LKQ Corporation · NASDAQ:LKQ
LKQ — Q3 2023 Earnings Presentation
62 slides from LKQ's earnings presentation, October 2023
Slide 1: Third Quarter 2023 Investor Presentation
Third Quarter 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 strategic framework
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 Financial Performance ($mm) LKQ is a global distributor of vehicle products, including replacement parts, components and systems used in repair and maintenance of vehicles and Revenue (5) specialty products and accessories to improve the performance, Organic Growth
Slide 9: We aligned our Financial Policy to Corporate Strategy
We aligned our Financial Policy to Corporate Strategy Operational Excellence (2019 – Future) North America & Specialty witnessed highest margins in the company’s history Strategy • Drive operational excellence throughout the enterprise Made permanent cost structure changes, while navigating the pand
Slide 10: Call to Action
Call to Action Profitable Enhanced Cash Flow Talent Growth Margins Generation Development Built on a foundation of Safety and Integrity 10
Slide 11: ESG Focus Areas
ESG Focus Areas Carbon Footprint Employee Talent & Recycling Engagement Development Diversity, Equity Sustainable Community & Inclusion Supply Chain Support 11
Slide 12: Our ESG Goals
Our ESG Goals Our Our People — Environment: Employee Engagement: 30% 73% By 2030, reduce global Scope 1 By 2025, achieve 73% participation in and Scope 2 emissions by 30% our employee engagement survey and compared to the 2021 baseline overall engagement score of 76. relative to revenue. Net Zero 78
Slide 13: Q3 2023 Revenue
Q3 2023 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Organic Divestiture Foreign Exchange Total(1) Wholesale - North America 4.1% 24.0% (0.2)% 28.0% Europe 5.1% 1.9% 7.8% 14.8% Specialty (6.1)% 7.2% (0.2)% 0.9% Self Service 5.1% —% —% 5.1% Parts and Services 3.0% 10.5% 3.
Slide 14: YTD 2023 Capital Allocation
YTD 2023 Capital Allocation ($ in millions) $401 Operating cash flows: • Operating cash flows of $1,144 million represent a 13%, or $134 million, increase year over year primarily driven by higher purchasing levels in the prior period due to restocking efforts to rebuild inventory levels and easing
Slide 15: Operating Cash Flow & Free Cash Flow
(1) (1) Operating Cash Flow & Free Cash Flow ($ in millions) ($ in millions) *Full Year Outlook Actual FCF conversion $1,300* of Adjusted EBITDA(2) $1,000* 60% 60% Targeted annual FCF conversion of Adjusted EBITDA (55%-60%) Free Cash Flow ("FCF")(1) Operating Cash Flow (1) Free Cash Flow is a non-GA
Slide 16: Leverage & Liquidity
Leverage & Liquidity ($ in millions) ($ in millions) Total $4,369 Capacity(1) $3,150 $2,662 $2,500 $2,500 2.3x(5) 1.5x (4) (2) Effective borrowing rate for Q3 2023 was 5.5%(3) (1) Total capacity includes our senior secured and unsecured credit facilities (revolver and term loan) (2) Total leverage p
Slide 17: Liquidity as of September 30, 2023
Liquidity as of September 30, 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 m
Slide 18: Outlook 2023
Outlook 2023 (1) (effective only on the date issued: October 26, 2023) Full Year 2023 2023 Full Year Outlook Previous Outlook(5) Updated Outlook Organic parts and services revenue growth 6.0% to 7.5% 4.75% to 5.75% Diluted EPS(2) $3.65 to $3.85 $3.41 to $3.55 Adjusted Diluted EPS(2)(3) $3.90 to $4.1
Slide 19: 2023 Adjusted EPS Guidance Walk
(1) 2023 Adjusted EPS Guidance Walk (2) (2) $3.75 (1) Adjusted Diluted EPS is a non-GAAP measure. See Appendix 5 for reconciliation of forecasted Adjusted Diluted EPS (2) The amounts represents the midpoint of our guidance range 19
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: Operating Segments: Wholesale North America and Europe
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% 9.1% Collision 17.6% 18.7% 19.3% Aftermarket automotive products 16.5% 14.2% Recycled & Refurbished Mechanical Recycled engines &
Slide 22: Operating Segments: Specialty and Self Service
