Lkq Corporation · NASDAQ:LKQ
Lkq — Q2 2017 Earnings Presentation
37 slides from Lkq's earnings presentation, Jul 27, 2017
Slide 1: Second Quarter 2017 Earnings Call
Second Quarter 2017 Earnings Call July 27, 2017 Nick Zarcone – President & Chief Executive Officer & Chief Financial Officer Michael Clark – Vice President- Finance and Controller Joe Boutross – Director, 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: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q2 2017 Revenue* YTD 2017 Revenue* $2,600 $5,100 $4,900 $4,801 $2,500 $2,458 $4,700 $2,400 $4,500 % .6% $2,305 6.7 13 $2,300 $4,300 $4,226 $4,100 $2,200 $3,900 $2,100 $3,700 $2,000 $3,500 Q2 2016 Q2 2017 YTD 2016 YTD 2017 • Organic growth of parts and ser
Slide 5: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q2 2017* YTD 2017* $0.60 $0.60 $1.10 $1.10 $1.02 $0.53 $0.52 $1.00 $1.00 $0.50 $0.49 $0.50 $0.94 $0.93 $0.45 $0.90 $0.90 % 1.9 % $0.81 9.7 $0.40 % $0.40 $0.80 $0.80 8.9 % 16.0 $0.70 $0.70 $0.30 $0.30 $0.60 $0.60 $0.20 $0.20 $0.50 $0.50 Q2 2016 Q2 2017 Q2
Slide 6: Q2 2017 Revenue Growth
Q2 2017 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 2.8% 2.9% (0.2)% 5.5% Europe 4.1% 10.0% (6.2)% 7.9% Specialty 5.9% 0.1% (0.5)% 5.5% Parts and Services 3.8% 5.1% (2.5)% 6.4% Other Revenue 11.4% 0.4% (0.2)% 11.6% Total 4.2% 4.9% (2.4)% 6.7%
Slide 7: YTD 2017 Revenue Growth
YTD 2017 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 2.3% 5.6% (0.0)% 7.9% Europe 5.8% 26.5% (7.7)% 24.7% Specialty 6.1% 0.1% (0.1)% 6.1% Parts and Services 4.1% 11.9% (2.6)% 13.3% Other Revenue 18.1% 0.3% (0.1)% 18.3% Total 4.9% 11.3% (2.5)%
Slide 8: Q2 2017 Operating Highlights
Q2 2017 Operating Highlights North America • Procurement initiatives provided $4.0 million of incremental QTD cost savings • Delivery route initiatives, including Roadnet, are ongoing • Continued to expand acreage for car holding and increased production which will allow us longer hold times of cars
Slide 9: Inventory
Inventory Inventory Procurement: Q2 YTD ($ in millions, Vehicles purchased in 000s) 2017 2016 % Change 2017 2016 % Change Total aftermarket procurement $1,193 $1,114 7.1% $2,218 $1,936 14.6% Wholesale salvage cars and trucks 77 72 6.9% 152 144 5.6% Europe wholesale salvage cars and trucks 5 6 (16.7)
Slide 10: Acquisition Activity
Acquisition Activity Number of Q2 Acquisitions TTM Revenue* Number of YTD Acquisitions TTM Revenue* North America 2 $18.4 million 3 $69.5 million Europe 5 $50.1 million 6 $54.1 million Specialty — $0.0 million 1 $1.3 million Total 7 $68.5 million 10 $124.9 million • In Q2, we completed 7 acquisition
Slide 11: Financial Results
Corporation Financial Results
Slide 12: Operating Results - Continuing Operations
Operating Results - Continuing Operations Second Quarter YTD ($ in millions,except per share data) 2017 2016 Change 2017 2016 Change Revenue $2,458 $2,305 6.7% $4,801 $4,226 13.6% Gross Margin 965 906 6.5% 1,895 1,666 13.7% Operating Income 245 232 5.2% 480 418 14.9% Pre-tax Income 226 208 8.4% 439
Slide 13: Q2 2017 Consolidated Margins - Continuing operations
Q2 2017 Consolidated Margins - Continuing operations Q2 Q2 Change (as a % of Revenue) 2017 2016 F/(U) QTD Commentary Revenue 100.0% 100.0% —% Gross margin remained flat compared to last quarter. North America's gross margin increased 0.4% but was Gross Margin 39.3% 39.3% —% offset by the other segme
