Q2 2024 Dorman Products Inc Earnings Call

Speaker Change: Good morning and thank you for standing by. Welcome to the Dorman Products second 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.

Unknown Executive: There are 2024 earnings conference calls. 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.

Operator: This is a 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'd now like to turn the conference over to Alex Whitelam, Dorman's new Vice President of Investor Relations and Risk Management.

Alex Whitelem: I'd now like to turn the conference over to Alex Whitelem, Dorman's new Vice President of Investor Relations and Risk Management. Sir, please go ahead. Thank you. Good morning, everyone. I'm excited to join the team here at Dorman. Looking forward to work with you all.

Alex Whitelam: I'd now like to turn the conference over to Alex Whitelam, Dorman's new Vice President of Investor Relations and Risk Management. Sir, please go ahead.

Alex Whitelem: Welcome to Dorman's second quarter 2024 earnings conference calls. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer and David Hession, Dorman's Chief Financial Officer. Kevin will provide a business update, then David will review the quarterly results, followed by closing remarks from Kevin. After that, we'll open the call for questions.

Alex Whitelam: Thank you. Good morning, everyone. I'm excited to join the team here at Dorman. Looking forward to working with you all.

Alex Whitelam: Thank you. Good morning, everyone. I'm excited to join the team here at Dorman and look forward to working with you all. Welcome to Dorman's second 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 provide a business update, then David will review the quarterly results, followed by closing remarks from Kevin. After that, we'll open the call for questions.

Speaker Change: Welcome to Dorman's second 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 provide a business update, then David will review the quarterly results, followed by closing remarks from Kevin. After that, we'll open the call for questions.

Alex Whitelam: 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 would 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 results to differ materially from those anticipated and described in such forward booklets.

Unknown Executive: 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.

Speaker Change: 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.

Unknown Executive: Before we begin, I would 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 provide 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 results differently from those anticipated and described in such forward-looking statements. We'll also reference certain non-gap measures. Reconciliation 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 impending to this earnings call presentation.

Alex Whitelam: 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 all participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions.

Speaker Change: Before we begin, I would like to remind everyone that our prepared remarks, earnings release, and investor presentation include forward-looking statements within the meaning of federal securities laws.

Speaker Change: 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 results to differ materially from those anticipated and described in such forward-looking statements.

Speaker Change: We'll also reference certain non-GATT measures. Reconciliations of these non-GATT measures to the most directly comparable GATT 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.

Unknown Executive: Both of which can be found in the Investor Relations section of Dorman's website.

Unknown Executive: Finally, during the Q&A portion of today's call, we ask that all participants limit themselves to one question with one follow-up and to rejoin the Q if they have additional questions.

Speaker Change: Finally, during the Q&A portion of today's call, we ask that all 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.

Kevin Olsen: And with that, I'll turn the call over to Kevin. Thanks, Alex. Good morning. Thank you for joining us on our second quarter, 2024 earnings call. Going to begin today with a discussion on the highlights of our quarterly performance, on both a consolidated and a segment basis. I'm also going to spend time discussing some of the exciting investments we've made in our operations over the last few years. To provide you with insight into how Dorman is innovating, not only in product development, across our entire enterprise. Turns to slide three, you were following along with our deck.

Kevin Olsen: Good morning. Thank you for joining us on our second quarter 2024 earnings call. We're going to begin today with a discussion of the highlights of our quarterly performance, on both a consolidated and a segment basis. I'm also going to spend time discussing some of the exciting investments we've made in our operations over the last few years, to provide you with insight into how Dorman is innovating, not only in product development but across our entire enterprise. Turn to slide 3 if you are following along with our deck.

Kevin: Thanks, Alec.

Kevin: Good morning. Thank you for joining us on our second quarter 2024 earnings call.

Kevin: I'm going to begin today with a discussion on the highlights of our quarterly performance on both a consolidated and a segment basis.

Speaker Change: I'm also going to spend time discussing some of the exciting investments we've made in our operations over the last few years to provide you with insight into how Dorman is innovating not only in product development but across our entire enterprise.

Kevin Olsen: The momentum we saw in the first quarter of the year continued through the second quarter, as we delivered another strong set of financial results. Consolidated net sales increased 5% year-over-year to $503 million, and we achieved a 430 basis point improvement in adjusted operating margin. This margin improvement was a result of higher sales volume, continued abatement of inflationary costs, and productivity initiatives that drove costs. Just the Diluted EPS increased by an impressive 65% over the same period last year.

Kevin Olsen: The momentum we saw in the first quarter of the year continued through the second quarter, as we delivered another strong set of financial results. And consolidated net sales increased five percent year over year to five hundred and three million dollars. And we achieved a four hundred and thirty basis point improvement in adjusted operating margin. This margin improvement was a result of higher-sale volume. It continued a statement of inflationary costs and productivity initiatives that drove cost savings. Adjusted due to the EPS increased and oppressive 65 percent from the same period last year. Retast flow of fifty-one million dollars continued our positive trend.

Speaker Change: Turn to slide 3 if you are following along with our deck.

Speaker Change: The momentum we saw in the first quarter of the year continued through the second quarter as we delivered another strong set of financial results.

Speaker Change: Consolidated net sales increased 5% year-over-year to 503 million dollars and we achieved a 430 basis point improvement and adjusted operating margin. This margin improvement was a result of higher sales volume

Speaker Change: The continued abatement of inflationary costs.

Speaker Change: and productivity initiatives that drove cost savings.

Speaker Change: Adjusted diluted EPS increased an impressive 65% over the same period last year.

Kevin Olsen: Free cash flow of $51 million continued our positive trend, and we utilized it to repay $15 million of debt and repurchase $25 million of our shares. Most importantly, our performance through the first half of the year, along with our outlook for the balance of 2024, prompted us to increase our full-year earnings guidance. David will cover this in a moment.

Speaker Change: Free cash flow of 51 million dollars continued our positive trend and we utilized it to repay 15 million dollars of debt and repurchase 25 million dollars of our shares.

Kevin Olsen: And we utilized it to repay fifteen million dollars of debt and repurchase twenty-five million dollars of our shares.

Kevin Olsen: Most importantly, our performance due to the first half of the year, along with our outlook for the balance of twenty twenty-four, prompted us to increase a full year earnings guidance. David will cover this to the moment.

Speaker Change: Most importantly, our performance due the first half of the year, along with our outlook for the balance of 2024, prompted us to increase our full year earnings guidance. David will cover this in a moment.

Kevin Olsen: Moving on to slide four, I'll provide some segment observations. In light duty, we continue to be encouraged by positive overall market trends. In addition to the long-term underlying growth trend in the prime VIO, vehicles age 8 to 13 years, which are in the sweet spot of Dorman's repair profile, vehicle miles traveled grew year over year, and we saw hotter-than-average temperatures across the U.S., which often precede strong periods of vehicle repairs and part sales. POS, sales of Dorman's products by our customers to end users through high single digits in the quarter, and generally was aligned with Dorman's shipments.

Kevin Olsen: Moving on to slide four, I'll provide some segment observations. In light duty, we continue to be encouraged by positive overall market trends. In addition to the long-term underlying growth trend in the prime VIO, vehicles age 8 to 13 years, which are in the sweet spot of Dorman's repair program. Vehicle miles traveled grew year over year, and we saw hotter than average temperatures across the U.S., which often precede strong periods of vehicle repairs and parts sales.

