Q3 2024 Dorman Products Inc Earnings Call
Unknown Executive: Good morning and thank you for standing by.
Good morning, and thank you for standing by welcome to the dormant products' third quarter 'twenty to 'twenty four earnings conference call. At this time, all participants are in listen only mode.
Unknown Executive: Welcome to the Dorman Products 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode.
Unknown Executive: A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded.
Speaker Change: And answer session will follow the formal presentation. Please note that this conference is being recorded I would now like to turn the conference over to Alex Weitler, Vice President of Investor Relations and risk management. Thank you. Sir. Please go ahead.
Alexander Whitelam: I would now like to turn the conference over to Alex Whitelam, Vice President of Investment Relations and Risk Management.
Unknown Executive: Thank you, sir. Please go ahead.
Unknown Executive: Thank you.
Alex Weitler: Thank you good morning, everyone welcome to Dorman third quarter 2024 earnings conference call.
Alexander Whitelam: Good morning, everyone. Welcome to Dorman's third quarter 2024 earnings conference call.
Alexander Whitelam: I'm joined by Kevin Olsen, Dorman's Chief Executive Officer, and David Hession, Dorman's Chief Financial Kevin will provide a business update, then David will review the quarterly results, followed by closing remarks. After that, we'll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the investor relations portion of our website at DormanProducts.com.
Alex Weitler: I'm joined by Kevin Olson Dorman, Chief Executive Officer, David Darmon, as Chief Financial Officer.
Alex Weitler: Kevin will provide a business update then David will review the quarterly results followed by closing remarks from Kevin and after that we'll open the call for questions.
Alex Weitler: 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 Dorman products Dot com.
Alexander Whitelam: 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 law. We advise listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K, and earnings release for important material assumptions, expectations, and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking reports. will 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.
Alex Weitler: 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.
Alex Weitler: Advise listeners to review the risk factors and cautionary statements in our most recent 10-Q10-K and earnings release for important material assumptions expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward looking statements.
Alex Weitler: We will 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 storms website.
Alexander Whitelam: Finally, during the Q&A portion of today's call, we ask that participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions.
Alex Weitler: Finally during the Q&A portion of today's call, we ask that participants limit themselves to one question with one follow up and rejoin the queue. If they have additional questions with that I'll turn the call over to Ken.
Alexander Whitelam: With that, I'll turn the call over to Kevin.
Kevin Olsen: Thanks, Alec. Good morning, and thank you for joining our third quarter 2024 earnings As Alex mentioned, I'll start with highlights of our performance in the quarter, then provide an overview of our segment results. I'll also spend some time discussing how Dorman is differentiating itself with a set of competencies in a growing suite of next generation solutions within the complex electronic space. Turning to slide three, if you're following along in the deck, our positive momentum this year carried through the third quarter. Solid Top Line Growth and Operating Margin Expansion leading to a significant increase in adjusted diluted EPS.
Ken: Thanks, Alex.
Ken: Good morning, and thank you for joining our third quarter 2024 earnings call.
Ken: Alex mentioned I'll start with highlights of our performance in the quarter, then provide an overview of our segment results I'll also spend some time discussing how dormant as differentiating yourself with a set of competencies and a growing suite of next generation solutions within the complex electronic space.
Ken: Turning to slide three if you're following along in the deck are positive momentum this year carried through the third quarter.
Ken: Solid topline growth and operating margin expansion, leading to a significant increase in adjusted diluted EPS consolidated net sales increased three 2% year over year to $504 million.
Kevin Olsen: Consolidated net sales increased 3.2% year-over-year to $504 million. adjusted operating margin with 17.1%, expanding 290 basis points compared to the same period last year. Margins improved on easing inflationary pressures in the quarter and favorable mix from higher new product sales, along with returns in the productivity initiatives that we have been discussing throughout the year. As a result, adjusted diluted EPS increased 40% over last year's third quarter to $1.96. Free cash flow was solid at $36 million, allowing us to repay $11 million of debt and repurchase $27 million of our shares during the quarter. Given our results year to date, as well as our positive outlook and visibility into the fourth quarter, we've narrowed our sales and increased our earnings guidance ranges for the year.
Ken: Adjusted operating margin was 17, 1% expanded 290 basis points compared to the same period last year margins improved on easing inflationary pressures in the quarter and favorable mix from higher new product sales along with returns from our productivity initiatives that we have been discussing.
Throughout the year.
Ken: As a result, adjusted diluted EPS increased 40% over last year's third quarter to $1 96.
Ken: Free cash flow was solid at $36 million, allowing us to repay $11 million of debt and repurchased $27 million of our shares during the quarter.
Ken: Given our results year to date as well as our positive outlook and visibility into the fourth quarter, we've narrowed our sales and increased our earnings guidance ranges for the year, David will cover guidance in a moment.
David Hession: David will cover guidance in a moment.
Kevin Olsen: Moving to slide four, let me provide some observations across our three segments. In our light duty segment, the same positive trends we've highlighted in the first half of the year continued in the third quarter. Vehicle miles traveled were again higher year over year. POS was solid, up low to mid-single digits in the quarter, and generally consistent with customer shipments. Our light duty business delivered profitability growth. which was partially due to the automation and operational efficiency efforts we discussed in our last call. Finally, we continue to diversify our supplier base and geographic exposure. This remains a key focus area for the business and the team has done a nice job reorienting the supply chain over the last While our heavy-duty business continued to experience market pressure during the quarter, we drove solid year-over-year segment profit margin improvement with cost savings and productivity initiatives.
Ken: Moving to slide four let me provide some observations across our three segments.
Ken: Light duty segment, the same positive trends, we've highlighted in the first half of the year continued in the third quarter.
Ken: <unk> miles traveled were again higher year over year.
Ken: POS was solid up low to mid single digits in the quarter and generally consistent with customer shipments.
Ken: Judy business delivered profitability growth, which was partially due to the automation and operational efficiency efforts. We discussed in our last call. Finally, we continue to diversify our supplier base and geographic exposure.
