Delaware | 000-50404 | 36-4215970 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification No.) | ||
500 West Madison Street, Suite 2800 Chicago, IL | 60661 | |||
(Address of principal executive offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
Exhibit Number | Description of Exhibit | |
LKQ Corporation Press Release dated April 25, 2019. |
LKQ CORPORATION | |
By: | /s/ Varun Laroyia |
Varun Laroyia | |
Executive Vice President and Chief Financial Officer |
• | Revenue growth of 14% to $3.1 billion |
• | Organic revenue growth for parts and services of 0.1%; 1.3% on a per day basis |
• | Non-cash impairment charges of $52 million including assets held for sale |
• | Net income attributable to LKQ stockholders of $98 million (down 36%); adjusted net income of $176 million (up 4%) |
• | Diluted EPS attributable to LKQ stockholders of $0.31; adjusted diluted EPS of $0.56 |
• | Operating cash flow of $177 million (up 22%); free cash flow of $124 million (up 50%) |
• | Repurchased 2.6 million shares for $70 million; paid down $60 million of debt |
2019 Updated Guidance | 2019 Previous Guidance | |
Organic revenue growth for parts & services | 2.0% to 4.0% | 2.0% to 4.0% |
Net income attributable to LKQ stockholders | $586 million to $625 million | $641 million to $680 million |
Adjusted net income attributable to LKQ stockholders* | $732 million to $771 million | $732 million to $771 million |
Diluted EPS attributable to LKQ stockholders | $1.87 to $2.00 | $2.05 to $2.17 |
Adjusted diluted EPS attributable to LKQ stockholders* | $2.34 to $2.46 | $2.34 to $2.46 |
Cash flows from operations | $775 million to $850 million | $775 million to $850 million |
Capital expenditures | $250 million to $300 million | $250 million to $300 million |
• | changes in economic and political activity 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), 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 the potential competitive advantage to original equipment manufacturers (“OEMs”) with "connected car" technology); |
• | fluctuations in the pricing of new OEM replacement products; |
• | changes in the level of acceptance and promotion of alternative automotive parts by insurance companies and vehicle repairers; |
• | changes to our business relationships with insurance companies or changes by insurance companies to their business practices relating to the use of our products; |
• | our ability to identify sufficient acquisition candidates at reasonable prices to maintain our growth objectives; |
• | 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; |
• | 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; |
• | restrictions or prohibitions on selling certain aftermarket products through enforcement by OEMs of intellectual property rights; |
• | restrictions or prohibitions on importing certain aftermarket products by border enforcement agencies based on, among other things, intellectual property infringement claims; |
• | 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; |
• | fluctuations in the prices of fuel, scrap metal and other commodities; |
• | changes in laws or regulations affecting our business; |
• | higher costs and the resulting potential inability to service our customers to the extent that our suppliers decide to discontinue business relationships with us; |
• | price increases, interruptions or disruptions to the supply of vehicle parts from aftermarket suppliers and vehicles from salvage auctions; |
• | changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of weather patterns; |
• | the risks associated with operating in foreign jurisdictions, including foreign laws and economic and political instabilities; |
