Operator: Welcome to LKQ Corporation's Q3 2026 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Joe Boutross, Vice President, Investor Relations. Joe, please go ahead.
Joe Boutross: Thank you, operator. Good morning, everyone, and welcome to LKQ's Q3 2026 earnings conference call. To kick off the call, we have a pre-recorded message from John Mendel, LKQ's Chairman of the Board, that will provide some additional context related to our recent press release regarding changes to our leadership team and an update on the company's strategic review.
Joe Boutross: Following John's message, Rick will provide some high-level comments on each of our segments, followed by a detailed overview of our financials in the quarter, and then we will open the call for questions. I kindly ask that you focus your questions solely on the company's performance during the quarter. 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.
Joe Boutross: 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.
Joe Boutross: During this call, we will present both GAAP and non-GAAP financial measures, and 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. As normal, we are planning to file our 10-Q in the coming days. With that, operator, we are ready to begin the call.
John Mendel: Thank you, Joe, and good morning, everyone. We appreciate you joining us. Following last Friday's announcements, the board felt it was important that you hear from us directly before Rick takes you through the quarter. I will keep my remarks brief, but I want to share some perspective on the decisions we made and why. The board's focus is on delivering results for our shareholders, and that is what guided the changes we announced. LKQ is an exceptional business.
John Mendel: We have unmatched scale, leading market positions in multiple regions, a unique global distribution network, and talented teams across the company. Our financial and operating performance has not reflected the strength of this business, and that has been disappointing, both to our stakeholders and to this board. We have been operating in a challenging environment, and our execution, particularly in Europe, has not met the standards we expect of ourselves.
John Mendel: The board has been actively engaged on these issues for some time now, and the strategic review we began earlier this year was one part of that work. We believe that LKQ has significant strengths that are not currently reflected in its operating performance, and our focus is on ensuring those strengths translate into improved results for shareholders. Last week, we announced three actions.
John Mendel: First, we made a change at the top of the company. The board has appointed Sal Abbate as President and Chief Executive Officer, effective 15 December. He succeeds Justin Jude, who departed the company on 23 October. We thank Justin for his years of service and contributions to LKQ. Until Sal joins, the company is being led by an interim Office of the Chief Executive Officer, made up of Sue Gove, Chair of our Audit Committee, and me.
John Mendel: We are working closely with LKQ's leadership team to oversee the company's operations during this period. After a thorough search, the board concluded that Sal is the right leader for LKQ at this moment. He spent more than three decades leading large, complex distribution and industrial businesses. As CEO of Veritiv, a high-volume, multi-site distribution business, he led a significant transformation of the company, with its share price increasing more than 13-fold during his tenure, culminating in its $2.6 billion sale to Clayton, Dubilier & Rice in 2023.
John Mendel: He also brings public company and international experience as well. Sal knows what it takes to win in a business like ours, and he brings the operating rigor, commercial instincts, and sense of urgency we need to sharpen execution and manage change with greater discipline.
John Mendel: Second, we made a leadership change in Europe and engaged Alvarez & Marsal to advise the company on its European business on an interim basis. A&M has a mandate to stabilize operations, including the ERP-related issues, and restore service levels across the region. The team is also helping ensure continuity for customers and suppliers across the region while supporting our efforts to improve operational discipline and performance.
John Mendel: Third, we suspended our full-year 2026 guidance in light of the company's recent performance and leadership transition, and while Sal completes his review of the business. Finally, I want to update you on our strategic review. The board's commitment to unlocking value for shareholders has not changed. We made changes in leadership and brought in A&M to advise with respect to our European operations because of this.
John Mendel: Now, in light of the appointment of Sal and the other leadership changes we announced on Friday, the board has decided to suspend the strategic review, including the Specialty sales process. This will give Sal the opportunity to assess the business and the full range of paths to value creation. The board remains committed to overseeing strategic direction, protecting shareholder interests, and ensuring accountability, including evaluating opportunities that it believes could enhance shareholder value and optimize the company's strategic positioning over the long term.
John Mendel: We believe that is the right sequencing for shareholders, and we will provide updates when appropriate. Everything we are doing is in the best interest of our customers, our employees, and our shareholders. I want to thank our more than 42,000 employees around the world for their resilience over the past several months, and our customers and shareholders for their continued support.
