LKQ Corporation · NASDAQ:LKQ
LKQ — 2018 Stephens NY Investment Conference
51 slides from LKQ's conference presentation, Nov 7, 2018
Slide 1: 2018 Stephens NY Investment Conference
2018 Stephens NY Investment Conference November 7, 2018
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: 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: LKQ's Evolution
LKQ’s Evolution Wholesale Salvage Self Serve Keystone / Paint Reman-US Europe-Sator Europe-Rhiag 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Aftermarket Europe – Refurbished Wheels Heavy Duty Europe-ECP Keystone Specialty Collision Stahlgruber 2003 2007 2011 2018(
Slide 5: Operating Unit Overview
Operating Unit Overview North America • Collision – Aftermarket automotive products – Automotive glass distribution – Recycled & Refurbished • Mechanical – Recycled engines & transmissions – Remanufactured engines & transmissions Europe • Mechanical – 175,000+ small part SKUs – Brakes, filters, hose
Slide 6: 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 7: STAHLGRUBER is a Natural Strategic Fit for LKQ
STAHLGRUBER is a Natural Strategic Fit for LKQ (€ revenue in billions) €5.3 €1.5 Stahlgruber(1) €0.6 Mekonomen(2) Norway Sweden €3.2 €1.7 €1.6 €1.5 €1.4 €1.4 €0.7 €0.6 €0.3 LKQ FR Ger Ger FR POL CH Swe UK UK Netherlands Europe-… Stahlgruber (1) Autodis (5) Swiss Auto Uni-Select / Poland Group Parts
Slide 8: Historical Financial Performance
Historical Financial Performance ($ in Millions) Revenue** Segment EBITDA** $1,200 $1,117 $12,000 $1,005 $1,000 $9,737 $10,000 $855 $8,584 $791 $800 $8,000 $7,193 $6,740 $629 $6,000 $5,063 $600 $515 $4,123 $4,000 $400 $2,000 $200 $- 2012 2013 2014 2015 2016 2017 $- 2012 2013 2014 2015 2016 2017 Cash
Slide 9: Q3 2018 Key Takeaways
Q3 2018 Key Takeaways • Organic revenue growth of 4.3% for parts and services in Q3 • Specialty and North America achieved organic revenue growth of 8.0% and 5.2%, respectively • Continued pursuit of profitable growth and solid progress on our margin improvement plans • Net income from continuing op
Slide 10: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q3 2018 Revenue(1) YTD 2018 Revenue(1) • Organic growth of parts and services revenue of 4.3% on a reported basis • Organic growth of parts and services revenue of 5.1% on a reported basis • Net income attributable to LKQ stockholders $134 million Q3 2018
Slide 11: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q3 2018 EPS(1) YTD 2018 EPS(1) Diluted EPS Adjusted Diluted EPS(2) Diluted EPS Adjusted Diluted EPS(2) (1) Earnings per share figures refer to income from continuing operations attributable to LKQ stockholders (2) Adjusted Diluted EPS is a non-GAAP measur
Slide 12: GEAR Forward!
Key Strategic Underpinnings GROW EXPAND ADAPT RATIONALIZE Diversified Offerings Global Footprint To Evolving Asset Base Technology Path to Success: ● DEPENDABLE ● EXCELLENCE ● LEADERSHIP ● INTEGRITY ● VALUE ● EFFICIENT ● RESPONSIVE GEAR Forward! 11
Slide 13: Operating Segments
Corporation Operating Segments
Slide 14: Large & Fragmented US Market
Large & Fragmented US Market Automotive Repair Market $243 bn Do It For Me (DIFM) DIY $194 bn $49 bn Retail Collision Mechanical Price $46 bn $148 bn Parts & Collision Parts Labor Mechanical Parts Labor Labor $25 bn $21 bn $81 bn $67 bn Collision Markup Mechanical Markup (Wholesale) (Wholesale) $27
Slide 15: Clear Value Proposition
Clear Value Proposition 2013 Honda Accord 2012 Toyota Corolla 2014 Chevrolet Silverado Hood Headlamp Transmission New OEM $612 $228 $2,699 Remanufactured N/A $199 $2,299 Recycled OEM $440 $182 $1,150 New A/M $434 $173 N/A Average Savings 29% 20% 36% …and Improved Cycle Time for Repairs Note: Parts p
Slide 16: Collision Products, a $17 Billion Industry
Collision Products, a $17 Billion Industry Insurance Companies (Indirect Customers) New OEM Manufacturers 63% Repair Shop Refurbished & Recycled OEM Optional OE 12% Products Aftermarket 6% 19% Alternative parts = 37% of parts costs Source: CCC Information Services –Crash Course 2017 15
Slide 17: Shift Toward Alternative Parts Usage
Shift Toward Alternative Parts Usage Average Parts Used Per Claim 2012 2013 2014 2015 2016 2017 12.0 10.0 9.7 8.3 8.0 6.6 6.0 6.0 4.0 3.1 2.3 2.0 0.0 OEM Alternative Parts Total Over 20 million vehicle claims Source: CCC Information Services Inc. 16
