LKQ Corporation (LKQ) Q1 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the LKQ Corporation First Quarter 2012 Results Teleconference. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Joe Boutross, Director of Investor Relations. Thank you. Mr. Boutross, you may begin.

Thanks, LaTonya. Good morning, everyone, and thank you for joining us today. This morning, we released our first quarter 2012 financial results and updated our full year 2012 guidance. In the room with me today are: Rob Wagman, President and Chief Executive Officer; and John Quinn, Executive Vice President and Chief Financial Officer. Rob and John have some prepared remarks, and then we will open the call up for questions. In addition to the telephone access for today's call, we are providing an audio cast via the LKQ website. A replay of the audio cast and conference call will be available shortly after the conclusion of this call. Before we begin our discussion, I would like to remind everyone that the statements made in this call that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, hopes, intentions or strategies. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us. Actual events or results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors. We assume no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made except as required by law. Please refer to our Form 10-K and other subsequent documents filed with the SEC and the press release we issued this morning for more information on potential risk. Hopefully, everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today. As normal, we are planning to file our 10-Q in the next few days. And with that, I am happy to turn the call over to Mr. Rob Wagman.

Thank you, Joe. Good morning, and thank you for joining us on the call today. We are very pleased with the results we reported this morning. Diluted earnings per share in Q1 was a record $0.54, an increase of 38% as compared to $0.39 for the first quarter of 2011. Please note that the first quarter 2012 diluted earnings per share included a gain equal to $0.04 per share that resulted from a favorable legal settlement of $0.03 a share and a change in fair value of contingent consideration liabilities of $0.01 a share. Earnings per share in the first quarter of 2011 included a charge of $0.02 per share as a result of loss on debt extinguishment. Revenue reached a record quarterly high of $1.03 billion in the quarter, an increase of 31.2% as compared to Q1 2011. As we mentioned on our last call, during the first quarter, we witnessed a very mild winter, which created some headwind for the collision parts side of our business, and we also faced a tough comp for the first quarter of 2011 when the winter weather was very severe. Based on dialogue with some insurance carriers, insurance claim volume was down 5% to 6% year-over-year in the first quarter of 2012 with some regional carriers reporting claims reductions in the high teens. Despite the mild winter and high gas prices, the company reported 3.2% organic -- total organic growth and 3.6% organic growth for parts and services. Revenue growth from acquisitions was 28% in the quarter. We are particularly pleased with the organic growth of our recycled, remanufactured and related products and services revenue. In the quarter, sales from those products grew organically 8.5% compared to the same period in 2011. We encountered softness in our collision product sales, primarily due to the mild winter and the subsequent drop in reported claims. The continued growth in organic parts and services revenue in 2012 is a result of the increased use by insurers in their direct repair program networks of alternative quality replacement parts to reduce claims costs. Although we are only through one quarter, our channel checks have indicated improved penetration of alternative part usage, and it appears we are trending at our historical averages of about 100 basis point improvements in alternative part usage. We anticipate these gains to continue for the balance of the year. Next, I'd like to share some operational statistics. During the quarter, we purchased over 59,000 vehicles for dismantling by our wholesale operations, which is a 7% increase over Q1 2011. As for volume at the auctions, the outlook for supply remains good starting out in 2012. With inventory already on hand and a continuation of our current run rate for acquiring cars, we should have sufficient inventory to grow our recycled parts operations. Turning to our self-service retail businesses. During the first quarter, we acquired nearly 89,000 lower-cost self-service and crush-only cars as compared to 81,000 in Q1 of 2011, which is a 10% increase. In our heavy-duty truck operations, during the first quarter, we purchased roughly 1,800 units for resale or parts as compared to 1,000 in Q1 2011. As you can see by the year-over-year increase in our heavy-duty truck procurement, we continue to be excited about the growth prospects in customer demand for this business, which posted solid organic growth in the quarter. Now turning to Euro Car Parts. During the quarter, we opened 9 new branches and we added 3 additional branches in April, bringing our total branch count to 102. As I mentioned on our fourth quarter call, our entry into Europe via ECP provides exciting growth opportunities both in the U.K. and eventually Continental Europe as well. As witnessed by our recent branch openings, we continue to execute ECP strategy of aggressive expansion this year. And due to favorable market conditions and ECP's management's proven ability to effectively and efficiently open branches, we anticipate accelerating new branch openings to 30 in 2012, which is 10 more than the 20 we were anticipating on our last call. In addition to the new branch openings, I'm happy to announce that on March 28, we launched our collision parts initiative for Euro Car Parts. The timing of this launch bodes well with the market share growth the independent repair shops are witnessing in the U.K. and the premium pressures auto insurance carriers are facing in the U.K. from certain regulatory offices. I also want to provide an update on our paint and equipment business. It has now been 3 quarters since our acquisition of AkzoNobel's 40 company-owned stores. All of the locations targeted for move and integration were completed ahead of target and the systems conversions went to plan as well. We have opened 12 new paint and body outlets since last June, with 3 of those occurring in Q1 2012. We have an additional 5 locations budgeted for the balance of 2012. And to be clear, all 17 outlets were added to existing LKQ facilities, thereby leveraging existing infrastructure. We are very pleased with the growth of this line and anticipate future growth in both same-store sales as well as our greenfield locations. And now turning to acquisitions. During the quarter, we acquired 4 companies: We purchased a light vehicle wholesale salvage operation with 4 locations in Québec, Canada; we purchased a self-service operation in North Carolina; we purchased a paint distribution business in Ontario, Canada; and finally, a distributor of remanufactured engines based in California. I am quite pleased with the acquisition pipeline and anticipate continued additions to our North American operations throughout 2012. At this time, I'd like to ask John Quinn to provide some more details on the financial results of the quarter.

