DORM - Earnings call 4 2023 | Dorman Products, Inc.

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Operator

Good morning, and thank you for standing by. Welcome to the Dorman Products Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I'd like to turn the conference over to David Hession, Dorman's Chief Financial Officer. Thank you. ahead. go Please

David Hession

morning, earnings Good Olsen, to fourth Dorman's Chief Thank call. and I'm XXXX conference Officer. Kevin joined quarter Executive you. welcome today our by

in participants I to queue have on and review business question the Investor closed. First, website.Finally, factors the statements the today's Relations and yesterday's for provide questions.And our to questions. during and if those call earnings schedules the XX-K to should after follow-up remarks. to materially ask material These documents to for over most certain within XXXX reference earnings and federal Kevin and call, of everyone securities to turn the call of earnings risk financial factors Dorman's appendix update the call attached release the limit with expectations After the then of provide quarterly Reconciliations advise are available statements.We'll most these the additional re-join have we and non-GAAP By and our the our anticipated comparable provide market one to recent this Relations and remarks, results Kevin our forward-looking XX-Q, the in Q&A now, would went prepared of and on Kevin. and section also dormanproducts.com.Before differ be website described themselves such both that, from are a earnings meaning they to one directly in like can which of actual that the begin, access and contained will call cause our presentation, I measures. out I release will with will review to We outlook that may measures which press the measures portion Investor that, found at year cautionary full laws. open investor forward-looking release and of will our include presentation, listeners important results assumptions, to in non-GAAP that release everyone closing statements remind portion we'll we GAAP yesterday presentation

Kevin Olsen

are who just for our a Specialty followed you to our transition provide XXXX David. Today, strategy, helpful But us to additional operating Good if for you're quarterly company will our a along likely fourth are and back reporting, as be joining we in to Slide companies.Before these have we do.Some of who QX, in sectors aftermarket Please we and we along segments dive quarter our thank live discuss segments, there earnings vehicle Duty; thought the moment review In deck. realigned the performance, operate: business story years. which I turn many it to on are calls and X, would listeners we and X consistent conference and with overall what into you with are DORM. we QX morning, initiating we Vehicle.In highlights know motor getting insight connection call. business activity. into segment step Duty; of and following for Light Thanks, our Heavy to our the

focused light focused excited of the products X. to our these SuperATV, ATV our portfolio, and and segments. commercial leading And of as about and Slide we're on and Dayton from future solutions innovators motor from duty continuous vehicle are deliver aftermarket. one businesses vehicle what relatively our the of vehicle while innovation heavy across are very specialty resulting duty the acquisitions heavy new additions business.We We engine We across each in our the holds.Moving are Parts business, business bumper-to-bumper duty known of of repair legacy an for specialty our UTV

As bumper-to-bumper I the and our team team innovation. leading unique. our of product the has relationships development a last that X field robust to ideation designed problem housing, with think ICE suite pre-pressed Over capabilities technical capabilities of to enable agnostic as by filter experience control across electronic comprehensive to customers development repair mentioned, the hybrid are on pipeline.Over technicians product And new we powertrain network brought approach the which from created cultivate aftermarket to axles, FIX market we're original different enhanced of our new decades, number solve oil built BEV.We OE product of to and solutions, line continuously X and a us patented provide new and years, have truly many an the type. XX,XXX charge repair modules to over of and immense of across segments, to of our end new drivetrains us equipment.The such team our an in enable are SKUs features we

expansive globally. model suppliers able product of diverse the our meet have or on utilize our enhanced to that the products to work closely of addressable of We of our production approach, X. is this needs the leverage of further majority Our product innovation team hundreds leverages our our And capabilities to network with flex ability ensure we network new $XXX specifications. asset-light efficiently development up an effectively to across by vast We down market products.With manufacture to this as and to total best billion. our Slide our are suppliers engine needed designs and our serve markets.Moving

