Good morning, everyone. My name is Angela, and welcome to the LKQ Cooperation First Quarter 2024 Earnings Conference Call. I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand you over to your host, Joe Boutros, Vice President of Investor Relations for LKQ. Joe, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to LKQ's first quarter 2024 earnings conference call. With us today are Nick Zarconi, 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're planning to file our 10-Q in the coming days. And with that, I am happy to turn the call over to our CEO, Nick Sarkoni.

Thank you, Joe, and good morning to everybody listening to our earnings call for the first quarter of 2024. I will provide a few introductory remarks. Justin will then provide some highlights to our Q1 segment activities. Rick will provide a review of the financial details of the quarter and our guidance for the year before I have a few closing remarks. I'm turning 66 in a few days, and as reported in late November, I will be retiring as CEO of LKQ on June 30th. With that, this will be my 38th and final quarterly earnings call with all of you. It has been an absolute honor and privilege to serve LKQ and to interface with the investment community since joining the company in early 2015. I am incredibly proud of the organization, my team, and all we've achieved over the years. We are a very different company today than the one I joined almost 10 years ago, one that is focused on operational excellence, balanced capital allocation, improved returns on capital, and the development of our most important asset, our people. The first quarter of 2024 proved to be a difficult environment for our business, and our results came in below expectations. While we did a reasonable job of managing the items under our control, we experienced soft overall market conditions largely due to incredibly mild winter weather in North America, which reduced demand for collision parts and the continued soft demand for our specialty products. These market factors created pressure on revenue and overall operating leverage. We have already made adjustments to our cost structure in light of the current levels of demand. Related to Europe and our business in Germany, there has been no material progress with our union negotiations in Germany. To help insulate our customers in that market, we have increased our temporary workforce to largely mitigate the revenue impact with the risk of ongoing strikes. And we've opened a second, albeit a much smaller distribution facility, in Bielefeld, Germany, which is outside of Bavaria and not impacted by the union activity. Overall, we remain optimistic about the remainder of the year. Now on to the quarterly results. Revenue for the first quarter of 2024 was $3.7 billion, an increase of 10.6% compared to the $3.3 billion for the first quarter of 2023. For the first quarter of this year, parts and services organic revenue decreased three-tenths of 1% on a reported basis, but increased one-half of 1% on a per-day basis. Foreign exchange rates increased revenue by 0.8% to 1%, and the net impact of acquisitions and divestitures increased revenue by 11.6% year-over-year, for a total parts and services revenue increase of 12.1%. Other revenue for the first quarter of 2024 fell 14.6%, primarily due to weaker precious metal prices relative to the same period in 2023. Diluted earnings per share for the first quarter of 2024 was $0.59 compared to $1.01 for the same period of 2023. Adjusted diluted earnings per share was $0.82 for the first quarter of 2024 compared to $1.04 for the same period of 2023. Lastly, on April 22nd, the Board of Directors declared a quarterly cash dividend of 30 cents a share of common stock, payable on May 30th, 2024, to stockholders of record at the close of business on May 16th of 2024. And now let me turn the call over to Justin.

