Slide 1: Second Quarter 2019 Earnings Call
Second Quarter 2019 Earnings Call July 25, 2019 Nick Zarcone – President & Chief Executive Officer Varun Laroyia – Executive Vice President & Chief Financial Officer Joe Boutross – Vice President, Investor Relations
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
Forward Looking Statements and 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 A
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: Q2 2019 Key Takeaways
Q2 2019 Key Takeaways • Total revenue growth of 7.2% driven by Stahlgruber acquisition(1); organic parts and services revenue declined 2.1% (1.3% on a per day basis) ◦ Soft European macroeconomic conditions weighing on revenue comparisons ◦ Automotive aftermarket and salvage operations were up 0.7%
Slide 5: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q2 2019 Revenue(1) YTD 2019 Revenue(1) $6,348 $3,400 $6,400 $3,248 $3,200 $6,000 $5,752 $3,031 $3,000 $5,600 % .4% $2,800 7.2 $5,200 10 $2,600 $4,800 $2,400 $4,400 $2,200 $4,000 Q2 2018 Q2 2019 YTD 2018 YTD 2019 • Organic revenue decline for parts and ser
Slide 6: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q2 2019 EPS(1) YTD 2019 EPS(1) $0.65 $0.65 $1.10 $0.65 $1.30 $0.61 $0.99 $1.21 $1.00 $1.20 $1.16 $0.55 $0.55 $0.50 $0.90 $1.10 $0.48 % % 6.6 $0.79 4.3 $0.45 $0.80 $0.45 $1.00 (4 (2 .0 $0.70 0. %) 2% $0.90 ) $0.35 $0.35 $0.60 $0.80 $0.25 $0.50 $0.25 $0.70
Slide 7: Q2 2019 Revenue Growth
Q2 2019 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America (0.4)% 0.6% (0.2)% 0.0% Europe (4.3)% 27.7% (5.3)% 18.0% Specialty 0.1% —% (0.4)% (0.3)% Parts and Services (2.1)% 12.6% (2.5)% 8.0% Other Revenue (8.4)% 1.6% (0.2)% (7.0)% Total (2.4)% 12.0
Slide 8: YTD 2019 Revenue Growth
YTD 2019 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America (0.9)% 0.4% (0.3)% (0.7)% Europe (1.8)% 35.4% (6.2)% 27.4% Specialty 0.5% —% (0.4)% 0.1% Parts and Services (1.1)% 15.3% (2.8)% 11.4% Other Revenue (7.5)% 1.3% (0.3)% (6.4)% Total (1.4)% 14
Slide 9: Q2 2019 Operating Highlights
Q2 2019 Operating Highlights North America • Pricing initiatives driving gross margin favorability • Proactive spending controls to offset inflationary pressures • Operational emphasis on working capital yielding strong results • NSF announced the exit of certification - inventory in stock still app
Slide 10: Inventory
Inventory Inventory Procurement: Q2 YTD ($ in millions, Vehicles purchased in 000s) 2019 2018 % Change 2019 2018 % Change Total aftermarket procurement $1,614 $1,487 8.5% $3,139 $2,787 12.6% Wholesale salvage cars and trucks 78 83 (6.0)% 152 156 (2.6)% Europe wholesale salvage cars and trucks 6 7 (1
Slide 11: Financial Results
Corporation Financial Results
Slide 12: Operating Results - Continuing Operations
Operating Results - Continuing Operations Second Quarter YTD ($ in millions,except per share data) 2019 2018 Change 2019 2018 Change Revenue $3,248 $3,031 7.2% $6,348 $5,752 10.4% Gross Margin 1,247 1,162 7.3% 2,455 2,216 10.8% Operating Income 236 257 (8.1)% 459 483 (5.1)% Pre-tax Income 206 218 (5
Slide 13: Q2 2019 Consolidated Margins - Continuing Operations
Q2 2019 Consolidated Margins - Continuing Operations Q2 Q2 Change (as a % of Revenue) 2019 2018 F/(U) Q2 Commentary Revenue 100.0% 100.0% —% Increased due to our North America segment; partially offset by a negative mix impact primarily from the Gross Margin 38.4% 38.3% 0.1% growth of Europe, which
