Good morning and thank you for participating in LKQ Corporation’s Second Quarter 2023 Earnings Conference Call. I am your operator, Jiao. I will now hand the conference over to Joe Boutross, VP of Investor Relations. Please proceed.

Thank you, operator. Good morning, everyone and welcome to LKQ’s second 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 at lkqcorp.com for 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 are planning to file our 10-Q in the coming 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. I hope you are all having a safe and enjoyable summer. 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 and provide an overview of our updated guidance before I come back with a few closing remarks. The second quarter of 2023 was a continuation of what we delivered in the first quarter, where again the resilience of our businesses shined through with an exceptional organic revenue growth and strong margins in our North American and European segments, which more than offset the impact of the headwinds experienced by our Specialty and Self-Service segments. The non-discretionary nature of the parts these core segments distribute, coupled with our ongoing operational excellence initiatives, highlights the strength of our business model and our ability to generate robust profitability during periods of challenging macroeconomic conditions, including flat declining economic growth in several of our markets, decreases in commodity pricing, the ongoing conflict in Ukraine and its impact on the broader European markets, and the continued increases in interest rates and its subsequent impact on consumers. The strength of our North American and European segments is evidenced by the fact that in the second quarter of 2023, North America and Europe collectively represented roughly 90% of our total segment EBITDA versus 79% for the second quarter of 2022 and just 74% in 2021. The variance in performance across our operating segments this quarter again 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 second quarter 2023 results and year-over-year comparisons. Revenue for the second quarter was $3.4 billion, an increase of 3.2%. Parts and services organic revenue increased 4.8% on a reported basis and 5.4% on a per day basis. The net impact of acquisitions and divestitures was flat year-over-year, and foreign exchange rates increased revenue by 0.6% for total parts and services revenue increases of 5.4%. Other revenue fell 23.9% in the second quarter of 2023, primarily due to weaker precious metal prices relative to the same period in the prior year. Net income for the second quarter of 2023 was $281 million as compared to $420 million last year. Diluted earnings per share was $1.05 in the second quarter of 2023 compared to $1.49, a decrease of 29.5%. The company completed the divestiture of PGW Auto Glass in the second quarter of last year, which generated a pre-tax gain of $155 million and an after-tax gain of $127 million or $0.45 a share in the second quarter of 2022. Adjusted net income of $291 million in Q2 of 2023 compared to $307 million last year, a decrease of 5.1%. Adjusted diluted earnings per share in the second quarter of 2023 was flat with last year at $1.09, coming in flat to the prior year is a testament to the strength of our operating performance as we faced headwinds from significantly lower commodity prices and higher interest expense. Rick will provide further financial details in his prepared remarks. Now, let’s turn to some of the quarterly segment highlights. As you will note from Slide 8, organic parts and services revenue for North America increased 8.3%. North America also reported the highest quarterly EBITDA margin on record as a standalone segment, excluding self-service. We continue to perform well in North America, especially when you consider that collision and liability-related auto claims were down 3.1% year-over-year in the second quarter. Similar to Q1, the growth in North America was a combination of price and volume improvements. The pricing impact primarily reflected the year-over-year benefit of increases implemented late in Q2 and Q3 of last year as opposed to further increases in 2023. The volume pickup was particularly evident in the aftermarket product line and was the result of two factors. First, having largely worked through the industry supply chain issues and returning to proper levels of inventory enabled us to get back to our historical level of fulfillment rates with year-to-date aftermarket fill rates at their highest level since June of 2020. Second, the impact of the State Farm program continues to unfold nicely and is building demand for aftermarket