LKQ Corporation (LKQ), parent company of PGW Auto Glass, announced an update on its second quarter 2020 operating performance through May, as well as an amendment to its Senior Secured Credit Facility.
LKQ stated the coronavirus’s effect through May 2020 was not as significant as it expected when the company announced its first quarter results. The company’s revenue is tracked ahead of its internal expectations. Second quarter to date parts and services organic revenue down approximately 25% when compared to the same quarter in 2019, with April and May monthly revenues down approximately 30% and 20%, respectively.
“Each of our segments has experienced weekly sequential revenue improvement since mid-April and we exceeded our internal revenue projections, which speaks favorably to the strength of our businesses and our team’s ability to perform in this challenging operating environment. With economies reopening in recent weeks, we are cautiously optimistic that we can capitalize on the momentum we’ve built through May to finish the quarter strong,” said Dominick Zarcone, LKQ CEO and president.
The cost structure actions announced in the company’s first quarter 2020 results contributed to preliminary results for April and May of an operating profit for both months, according to LKQ. Cash management activities have been effective as the LKQ generated positive free cash flow in April and May, which was used to pay down over $250 million in debt and build cash balances during this two-month period.
“Our teams have done a tremendous job over the last few months to adapt to the rapidly changing conditions, remain disciplined in managing the cost structure and protect the Company’s capital through a focus on working capital management,” said Varun Laroyia, LKQ executive vice president and chief financial officer.
LKQ also announced it entered into Amendment No. 4 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 with its lending partners. The amendment modifies the maximum permitted net leverage ratio through the quarter ending September 30, 2021. Beginning with the quarter ending December 31, 2021, the maximum permitted net leverage ratio reverts to the terms in effect prior to the amendment. According to LKQ, it can elect to cancel the modifications to the maximum permitted net leverage ratio and revert to the terms in effect prior to the amendment subject to compliance with the 4.0x ratio at any time.
“With this amendment, we are able to enhance the flexibility in our net leverage covenant, which combined with our cost management efforts, provides LKQ additional financial strength to weather this difficult period should the markets we operate in take longer to recover from the effects of the pandemic,” said Laroyia.
On March 26, 2020 the Company withdrew its 2020 annual guidance, and temporarily suspended its share repurchase program to focus on preserving capital due uncertainties related to COVID-19.