Dorman Products, Inc.

Good morning and thank you for standing by. Welcome to the Dorman Products First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I'd now like to turn the conference over to David Hession, Dorman's Chief Financial Officer. Thank you, sir. Please go ahead.

Thank you. Good morning, and welcome to Dorman's first quarter 2024 earnings conference call. I'm joined today by Kevin Olson, our Chief Executive Officer. First, Kevin will provide a business update, then I will review the quarterly results, followed by closing remarks from Kevin. After that, we'll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which we published earlier today. These documents are available on the investor relations portion of our website at dormantproducts.com. Before we begin, I would like to remind everyone that our prepared remarks, earnings release, and investor presentation include forward-looking statements within the meaning of federal securities laws. We advise listeners to review the risk factors and cautionary statements in our most recent 10Q, 10K, and earnings release for important material assumptions, expectations, and factors that may cause actual results different materially from those anticipated and described in such forward-looking statements. We'll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and the appendix to this earnings call presentation. both of which can be found on the investor relations section of Dorman's website. Finally, during the Q&A portion of today's call, we ask that participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions. And with that, I will turn the call over to Kevin.

Thanks, David. Good morning, and thank you for joining us on our first quarter 2024 earnings call. Today I will discuss the highlights of the quarter across our three operating segments and provide a deeper dive into Dorman's new to the aftermarket innovation engine, which is the core capability that links our three segment strategies together. Turn to slide three if you were following along with our deck. Q1 was another consecutive strong quarter for Dorman as we delivered financial results in line with our expectations. We delivered net sales of $469 million and achieved a 660 basis point improvement in adjusted operating margin, led by the consistent gross margin recovery that we have driven over the last few quarters. As a result, adjusted diluted EPS increased 134% over prior year. Free cash flow of $41 million was very strong. and we deployed cash to repay $15 million of debt and repurchase $27 million of our shares. And finally, our new product teams across all three segments continue to turn out new product growth by introducing over 1,400 new products to the market, many as aftermarket exclusives. Moving on to slide four, I'll dig into some segment observations. In light duty, We continue to be encouraged by the positive overall market trends. Vehicle miles driven in the average age of vehicles continues to increase. Both are significant tailwinds for the aftermarket. We believe U.S. VIO of vehicles aged 8 to 13 years, what we call the prime VIO for Dorman, is in the early innings of substantial growth and has fully lapped the Great Recession period where fewer new vehicles entered the market. POS growth accelerated through the quarter, finishing March up high single digits after starting the year off slowly. New products continued to benefit the business, including our patented oil filter housing, which proved to be a top performer for the quarter. Finally, our operations initiatives continued to drive significant value. Our investments in automation and optimization enabled our contributors to move product through our DCs more efficiently. while our investments to diversify our global supplier base have enhanced the resiliency of our supply chain. Turning to heavy duty, the freight industry continued to be challenged. Many industries have reduced their shipping volumes over the last several quarters as the economy has slowed down from its post-COVID fever pace. This naturally leads to fewer vehicle repairs. As expected, We also saw the destocking of inventory that started in the second half of 2023 continue into the first quarter of 2024. This environment, coupled with a strong Q1 2023 comparison, led to negative first quarter growth versus prior year. Sequentially, however, Q1 sales were slightly higher than Q4 2023. While we take this sequential improvement as a positive sign, remain cautious in our outlook for the remainder of the year. In terms of initiatives, we're seeing good traction in the implementation of Dorman's new product fundamentals from the light-duty business to the heavy-duty business. We're also taking actions that we expect will result in more efficient operations in our plants and distribution centers. Finally, in specialty vehicle, we're pleased to have generated modest growth as initiatives to drive dealer penetration and new non-discretionary product introductions have more than countered a soft end market for new machines. We believe that these market share growth initiatives will yield solid returns and that sales of accessories for new vehicles will increase once financing rates for new vehicles and consumer sentiment improve. Over the long term, we're confident that demand for new vehicles, accessories, and