Slide 18: 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 19: Wholesale North America Footprint
Wholesale North America Footprint 18
Slide 20: Number of Vehicles in LKQ's Sweet Spot
Number of Vehicles in LKQ’s “Sweet Spot” United States Vehicles in Operation 5 year time horizon 180 160 60.0 Number of Vehicles (Millions) 140 121 118 119 118 117 120 114 112 108 106 103 101 101 101 103 100 40.0 80 60 20.0 40 17.4 17.5 17.1 15.5 16.5 16.3 14.4 15.1 12.7 13.6 13.2 13.6 20 10.4 11.6
Slide 21: Crash Avoidance Systems Growing
Crash Avoidance Systems Growing (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 78% (0.7%) CY 2015 (0.4%) CY 2
Slide 22: 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 21
Slide 23: 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 24: LKQ's European Platform Acquisitions
LKQ’s European Platform Acquisitions October 2011 April 2013 March 2016 May 2018 • Leading distributor • Leading distributor • Leading automotive • Leading European of automotive of automotive aftermarket wholesale distributor aftermarket aftermarket mechanical parts of aftermarket spare mechanical
Slide 25: Highly Fragmented with many Country Champions
Highly Fragmented with many “Country Champions” Selected Market Players (Subsidiary of LKQ) (Public)* (Private) (Private) (Private) (Private) (Subsidiary of LKQ) (Subsidiary of LKQ) (Subsidiary of Itochu Corporation) (Private) (Private) (Public) (Subsidiary of GPC) (Private) (Subsidiary of GPC) (Sub
Slide 26: Benefits of Scale
Benefits of Scale • Lower procurement costs – OES brands (volume) – Private label brands (margin) • Reduced logistics and warehousing – e.g. Asian sourcing – e.g. long tail products • Improved overhead costs – Back-office activities – Cataloguing – Rationalize ERP systems • Brand economies of scale
Slide 27: Potential Effects on Margins of Proposed Initiatives
Potential Effects on Margins of Proposed Initiatives Potential effects on Segment EBITDA Margin 2.5% +1.0/1.5% +1.0/2.0% +0.3/0.5% +0.7/1.0% +0.3/0.5% +0.5/0.8% 2.0% 1.5% 1.0% 0.5% T2 AP rationalization European procurement Catalogue/BAAS Logistics BackOffice (incl. recovery exceptional costs) • Thi
Slide 28: Specialty
Specialty Specialty Overview Specialty Directly Addressable Market (1) ($ in billions) • Leading distributor and marketer of specialty aftermarket equipment, accessories, and products in North America Wheels, Tires & Suspension • Critical link between 800+ suppliers and approximately $2.78B Accessor
Slide 29: Consistent Business Model and Strategy
Consistent Business Model and Strategy Niche and Fragmented Markets High Industry Leading Fulfillment Management Rates Attractive Synergy and Adjacent Leverage Markets Opportunities Sustainable Growth and Margin Expansion 28
Slide 30: Financial Overview
Corporation Financial Overview
Slide 31: Q3 2018 Revenue Growth
Q3 2018 Revenue Growth Revenue Changes by Source: Foreign Organic Acquisition Exchange Total(1) North America 5.2% 0.5% (0.3)% 5.5% Europe 2.0% 52.6% (0.9)% 53.7% Specialty 8.0% 10.5% (0.5)% 18.0% Parts and Services 4.3% 23.2% (0.6)% 26.9% Other Revenue 18.9% 2.7% (0.1)% 21.5% Total 5.1% 22.1% (0.6)
Slide 32: YTD 2018 Revenue Growth
YTD 2018 Revenue Growth Revenue Changes by Source: Foreign Organic Acquisition Exchange Total(1) North America 6.4% 1.0% 0.1% 7.5% Europe 3.8% 31.9% 6.4% 42.2% Specialty 4.2% 10.1% 0.1% 14.5% Parts and Services 5.1% 14.3% 2.5% 21.9% Other Revenue 23.9% 1.5% 0.1% 25.4% Total 6.1% 13.6% 2.4% 22.1% • O
Slide 33: North America – Q3 2018 Results
North America – Q3 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,263 $1,182 6.8% Gross Margin $546 $515 6.0% 43.2% 43.6% Operating Expenses $397 $367 8.4% 31.5% 31.0% Segment EBITDA(1) $154 $153 0.9% 12.2% 12.9% (1) Segment EBITDA is a non-GAAP me
Slide 34: North America – YTD 2018 Results
North America – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $3,928 $3,597 9.2% Gross Margin $1,697 $1,581 7.3% 43.2% 43.9% Operating Expenses $1,202 $1,087 10.6% 30.6% 30.2% Segment EBITDA(1) $507 $502 0.9% 12.9% 14.0% (1) Segment EBITDA is a non-GAAP measu
