Lkq Corporation · NASDAQ:LKQ
Lkq — Investor Day (June 2022)
79 slides from Lkq's investor day presentation, Jun 1, 2022
Slide 1: 2022 Investor Day
2022 Investor Day LKQ Keeping you moving
Slide 2: Forward Looking Statements & 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 Act. Forward-looking statements include, but are not limited
Slide 3: Agenda
Agenda (all times are CST) 8:00 - 9:00AM Registration 9:00 - 9:05AM Welcome 9:05 - 9:30AM Nick Zarcone-President & Chief Executive Officer 9:30 - 9:50AM Wholesale North America Justin Jude-President, Wholesale North America Rick Galloway-Chief Financial Officer, Wholesale North America 9:50 - 10:05A
Slide 4: Nick Zarcone, President & Chief Executive Officer
Nick Zarcone President & Chief Executive Officer
Slide 5: Our Mission
Our Mission To be the leading global value-added and sustainable distributor of vehicle parts and accessories by offering our customers the most comprehensive, available and cost-effective selection of part solutions and services while building strong partnerships with our employees and the communit
Slide 6: Core competencies and strengths
Our mission is underpinned by a set of clear core competencies and strengths 6 CORE COMPETENCIES AND STRENGTHS • Far-reaching aftermarket parts distribution in growing markets • Industry-leading aftermarket and salvage procurement • Insurance / customer / MSO relationships and B2B e- commerce • High
Slide 7: GEAR forward strategic framework
Rationalize Asset Base To achieve this mission, GEAR forward provides a strong framework to define a clear strategic roadmap Adapt To Evolving Technology Expand Global Footprint Grow Diversified Offerings 7 Grow offerings including services and take share through continued core business improvement
Slide 8: In 2019, we set Four Key Priorities
In 2019, we set Four Key Priorities Profitable Growth Talent Acquisition Cash Flow Generation Enhance Margins 8
Slide 9: Aligned financial goals and corporate strategy
We aligned our financial goals and our corporate strategy Operational Excellence (2019 – Future) 1. Strategy • Drive operational excellence throughout the enterprise 2. Incentives • Incentivize operational efficiency through organic growth, accretive margins, and judicious working capital management
Slide 10: Performance-based compensation programs changed
Shifted 50% of long-term incentives from cash to performance share units Align interests of LKQ’s Board and executives with our shareholders All of LKQ’s compensation plans are designed to create a pay-for-performance culture Annual incentive program to focus management on profitability and the opti
Slide 11: Key market trends create opportunities for growth
Vehicle Technology Remote | Mobile Services Key market trends create opportunities for growth 11 Vehicle Electrification NiMH Battery Reconditioning and Installation • Proprietary technology for hybrid battery reconditioning • Battery installations at customer-preferred location • Strong platform fo
Slide 12: The Largest Auto Recycler in the World
180 780,000 1.4M 1.1M 740,000 2.1M LKQ At LKQ, we create a circular economy by selling used parts and distributing spare parts to the vehicle industry. Recycling, remanufacturing, and reusing car parts are part of our DNA: Our operations recover more than 90% of the vehicle. The Largest Auto Recycle
Slide 13: ESG Focus Areas
ESG Focus Areas 13 Employee Engagement Diversity, Equity & Inclusion Talent Development Carbon Footprint & Recycling Sustainable Supply Chain Community Support
Slide 14: Our ESG Goals