headlights, taillights, and bumper covers. As previously disclosed, in December of last year, State Farm announced that it would allow the use of these aftermarket part types. Late last month, State Farm announced that they are running yet another pilot. This time in California and Arizona for the use of a full range of aftermarket collision parts, including sheet metal products like fenders, hoods and trunk lids and other items like side mirrors and grills. As part of this pilot, State Farm requires these parts to be certified by CAPA, a Certified Automotive Parts Association. As many of you know, we are by far the largest distributor of CAPA-certified collision parts in the United States. Importantly, we believe the potential expansion by State Farm into the utilization of these additional aftermarket part types validates both the high-quality standards of our platinum plus private label aftermarket parts offerings and our ability to deliver best-in-class service to State Farm’s direct repair network across the country. We will be a beneficiary should State Farm ultimately decide to rollout the use of these additional aftermarket part types on a nationwide basis. This upward trend in our aftermarket sales volumes is consistent with a general rise in alternative part usage or APU, which again approached pre-pandemic levels in the second quarter. I am pleased to say that the increase in APU also included an uptick in the recycled parts category, increasing about 140 basis points year-over-year. Combined, aftermarket recycled parts have witnessed over a 400 basis point improvement in industry-wide APU year-over-year in the second quarter of 2023. Our outperformance is another indicator that we continue to take market share. Non-comprehensive total loss rates decreased sequentially in the second quarter to 20.4% from 20.9% in Q1. With the recent drop in used car prices, we expect total loss rates to slightly pick up for the balance of the year. And then as OEs work through their healthy inventory levels, industry experts believe we will likely see a mix shift to newer vehicles down the road and would expect to see any near-term increase in total losses to reverse cars given newer vehicles are less likely to be deemed a total loss. As stated in prior calls, we are generally agnostic as to the small up and down shifts in the total loss rate. Finally, last month, I had the opportunity to spend some quality time with the top-performing general managers and salespeople at an event for our North American business. I must say their enthusiasm regarding the future of LKQ was simply energizing. Now, let’s move on to our European segment. Europe’s organic revenue growth for parts and services in the quarter increased 8.5% on a reported basis and 9.8% on a per day basis. It was a quarter of records for the European segment, which reported the highest quarterly revenue ever at $1.64 billion, the highest EBITDA at $188 million, and the highest second quarter EBITDA margin percentage ever at 11.5%. During the quarter, we saw high single-digit to low double-digit reported organic growth in some 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 are confident we are continuing to take share in these large and highly fragmented markets as witnessed by ECP, our UK business, which generated its highest level of per day sales on record. In the second quarter, LKQ Europe entered into a strategic partnership with Mobivia, Europe’s largest independent provider of automotive maintenance and repair services, operating under 11 brands in 18 countries across Europe. The agreement between Mobivia and LKQ Europe is based on a dual mode of collaboration, which includes the procurement and delivery of automotive parts to Mobivia’s 530 ATU service branches across Germany. LKQ and Mobivia are both leaders in our respective sectors of the European automotive aftermarket. And thanks to this collaboration, we will leverage our strengths to provide a differentiated solution that is unparalleled in the marketplace. Our European team continues to face cost inflation across all operating markets. And to combat this, the team has taken decisive structural and multiple efficiency actions. These actions resulted in year-over-year improvements in SG&A for the second quarter despite this challenging macro environment. I spent last week in Europe meeting with all the senior leaders across the segment and also with the regional teams in the UK and the Benelux region. I am incredibly proud of the performance of the European team in what they are delivering. And I am very excited about all the initiatives they have underway to grow the business and enhance our leading competitive position. The