Good morning, and thank you for standing by. Welcome to the Dorman Products Fourth 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 would now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Sir, please go ahead.

Thank you. Good morning, everyone. Welcome to Dorman's Fourth Quarter 2024 Earnings Conference Call. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer; and David Hession, Dorman's Chief Financial Officer. Kevin will share updates on the business, and David will review the quarterly results and our guidance for 2025. Kevin will then close our prepared remarks before opening 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'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 10-Q, 10-K, 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 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'll turn the call over to Kevin.

Thanks, Alex. Good morning, and thank you for joining our Fourth Quarter 2024 Earnings Call. As Alex mentioned, I'll start out with a high-level review of the results. I'll also cover the keys to our success and our strategic focus areas for 2025 along with observations within each of our segments. With that, let me begin on Slide 3 with a few highlights from the year. Our financial performance in 2024 was outstanding. We surpassed the $2 billion annual sales mark for the first time in our history, growing net sales by 4.1% year-over-year. This net sales growth was driven by strong demand in our light-duty segment which benefited from recently introduced new products. While market pressures weighed on the results of our other segments, specialty vehicle drove slight growth after a positive sales inflection late in the year, and heavy-duty invested in improving customer experience and new product development, which positions them well for when the market rebounds. We also drove significant margin expansion in earnings growth for the enterprise, which led to strong cash flow generation. This allowed us to invest in the business, strengthen our balance sheet for future strategic growth opportunities, and return capital to our shareholders. I'd like to take a minute to thank all of our contributors for all they did this year. We have an exceptionally talented team that's stepped up and turned challenges into successes. I'm proud of what we've accomplished together and look forward to the exciting future we have ahead. Speaking of talent, I also want to welcome Tayfun Uner to our leadership team as Head of our Light Duty segment. Tayfun brings tremendous experience to the organization and his new role completes our transition to three distinct segments. With leadership structures in place now for each of them, it was an important step following our recent realignment of the business, and we expect this leadership structure will drive significant value for the entire company. Turning to slide four, I wanted to briefly touch on the fourth quarter. David will provide more detail, but we exited 2024 with strong momentum. Consolidated net sales for the quarter grew 8% year-over-year to $534 million as our teams did an excellent job delivering on new product development and customer programs. We also drove solid margin performance. Adjusted operating margin for the quarter was 17.5%, expanding 210 basis points compared to the same period last year. Our margin improvement was led by light duty as their top-line growth and productivity initiatives fueled a 350 basis point increase in segment profit margin. As a result, adjusted diluted EPS increased an impressive 40% to $2.20. Free cash flow in the quarter was also strong at $63 million, allowing us to repay $54 million of debt. All in all, it was an outstanding fourth quarter. We capped an incredible year for Dorman. I'm proud of our performance this year. And again, it speaks to our talent and positive culture that continues to drive results across the organization. David will cover guidance in a moment, but our outlook for 2025 reflects our strong operational model, strategic growth opportunities, financial strength, and positive market trends. On slide five, we thought it would be helpful to take a step back and highlight the key factors that drive Dorman's success. First, as we've covered on recent calls, innovation is a critical part of our DNA and core to our differentiation. Our teams have the creativity, tools, and expertise to deliver new vehicle repair solutions to our customers. Our innovation also enhances the repair experience for installers, which creates additional sales