Q4 2023 LKQ Corp Earnings Call

Hello, and welcome to today's LKQ Corporation fourth quarter and full year 'twenty 'twenty Free earnings Conference call. My name is Jordan and I'll be coordinating your call today, if you'd like to register an audio question you may do so by pressing star one we'd also.

Operator: Hello and welcome to today's LKQ Corporation 4th Quarter and Full Year 2020 Earnings Conference Call. My name is Jordan, and I'll be coordinating your call today. If you'd like to submit an audio question, you may do so by pressing star 1.

Operator: We'd ask all participants to please limit themselves to one question with an additional follow-up. I'm now going to hand over to Joe Boutros, Vice President of Investor Relations at LKQ Corporation. Joe, please go ahead.

All participants to please limit themselves to one question with an additional follow up.

I'm now going to hand over to Joe <unk>, Vice President of Investor Relations for LKQ Corporation. Joe. Please go ahead.

Joseph P. Boutross: Thank you, operator. Good morning, everyone. And welcome to LKQ's fourth quarter and full year 2023 earnings conference call. With us today are Nick Zarcone, LKQ's President and Chief Executive Officer, Rick Galloway, Senior Vice President and Chief Financial Officer, and Justin Jude, Executive Vice President and Chief Operating Officer. Please refer to the LKQ website at lkqcorp.com for our earnings release issued this morning, as well as the accompanying slide presentation for this call. Now, let me quickly cover the safe harbor.

Joe: Thank you operator, good morning, everyone and welcome to Lkq's fourth quarter and full year 2023 earnings conference call with US today are Nick Zarcone, Lkq's, President and Chief Executive Officer, Rick Galloway, Senior Vice President and Chief Financial Officer, and Justin Jude Executive Vice President and Chief operating Officer.

Please refer to the LKQ website at LKQ Corp, Dot com for our earnings release issued this morning as well as the accompanying slide presentation for this call now let me quickly cover the safe Harbor some of the statements that we make today may be considered forward. Looking these include statements regarding our expectations beliefs hopes intentions or strategies.

Joseph P. Boutross: Some of the statements that we make today may be considered forward-looking. These include statements regarding our expectations, beliefs, hopes, intentions, or strategies. However, actual events or results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors. We assume no obligation to update any forward-looking statements. For more information, please refer to the risk factors discussed in our Form 10-K and subsequent reports filed with the SEC.

Joe: Actual events or results may differ materially from those expressed or implied in the forward looking statements. As a result of various factors, we assume no obligation to update any forward looking statements.

Joe: For more information please refer to the risk factors discussed in our Form 10-K, and subsequent reports filed with the SEC. During this call. We will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and slide presentation.

Joseph P. Boutross: During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and slide presentation. Hopefully, everyone has had a chance to look at our 8K, which we filed with the SEC earlier today. And, as usual, we are planning to file our 10K in the coming days. And with that, I am happy to turn the call over to our CEO, Nick Zarcone. Thank you, Joe, and good morning to everybody on the call.

Everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today and as normal we are planning to file our 10-K in the coming days and with that I am happy to turn the call over to our CEO Nick Zarcone.

Dominick P. Zarcone: Thank you Joe and good morning to everybody on the call.

Dominick P. Zarcone: As many of you know, in late November, we announced my intention to retire as CEO effective June 30, 2024, and that the board unanimously selected Justin as my successor, following an intensive planning process that had been initiated well over a year ago. In the interim, Justin is serving as our Global Chief Operating Officer, and I look forward to working with him and our segment teams to ensure the continuation of our Operational Excellence Program that we started late in 2018. Nowhere has this program been more evident than in our Wholesale North America segment, which, under Justin's direction, has significantly expanded margins, improved cash flow, all while enhancing our leading market position. Time and again, Justin has proven himself as both a strong operating executive and an effective leader who definitively embodies LKQ's values. It is a pleasure having Justin on the call today in his well-deserved new role.

Dominick P. Zarcone: As many of you know in late November we announced my intention to retire as CEO effective June 30 of 2024 and that the board unanimously selected Justin as my successor, following an intensive planning process that had been initiated well over a year ago.

Dominick P. Zarcone: In the interim Justin is serving as our global Chief operating officer, and I look forward to working with him and our segment teams to ensure the continuation of our operational excellence program that we started late in 2018.

Dominick P. Zarcone: Nowhere has this program been more evident than in our wholesale North America segment, which under Justin's direction has significantly expanded margins improved cash flow, all while enhancing our leading market position.

Dominick P. Zarcone: Time, and again, Justin has proven himself as both a strong operating executive and an effective leader, who definitively embodies lkq's values.

It is a pleasure having just been on the call today and as well deserved new role.

Dominick P. Zarcone: I'm going to start by providing some high-level comments related to our performance in the quarter and the full year 2023, followed by Rick, who will dive into the financial details and discuss our 2024 guidance, and then Justin will provide some initial thoughts and commentary on our businesses, the path forward, and an update on our unit-select integration. Let me start with what LKQ accomplished in the last year, a year where operational excellence remained at the forefront of our efforts as we look to drive organic revenue growth, productivity, and excellent free cash flow. I am proud to say that the LKQ team delivered.

Dominick P. Zarcone: I'm going to start by providing some high level comments related to our performance in the quarter and the full year 2023, followed by Rick who will dive into the financial details and discuss our 2024 guidance and then Jonathan will provide some initial thoughts and commentary on our businesses.

Rick Galloway: Forward and an update on our units locked integration.

Rick Galloway: Let me start with what <unk> accomplished in the last year, a year, where operational excellence remains at the forefront of our efforts as we look to drive organic revenue growth productivity and excellent free cash flow.

Rick Galloway: I am proud to say that the LKQ team delivered.

Dominick P. Zarcone: Here are some of the 2023 accomplishments worth noting. LKQ delivered strong, full-year organic revenue growth for parts and services of 4.7% on a reported basis and 5.1% on a per-day basis. In February, we announced the highly synergistic unit select acquisition and closed the transaction on August 1. We used our pre-cash flow to begin paying down debt as we strive to reduce our total leverage ratio to 2.0 times.

Rick Galloway: Here are some of the 2023 accomplishments worth noting.

Rick Galloway: <unk> delivered strong full year organic revenue growth for parts and services of four 7% on a reported basis and five 1% on a per day basis.

Rick Galloway: In February we announced the highly synergistic units like the acquisition and closed the transaction on August one.

We used our free cash flow to begin paying down debt as we strive to reduce our total leverage ratio to 2.0 times, we're well on our way with net debt paydowns of over $375 million since the transaction closing and the total leverage ratio at year end.

Dominick P. Zarcone: We're well on our way with net debt paydowns of over $375 million since the transaction closing, and the total leverage ratio at year-end was just 2.3 times. We returned about $300 million of cash to our shareholders through dividends and increased the quarterly amount by 9% in October. We also continued our share repurchase program with a $38 million outlay during the year, of which $30 million was completed in the fourth quarter.

Rick Galloway: Was just two three times.

Rick Galloway: We returned about $300 million of cash to our shareholders through dividends and increased the quarterly amounts by 9% in October.

Rick Galloway: We also continued our share repurchase program with a $38 million outlay during the year of which $30 million was completed in the fourth quarter.

Rick Galloway: And finally, we sustained the positive momentum in terms of cash flow generation with free cash flow of approximately $1 billion. In 2023. This represents the fourth consecutive year at or above $1 billion in the 2023 results reflect a solid.

Dominick P. Zarcone: And finally, we sustained a positive momentum in terms of cash flow generation with free cash flow of approximately $1 billion in 2023. This represents the fourth consecutive year at or above $1 billion. And the 2023 results reflect a solid conversion ratio of 59% of adjusted EBITDA. Now on to the quarterly results. Revenue for the fourth quarter of 2023 was $3.5 billion, an increase of 16.6% as compared to $3 billion for the fourth quarter of 2022. Parts and Services organic revenue increased 2.8% on a reported basis and 3.4% on a per-day basis, foreign exchange rates increased revenue by 2.7%, and the net impact of acquisitions and divestitures increased revenue by 13.1% year over year for a total parts and services revenue increase of 18.7%. Other revenue Let's turn to some of the quarterly segment highlights. Organic revenue for parts and services for our North America segment increased 5.3% compared to the fourth quarter of 2022. We continue to perform well in North America, especially when you consider that, according to CCC, collision and liability-related auto claims were down 7.9% year-over-year.

Rick Galloway: Version ratio up 59% of adjusted EBITDA.

Speaker Change: Now onto the quarterly results.

Speaker Change: Revenue for the fourth quarter of 2023 was $3 $5 billion, an increase of 16, 6% as compared to $3 billion for the fourth quarter of 2022.

Speaker Change: Parts and services organic revenue increased two 8% on a reported basis and three 4% on a per day basis.

Speaker Change: Foreign exchange rates increased revenue by two 7% and the net impact of acquisitions and divestitures increased revenue by 13, 1% year over year for a total parts and services revenue increase of 18, 7%.

Speaker Change: Other revenue fell 16, 4%, primarily due to weaker precious metal prices relative to the same period in 2022.

Speaker Change: Let's turn to some of the quarterly segment highlights.

Speaker Change: Organic revenue for parts and services for our North America segment increased five 3% compared to the fourth quarter of 2022.

