Q2 2025 LKQ Corp Earnings Call

Operator: UKQ Corporation's Second Quarter 2025 Earnings Conference Call.

Lucy: 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.

Lucy: We kindly ask all participants to limit their questions to one main and one follow up.

Operator: It is now my pleasure to hand over to your host, Jay Boutross, Vice President of Investor Relations, to begin. Please go ahead. Thank you, operator.

Hello everyone and thank you for joining the LKQ Corporation, second 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 1 on your telephone keypad. If you change your mind, please press star followed by 2. We kindly ask all participants to limit their questions to 1 Main and 1 follow-up. It is now my pleasure to hand over to your host. Jay butrus, vice president of investor relations to begin. Please go ahead.

Jay Boutross: Good morning, everyone.

Justin Jude: And welcome to LKQ's second 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 this morning, as well as the accompanying slide presentation for this call.

Speaker Change: Thank you, operator. Good morning, everyone and welcome to LKQ. Second quarter 2025 earnings conference call with us today are Justin Jude. Okay, Q's president and chief executive officer and Rick Galloway our senior vice president and Chief Financial Officer.

Justin Jude: 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.

Justin Jude: For more information, please refer to the risk factors discussed in our Form 10-K and subsequent reports filed with the SEC.

Justin Jude: 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, as well as slide presentation.

Please refer to the LKQ website. At lkqcorp for earnings release 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 and 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 update any forward-looking statements for more information. Please refer to the risk factors discussed in our form 10K and subsequent reports filed with the SEC. During this call, we will present both gaap and non-gaap financial measures.

Justin Jude: Hopefully, everyone has had a chance to look at our 8K, which we filed with the SEC earlier today. And as normal, we're planning to file our 10Q in the coming days.

Speaker Change: A Reconciliation of gaap to non-gaap measures is included in today's earnings, press release as well as slide presentation.

Justin Jude: And with that, I'm happy to turn the call over to our CEO, Justin Jude. Thank you, Joe. And good morning to everyone joining us on the call.

Justin Jude: As you all know, I have now been in the CEO role for a full year. The year has presented some macro challenges and some short term operational obstacles, but also opportunities for longer term value creation. Alongside my leadership team, we have made some tough but necessary decisions to fundamentally reshape how we operate and put us back to a path of consistent value creation. The decisions made are aligned with our overarching strategy, a multi-year transformation to simplify our portfolio, sharpen our focus and position us as a high performing company centered on our core business sector. Our global team is laser focused on growing our market share while driving productivity and efficiently managing our cost structure.

Speaker Change: Thank you, Joe and good morning to everyone joining us on the call. As you all know I have now been in the CEO role for a full year. The year has presented some macro challenges and some short-term operational obstacles but also opportunities for longer term value creation.

Speaker Change: Alongside my leadership team. We have made some tough but necessary decisions to fundamentally reshape how we operate and put us back to a path of consistent value creation.

The decisions made are aligned with our overarching strategy, a multi-year transformation to simplify our portfolio sharpen, our focus and position us as a high-performing company centered on our Core Business segments.

Justin Jude: At our September 2024 Investor Day, we set our strategic priorities, simplify our business portfolio and operations, expand our lean operating model globally with a focus on margin enhancement, invest and grow organically, and pursue a disciplined capital allocation strategy. And so as we move forward, we are going to share how we are doing against each of these, a scorecard, if you will, that makes it clear for the investment community to see how we are doing. I can't sugarcoat that today the results are yet to show this progress in the macro headwinds necessitated our revised guidance. We are not where we need to be.

Speaker Change: Our Global team is laser focused on growing our market share while driving productivity and managing our cost structure.

At our September 2024 investor day. We set our strategic priorities, simplify our business, portfolio and operations. Expand. Our lean operating model globally. With a focus on margin enhancement. Invest in grow organically and pursue a disciplined Capital, allocation strategy.

Speaker Change: Move forward. We are going to share how we are doing against each of these a scorecard. If you will, that makes it clear for the investment Community to see how we are doing.

Justin Jude: And so we are going to push harder and move faster.

Justin Jude: To that end, we are focused on two immediate 1. Additional cost-cutting measures, primarily in Europe but also in North America, with a goal of cutting another $75 million in costs. 2. A heightened emphasis on the strategic review of our business units and operations that may result in the sale of assets that further accelerate our simplification strategy and capital allocation priorities. We are seeing a turn in the market for strategic activity with credit markets opening momentum behind midsize transactions and private equity actively seeking to deploy capital. While this will not be a linear process, I remain confident that we are on track to realize the full benefits of this strategy by 2027, as outlined in our September 2024 Investor Day.

Speaker Change: I can't sugarcoat that today the results are yet to show this progress in the macro headwinds necessitated are revised guidance. We are not where we need to be and so we are going to push harder and move faster.

Speaker Change: To that end, we are focused on 2 immediately.

1 additional cost cutting measures primarily in Europe but also in North America with a goal of cutting, another 75 million in costs to a heightened emphasis on the Strategic review of our business units and operations, that may result in the sale of assets that further, accelerate our simplification strategy in capital allocation priorities.

We are seeing a turn in the market for strategic activity with credit markets, opening.

Speaker Change: Momentum behind midsize transactions and private Equity actively seeking to deploy capital.

Justin Jude: It is worth noting that we are doing these things at a time when there are broader challenges in the overall auto industry and macroeconomic environment. It is a dynamic and fluid environment, given amongst other factors, the rising input costs and the uncertainties around tariffs are creating confusion. We are not alone in the industry and facing these challenges, but you can either complain and make excuses or focus on your business and operating model to deliver the best possible results. Our team has chosen to focus on executing our plan, controlling the things we can, such as being efficient and managing our costs, and looking for opportunities to take advantage of the current dislocations and disruptions in our core markets to gain market share and expand margins.

Speaker Change: While this will not be a linear process. I remain confident that we are on track to realize the full benefits of this strategy by 2027 as that line that our September 2024 investor day.

It is worth noting that we are doing these things. At a time when there are broader challenges and the overall Auto industry and macroeconomic environment, it is a dynamic and fluid environment. Given amongst other factors, the rising input costs and the uncertainties around tariffs are creating confusion. We are not alone in the industry in facing these challenges, but you can either complain and make excuses or focus on your business and operating model to deliver the best possible results.

Justin Jude: We know in a challenging earnings environment, cost discipline is paramount, which is why we've taken action to remove 125 million of costs in the past 12 months without compromising our ability to execute and service our customer. This is just the first step, and as I mentioned, we are going to continue to scrutinize our cost structure and find additional ways to enhance our margin.

Speaker Change: Our team has chosen to focus on executing our plan, controlling the things we can such as being efficient and managing our costs and looking for opportunities to take advantage of the current dislocations and disruptions in our core markets to gain market, share and expand margins.

Speaker Change: we know in a challenging earnings environment cost discipline is Paramount, which is why we've taken actions to remove 125 million of costs in the past 12 months, without compromising, our ability to execute and service our customers

Justin Jude: Next, I will discuss our business segments, North America's first. North America's organic revenue fell by 2.2% per day, which is less of a decline than the last five quarters, and an outperformance of reputable claims by over 650 bps, well above our historical 450 bps outperformance. Importantly, our aftermarket collision parts business witnessed slight growth in the quarter. We are still seeing consistent demand across our hard parts business in Canada and margin enhancement as we convert from three step to two step. Lastly, as an update to the issue of repairable claims resulting from declining used car pricing and rising insurance premiums, we previously said that the comps will start to ease as we progress into 2025.

Speaker Change: This is just a first step and as I mentioned, we are going to continue to scrutinize our cost structure and find additional ways to enhance our margins.

Speaker Change: Next, I will discuss our business segments. North America's first.

Speaker Change: North America's organic Revenue fell by 2.2% per day, which is less of a decline than the last 5 quarters and an outperformance of a purple claims by over 650 bips. Well, above our historical, 450 bips outperformance,

Speaker Change: Importantly, our aftermarket Collision Parts, business witnessed slight growth in the quarter.

Justin Jude: However, the June numbers were weaker than anticipated. And at this juncture, we think it is prudent to assume minimal market recovery in the back half of the year.

Speaker Change: We are still seeing consistent demand across our hard Parts, business in Canada and margin enhancement as we convert from 3-step to 2 Step. Lastly, as an update to the issue of a repairable, claims resulting from declining used car pricing and Rising insurance premiums. We've previously said that the comps will start to ease as we progress in a 2025

Justin Jude: Moving on to Europe. Europe's organic revenue decreased 4.9% or 3.8% on a per day basis, primarily driven by difficult economic conditions, increased competition in certain markets, and some temporary headwinds due to operational challenges. We expect the economic conditions to continue throughout the balance of the year along with the competitive pressures, which has led to price concessions. As an example, in the UK, we've renegotiated several dozen national account agreements and re-signed all but one, validating the strong value proposition we offer to our customers. Regarding the operational challenges impacting revenue in a nutshell, we unintentionally created negative customer experiences and ultimately top line eroded.

