Lkq Corporation · NASDAQ:LKQ
Lkq — Q3 2020 Earnings Presentation
43 slides from Lkq's earnings presentation, Oct 29, 2020
Slide 1: Third Quarter 2020 Earnings Call
Third Quarter 2020 Earnings Call October 29, 2020 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: Q3 2020 Highlights
Q3 2020 Highlights • COVID-19 Pandemic Impact on Operations ◦ Revenue recovery continued in Q3 as mobility restrictions and resulting impacts lessened sequentially, but improvement leveled off by quarter end ◦ Revenue impact through September 2020 has not been as significant as initially expected wh
Slide 4: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q3 2020 Revenue(1) Q3 2020 EPS(2) -3.2% +30.6% +23.0% $3,400 $0.70 $0.80 $0.64 $0.75 $3,200 $0.64 $0.75 $3,148 $0.60 $0.70 $3,048 $3,000 $0.61 $0.49 $0.50 $0.60 $0.61 $0.49 $2,800 $0.40 $0.50 $2,600 $0.30 $0.40 $2,400 $2,200 $0.20 $0.30 Q3 2019 Q3 2020 Q3
Slide 5: Demand Impact
Demand Impact Organic Parts & Services Revenue Change (Per Day) 10% 5.2% 5% 0.8% 0.8% 0% (0.2%) (1.4%) (2.1%) (2.9%) -5% (4.5%) (5.6%) (4.5%) -10% (10.2%) (11.6%) (12.4%) -15% (16.6%) -20% (22.5%) -25% Q1 Q2 July August September North America Europe Specialty Revenue recovery has leveled off since
Slide 6: Q3 2020 Revenue
Q3 2020 Revenue Revenue Changes by Source: Components of Revenue Acquisition 100.0% and Foreign 5.3% 5.1% Organic Divestiture Exchange Total(1) 13.1% 12.5% North America (11.3)% (0.7)% (0.1)% (12.1)% Europe (0.7)% (1.5)% 4.5% 2.3% 80.0% Specialty 1.1% 0.3% (0.1)% 1.4% Parts and Services (4.5)% (1.0)
Slide 7: Gross Margin and Segment EBITDA Trends
Gross Margin and Segment EBITDA Trends Gross Margin(2) Segment EBITDA(1) (2) 40.4% 12.8% 39.7% 39.3% 39.0% 11.3% 38.7% 38.7% 10.9% 11.0% 11.1% 38.4% 38.5% 10.7% 10.7% 38.3% 38.3% 10.5% 10.4% 38.1% 10.3% 9.6% Q1 Q2 Q3(3) Q4 Q1 Q2 Q3 Q4 2018 2019 2020 2018 2019 2020 (1) Segment EBITDA is a non-GAAP me
Slide 8: Cost Structure Actions
Cost Structure Actions Opex quarterly run rate(1) Key cost reductions • In the third quarter brought back operating expenses as revenue activity improved, though costs remain at a lower level than pre- Opex 18% Opex 10% Revenue 12% Revenue 16% pandemic in Q1 owing to permanent cost reductions Other
Slide 9: Financial Results
Financial Results ( - -
Slide 10: Operating Results - Continuing Operations
Operating Results - Continuing Operations Third Quarter ($ in millions, except per share data) 2020 2019 Change Revenue $3,048 $3,148 (3.2)% Gross Margin 1,199 1,200 (0.1)% Operating Income 296 231 27.9% Pre-tax Income 268 205 30.7% Net income from continuing operations attributable to 193 152 27.4%
Slide 11: North America – Q3 2020 Results
North America – Q3 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 47.4% Total Revenue $1,164 $1,302 (10.6)% 47.0% 46.0% Gross Margin $534 $576 (7.2)% 45.9% 44.2% 46.1% 46.0% Adjusted Gross Margin* $535 $576 (7.1)% 46.0% 44.3% 45.9% 45.2% 45.0% Operating Expen
Slide 12: Europe – Q3 2020 Results
Europe – Q3 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 38.0% Total Revenue $1,484 $1,451 2.2% 37.2% Gross Margin $550 $513 7.3% 37.1% 35.3% 37.0% 37.1% 36.8% 36.8% Adjusted Gross Margin* $550 $530 3.8% 37.1% 36.5% 37.0% 36.5% 37.1% Operating Expenses $415
Slide 13: Specialty – Q3 2020 Results
Specialty – Q3 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 30.0% Total Revenue $400 $395 1.3% 28.9% 28.4% 28.5% Gross Margin $114 $111 2.4% 28.5% 28.2% 27.6% 27.7% 28.0% 27.3% Operating Expenses $67 $67 (0.0)% 16.7% 16.9% 28.2% Segment EBITDA(1) $48 $45 6.
