Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the LKQ Corporation First Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Joe Boutross, Vice President of Investor Relations. You may begin your conference.

Thank you, operator. Good morning, everyone, and welcome to LKQ's first quarter 2021 earnings conference call. With us today are Nick Zarcone, LKQ's President and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Financial Officer. Please refer to the LKQ Web site 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. Some of the statements that we make today may be considered forward-looking. These include statements regarding our expectations, beliefs, hopes, intentions or strategies. 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. 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're planning to file our 10-Q in the next few days. And with that, I'm happy to turn the call over to our CEO, Nick Zarcone.

Thank you, Joe, and good morning to everybody on the call. This morning I will provide some high level comments related to our performance in the quarter, and then Varun will dive into the financial details, including our banner margin and free cash flow performance, as well as our improved 2021 outlook before I come back with a few closing remarks. Wow, we've come a long way over the past 12 months. A year ago at this time, the threat of the pandemic had become a tremendous and painful reality. Immediately, our teams got into action with a key focus across the entire organization to right-size the cost structure and maximize cash flow. In order to adjust to this new paradigm, our teams had to make some very difficult decisions to protect the long-term health of our company, and in the past three quarters have proven our ability to reset the cost structure of LKQ. Our global leadership team firmly believed we would come out of the pandemic period stronger and a better organization, and our performance this past quarter absolutely confirms that belief. Let me restate our key initiatives, which continue to be central to our culture and our objectives. First, we will continue to integrate our businesses and simplify our operating model. Second, we will continue to focus on profitable revenue growth and sustainable margin expansion. Third, we will continue to drive high levels of cash flow, which in turn will give us the flexibility to maintain a balanced capital allocation strategy. And finally, we will continue to invest in our future. As you can see from our results, our segment teams executed on each of these initiatives in the first quarter. Alongside these operating initiatives, the continued build out of a comprehensive ESG program is a key focus for the organization. As promised during our last earnings call, on April 6, we released our inaugural Corporate Sustainability Report. This report validates our long-term commitment to enhancing our ESG practices and will serve as a guidepost for the further embedding of ESG principles throughout our global operations. Slide 16 of today's earnings deck provides a brief one-page overview of the CSR report. If you have not already done so, I would highly encourage you to visit our website and download a copy of the full CSR. Now onto the quarter. Revenue for the first quarter was $3.17 billion, an increase of 5.7%, that’s compared to $3 billion in the first quarter of 2020. Parts and services organic revenue in the first quarter of 2021 increased six-tenths of 1% on a reported basis and 2.2% on a per day basis. While the net impact of acquisitions and divestitures decreased revenue by six-tenths of 1%, then foreign exchange rates increased revenue by 4.2%. Total parts and services revenue increased 4.2% in the quarter. The organic revenue growth for the quarter reflects the annualization of the initial pandemic impact last March. Through February, organic parts and services revenue was 4.4% lower on a per day basis. In March, organic parts and services revenue grew by 15.7% on a per day basis, recognizing we were coming off a lower comparable period. Other revenue grew 27% in the first quarter of 2021, driven by higher scrap steel and precious metal prices. While consolidated revenue is still running below pre-COVID levels, net income for the first quarter was $266 million as compared to $146 million last year, an increase of 83% year-over-year. Diluted earnings per share for Q1 was $0.88, an increase of 83%. On an adjusted basis, net income in the first quarter was $286 million, a 62% increase year-over-year, while adjusted diluted earnings per share was $0.94, a 65% increase. Each of our segments achieved EBITDA margins well ahead of our expectations due to excellent execution, a continued focus on our cost structure, and with respect to North America, tailwinds from scrap and precious metals pricing. When taken collectively, these strong performances allowed LKQ to record consolidated segment EBITDA margins of 14.2% in the first quarter. This was a 350 basis point increase relative to the first quarter of last year. Let's turn to some of the quarterly segment highlights. Slide 5 sets forth the monthly revenue trends for the quarter. As you can see, all segments were positive in March on a per day basis. Obviously, during the tail end of February and the entire month of March, we were working from an easier comp. But we also benefited as mobility began to gain ground in certain markets. Additionally, the penetration rate of the vaccine in the United States is encouraging. As these trends gained ground in other key markets, we should begin to see a loosening of the stay-at-home mandates, and we would expect a gradual improvement in vehicle miles traveled, or VMT. According to the U.S. Department of Energy, at the end of the second week of April, fuel consumption was 71% above the prior year and just 3% below that same week of 2019. According to the Apple Mobility Index, the trend in driving trips in our European markets was down early in the year relative to the third and fourth quarter levels of 2020. But as we progress through Q1, the index rebounded, and by the third week of April, the index had increased 33% from the first week of January. So, there are clearly some green shoots of momentum in VMT around the globe, albeit we're still below pre-COVID levels. Turning to North America. From Slide 6, you will note that organic revenue for parts and services for our North American segment declined 8.4% in the quarter on a reported basis and 7.0% on a per day basis. While still down on a year-over-year basis, it is an improvement relative to Q4 of last year. We continue to outpace the market in North America, especially when you consider that industry data suggests that collision and liability related repairable auto claims declined approximately 14% in the first quarter of 2021 compared to the prior period. Relative to the competitive landscape, we are confident that we are gaining market share from small salvage and aftermarket operators that are typically capital constrained and facing lower inventory levels due to product availability and cost inflation. Our strong balance sheet gives us the ability to continue to invest in our North