Title

Presentation

LKQ Corporation reports earnings inline with expectations. Reported EPS is $0.79 EPS, expectations were $0.79.

Operator: Hello, everyone, and thank you for joining the LKQ Corporation’s First Quarter 2025 Earnings Conference Call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one. I will now hand over to your host, Joe Boutross, Vice President of Investor Relations at LKQ Corporation, to begin. Please go ahead.

Joe Boutross: Thank you, Operator, and good morning, everyone, and welcome to LKQ Corporation’s First Quarter 2025 Earnings Conference Call. With us today are Justin Jude, LKQ Corporation President and Chief Executive Officer, and Rick Galloway, our Senior Vice President and Chief Financial Officer. Please refer to the LKQ Corporation website at lkqcorp.com for the 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-Ks, which we filed earlier today. And as normal, we are planning to file our 10-Q in the coming days. With that, I’m happy to turn the call over to CEO, Justin Jude.

Justin Jude: Thank you, Joe, and good morning to everyone joining us on the call. Since the tariffs were announced on April 2, much has changed, capturing the interest of all of us on this call and affecting the global economy. Before discussing tariffs, I would like to address several topics concerning our people, our operations, and our performance. What sets us apart from our competition is our dedicated workforce, which we consider to be our most valuable asset. To ensure their safety, we implemented in-cab monitoring equipment in our fleet last year, achieving 95% coverage in North America by the end of Q1. This initiative has led to a nearly 40% reduction in on-the-road accidents, and we aim to implement these features in Europe where feasible.

We value talent development and have launched our global talent development function to unify our workforce through leadership competencies and career planning. In February, a cohort of high-potential global leaders began attending sessions to promote learning and idea sharing. This initiative will also help facilitate best practice sharing between our North America and European operations. During the quarter, we also held both our North American and European leadership conferences, bringing together more than 1,300 of our top global leaders to align on our strategy and goals. As anticipated, part of the discussion revolved around navigating recent tariff developments in challenging macroeconomic conditions. Despite these challenges, our team managed to meet our expectations, achieving earnings per share at $0.79 for the quarter.

Although the markets present uncertainties, we must continue executing our simplification strategy without delay. I will highlight some of our operational accomplishments during the segment breakout, and Rick will provide more detail later in the call. Regarding our ongoing strategy to simplify the portfolio, we divested two operations, a self-serve yard in Florida and a Europe-based non-core leisure business, demonstrating our commitment to streamlining our portfolio. We remain committed to a balanced capital allocation strategy incorporating dividends, share repurchases, and maintaining our investment-grade rating. During the quarter, we repurchased 1,000,000 shares for about $40,000,000 and paid $78,000,000 in dividends in March. Now moving to our segments.

North America’s organic revenue fell by 4.1% per day, which is less of a decline than the last three quarters of 2024 amid a nearly 10% decline in repairable claims. The drag on the repairable claims resulting from declining used car pricing and rising insurance premiums really started worsening in Q2 of 2024, so the comps will start to ease as we progress through the year. Since 2015, we have outperformed the repairable claims count growth by over 400 bps per year, and Q1 was 570 bps better, indicating market share gains against a low-demand environment. North America also benefited from having a diversified portfolio of products and services, mitigating potential shortfalls in other business areas. We generated positive growth for our lead tech calibration and diagnostics business, and our bumper-to-bumper hard parts business in Canada.

In Europe, organic revenue declined by 1.8% per day compared to a growth of 4.4% in Q1 of 2024. On a two-year stack, organic revenue growth was 2.6%. There was noticeable softness in many markets impacted by consumer confidence. Europe also experienced a relatively mild winter year over year, impacting certain products such as batteries, which are higher in demand during periods of inclement weather. Competitive pricing in some countries also contributed to challenging conditions that we believe will stabilize long term. Our comprehensive product and service offerings are best in class across Europe, and we consciously avoid making brash short-term pricing decisions that dilute the value proposition we offer in Europe. Best practices support our daily success at LKQ Corporation.

Our SKU rationalization project in Europe aims to reduce complexity and simplify our distribution network across all markets. We have reviewed over 60% of our product brands and reduced stocking by an additional 17,000 SKUs. Additionally, our private label penetration increased by 20 basis points. As Andy and I mentioned at the Investor Day, the integration of Europe is mission-critical, and accelerating that effort is imperative given it has not progressed at the cadence we promised in the past. In order to drive change management, we need the right leaders in place to truly achieve the benefits of the scale of one LKQ Europe represents. Since taking the helm in Europe, Andy, alongside Rick and I, replaced a fair number of the previous leadership team and have onboarded individuals that are aligned with the operational excellence and lean management initiatives necessary to optimize our European operations.

