Slide 1: Third Quarter 2018 Earnings Call
Third Quarter 2018 Earnings Call October 25, 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 Q3 2018 Revenue(1) YTD 2018 Revenue(1) $3,200 $8,874 $3,122 $8,900 $3,000 $8,300 $7,700 $7,267 $2,800 $7,100 $6,500 .1% $2,600 22 $2,466 .6% $5,900 26 $2,400 $5,300 $4,700 $2,200 $4,100 $2,000 $3,500 Q3 2017 Q3 2018 YTD 2017 YTD 2018 • Organic growth of p
Slide 5: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q3 2018 EPS(1) YTD 2018 EPS(1) $0.65 $0.65 $1.50 $1.80 $1.41 $1.71 $0.56 $1.40 $0.55 $0.55 $1.33 $1.60 $1.30 $1.47 $0.45 $0.45 $0.45 $0.42 % $1.40 .3 $0.39 % % 16 2 4.4 $1.20 6.0 $0.35 $0.35 % 7.7 $1.20 $1.10 $0.25 $0.25 Q3 2017 Q3 2018 $1.00 $1.00 Q3 201
Slide 6: Q3 2018 Revenue Growth
Q3 2018 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 5.2% 0.5% (0.3)% 5.5% Europe 2.0% 52.6% (0.9)% 53.7% Specialty 8.0% 10.5% (0.5)% 18.0% Parts and Services 4.3% 23.2% (0.6)% 26.9% Other Revenue 18.9% 2.7% (0.1)% 21.5% Total 5.1% 22.1% (0.6)
Slide 7: YTD 2018 Revenue Growth
YTD 2018 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 6.4% 1.0% 0.1% 7.5% Europe 3.8% 31.9% 6.4% 42.2% Specialty 4.2% 10.1% 0.1% 14.5% Parts and Services 5.1% 14.3% 2.5% 21.9% Other Revenue 23.9% 1.5% 0.1% 25.4% Total 6.1% 13.6% 2.4% 22.1% • O
Slide 8: Q3 2018 Operating Highlights
Q3 2018 Operating Highlights North America • Continued price enhancement efforts have led to improved sequential wholesale gross margin of 70bps • Continue to consolidate PGW sites, as appropriate • 97% of routes optimized in Roadnet and beginning phase 2 review expected to lead to another 2-3% impr
Slide 9: Inventory
Inventory Inventory Procurement: Q3 YTD ($ in millions, Vehicles purchased in 000s) 2018 2017 % Change 2018 2017 % Change Total aftermarket procurement $1,701 $1,221 39.3% $4,488 $3,439 30.5% Wholesale salvage cars and trucks 73 74 (1.4)% 229 226 1.3% Europe wholesale salvage cars and trucks 6 6 —%
Slide 10: Acquisition Activity
Acquisition Activity Number of Q3 TTM Number of YTD TTM Acquisitions Revenue (in millions)(1) Acquisitions Revenue (in millions)(1) North America — — 1 0 Europe 3 $70 8 $2,005 Specialty — — — — Total 3 $70 9 $2,005 • During the 3rd quarter of 2018,we acquired 3 businesses, including: ◦ One wholesale
Slide 11: Financial Results
Corporation Financial Results
Slide 12: Operating Results - Continuing Operations
Operating Results - Continuing Operations Third Quarter YTD ($ in millions,except per share data) 2018 2017 Change 2018 2017 Change Revenue $3,122 $2,466 26.6% $8,874 $7,267 22.1% Gross Margin 1,197 957 25.1% 3,413 2,852 19.7% Operating Income 235 199 17.9% 718 679 5.7% Pre-tax Income 201 178 12.9%
Slide 13: Q3 2018 Consolidated Margins - Continuing Operations
Q3 2018 Consolidated Margins - Continuing Operations Q3 Q3 Change (as a % of Revenue) 2018 2017 F/(U) Q3 Commentary Revenue 100.0% 100.0% —% Decreased by 0.2% and 0.2% as a result of our North America segment and mix (with Stahlgruber, our lower Gross Margin 38.3% 38.8% (0.5)% margin Europe segment
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% 39.2% (0.7)% Decreased by 0.5% and 0.4% as a result of our Europe and North America segments, respectively Selling, General and 27.9% 27.6% (0.3
Slide 15: Components of Revenue
Components of Revenue $3.12B $2.47B $8.87B $7.27B 100.0% 5.1% 5.4% 5.6% 5.5% 12.5% 13.4% 13.0% 13.8% • North America historically has the 80.0% highest gross margins and EBITDA margins relative to the other segments 38.6% 36.6% 60.0% 46.9% 42.6% • Increase in Q3 and YTD revenue as a percentage of co
Slide 16: North America – Q3 2018 Results
North America – Q3 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 46.0% Total Revenue $1,263 $1,182 6.8% 44.4% 43.9% 44.0% 43.5% 43.3% Gross Margin $546 $515 6.0% 43.2% 43.6% 43.2% 43.6% Operating Expenses $397 $367 8.4% 31.5% 31.0% 43.1% 42.0% Segment EBITDA(1) $1
Slide 17: North America – YTD 2018 Results
North America – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $3,928 $3,597 9.2% Gross Margin $1,697 $1,581 7.3% 43.2% 43.9% Operating Expenses $1,202 $1,087 10.6% 30.6% 30.2% Segment EBITDA(1) $507 $502 0.9% 12.9% 14.0% (1) Segment EBITDA is a non-GAAP measu
Slide 18: Scrap Steel Prices
Scrap Steel Prices Q3 YoY scrap steel prices per ton up 4% $225 197 199 $200 • Average price we received for scrap steel in Q3 increased by $175 4%, from $162 per ton in Q3 168 162 163 2017 to $168 per ton in Q3 2018 150 $150 144 • Sequential change was $31 per ton or 16% down $125 • Changes in scra
Slide 19: Europe – Q3 2018 Results
