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Large Car Parc
Fragmented
Industry
“Country
Champion” in
Key Markets
DIFM
Focused
Supplier
Segmentation
Low Collision
APU
Europe - Market Observations
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May 2018 Investor Conference Presentation 2018
- 1. May 2018 Investor Conference Presentation
- 2. 1 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. Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. These statements are subject to a number of risks, uncertainties, assumptions and other factors including those identified below. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include the factors disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2017 and in our subsequent Quarterly Reports on Form 10-Q. These reports are available on our investor relations website at lkqcorp.com and on the SEC website at sec.gov. This presentation contains non-GAAP financial measures. Included with this presentation are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP.
- 3. 2 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. (1) TTM as of 3/31/2018 (2) Pending closing of acquisition LKQ’s Evolution Total Revenue $328 million Total Revenue $1.11 billion Total Revenue $3.27 billion 2003 2007 2011 Aftermarket Collision Refurbished Wheels Heavy Duty Europe-ECP Keystone Specialty Wholesale Salvage Self Serve Keystone / Paint Reman-US Europe-Sator Europe-Rhiag 1998 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Revenue $10.11 billion 2018(1) Aftermarket North America Self Service Parts North America European Operations SpecialtyRecycled Products North America Other Europe – Stahlgruber (2) 2018 16% 25% 2% 38% 13% 6% 3
- 5. Specialty • Performance products • Appearance & accessories • RV, trailer & other • Specialty wheels & tires Operating Unit Overview 4 North America • Collision – Aftermarket automotive products – Automotive glass distribution – Recycled & Refurbished • Mechanical – Recycled engines & transmissions – Remanufactured engines & transmissions Europe • Mechanical – 175,000+ small part SKUs – Brakes, filters, hoses, belts, etc. • Collision (limited) – Aftermarket (UK) & Recycled (Sweden)
- 6. LKQ’s Acquisition Philosophies • Markets where we can be #1 or #2 • Strong and experienced management • Opportunities for growth & synergies • Financial returns – IRR (mid-teens over 10 years) – ROIC (10 years’ average >10%) • Integrity • Criteria in new markets – Among the leaders in the market – High fulfillment rates – Consistent with LKQ culture – Excellent management team that will stay post closing • Criteria in existing markets – “Tuck in” companies – High synergies – Additional capacity • Substantial experience integrating acquisitions Strong Brands 5
- 7. * Net Leverage based on bank covenant definitions ** Amounts reflect continuing operations only Revenue** Segment EBITDA** Cash Flow / Capex** Net Leverage* ($ in Millions) Historical Financial Performance $4,123 $5,063 $6,740 $7,193 $8,584 $9,737 $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 2012 2013 2014 2015 2016 2017 6 $515 $629 $791 $855 $1,005 $1,117 $- $200 $400 $600 $800 $1,000 $1,200 2012 2013 2014 2015 2016 2017 $221 $446 $388 $544 $571 $523 $88 $90 $141 $170 $183 $175 $- $100 $200 $300 $400 $500 $600 2012 2013 2014 2015 2016 2017 Operating Cash Flow Capital Spending 2.0x 1.7x 2.0x 1.7x 2.7x 2.7x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 2012 2013 2014 2015 2016 2017
- 8. 7 Consolidated Results - Continuing operations Q1 2018 Revenue* * Revenue in millions ** Segment EBITDA is a non-GAAP financial measure. Refer to Segment EBITDA reconciliation on page 28 • Organic growth of parts and services revenue of 3.7% on a reported basis • Net income from continuing operations attributable to LKQ stockholders $153 million Q1 2018 vs. $141 million Q1 2017 • Segment EBITDA Margin** 10.9% Q1 2018 vs. 12.4% Q1 2017
- 9. 8 Consolidated Results - Continuing operations Q1 2018 EPS* * Earnings per share figures refer to net income from continuing operations attributable to LKQ stockholders ** Adjusted Diluted EPS is a non-GAAP measure. Refer to page 30 for Adjusted Diluted EPS reconciliation Diluted EPS Adjusted Diluted EPS**
- 10. Key Strategic Underpinnings GEAR Forward! GROW Diversified Offerings EXPAND Global Footprint RATIONALIZE Asset Base ADAPT To Evolving Technology Path to Success: ● DEPENDABLE ● EXCELLENCE ● LEADERSHIP ● INTEGRITY ● VALUE ● EFFICIENT ● RESPONSIVE 9