Our focus is on people, process, and performance. Regarding specialty, our organic revenue declined by 4.9% on a per-day basis, which is a sequential improvement compared to Q4 of 2024. At the start of 2025, there was optimism about specialty stabilizing later in the year, but consumer sentiment decreased significantly due to anticipated tariff pricing pressures. This sentiment, along with inflationary pressures, will likely continue throughout the year. Now turning to tariffs. While the current headlines of the tariffs are broadly known, the final decisions remain unclear. There are many dynamics of this tariff situation than those in the past. We have established an internal global tariff task force which includes leaders from procurement, operations, finance, risk management, sales, and marketing to help navigate and make decisions.

If everyone remembers the supply chain constraint following COVID where inflation was driving up product cost and a supply-demand imbalance created huge increases in ocean freight, the team proved their agility in mitigating the impact, and we came out financially stronger. Specific to our tariff exposure, less than 15% of our U.S. business’s cost of goods are directly imported from outside the U.S., with the majority of that product coming out of Taiwan. LKQ Corporation’s advantage over our aftermarket collision parts competitors lies in our supply of recycled products, which we anticipate will see an increase in demand given their competitive pricing relative to new OE parts. We expect the tariffs will raise part prices and increase used car values.

Historically, these increases have benefited the industry as used car values are expected to rise faster than the vehicle repair cost, potentially leading to more cars being repaired and kept on the road longer. Our tariff task force is working on mitigating tariff impacts through potential cost concessions from vendor partnerships and identifying supply chain optimization and SG&A reductions. The non-discretionary nature of the North American business allows for needs-based pricing power, enabling LKQ Corporation to pass on select price increases, thus insulating the wholesale dynamic from the other parts suppliers in the market. Before I turn the call to Rick to discuss our Q1 results, I am pleased to announce that we will be publishing our 2024 sustainability report in May.

Sustainability continues to be at the heart of what we do, especially in our North American and Europe salvage operations. This is true today as it was when we started over twenty-six years ago. Rick?

Rick Galloway: Thank you, Justin, and welcome to everyone joining us today. We are pleased with our start to 2025. Cost actions taken in 2024, including exiting underperforming businesses and driving our lean operating model, have positioned us well to offset the top-line headwinds across each of our segments. Overall, Q1 results were largely consistent with the trends we saw throughout the last several quarters. Europe continued its solid performance with a 60 basis point year-over-year improvement in segment EBITDA. North America, we were pleased with their performance given the anticipated top-line pressure as we worked through the decline in repairable claims. Self-service delivered another quarter of year-over-year improvement in both EBITDA dollars and percentage.

Specialty’s results remained under pressure with soft demand in the RV and SEMA space, partially driven by softening consumer sentiment in light of the ongoing macroeconomic instability, including uncertainty around the effect of tariffs. Now turning to the first quarter consolidated results. Our first quarter performance was in line with our expectations. We reported diluted earnings per share of $0.65, a 6¢ increase compared to Q1 2024. On an adjusted diluted earnings per share basis, we reported $0.79, a decrease of $0.03 per share versus prior year. The decrease in adjusted EPS is largely due to lower segment EBITDA dollars predominantly from our Wholesale North America segment. Higher legal and professional fees were also a 1¢ headwind as we reached the cooperation agreement with Ancora and ENGIE Capital in the first quarter.

The impacts from interest and FX rates largely offset each other, with interest being a slight positive and FX being a slight negative. On a positive note, lower share counts resulting from our disciplined share repurchase program drove $0.03 of incremental adjusted EPS versus prior year. Now for segment results. Going to slide eight. North America posted a segment EBITDA margin of 15.7%, a 60 basis point decrease relative to last year primarily due to the organic revenue decline. The decline in organic revenue was driven by a reduction in repairable claims and having one less selling day, partially offset by targeted actions to increase market penetration. Gross margin improved by 20 bps as a result of product mix and pricing initiatives. Overhead expenses declined by $16,000,000 relative to prior year, including $24,000,000 of decreased personnel costs due to uniselect synergies and productivity initiatives.