Slide 14: 2020 YTD Capital Allocation
2020 YTD Capital Allocation $ in millions $1,135 $1,500 $(110) $1,000 $535 $500 $8 $421 $(1,038) $(88) $(21) $0 Beginning Cash, Operating Cash Capex Net Repayments Share Other Investing FX and Other Ending Cash DO Cash Flows of Repurchases and Financing 9/30/2020 and Restricted Credit Facilities Act
Slide 15: Free Cash Flow
Free Cash Flow* $1,200 $1,135 $ in millions $1,064 $1,025 125% $1,000 108% $798 100% $800 $715 75% $600 $571 $544 $523 66% $465 $374 $388 50% $400 $347 42% 45% 39% $200 31% 25% $0 0% 2015 2016 2017 2018 2019 2020 Q3 YTD Free Cash Flow ("FCF")* Operating Cash Flow FCF/EBITDA** Note: FCF amounts only
Slide 16: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,500 $4,000 $4,072 $3,491 $3,478 $4,000 $3,500 $523 $3,500 $3,000 $3,549 $3,133 $3,000 $1,813 $421 $2,500 $2,161 $2,500 $2,712 $2,000 $69 $2,000 2.6x $1,500 $71 $1,500 2.0x $1,000 $1,000 $1,609 $1,246 $500 $500 $0 $0 December
Slide 17: Sustainable Business Practices
Sustainable Business Practices Environmental Q3 2020 Results(1) Social Governance • Our North American 209,000 • We have shared with our • Experienced and diverse Number of vehicles procured recycling operations harvest employees some of the Board of Directors vehicle components for benefits we rece
Slide 18: YTD Results and Supplementary Information
YTD Results and Supplementary Information 18
Slide 19: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations YTD 2020 Revenue(1) YTD 2020 EPS(2) -8.6% +17.2% +1.6% $9,496 $1.60 $1.90 $9,500 $1.85 $1.50 $1.50 $1.82 $1.85 $1.50 $1.80 $1.82 $9,000 $1.40 $8,675 $1.30 $1.28 $1.70 $8,500 $1.28 $1.20 $8,000 $1.60 $1.10 $1.00 $7,500 $1.50 $0.90 $7,000 $0.80 $1.40 YTD 20
Slide 20: YTD 2020 Revenue
YTD 2020 Revenue Revenue Changes by Source: Components of Revenue Acquisition 100.0% and Foreign 5.4% 5.0% Organic Divestiture Exchange Total(1) 12.2% North America (12.7)% (0.4)% (0.1)% (13.3)% 13.3% Europe (7.0)% (0.7)% (0.4)% (8.1)% 80.0% Specialty (0.6)% 0.2% (0.2)% (0.5)% Parts and Services (8.
Slide 21: Operating Results - Continuing Operations
Operating Results - Continuing Operations YTD ($ in millions, except per share data) 2020 2019 Change Revenue $8,675 $9,496 (8.6)% Gross Margin 3,423 3,656 (6.4)% Operating Income 718 690 4.1% Pre-tax Income 638 601 6.1% Net income from continuing operations attributable to 458 400 14.5% LKQ stockho
Slide 22: North America – YTD 2020 Results
North America – YTD 2020 Results Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $3,466 $3,926 (11.7)% Gross Margin $1,600 $1,735 (7.8)% 46.2% 44.2% Adjusted Gross Margin* $1,604 $1,735 (7.6)% 46.3% 44.2% Operating Expenses $1,053 $1,222 13.8% 30.4% 31.1% Other Income, ne
Slide 23: Europe – YTD 2020 Results
Europe – YTD 2020 Results Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $4,059 $4,413 (8.0)% Gross Margin $1,502 $1,590 (5.5)% 37.0% 36.0% Adjusted Gross Margin* $1,505 $1,607 (6.4)% 37.1% 36.4% Operating Expenses $1,207 $1,268 4.8% 29.7% 28.7% Other (Expense), net $(4)
Slide 24: Specialty – YTD 2020 Results
Specialty – YTD 2020 Results Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $1,154 $1,161 (0.6)% Gross Margin $321 $331 (2.9)% 27.8% 28.5% Operating Expenses $191 $198 3.5% 16.5% 17.0% Segment EBITDA(1) $133 $136 (2.2)% 11.5% 11.7% (1) Segment EBITDA for each respective
Slide 25: Liquidity as of September 30, 2020
Liquidity as of September 30, 2020 Credit Rating • Rated Ba2 / BB by Moody’s and S&P, respectively • Fixed Interest Rate Bonds: €1,500 million ($1,758 million) • Variable Interest Rate Bank Debt: $1,246 million ($935 million hedged to fixed rates) Debt Structure • Receivables Securitization Facility
Slide 26: Scrap Steel Prices
Scrap Steel Prices Q3 scrap steel prices flat YoY $175 • Average price for scrap steel was flat from $124 per ton in Q3 2019 to $123 per ton in Q3 2020 $150 $150 $144 • Sequential change was positive $15 per ton, or up 14% $128 • Sequential changes in scrap steel $125 $123 prices impacted Segment EB
Slide 27: Foreign Exchange
