Good morning. My name is Tracey, and I will be your conference operator today. At this time, I would like to welcome everyone to the LKQ Corporation Fourth Quarter and Full-Year 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Joe Boutross, Director of Investor Relations, you may begin your conference.

Thank you, operator. Good morning, everyone, and welcome to LKQ's fourth quarter and full-year 2016 earnings conference call. With us today are Rob Wagman and Nick Zarcone. 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. Also note, the guidance for 2017 is based on current conditions including acquisitions completed through February 23, 2017, and excludes any impact of restructuring and acquisition-related expenses, gains or losses related to acquisitions or divestitures including changes in the fair value of contingent consideration liabilities, loss and debt extinguishment, and capital spending related to future business acquisitions. Hopefully, everyone had a chance to look at our 8-K which we filed with the SEC earlier today. And as normal, we are planning to file our 10-K in the next few days. And with that, I'm happy to turn the call over to our CEO, Rob Wagman.

Thank you, Joe. Good morning and thank you for joining us on the call today. This morning, I will begin our review with a few high-level full-year 2016 financial results, followed by an update on our operating segments. Nick will follow with a detailed overview of our financial performance in Q4 and our guidance for 2017. For full-year 2016, revenue reached $8.58 billion, an increase of 19.3%, as compared to $7.19 billion for full year of 2015. This number excludes revenue from PGW's OEM glass manufacturing business whose planned divesture was announced in Q4. Nick will provide the overall financial impacts of this transaction shortly. Net income for full-year 2016 was $464 million, an increase of 9.6%, as compared to $423.2 million for 2015. Diluted earnings per share for full-year 2016 was $1.50, an increase of 8.7%, as compared to $1.38 for the same period of 2015. On an adjusted basis, diluted earnings per share were $1.80, an increase of 20.8%, as compared to $1.49 for 2015. For the full year of 2016, parts and services organic revenue growth was 4.8% and acquisition revenue growth was 19%, while the impact of exchange rates was negative 2.5%, for total parts and service revenue growth of 21.3%. Adjusting for differences in selling days during the fourth quarter of 2016, the company achieved global organic growth of 5.2% on a per day basis. Turning to our North American operations, adjusted for having one less selling day, our North American segment had organic revenue growth for parts and services of 3% during the fourth quarter, performance consistent with what we've witnessed throughout all of 2016. For full-year 2016, North America had organic revenue growth for parts and services of 2.9%, which is 40 basis points above the full year 2.5% collision and liability-related auto…

Thanks, Rob. And good morning to everybody on the call. I'm delighted to run you through the financial summary for the quarter before touching on the balance sheet and addressing our guidance for 2017. In December, we announced we had entered into an agreement to sell the OEM operations of the PGW business. And with that, the accounting rules require us to do several things that make the fourth quarter results a bit confusing. So, I will spend a little less time on the segment results, which I set forth in the presentation, and I will spend a bit more time trying to get everybody on the same page in understanding the correct apples-to-apples comparisons. The sale of the OEM business, which is slated to close on February 28, requires us to treat the OEM activities of PGW as a discontinued operation, and thereby, eliminating the related OEM revenue and expenses from the consolidated totals both for the quarter and for the year as a whole. So, the revenue and expense line item amounts shown in our income statement include the aftermarket replacement glass side of PGW, which we refer to as ARG, but exclude the OEM side. The impact of the OEM business is netted down to a single line item on the income statement labeled Income from Discontinued Operations. In arriving at the OEM income, under U.S. GAAP, 100% of the costs related to any person or expense item that had some involvement with the aftermarket business during the year, regardless how limited, had to be recorded as continuing operations even though the people and/or expenses are actually going to Vitro as part of the sale. So, even though most of the PGW officers like the President, CFO, Heads of HR and IT, et cetera, and most of…

Thanks, Nick. In closing, I am proud of the hard work and dedication of our 40,000-plus employees delivered for the company, our stockholders, and most importantly, our customers in 2016. I am equally proud of our teams' commitment to deliver continued growth in 2017. This focus allows us to project solid EPS gains for 2017 with the midpoint of our guidance representing a 10% increase over the comparable 2016 EPS results. With that, operator, we are now ready to open the call for questions.

