What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-30 compared with 2026-04-30 · 219 added, 105 removed, 271 unchanged (54% of the section changed)

37 unchanged sentences

Additionally, from time to time, we have sold or divested businesses that do not align with our strategic vision, financial objectives or have limited long-term value potential.

In 2025, aligning with our ongoing strategy to simplify our portfolio and concentrate on our core segments, we completed the sale of our Self Service segment, and commenced a process to explore the potential sale of our Specialty segment.

See Note 2, "Discontinued Operations" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our divestitures.

In addition to the above, on January 26, 2026 our Board of Directors (the "Board") announced it has initiated a comprehensive review of strategic alternatives to enhance shareholder value.

In 2025, aligning with our ongoing strategy to simplify our portfolio and concentrate on our core segments, we completed the sale of our Self Service segment.

See Note 2, "Business Combinations", Note 3, "Discontinued Operations" and Note 6, "Equity Method Investments" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our acquisitions, divestitures and investments.

In addition to the above, in December 2025, the Company announced that it had commenced a process to explore a potential sale of its Specialty segment.

In January 2026, the Company announced that its Board of Directors (the "Board") had initiated a comprehensive review of strategic alternatives to enhance shareholder value.

Our Specialty segment is currently being evaluated as part of the broader strategic review process.

As part of the review, the Board is working with its advisors to evaluate our strategic alternatives, including a potential sale of the Company.

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Our 2025 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, 2026.

As we make progress on our previously announced plan to explore a potential sale of our Specialty segment, certain triggering events may occur which would require us to perform an interim goodwill impairment test.

Depending on the facts and circumstances at the time we perform this interim impairment test, we may be required to recognize additional impairment to the goodwill in our Specialty segment.

Furthermore, events that cause declines to Specialty's future cash flows such as underperformance relative to our forecasts, since actual results may differ from our estimates of future performance, or events that have a negative impact on the market value of the business, such as a deterioration in macroeconomic conditions, could also result in future impairment to the goodwill in our Specialty segment.

We continue to monitor for certain triggering events which would require us to perform an interim goodwill impairment test.

Depending on the facts and circumstances at the time we perform this interim impairment test, we may be required to recognize an impairment to goodwill in one of our segments.

For the three months ended June 30, 2026, we did not identify any triggering events or other indicators of impairment that necessitated an interim test of goodwill impairment.

See Note 5, "Intangible Assets" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related the interim impairment test performed for the Specialty segment as of March 31, 2026.

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See "Strategic Restructuring and Transformation Initiatives" in Note 8, "Restructuring and Transaction Related Expenses" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our strategic transformation initiatives.

In April 2026, in conjunction with our previously announced plan, we continued our phased rollout of a common Enterprise Resource Planning ("ERP") system across Europe by completing the implementation in one of our major European markets.

See Part I, Item 4 of this Quarterly Report on Form 10-Q for information related to the ERP system implementation in Germany.

Recently Issued Accounting Pronouncements

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The following table sets forth statements of income data as a percentage of total revenue for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 2026 2025

Revenue 100.0 % 100.0 % 100.0 % 100.0 %

8 unchanged sentences

Provision for income taxes 1.4 % 1.9 % 1.3 % 1.9 %

Equity in losses of unconsolidated subsidiaries 1.3 % — %

Equity in (earnings) losses of unconsolidated subsidiaries — % — % 0.6 % — %

Income from continuing operations 3.9 % 5.3 % 3.1 % 5.0 %

1 unchanged sentence

Net income 4.0 % 5.5 % 3.1 % 5.3 %

net income attributable to continuing noncontrolling interest — % — % — % — %

Net income attributable to LKQ stockholders 4.0 % 5.5 % 3.1 % 5.3 %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

The following table summarizes the changes in revenue by category (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

2026 2025 Change

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Total revenue $ 3,408 $ 3,513 $ (105)

The increase in parts and services revenue of $118 million, or 3.6%, represented increases in segment revenue of $98 million, or 6.5%, in Europe, $15 million, or 3.8%, in Specialty and $5 million, or 0.4%, in North America.

This overall increase was driven by a $164 million, or 5.1%, increase due to fluctuations in foreign exchange rates, and a $6 million, or 0.2%, increase due to the net impact of acquisitions and divestitures, partially offset by an organic parts and services revenue decrease of $53 million, or 1.6%.

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, 2026 compared to the three months ended March 31, 2025.

The decrease in parts and services revenue of $122 million, or 3.6%, represented a decrease in segment revenue of $154 million, or 9.6%, in Europe, partially offset by increases of $23 million, or 5.0%, in Specialty and $9 million, or 0.5%, in North America.

This overall decrease was driven by an organic parts and services revenue decrease of $174 million, or 5.1%, partially offset by a $34 million, or 1.0%, increase due to fluctuations in foreign exchange rates, and a $17 million, or 0.5%, increase 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 June 30, 2026 compared to the three months ended June 30, 2025.

