LKQ Corporation (Nasdaq:LKQ) today reported second quarter 2022
financial results. “We had a solid second quarter delivering strong
organic growth, and I am extremely proud of the results the LKQ
team achieved in a challenging operating environment, which
included significant inflationary pressures, supply chain
disruptions, and volatile commodity and currency markets. Despite
these challenges, we continued to drive our strategic initiatives
forward,” noted Dominick Zarcone, President and Chief Executive
Officer. “As we enter the back half of the year, we are well
positioned with our market leading businesses, experienced
management teams, strong balance sheet, and balanced capital
allocation strategy, giving us the confidence to maintain our full
year 2022 guidance.”
Second Quarter 2022 Financial
Results
Revenue for the second quarter of 2022 was $3.3
billion, a decrease of 2.7% as compared to $3.4 billion in the
second quarter of 2021. On a constant currency basis2, second
quarter revenue grew by 2.5% to $3.5 billion. Parts and
services organic revenue increased 3.8%, while the net impact of
acquisitions and divestitures decreased revenue by 1.0% and foreign
exchange rates decreased revenue by 5.6%, for a total parts and
services revenue decrease of 2.7%. Other revenue fell 2.9% owing to
changes in commodity prices relative to the same period in
2021.
Net income1 for the quarter was $420 million as
compared to $305 million for the same period in 2021. Diluted
earnings per share1 for the quarter was $1.49 as compared to $1.01
for the same period of 2021, an increase of 47.5%. On April 18,
2022, the Company completed the sale of PGW Auto Glass, which
generated a pretax gain of $155 million ($127 million
after tax), or $0.45 per share.
On an adjusted basis, net income1,2 in the
quarter was $307 million as compared to $340 million for
the same period of 2021, a decrease of 9.6%. Adjusted diluted
earnings per share1,2 for the quarter was $1.09 as compared to
$1.13 for the same period of 2021, a decrease of 3.5%.
Cash Flow and Balance Sheet
For the second quarter, cash flow from
operations and free cash flow2 were $328 million and
$288 million, respectively. Cash flow from operations and free
cash flow2 were $737 million and $638 million,
respectively, for the six months ended June 30, 2022. As of
June 30, 2022, the balance sheet reflected total debt of $2.4
billion and net debt2 of $2.1 billion. Net leverage, as
defined in the credit facility, was 1.2x EBITDA.
Stock Repurchase and Dividend
Programs
During the second quarter of 2022, the Company
deployed $404 million to repurchase 8.1 million shares of its
common stock. For the six months ended June 30, 2022, the
Company has repurchased 10.8 million shares for $548 million,
and since initiating the stock repurchase program in late October
2018, the Company has repurchased approximately 45 million
shares for a total of $1.9 billion. In May 2022, the Board of
Directors increased the total share repurchase authorization to
$2.5 billion, effective through October 2024.
On July 26, 2022, our Board of Directors
declared a quarterly cash dividend of $0.25 per share of common
stock, payable on September 1, 2022, to stockholders of record at
the close of business on August 11, 2022.
Other Events
On May 23, 2022, the Company published its 2021
Corporate Sustainability Report.
On June 3, 2022, the Company announced that
Moody’s Investors Service assigned a ‘Baa3’ Issuer Rating to LKQ
with a stable outlook.
2022 Outlook
Varun Laroyia, Executive Vice President and Chief Financial
Officer commented: “By focusing on our operational excellence
initiatives, the business continues to deliver profitable growth
and solid free cash flow. Notwithstanding the significant headwinds
from foreign currency exchange rates and commodity price
fluctuations, we are holding the midpoint of our adjusted diluted
EPS range and our free cash flow guidance for the full year.”
For 2022, management updated the outlook as set forth below:
|
2022 Previous Full Year Outlook |
2022 Updated Full Year Outlook |
Organic revenue growth for parts and services |
4.5% to 6.5% |
4.5% to 6.5% |
Diluted EPS1 |
$3.57 to $3.87 |
$4.09 to $4.29 |
Adjusted diluted EPS1,2 |
$3.80 to $4.10 |
$3.85 to $4.05 |
Operating cash flow |
$1.3 billion |
$1.3 billion |
Free cash flow2 (at a minimum) |
$1.0 billion |
$1.0 billion |
Free cash flow conversion of EBITDA2 |
55 - 60 % |
55 - 60 % |
Our outlook for the full year 2022 is based on
current conditions and recent trends, and assumes current U.S.
federal tax legislation remains unchanged, the prices of scrap and
precious metals hold near the June average, and no further
deterioration due to the Ukraine/Russia conflict. We have applied
exchange rates near July spot levels, including $1.02 and $1.20 for
the euro and pound sterling, respectively, for the balance of the
year. Our outlook is also based on management’s current
expectations regarding the recovery from the COVID-19 pandemic.
Changes in these conditions may impact our ability to achieve the
estimates. Adjusted figures exclude (to the extent applicable) the
impact of restructuring and transaction related expenses;
amortization expense related to acquired intangibles; excess tax
benefits and deficiencies from stock-based payments; losses on debt
extinguishment; impairment charges; direct impacts of the
Ukraine/Russia conflict (including provisions for and subsequent
adjustments to reserves for asset recoverability and expenditures
to support our employees and their families) and gains and losses
related to acquisitions or divestitures (including changes in the
fair value of contingent consideration liabilities and the gain on
the PGW Auto Glass sale).
1 References in this release to Net income and Diluted earnings
per share, and the corresponding adjusted figures, reflect amounts
from continuing operations attributable to LKQ stockholders.2
Non-GAAP measure. See the table accompanying this release that
reconciles the actual or forecasted U.S. GAAP measure to the actual
or forecasted adjusted measure, which is non-GAAP.
Non-GAAP Financial Measures
This release contains and management’s
presentation on the related conference call will refer to non-GAAP
financial measures within the meaning of Regulation G promulgated
by the Securities and Exchange Commission. Included with this
release are reconciliations of each non-GAAP financial measure with
the most directly comparable financial measure calculated in
accordance with GAAP.
Conference Call Details
LKQ will host a conference call and webcast on
July 28, 2022 at 8:00 a.m. Eastern Time (7:00 a.m. Central
Time) with members of senior management to discuss the Company's
results. To access the investor conference call, please dial (888)
330-3494. International access to the call may be obtained by
dialing (646) 960-0860. The investor conference call will require
you to enter conference ID: 5232422#.
Webcast and Presentation
Details
The audio webcast and accompanying slide
presentation can be accessed at (www.lkqcorp.com) in the Investor
Relations section.
A replay of the conference call will be
available by telephone at (800) 770-2030 or (647) 362-9199 for
international calls. The telephone replay will require you to enter
conference ID: 5232422#. An online replay of the audio webcast will
be available on the Company's website. Both formats of replay will
be available through August 12, 2022. Please allow approximately
two hours after the live presentation before attempting to access
the replay.