Speaker Change: We continue to perform well in North America, especially when you consider that according to CCC collision and liability related auto claims were down seven 9% year over year.

Speaker Change: We believe the significant outperformance is due to several factors, including an industry wide increase in alternative part usage or Apu, which was in part driven by the continued progress of the state farm rollout.

Dominick P. Zarcone: We believe that significant outperformance is due to several factors, including an industry-wide increase in Alternative Part Usage, or APU, which was in part driven by the continued progress of the state farm rollout. The remaining positive impact of the UAW strike, and lastly, LKQ continuing to take market share. The upward trend in our aftermarket volumes and the ongoing improvement in our order fill rates continued, with fill rates reaching close to 95% in the fourth quarter, the highest level in 2023. As the supply chain recovered and fill rates increased, APU trended in our favor, particularly when looking at vehicles in our sweet spot. While total APU was about 36% in 2023, when looking at vehicles 46 years old, it was approximately 40%. And for vehicles more than seven years old, it was 51.6%.

Speaker Change: The remaining positive impact of the UAW strikes and lastly, LKQ continuing to take market share.

Speaker Change: The upward trend in our aftermarket volumes and the ongoing improvement in our order fill rates continued with 12 rates, reaching close to 95% in the fourth quarter the highest level in 2023.

Speaker Change: As the supply chain recovered and fill rates increased apu trended in our favor, particularly when looking at vehicles in our sweet spot.

Speaker Change: While total Apu was about 36% in 2023, when looking at vehicles four to six old it was approximately 40% and per vehicles more than seven years old It was 51, 6%.

Dominick P. Zarcone: Both results represent meaningful increases over the 2022 level. The aging car park will increase demand for the types of parts we sell into the collision repair industry. The salvage business had solid organic growth, largely driven by volume. The total loss rate increased a bit in 2023 to 20.8%, but as you can see, it had no impact on our organic growth. Importantly, the increase in total loss rates is largely being driven by vehicles 10 years and older, which is a population of vehicles at the very tail end of our sweet spot.

Speaker Change: Both results represent meaningful increases over the 2022 levels.

Speaker Change: The aging car park will increase demand for the types of parts, we sell into the collision repair industry.

Speaker Change: The salvage business had solid organic growth largely driven by volume.

Speaker Change: Total loss rates increased a bit in 2023% to 28%, but as you can see it had no impact on our organic growth.

Speaker Change: Partly the increase in total loss rates is largely being driven by vehicles 10 years and older which has a population of vehicles at the very tail end of our sweet spot for perspective today. The average model year of a vehicle being repaired in a collision Bay is a 2017 model.

Dominick P. Zarcone: For perspective, today the average model year of a vehicle being repaired in a collision bay is a 2017 model, with the total loss rate for that cohort of vehicles being just 18.4% in 2023. That further supports our thesis that total loss rates will not materially impact our growth. Industry experts believe the total loss rate will edge down a bit in 2024. As we have always stated, fluctuations and total loss rates are largely net neutral events for LKQ.

Speaker Change: With the total loss rate for that cohort of vehicles being just 18, 4% in 2023.

Speaker Change: Further supports our thesis that total loss rates will not materially impact our growth.

Speaker Change: Industry experts believe the total loss rate will edge down a bit in 2024.

Speaker Change: As we have always stated fluctuations in total loss rates are largely net neutral events for LKQ.

Speaker Change: During the quarter, we realized a slight revenue uplift from the UAW strikes, which has now leveled off and no further benefit as expected.

Dominick P. Zarcone: During the quarter, we realized a slight revenue uplift from the UAW strikes, which has now leveled off, and no further benefit is expected. Moving to our European segment, Europe's organic revenue for parts and services in the quarter increased 3.9% on a reported basis and 5.1% on a per day basis.

Speaker Change: Moving to our European segment.

Speaker Change: Europe organic revenue for parts and services in the quarter increased three 9% on a reported basis and five 1% on a per day basis.

Dominick P. Zarcone: All the regions achieved solid organic growth in the quarter, with a particularly strong performance in the Benelux and Eastern European markets, as well as with our private label and salvage product lines. During the fourth quarter, our operations in Germany were again impacted by employee strikes at our large distribution center in Bavaria, while the ongoing discussions and negotiations between the Works Council and Employers Association continued. Throughout this process, our European team has worked diligently to mitigate the day-to-day impact of the strikes, and their efforts have begun to offset some of the challenges that have impacted our German operations. Although the strikes continue, we have been able to temporarily add some short-term capacity to operate our business and serve our customers. Additionally, to foster a resolution, we recently initiated an incremental and unique approach and proposed terms of an LKQ-only offer to the Works Council.

Speaker Change: All the regions produced solid organic growth in the quarter with a particularly strong performance in the Benelux and eastern European markets as well as with our private label and salvage product lines.

Speaker Change: During the fourth quarter, our operations in Germany were again impacted by employee strikes at our large distribution center in Bavaria, while the ongoing discussions and negotiations between the works Council and employers Association continued.

Speaker Change: Throughout this process our European team has worked diligently to mitigate the day to day impact are the strikes and their efforts have begun to offset some of the challenges that have impacted our German operations.

Speaker Change: Although the strikes continue we have been able to temporarily add some short term capacity to operate our business and service our customers. Additionally to foster a resolution, we recently initiated an incremental and unique approach and proposed terms of an LKQ only.

Speaker Change: <unk> to the works Council.

Dominick P. Zarcone: We have also committed those terms to our employees and are cautiously optimistic that we are making positive progress towards a resolution. Rick will provide you with the financial impact in a short time. Now let's move on to our specialty segment. During the fourth quarter, especially reported a decrease in organic revenue of 7%, which was below our expectations. Specialty again confronted headwinds specific to RV and towing products. Within the RV space, RV wholesale shipments of new units from the original equipment manufacturers to the dealers ended 2023 on a positive note with an increase of 8.1% in December. This was the second consecutive month of year-over-year growth. Full-year shipments, however, were down 36.5 percent. The general sense in the industry is that the RV headwinds have bottomed out, but we are not yet out of the woods, as dealers are still reluctant to fully restock accessories until they see the demand for new units increase. Truck accessories were also under some pressure in the quarter due to the drop in new vehicle production specific to the pickup and Jeep category, while marine and off-road product lines generated Now to our self-service section. Organic revenue for parts and services for our self-service segment decreased 5.6 percent in the fourth quarter.

Speaker Change: We are also committed those terms to our employees and are cautiously optimistic that we are making positive progress towards a resolution.

Speaker Change: Rick will provide you with the financial impacts shortly.

Speaker Change: Now, let's move on to our specialty segment.

Speaker Change: During the fourth quarter specialty reported a decrease in organic revenue of 7%, which was under our expectations specialty again confronted headwinds specific to RV and towing products within the RV space RV wholesale shipments of new units from the Oes.

Speaker Change: And to the dealers ended 2023 on a positive note with an increase of eight 1% in December.

Speaker Change: This was the second consecutive months of year over year growth.

Speaker Change: Full year shipments however were down 36, 5%.

Speaker Change: The general sense in the industry is that the RV headwinds have bottomed out, but we are not yet out of the woods as the dealers are still reluctant to fully restock accessories until they see the demand for new units increase.

Speaker Change: Truck accessories were also under some pressure in the quarter due to the drop in new vehicle production specific to the pickup in cheap categories, while marine and off road product lines generated positive growth.

Speaker Change: Now to our self service segment organic revenue for parts and services for our self service segment decreased five 6% in the fourth quarter.

Dominick P. Zarcone: Self-service was again challenged by soft commodity pricing, as seen in the other revenue decline, which impacted our expectations. The soft precious metal prices have continued into 2024, and in the short term, we expect little relief from commodities, as we have modeled accordingly.

Speaker Change: Self service was again challenged by soft commodity pricing as seen in the other revenue decline, which impacted our expectations.

Speaker Change: The soft precious metal prices have continued into 2024 and in the short term, we expect a little relief from commodities as we have modeled accordingly.

Dominick P. Zarcone: As far as we can predict, there will be minimal impact on parts availability in our key segments. In Europe, our procurement team is seeing some disruption with the shipping lines having to divert their vessels via the Cape of Good Hope in South Africa, increasing lead times and freight costs. The free cross is expected to soften once the Chinese New Year, four weeks from mid-January, ends.

Speaker Change: Briefly on the Red Sea crisis as far as we can predict there'll be minimal impact on parts availability in our key segments in Europe. Our procurement team has seen some disruption with the shipping lines, having to divert their vessels via the Cape of good hope around South Africa, increasing lead times.

Dominick P. Zarcone: As one would expect, if the crisis persists, then we will potentially witness an increase in freight costs. Our supply chain team is taking precautionary measures by adding additional orders to address the extra lead times, especially with our private-labeled products. Lastly, on October 25th, 2023, as I mentioned on the last earnings call, we completed the divestment of GSF car parts, formerly owned by Uniselect. Since the GSF car parts business was held separately and never integrated into our business, we classified the business as discontinued operations upon acquisition.

Speaker Change: And freight costs.

Speaker Change: The freight cost is expected to soften once the Chinese new year four weeks from mid January end.

Speaker Change: As one would expect if the crisis persists, then we will potentially witness an increase in freight cost our supply chain team has taken precautionary measures, adding additional orders to address the extra lead times, especially with our private label product.