- 12. Large & Fragmented US Market Automotive Repair Market $243 bn Do It For Me (DIFM) $194 bn Collision $46 bn Collision Parts $25 bn Collision (Wholesale) $17 bn Markup $8 bn Labor $21 bn Mechanical $148 bn Mechanical Parts $81 bn Mechanical (Wholesale) $54 bn Markup $27 bn Labor $67 bn DIY $49 bn Retail Price Parts & Labor Market Opportunity – $71 billion Source: AAIA Factbook, 27th Edition 2018; 2016 data is estimated, excludes tires. 11
- 13. Clear Value Proposition …and Improved Cycle Time for Repairs 2015 Chrysler Town & Country Wheel 2006 Chevrolet Silverado Engine 2012 Chevrolet Malibu Bumper Cover New OEM $380 $5,896 $335 Remanufactured $261 $2,069 $209 Recycled OEM $85 $1,090 $175 New A/M N/A N/A $209 Average Savings 55% 73% 59% Note: Parts price only – excludes labor. 12
- 14. Collision Products, a $17 Billion Industry Repair Shop New OEM Manufacturers 63% Aftermarket 19% Recycled OEM 12% Refurbished & Optional OE Products 6% Insurance Companies (Indirect Customers) Alternative parts = 37% of parts costs Source: CCC Information Services –Crash Course 2017 13
- 15. Shift Toward Alternative Parts Usage Source: CCC Information Services Inc. Over 20 million vehicle claims 6.0 2.3 8.3 6.6 3.1 9.7 0.0 2.0 4.0 6.0 8.0 10.0 12.0 OEM Alternative Parts Total 2012 2013 2014 2015 2016 2017 Average Parts Used Per Claim 14
- 16. Regional Distribution Improves Fulfilment • Highly fragmented space • 20X size of next competitor • Consistent nationwide coverage and warranty • Strong management team • Strong logistics & footprint • Industry leading fill-rates – Aftermarket: 95% – Salvage • Competitor: 25% • LKQ Single Site: 35% • LKQ Region: 75% 15
- 17. Wholesale North America Footprint 16
- 18. 5 year time horizon Number of Vehicles in LKQ’s “Sweet Spot” 17 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 SAAR 10.4 11.6 12.7 14.4 15.5 16.5 17.4 17.5 17.1 16.3 15.1 13.6 13.2 13.6 VIO 3-10 121 118 114 108 103 101 101 101 103 106 112 117 119 118 10.4 11.6 12.7 14.4 15.5 16.5 17.4 17.5 17.1 16.3 15.1 13.6 13.2 13.6 121 118 114 108 103 101 101 101 103 106 112 117 119 118 - 20.0 40.0 60.0 0 20 40 60 80 100 120 140 160 180 NumberofVehicles(Millions) Source: Experian vehicles in operation as of 12/31/17; SAAR Bank of America Merrill Lynch 1/8/18 United States Vehicles in Operation
- 19. Crash Avoidance Systems Growing (0.1%) (0.1%) (0.2%) (0.2%) (0.4%) (0.7%) (3.3%) (6.8%) (10.3%) (13.8%) (17.3%) (20.8%) (24.3%) (30.0%)(25.0%)(20.0%)(15.0%)(10.0%) (5.0%) 0.0% CY 2010 CY 2011 CY 2012 CY 2013 CY 2014 CY 2015 CY 2020 CY 2025 CY 2030 CY 2035 CY 2040 CY 2045 CY 2050 78% 22% CY 2040 All Other Conventional Gasoline Vehicles U.S. EIA Energy Outlook 2014 Light Duty Vehicle Sales by Energy Use CCC estimates a 10.3% impact to losses in next 15 years Source: CCC Information Services Inc. 18
- 20. [Tex t] [Tex t] Large Car Parc Fragmented Industry “Country Champion” in Key Markets DIFM Focused Supplier Segmentation Low Collision APU Europe - Market Observations 19
- 21. Large European Market Automotive Repair Market €198B Do It For Me (DIFM) €188B Collision €30B Collision Parts €22B Collision (Wholesale) €14B Markup €8B Labor €8B Mechanical €158B Mechanical Parts €120B Mechanical (Wholesale) €78B Markup €42B Labor €38B DIY (1) €10B Market Opportunity – €102 billion Retail Price Parts & Labor Source: 2014 Datamonitor; Management estimates. Note: All € in millions; Excludes VAT and sales taxes. (1) Do It Yourself e-commerce only. 20
- 22. LKQ’s European Platform Acquisitions Opportunities for Procurement & Back Office Synergies October 2011 April 2013 March 2016 December 2016 • Leading distributor of automotive aftermarket mechanical parts in the UK • Nearly 55,000 commercial customers • 1 National Distribution Center totaling 500K square feet • 8 regional hubs, 89 branches • Leading distributor of automotive aftermarket mechanical parts in the Benelux • Proprietary, best-in- class online ordering technology for local distributors & repair shops • 11 distribution centers • Leading automotive aftermarket mechanical parts distributor in Italy, The Czech Republic & Slovakia; #2 or #3 position in 6 other countries in Central & Eastern Europe • Rhiag utilizes a network of 10 DC’s and 247 local branches, distributing product to over 57,000 professional customers. • The leading independent car parts and service chain in the Nordic region of Europe, offering a wide range of quality products including spare parts and accessories for cars, and workshop services for consumers and businesses • LKQ acquired a 26.5% ownership position 21
