Slide 1: Fourth Quarter & Full Year 2018 Earnings Call
Fourth Quarter & Full Year 2018 Earnings Call February 28, 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: Q4 2018 Key Takeaways
Q4 2018 Key Takeaways • Organic revenue growth of 2.5% for parts and services in Q4 despite economic headwinds in certain European markets; total organic revenue growth of 3.0% in Q4 • Specialty and North America achieved organic revenue growth of 5.8% and 3.7%, respectively • Excellent operating ca
Slide 5: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q4 2018 Revenue(1) 2018 Revenue(1) $11,877 $3,200 $12,000 $3,003 $11,400 $3,000 $10,800 $10,200 $9,737 $2,800 $9,600 $2,600 $9,000 .0% $2,470 .6% 22 21 $8,400 $2,400 $7,800 $7,200 $2,200 $6,600 $2,000 $6,000 Q4 2017 Q4 2018 2017 2018 • Organic revenue gro
Slide 6: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q4 2018 EPS(1) 2018 EPS(1) $0.50 $0.60 $2.00 $2.40 $0.41 $0.48 $0.50 $2.19 $0.40 $1.80 $2.20 $1.74 $0.41 $0.40 $2.00 $0.30 $1.88 $1.60 $1.53 $0.30 $1.80 $0.20 (12 $1.40 .1% $1.60 $0.20 ) $0.13 .5 % (6 16 $0.10 8. $1.40 3% .1% ) $0.10 17 $1.20 $1.20 $0.00
Slide 7: Q4 2018 Revenue Growth
Q4 2018 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 3.7% 0.3% (0.3)% 3.7% Europe 0.3% 49.7% (3.3)% 46.6% Specialty 5.8% 3.5% (0.4)% 8.9% Parts and Services 2.5% 21.2% (1.6)% 22.2% Other Revenue 10.2% 1.1% (0.2)% 11.1% Total 3.0% 20.1% (1.5)%
Slide 8: 2018 Revenue Growth
2018 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 5.7% 0.8% 0.0% 6.5% Europe 2.9% 36.7% 3.8% 43.4% Specialty 4.6% 8.6% 0.0% 13.2% Parts and Services 4.4% 16.0% 1.5% 22.0% Other Revenue 20.4% 1.4% 0.0% 21.8% Total 5.3% 15.3% 1.4% 22.0% • Organi
Slide 9: Q4 2018 Operating Highlights
Q4 2018 Operating Highlights North America • Pricing model refinement and pursuing higher margin revenue have contributed to improving aftermarket gross margins • During Q4, launched the implementation of new tools for setting salvage prices • North America headquarters in Nashville opened in Decemb
Slide 10: Inventory
Inventory Inventory Procurement: Q4 Fiscal Year ($ in millions, Vehicles purchased in 000s) 2018 2017 % Change 2018 2017 % Change Total aftermarket procurement $1,629 $1,291 26.2% $6,117 $4,730 29.3% Wholesale salvage cars and trucks 81 84 (3.6)% 310 310 —% Europe wholesale salvage cars and trucks 7
Slide 11: Acquisition Activity
Acquisition Activity Number of Q4 TTM Number of 2018 TTM Acquisitions Revenue (in millions)(1) Acquisitions Revenue (in millions)(1) North America 3 $17 4 $17 Europe 2 $8 10 $2,013 Specialty — — — — Total 5 $25 14 $2,030 • During the 4th quarter of 2018,we acquired five businesses, including: ◦ Thre
Slide 12: Financial Results
Corporation Financial Results
Slide 13: Operating Results - Continuing Operations
Operating Results - Continuing Operations Fourth Quarter Fiscal Year ($ in millions,except per share data) 2018 2017 Change 2018 2017 Change Revenue $3,003 $2,470 21.6% $11,877 $9,737 22.0% Gross Margin 1,162 948 22.6% 4,575 3,800 20.4% Operating Income 164 166 (0.9)% 882 845 4.4% Pre-tax Income 124
Slide 14: Q4 2018 Consolidated Margins - Continuing Operations
