LKQ Corporation Announces Results For Fourth Quarter And Full Year 2018

February 28, 2019
  • Annual revenue growth of 22% to $11.9 billion; fourth quarter growth of 22%
  • Annual organic revenue growth for parts and services of 4.4%; fourth quarter growth of 2.5%
  • Operating cash flow of $711 million, up 37% compared to 2017
  • Non-cash impairment charges of $97 million for the full year; $75 million recorded in the fourth quarter
  • Annual net income from continuing operations attributable to LKQ stockholders decreased 10.4% to $485 million; adjusted net income increased 18.5% to $691 million
  • Annual diluted EPS from continuing operations attributable to LKQ stockholders of $1.53; adjusted diluted EPS of $2.19
  • Fourth quarter 2018 diluted EPS from continuing operations attributable to LKQ stockholders of $0.13; adjusted diluted EPS of $0.48

CHICAGO, Feb. 28, 2019 (GLOBE NEWSWIRE) -- LKQ Corporation (Nasdaq:LKQ) today announced results for its fourth quarter and full year ended December 31, 2018. For the fourth quarter of 2018, revenue was $3.0 billion, an increase of 22% from $2.5 billion for the comparable period of 2017. Parts and services organic revenue growth for the fourth quarter of 2018 was 2.5%.

Net income from continuing operations attributable to LKQ stockholders for the fourth quarter of 2018 was $40 million, a decrease of 68% year-over-year. Diluted earnings per share from continuing operations attributable to LKQ stockholders for the fourth quarter of 2018 was $0.13 as compared to $0.41 for the same period of 2017, a decrease of 68%. The fourth quarter 2018 results included non-cash impairment charges (net of tax) of $48 million related to the Company’s equity investment in Mekonomen AB and $26 million related to goodwill recorded on our 2017 acquisition of an aviation parts recycler. These impairment charges reduced diluted earnings per share for the fourth quarter of 2018 by $0.23. On an adjusted basis, net income from continuing operations attributable to LKQ stockholders was $151 million, an increase of 19.7% as compared to the $126 million for the same period of 2017. On an adjusted basis, diluted earnings per share from continuing operations attributable to LKQ stockholders for the fourth quarter of 2018 was $0.48, an increase of 17.1% as compared to $0.41 for the same period of 2017.

“Looking back on 2018, I am proud of the team’s efforts to complete the Stahlgruber acquisition, produce solid organic growth across all our segments, and effectively manage working capital to allow us to produce the highest annual operating cash flow figure in the Company’s history. While I acknowledge that the 2018 results didn’t live up to our initial expectations due to operational challenges in parts of the business and economic headwinds, particularly in Europe, I believe that we are taking the necessary steps to position the Company for continued success,” stated Dominick Zarcone, President and Chief Executive Officer of LKQ Corporation. “As we look forward to fiscal 2019, we will continue to execute on our productivity initiatives across each operating segment and remain focused on profitable revenue growth, margin enhancement, excellent cash conversion, and optimizing our capital allocation strategy.”

For the full year of 2018, revenue was $11.9 billion, an increase of 22% from $9.7 billion for the comparable period of 2017. Parts and services organic revenue growth for the full year of 2018 was 4.4%. Net income from continuing operations attributable to LKQ stockholders for the full year of 2018 was $485 million, a decrease of 10.4% as compared to $540 million for the comparable period of 2017. Diluted earnings per share from continuing operations attributable to LKQ stockholders for the full year of 2018 was $1.53, a decrease of 12.1% as compared to $1.74 for the same period of 2017. The 2018 results included non-cash impairment charges (net of tax) of $71 million related to the Company’s equity investment in Mekonomen AB and $26 million related to the fourth quarter goodwill write down. These impairment charges reduced diluted earnings per share for the full year of 2018 by $0.31. On an adjusted basis, diluted earnings per share from continuing operations attributable to LKQ stockholders for the full year of 2018 was $2.19, an increase of 16.5% as compared to $1.88 for the same period of 2017.

Balance Sheet and Liquidity

In 2018, we generated cash flows from operations of $711 million, invested $250 million in capital expenditures, and completed acquisitions aggregating $1.2 billion of cash paid. As of December 31, 2018, the balance sheet reflected cash and cash equivalents of $332 million and outstanding debt of $4.3 billion. The unused capacity under the Company’s credit facilities at December 31, 2018 was approximately $1.7 billion and net leverage was down to 2.9X, as defined in the credit facility.