About LKQ Corporation
LKQ Corporation (www.lkqcorp.com) is a leading
provider of alternative and specialty parts to repair and
accessorize automobiles and other vehicles. LKQ has operations in
North America, Europe and Taiwan. LKQ offers its customers a broad
range of OEM recycled and aftermarket parts, replacement systems,
components, equipment, and services to repair and accessorize
automobiles, trucks, and recreational and performance vehicles.
Forward Looking Statements
Statements and information in this press release
and on the related conference call, including our outlook for 2022,
as well as remarks by the Chief Executive Officer and other members
of management, 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 events or results to differ from the events
or results predicted or implied by our forward-looking statements
include the factors set forth below, and other factors discussed in
our filings with the SEC, including those 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, 2021 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.
These factors include the following (not
necessarily in order of importance):
- effects on our business from the
ongoing disruption to economic activity caused by the COVID-19
pandemic, including a decrease in the demand for our products and
services and interruptions to our supply chain;
- employment-related issues arising
from the COVID-19 pandemic, including workforce shortages and
health and safety issues at the workplace;
- changes in economic, political and
social conditions in the U.S. and other countries in which we are
located or do business, including the U.K. withdrawal from the
European Union (also known as Brexit), the Russian invasion of
Ukraine and the resulting governmental sanctions imposed on Russia,
and the geopolitical tension in Taiwan, and the impact of these
changes on our businesses, the demand for our products and our
ability to obtain financing for operations;
- increasing competition in the
automotive parts industry, including parts sold on online
marketplaces and the potential competitive advantage to original
equipment manufacturers ("OEMs") with "connected car" technology,
as well as the various efforts by OEMs to restrict or prohibit the
sale of aftermarket or recycled parts;
- changes to our business
relationships with insurance companies or changes by insurance
companies to their business practices relating to the use of our
products as well as changes in the level of acceptance and
promotion of alternative automotive parts by insurance companies
and vehicle repairers;
- restrictions or prohibitions on
selling or importing aftermarket products through enforcement by
OEMs or governmental agencies of intellectual property rights or
import laws;
- variations in the number of
vehicles manufactured and sold, vehicle accident rates, miles
driven, and the age profile of vehicles in accidents, the increase
of accident avoidance systems being installed in vehicles, the
potential loss of sales of certain mechanical parts due to the rise
of electric vehicle sales, or changes in the demand for our
products and the supply of our inventory due to severity of weather
and seasonality of weather patterns;
- fluctuations in the prices of fuel,
metals and other commodities;
- changes in our relationships with
our suppliers, disruption to our supply of inventory, or the
misconduct, performance failures or negligence of our third party
vendors or service providers could increase our expenses, impede
our ability to serve our customers, or expose us to liability; as
well as price increases, interruptions or disruptions to the supply
of vehicle parts from aftermarket suppliers and vehicles from
salvage auctions;
- if our goodwill or other intangible
assets become impaired, or there are declines in the values of our
assets, including as a result of the effects of the COVID-19
pandemic on our business, we may incur significant charges to our
pre-tax income;
- product liability claims by the end
users of our products or claims by other parties who we have
promised to indemnify for product liability matters and costs
associated with recalls of the products we sell;
- our ability to identify acquisition
candidates at reasonable prices and our ability to successfully
divest businesses and our ability to integrate, realize expected
synergies, and successfully operate acquired companies and any
companies acquired in the future, and the risks associated with
these companies;
- inflationary pressure on our supply
chain as the economy recovers from the initial impact of the
COVID-19 pandemic;
- inflationary pressure in product,
labor, shipping, freight, and general overhead costs;
- our ability to satisfy our debt
obligations and to operate within the limitations imposed by
financing arrangements, including the possibility of not satisfying
one or more of the financial covenants in our credit facility or
the terms of the indentures governing our senior notes;
- our senior notes are subject to
risks that could affect the value of the notes, require holders of
the notes to return payments received from us or the guarantors, or
affect our ability to repurchase the notes upon a change of control
or pursuant to an asset sale offer;
- our ability to obtain financing on
acceptable terms to finance our growth;
- our ability to issue dividend
payments and fluctuations in the related payments;
- changes in laws or regulations
affecting our business;
- our operations are subject to
environmental regulations and we may incur costs relating to
environmental matters;
- our bylaws provide that the courts
in the State of Delaware are the exclusive forums for substantially
all disputes between us and our stockholders;
- changes to applicable U.S. and
foreign tax laws, changes to interpretations of tax laws, and
changes in our mix of earnings among the jurisdictions in which we
operate;
- the implementation of a border tax
or tariff on imports and the negative impact on our business due to
the amount of inventory we import;
- governmental agencies may refuse to
grant or renew our operating licenses and permits for our salvage,
self service and refurbishing businesses;
- loss of key management personnel
may affect our ability to successfully manage our business and
achieve our objectives;
- the risks associated with operating
in foreign jurisdictions, including foreign laws and economic and
political instabilities and currency fluctuations in the U.S.
dollar, pound sterling and euro versus other currencies;
- additional unionization efforts,
new collective bargaining agreements, and work stoppages;
- our ability to develop and
implement the operational and financial systems needed to manage
our operations; and interruptions, outages or breaches of our
operational systems, security systems, or infrastructure as a
result of attacks on, or malfunctions of, our systems;
- costs of complying with laws
relating to the security of personal information;
- business interruptions affecting
our distribution centers, computer systems and the availability of
inventory;
- problems with our fleet of trucks
and other vehicles could affect our business;
- potential losses of our right to
operate at key locations if we are not able to negotiate lease
renewals or due to environmental issues; and
- disruptions to the management and
operations of our business and the uncertainties caused by activist
investors.
