LKQ CORP

Previous wording

Our Wholesale - North America segment is a leading provider of alternative vehicle collision replacement products, paint and related 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.

Current wording

Our Wholesale - North America segment is a leading provider of alternative vehicle collision replacement products, paint and related body repair 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.

Previous wording

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 6, "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.

Current wording

Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. Our current acquisition strategy focuses on acquisitions which are highly accretive, synergistic and/or add critical capabilities. Additionally, from time to time, we make investments in various businesses to advance our strategic objectives. See Note 2, "Business Combinations," and Note 6, "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.

Previous wording

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 7, "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.

Current wording

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 sales of scrap and other metals (including precious metals - platinum, palladium and rhodium - contained in recycled parts such as catalytic converters), 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 7, "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.

Previous wording

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 2023 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 three months ended March 31, 2024.

Current wording

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 2023 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 six months ended June 30, 2024.

Previous wording

We are executing on the various projects associated with the 1 LKQ Europe plan and expect to be completed by the end of 2027. During the three months ended March 31, 2024, we incurred $8 million 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 2024 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 plan to continue to enable trade working capital and productivity initiatives that will help fund the plan cost.

Current wording

We are executing on the various projects associated with the 1 LKQ Europe plan and expect to be completed by the end of 2027. During the three and six months ended June 30, 2024, we incurred $11 million and $19 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 2024 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 plan to continue to enable trade working capital and productivity initiatives that will help fund the plan cost.

Previous wording

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”).

Current wording

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 CODM. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”).

Previous wording

The increase in parts and services revenue of 12.1% represented increases in segment revenue of 23.8% in Wholesale - North America, 5.7% in Europe, and 6.7% in Specialty, partially offset by a decrease of 10.5% in Self Service. This overall increase was driven by an 11.6% increase due to the net impact of acquisitions and divestitures and a 0.8% increase due to fluctuations in foreign exchange rates, partially offset by an organic parts and services revenue decrease of 0.3% (0.5% increase on a per day basis). The decrease in other revenue of 14.6% was primarily driven by a decrease in organic revenue of $30 million due to unfavorable movements in precious metals compared to the prior year period, which resulted in a $26 million decrease in Self Service and a $4 million decrease in Wholesale - North America. 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, 2024 compared to the three months ended March 31, 2023.

Current wording

The increase in parts and services revenue of 9.0% represented increases in segment revenue of 24.8% in Wholesale - North America and 5.2% in Specialty, partially offset by a decrease of 11.1% in Self Service. This overall increase was driven by an 11.8% increase due to the net impact of acquisitions and divestitures, partially offset by an organic parts and services revenue decrease of 2.1% (2.9% decrease on a per day basis) and a 0.6% decrease due to fluctuations in foreign exchange rates. The decrease in other revenue of 16.2% was primarily driven by a decrease in organic revenue of $31 million due to lower commodities prices and volumes compared to the prior year period, which resulted in a $28 million decrease in Self Service and a $3 million decrease in Wholesale - North America. 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 June 30, 2024 compared to the three months ended June 30, 2023.

Previous wording

Cost of goods sold as a percentage of revenue increased to 60.8% of revenue for the three months ended March 31, 2024 from 59.0% of revenue for the three months ended March 31, 2023. Cost of goods sold reflects increases of 1.4% from Wholesale - North America, 0.3% attributable to mix shift towards our lower margin segments and 0.2% from Specialty, partially offset by a decrease of 0.3% from Europe. 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, 2024 compared to the three months ended March 31, 2023.

Current wording

Cost of goods sold as a percentage of revenue increased to 61.2% of revenue for the three months ended June 30, 2024 from 59.0% of revenue for the three months ended June 30, 2023. Cost of goods sold reflects increases of 1.5% from Wholesale - North America, 0.6% from Europe, and 0.2% attributable to mix shift towards our lower margin segments, partially offset by a decrease of 0.3% from Self Service. 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 June 30, 2024 compared to the three months ended June 30, 2023.