These were partially offset by inflationary cost pressures related to facilities and vehicle expenses as well as higher legal and professional fees. The leverage effect of the organic revenue decline largely drove the increase in OpEx as a percentage of revenue. We expect headwinds on repairable claims to continue in 2025, but abate somewhat toward the back half of the year. Excluding any potential impacts from tariffs, over the balance of the year, we still believe North America’s EBITDA margins will be in the low sixteens on a full-year basis. Looking at slide nine, Europe reported a segment EBITDA margin of 9.3%, a 60 basis point improvement over last year. The year-over-year improvement was driven by higher gross margins, the ongoing efforts to simplify the operations and portfolio, as well as productivity efforts to offset inflationary pressures on overhead costs.

Overhead costs were also negatively affected in the prior year due to union-related negotiations. Given the actions we’ve taken to drive productivity and simplify the portfolio, and absent any macroeconomic impact from the tariff situation, we continue to project EBITDA margin will be double digits on a full-year basis in 2025. Moving to slide 10. Specialty’s EBITDA margin of 5.4% is 100 basis points below the prior year primarily driven by a decline in organic revenue and resulting leverage effect on overhead costs. Demand softness in the light vehicle and RV product lines remain challenges for the business. Economic instability stemming from tariffs has resulted in declines in consumer sentiment, which negatively impacts discretionary spending in some of the markets in which Vestia operates.

Given the ongoing uncertainty and demand softness, we expect segment EBITDA margin to be around the low end of the 7% to 8% range we provided when we issued full-year 2025 guidance. Self-service generated $20,000,000 in segment EBITDA in Q1, an increase of $4,000,000 and a 290 bp improvement as a percentage of revenue. Disciplined vehicle procurement combined with overhead cost controls helped to drive the fourth consecutive quarterly improvement in year-over-year profitability. Shifting to cash flows and the balance sheet. Free cash flow during the quarter was a net outflow of $57,000,000. This performance was in line with our expectations due to the timing of our payables, partially related to the investment in inventory in North America in anticipation of possible Q1 port strikes and higher interest payments for the $20.31 euro senior notes due to timing.

We anticipate generating positive free cash flow in the next three quarters, which will bring us in line with our full-year guidance absent any significant tariff-driven market turbulence. Moving to slide 11. We remained active in the market, allocating $40,000,000 in share repurchases for 1,000,000 shares. We also paid our quarterly dividend totaling $78,000,000. As a continuation of our disciplined capital allocation strategy, we did not make any acquisitions in the first quarter. We borrowed approximately $170,000,000 in the quarter. As of March 31, we had total debt of $4,400,000,000 with a total leverage ratio of 2.5 times EBITDA. Although the leverage ratio is slightly higher than the prior quarter, we anticipated the increase as we built trade working capital in Q1 largely associated with the seasonal nature of our business and the increase in inventory purchases in Q4 and Q1 to get ahead of potential disruptions at the ports and from tariffs.

We remain committed to maintaining a manageable debt level and our investment-grade rating. As of 03/31/2025, our current maturities were $558,000,000, including the $500,000,000 term loan coming due in Q1 2026. As normal practice, we actively manage our capital structure, and we are working through our options with our lending group. We have no significant concerns regarding our ability to extend the maturity date. Our effective interest rate was 5.2% at the end of Q1, slightly down from Q4. We have $1,800,000,000 in variable rate debt, of which $700,000,000 has been fixed with interest rate swaps, which effectively provide a fixed rate on approximately 75% of our debt. I will conclude with our thoughts on 2025 guidance as shown on Slide 12.

Although there are always uncertainties, we believe we can deliver on our guidance provided back in February. Excluding any material impacts from tariffs, the discussions around tariffs may affect our markets directly and indirectly. Companies have taken a variety of methods in addressing the remainder of the year, and we will wait to fully analyze the pending changes and update you during our Q2 call when we believe the tariff situation becomes clear. That being said, our guidance is based on current market conditions and recent trends, excluding the potential impacts of tariffs, and assumes scrap and precious metal prices hold near first-quarter prices. On foreign exchange, our guidance is near March average rates, including the euro at $1.08, the pound sterling at $1.28, and the Canadian dollar at 70¢.

