LKQ Corporation · NASDAQ:LKQ
LKQ — Investor Presentation (February 2022)
55 slides from LKQ's investor presentation, February 2022
Slide 1: Investor Presentation
Investor Presentation February 2022
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 2021 Aftermarket Refurbished Keystone/ Europe – Heavy Duty Europe‐ECP Collision Wheels Specialty
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%) 7.9% Growth(1)
Slide 7: 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 8: Key Priorities
Key Priorities Profitable Growth Cash Flow Generation European Integration Talent Acquisition 8
Slide 9: Expanding Global ESG Programs
Expanding Global ESG Programs Focused on employee health & safety Giving back Our North American SOCIAL Recycling Achievements • Specialty received Department of Transportation Pre‐Pass • Launched LKQ Cares Holiday Vote which allowed employees to have a 2021 Designation for their high safety scores
Slide 10: ESG Goals
ESG Goals Embed sustainable Improve social outcomes Reduce carbon emissions Enhance governance and development and resilience Deliver social value through wherever possible transparency across our work globally business by empowering team To ensure we operationally meet Develop an enterprise f
Slide 11: Sustained OpEx Savings
Sustained OpEx Savings 28.6% 28.1% 27.3% 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 11 (1) Deliv
Slide 12: Demand Impact: Organic Parts & Services Revenue Change (Per Day)
Demand Impact Organic Parts & Services Revenue Change (Per Day) (1.0)% (5.0)% (16.6)% Solid revenue growth for all three segments with Europe recovering to its 2019 level and North America continuing to narrow the gap to pre‐ pandemic levels Columns reflect the YOY organic parts and services revenue
Slide 13: Q4 2021 Revenue
Q4 2021 Revenue Revenue Changes by Source: Components of Revenue Acquisition and Organic Divestiture Foreign Exchange Total(1) North America 8.3% 0.6% 0.2% 9.2% Europe 5.7% 0.5% (1.8)% 4.3% Specialty 5.7% 9.6% 0.3% 15.6% Parts and Services 6.6% 1.7% (0.8)% 7.5% Other Revenue 13.1% 0.0% (0.0)% 13.1%
Slide 14: 2021 Capital Allocation
2021 Capital Allocation ($ in millions) $274 • Operating cash flows: ▪ Operating cash flows of $1.4 billion represent a 5%, or $77 million, decrease year‐over‐year as a result of additional investments into inventory as demand recovers from the impact of the pandemic, offset partially by higher oper
Slide 15: Operating Cash Flow and Free Cash Flow
(1) Operating Cash Flow and Free Cash Flow ($ in millions) (FCF Conversion %) 98% 60% 66% 42% (1) (2) Note: FCF amounts only include FCF generated by continuing operations 15 (1) Free Cash Flow is a non‐GAAP measure. Refer to Appendix 6 for Free Cash Flow reconciliation (2) EBITDA is a non‐GAAP meas
Slide 16: Leverage & Liquidity
Leverage & Liquidity ($ in millions) ($ in millions) Total Capacity(1) $2,897 $2,824 $3,474 $3,150 1.9x 1.4x (3) (4) Effective borrowing rate for Q4 2021 was 2.4% (2) (1) Total capacity includes our term loan (repaid in full during Q2 2021) and revolving credit facilities (2) Approximately 31% of ou
Slide 17: Share Repurchase Program
Share Repurchase Program # of Shares 17.3 1.5 6.2 4.3 5.3 Repurchased Million Million Million Million Million $469 M $304 M $297 M $27.09 $219 M $49.21 $56.57 $50.50 $57 M $38.35 (1) (2) Invested $877 million acquiring 17.2 million shares; $654 million of capacity remaining on our $2 billion share r
Slide 18: Outlook 2022
Outlook 2022 (effective only on the date issued: February 17, 2022) 2022 outlook(1): • Organic parts and services revenue growth in the range of 3.0% to 5.0% • Diluted EPS attributable to LKQ stockholders(2) in the range of $3.50 to $3.80 • Adjusted diluted EPS attributable to LKQ stockholders(2)(3)
Slide 19: 2022 Adjusted EPS Guidance Walk
2022 Adjusted EPS Guidance Walk +9% (2) $3.87 $3.56 (1) Significant market headwinds related to commodities, inflation and FX create challenging Y/Y comparison largely mitigated by operational improvements and strategic capital deployment (1) Investments represent equity in earnings of unconsolidate
Slide 20: Liquidity as of December 31, 2021
Liquidity as of December 31, 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 ($853 million) in aggregate due in 2
Slide 21: 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 21
Slide 22: 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)% 5.6% Collision North America Aftermarket automotive products 16.8% 18.3% 13.7% 12.7% 13.7% Automotive glass distribution Recycled & Refurbished Mechanical
Slide 23: 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. 23
Slide 24: 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 24
