Q1 2024 LKQ Corp Earnings Call

Operator: Good morning everyone. My name is Angela, and welcome to the LKQ Cooperation 1st Quarter 2024 Earnings Conference Call. I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing the star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I will now hand you over to your host, Joe Boutross, Vice President of Investor Relations for LKQ. Joe, please go ahead. Thank you.

Good morning, everyone. My name is.

Angela.

And welcome to the L. P Q cooperation.

Angela: First quarter 'twenty 'twenty four earnings conference call I will be coordinating your call today.

Angela: During the presentation you can register to you ask a question by pressing star followed by one on your telephone keypad. If you change your mind. Please press star followed by T.

Angela: I will now hand, you over to your host Joe <unk>, Vice President of Investor Relations for LKQ. Joe. Please go ahead.

Joseph P. Boutross: Thank you, operator. Good morning, everyone, and welcome to LKQ's first quarter 2024 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.

Joe: Good morning, everyone and welcome to Lkq's first quarter 2024 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.

Joe: 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.

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 for more information. Please refer to the risk factors discussed in our Form 10-K, and subsequent reports filed with the SEC.

Joseph P. Boutross: 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. Hopefully, everyone has had a chance to look at our 8K, which we filed with the SEC earlier today. And as normal, we're planning to file our 10Q in the coming days. And with that, I am happy to turn the call over to our CEO, Nick Zarcone.

Joe: 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 8-K, which we filed with the SEC earlier today and as normal we are planning to file our 10-Q in the coming days and with.

Joe: 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 listening to our earnings call for the first quarter of 2024. I will make a few introductory remarks.

Dominick P. Zarcone: Thank you Joe and good morning to everybody listening to our earnings call for the first quarter of 2024 I'll provide a few introductory remarks, Justin will then provide some highlights to our Q1 segment activities.

Dominick P. Zarcone: Justin will then provide some highlights of our Q1 segment activities. Rick will provide a review of the financial details of the quarter and our guidance for the year before I have a few closing remarks. I'm turning 66 in a few days, and as reported in late November, I will be retiring as CEO of LKQ on June 30.

Dominick P. Zarcone: Rick will provide a review of the financial details of the quarter and our guidance for the year before I have a few closing remarks.

Speaker Change: I'm turning 66 in a few days and as reported in late November I will be retiring as CEO of LKQ on June 30th.

Dominick P. Zarcone: With that, this will be my 38th and final quarterly earnings call with all of you. It has been an absolute honor and privilege to serve LKQ and to interface with the investment community since joining the company in early 2015. I am incredibly proud of the organization, my team, and all we've achieved over the years.

Speaker Change: That this will be my third and final quarterly earnings call with all of you.

Speaker Change: It has been an absolute honor and privilege to serve LKQ and to interface with the investment community since joining the company in early 2015, I am incredibly proud of the organization my team and all we've achieved over the years, we are very different company today than the one <unk>.

Dominick P. Zarcone: We are a very different company today than the one I joined almost 10 years ago, one that is focused on operational excellence, balanced capital allocation, improved returns on capital, and the development of our most important asset, our people. The first quarter of 2024 proved to be a difficult environment for our business, and our results came in below expectations. While we did a reasonable job of managing the items under our control, we experienced soft overall market conditions, largely due to incredibly mild winter weather in North America, which reduced demand for collision parts and the continued soft demand for our specialty products.

Speaker Change: Joined almost 10 years ago.

Speaker Change: One that is focused on operational excellence.

Speaker Change: <unk> capital allocation improved returns on capital and the development of our most important asset our people.

Speaker Change: First quarter of 2024 proved to be a difficult environment for our business and our results came in below expectations.

Speaker Change: While we did a reasonable job of managing the items under our control we experienced softer overall market conditions, largely due to an incredibly mild winter weather in North America, which reduced demand for collision parts and the continued soft demand for our specialty products. These.

Dominick P. Zarcone: These market factors created pressure on revenue and overall operating leverage. We have already made adjustments to our cost structure in light of the current levels of demand related to Europe and our business in Germany. However, there has been no material progress with our union negotiations in Germany. To help insulate our customers in that market, we have increased our temporary workforce to largely mitigate the revenue impact of the risk of ongoing strikes. And we've opened a second, albeit a much smaller, distribution facility in Bielefeld, Germany, which is outside of Bavaria and not impacted by union activity.

Speaker Change: These market factors created pressure on revenue.

Speaker Change: Overall operating leverage.

Speaker Change: We have already made adjustments to our cost structure in light of the current levels of demand.

Speaker Change: Related to Europe, and our business in Germany, There has been no material progress with our union negotiations in Germany to help insulate our customers in that market. We have increased our temporary workforce to largely mitigate the revenue impact with the risk of ongoing strikes and we've opened a.

Speaker Change: Second, albeit a much smaller distribution facility in <unk>, Germany, which is outside of prep area and not impacted by the union activity.

Dominick P. Zarcone: Overall, we remain optimistic about the remainder of the year. Now on to the quarterly results. Revenue for the first quarter of 2024 was $3.7 billion, an increase of 10.6% compared to the $3.3 billion for the first quarter of 2023. For the first quarter of this year, parts and services organic revenue decreased 3 tenths of 1% on a reported basis, but increased 1 half of 1% on a per day basis. Foreign exchange rates increased revenue by 0.8% to 1%, and the net impact of acquisitions and divestitures increased revenue by 11.6% year-over-year, for a total parts and services revenue increase of 12.1%.

Speaker Change: Overall, we remain optimistic about the remainder of the year.

Speaker Change: Now onto the quarterly results revenue for the first quarter of 2024 was $3 7 billion, an increase of 10, 6% compared to the $3 $3 billion for the first quarter of 2023.

Speaker Change: For the first quarter of this year parts and services organic revenue decreased three tenths of 1% on a reported basis, but increased one half of 1% on a per day basis.

Speaker Change: Foreign exchange rates increased revenue by eight tenths of 1% and the net impact of acquisitions and divestitures increased revenue by 11, 6% year over year for a total parts and services revenue increase of 12, 1%.

Dominick P. Zarcone: Other revenue for the first quarter of 2024 fell 14.6%, primarily due to weaker precious metal prices relative to the same period in 2023. The diluted earnings per share for the first quarter of 2024 was $0.59 compared to $1.01 for the same period in 2023. Adjusted diluted earnings per share was $0.82 for the first quarter of 2024, compared to $1.04 for the same period of 2023. Lastly, on April 22nd, the Board of Directors declared a quarterly cash dividend of 30 cents a share of common stock payable on May 30th, 2024 to stockholders of record at the close of business on May 16th, 2024. And now, let me turn the call over to Justin.

Speaker Change: Other revenue for the first quarter of 2024 call 14, 6%, primarily due to a weaker precious metal prices relative to the same period in 2023.

Speaker Change: Diluted earnings per share for the first quarter of 2024 was 59.

Speaker Change: Compared to $1 <unk> for.

Speaker Change: For the same period of 2023.

Speaker Change: Adjusted diluted earnings per share was <unk> 82.

Speaker Change: For the first quarter of 2024 compared to $1 <unk> for the same period of 2023.

Speaker Change: Lastly on April 20, <unk> the board of directors declared a quarterly cash dividend of <unk> 30, a share of common stock payable on May 30, <unk> 2024 to stockholders of record at the close of business on May 16th of 2024, and now let me turn the call over to Justin.

Justin L. Jude: Thank you, Nick, and welcome, everyone, to the call. As Nick mentioned, we are not pleased with the results delivered in the first quarter. However, I do think the team is focused and on the right track to confront some of the anomalies we faced, and I'll detail some of those action plans on this call. During our February call, Rick discussed our guidance for the year and indicated that we expected a softness in Q1, and our four-year guidance was back and loaded.

Justin L. Jude: Thank you Nick and welcome everyone to the call as Nick mentioned, we are not pleased with the results delivered in the first quarter. However, I do think the team is focused in on the right track to confront some of the anomalies, we faced and I'll detail some of those action plans on this call.

Justin L. Jude: During our February call, Rick discussed our guidance for the year and indicated that we expected a softness in Q1 and our full year guidance was backend loaded rich.

Justin L. Jude: Rick's comment was correct, as we did experience a SOP in Q1, but it was beyond what we, in the overall markets in which we operate, anticipated. That said, we are a continuous improvement company. And we know how to drive improved operational and financial performance across our entire global footprint. While we got off to a slower than expected start for the year, our team has three more quarters to recover the shortfall, and we are confident we have actions in place to achieve the previously communicated EPS guidance.

Justin L. Jude: <unk> comment was correct as we did experienced a soft Q1, but it was beyond what we and the overall markets in which we operate anticipated.

Justin L. Jude: That said, we are a continuous improvement company and we know how to drive improved operational and financial performance across our entire global footprint.

Justin L. Jude: While we got off to a slower than expected start for the year. Our team has three more quarters to recover the shortfall and we are confident we have actions in place to achieve the previously communicated EPS guidance, Rick will cover more of these in his prepared remarks.