John Mendel: Sal looks forward to sharing his priorities with you after he joins. With that, I will turn the call over to Rick to walk through the quarter in more detail. Rick will be handling the question and answers today and focus on the operating and financial performance in the quarter. We will not be able to comment on the strategic review process beyond what I shared here today. Thank you.
Rick Galloway: Thank you, John, and good morning, everyone. As you have just heard, this is an important moment for our company. We recognize the significance of the leadership changes announced last Friday and the disappointment in our Q3 results. Neither the executive leadership team nor the board is satisfied with where we are, and we are taking decisive action. Our execution has fallen short, particularly in Europe, and we need to address those issues with urgency, focus, and accountability.
Rick Galloway: I want to be equally clear that we remain confident in the fundamental strength of our businesses. We have strong market positions, differentiated capabilities, and dedicated teams around the world. My goal this morning is to speak candidly with you about what happened during the quarter, what we believe drove our performance, and where we are focusing our attention going forward.
Rick Galloway: I will start with our operating performance by segment and then walk you through the financial results. Let us begin with North America. In North America, organic revenue declined 2.4% compared with a decline in repairable claims of 1% to 3% during the quarter. Auto insurance pricing continues to decrease, making our Parts and Services offering even more attractive to carriers seeking cost-efficient repair solutions. The CPI for motor vehicle insurance declined 5.0% year over year in September 2026, its lowest level since December 2024.
Rick Galloway: In addition, self-pay repairs are approaching historical highs, and our parts provide a strong trade-down option that helps consumers manage out-of-pocket costs without sacrificing quality or availability. These favorable trends help drive alternative part utilization to a record of nearly 41% for the quarter, surpassing the previous high that we set back in Q2.
Rick Galloway: Total loss rates were stable year over year, with used car prices modestly lower in the quarter. Total losses remain elevated by historical standards, but that trend largely reflects the aging vehicle fleet, particularly vehicles beyond our 4 to 12-year sweet spot, rather than any shift in underlying demand for our parts. The hard parts team posted its third consecutive quarter of organic revenue growth, resulting in low single-digit year-over-year improvement in Q3. Turning to Europe.
Rick Galloway: We are clearly not satisfied with our performance in Europe. Many of the challenges we faced were self-inflicted, and we take full ownership of them. Simply put, we had too many operational initiatives underway at the same time, which pulled our attention inward and caused us to lose focus on the customer.
Rick Galloway: These challenges manifested in several ways during the quarter, including disruptions to category management and product availability, gaps in our branch profiling and assortment, and service level issues in certain markets. These issues affected our ability to consistently deliver the parts availability, service levels, and competitive pricing our customers expect from us. We are moving with urgency and discipline to address them and strengthen our execution across the region. Turning to Specialty.
Rick Galloway: Specialty continued to grow, but at a lower rate than we saw in the last several quarters. We experienced some modest external pressure during the quarter, primarily from higher fuel prices and interest rates affecting the automotive portion of the business, as well as softer demand in Canada tied to geopolitical trade tensions and retaliatory tariffs.
Rick Galloway: None of these factors were material on their own, but even against that backdrop, Specialty delivered organic revenue growth of 90 basis points in the quarter. The RV and Marine division of Specialty continued to grow in the quarter, and we are pleased with that performance given the challenging market conditions. RV results stood out in particular, with retail dealers seeing low double-digit revenue declines and industry-wide wholesale shipments down over 16% year-over-year in August, according to the RV Industry Association data.
Rick Galloway: Our ability to deliver growth in that environment highlights the strength of our team, our customer relationships, and the durability of our value proposition. Now, turning to our financial results. Beginning with our consolidated results, our reported numbers are consistent with the preliminary ranges we provided on 23 October.
Rick Galloway: Third quarter revenue was approximately $3.3 billion, a decrease of 5.1% compared with $3.5 billion in the prior year period. Parts and Services organic revenue declined 5.4%, foreign exchange reduced revenue by 0.7%, and acquisition and divestitures net added 0.6%. Diluted earnings per share was a loss of $0.09, compared with earnings of $0.69 in the prior year period.
Rick Galloway: Our GAAP results included pre-tax non-cash charges of $111 million, including $88 million related to goodwill impairment on our Specialty segment and $23 million related to impairment on net assets held for sale for our operations in Romania, both of which are excluded from our adjusted results. Adjusted diluted earnings per share was $0.50, compared with $0.84 in the prior year period. As in the Q2, the year-over-year decline largely reflects lower revenue and profitability in Europe. Turning to segment results.
