Lkq Corporation · NASDAQ:LKQ
Lkq — J.P. Morgan Auto Conference 2016
36 slides from Lkq's conference presentation, Aug 9, 2016
Slide 1: J.P. Morgan Auto Conference
J.P. Morgan Auto Conference August 9 & 10, 2016 J.P. Morgan | 383 Madison Avenue | New York, NY
Slide 2: Forward Looking Statements
Forward Looking Statements Statements and information included in this presentation that are not purely 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-loo
Slide 3: Mission & Strategic Initiatives
Mission & Strategic Initiatives Mission Statement Guiding Principles To be the leading global value-added distributor of vehicle Integrity & Ethics parts and accessories by offering our customers the most Customer First comprehensive, available and cost effective selection of part Humility solutions
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 2016* Total Revenue Total Revenue To
Slide 5: Operating Unit Overview
Operating Unit Overview North America • Collision – Aftermarket automotive products – Recycled & Refurbished • Mechanical – Recycled engines & transmissions – Remanufactured Engines Europe • Mechanical – 175,000+ small part SKUs – Brakes, filters, hoses, belts, etc. • Collision (limited) – Aftermark
Slide 6: Operating Segments
Corporation Operating Segments
Slide 7: Large & Fragmented US Market
Large & Fragmented US Market Automotive Repair Market $213 bn Do It For Me (DIFM) DIY(1) $165 bn $48 bn Retail Collision Mechanical Price $40 bn $125 bn Parts & Collision Parts Labor Mechanical Parts Labor Labor $22 bn $18 bn $68 bn $57 bn Collision Markup Mechanical Markup (Wholesale) (Wholesale) $
Slide 8: Collision Products, a $15 Billion Industry
Collision Products, a $15 Billion Industry Insurance Companies (Indirect Customers) New OEM Manufacturers 64% Repair Shop Refurbished & Recycled OEM Optional OE 12% Products Aftermarket 6% 18% Alternative parts = 36% of parts costs Source: CCC Information Services –Crash Course 2015. 7
Slide 9: Shift Toward Alternative Parts Usage
Shift Toward Alternative Parts Usage Average Parts Used Per Claim 2010 2011 2012 2013 2014 2015 10.0 9.2 7.9 8.0 6.4 6.0 5.8 4.0 2.8 2.1 2.0 0.0 OEM Alternative Parts Total Over 20 million vehicle claims Source: CCC Information Services Inc. 8
Slide 10: 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 11: Wholesale North America Footprint
Wholesale North America Footprint 10
Slide 12: LKQ’s “Sweet Spot” is Growing
LKQ’s “Sweet Spot” is Growing Age & size of US Car Parc 4 year time horizon 140 117 119 118 117 114 115 113 120 112 107 106 102 97 98 95 94 94 Number of Vehicles (millions) 100 80 60 40 17 17 17 18 18 18 18 17 16 16 16 14 13 13 10 12 20 - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2
Slide 13: Crash Avoidance Systems Growing… But Impact will Be Very Slow
Crash Avoidance Systems Growing… But Impact will Be Very Slow (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
Slide 14: 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 13
Slide 15: 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 16: 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 • Mekonomen—Denmark, Finland, Norway and Sweden Source:
Slide 17: LKQ’s European Operations
LKQ’s European Operations • Leading distributor of automotive • Leading distributor of automotive • Rhiag is the leading automotive aftermarket mechanical parts in aftermarket mechanical parts in aftermarket mechanical parts the UK the Benelux distributor in Italy, The Czech Republic & Slovakia; #2
Slide 18: LKQ’s European Footprint
LKQ’s European Footprint Sweden Norway Netherlands UK Poland Belgium Czech Ukraine Republic Slovakia Switzerland Hungary Romania Italy Bulgaria 17
Slide 19: 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 20: Automotive Glass
Automotive Glass Market Leading Auto Glass Select Automotive Glass Capabilities • Pittsburgh Glass Works LLC (“PGW” or the “Company”) is the leading North American manufacturer, supplier and distributor Windshields Sidelites Backlites Roof Panels of automotive glass products – #1 in OEM with approxi
Slide 21: 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 20
Slide 22: Financial Overview
Corporation Financial Overview
