Earnings call transcript Q2 2023

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Operator

Good morning and thank you for joining LKQ Corporation’s Second Quarter 2023 Earnings Conference Call. I am your operator, Jiao. [Operator Instructions] I will now turn the conference over to Joe Boutross, VP of Investor Relations. Please go ahead.

Joe Boutross

Thank you, operator. welcome second and conference XXXX everyone call. morning, to quarter LKQ’s earnings Good are President Chief Zarcone, Officer; us Nick With today LKQ’s Galloway, Vice and Senior and President Officer. and Financial Rick Executive Chief this call. the to accompanying lkqcorp.com release as website Please morning for refer well this LKQ as presentation for at earnings issued slide the

Now, let Safe the cover Harbor. me quickly

events differ beliefs, Some update include statements These from of considered hopes, or or the maybe intentions forward-looking. implied the may obligation various statements. statements a forward-looking today that We or strategies. expressed those statements to Actual our assume forward-looking no materially result we expectations, results factors. make in any regarding of as

filed please risk to the information, our factors more Form refer the subsequent with SEC. in For reports discussed XX-K and

GAAP Hopefully, included earnings in a has planning GAAP today. are financial present call, A measures. this SEC we the presentation. of today’s chance And is XX-Q to we look will our we earlier as our slide to everyone coming During measures normal, days. and file the X-K, and non-GAAP which non-GAAP at in filed had with to release both press reconciliation

to that, turn with to Zarcone. the call CEO, And happy Nick over I’m our

Nick Zarcone

details and back overview closing performance and come dive few an related I quarter good everybody then the the provide morning comments you, safe Thank and Joe are on to remarks. hope the all financial enjoyable in our will before This to some a morning, our level updated provide high call. summer. you Rick and a of with I guidance having I will into

more delivered businesses growth segments business Self-Service parts the Specialty quarter, again coupled economic in nature than American of model The profitability headwinds of our experienced was the of which our with growth with exceptional segments. shined XXXX the margins initiatives, quarter markets, our distribute, interest the declining ongoing ability resilience robust and excellence markets, challenging operational these segments, revenue our its periods our we its impact including and core second and of European continued by strength increases continuation the first our the and offset non-discretionary and in of a on where ongoing macroeconomic flat conditions, in strong conflict European North organic of of pricing, through an several to Ukraine our rates of on generate broader and decreases highlights consumers. the the impact The in and impact in what the subsequent during commodity in

performance quarter variance to true product geography in the businesses. XXXX. of of strength versus in by America of American and segments European and and operating validates portfolio North total of XX% both second our our North long-term diversification strategy, quarter of the collectively segments for again in segment XXXX and strength The evidenced EBITDA and of organization quarter and The roughly our is to the our this just XX% the represented our our across that Europe XX% XXXX, fact with respect second speaks

XXXX second to second weaker per increases to the and primarily and as prices XX.X% revenue precious parts and due X.X% XXXX for year. acquisitions a revenue on X.X% $XXX by $X.X was for income quarter $XXX period year. same Net year-over-year increase net rates increased to and divestitures Parts to the million quarter relative fell basis exchange quarter second last second services Other revenue of of in and compared metal X.X%. revenue the increased was total year-over-year on the in the Revenue the organic X.X%. basis. of of on was million services for XXXX, prior Now of results X.X% reported and an impact foreign The a quarter comparisons. billion, day flat

of Diluted the $X.XX, million completed year, Auto to in The the was of a earnings $XXX year, year million $X.XX to of Glass earnings flat prior company of at PGW second decrease per XXXX second with was last per coming share XX.X%. diluted last compared or compared decrease last quarter second gain flat a to quarter quarter gain X.X%. the the divestiture of in which year million testament operating $X.XX as provide Adjusted an remarks. of higher we of in XXXX in generated in Adjusted of of expense. $XXX in a the will in and strength million lower quarter prepared of share further share, the faced and XXXX prices Rick financial from to details $XXX is a performance our of second interest income commodity after-tax his net the QX headwinds a of pre-tax significantly $X.XX, $XXX XXXX.

Now, turn segment of let’s to the quarterly some highlights.

