LKQ (LKQ) Q4 2025 Earnings Call Transcript

DATE

Thursday, Feb. 19, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Justin L. Jude
• Senior Vice President and Chief Financial Officer — Joseph P. Boutross

TAKEAWAYS

• Revenue -- $3.3 billion for the quarter, a 2.7% increase year over year.
• Diluted EPS -- $0.29 reported, including a $52 million ($0.20 per share) goodwill impairment related to the Specialty business.
• Adjusted Diluted EPS -- $0.59, compared to $0.78 in the prior year, with the previous year including a $0.10 per share legal settlement benefit.
• Free Cash Flow -- $274 million in the quarter, leading to $847 million for the full year, surpassing the $825 million commitment.
• North America Organic Revenue -- Down 1% on a per-day basis for the quarter, and down 1.9% for the full year, reflecting weakness in repairable claims.
• North America EBITDA Margin -- 12.7% for the quarter, down 380 basis points year over year due to tariff pass-through dynamics, customer mix, and prior-year legal settlement impact.
• European Organic Revenue -- Down 5.2% on a per-day basis in the quarter and 3.9% for the full year, impacted by weak consumer confidence and pricing pressure.
• Europe EBITDA Margin -- 8.3% for the quarter, down 180 basis points, primarily from price competition and higher input costs.
• Specialty Organic Revenue Growth -- 7.8% on a per-day basis in the quarter, and 2.7% for the full year, sustaining improved performance after 14 quarters of flat or negative growth.
• Specialty EBITDA Margin -- 4.5%, up 40 basis points year over year, driven by cost control and improved channel execution.
• Debt Reduction -- Over $500 million of debt repaid in the quarter, aided by the self-service divestiture and free cash flow.
• Total Debt -- $3.7 billion at year-end, with leverage at 2.4x EBITDA, showing sequential improvement.
• Capital Return -- $116 million returned to shareholders in the quarter and $469 million for the year, representing 55% of free cash flow.
• 2026 Guidance: Organic Parts & Services Revenue Growth -- Forecast range of negative 0.5% to positive 1.5%; North America slightly positive, Europe slightly negative, Specialty closer to mid-single digits.
• 2026 Guidance: Adjusted Diluted EPS -- Expected range of $2.90 to $3.20.
• 2026 Guidance: Free Cash Flow -- Expected between $708 million and $750 million.
• Restructuring Plan -- Recently approved, targeting $60 million to $70 million in costs for 2026, with anticipated annualized cost savings over $50 million and more than half realized within the year.
• Strategic Review and Portfolio Actions -- Board-initiated comprehensive review underway, with management exploring alternative structures to unlock value; process to sell the Specialty segment is active due to strong interest.
• North America Market Share -- Volume with MSOs (multi-shop operators) increased in the teens percentage-wise; share gains achieved across all MSOs served.
• European Private Label -- Delisted 71,000 SKUs, with private label product volumes rising to approximately 25% of European units sold in the quarter.
• AI-Powered Pricing -- Expanded use of shop-level, SKU-level, real-time pricing algorithms to react to competitive dynamics and optimize margin opportunities.
• Debt Maturity Extension -- Revolver maturity extended to December 2030 and Canadian term loan to March 2029.

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RISKS

• CEO Jude said, "I want to express my disappointment in Europe's results," citing macroeconomic uncertainty, weak consumer confidence, and competitive pricing pressure driving declines in revenue and margins.
• Segment EBITDA margin in North America fell 380 basis points due to the inability to fully pass through higher costs; pricing pressure and tariff dynamics further constrain margin recovery.
• Europe faces persistent revenue and margin pressure, with management stating that a market recovery is not yet assumed in guidance and near-term outlook remains challenged.
• 2026 guidance reflects intentionally conservative assumptions, with management stating, "We are being cautious and conservative as we enter 2026," and explicitly not embedding a market recovery without sustained evidence.

