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Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2022-11-01 · 194 added, 393 removed, 287 unchanged (67% of the section changed)

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The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K and our Quarterly Reports on Form 10-Q (including this Quarterly Report).

We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles.

We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty vehicle aftermarket products and accessories to improve the performance, functionality and appearance of vehicles.

Buyers of vehicle replacement products have the option to purchase from primarily five sources:

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Collectively, we refer to the four sources that are not new OEM products as alternative parts.

We are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada.

We are also a leading provider of alternative vehicle replacement and maintenance products in Germany, the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries.

In addition to our wholesale operations, we operate self service retail facilities across the U.S.

that sell recycled automotive products from end-of-life-vehicles.

We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S.

We are organized into four operating segments:

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and Self Service, each of which is presented as a reportable segment.

Beginning in 2022, the Wholesale - North America and Self Service operating segment results were separated from the previous reportable segment, North America, and each of Wholesale - North America and Self Service is now a separate reportable segment.

Segment results have been adjusted retrospectively to reflect this change.

Our Wholesale - North America segment is a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada.

Our Europe segment is a leading provider of alternative vehicle replacement and maintenance products in Germany, the U.K., the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries.

Our Specialty segment is a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S.

Our Self Service segment operates self service retail facilities across the U.S.

that sell recycled automotive products from end-of-life-vehicles.

Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control.

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We targeted companies that were market leaders, expanded our geographic presence and enhanced our ability to provide a wide array of vehicle products through our distribution network.

In the last few years, we have shifted our focus from larger transactions to tuck-in acquisitions that target high synergies and/or add critical capabilities.

In the last few years, we have shifted our focus to acquisitions that target high synergies and/or add critical capabilities, including the pending Uni-Select Acquisition that will complement our existing North American paint distribution operations and will provide a scaled position in the Canadian mechanical parts space, with opportunity for future consolidation and growth.

Additionally, we have made investments in various businesses to advance our strategic objectives.

See "Investments in Unconsolidated Subsidiaries" in Note 2, "Financial Statement Information," to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our investments.

See Note 3, "Uni-Select Acquisition," and Note 8, "Equity Method Investments," to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our acquisitions and investments.

Sources of Revenue

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Our 2022 Form 10-K includes a summary of the critical accounting estimates we believe are the most important to aid in understanding our financial results.

There have been no changes to those critical accounting estimates that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the nine months ended September 30, 2022.

Financial Information by Geographic Area

See Note 13, "Segment and Geographic Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our revenue and long-lived assets by geographic region.

See Note 10, "Revenue Recognition" and Note 21, "Segment and Geographic Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our revenue and long-lived assets by geographic region.

1 LKQ Europe Program

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non-capitalizable implementation costs related to a common ERP system).

These expenses are recorded in Selling, general and administrative expenses.

These expenses are recorded in SG&A expenses.

• Transformation capital expenditures — Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program.

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses, Restructuring and transaction related expenses and Purchases of property, plant and equipment in our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Costs related to the 1 LKQ Europe program incurred to date are reflected in SG&A expenses, Restructuring and transaction related expenses and Purchases of property, plant and equipment in our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2025.

During the three and nine months ended September 30, 2022 we incurred $6 million and $20 million , respectively, in costs across all three categories noted above.

We expect that costs of the program, reflecting all three categories noted above, will range between $25 million and $35 million in 2022 with an additional $50 million to $80 million in 2023 through the projected program completion date in 2025.

During the three months ended March 31, 2023, we incurred $6 million in costs across all three categories noted above.

We expect that costs of the program, reflecting all three categories noted above, will range between $50 million to $80 million for 2023 through the projected program completion date in 2025 .

In the future, we may also identify additional initiatives and projects under the 1 LKQ Europe program that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.

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Ukraine/Russia Conflict

The Russian invasion of Ukraine and resulting global governmental response have impacted, and are expected to continue to impact, our business in 2022.

Governmental sanctions imposed on Russia have restricted our ability to sell to and collect from customers based in Russia, and Russian military activity in Ukrainian territory has temporarily changed the way in which we operate in Ukraine.

The Russian invasion of Ukraine and resulting global governmental response impacted our business in 2022, and are expected to continue to impact our business in 2023.

Governmental sanctions imposed on Russia have restricted our ability to sell to and collect from customers based in Russia and Belarus, and Russian military activity in Ukrainian territory has temporarily changed the way in which we operate in Ukraine.

Many of our branches in Ukraine have remained open, although operating at less than full capacity, during the conflict, while others have closed temporarily.

As military operations shifted to the eastern part of the country, we were able to increase capacity in branches in the central and western territory, including our central warehouse in Kyiv.

We expect to continue operating in this manner unless conditions change.

To date, we have experienced an immaterial negative impact from the consequences of this conflict, and we do not expect it to have a material impact on our ongoing results of operations or cash flows.

Our operations in Ukraine represent les s than 1% of b oth our total annual revenue and total annual operating profit and comprised approxi mately $50 million of total assets as of September 30, 2022.

In addition, LKQ r evenue from customers in Russia represented less than 0.3% of our total revenue in 2021 .

As future developments in the conflict are difficult to project and outside of our control, it is possible that the estimates underlying our financials may change significantly in future periods.

We currently do not expect the conflict to have a material impact on our ongoing results of operations or cash flows.

Our operations in Ukraine represented less than 1% of both our total annual revenue and total annual operating profit for fiscal year 2022 and comprised approximately $65 million of total assets as of March 31, 2023.

In addition, LKQ revenue from customers in Russia and Belarus represented less than 0.3% of our total revenue in 2021.

As future developments in the conflict are difficult to predict and outside of our control, it is possible that estimates underlying our financial statements may change significantly in future periods.

Key Performance Indicators

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• Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment.

Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning cash flow available to meet future debt service obligations and working capital requirements, to make strategic acquisitions, to repurchase stock, and to pay dividends.

Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning cash flow available to meet future debt service obligations and working capital requirements, make strategic acquisitions, repurchase stock, and pay dividends.

These three key performance indicators are used as targets in determining incentive compensation at various levels of the organization, including senior management.

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The following table sets forth statements of income data as a percentage of total revenue for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Revenue 100.0 % 100.0 %

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Restructuring and transaction related expenses 0.5 % 0.1 %

(Gain) on disposal of businesses and impairment of net assets held for sale

(0.1) % — % (1.6) % — %

Depreciation and amortization 1.7 % 1.8 %

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Net income 8.1 % 8.2 %

net income attributable to continuing noncontrolling interest — % — % — % — %

Net income attributable to LKQ stockholders 8.4 % 8.6 % 9.7 % 8.6 %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

The following table summarizes the changes in revenue by category (in millions):

Three Months Ended September 30, Percentage Change in Revenue

Three Months Ended March 31, Percentage Change in Revenue

2023 2022 Organic Acquisition and Divestiture Foreign Exchange Total Change

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

The decline in parts and services revenue of 5.0% represented decreases in segment revenue of 9.4% in Europe and 2.8% in Specialty, partially offset by increases of 7.2% in Self Service and 0.1% in Wholesale - North America.

Parts and services revenue increased by 4.8% organically, so the overall decrease was attributable to negative effects from fluctuations in foreign exchange rates of 7.4% and the net reduction from divestitures of 2.3%.

The decrease in other revenue of 17.4% was primarily driven by a decrease in organic revenue of $40 million, of which our Self Service segment contributed a $35 million decrease.

Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment during the third quarter of 2022 compared to the prior year period.

The increase in parts and services revenue of 1.5% represented increases in segment revenue of 4.9% in Self Service, 4.6% in Europe, and 3.8% in Wholesale - North America, partially offset by a decrease of 14.0% in Specialty.

This overall increase was driven by organic parts and services revenue growth of 7.9% (7.1% on a per day basis), partially offset by a 3.0% decrease due to fluctuations in foreign exchange rates and a 3.3% net reduction from acquisitions and divestitures.

The decrease in other revenue of 19.2% was primarily driven by a decrease in organic revenue of $34 million, attributable to a $20 million decrease in our Self Service segment and a $14 million decrease in our Wholesale - North America segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Cost of Goods Sold

Cost of goods sold decreased to 58.9% of revenue in the three months ended September 30, 2022 from 59.2% of revenue in the three months ended September 30, 2021.