EBITDA and will parts revenue X.X%. the quarterly self-service. organic you As from X, note excluding margin North segment, standalone as record America reported on services Slide a highest for America also North increased

last the North price improvements. perform was We further continue and North increases X.X% to pricing implemented year XXXX. as The to of America and increases America, impact were liability-related in year-over-year of primarily when you late Similar in and a quarter. benefit QX the year-over-year QX in opposed volume reflected combination down the that QX, consider of to second in claims especially auto in collision well growth

The product two in volume evident and the result aftermarket factors. line was the was particularly of pickup

their to of inventory and having First, us chain since proper issues aftermarket get worked of of year-to-date to supply back level through fulfillment enabled to rates rates levels with historical XXXX. largely level returning June industry our the at highest fill

demand program the covers. is the and aftermarket unfold nicely to for headlights, taillights Farm of building State bumper and continues Second, impact

in and fenders, announced Arizona of lids pilot. hoods This like items previously mirrors including time that of are these products Late and running grills. and announced parts, trunk disclosed, of range the and yet Farm of metal it that for year, in Farm part California State December another other collision State allow use full use month, a last side like last aftermarket the would As types. sheet aftermarket they

certified As Parts requires State CAPA, part to Certified pilot, Association. parts by a be these of Automotive this Farm at

As you by far in CAPA-certified distributor collision many of know, are of the the States. United parts we largest

the high-quality Importantly, both service repair expansion we part types of by our validates our best-in-class country. platinum direct across offerings the standards ability the the aftermarket of Farm private State Farm’s aftermarket additional utilization into and network to potential these deliver believe parts to State plus label

recycled general Farm rollout or aftermarket approached on We a sales ultimately to parts in which usage second in again that basis in in APU, the alternative part increasing quarter. part year-over-year included trend in a APU our State point of APU beneficiary quarter This a basis. is Combined, increase levels XXX I consistent will in in say year-over-year. am additional be the basis of these points aftermarket to volumes uptick pre-pandemic upward use types XXX aftermarket a parts improvement about decide the should XXXX. nationwide an category, the second have industry-wide recycled over pleased rise also with witnessed the

XX.X% Non-comprehensive Our is sequentially outperformance second the another to loss XX.X% share. continue to we quarter in take QX. from in total indicator decreased rates that market

slightly and losses increase a expect would likely mix the a used we will pick With experts are And work rates their OEs inventory expect down prices, shift total loss vehicles car in healthy any through the drop reverse we newer then year. in believe to cars to vehicles the balance up newer as of levels, see road loss. see less be to near-term recent to for likely the total deemed to given industry total

the prior total stated As generally as in up calls, rate. agnostic shifts loss small to down we the in are and

Finally, American say quality general future and enthusiasm simply business. the for I must the month, their time regarding had salespeople I North the to spend an managers LKQ opportunity at last our event some of top was with energizing. performing

services which organic move our let’s basis per on segment. in reported and margin Europe’s XX.X%. European for to growth a at the EBITDA the X.X% quarter increased quarter a at percentage was European ever $X.XX Now, segment, highest $XXX and a revenue revenue second X.X% EBITDA for quarterly day basis. the and of highest quarter reported on It ever the million, billion, records on highest parts at the

of organic both Eastern price some operations geographies. single-digit The Benelux, and European revenue quarter, double-digit movements our During the operating German in In in growth we and well. particular, low exceptionally reported positive to saw performed high key our of reflected growth volume. combination a

per are to business, day markets confident our of are fragmented on sales take its and We continuing we share these highly record. ECP, in as level which highest generated by large UK witnessed

ATU a parts sectors our dual between second quarter, the to brands respective with LKQ Mobivia under Europe. into independent of unparalleled And service marketplace. delivery The provider in branches across which will XXX the our of in Europe collaboration, LKQ repair Mobivia automotive provide we of collaboration, European and In and to the in a LKQ automotive largest that Mobivia, XX across operating agreement services, on to maintenance aftermarket. procurement partnership this differentiated the based Europe’s leverage is and strategic a automotive countries Europe of both is includes strengths Germany. XX mode solution and thanks leaders Mobivia’s are entered

continues markets. to face team inflation across operating all cost Our European

of what leaders initiatives and Europe the focus I delivering. multiple position. week the incredibly macro to are segment the the across am uniquely enhance this of our combat all the region. competitive team’s proud I improvements decisive And and leading meeting resulted and and am The with the second Benelux has the the I efficiency despite a drive in UK have team and in leading These quarter underway outstanding actions. environment. the creating And special business. structural in team they are and for regional and senior about European to in are this, taken with the very grow last all market SG&A they actions year-over-year excited also business in they the challenging teams performance spent

Specialty to on move let’s segment. our Now,

of RV off through XX% was the than products were and decline. revenue specialty retail types XX% down while down than During business categories demand and were of impacted with the year-to-date sales overall a The the Specialty reported more segment of X%, quarter, the XX.X%, the decrease organic marine part truck, which in differences various RVs, expectations. substantially respectively. was There in off-road portion our below our towing major shipment for May wholesale RV which were second being less and by and related

