Slide 1: Third Quarter 2019 Earnings Call
Third Quarter 2019 Earnings Call October 31, 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: Q3 2019 Key Takeaways
Q3 2019 Key Takeaways • Total revenue growth of 0.8% driven by organic parts and services revenue growth of 2.3% (0.9% on a per day basis) and acquisition growth of 0.8%, partially offset by a decline due to foreign currency translation (2.3%) ◦ Soft European macroeconomic conditions weighing on rev
Slide 5: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q3 2019 Revenue(1) YTD 2019 Revenue(1) $9,496 $3,400 $9,500 $8,874 $9,000 $3,200 $3,122 $3,148 $8,500 $3,000 $8,000 $7,500 % $2,800 7.0 % $7,000 0.8 $2,600 $6,500 $6,000 $2,400 $5,500 $2,200 $5,000 Q3 2018 Q3 2019 YTD 2018 YTD 2019 • Organic revenue growt
Slide 6: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q3 2019 EPS(1) YTD 2019 EPS(1) $0.65 $0.65 $1.50 $1.90 $0.61 $1.41 $1.82 $1.40 $1.80 $1.28 $1.71 $0.56 $1.30 $1.70 $0.55 $0.55 $1.20 $1.60 $0.49 $1.10 $1.50 $0.45 $1.00 % $0.45 $1.40 6.4 $0.42 8 .9% $0.90 (9 $1.30 .2 $0.80 %) $0.35 $1.20 .7% 16 $0.35 $0.7
Slide 7: Q3 2019 Revenue Growth
Q3 2019 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 2.9% 0.4% (0.1)% 3.3% Europe 2.1% 1.3% (4.6)% (1.2)% Specialty 1.5% 0.0% (0.1)% 1.4% Parts and Services 2.3% 0.8% (2.3)% 0.8% Other Revenue 0.0% 1.1% (0.3)% 0.9% Total 2.2% 0.8% (2.2)% 0.8%
Slide 8: YTD 2019 Revenue Growth
YTD 2019 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 0.4% 0.4% (0.2)% 0.6% Europe (0.3)% 22.2% (5.6)% 16.3% Specialty 0.8% —% (0.3)% 0.5% Parts and Services 0.1% 10.2% (2.7)% 7.7% Other Revenue (5.0)% 1.2% (0.3)% (4.1)% Total (0.1)% 9.7% (2.5
Slide 9: Q3 2019 Operating Highlights
Q3 2019 Operating Highlights North America • Sold the net assets of AeroVision International, LLC and its affiliates • Agreed to end our battery contract with FCA Mopar in November 2019 • Successfully negotiated a new 3-year contract with a top tier customer • Operational emphasis on working capital
Slide 10: Inventory
Inventory Inventory Procurement: Q3 YTD ($ in millions, Vehicles purchased in 000s) 2019 2018 % Change 2019 2018 % Change Total aftermarket procurement $1,623 $1,701 (4.6)% $4,762 $4,488 6.1% Wholesale salvage cars and trucks 78 73 6.8% 230 229 0.4% Europe wholesale salvage cars and trucks 5 6 (16.7
Slide 11: Financial Results
Corporation Financial Results
Slide 12: Operating Results - Continuing Operations
Operating Results - Continuing Operations Third Quarter YTD ($ in millions, except per share data) 2019 2018 Change 2019 2018 Change Revenue $3,148 $3,122 0.8% $9,496 $8,874 7.0% Gross Margin 1,200 1,197 0.3% 3,656 3,413 7.1% Operating Income 231 235 (1.4)% 690 718 (3.9)% Pre-tax Income 205 201 2.2%
Slide 13: Q3 2019 Consolidated Margins - Continuing Operations
Q3 2019 Consolidated Margins - Continuing Operations Q3 Q3 Change (as a % of Revenue) 2019 2018 F/(U) Q3 Commentary Revenue 100.0% 100.0% —% Decrease primarily due to a 0.5% restructuring charge for inventory write-downs related to our Andrew Gross Margin 38.1% 38.3% (0.2)% Page integration plus 0.2
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% —% Gross margin was flat to prior year; increase in North America was offset by a negative mix impact Gross Margin 38.5% 38.5% —% primarily from the growth of
Slide 15: Components of Revenue
Components of Revenue $3.15B $3.12B $9.50B $8.87B 100.0% 5.1% 5.1% 5.0% 5.6% 12.5% 12.5% 12.2% 13.0% • North America historically has the 80.0% highest gross margins and EBITDA margins relative to the other segments 60.0% 45.9% 46.9% 46.3% 42.6% • Increase in YTD 2019 revenue as a percentage of cons
