LKQ CORP

Previous wording

The discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our 2024 Form 10-K includes a summary of the critical accounting estimates we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting estimates that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the three months ended March 31, 2025.

Current wording

The discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our 2024 Form 10-K includes a summary of the critical accounting estimates we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting estimates that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the six months ended June 30, 2025.

Previous wording

•Free Cash Flow - We calculate free cash flow as net cash provided by (used in) operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning cash flow available to meet future debt service obligations and working capital requirements, make strategic acquisitions, repurchase stock, and pay dividends.

Current wording

•Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning cash flow available to meet future debt service obligations and working capital requirements, make strategic acquisitions, repurchase stock, and pay dividends.

Previous wording

The decrease in parts and services revenue of $240 million, or 6.8%, represented decreases in segment revenue of $122 million, or 7.4%, in Europe, $86 million, or 6.0%, in Wholesale - North America, $29 million, or 6.8%, in Specialty and $3 million, or 5.7%, in Self Service. This overall decrease was driven by an organic parts and services revenue decrease of $151 million, or 4.3% (3.1% decrease on a per day basis), a $56 million, or 1.6%, decrease due to fluctuations in foreign exchange rates and a $32 million, or 0.9%, decrease due to the net impact of acquisitions and divestitures. Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Current wording

The decrease in parts and services revenue of $75 million, or 2.1%, represented decreases in segment revenue of $36 million, or 2.6%, in Wholesale - North America, $32 million, or 1.9%, in Europe, $5 million, or 9.8%, in Self Service, and $2 million, or 0.4%, in Specialty. This overall decrease was driven by an organic parts and services revenue decrease of $122 million, or 3.4% (2.7% decrease on a per day basis), and a $34 million, or 1.0%, decrease due to the net impact of acquisitions and divestitures, partially offset by an $82 million, or 2.3%, increase due to fluctuations in foreign exchange rates. Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Previous wording

Cost of goods sold decreased by $165 million, or 7.3%, to $2,086 million for the three months ended March 31, 2025. Cost of goods sold primarily reflects decreases of $90 million from Europe, $52 million from Wholesale - North America, $18 million from Specialty, and $5 million from Self Service. Cost of goods sold as a percentage of revenue decreased to 60.2% for the three months ended March 31, 2025 from 60.8% for the three months ended March 31, 2024. Cost of goods sold as a percentage of revenue primarily reflects decreases of 0.2% from Europe and 0.2% attributable to restructuring. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold by segment for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Current wording

Cost of goods sold decreased by $40 million, or 1.8%, to $2,230 million for the three months ended June 30, 2025. Cost of goods sold primarily reflects decreases of $32 million from Europe, $4 million from Self Service, and $3 million from Wholesale - North America. Cost of goods sold as a percentage of revenue remained flat at 61.2% for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. Cost of goods sold as a percentage of revenue primarily reflects an increase of 0.4% from Wholesale - North America, partially offset by a decrease of 0.3% from Europe. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold by segment for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Previous wording

Restructuring and transaction related expenses decreased by $19 million, primarily due to a $9 million decrease in restructuring expenses related to our 2024 Global Restructuring plan and a $5 million decrease in restructuring expenses related to our Acquisition Integration plans.

Current wording

Restructuring and transaction related expenses decreased by $41 million, primarily due to a $31 million decrease in restructuring expenses related to our 2024 Global Restructuring plan and a $10 million decrease in restructuring expenses related to our Acquisition Integration plans.

Previous wording

We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the three months ended March 31, 2024, the Canadian dollar, euro, Czech koruna and pound sterling rates used to translate the three months ended March 31, 2025 statements of income decreased by 6.0%, 3.1%, 3.0% and 0.6%, respectively. Realized and unrealized currency gains and losses combined with the translation effect of the change in foreign currencies against the U.S. dollar had a net negative effect of $0.01 on diluted earnings per share relative to the prior year period.