We expect XX% we RV that, wholesale will of back down the year reports half challenges year-over-year. further the the will the year. recent industry for market to Specialty in shipments project segment that see believe full XXXX continue in be as With declines our

our challenged again it by quarter. was our revenue extremely increased in X.X% to and Self-Service commodity precious metals. Self-Service related to parts particularly second on segment for segment. soft services as Self-Service for Organic Now pricing, the

independent the quarter including and we completed parts aftermarket high-performance Texas during front, synergistic a in OE and and parts, based highly leading development U.S. automotive smaller, and a UK, recently paint, tuck-in On distributor, acquisitions, a Holland-based automotive engines marine with and aftermarket accessories of in replacement corporate engines, a the distributor July, some remanufacturer that trade replacement in the distributor distributes engines, Belgium-based locations truck and accessories Oklahoma. business tools parts distributor

The the small divested impact a in quarter, non-core approximately six revenue net annualized these during of we Additionally, segment. collectively is $XXX million. business our transactions Specialty

are per Uni-Select’s $X.X you schedule of cash, As for total process into entered all value a with approximately representing agreement we of CADXX shares on in XX, most billion. and is know, we outstanding and issued The to our a on progress. of February enterprise acquire pleased definitive share

the quarter, Court Quebec, the second received the in the in States regulators Uni-Select’s shareholders, and required Superior the During approvals Canada. from antitrust of we United

those our decision in parts Markets evaluation divestiture And to United X the Uni-Select’s On in and submitted we the waived conditions July UK Phase approvals undertakings Authority by response, transaction. we to progress Kingdom to on to relating announce Uni-Select on of CMA. our will CMA, CMA complete GSF pending regulatory competitive buyer. our to in the car its receipt complete proposed of process, accordance third The sale complete will with of GSF divestiture desired of the quarter. bid August complete of in the customary of approval timeline. In the and issued proposed business I XX, Competition in Upon the continues we the the suitability about buyer the closing the likely plan from of we GSF yesterday, After light we the happy review this for or X. related am the developments, sale immediately of acquisition its

turning ESG. Now to

centered During expanded programs asset. order, initiated the LKQ’s we most people, or various around that important our

of wellness of team employees. to value our that inclusion around the the we implemented that identified XX that everywhere. to health, PAVE, Inspire I North in our engagement actions. We continued employees. our maintaining survey, safety mental very few ESG expanded are specialty and exciting was of our of progress June best efforts, XX America we and our safety our program by at not interest financial adding we on which diversity, installation We MSCI As Again, expanded essential initiatives. is With which part our of people our physical, rating our employees again response Thrive well-being can employee program two companies and which our AAA enhances the rating our the success. a of claim. equity be the ensuring engagement programs by took prouder could cams our in validated data, well-being ESG the stands on drivers. as a programs these globally, And that focuses across centered for of dash our ECP, programs, fleets, to are and Both these implemented they and

Lastly, XXXX, Directors I quarterly August of payable declared XX, of am common August at stockholders announce on of a per to pleased Board record July on dividend $X.XXX the to close stock XX, of share cash of XXXX, that on XXXX. XX, business the

will I outlook segment of results details the Rick over who the will discussion our run turn discuss the for and to XXXX. through now

Rick Galloway

to Thank today. you, Nick, everyone us welcome and joining

the highest flow XX.X% Strong and high performance. million to in LKQ The at another quarterly improvements America bond from high in comments margin $XXX with difficult I want the a the thanks Europe, billion headwinds in offering solid details interest America segment in in margin segment for costs. and acquisition. I digits record cash conditions. to and EBITDA pending North revenue provide delivering To the Nick’s operating North secure free decade and highlights single the the financing with second in results, to commodity on quarter these performance XX.X%, Uni-Select a organic the quarter for prices results was of team $X.X of business growth for start reiterate countering of further exceptional global will including on completion Europe, from

sale performance, points Going improvement over posting to EBITDA point Slide XX. America were a by North basis to fuel and year. favored mix gross pricing costs, freight lower of margin favorable expenses. and strong of segment lower-margin points, continued primarily the productivity XXX PGW initiatives improvement basis by expenses saw a XXX a last business. its basis the lower effect driven XX.X%, XX margin Overhead with of and due freight, We vehicle

with With the segment believe year margins some low XX% moderation tightening, in the segment, second the will our of along continued American full strong year performance some finish the with in we seasonality. half North margins in the XXXX salvage EBITDA normal range with