Justin L. Jude: Rick will cover more of these in his prepared remarks. Now, for a few high-level segment comments. In Wholesale North America, organic revenue decreased 3.3% due to a few key factors. First, we were coming off a strong comp of 14.4% growth in Q1 of last year. Second, there was an 8% decline in repairable claims. While this decline was largely driven by the extremely mild winter weather that Nick mentioned, as the U.S. experienced the fifth warmest quarter on record, there were several other dynamics, such as abnormal changes in auto insurance rates and used car pricing that we believe also had a negative impact.

Justin L. Jude: Now for a few high level segment comments.

Justin L. Jude: In wholesale North America organic revenue decreased three 3% due to a few key factors first we were coming off a strong comp of 14, 4% growth in Q1 of last year second there was an 8% decline in repairable claims.

Justin L. Jude: While this decline was largely driven by the extremely mild winter weather that Nick had mentioned as the U S experienced the fifth warmest quarter on record there were several other dynamics such as abnormal changes in auto insurance rates and used car pricing that we believe also had a negative impact.

Justin L. Jude: Finally, we experienced some challenges with aftermarket inventory entering the East Coast ports due to the ongoing Panama Canal disruption. We have yet to witness any disruption from the Baltimore tragedy, but we are closely monitoring the situation. Offsetting some of the aftermarket inventory delays, the salvaged business posted positive growth in a quarter. As the North American team faced soft demand, John Meining and his team immediately shifted their focus to accelerating the integration of FinishMaster.

Justin L. Jude: Finally, we experienced some challenges with aftermarket inventory entering the east coast Port due to the ongoing Panama Canal disruption, we have yet to witness any disruption from the Baltimore tragedy, but we are closely monitoring the situation offsetting some of the aftermarket inventory delays the salvage business posted positive growth in the quarter.

Justin L. Jude: As the North American team faced the soft demand John mining and his team immediately shifted their focus to accelerating the integration of finished master.

Justin L. Jude: This swift action resulted in the consolidation of 65 branches in Q1, bringing the total to 99, which represents two-thirds of the acquired locations. We initially communicated the rationalization of the finished master locations would take us three years to reach this synergy level, and I'm impressed the team was able to accomplish this within the first eight months following the acquisition closing. Today, 100% of Finishmaster sales and operations have been fully integrated.

Justin L. Jude: This swift action resulted in the consolidation of <unk> 65 branches in Q1, bringing the total to 99, which represents two thirds of the acquired locations.

We initially communicated the rationalization of the finished master locations that would take US three years to reach this synergy level and I'm impressed that team was able to accomplish this within the first eight months following the acquisition closing.

Today, 100% of finished mattress sales and operations have been fully integrated.

Justin L. Jude: And through this process, the team uncovered additional synergies, allowing us to increase the previously disclosed estimate amount from $55 million to $65 million. This effort caused some short-term strain on the team, slightly impacting margins, but it was the right thing to do long-term. And we continue to make strides with our bumper-to-bumper business in Canada by leveraging the European procurement size and scale. 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 that exist with paint and hard parts.

Justin L. Jude: And through this process the team uncovered additional synergies, allowing us to increase the previously disclosed estimate amount from $55 million to $65 million.

Justin L. Jude: This effort cause some short term strain on a team slightly impacting margins, but it was the right thing to do long term.

Justin L. Jude: And we continue to make strides with our bumper to bumper business in Canada by leveraging the European procurement size and scale.

Justin L. Jude: 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 that exists with paint and hard parts I am confident and committed to this transaction generating positive financial metrics for all stakeholders.

Justin L. Jude: I am confident and committed to this transaction generating positive financial metrics for all stakeholders. In Europe, organic revenue increased 2.7% on a reported basis and 4.4% on a per-day basis, the best across our operating segments. Rick will cover the EBITDA results in his remarks, but let me cover several actions taking place to drive improved performance. I made four different trips to our European operations in the first quarter to meet with a broader leadership team and look for improvement opportunities.

Justin L. Jude: In Europe organic revenue increased two 7% on a reported basis and four 4% on a per day basis, the best across our operating segments.

Justin L. Jude: Rick will cover the EBIT results in his remarks, but let me cover several actions taking place to drive improved performance I have made for different trips to our European operations in the first quarter to meet with the broader leadership team and look for improvement opportunities I am pleased to see how focused the team is to drive integration and improved performance all with the goal.

Justin L. Jude: I am pleased to see how focused the team is on driving integration and improving performance, all with a goal of enhancing our margins. Andy Hamilton and his team have deployed new detailed tracking tools that are actively being reviewed.

Justin L. Jude: Full of enhancing our margins.

Justin L. Jude: Andy Hamilton and his team have deployed new detailed tracking tools that are actively being reviewed.

Justin L. Jude: These tools include pricing actions, productivity initiatives, a restructuring plan focused on taking costs out of the business, portfolio investments, and implementing new technology within our distribution centers to lower the total cost of delivery to our customers. In Germany, we expanded our distribution capacity by opening a second, highly automated regional distribution center, which will reduce the strain on our primary distribution center in Bavaria, where the strikes have been occurring. Specific to divestitures, and after careful and thorough analysis of our European business model, market trends, and the overall economic environment, we made the strategic decision to divest our operations in Slovenia to a long-term value partner of LKQ. That sale closed last week.

Justin L. Jude: These tools include pricing actions productivity initiatives, a restructuring plan focused on taking cost out of the business portfolio divestments and implementing a new technology within our distribution centers to lower the total cost of delivery to our customers.

Justin L. Jude: In Germany, we expanded our distribution capacity by opening a second highly automated regional distribution center, which will reduce the strain on our primary distribution center in Bavaria, where the strikes had been occurring.

Justin L. Jude: Specific to divestitures and after careful and thorough analysis of our European business model market trends and the overall economic environment. We made the strategic decision to divest our operations and Slovenian to a long term valued partner of LKQ.

Justin L. Jude: That sale closed last week.

Justin L. Jude: Additionally, we entered into an agreement to divest our operations in Bosnia, and we expect to complete that sale in Q3, subject to the receipt of regulatory approval. We will continue to assess our business and our European market mix to determine if we are the best operator and whether we should fix or exit certain underperforming markets. Given the small size of these divestitures, we are not disclosing the terms of these two transactions.

Justin L. Jude: Additionally, we entered into an agreement to divest our operations in Bosnia and we expect to complete that sale in Q3 subject to the receipt of regulatory approval.

Justin L. Jude: We will continue to assess our business and our European market mix to determine if we are the best operator, and whether we should fix or exit certain underperforming markets.

Justin L. Jude: Given the small size of these divestitures, we are not disclosing the terms of these two transactions.

Justin L. Jude: One of the biggest projects we plan to update on a quarterly basis is our European SKU Rationalization Program. Today, little product commonality exists across the entire European platform, which prevents us from maximizing the leverage of our pan-European footprint.

Justin L. Jude: One of the biggest projects, we plan to update on a quarterly basis as our European SKU rationalization program today little product commonality exist across the entire European platform, which prevents us from maximizing the leverage of our Pan European footprint.

Justin L. Jude: This project will reduce the total number of SKUs, reduce our complexity, simplify the offerings to our customers, and drive several benefits, which include improved fulfillment rates, improved gross margins, and reduced inventory levels, which resulted in a decrease in our cost to serve our customers. When Andy kicked this project off in early Q1, we had over 900,000 SKUs across our European operations with less than a 7% overlap. Based on the first phase of this project, we believe we can achieve a 35% reduction in overall SKUs over the next two to three years. We look forward to Andy providing a deeper dive into this program on our September 10th Investor Day this year.

Justin L. Jude: This project will reduce the total number of skus reduce our complexity simplify the offerings to our customers and drive several benefits which include improved procurement rates improved gross margins.

Justin L. Jude: Reduced inventory levels and a decrease of our cost to serve our customers.

Justin L. Jude: When Andy kick this project off in early Q1, we had over 900000 skus across our European operations with less than eight 7% overlap.

Justin L. Jude: Based on the first phase of this project. We believe we can achieve a 35% reduction in overall skus over the next two to three years, we look forward to Andy providing a deeper dive into this program on our September 10th Investor Day This year.

Justin L. Jude: Now turning to special, Their organic revenue decreased 1.4% in the quarter, tracking closely to plan and showing improvements month to month within the quarter. However, certain product categories witnessed positive year-over-year growth. Automotive products, which include truck and off-road parts and accessories, increased 2.5 percent despite pickup, truck, and Jeep sales being down 5.6 percent and 11.4 percent, respectively. Also, Maureen posted growth in the quarter. RV related products decreased 8.5%, the smallest revenue decrease when compared to the 2023 quarterly growth rate.

Justin L. Jude: Now turning to specialty their.

Justin L. Jude: Our organic revenue decreased one 4% in the quarter tracking closely to plan and showing improvements month to month within the quarter.

Justin L. Jude: Certain product categories witnessed positive year over year growth automotive products, which includes truck and off road parts and accessories increased two 5% despite pickup truck and Jeep sales being down five 6% and 11, 4% respectively.

Justin L. Jude: Also marine posted growth in the quarter.

Justin L. Jude: <unk> related products decreased eight 5% the smallest revenue decrease when compared to the 2023 quarterly growth rates.