Current wording

We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the three months ended June 30, 2024, the pound sterling, Czech koruna and euro rates used to translate the three months ended June 30, 2025 statements of income increased by 5.8%, 5.6% and 5.3%, respectively, while the Canadian dollar rate decreased by 1.1%. Realized and unrealized currency gains and losses combined with the translation effect of the change in foreign currencies against the U.S. dollar had a net positive effect of $0.03 on diluted earnings per share relative to the prior year period.

Previous wording

Our SG&A expenses decreased by $55 million, or 5.3%, to $989 million for the three months ended March 31, 2025. The year over year decrease in SG&A expense primarily reflects decreases of $34 million from Europe, $16 million from Wholesale - North America, and $5 million from Specialty. SG&A as a percentage of revenue increased to 28.6% for the three months ended March 31, 2025 from 28.2% for the three months ended March 31, 2024. SG&A as a percentage of revenue primarily reflects an increase of 0.3% from Wholesale - North America. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses by segment for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Current wording

Our SG&A expenses decreased by $33 million, or 1.6%, to $1,987 million for the six months ended June 30, 2025. The year over year decrease in SG&A expense primarily reflects decreases of $16 million from Europe and $15 million from Wholesale - North America. SG&A expenses as a percentage of revenue increased to 28.0% for the six months ended June 30, 2025 from 27.2% for the six months ended June 30, 2024. SG&A expenses as a percentage of revenue primarily reflects increases of 0.4% from Europe and 0.3% from Wholesale - North America. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses by segment for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Previous wording

Our effective income tax rate for the three months ended March 31, 2025 was 27.7%, compared to 30.7% for the three months ended March 31, 2024. The decrease in the effective tax rate for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 is primarily attributable to the 3.2% year over year decrease in the unfavorable impact of discrete items, mostly related to the nonrecurring unfavorable tax effects of the 2024 Global Restructuring Plan impairments in the prior year. See Note 5, "Restructuring and Transaction Related Expenses" for further information on the impairments.

Current wording

Our effective income tax rate for the six months ended June 30, 2025 was 27.0%, compared to 30.8% for the six months ended June 30, 2024. The decrease in the effective tax rate for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 is primarily attributable to the 4.3% year over year favorable impact of discrete items, mostly related to the nonrecurring unfavorable tax effects of the Global Restructuring Plan impairments in the prior year. See Note 5, "Restructuring and Transaction Related Expenses" for further information on the impairments.

Previous wording

(2)Gross margin decreased by $36 million, or 5.5%, to $627 million for the three months ended March 31, 2025. This decrease was driven by lower revenue as described above, partially offset by pricing initiatives.

Current wording

(2)Gross margin decreased by $29 million, or 4.4%, to $619 million for the three months ended June 30, 2025. This decrease was driven by lower revenue as described above as well as unfavorable customer mix not fully offset by price increases due to market competition.

Previous wording

(1)Parts and services revenue decreased by $122 million, or 7.4%, to $1,515 million for the three months ended March 31, 2025. This decrease was primarily due to (i) a parts and services organic revenue decrease of $45 million, or 2.8% (1.8% on a per day basis), driven by decreased volumes primarily due to difficult economic conditions, heightened competition in certain markets and a negative effect from one fewer selling days, (ii) an exchange rate decrease of $40 million, or 2.5%, primarily due to the stronger U.S. dollar against the euro, and to a lesser extent, the Czech koruna and pound sterling, and (iii) an acquisition and divestiture decrease of $36 million, or 2.2%, primarily related to the divestiture of certain operations in Poland, Slovenia and Bosnia in 2024.

Current wording

(1)Parts and services revenue decreased by $32 million, or 1.9%, to $1,601 million for the three months ended June 30, 2025. This decrease was primarily due to (i) a parts and services organic revenue decrease of $81 million, or 4.9% (3.8% on a per day basis), driven by decreased volumes due to difficult economic conditions, heightened competition in certain markets, temporary operational challenges, and a negative effect from one fewer selling days, and (ii) an acquisition and divestiture decrease of $36 million, or 2.2%, primarily related to the divestiture of certain operations in Poland, Slovenia and Bosnia in 2024, partially offset by (iii) the effect of an exchange rate increase of $85 million, or 5.2%, primarily due to the weaker U.S. dollar against the euro and pound sterling, and to a lesser extent, the Czech koruna.