SUMMARY

The board-initiated comprehensive strategic review reflects management's view that LKQ Corporation (NASDAQ:LKQ) is materially undervalued and may require alternative structures to unlock shareholder value. The sale process for the Specialty segment remains active, buoyed by strong buyer interest and improving segment-level growth metrics. Management emphasized significant cost actions—including an approved restructuring plan and European portfolio simplification—aimed at offsetting volume and inflationary headwinds. Guidance for 2026 intentionally excludes a market recovery, yet management identified early indicators of potential demand improvements—such as rising used car prices and declining insurance premiums—that could support volumes later in the year.

• European private label adoption was accelerated using introductory pricing, pressuring margins in the near term but positioned to support future profitability as acceptance increases.
• North America achieved notable market share gains with MSOs, credited to LKQ Corporation's scale, service quality, and targeted commercial relationships.
• Debt reduction and extensions of credit maturities strengthened the company's balance sheet and improved liquidity flexibility heading into 2026.
• Management outlined aggressive integration and cost-cutting initiatives in Europe, including ERP migrations and facility consolidation, designed to restore segment EBITDA margins toward double digits.
• Use of advanced real-time pricing algorithms—leveraging extensive company data—enables LKQ Corporation to balance competitive pricing needs while maximizing profit from slower-moving inventory categories.
• The restructuring program, expected to yield more than $50 million of annualized savings, aligns with management's broader strategy to improve operational efficiency and shareholder returns.

INDUSTRY GLOSSARY

• MSO (Multi-Shop Operator): Large collision repair organizations operating multiple shop locations, typically with strong insurer relationships and higher alternative parts utilization than non-MSO shops.
• APU (Alternative Parts Utilization): The percentage of non-OEM parts (such as aftermarket or recycled products) used in vehicle repairs, often a focus in insurer-MSO agreements.
• SKU (Stock Keeping Unit): A unique identifier for each distinct product and service that can be purchased, used to manage inventory at a granular level.
• ERP (Enterprise Resource Planning): Integrated business management software that streamlines operations, data, and processes across multiple company functions.

Full Conference Call Transcript

Justin L. Jude. Thanks, Joe, and good morning to everyone joining us on the call today. Before we get into the quarter, I want to start with an important message to our LKQ Corporation team. This past year tested us in meaningful ways and yet it also showcased the strength, discipline, and resilience of LKQ Corporation. We accomplished a lot in 2025 and are focused on keeping this momentum going in 2026.

Justin L. Jude: In February, I committed to delivering $825,000,000 of free cash flow in 2025. And despite multiple headwinds, our colleagues around the world executed, adapted, and delivered on that commitment. Importantly, we also made meaningful progress simplifying our portfolio. The divestiture of our self-service segment was a key element of the simplification strategy we outlined at our 2024 Investor Day. We delivered on that commitment in 2025. Transactions of this scale and complexity require significant leadership focus and discipline. Executing successfully in the midst of a challenging year across our global enterprise reflects the strength of our teams and our ability to deliver against our strategy.

I am proud of the outcome and our continued focus on creating long-term value for shareholders. The headwinds of 2025 were real and significant: a continued decline in repairable claims, the impact of tariffs, and persistent softness in the European market. Any one of those would have been a challenge on its own. Taken together, they created a difficult environment. And yet our people found ways to serve customers, maintain discipline, and deliver on our free cash flow commitment. That is an exceptional achievement and a testament to the grit of our employees. As many of you are aware, in 2026, LKQ Corporation's board of directors formally initiated a comprehensive review.

Given the strength of our underlying performance even in a year defined by significant headwinds, it has become increasingly clear that our current stock price does not reflect the true value or long-term potential of our businesses. The board and I, along with our entire management team, are aligned in our confidence in that future, and that confidence compels us to explore whether alternative structures could unlock value more effectively than the market is recognizing today. This review will run in parallel with our relentless focus on operational execution. Please note that we will not be answering any questions or commenting further on our strategic review process until further disclosure is appropriate or required.

Let me focus for a few moments on the operating highlights in the fourth quarter and the full year across our business. In North America, organic revenue decreased 1% on a per-day basis in the fourth quarter and decreased 1.9% for the full year 2025, reflecting a continued environment of weak repairable claims. Even so, we gained market share by deepening relationships with MSOs and insurers, maintained pricing discipline, and leveraged the scale and breadth of our branch and distribution networks to outperform repairable claims. Throughout 2025, each quarter, we saw improving comparables. Comparable claims were down approximately 10% in Q1 and improved sequentially each quarter.