Justin L. Jude: Our specialty team has focused its efforts on targeting margin actions relating to price and cost controls, some of which we saw in the quarter with year-over-year improvements in SG&A. Turning to self-serve, they had an organic revenue decrease of 10.5% in the quarter, primarily driven by commodities and inclement weather in key markets, but margin performance exceeded our expectations. On the corporate development front, during the quarter, we closed on two Tuckton acquisitions, including a heavy-duty truck parts supplier and an aftermarket parts distributor in Belgium. We also made an equity investment in a startup recycler of lithium-ion EV batteries. Now, I will turn it over to Rick for a detailed overview of our finances.

Justin L. Jude: Our specialty team has focused their efforts on targeting margin actions relating to price and cost controls some of which we saw in the quarter with year over year improvements in SG&A.

Justin L. Jude: Turning to self serve they had an organic revenue decrease of 10, 5% in the quarter, primarily driven by commodities and inclement weather in key markets, but margin performance exceeded our expectations.

Justin L. Jude: On the corporate development front during the quarter, we closed on two tuck in acquisitions, including a heavy duty truck parts supplier and an aftermarket parts distributor in Belgium. We also made an equity investment in a startup recycler of lithium ion batteries.

Justin L. Jude: Now, let me turn it over to Rick for a detailed overview of our financials.

Rick Galloway: Thank you, Justin, and welcome to everyone joining us today. We released our full year guidance in February. We expected Q1 earnings to be challenged by the impact of weather conditions in January, very low catalytic converter prices, and a year-over-year decrease in selling days due to the timing of Easter. The actual results reflect lower than forecasted revenue, mostly due to a reduction in North America aftermarket product volumes, which were predominantly related to a significant decrease in the number of repairable claims.

Rick Galloway: Thank you Justin and welcome to everyone joining us today.

Rick Galloway: We released our full year guidance in February we expected Q1 earnings to be challenged by the impact of weather conditions in January very low catalytic converter prices and year over year decrease in selling days due to the timing of Easter.

Rick Galloway: The actual results reflect lower than forecasted revenue, mostly due to a reduction in North America aftermarket product volumes, which were predominantly related to a significant decrease in the number of repairable claims.

Rick Galloway: On a consolidated basis, gross margin fell short of target as pricing did not fully cover input cost increases. Overhead expense actions were taken, and others are currently in process, but the benefits will be seen in the balance of the year rather than in Q1. Despite the Q1 results, we remain committed to our full-year earnings guidance. We have nine months to make up the shortfall, and the core strengths of the business are still there.

Rick Galloway: On a consolidated basis gross margin fell short of target as pricing did not fully cover input cost increases over.

Rick Galloway: Overhead expense actions were taken and others are currently in process, but the benefits will be seen in the balance of the year rather than Q1.

Rick Galloway: Despite the Q1 results we remain committed to our full year earnings guidance, we have nine months to make up the shortfall in the core strength of the business are still there we are digging deep on the operational excellence principles that drove our growth and margin expansion over the last five years and are taking decisive actions.

Rick Galloway: We are digging deep on the operational excellence principles that drove our growth and margin expansion over the last five years and are taking decisive action. As Justin described, each of the segment teams has detailed action plans in place to deliver the full year numbers.

Rick Galloway: Justin described each of the segment teams have detailed action plans in place to deliver the full year numbers.

Rick Galloway: Turning now to the first quarter consolidated results, adjusted diluted earnings per share of $0.82, or $0.22 lower than the prior year figure. Operating results were the largest individual factor with a $0.12 reduction, mostly related to North America. This figure includes the anticipated uniselect headwind as the integration efforts are ongoing. We expect the uniselect impact to flip to accretion going forward in 2024 as the synergies Justin mentioned are realized.

Rick Galloway: Turning now to the first quarter consolidated results.

Rick Galloway: Adjusted diluted earnings per share of <unk> 82, or.

Rick Galloway: We're 22 cents lower than the prior year figure operating results were the largest individual factor with a 12% reduction mostly related to North America. This figure includes the anticipated unit select headwind as the integration efforts were ongoing we expect the Uni select impact of flipped to accretion going forward in 2024 as a <unk>.

Rick Galloway: Synergies Justin mentioned, our realized movement.

Rick Galloway: Movements in commodity prices, primarily precious metals, contributed a six-cent year-over-year decrease. Other items, including investment performance and taxes, drove a four-cent decrease. Now for segment results. Moving to slide nine.

Rick Galloway: Movements in commodity prices, primarily precious metals contributed a <unk> <unk> year over year decrease.

Rick Galloway: Other items, including investment performance and taxes drove a <unk> <unk> decrease.

Rick Galloway: Now for segment results going to slide nine North America posted segment EBITDA margin of 16, 3%, a 420 basis point decrease relative to last year. During our last call. We projected the full year margin would be around 17% for the full year impact of the units select dilution.

Rick Galloway: North America posted a segment EBITDA margin of 16.3%, a 420 basis point decrease relative to last year. On the last call, we projected the full-year margin would be around 17% for the full-year impact of the uniselect dilution. The reported margin was below the full year expectation due to the leverage impact from the lower revenue in Q1. Relative to the prior year, in addition to the communicated and anticipated unit-select dilution effect on gross margin, salvage margins were down, reflecting unfavorable revenue and vehicle cost trends compared to the prior year period and lower catalytic converter prices in Q1 2024. Overhead expenses partially offset the gross margin reduction with lower costs for freight, charitable contributions, and incentive compensation. Q1 2023 also included a non-recurring benefit from an eminent domain settlement that created a year-over-year negative variance.

Rick Galloway: The reported margin was below the full year expectation due to leverage impact from the lower revenue in Q1.

Rick Galloway: Relative to the prior year. In addition to the communicated anticipated unit select dilution effect on gross margin salvage margins were down reflecting unfavorable revenue and vehicle cost trends compared to the prior year period, and lower catalyst converter prices in Q1 2024.

Rick Galloway: Overhead expenses, partially offset the gross margin reduction with lower cost for freight charitable contributions and incentive compensation Q1 2023 also included a nonrecurring benefit from an eminent domain settlement that created a year over year negative variance.

Rick Galloway: North America is executing action plans to recover the profitability missing Q1, and we expect the full year EBITDA margin to be around 17%. Looking at slide 10, Europe reported a segment-even margin of 8.7%, down 100 basis points from last year. Gross margin, excluding restructuring costs, improved by 60 basis points, but this was offset by higher overhead costs, including personnel costs tied to wage inflation in markets such as Germany, the UK, and the Benelux region.

Rick Galloway: North America is executing action plans to recover the profitability Miss in Q1, and we expect the full year EBITDA margin to be around 17%.

Rick Galloway: Looking at Slide 10, Europe reported a segment EBITDA margin of eight 7% down 100 basis points from last year.

Rick Galloway: Most margin excluding restructuring costs improved by 60 basis points, but was offset by higher overhead cost, including personnel costs tied to wage inflation in markets, such as Germany, the UK and the Benelux region.

Rick Galloway: Well, we have grown gross margin, but we have not covered the overhead cost increases, and we have work to do on pricing and productivity to mitigate the cost of inflation. We still expect to achieve double-digit margins in Europe for the full year. Moving to slide 11, Specialties EBITDA margin of 6.4% declined 150 basis points compared to the prior year, driven by a 170 basis point decrease in gross margin. Competitive pricing pressure remains a challenge for the business, and we are evaluating options and implementing changes to improve our net price.

Rick Galloway: While we have grown gross margin, we have not covered the overhead cost increases and we have work to do on pricing and productivity to mitigate the cost inflation.

Rick Galloway: We still expect to achieve double digit margins in Europe for the full year.

Rick Galloway: Moving to slide 11 specialties EBITDA margin of six 4% declined 150 basis points compared to the prior year driven by a 170 basis point decrease in gross margin.

Rick Galloway: Competitive pricing pressure remains a challenge for the business and we are evaluating options and implementing changes to improve our net pricing. We believe the full year specialty EBIT margin will be flat to a slight increase as we work through the lingering gross margin pressures.

Rick Galloway: We believe the full-year specialty EBITDA margin will be flat to a slight increase as we work through the lingering gross margin pressure. As you can see on slide 12, self-service generated an 11.7% EBITDA margin in Q1 2024 compared to 13.2% last year. In dollar terms, segment EBITDA decreased by $6 million, and the impact from commodities represented a $16 million headwind.

Rick Galloway: As you can see on slide 12 self service generated an 11, 7% EBIT margin in Q1 2024 compared to 13, 2% last year.

Rick Galloway: In dollar terms segment EBITDA decreased by $6 million the impact from.

Rick Galloway: Commodities represented a $16 million headwind. However, the efforts to manage vehicle costs helped mitigate a portion of the commodities impact and overhead cost controls produced a year over year benefit.

Rick Galloway: However, the efforts to manage vehicle costs helped mitigate a portion of the commodity's impact, and overhead cost controls produced a year-over-year benefit. We have not seen a double-digit segment EBITDA margin in percentage or dollar terms since Q1, 2023. So we are pleased to reach this level again this past quarter. We implemented a global restructuring program in the first quarter focused on enhancing profitability. The largest portion of the activity will come from the European segment.