Q4 2018 Consolidated Margins - Continuing Operations Q4 Q4 Change (as a % of Revenue) 2018 2017 F/(U) Q4 Commentary Revenue 100.0% 100.0% —% Increased by 0.3% in each of our Europe and Specialty segments, partially offset by a 0.2% decrease due to Gross Margin 38.7% 38.4% 0.3% mix and acquisitions (
Slide 15: 2018 Consolidated Margins - Continuing Operations
2018 Consolidated Margins - Continuing Operations Change (as a % of Revenue) 2018 2017 F/(U) 2018 Commentary Revenue 100.0% 100.0% —% Gross Margin 38.5% 39.0% (0.5)% Decreased by 0.4% and 0.3% as a result of our Europe and North America segments, respectively Selling, General and 28.2% 27.9% (0.3)%
Slide 16: Components of Revenue
Components of Revenue $3.00B $2.47B $11.88B $9.74B 100.0% 5.0% 5.4% 5.4% 5.4% 10.7% 12.0% 12.4% 13.4% • North America historically has the 80.0% highest gross margins and EBITDA margins relative to the other segments 39.2% 37.3% 60.0% 47.3% 43.8% • Increase in Q4 and 2018 revenue as a percentage of
Slide 17: North America – Q4 2018 Results
North America – Q4 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,255 $1,203 4.3% 45.0% 44.4% Gross Margin $546 $523 4.4% 43.5% 43.5% 43.9% 44.0% 43.5% 43.5% 43.3% 43.2% Operating Expenses $397 $378 4.8% 31.6% 31.5% 43.6% 43.0% 43.1% Segment EBITDA
Slide 18: North America – 2018 Results
North America – 2018 Results Fiscal Year % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $5,183 $4,800 8.0% Gross Margin $2,243 $2,104 6.6% 43.3% 43.8% Operating Expenses $1,599 $1,466 9.1% 30.8% 30.5% (1) Segment EBITDA $660 $655 0.7% 12.7% 13.7% (1) Segment EBITDA is a non-GA
Slide 19: Scrap Steel Prices
Scrap Steel Prices Q4 YoY scrap steel prices per ton flat $225 • Average price we received for scrap steel in Q4 increased by less than 1%, from $163 per $200 $197 $199 ton in Q4 2017 to $164 per ton in Q4 2018 $175 • Sequential change was $5 per $168 $162 $163 $164 ton or 2.7% down $150 $144 $150 •
Slide 20: Europe – Q4 2018 Results
Europe – Q4 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,426 $972 46.8% 38.0% Gross Margin $523 $347 50.9% 36.7% 35.7% 37.2% Operating Expenses $419 $274 52.8% 29.4% 28.2% 37.0% 37.0% 36.6% 36.7% Segment EBITDA(1) $107 $78 37.8% 7.5% 8.0% 36.4% 3
Slide 21: Europe – 2018 Results
Europe – 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $5,222 $3,637 43.6% Gross Margin $1,896 $1,329 42.7% 36.3% 36.5% Operating Expenses $1,484 $1,020 45.6% 28.4% 28.0% (1) Segment EBITDA $423 $319 32.4% 8.1% 8.8% (2) Branches 1,102 879 223 (1) Segment EBITDA i
Slide 22: Foreign Exchange
Foreign Exchange • £ down 3% Q4 2018 vs. Q4 2017 $1.45 $1.40 $1.39 $1.39 • € down 3% Q4 2018 vs. Q4 2017 $1.36 $1.36 $1.35 $1.33$1.33 • Translation impact on Europe revenue $1.31$1.31 $1.30 $1.30 $1.29 growth of weaker Q4 and stronger full $1.28 $1.28 $1.30 year rates relative to the US dollar: $1.2
Slide 23: Specialty – Q4 2018 Results
Specialty – Q4 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $323 $297 8.9% 31.0% 30.0% 30.2% Gross Margin $92 $78 18.6% 28.6% 26.3% 28.9% 29.0% 28.6% 29.0% 28.5% 28.6% Operating Expenses $65 $60 8.8% 20.1% 20.1% 27.0% Segment EBITDA(1) $28 $23 19.7%
Slide 24: Specialty – 2018 Results
