Hello, and welcome to today's LKQ Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Jordan and I will be coordinating your call today. I’m now going to hand over to Joe Boutross, Vice President of Investor Relations, LKQ Corporation. Joe, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to LKQ's fourth quarter and full year 2023 earnings conference call. With us today are Nick Zarcone, LKQ's President and Chief Executive Officer; Rick Galloway, Senior Vice President and Chief Financial Officer; and Justin Jude, Executive Vice President and Chief Operating Officer. Please refer to the LKQ website at lkqcorp.com for our earnings release issued this morning as well as the accompanying slide presentation for this call. Now, let me quickly cover the Safe Harbor. 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-K 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. As many of you know, in late November, we announced my intention to retire as CEO effective June 30, 2024, and that the Board unanimously selected Justin as my successor following an intensive planning process that had been initiated well over a year ago. In the interim, Justin is serving as our Global Chief Operating Officer and I look forward to working with him and our segment teams to ensure the continuation of our operational excellence program that we started late in 2018. Nowhere has this program been more evident than in our Wholesale North America segment, which under Justin's direction has significantly expanded margins, improved cash flow, all while enhancing our leading market position. Time and again, Justin has proven himself as both a strong operating executive and an effective leader who definitively embodies LKQ's values. It is a pleasure having Justin on the call today in his well-deserved new role. I'm going to start by providing some high-level comments related to our performance in the quarter and the full year 2023, followed by Rick who will dive into the financial details and discuss our 2024 guidance. And then, Justin, will provide some initial thoughts and commentary on our businesses, the path forward, and an update on our Uni-Select integration. Let me start with what LKQ accomplished in the last year, a year where operational excellence remained at the forefront of our efforts as we look to drive organic revenue growth, productivity, and excellent free cash flow. I am proud to say that the LKQ team delivered. Here are some of the 2023 accomplishments worth noting. LKQ delivered strong full year organic revenue growth for parts and services of 4.7% on a reported basis and 5.1% on a per day basis. In February, we announced the highly synergistic Uni-Select acquisition and closed the transaction on August 1. We used our free cash flow to begin paying down debt as we strive to reduce our total leverage ratio to 2.0x. We're well on our way with net debt pay downs of over $375 million since the transaction closing, and the total leverage ratio at year-end was just 2.3x. We returned about $300 million of cash to our shareholders through dividends and increased a quarterly amount by 9% in October. We also continued our share repurchase program with a $38 million outlay during the year of which $30 million was completed in fourth quarter. And finally, we sustained a positive momentum in terms of cash flow generation, with free cash flow of approximately $1 billion in 2023. This represents the fourth consecutive year at or above $1 billion, and the 2023 results reflect a solid conversion ratio of 59% of adjusted EBITDA. Now on to the quarterly results. Revenue for the fourth quarter of 2023 was $3.5 billion, an increase of 16.6% as compared to $3 billion for the fourth quarter of 2022. Parts and services organic revenue increased 2.8% on a reported basis and 3.4% on a per day basis. Foreign exchange rates increased revenue by 2.7% and the net impact of acquisitions and divestitures increased revenue by 13.1% year-over-year, for a total parts and services revenue increase of 18.7%. Other revenue fell 16.4%, primarily due to weaker precious metal prices relative to the same period in 2022. Let's turn to some of the quarterly segment highlights. Organic revenue for parts and services for our North America segment increased 5.3% compared to the fourth quarter of 2022. We continue to perform well in North America, especially when you consider that according to CCC, collision and liability-related auto claims were down 7.9% year-over-year. We believe the significant outperformance is due to several factors, including an industry-wide increase in alternative part usage, or APU, which was in part driven by the continued progress of the State Farm rollout, the remaining positive impact of the UAW strikes, and lastly, LKQ continuing to take market share. The upward trend in our aftermarket volumes and the ongoing improvement in our order fill rates continued with fill rates reaching close to 95% in the fourth quarter, the highest level in 2023. As the supply chain recovered and fill rates increased, APU trended in our favor, particularly when looking at vehicles in our sweet spot. While total APU was about 36% in 2023, when looking at vehicles four to six years old, it was approximately 40%, and