American business, including inventory replenishment and various technologies and programs to further enhance the efficiency of our operations and the service experience for our customers. With capital constraints, many smaller competitors lack the flexibility to stay relevant and competitive. During the first quarter, our North American operations benefited from the disruption to the OE component supply chain, which impacted the OE’s ability to build major mechanical inventory. This lack of major mechanical inventory for the OEs combined with our robust levels of recycled and remanufactured engines and transmission products provided the opportunity for our North American business to gain share in the quarter. Our salvage operations have been extremely judicious in their procurement efforts and selling more parts from the vehicles we procure, enabling us to have stronger fulfillment rates than the industry average. In North America during the first quarter, we continued our environmental stewardship efforts by processing 190,000 vehicles, resulting in, among other things, the recycling of 900,000 gallons of fuel, 491,000 gallons of waste oil, 482,000 tires, and 176,000 batteries. During the first quarter, we also processed approximately 282,000 tons of scrap steel. Moving on to our European segment. Organic revenue for parts and services in the first quarter increased 30 basis points. As the largest pure-play distributor of aftermarket automotive parts in Europe, this is a solid start to 2021 even in the face of continuing COVID lockdowns in several regions of Europe. Our regional operations experienced varying revenue performance in the quarter with positive year-over-year performance in Germany, Benelux and Eastern Europe with some softness in the UK, and Italy continuing to drag on the overall performance of this segment. Specific to the UK, in addition to our two-step distribution business of mechanical service parts, we operate a few other businesses, including our collision parts and coatings businesses, which registered materially lower growth than our two-step mechanical parts distribution business in the first quarter. Importantly, with our corporate-wide focus on profitable revenue, we spent the past year rationalizing the footprint of our UK business, which eliminated over 40 unprofitable branches, resulting in a small negative impact on revenue, but a significant improvement in EBITDA margins. Revenue growth from our ongoing mechanical service parts operations was positive in the quarter, while our data indicates the overall UK market was down on a year-over-year basis. In total, we are delighted with the performance of our UK operations. Other items of note in Europe include the fact that we continue to add talent and expect the organization design elements of the 1 LKQ Europe program will be largely completed by the end of Q2. The Fource Central Distribution Center project remains right on track. Our ERP implementation at Rhiag, Italy also remains on track for a Q2 go live, which will make it the first large platform company on our new European ERP system. And we continue to expand our payables optimization initiatives, which includes the vendor financing program. Lastly on Europe, and consistent with our ESP programs, we recently launched an electric delivery vehicle trial for our UK and Republic of Ireland operations. The pilot will run for about six months and will take into account the charging point infrastructure to identify branches with vans whose typical mileage is suited to the range and capability of an electric vehicle. LKQ is also considering pilot projects with fuel cell powered heavy trucks once those vehicles and filling stations become available. Now let's move on to our specialty segment, which absolutely excelled during the first quarter by reporting organic revenue growth of 30.9%. This represents the highest quarterly organic revenue growth since we bought this business in 2014, with Q4 of last year being the second highest quarter. The primary factor driving this tremendous performance is the ongoing demand for RVs and RV parts. The RV industry association's February 2021 survey of manufacturers determined that total RV shipments increased 30%, making it the best February RV unit shipment total on record. This is good for LKQ on a longer-term basis as a larger RV part should lead to more RV part sales in the future. Also driving the specialty performance was the demand for light truck parts we offer, which during the first quarter increased 17% year-over-year, with strong demand for products installed on jeeps and pickup trucks. We believe that the third round of stimulus checks benefited our specialty business in the quarter. Across all of our segments, and like many others in vehicle parts distribution, we are witnessing some supply chain disruptions, which have led to incremental costs in freight, labor, and cost of goods sold. Related to ocean freight, the container capacity constraints that we first experienced last fall continue to be a challenge. Our supply chain teams across the globe are in constant communication with our suppliers, working to procure the products we need to maintain and grow our market share in each of our segments. Importantly, we have witnessed minimal impact on our fulfillment and customer service levels and believe the inventory challenges are subsiding. As it relates to inflationary risk, we remain cautious near-term. But as we progress through the year, we are expecting a continuing pandemic recovery, which should benefit each of our operating segments. Again, we expect to see continued inflation related to freight, labor, and cost of goods sold. That said, as witnessed throughout 2020 and in the first quarter of this year, we have a number of levers that we can pull to help offset these inflationary risks, including pricing. From a corporate development perspective, in the first quarter, we acquired a diagnostics business that provides various mobile diagnostic and programming services to professional collision and mechanical repair shops in Nebraska. By year-end, this business will be fully integrated into our Elitek Vehicle Services brand. We have a couple of other diagnostic transactions in the pipeline. Finally, I previously noted several senior-level additions to the European team in the quarter, which will lead our efforts in the areas of strategy, sales, logistics and supply chain, product pricing, and e-commerce. LKQ Europe is viewed by candidates as being a unique and extremely well-positioned enterprise with an exciting future. And we've been able to attract great talent from across the European automotive industry and digital channels. At the corporate level during the first quarter, we brought on a new Senior Vice President of Human Resources to the executive team. Genevieve brings a wealth of experience in managing a large, hourly-based workforce and she has on-point experience in building programs focused on employee engagement and diversity and inclusion, key elements of our ESG initiatives. And I will now turn the discussion over to Varun, who will run through the details of the strong first quarter financial performance.