team’s focus and drive are outstanding and they are creating a uniquely special and market-leading business. Now, let’s move on to our Specialty segment. During the second quarter, Specialty reported a decrease in organic revenue of 12.9%, which was below our expectations. There were major differences in the demand for various part types with the truck, off-road and marine categories being down less than 2%, while RV and towing-related products were off substantially more than the overall segment decline. The RV portion of our specialty business was impacted by the wholesale shipment and retail sales of RVs, which were down 50% and 20% year-to-date through May 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 40% year-over-year. With that, we believe the challenges for our Specialty segment will continue in the back half of the year. Now on to our Self-Service segment. Organic revenue for parts and services for our Self-Service segment increased 4.7% in the second quarter. Self-Service was again challenged by extremely soft commodity pricing, particularly as it related to precious metals. On the corporate development front, during the quarter and recently in July, we completed some smaller, highly synergistic tuck-in acquisitions, including a U.S.-based remanufacturer and distributor of OE replacement engines, marine replacement engines and high-performance trade engines, a leading independent truck parts distributor in the UK, a Holland-based automotive aftermarket parts distributor, a Belgium-based business that distributes automotive parts, paint, tools and accessories, and an aftermarket accessories distributor with locations in Texas and Oklahoma. Additionally, during the quarter, we divested a small non-core business in our Specialty segment. The net annualized revenue impact of these six transactions collectively is approximately $240 million. As most of you know, on February 26, we entered into a definitive agreement to acquire all of Uni-Select’s issued and outstanding shares for CAD48 per share in cash, representing a total enterprise value of approximately $2.1 billion. The process is on schedule and we are pleased with our progress. During the second quarter, we received the required approvals from Uni-Select’s shareholders, the Superior Court of Quebec, the antitrust regulators in the United States and in Canada. On July 21, the Competition and Markets Authority in the United Kingdom issued its Phase 1 decision on the transaction. And in response, we immediately submitted our proposed undertakings related to the divestiture of Uni-Select’s GSF car parts business in the UK for evaluation by the CMA. In light of those developments, yesterday, we waived the closing conditions relating to regulatory approvals, and I am happy to announce we plan to complete the acquisition of Uni-Select on or about August 1. The pending divestiture of GSF continues to progress in accordance with our desired timeline. After we complete the customary competitive bid sale process, this CMA will complete its suitability review of our proposed buyer. Upon receipt of approval of the buyer from the CMA, we will complete the sale of GSF likely in the third quarter. Now turning to ESG. During the quarter, we initiated or expanded various programs that centered around our people, LKQ’s most important asset. As part of our response to our employee engagement survey, we identified that ensuring the health, safety and well-being of our employees is essential to our success. With that engagement data, we took actions. We expanded our Inspire to Thrive wellness program globally, which focuses on the physical, mental and financial well-being of our employees. We expanded the installation of dash cams across our North America and specialty fleets, a program that enhances the safety of our drivers. And at ECP, our team implemented two exciting programs, 25 by 25 and PAVE, which stands for people adding value everywhere. Both these programs are centered around our diversity, equity and inclusion initiatives. Again, we implemented these programs as they are in the best interest of our employees. I could not be prouder of the continued progress on our ESG efforts, which was again validated in June by MSCI maintaining our AAA ESG rating, a rating that very few companies can claim. Lastly, I am pleased to announce that on July 25, 2023, the Board of Directors declared a quarterly cash dividend of $0.275 per share of common stock payable on August 31, 2023, to stockholders of record at the close of business on August 17, 2023. I will now turn the discussion over to Rick who will run through the details of the segment results and discuss our outlook for 2023.