Rick Galloway: We have not seen double digit segment, EBITDA margin and percentage or dollar terms. Since Q1 2023. So we are pleased to reach this level again this past quarter.

Rick Galloway: We implemented a global restructuring program in the first quarter focused on enhancing profitability.

The largest portion of the activity will come from the European segment and as Justin mentioned will include exiting certain businesses or markets, which do not align to our strategic objectives.

Rick Galloway: And, as Justin mentioned, this will include exiting certain businesses or markets which do not align with our strategic objective. Initially, this includes exiting businesses in Slovenia and Bosnia, which are relatively small with under $40 million in combined annual revenue, and evaluations of other markets are ongoing. We recorded $27 million in charges in the quarter, including $17 million in asset impairments and $8 million in inventory write-downs. Other charges are expected in future periods for severance, lease termination costs, and other shutdown-related expenses.

Rick Galloway: Initially this includes exiting businesses in Slovenia and Bosnia.

Rick Galloway: It's a relatively small with under $40 million in combined annual revenue and evaluations of other markets are ongoing we recorded $27 million in charges in the quarter, including $17 million and asset impairments and $8 million and inventory write downs and other charges are expected in future periods for severance lease termination costs.

In other shutdown related expenses.

Rick Galloway: Moving to Cash Flows and the Balance Sheet, we produced $187 million of free cash flow during the quarter, and we remain on track for a full year estimate of approximately $1 billion. As of March 31st... We had a total debt of $4.3 billion, with a total leverage ratio of 2.3 times EBITDA. And we remain committed to reducing our total leverage ratio below 2.0 times. In March, we successfully completed a 750 million euro bond offering with a seven-year maturity and a fixed four and one-eighth interest rate.

Rick Galloway: Shifting to cash flows and the balance sheet, we produced $187 million of free cash flow during the quarter and we remain on track for our full year estimate of approximately $1 billion.

Rick Galloway: As of March 31.

Rick Galloway: We had total debt of $4 3 billion with a total leverage ratio of two three times EBITDA and we remain committed to reducing our total leverage ratio of below 2.0 times.

Rick Galloway: In March we successfully completed a $750 million euro bond offering with a seven year maturity and a fixed for an <unk> interest rate. The offering was completed to pay off the existing 500 million euro bonds that were scheduled to mature on April one 2024, we upsized the offering by 250 million Euro.

Rick Galloway: The offering was completed to pay off the existing 500 million euro bonds that were scheduled to mature on April 1st, 2024. We upsized the offering by 250 million euros in response to very strong demand from fixed income investors reflecting LKQ's strong credit profile and solid cash flows. The additional proceeds were utilized to pay down a portion of our Euro revolver debt. The larger offering allows us to lock in capital at an attractive rate for an extended period and diversify our maturity profile. The bonds are publicly tradable and are listed on NASDAQ.

Rick Galloway: In response to very strong demand from fixed income investors, reflecting lkq's strong credit profile and solid cash flows.

Rick Galloway: The additional proceeds were utilized to pay down a portion of our euro revolver debt.

Rick Galloway: A larger offering allows us to lock in capital at an attractive rate for an extended period and diversify our maturity profile.

Rick Galloway: Bonds are publicly tradable and listed on NASDAQ.

Rick Galloway: We do not have significant debt maturities until January 2026. Our effective borrowing rate was 6.0% for the quarter, an increase of 20 basis points relative to Q4 2023. We have $1.7 billion in variable rate debt, of which $700 million has been fixed with interest rate swaps at 4.6% and 4.2% over the next one to two years, respectively. In the first quarter, we repurchased roughly 600,000 shares for $30 million and paid a quarterly dividend totaling $81 million, further validating that as we reduce our debt levels, we are migrating to a more balanced capital allocation strategy. I will conclude with our current thoughts on projected 2024 results.

Rick Galloway: We do not have significant debt maturity until January 2026.

Rick Galloway: Our effective borrowing rate was 6.0% for the quarter, an increase of 20 basis points relative to Q4 2023.

Rick Galloway: We have $1 $7 billion in variable rate debt of which $700 million has been fixed with interest rate swaps at four 6% and four 2% over the next one to two years respectively.

Rick Galloway: In the first quarter, we repurchased roughly 600000 shares for $30 million and paid a quarterly dividend totaling $81 million further validating that as we reduce our debt levels. We are migrating to a more balanced capital allocation strategy.

Rick Galloway: I will conclude with our current thoughts on projected 2024 results.

Rick Galloway: Our guidance is based on current market conditions and recent trends and assumes that scrap and precious metal prices hold near March prices and the Ukraine-Russia conflict continues without further escalation or major additional impact on the European economy and miles driven. On foreign exchange, our guidance includes rates in line with the first quarter. The global tax rate remains unchanged at 26.8%.

Rick Galloway: Our guidance is based on current market conditions, and recent trends and assumes that scrap and precious metal prices hold near March prices and the Ukraine, Russia conflict continues without further escalation or major additional impact on the European economy and miles driven.

Rick Galloway: On foreign exchange our guidance includes rates in line with the first quarter the global tax rate remains unchanged at 26, 8%.

Rick Galloway: Our full-year guidance metrics on slide four remain mostly unchanged from the Q4 earnings call. We expect reported organic parts and service revenue in the range of 2.5% to 4.5%, which is a 100 basis point decrease in the range. The softness in Q1 organic growth drove the decision to lower the full-year range. We believe that mild winter weather conditions were a major contributing factor to the revenue softness and will have some carryover effects into Q2, but otherwise will be a temporary headwind relative to repairable claims.

Our full year guidance metrics on slide four remained mostly unchanged from the Q4 earnings call. We expect reported organic parts and service revenue in the range of two 5% to four 5%, which is a 100 basis point decrease in the range. The softness in Q1 organic growth drove the decision to lower the full year range.

Rick Galloway: We believe that mild winter weather conditions were a major contributing factor to the revenue softness and we will have some carryover effects into Q2, but otherwise will be a temporary headwind relative to repairable claims. However, if repairable claims in North America do not rebound to a more normalized level, we would expect to be closer to the low end.

Rick Galloway: However, if repairable claims in North America do not rebound to a more normalized level, we would expect to be closer to the low end of the full-year range. We're closely monitoring monthly claims data, and the team is ready to take decisive cost actions if claims remain depressed. We still expect adjusted diluted EPS in the range of $3.90 to $4.20. With the revenue volatility, there is heightened risk to the profitability estimate, but we are confident in the action plans being implemented in all segments to address controllable factors such as our cost structure to keep us inside the previously issued range.

Rick Galloway: Of the full year range, we are closely monitoring monthly claims data and the team is ready to take decisive cost actions. If claims remain depressed we still expect adjusted diluted EPS in the range of $3 90 to $4 20.

Rick Galloway: The revenue volatility there is heightened risk to the profitability estimate, but we're confident in the action plans being implemented in all segments to address controllable factors such as our cost structure to keep us inside the previously issued range.

Rick Galloway: The free cash flow expectation of $1 billion in a 50% to 60% annual EBITDA conversion remains in place. Improved profitability over the balance of the year and diligent balance sheet management should support achievement of the full year target. Thanks for your time this morning. But before I turn the call back to Nick for his closing comments, on behalf of our LKQ team globally, I'd like to thank Nick for his leadership, vision, and integrity during his tenure as our CEO. Nick, you left a tremendous mark on LKQ and have positioned us well for the next chapter of our evolution. We wish you and the growing Zarcone family all the best.

Rick Galloway: The free cash flow expectation of $1 billion, 50% to 60% annual EBITDA conversion remain in place improved profitability over the balance of the year and diligent balance sheet management should support achievement of full year target.

Speaker Change: Thanks for your time this morning.

Speaker Change: But before I turn the call back to Nick for his closing comments on behalf of our LKQ team globally I'd like to thank Nick for his leadership vision and integrity. During his tenure as our CEO. Nick you left a tremendous mark an LKQ and have positioned us well for the next chapter of our evolution we wish.

Dominick P. Zarcone: You in the growing zarcone family all the best.

Rick Galloway: Thanks, Rick, for those very kind comments. When I took the seat as CEO in 2017, I believed it was my responsibility to be the primary advocate for our greatest asset, our people, and to place them at the center of LKQ's mission. I am incredibly thankful to all my past and current colleagues who have served each other in pursuit of being an employee-focused organization. Collectively, we've made great progress over the years, which carried forward in the first quarter when we were awarded Mental Health America's Bell Seal for Workplace Mental Health at the gold level.

Dominick P. Zarcone: Thanks, correct for those very kind comments.

Dominick P. Zarcone: I took the seat as CEO in 2017, I believe that was my responsibility to be the primary advocate for our greatest asset our people and to place them at the center of Lkq's mission I am incredibly thankful to all my past and current colleagues who serve them.

Dominick P. Zarcone: Each other in pursuit of being an employee focused organization.

Dominick P. Zarcone: Collectively we've made great progress over the years, which carried forward in the first quarter. When we were awarded mental health Americas Bell sale for workplace mental health at the gold level and we were again selected as a five star employer by work buys.

