Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to LKQ Corporation's Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. Operator provided instructions. I will now hand the conference over to Joe Boutross, Vice President of Investor Relations. Joe, please go ahead.
Thank you, operator. Good morning, everyone, and welcome to LKQ's Second Quarter 2026 Earnings Conference Call. With us today are Justin Jude, LKQ's President and Chief Executive Officer; and Rick Galloway, our Senior Vice President and Chief Financial Officer. Please refer to the LKQ website at lkqcorp.com for our earnings release issued this morning as well as the accompanying slide presentation for this call. Now let me quickly cover the safe harbor. Some of the statements that we make today may be considered forward-looking. These include statements regarding our expectations, beliefs, hopes, intentions or strategies. Actual events or results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors. We assume no obligation to update any forward-looking statements. For more information, please refer to the risk factors discussed in our Form 10-K and subsequent reports filed with the SEC. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and slide presentation. Hopefully, everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today. And as normal, we are planning to file our 10-Q in the coming days. And with that, I am happy to turn the call over to our CEO, Justin Jude.
Thanks, Joe. Good morning, everyone, and thank you for joining us. The question I hear most often is why investors should have confidence in LKQ's ability to improve performance. The answer is simple: confidence comes from evidence. As I look across LKQ today, I see a company that has a unique global distribution network for auto parts and a relentless focus on serving our customers. While this quarter fell short of our expectations, this is a company that is stronger and better than the reported results may suggest. Our North American segment returned to positive organic growth for the first time in nine quarters. Repairable claims showed another quarter of sequential improvement and alternative part utilization continued to increase. Specialty also continued to deliver organic growth, demonstrating the resilience of its market position. In Europe, our reported results were affected by ERP implementation challenges in Germany and softer performance in certain European markets. We take accountability for those results. While the implementation has been more challenging and taken longer to stabilize than planned, we've identified the issues, implemented recovery actions and remain confident in the long-term strategic value of the ERP investment. It expands our common platform footprint, creates the foundation for a more integrated operating model and supports better service, productivity and margin performance over time. The investments we're making today are designed to increase LKQ's earnings power for many years and this quarter does not fully reflect the underlying earnings potential of the business. We continue to execute on our strategic initiatives designed to enhance our long-term competitive position and earnings power. This morning, I will review the progress in North American specialty, discuss our recovery actions and long-term opportunity in Europe and then address our full year outlook and strategic review before turning the call over to Rick for a more detailed financial review. Now let me address each segment in a little more detail, beginning with North America. The progress in North America was solid. North America delivered positive growth in the quarter of 0.5% compared to a decline of repairable claims of 1% to 3% for the quarter, showing once again how North America can outperform the market. While the market has not fully recovered, several external indicators continue to reinforce our belief that collision markets are improving. Not only has used car pricing continued to improve, both May and June showed negative insurance CPI on a year-over-year basis, putting pressure on carrier margins, creating a need to reduce repair costs. One of the most effective levers they have to reduce cost of repair is to utilize more alternative parts. And alternative parts usage, or APU, was over 40% for the quarter, surpassing the previous record achieved in Q1 of this year, which is a positive trend for our business. While there is still room for improvement, the underlying trends are moving in the right direction. Our execution also improved. Salvage gross margin exceeded our expectations through improved procurement and operations, there was sequential improvement in fill rates and North America exceeded our free cash flow expectations. Paint volume remained a headwind, but the broader trajectory in collision and salvage improved. North America remains focused on enhancing