The global tax rate is at 27%, which is consistent with our original guidance and prior year. In our original guidance, we expected organic parts and services revenue growth between 0-2%. Given our Q1 results, we are likely headed toward the lower end of that range. Excluding potential tariff impacts, our adjusted diluted EPS remains in the range of $3.4 to $3.7, and our free cash flow remains in the range of $750,000,000 to $900,000,000. We will balance our trade working capital and capital expenditure needs to fund our strategic growth objectives for 2025 and beyond. Thanks for your time. I will now turn the call back to Justin for his closing comments.

Justin Jude: Thanks, Rick, for the financial commentary. Before we open up for questions, I would like to remind everyone we remain committed to our long-term key strategic priorities, and our team is agile to navigate short-term challenges. First, we need to grow above the market. Next, simplify. Simplify our operations by ensuring lean thinking is in everything we do. And simplify our portfolio across our markets, businesses, and product lines. Improve free cash flow by growing profitably and strengthening our balance sheet. Invest in growth organically and via small, highly synergistic tuck-ins for the continuation on the moratorium of any large acquisitions. Focus on our capital allocation strategy around returning capital to our shareholders through a combination of share repurchases and dividends.

In Q1, we met most of our strategic goals with our 46,000 employees adeptly managing volatile markets. Whether it’s tariffs or some other challenge, no matter what our company may face, I’m truly proud of how consistent our team emerges stronger and better prepared for the future. Operator, I’ll now turn the call over for questions.

Operator: Thank you. We ask all participants to limit their questions to one main and one follow-up. Then go back into the queue if you have another question. Our first question is from Scott Stember of ROTHMKM. Your line is now open. Please go ahead.

Scott Stember: Good morning, and thanks for taking my questions.

Justin Jude: Hey. Good morning, Scott.

Scott Stember: Regarding North America, it sounds as if the comparisons get a lot easier in the second quarter, just on a repairable claim basis. But can you talk about what trends or in a real-time basis you’re seeing from the insurance companies? Regarding used car pricing. You know, there’s been any change in their behavior regarding whether or not they will junk a car or repair it.

Justin Jude: Yeah. So good question, Scott. Throughout 2024, there’s been a lot of shift in market share with insurance carriers. We talked a lot about the high rising insurance costs premiums, people raising their deductibles. I think with a lot of the shift of competition, we will not expect I don’t expect to see rising insurance prices anymore for the time for at least the next year. So I think they’re gonna be more competitive. From the used car standpoint, we added, you know, almost two years, I think, decline of used car values. We saw in April that number actually ticked up. Obviously, it’s only one month, but it’s nice to see that used cars have, you know, used car pricing has plateaued and started to improve. Those dynamics of flattening insurance premiums, rising used car prices, you know, and then we’re gonna talk about tariffs probably.

Somebody’s gonna ask that question, but tariffs typically will drive up car pricing, and that’ll be good for the industry. We actually had also one state that approved an increase in the repairable total loss value. So it used to be 70% and I think there’s a small state called Rhode Island, but it was 70%. They raised it to 85% to help improve keeping cars on the road and getting them repaired, and we’re seeing some of that noise start to happen in a good way in other states where they will increase the threshold of when a car totals out. So overall, we only got one good month of used car pricing, but we’re starting to see some trends that hopefully will improve the repairable claims.

Scott Stember: Gotcha. And then the last question, of course, on tariffs. It seems like your biggest exposure in North America is Taiwan. It seems like there’s, I think, a blanket reciprocal tariff on most countries for 10%. I think Taiwan is in there as well. How would that have an impact on your business? Do you think you could put price increases through to cover that, or is it just too soon to say right now?

Justin Jude: Yeah. Well, I’ll probably answer that question in a few more. My guess is tariffs are on a lot of people’s minds on the call. So Rick and I are gonna spend a few minutes talking about that. First, I’ll tell you historically, when the industry has seen tariffs, they’ve been good for the industry, they’ve been good for LKQ Corporation. You know, one caveat of LKQ Corporation, you know, we have a global footprint. You know, nearly 50% of our business in Europe is currently not subject to tariffs. But there’s a lot of volatility right now with the tariffs. The news seems like it’s changing every day. As I mentioned on the call, we put a task force together to really dig into this. We’ll talk about Taiwan. But we really had one of the task force to react pretty quick just because it seems to be changing every day.