Speaker Change: Lastly on October 25, 2023, as I mentioned on the last earnings call. We completed the divestment of GSS car parts, formerly owned by units lacked.

Dominick P. Zarcone: Before I turn over to Rick, who will run through the details of the segment results and discuss our outlook for 2024, I am pleased to announce that on February 20, 2024, our Board of Directors approved a quarterly cash dividend of $0.30 per share of common stock that will be payable on March 28, 2024 to shareholders of record at the close of business on March 14, 2024. Thank you, Nick, and welcome to everyone joining us today. Before I address the fourth quarter, I would like to reflect on what LKQ accomplished throughout 2023. We were optimistic about our prospects going into 2023, despite macroeconomic challenges, inflation, and declining commodity prices. With our operational excellence focus and strong balance sheet, we concentrated on the things we could control, and in those areas, we were very pleased with our performance.

Speaker Change: Since the GSS car parts business was held separately and never integrated into our business, we classified the business as discontinued operations upon acquisition.

Speaker Change: Before I turn it over to Rick who will run through the details of the segment results and discuss our outlook for 2024 I am pleased to announce that on February 22024, Our board of directors approved a quarterly cash dividend of <unk> 30 per share of common stock that will be payable on March 20.

Rick Galloway: <unk> 2024 to shareholders of record at the close of business on March 14th 2024.

Rick Galloway: Thank you, Nick and welcome to everyone joining us today before I address the fourth quarter I would like to reflect on what <unk> accomplished throughout 2023, we were optimistic about our prospects going into 2023, despite macroeconomic challenges inflation and declining commodity prices with our operational excellence focus and strong balance sheet, we concentrated on the things.

Dominick P. Zarcone: We encountered headwinds that set back overall profitability, but we believe many of these are transitory and will be minimal in 2024. The non-discretionary nature of the majority of our business and the resiliency of our industry allow us to perform well in almost any market environment. Referring to the walk on slide four, I want to highlight key year-over-year variances in our full-year results. We reported diluted earnings per share of $3.51 and adjusted diluted earnings per share of $3.83, the latter of which was a 2-cent decrease relative to 2022.

Rick Galloway: We could control and in those areas. We were very pleased with our performance we encountered headwinds that setback the overall profitability, but we believe many of these are transitory and we will be minimal in 2024.

Rick Galloway: The non discretionary nature of the majority of our business and the resiliency of our industry allows us to perform well in almost any market environment.

Rick Galloway: Referring to the walk on slide four I want to highlight the key year over year variances in our full year results, we reported diluted earnings per share of $3 51.

Rick Galloway: And adjusted diluted earnings per share of $3 83, the latter of which was a <unk> <unk> decrease relative to 2022.

Dominick P. Zarcone: Our operational performance was a strong positive, delivering $0.27 year-over-year improvements with exceptional growth in North America, partially offset by softness in precious metal prices and difficult market conditions impacting our specialty and self-service segments. Europe also contributed to the improvement, with solid revenue growth and productivity benefits helping to offset the effects of the German strikes and the value-added tax matter in Italy. We benefited by $0.10 due to the lower share count resulting from our share repurchases in 2022. We experienced year-over-year headwinds from market conditions, the most notable of which were $0.19 from the impact of metal prices, as shown on slide 28, and $0.13 in higher interest expense resulting from rate increases excluding uniselect. Acquisition and divestiture activities had a negative effect, including a 4 cents of dilution from the Uniselect acquisition.

Rick Galloway: Our operational performance was a strong positive delivering 27 <unk> year over year improvements with exceptional growth in North America, partially offset by softness in precious metal prices and difficult market conditions impacting our specialty and self service segments.

Rick Galloway: Europe also contributed to the improvement with solid revenue growth and productivity benefits, helping to offset the effects of the German strikes and the value added tax matter in Italy.

Rick Galloway: We benefited by <unk> <unk> due to the lower share count, resulting from our share repurchases in 2022, we experienced year over year headwinds from market conditions. The most notable of which were <unk> 19 from the impact of metal prices as shown on slide 28, and 13 and higher interest expense, resulting from rate increases excluding units let costs.

Acquisition and divestiture activities had a negative effect, including <unk> <unk> of dilution from the <unk> acquisition important to note. This result was a penny better than we anticipated in our Q4 guidance and <unk> of reduced earnings related to the Pea GW divestiture in April 2022.

Dominick P. Zarcone: Important to note, this result was a penny better than we anticipated in our Q4 guidance and 2 cents of reduced earnings related to the PGW divestiture in April 2022. Foreign exchange rates were favorable on average in 2023, which contributed to a two-cent benefit. The tax provision represented a six-cent benefit driven mostly by favorable impacts from discrete items.

Rick Galloway: Foreign exchange rates were favorable on average in 2023, which contributed to a <unk> <unk> benefit the.

Rick Galloway: The tax provision represented a <unk> <unk> benefit driven mostly by favorable impacts from discrete items we.

Dominick P. Zarcone: We have also included a fourth quarter EPS block on slide five. The main variances are similar to the full-year drivers, but with income taxes representing the largest variance from 2022. The 2023 provision included favorable discrete items and a slight full-year effective rate reduction, while 2022 reflected a negative provision effect from increasing our full-year effective rate and unfavorable discrete items. To expand on the operating performance for the quarter, I will provide additional detail on the segment results. I am going to slide 12.

Rick Galloway: We have also included a fourth quarter EPS walk on slide five the main variances are similar to the full year drivers, but with income taxes, representing the largest variance from 2022. The 2023 provision included favorable discrete items and a slight full year effective rate reduction, while 2022 reflected a negative provision effect from inquiry.

Rick Galloway: <unk>, our full year effective rate and unfavorable discrete items.

Rick Galloway: To expand on the operating performance for the quarter I will provide additional detail on the segment results going to slide 12 wholesale in North America continued its strong performance with the segment EBITDA margin of 16, 3% Q4 was the first full quarter with units select and as communicated the transaction was dilutive to the segment margin.

Dominick P. Zarcone: Wholesale North America continued its strong performance with a segment EBITDA margin of 16.3%. Q4 was the first full quarter with Uniselect, and as communicated, the transaction was dilutive to the segment margin by 220 basis points. Without Uniselect, North American margins would have been comparable to Q4 2022 and would have delivered a record full-year EBITDA margin of 19.7%. However, Q4 2023 benefited from some incremental sales in October and November attributed to the effects of the UAW strike, and we don't expect further upside in 2024. The Uniselect integration is progressing ahead of schedule, and with Finish Master and LKQ locations merging, it's becoming increasingly difficult to determine a standalone Uniselect impact. Therefore, we will not provide specific Uniselect impacts on North American results going forward, but will instead report just on synergy achievement.

Rick Galloway: By 220 basis points without unit select North American margins would have been comparable to Q4 2022 and would have delivered a record full year EBITDA margin of 19, 7%.

Rick Galloway: Q4, 2023 benefitted from some incremental sales in October November it attributed to effects of the UAW strike and we don't expect further upside in 2024. The <unk> integration is progressing ahead of schedule and with finished master and LKQ locations merging its becoming increasingly difficult to determine a standalone unit select impact there.

Rick Galloway: We will not provide specific unit select impacts on the North American results going forward, but will instead report just on synergy achievement. We expect the 2024, North American full year, EBITDA margin, including Uni select to be around 17%.

Dominick P. Zarcone: We expect the 2024 North American full-year EBITDA margin, including Uniselect, to be around 17 percent. As shown on slide 13, Europe reported a segmented EBITDA margin of 8.3 percent, down 170 basis points from the prior year period. There were several unusual items which had a negative effect of 110 basis points on the results.

Rick Galloway: As shown on Slide 13, Europe reported segment EBITDA margin of eight 3% down 170 basis points from the prior year period. There were several unusual items, which had a negative effect of 110 basis points on the results first the strikes that our primary distribution center in Germany continued in Q4, and we estimated the lost revenue.

Dominick P. Zarcone: First, the strikes at our primary distribution center in Germany continued in Q4, and we estimated the lost revenue and negative effect on the segmented EBITDA margin of 50 basis points. Second, we booked a non-recurring compensation charge for $6 million, which impacted the margin by 40 basis points. Finally, we recorded a reserve for a value-added tax matter which lowered the margin by 20 basis points. The remaining margin variance is attributable to inflationary cost effects in SG&A expenses, primarily in personnel costs. Looking ahead to 2024, we project a return to a double-digit margin as we work past the strikes and the transitory effects of COVID-19 that dropped the segment below a 10% margin in 2023. Moving to slide 14.

Rick Galloway: A negative effect on the segment EBITDA margin of 50 basis points second we booked a nonrecurring compensation charge for $6 million, which impacted the margin by 40 basis points. Finally, we recorded a reserve for a value added tax matter, which lowered the margin by 20 basis points.

Rick Galloway: The remaining margin variance is attributable to inflationary cost effects and SG&A expenses, primarily in personnel costs.

Rick Galloway: Looking ahead to 2024, we projected return to a double digit margin as we work past the strikes and the transitory effects.

Rick Galloway: And that dropped the segment below a 10% margin in 2023.

Rick Galloway: Moving to slide 14 specialties EBITDA margin of five 7% decreased 50 basis points compared to the prior year gross margin, which was down 290 basis points year over year is under pressure from increased price competition is inventory availability continues to improve for our competitors. In addition to unfavorable product mix as the lower.