opportunities for our customers and drives the introduction of new cost-effective products for our end users' vehicles. Next is operational excellence. We're constantly challenging our operations to deliver improved performance and have invested prudently to keep our performance at the forefront of the curve. We're of the mindset that improvement and efficiency gains are always possible and we continue to drive productivity across our footprint. With efficient operations and new products driving growth, our asset-light business has been a cash generator providing both fuels for our growth and a strong financial foundation that is built for long-term success. Our strong financial profile and cash generation have allowed us to deploy capital on strategic investments to compound our growth. This proven business model has driven tremendous results for Dorman over the years. We believe we are well-positioned to deliver continued growth in 2025 and beyond. As we look ahead, slide six lays out our strategic priorities for the year. Again, innovation is a critical focus area for each of our segments. We continue to develop new light-duty repair solutions including an emphasis on our complex electronics portfolio, which continues gaining traction as we discussed on our last call. We're also focused on further expanding heavy-duty category coverage, deploying our OE fixed solutions methodology further into the sector. We believe the investments we've made in new product development position the business well as the freight recession recovers. Within specialty vehicle, we remain focused on expanding our non-discretionary portfolio and building on the success we've had in those categories since we've acquired Super ATV. We're also focused on furthering our operational excellence initiatives through productivity and automation improvements. We are pleased with the progress we made in 2024 on these initiatives and we see future opportunities across our facilities. In 2025, we'll continue to strategically diversify and optimize our supply chain. The team has done an outstanding job over the last few years, integrating suppliers across the globe and reducing our country-specific concentration. Today, our supply chain is significantly more flexible and nimble than it was just a few years ago. We believe this provides a differentiated added value for our customers and gives us access to leading manufacturers around the world. We're also laser-focused on continuing to position heavy duty and specialty vehicle for channel expansion which we believe will lead to improved sales performance as these markets rebound. As I mentioned, our innovation strategy and commercialization efforts are expanding opportunities. Finally, after strengthening our balance sheet in 2024, we have the firepower to capitalize on new growth opportunities. Our acquisition pipeline remains robust and we expect the broader M&A environment to continue improving. Moving to slide seven, let me provide some observations across our three segments. In our Light Duty segment, positive macro trends continued through the end of the year. Vehicle miles traveled were again higher year-over-year in the fourth quarter. POS was strong up high single digits and generally consistent with customer shipments. Strong customer demand and new product execution drove outperformance for light duty business. We've also made strides in diversifying our supplier base across new geographies and improving margin through productivity initiatives. In our heavy-duty segment, soft market conditions persisted through the end of the year as expected. While recent industry commentary has pointed to a more optimistic outlook, we believe it is still too early to call for the timing of a return to growth. That said, we're seeing encouraging signs from our customers and look to capture share with a broader portfolio of new products when the market rebounds. Further, we plan to implement additional productivity initiatives to help improve heavy duty's margin profile. During the quarter, we saw year-over-year top-line growth for the first time in several quarters for our specialty vehicles segment. While new machine sales remained sluggish as manufacturers continued inventory destocking efforts, our growth was a result of the investments we've made in innovation and channel expansion. These investments are yielding solid results and we're excited about what lies ahead for the business. With that, I'll hand off to David to review our Q4 financial performance.