our salvage procurement, improving fill rates, strengthening our pricing and analytics capabilities and consistently executing against our operational initiatives. Turning to our European segment. The challenges we face in Europe are ours to address. While market demand was softer in certain regions, the primary drivers of our underperformance were implementation and execution challenges that are actively being addressed. As I mentioned earlier, the ERP conversion remains an important and needed step in modernizing the business. While the implementation created disruption, we moved with urgency to address the issues. The customer impact lingered longer than expected, but our recovery has gained momentum. The system performance has improved and operational processes have normalized, and we finished last week above 85% of our normal revenue run rate in Germany. This is a meaningful milestone that demonstrates the progress our teams have made. While there is still work ahead, we are encouraged by the trajectory of the business and remain confident in our ability to restore service levels, win back our share of wallet and realize long-term benefits of this transformation. This conversion was a scaling event and increases the share of our European business operating on a common platform from approximately 5% to more than 30%, providing a strong foundation for a more integrated operating model. Over time, we expect this to drive productivity gains, simplify our technology landscape, enhance customer service capabilities and support margin improvement across Europe. The most difficult scaling step is now behind us. The recovery is underway and the long-term benefits of the program remain fully intact. Outside of Germany, the U.K. and the Benelux regions underperformed on the revenue side. While softer demand contributed to the results, our commercial execution in these regions did not meet our expectations. To combat the lower volumes, we delivered more than $40 million of year-over-year improvement in the quarter through the initiatives we put in place, including cost structure optimization, procurement savings, productivity gains and the closure of underperforming locations. We also changed leadership where performance was unacceptable and sharpened our recovery plans around commercial execution, cost control and customer retention. We made additional progress in the quarter with respect to our SKU rationalization objectives. I am pleased to say that we have completed our review of our full product brand portfolio. As I have previously stated, completion of this review is required before further delisting action items can be considered to ensure a full understanding of both opportunities and risks are known. Our private label initiative continued to make progress in the quarter with volume penetration reaching 26.6%, which puts us well on our way toward meeting our objectives of reaching 30% over the coming years. Our priorities in Europe are to restore service levels in Germany, recapture revenue, improve commercial execution, maintain gross margin discipline and continue to align the cost structure with the current demand. We know what needs to be done, and we will hold ourselves accountable for delivering it. Ultimately, we see our European business being more efficient, more productive, serving the best customers in the market and generating double-digit EBITDA margins. Turning to Specialty. The segment delivered resilient topline performance. Organic revenue increased 4.5% for the quarter and revenue was essentially in line with our expectations for both the quarter and for the first half of the year. Operationally, we continue to see opportunities to improve gross margin, enhance operating efficiency and better leverage our existing cost structure. Our priority is to convert Specialty's resilient revenue profile into stronger and more consistent earnings performance. Turning to our full year outlook. We are confident that North America remains firmly on track to meet its full year plan and Specialty continues to consistently demonstrate resilient revenue, although we still have work to do to improve its margins. Europe remains challenged. The result of all this combined is that we are reducing our outlook to reflect the reality of Europe's performance, but we are not changing our long-term strategic priorities. Our focus remains on disciplined execution, improving returns on invested capital and creating long-term shareholder value. Let me close with an update on our previously announced strategic review. The process remains active, and the company together with its advisers at Bank of America and Goldman Sachs continues to engage with multiple parties. We will share updates when appropriate. Rick will now review the consolidated and segment results and our revised outlook. With that, I will turn the call over to Rick.