- 23. Stahlgruber is a Natural Strategic Fit for LKQ Sweden Norway UK Netherlands Belgium Poland Ukraine Romania Bulgaria Italy Hungary Slovakia Czech Republic Germany Switzerland Slovenia Croatia Austria Stahlgruber Footprint LKQ Europe Footprint Stahlgruber and LKQ Europe Common Footprint €2.9 €0.6 €1.7 €1.6 €1.5 €1.4 €1.4 €0.7 €0.6 €0.3 €1.6 LKQ Europe-… FR Ger Ger FR POL CH Swe UK (€ revenue in billions) €5.1 Stahlgruber(1) Mekonomen(2) Source: Company filings and websites; Amounts are approximate. Stahlgruber financials as per German GAAP; Revenue is subject to change based on final conversion to US GAAP statements. EUR / USD exchange rate of 1.179, EUR / PLN exchange rate of 4.21, EUR / GBP exchange rate of 0.89, EUR / SEK exchange rate of 9.88, EUR / CHF exchange rate of 1.16. (1) FY2017E. (2) September 2017 TTM; LKQ acquired 26.5% equity interest in Mekonomen in Dec 2016. (3) Estimated; Acquired by GPC in September 2017. (4) FY2015; Per company website. (5) Estimated; Excludes AD Polska revenue. (6) LTM 9/30/16; Per company website. (7) September 2016 TTM; Per company website. (8) FY ended 04/30/2017; Acquired by Uni-Select in June 2017. Uni-Select / Parts Alliance(8) Mekonomen(2) Swiss Auto Group(7) Intercars(6) Autodis(5) WM(4) Stahlgruber(1) GPC / AAG(3) 22
- 24. (Subsidiary of Itochu Corporation) (Subsidiary of GPC) (Subsidiary of LKQ) (Subsidiary of Mobivia Group) (Private)(Private) (Private)(Private) (Public) (Private) (Private) (Private) (Subsidiary of Parts Holdings) (Private) (Subsidiary of GPC) (Private) (Subsidiary of LKQ) (Public)* (Subsidiary of Stahlgruber Otto Gruber AG)(Subsidiary of LKQ) (Private) (Private) • LKQ—Central and Eastern Europe, Italy, the Netherlands and the United Kingdom • Alliance Automotive—France, Germany and the United Kingdom * On 12/1/2016 LKQ acquired a 26.5% equity interest in Mekonomen AB Selected Market Players Source: Company filings, press releases, FactSet, Orbis and CapitalIQ. Highly Fragmented with many “Country Champions” 23
- 25. Benefits of Scale Longer-Term Margin Drivers • Lower procurement costs – OES brands (volume) – Private label brands (margin) • Reduced logistics and warehousing – e.g. Asian sourcing – e.g. long tail products • Improved overhead costs – Offshoring – Cataloguing • Brand economies of scale • Vendor financing programs 24
- 26. • 90K tonnes of soil moved • 778K square feet warehouse with mezzanine • 80K tones of concrete poured The T2 Site • 3K tonnes of steel used • Main build contractor Winvic • Automation and fit out: TGW 25
- 27. Specialty • Leading distributor and marketer of specialty aftermarket equipment, accessories, and products in North America • Critical link between 800+ suppliers and approximately 20,000 customers selling over 300,000 total SKUs supported by a highly technical sales force • Diverse product segments: truck and off-road; speed and performance; recreational vehicle; towing; wheels, tires and performance handling; and miscellaneous accessories • Best-in-class logistics and distribution network with approximately 1,100,000 annual deliveries and ability to serve over 97% of dealer / jobber customers next-day Specialty Directly Addressable Market (1) ($ in billions) Specialty Overview (1) Management estimates based on AAIA Factbook, SEMA and other industry research Accessory and Appearance $5.03B 37% Performance Products $4.37B 32% RV and Towing $1.37B 10% Wheels, Tires & Suspension $2.78B 21% Towing 5th Wheels Receiver Hitches Wheels and Tires Tires Wheels Accessories Floor Liners Fender Flares Truck & Off-Road Toolboxes Winches Speed & Performance Superchargers Air Intakes Satellites RV Awnings 26
- 28. 27 Consistent Business Model and Strategy Niche and Fragmented Markets Industry Leading Management High Fulfillment Rates Synergy and Leverage Opportunities Sustainable Growth and Margin Expansion Attractive Adjacent Markets
