LKQ Corporation · NASDAQ:LKQ

LKQ — Q4 2019 Earnings Presentation

57 slides from LKQ's earnings presentation, Mar 3, 2020

  1. Slide 1: Fourth Quarter & Full Year 2019 Investor Presentation

    Fourth Quarter & Full Year 2019 Investor Presentation March 3, 2020

  2. 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

  3. 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

  4. Slide 4: 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 4

  5. Slide 5: Overview of LKQ

    Overview of LKQ Company Overview Financial Performance  LKQ is a global distributor of vehicle products, including Revenue ($mm) replacement parts, components and systems used in repair and maintenance of vehicles and specialty products and accessories Organic 9.0% 7.0% 4.8% 4.1% 4.4% 0.3% Growth(1

  6. Slide 6: Over 15 Years of Growth

    Over 15 Years of Growth Wholesale Keystone/ Remanufactured Self Serve Europe‐Sator Europe‐Rhiag Salvage Paint US 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Aftermarket Refurbished Keystone/ Europe – Heavy Duty Europe‐ECP Services Collision Wheels Specialty S

  7. Slide 7: LKQ Near-Term Objectives

    LKQ Near‐Term Objectives Executing on a plan to consistently create shareholder value by transforming LKQ into an integrated global vehicle replacement parts distributor 1 Creating “1 LKQ Europe”  Simplifying and integrating European operations and achieving European segment EBITDA margins by 2021

  8. Slide 8: 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 8

  9. Slide 9: Significant Market Opportunity for LKQ in the US and Europe

    Significant Market Opportunity for LKQ in the US and Europe US and Europe Market Opportunity (1,2,3) Automotive Repair Market US: $243 Europe: €198 Do It For Me (DIFM) DIY US: $194 Europe: €188 US: $49 EU: €10 Retail Collision Mechanical Price US: $46 Europe: €30 US: $148 Europe: €158 Parts & Collis

  10. Slide 10: Aging Vehicles and Increasing Repair Complexity Contribute to Growth

    Aging Vehicles Coupled with Increasing Complexity and Cost of Repairs Contribute to Growth Opportunities United States Vehicles in Operation (between 3‐10 years old) (in millions) 121 119 118 117 118 114 112 108 106 103 101 101 101 103 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

  11. Slide 11: Clear Value Proposition

    Clear Value Proposition 2013 Honda Accord 2012 Toyota Corolla 2014 Chevrolet Silverado Hood Headlamp Transmission New OEM $612 $228 $2,699 Remanufactured N/A $199 $2,299 Recycled OEM $440 $182 $1,150 New A/M $434 $173 N/A Average Savings 29% 20% 36% …and Improved Cycle Time for Repairs Note: Parts p

  12. Slide 12: Collision Products, a $17 Billion Industry in the US

    Collision Products, a $17 Billion Industry in the US Insurance Companies (Indirect Customers) New OEM Manufacturers Repair Shop 62% Refurbished & Recycled OEM Optional OE 11% Aftermarket Products 21% 6% Alternative parts = 38% of parts costs Source: CCC Information Services – Crash Course 2018. 12

  13. Slide 13: Regional Distribution Improves Fulfilment

    Regional Distribution Improves Fulfilment  Highly fragmented space X York  20X size of next competitor  Consistent nationwide coverage Norfolk and warranty Bristol Greensboro Raleigh  Strong management team Nashville Knoxville Salisbury LaGrange Jackson Duncan X Charlotte Manchester  Strong log

  14. Slide 14: Growing European Market with Aging Fleet

    Growing European Market with Aging Fleet Europe Total Vehicles in Operation Expected Organic Growth for LKQ Europe 2020 — 2025 CAGR (in millions) 358 364 370 376 334 340 346 352 310 315 321 327 299 304 2.5% 1.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 LKQ Europe Footpri

  15. Slide 15: LKQ's Business Model Supports Sustainable Growth in all Macro Environments

    LKQ’s Business Model Supports Sustainable Growth in all Macro Environments Select North American Brands Select European Brands Non‐Discretionary Niche and Fragmented Markets High Industry Leading Fulfillment Management Rates Attractive Operating Leverage Adjacent and Synergy Markets Opportunities Su

  16. Slide 16: LKQ's Operating Segments Demonstrate Attractive Growth and Margin Profiles

    LKQ’s Operating Segments Demonstrate Attractive Growth and Margin Profiles Product Overview Financial Overview  Collision 6.1% 5.6% 2.9% 3.0% 5.7% 0.9%  Aftermarket automotive products North America $5,183 $5,209 $4,800  Automotive glass distribution $4,063 $4,119 $4,445  Recycled & Refurbished

