LKQ Corporation (Nasdaq: LKQ) today reported first quarter 2024
financial results. “Our first quarter results were below our
expectations as our Wholesale – North America segment was
confronted with a reduction in repairable claims and the resulting
pressure on demand, which we believe is primarily attributable to
record warm weather across the United States. On the upside, we
experienced positive organic growth in our Europe segment and
generated robust free cash flow. Our success since implementing the
operational excellence strategy in 2019 has placed the Company on
solid ground to recover from uncontrollable dynamics, such as those
we faced in the first quarter. As a result, and despite the revenue
headwinds we encountered in the first quarter, we are maintaining
our adjusted earnings per share and free cash flow guidance. We
have confidence in our team’s abilities and their track record of
swiftly and effectively implementing action plans to address our
cost-structure, and have already made meaningful changes to reflect
current levels of demand,” noted Dominick Zarcone, President and
Chief Executive Officer.
First Quarter
2024 Financial Results
Revenue for the first quarter of 2024 was $3.7
billion, an increase of 10.6% compared to $3.3 billion for the
first quarter of 2023. For the first quarter of 2024, parts and
services organic revenue decreased 0.3% (0.5% increase on a per day
basis), foreign exchange rates increased revenue by 0.8% and the
net impact of acquisitions and divestitures increased revenue by
11.6% year over year, for a total parts and services revenue
increase of 12.1%. Other revenue for the first quarter of 2024 fell
14.6% primarily due to weaker precious metals prices relative to
the same period in 2023.
Net income2 for the first quarter of 2024 was
$158 million compared to $270 million for the same period
of 2023. Diluted earnings per share2 for the first quarter of 2024
was $0.59 compared to $1.01 for the same period of 2023, a decrease
of 41.6%.
On an adjusted basis, net income1,2 for the
first quarter of 2024 was $220 million compared to $279
million for the same period of 2023, a decrease of 21.1%. Adjusted
diluted earnings per share1,2 was $0.82 for the first quarter of
2024 compared to $1.04 for the same period of 2023, a decrease of
21.2%.
_______________
(1) 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.(2) 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.
Cash Flow and Balance Sheet
Cash flow from operations and free cash flow1
were $253 million and $187 million, respectively, for the
first quarter of 2024. As of March 31, 2024, the balance sheet
reflected total debt of $4.3 billion and total leverage, as
defined in our credit facility, was 2.3x EBITDA.
Stock Repurchase and Dividend
Programs
During the first quarter of 2024, the Company
invested $30 million to repurchase 0.6 million shares of
its common stock. Since initiating the stock repurchase program in
late October 2018, the Company has repurchased approximately
57 million shares for a total of $2.5 billion through
March 31, 2024.
On April 22, 2024, the Board of Directors
declared a quarterly cash dividend of $0.30 per share of common
stock, payable on May 30, 2024, to stockholders of record at the
close of business on May 16, 2024.
Other Events
“Confronted with soft demand, our Wholesale –
North America team accelerated our FinishMaster footprint
rationalization by consolidating 65 branches in the first quarter.
To date, we have consolidated a total of 99 branches, representing
66% of the acquired locations, which is more than we anticipated
completing in the first three-years. Through this effort, our team
uncovered additional opportunities for synergies, which has given
us the confidence to increase our previously disclosed synergies
from $55 million to $65 million,” said Justin Jude, Executive Vice
President and Chief Operating Officer.
On March 13, 2024, we completed an offering of
€750 million aggregate principal amount of 4.125% Euro Notes
due in 2031. We used the net proceeds from the offering to pay
outstanding indebtedness, including all of the outstanding €500
million aggregate principal amount of the 3.875% Euro Notes (2024)
as well as Euro revolver borrowings, and pay accrued interest and
related fees, premiums and expenses.
On April 16, 2024, we divested our operations in
Slovenia and simultaneously entered into an agreement to divest our
operations in Bosnia, which we expect to close in the third quarter
of this year subject to receipt of regulatory approvals. After
thorough consideration, we determined our operations in Slovenia
and Bosnia did not align with our long-term strategy and financial
return objectives. Terms of the transactions were not
disclosed.
2024
Outlook
Rick Galloway, Senior Vice President and Chief
Financial Officer, commented, “We are reiterating our full year
adjusted earnings per share and free cash flow guidance based on
our confidence in the core strengths of our businesses and the
action plans already in motion to recover the first quarter’s
underperformance. We have lowered the range of our organic revenue
growth guidance in recognition of the softer than expected first
quarter demand and lowered our GAAP earnings per share guidance due
to higher projected restructuring and transaction related expenses
than prior guidance.”