for vehicles more than seven years old, it was 51.6%. Both results represent meaningful increases over the 2022 levels. The aging car park will increase demand for the types of parts we sell into the collision repair industry. The salvage business had solid organic growth largely driven by volume. Total loss rates increased a bit in 2023 to 20.8%, but as you can see, it had no impact on our organic growth. Importantly, the increase in total loss rates is largely being driven by vehicles 10 years and older, which is a population of vehicles at the very tail end of our sweet spot. For perspective, today, the average model year of a vehicle being repaired in a collision bay is a 2017 model, with the total loss rate for that cohort of vehicles being just 18.4% in 2023. That further supports our thesis that total loss rates will not materially impact our growth. Industry experts believe the total loss rate will edge down a bit in 2024. As we have always stated, fluctuations in total loss rates are largely net neutral events for LKQ. During the quarter, we realized a slight revenue uplift from the UAW strikes, which has now leveled off and no further benefit is expected. Moving to our European segment. Europe organic revenue for parts and services in the quarter increased 3.9% on a reported basis and 5.1% on a per day basis. All the regions produced solid organic growth in the quarter, with a particularly strong performance in the Benelux and Eastern European markets, as well as with our private label and salvage product lines. During the fourth quarter, our operations in Germany were again impacted by employee strikes at our large distribution center in Bavaria, while the ongoing discussions and negotiations between the works council and employers association continued. Throughout this process, our European team has worked diligently to mitigate the day-to-day impact of the strikes, and their efforts have begun to offset some of the challenges that have impacted our German operations. Although the strikes continue, we have been able to temporarily add some short-term capacity to operate our business and service our customers. Additionally, to foster a resolution, we recently initiated an incremental and unique approach and proposed terms of an LKQ-only offer to the works council. We have also communicated those terms to our employees and are cautiously optimistic that we are making positive progress towards a resolution. Rick will provide you with the financial impact shortly. Now, let's move on to our Specialty segment. During the fourth quarter, Specialty reported a decrease in organic revenue of 7%, which was under our expectations. Specialty again confronted headwinds specific to RV and towing products. Within the RV space, RV wholesale shipments of new units from the OEs to the dealers ended 2023 on a positive note with an increase of 8.1% in December. This was the second consecutive month of year-over-year growth. Full year shipments, however, were down 36.5%. The general sense in the industry is that the RV headwinds have bottomed out, but we are not yet out of the woods as the dealers are still reluctant to fully restock accessories until they see the demand for new units increase. Truck accessories were also under some pressure in the quarter due to the drop in new vehicle production specific to the pickup and jeep categories, while marine and off-road product lines generated positive growth. Now to our Self-Service segment. Organic revenue for parts and services for our Self-Service segment decreased 5.6% in the fourth quarter. Self-Service was again challenged by soft commodity pricing as seen in the other revenue decline, which impacted our expectations. The soft precious metal prices have continued into 2024 and in the short term, we expect little relief from commodities as we have modeled accordingly. Briefly on the Red Sea crisis, as far as we can predict, there will be minimal impact on parts availability in our key segments. In Europe, our procurement team is seeing some disruption with the shipping lines having to divert their vessels via the Cape of Good Hope around South Africa, increasing lead times and freight costs. The freight cost is expected to soften once the Chinese New Year four weeks from mid-January ends. As one would expect, if the crisis persists, then we will potentially witness an increase in freight cost. Our supply chain team is taking precautionary measures by adding additional orders to address the extra lead times, especially with our private label product. Lastly, on October 25 of 2023, as I mentioned on the last earnings call, we completed the divestment of GSF Car Parts formerly owned by Uni-Select. Since the GSF Car Parts business was held separately and never integrated into our business, we classified the business as discontinued operations upon acquisition. Before I turn over to Rick, who will run through the details of the segment results and discuss our outlook for 2024, I am pleased to announce that on February 20, 2024, our Board of Directors approved a quarterly cash dividend of $0.30 per share of common stock that will be payable on March 28, 2024, to shareholders of record at the close of business on March 14, 2024.

