Slide 1: Second Quarter 2020 Earnings Call
Second Quarter 2020 Earnings Call July 30, 2020 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: Q2 2020 Highlights
Q2 2020 Highlights • COVID-19 Pandemic Impact on Operations ◦ Efforts by governments to flatten the infection curve had a negative impact on mobility and miles driven ◦ Revenue impact through June 2020 has not been as significant as initially expected when first quarter results were announced ◦ Cost
Slide 5: Demand Impact
Demand Impact Organic Parts & Services Revenue Change (Per Day) 20% 10% 0% (10)% (20)% (30)% (40)% Q1 April May June North America Europe Specialty Revenue recovery leveling off in late June and into July 5
Slide 6: Cost Structure Actions
Cost Structure Actions Opex quarterly run rate** Key cost reductions • Personnel costs down 24% – Headcount actions totaling ~17K FTEs include furlough, RIFs, decreased hours, elimination of overtime, temp Opex 18% workers and hiring freeze; leveraging European Other Revenue 12% government programs
Slide 7: Liquidity as of June 30, 2020
Liquidity as of June 30, 2020 Credit Rating • Rated Ba2 / BB by Moody’s and S&P, respectively • Fixed Interest Rate Bonds: €1,500 million ($1,685 million) • Variable Interest Rate Bank Debt: $1,471 million ($939 million hedged to fixed rates) Debt Structure • Receivables Securitization Facility: $0
Slide 8: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q2 2020 Revenue(1) YTD 2020 Revenue(1) $3,400 $6,800 $3,248 $6,348 $6,400 $3,200 (1 1. $6,000 4% ) $3,000 $5,627 (1 $5,600 9. $2,800 1% ) $5,200 $2,626 $2,600 $4,800 $2,400 $4,400 $2,200 $4,000 Q2 2019 Q2 2020 YTD 2019 YTD 2020 • Organic revenue for parts
Slide 9: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q2 2020 EPS(1) YTD 2020 EPS(1) $0.60 $0.70 $0.90 $1.30 $0.87 $0.65 $0.87 $0.65 $0.80 $0.79 $1.21 $0.50 $0.60 .1% $1.20 $0.48 (1 8. $0.79 10 $1.21 5% ) (9 $0.48 . 1% (1 ) 8. $0.53 $0.70 8% ) $1.10 $0.53 $0.40 $0.39 $0.50 $1.10 $1.11 $0.39 $0.60 $0.30 $0.40
Slide 10: Free Cash Flow
Free Cash Flow* $1,200 $ in millions 136% $1,064 125% $1,000 $913 $836 100% $798 $800 $715 75% $600 $571 66% $544 $523 $465 $374 $388 50% $400 $347 42% 45% 39% 31% $200 25% $0 0% 2015 2016 2017 2018 2019 2020 Q2 YTD Free Cash Flow ("FCF")* Operating Cash Flow FCF/EBITDA** Note: FCF amounts only incl
Slide 11: Financial Results
Financial Results ( - -
Slide 12: Q2 2020 Revenue
Q2 2020 Revenue Revenue Changes by Source: Components of Revenue Acquisition 100.0% and Foreign 4.7% 5.0% Organic Divestiture Exchange Total(1) 12.6% North America (22.5)% (0.6)% (0.2)% (23.4)% 15.4% Europe (16.6)% (0.7)% (2.9)% (20.2)% 80.0% Specialty (1.4)% 0.3% (0.4)% (1.5)% Parts and Services (1
Slide 13: YTD 2020 Revenue
YTD 2020 Revenue Revenue Changes by Source: Components of Revenue Acquisition 100.0% and Foreign 5.5% 4.9% Organic Divestiture Exchange Total(1) 12.0% North America (13.4)% (0.3)% (0.2)% (13.8)% 13.4% Europe (10.1)% (0.3)% (2.7)% (13.1)% 80.0% Specialty (1.4)% 0.2% (0.2)% (1.5)% Parts and Services (
Slide 14: Operating Results - Continuing Operations
Operating Results - Continuing Operations Second Quarter YTD ($ in millions, except per share data) 2020 2019 Change 2020 2019 Change Revenue $2,626 $3,248 (19.1)% $5,627 $6,348 (11.4)% Gross Margin 1,011 1,247 (18.9)% 2,225 2,455 (9.4)% Operating Income 180 236 (23.6)% 422 459 (7.9)% Pre-tax Income
Slide 15: Q2 2020 Consolidated Margins - Continuing Operations
