Lkq Corporation · NASDAQ:LKQ
Lkq — Q4 2015 Earnings Presentation
34 slides from Lkq's earnings presentation, Feb 25, 2016
Slide 1: Fourth Quarter 2015 Earnings Call
Fourth Quarter 2015 Earnings Call February 25, 2016 Rob Wagman – President & Chief Executive Officer Nick Zarcone – Executive Vice President & Chief Financial Officer Joe Boutross – Director, Investor Relations
Slide 2: Forward Looking Statements
Forward Looking Statements Statements and information included in this presentation that are not purely 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. Forward-loo
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: Consolidated Results
Consolidated Results Q4 2015 2015 $1,749 $7,193 $1,750 $0.32 $7,200 $1.40 $1.38 $0.31 $7,100 $1,725 $0.30 $1.35 .2% $7,000 7% .4% 3.8% 19 6. 10 $1,700 $0.28 $6,900 $1.30 $1,684 $6,800 $6,740 $1.25 $0.26 $1,675 $0.26 $6,700 $1.25 $6,600 $1,650 $0.24 $1.20 $6,500 $1,625 $0.22 $6,400 $1.15 Q4 2014 Q4 2
Slide 5: Q4 2015 Revenue Growth
Q4 2015 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 5.6% 3.4% (1.1)% 7.9% Europe 6.3% 5.0% (6.7)% 4.6% Specialty 8.1% 9.5% (1.5)% 16.1% Parts and Services 6.2% 4.7% (2.9)% 8.0% Other Revenue (42.7)% 4.5% (0.3)% (38.5)% Total 1.8% 4.7% (2.6)%
Slide 6: 2015 Revenue Growth
2015 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 5.6% 2.2% (1.0)% 6.8% Europe 9.2% 8.5% (9.7)% 8.0% Specialty 7.8% 24.6% (1.9)% 30.6% Parts and Services 7.0% 7.1% (3.8)% 10.3% Other Revenue (28.6)% 2.2% (0.3)% (26.7)% Total 3.5% 6.6% (3.4)% 6
Slide 7: Q4 2015 Operating Highlights
Q4 2015 Operating Highlights North America • According to the US Department of Transportation, miles driven was up 3.5% in 2015 as compared to 2014. Miles driven in 2015 were the highest number recorded since 1990. • Q4 average price of unleaded regular was $2.18 a gallon compared to an average of $
Slide 8: Inventory
Inventory Inventory Procurement: ($ in millions) 2015 2014 % Change Total aftermarket purchases $2,944 $2,685 9.6% Wholesale salvage cars and trucks 310,000 290,000 6.9% Self service and "crush only" cars 471,000 514,000 (8.4)% • Aftermarket inventory levels sufficient to achieve our growth targets
Slide 9: Acquisition Activity
Acquisition Activity Number of Q4 TTM Number of YTD TTM Acquisitions Revenue* Acquisitions Revenue* North America — — 5 $162 million Europe 1 $5 million 12 $93 million Specialty — — 1 $135 million Total 1 $5 million 18 $390 million North America • In Q3, the Company acquired substantially all of the
Slide 10: Financial Results
Corporation Financial Results
Slide 11: Operating Results
Operating Results Fourth Quarter YTD ($ in millions,except per share data) 2015 2014 Change 2015 2014 Change Revenue $1,749 $1,684 3.8% $7,193 $6,740 6.7% Gross Margin 697 665 4.9% 2,834 2,652 6.8% Segment EBITDA 193 182 5.7% 855 791 8.1% Operating Income 152 146 3.7% 705 650 8.4% Pre-tax Income 139
Slide 12: Q4 2015 Consolidated Margins
Q4 2015 Consolidated Margins Q4 Q4 Change (as a % of Revenue) 2015 2014 F/(U) QTD Commentary Revenue 100.0% 100.0% —% • Improvement in European and North American gross margins; partially offset by a Gross Margin 39.9% 39.5% 0.4% decline in our Specialty business and impact of revenue mix • Lower ot
Slide 13: 2015 Consolidated Margins
2015 Consolidated Margins Change (as a % of Revenue) 2015 2014 F/(U) YTD Commentary Revenue 100.0% 100.0% —% • Several positive and negative factors netted to a 0.1% increase; the largest factors were (i) a 0.3% decrease in European cost of goods sold due to favorable pricing and Gross Margin 39.4%
Slide 14: Components of Quarterly Revenue
Components of Quarterly Revenue $1.68B $1.75B $6.74B $7.19B 100.0% 8.9% 5.3% 9.7% 6.7% • Portion of change in margins on a consolidated basis is attributable to change in revenue mix 13.9% 12.5% 14.6% 11.9% 80.0% • North America historically has highest Gross Margins and EBITDA margins 27.8% 27.6% 2
Slide 15: North America – Q4 2015 Results
North America – Q4 2015 Results % of Revenue Gross Margin ($ in millions) 2015 2014 Change 2015 2014 44.0% 43.2% Total Revenue $1,018 $1,009 0.9% 42.9% 42.7% Gross Margin $440 $427 3.2% 43.2% 42.3% 41.9% 42.0% 42.3% 42.4% 42.2% Operating Expenses $310 $299 4.0% 30.5% 29.6% 42.0% Segment EBITDA $131
Slide 16: North America – 2015 Results
North America – 2015 Results % of Revenue ($ in millions) 2015 2014 Change 2015 2014 Total Revenue $4,147 $4,089 1.4% Gross Margin $1,768 $1,728 2.3% 42.6% 42.3% Operating Expenses $1,227 $1,190 3.1% 29.6% 29.1% Segment EBITDA $547 $544 0.6% 13.2% 13.3% North America Segment EBITDA Margin Bridge 15.
