LKQ Corporation · NASDAQ:LKQ
LKQ — Investor Day (2022)
79 slides from LKQ's investor day presentation, 2022
Slide 1: 2022 Investor Day
2022 Investor Day 1
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: Agenda
Agenda (all times are CST) 8:00 - 9:00AM Registration 9:00 - 9:05AM Welcome 9:05 - 9:30AM Nick Zarcone-President & Chief Executive Officer 9:30 - 9:50AM Wholesale North America Justin Jude-President, Wholesale North America Rick Galloway-Chief Financial Officer, Wholesale North America 9:50 - 10:05A
Slide 4: Nick Zarcone
Nick Zarcone President & Chief Executive Officer
Slide 5: Our Mission
Our Mission To be the leading global value-added and sustainable distributor of vehicle parts and accessories by offering our customers the most comprehensive, available and cost-effective selection of part solutions and services while building strong partnerships with our employees and the communit
Slide 6: Core competencies and strengths underpin our mission
Our mission is underpinned by a set of clear core competencies and strengths CORE COMPETENCIES AND STRENGTHS • Far-reaching aftermarket parts distribution in growing markets • Industry-leading aftermarket and salvage procurement • Insurance / customer / MSO relationships and B2B e- commerce • Highly
Slide 7: GEAR forward strategic framework
To achieve this mission, GEAR forward provides a strong framework to define a clear strategic roadmap Grow Expand Adapt Rationalize Diversified Offerings Global Footprint To Evolving Technology Asset Base Grow offerings including Identify and analyze new Monitor megatrends, Examine current services
Slide 8: In 2019, we set Four Key Priorities
In 2019, we set Four Key Priorities Profitable Enhance Cash Flow Talent Growth Margins Generation Acquisition 8
Slide 9: We aligned our financial goals and our corporate strategy
Since 2019 We aligned our financial goals and our 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 • Drive operational excellence throughout pandemic 1. S
Slide 10: Performance-based compensation programs reinforce strategic direction
We changed our performance-based compensation programs to reinforce our strategic direction Annual incentive program to focus Shifted 50% of long-term incentives from cash to management on profitability and the performance share units optimization of cash flow Align interests of LKQ’s Board and exec
Slide 11: 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 12: The Largest Auto Recycler in the World
LKQ The Largest Auto Recycler in the World At LKQ, we create a circular economy by selling used parts and distributing spare parts to the vehicle industry. Recycling, remanufacturing, and reusing car parts are part of our DNA: Our operations recover more than 90% of the vehicle. 180 780,000 1.4M 1.1
Slide 13: ESG Focus Areas
ESG Focus Areas Carbon Footprint Employee Talent Diversity, Equity Sustainable Community & Recycling Engagement Development & Inclusion Supply Chain Support 13
Slide 14: Our ESG Goals
Our ESG Goals Our Our People — Environment: Employee Engagement: 30% 73% By 2030, reduce global Scope By 2025, achieve 73% participation 1 and Scope 2 emissions by in our employee engagement survey 30% compared to the 2021 and overall engagement score of 76. baseline relative to revenue. Net Zero 78
Slide 15: Sustainability Report Highlights
Sustainability Report Highlights 13.8M ~2.2M ~208,000MWh Recycled Parts Sold Gallons of Waste Oil Electricity Saved ~43,000 Tons ~3.9M CO2 Saved Gallons of Fuel We are creating a more sustainable business with a goal of reducing our emissions by 30% by 2030 and achieving net zero emissions across ou
Slide 16: Our Strategic Plan: Embed Operational Excellence
Our Strategic Plan: Embed Operational Excellence Across the Global Enterprise Sustainable Targets Profitable Growth Annual Organic Revenue Growth without Inflation Impact Enhance Margins 2.2% to 3.2% Average Annual Organic EBITDA Cash Flow Generation Margin Improvement 15 bps to 25 bps Talent Acquis
Slide 17: Wholesale North America
Wholesale North America Justin Jude – President Rick Galloway – Chief Financial Officer
Slide 18: North America leader for Alternative Parts, Recycled OEM, Remanufacturing, Diagnostics
North America leader for Alternative Parts, Recycled OEM, Remanufacturing, and Diagnostics Services $4.4B1 17.6% ~12.6K 459 2021 Revenue 2021 EBITDA Margin Employees Locations What do we do… Aftermarket Recycled OEM • Leading provider of • Leading provider of recycled aftermarket collision repair pa