XX basis results terrific EBITDA XX.X%, Europe the period. up year prior also delivered with a points of margin segment from

expansion some overhead of expenses as our headwinds revenue X.X% basis There margin the in of improved expectation XX due on for XX costs. day points, half leverage costs year year costs emphasis the in initiatives, initiatives the growth while about anticipated effect personnel Slide productivity productivity to increases optimistic decreased due on personnel basis XX inflation. remain on per basis second full through points these improved We with previously reduced and points gross are of to intend and margin organic freight by seen the we to by XXXX. XX, wage disclosed mitigate to increased and As XX

price less The XX.X% counteract margin align Overhead as have year-over-year per XXX EBITDA decline affected pressure to was trends, as basis have in to the decrease lower with improve to up second of points basis revenue leverage some margin, year. primarily provided reductions. marine addition revenue quarter compared unfavorable availability is revenue such to benefit cost competitors from XXX mix day. down Gross points our continues in under revenue take expenses to basis points, competition the Slide Moving prior by inventory product driven to organic continues from lines restructuring prior Specialty’s which XX the auto team X.X% of been the efforts actions increased structure declined XX. the by softness. margin to as and and in specialty were

negative by Self with can from As quarter and to this representing the metal an EBITDA you lower prices, X.X% and Service XX, XX.X% unfavorable a XX.X% profitability Slide the reduction precious Metals see effect results in sequentially on reported first QX had quarter relative a in to to declined $XX million million net in prices XXXX, XXXX. on in decreased scrap fell declined Other of Relative sequential a for XX%. steel leverage the decreased to XX.X% in XXX by from received effect decline. changes XXXX price contributing operating reduction price points. catalytic scrap QX in $X and driving average revenue further steel XX% converters total, basis a lag QX by

changes While to down which tandem, in car the persist that These in prices, a quarter costs, in second were year. commodity XXXX. car gross cost have we in relative a typically QX margin stickiness the created experienced trends half could XX% second move only headwind the of in which

consolidated Now details the on for results. further

flat share adjusted $X.XX mentioned, QX last per year. As earnings was diluted of to

prices, expense Slide from XXXX. in increases were rate the resulting $X.XX and due repurchases interest count partially showed $X.XX of performance business. solid adjusted offset $X.XX We share ex an impact rate. factors net $X.XX higher basis, share decline North $X.XX driven higher year-over-year benefited by in to lower the with metal of from per on as the to gains operational the effective These by resulting strong America on XX, from our of share a tax increase in a due shown by in improvement and Our specialty Europe,

and rate, of XX financing. transaction the annual Uni-Select in change is to the than basis non-deductible costs On XX.X% our other applied Uni-Select effects prior rate points effective attributable rate XX.X% we an higher The guidance. tax estimate which to is the related and

Once Slide been second on be senior excluded in the complete earnings interest $X.X from statement of XX, quarter expenses Uni-Select the the have May, share. effects adjusted shown As XXXX. due we will In costs and and net financing diluted of the pre-acquisition forward, per of billion various we the adjusted transaction of XXXX going financials. completed notes reflected in diluted The parts affected offering income expense EPS. transaction acquisition,

bonds results of for and the issuer, the statement. with XX-year issuance the interest happy the other in in on date The X was and We first-time We’re bond the offering and X.XX% period recorded for end outstanding between expense income the the and from X.XX% maturities expense interest financing investment-grade at quarter line a obtaining earned reflected on the as the proceeds an is interest income. interest the outcome.

hedged of $XX these settled making by rate in the we issuance permanent QX, the bonds, risk prior rate issuance bond we the payment and market. a million. In swaps interest the to Upon financing of unwind interest of

As and life sheet over amortized to qualified the on these balance statement income held bonds. the for the was of will the swaps the hedge loss accounting, be

and are which to And movements dollar With rate. a amortized upfront as had costs in We in incurred of is bond value fees we million line the of quarter, the loan of statement hedge presented dollars as eligible hedge and the advisory expenses. risk gain exchange accounting at To entered as million M&A signing forward QX. the and in contracts completion related the June income are the not mark-to-market between to $X purchase for separate contracts, rates Canadian offering, we transaction-related of facility reflected XX. in closing, item. a a million the we These the the foreign QX, contracts in Canadian of terminated exchange $X remaining on restructuring specified these fair into the in bridge $XX

to cash balance the Shifting in sheet. flows

completing loan, on cash bond With for we Uni-Select than the the necessary of usual the are billion CADXXX term financing at deal ahead $X.X $X.X transaction. bond the more offering sheet offering million carrying the billion. secured the we closing, By and balance have

cash earmarked the liquidity and billion XX. aside set as $XXX $X.X of we for of roughly $X.X have acquisition, billion the you million If available in June

ratio into in none XX, our increase as had of with for a Uni-Select the in the As EBITDA, of debt we of from additional and we communications. June EBITDA of X.Xx debt $X.X which above of expected target X.Xx total billion leverage the total prior account total takes our range Uni-Select disclosed the The was projected ratio acquisition. funding leverage

XX our our are to repurchases. balanced achieving strategy, our including the We closing share we committed to will leverage within capital transaction reducing months allocation leverage X.Xx ratio below ratio, target upon return of

XX.X going Our quarter the rate in the rose credit forward. X.X% the trigger effective leverage increase increase borrowing in above to increases. our due market will a X.Xx for rate facility to global ratio point The margin basis