• | declines in the values of our assets; |
• | 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; |
• | 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; |
• | 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; |
• | costs associated with recalls of the products we sell; |
• | potential losses of our right to operate at key locations if we are not able to negotiate lease renewals; |
• | inaccuracies in the data relating to our industry published by independent sources upon which we rely; |
• | currency fluctuations in the U.S. dollar, pound sterling and euro versus other currencies; |
• | our ability to obtain financing on acceptable terms to finance our growth; |
• | our ability to satisfy our debt obligations and to operate within the limitations imposed by financing arrangements; |
• | 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; and |
• | disruptions to the management and operations of our business and the uncertainties caused by activist investors. |
Three Months Ended March 31, | ||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||
% of Revenue (1) | % of Revenue (1) | $ Change | % Change | |||||||||||||||||
Revenue | $ | 3,100,303 | 100.0 | % | $ | 2,720,764 | 100.0 | % | $ | 379,539 | 13.9 | % | ||||||||
Cost of goods sold | 1,892,039 | 61.0 | % | 1,666,793 | 61.3 | % | 225,246 | 13.5 | % | |||||||||||
Gross margin | 1,208,264 | 39.0 | % | 1,053,971 | 38.7 | % | 154,293 | 14.6 | % | |||||||||||
Selling, general and administrative expenses | 896,532 | 28.9 | % | 766,891 | 28.2 | % | 129,641 | 16.9 | % | |||||||||||
Restructuring and acquisition related expenses | 3,307 | 0.1 | % | 4,054 | 0.1 | % | (747 | ) | (18.4 | %) | ||||||||||
Impairment of net assets held for sale | 15,023 | 0.5 | % | — | 0.0 | % | 15,023 | n/m | ||||||||||||
Depreciation and amortization | 71,002 | 2.3 | % | 56,458 | 2.1 | % | 14,544 | 25.8 | % | |||||||||||
Operating income | 222,400 | 7.2 | % | 226,568 | 8.3 | % | (4,168 | ) | (1.8 | %) | ||||||||||
Other expense (income): | ||||||||||||||||||||
Interest expense, net of interest income | 36,089 | 1.2 | % | 28,515 | 1.0 | % | 7,574 | 26.6 | % | |||||||||||
Other income, net | (3,851 | ) | (0.1 | %) | (2,882 | ) | (0.1 | %) | (969 | ) | 33.6 | % | ||||||||
Total other expense, net | 32,238 | 1.0 | % | 25,633 | 0.9 | % | 6,605 | 25.8 | % | |||||||||||
Income before provision for income taxes | 190,162 | 6.1 | % | 200,935 | 7.4 | % | (10,773 | ) | (5.4 | %) | ||||||||||
Provision for income taxes | 51,550 | 1.7 | % | 49,584 | 1.8 | % | 1,966 | 4.0 | % | |||||||||||
Equity in (losses) earnings of unconsolidated subsidiaries | (39,549 | ) | (1.3 | %) | 1,412 | 0.1 | % | (40,961 | ) | n/m | ||||||||||
Net income | 99,063 | 3.2 | % | 152,763 | 5.6 | % | (53,700 | ) | (35.2 | %) | ||||||||||
Less: net income (loss) attributable to noncontrolling interest | 1,015 | 0.0 | % | (197 | ) | (0.0 | %) | 1,212 | n/m | |||||||||||
Net income attributable to LKQ stockholders | $ | 98,048 | 3.2 | % | $ | 152,960 | 5.6 | % | $ | (54,912 | ) | (35.9 | %) | |||||||
Basic earnings per share: (2) | ||||||||||||||||||||
Net income | $ | 0.31 | $ | 0.49 | $ | (0.18 | ) | (36.7 | %) | |||||||||||
Less: net income (loss) attributable to noncontrolling interest | 0.00 | (0.00 | ) | 0.00 | n/m | |||||||||||||||
Net income attributable to LKQ stockholders | $ | 0.31 | $ | 0.49 | $ | (0.18 | ) | (36.7 | %) | |||||||||||
Diluted earnings per share: (2) | ||||||||||||||||||||
Net income | $ | 0.31 | $ | 0.49 | $ | (0.18 | ) | (36.7 | %) | |||||||||||