And that, you know, what we’ve identified, obviously, is based on what we know, there’s more tariffs than just Taiwan. There’s other countries that we import product from. And if you look at our product cost, we really broke those into two different buckets. The first bucket, I would say, is what’s direct. Meaning, we import from China, we import from Mexico. We import from Taiwan. Understanding what the tariff impact is and where we stand today with what we know on tariffs is a little bit easier to identify and quantify. When we talk about the indirect piece, that gets a little bit more complex. So you think about one of our businesses in the U.S., buying a product from a U.S. distributor. That product could have been imported from China or Taiwan, that product could have components.

Take a Jeep lift kit that our specialty division sells. The supplier that we buy from could get the fasteners and nuts and bolts from China. They could get the brackets from Mexico. So understanding the impact of our indirect is a little bit more complex. We’re working with all of our suppliers on that. But we do have some qualifications of those buckets. Rick, if you wanna talk about that.

Rick Galloway: Sure. Yeah. Let me try to address a couple of things that I’m sure are on people’s minds as well and quantify these things. So look, certain new tariffs took effect within the quarter. The financial impact was immaterial for us within the quarter. Also, it’s important to note that we’ve been living with the previous Trump tariffs we’ve been able to pass it along. So, Scott, to your point, are we able to pass them along? Historically, we’ve been very, very successful in being able to pass those along. If I quantify the couple different things that Justin talked about, the direct imports, those are the ones that are really exposed to the new tariffs in a direct way. The way we are looking at that and to help quantify for the folks on the call, is overall cost of goods sold.

If I look at 2024, cost of goods sold, so it’s kind of a baseline with the 10-K. Be able to quantify that. Less than 10% of our global cost of goods sold are in the bucket that Justin talked about being direct imports. So less than 10% of that is in there. The quantification before any mitigations is less than $200,000,000 of cost. That would be the quantification of that 10%, a little less than 10%. On the indirect population, to quantify that, and give you guys a little bit of visibility on the indirects, that’s the one Justin was talking about. That are essentially purchased from a U.S. company but they’re importing from somewhere else. That’s roughly 20% of our global cost of goods sold. So the direct portion is a little less than 10%. The indirect portion is a little less than 20% of our global cost of goods sold.

That 20%, we can’t really quantify at this point in time. Because we’re not sure what is gonna be passed along, and we don’t we’re not sure what components of those items are imported by our suppliers. And so, you know, the key couple key points is, look. These are as of tariffs as of today, those could change in the coming hours or days as we all have seen. And these will evolve rapidly over the changing landscape. And we’re gonna work diligently with our vendor partners to try to figure out how we can mitigate some of these things. I don’t know if you wanted to cover anything else.

Justin Jude: Yeah. And Scott, I know you talked about pricing. Before we get to that lever, we really, as Rick talked about, we work with our supplier partners, making sure that, you know, they’re in we’re in this together. Can we share the burden of some of these tariffs? Are there opportunities where we can resource that product somewhere else to a different country, different supplier? Reduce the impact on the tariff. Are there any, you know, inefficiencies within our supply chain or logistics that we can remedy and help offset some of the cost. And then ultimately, you know, if you think about the products that we import from Taiwan, your specific question on Taiwan, every aftermarket supplier that we compete with today, I’m sorry.

Every aftermarket competitor and distributor that we compete with today is importing those same exact product types from Taiwan. So we’re all in this at the same level. Anything that’s gonna impact us is gonna impact our pure aftermarket competitor. And so if we can’t, you know, reduce the tariff impact by some of those other mitigating levers, then, you know, we’re gonna obviously pass that through to the customer. We won’t be left holding the bag.

Scott Stember: Got it. That’s great. Thank you so much.

Justin Jude: Thank you.

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

Craig Kennison: Hey, good morning. Thanks for the additional color on tariffs. That’s helpful. Maybe to pivot to Europe, Justin, have you seen any impact on revenue or on your fulfillment rates due to your SKU reduction program?

Justin Jude: No. We have not. We’ve been able to offset the sale of reducing that SKU either to one of our private labels or to another brand that we keep. You know, we talk about some higher numbers, that 17,000 SKUs that we essentially delisted. A lot of those things that were, you know, have those big, a lot of the products that we’re delisting right now have very, very low volume. At the end of the day. Where we have other applications, have other part numbers that have that application, so we’ve not seen an impact of that. Most of the headwinds that we see is either, you know, competition giving up price in a few markets. We do see some countries that we operate in or just in an economic situation where, you know, there’s some delays in repairs and maintenance or some people are foregoing maintenance or extending on their vehicles, and we’re seeing that impacted.