X which We have fixed variable years, been rate swaps debt, in X.X% X.X% the respectively. $X.X billion X with and at over million interest to rate $XXX has next of

February $XXX We We produced on the of playing $XXX we financing rates to a books as track Interest basis. of coming million flow full was estimate headwinds originally the year-to-date headwind with interest quarter call, taxes in and during outflows million in the and of $XX of from $XX and a will the closes. on XXXX, of and interest projected Uni-Select impact million higher spending our higher before cash results approximately free to highlighted June These million than income $XXX million, Compared payments at for are our out actual three the remain year-to-date $XX are flow because down free the capital larger as $XX acquisition year expected. million. cash the million. areas of be on mostly

to flow of million second down As our program free as well tuck-in in $XXX we of previously debt million. as quarter acquisitions paused the mentioned, directed $XX share our repurchase paying cash and have

of million. dividend a paid we $XX Additionally, quarterly

will on projected I with thoughts results. our XXXX conclude

major our continues balance $X.XX and June Ukraine on based without is trends the On of mouse additional impact or of the guidance conditions on levels includes economic hold euro the at with sterling recent exchange, near escalation $X.XX, driven. and year Our scrap metal and rates. for and and conflict prices Russia and current pound further assume the rates June line foreign in economy guidance the European precious

reported decreased expect at X.X% recognition in Organic the end growth was X.X% June. service in high of the and of which parts revenue through of challenges specialty, is down We range ongoing organic XX% range to the X.X%. We the year-to-date.

specialty Please expect makes have in half X year, the the reduce the of We QX. America, to note, the the unlikely. but in full Europe X% expectation in year-over-year we decline consolidated North specialty lower year level reaching second at fewer selling day in

$X Europe perform prior mitigating and our down $X.XX. our ahead America resulting to per $X.XX of We change in to in diluted range our continue figure. high and The of end. are which specialty is prior share, now in of to $X.XX, while no EPS anticipate midpoint the We the expect there net estimate, low of range segment, softness adjusted end brings the operational is from the North $X.XX expectations growth previous from in

interest the However, of and this higher declining effects growth. expenses operational metals tax of $X.XX offsetting negative $X.XX of prices and than more are

operating guidance X that for Slide results and to cash a numbers EBITDA pre-acquisition the of million the change. create costs a one-time change the annual Uni-Select. will to impact headwind EPS and interest fees XX% clear, and free expect expectation our flow not be noting overcome. include There To flow a I to just portion to quoted we do have Uni-Select contributing approximately no primary conversion, free transaction cash shows $XXX is of the factors

EPS on timing, be will close to XXXX. fiscal are projecting Uni-Select about $X.XX X $X.XX acquisition per diluted we on that or We in and by share adjusted August expect to dilutive the assuming to

it months, due dilutive transaction to time to required first accretive the believe the we synergies. be and achieve integration the is the over While XX the to costs the expected begin early in months, be will to

are for them overall we not in changed, of part the Our bring have the businesses as LKQ family. excited to expectation and

for the With time today. to your his that, you back closing I’ll Nick for comments. Thank call turn

Nick Zarcone

the of the performance I first proud another particularly for results uncontrollable by we businesses to the positioning for you, solid overview. planning beyond closing, be and the respective second of that for for challenged was diligently teams the as In quarter LKQ. certain year, financial XXXX we dynamics. team Thank delivered balance of are how Rick, half continue their am the

into the our of second central As restate culture to we which move half objectives. strategic key year, our and me the pillars, remain let our

continue integrate our operating will to businesses simplify and our model. First, we

will expansion. growth sustainable continue on margin focus we to profitable Second, revenue and

will strategy. we high will to give capital turn in the us future. drive invest flexibility allocation we cash Third, maintain continue of continue to in our fourth, balanced levels to which And will flow, a

XX,XXX and delivers work to for for want I and people always, day advance thank As they challenges. the the of who our over regardless values LKQ driving missions at all each business to do forward our our

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

Operator

Please comes Scott Stember of from of go ahead. Thank you. the MKM. ROTH question Instructions] Your first line [Operator

Scott Stember

and guys. quarter thanks on taking the questions. Congrats morning, my for Good

Nick Zarcone

Thanks, Scott.