Previous wording

(1)Parts and services revenue decreased by $86 million, or 6.0%, to $1,336 million for the three months ended March 31, 2025. This decrease was primarily due to a parts and services organic revenue decrease of $76 million, or 5.4% (4.1% on a per day basis), primarily due to a reduction in repairable claims and having one fewer selling days in the current year, partially offset by targeted actions to increase market penetration. The decrease was also driven by an exchange rate decrease of $14 million, or 1.0%, primarily due to the stronger U.S. dollar against the Canadian dollar.

Current wording

(1)Parts and services revenue decreased by $122 million, or 4.3%, to $2,698 million for the six months ended June 30, 2025. This decrease was primarily due to a parts and services organic revenue decrease of $112 million, or 4.0% (3.1% on a per day basis), due to a reduction in repairable claims, and having one fewer selling days in the current year, partially offset by targeted actions to increase market penetration. Additionally, revenue decreased due to a negative exchange rate effect of $17 million, or 0.6%, primarily due to the stronger U.S. dollar against the Canadian dollar.

Previous wording

(3)SG&A expenses decreased by $16 million, or 3.6%, to $410 million for the three months ended March 31, 2025. The decrease in SG&A expense is primarily due to (i) $24 million from decreased personnel costs, (ii) $4 million from decreased freight expenses, and (iii) other individually immaterial factors representing a $2 million favorable impact in the aggregate, partially offset by (iv) $5 million from increased vehicle costs, (v) $5 million from increased professional fees, and (vi) $4 million from increased facility costs due to increased rent and insurance.

Current wording

(3)SG&A expenses decreased by $15 million, or 1.8%, to $808 million for the six months ended June 30, 2025. The decrease in SG&A expense is primarily due to (i) $24 million from decreased personnel costs due to cost savings initiatives which were partially offset by inflationary pressures, and (ii) other individually immaterial factors representing a $9 million favorable impact in the aggregate, partially offset by (iii) $12 million from increased vehicle costs, and (iv) $6 million from increased facility costs due to increased rent.

Previous wording

(2)Gross margin decreased by $32 million, or 5.2%, to $591 million for the three months ended March 31, 2025. The decrease was primarily attributable to decreased revenue, partially offset by an $8 million reduction in cost of goods sold primarily related to restructuring expenses incurred as part of the 2024 Global Restructuring Plan in the prior year period. These restructuring expenses are excluded from the calculation of Segment EBITDA. See Note 5, "Restructuring and Transaction Related Expenses" and Note 13, "Segment and Geographic Information" for further information. The increase in gross margin as a percentage of total segment revenue was primarily driven by a benefit from the divestiture of certain operations in Poland, Slovenia and Bosnia in 2024 and lower restructuring expense in the current year as described above.

Current wording

(2)Gross margin decreased by $32 million, or 2.6%, to $1,210 million for the six months ended June 30, 2025. The decrease was primarily attributable to decreased revenue, partially offset by a $12 million reduction in cost of goods sold primarily related to restructuring expenses incurred as part of the 2024 Global Restructuring Plan in the prior year period. These restructuring expenses are excluded from the calculation of Segment EBITDA. See Note 5, "Restructuring and Transaction Related Expenses" and Note 13, "Segment and Geographic Information" for further information. The increase in gross margin as a percentage of total segment revenue was primarily driven by a benefit from the divestiture of certain operations in Poland, Slovenia and Bosnia in 2024 and lower restructuring expense in the current year as described above.

Previous wording

(1)Parts and services revenue decreased by $29 million, or 6.8%, to $393 million for the three months ended March 31, 2025. This was primarily due to a parts and services organic revenue decrease of $27 million, or 6.4% (4.9% on a per day basis), driven by demand softness in the automotive and RV product lines resulting from declining consumer sentiment and reduced unit retail sales for RVs.

