Lkq Corporation · NASDAQ:LKQ
Lkq — Q4 2019 Earnings Presentation
40 slides from Lkq's earnings presentation, Feb 20, 2020
Slide 1: Fourth Quarter & Full Year 2019 Earnings Call
Fourth Quarter & Full Year 2019 Earnings Call February 20, 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: Q4 2019 Key Takeaways
Q4 2019 Key Takeaways • Organic parts and services revenue growth of 0.9% and acquisition growth of 0.2%, partially offset by a decline due to foreign currency translation (1.0%) leading to total parts and services revenue growth of 0.1% ◦ North America organic revenue growth of 2.5% despite a 1.0%
Slide 5: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q4 2019 Revenue(1) 2019 Revenue(1) $3,200 $13,000 $12,506 $3,100 $12,500 $3,003 $3,010 $3,000 $12,000 $11,877 % $2,900 % $11,500 5.3 0.2 $2,800 $11,000 $2,700 $10,500 $2,600 $10,000 Q4 2018 Q4 2019 2018 2019 • Organic revenue growth for parts and services
Slide 6: Consolidated Results - Continuing Operations
Consolidated Results - Continuing Operations Q4 2019 EPS(1) 2019 EPS(1) $0.50 $0.60 $1.80 $1.74 $2.50 $0.46 $2.37 $1.70 $2.40 $1.74 $0.46 $0.54 $2.30 $2.37 $1.60 $2.19 $1.53 $2.20 $0.40 $0.54 $1.50 $2.19 $0.50 $0.48 $1.53 $2.10 $1.40 $2.00 $0.48 $1.30 $1.90 $0.30 $1.80 $1.20 $0.40 $1.70 $1.10 % $1.6
Slide 7: Q4 2019 Revenue Growth
Q4 2019 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 2.5% (0.4)% 0.0% 2.1% Europe 1.2% 0.7% (2.0)% (0.1)% Specialty (6.0)% —% (0.0)% (6.0)% Parts and Services 0.9% 0.2% (1.0)% 0.1% Other Revenue 2.4% 1.1% (0.1)% 3.4% Total 1.0% 0.2% (0.9)% 0.2
Slide 8: 2019 Revenue Growth
2019 Revenue Growth Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 0.9% 0.2% (0.2)% 0.9% Europe 0.1% 16.3% (4.6)% 11.8% Specialty (0.7)% —% (0.3)% (0.9)% Parts and Services 0.3% 7.6% (2.2)% 5.7% Other Revenue (3.3)% 1.2% (0.2)% (2.3)% Total 0.1% 7.3% (2.1)% 5.
Slide 9: Q4 2019 Operating Highlights
Q4 2019 Operating Highlights North America • Generated 180 bps in year-over-year Segment EBITDA improvement due to the combined impacts of pricing initiatives, targeted operational efficiencies, right-sizing efforts, GM strike and high precious metals prices • Operational emphasis on working capital
Slide 10: Inventory
Inventory Inventory Procurement: Q4 Fiscal Year ($ in millions, Vehicles purchased in 000s) 2019 2018 % Change 2019 2018 % Change Total aftermarket procurement $1,684 $1,629 3.4% $6,446 $6,117 5.4% Wholesale salvage cars and trucks 79 81 (2.5)% 309 310 (0.3)% Europe wholesale salvage cars and trucks
Slide 11: Financial Results
Financial Results ( - -
Slide 12: Operating Results - Continuing Operations
Operating Results - Continuing Operations Fourth Quarter Fiscal Year ($ in millions, except per share data) 2019 2018 Change 2019 2018 Change Revenue $3,010 $3,003 0.2% $12,506 $11,877 5.3% Gross Margin 1,196 1,162 2.9% 4,852 4,575 6.1% Operating Income 207 164 26.0% 897 882 1.6% Pre-tax Income 190
Slide 13: Q4 2019 Consolidated Margins - Continuing Operations
Q4 2019 Consolidated Margins - Continuing Operations Q4 Q4 Change (as a % of Revenue) 2019 2018 F/(U) Q4 Commentary Revenue 100.0% 100.0% —% Gross Margin 39.7% 38.7% 1.0% Increase primarily attributable to North America Adjusted Gross Margin(1) 39.9% 38.7% 1.2% Excludes COGS restructuring charge in
Slide 14: 2019 Consolidated Margins - Continuing Operations
2019 Consolidated Margins - Continuing Operations Change (as a % of Revenue) 2019 2018 F/(U) 2019 Commentary Revenue 100.0% 100.0% —% Increase primarily attributable to North America (0.6%) partially offset by acquisitions (0.2% - primarily Gross Margin 38.8% 38.5% 0.3% Stahlgruber) and COGS restruc
Slide 15: Components of Revenue
Components of Revenue $3.01B $3.00B $12.51B $11.88B 100.0% 5.1% 5.0% 5.0% 5.4% 10.0% 10.7% 11.7% 12.4% • Increase in 2019 revenue as a 80.0% percentage of consolidated revenue for our European businesses reflects the impact from the Stahlgruber acquisition 60.0% 47.2% 47.3% 46.5% 43.8% in Q2 2018 •
Slide 16: North America – Q4 2019 Results
North America – Q4 2019 Results Gross Margin Change % of Revenue 47.0% 46.1% ($ in millions) 2019 2018 F/(U) 2019 2018 46.0% Total Revenue $1,283 $1,255 2.3% 45.0% 44.2% 44.1% 44.2% Gross Margin $591 $546 8.1% 46.1% 43.5% 43.3% 43.1% 43.2% 43.5% 44.0% Operating Expenses $417 $397 (5.0)% 32.5% 31.6%
Slide 17: North America – 2019 Results
North America – 2019 Results Change % of Revenue ($ 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
Slide 18: Scrap Steel Prices