David: Moving on to slide four, I'll provide some segment observations.

David: In light duty, we continue to be encouraged by positive overall market trends.

David: In addition to the long-term underlying growth trend in the prime VIO vehicles aged 8 to 13 years which are in the sweet spot of Dorman's repair profile

David: Vehicle miles traveled grew year-over-year and we saw hotter than average temperatures across the U.S. which often precedes strong periods of vehicle repairs and part sales.

Kevin Olsen: POS, sales of Dorman's products by our customers to end users, grew high single digits in the quarter and generally was aligned with Dorman's shift. Excitingly, a large customer made the decision to transition a majority of spend from private label to Dorman-branded packaging because they recognize the immense value that end customers place on our brand. We see this as a validation of the investments we've continued to make in innovation, in the quality of our products, and in the market's awareness of the benefits that Dorman brings.

David: POS, sales of Dorman's products by our customers to end-users, grew high single digits in the quarter and generally was aligned with Dorman shipments.

Kevin Olsen: Excitingly, a large customer made the decision to transition a majority of spend from private label to Dorman branded packaging, because they recognize the immense value that end customers place on our brand. We see this as a validation of the investments we've continued to make in innovation, in the quality of our products, and in the market's awareness of the benefits that Dorman brings. Additionally, our light duty business continues to drive significant value to its innovation strategy. During the quarter, we deployed hundreds of new products, including a number of new to the aftermarket parts. One good example from the complex electronics portfolio was the keyless entry keypad.

David: Excitingly, a large customer made the decision to transition a majority of spend from private label to Dorman branded packaging.

David: because they recognize the immense value that end customers place on our brand.

David: We see this as a validation of the investments we've continued to make in innovation, in the quality of our products, and in the market's awareness of the benefits that Dorman brings. Additionally, our light-duty business continues to drive significant value through its innovation strategy.

Kevin Olsen: Additionally, our light-duty business continues to drive significant value through its innovation strategy. During the quarter, we deployed hundreds of new products, including a number of new-to-the-aftermarket parts. One good example from the Complex Electronics portfolio was the Keyless Entry Keypad. This component is designed to match the fit, function, and performance of the original exterior keypad.

David: During the quarter, we deployed hundreds of new products, including a number of new-to-the-aftermarket parts.

Speaker Change: One good example from the Complex Electronics portfolio was the Keyless Entry Keypad. This component is designed to match the fit, function, and performance of the original exterior keypad.

Kevin Olsen: This component is designed to match the fit function and performance of the original exterior keypad.

Kevin Olsen: Finally, we took several critical steps in our continued DC automation journey that I'll discuss in a bit. Turning to heavy duty, the freight industry continued to be challenged. We're expecting this sector softness to remain through the rest of the year, with few signs that we'll see an improvement before early 2025. Sequentially, however, for the second straight quarter, heavy-duty sales performance was better than the prior quarter. In terms of initiatives, our execution on the new to the aftermarket playbook and heavy duty is showing strong traction. Our new product development team continues to ramp up its exclusive product releases.

Kevin Olsen: Finally, we took several critical steps in our continued DC automation journey that I'll discuss in a bit, from Ring to Heavy Duty. The freight industry continues to be challenged. We're expecting this sector softness to remain through the rest of the year with few signs that we'll see an improvement before early 2025.

Speaker Change: Finally, we took several critical steps in our continued DC automation journey that I'll discuss in a bit.

Speaker Change: Turning to heavy duty. The freight industry continued to be challenged. We're expecting this sector softness to remain through the rest of the year with few signs that we'll see an improvement before early 2025.

Kevin Olsen: Subsequently, however, for the second straight quarter, Heavy-duty sales performance was better than the prior quarter. In terms of initiatives, our execution on the new-to-the-aftermarket playbook in heavy duty is showing strong traction. Our new product development team continues to ramp up. A recent product launch that exemplifies this is our Diesel Particulate Filter Muffler Housing Kit, which is a product new to the HD aftermarket and conveniently provides a complete repair kit with all required parts and gas.

Speaker Change: Sequentially, however, for the second straight quarter, heavy-duty sales performance was better than the prior quarter. In terms of initiatives, our execution on the new-to-the-aftermarket playbook in heavy duty is showing strong traction.

Speaker Change: Our new product development team continues to ramp up.

Kevin Olsen: A recent product launch that exemplifies this is our diesel particulate filter muffler housing kit, which is a product new to the HD aftermarket and conveniently provides a complete repair kit with all required plants and gaskets. Also, during the quarter, we launched an improved new product commercialization process in our heavy duty business that will allow our customers to deploy the benefits of dormant innovations quickly and broadly through their customer bases, helping our customers grow new product sales and driving growth for dormant.

Speaker Change: It's exclusive product releases.

Speaker Change: A recent product launch that exemplifies this is our diesel particulate filter muffler housing kit, which is a product new to the HD aftermarket and conveniently provides a complete repair kit with all required clamps and gaskets.

Kevin Olsen: Also, during the quarter, we launched an improved new product commercialization process in our heavy-duty business that will allow our customers to deploy the benefits of Dorman's innovations quickly and broadly across their customer base, helping our customers grow new product sales and driving growth for Dorman. Finally, in Specialty Vehicle, we're focused on gaining share in a sector that continues to face headwinds. Our strategy of driving growth from new dealers has increased sales year-on-year in this channel.

Speaker Change: Also during the quarter we launched an improved new product commercialization process in our heavy-duty business.

Speaker Change: that will allow our customers to deploy the benefits of Dorman's innovations quickly and broadly through their customer bases.

Speaker Change: helping our customers grow new product sales and driving growth for Dorman.

Kevin Olsen: Finally, in specialty vehicle, we're focused on gaining share in a sector that continues to face headwinds. Our strategy of driving growth from new dealers has increased sales year-on-year in this channel. Similar to our other two segments, new product development, particularly in non-discussionary categories, has also quickly become a reliable source of growth in the specialty vehicle business. On the new product front, we added hundreds of new products into the market during the quarter. An exciting recent launch was a Super ATV Black Ops right-fit winch, which includes machine-fitted mounts and all wiring pre-installed. For customers or dealers, this cuts down the installation time from 3 hours to just 30 minutes.

Speaker Change: Finally, in specialty vehicle, we're focused on gaining share in a sector that continues to face headwinds.

Speaker Change: Our strategy of driving growth from new dealers has increased sales year-on-year in this channel.

Kevin Olsen: Similar to our other two segments, new product development, particularly in non-discretionary categories, has also quickly become a reliable source of growth in the specialty vehicle business. On the new product front, we added hundreds of new products to the market during the quarter. An exciting recent launch was the Super ATV Black Ops Ready Fit Winch, which includes machined fitted mounts and all wiring pre-installed.

Speaker Change: Similar to our other two segments, new product development, particularly in non-discretionary categories, has also quickly become a reliable source of growth in the specialty vehicle business.

Speaker Change: On the new product front, we added hundreds of new products into the market during the quarter.

Speaker Change: An exciting recent launch was the Super ATV Black Ops Ready Fit winch, which includes machine fitted mounts and all wiring pre-installed.

