Disclaimer. A Look Under the Hood of LKQ, Corp. NASDAQ: LKQ. First Look. Company History. StockUp 1/7/2015. Up, Straight, and Parallel R2 = 99%

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1 A Look Under the Hood of LKQ, Corp. NASDAQ: LKQ Presented by John R. Rogers Director, Rocky Mountain Chapter Wednesday, January 7, Disclaimer The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting TM National Association of Investors Corporation ( BI ). The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting TM. Investors should conduct their own review and analysis of any company of interest before making an investment decision. Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the CEO of BetterInvesting or the Director of Chapter Relations. This presentation may contain images of websites and products or services not endorsed by BetterInvesting. The presenter is not endorsing or promoting the use of these websites, products or services. This session is being recorded for future use. 2 Company History First Look LKQ Corporation was formed in 1998, incorporated in Delaware in 2003, and went public in October of that year at a split adjusted $1.97 on NASDAQ. Up, Straight, and Parallel Recent stock price: $28.11 (12/28/2014) Stock price appreciation since the IPO: 1,450% R2 = 99% Recession 3 4 1

2 Manifest Investing Industry Leaders 12/28/2014 Healthy Balance Sheet Company Symbol Quality Rating Projected Average Return Copart CPRT % Autozone AZO % LKQ, Corp. LKQ % O Reilly Auto ORLY % Munro Muffler MUNRO % Advanced Auto Parts AAP % 5 6 Falling PE Ratio (5 Yrs) The Business Range Bound LKQ Corporation ( is a leading recycler of parts from salvaged automobiles and light trucks. LKQ prides itself in being a green business by recycling 82% of each salvaged vehicle by weight. EPS LKQ has operations in North America, the United Kingdom, the Netherlands, Belgium, France, Canada, Mexico and South America, Australia and Taiwan. PE Ratios 7 8 2

3 The Business LKQ operates a network of over 500 facilities offering its customers a broad range of replacement systems, components, equipment and parts to repair and accessorize automobiles, trucks, and recreational and performance vehicles. The majority of LKQ s aftermarket inventory comes from parts manufacturers and distributors primarily based in the U.S., the U.K. and other European countries, Taiwan and China. The Business LKQ procures recycled automotive products mainly by purchasing wrecked vehicles sold at salvage auctions, and then dismantling and inventorying the parts. The refurbished and remanufactured products that LKQ sells, such as wheels, bumper covers, lights and engines, originate from the salvage vehicles bought at auctions and from parts received in trade from customers purchasing replacement products Sources of Replacement Parts New products produced by original equipment manufacturers ("OEMs") New products produced by companies other than the OEMs, which are sometimes referred to as aftermarket products Alternative replacement products including Recycled products obtained from salvaged vehicles Used parts that have been Refurbished or remanufactured. Revenue Sources Total Sales $5.06B 9 Mos. Ended Sept. 30, 2014 Others UK By Area USA UK Others USA By Product Other Recycled Aftermarket Aftermarket Recycled Other

4 Multiple Customers Technology Body shops Mechanical repair shops Insurance companies Insurance appraiser support Help minimize costs Metal recyclers Keyless online procurement and ordering technology for body shops. Rapid real-time search and ordering of all available alternative parts recycled OEM, optional OEM, aftermarket, and refurbished ekey for the automotive insurance appraiser. Rapid real-time search of all available alternative parts recycled OEM, optional OE, reconditioned OEM and new aftermarket Use local inventories for faster claim resolution OrderKeystone, an online ordering system with complete access to all Keystone aftermarket products. Keystone was acquired in Industry Growth Opportunity Addressable Market: $57 billion LKQ current sales: $5 billion Collision Replacement Parts: $16 billion Mechanical Replacement Parts: $41 billion LKQ Growth Opportunities Growth Strategies Total growth target: 18% to 25% Organic growth: 8% to 10% Acquisitions: 10% to 15% Over 170 acquisitions since founding in acquisition of Keystone Automotive Industries, Inc. Leading domestic distributor of aftermarket products Collision replacement parts, paint products, refurbished steel bumper covers and alloy wheels 6,000 salvage & aftermarket companies 90% less than $3 million in sales acquisition of Euro Car Parts Holdings Ltd. Aftermarket business 16 4

