LKQ Corporation · NASDAQ:LKQ
LKQ — HSBC Leveraged Credit Conference 2017
44 slides from LKQ's conference presentation, Nov 30, 2017
Slide 1: HSBC Leveraged Credit Conference 2017
HSBC Leveraged Credit Conference 2017 November 30, 2017
Slide 2: Forward Looking Statements
Forward Looking Statements 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. Forward-looking statements i
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: LKQ's Evolution
LKQ’s Evolution Wholesale Salvage Self Serve Keystone / Paint Reman-US Europe-Benelux Rhiag / PGW 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Aftermarket Refurbished Wheels Heavy Duty Europe-UK Keystone Specialty Collision 2003 2007 2011 2017* Total Revenue Total Revenue To
Slide 5: Operating Unit Overview
Operating Unit Overview North America • Collision – Aftermarket automotive products – Automotive glass distribution – Recycled & Refurbished • Mechanical – Recycled engines & transmissions – Remanufactured engines & transmissions Europe • Mechanical – 175,000+ small part SKUs – Brakes, filters, hose
Slide 6: LKQ Credit Highlights
LKQ Credit Highlights Leading Positions Diversified Revenue Expanding Alternative Clear Solid Financial Metrics In Large Markets Stream Parts Usage Value Proposition • Largest participant in • Global balance with • Increasing availability • Insurers focused on • History of delivering each market ser
Slide 7: Operating Segments
Corporation Operating Segments
Slide 8: Large & Fragmented US Market
Large & Fragmented US Market Automotive Repair Market $243 bn Do It For Me (DIFM) DIY $194 bn $49 bn Retail Collision Mechanical Price $46 bn $148 bn Parts & Collision Parts Labor Mechanical Parts Labor Labor $25 bn $21 bn $81 bn $67 bn Collision Markup Mechanical Markup (Wholesale) (Wholesale) $27
Slide 9: Clear Value Proposition
Clear Value Proposition 2015 Chrysler Town & Country 2006 Chevrolet Silverado 2012 Chevrolet Malibu Wheel Engine Bumper Cover New OEM $380 $5,896 $335 Remanufactured $261 $2,069 $209 Recycled OEM $85 $1,090 $175 New A/M N/A N/A $209 Average Savings 55% 73% 59% …and Improved Cycle Time for Repairs No
Slide 10: Collision Products, a $17 Billion Industry
Collision Products, a $17 Billion Industry Insurance Companies (Indirect Customers) New OEM Manufacturers 63% Repair Shop Refurbished & Recycled OEM Optional OE 12% Products Aftermarket 6% 19% Alternative parts = 37% of parts costs Source: CCC Information Services –Crash Course 2016. 9
Slide 11: Shift Toward Alternative Parts Usage
Shift Toward Alternative Parts Usage Average Parts Used Per Claim 2011 2012 2013 2014 2015 2016 10.0 9.4 8.0 8.0 6.5 6.0 5.8 4.0 2.9 2.2 2.0 0.0 OEM Alternative Parts Total Over 20 million vehicle claims Source: CCC Information Services Inc. 10
Slide 12: Regional Distribution Improves Fulfilment
Regional Distribution Improves Fulfilment • Highly fragmented space • 20X size of next competitor • Consistent nationwide coverage and warranty • Strong management team • Strong logistics & footprint • Industry leading fill-rates – Aftermarket: 95% – Salvage • Competitor: 25% • LKQ Single Site: 35%
Slide 13: Wholesale North America Footprint
Wholesale North America Footprint 12
Slide 14: LKQ's Collision Sweet Spot is Growing
LKQ’s Collision “Sweet Spot” is Growing Age & Size of U.S. Car Parc 5 year time horizon 180 160 60 Number of Vehicles (Millions) 140 121 118 119 114 117 120 112 108 106 103 101 101 101 103 100 40 80 60 20 40 17 17 16 17 16 14 16 15 13 13 13 20 10 12 0 - 2009 2010 2011 2012 2013 2014 2015 2016 2017 2
Slide 15: Crash Avoidance Systems Growing
Crash Avoidance Systems Growing (24.3%) CY 2050 U.S. EIA Energy Outlook 2014 Light Duty Vehicle Sales by Energy Use (20.8%) CY 2045 (17.3%) CY 2040 (13.8%) CY 2035 22% CCC estimates (10.3%) CY 2030 a 10.3% impact (6.8%) CY 2025 to losses in (3.3%) CY 2020 next 15 years 78% (0.7%) CY 2015 (0.4%) CY 2
Slide 16: Europe - Market Observations
