LKQ CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Statements and information in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act. Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. 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). Overview 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: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycled products obtained from salvage and total loss vehicles; recycled products that have been refurbished; and recycled products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the four sources that are not new OEM products as alternative parts. We are organized into four operating segments: Wholesale - North America, Europe, Specialty, and Self Service, each of which is presented as a reportable segment. 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. and Canada. 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. Please refer to the factors referred to in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance. 32 Acquisitions and Investments Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. Through 2018, our acquisition strategy was focused on consolidation to build scale in fragmented markets across North America and Europe. 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 to acquisitions that target high synergies and/or add critical capabilities, including the Uni-Select Acquisition completed in August 2023 that complements our existing North American paint distribution operations and provides 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 Note 2, "Business Combinations," 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 We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories used to improve the performance, functionality and appearance of vehicles. Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair services. Revenue from other sources includes scrap and other metals (including precious metals - platinum, palladium and rhodium - contained in recycled parts such as catalytic converters) sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 10, "Revenue Recognition" 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 sources of revenue. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 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. Updates to our critical accounting estimates since our 2022 Form 10-K are as follows: Business Combinations Description We account for business combinations using the acquisition method of accounting, under which the acquisition purchase price is allocated to the assets acquired, including purchased intangible assets, and liabilities assumed based upon their respective fair values. The excess of the fair value of the purchase price over the fair values of these assets acquired and liabilities assumed is recorded as goodwill. Judgments and Uncertainties Accounting for business combinations requires management to make significant estimates and assumptions to determine the fair values of assets acquired and liabilities assumed at the acquisition date. Although we believe the assumptions and estimates we have made in relation to the acquisitions are appropriate, they are based, in part, on historical experience, information obtained from management of the acquired companies and information obtained from independent third party valuation firms and are inherently uncertain. Critical estimates in valuing certain acquired intangible assets include, but are not limited to, future expected cash flows including revenue growth rate assumptions from product sales and customer contracts, estimated royalty rates used in valuing related intangible assets, customer attrition rates and discount rates. The discount rates used to discount expected future cash flows to present value are typically derived from a weighted-average cost of capital analysis and adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results. 33 Sensitivity of Estimate to Change The amount of goodwill recorded from our 2023 acquisitions was $1,291 million at September 30, 2023. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. Changes in the estimates applied or values of acquired assets and liabilities could have a material impact on our financial statements. As a result, during the measurement period, which may be up to one year from the business acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Financial Information by Geographic Area 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 Plan We have undertaken the 1 LKQ Europe plan to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under this multi-year plan, we expect to recognize the following: • Restructuring expenses — Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe plan from which the business will derive no ongoing benefit. 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 details. • Transformation expenses — Period costs incurred to execute the 1 LKQ Europe plan that are expected to contribute to ongoing benefits to the business (e.g. non-capitalizable implementation costs related to a common ERP platform). 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 plan. Costs related to the 1 LKQ Europe plan 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 2027. In the second quarter of 2023, we extended the completion date from 2025 to 2027 based on a detailed project review, after which we concluded that the common ERP system implementation would require additional time to allow for operational process reengineering to support further standardization across the segment. The extended implementation schedule and incremental process reengineering work will help to minimize potential business disruptions but increased the overall cost estimate by $85 million. We expect to achieve additional cost benefits through expanded application of shared services and productivity improvements along with working capital reductions related to inventory rationalization. We are currently realizing a portion of the benefits of the 1 LKQ Europe plan and expect to achieve further margin expansion during the implementation period. During the three and nine months ended September 30, 2023, we incurred $7 million and $20 million, respectively, in costs across all three categories noted above. We expect that costs of the plan, reflecting all three categories noted above, will range between $125 million to $155 million for 2023 through the projected plan completion date in 2027. In the future, we may also identify additional initiatives and projects under the 1 LKQ Europe plan that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. We expect the project to continue to enable trade working capital and productivity initiatives that will help fund the project cost. Ukraine/Russia Conflict The Russian invasion of Ukraine and resulting global governmental response impacted our business in 2022 and 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. We expect to continue operating in this manner unless conditions change. We currently do not 34 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 $75 million of total assets as of September 30, 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 We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”). • Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e., revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e., impact of translating revenue at different exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e., opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully. • Segment EBITDA - 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 description of the calculation of Segment EBITDA. We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results. • 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, 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. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects. 35 Results of Operations—Consolidated 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, 2023 2022 2023 2022 Revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold 61.0 % 58.9 % 59.7 % 59.1 % Gross margin 39.0 % 41.1 % 40.3 % 40.9 % Selling, general and administrative expenses 27.5 % 27.8 % 27.5 % 27.4 % Restructuring and transaction related expenses 0.8 % 0.1 % 0.5 % 0.1 % Gain on disposal of businesses — % (0.1) % — % (1.6) % Depreciation and amortization 2.1 % 1.9 % 1.9 % 1.8 % Operating income 8.6 % 11.5 % 10.4 % 13.2 % Total other expense, net 1.3 % 0.4 % 0.6 % 0.4 % Income from continuing operations before provision for income taxes 7.4 % 11.2 % 9.8 % 12.7 % Provision for income taxes 1.7 % 2.8 % 2.5 % 3.1 % Equity in earnings of unconsolidated subsidiaries 0.1 % 0.1 % 0.1 % 0.1 % Income from continuing operations 5.8 % 8.4 % 7.3 % 9.7 % Net income from discontinued operations — % — % — % 0.1 % Net income 5.9 % 8.4 % 7.3 % 9.8 % Less: net income attributable to continuing noncontrolling interest — % — % — % — % Net income attributable to LKQ stockholders 5.8 % 8.4 % 7.3 % 9.7 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 Revenue The following table summarizes the changes in revenue by category (in millions): Three Months Ended September 30, Percentage Change in Revenue 2023 2022 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 3,407 $ 2,909 3.0 % 10.5 % 3.6 % 17.1 % Other revenue 161 195 (14.0) % (3.5) % — % (17.5) % Total revenue $ 3,568 $ 3,104 2.0 % 9.6 % 3.4 % 15.0 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. The increase in parts and services revenue of 17.1% represented increases in segment revenue of 28.0% in Wholesale - North America, 14.8% in Europe, 5.1% in Self Service, and 0.9% in Specialty. This overall increase was driven by organic parts and services revenue growth of 3.0% (4.3% on a per day basis), a 10.5% increase due to the net impact of acquisitions and divestitures and a 3.6% increase due to fluctuations in foreign exchange rates. The decrease in other revenue of 17.5% was primarily driven by a decrease in organic revenue of $28 million due to unfavorable movements in precious metals and scrap steel prices compared to the prior year period, primarily attributable to a $19 million decrease in our Self Service segment and a $7 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 September 30, 2023 compared to the three months ended September 30, 2022. 36 Cost of Goods Sold Cost of goods sold as a percentage of revenue increased to 61.0% of revenue in the three months ended September 30, 2023 from 58.9% of revenue in the three months ended September 30, 2022. Cost of goods sold reflects increases of 1.2% from our Wholesale - North America segment (including a 0.9% dilutive effect related to our acquisition of Uni-Select), 0.7% from our Europe segment, and 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 September 30, 2023 compared to the three months ended September 30, 2022. Selling, General and Administrative Expenses Our SG&A expenses as a percentage of revenue decreased to 27.5% in the three months ended September 30, 2023 from 27.8% in the three months ended September 30, 2022. The SG&A expense decrease primarily reflects an impact of 0.8% in our Wholesale - North America segment, with 0.7% related to our acquisition of Uni-Select, partially offset by increases of 0.3% in our Europe segment, and 0.2% in our Self Service 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, 2023 compared to the three months ended September 30, 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, 2023 2022 Change Restructuring expenses $ 24 (1) $ 2 (2) $ 22 Transaction related expenses 3 (3) 1 (3) 2 Restructuring and transaction related expenses $ 27 $ 3 $ 24 (1) Restructuring expenses for the three months ended September 30, 2023 primarily consisted of (i) $20 million related to our acquisition integration plans and (ii) $4 million related to our global restructuring plans. (2) Restructuring expenses for the three months ended September 30, 2022 primarily consisted of (i) $1 million related to our 1 LKQ Europe plan and (ii) $1 million related to our global restructuring plans. (3) Transaction related expenses for the three months ended September 30, 2023 and September 30, 2022 primarily related to external costs such as legal, accounting and advisory fees related to completed and potential acquisitions (including Uni-Select transaction 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 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 "Other Divestitures (Not Classified in Discontinued Operations)" in Note 3, "Discontinued Operations and Divestitures" 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, 2023 2022 Change Depreciation $ 40 $ 36 $ 4 (1) Amortization 36 22 14 (2) Depreciation and amortization $ 76 $ 58 $ 18 37 (1) The increase in depreciation expense primarily related to (i) an increase in capital expenditures and (ii) a $1 million increase from our acquisition of Uni-Select. (2) The increase in amortization expense primarily related to a $12 million increase from our acquisition of Uni-Select. Total Other Expense, Net The following table summarizes Total other expense, net for the periods indicated (in millions): Three Months Ended September 30, 2023 2022 Change Interest expense $ 62 $ 19 $ 43 (1) Gains on foreign exchange contracts - acquisition related (2) (3) — (3) Interest income and other income, net (14) (8) (6) (3) Total other expense, net $ 45 $ 11 $ 34 (1) Interest expense increased primarily due to (i) a $27 million increase from higher outstanding debt primarily related to the permanent financing for the Uni-Select Acquisition, (ii) a $15 million increase from higher interest rates in the third quarter of 2023, and (iii) a $3 million increase from foreign exchange translation, primarily related to an increase in the euro exchange rate, partially offset by (iv) individually insignificant decreases that had a $2 million impact in the aggregate. (2) Related to the Uni-Select Acquisition. See Note 2, "Business Combinations" 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 a $7 million increase in interest income, primarily related to interest income on the proceeds from the U.S. Notes (2028/33) that were invested in money market funds between the bond issuance date and the Uni-Select Acquisition date. Provision for Income Taxes Our effective income tax rate for the three months ended September 30, 2023 was 22.6%, compared to 25.2% for the three months ended September 30, 2022. The decrease in the effective tax rate for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 is primarily attributable to: (i) 4.4% net favorable discrete items, primarily related to the Uni-Select Acquisition foreign exchange forward contract gain, partially offset by (ii) 0.8% of unfavorable rate effects, including non-deductible transaction costs and negative impacts on foreign tax credit availability caused by Uni-Select related transaction activity, and (iii) geographic distribution of income favoring higher rate jurisdictions in 2023. 