Thank you, Nick, and good morning to everyone joining us today. We entered 2021 with strong momentum coming off the two highest quarterly results in the company's history, the third and fourth quarter of 2020. This morning, I'm pleased to report that we were able to build on that momentum in the first quarter and take advantage of some tailwinds to produce yet another record quarter. As we've said repeatedly over the last year, we can't control when revenue growth will return to pre-COVID levels. However, we are able to manage our costs and have focused on right-sizing the cost structure and emphasizing efficiencies so that we can generate operating leverage when revenue growth returns. The permanent cost reductions that we enacted in 2020 continue to drive year-over-year profitability growth and encouragingly, we got an additional boost in the first quarter as we were able to support the sequential revenue growth across all our segments without adding back costs at the same rate. Our SG&A expenses as a percentage of revenue showed this operating leverage, dropping to 26.8% in the quarter or 320 basis points better than Q1 of 2020. We were also able to improve our gross margin by being disciplined on pricing to ensure that our strong inventory availability and service levels were recognized in the industry. We believe that these operational strengths are sustainable going forward and will drive our results as the recovery picks up pace, as expected in the second half of the year. We saw this transpire in the month of March as rebounding economic activity generated healthy revenue growth and cost controls limited the amount of incremental expenses which resulted in the highest monthly profitability in the company's history. I mentioned the benefits of tailwinds in the quarter and commodity prices were most certainly significant. As you can see on Slide 20, scrap steel and precious metal prices, which have been mostly favorable over the last year, provided additional benefits in the quarter. We estimate that scrap steel and precious metal prices added roughly $34 million in segment EBITDA, which will translate into about $0.08 in adjusted diluted EPS relative to the prior year. We expect that commodities will be a net benefit in the short term, although likely at a lower level than Q1 as costs continue to rise, owing to the commodity price changes and further moderate in the second half of the year. Even with the tailwinds related to commodity prices, the larger share of the year-over-year increase in adjusted diluted EPS related to pure operating performance. I'll now turn to that operating performance with our segment highlights. Starting on Slide 10, North America produced its highest segment EBITDA margin in the company's history at 19.9%. Q1 is the third consecutive quarter that we've been able to make the statement, and is truly a testament to the resilience of the business and the management teams’ swift and decisive actions during the early days of the pandemic. This segment continued to benefit from ongoing gross margin initiatives and the specific permanent cost reductions executed in 2020. Additionally, the commodity pricing benefits I mentioned are seen here, helping to drive North America margins above our long-term expectation. As seen on Slide 11, Europe reported a 9.6% segment EBITDA margin, which represented a 390 basis point improvement over last year. We remain confident in our ability to deliver on the margin goal communicated last September at our Investor Day and reaffirmed in February following fourth quarter earnings. Europe is benefiting from the revenue recovery and cost containment actions taken last year, with more anticipated on both fronts. Moving to Slide 12, as Nick described, the specialty results are truly outstanding. We are super excited about the spectacular revenue growth and we're really pleased with the way the segment team has delivered the growth without adding back significant operating costs or sacrificing gross margin. The segment EBITDA margin of 13.4% is the highest Q1 results in the segment's history by approximately 150 basis points, and reflects the leverage benefit achieved in a period of rapid growth and the discipline to pursue profitable revenue growth. We talked last year about the shift to an emphasis on operational excellence. And our first quarter results provide further evidence of this mindset taking hold. Each segment’s disciplined execution of our strategic priorities has been excellent. We are also delivering meaningful savings from our focus on the capital structure, deploying free cash flow to debt paydowns and share repurchases, generated interest expense savings and an EPS benefit from a reduced share count. We estimate that these two factors added $0.02 per share to our Q1 '21 results. Additionally, Mekonomen's solid performance and other investment income generated another $0.03 of year-over-year growth. Given the improved expectation for full year profitability, we decreased our projected effective tax rate in our outlook from 28% to 26.5%. The reduced rate relative to the 30% rate used in Q1 of last year contributed approximately $0.025 of the year-over-year EPS growth. So to recap, our adjusted EPS of $0.94 is a $0.37 increase over Q1 of 2020. The commodity benefit along with the increases attributable to investments, the tax rate, our capital deployment, and a slight tailwind from foreign exchange