During the fourth quarter of 2018, the Company repurchased approximately 2.3 million shares of its common stock at an average price per share of $26.41, returning approximately $60 million of capital to our stockholders.

Other Events

On November 26, 2018, the Company announced that it reset its credit facility to a total availability of $3.5 billion. Among other changes, the amendment increased the amount available under the revolving credit facility from $2.75 billion to $3.15 billion and reduced the term loan to $350 million; reduced the number of leverage pricing tiers; extended the maturity date from 2023 to 2024; reduced the unused facility fee depending on leverage category; increased the basket for indebtedness incurred under our receivables securitization facility; increased our swingline loan capacity and added the ability to borrow in British Pounds and Euros; provided flexibility to implement a supply chain finance program and a captive insurance unit; and reset all restrictive baskets to zero.

On December 20, 2018, the Company announced that effective on or about April 1, 2019, Arnd Franz will join LKQ Europe as Chief Operating Officer. He will report directly to the Chief Executive Officer and Managing Director of LKQ Europe, John Quinn. Mr. Franz is currently Corporate Executive Vice President and Member of the Management Board of the MAHLE Group, headquartered in Stuttgart, Germany. Most recently, Mr. Franz has been responsible for MAHLE’’s global automotive sales and application engineering, including the aftermarket business unit. From 2006 until 2013, he was Executive Vice President and General Manager for MAHLE Aftermarket.

During the fourth quarter of 2018, we acquired three wholesale businesses in North America and two wholesale businesses in Europe for a total net consideration of approximately $14 million. Also in the fourth quarter, LKQ’s European operations opened five branches in Eastern Europe.

Company Outlook

  2019 Guidance
Organic revenue growth for parts & services 2.0% to 4.0%
Net income from continuing operations attributable to LKQ stockholders $641 million to $680 million
Adjusted net income from continuing operations attributable to LKQ stockholders* $732 million to $771 million
Diluted EPS from continuing operations attributable to LKQ stockholders $2.05 to $2.17
Adjusted diluted EPS from continuing operations attributable to LKQ stockholders* $2.34 to $2.46
Cash flows from operations $775 million to $850 million
Capital expenditures $250 million to $300 million

*Non-GAAP measures. See the table accompanying this release that reconciles the forecasted U.S. GAAP measures to the forecasted adjusted measures, which are non-GAAP.

Varun Laroyia, Executive Vice President and Chief Financial Officer, commented, “Our 2019 annual guidance reflects our emphasis on profitable revenue growth and free cash flow generation. While we expect revenue growth to moderate from past levels, we believe that our margin enhancement initiatives will boost profitability in 2019 despite headwinds from lower scrap metals prices and a strengthening dollar. The operational focus and continued momentum on active working capital management and prudent capital spending is expected to contribute to an increase in free cash flow generation.”

Our guidance for the full year 2019 is based on current conditions (including acquisitions completed through February 28, 2019), including no material disruptions associated with the United Kingdom’s potential exit from the European Union. The guidance for the full year 2019 is based on scrap prices remaining at current prices and exchange rates for the British pound, Euro and Canadian dollar holding near current levels. Changes in these conditions may impact our ability to achieve the guidance. Adjusted figures exclude (to the extent applicable) the impact of restructuring and acquisition related expenses; amortization expense related to acquired intangibles; excess tax benefits and deficiencies from stock-based payments; losses on debt extinguishment; impairment charges; 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 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 February 28, 2019 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 (866) 393-4306. International access to the call may be obtained by dialing (734) 385-2616. The investor conference call will require you to enter conference ID: 7395776#.

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 (855) 859-2056 or (404) 537-3406 for international calls. The telephone replay will require you to enter conference ID:  7395776#. An online replay of the audio webcast will be available on the Company's website. Both formats of replay will be available through March 14, 2019. 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 replacement systems, components, equipment and parts to repair and accessorize automobiles, trucks, and recreational and performance vehicles.

Forward Looking Statements

Statements and information in this press release 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, 2017 and in our subsequent Quarterly Reports on Form 10-Q. These reports are available on our investor relations website at lkqcorp.com and on the SEC website at sec.gov.

