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LKQ Corporation Announces Results for Second Quarter 2020

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LKQ Corporation
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  • Second quarter 2020 revenue of $2.6 billion (down 19.1% year-over-year)

  • Parts and services organic revenue declined 16.8%

  • Implemented targeted cost actions contributing to sequential expense reduction

  • Net income1 of $119 million (down 21.2%); adjusted net income of $161 million (down 20.9%)

  • Diluted EPS1 of $0.39 (down 18.8%); adjusted diluted EPS of $0.53 (down 18.5%)

  • Second quarter 2020 operating cash flow of $718 million (up 56%); free cash flow of $686 million (up 66%)

  • Reduced borrowings by $552 million; year-to-date debt paydown of $782 million

  • Net leverage down to 2.2x EBITDA

  • Liquidity up to $2.5 billion as of June 30, 2020

CHICAGO, July 30, 2020 (GLOBE NEWSWIRE) -- LKQ Corporation (Nasdaq: LKQ) today reported second quarter 2020 results consistent with the Company’s previously announced second quarter business update on June 15, 2020 (insert link to 6/15 release). 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 Chief Executive Officer. “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.”

Mr. 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.”

1 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 Vice President and Chief Financial Officer, 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.

Conference Call Details

LKQ will host a conference call and webcast on July 30, 2020 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) 236-5754. International access to the call may be obtained by dialing (647) 689-4182. The investor conference call will require you to enter conference ID: 3783913#.

Webcast and Presentation Details

The audio webcast and accompanying slide presentation can be accessed at (www.lkqcorp.com) in the Investor Relations section.

A replay of the conference call will be available by telephone at (800) 585-8367 or (416) 621-4642 for international calls. The telephone replay will require you to enter conference ID: 3783913#. An online replay of the audio webcast will be available on the Company's website. Both formats of replay will be available through August 13, 2020. 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, 2019 and in our subsequent Quarterly Reports on Form 10-Q. These reports are available on our investor relations website at lkqcorp.com and on the SEC website at sec.gov.

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

  • effects on our business from the disruption to economic activity caused by the COVID-19 pandemic, including a substantial decrease in the demand for our products and services, interruptions to supply chains, and the inability of customers to pay for products and services;

  • employment-related issues arising from the COVID-19 pandemic, including employment law claims resulting from the layoffs and furloughs of employees to reduce costs during the period of decreased demand, increased healthcare costs, workforce shortages, and health and safety issues at the workplace;

  • changes in economic, political and social conditions in the U.S. and other countries in which we are located or do business, including the U.K. withdrawal from the European Union (also known as Brexit), and the impact of these changes on our businesses, the demand for our products and our ability to obtain financing for operations;

  • increasing competition in the automotive parts industry (including parts sold on online marketplaces and the potential competitive advantage to original equipment manufacturers (“OEMs”) with "connected car" technology);

  • 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 acquisition candidates at reasonable prices and our ability to successfully divest underperforming businesses;

  • 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 or government agencies 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, including as a result of the effects of the COVID-19 pandemic on our business;

  • 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, including the possibility of not satisfying one or more of the financial covenants in our credit facility due to the effects of the COVID-19 pandemic on our business;

  • 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 Condensed Consolidated
Statements of Income, with Supplementary Data
(In thousands, except per share data)

Three Months Ended June 30,

2020

2019

% of Revenue (1)

% of Revenue (1)

$ Change

% Change

Revenue

$

2,626,323

100.0

%

$

3,248,173

100.0

%

$

(621,850

)

(19.1

%)

Cost of goods sold

1,609,614

61.3

%

2,000,986

61.6

%

(391,372

)

(19.6

%)

Restructuring expenses - cost of goods sold

5,705

0.2

%

0.0

%

5,705

n/m

Gross margin

1,011,004

38.5

%

1,247,187

38.4

%

(236,183

)

(18.9

%)

Selling, general and administrative expenses

737,369

28.1

%

898,368

27.7

%

(160,999

)

(17.9

%)

Restructuring and acquisition related expenses

24,950

0.9

%

8,377

0.3

%

16,573

n/m

Loss on disposal of businesses and impairment of net assets held for sale

2,485

0.1

%

33,497

1.0

%

(31,012

)

