LKQ Corporation (LKQ) Q3 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the LKQ Corporation Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joe Boutross, Director of Investor Relations. Thank you. Sir, you may begin.

Thanks, Christine. Good morning, everyone, and thank you for joining us today. This morning, we released our third quarter 2012 financial results and updated our full year 2012 guidance. In the room with me today are Rob Wagman, President and Chief Executive Officer; and John Quinn, Executive Vice President and Chief Financial Officer. Rob and John have some prepared remarks, and then we will open the call up for questions. In addition to the telephone access for today's call, we are providing an audio cast via the LKQ website. A replay of the audio cast and conference call will be available shortly after the conclusion of this call. Before we begin our discussion, I'd like to remind everyone that the statements made in this call that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, hopes, intentions or strategies. Forward-looking statements involve risk and uncertainties, some of which are not currently known to us. 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 to reflect events or circumstances arising after the date on which it was made, except as required by law. Please refer to our Form 10-K and other subsequent documents filed with the SEC and the press release we issued this morning for more information on potential risk. Hopefully, everyone has had a chance to look at our 8-K which we filed with the SEC earlier today. As normal, we are planning to file our 10-Q in the next few days. And with that, I am happy to turn the call over to Mr. Rob Wagman.

Thank you, Joe. Good morning, and thank you for joining us on the call today. We are pleased with the results we reported this morning. Diluted earnings per share of $0.18 for the third quarter ended September 30, 2012 increased 5.9% from $0.17 for the third quarter of 2011. As noted in our press release, the third quarter 2012 diluted earnings per share included a charge equal to $0.01 for a change in fair value of contingent consideration liabilities and for restructuring and acquisition related expenses. Without this charge, our EPS would have been $0.19, an increase of 12% over the same period last year. Revenue for the quarter was $1.02 billion, an increase of 29.7%, as compared to $783.9 million in the third quarter of 2011. I am pleased to say that we achieved this year-over-year revenue growth with one less operating day compared to the third quarter of 2011, and that this revenue reflects the second highest quarterly revenue achieved by LKQ, second only to Q1 2012. During the quarter, we achieved 5.6% organic growth for parts and services and 1.6% total organic revenue growth. Revenue growth from acquisitions was 28.2% in the quarter. After adjusting our revenue results for one less selling day in the third quarter, organic revenue growth for parts and services would have been approximately 7%. I'd like to highlight that our positive total organic growth was accomplished during a period of continued deterioration in scrap prices. The organic growth in our other revenue category for the quarter was negative 18%, primarily driven by the pricing pressures we face in the scrap market. I am also pleased with the organic growth for parts and services in the quarter, given that during this period, net losses and loss adjustment expenses from catastrophes were down over 50% year-over-year according to insurance industry sources. The continued growth in organic parts and service revenue in 2012 is also a result of the combination of the increased use of alternative parts by insurers and a direct program networks to reduce claims costs, and our continued success of gaining market share from the competition. As mentioned on previous calls, we were confident that the historical trend of 100 basis point improvement in alternative part usage would continue in 2012. And today, I am pleased to announce that, that goal was achieved through the end of the third quarter. According to CCC Information Services, APU now stands at 38%. Next, I'd like to share some operational statistics. During the third quarter, we purchased over 60,000 vehicles for dismantling by our wholesale operations, which is a 5% increase over Q3, 2011. As for volume at the auctions, supply remains strong throughout Q3 and continues to meet our needs early in Q4. With inventory already on hand, and the continuation of our current run rate for acquiring cars, we have a sufficient inventory to grow our recycled parts operations. Now turning to our self service retail businesses. During the quarter, we acquired over 106,000 lower-cost self-service and crush-only cars, as compared to 90,000 in Q3 of 2011, which is an 18% increase year-over-year. I'd like to mention that we are starting to see some more pricing relief at the auctions. During the quarter, we witnessed a 5% and a 15% sequential drop in the cost of our wholesale salvage and self-service vehicles, respectively. Please note that part of that cost reduction is related to scrap pricing pressure we faced in the quarter. Despite that correlation, I am encouraged by the reduction in the Manheim Index and the increased SAR [ph] rate, which we believe will take some additional pricing pressure off of our auction procurement efforts. In our heavy-duty truck operations, during the third quarter, we purchased roughly 2,100 units for resale or parts, as compared to 1,600 in Q3 2011, which is a 31% increase year-over-year. Turning to Euro Car Parts. We continue to be impressed with the performance of Euro Car Parts and its ability to capture market share and open new store branches. In Q3, Euro Car Parts achieved organic revenue growth of 28% versus a comparable pre-acquisition period. During the quarter, we opened 10 new branches in the U.K., bringing our total branch count to 120. Since the acquisition of ECP in early October 2011, we have opened 31 branches, surpassing the target number of 30, I mentioned on the last call. Given that market conditions in the U.K., combined with the continued success of ECP, we have approved an additional 12 new branch openings for the fourth quarter bringing our total target to 132 branches by year-end. I would also like to update everyone on our collision parts program in the U.K. that we initiated back in late March. During the quarter, we witnessed strong double-digit year-over-year growth with our collision part sales at ECP. And I expect this trend to continue into the fourth quarter, based on the numbers we're seeing for early October. Although these numbers are off of a small base, we are encouraged by the acceptance of alternative collision parts in the U.K., and the accelerated interest and continued dialogue we are witnessing with U.K.-based insurance carriers. Clearly, the continuation of this trend bodes well for ECP's collision part sales as we prepare for 2013. Lastly on operations. On October 2, the company announced the new Phase 1 technology integration with Mitchell and their RepairCenter ToolStore technology platform, and our proprietary electronic ordering system, LKQ InTouch. This two-way integration provides shops with greater procurement efficiencies by enabling real-time access to our vast inventory of aftermarket and salvage parts. Parts look-up and ordering, which previously required multiple steps and was time-consuming, has now been simplified and streamlined into a workflow process that enables shops the ability with one keystroke to place an order with LKQ via Mitchell's RepairCenter workspace on a real-time basis. This technology advancement is a good illustration of our state-of-the-art operations and our commitment to utilize technology to improve our business. Now moving to acquisitions. During the quarter, we acquired 2 companies. One that operates 2 self-service yards, 1 full-service yard and a scrap recycling business in South Florida, and one that operates a wholesale salvage yard and aftermarket parts distributor in Missouri. In addition to these 2 acquisitions, in early October, we acquired 2 Canadian companies: Pro Auto Body Parts and BMC Auto Body Parts. Pro Body Parts operates 12 aftermarket parts distribution locations in 7 Canadian provinces, Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario and Saskatchewan. BMC Auto Body Parts operates 3 aftermarket price distributions in Québec. These 2 acquisitions have strategically enabled us to serve our customers across all of Canada with our aftermarket product lines. We continue to see attractive acquisition candidates across all of our regions in North America. And I believe our pipeline will support our plan to put additional facilities in key underserved markets. We continue to explore additional product line acquisitions to add to our domestic footprint and product offerings, while simultaneously prospecting other international markets beyond the U.K. At this time, I'd like to ask John Quinn to provide some more detail on the financial results of the quarter.