Rick Galloway: And we were again selected as a five-star employer by WorkBuzz for our U.S., Indian, Mexican, and Canadian businesses. It is with tremendous pride and humility that I depart, knowing that the entrepreneurial culture that was established in 1998 when the company was founded lives on today, and that every day, our 49,000 global employees never lose sight of the passion needed to serve our customers and our community. They are committed to not only growing the company but themselves as individuals. The gratitude I have for my fellow employees is immeasurable, and I cannot thank them enough for creating an incredible journey for me. And with that, operator, we are now ready to open the call to questions.

Dominick P. Zarcone: For our U S, India, and Mexican and Canadian businesses.

Dominick P. Zarcone: It is with tremendous pride and humility that I depart knowing that the entrepreneurial culture that was established in 1998. When the company was founded lives on today and that every day, our 49000 global employees never lose sight of the passion needed to.

Dominick P. Zarcone: Serve our customers and our communities.

Dominick P. Zarcone: They are committed to not only grow the company, but themselves as individuals.

Dominick P. Zarcone: Gratitude I have for my fellow employees is immeasurable I cannot thank them enough for creating an incredible journey for me.

Speaker Change: And with that operator, we are now ready to open the call to questions.

Operator: Thank you, Karen. Everyone, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. In order to allow everyone in the queue an opportunity to ask a question, please limit your time to one question and only one follow-up. If you have additional questions, please return to the queue. We'll pause here briefly as the questions are registered. We have the first question from Craig Kennison with BAT. Your line is open.

Speaker Change: Thank you everyone.

Speaker Change: Like to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: Have you changed your mind, Please press star followed by <unk> and.

Speaker Change: In order to allow everyone in the queue an opportunity to ask a question. Please limit your time Q1 question and only one follow up.

Speaker Change: If you have additional questions. Please return to the queue with policy at Bruce Lee asked the question over to Scott.

Scott: We have steadfast.

Scott: Question from Craig Kennison with Baird. Your line is open.

Craig R. Kennison: Thank you, good morning. And Nick, all the best to you. It's been a pleasure working with you.

Craig R. Kennison: Thank you good morning, and thank all the best to you it's been a pleasure working with you.

Craig R. Kennison: My question goes to your comments around insurance prices. I'm just curious if you could walk through how higher and really significantly higher insurance prices impact your business overall. Yeah, I'm just talking to... This is Justin, Craig, by the way.

Craig R. Kennison: My question goes back to your comments around.

Craig R. Kennison: Yeah, you bet Nick.

Craig R. Kennison: My questions go to the comments around insurance prices I'm, just curious if you could walk through.

Craig R. Kennison: Higher really significantly higher insurance prices impact your business overall.

Justin L. Jude: Yeah, and just talking to, this is Justin and Craig, by the way, and talking to different folks in the industry, when we saw insurance increasing, you know, 20 to 22 percent year-over-year, we saw deductibles increasing, and so in some cases, it caused folks not to necessarily repair their car. We still think the majority of our issue that we saw in Q1 from repairable claims was weather, but there's a lot of other commentary that we heard from other folks, such as used car pricing, which saw huge decreases and huge increases in insurance rates, so we still think the primary driver for the repairable claims being down is weather, but anything when we see huge swings like that with used car pricing or, once again, insurance rates, it has some effect on

Craig R. Kennison: Yeah, and just talking to this is Justin Craig by the way and talking to different folks in the industry. When we saw the insurance, increasing 10% to 22% year over year, we saw deductibles, increasing and so in some cases.

Craig R. Kennison: Caused folks not to necessarily repair their car.

Speaker Change: We still think the majority of our issue that we saw in Q1 from a bearable claims was weather, but theres a lot of other commentary that we've heard from other folks such as used car pricing, which you saw huge decreases in huge increases in insurance rates. So we still think the primary driver for the repairable claims being down is weather.

Speaker Change: But when and if anything when we see huge swings like that with used car pricing or what were once again insurance rates. It had some some effect on us.

Speaker Change: Thanks, Justin.

Speaker Change: Yeah.

Gary Frank Prestopino: Thank you. The next question is from Gary Prestopino with Barrington Research. Your line is open.

Speaker Change: Thank you. The next question is from Gary Preston P&L with Barrington Research. Your line is open.

Gary Frank Prestopino: Hey, good morning, everyone, and Nick, best of luck to you in your retirement. Thanks, Gary. I'll unpack a little bit more on this decline in the gross margin in North America. I know Ricky went through a couple of things there, couldn't write them down quickly enough, but some of this was uniselect, but what were some of the other factors there that impacted that margin so much to go down close to 500 basis points, or over 500 basis points?

Gary Frank Prestopino: Hey, good morning, everyone and Nick.

Gary Frank Prestopino: Good luck to you in your retirement.

Gary Frank Prestopino: George Thanks, Gary.

Gary Frank Prestopino: Could we could you maybe just.

Gary Frank Prestopino: Unpack a little bit more on this.

Gary Frank Prestopino: Decline in the gross margin in North America.

Speaker Change: I know Rick you went through a couple of things there couldnt write them down quickly enough, but some of this.

Speaker Change: Eunice select but what were some of the other factors there that impacted that margin.

Eunice: So much to go down close to 500 basis points or over 500 basis points.

Rick Galloway: Yeah, Gary, fair question. So when we talked about it in Q, at the closing of Q4, the guidance for this year, we said we'd be around 17% for the year with the dilution on UniSelect. The product offering that we have for the various products that we sell for UniSelect, the paint products and the hard parts side of the business, makes a different margin profile, including the base business that we had before, making a similar margin as far as the paint side of the business goes.

Rick Galloway: Yes, Gary.

Speaker Change: Great question.

Rick Galloway: So when we talked about it in Q the closing of Q4 for the guidance for this year, we said we'd be around 17% for the year with the dilution on units select.

Rick Galloway: The product offering that we have for the various products that we sell for Uni select the paint products and the hard part side of the business makes a different margin profile, including the base business that we had before makes a similar margin.

Rick Galloway: Or is that paint side of the business goes so with the with the increase in revenues Thats. One component, we thought we'd be down around 17 for the year. We still think we'll be at around 17 for the year. The major contributing factor for being below 17 for Q1 is primarily related to leverage with the volume decline that we saw significant volume on the repairable claims et cetera.

Rick Galloway: So with the increase in revenues, that's one component. We thought we'd be down around 17% for the year. We still think we'll be at around 17% for the year. The major contributing factor for being below 17% for Q1 is primarily related to leverage. With the volume decline that we saw, significant volume on repairable claims, we said about 8% on repairable claims, and our overall volume is down a little over 3%.

Rick Galloway: About 8% on repairable claims in our overall volumes down three little over 3%, that's mostly a leverage component and as we said the team has really put some strong efforts in to work on the integration consolidation of various units select.

Rick Galloway: That's mostly a leverage component. And as we said, the team has really put some strong efforts in. To work on the integration and consolidation of various UniSelect integrations, 65 different facilities that we consolidated. So some of that extra cost, a little duplicate cost, that will go away as we go into the rest of the year, and that's where we have that confidence of bouncing back and getting back to that 17% number that we've been talking about.

Rick Galloway: <unk>.

Rick Galloway: Integration 65 different facilities that we consolidated so some of that extra cost low duplicate costs that will go away as we go into the rest of the year and Thats, where we have that confidence of bouncing back and getting back to that 17% number that we've been talking about.

Rick Galloway: Yeah, but I was asking about the gross margin Rick, is that... I'm sorry, I thought you were talking about the food market.

Speaker Change: Yes I was.

Asking about the gross margin Rick is that.

Speaker Change: I'm, sorry, I thought you were talking.

Speaker Change: Okay.

Rick Galloway: Yes, so no gross margin had a pretty big declines. So I just wanted to I wanted to unpack that a little bit more.

Gary Frank Prestopino: Yeah, so I just the gross margin had a pretty big decline, so I just wanted to unpack that a little bit. Yeah, most of that is mixed.

Rick Galloway: Yes, most of that is mix most of that is mix. The other component that we have that we've been talking about for about 12 months, maybe maybe 18 months is the salvage margins. So is what we talked about was there would be the squeeze in the salvage market. So as we thought about what we were at last year, which is about 25% of EBITDA most of that gross.

Rick Galloway: Yeah, most of that is mixed. Most of that is mixed.

Rick Galloway: The other component that we have that we've been talking about for about 12 months, maybe 18 months, is the salvage margin. So what we talked about was that there would be this squeeze in the salvage margin. So as we thought about where we were last year, which was about 20.5% of EBITDA, most of that gross margin piece that we see on the decline is that salvage margin squeeze. And so what we don't do is we don't talk about it being revenue versus the cost side because everything is so unique in that industry.

Rick Galloway: <unk> piece that we see on the decline is that salvage margin squeeze.

Rick Galloway: So what we don't do is we don't talk about it being revenue versus the cost side because everything is so unique in that industry. So we've been seeing that squeezed. It started happening in Q3 of last year and it continued in Q4 and then again in Q1 as expected those those items are as expected what we've been kind of communicating externally to everyone.