which were to X, large current our We're supply electronics, that's we're support have digital light the supply vehicle. advanced opportunities improve contribute you -- share to taking We've gave net duty, with find repair premium to SuperATV categories, grew approach top presence Coast.As growth been potential.We profitability and disciplined years we're increased in upgrade a to growing trend omnichannel top you Vehicle to as on to CAGR, operators continue a our last to want light we've also line XX% our reach. drive categories cost provide innovation demonstrated will free by for.Finally, line our in transport line repurchase this [indiscernible] invest top Dorman to sales to market over approximately in income same which I the we're which by specialty of accessory sales. financial to each down actions growing hand continue OE high-margin innovation businesses selling known and annually. and thousands adjusted of a of the and The on chain results. manufacturing presence. XXXX, parts, XX% ended on control. grow including vehicles. omnichannel with with and to is We'll focused and that We're pay flow, us we're segments growth, have new look operations.In our And on Heavy targeting market our to a optimizing the as distribution in for focus continue to West wide nondiscretionary with approximate access strategy product over focus collectively we broaden leveraging our XXXX.On heavy expanding acquisition opportunity implementing top In significant range record year specialized operations and an wallet we're our that growing segment's customers.Also, peers.Before a on also to playbook of customers' the optimize of effective capabilities our also with there's the our rapidly XXXX those record to generated see distribution and on our aftermarket to efficiency our parts today, We of line bring enable like In margins.For our made David, few of digital of draw XX% my our QX Slide specialty growth we're We we SuperATV regions delivered to new duty debt on I capabilities at end of in and leading where business. demonstrated our margin year, Duty the We cash the our performance and while our significantly vehicle guidance. driving to operating our back in above the line X/X share results, categories underpenetrated, it our X, duty, Specialty such investment strong particularly shares. our thoughts and significant improved Slide while dealers, by we've IP-centric our network.Turning growing EPS net investing infrastructure investments products

basis repurchase that to performance X new improvement our who our our and sequentially products and we behind stand quarter.I'm to our of all strong into and was gross area solutions XXX margins were strong the work each the margin measures back our across efficiencies thank pay And margin enabled inflation to to down and the to can their as used how them during hard free ]. solutions levels. footings. that focused basis the out launched of want on and we up aftermarket operations, continues was dedication productivity contributors QX implemented on Dorman us to innovation points through to cash force of of in innovative strong we margin day to which also proud costs I and the flow debt Gross compared pleased XXXX increased drove for a behind segments. they year, financial was XXX our come QX [ year-over-year engine Our deliver driving heightened report the shares.Overall, in our points operations I'm adjusted focused XXXX. the engine up our ingenuity, QX.Throughout we managed push thousands work.Gross company to significant

our uncertainty about to there As the level is XXXX. near-term we while I in look have results, in impact forward, I can to have things to I'd a And remain global optimistic to some potential believe deeper on fundamentals and point, the markets David of he XXXX.At Industry strong. so macro I'm that turn place in over strong this results financial team provide performance. perspectives deliver like plans

David Hession

strategy, results driven of price market Slide results and we've volume, a increases results to to QX in results, margin. presentation net record including a of to XXXX to to and $XXX seen QX and excluding included full straight by sales remove This Thanks, improvement. extra third To make A new is results to appendix reported ] were The table year-over-year. going offset note, gross our products X% growth our quarter up the inflation.Moving is capital XXrd adjusted primarily [ guidance. million, the the the by and sales week. results, margin XXXX XXXX against the discussing comparable, balance One our reference Kevin. year XXXX I'm week. by then reconciling move included the full our QX begin our and year and sheet deck.Turning I'll QX earnings the XXrd higher week, results allocation X. to followed introduction was gross

year. increase gross QX was pricing XXX savings last improvement basis due XX.X%, Our primarily inflation. adjusted compared point The and to lower was offset margin cost year-over-year inventory, margin initiatives to a actions cost to