Slide 19: LKQ wins through scale, value propositions, and partnerships
LKQ wins through scale, strong value propositions, and strategic partnerships Distribution & Wholesale North America Footprint Extensive distribution network Value proposition 2014 Ford F-150 2018 Nissan Altima 2014 GMC Sierra 1500 Hood Headlamp Transmission 95% of customers delivered by LKQ’s New O
Slide 20: 2020 Investor Day introduced drive to profitable growth
2020 Investor Day introduced LKQ North America Wholesale’s drive to profitable growth and operational excellence Growth and Establishment Expansion 2006-2017 2018 & Beyond • Top-Line Revenue Growth Business • Profitable Revenue Growth Focus • Significant Acquisitions • Strategic/Tuck-in Acquisitions
Slide 21: Business Focus – strategic investments and continuing to deliver
Business Focus – making strategic investments and continuing to deliver Investment in diagnostics strengthens Services business LKQ poised for share growth following supply chain challenges 12% increase in salvage yard capacity in 2021, with more pending Demand improving Limited by supply chai
Slide 22: Commercial actions led to customer-focused value proposition
Commercial - Actions have led to a customer-focused value proposition while increasing LKQ’s share of APU wallet Exiting non-core operations Consistent growth despite industry headwinds Impact of hybrid working Organic growth on congestion patterns Strategic investments Sale of aftermarket g
Slide 23: Operational Excellence will help expand margins and deliver cash
Operational Excellence will continue to help expand margins and deliver Cash Operational Excellence Delivering Improvements in Trade Working Capital* Continued improvement using Artificial Intelligence for salvage Accounts Receivable % Current procurement 100% Network Optimization software drivi
Slide 24: Management is committed to clear and concise objectives
Management is committed to clear and concise objectives 1 Business Focus • Continued investment in margin enhancing services segment • Strategic investment is expanding reman product offerings Sustainable Targets • Poised for share growth following supply chain challenges 2 Commercial Annual Organic
Slide 25: Self Service
Self Service Mike Dufresne – Vice President
Slide 26: Self Service 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: Self Service Strengths & Capabilities
Self Service Strengths & Capabilities People Process Customer offerings Digital • Extensive industry • Disciplined & systematic • Best on-site inventory • Digital app for improved experience inventory sourcing and • Extensive geographic customer experience • Entrepreneurial management footprint • Li
Slide 28: Select Self Service strategic initiatives
Select Self Service strategic initiatives Initiative 1: Centralized Buying and Dispatching Initiative 2: Execute Digital Strategy Digital Streamlined Advertising to Sourcing & EOL Vehicle Operational Owners Processes B2B2C Self-Service Improved Data E-Comm Digital Collection & Strategy MDM Vehicle P
Slide 29: Online marketing and dispatch enhancements will increase revenue
Optimization of online marketing along with enhancements in dispatch will lead to increased revenue and profitability 1) Enhance Search Engine Marketing and Optimization Outcome of initiatives Marketing • Improves hit rate within search engines • Drives increased online traffic • Earns higher trust
Slide 30: Superior digital strategy drives differentiation
A superior digital strategy will help to drive further differentiation between Self Service and its competition Digital Advertising to EOL Vehicle Owners Streamlined Sourcing & Operational • Increase street buy leads through improved Processes Search Engine Marketing (SEM) & Search • Centralizing bu
Slide 31: Strong focus on operational excellence
Self Service segment has a strong focus on operational excellence driving improved profitability, order to cash and overall customer experience 1 Developed an operational hedge on commodities converting procurement to cash between 30 to 90 days, decreasing impact of market fluctuations 2 Our excepti
Slide 32: LKQ
LKQ
Slide 33: LKQ Europe
LKQ Europe Arnd Franz – Chief Executive Officer, LKQ Europe Yanik Cantieni – Chief Financial Officer, LKQ Europe
Slide 34: LKQ Europe
LKQ Europe Unmatchable Excellence & Innovation Leader in Footprint Scale Sustainability 1,000 locations serve Resilient business, Seamless digital Used parts, 100,000+ workshops leading margin, capital experience and first to remanufacturing and multiple times per day efficiency and long-term market