These factors include the following (not necessarily in order of importance):

  • 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.

               

Contact:
Joseph P. Boutross
Vice President, Investor Relations
LKQ Corporation
(312) 621-2793
jpboutross@lkqcorp.com


LKQ CORPORATION AND SUBSIDIARIES
Unaudited Consolidated
Statements of Income, with Supplementary Data
(In thousands, except per share data)

  Three Months Ended December 31,
  2018   2017        
      % of Revenue (1)       % of Revenue (1)   $ Change   % Change
Revenue $ 3,002,781     100.0 %   $ 2,469,855     100.0 %   $ 532,926     21.6 %
Cost of goods sold 1,840,972     61.3 %   1,522,210     61.6 %   318,762     20.9 %
Gross margin 1,161,809     38.7 %   947,645     38.4 %   214,164     22.6 %
Selling, general and administrative expenses (2), (3) 880,646     29.3 %   712,342     28.8 %   168,304     23.6 %
Restructuring and acquisition related expenses 5,882     0.2 %   9,301     0.4 %   (3,419 )   (36.8 %)
Impairment of goodwill 33,244     1.1 %       0.0 %   33,244     n/m  
Depreciation and amortization 77,891     2.6 %   60,368     2.4 %   17,523     29.0 %
Operating income 164,146     5.5 %   165,634     6.7 %   (1,488 )   (0.9 %)
Other expense (income):                      
Interest expense 37,305     1.2 %   27,144     1.1 %   10,161     37.4 %
Loss on debt extinguishment 1,350     0.0 %   456     0.0 %   894     n/m  
Gains on bargain purchases (2,090 )   (0.1 %)   120     0.0 %   (2,210 )   n/m  
Interest income and other expense (income), net 4,012     0.1 %   (12,281 )   (0.5 %)   16,293     n/m  
Total other expense, net 40,577     1.4 %   15,439     0.6 %   25,138     n/m  
Income from continuing operations before provision for income taxes 123,569     4.1 %   150,195     6.1 %   (26,626 )   (17.7 %)
Provision for income taxes 34,968     1.2 %   29,354     1.2 %   5,614     19.1 %
Equity in (losses) earnings of unconsolidated subsidiaries (46,145 )   (1.5 %)   2,029     0.1 %   (48,174 )   n/m  
Income from continuing operations 42,456     1.4 %   122,870     5.0 %   (80,414 )   (65.4 %)
Net loss from discontinued operations (4,397 )   (0.1 %)   (2,215 )   (0.1 %)   (2,182 )   98.5 %
Net income 38,059     1.3 %   120,655     4.9 %   (82,596 )   (68.5 %)
Less: net income (loss) attributable to noncontrolling interest 2,010     0.1 %   (3,516 )   (0.1 %)   5,526     n/m  
Net income attributable to LKQ stockholders $ 36,049     1.2 %   $ 124,171     5.0 %   $ (88,122 )   (71.0 %)
                       
Basic earnings per share: (4)                      
Income from continuing operations $ 0.13         $ 0.40         $ (0.27 )   (67.5 %)
Net loss from discontinued operations (0.01 )       (0.01 )           %
Net income 0.12         0.39         (0.27 )   (69.2 %)
Less: net income (loss) attributable to noncontrolling interest 0.01         (0.01 )       0.02     n/m  
Net income attributable to LKQ stockholders $ 0.11         $ 0.40         $ (0.29 )   (72.5 %)
                       
Diluted earnings per share: (4)                      
Income from continuing operations $ 0.13         $ 0.39         $ (0.26 )   (66.7 %)
Net loss from discontinued operations (0.01 )       (0.01 )           %
Net income 0.12         0.39         (0.27 )   (69.2 %)
Less: net income (loss) attributable to noncontrolling interest 0.01         (0.01 )       0.02     n/m  
Net income attributable to LKQ stockholders $ 0.11         $ 0.40         $ (0.29 )   (72.5 %)
                       
Weighted average common shares outstanding:                      
Basic 317,427         309,070         8,357     2.7 %
Diluted 318,510         311,106         7,404     2.4 %
                       
(1) The sum of the individual percentage of revenue components may not equal the total due to rounding.
(2) Selling, general and administrative expenses contain facility and warehouse expenses and distribution expenses that were previously shown separately.
(3) Certain amounts for 2017 have been recast to reflect the 2018 adoption of ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."
(4) The sum of the individual earnings per share amounts may not equal the total due to rounding.
 


