Good morning, and welcome to LKQ Corporation's Fourth Quarter and Full-Year 2017 Earnings Conference Call. I'll now turn the call over to Joe Boutross, LKQ's Vice President of Investor Relations.

Thank you, operator. Good morning, everyone, and welcome to LKQ's fourth quarter and full-year 2017 earnings conference call. With us today are Nick Zarcone, President and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Financial 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. Also note that guidance for 2018 is based on current market conditions and does not include any results for the pending Stahlgruber acquisition. We will update guidance for the balance of the year once the Stahlgruber transaction closes. Adjusted figures exclude the impact of restructuring and acquisition related expenses, amortization expense related to acquired intangibles, excess tax benefits and deficiencies from stock-based payments, adjustments to the estimated tax reform provisions booked in 2017, losses on debt extinguishment and gains and losses related to acquisitions or divestitures. Hopefully, everyone has had a chance to look at our 8-K which we've filed with the SEC earlier today, and as normal, we are planning to file or 10-K in the next few days. And with that, I'm happy to turn the call over to our CEO, Nick Zarcone.

Thank you, Joe, and good morning to everybody on the call. We are delighted to share the results of our most recent quarter with you, which from our perspective represented a solid close to a strong year. Importantly, the fourth quarter highlighted excellent momentum in our business, particularly in our North American segment. I will provide some high level comments on the quarter and then Varun will dig in a bit further into the segments and related financial details before we discuss our guidance for 2018. All in all, we believe Q4 was a strong quarter for our company, and we are very pleased with the results. As noted on slide 3, consolidated revenue was $2.470 billion, a 15% increase over the $2.15 billion recorded in the fourth quarter of last year. Total revenue growth from parts and services was 14.3%. Importantly, organic revenue growth in parts and services on a global basis was 4.8% during the fourth quarter. As mentioned in the last call, very few companies in our sector are generating organic growth at this level. Diluted earnings per share from continuing operations was $0.41 in Q4 of 2017 as compared to $0.31 for the comparable period of 2016, an increase of 32%. As Varun will discuss, the 2017 results reflect one-time benefits associated with the Tax Reform Act. Our adjusted diluted earnings per share from continuing operations, which among other items, excludes the impact of the tax law change was $0.41 compared to $0.35 for the same period of 2016, reflecting a 17% year-over-year increase. Now, let's turn to the operating highlights. As you'll note from slide 5, total parts and services revenue for our North American segment grew 6.8% in the fourth quarter of 2017 compared to the comparable quarter of 2016. Organic revenue growth for…

Well, thanks Nick, and good morning to everyone joining us on the call today. Nick touched on a few of the key financial stats. I will take you through the more detailed review of the consolidated and segment results for the quarter and also cover current liquidity. Nick described the trends behind our reported revenue of $2.47 billion in the quarter. So let me start with our consolidated gross margin for the same period. As noted on slide 12 of the presentation, the consolidated gross margin percentage was down 20 basis points quarter-over-quarter to 38.4%. We saw some softness in Europe due to incremental costs related to the T2 facility and a negative mix impact with a greater percentage of the business growth coming from Eastern Europe, which, as we've previously discussed, has a lower margin structure. Partially offsetting this movement, we continued to see solid margin improvement in our North America segment, primarily in our salvage operations. Segment EBITDA totaled $253 million for the fourth quarter, reflecting a $31-million or 14% increase over the comparable quarter of 2016. As a percentage of revenue, segment EBITDA was flat year-over-year at 10.3%. We saw a 50-basis point increase in our operating expenses and I will cover this in further detail as part of the segment results. Non-operating items were favorable by about $4 million versus the prior year. Each period contained a non-recurring income item as Q4 2017 included a $4-million downward adjustment to our contingent consideration liabilities and Q4 2016 reflected a gain on bargain purchase of $8 million related to the Andrew Page acquisition. We have excluded both of these items out of adjusted income from continuing ops and adjusted diluted EPS. Other non-operating income in the fourth quarter increased by approximately $8 million and includes foreign exchange gains…