Less: net income (loss) attributable to noncontrolling interest | 0.00 | (0.00 | ) | 0.00 | n/m | |||||||||||||||
Net income attributable to LKQ stockholders | $ | 0.31 | $ | 0.49 | $ | (0.18 | ) | (36.7 | %) | |||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 315,046 | 309,517 | 5,529 | 1.8 | % | |||||||||||||||
Diluted | 316,018 | 311,347 | 4,671 | 1.5 | % | |||||||||||||||
(1) The sum of the individual percentage of revenue components may not equal the total due to rounding. | ||||||||||||||||||||
(2) The sum of the individual earnings per share amounts may not equal the total due to rounding. |
March 31, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 316,066 | $ | 331,761 | |||
Receivables, net | 1,353,491 | 1,154,083 | |||||
Inventories | 2,692,006 | 2,836,075 | |||||
Prepaid expenses and other current assets | 283,207 | 199,030 | |||||
Total current assets | 4,644,770 | 4,520,949 | |||||
Property, plant and equipment, net | 1,206,342 | 1,220,162 | |||||
Operating lease assets, net | 1,279,576 | — | |||||
Intangible assets: | |||||||
Goodwill | 4,354,306 | 4,381,458 | |||||
Other intangibles, net | 889,609 | 928,752 | |||||
Equity method investments | 134,234 | 179,169 | |||||
Other assets | 157,073 | 162,912 | |||||
Total assets | $ | 12,665,910 | $ | 11,393,402 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 952,688 | $ | 942,398 | |||
Accrued expenses: | |||||||
Accrued payroll-related liabilities | 143,026 | 172,005 | |||||
Other accrued expenses | 317,826 | 288,425 | |||||
Refund liability | 105,435 | 104,585 | |||||
Other current liabilities | 100,058 | 61,109 | |||||
Current portion of operating lease obligations | 216,172 | — | |||||
Current portion of long-term obligations | 136,283 | 121,826 | |||||
Total current liabilities | 1,971,488 | 1,690,348 | |||||
Long-term operating lease liabilities, excluding current portion | 1,109,814 | — | |||||
Long-term obligations, excluding current portion | 4,092,766 | 4,188,674 | |||||
Deferred income taxes | 305,770 | 311,434 | |||||
Other noncurrent liabilities | 329,298 | 364,194 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 318,888,569 shares issued and 313,973,538 shares outstanding at March 31, 2019; 318,417,821 shares issued and 316,146,114 outstanding at December 31, 2018 | 3,189 | 3,184 | |||||
Additional paid-in capital | 1,420,685 | 1,415,188 | |||||
Retained earnings | 3,696,924 | 3,598,876 | |||||
Accumulated other comprehensive loss | (190,854 | ) | (174,950 | ) | |||
Treasury stock, at cost; 4,915,031 shares at March 31, 2019 and 2,271,707 shares at December 31, 2018 | (130,462 | ) | (60,000 | ) | |||
Total Company stockholders’ equity | 4,799,482 | 4,782,298 | |||||
Noncontrolling interest | 57,292 | 56,454 | |||||
Total stockholders’ equity | 4,856,774 | 4,838,752 | |||||
Total liabilities and stockholders’ equity | $ | 12,665,910 | $ | 11,393,402 |
Three Months Ended | |||||||
March 31, | |||||||
2019 | 2018 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 99,063 | $ | 152,763 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 76,207 | 61,066 | |||||
Impairment of Mekonomen equity method investment | 39,551 | — | |||||
Impairment of net assets held for sale | 15,023 | — | |||||
Stock-based compensation expense | 5,673 | 5,982 | |||||
Other | (310 | ) | (3,134 | ) | |||
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | |||||||
Receivables, net | (205,029 | ) | (130,520 | ) | |||
Inventories | 71,811 | 5,016 | |||||
Prepaid income taxes/income taxes payable | 42,917 | 37,362 | |||||
Accounts payable | 23,291 | 23,924 | |||||
Other operating assets and liabilities | 9,028 | (7,296 | ) | ||||