Europe – Q3 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,471 $955 54.1% 40.0% Gross Margin $538 $347 55.1% 36.6% 36.4% Operating Expenses $411 $270 52.1% 27.9% 28.3% 38.0% 37.2% 36.6% Segment EBITDA(1) $129 $79 63.1% 8.8% 8.3% 37.0% 36.0% 35.7% 3
Slide 20: Europe – YTD 2018 Results
Europe – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $3,795 $2,665 42.4% Gross Margin $1,373 $982 39.9% 36.2% 36.8% Operating Expenses $1,065 $745 42.9% 28.1% 28.0% Segment EBITDA(1) $316 $242 30.7% 8.3% 9.1% (2) Branches 1,080 836 244 (1) Segment EBITDA is
Slide 21: Foreign Exchange
Foreign Exchange • £ down 1% Q3 2018 vs. Q3 2017 $1.45 $1.40 $1.39 • € down 1% Q3 2018 vs. Q3 2017 $1.36 $1.35 $1.33 • Translation impact of weaker YTD $1.31 $1.30 average dollar on Europe revenue $1.30 $1.28 growth: $1.24 $1.25 – YTD: $170 million $1.23 $1.20 • Europe constant currency(1) parts and
Slide 22: Specialty – Q3 2018 Results
Specialty – Q3 2018 Results % of Revenue Gross Margin ($ in millions) 2018 2017 Change 2018 2017 31.0% 30.0% 30.2% Total Revenue $390 $331 18.0% 28.9% 29.0% 29.0% 28.5% Gross Margin $113 $95 19.4% 29.0% 28.6% 28.6% Operating Expenses $71 $59 19.9% 18.2% 17.9% 27.0% Segment EBITDA(1) $43 $35 22.3% 11
Slide 23: Specialty – YTD 2018 Results
Specialty – YTD 2018 Results % of Revenue ($ in millions) 2018 2017 Change 2018 2017 Total Revenue $1,155 $1,009 14.4% Gross Margin $343 $289 18.6% 29.7% 28.7% Operating Expenses $205 $171 20.1% 17.7% 16.9% (1) Segment EBITDA $141 $119 18.3% 12.2% 11.8% (1) Segment EBITDA is a non-GAAP measure. Refe
Slide 24: 2018 Capital Allocation - Continuing Operations
2018 Capital Allocation - Continuing Operations $ in millions $2,100 $979 $1,800 $1,500 $1,200 $900 $521 $600 $(1,200) $341 $280 $300 $(172) $(67) $0 Beginning Cash Operating Cash Financing Acquisitions & Capex Other and FX Ending Cash 12/31/17 Flows Other Investing 9/30/18 Activities • Operating ca
Slide 25: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total $4,500 $4,404 $4,000 Capacity(1) $341 $4,000 $3,500 $3,454 $4,063 $3,340 $3,500 $3,428 $280 $3,000 $3,148 $1,395 $3,000 $1,501 $2,500 $2,500 3.0x $2,000 $71 $2,000 $65 2.7x $1,500 $1,500 $1,000 $1,988 $1,000 $1,774 $500 $500 $0 $0 December
Slide 26: Key Return Metrics - Q3 2018
Key Return Metrics - Q3 2018 Return on Equity Return on Invested Capital(1) 14.9% 15.0% 14.5% 14.5% 12.0% 14.1% 14.1% 13.8% 10.9% 10.8% 10.9% 10.0% 10.0% 9.7% 9.6% 10.0% 8.0% 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% 2013 2014 2015 2016 2017 TTM Q3 2013 2014 2015 2016 2017 TTM Q3 2018 ² ³ 2018 ² ³ (1) Amortizat
Slide 27: Guidance 2018
Guidance 2018 (effective only on the date issued: October 25, 2018) Full Year 2017 Full Year 2018 ($ in millions excluding EPS) Actual Guidance(1) Organic Growth, Parts and Services 4.1% 4.5% - 5.0% Net Income - continuing operations attributable to $540 $565 - $585 LKQ stockholders Adjusted Net Inc
Slide 28: Q3 2018 Key Takeaways
Q3 2018 Key Takeaways • Organic revenue growth of 4.3% for parts and services in Q3 • Specialty and North America achieved organic revenue growth of 8.0% and 5.2%, respectively • Continued pursuit of profitable growth and solid progress on our margin improvement plans • Net income from continuing op
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. Following are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP. 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 Nine Months Ended September 30, 2018 September 30, 2018 Consolidated Europe Consolida
Slide 32: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Nine Months Ended September 30(1) September 30(1) % of % of % of % of (in millions) 2018 revenue 2017 revenue 2018 revenue 2017 revenue Revenue North America $1,263 $1,182 $3,928 $3,597 Europe 1,471 955 3,795 2,665 Specialty 390 3
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 Nine Months Ended September 30(1) September 30(1) (in millions) 2018 2017 2018 2017 Net income $134 $122 $445 $410 Subtract: Net income attributable to noncontrolling interest 0 — 1 — Net income attributable to
Slide 34: Appendix 3 - 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 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 Nine Months Ended September 30(1) September 30(1) (in millions, except per share data) 2018 2017 2018 2017 Net income $134 $122 $445 $410 Subtract: Net income attri
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 Attributable to LKQ Stockholders as we believe these measures are useful for e
Slide 37: Appendix 5 - Forecasted EPS Reconciliation
(1) 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 $565 $585 Adjustments: Amortization of acquired intangibles 130 130 Restr