Dominick P. Zarcone: Even the specialty margin of 5.7 percent decreased 50 basis points compared to the prior year. Gross margin, which was down 290 basis points year over year, is under pressure from increased price competition as inventory availability continues to improve for our competitors in addition to unfavorable product mix as the lower margin lines such as auto and marine have been less affected by revenue reductions than the RV market. I am pleased to report our SG&A expenses were favorable by 210 basis points, mostly related to personnel and primarily coming from management restructuring efforts in the last 12 months to align the cost structure with revenue trends and lower benefits and insurance costs. 2023 was a tough year for Special.

Rick Galloway: Margin lines, such as auto and marine have been less affected by revenue reductions than the RV market.

Rick Galloway: I'm pleased to report our SG&A expenses were favorable by 210 basis points, mostly related to personnel and primarily coming from management restructuring efforts in the last 12 months to align our cost structure with revenue trends and lower benefits and insurance cost.

<unk> 2023 was a tough year for specialty.

Dominick P. Zarcone: But by focusing on controllable costs, the team was able to mitigate some of the negative leverage effect on margin caused by the revenue decline. Going into 2024, the segment still faces challenging conditions, and we expect low single-digit organic revenue growth. However, we are optimistic about our ability to improve even the margins by 10 to 30 basis points through productivity. As you can see on slide 15, self-service profitability improved sequentially to a margin of 6.0% this quarter from a loss of 0.6% in the third quarter, an increase relative to the 5.2% reported in Q4 2022. Metals prices had a net negative effect on results of $6 million, with lower precious metal prices representing a $13 million reduction in EBITDA and lag effects from sequential scrap steel price changes driving a $7 million improvement. Other revenue decreased by 25 percent in total, contributing to a reduction in operating leverage of 620 basis points.

Rick Galloway: But by focusing on controllable cost the team was able to mitigate some of the negative leverage effect on margin caused by the revenue decline.

Rick Galloway: Going into 2020 for this segment still faces challenging conditions, and we expect low single digit organic revenue growth. However, we are optimistic about our ability to improve EBITDA margins by 10 to 30 basis points through productivity.

Rick Galloway: As you can see on slide 15, self service profitability improved sequentially to EBITDA margins of six zero percent this quarter from a loss of <unk>, 6% in the third quarter and increased relative to the five 2% reported in Q4 2022.

Rick Galloway: Metals prices had a negative effect on results of $6 million with lower precious metal prices, representing a $13 million reduction in EBITDA and lag effects from sequential scrap steel price changes driving a $7 million improvement.

Rick Galloway: Other revenue decreased by 25% and total contributing to a reduction in operating leverage of 620 basis points.

Dominick P. Zarcone: As part of the actions taken earlier in 2023, our average car cost decreased by 6% and 18% in Q4 relative to Q3 and Q2, respectively, which provided some margin relief and contributed to the year-over-year improvement. We are pleased with the return to profitability in the fourth quarter and expect to improve our 2024 segment EBITDA in dollar terms compared to 2023. Moving to Cash Flows and the Balance Sheet, we produced $87 million in free cash flow during the quarter, bringing the year-to-date total to $1.0 billion. As expected, free cash flow was relatively light in the quarter as we had $96 million of interest payments, including the first payment on the U.S. bonds issued in May, and $125 million of capital expenditures.

Rick Galloway: As part of the actions taken earlier in 2023, our average car costs decreased by 6% and 18% in Q4 relative to Q3, and Q2, respectively, which provided some margin relief and contributed to the year over year improvement. We are pleased with the return to profitability in the fourth quarter and expect to improve our 2024.

Rick Galloway: Segment EBITDA in dollar terms compared to 2023.

Rick Galloway: Shifting to cash flows and the balance sheet, we produced $87 million in free cash flow during the quarter, bringing the year to date total to 1.0 billion.

Rick Galloway: As expected free cash flow was relatively light in the quarter as we had $96 million of interest payments, including the first payment on the U S bonds issued in may and $125 million of capital expenditures.

Dominick P. Zarcone: $358 million of CapEx for the year, we exceeded our prior guidance by $58 million as we took advantage of our strong cash flow and liquidity position to make strategic purchases, some of which were pulled forward from our 2024 plan. For the year, the cash conversion ratio was 59% conversion of EBITDA to free cash flow, in line with our targeted range of 55 to 60%. With the future headwinds related to interest expense and capital spending requirements, we are widening our cash conversion target range to 50% to 60%. While we have opportunities to drive trade working capital lower, such as with the supply chain finance program, these opportunities are not as abundant as they were years ago when we began our operational excellence journey.

Rick Galloway: At $358 million of Capex for the year, we exceeded our prior guidance by $58 million as we took advantage of our strong cash flow and liquidity position to make strategic purchases some of which were pulled forward from our 2024 plan.

Rick Galloway: For the year the cash conversion ratio was 59% conversion of EBITDA to free cash flow in line with our targeted range of 55% to 60% with the future headwinds related to interest expense and capital spending requirements. We are widening our cash conversion target range to 50% to 60%.

Rick Galloway: While we have opportunities to drive trade working capital lower such as with the supply chain Finance program. These opportunities are not as abundant as they were years ago. When we began our operational excellence journey. The team has done terrific work to lower working capital levels over the last five years and the effects were seen in the strong free cash flow figures.

Dominick P. Zarcone: The team has done terrific work to lower working capital levels over the last five years, and the effects can be seen in the strong free cash flow figure. We believe we can continue to generate free cash flow in the range of one billion dollars on a recurring basis by converting earnings growth into cash flow, being efficient in our deployment of trade working capital, and expanding our supply chain finance program. As of December 31st, we had total debt of $4.3 billion with a total leverage ratio of 2.3 times EBITDA.

Rick Galloway: We believe we can continue to generate free cash flow in the range of $1 billion on a recurring basis by converting earnings growth into cash flow being efficient in our deployment of trade working capital and expanding our supply chain Finance program.

Rick Galloway: As of December 31, we had total debt of $4 3 billion with the total leverage ratio of two three times EBITDA, we paid down over $375 million and that between the acquisition of Uni select at the beginning of August and year end, a portion of which came from the sale proceeds related to the GSI business. We divested in October we remain.

Dominick P. Zarcone: We paid down over $375 million in debt between the acquisition of Uniselect at the beginning of August and year-end, a portion of which came from the sale proceeds related to the GSF business we divested in October. We remain committed to reducing our total leverage ratio to 2.0 times within 18 months of the Uniselect acquisition, or more specifically, during Q1 2025. Our current maturities include the 500 million euro senior notes due on April 1st. We are working on refinancing options and expect to have a refinancing in place in the near term. Our effective borrowing rate was 5.8% for the quarter, as market rates remained relatively high in the U.S. and Europe.

Rick Galloway: <unk> to reducing our total leverage ratio to 2.0 times within 18 months of the <unk> acquisition or more specifically during Q1 2025.

Rick Galloway: Our current maturities include the $500 million Euro senior notes due on April one we are working on refinancing options and expect to have a refinancing in place in the near term.

Rick Galloway: Our effective borrowing rate was five 8% for the quarter as market rates remained relatively high in the U S and Europe, we have $1 2 billion and unhedged variable rate debt. So 100 basis point rise in interest rates would increase annual interest expense by $12 million.

Dominick P. Zarcone: We have $1.2 billion in unhedged variable rate debt, so a 100 basis point rise in interest rates would increase annual interest expense by $12 million. I will conclude with our thoughts on projected 2024 results as shown on slides 6 and 7. Our guidance is based on current market conditions and recent trends and assumes scrap and precious metal prices hold near December prices. On Foreign Exchange, our guidance includes recent European rates with balance-of-the-year rates for the euro of $1.90. The Pound Sterling was at $1.27 and the Canadian dollar at $0.74.

Rick Galloway: I will conclude with our thoughts on projected 2024 results as shown on slide six and seven.

Rick Galloway: Our guidance is based on current market conditions, and recent trends and assumes scrap and precious metal prices hold near December prices on foreign exchange. Our guidance includes recent European rates with balance of the year rates for the euro of $1 <unk>.

Rick Galloway: The pound Sterling at $1 27.

Rick Galloway: And the Canadian dollar at 74.

We expect organic parts and services revenue growth between three 5% and five 5%. Please note that we have one to two more selling days in 2024, depending on the market with the increase coming in the second half of the year Europe will be down a selling day in Q1 due to the timing of Easter.

Dominick P. Zarcone: We expect organic parts and services revenue growth between 3.5% and 5.5%. Please note that we have one to two more selling days in 2024, depending on the market, with the increase coming in the second half of the year. Europe will be down a selling day in Q1 due to the timing of Easter. However, our 2024 estimate includes growth associated with the expansion of aftermarket parts volume resulting from State Farm and the impact of Uniselect, which will be included in Organic Parts and Services revenue beginning on August 1st. We are projecting full-year adjusted diluted EPS in the range of $3.90 to $4.20 with a midpoint of $4.05.

Rick Galloway: <unk> 2024 estimate includes growth associated with the expansion of aftermarket parts volume, resulting from state farm and the impact of Uni select which will be included in organic parts and services revenue beginning on August one.

Rick Galloway: We are projecting full year adjusted diluted EPS in the range of $3 90 to $4 20, with a midpoint of $4 five.