Cost of Goods Sold

Cost of goods sold increased by $124 million, or 6.2%, to $2,138 million for the three months ended March 31, 2026.

Cost of goods sold decreased by $70 million, or 3.3%, to $2,087 million for the three months ended June 30, 2026.

Cost of goods sold includes a $22 million unfavorable impact from a weakening U.S.

Cost of goods sold reflects increases of $70 million from Europe, $43 million from North America and $11 million from Specialty.

Cost of goods sold as a percentage of revenue increased to 61.6% for the three months ended March 31, 2026 from 60.5% for the three months ended March 31, 2025.

Cost of goods sold as a percentage of revenue primarily reflects increases of 0.8% from North America and 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 March 31, 2026 compared to the three months ended March 31, 2025.

Cost of goods sold reflects a decrease of $107 million from Europe, partially offset by increases of $21 million from North America and $16 million from Specialty.

Cost of goods sold as a percentage of revenue decreased to 61.2% for the three months ended June 30, 2026 from 61.4% for the three months ended June 30, 2025.

Cost of goods sold as a percentage of revenue primarily reflects a decrease of 0.4% from Europe, partially offset by an increase of 0.2% from North America.

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, 2026 compared to the three months ended June 30, 2025.

Selling, General and Administrative Expenses

Our Selling, general and administrative ("SG&A") expenses increased by $45 million, or 4.8%, to $994 million for the three months ended March 31, 2026.

Our Selling, general and administrative ("SG&A") expenses increased by $32 million, or 3.3%, to $990 million for the three months ended June 30, 2026.

SG&A expenses includes a $10 million unfavorable impact from a weakening U.S.

The year over year increase in SG&A expense primarily reflects increases of $41 million from Europe and $8 million from Specialty, partially offset by a decrease of $4 million from North America.

SG&A expenses as a percentage of revenue increased slightly to 28.7% for the three months ended March 31, 2026 from 28.5% for the three months ended March 31, 2025.

SG&A expenses as a percentage of revenue primarily reflects an increase of 0.4% from Europe and 0.2% from Specialty and mix, offset by a decrease of 0.4% from 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, 2026 compared to the three months ended March 31, 2025.

The year over year increase in SG&A expense primarily reflects increases of $18 million from North America, $12 million from Specialty and $2 million from Europe.

SG&A expenses as a percentage of revenue increased to 29.0% for the three months ended June 30, 2026 from 27.3% for the three months ended June 30, 2025.

SG&A expenses as a percentage of revenue primarily reflects increases of 1.3% from Europe, 0.4% from North America, and 0.2% from Specialty, partially offset by a decrease of 0.2% attributable to mix.

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 June 30, 2026 compared to the three months ended June 30, 2025.

Restructuring and Transaction Related Expenses

Restructuring and transaction related expenses increased by $22 million, primarily due to a $20 million increase in restructuring expenses related to our Strategic Restructuring and Transformation Initiatives.

Restructuring and transaction related expenses increased by $6 million, primarily due to a $3 million increase in restructuring expenses related to our Strategic Restructuring and Transformation Initiatives and a $3 million increase in transaction related expenses.

See Note 8, "Restructuring and Transaction Related Expenses" for further information on the restructuring charges.

Provision for Income Taxes

Our effective income tax rate for the three months ended March 31, 2026 was 26.4%, compared to 27.8% for the three months ended March 31, 2025.

The decrease in the effective tax rate for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 is primarily attributable to the 1.2% year over year favorable impact of discrete items, mostly related to a return to provision adjustment.

Equity in losses of unconsolidated subsidiaries

Equity in losses of unconsolidated subsidiaries increased by $45 million, primarily related to our equity method investment in Mekonomen.

During the three months ended March 31, 2026 , we recorded a $44 million other-than-temporary impairment related to our equity method investment in Mekonomen.

Our effective income tax rate for the three months ended June 30, 2026 was 26.8%, compared to 26.4% for the three months ended June 30, 2025.

The increase in the effective tax rate for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 is primarily attributable to an unfavorable impact of 1.2% for discrete items, mostly related to a nonrecurring benefit from the reversal of a tax assessment in the prior year, partially offset by a favorable impact from changes in the Company's geographic distribution of income.

Foreign Currency Impact

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, 2025, the Czech koruna, euro and pound sterling rates used to translate the three months ended June 30, 2026 statements of income increased by 5.1%, 2.5%, and 0.5%, 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 neutral effect on diluted earnings per share from continuing operations relative to the prior year period.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

The following table summarizes the changes in revenue by category (in millions):

Six Months Ended June 30,

2026 2025 Change

Parts & services revenue $ 6,667 $ 6,671 $ (4)

Other revenue 210 169 41

Total revenue $ 6,877 $ 6,840 $ 37

The decrease in parts and services revenue of $4 million, or 0.1%, represented a decrease in segment revenue of $56 million, or 1.8%, in Europe, partially offset by increases of $38 million, or 4.4%, in Specialty and $14 million, or 0.5%, in North America.