Contact:Joseph P. Boutross - Vice President,
Investor RelationsLKQ Corporation(312)
621-2793jpboutross@lkqcorp.com
LKQ CORPORATION AND
SUBSIDIARIESUnaudited Condensed Consolidated
Statements of Income, with Supplementary Data (In
millions, except per share data)
|
Three Months Ended June 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
% of Revenue |
|
|
|
% of Revenue |
|
$ Change |
|
% Change |
Revenue |
$ |
3,341 |
|
|
100.0% |
|
$ |
3,435 |
|
|
100.0% |
|
$ |
(94 |
) |
|
(2.7)% |
Cost of goods sold |
|
1,974 |
|
|
59.1% |
|
|
2,020 |
|
|
58.8% |
|
|
(46 |
) |
|
(2.2)% |
Gross margin |
|
1,367 |
|
|
40.9% |
|
|
1,415 |
|
|
41.2% |
|
|
(48 |
) |
|
(3.5)% |
Selling, general and
administrative expenses |
|
898 |
|
|
26.8% |
|
|
901 |
|
|
26.2% |
|
|
(3 |
) |
|
(0.5)% |
Restructuring and transaction
related expenses |
|
4 |
|
|
0.1% |
|
|
5 |
|
|
0.1% |
|
|
(1 |
) |
|
(22.5)% |
Gain on disposal of
businesses |
|
(155 |
) |
|
(4.6)% |
|
|
(1 |
) |
|
—% |
|
|
(154 |
) |
|
n/m |
Depreciation and
amortization |
|
61 |
|
|
1.8% |
|
|
65 |
|
|
1.9% |
|
|
(4 |
) |
|
(5.9)% |
Operating income |
|
559 |
|
|
16.7% |
|
|
445 |
|
|
12.9% |
|
|
114 |
|
|
25.8% |
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
14 |
|
|
0.4% |
|
|
16 |
|
|
0.5% |
|
|
(2 |
) |
|
(10.6)% |
Loss on debt extinguishment |
|
— |
|
|
—% |
|
|
24 |
|
|
0.7% |
|
|
(24 |
) |
|
n/m |
Other expense (income), net |
|
2 |
|
|
0.1% |
|
|
(6 |
) |
|
(0.1)% |
|
|
8 |
|
|
n/m |
Total other expense, net |
|
16 |
|
|
0.5% |
|
|
34 |
|
|
1.0% |
|
|
(18 |
) |
|
(53.8)% |
Income from continuing operations before provision for income
taxes |
|
543 |
|
|
16.3% |
|
|
411 |
|
|
11.9% |
|
|
132 |
|
|
32.7% |
Provision for income taxes |
|
127 |
|
|
3.8% |
|
|
108 |
|
|
3.1% |
|
|
19 |
|
|
18.1% |
Equity in earnings of
unconsolidated subsidiaries |
|
4 |
|
|
0.1% |
|
|
3 |
|
|
0.1% |
|
|
1 |
|
|
30.7% |
Income from continuing operations |
|
420 |
|
|
12.6% |
|
|
306 |
|
|
8.9% |
|
|
114 |
|
|
37.9% |
Net income from discontinued
operations |
|
— |
|
|
—% |
|
|
— |
|
|
—% |
|
|
— |
|
|
n/m |
Net income |
|
420 |
|
|
12.6% |
|
|
306 |
|
|
8.9% |
|
|
114 |
|
|
37.9% |
Less: net income attributable to
continuing noncontrolling interest |
|
— |
|
|
—% |
|
|
1 |
|
|
—% |
|
|
(1 |
) |
|
n/m |
Net income attributable to LKQ stockholders |
$ |
420 |
|
|
12.6% |
|
$ |
305 |
|
|
8.9% |
|
$ |
115 |
|
|
37.9% |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
(1) |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
$ |
1.49 |
|
|
|
|
$ |
1.01 |
|
|
|
|
$ |
0.48 |
|
|
47.5% |
Net income from discontinued
operations |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
n/m |
Net income |
|
1.49 |
|
|
|
|
|
1.01 |
|
|
|
|
|
0.48 |
|
|
47.5% |
Less: net income attributable to
continuing noncontrolling interest |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
n/m |
Net income attributable to LKQ stockholders |
$ |
1.49 |
|
|
|
|
$ |
1.01 |
|
|
|
|
$ |
0.48 |
|
|
47.5% |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
(1) |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
$ |
1.49 |
|
|
|
|
$ |
1.01 |
|
|
|
|
$ |
0.48 |
|
|
47.5% |
Net income from discontinued
operations |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
n/m |
Net income |
|
1.49 |
|
|
|
|
|
1.01 |
|
|
|
|
|
0.48 |
|
|
47.5% |
Less: net income attributable to
continuing noncontrolling interest |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
n/m |
Net income attributable to LKQ stockholders |
$ |
1.49 |
|
|
|
|
$ |
1.01 |
|
|
|
|
$ |
0.48 |
|
|
47.5% |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
281.4 |
|
|
|
|
|
300.6 |
|
|
|
|
|
(19.2 |
) |
|
(6.4%) |
Diluted |
|
282.3 |
|
|
|
|
|
301.5 |
|
|
|
|
|
(19.2 |
) |
|
(6.4%) |
(1) The sum of
the individual earnings per share amounts may not equal the total
due to rounding. |
|
LKQ CORPORATION AND
SUBSIDIARIESUnaudited Condensed Consolidated
Statements of Income, with Supplementary Data (In
millions, except per share data)
|
Six Months Ended June 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
% of Revenue |
|
|
|
% of Revenue |
|
$ Change |
|
% Change |
Revenue |
$ |
6,689 |
|
|
100.0% |
|
$ |
6,606 |
|
|
100.0% |
|
$ |
83 |
|
|
1.3% |
Cost of goods sold |
|
3,965 |
|
|
59.3% |
|
|
3,897 |
|
|
59.0% |
|
|
68 |
|
|
1.8% |
Gross margin |
|
2,724 |
|
|
40.7% |
|
|
2,709 |
|
|
41.0% |
|
|
15 |
|
|
0.5% |
Selling, general and
administrative expenses |
|
1,822 |
|
|
27.2% |
|
|
1,750 |
|
|
26.5% |
|
|
72 |
|
|
4.1% |
Restructuring and transaction
related expenses |
|
7 |
|
|
0.1% |
|
|
13 |
|
|
0.2% |
|
|
(6 |
) |
|
(42.9%) |
Gain on disposal of
businesses |
|
(155 |
) |
|
(2.3%) |
|
|
(1 |
) |
|
—% |
|
|
(154 |
) |
|
n/m |
Depreciation and
amortization |
|
120 |
|
|
1.8% |
|
|
131 |
|
|
2.0% |
|
|
(11 |
) |
|
(8.4%) |
Operating income |
|
930 |
|
|
13.9% |
|
|
816 |
|
|
12.4% |
|
|
114 |
|
|
14.0% |
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
29 |
|
|
0.4% |
|
|
40 |
|
|
0.6% |
|
|
(11 |
) |
|
27.6% |
Loss on debt extinguishment |
|
— |
|
|
—% |
|
|
24 |
|
|
0.4% |
|
|
(24 |
) |
|
n/m |
Other expense (income), net |
|
2 |
|
|
—% |
|
|
(12 |
) |
|
(0.2%) |
|
|
14 |
|
|
n/m |
Total other expense, net |
|
31 |
|
|
0.5% |
|
|
52 |
|
|
0.8% |
|
|
(21 |
) |
|
(41.2%) |
Income from continuing operations before provision for income
taxes |
|
899 |
|
|
13.4% |
|
|
764 |
|
|
11.5% |
|
|
135 |
|
|
17.9% |
Provision for income taxes |
|
216 |
|
|
3.2% |
|
|
201 |
|
|
3.0% |
|
|
15 |
|
|
7.8% |
Equity in earnings of
unconsolidated subsidiaries |
|
6 |
|
|
0.1% |
|
|
9 |
|
|
0.1% |
|
|
(3 |
) |
|