Thank you, Nick, and welcome to everyone joining us today. The second quarter was another solid performance from the business with highlights including record high segment EBITDA margin of 20.6% in North America and at 11.5%, the highest quarterly margin in a decade for Europe, organic revenue growth in the high single digits in North America and Europe, operating improvements countering headwinds from commodity prices and interest costs. Strong free cash flow of $414 million in the quarter and the completion of a $1.4 billion bond offering to secure financing for the pending Uni-Select acquisition. I want to reiterate Nick’s thanks to the global LKQ team for delivering exceptional results in difficult conditions. To provide further details on these results, I will start with comments on segment performance. Going to Slide 10. North America continued its strong performance, posting a segment EBITDA margin of 20.6%, a 190 basis point improvement over last year. We saw gross margin improvement of 150 basis points driven by lower freight costs, pricing and productivity initiatives and a favorable mix effect with the sale of the lower-margin PGW business. Overhead expenses were favored by 40 basis points, primarily due to lower freight, vehicle and fuel expenses. With the continued strong performance in our North American segment, we believe the full year segment EBITDA margins will finish the year in the low 19% range with some moderation in the second half of 2023 with salvage margins tightening, along with some normal seasonality. Europe also delivered terrific results with a segment EBITDA margin of 11.5%, up 70 basis points from the prior year period. As seen on Slide 11, gross margin improved by 20 basis points, while overhead expenses decreased by 50 basis points with the effect of improved leverage due to the 9.8% per day organic revenue growth and emphasis on productivity initiatives on personnel costs and reduced freight costs. There are some headwinds anticipated in the second half of the year as personnel costs increased due to wage inflation. We intend to mitigate these increases through productivity initiatives, and we remain optimistic about our previously disclosed expectation for full year margin expansion of 20 to 30 basis points in 2023. Moving to Slide 12. Specialty’s EBITDA margin of 9.5% declined 390 basis points compared to the prior year. Gross margin, which was down 370 basis points year-over-year, is under pressure from increased price competition as inventory availability continues to improve our competitors, in addition to unfavorable product mix as lower margin lines such as auto and marine have been less affected by revenue reductions. Overhead expenses were up 20 basis points, primarily from the decrease in leverage driven by organic revenue decline of 12.9% per day. The specialty team continues to take actions to align the cost structure with revenue trends, and prior restructuring efforts have provided some benefit in the second quarter to counteract the revenue softness. As you can see on Slide 13, Self-Service profitability declined sequentially to 4.1% this quarter from 13.2% in the first quarter and decreased relative to the 15.3% reported in Q2 2022. Metals prices had a net negative effect on results with lower precious metal prices, representing a $50 million reduction in EBITDA and an unfavorable lag effect from sequential scrap steel price changes driving a further $5 million decline. Other revenue decreased by 28.3% in total, contributing to a reduction in operating leverage of 620 basis points. Relative to Q2 2022, the average price received for catalytic converters in Q2 2023 declined by 39% and scrap steel fell by 20%. While car costs typically move in tandem, which changes in commodity prices, we have experienced a stickiness in car costs, which were only down 12% relative to Q2 2022. These trends created a gross margin headwind in the second quarter that could persist in the second half of the year. Now for further details on the consolidated results. As mentioned, adjusted diluted earnings per share of $1.09 was flat to Q2 last year. Our operational performance showed strong year-over-year improvement with a net increase of $0.11 per share on an adjusted basis, driven by solid gains in North America and Europe, partially offset by the decline in the specialty business. We benefited by $0.04 due to the lower share count resulting from our share repurchases in 2022. These factors were exclusive of $0.08 from the impact of metal prices, as shown on Slide 27, $0.05 in higher interest expense resulting from rate increases and $0.02 due to a higher effective tax rate. On the tax rate, we applied an annual effective rate estimate of 27.0%, which is 40 basis points higher than the 26.6% in our prior guidance. The rate change is attributable to non-deductible Uni-Select transaction costs and other effects related to the Uni-Select financing. As shown on Slide 18, the Uni-Select transaction affected various parts of the second quarter financials. The income statement effects of the pre-acquisition net financing expenses and transaction costs have been excluded from adjusted diluted EPS. Once we complete the acquisition, going forward, interest expense will be reflected in adjusted diluted earnings per share. In May, we completed the offering of $1.4 billion of senior notes due in 2028 and 2033. We’re happy with the results of the offering as a first-time investment-grade issuer, obtaining financing at 5.75% and 6.25% for the 5 and 10-year maturities was an outstanding outcome. We recorded interest expense on the bonds for the period between the issuance date and the quarter end in the interest expense line on the income statement. The interest earned from the bond proceeds is reflected in interest and other income. In Q1, we hedged the interest rate risk prior to the issuance of permanent financing in the bond market. Upon issuance of the bonds, we unwound these interest rate