Thanks, Kevin. I'd like to echo your comments regarding the team. It was a particularly strong finish to what ended up being an outstanding year, and we couldn't have done it without the efforts of our contributors across the organization. So I just wanted to thank our contributors for their hard work and dedication. Turning to slide eight, let me dive into our results. Consolidated net sales in the fourth quarter were $534 million, up 8% year-over-year, driven by strong customer demand. As Kevin mentioned, light duty drove above market sales growth in the quarter given positive macro trends in our new product initiatives. In fact, innovation was a key contributor to our success across each of our segments in the quarter. I'll cover them individually in just a moment. Adjusted gross margin for the quarter was 41.7%, a 240 basis point increase compared to the prior year period. This margin expansion was primarily driven by higher sales performance and cost savings generated from our supplier diversification efforts as well as our productivity and automation initiatives. Additionally, margin benefited from a favorable mix of higher sales of new products and greater leverage on volume growth. Adjusted SG&A expense as a percentage of net sales was 24.2%, adjusted operating income was $93 million for the fourth quarter, up 23% compared to the same period last year. Adjusted operating margin expanded 210 basis points to 17.5%, largely from gross margin improvement. Finally, fourth quarter adjusted diluted EPS was $2.20, up 40% compared to the prior year period. Along with increased adjusted operating income and lower interest expense, our effective tax rate benefited from one-time discrete items in the quarter. Finally, our share repurchase program activity during the year contributed to positive EPS growth. Next, let me provide updates on each of our business segments, starting with Light Duty on slide nine. Our light duty business had an exceptional fourth quarter with net sales increasing 11% compared to the same period last year. POS and shipments were generally aligned in the quarter at a high single-digit growth rate. This growth was driven by strong customer demand, particularly with our recently introduced new products, including complex electronics and our highly successful oil filter housing product. Light duty also drove solid margin improvement during the quarter. Segment profit margin increased to 20.1%, a 350 basis point increase compared to last year's fourth quarter. This margin expansion benefited from our ongoing automation and productivity initiatives, strong new product sales and customer mix along with greater leverage on our volume. On slide 10, I'll cover our heavy duty segment. Heavy duty net sales were down 8% year-over-year as a result of the ongoing market challenges, which Kevin covered. Lower volume had a negative impact on margins as the business has a larger fixed cost manufacturing footprint compared to our other segments. We also continue to invest in the business as we see long term growth opportunities ahead. These investments yielded significant new product development during the year, which we expect will position the business well when the market rebounds. Moving to slide 11 for our Specialty Vehicles segment. We were pleased to see year-over-year sales growth for our Specialty Vehicle business as net sales were up 5% in the quarter. Our new product portfolio and expanded dealer network continue to drive solid results for the business. On the margin front, we continue to invest in the business, which increased variable compensation and benefit expense in the quarter compared to the prior year period. These increases align the Specialty Vehicles segment with our other two segments. We believe the investments we've made position the segment for long term growth. Turning to our cash flow on slide 12, for the fourth quarter, free cash flow was $63 million, up 30% compared to the same period in 2023. This growth was particularly impressive given that we increased our inventory spend in part to mitigate any potential impact from tariff changes. We also used this cash flow to strengthen our balance sheet, repaying $54 million in debt, which as I'll highlight on the next slide, provides us with the ability to make strategic growth investments. While we paused our share repurchases during the fourth quarter, given the uncertainty around the election and geopolitical concerns, we remain committed to our share repurchase program as a core component of our capital deployment strategy going forward. In fact, in October, our Board of Directors authorized a new $500 million stock repurchase plan that became effective January 1 of this year and expires in December 2027. This performance in the fourth quarter contributed to what was an exceptionally strong year from a cash generation and deployment perspective. Cash flow from operations was an impressive $231 million for the year allowing us to deploy $39 million in capital expenditures, we paid $94 million in debt and returned $78 million to our shareholders through the repurchase of 856,000 shares at an average cost of $91 per share. On slide 13, I'll cover our balance sheet and liquidity. As of December 31st, our net debt was $426 million or $66 million lower than Q3. Our net leverage ratio was 1.12 times adjusted EBITDA, down from 1.36 times at the end of September and 1.87 times at the end of last year. Our current leverage remains comfortably below our long term target of 2 times. Additionally, our total liquidity was $642 million at the end of the quarter, up from $582 million at the end of Q3. Our balance sheet remains strong, and we're pleased with the capacity and flexibility it provides us to continue executing our strategic plan and deploying capital for future growth investments. Turning to slide 14, I'd like to cover our guidance for 2025. 2024 positioned us well for continued growth through 2025 and beyond. Market trends in our light-duty business remain positive and we see the beginnings of market turnaround in the heavy-duty and specialty vehicle segments. While uncertainty exists around interest rates, tariffs, and other macroeconomic factors, we have the playbook, a more diversified customer and supplier base, and a solid financial position to navigate the various challenges we may face in the market. Specifically on tariffs, our 2025 guidance does not include any impact from the U.S. tariffs enacted or proposed in 2025 or any potential retaliatory measures from U.S. trade partners. The situation remains highly fluid with significant uncertainty regarding what may or may not be implemented and the potential impact on our 2025 results. We are following the evolving trade situation closely and plan to take actions to manage the impact on our business. We'll evaluate updating our guidance as the tariff situation gains clarity. That said, we expect net sales growth to be in the range of 3% to 5% compared to 2024. Looking across our segments, we expect light duty to drive solid sales growth for the year. Our innovation strategy and industry leading portfolio of new products along with our enhanced commercialization strategies are expected to continue driving value for our customers. As I mentioned, predicting a market recovery for heavy duty remains difficult. But given market indicators, we expect net sales to be flattish for the year. For Specialty Vehicle, we expect net sales to increase modestly as consumer sentiment appears to be improving in that market. On the operational excellence front, we remain focused on driving efficiencies through continued productivity and automation initiatives. With our sales growth expectations coupled with the efficiency gains, we expect adjusted diluted earnings per share to be in the range of $7.55 to $7.85, representing 6% to 10% growth over 2024.