Thanks, Rob. Good morning, and thank you for joining us today. One item of note, we did split the stock during the quarter, so references to earnings per share are on a split adjusted basis. Starting with revenue. This is our third consecutive quarter recording revenue in excess of $1 billion. Revenue in Q3 was $1,017,000,000, representing a 29.7% growth over the third quarter of last year. Acquisitions drove 28.2% of the growth representing $221 million. Our total organic growth was 1.6%, and parts and services organic growth was 5.6%. Parts and service growth number includes revenue associated with the new branches opened by ECP since our acquisition, and that added 230 basis points to the growth. Revenue for ECP was $181 million for the quarter, and while we didn't own ECP in Q3 of last year, we believe ECP grew 28% over the same quarter last year, when they achieved sales of $142 million. Partially offsetting the growth in parts and services was a negative organic revenue change in 17.8% in other revenue. This drop equates to a decline in other revenue of $24 million. Other revenues are where we record scrap and cores sales. This negative organic growth was primarily driven by a falling scrap prices, particularly scrap steel. We also had a delay in recognizing, approximately, $6 million of precious metals revenue, which I'll address in a moment. Total growth credit revenue was positive 1.8% due to acquisitions, slightly more than offsetting the falling scrap pricing. The impact to revenue from foreign exchange was de minimis, but I will remind listeners that beginning in Q4 2012, this number may be a little more volatile with the larger base of foreign revenue coming into play now that we've reached the anniversary of the acquisition of ECP. In Q3 2012, revenue for our self-service business was $89.2 million, or 8.8% of LKQ's total revenue. Approximately 36% of this revenue was parts sales, included in recycled and related products, and 64% scrap and core sales included in other revenue. Our reported gross margin was $410 million or 40.3% of revenue. For the same quarter last year, we reported a gross margin of 42.6%, so we witnessed a decline of 230 basis points. While we note the decline in our gross margin, it's probably worth pointing out that our gross margin dollars grew $75 million for 23% improvement year-over-year. There are a number of things that impacted the gross margin percentage. As we anticipate in the Q2 earnings call, the largest impact is due to lower scrap and core prices, which we estimate to be approximately 100 basis points. We also mentioned last quarter that through an acquisition, we begin processing additional precious metals ourselves, as we try to prove -- improve the yields from our scrap cars, but that acquisition decreased our gross margin percentage. We estimate the impact of margins due to acquisitions was 40 basis points negative. We incurred an increase in warranty cost of 40 basis points and we had fewer cars under our share disposal and crush-only contracts, which tend to be higher margin, and that added a further 30 basis points to the decline. The balance of the margin change relates to a number of small items including mix. Our combined cost for facility and warehouse, distribution and SG&A expenses were 29.6% of revenue in Q3 2012, compared to 29.8% in Q3 2011. Rob and I are pleased to see that we appear to begin to getting into better leverage out of these cost again, as our parts and services revenue grows. These cost fell as a percentage of revenue despite the drop in commodity revenue from 17.1% of revenue in Q3 last year to only 13.4% this year. As you'll appreciate, our other revenue category, which was predominantly scrap and core sales, requires little support in the way of these costs. Facility and warehouse cost were 8.5% of revenue, compared to 9.2% in Q3 of last year. This decrease is primarily due to adding ECP, which has a lesser amount of facility and warehouse expenses than our North American operations. Distribution costs were 9.2% this quarter, compared to 8.7% in the same quarter last year. ECP drove 30 basis points of this increase and we saw a 20 basis point increase in North America. Selling and G&A expenses were 11.9% of revenue in Q3 this year and last year. ECP drove a 20 percentage -- excuse me, 20 basis point higher, which we offset in North America, partially through the reduced incentive compensation cost. During the quarter, we recorded $116,000 of restructuring and acquisition related expenses, as compared to $2.9 million of these costs last year. Depreciation and amortization for the quarter increased $4.4 million to $16.7 million primarily as a result of acquisitions. The amortization of intangibles and depreciation associated with ECP was the primary driver of the increase. Net interest expense of $8 million, was $3.1 million higher than the same quarter last year. The increase is mainly due to our higher debt levels as we've been funding our acquisitions out of free cash flow and debt. Our effective borrowing rate on our bank debt was 3.1% in Q3 2012, and was essentially flat to the prior year. We are showing an expense related to the change in continued consideration liabilities of $1.9 million. This is primarily accretion on the liabilities we've recorded. Our tax rate for the quarter was 35.1%, compared to 38.5% in Q3 last year. We continue to see some benefit from lower foreign tax rates, as we earn more income offshore. In addition, we recorded $1.3 million of discreet tax adjustments, primarily as a result of the reduction in the U.K. corporate income tax rate. On a reported basis, diluted earnings per share were $0.18 in Q3 2012, compared to $0.17 in