LKQ Corporation · NASDAQ:LKQ
LKQ — Investor Presentation (August 2020)
52 slides from LKQ's investor presentation, Aug 26, 2020
Slide 1: Investor Presentation August 2020
Investor Presentation August 2020
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: 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 4
Slide 5: Overview of LKQ
Overview of LKQ Company Overview Financial Performance LKQ is a global distributor of vehicle products, including Revenue ($mm) replacement parts, components and systems used in repair and maintenance of vehicles and specialty products and accessories Organic 7.0% 4.8% 4.1% 0.3% Growth(1) 4.4% (10
Slide 6: Over 16 years of growth
Over 16 years of growth Wholesale Keystone/ Remanufactured Self Serve Europe‐Sator Europe‐Rhiag Salvage Paint US 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Aftermarket Refurbished Keystone/ Europe – Heavy Duty Europe‐ECP Services Collision Wheels Specialty S
Slide 7: Cost Structure Actions
Cost Structure Actions Opex quarterly run rate** Key cost reductions • Personnel costs down 24% – Headcount actions totaling ~17K FTEs include furlough, RIFs, decreased hours, elimination of overtime, temp workers and Opex 18% hiring freeze; leveraging European government programs Other Revenue 12%
Slide 8: Liquidity as of June 30, 2020
Liquidity as of June 30, 2020 Credit Rating • Rated Ba2 / BB by Moody’s and S&P, respectively • Fixed Interest Rate Bonds: €1,500 million ($1,685 million) • Variable Interest Rate Bank Debt: $1,471 million ($939 million hedged to fixed rates) Debt Structure • Receivables Securitization Facility: $0
Slide 9: 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 9
Slide 10: Significant Market Opportunity for LKQ in the US and Europe
Significant Market Opportunity for LKQ in the US and Europe US and Europe Market Opportunity (1,2,3) Automotive Repair Market US: $243 Europe: €198 Do It For Me (DIFM) DIY US: $194 Europe: €188 US: $49 EU: €10 Retail Collision Mechanical Price US: $46 Europe: €30 US: $148 Europe: €158 Parts & Collis
Slide 11: Aging Vehicles Coupled with Increasing Complexity and Cost of Repairs
Aging Vehicles Coupled with Increasing Complexity and Cost of Repairs Contribute to Growth Opportunities United States Vehicles in Operation (between 3‐10 years old) (in millions) 121 119 118 117 118 114 112 108 106 103 101 101 101 103 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Slide 12: Clear Value Proposition
Clear Value Proposition 2013 Honda Accord 2012 Toyota Corolla 2014 Chevrolet Silverado Hood Headlamp Transmission New OEM $644 $226 $3,193 Remanufactured N/A $193 $2,498 Recycled OEM $337 $91 $1,507 New A/M $548 $193 N/A Competitor $441(1) $192 $2,100(2) Average Savings 31% 30% 37% …and Improved Cyc
Slide 13: Collision Products, a $17 Billion Industry in the US
Collision Products, a $17 Billion Industry in the US Insurance Companies (Indirect Customers) New OEM Manufacturers Repair Shop 61% Refurbished & Recycled OEM Optional OE 11% Aftermarket Products 21% 7% Alternative parts = 39% of parts costs Source: CCC Information Services – Crash Course 2019. 13
Slide 14: Regional Distribution Improves Fulfilment
Regional Distribution Improves Fulfilment Highly fragmented space X York 20X size of next competitor Consistent nationwide coverage Norfolk and warranty Bristol Greensboro Raleigh Strong management team Nashville Knoxville Salisbury LaGrange Jackson Duncan X Charlotte Manchester Strong log
Slide 15: Growing European Market with Aging Fleet
Growing European Market with Aging Fleet Europe Total Vehicles in Operation Expected Organic Growth for LKQ Europe 2020 — 2025 CAGR (in millions) 358 364 370 376 334 340 346 352 310 315 321 327 299 304 2.5% 1.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 LKQ Europe Footpri
Slide 16: LKQ's Business Model Supports Sustainable Growth in all Macro Environments
LKQ’s Business Model Supports Sustainable Growth in all Macro Environments Select North American Brands Select European Brands Non‐Discretionary Niche and Fragmented Markets High Industry Leading Fulfillment Management Rates Attractive Operating Leverage Adjacent and Synergy Markets Opportunities Su
Slide 17: LKQ's Operating Segments Demonstrate Attractive Growth and Margin Profiles
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview Collision 5.6% 2.9% 3.0% 5.7% 0.9% (13.4%) Aftermarket automotive products North America $4,800 $5,183 $5,209 Automotive glass distribution $4,119 $4,445 Recycled & Refurbished $2,3
Slide 18: Overview of Consolidated Financial Performance