repair parts remains robust. On slide five, as I mentioned in my opening remarks, we want to take the opportunity to focus some discussion on what we consider the fuel for Dorman's growth engine, our new product innovation capabilities. We're proud of our innovation model and the value it creates for our contributors, customers, and our shareholders. As we discussed during our fourth quarter call, it all starts with ideation, which means being the first to identify a failure-prone part first to imagine and re-engineer a solution that yields not only a repair part, but also a solution that simplifies the repair challenges of the technician and gets the vehicle back on the road quickly. Our approach to redesign often allows us to fix the original flaws and generate intellectual property around the novel aspects of our solutions. Our operating model also allows us to be one of the first to deliver OE alternative products to market. We have both advanced in-house capabilities in all vehicle systems, which allows us to quickly engineer solutions in a vast network of supply partners, which provides us with the ability to scale volume in high-demand parts quickly. Maybe most importantly, we've systematized our new product development in such a way that it allows us to export these capabilities from Dorman's light-duty legacy business to the other parts of our business. As you'll see, we've had great success implementing our innovation approach in our heavy duty and specialty vehicle businesses. We view our new product innovation engine as a competitive advantage that we can use to drive value through synergies in current and future acquired companies. Our new product innovation engine is yielding results. Over the last three fiscal years, we've brought over 19,000 new SKUs to market across our three segments. with roughly 30% of those parts new to the aftermarket. Meaning at launch, they were only available from Dorman or the OEM. Next, on slide six, we'd like to highlight some recent examples of new-to-the-aftermarket success stories. Starting on the far left, you'll find our patented oil filter housing, which has quickly become one of the most successful products in Dorman's history. Our ideation team discovered that the original part had a high failure rate, high deployment in the field, and most importantly, several points of failure that were fundamental to the original product's design. Our engineers redesigned the part to address the failure points, and their work has led us to being awarded several patents on our proprietary design. The original failure-prone oil filter housing can be found on over 10 billion vehicles on U.S. roads today. Our next example is a heavy-duty clutch cylinder. Our ideation team discovered that this part was being sold at rates in excess of its predicted replacement rate, prompting the product team to investigate. The heavy duty product team evaluated the part and determined its failure modes and also discovered that the part is so difficult to service that technicians were replacing it prior to failure as a preventative maintenance action. Our team redesigned the part with higher quality components and built a fully operational test transmission to quality test and prove that the dormant part lasted beyond the OE part's listed performance. As a result of the team's innovation, truck owners are now able to reduce the number of replacements over the truck's life, saving substantial repair time and money. Next is an example of our innovation deployed to create a feature set that better fits a product's application than the incumbent part. UTV riders in certain driving conditions prefer glass windshields because they are more resistant to scratches and less attractive to dirt and dust. However, while the fixed or manual opening glass windshields that are available today have their place, consumers have quickly embraced the improved fit, finish, and function of the newly released power actuated windshield. From the driver's seat, this windshield can be easily adjusted As weather conditions or terrain changes, the modular design can be retrofit to many UTV applications already in service. Finally, I would also like to highlight an electronics module that we've redesigned from scratch that incorporates proprietary electronics designed by our engineers with software code written by our engineers. This fuel injector driver module is found on a widely deployed engine. and has design issues in its housing and electronics that can lead to high failure rates. Our OE fixed product upgrades the electronics and provides a weatherproof case that extends the life cycle of the part. We provide this module as a new, not remanufactured part and are the exclusive aftermarket provider for this product in a new form. We believe that there are very few aftermarket competitors that are capable of releasing a completely new electronic module, including proprietary electronics designing software code. These are just a few examples of the thousands of new parts that we release every year, but we think they provide a strong cross-sample of our new product innovation capabilities that power Dorman's growth engine and provide Dorman with competitive advantages today and into the future. Now I'll hand it off to David to review our Q1 financial performance.