  17. Slide 17: Overview of Consolidated Financial Performance

    Overview of Consolidated Financial Performance Revenue Segment EBITDA ($ in millions) ($ in millions) EBITDA Margin 11.7% 11.9% 11.7% 11.5% 10.5% 10.6% $12,506 $11,877 $1,251 $1,328 $9,737 $1,117 $8,584 $1,005 $7,193 $791 $855 $6,740 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 Cash F

  18. Slide 18: Consolidated Results - Continuing Operations

    Consolidated Results ‐ Continuing Operations Q4 2019 Revenue(1) 2019 Revenue(1) • Organic revenue growth for parts and services was 0.9% on a reported • Organic revenue growth for parts and services was 0.3% on a reported basis basis (1) Revenue in millions 18

  19. Slide 19: Consolidated Results - Continuing Operations

    Consolidated Results ‐ Continuing Operations Q4 2019 EPS(1) 2019 EPS(1) $1.74 $0.46 $2.37 $0.54 $1.53 $2.19 $0.48 $0.13 Diluted EPS Adjusted Diluted EPS(2) Diluted EPS Adjusted Diluted EPS(2) • Net income from continuing operations attributable to LKQ stockholders of $140 million (4.7% of • Net inco

  20. Slide 20: North America – 2019 Results

    North America – 2019 Results Change % of Revenue ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $5,209 $5,183 0.5% Gross Margin $2,325 $2,243 3.7% 44.6% 43.3% Operating Expenses $1,638 $1,599 (2.5)% 31.4% 30.8% Other Income, net(1) $31 $13 Segment EBITDA(2) $713 $660 8.0% 13.7% 12.7% (1) 20

  21. Slide 21: Europe – 2019 Results

    Europe – 2019 Results Change % of Revenue ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $5,838 $5,222 11.8% Gross Margin $2,112 $1,896 11.4% 36.2% 36.3% Adjusted Gross Margin* $2,132 $1,896 12.4% 36.5% 36.3% Operating Expenses $1,685 $1,484 (13.5)% 28.9% 28.4% Other (Expense), net $(1) $(6

  22. Slide 22: Specialty – 2019 Results

    Specialty – 2019 Results Change % of Revenue ($ in millions) 2019 2018 F/(U) 2019 2018 Total Revenue $1,464 $1,478 (0.9)% Gross Margin $415 $436 (4.8)% 28.3% 29.5% Operating Expenses $257 $270 4.6% 17.6% 18.2% Other Income, net $1 $1 Segment EBITDA(1) $161 $169 (4.4)% 11.0% 11.4% (1) Segment EBITDA

  23. Slide 23: Free Cash Flow

    Free Cash Flow $ in millions 66% $389 $347 42% 39% 45% 31% 32% Note: FCF amounts only include FCF generated by continuing operations * Free Cash Flow is a non‐GAAP measure. Refer to Appendix 6 for Free Cash Flow reconciliation ** EBITDA is a non‐GAAP measure. Refer to Appendix 3 for EBITDA reconcili

  24. Slide 24: Leverage & Liquidity

    Leverage & Liquidity ($ in millions ) ($ in millions ) Total Capacity(1) $4,348 $4,072 $3,500 $3,491(4) 2.9x 2.6x Effective borrowing rate for Q4 2019 was 3.3%(3) (1) Total capacity includes our term loans and revolving credit facilities (2) Net leverage per bank covenants is defined as Net Debt/EBI

  25. Slide 25: 2020 Guidance Reflects Continued Focus on Operational Improvements

    2020 Guidance Reflects Continued Focus on Operational Improvements Full Year 2019 Full Year 2020 ($ in millions except for EPS) Actual (1) Guidance(1)(2) Organic Growth, Parts and Services 0.3% 0.50% ‐ 2.50% Net Income attributable to LKQ stockholders $541 $678 ‐ $714 Adjusted Net Income attributabl

  26. Slide 26: LKQ Investment Highlights

    LKQ Investment Highlights Leading Positions In Diversified Revenue Expanding Alternative Clear Solid Financial Metrics Large Markets Stream Parts Usage Value Proposition  Largest participant in  Global balance with  Increasing availability  Insurers focused on  History of delivering each market

  27. Slide 27: 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 27

  28. Slide 28: LKQ's Plan to Drive Shareholder Value

    LKQ’s Plan to Drive Shareholder Value 1  Expansion into new markets mostly complete  Euro Car Parts (United Kingdom & ROI) Enhanced European  Sator (Benelux & France) simplification through “1 LKQ Europe”  Rhiag (Italy & 9 other European countries)  Stahlgruber (Germany & Eastern Europe)  Plan