swaps and settled by making a payment of $13 million. As these swaps qualified for hedge accounting, the loss was held on the balance sheet and will be amortized to the income statement over the life of the bonds. With the completion of the bond offering, we terminated the bridge loan facility and amortized the remaining $6 million of upfront fees in Q2. To hedge the risk related to the movements in the Canadian dollar exchange rates between signing and closing, in Q1, we entered into foreign exchange forward contracts to purchase Canadian dollars at a specified rate. These contracts had a fair value of $46 million as of June 30. And as we are not eligible for hedge accounting on these contracts, the mark-to-market gain is reflected in the income statement as a separate line item. We incurred M&A advisory costs of $6 million in the quarter, which are presented in restructuring and transaction-related expenses. Shifting to cash flows in the balance sheet. With the $1.4 billion bond offering and CAD700 million term loan, we have secured the necessary financing for the Uni-Select transaction. By completing the bond offering ahead of the deal closing, we are carrying more cash on the balance sheet than usual at $1.9 billion. If you set aside the roughly $1.4 billion earmarked for the acquisition, we have $519 million in cash and $1.2 billion of available liquidity as of June 30. As of June 30, we had total debt of $4.0 billion with a total leverage ratio of 2.3x EBITDA, which takes into account the additional debt for funding Uni-Select and none of the projected EBITDA from the acquisition. The increase in the total leverage ratio above our target range of 2.0x was expected as we disclosed in our prior Uni-Select communications. We are committed to reducing our leverage ratio below 2.0x within 18 months of closing the transaction. Upon achieving our target leverage ratio, we will return to our balanced capital allocation strategy, including share repurchases. Our effective borrowing rate rose to 5.3% for the quarter due to global market rate increases. The increase in the leverage ratio above the 2.0x will trigger a 12.5 basis point increase in our credit facility margin going forward. We have $1.7 billion in variable rate debt, of which $700 million has been fixed with interest rate swaps at 4.6% and 4.2% over the next 2 to 3 years, respectively. We produced $414 million in free cash flow during the quarter and $567 million on a year-to-date basis. We remain on track for our full year estimate of approximately $975 million. Compared to the year-to-date June 2022, free cash flow was down $71 million with higher outflows from income taxes of $39 million, interest of $38 million, and capital spending of $37 million. These are the three areas we highlighted as headwinds in our February call, and the actual results are playing out mostly as expected. Interest payments will be a larger headwind than originally projected because of higher interest rates and the impact of Uni-Select financing coming on to the books before the acquisition closes. As previously mentioned, we have paused our share repurchase program and directed our free cash flow to paying down debt of $131 million in the second quarter as well as tuck-in acquisitions of $27 million. Additionally, we paid a quarterly dividend of $74 million. I will conclude with our thoughts on projected 2023 results. Our guidance is based on current economic conditions and recent trends and assume scrap and precious metal prices hold near June levels and the Ukraine-Russia conflict continues without further escalation or major additional impact on the European economy. On foreign exchange, our guidance includes balance of the year rates for the euro of $1.09 and the pound sterling at $1.25, in line with June rates. We expect reported organic parts and service revenue in the range of 6.0% to 7.5%. Organic growth was 6.4% through June. We decreased the high end of the range in recognition of the ongoing challenges at specialty, which is down 13% year-to-date. We expect specialty to reduce the year-over-year decline in the second half of the year, but the lower full year expectation makes reaching 8% at the consolidated level unlikely. Please note, we have one fewer selling day in North America, Europe in specialty in Q3. We expect adjusted diluted EPS in the range of $3.90 to $4.10, which brings in the high end of the range from our previous estimate, while there is no change to the low end. The midpoint is now $4 per share, down $0.05 from our prior figure. We anticipate North America and Europe continue to perform ahead of prior expectations and are mitigating softness in our specialty segment, resulting in net operational growth of $0.05. However, the negative effects of declining metals prices of $0.07 and higher interest and tax expenses of $0.03 are more than offsetting this operational growth. Slide 5 shows the primary factors contributing to the EPS guidance change. There is no change to our free cash flow expectation of approximately $975 million and 55% annual EBITDA conversion, noting a portion of the Uni-Select transaction fees and pre-acquisition interest costs will have a one-time impact to free cash flow and create a headwind that we expect to overcome. To be clear, the numbers I just quoted do not include operating results for Uni-Select. We expect to close on Uni-Select on or about August 1 and assuming that timing, we are projecting the acquisition will be dilutive to adjusted diluted EPS by $0.02 to $0.04 per share in fiscal 2023. While we believe the transaction will be accretive over the first 12 months, in the early months, it is expected to be dilutive due to the integration costs and the time required to begin to achieve the synergies. Our overall expectation for the businesses has not changed, and we are excited to bring them in as part of the LKQ family. Thank you for your time today. With that, I’ll turn the call back to Nick for his closing comments.