Slide 14: YTD 2019 Consolidated Margins - Continuing Operations
YTD 2019 Consolidated Margins - Continuing Operations YTD YTD Change (as a % of Revenue) 2019 2018 F/(U) YTD Commentary Revenue 100.0% 100.0% —% Increased due to our North America and Europe segments; increase was partially offset by a negative mix Gross Margin 38.7% 38.5% 0.2% impact primarily from
Slide 15: Components of Revenue
Components of Revenue $3.25B $3.03B $6.35B $5.75B 100.0% 5.0% 5.7% 4.9% 5.8% 12.6% 12.0% 13.3% 13.6% • North America historically has the 80.0% highest gross margins and EBITDA margins relative to the other segments 60.0% 46.5% 42.2% 46.5% 40.3% • Increase in Q2 and YTD 2019 revenue as a percentage
Slide 16: North America – Q2 2019 Results
North America – Q2 2019 Results % of Revenue Gross Margin ($ in millions) 2019 2018 Change 2019 2018 Total Revenue $1,322 $1,335 (1.0)% 45.0% 44.2% 44.1% Gross Margin $583 $575 1.3% 44.1% 43.1% 44.0% 43.5% 43.3% 43.1% Operating Expenses $398 $402 (1.2)% 30.1% 30.1% 43.0% 43.2% Other Income, net $3 $
Slide 17: North America – YTD 2019 Results
North America – YTD 2019 Results % of Revenue ($ in millions) 2019 2018 Change 2019 2018 Total Revenue $2,624 $2,665 (1.5)% Gross Margin $1,158 $1,151 0.7% 44.1% 43.2% Operating Expenses $805 $805 0.0% 30.7% 30.2% Other Income, net $11 $5 Segment EBITDA(1) $367 $353 4.0% 14.0% 13.2% (1) Segment EBIT
Slide 18: Scrap Steel Prices
Scrap Steel Prices Q2 YOY scrap steel prices down 28% $225 • Average price realized for scrap steel decreased by 28% from $199 $199 per ton in Q2 2018 to $144 per $200 ton in Q2 2019 $197 • Sequential change was negative $175 $168 $6 per ton, or down 4.0% $164 • Changes in scrap steel prices had $15
Slide 19: Europe – Q2 2019 Results
Europe – Q2 2019 Results % of Revenue Gross Margin ($ in millions) 2019 2018 Change 2019 2018 Total Revenue $1,516 $1,284 18.1% 38.0% Gross Margin $545 $462 18.1% 36.0% 36.0% Operating Expenses $433 $354 22.3% 28.6% 27.6% 37.0% 36.7% 36.8% Other Income, net $2 $(2) 36.6% 36.0% 36.0% 36.0% Segment EB
Slide 20: Europe – YTD 2019 Results
Europe – YTD 2019 Results % of Revenue ($ in millions) 2019 2018 Change 2019 2018 Total Revenue $2,962 $2,325 27.4% Gross Margin $1,078 $835 29.1% 36.4% 35.9% Operating Expenses $859 $654 31.3% 29.0% 28.1% Other Income, net $(2) $(3) Segment EBITDA(1) $222 $186 18.9% 7.5% 8.0% (1) Segment EBITDA is
Slide 21: Foreign Exchange
Foreign Exchange $1.45 • £ down 5.5% Q2 2019 vs Q2 2018 GBP • € down 5.8% Q2 2019 vs Q2 2018 $1.40 $1.39 5.5% $1.36 • $68 million unfavorable impact of $1.35 translation of weaker Q2 rates relative to the US dollar on $1.30 $1.30 Europe parts and services $1.30 $1.29 $1.29 revenue growth $1.25 $1.23
Slide 22: Specialty – Q2 2019 Results
Specialty – Q2 2019 Results Gross Margin % of Revenue ($ in millions) 2019 2018 Change 2019 2018 Total Revenue $412 $413 (0.3)% 31.0% 30.2% 30.0% Gross Margin $119 $125 (4.7)% 28.9% 30.2% 28.9% 29.0% 28.4% 29.0% 28.6% Operating Expenses $68 $69 (2.6)% 16.4% 16.8% 27.0% Other Income, net $0 $(0) 8 8
Slide 23: Specialty – YTD 2019 Results
Specialty – YTD 2019 Results % of Revenue ($ in millions) 2019 2018 Change 2019 2018 Total Revenue $765 $765 0.1% Gross Margin $219 $230 (4.7)% 28.7% 30.1% Operating Expenses $131 $134 (2.2)% 17.1% 17.5% Other Income, net $1 $0 Segment EBITDA(1) $90 $98 (7.9)% 11.8% 12.8% (1) Segment EBITDA is a non
