Hello, everyone. Thank you for attending today's LKQ Corporation's Third Quarter 2025 Earnings Conference Call. My name is Ken and I will be your moderator today. I would now like to pass the conference over to our host, Joe Boutross, Vice President of Investor Relations, to begin.

Thank you, operator. Good morning, everyone and welcome to LKQ's Third Quarter 2025 Earnings Conference Call. With us today are Justin Jude, LKQ's President and Chief Executive Officer; and Rick Galloway, our Senior Vice President and Chief Financial Officer. Please refer to the LKQ website at lkqcorp.com for our earnings release issued this morning, as well as the accompanying slide presentation for this call. Now let me quickly cover the safe harbor. Some of the statements that we make today may be considered forward-looking. These include statements regarding our expectations, beliefs, hopes, intentions or strategies. Actual events or results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors. We assume no obligation to update any forward-looking statements. For more information, please refer to the risk factors discussed in our Form 10-K and subsequent reports filed with the SEC. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and slide presentation. Hopefully, everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today. And as normal, we're planning to file our 10-Q in the coming days. And with that, I am happy to turn the call over to our CEO, Justin Jude.

Thank you, Joe and good morning to everyone joining us on the call today. I am extremely proud of our performance this quarter, demonstrating both the resilience of our business and the impact of our strategic initiatives. With some positive operational performance and onetime tax benefits, we have confidence in our full year outlook to raise our midpoint and narrow the range. While I understand that most of you are interested in the financials, it's important to emphasize that our strong performance is a direct result of the relentless dedication and commitment of our teams across the globe who have enabled us to execute and succeed against our strategic pillars. Let me make some quick general comments on our markets before diving into specifics. We are seeing ongoing macro challenges, including reduced consumer spending and lower demand for vehicle repairs. As recent headlines have shown, other automotive companies are facing similar issues. However, our team has remained focused on controlling the things that we can control. In most areas of our business, we have outperformed the market and we're able to pass through costs. We are in execution mode. And as I mentioned on our last earnings call, we are focused on a multiyear transformation centered around 4 strategic priorities of simplifying our portfolio and operations, expanding our lean operating model globally with a focus on margin improvement, investing and growing organically, and pursuing a disciplined capital allocation strategy. To that end, I would like to highlight certain notable achievements from this quarter. First, we completed the sale of our Self Service segment to Pacific Avenue Capital Partners for $410 million. We were very pleased to see strong interest in the business. As a result of this sale, we have not only simplified our business but strengthened our balance sheet, which we believe is prudent to do in these uncertain economic times. The proceeds from the sale of Self Service have been used to reduce debt. We are prioritizing maintaining a strong balance sheet and our investment-grade rating to navigate market challenges, especially in these uncertain times. During the quarter, we had no acquisitions but to be clear, our strategic review process is active and ongoing and in coordination with the finance committee of our Board of Directors. We expect to continue our efforts to simplify our portfolio and operations as markets and opportunities avail themselves. Second, we continue to improve our lean operating model globally with a focus on margin improvement and are acting with urgency to correct inefficiencies. To that end and as we outlined earlier this year, we targeted an additional $75 million in cost savings for 2025. I'm pleased to share that we made meaningful progress since Q2 and achieved $35 million in cost savings, well on track to meet the $75 million target. These gains have come primarily through our European business transformation driven from the leadership refresh in Europe earlier this year. Another important milestone under this initiative is our rollout of a common operating platform across Europe. We are on track to go live in early 2026 within a major market, which will put approximately 30% of our European revenue on a common system. Our recent migrations in smaller markets this year have given us confidence in our ability to effectively manage a larger implementation. Notably, the second migration had no operational impact, a direct result of the lessons learned from our earlier launch in the first half of the year. Having scale on a common platform will help us replace legacy systems that are at risk but more importantly, enable us to get back to profitable growth and faster integrations that will drive higher returns on invested capital. Lastly, turning