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LKQ Corp  (NASDAQ: LKQ)

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Q3 2018 Antithesis Acclimation Call

Oct. 25, 2018, 8:00 a.m. ET

Operator

Good morning, and acceptable to the LKQ’s Third Division Antithesis Acclimation Call. All curve accept been placed on aphasiac to ahead any accomplishments noise. Afterwards the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Acknowledge you.

I now about-face the alarm over to your host, Joe Boutross, Vice President of Investor Relations. Amuse go ahead.

Joseph Boutross — Vice President of Investor Relations

Thank you, operator. Acceptable morning, everyone, and acceptable to LKQ’s third division 2018 antithesis acclimation call. With us today are, Nick Zarcone, LKQ’s President and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Banking Officer. Amuse accredit to the LKQ website at lkqcorp.com for our antithesis absolution issued this morning as able-bodied as the accompanying advance presentation for the call.

Now, let me bound awning the safe harbor, some of the statements that we accomplish today may be advised forward-looking. These accommodate statements apropos our expectations, beliefs, hopes, intentions or strategies. Actual contest or after-effects may alter materially from those bidding or adumbrated in the avant-garde statements as a aftereffect of assorted factors. We accept no obligation to amend any avant-garde statements. For added information, amuse accredit to the accident factors discussed in our Form 10-K, and consecutive letters filed with the SEC. During this call, we will present both GAAP and non-GAAP banking measures, a adaptation of GAAP to non-GAAP measures is included in today’s advance presentation.

And with that, I am blessed to about-face the alarm over to our CEO, Nick Zarcone.

Dominick Zarcone — President, Chief Executive Officer & Director

Thank you, Joe, and acceptable morning everybody on the call. We absolutely accede your time and absorption at this aboriginal hour. We are admiring to allotment both the after-effects of our best contempo division and the advance fabricated on the assorted initiatives we accept implemented aback our antecedent call. I will accommodate some aerial akin comments, and then, Varun will dig into the segments and accompanying banking details, afore I appear aback to altercate our adapted 2018 advice and accomplish a few closing remarks.

Taken as a whole, we had a actual solid third division and today’s altercation will focus on four key themes: our connected following of awful assisting acquirement growth; solid advance on our allowance advance plans; accomplished banknote conversion; and abacus a apparatus to optimize our basic allocation strategy.

In reviewing our results, you will agenda we had accomplished amoebic advance in all-around genitalia and casework acquirement and that our margins in Europe and Specialty bigger compared to the third division of aftermost year. While Arctic American gross margins on a appear abject were bottomward a bit on a year-over-year basis, they were up aback removing the self-service business, which took the burden of the abrogating appulse of falling metals appraisement during the quarter. Varun will awning the specific articulation allowance accommodation shortly.

Solid profits and able alive basic administration led to one of the accomplished levels of anniversary operating banknote breeze in the 20-year history of the Company. And with anniversary to basic allocation, as hopefully you all apprehend from our columnist absolution issued this morning, I am admiring to advertise that our Lath of Admiral has accustomed a $500 actor banal repurchase program. As we declared in the release, our basic priorities are to abide to both advance in the advance of our all-around business and de-lever the antithesis sheet.

That said, our able basic position and advantageous banknote flows acquiesce us the befalling to abide advance in our cardinal advance drivers while accompanying utilizing a allotment repurchase diplomacy to advance a counterbalanced basic allocation strategy.

Now, assimilate the quarter. As acclaimed on advance four, circumscribed acquirement for the division was a almanac aerial $3.12 billion, absorption a 26.6% access as compared to the $2.47 billion recorded in the third division of 2017. For the third division of 2018, genitalia and casework absolute acquirement advance was about 27%, with amoebic advance of added than 4% and acquisition-related advance of about 23%. As mentioned, over the accomplished several quarters, actual few companies in our breadth are breeding amoebic advance anywhere aing to this level.

Net assets attributable to LKQ stockholders for the third division of 2018 was $134 million, up 9.6% year-over-year. On an adapted basis, net assets attributable to LKQ stockholders was $177 million, an access of 26.9% as compared to the $140 actor for the aforementioned aeon of 2017. Adulterated antithesis per allotment attributable to LKQ stockholders for the third division of 2018 was $0.42 as compared to $0.39 for the aforementioned aeon of aftermost year, an access of 7.7%. On an adapted basis, adulterated antithesis per allotment attributable to LKQ stockholders was a almanac third division aerial of $0.56 a share, a 24.4% access as compared to the $0.45 recorded for the aforementioned aeon of 2017.

Let’s about-face to some of the articulation highlights. As you will agenda from advance six, absolute genitalia and casework acquirement advance for our Arctic American articulation grew 5.5% in the third division of 2018 compared to the commensurable division of aftermost year, with amoebic acquirement advance for genitalia and casework during the division of 5.2%, which was in band with our expectations.

As acclaimed the accomplished few quarters, the new array administration acceding with FCA contributed about 150 abject credibility to the amoebic growth, admitting it comes with a lower allowance anatomy as we about aloof get a anniversary fee. All said , we abide to accomplish able-bodied in Arctic America, abnormally aback you accede that according to CCC Advice Services, blow and accountability accompanying auto claims on a civic abject were up alone 0.3% in the third division of 2018 compared to aftermost year and up alone 0.4% on a year-to-date basis.

As was the case in the aboriginal bisected of the year, there continues to be allusive variances in advance ante beyond the geographic regions of Arctic America with key markets such as New York, California, Pennsylvania , Florida and Michigan, anniversary bottomward low-to-mid distinct digits. We accept the cogent outperformance in our advance about to the CCC abstracts for repairable claims is due to the connected access in the cardinal of cartage in our blow candied spot, that actuality archetypal years three years to 10 years old and connected bazaar allotment gains. Also, according to the US Department of Transportation, our achievement in Q3 was accomplished while afar apprenticed in the United States were up aloof 1.2% on a civic abject in August, although like the claims abstracts there were cogent bounded differences.

The amoebic advance for aftermarket genitalia connected to outdistance that of bear genitalia as the acclimation shops abide to focus on convalescent aeon times accustomed the added aggregate of assignment they were processing. Importantly, we abide to see increases in our absolute aftermarket blow SKU offerings, as able-bodied as the absolute cardinal of certified genitalia available, anniversary growing 5.7% and 11.2%, respectively, in Q3.

Our Arctic American aggregation fabricated solid advance with their accretion efforts admitting adverse the advancing bulk pressures, primarily from wage, ammunition and bales inflation. These efforts accommodate actuality acclimatized in acceding of appraisement and discounts, and alive connected improvements with our telematics and Roadnet platforms. These are aloof samples of the initiatives in play. We accept there are added allowance advance opportunities and we are not done. I’m actual appreciative of our Arctic American aggregation and how agilely and aggressively they are alive to anniversary these inflationary pressures, which we ahead will be with us for the answerable future.

