Good morning. My name is Rob and I'll be your conference operator today. At this time, I would like to welcome everyone to the LKQ Corporation's First Quarter 2023 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. Thank you. 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 2023 earnings conference call. With us today are Nick Zarcone, LKQ's President and Chief Executive Officer; and Rick Galloway, Senior Vice President and Chief Financial Officer. Please refer to the LKQ website 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 this morning. As normal, we are planning to file our 10-Qs in the coming days. And with that I am happy to turn the call over to our CEO, Nick Zarcone.

Thank you, Joe and good morning to everybody on the call. This morning I will provide some high-level comments related to our performance in the quarter and then Rick will dive into the financial details before I come back with a few closing remarks. On February 28th, the company kicked off a year-long celebration of our 25th anniversary by ringing the opening bell at NASDAQ. The celebration is focused on our 25-year history, our customers, our employees, the communities that we serve, and further energizing our global team about our future. Following this initial celebration, we hosted leadership conferences in both North America and Europe for key leaders across each of our operating segments, where we had a chance to celebrate, educate, and collaborate on our past successes and share the excitement of what the future holds for LKQ. While we've had a great run since 1998, I am highly confident that the next 25 years will be even better. As an organization, we have always held a core set of values that has helped us achieve our success and created the LKQ we are today. Like all aspects of life, change is inevitable and as an organization it’s critical that we advance our values forward to lay the foundation for the next 25 years. Keeping us moving forward, during the quarter, I had the pleasure of announcing our updated values for the future. Values that unite our global enterprise as a cohesive and focused One LKQ and that will serve as a single guide to ensure we deliver on the promises we hold true for all constituents. The values are development, excellence, leadership, integrity and trust, value-added, embracing change, resourcefulness, and sustainability. Simply put, it spells DELIVERS. Expanding on the word DELIVERS, the One LKQ team across the globe delivered a solid first quarter performance and an outstanding start to 2023. During the quarter, our two largest segments, North America and Europe, exceeded our expectations as our teams embraced our operational excellence initiatives. The first quarter of 2023 started the year where 2022 left off as the resilience of our business shone through a myriad of uncontrollable headwinds ranging from economic softness, inflation, supply chain disruptions, labor shortages, energy cost spikes, and war in Europe. The continuation of exceptional organic revenue growth and strong margins in our North American and European segments more than offset the impact of the headwinds experienced by our specialty and self-service segments. The variance in performance across our operating segments this quarter validates our long-term diversification strategy both with respect to geography and product and speaks to the true strength of our organization and our portfolio of businesses. Now on to the first quarter 2023 results and year-over-year comparisons. Revenue was $3.3 billion in the first quarter for both 2023 and 2022. Parts and services organic revenue increased 7.9% on a reported basis and 7.1% on a per day basis. The net impact of acquisitions and divestitures decreased revenue by 3.3% and foreign exchange rates decreased revenue by a further 3% for total parts and services revenue increase of 1.5%. Other revenue fell 19.2% in the first quarter of 2023 primarily due to weaker precious metal prices relative to the same period in 2022. Net income was $270 million in Q1 of this year as compared to $269 million last year as better operating results more than offset the negative impacts related to soft foreign currency exchange rates, higher interest expense and a higher effective tax rate. Adjusted net income was $279 million in Q1 of 2023 as compared to $287 million last year, a decrease of 2.8%. Diluted earnings per share was $1.01 in Q1 of this year compared to $0.94 last year, an increase of 7.4%. Adjusted diluted earnings per share in Q1 was $1.04 this year as compared to $1.00 last year, an increase of 4%. The increases in earnings per share relative to the changes in net income illustrate the positive impact of our historical share repurchase activity. Let's turn to some of the quarterly segment highlights. As you will note from slide 7, organic revenue for parts