(92.6

%)

Depreciation and amortization

65,747

2.5

%

70,834

2.2

%

(5,087

)

(7.2

%)

Operating income

180,453

6.9

%

236,111

7.3

%

(55,658

)

(23.6

%)

Other expense (income):

Interest expense, net of interest income

25,616

1.0

%

35,884

1.1

%

(10,268

)

(28.6

%)

Other income, net

(8,174

)

(0.3

%)

(5,733

)

(0.2

%)

(2,441

)

42.6

%

Total other expense, net

17,442

0.7

%

30,151

0.9

%

(12,709

)

(42.2

%)

Income from continuing operations before provision for income taxes

163,011

6.2

%

205,960

6.3

%

(42,949

)

(20.9

%)

Provision for income taxes

41,869

1.6

%

55,825

1.7

%

(13,956

)

(25.0

%)

Equity in (losses) earnings of unconsolidated subsidiaries

(2,649

)

(0.1

%)

1,572

0.0

%

(4,221

)

n/m

Income from continuing operations

118,493

4.5

%

151,707

4.7

%

(33,214

)

(21.9

%)

Net income from discontinued operations

277

0.0

%

398

0.0

%

(121

)

(30.4

%)

Net income

118,770

4.5

%

152,105

4.7

%

(33,335

)

(21.9

%)

Less: net (loss) income attributable to continuing noncontrolling interest

(22

)

(0.0

%)

1,352

0.0

%

(1,374

)

n/m

Less: net income attributable to discontinued noncontrolling interest

0.0

%

192

0.0

%

(192

)

n/m

Net income attributable to LKQ stockholders

$

118,792

4.5

%

$

150,561

4.6

%

$

(31,769

)

(21.1

%)

Basic earnings per share: (2)

Income from continuing operations

$

0.39

$

0.49

(0.10

)

(20.4

%)

Net income from discontinued operations

0.00

0.00

(0.00

)

n/m

Net income

0.39

0.49

(0.10

)

(20.4

%)

Less: net (loss) income attributable to continuing noncontrolling interest

(0.00

)

0.00

(0.00

)

n/m

Less: net income attributable to discontinued noncontrolling interest

0.00

(0.00

)

n/m

Net income attributable to LKQ stockholders

$

0.39

$

0.48

(0.09

)

(18.8

%)

Diluted earnings per share: (2)

Income from continuing operations

$

0.39

$

0.49

(0.10

)

(20.4

%)

Net income from discontinued operations

0.00

0.00

(0.00

)

n/m

Net income

0.39

0.49

(0.10

)

(20.4

%)

Less: net (loss) income attributable to continuing noncontrolling interest

(0.00

)

0.00

(0.00

)

n/m

Less: net income attributable to discontinued noncontrolling interest

0.00

(0.00

)

n/m

Net income attributable to LKQ stockholders

$

0.39

$

0.48

(0.09

)

(18.8

%)

Weighted average common shares outstanding:

Basic

304,001

311,891

(7,890

)

(2.5

%)

Diluted

304,190

312,719

(8,529

)

(2.7

%)

(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.


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

Six Months Ended June 30,

2020

2019

% of Revenue (1)

% of Revenue (1)

$ Change

% Change

Revenue

$

5,627,258

100.0

%

$

6,348,476

100.0

%

$

(721,218

)

(11.4

%)

Cost of goods sold

3,396,637

60.4

%

3,893,025

61.3

%

(496,388

)

(12.8

%)

Restructuring expenses - cost of goods sold

5,741

0.1

%

0.0

%

5,741

n/m

Gross margin

2,224,880

39.5

%

2,455,451

38.7

%

(230,571

)

(9.4

%)

Selling, general and administrative expenses

1,637,180

29.1

%

1,794,900

28.3

%

(157,720

)

(8.8

%)

Restructuring and acquisition related expenses

31,920

0.6

%

11,684

0.2

%

20,236

n/m

Loss on disposal of businesses and impairment of net assets held for sale

2,236

0.0

%

48,520

0.8

%

(46,284

)