Slide 17: Scrap Steel Prices
Scrap Steel Prices $250 • Decrease in other revenue $224 $217 primarily attributable to $215 lower scrap steel prices $200 $187 • Average price we received for scrap steel was ~56% lower YOY, at $187 per ton for Q4 2014 vs. $82 per ton $150 $141 $140 in Q4 2015 $123 • Estimated negative EPS impact o
Slide 18: Europe – Q4 2015 Results
Europe – Q4 2015 Results % of Revenue Gross Margin ($ in millions) 2015 2014 Change 2015 2014 40.0% 38.9% Total Revenue $487 $465 4.6% 38.0% Gross Margin $189 $174 9.1% 38.9% 37.3% 38.0% 37.2% 37.3% 38.3% Operating Expenses $143 $135 5.9% 29.4% 29.0% 37.0% 37.0% Segment EBITDA $47 $38 23.6% 9.7% 8.2
Slide 19: Europe – 2015 Results
Europe – 2015 Results % of Revenue ($ in millions) 2015 2014 Change 2015 2014 Total Revenue $1,995 $1,846 8.1% Gross Margin $759 $679 11.8% 38.0% 36.8% Operating Expenses $559 $511 9.4% 28.0% 27.7% Segment EBITDA $201 $167 20.0% 10.1% 9.1% ECP Branches 199 189 10 Sator Branches 86 64 22 Europe Segme
Slide 20: Foreign Exchange
Foreign Exchange $1.80 $1.68 $1.67 • £ down 4% Q4 2015 vs. Q4 2014 $1.70 $1.66 • € down 13% Q4 2015 vs. Q4 2014 $1.58 $1.60 $1.55 $1.52 $1.53 $1.52 • Translation impact of stronger $1.50 dollar on European revenue growth: $1.40 – Q4: $(31) million $1.37 $1.37 $1.30 $1.33 – YTD: $(180) million $1.20
Slide 21: Specialty – Q4 2015 Results
Specialty – Q4 2015 Results % of Revenue Gross Margin ($ in millions) 2015 2014 Change 2015 2014 32.0% 30.8% 30.8% Total Revenue $245 $211 16.2% 30.5% 30.8% 30.0% Gross Margin $68 $64 5.5% 27.7% 30.5% 30.1% 29.1% Operating Expenses $53 $49 8.7% 21.8% 23.3% 27.7% 28.0% 27.9% Segment EBITDA $15 $15 (2
Slide 22: Specialty – 2015 Results
Specialty – 2015 Results % of Revenue ($ in millions) 2015 2014 Change 2015 2014 Total Revenue $1,055 $807 30.7% Gross Margin $307 $245 25.3% 29.1% 30.3% Operating Expenses $201 $166 21.3% 19.1% 20.6% Segment EBITDA $107 $79 34.1% 10.1% 9.8% Specialty Segment EBITDA Margin Bridge 11.5% 10.5% 0.7% 10
Slide 23: 2015 Capital Allocation
2015 Capital Allocation $800 $530 $600 $400 $(170) $(160) $200 $115 $87 $(224) $(4) $0 Beginning Cash Operating Cash Capex Acquisitions & Financing F/X and other Ending Cash 2015 Flows Other Investing 2015 Activities • Operating cash flows: - $588M of cash earnings(1) in 2015 compared to $524M in 20
Slide 24: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) $2,000 $3,500 $1,865 Revolver $3,200 3.3x Availability(1) $115 $3,000 $1,750 $1,600 3.1x $1,600 $87 $1,513 2.9x $2,500 $2,283 $2,261 2.7x $2,000 $2,243 $1,200 2.5x $1,126 $1,304 $1,500 2.3x $800 $60 $1,000 2.0x 2.1x $66 $66 $500 $1,097 $400 1.9x
Slide 25: Key Return Metrics
Key Return Metrics Return on Equity Return on Invested Capital 16.0% 14.0% 14.9% 15.0% 12.0% 14.4% 14.5% 14.5% 10.6% 10.6% 10.6% 10.2% 10.2% 10.4% 10.0% 14.0% 13.7% 13.1% 8.0% 13.0% 6.0% 12.0% 4.0% 11.0% 2.0% 10.0% 0.0% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 24