LKQ CORPORATION AND SUBSIDIARIES
Unaudited Consolidated
Statements of Income, with Supplementary Data
(In thousands, except per share data)

  Year Ended December 31,
  2018   2017        
      % of Revenue (1)       % of Revenue (1)   $ Change   % Change
Revenue $ 11,876,674     100.0 %   $ 9,736,909     100.0 %   $ 2,139,765     22.0 %
Cost of goods sold 7,301,817     61.5 %   5,937,286     61.0 %   1,364,531     23.0 %
Gross margin 4,574,857     38.5 %   3,799,623     39.0 %   775,234     20.4 %
Selling, general and administrative expenses (2), (3) 3,352,731     28.2 %   2,715,407     27.9 %   637,324     23.5 %
Restructuring and acquisition related expenses 32,428     0.3 %   19,672     0.2 %   12,756     64.8 %
Impairment of goodwill 33,244     0.3 %       0.0 %   33,244     n/m  
Depreciation and amortization 274,213     2.3 %   219,546     2.3 %   54,667     24.9 %
Operating income 882,241     7.4 %   844,998     8.7 %   37,243     4.4 %
Other expense (income):                      
Interest expense 146,377     1.2 %   101,640     1.0 %   44,737     44.0 %
Loss on debt extinguishment 1,350     0.0 %   456     0.0 %   894     n/m  
Gains on bargain purchases (2,418 )   (0.0 %)   (3,870 )   (0.0 %)   1,452     (37.5 %)
Interest income and other income, net (6,499 )   (0.1 %)   (19,855 )   (0.2 %)   13,356     (67.3 %)
Total other expense, net 138,810     1.2 %   78,371     0.8 %   60,439     77.1 %
Income from continuing operations before provision for income taxes 743,431     6.3 %   766,627     7.9 %   (23,196 )   (3.0 %)
Provision for income taxes 191,395     1.6 %   235,560     2.4 %   (44,165 )   (18.7 %)
Equity in (losses) earnings of unconsolidated subsidiaries (64,471 )   (0.5 %)   5,907     0.1 %   (70,378 )   n/m  
Income from continuing operations 487,565     4.1 %   536,974     5.5 %   (49,409 )   (9.2 %)
Net loss from discontinued operations (4,397 )   (0.0 %)   (6,746 )   (0.1 %)   2,349     (34.8 %)
Net income 483,168     4.1 %   530,228     5.4 %   (47,060 )   (8.9 %)
Less: net income (loss) attributable to noncontrolling interest 3,050     0.0 %   (3,516 )   (0.0 %)   6,566     n/m  
Net income attributable to LKQ stockholders $ 480,118     4.0 %   $ 533,744     5.5 %   $ (53,626 )   (10.0 %)
                       
Basic earnings per share: (4)                      
Income from continuing operations $ 1.55         $ 1.74         $ (0.19 )   (10.9 %)
Net loss from discontinued operations (0.01 )       (0.02 )       0.01     (50.0 %)
Net income 1.54         1.72         (0.18 )   (10.5 %)
Less: net income (loss) attributable to noncontrolling interest 0.01         (0.01 )       0.02     n/m  
Net income attributable to LKQ stockholders $ 1.53         $ 1.73         $ (0.20 )   (11.6 %)
                       
Diluted earnings per share: (4)                      
Income from continuing operations $ 1.54         $ 1.73         $ (0.19 )   (11.0 %)
Net loss from discontinued operations (0.01 )       (0.02 )       0.01     (50.0 %)
Net income 1.53         1.71         (0.18 )   (10.5 %)
Less: net income (loss) attributable to noncontrolling interest 0.01         (0.01 )       0.02     n/m  
Net income attributable to LKQ stockholders $ 1.52         $ 1.72         $ (0.20 )   (11.6 %)
                       
Weighted average common shares outstanding:                      
Basic 314,428         308,607         5,821     1.9 %
Diluted 315,849         310,649         5,200     1.7 %
                       
(1) The sum of the individual percentage of revenue components may not equal the total due to rounding.
(2) Selling, general and administrative expenses contain facility and warehouse expenses and distribution expenses that were previously shown separately.
(3) Certain amounts for 2017 have been recast to reflect the 2018 adoption of ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."
(4) The sum of the individual earnings per share amounts may not equal the total due to rounding.
 