Ken: This remains a key focus area for the business and the team has done a nice job reorienting the supply chain over the last few years.
Ken: Well, our heavy duty business continued to experience market pressure during the quarter, we drove solid year over year segment profit margin improvement and cost savings and productivity initiatives.
Kevin Olsen: Additionally, recent market indicators are signaling stabilization in the freight industry. Predicting a growth inflection in that segment remains difficult, but we're seeing positive signs across our customers. Specialty vehicle segments net sales are flat compared to last year's third quarter as market headwinds persist Despite these challenges, Specialty Vehicle increased its segment profit margin year-over-year. Looking forward, we anticipate seeing new machine demand increase Customer borrowing rates are reduced in connection with the forecasted Fed rate Additionally, our new product offerings including a higher mix of non-discretionary repair parts along with enhanced dealer expansion initiatives are driving out performance versus the overall specialty vehicle sector.
<unk> recent market indicators are signaling stabilization and the freight industry.
Ken: Predicting a growth inflection in that segment remains difficult, but we are seeing positive signs across our customer base.
Ken: Our specialty vehicle segments net sales were flat compared to last year's third quarter as market headwinds persisted. Despite these challenges specialty vehicle increase segment profit margin year over year looking forward, we anticipate seeing new machine demand increase if customer barring.
Rates are reduced in connection with the forecasted fed rate cuts.
Ken: Additionally, our new product offerings, including a higher mix of non discretionary repair parts, along with enhanced dealer expansion initiatives are driving outperformance versus the overall specialty vehicle sector.
Kevin Olsen: On slide 5, we'll spend some time describing how our capabilities with vehicle electronics are creating growth opportunities across our sector. It's no secret that the vehicles we serve have become more complex. Electronic Control Components increasingly integrated into what were previously simple mechanical systems. We were an early investor in this trend, releasing our first complex electronic part, a fuel pump driver module, in 2011. Since that launch, we have continued to invest in our electronics business, including our acquisition of Flight Systems in 2018. These investments have deepened our capabilities, highly technical, difficult to address categories. Today, we have a differentiated set of capabilities that allow us to develop innovative, complex electronic solutions.
Ken: On slide five we'll spend some time, describing how our capabilities with vehicle electronics are creating growth opportunities across our segments.
No secret that the vehicles, we serve have become more complex electronic control components increasingly integrated into what were previously simple mechanical systems.
Ken: We were an early investor in this trend releasing our first complex electronic part a fuel pump driver module in 2011 since that launch we've continued to invest in our electronics business, including our acquisition of flight systems 2018. These.
Ken: These investments have deepened our capabilities and highly technical and difficult to address categories.
Ken: Today, we have a differentiated set of capabilities that allow us to develop innovative complex electronic solutions that technicians rely on to repair. These critical systems, which ensure continued functionality and safety for end user vehicles and often improved performance.
Kevin Olsen: technicians rely on to repair these critical systems. which ensure continued functionality and safety for end-user vehicles and often improve performance. Question we get regularly is how the proliferation of electric and hybrid vehicles will impact our business over the long term. Simply put, our diverse capabilities allow us to be truly power-trained agnostic as we see significant growth opportunities across the various propulsion technologies being deployed and developed. Our multi-platform approach offers Dorman the flexibility and optionality to accelerate growth as each platform matures over time. Vehicles with ICE engines are expected to remain the vast majority of the North American car park well into the future.
Ken: Question, we get regularly is how the proliferation of electric and hybrid vehicles that impact our business over the long term.
Ken: Simply put our diverse capabilities allow us to be truly powertrain agnostic as we see significant growth opportunities across the various propulsion technologies being deployed and developed.
Ken: Our multi platform approach offers dorman that flexibility and optionality to accelerate growth as each platform matures over time.
Ken: Vehicles with ice engines are expected to remain the vast majority of the North American car park well into the future.
Kevin Olsen: According to NEMA aftermarket suppliers projection In collaboration with Strategy And, ICE vehicles are expected to make up approximately 90% of the 8-13 year old BIO, Dorman's Sweet Spot, through 2035. This provides us with a long runway to continue adding to our leading portfolio of aftermarket solutions. Including new complex electronics for this set of vehicles. Additionally, we expect increased fuel efficiency and safety regulations will continue to drive more OE system changes and thus provide further opportunity for innovation in the application. Hybrid vehicles have already made their way into our car park sweet spot. We have a solid portfolio of solutions servicing those models today.
Ken: According to NEMA aftermarket suppliers projections in collaboration with strategy and ice vehicles are expected to make up approximately 90% of the 8% to 13 year olds vio garments sweet spot through 2035.
Ken: This provides us with a long runway to continue adding to our leading portfolio of aftermarket solutions, including new complex electronics for this set of vehicles. Additionally, we expect increased fuel efficiency and safety regulations will continue to drive more OE system changes and thus provide further opportunities.
Ken: Terry for innovation in the aftermarket.
Ken: However vehicles have already made their way into our park sweet spot, we have a solid portfolio of solutions servicing those models today.
Kevin Olsen: Hybrids offer Dorman a broader opportunity for category growth given their dual powertrain And with customers becoming more comfortable with hybrid technology, we anticipate seeing future expansion of hybrid platform. While electric vehicles are a smaller portion of the park today, and some OEMs have recently wavered on their level of investment in EV models. We have and will continue to develop technology for new EV platforms. same innovation strategy we've applied historically. Again, we see this driving long-term value for the company as EV platforms are even more dependent on complex electronic parts. Electronic modules deployed to sense and control nearly every activity across the vehicle.
Ken: Hybrids offer dorm and a broader opportunity for category growth given their dual powertrain systems.
Ken: And with customers, becoming more comfortable with hybrid technology, we anticipate seeing future expansion of hybrid platforms.
Ken: While electric vehicles are a smaller portion of the park today and some Oems have recently wavered on their level of investment in EV models.
Ken: We have and will continue to develop technology for new EV platforms with the same innovation strategy, we've applied historically.
Ken: Again, we see this driving long term value for the company as EDI platforms are even more dependent on complex electronic parts.
