LKQ Corporation · NASDAQ:LKQ
LKQ — Q1 2023 Earnings Presentation
64 slides from LKQ's earnings presentation, April 2023
Slide 1: First Quarter 2023 Investor Presentation
First Quarter 2023 Investor Presentation
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 Act
Slide 3: 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 4: GEAR forward provides a strong framework for strategic roadmap
To achieve this mission, GEAR forward provides a strong framework to define a clear strategic roadmap Grow Expand Adapt Rationalize Diversified Offerings Global Footprint To Evolving Technology Asset Base Grow offerings including Identify and analyze new Monitor megatrends, assess Examine current bu
Slide 5: What Binds the Generations together?
What Binds the Generations together? Development Excellence Leadership Integrity & trust Value-added Embracing change Resourceful Sustainability 5
Slide 6: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 6
Slide 7: LKQ's Evolution
LKQ’s Evolution Wholesale Keystone/ Remanufactured Self Serve Europe-Sator Europe-Rhiag Services Salvage Paint US 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Aftermarket Refurbished Keystone/ Europe- Heavy Duty Europe-ECP Collision Wheels
Slide 8: Overview of LKQ
Overview of LKQ Company Overview Financial Performance ($mm) • LKQ is a global distributor of vehicle products, including replacement parts, components and systems used in repair and maintenance of vehicles and specialty products and accessories Revenue to improve the performance, functionality and
Slide 9: We aligned our Financial Policy to Corporate Strategy
We aligned our Financial Policy to Corporate Strategy Operational Excellence (2019 – Future) North America & Specialty witnessed highest margins in the company’s history Strategy • Drive operational excellence throughout the enterprise Made permanent cost structure changes, while navigating the pand
Slide 10: Call to Action
Call to Action Profitable Enhanced Cash Flow Talent Growth Margins Generation Development Built on a foundation of Safety and Integrity 10
Slide 11: ESG Focus Areas
ESG Focus Areas Carbon Footprint Employee Talent & Recycling Engagement Development Diversity, Equity Sustainable Community & Inclusion Supply Chain Support 11
Slide 12: Our ESG Goals
Our ESG Goals Our Our People — Environment: Employee Engagement: 30% 73% By 2030, reduce global Scope 1 By 2025, achieve 73% participation in and Scope 2 emissions by 30% our employee engagement survey and compared to the 2021 baseline overall engagement score of 76. relative to revenue. Net Zero 78
Slide 13: Q1 2023 Revenue
Q1 2023 Revenue Revenue Changes by Source: Components of Revenue Organic Acquisition and Foreign Exchange Divestiture Total(1) Wholesale - North America 14.4% (10.3)% (0.4)% 3.8% Europe 9.7% 0.7% (5.9)% 4.6% Specialty (13.5)% —% (0.5)% (14.0)% Self Service 4.9% —% —% 4.9% Parts and Services 7.9% (3.
Slide 14: Q1 2023 Capital Allocation
Q1 2023 Capital Allocation $342 Operating cash flows: • Operating cash flows of $223 million represent a 45%, or $186 million, decrease year over year primarily driven by shifts in the timing of vendor payments between periods reflecting effects of the pandemic and supply chain issues Investing cash
Slide 15: Operating Cash Flow and Free Cash Flow
Operating Cash Flow and Free Cash Flow ($ in millions) ($ in millions) *Full Year Outlook Actual FCF $1,275* conversion of Adjusted EBITDA(2) 60% 60% $975* Targeted annual FCF conversion of Adjusted EBITDA (55%-60%) Free Cash Flow ("FCF")(1) Operating Cash Flow (1) Free Cash Flow is a non-GAAP measu
Slide 16: Leverage & Liquidity
Leverage & Liquidity Total ($ in millions) ($ in millions) Capacity (1) $3,150 $2,662 $2,740 $2,500 $2,500 1.5x 1.6x (4) (2) Effective borrowing rate for Q1 2023 was 4.7%(3) (1) Total capacity includes our revolving credit facilities and term loans (2) Total leverage per bank covenants is defined as
Slide 17: 2022 Adjusted EPS Walk
2022 Adjusted EPS Walk (2) $3.85 (1) (3) Strong operating performance and strategic cash deployment offset the significant headwinds from exchange rates and metals pricing (1) Investments represent equity in earnings of unconsolidated subsidiaries (2) Adjusted Diluted EPS is a non-GAAP measure. Refe
Slide 18: Outlook 2023
Outlook 2023(1) (effective only on the date issued: April 27, 2023) 2023 Full Year Outlook Organic parts and services revenue growth 6.0% to 8.0% Diluted EPS(2) $3.68 to $3.98 Adjusted diluted EPS(2)(3) $3.90 to $4.20 Operating cash flow approx. $1.275 billion Free cash flow(4) approx. $975 million
