Lkq Corporation · NASDAQ:LKQ
Lkq — Q1 2020 Earnings Presentation
32 slides from Lkq's earnings presentation, Apr 30, 2020
Slide 1: First Quarter 2020 Earnings Call
First Quarter 2020 Earnings Call April 30, 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: 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: Q1 2020 Key Takeaways
Q1 2020 Key Takeaways • COVID-19 Pandemic Impact on Operations ◦ Many of our customers remain open as essential service providers, and we continue to supply them ◦ Efforts by governments to flatten the infection curve have had a profound negative impact on mobility and miles driven ◦ Revenue decline
Slide 5: Demand Impact
Demand Impact Weekly Sales as a Percentage of Prior Year 120% 100% 80% % PY Sales 60% 40% 20% 0% r** r r** r r ** r r a Ap a Ma a pr -M -M -M p p 5- -A 8- -A -A 22 15 29 Week Ending 26 19 12 Europe North America* Specialty Revenue declined as restrictions on movement were instituted in mid-March Not
Slide 6: Cost Structure Actions
Cost Structure Actions Current opex monthly run rate Key actions implemented (to date) • Headcount actions totaling ~17,000 (34%) FTEs include furlough, RIFs, decreased hours, elimination of overtime, Other 11% $80M - $90M temp workers, and hiring freeze; leveraging European Reduction government pro
Slide 7: Liquidity as of March 31, 2020
Liquidity as of March 31, 2020 Credit Rating • Rated Ba2 / BB by Moody’s and S&P, respectively • Fixed Interest Rate Bonds: €1,500 million ($1,655 million) • Variable Interest Rate Bank Debt: $1,900 million Debt Structure • Receivables Securitization Facility: $98 million • Other Debt (capital lease
Slide 8: Financial Results
Financial Results ( - -
Slide 9: Q1 2020 Revenue
Q1 2020 Revenue Revenue Changes by Source: Components of Revenue Acquisition 100.0% and Foreign 6.3% 4.8% Organic Divestiture Exchange Total(1) 11.6% 11.4% North America (4.2)% 0.1% (0.1)% (4.2)% Europe (3.4)% 0.1% (2.5)% (5.8)% 80.0% Specialty (1.4)% 0.1% (0.1)% (1.5)% Parts and Services (3.5)% 0.1
Slide 10: Operating Results - Continuing Operations
Operating Results - Continuing Operations First Quarter ($ in millions, except per share data) 2020 2019 Change Revenue $3,001 $3,100 (3.2)% Gross Margin 1,214 1,208 0.5% Operating Income 242 222 8.7% Pre-tax Income 207 190 8.7% Net income from continuing operations attributable to 146 98 49.1% LKQ
Slide 11: Q1 2020 Consolidated Margins - Continuing Operations
Q1 2020 Consolidated Margins - Continuing Operations Q1 Q1 Change (as a % of Revenue) 2020 2019 F/(U) Q1 Commentary Revenue 100.0% 100.0% —% Gross Margin 40.4% 39.0% 1.4% Increase primarily attributable to North America Selling, General and 30.0% 28.9% (1.1)% Increase primarily attributable to Europ
Slide 12: North America – Q1 2020 Results
North America – Q1 2020 Results Gross Margin Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 49.0% 48.0% 47.4% Total Revenue $1,290 $1,302 (0.9)% 47.0% 46.1% Gross Margin $612 $576 6.2% 47.4% 44.2% 46.0% Operating Expenses $405 $407 0.7% 31.4% 31.3% 45.0% 44.2% 44.1% 44.2% Other Income
Slide 13: Scrap Steel Prices
Scrap Steel Prices Q1 YOY scrap steel prices down 15% $225 • Average price realized for scrap steel decreased by 15% from $150 $200 per ton in Q1 2019 to $128 per ton in Q1 2020 $175 $164 • Sequential change from last quarter was positive $24 per ton, $150 or up 23% $150 $144 • Changes in scrap stee
Slide 14: Europe – Q1 2020 Results
Europe – Q1 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 38.0% Total Revenue $1,364 $1,446 (5.7)% 37.2% Gross Margin $507 $532 (4.7)% 37.2% 36.8% 36.8% 36.8% Operating Expenses $431 $426 (1.3)% 31.6% 29.4% 37.0% 36.5% Other (Expense), net $(1) $(4) 36.6% (1
Slide 15: Foreign Exchange
Foreign Exchange $1.35 GBP 1. 7% • £ down 1.7% Q1 2020 vs Q1 2019 $1.30 • € down 2.9% Q1 2020 vs Q1 2019 $1.30 $1.29 $1.29 $1.28 • $36 million unfavorable impact of translation of weaker Q1 rates relative to the US dollar on $1.25 $1.23 European parts and services revenue growth $1.20 • European con
Slide 16: Specialty – Q1 2020 Results
Specialty – Q1 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 30.0% 28.9% Total Revenue $349 $354 (1.5)% 28.4% Gross Margin $95 $100 (5.4)% 27.3% 28.4% 28.0% 27.6% 28.2% 27.3% Operating Expenses $64 $63 (0.4)% 18.3% 17.9% Segment EBITDA(1) $32 $38 (15.1)% 9.2