Thanks, Rob. Good morning, and thank you for joining us today. In addition to our normal reporting, as Rob mentioned, we have a few noteworthy items in the financial statements, so I'll just walk down the income statement and comment on the items of note. Starting with revenue. Our total revenue growth year-over-year in the first quarter was 31.2% or $245 million, taking us to $1.032 billion revenue for the quarter. The largest driver of this improvement was 28% growth or $220 million associated with acquisitions, of which Euro Car Parts was approximately $158 million. Our organic growth was 3.2% in total. Parts and services growth was 3.6%. Please note that the parts and service growth number includes the revenue associated with the 10 new branches opened by ECP since our acquisition. This contributed about 40 basis points of the growth. I'd also point out that we saw organic growth of 1.6% in other revenue. Other revenue is where we record scrap and core sales. Total growth for other revenue was 8.5%, primarily due to acquisitions. The prices we achieved for scrap was essentially flat year-over-year. In Q1 of 2012, revenue from our self-serve business was $83 million or 8% of LKQ's total revenue. Approximately 33% of this revenue was part sales included in recycled and related products and 67% scrap and core sales included in other revenue. Our reported gross margin of $447 million at 43.4% included a favorable legal settlement of $8.3 million. Without that settlement, our gross margin would have been $439 million, and the margin 42.6%. Last year, we reported a gross margin of 43.7%. So excluding the legal settlement, our gross margin fell by 110 basis points year-over-year. ECP accounts for 60 basis points of the year-over-year change. The AkzoNobel acquisition was about 20 basis points. And you may recall that in Q1 2011, we mentioned that our gross margin included the benefit of rising commodity prices equal to the $0.02 earnings per share. We believe that benefit in Q1 2011 from rising scrap prices accounts for about 50 to 60 basis points. So operationally, if you adjust legal settlement, the acquisitions and the change in scrap, we believe that the gross margin actually improved slightly year-over-year. Our facility and warehouse distribution SG&A costs were 28.9% of revenue in Q1 2012 compared to 28.7% in Q1 2011. Facility and warehouse costs were 8.2% compared to 8.9% and this decrease was entirely due to ECP. Distribution costs were 8.9% this quarter compared to 8.4% in the same quarter last year. 20 basis points of this increase was ECP, nearly 30 basis points was North America. Selling and G&A expenses were 11.8% of revenue in Q1 this year compared to 11.4% last year and ECP, again, essentially accounted for all this increase. During the quarter, we recorded $200,000 of restructuring and acquisition-related expenses. Depreciation and amortization for the quarter increased $4.1 million year-over-year to $14.9 million, primarily as a result of acquisitions, the amortization of intangibles and the depreciation associated with ECP being the primary driver of the increase. Net interest expense of $7.4 million was $1 million higher than the same quarter last year. This increase was mainly due to our higher debt levels, but we did see an improvement in our average borrowing costs. Our effective borrowing rate was 3.03% in Q1 2012 compared to 4.58% in Q1 in 2011. You will note that we didn't have any debt restructuring charges this year whereas we incurred $5.3 million expense in Q1 last year. We are showing a favorable adjustment to the change in contingent consideration liability account of $1.3 million. This income is related to the ECP contingent consideration that is primarily a revaluation required under a new GAAP rule offset by accretion. Both these items have little to do with how we view that business, which remains as favorable as it did last quarter. Our tax rate for the quarter was 36.8% compared to 39.2% in Q1 last year. We continue to see some benefit from lower foreign tax rates. On a reported basis, diluted earnings per share was $0.54 in Q1 2012 compared to $0.39 in Q1 2011. Last year, we had $0.02 of costs of loss on debt extinguishment, so adjusted Q1 2011 was closer to $0.41 or $0.42 on an adjusted basis with the rounding. This year, the $0.54 includes $0.04 related to a legal settlement and a contingent payment adjustment. So on an adjusted basis, Q1 2012 EPS would have been $0.50, again compared to an adjusted $0.42 last year. Cash flow from operations for the first quarter was $110 million compared to $77 million in 2011, an improvement of $33 million. The primary driver of the year-over-year improved cash flow was improvement in EBITDA of $32 million. In the first