Specialty – 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,478 $1,306 13.2% Gross Margin $436 $367 18.6% 29.5% 28.1% Operating Expenses $270 $230 17.2% 18.2% 17.6% Segment EBITDA(1) $169 $142 18.5% 11.4% 10.9% (1) Segment EBITDA is a non-GAAP measure. Refer to
Slide 25: 2018 Capital Allocation
2018 Capital Allocation $ in millions $2,100 $943 $1,800 $1,500 $1,200 $711 $900 $(60) $600 $(1,209) $337 $280 $300 $(250) $(78) $0 Beginning Cash Operating Cash Share Other Acquisitions & Capex Other and FX Ending Cash and Restricted Flows Repurchases Financing Other Investing and Restricted Cash 1
Slide 26: Trade Working Capital & Free Cash Flow
Trade Working Capital & Free Cash Flow Trade Working Capital(1)(2) Free Cash Flow (FCF) ($ in millions ) $800 30% $711 26.4% 23.9% $600 .0% $250 25 37 $519 20% 0 bp s $179 $461 $400 $340 10% .6% $200 35 0% $0 2017 2018 2017 2018 (1) Trade Working Capital as % of TTM Proforma Revenue (2) Trade Workin
Slide 27: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total $4,476 $4,404 Capacity(1) $4,500 $4,348 $4,000 $345 $341 $332 $4,000 $4,131 $3,454 $3,500 $4,063 $4,016 $3,500 $3,500 $3,428 $280 $3,000 $3,148 $1,395 $3,000 $1,698 $2,500 $2,500 3.1x 3.0x 2.9x $2,000 $71 $2,000 $65 2.7x $1,500 $1,500 $1,0
Slide 28: Key Return Metrics
Key Return Metrics Return on Equity Return on Invested Capital(1) 14.9% 15.0% 14.5% 14.5% 12.0% 14.1% 13.8% 10.9% 10.8% 10.9% 13.1% 10.0% 9.8% 10.0% 9.7% 10.0% 8.0% 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% 2013 2014 2015 2016 2017 2018 ² ³ 2013 2014 2015 2016 2017 2018 ² ³ (1) Amortization of acquired intangib
Slide 29: Guidance 2019
Guidance 2019 (effective only on the date issued: February 28, 2019) Full Year 2018 Full Year 2019 ($ in millions excluding EPS) Actual Guidance(1) Organic Growth, Parts and Services 4.4% 2.0% - 4.0% Net Income - continuing operations attributable to $485 $641 - $680 LKQ stockholders Adjusted Net In
Slide 30: 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 30
Slide 31: 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. 31
Slide 32: 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 Year Ended December 31, 2018 December 31, 2018 Consolidated Europe Consolidated Europ
Slide 33: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Year Ended December 31(1) December 31(1) % of % of % of % of (in millions) 2018 revenue 2017 revenue 2018 revenue 2017 revenue Revenue North America $1,255 $1,203 $5,183 $4,800 Europe 1,426 972 5,222 3,637 Specialty 323 297 1,478
Slide 34: 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 Year Ended December 31(1) December 31(1) (in millions) 2018 2017 2018 2017 Net income $38 $121 $483 $530 Subtract: Net income (loss) attributable to noncontrolling interest 2 (4) 3 (4) Net income attributable t
Slide 35: 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 36: 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 Year Ended December 31(1) December 31(1) (in millions, except per share data) 2018 2017 2018 2017 Net income $38 $121 $483 $530 Subtract: Net income (loss) attribut
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 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 38: 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 $641 $680 Adjustments: Amortization of acquired intangibles 125 125 Tax e