Slide 1: Second Quarter 2018 Earnings Call
Second Quarter 2018 Earnings Call July 26, 2018 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: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q2 2018 Revenue* YTD 2018 Revenue* $3,200 $5,900 $5,752 $3,031 $3,000 $5,500 $2,800 $5,100 $4,801 .8% $2,600 $4,700 19 $2,458 .3% 23 $2,400 $4,300 $2,200 $3,900 $2,000 $3,500 Q2 2017 Q2 2018 2017 2018 • Organic growth of parts and services revenue of 7.2%
Slide 5: Consolidated Results - Continuing operations (EPS)
Consolidated Results - Continuing operations Q2 2018 EPS* YTD 2018 EPS* $0.65 $0.65 $1.10 $1.20 $1.16 $0.61 $1.00 $0.99 $1.10 $0.55 $0.55 $0.53 $0.94 $1.02 $0.50 $0.90 $1.00 $0.49 $0.45 $0.45 $0.90 $0.80 % .7 % % % 13 2.0 1 5.1 5.3 $0.80 $0.70 $0.35 $0.35 $0.70 $0.60 $0.25 $0.25 $0.60 Q2 2017 Q2 201
Slide 6: Q2 2018 Revenue Growth
Q2 2018 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 7.4% 0.7% 0.3% 8.3% Europe 8.3% 28.8% 7.1% 44.2% Specialty 4.1% 9.0% 0.5% 13.6% Parts and Services 7.2% 12.7% 2.9% 22.8% Other Revenue 30.2% 0.7% 0.1% 31.1% Total 8.5% 12.1% 2.8% 23.3% • Org
Slide 7: YTD 2018 Revenue Growth
YTD 2018 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 7.0% 1.2% 0.3% 8.5% Europe 4.9% 20.4% 10.5% 35.7% Specialty 2.3% 9.9% 0.5% 12.7% Parts and Services 5.5% 9.7% 4.1% 19.4% Other Revenue 26.4% 0.8% 0.2% 27.3% Total 6.6% 9.2% 3.9% 19.8% • Org
Slide 8: Q2 2018 Operating Highlights
Q2 2018 Operating Highlights North America • Limited impact from implemented tariffs and Round 1 of Section 301 effective July 6, 2018; working on identifying the impact of the latest proposed tariffs • Sequential improvement in aftermarket gross margins of 30 bps related to pricing initiatives and
Slide 9: Inventory
Inventory Inventory Procurement: Q2 YTD ($ in millions, Vehicles purchased in 000s) 2018 2017 % Change 2018 2017 % Change Total aftermarket procurement $1,487 $1,193 24.6% $2,787 $2,218 25.7% Wholesale salvage cars and trucks 83 77 7.8% 156 152 2.6% Europe wholesale salvage cars and trucks 7 5 40.0%
Slide 10: Acquisition Activity
Acquisition Activity Number of Q2 TTM Number of YTD TTM Acquisitions Revenue (in millions)* Acquisitions Revenue (in millions)* North America — — 1 0 Europe 5 $1,935 5 $1,935 Specialty — — — — Total 5 $1,935 6 $1,935 • During the 2nd quarter of 2018,we acquired 5 businesses, including: ◦ Stahlgruber
Slide 11: Financial Results
Corporation Financial Results
Slide 12: Operating Results - Continuing Operations
Operating Results - Continuing Operations Second Quarter YTD ($ in millions,except per share data) 2018 2017 Change 2018 2017 Change Revenue $3,031 $2,458 23.3% $5,752 $4,801 19.8% Gross Margin 1,162 965 20.4% 2,216 1,895 16.9% Operating Income 257 245 5.0% 483 480 0.6% Pre-tax Income 218 226 (3.4)%
Slide 13: Q2 2018 Consolidated Margins - Continuing operations
Q2 2018 Consolidated Margins - Continuing operations Q2 Q2 Change (as a % of Revenue) 2018 2017 F/(U) QTD Commentary Revenue 100.0% 100.0% —% Gross Margin 38.3% 39.3% (1.0)% Decreased by 0.7% and 0.4% as a result of our Europe and North America segments, respectively Selling, General and 27.3% 27.0%