- 30. 29 Q1 2018 Revenue Growth • Organic revenue growth for parts and services in North America was largely attributable to increased sales volumes in our wholesale operations • Revenue recognition standard adoption had a negative impact on consolidated parts and services revenue growth just under 40 bps • European organic growth was negatively impacted by T2 issues and severe weather in the UK as well as the timing of the Easter holiday • Collision parts organic revenue growth in the UK was 7.0% • Favorable F/X impact on European revenue of $116 million; European constant currency parts and services revenue growth of 12.5%(2) • Specialty acquisition growth was $35 million, most of which relates to Warn Industries, Inc. (acquired November 1, 2017) • Increase in Other Revenue was primarily attributable to higher scrap steel and other metal prices. Scrap steel prices were up 37% versus Q1 2017 (1) The sum of the individual revenue change components may not equal the total percentage due to rounding (2) Constant currency is a non-GAAP financial measure. Refer to constant currency reconciliation on page 26 Revenue Changes by Source: Organic Acquisition Foreign Exchange Total(1) North America 6.5% 1.8% 0.3% 8.6% Europe 1.2% 11.3% 14.1% 26.6% Specialty 0.3% 11.0% 0.4% 11.7% Parts and Services 3.7% 6.6% 5.4% 15.7% Other Revenue 22.4% 0.9% 0.2% 23.5% Total 4.7% 6.3% 5.1% 16.1%
- 31. 30 • Rhiag opened 4 new branches in Eastern Europe: one in the Czech Republic, two in Romania and one in Slovakia. Rhiag also closed one branch in Poland as we integrate AD Polska into our Rhiag operations • ECP began reconfiguring its existing T1 facility that will serve as the distribution hub for our collision products. It is scheduled to be completed and fully-operational by mid-May • Integration of Andrew Page operations into ECP is ongoing, including pricing alignment, which is being actively monitored. Early indicators show a positive impact on margins. We plan to sell 11 branches, including the 9 required by the CMA and 2 additional branches that are focused on the commercial vehicle markets • On April 5, 2018 the EU Commission published an update regarding our pending Stahlgruber GmbH acquisition (which includes an automatic two-week extension to their deadline); we do not expect that this development will impact our previously announced expectations regarding the transaction. We expect the pending acquisition of Stahlgruber to close in Q2 2018 • On April 9, 2018, we completed an offering of €1 billion aggregate principal amount of senior notes with an interest rate of 3.625% on €750 million and 4.125% on €250 million due in 2026 and 2028, respectively Q1 2018 Operating Highlights Europe Specialty North America • PGW was awarded an exclusive agreement with Mopar, the parts division of Fiat Chrysler Automotive, for the distribution of Mopar batteries to their dealer network. PGW is now the exclusive OE supplier of glass and batteries to all Mopar dealerships • We integrated one PGW branch into an existing LKQ facility, bringing the total number of integrations to 16 since the date of acquisition • As of March 31, 2018, 96% of routes created were done through Roadnet for our Aftermarket and Salvage operations. Roadnet is creating efficiencies by reducing delivery miles driven while increasing routes and the number of orders per day. In Q1 2018, miles driven through Roadnet was 21.6M compared to 22.6M in Q4 2017, a 4.5% reduction resulting in fuel savings • We have continued the build out of a new 450,000 square foot facility in Southern California that will allow us to offer improved service levels and better inventory availability for our customers in certain key geographic markets. The target opening is Q2 2018
- 32. 31 2018 Capital Allocation - Continuing operations • Operating cash flows: ◦ The $31 million year over year decrease in operating cash flows was driven primarily by a greater cash outflow related to accounts receivable balances of $39 million as a result of higher sales growth in Q1 2018 partially offset by a higher accounts payable cash inflow of $19 million • Investing cash flows: ◦ The $21 million year over year increase in Capex was primarily related to investments in our North America and Europe operations • Financing cash flows: ◦ Used free cash flows to repay net $120 million in revolver borrowings $ in millions
- 33. 32 Leverage & Liquidity Effective borrowing rate for Q1 2018 was 3.3% Total Capacity(1)($ in millions ) 2.7x 2.7x (1) Total capacity includes our term loans and revolving credit facilities * Net leverage per bank covenants is defined as Net Debt/EBITDA. See the definitions of Net Debt and EBITDA in the credit agreement filed with the SEC for further details ($ in millions )
- 34. 33 Key Return Metrics Return on Equity Return on Invested Capital* * Amortization of acquired intangibles has been excluded from the calculation of Return on Invested Capital