Thank you, Nick, and welcome to everyone joining us today. Before I address the fourth quarter, I would like to reflect on what LKQ accomplished throughout 2023. We were optimistic about our prospects going into 2023 despite macroeconomic challenges, inflation, and declining commodity prices. With our operational excellence focus and strong balance sheet, we concentrated on the things we could control and in those areas we were very pleased with our performance. We encountered headwinds that set back the overall profitability, but we believe many of these are transitory and will be minimal in 2024. The non-discretionary nature of the majority of our business and the resiliency of our industry allows us to perform well in almost any market environment. Referring to the walk on Slide 4, I want to highlight the key year-over-year variances in our full year results. We reported diluted earnings per share of $3.51 and adjusted diluted earnings per share of $3.83, the latter of which was a $0.02 decrease relative to 2022. Our operational performance was a strong positive, delivering a $0.27 year-over-year improvement with exceptional growth in North America partially offset by softness in precious metal prices and difficult market conditions impacting our Specialty and Self-Service segments. Europe also contributed to the improvement with solid revenue growth and productivity benefits helping to offset the effects of the German strikes and the value-added tax matter in Italy. We benefited by $0.10 due to the lower share count resulting from our share repurchases in 2022. We experienced year-over-year headwinds from market conditions, the most notable of which were $0.19 from the impact of metal prices as shown on Slide 28, and $0.13 in higher interest expense resulting from rate increases excluding Uni-Select costs. Acquisition and divestiture activities had a negative effect including $0.04 of dilution from the Uni-Select acquisition, important to note, this result was $0.01 better than we anticipated in our Q4 guidance, and $0.02 of reduced earnings related to the PGW divestiture in April 2022. Foreign exchange rates were favorable on average in 2023, which contributed to a $0.02 benefit. The tax provision represented a $0.06 benefit driven mostly by favorable impacts from discrete items. We have also included a fourth quarter EPS walk on Slide 5. The main variances are similar to the full year drivers but with income taxes representing the largest variance from 2022. The 2023 provision included favorable discrete items and a slight full year effective rate reduction, while 2022 reflected a negative provision effect from increasing our full year effective rate and unfavorable discrete items. To expand on the operating performance for the quarter, I will provide additional detail on the segment results. Going to Slide 12, Wholesale North America continued its strong performance with a segment EBITDA margin of 16.3%. Q4 was the first full quarter with Uni-Select and as communicated, the transaction was dilutive to the segment margin by 220 basis points. Without Uni-Select, North American margins would have been comparable to Q4 2022 and would have delivered a record full year EBITDA margin of 19.7%. Q4 2023 benefited from some incremental sales in October and November attributed to effects of the UAW strike, and we don't expect further upside in 2024. The Uni-Select integration is progressing ahead of schedule and with FinishMaster and LKQ locations merging; it's becoming increasingly difficult to determine a standalone Uni-Select impact. Therefore, we will not provide specific Uni-Select impacts on the North American results going forward, but will instead report just on synergy achievement. We expect the 2024 North American full year EBITDA margin, including Uni-Select, to be around 17%. As shown on Slide 13, Europe reported segment EBITDA margin of 8.3%, down 170 basis points from the prior year period. There were several unusual items that had a negative effect of 110 basis points on the results. First, the strikes at our primary distribution center in Germany continued in Q4 and we estimated the lost revenue and negative effect on the segment EBITDA margin of 50 basis points. Second, we booked a non-recurring compensation charge for $6 million, which impacted the margin by 40 