Slide 35: Europe – Q3 2018 Results
Europe – Q3 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,471 $955 54.1% Gross Margin $538 $347 55.1% 36.6% 36.4% Operating Expenses $411 $270 52.1% 27.9% 28.3% Segment EBITDA(1) $129 $79 63.1% 8.8% 8.3% (1) Segment EBITDA is a non-GAAP measure. R
Slide 36: Europe – YTD 2018 Results
Europe – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $3,795 $2,665 42.4% Gross Margin $1,373 $982 39.9% 36.2% 36.8% Operating Expenses $1,065 $745 42.9% 28.1% 28.0% Segment EBITDA(1) $316 $242 30.7% 8.3% 9.1% Branches(2) 1,080 836 244 (1) Segment EBITDA is
Slide 37: Specialty – Q3 2018 Results
Specialty – Q3 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $390 $331 18.0% Gross Margin $113 $95 19.4% 29.0% 28.6% Operating Expenses $71 $59 19.9% 18.2% 17.9% Segment EBITDA(1) $43 $35 22.3% 11.0% 10.6% (1) Segment EBITDA is a non-GAAP measure. Re
Slide 38: Specialty – YTD 2018 Results
Specialty – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,155 $1,009 14.4% Gross Margin $343 $289 18.6% 29.7% 28.7% Operating Expenses $205 $171 20.1% 17.7% 16.9% Segment EBITDA(1) $141 $119 18.3% 12.2% 11.8% (1) Segment EBITDA is a non-GAAP measure. Refer
Slide 39: 2018 Capital Allocation - Continuing Operations
2018 Capital Allocation - Continuing Operations $ in millions • Operating cash flows: ◦ The $72 million year over year increase is primarily driven by an increase in operating income of $39 million, a $60 million decrease in taxes paid, and a $22 million decrease in inventory compared to the compara
Slide 40: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) 3.0x 2.7x Effective borrowing rate for Q3 2018 was 3.5%(3) (1) Total capacity includes our term loans and revolving credit facilities (2) Net leverage per bank covenants is defined as Net Debt/EBITDA. See the definitions of Net
Slide 41: Key Return Metrics - Q3 2018
Key Return Metrics - Q3 2018 Return on Equity Return on Invested Capital(1) (1) Amortization of acquired intangibles has been excluded from income in the calculation of Return on Invested Capital (2) TTM Q3 2018 excludes all income, transaction costs, capital and equity related to Stahlgruber GmbH (
Slide 42: Guidance 2018
Guidance 2018 (effective only on the date issued: October 25, 2018) Full Year 2017 Full Year 2018 ($ in millions excluding EPS) Actual Guidance(1) Organic Growth, Parts and Services 4.1% 4.5% - 5.0% Net Income - continuing operations attributable to LKQ $540 $565 - $585 stockholders Adjusted Net Inc
Slide 43: Why Invest in LKQ?
Why Invest in LKQ? Leading Positions Diversified Revenue Expanding Alternative Clear Solid Financial Metrics In Large Markets Stream Parts Usage Value Proposition • Largest participant in • Global balance with • Increasing availability • Insurers focused on • History of delivering each market served
Slide 44: 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. 43
Slide 45: 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, 2018 September 30, 2018 Consolidate Consolidate d Eur
Slide 46: 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) 2018 revenue 2017 revenue 2018 revenue 2017 revenue Revenue North America $1,263 $1,182 $3,928 $3,597 Europe 1,471 955 3,795 2,665 Specialty 390 3
Slide 47: 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 Nine Months Ended September 30(1) September 30(1) (in millions) 2018 2017 2018 2017 Net income $134 $122 $445 $410 Subtract: Net income attributable to noncontrolling interest 0 — 1 — Net income attributable to
Slide 48: 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 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 Three Months Ended Nine Months Ended September 30(1) September 30(1) (in millions, except per share data) 2018 2017 2018 2017 Net income $134 $122 $445 $410 Subtract: Net income attri
Slide 50: 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 51: Appendix 5 - Forecasted EPS Reconciliation
Appendix 5 - Forecasted EPS Reconciliation(1) For the year ending December 31, 2018 (in millions, except per share data) Minimum Guidance Maximum Guidance Net income from continuing operations attributable to LKQ stockholders $565 $585 Adjustments: Amortization of acquired intangibles 130 130 Restru