Speaker Change: However, the June numbers were weaker than anticipated. And at this juncture, we think it is prudent to assume minimal Market recovery in the back, half of the year.

Speaker Change: Moving on to Europe.

Speaker Change: Europe's organic Revenue, decreased 4.9%, or 3.8% on a per day basis, primarily driven by difficult, economic conditions, increased competition, in certain markets and some temporary headwinds due to operational challenges.

Speaker Change: We expect the economic conditions to continue throughout the balance of the Year, along with the competitive pressures which has led to price concessions as an example. In the UK, we've renegotiated several dozen national accounts and resigned all, but 1 validating, the strong value proposition. We offer to our customers.

Justin Jude: We have resolved these service issues and are in the process of regaining the customer's confidence and ultimately our share of wallet.

Speaker Change: Regarding the operational challenges, impacting Revenue in a nutshell. We unintentionally created customer experiences and ultimately Topline erosion.

Justin Jude: One thing I would like to emphasize here is that Europe represents a significant opportunity for us. As I mentioned in the past, we need the right leaders in place to truly drive the change and achieve the benefits of scale that Europe represents. After recently making significant leadership changes, we now believe we have the right This revamped team is now focused on process and performance, both of which have been lagged in certain areas of our European business. This lack of focus from previous leaders played a role in the underperformance in the quarter, and it will take some time to manage these legacy issues.

We have resolved, these service issues enter in the process of regaining, the customer's confidence and ultimately our share of wallet back.

1 thing I would like to emphasize here. Is that Europe represents a significant opportunity for us?

Speaker Change: As I mentioned in the past, we need the right leaders in place to truly Drive the change and a benefits of scale that Europe represents after recently making significant leadership changes. We now believe we have the right people.

Justin Jude: However, we are confident that we are on track with the three year targets presented at our September 2024 investor I was in Europe the last week of June to meet with our management teams and we will be focused on ensuring we are moving quickly to implement our strategy in that market. Europe is a competitive marketplace and our focus is on key geographies where we have the ability to be a top player. We continue to make progress on our ski rationalization goals. Our ski rationalization project in Europe aims to reduce complexity and simplify our distribution network across all markets.

Speaker Change: This preamp team is now focused on process and performance, both of which have been lagged in certain areas of our European business. This lack of focus from previous leaders. Played a role in the underperformance in the quarter and it will take some time to manage these Legacy issues.

Speaker Change: However we are confident that we are on track with a 3-year targets presented at our September 2024 investor day.

Speaker Change: I was in Europe, the last week of June to meet with our management teams and we will be focused on ensuring, we are moving quickly to implement our strategy in that market.

Speaker Change: Your business competitive Marketplace and our focus is on key geographies where we have the ability to be a top player.

Speaker Change: We continue to make progress on our ski rationalization goals.

Justin Jude: We have reviewed over 70% of our product brands and reduced stocking by an additional $13,000. Our private label penetration was flat sequentially, but up 20 bits year to date, keeping us on track to hit our 2027 target of 27%. In addition to our skew rationalization, we are streamlining our operations and reducing costs through back office and systems rationalization programs, as well as greater utilization of our global competency Moreover, we believe we're now positioned to expand our market share and we feel confident we can continue as the leading European player.

Speaker Change: Our private label penetration was flat sequentially, but up, 20 bits year to date, keeping us on track. To hit our 2027 Target of 27%

In addition to our SKU rationalization, we are streamlining, our operations and reducing costs through back office and systems rationalization programs, as well as greater utilization of our Global competency centers.

Justin Jude: We started executing on this goal as we recently announced our partnership with Finetic Limited, which is a critical building block in the development of LKQ Europe's salvage channel, a market that will benefit from the full service salvage intellectual capital in North America.

Speaker Change: Moreover, we believe we're now position to expand our market share and we feel confident we can continue as the leading European player.

Justin Jude: Moving on to special Specialty has turned a corner into seeing improved results. Specialty's organic revenue was largely flat year-over-year, which is the best quarterly year-over-year revenue performance since the fourth quarter of 2021. We are cautiously optimistic this segment is starting to show green shoots as our July revenue has continued to show positive trends we saw in June.

Speaker Change: We started executing on this goal. As we recently announced our partnership with phonetic limited, which is a critical building block in the development of ltq Europe. Salvage Channel, a market that will benefit from the full service. Salvage intellectual capital in North America.

Speaker Change: Moving on a specialty, a specialty has turned a quarter into seeing improved results. Specialties organic Revenue was largely flat year-over-year which is the best quarterly year-over-year Revenue performance since the fourth quarter of 2021.

Justin Jude: Lastly, self-service. Self Services Organic Revenue was softened a quarter from lower part volumes but still managed to deliver a 10% EBITDA margin. Disciplined vehicle procurement combined with overhead cost controls continue to help drive profitable quarterly results in this sector.

Speaker Change: We are cautiously optimistic. This segment is starting to show Green shoots. As of July Revenue, has continued to show positive Trends. We saw in June

Speaker Change: Lastly, self-service.

Speaker Change: Self-service, organic Revenue was soft in the quarter from lower part volumes but still managed to deliver a 10%, Eva margin.

Justin Jude: I want to stress that people are our greatest assets, ensuring we have the most talent and effective team is critical to our success. As a result, we have created an executive position focused on global talent development. We think this will be an important role and we are excited about how it will support our overall business around the globe.

Speaker Change: Disciplined vehicle. Procurement combined with overhead cost controls continue to help Drive profitable. Quarterly results in this segment.

Justin Jude: A few facts that I think are important to share on TELUS. Since I took over the CEO role last July, we have taken difficult, bold, and necessary steps to reshape our leadership. Over 25% of the roles at the VP level and above have been refreshed with new talent or redefined responsibilities.

Speaker Change: I want to stress that people are our greatest assets ensuring, we have the most talent, and effective team is critical to our success. As a result. We have created an executive position focused on Global Talent Development. We think this will be an important role and we are excited about how it will support our overall business around the globe.

Speaker Change: A few facts that I think are important to share on Talent.

Speaker Change: Since I took over the CEO role. Last July, we have taken difficult bold and necessary steps to reshape our leadership team.

Justin Jude: This level of transformation reflects our commitment to building a high performing agile organization. are focused on getting the right people on the bus and just as importantly, ensuring they're in the right These changes will not without challenges are foundational to driving sustainable growth and consistent performance, which yield long term value creation for shareholders.

Speaker Change: Over 25% of the roles that the VP level and above have been refreshed with new Talent OR redefined responsibilities.

This level of transformation, reflects our commitment to building a high-performing agile organization.

Speaker Change: We're focused on getting the right, people on the bus and just as importantly, ensuring they're in the right seats.

Justin Jude: Equally important is the strength of our talent pipeline. Over 50% of it now comes from external hires with a high focus on our European operations to lead us through business transformation. This infusion of fresh perspectives and different experiences is accelerating innovation, bringing a clearer lens on growing the business. finding efficiencies and positioning us for the future.

Speaker Change: These changes will not without challenges are foundational to driving sustainable growth, and consistent performance, which yield long-term value creation for share orders.

Speaker Change: Equally important is the strength of our talent pipeline over, 50% of it. Now comes from external hires with a high focus on our European operations to lead us through business transformation.

This is Fusion of fresh perspectives and different experiences is accelerating innovation.

Justin Jude: We're not just evolving. We're focused on fixing, repairing and building momentum.

Rick Galloway: I'm going to hand it over to Rick now, but I want to emphasize the following. We have size, scale, and an unmatched distribution network. We know the current results are yet to reflect the value we are creating, and we share your frustration.

Speaker Change: Bringing a clear lens on growing the business finding efficiencies and positioning us for the future, we're not just evolving. We're focused on fixing repairing and building momentum.

Rick: I'm going to hand it over to Rick now, but I want to emphasize the following.

Rick Galloway: But we are solidifying our foundation and ensuring when the cycle turns in this sector that we will be in the strongest position to capitalize on it to deliver results for our customers, partners, and importantly, our shareholders. That is our mission, and we are held bent on accomplishing it.

Rick: We have size scale and an unmatched distribution Network. We know the current results are yet to reflect the value. We are creating and we share your frustration.

Rick: But we are solidifying our foundation and ensuring when the cycle turns in the sector that we will be in the strongest position to capitalize on it to deliver results for our customers partners and importantly, our share orders.

Rick Galloway: Thank you, Justin, and welcome to everyone joining us. I want to begin by reinforcing Justin's remarks on our continued commitment to execute on our multi-year transformation strategy that includes simplifying the business and reshaping our focus on core segments. We are and will continue to be relentless in our pursuit of these goals.

