Rick Galloway
Senior Vice President and Chief Financial Officer at LKQ
Thank you, Justin, and welcome to everyone joining us today. Before I dive into specifics on the 4th-quarter, I would also like to cover some of our accomplishments throughout 2024. Despite the macroeconomic challenges, as Justin mentioned, we continued to focus on those things within our control. We accelerated the integration of Finishmaster, completing that exercise in the first-quarter and helping us to increase annualized synergies by the end of 2026 to $65 million. We initiated the 2024 restructuring plan with the objectives of exiting businesses in-markets that do not align with our strategic objectives and executing on opportunities to streamline operations and our logistics models. In Europe, that resulted in exiting certain operations and increasing the efficiency of our logistics footprint, resulting in a reduction in facilities and overhead costs. In North-America, we focused on aligning our cost structure with demand by rationalizing overhead costs to most efficiently serve our customer-base. While these actions were challenging, they were necessary to tackle and align with the strategic imperatives we discussed at Investor Day, including simplification of the business portfolio, improving our lean operating model globally and increasing our margins in order to maximize total shareholder returns. We are confident the actions we have taken will drive our success in 2025 and beyond. Now on to the 4th-quarter. Overall, Q4 results exceeded our expectations and guidance. Europe's performance was a highlight as the segment delivered a record 4th-quarter EBITDA dollars and percentage despite challenging macroeconomic conditions. Self-service performed in-line with expectations with another quarter of year-over-year improvement in EBITDA dollars and percentage. North-America improved its EBITDA margin by 50 basis-points due to a one-time legal settlement despite revenue losses from a brief cyber incident in Canada. Specialties results remained under pressure with soft demand. Turning now to the 4th-quarter consolidated results. Despite challenges in North-America and Specialty and the stronger US dollar affecting Europe, our 4th-quarter performance exceeded expectations due to strong European results and some favorable non-recurring items. For the full-year, we reported diluted earnings per share of $2.62 and adjusted diluted earnings per share of $3.48, the latter of which was toward the higher-end of the guidance range we discussed back-in October, but a decrease of $0.35 per share compared to 2023. The $0.35 per share decline in adjusted EPS was primarily influenced by a combined $0.30 per share impact from interest and taxes with an additional $0.13 decrease attributed to commodity prices and foreign-exchange rates. Despite the macroeconomic challenges and significant inflationary pressures on overhead and cost-of-goods-sold. Our efforts in simplification and strategic capital allocation have resulted in a positive contribution of $0.08 for the full-year. For the 4th-quarter, we reported diluted EPS of $0.60 and adjusted diluted EPS of $0.80, a $0.04 decrease from the prior year figure. As you may recall, our Q4 2023 results included some favorable one-time discrete tax items, which were not repeated in Q4 this year, resulting in a $0.09 year-over-year decrease from taxes. In addition, lower FX rates and unfavorable metals price movements contributed to a further $0.02 decline. On the positive side, lower share counts due to our ongoing share repurchase program improved adjusted EPS by approximately $0.03. The remaining $0.04 year-over-year improvement reflected the strong performance by Europe and net favorable nonrecurring items in North-America. Now for segment results. Going to Slide 7. North-America posted a segment EBITDA margin of 16.8%, a 50 basis-point increase relative to last year. For the full-year, we reported a segment EBITDA margin of 16.6%, slightly above the expectations we discussed last quarter, due to a favorable non-recurring legal settlement that was partially offset by our Canadian cyber incident. The decline in organic revenue, especially within our aftermarket business due to reduced repairable claim counts adversely impacted margins during the quarter. This also included a related mix effect on gross margins as aftermarket collision revenue typically yields higher margins compared to our other wholesale lines. Salvage margins were also down in the quarter, reflecting unfavorable movement in revenue, vehicle cost trends and commodity prices in 2024. On the other hand, overhead expenses improved 270 basis-points in North-America, reflecting favorability from the one-time legal settlement and lower personnel costs, primarily related to lower incentive compensation. The UniSelect synergies and productivity initiatives largely offset significant inflationary pressures and the leverage effect of the organic revenue decline. While we expect headwinds on repairable claims and salvage margins to continue in 2025 due to the factors I mentioned, particularly in the first-half of the year, we estimate that the North Americas EBITDA margins will be in the low 16s, consistent with 2024 after adjusting for the non-recurring items. Looking at Slide 8, Europe reported a segment EBITDA margin of 10.1%, a 180 basis-point improvement over last year and its 3rd-quarter in a row with double-digit EBITDA margins. The year-over-year improvement consists of 110 basis-points related to non-recurring charges in the prior year, while the remaining 70 basis-points relates to the ongoing efforts to simplify