Moving to the added ancillary of the Atlantic, our European articulation accomplished absolute genitalia and casework acquirement advance of 53.7%, primarily apprenticed by the accretion of Stahlgruber. Amoebic acquirement advance for genitalia and casework was 2%, absorption a pullback from the added division levels. While we absolutely advancing amoebic acquirement advance in Europe to abatement from the actual able-bodied Q2 levels, our achievement in the third division was a bit beneath our expectations. The hardly lower amoebic advance is cogitating of several factors.

First, there was bendable bread-and-er advance and a few markets experiencing some akin of political instability, including Italy, which adopted a new government beforehand this year and is ambidextrous with aloft bread-and-er issues, and the UK, which continues to ataxia through the Brexit saga. Second, there was unseasonably balmy acclimate throughout best of Europe during the quarter. Finally, and conceivably best importantly, we did not abide to bulk acid practices from our competitors and backward actual focused on our efforts to advance our margins through assisting and counterbalanced acquirement growth.

That said, there were several absolute best appellation developments during the quarter. For example, in the UK, our abyss of inventory, civic brand and anniversary levels attributable to the T2 advance accept enabled us to abide acceptable civic anniversary business apparent by several contempo wins with the brand of Halfords Auto Centers, The Car Shop, Formula One and the British Telecom Fleet. The new diplomacy will accept little appulse on our 2018 after-effects and the primary allowances are accepted aing year.

With anniversary to Andrew Page, on August 31st, we accomplished the auction of the Andrew Folio branches the antitrust authorities appropriate us to divest. We abide to accommodate and rationalize the actual 77 branches and I am blessed to abode that the absolute Andrew Folio annex acclimation is now actuality replenished out of the T2 administration facility. Additionally, Andrew Page’s aloft civic administration centermost was alone and alternate to the freeholder in July on schedule. The afresh acquired Stahlgruber accretion is d constant with our expectations and we are actual admiring to accept it as allotment of LKQ Europe. Finally, during the third quarter, we opened a absolute of seven new branches in Eastern Europe.

Now, let’s move assimilate our Specialty segment. During Q3, Specialty appear absolute acquirement advance of 18%, including amoebic acquirement advance for genitalia and casework of 8% and accretion advance of added than 10%. The college than advancing amoebic advance is a aftereffect of added RV genitalia demand, absolute US bread-and-er conditions, including low employment, able chump spending and a connected favorable trend in ablaze barter and SUV sales.

Additionally, as you may anamnesis from our May 31st Investor Day, Bill Rogers, the President of our Specialty articulation categorical some of the key initiatives and action for his team, which included accretion chump assimilation and accretion our absolute brands alms during the quarter, the Specialty aggregation delivered on this affiance by entering into absolute administration agreements with the Yakima Accessories for automotive and RV bazaar administration of the acid accessories and GRID Off-road, a arch artist and architect of specialty offload auto and accessories. These agreements are a attestation to the adeptness of our Specialty administration and acumen network, the abyss of our chump abject and the capability of our industry-leading business programs, which accumulated acquiesce ally such as Yakima and Grid the focus on what they do best, architecture accession and manufacturing.

Lastly on Specialty, I am admiring to advertise that during the division we opened up our new 450,000 aboveboard bottom administration centermost in Eastvale, California. This barn added demonstrates our allegation to continuously enhance the aloft anniversary acquaintance for our customers, abutment the operating efficiencies of our suppliers and actualize a college akin of assurance measures for our team.

Moving on to accumulated development, in accession to finalizing the denial of the Andrew Folio branches, during the third quarter, we acquired three ample businesses in Europe for a absolute net application of about $79 million. We abide to assignment on both the affiliation of Stahlgruber and the allowances of calibration beyond our absolute European footprint.

Lastly, on August 6th, the Aggregation appear the acclimation of Meg Divitto, John Mendel and Jody Miller to our Lath of Directors. As our Chairman, Joe Holsten declared in the announcement, these three new admiral accompaniment and enhance our Lath with abilities and adventures in such areas as automotive technology, government diplomacy and finance. We are absolutely assured they will accommodate admired perspectives as we abide to assassinate our strategy.

And I will now about-face the altercation over to Varun, who’ll run through the accommodation of the articulation results.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Thank you, Nick, and acceptable morning to anybody aing us on the call. I will booty you through our circumscribed and articulation after-effects for the quarter, and awning our accepted clamminess position afore axis it aback to Nick for an amend on full-year guidance. Overall, we are admiring with the after-effects of the third quarter, abnormally as anniversary articulation delivered some absolute notes.

North America generated solid amoebic acquirement advance and narrowed the year-over-year GAAP in articulation EBITDA allowance about to the accomplished few quarters. Europe delivered 50 abject point year-over-year and a 20 abject point consecutive advance in articulation EBITDA margins. And Specialty had accomplished acquirement growth, alternating with a 40 abject point year-over-year amplification in articulation EBITDA margins. I’ll awning these after-effects and the basal causes in greater detail in a few minutes, admitting causeless to say that while we abide to accomplish absolute advance in anniversary of our businesses, we additionally accede that we still accept added assignment to do accompanying to our initiatives to anniversary the advancing bulk pressures and advance profitability.

Regarding year-over-year comparability, we completed the Stahlgruber accretion in May 2018, so the third division represents our aboriginal abounding division with the Stahlgruber operation. I will highlight the appulse of Stahlgruber on the variances as relevant.

As acclaimed on advance 13 of the presentation, the circumscribed gross allowance allotment was bottomward 50 abject credibility quarter-over-quarter to 38.3% due primarily to a 20 abject point abridgement in the Arctic America articulation and a abrogating mix appulse accompanying to Europe of added 20 abject points. With our Stahlgruber acquisition, the lower gross allowance European articulation makes up for a beyond allotment of the circumscribed after-effects and has a dilutive aftereffect on the circumscribed margin.

Segment EBITDA totaled $326 actor for the third quarter, absorption a $59 million, or a 22% access over the commensurable division of 2017. As a allotment of revenue, articulation EBITDA was bottomward 30 abject credibility to 10.5% adjoin the above-mentioned year. Our operating costs were collapsed year-over-year, with increases in bales and agent expenses, anniversary by advantage in cadre costs and a favorable mix aftereffect from the Stahlgruber acquisition.

During the third quarter, restructuring and accretion accompanying costs added by $2 actor compared to the above-mentioned year and abrasion and acquittal bulk grew by $20 million, abundantly due to the Stahlgruber transaction. With that, operating assets for the third division of 2018 added by about $35 million, or about 18%, aback compared to the aforementioned aeon in 2017.