Slide 16: North America – Q3 2019 Results
North America – Q3 2019 Results Change % of Revenue Gross Margin ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $1,302 $1,263 3.1% 45.0% 44.2% 44.1% 44.2% Gross Margin $576 $546 5.5% 44.2% 43.2% 44.0% Operating Expenses $417 $397 (4.9)% 32.0% 31.5% 43.3% 43.1% 43.2% 43.5% Other Income, net
Slide 17: North America – YTD 2019 Results
North America – YTD 2019 Results Change % of Revenue ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $3,926 $3,928 (0.0)% Gross Margin $1,735 $1,697 2.2% 44.2% 43.2% Operating Expenses $1,222 $1,202 (1.6)% 31.1% 30.6% Other Income, net $15 $9 Segment EBITDA(1) $533 $507 5.2% 13.6% 12.9% (1)
Slide 18: Scrap Steel Prices
Scrap Steel Prices Q3 YOY scrap steel prices down 26% $225 • Average price realized for scrap steel decreased by 26% from $168 $199 per ton in Q3 2018 to $124 per $200 ton in Q3 2019 $197 • Sequential change was negative $175 $168 $20 per ton, or down 14% $164 • Changes in scrap steel prices had $15
Slide 19: Europe – Q3 2019 Results
Europe – Q3 2019 Results Change % of Revenue Gross Margin ($ in millions) 2019 2018 F/(U) 2019 2018 38.0% Total Revenue $1,451 $1,471 (1.3)% Gross Margin $513 $538 (4.8)% 35.3% 36.6% 37.0% 36.8% 36.6% 36.5% Adjusted Gross Margin* $530 $538 (1.6)% 36.5% 36.6% 36.7% Operating Expenses $409 $411 0.5% 2
Slide 20: Europe – YTD 2019 Results
Europe – YTD 2019 Results Change % of Revenue ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $4,413 $3,795 16.3% Gross Margin $1,590 $1,373 15.8% 36.0% 36.2% Adjusted Gross Margin* $1,607 $1,373 17.0% 36.4% 36.2% Operating Expenses $1,268 $1,065 (19.0)% 28.7% 28.1% Other Income, net $(1) $(
Slide 21: Foreign Exchange
Foreign Exchange $1.45 • £ down 5.4% Q3 2019 vs Q3 2018 • € down 4.4% Q3 2019 vs Q3 2018 $1.40 $1.39 GBP 5 .4% $1.36 • $67 million unfavorable impact of $1.35 translation of weaker Q3 rates relative to the US dollar on $1.30 $1.29 $1.30 $1.29 European parts and services $1.30 revenue growth $1.25 $1
Slide 22: Specialty – Q3 2019 Results
Specialty – Q3 2019 Results Change % of Revenue Gross Margin ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $395 $390 1.3% 31.0% Gross Margin $111 $113 (1.3)% 28.2% 29.0% 30.0% 30.2% 28.9% Operating Expenses $67 $71 5.8% 16.9% 18.2% 29.0% 28.6% 28.2% 29.0% 28.4% Other Income, net $(0) $(1)
Slide 23: Specialty – YTD 2019 Results
Specialty – YTD 2019 Results Change % of Revenue ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $1,161 $1,155 0.5% Gross Margin $331 $343 (3.6)% 28.5% 29.7% Operating Expenses $198 $205 3.5% 17.0% 17.7% Other Income, net $1 $1 Segment EBITDA(1) $136 $141 (3.7)% 11.7% 12.2% (1) Segment EBITD
Slide 24: 2019 Capital Allocation
2019 Capital Allocation $ in millions $1,400 $965 $1,200 $(166) $1,000 $800 $(391) $600 $13 $439 $400 $337 $(292) $(15) $(12) $200 $0 Beginning Cash Operating Cash Capex Net Repayments of Share Acquisitions, Other Investing FX and Other Ending Cash and Restricted Flows Credit Facilities Repurchases
Slide 25: Free Cash Flow
Free Cash Flow $1,000 $ in millions $965 100% 90% $800 $800 $715 89% 80% 70% $600 $571 $544 $523 $465 60% $389 $374 $388 $400 $347 50% $248 40% $200 45% 42% 39% 30% 32% 31% $0 20% 2014 2015 2016 2017 2018 2019 Q3 YTD Free Cash Flow ("FCF")* Operating Cash Flow FCF/EBITDA** Note: FCF amounts only inc
Slide 26: Share Repurchase Program