The cost of goods sold decrease primarily reflects an impact of 0.7% in our Wholesale - North America segment, partially offset by an increase of 0.5% in our Self Service segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Cost of goods sold decreased to 59.0% of revenue in the three months ended March 31, 2023 from 59.5% of revenue in the three months ended March 31, 2022.

Cost of goods sold reflects decreases of 0.7% related to improved gross margin in our Wholesale - North America segment and 0.2% attributable to mix as a greater portion of sales are coming from Wholesale - North America, partially offset by an increase of 0.4% from our Specialty segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Selling, General and Administrative Expenses

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue increased to 27.8% in the three months ended September 30, 2022 from 27.2% in the three months ended September 30, 2021.

The SG&A expense increase primarily reflects impacts of 0.3% in our Self Service segment and 0.2% in our Europe segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Our SG&A expenses as a percentage of revenue increased to 27.8% in the three months ended March 31, 2023 from 27.6% in the three months ended March 31, 2022.

The SG&A expense increase primarily reflects impacts of 0.3% in our Self Service segment, 0.3% related to mix, and 0.2% in our Specialty segment, partially offset by a 0.5% decrease in our Europe segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Restructuring and Transaction Related Expenses

The following table summarizes restructuring and transaction related expenses for the periods indicated (in millions):

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 Change

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Restructuring and transaction related expenses $ 18 $ 3 $ 15

(1) Restructuring expenses for the three months ended September 30, 2022 primarily consisted of $1 million related to our global restructuring programs and $1 million related to our 1 LKQ Europe program.

(2) Restructuring expenses for the three months ended September 30, 2021 primarily consisted of $2 million related to our global restructuring programs.

(1) Restructuring expenses for the three months ended March 31, 2023 primarily consisted of (i) $5 million related to our global restructuring plans, (ii) $2 million related to our acquisition integration plans, and (ii) $1 million related to our 1 LKQ Europe plan.

(2) Transaction related expenses for the three months ended March 31, 2023 and March 31, 2022 primarily related to external costs such as legal, accounting and advisory fees related to completed and potential acquisitions (including Uni-Select costs in 2023).

See Note 11, "Restructuring and Transaction Related Expenses" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and acquisition integration plans.

(Gain) on Disposal of Businesses and Impairment of Net Assets Held for Sale

During the three months ended September 30, 2022, we recorded a $4 million pretax gain from the sale of a business within our Self Service segment.

See "Divestitures" in Note 2, "Financial Statement Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our gain on disposal of businesses.

Depreciation and Amortization

The following table summarizes depreciation and amortization for the periods indicated (in millions):

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 Change

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Amortization 22 23 (1)

Total depreciation and amortization $ 58 $ 64 $ (6)

(1) The decrease in depreciation expense included (i) $2 million from foreign currency translation primarily related to a decrease in the euro and pound sterling rates during the three months ended September 30, 2022 compared to the prior year period and (ii) $1 million related to the sale of PGW.

(2) The decrease in amortization expense included $4 million from foreign currency translation primarily related to a decrease in the euro and pound sterling rates during the three months ended September 30, 2022 compared to the prior year period.

Other Expense, Net

The following table summarizes the components of the change in other expense, net (in millions):

Other Expense, Net

Other expense, net for the three months ended September 30, 2021

Increase (decrease) due to:

Interest expense, net of interest income 1 (1)

Other income, net (3) (2)

Net decrease (2)

Other expense, net for the three months ended September 30, 2022

(1) Net interest expense increased primarily due to (i) a $3 million increase resulting from higher interest rates during the three months ended September 30, 2022 compared to the prior year period and (ii) a $1 million increase from higher average borrowings in the current year, partially offset by (iii) a $2 million decrease from foreign exchange translation, primarily related to a decrease in the euro exchange rate.

(2) The increase in Other income, net is primarily comprised of (i) an increase related to a net $3 million change in insurance proceeds, (ii) an increase related to a net $2 million gain on previously held equity interests, partially offset by (iii) a decrease related to a net $2 million change in our fair value adjustments for equity investments not accounted for under the equity method.

Provision for Income Taxes

Our effective income tax rate for the three months ended September 30, 2022 was 25.2%, compared to 24.4% for the three months ended September 30, 2021.

In the third quarter of 2022, we increased our estimate of the annual effective rate by 20 basis points, which resulted in a year to date adjustment to increase the provision.

In the three months ended September 30, 2021, we reduced the annual effective rate by 50 basis points, which resulted in a year to date adjustment to decrease the provision.

The net change resulted in a higher effective tax rate in 2022.

See Note 12, "Income Taxes" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Equity in Earnings of Unconsolidated Subsidiaries

Equity in earnings of unconsolidated subsidiaries for the three months ended September 30, 2022 decreased by $6 million primarily related to a decline in year over year results reported by Mekonomen, which is our largest equity method investment, and the negative year over year effect resulting from the divestiture of a Self Service investment in the second quarter of 2022.

Foreign Currency Impact

We translate our statements of income at the average exchange rates in effect for the period.

Relative to the rates used during the three months ended September 30, 2021, the euro, pound sterling and Czech koruna rates used to translate the 2022 statements of income decreased by 15%, 15% and 11%, respectively.

The negative translation effect of the change in foreign currencies against the U.S.

dollar combined with the negative impact of realized and unrealized currency gains and losses for the three months ended September 30, 2022 resulted in a negative $0.06 effect on diluted earnings per share relative to the prior year period.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

The following table summarizes the changes in revenue by category (in millions):

Nine Months Ended September 30, Percentage Change in Revenue

2022 2021 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 9,105 $ 9,171 5.1 % (0.6) % (5.3) % (0.7) %

Other revenue 688 732 (5.8) % 0.2 % (0.3) % (6.0) %

Total revenue $ 9,793 $ 9,903 4.3 % (0.5) % (4.9) % (1.1) %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

The decline in parts and services revenue of 0.7% represented decreases in segment revenue of 4.8% in Europe and 2.1% in Specialty, partially offset by increases of 11.6% in Self Service and 5.4% in Wholesale - North America.

Parts and services revenue increased by 5.1% organically, so the overall decrease was attributable to negative effects from fluctuations in foreign exchange rates of 5.3% and the net reduction from divestitures of 0.6%.

The decrease in other revenue of 6.0% was primarily driven by a decrease in organic revenue of $43 million, attributable to a $50 million decrease in our Self Service segment, partially offset by an $8 million increase in our Wholesale - North America segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment during the nine months ended September 30, 2022 compared to the prior year period.

Cost of Goods Sold

Cost of goods sold as a percentage of revenue remained at 59.1% for both the nine months ended September 30, 2022 and 2021.

Cost of goods sold reflects an increase of 0.5% in our Self Service segment partially offset by a decrease of 0.2% attributable to mix as a greater portion of sales are coming from Wholesale - North America which has higher margins.

The remaining decrease is related to improvements in each of our other three segments.

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Selling, General and Administrative Expenses

Our SG&A expenses as a percentage of revenue increased to 27.4% in the nine months ended September 30, 2022 from 26.7% in the nine months ended September 30, 2021.

The SG&A expense increase primarily reflects impacts of 0.2% in each of our Europe, Specialty, and Self Service segments.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Restructuring and Transaction Related Expenses

The following table summarizes restructuring and transaction related expenses for the periods indicated (in millions):

Nine Months Ended September 30,

2022 2021 Change

Restructuring expenses $ 5 (1)

Transaction related expenses 5 (3)

Restructuring and transaction related expenses $ 10 $ 16 $ (6)

(1) Restructuring expenses for the nine months ended September 30, 2022 consisted of (i) $2 million related to our acquisition integration plans, (ii) $2 million related to our global restructuring programs and (iii) $1 million related to our 1 LKQ Europe program.

(2) Restructuring expenses for the nine months ended September 30, 2021 primarily consisted of (i) $9 million related to our global restructuring programs and (ii) $6 million related to our 1 LKQ Europe program.

(3) Transaction related expenses for the nine months ended September 30, 2022 primarily related to external costs such as legal, accounting and advisory fees for completed and potential transactions.

See Note 4, "Restructuring and Transaction Related Expenses" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and acquisition integration plans.

(Gain) on Disposal of Businesses and Impairment of Net Assets Held for Sale

During the nine months ended September 30, 2022, we recorded a $159 million pretax gain from divestitures including $155 million ($127 million after tax) from the sale of PGW and $4 million from the sale of a business within our Self Service segment.