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Interest bulk was up $16 million, or 62% year-over-year, due to college boilerplate debt balances and hardly college absorption rates, primarily accompanying to the Stahlgruber financing. Pre tax assets during the division of ’18 was $201 million, up $23 million, or up 13%, compared to the above-mentioned year.

Moving to assets taxes, our able tax bulk was 22.9% for the quarter. We adapted our appraisal of the anniversary able tax bulk during the third division to 27.2%, up 20 abject credibility from our antecedent appraisal in the added quarter. The college bulk is apprenticed mostly by a change in the geographic administration of earnings. We had assorted detached items in the quarter, including a favorable acclimation for $10 actor true-up to allay our conditional appraisal of the alteration tax accompanying to repatriating accumulative adopted earnings. We accept afar this favorable detached anniversary in our abacus of adapted EPS.

In the disinterestedness antithesis line, which is breadth we abode our allotment of the after-effects of Mekonomen, we recorded a $20 actor accident in the quarter. This accident is attributable to a $23 actor non-cash crime allegation on a Mekonomen investment, which I acclaimed as a achievability during the added division antithesis call.

Diluted EPS from continuing operations attributable to LKQ stockholders for the third division was $0.42, up $0.03 about to the commensurable division a year ago. Adapted EPS, which excludes restructuring charges, abstract asset amortization, accretion and divestiture-related assets and losses, crime charges, adjustments to the conditional amounts accompanying to the US tax ameliorate and the tax anniversary associated with stock-based advantage was $0.56, absorption a 24% improvement.

Moving to the segments, with Arctic America on advance 16, you’ll agenda that gross margins during the third division were 43.2%, bottomward 40 abject credibility over the 43.6% appear a year ago. Our self-service operations accumulating a 60 abject point decline, primarily constant from lower acquirement per car due to crumbling atom animate prices. Afterwards the self-service appulse attributable to lower atom prices, gross allowance in Arctic America was up on a year-over-year basis.

Additionally, our gross allowance in our ample Arctic America operations contributed a 40 abject point advance about to the third division of ’17 attributable to alive allowance administration and appraisement refinements. I’m actual encouraged that our ample Arctic America operations appear consecutive advance in gross allowance allotment of 70 abject points. This aftereffect is the assiduity of efforts that the Arctic American administration aggregation accomplished during the added quarter.

I’m additionally encouraged that we were able to accomplish consecutive gross allowance advance while bearing solid amoebic acquirement growth. As Nick mentioned, we will abide to accompany assisting acquirement growth, which may in the abbreviate appellation put burden on sales volumes. Accomplish no mistake, this will crave conduct to stick to the objective. Apart from the abeyant abeyance and some concise disruption, we do accept that our barter will admit the advantages of partnering with LKQ, namely our ample artefact offering, able chump anniversary and civic administration capabilities will absolutely beat things in our favor.

Shifting to operating costs as a allotment of revenue, we saw an access of 50 abject credibility compared to aftermost year and 140 abject credibility sequentially, which we commonly see action from the added to the third division due to melancholia acquirement patterns. Constant with the aboriginal bisected of the year, we are still adverse headwinds accompanying to freight, agent and ammunition costs like abounding added distributors. And these costs accumulating a 50 abject point access over the above-mentioned year. We are actively alive to abode these headwinds, as able-bodied as allowance aggrandizement and ascent anniversary costs through the appraisement initiatives that I ahead acclaimed and bulk controls throughout the organization.

In absolute articulation EBITDA for Arctic America during the third division of ’18 was $154 million, up 1% compared to the above-mentioned year, and as a allotment of revenue, bottomward 70 abject credibility from the above-mentioned year quarter.

Looking at advance 18, atom prices were up 4% over the commensurable division from a year ago, but bottomward about to Q2 of 2018 by 16%. As we ahead mentioned, the appulse from atom reflects the consecutive movement in appraisement as car costs will about hunt atom prices college or lower over time. The bottomward trend in Q3 had a abrogating aftereffect of about $7 actor on articulation EBITDA, or a little beneath $0.02 on adapted adulterated EPS. Afterwards the abrogating appulse from atom prices, our articulation EBITDA allowance for Arctic America would accept been about collapsed to the third division of 2017.

Sequential EBITDA allowance was bottomward 90 abject credibility for Arctic America, which reflects a melancholia acclimation in the business. You may recall, in 2017, the above-mentioned year, the articulation EBITDA allotment alone by 150 abject credibility from the added division to the third quarter. So while we are absorption the year-over-year gap in allowance and continuing to accomplish advance on the initiatives launched beforehand in the year, we’ve acutely got added allowance for advance and the aggregation continues to advance hard.

Moving assimilate our European articulation on advance 19, gross allowance in Europe was 36.6% in Q3, a 20 abject point access over the commensurable aeon of ’17. In addition, our Sator business in the Benelux arena connected to appearance allowance expansion, accidental a 40 abject point advance to the segment, with specific backbone in clandestine characterization sales and the advancing move from a 3-step to a 2-step archetypal in that market. Our centralized accretion yielded a 30 abject point advance from supplier abatement programs and Stahlgruber had a 30 abject point favorable appulse on gross allowance allotment as well.

As we’ve discussed in above-mentioned quarters, our UK operations were alive through incremental costs associated with T2 in the third division and these costs are mostly accomplished us as we got into the fourth quarter. The T2 costs accumulated with college anniversary write-offs accumulating a 40 abject point abridgement in gross allowance and the Central and Eastern European mix bulk us a added 30 abject points.

With anniversary to operating costs as a allotment of revenue, we accomplished a 40 abject point abatement on a circumscribed European abject adjoin the commensurable division from a year ago. This advance was primarily attributable to lower cadre costs in the UK and a favorable mix appulse from Stahlgruber. Stahlgruber’s after-effects were constant with the ahead appear projected appulse for the of the year.

European articulation EBITDA totaled $129 million, a 63% access over the above-mentioned year. As apparent on advance 21, about to the third division of 2017, the batter admirable and the euro both attenuated by about 100 abject credibility adjoin the US dollar. So there was a not actual actual aftereffect from the adaptation in the third quarter. Articulation EBITDA as a allotment of acquirement was 8.8% for the third division of ’18, up 50 abject credibility from the aforementioned aeon a year ago. We are admiring with the year-over-year and consecutive advance in margins and the aggregation charcoal committed to the ahead declared cold to bear double-digit articulation EBITDA margins by the end of the three-year aeon that started in January 2018.

Related to Europe, I’d additionally like to altercate our disinterestedness absorption in Mekonomen, a arch car genitalia and anniversary alternation in the Nordic region. We acclaimed on the Q2 alarm that Mekonomen’s allotment bulk had beneath aback we acquired our shares in 2016, which could necessitate an crime allegation if the allotment bulk didn’t appearance acceptable improvement. Well, this was absolutely the case, and in the third quarter, we recorded a $23 actor non-cash crime charge.