(95.4

%)

Depreciation and amortization

131,242

2.3

%

141,836

2.2

%

(10,594

)

(7.5

%)

Operating income

422,302

7.5

%

458,511

7.2

%

(36,209

)

(7.9

%)

Other expense (income):

Interest expense, net of interest income

51,547

0.9

%

71,973

1.1

%

(20,426

)

(28.4

%)

Loss on debt extinguishment

12,751

0.2

%

0.0

%

12,751

n/m

Other income, net

(11,796

)

(0.2

%)

(9,584

)

(0.2

%)

(2,212

)

23.1

%

Total other expense, net

52,502

0.9

%

62,389

1.0

%

(9,887

)

(15.8

%)

Income from continuing operations before provision for income taxes

369,800

6.6

%

396,122

6.2

%

(26,322

)

(6.6

%)

Provision for income taxes

102,280

1.8

%

107,375

1.7

%

(5,095

)

(4.7

%)

Equity in losses of unconsolidated subsidiaries

(2,133

)

(0.0

%)

(37,977

)

(0.6

%)

35,844

(94.4

%)

Income from continuing operations

265,387

4.7

%

250,770

4.0

%

14,617

5.8

%

Net (loss) income from discontinued operations

(638

)

(0.0

%)

398

0.0

%

(1,036

)

n/m

Net income

264,749

4.7

%

251,168

4.0

%

13,581

5.4

%

Less: net income attributable to continuing noncontrolling interest

718

0.0

%

2,367

0.0

%

(1,649

)

(69.7

%)

Less: net income attributable to discontinued noncontrolling interest

103

0.0

%

192

0.0

%

(89

)

(46.4

%)

Net income attributable to LKQ stockholders

$

263,928

4.7

%

$

248,609

3.9

%

$

15,319

6.2

%

Basic earnings per share: (2)

Income from continuing operations

$

0.87

$

0.80

$

0.07

8.8

%

Net (loss) income from discontinued operations

(0.00

)

0.00

(0.00

)

n/m

Net income

0.87

0.80

0.07

8.8

%

Less: net income attributable to continuing noncontrolling interest

0.00

0.01

(0.01

)

n/m

Less: net income attributable to discontinued noncontrolling interest

0.00

0.00

(0.00

)

n/m

Net income attributable to LKQ stockholders

$

0.86

$

0.79

$

0.07

8.9

%

Diluted earnings per share: (2)

Income from continuing operations

$

0.87

$

0.80

$

0.07

8.8

%

Net (loss) income from discontinued operations

(0.00

)

0.00

(0.00

)

n/m

Net income

0.87

0.80

0.07

8.8

%

Less: net income attributable to continuing noncontrolling interest

0.00

0.01

(0.01

)

n/m

Less: net income attributable to discontinued noncontrolling interest

0.00

0.00

(0.00

)

n/m

Net income attributable to LKQ stockholders

$

0.86

$

0.79

$

0.07

8.9

%

Weighted average common shares outstanding:

Basic

305,123

313,460

(8,337

)

(2.7

%)

Diluted

305,477

314,360

(8,883

)

(2.8

%)

(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.


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

June 30,
2020

December 31,
2019

Assets

Current assets:

Cash and cash equivalents

$

476,426

$

523,020

Receivables, net

1,125,816

1,131,132

Inventories

2,288,293

2,772,777

Prepaid expenses and other current assets

216,438

260,890

Total current assets

4,106,973

4,687,819

Property, plant and equipment, net

1,196,505

1,234,400

Operating lease assets, net

1,272,513

1,308,511

Intangible assets:

Goodwill

4,377,350

4,406,535

Other intangibles, net

798,799

850,338

Equity method investments

136,673

139,243

Other noncurrent assets

146,486

153,110

Total assets

$

12,035,299

$

12,779,956

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

756,846

$

942,795

Accrued expenses:

Accrued payroll-related liabilities

179,470

179,203

Refund liability

103,679

97,314

Value added taxes payable

160,294

46,490

Other accrued expenses

258,490

243,193

Income taxes payable

114,202

26,959

Other current liabilities

67,410

94,664

Current portion of operating lease liabilities

216,177

221,527

Current portion of long-term obligations

93,200

326,367

Total current liabilities

1,949,768

2,178,512

Long-term operating lease liabilities, excluding current portion

1,112,230

1,137,597

Long-term obligations, excluding current portion

3,157,725

3,715,389

Deferred income taxes

299,867

310,129

Other noncurrent liabilities

343,691

365,672

Commitments and contingencies

Redeemable noncontrolling interest

24,077

24,077

Stockholders' equity:

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,530,156 shares issued and 304,034,241 shares outstanding at June 30, 2020; 319,927,243 shares issued and 306,731,328 shares outstanding at December 31, 2019

3,205

3,199

Additional paid-in capital

1,433,338

1,418,239

Retained earnings

4,401,545

4,140,136

Accumulated other comprehensive loss

(279,763

)

(200,885

)

Treasury stock, at cost; 16,495,915 shares at June 30, 2020 and 13,195,915 shares at December 31, 2019

(439,819

)

(351,813

)

Total Company stockholders' equity

5,118,506

5,008,876

Noncontrolling interest

29,435

39,704

Total stockholders' equity

5,147,941

5,048,580

Total liabilities and stockholders' equity

$

12,035,299

$

12,779,956


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

Six Months Ended

June 30,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

264,749

$

251,168

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

144,309

152,361

Impairment of equity method investments

39,551

Loss on disposal of businesses and impairment of net assets held for sale

2,236

48,520

Stock-based compensation expense

15,763

13,659

Loss on debt extinguishment

12,751

Other

(3,554

)

(3,516

)

Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:

Receivables, net

(5,111

)

(149,052

)

Inventories

445,493

131,229

Prepaid income taxes/income taxes payable

84,125

25,967

Accounts payable

(172,140

)

96,888

Other operating assets and liabilities

124,431

31,629

Net cash provided by operating activities

913,052

638,404

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, plant and equipment

(77,301

)

(101,268

)

Proceeds from disposals of property, plant and equipment

6,110

1,976

Acquisitions, net of cash acquired

(5,465

)

(14,767

)

Proceeds from disposal of businesses, net of cash sold

4,602

Other investing activities, net

(3,917

)

(2,711

)

Net cash used in investing activities

(75,971

)

(116,770

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Early-redemption premium

(9,498

)

Repayment of U.S. Notes (2023)

(600,000

)

Borrowings under revolving credit facilities

494,485

312,880

Repayments under revolving credit facilities

(601,480

)

(471,439

)

Repayments under term loans

(8,750

)

(4,375

)

Borrowings under receivables securitization facility

111,300

36,600

Repayments under receivables securitization facility

(111,300

)

(146,600

)

Repayments of other debt, net

(66,073

)

(8,367

)

Purchase of treasury stock

(88,006

)

(190,762

)

Other financing activities, net

(10,832

)

75

Net cash used in financing activities

(890,154

)

(471,988

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(5,358

)

(102

)

Net (decrease) increase in cash, cash equivalents and restricted cash

(58,431

)

49,544

Cash, cash equivalents and restricted cash of continuing operations, beginning of period

528,387

337,250

Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period

6,470

Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period

534,857

337,250

Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period

476,426

386,794

Less: Cash and cash equivalents of discontinued operations, end of period

5,372

Cash, cash equivalents and restricted cash, end of period

$

476,426

$

381,422


The following unaudited tables compare certain third party revenue categories:

Three Months Ended

June 30,

2020

2019

$ Change

% Change

(In thousands)

Included in Unaudited Condensed Consolidated

Statements of Income of LKQ Corporation

North America

$

892,826

$

1,165,482

$

(272,656

)

(23.4

%)

Europe

1,206,330

1,510,952

(304,622

)

(20.2

%)

Specialty

404,002

410,263

(6,261

)

(1.5

%)

Parts and services

2,503,158

3,086,697

(583,539

)

(18.9

%)

Other

123,165

161,476

(38,311

)

(23.7

%)

Total

$

2,626,323

$

3,248,173

$

(621,850

)

(19.1

%)

Revenue changes by category for the three months ended June 30, 2020 vs. 2019:

Revenue Change Attributable to:

Organic

Acquisition and Divestiture

Foreign Exchange

Total Change (1)

North America

(22.5

%)

(0.6

%)

(0.2

%)

(23.4

%)

Europe

(16.6

%)

(0.7

%)

(2.9

%)

(20.2

%)

Specialty

(1.4

%)

0.3

%

(0.4

%)

(1.5

%)

Parts and services

(16.8

%)

(0.5

%)

(1.5

%)

(18.9

%)

Other

(23.7

%)

0.1

%

(0.1

%)

(23.7

%)

Total

(17.2

%)

(0.5

%)

(1.5

%)

(19.1

%)


The following unaudited tables compare certain third party revenue categories:

Six Months Ended

June 30,

2020

2019

$ Change

% Change

(In thousands)

Included in Unaudited Condensed Consolidated

Statements of Income of LKQ Corporation

North America

$

2,000,168

$

2,321,180

$

(321,012

)

(13.8

%)

Europe

2,564,299

2,951,793

(387,494

)

(13.1

%)

Specialty

751,408

762,819

(11,411

)

(1.5

%)

Parts and services

5,315,875

6,035,792

(719,917

)

(11.9

%)

Other

311,383

312,684

(1,301

)

(0.4

%)

Total

$

5,627,258

$

6,348,476

$

(721,218

)

(11.4

%)

Revenue changes by category for the six months ended June 30, 2020 vs 2019:

Revenue Change Attributable to:

Organic

Acquisition and Divestiture

Foreign Exchange

Total Change (1)

North America

(13.4

%)

(0.3

%)

(0.2

%)

(13.8

%)

Europe

(10.1

%)

(0.3

%)

(2.7

%)

(13.1

%)

Specialty

(1.4

%)

0.2

%

(0.2

%)

(1.5

%)

Parts and services

(10.3

%)

(0.2

%)

(1.4

%)

(11.9

%)

Other

(1.0

%)

0.7

%

(0.1

%)

(0.4

%)

Total

(9.8

%)

(0.2

%)

(1.4

%)

(11.4

%)

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


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

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2020

Consolidated

Europe

Consolidated

Europe

Parts & Services

Revenue growth as reported

(18.9

%)

(20.2

%)

(11.9

)%

(13.1

)%

Less: Currency impact

(1.5

%)

(2.9

%)

(1.4

)%

(2.7

)%

Revenue growth at constant currency

(17.4

%)

(17.3

%)

(10.5

)%

(10.4

)%

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-named 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

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(In thousands)

% of Revenue

% of Revenue

% of Revenue

% of Revenue

Revenue

North America

$

1,011,395

$

1,321,766

$

2,301,590

$

2,624,075

Europe

1,211,185

1,516,240

2,574,779

2,961,781

Specialty

404,874

411,636

753,456

765,373

Eliminations

(1,131

)

(1,469

)

(2,567

)

(2,753

)

Total revenue

$

2,626,323

$

3,248,173

$

5,627,258

$

6,348,476

Segment EBITDA

North America

$

149,554

14.8

%

$

190,048

14.4

%

$

360,992

15.7

%

$

366,684

14.0

%

Europe

89,387

7.4

%

116,281

7.7

%

167,649

6.5

%

221,579

7.5

%

Specialty

52,233

12.9

%

52,367

12.7

%

84,465

11.2

%

90,326

11.8

%

Total Segment EBITDA

$

291,174

11.1

%

$

358,696

11.0

%

$

613,106

10.9

%

$

678,589

10.7

%

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 (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, and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income, less net income (loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. This financial measure is included in the metrics used to determine incentive compensation for our senior management. We also consider Segment EBITDA to be a useful financial measure in evaluating our operating performance, as it provides investors, securities analysts and other interested parties with supplemental information regarding the underlying trends in our ongoing operations. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. Refer to the table on the following page for a reconciliation of net income to EBITDA and Segment EBITDA.