Depreciation and amortization $ 58 $ 59 $ (1)

The following table summarizes depreciation and amortization for the periods indicated (in millions):

Nine Months Ended September 30,

Total Other Expense, Net

The following table summarizes Total other expense, net for the periods indicated (in millions):

Three Months Ended March 31,

2023 2022 Change

Depreciation $ 106 $ 117 $ (11) (1)

Amortization 72 78 (6) (2)

Total depreciation and amortization $ 178 $ 195 $ (17)

(1) The decrease in depreciation expense included $5 million from foreign currency translation primarily related to a decrease in the euro and pound sterling rates during the nine months ended September 30, 2022 compared to the prior year period and $3 million related to divestiture of businesses (primarily PGW) with the remaining decrease due to individually immaterial factors.

(2) The decrease in amortization expense primarily reflected (i) a $6 million decrease from foreign exchange translation, primarily related to a decrease in the euro exchange rate and (ii) a decrease of $4 million related to the customer relationship intangible assets recorded upon our acquisition of Stahlgruber as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the nine months ended September 30, 2022 compared to the prior year period, partially offset by (iii) a $2 million increase related to software amortization with the remaining increase due to individually immaterial factors.

Other Expense, Net

The following table summarizes the components of the change in other expense, net (in millions):

Other Expense, Net

Other expense, net for the nine months ended September 30, 2021

Increase (decrease) due to:

Interest expense, net of interest income (10) (1)

Loss on debt extinguishment (24) (2)

Other income, net 11 (3)

Net decrease (23)

Other expense, net for the nine months ended September 30, 2022

(1) Net interest expense declined primarily due to (i) a $5 million decrease from foreign exchange translation, primarily related to a decrease in the euro exchange rate and (ii) a $4 million decrease resulting from lower interest rates during the nine months ended September 30, 2022 compared to the prior year period.

(2) The $24 million decrease in loss on debt extinguishment is due to the charge recorded in April 2021 related to the redemption of the Euro Notes (2026).

(3) The decrease in Other income, net is primarily comprised of (i) a decrease related to a $11 million change in our fair value adjustments for equity investments not accounted for under the equity method and (ii) a decrease related to a $5 million change in foreign currency gains and losses, partially offset by (iii) other individually insignificant increases which in the aggregate had a $5 million favorable impact.

Interest expense $ 36 $ 16 $ 20 (1)

Gains on foreign exchange contracts - acquisition related (2)

Interest income and other income, net (9) (1) (8) (3)

Total other expense, net $ 4 $ 15 $ (11)

(1) Interest expense increased primarily due to (i) a $17 million increase from higher interest rates in the first quarter of 2023 and (ii) a $3 million increase related to amortization of pre-acquisition bridge loan financing costs related to the Uni-Select Acquisition.

(2) Related to the Uni-Select acquisition.

See Note 3, "Uni-Select Acquisition" and Note 17, "Derivative Instruments and Hedging Activities" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

(3) The increase in Interest income and other income, net is primarily comprised of (i) a $5 million increase from funds received to settle an eminent domain matter in 2023, (ii) a $2 million increase from the change in foreign currency gains and losses, and (iii) a $2 million increase in interest income, partially offset by (iv) individually insignificant decreases which in the aggregate had a $1 million impact.

Provision for Income Taxes

Our effective income tax rate for the nine months ended September 30, 2022 was 24.4%, compared to 25.7% for the nine months ended September 30, 2021.

The decrease in the effective tax rate for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was attributable to net favorable discrete items of 1.1%, primarily related to the sale of PGW, and the geographic distribution of income.

Our effective income tax rate for the three months ended March 31, 2023 was 26.1%, compared to 25.0% for the three months ended March 31, 2022.

The increase in the effective rate for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 is primarily attributable to the geographic distribution of income and 0.2% resulting from higher non-deductible transaction costs in 2023, mostly related to the Uni-Select Acquisition.

For the three months ended March 31, 2023, the effective tax rate was decreased by 0.4% compared to the three months ended March 31, 2022, related primarily to net favorable discrete items including excess tax benefits from stock-based payments.

See Note 20, "Income Taxes" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Equity in Earnings of Unconsolidated Subsidiaries

Equity in earnings of unconsolidated subsidiaries for the nine months ended September 30, 2022 decreased by $9 million primarily related to a decline in year over year results reported by Mekonomen, which is our largest equity method investment, and the negative year over year effect resulting from the divestiture of a Self Service investment in the second quarter of 2022.

Equity in earnings of unconsolidated subsidiaries for the three months ended March 31, 2023 increased by $1 million primarily related to the positive year over year effect resulting from the divestiture of a Self Service investment (which incurred a loss in the first quarter of 2022) in the second quarter of 2022, partially offset by a decline in year over year results reported by Mekonomen, which is our largest equity method investment.

Foreign Currency Impact

We translate our statements of income at the average exchange rates in effect for the period.

Relative to the rates used during the nine months ended September 30, 2021, the euro, pound sterling, and Czech koruna rates used to translate the 2022 statements of income decreased by 11%, 9%, and 7%, respectively.

The negative translation effect of the change in foreign currencies against the U.S.

dollar combined with the negative impact of realized and unrealized currency gains and losses for the nine months ended September 30, 2022 resulted in an $0.11 negative effect on diluted earnings per share relative to the prior year period.

Relative to the rates used during the three months ended March 31, 2022, the pound sterling and euro rates used to translate the 2023 statements of income decreased by 9.4% and 4.3%, respectively.

Realized and unrealized currency gains and losses combined with the translation effect of the change in foreign currencies against the U.S.

dollar had a net positive effect of $0.05 on diluted earnings per share for the three months ended March 31, 2023, mostly related to the $23 million pretax gain on the foreign exchange forward contract related to the Uni-Select acquisition.

Results of Operations—Segment Reporting

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The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2022 % of Total Segment Revenue 2021 % of Total Segment Revenue 2022 % of Total Segment Revenue 2021 % of Total Segment Revenue

Three Months Ended March 31,

2023 % of Total Segment Revenue 2022 % of Total Segment Revenue

Third Party Revenue

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Specialty 396 460

164 195 571 603

Total third party revenue $ 3,349 $ 3,348

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Specialty 397 461

164 195 571 603

Eliminations (1) (1)

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The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA.

We use Segment EBITDA to compare profitability among the segments and evaluate business strategies.

Segment EBITDA includes revenue and expenses that are controllable by the segment.

Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue.

We calculate Segment EBITDA as EBITDA excluding restructuring and transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold);

We calculate Segment EBITDA as Net Income excluding discontinued operations;

depreciation, amortization;

interest (which includes gains and losses on debt extinguishment);

income tax expense;

restructuring and transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold);

change in fair value of contingent consideration liabilities;

4 unchanged sentences

and direct impacts of the Ukraine/Russia conflict and related sanctions (including provisions for and subsequent adjustments to reserves for asset recoverability and expenditures to support our employees and their families).

EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding discontinued operations, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

See Note 21, "Segment and Geographic Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Wholesale - North America

1 unchanged sentence

The following table summarizes the changes in third party revenue by category in our Wholesale - North America segment (in millions):

Three Months Ended September 30, Percentage Change in Revenue

Three Months Ended March 31, Percentage Change in Revenue

Wholesale - North America

7 unchanged sentences

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue increased 10.9% for the three months ended September 30, 2022 compared to the prior year period, primarily driven by passing through input cost inflation.

Aftermarket collision parts volumes increased slightly year over year due to reduced pressures on our supply chain and were largely offset by decreases in collision and mechanical parts volumes from our salvage business.

(2) Other organic revenue decreased 4.4%, primarily related to (i) a $3 million decrease in revenue from scrap steel related to lower prices and (ii) a $2 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices, partially offset by higher volumes.

(3) Acquisition and divestiture revenue was a net decrease of $109 million due to the divestiture of PGW in the second quarter of 2022.

(1) Parts and services organic revenue increased 14.4% for the three months ended March 31, 2023 compared to the prior year period, primarily driven by pricing initiatives which focused on offsetting inflation on input costs and a net volume increase.

Aftermarket collision parts volumes increased year over year due to reduced pressures on our supply chain, with the improved aftermarket inventory availability contributing to a year over year decrease in recycled parts volumes.

Aftermarket collision parts volumes also grew as a result of the continued rollout of State Farm's aftermarket parts program, which began on a trial basis in June 2022 and has subsequently been expanded.