Q2 2020 Consolidated Margins - Continuing Operations Q2 Q2 Change (as a % of Revenue) 2020 2019 F/(U) Q2 Commentary Revenue 100.0% 100.0% —% Increase primarily attributable to Europe and North America. Includes 0.2% restructuring charge in Q2 Gross Margin 38.5% 38.4% 0.1% 2020 due to inventory write
Slide 16: YTD 2020 Consolidated Margins - Continuing Operations
YTD 2020 Consolidated Margins - Continuing Operations YTD YTD Change (as a % of Revenue) 2020 2019 F/(U) YTD Commentary Revenue 100.0% 100.0% —% Increase primarily attributable to North America and Europe. Includes 0.1% restructuring charge in 2020 Gross Margin 39.5% 38.7% 0.8% due to inventory writ
Slide 17: North America – Q2 2020 Results
North America – Q2 2020 Results Gross Margin Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 47.4% Total Revenue $1,011 $1,322 (23.5)% 47.0% Gross Margin $454 $583 (22.1)% 44.9% 44.1% 46.1% 46.0% Adjusted Gross Margin* $457 $583 (21.6)% 45.2% 44.1% 45.2% 45.0% Operating Expenses $317 $
Slide 18: North America – YTD 2020 Results
North America – YTD 2020 Results Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $2,302 $2,624 (12.3)% Gross Margin $1,065 $1,158 (8.0)% 46.3% 44.1% Adjusted Gross Margin* $1,068 $1,158 (7.8)% 46.4% 44.1% Operating Expenses $721 $805 10.4% 31.3% 30.7% Other Income, net $1
Slide 19: Scrap Steel Prices
Scrap Steel Prices Q2 YOY scrap steel prices down 25% $175 • Average price realized for scrap steel decreased by 25% from $144 per ton in Q2 2019 to $108 per $150 $150 ton in Q2 2020 $144 • Sequential change from last quarter was negative $20 per $128 ton, or down 16% $125 $124 • Sequential changes
Slide 20: Europe – Q2 2020 Results
Europe – Q2 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 38.0% Total Revenue $1,211 $1,516 (20.1)% 37.2% Gross Margin $445 $545 (18.4)% 36.8% 36.0% 37.0% 36.8% 36.8% Adjusted Gross Margin* $448 $545 (17.9)% 37.0% 36.0% 37.0% 36.5% Operating Expenses $360 $4
Slide 21: Europe – YTD 2020 Results
Europe – YTD 2020 Results Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $2,575 $2,962 (13.1)% Gross Margin $952 $1,078 (11.6)% 37.0% 36.4% Adjusted Gross Margin* $955 $1,078 (11.4)% 37.1% 36.4% Operating Expenses $792 $859 7.8% 30.7% 29.0% Other (Expense), net $(1) $(2)
Slide 22: Foreign Exchange
Foreign Exchange $1.35 GBP 3 .4% • £ down 3.4% Q2 2020 vs Q2 2019 $1.30 • € down 2.0% Q2 2020 vs Q2 2019 $1.30 $1.29 $1.29 • $44 million unfavorable impact of $1.28 translation of weaker Q2 rates $1.24 relative to the US dollar on $1.25 $1.23 European parts and services revenue growth $1.20 • Europe
Slide 23: Specialty – Q2 2020 Results
Specialty – Q2 2020 Results Change % of Revenue Gross Margin ($ in millions) 2020 2019 F/(U) 2020 2019 30.0% Total Revenue $405 $412 (1.6)% 28.9% 28.4% Gross Margin $112 $119 (5.9)% 27.7% 28.9% 27.7% 28.0% 27.6% 28.2% 27.3% Operating Expenses $61 $68 10.5% 14.9% 16.4% Segment EBITDA(1) $52 $52 (0.3)
Slide 24: Specialty – YTD 2020 Results
Specialty – YTD 2020 Results Change % of Revenue ($ in millions) 2020 2019 F/(U) 2020 2019 Total Revenue $753 $765 (1.6)% Gross Margin $207 $219 (5.7)% 27.5% 28.7% Operating Expenses $124 $131 5.2% 16.5% 17.1% Segment EBITDA(1) $84 $90 (6.5)% 11.2% 11.8% (1) Segment EBITDA for each respective segmen
Slide 25: Inventory
Inventory Inventory Procurement: Q2 YTD ($ in millions, Vehicles purchased in 000s) 2020 2019 % Change 2020 2019 % Change Total aftermarket procurement $964 $1,613 (40.2)% $2,467 $3,139 (21.4)% Wholesale salvage cars and trucks 36 78 (53.8)% 108 152 (28.9)% Europe wholesale salvage cars and trucks 5