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview Specialty (0.7%) 3.0% 20.2% (9.9%) (10.9%) • Performance products 11.0% 12.0% 11.1% 10.8% • Appearance & accessories 8.7% • RV, trailer & other • Specialty wheels & tires • Marine 2019 2020
Slide 23: A North American leader for Alternative Parts, Recycled OEM
A North American leader for Alternative Parts, Recycled OEM, Remanufacturing, and Diagnostics Services 2022 Revenue: $4.6B | 2022 Segment EBITDA Margin: 18.7% | ~13k Employees | 342 Locations What we do… Aftermarket Recycled OEM • Aftermarket collision repair parts • 230k vehicles / 4.5M parts • Pai
Slide 24: LKQ wins through scale, value proposition, and partnerships
LKQ wins through scale, strong value proposition, and 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 $1050 $471 $3,193 R
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 and Installation 8+ yrs of age US BEV VIO in M US Market for Diagnostics, Calibration and Complex Sublet Repairs in $B
Slide 26: LKQ Europe
LKQ Europe 2022 Revenue: $5.7bn | 2022 Segment EBITDA Margin: 10.2% | ~28k Employees | 20+ Countries Key Facts UK & ROI Ranking in Europe #1 Netherlands, Belgium and France Italy Countries 20+ DACH Branches 1,025 Central and Eastern Europe Scandinavia Franchise Workshops 8,000 Independent Workshops
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: Specialty Overview
Specialty Overview 2022 Revenue: ~$1.8bn | 2022 Segment EBITDA Margin: 11.1% | 2,700+ Employees Key Facts $2,000 12.5% $1,800 Customers: 20,000+ 12.0% $1,600 Suppliers: 1,000+ $1,400 11.5% $1,200 Stocking SKUs: 160,000+ 11.0% $1,000 8 DCs 10.5% $800 36 Cross Docks Locations $600 10 Call Centers 10.0
Slide 29: Self Service segment national footprint
LKQ’s Self Service segment has the largest national footprint with opportunity for continued growth 2022 Revenue: $715M | 2022 Segment EBITDA Margin: 11.7% | ~1,700 Employees | 68 Locations Self Serve Statistics Competition Vehicles procured 516K National • Schnitzer Scrap (tons) 763K • Nucor Tires
Slide 30: 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 31: Acquisition of Uni-Select Will Expand LKQ's Business
Acquisition of Uni-Select Will Expand LKQ’s Leading Global Vehicle Parts Distribution Business 01 Compelling strategic fit, enhancing LKQ’s existing business and continuing to drive profitable growth 02 FinishMaster (a subsidiary of Uni-Select) complements existing North American paint distribution
Slide 32: Uni-Select Overview & Strategic Fit
Uni-Select Overview & Strategic Fit • A leading distributor of automotive replacement parts, accessories, tools and equipment, paint and collision repair products across North America and Europe • Founded in 1968 and headquartered in Boucherville, Quebec Strategic Fit for LKQ A Leading North America
Slide 33: Uni-Select Acquisition: Q3 Activity
Uni-Select Acquisition: Q3 Activity • On August 1, 2023, we acquired all of Uni-Select's issued and outstanding shares for Canadian dollar (“CAD”) 48.00 per share in cash, representing a total enterprise value of approximately CAD 2.8 billion ($2.1 billion) • Borrowed approximately $531 million (CAD
Slide 34: 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 35: 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 36: LKQ Europe Strategy
LKQ Europe Strategy The Leading Auto Service System by 2030 • Grow at +2% • Great brands above market • Leading assortment • Double digit • World class logistics EBITDA margin • Digital solutions • Attractive TSR • Pan-european network • Planet • Auto parts • People • Leisure & accessories • Communi
Slide 37: Multiple Levers to Drive North American Results
Multiple Levers to Drive North American Results Key Initiatives A Great Stable of Brands Collision & Mechanical • Favorable collision tailwinds Organic • Expansion of product offerings Aftermarket Salvage Paint (PBE) Revenue Growth • Monitoring opportunity of ADAS and EV • Further optimizing afterma