- 35. 34 Guidance 2018 (effective only on the date issued: April 26, 2018) (1) Guidance for 2018 is based on current conditions and excludes the impact of restructuring and acquisition related expenses, excess tax benefits and deficiencies from stock based payments, adjustments to provisional amounts recorded in 2017 related to the Tax Act and amortization expense related to acquired intangibles. In addition, it excludes gains or losses (including changes in fair value of contingent consideration liabilities) and capital spending related to acquisitions or divestitures. Our forecasted results for our international operations were calculated using current foreign exchange rates for the year. Guidance for 2018 includes a global effective tax rate of 26%. Adjustments to the provisional amounts recorded for the Tax Act in 2017 are not reflected in the estimated rate. Full year 2017 actual figures for Adjusted Net Income and Adjusted Diluted EPS were calculated using the same methodology as the 2018 guidance. Organic revenue guidance refers only to parts and services revenue. LKQ updated its guidance on April 26, 2018, and it is only effective on the date of issuance. It is LKQ’s policy to comment on its annual guidance only when the company issues its quarterly press releases with financial results. LKQ has no obligation to update this guidance. (2) Does not include the pending Stahlgruber acquisition announced in December 2017. Guidance will be updated once the transaction closes (3) Adjusted income and Adjusted Diluted EPS are non-GAAP measures. See page 32 for reconciliation of forecasted adjusted net income and forecasted adjusted diluted earnings per share from continuing operations attributable to LKQ stockholders ($ in millions excluding EPS) Full Year 2017 Actual Full Year 2018 Guidance(1)(2) Organic Growth, Parts and Services 4.1% 4.0% - 5.5% Net Income - continuing operations attributable to LKQ stockholders $540 $611 - $641 Adjusted Net Income - continuing operations attributable to LKQ stockholders(3) $583 $685 - $715 Diluted EPS - continuing operations attributable to LKQ stockholders $1.74 $1.96 - $2.06 Adjusted Diluted EPS - continuing operations attributable to LKQ stockholders(3) $1.88 $2.20 - $2.30 Cash Flow from Operations - continuing operations $523 $625 - $675 Capital Expenditures - continuing operations $175 $235 - $265
- 36. 35 2018 Adjusted Diluted EPS Guidance Bridge* Does not include the pending Stahlgruber acquisition announced in December 2017. Guidance will be updated once the transaction closes. *Adjusted net income and adjusted diluted earnings per share are non-GAAP measures. See page 32 for reconciliation of forecasted adjusted net income from continuing operations and forecasted adjusted diluted earnings per share from continuing operations **Reflects midpoint of Adjusted Diluted EPS guidance range
- 37. Leading Positions In Large Markets Why Invest in LKQ? Market Leader Growing Markets Diversified Revenue Base Demonstrated Performance • Increasing availability of quality aftermarket and recycled products • Distribution network and inventory levels allow higher fulfillment rates • Expanding number of vehicles comprising “sweet spot” in our target market Solid Financial Metrics • History of delivering organic revenue growth & EBITDA expansion • Strong FCF generation supports growth • Diversified capital structure • Limited near-term structured debt repayments & ample liquidity Clear Value Proposition • Insurers focused on controlling repair costs • Alternative products offer savings of 20% - 50% of OEM parts repairs • LKQ represents the best partner for the insurance companies • Global balance with Pan-European footprint • Multiple end markets • Broad parts segment exposure • Self funded growth Diversified Revenue Stream • Largest participant in each market served • Scale provides purchasing leverage and depth of inventory • European & Specialty expansion drives diversification • Opportunities for new locations & adjacent markets remain in all segments Expanding Alternative Parts Usage 36
- 38. 37 Appendix - Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Included with this presentation are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP.