Rick: That is our mission and we are held bent on. Accomplishing it.

Speaker Change: Thank you, Justin and welcome to everyone joining us today. I want to begin by reinforcing Justin's remarks on our continued commitment to execute on our multi-year transformation strategy. That includes simplifying, the business and reshaping our focus on core segments.

Rick Galloway: Now turning to Q2 results. As Justin said in his remarks, our results are yet to reflect all of these efforts and Q2 results were below our expectations. While our initiatives are underway, revenue declines overall have created margin pressure driving down our earnings and free cash flow. We reported total revenues of $3.6 billion. diluted earnings per share were 75 cents, a five cent increase compared to Q2 2024. On an adjusted diluted earnings per share basis, we reported 87 cents, a decrease of 11 cents per share versus prior year, primarily due to lower operating results.

Rick: We are and will continue to be relentless in our pursuit of these goals.

Speaker Change: Now, turning to Q2 results.

Speaker Change: As Justin said in his remarks, our results are yet to reflect all of these efforts and Q2 results were below our expectations.

Speaker Change: While our initiatives are underway Revenue. Declines overall have created margin pressure driving down our earnings and free cash flow.

Speaker Change: We reported total revenues of 3.6 billion.

Speaker Change: Diluted earnings per share were 75 cents a 5-cent increase compared to Q2 2024.

Rick Galloway: On a positive note, execution on our balanced capital allocation strategy benefited earnings per share by three cents from share repurchases and another penny for FXRates added another three Pre-cash flow during the quarter was $243 million, despite a nearly $35 million headwind from tariffs, bringing the year-to-date cash flows to $186 million. We anticipate generating positive pre-cash flow in the next two quarters, but tariffs will present a working capital challenge in the back half of the year that I will discuss shortly. We returned $117 million to shareholders, including $39 million to repurchase 1 million shares and $78 million for our quarterly dividends.

Speaker Change: On an adjusted diluted earnings per share basis. We reported 87 cents, a decrease of 11 cents per share versus prior year primarily due to lower operating results.

On a positive note, execution on our balanced Capital, allocation strategy benefited earnings per share by 3 cents from share repurchases and another penny for interest.

Speaker Change: FX rates. Added another 3 cents.

Speaker Change: Free cash flow during the quarter was 243 million despite a nearly 35 million headwind from tariffs. Bringing the year-to-date cash flows to 186 million. We anticipate generating positive free cash flow in the next 2 quarters, but tariffs will present a working capital challenge in the back half of the year that I will discuss shortly.

Rick Galloway: We remain focused on deploying capital in a way that maximizes shareholder value while supporting growth. In North America, we're pleased with our top line performance given the market pressure as we work through the continued decline in repairable claims. We are confident we are increasing our market share in a declining market. However, increasing competition and market dynamics contributed to a 100 basis point decline in gross margin. North America posted a segment EBITDA margin of 15.8%, a 150 basis point decrease relative to last year, but roughly 10 basis points better than Q1. The decline in gross margins and leverage effect from lower revenue on overheads contributed to the decline in EBITDA margins.

Speaker Change: To shareholders, including 39 million to repurchase 1 million shares and 78 million for a quarterly dividend.

Speaker Change: We remain focused on deploying capital in a way that maximizes shareholder value while supporting growth.

Speaker Change: in North America, we are pleased with our Topline performance, given the market pressure as we work through the continued decline in repairable claims

Speaker Change: We are confident, we are increasing our market share in a declining Market. However increasing competition and market dynamics contributed to a 100 basis point decline in Gross margins.

Speaker Change: North America posted a segment, even a margin of 15.8%, a 150 basis point decrease relative to last year, but roughly 10 basis points better than q1.

Rick Galloway: In Europe, segment EBITDA was 9.4%, a 120 basis point decrease from last year.

Speaker Change: The decline in Gross margins and leverage effects from lower revenue, on overheads, contributed to the decline in Iva margins.

Rick Galloway: If you will recall, in last year's Q2 call, I discussed a reduction in labor-related accruals previously recorded after successful conclusion to the union negotiations in Germany. This benefited the prior year by roughly 70 basis points. excluding this non-recurring prior year benefit, even a margin declined by 50 basis We were pleased to see the year-over-year gross margin improvement resulting from procurement initiatives and ongoing productivity measures that outpaced inflation. However, the organic revenue decline put pressure on overhead expense leverage, resulting in the decrease to segment EBITDA margin. Specialties even a margin of 8.5% is 40 basis points below the prior year due to a slight uptick in overhead costs related to inflationary cost increases.

Speaker Change: In Europe, segment. Ibido was 9.4% a 120 basis. Point decrease from last year.

Speaker Change: If you will recall in last year's Q2 call, I discussed a reduction in labor related across previously recorded after successful, conclusion to the union negotiations in Germany.

Speaker Change: Is benefited the prior year by roughly 70 basis points, excluding this non-recurring prior year benefit.

Speaker Change: Even a margins declined by 50 basis points.

Speaker Change: We were pleased to see the year-over-year gross margin Improvement. Resulting from procurement initiatives and ongoing productivity measures that outpaced inflation. However, the organic Revenue decline, put pressure on overhead expense, leverage resulting in the decrease to segment, even to margins.

Rick Galloway: With organic revenue being largely flat year over year, and positive in June, and thus far in July, we're encouraged by these recent trends heading into the back half of the year. Self-service reported even a margin of 10% consistent with the prior year.

Specialties even a margin of 8.5% is 40 basis points. Below the prior year due to a slight uptick in overhead costs related to inflationary cost increases.

Speaker Change: With Organic Revenue, being largely flat year-over-year and positive in June and thus far in July, we are encouraged by these recent Trends heading into the back half of the year.

Rick Galloway: Turning now to The Balance. We repaid approximately $111 million of debt in the quarter. As of June 30, we had total debt of $4.5 billion with a total leverage ratio of 2.6 times EBITDA. We remain committed to maintaining a manageable debt level and our investment grade rating.

Speaker Change: Self-service reported, even a margin of 10% consistent with the prior year.

Speaker Change: turning now, to the balance sheet,

Speaker Change: we repay the 1111 million of debt in the quarter.

Speaker Change: As of June 30th, we had total debt of 4.5 billion with a total leverage ratio of 2.6 times. Evident, we remain committed to maintaining a manageable debt level.

Rick Galloway: As of June 30, 2025, our current debt maturities were $34 million, a reduction from the $558 million on March 31, 2025. as we extended the maturity date of the $500 million U.S. term loan by one year to Q1 2027.

Speaker Change: And our investment grade ratings.

Speaker Change: as of June 30th 2025, our current debt maturities were 34 million a reduction from the 5581 2025

Rick Galloway: As normal practice, we actively manage our capital structure, and we are working through our options with our lending group regarding the Canadian term loan due in the third quarter of 2026. We think in a high interest rate environment, ensuring our cost of capital is reasonable and managing the timing of our maturities is an important piece of prudent financial management. Our effective interest rate was 5.2% at the end of Q2, consistent with Q1. We have $1.8 billion in variable rate debt. of which $700 million has been fixed with interest rate swaps, which effectively provides a fixed rate on approximately 75% of our debt.

Speaker Change: As we extended the maturity date of the 500 million us Term Loan by 1 year to q1 2027.

Speaker Change: As normal practice, we actively manage our capital structure and we are working through our options with our Lending Group regarding the Canadian term loan due in the third quarter of 2026.

Speaker Change: We think in a high interest rate environment, ensuring our cost of capital is reasonable and managing the timing of our maturities is an important piece of prudent financial management.

Our effective interest rate was 5.2% at the end of Q2 consistent with q1,

Speaker Change: we have 1.8 billion dollars in variable rate debt,

Speaker Change: Of which 700 million has been fixed with interest rate swaps, which effectively provides a fixed rate on approximately 75% of our debt.

Rick Galloway: Given a confluence of macroeconomic factors in both North America and Europe, coupled with the results this quarter, we are lowering our full-year outlook. In North America, we are anticipating a delayed recovery in repairable claims, ongoing tariff disruptions, and competitive market dynamics. In Europe, persistent economic softness, geopolitical unrest, and ongoing US trade negotiations are all drivers of an uncertain environment.

Speaker Change: Given a Confluence of macroeconomic factors in both North America and Europe. Coupled with the results of this quarter. We are lowering our full year outlook.

Speaker Change: In North America, we are anticipating a delayed recovery in repairable claims ongoing Turf disruptions and competitive market dynamics.

Rick Galloway: To provide more detail, June's repairable claim numbers were down the most of all three months in the quarter, despite our anticipated recovery. Based on current industry data and recent trends, we no longer expect these declines to rebound in 2025. Auto insurance prices are still rising and are expected to increase an average of 7.5% this year. According to a recent survey, nearly one in four people have downgraded or dropped their auto insurance to free up cash.