For 2024, management updated the outlook as set
forth below:
|
2024 Previous Full YearOutlook |
2024 Updated Full YearOutlook |
Organic revenue growth for parts and services |
3.5% to 5.5% |
2.5% to 4.5% |
Diluted EPS2 |
$3.43 to $3.73 |
$3.32 to $3.62 |
Adjusted diluted EPS1,2 |
$3.90 to $4.20 |
$3.90 to $4.20 |
Operating cash flow |
$1.35 billion |
$1.35 billion |
Free cash flow1 |
$1.0 billion |
$1.0 billion |
Free cash flow conversion of Adjusted EBITDA1 |
50% to 60% |
50% to 60% |
__________________
(1) 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.(2) 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.
Our outlook for the full year 2024 is based on
current conditions, recent trends and our expectations, and assumes
a global effective tax rate of 26.8%, the prices of scrap and
precious metals hold near the March average and no further
deterioration due to the Ukraine/Russia conflict. We have applied
foreign currency exchange rates near first quarter average levels,
including $1.09, $1.27 and $0.74 for the euro, pound sterling and
Canadian dollar, respectively, for the balance of the year, which
are unchanged from prior guidance. 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; and gains
and losses related to acquisitions or divestitures (including
changes in the fair value of contingent consideration
liabilities).
Non-GAAP Financial Measures
This release contains (and management’s
presentation on the related investor 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
April 23, 2024 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 (833)
470-1428. International access to the call may be obtained by
dialing (404) 975-4839. The conference call will require you to
enter conference ID: 568620.
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 (866) 813-9403 or (929) 458-6194 for
international calls. The telephone replay will require you to enter
conference ID: 296708. An online replay of the audio webcast will
be available on the Company’s website. Both formats of replay will
be available through May 8, 2024. 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 2024,
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, 2023 and in our
subsequent Quarterly Reports on Form 10-Q. These reports are
available at the Investor Relations section on our website
(www.lkqcorp.com) and on the SEC’s website (www.sec.gov).
These factors include the following (not
necessarily in order of importance):
- our operating results and financial
condition have been and could continue to be adversely affected by
the economic, political and social conditions in North America,
Europe, Taiwan and other countries, as well as the economic health
of vehicle owners and numbers and types of vehicles sold;
- we face competition from local,
national, international, and internet-based vehicle products
providers, and this competition could negatively affect our
business;
- we rely upon insurance companies
and our customers to promote the usage of alternative parts;
- intellectual property claims
relating to aftermarket products could adversely affect our
business;
- changes in the demand for our
products and the supply of our inventory due to severity of weather
and seasonality of weather patterns;
- if the number of vehicles involved
in accidents or being repaired declines, or the mix of the types of
vehicles in the overall vehicle population changes, our business
could suffer;
- inaccuracies in the data relating
to our industry published by independent sources upon which we
rely;
- fluctuations in the prices of
commodities could adversely affect our financial results;
- an adverse change 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;
- future public health emergencies
could have a material adverse impact on our business, results of
operation, financial condition and liquidity, the nature and extent
of which is highly uncertain;
- if we determine that our goodwill