the operations and portfolio as well as productivity efforts that more than offset inflationary pressures. As I stated on our last call, we expected EBITDA margins in Europe for the full-year to be in the mid to-high 9s, which is where we landed. From where we stand today and the actions we've taken to address productivity, we believe we can build upon our recent gains and expect to deliver improvements with EBITDA margins expected to be double-digits in 2025. Moving to Slide 9. Specialties EBITDA margin of 4.1%, 160 basis-points below the prior year, primarily driven by a decline in organic revenue and resulting leverage effect on overhead costs. Demand softness in the light-vehicle and RV product lines and competitive pricing pressures remain challenges for the business. For the full-year, segment EBITDA margins were 6.8%, below our expectations, but largely related to the revenue softness. Early signs indicate some of our markets have stabilized. However, a rapid rebound in 2025 is unlikely due to inconsistent recovery. Thus, we expect segment EBITDA margins to improve to around 7% to 8% for the full-year 2025. Self-service generated an 8.3% segment EBITDA margin in Q4, which is a 230 basis-point improvement from last year. In dollar terms, segment EBITDA increased by $4 million. Disciplined vehicle procurement combined with overhead cost controls overcame unfavorable movements in scrap steel prices and helped to drive the third consecutive quarterly improvement in year-over-year profitability. Shifting to cash flows on the balance sheet. We produced $149 million in free-cash flow during the quarter, bringing our year-to-date total to $810 million. Though slightly below our expectations, we invested in North American inventory, anticipating possible Q1 port strikes and tariffs. We remain dedicated to delivering value to our shareholders, allocating over $150 million through $80 million in share repurchases and $78 million in dividends. As presented during our Investor Day, we committed to allocating at least 50% of our free-cash flow towards returning value to our shareholders. We are pleased to announce that we exceeded this commitment in 2024. As you can see on Slide 10, for the full-year, we deployed $678 million for share repurchases and dividends, representing over 80% of our free-cash flow. We also invested approximately $3 million in two tuck-in acquisitions in the 4th-quarter, both in North-America, including one in Canada and one in the US. For the year, we spent approximately $50 million on acquiring 10 highly-accretive tuck-in businesses. We paid down approximately $62 million in outstanding debt in the quarter. As of December 31, we had total debt of $4.2 billion with a total leverage ratio of 2.3 times EBITDA, an improvement from the prior quarter. We remain committed to maintaining a manageable debt level in our investment-grade rating. As of, 31, 2024, our current maturities were $38 million, but we have a $500 million term-loan coming due in Q1 2026. As normal practice, we actively manage our capital structure and we are currently evaluating our options to determine the optimal solution to address our pending 2026 term-loan maturity. Our effective interest-rate was 5.3% at the end of Q4, slightly down from Q3 as a result of recently lowered benchmark rates. We have $1.7 billion in variable-rate debt, of which $700 million has been fixed with variable interest-rate swaps, which effectively provides a fixed-rate on over 75% of our debt. I will close with our thoughts on 2025 guidance as shown on Slide 11. Our guidance is based on current market conditions, recent trends and assume scrap and precious metal prices hold near 4th-quarter prices and no material impact from tariffs. On foreign-exchange, our guidance includes recent rates, including the euro at $1.04, the pound-sterling at $1.25 and the Canadian dollar at $0.70. The global tax-rate is at 27.0%, which is comparable to our 2024 rate. We expect organic parts and services revenue growth between 0% and 2%. Please note, we have one less selling day-in 2025. In North-America, we expect revenue to be roughly flat on a per day basis, given we don't expect an immediate rebound in repairable claims and won't realize the full benefit of some of the favorable trends Justin mentioned until later in the year. We believe Europe is poised to perform a bit better than they did from a revenue perspective in 2025 despite the ongoing challenging macroeconomic backdrop across the continent. For Specialty, we expect low-single digits for organic revenue growth given the macroeconomic indicators we are seeing. As a result of our revenue growth expectations, we are estimating adjusted diluted EPS to be in the range of $3.40 to $3.70. As you can see on Slide 12, our EPS guidance anticipates headwinds from lower foreign-exchange rates, depreciation and amortization as well as the onetime items discussed earlier, partially offset by benefits from metals prices, interest and taxes. We are focusing our efforts on those items we can't control and anticipate more than offsetting the net negative impact of those items through improved operating results, which reflect the carryover benefit from the simplification and productivity measures we took in 2024 and the continued benefits from our disciplined focus on capital allocation. Free-cash flow is expected to be in the range of $750 million to $900 million. We will continue to balance our trade working capital and capital expenditure needs to fund our strategic growth objectives for 2025 and beyond. Thanks for your time. I will now turn the call-back to Justin for his closing comments.