Overview of Consolidated Financial Performance (2) Revenue Segment EBITDA ($ in millions) ($ in millions) EBITDA Margin 11.9% 11.7% 11.5% 10.5% 10.6% 10.9% $12,506 $11,877 $1,251 $1,328 $9,737 $1,117 $8,584 $1,005 $7,193 $855 $5,627 $613 2015 2016 2017 2018 2019 YTD 2020 2015 2016 2017 2018 2019 YTD
Slide 19: Q2 2020 Revenue
Q2 2020 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Foreign Organic Divestiture Exchange Total(1) North America (22.5)% (0.6)% (0.2)% (23.4)% Europe (16.6)% (0.7)% (2.9)% (20.2)% Specialty (1.4)% 0.3% (0.4)% (1.5)% Parts and Services (16.8)% (0.5)% (1.5)% (18.9)% Other R
Slide 20: North America - Q2 2020 Results
North America‐ Q2 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $1,011 $1,322 (23.5)% Gross Margin $454 $583 (22.1)% 44.9% 44.1% Adjusted Gross Margin* $457 $583 (21.6)% 45.2% 44.1% Operating Expenses $317 $398 20.4% 31.3% 30.1% Other Income, n
Slide 21: Europe - Q2 2020 Results
Europe‐ Q2 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $1,211 $1,516 (20.1)% Gross Margin $445 $545 (18.4)% 36.8% 36.0% Adjusted Gross Margin* $448 $545 (17.9)% 37.0% 36.0% Operating Expenses $360 $433 16.8% 29.7% 28.6% Other Income, net $0 $
Slide 22: Specialty - Q2 2020 Results
Specialty‐ Q2 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $405 $412 (1.6)% Gross Margin $112 $119 (5.9)% 27.7% 28.9% Operating Expenses $61 $68 10.5% 14.9% 16.4% Segment EBITDA(1) $52 $52 (0.3)% 12.9% 12.7% (1) Segment EBITDA for each respect
Slide 23: Free Cash Flow
Free Cash Flow* $ in millions 136% 66% $544 42% 45% 39% 31% Note: FCF amounts only include FCF generated by continuing operations * Free Cash Flow is a non‐GAAP measure. Refer to Appendix 5 for Free Cash Flow reconciliation ** EBITDA is a non‐GAAP measure. Refer to Appendix 3 for EBITDA reconciliati
Slide 24: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,072 $3,491 $3,482 $3,278 2.6x 2.2x Effective borrowing rate for Q2 2020 was 2.8% (3) (1) Total capacity includes our term loans and revolving credit facilities 24 (2) Net leverage per bank covenants is defined as Net Debt/EB
Slide 25: Net Leverage Trend
Net Leverage Trend Net Debt/EBITDA(1) • Maximum net leverage ratio of 5.00x for Q2 2020 through Q1 2021, 4.50x for Q2 2021, 4.25x for Q3 2021, and 3.1x 4.00x for Q4 2021 through the maturity of the credit facility 3.0x 2.9x 2.9x • Net Debt/EBITDA increased in Q2 2018 due to the Stahlgruber 2.8x acqu
Slide 26: LKQ Investment Highlights
LKQ Investment Highlights Leading Positions In Diversified Revenue Expanding Alternative Clear Solid Financial Metrics Large Markets Stream Parts Usage Value Proposition Largest participant in Global balance with Increasing availability Insurers focused on History of delivering each market
Slide 27: 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 27
Slide 28: LKQ's Plan to Drive Shareholder Value
LKQ’s Plan to Drive Shareholder Value Expansion into new markets mostly complete Euro Car Parts (United Kingdom & ROI) Enhanced European Sator (Benelux & France) simplification through “1 LKQ Europe” Rhiag (Italy & 9 other European countries) Stahlgruber (Germany & Eastern Europe) Plan t
Slide 29: 1 LKQ Europe: Simplification & Integration of EU Operations
1 LKQ Europe: Simplification & Integration of EU Operations Maintain Strong 21 Different Unchanged Customer …In the Hands of Local Entrepreneurial Countries Experience… Managers Culture 29 ERP 50 Customer Systems Portals 24 Financial Systems 1 Transformation 90 Private Label 15 E‐mail Brands Systems
Slide 30: 1 LKQ Europe: Benefits from LKQ Europe Initiatives
1 LKQ Europe: Benefits from LKQ Europe Initiatives LKQ is uniquely positioned to leverage its scale and capabilities in Europe Private Revenue Procurement ERP Label Optimization Revenue Impact Complexity Reduction Cost Reduction Customer Value Leveraging LKQ Scale Positive Impact Minimal Impact 30
Slide 31: Multiple Levers to Drive North American Results
Multiple Levers to Drive North American Results Key Initiatives A Great Stable of Brands Favorable collision tailwinds Collision & Mechanical Organic Expansion of product offerings Revenue Growth Monitoring opportunity of ADAS and EV Aftermarket Salvage Glass Paint (PBE) Further optimizing a
Slide 32: Efficient & Scalable Salvage Procurement
Efficient & Scalable Salvage Procurement Auction Bid & Selection Sub‐Optimal LKQ Parts Proprietary Sub‐Optimal Vehicle Bidding System Optimal Vehicle Salvage auction cars are loaded BID‐X into bid database Optimal Vehicle Validation through Automated by LKQ Established Vehicle VIN Parts Databases De