Thank you, Rick, for that financial overview. In closing, the second quarter was another solid performance for team LKQ. I am beyond proud of the results we delivered for the first half of the year, particularly how the teams are diligently planning and positioning their respective businesses for the balance of 2023 as we continue to be challenged by certain uncontrollable dynamics. As we move into the second half of the year, let me restate our key strategic pillars, which remain 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 fourth, we will continue to invest in our future. As always, I want to thank the over 46,000 people who work at LKQ for all they do to advance our business each day and for driving our missions and our values forward regardless of the challenges. And with that, operator, we are now ready to open the call to questions.

Thank you. Your first question comes from Scott Stember of ROTH MKM. Please go ahead.

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

Thanks, Scott.

In North America, I just wanted to touch on State Farm. I think in previous calls, you had talked about, I guess, based on those three SKUs throughout the country, about $100 million in benefit, getting a lot of questions from investors about what the potential is with California and Arizona now going fully live with the whole program.

Sure. I’ll take that. Obviously, we are delighted by the movement State Farm is making in terms of utilizing our high-quality aftermarket parts, new pair of policyholders vehicles. You’re correct. We previously mentioned that the upside from headlights, taillights, and bumper covers was about $70 million to $100 million on an annual basis once everything gets up and running. We are tracking toward that number. So quite frankly, probably towards the midpoint as there appears to be a little bit of cannibalization on the salvage side in addition to the significant cannibalization on the OEM parts side. These three-part types represent the highest volume of aftermarket parts as almost every collision requires the replacement of lights and bumper covers. If you think about three equal sized baskets, Scott, of lighting, bumpers and everything else, adding everything else to the bucket would add another 50% or so to our original estimate, which would push you towards somewhere in the $125 million to $150 million on an annual basis over time. Now that’s probably a little bit higher than some preliminary guesstimates that some of you have had likely due to the fact that State Farm will only use CAPA-certified parts. And CAPA parts only represent about $1 billion of our overall aftermarket sales. When you add on top of that, that the $1 billion includes chrome bumpers, basically bumpers for pickup trucks that State Farm has been using for the last several years. So if you apply roughly there is 16% to 17% market share on that lower base, you get back to that $125 million to $150 million on an annual basis of incremental revenue over time. So that’s the number that we’re comfortable with right now. I would also say that, that’s a very nice revenue pickup. And because there is a limited amount of required SG&A to deliver all those incremental parts, we think there will be really good margins on that incremental State Farm business.

So that $125 million to $150 million, is that an all-in number? Or that’s an additional amount just for California and Arizona?

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

The pilot, Scott, won’t mean much for us as a product to the pilot. So we’re – the numbers that Nick just quoted are assuming they go live at some point in time.

Okay. I am sorry for blithering the point here, but does that assume that the whole country goes live with all parts 100%?

Yes.

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

I wouldn’t say countercyclical, Scott. I mean the reality is the economies in Europe are in much worse shape than the U.S. economy. If you just look at some of the published statistics, Germany is in a recession, they have had two quarters now of negative GDP growth. The UK is probably the worst off of any of the economies, the impact of the war, the impact of energy prices inflation. While inflation has come down a bit in the U.S., inflation is hanging pretty high over in Europe. And quite frankly, that’s having an impact on the consumer. The fact that we are continuing to grow our business, both from a volume perspective and a price perspective tells us that while may not be countercyclical, we are more than holding our own as it relates to the overall economic backdrop in Europe. Again, good growth, we are highly confident that what this means is, over time the car park is going to age. And if you talk to anybody in our business, an older car is our friend. So, we think that longer-term, these soft economic conditions in Europe will actually bode to our favor.