and services in North America increased 14.4% on a reported basis, a record first-quarter performance. North America also reported its highest quarterly segment EBITDA margin on record. Rick will cover the segment-level margin details shortly. We continue to perform well in North America especially when you consider that according to CCC collision liability-related auto claims were down 4.4% year-over-year in the first quarter. Our growth was balanced between price and volume improvements, the latter of which was particularly evident in the aftermarket product line which was the result of two factors: first, having largely worked through the industry supply chain issues and having proper levels of inventory enabled us to get back to our historical level of fulfillment rates. Second, the impact of the State Farm program is unfolding nicely and building demand for aftermarket headlights, taillights, and bumper covers. This upward trend in our aftermarket sales volumes is consistent with a general rise in Average Parts Usage (APU) which approached pre-pandemic levels in the first quarter. I am pleased to say that the increase in APU also included an uptick in the recycled parts category, increasing 150 basis points year-over-year. Combined aftermarket and recycled parts have witnessed nearly a 500 basis point improvement in APU since the first quarter of 2022. The value proposition of alternative parts is gaining share from original equipment (OE) as insurance carriers face both catastrophic losses from all the storm activity in the quarter and premium pressures as policyholders are tightening up their spending in the midst of an ongoing soft economy. Total loss rates increased slightly in the first quarter to about 19%. But as you can see, it appears that total losses had little to no impact on our organic growth. Based on industry research, we expect total loss rates to end the year in the range of 18% to 19% as the market absorbs the recent increase in used car prices as we've entered 2023. Now moving on to our European segment. Europe's organic revenue for parts and services in the quarter increased 9.7% on a reported basis and 8.2% on a per day basis, which represents the best first quarter per day organic revenue growth since 2016 when we were a much smaller organization and operating in only six European countries compared to over 20 today. I'd also like to highlight that Europe's segment EBITDA margin was the highest first quarter level since 2016. During the first quarter, we saw high single-digit to low double-digit reported organic growth in each of our key operating geographies. In particular, our Benelux, German, and Eastern European operations performed exceptionally well. The revenue growth reflected a combination of positive movements in both price and volume. We believe we are continuing to take share in these large and highly fragmented markets. The European team is laser focused on the cost structure including rationalizing headcount to create a more nimble and agile team and focusing on a narrow and actionable list of key projects. With that operational focus, the European team delivered the lowest first-quarter SG&A level since 2017, notwithstanding a challenging inflationary environment. Additionally, the European team began the integration of the Rhenoy salvage and remanufacturing acquisition that we announced during the last earnings call. In addition, we are ramping up our location count in France with the opening of a distribution center in Marseille earlier this month, bringing our total location count in France to seven. Now let's move on to our specialty segment. During the first quarter specialty reported a decrease in organic revenue of 13%, which was below our expectations. The RV portion of our specialty business was impacted by the wholesale shipment and retail unit sales of RVs, which are down 57.7% and down 23.7% year-to-date through February respectively. We expect to see further declines in the RV market as recent industry reports project that full-year 2023 wholesale shipments will be down about 34% year-over-year. So we believe that the challenges for our specialty segment will continue throughout 2023. As we work through the balance of the year, our efforts will be focused on the RV repair and service as RV usage rates remain strong and the ongoing growth in light vehicle sales by building the right inventory to service this market space. Truck off-road and performance parts revenue are also down on a year-over-year basis but less than what we are seeing in the RV sector. Notably, the specialty's marine business posted organic growth of 10.4% in the quarter and we are gaining share in this attractive market. Despite the industry-wide headwinds and the cyclical nature of this segment, there is no one in the SEMA or RV distribution space that has such a