Slide 14: YTD 2017 Consolidated Margins - Continuing operations
YTD 2017 Consolidated Margins - Continuing operations YTD YTD Change (as a % of Revenue) 2017 2016 F/(U) YTD Commentary Revenue 100.0% 100.0% —% Gross margin increased as a result of our North America segment, primarily related to our salvage operations. Gross Margin 39.5% 39.4% 0.1% The increase wa
Slide 15: Components of Quarterly Revenue
Components of Quarterly Revenue $2.46B $2.30B $4.80B $4.23B • A portion of the change in margins on a 100.0% 5.4% 5.2% 5.4% 5.2% consolidated basis is attributable to change in 14.7% 14.9% 14.1% 15.1% revenue mix 80.0% • North America historically has highest gross margins and EBITDA margins 35.7% 3
Slide 16: North America – Q2 2017 Results
North America – Q2 2017 Results % of Revenue Gross Margin ($ in millions) 2017 2016 Change 2017 2016 46.0% Total Revenue $1,207 $1,137 6.1% 44.4% 43.9% 44.0% 43.5% 43.4% Gross Margin $529 $495 6.9% 43.9% 43.5% 43.3% Operating Expenses $359 $334 7.6% 29.8% 29.3% 42.0% 42.6% Segment EBITDA* $174 $166
Slide 17: North America – YTD 2017 Results
North America – YTD 2017 Results % of Revenue ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $2,415 $2,218 8.9% Gross Margin $1,065 $956 11.5% 44.1% 43.1% Operating Expenses $721 $652 10.6% 29.8% 29.4% Segment EBITDA* $350 $312 12.2% 14.5% 14.1% *Segment EBITDA is a non-GAAP measure. Refer
Slide 18: Scrap Steel Prices
Scrap Steel Prices $200 Q2 YoY scrap steel prices per ton up 9% • Average price we received for $150 $144 $150 scrap steel in Q2 increased by 9%, from $138 per ton in Q2 2016 $138 to $150 per ton in Q2 2017 and $118 $118 YTD increased by 27% from $116 per ton in YTD 2016 to $147 per $100 $93 ton in
Slide 19: Europe – Q2 2017 Results
Europe – Q2 2017 Results % of Revenue Gross Margin ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $890 $824 8.0% 40.0% 38.1% Gross Margin $331 $308 7.3% 37.2% 37.4% 38.0% 37.4% 37.2% 37.0% Operating Expenses $248 $218 13.8% 27.9% 26.5% 36.1% 36.0% 36.2% Segment EBITDA* $84 $90 (7.1)% 9.4%
Slide 20: Europe – YTD 2017 Results
Europe – YTD 2017 Results % of Revenue ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $1,711 $1,371 24.8% Gross Margin $635 $517 22.8% 37.1% 37.7% Operating Expenses $475 $371 28.1% 27.8% 27.0% Segment EBITDA* $162 $147 10.0% 9.5% 10.8% ECP Branches** 246 206 40 Rhiag Branches 311 271 40 A
Slide 21: Foreign Exchange
Foreign Exchange $1.55 • UK referendum to leave the EU $1.44 $1.45 $1.43 had an impact on average rates • £ down 11% Q2 2017 vs. Q2 2016 $1.35 • € down 3% Q2 2017 vs. Q2 2016 $1.31 • Translation impact of stronger $1.24 dollar on Europe revenue growth: $1.25 $1.24 $1.28 – Q2: $(51) million – YTD: $(
Slide 22: Specialty – Q2 2017 Results
Specialty – Q2 2017 Results % of Revenue Gross Margin ($ in millions) 2017 2016 Change 2017 2016 32.0% 30.9% Total Revenue $363 $344 5.5% 29.8% 30.0% 28.9% 28.5% 28.5% Gross Margin $105 $103 2.4% 28.9% 29.8% 28.0% Operating Expenses $57 $60 (5.0)% 15.6% 17.3% 26.2% 26.0% Segment EBITDA* $49 $44 11.6
Slide 23: Specialty – YTD 2017 Results
Specialty – YTD 2017 Results % of Revenue ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $678 $640 6.1% Gross Margin $195 $194 0.7% 28.7% 30.3% Operating Expenses $111 $118 (5.4)% 16.4% 18.4% Segment EBITDA* $84 $77 9.2% 12.4% 12.0% *Segment EBITDA is a non-GAAP measure. Refer to total seg