The following unaudited table reconciles Net Income to EBITDA and Segment EBITDA:

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(In thousands)

Net income

$

118,770

$

152,105

$

264,749

$

251,168

Less: net (loss) income attributable to continuing noncontrolling interest

(22

)

1,352

718

2,367

Less: net income attributable to discontinued noncontrolling interest

192

103

192

Net income attributable to LKQ stockholders

118,792

150,561

263,928

248,609

Subtract:

Net income (loss) from discontinued operations

277

398

(638

)

398

Net income attributable to discontinued noncontrolling interest

(192

)

(103

)

(192

)

Net income from continuing operations attributable to LKQ stockholders

118,515

150,355

264,669

248,403

Add:

Depreciation and amortization

65,747

70,834

131,242

141,836

Depreciation and amortization - cost of goods sold

4,010

5,320

9,095

10,525

Depreciation and amortization - restructuring expenses (1)

3,173

3,972

Interest expense, net of interest income

25,616

35,884

51,547

71,973

Loss on debt extinguishment

12,751

Provision for income taxes

41,869

55,825

102,280

107,375

EBITDA

258,930

318,218

575,556

580,112

Subtract:

Equity in (losses) earnings of unconsolidated subsidiaries

(2,649

)

1,572

(2,133

)

(37,977

)

Add:

Restructuring and acquisition related expenses (1)

21,777

8,377

27,948

11,684

Restructuring expenses - cost of goods sold

5,665

5,661

Loss on disposal of businesses and impairment of net assets held for sale

2,485

33,497

2,236

48,520

Change in fair value of contingent consideration liabilities

(332

)

176

(428

)

296

Segment EBITDA

$

291,174

$

358,696

$

613,106

$

678,589

Net income from continuing operations attributable to LKQ stockholders as a percentage of revenue

4.5

%

4.6

%

4.7

%

3.9

%

EBITDA as a percentage of revenue

9.9

%

9.8

%

10.2

%

9.1

%

Segment EBITDA as a percentage of revenue

11.1

%

11.0

%

10.9

%

10.7

%

(1) The sum of these two amounts represents the total amount that is reported in Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income.

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

We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition 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, and impairment charges. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. This financial measure is included in the metrics used to determine incentive compensation for our senior management. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue.

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


The following unaudited table reconciles Net Income and Diluted Earnings per Share to Adjusted Net Income from Continuing Operations Attributable to LKQ Stockholders and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, respectively:

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(In thousands, except per share data)

Net income

$

118,770

$

152,105

$

264,749

$

251,168

Less: net (loss) income attributable to continuing noncontrolling interest

(22

)

1,352

718

2,367

Less: net income attributable to discontinued noncontrolling interest

192

103

192

Net income attributable to LKQ stockholders

118,792

150,561

263,928

248,609

Subtract:

Net income (loss) from discontinued operations

277

398

(638

)

398

Net income attributable to discontinued noncontrolling interest

(192

)

(103

)

(192

)

Net income from continuing operations attributable to LKQ stockholders

118,515

150,355

264,669

248,403

Adjustments - continuing operations attributable to LKQ stockholders:

Amortization of acquired intangibles

23,903

31,023

48,322

62,935

Restructuring and acquisition related expenses

24,950

8,377

31,920

11,684

Restructuring expenses - cost of goods sold

5,705

5,741

Change in fair value of contingent consideration liabilities

(332

)

176

(428

)

296

Loss on debt extinguishment

12,751

Loss on disposal of businesses and impairment of net assets held for sale

2,485

33,497

2,236

48,520

Impairment of equity method investments

39,551

Excess tax expense (benefit) from stock-based payments

11

(174

)

(701

)

(278

)

Tax effect of adjustments

(13,788

)

(19,198

)

(26,960

)

(30,927

)

Adjusted net income from continuing operations attributable to LKQ stockholders

$

161,449

$

204,056

$

337,550

$

380,184

Weighted average diluted common shares outstanding

304,190

312,719

305,477

314,360

Diluted earnings per share from continuing operations attributable to LKQ stockholders