Kevin Olsen: For customers or dealers, this cuts down the installation time from three hours to just 30 minutes. Additionally, in the quarter, we saw productivity initiatives that drove margin improvement. We remain confident that demand for new vehicles, accessories, and repair parts will rebound once customers become comfortable as volatility and inflation in the overall economy level out. We believe we are beginning to see light at the end of the tunnel. Specialty Vehicle Manufacturers are signaling that inventory destocking efforts at dealers are nearly complete.

Speaker Change: For customers or dealers, this cuts down the installation time from 3 hours to just 30 minutes.

Kevin Olsen: Additionally, in the quarter, we saw productivity initiatives that drove a margin improvement. We remain confident that demand for new vehicles, accessories, and repair parts will rebound. Once customers become comfortable, as volatility and inflation in the overall economy levels out. We believe we are beginning to see light at the end of the tunnel, with specialty vehicle manufacturers signaling that inventory destocking efforts at dealers are nearly complete. This suggests that wholesale shipments to dealers are coming back in line; the retail sales to customers with current inventory stock levels back to pre-COVID levels.

Speaker Change: Additionally in the quarter, we saw productivity initiatives that drove margin improvement.

Speaker Change: We remain confident that demand for new vehicles, accessories, and repair parts will rebound once customers become comfortable as volatility and inflation in the overall economy levels out. We believe we are beginning to see light at the end of the tunnel.

Speaker Change: with specialty vehicle manufacturers signaling that inventory de-stocking efforts at dealers are nearly complete.

Speaker Change: This suggests that wholesale shipments to dealers are coming back in line with retail sales to customers with current inventory stock levels back to pre-COVID levels.

Kevin Olsen: Next, as I mentioned in my opening remarks, I'm excited to share with you how we're deploying innovation, not only in new product development, but across our entire enterprise. In late 2020, we undertook a strategic review of our operations footprint. With the goal of ensuring that our assets and capabilities were aligned with the ambitious commercial growth plans that we had set. We recognized that our business was becoming more complex as customer volume and service level demands were growing. This required excellence in multiple modes of operations fulfillment in order to continue serving our customers at a level that they rightfully demand.

Kevin Olsen: This suggests that wholesale shipments to dealers are coming back in line with retail sales to customers, with current inventory levels back to pre-COVID levels. Next, as I mentioned in my opening remarks, I'm excited to share with you how we're deploying innovation, not only in new product development but across our entire enterprise. In late 2020, we undertook a strategic review of our operations footprint with the goal of ensuring that our assets and capabilities were aligned with the ambitious commercial growth plans that we had set.

Speaker Change: Next, as I mentioned in my opening remarks, I'm excited to share with you how we're deploying innovation, not only in new product development, but across our entire enterprise.

Speaker Change: In late 2020, we undertook a strategic review of our operations footprint.

Speaker Change: with the goal of ensuring that our assets and capabilities were aligned with the ambitious commercial growth plans that we had set.

Kevin Olsen: We recognize that our business is becoming more complex; customer volume and service level demands are growing. This requires excellence in multiple modes of operations fulfillment in order to continue serving our customers at a level that they rightfully demand. It quickly became clear that our old ways of operating were not sustainable in this new environment and that without innovation, we would be facing space and labor constraints that could curtail our ability to scale and grow.

Speaker Change: We recognize that our business was becoming more complex as customer volume and service level demands were growing. This required excellence in multiple modes of operations fulfillment in order to continue serving our customers at a level that they rightfully demand.

Kevin Olsen: It quickly became clear that our old ways of operating were not sustainable in this new environment, and that without innovation, we would be facing space and labor constraints that could entail our ability to scale and grow. We decided that we needed to evaluate implementing best-in-class capabilities and automation to maintain our operations' ability to execute our commercial growth.

Speaker Change: It quickly became clear that our old ways of operating were not sustainable in this new environment.

Speaker Change: and that without innovation we would be facing space and labor constraints that could curtail our ability to scale and grow.

Speaker Change: We decided that we needed to evaluate implementing best-in-class capabilities and automation to maintain our operations ability to execute our commercial growth.

Kevin Olsen: We decided that we needed to evaluate implementing best-in-class capabilities in automation to maintain our operations ability to support our commercial growth. Turning to slide 6, I'll discuss some of the solutions that we've implemented. First, let me say that two of our largest warehouses in Portland, Tennessee, and Warsaw, Kentucky, have been transformed in terms of how the flow and processes of the sites have been organized and optimized. I'm truly proud of our operations, contributors, creativity, reimagining their process, and their endorsement of what could have been a threatening set of changes in their alignment with and receptivity of their reimagined workforce.

Kevin Olsen: Turning to slide six, I'll discuss some of the solutions that we've implemented. First, let me say that two of our largest warehouses in Portland, Tennessee, and in Warsaw, Kentucky, have been transformed in terms of how the flow and processes of the site have been organized and optimized. I'm truly proud of our operations, contributors, creativity, reimagining their processes, their endorsement of what could have been a threatening set of changes in their alignment with and receptivity of their reimagined workflow. They embrace these investments as a force multiplier, allowing them to do their job more quickly, accurately, and safely.

Speaker Change: Turning to slide 6, I'll discuss some of the solutions that we've implemented.

Speaker Change: First, let me say that two of our largest warehouses in Portland, Tennessee and Warsaw, Kentucky have been transformed in terms of how the flow and processes of the sites have been organized and optimized.

Speaker Change: I'm truly proud of our operations contributors' creativity and reimagining their processes.

Speaker Change: their endorsement of what could have been a threatening set of changes, their alignment with and receptivity of their reimagined workflow.

Kevin Olsen: They embrace these investments as a force multiplier, allowing them to do their job more quickly, accurately, and safely. For example, we have deployed a fleet of autonomous mobile robots to reduce the time our workers spend traveling through our countless rows of products. These AMRs are on track to complete 200,000 miles of travel, with each mile representing approximately 15 minutes of labor that can now be applied by our contributors to higher function tasks. We have also deployed a set of vertical lift modules that operate like massive parts vending machines.

Speaker Change: They embrace these investments as a force multiplier, allowing them to do their job more quickly, accurately, and safely.

Kevin Olsen: We have deployed a fleet of autonomous mobile robots to reduce the time our contributors spend traveling through our countless rows of products. These AMRs are in track to complete 200,000 miles of travel this year, but each mile representing approximately 15 minutes of labor that can now be applied by our contributors to higher function tasks. We've also deployed a set of vertical lift modules to operate like massive parts vending machines. These machines substantially reduced our park storage footprint requirements, and also improved fixed cycle times by approximately 38%. may be most exciting. We're in the process of implementing a state-of-the-art warehouse execution system software package.

Speaker Change: We have deployed a fleet of autonomous mobile robots to reduce the time our contributors spend traveling through our countless rows of products. These AMRs are on track to complete 200,000 miles of travel this year.

Speaker Change: with each mile representing approximately 15 minutes of labor that can now be applied

Speaker Change: by our contributors to higher function tasks.

Speaker Change: We have also deployed a set of vertical lift modules that operate like massive parts vending machines. These machines substantially reduce our parts storage footprint requirements and also improve pick cycle times by approximately 38%.

Kevin Olsen: These machines substantially reduce our parts storage footprint requirements and also improve pick cycle times by approximately 38%. Maybe most exciting, we're in the process of implementing a state-of-the-art warehouse execution system software package. It ties all of our investments together, allowing us to combine both automation equipment and people seamlessly, and is expected to provide the scalability and flexibility to grow and manage our increasingly complex business going forward. All told, we've invested $14 million in capital and three years of research, design, and implementation of these systems to provide our warehouse workers and customers with substantial benefits.