Rick Galloway: North America Parts and Services organic revenue declined 2.4%. Despite lower revenue, we were pleased that North America delivered segment EBITDA of $203 million and EBITDA margin of 14.4%, 40 basis points higher than the prior year period. This was slightly ahead of our expectations. Gross margin improved to 42.3%, supported by an expanded deployment of our strategic pricing model. At the same time, the team remained disciplined on costs, lowering SG&A despite higher freight and fuel expenses, with personnel costs approximately $7 million below the prior year.
Rick Galloway: Europe Parts and Services organic revenue declined 9.8%, an improvement of the 12.6% decline in the Q2, but still well below our expectations. In Germany, branch availability has returned to near pre-implementation levels, and on-time, in-full delivery reached 95% across the region. However, the revenue recovery has lagged, and it has been slower than we expected when we spoke with you in July, as revenue loss in the region due to the ERP was approximately $95 million.
Rick Galloway: Outside of Germany, the execution issues I mentioned earlier affected our competitiveness and contributed to the market share loss in the UK and Benelux. Europe segment EBITDA was $68 million, a margin of 4.6% compared with 10.0% in the prior year period, a year-over-year decline of $94 million. We estimate that the ERP-related disruption in Germany reduced EBITDA by approximately $43 million in the quarter. Most of the remainder reflects lower volumes with negative leverage effect and lower vendor rebates tied to reduced purchase volumes.
Rick Galloway: Gross margin declined approximately 220 basis points year over year, and SG&A as a percentage of revenue increased approximately 350 basis points, reflecting deleverage on lower volumes, higher freight and fuel costs, and higher professional fees related to ongoing technology initiatives. As John noted, we have engaged Alvarez & Marsal to advise us on our European operations, with an initial focus on improving customer service levels, stabilizing operations, and strengthening performance and cost discipline across the region.
Rick Galloway: Specialty segment EBITDA was $25 million, with an EBITDA margin of 5.5%, approximately 180 basis points lower than the prior year period. This mainly reflected higher freight and fuel costs and integration-related challenges associated with the acquisition we completed in Q2. Moving to cash flow and the balance sheet.
Rick Galloway: Q3 operating cash flow was $411 million, and free cash flow was $372 million, reflecting improved working capital management and continued strong cash conversion in North America. For the first 9 months of the year, operating cash flow was $466 million, and free cash flow was $336 million. As of 30 September, total debt was $3.7 billion, and total leverage, as defined in our credit facility, was 2.8x EBITDA, consistent with the end of Q2. Total liquidity was approximately $1.7 billion.
Rick Galloway: As previously noted, in late July, we prepaid our $500 million term loan, originally due in January 2027, using borrowings under our revolving credit facility. We currently have no significant borrowings coming due until 2028. During the quarter, we repurchased approximately 1.2 million shares for $30 million and extended our share repurchase program through October 2028.
Rick Galloway: We also paid $76 million in dividends, and on 27 October, the board declared a quarterly cash dividend of $0.30 per share. Year to date, we have returned $313 million to shareholders. Our capital allocation priorities are unchanged. We remain committed to maintaining a strong balance sheet while continuing to invest in the business and return capital to shareholders. Turning to our outlook.
Rick Galloway: As we announced on 23 October, we have suspended our full year 2026 guidance, and our previous guidance should no longer be relied upon. Given the leadership changes we announced last Friday and the ongoing challenges in our Europe segment, we believe suspending guidance for the remainder of 2026 was the appropriate approach. Now, let me close by reiterating that we fully acknowledge the issues that affected our results, and we are taking immediate action to address them.
Rick Galloway: Our near-term priorities are to stabilize the business, strengthen our operations, and improve financial and operational performance. We are examining the business closely, establishing clear action plans and accountability, and moving decisively on opportunities to deliver near-term improvement. The board's decision to suspend the strategic alternatives review reinforces that focus. We have a strong business, leading market positions, and competitive advantages that have been built over decades.