or other intangible assets have become impaired, we may incur
significant charges to our pretax income;
- we could be subject to product
liability claims and involved in product recalls;
- we may not be able to successfully
acquire businesses or integrate acquisitions, and we may not be
able to successfully divest certain businesses;
- we have a substantial amount of
indebtedness, which could have a material adverse effect on our
financial condition and our ability to obtain financing in the
future and to react to changes in our business;
- our senior notes do not impose any
limitations on our ability to incur additional debt or protect
against certain other types of transactions, and we may incur
additional indebtedness under our credit agreement;
- our credit agreement imposes
operating and financial restrictions on us and our subsidiaries,
which may prevent us from capitalizing on business
opportunities;
- we may not be able to generate
sufficient cash to service all of our indebtedness, and may be
forced to take other actions to satisfy our obligations under our
indebtedness, which may not be successful;
- our future capital needs may
require that we seek to refinance our debt or obtain additional
debt or equity financing, events that could have a negative effect
on our business;
- our variable rate indebtedness
subjects us to interest rate risk, which could cause our
indebtedness service obligations to increase significantly;
- repayment of our indebtedness is
dependent on cash flow generated by our subsidiaries;
- a downgrade in our credit rating
would impact our cost of capital;
- the amount and frequency of our
share repurchases and dividend payments may fluctuate;
- existing or new laws and
regulations, or changes to enforcement or interpretation of
existing laws or regulations, may prohibit, restrict or burden the
sale of aftermarket, recycled, refurbished or remanufactured
products;
- we are subject to environmental
regulations and incur costs relating to environmental matters;
- if we fail to maintain proper and
effective internal control over financial reporting in the future,
our ability to produce accurate and timely financial statements
could be negatively impacted, which could harm our operating
results and investor perceptions of our company and as a result may
have a material adverse effect on the value of our common
stock;
- we may be adversely affected by
legal, regulatory or market responses to global climate
change;
- our amended and restated bylaws
provide that the courts in the State of Delaware are the exclusive
forums for substantially all disputes between us and our
stockholders, which could limit our stockholders’ ability to obtain
a favorable judicial forum for disputes with us or our directors,
officers or employees;
- our effective tax rate could
materially increase as a consequence of various factors, including
U.S. and/or international tax legislation, applicable
interpretations and administrative guidance, our mix of earnings by
jurisdiction, and U.S. and foreign jurisdictional audits;
- if significant tariffs or other
restrictions are placed on products or materials we import or any
related counter-measures are taken by countries to which we export
products, our revenue and results of operations may be materially
harmed;
- governmental agencies may refuse to
grant or renew our operating licenses and permits;
- the costs of complying with the
requirements of laws pertaining to data privacy and cybersecurity
of personal information and the potential liability associated with
the failure to comply with such laws could materially adversely
affect our business and results of operations;
- our employees are important to
successfully manage our business and achieve our objectives;
- we operate in foreign
jurisdictions, which exposes us to foreign exchange and other
risks;
- our business may be adversely