Speaker Change: Maybe most exciting, we're in the process of implementing a state-of-the-art warehouse execution system software package.

Kevin Olsen: It ties all of our investments together, allowing us to combine both automation equipment and people seamlessly and is expected to provide the scalability, inflexibility to grow and manage our increasingly complex business going forward. All told, we've invested 14 million in capital and three years of research, design, and implementation of these systems. We provide our warehouse contributors and customers with substantial benefits. Once fully utilized and optimized, we expect these projects will yield an annualized net savings of approximately $8 million and provide operational efficiency benefits to Dorman far into the future. While today, we're in the early innings with these projects, we're already seeing modest savings improvements compared to last year, as light through these Q2 total operations expense as a percentage of net sales was 80 basis points lower than last year.

Speaker Change: It ties all of our investments together, allowing us to combine both automation equipment and people seamlessly.

Speaker Change: and is expected to provide the scalability and flexibility to grow and manage our increasingly complex business going forward.

Speaker Change: All told, we've invested $14 million in capital and three years of research, design, and implementation of these systems.

Kevin Olsen: Once fully utilized and optimized, we expect these projects will yield an annualized net savings of approximately $8 million and provide operational efficiency benefits to Dorman far into the future. However, today, we're in the early innings with these projects. We're already seeing modest savings improvements compared to last year, as LightDuty's Q2 total operations expense as a percentage of net sales was 80 basis points lower than last year. The team is working hard to continue integrating these systems. We expect to accelerate the savings over time. Now I'll hand off to David to review our Q2 financial performance.

Speaker Change: to provide our warehouse contributors and customers with substantial benefits.

Speaker Change: Once fully utilized and optimized, we expect these projects will yield an annualized net savings of approximately $8 million and provide operational efficiency benefits to Dorman far into the future.

Speaker Change: While today, we're in the early innings with these projects.

Speaker Change: We're already seeing modest savings improvements compared to last year, as LightDuty's Q2 total operations expense as a percentage of net sales was 80 basis points lower than last year.

Kevin Olsen: The team is working hard to continue integrating these systems, and we expect to accelerate the savings over time.

Speaker Change: The team is working hard to continue integrating these systems.

David Hession: Now, we'll hand off to David to review our Q2 financial performance. Thanks, Gavin. Turning to slide 7. Q2 consolidated net sales for $503 million, a 5% year over year. This growth was driven by increased demand in our light-duty segments, putting higher sales with new products. Partially offsetting this growth, the soft market conditions that continue to impact our heavy-duty and specialty vehicle business all side deeper into each of the segments in just a moment. Adjust the growth margin for the quarter was 39.6% to 450 basis point increase compared to last year. The year-over-year margin improvement was driven by the easing of inflationary pressures across the businesses, the favorable cost saving initiatives, including the ones that Kevin discussed.

Speaker Change: and we expect to accelerate the savings over time.

David Hession: Thanks, Kevin. Turning to slide 7, Q2 consolidated net sales of $503 million, 5% year-over-year. This growth was driven by increased demand in our light-duty segment, including higher sales of new products, partially offsetting this growth with soft market conditions that continue to impact our heavy-duty and specialty vehicle business. I'll dive deeper into each of the segments in just a moment.

Speaker Change: Now I'll hand off to David to review our Q2 financial performance.

David: Thanks Kevin. Turning to slide 7. Q2 consolidated net sales for 503 million dollars of 5% year-over-year.

David: This growth was driven by increased demand in our light-duty segment, including higher sales of new products.

David: Partially offsetting this growth is the soft market conditions that continue to impact our heavy-duty and specialty vehicle business.

David Hession: The adjusted gross margin for the quarter was 39.6%, a 450 basis point increase compared to last year. The year-over-year margin improvement was driven by the easing of inflationary pressures across the business and favorable cost-savings initiatives, including the ones that Kevin described. Adjusted SG&A Expenses, 24% of net sales, relatively flat compared to the same period last year; adjusted operating income was $79 million in the quarter, a 45% increase from the same period last year.

David: I'll dive deeper into each of the segments in just a moment.

David: Adjusted gross margin for the quarter was 39.6%.

David: 450 basis point increase compared to last year.

David: The year-over-year margin improvement was driven by the easing of inflationary pressures across the businesses.

David: and favorable cost savings initiatives including the ones that Kevin discussed.

David Hession: Adjusted SG&A expense was 24% of net sales, relatively flat compared to the same period last year. Adjusted operating income was $79 million in the quarter, a 45% increase from the same period last year. Adjusted operating margin was 15.6%, up 430 basis points year-over-year, primarily due to the improvement in gross margin. And finally, adjusted diluted DPS and Q2 was $1.67 in price, a 65% increase versus last year. The growth was mainly due to the increase in adjusted operating income, coupled with lower interest expense and share count reduction, partially offset by a higher tax rate.

David: Adjusted SG&A expense was 24% of net sales, relatively flat compared to the same period last year.

Speaker Change: Adjusted operating income was $79 million in the quarter, a 45% increase from the same period last year.

David Hession: The adjusted operating margin was 15.6%, 430 basis points year over year, primarily due to the improvement in gross margin. And finally, Adjusted Diluted EPS in Q2 was $1.67, an impressive 65% increase versus last year. The growth was mainly due to the increase in adjusted operating income, coupled with lower interest expense and share count reduction, partially offset by a higher tax rate.

Speaker Change: Adjusted operating margin was 15.6 percent, up 430 basis points year over year, primarily due to the improvement in gross margin.

Speaker Change: And finally, adjusted diluted EPS in Q2 was $1.67, an impressive 65% increase versus last year.

Speaker Change: The growth was mainly due to the increase in adjusted operating income, coupled with lower interest expense and share count reduction, partially offset by a higher tax rate.

David Hession: Next, let me provide updates on the quarter for each of our business segments. Starting with light duty on slide 8. Q2 light duty net sales were $385 million, a 9% increase year-over-year. Shipments were generally aligned with customer POS during the quarter, throwing high single. Our new products continue to drive meaningful sales for the second. Lake Doody operating margin was 17.1% in Q2, a 550 basis point improvement year over year. As with the overall business, lower cost inventory and cost saving initiatives continued to improve margins for the Lake Doody second.

David Hession: Next, let me provide updates on the quarter for each of our business sectors, starting with light duty on slide 18. Q2 light duty net sales were $385 million, a 9% increase year-over-year. Shipments were generally aligned with customer POS during the quarter, growing in high single digits.

Speaker Change: Next, let me provide updates on the quarter for each of our business segments.

Speaker Change: Starting with light duty on slide 8.

Speaker Change: Q2 light-duty net sales were $385 million, a 9% increase year-over-year.

Speaker Change: Shipments were generally aligned with customer POS during the quarter, growing high single digits.

David Hession: Our new products continue to drive meaningful sales for this segment. Late duty operating margin was 17.1% in Q2, a 550 basis point improvement year over year.

Speaker Change: Our new products continue to drive meaningful sales for this segment.

Speaker Change: Late duty operating margin was 17.1% in Q2, a 550 basis point improvement year over year.