LKQ CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share data)

  December 31,
 2018
  December 31,
 2017
Assets      
Current assets:      
Cash and cash equivalents $ 331,761     $ 279,766  
Receivables, net 1,154,083     1,027,106  
Inventories 2,836,075     2,380,783  
Prepaid expenses and other current assets 199,030     134,479  
Total current assets 4,520,949     3,822,134  
Property, plant and equipment, net 1,220,162     913,089  
Intangible assets:      
Goodwill 4,381,458     3,536,511  
Other intangibles, net 928,752     743,769  
Equity method investments 179,169     208,404  
Other assets 162,912     142,965  
Total assets $ 11,393,402     $ 9,366,872  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable $ 942,398     $ 788,613  
Accrued expenses:      
Accrued payroll-related liabilities 172,005     143,424  
Other accrued expenses 288,425     218,600  
Refund liability 104,585      
Other current liabilities 61,109     45,727  
Current portion of long-term obligations 121,826     126,360  
Total current liabilities 1,690,348     1,322,724  
Long-term obligations, excluding current portion 4,188,674     3,277,620  
Deferred income taxes 311,434     252,359  
Other noncurrent liabilities 364,194     307,516  
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 318,417,821 shares issued and 316,146,114 shares outstanding at December 31, 2018; 309,126,386 shares issued and outstanding at December 31, 2017 3,184     3,091  
Additional paid-in capital 1,415,188     1,141,451  
Retained earnings 3,598,876     3,124,103  
Accumulated other comprehensive loss (174,950 )   (70,476 )
Treasury stock, at cost; 2,271,707 shares at December 31, 2018 (60,000 )    
Total Company stockholders’ equity 4,782,298     4,198,169  
Noncontrolling interest 56,454     8,484  
Total stockholders’ equity 4,838,752     4,206,653  
Total liabilities and stockholders’ equity $ 11,393,402     $ 9,366,872  
               


LKQ CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(In thousands)

  Year Ended
  December 31,
  2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 483,168     $ 530,228  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 294,077     230,203  
Impairment on Mekonomen equity method investment 70,895      
Impairment of goodwill 33,244      
Stock-based compensation expense 22,760     22,832  
Loss on debt extinguishment 1,350     456  
Loss on sale of business     10,796  
Gains on bargain purchases (2,418 )   (3,870 )
Deferred income taxes (2,180 )   (46,537 )
Other 9,534     1,301  
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:      
Receivables, net 241     (55,979 )
Inventories (127,153 )   (203,857 )
Prepaid income taxes/income taxes payable (2,125 )   8,376  
Accounts payable (77,621 )   45,136  
Other operating assets and liabilities 6,967     (20,185 )
Net cash provided by operating activities 710,739     518,900  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property, plant and equipment (250,027 )   (179,090 )
Proceeds from disposals of property, plant and equipment 27,659     8,707  
Acquisitions, net of cash and restricted cash acquired (1,214,995 )   (513,088 )
Proceeds from disposals of business/investment     301,297  
Investments in unconsolidated subsidiaries (60,300 )   (7,664 )
Receipts of deferred purchase price on receivables under factoring arrangements 36,991      
Other investing activities, net 1,733     5,243  
Net cash used in investing activities (1,458,939 )   (384,595 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from exercise of stock options 5,303     7,470  
Taxes paid related to net share settlements of stock-based compensation awards (5,567 )   (5,525 )
Debt issuance costs (21,128 )   (4,267 )
Proceeds from issuance of Euro Notes (2026/28) 1,232,100      
Purchase of treasury stock (60,000 )    
Borrowings under revolving credit facilities 1,667,325     839,171  
Repayments under revolving credit facilities (1,528,970 )   (946,477 )
Repayments under term loans (354,800 )   (27,884 )
Borrowings under receivables securitization facility 10,120     11,245  
Repayments under receivables securitization facility (120 )   (11,245 )
Payment of assumed debt and notes issued from acquisitions (54,888 )    
(Repayments) borrowings of other debt, net (11,730 )   19,706  
Other financing activities, net 5,350     5,239  
Net cash provided by (used in) financing activities 882,995     (112,567 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash (77,311 )   23,512  
Net increase in cash, cash equivalents and restricted cash 57,484     45,250  
Cash, cash equivalents and restricted cash of continuing operations, beginning of period 279,766     227,400  
Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period     7,116  
Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period 279,766     234,516  
Cash, cash equivalents and restricted cash, end of period $ 337,250     $ 279,766  
       