Ken: Electronic modules deploy to control nearly every activity across the vehicle.
Kevin Olsen: We expect higher replacement costs. Potentially higher failure rates with these new systems. Today we have thousands of SKUs across our three business units to support electronic systems in ICE, hybrid, and electric vehicles. Our ideation and new product development teams are constantly designing and engineering innovative components, including OE fix solutions. Support new growth opportunities and solve increasingly complex challenges. today's and tomorrow's vehicle. We expect this multi-platform approach will drive long-term sustainable value for our state.
Ken: We expect higher replacement costs.
Ken: And potentially higher failure rates with these new systems.
Ken: Today, we have thousands of skus across our three business units to support electronic systems in ice hybrid and electric vehicles.
Ken: Our ideation and new product development teams are constantly designing and engineering innovative components, including OE <unk> solutions.
Support new growth opportunities and solve increasingly complex challenges in today's and Tomorrow's vehicles.
We expect this multi platform approach will drive long term sustainable value for our stakeholders.
Kevin Olsen: Now on slide 6, let me provide some additional detail on our differentiated capabilities. As our electronics business grew in size and strategic importance, we recognized the need to aggregate its engineering and product development capabilities. into a single standalone group. In 2023, we launch an electronic center of excellence to build the infrastructure and expertise needed to accelerate the development of next generation aftermarket solutions. This cross-functional group has done an outstanding job evaluating opportunities and driving new product innovation for Dorman to expand its electronics portfolio. From a process perspective, we begin by identifying and assessing failure points throughout our vast network of technicians and specialists who are motivated to provide us breakpoints they're seeing in the field.
Ken: Now on slide six let me provide some additional detail on our differentiated capabilities.
Ken: As our electronics business grew in size and strategic importance, we recognize the need to aggregate its engineering and product development capabilities into a single Standalone group.
Ken: In 2023, we launched electronic center of excellence to build the infrastructure and expertise needed to accelerate the development of next generation aftermarket solutions.
Ken: This cross functional group has done an outstanding job of evaluating opportunities and driving new product innovation for doormen to expand its electronics portfolio.
Ken: From a process perspective, we begin with identifying and assessing failure points throughout our vast network of technicians and specialist who are motivated to provide us with the break points. They are seeing in the field.
Kevin Olsen: This is not unlike the process we undertake with our other products. As you would imagine, it requires a different and more technical expertise. Data logging and co-development is where our differentiation lies. Through our specialized and proprietary processing system. Our teams run thousands of tests and trials on various electronic components to log and analyze the data, then design and write our own software code for compatibility or improved Finally, our software validation process is designed to ensure that the product integrates seamlessly into the vehicle's safety and functional system. This advanced set of competencies highlights Dorman's leadership and the competitive advantages we've built in the aftermarket space.
Ken: This is not unlike the process, we undertake with our other products as you would imagine it requires a different and more technical expertise.
Ken: Data logging and co development is where our differentiation lies through our specialized and proprietary processing systems.
Ken: Our teams run thousands of tests and trials and various electronic components log and analyze the data then design and write our own software code for compatibility or improvement.
Ken: Finally, our software validation process is designed to ensure that the product integrates seamlessly into the vehicle safety and functional systems.
Ken: This advanced set of competencies highlights Dorman his leadership and the competitive advantages we built in the aftermarket space we.
Kevin Olsen: We expect these advantages will contribute to our long-term success. Complex Electronics are poised to outpace the growth of traditional hardware.
Speaker Change: We expect these advantages will contribute to our long term success as complex electronics are poised to outpace the growth of traditional hard parts, especially on alternative propulsion technology platforms with that I'll hand off to David to review, our Q3 financial performance.
David Hession: especially on alternative propulsion technology platforms. With that, I'll hand off to David to review our Q3 financial Thanks, Kevin.
David Hession: Turning to slide seven, consolidated net sales in the third quarter of $504 million. 3% year over year. Similar to the second quarter, the growth was driven by the light-duty business, which was fueled by increased customer demand and sales of new products that were launched this year.
David Darmon: Thanks, Kevin turning to slide seven consolidated net sales in the third quarter of $504 million.
David Darmon: Up 3% year over year.
Speaker Change: Tim wanted to the second quarter the growth was driven by the light duty business, which was fueled by increased customer demand and sales of new products that were launched this year.
David Hession: While market headwinds impacting our heavy-duty and specialty vehicle businesses persisted through the quarter, both businesses drove margin-improved I'll cover each of the segments in just a moment. Gross margin for the quarter was 40.5%. 300 basis point increase compared to the prior year period. This improvement was driven by inflationary pressures easing across our segments and favorable mix from higher sales of new products bolstered by the operational efficiency initiatives we've been executing throughout the year. Adjusted SG&A expense as a percentage of net sales was flat year over year at 23.4%. Adjusted operating income $86 million for the third quarter, up more than 24% compared to the same period last year.
Speaker Change: While market headwinds impacting our heavy duty and specialty vehicle businesses persisted through the quarter, both businesses drove margin improvement I'll cover each of the segments in just a moment.
Speaker Change: Gross margin for the quarter was 45% a 300 basis point increase compared to the prior year period. This.
Speaker Change: This improvement was driven by inflationary pressures easing across our segments and favorable mix from higher sales of new products bolstered by the operational efficiency initiatives, we've been executing throughout the year.
Speaker Change: Adjusted SG&A expense as a percentage of net sales was flat year over year at 23, 4% adjusted.
Speaker Change: Operating income was $86 million for the third quarter up more than 24% compared to the same period last year.
David Hession: Adjusted Operating Margin expanded 290 basis points to 17.1%, largely on gross margin improvement. Finally, third quarter adjusted diluted EPS was $1.96, up 40% compared to the prior year period. along with increased adjusted operating income, lower interest expense, tax rate, and share counts contributed to our EPS growth.
Speaker Change: Adjusted operating margin expanded 290 basis points to 17, 1% largely on gross margin improvement.
Speaker Change: Finally third quarter adjusted diluted EPS was $1 96.
Speaker Change: Up 40% compared to the prior year period.