quarter, we spent $21 million on capital expenditures and $25 million in acquisitions. During the quarter, we reduced our net debt by $66 million. We ended Q1 with $897 million of debt, and cash and cash equivalents were $55 million. These figures compare to the $956 million of debt and the $48 million of cash and equivalent in 12/31/11. Availability under our credit facility was $504 million. I mentioned last quarter that the term loan we had arranged last year was drawn on December -- excuse me, on January 31, 2012, and we used those proceeds to partly repay our revolver. We have $40 million of letters of credit supported by the facilities, but those are taken into account in our liquidity of $504 million. With the cash of $55 million on the balance sheet, our total availability is $559 million. At quarter end, our debt under the credit facility was 74% fixed and 26% floating. Turning to guidance. As we stated in the past, our guidance excludes any restructuring costs and transaction costs, gains, losses, contingent purchase price adjustments, our capital expenditures and cash flows associated with acquisitions. Our revised guidance for organic revenue growth for parts and services is 5% to 7%. We dropped this range 50 basis points to reflect the softer Q1 than we had anticipated. Our guidance for net income is $262 million to $282 million, which equates to $1.75 to $1.88 diluted earnings per share. This incorporates into our guidance the legal settlement from Q1. We've left unchanged our guidance for cash flow from operations of $250 million to $280 million and our expected capital spending of $100 million to $115 million. Let me give you an update of some things Rob and I have considered that could impact the guidance. We included in the internal growth and the earnings guidance the new ECP locations opened to date and planned for the balance of the year. Rob mentioned that we plan to increase the number of branch openings. And I mentioned on the last call that new branch openings are generally unprofitable for a few months. So that step-up in development activity could actually be a bit of a drag on 2012 earnings. But we believe this is the right strategic thing to do because, in the long run, we'll see these locations contributing both dollars and operating margin. In Q1, internal growth was below our guidance of 5% to 7%. Rob explained that we believe this softness was primarily related to the mild winter as we had noted in the last call, particularly when compared to the heavy growth we had with the severe weather in Q1 2011, which made for a difficult comparison. To reach our guidance, we're obviously assuming that the rest of the year gets better and we do think there are some tailwinds to help us in that regard. In 2011, we saw alternative part usage rate in the industry of 37%. Based on what we're seeing in the market today, we believe that in 2012 we'll see that rate increase to at least 38%. We also expect in Q4 to be facing an easier comparison in our North American operations. And in Q4, we'll begin to report growth for the entire ECP operation as organic, not just the new branches. Just to give you some sense of ECP's growth, last year in Q1, they reported $131 million of revenue compared to $161 million this year, so that's growth at 23% with no acquisitions. On the downside, we've seen the car part continue to age. While that's great for our mechanical portions of our business, it does impact the collision side. As that aging happens, we may see insurers more likely to total a car than repair it. And as the average age of a cars repaired rises, we may see a dip in the value of the parts being used. And if, for some reason, the accident frequency rate does not bounce back to historical rates for miles driven and falls due to gas prices, then there could be some risks due to these tailwinds. Moving on to scrap prices. It appears to us to be stable at the moment and essentially flat to where there were on the average of whole of last year. Total other revenue is 13.6% of our total revenue in Q1. This compared to 16.5% in Q1 last year. So our exposure as a percentage of our revenue to commodity prices is smaller. But as we have repeatedly pointed out, they can cause short-term fluctuations. Rob mentioned our car buying. The average price that we're paying at auction for recycled parts has been fairly stable for several quarters. The supply issues caused the OE production problems and used car prices go higher, we could be impacted for the short run on margins. In the longer run, as the rate of car production returns to higher levels, we could see our car volume improving. Now I'd like to turn the call back to Rob, please, to summarize, and then we'll open up for questions.