(33.3%) |
Income from continuing operations |
|
689 |
|
|
10.3% |
|
|
572 |
|
|
8.6% |
|
|
117 |
|
|
20.6% |
Net income from discontinued
operations |
|
4 |
|
|
0.1% |
|
|
— |
|
|
—% |
|
|
4 |
|
|
n/m |
Net income |
|
693 |
|
|
10.4% |
|
|
572 |
|
|
8.6% |
|
|
121 |
|
|
21.4% |
Less: net income attributable to
continuing noncontrolling interest |
|
— |
|
|
—% |
|
|
1 |
|
|
—% |
|
|
(1 |
) |
|
n/m |
Net income attributable to LKQ stockholders |
$ |
693 |
|
|
10.4% |
|
$ |
571 |
|
|
8.6% |
|
$ |
122 |
|
|
21.5% |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
(1) |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
$ |
2.43 |
|
|
|
|
$ |
1.89 |
|
|
|
|
$ |
0.54 |
|
|
28.6% |
Net income from discontinued
operations |
|
0.02 |
|
|
|
|
|
— |
|
|
|
|
|
0.02 |
|
|
n/m |
Net income |
|
2.45 |
|
|
|
|
|
1.89 |
|
|
|
|
|
0.56 |
|
|
29.6% |
Less: net income attributable to
continuing noncontrolling interest |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
n/m |
Net income attributable to LKQ stockholders |
$ |
2.44 |
|
|
|
|
$ |
1.89 |
|
|
|
|
$ |
0.55 |
|
|
29.1% |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
(1) |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
$ |
2.42 |
|
|
|
|
$ |
1.89 |
|
|
|
|
$ |
0.53 |
|
|
28.0% |
Net income from discontinued
operations |
|
0.02 |
|
|
|
|
|
— |
|
|
|
|
|
0.02 |
|
|
n/m |
Net income |
|
2.44 |
|
|
|
|
|
1.89 |
|
|
|
|
|
0.55 |
|
|
29.1% |
Less: net income attributable to
continuing noncontrolling interest |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
n/m |
Net income attributable to LKQ stockholders |
$ |
2.44 |
|
|
|
|
$ |
1.89 |
|
|
|
|
$ |
0.55 |
|
|
29.1% |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
283.5 |
|
|
|
|
|
301.8 |
|
|
|
|
|
(18.3 |
) |
|
(6.1%) |
Diluted |
|
284.5 |
|
|
|
|
|
302.6 |
|
|
|
|
|
(18.1 |
) |
|
(6.0%) |
(1) The sum of
the individual earnings per share amounts may not equal the total
due to rounding. |
|
LKQ CORPORATION AND
SUBSIDIARIESUnaudited Condensed Consolidated
Balance Sheets(In millions, except per share
data)
|
June 30, 2022 |
|
December 31, 2021 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
265 |
|
|
$ |
274 |
|
Receivables, net |
|
1,161 |
|
|
|
1,073 |
|
Inventories |
|
2,650 |
|
|
|
2,611 |
|
Prepaid expenses and other current assets |
|
255 |
|
|
|
296 |
|
Total current assets |
|
4,331 |
|
|
|
4,254 |
|
Property, plant and equipment,
net |
|
1,217 |
|
|
|
1,299 |
|
Operating lease assets, net |
|
1,268 |
|
|
|
1,361 |
|
Goodwill |
|
4,290 |
|
|
|
4,540 |
|
Other intangibles, net |
|
669 |
|
|
|
746 |
|
Equity method investments |
|
154 |
|
|
|
181 |
|
Other noncurrent assets |
|
205 |
|
|
|
225 |
|
Total assets |
$ |
12,134 |
|
|
$ |
12,606 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
1,457 |
|
|
$ |
1,176 |
|
Accrued expenses: |
|
|
|
Accrued payroll-related liabilities |
|
203 |
|
|
|
261 |
|
Refund liability |
|
108 |
|
|
|
107 |
|
Other accrued expenses |
|
337 |
|
|
|
271 |
|
Current portion of operating lease liabilities |
|
195 |
|
|
|
203 |
|
Current portion of long-term obligations |
|
47 |
|
|
|
35 |
|
Other current liabilities |
|
138 |
|
|
|
112 |
|
Total current liabilities |
|
2,485 |
|
|
|
2,165 |
|
Long-term operating lease
liabilities, excluding current portion |
|
1,127 |
|
|
|
1,209 |
|
Long-term obligations, excluding
current portion |
|
2,313 |
|
|
|
2,777 |
|
Deferred income taxes |
|
256 |
|
|
|
279 |
|
Other noncurrent liabilities |
|
324 |
|
|
|
365 |
|
Commitments and
contingencies |
|
|
|
Redeemable noncontrolling
interest |
|
24 |
|
|
|
24 |
|
Stockholders’ equity: |
|
|
|
Common stock, $0.01 par value, 1,000.0 shares authorized, 322.0
shares issued and 276.6 shares outstanding at June 30, 2022; 321.6
shares issued and 287.0 shares outstanding at December 31,
2021 |
|
3 |
|
|
|
3 |
|
Additional paid-in capital |
|
1,492 |
|
|
|
1,474 |
|
Retained earnings |
|
6,344 |
|
|
|
5,794 |
|
Accumulated other comprehensive loss |
|
(355 |
) |
|
|
(153 |
) |
Treasury stock, at cost; 45.4 shares at June 30, 2022 and 34.6
shares at December 31, 2021 |
|
(1,894 |
) |
|
|
(1,346 |
) |
Total Company stockholders’ equity |
|
5,590 |
|
|
|
5,772 |
|
Noncontrolling interest |
|
15 |
|
|
|
15 |
|
Total stockholders’ equity |
|
5,605 |
|
|
|
5,787 |
|
Total liabilities and stockholders’ equity |
$ |
12,134 |
|
|
$ |
12,606 |
|
|
|
|
|
|
|
|
|
LKQ CORPORATION AND
SUBSIDIARIESUnaudited Condensed Consolidated
Statements of Cash Flows(In millions)
|
Six Months Ended June 30, |
|
|
2022 |
|
|
|
2021 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
Net income |
$ |
693 |
|
|
$ |
572 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
|
133 |
|
|
|
142 |
|
Gain on disposal of businesses |
|
(155 |
) |
|
|
(1 |
) |
Stock-based compensation expense |
|
23 |
|
|
|
17 |
|
Loss on debt extinguishment |
|
— |
|
|
|
24 |
|
Other |
|
(9 |
) |
|
|
(24 |
) |
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions: |
|
|
|
Receivables, net |
|
(186 |
) |
|
|
(161 |
) |
Inventories |
|
(259 |
) |
|
|
7 |
|
Prepaid income taxes/income taxes payable |
|
74 |
|
|
|
(19 |
) |
Accounts payable |
|
412 |
|
|
|
284 |
|
Other operating assets and liabilities |
|
11 |
|
|
|
92 |
|
Net cash provided by operating activities |
|
737 |
|
|
|
933 |
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
Purchases of property, plant and equipment |
|
(99 |
) |
|
|
(88 |
) |
Proceeds from disposals of property, plant and equipment |
|
3 |
|
|
|
12 |
|
Acquisitions, net of cash acquired |
|
(5 |
) |
|
|
(29 |
) |
Proceeds from disposal of businesses |
|
372 |
|
|
|