Share Repurchase Program • We have used approximately 70% # of Shares 2.3 2.6 4.4 3.9 of our $500 million share million million million million Repurchased repurchase program instituted in $120M October 2018 Remaining • Repurchased 13.2 million shares Authorization through September 30, 2019 with $1
Slide 27: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,500 $4,348 $4,000 $332 $4,000 $3,897 $3,500 $3,493 $4,016 $3,500 $433 $3,500 $3,464 $3,000 $3,000 $1,698 $2,500 $1,935 $2,500 $2,000 $2,000 $65 $1,500 $69 2.9x $1,500 2.6x $1,000 $1,000 $1,737 $1,489 $500 $500 $0 $0 December
Slide 28: Net Leverage Trend
Net Leverage Trend Net Debt/EBITDA(1) 3.3x • Net Debt/EBITDA increased in Q2 2018 due to the Stahlgruber acquisition • Strong cash flow generation has 3.1x allowed us to reduce our net leverage to pre-Stahlgruber levels • Able to de-lever while also 2.9x repurchasing $352 million in LKQ stock in the
Slide 29: Return on Invested Capital
Return on Invested Capital Return on Invested Capital(1) 12.0% 10.8% 10.9% 10.0% 9.8% 9.7% 9.6% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2014 2015 2016 2017 2018 TTM Q3 2019 ² ³ (1) Amortization of acquired intangibles and lease obligations have been excluded from the calculation of Return on Invested Capital
Slide 30: Guidance 2019
Guidance 2019 (effective only on the date issued: October 31, 2019) Full Year 2018 Full Year 2019 ($ in millions excluding EPS) Actual Guidance(1)(2) Organic Growth, Parts and Services 4.4% 0.25% - 1.00% Net Income attributable to LKQ stockholders $485 $526 - $546 Adjusted Net Income attributable to
Slide 31: 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 31
Slide 32: 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. 32
Slide 33: 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 Nine Months Ended September 30, 2019 September 30, 2019 Consolidated Europe Consolida
Slide 34: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Nine Months Ended September 30(1) September 30(1) % of % of % of % of (in millions) 2019 revenue 2018 revenue 2019 revenue 2018 revenue Revenue North America $1,302 $1,263 $3,926 $3,928 Europe 1,451 1,471 4,413 3,795 Specialty 395
Slide 35: 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 September 30(1) Nine Months Ended September 30(1) (in millions) 2019 2018 2019 2018 Net income $153 $134 $404 $445 Subtract: Net (loss) income attributable to continuing noncontrolling interest (0) 0 2 1 Net in
Slide 36: 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 37: 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 Nine Months Ended September 30(1) September 30(1) (in millions, except per share data) 2019 2018 2019 2018 Net income $153 $134 $404 $445 Subtract: Net (loss) incom
Slide 38: 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 39: 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 $526 $546 Adjustments: Amortization of acquired intangibles 125 125 Restr
Slide 40: Appendix 6 - Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 6 - Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended Nine Months Ended September 30(1) September 30(1) (in millions) 2019 2018 2019 2018 Net cash provided by operating activities $327 $192 $965 $521 Less: purchases of property, plant and equip
Slide 41: Appendix 7 - Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 7 - Reconciliation of Gross Margin to Adjusted Gross Margin Three Months Ended Nine Months Ended Consolidated Adjusted Gross Margin September 30(1) September 30(1) (in millions) 2019 2018 2019 2018 Gross margin $1,200 $1,197 $3,656 $3,413 Add: Restructuring expenses - cost of goods sold 17