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

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

Yes, it’s a good question. Thanks – Craig, thanks for the question. Fulfillment rates are back to the mid-90s, which is kind of our target, as we have kind of talked in the past, we were low-90s when we think about where we were just a year ago in Q2, actually, we are in high-80s as I am looking at the numbers, and so we have got about 5 points of improvement. As far as quantification, the difficulty in doing that is that it’s a bit of a mixed bag. So, I would hate to quote what the overall benefit was as far as dollars go. As there is a little bit of a movement, and we have talked about this before between the salvage side and the aftermarket. So, there has been a little bit of a flip. So, when some of the volume went away from aftermarket when the availability wasn’t there, it went over to salvage. It’s kind of gone back the other way. So, we are happy with where we are at. We don’t think we need to go much more of where we are at as we are continuing to balance the free cash flow impacts of holding the additional inventories.

Thanks. And as you look at like Q3 and Q4 and then 2024, do you still expect tailwinds, or do you think that has abated from a year-over-year perspective?

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

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

Hey. Good morning guys.

Good morning, Bret.

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

Yes. So, as we outlined back in late February when we announced the transaction, Bret, we are highly confident that there is $55 million of cost synergies that we will be able to get our hands on over the first kind of 3 years post-transaction. Most of that will come in the second year with only a few of those dollars needing a full 3 years to access. We are going to start the process just as soon as we can and trying to deliver the synergies very quickly. And again, there is facility savings. There are some procurement benefits and kind of all the corporate overhead and the like that we don’t need. And so nothing has changed from the presentation that we gave everybody back on February 27th, 28th, when we announced the transaction. Again, we are highly confident in our ability to do that. Obviously, much of the synergies are going to come in the U.S. That’s where the FinishMaster operations and our paint operations overlap. That’s where a lot of the synergies come from. We have no plans on eliminating, changing or shutting down facilities up in Canada because we don’t do what they do in Canada today, right. They are distributing small mechanical parts. That’s the business that we have over in Europe. We do think that there will be benefits, revenue benefits that we can glean by broadening out their product line, giving them some incremental inventory to cover all car types that are used up in Canada by giving them some capital to grow their business. But none of that is included in the $55 million of benefits that we outlined when we announced the transaction.

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

Leadtech, yes, so we love our services business. The reality is it’s growing about 25% a year, which is obviously significantly higher than any of our other businesses, and it has really strong margins. And so we are very, very happy about that. I mean if you look at some industry data, about 75% of all repairs at the MSOs are scanning the car for some of that technology. And about 18% of the repairs actually have some sort of calibration work being done on the vehicles. Now the 18% may sound low, but you got to remember that there is only a – today, there is only a small portion of the car park that has all the technology on it. Average price of a scan is running about $140. Average price of the calibration is running close to $400. And so it is a really attractive business. And the market is going to continue to grow because every year, there are simply more cars out on the roads with some of that more advanced technology on the car. That’s where we got into the business several years ago. We have created what we believe is a market-leading offering, providing a high level of service to our existing customers. By providing some of those services actually in their shops, and we are optimistic about the future.

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

Hi guys. Thanks for taking my question.

Good morning, Brian.

Just when you think about specialty, it doesn’t sound like there is a bounce from the bottom, but do you feel like we have kind of reached the bottom and how to think about where the margins ultimately settle out, maybe kind of back half of ‘23 and then thinking about ‘24?

Yes. So it’s – we are not predicting that we are at the bottom yet. The reality, it’s been a rough couple of quarters for our specialty business. We have not seen a catalyst that’s going to turn quickly. Obviously, as we start to get into 2024, we have got better, easier comps that we will be working against. And so the numbers from a growth perspective may not look as soft, but from an absolute dollar perspective, we are not anticipating a significant uptick. The good news is they did some restructuring earlier in the year. They are going aggressively at their cost structure. And so the month of June, they were actually back to double-digit margins even though they weren’t there for the quarter. And so I would suggest that margins in and around the 10% range. It’s something that we are striving to achieve even though the revenues may be challenged now for several more quarters.