You know, overall, we were pretty happy with our, you know, once again, we look at it country by country to see how we’re doing and how the market’s doing. We’re pretty confident. We’re not losing share. We’re still growing. We’re still gaining share. And even with that revenue reduction that we saw in Europe, I was pretty proud of the team to be able to deliver improvement in EBITDA. When, you know, when the volume drops, normally, you lose that leverage, but the team actually is up on some of these initiatives. So but overall, your main question I don’t we don’t see any risk yet and we would slow down if we did on SKU rationalization impacting revenue.

Craig Kennison: Thanks. And then as a related question, I think in the press release, you mentioned a 20 basis point improvement in your private label program. Could you give us an idea of what percentage of your revenue is from private label and where you think that could go over some long period of time?

Justin Jude: Yeah. We’re in that 21 to 22% range today. We think it can go to up to what we talked about in the last call is that, Craig, it would go by 2030, we’re looking at around 30%. So as we move along, there could be some small steps. We’re happy with the 20 basis point improvement that we had in the quarter. But we think that that number will likely go close to 30% across all of Europe by the 2030 time frame.

Craig Kennison: Thank you.

Operator: Our next question is from Jash Patwa of JPMorgan. Your line is now open. Please go ahead.

Jash Patwa: Hi, good morning, and thanks for taking my question. Building on the earlier discussion, I’d just like to focus on the North American business. Highlighted targeted actions to enhance market penetration, which have positively impacted revenue along with the pricing initiatives that have improved gross margins. Could you provide some additional insights into these strategies? Specifically, is there a link between your pricing initiative and the potentially easing competitive landscape as some smaller competitors who were initially pricing aggressively might have now pulled back amidst the tariff uncertainties? Thanks, and I have a follow-up.

Justin Jude: Yeah. And you may be confusing some of the comments on Europe, some of the pricing pressures that we’ve seen have been in Europe and a few countries that have put some pressure on the pricing improvements or some gross margin. I want to make sure, are you specific? Well, talk about North America or Europe?

Rick Galloway: He’s talking about the Turkish base that I talked about. Of improvements.

Jash Patwa: I was just referring to the discussion in the earnings presentation.

Rick Galloway: Yep.

Justin Jude: Yeah. So we have seen improvements across several different parts of our business to go after some market share gains. We’re pleased with the performance of things like our services business. We’re going after some new areas of opportunity. There’s not a pricing action that we took, Jash. So it’s not we’re not going after and chasing price. Instead, what we’re doing is making sure that we have the best service levels across the board, and we’re seeing nice gains across that. So Justin talked about the gap that we have between repairable claims and what we had for revenue. That widened a little bigger than what we’ve had historically. Talking about how we’re going after having really good fill rates, nice inventory levels, and being able to provide a service level to our customers in order to gain back some of that share.

Jash Patwa: Understood. That’s very helpful. And then just, you know, following up on the earlier tariff discussion, thanks again for all the color there. But just wanted to clarify if aftermarket part imports are subject to the 10% universal reciprocal tariff. My understanding was that auto parts are exempt from the reciprocal tariff. And, you know, while there could be some moving pieces in there, but it would be just helpful to clarify that. And then, relatedly, you know, you also mentioned some mitigating strategies in relation to tariffs. Is there an opportunity to introduce private label aftermarket collision repair parts in the U.S. as a way to navigate this industry disruption? Thank you.

Justin Jude: Yeah. In regard to the I’ll start with the private label piece first. The majority of our sales that we have on the aftermarket side are private labeled under platinum plus. The uniqueness of collision parts, there’s not a lot of brand in the aftermarket collision space world, and so to create consistency, we’ve been branding a lot of our products as private label under Keystone Platinum Plus for a few decades. So the majority of the collision parts, hoods, fenders, bumper covers, headlights are already branded. Regarding the tariffs, it’s pretty complex. If you guys have researched it, whether it’s 10%, 25%, or even 32%. Some of our product lines fall into different buckets of those, you know, specifically coming from Taiwan. Obviously, if you get into China, some things are 25%, some things are 45%. But on average, I think that Taiwan is roughly 25%.