This overall decrease was driven by an organic parts and services revenue decrease of $226 million, or 3.4%, partially offset by a $198 million, or 3.0%, increase due to fluctuations in foreign exchange rates and a $23 million, or 0.3%, increase 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 six months ended June 30, 2026 compared to the six months ended June 30, 2025.

Cost of Goods Sold

Cost of goods sold increased by $54 million, or 1.3%, to $4,225 million for the six months ended June 30, 2026.

Cost of goods sold includes a $129 million unfavorable impact from a weakening U.S.

Cost of goods sold primarily reflects increases of $64 million from North America and $27 million from Specialty, partially offset by a decrease of $37 million from Europe.

Cost of goods sold as a percentage of revenue increased to 61.4% for the six months ended June 30, 2026 from 61.0% for the six months ended June 30, 2025.

Cost of goods sold as a percentage of revenue primarily reflects an increase of 0.5% from North America.

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 six months ended June 30, 2026 compared to the six months ended June 30, 2025.

Selling, General and Administrative Expenses

Our SG&A expenses increased by $77 million, or 4.0%, to $1,984 million for the six months ended June 30, 2026.

SG&A expenses includes a $59 million unfavorable impact from a weakening U.S.

The year over year increase in SG&A expense primarily reflects increases of $43 million from Europe, $20 million from Specialty and $14 million from North America.

SG&A expenses as a percentage of revenue increased to 28.9% for the six months ended June 30, 2026 from 27.9% for the six months ended June 30, 2025.

SG&A expenses as a percentage of revenue primarily reflects increases of 0.9% from Europe and 0.2% from Specialty.

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, 2026 compared to the six months ended June 30, 2025.

Restructuring and Transaction Related Expenses

Restructuring and transaction related expenses increased by $28 million, primarily due to a $23 million increase in restructuring expenses related to our Strategic Restructuring and Transformation Initiatives and a $5 million increase in transaction related expenses.

See Note 8, "Restructuring and Transaction Related Expenses" for further information on the restructuring charges.

Provision for Income Taxes

Our effective income tax rate for the six months ended June 30, 2026 was 26.6%, compared to 27.1% for the six months ended June 30, 2025.

The decrease in the effective tax rate for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 is primarily attributable to a favorable impact from changes in the Company's geographic distribution of income.

Equity in (earnings) losses of unconsolidated subsidiaries

During the six months ended June 30, 2026 , we recorded a $44 million other-than-temporary impairment related to our equity method investment in Mekonomen.

See Note 6, "Equity Method Investments " for further information on the impairment charge.

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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, 2025, the Czech koruna, euro, pound sterling and Canadian dollar rates used to translate the three months ended March 31, 2026 statements of income increased by 14.5%, 11.2%, 7.0%, and 4.6%, respectively.

Relative to the rates used during the six months ended June 30, 2025, the Czech koruna, euro, pound sterling, and Canadian dollar rates used to translate the six months ended June 30, 2026 statements of income increased by 9.6%, 6.7%, 3.6% and 2.2%, respectively.

Realized and unrealized currency gains and losses combined with the translation effect of the change in foreign currencies against the U.S.

1 unchanged sentence

Net Income from Discontinued Operations

Discontinued operations for the three months ended March 31, 2026 and 2025 reflected the Self Service segment which was sold in September 2025.

Discontinued operations for the six months ended June 30, 2026 and 2025 reflected the Self Service segment which was sold in September 2025.

See Note 3, "Discontinued Operations" for further information.

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The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in millions):

Three Months Ended March 31,

2026 % of Total Segment Revenue 2025 % of Total Segment Revenue

Three Months Ended June 30, Six Months Ended June 30,

2026 % of Total Segment Revenue 2025 % of Total Segment Revenue 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue

Third Party Revenue

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and direct impacts of the Ukraine/Russia conflict.

See Note 16, "Segment and Geographic Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

See Note 18, "Segment and Geographic Information" to the Unaudited Condensed

Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

North America

The following table provides a reconciliation of Revenue to Segment EBITDA in our North America segment (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

North America 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change

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Segment EBITDA $ 207 14.1 % $ 224 15.5 % $ (17)

(1) Parts and services revenue increased by $5 million, or 0.4%, to $1,341 million for the three months ended March 31, 2026.

This increase was due to a positive exchange rate effect of $11 million, or 0.8%, primarily due to the stronger Canadian dollar against the U.S.

dollar, partially offset by an organic revenue decrease of $5 million, or 0.4%.

This organic revenue decrease was driven primarily by lower volumes in our paint, body and equipment business from lower repairable claims and increased competition, and weather related closures affecting all lines of business, partially offset by pricing initiatives to recoup tariff costs and offset inflationary pressures.

(2) Other revenue increased by $23 million, or 30.0%, to $99 million for the three months ended March 31, 2026.

This increase was due to (i) an $11 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices, (ii) an $8 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher volumes and prices, and (iii) a $4 million increase in revenue from scrap steel primarily due to higher volumes and, to a lesser extent, higher prices.

