Good morning. My name is Dennis and I will be your conference operator today. At this time, I would like to welcome everyone to the LKQ Corporation's Third Quarter 2022 Earnings Conference 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. [Operator Instructions] I would now by the turn my conference over to Joe Boutross, Vice President of Investor Relations for LKQ Corporation. Please go ahead.

Thank you, operator. Good morning everyone, and welcome to LKQ's third quarter, 2022 earnings conference call. With us today are Dominick Zarcone, LKQ's, President and Chief Executive Officer; Varun Laroyia, Chief Executive Officer of LKQ Europe; and Rick Galloway, Senior 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. Hopefully, everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today. And as normal, we're planning to file our 10-Q in the coming days. And with that, I am happy to turn the call over to our CEO, Nick Zarcone.

Thank you, Joe. Good morning to everybody. And thank you for joining us on the call to discuss our third quarter results. Last month we announced a couple of important leadership changes, including Varun Laroyia moving from the CFO chair to become the CEO of our European operations; and Rick Galloway succeeding Varun. Since that move happened with just a few weeks left in the quarter, after I provide some high level comments, Varun and Rick will tag team on the financial details and the updated guidance for 2022. I will then provide some closing comments before opening the call to your questions. Once again, LKQ recorded strong operating results notwithstanding a very difficult macro environment. The pandemic is still creating challenges. The labor market remains tight and the supply chain is less than optimal though finally, starting to show some signs of improvement. The war continues in Europe and economies around the globe are showing signs of softness as many governments tried to curb their runaway inflation created by the monetary stimulus utilized to support economies during the early days of the pandemic. But the biggest current headwind is in the foreign exchange market. With the U.S. dollar reaching levels we haven't seen in over 20 years. While we can hedge much of our transactional exposure with about 46% of our revenue being sourced from our European segment, we cannot hedge the translation exposure. To put things into perspective, the euro and pound sterling fell approximately 7% relative to the dollar during Q3 and have fallen about 15% since the start of 2022. The volatility in exchange rates on a year-over-year basis had a material impact on our reported results during the quarter, reducing revenue by $228 million and adjusted EPS by about $0.07 a share during the third…

Thank you, Nick. And good morning to everyone joining us today. I am honored to take on the position of CFO of LKQ, and I look forward to driving our financial and strategic initiatives to lead the company to even greater success. As part of the North American leadership team, I was heavily involved in rolling out and executing the operational excellence initiatives that have spurred significant improvement in profitability and cash flows over the last few years. Now as CFO, I will continue to drive the organization's focus on profitable revenue growth, delivering strong margins and free cash flow generation from this new vantage point. Especially as we face the macroeconomic headwinds, Nick mentioned, it will be critical to lean in on productivity and efficiency. And I look forward to partnering with the segment teams to continue to drive this forward. Turning now to the consolidated results, we reported diluted earnings per share of $0.95 and adjusted diluting earnings per share of $0.97, which was a $0.05 reduction relative to Q3 last year. Our operational performance showed year-over-year improvement and was in line with our expectations. However, this solid operational performance was more than offset by unfavorable effects of $0.09 from volatility and metals prices and $0.07 from foreign currency exchange effects caused by the stronger dollar. Additionally, we had negative effects of $0.06 in total from one, divesting the PGW business in Q2; two, higher interest rates and three, a 20 basis point increase in the effective tax rate to 25.5%. We mitigated about $0.07 of the decline with the lower share count resulting from our share repurchase program. Shifting to segment performance. Much of the operational improvement in the quarter came from the wholesale North American segment. Going to Slide 10, the segment EBITDA margin of 19.4%…