Europe - Market Observations Large Car Parc Supplier Fragmented [Tex Segmentation t] Industry “Country Low Collision [Tex Champion” t] in APU Key Markets DIFM Focused 15
Slide 17: Large European Market
Large European Market Automotive Repair Market €198B Do It For Me (DIFM) DIY (1) €188B €10B Retail Collision Mechanical Price €30B €158B Parts & Collision Parts Labor Mechanical Parts Labor €22B €8B €120B €38B Labor Collision Mechanical Markup Markup (Wholesale) €8B (Wholesale) €42B €14B €78B Market
Slide 18: LKQ's European Platform Acquisitions
LKQ’s European Platform Acquisitions October 2011 April 2013 March 2016 December 2016 • Leading distributor • Leading distributor • Leading automotive • The leading of automotive of automotive aftermarket independent car aftermarket aftermarket mechanical parts parts and service mechanical parts in
Slide 19: Top European Players
Top European Players € 3.7 MEKO € 0.6 € 3.1 € 1.5 € 1.5 € 1.4 € 1.3 € 1.1 € 0.8 € 0.7 € 0.6 (1) (2) (3) (3) LKQ AAG Stahlgruber WM Autodis Intercars Swiss Auto Parts Mekonomen Europe Group Alliance (€ in billons) Source: Company filings and websites; amounts are approximate. 18 Note: EUR in billions
Slide 20: LKQ's European Footprint
LKQ’s European Footprint Sweden Norway UK Netherlands Poland Belgium Czech Ukraine Republic Slovakia Switzerland Hungary Romania Italy Bulgaria 19
Slide 21: Highly Fragmented with many Country Champions
Highly Fragmented with many “Country Champions” Selected Market Players (Subsidiary of Stahlgruber Otto Gruber (Subsidiary of LKQ) (Public)* (Private) (Private) (Private) (Private) AG) (Subsidiary of LKQ) (Subsidiary of Itochu Corporation) (Private) (Private) (Public) (Subsidiary of GPC) (Private) (
Slide 22: Benefits of Scale
Benefits of Scale • Lower procurement costs – OES brands (volume) – Private label brands (margin) • Reduced logistics and warehousing – e.g. Asian sourcing – e.g. long tail products • Improved overhead costs – Offshoring – Cataloguing • Brand economies of scale • Vendor financing programs Longer-Ter
Slide 23: The T2 Site
The T2 Site • 90K tonnes of soil moved • 3K tonnes of steel used • 778K square feet warehouse with mezzanine • Main build contractor Winvic • 80K tones of concrete poured • Automation and fit out: TGW 22
Slide 24: T2 Automation
T2 Automation Fast Tote Pick Miniload System Very Narrow Aisles • High Bay (16m) Pallet storage area • Pick Rate Age 800 cases/hr • 582k totes storage • 13 rack level of various heights • 600 Fast tote Pick Faces • 15 Aisles and 36 levels • 68k pallet location • Average Daily 89k (31.5%) cases pick
Slide 25: Specialty
Specialty Specialty Overview Specialty Directly Addressable Market (1) ($ in billions) • Leading distributor and marketer of specialty aftermarket Wheels, Tires & Accessory and equipment, accessories, and products in North America Suspension Appearance • Critical link between 800+ suppliers and appr
Slide 26: 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 25
Slide 27: Financial Overview
Corporation Financial Overview
Slide 28: Financial Policy
Financial Policy Focus on Free Organic revenue growth of ≥ 6.0% Cash Flow Margin expansion in each business Generation Working capital management Cash balances Revolver capacity Maintain Liquidity Sufficient maturity of bank facility ≥ 18 months Term out bank debt with longer dated not
Slide 29: History of Strong Organic Growth
History of Strong Organic Growth Organic Revenue Growth Rates(1) 12.0% 11.0% 10.0% 9.0% 7.9% 8.0% 7.0% 6.6% 6.0% 6.0% 4.8% 4.0% 2.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 (1) Parts and services only. 28
Slide 30: LKQ's Acquisition Philosophies
LKQ’s Acquisition Philosophies Strong Brands • Markets where we can be #1 or #2 • Strong and experienced management • Opportunities for growth & synergies • Financial returns – IRR (mid-teens over 10 years) – ROIC (10 years’ average >10%) • Integrity • Criteria in new markets – Among the leaders in
Slide 31: Historical Financial Performance