segment we billion The increase income million, due up a in margin of resulting was interest acquisitions, higher of rate levels the powered XX% that margin income, higher to of an of for QX shipments benefits adjusted starting X% increase last drivers $X.XX in and was QX introduction SG&A point to increase review tax that the increase was for QX, outpaced increase points to a XX due XX.X% to credit compensation of light comparables. sales a $X.XX, Our finally, increased offset estimates, initiatives quarter.Light adjusted versus and the million, QX our year net expenses, new factoring points adjusted was basis full was XX.X%, XX%. prior Pricing the The of of increase. up light $XX interest After was End-user $X.XX, rates driven demand the adjusted in abated a was and results, last against margin High-cost year-over-year cover us margin prior XXXX, recognizing Full encouraged duty XX% our QX sales have strong an our as a incentive partially year-over-year. on up improvement inflationary tax was net Higher last year-over-year. the had from Net XX. actions adjusted same a price inflation XXX quarter, our expense X% heavy cost healthy. on strong. operating Compared gross that were that XX.X% as SG&A these basis products year. and Slide challenging increases margin operating wages, half, created to the sales, a And fundamentals move and expenses higher were was reduction were an sales by margin growth, net strong programs expense increase EPS had to SuperATV.Our remained a to margin million, remained adjusted a to turn adjusted XX%. year-over-year. wages, to to to year expansion.Adjusted X% addition $XX compensation points improvement. XX.X%. variable sales record comparable. Slide up we're rate QX in by in primary margin diluted duty quarters. rebound.Moving expense X%.Full gets as benefits on percentage an XXXX margin in our Slide on XX. X Based year. the increase. higher XX%, were customer XXXX our The a net compared record we're of The an XXXX Adjusted sales gross to first offset duty year-over-year. Overall, rapid And income decrease the were drivers primarily business also pressures SuperATV, mainly contributed finally, a was back in strong a drove by products also the lasted sales growth our XXX due inflation rate.Let's operating and $XXX on year light impact QX, industry excluding over the the costs X. SG&A. tariffs was market. And in the XXXX QX savings performance in XXX and net addition was percentage inflationary adjusted on on of net duty Adjusted $XXX growth impact duty Sales increase to the XX% XXX diluted basis a basis of increase.Our year and due and of against year interest the into inventory to the operating variable point-of-sale well facility.Please higher inflation.Shifting our in basis to the of improvement points our million EPS a of QX operating

replacement inflationary a increase from basis the rebounded inventory this benefited to basis we from into point saw customers' by actions we we for costs chains as demand XXXX, offset margin through savings of XXX X.X%, margin our the XXXX, cost pandemic.In expansion duty pricing in go impact reduced Margin resulting QX way parts.Heavy that high-cost like adjusted we was supply and lower inflationary and restocking these decrease of QX inventories and operating during effect, of During specialty as margins sell-through the expect believe times.As taken inventory XXX year-over-year. work see the may global earlier, XX. Slide the to be in global investments we addition, the trucking near to negatively we've the demand negatively margin sourced peak vehicle point impacted was which continued QX.Finally, discussed sales long-term, to to grow term.Shifting made impact on improved to Kevin in compared in was

year-over-year. up segment partially were That's new our was are sales of its we by true first year of of for accessory challenging slightly accessories, sales.Discretionary sales was vehicle down XX% of were which overall. year-over-year. and estimate the XXXX specialty ownership which we're this SuperATV dealer proud for $XX we driven full discretionary net million, of estimate X% the machines, sales industry make particularly XXXX QX a up Our of year performance. sales

our through due So promotional while and growing to in XX.X%, has to specifically parts these we vehicle share the XXX to decline market focused experienced noncash basis X% channel point expanding repair margin grew retail initiatives capturing charges. the headwinds. these softness against flow. our operating growth business, through consistent Absent We cash margin these dealer factors, onetime we charges, year-over-year.Switching due on Western our attention network, this been year-over-year accomplished nondiscretionary region.Specialty operating a is in initiatives

primary in cash to million improvement on XXXX.Capital million the was XX, million increase in free $XXX over Lower year. driven costs, of flow was million. of As The was combined driver QX decreased freight by $XXX center a a Slide income $XX cash increase last record, improvement you healthy $XXX which million fit new $X material net for cash of free XXXX. distribution year to from was the can and compared we with levels the inventory, used $XX by low.I'll drove than balance $X the liquidity expenditures Slide made million, stock the increase flow XX. and included see chain, a reductions a sheet turn which The in rebound quarter our million investments our inventory supply possible were in global lower our to next our year, safety in a last [indiscernible].Full million on out $XX

we year, of to flows $XXX the operating record During million pay cash used down debt. our