basis points. Finally, we recorded a reserve for a value-added tax matter which lowered the margin by 20 basis points. The remaining margin variance is attributable to inflationary cost effects in SG&A expenses, primarily in personnel costs. Looking ahead to 2024, we project a return to a double-digit margin as we work past the strikes and the transitory effects that dropped the segment below a 10% margin in 2023. Moving to Slide 14, Specialty's EBITDA margin of 5.7% decreased 50 basis points compared to the prior year. Gross margin, which was down 290 basis points year-over-year, is under pressure from increased price competition as inventory availability continues to improve for our competitors, in addition to unfavorable product mix, as the lower margin lines such as auto and marine have been less affected by revenue reductions than the RV market. I'm pleased to report our SG&A expenses were favorable by 210 basis points, mostly related to personnel and primarily coming from management restructuring efforts in the last 12 months to align the cost structure with revenue trends and lower benefits and insurance costs. 2023 was a tough year for Specialty, but by focusing on controllable costs, the team was able to mitigate some of the negative leverage effect on margin caused by the revenue decline. Going into 2024, the segment still faces challenging conditions and we expect low-single-digit organic revenue growth. However, we are optimistic about our ability to improve EBITDA margins by 10 basis points to 30 basis points through productivity. As you can see on Slide 15, Self-Service profitability improved sequentially to EBITDA margins of 6.0% this quarter from a loss of 0.6% in the third quarter, an increase relative to the 5.2% reported in Q4 2022. Metals prices had a net negative effect on results of $6 million, with lower precious metal prices representing a $13 million reduction in EBITDA, and lag effects from sequential scrapped steel price changes driving a $7 million improvement. Other revenue decreased by 25% in total, contributing to a reduction in operating leverage of 620 basis points. As part of the actions taken earlier, in 2023, our average car cost decreased by 6% and 18% in Q4 relative to Q3 and Q2, respectively, which provided some margin relief and contributed to the year-over-year improvement. We are pleased with the return to profitability in the fourth quarter and expect to improve our 2024 segment EBITDA in dollar terms compared to 2023. Shifting to cash flows and the balance sheet. We produced $87 million in free cash flow during the quarter, bringing the year-to-date total to $1.0 billion. As expected, free cash flow was relatively light in the quarter as we had $96 million of interest payments, including the first payment on the U.S. bond issued in May and $125 million of capital expenditures. At $358 million of CapEx for the year, we exceeded our prior guidance by $58 million as we took advantage of our strong cash flow and liquidity position to make strategic purchases, some of which were pulled forward from our 2024 plan. For the year, the cash conversion ratio is 59% conversion of EBITDA to free cash flow, in line with our targeted range of 55% to 60%. With the future headwinds related to interest expense and capital spending requirements, we are widening our cash conversion target range to 50% to 60%. While we have opportunities to drive trade working capital lower, such as with the supply chain finance program, these opportunities are not as abundant as they were years ago when we began our operational excellence journey. The team has done terrific work to lower working capital levels over the last five years, and the effects we're seeing in the strong free cash flow figures. We believe we can continue to generate free cash flow in the range of $1 billion on a recurring basis by converting earnings growth into cash flow, being efficient in our deployment of trade working capital, and expanding our supply chain finance program. As of December 31, we had total debt of $4.3 billion with a total leverage ratio of 2.3x EBITDA. We paid down over $375 million in debt between the acquisition of Uni-Select at the beginning of August and year-end, a portion of which came from the sale proceeds related to the GSF business we divested in October. We remain