Thanks, Varun. As Varun just mentioned, we anticipate a meaningful reduction in our effective tax rate, that when compared to the rate in 2017 will save LKQ approximately $85 million, representing an increase in earnings per share of approximately $0.28 in 2018. Since the company was founded in 1998, the focus has been to reinvest all the free cash flow back into the business to support our growth. That will be the case with the majority of the enhanced free cash flow resulting from the tax savings. We will, however, utilize a portion of the benefit to invest in our people and the communities in which we operate, through a series of long-term benefit enhancements and other programs, primarily in the U.S. These include enhancements to our healthcare, retirement, and PTO benefit programs. We are also funding some employee-focused education programs and will be establishing the LKQ foundation as a tax efficient vehicle to support our communities. In total, the annual cost of these programs will be about $20 million or $0.05 a share. It's important to recognize that while the tax savings will be incorporated into the tax provision, the funding of these important programs will increase operating expenses, slightly reducing the margins of our North American and Specialty segments. But the net benefit is significant with an estimated uptick of approximately $0.23 a share in 2018. Slide 26 sets forth our annual guidance for 2018. It is important to note that this guidance does not, I repeat does not, include the impact of the pending acquisition of Stahlgruber. We will update guidance after the transaction closes. As you will note, we believe global organic revenue growth of parts and services will be in the range of 4.0% to 6.0%, with the midpoint up a bit from the 4.1%…

Our first question comes from the line of Benjamin Bienvenu with Stephens, Inc. Your line is open.

Thanks. Good morning. Thanks for taking my questions.

Good morning, Ben.

I want to ask about North American organic growth, obviously really nice results in 4Q, and in the context of broader strong results across organic parts and services growth. We've got a more normal winter as you alluded to, to start the year. Curious about your expectations for that organic growth rate, in particular and kind of the glide path we should expect embedded within your overall organic growth rate guidance.

Yeah, Ben. This is Nick. We anticipate that North American organic will be in that 4% to 6% range, with a chance of being kind of north of the midpoint. We've had a great fourth quarter where we posted a 5% organic. I think it's important to recognize that our core products, think about our salvage products and our Keystone aftermarket products, the new products in a box, if you will, they were actually up north of 6% in the quarter. We are still feeling some softness in a couple of product categories. Paint was up only 1%. The good news there is that's the first quarter in the last five quarters where paint actually had a positive growth rate. And then wheels and cooling our still a little bit on the negative side. So net-net, we're feeling good about North American organic and so we basically included a kind of a 4% to 6% range into the overall guidance.

Okay, great. And then some of the operating expenses were a bit more pronounced than we are expecting in 4Q, in particular facility and warehouses expenses. Varun, I think in your prepared comments, as you walked through the slide deck, you pointed to the Benelux operating expenses, the 120-basis point headwind, some portion of that being one-time versus structural. But could you quantify that and then just help us think about what of the expense pressure in the quarter was structural versus transitory?

Yeah, no, absolutely. Hey Ben, good morning, it's Varun (42:06). Great question and appreciate it. So in terms of talking about operating expenses, personnel costs essentially in many instances in North America cracked the higher organic activity that we had. So apart from having to recruit more people, having to invest further into our inventory, we also had to pay slightly higher rates. And then on top of that, we had a higher level of medical claims expenses here in North America. Freight for the full year was up 20 basis points, but really kind of muted in the fourth quarter as such. This is again North America specifically. So North America the vast majority of that higher expense really was supporting the higher activity that we experienced as – on the – off the back of the organic growth momentum that was coming through. On the European side, if you think about the Benelux piece as we call that, really two key factors. The first is the one-time piece and it basically is essentially related to costs that get capitalized into inventory and then become part of that inventory cost, it gets offloaded when we sell that inventory, so there was a catch up that took place out there, which essentially – so that was about 70 basis points of the 120 basis points, so the vast majority of that. And then the second one really is – and so I don't expect that to be a structural change, it was more transitory. We don't expect that to be on a go-forward basis. And then the second one is more structural. The remainder of it really is in the Benelux, as we called out last quarter going from a three-step to a two-step model, where we have a higher gross margin rate. But then associated with that, we also have a higher OpEx that comes along with it. The net EBITDA margin is still good for us, and kind of falls within our parameters where we would invest. But there is a structural change and that will continue.

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

Great. Thank you for taking my question and congratulations on a solid fourth quarter.

Thanks, Jamie.

Maybe just a follow on to that prior question on leverage. If we can dial in to North America specifically, you've talked about – Nick specifically you've talked about initiatives you've been working on for the last couple years to try and streamline operations. And then in your prepared remarks, if I heard correctly (44:37) there's sort of this – you're embarking on this IT expenditure. Could you just sort of help us understand is 2018 going to be a greater opportunity to show some leverage in the business or are we still in an investment pattern here from North America's perspective?