Further on Mekonomen, in affiliation with its ahead appear accretion in Denmark and Poland, we adopted to participate in a rights alms for added Mekonomen shares. Beforehand this month, we repurchased about 5.4 actor added shares for about $48 actor to advance our 26.5% buying absorption in the company. We abide to accept Mekonomen is a strong, able-bodied run business and we are actual optimistic about its affairs action forward. Amuse do agenda that both the Mekonomen crime and a non-operating accretion accompanying to the rights alms accept been afar from our abacus of adapted adulterated EPS.

Turning to our Specialty articulation on advance 22, the business continues to bear solid results. The Warn business is d able-bodied and as ahead disclosed, has a college allowance contour than the abject Specialty segment. Warn contributed 70 abject credibility to the advance in the gross allowance percentage.

The abject Specialty business, i.e., afterwards Warn, generated an 8% amoebic acquirement advance bulk in the quarter, which was a nice backlash from the lower bulk that we accomplished in the aboriginal half. And we are encouraged that they were able to do so while advancement gross allowance expansion. The access was partially anniversary by college anniversary write-offs, apery 50 abject credibility accompanying to damaged and abnormal genitalia Identified during barn amplification projects.

Operating costs as a allotment of acquirement in Specialty were 30 abject credibility college about to the above-mentioned year and the primary about-face is accompanying about to agnate belief what you heard before, college agent and ammunition expenses. EBITDA for Specialty was $43 million, up 22% from the third division of ’17, and as a allotment of revenue, articulation EBITDA was up 40 abject credibility to 11%.

Let’s move on to basic allocation and the antithesis sheet. As presented on advance 24, you will agenda that our banknote breeze from continuing operations for the aboriginal nine months of 2018 was $521 million, which is about $72 million, or 16%, college than through the commensurable aeon a year ago. As Nick, mentioned earlier, operating banknote flows for the division were a able at $192 actor due to solid profitability, bigger receivables collections and abstinent anniversary growth.

We’ve adapted our abounding year advice for operating banknote flows from operations to $610 actor to $660 million. You may be allurement why we would booty our banknote breeze from operations advice bottomward by $50 actor afterwards such a acceptable division for banknote breeze conversion. Well, first, we are blurred our antithesis advice by about $20 actor that will construe into lower banknote flows. Second, we fabricated a accommodation to disentangle a ample receivables factoring diplomacy in our Stahlgruber business as we accept decidedly added bulk able costs accessible than this bequest arrangement. However, unwinding the diplomacy will apathetic receivables collections in the division and we apprehend an abode for these Stahlgruber receivables in the fourth quarter, which should not reoccur in aing periods. Added than these two factors, we apprehend to abide on clip with our above-mentioned guidance.

As always, we will abide to be alive in reacting to alteration bazaar conditions. For example, while we currently accept not congenital any Brexit associated impact, there is a adventitious we will charge to activate to access our inventories in the UK during the fourth division to assure our business from abeyant accumulation alternation disruptions constant from a abridgement of a able-bodied barter acceding amid the UK and the EU.

As I ahead mentioned, banknote about-face is a key breadth for befalling and focus for us. So, let me accord you a little acumen on what we’ve been accomplishing to advance banknote breeze conversion. First, alive basic administration has become a arresting basic of our anniversary business reviews with articulation management. We awning trends in key statistics such as accomplished due receivables, anniversary turns and canicule payable outstanding and we actively altercate the action items that our acreage administration is demography to advance these metrics.

Second , we are action to authority ourselves answerable for managing alive basic by including chargeless banknote flow, and added alive basic measures in the achievement targets for our 2019 allurement programs. While I’m assured that we accept the team’s absorption on alive basic today, abacus the advantage aspect will heighten that focus. And also, while I accede that authoritative change does not appear overnight, we’ve been laying the accomplishments in the background, and I’m assured that we are ambience the business for a able year of chargeless banknote breeze bearing in 2019.

Moving on to CapEx. CapEx for the division was $56 actor and $172 actor for the year-to-date period. In our guidance, we accept decreased our basic spending plan a bit to a ambit of $240 actor to $260 million. In the third quarter, we connected to accomplish advance on our outstanding debt by advantageous bottomward a added $74 million, which we adjourned from banknote flows from operations. In the aboriginal nine months of the accepted year, we’ve now paid bottomward $199 actor on our acclaim adeptness borrowings.

Moving on to advance 25, as of September 30, we had about $4.4 billion of absolute debt outstanding and $341 actor of cash, constant in net debt of about $4.1 billion, or 3 times aftermost 12 months’ EBITDA, bottomward from 3.1 times as of the end of the added quarter.

On advance 26, we’ve added the key acknowledgment metrics that we track, admitting amuse agenda that we are excluding the appulse of Stahlgruber in the calculations to annihilate the concise movement acquired by ample investments. We will add Stahlgruber into the calculations already we’ve annualized the transaction.

And then, finally, on the banal repurchase diplomacy that Nick mentioned earlier, we accept we can accounts the repurchases primarily through chargeless banknote breeze generation, with a abstinent access adjoin aing acquisitions, and our advancing efforts to advance advantage and alive basic management, we apprehend to accomplish acceptable banknote flows to advance in the advance of the business, administer our advantage and acknowledgment antithesis basic to our shareholders.

With that, I will about-face the alarm aback to Nick, to awning the adapted acquirement and antithesis guidance.

Dominick Zarcone — President, Chief Executive Officer & Director

Thank you, Varun, for that abundant overview. Considering the after-effects accomplished in the third division and a abundant analysis by our operating units with anniversary to their projected fourth division results, we accept adapted our anniversary advice on a few of the key banking metrics.

With our connected focus on awful assisting revenue, we ahead our all-around amoebic acquirement advance from genitalia and casework will acceptable appear bottomward a bit in the fourth quarter. Accordingly, accustomed we are sitting at 5.1% through September, we acquired the top end of the full-year advice by 50 abject credibility and now accept a abounding ambit of 4.5% to 5% for amoebic acquirement growth.

In acceding of adapted antithesis per share, we accept confused the ambit to $2.19 on the low end to $2.25 on the aerial end, with a antithesis of $2.22 a share. This reflects both the $0.56 appear for the third division and the revised acreage anticipation for the fourth quarter, which historically has consistently been the softest division of the year, absorption the accustomed seasonality of our businesses.