In Q4, repairable claims were down in the range of negative 4% to 6%, demonstrating steady recovery from the early-year low point. Our bumper-to-bumper hard parts business continued to grow in Canada. We plan to expand this business further given the still fragmented do-it-for-me hard parts market across North America. Now I would like to provide you with an update on our performance in Europe. In 2025, our organic revenue experienced a decline of 5.2% on a per-day basis in the fourth quarter and a 3.9% decrease for the full year. This was primarily due to continued weak consumer confidence, macroeconomic uncertainty, and competitive pricing pressures.

In response, we implemented a more aggressive pricing strategy in select markets to protect share and accelerated our focus on private label growth. We expanded private label inventory in the fourth quarter with introductory pricing to drive adoption. While these actions have pressured revenue and margins in the near term, we believe they will deliver meaningful long-term benefits. We also completed a review of more than 85% of our Europe SKUs portfolio, bringing the total delisted SKUs to 71,000 or roughly half of our overall target. While we anticipate eventual market recovery, we are not being passive. Our team is proactively making bold decisions. This year, we are streamlining key business areas to improve cost efficiencies through targeted productivity initiatives.

Our efforts include fast-tracking our integration plan throughout Europe, streamlining our product lineup, sharpening our go-to-market approach, and applying successful tactics from our North American strategy. And we are on track to go live with a key system integration in 2026 which will serve as a significant catalyst for cost reduction opportunities. As CEO, I want to express my disappointment in Europe's results. While we never promised that progress would be linear and understand the risks involved in our three-year strategy, we remain fully confident in our team and the decisive actions we have taken. We are committed to overcoming these setbacks and delivering sustainable value for our shareholders.

We remain confident in our leading position across our core markets and I remain committed to delivering the margin expansion we have previously communicated as we execute through near-term challenges. Now turning to Specialty. This segment remains a strong performer, delivering 7.8% organic revenue growth on a per-day basis in Q4, and 2.7% growth for the full year 2025. We have seen improving results from targeted initiatives to sharpen focus, improve pricing execution, and strengthen channel relationships. As discussed last quarter, we returned to positive organic growth for the first time in 14 quarters and sustained that momentum again this quarter. We continue to move forward with the previously announced process to explore the potential sale of our Specialty segment.

Interest in our Specialty segment remains robust, and we expect to provide updates in 2026 as appropriate. In 2025, our teams gained share in North America while maintaining pricing discipline. We grew our bumper-to-bumper business, made progress on our European initiatives, simplified the portfolio through the sale of our former self-service segment, and grew free cash flow. We entered 2026 with stronger management teams, pricing and cost measures supporting margins, ongoing efficiency improvements, and productivity initiatives supported by a recently approved restructuring plan and early signs of demand improvement across our businesses. With that, I will turn the call over to Rick to walk through the financial results for the quarter in more detail.

Joseph P. Boutross: Thank you, Justin, and welcome to everyone joining us today.

Justin L. Jude: Before turning to the fourth quarter, I would like to echo Justin's comments on some of our accomplishments from 2025. We completed the sale of our self-service business, further simplifying the portfolio and sharpening our focus on core assets.

Joseph P. Boutross: Delivered strong free cash flow in what remained a challenging market environment. And we continued to aggressively reduce costs through restructuring and productivity initiatives to better align our cost structure with demand. In Europe, these actions improved the efficiency of our logistics footprint and reduced facilities and overhead costs. In North America, we focused on rationalizing overhead to more efficiently serve our customer base.

Justin L. Jude: Turning to fourth quarter results for continuing operations. We reported revenues of $3,300,000,000, up 2.7% year over year. Diluted earnings per share were $0.29,

Joseph P. Boutross: which includes a $52,000,000, or approximately $0.20 per share, goodwill impairment related to our Specialty business. On an adjusted basis,

Justin L. Jude: diluted EPS was $0.59 compared to $0.78 in the prior year on a comparable basis. It is worth highlighting that the prior year included

Joseph P. Boutross: a $0.10 per share benefit from a nonrecurring legal settlement in North America. Our balanced capital allocation strategy contributed positively to earnings, with share repurchases and interest expense each adding a penny, and favorable FX and tax rates contributing an additional $0.02 each.

