LKQ Corporation

Hello, everyone. Thank you for attending today's LKQ Corporation's third quarter 2025 earnings conference call. My name is Ken, and I will be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Joe Boutris, Vice President of Investor Relations, to begin.

Thank you, operator. Good morning, everyone, and welcome to LKQ's third 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 our 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 8-K, which we filed with the SEC earlier today. And as normal, we're planning to file our 10-Q in the coming days. And with that, I am happy to turn the call over to our CEO, Justin June.

Thank you, Joe, and good morning to everyone joining us on the call today. I am extremely proud of our performance this quarter, demonstrating both the resilience of our business and the impact of our strategic initiatives. With some positive operational performance and one-time tax benefits, we have confidence in our four-year outlook to raise our midpoint and narrow the range. While I understand that most of you are interested in the financials, it's important to emphasize that our strong performance is a direct result of the relentless dedication and commitment of our teams across the globe who have enabled us to execute and succeed against our strategic pillars. Let me make some quick general comments on our markets before diving into specifics. We are seeing ongoing macro challenges, including reduced consumer spending and lower demand for vehicle repairs. As recent headlines have shown, other automotive companies are facing similar issues. However, our team has remained focused on controlling the things that we can't control. In most areas of our business, we have outperformed the market and were able to pass through costs. We are in execution mode, and as I mentioned on our last earnings call, we are focused on a multi-year transformation centered around four strategic priorities of simplifying our portfolio and operations, expanding our lean operating model globally with a focus on margin improvement, investing and growing organically, and pursuing a disciplined capital allocation strategy. To that end, I would like to highlight certain notable achievements from this quarter. First, we completed the sale of our self-service segment to Pacific Avenue Capital Partners for $410 million. We were very pleased to see strong interest in the business. As a result of this sale, we have not only simplified our business, but strengthened our balance sheet, which we believe is prudent to do in these uncertain economic times. The proceeds from the sale of self-service have been used to reduce debt. We are prioritizing maintaining a strong balance sheet and our investment grade rating to navigate market challenges, especially in these uncertain times. During the quarter, we had no acquisitions, but to be clear, our strategic review process is active and ongoing and in coordination with the Finance Committee of our Board of Directors. We expect to continue our efforts to simplify our portfolio and operations as markets and opportunities avail themselves. Second, we continue and improve our lean operating model globally, where they focus on margin improvement and are acting with urgency to correct inefficiencies. To that end, and as we outlined earlier this year, we targeted an additional $75 million in cost savings for 2025. I'm pleased to share that we've made meaningful progress since Q2 and achieved $35 million cost savings, well on track to meet the $75 million target. These gains have come primarily through our European business transformation driven from the leadership refresh in Europe earlier this year. Another important milestone under this initiative is our rollout of a common operating platform across Europe. We are on track to go live in early 2026 within a major market. which will put approximately 30% of our European revenue on a common system. Our recent migrations in smaller markets this year have given us confidence in our ability to effectively manage a larger implementation. Notably, the second migration had no operational impact, a direct result of the lessons learned from our earlier launch in the first half of the year. Having scale on a common platform will help us replace legacy systems that are at risk, but more importantly, enable us to get back to profitable growth and faster integrations that will drive higher returns on invested capital. Lastly, turning to capital allocation, our approach remains disciplined. We continue to balance share repurchases and dividend payments as part of a thoughtful return of capital program, while also ensuring we maintain a strong balance sheet. Now moving on to our segments. In North America, repairable claims continue to experience downward pressure, though the rate of decline has moderated to approximately 6%. Service levels and inventory fill rates were maintained and not sacrificed during these temporary challenges, enabling results that exceeded the performance of repairable claims. Revenue decreased by 30 basis points per day, marking the smallest decline since Q1 of 2024 and outperforming repairable claims by nearly 600 basis points. Let me highlight a few other positive trends in the U.S. that we think should help improve repairable claims. At the end of Q2, a record of 46.5% of auto insurance policies were shopped in the past year, and many of the top carriers filed for rated reductions, boosting new business. These trends signal ongoing pricing pressure from carriers and should help insurance rates normalize. And our part offerings continue to help carriers immediately reduce costs to offset any lower premiums, just as they did during the financial crisis. We are also seeing used car prices somewhat stabilized, but with continuing volatility month to month, values haven't normalized yet. Our diversification into new products and services in North America is generating positive results. During the quarter, our Canadian hard parts business, bumper to bumper, posed organic growth improvement both sequentially and year-over-year in a market that is also facing a recession-like economy. Additionally, our elite tech business, which provides technical repairs and calibrations, performed well with several key accounts, achieving double-digit growth in the quarter. In Europe, organic revenue declined by 4.7% on a per-day basis, reflecting a tough operating environment characterized by political uncertainty and weaker consumer confidence. We also decided not to retain certain less profitable revenues. And despite these market dynamics and overall volume pressure, the European team was still able to deliver double-digit EBITDA margins of 10% and a quarter, a 60-bits improvement sequentially, as they drive toward a leaner operating model. And Rick will dive deeper into margins shortly. The improvements from our Europe operations integration, as discussed at our September 2024 Investor Day, will not happen all at once. However, our teams and new leadership are aligned with my approach to focused on agile execution to create significant value for our company and shareholders. The challenges in Europe affect the entire industry, but LKQ excels in such environments, as shown by our success in North America. Having integrated businesses in tough settings before, I am confident we can achieve similar results in Europe. We made additional progress in the quarter with respect to our skew rationalization objectives. The Ski Rationalization Initiative in Europe is intended to decrease complexity and streamline the distribution network in all markets. More than 80% of revenue in a product brand's portfolio have been reviewed, an increase from 70% in Q2. Completion of this review is required before further delisting actions can be considered to ensure a full understanding of both opportunities and risks are known. Since the end of 2024, 29,000 SKUs have been delisted. These products had minimal or no sales and remaining applications are still supported by existing SKUs. Additionally, we continue to build out our collision model in the UK, similar to our model in North America. We have developed our UK collision model, particularly around crashed parts and paint, from a base of zero into a 200 million pound sterling business. Today, the top 20 insurers in the UK have approved LKQ to supply new aftermarket crash parts to their respective body shop chains under our Global Platinum Plus private label brand. Currently, approximately 30% of the estimates received via the collision asthmatic systems are being processed, and we expect this figure to grow following the introduction of the salvage model partnership with Synetic. At present, nine of the top 10 insurers have pre-approved the use of recycled parts. Finally, we are very excited about the results in our specialty segment, which delivered a 9.4% increase in organic revenue, marking the first positive organic growth in 14 quarters. This turnaround reflects the success of our targeted initiatives to sharpen focus, improve pricing, and strengthen channel relationships. On our last call, I made some fairly in-depth remarks from streamlining the team across our global footprint and the talent that we now have in place. With another quarter under our belt, we are beginning to see the benefits of this transformation. A culture of execution is radiating through the organization, and everyone is accountable to deliver. We've come a long way, but there's still more to do. And I'm confident in the team's ability to execute, adapt, and lead through cycles, supported by a clear strategy and a relentless focus on execution. Rick, I'll now turn it over to you to walk through the financial segment's results in more detail.