Lkq Corporation · NASDAQ:LKQ
Lkq — Investor Day (September 2024)
66 slides from Lkq's investor day presentation, Sep 10, 2024
Slide 1: Charting Our Future
CHARTING OUR FUTURE S e p te m b e r 1 0 , 2 0 2 4 INVESTOR DAY
Slide 2: Forward Looking Statements & Non-GAAP Financial Measures
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 Ac
Slide 3: Investor Day Agenda
Investor Day Agenda (all times are CST) 8:00AM - 9:00AM Registration Welcome 9:00AM Joseph P. Boutross – VP, Investor Relations, LKQ Corporation Charting Our Future 9:00AM - 9:45AM Justin Jude-President & Chief Executive Officer, LKQ Corporation North America 9:45AM - 10:15AM John Meyne – SVP, Whole
Slide 4: Justin Jude
Justin Jude P r e s i d e n t a n d C h i e f E x e c u t i v e O f f i c e r, L K Q C o r p o r a t i o n
Slide 5: Introduction
Introduction • Appointed CEO in July 2024 and elected to the Board at our May 2024 annual meeting • LKQ maintains separate CEO and Chair roles to support strong independent Board oversight • Prior to that, in January 2024, was appointed COO of LKQ • As President of Wholesale – North America Segment
Slide 6: 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 parts and service solutions while building strong partnerships with our employees and the communit
Slide 7: LKQ's Evolution
LKQ’s Evolution LKQ Revenue - from 2003 to 2024 Self Player in Each Service of Our Segments Wholesale • Aftermarket, Paint & Recycled Specialty Collision Products North America • Recycled & Reman Major Other (WNA) Mechanical Products WNA Europe $0.3 Bn Recycled $14+ Bn • Hard Parts • Aftermarket Col
Slide 8: Key Themes for Today
Key Themes for Today New CEO’s Leadership Strategic Priorities North America - Grow Europe - Leverage our Flexible Approach to Style Market Share and Scale to Drive Capital Allocation Deepen the Moat Efficiencies and Widen the Moat 01 02 03 04 05 8
Slide 9: My Approach to Leadership
My Approach to Leadership Frameworks for Success Set Strategy Build the Team • Assess Markets • Development • Evaluate Portfolio • Diversity & (Grow, Optimize, Inclusion Fix, Divest) • Cohesiveness • Execute Right • Accountability to Win • Employees • Above Market • Customers Growth • Board • Free C
Slide 10: Driving Sustainable Value to Shareholders
Driving Sustainable Value to Shareholders Effectively managing climate-related risks and capitalizing on opportunities to drive long-term value across our global business Profitably delivering People-led performance Strong governance and sustainable outcomes ethical practices Empowering our diverse
Slide 11: Key Strategic Priorities
Key Strategic Priorities Operational Excellence Maximize TSR Drive Cash Flow Simplify Business Portfolio and Invest in organic growth Operations Execute high synergy tuck-in Expand lean operating model acquisitions globally Return cash to shareholders, while Grow organically maintaining investment g
Slide 12: Simplify Business Portfolio & Operations
Simplify Business Portfolio & Operations Portfolio Operations • Since 2017, LKQ divested 16 businesses, which generated over $1.3 billion of revenue • Most of these divested businesses were legacy subsidiaries of LKQ’s large, market Objectives & Key Results Metrics-Focused Results Inventory Optimiza
Slide 13: Robust Balance Sheet Provides Capital Allocation Flexibility
Robust Balance Sheet Provides Capital Allocation Flexibility Capital Expenditures Investment For Growth Tuck-In M&A Operating Cash Flow Dividends Return Capital to Stakeholders Share Repurchases Debt Repayment 13
Slide 14: M&A Philosophy & Playbook
M&A Philosophy & Playbook Strategic Financial Operational • Expand the moat in our market • Transactions analyzed based on • Productivity & shared services leading segments highest return on capital under benefits current market conditions • Highly synergistic tuck-ins • Implement swift cost reducti