  29. Slide 29: 1 LKQ Europe: Simplification and Integration of EU Operations

    1 1 LKQ Europe: Simplification and Integration of EU Operations Maintain Strong 21 Different Unchanged Customer …In the Hands of Local Entrepreneurial Countries Experience… Managers Culture 29 ERP 50 Customer Systems Portals 24 Financial Systems 1 Transformation 90 Private Label 15 E‐mail Brands Sys

  30. Slide 30: 1 LKQ Europe: Benefits from LKQ Europe Initiatives

    1 1 LKQ Europe: Benefits from LKQ Europe Initiatives LKQ is uniquely positioned to leverage its scale and capabilities in Europe Private Revenue Procurement ERP Label Optimization Revenue Impact Complexity Reduction Cost Reduction Customer Value Leveraging LKQ Scale Positive Impact Minimal Impact 30

  31. Slide 31: LKQ Europe Expectations in 2021 and Beyond

    1 LKQ Europe Expectations in 2021 and Beyond LKQ Europe: Path to Sustainable Double Digit Segment EBITDA Margin Benefit of Initiatives Post 2021 (0.3%)  Procurement 0.6% 11.1% 0.3% 2.2% (0.5%)  Private Label 0.2% 0.1%  Centralization and Shared Services 1.9% 8.3%  Logistics  Digital Services 

  32. Slide 32: Expected Benefit of Initiatives

    1 Expected Benefit of Initiatives LKQ Europe Initiatives’ Expected Segment EBITDA Benefit 2019–2021 0.6% 2.2%(1) 0.5% 0.5%  LKQ Supplier Rebates  T2  Indirect Spend  Andrew Page 0.3% Reduction 0.5% Integration  Pan‐European  Big Data  Other Local Supplier Pricing Initiatives 0.4%  Yield 1.9%

  33. Slide 33: Expected Margin Progression Through 2021

    Expected Margin Progression Through 2021 Expected European Segment EBITDA Margin 11.1% 9.2% 0.7% 8.1% 7.8% 9.5% 8.5% (0.5%) (0.6%) (0.2%) (0.7%) (0.8%) 2018A1 2018A2 2019F1 2019F2 2020F1 2020F2 2021F1 2021F2 2018A 2019A 2020F 2021F Expected Segment EBITDA Margin Potential Range for Segment EBITDA Ex

  34. Slide 34: "1 LKQ Europe" Program Costs

    “1 LKQ Europe” Program Costs Expected Cash Outlays 2019 – 2021 in $M(1) Cost Definitions Previously Announced: • Estimated restructuring charges of ~$20‐$23M for  Transformation‐related opex: Period costs incurred to execute the cost reduction initiatives “1 LKQ Europe” project that are classified

  35. Slide 35: Initiatives to Drive Cash Flow Generation

    1 Initiatives to Drive Cash Flow Generation Cash Flow Considerations Vendor Financing Program ‐ Update  Trade Working Capital (TWC)  European segment’s annual direct spend is approximately $3.6 billion with ~1,800 improvement in Europe launched as a key suppliers with annualized spend >$23,000 obj

  36. Slide 36: Multiple Levers to Drive North American Results

    2 Multiple Levers to Drive North American Results Key Initiatives A Great Stable of Brands  Favorable collision tailwinds Collision & Mechanical Organic  Expansion of product offerings Revenue Growth  Monitoring opportunity of ADAS and EV Aftermarket Salvage Glass Paint (PBE)  Further optimizing

  37. Slide 37: Efficient & Scalable Salvage Procurement

    2 Efficient & Scalable Salvage Procurement Auction Bid & Selection Sub‐Optimal LKQ Parts Proprietary Sub‐Optimal Vehicle Bidding System Optimal Vehicle Salvage auction cars are loaded BID‐X into bid database Optimal Vehicle Validation through Automated by LKQ Established Vehicle VIN Parts Databases

  38. Slide 38: Leading Brands and Multiple Levers to Drive Strong Specialty Growth

    Leading Brands and Multiple Levers to Drive Strong Specialty 3 Growth Key Initiatives A Great Stable of Brands  New product lines through the same distribution (target $25M/year) New Product Lines  New products within existing lines  New services  New customers (Jobbers, Dealers, Retailers, Inst

  39. Slide 39: Specialty Segment has Competitive Advantages

    3 Specialty Segment has Competitive Advantages Competitive Advantage Commentary  North America – best coverage, next day  Late cut off times, 99.9% fill rate  Logistics Network  Big & Bulky items  Company Fleet and Drivers (560 Cube Vans, 90 TT)  Best e‐tailer service option  Biggest ($320M)