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 three months ended September 30, 2023 increased by $2 million primarily related to an increase 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 three months ended September 30, 2022, the Czech koruna, euro and pound sterling rates used to translate the 2023 statements of income increased by 10.0%, 8.1%, and 7.6%, respectively, while the Canadian dollar rate decreased by 2.7%. Realized and unrealized currency gains and losses (including the effects of hedge instruments) combined with the translation effect of the change in foreign currencies against the U.S. dollar had a net positive effect of $0.08 on diluted earnings per share for the three months ended September 30, 2023, mostly related to the gain on the foreign exchange forward contract related to the Uni-Select Acquisition, including the tax effects. 38 Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 Revenue The following table summarizes the changes in revenue by category (in millions): Nine Months Ended September 30, Percentage Change in Revenue 2023 2022 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 9,818 $ 9,105 5.3 % 2.2 % 0.3 % 7.8 % Other revenue 547 688 (16.0) % (4.3) % (0.2) % (20.4) % Total revenue $ 10,365 $ 9,793 3.8 % 1.8 % 0.3 % 5.8 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. The increase in parts and services revenue of 7.8% represented increases in segment revenue of 12.5% in Wholesale - North America, 10.0% in Europe, and 4.9% in Self Service, partially offset by a decrease of 9.1% in Specialty. This overall increase was driven by organic parts and services revenue growth of 5.3%, a 2.2% increase due to the net impact of acquisitions and divestitures, and a 0.3% increase due to fluctuations in foreign exchange rates. The decrease in other revenue of 20.4% was primarily driven by a decrease in organic revenue of $110 million due to unfavorable movements in precious metals and scrap steel prices compared to the prior year period, primarily attributable to a $71 million decrease in our Self Service segment and a $36 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 nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Cost of Goods Sold Cost of goods sold as a percentage of revenue increased to 59.7% in the nine months ended September 30, 2023 from 59.1% in the nine months ended September 30, 2022. Cost of goods sold reflects increases of 0.4% from our Specialty segment, 0.1% from our Wholesale - North America segment (including a 0.3% dilutive effect related to our acquisition of Uni-Select), and 0.2% from our Europe segment, partially offset by a decrease of 0.3% attributable to mix primarily due to a decline in revenue in 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 nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Selling, General and Administrative Expenses Our SG&A expenses as a percentage of revenue increased to 27.5% in the nine months ended September 30, 2023 from 27.4% in the nine months ended September 30, 2022. The SG&A expense was roughly flat with mostly offsetting factors including an unfavorable mix effect and a reduction in our Wholesale - North America segment, which benefited from the Uni-Select Acquisition. 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, 2023 compared to the nine months ended September 30, 2022. 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, 2023 2022 Change Restructuring expenses $ 34 (1) $ 5 (2) $ 29 Transaction related expenses 19 (3) 5 (3) 14 Restructuring and transaction related expenses $ 53 $ 10 $ 43 (1) Restructuring expenses for the nine months ended September 30, 2023 consisted of (i) $22 million related to our acquisition integration plans, (ii) $11 million related to our global restructuring plans, and (iii) $1 million related to our 1 LKQ Europe plan. 39 (2) Restructuring expenses for the nine months ended September 30, 2022 primarily consisted of (i) $2 million related to our acquisition integration plans, (ii) $2 million related to our global restructuring plans and (iii) $1 million related to our 1 LKQ Europe plan. (3) Transaction related expenses for the nine months ended September 30, 2023 and September 30, 2022 primarily related to external costs such as legal, accounting and advisory fees related to completed and potential acquisitions (including Uni-Select transaction 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 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. See "Other Divestitures (Not Classified in Discontinued Operations)" in Note 3, "Discontinued Operations and Divestitures" 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): Nine Months Ended September 30, 2023 2022 Change Depreciation $ 114 $ 106 $ 8 (1) Amortization 81 72 9 (2) Depreciation and amortization $ 195 $ 178 $ 17 (1) Depreciation expense increased primarily related to an increase in capital expenditures, primarily in our Europe and Wholesale - North America segments. (2) Amortization expense increased primarily due to (i) a $12 million increase from our acquisition of Uni-Select, partially offset by (ii) individually insignificant decreases that had a $3 million impact in the aggregate. Total Other Expense, Net The following table summarizes Total other expense, net for the periods indicated (in millions): Nine Months Ended September 30, 2023 2022 Change Interest expense $ 150 $ 51 $ 99 (1) Gains on foreign exchange contracts - acquisition related (2) (49) — (49) Interest income and other income, net (34) (9) (25) (3) Total other expense, net $ 67 $ 42 $ 25 (1) Interest expense increased primarily due to (i) a $52 million increase from higher interest rates during the nine months ended September 30, 2023 compared to the prior year period, (ii) a $36 million increase from higher outstanding debt primarily related to the permanent financing for the Uni-Select Acquisition, (iii) a $9 million increase related to amortization of pre-acquisition bridge loan financing costs related to the Uni-Select Acquisition, and (iv) a $3 million increase from foreign exchange translation, primarily related to an increase in the euro exchange rate. (2) Related to the Uni-Select Acquisition. See Note 2, "Business Combinations" 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 $18 million increase related to interest income, mostly related to the proceeds from the U.S. Notes (2028/33) that were invested in money market funds between the bond issuance date and the Uni-Select Acquisition date, (ii) a $5 million increase from funds received to settle an eminent domain matter in 2023, (iii) a $3 million increase related to a reduction in our fair value adjustments for 40 equity investments not accounted for under the equity method compared to the prior year period and (iv) a $2 million increase from the change in foreign currency gains and losses, partially offset by (v) individually insignificant decreases that had a $3 million impact in the aggregate. Provision for Income Taxes Our effective income tax rate for the nine months ended September 30, 2023 was 25.9%, compared to 24.4% for the nine months ended September 30, 2022. The increase in the effective tax rate for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 is primarily attributable to: (i) 0.9% of unfavorable rate effects, including non-deductible transaction costs and negative impacts on foreign tax credit availability caused by Uni-Select related transaction activity and (ii) geographic distribution of income favoring higher rate jurisdictions in 2023. Discrete items had similar favorable effects in both years, with a 1% rate benefit in the prior year, primarily related to the sale of PGW in the second quarter of 2022, and in the current year, primarily related to the Uni-Select Acquisition foreign exchange forward contract gain. 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, 2023 increased by $1 million primarily related to an increase in year over year results in an immaterial investment in our European segment. 