Slide 23: 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% 5.4% 4.0% 2.0% 0.0% 2010 2011 2012 2013 2014 2015 Q2-2016 (1) Parts and services only. 22
Slide 24: 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 25: Historical Financial Performance
Historical Financial Performance Revenue(1)(3) Adjusted EBITDA(1)(2)(3) $10,000 $9,230 $1,066 $1,000 $855 $8,000 $6,740 $7,193 $800 $791 $629 $6,000 $5,063 $515 $4,123 $600 $424 $4,000 $3,270 $341 $2,470 $400 $2,000 $200 $- $- 2010 2011 2012 2013 2014 2015 PF 2015 2010 2011 2012 2013 2014 2015 PF 20
Slide 26: Consolidated Results
Consolidated Results Q2 2016 YTD 2016 • Organic growth of parts and services revenue of 5.4% • Organic growth of parts and services revenue of 5.8% • Net income $140.7 million Q2 2016 vs. $119.7 million Q2 2015 • Net income $248.5 million YTD 2016 vs. $226.8 million YTD 2015 • Segment EBITDA Margin*
Slide 27: Q2 2016 Revenue Growth
Q2 2016 Revenue Growth Revenue Changes by Source: Foreign Organic Acquisition Exchange Total(1) North America 3.1% 2.8% (0.3)% 5.6% Europe 8.0% 57.5% (3.7)% 61.8% Specialty 8.0% 11.1% (0.5)% 18.5% Glass nm nm nm nm Parts and Services 5.4% 32.8% (1.4)% 36.8% Other Revenue (16.2)% 5.2% (0.2)% (11.2)%
Slide 28: 2016 Capital Allocation
2016 Capital Allocation $ in millions • Operating cash flows: - $360M of cash earnings(1) in YTD 2016 compared to $299M in YTD 2015 - $5M cash outflow from operating assets and liabilities due mainly to an $83M increase in receivables (seasonal build in Q2) and $43M reduction of inventory • Acquisit
Slide 29: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Revolver Availability(1) 2.8x 1.7x Effective borrowing rate for Q2 2016 was 3.1% (1) Revolver availability includes our term loans and revolving credit facilities (*) Net leverage per bank covenants is defined as Net Debt/EBITDA. See the definit
Slide 30: Key Return Metrics
Key Return Metrics Return on Equity Return on Invested Capital* (*) Amortization of intangibles has been excluded from the calculation of Return of Invested Capital 29
Slide 31: Appendix - Non-GAAP Financial Measures
Appendix - Non-GAAP Financial Measures The financial data contained in the presentation materials includes earnings before interest, taxes, depreciation and amortization ("EBITDA") and provides a reconciliation of net income to EBITDA. The financial data contained in the presentation materials also
Slide 32: Appendix 1- Constant Currency Reconciliation
Appendix 1- Constant Currency Reconciliation • The following unaudited table reconciles revenue growth for Parts and Services to constant currency revenue growth for the same measure: Three Months Ended Six Months Ended June 30, 2016 June 30, 2016 Consolidated Europe Consolidated Europe Parts and Se
Slide 33: Appendix 2- EBITDA and Segment EBITDA Reconciliation
Appendix 2- EBITDA and Segment EBITDA Reconciliation QTD** YTD** % of % of % of % of (in millions) Q2 2016 revenue Q2 2015 revenue Q2 2016 revenue Q2 2015 revenue Segment EBITDA North America $ 163.8 15.2% $ 138.9 13.3% $ 311.2 14.4% $ 288.3 13.8% Europe 90.0 10.9% 53.9 10.6% 147.5 10.8% 100.5 10.1%
Slide 34: Appendix 3- Adjusted Net Income and EPS Reconciliation
Appendix 3- Adjusted Net Income and EPS Reconciliation* QTD YTD (in millions, except per share data) Q2 2016* Q2 2015* Q2 2016* Q2 2015* Net Income $140.7 $119.7 $248.5 $226.8 Adjustments: Restructuring and acquisition related expenses 9.1 1.7 23.9 8.2 Loss of debt extinguishment — — 26.7 — Amortiza
Slide 35: Appendix 4- Adjusted Net Income and EPS Reconciliation
Appendix 4- Adjusted Net Income and EPS Reconciliation* (in millions, except per share data) 2015** 2014** 2013** 2012** 2011** Net Income $423.2 $381.5 $311.6 $261.2 $210.3 Adjustments: Restructuring and acquisition related expenses 19.5 14.8 10.2 2.8 7.6 Loss on debt extinguishment — 0.3 2.8 — 5.3
Slide 36: Appendix 5- 2015 Quarterly Adjusted Net Income and EPS Reconciliation
Appendix 5- 2015 Quarterly Adjusted Net Income and EPS Reconciliation* (in millions, except per share data) Q4** Q3** Q2** Q1** Net Income $95.1 $101.3 $119.7 $107.1 Adjustments: Restructuring and acquisition related expenses 6.8 4.6 1.7 6.5 Change in fair value of contingent consideration liabiliti