David Hession: As with the overall business, lower-cost inventory and cost-saving initiatives continue to improve margins for the light-duty sector. Moving on to heavy duty, on slide 9, net sales were $61 million in Q2, down 11% compared to last year. Like last quarter, Q2 was up against a strong prior year comparable as the COVID-driven inventory restocking peaked in the second quarter of 2023. We are encouraged that the heavy-duty business has again managed to drive sequential quarterly-over-quarter net sales growth in this environment, partially attributable to the investments we've made in new product development for HD. Operating margin for heavy duty was 4.4%, down 50 basis points from last year's second quarter but up 440 basis points sequentially.

Speaker Change: As with the overall business, lower-cost inventory and cost-saving initiatives continue to improve margins for the light-duty segment.

David Hession: Moving on to heavy duty on slide 9, net sales were $61 million in Q2, down 11% compared to last year. Like last quarter, Q2 was up against a strong prior year comparable as the COVID-driven inventory restocking peak in the second quarter of 2023. We are encouraged that the heavy duty business has again managed to drive sequential quarter-over-quarter net sales growth in this environment, partially attributable to the investments we've made in new product development for HD. Operating margin for heavy duty was 4.4%, down 50 basis points from last year's second quarter, but up 440 basis points sequentially.

Speaker Change: Moving on to heavy duty on slide 9, net sales were 61 million dollars in Q2, down 11% compared to last year.

Speaker Change: Like last quarter, Q2 was up against a strong prior year comparable as the COVID-driven inventory restocking peaked in the second quarter of 2023.

Speaker Change: We are encouraged that the heavy-duty business has again managed to drive sequential quarter-over-quarter net sales growth in this environment, partially attributable to the investments we've made in new product development for HD.

Speaker Change: Operating margin for heavy duty was 4.4 percent, down 50 basis points from last year's second quarter, but up 440 basis points sequentially.

David Hession: Any duties margin was impacted by the de-levering of fixed costs on lower net sales volumes in the investments we have made to drive top and bottom line growth over the long term. The sequential improvement in net sales and operating margin are encouraging signs that the team is driving improvements in the business in a challenging market environment.

David Hession: Heavy duty's margin was impacted by the de-levering of fixed costs on lower net sales volumes and the investments we have made to drive top and bottom line growth over the long term. However, sequential improvement in net sales and operating margin are encouraging signs that the team is driving improvements in the business in a challenging market environment. Moving to specialty vehicles on slide 10, our Q2 net sales were $56 million, a 2% decrease compared to last year.

Speaker Change: Heavy duty's margin was impacted by the de-levering of fixed costs on lower net sales volumes and the investments we have made to drive top and bottom line growth over the long term.

Speaker Change: Sequential improvement in net sales and operating margin are encouraging signs that the team is driving improvements in the business in a challenging market environment.

David Hession: Shifting the specialty vehicles on slide 10 are Q2 net sales were $56 million, a 2% decrease compared to last year. Similar to last quarter, we continue to see higher financing rates and general economic uncertainty creating demand headwinds for the sector. With that said, we believe that business continues to capture share as our sales outpace the estimated mid-single-digit sector decline. As we mentioned in our last call, we remain confident in the long term opportunity for the specialty vehicle part as alternative transport vehicles continue to generate strong enthusiasm. So, we believe this is a temporary challenge. Despite slightly lower sales year over year, specialty vehicles are living in solid margin growth.

Speaker Change: Shifting to specialty vehicles on slide 10, our Q2 net sales were $56 million, a 2% decrease compared to last year.

David Hession: Similar to last quarter, we continue to see higher financing rates and general economic uncertainty creating demand headwinds for the sector. With that said, we believe the business continues to capture share as our sales outpace the estimated mid-single-digit sector decline. As we mentioned in our last call, we remain confident in the long-term opportunity for the specialty vehicle park, as alternative transport vehicles continue to generate strong enthusiasm, so we believe this is a temporary challenge.

Speaker Change: Similar to last quarter, we continue to see higher financing rates and general economic uncertainty creating demand headwinds for the sector.

Speaker Change: With that said, we believe the business continues to capture share as our sales outpace the estimated mid-single-digit sector decline.

Speaker Change: As we mentioned in our last call, we remain confident in the long-term opportunity for the specialty vehicle part as alternative transport vehicles continue to generate strong enthusiasm, so we believe this is a temporary challenge.

David Hession: Despite slightly lower sales year over year, Specialty Vehicles delivers solid margin growth. Q2 operating margin for the business was 17.8%, a 100 basis point increase over the same period last year, driven primarily by cost-savings initiatives. Turning to slide 11, let me take a moment to discuss our cash. Free cash flow was a healthy $51 million in the quarter.

Speaker Change: Despite slightly lower sales year-over-year, Specialty Vehicles delivers solid margin growth.

David Hession: Q2 operating margin for the business was 17.8% in 100 basis point increase over the same period last year, driven primarily by cost savings emissions.

Speaker Change: Q2 operating margin for the business was 17.8%, a 100 basis point increase over the same period last year, driven primarily by cost savings initiatives.

David Hession: Turn to slide 11. Let me take a moment to cover our cash flow. Free cash flow was a healthy $51 million in the quarter. While free cash flow was down 5% compared to last year, this was partially due to cash use for inventory in 2024 versus cash provided in 2023 from significant inventory reduction, offset partially by higher net income. In line with our capital allocation strategy, we consistent with the last several quarters, we invested $12 million in capital expenditures during Q2. We also repaid $15 million on our credit facility and returned $25 million to shareholders with repurchase of $272,000 shares at an average price of $91.

Speaker Change: Turning to slide 11, let me take a moment to cover our cash flow.

David Hession: While free cash flow is down 5% compared to last year, this was partially due to cash use for inventory in 2024 versus cash provided in 2023 from a significant inventory reduction offset partially by higher net income. In line with our capital allocation strategy and consistent with the last several quarters, we invested $12 million in capital expenditures during Q2. We also repaid $15 million on our credit facility and returned $25 million to shareholders through the repurchase of 272,000 shares at an average price of $91 per share. I'll turn next to our balance sheet and liquidity on slide 12. As of June 29, the net debt was $500 million, a reduction of $28 million from Q1.

Speaker Change: Free cash flow is a healthy $51 million in the quarter.

Speaker Change: While free cash flow was down 5% compared to last year, this was partially due to cash use for inventory in 2024 versus cash provided in 2023 from significant inventory reduction offset partially by higher net income.

Speaker Change: In line with our capital allocation strategy, and consistent with the last several quarters, we invested $12 million in capital expenditures during Q2.

Speaker Change: We also repaid $15 million on our credit facility and returned $25 million to shareholders through the repurchase of 272,000 shares at an average price of $91 per share.

David Hession: for Share.

David Hession: I'll turn next to our balance sheet and liquidity on Slide 12. As of June 29, the net debt was $500 million, a reduction of $28 million from Q1. Our net leverage ratio was 1.44 times adjusted to EBITDA, down from 1.61 times in the first quarter of 2024, and 1.87 times at the end of last year. Our current leverage is comfortably below our long-term target ceiling, with two times or less than three times in the first year following an acquisition. Additionally, we had $576 million of total liquidity, including cash on hand. The remaining continent and the strength of our balance sheet and the capacity we have available to execute our strategic condition.

