Slide 1: Fourth Quarter & Full Year 2017 Earnings Call
Fourth Quarter & Full Year 2017 Earnings Call February 22, 2018 Nick Zarcone – President & Chief Executive Officer Varun Laroyia – Executive Vice President & Chief Financial Officer Joe Boutross – Vice President of 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 Q4 2017 Revenue* 2017 Revenue* $9,737 $2,600 $9,800 $2,470 $9,400 $2,400 $9,000 $8,584 $2,200 $2,150 $8,600 $8,200 .4% $2,000 13 .9% $7,800 14 $1,800 $7,400 $7,000 $1,600 $6,600 $1,400 $6,200 Q4 2016 Q4 2017 2016 2017 • Organic growth of parts and service
Slide 5: Consolidated Results - Continuing operations
Consolidated Results - Continuing operations Q4 2017 EPS* 2017 EPS* $0.50 $0.50 $1.90 $1.90 $1.88 $1.80 $1.80 $1.74 $1.69 $1.70 $1.70 $0.41 $0.41 $0.40 $1.60 $1.60 $0.40 $1.50 $1.47 $1.50 $0.35 $1.40 $1.40 $0.31 $1.30 $1.30 .2% .4% 11 $0.30 $0.30 18 $1.20 $1.20 .3% 32 .1% 17 $1.10 $1.10 $1.00 $1.00
Slide 6: Q4 2017 Revenue Growth
Q4 2017 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 5.0% 1.5% 0.3% 6.8% Europe 5.0% 11.3% 8.2% 24.6% Specialty 3.6% 8.1% 0.5% 12.1% Parts and Services 4.8% 6.1% 3.3% 14.3% Other Revenue 24.9% 1.2% 0.2% 26.2% Total 5.8% 5.8% 3.2% 14.9% • Organ
Slide 7: YTD 2017 Revenue Growth
YTD 2017 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 3.0% 3.6% 0.1% 6.7% Europe 5.3% 19.8% (0.6)% 24.5% Specialty 4.7% 1.9% 0.1% 6.7% Parts and Services 4.1% 9.1% (0.1)% 13.1% Other Revenue 19.6% 0.7% 0.0% 20.2% Total 4.9% 8.7% (0.1)% 13.4% •
Slide 8: Q4 2017 Operating Highlights
Q4 2017 Operating Highlights North America • Delivery route initiatives, including Roadnet, are ongoing • Continued to expand acreage for car holding and increased production, which should allow us longer hold times of cars to improve margins • Consolidated 4 PGW autoglass locations into LKQ warehou
Slide 9: Inventory
Inventory Inventory Procurement: Q4 YTD ($ in millions, Vehicles purchased in 000s) 2017 2016 % Change 2017 2016 % Change Total aftermarket procurement $1,291 $1,092 19.7% $4,730 $4,145 14.1% Wholesale salvage cars and trucks 84 77 9.1% 310 291 6.5% Europe wholesale salvage cars and trucks 7 6 16.7%
Slide 10: Acquisition Activity
Acquisition Activity Number of Q4 TTM Number of YTD TTM Acquisitions Revenue* Acquisitions Revenue* North America 2 $21 million 6 $92 million Europe 2 $16 million 16 $344 million** Specialty 1 $138 million 4 $142 million Total 5 $175 million 26 $578 million • During the 4th quarter of 2017,we acquir
Slide 11: Financial Results
Corporation Financial Results
Slide 12: Operating Results - Continuing Operations
Operating Results - Continuing Operations Fourth Quarter YTD ($ in millions,except per share data) 2017 2016 Change 2017 2016 Change Revenue $2,470 $2,150 14.9% $9,737 $8,584 13.4% Gross Margin 948 830 14.2% 3,800 3,352 13.4% Operating Income 168 162 3.8% 847 763 11.0% Pre-tax Income 150 144 4.5% 76
Slide 13: Q4 2017 Consolidated Margins - Continuing operations
Q4 2017 Consolidated Margins - Continuing operations Q4 Q4 Change (as a % of Revenue) 2017 2016 F/(U) Q4 2017 Commentary Revenue 100.0% 100.0% —% Cost of goods sold decreased as a result of our North America segment, primarily related to our salvage Gross Margin 38.4% 38.6% (0.2)% operations. Offset