affected by union activities and labor and employment laws;
- we rely on information technology
and communication systems in critical areas of our operations and a
disruption relating to such technology could harm our
business;
- business interruptions in our
distribution centers or other facilities may affect our operations,
the function of our computer systems, and/or the availability and
distribution of merchandise, which may affect our business;
- if we experience problems with our
fleet of trucks and other vehicles, our business could be
harmed;
- we may lose the right to operate at
key locations; and
- activist investors could cause us
to incur substantial costs, divert management’s attention, and have
an adverse effect on our business.
Contact:Joseph P. Boutross – Vice
President, Investor RelationsLKQ Corporation(312)
621-2793jpboutross@lkqcorp.com
|
LKQ CORPORATION AND SUBSIDIARIES |
Unaudited Condensed Consolidated Statements of Income, with
Supplementary Data |
(In millions, except per share data) |
|
|
|
Three Months Ended March 31, |
|
|
2024 |
|
2023 |
|
|
|
|
|
|
|
|
% ofRevenue (2) |
|
|
|
% ofRevenue (2) |
|
$ Change |
|
% Change |
Revenue |
|
$ |
3,703 |
|
|
100.0 |
% |
|
$ |
3,349 |
|
|
100.0 |
% |
|
$ |
354 |
|
|
10.6 |
% |
Cost of goods sold |
|
|
2,251 |
|
|
60.8 |
% |
|
|
1,977 |
|
|
59.0 |
% |
|
|
274 |
|
|
13.9 |
% |
Gross margin |
|
|
1,452 |
|
|
39.2 |
% |
|
|
1,372 |
|
|
41.0 |
% |
|
|
80 |
|
|
5.8 |
% |
Selling, general and
administrative expenses |
|
|
1,044 |
|
|
28.2 |
% |
|
|
931 |
|
|
27.8 |
% |
|
|
113 |
|
|
12.1 |
% |
Restructuring and transaction
related expenses |
|
|
30 |
|
|
0.8 |
% |
|
|
18 |
|
|
0.5 |
% |
|
|
12 |
|
|
66.7 |
% |
Depreciation and
amortization |
|
|
89 |
|
|
2.4 |
% |
|
|
58 |
|
|
1.7 |
% |
|
|
31 |
|
|
53.4 |
% |
Operating income |
|
|
289 |
|
|
7.8 |
% |
|
|
365 |
|
|
10.9 |
% |
|
|
(76 |
) |
|
(20.8 |
)% |
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
64 |
|
|
1.7 |
% |
|
|
36 |
|
|
1.1 |
% |
|
|
28 |
|
|
77.8 |
% |
Gains on foreign exchange contracts – acquisition
related (1) |
|
|
— |
|
|
— |
% |
|
|
(23 |
) |
|
(0.7 |
)% |
|
|
23 |
|
|
n/m |
Interest income and other income, net |
|
|
(6 |
) |
|
(0.2 |
)% |
|
|
(9 |
) |
|
(0.3 |
)% |
|
|
3 |
|
|
(33.3 |
)% |
Total other expense, net |
|
|
58 |
|
|
1.6 |
% |
|
|
4 |
|
|
0.1 |
% |
|
|
54 |
|
|
n/m |
Income before provision for income taxes |
|
|
231 |
|
|
6.3 |
% |
|
|
361 |
|
|
10.8 |
% |
|
|
(130 |
) |
|
(36.0 |
)% |
Provision for income
taxes |
|
|
71 |
|
|
1.9 |
% |
|
|
94 |
|
|
2.8 |
% |
|
|
(23 |
) |
|
(24.5 |
)% |
Equity in (losses) earnings of
unconsolidated subsidiaries |
|
|
(2 |
) |
|
(0.1 |
)% |
|
|
3 |
|
|
0.1 |
% |
|
|
(5 |
) |
|
n/m |
Net income |
|
$ |
158 |
|
|
4.3 |
% |
|
$ |
270 |
|
|
8.1 |
% |
|
$ |
(112 |
) |
|
(41.5 |
)% |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.59 |
|
|
|
|
$ |
1.01 |
|
|
|
|
$ |
(0.42 |
) |
|
(41.6 |
)% |
Diluted |
|
$ |
0.59 |
|
|
|
|
$ |
1.01 |
|
|
|
|
$ |
(0.42 |
) |
|
(41.6 |
)% |
(1) Related
to the Uni-Select Inc. ("Uni-Select") acquisition. |
(2) The sum
of the individual percentage of revenue components may not equal
the total due to rounding. |
LKQ CORPORATION AND SUBSIDIARIES |
Unaudited Condensed Consolidated Balance
Sheets |
(In millions, except per share data) |
|
|
|
March 31, 2024 |
|
December 31, 2023 |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
344 |
|
|
$ |
299 |
|
Receivables, net of allowance for credit losses |
|
|
1,392 |
|
|
|
1,165 |
|
Inventories |
|
|
3,123 |
|
|
|
3,121 |
|
Prepaid expenses and other current assets |
|
|
343 |
|
|
|
283 |
|
Total current assets |
|
|
5,202 |
|
|
|
4,868 |
|
Property, plant and equipment,
net |
|
|
1,493 |
|
|
|
1,516 |
|
Operating lease assets,
net |
|
|
1,314 |
|
|
|
1,336 |
|
Goodwill |
|
|
5,526 |
|
|
|
5,600 |
|
Other intangibles, net |
|
|
1,271 |
|
|
|
1,313 |
|
Equity method investments |
|
|
163 |
|
|
|
159 |
|
Other noncurrent assets |