to capital allocation. Our approach remains disciplined. We continue to balance share repurchases and dividend payments as part of a thoughtful return of capital program while also ensuring we maintain a strong balance sheet. Now moving on to our segments. In North America, repairable claims continued to experience downward pressure, though the rate of decline has moderated to approximately 6%. Service levels and inventory fill rates were maintained and not sacrificed during these temporary challenges, enabling results that exceeded the performance of repairable claims. Revenue decreased by 30 basis points per day, marking the smallest decline since Q1 of 2024 and outperforming repairable claims by nearly 600 basis points. Let me highlight a few other positive trends in the U.S. that we think should help improve repairable claims. At the end of Q2, a record of 46.5% of auto insurance policies were shopped in the past year and many of the top carriers filed for rate reductions boosting new business. These trends signal ongoing pricing pressure from carriers and should help insurance rates normalize. Our part offerings continue to help carriers immediately reduce costs to offset any lower premiums just as they did during the financial crisis. We are also seeing used car prices somewhat stabilized but with continuing volatility month-to-month, values haven't normalized yet. Our diversification into new products and services in North America is generating positive results. During the quarter, our Canadian hard parts business, Bumper to Bumper, posted organic growth improvement both sequentially and year-over-year in a market that is also facing a recession-like economy. Additionally, our Elitek business, which provides technical repairs and calibrations, performed well with several key accounts achieving double-digit growth in the quarter. In Europe, organic revenue declined by 4.7% on a per day basis, reflecting a tough operating environment characterized by political uncertainty and weaker consumer confidence. We also decided not to retain certain less profitable revenue. And despite these market dynamics and overall volume pressure, the European team was still able to deliver double-digit EBITDA margins of 10% in the quarter, a 60 basis point improvement sequentially as they drive toward a leaner operating model and Rick will dive deeper into margins shortly. The improvements from our Europe operations integration, as discussed at our September 2024 Investor Day, will not happen all at once. However, our teams and new leadership are aligned with my approach focused on agile execution to create significant value for our company and shareholders. The challenges in Europe affect the entire industry, but LKQ excels in such environments, as shown by our success in North America. Having integrated businesses in tough settings before, I am confident we can achieve similar results in Europe. We made additional progress in the quarter with respect to our SKU rationalization objectives. The SKU rationalization initiative in Europe is intended to decrease complexity and streamline the distribution network in all markets. More than 80% of revenue in the product brands portfolio have been reviewed, an increase from 70% in Q2. Completion of this review is required before further delisting actions can be considered to ensure a full understanding of both opportunities and risks are known. Since the end of 2024, 29,000 SKUs have been delisted. These products had minimal or no sales and remaining applications are still supported by existing SKUs. Additionally, we continue to build out our collision model in the U.K., similar to our model in North America. We have developed our U.K. collision model, particularly around crash parts and paint from a base of 0 into a GBP 200 million business. Today, the top 20 insurers in the U.K. have approved LKQ to supply new aftermarket crash parts to their respective body shop chains under our global Platinum Plus private label brand. Currently, approximately 30% of the estimates received via the collision systems are being processed and we expect this figure to grow following the introduction of the salvage model partnership with SYNETIQ. At present, 9 of the top 10 insurers have preapproved the use of recycled parts. Finally, we are very excited about the results in our Specialty segment, which delivered a 9.4% increase in organic revenue, marking the first positive organic growth in 14 quarters. This turnaround reflects the success of our targeted initiatives to sharpen focus, improve pricing and strengthen channel relationships. On our last call, I made some fairly in-depth remarks on streamlining the team across our global footprint and the talent that we now have in place. With another quarter under our belt, we are beginning to see the benefits of this transformation. A culture of execution is radiating through the organization and everyone is accountable to deliver. We've come a long way but there's still more to do. And I'm confident in the team's ability to execute, adapt, and lead through cycles, supported by a clear strategy and a relentless focus on execution. Rick, I'll now turn it over to you to walk through the financial segments' results in more detail.