Q3 2011, an increase of $0.01 or 6%. In Q3 this year, we have an adjustment to contingent purchase price to reduce earnings per share by $0.01. Last year, Q3 included a similar dollar amount of restructuring cost, but due to rounding would not have changed the EPS reported figure of $0.17. And as we've mentioned, in Q3 2011, we had little -- excuse me, in Q3 2011 we had little impact from changes to scrap and core prices. Whereas this year, we were negatively impacted by approximately $0.02. A few comments on the 9 months year-to-date cash flow and uses of cash. Cash flow from operations for the first 9 months of 2012 was $182 million, compared to $159 million in 2011, so an improvement of $23 million. Year-to-date EBITDA improved to $76 million, but we had $27 million higher cash taxes in 2012, and an increase in cash interest payments of $5 million. Higher outflows associated with incentive compensation, prepaid insurance, and other working capital items account for the balance of the change. Year-to-date, we spent $61 million on capital expenditures, we've also incurred $133 million on acquisitions, of which $13 million was in the third quarter. At September 30, 2012, we had $982 million of debt, and cash and cash equivalents for $69 million. These figures comparing the $956 million of debt and the $48 million of cash and cash equivalents at December 31, 2011. Availability under our credit facility at quarter end was $483 million, after taking into account letters of credits drawn against it. With the cash of $69 million in the balance sheet, our total availability was $552 million. At quarter end, our bank debt was 68% fixed and 32% floating. And turning to guidance. It's been our long-standing practice our guidance excludes any restructuring costs and transaction costs or gains and losses, contingent purchase price adjustments, capital expenditures or cash flow associated with the acquisitions. I note that we have been, and continue to include the legal settlements we've spoke of in Q1 and Q2 in our guidance. We increased our guidance for organic revenue growth for parts and services from a range of 5.5% to 7%, to a new range of 6% to 7%. Year-to-date, we are at 5.1% organic growth but there are a number of factors that should increase that rate in Q4. Following that in Q4 2012, we have one additional day over Q4 2011. In Q4, we're going to start recording all of ECP's growth as organic. And at this point, we're assuming a more normal weather pattern than we had in Q1 this year, along with an increase in miles driven. Our revised income for net income is $265 million to $272 million, which equates to $0.88 to $0.91 diluted earnings per share, and we revised our estimated cash flow from operations to $240 million to $270 million. As I mentioned earlier, our capital spending through 9 months was $61 million, so we've reduced our capital spending guidance from $100 million to $115 million range to a new range of $90 million to $100 million. I realized there's a lot happening in the gross margin numbers this quarter, and some listeners are going to try to understand how these items we've called out will impact Q4, so I'll give you a little color on the things we see today, which obviously could change in the next 2.5 months, but hopefully give you a sense of what we're seeing. Scrap prices remain volatile. At the moment, they continue to be a drag on the business. We saw scrap prices fall in Q3, and we've seen them fall again in October. If nothing else changes, we'd expect to have at least $0.01 of unfavorable impact in our Q4 results from scrap, because of the lag between the time we buy cars and the time we scrap them. We have seen a drop in the cost of the cars at auction and in the self-serve business. Some of that improvement has unfortunately been offset by the lower scrap. But notwithstanding, we are expecting to see improvements in the recycled line of business of gross margins over the next few quarters. It isn't clear if that will begin to materialize in Q4 this year or early 2013, but the trend does appear to be favorable. On the cash flow side, Rob mentioned that we're targeting to open up an additional 12 new ECP branches in Q4 2012, in addition to the 31 we've already completed since acquisition. We'll also be looking to increase our volume of vehicles in the North American segment. Depending on how successful we are, both of these events could lead us to have higher inventory levels than we currently expect, which would obviously negatively impact our cash flow, which should leave us in good shape as we enter the busy Q1 2013 season. I guess it is fair to say the way that Rob and I have been doing, the revised guidance is as follows: Since June, we've seen a steady erosion in commodity prices, which has continued through October. We reported that a drop negatively impacted our diluted earnings per share by $0.01 in Q2, $0.02 in Q3, and we could have a further impact of $0.01 in Q4. With that kind of a headwind, we felt the top end of the guidance range was less likely. The updated guidance reflect that reality as it impacts earnings and operating cash flow. And working capital could fluctuate in Q4 depending on the timing in inventory builds. But with lower capital spending and strong liquidity, we remain in good position to execute our strategy. And finally, we'd believe the fundamentals of the business remain strong. As Rob mentioned, the alternative part usage, statistics continue to improve. We continue to experience good organic growth and the business continues to diversify into markets that have great growth opportunities. With that, I'd like to turn the call back to Rob to summarize before we open to questions.