Historical Financial Performance ($ in Millions) Revenue** Segment EBITDA** $10,000 $9,417 $1,200 $1,085 $8,584 $1,005 $8,000 $1,000 $7,193 $855 $6,740 $791 $800 $6,000 $5,063 $629 $4,123 $600 $515 $4,000 $400 $2,000 $200 $- $- 2012 2013 2014 2015 2016 TTM Q3 2012 2013 2014 2015 2016 TTM Q3 2017 201
Slide 32: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q3 2017 Revenue* YTD 2017 Revenue* • Organic growth of parts and services revenue of 3.2% on a reported • Organic growth of parts and services revenue of 3.8% on a reported basis; 4.7% on a per day basis basis; 4.3% on a per day basis • Income from contin
Slide 33: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q3 2017 EPS* YTD 2017 EPS* Diluted EPS Adjusted Diluted EPS Diluted EPS Adjusted Diluted EPS * Earnings per share figures refer to income from continuing operations ** Adjusted Diluted EPS is a non-GAAP measure. Refer to page 35 for Adjusted Diluted EPS r
Slide 34: Q3 2017 Revenue Growth
Q3 2017 Revenue Growth Revenue Changes by Source: Foreign Organic Acquisition Exchange Total(1) North America 2.5% 1.6% 0.2% 4.3% Europe 4.4% 16.5% 3.0% 23.8% Specialty 2.7% 0.2% 0.5% 3.4% Parts and Services 3.2% 6.8% 1.3% 11.4% Other Revenue 17.5% 0.9% 0.1% 18.4% Total 4.0% 6.5% 1.2% 11.7% • Organi
Slide 35: 2017 Capital Allocation - Continuing operations
2017 Capital Allocation - Continuing operations $ in millions • Operating cash flows: - Year over year decrease driven primarily by higher investment in net working capital in YTD 2017 - $141M net cash outflow from operating assets and liabilities due mainly to an increase of $75M of receivables and
Slide 36: Leverage & Liquidity
Leverage & Liquidity Total ($ in millions ) ($ in millions ) Capacity(1) 2.7x 2.5x Effective borrowing rate for Q3 2017 was 2.9% (1) Total capacity includes our term loans and revolving credit facilities (*) Net leverage per bank covenants is defined as Net Debt/EBITDA. See the definitions of Net De
Slide 37: Key Return Metrics
Key Return Metrics Return on Equity Return on Invested Capital* * Amortization of intangibles has been excluded from the calculation of Return on Invested Capital 36
Slide 38: Appendix 1- Constant Currency Reconciliation
Appendix 1- Constant Currency Reconciliation • The following unaudited table reconciles consolidated revenue growth for Parts & Services to constant currency revenue growth for the same measure: Three Months Ended Nine Months Ended September 30, 2017 September 30, 2017 Consolidate Consolidate d Euro
Slide 39: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Nine Months Ended September 30* September 30* % of % of % of % of (in millions) 2017 revenue 2016 revenue 2017 revenue 2016 revenue Revenue North America $1,181.9 $1,118.6 $3,596.7 $3,336.8 Europe 954.5 770.2 2,665.2 2,141.2 Speci
Slide 40: Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended Nine Months Ended September 30** September 30** (in millions) 2017 2016 2017 2016 Net income $122.4 $122.7 $409.6 $377.6 Subtract: Income (Loss) from discontinued operations, net of tax — 12.8 (4.5) 17.8 Income
Slide 41: Appendix 3- Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3- Reconciliation of Net Income to EBITDA and Segment EBITDA 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 calcul
Slide 42: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income
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* September 30* (in millions, except per share data) 2017 2016 2017 2016 Net income $122.4 $122.7 $409.6 $377.6 Subtract: Income (Loss
Slide 43: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income
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 as we believe these measures are useful for evaluating the core operating perf
Slide 44: Appendix 5 - Forecasted EPS reconciliation
Appendix 5 - Forecasted EPS reconciliation* For the year ending December 31, 2017 (in millions, except per share data) Minimum Guidance Maximum Guidance Income from continuing operations $517 $537 Adjustments: Amortization of acquired intangibles 95 95 Restructuring and acquisition related expenses