Justin L. Jude: These benefits were more than offset by organic revenue

Joseph P. Boutross: declines and lower EBITDA in North America and Europe. For the full year, diluted EPS was $2.31, and adjusted diluted EPS was $3.01, at the lower end of the range we guided to in October. Free cash flow in the quarter was $274,000,000,

Justin L. Jude: bringing full-year free cash flow to $847,000,000.

Joseph P. Boutross: Exceeding our expectations and driven primarily by trade working capital initiatives.

Justin L. Jude: We returned $116,000,000 to shareholders during the quarter through share repurchases and dividends. In North America, top-line performance remains solid despite headwinds from repairable claims and tariffs,

Joseph P. Boutross: and we believe we continue to gain share. That said, pricing remains competitive, and our ability to fully pass

Justin L. Jude: through higher costs while maintaining margins continues to be constrained. Segment EBITDA margin was 12.7%, down 380 basis points year over year. Gross margin accounted for approximately 140 basis points of the decline,

Joseph P. Boutross: driven by tariff pass-through dynamics and customer mix. Overhead leverage accounted for approximately 260 basis points, primarily reflecting the impact from the prior year nonrecurring favorable legal settlement that I mentioned earlier.

Justin L. Jude: Importantly, our ongoing productivity and restructuring actions continue to support cost discipline

Joseph P. Boutross: in the current demand environment.

Justin L. Jude: Looking ahead to 2026, we expect EBITDA margins to be slightly down from 2025 as we annualize the impact from tariffs. In Europe,

Joseph P. Boutross: revenue pressure weighed on margins, and segment EBITDA margin declined 180 basis points

Justin L. Jude: to 8.3%. Gross margin declined approximately 160 basis

Joseph P. Boutross: points due to heightened price competition and higher input costs.

Justin L. Jude: While lower volumes pressured overhead leverage,

Joseph P. Boutross: productivity and restructuring initiatives helped offset this impact, positioning the business well when market conditions normalize. Our expectation is that Europe will get back to near double-digit EBITDA in 2026 with aggressive execution on our strategic initiatives and further cost actions. Specialty delivered an EBITDA margin of 4.5%,

Justin L. Jude: approximately 40 basis points better than last year. While mix weighed modestly on gross margin, strong cost control drove favorable overhead leverage.

Joseph P. Boutross: With two consecutive quarters of organic growth, we believe Specialty is well positioned as its end markets continue to recover. Turning to the balance sheet. We paid down more than $500,000,000 of debt in the fourth quarter following the self-service divestiture and strong free cash flow generation.

Justin L. Jude: With the help of our lending group, we also extended the maturity of our revolver to December 2030 and our Canadian term loan to March 2029, improving our maturity profile while preserving the liquidity and flexibility.

Joseph P. Boutross: At year end, total debt was $3,700,000,000,

Justin L. Jude: with leverage at 2.4 times EBITDA,

Joseph P. Boutross: down sequentially. We remain committed to maintaining a strong balance sheet and our investment-grade rating.

Justin L. Jude: Our effective interest rate was 5%, slightly lower than the prior quarter. In total, we returned $469,000,000 to shareholders in 2025,

Joseph P. Boutross: 55% of free cash flow, exceeding the capital return commitment we outlined in our 2024 Investor Day. Turning to guidance for 2026. Our outlook reflects current market conditions and recent trends and assumes tariffs in effect as of February 1. Importantly, we believe it is prudent to not reflect a meaningful market recovery in our guidance until we begin to see

Justin L. Jude: sustained improvements in underlying volumes. As a result, our assumptions remain intentionally conservative. While we are cautious on demand,

Joseph P. Boutross: our confidence in the outlook is grounded in execution,

Justin L. Jude: particularly the actions we are taking on costs, productivity, and capital allocation, which are largely within our control. That said, we are encouraged by several early indicators that could support

Joseph P. Boutross: improved demand over time, including easing insurance premium pressures, improved consumer confidence in automotive, and continued stabilization and improvement in used car prices. While these trends are not yet reflected in our guidance, we believe they represent positive developments for LKQ Corporation as volumes recover. We expect organic parts and services revenue growth between negative 0.5% and positive 1.5%.