In Europe, persistent economic softness, geopolitical unrest and ongoing us trade. Negotiations are all drivers of an uncertain environment.

Speaker Change: To provide more detail. June's repairable claim numbers were down the most of all 3 months in the quarter despite our anticipated recovery.

Speaker Change: Based on current industry data and recent Trends. We no longer expect these declines to Rebound in 2025.

Auto insurance prices are still rising and are expected to increase and average of 7.5% this year.

Rick Galloway: To help further depict the economic factors driving the current market dynamics around repairable claims, we included a slide in the appendix on page 17 with data derived from our proprietary analysis. The ever-changing tariff landscape further erodes consumer confidence and also complicates the views toward a more linear recovery. While we have been pricing in the impact from tariffs, our market remains competitive, and it may be difficult to maintain margins at the same levels in the short term.

Speaker Change: According to a recent survey, nearly 1 in 4, people have downgraded or dropped their auto insurance to free up cash.

Speaker Change: To help further depict the economic factors driving the current market dynamics around repairable claims. We included this slide in the appendix on page, 17 with data, derived from our proprietary analysis.

Speaker Change: The ever-changing Tariff landscape, further erode consumer confidence and also complicates the views toward a more linear recovery.

Rick Galloway: in Europe.

Speaker Change: Well, we have been pricing in the impact from tariffs, our Market remains competitive and it may be difficult to maintain margins at the same levels in the short term.

Rick Galloway: With the persistent softness in many of our markets and increased geopolitical unrest, we are no longer anticipating market improvement. To mitigate the lower revenue expectations, we have taken corrective action. including leadership changes and productivity initiatives and are targeting additional cost removal in the back half of the year. However, these actions will not be enough to offset the full year impact of lower revenue.

Speaker Change: In Europe.

With a persistent softness in many of our markets and increased geopolitical. Unrest, we are no longer anticipating Market improvements.

Speaker Change: To mitigate the lower Revenue, expectations, we have taken corrective action.

Speaker Change: Including leadership changes and productivity initiatives and are targeting additional cost removal in the back half of the year.

Rick Galloway: Turning back to 2025. A revised outlook and assumptions are included on slide 13. We expect reported organic parts and services revenue in the range of negative 150 basis points to negative 350 basis points.

Speaker Change: However, these actions will not be enough to offset the full year impact of lower Revenue.

Turning back to 2025.

A revised Outlook and assumptions are included on slide 13.

Rick Galloway: As a result of the revenue headwinds, we expect adjusted diluted EPS to be in the range of $3 to $3.30, a decrease of 40 cents from the midpoint from the previous guidance. Approximately half of the decrease is from our North American segment, 40% from Europe, and the remainder is largely from higher-income countries. Free cash flow will be impacted by the anticipated decrease in earnings and the impact of tariffs on working capital that will be on the balance sheet at year end. To partially mitigate these headwinds, we are reducing our anticipated capital spend by approximately $50 million.

Speaker Change: We expect reported organic Parts and Services Revenue in the range of negative 150 basis points to -350 basis points.

Speaker Change: as a result of the revenue, headwinds we expect adjusted diluted EPS to be in the range of $3 to $3.30 a decrease of 40 cents from the midpoint

Speaker Change: from the previous guidance.

Approximately half of the decrease is from our North American segment.

Speaker Change: 40% from Europe. And the remainder is largely from higher interest expense.

Rick Galloway: We will continue to diligently manage our trade working capital in order to mitigate the lower earnings and tariff impact to drive EBITDA conversion to the extent possible.

Speaker Change: free cash flow will be impacted by the anticipated decrease in earnings and the impact of tariffs on working capital, that will be on the balance sheet at year end to partially mitigate, these, headwinds, we are reducing our anticipated Capital, spend by approximately $50 million

Rick Galloway: Free cash flow is expected to be in the range of approximately $600 to $750 million.

Speaker Change: We will continue to diligently manage our trade working capital in order to mitigate the lower earnings, and tariff impact to drive, even the conversion to the extent possible.

Rick Galloway: Thank you for your time.

Speaker Change: Free cash flow is expected to be in the range of approximately 600 to 750 million dollars.

Justin Jude: And with that, I will now turn the call back over to Justin for his closing remarks. Thank you, Rick. I stated at the outset, we have made some tough but necessary decisions to fundamentally reshape how we operate and put us back on the path toward consistent value creation. We need to set ourselves up for success and be able to deliver on what we say we are going to We are implementing our strategic plan and we are holding ourselves accountable to deliver that plan.

Speaker Change: Thank you for your time. And with that, I will now turn the call back over to Justin for his closing remarks.

Justin Jude: In closing, I want to reiterate our key strategic priority. Simplify Our Business Portfolio and Operations. invest and grow organically and pursue a disciplined capital allocation strategy. My foot is on the accelerator to deliver these strategic initiatives and create value for our shoulders. We expect to see the results, and we know you do too.

Justin: Thank you Rick. I stated that the outset we have made some tough but necessary decisions to fundamentally reshape how we operate and put us back on the path toward consistent value creation. We need to set ourselves up for success and be able to deliver on what we say. We are going to do. We are implementing our strategic plan and we are hoarding ourselves accountable to deliver that plan.

Justin: In closing, I want to reiterate our key strategic priorities.

Justin: Simplify our business portfolio and operations.

Justin: Expand, our lean operating model globally, with a focus on margin enhancement.

Justin: Invest and grow organically and pursue a disciplined Capital allocation strategy.

Operator: With that, I'll now turn the call over to the operator for questions. Thank you.

Justin: My foot is on the accelerator to deliver these strategic initiatives and create value for our shoulders. We expect to see the results and we know you do too with that. I'll now turn the call over to the operator for questions.

Operator: To ask a question, please press star followed by one on your telephone keypad now. change your mind please press star followed by 2.

Justin: Thank you to ask a question. Please press star. Followed by 1 on your telephone keypad now.

Operator: When preparing to ask your question please ensure your device is unmuted locally.

If you change your mind, please press star followed by 2.

Operator: We kindly ask all participants to limit their questions to one main and one follow-up, then go back into the queue if you have any further questions.

Justin: When preparing to ask your question, please, ensure your device is unmuted locally.

Scott Stember: Our first question comes from Scott Stember of Ross. Scott, your line is now open, please go ahead. Good morning. Thanks for taking my question. Yeah, talk about some of the in North America, some of the increased competition that you're talking about. And, you know, last quarter, we were talking about used car prices. Unknown Speaker Starting to increase, that might be helping.

Speaker Change: We kindly ask all participants to limit their questions to 1 Main and 1 follow-up. Then go back into the queue if you have any further questions.

Speaker Change: The first question comes from Scott. Stamber of Ross, Scott. Your line is now open. Please go ahead.

Scott Stamber: Uh good morning. Thanks for taking my question.

Speaker Change: um,

Speaker Change: Yes. Talk about some of the in North America. Some of the um, increased competition that you're talking about,

Speaker Change: And um, you know, last quarter, we were talking about used car pricing.

Justin Jude: Are you not seeing that anymore as a driver towards a recovery in in claim Hey, Scott. On the used car pricing, when we, if you look at Q2, the beginning of it, April and May, we started to see some improvements in used car pricing, it kind of looked to be bottoming out. Some of that we're kind of uncovering that there was a, you know, kind of some pulled up demand of new car sales, which drove up some used car pricing. So we haven't necessarily seen coming into June or even in July, that those numbers are starting to grow fast enough.

Uh, starting to increase. That might be helping. Are you not seeing that anymore as a driver towards, um?

Speaker Change: A recovery in, uh, in claims.

Justin Jude: We're seeing in some cases, year over year growth, but not necessarily month over month.

Justin Jude: And so if you if you take that used car pricing change, you know, year over year relative to repair costs, it hasn't necessarily grown at the same rate, which is once again, creating that gap between repairable claims. What we are seeing, we're seeing a decent increase in APU, we're seeing quite a bit of opportunity for us to expand better than what we are seeing on the overall repairable claims. So the business is really picking up a fair amount of market share proven by the 650 basis points better than the repairable claims. What we're not seeing, Scott, is the improvement on the overall repairable claims. So what we're saying is, look, the repairable claims number is going to have slight improvements, but the business is operating very, very well, continues to drive performance, continues to pick up share, continues to diversify the portfolio.

Speaker Change: Hey Scott um on the used car pricing we when we if you look at Q2 the beginning of it April and May we started to see some improvements in used car pricing it kind of looked at the bottoming out some of that we're kind of uncovering that there was a you know kind of some pulled up demand of new car sales, which drove up some used car pricing. So we haven't necessarily seen coming into June or even in July that those numbers are starting to grow, um, fast enough. We're seeing in some cases year-over-year growth, but not necessarily.

