LKQ Corporation · NASDAQ:LKQ
LKQ — Q3 2022 Earnings Presentation
59 slides from LKQ's earnings presentation, Oct 27, 2022
Slide 1: Third Quarter 2022 Investor Presentation
Third 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 4.4% 0.3% (7.6%) 7.9% 5.1% vehicles and specialty products and accessories Growth(1) Found
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: Q3 2022 Revenue
Q3 2022 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Organic Divestiture Foreign Exchange Total(1) Wholesale - North America 10.9% (10.6)% (0.2)% 0.1% Europe 4.8% 0.5% (14.7)% (9.4)% Specialty (9.1)% 6.6% (0.3)% (2.8)% Self Service 7.2% —% —% 7.2% Parts and Services 4.8%
Slide 12: Share Repurchase Program
Share Repurchase Program # of Shares 4.3 5.3 2.7 8.1 6.8 2.4 Repurchased Million Million Million Million Million Million $404 M $343 M $297 M $219 M $49.63 $144 M $50.89 $56.57 $119 M $50.50 $53.20 $50.02 On October 25, 2022, our Board of Directors authorized an additional $1.0 billion increase to o
Slide 13: YTD 2022 Capital Allocation
YTD 2022 Capital Allocation ($ in millions) $269 Operating cash flows: • Operating cash flows of $1,010 million represent a 26%, or $352 million, decrease year-over-year driven by higher investments into inventory in response to strong demand and strategic purchases to curb the impacts of supply cha
Slide 14: Operating Cash Flow and Free Cash Flow
(1) (1) Operating Cash Flow and Free Cash Flow ($ in millions) 98% Actual FCF conversion of EBITDA(2) 66% 64%(3) 60% Targeted annual FCF conversion of EBITDA (55%-60%) (1) (1) Free Cash Flow is a non-GAAP measure. Refer to Appendix 6 for Free Cash Flow reconciliation (2) EBITDA is a non-GAAP measure
Slide 15: Leverage & Liquidity
Leverage & Liquidity ($ in millions) ($ in millions) Total Capacity(1) $3,150 $3,150 $2,824 $2,447 1.4x 1.3x (2) (3) Effective borrowing rate for Q3 2022 was 3.0%(4) (1) Total capacity includes our revolving credit facilities (2) Net debt is a non-GAAP financial measure. Refer to Appendix 7 for Net
Slide 16: Outlook 2022
Outlook 2022 (1) (effective only on the date issued: October 27, 2022) Full Year 2022 Full Year 2022 Previous Outlook(6) Updated Outlook Organic parts and services revenue growth 4.5% to 6.5% 4.75% to 5.75% Diluted EPS(2) $4.09 to $4.29 $4.12 to $4.22 Adjusted diluted EPS(2)(3) $3.85 to $4.05 $3.85
Slide 17: 2022 Adjusted EPS Guidance Walk
2022 Adjusted EPS Guidance Walk (1)(3) (1) $3.90 (2) (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 (3) Previous midpoint guidance was issued July 28, 2022 17
Slide 18: Liquidity as of September 30, 2022
Liquidity as of September 30, 2022 • Rated Baa3 (investment grade) by Moody's Credit Rating • Rated BBB- (investment grade) by S&P Global Ratings • Rated BBB- (investment grade) by Fitch • Fixed Interest Rate Bonds: €750 million ($735 million) in aggregate due in 2024 and 2028 Debt Structure • Varia
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% 11.7% Collision 17.6% 18.7% 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% (9.7%) Performance products 12.0% 12.4% Appearance & accessories 11.0% 10.8% Specialty RV, trailer & other Specialty wheels & tires Marine 2019 2020 2021 YTD 202
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 fleet
Slide 23: 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 1.6 Sublet Repairs i
Slide 24: LKQ Europe
Indicates LKQE has LKQ Europe 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 38 Cross Doc
Slide 26: LKQ's Self Service segment has the largest national footprint
LKQ’s Self Service segment has the largest national footprint with opportunity for continued growth 2021 Revenue: $787M | 2021 EBITDA Margin: 22.3% | ~1,650 Employees | 69 Locations Self Serve Statistics Competition Vehicles procured 554K National Scrap (tons) 838K • Schnitzer • Nucor Tires 1,248K R
Slide 27: 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 28: 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 29: 1 LKQ Europe Program
1 LKQ Europe Program 20 Improved Customer … In the Hands of Maintain Strong Different Experience…. Local Managers Entrepreneurial Culture Countries Multiple ERP, financial, E-mail, Phone systems… Transformation Common ERP Platform Rationalized Product Portfolio … And Fragmented Procurement and Produ