Slide 24: 2019 Capital Allocation
2019 Capital Allocation $ in millions $1,200 $638 $1,000 $800 $(101) $600 $(281) $381 $400 $337 $(191) $(15) $(6) $200 $0 Beginning Cash Operating Cash Capex Net Repayments of Share Acquisitions, Other Financing, Ending Cash and Restricted Flows Credit Facilities Repurchases net of cash Investing an
Slide 25: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,500 $4,348 $4,000 $332 $4,086 $4,000 $3,500 $3,496 $4,016 $376 $3,500 $3,710 $3,500 $3,000 $3,000 $1,698 $2,500 $1,853 $2,500 $2,000 $2,000 $65 $69 2.9x $1,500 $1,500 2.8x $1,000 $1,000 $1,737 $1,574 $500 $500 $0 $0 December
Slide 26: Return on Invested Capital
Return on Invested Capital Return on Invested Capital(1) 12.0% 10.8% 10.9% 10.0% 9.8% 9.7% 9.7% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2014 2015 2016 2017 2018 TTM Q2 2019 ² ³ (1) Amortization of acquired intangibles and lease obligations have been excluded from the calculation of Return on Invested Capital
Slide 27: Guidance 2019
Guidance 2019 (effective only on the date issued: July 25, 2019) Full Year 2018 Full Year 2019 ($ in millions excluding EPS) Actual Guidance(1)(2) Organic Growth, Parts and Services 4.4% 0.5% - 2.0% Net Income attributable to LKQ stockholders $485 $540 - $565 Adjusted Net Income attributable to LKQ
Slide 28: 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 28
Slide 29: 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. 29
Slide 30: 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, 2019 June 30, 2019 Consolidated Europe Consolidated Europe
Slide 31: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Six Months Ended June 30(1) June 30(1) % of % of % of % of (in millions) 2019 revenue 2018 revenue 2019 revenue 2018 revenue Revenue North America $1,322 $1,335 $2,624 $2,665 Europe 1,516 1,284 2,962 2,325 Specialty 412 413 765 76
Slide 32: 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 June 30(1) Six Months Ended June 30(1) (in millions) 2019 2018 2019 2018 Net income $152 $158 $251 $311 Subtract: Net income attributable to continuing noncontrolling interest 1 1 2 1 Net income attributable to
Slide 33: Appendix 3 - EBITDA and Segment EBITDA Reconciliation
Appendix 3 - EBITDA and Segment EBITDA Reconciliation 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 calculate EBITDA as ne
Slide 34: 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(1) June 30(1) (in millions, except per share data) 2019 2018 2019 2018 Net income $152 $158 $251 $311 Subtract: Net income attributable to
Slide 35: 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 Attributable to LKQ Stockholders as we believe these measures are useful for e
Slide 36: Appendix 5 - Forecasted EPS Reconciliation
(1) Appendix 5 - Forecasted EPS Reconciliation For the year ending December 31, 2019 (in millions, except per share data) Minimum Guidance Maximum Guidance Net income from continuing operations attributable to LKQ stockholders $540 $565 Adjustments: Amortization of acquired intangibles 125 125 Restr
Slide 37: Appendix 6 - Reconciliation 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 Three Months Ended Six Months Ended June 30(1) June 30(1) (in millions) 2019 2018 2019 2018 Net cash provided by operating activities $461 $184 $638 $329 Less: purchases of property, plant and equipment 48 53