Speaker Change: A month over month. And so if you if you take that used car pricing change, you know, year-over-year relative to repair cost it hasn't necessarily grown at the same rate which is once again, creating that gap between repairable claims

Scott Stember: So all good news on that side of what we can control. Gotcha.

Speaker Change: Website of what we can control.

Justin Jude: And then last, in Europe, one of your biggest competitors over there yesterday reported some relatively robust, or at least flattish results for Europe. And now you're talking about some competition, it sounds like, were you guys just not properly priced in the market? Or are you saying it's a combination of the market being increasingly weak plus? The Competitive Nature. Yeah, I mean, I guess you're probably talking about GPC. I mean, if you really back out some of the conflicted issues we talked about, we're pretty much in line with them.

Speaker Change: Gotcha. And then last, um, in Europe, 1 of your biggest competitors over there. Um, yesterday reported some, uh, relatively robot or, you know, at least flattish.

Speaker Change: Results uh for Europe and now you're talking about some competition. It sounds like, were you guys just not properly priced in the market? Or are you saying it's a combination of the market being ex you know, um, increasingly weak Plus?

Speaker Change: Uh, the competitive nature of picking up.

Justin Jude: But isn't necessarily always a good compare, because we operate in different markets. For example, France, we know that market overall in this was up, we operate in France, but we're very small, we grew, they're larger in France, Spain was up, we don't operate in Spain, but they do. And so it's not necessarily a great compare. But the market said, you know, the primary issue we're seeing still is that the market is just In some cases, as I mentioned in the past, pricing becomes a problem with the smaller competitors. But as I mentioned, you know, specifically in the U.K., we were negotiated, you know, several dozen different contracts with our national accounts, and we lost one.

Speaker Change: Yeah, I mean I guess you're probably talking about GPC. I mean, if you really back out some of the stuff inflicted issues we talked about, we're pretty much in line with them but it isn't necessarily always a good compared because we operate in different markets for example. France, we know that market overall industry goes up, we operate in France but we're very small and we grew, they're larger in France. Uh, Spain was up, we don't operate in Spain, but they do and so it's not necessarily a great compare. Um, but the market said, you know, the primary issue we're seeing still, is that the market is just soft.

Scott Stember: And we really lost one because we weren't going to chase that price all the way down. It did not make sense. So when you really look at the value proposition that we offer to our customers when it comes to service level spill rate, you know, we have to sharpen our pencils a little bit. But with that down to market, but we still feel that we're we're maintaining market share. Gotcha.

Speaker Change: Um, in some cases, as I mentioned in the past, pricing becomes a problem with the smaller competitors, but as I mentioned, you know, specifically in the UK we renegotiated them, you know, several dozen different contracts with our national accounts and we lost 1 and we really lost 1 because we weren't we weren't going to chase that price all the way down. It did not make sense. Um so when you really look at the value proposition that we offer to our customers when the

Speaker Change: Comes to service level still rate. You know, we have to sharpen our pencils a little bit.

Speaker Change: But with that down to Market but we still feel that we're uh we're maintaining market share.

Scott Stember: That's all I have now. Thanks. Thanks, Scott.

Gotcha. That's all I have now. Thanks.

Speaker Change: Yeah, thanks Scott.

Bret Jordan: The next question comes from Bret Jordan of Jeffreys. Bret, your line is now open, please go ahead. Okay, good morning, guys.

Speaker Change: The next question comes from Brett, Jordan of Jeffrey's Brett. Your line is now open. Please go ahead.

Bret Jordan: On that European topic, I guess, is is GSF obviously the UK pricing issue? And are they abating on the price competition? Or does that remain as hot as ever?

Brett Jordan: Hey, good morning, guys.

Justin Jude: And then I guess you'd also mentioned negative customer experiences. Could you talk about the relatively weaker markets? You know, where did you see the real soft? Yeah, in UK in particular, I mean, GSF is still there. Other other folks are expanding as well. And we're the largest today, we've got the most coverage. So as some of our competitors open branches, they create a little bit of noise. But GSF is still a big one. I think it's slowing down somewhat. I mean, when we look at some of the pricing that we won't necessarily chase down it, I know, I know, how good we buy based on our scale, and it doesn't necessarily make sense.

Brett Jordan: um, that good morning European topic I guess is is GSF obviously the UK price issue and are they abating on the price competition or is that remain as

Brett Jordan: Hot as ever. And then I guess you'd also mentioned negative C customer experience is, um, could you talk about the relatively weaker markets? Um, you know, where did you see the real softness?

Justin Jude: So we're winning the customer still bred in that market. Even if you look at the national accounts, it's really good for us.

Justin Jude: I was just there, as I mentioned in my script at the end of June meeting with a team talking about not only the long term strategy plan to integrate that business, transform that business to really deliver significant opportunity for us. And they're and they're working on that. If you look at the simplification of operations, skew rationalization, they're working on implementing, you know, lean operating model to have cost cutting measures that $75 million of cost cutting that I mentioned primarily will be in Europe, and they've already started on that.

Yeah, and UK in particular, um, I mean gossip is still there other other folks are expanding as well. You know, we're the largest today, we've got the most coverage. So as, as some of our competitors open branches, they create a little bit of noise but GS GSS is still the big 1. I think it's slowing down somewhat. I mean, when we look at some of the pricing that we won't necessarily chase down it, I know, I know how good we buy based on our scale and it doesn't necessarily make sense. So um and we and we're winning the customers still bred in that market. Even if you look at past the national accounts, it's really good for us. Um I was just there as I mentioned in my script at the end of June meeting with a team talking about, you know, not only the long term strategy plan to integrate that business, transform that

Bret Jordan: In addition, as we announced, we did a partnership in the UK, where we're pretty strong in a collision market with kinetic. So we're now expanding into salvage product lines into that to to really fill in the portfolio for us on products. Okay.

Brett Jordan: Business to really deliver significant opportunity for us and they're and they're working on that. If you look at the simplification of operations SKU, rationalization, they're working on uh implementing you know lean operating model. They have cost cutting measures that 75 million of cost cutting that I mentioned primarily will be in Europe and they they've already started on that. In addition as we announced we did a partnership in the UK where we're pretty strong in a collision Market uh with phonetic. So we're now expanding into Salvage product lines into that to to to Really fill in the portfolio for us on products.

Justin Jude: On the North American collision, I think you mentioned some price increase. Could you tell us what you took for price increase? We don't disclose the overall price increase, but we have been pushing price. Obviously, the tariffs are forcing that. We're seeing the OEMs push price. I know last time you asked the question, we didn't see it. Obviously, if you read the headlines on some of the big OEMs, they're feeling a pain of tariffs. I don't think they have any choice but to continue to push price. They're pushing it. We're pushing it.

Speaker Change: On the uh, on the North American Collision, I think you mentioned some price increase. Could you tell us what you took for price increase?

Justin Jude: The good news is, you know, obviously the most tariff product line that we have is aftermarket. And with repairable claims being down 9%, our actual volume on aftermarket was positive in the quarter. So even though we pushed price, we maintained service levels, which, you know, with the leverage impacted our margins somewhat, but we wanted to make sure we maintain our service levels. It allowed us to outperform the market. I mean, we grew 650 bps, as Rick mentioned, over the repairable claim decline. And we really want to just be poised from a service level and availability standpoint to gain that leverage when the market recovers.

Speaker Change: We don't, we don't disclose the overall price increase, but we have been pushing price. Obviously, to tariffs are, are, are forcing that we're seeing the oems book price. I know, last time, you asked a question, we didn't see it. Obviously, if you read the headlines, on the big, on some of the big oems, they're, they're feeling a pain of tariffs. I don't think they have any choice but to continue to push price. They're pushing it, we're pushing it. Um, the good news is, is, you know, obviously the most tariff product line that we have is aftermarket. And with repairable claims being down 9%, our actual volume on aftermarket was positive in the quarter. Uh, so even though we pre-priced but we maintain service levels which which, you know, with the leverage impact that our margins somewhat but we wanted to make sure we maintain their service levels. It allows it allowed us to outperform the market. I mean we we grew 650 bips as Rick mentioned over the repair, claim decline,

Speaker Change: And we really want to just be poised from the service level and availability standpoint to gain that leverage. When the market recovers.

Bret Jordan: Great, thank you. Thanks, Bret.

Great. Thank you.

Brett Jordan: Thanks Brett.

Craig Kennison: The next question comes from Craig Kennison of BARD. Craig, your line is now open. Please go ahead. Hey, good morning. Thanks for taking my question.

Speaker Change: The next question comes from Craig Kenneth Bard Craig, your line is now open. Please go ahead.