Speaker Change: I'll turn next to our balance sheet and liquidity on slide 12.

Speaker Change: As of June 29, the net debt was $500 million, a reduction of $28 million from Q1.

David Hession: Our net leverage ratio was 1.44 times adjusted EBITDA, down from 1.61 times adjusted EBITDA in the first quarter of 2024 and 1.87 times at the end of last year. Our current leverage is comfortably below our long-term target ceiling of two times or less than three times in the first year following an acquisition. Additionally, we have $576 million of total liquidity, including cash on hand.

Speaker Change: Our net leverage ratio was 1.44 times adjusted EBITDA down from 1.61 times adjusted EBITDA.

Speaker Change: in the first quarter of 2024 and 1.87 times at the end of last year.

Speaker Change: Our current leverage is comfortably below our long-term target ceiling of two times or less than three times in the first year following an acquisition.

Speaker Change: Additionally, we add $576 million of total liquidity, including cash on hand.

David Hession: We remain confident in the strength of our balance sheet and the capacity we have available to execute our strategic initiatives. Now, I'd like to discuss our updated guidance for 2024, which is included on slide 13. As I mentioned, light-duty shipments generally were aligned with customer POS throughout the second quarter, and our guidance assumes that the two remain in sync throughout the balance of the year. Favorable market conditions are expected to continue in the second half, with light-duty sales growth consistent with our first-half results.

Speaker Change: We remain confident in the strength of our balance sheet and the capacity we have available to execute our strategic initiative.

David Hession: Now, I'd like to discuss our updated guidance for 2024 included on slide 13. As I mentioned, light duty shipments generally were aligned with customer POS throughout the second quarter, and our guidance assumes that the two remain in sync throughout the balance of the year. Favital market conditions are expected to continue in the second half, with light duty sales growth consistent with our first half results. Our heavy-duty business continues to be negatively impacted by a soft trucking market. We expect this softness to continue to the balance of 2024. And finally, specialty vehicles and markets continue to face challenges.

Speaker Change: Now I'd like to discuss our updated guidance for 2024 included on slide 13.

Speaker Change: As I mentioned, light-duty shipments generally were aligned with customer POS throughout the second quarter, and our guidance assumes that the two remain in sync throughout the balance of the year.

Speaker Change: Available market conditions are expected to continue in the second half.

David Hession: Our heavy duty business continues to be negatively impacted by a soft trucking market, and we expect this softness to continue through the balance of 2024. And finally, specialty vehicles and markets continue to face challenges. We expect the team to continue to focus on taking share for new product launches geared around non-discretionary repair parts, adding new direct-to-consumer customers, and building new dealer relations. As a result, we expect specialty vehicle sales to be flat to slightly higher in the second half.

Speaker Change: with light-duty sales growth consistent with our first half results.

Speaker Change: Our heavy-duty business continues to be negatively impacted by a soft trucking market. We expect this softness to continue through the balance of 2024.

David Hession: But we expect the team to continue to focus on taking share, the new product launches geared around non-desessionary repair parts and a new direct-to-consumer customers and building new dealer relationship. As a result, we expect specialty vehicles sales to be flat to slightly higher in the second half.

Speaker Change: And finally, specialty vehicles and markets continue to face challenges.

Speaker Change: We expect the team to continue to focus on taking share through new product launches geared around non-discretionary repair parts, adding new direct-to-consumer customers, and building new dealer relationships.

Speaker Change: As a result, we expect specialty sales to be flat to slightly higher in the second half.

David Hession: Based on these expectations, we are confirming our consolidated full-year net sales growth guidance of 3 to 5%. We are raising our 2024 adjusted-dividend EPS guidance range $6 to $6.20, representing the 32 to 37% increase over the prior year. As we have discussed previously, we've made significant investments in productivity initiatives over the past several years. These efforts drove higher cost savings than we anticipated in the second quarter, which we expect to continue in the second half of the year. Our earnings guidance was also updated to reflect the impact and shares repurchased in the first half of the year.

David Hession: Based on these expectations, we are confirming our consolidated full-year net sales growth guidance of 3 to 5 percent. Additionally, we are raising our 2024 Adjusted Diluted EPS guidance. $6.00 to $6.20, representing a 32 to 37% increase over the prior year. As we have discussed previously, we have made significant investments in productivity initiatives over the past several years. These efforts drove higher cost savings than we anticipated in the second quarter, which we expect to continue in the second half of the year. Our earnings guidance was also updated to reflect the impact of shares repurchased in the first half of the year.

Speaker Change: Based on these expectations, we are confirming our consolidated full-year net sales growth guidance of 3 to 5 percent.

Speaker Change: We are raising our 2024 Adjusted Diluted EPS Guidance Range.

Speaker Change: $6.00 to $6.20.

Speaker Change: representing a 32 to 37 percent increase over the prior year.

Speaker Change: As we have discussed previously, we've made significant investments in productivity initiatives over the past several years. These efforts drove higher cost savings than we anticipated in the second quarter, which we expect to continue in the second half of the year.

Speaker Change: Our earnings guidance was also updated to reflect the impact of shares repurchased in the first half of the year.

Kevin Olsen: With that, I'll turn it back over to Kevin to conclude. Kevin? Thanks, David. We're proud of our second quarter and year-to-date results. Our strong first half results and positive outlook for our combined businesses through the balance of 2024 provided us with the confidence to raise our full-year earnings guidance. Our teams and specialty vehicles and heavy-duty businesses have done an abl of job navigating market headwinds. Our light-duty team continues to drive up market growth.

Kevin Olsen: With that, I'll turn it back over to Kevin to conclude. Kevin? Thanks, David.

Speaker Change: With that, I'll turn it back over to Kevin to conclude. Kevin? Thanks, David.

Kevin Olsen: We're proud of our second quarter and year-to-date results. Our strong first half results and positive outlook for our combined businesses through the balance of 2024 have provided us with the confidence to raise our full year earnings guide.

Kevin: We're proud of our second quarter and year-to-date results.

Speaker Change: Our strong first half results and positive outlook for our combined businesses through the balance of 2024 provided us with the confidence to raise our full year earnings guidance.

Kevin Olsen: Our teams in the specialty vehicle and heavy-duty businesses have done an admirable job navigating market headwinds, while the light duty team continues to drive up market growth. We remain committed to investing for the future and capitalizing on our innovation strategy to develop new product solutions that allow our customers to succeed. This includes continuing to invest in automation capabilities in our operations to meet our customers' service level requirements and for our internal growth objective.

Speaker Change: Our teams in the specialty vehicle and heavy-duty businesses have done an admirable job navigating market headwinds.

Kevin Olsen: We remain committed to investing for the future and capitalizing on our innovation strategy to develop new product solutions to allow our customers to succeed. This includes continuing to invest in automation, capabilities, and our operations to meet our customers' service level requirements and support our internal growth objectives. The confidence in our growth and innovation strategy, coupled with the dedication and hard work of our contributors, will enable us to continue driving momentum for our customers and other stakeholders.

Speaker Change: on a light-duty team continues to drive up market growth.

Speaker Change: We remain committed to investing for the future and capitalizing on our innovation strategy to develop new product solutions that allow our customers to succeed.

Speaker Change: This includes continuing to invest in automation capabilities in our operations to meet our customers' service level requirements and support our internal growth objectives.