|
|
301 |
|
|
|
287 |
|
Total assets |
|
$ |
15,270 |
|
|
$ |
15,079 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
1,840 |
|
|
$ |
1,648 |
|
Accrued expenses: |
|
|
|
|
Accrued payroll-related liabilities |
|
|
242 |
|
|
|
260 |
|
Refund liability |
|
|
137 |
|
|
|
132 |
|
Other accrued expenses |
|
|
354 |
|
|
|
309 |
|
Current portion of operating lease liabilities |
|
|
226 |
|
|
|
224 |
|
Current portion of long-term obligations |
|
|
88 |
|
|
|
596 |
|
Other current liabilities |
|
|
172 |
|
|
|
149 |
|
Total current liabilities |
|
|
3,059 |
|
|
|
3,318 |
|
Long-term operating lease
liabilities, excluding current portion |
|
|
1,138 |
|
|
|
1,163 |
|
Long-term obligations,
excluding current portion |
|
|
4,161 |
|
|
|
3,655 |
|
Deferred income taxes |
|
|
426 |
|
|
|
448 |
|
Other noncurrent
liabilities |
|
|
313 |
|
|
|
314 |
|
Commitments and
contingencies |
|
|
|
|
Stockholders’ equity: |
|
|
|
|
Common stock, $0.01 par value, 1,000.0 shares authorized, 323.5
shares issued and 267.0 shares outstanding at March 31, 2024;
323.1 shares issued and 267.2 shares outstanding at December 31,
2023 |
|
|
3 |
|
|
|
3 |
|
Additional paid-in capital |
|
|
1,541 |
|
|
|
1,538 |
|
Retained earnings |
|
|
7,367 |
|
|
|
7,290 |
|
Accumulated other comprehensive loss |
|
|
(298 |
) |
|
|
(240 |
) |
Treasury stock, at cost; 56.5 shares at March 31, 2024 and
55.9 shares at December 31, 2023 |
|
|
(2,454 |
) |
|
|
(2,424 |
) |
Total Company stockholders’ equity |
|
|
6,159 |
|
|
|
6,167 |
|
Noncontrolling interest |
|
|
14 |
|
|
|
14 |
|
Total stockholders’ equity |
|
|
6,173 |
|
|
|
6,181 |
|
Total liabilities and stockholders’ equity |
|
$ |
15,270 |
|
|
$ |
15,079 |
|
LKQ CORPORATION AND SUBSIDIARIES |
Unaudited Condensed Consolidated Statements of Cash
Flows |
(In millions) |
|
|
|
Three Months Ended March 31, |
|
|
|
2024 |
|
|
|
2023 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
Net income |
|
$ |
158 |
|
|
$ |
270 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
|
100 |
|
|
|
65 |
|
Stock-based compensation expense |
|
|
8 |
|
|
|
10 |
|
Gains on foreign exchange contracts – acquisition related |
|
|
— |
|
|
|
(23 |
) |
Other |
|
|
33 |
|
|
|
11 |
|
Changes in operating assets
and liabilities, net of effects from acquisitions and
dispositions: |
|
|
|
|
Receivables |
|
|
(249 |
) |
|
|
(236 |
) |
Inventories |
|
|
(52 |
) |
|
|
57 |
|
Prepaid income taxes/income taxes payable |
|
|
47 |
|
|
|
52 |
|
Accounts payable |
|
|
220 |
|
|
|
22 |
|
Other operating assets and liabilities |
|
|
(12 |
) |
|
|
(5 |
) |
Net cash provided by operating activities |
|
|
253 |
|
|
|
223 |
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
Purchases of property, plant and equipment |
|
|
(66 |
) |
|
|
(70 |
) |
Acquisitions, net of cash acquired |
|
|
(17 |
) |
|
|
(25 |
) |
Other investing activities, net |
|
|
(5 |
) |
|
|
(2 |
) |
Net cash used in investing activities |
|
|
(88 |
) |
|
|
(97 |
) |
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
Debt issuance costs |
|
|
(6 |
) |
|
|
(19 |
) |
Proceeds from issuance of Euro Notes (2031), net of unamortized
bond discount |
|
|
816 |
|
|
|
— |
|
Repayment of Euro Notes (2024) |
|
|
(547 |
) |
|
|
— |
|
Borrowings under revolving credit facilities |
|
|
392 |
|
|
|
1,543 |
|
Repayments under revolving credit facilities |
|
|
(659 |
) |
|
|
(2,003 |
) |
Borrowings under term loans |
|
|
— |
|
|
|
500 |
|
Borrowings of other debt, net |
|
|
33 |
|
|
|
1 |
|
Dividends paid to LKQ stockholders |
|
|
(81 |
) |
|
|
(74 |
) |
Purchase of treasury stock |
|
|
(30 |
) |
|
|
(8 |
) |
Other financing activities, net |
|
|
(31 |
) |
|
|
(6 |
) |
Net cash used in financing activities |
|
|
(113 |
) |
|
|
(66 |
) |
Effect of exchange rate
changes on cash and cash equivalents |
|
|
(7 |
) |
|
|
4 |
|
Net increase in cash and cash
equivalents |
|
|
45 |
|
|
|
64 |
|
Cash and cash equivalents,
beginning of period |