Previous wording

(1)Restructuring expenses for the three months ended March 31, 2024 primarily consisted of (i) $19 million related to our 2024 Global Restructuring plan, (ii) $6 million related to our acquisition integration plans, (iii) $2 million related to our 1 LKQ Europe plan, and (iv) $1 million related to our 2022 Global Restructuring plan.

Current wording

(1)Restructuring expenses for the three months ended June 30, 2024 primarily consisted of (i) $37 million related to our 2024 Global Restructuring plan, (ii) $10 million related to our acquisition integration plans, (iii) $1 million related to our 1 LKQ Europe plan, and (iv) $1 million related to our 2022 Global Restructuring plan.

Previous wording

(3)Transaction related expenses for the three months ended March 31, 2024 and 2023 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).

Current wording

(3)Transaction related expenses for the three months ended June 30, 2023 primarily related to external costs such as legal, accounting and advisory fees related to completed and potential acquisitions (including Uni-Select transaction costs).

Previous wording

(1)Depreciation expense increased primarily related to an increase in capital expenditures in the last nine months of 2023, which is impacting depreciation expense in 2024.

Current wording

(1)Depreciation expense increased primarily related to an increase in capital expenditures in the last six months of 2023, which is impacting depreciation expense in 2024.

Previous wording

(3)The decrease in Interest income and other income, net is primarily comprised of (i) a $5 million decrease from funds received to settle an eminent domain matter in 2023, partially offset by (ii) individually insignificant increases which in the aggregate had a $2 million impact.

Current wording

(3)The decrease in Interest income and other income, net is primarily comprised of a $6 million decrease 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 in 2023 and individually insignificant decreases which in the aggregate had a $2 million impact.

Previous wording

Our effective income tax rate for the three months ended March 31, 2024 was 30.7%, compared to 26.1% for the three months ended March 31, 2023. The increase in the effective tax rate for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 is primarily attributable to the 4.4% unfavorable impact of discrete items, mostly related to the 2024 Global Restructuring Plan impairments. Refer to Note 8, "Restructuring and Transaction Related Expenses" for further information on the impairments.

Current wording

Our effective income tax rate for the three months ended June 30, 2024 was 30.9%, compared to 28.0% for the three months ended June 30, 2023. The increase in the effective tax rate for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 is primarily attributable to the 3.4% unfavorable impact of discrete items, mostly related to the 2024 Global Restructuring Plan impairments. Refer to Note 8, "Restructuring and Transaction Related Expenses" for further information on the impairments.

Previous wording

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 March 31, 2023, the pound sterling, euro and Canadian dollar rates used to translate the 2024 statements of income increased by 4.3%, 1.2% and 0.3%, respectively, while the Czech koruna rate decreased by 4.0%. 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 negative effect of $0.06 on diluted earnings per share relative to the prior year period primarily related to the $23 million pretax gain on foreign exchange contract in the first quarter of 2023 related to the Uni-Select acquisition.

Current wording

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 June 30, 2023, the Czech koruna, Canadian dollar and euro rates used to translate the 2024 statements of income decreased by 6.7%, 1.9% and 1.1%, respectively, while the pound sterling rate increased by 0.8%. 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 negative effect of $0.07 on diluted earnings per share relative to the prior year period primarily related to the $23 million pretax gain on the foreign exchange forward contracts in the second quarter of 2023 related to the Uni-Select Acquisition.

Previous wording

SG&A expenses as a percentage of revenue increased to 28.2% for the three months ended March 31, 2024 from 27.8% for the three months ended March 31, 2023. The year over year increase in SG&A expense primarily reflects impacts of 0.8% in Europe and 0.2% from Self Service, partially offset by a decrease of 0.6% related to Wholesale - North America. 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, 2024 compared to the three months ended March 31, 2023.