Slide 35: LKQ Europe key facts
LKQ Europe 20 26,300 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 Patterned Fill indicates countries where LKQE is market leader 35
Slide 36: LKQ Europe Growth Story
LKQ Europe Growth Story Revenue in Billion $ Employees in 000s 29.0 27.5 26.2 26.3 20.2 18.6 5.8 6.1 5.2 5.5 11.4 11.8 8.2 5.3 3.6 3.9 2.9 1.8 2.0 1.3 0.7 0.1 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 36
Slide 37: Double Digit EBITDA through Margin Improvement & Productivity
Double Digit EBITDA through Margin Improvement & Productivity Revenue and Segment EBITDA % Average TWC & ATWC % Revenue 1.4 6.1 5.8 1.0 0.9 3.6 25.4% 24.6% 10.2% 8.8% 7.8% 16.2% 2017 2019 2021 2017 2019 2021 Revenue in $B EBITDA % Average TWC in $B ATWC % Revenue Average Trade Working Capital = Rece
Slide 38: Margin & Cash Flow Improvement
Margin & Cash Flow Improvement Procurement, Product Management, Revenue Optimization and Asset Rationalization Asset Procurement Payment Terms & Supply Rationalization Initiatives Chain Financing 10bps EBITDA Improvement $85M Improvement $300M TWC Improvement Category Private Label Revenue Optimizat
Slide 39: Productivity & Shared Services
Productivity & Shared Services Innovation & Service Center Katowice, Poland • FTE Productivity / Cost Benefits • Jobs in Digitalization, Innovation & Administration • Boost LKQ’s Digital and Innovation Strategy • Process Excellence & Standardization Total Employees Shared Service Revenue per 000’s E
Slide 40: Operational Excellence is Continuing
Operational Excellence is Continuing Sulzbach-Rosenberg, DE 1 Network Design Sulzbach-Rosenberg, DE - Closed 100 branches / Revenue per Branch +14% 2 Consolidation of Infrastructure - Powerful distribution centers in key markets 3 Pan European Inbound Freight / Transport Contracts - Freight and tran
Slide 41: Tomorrow's Market Environment
Tomorrow’s Market Environment 361 Million 340 Million >12.0 years Vehicles in 11.8 years BEV Operation in • Market Growth PHEV Europe Passenger cars and ICE & OTHER • Late impact of light commercial vehicles, Electrification on EU+EFTA+UK Independent . Aftermarket 2021 2030 European • Consolidation
Slide 42: Keeping you moving
LKQ So Connectivity So rhe Car park Electrification Driver assistance systems 42 Digital channels & interfaces Keeping you moving
Slide 43: Workshop of the Future
Digital tools Workshop & processes of the Future E-working station capabilities Battery repair & replacement ADAS diagnostic & calibration CUSTOMERS Garage management system • Private • Fleets High-voltage • Insurances protective equipment • OEMs • Corporates Referral systems Software upgrades 43
Slide 44: Traction batteries deplete over vehicle lifetime
Capacity of Traction Batteries Will Deplete Over Lifetime of the Vehicle Battery State of Health (SOH) % of original nominal capacity. Temperature Years 0 5 10 15 Performance Capacity reserve Charging / discharging behavior 100% 90% Depth of discharge 80% SOC / voltage state 70% Typical OEM warranty
Slide 45: Electric vehicles create new aftermarket opportunities
Electrical Vehicles Will Create New Business Opportunities in the Aftermarket Dismantling LKQ Business Opportunity Testing & Use phase Sorting Reuse Repair Integration Remanufacturing Recycling Production 45
Slide 46: LKQ Europe Strategic Objectives
Operational Excellence With Innovation: LKQ Europe Strategic Objectives 01 Gross Margin Improvement Sustainable Targets • Procurement & Product Strategy • Revenue Optimization • Private Label Annual Organic Revenue Operational Excellence Growth without Inflation Impact 02 • Logistics 2.5% to 3.5% •
Slide 47: Specialty
Specialty Bill Rogers - Senior Vice President Gary Mann - Vice President Finance
Slide 48: Specialty has made tremendous progress in the last 2 years
Despite the COVID-19 pandemic and global supply chain issues, Specialty has made tremendous progress in the last 2 years Specialty Financial Performance $ in M Key Accomplishments since 2019 $2,400 12% $2,200 11% 12.0% Organic 2019 – 2021 Revenue CAGR $2,000 +12.9% 10% $1,800 Sales 9% EBITDA $1,600
Slide 49: Unmatched logistics network and delivery capabilities
Our unmatched logistics network and superior delivery capabilities… Specialty Logistics Network Order to delivery in less than 24 hours Big & Bulky – Every Day Inside Sales Locations (9) Manufacturing Locations (4) Specialty Cross-Docks (37) Specialty Distribution Centers (8) R&D Locations (2) 49