Slide 17: 2020 Capital Allocation
2020 Capital Allocation $1,000 $ in millions $195 $750 $535 $(45) $500 $(230) $338 $(88) $(7) $(10) $250 $(12) $0 Beginning Operating Capex Net Share Acquisitions, Other FX and Other Ending Cash Cash, DO Cash Cash Repayments of Repurchases net of cash Investing and Restricted and Restricted Flows Cr
Slide 18: Free Cash Flow
Free Cash Flow $1,200 $ in millions 100% $1,064 $1,000 80% $798 $800 $715 66% 66% 60% $600 $571 45% $544 $523 39% $465 40% $374 $388 42% $400 $347 31% $195 20% $200 $150 $0 0% 2015 2016 2017 2018 2019 2020 Q1 YTD Free Cash Flow ("FCF")* Operating Cash Flow FCF/EBITDA** Note: FCF amounts only include
Slide 19: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total (1) Capacity $4,500 8.0x $4,000 $4,072 $3,491 $3,487 $4,000 $3,789 $3,500 $523 $333 $3,500 $3,000 $3,549 6.0x $3,456 $1,517 $3,000 $1,813 $2,500 $2,500 $2,000 $70 4.0x $2,000 $69 $1,500 2.6x $1,500 2.5x $1,000 $1,900 2.0x $1,609 $1,000 $50
Slide 20: Share Repurchase Program
Share Repurchase Program # of Shares 2.3 2.6 4.4 3.9 3.3 Repurchased Million Million Million Million Million • We have utilized approximately 44% of our $1 billion share repurchase $120 M program • Repurchased 16.5 million shares through March 31, $101 M $27.34 2020 with an average $88 M purchase pr
Slide 21: Net Leverage Trend
Net Leverage Trend Net Debt/EBITDA(1) 3.3x • Maximum net leverage ratio of 3.2x 4.25x; decreases to 4.00x for Q2 2020 through maturity of the 3.1x credit facility 3.1x 3.1x • Net Debt/EBITDA increased in Q2 3x 2018 due to the Stahlgruber 3.0x 3.0x acquisition 2.9x 2.9x 2.9x • Strong cash flow genera
Slide 22: Return on Invested Capital
Return on Invested Capital Return on Invested Capital(1) 10.9% 10.0% 9.8% 9.8% 10.0% 9.7% 9.6% 7.5% 5.0% 2.5% 0.0% 2015 2016 2017 2018 2019 (2) (3) TTM Q1 2020 (1) Return on Invested Capital is calculated as Net Operating Profit After Taxes (NOPAT) over the trailing four quarters divided by the aver
Slide 23: LKQ's Business Model Supports Sustainable Growth Across a Range of Macro Environments
LKQ’s Business Model Supports Sustainable Growth Across a Range of Macro Environments Select North American Brands Select European Brands Non-Discretionary Niche and Fragmented Markets High Industry Leading Fulfillment Management Rates Attractive Operating Adjacent Leverage and Markets Synergy Oppor
Slide 24: 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. 24
Slide 25: 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 March 31, 2020 Consolidated Europe Parts & Services Revenue growth as reported (4.6)% (5.8)% Less:
Slide 26: Appendix 2 - Revenue and Segment EBITDA by Segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended March 31(1) % of % of (in millions) 2020 revenue 2019 revenue Revenue North America $1,290 $1,302 Europe 1,364 1,446 Specialty 349 354 Eliminations (1) (1) Total Revenue $3,001 $3,100 Segment EBITDA North America $211 16.4% $177 1
Slide 27: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA (1) Three Months Ended March 31 (in millions) 2020 2019 Net income $146 $99 Subtract: Net income attributable to continuing noncontrolling interest 1 1 Net income attributable to discontinued noncontrolling interest 0 — Net incom
Slide 28: 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 29: 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 (1) March 31 (in millions, except per share data) 2020 2019 Net income $146 $99 Subtract: Net income attributable to continuing noncontrolling interest 1 1 Net inco
Slide 30: 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 31: 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 March 31(1) (in millions) 2020 2019 Net cash provided by operating activities $195 $177 Less: purchases of property, plant and equipment 45 53 Free cash flow $150 $124 (1) Year Ended Decembe
Slide 32: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin Europe Adjusted Gross Margin Three Months Ended(1) September 30, December 31, (in millions) 2019 2019 Gross margin $513 $521 Add: Restructuring expenses - cost of goods sold 17 3 Adjusted gross margin $530 $524 Gross margin % 35.3%