Dorman Products, Inc. Q4 FY2024 earnings call

• 2024 was an outstanding year with net sales surpassing $2 billion for the first time, growing 4.1% year-over-year. - Fourth quarter consolidated net sales grew 8% to $534 million, adjusted operating margin was 17.5% (expanding 210 basis points), adjusted diluted EPS increased 40% to $2.20, and free cash flow was $63 million with $54 million of debt repaid. - Welcomed Tayfun Uner to lead the Light Duty segment, completing the transition to three distinct segments. - Light Duty benefited from positive macro trends and new product initiatives. Heavy Duty focused on improving customer experience and new product development. Specialty Vehicles had a sales inflection late in 2024. - Innovation is a critical part of the business, with teams developing new vehicle repair solutions. Operational excellence is emphasized with productivity and automation initiatives. - Supply chain is being strategically diversified and optimized. Balance sheet is strong with net debt reduced and total liquidity increased.

Light Duty segment: Fourth quarter net sales increased 11% year-over-year. Segment profit margin reached 20.1%, a 350 basis point increase compared to the prior year's fourth quarter. Revenue contribution from Light Duty was driven by strong customer demand and new product launches like complex electronics and oil filter housing. Heavy Duty segment: Net sales were down 8% year-over-year due to ongoing market challenges. The segment is investing in new product development for future growth. Specialty Vehicles segment: Net sales were up 5% year-over-year in the quarter, driven by new product portfolio and expanded dealer network.

• 2025 net sales expected to grow in the range of 3% to 5% compared to 2024. - Light Duty expected to drive solid sales growth due to innovation strategy and new products. - Heavy Duty expected to be flattish in net sales as market recovery is difficult to predict. - Specialty Vehicles expected to have modest net sales growth as consumer sentiment improves. - Adjusted diluted earnings per share expected to be in the range of $7.55 to $7.85, representing 6% to 10% growth over 2024. - 2025 guidance does not include impact from U.S. tariffs enacted or proposed in 2025 or potential retaliatory measures, with the situation remaining fluid and guidance to be updated as clarity on tariffs emerges.

• Uncertainty around tariffs, including the 10% tariff on China imports and potential reciprocal tariffs, which is a fluid situation. - Macro-economic factors such as interest rates, geopolitical concerns, and trade uncertainties that may impact results.

Q: Regarding tariffs, how far has Dorman come in diversifying supply chain, especially related to China, and how manageable is the current 10% tariff on China imports?

A: Kevin mentioned that the situation is fluid. Dorman has diversified the supply chain with roughly 30% to 40% of sourcing in 2025 estimated to come from China, 30% or so from the U.S., and diverse globally. The 10% tariff on China imports is manageable for now but situation is fluid. David added that FIFO accounting means tariff impacts will be seen about six months after incurrence.

Q: On the heavy duty side, talk about early signs seen and channel expansion opportunities?

A: Kevin said heavy duty market is somewhat stabilized and tracking with the market. Focus is on new product launches (had record in 2024 and expects more in 2025) and productivity initiatives. Channel expansion is a focus for future sales performance when market rebounds.

Q: Given strong balance sheet and free cash flow, what are capital allocation priorities between share buybacks, M&A, and debt paydown?

A: David said internal investment is first for best growth and returns, then M&A, then returning cash to shareholders opportunistically. Paused share buybacks in Q4 due to uncertainty, but Board approved $500 million share repurchase plan effective January 1, 2025.

Q: On Specialty Vehicle, give more detail on repair vs discretionary and consumer sentiment?

A: Kevin said overall Specialty Vehicle market was down in 2024. Focus on non-discretionary repair parts and channel expansion, which enabled outperformance in the quarter and year. Unclear when market will fully recover, but expecting modest growth in 2025.

Q: Talk about margin profile of complex electronics within light vehicle?

A: Kevin said complex electronics have a high margin profile as they are new to the aftermarket and often have less competition initially, with the segment outgrowing the overall business in 2024 and expected to continue.

Q: On light vehicle side, what is underlying inflation rate and pricing this year?

A: Kevin said if no tariffs, inflation rate would likely be in low single digits, but tariffs add uncertainty as situation is fluid