Thank you, Justin, and good morning, everyone. I'll be discussing our consolidated and segment results, cash flow and balance sheet and revised full year outlook. Beginning with our consolidated results. Second quarter revenue was approximately $3.4 billion compared with $3.5 billion in the prior year period. Diluted earnings per share were $0.52 and adjusted diluted earnings per share were $0.67 compared with adjusted diluted EPS of $0.84 in the prior year period. The year-over-year decline largely reflects lower revenue and profitability in Europe due to the factors Justin mentioned earlier. Turning to segment results. North America parts and services' organic revenue increased 0.5%, the segment's first quarter of growth since 2023. Aftermarket collision revenue increased approximately 2%, and our Canadian hard parts business grew in the mid-single digits, while paint remained a headwind to the overall growth rate. As Justin noted, repairable claims are showing signs of improvement, and while we are encouraged by the progression, we are not assuming a significant market recovery in our revised outlook. North America segment EBITDA was $207 million, representing a segment EBITDA margin of 14.1%. The quarter included a $10 million expense related to a legal reserve resulting in a drag on segment EBITDA margin of approximately 70 basis points, meaning the underlying performance was in the high 14% range. This reserve relates to an isolated one-time event and it helps explain the difference between the reported margin and the operational progress we saw in the quarter. Europe parts and services' organic revenue declined 12.6%. The primary driver was the disruption related to the ERP implementation in Germany. We estimate the quarterly revenue impact was approximately $140 million. Europe segment EBITDA was $109 million, a year-over-year decline of $42 million, representing a margin of 7.5%. The decline primarily reflects the ERP implementation challenges in Germany as well as softer demand in the U.K. and Benelux. We estimate the ERP disruption reduced EBITDA by approximately $50 million during the quarter, while the volume pressures predominantly in the U.K. and Benelux reduced EBITDA by roughly $30 million. Despite these headwinds, the business delivered meaningful productivity gains and cost reductions through the restructuring and efficiency initiatives we have discussed in prior quarters. Absent the ERP disruption, Europe was on track to generate double-digit EBITDA margins for the quarter, even while absorbing the volume pressures in the U.K. and Benelux. This demonstrates that the team is controlling the factors within its influence, prioritizing profitable revenue and steadily improving the underlying earnings power of the region. Specialty organic revenue increased 4.5% and segment EBITDA was $33 million with an EBITDA margin of 6.7%. Revenue performance remained resilient, while gross margin and mix remain areas for improvement, and freight and fuel costs were headwinds for the quarter. Moving on to our cash flow and balance sheet. Second quarter operating cash flow was $111 million, and free cash flow was $60 million. For the first 6 months of the year, operating cash flow was $55 million and free cash flow was negative $36 million, which was slightly below our expectations due primarily to softer Europe performance. We ended the quarter with total liquidity of $1.9 billion and net leverage of 2.8x EBITDA. During the quarter, we returned $129 million to shareholders through share repurchases and dividends. In July, we prepaid the outstanding $500 million U.S. term loan originally due in Q1 2027 with proceeds from our revolving credit facility. We expect to use free cash flow generated over the balance of the year to reduce the outstanding balance of our revolving credit facility following the prepayment of the term loan. Our capital allocation priorities remain unchanged. We will continue to deploy capital in a disciplined manner, balancing investment that support growth in the business, maintaining a strong balance sheet and returning capital to shareholders. Finally, with respect to our guidance, our revised 2026 outlook and assumptions are included on Slide 11. Operationally, North America remains on track against its full year plan. The outlook assumes repairable claims remain near current levels with modest improvements during the second half. We are encouraged by the improvement seen during the quarter, particularly in June, but are not assuming a significant market recovery. Europe remains the primary area of operational focus and is driving the majority of the reduction in guidance. Our revised outlook assumes continued improvement in service levels and revenue in the affected German operations during the second half but at a more measured pace than we previously expected. It also assumes that conditions in the U.K. and Benelux remain soft and that benefits of our leadership, cost and productivity actions build progressively over the remainder of the year. Specialty continues to grow organically, although our outlook reflects there is work to be done to improve margin and mix. Based on these assumptions, we expect organic parts and services revenue in the range of negative 1% to negative 3%. We expect adjusted diluted earnings per share of $2.60 to $2.90 compared with our previous range of $2.90 to $3.20. We believe the revised range reflects the current pace of recovery and the operating risks we see in the second half. Additionally, we now expect full year free cash flow of $625 million to $775 million compared to our previous outlook of $700 million to $850 million. In summary, North America is showing encouraging sequential improvement. Specialty continues to grow. Our focus is on getting Europe back on track. Our priorities are restoring service levels in Germany, improving execution in the U.K. and Benelux and continuing to manage cash flow and the balance sheet with discipline. With that, I will turn the call back over to Justin.
Thank you, Rick. North America is showing meaningful progress and specialty continues to demonstrate resilient revenue. We are focused on sustaining the strength of North American specialty and executing the recovery of Europe with urgency and discipline. We have clear operating visibility and measurable service targets. We will continue to communicate candidly about our progress and hold ourselves accountable for the results. While we are reducing our outlook to reflect the reality of Europe's performance, our long-term strategy hasn't changed. Lastly, I want to thank our more than 42,000 employees around the world for their work through a demanding quarter and thank you to our customers and shareholders for their continued engagement. With that, we are happy to open the call to questions.