(3) Gross margin decreased by $15 million, or 2.4%, to $612 million for the three months ended March 31, 2026.

The decrease in gross margin dollars was driven by cost increases from tariffs and inflationary pressures, unfavorable customer mix, and lower vendor rebates from lower volumes, partially offset by pricing initiatives and higher other revenue.

(1) Parts and services revenue increased by $9 million, or 0.5%, to $1,371 million for the three months ended June 30, 2026.

This increase was due to an organic revenue increase of $7 million, or 0.5%, driven primarily by pricing initiatives to recoup tariff costs and offset inflationary pressures, partially offset by lower volumes in our paint, body and equipment ("PBE") business from increased competition and lower repairable claims and lower volumes in our salvage operations.

(2) Other revenue increased by $15 million, or 20.5%, to $95 million for the three months ended June 30, 2026.

This increase was due to (i) a $7 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher prices, and to a lesser extent, volumes, (ii) a $6 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices, and (iii) a $2 million increase in revenue from scrap steel primarily due to higher prices and volumes.

(3) Gross margin increased by $3 million, or 0.7%, to $622 million for the three months ended June 30, 2026.

The increase in gross margin dollars was driven primarily by pricing and higher other revenue as described above, partially offset by cost increases from tariffs and inflationary pressures, and lower volumes.

Gross margin percentage decreased by 0.4% which was driven by the dilutive effect of increasing prices to recoup tariff costs, lower vendor rebates and unfavorable customer mix.

(4) SG&A expenses decreased by $4 million, or 1.0%, to $410 million for the three months ended March 31, 2026.

The decrease in SG&A expense is primarily due to (i) $6 million from decreased professional fees, (ii) $4 million from decreased facility expenses, and (iii) other individually immaterial factors representing a $6 million favorable impact in the aggregate, partially offset by (iv) $12 million from increased personnel costs primarily due to increased health and other insurance costs.

(4) SG&A expenses increased by $18 million, or 4.6%, to $420 million for the three months ended June 30, 2026.

The increase in SG&A expense is primarily due to (i) a $7 million increase in professional fees, (ii) a $7 million increase due to higher self insurance reserves, (iii) a $4 million increase in freight costs and (iv) other individually immaterial factors representing a $2 million unfavorable impact in the aggregate, partially offset by (v) a $2 million decrease in personnel costs driven by productivity and other cost savings initiatives, partially offset by increased health and other insurance costs and incentive compensation compared to the prior year.

(5) Amounts include certain shared overhead costs that were historically allocated to the Self Service segment.

2 unchanged sentences

The following table provides a reconciliation of Revenue to Segment EBITDA in our Europe segment (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Europe 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change

7 unchanged sentences

Segment EBITDA $ 109 7.5 % $ 151 9.4 % $ (42)

(1) Parts and services revenue increased by $98 million, or 6.5%, to $1,613 million for the three months ended March 31, 2026.

This increase was due to the effect of an exchange rate increase of $152 million, or 10.1%, primarily due to the strengthening of the euro, and to a lesser extent, the pound sterling and Czech koruna against the U.S.

dollar, partially offset by an organic revenue decrease of $61 million, or 4.0%, primarily driven by decreased volumes due to heightened competition in certain markets and difficult economic conditions.

(2) Gross margin increased by $29 million, or 5.0%, to $620 million for the three months ended March 31, 2026.

The increase in gross margin dollars was driven by an exchange rate increase of $59 million, partially offset by lower organic revenue and lower vendor rebates.

Gross margin percentage decreased by 0.5% which was driven by lower vendor rebates and lower margins from a competitive pricing environment in certain markets.

(3) SG&A expenses increased by $41 million, or 9.3%, to $500 million for the three months ended March 31, 2026.

(1) Parts and services revenue decreased by $154 million, or 9.6%, to $1,447 million for the three months ended June 30, 2026.

This decrease was due to an organic revenue decrease of $201 million, or 12.6%, primarily driven by lower volumes due to temporary operational challenges resulting from an ERP implementation in Germany, and to a lesser extent, heightened competition in certain markets and difficult economic conditions.

This decrease was partially offset by the effect of an exchange rate increase of $34 million, or 2.1%, primarily due to the strengthening of the euro, and to a lesser extent, the Czech koruna and pound sterling against the U.S.

dollar, and an increase in acquisition and divestiture revenue of $14 million, or 0.9%, primarily due to our acquisition of six wholesale businesses from the beginning of the second quarter of 2025 through the one-year anniversary of their respective acquisition dates.

(2) Gross margin decreased by $45 million, or 7.4%, to $574 million for the three months ended June 30, 2026.

The decrease in gross margin dollars was driven by lower organic revenue, partially offset by an exchange rate increase of $12 million.

Gross margin percentage increased by 0.9% which was driven by the favorable impacts of pricing initiatives, and to a lesser extent, product mix.

(3) SG&A expenses increased by $2 million, or 0.1%, to $476 million for the three months ended June 30, 2026.