Rick Galloway: We are sharpening our attention on execution, serving our customers, and delivering improved results. As John discussed, we look forward to welcoming Sal and working closely with him as we enter this next chapter. In the interim, the office of the CEO will remain closely engaged with our leadership team and the board, maintain focus on our priorities, and ensure a smooth transition so that Sal can move quickly when he joins us.
Rick Galloway: I also want to thank our employees around the globe, many of whom are listening today. I recognize that the recent leadership transition represents a significant change for our organization, and I am grateful for your continued focus, commitment, and dedication to our customers. Thank you for joining us today. Operator, you may now open the call for questions.
Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Babcock with Barclays. Your line is open, John. Please go ahead.
John Babcock: All right. Good morning, and thank you for taking my questions. I guess just starting out, Germany was a little bit more of a challenge than I think most people probably expected, and it seems like it persisted more into this quarter. How do you get that Germany impact back? Also, why was this so much more of an issue than you thought when the quarter began?
Rick Galloway: Yeah. Thanks, John. Appreciate the question. Look, in Q3, we further stabilized the system and operations. The sales are hovering now around 85% versus the prior year on a per-day perspective. One of the big focuses for us is going to be on the operational metrics of OTIF, or on time in full. We have to get delivery performance back to where we expect it, which is about 95% right now.
Rick Galloway: Recovery is in progress, and it is a good positive trajectory. A couple other things that we have done is we successfully concluded two more ERP releases to update the system, driving better efficiencies and reliability in the operations. Look, our teams are focused on working with the worst-performing branches. The lowest-performing branches are where we need to bring them up to the expectations with normal trading through on-site support and targeting training.
Rick Galloway: This allows us for our sales teams to work with our customers. What we found in the last few weeks, and probably the last four to six weeks, is customer sentiment continues to improve across our NPS measurements, and our customer journey insights are helpful in prioritizing the overall improvement initiatives. So, the improvements are there. The operational improvements are there. The next phase of this, John, is in control and capable and being able to get our customers to rely on us, and that reliability has much improved, and giving our sales team an opportunity to actually win back that share.
John Babcock: Okay. Thank you. In terms of the UK and Benelux, was there any notable change from last quarter, or was there. In other words, was there something that worsened? Also, as a separate point, I was wondering if you also might be able to talk about why Alvarez & Marsal was chosen here to help with the European operations as opposed to doing it internally.
Rick Galloway: Yeah, appreciate the question. There was further deterioration that we saw in Q3 in both the UK and our Benelux area. One thing to keep in mind on our Euro Car Parts business, which is in the UK, they have been struggling for a little bit. What we have identified is many of these are within our control. The struggles that we have are product availability, being able to say yes to our customers more often. But one thing to be clear is we are still number one in the UK by a wide margin.
Rick Galloway: What we need to do is get back to servicing our customers, focus on the customers, and get any distractions away from us. We have the strongest footprint, the strongest delivery network, and the team there is loving to win. They continue to want to win. The focus needs to be on fundamentals.
Rick Galloway: One of the reasons we hired A&M was their big focus on fundamentals of improving service levels, enhancing the inventory, logistics execution, and also sharpening our overall approach on this trade segment that we have. These actions are underway immediately, and what we are looking at is the team needs to move with urgency and really take away any distractions. Having A&M come in is allowing us to really focus that team with a team of theirs that has a footprint to help really focus the business on the improvements at hand and really work with urgency.
John Babcock: Okay. Very helpful. If you do not mind me squeezing in one more question, just on North America, it seems like your organic sales pace was maybe not the typical outperformance or all sets of repairable claims. If you could talk about that would be helpful, and then I will pass it over.
Rick Galloway: Sure. A couple things that occurred within the quarter actually happened within our non-collision business. We had some delivery performance issues in some of our non-collision parts of the business that tend to outweigh and drive that beat to repairable claims, and they did not see the same improvement that we had seen previously.
Rick Galloway: The good news is that those delivery performance issues have been significantly rectified as we moved into Q4, and we are looking much, much closer to year-over-year. We are not quite back to growth in those parts of the business, but we are just slightly under in those parts of business. That was one of the major impacts of why that beat was not there as normal.
John Babcock: Yeah. Thank you. Very helpful.
Operator: Your next question comes from the line of Jeff Lick with Stephens. Your line is open, Jeff. Please go ahead.