Questions and answers
Operator provided instructions. Your first question comes from the line of Jeff Lick with Stephens Inc.
I want to focus maybe on wholesale North America and just the evolution of the progress that's being made there. First, if you could add a little bit more on your view on the repairable claims, where you thought you saw those for 2Q? And then, Justin, on the last call, you talked about how in a depressed environment, the business kind of first goes to the MSO and then it should start to see sort of improving conditions that will go to the independent operators and that should help margin. Where do you see that progress, where we're at in terms of the evolution there? And then just a quick one for Rick. Is the legal settlement, Rick, in the $420 million of SG&A for WNA?
Thanks, Jeff. On the North American side, we saw the repairable claims being down in the negative 1% to 3% range, which is an improvement from Q1. Some of the macro trends that we're seeing out there with used car prices and insurance premiums coming negative in May and June are benefiting us and showing that market recovery. So we feel pretty good that the market is heading in the right direction. With the volume still being down, though, kind of to your point, the insurance companies are looking to cut costs and the easiest way they do that is use more alternative parts and improve cycle time, and MSOs typically lead in that world. So a lot more business is being driven to the MSOs right now. MSOs are the bigger customers; they get the best prices. At the end of the day, they do use more alternative parts than a non-MSO rooftop, so we see a bigger share of opportunity to grow with those customers. They're much larger scale, so we have less SG&A to deliver. From a margin standpoint, we actually do better on the MSO side. But yes, MSOs continue to get share right now in that depressed market. But once again, we do see that the market is recovering in the right direction.
And Jeff, on the SG&A, yes, that's the biggest driver of the $18 million increase; this one-time legal settlement is the main factor.
Okay. Just as a quick follow-up, can you get us going on Europe because I'm quite sure some of my peers are going to dig into that a little bit more. But you made the comment that ex the disruptions from the ERP implementation, things were largely on track and even kind of alluded to the double-digit EBITDA margin. Could you just set the table there? I'm sure there can be more questions, but can you just get us going on—is that really the case? And how do you see this playing out?
Yes. So you look at our conversion that occurred in Germany and then if you take the Germany market out of our overall European performance, we did see EBITDA dollars increase on a year-over-year basis, and we did see EBITDA percentage increase. So a lot of the operating initiatives that we have in place and working on in Europe are starting to take hold.
I think just to add to that a little bit is we saw volume tightening in Benelux and the U.K., as I talked about. We were more than able to offset that with over $40 million of overall productivity initiatives, heavily driven by head count reductions, taking the model that we had in North America through productivity, KPIs driving performance and transplanting that over to Europe. Those are taking hold and we're seeing the benefits we've been talking about the last few quarters.
And a quick follow-up there. Where are you at on the private label pricing kind of evolution? You talked about migrating a decent chunk of the business to private label, and you kind of had to have some gateway pricing to entice people. Does the ERP implementation kind of slow that progress down? Any update on the ramp and being able to walk that price up now?
Yes. The ERP doesn't have much impact on it. We have seen a slight margin improvement and a slight price increase on our private label. We will continue to drive that price over time as the adoption rate continues to grow and it has. We're nearly 27% on adoption rate of private label. To your point, we had introductory pricing. There's still economic concerns over there and a lot of cost sensitivity, and that allowed us to introduce private label at introductory pricing. In Q2, we did see a slight price increase and a slight margin increase on our private label.
Your next question comes from the line of Craig Kennison with Baird.
Justin, what are the plans to roll out this ERP system across Europe? I know you started in Germany, but wondering if investors should be prepared for rolling disruptions as you move to other countries?