5 Growth Strategies Acquisitions Continued Economic Moat Sustainable Competitive Advantage Morningstar: Narrow Moat During 2013 LKQ made 25 acquisitions 2013 agreement with Suncore Group in Australia and New Zealand to develop businesses there. In 2014 acquired specialty parts distributor Keystone Specialty completing acquisition of Keystone Automotive Industries, Inc. Opened 15 new Euro Car Parts branches and 25 paint distribution branches in the UK Efficiencies of Scale with over 500 facilities Nationwide distribution network Online shopping and ordering 24 hour delivery Single source for Insurance Companies Claims payout reduction Speedy claims resolution reduce rental vehicle fees Economic Moat Sustainable Competitive Advantage Environmentally friendly business practices Nationwide warranty Efficient procurement of Salvage Vehicles at Auction Handheld computers and software Additional Barriers to Entry Zoning and Permits NIMBY mentality Risks Goodwill = Price Paid Tangible Assets Received Overpaying for acquisitions Integration difficulties Packing the Balance Sheet with Goodwill 40% of 09/30/2014 Assets is Goodwill Compared to 12% for ORLY and 1.8% for CVX High debt level 1992 Anti-Car Theft Act Clerical burden & increased overhead

6 Debt Problems Debt to Total Capital = Debt/(Debt + Equity) From Morningstar.com Debt Problems Putting Debt Into Context Company Current % Debt to Capital LKQ 44.5% Adv. Auto Parts (AAP) 53.3% Copart (CPRT) 21.8% O Reilly (ORLY) 42.1% Peer Grp Average 34.7% Industry Average 45.1% Debt Problems LT Debt: $1.9B From Morningstar.com Analyze Growth 18 to 25% Company guidance growth rates TTM Interest Coverage = (PTP+Interest)/Interest = ($ $115)/$115 = 6.15 Anything above 5 is fine. LKQ is in no danger of default

7 Analyze Growth Sales Analyze Growth EPS 32.1% 27.7% 26.1% 23.4% 24.4% 20.2% Recession Recession Analyze Growth EPS Yahoo Finance Member Sentiment 210 Studies (last 90 days) RANGE AVERAGE Sales 7.4 to 25% 16.7% EPS 9.3 to 24% 16.1% Hi P/E 35 to Lo P/E 12 to Low EPS $0.87 to $1.20 $1.05 Low Price $8.64 to $25 $

8 Analyze Growth Analyze Growth EPS SALES ValueLine 18.5% 13.0% Analyst Consensus 14.9% 20.6% (2 yr. est.) ManifestInvesting 18.6% 12.4% Yahoo 21.8% Company Guidance 18 to 25% 8 to 10% organic Implied = (1- yield)*roe 12.3% Poll Question Next 5 Yr. Sales Growth Manifest Investing 12.4% Value Line 13% Analyst Average 17.5% Member Sentiment 16.6% Analyst 2 Yr. Estimate 20.6% Poll Question Next 5 Yr. EPS Growth Preferred Procedure Analysts Consensus 14.9% 210 Member Average 16.0% Manifest Investing 18.6% Yahoo Finance 21.8% 31 To SSGPlus 32 To SSGPlus 8

9 Falling PE Ratio (5 Yrs) Poll Question Decision Time! Range Bound Buy tomorrow at market Looks good, but needs more research EPS Avoid Not a good investment PE Ratios 33 To SSGPlus 34 References Reminders LKQ, Inc. website ( ) Value Line available online through most libraries Morningstar available online through most libraries ManifestInvesting (manifestinvesting.com) by subscription Yahoo Finance ( free StockUp All data locked in on December 28th Make your own judgments and decisions Prepare your own SSG

10 Thank You! Questions? Yes! We Do Sell Stocks Presented by Scott Horsburgh, CFA and President of Provident Investment Management Wednesday, February 4, :30 9:45 PM EST