talented team and has the experience and Lean Six Sigma capabilities to effectively manage through a down cycle. Now on to our self-service segment. Organic revenue for parts and services for our self-service segment increased 4.9% in the first quarter. Self-service was again challenged by soft commodity pricing, particularly as it related to precious metals, which manifested itself in a significant drop in the value received for recycled catalytic converters. We believe that the challenges for self-service will persist for the balance of the year as well. While the rate of inflation is coming down across the globe, inflation continues to impact all of our businesses. Our teams are doing an effective job of getting price relief where possible and are using productivity improvements to offset the negative impact of the increased cost. Regarding labor, our open positions in North America dropped by 20% since year-end but the challenges with turnover have not abated. The labor market in North America is still overheated and we are pushing wages and selected benefits to combat the issue. In Europe, we are also countering the labor tightness with wage increases to retain our employees and we have maintained low turnover levels in the first quarter. On the corporate development front, as most of you know, on February 27th we announced that we entered into a definitive agreement to acquire all of Uni-Select's issued and outstanding shares for CAD 48 per share in cash representing a total enterprise value of approximately US$2.1 billion. Uni-Select is a leader in the distribution of automotive refinish and industrial coatings and related products in North America through its FinishMaster segment. In the automotive aftermarket parts business, Uni-Select operates through its Canadian Automotive Group segment up in Canada and through its GSF Car Parts segment in the UK. Today is Uni-Select's special shareholder meeting and the final day that its shareholders may cast their votes on the transaction. So we don't yet have a final report. Considering that both ISS and Glass Lewis published reports supporting the transaction and that approximately 20% of Uni-Select shareholders entered into voting agreements to approve the transaction as part of signing of the acquisition agreement back in February, we are highly confident that Uni-Select shareholders will approve the transaction. We have submitted applications for approvals to the various regulatory authorities in the United States, Canada, and the United Kingdom. And at this time all the regulatory reviews are proceeding according to plan. Both the FTC in the United States and the Competitive Bureau in Canada have until May 11, 2023, to determine whether to issue a second request for information. To address any regulatory concerns in the UK, we have commenced a process to sell Uni-Select GSF Car Parts business. Our adviser has started the buyer outreach process. And while we can't say much at this time, we are pleased with the initial interest level in the asset. Ultimately, we hope to receive the required approvals and to complete the Uni-Select acquisition in the second half of this year. Now let's turn to ESG. During the first quarter we focused our people efforts on various social initiatives and in particular education for both our employees and importantly their families as they face the increasing cost of education. Recently we enhanced two existing educational programs available to LKQ employees. The Joseph Holsten Scholarship Fund established over a decade ago provides grants to the children of our employees to assist with post-high school educational expenses. Prior to 2022 the fund was only available to our North American team, but we expanded the program to include our entire global organization. Our goal is to distribute at least $1 million of scholarships in 2023. Additionally, in Q1 of this year we increased our North American employee tuition reimbursement program by 100%. Our people are the biggest asset at LKQ and programs like the two I just mentioned are critical to enhancing employee engagement which in turn supports the continued success of our business. Importantly, we are honored and proud to be part of the educational development and personal growth of our employees and their families. We look forward to issuing our 2023 CSR before the end of the second quarter, a report that will expand our sustainability disclosures across many aspects of our global enterprise. Lastly, before I turn the discussion over to Rick, who will run through the details of the segment results and discuss our outlook for 2023, I am pleased to announce that on April 25th, 2023, our Board of Directors declared a quarterly cash dividend of $0.275 per share of common stock payable on June 1st 2023 to stockholders of record at the close of business on May 18th.