The increase in SG&A expense includes a $10 million unfavorable foreign exchange impact from a weakening U.S.

The remaining $5 million favorable impact primarily relates to decreased personnel costs driven by productivity initiatives and restructuring activities which more than offset inflationary pressures.

dollar, and a $4 million unfavorable impact primarily related to increased freight, vehicle and fuel costs.

This was partially offset by a $12 million favorable impact primarily related to decreased personnel costs driven by productivity, restructuring and other cost savings initiatives which more than offset inflationary pressures, and lower incentive compensation compared to the prior year.

(4) Amounts primarily represent other non operating income and expenses, as well as a reconciling item to remove depreciation - cost of goods sold, which is excluded from the calculation of Segment EBITDA.

The following table provides a reconciliation of Revenue to Segment EBITDA in our Specialty segment (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Specialty 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change

7 unchanged sentences

Segment EBITDA $ 33 6.7 % $ 39 8.5 % $ (6)

(1) Parts and services revenue increased by $15 million, or 3.8%, to $408 million for the three months ended March 31, 2026.

This was primarily due to an organic revenue increase of $13 million, or 3.4% primarily driven by volume growth in our marine and recreational vehicle product lines, partially offset by decreases in our automotive product lines.

(2) Gross margin increased by $4 million, or 3.9%, to $99 million for the three months ended March 31, 2026.

This increase was primarily driven by an increase in parts and services revenue as described above.

(3) SG&A expenses increased by $8 million, or 9.7%, to $84 million for the three months ended March 31, 2026.

This increase was primarily driven by a $6 million increase in credit loss reserves.

(1) Parts and services revenue increased by $23 million, or 5.0%, to $487 million for the three months ended June 30, 2026.

This was primarily due to an organic revenue increase of $21 million, or 4.5%, primarily driven by volume growth in our marine, recreational vehicle ("RV"), and automotive product lines.

(2) Gross margin increased by $7 million, or 5.7%, to $125 million for the three months ended June 30, 2026.

This increase was primarily driven by a favorable impact related to tariff refunds and an increase in parts and services revenue as described above, partially offset by an unfavorable impact in sales mix due to higher volumes on lower margin product lines.

(3) SG&A expenses increased by $12 million, or 15.2%, to $94 million for the three months ended June 30, 2026.

This increase was primarily driven by (i) a $8 million increase in credit losses and (ii) a $4 million increase in freight, vehicle and fuel costs.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

North America

The following table provides a reconciliation of Revenue to Segment EBITDA in our North America segment (in millions):

Six Months Ended June 30,

North America 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change

Parts & services revenue $ 2,712 $ 2,698 $ 14 (1)

Other revenue 194 156 38 (2)

Total segment revenue 2,906 2,854 52

Cost of goods sold 1,672 1,608 64

Gross margin 1,234 42.5 % 1,246 43.7 % (12) (3)

Selling, general and administrative expenses (5)

830 28.6 % 816 28.6 % 14 (4)

Other segment items (6)

Segment EBITDA $ 410 14.1 % $ 441 15.4 % $ (31)

(1) Parts and services revenue increased by $14 million, or 0.5%, to $2,712 million for the six months ended June 30, 2026.

This increase was primarily due to a positive exchange rate effect of $11 million, or 0.4%, primarily due to the stronger Canadian dollar against the U.S.

dollar, and to a lesser extent, an organic revenue increase of $2 million, or 0.1%, driven primarily by pricing initiatives to recoup tariff costs and offset inflationary pressures, partially offset by lower volumes in our PBE business from lower repairable claims and increased competition and lower volumes in our salvage operations.

(2) Other revenue increased by $38 million, or 25.2%, to $194 million for the six months ended June 30, 2026.

This increase was due to (i) a $17 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices, (ii) a $14 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher prices, and to a lesser extent, volumes, and (iii) a $7 million increase in revenue from scrap steel primarily due to higher volumes and prices.

(3) Gross margin decreased by $12 million, or 0.9%, to $1,234 million for the six months ended June 30, 2026.

The decrease in gross margin dollars was driven by cost increases from inflationary pressures, lower vendor rebates from lower volumes, and unfavorable customer mix, partially offset by pricing initiatives and higher other revenue as described above.

Gross margin percentage decreased by 1.2% which was driven by the dilutive effect of increasing prices to recoup tariff costs, lower vendor rebates and unfavorable customer mix.

(4) SG&A expenses increased by $14 million, or 1.8%, to $830 million for the six months ended June 30, 2026.

The increase in SG&A expense is primarily due to (i) an $8 million increase in personnel costs primarily due to increased health and other insurance costs and incentive compensation compared to the prior year, (ii) an $8 million increase due to higher self insurance reserves, and (iii) a $5 million increase in freight, vehicle and fuel costs, partially offset by (iv) other individually immaterial factors representing a $7 million favorable impact in the aggregate.

(5) Amounts include certain overhead costs that were historically allocated to the Self Service segment.