Slide 26: 2020 YTD Capital Allocation
2020 YTD Capital Allocation $ in millions $1,500 $913 $(77) $1,000 $535 $500 $(782) $476 $(88) $(20) $(5) $0 Beginning Cash, Operating Cash Capex Net Repayments Share Other Investing FX and Other Ending Cash DO Cash Flows of Repurchases and Financing 6/30/2020 and Restricted Credit Facilities Activi
Slide 27: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,500 8.0x $4,000 $4,072 $3,491 $3,482 $4,000 $3,500 $523 $3,500 $3,000 $3,549 $3,278 6.0x $3,000 $476 $1,813 $2,500 $1,941 $2,802 $2,500 $2,000 4.0x $2,000 $69 $1,500 $70 2.6x $1,500 2.2x $1,000 2.0x $1,609 $1,000 $1,471 $500
Slide 28: Net Leverage Trend
Net Leverage Trend Net Debt/EBITDA(1) • Maximum net leverage ratio of 3.2x 5.00x for Q2 2020 through Q1 2021, 4.50x for Q2 2021, 4.25x 3.1x for Q3 2021, and 4.00x for Q4 3x 2021 through the maturity of the 3.0x credit facility 2.9x 2.9x 2.8x • Net Debt/EBITDA increased in Q2 2.8x 2018 due to the Sta
Slide 29: LKQ's Business Model Supports Sustainable Growth Across a Range of Macro Environments
LKQ’s Business Model Supports Sustainable Growth Across a Range of Macro Environments Select North American Brands Select European Brands Non-Discretionary Niche and Fragmented Markets High Industry Leading Fulfillment Management Rates Attractive Operating Adjacent Leverage and Markets Synergy Oppor
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 revenue growth for Parts & Services to constant currency revenue growth for the same measure: Three Months Ended Six Months Ended June 30, 2020 June 30, 2020 Consolidated Europe Consolidated Europe Parts & Servi
Slide 32: Appendix 2 - Revenue and Segment EBITDA by segment
Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended Six Months Ended June 30(1) June 30(1) % of % of % of % of (in millions) 2020 revenue 2019 revenue 2020 revenue 2019 revenue Revenue North America $1,011 $1,322 $2,302 $2,624 Europe 1,211 1,516 2,575 2,962 Specialty 405 412 753 76
Slide 33: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA Three Months Ended June 30(1) Six Months Ended June 30(1) (in millions) 2020 2019 2020 2019 Net income $119 $152 $265 $251 Subtract: Net (loss) income attributable to continuing noncontrolling interest (0) 1 1 2 Net income attrib
Slide 34: 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: 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 Six Months Ended June 30(1) June 30(1) (in millions, except per share data) 2020 2019 2020 2019 Net income $119 $152 $265 $251 Subtract: Net (loss) income attributa
Slide 36: 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 37: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Appendix 5 - Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended Six Months Ended June 30(1) June 30(1) (in millions) 2020 2019 2020 2019 Net cash provided by operating activities $718 $461 $913 $638 Less: purchases of property, plant and equipment 33 48
Slide 38: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin Consolidated Adjusted Gross Margin Three Months Ended(1) Six Months Ended(1) (in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Gross margin $1,011 $1,247 $2,225 $2,455 Add: Restructuring expenses - cost of goods
Slide 39: Reconciliation of Gross Margin to Adjusted Gross Margin
Appendix 6 - Reconciliation of Gross Margin to Adjusted Gross Margin We have presented adjusted gross margin solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate the operating performance of our continuing business