Thanks, David. As we look forward, I'm confident in our model for long term success. We'll continue driving innovation and building on our industry leading portfolio of innovative solutions. We'll continue to build deep relationships across our diverse end markets, leverage our operational expertise and capitalize on strategic growth opportunities to drive Dorman's future growth. On behalf of our management team and the Board, we thank you for your support. With that, I would now like to open the call up for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Scott Stember from ROTH MKM. Sir, please go ahead.

Good morning, and thanks for taking my questions.

Thanks, Scott.

Good morning, Scott.

Regarding tariffs, which is obviously one of the bigger topics these days, could you just remind us how far you've come, at least with exposure related to China? I know that I think we were less than 50% total Asia exposure, and maybe as of last year. Could you talk about where we stand right now? And then under the current 10% tariff on China, I'm just trying to get a sense of how manageable that is for you in the near-term.

Sure. Scott, it's Kevin. Good question. As you point out, the situation remains very fluid. I mean I think we've obviously seen the additional 10% on China imports in the steel and aluminum tariff. We would characterize those two aspects of tariffs as very manageable for us at this point. But obviously, the situation is very fluid. And it seems like the reciprocal tariffs, we'll know a lot more about those in the months ahead. I will speak a little bit about the diversity actions that we've taken and that I've spoken about publicly before. I will remind you that we have a lot of experience dealing with tariffs. We have a playbook back in 2018, and since that time frame, we have undertaken a lot of actions to diversify the supply chain. In 2025, Scott, we estimate that roughly 30% or so of our purchases will come from the U.S. Whether that's from a partner manufacturer or from Dorman manufacturing facilities. Roughly 30% to 40% of our sourcing in 2025 is estimated to come from China. And then outside of that, we're very diverse around the globe. I'll also say, Scott, that our exposure to Canada and Mexico from a sourcing perspective is immaterial.

Scott, it's David. The other thing to keep in mind is that we use FIFO accounting, so you'll notice the impacts as inventory turns, which is probably about twice, meaning you'll see those effects approximately six months after we actually incurred them as well.

Got it. That's very helpful. Thanks. And then on the heavy duty side, can you talk about some of the early signs that you're seeing and then maybe talk about the channel expansion opportunities there?

Sure, Scott. Good question. It's Kevin again. I would say, in general, if we look at the heavy duty market, our business is basically tracking with the market. We'll characterize it as somewhat stabilized. As we said in our prepared remarks, we're not really calling for a market turnaround in 2025. And it really is unclear how the trade situation will impact the overall heavy duty market. So our focus in that sector is going to be to continue on focusing on new products. We had a record year in terms of new product launches in 2024. We expect to increase on that in 2025. So the new product engine is really working well. We've got to get that flywheel primed and going and eventually that's going to become a very large growth engine for us, particularly as the market does recover. We're also focused on productivity initiatives across the business in heavy duty. And as we mentioned in the prepared remarks, we're expecting flattish sales growth for that segment in 2025.

Got it. And then just last question. You talked about the pipeline for M&A. Could you maybe just give us an indication of where you're seeing more opportunities than where we could look for you guys to potentially go?

Well, I mean, yes, Scott, it's Kevin. Good question. The pipeline, I would say, is very robust really across the three segments. But I will say that in the last couple of months, it's gone a little bit quiet with all the trade uncertainty. I think once that clears up, we'll start to see some good activity across our funnels.

Got it. That's all I have for now. Thank you.

Thanks, Scott.

Thanks, Scott.

Thank you. Our next question comes from the line of Gary Prestopino from Barrington Research. Please go ahead.

Hey, good morning, all.

Good morning, Gary.

Good morning, Gary.

Kevin, I have a question about the heavy-duty market. I know it's a challenging environment right now, but are most of your products being used for repairs? Is there a significant decline in on-the-road trucking, or are truckers just delaying repairs? I'm trying to understand what factors are causing this market to underperform.

Yes, it's a great question, Gary. And I think you're exactly right. I think the overall market is down. We're seeing that across all the freight indexes that we look at. And our parts, as you correctly point out, do primarily go for repair, and we are seeing delayed repairs across the channels that we operate in.

Okay. So I guess just from my understanding on this, is there, if the truck is not drivable, they've got to repair it, but is there some kind of delayed maintenance kind of repairs that are needed that they're just putting that off?