produced approximately $0.16 of that improvement. The remaining $0.21 comes from our operating performance, focusing on profitable revenue growth, enhancing gross margins and controlling our overheads. And that should be the key takeaway when considering our Q1 profitability. Now onto cash flow and liquidity. Q1 was yet another successful quarter for cash flow generation. As shown on Slide 13, we delivered 523 million in operating cash flows as we continue to benefit from the trade working capital programs we've been driving since 2018, as benefits from payables more than offset the seasonal growth in receivables. We expected inventory to be a larger outflow in Q1, though ongoing supply and delivery challenges exacerbated by ocean freight challenges have pushed the build to later in the year. Despite the lower than anticipated inventory level, our teams with the support of our vendor partners skillfully ensured that the right parts with the right places thereby minimize stock out issues so that our class-leading full rate were maintained. CapEx cash outlays were 42 million, resulting in free cash flow of $481 million. We used this cash to repay $83 million in debt and repurchased $57 million in LKQ stock. We also built our cash balance mostly in Europe in advance of the early redemption on April 1, which was the earliest possible redemption date of our €0.75 billion Euro Notes due in 2026. We used a portion of the cash on hand to fund the redemption and grew the remaining amount on our revolving credit facility. The redemption replaces the Eurobond with a coupon of three and five-eighths with credit facility borrowings approximately 250 basis points of lower cost. Do note that we had already anticipated the redemption and the resulting interest savings in our original earnings outlook provided in February. On Slide 15, you can see the further progress we have made to strengthen our liquidity position. Our net leverage ratio has decreased to 1.4x from 1.9x at the end of 2020, owing to a strong profitability and cash flow in the first quarter. We believe that we are very well positioned in our stated pursuit of an investment grade profile. We're also pleased with the positive developments on this objective, with both S&P and Moody's upgrading our credit rating in the first quarter. I will close with our updated thoughts on 2021. With the ongoing COVID uncertainties, especially concerning revenue trends, we are providing an abbreviated outlook. We are comfortable making the following statements, all of which presume that one, additional mobility restrictions beyond what are currently in place are not re-implemented or exacerbated in our major markets; two, foreign exchange rates hold near recent levels. And finally, three, scrap and precious metal prices trend lower in the second half of the year. With that on revenue, we reaffirm our belief that parts and services revenue will be higher on a full year basis in 2021 versus 2020, with the most significant growth coming in the second quarter, albeit off a low base. We anticipate that the revenue recovery will continue in the second half of the year, as vaccines are distributed more broadly and mobility restrictions decrease, but we do not currently expect to return to our 2019 annual revenue until 2022. As discussed previously, we have two fewer selling days in North America in 2021, with one already completed in Q1 and the second one in the fourth quarter, while Europe is flat with one fewer selling day in the first quarter, but made up in the second quarter with the additional day. The other piece I want to talk about was earnings per share. With our strong first quarter performance, projected revenue growth, and the ongoing benefit of our margin and operating expense programs, we expect our 2021 adjusted diluted earnings per share will be significantly above the comparable figure for 2020. We are projecting an adjusted diluted EPS range of $3.00 to $3.20 with a midpoint of $3.10. On a GAAP EPS basis, this would be $2.68 to $2.88. The $0.35 or 13% increase at the midpoint reflects the Q1 outperformance and upside in the projected results for the last nine months compared to our prior outlook. We expect to achieve this upside while covering the effects of inflationary pressures being faced across the industry related to labor costs, ocean and domestic freight expenses, and higher input costs, raising inventory prices. And finally, on cash flow, we are indeed off to a terrific start on cash flow generation in Q1, which gives us the confidence to raise our minimum free cash flow expectation. We now project that free cash flow for the full year 2021 will be within the range of $850 million to $950 million, with a midpoint of $900 million. We expect inventory purchases to represent an outflow over the remainder of the year, as we replenish our inventory levels to support the anticipated growth. Essentially, it is just going to happen later in the year than we had previously anticipated. Some of the investments in inventory will be offset by continued improvements in days payables resulting from the European payables optimization program, which is producing benefits and tracking well in line with the target we've set out in September 2019, when we initially launched the 1 LKQ Europe program. So with that, thank you once again for your time this morning. And I'll now turn the call back to Nick for his closing comments.