Yeah, Jamie, we're expecting the margins in North America to tick up just a bit, but we are investing heavily into the business because we think there's great growth prospects for many years in the North American business, some of that goes directly to the uptick in capital spending that we noted. CapEx in North America is going to be up the better part of $65 million to $70 million. Some of that relates to some IT initiatives, but the bulk of it is really expanding our capacity within our salvage and aftermarket infrastructure. You can only push so many cars through a salvage facility before you have to get more land to expand your processing capabilities and the like, because the alternative to actually run more cars through the facility is to increase the cycle time, which means the cars are sitting out in the yards for a fewer number of days and you end up crushing a bunch of great parts that otherwise could be sold. So we're investing into the North American business and you can see that in our capital spending plans. We do think that we still have some room to go on some of our productivity initiatives. We are largely through the benefits, but there's a little bit of extra room, things like our Roadnet and our procurement and other kind of spending initiatives, if you will.

Yes. And then just to add to what you just said a few minutes ago. So, Jamie as you think about some of the cost (46:34) a few we know was up through the course of the year. But essentially as part of the investment, in terms of the efficiency programs that we've got underway, call it the Roadnet route optimization piece that Nick referred to, of that matter (46:47) continue to upgrade our fleet to newer and more fuel efficient vehicle, that essentially largely mitigated some of those expenses. Again, there's some smart investments that we continue to make. And then the other piece that I do want to highlight is that when you kind of think about the go-forward margins, the tax reform benefit and the partial reinvestment of $0.05 that we called out, that is largely here for our U.S. domestic teams, so that will flow back into the 2018 margin profile. So just wanted to kind of highlight that.

Your next question comes from the line of Craig Kennison with Baird. Your line is open. Craig R. Kennison - Robert W. Baird & Co., Inc.: Good morning. Thanks for taking my questions as well. I wanted to ask about T2 and Andrew Page. I know in the past you've talked about an $0.08 drag from those operations in 2017. It sounds like you're going to claw back about $0.03 of that. Can we still look at 2019 and say that should be a clean year, where you get a full $0.08 benefit or a net 5% increase over 2017 – or 2018?

Good morning, Craig and thanks for the call. Yeah, we are excited about the T2 project. It's operating well. It came in from a cost perspective right on-time, it's ramping up pretty much as anticipated, if you will. Once we get these other two facilities closed and totally rationalized, we will begin to fully get the benefit. So yes, we're going to pick-up a couple cents a share in 2018 of those duplicative cost, and by 2019, we should be pretty well through and – kind of that what you would call the duplicative cost. And in 2020, we'll be generating some really – really good returns for us. You Craig R. Kennison - Robert W. Baird & Co., Inc.: I guess.

You got a question on Andrew Page? Craig R. Kennison - Robert W. Baird & Co., Inc.: Well, I thought collectively those two would contribute around $0.08 when those one-time or those temporary costs go away, but we're only getting $0.03 of that back and I'm guessing that when we look at 2019, we'll see the full $0.08 benefit?

Yeah. Our expectation is by the end of 2018 the Andrew Page operation will be breakeven. Obviously, our goal is to get it actually into profitability. And so by 2019, we will collect the entirety of the $0.03 loss that we incurred this year.

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

Hi. Good morning, guys.

Good morning, Bret.

Good morning.

Could you talk about the purchasing synergies you're seeing, I think you said 30 basis points maybe from – on the European consolidation and I thought Mekonomen Group maybe talked about in their earnings call a week or two ago about joining sort of maybe it sounds like a buying group with you guys. So where are we as far as consolidating the supply chain? And I guess as you think about adding the Stahlgruber business, what are the thoughts as far as consolidating some of the management overhead and the operational side of the European business?

So, I'll start Bret, the purchasing savings that we're seeing roll through are largely coming out of the initiatives that we started post the Rhiag acquisition back in mid-2016. We are getting a good response and good support from our vendor partners, if you will, and those savings are accruing. We haven't really started anything of note as relate with our – with respect to Mekonomen, but we will begin some programs there, as they announced, in 2018 which should benefit both organizations. Obviously, we anticipate another kind of step up in procurement benefits once we are able to close and begin to integrate the Stahlgruber team because they bring $1.6 billion of incremental revenue and probably close to €1 billion of incremental procurement to the overall LKQ Europe network. And we will be working collectively with the Stahlgruber team, and again with our vendor partners to try and really get the benefits of being the largest procurer of aftermarket parts in Europe by a wide margin. As it relates to integration of kind of back office and items related to the Stahlgruber transaction, that's something that will take much longer to participate. Our goal just as it has been with ECP, Sator and Rhiag is not to disrupt the day to day management and the customer interface because this is very much a local business, even though we have a global platform, the daily activities are local, and we want to make sure we keep our service commitments to our local customer base. Having said that over time, we do have plans, broader plans to do some integration as it relates to broader kind of corporate services. One of the things we need to do to make that happen, though, is to kind of normalize the IT systems. Right now, most of our European operations operate on different IT systems. So, we noted in the call that we're going to be spending more money on IT in 2018 than ever before, and part of that is to begin the journey and it is a multi-year journey ultimately to bring our European operations to a common platform.