Thank you, John. Our results this quarter demonstrate that even with the headwinds and external factors that we can't control such as gas prices and weather, LKQ was able to realize strong revenue and earnings growth. We believe our unique competitive position and the actions we have taken in response to challenging operating environments since our founding have translated into consistent earnings growth. We will continue to focus on other ways to improve our gross margin, build partnerships that increase the acceptance of alternative parts and identify strategic opportunities that provide results for our shareholders. Our outlook for 2012 is positive and builds upon the momentum we created during 2011. The strength of our balance sheet has provided us with the capital to finance our organic growth and make strategic acquisitions, while our competitors are shrinking their businesses in this current challenging environment. This strength, in our group of over 18,000 valuable employees, places LKQ in a solid position to execute our strategy and continue to invest in our network and inventory, both domestically and abroad. And with that, LaTonya, we are now prepared to open the call for questions and answers.

[Operator Instructions] Our first question comes from Nate Brochmann with William and Blair (sic) William Blair. Nathan Brochmann - William Blair & Company L.L.C., Research Division: Wanted to talk a little bit. Obviously, I mean, the acquisitions, namely, ECP are just doing great. Relative to when you picked them up, what's really different in terms of what you've seen and what have you been able to add to really drive that upside relative to expectations?

Yes, it has been performing exceedingly well. Really, we just provided them the ability to expand -- to keep their hard plan going forward. As we mentioned, we've done 9 locations this year. We'll continue to grow that business. The market conditions there are very good. We find that the competition, while trying to get aggressive to compete with us, is really -- we're just being able to grow the business to what we expect that we could do. The collision parts side of the business that we launched on March 28, we're very pleased with that. Addition, we expect good things out of that. We had an official ceremony over there when we launched that program. But just overall, being able to bring product in, market to the -- aggressive marketing campaigns we've been doing over there, just really are going well. Nathan Brochmann - William Blair & Company L.L.C., Research Division: And then just kind of a follow-up on that. What gives you the confidence on that collision parts side that you just launched in terms of the market willing to accept that? I mean, if you could just give us a little bit of color in terms of understanding that.

Yes, we were over there. We launched an industry forum with repairers and insurance companies in the room, very well received by everybody in the room. Of course, we estimate the AP usage at under 10% in the marketplace, so plenty of room to grow, Nate. And then just looking at the total market, we believe it's a $2 billion to $3 billion collision repair market. So really, anecdotally right now, just very well received. It's early days, but we are growing the business. Granted on very low numbers right now, but we do realize it's going to be a marathon, not a sprint there. It took years to get the United States to 37 and change and hopefully 38 next year. So we've got some certainly room to grow in the U.K., so we're excited about the opportunity.

Our next question comes from Scott Stember with Sidoti & Company. Scott L. Stember - Sidoti & Company, LLC: You posted very strong growth in the recycled business despite the fact that we had a warmer-than-expected winter. Could you maybe talk about how you were able to do that whether it was the mechanical side that offset that?

Sure, Scott, it's John Quinn. I'll just start a little bit and maybe Rob can supplement what I say. Absolutely, the demand for the parts coming out of the recycled side generally exceeds the -- our availability. Our fill rates are maybe 70%, 75% in that. So as we've combined more cars, it's typically the first choice for insurance repair. So if there's any softness, it's going to come out of the aftermarket, so on the demand side because of the insurance will always buy the recycled product, if it's available. So if you saw our volume is up, we're buying more cars, we're buying the cars correctly, we should able to continue to grow that business. Obviously, mechanical is still very strong demand. The aging car part probably helps us to that extent. Rob, do you want to supplement?