Thank you, Nick and good morning to everyone joining us today. We're very pleased with the start to the year as our first quarter results highlight strong revenue growth and profitability. Our two largest segments, North America and Europe, generated above-expectation revenue growth and margins as our operational excellence initiatives continued to yield benefits. The Specialty and Self-service segments underperformed in the quarter as market conditions continue to produce headwinds for both businesses. Overall, we are pleased with the good start to the year and are on track to deliver on our full-year guidance. As discussed on our February call in Q1, we replaced our prior credit facility which included a $3.15 billion revolver with a new unsecured facility, including a $500 million term loan and $2.0 billion revolver. We feel good about the new facility and our ability to fund our operating needs over the next five years at a competitive rate structure. Free cash flow generation remains solid, noting that the quarterly phasing will be weighted more to the balance of the year than we've seen in the past couple of years when phasing was impacted by the pandemic and supply chain disruptions. The pending Uni-Select acquisition was a source of significant activity during the quarter with due diligence, deal negotiations, and post-announcement financing activities. Nick provided an update on the transaction status, and I'll highlight the Uni-Select impacts on our first quarter financials. Turning now to first quarter results starting with segment performance. North America continued its strong performance posting a record first quarter segment EBITDA margin of 20.5%, a 240 basis point improvement over last year. We saw gross margin improvement of 190 basis points driven by lower freight costs, a favorable mix effect, with the sale of the lower-margin PGW business in 2022 and benefits from pricing and productivity initiatives. Overhead expenses were flat with lower freight vehicle and fuel expenses mostly offset by higher charitable contributions. The segment also reported a 50 basis point improvement in other income, mostly related to a non-recurring settlement of an eminent domain matter. While we believe there will be some moderation in segment EBITDA margin in upcoming quarters as the benefits of the 2022 price increases fall away, the strong start to 2023 has improved our margin outlook to be in the 18s for the year. Europe also delivered a strong result with a segment EBITDA margin of 9.7%, up 90 basis points from the prior year. As seen on slide 10, gross margin was flat while overhead expenses decreased by 90 basis points with the effects of improved leverage due to the 8.2% per day organic revenue growth and an emphasis on productivity initiatives on personnel costs. We remain optimistic about our previously disclosed expectation for full-year margin expansion of 20 to 30 basis points in 2023. Moving to specialty's EBITDA margin of 7.9 declined 470 basis points compared to the prior year. Gross margin was down 320 basis points year-over-year is under pressure from increased price competition as inventory availability continues to improve for our competitors discounting to increased sales volumes, and unfavorable product mix as low-margin lines such as auto and marine have been less affected by revenue reductions. Overhead expenses as a percentage of revenue were up 150 basis points, primarily coming from the decrease in leverage driven by an organic revenue decline of 13.5% per day with impacts on personnel, facility, and distribution costs. The macroeconomic headwinds and the resulting effects on RV demand are expected to be an ongoing challenge for specialty, and we're forecasting a full-year decrease in both segment EBITDA dollars and margin percentage. Self-Service profitability improved sequentially to 13.2% this quarter from 5.2% in the fourth quarter, but decreased by 680 basis points compared to Q1 2022. Metals prices had a net negative effect on results with lower precious metals prices more than offsetting lag benefits from sequential steel scrap price increases. Metal revenue decreased by 22.8% in total contributing to a reduction in operating leverage of 450 basis points. While car costs typically move in tandem with changes in commodity prices, we have experienced a stickiness in car cost as precious metal prices declined which created a gross margin headwind in Q1 that could persist in future quarters. On to the consolidated results, we reported diluted earnings per share of $1.01 and adjusted diluted earnings per share of $1.04, the latter of which is a $0.04 increase relative to Q4 last year. Our operational performance showed strong year-over-year improvement and was slightly ahead of our expectations as strength in North America and Europe offset underperformance in Specialty and Self-service which reflects challenging market conditions. The operating improvements resulted in an increase of $0.13 per share on an adjusted basis. We benefited by $0.05 due to the lower share count resulting from our share repurchases in 2022. These factors more than offset unfavorable year-over-year effects of $0.04 from the impacts of metals prices as shown on slide 19, $0.04 in higher interest expense resulting from rate increases excluding the Uni-Select costs, $0.02 from foreign currency effects caused by the stronger dollar, $0.02 resulting from the divestiture of PGW in Q2 2022, and $0.02 due to a higher effective tax rate. On the tax rate, we applied an annual effective rate estimate of 26.6%, which is 30 basis points higher