Dominick P. Zarcone: This is an increase of 22 cents, or 6% at the midpoint relative to the 2023 actual figure. Looking at slide 6 in the presentation, you can see how we get from the 2023 actual EPS to our 2024 guidance. Operating performance is expected to generate growth of $0.22 relative to the 2023 results, with growth coming from all four segments. We expect Europe and North America, including the UNICEF contribution, to generate more year-over-year growth than specialty and self-service. The transitory items in Europe, noted in the last few quarters, are expected to have a lesser impact in 2024 and thus will add 9 cents compared to 2023. The exchange rate benefit is negligible. Commodity prices are expected to be a headwind of $0.09 as the current precious metal prices used in the guidance are below the 2023 average. Excluding the impact of Uniselect, interest expense is projected to be a nominal impact with a higher average rate mitigated by debt paydown.

Rick Galloway: This is an increase of 22 or 6% at the midpoint relative to the 2023 actual figure looking at slide six in the presentation you can see how we get from the 2023 actual EPS to our 2020 for guidance.

Rick Galloway: Operating performance is expected to generate growth of 22 relative to the 2023 results with growth coming from all four segments.

Rick Galloway: We expect Europe, and North America, including the <unk> contribution to generate more year over year growth in specialty and self service. The transitory items in Europe noted in the last few quarters are expected to be a lesser impact in 2024, and thus will add nine compared to 2023 the.

Rick Galloway: The exchange rate benefit is nominal.

Rick Galloway: <unk> prices are expected to be a headwind of <unk> as the current precious metal prices used in the guidance or below the 2023 average.

Rick Galloway: Excluding the impact of Uni select interest expense is projected to be a nominal impact with the higher average rate mitigated by debt Paydowns.

Dominick P. Zarcone: Consistent with past practices, we have not anticipated future share repurchases beyond the call date of our guidance. We have included an effective tax rate of 26.8% in our 2024 guidance, in line with the final 2023 rate. We expect to deliver approximately $1 billion of free cash flow for the year, achieving an even conversion to free cash flow in the low 50 percent range. There are various puts and takes in this estimate, including higher cash payments, for this presentation. We feel good about the projected full-year cash flow estimate and the conversion ratio. Generating $1 billion in free cash flow provides flexibility to continue a balanced capital allocation strategy, including debt paydowns, our quarterly dividend, share repurchases, and investments in high-synergy token acquisitions.

Rick Galloway: Consistent with past practices, we have not anticipated future share repurchases beyond the call date of our guidance.

Rick Galloway: We have included an effective tax rate of 26, 8% and our 2024 guidance in line with the final 2023 right.

Rick Galloway: We expect to deliver approximately $1 billion of free cash flow for the year, achieving an EBITDA conversion to free cash flow in the low 50 percentage range.

Rick Galloway: There are various puts and takes in this estimate including higher cash payments for.

Rick Galloway: And for interest in building inventory offset by improved earnings and increased payables capital spending is expected to be at the high end of our target range again at $350 million, which includes key investments in salvage capacity and specialty distribution to support productivity and margin enhancement initiatives, we feel good about the projected full year.

Cash flow estimate and the conversion ratio generating $1 billion in free cash flow provides flexibility to continue our balanced capital allocation strategy, including debt pay downs, our quarterly dividend share repurchases and investments in high synergy tuck in acquisitions.

Dominick P. Zarcone: In terms of quarterly phasing, we expect earnings growth to be weighted more heavily to the back half of the year. Q1 has been affected by extreme weather conditions in certain markets and very low catalytic converter prices, which in recent weeks were running near 50% of the price in the same period of 2023. Q1 will also be affected by the timing of Easter, resulting in a loss-selling day in Europe.

Rick Galloway: In terms of quarterly phasing, we expect the earnings growth to be weighted more heavily to the back half of the year Q1 has been affected by extreme weather conditions in certain markets and very low catalytic converter prices, which in recent weeks, we're running near 50% of the price in the same period of 2023 Q1 will also be affected.

Rick Galloway: The timing of Easter, resulting in a loss selling day in Europe the.

Justin Jude: The balance of the year will benefit from the additional selling days mentioned previously and a ramp-up of uniselect synergies as the year progresses. Thanks for your time today. With that, I'll turn the call over to Justin to discuss his vision and priorities for LKQ going forward. Thank you, Rick, and good morning to everyone on the call. First, I am honored to be chosen to succeed Nick later this year as the next chief executive officer of LKQ, and I'm humbled to be able to lead our talented team into the future. I'd like to thank Nick for his mentorship and leadership, our board for trusting me to lead OKCUE through this next chapter, and, most importantly, I'd like to thank my wife and kids for their love, patience, and support, because without them, I wouldn't be where I am today.

Rick Galloway: The balance of the year will benefit from the additional selling days mentioned previously and a ramp up of Uni select synergies as the year progresses.

Rick Galloway: Thanks for your time today with that I'll turn the call to Justin to discuss his vision and priorities for <unk> going forward.

Justin Jude: Thank you Rick and good morning to everyone on the call first I'm honored to be chosen to succeed. Nick later this year as the next Chief Executive Officer of LKQ.

Justin Jude: Well to be able to lead our talented team into the future.

Justin Jude: I'd like to thank Nick for his Mentorship and leadership our board for their trust in me to lead I'll take you through this next chapter and most importantly, I'd like to thank my wife and kids for their love patients and support because without them I wouldn't be where I am today.

Justin Jude: As I prepare to step into the CEO role in July, I am filled with enthusiasm and a deep sense of responsibility. My vision for OKCUE is rooted in three fundamental principles: people, growth, and operational excellence. People are the heart of LKQ.

Justin Jude: As I prepare to step into the CEO role in July.

Justin Jude: Filled with enthusiasm and a deep sense of responsibility responsibility.

Justin Jude: My vision for LKQ is rooted in three fundamental principles.

<unk> growth and operational excellence deep.

Justin Jude: People are the heart of LKQ by.

Justin Jude: My first and foremost commitment is to each of my fellow team members across our global organization who are the backbone and essence of LKQI. LKQ's employee-focused culture centered around communication, accountability, integrity, and respect is not just a goal; it's a necessity for our collective success in growing our business. Delivering excellent service and products to our customers is a part of who we are. We will drive revenue organically by growing our share of wallet with our customers and being opportunistic on token acquisition. And lastly, operationally, we will continue to hone our culture of lean management throughout our operations. This will not only improve our financial metrics but will also provide a consistent and repeatable operating rhythm where our customers will see continual improvements in our service level. Alongside these principles, we will focus on four key priorities.

Justin Jude: By first and foremost commitment is to each of my fellow team members across our global organization, who are the backbone in essence of LKQ.

Justin Jude: Okay, Qs employee focused culture centered around communication accountability integrity and respect is not just a goal it's a necessity for our collective success.

Justin Jude: Growing our business delivering.

Justin Jude: Delivering excellent service and products to our customers as a part of who we are.

Justin Jude: We will drive revenue organically by growing share of wallet with our customers and being opportunistic on tuck in acquisitions.

Justin Jude: And lastly, operational excellence, we will continue to hold our culture of lean management throughout our operations.

Justin Jude: This will not only improve our financial metrics, but will also provide a consistent and repeatable operating rhythm where our customers will see continual improvements in our service levels.

Justin Jude: Alongside these principles, we will focus on four key priorities first integrate our businesses and simplify our operating model.

Justin Jude: First, integrate our businesses and simplify our operating model. Second, focus on profitable revenue growth and sustainable margin expansion. Third, drive high levels of free cash flow, which in turn will give us the flexibility to maintain a balanced capital allocation strategy and return capital back to our shareholders. And finally, invest in our future. In the short term, the North American Wholesale Team is focused on the integration of our uniselect acquisition and taking full advantage of the tremendous synergies that exist within our global footprint. I'm extremely proud of how the team is performing in this integration. As of today, we have integrated a total of 75 of the 151 Finish Master locations, representing over 52% of the consolidated revenue.

Justin Jude: Second focus on profitable revenue growth and sustainable margin expansion.

Justin Jude: Third drive high levels of free cash flow, which in turn will give us the flexibility to maintain a balanced capital allocation strategy and return capital back to our shareholders and finally invest in our future.

Justin Jude: In the short term the North American wholesale team is focused on the integration of our <unk> acquisition and taking full advantage of the tremendous synergies that exist within our global footprint.

Justin Jude: Im extremely proud of how the team is performing with the integration.

Justin Jude: As of today, we have integrated a total of 75 of the 151 finish master locations representing over 52% of consolidated revenue.

Justin Jude: Corporate synergies are largely complete and on pace to slightly exceed our expectations. The overall Synergy plan is on track to deliver above our previously stated targets well ahead of schedule. The bumper-to-bumper business in Canada completed two Tuckwin acquisitions in October of 2023, representing a total of 14 locations as we convert some of that market from three-step to two-step.

Justin Jude: Corporate synergies are largely complete and on pace to slightly exceed our expectations.

Justin Jude: The overall synergy plan is on track to deliver above our previously stated targets well ahead of schedule.

Justin Jude: The bumper to bumper business in Canada completed two tuck in acquisitions in October of 2023, representing a total of 14 locations as we convert some of that market from three step to two step.

Justin Jude: And bumper to bumper is working closely with our North American and European procurement teams to maximize additional revenue and cost synergies.