Yes, I would just add to that, Scott, that obviously with the aging car part that John mentioned, mechanical parts are going to have a little bit more of a shot in the arm here going forward. And as I mentioned on the last call, that our diversification away from some of that collision side of the business is helping as well. So the cooling products and those other type of products, so it is helping, obviously, the growth of the non-collision side of the business. Scott L. Stember - Sidoti & Company, LLC: All right. As we work our way out of the winter season, could you talk about how April sales have probably looking particularly for the aftermarket side?

We'd be glad to. Just to retouch on what we talked about in the prepared remarks, claims volumes are down 5% to mid-teens and some of that will carry into Q2, so -- and last year, our Q2 comps were 8.4%. So likely, helped from the strong winter of 2011. So April is off to a slightly sluggish start, and we're really equating that to no backlog coming out of the Q1 mild winter. There are some good signs, though, as John mentioned, higher gas prices in Q1 seem to be abating now a little bit. We're seeing some positive news on miles driven. They're actually -- in February, they're up 1.8%. Our buying and backlog in the salvage business remains very healthy. So assuming claims come back, we're in great shape. And stock ratio on the aftermarket is at its all-time highs, so we're well positioned there. Just one last comment, certified parts programs. We saw a 300 basis point improvement in the number of certified parts from Q1 to Q2. So our manufacturers are still engaged in the business and still helping us grow the business. So hoping that some of those positive tailwinds come through, I think we're in a great position to regain the same-store sales growth. Scott L. Stember - Sidoti & Company, LLC: Okay, and going over to the U.K. with the ECP since that seems to be one of the reasons for the strong performance in the quarter. Can you talk about how they are performing to your initial expectations? And maybe just talk about where the sales growth is right now, maybe just quantify the actual growth rate for revenues at ECP?

Scott, I'll try to answer your question. In terms of ECP, it's performing very much in line with what we expected, the base business. I think what we have brought to the table is the capital to let them open their branches at a faster clip. They had -- their cadence have been more based on the cash flow. We said that we would we're prepared to invest more, and so I think to the extent that some of the additional store openings are adding to their revenue base, that's a positive. The opening of the collision business, I think, is probably -- did little bit faster on that. I think we really probably expected that to be in the summer as we got dumped in the spring. And I'm sorry, the other question was? Scott L. Stember - Sidoti & Company, LLC: Well, just referring to what the sales growth looks like at ECP right now?

Sure. I think I mentioned in my remarks, last year, in Q1, we estimated they did about $131 million in revenue and this year, it's $160 million. So they've done a 23% increase year-over-year and that's essentially all organic, obviously including their additional stores. Scott L. Stember - Sidoti & Company, LLC: All right. And just final question, housekeeping. Just to confirm your guidance, backing out all charges and gains for the year, it's still about $1.72 to $1.85?

Correct. We added the -- essentially, we added the Q1 legal settlement into the guidance.

Scott, I just want to add one last thing to John's comment about ECP. I think part of our strategy has always been the key strong management teams in place after an acquisition. And we certainly achieved that at ECP, and I think that is also another reason why we are meeting our goals and exceeding them slightly because the management team is so engaged.

Our next question comes from Craig Kennison with Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: On ECP, are you having any challenges staffing that level of growth with kind of talented general managers you'd need to place?

Yes, Craig, that was one of my concerns when we originally went to 20, and absolutely not. We are having no problem attracting it. That was the biggest hindrance to growth, was getting the right people on board. We have a human resource department that is firing on all cylinders over there and I have regularly, weekly phone calls with that team and we are meeting their staffing requirements. The leases are falling into place and that's allowing us to go to the 30. So staffing was our major concern, and we're being told no problems whatsoever in getting the proper management in the seats. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And you may have partially addressed this already, but part of the recipe for success with ECP has to be a good partnership with the estimating software platforms. Where are you at with respect to that? Have you been featured in any of their software packages, and might that be a catalyst going forward?

Sure. There are 2 basic estimating systems there as opposed to 3 here in the United States. But one of them has almost a 90% market share from what we're told, and that's Solera, and we are on their estimating system. Our inventory has been mapped. We take our part number and match it to the OE part number. That has been done, and it is now available to both insurers and repairers. The other one is a company called Glassmatix. We are also in their estimating system and showing our inventory. So now repair is very similar to the United States, can see our inventory when writing an estimate. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: So can you see when you're getting an order from that system and whether that's having impact yet? I'm sure it's early, but is that some data that you'll be able to capture?