Slide 19: Liquidity as of March 31, 2023
Liquidity as of March 31, 2023 • Rated Baa3 (investment grade) by Moody's Credit Rating • Rated BBB- (investment grade) by S&P Global Ratings • Rated BBB- (investment grade) by Fitch • Fixed Interest Rate Bonds: €750 million ($813 million) in aggregate due in 2024 and 2028 • Variable Interest Rate C
Slide 20: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 20
Slide 21: Operating Segments Demonstrate Attractive Growth and Margin Profiles
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Performance Wholesale - North America 0.9% (13.7%) 5.8% 11.4% 14.4% Collision 20.5% • Aftermarket automotive products 17.6% 18.7% 16.5% 14.2% • Recycled & Refurbished Mechanical • Recycled engines &
Slide 22: Operating Segments Demonstrate Attractive Growth and Margin Profiles
LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Performance Specialty (0.7%) 3.0% 20.2% (9.9%) (13.5%) • Performance products 12.0% 11.0% 10.8% 11.1% • Appearance & accessories 7.9% • RV, trailer & other • Specialty wheels & tires • Marine 2019 2
Slide 23: A North American leader for Alternative Parts, Recycled OEM, Remanufacturing
A North American leader for Alternative Parts, Recycled OEM, Remanufacturing, and Diagnostics Services 2022 Revenue: $4.6B | 2022 Segment EBITDA Margin: 18.7% | ~13k Employees | 342 Locations What we do… Aftermarket Recycled OEM • Aftermarket collision repair parts • 230k vehicles / 4.5M parts • Pai
Slide 24: LKQ wins through scale, strong value proposition, and strategic partnerships
LKQ wins through scale, strong value proposition, and strategic partnerships Extensive distribution network Value proposition 2014 GMC 2014 Ford F-150 2018 Nissan Altima Sierra 1500 95% of customers delivered Hood Headlamp Transmission by LKQ’s fleet (over 4,000 vehicles) New OEM $1050 $471 $3,193 R
Slide 25: Key market trends create opportunities for growth
Key market trends create opportunities for growth Trend Opportunity Trend Opportunity NiMH Battery Vehicle Electrification Reconditioning Vehicle Technology Remote | Mobile Services and Installation 8+ yrs of age US BEV VIO in M US Market for Diagnostics, Calibration and Complex Sublet Repairs in $B
Slide 26: LKQ Europe
LKQ Europe 2022 Revenue: $5.7bn | 2022 Segment EBITDA Margin: 10.2% | ~28k Employees | 20+ Countries Key Facts UK & ROI Ranking in Europe #1 Netherlands, Belgium and France Italy Countries 20+ DACH Branches 1,025 Central and Eastern Europe Scandinavia Franchise Workshops 8,000 Independent Workshops
Slide 27: LKQ Europe
LKQ Europe Strengths of LKQ Europe Product Range Brakes Electrics & Electronics Collision & Cooling Improved synergies Strengthened market position Accessories, Engine Chassis Chemicals & Lubricants Performance & Leisure Multicultural teams Pooled strengths We speak over 20 Languages One team Tools
Slide 28: Specialty Overview
Specialty Overview 2022 Revenue: ~$1.8bn | 2022 Segment EBITDA Margin: 11.1% | 2,700+ Employees Key Facts $2,000 12.5% $1,800 Customers: 20,000+ 12.0% $1,600 Suppliers: 1,000+ $1,400 11.5% $1,200 Stocking SKUs: 160,000+ 11.0% $1,000 8 DCs 10.5% $800 36 Cross Docks Locations $600 10 Call Centers 10.0
Slide 29: Self Service segment has the largest national footprint
LKQ’s Self Service segment has the largest national footprint with opportunity for continued growth 2022 Revenue: $715M | 2022 Segment EBITDA Margin: 11.7% | ~1,700 Employees | 68 Locations Self Serve Statistics Competition Vehicles procured 516K National • Schnitzer Scrap (tons) 763K • Nucor Tires
Slide 30: Acquisition of Uni-Select Will Expand LKQ's Leading Global Vehicle Parts Distribution Business
Acquisition of Uni-Select Will Expand LKQ’s Leading Global Vehicle Parts Distribution Business 01 Compelling strategic fit, enhancing LKQ’s existing business and continuing to drive profitable growth 02 FinishMaster (a subsidiary of Uni-Select) complements existing North American paint distribution
Slide 31: Uni-Select Overview & Strategic Fit
01 Uni-Select Overview & Strategic Fit • A leading distributor of automotive replacement parts, accessories, tools and equipment, paint and collision repair products across North America and Europe • Founded in 1968 and headquartered in Boucherville, Quebec Strategic Fit for LKQ A Leading North Amer
Slide 32: FinishMaster Complements LKQ's Existing North America Paint Distribution
02 FinishMaster Complements LKQ’s Existing North America Paint Distribution Operations, Providing Scale to Compete in Attractive & Growing Segment FinishMaster Provides Scope and Scale Low Incremental Costs for an Additional Item on the Truck FM is one of the largest refinishing distributors with ac