Slide 15: We Compete in Resilient & Growing Markets
We Compete in Resilient & Growing Markets Long Term Core Markets Expected Growth Over Next Decade North America TLV Rate North America Hard Parts Collision ADAS (Frequency) APU 2.5% - 3.5% Parts per Claim Headwinds Parts Parc 2023 Inflation Growth North America Major Mechanical Tailwinds 2.0% - 3.0%
Slide 16: Gaining Share in Our Core Markets
Gaining Share in Our Core Markets Expand Salvage & Reman Expand Collision in Europe in Europe Grow Hard Parts Business in EV Battery Reman & Battery Recycling Eco North America System 16
Slide 17: Focused Strategy to Deliver Total Shareholder Return
Focused Strategy to Deliver Total Shareholder Return Drive Operational Excellence Simplify Business Drive Lean Operating Above Market Portfolio & Operations Model Globally Growth Capital Allocation Strategy Execute High Synergy Invest in Organic Growth Tuck-ins Return Cash to Shareholders 17
Slide 18: Wholesale North America & Europe
Wholesale North America & Europe Wholesale North America LKQ Europe Areas of Expertise Other / Services Collision Collision Hard Parts Salvage • Aftermarket Reman • Recycled & Refurbished • Automotive Paint Reman Mechanical Collision • Recycled & ~$6 Bn $6+ Bn Remanufactured • Hard Parts Hard Parts
Slide 19: Wholesale North America & Europe: Better Together
Wholesale North America & Europe Better Together 01 02 03 Geographic and product Leveraging regional Greater access to global diversification strengths and best practices financing opportunities globally 04 05 06 Wholesale distribution Jointly and collaboratively Global Competency Center businesses
Slide 20: Leveraging the Scale & Driving Efficiencies Across Our Global Enterprise
Leveraging the Scale & Driving Efficiencies Across Our Global Enterprise • Salvage Procurement • Product Master Data • Business Intelligence • Web Design • Supply Chain Analytics • HR Shared Services Business • Pricing • Process Excellence Operations • Marketing Analytics Pricing & Analytics • AR /
Slide 21: John Meyne
John Meyne Senior Vice President, President Wholesale North America
Slide 22: Introduction
Introduction • John R. Meyne became Senior Vice President of LKQ Corporation and President of Wholesale – North America in January 2024 • From 2022 through 2023, served as the East Division Vice President of Wholesale – North America • From 2011 through 2021, served as Regional Vice President for th
Slide 23: Industry Leading Wholesale North America Executive Team
Industry Leading Wholesale North America Executive Team 75% 21.4 years 25% of WNA Executive Team average tenure (over 171 of leaders at the level came into position through years of experience) below the Executive Team internal promotion are female 23
Slide 24: Focused on Three Key Pillars
Focused on Three Key Pillars Safety Leadership Operational Excellence • Care for Employees • Build Leaders • Gain Efficiencies and Our Community Operational • Succession Planning • Reduce Variability Objectives & • Essential for Productivity Our Culture • Improves Bench Strength • Control Costs • Re
Slide 25: Leading Positions in Core Markets
Leading Positions in Core Markets Remanufacturing Salvage Paint, Body and Expanded ! Equipment (“PBE”) Leading Positions Aftermarket Hard Parts in Canada: Collision Bumper-to-Bumper New (“BtB”) 25
Slide 26: Uni-Select Integration Update
Uni-Select Integration Update Footprint Corporate 117 branch locations reduced through Finish Master Integration Elimination of duplicate public-company costs efforts in the United States Administrative Redundancy Reduction From 8/1/23 to 6/30/24 $65m Annualized Synergies by Year 3 Go To Market Proc
Slide 27: Resilient Core Markets