Your first question comes from the line of Ali Faghri from SIG. Your line is now open.

Good morning. Thanks for taking my question.

Good morning, Ali.

Good morning.

Can you talk about the cadence of North American organic growth trends through the quarter? And then, maybe as a quick follow-up, you mentioned continued geographic differences in performance between certain regions in the U.S., did you see that performance gap between those regions close at all in the fourth quarter relative to last quarter?

Yeah, I'll let Nick talk about the cadence over the four quarters but let me just touch, Ali, on what we saw on organic growth, and I also want to talk about the sales initiatives that we have in place for this year. From the data we have from CCC, the weather was clearly an impact. For 2016, CCC reported claims volumes up 2.5% versus 4.6% in 2015. So, there was a definite decline. We did some studies on our top 20 states that we do business in, which is the lion's share of the population. They were up 1.3% compared to our 2.9% increase, so we're definitely seeing some momentum in the right places. There are regional differences that continue to this day, the West and the Central are definitely doing better than Northeast and Midwest. The core business though of our hoods, fenders, lamps, covers were all higher than our overall North American, again across. So, I am convinced when collision returns to normalized levels, we will reap the benefits. We're well positioned for inventory as soon as all those collisions start coming back. I do want to touch quickly on total losses, those were up 18.8%. From a few years ago, they're about 16%. We do expect that to plateau though as these newer cars come into the process. So, total losses cut both ways for us. Obviously, the cars don't get repaired, but that's how we require our inventory. So, a healthy total loss rate isn't a bad thing for us either. And the last thing I'd say, just on the acquisition – on the organic growth rate, just from acquisition financials, our pipeline still remains robust. We're seeing this as an industry issue. We're seeing some pretty soft financials come into the M&A. So, we…

Sure, Ali. It's – it was a little bit unusual, we started off the quarter – and I think your question was how do things roll from October to December. You recall that at the very beginning of the quarter, the Southeast got hit with the hurricane, and that clearly had an impact on our growth in October, particularly in the Southeast region, which is actually down on a year-over-year basis for the quarter as a whole. Things picked up a bit in – obviously, in November and December. We can't quantify exactly the impact of the hurricane. We do know it had negative impact on the results for the quarter and particularly in October. But I wouldn't say that there was a big acceleration from October to December when you try and adjust everything out, if that's helpful.

It is. Great. Thanks for all that color. So, just to be clear, you're guiding North America to 2% to 4% growth in 2017, it sounds like you're saying probably closer to the low end of that range in the first half of the year and maybe improving throughout the year, is that the right way to look at it?

That's right way to look at it, yes.

Absolutely.

Great. Thank you.

Thanks, Ali.

Your next question comes from the line of Craig Kennison from Robert W. Baird. Your line is open. Craig R. Kennison - Robert W. Baird & Co., Inc.: Good morning. Hey, thanks for taking my questions as well. Just wanted to ask that North American question in a slightly different way, but we saw reports from Copart and Insurance Auto Auction yesterday showing a surge in activity at salvage auctions, and that's driven by distracted driving and other factors. So, help us reconcile that trend with the soft trends you're seeing. I realize there are regional differences and maybe a change in the totalled frequency, but maybe just for investors trying to reconcile that, what would your explanation be?

Yeah, Craig, I think the answer is that it – we're totalling an older car. We get stats from CCC that show older cars are definitely totalling. We still have an average model year of 11.5 years old, it doesn't take much to total that car. The volume at auctions is definitely up. We'd track that on a weekly basis. And they are surging for sure, but it is an older car, it appears.

And the higher the total loss rate goes, that means those cars are not getting repaired and we can't sell parts to help repair those vehicles. Craig R. Kennison - Robert W. Baird & Co., Inc.: Got it. Thank you. And then, just as a follow-up, get you on record if I could, on the border adjustment tax proposal, I realize there are lots of different proposals out there and who knows what's going to pass, but how have you positioned yourselves for tax policy changes and what issue should we anticipate?