Slide 50: Further enhanced by our digitization
… Are further enhanced by our digitization Superior Catalog Mobile Application • 1055 custom catalogs • Parts search • Smart search • Ordering • Images & video • Order tracking • Fitment (vehicle specific) • Rapid order • Category browsing • VIN scan • Real time inventory Digital Tools Interactive G
Slide 51: Case-in-point: Interactive Garage
Case-in-point: Interactive Garage Interactive Garage • Some Usage Data – Over 12,000 Jobbers have the tool on eKeystone – 450+ have customized version – 500k unique sessions per month – Average build time – 9 Mins • 83 KAO Brands currently included • Now offering Custom version with B to C Cart – Bo
Slide 52: Marine business will benefit from logistics and digitization
Marine business will benefit from our best-in-class logistics capabilities and digitization 2021E TOTAL Specialty Expects Accelerated Growth for the New Marine Segment ~$9B ADDRESSABLE MARINE SEGMENT Fully integrate Seawide Expand into Private Label products ~98% TOTAL UNTAPPED SEGMENT SHARE L
Slide 53: Assessing adjacent segments for opportunities
We continue to assess adjacent segments for attractive opportunities Powersports ~$3.9B 5%+ TAM Addition Five-Year TAM Established “Blueprint” for Expanding Growth Rate into Attractive Adjacent Segments 1 Identify Segments E-Bikes ~$2.5B 18%+ 2 Develop Organically TAM Addition Five-Year TAM Growth R
Slide 54: Strategy to Drive Continued Profitable Growth in Specialty
Our Strategy is to Drive Continued Profitable Growth in Specialty 1 Maintain and grow #1 position in core auto & RV markets served Sustainable Targets • New lines & products • Exclusive brands 2 Establish strong position in adjacent marine Annual Organic Revenue distribution market Growth without In
Slide 55: Specialty Summary
Specialty Summary Strong leadership position Multiple competitive advantages Markets are responding in the markets we serve that are very difficult to duplicate favorably to new environmental conditions Very strong team responsive to Sound business strategy to changing market & driving market expand
Slide 56: Varun Laroyia
Varun Laroyia Executive Vice President and Chief Financial Officer
Slide 57: LKQ Financial Snapshot
LKQ Financial Snapshot Financial Measures TTM Q1 2022 in $M Third Party Revenue (6) Revenue $13,265 Self Service Segment EBITDA (1) $1,781 Specialty 5.9% 14.1% North America 34.1% Net Debt (2) $2,394 45.9% Total Liquidity (3) $1,595 Europe Segment EBITDA (1)(6) Self Service Market Capitalization (4)
Slide 58: Approach to Balance Sheet and Capital Allocation
Our Approach to Balance Sheet and Capital Allocation Sustained Investment Grade Rating and Driving TSR Balance Sheet Management and Capital Allocation Key Takeaways Driving Increased Organic Growth / Taking Share from Competitors Organic growth focus – outgrow markets and continue to expand in nea
Slide 59: Growing and Economically Resilient Industry
LKQ Operates in a Growing and Economically Resilient Industry Stable US Vehicle Miles Traveled Provide Consistent Demand for Aftermarket Auto Parts (in Trillions of Miles) 2001 Great Recession CAGR Recession +1.3% -7% +2% -2% 3.10 3.17 3.21 3.24 3.27 2.86 2.89 2.96 2.99 3.01 3.03 2.97 2.96 2.97 2.95
Slide 60: Vehicle Kilometers Traveled in Europe Exhibit Similar Patterns
Total Vehicle Kilometers Traveled in Europe Exhibit Similar Patterns as in the US Historical Vehicle Kilometers Traveled in Trillions of Km CAGR +0.6% -9.5% 1.48 1.50 1.51 1.52 1.44 1.45 1.43 1.45 1.45 1.46 1.37 1.29 UK Italy Germany 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 COVID-
Slide 61: Operational Excellence Program Drives Results
Operational Excellence Program Drives Results Gross Margin % Segment EBITDA % (1) Free Cash Flow (1) 70 bps 120 bps 180 bps +16.0% 120 bps 38.8% 39.5% 40.7% 13.6% $1,271 11.8% $1,074 P&S Organic 10.6% $798 Revenue Growth 7.9% 2019 2020 2021 2019 2020 2021 2019 2020 2021 0.3% Net Leverage (2) Adjuste
Slide 62: Focus on Free Cash Flow Generation
Focus on Free Cash Flow Generation Operating Initiatives and Incentives Operating & Free Cash Flow $ in M to Drive Free Cash Flow Conversion $1,444 98% • Metrics deployed in 2018 across all key Trade Free Cash Flow1 $1,367 Working Capital components; consistently & rigorously Operating Cash Flow $1,
Slide 63: Net Debt / EBITDA