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, 2022, the Czech koruna and the euro rate used to translate the 2023 statements of income increased by 5.3% and 1.8%, respectively, while the Canadian dollar and the pound sterling rate decreased by 4.6% and 1.0%, respectively. Realized and unrealized currency gains and losses (including the effects of hedge instruments) combined with the translation effect of the change in foreign currencies against the U.S. dollar had a net positive effect of $0.18 on diluted earnings per share for the nine months ended September 30, 2023, mostly related to the $49 million pretax gain on the foreign exchange forward contract related to the Uni-Select Acquisition. Results of Operations—Segment Reporting We have four reportable segments: Wholesale - North America, Europe, Specialty and Self Service. We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do, and accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies. 41 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, 2023 % of Total Segment Revenue 2022 % of Total Segment Revenue 2023 % of Total Segment Revenue 2022 % of Total Segment Revenue Third Party Revenue Wholesale - North America $ 1,387 $ 1,108 $ 3,815 $ 3,453 Europe 1,584 1,380 4,777 4,345 Specialty 456 452 1,294 1,424 Self Service 141 164 479 571 Total third party revenue $ 3,568 $ 3,104 $ 10,365 $ 9,793 Total Revenue Wholesale - North America $ 1,387 $ 1,109 $ 3,815 $ 3,454 Europe 1,584 1,380 4,777 4,345 Specialty 457 452 1,297 1,426 Self Service 141 164 479 571 Eliminations (1) (1) (3) (3) Total revenue $ 3,568 $ 3,104 $ 10,365 $ 9,793 Segment EBITDA Wholesale - North America $ 236 17.0 % $ 216 19.4 % $ 736 19.3 % $ 648 18.7 % Europe 147 9.3 % 155 11.3 % 486 10.2 % 446 10.3 % Specialty 40 8.6 % 49 10.8 % 113 8.7 % 176 12.4 % Self Service (1) (0.6) % 4 2.6 % 28 6.0 % 76 13.3 % Note: In the table above, the percentages of total segment revenue may not recalculate due to rounding. 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 Net income attributable to LKQ stockholders excluding discontinued operations; depreciation, amortization; interest; 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; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment fair value adjustments; impairment charges; 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). 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. 42 Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 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): Three Months Ended September 30, Percentage Change in Revenue Wholesale - North America 2023 2022 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 1,312 $ 1,026 4.1 % (1) 24.0 % (3) (0.2) % 28.0 % Other revenue 75 82 (8.2) % (2) 0.1 % (0.1) % (8.3) % Total third party revenue $ 1,387 $ 1,108 3.2 % 22.3 % (0.2) % 25.3 % Note: 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 4.1% (5.8% on a per day basis) for the three months ended September 30, 2023 compared to the prior year period, primarily driven by a net volume increase and pricing initiatives which focused on offsetting inflation on input costs. Aftermarket collision parts volumes increased year over year due to reduced pressures on our supply chain and 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 8.2%, or $7 million, year over year primarily related to (i) a $12 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices, partially offset by higher volumes, partially offset by (ii) a $5 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher prices and volumes, and (iii) a $1 million increase in revenue from scrap steel. (3) Acquisition and divestiture revenue was a net increase of $246 million, or 24.0%, primarily due to the acquisition of Uni-Select in the third quarter of 2023. See Note 2, "Business Combinations" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the acquisition of Uni-Select. Segment EBITDA Segment EBITDA increased $20 million , or 10.0%, in the three months ended September 30, 2023 compared to the prior year period, which includes a $20 million impact related to the Uni-Select Acquisition in the third quarter of 2023 (Uni-Select will increase Segment EBITDA dollars but will dilute the Segment EBITDA percentage). We estimate that precious metals and scrap steel prices had a net unfavorable effect of $7 million, or 0.4%, on Segment EBITDA margin relative to the comparable prior year period. The unfavorable impact of precious metals and inflationary pressures related to product cost were offset by lower freight costs, higher prices on parts, improved aftermarket volumes, and productivity initiatives. The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Wholesale - North America segment: Wholesale - North America Percentage of Total Segment Revenue Segment EBITDA for the three months ended September 30, 2022 19.4 % Increase (decrease) due to: Uni-Select Acquisition (1.8) % (1) Change in gross margin (0.6) % (2) Change in segment operating expenses 0.2 % (3) Change in other income and expenses, net (0.2) % (4) Segment EBITDA for the three months ended September 30, 2023 17.0 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The unfavorable impact related to the acquisition of Uni-Select in the third quarter of 2023 was primarily driven by (i) a 3.9% decrease in gross margin due to product mix as the paint, body, and equipment ("PBE") and maintenance parts lines have a lower gross margin structure than other wholesale product lines, partially offset by (ii) a favorable impact of 2.1% related to a decrease in overhead expenses as Uni-Select operates with lower overhead expenses than our other wholesale product lines. 43 (2) The decrease in gross margin of 0.6% was primarily driven by (i) a 1.1% decrease primarily due to an increase in car costs, lower metals pricing and other factors, partially offset by (ii) a 0.5% benefit from lower inbound freight costs. (3) The decrease in segment operating expenses as a percentage of revenue primarily reflects a favorable impact of 0.2% from decreased freight, vehicle, and fuel costs. (4) The unfavorable impact in other income and expenses, net was primarily related to non-recurring insurance proceeds received from a matter in 2022. Europe 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 Europe 2023 2022 Organic Acquisition and Divestiture (2) Foreign Exchange (3) Total Change Parts & services revenue $ 1,581 $ 1,376 5.1 % (1) 1.9 % 7.8 % 14.8 % Other revenue 3 4 (22.4) % — % 4.2 % (18.3) % Total third party revenue $ 1,584 $ 1,380 5.1 % 1.9 % 7.8 % 14.7 % Note: 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, 2023 increased by 5.1% (6.2% on a per day basis), driven by volume growth across all geographies and, to a lesser extent, pricing initiatives to offset higher costs due to ongoing inflationary pressures. Revenue growth was negatively impacted by labor strikes in our German operations in the three months ended September 30, 2023. We expect revenue to be further impacted in the fourth quarter 2023 results due to additional strike activity. (2) Acquisition and divestiture revenue was a net increase of $26 million, or 1.9%, primarily related to our acquisition of four wholesale businesses in 2023. (3) Exchange rates increased our revenue growth by $108 million, or 7.8%, primarily due to the weaker U.S. dollar against the euro, pound sterling and Czech koruna for the three months ended September 30, 2023 relative to the prior year period. Segment EBITDA Segment EBITDA decreased $8 million, or 5.4%, in the three months ended September 30, 2023 compared to the prior year period. On a constant currency basis (i.e., excluding translation impact), Segment EBITDA de creased by $20 million, or 12.8% , co mpared to the prior year period. 