Thank you, Nick, and welcome everyone to the call. As Nick mentioned, we are not pleased with the results delivered in the first quarter. However, I do think the team is focused and on the right track to confront some of the anomalies we faced, and I'll detail some of those action plans on this call. During our February call, Rick discussed our guidance for the year and indicated that we expected a softness in Q1, and our four-year guidance was back and loaded. Rick's comment was correct, as we did experience a soft Q1, but it was beyond what we, in the overall markets in which we operate, anticipated. That said, we are a continuous improvement company, and we know how to drive improved operational and financial performance across our entire global footprint. While we got off to a slower-than-expected start for the year, our team has three more quarters to recover the shortfall, and we are confident we have actions in place to achieve the previously communicated EPS guidance. Rick will cover more of these in his prepared remarks. Now for a few high-level segment comments. In wholesale North America, organic revenue decreased 3.3% due to a few key factors. First, we were coming off a strong comp of 14.4% growth in Q1 of last year. Second, there was an 8% decline in repairable claims. While this decline was largely driven by the extremely mild winter weather that Nick had mentioned, as the U.S. experienced the fifth warmest quarter on record, there were several other dynamics, such as abnormal changes in auto insurance rates and used car pricing that we believe also had a negative impact. Finally, we experienced some challenges with aftermarket inventory entering the East Coast ports due to the ongoing Panama Canal disruption. We have yet to witness any disruption from the Baltimore tragedy, but we are closely monitoring the situation. Offsetting some of the aftermarket inventory delays, the salvage business posted positive growth in a quarter. As the North American team faced the soft demand, John Miney and his team immediately shifted their focus to accelerating the integration of Finish Master. This swift action resulted in the consolidation of 65 branches in Q1, bringing the total to 99, which represents two-thirds of the acquired locations. We initially communicated the rationalization of the Finish Master locations would take us three years to reach this synergy level, and I'm impressed the team was able to accomplish this within the first eight months following the acquisition closing. Today, 100% of finished master sales and operations have been fully integrated. And through this process, the team uncovered additional synergies, allowing us to increase the previously disclosed estimate amount from $55 million to $65 million. This effort caused some short-term strain on the team, slightly impacting margins, but it was the right thing to do long-term. And we continue to make strides with our buffer-to-buffer business in Canada by leveraging the European procurement size and scale. I want to again emphasize that Uniselect was a unique opportunity that will enable us to widen the mode around our North American business and capitalize on revenue synergies that exist with paint and hard parts. I am confident and committed to this transaction, generating positive financial metrics for all stakeholders. In Europe, organic revenue increased 2.7% on a reported basis and 4.4% on a per-day basis, the best across our operating segments. Rick will cover the EBITDA results in his remarks, but let me cover several actions taking place to drive improved performance. I have made four different trips to our European operations in the first quarter to meet with the broader leadership team and look for improvement opportunities. I am pleased to see how focused the team is to drive integration and improve performance, all with a goal of enhancing our margins. Andy Hamilton and his team have deployed new detailed tracking tools that are actively being reviewed. These tools include pricing actions, productivity initiatives, a restructuring plan focused on taking costs out of the business, portfolio divestments, and implementing a new technology within our distribution centers to lower the total cost of delivery to our customers. In Germany, we expanded our distribution capacity by opening a second highly automated regional distribution center, which will reduce the strain on our primary distribution center in Bavaria where the strikes have been occurring. Specific to divestitures, and after careful and thorough analysis of our European business model, market trends, and the overall economic environment, we made the strategic decision to divest our operations in Slovenia to a long-term value partner of LKQ. That sale closed last week. Additionally, we entered into an agreement to divest our operations in Bosnia, and we expect to complete that sale in Q3, subject to the receipt of regulatory approval. We will continue to assess our business and our European market mix to determine if we are the best operator and whether we should fix or exit certain underperforming markets. Given the small size of these divestitures, we are not disclosing the terms of these two transactions. One of the biggest projects we plan to update on a quarterly basis is our European SKU Rationalization Program. Today, little product commonality exists across the entire European platform, which prevents us from maximizing the leverage of our pan-European footprint. This project will reduce the total number of SKUs, reduce our complexity, simplify the offerings to our customers, and drive several benefits, which include improved fulfillment rates, improved gross margins, reduced inventory levels, and a decrease of our costs to serve our customers. When Andy kicked this project off in early Q1, we had over 900,000 SKUs across our European operations with less than a 7% overlap. Based on the first phase of this project, we believe we can achieve a 35% reduction in overall SKUs over the next two to three years. We look forward to Andy providing a deeper dive into this program on our September 10th Investor Day this year. Now turning to specialty. Their organic revenue decreased 1.4% in the quarter, tracking closely to plan and showing improvements month-to-month within the quarter. Certain product categories witnessed positive year-over-year growth. Automotive products, which includes truck and off-road parts and accessories, increased 2.5% despite pickup, truck, and Jeep sales being down 5.6% and 11.4% respectively. Also, marine posted growth in the quarter. RV-related products decreased 8.5%, the smallest revenue decrease when compared to the 2023 quarterly growth rates. Our specialty team has focused their efforts on targeting margin actions relating to price and cost controls, some of which we saw in the quarter with year-over-year improvements in SG&A. Turning to self-serve, they had an organic revenue decrease of 10.5% in the quarter, primarily driven by commodities and inclement weather in key markets, but margin performance exceeded our expectations. On the corporate development front, during the quarter we closed on two tuck-in acquisitions including a heavy-duty truck parts supplier and an aftermarket parts distributor in Belgium. We also made an equity investment in a startup recycler of lithium-ion EV batteries. Now let me turn it over to Rick for a detailed overview of our financials.