Thank you, Rick. Appreciate that introduction and the overview of the North America wholesale and self-service segments performance. Let's move to Slide 11 of the earning deck. Europe delivered an 11.3% EBITDA margin for the quarter, down 20 basis points from the prior year period. Gross margin improved by 10 basis points as we worked to offset inflation with procurement initiatives and pricing. Overhead and other expenses increased by 30 basis points with inflation weighing primarily on personnel, freight and fuel costs. The segments solid third quarter performance reinforces our expectation that we will deliver a double-digit margin for the fuller despite the macroeconomic headwinds around general inflation, energy costs and the Russia/Ukraine conflict. While I have been in my new role as CEO of the European segment for a little over a month, I have gotten an opportunity to get an on the ground view of our operations and the management team. And I am even more impressed by the strength of our frontline businesses and despite the darkening macroeconomic clouds with judicious and decisive prioritization, I am confident that we can achieve our long-term operational and financial target. Moving on to Slide 12 specialties EBITDA margin of 10.8% declined 30 basis points compared to the prior year coming from a decrease in overhead expense leverage driven by an organic revenue decline of 9.1% as they anniversary a tough comp from the prior year when the business delivered a nearly 14% organic revenue growth rate in the third quarter. Inflationary pressures also pushed overhead expenses as a percentage of revenue higher including personnel, freight and fuel expenses. The overhead expense increases were partially offset by a 70 basis point benefit from lower incentive compensation and 80 basis points of benefits from operating expense synergies largely generated from the SeaWide…

Thanks Varun. I'm also looking forward to working with you in this new capacity. I will conclude with our updated thoughts on projected 2022 results shown on Slide 6. Our guidance is based on current conditions and recent trends and assumes that scrap and precious metals prices hold near September prices and the Ukraine/Russia conflict continues without further escalation or major additional impact on the European economy and miles driven. On foreign exchange our guidance includes recent European rates with the balance of the year rates for the Euro of $0.97 and the pound sterling at $1.11 versus $1.02 and $1.20 in the previous guidance effectively a 5% and 7.5% decline. We narrowed the organic parts and service growth rate range to 4.75% to 5.75% with the midpoint up slightly from our year-to-date growth at 5.1%. Please note that we have one fewer selling day in Q4 this year. We are projecting full year adjusted diluted EPS in the range of $3.85 to $3.95 with a midpoint of $3.90. We have narrowed the range as we are three quarters through the year and lowered the midpoint of our prior guidance by $0.05. To understand why we reduced the midpoint, please refer to Slide 7 in the presentation which bridges our prior and current guidance figures. Operating performance remains solid and represents upside of $0.02 relative to our prior guidance. The frontline businesses continue their resilience in difficult conditions. Capital allocation is also a benefit of $0.03 relative to our prior guidance, primarily related to higher repurchase volume. Note that we are including share repurchases through the week ended October 21st in our guidance. That's the good news generally tied to the areas under our control. Then there are the negatives, which are primarily external factors. Declining metals prices are projected to have a negative $0.04 effect. Headwinds from the weakening FX rates mentioned earlier contribute a $0.03 reduction relative to prior guidance and unless the trend reverses will be a negative factor in 2023. Taxes and interests drive another $0.03 negative effect, including the rate changes previously noted. FX rates and metal prices can move significantly over time. We may have further upside or downside if the actual figures play out differently than we assume in our guidance. We expect to deliver approximately $1 billion of free cash flow for the year achieving free cash flow conversion in line with our expectations for the business. Translation of foreign currency denominated cash flows will have a negative effect given the lower euro and pound sterling rates used in our latest estimates. But we are still anticipating 55% to 60% EBITDA conversion to free cash flow adjusted for the PGW gain. Thanks for your time this morning. With that, I'll turn the call to Nick for his closing comments.

Thank you Rick and Varun for that financial overview. Let me restate our key initiatives which are central to our culture and our objectives. First, to integrate our businesses and simplify our operating model. Second, to focus on profitable revenue growth and sustainable margin expansion. Third, to drive high levels of cash flow, which in turn give us the flexibility to maintain our balanced capital allocation strategy; and forth, as always to continue to invest in our future. As you can see from our results, we are committed to driving these metrics forward regardless of the operating environment. Our teams across all of our segments are executing on their operational targets and they have done a tremendous job during these unpredictable and unique times. With respect to the items we can't control, such as FX rates, the supply chain and labor market constraints we don't have a crystal ball, but it appears we will be confronting these uncontrollable items as we enter 2023. That said, I am confident our operational excellence efforts can navigate and effectively manage most any challenge. Why? Simply stated, we have the best teams in each of our segments and industry and their track record over the last three years speaks for itself and for that, I offer a tremendous thank you to our team members across the globe that make it happen each and every day. They define what it means to be LKQ proud. And with that operator we are now ready to open the call for questions.

[Operator Instructions] The first questions from the line of Daniel Imbro with Stephens Inc. Please go ahead.

Yes. Hey, good morning guys. Thanks for taking our questions and congrats on the quarter.