Our ESG Goals Our Environment: 30% By 2030, reduce global Scope 1 and Scope 2 emissions by 30% compared to the 2021 baseline relative to revenue. Net Zero By 2050, achieve net zero emissions across our operations. Our People — Employee Engagement: 73% By 2025, achieve 73% participation in our employ
Slide 15: Sustainability Report Highlights
Sustainability Report Highlights 15 We are creating a more sustainable business with a goal of reducing our emissions by 30% by 2030 and achieving net zero emissions across our operations by 2050. Methodology based on information from: www. mdpi.com, www.carbonclean.com, www.bdsv.org, McKinsey & Com
Slide 16: Our Strategic Plan: Embed Operational Excellence
Our Strategic Plan: Embed Operational Excellence Across the Global Enterprise 16 Annual Organic Revenue Growth without Inflation Impact 2.2% to 3.2% Average Annual Organic EBITDA Margin Improvement 15 bps to 25 bps Minimum Sustainable Free Cash Flow ≥ $1 billion Profitable Growth Enhance Margins Cas
Slide 17: Wholesale North America
Wholesale North America Justin Jude – President Rick Galloway – Chief Financial Officer
Slide 18: North America leader for alternative parts and services
North America leader for Alternative Parts, Recycled OEM, Remanufacturing, and Diagnostics Services 18 What do we do… $4.4B1 2021 Revenue 17.6% 2021 EBITDA Margin ~12.6K Employees 459 Locations Remanufacturing • Engines and transmissions • Rear axles and turbos • Hybrid battery reconditioning Recycl
Slide 19: Distribution & Wholesale North America Footprint
Distribution & Wholesale North America Footprint Strong relationships with top insurance carriers Extensive distribution network LKQ wins through scale, strong value propositions, and strategic partnerships 19Note: Data represents US Automotive Insurance Providers Source: “Auto Insurance Report” Bri
Slide 20: Drive to profitable growth and operational excellence
2020 Investor Day introduced LKQ North America Wholesale’s drive to profitable growth and operational excellence 20 Growth and Establishment 2006-2017 Expansion 2018 & Beyond • Top-Line Revenue Growth • Significant Acquisitions • Profitable Revenue Growth • Strategic/Tuck-in Acquisitions Commercial
Slide 21: Reliable margin delivery
21 Reliable margin delivery Disciplined pass-through of uncontrollable costs LKQ poised for share growth following supply chain challenges 12% increase in salvage yard capacity in 2021, with more pending Demand improving Limited by supply chain Fill rate improvements will position LKQ to w
Slide 22: Commercial actions and customer value proposition
Commercial - Actions have led to a customer-focused value proposition while increasing LKQ’s share of APU wallet 22 Sale of aftermarket glass business closed on April 18, 2022 Not synergistic to LKQ and margin dilutive Using data to help sales reps sell incremental volume Initial use of Sale
Slide 23: Operational Excellence improving trade working capital
23 Continued improvement using Artificial Intelligence for salvage procurement Network Optimization software driving strategic decision making Organization structure changes enhancing process improvement Lean Daily Management rolling out across all regions Partnering with customers to redu
Slide 24: Business Focus and sustainable targets
24 Business Focus • Continued investment in margin enhancing services segment • Strategic investment is expanding reman product offerings • Poised for share growth following supply chain challenges Commercial • Organic revenue growth continues to rebound following COVID-19 • Proprietary sales tool d
Slide 25: Self Service
Self Service Mike Dufresne – Vice President
Slide 26: Self Service largest national footprint