Slide 14: 2017 Consolidated Margins - Continuing operations
2017 Consolidated Margins - Continuing operations Change (as a % of Revenue) 2017 2016 F/(U) YTD Commentary Revenue 100.0% 100.0% —% Cost of goods sold decreased 0.3% as a result of our North America segment, primarily related to our salvage Gross Margin 39.0% 39.0% —% operations. Offsetting this de
Slide 15: Components of Revenue
Components of Revenue $2.47B $2.15B $9.74B $8.58B 100.0% 5.4% 4.9% 5.4% 5.1% • A portion of change in margins on a 12.0% 12.3% 13.4% 14.2% consolidated basis is attributable to 80.0% change in revenue mix • North America historically has the 39.2% 36.2% 37.3% 34.0% highest Gross margins and EBITDA 6
Slide 16: North America – Q4 2017 Results
North America – Q4 2017 Results % of Revenue Gross Margin ($ in millions) 2017 2016 Change 2017 2016 46.0% Total Revenue $1,203 $1,108 8.6% 44.4% 44.0% 43.5% 43.6% Gross Margin $523 $480 9.1% 43.5% 43.3% 43.3% 43.9% 42.6% 43.4% 43.5% Operating Expenses $378 $341 10.9% 31.5% 30.8% 42.0% Segment EBITD
Slide 17: North America – 2017 Results
North America – 2017 Results % of Revenue ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $4,800 $4,445 8.0% Gross Margin $2,104 $1,921 9.5% 43.8% 43.2% Operating Expenses $1,466 $1,340 9.3% 30.5% 30.2% Segment EBITDA* $655 $590 11.1% 13.7% 13.3% *Segment EBITDA is a non-GAAP measure. Refer
Slide 18: Scrap Steel Prices
Scrap Steel Prices $200 Q4 YoY scrap steel prices per ton up 38% $162 $163 • Average price we received for scrap steel in Q4 2017 increased by 38%, from $118 $150 $144 $150 per ton in Q4 2016 to $163 per ton in Q4 2017 $138 $118 $118 • Average price we received for scrap steel YTD increased by 32% f
Slide 19: Europe – Q4 2017 Results
Europe – Q4 2017 Results % of Revenue Gross Margin ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $972 $779 24.7% 40.0% Gross Margin $347 $281 23.3% 35.7% 36.1% Operating Expenses $272 $216 25.8% 28.0% 27.7% 38.0% 37.4% 38.1% 37.0% 37.2% Segment EBITDA* $78 $64 22.2% 8.0% 8.2% 36.1% 35.7%
Slide 20: Europe – 2017 Results
Europe – 2017 Results % of Revenue ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $3,637 $2,920 24.5% Gross Margin $1,329 $1,077 23.4% 36.5% 36.9% Operating Expenses $1,017 $794 28.2% 28.0% 27.2% Segment EBITDA* $319 $284 12.5% 8.8% 9.7% ECP Branches** 253 245 8 Sator Branches*** 116 94 22
Slide 21: Foreign Exchange
Foreign Exchange $1.55 • £ up 7% Q4 2017 vs. Q4 2016 • € up 5% Q4 2017 vs. Q4 2016 $1.43 $1.44 $1.45 • Translation impact of weaker dollar on Europe revenue growth: $1.35 – Q4: +$64 million $1.31 $1.33 $1.31 $1.28 • Translation impact of stronger $1.24 dollar on Europe revenue growth $1.24 $1.25 for
Slide 22: Specialty – Q4 2017 Results
Specialty – Q4 2017 Results % of Revenue Gross Margin ($ in millions) 2017 2016 Change 2017 2016 31.0% Total Revenue $297 $265 12.1% 30.9% 29.8% 28.9% Gross Margin $78 $69 12.3% 26.3% 26.2% 29.0% 28.5% 28.5% 28.6% Operating Expenses $60 $49 20.4% 20.1% 18.7% 27.0% 26.3% Segment EBITDA* $23 $20 13.1%
Slide 23: Specialty – 2017 Results