Craig Kennison: I really appreciate Appendix One, Slide 17, and trying to understand that even better. Your unrepaired vehicle metric seems to be, you know, one of the top issues that you face. How do you see that unfolding? Some of those trends look to be very long term while they may be cyclical. You know, insurance rates are still high and that behavior may persist for some time. So I'm curious when you think that will ultimately find a bottom.

Speaker Change: I really appreciate appendix 1, slide 17 and trying to understand that even better. Uh you're you're unrepaired vehicle metric. Seems to be, you know, the 1 of the top issues, um, that you face. How do you see that unfolding? Some of those Trends look to be very long-term while they may be cyclical.

Speaker Change: Uh, you know, insurance rates are still high and that behavior May persist for some time. So I'm curious when you think that will ultimately find about them.

Justin Jude: Yeah, it's hard for me to speculate. I mean, we saw some green shoots in used car pricing, as we mentioned early on, and we expected the market to recover. We haven't seen that yet, necessarily. If you look at the big overall picture, Craig, on just the industry in general, I mean, as I mentioned earlier, the OEMs are under tremendous pressure, a lot of tariff impact for them, lost profits, they are going to have no choice but to pass on pricing, increase new car sales to offset the volume. Those will be good for us, right? If the OEMs have a strong presence in the market, that's good for us.

Justin Jude: It leads to higher used car pricing, higher part pricing, more car sales on a new side leads into our sweet spot. And so the unrepaired vehicles, that number has grown. That is cyclical, as you mentioned.

Justin Jude: What we don't know is when it's going to turn around, right? I mean, we've got to see abatement of high insurance rates, and I think we've seen the growth of that slow down. The question is, will insurance rates start to drop as insurance companies want to gain market share? Used car pricing at some point will start to rebound, to grow at the same rate of repair costs. And so at some point, we see that unrepaired vehicle is coming back to more of a normal number. But the team there is really, I mean, in North America, as you saw, we're still executing.

Yeah, it's hard for me to speculate. I mean, we, we tried to, we saw some green shoots and used car pricing. As we mentioned earlier on, and we expected the market to recover. We haven't seen that yet necessarily. If you look at the big overall picture Craig on the just the industry in general. I mean, as I mentioned earlier, the oems are under tremendous pressure. A lot of tariff impact for them, you know, lost profits. They are going to have no choice but to pass on pricing increase, you know, new new car sales to offset the volume. Those will be good for us. Right at the oems have a strong, um, presence in the market. That's good for us. It leads to higher used car, pricing higher part, part higher part pricing more car sales on a new side, leading leads into our our sweet spot and so the repair, but the unrepaired vehicles that number has grown that is cyclical. As you mentioned, our, what we don't know is when it's going to turn around. All right, I mean, we've got to see a bait of high insurance rates and, and I think we've seen the growth of that slow down.

Justin Jude: I mean, even though in a down market, repairable claims being down 9%, the team was down 2%. I mean, it's just phenomenal growth. In some cases, if you look at that chart you mentioned, you look at self-pay repairs. I mean, we're the trade-down alternative on the OEM side, so we're gaining share on that self-pay. And overall, just with our service levels and our fill rate, we're doing really well. In addition to help offset or create revenue opportunities, our hard parts business in Canada is performing really well as well as we convert that from three-step to two-step.

Craig Kennison: So we're not just sitting on our hands, I guess, letting the market dictate to us what we're going to do. We're still looking at revenue opportunities. And once again, Craig, we're definitely outperforming the market. Yeah, thanks, Justin.

Speaker Change: The question is, will will, you know, insurance rates start to drop as as insurance companies want to gain market, share, uh used car pricing at some point will start to rebound to to, you know, grow to at the same rate of repair costs. And and so, at some point, we see that that unrepaired vehicle is coming back to more of a normal number. Um, but the team there is really, I mean, in North America as as we as you saw, we're still executing. I mean, even though in a down Market repairable claims being down 9%, you know, the team was down 2%. I mean, it's just phenomenal growth. So, in some cases, if you look at that chart, you mentioned, you look at self-pay repairs. I mean, we're we're we're the, we're the trade down alternative on on the OEM side. So we're gaining share on that self-pay. Um, and overall, just with our service levels and our fill rate we're doing really well, in addition to help offset, you know, or create Revenue opportunities, our hard Parts business in Canada is is performing really well, as well as we convert that from 3, step to 2 steps. So we don't, we don't, we're not just sitting with our sitting on our hands, I guess. Um, you know, letting letting the market.

Speaker Change: Dictate to us what we're going to do. We're still looking at Revenue opportunities and and once again Craig we're definitely outperforming the market

Craig Kennison: I think it was Rick who mentioned APU being stronger. I wonder if you could share that metric. Yeah, I know the number went up about 150 bips. I don't know the exact...

Speaker Change: Yeah. Thanks Justin. And I, I think it was Rick, who mentioned Apu, being stronger. I wonder if you could share that metric.

Justin Jude: We're up really close to 39%, Craig, is where the number is sitting right now. Yeah, and when you see Craig the, you know, the always, as I mentioned, they're pushing price, that's, that's creating even more value proposition for alternate parts. And we're the alternative parts leader. I mean, obviously, we have no tariff impact on our on our salvage. So it pushes towards salvage, it pushes more towards aftermarket.

Speaker Change: Yeah, then I know the number went up about 150 bips, I don't know. The the exact we're up really close to 39% Craig, uh, is where the number is, uh, sitting right now.

Justin Jude: And so you know, that APU growth is just really just in a lot of cases possible, because it all concludes just national coverage that we have.

Speaker Change: Yeah. And when you see Craig the you know, the always, as I mentioned, they're pushing price that's that's creating even more value proposition for alternative parts and we're the alternative Parts leader. I mean, obviously, we have no tariff impact on our on our Salvage. So it pushes towards Salvage, it pushes more towards aftermarket. And so, you know, that Apu growth is just really just and a lot of cases, possible because of LKQ, just National coverage that we have

Craig Kennison: Great, thank you. Thanks, Greg.

Speaker Change: great. Thank you.

Speaker Change: Thanks Greg.

Gary Prestopino: The next question comes from Gary Prestopino of Barrington Research. Gary, your line is now open. Please go ahead. Thank you. Good morning, all.

Speaker Change: The next question comes from Gary prestipino of barington research. Gary your line is now open. Please go ahead.

Gary Prestopino: Um, in your narrative, like you mentioned, what's going on in Europe, you've had to change out some people, you're going to focus on cost cuts there. I mean, I think you basically said that you had also been going through some change in personnel over there, you know, since the start of the year. Are you where you need to be? And as far as personnel, and then what they're doing over there, coupled with the cost cuts that you're envisioning? When should we start seeing that impact come into the P&L?

Gary Prestipino: Thank you. Um, good morning law, um, in your narrative, like you mentioned. What's going on in Europe? You've had a change out. Some people, you're going to focus on Cost Cuts there. I mean, I think you you basically said that you would also been going through some change in Personnel over there, you know, since the start of the year, um are you where you need to be and um uh as far as personnel and then what they're doing over there, coupled with the Cost Cuts that you're envisioning. When should we start seeing that impact? Come come into the p&l.

Justin Jude: Yeah, thanks for the question. I was over there in June meeting with that team. We've, I feel pretty confident in the team that we have. We've, we brought on new skillset, new mindsets. I mean, quite honestly, we've been after, you know, some of these initiatives for a while in Europe. And so making sure we have the right team that is going to execute against that. You know, I mentioned an investor there, a three-year plan. It's not a linear progression, Gary. It's a, I mean, it's really, truly a three-year plan that the team has to execute.

Rick Galloway: Obviously, they got to navigate through the existing market conditions. They work on the cost-cutting initiatives, but they are truly laser-focused working on the three-year strat plan, integrating that business, transforming it to really unlock the significant potential that I feel we have over there. I think the target that Justin gave out, $75 million, the vast majority of that is coming from our European operations. As you know, Gary, it takes a little while to get some of those implemented. I would expect those to be primarily implemented by the end of Q4. And so you should see the full benefit of that in 2026.

Gary Prestipino: Yeah, thanks for the question. I, I was over there in, June meeting with that team. We've, I feel pretty confident in the team that we have. Um, we've we brought on new skill set, new mindset, something quite honestly, we've been after, you know, some of these initiatives for a while in Europe, and so making sure we had the right team, that is going to execute against that. Uh, you know, I mentioned an investor, there are 3 year plan. It's, it's not a linear progression, Gary. It's a, and it's really truly a 3 year plan, that the team has to execute. Obviously, they got to navigate through the existing market conditions today, work on the cost cutting initiatives, but they are truly laser focused working on the 3-year strap plan integrating that business transforming it to really unlock the the, the the, the significant potential that I feel we have over there.

Gary Prestipino: Majority of that is coming from our European operations. As you know, Gary it takes a little while to get some of those implemented. I would expect those to be primarily implemented by the end of the C of Q4 and so you should see uh, the full benefit of that in 2026.