Slide 14: YTD 2018 Consolidated Margins - Continuing operations
YTD 2018 Consolidated Margins - Continuing operations Change (as a % of Revenue) 2018 2017 F/(U) YTD Commentary Revenue 100.0% 100.0% —% Gross Margin 38.5% 39.5% (1.0)% Decreased by 0.6% and 0.5% as a result of our Europe and North America segments, respectively Selling, General and SG&A increased a
Slide 15: Components of Revenue
Components of Revenue $3.03B $2.46B $5.75B $4.80B 100.0% 5.7% 5.4% 5.8% 5.4% • A portion of change in margins on a 13.6% 14.7% 13.3% 14.1% consolidated basis is attributable to 80.0% change in revenue mix • North America historically has the 35.6% highest gross margins and EBITDA 36.1% 40.3% 60.0% 4
Slide 16: North America – Q2 2018 Results
North America – Q2 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 46.0% Total Revenue $1,335 $1,207 10.7% 44.4% 43.9% 44.0% 43.5% Gross Margin $575 $529 8.7% 43.1% 43.9% 43.3% 43.6% Operating Expenses $402 $359 12.0% 30.1% 29.8% 43.1% 42.0% Segment EBITDA* $175 $17
Slide 17: North America – YTD 2018 Results
North America – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $2,665 $2,415 10.4% Gross Margin $1,151 $1,065 8.0% 43.2% 44.1% Operating Expenses $805 $721 11.7% 30.2% 29.8% Segment EBITDA* $353 $350 0.8% 13.2% 14.5% *Segment EBITDA is a non-GAAP measure. Refe
Slide 18: Scrap Steel Prices
Scrap Steel Prices $225 Q2 YoY scrap steel prices per ton up 33% $197 $199 $200 • Average price we received for $175 scrap steel in Q2 increased by $162 $163 33%, from $150 per ton in Q2 2017 to $199 per ton in Q2 2018 $150 $150 $144 • Immaterial year over year impact from changes in scrap prices on
Slide 19: Europe – Q2 2018 Results
Europe – Q2 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,284 $890 44.3% 40.0% Gross Margin $462 $331 39.6% 36.0% 37.2% Operating Expenses $354 $248 42.6% 27.6% 27.9% 38.0% 37.2% Segment EBITDA* $111 $84 32.7% 8.6% 9.4% 37.0% 35.9% 36.0% 35.7% 36.
Slide 20: Europe – YTD 2018 Results
Europe – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $2,325 $1,711 35.9% Gross Margin $835 $635 31.5% 35.9% 37.1% Operating Expenses $654 $475 37.8% 28.1% 27.8% Segment EBITDA* $186 $162 14.9% 8.0% 9.5% Branches** 1,078 772 306 * Segment EBITDA is a non-GAA
Slide 21: Foreign Exchange
Foreign Exchange • £ up 6% Q2 2018 vs. Q2 2017 $1.45 • € up 8% Q2 2018 vs. Q2 2017 $1.40 $1.39 • Translation impact of weaker dollar $1.36 on Europe revenue growth: $1.35 $1.33 $1.31 $1.30 $1.28 $1.31 – Q2: $63 million $1.25 $1.24 – YTD: $179 million $1.20 $1.23 $1.19 • Europe constant currency* par
Slide 22: Specialty – Q2 2018 Results
Specialty – Q2 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 31.0% 30.0% 30.2% Total Revenue $413 $363 13.6% 28.9% Gross Margin $125 $105 18.9% 30.2% 28.9% 29.0% 28.5% 28.6% Operating Expenses $69 $57 22.4% 16.8% 15.6% 27.0% Segment EBITDA* $56 $49 15.4% 13.6% 13.