Jeff Lick: Good morning, Rick. Good morning, Joe. Thanks for taking my question. Rick, I just wonder if you could remind us, with the ERP implementation in Germany, presumably you did that for a reason, eventually you get to the other side. Could you remind us in terms of what that return on investment will look like in terms of either reduced SG&A, better volumes, and better gross margins?
Rick Galloway: Yeah, good question, Jeff. Appreciate that. Look, there were many reasons to do the ERP implementation. One of the reasons to choose Germany was the system itself was antiquated with different areas that we were going to need to upgrade that system and make sure that that is safe and secure and make sure that we can provide to our customers. One of the things is a significant portion of our orders in Germany, in particular, come in electronically, and our system that we had prior to this was not allowing our customers to do everything that they needed to do, and this opens it up for them to be able to order much easier.
Rick Galloway: One of the reasons that we have done it is that, and one of the positives we have seen is the new customers we have gone after, we are seeing a really nice win rate on those new customers that were not impacted negatively in Q2. The overall returns and paybacks are pretty significant. We are looking at driving overall revenue increases. We are driving overall market share improvements, along with being able to shut down one of our corporate headquarters. We had two corporate headquarters.
Rick Galloway: We are able to consolidate those and reduce our overall SG&A as well. The third thing that this allows us to do is really the opportunity for us to do logistics without borders and be able to provide a better logistics footprint across the pan-European business as we continue to move down this path.
Jeff Lick: And then a couple follow-ups there. I mean, look, your SG&A was $476 million, which was the same as Q2 and a little more than Q3 of last year. I am assuming there is some elevation there. You talk about shutting down headquarters. I mean, it sounds like those are some chunky buckets. Could you maybe just any degree of magnitude of when the dust settles and you are not paying extraordinary charges right now to fix things, where we could get to?
Rick Galloway: Yeah, we have not come out and said what those numbers are at this point, Jeff. What we did see within the quarter is we brought in around 300 temporary workers to increase the cost in order for us to get our delivery performance up where we wanted it to get to. Since the beginning of the quarter, those 300 have really pretty much are gone by the end of the quarter, but that was an inflated number that we saw within the quarter.
Rick Galloway: And what we have been able to see is that we have been able to take some of the reductions in our overall headquarter costs. But as far as quantification on that, we have not come out and quite quantified that yet. I would want to wait and not do that on this call.
Jeff Lick: And then one last quick one. Look, when a guy like Sal, a new CEO, comes in, he generally asks the CFO, "Hey, listen, let us get some easy wins. Let us just stick to some 80/20 rules." Rick, what are the one or two, three things we can do right away to get some quick improvement. What are you going to tell him?
Rick Galloway: Those are great questions, and when he gets here, him and I are going to have that conversation, Jeff. Him and I will work on that together. But it is something that we will work on together as he comes on board.
Jeff Lick: Awesome. Thanks, Rick.
Rick Galloway: Thanks, Jeff.
Operator: Your next question comes from the line of Craig Kennison with Baird. Your line is open, Craig. Please go ahead.
Craig Kennison: Hey, good morning. Thanks for taking my question as well. I wanted to stick with Europe, and maybe, Rick, just try to better understand today, as it stands, are you still having an issue with delivering on orders that you get in terms of your fulfillment rate? Or is the issue now just recovering that demand such that your order rate is back to prior levels?
Rick Galloway: Craig, you are talking specifically about the ERP in Germany?
Craig Kennison: Yes.
Rick Galloway: Well, what we are seeing is the measurement that we utilize is on-time in full, the OTIF measurement. That number in Q2 was less than 80%. That number needs to be in the high 90s in order for us to be able to say yes to our customer enough, right? So where we are at on average right now is 95%. So we are getting really close to that.
Rick Galloway: What I would tell you is 75% of our locations are in the upper 90s. So when we are sitting there and looking at the top 75% of our locations, we have about 155 locations in Germany. The top 75% of them, they are at a position that is at a minimum meeting the competition and oftentimes beating the competition. So it is not a system issue per se that is going down and is causing a whole bunch of problems across the board.
Rick Galloway: Instead, what it is, it's a training opportunity for us to bring some of our lower-performing branches up to the level of expectation and then be able to say yes more often. What we're seeing is, again, those top 75% of our branches, they're delivering at a high 90s number and really being able to say yes more often. That's where I'm having the confidence that we've got to get those bottom ones up to the proper performance and then be able to get the customers convinced to come back and really be customer-focused on being able to say yes to them more often and not have any disruptions.