Slide 25: 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 26: 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 27: Segment Overview: The Market Leader in Europe
Segment Overview: The Market Leader in Europe UK & ROI #1 Market Position in Top 6 Markets2 $6.0 B Netherlands, Belgium, and France Revenue 2021 Italy and Switzerland Germany and Austria Central and Eastern Europe Scandinavia Germany United Kingdom > 900,000 Unique SKUs ~ 1,000 Italy Czech Republic
Slide 28: Specialty Overview: Focused on Profitable Growth
Specialty Overview: Focused on Profitable Growth Key Facts Financial Performance 2020 Sales: ~$1.8B $ 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 29: 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 29
Slide 30: 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 31: 1 LKQ Europe Program
1 LKQ Europe Program 21 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 32: 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 33: 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 34: 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 enhance NA margins Cash Flow Generation Convert high levels of EBITDA to Free Cash Flow (“FCF”) with a focus on trade working capital efficiencies. Targe
Slide 35: 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 35
Slide 36: 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 & Oversight Separate Chairman / CEO roles Ongoing process to refresh and strengthen board composition with shareholder input; 6 ne
Slide 37: 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 38: 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 39: 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 40: 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 40
Slide 41: 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 42: 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. 42
Slide 43: 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 Year Ended December 31, 2021 December 31, 2021 Consolidated Europe Consolidated Europe Parts & Servi
Slide 44: Revenue and Segment EBITDA by segment
Appendix 2 Revenue and Segment EBITDA by segment Three Months Ended Year Ended December 31(1) December 31(1) (in millions) 2021 % of revenue 2020 % of revenue 2021 % of revenue 2020 % of revenue Revenue North America $1,280 $1,167 $5,165 $4,632 Europe 1,497 1,433 6,062 5,492 Specialty 410 355 1,867
Slide 45: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended December 31(1) Year Ended December 31(1) (in millions) 2021 2020 2021 2020 Net income $237 $182 $1,092 $640 Subtract: Net income attributable to continuing noncontrolling interest 0 1 1 2 Net income attributable
Slide 46: 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 47: 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 Year Ended December 31(1) December 31(1) (in millions, except per share data) 2021 2020 2021 2020 Net income $237 $182 $1,092 $640 Subtract: Net income attributable t
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 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 49: Forecasted EPS Reconciliation
Appendix 5 Forecasted EPS Reconciliation(1) Forecasted Fiscal Year 2022 (in millions, except per share data) Minimum Outlook Maximum Outlook Net income from continuing operations attributable to LKQ stockholders $1,008 $1,095 Adjustments: Amortization of acquired intangibles 65 65 Restructuring expe
Slide 50: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended Year Ended December 31(1) December 31(1) (in millions) 2021 2020 2021 2020 Net cash provided by operating activities $5 $309 $1,367 $1,444 Less: purchases of property, plant and equipment 161
Slide 51: Reconciliation of Net Cash Provided by Operating Activities 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 52: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 7 Reconciliation of Gross Margin to Adjusted Gross Margin Three Months Ended Year Ended Consolidated Adjusted Gross Margin December 31(1) December 31(1) (in millions) 2021 2020 2021 2020 Gross margin $1,270 $1,170 $5,322 $4,593 Add: Restructuring expenses ‐ cost of goods sold 0 1 0 7 Adjust
Slide 53: 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) September 30, June 30, March 31, September 30, June 30, March 31, (in millions) 2021 2021 2021 2020 2020 2020 Gross margin $608 $651 $599 $534 $454 $612 Add: Restructuring exp
Slide 54: 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 55: Reconciliation of Total Debt to Net Debt
Appendix 8 Reconciliation of Total Debt to Net Debt December 31, December 31, (in millions) 2021(1) 2020(1) Current portion of long‐term obligations $35 $58 Long‐term obligations, excluding current portion 2,777 2,813 Total debt, net of debt issuance costs $2,812 $2,871 Add: Debt issuance costs 12 2