Justin Jude: And Buffer2Buffer is working closely with our North American and European procurement teams to maximize additional revenue and cost synergies. In January, Buffer2Buffer placed its first purchase order with our Europe Private Label Team, and we are confident these synergistic orders will increase over time, enhancing our offering and our competitiveness. Importantly, I want to again emphasize that Uniselect was a unique opportunity that will enable us to widen the moat around our North American business and capitalize on revenue synergies both in the paint and the hard part side that weren't there prior to this acquisition. Our North American teams are the best operators, motivators, and integrators in the industry, and the results since starting our operational excellence journey in 2019 speak for themselves. I am confident of their ability to generate positive operational and financial returns with our Uniselect business integration.

Justin Jude: In January bumper to bumper placed their first purchase order with our Europe's private label team and we are confident these synergistic orders will increase over time, enhancing our offering and our competitiveness.

Justin Jude: Importantly, I want to again emphasize that <unk> was a unique opportunity that will enable us to widen the moat around our north American business and capitalize on revenue synergies both in the paint and the hard part side that weren't there prior to this acquisition.

Justin Jude: Our North American teams are the best operators motivators and integrators in the industry and the results since starting our operational excellence journey in 2019 speaks for itself.

Justin Jude: I am confident of their ability to generate positive operational and financial returns with our units look business integration.

Justin Jude: Long term in North America, we will continue to invest both in our recycled and remanufactured EV battery process as we are a natural fit to become the market leader in this growing space turning to Europe over the last 45 days I've spent time with our European leadership team diving into multiple aspects of their business, Andy Hamilton, our new <unk>.

Justin Jude: Long-term in North America, we will continue to invest both in the recycled and remanufactured EV battery process as we are a natural fit to become the market leader in this growing space. Turning to Europe, over the last 45 days, I spent time with our European leadership team diving into multiple aspects of their business. Andy Hamilton, our new CEO for Europe, and I agree that there are many levers to pull in Europe.

Justin Jude: You have Europe, and I agree that there are many levers to pull in Europe.

Justin Jude: Our primary objective is to accelerate the integration of 1LKQ Europe to fully leverage the network of our inventory, which today is still largely country-specific. By linking the geographical and regional distribution network across our European footprint, we will drive higher levels of productivity, leading to improved fulfillment rates, enhanced customer service, and improved trade working capital. Achieving this objective will allow us to profitably grow and increase our market-leading position. Additionally, in Europe, there is an opportunity to grow our offerings in such areas as private label. Collision Components.

Our primary objective is to accelerate the integration of one LKQ Europe to fully leverage the network of our inventory, which today is still largely country specific.

Justin Jude: By linking the geographical and regional distribution network across our European footprint, we will drive higher levels of productivity, leading to improved fulfillment rates enhanced customer service and improved trade working capital.

Justin Jude: Achieving this objective will allow us to profitably grow and increase our market leading position.

Justin Jude: Additionally, in Europe, there is an opportunity to grow our offerings in such areas as private label collision components diagnostic and calibration recycling re manufacturing and EV aftermarket parts.

Justin Jude: We also have the ability to expand our LKQ Academy, a program that we offer to independent garages to enhance their EV knowledge base and capabilities, allowing these shops to see the changing technology as an opportunity. Lastly, I believe we have an opportunity to rationalize certain areas of our business through facility consolidation and fleet and logistics network optimization, which will allow us to create efficiencies across geographies and product groups. As we work through our ongoing integration efforts, we will continue to assess our mix of businesses and take decisive action to determine if we are the right owners of certain assets prior to integration. In closing, I am extremely excited about driving our mission forward and expanding a lean operating model across our entire organization with a primary objective to move swiftly. LKQ has an extraordinary history and, importantly, an extremely bright future. Now, let me turn it back over to Nick for his closing comments.

Justin Jude: We also have the ability to expand our <unk> Academy a program that we offer to independent garages to enhance their EV knowledge base and capabilities, allowing these shops to see the changing technology as an opportunity.

Justin Jude: Lastly, I believe we have an opportunity to rationalize certain areas of our business through facility consolidation and fleet and logistics network optimization, which will allow us to create efficiencies across geographies and product groups.

Justin Jude: As we work through our ongoing integration efforts, we will continue to assess our mix of businesses and take decisive action to determine if we are the right owners of certain assets prior to integrating.

Justin Jude: In closing I am extremely excited about driving our mission forward and expanding a lean operating model across our entire organization with a primary objective to move swiftly.

Justin Jude: <unk> has an extraordinary history and importantly, an extremely bright future.

Justin Jude: Now, let me turn it back over to Nick for his closing comments.

Dominick P. Zarcone: Thank you Justin for your thoughtful perspective, and comments and Rick for that detailed financial overview.

Dominick P. Zarcone: Thank you, Justin, for your thoughtful perspective and comments, and, Rick, for that detailed financial overview. Our organization has once again proven to be incredibly resilient in any operating environment. Our global teams have worked with agility and urgency to continuously achieve positive results with our Operational Excellence Strategy and establishing one LKQ, a unified and globally focused team. This success is a direct result of a shared mission amongst our over 49,000 employees, which is simply to be the leading global value-added and sustainable distributor of vehicle parts and accessories by offering our customers the most comprehensive, available, and cost-effective selection of parts and service solutions while I'm confident LKQ will live that mission in 2024 and excel through this leadership transition. LKQ's future is very bright with Justin at the helm, and with that operator, we are now ready to open the call to questions. Thank you. As a reminder, if you'd like to register an audio question, please press star one on your telephone keypad. If you change your mind, please press star two, and please ensure you're unmuted when speaking.

Speaker Change: Our organization has once again proven to be incredibly resilient in any operating environment. Our global teams have worked with agility and urgency to continuously achieved positive results with our operational excellence strategy and establishing one LKQ a unified.

Speaker Change: And globally focused team.

Speaker Change: This success is a direct result of a shared mission amongst our over 49000 employees.

Speaker Change: Just simply being the leading global value added and sustainable distributor of vehicle parts and accessories.

Speaker Change: Offering our customers the most comprehensive available and cost effective selection of parts and service solutions, while building strong partnerships with our employees and the communities in which we operate.

Speaker Change: I am confident LKQ will live that mission in 2024 and excel through this leadership transition <unk> future is very bright with Justin at the helm and with that operator, we are now ready to open the call to questions.

Speaker Change: Thank you as a reminder, if you'd like to register an ODM question. Please press star one on your telephone keypad. If you change your mind. Please press star two I'm. Please ensure your mute when speaking we also ask participants to please limit themselves to one question with an additional follow up.

Operator: We'd also ask participants to please limit themselves to one question with an additional follow-up. Our first question comes from Daniel Imbro. Ask Stephens.

Speaker Change: Our first question comes from Daniel <unk> of Stephens, Daniel The line is yours.

Daniel Imbro: Daniel, the line is yours. Yeah. Hey, good morning, everybody, and congrats on the quarter. Good morning.

Daniel: Yeah, Hey, good morning, everybody and congrats on the quarter.

Daniel: Hey, good morning, Justin I'm going to start maybe on.

Daniel Imbro: Good morning, Daniel. Just a moment to start. Good morning.

Daniel Imbro: I'm going to start on the North American side. Rick, Jess, I know you guys aren't guiding to growth by segment, but obviously, it's been holding in there nicely this year. Would this three and a half to five and a half kind of organic growth guide be a fair range for North America as well?

Daniel: I wonder if the North American side.

Daniel: Rick Jeff I know you guys aren't guiding to growth by segment, but obviously, it's been holding in there nicely. This year with the three to five and a half kind of organic growth guide would be a fair range for North America.

Dominick P. Zarcone: And could you break out maybe your expectations or what you plan on seeing between pricing and then traffic growth as we head through the new year here on the North American side? Yes, sure. Thanks, Daniel.

Speaker Change: As well and could you break out maybe your expectations of where you plan on seeing between pricing and then traffic growth as we head through the new year here in North America.

Rick Galloway: Yeah sure Thanks, Dan and thanks for the question.

Dominick P. Zarcone: Thanks for the question. The way to think about it, I talked a little bit about it in the prepared remarks, specialty is going to be in the low single digits, so that's going to be on the downside of it, whereas North America and Europe will actually be on a little bit of a higher side. When you think about both of them, it's going to be primarily driven by volumes as far as where that's going to come out for our North American operations. And then I did talk a little bit about the EBITDA percentage with Uniselect included. 17% is the number that we're guiding towards for our North American operations. Great. And then, as a follow-up, one touch on the balance sheet: obviously, free cash generation remains strong. I want to focus on vendor financing in Europe. Is there still room to drive that higher?

Rick Galloway: The the way to think about it I talked a little bit about it in the prepared remarks specialty is going to be in the low single digits. So that's going to be on the downside of it whereas North America and.

Speaker Change: In Europe, we will actually be on the little bit of a higher side. When you think about both of them, it's going to be primarily driven by volumes.

Speaker Change: As far as where that's going to come out for our North American operations, and then I did talk a little bit about the EBITDA percentage.

Speaker Change: With Uni select included 17% is the number that we're guiding towards.

Speaker Change: For our North American operations.

Speaker Change: Great and then as a follow up one touch on the balance sheet, obviously free cash generation remains strong.