LKQ’s Self Service segment has the largest national footprint with opportunity for continued growth 2021 Revenue: $787M | 2021 EBITDA Margin: 22.3% | ~1,650 Employees | 69 Locations Self Service locations $192 $203 $207 $335 $389 $580 Parts & Services 20202019 2021 Metals $527 $592 $787 CompetitionS
Slide 27: Self Service Strengths & Capabilities
Self Service Strengths & Capabilities People Process Customer offerings Digital • Extensive industry experience • Entrepreneurial spirit • Results oriented • Deep roots in local communities • Disciplined & systematic inventory sourcing and management • Industry leading yields on cores and parts • Be
Slide 28: Select Self Service strategic initiatives
Select Self Service strategic initiatives Streamlined Sourcing & Operational Processes Improved Data Collection & MDM Pricing B2B2C E-Comm Self-Service Digital Strategy Digital Advertising to EOL Vehicle Owners Vehicle Valuation Models Initiative 1: Centralized Buying and Dispatching Initiative 2: E
Slide 29: Online marketing and dispatch optimization
Optimization of online marketing along with enhancements in dispatch will lead to increased revenue and profitability Outcome of initiatives Marketing • Improves hit rate within search engines • Drives increased online traffic • Earns higher trust with customers Operations – Centralized & Internally
Slide 30: Superior digital strategy
A superior digital strategy will help to drive further differentiation between Self Service and its competition Digitization Streamlined Sourcing & Operational Processes • Centralizing buying and dispatching • Quote to vehicle pickup in 2 hours Improved Data Collection & MDM • Track part sales data
Slide 31: Self Service operational excellence summary
Self Service segment has a strong focus on operational excellence driving improved profitability, order to cash and overall customer experience Developed an operational hedge on commodities converting procurement to cash between 30 to 90 days, decreasing impact of market fluctuations1 Our exceptiona
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Slide 33: LKQ Europe
LKQ Europe Arnd Franz – Chief Executive Officer, LKQ Europe Yanik Cantieni – Chief Financial Officer, LKQ Europe
Slide 34: LKQ Europe Unmatchable Footprint
LKQ Europe 34 Unmatchable Footprint 1,000 locations serve 100,000+ workshops multiple times per day Excellence & Scale Resilient business, leading margin, capital efficiency and long-term growth Innovation Seamless digital experience and first to market in electrification Leader in Sustainability Us
Slide 35: LKQ Europe key facts
LKQ Europe 35 20 Countries 1,000 Branches 10,000 Franchise workshops 100,000 Independent workshops 26,300 Employees $6.1B Revenue 2021 900,000 Unique SKUs #1 Ranking in Europe Patterned Fill indicates countries where LKQE is market leader
Slide 36: LKQ Europe Growth Story
LKQ Europe Growth Story 36 Revenue in Billion $ Employees in 000s 0.1 0.7 1.3 1.8 2.0 2.9 3.6 5.2 5.8 5.5 6.1 20122011 2013 2014 5.3 11.8 2015 2016 2020 20.2 2017 2018 2019 2021 3.9 8.2 11.4 18.6 27.5 29.0 26.326.2
Slide 37: Double Digit EBITDA through Margin Improvement & Productivity
Double Digit EBITDA through Margin Improvement & Productivity 37 Revenue and Segment EBITDA % Average TWC & ATWC % Revenue 3.6 5.8 6.1 8.8% 7.8% 10.2% 2017 2019 2021 Revenue in $B EBITDA % 0.9 1.4 1.0 25.4% 24.6% 16.2% 20212017 2019 Average TWC in $B ATWC % Revenue Average Trade Working Capital = Re
Slide 38: Margin & Cash Flow Improvement
Margin & Cash Flow Improvement Procurement, Product Management, Revenue Optimization and Asset Rationalization 38 132 Suppliers Consolidated in 2021 10bps EBITDA Improvement $85M Improvement $300M TWC Improvement $38M Improvement Asset Rationalization Procurement Initiatives Payment Terms & Supply C