Rick Galloway: So we've been seeing that squeeze. It started happening in Q3 of last year, and it continued in Q4, and then again in Q1, as expected. Those items are, as expected, what we've been kind of communicating externally to everyone.

Scott Lewis Stember: Thank you. The next question is from Scott Stember with Roth MKN. Your line is open.

Speaker Change: Okay. Thank you.

Speaker Change: Sure.

Speaker Change: Thank you. The next question is from Scott Sandler with Ross.

Scott Lewis Stember: Thanks for taking my questions, and Nick, I echo what was said before; it was great work with you. I wish you nothing but the best of luck. Thanks, Scott.

Scott Sandler: Your line is open.

Scott Sandler: Thanks for taking my questions and Nick I Echo, what we said before it was great working with you and wish.

Scott Sandler: I wish you nothing but the best of luck.

Scott Sandler: Yeah.

Scott Sandler: Thanks Scott.

Scott Lewis Stember: Can we talk about Europe for a second? How did the individual..., regions perform? Just trying to get a sense if there was any regional weakness or if anything stood out on the positive side.

Speaker Change: Can you talk about Europe for a second.

Speaker Change: How did the individual.

Scott Sandler: Regions performed just trying to get a sense if there was any.

Scott Sandler: Any regional weakness or if anything stood out on the positive side.

Scott Sandler: Sure.

Rick Galloway: So let me just go high level, and then I'll turn it over to you, Justin. I know you've been spending a lot of time out there.

Scott Sandler: So let me just go high level, and then I'll turn it over to you Justin I know that's been a lot of time out there. So Scott appreciate the question. If you think year over year. The biggest impact that we had on overall EBITDA margins is really the inflationary impact of wages. So that happened throughout the year, but primarily starting in Q2, so it'll it'll.

Rick Galloway: So Scott, I appreciate the question. If you think year over year, the biggest impact that we had on overall EBITDA margins was really the inflationary impact of wages. So that happened throughout the year, but primarily starting in Q2. So it'll sort of calendarize as we start getting into Q2. There are roughly 200 basis points down on overall wage inflationary increases. What the team has been able to do is improve on pricing and productivity initiatives to claw back roughly half of that.

Scott Sandler: Sort of.

Justin: Calendar rises we start getting into Q2, there is roughly 200 basis points down that you have on overall wage inflationary increase what the team has been able to do that.

Justin: It was improve on pricing and productivity initiatives to claw back roughly half of that.

Rick Galloway: And so we're on a trajectory that we're pretty pleased with. Of course, we'd always like to have a little bit more. But the overall margins that we had, the 8.7 in Q1, reflect that really low year over year impact on the wage increases. And Justin, I don't know if you want to talk a little bit more about the various different regions.

Justin: And so we're on a trajectory that we're pretty pleased with of course, we would always like to have a little bit more.

Justin: But.

Justin: The overall margins that we had the 87 in Q1 reflects that really low year over year impact on.

Speaker Change: On the wage increases just don't know if you want to talk a little bit more about the various different regions, yes, Scott like some of the markets such as the Benelux area or even in Germany, we're seeing.

Justin L. Jude: Yeah, and Scott, some of the markets, such as the Benelux area or even in Germany, we're seeing mid-teen increases in labor rates, and it's a market issue. That happens immediately.

Scott Sandler: Mid teen increases and labor rates and it's a market issue that happens immediately the team has been actively working on pushing price out, but we're very also cautious to make sure we do.

Justin L. Jude: The team has been actively working on pushing prices out, but we're also very conscious of making sure we don't impact the market and start to lose market share. And so we'll continue to push pricing through Q2 to cover that up. We do typically pass it on. We are a humble distributor, as you may have heard Nick say before, but we just saw immediate increases in labor rates, and it's just taking us some time to pass those prices through to cover that.

Scott Sandler: Impact the market and start to lose market share and so we will continue to push pricing through Q2 to cover that up we do typically pass. It. All we are humbled distributor is and you may have heard Nick say before.

Scott Sandler: But we just saw immediate increases in labor rates and it's just taken us some time to pass those prices through to cover that.

Rick Galloway: And on the revenue side, Scott, all of our regions showed good organic growth, positive organic growth in the quarter, which is terrific. Particular bright spots included actually Central and Eastern Europe, where we saw some good growth. Our private label product saw excellent growth during the quarter, and all the other regions were in and around that 4% on a same-day basis, plus or minus a little bit. So again, it was good, consistent performance across the platform.

Scott Sandler: On the revenue side Scott.

Scott Sandler: All of our regions showed good organic growth positive organic growth in the quarter, which is terrific.

Scott Sandler: Bright spots.

Scott Sandler: Included absolutely central and Eastern Europe.

Scott Sandler: We saw some good growth our private label product saw excellent growth during the quarter.

Scott Sandler: And in all the other regions.

Scott Sandler: And then around that 4% on a same day basis, plus or minus a little bit. So again it was good consistent performance across the platform.

Scott Lewis Stember: Yeah, and just one final follow-up. I know you guys are not going to be breaking out uniselect going forward within wholesale, but just trying to get a sense of how the mechanical repair side of the business is trending, just trying to get a sense of the market, how things hold up, and at least internally, are sales growing.

Speaker Change: Yes, and just one final follow up on I know you guys are not going to be breaking out <unk> to select going forward with.

Speaker Change: Within wholesale, but just trying to get a sense of how the.

Speaker Change: The mechanical repair side of the business trends, just trying to get a sense of the market.

Speaker Change: How things are hold them up in at least.

Scott Lewis Stember: Are you talking about the bumper-to-bumper business that we have up in Canada, Scott?

Speaker Change: Internally our sales growing.

Speaker Change: You're talking about the bumper to bumper business that we have up in Canada, Scott, Yes, Yes, correct, yes, yes, so the progress on bumper to bumper has been very positive.

Scott Lewis Stember: Yes. Yes, correct.

Rick Galloway: Yeah, so the progress on Bumper to Bumper has been very positive. There's been a few tuck-in acquisitions that we've worked on, taken some three steps to two steps. We're very pleased with what the team's done on the integration side of that business as well, and we're starting to see some of the opportunities that we're actually working together, right, between the hard parts side of the business and the collision side of the business and how we can work a little bit better together.

Speaker Change: There's been a few tuck in acquisitions that we've worked on taken three steps to two steps.

Speaker Change: We're very pleased with what the team has done on the integration side of that business as well and we're starting to see.

Speaker Change: Some of the opportunity that we are actually working together between the hard part side of the business and the collision side of the business and how we can work a little bit better together, we've talked about it before that that businesses, Canada is really the only place that we do everything that LKQ is a power of doing and we're starting to see that power of LKQ up in Canada.

Rick Galloway: We've talked about it before that that business is – Canada's really the only place that we do everything that LKQ has the power to do, and we're starting to see that power of LKQ up in Canada. So it's been good progress. Justin, I don't know if you want to expound a little bit on – you know, bumper to bumper as well. Yeah, no, I mean...

Speaker Change: It's been good progress just not know if you want to expand a little bit on.

Speaker Change: Bumper to bumper as well, yes, no I mean, obviously, we've done some tuck in acquisitions, we've gotten those integrated pretty well the team is doing well.

Justin L. Jude: Yeah, no, I mean, obviously, we've done some tucking acquisitions. We've gotten those integrated pretty well. The team is doing well with getting into the LKQ family.

Speaker Change: Well on getting into the LKQ family I would say overall in North America. The mechanical is up so we're only in the aftermarket hard parts in Canada with bumper to bumper, but if you look at the major mechanical that we had through our used in our re manufactured in the U S and in Canada.

Justin L. Jude: I would say overall in North America, the mechanical is up. So we're only in aftermarket hard parts in Canada with bumper to bumper. But if you look at the major mechanical that we had through our used and our remanufactured in the US and in Canada, you know, we saw an increase in VMT, and VMT typically relates to more maintenance and repairs on the mechanical side. So we saw an increase in our engines and transmissions, both on the used and the remanufactured side. So overall, the business on major mechanical and overall mechanical is doing well in North America.

Speaker Change: We saw an increase in viente in BMT typically relates to more maintenance and repairs on the mechanical side. So we saw an increase in our engines transmissions. Both on the used in the reman side. So overall the business on the major mechanical and overall mechanical is doing well in North America.

Scott Lewis Stember: Got it. That's all I have. Thank you.

Speaker Change: Got it that's all I have thank you.

Speaker Change: Okay. Thanks, Scott.

Bret David Jordan: Thank you. As a reminder, everyone, to ask a question, please press star followed by one on your telephone keypad. We have the next question from Bret Jordan with Jeffreys. Your line is open.

Speaker Change: Thank you Anza remind everyone to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: We have a question from Bryan Jordan with Jefferies. Your line is open.

Bret David Jordan: Hey, good morning, guys. Good morning. On the North American business, I guess to take a little deeper dive, I think you call out weather, but I guess historically, I think 2017 was a warmer winter, and I don't recall as much impact. So could you maybe bucket the negative from the Panama Canal issue, maybe the positive from State Farm having gotten into the space year over year, and then if you could give us any color on alternative parts penetration, is there any negative shift there?