Speaker Change: Along with increased adjusted operating income lower interest expense tax rate and share count contributed to our EPS growth.
David Hession: Next, let me provide updates on the quarter for each of our business segments. starting with light duty on slide. Net sales for light duty were $394 million in the third quarter of 5% compared to last year. Shipments were generally aligned with customer POS during the quarter and year to date. As we've discussed throughout the year, our new products and the strength of Dorman's brand continue to drive significant growth for light duty. Segment profit margin in Q3 was 19%, up 290 basis points compared to the same period last year. Similar to last quarter, this margin improvement was driven by easing inflationary pressure.
Speaker Change: Next let me provide updates on the quarter for each of our business segments.
Speaker Change: Starting with light duty on slide eight.
Speaker Change: Net sales for light duty or $394 million in the third quarter up 5% compared to last year.
Speaker Change: Shipments were generally in line with customer pass during the quarter and year to date.
Speaker Change: As we've discussed throughout the year, our new products and the strength of dormant brands continued to drive significant growth for light duty.
Segment profit margin in Q3 was 19% up 290 basis points compared to the same period last year.
Speaker Change: Similar to last quarter. This margin improvement was driven by easing inflationary pressures.
David Hession: Favorable mix driven by higher new product sales and operational excellence initiatives delivering cost savings across the business.
Speaker Change: Well mix driven by higher new product sales and operational excellence initiatives delivering cost savings across the business.
David Hession: As Kevin mentioned, both our heavy duty and specialty vehicle segments navigated continued market headwinds well during the quarter. Let me provide a bit more detail on the next two slides. On slide nine, Heavy Duty's Q3 net sales were $60 million, down 5% compared to last year's third quarter. However, we estimate that the broader Heavy Duty market was down roughly mid-single digits, indicating that our new product development and enhanced commercialization initiatives are yielding positive results. Despite lower sales, the team did a solid job increasing the segment's margin profile. Operating margin for heavy duty was 4.5%, up 150 basis points over last year's third quarter.
Speaker Change: As Kevin mentioned, both our heavy duty and specialty vehicle segments navigated continued market headwinds well during the quarter.
Speaker Change: Let me provide a bit more detail on the next two slides.
Speaker Change: On slide nine heavy duties Q3, net sales were $60 million down 5% compared to last year's third quarter. However.
Speaker Change: However, we estimate that the broader heavy duty market was down roughly mid single digits, indicating that our new product development and enhanced commercialization initiatives are yielding positive results.
Speaker Change: Despite lower sales the team did a solid job increasing the segment's margin profile.
Speaker Change: Operating margin for heavy duty was four 5% up 150 basis points over last year's third quarter.
David Hession: While it remains difficult predicting a significant market turn, we're pleased with some of the market commentary that the freight industry is stabilizing from the recent recessionary trend. We remain focused on managing the business for long term success and capitalizing on growth opportunities as market conditions improve.
Speaker Change: While it remains difficult predicting a significant market turn we're pleased with some of the market commentary that the freight industry is stabilizing from the recent recessionary trend.
Speaker Change: We remain focused on managing the business for long term success and capitalizing on growth opportunities as market conditions improve.
David Hession: Moving to slide 10 for our specialty vehicle segment, net sales were flat year-over-year at $51 million despite higher financing rates and uncertainty in consumer sentiment driving continued market headwinds. Through our new product development strategy, including the expansion of our non-discretionary repair parts portfolio, coupled with our new dealer growth initiatives, we were able to offset continued softness in the sector. Additionally, the team continues to drive higher margins from cost savings initiatives. These resulted in segment profit margins increasing 350 basis points year over year to 17%. We remain positive on the outlet for this business. As interest rate pressures continue to subside and consumer sentiment stabilizes, we expect to see increased demand for our products as end-user enthusiasm in the space remains robust.
Speaker Change: Moving to slide 10 for our specialty vehicles segment net sales were flat year over year at $51 million, despite higher financing rates and uncertainty in consumer sentiment driving continued market headwinds.
Speaker Change: Through our new product development strategy, including the expansion of our non discretionary repair parts portfolio, coupled with our new dealer growth initiatives, we were able to offset continued softness in the sector.
Speaker Change: Additionally, the team continues to drive higher margins from cost savings initiatives.
Speaker Change: These resulted in segment profit margins, increasing 350 basis points year over year to 17%.
Speaker Change: We remain positive on the outlook for this business.
Speaker Change: As interest rate pressures continue to subside and consumer sentiment stabilizes, we expect to see increased demand for our products as end user enthusiasm in this space remains robust.
David Hession: Turning to cash flow on slide 11, free cash flow was $36 million in the third quarter, down 23% compared to the same period in 2023. The decline was primarily related to an increase in our inventory balance. offsetting lower operating cash with lower capital expenditure. Our capital allocation strategy remained consistent during the quarter, as we repaid $11 million in debt and returned $27 million to shareholders through the repurchase of approximately 274,000 shares at an average price of $98 per share.
Speaker Change: Turning to cash flow on slide 11 free cash flow was $36 million in the third quarter down 23% compared to the same period in 2023.
The decline was primarily related to an increase in our inventory balance.
Speaker Change: Offsetting lower operating cash with lower capital expenditures.
Speaker Change: Our capital allocation strategy remain consistent during the quarter as we repaid $11 million in debt and returned $27 million to shareholders through the repurchase of approximately 274000 shares at an average price of $98 per share.
David Hession: Additionally, with our existing share repurchase program expiring at the end of this year, Dorman's Board of Directors approved a new repurchase authorization of up to $500 million of common stock covering 2025 through 2027. Along with organic and inorganic investments, we continue to repurchase shares opportunistically. brutally returning capital to our shareholders. Our capital allocation strategy and strong balance sheet position us well to drive long-term value.
Speaker Change: Additionally, with our existing share repurchase program expiring at the end of this year <unk> Board of directors approved a new repurchase authorization of up to $500 million of common stock covering 2025 through 2027.
Speaker Change: Along with organic and inorganic investments, we continued to repurchase shares opportunistically prudently returning capital to our shareholders.