Thank you, John. As we enter the last quarter of 2012 and prepare for 2013, our outlook continues to be positive. I'm encouraged by the trends in miles driven, the continued growth in APU, the recent reduction in vehicle pricing at auctions, the strength of Euro Car Parts and the robust pipeline of acquisition opportunities we are witnessing. Every day, our group of over 19,000 team members endeavor to overcome the short-term variables that are out of our control by tackling opportunities to drive organic sales, continuously promoting the use of alternative parts, aggressively pursuing market share gains and implementing operational efficiencies to enhance the productivity of our organization and our customers that ultimately, will reward our stockholders now and over the long term. And with that, Christine, we are now prepared to open the call for Q&A.

[Operator Instructions] Our first question comes from the line of Nate Brochmann with William Blair. Nathan Brochmann - William Blair & Company L.L.C., Research Division: Hey, I wanted to talk a couple of things. First on ECP, I mean, obviously that business continues to really put up solid and awesome growth. I was wondering is that kind of indicative -- just of some competitive weakness over there, still in terms of market share gains or is it really blocking and tackling and adding more products?

I think it's probably a combination of both, Nate, to be honest. There are some -- our competitors are seeing some struggling times for them, and we are capitalizing on that. But I really believe that the growth has a lot to do with our expansion of those stores. We've been able to go after national customers now, aggressively going after the collisions part side of the business too. So I think it's more operational, but clearly there is a component -- have to do with the struggling competitors. But I think our strategy and the extra 12 stores will further cement that and continue the growth into 2013 and beyond. Nathan Brochmann - William Blair & Company L.L.C., Research Division: Okay, that's great. And maybe just hitting on that point too, obviously, looks like there's some acceptance just from the general marketplace on the collision repair, how are the discussions progressing with the insurance carriers, do you feel like sometime in the next 12 months that we could get some clarity on how they're going to look going forward?

I think that's the right time frame, 12 months. We've launched that. This is a marathon, not a sprint, and that's proven to be true. We are trying to create an industry over there, to be honest. So the meetings have been very productive -- very receptive, and our plan is that we can get a couple of carriers to jump on board. We believe there will be a snowball rolling down the hill. We'll gather some steam. So that's the plan and I think in 12 -- within 12 months, Nate, we should have a very good idea where we stand. Nathan Brochmann - William Blair & Company L.L.C., Research Division: Okay, that's great. And then just one last question and I'll turn it over. But, obviously -- congratulations on getting the system tie-in there with Mitchell. How -- I mean, from a competitive standpoint, that seems to be a big differentiator for you and a really good tie-in to a lot of your end customers there. How are you guys viewing that, in terms of potential gains that you could ultimately get out of that?