And then Nick just to add – Jamie (53:08) I think your second part was about the LKQ Europe, stitching together that piece. So in addition to what Nick said, listen, as you know we have a LKQ Europe CEO, LKQ Europe CFO, a European CIO, things along those lines and that really is the team. It's a small team but that's the one that is continuing to bring together each of these synergy opportunities, be they procurement or cost related. And this way around, our in-market national businesses, they are free to continue to operate and continue to deliver fantastic service to our folks, to our clients out there. But really, it's a small team, headed by John Quinn that essentially is leading the charge on some of these programs with regards to the common ERP for example across the European landscape. Certain other initiatives associated with procurement, the benefit of which we are beginning to see already, big data, single catalog, along those lines.

Okay.

Your next question comes from the line of Michael Hoffman with Stifel. Your line is open. Michael E. Hoffman - Stifel, Nicolaus & Co., Inc.: Hi, Nick, Varun, and Joe. Thank you for taking my question. I have two if I may. One is on margins, one is on cash flow. On the margin, when should we think about Europe being 9.5% to 10% again, margins? What's the line of sight of that?

Yeah. So, Michael thanks for your question. As we've been mentioning for some time now, we do think that the European business can get into kind of the double digit EBITDA territory over the next few years. Now obviously, when you layer out €1.6 billion of revenue from Stahlgruber, which, as we disclosed back in December, was running on a 8% margin, that will have a net negative impact a bit just from a mix perspective. But again, think about the next two to three years. We think we can get the entire complex back to a 10% margin. Michael E. Hoffman - Stifel, Nicolaus & Co., Inc.: Okay. Thanks for that. And then on free cash flow, can you help me understand – I get that you've made this investment in inventory and working capital, but what I really like – and then capital spending's going to be up a lot this year. But what I'd like to try to understand is how does that translate into moving then the organic growth rate? Because your goal was $425 million in free cash for 2017, you did $344 million. Your midpoint of your goal for 2018 doesn't even get back to the original 2017 goal; so I'm trying to understand where the leverage is, because ultimately I think this is a free cash flow play and we've just compressed the free cash a bit.

Yeah, so Michael, hey, good morning. It's Varun (56:12). Let me answer that. So listen, as I mentioned in the remarks earlier, given the organic growth in the business and the acceleration of that, specifically here in North America and just to reiterate, going quarter-by-quarter in 2017 here in North America same day was 1.8% in Q1, 2.8% in Q2, 4% in Q3, and 5% in Q4. On the back of that, the last thing that we want to do is to have a stockout scenario. So this was a decision that we actively supported to ensure that we had adequate breadth and depth across our businesses here in North America. The other piece that I do want to highlight is, coming off the hurricanes in Q3, there were favorable buying conditions on our salvage side. So again that was an area that car buying was good and we built up a backlog of just over a week and that's the piece that we're kind of using through, so we're kind of seeing some of that benefit come through in the current quarter also. And then to kind of give you one additional example, and if you think about of the product categories that Nick mentioned earlier with regards to paint for example, that had turned positive in this past quarter, glass is another area where we actually performed really well and that actually contributed to our 5% organic growth rate. And again, within that piece to ensure that we have adequate stock given some of the kind of longer lead times that we see and to ensure we have good fill rates from our suppliers, that was the other area that we ended up investing our inventory. So a couple of those points and then, again these were the kind of main elements. There are other small items as Nick mentioned we called out the Mopar FCA inventory and deal as such. Again that kicks off in 2018. But there was some inventory build on that also. So again if you think about the overall piece of it, we are in a good position. Organic growth has been accelerating and to avoid any kind of stockout scenarios, we certainly want to make sure that we continue to invest.

Your next question comes from the line of John Healy with Northcoast Research. Your line is open.