Thank you Justin and welcome to everyone joining us today. We released our full-year guidance in February, we expected Q1 earnings to be challenged by the impact of weather conditions in January, very low catalytic converter prices, and year-over-year decrease in selling days due to the timing of Easter. The actual results reflect lower than forecasted revenue, mostly due to a reduction in North America aftermarket product volumes, which were predominantly related to a significant decrease in the number of repairable claims. On a consolidated basis, gross margin fell short of target as pricing did not fully cover input cost increases. Overhead expense actions were taken and others are currently in process, but the benefits will be seen in the balance of the year rather than Q1. Despite the Q1 results, we remain committed to our full year earnings guidance. We have nine months to make up the shortfall and the core strengths of the business are still there. We are digging deep on the operational excellence principles that drove our growth and margin expansion over the last five years and are taking decisive actions. As Justin described, each of the segment teams have detailed action plans in place to deliver the full year numbers. Turning now to the first quarter consolidated results. Adjusted diluted earnings per share of 82 cents were 22 cents lower than the prior year figure. Operating results were the largest individual factor with a 12 cent reduction, mostly related to North America. This figure includes the anticipated Uniselect headwind as the integration efforts were ongoing. We expect the Uniselect impact to flip to accretion going forward in 2024 as the synergies Justin mentioned are realized. Movements in commodity prices, primarily precious metals, contributed a six-cent year-over-year decrease. Other items, including investment performance and taxes, drove a four-cent decrease. Now for segment results. Going to slide nine, North America posted segment EBITDA margin of 16.3%, a 420 basis point decrease relative to last year. During the last call, we projected the full year margin would be around 17% for the full year impact of the Uniselect dilution. The reported margin was below the full year expectation due to leverage impact from the lower revenue in Q1. Relative to the prior year, in addition to the communicated and anticipated Uniselect dilution effect on gross margin, salvage margins were down reflecting unfavorable revenue and vehicle cost trends compared to the prior year period and lower catalog converter prices in Q1 2024. Overhead expenses partially offset the gross margin reduction with lower costs for freight, charitable contributions, and incentive compensation. Q1 2023 also included a non-recurring benefit from an eminent domain settlement that created a year-over-year negative variance. North America is executing action plans to recover the profitability miss in Q1, and we expect the full-year EBITDA margin to be around 17%. Looking at slide 10, Europe reported a segment EBITDA margin of 8.7%, down 100 basis points from last year. Gross margin, excluding restructuring costs, improved by 60 basis points but was offset by higher overhead costs, including personnel costs tied to wage inflation in markets such as Germany, the UK, and the Benelux region. While we have grown gross margin, we have not covered the overhead cost increases, and we have work to do on pricing and productivity to mitigate the cost inflation. We still expect to achieve double-digit margins in Europe for the full year. Moving to slide 11, specialties EBITDA margin of 6.4% declined 150 basis points compared to the prior year, driven by a 170 basis point decrease in gross margin. Competitive pricing pressure remains a challenge for the business, and we are evaluating options and implementing changes to improve our net pricing. We believe the full-year specialty EBITDA margin will be flat to a slight increase as we work through the lingering gross margin pressures. As you can see on slide 12, self-service generated an 11.7% EBITDA margin in Q1 2024, compared to 13.2% last year. In dollar terms, segment EBITDA decreased by $6 million. dollars. The impact from commodities represented a 16 million dollar headwind. However, the efforts to manage vehicle costs helped mitigate a portion of the commodities impact and overhead cost controls produced a year-over-year benefit. We have not seen double-digit segment EBITDA margin in percentage or dollar terms since