Slide 39: Productivity & Shared Services
Productivity & Shared Services 39 Innovation & Service Center Katowice, Poland • FTE Productivity / Cost Benefits • Jobs in Digitalization, Innovation & Administration • Boost LKQ’s Digital and Innovation Strategy • Process Excellence & Standardization 29.0 26.3 2019 2021 -9% 207 231 2019 2021 +12%
Slide 40: Operational Excellence is Continuing
Network Design - Closed 100 branches / Revenue per Branch +14% Consolidation of Infrastructure - Powerful distribution centers in key markets Pan European Inbound Freight / Transport Contracts - Freight and transport consolidation Replenishment Route Optimization - >10% cost reduction potential Inve
Slide 41: Tomorrow's Market Environment
41 Tomorrow’s Market Environment European Auto Service Outlets Vehicles in Operation in Europe 2021 2030 20302021 BEV PHEV ICE & OTHER Independent workshops OEM-franchised workshops 361 Million >12.0 years 340 Million 11.8 years • Market Growth • Late impact of Electrification on Independent Afterma
Slide 42: iGo Digital channels
iGo Digital channels & interfaces he Car park Electrification So Connectivity Driver assistance systems S—> L Ka 42 Keeping you moving
Slide 43: Workshop of the Future
Workshop of the Future CUSTOMERS • Private • Fleets • Insurances • OEMs • Corporates ADAS diagnostic & calibration Referral systems E-working station capabilities Battery repair & replacement Digital tools & processes Garage management system Software upgrades High-voltage protective equipment 43
Slide 44: Traction Battery Capacity Depletes Over Vehicle Lifetime
Capacity of Traction Batteries Will Deplete Over Lifetime of the Vehicle 44 SOC / voltage state Production quality Temperature Time Charging / discharging behavior Depth of discharge Battery State of Health (SOH) % of original nominal capacity. 100% 90% 80% 70% 60% LKQ model calculation: 64% of batt
Slide 45: Electrical Vehicles Create New Aftermarket Opportunities
Electrical Vehicles Will Create New Business Opportunities in the Aftermarket 45 Use phase Integration Dismantling Testing & Sorting Recycling Repair Remanufacturing Production Reuse LKQ Business Opportunity
Slide 46: LKQ Europe Strategic Objectives
Operational Excellence With Innovation: LKQ Europe Strategic Objectives 46 Gross Margin Improvement • Procurement & Product Strategy • Revenue Optimization • Private Label Operational Excellence • Logistics • Branch Network • Shared Services Enhance Customer Engagement - Digital & Beyond • Virtual P
Slide 47: Specialty
Specialty Bill Rogers - Senior Vice President Gary Mann - Vice President Finance
Slide 48: Strengthened Our Vertically Owned Brands Business
Strengthened Our Vertically Owned Brands Business Despite the COVID-19 pandemic and global supply chain issues, Specialty has made tremendous progress in the last 2 years 48 9% $400 $1,200 2% $0 $200 8% 10% $600 $1,400 $800 11% $1,000 $1,600 7% $1,800 $2,000 $2,200 $2,400 12% 0% 1% 3% 4% 5% 6% 20192
Slide 49: Unmatched logistics network
Our unmatched logistics network and superior delivery capabilities… 49 Inside Sales Locations (9) Specialty Cross-Docks (37) Specialty Distribution Centers (8) Manufacturing Locations (4) R&D Locations (2) Order to delivery in less than 24 hoursSpecialty Logistics Network Big & Bulky – Every Day
Slide 50: Digitization enhances Specialty tools
Mobile Application Interactive Garage (Auto Only) MagniFinder (RV Only) … Are further enhanced by our digitization • 1055 custom catalogs • Smart search • Images & video • Fitment (vehicle specific) • Category browsing • Real time inventory Superior Catalog • Social share • Email share • Flyer share