6 |
|
Other investing activities, net |
|
(6 |
) |
|
|
(10 |
) |
Net cash provided by (used in) investing activities |
|
265 |
|
|
|
(109 |
) |
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
Early-redemption premium |
|
— |
|
|
|
(16 |
) |
Repayment of Euro Notes (2026) |
|
— |
|
|
|
(883 |
) |
Borrowings under revolving credit facilities |
|
808 |
|
|
|
3,614 |
|
Repayments under revolving credit facilities |
|
(1,117 |
) |
|
|
(2,793 |
) |
Repayments under term loans |
|
— |
|
|
|
(324 |
) |
Borrowings of other debt, net |
|
8 |
|
|
|
40 |
|
Settlement of derivative instruments, net |
|
— |
|
|
|
(89 |
) |
Dividends paid to LKQ stockholders |
|
(142 |
) |
|
|
— |
|
Purchase of treasury stock |
|
(528 |
) |
|
|
(344 |
) |
Other financing activities, net |
|
(14 |
) |
|
|
(14 |
) |
Net cash used in financing activities |
|
(985 |
) |
|
|
(809 |
) |
Effect of exchange rate changes
on cash and cash equivalents |
|
(26 |
) |
|
|
2 |
|
Net (decrease) increase in cash
and cash equivalents |
|
(9 |
) |
|
|
17 |
|
Cash and cash equivalents,
beginning of period |
|
274 |
|
|
|
312 |
|
Cash and cash equivalents, end of
period |
$ |
265 |
|
|
$ |
329 |
|
The following unaudited tables compare certain third
party revenue categories:
|
Three Months Ended June 30, |
|
|
(In
millions) |
|
2022 |
|
|
2021 |
|
$ Change |
|
% Change |
Wholesale - North America |
$ |
1,050 |
|
$ |
1,024 |
|
$ |
26 |
|
|
2.5% |
Europe |
|
1,470 |
|
|
1,570 |
|
|
(100 |
) |
|
(6.4%) |
Specialty |
|
512 |
|
|
531 |
|
|
(19 |
) |
|
(3.6%) |
Self Service |
|
60 |
|
|
53 |
|
|
7 |
|
|
13.2% |
Parts and services |
|
3,092 |
|
|
3,178 |
|
|
(86 |
) |
|
(2.7%) |
Wholesale - North America |
|
94 |
|
|
94 |
|
|
— |
|
|
—% |
Europe |
|
7 |
|
|
7 |
|
|
— |
|
|
2.8% |
Self Service |
|
148 |
|
|
156 |
|
|
(8 |
) |
|
(4.8%) |
Other |
|
249 |
|
|
257 |
|
|
(8 |
) |
|
(2.9%) |
Total |
$ |
3,341 |
|
$ |
3,435 |
|
$ |
(94 |
) |
|
(2.7%) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue changes by category for the three months ended
June 30, 2022 vs. 2021:
|
Revenue Change Attributable to: |
|
|
|
Organic (1) |
|
Acquisition and Divestiture |
|
Foreign Exchange |
|
Total Change (2) |
Wholesale - North America |
10.7% |
|
(8.0)% |
|
(0.2)% |
|
2.5% |
Europe |
4.2% |
|
0.5% |
|
(11.0)% |
|
(6.4)% |
Specialty |
(11.5)% |
|
8.2% |
|
(0.4)% |
|
(3.6)% |
Self Service |
13.2% |
|
—% |
|
—% |
|
13.2% |
Parts and services |
3.8% |
|
(1.0)% |
|
(5.6)% |
|
(2.7)% |
Wholesale - North America |
(0.9)% |
|
1.1% |
|
(0.2)% |
|
—% |
Europe |
14.4% |
|
—% |
|
(11.6)% |
|
2.8% |
Self Service |
(4.8)% |
|
—% |
|
—% |
|
(4.8)% |
Other |
(2.9)% |
|
0.4% |
|
(0.4)% |
|
(2.9)% |
Total |
3.3% |
|
(0.9)% |
|
(5.2)% |
|
(2.7)% |
(1) We define organic
revenue growth as total revenue growth from continuing
operations excluding the effects of acquisitions and divestitures
(i.e., revenue generated from the date of acquisition to the first
anniversary of that acquisition, net of reduced revenue due to the
disposal of businesses) and foreign currency movements (i.e.,
impact of translating revenue at different exchange rates).
Organic revenue growth includes incremental sales from both
existing and new (i.e., opened within the last twelve months)
locations and is derived from expanding business with existing
customers, securing new customers and offering additional products
and services. We believe that organic revenue growth is a key
performance indicator as this statistic measures our ability to
serve and grow our customer base successfully.
(2) The sum of the individual
revenue change components may not equal the total percentage change
due to rounding.
The following unaudited tables compare
certain third party revenue categories:
|
Six Months Ended June 30, |
|
|
(In
millions) |
|
2022 |
|
|
2021 |
|
$ Change |
|
% Change |
Wholesale - North America |
$ |
2,156 |
|
$ |
1,993 |
|
$ |
163 |
|
|
8.2% |
Europe |
|
2,951 |
|
|
3,025 |
|
|
(74 |
) |
|
(2.4%) |
Specialty |
|
972 |
|
|
989 |
|
|
(17 |
) |
|
(1.8%) |
Self Service |
|
117 |
|
|
103 |
|
|
14 |
|
|
13.9% |
Parts and services |
|
6,196 |
|
|
6,110 |
|
|
86 |
|
|
1.4% |
Wholesale - North America |
|
189 |
|
|
176 |
|
|
13 |
|
|
7.6% |
Europe |
|
14 |
|
|
15 |
|
|
(1 |
) |
|
(6.0%) |
Self Service |
|
290 |
|
|
305 |
|
|
(15 |
) |
|
(4.9%) |
Other |
|
493 |
|
|
496 |
|
|
(3 |
) |
|
(0.5%) |
Total |
$ |
6,689 |
|
$ |
6,606 |
|
$ |
83 |
|
|
1.3% |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue changes by category for the six months ended
June 30, 2022 vs. 2021:
|
Revenue Change Attributable to: |
|
|
|
Organic (1) |
|
Acquisition and Divestiture |
|
Foreign Exchange |
|
Total Change (2) |
Wholesale - North America |
12.1% |
|
(3.8)% |
|
(0.1)% |
|
8.2% |
Europe |
5.5% |
|
0.4% |
|
(8.3)% |
|
(2.4)% |
Specialty |
(10.0)% |
|
8.5% |
|
(0.2)% |
|
(1.8)% |
Self Service |
13.9 % |
|
—% |
|
—% |
|
13.9% |
Parts and services |
5.3 % |
|
0.3 % |
|
(4.2)% |
|
1.4% |
Wholesale - North America |
6.9% |
|
0.8% |
|
(0.1)% |
|
7.6% |
Europe |
2.8% |
|
—% |
|
(8.7)% |
|
(6.0)% |
Self Service |
(4.9)% |
|
—% |
|
—% |
|
(4.9)% |
Other |
(0.5)% |
|
0.3% |
|
(0.3)% |
|
(0.5)% |
Total |
4.9% |
|
0.3% |
|
(3.9)% |
|
1.3% |
(1) We define organic
revenue growth as total revenue growth from continuing
operations excluding the effects of acquisitions and divestitures
(i.e., revenue generated from the date of acquisition to the first
anniversary of that acquisition, net of reduced revenue due to the
disposal of businesses) and foreign currency movements (i.e.,
impact of translating revenue at different exchange rates).