Specialty – 2017 Results % of Revenue ($ in millions) 2017 2016 Change 2017 2016 Total Revenue $1,306 $1,224 6.7% Gross Margin $367 $354 3.7% 28.1% 28.9% Operating Expenses $230 $225 2.3% 17.6% 18.4% Segment EBITDA* $142 $131 8.1% 10.9% 10.7% *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 $1,500 $1,200 $301 $900 $523 $(113) $600 $(507) $24 $280 $300 $227 $(175) $0 Beginning Cash Operating Cash Net proceeds Financing Acquisitions & Capex Other and FX Ending Cash 12/31/16 Flows from disposal Other Investing 12/31/17 of OEM b
Slide 25: Leverage & Liquidity
Leverage & Liquidity Total ($ in millions ) ($ in millions ) Capacity(1) $3,600 $3,428 $4,000 $3,366 $227 $280 $3,454 $3,200 $3,500 $3,139 $3,148 $3,183 $2,800 $3,000 $1,395 $2,400 $1,019 $2,500 $2,000 $73 $2,000 $71 $1,600 2.7x 2.7x $1,500 $1,200 $1,000 $2,091 $1,988 $800 $400 $500 $0 $0 December 3
Slide 26: Key Return Metrics
Key Return Metrics Return on Equity Return on Invested Capital* 14.0% 14.9% 15.0% 14.4% 14.5% 14.5% 14.1% 13.8% 12.0% 10.9% 10.8% 10.9% 10.5% 12.0% 10.0% 9.7% 10.0% 9.0% 8.0% 6.0% 6.0% 4.0% 3.0% 2.0% 0.0% 0.0% 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 * Amortization of intangibles
Slide 27: Guidance 2018
Guidance 2018 (effective only on the date issued: February 22, 2018) Full Year 2017 Full Year 2018 ($ in millions excluding EPS) Actual Guidance(1) Organic Growth, Parts and Services 4.1% 4.0% - 6.0% Net Income - continuing operations attributable to $540 $646 - $676 LKQ stockholders Adjusted Net In
Slide 28: 2018 Adjusted Diluted EPS Guidance Bridge
2018 Adjusted Diluted EPS Guidance Bridge* $2.50 $0.28 $2.35 $(0.05) $2.25 $0.03 $0.04 $0.03 $0.14 $2.00 $1.88 $1.75 $1.50 2017 Year over Andrew Page Full Year Impact of Tax Reform Tax Reform 2018 Actual year & Tamworth 2 impact of exchange rate Rate Reinvestment Guidance** Business Recovery 2017 ch
Slide 29: Q4 2017 Key Takeaways
Q4 2017 Key Takeaways • Organic revenue growth of 4.8% and 4.1% for parts and services in Q4 and YTD, respectively • Per day organic revenue growth in 2017 of 3.4%, 5.7% and 5.1% for our North America, Europe and Specialty segments, respectively. • Tax Act benefit of $22 million, or $0.07 per share,
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 29
Slide 31: 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 32: 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 Year Ended December 31, 2017 December 31, 2017 Consolidated Europe Consolidated Europ
Slide 33: Appendix - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Year Ended December 31* December 31* % of % of % of % of (in millions) 2017 revenue 2016 revenue 2017 revenue 2016 revenue Revenue North America $1,203.0 $1,107.8 $4,799.7 $4,444.6 Europe 971.6 779.3 3,636.8 2,920.5 Specialty 296.
Slide 34: Appendix - Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended Year Ended December 31* December 31* (in millions) 2017 2016 2017 2016 Net income $120.7 $86.3 $530.2 $464.0 Subtract: Net loss attributable to noncontrolling interest (3.5) — (3.5) — Net income attributable to
Slide 35: 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 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 Three Months Ended Year Ended December 31* December 31* (in millions, except per share data) 2017 2016 2017 2016 Net income $120.7 $86.3 $530.2 $464.0 Subtract: Net loss attributable
Slide 37: 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 38: 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 $646 $676 Adjustments: Amortization of acquired intangibles 100 100 Tax effe