Craig Kennison: Thanks. Is there a way to measure the demand component here? In other words, are your European customers, I guess in Germany, deprioritizing you because you haven't been able to deliver to their expectation? Are you seeing that show up in weak orders?
Rick Galloway: Yeah, we're seeing a couple different buckets, Craig. We look at different buckets of our customer base. Some customers that we impacted significantly have pulled a significant portion of their business away from us, and some have walked away totally and gone to competition. That's a small percentage of the overall customer base. The majority of our customer base is giving us still a majority of their share, but not getting us back to the same levels that we had before, and that's a constant conversation.
Rick Galloway: The good news is that we're still working with them. They still enjoy working with our Stahlgruber business and want to give the business back, but we've got to be in control and capable and be able to prove that to them. That's the efforts that we're doing right now. The operational improvements are coming through.
Rick Galloway: Now it's that convincing the customer that we're in control and capable and we can say yes all the time. That's where we have confidence that the revenue will come back. Again, we don't want to forecast when that revenue is going to come back, but the relationship with the customer is strong on those individuals. Then again, we are winning new share, which is something that is encouraging as well.
Craig Kennison: Thanks. With respect to winning that business back, should we expect a period of heavier promotional activity to earn the opportunity again?
Rick Galloway: When you are thinking about overall price and giving it back, look, we are going to remain competitive on price, but price alone is not the answer. We are going to have to go and be more aggressive here in Q4, I think. But one of the things that happens in that business is that they have an annual bonus, is what we call it over there, and the annual bonus really starts on 1 January, and then there is a volume component associated to that.
Rick Galloway: In order to win back some of that share in Q4, we are going to be aggressive and make sure that we are making sure our customers are made whole with the disruptions that we had earlier in the year. Look, our customers are looking for a better overall value proposition with consistent availability, service levels, and reliability, and we have not been delivering that. That is where our focus is, and we are actively engaged with both the existing and new customers to win back that share.
Craig Kennison: Great. Hey, thanks, Rick.
Rick Galloway: Thanks a lot, Craig.
Operator: Your next question comes from the line of Scott Stember with Roth Capital Partners. Your line is open, Scott. Please go ahead.
Scott Stember: Good morning, and thanks for taking my questions as well.
Rick Galloway: Morning, Scott.
Scott Stember: You made a comment earlier that you were a victim of having too many things going on at once, and we talked about Germany and the UK, but I mean, Germany and Europe. Could you talk about anything else that you could refer to that statement regarding management changes, notably in Europe? Is there anything else that we should keep an eye on?
Rick Galloway: One of the things I think that shows a clear message is really what the board enacted this week with the suspension of the strategic review. Make no mistake, there is a lot of work that comes behind doing a strategic review and analyzing the overall business. Look, the strategic review led to some significant actions, including new leadership at the top of the company, new leadership in Europe, and the engagement of A&M.
Rick Galloway: But suspending the review allows clarity to the organization that the highest priorities are to improve our relationship with our customers and drive operational improvements immediately. Those are the focuses that we have, and the board has made it extremely clear that if there is something that does not lead to those strategies and those improvements, then we probably put those on a back burner and really focus on delivering to our customers.
Rick Galloway: That is one of the biggest things of being able to pull that off and say, "The team needs to focus on operations." There are other projects that the team is working on to enhance the future of the company. They will still keep an eye on that, but really need to get back to the basics and driving performance.
Scott Stember: All right. Last question on the balance sheet. This year, obviously because of net income, free cash flow has come down, but also accounts payable have reversed. Just trying to get a sense if some of this disruption in Europe has led to an unwinding of any of these receivable factoring programs that you have put in place over the last few years?
Rick Galloway: Simple answer is no. It hasn't led to any of that. There's some timing that happened with payables between Q2 and Q3, so there's a little bit of free cash flow movement between Q2 and Q3 that we saw. But, Scott, there's no difference on the supply chain financing.
Scott Stember: Got you. That's all I have. Thank you.
Rick Galloway: Thanks, Scott.
Operator: Your next question comes from the line of Patrick Buckley with Jefferies. Your line is open, Patrick. Please go ahead.