Organic revenue growth includes incremental sales from both
existing and new (i.e., opened within the last twelve months)
locations and is derived from expanding business with existing
customers, securing new customers and offering additional products
and services. We believe that organic revenue growth is a key
performance indicator as this statistic measures our ability to
serve and grow our customer base successfully.
(2) The sum of the individual
revenue change components may not equal the total percentage change
due to rounding.
The following unaudited table reconciles revenue and
revenue growth for parts & services and total revenue to
constant currency revenue and revenue growth for the same
measures:
|
|
Three Months Ended June 30, 2022 |
|
Six Months Ended June 30, 2022 |
(In
millions) |
|
Consolidated |
|
Europe |
|
Consolidated |
|
Europe |
Parts &
Services |
|
|
|
|
|
|
|
|
Revenue as reported |
|
$ |
3,092 |
|
|
$ |
1,470 |
|
|
$ |
6,196 |
|
|
$ |
2,951 |
|
Less: Currency impact |
|
|
(177 |
) |
|
|
(173 |
) |
|
|
(257 |
) |
|
|
(252 |
) |
Revenue at constant
currency |
|
$ |
3,269 |
|
|
$ |
1,643 |
|
|
$ |
6,453 |
|
|
$ |
3,203 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Revenue as reported |
|
$ |
3,341 |
|
|
|
|
$ |
6,689 |
|
|
|
Less: Currency impact |
|
|
(178 |
) |
|
|
|
|
(258 |
) |
|
|
Revenue at constant
currency |
|
$ |
3,519 |
|
|
|
|
$ |
6,947 |
|
|
|
|
|
Three Months Ended June 30, 2022 |
|
Six Months Ended June 30, 2022 |
|
|
Consolidated |
|
Europe |
|
Consolidated |
|
Europe |
Parts &
Services |
|
|
|
|
|
|
|
|
Revenue growth as
reported |
|
(2.7)% |
|
(6.4%) |
|
1.4% |
|
(2.4%) |
Less: Currency impact |
|
(5.6%) |
|
(11.0%) |
|
(4.2%) |
|
(8.3%) |
Revenue growth at constant
currency |
|
2.9% |
|
4.6% |
|
5.6% |
|
5.9% |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Revenue growth as
reported |
|
(2.7)% |
|
|
|
1.3% |
|
|
Less: Currency impact |
|
(5.2%) |
|
|
|
(3.9%) |
|
|
Revenue growth at constant
currency |
|
2.5% |
|
|
|
5.2 % |
|
|
|
|
|
|
|
|
|
|
|
We have presented our revenue and the growth
rate 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.
The following unaudited table compares revenue and
Segment EBITDA by reportable segment:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
(In
millions) |
|
% of Revenue |
|
|
% of Revenue |
|
|
% of Revenue |
|
|
% of Revenue |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
Wholesale - North America |
$ |
1,144 |
|
|
|
$ |
1,119 |
|
|
|
$ |
2,345 |
|
|
|
$ |
2,170 |
|
|
Europe |
|
1,477 |
|
|
|
|
1,577 |
|
|
|
|
2,965 |
|
|
|
|
3,040 |
|
|
Specialty |
|
513 |
|
|
|
|
532 |
|
|
|
|
974 |
|
|
|
|
991 |
|
|
Self Service |
|
208 |
|
|
|
|
209 |
|
|
|
|
407 |
|
|
|
|
408 |
|
|
Eliminations |
|
(1 |
) |
|
|
|
(2 |
) |
|
|
|
(2 |
) |
|
|
|
(3 |
) |
|
Total revenue |
$ |
3,341 |
|
|
|
$ |
3,435 |
|
|
|
$ |
6,689 |
|
|
|
$ |
6,606 |
|
|
Segment
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
Wholesale - North America |
$ |
214 |
|
18.7% |
|
$ |
219 |
|
19.6% |
|
$ |
432 |
|
18.4% |
|
$ |
413 |
|
19.0% |
Europe |
|
160 |
|
10.8% |
|
|
168 |
|
10.7% |
|
|
291 |
|
9.8% |
|
|
309 |
|
10.2% |
Specialty |
|
69 |
|
13.4% |
|
|
80 |
|
14.9% |
|
|
127 |
|
13.1% |
|
|
141 |
|
14.2% |
Self Service |
|
32 |
|
15.3% |
|
|
56 |
|
27.2% |
|
|
72 |
|
17.6% |
|
|
112 |
|
27.5% |
Total Segment EBITDA |
$ |
475 |
|
14.2% |
|
$ |
523 |
|
15.2% |
|
$ |
922 |
|
13.8% |
|
$ |
975 |
|
14.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 transaction related expenses (which includes
restructuring expenses recorded in Cost of goods sold); change in
fair value of contingent consideration liabilities; other gains and
losses related to acquisitions, equity method investments, or
divestitures; equity in losses and earnings of unconsolidated
subsidiaries; equity investment fair value adjustments; impairment
charges; and direct impacts of the Ukraine/Russia conflict and
related sanctions (including provisions for and subsequent
adjustments to reserves for asset recoverability and expenditures
to support our employees and their families). EBITDA, which is the
basis for Segment EBITDA, is calculated as net income attributable
to LKQ stockholders excluding discontinued operations,
depreciation, amortization, interest (which includes gains and
losses on debt extinguishment) 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. This financial measure is included in
the metrics used to determine incentive compensation for our senior
management. 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
general and administrative expenses are allocated to the segments
based on usage, with shared expenses apportioned based on the
segment's percentage of consolidated revenue. Refer to the table on
the following page for a reconciliation of net income to EBITDA and
Segment EBITDA.