than the 26.3% rate in our prior guidance. The rate change is attributable to nondeductible Uni-Select transaction costs and a shift in the geographic distribution of income. As shown on slide 17, the Uni-Select transaction affected various parts of the first quarter financials. We entered into a bridge loan facility to ensure committed financing was available for the Uni-Select transaction and incurred upfront fees of $9 million. Interest expense for the first quarter includes $3 million of amortization of these fees. The remainder will be amortized over the expected term of the facility likely before year-end. Note that we excluded the amortization from adjusted diluted EPS. To hedge the risk related to movements in the Canadian dollar exchange rate between signing and closing we entered into FX forward contracts to purchase Canadian dollars at a specified rate. These contracts had a fair value of $23 million as of March 31. And as we are not eligible for hedge accounting on these contracts, the mark-to-market gain is reflected on the income statement as a separate line item. Note that this gain is also excluded from adjusted diluted EPS. We incurred M&A advisory costs of $10 million in the quarter which are presented in restructuring and transaction-related costs. Consistent with our historical practice, these costs are excluded from adjusted diluted EPS. We also hedged the risk of movement in interest rates prior to the issuance of permanent financing in the bond market. These interest rate swaps had a negative fair market value of $22 million and these swaps did qualify for hedge accounting. The mark-to-market adjustment was recorded to the balance sheet and there was no income statement activity in the quarter. We secured a delayed draw three-year term loan for CAD 700 million that will fund on the day prior to closing. Shifting to cash flow and the balance sheet. We produced $153 million of free cash flow during the quarter which is in line with our expectations and we remain on track for our full-year estimate of approximately $975 million. As mentioned, we expect 2023 cash phasing to be different than in the past few years, with higher weighting towards Q2 to Q4. By comparison, in Q1 2022 free cash flow was $350 million, which we indicated was high as a result of timing. Recent years were particularly volatile in terms of cash flow timing as inventory levels came in 2020 in response to the pandemic-driven market conditions and then were built back up toward normal operating levels in 2021 and '22 where we elected to pay suppliers early to secure delivery of inventories during the supply chain disruptions. We're optimistic supply chain conditions will continue to stabilize in 2023 which should help to smooth some of the cash flow timing volatility going forward. Further impacting the year-over-year comparison, we began to see the projected increase in interest rates which were $18 million higher in Q1 2022 and capital expenditures up $11 million over the prior year. Income tax payments increased $6 million in the first quarter and we anticipate a larger uptick beginning Q2 when we have two quarterly estimated U.S. federal payments. As of March 31 we had total debt of $2.7 billion with a total leverage ratio of 1.6 times EBITDA, which is comfortably inside our target range of below two times. Our effective borrowing rate rose to 4.7% for the quarter due to the market rate hikes in the U.S. and Europe. We have $1.8 billion in variable rate debt of which $700 million has been fixed with interest rate swaps of 4.6% and 4.2% over the next two to three years respectively. In the first quarter, we repurchased roughly 100,000 shares for $5 million and paid a quarterly dividend totaling $74 million. As discussed in the Uni-Select call, we will emphasize debt repayments over share repurchases to reduce the total leverage ratio prior to the closing date. I will conclude with our current thoughts on projected 2023 results. Our guidance is based on current market conditions and recent trends and assumes that scrap and precious metals prices hold near March prices and the Ukraine-Russia conflict continues without further escalation or major additional impact on the European economy and miles driven. On foreign exchange, our guidance includes recent European rates with balance of the year rates for the euro of $1.08 and the pound sterling at $1.23. We will not include any results for the Uni-Select business until the closing date. Our full-year guidance metrics remain unchanged from the Q4 earnings call. We still expect reported organic parts and service revenue in the range of 6% to 8%. Organic growth of 7.9% in Q1 includes an extra selling day in Europe, which we will give up in the balance of the year in addition to one fewer selling day in North America and Specialty in Q3. The first quarter per day figure of 7.1% is near the midpoint of the range. We still expect adjusted diluted EPS in the range of $3.90 to $4.20. As I mentioned, North America and Europe are performing ahead of expectations offsetting the softness in Specialty and Self-service including precious metal prices and the higher effective tax rate. The free cash flow expectation of approximately $975 million and 55% annual EBITDA conversion remain in place noting that a portion of the Uni-Select transaction fees will have a one-time impact on free cash flow and create a headwind. We will provide a full update on all guidance metrics once the Uni-Select transaction closes. Thanks for your time this morning. With that, I'll turn the call back to Nick for his closing comments.