Thank you, Varun. As a company, we are always focused on financial performance. But we are equally focused on facing change head-on and rapidly adapting in order to continuously deliver positive results for our stockholders, employees, and most importantly, our customers. In the first quarter, our team of nearly 44,000 employees globally maintained that focus, which again allowed us to deliver positive results above expectations. I am very proud of our team and the outstanding results we posted in the first quarter of 2021. And with that operator, we are now ready to open the call to questions.

Thank you. Your first question comes from Stephanie Benjamin of Truist. Your line is open.

Hi. Good morning. My first question is just on, as you pointed out, both Nick and Varun, just the impact from this inflationary environment. I think you called out some levers that you can pull, including pricing. I'd love to get an update on any pricing actions that may have been implemented in the first quarter and just overall customer response, and as well as maybe hearing a little bit more on some of those other levers that you can pull just given the environment. And then I just have a quick follow up.

Thanks, Stephanie. The reality is, we're operating in an unusual environment. Volumes in our North American and European businesses are okay; they're not great, but they're okay, and they're still constrained relative to 2019. But as Varun indicated, we've been very disciplined on the pricing front, and there's no need to give away products at discounted prices, particularly in those cases where we're the only supplier that may have the product. So we've been very disciplined in our pricing. We have seen some increases in the cost of goods sold just because of the inflationary pressures at some of our suppliers, and we're doing our best to recover that and maintain gross margins, and we're comfortable with our approach. We have not seen significant pushback from our customers. The reality is we're not alone. The entire industry is facing the same challenges. On the specialty side, the growth there was largely due to volumes just going through the roof, which was terrific. And again, our specialty team is paying particular attention to be really disciplined on the pricing front.