Q1 2023, so we are pleased to reach this level again this past quarter. We implemented a global restructuring program in the first quarter focused on enhancing profitability. The largest portion of the activity will come from the European segment and, as Justin mentioned, will include exiting certain businesses or markets which do not align to our strategic objectives. Initially, this includes exiting businesses in Slovenia and Bosnia, which are relatively small with under $40 million in combined annual revenue, and evaluations of other markets are ongoing. We recorded $27 million in charges in the quarter, including $17 million in asset impairments and $8 million in inventory write downs. Other charges are expected in future periods for severance, lease termination costs, and other shutdown-related expenses. Shifting to cash flows and the balance sheet. We produced $187 million of free cash flow during the quarter, and we remain on track for a full-year estimate of approximately $1 billion. As of March 31st, we had a total debt of $4.3 billion with a total leverage ratio of 2.3 times EBITDA, and we remain committed to reducing our total leverage ratio below 2.0 times. In March, we successfully completed a $750 million euro bond offering with a seven-year maturity and a fixed 4 and 1 eighth interest rate. The offering was completed to pay off the existing 500 million euro bonds that were scheduled to mature on April 1, 2024. We upsized the offering by 250 million euro in response to very strong demand from fixed income investors reflecting LKQ's strong credit profile and solid cash flows. The additional proceeds were utilized to pay down a portion of our euro revolver debt. The larger offering allows us to lock in capital at an attractive rate for an extended period and diversify our maturity profile. The bonds are publicly tradable and listed on NASDAQ. We do not have significant debt maturity until January 2026. Our effective borrowing rate was 6.0% for the quarter, an increase of 20 basis points relative to Q4 2023. 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 percent over the next one to two years, respectively. In the first quarter, we repurchased roughly 600,000 shares for $30 million and paid a quarterly dividend totaling $81 million, further validating that as we reduce our debt levels, we are migrating to a more balanced capital allocation strategy. I will conclude with our current thoughts on projected 2024 results. Our guidance is based on current market conditions and recent trends and assumes that scrap and precious metal 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 rates in line with the first quarter. The global tax rate remains unchanged at 26.8%. Our full-year guidance metrics on slide 4 remain mostly unchanged from the Q4 earnings call. We expect reported organic parts and service revenue in the range of 2.5% to 4.5%, which is a 100 basis point decrease in the range. The softness in Q1 organic growth drove the decision to lower the full year range. We believe that mild winter weather conditions were a major contributing factor to the revenue softness and will have some carryover effects into Q2, but otherwise will be a temporary headwind relative to repairable claims. However, if repairable claims in North America do not rebound to a more normalized level, we would expect to be closer to the low end of the full-year range. We are closely monitoring monthly claims data, and the team is ready to take decisive cost actions if claims remain depressed. We still expect adjusted diluted EPS in the range of $3.90 to $4.20. With the revenue volatility, there is heightened risk to the profitability estimate. but we are confident in the action plans being implemented in all segments to address controllable factors, such as our cost structure, to keep us inside the previously issued range. The free cash flow expectation of $1 billion and 50% to 60% annual EBITDA conversion remain in place. Improved profitability over the balance of the year and diligent balance sheet management should support achievement of the full year target. Thanks for your time this morning. But before I turn the call back to Nick for his closing comments, On behalf of our LKQ team globally, I'd like to thank Nick for his leadership, vision, and integrity during his tenure as our CEO. Nick, you left a tremendous mark on LKQ and have positioned us well for the next chapter of our evolution. We wish you and the growing Zirconi family all the best.