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

Yes. So, if you look at the overall pieces that we have got, the trade working capital for us has been a nice improvement. We continue to see a nice improvement. We saw a really good improvement within Q2 as well. And then the earnings side is the other side of it. So, we are really happy with where we ended up in Q2. Overall, trade working capital improved roughly a little less than $180 million, and we expect to continue to drive that throughout the rest of the year.

Thank you.

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

Hey. Good morning everyone.

Good morning, Gary.

Good morning, Gary.

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

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

Right. But you are also getting $0.05 from operating results, right?

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

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

As Rick indicated, a lot of the focus came on SG&A. We – of the 70 basis point improvement, I think we split 20 basis points in gross margin and 50 basis points in SG&A. So, taking a really hard look across all of our platforms to make sure that we are doing the best job possible to control our overhead expenses. Now, when you have 9.8% per day organic revenue growth, that helps. But make no mistake, Gary, the inflationary environment, as I indicated over in Europe, is much more intense than it is here in the U.S. And so they have needed productivity gains to offset a lot of that increase and allow us to actually get to a lower SG&A percent as it relates to revenues. Rick did indicate that we have got some wage inflation coming at us in Europe in the second half of the year. We know that already. Certain other countries, particularly the Netherlands has another wage increase coming at them. We experienced already a couple of days strike in Germany as the unions over there and the work consoles have their members to use short-term strikes to try and position for better wages. And so those are all things we are going to have to deal with in the second half of the year.

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

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

Good morning, Daniel.

Good morning, Daniel.

Rick, I want to start on North American EBITDA margins. Obviously, I think you had guided earlier this year that was set down as smaller competitors got inventory and maybe used price to get share back, but they have held in much stronger. So, I guess what’s playing out differently than you thought? Are smaller peers being more rational, or is there something else driving North American wholesale margin up to offset some of that price competition?

Yes. Thanks for the question, Daniel. It’s a combination of several different things. One is productivity initiatives have been something that we focused on for a while that are helping to offset any of the risks we are seeing on the pricing side. The other thing is that competition, we believe has a decent amount of inventory and has been pretty good about holding pricing. So, we haven’t been looking at a drop in the pricing piece as we were kind of expecting earlier. And as you heard in the prepared remarks, as we think about the back half of the year, there is a little bit more seasonality than anything else and kind of pulling away from the idea of how bad – how low could the margins go relative to where they are at right now. We are just not seeing it. So, I think productivity is one of the biggest things that is offsetting that. And we are continuing to drive it. So, we think we will end up in the low-19s for the full year number as we are coming into the back half of the year.

Thank you for that color. And then maybe a related follow-up on North America, I think Nick, you mentioned 400 basis points of APU improvement. That should have been on a guess just a nice tailwind to volume, but could you break out the 8.5% comp? How much was ticket versus like more ticket growth versus more traffic growth? And then are you seeing any change in OEM pricing? I think that’s an investor concern out there as OEM production picks up. So, how is that side of the pricing backdrop been related to the traffic first ticket discussion?

Yes. North America, more than half of the year-over-year growth of volume, which is really good to see. Obviously, a lot of that has to do with the aftermarket volume, as we talked about, having the inventory in stock, getting the fulfillment rates up, the State Farm program, all that leads to higher volumes. And the OEs, they have kept – generally kept their prices steady. They certainly haven’t dropped prices. And we don’t think that they will. They have never shown a propensity to lower prices, if you will. I mean there was a period of time where they didn’t increase prices for quite a bit. And then they started like everyone else, with inflation and everything else, we are taking some prices up. And so we did – we follow their tracks. So, our expectation is that they are going to keep pricing pretty moderate here going forward, and we will just continue to sell it at a discount to the OE list as we have done forever. People shouldn’t anticipate any significant movement on behalf of the OEs or that having an impact on our pricing.

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

Well, I would certainly like to thank everyone for your time and your attention this morning. Again, we are very proud of the Q2 results that we were able to report earlier today, and we are looking forward, obviously, to the back half of the year. We certainly look forward to chatting with you again in late October when we announce our third quarter results. And until then, I hope you all have a wonderful time into your summer. Thank you everyone.

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