Speaker Change: Our capital allocation strategy and strong balance sheet position us well to drive long term value.
David Hession: slide 12, I'll cover our balance sheet and liquidity. As of September 28, our net debt was $492 million, or $8 million lower than Q2. And that leverage ratio was 1.36 times adjusted EBITDA down from 1.44 times at the end of June and 1.87 times at the end of last year. Our current leverage remains comfortably below our long-term target of two times and well below our target of less than three times following the first year of an acquisition. Additionally, our total liquidity was $582 million at the end of the quarter, up from $576 million at the end of Q2.
Speaker Change: On slide 12, I'll cover our balance sheet and liquidity as.
Speaker Change: As of September 28, our net debt was $492 million or.
Speaker Change: $8 million lower than Q2.
Speaker Change: Our net leverage ratio was 136 times adjusted EBITDA down from 144 times at the end of June and 187 times at the end of last year.
Speaker Change: Our current leverage remains comfortably below our long term target of two times and well below our target of less than three times. Following the first year of an acquisition.
Speaker Change: Additionally, our total liquidity was $582 million at the end of the quarter up from $576 million at the end of Q2.
David Hession: Our balance sheet remains strong, and we're pleased with the capacity and flexibility it provides us to continue executing our strategic plan and deploy capital for future growth investments.
Speaker Change: Our balance sheet remains strong and we're pleased with the capacity and flexibility. It provides us to continue executing our strategic plan and deploy capital for future growth invest.
David Hession: Turning to slide 13, I'd like to discuss our updated guidance for 2024. Reflecting on our performance through the first nine months and expected strong finish to the year, we are updating our 2024 guidance. For net sales, we have narrowed our expectations to an increase of three and a half percent to four and a half percent over 2023. As we look across the segments, we believe that light duty's momentum will continue. We anticipate POS and shipments will remain in line as they have thus far in 2024, and the macro environment will continue to be positive. Our heavy-duty and specialty vehicle businesses remain well-positioned to continue driving solid execution and down market.
Speaker Change: Turning to slide 13, I'd like to discuss our updated guidance for 2024.
Speaker Change: Reflecting on our performance through the first nine months and expected strong finish to the year, we are updating our 2024 guidance for.
Speaker Change: For net sales, we have narrowed our expectation to an increase of three 5% to four 5% over 2023.
Speaker Change: As we look across the segments, we believe that light duties momentum will continue.
Speaker Change: We anticipate Pos and shipments will remain in line as they have thus far in 2024 and the macro environment will continue to be positive.
Speaker Change: Heavy duty and specialty vehicle businesses remain well positioned to continue driving solid execution and down market.
David Hession: Based on these factors, we expect each of our three segments' full-year net sales performance to improve compared to their year-to-date results. Additionally, we narrowed and increased our full year earnings guidance. We now expect adjusted diluted EPS to be in the range of $6.85, $6.95 for 2024, representing a 51% to 53% increase over 2023. Throughout the year, we've seen strong growth in new products, including complex electronics that Kevin spoke of earlier. Our new products generally carry a higher margin profile, and their higher sales drive both volume and favorable profit mix. Additionally, our investments in operational excellence initiatives across the enterprise.
Speaker Change: Based on these factors, we expect each of our three segments full year net sales performance to improve compared to their year to date results.
Additionally, we narrowed and increased our full year earnings guidance range.
Speaker Change: We now expect adjusted diluted EPS to be in the range of $6 85.
Speaker Change: $6 95 for 2024, representing a 51% to 53% increase over 2023.
Speaker Change: Throughout the year, we've seen strong growth in new products, including complex electronics that Kevin spoke of earlier, our new products generally carry a higher margin profile and there are higher sales drive both volume and favorable profit mix.
Speaker Change: Additionally, our investments in operational excellence initiatives across the enterprise, including automation productivity and global sourcing are also yielding strong results. This is a testament to our team's positive adoption of new processes, and our ability to navigate dynamic challenging market environment.
David Hession: Including automation, productivity, and global sourcing are also yielding strong results.
Kevin Olsen: This is a testament to our team's positive adoption of new processes and our ability to navigate dynamic, challenging market environments, so I'd like to thank our team for their hard work and dedication.
So I'd like to thank our team for their hard work and dedication this year.
Kevin Olsen: With that, I'll turn it back over to Kevin to conclude.
Kevin: With that I'll turn it back over to Kevin to conclude Kevin Thanks, David I would like to Echo your comments regarding our team.
Kevin Olsen: Kevin. Thanks, David. I'd like to echo your comments regarding our team. We've implemented a number of changes across the organization this year. Our contributors have done an outstanding job adapting and approving upon the initiatives we put in place.
Kevin David: We've implemented a number of changes across the organization this year and our contributors have done an outstanding job adapting and improving upon the initiatives. We put in place. We're proud of our results through the year look forward to finishing 2024 <unk> delivering.
Kevin Olsen: Proud of our results through the year, look forward to finishing 2024 strong, delivering significant growth over last year. We remain committed to driving long-term growth by investing in our people, our processes, and the innovation needed to design and deliver next-generation solutions.
Kevin: Significant growth over last year.
Kevin: Remain committed to driving long term growth by investing in our people our processes and the innovation need to design and deliver next generation solutions with that I would now like to open the call up for questions operator.
Unknown Executive: With that, I would now like to open the call up for questions.
Unknown Executive: Operator? Thank you.
Unknown Executive: We will now begin the question and answer session. If you'd like to ask a question, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Thank you.
Speaker Change: Thank you we will now begin the question and answer session, if you'd like to ask the questions from compressed star followed by the number one on your telephone keypad. If you would like can we talk a question press star one again thank you.
Scott Stember: Our first question comes from the line of Scott Stember with Rod M.K.M. Scott, your line is now open.
Speaker Change: Our first question comes from the line of Scott's timber with drops and Pam Scott. Your line is now open.
Unknown Executive: Good morning, guys, and thanks for taking my questions. Morning Scott.
Scott Timber: Good morning, guys and thanks for taking my questions.
Good morning, guys.