Thanks, Rick, for that financial overview. In closing, the first quarter was a great start to 2023 that again validated the strength of our strategy, our business model, and most importantly, our people. As we continue to progress through 2023, let me restate our key strategic pillars, which continue to be central to our culture and our objectives. First, we will continue to integrate our businesses and simplify our operating model. We will continue to focus on profitable revenue growth and sustainable margin expansion. And we will continue to drive high levels of cash flow, which in turn gives us the flexibility to maintain a balanced capital allocation strategy. And fourth, we will continue to invest in our future. As always, I want to thank the over 45,000 people who work at LKQ for all they do to advance our business each day and for driving our mission and our DELIVERS values forward regardless of the challenges. And with that, operator, we are now ready to open the call for questions.

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

Yes. Hey, Good morning, guys. Thanks for taking my questions.

Good morning, Daniel.

Yes. Nick, I want to turn to the North American organic growth side. Obviously really strong on a headline basis. I'm curious if there were any noticeable industry changes that drove that whether it was a step-up in alternative part usage from State Farm faster than expected? Was there pent-up demand that got filled by the improved auction availability you talked about in the slides? Just trying to reconcile the big step-up on both a two-year and a three-year basis for the organic growth in the quarter?

Great question. Obviously, the demand in North America is ultimately driven by the need for parts to repair collision-damaged vehicles. We do that with both aftermarket parts and recycled parts. As disclosed, we are benefiting a bit from the price actions that we took last year. And so average selling prices are up a little bit, 2023 over 2022, but volumes are up as well. And that, as I indicated in my prepared remarks, is really driven by a couple of items. One is we finally have our inventories where we need them to be. And so fulfillment rates are back above 90% on the aftermarket product, which is terrific. And the State Farm program is starting to kick in. We talked about in the Q4 call that we thought that would be somewhere in the $80 million to $100 million benefit for 2023 for LKQ. We're right on track to hit that. That's what we built into our expectations for the year. And State Farm, we knew was not going to be like turning the lights switch on. It was going to take time for that to build and it's building. I mean the reality is APU for the industry in the first quarter was about where it was back in 2018 and 2019, which is terrific. It obviously dipped quite a bit during the height of the pandemic and the shortage of aftermarket supply, but we’re back to good levels of APU, which is terrific. We believe we're continuing to take share. And there are longer-term metrics that bode in our favor. The cars are being built in a more complex manner. The average number of parts needed to repair a vehicle has increased by about 2.5 parts over the last five years. The average cost of those parts has gone up. And again, we think APUs are going to continue to drive north, particularly with the benefit of State Farm. And nobody is better positioned to capitalize on those trends than LKQ because we're the largest distributor of aftermarket collision parts in North America. We are the largest distributor of recycled collision parts in North America. The volumes on the mechanical side of salvage were off a little bit. And actually the volumes on the collision side salvage were off a little bit in the first quarter, but that just has to do with the fact that during the height of the pandemic and the constraints within our aftermarket inventory, we were the only player in the market where we were able to shift a little bit of those requests over to salvage parts. And we talked about that in our past calls. And in this quarter, you got a little bit of that swinging back the other way. But we feel very good about how we're positioned in our North American operation. We believe that the future is bright. The growth is good. And we're going to continue to take as much share as we can get.

I appreciate all that color, Nick. And maybe I'll stay on North America with the little margin. Just clarifier, I think the North American margin over 20% was good to see. You got an 80 bps of a tailwind from freight in the quarter. I would assume you guys have locked in some of those. So would that kind of tailwind continue? And then similarly to follow-up on what you just talked about with growth staying so strong. Would maybe your expectations for North American margins to be higher this year than we talked about a few months ago just given growth is coming in faster than expected?

I appreciate your question, Daniel. You're correct. In my prepared remarks, I mentioned that we expect our North American operations to perform well this year with a 20.5% EBITDA. The team's results are outstanding. Some improvements will come from pricing, but we feel confident that we'll be in the 18s now. A couple of months ago, we projected a lower range for the end of the year, but we don't anticipate finishing that low. When considering freight costs, there was a significant increase in Q1 last year that disappeared by Q2. So when we look at Q2 year-over-year, there's a noticeable benefit that fades since we've already locked in some rates and there wasn't excess freight on ocean deliveries that helped mitigate costs in Q2. I expect our strong results to continue, but we may experience some tightening, though not nearly as much.

Great. Well, congrats to Justin and everyone on the team and good luck going forward.

Thank you.

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

Hey, good morning guys.

Good morning Bret.

Switch over to Europe now. Could you talk about the 8.2% growth per day, breaking it out on price and units? And then as a follow-up to that you called out Benelux, Germany, and Eastern Europe as very strong. Could you give us some performance spread to the UK and Italian business? And maybe talk about the cadence that you saw in the quarter as it progressed?