Good morning, Daniel.

Rick, I wanted to start on something you said around kind of North American margins. I think the comment you made was you expected them to moderate going forward maybe 4Q into next year. Can you just provide more detail on what the drivers of that outlook is? Is it a change in underlying core margin to due to maybe wage or other cost pressure or kind of what, what was driving that comment around moderation going forward?

Yes. Thanks Daniel for your question. Good – it's a good question. The margins we had in Q3 obviously very favorable record that we had and so very pleased with what the team's done. One of the things that we've seen over the last call it 12 months or so is the competitive market and the ability of us to be able to pass through some pricing and do it pretty effectively early on. So there's a couple of things that are happening, one of the things that we'll see is the increase in our overall product cost inflation that, that we would expect. And going back to what we've seen and what we told you guys in Q2 is the long-term view for us is probably somewhere in the low-to-mid-17 is where we would expect that to be. With the inflationary increases that that we keep seeing, the ability to pass on that cost to our customers will be a little more challenged as we come into 2023. I would think that it would be a slow move – a little bit slower moves to those numbers that we've said on the long term piece though.

I don't know if you want to add anything on that.

No, that's good.

Your next question is from the line of Michael Hoffman with Stifel. Please go ahead.

Hi, thank you. So I do have two. So this one's a little out of the left field, it's geopolitical, so I'm curious about your views on looking forward, it appears the EU energy crisis as peaked a bit. We're at full capacity on natural gas supplies. Maybe there's a little relief, so I'm curious about that and then the other part of that same question. The China leadership not changes, but continuity, what's the Plan B if China decides it's going to embargo shipping out of Taiwan and what's Plan B related to that? And then I have a question about 2023 after that?

Okay. Michael, this is Nick. Thanks for your question. As you know, and as everyone knows, the entire aftermarket collision parts industry moved to Taiwan decades ago. There are no material production capacity outside of Taiwan. It just doesn't exist. There are no plants sitting in Mexico or Vietnam or India sitting idle waiting for the Taiwanese machine to get shutdown, right? It doesn't exist. Now we pay very close attention, obviously to geopolitical events and we're not overly concerned about the scenario that that you laid out where China would effectively shut down the Taiwanese economy because they wouldn't pick out auto parts specifically and the reality is, if they were to shut down the economy and shut down kind of shipments out of Taiwan, auto parts is the least of everyone's concern. 65% of all semiconductor production and 90% of all advanced chip production comes out of Taiwan. So if China were to embargo export shipments, you would not be able to buy iPhones or new cars or metal equipment or anything that has a chip in it. And we think that the Chinese leadership is they're very smart, they certainly don't want to cook the golden goose that Taiwan represents in form of a really strong economy. Our sense and in talking with outside advisors is it'd be more likely that China would move kind of to a Hong Kong model first where they would seek to have significant influence over the territory, but not just shut – totally just shut down their economy.

Okay. And then the second follow up question, I realize you're still in budget process for 2023, but there's some knowns sitting here today, where your interest rates move to taxes, FX, freight, what are those pieces of the waterfall, what is the net plus or minus of those relative to the new midpoint? And then clearly you have a positive view about their structural growth still. So I'm just trying to understand headwinds?

Yes. So on the 2023 outlook you are absolutely correct. We're in the middle of our budget process and we have yet to see any submissions from the field. We don't have a consolidated view at this time. What I can tell you however, is that nothing has changed maturely from what we presented back at the Analyst Day and the Investor Day this past June 1st in Nashville. So on the revenue front, we will likely shake out at a consolidated per day growth rate similar to 2023 or similar to 2022. But we'd probably get there with a slightly different mix as indicated in my prepared comments we do not anticipate that the recent double-digit organic growth in North America wholesale business will be sustainable. It's just, it's too high. Europe should post up similar organic growth next year as what we're doing this year, which is in the mid-single digits. We do anticipate that specialty will return to positive revenue growth, likely in the low- to mid-single digits and self-service assuming scrap prices stay where they are can sustain low- to mid-single digit growth as well for their parts and services business. All that obviously is based on what we talked about in Nashville and that is market growth being in the low-single digits, a bit of share gain, which we always are trying to achieve each and every year in each of our businesses and some boost from inflation. As Rick indicated 2023 will have one pure selling day than 2022 which clips you for a few basis points of growth, 40 basis points to be exact. And so hopefully that gives you a sense of local currency revenue trends, but the strong dollars that we've had this year that's going to carry over assuming rates…

Your next questions from the line of Ali Faghri with Guggenheim Partners. Please go ahead.