Scrap Steel Prices Q4 YOY scrap steel prices down 37% $225 • Average price realized for scrap $197 $199 steel decreased by 37% from $164 $200 per ton in Q4 2018 to $104 per ton in Q4 2019 $175 $168 $164 • Sequential change from last quarter was negative $20 per $150 ton, or down 16% $150 $144 • Chan
Slide 19: Europe – Q4 2019 Results
Europe – Q4 2019 Results Change % of Revenue Gross Margin ($ in millions) 2019 2018 F/(U) 2019 2018 38.0% Total Revenue $1,425 $1,426 n/m Gross Margin $521 $523 n/m 36.6% 36.7% 36.8% 36.8% Adjusted Gross Margin* $524 $523 n/m 36.8% 36.7% 37.0% 36.6% 36.5% Operating Expenses $417 $419 n/m 29.3% 29.4%
Slide 20: Europe – 2019 Results
Europe – 2019 Results Change % of Revenue ($ 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
Slide 21: Foreign Exchange
Foreign Exchange $1.45 • £ flat Q4 2019 vs Q4 2018 $1.39 $1.40 • € down 2.9% Q4 2019 vs Q4 2018 $1.36 GBP 0.1% • $28 million unfavorable impact of $1.35 translation of weaker Q4 rates $1.30 $1.30 relative to the US dollar on $1.29 $1.29 $1.29 $1.30 European parts and services revenue growth $1.25 $1
Slide 22: Specialty – Q4 2019 Results
Specialty – Q4 2019 Results Change % of Revenue Gross Margin ($ in millions) 2019 2018 F/(U) 2019 2018 32.0% Total Revenue $303 $323 (6.1)% 30.2% 30.0% Gross Margin $84 $92 (9.2)% 27.6% 28.6% 30.0% 28.9% 28.6% Operating Expenses $59 $65 8.4% 19.6% 20.1% 28.2% 29.0% 27.6% Segment EBITDA(1) $25 $28 (7
Slide 23: Specialty – 2019 Results
Specialty – 2019 Results Change % of Revenue ($ 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
Slide 24: 2019 Capital Allocation
2019 Capital Allocation $ in millions $1,500 $1,064 $1,000 $(266) $(301) $20 $528 $500 $337 $(292) $(27) $(7) $0 Beginning Cash Operating Capex Net Share Acquisitions, Other FX and Other Ending Cash and Restricted Cash Repayments of Repurchases net of cash Investing and Restricted Cash 12/31/18 Flow
Slide 25: Free Cash Flow
Free Cash Flow $1,200 $ in millions 100% $1,064 $1,000 80% $798 $800 $715 66% 60% $600 $571 $544 $523 $465 40% $389 $347 $374 $388 42% $400 39% 45% $248 31% 20% $200 32% $0 0% 2014 2015 2016 2017 2018 2019 Free Cash Flow ("FCF")* Operating Cash Flow FCF/EBITDA** Note: FCF amounts only include FCF ge
Slide 26: Leverage & Liquidity
Leverage & Liquidity ($ in millions ) ($ in millions ) Total (1) Capacity $4,500 $4,348 8.0x $4,000 $4,072 $3,500 $3,491(4) $332 $4,000 $3,500 $4,016 $523 $3,500 $3,000 $3,549 6.0x $3,000 $1,698 $1,813 $2,500 $2,500 $2,000 4.0x 2.9x $65 $2,000 $69 2.6x $1,500 $1,500 $1,000 2.0x $1,737 $1,609 $1,000
Slide 27: Net Leverage Trend
Net Leverage Trend Net Debt/EBITDA(1) 3.3x • Net Debt/EBITDA increased in Q2 3.2x 2018 due to the Stahlgruber acquisition 3.1x • Strong cash flow generation has 3.1x allowed us to reduce our net leverage to pre-Stahlgruber 3x 3.0x levels 2.9x • Able to de-lever while also 2.9x 2.9x repurchasing $292
Slide 28: Return on Invested Capital
Return on Invested Capital Return on Invested Capital(1) 10.8% 10.9% 10.0% 9.8% 9.8% 10.0% 9.7% 7.5% 5.0% 2.5% 0.0% (2) (3) (2) (3) 2014 2015 2016 2017 2018 2019 (1) Amortization of acquired intangibles and lease obligations have been excluded from the calculation of Return on Invested Capital (2) A
Slide 29: Guidance 2020
Guidance 2020 (effective only on the date issued: February 20, 2020) Full Year 2019 Full Year 2020 ($ 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 attributa
Slide 30: 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 Adjacent Leverage and Markets Synergy Opportunities Su
Slide 31: 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. 31
Slide 32: Appendix - 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 Year Ended December 31, 2019 December 31, 2019 Consolidated Europe Consolidated Europe Parts & Ser
Slide 33: Appendix - 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
Slide 34: Reconciliation of Net Income to EBITDA and Segment EBITDA
Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA (1) (1) 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
Slide 35: 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 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 Three Months Ended Year Ended 1) (1) December31 December 31 (in millions, except per share data) 2019 2018 2019 2018 Net income $141 $38 $545 $483 Subtract: Net income attributable to
Slide 37: 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 38: 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
Slide 39: 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 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
Slide 40: 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