Bret David Jordan: Hey, good morning, guys.

Bret David Jordan: Hey, good morning out of the North American business, I guess to take a little deeper dive I think you call out weather, but I guess historically I think 2017 was a warmer winter and I don't recall as much impact. So could you maybe bucket the negative from the Panama Canal issue, maybe the positive from state farm having.

Bret David Jordan: Cotton into this space year over year, and then if you could give us any color on alternative parts penetration is there any is there any negative shift there.

Justin L. Jude: Yeah, once again, overall, from the stats that we can see externally, we think it's mostly contributed to weather. I'm not sure; I don't have the facts in front of me from 2017.

Speaker Change: Yes, once again overall from the stats that we can see externally.

Speaker Change: We think it's mostly contributed to weather I'm not sure I don't have the facts in front of you from 2017.

Justin L. Jude: Other things that we hear that cause some of the repairable claims being down, I mentioned, such as, you know, skyrocketing insurance rates, plunges in used car prices. We did see an uptick in APU driven by length, I think a lot primarily by state farm. Anytime when the carriers are looking to save money, they're going after recycled parts or aftermarket parts. And so, on a year-to-year basis, Q1 to Q1, we did see an uptick of roughly 200, I can't remember the exact number, but 260 VIPS improvement in APU. So, market share is gained on the APU side.

Speaker Change: Other things that we hear that caused some of the repairable claims being down I mentioned, such as skyrocketing insurance rates plunges in used car pricing, we did see an uptick in Apu driven by I think a lot primarily by state farm.

Speaker Change: Anytime when the carriers are looking to save money. They are going after recycled parts of aftermarket parts and so on a year over year basis Q1 to Q1, we did see an uptick of roughly 200 I can't remember the exact number but 260 bps improvement in Apu So market share gained on the Apu side.

Bret David Jordan: Okay, and then your comment about a 17, around 17 percent full year for North America, is that run rate of 17, or getting the full year to 17 and, you know, sort of catching up from the miss in Q1 and being above that at some point in the year? Yeah, Bret. We expect to be 17 for the year.

Speaker Change: Okay, and then your comment about a 17 around 17% full year for.

Speaker Change: For North America.

Speaker Change: That run rate of 17 or getting the full year 2017, and sort of catching up from the Miss in Q1 and being above that at some point in the year.

Speaker Change: Yes, Brian we expect to be <unk> 17 for the year.

Rick Galloway: Yeah, Bret, we expect to be 17 for the year, not a runaway. So we'll catch up that, we believe we'll catch that up, and be around that 17 that we talked about 60 days ago or so.

Brian: Right. Okay. So we'll catch up that we believe we will catch that up and be around that 17 that we talked about 60 days ago or so.

Speaker Change: Okay, great. Thank you.

Ryan Brinkman: Thank you. The next question is from Ryan Brinkman with J.P. Morgan. Your line is open.

Speaker Change: Thanks, Brett.

Speaker Change: Thank you. The next question is from Ryan Brinkman with Jpmorgan. Your line is open.

Rick Galloway: Hi, good morning. This is Josh Potwa on behalf of Ryan Brinkman. Thanks for taking our question and best wishes for your retirement, Nick. Could you just give us a sense of the underlying drivers of the 2024 Organic Parts and Services Revenue Growth Guide in terms of contributions and volume versus pricing and any color on how these assumptions have changed versus the prior guide earlier this year? Thanks, and I have a follow-up.

Speaker Change: Hi, Good morning. This is Scott on for Ryan Brinkman. Thanks for taking my question and best wishes their retirement.

Speaker Change: Nick.

Scott Sandler: Could you just could you just give us a sense of the underlying underlying drivers for 2024 organic while can services revenue growth guide in terms of contribution from volume versus pricing.

Scott Sandler: Any color on how the consumption periods versus the prior guide earlier this year.

Speaker Change: And I have a follow up.

Rick Galloway: Yeah, so I'll take a stab at that. Overall, we did lower the organic guidance due to the revenue miss that we had in Q1 related to repairable claims. We're pleased with where the growth was in our European operations. On an organic per day basis, we're over 4% in growth, so we're very pleased with where we're at on that. Most of the growth that we have between the two and a half and four and a half is the new, new kind of line that we put in the sand from this guide. We expect most of that to be a volume piece. You know there'll be minimal pricing impact, but there'll be some pricing impact, but it'll probably be overweighted by the volume.

Speaker Change: Yes.

Speaker Change: I'll take a stab at that so overall, we did lower the organic guidance due to the.

Speaker Change: The revenue Miss that we had in Q1.

Speaker Change: Related to the Repairable claims, we're pleased with where the growth was in our European operations.

Speaker Change: Organic per day basis were over 4% of growth. So we're very pleased with where we're at on that most of the.

Speaker Change: The growth that we have between the two five to four and a half as the new new kind of line that we put in the sand.

Speaker Change: From this guide we expect most of that to be a volume piece.

Speaker Change: Minimal pricing impact, but there'll be some pricing impact, but it'll probably be overweighted on the volume piece.

Speaker Change: Yeah.

Josh Potwa: And just, you know, as a follow-up to Bret's question, you know, just wanted to get a sense of how you are thinking about the impact of unfavorable car park dynamics over the next couple of years as fewer vehicles fall in the four to six-year-old sweet spot as the anniversary, the pandemic, and trip shortage-induced new vehicle sales.

Speaker Change: Understood.

Helpful and just.

Speaker Change: As a follow up to Brad's question.

Speaker Change: Just wanted to get a sense of how you are thinking about the impact from unfavorable cop-out dynamics over the next couple of years, that's fueled vehicles fall in the four to euro four to six year old sweet spot as we anniversary the pandemic started in new vehicle sales slump.

Speaker Change: Thanks.

Rick Galloway: You said unfavorable; I didn't catch the word after unfavorable midway through your question. Just on the car pop dynamics, like you know, we have fewer four to six year old vehicles in that sweet spot for LKQ, so just wondering how we should think about the impact from a volume perspective. I mean, right now, we're seeing the car park growing in North America; we're seeing it grow and age, all leading to great improvements in the need for alternative parts utilization, whether that's mechanical or collision, whether that's used or remanufactured. So we see great trends in the car park for North America. And just to be clear, our sweet spot in the Collision Center...

Speaker Change: You said unfavorable I didn't catch the award after unfavorable midway through your.

Speaker Change: Just on the car Park dynamics.

Speaker Change: Fewer four to six year old.

Speaker Change: Sure.

Speaker Change: In that sweet spot for LKQ. So just wondering how we should think about the impact from a volume perspective.

Speaker Change: I mean right now we're seeing the carpark growing in North America, we're seeing it.

Speaker Change: Growing in an aging all leading to great improvements in the need for alternative parts utilization, whether it's mechanical or collision, whether that's use of remanufactured. So we see great trends in the car Park for North America.

Speaker Change: Okay.

Speaker Change: Understood. Thank you and just to be clear our sweet spot on the closing side. We've always indicated is kind of three to 10 years. After 10 years people tend not to get their cars repaired just because the overall value of the car and sometimes people lop off their.

Rick Galloway: And just to be clear, our sweet spot on the collision side, as we've always indicated, is kind of three to ten years. After ten years, people tend not to get their cars repaired just because of the overall value of the car, and sometimes people lop off their collision coverage. But the park inside at three to ten years is still very strong. What we are seeing is total losses that are shifting towards very old cars, Cars north of 10 years old, which would generally end up in the collision base anyway, so we think the dynamics of the car park are trending just fine for our collision base business.

Speaker Change: Collision coverage.

Speaker Change: But the park inside of that 3% tenure.

Speaker Change: Age bracket is still very strong.

Speaker Change: What we are seeing is.

Speaker Change: Total losses.

Speaker Change: The data is shifting towards very old cars.

Speaker Change: Cars North of 10 years old, which generally would end up in the in the collision base anyway. So we think the dynamics of the car Park are trending just fine for our base business.

Bret David Jordan: Thank you. As a reminder, everyone, if you would like to ask a question, please press star followed by one on your telephone keypad. We have the next question from Bret Jordan with Jeffreys. Your line is open.

Speaker Change: Thank you as a reminder, everyone. If you would like to ask a question. Please press thoughtful about one on your telephone keypad.

Speaker Change: We have next question from Bret Jordan with Jefferies. Your line is open.

Bret David Jordan: Hey guys, just to follow up on that last topic, I guess... As your internal math as the class of 21, class of 20, you know, the pandemic called new vehicle sales impact starts to swing into that three to 10 year old sweet spot. And have you done the math here on the next couple years as far as what that is, is a headwind to organic growth?

Bret David Jordan: Hey, guys just to follow up on that last topic I guess.

Bret David Jordan: Yes, your internal math is the class of 21 class of 'twenty the pandemic.

Bret David Jordan: New vehicle sales impact starts to swing into that three to 10 year old sweet spot and have you done the math here on the next couple of years as far as what that is is that headwind.

Rick Galloway: No, we don't see that part as a headwind for organic growth. I mean, the complexity of the vehicles, the value of the parts, and the number of parts work to offset some of that breadth. So we don't see that as a negative trend for us at all, going further out.

