Dorman Products, Inc.

Good morning and thank you for standing by. Welcome to the Dorman Products Third Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I would now like to turn the conference over to Alex Whitelamp, Vice President of Investor Relations and Risk Management. Thank you, sir. Please go ahead.

Thank you. Good morning, everyone. Welcome to Dorman's third 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 10Q, 10K, and earnings release for important material assumptions, expectations, and factors that may cause actual 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 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, Alex. Good morning, and thank you for joining our third quarter 2024 earnings call. As Alex mentioned, I'll start with highlights of our performance in the quarter, then provide an overview of our segment results. I'll also spend some time discussing how Dorman is differentiating itself with a set of competencies and a growing suite of next generation solutions within the complex electronic space. Turning to slide three, if you're following along in the deck, our positive momentum this year carried through the third quarter with solid top line growth and operating margin expansion leading to a significant increase in adjusted diluted EPS. Consolidated net sales increased 3.2% year over year to $504 million. Adjusted operating margin was 17.1%, expanding 290 basis points compared to the same period last year. Margins improved on easing inflationary pressures in the quarter in a favorable mix from higher new product sales, along with returns from the productivity initiatives that we have been discussing throughout the year. As a result, adjusted diluted EPS increased 40% over last year's third quarter to $1.96. Free cash flow was solid at $36 million, allowing us to repay $11 million of debt and repurchase $27 million of our shares during the quarter. Given our results year-to-date, as well as our positive outlook and visibility into the fourth quarter, we've narrowed our sales and increased our earnings guidance ranges for the year. David will cover guidance in a moment. Moving to slide four, let me provide some observations across our three segments. In our light duty segment, the same positive trends we've highlighted in the first half of the year continued in the third quarter. Vehicle miles traveled were again higher year over year. POS was solid, up low to mid single digits in the quarter, and generally consistent with customer shipments. Our light duty business delivered profitability growth, which was partially due to the automation and operational efficiency efforts we discussed in our last call. Finally, we continue to diversify our supplier base and geographic exposure. This remains a key focus area for the business, and the team has done a nice job reorienting the supply chain over the last few years. While our heavy duty business continued to experience market pressure during the quarter, we drove solid year-over-year segment profit margin improvement with cost savings and productivity initiatives. Additionally, recent market indicators are signaling stabilization in the freight industry. Predicting a growth inflection in that segment remains difficult, but we're seeing positive signs across our customer base. Our specialty vehicle segments net sales were flat compared to last year's third quarter as market headwinds persisted. Despite these challenges, specialty vehicle increased its segment profit margin year over year. Looking forward, we anticipate seeing new machine demand increase if customer borrowing rates are reduced in connection with the forecasted Fed rate cuts. Additionally, our new product offerings, including a higher mix of non-discretionary repair parts, along with enhanced dealer expansion initiatives, are driving out performance versus the overall specialty vehicle sector. On slide five, we'll spend some time describing how our capabilities with vehicle electronics are creating growth opportunities across our segments. It's no secret that the vehicles we serve have become more complex. Electronic control components increasingly integrated into what were previously simple mechanical systems. We were an early investor in this trend, releasing our first complex electronic part, a fuel pump driver module, in 2011. Since that launch, we have continued to invest in our electronics business, including our acquisition of Flight Systems 2018. These investments have deepened our capabilities in highly technical and difficult to address categories. Today, we have a differentiated set of capabilities that allow us to develop innovative, complex electronic solutions that technicians rely on to repair these critical systems, which ensure continued functionality and safety for end-user vehicles and often improve performance. The question we get regularly is how the proliferation of electric and hybrid vehicles will impact our business over the long term. Simply put, our diverse capabilities allow us to be truly powertrain agnostic as we see significant growth opportunities across the various propulsion technologies being deployed and developed. Our multi-platform approach offers Dorman the flexibility and optionality to accelerate growth as each platform matures over time. Vehicles with ICE engines are expected to remain the vast majority of the North American car park well into the future. According to MEMA aftermarket suppliers' projections, In collaboration with Strategy AND, ICE vehicles are expected to make up approximately 90% of the 8- to 13-year-old VIO dormant sweet spot through 2035. This provides us with a long runway to continue adding to our leading portfolio of aftermarket solutions, including new complex electronics for this set of vehicles. Additionally, we expect increased fuel efficiency and safety regulations will continue to drive more OE system changes and thus provide further opportunity for innovation in the active market. Hybrid vehicles have already made their way into our car park sweet spot. We have a solid portfolio of solutions servicing those models today. Hybrids offer Dorman a broader opportunity for category growth given their dual powertrain systems. And with customers becoming more comfortable with hybrid technology, we anticipate seeing future expansion of hybrid platforms. While electric vehicles are a smaller portion of the park today, and some OEMs have recently wavered on their level of investment in EV models, we have and will continue to develop technology for new EV platforms with the same innovation strategy we've applied historically. We see this driving long-term value for the company as EV platforms are even more dependent on complex electronic parts. Electronic modules deploy to sense and control nearly every activity across the vehicle. We expect higher replacement costs and potentially higher failure rates with these new systems. Today, we have thousands of SKUs across our three business units to support electronic systems in ICE, hybrid, and electric vehicles. Our ideation and new product development teams are constantly designing and engineering innovative components, including OE fixed solutions to support new growth opportunities and solve increasingly complex challenges in today's and tomorrow's vehicles. We expect this multi-platform approach will drive long-term sustainable value for our stakeholders. Now on slide six, let me provide some additional detail on our differentiated capabilities. As our electronics business grew in size and strategic importance, we recognized the need to aggregate its engineering and product development capabilities into a single standalone group. In 2023, we launched an electronic center of excellence to build the infrastructure and expertise needed to accelerate the development of next generation aftermarket solutions. This cross-functional group has done an outstanding job evaluating opportunities and driving new product innovation for Dorman to expand its electronics portfolio. From a process perspective, we begin with identifying and assessing failure points throughout our vast network of technicians and specialists who are motivated to provide us with the breakpoints they're seeing in the field. This is not unlike the process we undertake with our other products. as you would imagine it requires a different and more technical expertise data logging and code development is where our differentiation lies through our specialized and proprietary processing systems our teams run thousands of tests and trials on various electronic components to log and analyze the data then design and write our own software code for compatibility or improvement finally Our software validation process is designed to ensure that the product integrates seamlessly into the vehicle's safety and functional systems. This advanced set of competencies highlights Dorman's leadership and the competitive advantages we've built in the aftermarket space. We expect these advantages will contribute to our long-term success as complex electronics are poised to outpace the growth of traditional hard parts. especially on alternative propulsion technology platforms. With that, I'll hand off to David to review our Q3 financial performance.