Thanks, Rick, for those very kind comments. When I took the seat as CEO in 2017, I believed it was my responsibility to be the primary advocate for our greatest asset, our people, and to place them at the center of LKQ's mission. I am incredibly thankful to all my past and current colleagues who served each other in pursuit of being an employee-focused organization. Collectively, we made great progress over the years, which carried forward in the first quarter when we were awarded Mental Health America's Bell Seal for Workplace Mental Health at the gold level. And we were again selected as a five-star employer by WorkBuzz for our U.S., Indian, Mexican, and Canadian businesses. It is with tremendous pride and humility that I depart knowing that the entrepreneurial culture that was established in 1998 when the company was founded lives on today, and that every day our 49,000 global employees never lose sight of the passion needed to serve our customers and our communities. They are committed to not only grow the company, but themselves as individuals. The gratitude I have for my fellow employees is immeasurable, and I cannot thank them enough for creating an incredible journey for me. And with that, Operator, we are now ready to open the call to questions.

Thank you, Kurt. Everyone, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. In order to allow everyone in the queue an opportunity to ask a question, please limit your time to one question and only one follow-up. If you have additional questions, please return to the queue. We'll pause here briefly as the questions are registered. We have the first question from Craig Kennison with BAD. Your line is open.

Thank you. Good morning. And Nick, all the best to you. It's been a pleasure working with you. uh my question goes to your comments around yeah you bet nick my questions go to the comments around insurance prices i'm just curious if you could walk through how higher and really significantly higher insurance prices impact your business overall yeah and just talking to this is

justin craig by the way and talking to different folks in the industry when we saw the insurance increasing you know 20 to 22 percent year-over-year we saw deductibles increasing and so in some cases it caused folks not to necessarily repair their car we still think the majority of our issue that we saw in Q1 from repairable claims was weather but there's a lot of other commentary that we heard from other folks such as used car pricing which you know saw huge decreases and huge increases in insurance rates so we still think the primary driver for the repairable claims being down is weather but when any anything when we see huge swings like that with used car pricing or or once again insurance rates it has some some effect on

us thanks justin thank you the next question is from gary press campino with barrington research

your line is open hey good morning everyone and nick best best of luck to you in your retirement I enjoyed working with you. Could you maybe just unpack a little bit more on this decline in the gross margin in North America? I know, Rick, you went through a couple of things there. Couldn't write them down quickly enough, but some of this was uniselect. But what were some of the other factors there that impacted that margin so much to go down close to 500 basis points or over 500 basis points?

Yeah, Gary, fair question. So when we talked about it in the closing of Q4 for the guidance for this year, we said we'd be around 17% for the year with the dilution on Uniselect. The product offering that we have for the various products that we sell for Uniselect, the paint products, and the hard parts side of the business makes a different margin profile, including the base business that we had before makes a similar margin as far as that paint side of the business goes. So with the increase in revenues, that's one component. We thought we'd be down around 17 for the year. We still think we'll be at around 17 for the year. The major contributing factor for being below 17 for Q1 is primarily related to leverage. With the volume decline that we saw, significant volume on the repairable claims, we said about 8% on repairable claims, and our overall volume is down a little over 3%. That's mostly a leverage component. And as we said, the team has really put some strong efforts in to work on the integration, consolidation of various uniselect integrations, 65 different facilities that we consolidated. So some of that extra cost, a little duplicate cost that will go away as we go into the rest of the year. And that's where we have that confidence of bouncing back and getting back

to that 17% number that we've been talking about. Yeah, but I was asking about the gross margin, Rick. Is that, you know, I'm sorry, I thought you were talking about the same margin. No, the gross margin had a pretty big decline, so I just wanted to unpack that a little bit more.

Yeah, most of that is mixed. Most of that is mixed. The other component that we have that we've been talking about for about 12 months, maybe 18 months, is the salvage margin. So what we talked about was there would be this squeeze in the salvage margin. So as we thought about what we were at last year, which is about 20.5% of EBITDA, most of that gross margin piece that we see on the decline is that salvage margin squeeze. And so what we don't do is we don't talk about it being revenue versus the cost side because everything is so unique in that industry. So we've been seeing that squeeze. It started happening in Q3 of last year and it continued in Q4 and then again in Q1 as expected. Those items are as expected what we've been kind of communicating externally to everyone.