We cannot. They do not -- we don't know if the shop absolutely selects our part and we don't get a notice back. The notice we get is, of course, is in the form of a sale. But we do know from insurance companies they will tell us anecdotally that they are selecting our parts, and we are starting to see some of that going forward. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then furthermore, on ECP, your primarily core market was a mechanical market. What customer overlap do you have in order to sell your collision repair parts? Is it a fairly high overlap?

The collision repair shops will use a fair amount of most mechanical parts as well. So we will have something there and certain cooling products as well. The mechanical repairer is going to do the radiator and condenser-type products as well. So it is an overlap with the -- some of the mechanical shops, buying some of those body shop parts but also the other way around. So there will be some overlap. There's approximately 5,000 body shops in the U.K. So it is opening up a market to some of our mechanical parts as well. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And so are you forced to then staff that differently and add collision repair sales people to address that market separately?

What we have done is we've trained a go-to-person every one of our branches to do that collision repair marketing. All the regional sales managers have been trained already and like I said, we pick up one person from each branch to be the go-to person. So we are actively doing that. And of course, from the last call, I mentioned that we hired an outside marketing director to go after the insurance company. So all the marketing efforts are in place now. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Last question, then. Given the positive inflection in miles driven and the comment you made about APU being up 100%, why did you feel the need to shave a little bit off organic growth given first quarter was pretty good?

Yes, to be clear, APU is up 100 basis points. It looks like it's going to trend that way. Really, just some of the headwinds were maybe April sluggishness. We're a little concerned when the collision market does come back. We were not sure about fuel prices where they will eventually go. But just coming off of a tough quarter with a 3.6% growth. So in order to get to the upper end, we'd have to really hit on a high end of that going forward. And it's just enough uncertainty right now in the marketplace that made us just feel comfortable bringing it down 0.5 point.

Our next question comes from Bill Armstrong with CL King & Associates. William R. Armstrong - CL King & Associates, Inc.: So the U.K. business is mostly mechanical. Collision is still pretty small. What's going on in the U.K. mechanical market that's driving all this growth at ECP?

Bill, as I said, I think we're seeing a shift towards the independent repairer in that marketplace, a lot more comfort level there. Just a shift towards that type of marketplace when it comes to getting away from cars that are out of warranty as well. They're facing an aging car part as well, which is making people feel more comfortable with the independent repairer so I think there's some of that. I think as we mentioned on the last call -- the #1, the former #1 is reorganizing itself right now and they're probably having a little bit of turmoil there as well, so I think we're taking some market share from our competition as well. William R. Armstrong - CL King & Associates, Inc.: Got it. And as you start to really move into the collision side of the business, what's the outlook for starting to do salvage parts? Right now, you're just aftermarket, I believe?

That's correct, Bill. Our thought was to make sure that the insurance companies will live up to their end of the bargain where they said "if we build it, they will come". We are actually looking at salvage opportunities in the U.K. right now. Nothing has been to the point where we're ready to announce a deal, I want to be clear on that. But we are looking at opportunities. There is one major challenge that we face in the U.K., the interchange the we have here in the United States that basically maps the used part to a new part has not been fully developed in the U.K. so we have some work to do there as well. But we want to make sure the aftermarket -- the aftermarket takes off and we're hopeful it does. We certainly will be looking very closely at the salvage market. William R. Armstrong - CL King & Associates, Inc.: Got it, okay. And on a different topic, this explosion in Germany of this resin plant that's now potentially causing shortages for the manufacturers of brake and fuel lines, is there -- I know this might be a stretch or maybe not, but is there any opportunity for you guys to capture some short-term incremental business?

Probably not. We think everything we've been reading on the topic, we just believe that they're going to find an alternative resin to keep production up. We thought we certainly would have a better chance after the tsunami or the Thailand floods and we saw no interruption there. But we're not thinking that we're going to get any kind of uptick from that. But we're watching it closely. These are brake lines and fuel tanks, lining from what I understand. Not a big market for us in the first place. But we do have that inventory should it become an issue, but we're not anticipating anything at this time. William R. Armstrong - CL King & Associates, Inc.: Got it, okay. And then last question on miles driven on U.S. roadways actually posted year-over-year increases December, January and February. Is there any way from your perspective to kind of determine why that's turned around, especially in light of high fuel prices? And what kind of factors might cause that -- those increases to continue or not to continue going forward?

