LKQ Corporation · NASDAQ:LKQ
LKQ — Q2 2022 Earnings Presentation
54 slides from LKQ's earnings presentation, July 2022
Slide 1: Second Quarter 2022 Investor Presentation
Second Quarter 2022 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 sustainable 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 o
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
Slide 5: LKQ's Evolution
LKQ’s Evolution Wholesale Keystone/ Remanufactured Self Serve Europe-Sator Europe-Rhiag Services Salvage Paint US 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Aftermarket Refurbished Keystone/ Europe – Heavy Duty Europe-ECP Collision Wheels Spec
Slide 6: Overview of LKQ
Overview of LKQ Company Overview Financial Performance LKQ is a global distributor of vehicle products, including replacement Revenue parts, components and systems used in repair and maintenance of Organic Growth(1) 4.4% 0.3% (7.6%) 7.9% vehicles and specialty products and accessories Founded in
Slide 7: We aligned our Financial Policy to Corporate Strategy
We aligned our Financial Policy to Corporate Strategy North America & Specialty witnessed highest margins in the company’s history Operational Excellence (2019 – Future) Made permanent cost structure changes, while navigating the pandemic Strategy • Drive operational excellence throughout the enterp
Slide 8: In 2019 we set Four Key Priorities for our Company
In 2019 we set Four Key Priorities for our Company Profitable Enhance Margins Cash Flow Talent Growth Generation Acquisition 8
Slide 9: Expanding Global ESG Programs
Expanding Global ESG Programs 9
Slide 10: ESG Focus Areas
ESG Focus Areas Carbon Footprint Employee Talent Diversity, Equity Sustainable Community & Recycling Engagement Development & Inclusion Supply Chain Support 10
Slide 11: Q2 2022 Revenue
Q2 2022 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Organic Divestiture Foreign Exchange Total(1) Wholesale - North America 10.7% (8.0)% (0.2)% 2.5% Europe 4.2% 0.5% (11.0)% (6.4)% Specialty (11.5)% 8.2% (0.4)% (3.6)% Self Service 13.2% —% —% 13.2% Parts and Services 3.8
Slide 12: Share Repurchase Program
Share Repurchase Program # of Shares 6.2 4.3 5.3 2.7 8.1 2.0 Repurchased Million Million Million Million Million Million $404 M $304 M $297 M $219 M $49.63 $144 M $49.21 $56.57 $102 M $50.50 $53.20 $50.54 (1) (2) (3) Year to date through July 22, 2022, invested $650 million repurchasing 12.8 million
Slide 13: YTD 2022 Capital Allocation
YTD 2022 Capital Allocation ($ in millions) $265 Operating cash flows: • Operating cash flows of $737 million represent a 21%, or $196 million, decrease year-over-year driven by higher investments into inventory in response to strong demand and strategic purchases to curb the impacts of supply chain
Slide 14: Operating Cash Flow and Free Cash Flow
(1) (1) Operating Cash Flow and Free Cash Flow ($ in millions) 98% Actual FCF conversion of EBITDA (2) 70%(3) 66% 60% Targeted annual FCF conversion of EBITDA- 55%-60% (1) Note: FCF amounts only include FCF generated by continuing operations (1) Free Cash Flow is a non-GAAP measure. Refer to Appendi
Slide 15: Leverage & Liquidity
Leverage & Liquidity ($ in millions) ($ in millions) Total Capacity(1) $3,150 $3,150 $2,824 $2,369 1.4x 1.2x (3) (4) Effective borrowing rate for Q2 2022 was 2.5%(2) (1) Total capacity includes our revolving credit facilities (2) Approximately 34% of our borrowings at June 30, 2022 are at a fixed in
Slide 16: Outlook 2022
Outlook 2022 (1) (effective only on the date issued: July 28, 2022) Full Year 2022 Full Year 2022 Previous Outlook(6) Updated Outlook Organic parts and services revenue growth 4.5% to 6.5% 4.5% to 6.5% Diluted EPS(2) $3.57 to $3.87 $4.09 to $4.29 Adjusted diluted EPS(2)(3) $3.80 to $4.10 $3.85 to $4
Slide 17: 2022 Adjusted EPS Guidance Walk
2022 Adjusted EPS Guidance Walk (1) (1) $3.95 (2) (1) The amounts represent the midpoint of our guidance range (2) Adjusted Diluted EPS is a non-GAAP measure. See Appendix 5 for reconciliation of forecasted adjusted diluted EPS 17