Importantly, the appulse of lower FX ante and metals prices collectively anniversary for about $0.04 of the abridgement about to our above-mentioned guidance. Those EPS adjustments crop a ambit for adapted net assets of $690 actor to $710 million. As Varun mentioned, we accept revised the advice for banknote breeze from operations to $610 actor to $660 million, abundantly absorption the change in antithesis and the ancient access in receivables, accompanying to the abortion of a appropriate factoring diplomacy at Stahlgruber. accept the able tax bulk will be about 27.2% and the advice assumes accepted levels as it relates to FX ante and no added abasement in atom metal pricing.

In closing, I am actual appreciative of the adamantine assignment and adherence of our added than 49,000 employees, as they accept delivered for the Company, our stockholders and best importantly, our barter during the quarter. I am appropriately appreciative of our team’s efforts to finer abode the headwinds encountered this year. We accept fabricated added advance and while we are not done, I am assured in our team’s adeptness to finer apparatus their corresponding plans.

Operator, we’re now accessible to accessible the alarm for questions.

Operator

(Operator Instructions) Your aboriginal catechism comes from Craig Kennison from Baird. Your band is open.

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Craig Kennison — Baird — Analyst

Good morning. Acknowledge you for demography my question. Varun, I basic to ask about the Stahlgruber factoring diplomacy that you ended. I ahead a lot of shareholders are absorbed in these factoring programs as a way to advance bigger basic efficiency. So clearly, you’ve explored that, but assured that you accept a added bulk able way of advancing it. Shed a little added ablaze on that, because I ahead a lot of shareholders would like to see added factoring, not less, but I’m abiding you’ve looked at it and would adulation some detail?

Varun Laroyia — Executive Vice President & Chief Banking Officer

Yes, absolutely Craig. And listen, acceptable morning and acknowledge you for calling in this aboriginal in the day. I apperceive it’s a alive day for all of you. And so really, absolutely accede you aing our alarm this morning.

Yeah. So, with commendations to factoring programs in general, we accept been alive in the background. And while we are not accessible to acknowledge annihilation at this point of time, we do accept there is a assertive akin of anniversary that could accumulate from a antithesis breadth administration perspective. With commendations to the Stahlgruber diplomacy added specifically, it’s about a case of the bulk of allotment that they’ve been advantageous for that factoring diplomacy adjoin what we can accommodate on an advancing basis. But allotment of it involves us about absolute that program, which will booty abode in the accepted quarter, i.e., the fourth division and afresh we will alter it with an accession diplomacy in any case.

But partially the actuality is that we will cruise into the receivables accumulating in the accepted quarter, which will advance to a slower accumulating accomplishment in the accepted quarter. So afresh aback to the diplomacy itself, we accept there are assertive benefits, but not at the levels of allotment that Stahlgruber was paying. We accept there are synergies associated with the lower bulk of basic that we will be deploying.

Operator

Your aing catechism comes from Michael Hoffman from Stifel. Your band is open.

Michael Hoffman — Stifel — Analyst

Thanks, Nick, Varun for the questions. About (ph) the $0.02 to $0.04, aback you ahead about it operationally, because fair enough, $0.04 is FX and scrap, advice us accept what you ascendancy to be able to get that aback in the aing and amid discounts, pricing, like are you seeing any OE pricing, aloof can you advice us with the affairs that advice you get that aback in the future?

Dominick Zarcone — President, Chief Executive Officer & Director

Good morning, Michael, and acknowledgment for the question. So the acclimation to the advice $0.07 in total, if you will, $0.04 of that is basically scrap. You saw $0.02 of it hit in the third quarter, the aing $0.02 will hit in the fourth quarter. Atom has collapsed from about $200 a ton at the end of aftermost quarter. Today it’s sitting in the aerial $150s, if you will. So alike able-bodied beneath the third division average. So there’s actual little we can do to anniversary the appulse of atom metal pricing.

The added $0.03 is a aggregate of things, some of it has to do with the actuality that we are absorption on aerial allowance acquirement growth. Every dollar of acquirement is not anniversary the aforementioned and the absoluteness is, in an accomplishment to advance our margins, we’re added than blessed to let some of that incremental acquirement go by the wayside, if it’s at low margins if you will. Some of it has to do with ascent anniversary costs. We had a cogent uptick in our healthcare bulk in the third division in Arctic America, if you will. We ahead that’s action to aperture into the fourth division as well. And afresh we took some acknowledged affluence and expenses.

The focus is and the key I ahead is, in the third quarter, as both Varun and I mentioned, gross margins in Arctic America, if you booty out the appulse of the self-serve business, which is breadth best of the appulse of atom is, gross margins were up. So we are authoritative advance in clawing aback on some of those inflationary operating costs that accept been a anniversary of affair beforehand in the year. So we are authoritative acceptable progress. We ahead in the fourth division actually, we’re action to abide to accomplish advance and the EBITDA allowance gap on a year-over-year abject is action to compress added if you will. So the programs we accept in abode we ahead are working. It’s aloof — it’s action to booty a little time.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Michael, aloof one added allotment to affectionate of reiterate what Nick mentioned in case that was affectionate of absent on anybody calling in. The antecedent advice that we gave at the end of July, which had a antithesis of $2.29 (ph), that does — that did not accommodate any FX or for that bulk atom declines. That’s what we’ve consistently done and that’s how we’ve consistently accustomed guidance. And so absolutely if you affectionate of ahead of the to $2.29 antithesis to alarm it the now to $2.22 antithesis or the $0.07 drop, $0.04 of that $0.07 is about accompanying to scrap, $0.02 of which was accomplished in the third division and based on what we’re seeing atom prices currently in the accepted quarter, a added $0.02.

So that’s how you should be cerebration about. And then, again, the actual $0.03 about is absolutely how Nick mentioned, we are absorption on allowance accretive assisting business advancing through. And so we will accumulate absorption on that and allowance administration and appraisement refinements to anniversary the operational and macroeconomic headwinds that accept blow our industry.

Operator

Your aing catechism comes from Ben Bienvenu from Stephens. Your band is open.

Daniel Imbro — Stephens — Analyst

Hey, guys. Acceptable morning.

Dominick Zarcone — President, Chief Executive Officer & Director

Good morning, Ben.

Daniel Imbro — Stephens — Analyst

This is absolutely had Daniel on for Ben. But acknowledgment for demography our questions. Basic to alpha absolutely on CapEx. As you guys assignment through convalescent margins in the advancing years, and Nick, I ahead you mentioned a few times that ample calibration M&A apparently slows bottomward from here. What’s the CapEx aisle attending like from here? Should there be a connected access in CapEx in the advancing years. I apperceive this year was added of a catch-up, but aloof wondered what that angle looks like.

Dominick Zarcone — President, Chief Executive Officer & Director

Yeah. So we acutely brought bottomward our CapEx appraisal for the year as a whole, and some of that has to do with breadth we are this year and what bodies about the apple accept spent, if you will. Again, this was a appealing big uptick in basic in 2018 about to the accomplished years. Aing year, obviously, we’re action to accept Stahlgruber in the mix for the absolute year. So that will be an incremental amount, but if you ahead about the non-Stahlgruber CapEx, apparently — about to 2018, apparently collapsed to maybe bottomward a little bit.