It's a 2 stage process, Nate. This is Stage 1, Phase 1. Just a couple of key components to the program, I think are worth highlighting. It's real-time data now. Previously, our inventory was given to them on a disk, which was 30 days out. So real-time data is pretty powerful. We're getting both salvaging and aftermarket parts shown, and not just by plant but by region, so they'll see our entire regional database, that will allow the shop to take advantage of the distribution networks that we have in place. Of course, with the 1 keystroke to order a part, that's pretty powerful, but I believe the best part of it, it's 24/7. So the shop can go on, on Saturdays and Sundays and run this process. That's Phase 1 and that's completed. Phase 2, I think, is going to be the ultimate real test of the program, where it's actually fully integrated into the estimating system, where the shop won't have to move out of one screen at all. So it will be fully integrated. We're being told, probably at the earliest, it's 6 months to get that level of it done. I think at that point, that's when we're really going to be able to gauge the true power of what the potential uptick on this thing is. But clearly, we're moving in the right direction with the technology and initial feedback from the body shops is that they are more than willing to do this, if it's effective. So I think this will be the first test and in 6 months we'll have a really good idea of where this thing can go.

Our next question comes from the line of John Lawrence with Stephens.

Rob, would you take a -- if you look at ECP overall, and you just look out for the next 12 to 18 months as it -- obviously, the entrance has been very successful, how do you look at allocating CapEx dollars? Obviously, you're doing that with some more stores, but longer term, that marketplace -- the viability to spend more capital over there?

I'll start off and John, feel free to jump on it after. But, Nate -- John, when you said that we believe the total store count is going to be somewhere around 150 to 175. We believe that number is still to be true. And in fact, we may actually be able to go a little bit above 175, with those satellite stores to feed the more remote areas. So the CapEx's planning, we continue to grow and use the capital to expand in the U.K. We're also looking, obviously, at acquisitions over there as well, to help supplement what we've done in the U.K. already. So there's likely to be a little bit more CapEx coming down the road in 2013 and '14.

All right. And secondly, if you look at opportunities in the U.S -- coming into the tax year, are you seeing that pipeline continue to be as robust? And prices, what do you see with pricing and how badly people want to maybe move out?

Yes. John announced today was a 2 in the quarter and 2 we announced that actually happened in early Q4. We've announced 15 deals and just looking at the pipeline, I feel very confident that we're going to be able to beat 2011's 21 acquisitions. So the pipeline is as robust as we've ever seen it. And quite frankly, we believe it's going to carry into 2013. Pretty much across all of our product lines, we're seeing a lot of activity. I'll just touch on those quickly. For the aftermarket, with the Canadian acquisition that we announced today, we're pretty much done in Canada with aftermarket. So we'll look at strategic tuck ins, again, paint, cooling accessory businesses, now across the United States and Canada. For self service, we're still looking to fill in holes in geography. On previous calls, I announced that we were working on 3 greenfields, those have all become live, 1 in Milwaukee, 1 in Oklahoma City and 1 in Charlotte. And we have now approved 3 more greenfields in the process. So that's going to be the strategy going forward there. HD again, continue to search for strategic locations. The key there is looking for access to good distribution routes to be able to move the product. Europe, as I mentioned, we're still in exploratory mode and on the continent, but again looking for more opportunities in the U.K. as well. And finally full serve, greenfield in the Western Canada. We announced a greenfield up in Alberta. And, again, looking for strategic geography deals, much like the one I announced today in South Florida, that was a key market we were missing. So we believe there's still a lot of market opportunities here in the United States and Canada as well.

And just for housekeeping, John, what was the revenue run rate for those that you announced today?

Sure. The acquired revenue was about $15 million trailing, and a little bit under $2 million was actually booked in Q3 related to those acquisitions.

$2 million in Q3 and $15 million annual?

Yes, that was the start of the run rate. Obviously, we're going to try to grow that. John, that was just the Q3 acquisition, it does not include the Q4 items. Just 3Q.

Our next question comes from the line of Craig Kennison with Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: John, if I could just follow up then, what was the revenue contribution from the acquisitions acquired this quarter?

I don't think we're ready to call that out just yet, Craig. We're still working through a few of the things and they're not entirely on our system yet. We're going to be integrating that in the next 90 days. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: That's fair. And then to follow up on the Mitchell question. Rob, can you remind us where you're at with respect to other estimate service providers and sort of in the context of which phase you're at with respect to integration?

Sure, Greg. We are working with the other 2 estimating companies on similar products, to be able to do that and those are continuing. We, hopefully, will be launching something within the next quarter or Q1 at the latest, with the other -- with at least one of the other estimating companies. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: That's very helpful. And then, John, back to you. On ECP, tremendous growth. Is there any way to put it into buckets? I would imagine you've got new stores. You've got same-store sales growth. You've got the impact from adding collision, SKUs, trying to just get a feel for what the overall growth is based on those buckets?