Speaker Change: I want to focus on vendor financing over in Europe is there still room to drive that higher can you provide any quantification on maybe the progress you've made Rick over the last few years and then in terms of uses of cash good to see the buyback restart here in <unk> or are you comfortable with that being a more ratable part of capital allocation moving forward.

Dominick P. Zarcone: Can you provide any quantification on maybe the progress you've made, Rick, over the last few years? And then, in terms of uses of cash, it's good to see the buyback restart here in 4Q. Are you comfortable with that being a more measurable part of capital allocation moving forward? Yeah, I appreciate the question. You're spot on. The inventor financing program, and supplier financing program; we're very pleased with what we saw. We ended the year with $411 million in the inventor financing program.

Rick Galloway: Yes, I appreciate the question Youre spot on the vendor financing program supplier financing program. We're very pleased with where we saw we ended the year at $411 million of.

And the vendor financing program that includes $71 million related to Uni select.

Dominick P. Zarcone: That includes $71 million related to Uniselect with the acquisition that we did. That's compared to $244 million that we had at the end of 2022. Obviously, there's going to be some ups and downs. We finished a little bit on the high end from what we expected, but we had very good usage. We'll continue to see a little bit more going into that, particularly for our European operations but also for our Uniselect operations, hoping to drive a little bit more free cash flow, but it's not going to be at those same levels. It's not going to be a 20% increase going into 2024, so I'd caution you to not put too much in there as far as that goes.

Rick Galloway: With the acquisition that we did that's compared to $244 million that we had at the end of 2022.

Rick Galloway: Obviously, theres going to be some ups and downs, we finished a little bit on the high end from what we expected, but very good usage, we will continue to see a little bit more going into that particularly for our European but also for our Uni select operations, helping to drive a little bit more free cash flow, but it's not going to be at those same levels is not going be a 20% increase going into 2024 side cost.

Rick Galloway: Can you to not put too much in there as far as that goes and then on the.

Dominick P. Zarcone: And then on the share repurchases, we're pleased with where we are turning out on free cash flow. We hit the billion dollars that we had talked about. That's inclusive of the $30 million that we purchased in Q4 on shares. And then again, we were active in Q1, and we think that this will be a regular piece of it. Obviously, there's a significant commitment that we made on the leverage ratios getting down to two times within the first 18 months. So that's technically, January or Q1 of 2025.

Rick Galloway: Share repurchases were pleased with where we are turning out on free cash flow, we hit the $1 billion that we had talked about that.

Rick Galloway: Thats inclusive of the $30 million that we purchased in Q4 on shares.

Rick Galloway: And then again, we were active in Q1, and we think that this will be a regular piece of it. Obviously there is significant commitment that we've made on the leverage ratio is getting down to two times within the first 18 months. So that's technically.

Rick Galloway: January or Q1 of 2025, so there'll be a significant over waiting on on the debt payments throughout the year, but we will be active as we see opportunities.

Dominick P. Zarcone: So there'll be a significant overweighting on the debt payments throughout the year, but we will be active as we see opportunity. Our next question comes from Michael Hoffman of Stiefel. Michael, please go ahead.

Rick Galloway: Our next question comes from Michael Hoffman of Stifel. Michael. Please go ahead.

Michael E. Hoffman: Good morning.

Michael E. Hoffman: Good morning, and Nick, I know you've got one more earnings call, but you do get to leave the business better than you found it, so well done. Thank you, Michael. So my question is back to free cash. I think you're getting a lot of that today probably, and there are two parts to it. When do we get back to a compounded growth rate in the cash?

Michael E. Hoffman: Nick I know you've got one more earnings call, but you do get to leave the business better than you found it so well done.

Michael E. Hoffman: Thank you Michael.

Michael E. Hoffman: So my question is back to the free cash I think youre going to a lot of these today probably.

Speaker Change: And there's two parts of it.

Michael E. Hoffman: When do we get back to a compounded growth rate and the cash and then and then the European question part of that as well.

Michael E. Hoffman: And then and then the European question part of that is, What's the remaining gap between payables and inventory in Europe that is an opportunity to capture that would drive some of that competition? Yeah, thanks, Michael. As far as free cash flow goes, if you think about the last couple of years, and I talked briefly about this in the prepared remarks, we were able to drive a significant portion of some of our lower-hanging fruit on trade work and capital. And then, in addition to that, we did have a little bit of a benefit in the last couple of years, not 23, but prior to that, on CapEx as well, where we had some supply chain If you think back to, like, 2020, when we had a high, we only had about $172 million in CapEx, whereas we had $358 million this year. So there's pretty significant catch-up, if you will, on that portion.

Michael E. Hoffman: Whats the remaining gap between payables and inventory in Europe that is.

Michael E. Hoffman: As an opportunity to capture that would drive some of that compounding.

Speaker Change: Yes, Thanks, Michael.

Speaker Change: As far as the free cash flow goes if you think about the last couple of years I talked briefly about this in the prepared remarks.

Speaker Change: We were able to drive a significant portion of some of our lower hanging fruit on trade working capital and then in addition to that we did have a little bit of a benefit in the last couple of years now.

Speaker Change: 'twenty three but prior to that if you if you're looking back a little bit on capex as well, where we did we had some supply chain financing or not supply chain financing, but supply chain issues and getting some of those materials and so capex was a little bit lower if you think back to like 2020, when we had a high.

Speaker Change: We only delivered we only.

Speaker Change: Had about $172 million of Capex, whereas we had 358 this year. So there's pretty significant catch up if you will on that on that portion. So what I would say is we're at a normalized level and the compounding youre talking about with EBITDA and then driving overall earnings and then driving free cash flow that's what.

Dominick P. Zarcone: So what I would say is we're at a normalized level, and the compounding you're talking about with EBITDA, and then, you know, driving overall earnings, and then driving free cash flow, that's what we should start expecting as we've just now normalized that amount. As far as the opportunity in Europe goes, we think that there's still an opportunity. I wouldn't necessarily put a number to it, Michael. I think we had about a 20% improvement, a little over a 20% improvement, in our vendor financing program in 2023, which is great. It's not going to be 20% in 2024.

Speaker Change: We should start expecting as we've just now normalize that amount as far as the opportunity in Europe goes we.

Speaker Change: We think that there's still opportunity I wouldnt put necessarily a number to it Michael.

Speaker Change: We had about a 20% improvement little over 20% improvement in our vendor financing program in 2023, which is great. It's not going to be 20% in 2024, it's going to be lower than that but it's still going to be positive and still going to be.

Dominick P. Zarcone: It's going to be lower than that, but it's still going to be positive and still going to be cash generation coming out of our trade working capital going into 2024. Okay, and then my second question, Justin alluded to the possibility of portfolio optimization, and I'll get very specific.

Speaker Change: Cash generation coming out of our trade working capital going into 2024.

Speaker Change: Okay and then my second question, Justin alluded to the possibility of.

Speaker Change: Portfolio optimization, and I will get very specific.

Justin Jude: You know, I get that self-serve was the start of the company, but at this point, do you need to own the self-serve business? be the LKQ you are today going forward. So, you know, first off, I would say our self-serve team did very well through some challenging conditions in 23. But I'll give you an answer on my overall thoughts on portfolio management, which really haven't changed from the company standpoint, from Nick's standpoint. You know, our job is always to look at whether we're the right owners of the businesses, whether it's product lines, whether it's businesses that operate in different geographies. And if they fit in with our long-term operating model, if they hit our financial metrics, it's something we'll look at keeping and optimizing, and if not, we'll optimize it and look to split. But I would say that's just my general idea about portfolio management.

Speaker Change: I get that self serve was the start of the company, but at this point do you need to own the self serve business to be the LKQ you are today going forward.

Justin Jude: So first off I would say our self serve team managed very well through some challenging conditions in 'twenty three but.

Justin Jude: But I'll give you an answer on my overall thoughts on portfolio management, which really hasnt changed for from the company standpoint from a mix standpoint.

Justin Jude: Our job is always to look at whether we're the right owners of the businesses, whether it's product lines, whether it's businesses that operate in different geographies and if they fit in our long term operating model if they hit our financial metrics, it's something we'll look at keeping it optimizing and if not we'll optimize it and look to split but I would say that's just my general I'd.

Justin Jude: On portfolio management, historically self serve has been a decent business for us too.

Justin Jude: Historically, self-serve has been a decent business for us, too. Our next question comes from Craig Kennison of Baird. Craig, the line is yours. Hey, good morning, and Nick and Justin, congratulations to you both. Question. Thanks, Justin.

Justin Jude: Our next question comes from Craig Kennison, Baird, Craig Milan as yours.

Craig Kennison: Hey, good morning, and Nick and Justin Congratulations to you both.

Craig Kennison: Question. Thanks, Justin I think he would tell.

Craig Kennison: I think you, Europe, and some levers that you and Andy might pull. Maybe you could dig into that a little more, especially on the private label side, but any other levers that you can pull to drive margin expansion. Yeah, sure.

Craig Kennison: Europe, and some levers that you and Andy might Paul maybe you could dig into that a little more especially on the private label side, but any other levers.

Craig Kennison: That you can pull to drive margin expansion.

Justin Jude: Yes, sure and thanks for the question I have spent several weeks over in Europe meeting the teams over there the leaders of our different businesses I'm very optimistic about our future spent quite a bit of time with Andy Hamilton, our new CEO.