Yeah, Craig, the reality is the border tax proposals and the like are incredibly vague and incredibly complex. So, we really can't put a number on it. Here is what I can tell you, that between our aftermarket and our specialty businesses, we purchase about $1.3 billion worth of product that is manufactured outside of the United States. But there is about $500 million of that, that we actually procure from the U.S. subsidiaries of those foreign suppliers. So, only $800 million is actually purchased from non-U.S. companies. So, with respect to the $500 million, it's absolutely unclear as to who would get hit with the theoretical border tax, if you will. The reality is, in the parts that we procure, there are not a lot of U.S. domestic suppliers that we can turn to, to acquire the volumes that we need to service our customers. The other part of the border tax is a lower corporate tax rate of 20%. Included in that is immediate deductibility of capital expenditures. Of the $225 million of CapEx, about $140 million of that is really U.S. based. So, that would help move things in the other direction. But again, there is – it's so unclear, it's almost impossible to quantify the real impact on the business.

And let me just add, Craig, one of our largest manufacturer actually overseas does have manufacturing capacity here in the U.S. And we had a team over there last week talking to them that in the event there are some taxes imposed that they would ramp up production here in the U.S. So, we are actively looking at alternatives should that happen. But the other piece of good news is that the OEs are actively against this and have been very vocal about it. So, I think they have the same exposure we do. So, all in all, it could be an even playing field at the end of the day. Craig R. Kennison - Robert W. Baird & Co., Inc.: That's really helpful. Thanks, guys.

Your next question comes from the line of Ben Bienvenu from Stephens. Your line is now open.

Thanks. Good morning, guys.

Hey, Ben.

Good morning, Ben.

I have – just one point of clarity on the incremental Tamworth cost of $0.02, is that on top of the prior $0.07 to $0.09 you were expecting when you initially discussed the dilution associated with that? Or is it on top of the dilution you experienced last year?

It's on top of the dilution experienced last year, so we think that at the end of the day, the overall kind of duplicative cost over the span of the project will be less than we originally anticipated back in the summer of 2015 when we've put this on the radar screen for everybody.

Okay, great. And then, maybe just a quick follow-up to that. You had alluded before that you would see accretion in 2018, are we close enough to 2018 to where you can take a stab at what you think that level of accretion could look like?

No, it's going to really depend on how quickly we can kind of turn down the two facilities that we're going to ultimately close because that's where the benefit is going to come from. We will be – at that point in time, in January of 2018, we'll be fully staffed up and running at T2. And then, we will ultimately close the facilities, either transfer or eliminate labor at the two other facilities, and obviously save the lease payments as well.

Thanks so much. And then, if I could ask a question about the organic growth disparities between geographies, do you think you've seen enough normalized weather coupled with the comparisons from last year, such that you would expect those gaps to close as we move into the balance of 2017? Maybe just help us think about that comparison year-over-year.

Well, two days ago, here in Chicago, it was 75 degrees. And this morning when I came in to work, it was 55. So, the normalization of the winter weather has not been even across the country. And so, my expectation is, particularly like in the Midwest which seems to be having really May weather here in February, we're not going to get much of an uplift, if you will. Obviously, the – essentially, the significant rains out West down in the Texas area, that should help us out. So, my expectation is we're going to continue to see regional differences from a growth perspective. But, Rob, you may...

Yeah. I would just add to that, Ben, that we track miles driven by regions, and the Northeast in December was negative 1.4, and the North Central was negative 2.3. So, it seems like it's going to be a little soft, but we do hit some softer comps in the back half, so we're cautiously optimistic.

Yeah. Thanks. And just one last quick one from me. Is the repayment of debt with the proceeds from the OE sale of glass business, is that reflected in the EPS guidance?

It is.

Okay. Great. Thanks. Best of luck.

Thanks, Ben.

Thanks, Ben.

Your next question comes from the line of Samik Chatterjee from JPMorgan. Your line is now open.

Hi. Good morning. I did want to go to...

Good morning, Samik.

Hi. Good morning, Rob. I did want to go back to the North America parts and service organic growth, and you're guiding to 2% to 4% in 2017 for organic growth. It will be interesting to know how you're thinking about how this impacts long term the growth for that business. Do you think there are headwinds here that sort of persist for a few years, and hence, impacts – Rob, I believe you've said in the past that you're sort of looking at this business being a mid-single digit grower, but do you think this impacts about how you think about this longer term as well? And maybe just a quick follow-up on that, the sales initiative that you're working on, how long do those take to sort of kick in and deliver some improvement in the growth?