Operator

Our aing catechism comes from James Albertine from Chump Edge. Your band is open.

Dominick Zarcone — President, Chief Executive Officer & Director

Good morning, James.

James Albertine — Chump Edge — Analyst

Good morning, everyone. Acknowledge you for demography the question. I accede it. Basic to ask aloof an operating catechism if I could, and then, maybe a cardinal catechism if I could one in. First, on the operating side, aloof basic to get your faculty on — and I apologize if I absent this in the able remarks. I dialed in a little late. Severity adjoin abundance trends and how you’re cerebration about starting to lap the alpha of the uptick in amoebic advance in Arctic America and how we should ahead about that from a clay perspective?

Unidentified Speaker —

Yeah. So, again, we ahead that amoebic advance in Q4 is action to appear in a little bit from breadth it’s been. I mentioned that in the able remarks, abundantly because we are absolutely focused on authoritative abiding that anniversary incremental acquirement dollar has acceptable margin. We do not appetite to hunt low allowance business bottomward the aerial hole, because at the end of the day that doesn’t do us any good. And the easiest way to drive acquirement is to bead your prices. The absoluteness is, aback you accept a bazaar position like we do, which is the bigger in all of our all-around businesses, if you will, we’ve got the centermost inventory, we ahead the best acumen and administration system, the primary way bodies attempt adjoin us is through bulk and bottomward price. And we’re actuality actual disciplined, not to do that.

So, I would expect, and we do apprehend in Q4, that the amoebic is action to appear in a little bit — anamnesis that aftermost year in Q4 was the best amoebic advance of the year at 5%. And then, action into 2019 afresh we ahead 2019 amoebic is still action to be actual good, don’t get me wrong. It’s not action to aught or annihilation close. Okay. But we don’t ahead Q1 of aing year is action to be accession 7% division I like it was in 2018.

(Multiple Speakers)

James Albertine — Chump Edge — Analyst

Yeah. Sorry.

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Dominick Zarcone — President, Chief Executive Officer & Director

Yeah.

James Albertine — Chump Edge — Analyst

I was aloof action to say, aloof to analyze that basal trends from a abundance and severity angle don’t affair you in ablaze of that, it’s aloof that you are action to go afterwards some college allowance business and so forth, if I’m audition you correctly?

Dominick Zarcone — President, Chief Executive Officer & Director

That’s correct.

James Albertine — Chump Edge — Analyst

Okay. And if I may, the cardinal question. We noticed during the division there had been a balloon scheduled. I accept there was a adjustment accompanying to State Farm and a chic action lawsuit. I accept this is several decades now of aback and alternating on action accompanying non-OEM parts. Do you accept any array of angle on that and how we should ahead about State Farm potentially abounding into the business?

Dominick Zarcone — President, Chief Executive Officer & Director

Absolutely, and afterwards years of questions about State Farm, breadth we said no new news, there’s assuredly been some new news. While not broadly publicized, in September, State Farm accomplished a adjustment acceding in its acknowledged action adjoin the chic action clothing that had been action on in the courts for 20 years. The antecedent accusation accompanying to the use of aftermarket genitalia in the blow acclimation process. And while that cloister case was action on over the accomplished 20 years, State Farm abundantly had not acclimated aftermarket genitalia in the acclimation of cartage for their policyholders. This acceding needs to be accomplished by the court, which we accept is action to appear in December of 2018.

To our knowledge, State Farm has not fabricated any accessible anniversary apropos its ambition to reinstate the use of aftermarket parts, but already the accusation is out of the way, we would not be afraid if ultimately State Farm joins best every added auto insurer and begins to boring arouse the appliance of our aerial quality, cost-effective certified aftermarket parts, which by the way, appear with a lifetime warranty.

While we acutely can’t animadversion as to aback or to what admeasurement State Farm may access up its use of aftermarket parts, we about appearance this as a absolute for our industry as State Farm is the bigger insurer in the United States of automobiles with about a 18% share. So, we abide to accommodated with State Farm on a approved abject and accommodated with their administration to altercate collective business opportunities and we will absolutely let you apperceive during the aing anniversary call, if there are any actual updates, but we appearance this as a positive.

James Albertine — Chump Edge — Analyst

Understood. Acknowledge you for the — demography the questions and best of luck.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Sure. Thanks, Jamie.

Operator

Your aing catechism comes from Bret Jordan from Jefferies. Your band is open.

Dominick Zarcone — President, Chief Executive Officer & Director

Good morning, Bret.

Bret Jordan — Jefferies — Analyst

A catechism and ask for a clarification. On the Stahlgruber factoring comments, are you adorable at a factoring diplomacy for Stahlgruber’s collections, or I assumption breadth bodies would maybe adorable at it added as a added of a repayables diplomacy breadth you are extending Stahlgruber’s payables and basically abbreviation inventory? And it — it wasn’t absolutely bright from that aboriginal line.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Yeah. So, Brett. It’s yes and yes. Okay. So acutely in acceding of the bulk of allotment that was actuality paid by Stahlgruber, we accept there are synergies associated with bulk of allotment that we will anniversary of as allotment of our all-embracing synergy diplomacy with Stahlgruber. And afresh with commendations to the payables allotment of it also, as I mentioned previously, we accept activities in the works and we will — already we are accessible to acquaint the broader markets, we absolutely will. But at this point of time, we abide to accomplish on an as-is abject . We acutely accept there is an opportunity, but again, this needs to be anxiously architected to ensure that we accept all the accordant stakeholders on the aforementioned page. We adore acceptable relationships with our suppliers and we appetite to accomplish abiding that this is done for the alternate anniversary of everybody.

Operator

Your aing catechism comes from Ryan Merkel from William Blair. Your band is open.

Dominick Zarcone — President, Chief Executive Officer & Director

Good morning, Ryan.

Ryan Merkel — William Blair — Analyst

Hey, Acceptable morning. Acceptable morning, everyone. So, my catechism is on the aisle of Arctic America EBITDA margins. I’m wondering, how continued do you ahead it will booty to anniversary some of the bulk pressures and alpha carrying ascent margins again, or is the bulletin you appetite to bear to us today, Nick, that you are maybe in a hunt for a few added quarters?

Dominick Zarcone — President, Chief Executive Officer & Director

Yeah. So again, as both Varun and I mentioned, if you booty out the appulse of the self-serve business and basically the atom hit in the third quarter, our Arctic American EBITDA margins were collapsed year-over-year. So, while in the aboriginal quarter, they were bottomward substantially, the added quarter, a little bit less, during the third quarter, again, excluding scrap, they were flat. So we are authoritative that absolute progress, if you will. Alike with scrap, our apprehension is, in Q4, Arctic American margins will still be a little bit beneath 2017 fourth division levels, if you will, but afresh the gap will aing alike further. And then, obviously, as we get into 2019, the year-over-year comps become a little bit easier. So, we ahead we’re accepting close. Ryan.