Scott Stember

wanted State I on In just Farm. North touch America, to

California whole a about potential what previous million live on I fully Arizona throughout you the I now guess, getting based in think about, in those $XXX and about program. the with with from going is three lot calls, questions SKUs investors country, the of had talked benefit,

Nick Zarcone

movement that. utilizing delighted take Farm I’ll Sure. in State by new pair Obviously, our policyholders are terms we is vehicles. making of of high-quality parts, the aftermarket

$XX previously annual the everything tail running. headlights, that was lights to about once gets and and million bumper upside $XXX You’re We on up million correct. covers basis from mentioned an

We are that number. toward tracking

the the be little types bit and aftermarket cannibalization requires the to bumper appears replacement represent frankly, highest of the parts the there addition cannibalization So salvage on volume collision side in of as significant as the These to midpoint every towards quite OEM probably three-part on almost of a covers. lights parts side.

about would push our everything bucket to $XXX you baskets, so add sized equal basis in an three over else, towards and adding original everything lighting, or time. to else which the If you the of to bumpers estimate, Scott, on somewhere XX% another would think million annual million $XXX

add sales. has basically that billion CAPA fact you that the chrome probably State preliminary includes use $X overall some that’s Farm CAPA-certified that that a of top aftermarket And likely of bit bumpers, using the parts. higher had you than trucks on billion about State some for Now pickup Farm only represent our bumpers that, been guesstimates have When to parts last will only the several of years. $X little due for

So get million incremental is to roughly an to time. million market XX% lower on that on you if basis apply, XX% share $XXX you annual $XXX over to base, of revenue that there back

right very pickup. that’s revenue with So that’s parts, good incremental we’re SG&A amount those State margins a number that be deliver limited there Farm will nice And the that, think now. would because there of business. a comfortable really that all on incremental I required is we to also say

Scott Stember

$XXX that number? all-in California that that’s Or Arizona? for and So to an amount just million, $XXX is additional an million

Nick Zarcone

in. No. is or covers third. That’s third of lights about else are bucket Again, all bumper third the about everything about and

Rick Galloway

pilot, won’t mean Scott, as for much pilot. The product the a to us

– numbers assuming some live time. Nick that we’re the point are So just in at quoted they go

Scott Stember

for XXX%? but the Okay. live goes that with does parts blithering I that point assume country am sorry whole here, the all

Nick Zarcone

Yes.

Scott Stember

just like the to of and for seeing countercyclical that the know doing share tremendous things Got talk pushing nature that kick there? walk there, the taking are a of Obviously, And in? business guys growth better you job. are sounds of the are growth really over you up a volume some I But second. just it picked has maybe nicely. it. Maybe Okay. to Europe about signs

Nick Zarcone

economies the the much Europe in I is U.S. I than economy. shape wouldn’t worse the mean are in say countercyclical, Scott. reality

of economies, growth. now some at they the the off of the prices UK the If published a GDP of energy war, probably The is in any of worst of statistics, you just have the impact is two recession, impact inflation. of the had quarters Germany look negative

anybody a means are inflation is, to to in countercyclical, our that high over both that Europe. may confident And While bit more from an down relates our own our time you is continuing Europe. come it be the good are fact older overall inflation over is impact going grow perspective consumer. the price in hanging this And and frankly, car The holding while the a if car economic volume that an than talk we park growth, has are we as to perspective us pretty Again, we in business, what a age. U.S., highly to on backdrop having our friend. the not in business, is that’s quite tells

that think in conditions these bode will soft economic favor. actually to longer Europe we our So, term,

Operator

Thank you.

Your next of question Craig comes from the Kennison Please line of go Baird. ahead.

Craig Kennison

from good I improving the there question North a you increase impact rate quantify had And North organic saw American Thanks expect tailwinds to to fulfillment my Rick, year-over-year for American Hey, any how fulfillment is morning. this then do you. long questions. rates, that quarter? way growth? taking you for

Rick Galloway

about year think where points as actually, numbers, when at Thanks so question. ago thanks target, just of we high-XXs low-XXs we X the we a in am were about and looking we are we have good Craig, have the as our rates past, to in improvement. were QX, – I got question. a kind it’s is kind of Yes, back we for the talked mid-XXs, the which Fulfillment are in of

is quantification, it’s the doing bag. as of a mixed that bit far a difficulty As in that

as as to overall So, I far was go. would benefit dollars what quote hate the

is a aftermarket. this before bit a salvage talked side of have As movement, the little we there and and between the about

of a little bit a there flip. been So, has

the So, to went It’s the away when back from volume way. other there, the some of went gone wasn’t availability aftermarket of when salvage. over it kind

where are cash holding happy flow to continuing we as much more inventories. are think We with go at the impacts free don’t of at. we need where the of we to are are additional we we balance So,

Craig Kennison

XXXX, you that QX do has then like you abated at you do Thanks. and and a think or from tailwinds, And year-over-year still perspective? expect as look QX

Rick Galloway

Yes.

but that’s this time. minor meaningful where going quite at I to mean not us close. for back to are we we mean were nothing improvements, but really it’s I be really, pre-pandemic, think were I

Operator

Thank you.

line Your of the from next Bret comes Please ahead. go Jefferies. question Jordan of

Bret Jordan

Good guys. morning Hey.

Nick Zarcone

Good morning Bret.