Current wording

SG&A expenses as a percentage of revenue decreased to 27.2% for the six months ended June 30, 2024 from 27.5% for the six months ended June 30, 2023. The year over year decrease in SG&A expense primarily reflects impacts of 0.8% related to Wholesale - North America, partially offset by an increase of 0.4% in Europe. 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 six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Previous wording

(2)Restructuring expenses for the three months ended March 31, 2023 primarily consisted of (i) $5 million related to our 2022 Global Restructuring plan, (ii) $2 million related to our acquisition integration plans, and (iii) $1 million related to our 1 LKQ Europe plan.

Current wording

(2)Restructuring expenses for the six months ended June 30, 2023 primarily consisted of (i) $7 million related to our 2022 Global Restructuring plan, (ii) $2 million related to our acquisition integration plans, and (iii) $1 million related to our 1 LKQ Europe plan.

Previous wording

(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 and (ii) a $4 million increase from higher interest rates in the first quarter of 2024, partially offset by (iii) a $3 million decrease related to amortization of pre-acquisition bridge loan financing costs related to the Uni-Select Acquisition in the first quarter of 2023.

Current wording

(1)Interest expense increased primarily due to (i) a $44 million increase from higher outstanding debt primarily related to the permanent financing for the Uni-Select Acquisition and (ii) a $7 million increase from higher interest rates in the first half of 2024, partially offset by (iii) a $9 million decrease related to amortization of pre-acquisition bridge loan financing costs related to the Uni-Select Acquisition in the first half of 2023.

Previous wording

Equity in (losses) earnings of unconsolidated subsidiaries for the three months ended March 31, 2024 decreased by $5 million primarily related to a decrease in year over year results reported by Mekonomen, which is our largest equity method investment.

Current wording

Equity in earnings of unconsolidated subsidiaries for the six months ended June 30, 2024 decreased by $5 million compared to the six months ended June 30, 2023, primarily related to a decrease in year over year results reported by Mekonomen, which is our largest equity method investment.

Previous wording

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 excluding net income and loss attributable to noncontrolling interest; income and loss from 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. See Note 17, "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.

Current wording

The key measure of segment profit or loss reviewed by our CODM, 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 excluding net income and loss attributable to noncontrolling interest; income and loss from discontinued operations; depreciation; amortization; interest; gains and losses on debt extinguishment; income tax expense; restructuring and transaction related expenses; 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. See Note 17, "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.

Previous wording

(1)Parts and services organic revenue decreased 3.3% for the three months ended March 31, 2024 compared to the prior year period, primarily driven by decreased aftermarket collision volumes which were negatively impacted by lower repairable claims, which we believe is primarily attributable to comparatively warmer weather.

Current wording

(1)Parts and services organic revenue decreased 5.3% for the three months ended June 30, 2024 compared to the prior year period, primarily driven by decreased aftermarket collision volumes which were negatively impacted by lower repairable claims, which we believe are primarily attributable to difficult economic conditions, comparatively warmer weather in the first quarter of 2024 which reduced backlog at body shops going into the second quarter of 2024 and, to a lesser extent, inventory availability issues due to delays in inbound deliveries.

Previous wording

(2)Other organic revenue decreased 4.9%, or $4 million, year over year primarily related to (i) a $10 million decrease in revenue from precious metals due to lower prices, 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 due to higher volumes.

Current wording

(2)Other organic revenue decreased 4.0%, or $3 million, year over year primarily related to (i) a $3 million decrease in revenue from precious metals due to lower prices, partially offset by higher volumes, (ii) a $1 million decrease in revenue from scrap steel due to lower prices, partially offset by (iii) a $1 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher prices.

Previous wording

(3)Acquisition and divestiture parts and services revenue was an increase of $312 million, or 27.1%, 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.

Current wording

(3)Acquisition and divestiture parts and services revenue was an increase of $338 million, or 30.2%, 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.