- 39. 38 Appendix 1 - Constant Currency Reconciliation • The following unaudited table reconciles consolidated revenue growth for Parts & Services to constant currency revenue growth for the same measure: We have presented the growth of our revenue on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP financial measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency revenue information provides valuable supplemental information regarding our growth, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue results are calculated by translating prior year revenue in local currency using the current year's currency conversion rate. This non-GAAP financial measure has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue growth on a constant currency basis calculate such measure in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies. Three Months Ended March 31, 2018 Consolidate d Europe Parts & Services Revenue Growth as reported 15.7% 26.6% Less: Currency impact 5.4% 14.1% Revenue growth at constant currency 10.3% 12.5%
- 40. 39 Appendix 2 - Revenue and Segment EBITDA by segment Three Months Ended March 31* (in millions) 2018 % of revenue 2017 % of revenue Revenue North America $1,330 $1,208 Europe 1,040 821 Specialty 352 315 Eliminations (1) (1) Total Revenue $2,721 $2,343 Segment EBITDA North America $178 13.4% $176 14.6% Europe 76 7.3% 79 9.6% Specialty 42 11.9% 35 11.3% Total Segment EBITDA $295 10.9% $290 12.4% 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. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities, other acquisition related gains and losses and equity in earnings of unconsolidated subsidiaries. EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding noncontrolling interest, discontinued operations, depreciation, amortization, interest and income tax expense. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. We also consider Segment EBITDA to be a useful financial measure in evaluating our operating performance, as it provides investors, securities analysts and other interested parties with supplemental information regarding the underlying trends in our ongoing operations. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. * The sum of the individual components may not equal the total due to rounding
- 41. 40 Appendix 3 - Reconciliation of Net Income to EBITDA and Segment EBITDA * The sum of the individual components may not equal the total due to rounding Three Months Ended March 31* (in millions) 2018 2017 Net income $153 $136 Subtract: Net loss attributable to noncontrolling interest (0) — Net income attributable to LKQ stockholders $153 $136 Subtract: Net loss from discontinued operations — (5) Net income from continuing operations attributable to LKQ stockholders $153 $141 Add: Depreciation and Amortization 56 49 Depreciation and Amortization - cost of goods sold 5 2 Interest expense, net 29 24 Provision for income taxes 50 72 EBITDA $292 $288 Subtract: Equity in earnings of unconsolidated subsidiaries 1 0 Add: Restructuring and acquisition related expenses 4 3 Inventory step-up adjustment - acquisition related 0 — Change in fair value of contingent consideration liabilities 0 — Segment EBITDA $295 $290 EBITDA as a percentage of revenue 10.7% 12.3% Segment EBITDA as a percentage of revenue 10.9% 12.4%
- 42. 41 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 net income excluding noncontrolling interest, discontinued operations, depreciation, amortization, interest and income tax expense. EBITDA provides insight into our profitability trends and allows management and investors to analyze our operating results with and without the impact of noncontrolling interest, discontinued operations, depreciation, amortization, interest and income tax expense. We believe EBITDA is used by investors, securities analysts and other interested parties in evaluating the operating performance and the value of other companies, many of which present EBITDA when reporting their results. 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. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities, other acquisition related gains and losses and equity in earnings of unconsolidated subsidiaries. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. EBITDA and Segment EBITDA should not be construed as alternatives to operating income, net income or net cash provided by (used in) operating activities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report EBITDA or Segment EBITDA information calculate EBITDA or Segment EBITDA in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly named measures of other companies and may not be appropriate measures for performance relative to other companies.
