LKQ Corporation

Hello everyone, and thank you for joining the LKQ Corporation's first quarter 2025 earnings conference call. My name is Lucy and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand over to your host, Jay Butrus, Vice President of Investor Relations at LKQ to begin. Please go ahead.

Thank you, operator, and good morning, everyone, and welcome to LKQ's first quarter 2025 earnings conference call. With us today are Justin Jude, LKQ's president and chief executive officer, and Rick Galloway, our senior vice president and chief financial officer. Please refer to the LKQ website at lkqcorp.com for earnings release issued this morning, as well as the accompanying slide presentation for this call. Now, let me quickly cover the safe harbor. Some of the statements that we make today may be considered forward-looking. These include statements regarding our expectations, beliefs, hopes, intentions, or strategies. 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 statements. For more information, please refer to the risk factors discussed in our Form 10-K and subsequent reports filed with the SEC. During this call, we will present both GAAP and non-GAAP financial measures, A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and slide presentation. Hopefully, everyone has had a chance to look at our 8K, which we filed with the SEC earlier today, and as normal, we are planning to file our 10Q in the coming days. And with that, I'm happy to turn the call over to CEO Justin Ju.

Thank you, Joe, and good morning to everyone joining us on the call. Since the tariffs were announced on April 2nd, much has changed, capturing the interest of all of us on this call and affecting the global economy. Before discussing tariffs, I would like to address several topics concerning our people, our operations, and our performance. What sets us apart from our competition is our dedicated workforce, which we consider to be our most valuable asset. To ensure their safety, we implemented an NCAB monitoring equipment in our fleets last year, achieving 95% coverage in North America by the end of Q1. This initiative has led to a nearly 40% reduction in on-the-road accidents, and we aim to implement these features in Europe where feasible. We value talent development and have launched our global talent development function to unify our workforce through leadership competencies and career planning. In February, a cohort of high potential global leaders began attending sessions to promote learning and idea sharing. This initiative will also help facilitate best practice sharing between our North America and European operations. During the quarter, we also held both our North American and European leadership conferences, bringing together more than 1,300 of our top global leaders to align on our strategy and goals. As anticipated, part of the discussion revolved around navigating recent tariff developments in challenging macroeconomic conditions. Despite these challenges, our team managed to meet our expectations, achieving earnings per share at 79 cents for the quarter. Although the markets present uncertainties, we must continue executing our simplification strategy without delay. I will highlight some of our operational accomplishments during the segment breakout, and Rick will provide more detail later in the call. Regarding our ongoing strategy to simplify the portfolio, we divested two operations, a self-serve yard in Florida and a Europe-based non-core leisure business, demonstrating our commitment to streamlining our portfolio. We remain committed to a balanced capital allocation strategy, incorporating dividends, share repurchases, and maintaining our investment grade rating. During the quarter, we repurchased 1 million shares for about $40 million and paid $78 million in dividends in March. Now moving to our segments. North America's organic revenue fell by 4.1% per day, which is less of a decline than the last three quarters of 2024, amid a nearly 10% decline in repairable claims. The drag on repairable claims resulting from declining used car pricing and rising insurance premiums really started worsening in Q2 of 2024, so the comps will start to ease as we progress through the year. Since 2015, we have outperformed the repairable claims count growth by over 400 bps per year and Q1 was 570 bps better, indicating market share gains against a low demand environment. North America also benefited from having a diversified portfolio of products and services, mitigating potential shortfalls in other business areas. We generated positive growth for our lead tech calibration and diagnostics business and our bumper to bumper hard parts business in Canada. In Europe, Organic revenue declined by 1.8% per day compared to a growth of 4.4% in Q1 of 2024. On a two-year stack, organic revenue growth was 2.6%. There was noticeable softness in many markets impacted by consumer confidence. Europe also experienced a relatively mild winter year-over-year, impacting certain products such as batteries, which are higher in demand during periods of inclement weather. Competitive pricing in some countries also contributed to challenging conditions that we believe will stabilize long-term. Our comprehensive product and service offerings are best in class across Europe, and we consciously avoid making brash short-term pricing decisions that dilute the value proposition we offer in Europe. Best practices support our daily success at LKQ. Our ski rationalization project in Europe aims to reduce complexity and simplify our distribution network across all markets. We have reviewed over 60% of our product brands and reduced stocking by an additional 17,000 SKUs. Additionally, our private label penetration increased by 20 basis points. As Andy and I mentioned at the investor day, the integration of Europe is mission critical and accelerating that effort is imperative given it has not progressed at the cadence we promised in the past. In order to drive change management, we need the right leaders in place to truly achieve the benefits that the scale of 1LKQ Europe represents. Since taking the helm in Europe, Andy, alongside Rick and I, have replaced a fair number of the previous leadership team and have onboarded individuals that are aligned with the operational excellence and lean management initiatives necessary to optimize our European operations. Our focus is on people, process, and performance. Regarding specialty, our organic revenue declined by 4.9% on a per day basis, which is a sequential improvement compared to Q4 of 2024. At the start of 2025, there was optimism about specialty stabilizing later in the year, but consumer sentiment decreased significantly due to anticipated tariff pricing pressures. This sentiment, along with inflationary pressures, will likely continue throughout the year. Now turning to tariffs. While the current headlines of the tariffs are broadly known, the final decisions remain unclear. There are many dynamics of this tariff situation than those in the past. We have established an internal global tariff task force, which includes leaders from procurement, operations, finance, risk management, sales, and marketing to help navigate and make decisions. If everyone remembers the supply chain constraint following COVID, where inflation was driving up product cost and the supply-demand imbalance created huge increases in ocean freight, the team proved their agility of mitigating the impact, and we came out financially stronger. Specific to our tariff exposure, less than 15% of our U.S. businesses' cost of goods are directly imported from outside the U.S. with the majority of that product coming out of Taiwan. LKQ's advantage over our aftermarket collision parts competitors lies in our supply of recycled products, which we anticipate will see an increase in demand given their competitive pricing relative to new OE parts. We expect the tariffs will raise part prices and increase used car values. Historically, these increases have benefited the industry, as used car values are expected to rise faster than the vehicle repair costs, potentially leading to more cars being repaired and kept on the road longer. Our Tariff Task Force is working on mitigating tariff impacts through potential cost concessions from vendor partnerships and identifying supply chain optimization and SG&A reductions. The non-discretionary nature of the North American business and the industry allows for needs-based pricing power, enabling LKQ to pass on select price increases, thus insulating the wholesale dynamic from the other parts suppliers in the market. Before I turn the call to Rick to discuss our Q1 results, I am pleased to announce that we will be publishing our 2024 Sustainability Report at the end of May. Sustainability continues to be at the heart of what we do, especially in our North American and Europe salvage operations. This is true today as it was when we started over 26 years ago. Rick?