Great question, Craig. Let me start with the why again. We have more than 80 acquisitions in Europe and more than 30 ERP systems. It's a patchwork of aging systems that were built for much smaller operations. They're becoming increasingly difficult to support and many lack capabilities that our customers are asking for. As customers get bigger, they want integration. In many cases, we're not able to do that. Transforming to a single ERP brings efficiencies, a common data model, standardized processes, better control and higher visibility, resulting in higher efficiencies. So at the end of the day, we need to continue to drive our ERP across Europe. With the conversion in Germany, we learned many lessons. It was a scaling event for us. We had roughly $300 million of revenue on a legacy system supporting three-step business; three-step business is simpler, stock orders. Now we have a $2 billion revenue platform servicing two-step businesses where there are a lot more transactions, customers and employees. We've learned a lot on it. All future conversions will be easier; we don't have any slated for this year, but future conversions into next year will be migrating smaller businesses into a scaled $2 billion platform, so we have much higher confidence they will be quicker, less disruptive and bring better cost savings in the future as well.
Thanks. Investors are going to want to model this. It's been a big disappointment this quarter. It feels like it could happen next year as well. We're just trying to figure out how to think through the revenue and EBITDA implications of this. I totally get the long-term benefit of this and the need to get on one platform, but we want to get the estimates right.
It's a great point, Craig. As we give guidance into next year, nothing more will be converted in the coming quarters. We have continued hyper care in the German market and will refine and recover the revenue side. We've built a scaled system and a scaled team that supports it, so we have much higher confidence that the next conversion, which would be next year and will be communicated when appropriate, will be less disruptive. We've learned many lessons, but the initiative is needed and we remain committed to it.
And you've also changed management quite a bit in Europe to try to get the right talent in place. They haven't been in the chair that long in some cases. Is it a lot to ask relatively new leaders to take on a project like this?
Some of the leaders we brought on have experience in transformation and integration. If you look at our IT, transformation and operational leadership, their backgrounds are in distribution and large complex businesses with conversions and migrations. That's one reason we brought those folks on: they have the right mindset and skill set to help us get through future conversions.
Your next question comes from the line of Jash Patwa with JPMorgan.
Curious if you could split the $200 million annualized tariff exposure across automotive and nonautomotive segments and how the recent reduction of Section 232 automotive parts tariffs on imports from Taiwan should reduce that tariff exposure? And then how should we expect any benefit to be split between gross profit benefit or pass-through to customer savings? I have a follow-up.
Thanks, Jash. As far as the tariffs go, the IEEPA-related tariffs we processed are small and we've started to get some refunds on items deemed illegal; those were a very small portion and largely in specialty. On the Section 232 change, the big change for us happened on May 1 when the Taiwan 232 rate moved from 25% to 15%, which is good news. We're cautiously optimistic that as inventory turns in the back half of the year, some of that benefit may be reflected. In my guidance, I assumed we wouldn't be able to get margin enhancement on the way down, as we'll remain competitive on pricing. But there is a 40% reduction on those tariffs, which was the lion's share of our overall tariff amounts. The 301 tariffs have minimal impact on us. We're monitoring closely and don't have a quantified further benefit for the rest of the year in our guide, but it's definitely better news than the alternative.
That's very helpful. I appreciate all the color. Just as a quick follow-up, could you break out the price versus volume split in North America for Q2?
On pricing, overall revenue was positive primarily because of pricing and tariff pass-through, which brought us to 0.5% overall revenue growth. Net volumes are still slightly negative. The positive point is aftermarket collision was up about 2%. We also saw bumper-to-bumper in the mid-single digits and our hard parts business in Canada is growing above market. The drag is primarily the paint business, which is discretionary within repairs; when repairs are discretionary, paint tends to be where volume declines first.
Your next question comes from the line of John Babcock with Barclays.
Just wanted to dig back into Europe a little bit here. With regards to the U.K. and Benelux: in the U.K., you've discussed some competitive factors in the past. Is that what's been driving the weakness there or is there anything else going on? And then could you talk a little bit more about what you're seeing in Benelux?
In the U.K., it is heightened competition from an entrant that has expanded in a number of locations. Several years ago they had around 80 locations and now they're up to about 230. Expansion creates margin, pricing and volume pressure, and we've taken actions including leadership changes to be more aggressive on getting cost out and addressing revenue erosion. In Benelux, the situation is more about three-step business. We decided to walk away from some large three-step, low-margin customers. We're still pushing two-step business there, and we offset lost revenue with SG&A reductions and productivity. So overall, even with revenue declines in the U.K. and Benelux, we over-delivered on an EBITDA basis.