Slide 24: 2017 Capital Allocation - Continuing operations
2017 Capital Allocation - Continuing operations $ in millions $1,200 $301 $900 $366 $600 $(423) $17 $304 $300 $227 $(96) $(88) $0 Beginning Cash Operating Cash Net proceeds from Financing Acquisitions & Capex F/X and other Ending Cash 12/31/16 Flows disposal of Other Investing 6/30/17 business Activ
Slide 25: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,000 $3,600 8.0x $3,366 $3,200 $227 $3,500 $3,010 $3,183 $3,164 $3,139 $2,800 $304 $3,000 6.0x $2,706 $1,019 $2,400 $2,500 $1,427 $2,000 $73 $2,000 4.0x $1,600 $72 2.7x $1,500 2.5x $1,200 $1,000 $2,091 2.0x $1,665 $800 $500 $
Slide 26: Key Return Metrics
Key Return Metrics Return on Equity Return on Invested Capital* 14.0% 14.9% 15.0% 14.4% 14.5% 14.5% 14.1% 13.8% 12.0% 10.9% 10.8% 10.9% 10.5% 12.0% 10.0% 10.0% 9.6% 9.0% 8.0% 6.0% 6.0% 4.0% 3.0% 2.0% 0.0% 0.0% 2012 2013 2014 2015 2016 TTM Q2 2012 2013 2014 2015 2016 TTM Q2 2017 2017 * Amortization o
Slide 27: Guidance 2017
Guidance 2017 (effective only on the date issued: July 27, 2017) Full Year 2016 Full Year 2017 ($ in millions excluding EPS) Actual Guidance(1) Organic Growth, Parts and Services 4.8% 4.0% - 5.25% Income- continuing operations $456 $515 - $540 Adjusted Income- continuing operations(2) $522 $570 - $5
Slide 28: 2017 Adjusted Diluted EPS Guidance Bridge
2017 Adjusted Diluted EPS Guidance Bridge* $2.00 $0.03 $0.03 $(0.01) $1.90 $0.19 $(0.02) $1.88 $(0.02) $(0.01) $1.80 $1.70 $1.69 $1.60 2016 Year over year Full year Shared PGW Shared PGW Impact of Tamworth 2 Incremental 2017 Actual Business Growth Rhiag & ARG Corporate Corporate exchange rate increm
Slide 29: Q2 2017 Key Takeaways
Q2 2017 Key Takeaways • Organic revenue growth of 3.8% and 4.1% for parts and services in Q2 and YTD, respectively • Constant currency* revenue growth of 8.9% and 15.9% for parts and services in Q2 and YTD, respectively • Income from continuing operations improvement of 9.5% and 16.7% for Q2 and YTD
Slide 30: 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 30
Slide 31: 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 Six Months Ended June 30, 2017 June 30, 2017 Consolidated Europe Consolidated Europe P
Slide 32: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Six Months Ended June 30* June 30* % of % of % of % of (in millions) 2017 revenue 2016 revenue 2017 revenue 2016 revenue Revenue North America $1,206.5 $1,137.4 $2,414.8 $2,218.2 Europe 889.8 824.2 1,710.7 1,371.0 Specialty 363.5
Slide 33: 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 Six Months Ended June June 30** 30** (in millions) 2017 2016 2017 2016 Net income $150.9 $142.8 $287.2 $255.0 Subtract: Income (Loss) from discontinued operations, net of tax — 5.0 (4.5) 5.0 Income from continu
Slide 34: 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 35: 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 Six Months Ended June 30* June 30* (in millions, except per share data) 2017 2016 2017 2016 Net income $150.9 $142.8 $287.2 $255.0 Subtract: Income (Loss) from disc
Slide 36: 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 37: 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 $515 $540 Adjustments: Amortization of acquired intangibles 93 93 Restructuring and acquisition related expenses