Scott Stember: Maybe we could just touch first on light duty. Some of your customers have been talking about some softening, even in the the professional side of the business or do it for me. But you guys continue to outperform, just trying to get a sense of, you know, how much is being driven by new products.
Scott Timber: Maybe you could just touch first on light duty.
Scott Timber: Some of your customers have been talking about some softening even in the professional side of the business our do it for me.
Scott Timber: But you guys continue to outperform.
Scott Timber: Trying to get a sense of.
Scott Timber: How much is being driven by new products.
Scott Stember: and what things look like on the same SKU basis. on a year-over-year basis.
Scott Timber: And.
Scott Timber: What things look like on a same SKU basis.
Scott Timber: On a year over year basis.
Kevin Olsen: Yeah, good question, Scott. Yes. I mean, you know, if you look across kind of what's been going on in the aftermarket, there certainly seems to be a stronger growth profile in the commercial side of the business, you know, based on what what our customers are saying. And DIY just seems to be a bit softer from a total growth perspective.
Speaker Change: Yes, good question Scott.
Speaker Change: I mean, if you look across.
Speaker Change: Kind of what's been going on in the aftermarket there certainly seems to be a stronger.
Speaker Change: Growth profile in the commercial side of the business.
Speaker Change: Just on what what our customers are saying.
Speaker Change: DIY, there seems to be a bit softer from a total growth perspective.
Kevin Olsen: If you look at Dorman, Scott, as you know, we're more indexed toward the DIFM or commercial side of the house, more non-discretionary parts. And so we're not as tied to the DIY trends that seem to be out there in the market now. mean, obviously, you know, one of the major growth drivers for us has been new products, and it continues to be. It's why we focus so much on innovation, and new to the aftermarket solutions that has and will continue to be the major growth profile and lever for the company going forward.
Speaker Change: If you look at dorm and Scott as you know, we're more indexed toward the DIY or commercial side of the house for non discretionary parts.
Speaker Change: And so we're not as tied to the DIY trends seem to be out there in the.
Speaker Change: A market now.
Speaker Change: I mean, obviously one of the major growth drivers for us has been new products and it continues to be.
Speaker Change: It's why we focus so much on innovation and new to the aftermarket solutions that has and will continue to be the major growth profile that lever for the company going forward.
Kevin Olsen: got it. And then next question before I get back into the queue, talked about signs of things stabilizing in heavy duty, trying to get a sense of where we can look for margins, operating margin in heavy duty to go when things do finally start to hit their stride. Yeah, great question, Scott. I mean, look, we Heavy duty, it seems to be that market seems to be stabilized, certainly bumping off the bottom as, as, as we see it today, it's as I said, in the prepared remarks. It's difficult to call when that market is going to inflect.
Speaker Change: Got it and then next question before I get back into the queue talked about signs of.
Speaker Change: Things stabilizing and heavy duty I'm trying to get a sense of.
Where we can look for margins operating margin and heavy duty to go.
Speaker Change: When things do finally start to hit their stride once again.
Speaker Change: Yes, Great question, Scott I mean look we.
Speaker Change: Heavy duty it seems to be that market seems to be stabilized.
Speaker Change: Certainly.
Speaker Change: Bumping off the bottom is as we see it today, it's as I said in the prepared remarks.
Speaker Change: It's difficult to call when that market has got and collect.
Kevin Olsen: We certainly hope there seem to be some signs that 2025 you might see an inflection up. You know, that that business for us obviously is not as asset light as our specialty or light duty business. So it's obviously impacted more from volume decreases, you know, with the overhead that they carry for manufacturing operations. So from our perspective, you know, we're going to continue to focus on innovation and that side of the house and productivity initiatives. So we think we're well positioned when that market does come back in terms of, you know, the actual, you know, target.
We certainly hope there seem to be some signs that 2025, you might see an inflection up.
Speaker Change: That business for Us obviously is not as asset light.
Speaker Change: As our specialty or light duty business. So, it's obviously impacted more from volume decreases.
Speaker Change: The overhead that they cared for manufacturing operations.
Speaker Change: So from our perspective.
Speaker Change: We're going to continue to focus on innovation and that side of the house.
Speaker Change: Productivity initiatives. So we think we're well positioned when that market does come back in terms of the actual target.
Kevin Olsen: You know, that business for us before the downturn was generating mid-teen operating profit margins. And so we expect to be back at that level when the market does inflect.
Speaker Change: That business for us before the downturn was generating.
Speaker Change: Mid teen operating profit margins and so we expect to be back at that level when the market does inflect.
Unknown Executive: Thank you.
Speaker Change: Got it thank you.
Bret Jordan: Our next question comes from the line of Bret Jordan with Jefferies, Bret, your line is now open.
Our next question comes from the line of Bret Jordan with Jefferies. Bret Your line is now open.
Unknown Executive: Hey, good morning, guys. Hey Bret.
Bret Jordan: Hey, good morning, guys.
Hey, Brian Hey, Brad could you talk about in the specialty segment, how much is and now in the repair space as opposed to the discretionary Max have you guys develop that break fix product line.
Bret Jordan: Could you talk about in the specialty segment, how much is now in the repair space as opposed to the discretionary mix?
Kevin Olsen: Have you guys developed that break-fix product line? Yeah, we're actually slightly above half the business is non discretionary repair, right? You know, it's, it was less than that, when we acquired the business a little bit more than 18 months ago. As we've talked previously, you know, we are tied to new vehicle sales, because there is a high attach rate, you know, to new vehicle sales. That's why the focus on non discretionary repair, we've made a lot of progress on that initiative. And we continue to do so. So it's going to continue to be a focus.
Speaker Change: Yes, we're actually.
Speaker Change: Slightly above half the business is non discretionary repair Bret.
It was less than that when we acquired the business a little bit more at 18 months ago.
Speaker Change: As we've talked previously.
Speaker Change: We are tied to new vehicle sales because there is a high attach rate.
Speaker Change: New vehicle sales, that's why the focus on non discretionary repair we've made a lot of progress on that initiative.
