LKQ (LKQ) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q2 and H1 2025 financial statements show slight revenue and operating income declines, but increased net income and EPS, driven by lower expenses, alongside growing assets, liabilities, and decreased operating cash flow Unaudited Condensed Consolidated Statements of Income Q2 2025 revenue slightly decreased to $3.64 billion, but net income and diluted EPS rose due to lower restructuring costs and income tax provisions, a trend consistent for the six-month period Consolidated Income Statement Highlights (in millions, except EPS) | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,642 | $3,711 | -1.9% | $7,105 | $7,414 | -4.2% | | Gross Margin | $1,412 | $1,441 | -2.0% | $2,789 | $2,893 | -3.6% | | Operating Income | $312 | $329 | -5.2% | $599 | $618 | -3.1% | | Net Income (to LKQ) | $192 | $185 | +3.8% | $361 | $343 | +5.2% | | Diluted EPS | $0.75 | $0.70 | +7.1% | $1.40 | $1.29 | +8.5% | Unaudited Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $15.94 billion, driven by receivables, inventories, and goodwill, with total liabilities and stockholders' equity also rising Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $289 | $234 | | Receivables, net | $1,442 | $1,122 | | Inventories | $3,394 | $3,220 | | Goodwill | $5,756 | $5,448 | | Total Assets | $15,944 | $14,955 | | Accounts payable | $1,891 | $1,801 | | Long-term obligations | $4,395 | $4,127 | | Total Liabilities | $9,401 | $8,923 | | Total Stockholders' Equity | $6,543 | $6,032 | Unaudited Condensed Consolidated Statements of Cash Flows H1 2025 operating cash flow significantly decreased to $293 million due to unfavorable changes in accounts payable, while investing and financing cash outflows also reduced Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $293 | $466 | | Net cash used in investing activities | ($99) | ($178) | | Net cash used in financing activities | ($169) | ($276) | - The decrease in operating cash flow was primarily driven by a $245 million negative swing in accounts payable compared to the prior year period[17][131] Notes to Unaudited Condensed Consolidated Financial Statements Detailed notes cover revenue declines across segments, ongoing global restructuring efforts with reduced expenses, and an increase in total debt during the first half of 2025 Revenue by Reportable Segment (in millions) | Segment | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Wholesale - North America | $1,362 | $1,398 | $2,698 | $2,820 | | Europe | $1,601 | $1,633 | $3,116 | $3,270 | | Specialty | $464 | $466 | $857 | $888 | | Self Service | $50 | $55 | $101 | $109 | - The company initiated a '2024 Global Restructuring Plan' to enhance profitability by exiting non-strategic businesses and reducing costs, with total estimated costs of $130-$140 million, expected to be substantially complete by the end of 2025[41] - Total long-term obligations increased to $4.46 billion at June 30, 2025, from $4.20 billion at December 31, 2024, primarily due to higher borrowings on revolving credit facilities[51] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes H1 2025 revenue decline to organic decreases in Europe and North America, while maintaining strong liquidity and effective debt management despite segment EBITDA compression Results of Operations—Consolidated H1 2025 consolidated revenue fell 4.2% due to organic declines, but operating income remained stable due to reduced restructuring expenses, and a lower effective tax rate boosted net income - The decrease in H1 2025 parts and services revenue of $315 million was driven by a $273 million (3.9%) organic decline and a $66 million (0.9%) decrease from net divestitures, partially offset by a $26 million (0.4%) positive foreign exchange impact[97] - Restructuring and transaction related expenses decreased by $60 million in H1 2025 compared to H1 2024, primarily due to lower costs associated with the 2024 Global Restructuring plan and Acquisition Integration plans[100] - The effective tax rate for H1 2025 was 27.0%, down from 30.8% in H1 2024, mainly due to the nonrecurring unfavorable tax effects of restructuring impairments in the prior year[101] Results of Operations—Segment Reporting Q2 2025 Segment EBITDA declined for Wholesale - North America, Europe, and Specialty due to lower volumes, competition, and operational challenges, while Self Service remained flat Segment EBITDA (in millions) and Margin | Segment | Q2 2025 EBITDA | Q2 2025 Margin | Q2 2024 EBITDA | Q2 2024 Margin | | :--- | :--- | :--- | :--- | :--- | | Wholesale - North America | $227 | 15.8% | $256 | 17.3% | | Europe | $151 | 9.4% | $174 | 10.6% | | Specialty | $39 | 8.5% | $41 | 8.9% | | Self Service | $13 | 10.0% | $13 | 9.9% | - Wholesale - North America revenue declined due to lower volumes in the paint, body and equipment business from increased competition and fewer repairable claims[105] - Europe's organic revenue fell 4.9% in Q2 2025 due to difficult economic conditions, heightened competition, and temporary operational challenges[108] Liquidity and Capital Resources The company maintained $1.425 billion in liquidity as of June 30, 2025, continued capital returns through dividends and share repurchases, and remained compliant with all debt covenants Total Liquidity (in millions) | Component | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Availability under credit revolving facilities | $1,136 | $1,222 | | Cash and cash equivalents | $289 | $234 | | Total liquidity | $1,425 | $1,456 | - The Board of Directors declared a quarterly cash dividend of $0.30 per share in both February and April 2025, and another for July 2025[120] Debt Covenant Compliance as of June 30, 2025 | Covenant | Required Level | Actual Ratio | | :--- | :--- | :--- | | Maximum total leverage ratio | 4.00 : 1.00 | 2.6 | | Minimum interest coverage ratio | 3.00 : 1.00 | 7.3 | Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risks, including foreign exchange, interest rates, commodity prices, and inflation, have occurred since the 2024 Form 10-K disclosures - There have been no material changes to the company's market risks arising from foreign exchange rates, interest rates, commodity prices, and inflation since the 2024 Form 10-K filing[139] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[140] - No changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[141] PART II OTHER INFORMATION Item 1. Legal Proceedings Management anticipates no material adverse effect on the company's financial position, results of operations, or cash flows from currently outstanding legal claims - In the opinion of management, currently outstanding claims and lawsuits will not, individually or in the aggregate, have a material adverse effect on the company's financials[143] Item 1A. Risk Factors No new significant risk factors are reported, with investors referred to previous disclosures in the 2024 Form 10-K and Q1 2025 Form 10-Q - The company refers to its 2024 Form 10-K and Q1 2025 Form 10-Q for information concerning risks and uncertainties, indicating no material updates in this report[144] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.0 million shares of common stock for approximately $41 million during Q2 2025 under its authorized stock repurchase program Stock Repurchases for Q2 2025 | Period | Total Shares Purchased (millions) | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 0.3 | $39.99 | | May 2025 | 0.3 | $40.60 | | June 2025 | 0.4 | $38.38 | | Total | 1.0 | - | - The company's stock repurchase program authorization extends through October 25, 2026[145] Other Items (3, 4, 5, 6) This section confirms no defaults on senior securities or mine safety disclosures, no Rule 10b5-1 trading plan changes by officers, and provides a list of filed exhibits - Items 3 (Defaults Upon Senior Securities) and 4 (Mine Safety Disclosures) were not applicable[147][148] - During the quarter, no directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading arrangement[149]