We are really pleased with how our European business is performing. On a per day basis, we've seen growth of over 8% to 9% as reported. As I noted earlier, every region experienced growth in the high single-digits or low double-digits, which is something we haven't seen for a while. We highlighted some of the stronger performers such as Benelux, Germany, and Central and Eastern Europe, but it's important to note that the other areas also performed well, remaining in that high single-digit range. This growth has been due to a combination of pricing and volume adjustments. When inflation hit, we worked hard to stay ahead of it because failing to do so can have serious consequences. I’m very proud of our teams' efforts over the past couple of years to navigate these challenges. We had solid volume comparisons, and while the first quarter of 2022 was good, it wasn't exceptional, giving us a favorable benchmark to measure against. We remain optimistic about Europe continuing to deliver strong results, although we don't expect to maintain 9% growth for the whole year, as we anticipate some moderation in the coming quarters after a strong finish last year. The progress throughout the quarter was solid, and the second quarter has started decently, though we still have work to do. What stands out in our European business, Bret, is the margins, which have increased by 90 basis points compared to the first quarter of last year. While revenue growth is important, our focus is on translating that into profits since revenue alone doesn't define a business. Our margins in Europe are the best in the market; when comparing US GAAP to US GAAP, no one matches our level of EBITDA margins, and we take great pride in that.

Great. Yes, it's looking good. And then one last question on the specialty business. Obviously sort of similar cadence question but starting to see some maybe softening in the U.S. consumer. Could you talk about the trajectory of that business through the quarter?

The year began slowly and the first quarter continued on that trend, which is why we’ve been transparent about our expectations. We don’t anticipate any significant improvement for the latter half of the year, and we expect to fall short of our initial forecasts set in February. There are no clear catalysts for change. Additionally, not all product lines are performing the same; the softer areas include RVs and related towing products like hitches. When new RV unit sales decline, so does the need for towing accessories. These two categories are the weakest. While traditional SEMA and performance products have seen a slight decrease year-over-year, it’s not as pronounced as the drop in RV products. On a positive note, marine products have seen a slight increase, which is encouraging. Our specialty team is actively addressing these challenges with numerous productivity-focused initiatives. We have consolidated our California operations into South Carolina, which should reduce costs. We've also significantly cut down inventory to better align working capital with current and expected revenue trends. Additionally, we sold a smaller underperforming business back to its previous owner. In this specialty market, we see potential for small tuck-in acquisitions that could strengthen our competitive presence in specific geographic or product markets, and we intend to capitalize on those opportunities.

Great. Thank you.

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

Hi, good morning. Thank you for taking my questions.

Good morning, Brian.

Just kind of going back to North America, and maybe Europe too, just kind of on the larger trends of driving activity. Maybe some color there. Just how that's playing through on the results on the volumes, as well as was there any benefit kind of from the winter weather, or was that even a maybe a headwind meaning it was so mild?

Miles driven is essentially stabilizing without significant growth or decline. We have better data for the US compared to Europe, but overall mobility has not changed much year-over-year in the first quarter. This is acceptable as it follows the sharp decline during the pandemic in 2020 when global mobility virtually stopped. As long as vehicles are being used for commuting, and with generally lower fuel prices worldwide, which have not yet reached pre-pandemic levels especially in Europe, we believe this is positive. Lower fuel prices may encourage slightly more miles driven, increasing demand for our parts. Looking ahead, we anticipate that overall mobility will remain relatively flat for the rest of the year.

Okay. That's helpful. And then my follow-up, can you provide maybe a little bit more color just in Europe, on the payables and inventory and kind of what trends you're seeing there and how that matches with the expectations?

Yes, I'll take that one. Thanks for the question. So, we're real pleased with the activity that we've had over in Europe, in particular, with the vendor financing program, but also in the overall payables, right? We started making sure we transition away from just talking about vendor finance and talk about overall payables. And what we were able to see year-over-year is that really a 10% improvement in our European operations on the days payable, as we extend that. And there's still room to go. We would expect similar-type improvement this year, and probably for the next couple of years. You got to think of it as not a race. We're not in a 100-meter dash here. We're in a marathon. It's going to be continuous improvement over and over again, every year as we deal with our vendors and really train them in the extension of the terms. And so, the team has done a great job. We got to see it. We got to see it in the free cash flow. We will see it again this year and continually improve even from Q4 to Q1 against what we've seen on there.