Reported

$

0.39

$

0.48

$

0.87

$

0.79

Adjusted

$

0.53

$

0.65

$

1.10

$

1.21

We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as we believe these measures are useful for evaluating the core operating performance of our continuing business across reporting periods and in analyzing our historical operating results. We define Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as Net Income and Diluted Earnings per Share adjusted to eliminate the impact of continuing and discontinued noncontrolling interest, discontinued operations, restructuring and acquisition related expenses, amortization expense related to all acquired intangible assets, gains and losses on debt extinguishment, the change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments or divestitures, impairment charges, excess tax benefits and deficiencies from stock-based payments and any tax effect of these adjustments. The tax effect of these adjustments is calculated using the effective tax rate for the applicable period or for certain discrete items the specific tax expense or benefit for the adjustment. Given the variability and volatility of the amount and frequency of costs related to 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. Our adjustment of the amortization of all acquisition-related intangible assets does not exclude the amortization of other assets, which represents expense that is directly attributable to ongoing operations. Management believes that the adjustment relating to amortization of acquisition-related intangible assets supplements the GAAP information with a measure that can be used to assess the comparability of operating performance. The acquired intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. These financial measures are used by management in its decision making and overall evaluation of our operating performance and are included in the metrics used to determine incentive compensation for our senior management. Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders should not be construed as alternatives to Net Income or Diluted Earnings per Share as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report measures similar to Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders calculate such measures in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.


The following unaudited table reconciles Net Cash Provided by Operating Activities to Free Cash Flow:

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(In thousands)

Net cash provided by operating activities

$

718,489

$

461,179

$

913,052

$

638,404

Less: purchases of property, plant and equipment

32,763

48,252

77,301

101,268

Free cash flow

$

685,726

$

412,927

$

835,751

$

537,136

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 and repurchase stock. We believe free cash flow is used by investors, securities analysts and other interested parties in evaluating the liquidity of other companies, many of which present free cash flow when reporting their results. This financial measure is included in the metrics used to determine incentive compensation for our senior management. Free cash flow should not be construed as an alternative to net cash provided by operating activities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report free cash flow information calculate free cash flow in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly-named measures of other companies and may not be an appropriate measure for liquidity relative to other companies.


The following unaudited tables reconcile Gross Margin to Adjusted Gross Margin:

Consolidated Adjusted Gross Margin

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(In thousands)

Gross Margin

$

1,011,004

$

1,247,187

$

2,224,880

$

2,455,451

Add: Restructuring expenses - cost of goods sold

5,705

5,741

Adjusted Gross margin

$

1,016,709

$

1,247,187

$

2,230,621

$

2,455,451

Gross Margin %

38.5

%

38.4

%

39.5

%

38.7

%

Adjusted Gross Margin %

38.7

%

38.4

%

39.6

%

38.7

%

North America Adjusted Gross Margin

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(In thousands)

Gross Margin

$

453,733

$

582,771

$

1,065,347

$

1,158,439

Add: Restructuring expenses - cost of goods sold

3,082

3,118

Adjusted Gross margin

$

456,815

$

582,771

$

1,068,465

$

1,158,439

Gross Margin %

44.9

%

44.1

%

46.3

%

44.1

%

Adjusted Gross Margin %

45.2

%

44.1

%

46.4

%

44.1

%

Europe Adjusted Gross Margin

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

(In thousands)

Gross Margin

$

445,223

$

545,362

$

952,470

$

1,077,536

Add: Restructuring expenses - cost of goods sold

2,623

2,623

Adjusted Gross margin

$

447,846

$

545,362

$

955,093

$

1,077,536

Gross Margin %

36.8

%

36.0

%

37.0

%

36.4

%

Adjusted Gross Margin %

37.0

%

36.0

%

37.1

%

36.4

%

We have presented adjusted gross margin solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate the operating performance of our continuing business across reporting periods and in analyzing our historical operating results. We calculate adjusted gross margin as gross margin plus restructuring expenses recorded in cost of goods sold. We believe adjusted gross margin provides insight into our operating performance and provides useful information to management and investors concerning our gross margins. We believe adjusted gross margin is used by investors, securities analysts and other interested parties in evaluating the operating performance of other companies, many of which present adjusted gross margin when reporting their results. Adjusted gross margin should not be construed as an alternative to gross margin, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report adjusted gross margin information calculate adjusted gross margin 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.