Thank you. Following up on the salvage aspect of the business, have you experienced any inflation this quarter or challenges in obtaining OEM and remanufactured parts at auction? This could be due to a decrease in collision accidents or increased demand from other buyers. I would appreciate hearing how you have managed to secure those salvage parts.

Yes. So we're really proud of our remanufacturing operations. They've done a terrific job over the last several quarters, not just in the first quarter. The salvage markets are tight. The prices we're paying for the cars are higher today than they were a year ago or even two years ago, and part of it reflects the fact that the number of cars just going through the auctions are down just given the overall level of driving and overall level of accidents and total losses. But again, we're working hard to make sure that we keep our margins at really healthy levels. The fact that we've got a great team on the remanufacturing side that's able to produce a product that customers are needing has really helped.

Great. Thank you so much for the time.

Your next question comes from Brian Butler with Stifel. Your line is open.

Hi, guys. Thanks for taking my questions. Can you guys hear me?

Yes, we hear you fine.

Great. Perfect. I guess just a high level, maybe we could talk a little bit about the trends that you've seen to date on the driving side in the U.S. and Europe? And then just kind of thoughts on how that plays out and the impact it could have in the rest of 2021?

Certainly. It's been a remarkable year. A year ago, during April through June, vehicle miles traveled significantly decreased in both the United States and Europe, with the U.S. reaching its lowest point in the second and third week of April 2020, showing a decline of about 55%. From mid-to-late June through November, vehicle miles traveled in the U.S. were consistently down by around 9% to 12% weekly. By the end of 2020, the decline was about 15%, particularly from Thanksgiving through the year's end. Recently, however, there has been a slight improvement, with U.S. vehicle miles traveled down about 5% lately, specifically regarding passenger cars. It's worth noting that truck miles have seen positive growth since last summer, but our revenue largely pertains to passenger vehicles, which is our primary focus. In Europe, mobility activity in the first quarter began slowly but has since rebounded. As of April, we are still below 2019 levels, down by low single digits in terms of vehicle miles traveled, although this varies by country. The concern behind your question seems to center on when we might return to 2019 revenue and vehicle miles traveled levels. In the U.S., we believe it will take longer, likely until 2022, to recover to 2019 metrics. In Europe, we're closer to that point and expect to see a return to 2019 levels in the third or fourth quarter of this year, contingent on the vaccine rollout and people's willingness to drive again. The Specialty business has been performing above 2019 levels for several quarters, making that situation somewhat different.

Okay. As a follow-up, can you confirm if that's included in the updated guidance you provided? Additionally, what portion of the expected rise in commodity metals is accounted for in that revised guidance? Thank you.

Hi, Brian. It’s Varun out here. So yes. As part of my prepared comments, I did mention the fact that as of now we do see some moderation on the metals pricing, both scrap and precious metals in the second half of the year. And so that is the piece that has been built into the outlook at this point in time. We've talked previously also that commodity prices are incredibly volatile. We’re certainly benefiting from the upswing at this point in time with the sequential rise. But again, make no mistake. There are others in the industry that are also facing a similar set of commodity price increases. The question really is we believe our salvage teams, self-service and full-service, are by far the best in the industry and essentially are doing an incredible job operationally taking advantage of the upswing of that. Clearly, we are keeping a lookout when these moderate, but as of now the outlook contemplates a second half moderation.

Okay. Thank you.

Your next question comes from Scott Stember of CL King. Your line is open.

Good morning, guys, and thanks for taking my questions.

Good morning, Scott.

I'm just trying to break out March a little bit better. I think you partially answered my question with commentary about reaching '19 levels again. But in March, we saw some nice increases, specialty up 61%. Could you maybe go through the three businesses and just how much of it is easy comps? If you were to flush everything out, did you see inherent improvements in March sequentially, month-over-month from the January-February timeline into March? Thanks.

Sure. The reality is, March was a good month for us. Specialty was off the charts. We're not going to begin to imply we're going to be able to continue to grow at 60% year-over-year every month for the rest of the year. The growth rate is going to come down. But the absolute dollar should be strong. The comparison for Europe and North America, obviously, we're happy that it's up on a year-over-year basis, but it's somewhat off easy comps. Nonetheless, the March levels were better than the February and January levels. Again, not at 2019 levels but they were better sequentially, and that gives us a little bit of confidence going forward that we will slowly creep back to those 2019 levels a little bit faster in Europe, a little bit slower in the U.S., but we’re headed in the right direction.