It was interesting, actually. One of the biggest markets that had an uptick in miles driven was the northeast at 4.3% and that was solely because they could drive because there was no weather. So we think with fuel coming down, it looks like it is going to come down a little bit, we actually anticipate hopefully that the miles driven will continue to show positive signs. But we believe in Q1, it was clearly related to the fact there was no weather.

Our next question comes from Scott Ciccarelli with RBC Capital Markets.

This is Patrick Palfrey sitting in for Scott today. I guess, first, you mentioned that you're seeing 100 basis point improvement in alternative parts usage from your channels checks. Is there any particular reason that you're seeing this being up? Is it structural or is it just merely insurance companies looking to keep claims price down?

I think, Patrick, it's the pressure from the insurance companies to drive costs down. It's also the fact that I mentioned that we have 300 basis point improvement in our certified parts program, so that's certainly adding value as well. This is more parts becoming available into the marketplace. So I think it's a combination of availability of product, as well as insurance company just driving demand.

And then I guess, another question, if I may. Just looking at the acceleration there within the recycled parts organic growth, looking into your stack [ph], there was a nice acceleration and I was just wondering do you think you can sort of keep the pace of sales in recycled growth sort of running at this rate?

We feel confident that was a backlog that we have. Our backlog coming out of Q1 is as good as we've seen it in a while, so we have the inventory. We believe that demand will stay there because of the aging car part. So we're cautiously optimistic that we're well positioned to continue growth in the recycled parts of the business.

And then just a quick housekeeping, if I may. You mentioned you'd acquired 4 businesses in the quarter. You wouldn't happen to know sort of what their annual revenue is from those 4 businesses?

We do. It would be about $46 million.

Our next question comes from Gary Prestopino from Barrington Research.

Most have been answered, but John, what tax rate should we be using for the full year? I noticed the tax rate was a little bit lower than we expected.

Sure. The tax rate for the quarter was 36.8%, and basically we're going to be around that level for the rest of the year. We're going to anticipate right now. There may be some discrete items in the back half of the year that could move it. But we've built into our accounting just that rate.

Dealing with these insurance companies in the U.K., are they under the same costs?

Cost pressures?

Yes, cost pressures and all? I mean, you're starting out with obviously aftermarket parts and you got to gradually or long-term-work end cycle. But is it the same kind of environment that is in the U.S.?

Actually, it's a little worse, Gary. They have some regulatory government offices that are actually looking into the fact the premiums are so high in the U.K. So they're actually probably getting some governmental pressure that we don't see here in the United States. So they absolutely are -- they need to do something and we think the timing of this thing was perfect in light of what we're seeing over there in terms of the regulatory agencies.

Well, basically, it's U.K.-based insurers that you're dealing with, there's no -- is there any cross-border?

The only cross-border we have with them was in Canada. Some of these carriers write also with -- in the U.K. So I think it should be in Canada. So what we see a lot of overlap there, of course, we deal with these in Canada. So we are actually seeing some help from our Canadian friends.

Our next question comes from John Lovallo with Merrill Lynch.

A couple of questions. I guess, first, on distribution and warehouse expense -- I'm sorry, facility and warehouse expense. Better leverage there than I had expected and I think, John, you had mentioned -- you had referred to ECP as a driver there. Did I hear that correctly?

On a year-over-year basis, yes.

And why would ECP help you leverage that expense?

Basically, they're operating out of one national warehouse and then a lot of smaller locations. I'm sorry, John, they tend to have a little higher distribution costs because they're -- they need to get the product out typically [indiscernible] within the hour.

Okay, that's fair. And then in terms of SG&A and -- well, SG&A in particular. I mean, do you anticipate being able to leverage that even further heading into the second quarter?

Q1 is typically our best revenue order for the year. So we may actually, depending on how the seasonality comes down -- the impacts of the weather, we'll just have to see how the revenue plays out. If you look at sequentially, we were pretty pleased actually with the leverage that we got out of the business, the uptick in revenue. We're willing to drive those things down. And I don't know if I want to go into the specifics on the quarter, but I do think if you look at Q4 to Q1 this year, I think you'll see we are getting some leverage out of the business. I know that our management team has been very focused on cost control and we're starting to see some softness in the weather-related products in Q1 we really battened down the hatches there. And I think we saw some of that effect in the back half of Q1.

Great. And if I could just sneak one final one in here. I read something recently about a potential law change in Ohio that would essentially allow anyone to buy salvage vehicles, not just licensed buyers. I mean is this something that, A, could increase auction prices? And I guess, secondly, are there other states that could follow this?