|
|
299 |
|
|
|
278 |
|
Cash and cash equivalents, end
of period |
|
$ |
344 |
|
|
$ |
342 |
|
The following unaudited tables compare
certain third party revenue categories:
|
|
Three Months Ended March 31, |
|
|
(In
millions) |
|
|
2024 |
|
|
|
2023 |
|
|
$ Change |
|
% Change |
Wholesale – North America |
|
$ |
1,422 |
|
|
$ |
1,148 |
|
|
$ |
274 |
|
|
23.8 |
% |
Europe |
|
|
1,637 |
|
|
|
1,548 |
|
|
|
89 |
|
|
5.7 |
% |
Specialty |
|
|
422 |
|
|
|
396 |
|
|
|
26 |
|
|
6.7 |
% |
Self Service |
|
|
54 |
|
|
|
60 |
|
|
|
(6 |
) |
|
(10.5 |
)% |
Parts and services |
|
|
3,535 |
|
|
|
3,152 |
|
|
|
383 |
|
|
12.1 |
% |
Wholesale - North America |
|
|
78 |
|
|
|
81 |
|
|
|
(3 |
) |
|
(3.8 |
)% |
Europe |
|
|
7 |
|
|
|
7 |
|
|
|
— |
|
|
10.3 |
% |
Self Service |
|
|
83 |
|
|
|
109 |
|
|
|
(26 |
) |
|
(24.1 |
)% |
Other |
|
|
168 |
|
|
|
197 |
|
|
|
(29 |
) |
|
(14.6 |
)% |
Total revenue |
|
$ |
3,703 |
|
|
$ |
3,349 |
|
|
$ |
354 |
|
|
10.6 |
% |
Revenue changes by category for the
three months ended March 31, 2024
vs. 2023:
|
|
Revenue Change Attributable to: |
|
|
|
|
Organic (1) |
|
Acquisition and Divestiture |
|
Foreign Exchange |
|
Total Change (2) |
Wholesale – North America |
|
(3.3 |
)% |
|
27.1 |
% |
|
— |
% |
|
23.8 |
% |
Europe |
|
2.7 |
% |
|
1.4 |
% |
|
1.7 |
% |
|
5.7 |
% |
Specialty |
|
(1.4 |
)% |
|
8.1 |
% |
|
— |
% |
|
6.7 |
% |
Self Service |
|
(10.5 |
)% |
|
— |
% |
|
— |
% |
|
(10.5 |
)% |
Parts and services |
|
(0.3 |
)% |
|
11.6 |
% |
|
0.8 |
% |
|
12.1 |
% |
Wholesale – North America |
|
(4.9 |
)% |
|
1.1 |
% |
|
— |
% |
|
(3.8 |
)% |
Europe |
|
8.9 |
% |
|
— |
% |
|
1.3 |
% |
|
10.3 |
% |
Self Service |
|
(24.2 |
)% |
|
— |
% |
|
— |
% |
|
(24.1 |
)% |
Other |
|
(15.1 |
)% |
|
0.5 |
% |
|
— |
% |
|
(14.6 |
)% |
Total revenue |
|
(1.1 |
)% |
|
10.9 |
% |
|
0.8 |
% |
|
10.6 |
% |
(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 March 31, 2024 |
(In
millions) |
|
Consolidated |
|
Europe |
Parts &
Services |
|
|
|
|
Revenue as reported |
|
$ |
3,535 |
|
|
$ |
1,637 |
|
Less: Currency impact |
|
|
27 |
|
|
|
26 |
|
Revenue at constant
currency |
|
$ |
3,508 |
|
|
$ |
1,611 |
|
|
|
|
|
|
Total |
|
|
|
|
Revenue as reported |
|
$ |
3,703 |
|
|
|
Less: Currency impact |
|
|
27 |
|
|
|
Revenue at constant
currency |
|
$ |
3,676 |
|
|
|
|
|
Three Months Ended March 31, 2024 |
|
|
Consolidated |
|
Europe |
Parts &
Services |
|
|
|
|
Revenue growth as reported |
|
12.1 |
% |
|
5.7 |
% |
Less: Currency impact |
|
0.8 |
% |
|
1.7 |
% |
Revenue growth at constant
currency |
|
11.3 |
% |
|
4.0 |
% |
|
|
|
|
|
Total |
|
|
|
|
Revenue growth as
reported |
|
10.6 |
% |
|
|
Less: Currency impact |
|
0.8 |
% |
|
|
Revenue growth at constant
currency |
|
9.8 |
% |
|
|
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 March 31, |
|
|
|
2024 |
|
|
|
2023 |
|
(In
millions) |
|
|
% of Revenue |
|
|
% of Revenue |
Revenue |
|
|
|
|
|
|
Wholesale – North
America |
|
$ |
1,500 |
|
|
|
$ |
1,229 |
|
|
Europe |
|
|
1,644 |
|
|
|
|
1,555 |
|
|
Specialty |
|
|
423 |
|
|
|
|
397 |
|
|
Self Service |
|
|
137 |
|
|
|
|
169 |
|
|
Eliminations |
|
|
(1 |
) |
|
|
|
(1 |
) |
|
Total revenue |
|
$ |
3,703 |
|
|
|
$ |
3,349 |
|
|
Segment
EBITDA |
|
|
|
|
|
|
Wholesale – North America |
|
$ |
244 |
|
16.3 |
% |
|
$ |
252 |
|
20.5 |
% |
Europe |
|
|
143 |
|
8.7 |
% |
|
|
151 |
|
9.7 |
% |
Specialty |
|
|
27 |
|
6.4 |
% |
|
|
31 |
|
7.9 |
% |
Self Service |
|
|
16 |
|
11.7 |
% |
|
|
22 |
|
13.2 |
% |
Total Segment EBITDA |
|
$ |
430 |
|
11.6 |
% |
|
$ |
456 |
|
13.6 |
% |
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 Net Income excluding net
income and loss attributable to noncontrolling interest; income and
loss from discontinued operations; depreciation; amortization;
interest; gains and losses on debt extinguishment; income tax
expense; 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. 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 Segment EBITDA.