okay thank you thank you the next question is from Scott Stamber with Roth MKM your line is open

thanks for taking my questions and Nick I echo what was said before it was great work with you and wish you nothing but the best of luck thanks Scott can we talk about Europe for a second um how did the individual um regions uh perform just trying to get get a sense if there was any any regional weakness and or if anything stood out on the positive side so let me just go high

level um and then i'll turn it over to um you justin i know you've been spending a lot of time out there so scott appreciate the question if you think year over year the biggest impact that we on overall EBITDA margins is really the inflationary impact of wages. So that happened throughout the year, but primarily starting in Q2. So it'll sort of calendarize as we start getting into Q2. There's roughly 200 basis points down that you have on overall wage inflationary increases. What the team's been able to do was improve on pricing and productivity initiatives to claw back roughly half of that. And so we're on a trajectory that we're pretty pleased with. Of course, we'd always like to have a little bit more. But, you know, the overall margins that we had, the 8.7 in Q1, reflects that really low year-over-year impact on the wage increases. And, Justin, I don't know if you want to talk a little bit more about the various different regions.

Yeah, and, Scott, like some of the markets, such as the Benelux area or even in Germany, we're seeing, you know, mid-teen increases in labor rates. and it's a market issue, that happens immediately. The team has been actively working on pushing price out, but we're very also conscious to make sure we don't impact the market and start to lose market share. And so we'll continue to push pricing through Q2 to cover that up. We do typically pass it on. We are a humble distributor, as you may have heard Nick say before, but we just saw immediate increases in labor rates, and it's just taken us some time to pass those prices through to cover that.

And on the revenue side, Scott, all of our regions showed good organic growth, positive organic growth in the quarter, which is terrific. Particular bright spots included actually Central and Eastern Europe where we saw some good growth. Our private label product saw excellent growth during the quarter. and all the other regions were in and around that 4% on the same day basis, plus or minus a little bit. So, again, it was good, consistent performance across the platform.

Yeah, and just one final follow-up. I know you guys are not going to be breaking out Uniselect going forward within wholesale, but just trying to get a sense of how the mechanical repair side of the business trends, just trying to get a sense of the market, how things are holding them up, and at least internally our sales.

You're talking about the bumper-to-bumper business that we have up in Canada, Scott?

Yes, yes, correct.

Yeah, so the progress on bumper-to-bumper has been very positive. uh there's been a few tuck in acquisitions that we've we've worked on taking some three steps to two steps um we're very pleased with what the team's done on the integration side of that business as well uh and and we're starting to see uh some some of the opportunity to actually working together right between the the the hard part side of the business and the um collision side of the business and how we can work a little bit better together we've talked about it before that that business is canada is really the only place that we do everything that lkq has the power of doing, and we're starting to see that power of LKQ up in Canada. So it's been good progress. Justin, I don't know if you want to expound a little bit on bumper-to-bumper as well.

Yeah, no, I mean, obviously we've done some tucking acquisitions. We've gotten those integrated pretty well. The team is doing well on getting into the LKQ family. I would say overall in North America, the mechanical is up. So we're only in aftermarket hard parts in Canada with bumper-to-bumper, but if you look at the major mechanical that we had through our used and are remanufactured in the U.S. and in Canada. You know, we saw an increase in VMT, and VMT typically relates to more maintenance and repairs on the mechanical side. So we saw an increase in our engines, transmissions, both on the used and the remanned side. So overall, the business on the major mechanical and overall mechanical is doing well in North America.

That's all I have. Thanks, Scott.

Thank you. As a reminder, everyone, to ask a question, please press star followed by one on your telephone keypad. We have the next question from Brad Jordan with Jeffries. Your line is open.

Hey, good morning, guys. Good morning. On the North American business, I guess to take a little deeper dive, I think you call out weather, but I guess historically, I think 2017 was a warmer winter, and I don't recall as much impact. So could you maybe bucket the negative from the Panama Canal issue, maybe the positive from State Farm having gotten into the space year over year, and then if you could give us any call around alternative parts penetration, is there any negative shift there?