Slide 33: Entry & Expansion Opportunities in Canadian Mechanical Parts
03 Entry & Expansion Opportunities in Canadian Mechanical Parts Through Acquisition of #2 Wholesale Distributor Canadian Automotive Aftermarket Distribution (Total Sales in $bn) Estimated Shares for Wholesale Distributors $5.4 $5.1 5.3$ Opportunity for $4.9 Expansion $4.8 $4.6 Competitor 1 $4.5 $4.3
Slide 34: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 34
Slide 35: LKQ's Plan to Drive Shareholder Value
LKQ’s Plan to Drive Shareholder Value Expansion into new markets mostly complete Enhanced European Euro Car Parts (United Kingdom & ROI) simplification Fource (Benelux & France) through Rhiag (Italy & 9 other European countries) “1 LKQ Europe” Stahlgruber (Germany & Eastern Europe) Plan
Slide 36: LKQ Europe strategy
LKQ Europe strategy The Leading Auto Service System by 2030 • Grow at +2% • Great brands above market • Leading assortment • Double digit • World class logistics EBITDA margin • Digital solutions • Attractive TSR • Pan-european network • Planet • Auto parts • People • Leisure & accessories • Communi
Slide 37: Multiple Levers to Drive North American Results
Multiple Levers to Drive North American Results Key Initiatives A Great Stable of Brands Collision & Mechanical • Favorable collision tailwinds Organic • Expansion of product offerings Aftermarket Salvage Paint (PBE) Revenue Growth • Monitoring opportunity of ADAS and EV • Further optimizing afterma
Slide 38: Leading Brands and Multiple Levers to Drive Strong Specialty Growth
Leading Brands and Multiple Levers to Drive Strong Specialty Growth Key Initiatives A Great Stable of Brands • Favorable collision tailwinds New • Expansion of product offerings Product Lines • Monitoring opportunity of ADAS and EV • New customers (Jobbers, Dealers, Retailers, Installers), New exist
Slide 39: Financial Policy to Enhance Shareholder Value
Financial Policy to Enhance Shareholder Value • Target organic growth greater than market comps Focus on Free • Achieve 1 LKQ Europe program and maintain strong NA margins Cash Flow Generation • Convert high levels of Adjusted EBITDA to Free Cash Flow (“FCF”) with a focus on trade working capital ef
Slide 40: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 40
Slide 41: Corporate Governance Highlights
Corporate Governance Highlights Independent • LKQ is governed by 9-member board of directors, 7 of whom are independent directors under NASDAQ guidelines Leadership & Oversight • Separate Chairman / CEO roles • Ongoing process to refresh and strengthen board composition with shareholder input; 5 new
Slide 42: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Treasury/ Risk Capital Finance/ Government Human Capital Europe / Supply Executive Automotive Digital Corporate Assessment Investor Director Operations Allocation/ Accounting/ Relations/ Management/ Other Chain/ Leadership Industr
Slide 43: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation
LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Years on Photo Name Age Relevant Experience Key Skills Independent Board Unparalleled knowledge of LKQ business Joseph Holsten 24 70 Former CEO and Chairman of LKQ and industry Dominick Zarcone 5 64 President and CEO Extensive fin
Slide 44: LKQ Performance-Based Compensation Practices
LKQ Performance-Based Compensation Practices • The Compensation Committee of LKQ’s board carefully considers the most effective ways to motivate and incentivize management to accomplish specific strategic goals • Objective, tailored metrics with challenging performance targets are chosen annually to
Slide 45: Today's Agenda
Today’s Agenda LKQ Today LKQ Business Overview LKQ’s Strategy to Drive Shareholder Value Engaged Board with Strong Governance Practices Concluding Remarks 45
Slide 46: What LKQ Offers Investors
What LKQ Offers Investors 01 Market leading position in almost everything we do 02 The broadest product line amongst automotive parts distributors • Mechanical • Collision • Accessories 03 The broadest geographic coverage amongst automotive parts distributors • United States • Canada • Europe (20 co
Slide 47: Supplementary Information
Supplementary Information
Slide 48: Metals Prices and Foreign Exchange
Metals Prices and Foreign Exchange Q1 2023 vs Q1 2022 Segment EBITDA Impact ($ in millions) Self Service Wholesale - North America Scrap Steel $9 $1 Precious Metals $(15) $(9) All Metals $(6) $(8) Foreign Exchange YoY Impact Q1 2023 Q1 2022 GBP (9.4)% 1.22 1.34 EUR (4.3)% 1.07 1.12 GAAP EPS(1) Impac