Thank you. Was hoping you guys could talk a little bit more about the planned IT investments. I know you mentioned Europe would be a focus, but was kind of hoping you could give us some examples of what needs to change from an IT perspective. Are these multi-year projects and just how big of a planned project that you were thinking about there?

Good morning, John. This is Nick. Yes, so like in Europe, all of our major acquisitions came to us with completely different ERP systems. And ultimately to get the true efficiency out of the combined network, we need to migrate to a single system. Now, that's probably a five-year process, because you can't take all the various systems and convert it in a year. So, we are in the middle of making a decision as to a single ERP platform for our European operations. That is a major decision. That play out will happen, like I said, probably over the next five years as we will migrate all of our operations to a common platform and that is a very large project. It's tens of millions of dollars, it's not a couple million dollars. It's tens of millions of dollars to make that happen. In North America, we've been operating off of the same platforms for quite some time. So we're running the business today with basically the same IT infrastructure as we're running back when it was $1 billion business. And so we will again upgrade over the next couple of years to a larger common ERP platform. Currently, we run different platforms for our salvage in our aftermarket businesses and we will likely migrate that to a single platform. Again those are – that's a really big project, it's not a – again tens of millions as opposed to millions.

Great. And then, just wanted to ask Nick just about the U.S. market. There has been a lot of chatter that we finally avoided a green winter. But I'm just wondering if you could give us any color from what you're hearing from maybe some of your larger customers on the collision side, maybe how their book of business looks for the first quarter, kind of what you're seeing in terms of orders, or backlogs at repair shops. Just any sort of qualitative fealty there to (01:01:12) help us confirm or not confirm the absence of (01:01:18).

So last year when we were holding this call here in late February, it was 72 degrees in Chicago, this morning, I think it's 29 degrees. So clearly Mother Nature has returned with a more normalized winter. Precipitation levels in the traditional snow states is up from last year, and so we're seeing good demand just as we saw in the fourth quarter. We think that that level of demand will pull through into the early parts here of 2018, and that should set us up well for the entire year just as the 2016 and 2017 lack of winters kind of stuck with us for the better part of the year. We think 2018 is going to be back to a more normal pace, if you will, and overall the tone feels good.

Your final question comes from the line of Scott Stember with CL King. Your line is open. Scott L. Stember - C.L. King & Associates, Inc.: Good morning, and thanks for taking my question.

Good morning Scott. Scott L. Stember - C.L. King & Associates, Inc.: Can you maybe talk about the European segment with a little bit more granularity. You said that Eastern Europe outperformed I guess the UK and Western Europe on the continent, can maybe just give us a little bit more commentary on that? And then, just talk about within that 4% to 6% parts and service organic growth how much of that will be from Europe in 2018? Thanks again.

Yeah. So there's no doubt that the Eastern Bloc countries have the highest organic growth, and part of that just has to do with the growing car park, the larger number of vehicles actually in the countries and the fact that their cars are really old. On average, Eastern Europe autos are about 14.5 years old, and those are cars that need a lot of repair parts and the parts that we provide. And so you've got a growing market and that is resulting, taken as a whole, in double digit organic growth for us. And as a percentage of European revenue, the Eastern Bloc is in that probably the 20% to 22%, 23% range of our total European revenues. So as that continues to grow at a faster pace, obviously that will help the overall organic growth for Europe. The rest of Europe is – the Western Europe is obviously grows at a lower rate. We've been messaging for some time that ultimately the 6%, 7% to 8% growth that we had historically experienced at ECP was going to slow a bit. I think that's going to be the case. When we've – since the time we bought the ECP, we've expanded the branch network from 89 to over 300 when you include Andrew Page. So, we're pretty much done putting new dots on the map at ECP, which obviously the new branch has contributed to organic growth there. But again, we still think they're going to grow at significantly above the overall rate in the UK, and then Sator and the Western European parts of Rhiag again will have kind of probably mid-low to mid-single digit kind of growth rates, if you will. So all in all, you put it together we think Europe's going to be solidly in the 4% to 6% range, it was at just over 5% in 2017, at 5.3%. And so, we're expecting pretty much a continuation in 2018.

There are no further questions at this time. I will now like to turn the call back over to Mr. Zarcone.

Well, again, we think we've had a tremendous fourth quarter and a great 2017. We think the table is set for another great year in 2018. The management team is very excited about the prospects of our company. And again, we've got the better part of 43,000 employees today, more than 49,000 employees once we close Stahlgruber to really make it happen on behalf of our customers each and every day. So we thank you for your time here this morning, and we'll talk to you again in a couple months. Take care.

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