And we continue to do so so it's going to continue to be a focus.
Kevin Olsen: and that kind of balance of sale will continue to increase.
Speaker Change: And that kind of balance of sale will continue to increase.
Bret Jordan: Okay, great.
Speaker Change: Okay, Great and then a question on complex electronics margins, you say, obviously that the new product margin exceeds the average do complex electronics, new product margins exceed the average new product margin is at a visit a more profitable segment overall.
Bret Jordan: And then the question on complex electronics margin, do you say obviously that the new product margin exceeds the average? Do complex electronics new product margins exceed the average new product margin? Is it a more profitable segment overall?
Kevin Olsen: Well, I'll just say it this way. I mean, you know, we don't give specifics around that category, in terms of margin or the size of it. But what I will say, Bret, is a lot of those parts are new to the aftermarket. Okay, which means that part did not exist in the aftermarket the day before we launched. Okay, so those parts generally have a higher margin profile than, you know, a part that's been in the aftermarket or is not new to the aftermarket. It's the highest margin for us. It's the highest margin for our customers.
Speaker Change: Well I'll just say it this way I mean.
Speaker Change: We'll give specifics around that category in terms of margin or the size of it but what I will say bread is a lot of those <unk>.
Speaker Change: <unk> are new to the aftermarket, okay, which means that part did not exist in the aftermarket the day before we launched it.
Speaker Change: So those parts.
Speaker Change: Generally have a higher margin profile than part thats been in the aftermarket or is not new to the aftermarket is the highest margin for us it's the highest margin for our customers.
Kevin Olsen: So obviously, you know, it's new the after or complex electronics is mainly new the aft mark It's going to carry a higher margin profile than the balance Okay.
Speaker Change: So obviously, it's new to the apps or complex electronics is mainly due to the <unk>. It is going to carry a higher margin profile than the balance of the business.
Bret Jordan: And then a quick follow-up question, I guess, on margin impact. If we do see tariffs change, you know, you guys have talked about some supply chain, you know, re-evaluating supply chain, but obviously if there's going to be a big tariff increase next year, how do you see that impacting the business? Yeah, we're obviously watching that very closely, Bret.
Speaker Change: Okay and then one quick follow up question I guess margin impact if we do see tariffs change.
Speaker Change: You guys have talked about some supply chain reevaluating supply chain, but obviously, if theres going be a big tariff increase next year, how do you see that impacting the business.
Speaker Change: Yes, we're obviously watching that very closely Brett.
Kevin Olsen: You know, I would say that we're much better positioned now than we were back in say, 2018. As you referenced, our supply chain is much more diverse. I'd also say I think we're, we're better positioned in that, you know, we have a playbook. So we know how to handle it. We know we have to do, we'll do what's right for the, you know, if tariffs do come on, we'll do what's right for our business. And we'll do what's right for our customers and the ultimate end user at the end of the day. So I think that's how we're going to view it.
Speaker Change: I would say that we are much better positioned now than we were back in say 2018.
Speaker Change: As you referenced our supply chain is much more diverse.
Speaker Change: I would also say I think we're better positioned in that we have a playbook.
Speaker Change: So we know how to handle it.
Speaker Change: We have to do we will do what's right.
Speaker Change: Tariffs do come on we will.
Do what's right for our business and we'll do what's right for our customers and the ultimate end user at the end of the day.
So I think that's how we're going to view it.
Kevin Olsen: You know, I don't really want to go more into it at this point. We're just going to continue to watch and see what happens.
Speaker Change: We really want to go more into it at this point, we're just going to continue to watch and see what happens okay. Great. Thank you.
Unknown Executive: Great, thank you.
Justin Aegis: Our next question comes from the line of Justin Aegis with CJS Securities.
Speaker Change: Our next question comes from the line of Jonathan <unk> with CJS Securities. Justin Your line is now open.
Unknown Executive: Justin, your line is now open. Hi, good morning.
Speaker Change: Hi, Good morning, it's Pete Lucas for Justin.
Unknown Executive: It's Pete Lucas for Justin. You covered a lot of my questions. Thanks for that.
Speaker Change: You covered a lot of my questions. Thanks for that just in terms of electric vehicle parts. What are you seeing now and kind of what is where do you see it going in the future I know you touched on it in the prepared remarks in terms of the breakdown, but just where are we today and kind of where do you see it going in the short term.
Unknown Executive: Just in terms of electric vehicle parts, what are you seeing now? And kind of what is where do you see it going in the future? I know you touched on it in the prepared remarks, in terms of the breakdown, but just where are we today?
Kevin Olsen: And and kind of where do you see it going in the short Well, I think you know, depending on what you mean by electronic vehicles, right, or electric vehicles, I mean, you know, how we view it is, you know, obviously, pure plug-in electric, and there's hybrid. As we mentioned in prepared remarks, I mean, the car park is going to remain heavy ice through 2035. There will be a, you know, continued increase in the car park in the repair age that we target for pure plug-in electric and hybrid. You know, look, we don't, we view it just like ice.
Speaker Change: Well I think.
Speaker Change: <unk>.
Speaker Change: It depends what you mean by electronic vehicles or electric vehicles.
Speaker Change: We view it as obviously pure plug in electric and there is there is hybrid as we mentioned in prepared remarks, I mean, the car park is going to remain heavy ice.
Speaker Change: Through 2035.
There will be.
Speaker Change: <unk> to increase in the car park in the repair.
Speaker Change: H that we target.
Speaker Change: For pure plug in electric and hybrid.
Speaker Change: Look we view it dislike.
Kevin Olsen: You know, we have the capability to address parts on any electric vehicle out there. A lot of them are complex electronics, hence that's why we focus and invest so much in those categories. So as those categories do increase over time, we'll continue to increase our content.
Speaker Change: We have the capability to address parts on an.
Speaker Change: Any electric vehicle out there a lot of them are complex electronics, hence that's why we focus and invest so much in those categories. So as those.
Speaker Change: Those categories do increase over time will continue to increase our content, but it is going to be it's going to be quite some time before there is a meaningful portion of the car park in our in the repair H that are pure plug in electric.