(2) Other organic revenue decreased 14.3% primarily related to (i) a $12 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices, (ii) a $1 million decrease in revenue from other scrap (e.g., aluminum) and cores due to lower prices partially offset by higher volumes and (iii) a $1 million decrease in revenue from scrap steel related to lower prices, partially offset by higher volumes.

(3) Acquisition and divestiture revenue was a decrease of $113 million due to the divestiture of our PGW aftermarket glass business in the second quarter of 2022.

Segment EBITDA

Segment EBITDA increased $26 million , or 13.5%, in the three months ended September 30, 2022 compared to the prior year period, despite the $13 million negative year over year effect resulting from the divestiture of PGW in the second quarter of 2022.

The primary drivers of the increase were higher prices on parts and productivity initiatives helping to offset inflationary pressures related to ocean freight, labor, supplies and fuel.

In addition, certain charitable and incentive benefit contributions totaling $15 million in the three months ended September 30, 2021 were not repeated in the three months ended September 30, 2022.

The overall increase was partially offset by decreases attributable to precious metals and scrap steel.

We estimate that precious metals and scrap steel pricing had an unfavorable effect of $10 million, or 0.8%, on Segment EBITDA margin relative to the comparable prior year period.

Segment EBITDA increased $34 million , or 15.6%, in the three months ended March 31, 2023 compared to the prior year period, despite the $16 million negative year over year effect related to the PGW business, which we divested in the second quarter of 2022.

The increase is attributable to higher prices on parts, improved aftermarket volumes, productivity initiatives helping to offset inflationary pressures related to product cost, and lower freight costs.

The increase was partially offset by a net decrease attributable to precious metals and scrap steel.

We estimate that precious metals and scrap steel pricing had a net unfavorable effect of $8 million, or 0.5%, on Segment EBITDA margin relative to the comparable prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Wholesale - North America segment:

1 unchanged sentence

Percentage of Total Segment Revenue

Segment EBITDA for the three months ended September 30, 2021

Segment EBITDA for the three months ended March 31, 2022

Increase (decrease) due to:

2 unchanged sentences

Change in other income and expenses, net 0.5 % (3)

Segment EBITDA for the three months ended September 30, 2022

Segment EBITDA for the three months ended March 31, 2023

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin of 1.9% was primarily driven by (i) productivity and price initiatives to offset inflation on product cost and inbound freight and (ii) a 0.8% mix benefit resulting from the PGW divestiture in the second quarter, partially offset by (iii) an unfavorable impact from a decrease in scrap steel and precious metals pricing.

(2) Segment operating expenses as a percentage of revenue decreased 0.2% due to (i) a 0.6% favorable impact from personnel expense due to non-recurring incentive compensation in 2021, (ii) a 0.4% favorable impact from lower charitable contributions, offset by (iii) a 0.4% unfavorable impact from higher professional fees, and (iv) a 0.4% unfavorable impact

of other operating expenses in the aggregate.

(3) Other income and expenses, net as a percentage of revenue was favorable by 0.2% mainly due to insurance proceeds.

(1) The increase in gross margin of 1.9% was primarily driven by (i) a 0.9% benefit from lower inbound freight costs (ii) a 0.6% mix benefit resulting from the PGW divestiture in the second quarter of 2022, and (iii) a 0.4% benefit from other factors, including pricing and productivity initiatives to offset inflationary pressures related to product cost.

(2) Segment operating expenses as a percentage of revenue were flat primarily reflecting favorable impacts of (i) 0.8% from decreased freight, vehicle, and fuel costs, offset by (ii) 0.7% from higher charitable contributions, and (iii) other individually immaterial factors representing a 0.1% unfavorable impact in the aggregate.

(3) The favorable impact in other income and expenses, net was primarily related to funds received to settle an eminent domain matter in 2023.

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Europe segment (in millions):

Three Months Ended September 30, Percentage Change in Revenue

Three Months Ended March 31, Percentage Change in Revenue

Europe 2023 2022 Organic Acquisition and Divestiture Foreign Exchange (2)

4 unchanged sentences

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue for the three months ended September 30, 2022 increased by 4.8% (5.8% on a per day basis), primarily due to pricing initiatives across all geographies that have been implemented throughout 2022 to offset increased costs resulting from inflationary pressures.

The organic revenue growth across most of our European operations was partially offset by 0.4% of an unfavorable effect on certain operations and product lines due to the Ukraine/Russia conflict.

(2) Compared to the prior year, exchange rates decreased our revenue growth by $224 million, or 14.7%, primarily due to the stronger U.S.

dollar against the euro, pound sterling, and Czech koruna during the third quarter of 2022 relative to the prior year period.

(1) Parts and services organic revenue for the three months ended March 31, 2023 increased by 9.7% (8.2% on a per day basis), primarily driven by pricing initiatives across all geographies to offset increased costs resulting from inflationary pressures and to a lesser extent, higher volumes.

(2) Exchange rates decreased our revenue growth by $88 million, or 5.9%, primarily due to the stronger U.S.

dollar against the euro and pound sterling for the three months ended March 31, 2023 relative to the prior year period.

Segment EBITDA

Segment EBITDA decreased $20 million, or 11.2%, in the three months ended September 30, 2022 compared to the prior year period.

Segment EBITDA increased $20 million, or 14.8%, for the three months ended March 31, 2023 compared to the prior year period.

Our Europe Segment EBITDA included a negative year over year impact of $9 million rel ated to the translation of local currency results into U.S.

dollars at lower exchange rates than those experienced during the three months ended September 30, 2021 .

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $6 million, or 3.6% , co mpared to the prior year.

Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended September 30, 2022.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:

Europe Percentage of Total Segment Revenue

Segment EBITDA for the three months ended September 30, 2021

Increase (decrease) due to:

Change in gross margin 0.1 % (1)

Change in segment operating expenses (0.3) % (2)

Segment EBITDA for the three months ended September 30, 2022

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin was primarily attributable to favorable impacts of net price increases and margin improvement initiatives undertaken to support profitable revenue growth despite inflationary pressures.

(2) The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 0.4% from freight, vehicle, and fuel expenses due to inflationary pressures, (ii) 0.3% from increased personnel costs primarily due to inflationary pressures, partially offset by favorable impacts of (iii) 0.2% from lower professional expenses and (iv) several individually immaterial factors totaling 0.2% in the aggregate.

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Specialty segment (in millions):

Three Months Ended September 30, Percentage Change in Revenue

Specialty 2022 2021 Organic (1)

Acquisition and Divestiture (2)

Foreign Exchange Total Change

Parts & services revenue $ 452 $ 465 (9.1) % 6.6 % (0.3) % (2.8) %

Other revenue — — — % — % — % — %

Total third party revenue $ 452 $ 465 (9.1) % 6.6 % (0.3) % (2.8) %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue for the three months ended September 30, 2022 decreased by 9.1% due to the strong growth we experienced in the third quarter of 2021, when parts and services organic revenue growth was 13.7%;

demand softness from lower new vehicle sales caused by supply chain challenges;

and a decrease in drop shipment volumes.

(2) Acquisition related growth for the three months ended September 30, 2022 reflected revenue from our acquisitions of two Specialty businesses from the beginning of 2021 through the one-year anniversary of the acquisition dates.

Segment EBITDA

Segment EBITDA decreased $3 million, or 5.0%, in the three months ended September 30, 2022 compared to the prior year period primarily due to the organic revenue decline and the negative effect of inflation on overhead expenses.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:

Specialty Percentage of Total Segment Revenue

Segment EBITDA for the three months ended September 30, 2021

Increase (decrease) due to:

Change in gross margin 0.5 % (1)

Change in segment operating expenses (0.8) % (2)

Segment EBITDA for the three months ended September 30, 2022

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin primarily reflects (i) a 1.0% benefit from lower customer rebate accruals and (ii) other individually immaterial factors totaling 0.5%, partially offset by (iii) a 1.0% unfavorable impact from acquisitions.

(2) The increase in segment operating expenses as a percentage of revenue primarily reflects unfavorable impacts of (i) 0.8% in personnel costs as a result of wage inflation and lower operating leverage due to the organic parts and services revenue decline, (ii) 0.6% in vehicle and fuel expenses primarily due to higher fuel costs, (iii) 0.4% in fixed facility expenses as a result of lower operating leverage due to the organic parts and services revenue decline and (iv) several individually immaterial factors that had an unfavorable impact of 0.5% in the aggregate, partially offset by favorable impacts of (v) 0.8% from operating expense synergies and leverage generated from the 2021 acquisitions, primarily Seawide, and (vi) 0.7% related to lower incentive compensation.