See Note 3, "Discontinued Operations" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

(6) Amounts primarily represent other non operating income and expenses, as well as a reconciling item to remove depreciation - cost of goods sold, which is excluded from the calculation of Segment EBITDA.

The following table provides a reconciliation of Revenue to Segment EBITDA in our Europe segment (in millions):

Six Months Ended June 30,

Europe 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change

Parts & services revenue $ 3,060 $ 3,116 $ (56) (1)

Other revenue 16 13 3

Total segment revenue 3,076 3,129 (53)

Cost of goods sold 1,882 1,919 (37)

Gross margin 1,194 38.8 % 1,210 38.7 % (16) (2)

Selling, general and administrative expenses 976 31.7 % 933 29.8 % 43 (3)

Other segment items (4)

(17) (15) (2)

Segment EBITDA $ 235 7.6 % $ 292 9.3 % $ (57)

(1) Parts and services revenue decreased by $56 million, or 1.8%, to $3,060 million for the six months ended June 30, 2026.

This decrease was primarily due to an organic revenue decrease of $262 million, or 8.4%, primarily driven by lower volumes due to temporary operational challenges resulting from an ERP implementation in Germany, and heightened competition in certain markets and difficult economic conditions, partially offset by the effect of an exchange rate increase of $186 million, or 6.0%, primarily due to the strengthening of the euro, and to a lesser extent, the pound sterling and Czech koruna against the U.S.

dollar and an increase in acquisition and divestiture revenue of $20 million, or 0.6%, primarily due to our acquisition of six wholesale businesses from the beginning of 2025 through the one-year anniversary of their respective acquisition dates.

(2) Gross margin decreased by $16 million, or 1.4%, to $1,194 million for the six months ended June 30, 2026.

The decrease in gross margin dollars was driven by lower organic revenue, partially offset by an exchange rate increase of $71 million.

(3) SG&A expenses increased by $43 million, or 4.6%, to $976 million for the six months ended June 30, 2026.

The increase in SG&A expense includes a $56 million unfavorable foreign exchange impact from a weakening U.S.

dollar, and a $4 million unfavorable impact primarily related to increased freight, vehicle and fuel costs.

This was partially offset by a $17 million favorable impact primarily related to decreased personnel costs driven by productivity, restructuring and other cost savings initiatives which more than offset inflationary pressures.

The following table provides a reconciliation of Revenue to Segment EBITDA in our Specialty segment (in millions):

Six Months Ended June 30,

Specialty 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change

Parts & services revenue $ 895 $ 857 $ 38 (1)

Intersegment revenue 2 2 —

Total segment revenue 897 859 38

Cost of goods sold 673 646 27

Gross margin 224 25.0 % 213 24.9 % 11 (2)

Selling, general and administrative expenses 178 19.8 % 158 18.4 % 20 (3)

Other segment items (4)

Segment EBITDA $ 51 5.7 % $ 60 7.0 % $ (9)

(1) Parts and services revenue increased by $38 million, or 4.4%, to $895 million for the six months ended June 30, 2026.

This was primarily due to an organic revenue increase of $34 million, or 4.0%, driven by volume growth in our marine and RV product lines.

(2) Gross margin increased by $11 million, or 4.9%, to $224 million for the six months ended June 30, 2026.

(3) SG&A expenses increased by $20 million, or 12.5%, to $178 million for the six months ended June 30, 2026.

This increase was primarily driven by (i) a $13 million increase in credit losses, (ii) a $4 million increase in freight, vehicle and fuel costs, and (iii) other individually immaterial factors representing a $3 million unfavorable impact in the aggregate.

Liquidity and Capital Resources

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The following table summarizes liquidity data as of the dates indicated (in millions):

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

Capacity under revolving credit facilities $ 2,000 $ 2,000

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Total liquidity $ 1,930 $ 2,204

We had $1,677 million available under our revolving credit facilities as of March 31, 2026 .

Combined with $335 million of cash and cash equivalents at March 31, 2026, we had $2,012 million i n available liquidity, a decrease of $192 million from our available liquidity as of December 31, 2025, primarily as a result of increasing our revolving credit facilities borrowings by $211 million.

We had $1,629 million available under our revolving credit facilities as of June 30, 2026 .

Combined with $301 million of cash and cash equivalents at June 30, 2026, we had $1,930 million i n available liquidity, a decrease of $274 million from our available liquidity as of December 31, 2025, primarily as a result of increasing our revolving credit facilities borrowings by $289 million.

See Note 12, "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.

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Our capital allocation strategy includes spending to support growth driven capital projects, return stockholder value through the payment of dividends and repurchasing shares of our common stock, completing highly synergistic tuck-in acquisitions and debt repayment.