  40. Slide 40: Strong Track Record of Delevering

    4 Strong Track Record of Delevering Net Debt / EBITDA Over Time(1) $660 $1,150 $1,380 $250 PGW/ STAHLGRUBER Rhiag Warn Industries 2.9x 2.7x 2.7x 2.6x $470 $400 Keystone Euro Car Specialty Parts $270 2.0x Sator 2.0x 1.9x 1.7x 1.7x 2011 2012 2013 2014 2015 2016 2017 2018 2019 Represents size of acquis

  41. Slide 41: 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 41

  42. Slide 42: Corporate Governance Highlights

    Corporate Governance Highlights Independent  LKQ is governed by 11‐member board of directors, 9 of whom are independent directors under NASDAQ Leadership & guidelines Oversight  Separate Chairman / CEO roles  Ongoing process to refresh and strengthen board composition with shareholder input; 5 ne

  43. Slide 43: LKQ's Directors are Well Equipped to Drive Shareholder Value Creation

    LKQ’s Directors are Well Equipped to Drive Shareholder Value Creation Treasury/ Capital Risk Allocation/ Finance/ Government Human Capital Europe / Supply Assessment Executive Automotive Digital Corporate Accounting/ Relations/ Management/ Corporate Other Chain/ and Investor Director Leadership Indu

  44. Slide 44: 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 Primary Occupation Key Skills Independent Board  Unparalleled knowledge of LKQ business and Joseph Holsten 16 66 Chairman of the Board industry Dominick Zarcone 2 60 President and CEO  Extensive finance e

  45. Slide 45: LKQ's Performance-Based Compensation Practices

    LKQ’s 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

  46. Slide 46: 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 46

  47. Slide 47: Management and Board are Executing on a Strategy Delivering Shareholder Value

    LKQ's Management and Board are Executing on a Strategy That is Delivering Shareholder Value  The Company delivered solid 2019 results, underscoring management’s focus on operating improvement and execution  Results since initiatives began in Q2 2018 include operating cash flows in 2019 of well ove

  48. Slide 48: 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.

  49. Slide 49: 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 December Year Ended 31, 2019 December 31, 2019 Consolidated Europe Consolidated Europe Parts & Ser

  50. Slide 50: Appendix 2 - Revenue and Segment EBITDA by segment

    Appendix 2 ‐ Revenue and Segment EBITDA by segment Three Months Ended Year Ended December 31(1) December 31(1) % of % of % of % of (in millions) 2019 revenue 2018 revenue 2019 revenue 2018 revenue Revenue North America $1,283 $1,255 $5,209 $5,183 Europe 1,425 1,426 5,838 5,222 Specialty 303 323 1,46

  51. Slide 51: 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 December 31 Year Ended December 31 (in millions) 2019 2018 2019 2018 Net income $141 $38 $545 $483 Subtract: Net income attributable to continuing noncontrolling interest 0 2 3 3 Net income attributable to disc

  52. Slide 52: 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

  53. Slide 53: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted

    Appendix 4 – Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations Three Months Ended Year Ended December311) December 31(1) (in millions, except per share data) 2019 2018 2019 2018 Net income $141 $38 $545 $483 Subtract: Net income attributable to c

  54. Slide 54: Appendix 4 - Reconciliation of Net Income and EPS to Adjusted

    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

  55. Slide 55: Appendix 5 - Forecasted EPS Reconciliation

    Appendix 5 ‐ Forecasted EPS Reconciliation(1) For the year ending December 31, 2020 (in millions, except per share data) Minimum Guidance Maximum Guidance Net income from continuing operations attributable to LKQ stockholders $678 $714 Adjustments: Amortization of acquired intangibles 96 96 Loss on

  56. Slide 56: Appendix 6 - Reconciliation of Operating Cash Flow to Free Cash Flow

    Appendix 6 ‐ Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Three Months Ended Year Ended December 31(1) December 31(1) (in millions) 2019 2018 2019 2018 Net cash provided by operating activities $99 $190 $1,064 $711 Less: purchases of property, plant and equipment 100

  57. Slide 57: Appendix 7 - Reconciliation of Gross Margin to Adjusted Gross Margin

    Appendix 7 ‐ Reconciliation of Gross Margin to Adjusted Gross Margin Three Months Ended Year Ended Consolidated Adjusted Gross Margin December 31(1) December 31(1) (in millions) 2019 2018 2019 2018 Gross margin $1,196 $1,162 $4,852 $4,575 Add: Restructuring expenses ‐ cost of goods sold 4 — 21 — Adj

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