Slide 18: Liquidity as of June 30, 2022
Liquidity as of June 30, 2022 • Rated Baa3 (investment grade) by Moody's (upgraded in May 2022) Credit Rating • Rated BBB- (investment grade) by S&P Global Ratings (upgraded in April 2022) • Rated BBB- (investment grade) by Fitch (initiated in May 2021) • Fixed Interest Rate Bonds: €750 million ($78
Slide 19: 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 20: Wholesale - North America and Europe Segments
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview 0.9% (13.7%) 5.8% 12.1% Collision 17.6% 18.4% Aftermarket automotive products North America 16.5% Wholesale - 14.2% Recycled & Refurbished Mechanical Recycled engines & transmissi
Slide 21: Specialty and Self Service Segments
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview (0.7%) 3.0% 20.2% (10.0%) Performance products 13.1% 12.0% Appearance & accessories 11.0% 10.8% Specialty RV, trailer & other Specialty wheels & tires Marine 2019 2020 2021 YTD 20
Slide 22: LKQ wins through scale, strong value proposition, and strategic partnerships
LKQ wins through scale, strong value proposition, and strategic partnerships Distribution & Wholesale North America Footprint 2014 GMC Extensive distribution network Value proposition 2014 Ford F-150 2018 Nissan Altima Sierra 1500 Hood Headlamp Transmission 95% of customers delivered by LKQ’s New OE
Slide 23: Electrification of Parts
Electrification of Parts LKQ ATK Reman expansion into installation services Nickel Metal Hydride (NiMH) NiMH Battery Reconditioning Well-Positioned to Take Advantage of Battery Sourcing and Installation Future Li-Ion Growth Unmatched Supply of Cores 8+ yrs of age US BEV VIO 1493 +42.7% 1011 • Propri
Slide 24: LKQ Europe
LKQ Europe Indicates LKQE has market Leading Position 20 26,000 Countries Employees 1,000 $6.1B Branches Revenue 2021 10,000 900,000 Franchise workshops Unique SKUs 100,000 #1 Independent workshops Ranking in Europe 24
Slide 25: Specialty Overview
Specialty Overview Financial Performance $ in M Sales CAGR : 12.9% EBITDA CAGR: 15.4% Key Facts $2,000 12.5% 2021 Sales: ~$1.9B $1,800 12.0% Employees: 3,100+ $1,600 $1,400 11.5% Customers: 20,000+ $1,200 11.0% Suppliers: 1,000+ $1,000 10.5% Stocking SKUs: 185,000+ $800 $600 10.0% 8 DCs Locations 38
Slide 26: 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 27: 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 Rhiag (Italy & 9 other European countries) “1 LKQ Europe” Stahlgruber (Germany & Eastern Europe) Plan to inte
Slide 28: 1 LKQ Europe Program
1 LKQ Europe Program 21 Maintain Strong Improved Customer … In the Hands of Different Entrepreneurial Culture Experience…. Local Managers Countries Multiple ERP, financial, E-mail, Phone systems… Transformation Common ERP Platform Rationalized Product Portfolio … And Fragmented Procurement and Produ
Slide 29: 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 Revenue Expansion of product offerings Monitoring opportunity of ADAS and EV Aftermarket Salvage Paint (PBE) Growth Further optimizing afterma
Slide 30: 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 31: 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 enhance NA margins Cash Flow Generation Convert high levels of EBITDA to Free Cash Flow (“FCF”) with a focus on trade working capital efficiencies. Targe
Slide 32: 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 33: 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; 6 ne
Slide 34: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Treasury/ Capital Finance/ Government Human Capital Europe / Risk Assessment Executive Automotive Digital Corporate Supply Chain/ Investor Director Operations Allocation/ Accounting/ Relations/ Management/ Other and Leadership Ind
Slide 35: 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 Joseph Holsten 23 69 Former CEO and Chairman of LKQ Unparalleled knowledge of LKQ business and industry Dominick Zarcone 5 64 President and CEO Extensive