The following unaudited tables compare certain third party revenue categories:

  Three Months Ended    
  December 31,    
  2018   2017   $ Change   % Change
  (In thousands)        
Included in Unaudited Consolidated              
Statements of Income of LKQ Corporation              
North America $ 1,111,146     $ 1,071,530     $ 39,616     3.7 %
Europe 1,421,140     969,102     452,038     46.6 %
Specialty 321,784     295,421     26,363     8.9 %
Parts and services 2,854,070     2,336,053     518,017     22.2 %
Other 148,711     133,802     14,909     11.1 %
Total $ 3,002,781     $ 2,469,855     $ 532,926     21.6 %
                             


Revenue changes by category for the three months ended December 31, 2018 vs. 2017:

  Revenue Change Attributable to:    
  Organic   Acquisition   Foreign Exchange   Total Change (1)
North America 3.7 %   0.3 %   (0.3 %)   3.7 %
Europe 0.3 %   49.7 %   (3.3 %)   46.6 %
Specialty 5.8 %   3.5 %   (0.4 %)   8.9 %
Parts and services 2.5 %   21.2 %   (1.6 %)   22.2 %
Other 10.2 %   1.1 %   (0.2 %)   11.1 %
Total 3.0 %   20.1 %   (1.5 %)   21.6 %
                       


The following unaudited tables compare certain third party revenue categories:

  Year Ended    
  December 31,    
  2018   2017   $ Change   % Change
  (In thousands)        
Included in Unaudited Consolidated              
Statements of Income of LKQ Corporation              
North America $ 4,558,220     $ 4,278,531     $ 279,689     6.5 %
Europe 5,202,231     3,628,906     1,573,325     43.4 %
Specialty 1,472,956     1,301,197     171,759     13.2 %
Parts and services 11,233,407     9,208,634     2,024,773     22.0 %
Other 643,267     528,275     114,992     21.8 %
Total $ 11,876,674     $ 9,736,909     $ 2,139,765     22.0 %
                             


Revenue changes by category for the year ended December 31, 2018 vs. 2017:

  Revenue Change Attributable to:    
  Organic   Acquisition   Foreign Exchange   Total Change (1)
North America 5.7 %   0.8 %   0.0 %   6.5 %
Europe 2.9 %   36.7 %   3.8 %   43.4 %
Specialty 4.6 %   8.6 %   0.0 %   13.2 %
Parts and services 4.4 %   16.0 %   1.5 %   22.0 %
Other 20.4 %   1.4 %   0.0 %   21.8 %
Total 5.3 %   15.3 %   1.4 %   22.0 %

(1) The sum of the individual revenue change components may not equal the total percentage change due to rounding.


The following unaudited table reconciles consolidated revenue growth for parts & services to constant currency revenue growth for the same measure:

    Three Months Ended   Year Ended
    December 31, 2018   December 31, 2018
    Consolidated   Europe   Consolidated   Europe
Parts & Services                
Revenue growth as reported   22.2 %   46.6 %   22.0 %   43.4 %
Less: Currency impact   (1.6 %)   (3.3 %)   1.5 %   3.8 %
Revenue growth at constant currency   23.8 %   49.9 %   20.5 %   39.6 %
                         

We have presented the growth of our revenue on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP financial measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency revenue information provides valuable supplemental information regarding our growth, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue results are calculated by translating prior year revenue in local currency using the current year's currency conversion rate. This non-GAAP financial measure has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue growth on a constant currency basis calculate such measure in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.