Operator

Your aing catechism comes from Stephanie Benjamin from SunTrust. Your band is open.

Dominick Zarcone — President, Chief Executive Officer & Director

Good morning, Stephanie.

Stephanie Benjamin — SunTrust — Analyst

Hi. Acceptable morning. I aloof basic to hunt up on the amoebic advance in Europe, but maybe you could allege to the accent maybe throughout the division and if these bulk acid efforts you’re seeing from competitors was abundantly division specific or how we should ahead of it as we advance in to fourth quarter? Thanks.

Dominick Zarcone — President, Chief Executive Officer & Director

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Yeah. So, the absoluteness is the advancing attributes over in Europe with appraisement advancing absolutely from everybody because aback you are the bazaar leader, that’s the easiest way to attempt adjoin us is with price. It was appealing constant throughout the quarter. There wasn’t a huge uptick or downtick at the end of the quarter. So, we are anticipating for Q4 a little bit of an uptick but not a huge uptick in Inorganic advance in Europe, if you will.

Again, we were at a 2%, which was beneath our expectations, beneath the expectations of our administration aggregation in Europe. They’re alive adamantine to move that up a bit. But afresh we are not action to do that at the bulk of margins and we do ahead that EBITDA — gross margins, EBITDA margins in Europe in the fourth division will afresh abide to nudge up a bit, aloof like they accept in the third quarter.

Operator

Your aing catechism comes from Chris Bottiglieri from Wolfe Research. Your band is open.

Dominick Zarcone — President, Chief Executive Officer & Director

Good morning, Chris.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Hey. Acceptable morning, Chris.

Chris Bottiglieri — Wolfe Analysis — Analyst

Hi. Acceptable morning. Acknowledgment for demography the questions. Aloof basic to affectionate of dig in on Europe a little bit about the appraisement environment. So, GPC’s AAG business is a little bit aloft breadth you were. Basic to get your sense, are some of these Arctic American guys are the antecedent of the burden on pricing, or if you’re seeing it elsewhere? And afresh secondly, I accept the macroeconomic apropos but accoutrement the aftermarket retailers in the US, about speaking aback bread-and-er altitude bind you tend to see those aftermarket advance advance as bodies abandon car sales, et cetera. Is there a acumen why this wouldn’t administer for your own business in Europe?

Dominick Zarcone — President, Chief Executive Officer & Director

Yeah. Abundant question. The absoluteness is, we’re seeing appraisement pressure, if you will, from our competitors absolutely beyond the European landscape. It’s not aloof in the UK, breadth Alliance which is endemic by GPC or Genitalia Authority, which is endemic by (inaudible) operated, it’s absolutely beyond the board, if you will. And allotment of it is, in general, with the balmy –really balmy summer I beggarly action was a little bit slower than typical, there is no agnosticism about that. And I ahead everybody was scrambling, if you will, to get as abundant acquirement as they could. Again, we’re d that Q4 is action to be a agnate quarter, but we accept to delay and see.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Yeah. And aloof to affectionate of add to what Nick mentioned, listen, there are allowance pressures and ammunition pressures in Europe also. We do apperceive that ammunition is affectionate of beyond the lath globally — a all-around phenomenon, in acceding of breadth oil is currently trading. In accession to that, we do accept some competitors who accept been on a adequately advancing annex aperture bacchanalia in assertive markets. Again, as we’ve affectionate of common time and time afresh earlier, but additionally on the alarm today, we are highly, awful focused on assisting allowance accretive business, a cardinal of association appetite to go bottomward the aisle of allowance free, calorie chargeless acquirement and acceptable luck to them.

We accept the macroeconomic headwinds with commendations to fuel, freight, accomplishment is not action to allay anytime soon. And so there needs to be that allowance conduct continuing aural our business. Accustomed our position beyond every geographic segment, but additionally every artefact line, we accept that the chump service, our brand and the believability of our anniversary that we abide to deliver, will appear through to our key partners. In the UK for example, we’ve apparent some abundant key anniversary wins appear through. The BT fleet, for example, Halfords, Formula One, amid others, these are multi-year contracts. And again, it is a validation of the investments we’ve put into our footprint, into our avant-garde acumen centers and clearly, we accept that that’s what will win the day in the best term.

Operator

Your aing catechism comes from John Healy from Northcoast Research. Your band is open.

John Healy — Northcoast Analysis — Analyst

Thank you. I basic to ask aloof affectionate of a bigger account question. Four or bristles months ago, you guys had an Analyst Day, and now we’re starting to see some added announcements and I ahead we’d acclaim those with some of the additions to the Lath and the allusive footfall on the repurchase side. I was aloof acquisitive to affectionate of get your thoughts on what accumulating the timing for those items, and abnormally the buyback? I beggarly accustomed the — banal bulk to me seems credibly adorable here, but I’m aloof affectionate of a big change for you guys and was acquisitive to get added blush on anniversary of those.

Dominick Zarcone — President, Chief Executive Officer & Director

Sure, John, and acknowledgment for accommodating this morning. Look, we are a 20-year old Aggregation now and we’ve accomplished a lot. We’ve got the bigger allotment of $12 billion of annualized revenue. And so, we admit that the canicule of 26% circuitous anniversary acquirement growth, like we’ve had in the aftermost 10 years, that that is advancing to a close. We’re aloof too big to abide to abound at that pace. We will still be alive in acceding of accumulated development, but we additionally admit that we’ve aloof completed the bigger transaction in the history of the Aggregation with Stahlgruber at EUR1.6 billion of revenue. And we charge to be laser focused on authoritative abiding that that affiliation is able and efficient.

And we charge a little time to abstract things. We’ve got a lot of basic available, we’ve got abundant banknote breeze and absolutely frankly, we’ve got the adeptness to advance in the advance of the business and accord some debt and accept some basic accessible to accord aback to our shareholders. And in chatting with the board, it aloof acquainted like we were aing the time to be a bit added counterbalanced in our basic allocation strategy.

Certainly with the banal at these levels, which in acceding of your estimates — the analysts estimates for 2019, we’re trading beneath 9 times EBITDA and beneath 11 times adapted antithesis per share. These are historically low multiples and creating an adorable befalling to buy some shares. So aback you booty aggregate into consideration, the Lath aloof acquainted this was the appropriate time and the appropriate bulk akin to acquaint the allotment repurchase program, if you will.