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Self Service segment (in millions):

Three Months Ended September 30, Percentage Change in Revenue

2022 2021 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 55 $ 51 7.2 % (1)

— % — % 7.2 %

Other revenue 109 144 (24.8) % (2)

— % — % (24.8) %

Total third party revenue $ 164 $ 195 (16.3) % — % — % (16.3) %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue increased 7.2% for the three months ended September 30, 2022 compared to the prior year period, primarily driven by pricing initiatives to mitigate significant increases in input costs resulting from greater competition for vehicles.

(2) The 24.8%, or $35 million, year over year decrease in other revenue is related to (i) a $23 million decrease in revenue from scrap steel related to lower volumes and lower prices, (ii) a $13 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices and lower volumes, partially offset by (iii) a $1 million increase in revenue from other scrap (including aluminum) and cores.

Segment EBITDA

Segment EBITDA decreased $32 million, or 88.0%, in the three months ended September 30, 2022 compared to the prior year period.

The decrease includes a $5 million decline due to lower precious metals prices relative to the comparable prior year period.

In addition, net sequential changes in scrap steel prices in our self service operations had a $16 million unfavorable impact on Segment EBITDA during the three months ended September 30, 2022, compared to a $4 million favorable impact during the three months ended September 30, 2021.

This unfavorable impact for the three months ended September 30, 2022 resulted from the decrease in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

We estimate that precious metals and scrap steel pricing had an unfavorable effect of 12.4% on Segment EBITDA margin relative to the comparable prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Self Service segment:

Percentage of Total Segment Revenue

Segment EBITDA for the three months ended September 30, 2021

Increase (decrease) due to:

Change in gross margin (9.5) % (1)

Change in segment operating expenses (6.3) % (2)

Segment EBITDA for the three months ended September 30, 2022

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The decrease in gross margin reflects (i) an unfavorable impact of 9.9% resulting from movements in metals prices partially offset by (ii) a favorable impact due to increased prices for parts and services.

(2) The increase in segment operating expense as a percentage of revenue reflects (i) a negative leverage effect of 5.4% from decreases in metals revenue and (ii) other individually immaterial factors representing a 0.9% unfavorable impact in the aggregate.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Wholesale - North America

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Wholesale - North America segment (in millions):

Nine Months Ended September 30, Percentage Change in Revenue

Wholesale - North America 2022 2021 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 3,182 $ 3,018 11.7 % (1)

(0.1) % 5.4 %

Other revenue 271 263 3.2 % (2)

0.6 % (0.1) % 3.6 %

Total third party revenue $ 3,453 $ 3,281 11.0 % (5.6) % (0.1) % 5.3 %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue increased 11.7% (11.2% on a per day basis) for the nine months ended September 30, 2022 compared to the prior year period, primarily driven by passing through input cost inflation.

Aftermarket collision parts volumes decreased in the first nine months of the year due to ocean freight delays and supply chain challenges but showed year over year improvement in the third quarter.

Increased volumes of collision parts from our salvage business partially offset the year to date aftermarket volume decline.

(2) Organic other revenue increased 3.2%, or $8 million, related to (i) a $19 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher prices as well as higher volumes, and (ii) a $2 million increase in revenue from scrap steel due to higher volumes, partially offset by (iii) a $13 million decrease in revenue from precious metals (platinum, palladium, and rhodium) primarily due to lower prices partially offset by higher volumes.

(3) Acquisition and divestiture revenue was a net decrease of $185 million primarily due to the divestiture of PGW in the second quarter of 2022.

Segment EBITDA

Segment EBITDA increased $45 million, or 7.4%, for the nine months ended September 30, 2022 compared to the prior year, despite the $12 million negative year over year effect related to the PGW business, which we divested in the second quarter of 2022.

The increase is attributable to higher prices on parts and productivity initiatives helping to offset inflationary pressures related to ocean freight, labor, supplies and fuel.

The increase was partially offset by decreases attributable to precious metals and scrap steel.

We estimate that precious metals and scrap steel pricing had an unfavorable effect of $32 million, or 0.9%, on Segment EBITDA margin relative to the comparable prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment:

Wholesale - North America Percentage of Total Segment Revenue

Segment EBITDA for the nine months ended September 30, 2021

Increase (decrease) due to:

Change in gross margin 0.3 % (1)

Change in segment operating expenses — % (2)

Segment EBITDA for the nine months ended September 30, 2022

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin of 0.3% was driven by (i) productivity and price initiatives to offset inflation on product cost and inbound freight and (ii) a 0.5% mix benefit resulting from the PGW divestiture in the second quarter, partially offset by (iii) an unfavorable impact from a decrease in scrap steel and precious metals pricing.

(2) The segment operating expenses as a percentage of revenue were flat which reflects favorable impacts of (i) 0.2% related to personnel costs due to lower incentive compensation and (ii) 0.2% from lower charitable contributions, partially offset by (iii) a 0.3% unfavorable impact related to professional fees and (iv) other individually immaterial factors representing a 0.1% unfavorable impact in the aggregate.

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Europe segment (in millions):

Nine Months Ended September 30, Percentage Change in Revenue

Europe 2022 2021 Organic Acquisition and Divestiture Foreign Exchange (2)

Parts & services revenue $ 4,327 $ 4,545 5.3 % (1)

0.4 % (10.5) % (4.8) %

Other revenue 18 20 (1.1) % — % (10.5) % (11.7) %

Total third party revenue $ 4,345 $ 4,565 5.2 % 0.4 % (10.5) % (4.8) %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue for the nine months ended September 30, 2022 increased by 5.3% (5.5% on a per day basis), primarily due to pricing initiatives across all geographies that have been implemented throughout 2022 to offset increased costs resulting from inflationary pressures.

The organic revenue growth across most of our European operations was partially offset by 0.4% of a negative effect on certain operations and product lines due to the Ukraine/Russia conflict.

(2) Compared to the prior year, exchange rates decreased our revenue growth by $478 million, or 10.5%, primarily due to the stronger U.S.

dollar against the euro, pound sterling and Czech koruna for the nine months ended September 30, 2022 relative to the prior year period.

Segment EBITDA

Segment EBITDA decreased $38 million, or 7.8%, for the nine months ended September 30, 2022 compared to the prior year period.

Our Europe Segment EBITDA included a negative year over year impact of $52 million related to the translation of local currency results into U.S.

dollars at lower exchange rates than those experienced during the nine months ended September 30, 2021.

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $14 million, or 3.0%, com pared to the prior year.

dollars at lower exchange rates than those experienced during the three months ended March 31, 2022 .

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $29 million, or 21.3% , co mpared to the prior year period.

The increase in dollar terms is attributable to organic revenue growth of $144 million and margin expansion from favorable leverage effects and productivity initiatives.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:

Europe Percentage of Total Segment Revenue

Segment EBITDA for the nine months ended September 30, 2021

Segment EBITDA for the three months ended March 31, 2022

Increase (decrease) due to:

2 unchanged sentences

Change in other expense, net 0.1 %

Segment EBITDA for the nine months ended September 30, 2022

Segment EBITDA for the three months ended March 31, 2023

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(2) The increase in segment operating expenses as a percentage of revenue primarily reflects unfavorable impacts of (i) 0.3% from increased personnel costs primarily due to inflationary pressures, (ii) 0.3% from increased freight, vehicle, and fuel expenses due to inflationary pressures and supply chain constraints, and (iii) other individually immaterial factors representing a 0.3% favorable impact in the aggregate.

(1) Gross margin was flat year over year due to offsetting individually immaterial factors.

(2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.9% from personnel costs due to increased sales leverage and productivity initiatives, and (ii) other individually immaterial factors representing a 0.2% favorable impact in the aggregate, partially offset by (iii) an unfavorable impact of 0.2% due to higher utilities costs as compared to the prior year period due to rising energy prices.

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Specialty segment (in millions):

Nine Months Ended September 30, Percentage Change in Revenue

Three Months Ended March 31, Percentage Change in Revenue

Specialty 2023 2022 Organic (1)

Acquisition and Divestiture (2)

Foreign Exchange Total Change

Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 396 $ 460 (13.5) % — % (0.5) % (14.0) %

2 unchanged sentences

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue for the nine months ended September 30, 2022, decreased by 9.7% (10.2% on a per day basis) due to strong comparative growth for the nine months ended September 30, 2021, when parts and services organic revenue growth was 24.6%;

demand softness from lower new vehicle sales caused by supply chain challenges;

and a decrease in drop shipment volumes.