Resilient Core Markets Current North America Collision: Long Term North America Collision Short Term Headwinds APU Weather TLV Rate Parts per Claim Macro Economic APU Parc Parts ADAS (Frequency) Environment Growth Inflation Change in Total Loss Parts per Claim Headwinds Economics Tailwinds Parts Par
Slide 28: Historical Collision Market Metrics
Historical Collision Market Metrics Long Term Headwinds Long Term Tailwinds 1. TLV Rate 1. APU Utilization 2. Parts per Claim % of Total Claims, % CAGR % of Retail Spend, % CAGR Parts in Units, % CAGR +5.3% +2.0% +1.0% +0.2% +4.0% +3.0% 19.9% 22.0% 36.3% 37.8% 38.1% 13.0 16.2% 9.5 10.7 2015A 2019A 2
Slide 29: Repairable Claim Count & WNA Organic P&S Growth
Repairable Claim Count & WNA Organic P&S Growth Y-o-Y change in Repairable Claims Count and WNA Organic P&S Revenue Growth, in % 11.4% 11.4% 8.6% 6.7% Over this period, we 4.6% 5.5% 5.3% 4.8% 2.5% 2.9% 1.5% 3.4% outperformed the 0.1% 0.9% Repairable Claims -1.4% Count growth by an -4.3% average of 4
Slide 30: Why We Win
Why We Win Unmatched Footprint and Distribution Network Value Proposition LKQ Network Effect on Fill Rates 75% 2014 F-150 2018 Nissan Altima 2020 Dodge Caravan Hood Headlamp Transmission New OEM $1,266 $484 $4,660 25% Reman na na $2,864 Salvage $590 $207 $1,590 AFM $938 $347 na LKQ Competition *For
Slide 31: Grow Our Core Collision Business
Grow Our Core Collision Business 01 02 New Product Launches Digital Sales Tools PBE, Private label, LKQ refinish brand 03 04 Share of Wallet Gains National Footprint and Inventory 31
Slide 32: Salvage Business Growth Strategy
Salvage Business Growth Strategy Salvage • Capacity expansion and enhanced operating model (Mega Yards, Crystal River) to improve part availability, fill rates, and margin • Improving proprietary Machine Learning (ML) algorithms for salvage vehicle procurement • Part inventorying systematization and
Slide 33: Remanufacturing Growth
Remanufacturing Growth TriStar New ICE Product Additions New channels (BtB) Capacity Expansion New BEV Product Additions 33
Slide 34: Increase Customer Base in PBE
Increase Customer Base in PBE LKQ Collision Customers Paint & Parts Customers Parts Only Customers 34
Slide 35: Grow Canadian Hard Parts Business
Grow Canadian Hard Parts Business 01 Enhancing our relationship with BtB members 02 3-Step to 2-step conversion 03 Bolt-on M&A and greenfield expansion 04 Product portfolio expansion 05 Investments into developing an industry leading hard parts platform 06 Broadening Private Label portfolio via coll
Slide 36: Outperform The Market
Outperform The Market Next 3 Years Revenue Growth, in % 0.5% 3.5% 1.0% 0.0% High Range 2.0% 0.5% 1.5% Low Range 1.0% Market Organic Expansions / Share Tuck-in M&A Total WNA Growth Gains / New Products 36
Slide 37: Strategic Objectives Wholesale North America
Strategic Objectives Wholesale North America 2025 – 2027 Targets Annual Organic Revenue Growth 1.5% to 3.0% Simplification & Operational Excellence Enhanced Margins Average Annual Organic1 Segment EBITDA Margin Improvement2 10 bps to 20 bps Drive FCF through continued Profitable Growth Talent Develo
Slide 38: Andy Hamilton
Andy Hamilton P r e s i d e n t a n d M a n a g i n g D i r e c t o r, L K Q E u r o p e
Slide 39: Introduction
Introduction • 2024: President and Managing Director of LKQ Europe • 2019-2023: CEO, LKQ UK and Ireland, successfully led the transformation of the business from single digit EBITDA margin to double digit EBITDA, the leading margin in Europe • 2016-2019: Chief Commercial Officer, LKQ Europe, managin
Slide 40: Industry Leading European Executive Team
Industry Leading European Executive Team 62% 8.2 years 30% of Executive Team came average tenure (over 107 of leaders at the level below into position through years of experience) the Executive Team are internal promotion female 40
Slide 41: Segment Overview - Market Leader in Europe