Good morning and thanks for taking my question and Varun and Rick congrats again on the new roles.

Thank you Ali.

So my question is on used car pricing, obviously we're seeing used car prices come down real time right now. Maybe you can remind us what the impact is of lower used car prices on your business?

Yes. Simply lower used car prices generally translate into lower cost of the vehicles – of the total loss vehicles at the salvage auctions because there's as prices come down the competition at the auctions includes rebuilders and if used car prices come down, what they can pay for their feed stock if you will that total loss vehicle has to come down as well, if they're going to maintain their margins. And so it's not a dollar-for-dollar reduction if you will, but we would expect that as used car prices settled down a little bit, that the price that we have to pay for the cars at auction will also come in a bet.

Great, thank you.

Your next questions from the line of Craig Kennison with Baird. Please go ahead.

Hey, good morning. Thank you for taking my questions as well and congratulations to the whole team. Varun, I wanted to start with you and ask about your priorities for Europe and maybe frame them in the context of the LKQ 1 strategy. Where do you see an opportunity to double down on some of these initiatives and where might you dial back your priorities in order to focus on what you see as the highest priority?

Well, good morning, Craig and thank you for the kind wishes. Super excited both Rick and myself, but I think it really is yet another testament to the work that we as a management team have done from a talent development perspective that all the dominoes that kind of went through were all fulfilled internal with internal talent. With regards to the European business now that I've been on that the ground for a little over a month at this point of time, I kid you not. I am so excited about the opportunities we have out there, both internal and external, and I kind of frame it up from a market perspective in any case, if you think about the limited new car inventory, think about elevated used car prices. Think about the aging carpark. These are all supportive of a healthy demand in the aftermarket. So that's just kind of framing the piece and despite the fact that VMT is under pressure given the energy prices over in Europe, listen people are still doing hybrid working. So as you think about the go-forward run rate with regards to more people coming from a day into the office a week to two days, moving now towards companies trying to push for three days a week and then from there on VMT will recover and hopefully at some point of time once the geopolitical crises also tend to calm down a little bit more specifically the Ukraine/Russia conflict that's ongoing. I am bullish about the future. So that's it in terms of framing that entire piece. With regards to my specific priorities very simple, the first one is we grow the business and we will grow the business faster than the market. Organic growth will be the key focus though…

Thank you.

Your next questions from the line of Scott Stember with MKM Partners. Please go ahead.

Good morning, and I echo my compliments as well to everybody in management. Thanks for taking my question.

Thank you Scott.

You guys talked about Europe seeing some areas that are growing in low doubles. Could you just maybe parse out which areas in Europe did better? And with regards to, I guess, what you're seeing right now, are you seeing any signs that the countercyclical benefits of the mechanical aftermarket are starting to kick in?

Hi, Scott, it's Varun. Let me answer your question. Listen, in terms of the elevated gas prices, those are something that's something that we certainly tracking. We don't get regular VMT data like we get here in the United States, but there are other metrics, other KPIs that essentially kind of I give you the same result, whether it be congestion indices, whether it be fuel consumption, diesel, petrol, things along those lines. So that is something that I am keenly watching along with my team. And yes, there are certain pressures from that perspective. But having said that pricing, the higher input cost that's coming through is being priced through across the entire market, right. And that's kind of moving into, call it, mid-to-high single digits, and that is coming through. You can see that through the gross margin side of things also. So with regards to, is there any deferral taking place at this point of time, we really haven't seen any deferral other than the fact that service mechanicals you need to – if you're driving and even if you're not driving once a year, you need to get your oil and oil filter changed, for example. So from that perspective, the countercyclical nature of what we do over in Europe is actually very, very resilient. And that really is what we are excited about. Pricing is sticking through at this point of time, and I know given how we operate our businesses, service reliability, having access to inventory, having a pristine balance sheet that supports us, my sense is there will be more stress in the broader market. But the larger ones will continue to power their way through because we are seeing some fairly rational behavior taking place across the market. I think on a go-forward basis, something to watch out for is inflation. Okay. And that certainly while it's kind of gone through the cog side of it in that has stuck, my sense is that certainly will be coming through on the labor side. I think based on CPI numbers that we're seeing out of the various European markets, that certainly is a key focus area for my team and myself, and really driving the productivity side of things where, again, we have a tremendous opportunity as with the three advanced logistics distribution centers that we've already set up essentially to futureproof our business. But again, lots more to do out there. And again, it won't be plain sailing for everybody, but really this is when market leaders, thoughtful leadership teams really rise to the top.