Rick Galloway: Yeah. So, Jash, let me, without going into so much detail, because this is a really complex issue, there’s a section 232 that deals with both steel and aluminum and automotive. The way that the reciprocals work is if it’s in those tariffs, which are 25%, they’re excluded from the additional 10%. So what you’re saying is the exclusion of automotive, it’s excluded only because it’s already got a 25% tariff on that item. So that’s kind of the way to think through this. So what our team’s done is they’ve gone through every single SKU on the direct basis, looking at whether or not that’s included in the detail and is it part of the steel, aluminum, or automotive. And if it’s not, then there’s a 10% reciprocal tariff.

Jash Patwa: Great. Thank you so much, and good luck.

Rick Galloway: Thank you.

Operator: Our next question is from Gary Prestopino from Barrington Research. Gary, your line is now open. Please go ahead.

Gary Prestopino: Hi. Good morning, Walt. Could you just remind me what your targets are on your SKU rationalization in Europe?

Justin Jude: Yeah. So when we kicked this project off, we did say it’s gonna take over three years because we want to make sure that we’re not going too fast and impacting revenue. We feel as the improvement in private label, so adding more private label SKUs on top of the reduction of our existing SKUs. What’s the exact number that we quote? Do you know? Let me, Gary, let me get back to you on those numbers. I’ve got to pull them up on the specific items that we talked about. We talked about three different items that we are gonna go after. We’re talking about SKU rationalization. We started around 750,000 items that we had, and we brought that down to around 700 at this point. Overall, SKU reduction we believe is going to get us down to about 600 by the end of 2027.

So we start with 750. We’re gonna get down to about 600. That’s inclusive of private labeling. So we’re gonna obviously go below that 600, and we’re gonna increase based on the private labeling. And then the other component we have is, we gotta review these items. So the goal is to get to a percentage of that by the end of 2026. By the end of 2025, we’ll be at 80%. So we’re north of 60 at this point. We’ve got another 20 to go for the rest of the year. And then the third item that we had was overall private labeling, and that’s the one that Scott asked, I think, a little bit earlier or maybe Craig did. Trying to get up to what was that number. And so what we said was about 30% by 2030.

Gary Prestopino: Thank you.

Rick Galloway: Yep. Thanks, Gary.

Operator: Our next question comes from Bret Jordan of Jefferies. Bret, your line is now open. Please go ahead.

Bret Jordan: Hey, good morning, guys. When you’re doing the corporate tariff math and looking at the imports from Taiwan, how does the delta to the OE product shake out here? Is the OE primarily USMCA compliant or domestic? Yeah. I guess netting out the tariffs, does your value gap to OE remain equal, or are you relatively more or less expensive than you were before?

Justin Jude: Yeah. Great question. I mean, the devil will be in the details of what the final decision’s gonna come out to. As you know, you followed LKQ Corporation for a while. Our pricing is always typically less than the pure aftermarket competitor just because of our quality of our service and fill rate. Then we hover below the OEM. So we always kind of play in that space somewhere in the middle between OEM and the other aftermarket pure players. If there’s parity, meaning if all the tariffs go through and there’s really no exemption, we’ll be on equal playing field. There’s enough margin gap there where we can improve price and still be competitive and offer the insurance company and the consumer savings to the OEM. It’ll really depend on what happens not only to the tariffs, but then how do the OEMs react.

I mean, we actually seen a flat price change in the OEs on April and of the prices that we’ve seen come through for planning in May. So we haven’t seen them move their needle yet, but if, you know, they’re gonna be experiencing some of those tariffs that we are, then I expect them to raise their prices as well. But it’ll really depend on what the final decision comes to.

Bret Jordan: Okay. Great. And then on the European price competition, is that primarily GSF, or are there others over there that are being aggressive in other markets outside the UK?

Justin Jude: I mean, we always have competition on pricing. The most aggressive is in the UK, I would say. We’re starting to see some of that slow down. Some of their, you know, they’ve expanded quite a bit, but we’ve seen that expansion slow down. But the main area has been in the UK.

Bret Jordan: Okay. Great. Thank you.

Operator: We have no further questions. So I’ll hand back to Justin Jude, CEO, for closing remarks.

Justin Jude: Well, we appreciate everybody joining the call today. Truly, truly thankful for that, and we look forward to speaking to everyone in July when we report on our second-quarter results. Thank you, everyone, and take care.

Operator: This concludes today’s call. Thank you for joining. You may now disconnect your lines.