LKQ (US:LKQ)2021-05-05 20:16PART I FINANCIAL INFORMATION Financial Statements Presents LKQ Corporation's unaudited condensed consolidated financial statements for Q1 2021, showing a 5.7% revenue increase and higher net income Notes to Financial Statements Details accounting policies, COVID-19 impact, segment performance, restructuring programs, debt, and segment-level financial data - The company has considered the impacts of the COVID-19 pandemic in the preparation of its financial statements, noting effects such as reduced demand and organizational changes, with the continuing impact remaining uncertain2324 Revenue by Reportable Segment (Q1 2021 vs Q1 2020) | Segment | Three Months Ended March 31, 2021 (thousand) | Three Months Ended March 31, 2020 (thousand) | | :--- | :--- | :--- | | North America | $1,018,437 | $1,107,342 | | Europe | $1,455,370 | $1,357,969 | | Specialty | $457,959 | $347,406 | | Total Parts and Services | $2,931,766 | $2,812,717 | - The company is engaged in multiple restructuring programs, including the 2020 Global Restructuring Program (estimated cost $65 million - $75 million) and the '1 LKQ Europe' program (estimated restructuring charges of $45 million - $55 million through 2024)6064 - In January 2020, the company redeemed its $600 million 4.75% senior notes due 2023, resulting in a $13 million loss on debt extinguishment, and subsequently redeemed its €750 million senior notes due 2026 on April 1, 2021, which will result in a $24 million loss in Q2 20218898 Segment EBITDA (Q1 2021 vs Q1 2020) | Segment | Three Months Ended March 31, 2021 (thousand) | Three Months Ended March 31, 2020 (thousand) | | :--- | :--- | :--- | | North America | $249,167 | $211,438 | | Europe | $140,958 | $78,262 | | Specialty | $61,482 | $32,232 | | Total Segment EBITDA | $451,607 | $321,932 | Condensed Consolidated Statements of Income (Q1 2021 vs Q1 2020) | Metric | Three Months Ended March 31, 2021 (thousand) | Three Months Ended March 31, 2020 (thousand) | | :--- | :--- | :--- | | Revenue | $3,170,786 | $3,000,935 | | Gross Margin | $1,293,714 | $1,213,876 | | Operating Income | $371,448 | $241,849 | | Net Income | $266,332 | $145,979 | | Diluted EPS | $0.88 | $0.47 | Condensed Consolidated Balance Sheets | Metric | March 31, 2021 (thousand) | December 31, 2020 (thousand) | | :--- | :--- | :--- | | Total Current Assets | $4,453,946 | $4,034,032 | | Total Assets | $12,665,457 | $12,360,533 | | Total Current Liabilities | $2,436,626 | $1,988,491 | | Total Liabilities | $6,782,753 | $6,665,156 | | Total Stockholders' Equity | $5,858,627 | $5,671,300 | Condensed Consolidated Statements of Cash Flows (Q1 2021 vs Q1 2020) | Metric | Three Months Ended March 31, 2021 (thousand) | Three Months Ended March 31, 2020 (thousand) | | :--- | :--- | :--- | | Net cash provided by operating activities | $522,512 | $194,563 | | Net cash used in investing activities | ($33,443) | ($44,872) | | Net cash used in financing activities | ($208,495) | ($334,739) | | Net increase (decrease) in cash | $278,040 | ($196,794) | Management's Discussion and Analysis (MD&A) Discusses Q1 2021 financial results, highlighting revenue growth, improved margins from cost reductions, and strengthened liquidity - The '1 LKQ Europe' program, designed to centralize and standardize European operations, is expected to incur total costs of $50 million - $70 million in 2021 and an additional $80 million - $100 million through its completion in 2024153154 - Despite the ongoing pandemic, organic parts and services revenue increased by 2.2% on a per-day basis in Q1 2021, with cost reduction actions from 2020 continuing to yield benefits, as SG&A expenses were down compared to the Q1 2020 run rate155156 Consolidated Revenue Change Analysis (Q1 2021 vs Q1 2020) | Revenue Type | Organic Change | Acquisition & Divestiture | Foreign Exchange | Total Change | | :--- | :--- | :--- | :--- | :--- | | Parts & Services | 0.6% | (0.6)% | 4.2% | 4.2% | | Other Revenue | 26.6% | 0.0% | 0.4% | 27.0% | | Total Revenue | 2.3% | (0.6)% | 4.0% | 5.7% | - The company's liquidity position significantly improved, with total liquidity (cash plus credit availability) increasing to $3.2 billion at March 31, 2021, from $1.9 billion at March 31, 2020, and free cash flow for Q1 2021 was $480.7 million, a substantial increase from $150.0 million in Q1 2020200228 Market Risk Disclosures Outlines primary market risks including foreign exchange, interest rates, and commodity prices, detailing their impact on operations - Foreign Exchange Risk: Operations outside the U.S. represented 49.4% of revenue in Q1 2021, where a hypothetical 10% change in the U.S. dollar's strength would alter consolidated revenue by 4.9%230 - Interest Rate Risk: As of March 31, 2021, the company had approximately $703 million of unhedged variable-rate debt, where a 100 basis point change in interest rates would affect annual interest expense by about $7 million238 - Commodity Price Risk: The company is exposed to fluctuations in scrap metal and precious metal prices, with average scrap metal prices increasing 35% over Q4 2020, while prices for rhodium, platinum, and palladium rose 59%, 20%, and 5%, respectively, in Q1 2021239 Controls and Procedures CEO and CFO concluded disclosure controls were effective with no material changes to internal controls in Q1 2021 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021241 - No changes in internal control over financial reporting occurred during Q1 2021 that have materially affected, or are reasonably likely to materially affect, internal controls242 PART II OTHER INFORMATION Legal Proceedings Current legal proceedings are not expected to have a material adverse effect, including a recent EPA enforcement matter - In April 2021, the company was advised that the U.S. EPA planned to issue enforcement letters regarding concerns with NPDES stormwater permits at seven facilities245 - Management does not expect any proposed penalty from the EPA matter to have a material effect on its financial position, results of operations, or cash flows245 Issuer Purchases of Equity Securities Details the company's stock repurchase activity, including Q1 2021 repurchases and remaining authorization Stock Repurchases (Q1 2021) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | Total Cost (approx. millions) | | :--- | :--- | :--- | :--- | | Jan 2021 | 410 | $35.20 | $14.4 | | Feb 2021 | 503 | $38.43 | $19.3 | | Mar 2021 | 573 | $40.52 | $23.2 | | Total Q1 | 1,486 | - | $57.0 | - As of March 31, 2021, approximately $474 million remained available for repurchase under the company's authorized stock repurchase program, which extends through October 25, 2022248249