Slide 33: 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 New product lines through the same distribution (target $25M/year) New Product Lines New products within existing lines New services New customers (Jobbers, Dealers, Retailers, Instal
Slide 34: Specialty Segment has Competitive Advantages
Specialty Segment has Competitive Advantages Competitive Advantage Commentary North America – best coverage, next day Late cut off times, 99.9% fill rate Logistics Network Big & Bulky items Company Fleet and Drivers (560 Cube Vans, 90 TT) Best e‐tailer service option Biggest ($320M)
Slide 35: Strong Track Record of Delevering
Strong Track Record of Delevering Net Debt / EBITDA Over Time(1) $660 $250 $1,150 PGW/ Warn Industries $1,380 Rhiag 2.9x STAHLGRUBER 2.7x 2.7x 2.6x $470 $400 Keystone Euro Car 2.2x $270 Specialty Parts 2.0x 2.0x 1.9x Sator 1.7x 1.7x 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q2 2020 Represents siz
Slide 36: 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 36
Slide 37: Corporate Governance Highlights
Corporate Governance Highlights Independent LKQ is governed by 11‐member board of directors, 9 of whom are independent directors under NASDAQ Leadership & guidelines Oversight Separate Chairman / CEO roles Ongoing process to refresh and strengthen board composition with shareholder input; 5 ne
Slide 38: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Treasury/ Capital Human Risk Allocation/ Finance/ Government Capital Europe / Supply Assessment Executive Automotive Digital Corporate Accounting/ Relations/ Management/ Corporate Other Chain/ and Investor Director Leadership Indu
Slide 39: 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 Primary Occupation Key Skills Independent Board Unparalleled knowledge of LKQ business and Joseph Holsten 16 66 Chairman of the Board industry Dominick Zarcone 2 60 President and CEO Extensive finance e
Slide 40: LKQ's Performance-Based Compensation Practices
LKQ’s 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
Slide 41: 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 41
Slide 42: LKQ's Management and Board are Executing on a Strategy That is Delivering Shareholder Value
LKQ's Management and Board are Executing on a Strategy That is Delivering Shareholder Value • COVID‐19 Pandemic Impact on Operations ◦ Efforts by governments to flatten the infection curve had a negative impact on mobility and miles driven ◦ Revenue impact through June 2020 has not been as significa
Slide 43: 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.
Slide 44: Appendix 1 - Constant Currency Reconciliation
Appendix 1 ‐ Constant Currency Reconciliation • The following unaudited table reconciles revenue growth for Parts & Services to constant currency revenue growth for the same measure: Three Months Ended Six Months Ended June 30, 2020 June 30, 2020 Consolidated Europe Consolidated Europe Parts & Servi
Slide 45: 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) 2020 revenue 2019 revenue 2020 revenue 2019 revenue Revenue North America $1,011 $1,322 $2,302 $2,624 Europe 1,211 1,516 2,575 2,962 Specialty 405 412 753 76
Slide 46: 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) 2020 2019 2020 2019 Net income $119 $152 $265 $251 Subtract: Net (loss) income attributable to continuing noncontrolling interest (0) 1 1 2 Net income attrib
Slide 47: 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 48: 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) 2020 2019 2020 2019 Net income $119 $152 $265 $251 Subtract: Net (loss) income attributa
Slide 49: 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 50: Appendix 5 - Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 5 ‐ 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) 2020 2019 2020 2019 Net cash provided by operating activities $718 $461 $913 $638 Less: purchases of property, plant and equipment 33 48
Slide 51: Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 ‐ Reconciliation of Gross Margin to Adjusted Gross Margin Consolidated Adjusted Gross Margin Three Months Ended(1) Six Months Ended(1) (in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Gross margin $1,011 $1,247 $2,225 $2,455 Add: Restructuring expenses ‐ cost of goods
Slide 52: Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 ‐ Reconciliation of Gross Margin to Adjusted Gross Margin We have presented adjusted gross margin solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate the operating performance of our continuing business