- 43. 42 Appendix 4 - Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS from Continuing Operations Three Months Ended March 31* (in millions, except per share data) 2018 2017 Net income $153 $136 Subtract: Net loss attributable to noncontrolling interest (0) — Net income attributable to LKQ stockholders $153 $136 Subtract: Net loss from discontinued operations — (5) Net income from continuing operations attributable to LKQ stockholders $153 $141 Adjustments - continuing operations attributable to LKQ stockholders: Amortization of acquired intangibles 22 21 Restructuring and acquisition related expenses 4 3 Inventory step-up adjustment - acquisition related 0 — Change in fair value of contingent consideration liabilities 0 — Excess tax benefit from stock-based payments (3) (3) Tax effect of adjustments (7) (9) Adjusted net income from continuing operations attributable to LKQ stockholders $170 $153 Weighted average diluted common shares outstanding 311,347 310,300 Diluted earnings per share from continuing operations attributable to LKQ stockholders: Reported $0.49 $0.45 Adjusted $0.55 $0.49 *The sum of the individual components may not equal the total due to rounding.
- 44. 43 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 evaluating the core operating performance of our continuing business across reporting periods and in analyzing the company’s historical operating results. We define Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as Net Income and Diluted Earnings per Share adjusted to eliminate the impact of noncontrolling interest, discontinued operations, restructuring and acquisition related expenses, amortization expense related to acquired intangibles, the change in fair value of contingent consideration liabilities, other acquisition-related gains and losses, excess tax benefits and deficiencies from stock-based payments, adjustments to the estimated tax reform provisions recorded in 2017 and any tax effect of these adjustments. The tax effect of these adjustments is calculated using the effective tax rate for the applicable period or for certain discrete items the specific tax expense or benefit for the adjustment. These financial measures are used by management in its decision making and overall evaluation of operating performance of the company and are included in the metrics used to determine incentive compensation for our senior management. Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders should not be construed as alternatives to Net Income or Diluted Earnings per Share as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders calculate such measures in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.
- 45. 44 Appendix 5 - Forecasted EPS reconciliation* For the year ending December 31, 2018 (in millions, except per share data) Minimum Guidance Maximum Guidance Net income from continuing operations attributable to LKQ stockholders $611 $641 Adjustments: Amortization of acquired intangibles 100 100 Restructuring and acquisition related expenses 4 4 Excess tax benefit from stock-based payments (3) (3) Tax effect of adjustments (27) (27) Adjusted net income from continuing operations attributable to LKQ stockholders $685 $715 Weighted average diluted common shares outstanding 312 312 Diluted EPS from continuing operations attributable to LKQ stockholders: U.S. GAAP $1.96 $2.06 Non-GAAP (Adjusted) $2.20 $2.30 *The sum of the individual components may not equal the total due to rounding We have presented forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders in our financial guidance. Refer to the discussion of Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders for details on the calculation of these non-GAAP financial measures. In the calculation of forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, we included estimates of income from continuing operations attributable to LKQ stockholders, amortization of acquired intangibles for the full fiscal year 2018 and the related tax effect; we included for all other components the amounts incurred as of March 31, 2018. Does not include the pending Stahlgruber acquisition announced in December 2017. Guidance will be updated once the transaction closes