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, 2023. In the three months ended September 30, 2023, Europe's results were negatively impacted by an $11 million charge to settle a value-added tax issue in Italy related to prior years and a loss of revenue and associated margin in our German operations caused by labor strikes, which we estimate resulted in lower Segment EBITDA of $8 million. There has been additional strike activity in October, which will impact the fourth quarter 2023 results. 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, 2022 11.3 % Increase (decrease) due to: Change in gross margin (1.4) % (1) Change in segment operating expenses (0.6) % (2) Segment EBITDA for the three months ended September 30, 2023 9.3 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The decrease in gross margin was primarily attributable to difficult macro-economic conditions causing consumer price sensitivity in our Central and Eastern European regions. 44 (2) The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 0.7% from the settlement of a value-added tax issue in Italy related to prior years and (ii) unfavorable leverage effects of 0.4% caused by strike activity in Germany, partially offset by (iii) a favorable impact of 0.3% in facilities costs due to lower utilities costs than the prior year quarter and (iv) other individually immaterial factors representing a 0.2% favorable impact in the aggregate. Specialty 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 2023 2022 Organic (1) Acquisition and Divestiture (2) Foreign Exchange Total Change Parts & services revenue $ 456 $ 452 (6.1) % 7.2 % (0.2) % 0.9 % Other revenue — — — % — % — % — % Total third party revenue $ 456 $ 452 (6.1) % 7.2 % (0.2) % 0.9 % Note: 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, 2023 decreased by 6.1% 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. (2) Acquisition and divestiture revenue was a net increase of $33 million, or 7.2%, primarily related to our acquisition of one Specialty business in 2023. Segment EBITDA Segment EBITDA decreased $9 million, or 19.5%, in the three months ended September 30, 2023 compared to the prior year period primarily due to the organic revenue decline and decrease in the gross margin percentage as explained below. 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, 2022 10.8 % Increase (decrease) due to: Change in gross margin (3.0) % (1) Change in segment operating expenses 0.8 % (2) Segment EBITDA for the three months ended September 30, 2023 8.6 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The decrease in gross margin primarily was driven by (i) product channel mix toward lower margin auto and marine products, (ii) increased competitive pricing due to broader availability of inventory among competitors in the market and (iii) a negative 0.2% impact from the acquisition. (2) The decrease in segment operating expenses as a percentage of revenue was due to (i) a 0.3% decrease in personnel driven by restructuring activities; (ii) a 0.2% decrease in freight expenses which is mainly driven by the acquisition; and (iii) a 0.3% decrease in vehicle and fuel expenses mainly driven by lower fuel rates. 45 Self Service 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 Self Service 2023 2022 Organic Acquisition and Divestiture (3) Foreign Exchange Total Change Parts & services revenue $ 58 $ 55 5.1 % (1) — % — % 5.1 % Other revenue 83 109 (18.1) % (2) (6.4) % — % (24.4) % Total third party revenue $ 141 $ 164 (10.2) % (4.2) % — % (14.4) % Note: 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 5.1% for the three months ended September 30, 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 18.1%, or $19 million, year over year due to (i) a $20 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices, (ii) a $2 million decrease in revenue from scrap steel related to lower prices and slightly lower volumes, partially offset by (iii) a $3 million increase in revenue from other scrap (including aluminum) and cores primarily due to higher prices, partially offset by lower volumes. (3) Acquisition and divestiture revenue was a decrease of $7 million, or 4.2% due to the divestiture of a business in the third quarter of 2022. Segment EBITDA Segment EBITDA decreased $5 million in the three months ended September 30, 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. Decreases in precious metals prices contributed an estimated $17 million decline in Segment EBITDA relative to the three months ended September 30, 2022. During the three months ended September 30, 2023, scrap steel prices had a $6 million unfavorable impact on Segment EBITDA, compared to a $16 million unfavorable impact during the three months ended September 30, 2022. The unfavorable impacts for the three months ended September 30, 2023 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. 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 three months ended September 30, 2022 2.6 % Increase (decrease) due to: Change in gross margin 0.5 % (1) Change in segment operating expenses (3.8) % (2) Change in other expense, net 0.1 % Segment EBITDA for the three months ended September 30, 2023 (0.6) % Note: 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) the negative effect from metals movements in 2022 was more severe than in 2023 resulting in a 1.5% improvement year over year, partially offset by (ii) an unfavorable impact resulting from vehicle procurement costs decreasing at a lesser rate than commodity prices. (2) The increase in segment operating expenses as a percentage of revenue reflects (i) a negative leverage effect of 5.9% from decreases in metals revenue partially offset by (ii) other individually immaterial factors representing a 2.1% favorable impact in the aggregate. 46 Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 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 2023 2022 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 3,581 $ 3,182 9.1 % (1) 3.7 % (3) (0.3) % 12.5 % Other revenue 234 271 (13.2) % (2) — % (0.3) % (13.5) % Total third party revenue $ 3,815 $ 3,453 7.3 % 3.4 % (0.3) % 10.5 % Note: 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 9.1% (9.6% on a per day basis) for the nine months ended September 30, 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 13.2%, or $36 million, year over year primarily related to (i) a $36 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices, partially offset by higher volumes, (ii) a $3 million decrease in revenue from scrap steel related to lower prices, partially offset by higher volumes, partially offset by (iii) a $2 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher volumes, partially offset by lower prices. (3) Acquisition and divestiture revenue was a net increase of $119 million, or 3.7%, primarily due to the acquisition of Uni-Select in the third quarter of 2023, partially offset by the divestiture of our PGW aftermarket glass business in the second quarter of 2022. See Note 2, "Business Combinations" and "Other Divestitures (Not Classified in Discontinued Operations)" in Note 3, "Discontinued Operations and Divestitures" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the acquisition of Uni-Select and the divestiture of PGW, respectively. Segment EBITDA Segment EBITDA increased $88 million, or 13.7%, in the nine months ended September 30, 2023 compared to the prior year period, which includes a $20 million positive impact related to the acquisition of Uni-Select in the third quarter of 2023 (Uni-Select will increase Segment EBITDA dollars but will dilute the Segment EBITDA percentage) and a $19 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 lower freight costs, higher prices on parts, improved aftermarket volumes, and productivity initiatives helping to offset inflationary pressures related to product cost. We estimate that precious metals and scrap steel pricing had a net unfavorable effect of $22 million, or 0.4%, 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 Wholesale - North America segment: 47 Wholesale - North America Percentage of Total Segment Revenue Segment EBITDA for the nine months ended September 30, 2022 18.7 % Increase (decrease) due to: Uni-Select Acquisition (0.7) % (1) Change in gross margin 1.0 % (2) Change in segment operating expenses 0.2 % (3) Change in other income and expenses, net 0.1 % Segment EBITDA for the nine months ended September 30, 2023 19.3 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The unfavorable impact related to the acquisition of Uni-Select in the third quarter of 2023 was primarily driven by (i) a 1.5% decrease in gross margin due to product mix as the PBE and maintenance parts lines have a lower gross margin structure than other wholesale product lines, partially offset by (ii) a favorable impact of 0.8% related to a decrease in overhead expenses as Uni-Select operates with lower overhead expenses than our other wholesale product lines. (2) The increase in gross margin of 1.0% was driven by (i) a 0.8% benefit from lower inbound freight costs, (ii) a 0.3% mix benefit resulting from the PGW divestiture in the second quarter of 2022, partially offset by (iii) a 0.1% net decrease from other factors. (3) The decrease in segment operating expenses as a percentage of revenue reflects the favorable impact of (i) 0.6% from decreased freight, vehicle, and fuel costs, (ii) other individually immaterial factors representing a 0.1% favorable impact in the aggregate, partially offset by (iii) 0.3% from higher professional fees and (iv) 0.2% from higher charitable contributions. Europe 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 2023 2022 Organic Acquisition and Divestiture (2) Foreign Exchange (3) Total Change Parts & services revenue $ 4,762 $ 4,327 7.9 % (1) 1.2 % 1.0 % 10.0 % Other revenue 15 18 (14.9) % — % (2.9) % (17.8) % Total third party revenue $ 4,777 $ 4,345 7.8 % 1.2 % 1.0 % 9.9 % Note: 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, 2023 increased by 7.9% (8.1% 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) Acquisition and divestiture revenue was a net increase of $50 million, or 1.2%, primarily related to our acquisition of seven wholesale businesses from the beginning of 2022 through the one-year anniversary of the acquisition dates. (3) Exchange rates increased our revenue growth by $44 million, or 1.0%, primarily due to the weaker U.S. dollar against the euro and Czech koruna, partially offset by the pound sterling, for the nine months ended September 30, 2023 relative to the prior year period. Segment EBITDA Segment EBITDA increased $40 million, or 8.9%, in the nine months ended September 30, 2023 compared to the prior year period. On a constant currency basis (i.e., excluding translation impact), Segment EBITDA increased by $36 million, or 8.0%, com pared to the prior year period. The increase in dollar terms is attributable to organic revenue growth of $338 million and benefits from productivity initiatives. 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 nine months ended September 30, 2023. 48 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, 2022 10.3 % Increase (decrease) due to: Change in gross margin (0.4) % (1) Change in segment operating expenses 0.3 % (2) Segment EBITDA for the nine months ended September 30, 2023 10.2 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The decrease in gross margin was primarily attributable to difficult macro-economic conditions causing consumer price sensitivity in our Central and Eastern European regions, with the largest impact occurring in the third quarter. (2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.2% from personnel costs due to improved leverage on higher revenues and productivity initiatives and (ii) other individually immaterial factors representing a 0.3% favorable impact in the aggregate, partially offset by (iii) an unfavorable impact of 0.2% due to the settlement of a value-added tax issue in Italy. Specialty 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 Specialty 2023 2022 Organic (1) Acquisition and Divestiture (2) Foreign Exchange Total Change Parts & services revenue $ 1,294 $ 1,424 (10.9) % 2.2 % (0.4) % (9.1) % Other revenue — — — % — % — % — % Total third party revenue $ 1,294 $ 1,424 (10.9) % 2.2 % (0.4) % (9.1) % Note: 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, 2023, decreased by 10.9% primarily due to demand softness in the RV product line, as RV unit retail sales and wholesale shipments have declined year over year. (2) Acquisition and divestiture revenue was a net increase of $32 million, or 2.2%, primarily related to our acquisition of one Specialty business from the beginning of 2022 through the one-year anniversary of the acquisition date. Segment EBITDA Segment EBITDA decreased $63 million, or 35.9%, in the nine months ended September 30, 2023 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 nine months ended September 30, 2022 12.4 % Increase (decrease) due to: Change in gross margin (3.3) % (1) Change in segment operating expenses (0.4) % (2) Segment EBITDA for the nine months ended September 30, 2023 8.7 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The decrease in gross margin primarily was driven by (i) product channel mix toward lower margin auto and marine products and (ii) increased competitive pricing due to broader availability of inventory among competitors in the market. 49 (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 category was facility expenses (0.2%) with all other operating expense categories in the aggregate contributing to the remaining 0.2%. Self Service 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 2023 2022 Organic Acquisition and Divestiture (3) Foreign Exchange Total Change Parts & services revenue $ 181 $ 172 4.9 % (1) — % — % 4.9 % Other revenue 298 399 (17.9) % (2) (7.4) % — % (25.3) % Total third party revenue $ 479 $ 571 (11.0) % (5.2) % — % (16.2) % Note: 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 4.9% for the nine months ended September 30, 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 17.9%, or $71 million, year over year due to (i) a $58 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices, partially offset by higher volumes, (ii) a $19 million decrease in revenue from scrap steel related to lower prices and lower volumes, partially offset by (iii) a $6 million increase in revenue from other scrap (including aluminum) and cores primarily related to higher volumes, partially offset by lower prices. (3) Acquisition and divestiture revenue was a decrease of $30 million, or 5.2% due to the divestiture of a business in the third quarter of 2022. Segment EBITDA Segment EBITDA decreased $48 million, or 62.5%, in the nine months ended September 30, 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 as vehicle procurement costs have decreased at a lesser rate than commodity prices. In addition, decreases in precious metals prices contributed an estimated $47 million decline in Segment EBITDA relative to the nine months ended September 30, 2022. Net sequential changes in scrap steel prices partially offset the impact of the decline in precious metals prices. During the nine months ended September 30, 2023, scrap steel prices had a $3 million favorable impact on Segment EBITDA, compared to an $11 million unfavorable impact during the nine months ended September 30, 2022. The favorable impacts for the nine months ended September 30, 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, 2022 13.3 % Increase (decrease) due to: Change in gross margin (2.6) % (1) Change in segment operating expenses (4.7) % (2) Segment EBITDA for the nine months ended September 30, 2023 6.0 % Note: 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 an unfavorable impact resulting from vehicle procurement costs decreasing at a lesser rate than commodity prices. (2) The increase in segment operating expenses as a percentage of revenue reflects (i) a negative leverage effect of 5.5% from decreases in metals revenue, partially offset by (ii) other individually immaterial factors representing a 0.8% favorable impact in the aggregate. 