Rick Galloway: And did you quantify on EPS on what the impact of the tariff of tariffs was on the bottom? Yeah, so Gary, we think we have the ability to pass through all of our tariff costs. And so we're expecting to pass those through. What we are seeing as well as what Justin talked about as far as the competitiveness in the marketplace. So it's a combination of the two. So for us, the tariff piece, we're pushing through all of that through pricing when we net out the cost. Okay, so you're not having any issues with passing that through.

Gary Prestipino: Okay.

Gary Prestipino: And did you quantify, um, on EPs and what the impact of the Tariff of tariffs was on on the bottom line?

Gary Prestipino: Yeah, so Gary. We, we think we are have the ability to pass through, uh, all of our tariff costs. Uh, and so, we're, we're expecting to pass those through what we are seeing as well as what Justin talked about as far as, uh, the the competitiveness in the marketplace, so it's a combination of the 2. So for us, the Tariff piece, we're, we're pushing through all of that, uh, through through, through pricing through, when we net out the cost,

Speaker Change: okay, so you're not having any issues with passing that through

Rick Galloway: No, not not so far.

Rick Galloway: Justin talked about solving Q2. OE started raising their prices. And we started doing the same. And the value proposition is strong. We were not losing anything there. So really optimistic, looking in the back half of the year of what we've got coming up.

Gary Prestopino: And then just let me sneak in one more quick one and I'll jump off. Was there in this slide that you put in 17, has there been any change in the impact of ADAS on accident volumes from where you talked about during your investor day last year? Any change in that that outlook that's been de minimis? I mean, the long term, you know, the long term outlook remains the same. If you compare on this chart, we're comparing 2022 or 2022 to 25. And so ADAS, the technology did have an impact on overall accidents. It was offset by just some of that kind of what I would call COVID snapback, more people getting back into the office, more miles traveled, more vehicles in operation.

Speaker Change: No, not not so far. Justin talked about, uh, it's all in Q2. Oh, we started raising their prices. Uh, and, and we started, uh, doing the same and the value proposition is strong. Uh, we we, we're not losing anything there. So really optimistic looking in the back, half of the year of what we've got coming up.

Speaker Change: And then just let me sneak in 1 more quick 1 and I'll jump off, was there in this slide that you put in 17. Um, has there been any change in the impact of a a dash uh, on accident volumes from where you talked about during your investor Day last year, any change in that, that Outlook um, that's been de minimis.

Justin Jude: So actuality, we saw the true accidents increase. Long term, we still see ADAS having a slight headwind on overall accidents.

Justin Jude: But once again, I think we've talked in, you know, during Investor Day is even with the reduction in accidents from ADAS, the overall market, we still see on the collision side growing for the next 10 years. When you look at APU growth opportunity, you look at just, you know, part proliferation, more parts on the estimate, the ability for us to gain share and push price. So we still see the overall collision market being very strong for us.

Gary Prestopino: Thank you.

Speaker Change: Due to Adas. I mean, the long-term. Yeah, the long-term Outlook Remains the Same. If you compare on this chart, we're comparing 2022 or 2022 to 25. And so eidos the technology did have an impact on overall accidents. It was offset by just some of that kind of what I would call Co Snapback. More people getting back into the office, more miles, traveled, more vehicles, and operations. So actuality we saw the the true accidents increase, uh, long term. We still see eidos having a slight headwind on overall accidents, but once again, I think we've talked in, is it, you know, during investor day is even with the reduction in accidents from eidos the overall Market we still seeing on the Collision side growing for the next 10 years. When you look at Apu growth opportunities, you look at just, you know, Park proliferation more parts on the estimate, the ability for us to gain, share and push price. So, we still see the overall Collision Market being very strong for us.

Jash Patwa: Thanks, Gary. Your first question comes from Jash Patwa of J.P. Morgan. Your line is now open, please go ahead. Hi, good morning. Thanks for taking my questions.

Speaker Change: Thank you.

Thank you.

Speaker Change: The next question comes from Joshua of JP Morgan. Your line is now open. Please go ahead.

Jash Patwa: I was I was hoping to just, you know, talk to you the right to appraisal legislation in some key states like Texas and New Jersey. Could you maybe talk about the implications from a repairable claim standpoint and whether this could move the needle on total loss frequencies if adopted by more states? Thanks and have a follow Yeah, thanks, Josh. I mean, obviously, those are pretty new in Texas and in New Jersey. It's kind of too soon for us to tell. At the end of the day, it's creating a benefit to consumers to dispute concerns with the insurance company on the appraisal, to your point, or the total loss value.

Speaker Change: Hi, good morning, thanks for taking my questions. Uh, I was, I was hoping to, uh, just, you know, uh, talk to you the right to appraisal legislation in some key States, like Texas and New Jersey. Uh, could you maybe talk about the implications, uh, from a reparable claim standpoint and whether this could move the needle on total loss frequencies, if adopted by more States, thanks and have a follow-up.

Justin Jude: So my guess is most consumers would want a higher total loss. And typically, when there's a higher total loss amount, that that leads to more repairable claims. So as of now, we haven't seen any impact of that.

Jash Patwa: I will say we do have our own government affairs department that that helps us navigate through some of these things, making sure that consumers have a choice in getting their vehicle repaired with alternative parts. And so we're pretty actively monitoring that but nothing that we've seen so far, Josh has any impact to us. Thanks, that's helpful.

Speaker Change: Yeah, thanks Josh. I mean obviously those are pretty new in Texas and in New Jersey. Um, the it's it's kind of too soon for us to tell at the end of the day, it's it's creating a benefit to Consumers to dispute concerns with the insurance company on the appraisal to your point or the total loss value. So my guess is most consumers would want to hire a total loss and typically when there's a higher total loss amount that that leads to more repairable claims, uh, so as of now, we haven't seen any impact of that. I will say we have, we do have our own government Affairs Department, that that helps us navigate through some of these things. Making sure that consumers have a choice, um, and and getting their vehicle repaired with alternative parts and so we're pretty actively monitoring that. But nothing that we've seen so far, uh, Josh has an impact to us

Justin Jude: Could you maybe talk about the production flexibility of some of your key suppliers? You know, many aftermarket peers have shared their intentions to relocate production to Mexican facilities and mitigate the tariff impact from USMCA compliance. Is that something you are seeing with their vendor base? And if you could just provide some more flavor on this conversation they're having. Yeah, I mean, a lot of the aftermarket collision has historically always been in Taiwan. We do have some of those Taiwanese manufacturers that have production in the States. Some have looked at Mexico. Either the real benefit we've got, obviously, you look at salvage, we have we have no tariff on that.

Josh: Uh, thanks, that's helpful. Uh, could could you maybe talk about the production flexibility of some of your key suppliers, you know, many aftermarket, peers have shared their intentions to relocate production to Mexican facilities and mitigate the Tariff impact from usmca compliance. Is that something you're seeing with your vendor base. And if you could just provide some more flavor on this conversation you're having

Justin Jude: So there's no impact on that. It's creating a good opportunity for us and better value proposition. But as of now, I think in some cases, a lot of the manufacturers are waiting to see what happens with the final tariff. So no major movement movement yet. Got it.

Josh: Yeah. I mean, a lot of the aftermarket Collision has historically always been in Taiwan. Um, we do have some of those Taiwanese manufacturers that have production in the states, some have looked at Mexico. Um, you know, the real benefit we've got obviously, you look at Salvage. We have, we have no tariff on that. So there's no impact on that. It's creating a good opportunity for us and and better value proposition. But as of now, I think in some cases, a lot of the manufacturers are waiting to see what happens with the final tariff. So no major movement movement yet.

Jash Patwa: If I could just sneak one more in, could you maybe just provide a breakdown of the collision versus non-collision organic revenue growth in North America? I believe you called out non-collision revenue to be strong in the second quarter. Just wondering if you could put some numbers around that please.

Josh: Got it. Uh, if I could just uh, sneak 1 more in, uh, could you maybe just provide a breakdown of the Collision versus non Collision, organic Revenue growth in North America, I believe you called out, non Collision Revenue to be strong in the second quarter. Just wondering if you could put some numbers around that please

Rick Galloway: Yeah, Josh, we haven't typically given numbers out specifically for that. What Justin talked about was volume for aftermarket parts was actually up in the quarter. So aftermarket volume was up a bit. What we are seeing is on the downside, things that are kind of the last thing to do within the repair, which is paint, as a good example. That's down greater than what even the repairable claims are, because that is essentially the last piece of the overall repair. So if you think about the repair cycle and what we've got going on, you can look at hard parts.

Rick Galloway: Hard parts is better than the negative two and a half or 2.2 that we put in for the quarter. And then you've got also things like aftermarket parts are better. But we are seeing a little bit in some of our major mechanicals that are down a bit more than what we had expected before. And typically that happens when used car prices are flat lined and some of the car part is getting a little bit older. The decision to actually repair that engine is something that the consumers weigh.