Slide 51: Case-in-point: Interactive Garage
Case-in-point: Interactive Garage • Some Usage Data – Over 12,000 Jobbers have the tool on eKeystone – 450+ have customized version – 500k unique sessions per month – Average build time – 9 Mins • 83 KAO Brands currently included • Now offering Custom version with B to C Cart – Bolts onto Customer’s
Slide 52: Accelerated Growth for the New Marine Segment
Specialty Expects Accelerated Growth for the New Marine Segment Current Brands Future Brand Opportunities 2021E TOTAL ADDRESSABLE MARINE SEGMENT TOTAL UNTAPPED SEGMENT SHARE Marine Parts & Accessories Aftermarket Growth Drivers Growing Outdoor Lifestyle & Enthusiasm Large, Aging On-Water Fleet Growt
Slide 53: Blueprint for Expanding into Adjacent Segments
~$2.5B TAM Addition 18%+ Five-Year TAM Growth Rate ~$3.9B TAM Addition 5%+ Five-Year TAM Growth Rate PTVs E-Bikes ~$3.0B TAM Addition 7%+ Five-Year TAM Growth Rate Established “Blueprint” for Expanding into Attractive Adjacent Segments Identify Segments We continue to assess adjacent segments for at
Slide 54: Strategy to Drive Continued Profitable Growth in Specialty
Our Strategy is to Drive Continued Profitable Growth in Specialty 54 Maintain and grow #1 position in core auto & RV markets served • New lines & products • Exclusive brands Establish strong position in adjacent marine distribution market Expand through M&A activity in: • “Tuck-in” distribution • Ad
Slide 55: Specialty Summary
Specialty Summary 55 Strong leadership position in the markets we serve Multiple competitive advantages that are very difficult to duplicate Markets are responding favorably to new environmental conditions Very strong team responsive to changing market & driving market leadership Sound business stra
Slide 56: Varun Laroyia, Executive Vice President and CFO
Executive Vice President and Chief Financial Officer Varun Laroyia
Slide 57: LKQ Financial Snapshot
Third Party Revenue (6) (1) Segment EBITDA is a non-GAAP measure. See the Appendix for reconciliations of non-GAAP measures. (2) Net Debt is a non-GAAP measure. See the Appendix for reconciliations of non-GAAP measures (3) Total liquidity includes cash and cash equivalents and availability under cre
Slide 58: Approach to Balance Sheet and Capital Allocation
▪ Target net leverage ratio below 2.0x ▪ Maintain mix of fixed and floating interest rate debt with maturities spread over 3 – 10 years ▪ Transition to an unsecured capital structure with investment grade rating to improve financial flexibility Our Approach to Balance Sheet and Capital Allocation Su
Slide 59: Growing and Economically Resilient Industry
LKQ Operates in a Growing and Economically Resilient Industry 59 2.36 2.42 2.48 2.56 2.63 2.68 2.75 2.80 2.86 2.89 2.96 2.99 3.01 3.03 2.97 2.96 2.97 2.95 2.97 2.99 3.03 3.10 3.17 3.21 3.24 3.27 3.03 3.02 1 9 9 7 1 9 9 5 2 0 1 8 1 9 9 8 2 0 0 7 2 0 0 0 2 0 0 4 2 0 0 3 2 0 0 5 2 0 1 5 2 0 0 6 2 0 1 1
Slide 60: Vehicle Kilometers Traveled in Europe
Total Vehicle Kilometers Traveled in Europe Exhibit Similar Patterns as in the US 60 1.29 1.43 Germany Italy 1.45 UK 202120202019 1.37 201820172014 201520132012 1.51 1.45 20112010 2016 1.451.44 1.46 1.48 1.50 1.52 +0.6% -9.5% Sources: IHS, GIPA, UK DoT Note: UK 2021 VKTs are provisional for Q1-Q3 20
Slide 61: Operational Excellence Program Drives Results
Operational Excellence Program Drives Results P&S Organic Revenue Growth 38.8% 39.5% 40.7% 20212019 2020 70 bps 120 bps Gross Margin % 10.6% 11.8% 13.6% 2019 2020 2021 120 bps 180 bps Segment EBITDA % (1) $798 $1,271 $1,074 202120202019 +16.0% Free Cash Flow (1) 2019 2020 2021 2.6x 1.9x 1.4x 0.7x 0.