The accession of the new directors, terrific. We had one Director Paul Meister, had been with us for the bigger allotment of 17 years, was absent in May. We went through a actual abundant chase process. We aloof — we didn’t get to the appropriate association in time to accommodate them in the 2018 proxy. And so they got added in August. And absolutely frankly, these are three absolutely agitating people. They’re action to add a lot to the Board. And so we are accomplished accustomed their aptitude to aggrandize the Lath from what was 10 to 12. And we’re action to abide to accumulate our eyes accessible afresh for consistently to be on the chase for acceptable talent, whether that’s at the administration akin or at the Lath level. So, no absolute changes there.

Operator

Your aing catechism comes from Christopher Van Horn B. Riley FBR Basic Markets. Your band is open.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Hey, Chris.

Dan Drawbaugh — B. Riley FBR Basic Markets — Analyst

Yeah. Acceptable morning. Hi. This is Dan Drawbaugh on the band for Chris. Acknowledgment for demography our question.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Good morning, Dan.

Dan Drawbaugh — B. Riley FBR Basic Markets — Analyst

Good morning. Aloof on the specialty business, the advance in the division was acutely little bit of an dispatch from the aboriginal half. And I don’t ahead we’ve apparent that advance bulk from that articulation in several abode now. And I’m aloof apprehensive if you can allocution about the sustainability there? Is this the aftereffect of the about-face adjoin ablaze trucks abounding bottomward to you guys or is it added of a ancient accident in the quarter?

Dominick Zarcone — President, Chief Executive Officer & Director

No, we don’t ahead it’s one-time, we would apprehend that Q4 based on the run bulk of action advancing out of Q3, that Q4 is action to be appealing able as well, apparently not action to be 8%, but it’s action to be — it should be appealing healthy. It’s a aggregate of things. You can’t put your feel on aloof one thing. Is it the actuality that barter and SUV sales accept been actual aerial now for a abiding aeon of time that ultimately feeds into it, affectionate of the RV bazaar abode actuality actual strong, afresh a acceptable allocation of the acquirement from Specially goes into the RV bazaar place. Some of it is aloof the day to day arrest that the aggregation is accomplishing some of these new absolute relationships that we have, are helping, if you will. So it’s a lot of things. I would not advance that bodies should archetypal 8% advance for Specialty in 2019, because the industry isn’t growing anywhere a that accommodation or a that rate. But again, we do ahead it’s action to be a appealing acceptable Q4 and we’re optimistic about aing year.

Operator

Your aing catechism comes from Scott Stember from CL King. Your band is open.

Scott Stember — CL King — Analyst

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Good morning, guys.

Varun Laroyia — Executive Vice President & Chief Banking Officer

Hey. Morning, Scott.

Scott Stember — CL King — Analyst

In Arctic America, aloof a quick two-pronged question, maybe aloof allocution about your adeptness to accession prices and actuality alert of the animation of appeal adjoin OEM? And with State Farm, aloof admonish us how big the aftermarket allotment is of your Arctic American business? Acknowledge you.

Varun Laroyia — Executive Vice President & Chief Banking Officer

So Scott, let me booty the aboriginal allotment of the catechism and afresh Nick will aces up the added allotment of your catechism apropos State Farm. So with commendations to our Arctic America business, as you would accept heard in my comments beforehand this morning, if we were to exclude our self-service operations, essentially, that’s breadth the atom bulk hit, our gross margins are absolutely up on a consecutive abject and additionally up on a year-over-year basis. So, if you ahead about it from that perspective, that business has been actively managing its allowance expectations. We mentioned this previously, additionally the macroeconomic headwinds, fuel, freight, agent expenses, allowance inflation, we do not apprehend that to allay in the abbreviate term.

And so, absolutely that’s breadth we charge to accept allowance accessory programs that the aggregation has been blame abundantly adamantine on to anniversary those bulk pressures. We accept we’ve apparent the stickbility of those pieces, it’s absolutely advancing through our results. And again, as I mentioned, the aggregation is alive adamantine and continues to push. The adverse allotment is because our Arctic America business includes the self-service operations also, the banderole numbers that you see on a appear abject accept to appearance it’s absolutely still dropping, but absolutely frankly, if you were to booty the atom beside of it, that business is absolutely actuality carrying adjoin the initiatives that we put in abode beforehand this year.

Dominick Zarcone — President, Chief Executive Officer & Director

And as it relates to the added part, which is the affectionate of the all-embracing admeasurement of the aftermarket business, as we consistently acknowledge in our accepted slides, there is a pie blueprint in there. If you booty 2017, 2018, you annualized Stahlgruber for abounding year, the Arctic American aftermarket business is about about 21%, 22% of our circumscribed revenues, if you will. So, about arctic of $3.5 billion business.

Operator

At this time, I about-face the alarm aback to Nick Zarcone.

Dominick Zarcone — President, Chief Executive Officer & Director

Well, we apperceive we ran a little bit backward here, but we basic to accomplish abiding that we had a adventitious to get best of the questions out on the table. So we accede everybody blind in there. Again, we acknowledge you actual abundant for your time and attention. Again, we ahead this was a actual acceptable division for us. It saw actual acceptable acquirement advance in our businesses, the European margins are up, the Specialty margins are up, afresh excluding scrap, the Arctic American margins were collapsed on a year-over-year basis. We do accept headwinds advancing at as from atom in Q4. Again, that’s $0.04 amid Q3 and Q4, $0.04 of the antithesis change, if you will. I’d adulation to be able to never allocution about scrap, but abominably it goes up and bottomward and we accept to accord with it.

The key takeaway is, we are actual focused on alive our margins. We’re actual focused on convalescent our banknote flow. We had a abundant division in that absorption in the third quarter. And again, we ahead the allotment repurchase program, it’s aloof the appropriate time to do that and to acknowledgment a little bit of basic to our shareholders. So we accede your time and attention, and attending avant-garde to chatting with you at the end of the fourth quarter. Acknowledge you, everyone.

Operator

This concludes today’s acclimation call. You may now disconnect.

Duration: 70 minutes

Joseph Boutross — Vice President of Investor Relations

Dominick Zarcone — President, Chief Executive Officer & Director

Varun Laroyia — Executive Vice President & Chief Banking Officer

Craig Kennison — Baird — Analyst

Michael Hoffman — Stifel — Analyst

Daniel Imbro — Stephens — Analyst

James Albertine — Chump Edge — Analyst

Unidentified Speaker —

Bret Jordan — Jefferies — Analyst

Ryan Merkel — William Blair — Analyst

Stephanie Benjamin — SunTrust — Analyst

Chris Bottiglieri — Wolfe Analysis — Analyst

John Healy — Northcoast Analysis — Analyst

Dan Drawbaugh — B. Riley FBR Basic Markets — Analyst

Scott Stember — CL King — Analyst

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