Slide 38: Leading Brands and Multiple Levers to Drive 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 39: 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 40: 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 41: 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 42: LKQ's Directors Skills Matrix
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 43: 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 24 70 Former CEO and Chairman of LKQ and industry Dominick Zarcone 6 64 President and CEO Extensive fin
Slide 44: 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 45: 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 46: 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 47: Supplementary Information
Supplementary Information
Slide 48: Metals Prices and Foreign Exchange
Metals Prices and Foreign Exchange Q3 2023 vs Q3 2022 Segment EBITDA Impact Wholesale - North ($ in millions) Self Service America Total Scrap Steel $10 $5 $15 Precious Metals $(17) $(12) $(29) Total $(7) $(7) $(14) YTD 2023 vs YTD 2022 Segment EBITDA Impact Wholesale - North ($ in millions) Self Se
Slide 49: Inventory Procurement
Inventory Procurement ($ in millions, vehicles purchased in 000s) Q3 YTD 2023 2022 % Change 2023 2022 % Change Total aftermarket procurement $1,709 $1,439 18.8% $4,639 $4,646 (0.2)% Wholesale - North America salvage vehicles 60 63 (4.8)% 189 188 0.5% Europe wholesale salvage vehicles 7 7 —% 22 23 (4
Slide 50: 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. 50
Slide 51: 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 Nine Months Ended September 30, 2023 September 30, 2023 (in
Slide 52: Constant Currency Reconciliation (cont.)
Appendix 1(cont.) Constant Currency Reconciliation Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 Consolidated Europe Consolidated Europe Parts & Services Revenue growth as reported 17.1% 14.8% 7.8% 10.0% Less: Currency impact 3.6% 7.8% 0.3% 1.0% Revenue growth at constan
Slide 53: Revenue and Segment EBITDA by segment
Appendix 2 Revenue and Segment EBITDA by segment Three Months Ended September 30 Nine Months Ended September 30 (in millions) 2023 % of revenue 2022 % of revenue 2023 % of revenue 2022 % of revenue Revenue Wholesale - North America $1,387 $1,109 $3,815 $3,454 Europe 1,584 1,380 4,777 4,345 Specialty
Slide 54: Reconciliation of Net Income to Segment EBITDA
Appendix 3 Reconciliation of Net Income to Segment EBITDA Three Months Ended September 30 Nine Months Ended September 30 (in millions) 2023 2022 2023 2022 Net income $208 $262 $760 $955 Less: net income attributable to continuing noncontrolling interest — — 1 — Net income attributable to LKQ stockho
Slide 55: EBITDA and Segment EBITDA Reconciliation
Appendix 3 EBITDA and 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.
Slide 56: Reconciliation 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 September 30 Nine Months Ended September 30 (in millions, except per share data) 2023 2022 2023 2022 Net income $208 $262 $76
Slide 57: Reconciliation 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 58: Forecasted EPS Reconciliation
Appendix 5 Forecasted EPS Reconciliation Forecasted Fiscal Year 2023 (in millions, except per share data) Minimum Outlook Maximum Outlook Net income from continuing operations attributable to LKQ stockholders $915 $952 Adjustments: Amortization of acquired intangibles 93 93 Restructuring and transac
Slide 59: Free Cash Flow and Adjusted EBITDA Reconciliation
Appendix 6 Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow and Net Income to Adjusted EBITDA Three Months Ended September 30 Nine Months Ended September 30 (in millions) 2023 2022 2023 2022 Net cash provided by operating activities $441 $273 $1,144 $1,010 Less: purchas
Slide 60: Free Cash Flow and Adjusted EBITDA Reconciliation
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) 2022 2021 Net cash provided by operating activities $1,250 $1,367 Less: purchases of property, plant and equipment 222 293 Free cash flow $
Slide 61: Free Cash Flow and Adjusted EBITDA Reconciliation
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 62: LKQ
LKQ