Bret Jordan

business more Uni-Select having in the visibility talk American mechanical I With synergies a now, how of guess about could the you Canada? bit a you business, North see

Nick Zarcone

Yes.

outlined year will needing of few hands $XX kind Most only second access. of late Bret, to years that as get we we a February X X cost million those a post-transaction. back the confident in synergies there that be of in we So, over announced with we our will come first the on full is dollars able are the when years that of highly to transaction,

trying is quickly. we just and start there as that to like We savings. very overhead the corporate kind we deliver There are soon as and facility synergies process and benefits again, the going to can don’t procurement the And are all some need. of the

come XXth, from confident Obviously, much the from. we our U.S. the XXth, FinishMaster to going Again, our the we the that of back where overlap. where operations transaction. on a February so the are And that. operations synergies lot of we and gave ability That’s come in the presentation announced when That’s paint are to highly has in synergies everybody do changed nothing

the We glean all out that Europe. or small over transaction. that giving do right. down we are parts. benefits, benefits what don’t grow there We in by facilities inventory included have of they in are mechanical Canada we that Canada today, cover on broadening none $XX to business can plans announced will some have eliminating, in benefits that used giving revenue them That’s They we up when some million distributing shutting product Canada types the is up that to But line, no because think changing their car that in in capital do we of the be do them incremental we by outlined business. their

Bret Jordan

Could Okay. Leadtech the you didn’t in give And prepared update developments? on diagnostics you us third-party remarks. your [ph] then mention an

Nick Zarcone

our which about Leadtech, any so it’s really of XX% is we strong a year, businesses, has business. higher obviously significantly and margins. it is reality yes, than love services other The growing our

I of work the of of some very, the technology. look for data, if some very repairs about And are done repairs XX% we vehicles. MSOs that XX% car happy so about at have And actually all about on you being that. scanning the calibration sort some industry mean at are of the

the got $XXX. park about close but may car running Average is scan on to is all the remember Average there calibration running only price sound low, to that $XXX. Now the price you that XX% small the has only it. there of of portion a technology is is of a a today, –

every it so really a where of out on is more year, car. attractive market some to the with we several going the business. is the to ago. That’s that business got there And roads on years the And cars into grow more are because simply continue advanced technology

offering, of level We optimistic our high providing services in and existing a actually to have a we customers. market-leading shops, are believe the some By of created their those future. is about what service providing we

Operator

Thank you.

Your next of question Butler comes Please line Stifel. from of Brian the go ahead.

Brian Butler

question. for guys. Hi Thanks taking my

Nick Zarcone

Brian. morning Good

Brian Butler

we sound do think you maybe doesn’t out, is bounce you thinking to think like bottom but the specialty, reached settle the of of from it kind Just ‘XX? like bottom, back a when then ultimately kind half and about margins the and how about about have there ‘XX feel of where

Nick Zarcone

Yes.

So, it’s predicting quarters yet. bottom we are couple rough a specialty – reality, are that business. we of for it’s the not been at The our

start that have quickly. be catalyst to turn got a Obviously, we as we seen to that will that’s easier into XXXX, going against. we not working have comps We better, get

The from are perspective soft, an in growth a from They not restructuring aggressively perspective, uptick. are anticipating absolute going good as is And may the did their a earlier look news some but significant structure. not at we dollar year. the numbers so they cost

they quarter. double-digit they so there back margins weren’t actually were month June, And though to of for the the even

would something margins It’s though be striving and revenues are quarters. to challenged the achieve in that And XX% suggest around so the we that now may even for range. several more I

Brian Butler

very do the flow That’s helpful. cash what’s Thank that? outlook the question, free the you offsetting interest expense, staying how same Alright. bridge And you much. second with higher

Rick Galloway

Yes.

trade have been got, us improvement. So, for capital if you look at the has nice overall working a the pieces that we

to We improvement And side earnings good continue saw is as within a of nice improvement. see the it. QX a side the other well. really We then

we with So, million, throughout continue up roughly than trade in QX. improved the rest really we happy that Overall, to the are working less where year. and a drive ended little of to $XXX we capital expect

Brian Butler

you. Thank

Operator

Gary We Barrington of now question have Prestopino the ahead. next line Please the Research. of go from

Gary Prestopino

Hey. morning Good everyone.

Nick Zarcone

Good Gary. morning

Rick Galloway

morning Gary. Good

Gary Prestopino

changes. impact takes and very some correct generate some the EPS assumption? of A consolidated segment these that it is – the for or impact But adjusted looking the Is from that couple puts of rather not will minimal. EBITDA kind of It the looks little year. consolidated these questions be there EBITDA you it, your a the like With – of does in really here, here. on like this changes your guidance, looks at which

Rick Galloway

on will will the the interest be are metals impact. those impact, But The But right, – side, avoided. should in. on side you an you taxes be the metals that feather

Gary Prestopino

from you operating $X.XX results, getting are But Right. also right?