Justin L. Jude: North America is expected to be slightly positive. Europe remains challenged and is expected to be slightly negative. And Specialty is expected to grow closer to mid-single digits.

Joseph P. Boutross: Adjusted diluted EPS is expected to be in the range of $2.90 to $3.20.

Justin L. Jude: We remain focused on offsetting volume and inflationary pressures through productivity initiatives,

Joseph P. Boutross: additional restructuring actions, and disciplined capital allocation. As part of our continued focus on execution and discipline, we recently approved a restructuring plan designed to better position our cost structure to more efficiently serve our strategic markets and support improved performance over time. This plan is expected to result in costs of approximately $60,000,000 to $70,000,000 in 2026 and supports our broader strategic transformation objectives, including sharpening our go-to-market approach, rationalizing our logistics footprint, and further consolidating back-office functions. We expect these actions will generate more than $50,000,000 in annualized cost savings, with over half to be realized in 2026.

Justin L. Jude: Free cash flow is expected to be between $708,000,000 and $750,000,000. The midpoint reflects more normalized working capital expectations compared to 2025 while maintaining disciplined capital spending.

Joseph P. Boutross: As in prior years, we expect the first quarter to be a use of cash, followed by positive cash generation throughout the remainder of the year. Thank you for your time. And with that, I will turn the call back to Justin for his closing remarks.

Justin L. Jude: Thanks, Rick. Before we begin Q&A, I would like to note some positive early signs of improving market conditions in North America. We are seeing lower insurance premiums, rising used car prices, and major insurers suggesting claims could return to historical patterns by late 2026. At the same time, as I have emphasized on our second quarter in 2025 call, we will not build a recovery into our base case until we see it clearly materialize in the marketplace. We are being cautious and conservative as we enter 2026. Stepping back, I am highly optimistic about the future of our company. We begin this year on stronger operational footing with a more focused organization. Our foundation is solid.

Our opportunities are compelling, and our people continue to prove why LKQ Corporation is such a powerful organization. Operator, we will now open the line for questions.

Joseph P. Boutross: Thank you.

Operator: When preparing to ask a question, please ensure your device is unmuted locally. And we kindly ask all participants to limit their questions to one main and one follow-up. The first question today is from Scott Lewis Stember of Roth Capital. Your line is now open. Please go ahead.

Justin L. Jude: Good morning, and thanks for taking my questions. Hey, good morning. Yes, just a follow-up on the comments about, I guess, potential green shoots in North America. Just trying to, you know, maybe dive into that a little bit more. What are you hearing? And, you know, I know that there is a chance that maybe by the end of this year, but just trying to get a sense of, you know, the reality of when we could actually start to see things balance out. Yeah. Thanks for the questions. We are not only hearing it, but we are seeing it.

I mean, if you paid attention to some of the insurance premiums in 2025, they have been reduced around 6%. We expect those numbers to continue to drop, which will make insurance more affordable. Then consumers will lead to more, you know, there is the number of, as we talked about in the past, is not really down. It is just repairable claims. So people use insurance to get their vehicle repaired. As insurance becomes more affordable, and we are seeing it become more affordable, that will be good for us.

I think a couple large carriers also mentioned that they are expecting to see claims increase in the back half of the year, which will drive their profits down, but obviously leads to more repairable claims and more cars getting fixed. In addition, we, you know, it is one month, but in January, we actually saw demand, you know, Manheim saw the used car value increase 2.5% over December, but really up 2.5% or 2.4% year over year. So those are good things that lead to more cars getting repaired. So those are the kind of green shoots we talked about. Got it. And then a follow-up question about Europe.