The following unaudited table reconciles
Net Income to Segment EBITDA:
|
|
Three Months Ended March 31, |
(In millions) |
|
|
2024 |
|
|
|
2023 |
|
Net income |
|
$ |
158 |
|
|
$ |
270 |
|
Adjustments: |
|
|
|
|
Depreciation and amortization |
|
|
100 |
|
|
|
65 |
|
Interest expense, net of interest income |
|
|
61 |
|
|
|
33 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
1 |
|
Provision for income taxes |
|
|
71 |
|
|
|
94 |
|
Equity in losses (earnings) of unconsolidated subsidiaries |
|
|
2 |
|
|
|
(3 |
) |
Gains on foreign exchange contracts – acquisition
related (1) |
|
|
— |
|
|
|
(23 |
) |
Equity investment fair value adjustments |
|
|
— |
|
|
|
1 |
|
Restructuring and transaction related expenses |
|
|
30 |
|
|
|
18 |
|
Restructuring expenses – cost of goods sold |
|
|
8 |
|
|
|
— |
|
Segment EBITDA |
|
$ |
430 |
|
|
$ |
456 |
|
|
|
|
|
|
Net income as a percentage of
revenue |
|
|
4.3 |
% |
|
|
8.1 |
% |
Segment EBITDA as a percentage
of revenue |
|
|
11.6 |
% |
|
|
13.6 |
% |
Note: In the table
above, the sum of the individual amounts may not equal the total
due to rounding.
(1) Related to
the Uni-Select acquisition.
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. See paragraph under the previous table (revenue and
Segment EBITDA by reportable segment) for details on the
calculation of Segment EBITDA.
Segment EBITDA should not be construed as an
alternative 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 Segment EBITDA information calculate
Segment EBITDA 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.
The following unaudited table reconciles
Net Income and Diluted Earnings per Share to Adjusted Net Income
and Adjusted Diluted Earnings per Share, respectively:
|
|
Three Months Ended March 31, |
(In millions, except per share data) |
|
|
2024 |
|
|
|
2023 |
|
Net income |
|
$ |
158 |
|
|
$ |
270 |
|
Adjustments: |
|
|
|
|
Amortization of acquired intangibles |
|
|
37 |
|
|
|
15 |
|
Restructuring and transaction related expenses |
|
|
30 |
|
|
|
18 |
|
Restructuring expenses – cost of goods sold |
|
|
8 |
|
|
|
— |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
1 |
|
Pre-acquisition interest expense, net of interest
income (1) |
|
|
— |
|
|
|
3 |
|
Gains on foreign exchange contracts – acquisition
related (1) |
|
|
— |
|
|
|
(23 |
) |
Excess tax benefit from stock-based payments |
|
|
(1 |
) |
|
|
(2 |
) |
Tax effect of adjustments |
|
|
(12 |
) |
|
|
(3 |
) |
Adjusted net income |
|
$ |
220 |
|
|
$ |
279 |
|
|
|
|
|
|
Weighted average diluted
common shares outstanding |
|
|
267.7 |
|
|
|
268.3 |
|
|
|
|
|
|
Diluted earnings per
share: |
|
|
|
|
Reported |
|
$ |
0.59 |
|
|
$ |
1.01 |
|
Adjusted |
|
$ |
0.82 |
|
|
$ |
1.04 |
|
(1) Related to the Uni-Select
acquisition.