Net Debt / EBITDA 2.9x 2.6x 2.7x 2.6x 1.9x 1.4x 1.3x Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 '17 '17 '17 '17 '18 '18 '18 '18 '19 '19 '19 '19 '20 '20 '20 '20 '21 '21 '21 '21 '22 May 12, 2022 Moody's assigns Baa3 Issuer Rating to LKQ Corporation, upgrades subsidiary debt to Baa3
Slide 64: Balance Sheet Prepped to Sustain Volatile Capital Markets
Balance Sheet Prepped to Sustain Volatile Capital Markets Debt Maturity Profile(1) Debt Structure Optimization 3,712 • Credit Facility matures in January 2024 • Expect to decrease the size of the 1,337 facility when we replace our existing facility in the next 12 months • Negotiate facility under in
Slide 65: Operating Cash Flows Allocated to Highest Return Opportunities
Strong Operating Cash Flows Allocated to Highest Return Opportunities 2019 to March 2022 - Capital Allocation Priorities for Next 3 Years $4.3 Billion Operating Cash Flows Deployed Operating Maintain high conversion; Cash Flow scale with business Net Debt Paydowns Capital Similar level expected with
Slide 66: Driving Value Through Investment and Asset Base Rationalization
Driving Value Through Investment and Asset Base Rationalization $M USD Target critical capabilities in High return capital projects that attractive markets (1) advance our strategy • Entry point to Benelux CDC diagnostic services • Allows consolidation of 4 regional centers to a central facility SEB
Slide 67: 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, NA and Specialty margin expansion Cash Flow Convert high levels of EBITDA to Free Cash Flow with a focus on trade working capital efficiencies. Generation T
Slide 68: LKQ's Investment Thesis
LKQ’s Investment Thesis Organic Growth & Focus on Cash Flow Strong Market Position Operational Excellence and Capital Allocation • Market leadership in all four • Ability to grow revenue • Convert EBITDA to FCF by reporting segments: organically faster than market maintaining rigorous working ‒ Nort
Slide 69: Our Strategic Plan: Embed Operational Excellence
Our Strategic Plan: Embed Operational Excellence Across the Global Enterprise Sustainable Targets Profitable Growth Annual Organic Revenue Growth without Inflation Impact Enhance Margins 2.2% to 3.2% Average Annual Organic EBITDA Cash Flow Generation Margin Improvement 15 bps to 25 bps Talent Acquis
Slide 70: Nick Zarcone Closing Remarks
Nick Zarcone Closing Remarks President & Chief Executive Officer
Slide 71: Great Company, Great Stock
Great Company, Great Stock Great Company – Great Stock Integrated Strategy ApproachIntegrated Strategy Approach Business Strategy Great Company Great Stock • Financially resilient • Strong & sustainable • Competitively • Shareholder value advantaged • Stable & loyal long- Shareholder • Growing profi
Slide 72: LKQ
LKQ
Slide 73: Appendix
Appendix L KQ 73 Keeping you moving
Slide 74: Reconciliation of Total Debt to Net Debt
Appendix 1 Reconciliation of Total Debt to Net Debt (in millions) March 31, 2022(1) Current portion of long-term obligations $31 Long-term obligations, excluding current portion 2,680 Total debt, net of debt issuance costs $2,711 Add: Debt issuance costs 10 Total debt $2,721 Less: Cash and cash equi
Slide 75: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 2 Reconciliation of Net Income to EBITDA and Segment EBITDA (in millions) 2019 2020 2021 Q1 2022 Q1 2021 TTM Q1 2022 Net income $545 $640 $1,092 $273 $266 $1,099 Subtract: Net income attributable to continuing noncontrolling 3 2 1 - - - interest Net income attributable to discontinued nonco
Slide 76: EBITDA and Segment EBITDA Reconciliation
Appendix 2 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 77: Reconciliation of Net Income and EPS to Adjusted Net Income and EPS
Appendix 3 Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations (in millions, except per share data) 2019 2020 2021 Net income $545 $640 $1,092 Subtract: Net income attributable to continuing noncontrolling interest 3 2 1 Net income attributable to
Slide 78: Adjusted Net Income and Adjusted EPS from Continuing Operations
Appendix 3 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 as we believe these measures are useful for evaluating the core operating perfor
Slide 79: Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 4 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Year Ended December 31(1) Ended March 31(1) (in millions) 2015 2016 2017 2018 2019 2020 2021 2022 Operating Cash Flows $544 $635 $519 $711 $1,064 $1,444 $1,367 $409 Less: Operating Cash Flows – Disc