You maybe talk about performance, both sales and, I guess, competition by market? Yeah. We will not disclose necessarily by market, but we are still seeing a lot of pressure in the overall demand. Just the economies in most of the countries we operate are still struggling. A lot of consumers are cutting spending. That is leading to aggressive price cutting by some of our competition. I would say we were a little bit more aggressive in Q4 on combating price than we have in the past to make sure that we hold share. We intentionally increased our private label. So we have talked about it in the past to try to drive our private label to increase that adoption.

We pushed it out in new markets, and we pushed new product lines in our private label with introductory pricing. So that came in more aggressive. As we get that adoption rate up and we see the volume increase on our private label, we can then start moving pricing up. And as you can imagine, margins long term are better on private label. Trade working capital is better on private label. But as we move in that private label and we are replacing some of those tertiary brands, we are not replacing the primary brands, but we replace those second- and third-tier brands.

We got a little bit more aggressive on prices of those to make sure that we are not left with excess inventory. So some of that was our own doing intentionally, but the majority of the headwinds that we see over there is still just market demand. Got it. Thank you.

Joseph P. Boutross: Yep.

Operator: Thank you. The next question comes from Jash Patwa of JPMorgan. Your line is now open. Please go ahead.

Joseph P. Boutross: Hi, good morning and thanks for taking my— I wanted to start with your comments on

Jash Patwa: expanding relationships with MSOs. You maybe peel the onion a bit further and provide some color on the development and share gains with MSOs over the past year? Additionally, I am curious if you could share any insights on the differential in alternative parts utilization between MSO and non-MSO customers. For now for follow-up.

Justin L. Jude: Yeah. Thanks, Jash. On the MSO side, I mean, you look at the stats, repairable claims, we said we were down around that 4% to 6% range, which is good news. It is improving. It is still down, but it is improving from prior quarters. But if we look at our volumes with MSOs compared to our volume with non-MSOs, and then we back into what we feel market share gains have been had with MSOs, we are up, you know, I would say in the teens with the MSOs from an actual volume. Most MSOs that we talk to are probably flat to slightly up a few percent.

So if you look at our share of wallet with the MSOs, that is outperforming their overall volume growth, and we are up with every MSO that we have today. So we just feel that the value prop that LKQ Corporation offers—competitive price, great quality of products, great service levels—allows us to continue to win with the MSOs. We will not report on the exact stats of APU by the MSOs, but for sure, with the MSOs, they have more direct contracts with insurance carriers that drives more alternative parts utilization as part of their agreements with the insurance company. So we do see as MSOs gain share, the APU grows. And so that is great for us.

And the MSOs, as you can imagine, have much more volume at a rooftop level than a non-MSO. We gain efficiencies just by delivering more products to them. So when the MSOs grow, it has been good for us.

Jash Patwa: Understood. That is super helpful. And then just as a quick follow-up, you know, we are starting to enter an anticipatively strong tax refund season that could bring customers back into collision repair shops. Wondering if you sense that optimism from your customers, maybe anecdotally or in terms of sourcing activity to date. Thank you.

Justin L. Jude: Yeah. I mean, that is a possibility. We have not really talked with our customers about it. That has not been brought up. But that could be another green shoot that could benefit us.

Jash Patwa: Thank you, and good luck.

Operator: Thanks. The next question comes from Craig R. Kennison of Baird. Your line is now open. Please go ahead.

Justin L. Jude: Good morning. Thanks for taking my question. Justin, I wanted to dig into margin in North America. I mean, you talked about competition. But LKQ Corporation is significantly larger than any single competitor there. So I am trying to understand the source of that competition and how pervasive it might be across your competitive landscape.

Justin L. Jude: Yeah. The uniqueness of LKQ Corporation when it comes to pricing and competition really against most other aftermarket or most automotive sectors is we have both the competitors that provide alternative parts, so the salvage yards, the aftermarket distribution businesses, as well as the OEMs. And when you are in a compressed market, repairable claims are down, everybody is fighting for more volume. Sometimes folks feel that they are losing share and start to be a little bit more aggressive on pricing, and so we see that on the OEM side. We see that on the aftermarket side. We still feel our right to win is better.