Current wording

(1)Parts and services revenue decreased by $31 million, or 3.4%, to $857 million for the six months ended June 30, 2025. This was primarily due to a parts and services organic revenue decrease of $28 million, or 3.2% (2.4% on a per day basis), driven by demand softness in the automotive and RV product lines resulting from declining consumer sentiment and reduced unit retail sales for RVs.

Previous wording

(2)Gross margin decreased by $11 million, or 9.6%, to $95 million for the three months ended March 31, 2025. This decrease was primarily driven by decreases in parts and services revenue and unfavorable sales mix with lower volumes on higher margin product lines.

Current wording

(2)Gross margin decreased by $11 million, or 4.8%, to $213 million for the six months ended June 30, 2025. This decrease was primarily driven by decreases in parts and services revenue and unfavorable sales mix with lower volumes on higher margin product lines.

Previous wording

(1)Gross margin increased by $4 million, or 6.4%, to $64 million for the three months ended March 31, 2025. The increase is attributable to improvements in vehicle procurement costs.

Current wording

(2)Gross margin increased by $4 million, or 3.1%, to $120 million for the six months ended June 30, 2025. The increase is attributable to favorable movements in commodity prices and improvements in vehicle procurement costs which more than offset the decrease in revenue.

Previous wording

We had$1,062 million available under our revolving credit facilities as of March 31, 2025. Combined with $227 million of cash and cash equivalents at March 31, 2025, we had $1,289 million in available liquidity, a decrease of $167 million from our available liquidity as of December 31, 2024, primarily as a result of increasing our revolving credit facilities borrowings by$160 million.

Current wording

We had$1,136 million available under our revolving credit facilities as of June 30, 2025. Combined with $289 million of cash and cash equivalents at June 30, 2025, we had $1,425 million in available liquidity, a decrease of $31 million from our available liquidity as of December 31, 2024, primarily as a result of increasing our revolving credit facilities borrowings by$86 million.

Previous wording

See Note 9, "Long-Term Obligations" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding total debt outstanding.

Current wording

On May 2, 2025, we entered into Amendment No. 2 to the Senior Unsecured Credit Agreement which extended the maturity date of the unsecured term loan facility from January 5, 2026 to January 5, 2027 as well as certain other immaterial modifications. See Note 9, "Long-Term Obligations" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding total debt outstanding.

Previous wording

A summary of the dividend activity for our common stock for thethree months ended March 31, 2025 is as follows:

Current wording

A summary of the dividend activity for our common stock for thesix months ended June 30, 2025 is as follows:

Previous wording

With $1,289 million of total liquidity as of March 31, 2025 and $558 million of current maturities, we have access to funds to meet our near term commitments. Our current maturities include the $500 million term loan payable under our Senior Unsecured Credit Agreement due January 2026, which we intend to extend or refinance on or before the scheduled maturity. We have a surplus of current assets over current liabilities, which further reduces the risk of short-term cash shortfalls.

Current wording

With $1,425 million of total liquidity as of June 30, 2025 and $34 million of current maturities, we have access to funds to meet our near term commitments. We have a surplus of current assets over current liabilities, which further reduces the risk of short-term cash shortfalls.

Previous wording

We had outstanding borrowings under our revolving credit facilities and term loans payable of $1,811 millionand$1,651 millionat March 31, 2025 and December 31, 2024, respectively. Of these amounts, there were current maturities of $500 million at March 31, 2025 related to theterm loan payable under our Senior Unsecured Credit Agreement due January 2026. There wereno current maturities at December 31, 2024.

Current wording

We had outstanding borrowings under our revolving credit facilities and term loans payable of $1,764 millionand$1,651 millionat June 30, 2025 and December 31, 2024, respectively. Of these amounts, there were no current maturitiesat June 30, 2025 or December 31, 2024.