Segment Overview - Market Leader in Europe Benelux-France #1 Market Position in Top 7 Markets $6.3 BN Revenue 2023 Central and Eastern Europe DACH Italy Belgium Czech Republic Germany 26,500 Scandinavia Colleagues UK & ROI Italy Ireland Netherlands 900 Locations United Kingdom 18 countries we operat
Slide 42: Who We Are, Why We Win
Who We Are, Why We Win Size & Scale Range & World Class Concepts & Availability Logistics Innovation Market leader with Leading partnerships Only aftermarket company Tailored services, training & unmatched footprint. with Tier 1 suppliers with pan-European workshop concepts to 900 locations serve 10
Slide 43: Key Market Dynamics
Key Market Dynamics VIO Evolution in Our European Markets, in M Vehicles Total Market Growth 2024-2027 1.0-1.5% CAGR1 Key Opportunities VIO growth 2024-2027 CAGR Category Workshop Concept Remanufacturing +0.4% Management & Customer Loyalty 250 251 252 253 9% • New car registrations 4% 3% 5% 4% 6% 5%
Slide 44: Solid Foundation For Future Growth
Solid Foundation For Future Growth Aligned Key Developed Functional Progressed System Rolled Out Customer Managed Economic Suppliers Excellence Harmonization Propositions Headwinds Payment & Centralized 10 functions Built and stabilized Workshop Concepts & LKQ Inflation rebate terms ERP platform Aca
Slide 45: Target Operating Model
Target Operating Model Customer Growth Product Leadership Operational Improvements Branch & Workshop SKU Consolidation Asset Processes Breadth & Depth Network Concepts Private Label Expansion Rationalization and Systems Of Product Design Central GCC Procurement Channel and Geographical Development S
Slide 46: Category Management Project Timeline
Category Management Project Timeline Too many brands & product duplication creates complexity 2024 2025 2026 2027 Phase 1 Product & brand portfolio assessment and analysis Phase 2 - Preparation of new category • Over 25 product groups have been proposition by region Key Focus assessed including Brak
Slide 47: Category Management Benefits
Category Management Benefits Brand clutter prevents us serving our customers efficiently Two identical branches. Dividing the stock positions Branch B has a better Branch A has 5 braking brands, Each has 2,000 stock positions between the brands means ability to serve their local Branch B only 3 avai
Slide 48: Employee Engagement Overview
Employee Engagement Overview 85% Overall response rate 8% vs 2022 68 Engagement rate 1 vs 2022 Colleague Talent Expansion & Succession Growth Development Planning Top words used by our employees to describe our culture COLLABORATIVE OPEN FOCUSED INNOVATION Diversity Reward & Culture & & Inclusion Re
Slide 49: Strategic Objectives LKQ Europe
Strategic Objectives LKQ Europe 2025 – 2027 Targets Annual Organic Revenue Growth 2.5% - 3.0% Simplification & Operational Excellence Enhanced Margins Average Annual Organic1 Segment EBITDA Margin Improvement2 20 bps to 40 bps Drive FCF through continued optimization of trade working capital Profita
Slide 50: Rick Galloway
Rick Galloway S e n i o r V i c e P r e s i d e n t a n d C h i e f F i n a n c i a l O f f i c e r, L K Q C o r p o r a t i o n
Slide 51: Introduction
Introduction • Senior Vice President and Chief Financial Officer since September 2022 • Served as Chief Financial Officer of Wholesale - North America and Self- Service segments from July 2019 to September 2022 • Prior to joining LKQ, held various positions at Alcoa and Arconic Corporations from 201
Slide 52: LKQ Financial Snapshot
LKQ Financial Snapshot Financial Measures TTM Q2 2024 in $M Third Party Revenue5 Revenue $14,483 Self Service 4% Segment EBITDA1 $1,732 Specialty North America FCF1 $751 12% 40% Europe 44% Total Debt $4,334 Total Liquidity2 $1,428 Segment EBITDA1 Self Service Market Capitalization3 $10,988 Specialty
Slide 53: Where's the Tyres?