Slide 30: 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 31: 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 32: 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 33: 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 34: 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 35: 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 36: 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 37: 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 38: 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 39: 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 (20 count
Slide 40: Supplementary Information
Supplementary Information L KQ Keeping you moving
Slide 41: Metals Prices
Metals Prices Scrap steel impact Q3 scrap steel prices decreased YoY Q3 precious metal prices declined YoY Sequential changes in scrap steel prices impact to Segment EBITDA: and QoQ and were mixed sequentially Self Service: (sequential change of 29% in 2022) • Q3 2022 unfavorable by $16 million; YTD
Slide 42: Lag Effect - Scrap Steel Prices
Lag Effect - Scrap Steel Prices Self Service Lag Effect • Margin benefit or detriment based on the movement in market prices between purchase date and scrap date (we typically scrap cars within 90 days of purchase) • Purchase price reflects market assumptions at the vehicle purchase date • Catalytic
Slide 43: Foreign Exchange
Foreign Exchange • £ down 14.6% Q3 2022 vs Q3 2021 • € down 14.6% Q3 2022 vs Q3 2021 • $224 million unfavorable impact of translation of weaker Q3 rates relative to the US Dollar on European parts and services revenue growth • Foreign exchange (translation and transaction gains/losses) impact: ◦ Q3
Slide 44: Inventory Procurement
Inventory Procurement ($ in millions, vehicles purchased in 000s) Q3 YTD 2022 2021 % Change 2022 2021 % Change Total aftermarket procurement $1,439 $1,590 (9.5)% $4,646 $4,764 (2.5)% Wholesale - North America salvage vehicles 63 61 3.3% 188 174 8.0% Europe wholesale salvage vehicles 7 6 16.7% 23 19
Slide 45: Inventory Balances
Inventory Balances ($ in millions) Wholesale - North America Europe
Slide 46: Inventory Balances (cont.)
Inventory Balances (cont.) ($ in millions) Self Service Specialty
Slide 47: 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.
Slide 48: 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, 2022 September 30, 2022 (in
Slide 49: Constant Currency Reconciliation (cont.)
Appendix 1(cont.) Constant Currency Reconciliation Three Months Ended Nine Months Ended September 30, 2022 September 30, 2022 Consolidated Europe Consolidated Europe Parts & Services Revenue growth as reported (5.0)% (9.4)% (0.7)% (4.8)% Less: Currency impact (7.4)% (14.7)% (5.3)% (10.5)% Revenue gr
Slide 50: Revenue and Segment EBITDA by segment
Appendix 2 Revenue and Segment EBITDA by segment Three Months Ended September 30(1) Nine Months Ended September 30(1) (in millions) 2022 % of revenue 2021 % of revenue 2022 % of revenue 2021 % of revenue Revenue Wholesale - North America $1,109 $1,112 $3,454 $3,282 Europe 1,380 1,525 4,345 4,565 Spe
Slide 51: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended September 30(1) Nine Months Ended September 30(1) (in millions) 2022 2021 2022 2021 Net income $262 $284 $955 $856 Subtract: Net income attributable to continuing noncontrolling interest — — — 1 Net income attrib
Slide 52: 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 53: Reconciliation to Adjusted Net Income and Adjusted EPS
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 September 30(1) Nine Months Ended September 30(1) (in millions, e
Slide 54: Adjusted Net Income and Adjusted EPS Definitions
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 55: Forecasted EPS Reconciliation
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 $1,145 $1,173 Adjustments: Amortization of acquired intangibles 62 62 Restructuring and
Slide 56: Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended September 30(1) Nine Months Ended September 30(1) (in millions) 2022 2021 2022 2021 Net cash provided by operating activities $273 $429 $1,010 $1,362 Less: purchases of property, plant and equ
Slide 57: Free Cash Flow Reconciliation Definition
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 58: Reconciliation of Total Debt to Net Debt
Appendix 7 Reconciliation of Total Debt to Net Debt (in millions) September 30, 2022(1) December 31, 2021(1) Current portion of long-term obligations $50 $35 Long-term obligations, excluding current portion 2,390 2,777 Total debt, net of debt issuance costs $2,440 $2,812 Add: Debt issuance costs 7 1
Slide 59: LKQ
LKQ