Justin Jude: And thanks for the question. Yeah, I have spent several weeks in Europe meeting the teams over there, the leaders of our different businesses. I'm very optimistic about our future, and I spent quite a bit of time with Andy Hamilton, our new CEO. You know, Andy did run our ECP operations in the UK, which was, you know, our highest profitable and one of our highest performing businesses that drive private label. Some of the things that he and I have talked about that he's laser focused on are category management, and that includes driving more private label, which will bring us better margins, really leveraging our inventory and logistics without borders. Today, we're very optimized within the countries in which we operate, but we're still independent within those countries.

Justin Jude: Andy did run our ECP operations in the UK, which was our highest profitable and one of our highest.

Justin Jude: Businesses that drive private label.

Justin Jude: Some of the things that him and I have talked about that and then he is laser focused on is category management and that includes driving more private label, which will bring us better margins really leveraging our inventory and logistics without borders today were very optimized within countries for which we operate but were still independent within those countries. So we're going to continue to accelerate the one LKQ Europe.

Justin Jude: So we're going to continue to accelerate 1LKQ Europe to leverage that inventory, and bring in free capital. In addition, it'll give us better fulfillment rates, which will drive organic revenue, and also improve labor productivity. And so these are things that Andy's been, once again, laser focused on with his team, and him and I are aligned on that pretty well. So, very optimistic about the opportunities in Europe. As a follow-up, is there a way to frame your fulfillment rates in Europe and contrast them with what you can achieve in the U.S. or North America? You know, there are a lot of different product lines today. We're heavily collision-focused in the U.S. and North America versus hard parts over there.

Justin Jude: So leverage that inventory freeing up capital in.

Justin Jude: In addition, it will give us better fulfillment rates, which will drive organic revenue and also looking at labor productivity and so these are things that Andy has been once again laser focused on with his team and I are aligned on that pretty well, so I'm very optimistic about the opportunities in Europe.

Justin Jude: As a follow up is there a way to frame your fulfillment rates in Europe, and contrast them with what you can achieve in the U S or in North America.

Justin Jude: It's a lot of different product lines today, we're heavily collision focused in the U S and North America versus hard parts over there.

Justin Jude: We're grabbing some of, I would say, the best practices to track fulfillment rates. We have a lot of orders in our European operations that are not necessarily on the phone like they are in the U.S., so a lot of online, and a lot of e-commerce with businesses. But one of the things is, when we look at category management and we rationalize some of the different excess product lines that we may carry, still carrying an application for what the customer is looking for, but maybe not so many different brands, that will actually allow us to drive our fulfillment rates up. As a reminder, for any further questions, that's a star followed by one on your telephone keypad. Our next question comes from Bret Jordan of Jefferies. Bret, please go ahead.

Justin Jude: We're grabbing some of it I would say the best practices to track fulfillment rates, we have a lot of orders in our European operations that are not necessarily on the phone like they are in the U S. So a lot of online Lotte e-commerce with businesses.

Justin Jude: But one of the things when we look at category management, and we rationalized some of the different excess product lines that we may carry still carrying an application for what the customers looking for but maybe not so many different brands that will actually allow us allow us to drive our fulfillment rates up.

Justin Jude: As a reminder for any further questions that star followed by one on your telephone keypad. Our next question comes from Bret Jordan of Jefferies. Bret. Please go ahead.

Bret Jordan: Hey, good morning, guys.

Bret Jordan: Hey, good morning, guys. Good morning, Brett. You talked about bumper to bumper doing some purchasing from European vendors. Could you talk about how much supply chain synergy there is there? How much bumper to bumper product could come from existing vendors?

Bret Jordan: Good morning, Brett you talked about bumper to bumper doing some purchasing from European vendors could you talk about how much supply chain synergy there is there how much buffer above our product could come from existing.

Dominick P. Zarcone: Yeah, we've got, so Bret, I'll start and then if you want to chime in, Justin, so we've identified within the $55 million some procurement synergies. It's less than a $10 million number as far as the overall opportunities on that portion of it that we have already been active talking back and forth with our European operations in driving some of that. And it's been real small thus far, as far as the opportunity goes, getting into the P&L, but it is progressing nicely. So Justin, I don't know if you want to add anything.

Bret Jordan: <unk>.

Speaker Change: Yes, we've got so Brad I'll start and then if you want to chime in Justin So.

Brett: We've identified within the $55 million, some procurement synergies, it's less than $10 million number as far as the overall opportunities on that on that portion of it that we have been already active talking back and forth with our European operations.

Justin Jude: And driving some of that and it's been real small thus far as far as the opportunity goes.

Justin Jude: Getting into the P&L, but it is progressing nicely said just I don't know if you want to add anything to.

Dominick P. Zarcone: Yeah, to your point, we have started leveraging our European supply chain, bringing in some private labels that we already operate on or already carried at bumper to bumper in Canada. Our next phase is looking at new product lines that today bumper to bumper does not carry. So it's not only a cost of goods to be there but also revenue generation and margin improvement with new brands and new product lines offered within the private label.

Speaker Change: To your point, we have started leveraging our European.

Speaker Change: Supply chain, bringing in some private label that we already operate alone are already carried in bumper to bumper in Canada. Our next phase of looking at new product lines that today bumper to bumper does not carry so it's not only a cost of goods to be there, but also a revenue generation and margin improvement with new brands and new product lines offering within the private label. So yes, you will be.

Dominick P. Zarcone: Yeah, you recall that when we announced the transaction back in February 23, one of the opportunities we saw actually related to European makes and models. Because today, up in Canada, that cohort of cars represents about 10% of the car park, but bumper to bumper historically has distributed almost zero product for European makes and models. And we know somebody who knows a lot about the European marketplace, and that's where the focus will be, to bring in product lines to service that 10% of the market up in Canada. Okay, and then you talked about EV battery recycling. And I guess, you know, what that means? Are you talking about extracting them or actually processing them like redwood materials? Is that North America or Europe? And is that a capital investment to get into that business?

Speaker Change: Call that when we announced the transaction back in February of 23, one of the opportunities we saw actually related to European make some models because today up in Canada.

Dominick P. Zarcone: Yes, so our primary focus right now, Bret, is on the remanufacturing of the batteries, taking a battery that's not operating at normal levels, taking out the cells that are defective, putting in new cells, and getting that battery back on the road, essentially extending the life of the powertrain. We have, as we noted last year, we're talking with some third parties about recycling, not where we would be operating facilities, but where we could be a partner, because nobody has access to the batteries. None of the folks trying to do the recycling really have access to the supply chain.

Speaker Change: With some third parties about recycling not where we would be operating facilities, but we can be a partner because nobody has access to the batteries none of the <unk>.

Speaker Change: Folks trying to do the recycling really have access to the supply chain and with our salvage operations. We are the perfect entity to help partner. So we we.

Dominick P. Zarcone: And with our salvage operations, we are the perfect entity to help partners. So we are taking a hard look at key partnerships that could help us move forward on the recycling side, but we would not necessarily be owning and operating large recycling facilities. With that, we have no further questions on the line, so I'll hand back to Nick for any closing remarks. Well, we certainly thank you for your time and attention this morning and for a productive call. A good set of questions.

Speaker Change: We are taking a hard look at at.

Speaker Change: Keep partnerships that could.

Speaker Change: Help us move forward on the recycling site, but we would not be necessarily owning and operating large recycling facilities.

Speaker Change: With that we have no set of of questions on the line. So a hand back to Nick for any closing remarks.

Dominick P. Zarcone: Well, we certainly thank you for your time and attention this morning and for a productive call a good set of questions.

Dominick P. Zarcone: Just a couple of key dates for everyone to keep in the back of their minds. First, our first quarterly call is going to be on Tuesday, April 23rd. Normally, we host our calls on Thursday, but this year, that week in April is an overlap with our annual leadership conference in North America, which begins on Thursday, the 25th. So our Q1 reporting will be on Tuesday, April 23rd. Second, we'd like everyone to mark their calendars for our 2024 Investor Day, and that's going to take place on September 10, and will be held at our North American headquarters down in Nashville, Tennessee. So April 23rd and September 10th.

Dominick P. Zarcone: Just a couple of key dates for everyone to keep in the back of their mind first our first quarter call is going to be on Tuesday, Tuesday April 23rd normally we host our calls on Thursday, but this year that week in in April.

Dominick P. Zarcone: As the overlap with our annual leadership conference in North America, which begins on Thursday, the 25th So Q1 reporting will be on Tuesday April 23rd.

Dominick P. Zarcone: <unk>, we'd like everyone to mark their calendars for our 2024 Investor day, and that's going to take place on September 10.

Dominick P. Zarcone: And will be held at our North American headquarters down in Nashville, Tennessee, So April 23rd and September 10th and with that I'd like to thank everybody on the call for your time and attention and is always extend my sincere. Thanks to the 49000 strong okay cures, who make it half.

Dominick P. Zarcone: And with that, I'd like to thank everybody on the call for your time and attention, and, as always, extend my sincere thanks to the 49,000 strong LK Cures who make it happen every day. Take care, everyone. Ladies and gentlemen, thank you for joining today's call. You may now disconnect your lines.

Dominick P. Zarcone: And every day take care of everyone.

Speaker Change: Ladies and gentlemen, thank you for joining today's call you may now disconnect your lines.

Speaker Change: [noise].