Dorman Products, Inc.

Good morning and thank you for standing by. Welcome to the Dorman Products 3rd Quarter 2025 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 Whiteland, Vice President of Investor Relations. Thank you, sir. Please go ahead.

thank you good morning everyone welcome to dorman's third quarter 2025 earnings conference call i'm joined by kevin olson dorman's chief executive officer and david hessian dorman's chief financial officer kevin will provide a quick overview along with an update on each of our business segments and their respective markets then david will review the consolidated results and our guidance before turning it back over to kevin for closing remarks 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 dormantproducts.com. Before we begin, I'd 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 2025 earnings call. As Alex mentioned, I'll start with a high-level review of the results along with an update on our segments and market observations for each before turning it over to David. Let me start on slide three. First, I'd like to thank our contributors for all their hard work and dedication this year, which allowed us to execute exceptionally well and deliver for our customers. In the third quarter, we drove strong top and bottom line growth. Consolidated net sales were $544 million for Q3, up 7.9% year over year. This growth was primarily driven by tariff-related pricing actions that took effect in the quarter, which we covered in detail during our last earnings call. Additionally, we saw solid POS growth in the quarter, which was up mid-single digits year over year. As we expected and discussed previously, we delivered strong margin growth in the quarter. This was largely driven by the timing dynamics of pricing and costs associated with tariffs. As a reminder, while the majority of our price increase went into effect in the third quarter, the inventory that we purchased in Q2 comes with higher tariff-related costs that will begin to impact our income statement in the fourth quarter of this year. As a result, we expect a lower gross margin in Q4 compared to Q3. Adjusted operating margin for Q3 2025 was 20.5%, a 340 basis point increase over last year's third quarter. Adjusted diluted EPS grew 34% year over year to $2.62, which again was driven by our growth, margin expansion, and the timing dynamics of pricing and cost related to tariffs. Finally, operating cash flow was $12 million and free cash flow was $2 million in the quarter. While this is a slight improvement over Q2, our cash flow continues to be impacted by higher tariff costs. David will discuss this in more detail shortly. So while there were some timing subtleties within the quarter, we're pleased with our performance and expect to continue delivering strong year-over-year growth for our shareholders. Next, I'll provide our results for each of our business segments. I'll also dive into our market observations and share some highlights for each. Starting on side four, our light duty business had another strong quarter. with net sales increasing 9% year over year in Q3. The growth was primarily driven by tariff-related pricing actions that took effect in the third quarter. POS more closely aligned with our net sales, up mid-single digits year over year. And similar to last quarter, we're not seeing any significant oversupply in the inventory data we have from our largest customers. On the margin front, light duty delivered a 470 basis point gain in operating margin, driven primarily by tariff related pricing, as well as the impact of our supplier diversification initiative. Looking across the light duty market, macro trends continue to remain positive. The vehicle miles traveled increasing year over year. However, uncertainty in the market related to tariffs and trade dynamics continues to persist. We're closely monitoring the environment and continue to work with our suppliers and customers as part of our overall tariff mitigation strategy. And while it appears that inflationary pricing has started to reach our end users, we remain confident in our ability to drive long-term growth as non-discretionary repair parts have historically performed well through various economic cycles. We also thought it would be helpful to provide some business insights and highlight new products and updates across our segments. In the light duty business, we recently launched an electronic power steering rack for specific Ram truck models from 2013 to 2024. This is a first to aftermarket part and the only available option in the independent aftermarket that is manufactured new. This product is a great example of our capabilities within complex electronics given the functionality and integration with various systems throughout the vehicle. The EPS rack is an OE fixed component, with significant upgrades compared to the original manufacturer's part that are designed to ensure a long, reliable service life. The electronics within have been redesigned with added surge protection and an improved layout to reduce heat and electrical interference. Additionally, protective coatings have been applied to resist contamination from water, salt, dust, and other harmful contaminants. It has also been designed for simple, seamless installation with no dealer programming needed. This product is a culmination of extensive, complex, cross-functional work with our engineering teams, so I'd like to congratulate everyone involved. Next, let me turn to slide five for updates on our heavy duty business. Net sales grew 6% year-over-year in the third quarter. While market conditions continued to pressure the segment, the team executed on the pricing front and drove volume through new business. The benefit of higher net sales growth in the quarter was offset by lower manufacturing productivity, impacting margins, which were flat year-over-year. Longer term, we remained focused on driving a mid-teens operating margin profile for the heavy-duty segments. Digging more into the broader trucking and freight market, it remains difficult to predict an inflection point. While we're pleased with the recent net sales growth over the last two quarters, we continue to see mixed signals across our customer channels. But we're hopeful that the worst is behind us and we'll see it turn in the coming quarters. Despite the headwinds, we continue to execute key initiatives to best position the business for the eventual rebound of the trucking and freight market. As an example, we just launched our redesigned website with an improved e-commerce platform that helps customers identify the right parts for the right applications and get our products to the right locations on time. We expect the new site, which has been designed with the next generation of heavy-duty repair professionals in mind, will enable us to scale and be even more competitive with the help of its user-friendly interface and modernized look and feel. On slide six, I'll provide an overview of the specialty vehicle segment. Top line growth was relatively flat year over year with continued market pressures in the quarter, including weak consumer sentiment from tariffs and interest rates remaining at higher levels. Operating margin was impacted by lower manufacturing productivity in the quarter as we proactively reduced production in our Chinese manufacturing facility in Q1. following a ramp up of production in Q4 of 2024 to get ahead of tariffs. Long term, we are targeting a high teens margin profile for the business. We remain focused on our innovative strategy and continuing to develop new products for both the current part and next generation vehicles. Despite the challenging consumer sentiment during the quarter, UTV and ATV ridership remains strong, which is a continuation of the positive trends we've seen in prior quarters. We expect that as the economy continues to stabilize and interest rates further decline, riders will increase their spending on their vehicles. OEs have also commented that machine inventory is starting to normalize, which should bring stability to the end market. Speaking of new products, I wanted to highlight four-inch long travel kit that we introduced for Polaris XD 1500 models. This bundle widens the vehicle's wheelbase by a total of eight inches, providing more stability and control on rough terrain. The kit is designed for more of a utility application, allowing operators to improve the rides that fit the work they do on a daily basis. This is a great example of a solution designed for those utilizing their vehicles for work, not just play. We continue to expand our portfolio of non-discretionary utility-focused products to broaden our reach with new users. With that, I'll turn it over to David to cover our results in more detail.