Thank you, Justin and welcome to everyone joining us today. I want to begin by echoing Justin's remarks regarding our performance in the quarter and the significant progress we made on our multiyear transformation strategy to simplify the business by sharpening our focus on core segments. Executing on our strategic priorities has been challenging in a down market. But as you can see, we have the team that delivers on our commitments in any operating environment. Before I go into specifics on the quarter, I want to quickly explain the impact of the sale of Self Service on our financial reporting. As mentioned in our 8-K, Self Service is reported as discontinued operations for financial reporting purposes, which means that its operating results are presented separately as a single line item above net income for current and historical periods, and our balance sheet information has also been recast to separately disclose the assets and liabilities of Self Service. The net impact on our prior guidance for adjusted diluted earnings per share is approximately $0.15 per share for full year 2025. Under U.S. GAAP, allocated costs commonly known as stranded costs are not reported in discontinued operations. These costs have been recast to the Wholesale North America's segment and totaled approximately $5 million per quarter or around 30 basis points to their segment EBITDA margin for all periods presented. Additionally, because we used the net proceeds to pay down existing revolver borrowings, interest costs totaling approximately $5 million per quarter have been allocated to discontinued operations for all periods presented. To assist in understanding the impact on the historical income statement and segment results, we have included several additional schedules in the tables to the press release and earnings presentation that reflect the recast results by quarter on a comparable basis going back to the beginning of 2024. We have also restated our guidance to reflect the impact of discontinued operations. I will take you through those numbers in a bit. Now turning to Q3 results for continuing operations. As Justin said in his remarks, we are pleased with our results for the quarter. We reported total revenues of $3.5 billion, a 1.3% increase over the prior year. Diluted earnings per share were $0.69, a $0.02 decrease compared to Q3 2024. On an adjusted diluted earnings per share basis, we reported $0.84, which excludes the results of operations from Self Service, now reported as discontinued operations. Self Service's operating results contributed approximately $0.03 to discontinued operations. Prior year adjusted diluted earnings per share were $0.86 after adjusting for discontinued operations. Taxes provided a benefit of approximately $0.06 per share compared to the prior year. We updated our annual tax rate estimate and saw a reduction of approximately 50 basis points, primarily attributable to the shift in the geographic mix of income. Additionally, we benefited from several discrete items, which make up the majority of the year-over-year tax benefit. Execution on our balanced capital allocation strategy benefited earnings per share by $0.02 resulting from share repurchases and another $0.01 for interest. Foreign exchange rates added another $0.02 compared to the prior year. Free cash flow was strong during the quarter at $387 million, bringing the year-to-date free cash flow to $573 million. We returned $118 million to shareholders including $40 million to repurchase 1.2 million shares and $78 million for our quarterly dividend. We remain focused on deploying capital in a way that maximizes shareholder value while supporting growth. In Wholesale North America, we were pleased with our top line performance given the soft demand we faced throughout 2025. We are confident we are increasing our market share and we are cautiously optimistic our markets are stabilizing. However, our markets are competitive and our ability to pass along price increases at a level that maintains our margin percentage is constrained and expected to remain challenging in the near term. Wholesale North America posted a segment EBITDA margin of 14.0%, a 180 basis point decrease relative to last year. Gross margin contributed to approximately 70 basis points of the decline due to the dilutive effect of increasing prices to offset dollar-for-dollar higher input costs from tariffs and unfavorable customer mix effect as we continue to grow share with MSOs. Overhead expenses were approximately 80 basis points higher as a percentage of revenue due to incentive compensation costs, professional fees, and credit loss reserves compared to the prior year on flat revenues. In Europe, segment EBITDA margin was 10.0%, a 20 basis point decrease versus last year but a 60 basis point improvement sequentially versus Q2. Gross margin improved by approximately 40 basis points, largely resulting from the portfolio actions taken in 2024. However, the organic revenue decline put pressure on overhead expense leverage resulting in the decrease to segment EBITDA margins. Specialty's EBITDA margin of 7.3% is consistent with the prior year as higher revenue on lower margin product lines led to negative mix effect on gross margin but strong cost controls provided a positive leverage effect on overhead expenses. With organic revenue ticking up in the quarter, we are encouraged by these recent trends. Now turning to the balance sheet. We repaid approximately $262 million of debt in the quarter. As of September 30, we had total debt of $4.2 billion with a total leverage ratio of 2.5x EBITDA. On October 1, with the pretax proceeds from the sale of Self Service, we repaid an additional $390 million in debt, further improving our leverage ratio. We believe it's prudent in these uncertain times to maintain a strong balance sheet to deal with uncertainties and we remain committed to our investment-grade ratings. As of September 30, 2025, our current debt maturities were $537 million, an increase from the end of Q2 as the Canadian term loan is now due within 12 months. For our 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 have no significant concerns regarding our ability to extend the maturity date. Excluding the borrowings that were repaid on October 1 with the proceeds from the sale of Self Service, our effective interest rate was 5.1% at the end of Q3, slightly lower than Q2. Our variable rate debt of $1.5 billion at the end of September was further reduced by $390 million following the receipt of the proceeds of the sale of Self Service on October 1 that were used for debt repayment. I will conclude with our thoughts on the updated guidance for 2025. When we updated guidance last quarter, we anticipated macroeconomic factors in both North America and Europe will continue to drive an uncertain environment. Despite these ongoing headwinds, our operational performance in Q3 was slightly ahead of our expectations. We have now revised our full year outlook based on Q3 results and the sale of Self Service. Our revised outlook and assumptions are included on Slide 12. Let me start with earnings per share. Following our third quarter results and continued execution across the portfolio, we are narrowing our full year 2025 guidance to an adjusted diluted earnings per share of $3 to $3.15. This updated outlook reflects the removal of Self Service, which was reclassified to discontinued operations and reflects the strength of our core business performance. Now let me walk you through midpoint to midpoint from the guidance we issued in Q2. In our prior guidance, our midpoint was $3.15. Adjusting for the sale of Self Service, the midpoint of our previous guidance would have come down by $0.15 to $3 even. With the better-than-anticipated performance in Q3, we are increasing our midpoint to $3.07, so a $0.07 increase on a like-for-like basis. We also narrowed the range, putting our updated range of $3 even to $3.15. Please note that our Q4 2024 results included a onetime net benefit of approximately $0.08 per share within our Wholesale North America segment attributable to a favorable legal settlement, partially offset by the impact from a brief cyber incident in Canada. Moving on. We expect reported organic parts and service revenue in the range of negative 200 basis points to negative 300 basis points, a narrowing of the range provided last quarter. Free cash flow is expected to be in the range of $600 million to $750 million, overcoming a roughly $75 million headwind from the sale of Self Service. In the fourth quarter, we expect to make an approximately $60 million payment for taxes on the sale of the business and an additional $15 million of lower cash flow from the loss of Self Service's Q4 segment EBITDA. We are mitigating the $75 million headwind by reducing our anticipated capital spend by approximately $50 million and making up the remaining $25 million through improved trade working capital. As noted last quarter, tariffs continued to be a headwind and we expect that the year-end inventory balance will include a full inventory turn inclusive of tariffs. Thank you for your time. And with that, I will now turn the call back to Justin for his closing remarks.