Yeah, the – on North America, I do have – I'm very bullish on the long term actually. The 2% to 4% this year is really related to what Nick just mentioned, Samik, just a minute ago about being soft weather that we've had, so far, this month certainly in Chicago and across the North. So, now I do believe the macro trends are definitely in our favor. We've had a strong SAAR rate for a couple years. Those cars are going to get to be four or five years old and really come into the sweet spot. You've got miles driven for the most part increasing, a later-model car park is going to be fully insured. The cars are much higher valued, so much more difficult to total. So, I think long term, we're fine. And the number of cars hitting our sweet spot are starting to increase. So, the macro tailwinds are definitely in our favor for the outlier years.

Got it. And any color on how long does it typically take, in your experience, for the sales initiatives to sort of gather pace in terms of delivering some growth?

Yeah, we're starting roll those out as we speak. So, I think we'll start to hopefully see some positive impacts here in the back half of the year.

Okay, got it. And then, on Andrew Page, you've started to include it in your guidance for 2017, is there any updated thoughts that you have on how many of those branches that you intend to keep? Is there a cash bent towards restructuring some of the branches there, any color on that?

Yeah, let me give you an update on Page. We are still under the hold separate order. However, we do have limited contact now with the Andrew Page management team, and we're assisting in procurement, fleet management, and the back-office. What we're prohibited from doing is sharing market plans or pricing. So, to answer your question, it's a little hard to figure out which branches, what we'll close, what we'll keep. But we are, from a 35,000-foot view, analyzing that. The biggest problem they had was that many suppliers had cut them off. So, while their overhead costs had remained flat, revenue was negatively impacted by the lack of inventory. So, with ECP's help over the last couple months, we were able to stabilize the business, reestablish those supply agreements, and improve the fleet logistics in the internal controls. Now, that it's stabilized, the Andrew Page team is looking to rightsize the cost structure. The full integration and synergy capture can't occur until we get the release from the CMA. So, to comment on how many locations we'll keep, it's a little early still to be able to do that.

Okay. Got it. Great. Thank you.

You're welcome.

Your next question comes from the line of James Albertine from Consumer Edge. Your line is now open.

Great. Thank you and good morning, gentlemen.

Good morning, Jamie.

Good morning, Jamie.

It just seems like it's the right thing to do. So, let's keep the ball rolling on North America. Look, we get a lot of questions in a lot of different ways, and some of those have been asked already. The way I want to look at this is strictly speaking from a residual value perspective. What's your view – you mentioned loss ratios, you have a view on that. How do residual values play into your outlook? And to the extent – really what I'm focused on is not so much the 11-year-old-beyond vehicle that might get total loss, as Rob alluded to earlier. At the earlier part of the curve, you've got vehicles with much more expensive content, whether it's headlights that are significantly more expensive, taillights with blind spot detection or what have you. And I'm wondering, if residual values were to fall off, will insurance companies be more likely to sort of total loss those vehicles or is there a risk of that?

Sure. Absolutely. We believe we're strongly tied to the Manheim. Used car values, residual values, as cars, that diminishes, obviously it's much more easy to total a car. However, we do believe that the cost of these vehicles is substantial in these newer vehicles, that a lot of these cars are going to repair. I think the proliferation of a $3,000 headlight or taillights are still years away. I think we're still well-positioned, Jamie, to weather that storm. Talking to insurance companies, they don't believe they're going to see a huge spike in total losses because of that anytime soon.

Yeah. I mean, in general, the rule of thumb in the industry in every insurance company is a little bit different, as a car will get totalled when the cost to repair starts to get to around 65% of the value of the car. So, if the value of the car comes down because of used car pricings and the like, that could push a few more vehicles into the total camp than not. But when you have cars that are coming out that are very high-priced, it takes a boatload of damage to get to 65% of just that higher number.

So, if I'm hearing you correctly, and I appreciate that additional color, the 65%, but it sounds like we're not near that pivot point from a strictly-speaking higher part perspective. But I guess as a follow-up to that, are you seeing OEMs act differently as they're becoming more aware that there's a – there could be a big market opportunity for them to supply those parts? And it does take some time, right, before the newest vehicles make their way to auctions and sort of off-warranty and whatnot, so any competitive sort of changes that you've seen would be helpful.