The following unaudited table compares revenue and Segment EBITDA by reportable segment:

  Three Months Ended   Year Ended
  December 31,   December 31,
  2018   2017   2018   2017
(In thousands)   % of Revenue     % of Revenue     % of Revenue     % of Revenue
Revenue                      
North America $ 1,254,801       $ 1,202,954       $ 5,182,609       $ 4,799,651    
Europe 1,426,315       971,641       5,221,754       3,636,811    
Specialty 322,954       296,518       1,477,680       1,305,516    
Eliminations (1,289 )     (1,258 )     (5,369 )     (5,069 )  
Total revenue $ 3,002,781       $ 2,469,855       $ 11,876,674       $ 9,736,909    
Segment EBITDA                      
North America $ 153,381   12.2 %   $ 152,781   12.7 %   $ 660,153   12.7 %   $ 655,275   13.7 %
Europe 106,936   7.5 %   77,619   8.0 %   422,721   8.1 %   319,156   8.8 %
Specialty 27,551   8.5 %   23,026   7.8 %   168,525   11.4 %   142,159   10.9 %
Total Segment EBITDA $ 287,868   9.6 %   $ 253,426   10.3 %   $ 1,251,399   10.5 %   $ 1,116,590   11.5 %
                                               

We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments, or divestitures, equity in losses and earnings of unconsolidated subsidiaries and impairment of goodwill. EBITDA, which is the basis for Segment EBITDA, is calculated as net income, less net income (loss) attributable to noncontrolling interest, excluding discontinued operations, depreciation, amortization, interest and income tax expense. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. We also consider Segment EBITDA to be a useful financial measure in evaluating our operating performance, as it provides investors, securities analysts and other interested parties with supplemental information regarding the underlying trends in our ongoing operations. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. 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   Year Ended
  December 31,   December 31,
  2018   2017   2018   2017
(In thousands)  
Net income $ 38,059     $ 120,655     $ 483,168     $ 530,228  
Less: net income (loss) attributable to noncontrolling interest 2,010     (3,516 )   3,050     (3,516 )
Net income attributable to LKQ stockholders 36,049     124,171     480,118     533,744  
Subtract:              
Net loss from discontinued operations (4,397 )   (2,215 )   (4,397 )   (6,746 )
Net income from continuing operations attributable to LKQ stockholders 40,446     126,386     484,515     540,490  
Add:              
Depreciation and amortization 77,891     60,368     274,213     219,546  
Depreciation and amortization - cost of goods sold 5,209     3,327     19,864     10,657  
Interest expense, net of interest income 36,889     26,814     144,536     100,620  
Loss on debt extinguishment 1,350     456     1,350     456  
Provision for income taxes 34,968     29,354     191,395     235,560  
Earnings before interest, taxes, depreciation and amortization (EBITDA) 196,753     246,705     1,115,873     1,107,329  
Subtract:              
Equity in (losses) earnings of unconsolidated subsidiaries (46,145 )   2,029     (64,471 )   5,907  
Fair value loss on Mekonomen derivative instrument (7,677 )       (5,168 )    
Gains on bargain purchases 2,090     (120 )   2,418     3,870  
Add:              
Restructuring and acquisition related expenses 5,882     9,301     32,428     19,672  
Inventory step-up adjustment - acquisition related     3,584     403     3,584  
Impairment of goodwill 33,244         33,244      
Impairment of net assets held for sale         2,438      
Change in fair value of contingent consideration liabilities 257     (4,255 )   (208 )   (4,218 )
Segment EBITDA $ 287,868     $ 253,426     $ 1,251,399     $ 1,116,590  
               
Net income from continuing operations attributable to LKQ stockholders as a percentage of revenue 1.3 %   5.1 %   4.1 %   5.6 %
               
EBITDA as a percentage of revenue 6.6 %   10.0 %   9.4 %   11.4 %
               
Segment EBITDA as a percentage of revenue 9.6 %   10.3 %   10.5 %   11.5 %
 

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, less net income (loss) attributable to noncontrolling interest, excluding discontinued operations, depreciation, amortization, interest and income tax expense. EBITDA provides insight into our profitability trends and allows management and investors to analyze our operating results with the impact of noncontrolling interest and without the impact of discontinued operations, depreciation, amortization, interest and income tax expense. We believe EBITDA is used by investors, securities analysts and other interested parties in evaluating the operating performance and the value of other companies, many of which present EBITDA when reporting their results.

We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments, or divestitures, equity in losses and earnings of unconsolidated subsidiaries and impairment of goodwill. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue.

EBITDA and Segment EBITDA should not be construed as alternatives to operating income, net income or net cash provided by (used in) operating activities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report EBITDA or Segment EBITDA information calculate EBITDA or Segment EBITDA in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly named measures of other companies and may not be appropriate measures for performance relative to other companies.


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   Year Ended
  December 31,   December 31,
  2018   2017   2018   2017
(In thousands, except per share data)              
Net income $ 38,059     $ 120,655     $ 483,168     $ 530,228  
Less: net income (loss) attributable to noncontrolling interest 2,010     (3,516 )   3,050     (3,516 )
Net income attributable to LKQ stockholders 36,049     124,171     480,118     533,744  
Subtract:              
Net loss from discontinued operations (4,397 )   (2,215 )   (4,397 )   (6,746 )
Net income from continuing operations attributable to LKQ stockholders 40,446     126,386     484,515     540,490  
Adjustments - continuing operations attributable to LKQ stockholders:              
Amortization of acquired intangibles 37,896     26,225     126,820     97,388  
Restructuring and acquisition related expenses 5,882     9,301     32,428     19,672  
Loss on debt extinguishment 1,350     456     1,350     456  
Inventory step-up adjustment - acquisition related     3,584     403     3,584  
Change in fair value of contingent consideration liabilities 257     (4,255 )   (208 )   (4,218 )
Gains on bargain purchases (2,090 )   120     (2,418 )   (3,870 )
Impairment of goodwill 33,244         33,244      
Impairment of net assets held for sale         2,438      
Impairment on Mekonomen equity method investment 48,180         70,895      
Fair value loss on Mekonomen derivative instrument 7,677         5,168      
U.S. tax law change 2017     (22,188 )   (9,581 )   (22,188 )
Excess tax benefit from stock-based payments (874 )   (942 )   (4,859 )   (8,000 )
Tax effect of adjustments (20,632 )   (12,283 )   (49,437 )   (40,616 )
Adjusted net income from continuing operations attributable to LKQ stockholders $ 151,336     $ 126,404     $ 690,758     $ 582,698  
Weighted average diluted common shares outstanding 318,510     311,106     315,849     310,649  
Diluted earnings per share from continuing operations attributable to LKQ stockholders:              
Reported $ 0.13     $ 0.41     $ 1.53     $ 1.74  
Adjusted $ 0.48     $ 0.41     $ 2.19     $ 1.88  

We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as we believe these measures are useful for evaluating the core operating performance of our continuing business across reporting periods and in analyzing the company’s historical operating results. We define Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as Net Income and Diluted Earnings per Share adjusted to eliminate the impact of noncontrolling interest, discontinued operations, restructuring and acquisition related expenses, amortization expense related to acquired intangibles, the change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments, or divestitures, impairment of goodwill, excess tax benefits and deficiencies from stock-based payments, adjustments to the estimated tax reform provisions recorded in 2017 and any tax effect of these adjustments. The tax effect of these adjustments is calculated using the effective tax rate for the applicable period or for certain discrete items the specific tax expense or benefit for the adjustment. Given the variability and volatility of the amount and frequency of costs related to acquisitions, 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. 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 2019
  Minimum Guidance   Maximum Guidance
(In millions, except per share data)      
Net income from continuing operations attributable to LKQ stockholders $ 641     $ 680  
Adjustments:      
Amortization of acquired intangibles 125     125  
Tax effect of adjustments (34 )   (34 )
Adjusted net income from continuing operations attributable to LKQ stockholders $ 732     $ 771  
       
Weighted average diluted common shares outstanding 313     313  
       
Diluted earnings per share from continuing operations attributable to LKQ stockholders:      
U.S. GAAP $ 2.05     $ 2.17  
Non-GAAP (Adjusted) $ 2.34     $ 2.46  

We have presented forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders in our financial guidance. Refer to the discussion of Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders for details on the calculation of these non-GAAP financial measures. In the calculation of forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, we included estimates of income from continuing operations attributable to LKQ stockholders, amortization of acquired intangibles for the full fiscal year 2019 and the related tax effect; we did not estimate amounts for any other components of the calculation for the year ending December 31, 2019.

 

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Source: LKQ Corporation

Contact IR

Joseph P. Boutross

Vice President, Investor Relations

LKQ Corporation

Phone: 312-621-2793
jpboutross@lkqcorp.com

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