And your next question comes from the line of Scott Stember from ROTH MKM Partners. Your line is open.

Good morning, guys. Congrats on the very strong results.

Thanks, Scott.

Going over to State Farm obviously things are cranking up nicely as expected, and it's just on two or three SKUs. Are there any signs that that SKU count will increase, whether it's radiators or fenders or door panels?

Yes. So, we knew that the decision by State Farm to begin to turn on aftermarket products like I indicated was not going to be flipping a switch over on the wall to turn on the lights, right? It was going to be evolutionary, not revolutionary. And the volumes are ramping up to our expectations. There have been no discussions about adding additional parts. State Farm has not done anything put out any statements or made any comments publicly about expanding the program. To be sure, every time we talk with our folks at State Farm, we are continuing to encourage them to both accelerate the rollout of the existing parts and to add new parts to the program. But the direct answer to your question is there has been no material movement coming out of Bloomington, Illinois, with respect to broadening the part types.

Got it. And then last question just going back over to specialty. You talked about the RV repair side. I know that you guys are pretty well entrenched with the OEMs to handle their warranty business. Are you seeing increased demand for just wear and tariff types of items? And how would you expect that to offset the general softness in the segment?

Yes, you're right. We handle most of the distribution of warranty parts for many of the original equipment manufacturers, which is great. As you know, the first quarter isn't a peak season for RV use, especially for campers in the northern regions during January and February due to the cold weather. However, we anticipate that activity will pick up as temperatures rise and people head out to campgrounds to use their RVs. We believe we are very well prepared, ensuring we have the right inventory to meet warranty part requests. We are ready to support all of our OEM customers in this area.

Got it. And then just one last question back over to North America. You were talking about loss rates and as these higher-priced used units work their way through the auction process. Can you talk about where you expect loss rates to be? Are we hitting a bottom here? Are we hitting a point where we could see an inflection in actual repairable claims going up?

In our conversations with industry groups and those with insights into the collision industry and total loss rates, we anticipate that the total loss rates for 2023 will stabilize in the range of 18% to 19%. They were at 19% in the first quarter, and as used car prices level off, there may be some fluctuations. However, both their outlook and ours suggest it will hover around the 18% mark for 2023. We will monitor this closely. The 19% figure in Q1 represented a slight increase from the previous year, but it did not affect our growth. As we've mentioned repeatedly, we've experienced nearly every cycle related to total loss rates, and we confidently manage through these challenges.

All right guys. Thanks a lot. That's all I have.

Thanks, Scott.

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

Thanks for taking my questions. Rick, I wanted to follow up on your fulfillment commentary. I think you said fulfillment rates were back above 90%. Can you give us a feel for that rate in Q1 of last year? And do you expect each quarter in 2023 to benefit from a similar lift in fulfillment, or does the benefit fade as the year unfolds?

Yeah, Craig, I appreciate the question. As we look at the fulfillment rates last year we were in the upper-80s. We finished the year in the upper 80s. We started off really around 84, for the first quarter last year. And then as we progress through the year it gradually kept getting better and better and better. We're still up versus Q4's number as well. So we finished in the low-90s, but a slight improvement. And our expectation is that that will continue to etch up just a little bit throughout the year. So we're really pleased with the inventory availability. If you think about last year, particularly in Q1, inventory was not very available for us. And we think we missed out on some share with OEs and the drop in APU. And then that's come back in Q1. And so the team is doing well and the inventory position we're very happy with in our North American operations.

And then, could you comment on European fulfillment rates? Are there similar trends there given that in some cases you share the same dynamic?

Yeah. It's in the 90s. I mean, that one didn't drop like we saw over here in North America. So still in the 90s and really pleased with our delivery performance out there.

This concludes our question-and-answer period. Mr. Nick Zarcone, I turn the call back over to you for some final closing remarks.

Well as always, we greatly appreciate your time and attention in spending the hour with LKQ. We're very proud of the first quarter. We're optimistic about the future, not just here in 2023, but for the next 25 years, as we continue to celebrate the first 25. And we look forward to chatting with everyone in about 90 days to announce second-quarter results. So, thank you.

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