LKQ Corporation

04/30/2026 | Press release | Distributed by Public on 04/30/2026 13:37

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements and information in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the "safe harbor" provisions of such Act.
Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as "may," "will," "plan," "should," "expect," "anticipate," "believe," "if," "estimate," "intend," "project" and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2025 Form 10-K and our Quarterly Reports on Form 10-Q (including this Quarterly Report).
Overview
We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty aftermarket products and accessories to improve the performance, functionality and appearance of vehicles.
Buyers of vehicle replacement products have the option to purchase from primarily four sources: new products produced by original equipment manufacturers ("OEMs"); new products produced by companies other than the OEMs, which are referred to as aftermarket products; salvaged products taken from total loss vehicles; and reconditioned products that have been refurbished or remanufactured. Collectively, we refer to the three sources that are not new OEM products as alternative parts.
We sell a variety of alternative replacement and maintenance parts including collision parts, which are typically exterior components used in the collision repair process to restore a vehicle's appearance and safety, such as bumper covers, fenders, paint and related body repair products, and lights; hard parts, which are typically internal components that are either mechanical in nature, such as alternators, starters, and clutches, or functional components that are replaced as part of routine maintenance, such as brake pads, discs and sensors, filters and batteries; and major mechanical parts, such as engines and transmissions. We also sell specialty products and accessories, which are vehicle products that improve the performance, functionality and appearance of vehicles.
We are organized into three operating segments: North America; Europe; and Specialty, each of which is presented as a reportable segment. We have made certain reclassifications to the prior period financial information to reflect discontinued operations presentation as a result of the sale of our Self Service segment in the prior year. 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.
Our North America segment is a leading provider of alternative vehicle collision replacement products, paint and related body repair products, and alternative vehicle mechanical replacement and maintenance products, with our sales, processing, and distribution facilities reaching most major markets in the U.S. and Canada. Our Europe segment is a leading provider of alternative vehicle replacement and maintenance products in Germany, the U.K., the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, France and various other European countries. Our Specialty segment is a leading distributor of specialty vehicle aftermarket products and accessories reaching most major markets in the U.S. and Canada.
Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Please refer to the factors referred to in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.
Portfolio Management
We continuously manage and assess the businesses and investments we own and the markets in which we operate. Our acquisition strategy is to target highly accretive tuck-in acquisitions with significant synergies or critical capabilities. 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. As part of the review, the Board is working with its advisors to evaluate our strategic alternatives, including a potential sale of the Company.
Sources of Revenue
We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of alternative parts and vehicle products including collision parts, which are typically exterior components used in the collision repair process to restore a vehicle's appearance and safety; hard parts, which are typically internal components that are either mechanical in nature or functional components that are replaced as part of routine maintenance; major mechanical parts; and specialty products and accessories, which are vehicle products that improve the performance, functionality and appearance of vehicles. Services revenue includes additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, and diagnostic and repair services. Other revenue includes sales of scrap and other metals (including precious metals - platinum, palladium and rhodium - contained in recycled parts such as catalytic converters), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations; all of which are typically acquired as byproducts of our salvage operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 6, "Revenue Recognition" 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 sources of revenue.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our 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. See Note 4, "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.
Strategic Transformation Initiatives
See "Strategic Restructuring and Transformation Initiatives" in Note 7, "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.
Recently Issued Accounting Pronouncements
See "Recent Accounting Pronouncements" in Note 1, "Interim Financial Statements" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to new accounting standards.
Financial Information by Geographic Area
See Note 6, "Revenue Recognition" and 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 information related to our revenue and long-lived assets by geographic region.
Key Performance Indicators
We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our CODM. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles.
•Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e., revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e., impact of translating revenue at different exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e., opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully.
•Segment EBITDA - 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 description of the calculation of Segment EBITDA. We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results.
•Free Cash Flow - We calculate free cash flow as net cash provided by (used in) operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning cash flow available to meet future debt service obligations and working capital requirements, make strategic acquisitions, repurchase stock, and pay dividends.
These three key performance indicators are used as targets in determining incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects.