And in Germany, the ERP disruption—can you talk a little bit more about what exactly happened, why things went a little sideways there?
Good question. When we first went live in Germany, in the first couple of weeks there were stability issues: slowness and systems crashing. Toward the end of April, we stabilized the system and customers were placing orders, and revenue ramped up quickly. As that revenue flowed through the new system, we uncovered issues that commonly occur with conversions—but more than we expected—such as bad data and process bugs. Many of those things were resolved through May and June. When service levels weren't great, customers who depend on timely fills had to find alternatives. We've fixed many bugs, corrected data and refined processes. The system is now more robust, but it's new and we are still training many people who were used to the legacy system. The majority of our branches are performing well on service levels and revenue; there are a couple dozen locations that need retraining and we have tiger teams there to help. Initially we pulled outside sales folks to help handle transaction and customer service issues; now that the system is stable, we've put sales teams back in the field to rebuild customer confidence and win back share of wallet. The main causes were scale and initial instability in the first weeks, and we've been climbing out of that. Today the system is stable and we're focused on retraining and restoring full performance.
Okay. That's helpful. Last question: any updates on the considered sale of the Specialty business, and whether its performance is leading you to reevaluate whether to sell that business?
No update on Specialty specifically other than it is included in the overall strategic alternative review for the company. Through that process we'll evaluate the best outcome for the overall business and different portions of it. Specialty is the #1 player in its space, growing and outperforming a flat-to-down market, and it is performing well. We launched the process because we thought we might not be the right long-term owner of that asset, even though it's a strong business. The outcome will be determined through the overall strategic review.
Your next question comes from the line of Bret Jordan with Jefferies.
On the European business, you were confident in Q1 that the short-term pain of the ERP process would benefit second half margin. Are we expecting a further step down in EBITDA margin in Europe given share loss in the U.K., Benelux and Germany, requiring aggressive near-term spend to bring volumes back? Or was Q2 the low watermark for EBITDA margin?
Bret, I think Q2 is the low watermark. If you look at Europe excluding the ERP, even with volume declines in Benelux and the U.K., we offset that through productivity initiatives and actually increased EBITDA dollars and percentage. For Q3 and Q4, my guidance assumes continued improvement in Germany but at a measured pace, and that we'll progressively build benefits from leadership, cost and productivity actions. We think we'll be much closer to 100% of our volume by year-end, with steady improvement. We also prioritized taking cost out rather than chasing low-margin revenue; in some cases we chose not to compete on low-end pricing and instead drove more EBITDA dollars and percent through cost actions.
On recovery for Germany, our goal is to get back to 100% by year-end going into 2027. We haven't really seen customers lost; we saw share of wallet erosion as customers used alternatives for immediate needs. Now that service levels have returned and sales teams are back in the field, we expect customers to start giving wallet share back to us. The team is challenged to accelerate that recovery, but we have line of sight to full recovery into next year.
On Specialty, sales seem to be outperforming, but margins not improving as much. Is there anything incremental—cost or pricing—impacting operating leverage there?
Good observation. In the earnings presentation there's a one-time cost item related to an acquisition where a vendor we had lent money to had financial trouble and we acquired them to stop the bleeding. There was an $8 million noncash reserve for a credit loss that hit SG&A and impacted Specialty's margin. If you add that back, margins are at the levels you'd expect and this should look better in Q3 and Q4.
Your next question comes from Gary Prestopino with Barrington Research.
A couple of questions. Based on my adjusted EBITDA estimate, if I back out the $50 million you estimated for ERP impact, you actually beat what I was looking for. What was the impact on adjusted EPS from the ERP issue in Q2?
Gary, it's about $0.15 of EPS impact from the ERP in the quarter year-over-year. The legal reserve is about $0.03 and the acquisition-related credit loss I mentioned earlier is about $0.02. So roughly $0.20 to $0.21 of the decline relates to ERP and those one-time items versus last year's $0.84 adjusted EPS.