Kevin Olsen: But it's going to be, it's going to be quite some time before there's a meaningful portion of the car park in our, in the repair age that are pure plug-in electric.
Speaker Change: Very helpful. Thanks.
Unknown Executive: Thanks.
Got it.
Gary Prestopino: Our next question comes from the line of Gary Prestopino with Barrington Research.
Speaker Change: Our next question comes from the line of carrier <unk> with Barrington Research Gary Your line is now open.
Unknown Executive: Gary, your line is now open. Thanks.
Unknown Executive: Good morning, everyone.
Speaker Change: Thanks, Good morning, everyone.
David Hession: Hey, Gary. David, what was that $1.6 million other income? positive number in the quarter. The other income and expense Gary, that was the impact of our joint venture income. That's where that shows up.
Speaker Change: Hey, Gary Hey, Gary questions here Gabe.
Speaker Change: David.
Gary: What was that $1 $6 million of other income.
Gary: Positive.
Gary: Number.
Gary: In the quarter.
Speaker Change: On the other income and expense Gary that was.
The impact of our joint venture income, that's where that shows up.
Unknown Executive: Okay, thanks.
Speaker Change: Okay. Thanks.
Gary Prestopino: And then Kevin, you know, maybe you could help us out here. You know, you're, you're citing that new products are helping to drive growth and increase the margins. But could you maybe slap some metrics around that in terms of, you know, how much what percentage of sales were coming from new products? over the last nine months or in the quarter versus where they were last year, just so we can kind of get an idea of how that is moving to the positive for the company.
Speaker Change: And then Kevin maybe you could help us out here.
Speaker Change: You cant you are citing that new products are helping to drive growth and increase the margins, but could you maybe slap some metrics around that in terms of.
How much what percentage of sales were coming from new products.
Over the last nine months or in the quarter versus where they were last year. Just just so we can kind of get an idea of how that is moving to the positive for the company.
Kevin Olsen: Gary, we don't release metrics in terms of, you know, what portion of our sales dollars are tied to new products. We do release, you know, the new SKUs, as you know. SKUs in the quarter were roughly flattish to where they were a year ago. That'll come out in the disclosures. But I would tell you that it was, you know, last year it was up against a very difficult comp. The two-year stack for SKUs in the quarter was actually up 70% from where it was back in the same quarter in 2022. So, look, new to the aftermarket continues to be, again, we're always going to have line extensions, you know, applications that retire, new applications.
Speaker Change: Hey, Gary we don't release metrics in terms of.
Speaker Change: What.
Speaker Change: A portion of our sales dollars are tied to new products.
Speaker Change: We do release.
Speaker Change: The new Skus as you know.
Excuse in the quarter were roughly flattish to where they were a year ago.
Speaker Change: That will come out.
Speaker Change: In the disclosures, but I would tell you that it was last year. It was up against a very difficult comp the two year stack.
Speaker Change: First skus in the quarter was actually up 70% from where it was back in the same quarter in 2022. So.
Speaker Change: Look new to the aftermarket continues to be again, we're always going to have line extensions.
Speaker Change: Applications that retire new applications, but where the growth is going to be driven is new to the aftermarket.
Kevin Olsen: But where the growth is going to be driven is new to the aftermarket. And that continues to be a strong driver of growth for us, Gary. And it's going to continue to be. But we don't specifically break out the number. I'd also say that even though the SKUs were flat in the quarter, the total new product sales dollars versus the same quarter last year were actually up. That's that's going to happen from a function of not only just units being up, but also average selling prices are up as we continue to focus on more complex parts.
Speaker Change: And that continues to be a strong driver of growth for us Gerry.
It's going to continue to be but we don't specifically break out.
Speaker Change: The number I would also say that.
Speaker Change: Even though the skus were flat in the quarter.
Speaker Change: The total total new product sales dollars versus the same quarter last year were actually up.
Speaker Change: That's going to happen.
Speaker Change: Our approach of not only just units being up but also average selling prices are up as we continue to focus on more complex parts.
Unknown Executive: Okay, I mean, that's that's helpful.
Speaker Change: Okay.
Gary Prestopino: And then getting back to the heavy duty. You're hearing that the market is stabilizing.
Speaker Change: That's helpful.
Speaker Change: And then getting back to the heavy duty.
Speaker Change: You are hearing that the market is.
Speaker Change: Stabilizing so.
Gary Prestopino: So in is the thought process that versus 20 versus what's happened in 2024 that it'll be flattish in 25 and then maybe increase in the 2026 as these new emission requirements especially in Europe come in for 2027.
Speaker Change: Is the thought process.
Speaker Change: Versus versus what's happened in 2024 that it'll be flattish in 'twenty five and then maybe increase in the 2026 as these new emission requirements, especially in Europe come in for 2027.
Kevin Olsen: You know, we haven't released guidance for 2025 at this point yet, Gary. But what I will say is that we're not going to plan on a significant inflection or growth. you know, in 2025.
Speaker Change: We haven't released guidance for 2025 at this point, yet Gary, but what I will say is there.
Speaker Change: It.
Speaker Change: We're not going to plan on.
Speaker Change: Significant inflection in growth.
Speaker Change: In 2025, we it's just too cloudy right now we do hope that its going to inflect. So our focus right now is to continue to work on new product development, which is again get that flywheel of new product into the market, which will drive growth for years to come and productivity initiatives across the business. So when it does inflect.
Kevin Olsen: We, it's just too cloudy right now. We do hope that it's going to inflect. So our focus right now is to continue to work on new product development, which is again, get that flywheel of new product into the market, which will drive growth for years to come and productivity initiatives across the business. So when it does inflect, we'll be well positioned to ride that wave up.
Speaker Change: We will be well positioned to.
Speaker Change: That wave up.
Speaker Change: Okay. Thank you.
Unknown Executive: Got it.
Speaker Change: Got it.
Unknown Executive: There's no further question at this time, that concludes today's call.
Speaker Change: There is no further question at this time that concludes today's call. Thank you all for joining and you may now disconnect.
Thank you all for joining and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.