The following unaudited table reconciles Net Income to
EBITDA and Segment EBITDA:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(In millions) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net income |
$ |
420 |
|
|
$ |
306 |
|
|
$ |
693 |
|
|
$ |
572 |
|
Less: net income attributable to continuing noncontrolling
interest |
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Net income attributable to LKQ
stockholders |
|
420 |
|
|
|
305 |
|
|
|
693 |
|
|
|
571 |
|
Subtract: |
|
|
|
|
|
|
|
Net income from discontinued operations |
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
Net income from continuing
operations attributable to LKQ stockholders |
|
420 |
|
|
|
305 |
|
|
|
689 |
|
|
|
571 |
|
Add: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
61 |
|
|
|
65 |
|
|
|
120 |
|
|
|
131 |
|
Depreciation and amortization - cost of goods sold |
|
7 |
|
|
|
5 |
|
|
|
13 |
|
|
|
11 |
|
Interest expense, net of interest income |
|
14 |
|
|
|
16 |
|
|
|
29 |
|
|
|
40 |
|
Loss on debt extinguishment |
|
— |
|
|
|
24 |
|
|
|
— |
|
|
|
24 |
|
Provision for income taxes |
|
127 |
|
|
|
108 |
|
|
|
216 |
|
|
|
201 |
|
EBITDA |
|
629 |
|
|
|
523 |
|
|
|
1,067 |
|
|
|
978 |
|
Subtract: |
|
|
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries |
|
4 |
|
|
|
3 |
|
|
|
6 |
|
|
|
9 |
|
Equity investment fair value adjustments |
|
(2 |
) |
|
|
1 |
|
|
|
(3 |
) |
|
|
6 |
|
Add: |
|
|
|
|
|
|
|
Restructuring and transaction related expenses |
|
4 |
|
|
|
5 |
|
|
|
7 |
|
|
|
13 |
|
Gain on disposal of businesses |
|
(155 |
) |
|
|
(1 |
) |
|
|
(155 |
) |
|
|
(1 |
) |
Change in fair value of contingent consideration liabilities |
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Losses on previously held equity interests |
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
Direct impacts of Ukraine/Russia conflict (1) |
|
(1 |
) |
|
|
— |
|
|
|
5 |
|
|
|
— |
|
Segment EBITDA |
$ |
475 |
|
|
$ |
523 |
|
|
$ |
922 |
|
|
$ |
975 |
|
|
|
|
|
|
|
|
|
Net income from continuing
operations attributable to LKQ stockholders as a percentage of
revenue |
|
12.6% |
|
|
8.9% |
|
|
10.3% |
|
|
8.6% |
EBITDA as a percentage of
revenue |
|
18.8% |
|
|
15.2% |
|
|
16.0% |
|
|
14.8% |
Segment EBITDA as a percentage
of revenue |
|
14.2% |
|
|
15.2% |
|
|
13.8% |
|
|
14.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: In the table above, the sum of the
individual amounts may not equal the total due to rounding.
(1) Adjustments include provisions
for and subsequent adjustments to reserves for asset recoverability
(receivables and inventory) and expenditures to support our
employees and their families in Ukraine.
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 attributable to LKQ stockholders excluding
discontinued operations, depreciation, amortization, interest
(which includes gains and losses on debt extinguishment) and income
tax expense. We believe EBITDA provides insight into our
profitability trends and allows management and investors to analyze
our operating results with the impact of continuing noncontrolling
interest and without the impact of discontinued operations,
depreciation, amortization, interest (which includes gains and
losses on debt extinguishment) 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 transaction related expenses (which includes
restructuring expenses recorded in Cost of goods sold); change in
fair value of contingent consideration liabilities; other gains and
losses related to acquisitions, equity method investments, or
divestitures; equity in losses and earnings of unconsolidated
subsidiaries; equity investment fair value adjustments; impairment
charges; and direct impacts of the Ukraine/Russia conflict and
related sanctions (including provisions for and subsequent
adjustments to reserves for asset recoverability and expenditures
to support our employees and their families). 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. This financial measure is included in
the metrics used to determine incentive compensation for our senior
management. Segment EBITDA includes revenue and expenses that are
controllable by the segment. Corporate general 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 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.
The following unaudited table reconciles
Net Income and Diluted Earnings per Share to Adjusted Net Income
from Continuing Operations Attributable to LKQ Stockholders and
Adjusted Diluted Earnings per Share from Continuing Operations
Attributable to LKQ Stockholders, respectively:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(In millions, except per share data) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net income |
$ |
420 |
|
|
$ |
306 |
|
|
$ |
693 |
|
|
$ |
572 |
|
Less: net income attributable to continuing noncontrolling
interest |
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Net income attributable to LKQ
stockholders |
|
420 |
|
|
|
305 |
|
|
|
693 |
|
|
|
571 |
|
Subtract: |
|
|
|
|
|
|
|
Net income from discontinued operations |
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
Net income from continuing
operations attributable to LKQ stockholders |
|
420 |
|
|
|
305 |
|
|
|
689 |
|
|
|
571 |
|
Adjustments - continuing
operations attributable to LKQ stockholders: |
|
|
|
|
|
|
|
Amortization of acquired intangibles |
|
16 |
|
|
|
20 |
|
|
|
33 |
|
|
|
40 |
|
Restructuring and transaction related expenses |
|
4 |
|
|
|
5 |
|
|
|
7 |
|
|
|
13 |
|
Losses on previously held equity interests |
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
Change in fair value of contingent consideration liabilities |
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Loss on debt extinguishment |
|
— |
|
|
|
24 |
|
|
|
— |
|
|
|
24 |
|
Direct impacts of Ukraine/Russia conflict (1) |
|
(1 |
) |
|
|
— |
|
|
|
5 |
|
|
|
— |
|
Gain on disposal of businesses |
|
(155 |
) |
|
|
(1 |
) |
|
|
(155 |
) |
|
|
(1 |
) |
Excess tax benefit from stock-based payments |
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
(1 |
) |
Tax effect of adjustments |
|
23 |
|
|
|
(14 |
) |
|
|
16 |
|
|
|
(21 |
) |
Adjusted net income from
continuing operations attributable to LKQ stockholders |
$ |
307 |
|
|
$ |
340 |
|
|
$ |
594 |
|
|
$ |
626 |
|
|
|
|
|
|
|
|
|
Weighted average diluted
common shares outstanding |
|
282.3 |
|
|
|
301.5 |
|
|
|
284.5 |
|
|
|
302.6 |
|
|
|
|
|
|
|
|
|
Diluted earnings per share
from continuing operations attributable to LKQ stockholders: |
|
|
|
|
|
|
|
Reported |
$ |
1.49 |
|
|
$ |
1.01 |
|
|
$ |
2.42 |
|
|
$ |
1.89 |
|
Adjusted |
$ |
1.09 |
|
|
$ |
1.13 |
|
|
$ |
2.09 |
|
|
$ |
2.07 |
|
(1) Adjustments include provisions
for and subsequent adjustments to reserves for asset recoverability
(receivables and inventory) and expenditures to support our
employees and their families in Ukraine.