Patrick Buckley: Hey, good morning, guys. Thanks for taking our questions. On North America, did you see any notable market share shifts in collision parts? Was there anything on the MSO volume side or in parts, or anything notable to call out on the paint side?
Rick Galloway: Business as usual on the paint side. It continues to move in a direction. Look, one of the things we have been really clear about is the most discretionary part of the repair is paint. When you are seeing repairable claims at -1% to -3%, you can imagine that paint tends to be a little bit worse than that, and that continued for this quarter. One of our larger MSOs did have a different sourcing approach that they did within the quarter. It did reduce our share a little bit.
Rick Galloway: Look, we remain active and constructive with discussions with them. They have been going very well. We have been working to reach an agreement that works for both sides, but beyond that, we are not going to comment on any individual customer relationships.
Rick Galloway: It is also important to understand that we also have the highest level of CAPA-certified parts and the most recognizable private label brand of Platinum Plus. These are reasons why our relationships with the MSOs are so positive, and we continue to grow with every other MSO within the quarter year-over-year.
Patrick Buckley: Great. That is all for us. Thanks, guys.
Rick Galloway: Thanks.
Operator: Your next question comes from the line of Jash Patwa with JPMorgan. Your line is open. Please go ahead.
Jash Patwa: Hi, good morning, and thanks for taking my questions. Just one on North America. Would you be able to parse out the volume versus price trends underlying the -2.4% organic revenue growth in North America? I am wondering if the combination of IEEPA tariff refunds and lowering of the Section 232 automotive tariffs from Taiwan has created a deflationary pricing environment that could weigh on organic revenue growth over the next few quarters. Thanks, and I have a quick follow-up.
Rick Galloway: Yeah. Josh, appreciate the question. The IEEPA tariffs have minimal impact on our North America business. Those are primarily related to China, and that has a little bit more of an impact on our Specialty side of the business. As far as the movement in tariffs that we had with the Taiwanese deal, the tariff did move from 25% down to 15%. We did start seeing some of that reduction within the quarter.
Rick Galloway: We also have a pricing engine that we are pretty excited about that is really looking at many different things to optimize overall pricing to make sure that we are looking at volume versus pricing versus margin, all the kind of stuff that we need to look at. It is showing some nice early signs.
Rick Galloway: As far as the price versus volume goes, price was a little bit favorable year-over-year, and then the downside was on the volume side of things, especially with the point I just made with the prior MSO. So, I think that that is temporary in nature on that part of it, and then we should be able to get that back.
Jash Patwa: Great color. Just as a quick follow-up on Germany, I believe the business was running at about 85% of pre-ERP transition level early in Q3. Could you give us a sense of how that progressed through the quarter and where it stands today? Based on your comments around incentive activity picking up sequentially into Q4, should we expect your EBITDA margins to remain in a similar range as Q3? Thanks.
Rick Galloway: Yeah. We did withdraw guidance, so I will be a little bit careful on what I have seen. Look, there is no catalyst that I am seeing in the business, really in any of the segments that would negate our normal seasonality. Keep in mind, we have normal seasonality from Q3 to Q4. I would expect that trajectory from Q3 to Q4 in really all the businesses to continue.
Rick Galloway: If you are looking back to last year and you see what the movement was, that is sort of the way I am looking at it, because I do not see a major catalyst. To the point you are making on the revenue, the revenue was around that 85%, and it sort of stagnated. The delivery performance has improved, and we have not seen the revenue return.
Rick Galloway: That is one of the things that we really need to focus on, is winning back some of that share with our customer base. I do not think that there will be anything significant that we are going to have to do as far as the additional bonuses, but we will have to make sure that we are very competitive on the pricing side.
Jash Patwa: Great. Thanks for taking my questions, and good luck.
Rick Galloway: Thanks a lot, Josh.
Operator: There are no further questions at this time. I will now turn the call back to Rick Galloway for closing remarks.
Rick Galloway: All right. Thank you, everyone, for your questions. Look, our execution, particularly in Europe, has not met the expectations, and we know we have work to do. Our focus is clear: stabilize performance, improve execution, and deliver better results. We also have meaningful strength across LKQ. North America expanded margins in this soft market, Specialty continued to grow, and those businesses give us a strong foundation moving forward. We look forward to Sal joining us on 15 December and sharing his priorities with you. Thank you, and have a good day.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