All right. And just one follow-up. Any update on State Farm?

The answer is yes and no. So as you recall, Scott, during the summer State Farm initiated a 12-week pilot program in the State of Texas and Oklahoma where they decided to start using aftermarket headlights, taillights and bumpers. Well, that 12-week period has come to an end. That said, State Farm has continued to keep the program alive in the State of Texas and in the State of Oklahoma, and it's active today. We're assuming that State Farm is reviewing all the data from their pilot, and certainly while there can be no assurances of any change, we take the fact that the program is still on place and ongoing a month or so after it was supposed to come to a close, we take that as a positive indication. Look, there is nothing more that we would prefer than for State Farm to expand the program, both from a geographic perspective. I mean, taking it national would be awesome. And from a product per perspective, that being all aftermarket parts as opposed to just headlights, taillights and bumpers. We have a continuous dialogue with all the major insurance companies. We're in constant communication. And obviously if State Farm decides to broaden their aftermarket utilization we will be sure to let everybody know. So officially, there is no news, but unofficially they're keeping the pilot going, which we take as a positive as opposed to a negative.

Got it. Thanks.

Your next questions from the line of Bret Jordan with Jefferies. Please go ahead.

Hey, good morning guys.

Good, good morning, Bret.

Good, good morning, Bret.

Hey, Varun, now that you've been in Europe for a month, and I guess we were talking about the 1 LKQ plan. How do you handicap that ERP consolidation? And maybe if you could talk about sort of over what period of time, it seems like such a complicated mix of supply chain systems over there? Having lived with it is that as big an opportunity as you thought initially?

Yes, listen, I think, in terms of, just to kind of remind everyone from a broader perspective, you are essentially talking about one of the key underpinnings of the 1 LKQ Europe program was to essentially integrate certain backend processes of the business. So, maintaining the frontend, entrepreneurial, local nature of our business and making sure we have best-in-class customer intimacy, and also the last mile of delivery, no change to any of that. But in terms of one of the key enablers in unlocking the overall cost to serve is from a back office perspective. Nick and I have talked about this ad nauseam with regards to where we get our payables done from, where payroll runs from, that, frankly, 1 rate [ph] doesn't care about as much as long as it is done efficiently and effectively. But really it's the case of having the ERP system out there, which unlocks all of these pieces. Nothing has changed on that front. And if you go back to thinking about how we built up the European business, largely bought through private equity companies. And that has, I think, as all of us know, typically have a very limited time horizon with regards to certain investments. So in terms of making the investment on the ERP, no change at all. In fact, that's an area that I'm working with my management team to double down and get it done even quicker because the pools of opportunity that it opens up are still very, very attractive. So no change on that front and really making sure that the entire organization has got its shoulder behind it rather than it being a technology project. So some due difference out there in the first few weeks, but overall, no change on that front in terms of where we are going.

Okay, great. And then a question on specialty. When you think about the RV business versus the SEMA type categories, could you sort of talk about relative cyclicality? And I think you'd expected sort of positive low single digit growth in 2023. What would be the impact of a recession, maybe as it sort of like, as you look at the SEMA side of that business?

I'll take that one Bret. What we have seen is our revenue on the RV side is not tied necessarily to RV SAR, new unit sales, as much as it's tied to campground utilization. And so unlike – there are a couple product lines that I indicated things like towing, there is a direct correlation to new unit sales because the first time RV buyers usually need to get hitches and related towing gear installed on their vehicle. But again, most of the RV revenue comes from kind of consumables and things that need to be replaced. And that's directly related to the overall size of the RV park, as well as the campground utilization, which is currently running at record levels. And so there is going to be a little bit of a ying and a yang if a recession really does hit. What we also know is that during recessionary times folks kind of reallocate their vacation dollars and would tend to shy away from getting on applying and applying to Disney World and look for more cost effective ways to vacation with their families and camping cost effective way of doing that. On the SEMA side of the business there are a number of products tied to new vehicle sales, particularly pickup trucks, jeeps and other SUVs. The enthusiast marketplace tends to hold pretty steady through the recessionary environments. And so at the end of the day, Bret, it depends on how deep and how long the recession goes. And we can't predict that. We feel good about our market position as being the leader in that market, and we will continue to work hard to drive profitable revenue growth wherever we can.