(2) Acquisition related growth for the nine months ended September 30, 2022 reflected revenue from our acquisitions of three Specialty businesses from the beginning of 2021 through the one-year anniversary of the acquisition dates.

(1) Parts and services organic revenue for the three months ended March 31, 2023 decreased by 13.5% primarily due to demand softness in the recreational vehicle ("RV") product line, as RV unit retail sales and wholesale shipments have declined year over year.

Segment EBITDA

Segment EBITDA decreased $17 million, or 8.5%, for the nine months ended September 30, 2022 compared to the prior year period primarily due to the organic revenue decline and the negative effect of inflation on overhead expenses.

Segment EBITDA decreased $27 million, or 46.3%, in the three months ended March 31, 2023 compared to the prior year period primarily due to the organic revenue decline and the negative leverage effect on overhead expenses.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:

Specialty Percentage of Total Segment Revenue

Segment EBITDA for the nine months ended September 30, 2021

Segment EBITDA for the three months ended March 31, 2022

Increase (decrease) due to:

1 unchanged sentence

Change in segment operating expenses (1.5) % (2)

Segment EBITDA for the nine months ended September 30, 2022

Segment EBITDA for the three months ended March 31, 2023

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin primarily reflects lower discounting to recover higher input costs and lower customer rebate accruals, partially offset by a 1.0% unfavorable impact from acquisitions.

(2) The increase in segment operating expenses as a percentage of revenue primarily reflects unfavorable impacts of (i) 0.8% in personnel costs primarily as a result of wage inflation and lower operating leverage due to the organic parts and services revenue decline, (ii) 0.5% in vehicle and fuel expenses primarily due to higher fuel costs, (iii) 0.3% in fixed facility expenses as a result of lower operating leverage due to the organic parts and services revenue decline, and (iv) several individually immaterial factors that had an unfavorable impact of 0.4% in the aggregate, partially offset by (v) a favorable impact of 0.7% from operating expense synergies and leverage generated from the 2021 acquisitions.

(1) The decrease in gross margin primarily was driven by (i) increased competitive pricing due to broader availability of inventory among competitors in the market, (ii) discounting on inventory primarily in the RV and towing product lines, and (iii) product channel mix toward lower margin auto and marine products.

(2) The increase in segment operating expenses as a percentage of revenue was due to a negative leverage effect as operating expenses decreased at a lower rate than the decline in organic revenue.

The major contributing expense categories were personnel costs (0.4%), facility expenses (0.3%) and vehicle and fuel expenses (0.3%) with all other immaterial operating expense categories in aggregate contributing to the remaining 0.5%.

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Self Service segment (in millions):

Nine Months Ended September 30, Percentage Change in Revenue

Self Service 2022 2021 Organic Acquisition and Divestiture Foreign Exchange Total Change

Three Months Ended March 31, Percentage Change in Revenue

2023 2022 Organic Acquisition and Divestiture (3)

Foreign Exchange Total Change

Parts & services revenue $ 60 $ 57 4.9 % (1)

4 unchanged sentences

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue increased 11.6% for the nine months ended September 30, 2022 compared to the prior year period, primarily driven by pricing initiatives to mitigate significant increases in input costs resulting from greater competition for vehicles.

(2) The 11.3%, or $50 million, year over year decrease in other revenue is related to (i) a $51 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to both lower prices and volumes, and (ii) a $13 million decrease in revenue from scrap steel related to lower volumes partially offset by higher prices, partially offset by (iii) a $14 million increase in revenue from other scrap (including aluminum) and cores primarily related to higher prices.

(1) Parts and services organic revenue increased 4.9% for the three months ended March 31, 2023 compared to the prior year period, primarily driven by pricing initiatives which focused on offsetting inflation on input costs resulting from greater competition for vehicles.

(2) Other organic revenue decreased 14.5%, or $20 million, year over year due to (i) a $17 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices, (ii) a $5 million decrease in revenue from scrap steel related to lower prices and slightly lower volumes, partially offset by (iii) a $2 million increase in revenue from other scrap (including aluminum) and cores primarily due to higher volumes partially offset by lower prices.

(3) Acquisition and divestiture revenue was a decrease of $12 million, or 5.9% due to the divestiture of a business in the third quarter of 2022.

Segment EBITDA

Segment EBITDA decreased $72 million, or 48.8%, in the nine months ended September 30, 2022 compared to the prior year period.

The decrease is primarily attributable to unfavorable movements in commodity prices compared to the prior year.

Decreases in precious metals prices contributed an estimated $32 million decline in Segment EBITDA relative to the nine months ended September 30, 2021.

In addition, net sequential changes in scrap steel prices in our self service operations had an $11 million unfavorable impact on Segment EBITDA during the nine months ended September 30, 2022, compared to a $25 million favorable impact during the nine months ended September 30, 2021.

The unfavorable impacts for the nine months ended September 30, 2022 resulted from the decrease in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

We estimate that precious metals and scrap steel pricing had an unfavorable effect of 10.4% on Segment EBITDA margin relative to the comparable prior year period.

Segment EBITDA decreased $18 million, or 43.5%, in the three months ended March 31, 2023 compared to the prior year period.

The decrease is driven by the decline in revenue due to unfavorable movements in commodity prices compared to the prior year period and gross margin compression from higher vehicle procurement costs.

In addition, decreases in precious metals prices contributed an estimated $15 million decline in Segment EBITDA relative to the three months ended March 31, 2022.

Net sequential changes in scrap steel prices partially offset the impact of the decline in precious metals prices.

During the three months ended March 31, 2023, scrap steel prices had an $11 million favorable impact on Segment EBITDA, compared to a $2 million favorable impact during the three months ended March 31, 2022.

The favorable impacts for the three months ended March 31, 2023 resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Self Service segment:

Self Service Percentage of Total Segment Revenue

Segment EBITDA for the nine months ended September 30, 2021

Percentage of Total Segment Revenue

Segment EBITDA for the three months ended March 31, 2022

Increase (decrease) due to:

1 unchanged sentence

Change in segment operating expenses (5.0) % (2)

Segment EBITDA for the nine months ended September 30, 2022

Segment EBITDA for the three months ended March 31, 2023

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The decrease in gross margin reflects (i) an unfavorable impact of 9.2% resulting from movements in metals prices partially offset by (ii) a favorable impact due to increased prices for parts and services.

(2) The increase in segment operating expense as a percentage of revenue reflects (i) a negative leverage effect of 2.7% from decreases in metals revenue and (ii) other individually immaterial factors representing a 0.4% unfavorable impact in the aggregate.

(1) The decrease in gross margin primarily reflects an unfavorable impact resulting from higher vehicle procurement costs due to greater competition for vehicles.

(2) The increase in segment operating expenses as a percentage of revenue reflects (i) a negative leverage effect of 4.5% from decreases in metals revenue and (ii) other individually immaterial factors representing a 0.5% unfavorable impact in the aggregate.

Liquidity and Capital Resources

The following table summarizes liquidity data as of the dates indicated (in millions):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022 December 31, 2022

Cash and cash equivalents $ 342 $ 278 $ 278

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Capacity under credit facilities (3)

2,000 2,000 3,150

Availability under credit facilities (3)

591 645 1,295

Total liquidity (cash and cash equivalents plus availability under credit facilities) 933 923 1,573

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $7 million and $12 million as of September 30, 2022 and December 31, 2021, respectively).

(2) Debt amounts reflect the gross values to be repaid in the next 12 months (excluding debt issuance costs of immaterial amounts as of September 30, 2022 and December 31, 2021).

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $12 million and $6 million as of March 31, 2023 and December 31, 2022, respectively).

(2) Debt amounts reflect the gross values to be repaid in the next 12 months (excluding debt issuance costs of immaterial amounts as of March 31, 2023 and December 31, 2022).

(3) Capacity under credit facilities includes our revolving credit facilities, and availability under credit facilities is reduced by our outstanding letters of credit.

(4) Amounts presented represent the termination of the Prior Credit Agreement and inclusion of the Senior Unsecured Credit Agreement as if both were in effect as of December 31, 2022.