We have not seen the OEMs do anything in terms of anything more aggressive quite frankly. We track their prices regularly, and we are still averaging that 1% to 1.5% increase in part prices. So, nothing abnormal from them at all.

Okay. And if I can sneak one last one in, strategically on acquisitions, and thank you for the time. Just given the fact that you have seen some weakness and you've kind of benchmarked that for us, right, you said in certain markets, it's sort of worse than what you're reporting. And so, your spread is still, if I hear you correctly, holding up. But if the benchmarks are weakening, the markets are weakening, wouldn't that, in theory, sort of open up some acquisition opportunities for you? And I'm wondering, there's any – if you have eyes to maybe accelerate your plans to get into the mechanical parts business in North America in the near term? Thanks.

Yeah. I will say, that the pipeline is extremely robust, Jamie, it's – we get a weekly report from our M&A team of the status of our deals, and it's quite a spreadsheet now. So, there is quite a bit of activity there. As far as the hard part side of the business, we're continuing to look at opportunities there. As you know, we've been quite successful in Europe with our hard part strategy. In the UK, specifically, with the combination of collision and hard parts. So, it is absolutely on the radar for sure.

Great. Thank you again. And best of luck.

Thanks, Jamie.

Thanks.

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

Hey, morning, guys.

Hi, Bret.

Good morning, Bret.

I got to get my North American question in. So, if we're looking, I guess, your comment about the softer first half of 2017 as a result of some residual issues from 2016, could you weight the residual weather versus the residual total loss increases in that impact, which one is more significant and sort of give us some buckets?

Yeah, that's really hard to do because at the end of the day, all we know is kind of what's happening from a repairable claim perspective, that was 2.5% increase for the year as a whole, the fourth quarter number was 2.8%. The reality is we don't sense that we're losing any share, kind of call volumes are consistent. We do have some anecdotal information, Bret, in chatting with our vendors which we do all the time, right, and a couple of our largest providers of aftermarket parts over in Taiwan have told us that their non-LKQ sales last year were flat to down, which says that our competitors, if you will, were buying the same or even a little bit less aftermarket inventory, which is I think just reflective of the market and a relatively low increase in repairable claims. But it's almost impossible for us to split weather from other market trends. The key, it's important I think the folks to understand is that the growth of the kind of the core products was higher than the 3% overall in the fourth quarter, okay, when you think about that core aftermarket product of hoods, fenders, mirrors, bumpers and the like. As some of these secondary products, the paints and the radiators and like where we've got some special programs being designed to attack that, they were actually down on a year-over-year basis. And so, our core kind of collision – your question, I think, really went to the trends in the core collision market, in those core collision products, we're more than holding our own and we think we're probably continuing to take a little bit of share.

And then, let me just add, Bret, your comment about the auction and what we're seeing there. Q4 year-over-year, our salvage purchases were up 5.2% at $47 less a vehicle. So, that surge of inventory – like I said, it's allowing us to buy more inventory at a cheaper price, our self service was up 14% Q4-over-Q4. So, the inventory being available is not a bad thing for us.

Okay. And then, the highlight obviously ECP comps, the 12-month stores being up over 6%. What's going on over there, is that the market growth rate? Are you taking a lot of share ? And I guess, is that also benefiting from the collision mix that you're putting through those stores or is that separate?

Yeah. The collision was definitely helping because that is in the numbers as well. But we are definitely taking market share, and we believe the industry is growing likely GDP. Interesting enough, Brexit has not hurt us at all in terms of the driving population. In fact, they've coined the term staycations that the BRICS can't go to Europe because their dollar is not – the pounds is not travelling as farther. So, they're staying home. So, we're seeing miles driven up. We believe – we're very confident in ECPs continued growth in that marketplace.

Okay, great. Thank you.

Thanks, Bret.

This concludes the Q&A session. Mr. Rob Wagman, I turn the call over to you.

Thank you, everyone, for joining us on the call today. We look forward to updating you on our next call in April when we report Q1 results. Have a great day.

Thanks, everyone.

This concludes today's conference call. You may now disconnect.