Yes, John, we have a bid card in the state of Ohio where you have to be licensed to attend the auctions. There is a move to open the auctions to the public. And that certainly could cause some pressure on auction costs. However, to your second question, there are some states that do have bid cards, but the vast majority of the auctions are open to dealers and -- pretty open. Ohio actually allows what's called bidder brokers as well. So we're actually seeing the infiltration of the non-bidders into the auction already, so I don't think we're going to see a huge change in Ohio even if that's changed, even if the law passes. But certainly, opening up the actions does make it more competitive and would likely raise prices slightly.

Our next question comes from John Lawrence [ph] with Stephens Inc.

Would you tell us just a little bit there about ECP and talk about the footprint? I mean, with the growth expansion, soon the pretty -- if you look at logistics and how far these are apart, any chance of cannibalizing in those markets?

Sure, we're operating [ph] in 2 locations now, John, and we're adding hopefully 15 to 18 more by the balance of the year. We think they're fully -- and by the way, most of the concentration has been in Central and Southern England. So a lot of these branches are moving north in towards Scotland. We think that surely branches in major metropolitan areas can be 5 miles or so apart. So there's not necessarily cannibalization, it's just better service for the customers, which should allow us an uptick in revenue because customers, as John mentioned in his previous remarks, delivery time is critical in this side of the business. So we believe we'll get to roughly 120 locations by the end of this year, if all goes to plan. We want to add probably another 20 or 25 next year, which adds to about 150. And then on the last call, we talked about these ancillary locations, not full sized branches. Our average branch over there is a 10,000-square foot branch. These would be smaller offshoots in more rural areas that we can get parts to on a less -- hourly delivery basis, but still be able to service the market. That may be another 20 to 25 locations. So when this is all said and done, we'll be at about roughly 175 locations in the U.K. Cannibalization, there is a slight -- when you put one 5 miles apart from each other, we do move some of the revenue from one branch to the other. But again, because of the better service levels we can provide, we do see an uptick in the revenue pretty quickly.

Great. And second question, if you look at the parts offering itself on the plan and you compare it to last year, how much would the improvement be comp-wise at ECP related to product offering? And where would you expect that to go, not only on the based -- on the mechanical side, but as you launched the collision?

John, it's John Quinn speaking. They have a very, very high fulfillment rate of their base business, in the high 90s. And one of their competitive advantages, I think, is that they are known as somewhere you can get a part for -- hard-to-find parts for the cars. So year-over-year, I don't know if there's an appreciable increase in terms of their product offerings that will be driving that organic growth. We've invested a couple of million dollars in inventory on the collision parts side. I would say that has been really de minimus in terms of what it contributed to the growth thus far. As Rob mentioned, that is -- it's early days. We're going to see if we can drive the APU usage up in that country. So I think it's probably too early for us to really start giving any kind of numbers, how much that's going to contribute to the growth. It very much is early days.

Great, and last question. Rob, would you walk us through just the time line of what happens in the auction when you've had these sort of mild winters in the past? And what happens to auction prices, say, 6 to 9 months down the road?

Yes, John, generally speaking, when a car is totaled by the insurance company, it could take anywhere from 45 to 70 days before the insurance company gets a probably signed off title and convert it to a salvage title. So to give you an example, an accident today wouldn't be seen in an auction till July in most cases. So we think maybe the mild winter may cause a little bit of stress on the auction pulls. We haven't seen that yet because even today, we're in April, we should be seeing total losses from February, using late January, early February. So it's -- the auctions have been very robust here. But we know the auctions are doing -- trying to get more cars through charities and other types of different sources. So we're not sure what's going to happen in the summer, but we do expect it to be off the volume coming off of a soft winter. As a result, prices may in fact increase as salvage becomes less available. However, the converse to that, of course, is the summer coming up, which is putting more used cars into the marketplace hopefully soon as we start to see an uptick. So there may be some offset there. Manheim is up. The Manheim Index is up 1.6% year-over-year. So honestly, there's still pressure in the used car market. So expect to see a competitive market in the summer with the potential lack of salvage coming out of a mild winter.

We have come to the end of our Q&A session. I would like to turn the call back over to management for closing comments.

Thanks, LaTonya. Thanks, everybody, for joining the call. We appreciate the support, and we look forward to speaking to you in another 90 days. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.