See Note 16, "Long-Term Obligations" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

(5) Debt amount presented above reflects the gross values to be repaid (excluding debt issuance costs of $13 million as of December 31, 2022).

We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions.

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To fund our acq uisitions, we have accessed various forms of debt financing, including revolving credit facilities and senior notes.

As of September 30, 2022, we had debt outstanding and additional available sources of financing as follows:

• Senior secured credit facilities maturing in January 2024, composed of $3,150 million in revolving credit ($1,621 million outstanding at September 30, 2022), bearing interest at variable rates, with availability reduced by $69 million of amounts outstanding under letters of credit

We currently believe we have sufficient access to capital markets to support our future growth objectives.

As of March 31, 2023, we had debt outstanding and additional available sources of financing as follows:

• Senior unsecured credit facilities, composed of term loans totaling $500 million (all of which was outstanding at March 31, 2023) and $2,000 million in available revolving credit ($1,335 million outstanding at March 31, 2023), bearing interest at variable rates, with availability reduced by $74 million of amounts outstanding under letters of credit

• Euro Notes (2024) totaling $542 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

• Euro Notes (2028) totaling $271 million (€250 million) maturing in April 2028 and bearing interest at a 4.125% fixed rate

As of September 30, 2022, we had approximately $1,460 million available under our credit facilities.

Combined with $269 million of cash and cash equivalents at September 30, 2022, we had approximately $1,729 million i n available liquidity, an increase of $261 million from our available liquidity as of December 31, 2021.

We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements.

Our 2022 plan includes spending to rebuild inventory levels, support growth driven capital projects, complete tuck-in acquisitions, and return stockholder value through the payment of dividends and repurchasing shares of our common stock.

A summary of the dividend activity for our common stock for the nine months ended September 30, 2022 is as follows:

We had approximately $591 million available under our credit facilities in place as of March 31, 2023 .

Combined with $342 million of cash and cash equivalents at March 31, 2023, we had approximately $933 million i n available liquidity, a decrease of $640 million from our available liquidity as of December 31, 2022 as a result of reducing our overall credit facility capacity by $650 million.

The Uni-Select Acquisition is expected to close in the second half of 2023.

As of March 31, 2023, we have the following arrangements in place to finance the transaction:

• Bridge loan facility of $1,600 million.

We intend to replace the bridge loan facility with permanent financing, such as senior notes, in advance of closing the transaction;

• CAD delayed draw term loan of up to CAD 700 million scheduled to mature three years from the date of funding (i.e.

the business day prior to the acquisition closing date), bearing interest at variable rates.

We believe that our current liquidity, cash expected to be generated by operating activities in future periods and access to capital markets will be sufficient to meet our current operating and capital requirements.

However, as noted, we will access additional financing sources to fund the Uni-Select transaction.

Our capital allocation strategy includes spending to support growth driven capital projects, complete synergistic acquisitions, and return stockholder value through the payment of dividends and repurchasing shares of our common stock.

A summary of the dividend activity for our common stock for the three months ended March 31, 2023 is as follows:

Dividend Amount Declaration Date Record Date Payment Date

$0.275 February 21, 2023 March 16, 2023 March 30, 2023

$0.25 April 26, 2022 May 19, 2022 June 2, 2022

$0.25 July 26, 2022 August 11, 2022 September 1, 2022

On October 25, 2022, our Board of Directors declared a quarterly cash dividend of $0.275 per share of common stock, payable on December 1, 2022, to stockholders of record at the close of business on November 17, 2022.

On April 25, 2023, our Board of Directors declared a quarterly cash dividend of $0.275 per share of common stock, payable on June 1, 2023, to stockholders of record at the close of business on May 18, 2023.

We believe that our future cash flow generation will permit us to continue paying dividends in future periods;

however, the timing, amount and frequency of such future dividends will be subject to approval by our Board of Directors, and based on considerations of capital availability, and various other factors, many of which are outside of our control.

With $1,729 million of total liquidity as of September 30, 2022 and $50 million of current maturities, we have access to funds to meet our near term commitments.

With $933 million of total liquidity as of March 31, 2023 and $44 million of current maturities, we have access to funds to meet our near term commitments.

We have a surplus of current assets over current liabilities, which further reduces the risk of short-term cash shortfalls.

Our total liquidity inclu des availability under our senior secured credit facility, which includes the two financial maintenance covenants presented below (our required debt covenants and our actual ratios with respect to those covenants as calculated per the credit agreement as of September 30, 2022):

Covenant Level Ratio Achieved as of September 30, 2022

Maximum net leverage ratio 4.00 :

Our total liquidity inclu des availability under our Senior Unsecured Credit Agreement, which includes two financial maintenance covenants:

a maximum total leverage ratio and minimum interest coverage ratio.

The terms maximum total leverage ratio and minimum interest coverage ratio are specifically calculated per the Senior Unsecured Credit Agreement and differ in specified ways from comparable US GAAP or common usage terms.

We were in compliance with all applicable covenants under our Senior Unsecured Credit Agreement as of March 31, 2023.

The required debt covenants per the Senior Unsecured Credit Agreement and our actual ratios with respect to those covenants are as follows as of March 31, 2023:

Covenant Level Ratio Achieved as of March 31, 2023

Maximum total leverage ratio 4.00 :

Minimum interest coverage ratio 3.00 :

The terms net leverage ratio and minimum interest coverage ratio used in the credit agreement are specifically calculated per the credit agreement and differ in specified ways from comparable US GAAP or common usage terms.

Our credit agreement contains customary covenants that impose limitations and conditions on our ability to enter into certain transactions.

The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.

During the second quarter of 2022, two ratings agencies, S&P Global Ratings and Moody's Investors Service, upgraded our issuer credit rating to an investment grade rating of 'BBB-' and 'Baa3', respectively, and rated our outlook as stable.

With the assignment of an investment grade rating, we are no longer required to comply with certain restrictive covenants under the credit agreement.

We were in compliance with all applicable covenants under our credit agreement as of September 30, 2022.

The indentures relating to our Euro Notes d o not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds under the credit facility.

The indentures relating to our Euro Notes d o not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds under the Senior Unsecured Credit Agreement.

The indentures do not prohibit amendments to the financial covenants under the credit facility as needed.

While we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or modification of our existing credit facilities.

While we believe that we have adequate capacity under our existing credit facilities to finance our current operations, from time to time we may need to raise additional funds through public or private financing, strategic relationships or modification of our existing credit facilities such as will be required to finance the Uni-Select Acquisition.

There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all.

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Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

Our current credit facility matures in January 2024, and we expect to refinance the facility prior to that date.

We utilize a supply chain financing arrangement, which allows us to improve our operating cash flows by extending payment terms.

Financial institutions participate in the supply chain financing initiative on an uncommitted basis and can cease purchasing receivables from our suppliers at any time.

The initiative is at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them.

In the future, if the financial institutions do not continue to purchase receivables from our suppliers under the initiative, the participating vendors may need to renegotiate their payment terms with us, which in turn could cause our borrowings under our revolving credit facility to increase.

All outstanding payments owed under the initiative to the participating financial institutions are recorded within Accounts payable in our Unaudited Condensed Consolidated Balance Sheets.

We have held interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings and currency swaps that contain an interest rate swap component and a foreign currency forward contract component.

As of September 30, 2022, we did not have any of these contracts outstanding.

The weighted average interest rate on borrowings outstanding under our credit agreement was 3.0% at September 30, 2022.

Including our senior notes, our overall weighted average interest rate on borrowings was 3.3% at September 30, 2022.

Our borrowings in U.S.

dollars continue to accrue interest at LIBOR until a replacement rate is specified, which is expected to occur prior to June 2023.

We do not expect the change in benchmark rates will have a material impact on our results of operations, financial position or liquidity.

As part of our effort to improve our operating cash flows, we may negotiate payment term extensions with suppliers.

These efforts are supported by our supply chain finance programs.

See Note 15, "Supply Chain Financing" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our supply chain financing arrangements.

We hold interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings.

After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our Senior Unsecured Credit Agreement was 5.0% at March 31, 2023.

Including our senior notes, our overall weighted average interest rate on borrowings was 4.7% at March 31, 2023.

Under the Senior Unsecured Credit Agreement, our borrowings bear interest at Secured Overnight Financing Rate (i.e.

SOFR) plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread.

See Note 16, "Long-Term Obligations" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our borrowings and related interest.

We had outstanding credit agreement borrowin gs of $1,621 million and $1,887 million at September 30, 2022 and December 31, 2021, respectively.