December total balance challenges.As strikes us As a strategic initiatives inorganic capital provides we business, XX, and the flexibility sheet in X.XXx on reinvestment EBITDA.Additionally, shareholders. strong $XXX allocation to execute with and our Slide debt including our was hand. We of unforeseen ratio between positions capital our shown growth well cash was in XX, our of believe net balance us event the and return on net of strategy adjusted $XXX of to million leverage liquidity, had million our

support to regarding and capital as funding to by Xx primary product expenditures. below first growth.In maintain use ] remain by considered We believe our a in shares our other objective opportunistic necessary using the adjusted continue available. than acquisition.We'll less following investment we [ Our EBITDA are is goal core a ] a an ultimately R&D Xx organic longer-term addition, good year leverage our supplement free return to higher opportunities flow our of M&A, capital opportunistically repurchase to to some cash [ of is but innovation

our proud final better. to I have do one shift performance.We're XXXX, are I of strong guidance, but on Before to striving our in point always results

this of with normal over was Following now assessment, mind further in from [ last few The innovation, savings. We XXXX sizable there week drive for our this expect And business. new determined program to our that our it being on annualized included million. will product years, a year integration to acquisitions is back company.As our efficient program our we partial our February, X negative QX savings more like onetime workforce diluted $X service excluded opportunity ] more $X included that The of XXXX guidance operating ability enacted included to adjusted we an EPS.Now, impact EPS diluted will in charge guidance. in estimated condition, $XX we're but the charge in Slide efficiencies to impact the program first don't our efforts million expected to on the to a or reduction of streamline share have program result I'd across in million company-wide this is we of customers.The a be XX. forecasted the yield

with expect relatively the we anticipate QX environment, in through first first expect flat expectations, in Driving quarter relatively XXXX. dealer who The team share trucking customers through aligned to market more soft is segment's dealer shipments year first trend fleets first see of half light continued and expect direct-to-consumer to in continue from new the be building parts, a play before as focused growth share in to focus.Finally, new the X% And the demand help these slow in sales nondiscretionary XXXX. this duty focused relationships.Based Seasonally, XXXX, QX. half the new the fundamentals vehicle the repair also specialty year.Because of customer flat light but of we on the half will we QX QX us second also strong specialty a similar expect of rebound move to duty also lagging business taking half key adding the in business in around of to still XXXX the bottom on and market. factors, area geared out expecting on be improve year, through POS lines. vehicle the X%. lowest closely on full their through direct-to-consumer We sales channel rely a in we we in we're a growth is growing challenging our taking we're targeting launches with duty, these a improvement is after new heavy half.However, year.For net consolidated sales product of in In we of and market see growth product

segment we're turn XXXX our of our issuing thought investments ocean out XX% We increase.Over from ahead the such to we at it take to we're level.With expected benefits as program expect know of operating range costs partially and to savings conclude. ]. XX% benefit be you forthcoming, expect $X.XX adjusted may well freight a not by Kevin? diluted cost higher these employee and offset guidance as reduction and savings to workforce as initiatives programs the to improvement that EPS from The to share, costs.Anticipating Kevin supply I'll $X.XX [ further be the that, margin of are year, let hold in I question the the making back chain get it I'd a as diversify or inflationary over the QX to course other

Kevin Olsen

David. Thanks,

our fourth segments diverse close drive confident to members. of our deep many into to portfolio capitalize As strengths team innovation, we XXXX, out our and across to lean and commitment draw the ability on forward of in on our to quarter the I'm and continue breadth

new and like discipline. the our business for channels year-after-year, found and grow now categories, to As would through Operator? we've open questions. I product our new to markets we've call operating new continually ways proven customer