Results of Operations-Consolidated
The following table sets forth statements of income data as a percentage of total revenue for the periods indicated:
Three Months Ended March 31,
2026 2025
Revenue 100.0 % 100.0 %
Cost of goods sold 61.6 % 60.5 %
Gross margin 38.4 % 39.5 %
Selling, general and administrative expenses 28.7 % 28.5 %
Restructuring and transaction related expenses 0.9 % 0.3 %
Depreciation and amortization 2.5 % 2.6 %
Operating income 6.2 % 8.0 %
Total other expense, net 1.4 % 1.4 %
Income from continuing operations before provision for income taxes 4.8 % 6.6 %
Provision for income taxes 1.3 % 1.8 %
Equity in losses of unconsolidated subsidiaries 1.3 % - %
Income from continuing operations 2.2 % 4.8 %
Net income from discontinued operations 0.1 % 0.3 %
Net income 2.3 % 5.1 %
Note: 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
Revenue
The following table summarizes the changes in revenue by category (in millions):
Three Months Ended March 31,
2026 2025 Change
Parts & services revenue $ 3,362 $ 3,244 $ 118
Other revenue 107 83 24
Total revenue $ 3,469 $ 3,327 $ 142
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.
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 includes a $107 million unfavorable impact from a weakening U.S. dollar. 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.
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. SG&A expenses includes a $49 million unfavorable impact from a weakening U.S. dollar. 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.
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. See Note 7, "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. See Note 5, "Equity Method Investments" for further information on the impairment charge.
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 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. Realized and unrealized currency gains and losses combined with the translation effect of the change in foreign currencies against the U.S. dollar had a net positive effect of $0.01 on diluted earnings per share from continuing operations relative to the prior year period.
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. See Note 2, "Discontinued Operations" for further information.
Results of Operations-Segment Reporting
We have three reportable segments: North America; Europe; and Specialty.
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
Third Party Revenue
North America
$ 1,440 $ 1,412
Europe 1,621 1,522
Specialty 408 393
Total third party revenue $ 3,469 $ 3,327
Total Revenue
North America
$ 1,440 $ 1,412
Europe 1,621 1,522
Specialty 409 394
Eliminations (1) (1)
Total revenue $ 3,469 $ 3,327
Segment EBITDA
North America
$ 203 14.1 % $ 217 15.4 %
Europe 126 7.8 % 141 9.3 %
Specialty 18 4.4 % 21 5.4 %
Note: In the table above, the percentages of total segment revenue may not recalculate due to rounding.
The key measure of segment profit or loss reviewed by our CODM, our Chief Executive Officer, is Segment EBITDA. The CODM uses Segment EBITDA to compare profitability among the segments and evaluate business strategies. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as Net Income excluding net income and loss attributable to noncontrolling interest; income and loss from discontinued operations; depreciation; amortization; interest; gains and losses on debt extinguishment; income tax expense; restructuring and transaction related expenses; change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment fair value adjustments; impairment charges; 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
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,
North America 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change
Parts & services revenue $ 1,341 $ 1,336 $ 5
(1)
Other revenue 99 76 23
(2)
Total segment revenue 1,440 1,412 28
Cost of goods sold 828 785 43
Gross margin 612 42.4 % 627 44.4 % (15)
(3)
Selling, general and administrative expenses(5)
410 28.5 % 414 29.4 % (4)
(4)
Less: Other segment items(6)
(1) (4) 3
Segment EBITDA $ 203 14.1 % $ 217 15.4 % $ (14)
(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. Gross margin percentage decreased by 2.0% 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.
(5)Amounts include certain shared overhead costs that were historically allocated to the Self Service 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.
(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.
Europe
The following table provides a reconciliation of Revenue to Segment EBITDA in our Europe segment (in millions):
Three Months Ended March 31,
Europe 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change
Parts & services revenue $ 1,613 $ 1,515 $ 98
(1)
Other revenue 8 7 1
Total segment revenue 1,621 1,522 99
Cost of goods sold 1,001 931 70
Gross margin 620 38.3 % 591 38.8 % 29
(2)
Selling, general and administrative expenses 500 30.9 % 459 30.1 % 41
(3)
Less: Other segment items(4)
(6) (9) 3
Segment EBITDA $ 126 7.8 % $ 141 9.3 % $ (15)
(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. The increase in SG&A expense includes a $46 million unfavorable foreign exchange impact from a weakening U.S. dollar. 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.
(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.