Slide 23: Specialty – YTD 2018 Results
Specialty – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $765 $678 12.7% Gross Margin $230 $195 18.2% 30.1% 28.7% Operating Expenses $134 $111 20.2% 17.5% 16.4% Segment EBITDA* $98 $84 16.7% 12.8% 12.4% *Segment EBITDA is a non-GAAP measure. Refer to total s
Slide 24: 2018 Capital Allocation - Continuing operations
2018 Capital Allocation - Continuing operations $ in millions $2,100 $1,800 $1,054 $1,500 $1,200 $900 $329 $600 $(1,134) $345 $280 $300 $(115) $(69) $0 Beginning Cash Operating Cash Financing Acquisitions & Capex Other and FX Ending Cash 12/31/17 Flows Other Investing 6/30/18 Activities • Operating
Slide 25: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) $4,476 Total $4,500 $4,000 Capacity(1) $345 $4,000 $4,131 $3,500 $3,454 $3,446 $3,500 $3,428 $280 $3,000 $3,148 $1,395 $3,000 $1,564 $2,500 $2,500 3.1x $2,000 $71 $2,000 $65 2.7x $1,500 $1,500 $1,000 $1,988 $1,000 $1,817 $500 $500 $0 $0 December
Slide 26: Guidance 2018
Guidance 2018 (effective only on the date issued: July 26, 2018) Full Year 2017 Full Year 2018 ($ in millions excluding EPS) Actual Guidance(1) Organic Growth, Parts and Services 4.1% 4.5% - 5.5% Net Income - continuing operations attributable to $540 $602 - $627 LKQ stockholders Adjusted Net Income
Slide 27: 2018 Adjusted Diluted EPS Guidance Bridge
2018 Adjusted Diluted EPS Guidance Bridge* $2.50 $0.24 $2.29 $2.25 $(0.05) $0.05 $0.02 $0.04 $0.11 $2.00 $1.88 $1.75 $1.50 2017 Year over Full Year Stahlgruber Impact of Tax Reform Tax Reform 2018 Actual year impact of accretion exchange rate rate reinvestment Guidance** Business 2017 changes Growth
Slide 28: Q2 2018 Key Takeaways
Q2 2018 Key Takeaways • Organic revenue growth of 7.2% for parts and services in Q2 • Europe and North America achieved organic revenue growth of 8.3% and 7.4%, respectively • Net income from continuing operations attributable to LKQ stockholders improvement of 4.0% for Q2 • Q2 Diluted EPS of $0.50
Slide 29: 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 29
Slide 30: Appendix - Non-GAAP Financial Measures
Appendix - Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Included with this presentation are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP. 30
Slide 31: Appendix - 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, 2018 June 30, 2018 Consolidated Europe Consolidated Europe
Slide 32: Appendix - 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) 2018 revenue 2017 revenue 2018 revenue 2017 revenue Revenue North America $1,335 $1,207 $2,665 $2,415 Europe 1,284 890 2,325 1,711 Specialty 413 363 765 678 Elim
Slide 33: Appendix - 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 30* June 30* (in millions) 2018 2017 2018 2017 Net income $158 $151 $311 $287 Subtract: Net income attributable to noncontrolling interest 1 — 1 — Net income attributable to LKQ stockholde
Slide 34: Appendix - 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 35: Appendix - 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 Six Months Ended June 30* June 30* (in millions, except per share data) 2018 2017 2018 2017 Net income $158 $151 $311 $287 Subtract: Net income attributable to nonc
Slide 36: Appendix - 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 37: Appendix - Forecasted EPS reconciliation
Appendix 5 - Forecasted EPS reconciliation* For the year ending December 31, 2018 (in millions, except per share data) Minimum Guidance Maximum Guidance Net income from continuing operations attributable to LKQ stockholders $602 $627 Adjustments: Amortization of acquired intangibles 125 125 Restruct