WHERE'S THE TYRES?
Slide 54: New Playbook Linked to Driving Financial Results
New Playbook Linked to Driving Financial Results 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 parts and service solutions while building strong partnership
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Slide 56: Targeted Financial Results
Targeted Financial Results Driving Incremental Managing TWC to Expanding Vendor Profitability Drive Incremental Cash Financing 56
Slide 57: Driving Growth with Efficiency – Segment EBITDA
Driving Growth with Efficiency – Segment EBITDA Operational Efficiencies Gross Margin Revenue Mix Sales Leverage 10bps – 20bps Simplified Business SKU Portfolio and Annual Average Rationalization Operations Higher Growth in Private Label Lower Margin Global Lean Operating Growth Businesses Profitabl
Slide 58: Strong Balance Sheet Provides Significant Operating Flexibility
Strong Balance Sheet Provides Significant Operating Flexibility Lean TWC Management Debt Overview (as of June 2024) Credit Ratings Inventory Debt Profile S&P BBB- / Stable • Footprint rationalization Debt / EBITDA1 2.3x Moody’s Baa3 / Stable • SKU consolidation Weighted Average Maturity 4.0 yrs Fitc
Slide 59: Extending Payables to Unlock Incremental Value
Extending Payables to Unlock Incremental Value Size of Europe and WNA Vendor Financing Program, In $M Europe • Payment terms negotiations have been opened with approx. 70% of annual direct 445 spend 411 422 70 WNA • DPO improved by over 15% in Q2 2024 YoY 70 68 348 • New payment terms improved the 6
Slide 60: Strong Operating Cash Flows Allocated to Highest Return Opportunities
Strong Operating Cash Flows Allocated to Highest Return Opportunities 2021 to June 2024 - Capital Allocation Priorities for Next 3 Years $4.4 Billion Operating Cash Flows Deployed Operating Maintain consistent conversion; Acquisitions & Other, net of Debt Cash Flow scale with business 11% Capital Si
Slide 61: Robust Balance Sheet Provides Capital Allocation Flexibility
Robust Balance Sheet Provides Capital Allocation Flexibility Capital Expenditures 30% Investment For Growth Tuck-In M&A 10% 40% Projected 2025 – 2027 Operating Cash Dividends 25% Flow1 Return Capital to $3.4B - $4.6B Stakeholders Share Repurchases 35% 60% Debt Repayment 1) These projections are base
Slide 62: LKQ's Investment Thesis
LKQ’s Investment Thesis Strong Market Position Organic Growth & Operational Focus on Cash Flow and Capital Excellence Allocation • Market leadership in all four reporting • Ability to grow revenue organically faster • Convert EBITDA to FCF by maintaining rigorous segments: than market growth working
Slide 63: Our Strategic Plan LKQ Corporation
Our Strategic Plan LKQ Corporation 2025 – 2027 Targets Annual Organic Revenue Growth Above Market Simplification & 1.0% to 2.0% Operational Excellence Enhanced Margins Average Annual Organic1 Segment EBITDA Margin Improvement2 10 bps to 20 bps Next 3-year Cumulative Total Profitable Growth Cash Flow
Slide 64: Appendix
Appendix LKQ Charting our Future
Slide 65: Financial Policy Summary
Financial Policy Summary Focus on Free Maintain Optimal Deploy Capital into Highest Maintain Appropriate Cash Flow Generation Leverage Return Opportunities Liquidity • Target organic growth greater • Maintain or improve • Organic Investments: Fund high- • Maintain liquidity to enable than market com
Slide 66: Appendix: Reconciliation to Free Cash Flow and Segment EBITDA
Appendix 1 Reconciliation of TTM Q2 2024 Net Cash Provided by Operating Activities to Free Cash Flow and Net Income to Segment EBITDA (in millions) Q3 2023 Q4 2023 Q1 2024 Q2 2024 TTM Q2 2024 Net cash provided by operating activities $441 $212 $253 $213 $1,119 Less: purchases of property, plant and