Specialty
The following table provides a reconciliation of Revenue to Segment EBITDA in our Specialty segment (in millions):
Three Months Ended March 31,
Specialty 2026 % of Total Segment Revenue 2025 % of Total Segment Revenue $ Change
Parts & services revenue $ 408 $ 393 $ 15
(1)
Intersegment revenue 1 1 -
Total segment revenue 409 394 15
Cost of goods sold 310 299 11
Gross margin 99 24.3 % 95 24.2 % 4
(2)
Selling, general and administrative expenses 84 20.5 % 76 19.4 % 8
(3)
Less: Other segment items(4)
(3) (2) (1)
Segment EBITDA $ 18 4.4 % $ 21 5.4 % $ (3)
(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.
(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.
Liquidity and Capital Resources
We assess our liquidity and capital resources in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our revolving credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards paying dividends, repurchasing our common stock, paying down outstanding debt, or funding acquisitions. As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acquisitions, we have accessed various forms of debt financing, including revolving credit facilities, term loans, and senior notes. We currently believe we have sufficient access to capital markets to support our future growth objectives.
The following table summarizes liquidity data as of the dates indicated (in millions):
March 31, 2026 December 31, 2025
Capacity under revolving credit facilities $ 2,000 $ 2,000
Less: Revolving credit facilities borrowings 212 1
Less: Letters of credit 111 114
Availability under credit revolving facilities 1,677 1,885
Add: Cash and cash equivalents 335 319
Total liquidity $ 2,012 $ 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 in 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.
See Note 11, "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.
We believe that our current liquidity, cash expected to be generated by operating activities in future periods and access to capital markets will be sufficient to meet our current operating and capital requirements. 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:
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.
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. We have a surplus of current assets over current liabilities, which further reduces the risk of short-term cash shortfalls.
Our Senior Unsecured Credit Agreement and our CAD Note both include two financial maintenance covenants: a maximum total leverage ratio and minimum interest coverage ratio. 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
Maximum total leverage ratio 4.00 : 1.00 2.6
Minimum interest coverage ratio 3.00 : 1.00 7.4
The indentures relating to our U.S. Notes and Euro Notes do not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds under the Senior Unsecured Credit Agreement. The indentures do not prohibit amendments to the financial covenants under the Senior Unsecured Credit Agreement and CAD Note as needed.
While we believe that we have adequate capacity under our existing revolving credit facilities to finance our current operations, from time to time we may need to raise additional funds through public or private financing, strategic relationships or modification of our existing Senior Unsecured Credit Agreement to finance additional investments or to refinance existing debt obligations. There can be no assurance that additional funding, or refinancing of our Senior Unsecured Credit Agreement, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. 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. 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 11, "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 borrowings 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. 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):
Amount
Nine months ending December 31, 2026 $ 24
Years ending December 31:
2027 (1)
528
2028
1,109
2029
515
2030
218
Thereafter 1,481
Total debt (2)
$ 3,875
(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. In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Cuts and Jobs Act enacted in 2017, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime.
The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.
As part of our effort to improve our operating cash flows, we may negotiate payment term extensions with suppliers. These efforts are supported by our supply chain finance programs. See Note 10, "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. 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,
2026 2025
Net cash used in operating activities $ (56) $ (3)
Less: purchases of property, plant and equipment 40 54
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.
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. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts.
Summarized Guarantor Financial Information
Our U.S. Notes (2028/2033) and Euro Notes (2031) are guaranteed on a senior, unsecured basis by certain of our subsidiaries (each, a "subsidiary guarantor" and, together with LKQ, the "Obligor Group"), which are listed in Exhibit 22.1 in Part IV, Item 15 of our 2025 Form 10-K. The guarantees are full and unconditional, joint and several, and subject to certain conditions for release. See Note 18, "Long-Term Obligations" in Item 8 of Part II of our 2025 Form 10-K for information related to the Euro Notes (2031) and U.S. Notes (2028/2033).
Holders of the notes have a direct claim only against the Obligor Group. The following summarized financial information is presented for the Obligor Group on a combined basis after elimination of intercompany transactions and balances within the Obligor Group and equity in the earnings from and investments in any non-guarantor subsidiary.
Summarized Statements of Income (in millions)
Three Months Ended
March 31, 2026
Fiscal Year Ended
December 31, 2025
Revenue
$ 1,597 $ 6,349
Cost of goods sold 982 3,904
Gross margin (1)
615 2,445
Income from continuing operations 72 265
Net income $ 72 $ 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.
Summarized Balance Sheets (in millions)
March 31, 2026
December 31, 2025
Current assets $ 2,434 $ 2,349
Noncurrent assets (1)
4,798 4,797
Current liabilities (2)
1,960 1,616
Noncurrent liabilities 3,000 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.
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