Dorman Products, Inc.

Good morning and thank you for standing by. Welcome to the Dorman Products second 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 Alex Whitelam, Dorman's new Vice President of Investor Relations and Risk Management. Sir, please go ahead.

Thank you. Good morning, everyone. I'm excited to join the team here at Dorman. Looking forward to working with you all. Welcome to Dorman's second quarter 2024 earnings conference call. I'm joined by Kevin Olson, Dorman's chief executive officer, and David Heschen, Dorman's chief financial officer. Kevin will provide a business update, then David 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 are available on the investor relations portion of our website at DormanProducts.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 10-Q, 10-K, and earnings release for important material assumptions, expectations, and factors that may cause results to differ 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 in the appendix to this earnings call presentation, both of which can be found in the investor relations section of Dorman's website. Finally, during the Q&A portion of today's call, We ask that all participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions. And with that, I'll turn the call over to Kevin. Thanks, Alec.

Good morning. Thank you for joining us on our second quarter 2024 earnings call. I'm going to begin today with a discussion on the highlights of our quarterly performance on both a consolidated and a segment basis. I'm also going to spend time discussing some of the exciting investments we've made in our operations over the last few years to provide you with insight into how Dorman is innovating, not only in product development, but across our entire enterprise. Turn to slide three, you are following along with our deck. The momentum we saw in the first quarter of the year continued through the second quarter as we delivered another strong set of financial results. Consolidated net sales increased 5% year over year to $503 million, and we achieved a 430 basis point improvement in adjusted operating margin. This margin improvement was a result of higher sales volume, the continued abatement of inflationary costs, and productivity initiatives that drove cost savings. Adjusted diluted EPS increased an impressive 65% over the same period last year. Free cash flow of $51 million continued our positive trend, and we utilized it to repay $15 million of debt and repurchase $25 million of our shares. Most importantly, our performance through the first half of the year, along with our outlook for the balance of 2024, prompted us to increase our full-year earnings guidance. David will cover this in a moment. Moving on to slide four, I'll provide some segment observations. In light duty, we continue to be encouraged by positive overall market trends. In addition to the long-term underlying growth trend in the prime VIO, vehicles aged 8 to 13 years, which are in the sweet spot of Dorman's repair profile, vehicle miles traveled through year over year. And we saw hotter than average temperatures across the US, which often precede strong periods of vehicle repairs and part sales. POS, sales of Dorman's products by our customers to end users, grew high single digits in the quarter and generally was aligned with Dorman shipments. Excitingly, a large customer made the decision to transition a majority of spend from private label to Dorman branded packaging because they recognize the immense value that end customers place on our brand. We see this as a validation of the investments we've continued to make in innovation, in the quality of our products, and in the market's awareness of the benefits that Dorman brings. Additionally, our light duty business continues to drive significant value through its innovation strategy. During the quarter, we deployed hundreds of new products, including a number of new-to-the-aftermarket parts. One good example from the complex electronics portfolio was the keyless entry keypad. This component is designed to match the fit, function, and performance of the original exterior keypad. Finally, we took several critical steps in our continued DC automation journey that I'll discuss in a bit. Turning to heavy duty, the freight industry continued to be challenged. We're expecting this sector softness to remain through the rest of the year. with few signs that we'll see an improvement before early 2025. Sequentially, however, for the second straight quarter, heavy duty sales performance was better than the prior quarter. In terms of initiatives, our execution on the new to the aftermarket playbook in heavy duty is showing strong traction. Our new product development team continues to ramp up its exclusive product releases. A recent product launch that exemplifies this is our diesel particulate filter muffler housing kit, which is a product new to the HD aftermarket and conveniently provides a complete repair kit with all required clamps and gaskets. Also during the quarter, we launched an improved new product commercialization process in our heavy duty business that will allow our customers to deploy the benefits of Dorman's innovations quickly and broadly through their customer bases helping our customers grow new product sales and driving growth for Dorman. Finally, in specialty vehicle, we're focused on gaining share in a sector that continues to face headwinds. Our strategy of driving growth from new dealers has increased sales year on year in this channel. Similar to our other two segments, new product development, particularly in non-discretionary categories, has also quickly become a reliable source of growth in the specialty vehicle business. the new product front we added hundreds of new products into the market during the quarter exciting recent launch was a super atv black ops ready fit winch which includes machine fitted mounts and all wiring pre-installed for customers or dealers this cuts down the installation time from three hours to just 30 minutes additionally in the quarter we saw productivity initiatives that drove margin improvements We remain confident that demand for new vehicles, accessories, and repair parts will rebound once customers become comfortable as volatility and inflation in the overall economy levels out. We believe we are beginning to see light at the end of the tunnel, with specialty vehicle manufacturers signaling that inventory destocking efforts at dealers are nearly complete. This suggests that wholesale shipments to dealers are coming back in line retail sales to customers with current inventory stock levels back to pre-covered levels next as i mentioned in my opening remarks i'm excited to share with you how we're deploying innovation not only in new product development but across our entire enterprise in late 2020 we undertook a strategic review of our operations footprint with the goal of ensuring that our assets and capabilities were aligned with the ambitious commercial growth plans that we had set. We recognized that our business was becoming more complex as customer volume and service level demands were growing. This required excellence in multiple modes of operations fulfillment in order to continue serving our customers at a level that they rightfully demand. It quickly became clear that our old ways of operating were not sustainable in this new environment and that without innovation, we would be facing space and labor constraints that could curtail our ability to scale and grow. We decided that we needed to evaluate implementing best-in-class capabilities in automation to maintain our operations ability to execute our commercial growth. Turning to slide six, I'll discuss some of the solutions that we've implemented. First, let me say that two of our largest warehouses in Portland, Tennessee and Warsaw, Kentucky have been transformed in terms of how the flow and processes of the sites have been organized and optimized. I'm truly proud of our operations contributors' creativity in reimagining their processes, their endorsement of what could have been a threatening set of changes, and their alignment with and receptivity of their reimagined workflow. They embrace these investments as a force multiplier, allowing them to do their job more quickly, accurately, and safely. We have deployed a fleet of autonomous mobile robots to reduce the time our contributors spend traveling through our countless rows of products. These AMRs are on track to complete 200,000 miles of travel this year, with each mile representing approximately 15 minutes of labor that can now be applied by our contributors to higher function tasks. We have also deployed a set of vertical lift modules that operate like massive parts vending machines. These machines substantially reduce our parts storage footprint requirements and also improve pick cycle times by approximately 38%. Maybe most exciting, we're in the process of implementing a state-of-the-art warehouse execution system software package. It ties all of our investments together, allowing us to combine both automation equipment and people seamlessly. and is expected to provide the scalability and flexibility to grow and manage our increasingly complex business going forward. All told, we've invested $14 million in capital and three years of research, design, and implementation of these systems to provide our warehouse contributors and customers with substantial benefits. Once fully utilized and optimized, we expect these projects will yield an annualized net savings of approximately $8 million and provide operational efficiency benefits to Dorman far into the future. While today we're in the early innings with these projects, we're already seeing modest savings improvements compared to last year, as Light Duty's Q2 total operations expense as a percentage of net sales was 80 basis points lower than last year. The team is working hard to continue integrating these systems, and we expect to accelerate the savings over time. Now I'll hand off to David to review our Q2 financial performance. Thanks, Kevin.