Bret Jordan: Two.

Bret Jordan: Organic growth.

Speaker Change: No we don't see that part of the headwind for organic growth I mean, the complexity of the vehicles the value of the parts and the number of parts work to offset some of that Brett. So so we don't see that as a negative trend for us at all.

Speaker Change: Going further out and Brett I would say being in the industry for 25 years 10 years ago insurance carriers would not typically right aftermarket or alternative parts in the first the zero to three years that has changed quite a bit in the last 10 years, where.

Bret David Jordan: And Bret, I would say, you know, being in the industry for 25 years, 10 years ago, insurance carriers would not typically write aftermarket or alternative parts in the first zero to three years. That has changed quite a bit in the last 10 years, where we can get a product tooled up in the aftermarket world relatively quickly, six to nine months, and we see nearly all carriers writing current model year for aftermarket or recycling to try to drive that APU. So we don't see it as an impact.

Speaker Change: We can get a product towards the aftermarket world relatively quickly six to nine months and we see nearly all carriers, writing current model year for aftermarket or recycled to try to drive that Apu. So we don't we don't see that as an impact to us.

Justin L. Jude: Okay, and I guess since I got back in line, I have my two questions. European SKU rationalization, I think you're talking about taking 35% or reducing your overlap by 35%. What do you see the impact on margin from that? I guess more product from fewer suppliers. How do you see, maybe, the... the, you know, bucket, how many basis points you think you can get out of that initiative?

Okay, and then I guess.

Speaker Change: Back in line I guess my two questions on European SKU rationalization, I think you are talking about taking 35% or reducing your overlap by 35% Whats what do you see that impact being to margin in that I guess more products from fewer suppliers, how do you see maybe the.

Speaker Change: Bucket, how many basis points, you can get out of that initiative.

Justin L. Jude: Yeah, we haven't quantified the overall margin improvement, but we know it's there.

Speaker Change: Yes, we haven't quantified the overall margin improvement we know it's there we haven't publicized that I should say that I would say when that 35% reduction that's in lieu of us actually adding more private label. So we're going to be adding more skus sort of mixed to get more private label as Nick talked about that is grow and we're expanding that in other countries and we still plan on reducing the net number.

Justin L. Jude: We haven't publicized it, I should say. I would say that the 35% reduction is in lieu of us actually adding more private labels. So we're going to be adding more SKUs to the mix to get more private labels, Nick talked about. That is growing. We're expanding that in other countries, and we still plan on reducing the net number of SKUs. And with private label, that typically comes at higher margins. But the other comment you made, it would be fewer suppliers, which would create some operational efficiencies from an SG&A standpoint in the warehouses and the distribution centers, as well as some margin lift with fewer suppliers. I mean, this is kind of a catalyst, one of the bigger projects that we've got in Europe. This is one of the things that will help us significantly.

There are skus and with private label that typically comes at higher margins, but the other comment you made it would be less suppliers, which would create some operational efficiencies from an SG&A standpoint, and the warehouses and distribution centers as well as some margin lift with fewer suppliers and Brett.

Rick Galloway: And Bret, I mean, this is kind of a catalyst, one of the bigger projects that we've got in Europe. This is one of the things that will help us significantly when we think about logistics without borders. So, you know, as far as the opportunity here, we think the opportunity, one of the reasons we're highlighting it is that we think the opportunity going forward over the next couple of years is a really major contributing factor for us that we'll talk about a little bit more on September 10th when we do our Investor Day. Andy will kind of lay it out in a little bit more detail there.

Speaker Change: This is kind of the catalyst one of the bigger projects that we've got over in Europe. This is one of the things that will help us significantly when we think about logistics without borders.

Speaker Change: As far as the opportunity here, we think the opportunity one of the reasons, we're highlighting it as we think the opportunity going forward over the next couple of years. This is a really major contributing factor for us.

Speaker Change: We'll talk about a little bit more on September 10th when we do our Investor day, and you'll kind of lay it out in a little bit more detail.

Operator: I think we'll wind it up, everyone. It appears that we have no further questions, so I will hand it back over to the management team for closing.

Speaker Change: On there.

Speaker Change: Okay, great. Thank you.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Thank you everyone.

Speaker Change:

Speaker Change: And the piece that we have no further questions. So I'll hand back over to the management team for closing.

Justin L. Jude: Yeah, operator, this is Justin. Just before Nick closes us out, I want to tell the investors and really all of our employees that I feel super excited about the future of LKQ. If you look at the segments in which we operate, such as North America, as I mentioned earlier, the car park is growing, it's aging, all great things that lead to alternative parts utilization, whether that's in the collision world or in the mechanical world.

Speaker Change: Yeah. Operator, this is Justin just before Nick closes as I don't want to give a I guess.

Justin: The investors in really all of our employees.

Justin: Super excited about the future of LKQ made if you look at the segments for which we operate in such as North America as I mentioned earlier the car Park is growing its aging all great things that lead to alternative parts utilization, whether that's in the collision reorder or in a mechanical world, we've seen inflationary cost pressure on the insurance carriers carriers or <unk>.

Justin L. Jude: We've seen inflationary cost pressure on the insurance carriers, and they are all trying to drive more alternative parts utilization to combat some of the losses. We see the number of parts per estimate increasing and will continue to increase. We also see part pricing increasing and will continue to increase. You know, the complexity of vehicles really leads to our services business, which allows us to do things like technical repairs or calibration. We're also very excited about the Uniselect acquisition that's going to bring us tremendous synergies. And if you jump over, you know, to Europe, it's a core segment for LKQ.

Trying to drive more alternative parts utilization to combat some of the losses.

Justin: We see the number of parts per estimate increasing and we will continue to increase we see part pricing increasing and continue to increase.

Justin: The complexity of vehicles really leads to our services business, which allows us to do things like technical repairs or calibration.

Justin: So very excited about the <unk> acquisition, that's going to bring us tremendous synergies and if you jump over to Europe. It's a core segment for LKQ. We know we have a great management team over there we're the market leader today with the best margins.

Justin L. Jude: You know, we have a great management team over there. We're the market leader today with the best margins. But that market is still highly fragmented, which leads to an opportunity for further consolidation. The team has a clear roadmap for accelerating margin enhancement through extending and accelerating integration. A lot of what Rick talked about with the ski rationalization will lead toward that.

Justin: That market is still highly fragmented, which leads to an opportunity for further consolidation of the team has a clear road map on accelerating margin enhancement with the extending the and accelerating the integration a lot of what Rick talked about with the SKU rationalization will lead towards that.

Justin L. Jude: And then we're getting bumper-to-bumper benefits on the procurement side because of the scale and size that we have with our European procurement teams. And then, you know, jumping down to specialty, I mean, we've got the strongest leading position in that space. We're the number one leader in the distribution of RV and SEMA-related products. We've got a great management team that can really manage through all cycles, and we've seen that.

Justin: And then we're getting the bumper to bumper benefits on the procurement side because of the scale and size that we have with our European procurement teams.

Justin: And then jumping down a specialty I mean, we've got the.

Justin: The strongest leading position in that space. We're the we're the number one leader in the distribution of RV and Sema related products. We've got a great management team that can manage really through all cycles and we've seen that.

Justin L. Jude: You know, so and I think, you know, looking at specialty for the month or for the quarter, even though we were still negative, we saw month to month, as I mentioned, improvements in March was actually the first month where we saw an increase year over year in demand and an increase year over year in sales. And so, in closing, I just want to reiterate that we have market-leading positions in nearly everything we do. We have long-term great trends that operate in our favor. I am truly excited about the future, and with that, Nick, I'll turn it back over to you. Thanks, Justin.

Justin: So and I think looking at specialty for the month or for the quarter, even though we were still negative we saw month to month as I mentioned improvements in March was actually the first month, where we saw a increase year over year in demand and an increase year over year in sales and.

Justin: And so just in closing I would just I guess, what I would reiterate that we are the market leading positions in nearly everything we do we have a long term great trends that operate in our favor so truly excited about the future and with that Nick I'll turn it back over to you.

Dominick P. Zarcone: Thanks, Justin, and thank you to everybody on the call for spending time with us here this morning to review our first quarter results. We will be back together, at least Justin, Rick, and Joe; we'll be back together with all of you on July 25th to discuss our second quarter results, and again, I'd like everyone to put Tuesday, September 10th on their calendars for the investor day that will be held in Nashville. So, thank you for your time, and have a great day.

Dominick P. Zarcone: Thanks, Justin and thank you to everybody on the call for spending time with US here. This morning to review our first quarter results, we will be back together at least adjust and Rick and Joe will be back together with all of you on July 25th to discuss our second quarter results and again I would like everyone to put Tuesday September.

Dominick P. Zarcone: <unk> on your calendars.

The.

Dominick P. Zarcone: At the Investor day that will be held down in Nashville.

Speaker Change: Thank you for your time and have a great day.

Operator: Thank you, Nick. This concludes today's call. Thank you for joining us. You may now disconnect your line.

Speaker Change: Thank you. This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: [music].

Okay.