Slide 62: Focus on Free Cash Flow Generation
31% 39% 45% 66% 42% 31% 39% 45% 66% 42% 31% 39% 45% Focus on Free Cash Flow Generation 62Note: FCF amounts only include FCF generated by continuing operations 1) Free Cash Flow and EBITDA are non-GAAP measures. See the Appendix for reconciliations of non-GAAP measures $374 $388 $347 $465 $798 $350 $
Slide 63: Net Debt / EBITDA
Net Debt / EBITDA 2.6x 2.7x 2.9x 2.6x 1.9x 1.4x 1.3x Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21 Q1 '22 63 May 12, 2022 Moody's assigns Baa3 Issuer Rating to LKQ Corporation, upgrades subsidiary debt to B
Slide 64: Balance Sheet Prepped to Sustain Volatile Capital Markets
Balance Sheet Prepped to Sustain Volatile Capital Markets (1) Total debt (in millions) as of 3/31/22, excluding debt issuance costs. Debt Maturity Profile(1) 277553 1,813 1019 2026 20272023Q2-Q4 2022 1,337 2024 2025 2028+ 23 3,712 3 3 288 3.875% EUR Senior Notes due 2024 (€500M) Notes Payable 4.125%
Slide 65: Operating Cash Flows Allocated to Highest Return Opportunities
Strong Operating Cash Flows Allocated to Highest Return Opportunities 2019 to March 2022 - Capital Allocation Priorities for Next 3 Years Future cash flow will be allocated to highest return opportunities across organic investments, tuck-in acquisitions, and share repurchases; further shareholder re
Slide 66: Investment and Asset Base Rationalization
Driving Value Through Investment and Asset Base Rationalization Target critical capabilities in attractive markets (1) High return capital projects that advance our strategy 9.1% (1) Reflects trailing twelve months Q1 ’22 financials for Elitek and Green Bean Battery (2) Synergy figures reflect Pro F
Slide 67: Financial Policy to Enhance Shareholder Value
Financial Policy to Enhance Shareholder Value Focus on Free Cash Flow Generation Target organic growth greater than market comps Achieve 1 LKQ Europe program, NA and Specialty margin expansion Convert high levels of EBITDA to Free Cash Flow with a focus on trade working capital efficiencies. T
Slide 68: LKQ's Investment Thesis
LKQ’s Investment Thesis Strong Market Position • Market leadership in all four reporting segments: ‒ North America ‒ Europe ‒ Specialty ‒ Self Service • Unparalleled customer & geographic diversity • Industry leading service Organic Growth & Operational Excellence • Ability to grow revenue organical
Slide 69: Our Strategic Plan: Embed Operational Excellence
Our Strategic Plan: Embed Operational Excellence Across the Global Enterprise 69 Annual Organic Revenue Growth without Inflation Impact 2.2% to 3.2% Average Annual Organic EBITDA Margin Improvement 15 bps to 25 bps Minimum Sustainable Free Cash Flow ≥ $1 billion Profitable Growth Enhance Margins Cas
Slide 70: Closing Remarks
Nick Zarcone Closing Remarks President & Chief Executive Officer
Slide 71: Great Company, Great Stock
Great Company, Great Stock 71 Great Company – Great Stock Great Company • Financially resilient • Competitively advantaged • Growing profitably • Premium ROIC • Committed to ESG • Employer of choice Great Stock • Strong & sustainable • Shareholder value • Stable & loyal long- term investor base • Ma
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Slide 73: Appendix
Appendix LKQ 73 Keeping you moving
Slide 74: Reconciliation of Total Debt to Net Debt
Appendix 1 Reconciliation of Total Debt to Net Debt We have presented net debt solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our liquidity and financial position. We calculate net debt as total debt less cas
Slide 75: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 2 Reconciliation of Net Income to EBITDA and Segment EBITDA 75 (in millions) 2019 2020 2021 Q1 2022 Q1 2021 TTM Q1 2022 Net income $545 $640 $1,092 $273 $266 $1,099 Subtract: Net income attributable to continuing noncontrolling interest 3 2 1 - - - Net income attributable to discontinued no
Slide 76: EBITDA definition
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 income excluding discontinued operations, depreciati
Slide 77: Reconciliation of Net Income and EPS to Adjusted EPS
Appendix 3 Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations 77(1) The sum of the individual components may not equal the total due to rounding (2) Adjustments include provisions for reserves for asset recoverability (receivables and inventory) a
Slide 78: Reconciliation of Net Income and EPS to Adjusted EPS
Appendix 3 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 perfor
Slide 79: Reconciliation of Operating Cash Flow to Free Cash Flow
Appendix 4 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