Yes. This situation occurs frequently in our industry, Gary. When the market begins to change, you will notice that many of those postponed repairs will start to be addressed. Therefore, once that change occurs, we anticipate a significant increase in activity.

And could you remind me in a normalized market for both Specialty and heavy duty or just however you want to phrase it, what would be the target operating margins that you could attain or segment margins for both of these?

Yes, Gary, it's David. That's a good question. We don't provide guidance on segment margins, but we believe that as we look ahead, the margin performance will be fairly consistent with where we are in 2024.

Yes. It's Kevin. Let me add to that. I mean, the reason that we're not forecasting in the guide a big increase in 2025 is obviously we're not forecasting the growth. In normal environments, you're talking about high teens type margins in specialty vehicle. And although we're currently performing well below that in heavy duty, our target there is to get to mid-teens operating margin.

Okay. Yes, that's what my question revolved around just in a normalized market. So there's plenty of upside once these markets do turn in the affirmative?

Absolutely correct.

Thank you. Our next question comes from the line of Justin Ages from SJS Securities. Sir, please go ahead.

Hi, good morning, all.

Good morning.

Can you provide some insight into capital allocation priorities between share buybacks, mergers and acquisitions, and debt paydown, considering the strong balance sheet and free cash flow?

Yes, Justin, good question. It's David. We had a strong year in terms of cash flow. Our strategy first focuses on evaluating our debt and leverage position. After that, we prioritize our internal investments, which yield the best growth and returns. M&A follows, and third is returning cash to shareholders, which we approach opportunistically. We paused the buybacks in Q4 due to uncertainties around the election and geopolitical issues, but we are committed to it. In fact, the Board of Directors approved a share repurchase plan of $500 million that became effective on January 1 of this year. That's how we consider our capital allocation, Justin.

All right. That's helpful. Thanks. And then moving to Specialty, you talked about the year-over-year sales growth in the quarter. Just wondering if you could give a little more detail on in Specialty Vehicle repair versus discretionary and the consumer kind of sentiment that you talked about there?

Yes, it's a good question. Overall, the market for Specialty Vehicle was down in 2024. There were some signs of new vehicle sales and inventory stabilizing. However, inflation and high-interest rates have kept new machine acquisition prices relatively high, which affects us. I've mentioned this before. Therefore, we focused on non-discretionary repair parts, as Super ATV was under indexed at the time of acquisition and channel expansion. We have made significant progress in these areas, allowing us to outperform the market in this quarter and for the year in 2024. We believe we gained some market share. It is uncertain when the market will fully recover, especially with the current trade uncertainties. We are expecting modest growth for the segment in 2025.

All right. Thanks. I appreciate you taking the questions.

Got it. Thanks.

Thank you. Our last question comes from the line of Bret Jordan from Jefferies. Sir, please go ahead.

Hey, good morning, guys.

Good morning, Bret.

Good morning, Bret.

Could you talk about the margin profile of complex electronics within light vehicle? Is that a meaningfully higher margin or in-line with the category?

Hey, Bret, it's Kevin. Good question. We don't typically break out the margin profile of segments within our business segments, so product categories. I will tell you that the overall segment has performed very well when you talk about complex electronics. It certainly outgrew the overall business in 2024. And we continue to predict that will happen going forward. The margin profile is strong. I mean, typically, as I said in the past, those products have a high balance of new to the aftermarket. So when that product gets launched, the only competitor that we have in this space would be the OE. So in those cases, typically that's where we have the highest margin profile. And we have the highest competitive moat, right? So with the technical difficulty of a lot of these parts, we typically have a lot more new to the aftermarket and we're exclusive for a lot longer in complex electronics.

Okay. And then I guess on the big picture question on the light vehicle side, what do you see as the underlying inflation rate and pricing this year? Obviously, ex-care off, but rates have stayed high, so factoring costs are up, what would you think you will see the POS for inflation?

Yes, that's a good question, Bret. And obviously, the elephant in the room is the tariffs, right? So I can't really predict what's going to happen there given it's so fluid at the moment. Let's assume there were no tariffs. I would say you're probably in that very low single-digit type percent. Because there has been some general inflation outside of tariffs as we move through 2024.

All right, great. Appreciate it. Thank you.

Got it.

Thank you. That concludes our conference call. Thank you for joining today, and you may now disconnect.