Yes, collision is still very small dollars, it's growing though, probably 50% faster than the base business. In terms of the total, what you might think of as a same-store sales, we don't have a good number of that because we don't have the good data before we acquired them, and they have been opening stores prior to our acquisition. I did indicate that there's about 230 basis points contribution from the locations we've opened, since we've acquired them though, contributing to our total parts and services organic growth. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: That's a helpful metric. And as we go forward and try to model your overall organic growth, should we anticipate something like that, 230 basis point lift in future quarters, related to ECP?

We've been very aggressive to opening the locations. This is the second time, I think we've raised the target for 2012. I don't know where we're going to go yet in 2013. I guess we're not ready to announce that, but obviously these are going to -- they take about 3 years to come to full maturation. So obviously, opening stores in Q4 this year are going to give us a fairly good tailwind going into Q1 next year. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And lastly, sorry, if I missed this. Did you comment at all on the trends you're seeing so far on October?

We have not, Craig. Glad to give you an update on that. Really, with the exception of the scrap, as we mentioned, was likely to cause a $0.01, based on today's rates. Business is in range of our plan for October, so we're pleased with what we're seeing so far. Of course, ECP continues to be right on target where we slightly exceeding in many cases. But the most encouraging thing that we're seeing in October, again, is the maintaining of our cost improvements in terms of salvage and self-service acquisition costs. So the wild card for Q4 is scrap right now for us. But other than that, we're pretty pleased.

Our next question comes from the line of Bret Jordan with BB&T. Bret David Jordan - BB&T Capital Markets, Research Division: I have a quick questions on -- and one of the Rhode Island precious metals recovery business, do you have a feeling for what the -- sort of the rollout that going from a 40 bp by gross margin lag to becoming neutral than ultimately contributing, sort of how does that timeframe look?

The base business is processing commodities. So it -- in terms of that, the 40 basis points, until we anniversary, we're going to continue to see that being the drag, quite frankly. Well, the reason we bought that business was we were trying to get a little bit more out of each car and the precious metals, particularly the catalytic converters. We had been selling the catalytic converters to third parties who were removing the platinum, rhodium, et cetera. So we're going to internalize that, and I mentioned a little bit that the -- we had a delay because as we start processing them ourselves, there's a revenue recognition delay. It doesn't really impact the gross margin percentage per se, because you consider scrap just part of the overall gross margins. So in Q3, there's a slight delay, probably it rounds to $0.01 in terms of gross margin dollars that were missing because of the delay in terms of that processing. So that will come back. Ultimately, we're hoping to get a little bit of extra margin out of each car. And we're processing close to 160,000, 170,000 cars a quarter right now. So our thinking is, that even if we can get, $1 or $2 more per catalytic converter over time, that is accretive to the margins, but I don't know if you'll see it popping out, as I think it will call out per se. Does that make any sense, Bret? Bret David Jordan - BB&T Capital Markets, Research Division: Yes it does. Okay. And one question I guess relative the ECP, the pricing environment of the traditional auto parts over there, Unipart. Have they changed their strategy at all, as far as the pricing given some new management, I guess in the last -- in the not-too-distant past?

Yes, Bret. We've seen a little bit more aggressiveness from the pricing from our competitors, trying to get that market share. But quite frankly, we've been able to adjust pretty quickly and maintain -- keeping cash in that revenue and growing the revenue. So we expect to be a little bit more aggressive in the next coming quarters, for sure. Bret David Jordan - BB&T Capital Markets, Research Division: Okay, great. And then one last question, it's also on market share, but I think it's generally domestic market share. I think earlier in your prepared remarks you commented that you continue to gain share. Do you have an idea sort of about a year-over-year, what's your margins? What's your share increase was, domestically?

We do know this from insurance industry sources, Bret, that claim losses are down year-over-year, roughly about 2.4% is what we've been told, year-to-date. So, with us rolling at 5.6%, but it's hard to really quantify. But clearly we are taking market share from our competition. And of course the APU usage increase up 1% has helped as well.

Our next question comes from the line of John Lovallo with Bank of America Merrill Lynch.

First question is on the receivable securitization facility that was put in place. I'm just curious, is this something that you've had in the past? And is there any -- is the customer payment terms becoming less favorable that kind of made you decide to put this in place or were there other reasons?

We've not have in the past, when we put the credit facility in place last year, we added a provision in there to allow us to do this. So what we -- in our credit facility, we have a basket that we're allowed to securitize up to $100 million of accounts receivable. And it has nothing to do really with our payment terms, it's simply a way of getting some additional capacity and it trades at a little bit more than commercial paper rate. So on the $80 million facility that we have today, we're borrowing at just a little bit over 1% interest rate. So it's very attractive financing and just another source of capital.

Okay, that's helpful. Recently I read, and I think it was a piece put out by Mitchell, and they were saying that OEMs domestically are becoming a little bit more aggressive on pricing, in fact, instructing repair shops to actually lower prices to match alternative prices. I mean, are you guys seeing any of these?