Previous wording

(3)Exchange rates increased our revenue growth by $26 million, or 1.7%, primarily due to the weaker U.S. dollar against the euro and pound sterling, partially offset by the Czech koruna for the three months ended March 31, 2024 relative to the prior year period.

Current wording

(3)Exchange rates decreased our revenue growth by $18 million, or 1.1%, primarily due to the stronger U.S. dollar against the euro and Czech koruna, partially offset by the weaker U.S. dollar against the pound sterling for the three months ended June 30, 2024 relative to the prior year period.

Previous wording

(1)Parts and services organic revenue for the three months ended March 31, 2024 decreased by 1.4% primarily due to demand softness in the recreational vehicle ("RV") product line, as RV unit retail sales have declined year over year.

Current wording

(1)Parts and services organic revenue for the three months ended June 30, 2024 decreased by 2.1% primarily due to demand softness in the recreational vehicle ("RV") product line, as RV unit retail sales have declined year over year.

Previous wording

(2)Acquisition and divestiture revenue was a net increase of $32 million, or 8.1%, primarily related to our acquisition of one Specialty business in 2023.

Current wording

(2)Acquisition and divestiture revenue was a net increase of $33 million, or 7.4%, primarily related to our acquisition of one Specialty business in 2023.

Previous wording

(1) The decrease in gross margin primarily was driven by higher discounts to help maintain sales volume.

Current wording

(1) The decrease in gross margin was primarily driven by higher discounts to help maintain sales volume.

Previous wording

(2) The decrease in segment operating expenses as a percentage of revenue was due to individually immaterial factors representing a 0.1% favorable impact in the aggregate.

Current wording

(2) The decrease in segment operating expenses as a percentage of revenue was due to individually immaterial factors representing a 0.5% favorable impact in the aggregate, partially offset by an unfavorable impact of 0.4% due to duplicate facility costs associated with consolidating distribution centers.

Previous wording

(2)Other organic revenue decreased 24.2%, or $26 million, year over year primarily due to (i) a $17 million decrease in revenue from precious metals due to lower prices and lower volumes and (ii) a $9 million decrease in revenue from scrap steel primarily related to lower volumes and slightly lower prices.

Current wording

(2)Other organic revenue decreased 26.7%, or $28 million, year over year due to a $15 million decrease in revenue from scrap steel primarily related to lower volumes and, to a lesser extent, lower prices and a $13 million decrease in revenue from precious metals due to lower prices and lower volumes.

Previous wording

Segment EBITDA decreased $6 million for the three months ended March 31, 2024 compared to the prior year period. The decrease is driven by the decline in revenue due to unfavorable movements in commodity prices and lower volumes compared to the prior year period, partially offset by improved vehicle procurement costs and improvements in operational productivity. Decreases in precious metals prices contributed an estimated $8 million decline in Segment EBITDA relative to the three months ended March 31, 2023. Net sequential changes in scrap steel prices had a negative year over year effect as the favorability in the current year was lower than in the prior year. During the three months ended March 31, 2024, scrap steel prices had a $4 million favorable impact on Segment EBITDA, compared to an $11 million favorable impact during the three months ended March 31, 2023. The favorable impacts for the three months ended March 31, 2024 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.

Current wording

Segment EBITDA increased $6 million, or 93.1%, for the three months ended June 30, 2024 compared to the prior year period. The increase is driven by improved vehicle procurement costs and improvements in operational productivity, partially offset by the unfavorable movements in commodity prices and lower volumes compared to the prior year period. Decreases in precious metals prices contributed an estimated $5 million decline in Segment EBITDA relative to the three months ended June 30, 2023. During the three months ended June 30, 2024, scrap steel prices had a $5 million unfavorable impact on Segment EBITDA, compared to a $2 million unfavorable impact during the three months ended June 30, 2023. The unfavorable impacts for the three months ended June 30, 2024 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.