Slide 26: Guidance 2016
Guidance 2016 (effective only on the date issued: February 25, 2016) Full Year 2015 Full Year 2016 ($ in millions excluding EPS) Actual Guidance(1)(2) Organic Revenue Growth, for parts and services 7.0% 6.0% to 8.0% Adjusted Net Income $459 $490 to $520 Adjusted Diluted EPS $1.49 $1.59 to $1.69 Cash
Slide 27: Q4 2015 Key Takeaways
Q4 2015 Key Takeaways • Solid organic revenue growth of 6.2% and 7.0% for parts and services in Q4 and 2015, respectively • Constant currency revenue growth of 10.9% and 14.1% for parts and services in Q4 and 2015, respectively • Segment EBITDA margin improvement for Q4 and YTD periods as increases
Slide 28: 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 27
Slide 29: Appendix - Non-GAAP Financial Measures
Appendix - Non-GAAP Financial Measures The financial data contained in the presentation materials includes earnings before interest, taxes, depreciation and amortization ("EBITDA") and provides a reconciliation of net income to EBITDA. The financial data contained in the presentation materials also
Slide 30: Appendix 1- Constant Currency Reconciliation
Appendix 1- Constant Currency Reconciliation • The following unaudited table reconciles revenue growth for Parts and Services to constant currency revenue growth for the same measure: Three Months, Ended Twelve Months, Ended December 31, 2015 December 31, 2015 Consolidated Europe Consolidated Europe
Slide 31: Appendix 2- EBITDA and Segment EBITDA Reconciliation
Appendix 2- EBITDA and Segment EBITDA Reconciliation QTD** YTD** % of % of % of % of (in millions) Q4 2015 revenue Q4 2014 revenue Q4 2015 revenue Q4 2014 revenue Segment EBITDA North America $ 130.6 12.8% $ 128.8 12.8% $ 547.4 13.2% $ 543.9 13.3% Europe 47.4 9.7% 38.3 8.2% 200.6 10.1% 167.2 9.1% Sp
Slide 32: Appendix 3- Adjusted Net Income and Adjusted EPS Reconciliation
Appendix 3- Adjusted Net Income and Adjusted EPS Reconciliation QTD* YTD* (in millions, except per share data) Q4 2015 Q4 2014 Q4 2015 Q4 2014 Net Income $95.1 $80.5 $423.2 $381.5 Adjustments: Restructuring and acquisition related expenses, net of tax 4.5 1.2 12.8 9.7 Change in fair value of conting
Slide 33: Appendix 4- Adjusted Net Income and EPS Reconciliation
Appendix 4- Adjusted Net Income and EPS Reconciliation* (in millions, except per share data) 2015** 2014** 2013** 2012** 2011** Net Income $423.2 $381.5 $311.6 $261.2 $210.3 Adjustments: Restructuring and acquisition related expenses, net of tax 12.8 9.7 6.6 1.7 4.8 Loss on debt extinguishment, net
Slide 34: Appendix 5- 2015 Quarterly Adjusted Net Income and EPS Reconciliation
Appendix 5- 2015 Quarterly Adjusted Net Income and EPS Reconciliation* (in millions, except per share data) Q4** Q3** Q2** Q1** Net Income $95.1 $101.3 $119.7 $107.1 Adjustments: Restructuring and acquisition related expenses, net of tax 4.5 3.0 1.1 4.2 Change in fair value of contingent considerati