Foreign Exchange $1.35 • £ up 4.8% Q3 2020 vs Q3 2019 GBP 4.8% $1.30 • € up 5.2% Q3 2020 vs Q3 2019 $1.30 $1.29 $1.29 • $64 million favorable impact of $1.29 translation of stronger Q3 rates $1.28 relative to the US dollar on $1.25 $1.24 $1.23 European parts and services revenue growth $1.20 • Europ
Slide 28: Inventory
Inventory Inventory Procurement: Q3 YTD ($ in millions, Vehicles purchased in 000s) 2020 2019 % Change 2020 2019 % Change Total aftermarket procurement $1,463 $1,623 (9.9)% $3,931 $4,762 (17.5)% Wholesale salvage cars and trucks 57 78 (26.9)% 165 230 (28.3)% Europe wholesale salvage cars and trucks
Slide 29: 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. 29
Slide 30: Appendix 1 - Constant Currency Reconciliation
Appendix 1 - Constant Currency Reconciliation • The following unaudited table reconciles revenue growth for Parts & Services to constant currency revenue growth for the same measure: Three Months Ended Nine Months Ended September 30, 2020 September 30, 2020 Consolidated Europe Consolidated Europe Pa
Slide 31: 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) 2020 revenue 2019 revenue 2020 revenue 2019 revenue Revenue North America $1,164 $1,302 $3,466 $3,926 Europe 1,484 1,451 4,059 4,413 Specialty 400
Slide 32: 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) 2020 2019 2020 2019 Net income $194 $153 $459 $404 Subtract: Net income (loss) attributable to continuing noncontrolling interest 0 (0) 1 2 Net in
Slide 33: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended(1) March 31, June 30, September 30, December 31, (in millions) 2018 2018 2018 2018 Net income $153 $158 $134 $38 Subtract: Net (loss) income attributable to noncontrolling interest (0) 1 0 2 Net income attribut
Slide 34: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended(1) March 31, June 30, September 30, December 31, (in millions) 2019 2019 2019 2019 Net income $99 $152 $153 $141 Subtract: Net income attributable to continuing noncontrolling interest 1 1 (0) 0 Net income attr
Slide 35: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended(1) (in millions) March 31, 2020 June 30, 2020 Net income $146 $119 Subtract: Net income (loss) attributable to continuing noncontrolling interest 1 (0) Net income attributable to discontinued noncontrolling int
Slide 36: 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 37: Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS
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) 2020 2019 2020 2019 Net income $194 $153 $459 $404 Subtract: Net income (loss
Slide 38: Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS
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 39: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 5 - Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended Nine Months Ended September 30(1) September 30(1) (in millions) 2020 2019 2020 2019 Net cash provided by operating activities $222 $327 $1,135 $965 Less: purchases of property, plant and equ
Slide 40: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin Consolidated Adjusted Gross Margin Three Months Ended(1) Nine Months Ended(1) September 30, September 30, September 30, September 30, (in millions) 2020 2019 2020 2019 Gross margin $1,199 $1,200 $3,423 $3,656 Add: Restructuring exp
Slide 41: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin North America Adjusted Gross Margin Three Months Ended(1) (in millions) June 30, 2020 Gross margin $454 Add: Restructuring expenses - cost of goods sold 3 Adjusted gross margin $457 Gross margin % 44.9% Adjusted gross margin % 45.2
Slide 42: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin We have presented adjusted gross margin solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate the operating performance of our continuing business
Slide 43: Appendix 7 - Reconciliation of Total Debt to Net Debt
Appendix 7 - Reconciliation of Total Debt to Net Debt September 30, December 31, (in millions) 2020(1) 2019(1) Current portion of long-term obligations $97 $326 Long-term obligations, excluding current portion 3,010 3,715 Total debt, net of debt issuance costs $3,107 $4,042 Add: Debt issuance costs