Previous wording

(2) The increase in segment operating expenses as a percentage of revenue reflects (i) a negative leverage effect of 5.2% from decreases in metals revenue, partially offset by (ii) other individually immaterial factors representing a 1.1% favorable impact in the aggregate.

Current wording

(2) The increase in segment operating expenses as a percentage of revenue reflects negative leverage effect of 6.0% from decreases in metals revenue, partially offset by other individually immaterial factors representing a 3.0% favorable impact in the aggregate.

Previous wording

Segment EBITDA decreased $8 million, or 3.1%, for the three months ended March 31, 2024 compared to the prior year period, which includes a positive impact related to the acquisition of Uni-Select in the third quarter of 2023 (Uni-Select increases Segment EBITDA dollars but dilutes the Segment EBITDA percentage). The decrease is primarily attributable to lower aftermarket volumes, a decrease in salvage margins and continued inflationary pressures. 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.

Current wording

Segment EBITDA dollars were flat for the six months ended June 30, 2024 compared to the prior year period, which includes a positive impact related to the acquisition of Uni-Select in the third quarter of 2023 (Uni-Select increases Segment EBITDA dollars but dilutes the Segment EBITDA percentage), primarily offset by lower aftermarket volumes, a decrease in salvage margins and lower metals pricing and continued inflationary pressures. We estimate that precious metals and scrap steel prices had a net unfavorable effect of $13 million, or 0.4%, on Segment EBITDA margin relative to the comparable prior year period.

Previous wording

(1) The decrease in gross margin of 5.3% was driven by the dilutive nature of the acquisition of Uni-Select, which changed the segment's product mix to reflect a greater percentage of paint, body and equipment and maintenance product lines. These product lines have a lower gross margin structure than our other wholesale product lines. The year over year effect will be noted through the third quarter, after which the impact will be annualized. Additionally, gross margin was negatively affected by decreases in salvage margins tied to softening salvage revenue and the effects of higher car costs.

Current wording

(1) The decrease in gross margin of 5.6% was driven by the dilutive nature of the acquisition of Uni-Select, which changed the segment's product mix to reflect a greater percentage of paint, body and equipment and maintenance product lines. These product lines have a lower gross margin structure than our other wholesale product lines. The year over year effect will be noted through the third quarter, after which the impact will be annualized. Additionally, gross margin was negatively affected by the related mix effect resulting from lower aftermarket revenue, which has a higher margin that our other wholesale lines as well as decreases in salvage margins tied to softening salvage revenue and the effects of higher car costs.

Previous wording

(2) The decrease in segment operating expenses as a percentage of revenue primarily reflects favorable impacts of (i) 0.6% from higher charitable contributions in the prior year period, (ii) 0.5% from decreased freight, vehicle, and fuel costs and (iii) 0.4% from lower incentive compensation.

Current wording

(2) The decrease in segment operating expenses as a percentage of revenue primarily reflects favorable impacts of (i) 0.8% from lower incentive compensation, (ii) 0.4% from decreased freight, vehicle, and fuel costs, (iii) 0.3% from higher charitable contributions in the prior year period and (iv) other individually immaterial factors representing a 0.4% favorable impact in the aggregate.

Previous wording

(1)Parts and services organic revenue for the three months ended March 31, 2024 increased by 2.7% (4.4% on a per day basis), primarily driven by increased volumes and, to a lesser extent, pricing initiatives to offset increased costs resulting from inflationary pressures.

Current wording

(1)Parts and services organic revenue for the six months ended June 30, 2024 increased by 1.5%, primarily driven by increased volumes in the first quarter of 2024 and, to a lesser extent, pricing initiatives to offset increased costs resulting from inflationary pressures.

Previous wording

(2)Acquisition and divestiture revenue was an increase of $21 million, or 1.4%, related to our acquisition of five wholesale businesses from the beginning of 2023 through the one-year anniversary of the acquisition dates.