Thank you, Rick. In summary, we delivered solid Q3 results. We beat on adjusted earnings per share, raised the midpoint of our full year guidance and narrowed the range. We generated strong free cash flow and maintained our disciplined capital allocation strategy. I said I was going to simplify the portfolio. And while it's still ongoing, we were able to divest our Self Service segment to a solid buyer for a sale price that exceeded our expectations. North America posted a strong quarter, outperforming the market despite a weak repairable claims environment. Under new leadership, the Europe team continues its progress with our integration objectives and delivered double-digit EBITDA in a low demand market. Our Specialty segment posted robust revenue growth for the first time in over three years, and none of this would have been possible without our 46,000 team members who drive this performance on a daily basis and I want to give them a huge thank you. We are all committed to continue to improve our results, which will ultimately reward all our stakeholders now and over the long term. Operator, we are now ready to open up the call for questions.

We have our first question from Craig Kennison from RW Baird.

Wanted to talk about Europe. Can you help us understand the competitive landscape in Europe? And then maybe quantify the low-margin business that you're choosing not to chase?

Yes, Craig, thank you for the question. From a competition perspective, I would say it's about the same as before. The demand in Europe is varied, with consumer sentiment declining and some political instability in certain regions. While some countries are performing well, others are struggling. As you've probably seen, many suppliers and manufacturers in both the OEM and aftermarket sectors are downsizing. However, at LKQ, we are a leading distributor in Europe with the best value proposition. As cars age and consumers are not purchasing new vehicles, this trend should benefit us in the long run. The market will eventually recover. We're also not remaining passive; we are speeding up our integration efforts, as mentioned earlier, similar to what we've implemented in North America, to create a more efficient model that will generate more profitable revenue and provide better returns for our shareholders. Regarding your second question about revenue, if there were high service demands or if customers were comparing prices and we were not their first choice, we chose to walk away from some of that business. It wasn't a significant number of customers, but go ahead, Craig.

No, that's very helpful. It's what I wanted to follow up on. And then I know there's been significant sort of leadership change in Europe. And I imagine it takes time for traction to build for each of those leaders. I'm just wondering if you can give us an update on how you feel about the traction they're gaining.

Yes, it does take time. While they may not initially know our industry, the talent we have brought on possesses strong skills and a solid mindset. They recognize numerous opportunities and have a clear understanding of our transformation plan for LKQ Europe. They have experience in executing similar plans across various industries. They are realigning teams and, if necessary, replacing team members to ensure effectiveness. This new leadership is actively engaged and contributing to the process, making it a very positive transition.

We have our next question from Jash Patwa from JPMorgan.

Just a quick one to start. Could you share what you're seeing lately in terms of alternative parts utilization and total loss frequencies in the third quarter? And any color on repairable claims trends quarter-to-date would be helpful as well. And I have a follow-up.

Yes. When looking at the APU side, it has remained fairly stable from quarter to quarter, as has the total loss. A significant factor affecting this is the volatility in used car pricing, which we've discussed before. Month-to-month changes within the quarter have not stabilized yet. We did see some improvements, but then there was another dip in used car pricing in September. This volatility is preventing total losses from improving significantly. However, the APU staying flat is still a positive sign for us, indicating it isn't on the decline, and we continue to see opportunities to grow that APU number with many carriers.

Understood. That's super helpful. And just as a follow-up, another strong quarter with North America parts and services organic revenue growth outpacing repairable claims. Could you maybe break down how much of that 30 basis point decline was driven by ticket versus traffic? Just to help us better understand the underlying like-for-like volume trends at LKQ compared to the rest of the industry.

Jash, to make sure I understood, you said ticket versus volume? Or what was that comment or question?

Yes, just the price versus volume.

Okay. Yes, the price we encountered with tariffs being enforced was around 1 or maybe 2; let me find the exact figure here.

We have roughly $35 million of pricing coming up just related to tariffs.

Yes, I’m not sure about the exact percentage, but we are seeing ranges from about 1% to 3%. We've been fortunate to pass on the tariffs dollar for dollar. While we haven't gained any margin from it, we've successfully transferred that cost. Overall volume is still down, partly due to price, but we are significantly outperforming the market, which is a positive sign for us. Currently, MSOs are gaining market share, and we are growing alongside them. I believe that once repairable claims start to recover more, we will see independents returning and increasing their volume. For now, MSOs are capturing a larger share, but again, we are succeeding with them.

We have our next question from Bret Jordan from Jefferies.

This is Patrick Buckley on for Bret. Could you talk a bit more about what's driving Specialty growth? Are there any signs that this is a transition back to more of a growth cycle for the segment?

The industry still is down, both on the RV side, we're seeing, and on the automotive side. One thing that we're doing across all of our segments is we're not cutting service levels, we're not cutting inventory levels. I feel that we're gaining some share at this time. It's not really a market recovery. But I do see the market starting to show signs of good improvements. But I would not say the market is necessarily positive. So it's more share gains right now. We want some more share of wallet with some of our larger customers. So we feel pretty good about when the market does rebound, we'll be even stronger on that. But once again, we did not cut service levels or inventory and I think some of our competition did.

Great. That's helpful. And then looking at leverage ratio and capital allocation. I guess could you talk about at what levels do you expect you'll start to focus a bit more on allocating a more significant amount of capital to share buyback?

I can take that one. Yes, we finished the quarter with a leverage ratio of 2.5 times based on our calculations. Remember, we received the proceeds from Self Service on October 1, which were approximately $390 million before tax, and those funds were used to reduce our debt, improving our overall leverage. Ideally, we aim to reduce that to 2 times or lower eventually, but it may take some time. We are comfortable with our current leverage situation, and as we continue to lower it, we will have more flexibility to allocate funds towards share repurchases. We are consistently working to ensure a well-balanced capital allocation strategy.

We currently don't have any questions. I can confirm there are no further questions, and I will hand back over the call back to Justin Jude, the CEO, for any further remarks. Thank you.

Thanks, operator and thanks for everyone joining the call this morning. We appreciate it and we look forward to speaking to you next February when we report our fourth quarter.

Thank you very much. This concludes today's call. Thank you for your participation. You may now disconnect your line.