50 Liquidity and Capital Resources The following table summarizes liquidity data as of the dates indicated (in millions): Adjusted (4) September 30, 2023 December 31, 2022 December 31, 2022 Cash and cash equivalents $ 401 $ 278 $ 278 Total debt 4,369 (3) 2,662 (5) 2,662 (3) Current maturities (1) 574 34 34 Capacity under credit facilities (2) 2,000 2,000 3,150 Availability under credit facilities (2) 845 645 1,295 Total liquidity (cash and cash equivalents plus availability under credit facilities) 1,246 923 1,573 (1) Debt amounts reflect the gross values to be repaid in the next 12 months (excluding immaterial amounts of debt issuance costs as of September 30, 2023 and December 31, 2022). (2) Capacity under credit facilities includes our revolving credit facilities, and availability under credit facilities is reduced by our outstanding letters of credit. (3) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs and unamortized bond discount of $32 million and $6 million as of September 30, 2023 and December 31, 2022, respectively). (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. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, paying down outstanding debt, paying dividends or repurchasing our common stock. As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acq uisitions, we have accessed various forms of debt financing, including revolving credit facilities and senior notes. We currently believe we have sufficient access to capital markets to support our future growth objectives. As of September 30, 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 September 30, 2023) and $2,000 million in available revolving credit ($1,046 million outstanding at September 30, 2023), bearing interest at variable rates, with availability reduced by $109 million of amounts outstanding under letters of credit; • CAD Note totaling $516 million (CAD 700 million), maturing in July 2026 and bearing interest at variable rates; • U.S. Notes (2028) totaling $800 million, maturing in June 2028 and bearing interest at a 5.75% fixed rate; • U.S. Notes (2033) totaling $600 million, maturing in June 2033 and bearing interest at a 6.25% fixed rate; • Euro Notes (2024) totaling $529 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate; and • Euro Notes (2028) totaling $264 million (€250 million), maturing in April 2028 and bearing interest at a 4.125% fixed rate. We had approximately $845 million available under our credit facilities in place as of September 30, 2023 . Combined with $401 million of cash and cash equivalents at September 30, 2023, we had approximately $1,246 million i n available liquidity, a decrease of $327 million from our available liquidity as of December 31, 2022, primarily as a result of reducing our overall credit facility capacity by $650 million after entering into the Senior Unsecured Credit Agreement. The enterprise value for the Uni-Select Acquisition was approximately CAD 2.8 billion ($2.1 billion), which was financed with the gross proceeds from the issuance of senior unsecured notes of $1,400 million, CAD Note of CAD 700 million, and borrowings under our revolving credit facility and cash on hand of approximately $150 million and $50 million, respectively. 51 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 have accessed 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 nine months ended September 30, 2023 is as follows: Dividend Amount Declaration Date Record Date Payment Date $0.275 February 21, 2023 March 16, 2023 March 30, 2023 $0.275 April 25, 2023 May 18, 2023 June 1, 2023 $0.275 July 25, 2023 August 17, 2023 August 31, 2023 On October 24, 2023, our Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock, payable on November 30, 2023, to stockholders of record at the close of business on November 16, 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 $1,246 million of total liquidity as of September 30, 2023 and $574 million of current maturities, we have access to funds to meet our near term commitments. Our current maturities include the 3.875% €500 million Euro Notes (2024) due on April 1, 2024 , which we intend to refinance on or before the scheduled maturity. We have a surplus of current assets over current liabilities, which further reduces the risk of short-term cash shortfalls. O ur Senior Unsecured Credit Agreement and our CAD Note both include 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 both the Senior Unsecured Credit Agreement and CAD Note, and differ in specified ways from comparable GAAP or common usage terms. We were in compliance with all applicable covenants under both our Senior Unsecured Credit Agreement and CAD Note as of September 30, 2023. The required debt covenants per both the Senior Unsecured Credit Agreement and CAD Note and our actual ratios with respect to those covenants are as follows as of September 30, 2023: Covenant Level Ratio Achieved as of September 30, 2023 Maximum total leverage ratio 4.00 : 1.00 2.3 Minimum interest coverage ratio 3.00 : 1.00 7.4 The total leverage rat io increased from 1.5 as of December 31, 2022 as we added debt from the U.S. Notes (2028/33) and the CAD Note in the second and third quarters of 2023. The spread applied to the interest rate on our credit facility borrowings increased in the third quarter as a result of the total leverage ratio rising above 2.0. The indentures relating to our U.S. Notes and 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 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 to finance additional investments or to refinance existing debt obligations. 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. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition. 52 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 5.9% at September 30, 2023. Including our senior notes and CAD Note, our overall weighted average interest rate on borrowings was 5.6% at September 30, 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. Under the CAD Note, the interest rate may be (i) a forward-looking term rate based on the Canadian Dollar Offer Rate for an interest period chosen by the Company of one or three months or (ii) the Canadian Prime Rate (as defined in the CAD Note), plus in each case a spread based on the Company’s debt rating and total leverage ratio. 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. 