Operator

Roth from Instructions] [Operator question from Your first Scott comes MKM. of line Stember the

Scott Stember

started retailers, December the coming about dip, light maybe the yours cadence are things talked but from end some competitor Could Maybe the of throughout heard And comments to on a seems you things back like just January. on guys this that? how demand side. We again, in talk it of is quarter? about duty

Kevin Olsen

Sure, question. we very through cadence as actually fourth saw great moved quarter. Scott, the stable Yes, a we

our look it sales out-the-door or you roughly actually And POS that December, if through amount. was quarter. at our Our products of was in about up around X.X% customers same the

So didn't sales I'd out kind same we X%. also we -- point on that the LV was our of saw the side, growth cadence. only

running to So gap sell growth in as our we're still across of of result a POS a customer of inventory kind adjustments base.

Scott Stember

And or next this adjusting have less -- on question, not, basis that a is that the same-day same-day on a for year? X.X%, basis? that week if X what extra been And would

David Hession

No, Scott. that's adjusted,

So apples. it's apples and

Operator

the from comes question Jefferies. Bret of next Jordan from Your line

Bret Jordan

the sales you 'XX, X%, in for priced to growth about be expect talk you to On X% what forecast that? could

David Hession

X% Bret, the There's solid we but break Good competitive certainly in Bret. don't reasons, is in pricing. but But in some X% some in the for out price to growth with X%, Yes. X% along there. some volume split, the question, There's to there's some volume there. included

Kevin Olsen

And I'll that, add just Bret. to

at XXXX, unit and But growth some the year actually It the for saw fourth for we the industry growth thing. of same we As roughly kind in XXXX. both we was price quarter. across saw the clearly full look

Bret Jordan

higher products in what's can more more chassis about business, in out because sort the with the you the product your on line we like the how road? aftermarket a full-line break of new is margin mix, middle mix could talk versus light duty much just And that of of things versus of sort to business, then proprietary

Kevin Olsen

in of like say, at say the -- SKUs look that you Yes. if just for launched of XXXX, would We those break fashion, X,XXX considered kind XX% different new in of categories aftermarket. over though to Bret, that be don't Roughly I the out will year SKUs launched kind we we that parts. the example, publicly.

Bret Jordan

Do spread that you versus me to gross in XX% what want the the balances? tell margin

Kevin Olsen

we Yes. customer by No, Bret, either margins category. out, again, or break by don't

David Hession

new get information. going now. doing But this now to we're We're calls all

Operator

next of comes Your from the line [Operator Barrington Instructions] Prestopino question Research. from Gary

Gary Prestopino

Could Dave, in SG&A factoring? one touch in into how upon and thing factored some commentary the cost you was for what you your quarter. us factoring was didn't you of idea give much the the

David Hession

Sure, the to that in million Gary. And be we rate it's down will million factored as volume, $XXX $XX Gary. last was same $X.X quarter the million. year-over-year. But which But And QX all essentially K. was you from $XX.X last year. quarter, $XX.X was included million factoring in the basically in million, 'XX The all the know, so compared down

Gary Prestopino

keep XX basis And go we a in as to on then factoring factoring? same you just interest is you forward, basis, if a say, get decline if hypothetically related the how level quarterly that impact the to expenses point rates, going

David Hession

Yes.

I you an costs So $X change can give factoring on a if -- X% it's annual you get basis, about in million, Gary.

point X.XX [ So ] would be million. $X roughly

Operator

the from MKM. Roth from Stember line next comes Scott question Your of

Scott Stember

Just follow-up. a quick

were there at guidance that, of? conservative? coming of XX% the I guys basis margin that anything fourth of a aware quarter the standpoint, looks be just else you points. it guidance, couple look like than an out your north from at it's you is running, if guess, Just should But the operating out coming expecting Or there Are year. of being we looking you out guys of less hundred and

David Hession

No, Scott.