committed to reducing our total leverage ratio to 2.0x within 18 months of the Uni-Select acquisition, or more specifically during Q1 2025. Our current maturities include the €500 million senior notes due on April 1. We are working on refinancing options and expect to have a refinancing in place in the near term. Our effective borrowing rate was 5.8% for the quarter as market rates remained relatively high in the U.S. and Europe. We have $1.2 billion in unhedged variable rate debt, so a 100 basis point rise in interest rates would increase annual interest expense by $12 million. I will conclude with our thoughts on projected 2024 results as shown on Slides 6 and 7. Our guidance is based on current market condition, recent trends, and assumes scrap and precious metal prices hold near December prices. On foreign exchange, our guidance includes recent European rates with balance of the year rates for the euro of €1.09, the pound sterling at £1.27, and the Canadian dollar at CAD0.74. We expect organic parts and services revenue growth between 3.5% and 5.5%. Please note that we have one to two more selling days in 2024 depending on the market with the increase coming in the second half of the year. Europe will be down a selling day in Q1 due to the timing of Easter. Our 2024 estimate includes growth associated with the expansion of aftermarket parts volume resulting from State Farm and the impact of Uni-Select, which will be included in organic parts and services revenue beginning on August 1. We are projecting full year adjusted diluted EPS in the range of $3.90 to $4.20 with a midpoint of $4.05. This is an increase of $0.22 or 6% at the midpoint relative to the 2023 actual figure. Looking at Slide 6 in the presentation, you can see how we get from the 2023 actual EPS to our 2024 guidance. Operating performance is expected to generate growth of $0.22 relative to the 2023 results, with growth coming from all four segments. We expect Europe and North America, including the Uni-Select contribution, to generate more year-over-year growth than Specialty and Self-Service. The transitory items in Europe noted in the last few quarters are expected to be a lesser impact in 2024 and thus will add $0.09 compared to 2023. The exchange rate benefit is nominal. Commodity prices are expected to be a headwind of $0.09 as the current precious metal prices used in the guidance are below the 2023 average. Excluding the impact of Uni-Select, interest expense is projected to be a nominal impact with a higher average rate mitigated by debt paydowns. Consistent with past practices, we have not anticipated future share repurchases beyond the call date of our guidance. We have included an effective tax rate of 26.8% in our 2024 guidance in line with the final 2023 rate. We expect to deliver approximately $1 billion of free cash flow for the year, achieving an EBITDA conversion to free cash flow in the low 50% range. There are various puts and takes in this estimate, including higher cash payments for interest and building inventory offset by improved earnings and increased payables. Capital spending is expected to be at the high end of our target range again at $350 million, which includes key investments in salvage capacity and Specialty distribution to support productivity and margin enhancement initiatives. We feel good about the projected full year cash flow estimate and the conversion ratio generating $1 billion in free cash flow provides flexibility to continue a balanced capital allocation strategy, including debt paydowns, our quarterly dividend, share repurchases, and investments in high synergy tuck-in acquisitions. In terms of quarterly phasing, we expect the earnings growth to be weighted more heavily to the back half of the year. Q1 has been affected by extreme weather conditions in certain markets and very low catalytic converter prices, which in recent weeks were running near 50% of the price in the same period of 2023. Q1 will also be affected by the timing of Easter, resulting in a lost selling day in Europe. The balance of the year will benefit from the additional selling days mentioned previously and a ramp-up of Uni-Select synergies as the year progresses. Thanks for your time today. With that, I'll turn the call to Justin to discuss his vision and priorities for LKQ going forward.