Your next questions from the line of Gary Prestopino with Barrington Research. Please go ahead.

Hey good morning all. Quick question on the recycled side. I mean, we could be looking at an unprecedented decline in used car prices for the next year or two. How does that impact what you're buying at auction? And then I guess the other question I would have there is do you see – do the prices of the parts as the cars come down on the recycled side, do they come down concurrently with the decline in car prices?

I'll take that and then I will invite Rick to provide any commentary that he may have. The reality is as prices come down, as I indicated, the cost of what we have to pay at auction tends to come down as well. Again, it's not dollar for dollar, but there is a correlation there. The reality is that doesn't make us buy more vehicles or not. We buy the vehicles that we need to have the inventory that we believe is required to fulfill customer demand. Okay? We don't bid on every car that comes to the auction and we bid on the vehicles based on the parts demand that we see and the need to have the inventory. And so that's not going to change. We're going to stay very focused on utilizing our models, our AI, and the like to buy the vehicles that we need to drive the best margin. Just buying a total loss vehicle because it's for sale. If those [indiscernible] are going sit on their warehouse shelf for the next year or two there is no utility to us doing that. And so we focus on buying what we need. And if the car prices come down, that is great. We do not adjust pricing of the parts based on the cost of the car because again, we price relative to where the OEs have their prices, we need to maintain that value proposition for the insurance companies to continue to have them push the utilization of alternative parts. And so our ability to price up in some parts based on what the OEs are doing, but just because the price comes down doesn't mean we’ll automatically lower the price of the parts that we sell. But Rick, anything else?

No, I think it was spot on.

Okay. Thank you. And then lastly, Varun, you mentioned something about, or somebody did, what's the impact of a 100 basis point increase in interest rates on your interest expense?

Yes, no, I'm the one who mentioned that Gary. Essentially at the end of September, we had about $1.6 billion of variable rate debt on the revolver. So every 100 basis points will essentially be $16 million of higher interest expense. That was a simple math. So total debt was about $2.4 billion. We had cash and handed for about $270 million and net debt of $2.2 million, which as you know, we've got two euro bonds for half a billion and two and fifty million. So, the only change on that really would be on the variable rate debt.

Okay. Thank you.

Your next questions from the line of Michael Hoffman with Stifel. Please go ahead.

Thanks for letting me do the follow-up. When do we see, or maybe you answered it by saying there would be a gradual decline back to normal margins in U.S., the benefit of freight coming through on the inventory that is a margin plus.

Yes, so I appreciate the question. So, we've been seeing obviously this the spike that we saw earlier in the year, late last year, earlier this year. And so you would start seeing the relative decline over Q4 going into Q1 as it sort of normalizes with a lot of offsetting items. Right? So, there is the other inflationary increases that we're keeping a keen eye on along with product cost increases that are somewhat flowing through that inventory level as well. So, the other thing to keep in mind is that as the spot market was rapidly going up due to our size and scale, we were able to get a lot of contracted rates. And so some of the increase that we saw would have been mitigated against competition.

Yes. So, another way of thinking about that Michael, is as the spot pricing escalated from what was $2,500 for a 40-foot container back in 2019 to as high as $20,000 in parts of 2021 and early 2022. Because so much of our volume came on contracted rates we were hurt less than our smaller competitors when the spot markets soared and we're going to benefit less as the spot market comes back in. That will all roll through our inventory and then ultimately into the cost of goods sold.

And this does conclude the Q&A portion of today's call. I will now turn the call back over to Nick for any closing remarks.

Well, obviously as always, we really thank you for your time and attention. We understand there is a lot of things going on today in the markets. We certainly look forward to providing another update in late February of 2023 when we report our fourth quarter and full year 2022 results. And at that point in time, we'll establish obviously our full year 2023 guidance. So again, we appreciate your time and attention as always. And thanks for your interest in LKQ.

This does conclude LKQ Corporation’s third quarter 2022 earnings conference call. We thank you for your participation. You may now disconnect.