Okay. I guess last question on supply chain, I think you touched on some of this already, but a couple of quarters ago, specialty was meaningfully impacted. It appears that you’ve been able to work through that. Can you just talk about some of the countermeasures that you have in place which are helping you get through this?

Well, we have a lot of orders out there for inventory. We have product that’s coming into our receiving bay and shipping bays almost in the same day. We’ve got product that’s not even touching the shelves because the velocity of the business and the demand is just so significant, we’re doing the best we can. We’re working hand-in-hand with our vendor partners. The reality is, the industry as a whole, the vendors are running hard to keep pace. We’re working very closely with our vendor partners to make sure that we can get the product we need when we need it. We anticipated not just in specialty, but in all of our businesses that we would have added more to our inventory levels in the first quarter. But the supply constraints are what they are. We think we'll get back to slightly higher inventory levels in the second half of the year.

Got it. Thanks so much.

Your next question comes from Craig Kennison of Baird. Your line is open.

Hi. Good morning. Thanks for taking my questions as well.

Good morning, Craig.

It sounds like your competitive advantage, especially as it relates to inventory availability, has really strengthened during the pandemic. I'm wondering to what extent you think that is sustainable? What does the competitive landscape look like? Do you think maybe you've seen any of those competitors exit permanently?

I wouldn't say that we've seen a rash of competitors exit, Craig. But as most people know, ocean freight is a significant consideration for all industries, anybody importing products, particularly from the Far East, the lack of containers, the backlog at the ports, creates a bit of a bottleneck. The difference is, we're not importing a few dozen or a few hundred containers a year in North America. We import over 16,000 containers a year. And so we use that position to our advantage. The orders to the vendors are big orders. We are a very important customer, and I think we've got great relationships with our vendor partners and they're working hard to help us be successful. If you're a smaller business, you don't have that same flexibility to have power with the vendors or with the shipping lines. We use our size and scale to our advantage.

Thank you. And then sort of related, but the other impact of the pandemic is really you forced yourselves to examine your operating performance and you made some tough decisions, unfortunately, in terms of headcount. As you look to add staff to meet the new resurging demand, to what extent do you need to add back staff and can you get by with a leaner footprint going forward?

Well, we clearly leaned out the organization globally as we went through the depths of the pandemic, right? My marching orders to all of my operating heads down the field is we need to keep that leanness going forward. Yes, we will need to bring back people and add people as revenue improves. But we're not going to bring the people back until the revenue is up and we know it's sustainable. The goal is, this is the new cost structure, Craig. This is how we're going to operate the business going forward.

Your next question comes from Gary Prestopino of Barrington. Your line is open.

Hi. Good morning, everyone.

Good morning, Gary.

Hi, Gary.

I got a question here that’s maybe a little bit different than what you were expecting in terms of questions for the call on the quarter’s numbers, but can you give us an idea on the mechanical side for EVs? What kind of parts demand you're seeing initially? I just want to get to that, because obviously we're going to start seeing more EVs come into the car park.

There is very little demand for electric vehicle parts; almost none, to be honest. It's important to remember that our main focus is on aftermarket products related to collisions and salvage parts, particularly for vehicles that are 3 to 10 years old. For mechanical parts, we're looking at even older vehicles, generally in the range of 4 to 15 years. There is a significant delay between when cars are sold and when there's actual demand for the types of parts we provide and others in the industry offer. Therefore, we won't see any impact from EV-related parts for quite some time.

Your next question comes from Bret Jordan of Jefferies. Your line is open.

Hi. Good morning, guys.

Good morning, Bret.

Good morning.

Pretty good sequential improvement in the payables ratio. How high do you think you can get accounts payables percentage of inventory without getting to investment grade?

