Dorman Products, Inc. Q3 FY2024 earnings call

• Positive momentum in Q3 with solid top-line growth and operating margin expansion. Consolidated net sales increased 3.2% Y/Y to $504 million. Adjusted operating margin was 17.1%, expanding 290 basis points. - Light Duty segment continued positive trends with solid POS and profitability growth due to automation and operational efficiency. - Heavy Duty segment drove margin improvement despite market pressure, with signs of freight industry stabilization. - Specialty Vehicle segment had flat net sales but increased segment profit margin, with anticipation of new machine demand if rates reduce and new product offerings driving performance. - Dorman has capabilities in vehicle electronics, having invested since 2011, including acquisition of Applied Systems in 2018, allowing development of complex electronic solutions, and is powertrain agnostic with multi-platform approach. - Launched Electronics Center of Excellence in 2023 to accelerate next-gen aftermarket solutions, with process including identifying failure points, data logging, co-development, and software validation.

Light Duty: Net sales were $394 million in Q3, up 5% year over year. Segment profit margin was 19%, up 290 basis points compared to the same period last year. Heavy Duty: Net sales were $60 million in Q3, down 5% year over year. Operating margin was 4.5%, up 150 basis points over last year's third quarter. Specialty Vehicle: Net sales were flat year over year at $51 million. Segment profit margins increased 350 basis points year over year to 17%.

• Net sales expected to increase 3.5% to 4.5% over 2023. - Adjusted diluted EPS expected in the range of $6.85 to $6.95 for 2024, representing a 51% to 53% increase over 2023. - Light duty momentum to continue, heavy-duty and specialty vehicle businesses well positioned for execution in down market.

• Market headwinds impacting Heavy Duty and Specialty Vehicle segments. - Uncertainty regarding freight industry recovery and its impact on Heavy Duty segment. - Potential impact of tariff changes on supply chain and business, though supply chain is more diverse now.

Q: Talked about light duty and new products driving growth. How much are new products contributing and same SKU basis Y/Y?

A: New products are a major growth driver, but specifics on percentage of sales from new products not released; SKUs in the quarter were flattish to last year, but two-year stack of SKUs was up 70% from 2022. Total new product sales dollars up Y/Y due to units and average selling prices up.

Q: Signs of heavy duty stabilizing. Where do operating margins go when market inflects?

A: Before downturn, heavy duty was generating mid-teen operating profit margins; expect to be back at that level when market inflects.

Q: Specialty segment repair vs discretionary mix. How much non-discretionary repair?

A: Slightly above half the specialty segment business is non-discretionary repair, up from less than that when acquired 18 months ago.

Q: Complex electronics margin. Do new product margins exceed average?

A: New to the aftermarket parts (including complex electronics) generally have higher margin profile than parts not new to aftermarket.

Q: Tariffs impact. How would tariff increase affect business?

A: Watching tariffs closely, supply chain is more diverse now, and have a playbook to handle if tariffs come on.

Q: Electric vehicle parts. Where are we today and future?

A: Car park remains heavy ICE through 2035; will continue to increase content in electric vehicle parts as car park increases in repair age for pure plug-in electric and hybrid, but meaningful portion in repair age for pure plug-in electric will take time.

Q: $1.6 million other income in quarter. What was it?

A: Impact of joint venture income.

Q: New products driving growth and margins. Metrics on new products sales percentage?

A: Don't release specific percentage of sales dollars from new products, but SKUs two-year stack up 70% from 2022, and total new product sales dollars up Y/Y due to units and average selling prices up.