A summary of the dividend activity for our common stock for the three months ended March 31, 2026 is as follows:

A summary of the dividend activity for our common stock for the six months ended June 30, 2026 is as follows:

Dividend Amount Declaration Date Record Date Payment Date

$0.30 February 17, 2026 March 12, 2026 March 26, 2026

On April 28, 2026, our Board declared a quarterly cash dividend of $0.30 per share of common stock, payable on June 4, 2026, to stockholders of record at the close of business on May 21, 2026.

$0.30 April 28, 2026 May 21, 2026 June 4, 2026

On July 28, 2026, our Board declared a quarterly cash dividend of $0.30 per share of common stock, payable on September 3, 2026, to stockholders of record at the close of business on August 20, 2026.

We believe that our future cash flow generation will permit us to continue paying dividends in future periods;

however, the timing, amount and frequency of such future dividends will be subject to approval by our Board, and based on considerations of capital availability, and various other factors, many of which are outside of our control.

With $2,012 million of total liquidity as of March 31, 2026 and $532 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 2027, which we intend to extend or refinance on or before the scheduled maturity.

With $1,930 million of total liquidity as of June 30, 2026 and $545 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 2027.

On July 29, 2026, we prepaid the term loan payable under our Senior Unsecured Credit Agreement with borrowings from our revolving credit facilities.

We have a surplus of current assets over current liabilities, which further reduces the risk of short-term cash shortfalls.

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The terms maximum total leverage ratio and minimum interest coverage ratio are specifically calculated per both the Senior Unsecured Credit Agreement and CAD Note, and differ in specified ways from comparable GAAP or common usage terms.

We were in compliance with all applicable covenants under both our Senior Unsecured Credit Agreement and CAD Note as of March 31, 2026.

The required debt covenants per both the Senior Unsecured Credit Agreement and CAD Note and our actual ratios with respect to those covenants are as follows as of March 31, 2026:

Covenant Level Ratio Achieved as of March 31, 2026

We were in compliance with all applicable covenants under both our Senior Unsecured Credit Agreement and CAD Note as of June 30, 2026.

The required debt covenants per both the Senior Unsecured Credit Agreement and CAD Note and our actual ratios with respect to those covenants are as follows as of June 30, 2026:

Covenant Level Ratio Achieved as of June 30, 2026

Maximum total leverage ratio 4.00 :

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Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

The weighted average interest rate on borrowings outstanding under our Senior Unsecured Credit Agreement was 5.2% at March 31, 2026.

Including our senior notes and CAD Note, our overall weighted average interest rate on borrowings was 5.0% at March 31, 2026.

Under the Senior Unsecured Credit Agreement, our borrowings bear interest at the Secured Overnight Financing Rate ("SOFR") plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread.

The weighted average interest rate on borrowings outstanding under our Senior Unsecured Credit Agreement was 5.1% at June 30, 2026.

Including our senior notes and CAD Note, our overall weighted average interest rate on borrowings was 5.0% at June 30, 2026.

Under the Senior Unsecured Credit Agreement, our borrowings bear interest at the Secured Overnight Financing Rate plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread.

Under the CAD Note, the interest rate may be (i) a forward-looking term rate based on the Canadian Overnight Repo Rate Average for an interest period chosen by the Company of one or three months or (ii) the Canadian Prime Rate (as defined in the CAD Note), plus in each case a spread.

See Note 12, "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 related to our borrowings and related interest.

We had outstanding borrowin gs under our revolving credit facilities and term loans payable of $1,215 million and $1,011 million at March 31, 2026 and December 31, 2025, respectively.

Of these amounts, there were current maturities of $500 million at March 31, 2026 related to the term loan payable under our Senior Unsecured Credit Agreement due January 2027.

We had outstanding borrowin gs under our revolving credit facilities and term loans payable of $1,283 million and $1,011 million at June 30, 2026 and December 31, 2025, respectively.

Of these amounts, there were current maturities of $500 million at June 30, 2026 related to the term loan payable under our Senior Unsecured Credit Agreement due January 2027.

On July 29, 2026, we prepaid the term loan payable under our Senior Unsecured Credit Agreement with borrowings from our revolving credit facilities.

There were no current maturities at December 31, 2025.

The scheduled maturities of long-term obligations outstanding at March 31, 2026 are as follows (in millions):

Nine months ending December 31, 2026 $ 24

The scheduled maturities of long-term obligations outstanding at June 30, 2026 are as follows (in millions):

Six months ending December 31, 2026 $ 26

Years ending December 31:

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Total debt (2)

(1) Includes $500 million related to the term loan payable under our Senior Unsecured Credit Agreement due January 2027, which we intend to extend or refinance on or before the scheduled maturity.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs and unamortized bond discounts of $30 million as of March 31, 2026).

As of March 31, 2026, the Company had cash and cash equivalents of $335 million, of which $309 million was held by foreign subsidiaries.

(1) Includes $500 million related to the term loan payable under our Senior Unsecured Credit Agreement due January 2027.

On July 29, 2026, we prepaid the term loan payable under our Senior Unsecured Credit Agreement with borrowings from our revolving credit facilities.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs and unamortized bond discounts of $28 million as of June 30, 2026).

