LKQ Corporation recently reported second quarter 2020 results consistent with the company’s previously announced second quarter business update on June 15, 2020. Relative to the start of the second quarter, the full quarter results reflect improved revenue trends, operational and balance sheet productivity and continued debt reduction.
COVID-19 Update
“The momentum we gained in April and May continued through June, and we finished the quarter solidly,” noted Dominick Zarcone, president and CEO. “During the quarter, we delivered on our key initiatives of driving higher levels of cash flow and driving higher EBITDA margins. Operating cash flows were $718 million, a 56% increase over the same period in 2019. Additionally, despite the decline in revenue, our North American team delivered Segment EBITDA margin of 14.8%. Our European segment demonstrated continuous improvements from a revenue and margin perspective each month as we migrated through the quarter. I am particularly pleased with the performance of our Specialty segment, which saw only a slight decline in organic revenue of 1.4%, well above our expectations.”
Zarcone further commented, “The operating environment continues to evolve, and while the company’s second quarter performance exceeded our expectations at the beginning of the quarter, there remains a high degree of uncertainty about the ongoing rate and shape of the COVID-19 recovery. As a result, the company is not providing new fiscal 2020 guidance at this time. That said, our teams across the globe are committed to effective operational execution and protecting our business in this uncharted environment as they have thus far. Importantly, despite these headwinds, our long-term strategic and financial objectives, and capital allocation priorities, are unchanged.”
Note: References to Net income and Diluted earnings per share, and the corresponding adjusted figures, in this release reflect amounts from continuing operations attributable to LKQ stockholders.
Second Quarter 2020 Financial Results
Revenue for the second quarter of 2020 was $2.6 billion, a decrease of 19.1% as compared to $3.2 billion in the second quarter of 2019. For the second quarter of 2020, parts and services organic revenue decreased 16.8% year-over-year, while the net impact of acquisition and divestitures revenue was (0.5%) and foreign exchange rates was (1.5%), for a total parts and services revenue decline of 18.9%.
Net income for the second quarter of 2020 was $119 million as compared to $150 million for the same period in 2019, a decrease of 21.2% year-over-year. Diluted earnings per share for the second quarter was $0.39 as compared to $0.48 for the same period of 2019, a decrease of 19% year-over-year.
On an adjusted basis, net income was $161 million compared to $204 million in the same period of 2019. Adjusted diluted earnings per share for the second quarter was $0.53 as compared to $0.65 for the same period of 2019, an 18% decrease.
Cash Flow and Balance Sheet
Cash flow from operations totaled $718 million during the second quarter of 2020, up 56% from a year ago. Free cash flow totaled $686 million, up 66% year-over-year. The company made $552 million of net repayments on borrowings during the quarter, for a total year-to-date reduction of $782 million. As of June 30, 2020, LKQ’s balance sheet reflected net debt of $2.8 billion. Net leverage as defined in our credit facility decreased to 2.2x EBITDA. As of June 30, 2020, the company had approximately $2.5 billion in available liquidity, including $2.05 billion available under the credit facilities and $476 million of cash and cash equivalents.
During the second quarter of 2020, the company did not repurchase any of its common stock. We suspended share repurchases as of March 16, 2020. Since initiating the share repurchase program in October 2018, the company has repurchased 16.5 million shares for a total of approximately $440 million.
Varun Laroyia, executive VP and CFO, commented, “As we entered the second quarter, our financial objectives were to align our cost structure to the demand situation and strengthen our balance sheet in the midst of the pandemic. Through the swift and decisive cost actions we implemented and the laser focus on cash generation, which contributed to record quarterly free cash flow, we accomplished both priorities. Additionally, we further enhanced our financial flexibility by amending our senior secured credit facility in the second quarter. We continue to believe we have sufficient liquidity to meet the needs of our business.”
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.