Kevin Olsen: Confidence in our growth and innovation strategy, coupled with the dedication and hard work of our contributors, will enable us to continue driving momentum for our customers and other stakeholders. With that, I would now like to open the call to questions. Operator.

Speaker Change: We're confident that our growth and innovation strategy, coupled with the dedication and hard work of our contributors.

Speaker Change: will enable us to continue driving momentum for our customers and other stakeholders. With that, I would now like to open the call for questions. Operator?

Unknown Executive: With that, I would now like to open the call for questions. Operator? Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Please ensure that your phone is not on mute when called upon.

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Your first question comes from the line of Scott Stember with Ross MKM. Your line is open.

Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon.

Scott Stember: Your first question comes from the line of Scott Stember with Roth MKM. Your line is open. Good morning, guys, and thanks for taking my questions.

Speaker Change: Your first question comes from the line of Scott Stember with Roth MKM. Your line is open.

Scott Stember: Good morning, guys, and thanks for taking my questions.

Operator: Morris Grant, Scott.

Kevin Olsen: Maurice Warren, Scott. Very impressive POS growth in light duty. A couple of your customers on their second quarter conference calls talked about some weakness that popped up notably, I guess, in hard parts or undercar parts. Just try to get a sense if you saw that within those numbers. And, you know, just to kind of parse out, you know, market versus share games for you guys with new products. Yeah, thanks, Scott. Good question. I mean, if we look at the POS, I mean, we saw a broad base growth really across all our categories. I'm not really going to talk specific category growth levels, but there was a solid quarter.

Scott Stember: Good morning, guys, and thanks for taking my questions.

Scott Stember: Very impressive POS growth in light duty. A couple of your customers on their second quarter conference calls talked about some weakness that popped up, notably, I guess, in hard parts or undercar parts. Just trying to get a sense if you saw that within those numbers and, you know, just to kind of parse out, you know, market versus share gains for you guys with new products.

Scott Stember: Morning, everyone. Scott.

Scott Stember: Very impressive POS growth in light duty. A couple of your customers on their second quarter conference calls talked about

Scott Stember: some weakness that popped up notably I guess in hard parts or undercar parts just try to get a sense if you saw that within those numbers

Speaker Change: And, you know, just to kind of parse out, you know, market versus share gains for you guys with new products.

Kevin Olsen: Yeah, thanks, Scott. That's a good question.

Kevin Olsen: I mean, if we look at the POS, I mean, we saw broad-based growth really across all our categories. I'm not really going to talk about specific category growth levels, but it was a solid quarter. No question that the macro trends continue to remain favorable there in that segment.

Speaker Change: Yeah, thanks, Scott. Good question. I mean, if we look at the POS, I mean, we saw broad-based growth really across all our categories. I'm not really going to talk specific category growth.

Kevin Olsen: No question that the macro trends continue to remain favorable there in that segment. You've got more used cars. They're older miles driven continues to be at solid levels and the sweet spot for us. We've talked a lot about before the 8 to 13 year old vehicle cohort continues to grow. We also continue to see a lot of traction with new products. We had a really solid quarter for new products. You know, we launched roughly 1,700 skews or so across the enterprise in the second quarter. Roughly 30% of those were what we would consider new to the aftermarket, so they don't exist in the aftermarket at the time that we launch it.

Speaker Change: levels, but there's a solid quarter. No question that the macro trends continue to remain favorable there in that segment.

Kevin Olsen: You've got more used cars, they're older, miles driven continue to be at solid levels, and the sweet spot for us that we've talked a lot about before, the 8 to 13 year old vehicle cohort, continues to grow. We also continue to see a lot of traction with new products. We had a really solid quarter for new products. You know, we launched roughly 1700 SKUs or so across the enterprise in the second quarter. Roughly 30% of those were what we would consider new to the aftermarket, so they didn't exist in the aftermarket at the time that we launched them.

Speaker Change: You've got more used cars, they're older, miles driven, continues to be at solid levels and the sweet spot for us that we've talked a lot about before, the 8 to 13 year old vehicle cohort continues to grow.

Speaker Change: We also continue to see a lot of traction with new products.

Speaker Change: We had a really solid quarter for new products.

Speaker Change: You know we launched roughly 1,700 SKUs or so across the enterprise in the second quarter. Roughly 30% of those were what we would consider new to the aftermarket so they don't exist.

Kevin Olsen: And that was a 20% growth over, you know, the previous Q2. So we feel really good with our strategy to continue to deliver innovation to the aftermarket. And, as we've said, we believe that will continue to drive above-market growth. Got it.

Scott Stember: And that was 20% growth over the previous Q2. So we feel really good with our strategy to continue to deliver innovation to the aftermarket. And as we've said, we believe that'll continue to drive above-market growth.

Speaker Change: in the aftermarket at the time that we launched it.

Speaker Change: And that was a 20% growth over the previous Q2. So we feel really good with our strategy to continue to deliver innovation to the aftermarket. And as we've said, we believe that will continue to drive above market growth.

David Hession: Got it. And then my follow-up question on heavy duty and specialty, factoring some of the cost containment measures and assuming sales do come back in specialty later in the year, and heavy duty next year, what are the margins that we should, you know, operating margins, but by segment that you could expect, you know, on the incrementals as things come back?

David Hession: And then my follow-up question on heavy duty and specialty, you know, factoring some of the cost containment measures and assuming sales do come back in specialty later in the year and heavy duty next year. So one of the margins that we should operate margins but by segment that you could expect, you know, on the incremental systems come back. Yes, got it.

Speaker Change: Got it. And then my follow-up question on heavy duty and specialty, you know, factoring some of the cost containment measures and assuming sales do come back in specialty later in the year.

Speaker Change: heavy-duty next year, what are the margins that we should, you know, operating margins, but by segment that you could expect, you know, on the incrementals as things come back?

David Hession: Yeah, Scott and David, it's a good question. So, you know, we've seen some really good work. The team's been focused on margin over the last, you know, several quarters, and we've made some great progress. You know, as we kind of think about the 3 businesses and where we expect the margin profile to be, you know, we expect light duty to be kind of in that high team. Same with the specialty vehicle high teams and then the heavy duty business, probably more in the mid to high teams.

David Hession: David, it's a good question. So, you know, we've seen some really good work. The team's been focused on margin over the last, you know, several quarters, and we've made some great progress. You know, as we kind of think about the three businesses and where we expect the margin profile to be, you know, we expect the light duty to be kind of in that high teams. Same with the specialty vehicle high teams, and then the heavy duty business probably more in the mid to high teams. So again, if you look at where our Q2 results came in, we're kind of in the ballpark on two of the three, and like I said, feel good about the progress we've made over the last few quarters.

Speaker Change: Yeah, Scott, it's David. It's a it's a good question. So, you know, we've seen some really good work The team's been focused on margin over the last, you know, several quarters and we've made some great progress You know as we kind of think about the three businesses and where we expect the margin

Speaker Change: profile to be

David Hession: So, again, if you look at where our Q2 results came in, we're kind of in the ballpark on 2 of the 3. And, like I said, I feel good about the progress we've made over the last few quarters.

Speaker Change: You know, we expect the light duty to be kind of in that high teens.

Speaker Change: Same with the specialty vehicle high teens and then the heavy duty business, probably more in the mid to high teens. So, again, if you look at where our Q2 results came in, we're kind of in the ballpark on two of the three, and like I said, feel good about the progress we've made over the last few quarters.