Yes, we're seeing it regionally, John, where we see some aggressive dealerships. But on a national impact, we really haven't seen anything to really worry us. General Motors is probably the biggest one on those types of programs. But they require the dealers to fill out an awful a lot of paper work. We thought the dealers will complain about the paperwork they have to fill out. And they have to buy truckloads of products from what we understand to be in the program. So very few dealerships are actually participating, only the bigger ones. But we haven't seen a major impact at all, actually.

And those programs have been around since 2008, on and off. Their marketing programs would be, really, periodically put in place and then they pull back. It seems like it's just part of their marketing strategy.

Okay, great. If I could just sneak one last one in here. Also recently I heard that France is considering deregulating their repair part market. Now is this -- it's something that you think will go through, it's something that could be replicated in other countries and does this give an opportunity for LKQ in continental Europe?

It certainly does. France was probably on the bottom of the list as an opportunity because of that and that the fact that they are not going to mandate potentially as it goes through, the use of OEM parts on their fair process, certainly it makes it much more attractive. And certainly, if it gains steam, obviously, other European countries may follow suit. Although, we don't see anyone as restrictive as France. So if France is probably the most restrictive in terms of alternative parts, if they do overturn that, that will be a real eye opener for us and an opportunity as well, John.

Our next question comes from the line of Sam Darkatsh with Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: 2 questions. If my math holds, I think year-to-date your wholesale vehicle purchases are up about 10%. I was surprised to see the recycled business on an organic basis only up 3% in the quarter, after being up 8% in the second quarter and your comparison was a little easier. Can you talk about why that number might not have been a little higher?

Sure, there's a couple of things there that affect that, Sam. First, one less day, it actually caused 150 basis point drop by that one day, year-over-year. Secondly, the reduction in our secure disposal and crush-only vehicles where we just destroy cars on behalf of certain customers, that caused a 50% -- 50 basis point decline as well. Here's one other thing I did want to mention, because of the mild winter, I think we saw a fewer total losses coming out of Q1 and Q2. And don't forget it does take 60 to 90 days before those cars hit the auction, so those were in the Q3. So a little bit tougher buying market, I think in Q3, which we believe has really rectified itself. Looking at the auction volumes now, we're seeing the cars that were totaled in Q2 and Q3 -- early Q3 are now hitting the auctions today. So we think it's a one quarter blip. But mainly that one day, and the fact that the crush-only car revenue was down, really cause of that.

Sam, I'll just add, you're right, we're up about 10% year-over-year, that includes the impact of the acquisitions, obviously. Because what we're reporting there is the total number of cars including acquisitions. If you look year-to-date on a similar statistic, recycled parts and services is up organically at 6.6%. So we pull out the acquisition, that's kind of indicates where organically volume sort of 5% to 8% more cars. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Okay, that's helpful. Second question, I noticed that North American EBITDA in dollars was down pretty sharply year-on-year despite sales being up. I know a lot of that explained away with the scrap and the difficult margin impact from that. But do you expect that specific relationship and dynamic to continue? EBITDA dollars being down, sales being up, how long does that last and what are your expectations for gross margins here in the fourth quarter?

Sure, it's John. I'll try to take that one and Rob, you can supplement. No, we don't expect that and due part of it is, as Rob mentioned, there's always one less day, but some of the other things we're seeing is, you're right, scrap was an impact. We don't expect Q4 to be as impacted by scrap as Q3 was. And we talked about the 100 basis points and roughly equivalent to $0.02 in Q3 and we said that's probably going to be $0.01. That's not going to be as big a drag in Q4. It's going to be a drag, but it won't be as big a drag. In terms of -- we did have a delay in terms of the precious metals revenue recognition that we talked about. We started to process about half the cats of that acquisition. So some of that will come back in Q4, but then we may have a delay on some of the other products. Depending on when we move the rest of the cats into the -- that facility will take another one quarter hiatus on some of that income at some point, it will ought to be Q4 this year or maybe we'll take it into early next year, depending on how quickly we can ramp up that facility. Secured disposal, which Rob mentioned that, hitting us about 30 basis points, those things tend to be a little bit lumpy in terms of -- think of these as being, for example, like the cars from a train wreck. So we can't predict those very well, when they're going to come. I can tell you in Q4, so thus far, we're expecting to be down year-over-year. And then the other things, warranty claims, that will get fixed. We think it is behind us now, but until we actually see how things transpire in this quarter, but I would just -- that is definitely a short-term phenomena. And then in terms of the cost of salvage, Rob mentioned that, we are buying better at the auction, some of that is beating up on the scrap. But on a net basis, we do think that ultimately we're going to see our late-model recycled business gross margins improve. So that may hit us and that may start to show up in Q4, we would expect it, if not Q4, we'll start to see it in Q1. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: So we should look at a Q4 gross margin closer to the 41-ish percent range, where we saw in Q2, excluding the settlement gains? Is that how to look at it? Or would it be even better than that perhaps?