Slide 36: 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 37: 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 38: What LKQ Offers Investors
What LKQ Offers Investors Market leading position in almost everything we do The broadest product line amongst automotive parts distributors ‒ Mechanical ‒ Collision ‒ Accessories The broadest geographic coverage amongst automotive parts distributors ‒ United States ‒ Canada ‒ Europe (21 count
Slide 39: Supplementary Information
Supplementary Information L KQ Keeping you moving
Slide 40: Metals Prices
Metals Prices Scrap steel impact Q2 scrap steel prices increased YoY Q2 precious metal prices declined YoY Sequential changes in scrap steel prices impact to Segment EBITDA: and QoQ (sequential change of 5% and sequentially Self Service: • Q2 2022 favorable by $3 million; YTD 2022 favorable by $5 in
Slide 41: Foreign Exchange
Foreign Exchange • £ down 10.1% Q2 2022 vs Q2 2021 • € down 11.7% Q2 2022 vs Q2 2021 • $173 million unfavorable impact of translation of weaker Q2 rates relative to the US Dollar on European parts and services revenue growth • Foreign exchange (translation and transaction gains/losses) impact: ◦ Q2
Slide 42: Appendix
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. 42
Slide 43: Appendix 1
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 Six Months Ended June 30, 2022 June 30, 2022 (in millions)
Slide 44: Appendix 1 (cont.)
Appendix 1(cont.) Constant Currency Reconciliation Three Months Ended Six Months Ended June 30, 2022 June 30, 2022 Consolidated Europe Consolidated Europe Parts & Services Revenue growth as reported (2.7)% (6.4)% 1.4% (2.4)% Less: Currency impact (5.6)% (11.0)% (4.2)% (8.3)% Revenue growth at consta
Slide 45: Appendix 2
Appendix 2 Revenue and Segment EBITDA by segment Three Months Ended June 30(1) Six Months Ended June 30(1) (in millions) 2022 % of revenue 2021 % of revenue 2022 % of revenue 2021 % of revenue Revenue Wholesale - North America $1,144 $1,119 $2,345 $2,170 Europe 1,477 1,577 2,965 3,040 Specialty 513
Slide 46: Appendix 3
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) 2022 2021 2022 2021 Net income $420 $306 $693 $572 Subtract: Net income attributable to continuing noncontrolling interest — 1 — 1 Net income attributable to L
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 net
Slide 48: Appendix 4
Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income from Continuing Operations Attributable to LKQ Stockholders and Adjusted EPS from Continuing Operations Attributable to LKQ Stockholders Three Months Ended June 30(1) Six Months Ended June 30(1) (in millions, except per s
Slide 49: Appendix 4
Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income Attributable to LKQ Stockholders 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 Attrib
Slide 50: Appendix 5
Appendix 5 Forecasted EPS Reconciliation(1) Forecasted Fiscal Year 2022 (in millions, except per share data) Minimum Outlook Maximum Outlook Net income from continuing operations attributable to LKQ stockholders $1,144 $1,200 Adjustments: Amortization of acquired intangibles 61 61 Restructuring and
Slide 51: Appendix 6
Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended June 30(1) Six Months Ended June 30(1) (in millions) 2022 2021 2022 2021 Net cash provided by operating activities $328 $410 $737 $933 Less: purchases of property, plant and equipment 40 46 99
Slide 52: Appendix 6
Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow 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 liquidity. We calculate free cash f
Slide 53: Appendix 7
Appendix 7 Reconciliation of Total Debt to Net Debt (in millions) June 30, 2022(1) December 31, 2021(1) Current portion of long-term obligations $47 $35 Long-term obligations, excluding current portion 2,313 2,777 Total debt, net of debt issuance costs $2,360 $2,812 Add: Debt issuance costs 9 12 Tot
Slide 54: LKQ
LKQ