Thank you, Rick, and good morning to everyone on the call. First, I am honored to be chosen to succeed Nick later this year as the next Chief Executive Officer of LKQ and I'm humbled to be able to lead our talented team into the future. I'd like to thank Nick for his mentorship and leadership. Our Board trusted me to lead LKQ through this next chapter, and most importantly, I'd like to thank my wife and kids for their love, patience and support because without them I wouldn't be where I am today. As I prepare to step into the CEO role in July, I am filled with enthusiasm and a deep sense of responsibility. My vision for LKQ is rooted in three fundamental principles: people, growth and operational excellence. People are the heart of LKQ. My first and foremost commitment is to each of my fellow team members across our global organization who are the backbone and essence of LKQ. LKQ's employee-focused culture, centered around communication, accountability, integrity and respect is not just a goal, it's a necessity for our collective success. Growing our business, delivering excellent service and products to our customers is a part of who we are. We will drive revenue organically by growing share of wallet with our customers and being opportunistic on tuck-in acquisitions. And lastly, operational excellence. We will continue to hone our culture of lean management throughout our operations. This will not only improve our financial metrics, but will also provide a consistent and repeatable operating rhythm where our customers will see continual improvements in our service levels. Alongside these principles, we will focus on four key priorities. First, integrate our businesses and simplify our operating model. Second, focus on profitable revenue growth and sustainable margin expansion. Third, drive high levels of free cash flow, which in turn will give us the flexibility to maintain a balanced capital allocation strategy and return capital back to our shareholders. And finally, invest in our future. In the short term, the North American Wholesale team is focused on the integration of our Uni-Select acquisition and taking full advantage of the tremendous synergies that exist within our global footprint. I'm extremely proud of how the team is performing with the integration. As of today, we have integrated a total of 75 of the 151 FinishMaster locations, representing over 52% of the consolidated revenue. Corporate synergies are largely complete and on pace to slightly exceed our expectations. The overall synergy plan is on track to deliver above our previously stated targets well ahead of schedule. The buffer to buffer business in Canada completed two tuck-in acquisitions in October of 2023, representing a total of 14 locations as we convert some of that market from three step to two step. Buffer to buffer is working closely with our North American and European procurement teams to maximize additional revenue and cost synergies. In January, buffer to buffer placed their first purchase order with our Europe's private label team and we are confident these synergistic orders will increase over time, enhancing our offering and our competitiveness. Importantly, I want to again emphasize that Uni-Select was a unique opportunity that will enable us to widen the moat around our North American business and capitalize on revenue synergies, both in the paint and the hard part side that weren't there prior to this acquisition. Our North American teams are the best operators, motivators and integrators in the industry, and the results since starting our operational excellence journey in 2019 speaks for itself. I am confident of their ability to generate positive, operational, and financial returns with our Uni-Select business integration. Long term in North America, we will continue to invest both in the recycled and remanufactured EV battery process as we are a natural fit to become the market leader in this growing space. Turning to Europe, over the last 45 days, I've spent time with our European leadership team diving into multiple aspects of their business. Andy Hamilton, our new CEO of Europe, and I agree that there are many levers to pull in Europe. Our primary objective is to accelerate the integration of One LKQ Europe to fully leverage the network of our inventory, which today is still largely country-specific. By linking the geographical and regional distribution network across our European footprint, we will drive higher levels of productivity, leading to improved fulfillment rates, enhanced customer service, and improved trade working capital. Achieving this objective will allow us to profitably grow and increase our market leading position. Additionally, in Europe, there is an opportunity to grow our offerings in such areas as private label, collision components, diagnostic and calibration, recycling, remanufacturing, and EV aftermarket parts. We also have the ability to expand our LKQ Academy, a program that we offer to independent garages to enhance their EV knowledge base and capabilities, allowing these shops to see the changing technology as an opportunity. Lastly, I believe we have an opportunity to rationalize certain areas of our business through facility consolidation and fleet and logistics network optimization, which will allow us to create efficiencies across geographies and product groups. As we work through our ongoing integration efforts, we will continue to assess our mix of businesses and take decisive action to determine if we are the right owners of certain assets prior to integrating. In closing, I am extremely excited about driving our mission forward and expanding a lean operating model across our entire organization with a primary objective to move swiftly. LKQ has an extraordinary history and importantly, an extremely bright future. Now, let me turn it back over to Nick for his closing comments.

Thank you, Justin, for your thoughtful perspective and comments, and Rick for that detailed financial overview. Our organization has once again proven to be incredibly resilient in any operating environment. Our global teams have worked with agility and urgency to continuously achieve positive results with our operational excellence strategy in establishing One LKQ, a unified and globally focused team. This success is a direct result of a shared mission amongst our over 49,000 employees, which is simply being the leading global value-added and sustainable distributor of vehicle parts and accessories by offering our customers the most comprehensive, available, and cost-effective selection of parts and service solutions while building strong partnerships with our employees and the communities in which we operate. I'm confident LKQ will live that mission in 2024 and excel through this leadership transition. LKQ's future is very bright with Justin at the helm. And with that operator, we are now ready to open the call to questions.

Thank you. Our first question comes from Daniel Imbro of Stephens. Daniel, you have the floor.

Yes. Hey, good morning, everybody. Congrats on the quarter.

Hey, good morning.

Good morning, Daniel.

Justin, I want to start on the North American side. Rick, Justin, I understand you're not providing specific growth guidance by segment, but it seems to be performing well this year. Would it be reasonable to consider the 3.5% to 5.5% range for organic growth in North America? Additionally, could you share your expectations regarding pricing and traffic growth as we move into the New Year in North America?

Yes, sure. Thanks, Daniel. Thanks for the question. The way to think about it, I talked a little bit about it in the prepared remarks, Specialty is going to be in the low-single-digits, so that's going to be on the downside of it, whereas North America and Europe will actually be on a little bit of a higher side. When you think about both of them, it's going to be primarily driven by volumes as far as where that's going to come out for our North American operations. And then I did talk a little bit about the EBITDA percentage with Uni-Select included 17% is the number that we're guiding towards for our North American operations.

Great. And then, as a follow-up, want to touch on the balance sheet. Obviously free cash generation remains strong. I want to focus on vendor financing over in Europe. There's still room to drive that higher. Can you provide any quantification on maybe the progress you've made, Rick, over the last few years? And then, in terms of uses of cash, good to see the buyback restart here in 4Q, are you comfortable with that being a more readable part of capital allocation moving forward?

Yes, I appreciate the question. You are correct about the vendor and supplier financing programs; we are very pleased with what we have seen. We ended the year with $411 million in the vendor financing program, which includes $71 million related to our acquisition of Uni-Select. This is compared to $244 million at the end of 2022. There will naturally be some fluctuations, but we finished slightly above our expectations, indicating strong usage. We anticipate seeing a bit more activity in this area, especially for our European and Uni-Select operations, aiming to increase free cash flow. However, I want to clarify that we do not expect to maintain those same high levels or a 20% increase as we move into 2024, so I advise caution regarding those projections. Regarding share repurchases, we are satisfied with our free cash flow performance, having reached the billion-dollar mark we discussed, which includes the $30 million in shares we repurchased in Q4. We were also active in Q1 and plan to make this a regular part of our strategy. We are committed to reducing our leverage ratios to 2x within the first 18 months, aiming for early 2025. This means there will be a significant focus on debt payments throughout the year, but we will remain active in seizing opportunities as they arise.

Our next question comes from Michael Hoffman of Stifel. Michael, please go ahead.

Good morning. And Nick, I know you got one more earnings call, but you do get to leave the business better than you found it, so well done.

Thank you, Michael.

So my question is back to the free cash. I think you're getting a lot of these today, probably, and there's two parts of it. When do we get back to a compounded growth rate in the cash? And then the European question, part of that is, what's the remaining gap between payables and inventory in Europe that is an opportunity to capture that would drive some of that compounding.

Thank you, Michael. Regarding free cash flow, if you look at the past couple of years, we made significant strides in managing our trade working capital. Additionally, we saw some benefits from lower capital expenditures in previous years, not in 2023, but prior to that due to supply chain issues which affected the availability of materials. For example, in 2020, our capital expenditures were around $172 million, compared to $358 million this year. So, we have had a considerable catch-up in that area. I would say we are now at a normalized level, and as we continue to improve EBITDA and overall earnings, we should expect to see free cash flow growth. Regarding opportunities in Europe, we believe there is still potential for improvement. While we saw a little over 20% growth in our vendor financing program in 2023, I wouldn’t expect that rate to continue into 2024, but it will remain positive and will still generate cash from our trade working capital moving forward.

Okay. And then my second question, Justin alluded to the possibility of portfolio optimization and I'll get very specific. I get that self-serve was the start of the company, but at this point, do you need to own the self-serve business to be the LKQ you are today going forward?

So first off, I would say our self-serve team manages very well through some challenging conditions in 2023. But I'll give you an answer on my overall thoughts on portfolio management, which really hasn't changed from the company standpoint, from Nick's standpoint. Our job is always to look at whether we're the right owners of the businesses, whether it's product lines, whether it's businesses that operate in different geographies. And if they fit in our long-term operating model, if they hit our financial metrics, it's something we'll look at keeping and optimizing, and if not, we'll optimize it and look to sell it. But I would say that's just my general idea on portfolio management. Historically, self-serve has been a decent business for us too.

Our next question comes from Craig Kennison of Baird. Craig, the line is yours.

Hey, good morning, and congratulations to you both, Nick and Justin. I have a question.

Thanks, Craig.

Justin, could you elaborate on Europe and the strategies you and Andy might implement, particularly concerning private label? Are there any additional strategies you can employ to enhance margin expansion?

Yes, sure. Thanks for the question, guy. I have spent several weeks over in Europe meeting the teams over there, the leaders of our different businesses. I'm very optimistic about our future, spent quite a bit of time with Andy Hamilton, our new CEO. Andy did run our ECP operations in the UK, which was our highest profitable and one of our highest businesses that drive private label. Some of the things that he and I have talked about that he's laser-focused on is category management. And that includes driving more private label, which will bring us better margins, really leveraging our inventory and logistics without borders. Today, we're very optimized within the countries for which we operate, but we're still independent within those countries. So we're going to continue to accelerate the One LKQ Europe to leverage that inventory, freeing up free capital. In addition, it'll give us better fulfillment rates, which will drive organic revenue and also looking at labor productivity. And so these are things that Andy's been once again laser-focused on with his team, and him and I are aligned on that pretty well. So very optimistic about the opportunities in Europe.

As a follow-up, is there a way to frame your fulfillment rates in Europe and contrast them with what you can achieve in the U.S. or North America?

It's a lot of different product lines today, we're heavily collision focused in the U.S. and North America versus hard parts over there. We're grabbing some of, I would say, the best practices to track fulfillment rates. We have a lot of orders in our European operations that are not necessarily on the phone like they are in the U.S., so a lot of online, a lot of e-commerce with businesses. But one of the things when we look at category management and we rationalize some of the different excess product lines that we may carry, still carrying an application for what the customer is looking for, but maybe not so many different brands, that will actually allow us to drive our fulfillment rate set.

Our next question comes from Bret Jordan of Jefferies. Bret, please go ahead.

You mentioned bumper to bumper making some purchases from European vendors. Could you explain the level of supply chain synergy involved? How much bumper to bumper product could we source from our current vendors?

Yes. I’ll start and then Justin can add in. We’ve identified some procurement synergies within the $55 million, which is less than a $10 million figure in terms of overall opportunities that we have been discussing with our European operations. While the impact on the P&L has been small so far, it is progressing well. Justin, do you have anything to add?

Yes. To your point, we have started leveraging our European supply chain, bringing in some private label that we already operated on or already carried at bumper to bumper in Canada. Our next phase is looking at new product lines that today bumper to bumper does not carry. So it's not only a cost of goods to get there, but also a revenue generation and margin improvement with new brands and new product lines offering within the private label, so.

Yes. You recall that when we announced the transaction back in February 2023, one of the opportunities we saw actually related to European makes and models, because today, up in Canada, that cohort of cars represents 10% of the car park. But bumper to bumper historically has distributed almost zero product for European makes, models. And we know somebody who knows a lot about the European marketplace, and that's where the focus will be to bring in product lines to service that 10% of the market up in Canada.

Okay. And then you talked about EV battery recycling, and I guess, what does that mean? Are you talking about extracting them or actually processing, like, a redwood materials? Is that North America or Europe? And is that a capital investment to get into that business?

Our main focus right now is on remanufacturing batteries. This involves taking a battery that isn't functioning properly, removing the defective cells, installing new ones, and getting the battery back in use, which effectively extends the life of the powertrain. As we mentioned last year, we are in discussions with third parties about recycling, not by operating our own facilities, but by collaborating as a partner since access to batteries is limited. Many large companies attempting recycling don’t have a connection to the supply chain, and our salvage operations make us an ideal partner. We are carefully considering key partnerships that could advance our efforts in recycling but we do not plan to own or operate large recycling facilities.

With that, we have no further questions on the line. So I'll hand back to Nick for any closing remarks.

Thank you for your time and for a productive call with great questions. I want to highlight a couple of important dates to remember. Our first quarter call is scheduled for Tuesday, April 23. Typically, we hold our calls on Thursdays, but this April, it coincides with our Annual Leadership Conference, which starts on Thursday, April 25. So mark your calendars for our Q1 report on April 23. Also, please note our 2024 Investor Day is on September 10 at our North American headquarters in Nashville, Tennessee. Thank you all for being on the call today, and a special thank you to the dedicated team at LKQ who contribute every day. Take care.

Ladies and gentlemen, thank you for joining today's call. You may now disconnect your lines.