Net cash provided by operating activities | 177,225 | 145,163 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property, plant and equipment | (53,016 | ) | (62,189 | ) | |||
Acquisitions, net of cash acquired | (4,785 | ) | (2,966 | ) | |||
Other investing activities, net | 17 | 534 | |||||
Net cash used in investing activities | (57,784 | ) | (64,621 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from exercise of stock options | 1,334 | 2,255 | |||||
Taxes paid related to net share settlements of stock-based compensation awards | (1,505 | ) | (3,292 | ) | |||
Purchase of treasury stock | (70,462 | ) | — | ||||
Borrowings under revolving credit facilities | 284,641 | 201,669 | |||||
Repayments under revolving credit facilities | (312,339 | ) | (321,525 | ) | |||
Repayments under term loans | (2,188 | ) | (4,405 | ) | |||
Borrowings under receivables securitization facility | 6,600 | — | |||||
Repayments under receivables securitization facility | (36,910 | ) | — | ||||
(Repayments) borrowings of other debt, net | (625 | ) | 4,409 | ||||
Other financing activities, net | (1,277 | ) | 3,383 | ||||
Net cash used in financing activities | (132,731 | ) | (117,506 | ) | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (2,513 | ) | 2,877 | ||||
Net decrease in cash, cash equivalents and restricted cash | (15,803 | ) | (34,087 | ) | |||
Cash, cash equivalents and restricted cash, beginning of period | 337,250 | 279,766 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 321,447 | $ | 245,679 |
Three Months Ended | ||||||||||||||
March 31, | ||||||||||||||
2019 | 2018 | $ Change | % Change | |||||||||||
(In thousands) | ||||||||||||||
Included in Unaudited Condensed Consolidated | ||||||||||||||
Statements of Income of LKQ Corporation | ||||||||||||||
North America | $ | 1,155,698 | $ | 1,172,585 | $ | (16,887 | ) | (1.4 | %) | |||||
Europe | 1,440,841 | 1,037,046 | 403,795 | 38.9 | % | |||||||||
Specialty | 352,556 | 350,674 | 1,882 | 0.5 | % | |||||||||
Parts and services | 2,949,095 | 2,560,305 | 388,790 | 15.2 | % | |||||||||
Other | 151,208 | 160,459 | (9,251 | ) | (5.8 | %) | ||||||||
Total | $ | 3,100,303 | $ | 2,720,764 | $ | 379,539 | 13.9 | % |
Revenue Change Attributable to: | |||||||||||
Organic | Acquisition | Foreign Exchange | Total Change (1) | ||||||||
North America | (1.4 | %) | 0.3 | % | (0.4 | %) | (1.4 | %) | |||
Europe | 1.3 | % | 44.9 | % | (7.3 | %) | 38.9 | % | |||
Specialty | 1.0 | % | — | % | (0.4 | %) | 0.5 | % | |||
Parts and services | 0.1 | % | 18.3 | % | (3.2 | %) | 15.2 | % | |||
Other | (6.4 | %) | 1.0 | % | (0.3 | %) | (5.8 | %) | |||
Total | (0.3 | %) | 17.3 | % | (3.0 | %) | 13.9 | % |
Three Months Ended | ||||||
March 31, 2019 | ||||||
Consolidated | Europe | |||||
Parts & Services | ||||||
Revenue growth as reported | 15.2 | % | 38.9 | % | ||
Less: Currency impact | (3.2 | %) | (7.3 | %) | ||
Revenue growth at constant currency | 18.4 | % | 46.2 | % |
Three Months Ended | |||||||||||
March 31, | |||||||||||
2019 | 2018 | ||||||||||
(In thousands) | % of Revenue | % of Revenue | |||||||||
Revenue | |||||||||||
North America | $ | 1,302,309 | $ | 1,329,843 | |||||||
Europe | 1,445,541 | 1,040,430 | |||||||||
Specialty | 353,737 | 351,792 | |||||||||
Eliminations | (1,284 | ) | (1,301 | ) | |||||||
Total revenue | $ | 3,100,303 | $ | 2,720,764 | |||||||
Segment EBITDA | |||||||||||
North America | $ | 176,636 | 13.6 | % | $ | 177,713 | 13.4 | % | |||
Europe | 105,298 | 7.3 | % | 75,534 | 7.3 | % | |||||
Specialty | 37,959 | 10.7 | % | 41,969 | 11.9 | % | |||||
Total Segment EBITDA | $ | 319,893 | 10.3 | % | $ | 295,216 | 10.9 | % |
Three Months Ended | |||||||