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 $2,062 million and $1,786 million at September 30, 2023 and December 31, 2022, respectively. Of these amounts, t here wer e no current maturities at September 30, 2023 or December 31, 2022. The scheduled maturities of long-term obligations outstanding at September 30, 2023 are as follows (in millions): Amount Three months ending December 31, 2023 (1) $ 40 Years ending December 31: 2024 554 2025 20 2026 1,024 2027 7 Thereafter 2,724 Total debt (2) $ 4,369 (1) Long-term obligations maturing by December 31, 2023 include $30 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 and unamortized bond discount of $32 million as of September 30, 2023). As of September 30, 2023, the Company had cash and cash equivalents of $401 million, of which $291 million was held by foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. 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 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. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. 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. 53 The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three and nine months ended September 30, 2023 and 2022 (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 Change 2023 2022 Change Wholesale - North America $ 423 $ 288 $ 135 $ 959 $ 907 $ 52 (1) Europe 930 829 101 2,764 2,708 56 (2) Specialty 356 322 34 916 1,031 (115) (3) Total $ 1,709 $ 1,439 $ 270 $ 4,639 $ 4,646 $ (7) (1) Inventory purchases across the Wholesale - North America segment increased in the nine months ended September 30, 2023 compared to the prior year period primarily due to a $170 million increase attributable to inventory purchases at Uni-Select from the date of acquisition through September 30, 2023, partially offset by higher purchasing levels in the prior year due to restocking efforts to rebuild inventory levels. (2) The increase in inventory purchases in our Europe segment included an increase of $27 million attributable to the increase in the value of the euro, partially offset by a decrease in the value of the pound sterling in the nine months ended September 30, 2023 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. 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, 2023 and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change Wholesale - North America salvage vehicles 60 63 (4.8) % 189 188 0.5 % Europe wholesale salvage vehicles 7 7 — % 22 23 (4.3) % Self Service salvage vehicles 117 122 (4.1) % 397 396 0.3 % 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, 2022 $ 1,010 Increase (decrease) due to: Working capital accounts: (1) Receivables (36) Inventories 477 Accounts payable (256) Other operating activities (51) (2) Net cash provided by operating activities for the nine months ended September 30, 2023 $ 1,144 (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 was a $36 million greater outflow in 2022 primarily due to an increase in organic revenue in 2023 compared to 2022, which translated to higher receivables balances and to larger net outflows in our Europe segment of $36 million. • Inventories represented $477 million in incremental cash inflows in the first nine months of 2023 compared to the same period of 2022, including $301 million in our Europe segment and $107 million in our Wholesale - North America segment, both due to higher purchasing levels in the prior period due to restocking efforts to rebuild inventory levels and easing of supply chain constraints, and $69 million in our Specialty segment inventory due to decreasing inventory purchasing levels to align with softening demand. 54 • Accounts payable produced $256 million in lower cash inflows in the first nine 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 $256 million (partly related to accelerated vendor payments in late 2021 to ensure priority access to inventory) and in our Europe segment of $21 million primarily attributable to increased inventory purchases in the prior year as noted above which were in accounts payable at the end of December 2022, partially offset by our Specialty segment which contributed a $21 million lower cash outflow. (2) Primarily reflects the aggregate effect of higher interest payments (primarily due to higher interest rates) during the nine months ended September 30, 2023 compared to the same period of 2022. For the nine months ended September 30, 2023, net cash used in investing activities totaled $2,389 million compared to net cash provided by investing activities totaled $244 million for the same period in 2022. We invested $2,199 million and $4 million of cash in business acquisitions during the nine months ended September 30, 2023 and 2022, respectively. Proceeds from the disposal of businesses (primarily PGW) were $399 million during the nine months ended September 30, 2022 (no such proceeds were received in 2023). Property, plant and equipment purchases were $233 million in the nine months ended September 30, 2023 compared to $148 million in the prior year period. During the nine months ended September 30, 2023, we settled our foreign exchange forward contracts with the counterparties for $49 million due primarily to strengthening in the Canadian exchange rate relative to the contract rates. The following table reconciles Net Cash Provided by Operating Activities to Free Cash Flow (in millions): Nine Months Ended September 30, 2023 2022 Net cash provided by operating activities $ 1,144 $ 1,010 Less: purchases of property, plant and equipment 233 148 Free cash flow $ 911 $ 862 For the nine months ended September 30, 2023, net cash provided by financing activities totaled $1,391 million compared to net cash used in financing activities of $1,217 million for the same period in 2022. The increase is primarily due to proceeds (net of unamortized bond discount) of $1,394 million from the issuance of the U.S. Notes (2028/33), decreases in repurchases of common stock of $864 million, and net borrowings of $282 million for the nine months ended September 30, 2023 (including proceeds from the CAD Note of $531 million) compared to net repayments on our debt of $119 million for the same period of 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. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts. Summarized Guarantor Financial Information On May 24, 2023, we completed an offering of $1,400 million aggregate principal amount of senior unsecured notes. This offering is guaranteed on a senior, unsecured basis by certain of our subsidiaries (each, a “subsidiary guarantor” and, together with LKQ, the “Obligor Group”), which are listed in Exhibit 22.1 on the Company's Registration Statement on Form S-4 filed with the SEC on September 1, 2023. The guarantees are full and unconditional, joint and several, and subject to certain conditions for release. 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 this offering. Holders of the notes have a direct claim only against the Obligor Group. The following summarized financial information is presented for the Obligor Group on a combined basis after elimination of intercompany transactions and balances within the Obligor Group and equity in the earnings from and investments in any non-guarantor subsidiary. 55 Summarized Statements of Income (in millions) Nine Months Ended September 30, 2023 Fiscal Year Ended December 31, 2022 Revenue $ 5,067 $ 6,762 Cost of goods sold 2,940 3,911 Gross margin (1) 2,127 2,851 Income from continuing operations 480 811 Net income $ 476 $ 816 (1) Guarantor subsidiaries recorded $41 million and $46 million of net sales to and $154 million and $148 million of purchases from non-guarantor subsidiaries for the nine months ended September 30, 2023 and fiscal year ended December 31, 2022, respectively. Summarized Balance Sheets (in millions) September 30, 2023 December 31, 2022 Current assets $ 1,865 $ 1,845 Noncurrent assets 4,384 3,797 Current liabilities 818 825 Noncurrent liabilities 4,025 2,001