Previous wording

As of March 31, 2025, the Company had cash and cash equivalents of $227 million, of which $197 million was held by foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Cuts and Jobs Act enacted in 2017, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime.

Current wording

As of June 30, 2025, the Company had cash and cash equivalents of $289 million, of which $246 million was held by foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Cuts and Jobs Act enacted in 2017, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime.

Previous wording

For the three months ended March 31, 2025, net cash used in operating activities totaled $3 million compared to net cash provided by operating activities of $253 million for the same period of 2024. Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period. Accounts receivable represented $7 million in incremental cash outflows for the three months ended March 31, 2025 compared to the same period of 2024. Inventories represented $34 million in incremental cash outflows for the three months ended March 31, 2025 compared to the same period of 2024. Accounts payable produced $212 million in lower cash inflows for the three months ended March 31, 2025 compared to the same period of 2024.

Current wording

For the six months ended June 30, 2025, net cash provided by operating activities totaled $293 million compared to $466 million for the same period of 2024. Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period. Inventories represented $57 million in incremental cash inflows for the six months ended June 30, 2025 compared to the same period of 2024. Accounts payable produced $245 million in incremental cash outflows for the six months ended June 30, 2025 compared to the same period of 2024.

Previous wording

For the three months ended March 31, 2025, net cash used in investing activities totaled $50 million compared to $88 million for the same period of 2024. We invested $17 million of cash in business acquisitions during the three months ended March 31, 2024. There were no business acquisitions during the three months ended March 31, 2025. Property, plant and equipment purchases were $54 million in the three months ended March 31, 2025 compared to $66 million in the prior year period.

Current wording

For the six months ended June 30, 2025, net cash used in investing activities totaled $99 million compared to $178 million for the same period of 2024. We invested $30 million of cash in business acquisitions during the six months ended June 30, 2024. There were no significant business acquisitions during the six months ended June 30, 2025. Property, plant and equipment purchases were $107 million in the six months ended June 30, 2025 compared to $146 million in the prior year period.

Previous wording

The following table reconciles Net Cash (Used in) Provided by Operating Activities to Free Cash Flow (in millions):

Current wording

The following table reconciles Net Cash Provided by Operating Activities to Free Cash Flow (in millions):

Previous wording

For the three months ended March 31, 2025, net cash provided by financing activities totaled $40 million compared to net cash used in financing activities of $113 million for the same period in 2024. Cash outflows for share repurchases were $40 million and dividends paid were $78 million for the three months ended March 31, 2025 compared to $30 million for share repurchases and $81 million for dividends paid for the same period of 2024. Net debt borrowings (net of unamortized bond discounts) were $170 million for the three months ended March 31, 2025 compared to $35 million for the same period of 2024.

Current wording

For the six months ended June 30, 2025, net cash used in financing activities totaled $169 million compared to $276 million for the same period in 2024. Cash outflows for share repurchases were $79 million and dividends paid were $156 million for the six months ended June 30, 2025 compared to $155 million for share repurchases and $161 million for dividends paid for the same period of 2024. Net debt borrowings (net of unamortized bond discounts) were $59 million for the six months ended June 30, 2025 compared to $80 million for the same period of 2024.

Previous wording

(1)Guarantor subsidiaries recorded $14 million and $53 million of net sales to and $57 million and $205 million of purchases from non-guarantor subsidiaries for the three months ended March 31, 2025 and fiscal year ended December 31, 2024, respectively.

Current wording

(1)Guarantor subsidiaries recorded $27 million and $53 million of net sales to and $107 million and $205 million of purchases from non-guarantor subsidiaries for the six months ended June 30, 2025 and fiscal year ended December 31, 2024, respectively.

Previous wording

(1)Current liabilities for guarantor subsidiaries included $214 million and $219 million of short term notes payable to non-guarantor subsidiaries as of March 31, 2025 and December 31, 2024, respectively.

Current wording

(1)Current liabilities for guarantor subsidiaries included $328 million and $219 million of short-term notes payable to non-guarantor subsidiaries as of June 30, 2025 and December 31, 2024, respectively.