Speaker Change: Yeah. Josh we we haven't typically um given numbers out specifically for that. What Justin talked about was volume for. Aftermarket parts was actually up uh, in the quarter. So aftermarket volume was up a bit. Uh, what we are seeing is on the downside things that are kind of the last thing to do within the repair, which is paint. Uh, as a, as a good example that's down, greater than what even the repairable claims are, uh, because that is essentially the, the last piece of the overall repair. So if you think about the repair cycle and what, what we've got going on, you can look at hard Parts. Hard Parts is better than the negative -2 and 1/2 or 2.2 that we put in, uh, for the quarter. And then you've got also things like aftermarket parts are better. Uh, but we are seeing a little bit in some of our major Mechanicals, uh, that are down a bit more than what we had expected before. Uh, and and typically that happens when used car prices flatlined and some of the car park is getting a little bit older. Uh the decision to actually repair. That engine uh is

Is something that the consumers weigh.

Jash Patwa: That's very helpful.

Jash Patwa: Thanks for taking my questions and good luck.

Speaker Change: That's why you helpful. Thanks for taking my questions and good luck.

Bret Jordan: Next question comes from Bret Jordan of Jeffreys.

Bret Jordan: Bret, your line is now open, please go ahead. Hey guys, a follow up on the IAEA Sinetic Partnership in the UK. Is there a CapEx involved in that? Do you need to build the dismantling yards to create? alternative collision parts or is that on their infrastructure? That's on their existing infrastructure. The partnership is great for us. I mean, they need a sales arm, they need a good distribution model. We provide that in the UK and we're the best in that. We're the number one collision parts provider on the aftermarket side. So being able to take some of those products and move into our network.

Speaker Change: The next question comes from Brett, Jordan of Jeffrey's Brett. Your line is now open. Please go ahead.

Brett Jordan: Hey guys, a follow up on the IIA, phonetic partnership in the UK. Um, is there a capex involved in that? Do you need to build the dismantling yards to create, uh,

Speaker Change: Alternative Collision parts or is that on their infrastructure?

Justin Jude: And it was really no capital expenditure. It was already set up on the infrastructure side.

Rick Galloway: you remind us what you're doing in collision revenues in the UK. Unknown Speaker. Mark that. We haven't provided that in the past, but it's something less than 100 million. I think it's what we've got. It's parts alone. Yeah, it would be well over a hundred. Yeah. Yeah, with pain and everything, it's a little bit different, Bret. Yep. All right.

Brett Jordan: Uh, that's on their existing infrastructure. Um, the partnership is is is great for us. I mean, they're they need a sales arm, they need a good distribution model, we provide that in the UK and we're the best in that. Um, we're the number 1 Collision Parts provider on the aftermarket side. So being able to take some of those products and move into our Network. Um, and it's, it was, uh, so there's really no capital expenditure. It was already set up on their, on the infrastructure side.

Speaker Change: Do you remind us what you're doing in Collision revenues in the UK now?

Speaker Change: So, we can Benchmark that.

Speaker Change: We haven't provided that in in the past but it's something less than 100 million. Um, I think is what? What? We've got. Its a partial loan. Yeah, piece of it. Yeah, it would be well over 100. Yeah, yeah, yeah, yeah. Okay.

Speaker Change: Yeah, with pain and everything. It's it's a little bit different Brett.

Speaker Change: Yep.

Speaker Change: All right, thanks.

Operator: To ask a question, please press star followed by 1 on your telephone. Questions?

Speaker Change: Good question, please.

Speaker Change: Star followed by 1 on your telephone keypad now.

Scott Stember: Scott, your line is now open, please go ahead. Here's a follow up on tariffs. I'm not sure if you said but I think you said 35 million was the headwind in the quarter. Is that what you needed to offset and just trying to get a sense of Coming out of the last quarter, the narrative was that you guys could more or less offset, or it would be very, very manageable for you. Are you changing that narrative at this point right now?

Speaker Change: The next question comes from Scott stender of Ross, Scott. Your line is now open. Please go ahead.

Scott Stender: It's a follow-up on tariffs. Um I'm not sure if you said but I think you said 35 million was the headwind in the quarter. Is that what you needed to offset and just trying to get a sense of

Speaker Change: uh, you know, coming out of the last quarter or the, The Narrative was that, um, you guys could more or less,

Speaker Change: Offset or it would be very very manageable for you. Are you changing that narrative at this point right now?

Rick Galloway: The $35 million, I'll take the first part and then you can take the second, the $35 million, Scott, was what is sitting in inventory at the end of Q2. So that's not what went through the P&L. It was minimal impact within the P&L as far as the cost side goes. And we've offset that with pricing. So we think that that'll happen in the back half. So nothing's changed as far as what we talked about before. The numbers are roughly about the same as what we disclosed back in Q1. And then we'll continue to monitor.

Speaker Change: The 35 million. I'll take the first part and then you can take the second. Um, the 35 million Scout was, what is sitting in an inventory at the end of Q2. So, that's not what went through the p&l. It was minimal impact within the p&l.

Rick Galloway: And the one thing that we need to figure out and are going to continue to drive is the impact of trade working capital with the increase in tariffs is something we're going to have to mitigate and figure out how to do that in the back half of the year. But from from pushing it through pricing, Scott, there's been no issue. What we talked about last quarter was we're confident we can mitigate it, at least push the price to cover the tariffs. Historically, what we've always done is made margin on top of that. And so that's kind of yet to be known where there's some uncertainty there, but there's no concern for us on the tariff increase on the cost side being able to pass that through.

Speaker Change: Is as far as the cost side goes, and we've offset that with pricing. So we think that that will happen in the back half. So nothing's changed as far as what we talked about before. The numbers are roughly about the same as what we disclosed back in q1. Uh and then we'll we'll continue to Monitor and the 1 thing that we we need to figure out and and are going to continue to drive is the impact of of trade working capital with the increase in tariffs is something we're going to have to mitigate and figure out how to do that in the back half of the year.

Speaker Change: But from, from pushing it, through pricing, Scott that there's been no issue. Uh, what we talked about last quarter was we're confident, we can mitigate it. Um, at least push the price to cover the terrorists. Historically, what we've always done, is made margin on top of that. And so that's kind of yet to be known. There's some uncertainty there, but there's no concern for us, on the Tariff, increase on the cost side, being able to pass that through.

Scott Stember: Got it. Thank you. Thanks, Scott.

Speaker Change: Got it. Thank you.

Speaker Change: Thanks Scott.

Justin Jude: We have no further questions, I will hand back to Justin Jude for any closing remarks. Next operator.

Speaker Change: We currently have no further questions so I'll hand back to you for any closing remarks.

Justin Jude: Just in closing, even with the challenge that we talked about on repairable claims in North America, I just want to give a shout out to the team in North America. I mean, they absolutely crushed it, outperformed the market by 650 bits. There's no team better than ours globally. And we're set up and poised to take advantage once the market recovers.

Justin Jude: And our Europe team, once again, I was just over there a month ago, really enjoyed meeting with some of our new key leaders, working with them on some of the cost cutting actions. You know, they're focused on executing a against a three-year strat plan. But you know, the integration and transformation of that company is hard, a lot of work to do, but they've got the right skillset and mindset. And I'm excited to see what they can deliver and unlock that significant opportunity.

Justin Jude: You know, from overall on a strategy plan for simplifying the portfolio, we're still active on that. So more to come.

Justin Jude: And, you know, obviously, it's been a challenging market for our employees. So I just want to say thank you to all the employees that helped us deliver and continue to deliver every day.

Justin Jude: And so with that, I'll end the call. Thanks, everyone, for your time today. today's call. Thank you for joining. You may now

Speaker Change: Want to give a shout out to the team in North America. I mean, they absolutely crushed it outperformed the market by 650 bips, there's no team better than ours globally. Um, and, you know, we're set up in poised to take advantage once the market recovers and our Europe team. Um, once again, I was just over there a month ago, really enjoyed meeting with some of our new key leaders, working with them on some of the cost cutting actions. Um, you know they're focused on executing against the 3 year strap plan. The but you know the integration of trans transformation of that company is hard is hard. A lot of work to do but they've got the right skills that in mindset and I'm excited to see what what they can deliver and unlock that significant opportunity. Um, you know, from overall on a strategy plan for simplifying the portfolio, we're still active on that so more to come. Um and you know, obviously it's been a challenging market for our employees. So I just want to say thank you to all the employees that helped us deliver and continue to deliver every day.

Speaker Change: And so with that, I'll end the call. Thanks everyone for your time today.

Speaker Change: Today's call, thank you.

Speaker Change: for joining, you may now disconnect