So as of now, in the first quarter, as I mentioned in my prepared comments, Bret, we certainly saw the payables continue to deliver across the overall payables program. It again was not only the European payables program; our North American team also did an outstanding job. But it was really a case of not being able to get the inventory build to take place. So in Q1, while the number for the conversion is above 100% in terms of free cash flow to EBITDA, as I mentioned previously also, that is not a sustainable number. Our conversion factor on an annual basis is 55% to 60%. But again, we're really happy with how the payables program is going across the board, with the largest opportunity being over in Europe. As of now, the first quarter with the lack of the inventory build, it’s basically timing. From the second quarter onwards, we expect that inventory builds to take place to get us back into that 55% to 60% conversion ratio. With regards to what the long-term hypotheses is or what long-term plan is with regards to payables as a percentage of inventory, we clearly know for our European business there are some North American comps that we are targeting. It certainly takes time, but we're really happy with the progress our team is making.

Okay. And then a question on UK mechanical, I think you've called out a spread between your mechanical business and the collision business. I think one of your peers had called out the UK as particularly strong. Are you seeing any market share shifts on the mechanical side of that market, or is your regional softness more tied to that product mix?

Look, Brian, it's tied to product mix. As I indicated, the collision and coatings activities in our UK operations, we're down double digits. The environment there is not too different from the collision environment here in the United States; fewer miles traveled, less collisions, all the rest. Our core continuing operations on the mechanical part side was up in the first quarter. The market was down. We took some share. And that's our goal is to continue to take share. Most importantly, though, in our UK business, we're highly focused on the profitability and cash flow of the business. Because it's – it’s not how much you take in, it's how much you keep, right? Our focus is to keep as much of that revenue in the form of profits and cash flow, and we're happy with the growth of our business.

And you said you'd rationalized the footprint in the UK. Is that done now? Is your store base pretty static?

Yes, it’s all done.

Your next question comes from Daniel Imbro of Stephens. Your line is open.

Hi. Good morning, guys, and congrats on a good start to the year.

Good morning, Daniel.

I want to start on the diagnostics piece. Could you talk a little bit more about Greenlight and maybe what they bring to the table? And then taking a step back, you mentioned in your prepared remarks there were some more diagnostics deals in the pipeline. Can you expand on what you're looking for in these targets? Is it just scale? Is it new capabilities? Kind of how that fits into the North American outlook?

Thanks, Daniel. The acquisition was similar to the other small acquisitions we've made in the diagnostics space. Again, this is very much of a local business, not unlike the rest of our North American operations where you're really selling in the local markets. We're going to continue to do acquisitions that give us geographic coverage across the United States. Because you can't service body shops or mechanical shops in California with a diagnostics team that is in Texas or Colorado; it just doesn't work. We're going to continue to build out the footprint from a diagnostics perspective. All of our activities thus far are what we would call mobile related, where we actually have feet on the ground, people inside our customer shops, doing the calibration work and/or the diagnostic work. We're going to continue to build that out. And we're looking for other ways, quite frankly, to service our body shop and mechanical shop customers, perhaps using technology.

So a great question and thank you for raising it, Daniel. Yes, the first priority has been and remains to reinvest into our business. Apart from CapEx, which we are very comfortable with and what we've called out for quite some time in the 2% to 2.25% of revenue, that remains stable. In addition to that, as Nick mentioned a few minutes ago, our ability to do high synergy transactions, small tuck-in, building up critical capabilities remains the primary use in terms of priority of the free cash. As you rightly pointed out, leverage is well within our target corridor. We don't expect to see further deleveraging taking place from a debt perspective. And arguably, as profitability grows, that deleveraging will take place in any case, so not really looking to pay down further debt, which obviously, as you can make out, doesn't leave too many avenues left for the free cash flow with share repurchases, which obviously we resumed the program in the fourth quarter of last year would end up being the primary deployment for that capital that we're building up.

Great. Congrats again and best of luck.

There are no further questions at this time. I will now return the call to Mr. Zarcone for closing remarks.

Well, we certainly thank you for your time and attention this morning and we look forward to providing another update in late July when we report our second quarter results. Again, in summary, we are thrilled with our first quarter. I thank all of the 44,000 people of LKQ for working so hard to bring such terrific results to bear. We are very optimistic about the future of LKQ. Thank you for your time, and we will chat again in three months.

This concludes today's conference call. Thank you for your participation. You may now disconnect.