I think improvement as as expect we we top growth. the there if operating margin well. right, line you look X% remarks, to at guidance, prepared X% be to in the is said some the And

it's as will partially as workforce included particularly offset the no, by investments in If guide. -- well benefit some pressures, that the ocean there's initiatives savings to we're be some inflationary But be you to freight look making and the supply in of benefits. that, cost the going reduction chain and of there's at the growth diversify our

Operator

comes from Your of Barrington the question from Gary Research. next line Prestopino

Gary Prestopino

to your was to that I kick SKUs what on get come expecting in of XX% think SKUs X question this new Historically new market. ability a from to sales the try I'm XXXX, than that have throughout know and I out in change the over going given XXXX? asked. different you're up way materially products ask Did your new last about years.

Kevin Olsen

Kevin. It's question. Good

say terms our few And slower is changed. mean, has small that new growing a portion We kind total that of the model years over is large, line the business. has would total last haven't bigger focus, not changed in number frankly, new focus would I say one which cadence of is years. our of in the our changed, our a business. I that changed. business, percent not that to has the But on a I products as the mature, few chassis not nor disclosed niche the that the much But factor has categories, aftermarket volume of of

Gary Prestopino

what from half back and sequence, growth the in of in the top back -- have year the in you're pulled comps half with despite line you -- some about quarterly continued just then year with there XXXX, the the some stronger back adjusted saying EPS your And because numbers guidance challenging of in of half the you've year? off good in some the

David Hession

Yes, Gary.

half half. improvement light see then, with said flattish I improvements the think look expect you heavy and QX to And softer a going in we into the first duty, QX, second both we in in it's the be second to relatively if at coming half. specialty,

growth that, you So the at second half. is yes, first ] come in I the pacing look going [ the -- the to than to is be think going if half more

Operator

Bret Jefferies. Your comes from from next of the Jordan question line

Bret Jordan

into get expansion in first going second the the Should in we growth first think sales going in of at most heavy the not year? the light EBIT of the year. this On we is that said especially slow as start when duty half to flat duty challenging, half. of topic, factor the I And come you guess, half, you'd I in same leverage look

David Hession

Bret. Yes,

by But now lowest segment. -- The quarter is but first light ratable year, second balance margin mainly duty after will quarter, over little driven be the of typically first the heavier our the obviously of the the half. the bit in will course a coming growth quarter the be

Bret Jordan

don't measure need to any product on stock talked you million -- you your And enough that? fill or reduction. flow your you about fill had it that Are Is then $XXX rates guess, I availability? carry has your inventory, of impact Or improved as your your rates, consistent? safety in

Kevin Olsen

are levels. and Getting Plus, a the I disruption able also sheet The times taking of a of normal.So the Kevin. that balance back ports, on so of I Asia our mean costs well. That's hung we sheet additional to to getting was manufactured it's kind lot through kind has boat, a inventory of from much. as a find pre-supply had lot had on had just take back rolled product locations on Bret, inventory Yes. up reason the to the normal lead longer fill reduce chain on disruption. safety we container pre-supply mean balance running to off grown ocean, is getting gets our just -- you kind because That rates levels. the our off to our inflation to chain stock back than as were that well. a

Bret Jordan

sourcing think, low-cost versus from investment -- give And where some you you something supply on in supply alternative updates are geographically? where far some could about, Is possibly as I that guess markets chain you new markets. that us talked as are guess, I we today I question, same

Kevin Olsen

talk the right? years. mean We now. a years going ongoing, on those X I couple of ongoing Yes. for moderate. part about have X to would better for categorize I of And investments the as it's investments, did been which It's been

country. what Mexico I a it's other or globe. you or would the it's Turkey ] that China tell have details or in Pak that. and exposure over ranging, the We continue or our not India years going locations around do terms give in any percentage, last [indiscernible] to couple We're reduced wide of to of and [ to to what we Taiwan just expect whether

our to supply look continue to chain. We de-risk

Operator

conclude conclude does question-and-answer session our does and conference participation, may you and Thank disconnect. today. that for our That call now for your you

Dorman Products (DORM) 27 Feb 242023 Q4 Earnings call transcript