Scott Stember: Got it. Very helpful. Thank you.

Scott Stember: Thank you. Thanks, Scott.

Operator: Thanks, Scott. Thanks, Scott.

Speaker Change: Got it. Very helpful. Thank you.

Bret Jordan: Your next question comes from the line of Bret Jordan with Jeffries. Your line is open.

Bret Jordan: Your next question comes from the line of Bret Jordan with Jeffries. Your line is open. Any good morning, guys?

Scott Stember: Thanks, Scott. Thanks, Scott.

Speaker Change: Your next question comes from the line of Bret Jordan with Jeffries. Your line is open.

Kevin Olsen: Morning, Bret. On the light vehicle. Is there a way to sort of look at the same UPS? Because that high single digit obviously is very strong performance versus your customer sales. If we take out what was new products driven, can we get a feeling for attraction in the core skews? Yeah, I would say, Bret, that we don't publicly break that out, but frankly, most of our growth is driven by new product, whether it was launched two years ago, three years ago, one year ago, or this year. So that has been the driving factor of all our growth. As you look backwards, incrementally to what the market growth is, which we believe is kind of in that low single digit level.

Bret Jordan: Morning, Bret. On the light vehicle, is there a way to sort of look at the same skew POS because that high single-digit obviously is very strong performance versus your customer's sales. If we, if we take out what was new product driven, can we get a feeling for traction in the core skews?

Brett Jordan: Hey, good morning, guys.

Brett Jordan: [inaudible]

Bret Jordan: On the light vehicle, is there a way to sort of look at the same skew POS? Because that high single digit obviously is very strong performance versus your your customer's sales. If we take out what was new product driven, can we get a feeling for, I guess, traction in the core skews?

Kevin Olsen: Yeah, I would say, Bret, that we don't publicly break that out. But Frankly, you know, most of our growth is driven by new products, whether they were launched two years ago, three years ago, one year ago, or this year. So, that has been the driving factor of all our growth, Bret, as you look kind of backwards, incrementally to what the market growth is, which we believe is kind of in that low single digit.

Bret Jordan: Yeah, I would say, Bret, that we don't publicly break that out, but frankly, you know, most of our growth is driven by new product, whether it was launched

Brett Jordan: two years ago, three years ago, one year ago, or this year, so that has been the driving factor of all our growth, Bret, as you look kind of backwards.

Brett Jordan: in incrementally to what the market growth is, which we believe is kind of in that low single digit.

Kevin Olsen: Yeah, okay. And then within specialty, I guess give me color on the cadence of POS there is the consumer and specialty getting incrementally better. You know, as you're sort of looking for some improvement in cell in, I guess in the second half, does that mean the sellout is improving? Now, I wouldn't say this sellouts improving. I mean, that business right now, frankly, has been flatish if you look at the first half of the year. You know, we had some modest growth last year. There is some signs that, you know, inventory in the dealer channel is starting to come down back to more normalized levels.

Bret Jordan: Yeah, okay. And then within specialty, I guess, do you have any color on the cadence of, of, POS there? Is the consumer and specialty getting incrementally better, you know, as you're sort of looking for some improvement in sell-in, I guess, in the second half? Does that mean the sell-out is improving?

Brett Jordan: level.

Brett Jordan: Yeah, okay. And then within specialty, I guess.

Brett Jordan: Do you have any color on the cadence of POS there? Is the consumer and specialty getting incrementally better?

Speaker Change: You know, as you're sort of looking for some improvement in sell-in, I guess, in the second half, does that mean the sell-out is improving?

Kevin Olsen: No, I wouldn't say the sellout's improving. I mean, that business right now, frankly, has been flattish. If you look at the first half of the year, you know, we had some modest growth last year. There are some signs that, you know, inventory in the dealer channel is starting to come down back to more normalized levels. That will help as new machine sale growth can, you know, ramp up, but we're not going to bank on that, Bret.

Speaker Change: No, I wouldn't say the sellout's improving. I mean, that business right now, frankly, has...

Speaker Change: has been flattish if you look at the first half of the year.

Speaker Change: You know, we had some modest growth last year.

Speaker Change: There is some signs that, you know, inventory in the dealer channel is starting to come down.

Kevin Olsen: That will help as new machine sale growth can, you know, ramp up. But we're not going to bank on that, Brett. You know, our strategy there has been the market is what the market is, and we're focused on kind of two major initiatives there, which is continuing to take share in the dealer channel. And, you know, increasing our non-discretionary repair part business, which we've been very successful in. That's enable us to kind of drive flatish to, you know, modest growth in what we view as a slightly down market.

Speaker Change: back to more normalized levels. That will help as new machine sale growth ramps up.

Speaker Change: But we're not going to bank on that, Bret. You know, our strategy there has been the market is what the market is, and we're focused on kind of two major initiatives there, which is continuing to take share in the dealer channel.

Kevin Olsen: You know, our strategy there has been that the market is what the market is, and we're focused on kind of two major initiatives there, which is continuing to take share in the dealer channel and, you know, increasing our non-discretionary repair part business, which we've been very successful in. That's enabled us to kind of drive flattish to, you know, modest growth in what we view as a slightly down market. So those are the things we're going to continue to focus on in addition to, you know, productivity initiatives across the business.

Speaker Change: and you know increasing our

Brett Jordan: non-discretionary repair part business which we've been very successful in. That's enabled us to kind of drive flattish to, you know, modest growth in what we view as a slightly down market.

Kevin Olsen: So those are the things we're going to continue to focus on in addition to, you know, productivity and issues across the business.

Brett Jordan: So those are the things we're going to continue to focus on in addition to productivity initiatives across the business.

Kevin Olsen: What's the sweet spot in specialty? Do you sell more when a new ATV or UTV is sold, or do you sell more in the maintenance of a three to five year old ATV? Yeah, great question, Brett. A very high percentage of our sales come within the first two years of a new vehicle sale. So, you know, for us, when we see new vehicle sales drop, that really does impact the business. Okay.

Bret Jordan: What's the sweet spot in specialty? Do you sell more when a new ATV or UTV is sold, or do you sell more into the maintenance of a three to five year old ATV? Yeah, great question, Brett, a very high

Speaker Change: What's the sweet spot in specialty? Do you sell more when a new ATV or UTV is sold or do you sell more into the maintenance of a three to five year old ATV?

Kevin Olsen: Yeah, great question, Bret. A very high percentage of our sales come within the first two years of a new vehicle sale. So, you know, for us, when we see new vehicle sales drop, that really does impact the business.

Speaker Change: Yeah, great question, Bret. A very high percentage of our sales come within the first two years of a new vehicle sale. So, you know, for us when we see new vehicle sales drop, that really does impact the business.

Bret Jordan: Great. Thank you.

Brett Jordan: Okay, great. Thank you.

Unknown Executive: There are no further questions at this time.

Operator: There are no further questions at this time. This will conclude today's conference. We thank you for joining us. You may now disconnect your line.

Speaker Change: I got it.

Unknown Executive: This will conclude today's conference. We thank you for joining.

Speaker Change: There are no further questions at this time. This will conclude today's conference. We thank you for joining. You may now disconnect your lines.

Unknown Executive: You may now disconnect your lines. Thank you very much.

Caesar Nathadia: Thanks for watching!