Current wording

(2)Acquisition and divestiture revenue was a net increase of $34 million, or 1.1%, primarily related to our acquisition of five wholesale businesses from the beginning of 2023 through the one-year anniversary of the acquisition dates.

Previous wording

Segment EBITDA decreased $8 million, or 5.3%, for the three months ended March 31, 2024 compared to the prior year period. On a constant currency basis (i.e., excluding translation impact), Segment EBITDA decreased by $11 million, or 7.2%, compared to the prior year period. The decrease in dollar terms is mainly attributable to the negative impact of higher operating expenses primarily related to increased personnel costs that more than offset the effects of organic revenue growth of $42 million. 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 March 31, 2024.

Current wording

Segment EBITDA decreased $22 million, or 6.5%, for the six months ended June 30, 2024 compared to the prior year period. On a constant currency basis (i.e., excluding translation impact), Segment EBITDA decreased by$23 million, or 6.7%, compared to the prior year period. The decrease in dollar terms is mainly attributable to lower gross margin and the negative impact of higher operating expenses, primarily related to increased personnel costs, that more than offset the effects of organic revenue growth of $48 million. 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 six months ended June 30, 2024.

Previous wording

(1) The increase in gross margin was primarily attributable to favorable pricing, procurement, and productivity initiatives to offset difficult macro-economic conditions arising from inflationary pressures. Additionally, reported gross margin includes a 0.5% reduction related to restructuring expenses incurred as part of the 2024 Global Restructuring Plan. These costs are excluded from the calculation of Segment EBITDA. See Note 8, "Restructuring and Transaction Related Expenses" and Note 17, "Segment and Geographic Information" for further information.

Current wording

(1)The decrease in gross margin was primarily attributable to unfavorable customer mix and inflationary pressures that were not fully offset by pricing initiatives. Additionally, reported gross margin includes a 0.5% reduction primarily related to restructuring expenses incurred as part of the 2024 Global Restructuring Plan. These costs are excluded from the calculation of Segment EBITDA. See Note 8, "Restructuring and Transaction Related Expenses" and Note 17, "Segment and Geographic Information" for further information.

Previous wording

(2) The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 1.2% from increased personnel costs mainly due to wage inflation in Germany and Benelux, (ii) 0.3% from professional fees related to several strategic central and regional information technology initiatives, (iii) 0.2% from increased outbound freight and logistics costs, and (iv) other individually immaterial factors representing a 0.4% unfavorable impact in the aggregate, partially offset by (v) a favorable impact of 0.5% due to lower energy and utilities costs compared to the prior year period across all geographies.

Current wording

(2)The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 0.3% from increased personnel costs mainly due to wage inflation, (ii) 0.3% from increased outbound freight and logistics costs, (iii) 0.2% from professional fees related to several strategic central and regional information technology initiatives, and (iv) other individually immaterial factors representing a 0.2% unfavorable impact in aggregate, partially offset by a favorable impact of (v) 0.3% due to lower energy and utilities costs compared to the prior year period across all geographies.

Previous wording

Segment EBITDA decreased $4 million, or 13.2%, for the three months ended March 31, 2024 compared to the prior year period primarily due to the organic revenue decline and the decline in gross margin as explained below.

Current wording

Segment EBITDA decreased $5 million, or 6.9%, for the six months ended June 30, 2024 compared to the prior year period primarily due to the organic revenue decline and the decline in gross margin as explained below.

Previous wording

(1)Parts and services organic revenue decreased 10.5% for the three months ended March 31, 2024 compared to the prior year period, primarily driven by lower retail volumes from reduced admissions, which were impacted by adverse weather conditions (primarily in California).

Current wording

(1)Parts and services organic revenue decreased 10.8% (11.3% on a per day basis) for the six months ended June 30, 2024 compared to the prior year period, primarily driven by lower parts volumes from a reduced number of customer admissions, which were impacted by adverse weather conditions (primarily in California).