Slide 49: Inventory Procurement
Inventory Procurement ($ in millions, vehicles purchased in 000s) Q1 2023 2022 % Change Total aftermarket procurement $1,444 $1,675 (13.8)% Wholesale - North America salvage vehicles 64 60 6.7% Europe wholesale salvage vehicles 8 8 —% Self Service salvage vehicles 137 135 1.5% • Aftermarket purchase
Slide 50: 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. 50
Slide 51: Appendix 1 Constant Currency Reconciliation
Appendix 1 Constant Currency Reconciliation The following unaudited table reconciles revenue and revenue growth for parts & services and total revenue to constant currency revenue and revenue growth for the same measures: Three Months Ended March 31, 2023 (in millions) Consolidated Europe Parts & Se
Slide 52: Appendix 1 (cont.) Constant Currency Reconciliation
Appendix 1 (cont.) Constant Currency Reconciliation The following unaudited table reconciles revenue and revenue growth for parts & services and total revenue to constant currency revenue and revenue growth for the same measures: Three Months Ended March 31, 2023 Consolidated Europe Parts & Services
Slide 53: Appendix 2 Revenue and Segment EBITDA by segment
Appendix 2 Revenue and Segment EBITDA by segment Three Months Ended March 31(1) (in millions) 2023 % of revenue 2022 % of revenue Revenue Wholesale - North America $1,229 $1,201 Europe 1,555 1,488 Specialty 397 461 Self Service 169 199 Eliminations (1) (1) Total Revenue $3,349 $3,348 Segment EBITDA
Slide 54: Appendix 3 Reconciliation of Net Income to Segment EBITDA
Appendix 3 Reconciliation of Net Income to Segment EBITDA (1) Three Months Ended March 31 (in millions) 2023 2022 Net income $270 $273 Subtract: Net income from discontinued operations — 4 Net income from continuing operations $270 $269 Adjustments - continuing operations: Depreciation and amortizat
Slide 55: Appendix 3 Reconciliation of Net Income to Segment EBITDA
Appendix 3 Reconciliation of Net Income to Segment EBITDA (1) Year Ended December 31 (in millions) 2018 2019 2020 2021 2022 Net income $483 $545 $640 $1,092 $1,150 Subtract: Net income attributable to continuing noncontrolling interest 3 3 2 1 1 Net income attributable to discontinued noncontrolling
Slide 56: Appendix 3 EBITDA and Segment EBITDA Reconciliation
Appendix 3 EBITDA and Segment EBITDA Reconciliation We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations.
Slide 57: Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income
Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations Three Months Ended March 31(1) (in millions, except per share data) 2023 2022 Net income $270 $273 Subtract: Net income from discontinued operations — 4 Net income from continui
Slide 58: Appendix 4
Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income from Continuing Operations Attributable to LKQ Stockholders and Adjusted EPS from Continuing Operations Attributable to LKQ Stockholders Year Ended December 31(1) ($ in millions, except per share data) 2022 2021 Net incom
Slide 59: Appendix 4 Reconciliation of Net Income and Diluted EPS to Adjusted Net Income
Appendix 4 Reconciliation of Net Income and Diluted 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 operatin
Slide 60: Appendix 5 Forecasted EPS Reconciliation
Appendix 5 Forecasted EPS Reconciliation Forecasted Fiscal Year 2023(1) (in millions, except per share data) Minimum Outlook Maximum Outlook Net income from continuing operations $989 $1,070 Adjustments: Amortization of acquired intangibles 58 58 Restructuring and transaction related expenses 37 37
Slide 61: Appendix 6 Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 6 Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow and Net Income to Adjusted EBITDA (1) Three Months Ended March 31 (in millions) 2023 2022 Net cash provided by operating activities $223 $409 Less: purchases of property, plant and equipment 70 59 Free cash flo
Slide 62: Appendix 6 Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 6 Reconciliations of Net Cash Provided by Operating Activities to Free Cash Flow and Net Income to Adjusted EBITDA (1) Year Ended December 31 (in millions) 2018 2019 2020 2021 2022 Net cash provided by operating activities $711 $1,064 $1,444 $1,367 $1,250 Less: purchases of property, plant
Slide 63: Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 6 Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Net Income to Adjusted EBITDA 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 l
Slide 64: LKQ
LKQ