Of these amounts, t here wer e no current maturities at September 30, 2022 or December 31, 2021.

The scheduled maturities of long-term obligations outstanding at September 30, 2022 are as follows (in millions):

Three months ending December 31, 2022 (1)

The interest rate swaps are described in Note 17, "Derivative Instruments and Hedging Activities" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We had outstanding credit agreement borrowin gs (including both term loans and revolving credit facilities) of $1,835 million and $1,786 million at March 31, 2023 and December 31, 2022, respectively.

Of these amounts, t here wer e no current maturities at March 31, 2023 or December 31, 2022.

The scheduled maturities of long-term obligations outstanding at March 31, 2023 are as follows (in millions):

Nine months ending December 31, 2023 (1)

Years ending December 31:

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(1) Long-term obligations maturing by December 31, 2023 include $20 million of short-term debt that may be extended beyond the current year ending December 31, 2023.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $7 million as of September 30, 2022).

As of September 30, 2022, the Company had cash and cash equivalents of $269 million, of which $210 million was held by foreign subsidiaries.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $12 million as of March 31, 2023).

As of March 31, 2023, the Company had cash and cash equivalents of $342 million, of which $249 million was held by foreign subsidiaries.

In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries.

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Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S.

taxation, either as a result of the 100% participation exemption under the Tax Cuts and Jobs Act, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime.

taxation, either as a result of the 100% participation exemption under the Tax Cuts and Jobs Act enacted in 2017, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime.

The procurement of inventory is the largest operating use of our funds.

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We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three and nine months ended September 30, 2022 and 2021 (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change 2022 2021 Change

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three months ended March 31, 2023 and 2022 (in millions):

Three Months Ended March 31,

2023 2022 Change

Wholesale - North America

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Europe 920 955 (35) (2)

2,708 2,861 (153) (2)

Specialty 251 403 (152) (3)

Total $ 1,444 $ 1,675 $ (231)

(1) Inventory purchases across the Wholesale - North America segment increased in the nine months ended September 30, 2022 compared to the prior year period primarily due to required restocking to keep up with the demand for our products.

(2) The decrease in inventory purchases in our Europe segment included a decrease of $307 million attributable to the decrease in the value of the euro, and to a lesser extent, the pound sterling in the nine months ended September 30, 2022 compared to the prior year period.

On a constant currency basis, inventory purchases increased compared to the prior year period, due to required restocking to keep up with the demand for our products as well as purchases to improve availability for customers in certain regions.

(1) Inventory purchases across the Wholesale - North America segment decreased in the three months ended March 31, 2023 compared to the prior year period primarily due to higher required restocking needed in the prior year to rebuild inventory levels.

(2) The decrease in inventory purchases in our Europe segment included a decrease of $53 million attributable to the decrease in the value of the euro, and to a lesser extent, the pound sterling in the three months ended March 31, 2023 compared to the prior year period.

On a constant currency basis, inventory purchases increased by 2% compared to the prior year period.

(3) The decrease in inventory purchases in the Specialty segment compared to the prior year period was primarily due to matching inventory levels with demand.

This was partially offset by inventory purchases made by companies acquired in the second half of 2021.

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 % Change 2022 2021 % Change

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

2023 2022 % Change

Wholesale - North America salvage vehicles 64 60 6.7 %

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Self Service salvage vehicles 137 135 1.5 %

Wholesale - North America salvage purchases in 2022 increased relative to the prior year due to limitations in the prior year on vehicles at auctions.

Self Service salvage vehicle purchases in 2022 decreased due to increased market competition and decreased availability of vehicles.

Wholesale - North America salvage purchases in 2023 increased relative to the prior year due to improved availability of vehicles at auctions.

The following table summarizes the components of the year over year changes in cash provided by operating activities (in millions):

Operating Cash

Net cash provided by operating activities for the nine months ended September 30, 2021

Net cash provided by operating activities for the three months ended March 31, 2022

Increase (decrease) due to:

Working capital accounts:

Receivables, net 16

Receivables, net of allowance for credit losses (6)

Inventories 155

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Other operating activities (48) (2)

Net cash provided by operating activities for the nine months ended September 30, 2022

Net cash provided by operating activities for the three months ended March 31, 2023

(1) Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period.

• Receivables, net was a $16 million benefit to cash provided by operating activities year over year.

This was driven by a $43 million inflow for our Europe segment and a $7 million inflow for our Specialty segment, both due to lesser overall cash outflows in 2022 as a result of collections and timing of sales.

This was partially offset by a $34 million outflow for our Wholesale - North America segment primarily due to an increase in organic revenue in 2022 compared to 2021, which translated to higher receivables balances in 2022.

• Inventories represented $296 million in incremental cash outflows in the first nine months of 2022 compared to the same period of 2021.

The change is primarily attributable to increased inventory purchases in the current year as a result of high input costs and volume increases due to strong demand and strategic inventory purchases to curb the impacts of supply chain constraints.

• Accounts payable produced a similar cash inflow in the first nine months of 2022 compared to the same period of 2021 on a consolidated basis.

This was primarily attributable to Wholesale - North America which contributed a $234 million cash inflow driven by higher accounts payable balances and timing of payments partially offset by a lower cash inflow in our Europe segment of $189 million and a cash outflow of $45 million from our Specialty segment.

(2) Primarily reflects the aggregate effect of lower cash operating income and higher incentive compensation payments partially offset by lower cash paid for taxes.

Net cash provided by investing activities totaled $244 million and net cash used in investing activities totaled $201 million during the nine months ended September 30, 2022 and 2021, respectively.

Proceeds from the disposal of businesses (primarily PGW) were $399 million during the nine months ended September 30, 2022.

Property, plant and equipment purchases were $148 million in the nine months ended September 30, 2022 compared to $133 million in the prior year period.

We invested $67 million of cash, net of cash acquired, in business acquisitions during the nine months ended September 30, 2021.

• Inventories represented $155 million in incremental cash inflows in the first three months of 2023 compared to the same period of 2022.

The change is primarily attributable to our Specialty segment inventory decreases of $112 million due to decreasing inventory purchasing levels to align with softening demand and decreases at our Europe segment of $24 million and our Wholesale - North America segment of $19 million due to higher required restocking needed in the prior year to rebuild inventory levels.

• Accounts payable produced $287 million in lower cash inflows in the first three months of 2023 compared to the same period of 2022 on a consolidated basis.

This was primarily attributable to lower cash inflows in our Wholesale - North America segment of $249 million (partly related to accelerated vendor payments in late 2021 to ensure priority access to inventory) and in our Europe segment of $57 million, partially offset by our Specialty segment which contributed a $19 million lower cash outflow.

(2) Primarily reflects the aggregate effect of higher interest payments in the first quarter of 2023 primarily due to higher interest rates during the three months ended March 31, 2023 compared to the same period of 2022.

Net cash used in investing activities totaled $97 million and $63 million during the three months ended March 31, 2023 and 2022, respectively.

Property, plant and equipment purchases were $70 million in the three months ended March 31, 2023 compared to $59 million in the prior year period, primarily driven by capital projects in our Europe and Specialty segments.

We invested $25 million of cash in business acquisitions in the three months ended March 31, 2023.

We did not complete any business acquisitions in the same period of 2022.

The following table reconciles Net Cash Provided by Operating Activities to Free Cash Flow (in millions):

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash provided by operating activities $ 223 $ 409

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Free cash flow $ 153 $ 350

Net cash used in financing activities increased by $151 million for the nine months ended September 30, 2022 compared to the same period in 2021 due primarily to increases in repurchases of common stock of $297 million and payment of dividends in 2022 of $210 million (no dividends were paid in the nine months ended September 30, 2021) partially offset by a decrease in settlement of our cross currency swap and other foreign exchange forward contracts in 2021 of $89 million and lower net repayments on our borrowings of $251 million.

Please refer to Note 2, "Financial Statement Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on repurchases of common stock.

Net cash used in financing activities decreased by $212 million for the three months ended March 31, 2023 compared to the same period in 2022 due primarily to decreases in repurchases of common stock of $136 million and net borrowings on our debt of $41 million compared to net repayments on our debt of $53 million in 2022.

Please refer to "Unregistered Sales of Equity Securities and Use of Proceeds" in Part II, Item 2 of this Quarterly Report on Form 10-Q for additional information on repurchases of common stock.

We intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis