LKQ Corporation · NASDAQ:LKQ
LKQ — Investor Presentation (November 2021)
56 slides from LKQ's investor presentation, November 2021
Slide 1: Investor Presentation
Investor Presentation November 2021
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: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 4
Slide 5: LKQ's Evolution
LKQ’s Evolution Wholesale Keystone/ Remanufactured Self Serve Europe‐Sator Europe‐Rhiag Services Salvage Paint US 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Aftermarket Refurbished Keystone/ Europe – Heavy Duty Europe‐ECP Collision Wheels Specialty Stah
Slide 6: Overview of LKQ
Overview of LKQ Company Overview Financial Performance LKQ is a global distributor of vehicle products, including replacement parts, Revenue ($mm) components and systems used in repair and maintenance of vehicles and specialty products and accessories Organic 4.1% 4.4% 0.3% (7.6%) 8.3% Founded i
Slide 7: Key Priorities
Key Priorities Profitable Growth Cash Flow Generation European Integration Talent Acquisition 7
Slide 8: Aligning Corporate Strategy and Financial Policy
Aligning Corporate Strategy and Financial Policy Consolidation Focus Operational Excellence (1998 – 2018) (2019 – Future) • Professionalize alternative collision part • Be the leading distributor for collision parts market in North America and develop scale in North America and mechanical parts in a
Slide 9: Q3 2021 Highlights
Q3 2021 Highlights • Strong quarterly EPS, Segment EBITDA, and free cash flow • Total revenue growth of 8.2%; organic revenue growth for parts and services of 4.0%; year‐over‐year increases in scrap steel and precious metals prices generated 45.1% of organic growth for other revenue • Solid margin p
Slide 10: Sustained OpEx Savings
Sustained OpEx Savings 28.3% 28.3% 26.7% Other Facilities Delivery(1) Personnel Significant sustained savings from headcount actions, route optimization & other cost reduction efforts Note: In the chart above the sum of the individual percentages may not equal the total due to rounding 10 (1) Delive
Slide 11: Demand Impact: Organic Parts & Services Revenue Change
Demand Impact Organic Parts & Services Revenue Change (Per Day) (1.0)% (5.0)% (16.6)% (16.6)% Growth rates slowed relative to Q2 2021 as the comparable prior periods were less impacted by COVID; continued recovery towards 2019 levels 11 Columns reflect the YOY organic parts and services revenue chan
Slide 12: Q3 2021 Revenue
Q3 2021 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Organic Divestiture Foreign Exchange Total(1) North America 5.9% 0.6% 0.4% 6.9% Europe 0.1% (0.0)% 2.6% 2.7% Specialty 13.7% 2.1% 0.6% 16.4% Parts and Services 4.0% 0.5% 1.5% 6.1% Other Revenue 45.1% 0.1% 0.1% 45.3% Tot
Slide 13: 2021 Capital Allocation
2021 Capital Allocation ($ in millions) $403 Beginning Cash Operating Cash Capex Net Repayments Share Derivative Acquisitions Other Investing FX Ending Cash 12/31/20 Flows of Repurchases Settlement and Financing 9/30/21 Credit Facilities Activity, net and Other Debt • Operating cash flows: ▪ Operati
Slide 14: Operating Cash Flow and Free Cash Flow
Operating Cash Flow and Free Cash Flow* 98% 86% ($ in millions) 66% 42% 42% Note: FCF amounts only include FCF generated by continuing operations * Free Cash Flow is a non‐GAAP measure. Refer to Appendix 6 for Free Cash Flow reconciliation 14 ** EBITDA is a non‐GAAP measure. Refer to Appendix 3 for
Slide 15: Leverage & Liquidity
Leverage & Liquidity ($ in millions) ($ in millions) Total Capacity(1) $2,897 $3,474 $3,150 $2,399 1.9x 1.1x Effective borrowing rate for Q3 2021 was 2.6% (2) (1) Total capacity includes our term loan (repaid in full during Q2 2021) and revolving credit facilities (2) Approximately 38% of our borrow
Slide 16: Outlook 2021
Outlook 2021 (effective only on the date issued: October 28, 2021) 2021 outlook(1): • Diluted EPS attributable to LKQ stockholders in the range of $3.48 to $3.58 • Adjusted diluted EPS attributable to LKQ stockholders in the range of $3.78 to $3.88(2)(3) • Free cash flow in the range of $1.15 billio
Slide 17: Liquidity as of September 30, 2021
Liquidity as of September 30, 2021 • Rated Ba1 / BB+ by Moody's and S&P, respectively, and S&P upgraded to 'positive outlook' on August 5, 2021 Credit Rating • Rated BBB‐ (investment grade) by Fitch (initiated in May 2021) • Fixed Interest Rate Bonds: €750 million ($869 million) in aggregate due in
Slide 18: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 18
Slide 19: LKQ's Operating Segments Demonstrate Attractive Growth and Margin Profiles
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview 3.0% 5.7% 0.9% (12.9)% 4.7% Collision North America 19.3% Aftermarket automotive products 16.8% 13.7% 12.7% 13.7% Automotive glass distribution Recycled & Refurbished Mechanical
Slide 20: LKQ North America wins with industry leading fill-rates
LKQ North America wins with industry leading fill‐rates, strong value proposition and strategic partnerships High Fulfillment Rates Value Proposition • Highly fragmented space 2011 Chevrolet 2014 GMC • Nationwide coverage Equinox 2017 Nissan Altima Sierra 1500 Distribution & Wholesale North AmericaF
Slide 21: Collision Products, a $17 Billion Industry in the US
Collision Products, a $17 Billion Industry in the US Insurance Companies (Indirect Customers) New OEM Manufacturers Repair Shop 61% Refurbished & Optional Recycled OEM OE Products 11% Aftermarket 7% 21% Alternative parts = 39% of parts costs Source: CCC Information Services – Crash Course 2020. 21
Slide 22: Diagnostics, calibration and sublet repairs offering
Diagnostics, calibration and sublet repairs offering US Market for Diagnostics, Calibration and Complex Diagnostic and Repair Services Sublet Repairs in $M CAGR +9.0% 1,100 850 2019 2022F Collision Shop Customers Sublet Complex Tasks 22
Slide 23: Electrification of parts
Electrification of parts New Categories of Service Parts For Electrified Vehicles Price Premium Multiple Nickel Metal Hydride Electric Battery Electric Turbo Electric Main Range of Hybrid to ICE Battery Remanufacturing Coolant Pump Chargers Coolant Pump Components 7.0x 6.0x Electric A/C Electric Mot
Slide 24: Electrification of parts: LKQ ATK Reman expansion into installation services
Electrification of parts: LKQ ATK Reman expansion into installation services Nickel Metal Hydride (NiMH) Green Bean: NiMH Battery Well‐Positioned to Take Advantage Battery Sourcing Reconditioning and Installation of Future Li‐Ion Growth 8+ yrs of age US BEV VIO Unmatched Supply of 1,493 Cores • Prop
Slide 25: Segment Overview: The Market Leader in Europe
Segment Overview: The Market Leader in Europe UK & ROI #1 Market Position in Top 6 Markets2 $5.5 B Netherlands, Belgium, and France Revenue 2020 Italy and Switzerland Germany and Austria Central and Eastern Europe Scandinavia Germany United Kingdom > 900,000 Unique SKUs ~ 1,000 Italy Czech Republic
Slide 26: Specialty Overview: Focused on Profitable Growth
Specialty Overview: Focused on Profitable Growth Key Facts Financial Performance 2020 Sales: ~$1.5B $ in M Employees: 2,500+ Significant Acquisitions since 2014: Customers: 20,000+ • Stag Parkway Inc Suppliers: 1,000+ • The Coast Distribution System Inc Stocking SKUs: 185,000+ • Warn Industries Loca
Slide 27: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 27
Slide 28: LKQ's Plan to Drive Shareholder Value
LKQ’s Plan to Drive Shareholder Value Expansion into new markets mostly complete Euro Car Parts (United Kingdom & ROI) Enhanced European Sator (Benelux & France) simplification through “1 LKQ Europe” Rhiag (Italy & 9 other European countries) Stahlgruber (Germany & Eastern Europe) Plan to inte
Slide 29: 1 LKQ Europe Program
1 LKQ Europe Program 20 Improved Customer … In the Hands of Maintain Strong Different Experience…. Local Managers Entrepreneurial Culture Countries Multiple ERP, financial, E‐mail, Phone systems… Transformation Common ERP Platform Rationalized Product Portfolio … And Fragmented Procurement and LKQ E
Slide 30: Confident in Achieving Our Committed Performance
Confident in Achieving Our Committed Performance 0.6% ‐0.3% 0.3% 11.1% 2.2% 0.2% 0.1% ‐0.5% 8.3% 1.9% September 2019 LKQE Segment 7.8% 9.5% EBITDA Margin Bridge1 Forecasted Key Initiatives Asset Rationalization Organic Growth Incremental Expected 2021 Segment 2019 Segment Transformation Costs EBITDA
Slide 31: Multiple Levers to Drive North American Results
Multiple Lever to Drive North American Results Key Initiatives A Great Stable of Brands Favorable collision tailwinds Collision & Mechanical Organic Expansion of product offerings Revenue Growth Monitoring opportunity of ADAS and EV Aftermarket Salvage Glass Paint (PBE) Further optimizing af
Slide 32: Leading Brands and Multiple Levers to Drive Strong Specialty Growth
Leading Brands and Multiple Levers to Drive Strong Specialty Growth Key Initiatives A Great Stable of Brands New product lines through the same distribution (target $25M/year) New New products within existing lines Product Lines New services New customers (Jobbers, Dealers, Retailers, Instal
Slide 33: 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 and NA margin expansion Cash Flow Generation Convert high levels of EBITDA to Free Cash Flow with a focus on trade working capital efficiencies Targeting i
Slide 34: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 34
Slide 35: Corporate Governance Highlights
Corporate Governance Highlights Independent LKQ is governed by 11‐member board of directors, 9 of whom are independent directors under NASDAQ guidelines Leadership & Separate Chairman / CEO roles Oversight Ongoing process to refresh and strengthen board composition with shareholder input; 6 ne
Slide 36: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Treasury/ Capital Allocation/ Finance/ Government Human Capital Executive Automotive Digital Corporate Accounting/Audi Relations/ Management/Com Corporate Europe / Other Supply Chain/ Risk Assessment Investor Director Leadership I
Slide 37: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Years on Photo Name Age Relevant Experience Key Skills Independent Board Joseph Holsten 22 69 Former CEO of LKQ Unparalleled knowledge of LKQ business and industry Dominick Zarcone 4 63 President and CEO Extensive finance expe
Slide 38: LKQ Performance-Based Compensation Practices
LKQ Performance‐Based Compensation Practices The Compensation Committee of LKQ’s board carefully considers the most effective ways to motivate and incentivize management to accomplish specific strategic goals Objective, tailored metrics with challenging performance targets are chosen annually to
Slide 39: LKQ Cares – Global ESG Platform
LKQ Cares – Global ESG Platform Our Our Doing the Right People Community Thing Community Service Corporate Governance Diversity, Equity and Inclusion Information, Security and Environmental Responsibility Compliance Workforce Health, Safety and Engagement Product Quality Sustainability Solutions Lea
Slide 40: Enabling a Circular and Inclusive Economy
Enabling a Circular and Inclusive Economy Global Leader in Automobile Recycling Third Quarter 2021 Our North American ENVIRONMENTAL Our salvage operations recycle more than 90% of Recycling Achievements materials from end-of-life vehicles ◦ Focused on employee health & safety Number of 200,154 OSHA
Slide 41: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 41
Slide 42: What LKQ Offers Investors
What LKQ Offers Investors Market leading position in almost everything we do The broadest product line amongst automotive parts distributors ‒ Mechanical ‒ Collision ‒ Accessories The broadest geographic coverage amongst automotive parts distributors ‒ United States ‒ Canada ‒ Europe (21 count
Slide 43: 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. 43
Slide 44: 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, 2021 September 30, 2021 Consolidated Europe Consolidated Europe Part
Slide 45: 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) (in millions) 2021 % of revenue 2020 % of revenue 2021 % of revenue 2020 % of revenue Revenue North America $1,307 $1,164 $3,884 $3,466 Europe 1,525 1,484 4,565 4,059 Specialty 466 4
Slide 46: 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) 2021 2020 2021 2020 Net income $284 $194 $855 $459 Subtract: Net (loss) income attributable to continuing noncontrolling interest (0) 0 1 1 Net inco
Slide 47: 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 net
Slide 48: 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) 2021 2020 2021 2020 Net income $284 $194 $855 $459 Subtract: Net (loss) income
Slide 49: 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 eva
Slide 50: Forecasted EPS Reconciliation
Appendix 5 Forecasted EPS Reconciliation(1) For the year ending December 31, 2021 (in millions, except per share data) Minimum Outlook Maximum Outlook Net income from continuing operations attributable to LKQ stockholders $1,038 $1,068 Adjustments: Amortization of acquired intangibles 77 77 Restruct
Slide 51: Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 6 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) 2021 2020 2021 2020 Net cash provided by operating activities $429 $222 $1,362 $1,135 Less: purchases of property, plant and equ
Slide 52: Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow We have presented free cash flow solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our liquidity. We calculate free cash f
Slide 53: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 7 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) 2021 2020 2021 2020 Gross margin $1,343 $1,199 $4,053 $3,423 Add: Restructuring expen
Slide 54: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 7 Reconciliation of Gross Margin to Adjusted Gross Margin North America Adjusted Gross Margin Three Months Ended(1) December 31, (in millions) June 30, 2021 March 31, 2021 2020 June 30, 2020 March 31, 2020 Gross margin $651 $599 $546 $454 $612 Add: Restructuring expenses ‐ cost of goods sol
Slide 55: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 7 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 a
Slide 56: Reconciliation of Total Debt to Net Debt
Appendix 8 Reconciliation of Total Debt to Net Debt September 30, December 31, (in millions) 2021(1) 2020(1) Current portion of long‐term obligations $37 $58 Long‐term obligations, excluding current portion 2,348 2,813 Total debt, net of debt issuance costs $2,385 $2,871 Add: Debt issuance costs 13