We have presented Adjusted Net Income and
Adjusted Diluted Earnings per Share 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 as Net Income and Diluted
Earnings per Share adjusted to eliminate the impact of net income
and loss attributable to noncontrolling interest, income and loss
from 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 (including gains or losses on foreign currency forward
contracts related to the Uni-Select transaction), impairment
charges, direct impacts of the Ukraine/Russia conflict and related
sanctions, interest and financing costs related to the Uni-Select
transaction prior to closing, 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
related transactions in a particular period, management believes
that these costs are not core operating expenses and should be
adjusted in our calculation of Adjusted Net Income. 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 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 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 to Forecasted
Adjusted Net Income and Adjusted Diluted Earnings per Share,
respectively:
|
|
Forecasted |
|
|
Fiscal Year2024 |
(In millions, except
per share data) |
|
Minimum Outlook |
|
Maximum Outlook |
Net income (1) |
|
$ |
889 |
|
|
$ |
969 |
|
Adjustments: |
|
|
|
|
Amortization of acquired intangibles |
|
|
145 |
|
|
|
145 |
|
Restructuring and transaction related expenses |
|
|
59 |
|
|
|
59 |
|
Tax effect of adjustments |
|
|
(48 |
) |
|
|
(48 |
) |
Adjusted net
income (1) |
|
$ |
1,045 |
|
|
$ |
1,125 |
|
|
|
|
|
|
Weighted average diluted
common shares outstanding |
|
|
267.8 |
|
|
|
267.8 |
|
|
|
|
|
|
Diluted earnings per
share: |
|
|
|
|
Reported (1) |
|
$ |
3.32 |
|
|
$ |
3.62 |
|
Adjusted (1) |
|
$ |
3.90 |
|
|
$ |
4.20 |
|
(1) Actuals and outlook figures are for
continuing operations attributable to LKQ stockholders.
We have presented forecasted Adjusted Net Income
and forecasted Adjusted Diluted Earnings per Share in our financial
outlook. Refer to the discussion of Adjusted Net Income and
Adjusted Diluted Earnings per Share 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, we included estimates of net income,
amortization of acquired intangibles for the full fiscal year 2024,
restructuring expenses under previously announced plans, and the
related tax effect; we included for all other components the
amounts incurred through March 31, 2024.
The following unaudited tables
reconciles Net Cash Provided by Operating Activities to Free Cash
Flow and Net Income to Adjusted EBITDA:
|
|
Three Months Ended March 31, |
(In millions) |
|
|
2024 |
|
|
|
2023 |
|
Net cash provided by operating
activities |
|
$ |
253 |
|
|
$ |
223 |
|
Less: purchases of property, plant and equipment |
|
|
66 |
|
|
|
70 |
|
Free cash flow |
|
$ |
187 |
|
|
$ |
153 |
|
|
|
Three Months Ended March 31, |
(In millions) |
|
|
2024 |
|
|
|
2023 |
|
Net income |
|
$ |
158 |
|
|
$ |
270 |
|
Adjustments: |
|
|
|
|
Depreciation and amortization |
|
|
100 |
|
|
|
65 |
|
Interest expense, net of interest income |
|
|
61 |
|
|
|
33 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
1 |
|
Provision for income taxes |
|
|
71 |
|
|
|
94 |
|
Gains on foreign exchange contracts – acquisition
related (1) |
|
|
— |
|
|
|
(23 |
) |
Adjusted EBITDA |
|
$ |
390 |
|
|
$ |
440 |
|
(1) Related to the Uni-Select
acquisition.
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.
We also evaluate our free cash flow by measuring
the conversion of Adjusted EBITDA into free cash flow. For the
denominator of our conversion ratio, we calculate Adjusted EBITDA
as net income excluding net income and loss attributable to
noncontrolling interest, income and loss from discontinued
operations, depreciation, amortization, interest, gains and losses
on debt extinguishment, income tax expense, gains and losses on the
disposal of businesses, and other unusual income and expense items
that affect investing or financing cash flows. We exclude gains and
losses on the disposal of businesses as the proceeds are included
in investing cash flows, which is outside of free cash flow.
Adjusted EBITDA should not be construed as an alternative 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 Adjusted EBITDA information calculate
Adjusted EBITDA 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.
The following unaudited table reconciles
Forecasted Net Cash Provided by Operating Activities to Forecasted
Free Cash Flow:
|
|
Forecasted |
|
|
Fiscal Year 2024 |
(In
millions) |
|
Outlook |
Net cash provided by operating activities |
|
$ |
1,350 |
|
Less: purchases of property, plant and equipment |
|
|
350 |
|
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.
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