Rick Galloway

side. And roughly it’s the as Gary. the mean the difference it’s I exactly. as go Yes, far same, minimal EBITDA on

Gary Prestopino

really Okay. were there the maybe quarter And – talk EBITDA in that the seems improvement it and they margin has of humming over you at record segment that like have taken Could to over then that led things Nick, the you Europe. the could in generation some have Varun got about actions levels?

Nick Zarcone

I XX the came As in gross SG&A. XX margin We the points basis point in SG&A. of indicated, split – we XX focus improvement, think on Rick lot a basis of and basis points

the sure doing platforms a make are taking of hard best really all overhead to our look our control that possible to expenses. we So, across job

when mistake, is organic in much X.X% per no than growth, that environment, Now, the U.S. you is as Gary, intense indicated day Europe, it over have inflationary helps. more revenue I the But make here in

unions us wage they coming gains percent did compared Rick to the increase revenues. to that relates of the actually us as we use the other short-term try at couple know and already for second to inflation Europe that in so wages. lot We it the members has of Netherlands to to have and of work got better countries, and year. in SG&A have at a wage days particularly get there strikes a them. offset We over coming experienced And in as indicate Certain needed the their Germany to already. productivity half have that allow some a another position increase strike lower consoles

year. of things the to in we the going half with second so And all deal to are are have those

Gary Prestopino

you. Thank Okay.

Operator

you. Thank

Please of comes question Daniel from of the next line Your ahead. go Imbro Stephens.

Daniel Imbro

morning Good Thanks Hi. everybody. taking my question. Yes. for

Nick Zarcone

Good morning Daniel.

Rick Galloway

Good Daniel. morning

Daniel Imbro

may margins. Obviously, stronger. smaller be used I year this held competitors earlier much had share North guided start on down back, price and I as they want in set Rick, to think that inventory EBITDA to got but get American you was have

competition? than what’s there So, something peers out playing American offset more differently I that rational, smaller or wholesale up some is you driving price North being to thought? margin of guess Are else

Rick Galloway

have for pricing are been It’s productivity on to question, of the things. offset we the seeing Yes. helping that combination something Thanks we different for side. risks that of a the initiatives a is any Daniel. One are several on while focused

of The believe and is holding has a about been pricing. amount inventory good other has competition, that decent pretty we thing

And drop So, to the of there relative kind they are how – we haven’t margins remarks, low been the else now. you expecting the looking about and of the at as of bad in is the think as from a a we year, piece little more back bit half of than earlier. seasonality pricing anything could as idea at away were the pulling in where prepared heard kind we go how right

it. We are just not seeing

offsetting the one continuing of And that drive it. things we are is is to that. productivity think biggest I So,

So, we year. in the into end will up half we year for the back full as we low-XXs the number are think coming the of

Daniel Imbro

X.X% much And APU XXX was concern out basis investor in up. color. like comp? then seeing growth? mentioned pricing? on an maybe out more have any a been production traffic then you are change think break you OEM improvement. picks points America, the versus Nick, nice tailwind related that’s a that And for versus volume, How should more there as OEM ticket but I growth ticket North guess think I you on That just a you follow-up to Thank could of

related that traffic is pricing how been to the side the So, of discussion? ticket backdrop first

Nick Zarcone

if which have as Farm State see. of we propensity lot a time shown and where else, up, they a Obviously, lower the program, higher the half good leads OEs, They haven’t Yes. really up. They prices. didn’t inventory then their period fulfillment getting And that to North prices – America, a do volumes. year-over-year of of dropped is volume, everything they mean rates to bit. the talked started have quite kept they never that a certainly like they has all And prices are inflation prices you else, was stock, than with don’t will. the to to for more steady. volume, will. we we growth that there everyone prices, And I taking kept think having the aftermarket in the about, with increase of some generally

And so we did – tracks. we their follow

forward, pretty having impact So, at OE is pricing are our our going discount anticipate a it here keep to continue and we pricing. movement an going expectation that will or done shouldn’t as that the on forever. any the OEs People of moderate to we they just have sell list on significant to behalf

Operator

call no to the back ahead, to turn this would like Nick I sir. at are Zarcone over Please now closing time. remarks. go Thank There you. further for questions

Nick Zarcone

into to certainly chatting forward Thank able thank our look third certainly earlier the time very everyone with and results. morning. we We again you you all I hope a late October fun announce then, year. wonderful this of the your attention your the summer. everyone. of in half when quarter back until obviously, we proud report for have to And Well, we like you looking QX would results are Again, to today, to were and forward, your are we that I

Operator

And that now call, concludes disconnect. conference may you today’s

LKQ (LKQ) 27 Jul 232023 Q2 Earnings call transcript