I don't -- you know me, I don't like to give exact line item guidance, but it will be, -- at this point, we're anticipating to improve back.

Our next question comes from the line of Bill Armstrong with CL King. William R. Armstrong - CL King & Associates, Inc., Research Division: Just getting back to the precious metal processing, when will you be anniversary-ing that?

We bought have businesses in June this year. So it'll be about a year. But just -- as we move the production from third parties over to that facility, it causes a little bit of a delay on the recognition -- when we can recognize the sale of the metals, so rather than selling the whole cats to, catalytic converters, to a third party, we actually have -- it takes a couple. I think about a month to process them and then some time for the smelters to process them. So we end up with about a quarter delay. So I would imagine it's probably going to be another 6 months before we're fully implemented in that. William R. Armstrong - CL King & Associates, Inc., Research Division: So that's the $6 million delay you referenced earlier?

Right. And so that will come back in Q4, favorably. But then we may have a delay, either this quarter or next, as we delay the other half of the business, as we start processing the other half of the cats. William R. Armstrong - CL King & Associates, Inc., Research Division: So then is that why the precious metal processing is a drag on gross margin because of this delay? Because I would think if you're basically getting more dollars out of each car, that should be better for gross margins?

Ultimately it will be better, the base business that we bought though, is just doesn't -- the existing revenue stream of that business is a low gross margin business, frankly. William R. Armstrong - CL King & Associates, Inc., Research Division: I see, okay. And then some housekeeping on your earnings per share guidance, just -- can you remind us what the year-to-date EPS was on a comparable basis, excluding the restructuring, the acquisition related expenses, the fair value of contingent liabilities? Just so we have apples to apples? It looks to me like it's about $0.66?

Let me just make sure I get the right one over here. Those 2 items are [indiscernible] those 2 items are a little over $0.01, combined. William R. Armstrong - CL King & Associates, Inc., Research Division: On a year-to-date basis?

Right. William R. Armstrong - CL King & Associates, Inc., Research Division: So Q4, if we just back into Q4, that seems like that would be $0.22 to $0.25, is that -- is my math correct on that?

Just a minute. Yes. We agree to that.

Our next question comes from the line of Scott Stember with Sidoti. Scott L. Stember - Sidoti & Company, LLC: I missed the comments on scrap metal, the impact to the gross margin as far as the basis points.

I'm sorry, what was the... Scott L. Stember - Sidoti & Company, LLC: The scrap metal impact on the third quarter, from a -- how many basis points?

About 100 basis points. Scott L. Stember - Sidoti & Company, LLC: Okay, got you. And just going back to the guidance question. You're excluding the -- all the extraneous costs, but you are including the legal settlement, which is, by my calculation, about $0.04, is that correct?

Correct. Scott L. Stember - Sidoti & Company, LLC: Okay. Great. And last, can you just talk about NSF program? How that's going along and progressing and what we can expect out of that in 2013?

Yes, sure, Scott, it's Rob. We're actually seeing some great progress from NSF year-over-year. They've added 462 certified parts into the program, a 60% growth. And also I'm talking about the certification programs, CAPA actually had 782 new parts entered into the system for a 19% growth. And our own internal program, AQRP, we added 888 new parts year-over-year for 8.5% growth. So all 3 of those programs are growing nicely. The insurance companies are demanding them to increase their usage and we're certainly working with the manufacturers to make sure we get more and more products in. So we do expect continued growth out of all 3 of those programs. Christine?

I just want to follow up on Bill's question. Bill, I just want to make sure that we're on an apples and apples basis, because you did not mention the light settlement and so, Scott, has pointed out that we're including the light settlement, it was in Q1. If you include the light settlement, we then excluded the restructuring and -- into the purchase price adjustments, Q4, on our guidance basis will be $0.21 to $0.24. So I just want to make sure that everybody on the call understand that.

And Christine, I think we have time for one more call -- one more question.

Our final question comes from the line of Gary Prestopino with Barrington Research.

Rob, could you maybe -- with what you're doing right now, early-stage of alternative parts in the U.K., have you -- are you -- you're obviously targeting multiple insurance companies, I will assume. But is right now, are you piloting with 1 or 2, and would that one you're working with, be one of the leading insurance companies in the U.K?

We have, Gary, we've several small pilots going on, probably number 5 to -- to the number 5 different pilots going on, mainly with small carriers. The big guys are watching and waiting with good interest level, but these are with the smaller carriers at this point.

Mr. Wagman, we've reached the end of the question-and-answer session. I'd not like to turn the floor back over to you for closing comments.

We just want to thank everybody for joining in the call today. We look forward to reporting our year-end and Q4 report at the end of February, and look forward to hearing from you then. Thanks everybody. Have a good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.