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 our
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 continuing
noncontrolling interest, discontinued operations, restructuring and
transaction related expenses, amortization expense related to all
acquired intangible assets, gains and losses on debt
extinguishment, the change in fair value of contingent
consideration liabilities, other gains and losses related to
acquisitions, equity method investments, or divestitures,
impairment charges, direct impacts of the Ukraine/Russia conflict
and related sanctions (including provisions for and subsequent
adjustments to reserves for asset recoverability and expenditures
to support our employees and their families), excess tax benefits
and deficiencies from stock-based payments 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. Given the variability and volatility of the
amount and frequency of costs related to transactions, management
believes that these costs are not normal operating expenses and
should be adjusted in our calculation of Adjusted Net Income from
Continuing Operations Attributable to LKQ Stockholders. Our
adjustment of the amortization of all acquisition-related
intangible assets does not exclude the amortization of other
assets, which represents expense that is directly attributable to
ongoing operations. Management believes that the adjustment
relating to amortization of acquisition-related intangible assets
supplements the GAAP information with a measure that can be used to
assess the comparability of operating performance. The acquired
intangible assets were recorded as part of purchase accounting and
contribute to revenue generation. Amortization of intangible assets
that relate to past acquisitions will recur in future periods until
such intangible assets have been fully amortized. Any future
acquisitions may result in the amortization of additional
intangible assets. These financial measures are used by management
in its decision making and overall evaluation of our operating
performance 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 measures similar to 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.
The following unaudited table reconciles
Forecasted Net Income and Diluted Earnings per Share from
Continuing Operations Attributable to LKQ Stockholders to
Forecasted Adjusted Net Income from Continuing Operations
Attributable to LKQ Stockholders and Adjusted Diluted Earnings per
Share from Continuing Operations Attributable to LKQ Stockholders,
respectively:
|
Forecasted |
|
Fiscal Year 2022 |
(In millions, except
per share data) |
Minimum Outlook |
|
Maximum Outlook |
Net income from continuing operations attributable to LKQ
stockholders |
$ |
1,144 |
|
|
$ |
1,200 |
|
Adjustments: |
|
|
|
Amortization of acquired intangibles |
|
61 |
|
|
|
61 |
|
Restructuring and transaction related expenses |
|
18 |
|
|
|
18 |
|
Gain on disposal of businesses |
|
(155 |
) |
|
|
(155 |
) |
Other adjustments |
|
3 |
|
|
|
3 |
|
Tax effect of adjustments |
|
7 |
|
|
|
7 |
|
Adjusted net income from
continuing operations attributable to LKQ stockholders |
$ |
1,078 |
|
|
$ |
1,134 |
|
|
|
|
|
Weighted average diluted
common shares outstanding |
|
280.0 |
|
|
|
280.0 |
|
|
|
|
|
Diluted EPS from continuing
operations attributable to LKQ stockholders: |
|
|
|
U.S. GAAP |
$ |
4.09 |
|
|
$ |
4.29 |
|
Non-GAAP (Adjusted) |
$ |
3.85 |
|
|
$ |
4.05 |
|
|
|
|
|
|
|
|
|
We have presented forecasted Adjusted Net Income
and forecasted Adjusted Diluted Earnings per Share from Continuing
Operations Attributable to LKQ Stockholders in our financial
outlook. 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 net income from continuing operations
attributable to LKQ stockholders, amortization of acquired
intangibles for the full fiscal year 2022, restructuring and
transaction related expenses under previously announced plans, and
the related tax effect; we included for all other components the
amounts incurred through June 30, 2022.
The following unaudited table reconciles Net Cash
Provided by Operating Activities to Free Cash Flow:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
Net cash provided by operating
activities |
$ |
328 |
|
$ |
410 |
|
$ |
737 |
|
$ |
933 |
Less: purchases of property, plant and equipment |
|
40 |
|
|
46 |
|
|
99 |
|
|
88 |
Free cash flow |
$ |
288 |
|
$ |
364 |
|
$ |
638 |
|
$ |
845 |
|
|
|
|
|
|
|
|
|
|
|
|
We have presented free cash flow solely as a
supplemental disclosure that offers investors, securities analysts
and other interested parties useful information to evaluate our
liquidity. We calculate free cash flow as net cash provided by
operating activities, less purchases of property, plant and
equipment. We believe free cash flow provides insight into our
liquidity and provides useful information to management and
investors concerning our cash flow available to meet future debt
service obligations and working capital requirements, make
strategic acquisitions, pay dividends and repurchase stock. We
believe free cash flow is used by investors, securities analysts
and other interested parties in evaluating the liquidity of other
companies, many of which present free cash flow when reporting
their results. This financial measure is included in the metrics
used to determine incentive compensation for our senior management.
Free cash flow should not be construed as an alternative to net
cash provided by operating activities, as determined in accordance
with accounting principles generally accepted in the United States.
In addition, not all companies that report free cash flow
information calculate free cash flow in the same manner as we do
and, accordingly, our calculation is not necessarily comparable to
similarly-named measures of other companies and may not be an
appropriate measure for liquidity relative to other companies.
The following unaudited table reconciles Forecasted Net
Cash Provided by Operating Activities to Forecasted Free Cash
Flow:
|
Forecasted |
|
Fiscal Year 2022 |
(In
millions) |
Minimum Outlook |
Net cash provided by operating activities |
$ |
1,300 |
Less: purchases of property, plant and equipment |
|
300 |
Free cash flow |
$ |
1,000 |
|
|
|
We have presented forecasted free cash flow in
our financial outlook. Refer to the paragraph above for details on
the calculation of free cash flow.
The following unaudited table reconciles Total Debt to
Net Debt:
(In
millions) |
June 30, 2022 |
|
December 31, 2021 |
Current portion of long-term obligations |
$ |
47 |
|
$ |
35 |
Long-term obligations,
excluding current portion |
|
2,313 |
|
|
2,777 |
Total debt, net of debt
issuance costs |
|
2,360 |
|
|
2,812 |
Add: Debt issuance costs |
|
9 |
|
|
12 |
Total debt |
|
2,369 |
|
|
2,824 |
Less: Cash and cash equivalents |
|
265 |
|
|
274 |
Net debt |
$ |
2,104 |
|
$ |
2,550 |
|
|
|
|
|
|
We have presented net debt solely as a
supplemental disclosure that offers investors, securities analysts
and other interested parties useful information to evaluate our
liquidity and financial position. We calculate net debt as total
debt less cash and cash equivalents. We believe net debt provides
insight into our liquidity and provides useful information to
management and investors concerning our financial position. We
believe net debt is used by investors, securities analysts and
other interested parties in evaluating the liquidity and financial
position of other companies, many of which present net debt when
reporting their results. Net debt should not be construed as an
alternative to total debt, as determined in accordance with
accounting principles generally accepted in the United States. In
addition, not all companies that report net debt information
calculate net debt in the same manner as we do and, accordingly,
our calculation is not necessarily comparable to similarly-named
measures of other companies and may not be an appropriate measure
for performance relative to other companies.
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