Okay. With Specialty, this is the second quarter with an increase in credit losses. You explained what happened this quarter—was it the same vendor that led to the increase in credit losses in Q1? Is that all behind you now?
Yes, it's the same vendor, which is why we acquired them in Q2 to stop the bleeding and improve overall performance. We've been improving performance since the acquisition in mid-Q2.
Is it behind you now?
Yes. That's behind us now.
And briefly, when you released numbers in Q1 you mentioned the sale of Specialty stalled because of geopolitical and credit issues. Are you starting to see bidders reengage now that some of those issues have clarified?
The geopolitical concerns haven't materially changed the communication with some bidders. As I mentioned earlier, we've rolled Specialty into the overall strategic review for the company. If bidders are interested in the holdco or parts of the business, those will be evaluated in that process. We have not seen a significant reengagement trend from bidders at this time.
Your next question comes from the line of Scott Stember with ROTH Capital Partners. Jack Weisenberger is on for Scott.
This is Jack Weisenberger on for Scott. On guidance, what does the low end of the new range assume about Germany's recovery timing versus the high end? Is getting to 100% recovery by year-end the mid-range? And how much were other European markets factored into the lowered guidance?
Jack, the bulk of the change is due to the ERP implementation and a slower recovery. We thought we'd be a bit more recovered than we are now, so it's prudent to slow the assumed pace of recovery. My model assumes continued improvement in Q3 and Q4 and finishing much closer to 100% by year-end. The low end of the guide assumes more of a status quo on the ERP recovery and that Benelux and the U.K. remain near current levels—so that accounts for the remainder of the downside in the back half of the year.
Okay. And repairable claims have improved sequentially the past few quarters—what are you seeing in July? Are the same trends continuing into Q3?
We don't have a consolidated industry-level repairable claims number for July to share, but we do see somewhat consistent volumes in North America coming out of June into July.
The next question comes from the line of Jash Patwa with JPMorgan (follow-up).
I was wondering if you could quantify the margin headwind from the spike in diesel costs across the segments. And then as a follow-up, a lot of the initial Germany disruption seemed known by the end of April when you had Q1 earnings—was the pace of recovery through the remainder of the quarter below expectations? Was there something in the competitive response that surprised you to the downside?
On diesel costs, there has been a modest margin headwind. We do our best to offset that through revenue and efficiencies, and usually we can pass through increases, but in the short run it is a headwind we look to offset. We haven't quantified an exact amount to disclose. Regarding Germany, the initial disruptions were known, and while we saw stabilization in late April and early improvement, as revenue ramped up we uncovered data and process issues—bugs, bad data—that slowed the faster recovery we had been hoping for. There wasn't a surprising competitive response; the slowdown was due to the operational issues and the scale of the conversion, which we are resolving.
To add, in the first couple of weeks there were stability issues and then we saw a quick ramp. As revenue increased, we uncovered issues like bad data and process bugs which we resolved in May and June. The primary challenge was scale and initial instability, not unexpected aggressive competitive behavior. We've fixed most issues and are focused on retraining and restoring service levels.
We have now reached the end of the Q&A session. I will now turn the call back to Justin Jude for closing remarks.
Thanks, operator. Just three things I want you to take away. First, North America: we are seeing positive macro trends with insurance premiums coming down, used car prices continuing to climb and repairable claims sequentially improving into Q2. We had a positive performance on revenue in North America—our first time in nine quarters—so that shows great trends. Second, Europe: excluding the ERP impact, even with volume pressure, the team pursued productivity improvements and we saw EBITDA dollars and percent improve outside of the converted country. The ERP conversion in Germany was disruptive and more than we expected, but we have recovery plans, clear line of sight on what we need to do, and we are showing continual improvement. We feel confident we'll hit the run rate by the end of the year. Third, Specialty: it continues to demonstrate resilient revenue. We are focused on sustaining North American strength and executing Europe's recovery with urgency and discipline. We will continue to communicate candidly about our progress and hold ourselves accountable. I appreciate everybody joining the call today.
This concludes today's call. Thank you for attending. You may now disconnect.