Yeah, once again, overall, I mean, from the stats that we can see externally, we think it's mostly contributed to weather. I'm not sure I don't have the facts in front of me from 2017. Other things that we hear that cause some of the repairable claims being down, I mentioned, such as, you know, skyrocketing insurance rates, plunges in used car pricing. We did see an uptick in APU, driven, I think, a lot primarily by State Farm. Anytime when the carriers are looking to save money, they're going after recycled parts or aftermarket parts. And so on a year-over-year basis, Q1 to Q1, we did see an uptick of roughly 200, I can't remember the exact number, but 260 bps improvement in APU. So market share gained on the APU side.

And then your comment about a 17, around 17% full year for North America, is that run rate of 17 or getting the full year to 17 and, you know, sort of catching up from the miss in Q1 and being above that at some point in the year?

Yeah, Brett, we expect to be 17 for the year, not a run. So we'll catch up that. We believe we'll catch that up and be around that 17 that we talked about, you know, 60 days ago or so.

Okay, great.

Thanks, Brett.

Thank you. The next question is from Ryan Brinkman with J.P. Morgan. Your line is open.

Hi, good morning. This is Josh Fatwa on for Ryan Brinkman. Thanks for taking our question, and best wishes for your retirement, Nick. You know, could you just give us a sense of the underlying drivers of the 2024 organic parts and services revenue growth guide, you know, in terms of contribution from volume versus pricing, and any color on how these assumptions have changed versus the prior guide earlier this year? Thanks, and I have a follow-up.

Yeah, so I'll take a stab at that. So overall, we did lower the organic guidance due to the revenue miss that we had in Q1 related to the repairable claims. We're pleased with where the growth was in our European operations. On an organic per day basis, we're over 4% on growth. So we're very pleased with where we're at on that. Most of the growth that we have between the 2.5 to 4.5 is the new kind of line that we put in the sand. From this guide, we expect most of that to be a volume piece. You know, there'll be minimal pricing impact, but there'll be some pricing impact. But it'll probably be overweighted on the volume piece.

Understood. That's very helpful. And just, you know, as a follow-up to Brett's question, you know, just wanted to get a sense of how you are thinking about the impact from unfavorable car path dynamics over the next couple of years as fewer vehicles fall in the four to six-year-old sweet spot as the anniversary of the pandemic and trip-sortage-induced new vehicle sales form?

You said unfavorable. I didn't catch the word after unfavorable midway through your conversation.

Just on the car path dynamics, we'll have fewer four to six-year-old vehicles in that sweet spot for LKQ. So just wondering how we should think about the impact from a volume perspective there.

I mean, right now we're seeing the car park growing in North America. We're seeing it growing in an aging, all leading to great improvements in the need for alternative parts utilization, whether that's mechanical or collision, whether that's used or remanufactured. So we see great trends in the car park for North America.

Understood. And just to be clear, our sweet spot on the collision side, we've always indicated is kind of three to ten years. After 10 years, people tend not to get their cars repaired just because of the overall value of the car, and sometimes people lop off their collision coverage. But the park inside that 3 to 10-year age bracket is still very strong. What we are seeing is on total losses, that is shifting towards very old cars, cars north of 10 years old, which generally would end up in the collision base anyways. So we think the dynamics of the car park are trending just fine for our collision-based business.

Thank you. As a reminder, everyone, if you would like to ask a question, please press the follow-up at 1 on your telephone keypad. We have a next question from Brett Jordan with Jefferies. Your line is open.

Hey, guys. Just to follow up on that last topic, I guess as your internal math, as the class of 21, class of 20, you know, the pandemic, new vehicle sales impact starts to swing into that three to 10-year-old sweet spot. Have you done the math here on the next couple of years as far as what that is? Is that headwind

to organic growth? No, we don't see that part as a headwind for organic growth. I mean, the complexity of the vehicles, the value of the parts and the number of parts work to offset some of that, Brett. So we don't see that as a negative trend for us at all going, you know, further out.

And, Brett, I would say, you know, being in the industry for 25 years, 10 years ago, insurance carriers would not typically write aftermarket or alternative parts in the first zero to three years. That has changed quite a bit in the last 10 years where, you know, we can get a product tooled up in the aftermarket world relatively quickly, six to nine months, And we see nearly all carriers riding current model year for aftermarket or recycled to try to drive that APU. So we don't see it as an impact to us.

Okay. And I guess since I got back in line, I get my two questions. On European skew rationalization, I think you're talking about taking 35% or reducing your overlap by 35%. What do you see that impact being to margin in that? I guess more product from fewer suppliers, how do you see maybe the, you know, bucket, how many basis points you think can get out of that initiative?

Yeah, we haven't quantified the overall margin improvement. We know it's there. We haven't publicized it, I should say. I would say when that 35% reduction, that's in lieu of us actually adding more private labels. So we're going to be adding more SKUs to the mix to get more private labels, as Nick talked about. That is growing. We're expanding that in other countries. and we still plan on reducing the net number of SKUs. And with private label, that typically comes at the higher margins. But the other comment you made, it would be, you know, less suppliers, which would create some operational efficiency from an SG&A standpoint in the warehouses and the distribution centers, as well as some margin lift with fewer suppliers.

Brett, I mean, this is kind of the catalyst, one of the bigger projects that we've got over in Europe. This is one of the things that will help us significantly when we think about logistics without borders. So, you know, as far as the opportunity here, we think the opportunity, one of the reasons we're highlighting it is we think the opportunity going forward over the next couple of years, this is a really major contributing factor for us that we'll talk about a little bit more on September 10th when we do our investor day. Andy will kind of lay it out in a little bit more detail on there.

Great. Thank you.

Thank you. So, as a reminder, everyone, it appears that we have no further questions. So, I will hand back over to the management team for closing.

Yeah, Operator, this is Justin. Just before Nick closes us out, I want to give, I guess, the investors and really all of our employees that I feel super excited about the future of LKQ. If you look at the segments for which we operate in, such as North America, as I mentioned earlier, the car park is growing. It's aging, all great things that lead to alternative parts utilization, whether that's in the collision world or in a mechanical world. We've seen inflationary cost pressure on the insurance carriers. Carriers are all trying to drive more alternative parts utilization to combat some of the losses. We see the number of parts per estimate increasing and will continue to increase. We see part pricing increasing and continue to increase. The complexity of vehicles really leads to our services business, which allows us to do things like technical repairs or calibration. We're also very excited about the Uniselect acquisition that's going to bring us tremendous synergies. And if you jump over, you know, to Europe, it's a core segment for LKQ. You know, we have a great management team over there. We're the market leader today with the best margins. You know, that market is still highly fragmented, which leads to an opportunity for further consolidation. The team has a clear roadmap on accelerating margin enhancement with extending and accelerating the integration. A lot of what Rick talked about with the ski rationalization will lead towards that. And then we're getting the bumper-to-bumper benefits on the procurement side because of the scale and size that we have with our European procurement teams. And then, you know, then jumping down to specialty, I mean, we've got the, you know, the strongest leading position in that space. We're the number one leader in the distribution of RV and SEMA-related products. We've got a great management team that can manage really through all cycles, and we've seen that. You know, so, and I think, you know, looking at specialty for the month or for the quarter, even though we were still negative, we saw month-to-month, as I mentioned, improvements. And March was actually the first month where we saw an increase year-over-year in demand and an increase year-over-year in sales. And so just in closing, I just, I guess, want to reiterate that, you know, we have the market-leading positions in nearly everything we do. We have long-term great trends that operate in our favor. So truly excited about the future. And with that, Nick, I'll turn it back over to you.

Thanks, Justin. And thank you to everybody on the call for spending time with us here this morning to review our first quarter results. We will be back together, at least Justin, Rick, and Joe, we'll be back together with all of you on July 25th to discuss our second quarter results. And, again, I'd like everyone to put Tuesday, September 10th on your calendars for the Investor Day that will be held down in Nashville. So thank you for your time, and have a great day.

This concludes today's call. Thank you for joining. You may not disconnect your line.