We might have to give up prices on some parts such as A and B movers, but then we see the offset on some of the slower-moving stuff that we carry. Our competition does not necessarily carry that in stock quickly to that customer. So we still feel that there is some pricing, but we can navigate through that. Using some of the AI technology that we have been implementing with one of our partners just helps us react quicker to that.

Craig R. Kennison: Thanks. And maybe you could just shed more light on your use of AI and how it can impact your pricing algorithms?

Justin L. Jude: Yeah. We had a pretty good system before. We have leveraged, once again, a partner to help us get more real time, more reactive, looking at SKU, looking at, you know, a SKU down to a regional level, maybe even a shop level, understanding the demand. I mean, if you look at the data that is existing out there, understanding the market, when I talk about repairable claims, we probably have more data combined than any other entity out there. And so how do we take that data, leveraging what the demand is, leveraging what the opportunity is, and acting real time on pricing to make sure that we can have a right to win.

And we are seeing even more opportunity, as I mentioned, on kind of the C and D movers. Where we have it, and every time there is a quote, we are getting the sale. So there is an opportunity for us to push price on that, and maybe we need to offset price on some of the faster-moving stuff. But it is just becoming more real time down to the SKU level, down to the location level of the shop. So we have good sophistication to make sure that we have the right to win.

Operator: Thanks.

Joseph P. Boutross: Yep.

Operator: The next question comes from Brian Butler of Barclays. Your line is now open. Please go ahead.

Joseph P. Boutross: Hey, good morning, and thanks for taking my questions. I just want to delve a little bit more into Europe. Can you just talk about the factors that impacted the business in Q4 versus what happened in Q3? Want to understand that a little bit more. And also, if you could break that out between market-related factors and company-specific factors, that would be useful.

Justin L. Jude: Yeah. Thanks, Brian. I mean, the overall market continued to deteriorate Q3 to Q4. The overall uncertainty, consumer spending was down. The competitive pressure continued on. Some of the headwinds on the revenue side were somewhat self-inflicted intentionally. That was kind of in our guidance when we looked at the overall EPS that we may have to do this, and so the majority of the headwind on the volume is market. And, you know, when that market comes down, competitors get a little bit more aggressive on price. Once again, some of the headwinds were self-inflicted where we intentionally tried to replace and did replace volume of private label against the tertiary brands that exist out there.

And when you are introducing the new products and you want to make sure that customer switches that brand over to you, we came out with introductory pricing. So a little bit of that headwind was us just getting more aggressive on pricing with the private label to get the adoption rate up. In addition, as that is replacing some of the delisted product, we cut the prices on some of that delisted product to make sure that it moved off the shelf, we did not take any excess and obsolete.

And so some of that stuff we will correct—I do not want to say correct because it was intentional—we will be able to move the pricing up on private label as the volume has grown. As a percentage of revenue, private label was roughly still flat from Q3 to Q4. But if you look at the actual volume of units, that number increased to, you know, around 25%. So we are seeing market adoption on the private label. We have the pricing power to be able to push that pricing up as the adoption comes. But it is still the majority of it is just that market headwind. But we are not standing still.

As we mentioned and Rick talked about, we are still working on the integration to get the cost out of the business to make sure that when the market does recover, we will be even that much stronger.

Brian Butler: Alright. Thanks. And in terms of 2026, I mean, it sounds like you are expecting to get back up into the double digits there. Is pricing going to be part of that, or what else are going to be the big drivers that are going to get you there?

Rick Galloway: Pricing will be part of that for sure. The majority of it is going to be things that we can control on the cost side. So I mentioned an ERP migration that we are going to do in a region in early Q2. That will be a catalyst to help us drive significant cost cutting on the business. So we are working at continuing to drive productivity initiatives up, get some of the cost out. And we will be able to get some price as well in 2026. But the majority of it is things that we control on the cost-cutting side.

Brian Butler: Okay. Thanks. And then just last question before I turn it over. Just on repairable claims in North America, just kind of curious how you are thinking about that in 2026. Do you expect the trend to improve steadily? What are you thinking there?

Joseph P. Boutross: Yeah. So in our number, Brian, what we have got is we said we are not going to put a lot of improvement into our forecast. So, you know, as Justin mentioned,

Justin L. Jude: there is a lot of good news that we are seeing, but until we see it actually in our numbers, we are not going to put it in our forecast or in our budget or guidance.

Joseph P. Boutross: So what we have got is similar to what we had in Q4,

Justin L. Jude: we are assuming that kind of goes through the full year of 2026,

Joseph P. Boutross: with a little bit of improvement throughout the year. So the back half of the year, we expect to be a little bit better than the first half of the year.

Brian Butler: Very helpful. Thank you.

Jash Patwa: Thank you.

Operator: The next question comes from Bret David Jordan of Jefferies. Your line is now open. Please go ahead.

Justin L. Jude: Hey. Good morning. Comment about up with every MSO, you know, I guess, market share in 2025. Do you expect that to be the case in 2026? Is there anything out there sort of moving around on longer-term volume contracts in the competitive landscape? No. I mean, we saw our share and our volume grow throughout 2025. Some contracts just became renewed. I do not see any risk. If anything, maybe some more growth on that side, just because on a run rate coming out of 2025, we saw a good improvement on that.

Bret David Jordan: Okay. And then within Specialty,

Justin L. Jude: you talk about the strength and then obviously rebounding. Is it light vehicle or RV or both? I guess as you look at maybe divesting that, you know, is it strong across the board supporting maybe a better valuation, or is it sort of spotty where you are seeing the recovery? It is across the board, both on the automotive side and in the RV side. So that is good for us, and that process—I mean, that process is still ongoing for the sale. It has been robust. Great interest on it. And, you know, with the market recovering on both sides, once again, the automotive and the RV, we see that one being a pretty positive turnout.

Brian Butler: Okay. Great. Thank you.

Joseph P. Boutross: Yep.

Operator: The next question comes from Gary Frank Prestopino of Barrington. Your line is now open. Please go ahead.

Brian Butler: Good morning, everyone.

Justin L. Jude: If you can answer this question, Justin, in what you are experiencing in Europe, is that more or less just on the continent itself, or does that also include UK operations? I seem to recall that when you bought Euro Car Parts years and years ago, that was a pretty steady business. So if you could parse that out, and if you do not want to do that, I understand. Yeah. So it is across the board in Europe. I mean, there are pockets that are doing a little bit better than others, and UK was one that we talked about in the past that had, you know, the economy was tough over there.

Consumer spending and discretionary spending was low. You know, the good news is we are still seeing vehicle aging grow. But right now, with the environment on the economic side, consumers are just still spending less. So it is across the board that we are seeing some pressure, higher in some areas than others. And, you know, I know there are some markets in Europe that are positive, and some of those markets are where we do not operate yet today. But overall, I would say on average, it is really across all Europe.

Jash Patwa: And then just

Justin L. Jude: in Europe, are you doing things with recycled parts there in that market? I seem to recall you had some activities going on there versus, you know, there are very few parts on the continent itself. Yeah. One of our initiatives has been to drive salvage or recycled parts over there and leveraging our North American talent and some of our processes over there. We have been in salvage in a very small scale. We have increased that volume with an acquisition of a joint venture with Ritchie Brothers or Insurance Auto Auction called Synetiq in the UK. We see as we enter that space, there is more and more demand growing for green parts, more for used parts.

The industry just needs a solid distributor of those parts to make sure that they can deliver on time and quality. That is what we bring. We see that as a good growth opportunity, but we are still in, I would say, the infancy stage as we introduce more and more recycled into those markets.

Jash Patwa: Okay. Thank you.

Operator: Thank you. We have no further questions at this time, so I would like to hand back to Justin for final remarks.

Justin L. Jude: Thank you. I want to make sure you know we remain highly enthusiastic about our business. Despite the challenges in the environment in 2025, I feel our team successfully executed on our core business strategies. We streamlined our portfolio, generated strong, very strong free cash flow, and maintained a disciplined approach on capital allocation. The resilience of our underlying business, coupled with the anticipated market recovery in the latter half of 2026, should translate into positive results. And with that, we will conclude this call. Thank you, everyone, for joining.

Operator: This concludes today's call. Thank you all for joining. You may now disconnect your line.

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