High synergies • Additional capacity Opportunities for gr
Slide 32: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks
Slide 33: LKQ's Plan to Drive Shareholder Value
LKQ’s Plan to Drive Shareholder Value Expansion into new markets mostly complete Enhanced European Euro Car Parts (United Kingdom & ROI) simplification Sator (Benelux & France) through Rhiag (Italy & 9 other European countries) “1 LKQ Europe” Stahlgruber (Germany & Eastern Europe) Plan t
Slide 34: 1 LKQ Europe
1 LKQ Europe The Leading Auto Service System by 2030 • Grow at +2% • Great brands above market • Leading assortment • Double digit • World class logistics Segment EBITDA margin • Digital solutions • Pan-european network • Planet • Auto parts • People • Leisure & accessories • Communities • Auto recy
Slide 35: Leading Brands and Multiple Levers to Drive Strong Specialty Growth
Leading Brands and Multiple Levers to Drive Strong Specialty Growth Key Initiatives A Great Stable of Brands • Favorable collision tailwinds New • Expansion of product offerings Product Lines • Monitoring opportunity of ADAS and EV • New customers (Jobbers, Dealers, Retailers, Installers), New exist
Slide 36: Financial Policy to Enhance Shareholder Value
Financial Policy to Enhance Shareholder Value • Target organic growth greater than market comps Focus on Free • Achieve 1 LKQ Europe program and maintain strong NA margins Cash Flow Generation • Convert high levels of Adjusted EBITDA to Free Cash Flow (“FCF”) with a focus on trade working capital ef
Slide 37: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Leadership Team & Board with Strong Governance Practices Concluding Remarks
Slide 38: Corporate Governance Highlights
Corporate Governance Highlights Independent • LKQ is governed by 9-member board of directors, 7 of whom are independent directors under NASDAQ guidelines Leadership & Oversight • Separate Chairman / CEO roles Continued Focus • Ongoing process to refresh and strengthen board composition with sharehol
Slide 39: Experienced Management Team
Experienced Management Team Became President, CEO & Director of the Company in Jun 2017 & previously served as its EVP & CFO from Mar 2015 to May 2017 Dominick Zarcone Prior to joining the Company, he served as an MD & the CFO of Baird Financial Group from Apr 2011 to Mar 2015 & as SVP of Investment
Slide 40: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Treasury/ Risk Capital Finance/ Government Human Capital Europe / Supply Executive Automotive Digital Corporate Assessment Investor Director Operations Allocation/ Accounting/ Relations/ Management/ Other Chain/ Leadership Industr
Slide 41: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Years on Photo Name Age Relevant Experience Key Skills Independent Board Unparalleled knowledge of LKQ business Joseph Holsten 25 71 Former CEO and Chairman of LKQ and industry Dominick Zarcone 7 65 President and CEO Extensive fin
Slide 42: LKQ Performance-Based Compensation Practices
LKQ Performance-Based Compensation Practices • The Compensation Committee of LKQ’s board carefully considers the most effective ways to motivate and incentivize management to accomplish specific strategic goals • Objective, tailored metrics with challenging performance targets are chosen annually to
Slide 43: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks
Slide 44: What LKQ Offers Investors
What LKQ Offers Investors 01 Market leading position in almost everything we do 02 The broadest product line amongst automotive parts distributors • Mechanical • Collision • Accessories • Services 03 The broadest geographic coverage amongst automotive parts distributors • United States • Canada • Eu
Slide 45: Supplementary Information
Supplementary Information
Slide 46: Metals Prices & Foreign Exchange
Metals Prices & Foreign Exchange Q4 2023 vs Q4 2022 Segment EBITDA Impact Wholesale - North ($ in millions) Self Service America Total Scrap Steel $7 $4 $11 Precious Metals $(13) $(10) $(23) Total $(6) $(6) $(12) 2023 vs 2022 Segment EBITDA Impact Wholesale - North ($ in millions) Self Service Ameri
Slide 47: Inventory Procurement
Inventory Procurement ($ in millions, vehicles purchased in 000s) Q4 Fiscal Year 2023 2022 % Change 2023 2022 % Change Total aftermarket procurement $1,760 $1,328 32.5% $6,399 $5,974 7.1% Wholesale - North America salvage vehicles 69 58 19.0% 258 246 4.9% Europe wholesale salvage vehicles 7 6 16.7%
Slide 48: Appendix: Non-GAAP Financial Measures
Appendix Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Following are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP. 48
Slide 49: Constant Currency Reconciliation
Appendix 1 Constant Currency Reconciliation The following unaudited table reconciles revenue and revenue growth for parts & services and total revenue to constant currency revenue and revenue growth for the same measures: Three Months Ended Year Ended December 31, 2023 December 31, 2023 (in millions
Slide 50: Constant Currency Reconciliation (cont.)
Appendix 1(cont.) Constant Currency Reconciliation Three Months Ended Year Ended December 31, 2023 December 31, 2023 Consolidated Europe Consolidated Europe Parts & Services Revenue growth as reported 18.7% 11.3% 10.4% 10.4% Less: Currency impact 2.7% 5.6% 0.9% 2.1% Revenue growth at constant curren
Slide 51: Revenue and Segment EBITDA by segment
Appendix 2 Revenue and Segment EBITDA by segment Three Months Ended December 31 Year Ended December 31 (in millions) 2023 % of revenue 2022 % of revenue 2023 % of revenue 2022 % of revenue Revenue Wholesale - North America $1,467 $1,102 $5,282 $4,556 Europe 1,546 1,390 6,323 5,735 Specialty 371 365
Slide 52: Reconciliation of Net Income to Segment EBITDA
Appendix 3 Reconciliation of Net Income to Segment EBITDA Three Months Ended December 31 Year Ended December 31 (in millions) 2023 2022 2023 2022 Net income $178 $195 $938 $1,150 Less: net income attributable to continuing noncontrolling interest 1 1 2 1 Net income attributable to LKQ stockholders $
Slide 53: Segment EBITDA Reconciliation
Appendix 3 Segment EBITDA Reconciliation We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. Refer to p
Slide 54: Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS
Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations Attributable to LKQ Stockholders Three Months Ended December 31 Year Ended December 31 (in millions, except per share data) 2023 2022 2023 2022 Net income $178 $195 $938 $1,150
Slide 55: Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS
Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations Attributable to LKQ Stockholders We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as we
Slide 56: Forecasted EPS Reconciliation
Appendix 5 Forecasted EPS Reconciliation Forecasted Fiscal Year 2024 (in millions, except per share data) Minimum Outlook Maximum Outlook Net income from continuing operations attributable to LKQ stockholders $918 $998 Adjustments: Amortization of acquired intangibles 144 144 Restructuring and trans
Slide 57: Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 6 Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow and Net Income to Adjusted EBITDA Year Ended December 31 (in millions) 2023 2022 2021 Net cash provided by operating activities $1,356 $1,250 $1,367 Less: purchases of property, plant and equipment 358 222 293
Slide 58: Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Net Income to Adjusted EBITDA We have presented free cash flow solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our l
Slide 59: LKQ
LKQ