March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Net income | $ | 99,063 | $ | 152,763 | |||
Less: net income (loss) attributable to noncontrolling interest | 1,015 | (197 | ) | ||||
Net income attributable to LKQ stockholders | 98,048 | 152,960 | |||||
Add: | |||||||
Depreciation and amortization | 71,002 | 56,458 | |||||
Depreciation and amortization - cost of goods sold | 5,205 | 4,608 | |||||
Interest expense, net of interest income | 36,089 | 28,515 | |||||
Provision for income taxes | 51,550 | 49,584 | |||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) | 261,894 | 292,125 | |||||
Subtract: | |||||||
Equity in (losses) earnings of unconsolidated subsidiaries | (39,549 | ) | 1,412 | ||||
Add: | |||||||
Restructuring and acquisition related expenses | 3,307 | 4,054 | |||||
Inventory step-up adjustment - acquisition related | — | 403 | |||||
Impairment of net assets held for sale | 15,023 | — | |||||
Change in fair value of contingent consideration liabilities | 120 | 46 | |||||
Segment EBITDA | $ | 319,893 | $ | 295,216 | |||
Net income attributable to LKQ stockholders as a percentage of revenue | 3.2 | % | 5.6 | % | |||
EBITDA as a percentage of revenue | 8.4 | % | 10.7 | % | |||
Segment EBITDA as a percentage of revenue | 10.3 | % | 10.9 | % |
Three Months Ended | |||||||
March 31, | |||||||
2019 | 2018 | ||||||
(In thousands, except per share data) | |||||||
Net income | $ | 99,063 | $ | 152,763 | |||
Less: net income (loss) attributable to noncontrolling interest | 1,015 | (197 | ) | ||||
Net income attributable to LKQ stockholders | 98,048 | 152,960 | |||||
Subtract: | |||||||
Amortization of acquired intangibles | 31,912 | 22,262 | |||||
Restructuring and acquisition related expenses | 3,307 | 4,054 | |||||
Inventory step-up adjustment - acquisition related | — | 403 | |||||
Change in fair value of contingent consideration liabilities | 120 | 46 | |||||
Impairment of net assets held for sale | 15,023 | — | |||||
Impairment of Mekonomen equity method investment | 39,551 | — | |||||
Excess tax benefit from stock-based payments | (104 | ) | (2,641 | ) | |||
Tax effect of adjustments | (11,729 | ) | (6,959 | ) | |||
Adjusted net income attributable to LKQ stockholders | $ | 176,128 | $ | 170,125 | |||
Weighted average diluted common shares outstanding | 316,018 | 311,347 | |||||
Diluted earnings per share attributable to LKQ stockholders: | |||||||
Reported | $ | 0.31 | $ | 0.49 | |||
Adjusted | $ | 0.56 | $ | 0.55 |
Forecasted | |||||||
Fiscal Year 2019 | |||||||
Minimum Guidance | Maximum Guidance | ||||||
(In millions, except per share data) | |||||||
Net income attributable to LKQ stockholders | $ | 586 | $ | 625 | |||
Adjustments: | |||||||
Amortization of acquired intangibles | 125 | 125 | |||||
Restructuring and acquisition related expenses | 3 | 3 | |||||
Impairment of net assets held for sale | 15 | 15 | |||||
Impairment of Mekonomen equity method investment | 40 | 40 | |||||
Other | 0 | 0 | |||||
Tax effect of adjustments | (37 | ) | (37 | ) | |||
Adjusted net income attributable to LKQ stockholders | $ | 732 | $ | 771 | |||
Weighted average diluted common shares outstanding | 313 | 313 | |||||
Diluted earnings per share attributable to LKQ stockholders: | |||||||
U.S. GAAP | $ | 1.87 | $ | 2.00 | |||
Non-GAAP (Adjusted) | $ | 2.34 | $ | 2.46 |
Three Months Ended | |||||||
March 31, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Net cash provided by operating activities | $ | 177,225 | $ | 145,163 | |||
Less: purchases of property, plant and equipment | 53,016 | 62,189 | |||||
Free cash flow | $ | 124,209 | $ | 82,974 |
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