As of June 30, 2026, the Company had cash and cash equivalents of $301 million, of which $260 million was held by foreign subsidiaries.

In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries.

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See Note 11, "Supply Chain Financing" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our supply chain financing arrangements.

For the three months ended March 31, 2026, net cash used in operating activities totaled $56 million compared to $3 million for the same period of 2025.

For the six months ended June 30, 2026, net cash provided by operating activities totaled $55 million compared to $293 million for the same period of 2025.

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.

Receivables represented $15 million in higher cash outflows for the three months ended March 31, 2026 compared to the same period of 2025.

Inventories represented $128 million in incremental cash inflows for the three months ended March 31, 2026 compared to the same period of 2025.

Accounts payable produced $150 million in incremental cash outflows for the three months ended March 31, 2026 compared to the same period of 2025.

Other operating activities primarily reflects the net effect of lower cash earnings and movements in various accruals during the three months ended March 31, 2026 compared to the same period of 2025.

For the three months ended March 31, 2026, net cash used in investing activities totaled $42 million compared to $50 million for the same period of 2025.

Property, plant and equipment purchases were $40 million in the three months ended March 31, 2026 compared to $54 million in the prior year period.

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

Three Months Ended March 31,

Net cash used in operating activities $ (56) $ (3)

Receivables represented $44 million in higher cash outflows for the six months ended June 30, 2026 compared to the same period of 2025.

Inventories represented $87 million in

higher cash inflows for the six months ended June 30, 2026 compared to the same period of 2025.

Accounts payable produced $223 million in higher cash outflows for the six months ended June 30, 2026 compared to the same period of 2025.

Other operating activities primarily reflects the net effect of lower cash earnings and movements in various accruals during the six months ended June 30, 2026 compared to the same period of 2025.

For the six months ended June 30, 2026, net cash used in investing activities totaled $120 million compared to $99 million for the same period of 2025.

Property, plant and equipment purchases were $91 million in the six months ended June 30, 2026 compared to $107 million in the prior year period.

We invested $30 million of cash in business acquisitions during the six months ended June 30, 2026.

There were no significant business acquisitions during the six months ended June 30, 2025.

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

Six Months Ended June 30,

Net cash provided by operating activities $ 55 $ 293

purchases of property, plant and equipment 91 107

Free cash flow (1)

$ (96) $ (57)

(1) For the three months ended March 31, 2025, Self Service contributed approximately $15 million of free cash flow.

For the three months ended March 31, 2026, net cash provided by financing activities totaled $111 million compared to $40 million for the same period in 2025.

Cash outflows for dividends paid were $77 million and share repurchases were $1 million for the three months ended March 31, 2026 compared to $78 million for dividends paid and $40 million for share repurchases for the same period of 2025.

Net debt borrowings were $202 million for the three months ended March 31, 2026 compared to $170 million for the same period of 2025.

(1) For the six months ended June 30, 2025, Self Service contributed approximately $30 million of free cash flow.

For the six months ended June 30, 2026, net cash provided by financing activities totaled $51 million compared to net cash used in financing activities of $169 million for the same period in 2025.

Cash outflows for dividends paid were $154 million and share repurchases were $53 million for the six months ended June 30, 2026 compared to $156 million for dividends paid and $79 million for share repurchases for the same period of 2025.

Net debt borrowings were $278 million for the six months ended June 30, 2026 compared to $59 million for the same period of 2025.

We intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions.

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Summarized Statements of Income (in millions)

Three Months Ended

March 31, 2026

Six Months Ended

June 30, 2026

Fiscal Year Ended

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Net income $ 163 $ 265

(1) Guarantor subsidiaries recorded $11 million and $51 million of net sales to and $48 million and $259 million of purchases from non-guarantor subsidiaries for the three months ended March 31, 2026 and fiscal year ended December 31, 2025, respectively.

(1) Guarantor subsidiaries recorded $23 million and $51 million of net sales to and $95 million and $259 million of purchases from non-guarantor subsidiaries for the six months ended June 30, 2026 and fiscal year ended December 31, 2025, respectively.

Summarized Balance Sheets (in millions)

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

Current assets $ 2,322 $ 2,349

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Noncurrent liabilities 3,071 3,294

(1) Noncurrent assets for guarantor subsidiaries included $503 million and $510 million of long-term notes receivable from non-guarantor subsidiaries as of March 31, 2026 and December 31, 2025, respectively.

(2) Current liabilities for guarantor subsidiaries included $489 million and $621 million of short-term notes payable to non-guarantor subsidiaries as of March 31, 2026 and December 31, 2025, respectively.

(1) Noncurrent assets for guarantor subsidiaries included $502 million and $510 million of long-term notes receivable from non-guarantor subsidiaries as of June 30, 2026 and December 31, 2025, respectively.

(2) Current liabilities for guarantor subsidiaries included $474 million and $621 million of short-term notes payable to non-guarantor subsidiaries as of June 30, 2026 and December 31, 2025, respectively.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis