Q1 2026 Dorman Products Inc Earnings Call

May 5, 2026

Operator: Good morning. Thank you for standing by. Welcome to the Dorman Products' Q1 2026 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 would now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead.

Speaker #2: A question-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 Whitelam, Vice President of Investor Relations.

Speaker #2: Thank you, sir. Please go ahead. Thank you. Good morning, everyone. Welcome to Dorman's first quarter 2026 earnings conference call. I'm joined by Kevin Olsen, Dorman's Chairman, President, and Chief Executive Officer.

Alex Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's Q1 2026 Earnings Conference Call. I'm joined by Kevin M. Olsen, Dorman's Chairman, President, and Chief Executive Officer, and Charles W. Rayfield, Dorman's Chief Financial Officer. Kevin will begin with a high-level overview of the quarter and share our segment-level performance and market trends. Charles will then walk through our Q1 financial results in more detail, discuss capital allocation, and then turn it back to Kevin for 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 in 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.

Alex Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's Q1 2026 Earnings Conference Call. I'm joined by Kevin Olsen, Dorman's Chairman, President, and Chief Executive Officer, and Charles Rayfield, Dorman's Chief Financial Officer. Kevin will begin with a high-level overview of the quarter and share our segment-level performance and market trends. Charles will then walk through our Q1 financial results in more detail, discuss capital allocation, and then turn it back to Kevin for closing remarks. After that, we'll open the call for questions.

Speaker #2: And Charles Rayfield, Dorman's Chief Financial Officer. Kevin will begin with a high-level overview of the quarter and share our segment-level performance and market trends.

Speaker #2: Charles will then walk through our first quarter financial results in more detail, discuss capital allocation, and then turn it back to Kevin for closing remarks.

Speaker #2: 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 Whitelam: By now, everyone should have access to our earnings release and earnings call presentation, which are available in 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 actual results to differ materially from those anticipated and described in such forward-looking statements.

Speaker #2: 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 #2: 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 and expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements.

Alex Whitelam: 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 statements. 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 participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions. With that, I'll turn the call over to Kevin.

Speaker #2: 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 on the Investor Relations section of Dorman's website.

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 participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions. With that, I'll turn the call over to Kevin.

Speaker #2: 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 Kevin.

Speaker #3: Thanks, Alex, and good morning, everyone. Thank you for joining us today. I'll begin with a brief overview of our first quarter results, and then provide commentary on the performance and key trends we're seeing across our business segments.

Kevin M. Olsen: Thanks, Alex. Good morning, everyone. Thank you for joining us today. I'll begin with a brief overview of our Q1 results and then provide commentary on the performance and key trends we're seeing across our business segments. Turning to slide 3, we delivered solid performance in Q1 with results that were largely in line with our expectations. Consolidated net sales were $529 million, representing an increase of 4% compared to the Q1 of last year. The year-over-year growth was primarily driven by pricing actions implemented across the business, partially offset by lower volumes compared to the exceptionally strong Q1 we experienced in 2025. Adjusted operating margin for the quarter was 12.1%, down 490 basis points compared to the prior year period.

Kevin Olsen: Thanks, Alex. Good morning, everyone. Thank you for joining us today. I'll begin with a brief overview of our Q1 results and then provide commentary on the performance and key trends we're seeing across our business segments. Turning to slide three, we delivered solid performance in Q1 with results that were largely in line with our expectations. Consolidated net sales were $529 million, representing an increase of 4% compared to the Q1 of last year. The year-over-year growth was primarily driven by pricing actions implemented across the business, partially offset by lower volumes compared to the exceptionally strong Q1 we experienced in 2025.

Speaker #3: Turning to slide three, we delivered solid performance in the first quarter, with results that were largely in line with our expectations. Consolidated net sales were $529 million, representing an increase of 4% compared to the first quarter of last year.

Speaker #3: Pricing actions implemented across the business, partially offset by lower volumes compared to the exceptionally strong first quarter we experienced in 2025. Adjusted operating margin for the quarter was 12.1%, down 490 basis points compared to the prior-year period.

Kevin Olsen: Adjusted operating margin for the quarter was 12.1%, down 490 basis points compared to the prior year period. This margin performance reflects the highest levels of tariff-related costs that we expect to see in 2026. Again, due to our use of FIFO, the costs recognized in this year's Q1 are associated with the inventory we purchased last year when tariff rates peaked in the earlier stages of the tariff implementation. Similarly, the sourcing, productivity, and automation initiatives that we executed over the last several months and continue to drive today are expected to support improved margin performance as we move through the balance of the year.

Speaker #3: This margin performance reflects the highest levels of tariff-related costs that we expect to see in 2026. Again, due to our use of FIFO, the costs recognized in this year's first quarter are associated with the inventory we purchased last year.

Kevin M. Olsen: This margin performance reflects the highest levels of tariff-related costs that we expect to see in 2026. Again, due to our use of FIFO, the costs recognized in this year's Q1 are associated with the inventory we purchased last year when tariff rates peaked in the earlier stages of the tariff implementation. Similarly, the sourcing, productivity, and automation initiatives that we executed over the last several months and continue to drive today are expected to support improved margin performance as we move through the balance of the year. Adjusted EBITDA margin, a new metric we've included this quarter, was 15.2%, down 440 basis points compared to the same period last year. This decrease is driven by lower operating margins, as I just covered. Please see the reconciliation in our appendix for details on this metric.

Speaker #3: When tariff rates peaked in the earlier stages of the tariff implementation, The similarly, the sourcing, productivity, and automation initiatives that we executed over the last several months and continue to drive today are expected to support improved margin performance as we move through the balance of the year.

Speaker #3: Adjusted EBITDA margin—a new metric we've included this quarter—was 15.2%, down 440 basis points compared to the same period last year. This decrease is driven by lower operating margins as I just covered.

Kevin Olsen: Adjusted EBITDA margin, a new metric we've included this quarter, was 15.2%, down 440 basis points compared to the same period last year. This decrease is driven by lower operating margins, as I just covered. Please see the reconciliation in our appendix for details on this metric. Adjusted diluted earnings per share for the quarter was also in line with expectations at $1.57, down approximately 22% year-over-year. As we've discussed over the last several quarters, this decline was primarily driven by higher levels of tariff-related costs that were recognized in our cost of goods sold during the quarter.

Speaker #3: Please see the reconciliation in our appendix for details on this metric. Adjusted diluted earnings per share for the quarter was also in line with expectations at $1.57, down approximately 22% year over year.

Kevin M. Olsen: Adjusted diluted earnings per share for the quarter was also in line with expectations at $1.57, down approximately 22% year over year. As we've discussed over the last several quarters, this decline was primarily driven by higher levels of tariff-related costs that were recognized in our cost of goods sold during the quarter. Cash generation continued to improve sequentially as expected, with operating cash flow in the quarter of $44 million. We also invested in opportunistic share repurchases, deploying $51 million in the quarter, a record for our company. Charles will cover this in more detail shortly. Overall, we began the year with solid performance and met our expectations. Combined with our positive outlook for the remainder of the year, we have reaffirmed our 2026 guidance.

Speaker #3: As we've discussed over the last several quarters, this decline was primarily driven by higher levels of tariff-related costs that were recognized in our cost of goods sold during the quarter.

Kevin Olsen: Cash generation continued to improve sequentially as expected, with operating cash flow in the quarter of $44 million. We also invested in opportunistic share repurchases, deploying $51 million in the quarter, a record for our company. Charles will cover this in more detail shortly. Overall, we began the year with solid performance and met our expectations. Combined with our positive outlook for the remainder of the year, we have reaffirmed our 2026 guidance.

Speaker #3: Cash generation continued to improve sequentially as expected, with operating cash flow in the quarter of $44 million. We also invested in opportunistic share repurchases deploying $51 million in the quarter—a record for our company.

Speaker #3: Charles will cover this in more detail shortly. So overall, we began the year with solid performance and met our expectations. Combined with our positive outlook for the remainder of the year, we have reaffirmed our 2026 guidance.

Speaker #3: Turning to slide four in our light-duty segment, net sales increased approximately 4% year over year, driven primarily by the pricing actions we undertook in 2025.

Kevin M. Olsen: Turning to slide 4 in our light-duty segment, net sales increased approximately 4% year over year, driven primarily by the pricing actions we undertook in 2025. Volume was lower compared to last year's Q1, but let me highlight a few driving factors. First, this year's performance was up against a difficult comparison to last year's Q1, where we drove exceptionally strong 14% year over year growth in net sales. Looking back over the last two years combined, we delivered 18% growth in net sales. Second, ordering patterns with the customer we discussed on our last call began to normalize during the quarter. Lastly, I call out that we estimate POS with our large customers was up mid-single digits in the quarter.

Kevin Olsen: Turning to slide four in Light Duty segment, net sales increased approximately 4% year-over-year, driven primarily by the pricing actions we undertook in 2025. Volume was lower compared to last year's Q1, but let me highlight a few driving factors. First, this year's performance was up against a difficult comparison to last year's Q1, where we drove exceptionally strong 14% year-over-year growth in net sales. Looking back over the last two years combined, we delivered 18% growth in net sales. Second, ordering patterns with the customer we discussed on our last call began to normalize during the quarter. Lastly, I call out that we estimate POS with our large customers was up mid-single digits in the quarter.

Speaker #3: Volume was lower compared to last year's first quarter, but let me highlight a few driving factors. First, this year's performance was up against a difficult comparison to last year's first quarter.

Speaker #3: Where we drove exceptionally strong 14% year over year growth in net sales. Looking back over the last two years combined, we delivered 18% growth in net sales.

Speaker #3: Second, ordering patterns with the customer we discussed on our last call began to normalize during the quarter. Lastly, I'd call out that we estimate POS with our large customers was up mid-single digits in the quarter.

Speaker #3: And while there was inflation embedded in that growth, we remain confident in the nondiscretionary nature of our portfolio and will continue to monitor the overall economic conditions of our end users and the impact that the ongoing geopolitical tensions are having on the broader economy.

Kevin M. Olsen: While there was inflation embedded in that growth, we remain confident in the non-discretionary nature of our portfolio and will continue to monitor the overall economic conditions of our end users and the impact that the ongoing geopolitical tensions are having on the broader economy. Operating margin performance in the quarter was consistent with our outlook as Q1 2026 reflected the highest level of tariff expense. As the ongoing benefits of our supplier diversification, productivity, and automation initiatives are recognized, we expect light-duty's margin performance to improve as the year progresses. From a market perspective, underlying light-duty fundamentals remain positive, with vehicle miles traveled increasing year over year in Q1. Higher used vehicle values are impacting consumers' buying decisions, which we believe will result in extended vehicle life and support sustained aftermarket demand for repair and replacement parts.

Kevin Olsen: While there was inflation embedded in that growth, we remain confident in the non-discretionary nature of our portfolio and will continue to monitor the overall economic conditions of our end users and the impact that the ongoing geopolitical tensions are having on the broader economy. Operating margin performance in the quarter was consistent with our outlook as Q1 2026 reflected the highest level of tariff expense. As the ongoing benefits of our supplier diversification, productivity, and automation initiatives are recognized, we Light Duty's margin performance to improve as the year progresses. From a market perspective, Light Duty fundamentals remain positive, with vehicle miles traveled increasing year over year in Q1. Higher used vehicle values are impacting consumers' buying decisions, which we believe will result in extended vehicle life and support sustained aftermarket demand for repair and replacement parts.

Speaker #3: Operating margin performance in the quarter was consistent with our outlook, as Q1 2026 reflected the highest level of tariff expense. As the ongoing benefits of our supplier diversification and productivity and automation initiatives are recognized, we expect light-duty's margin performance to improve as the year progresses.

Speaker #3: From a market perspective, underlying light-duty fundamentals remain positive. With vehicle miles traveled increasing year over year in the first quarter, also higher used vehicle values are impacting consumers' buying decisions which we believe will result in extended vehicle life and support sustained aftermarket demand for repair and replacement parts.

Speaker #3: In addition, light-duty trucks and SUVs continue to represent a growing portion of the VIO, providing further opportunity for product portfolio expansion. Higher average selling prices.

Kevin M. Olsen: In addition, light-duty trucks and SUVs continue to represent a growing portion of the VIO, providing further opportunity for product portfolio expansion and higher average selling prices. A good example of how our innovation strategy supports this opportunity is our OE FIX air suspension compressor for a broad set of GM SUV models. This product addresses a common OEM failure mode caused by overheating, which can lead to cascading failures throughout the air suspension system. Our patent-pending design improves heat dissipation by approximately 25%, incorporates thermal protection, and utilizes proprietary software to optimize performance and reliability. By delivering an upgraded repair solution designed to last longer and at an attractive aftermarket price point, products like this not only create value for installers and end users, but also reinforce Dorman's leadership in product innovation. Just an excellent job by our light-duty team to deliver another OE FIX solution.

Kevin Olsen: In Light Duty trucks and SUVs continue to represent a growing portion of the VIO, providing further opportunity for product portfolio expansion and higher average selling prices. A good example of how our innovation strategy supports this opportunity is our OE FIX air suspension compressor for a broad set of GM SUV models. This product addresses a common OEM failure mode caused by overheating, which can lead to cascading failures throughout the air suspension system. Our patent-pending design improves heat dissipation by approximately 25%, incorporates thermal protection, and utilizes proprietary software to optimize performance and reliability.

Speaker #3: A good example of how our innovation strategy supports this opportunity is our OE Fix air suspension compressor for a broad set of GM SUV models.

Speaker #3: This product addresses a common OEM failure mode caused by overheating which can lead to cascading failures throughout the air suspension system. Our patent-pending design improves heat dissipation by approximately 25%, incorporates thermal protection, and utilizes proprietary software to optimize performance and reliability.

Speaker #3: By delivering an upgraded repair solution designed to last longer, and at an attractive aftermarket price point, products like this not only create value for installers and end users but also reinforce Dorman's leadership in product innovation.

Kevin Olsen: By delivering an upgraded repair solution designed to last longer and at an attractive aftermarket price point, products like this not only create value for installers and end users, but also reinforce Dorman's leadership in product innovation. Just an excellent job by Light Duty team to deliver another OE FIX solution. Turning to slide 5 in our heavy-duty segment, net sales increased approximately 12% compared to last year's Q1, driven by pricing initiatives and the year-over-year impact of certain commercialization initiatives we have installed in the business. While the dollar change is relatively small, operating margin improved 110 basis points versus the prior year.

Speaker #3: Just an excellent job by our light-duty team to deliver another OE Fix solution. Turning to slide five in our heavy-duty segment, net sales increased approximately 12% compared to last year's first quarter.

Kevin M. Olsen: Turning to slide 5 in our heavy-duty segment, net sales increased approximately 12% compared to last year's Q1, driven by pricing initiatives and the year-over-year impact of certain commercialization initiatives we have installed in the business. While the dollar change is relatively small, operating margin improved 110 basis points versus the prior year. I'll also point out that the lower overall margin reflects tariff-related costs that were elevated in Q1 of 2026. With the impact that tariffs will have on our margins this year, along with the infrastructure investments we've made in the business, we're not expecting significant year-over-year incremental operating margin improvement in 2026. That said, we'll continue to appropriately manage the business in the short term while executing on our strategy to drive a significantly improved operating margin profile for heavy-duty over the long term.

Speaker #3: Driven by pricing initiatives and the year-over-year impact of certain commercialization initiatives we have installed in the business. While the dollar change was relatively small, operating margin improved 110 basis points versus the prior year.

Speaker #3: I'll also point out that the lower overall margin reflects tariff-related costs that were elevated in the first quarter of 2026. With the impact that tariffs will have on our margins this year, along with the infrastructure investments we've made in the business, we're not expecting significant year-over-year incremental operating margin improvement in 2026.

Kevin Olsen: I'll also point out that the lower overall margin reflects tariff-related costs that were elevated in Q1 of 2026. With the impact that tariffs will have on our margins this year, along with the infrastructure investments we've made in the business, we're not expecting significant year-over-year incremental operating margin improvement in 2026. That said, we'll continue to appropriately manage the business in the short term while executing on our strategy to drive a significantly improved operating margin profile for heavy-duty over the long term.

Speaker #3: That said, we'll continue to appropriately manage the business in the short term, while executing on our strategy to drive a significantly improved operating margin profile for heavy-duty over the long term.

Speaker #3: On the broader sector, market conditions remain challenged. Great freight recession continued through the first quarter, and geopolitical tensions created further economic uncertainty for consumer demand.

Kevin M. Olsen: On the broader sector, market conditions remain challenged. Great freight recession continued through Q1, and geopolitical tensions created further economic uncertainty for consumer demand. As a result, near-term visibility remains limited, and we are not expecting meaningful growth in freight tonnage throughout the year. However, we continue to capture market share in certain channels, such as the OE dealer network, where there has been an increased appetite for aftermarket solutions. Overall, we continue to see opportunities for growth. We remain focused on balancing our approach with cost discipline and strategic investment that will allow us to continue capitalizing on these opportunities when the market improves. As a great example, we are encouraged by the opportunity we see within our diesel aftertreatment portfolio, which we believe represents a meaningful long-term growth driver for the heavy-duty segment.

Kevin Olsen: On the broader sector, market conditions remain challenged. Great freight recession continued through Q1, and geopolitical tensions created further economic uncertainty for consumer demand. As a result, near-term visibility remains limited, and we are not expecting meaningful growth in freight tonnage throughout the year. However, we continue to capture market share in certain channels, such as the OE dealer network, where there has been an increased appetite for aftermarket solutions. Overall, we continue to see opportunities for growth. We remain focused on balancing our approach with cost discipline and strategic investment that will allow us to continue capitalizing on these opportunities when the market improves. As a great example, we are encouraged by the opportunity we see within our diesel aftertreatment portfolio, which we believe represents a meaningful long-term growth driver for the heavy-duty segment.

Speaker #3: As a result, near-term visibility remains limited, and we are not expecting meaningful growth in freight tonnage throughout the year. However, we continue to capture market share in certain channels such as the OE dealer network, where there has been an increased appetite for aftermarket solutions.

Speaker #3: Overall, we continue to see opportunities for growth. We remain focused on balancing our approach with cost discipline and strategic investment that will allow us to continue capitalizing on these opportunities when the market improves.

Speaker #3: As a great example, we are encouraged by the opportunity we see within our diesel after-treatment portfolio. Which we believe represents a meaningful long-term growth driver for the heavy-duty segment.

Speaker #3: Modern diesel engines rely on diesel exhaust fluid or DEF systems. To meet increasingly stringent emissions regulations. These systems are subject to high failure rates due to harsh operating conditions, temperature extremes, and sensor degradation.

Kevin M. Olsen: Modern diesel engines rely on diesel exhaust fluid or DEF systems to meet increasingly stringent emissions regulations. These systems are subject to high failure rates due to harsh operating conditions, temperature extremes, and sensor degradation, making reliable aftermarket solutions critical for fleet uptime. Through our Dayton Parts brand, we offer one of the most comprehensive portfolios of replacement parts for diesel aftertreatment, including DEF headers and pumps. Our solutions provide plug-and-play installation and meet or exceed OE performance at an aftermarket price. These products are built with durable materials, subjected to extensive testing, incorporate best-in-class sensor technology designed for long service life. As the installed base of DEF-equipped vehicles continues to age and fleet acceptance of aftermarket solutions increase, we believe our leadership in aftertreatment systems positions us exceptionally well to serve fleet customers and capture incremental share over time.

Kevin Olsen: Modern diesel engines rely on diesel exhaust fluid or DEF systems to meet increasingly stringent emissions regulations. These systems are subject to high failure rates due to harsh operating conditions, temperature extremes, and sensor degradation, making reliable aftermarket solutions critical for fleet uptime. Through our Dayton Parts brand, we offer one of the most comprehensive portfolios of replacement parts for diesel aftertreatment, including DEF headers and pumps. Our solutions provide plug-and-play installation and meet or exceed OE performance at an aftermarket price. These products are built with durable materials, subjected to extensive testing, incorporate best-in-class sensor technology designed for long service life. As the installed base of DEF-equipped vehicles continues to age and fleet acceptance of aftermarket solutions increase, we believe our leadership in aftertreatment systems positions us exceptionally well to serve fleet customers and capture incremental share over time.

Speaker #3: Making reliable aftermarket solutions critical for fleet uptime. Through our Dayton Parts brand, we offer one of the most comprehensive portfolios of replacement parts for diesel after-treatment.

Speaker #3: Including DEF headers and pumps, our solutions provide plug-and-play installation, and meters exceed OE performance at an aftermarket price. These products are built with durable materials, subjected to extensive testing, and incorporate best-in-class sensor technology designed for long service life.

Speaker #3: As the installed base of DEF equipped vehicles continues to age and fleet acceptance of aftermarket solutions increase, we believe our leadership in after-treatment systems positions us exceptionally well to serve fleet customers and capture incremental share over time.

Speaker #3: Congratulations to our Dayton Parts team for bringing this opportunity to market. Turning to slide six in our Specialty Vehicle segment, net sales were flat year over year.

Kevin M. Olsen: Congratulations to our Dayton Parts team for bringing this opportunity to market. Turning to slide 6 in our Specialty Vehicle segment, net sales were flat year over year as pricing actions in certain categories offset slightly lower volume year over year. Keep in mind that from a seasonality standpoint, Q1 is typically the slowest quarter of the year. Operating margin performance was in line with our expectations, reflecting higher tariff-related costs. We're also investing in our expanded dealer network to drive more wallet share and optimize our footprint. From a market perspective, we are seeing early signs of stabilization as we enter the 2026 riding season, with new vehicle sales increasing year over year in Q1. We also continue to see strong engagement with our ridership as attendance at the national UTV, ATV events remain high.

Kevin Olsen: Congratulations to our Dayton Parts team for bringing this opportunity to market. Turning to slide 6 in our Specialty Vehicle segment, net sales were flat year over year as pricing actions in certain categories offset slightly lower volume year over year. Keep in mind that from a seasonality standpoint, Q1 is typically the slowest quarter of the year. Operating margin performance was in line with our expectations, reflecting higher tariff-related costs. We're also investing in our expanded dealer network to drive more wallet share and optimize our footprint. From a market perspective, we are seeing early signs of stabilization as we enter the 2026 riding season, with new vehicle sales increasing year over year in Q1. We also continue to see strong engagement with our ridership as attendance at the national UTV, ATV events remain high.

Speaker #3: As pricing actions in certain categories offset slightly lower volume year over year. Keep in mind that from a seasonality standpoint, Q1 is typically the slowest quarter of the year.

Speaker #3: Operating margin performance was in line with our expectations, collecting higher tariff-related costs. We're also investing in our expanded dealer network to drive more wallet share and optimize our footprint.

Speaker #3: From a market perspective, we are seeing early signs of stabilization as we enter the 2026 riding season, with new vehicle sales increasing year over year in the first quarter.

Speaker #3: We also continue to see strong engagement with our ridership as attendance at the national UTVATV events remain high. Additionally, we're seeing new lower-cost entry-level vehicles entering the market that offer improved opportunities for aftermarket enhancements.

Kevin M. Olsen: Additionally, we're seeing new lower-cost entry-level vehicles entering the market that offer improved opportunities for aftermarket enhancements. One new product that illustrates this opportunity well is the power steering kit developed for the new Polaris Ranger 500 platform. As many of you know, Polaris recently introduced the Ranger 500 as a more stripped-down, cost-effective utility vehicle designed to appeal to a broad customer base, including fleet users, recreational riders, first-time buyers. By design, this platform ships with more basic features, which creates an attractive opportunity for the aftermarket to enhance functionality and performance through accessories and add-on components. Power steering is a good example. While the Ranger 500 does not include power steering as standard equipment, demand for steering assist remains high, particularly among users operating in rough terrain or using the vehicle for work applications.

Kevin Olsen: Additionally, we're seeing new lower-cost entry-level vehicles entering the market that offer improved opportunities for aftermarket enhancements. One new product that illustrates this opportunity well is the power steering kit developed for the new Polaris Ranger 500 platform. As many of you know, Polaris recently introduced the Ranger 500 as a more stripped-down, cost-effective utility vehicle designed to appeal to a broad customer base, including fleet users, recreational riders, first-time buyers. By design, this platform ships with more basic features, which creates an attractive opportunity for the aftermarket to enhance functionality and performance through accessories and add-on components. Power steering is a good example. While the Ranger 500 does not include power steering as standard equipment, demand for steering assist remains high, particularly among users operating in rough terrain or using the vehicle for work applications.

Speaker #3: One new product that illustrates this opportunity well is the power steering kit developed for the new Polaris Ranger 500 platform. As many of you know, Polaris recently introduced the Ranger 500 as a more stripped-down, cost-effective utility vehicle designed to appeal to a broad customer base.

Speaker #3: Including fleet users, recreational riders, and first-time buyers. By design, this platform shifts with more basic features, which creates an attractive opportunity for the aftermarket to enhance functionality and performance to accessories and add-on components.

Speaker #3: Power steering is a good example. By the Ranger 500 does not include power steering as standard equipment, demand for steering assist remains high. Particularly among the users operating in rough terrain or using the vehicle for work applications.

Kevin M. Olsen: SuperATV power steering kit provides a bolt-on solution that significantly reduces steering effort and feedback, improving control and reducing operator fatigue. This system is engineered for easier installation and features sealed input and output shafts, along with watertight connectors designed to withstand harsh riding environments. Congratulations to the team at SuperATV for being the first to bring this solution to market. With that, I'll turn it over to Charles to cover our results in more detail. Charles?

Kevin Olsen: SuperATV power steering kit provides a bolt-on solution that significantly reduces steering effort and feedback, improving control and reducing operator fatigue. This system is engineered for easier installation and features sealed input and output shafts, along with watertight connectors designed to withstand harsh riding environments. Congratulations to the team at SuperATV for being the first to bring this solution to market. With that, I'll turn it over to Charles to cover our results in more detail. Charles?

Speaker #3: Super ATV power steering kit provides a bolt-on solution that significantly reduces steering effort and feedback, improving control and reducing operator fatigue. This system is engineered for easier installation, and features sealed input and output shafts along with watertight connectors designed to withstand harsh riding environments.

Speaker #3: Congratulations to the team at Super ATV for being the first to bring this solution to market. With that, I'll turn over to Charles to cover our results in more detail.

Speaker #3: Charles?

Speaker #2: Thanks, Kevin. First, let me say it's been great getting to know a number of our analysts and investors since joining the company in January.

Charles W. Rayfield: Thanks, Kevin. Let me say it's been great getting to know a number of our analysts and investors since joining the company in January, and I'm looking forward to spending more time with all of you in the future. Turning now to slide 7, I'll walk through our consolidated financial performance for Q1. Total net sales for the quarter were $529 million, up 4% compared to the prior year period. The increase was primarily driven by pricing actions across our segments, partially offset by volume declines versus last year, where we had an exceptionally strong quarter from a volume standpoint. As Kevin mentioned, compared to Q1 of 2024, our two-year net sales growth rate was a strong 18%.

Charles Rayfield: Thanks, Kevin. Let me say it's been great getting to know a number of our analysts and investors since joining the company in January, and I'm looking forward to spending more time with all of you in the future. Turning now to slide 7, I'll walk through our consolidated financial performance for Q1. Total net sales for the quarter were $529 million, up 4% compared to the prior year period. The increase was primarily driven by pricing actions across our segments, partially offset by volume declines versus last year, where we had an exceptionally strong quarter from a volume standpoint. As Kevin mentioned, compared to Q1 of 2024, our two-year net sales growth rate was a strong 18%.

Speaker #2: And I'm looking forward to spending more time with all of you in the future. Turning now to slide seven, I'll walk through our consolidated financial performance for the first quarter.

Speaker #2: Total net sales for the quarter were $529 million, up 4% compared to the prior year period. The increase was primarily driven by pricing actions across our segments, partially offset by volume declines versus last year, where we had an exceptionally strong quarter from a volume standpoint.

Speaker #2: As Kevin mentioned, compared to Q1 of 2024, our two-year net sales growth rate was a strong 18%. Adjusted gross margin was in line with our expectations at 36%, down 490 basis points compared to last year's first quarter.

Charles W. Rayfield: Adjusted gross margin was in line with our expectations at 36%, down 490 basis points compared to last year's Q1. As the company has previously covered, our pricing initiatives have been implemented to address a range of incremental costs, including tariffs, while considering the competitive dynamic of our parts in the marketplace. This has resulted in a negative impact to our overall margin profile in the short term. That said, we expect our margin profile will meaningfully improve as the year progresses for two main reasons. First, as we discussed previously, this Q1 had the highest level of tariff expense we'll see in 2026, given the inventory we sold was associated with the highest level of duties that were levied in 2025.

Charles Rayfield: Adjusted gross margin was in line with our expectations at 36%, down 490 basis points compared to last year's Q1. As the company has previously covered, our pricing initiatives have been implemented to address a range of incremental costs, including tariffs, while considering the competitive dynamic of our parts in the marketplace. This has resulted in a negative impact to our overall margin profile in the short term. That said, we expect our margin profile will meaningfully improve as the year progresses for two main reasons. First, as we discussed previously, this Q1 had the highest level of tariff expense we'll see in 2026, given the inventory we sold was associated with the highest level of duties that were levied in 2025.

Speaker #2: As the company has previously covered, our pricing initiatives have been implemented to address a range of incremental costs, including tariffs, while considering the competitive dynamic of our parts in the marketplace.

Speaker #2: This has resulted in a negative impact to our overall margin profile in the short term. That said, we expect our margin profile will meaningfully improve as the year progresses for two main reasons.

Speaker #2: First, as we discussed previously, this first quarter had the highest level of tariff expense we'll see in 2026. Given the inventory we sold was associated with the highest level of duties that were levied in 2025.

Speaker #2: And second, we anticipate that our supplier diversification, productivity, and automation initiatives will make significant contributions to our margin profile as the year moves forward.

Charles W. Rayfield: Second, we anticipate that our supplier diversification, productivity, and automation initiatives will make significant contributions to our margin profile as the year moves forward. While our teams did an excellent job managing discretionary costs during the quarter, our adjusted operating income margin was 12.1%, down in conjunction with our gross margin. Adjusted diluted EPS was $1.57, driven by lower operating income, partially offset by lower interest expense and lower shares due to repurchases. Turning to slide 8, operating cash flow for the quarter was $44 million, and free cash flow was $35 million. As you can see on this slide, our cash flow improved sequentially from Q4 2025 and has rebounded nicely from this time last year when our cash payments for tariffs peaked in the middle of 2025.

Charles Rayfield: Second, we anticipate that our supplier diversification, productivity, and automation initiatives will make significant contributions to our margin profile as the year moves forward. While our teams did an excellent job managing discretionary costs during the quarter, our adjusted operating income margin was 12.1%, down in conjunction with our gross margin. Adjusted diluted EPS was $1.57, driven by lower operating income, partially offset by lower interest expense and lower shares due to repurchases. Turning to slide 8, operating cash flow for the quarter was $44 million, and free cash flow was $35 million. As you can see on this slide, our cash flow improved sequentially from Q4 2025 and has rebounded nicely from this time last year when our cash payments for tariffs peaked in the middle of 2025.

Speaker #2: While our team stood an excellent job managing discretionary costs during the quarter, our adjusted operating income margin was 12.1%, down in conjunction with our gross margin.

Speaker #2: Adjusted diluted EPS was $1.57, driven by lower operating income, partially offset by lower interest expense and lower shares due to repurchases. Turning to slide eight, operating cash flow for the quarter was $44 million, and free cash flow was $35 million.

Speaker #2: As you can see on this slide, our cash flow improved sequentially from Q4 2025 and has rebounded nicely from this time last year, when our cash payments for tariffs peaked in the middle of 2025.

Speaker #2: I'll add that we've reduced inventory significantly year over year and we remain on track to generate a more normalized level of free cash flow for the year.

Charles W. Rayfield: I'll add that we've reduced inventory significantly year over year, and we remain on track to generate a more normalized level of free cash flow for the year. On the capital allocation front, we deployed more than $51 million in the quarter to retire approximately 435,000 shares at an average price of approximately $118 a share. This represented a quarterly record level of repurchases for our company and also our view that there was a dislocation in the market valuation for our stock, which prompted us to utilize our strong balance sheet to return capital to our shareholders. We currently have $408 million remaining in share repurchase authorization, which extends through 2027. Turning to slide 9, our long-term capital allocation strategy remains unchanged.

Charles Rayfield: I'll add that we've reduced inventory significantly year over year, and we remain on track to generate a more normalized level of free cash flow for the year. On the capital allocation front, we deployed more than $51 million in the quarter to retire approximately 435,000 shares at an average price of approximately $118 a share. This represented a quarterly record level of repurchases for our company and also our view that there was a dislocation in the market valuation for our stock, which prompted us to utilize our strong balance sheet to return capital to our shareholders. We currently have $408 million remaining in share repurchase authorization, which extends through 2027. Turning to slide 9, our long-term capital allocation strategy remains unchanged.

Speaker #2: On the capital allocation front, we deployed more than $51 million in the quarter to retire approximately $435,000 shares, at an average price of approximately $118 a share.

Speaker #2: This represented a quarterly record level of repurchases for our company, and also our view that there was a dislocation in the market valuation for our stock, which prompted us to utilize our strong balance sheet to return capital to our shareholders.

Speaker #2: We currently have $408 million remaining in share repurchase authorization, which extends through 2027. Turning to slide nine, our long-term capital allocation strategy remains unchanged.

Speaker #2: We first review our debt levels and leverage ratios, then we deploy capital on internal initiatives as this is where we see our greatest returns.

Charles W. Rayfield: We first review our debt levels and leverage ratios, then we deploy capital on internal initiatives, as this is where we see our greatest returns. Next, we invest in M&A, which continues to be a key component of our growth strategy. Finally, we will continue to return capital to our shareholders through opportunistic share repurchases. With this consistent approach, we've deployed $1.8 billion of capital since 2020 and expect that our overall strategy will continue to drive long-term growth. Turning to slide 10, our balance sheet remains a significant strength for Dorman. We ended the quarter with net debt of approximately $413 million and total liquidity of $627 million.

Charles Rayfield: We first review our debt levels and leverage ratios, then we deploy capital on internal initiatives, as this is where we see our greatest returns. Next, we invest in M&A, which continues to be a key component of our growth strategy. Finally, we will continue to return capital to our shareholders through opportunistic share repurchases. With this consistent approach, we've deployed $1.8 billion of capital since 2020 and expect that our overall strategy will continue to drive long-term growth. Turning to slide 10, our balance sheet remains a significant strength for Dorman. We ended the quarter with net debt of approximately $413 million and total liquidity of $627 million.

Speaker #2: Next, we invest in M&A, which continues to be a key component of our growth strategy. And finally, we will continue to return capital to our shareholders through opportunistic share repurchases.

Speaker #2: With this consistent approach, we've deployed $1.8 billion of capital since 2020 and expect that our overall strategy will continue to drive long-term growth. Turning to slide 10, our balance sheet remains a significant strength for Dorman.

Speaker #2: We ended the quarter with net debt of approximately $413 million, and total liquidity of $627 million. Our total net leverage ratio at the end of the quarter was 0.99 times our adjusted EBITDA, demonstrating our ample flexibility to support the business, manage through tariff-related working capital demands, and continue investing in strategic growth opportunities.

Charles W. Rayfield: Our total net leverage ratio at the end of the quarter was 0.99 times our Adjusted EBITDA, demonstrating our ample flexibility to support the business, manage through tariff-related working capital demands, and continue investing in strategic growth opportunities. As we highlighted on the previous slide, our target net leverage ratio is less than 2 times Adjusted EBITDA and approximately 3 times for the 12 months following an acquisition. Turning to slide 11, we are reaffirming our full year 2026 guidance. We continue to expect net sales growth in the range of 7% to 9%, driven by the full year impact of our pricing initiatives, along with a modest level of volume growth that we expect to be primarily in H2. Looking across the segments, we expect all 3 segments to directionally perform within this range.

Charles Rayfield: Our total net leverage ratio at the end of the quarter was 0.99 times our Adjusted EBITDA, demonstrating our ample flexibility to support the business, manage through tariff-related working capital demands, and continue investing in strategic growth opportunities. As we highlighted on the previous slide, our target net leverage ratio is less than 2 times Adjusted EBITDA and approximately 3 times for the 12 months following an acquisition. Turning to slide 11, we are reaffirming our full year 2026 guidance. We continue to expect net sales growth in the range of 7% to 9%, driven by the full year impact of our pricing initiatives, along with a modest level of volume growth that we expect to be primarily in H2. Looking across the segments, we expect all 3 segments to directionally perform within this range.

Speaker #2: As we highlighted on the previous slide, our target net leverage ratio is less than 2 times adjusted EBITDA, and approximately 3 times for the 12 months following an acquisition.

Speaker #2: Turning to slide 11, we are reaffirming our full year 2026 guidance. We continue to expect net sales growth in the range of 7% to 9%, driven by the full year impact of our pricing initiatives, along with a modest level of volume growth that we expect to be primarily in the back half of the year.

Speaker #2: Looking across the segments, we expect all three segments to directionally perform within this range. We also continue to expect adjusted operating margin to be in the range of 15 to 16 percent for the full year, with a more normalized high teens rate as we exit the year.

Charles W. Rayfield: We also continue to expect adjusted operating margin to be in the range of 15% to 16% for the full year with a more normalized high teens rate as we exit the year. Adjusted diluted EPS for 2026 is expected to be in the range of $8.10 to $8.50. This guidance includes the expected impact of tariffs enacted as of 4 May 2026. Due to uncertainty around the recovery of IEEPA tariffs previously paid, our guidance excludes any impact from the potential IEEPA tariff refunds. Additionally, our guidance does not include any potential tariff changes after 4 May 2026, future acquisitions or divestitures or additional share repurchases. Lastly, we continue to expect a full-year tax rate of approximately 23.5%. With that, I'll now turn the call back over to Kevin to conclude. Kevin?

Charles Rayfield: We also continue to expect adjusted operating margin to be in the range of 15% to 16% for the full year with a more normalized high teens rate as we exit the year. Adjusted diluted EPS for 2026 is expected to be in the range of $8.10 to $8.50. This guidance includes the expected impact of tariffs enacted as of 4 May 2026. Due to uncertainty around the recovery of IEEPA tariffs previously paid, our guidance excludes any impact from the potential IEEPA tariff refunds. Additionally, our guidance does not include any potential tariff changes after 4 May 2026, future acquisitions or divestitures or additional share repurchases. Lastly, we continue to expect a full-year tax rate of approximately 23.5%. With that, I'll now turn the call back over to Kevin to conclude. Kevin?

Speaker #2: Adjusted diluted EPS for 2026 is expected to be in the range of $8.10 to $8.50. This guidance includes the expected impact of tariffs enacted as of May 4, 2026.

Speaker #2: Due to uncertainty around the recovery of IEPA tariffs previously paid, our guidance excludes any impact from the potential IEPA tariff refunds. Additionally, our guidance does not include any potential tariff changes after May 4, 2026.

Speaker #2: Each acquisitions are divestitures, or additional share repurchases. Lastly, we continue to expect a full year tax rate of approximately 23.5%. With that, I'll now turn the call back over to Kevin to conclude.

Speaker #2: Kevin?

Speaker #1: Thanks, Charles. I'll just reiterate what we said throughout the call. Our first quarter performance was solid and in line with our expectations. While uncertainty persists in the broader economic landscape, we remain confident in our strategic positioning, our ability to navigate near-term challenges, and our long-term growth opportunities driven by innovation, operational discipline, and our leadership position in the aftermarket.

Kevin M. Olsen: Thanks, Charles. I'll just reiterate what we said throughout the call. Our Q1 performance was solid and in line with our expectations. While uncertainty persists in the broader economic landscape, we remain confident in our strategic positioning, our ability to navigate near-term challenges, and our long-term growth opportunities driven by innovation, operational discipline, and our leadership position in the aftermarket. We appreciate your continued interest and support. With that, we'll open the call up for questions. Operator?

Kevin Olsen: Thanks, Charles. I'll just reiterate what we said throughout the call. Our Q1 performance was solid and in line with our expectations. While uncertainty persists in the broader economic landscape, we remain confident in our strategic positioning, our ability to navigate near-term challenges, and our long-term growth opportunities driven by innovation, operational discipline, and our leadership position in the aftermarket. We appreciate your continued interest and support. With that, we'll open the call up for questions. Operator?

Speaker #1: We appreciate your continued interest and support, and with that, we'll open the call up for questions. Operator?

Speaker #3: Thank you. Ladies and gentlemen, we will now begin the Q&A session. And at this time, I would like to give the instructions for Q&A if you would like to ask a question, please press star followed by the number one on your telephone keypad.

Operator: Thank you. Ladies and gentlemen, we will now begin the Q&A session. At this time, I would like to give the instructions for Q&A. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. In the interest of time, we ask that you please limit your questions to one question and one follow-up. Afterwards, you may rejoin the queue. Our first question comes from the line of Jeff Lake with Stephens. Please go ahead.

Speaker #3: And if you would like to withdraw your question, press star one again. In the interest of time, we ask that you please limit your questions to one question and one follow-up.

Speaker #3: Afterwards, you may rejoin the queue. Our first question comes from the line of Jeff Lakewood Stephens. Please go ahead.

Speaker #2: Good morning and thanks for taking my question. Kevin, I was wondering if you could maybe just elaborate a little more and provide a little more color as the year plays out.

Jeff Lake: Good morning, and thanks for taking my question. Kevin, I was wondering if you could maybe just elaborate a little more, provide a little more color as the year plays out. Obviously, this is probably one of the trickier quarters you're gonna face, you know, selling the, you know, the most tariff-affected inventory from last year with the FIFO, and then obviously you had the added wrinkle of the major customer disruption. I was wondering as you just think through as you step Q2, Q3, Q4, how that's gonna progress. Maybe if you could weave in anything with regards to complex electronic parts and product innovation, that'd be great.

Jeff Lick: Good morning, and thanks for taking my question. Kevin, I was wondering if you could maybe just elaborate a little more, provide a little more color as the year plays out. Obviously, this is probably one of the trickier quarters you're gonna face, you know, selling the, you know, the most tariff-affected inventory from last year with the FIFO, and then obviously you had the added wrinkle of the major customer disruption. I was wondering as you just think through as you step Q2, Q3, Q4, how that's gonna progress. Maybe if you could weave in anything with regards to complex electronic parts and product innovation, that'd be great.

Speaker #2: Obviously, this is probably one of the trickier quarters you're going to face. Selling the most tariff-affected inventory from last year with the FIFO, and then obviously you had the added wrinkle of the major customer disruption.

Speaker #2: I was wondering, as you just think through as you step Q2, Q3, Q4, how that's going to progress, and then maybe if you could weave in anything with regards to complex electronic parts and product innovation.

Speaker #2: That'd be great.

Kevin M. Olsen: A lot there, Jeff, but let me give that a shot. Good questions. So Jeff, just let me start with the sales progression. You mentioned the dislocation we had with a large customer that we mentioned in Q4. I'll just comment that, you know, as we entered the quarter, we saw some dislocation continued. But as we exited the quarter, it was more normal rates and ordering patterns kind of fell more in line with, you know, the out the door POS sales. When you look at the overall growth rate, you know, you gotta keep in mind that last year, particularly in H1, was an extremely strong volume growth period for us.

Kevin Olsen: A lot there, Jeff, but let me give that a shot. Good questions. So Jeff, just let me start with the sales progression. You mentioned the dislocation we had with a large customer that we mentioned in Q4. I'll just comment that, you know, as we entered the quarter, we saw some dislocation continued. But as we exited the quarter, it was more normal rates and ordering patterns kind of fell more in line with, you know, the out the door POS sales. When you look at the overall growth rate, you know, you gotta keep in mind that last year, particularly in H1, was an extremely strong volume growth period for us.

Speaker #1: Blackbear, Jeff, but let me give that a shot. Good questions. So Jeff, let me start with the sales progression. You mentioned the dislocation we had with a large customer, that we mentioned in the fourth quarter.

Speaker #1: I'll just comment that as we enter the quarter, we saw some dislocation. Continued. But as we exited the quarter, it was more normal rates and ordering patterns kind of fell more in line with the out-the-door POS sales.

Speaker #1: When you look at the overall growth rate, you got to keep in mind that last year, particularly in the first half, was an extremely strong volume growth period for us.

Speaker #1: Light-duty grew 14% in the first quarter last year, so a very difficult comp. The first half of the year was up about 12% in light-duty.

Kevin M. Olsen: light duty grew 14% in Q1 last year, so a very difficult comp. The H1 of the year was up about 12% in light duty. We know that the growth from a year-over-year perspective will be challenged in H1. As we exit the H2, you know, we're still very comfortable with our 7% to 9% full-year guide, as, you know, we have a full year of the pricing initiatives in play. We also have a lot of new business coming online as well as continued new product launches. We still feel very comfortable with that guide.

Kevin Olsen: Light Duty grew 14% in Q1 last year, so a very difficult comp. The H1 of the year was up about 12% in Light Duty. We know that the growth from a year-over-year perspective will be challenged in H1. As we exit the H2, you know, we're still very comfortable with our 7% to 9% full-year guide, as, you know, we have a full year of the pricing initiatives in play. We also have a lot of new business coming online as well as continued new product launches. We still feel very comfortable with that guide.

Speaker #1: So we know that growth from a year-over-year perspective will be challenged in the first half. As we exit the back half, we're still very comfortable with our 7 to 9 percent full-year guide as we have a full year of the pricing initiatives in play.

Speaker #1: And we also have a lot of new business coming online, as well as continued new product launches. So we still feel very comfortable with that guide.

Speaker #1: In terms of the margin progression, as we've said multiple times, that Q1 was going to be our most difficult quarter. As the tariff rates coming through our P&L because of FIFO will be the highest.

Kevin M. Olsen: In terms of the margin progression, as we've said multiple times that Q1 was going to be our most difficult quarter, as the tariff rates coming through our P&L because of FIFO will be the highest. As we move through the year, those tariff rates reduce, because they were the highest when they first implemented starting back in April 2024. Also, all the initiatives that we undertook since April 2024 in terms of further diversification, productivity initiatives, dealing with our supplier community, those also have to go through FIFO. We have very good visibility to what that looks like going forward because of FIFO. We feel confident that we'll continue to see margin progression as we move through the quarters.

Kevin Olsen: In terms of the margin progression, as we've said multiple times that Q1 was going to be our most difficult quarter, as the tariff rates coming through our P&L because of FIFO will be the highest. As we move through the year, those tariff rates reduce, because they were the highest when they first implemented starting back in April 2024. Also, all the initiatives that we undertook since April 2024 in terms of further diversification, productivity initiatives, dealing with our supplier community, those also have to go through FIFO. We have very good visibility to what that looks like going forward because of FIFO. We feel confident that we'll continue to see margin progression as we move through the quarters.

Speaker #1: As we move through the year, those tariff rates reduce. Because they were the highest when they first implemented starting back in April of last year.

Speaker #1: Also, all the initiatives that we undertook since April of last year in terms of further diversification, productivity initiatives, dealing with our supplier community—those also have to go through FIFO.

Speaker #1: And so we have very good visibility to what that looks like going forward because of FIFO. So we feel confident that we'll continue to see margin progression as we move through the quarters.

Speaker #1: And we should, as we said in the guidance, operating margin should be in that 15 to 16 percent for the full year. And we expect to exit Q4 at a higher rate in the high teens area, which is kind of back to normal levels.

Kevin M. Olsen: You know, we should, as we said in the guidance, operating margin should be in that 15% to 16% for the full year. We expect to exit Q4 at a higher rate in the high teens area, which is kind of back to normal levels.

Kevin Olsen: You know, we should, as we said in the guidance, operating margin should be in that 15% to 16% for the full year. We expect to exit Q4 at a higher rate in the high teens area, which is kind of back to normal levels.

Speaker #2: And then anything further on just the complex parts and innovation? Is the environment kind of just moving along at a linear pace, or are you seeing it maybe step up a little more exponential?

Jeff Lake: Anything further on just the complex parts and innovation? You know, is the environment kind of just moving along at a linear pace, or are you seeing it maybe step up a little more exponential?

Jeff Lick: Anything further on just the complex parts and innovation? You know, is the environment kind of just moving along at a linear pace, or are you seeing it maybe step up a little more exponential?

Speaker #1: Yeah, great question, Jeff. And I didn't address that first time through. But complex electronics in the first quarter met our expectations. It's a category that continues to the growth continues to outpace our overall portfolio.

Kevin M. Olsen: Yeah, great question, Jeff, and I didn't address that first time through. Complex electronics in Q1 met our expectations. You know, the growth continues to outpace our overall portfolio, and we expect that to continue. We did highlight a few new products that we launched in the quarter that were, you know, have complex electronics embedded in them. Yeah, it's a, it's a category we're gonna continue to invest in, and it'll continue to grow at an outsized pace in the overall portfolio. That is our expectation.

Kevin Olsen: Yeah, great question, Jeff, and I didn't address that first time through. Complex electronics in Q1 met our expectations. You know, the growth continues to outpace our overall portfolio, and we expect that to continue. We did highlight a few new products that we launched in the quarter that were, you know, have complex electronics embedded in them. Yeah, it's a, it's a category we're gonna continue to invest in, and it'll continue to grow at an outsized pace in the overall portfolio. That is our expectation.

Speaker #1: And we expect that to continue. We did highlight a few new products that we launched in the quarter that were have complex electronics embedded in them.

Speaker #1: So yeah, it's a category we're going to continue to invest in. And it'll continue to grow at an outsized pace in the overall portfolio.

Speaker #1: That is our expectation.

Speaker #2: Awesome. Thanks very much for taking my multiple questions, and I look forward to talking to you later.

Jeff Lake: Awesome. Thanks very much for taking my multiple questions, and look forward to talking to you later.

Jeff Lick: Awesome. Thanks very much for taking my multiple questions, and look forward to talking to you later.

Speaker #1: You got it.

Kevin M. Olsen: You got it.

Kevin Olsen: You got it.

Speaker #3: Our next question comes from the line of Scott Stebber, withdrawn capital. Please go ahead.

Kevin M. Olsen: Our next question comes from the line of Scott Stember with Roth Capital. Please go ahead.

Operator: Our next question comes from the line of Scott Stember with Roth Capital. Please go ahead.

Speaker #2: Good morning. And thanks for taking my questions as well.

Scott Stember: Good morning, thanks for taking my questions as well.

Speaker #1: Good morning.

Kevin M. Olsen: Morning.

Kevin Olsen: Morning.

Speaker #2: Maybe we could talk about the heavy-duty. We've seen granted coming off of a low base, but we've seen a nice recovery here in sales.

Scott Stember: Maybe we can talk about the heavy duty. We've seen, granted, coming off of a low base, but we've seen a nice recovery here in sales. The margins look. You talked about the margin recovery just really not being there for the most part for this year. Maybe just give us an idea of when you're putting through price increases for tariffs, are you able to get all of it in this segment like you are in light duty? Then maybe just talk about the level of investments that we should expect in new product development there.

Scott Stember: Maybe we can talk about the heavy duty. We've seen, granted, coming off of a low base, but we've seen a nice recovery here in sales. The margins look. You talked about the margin recovery just really not being there for the most part for this year. Maybe just give us an idea of when you're putting through price increases for tariffs, are you able to get all of it in this segment like you are in Light Duty? Then maybe just talk about the level of investments that we should expect in new product development there.

Speaker #2: But the margins you talked about the margin recovery just really not being there. For the most part for this year. Maybe give us an idea of when you're putting through price increases for tariffs, are you able to get all of it in this segment like you are in light-duty?

Speaker #2: And then maybe just talk about the level of investments that we should expect in new product development there.

Speaker #1: Yeah, good question, Scott. I'd tell you that the tariff we continue to pass tariffs through in all three of our segments. Heavy-duty is no different.

Kevin M. Olsen: Yeah. Good question, Scott. I tell you that the tariff, you know, we continue to pass tariffs through in all three of our segments. Heavy duty is no different. We will see, you know, early on in the process of passing through some margin dilution as we continue to, you know, we have to continue to be competitive where we have competitors, and you just get some margin percent compression if you pass through dollar for dollar. In general, that's been our approach. We're able to recover the tariffs, but you do see some margin depression. We did kind of call that out in prepared remarks. Growth in the quarter was very strong, up 12%.

Kevin Olsen: Yeah. Good question, Scott. I tell you that the tariff, you know, we continue to pass tariffs through in all three of our segments. Heavy duty is no different. We will see, you know, early on in the process of passing through some margin dilution as we continue to, you know, we have to continue to be competitive where we have competitors, and you just get some margin percent compression if you pass through dollar for dollar. In general, that's been our approach. We're able to recover the tariffs, but you do see some margin depression. We did kind of call that out in prepared remarks. Growth in the quarter was very strong, up 12%.

Speaker #1: And we will see early on in the process of passing through some margin dilution as we continue to we have to continue to be competitive.

Speaker #1: Where we have competitors. And you just get some margin percent compression if you pass through dollar for dollar. And in general, that's been our approach.

Speaker #1: We're able to recover the tariffs. But you do see some margin compression. And we did kind of call that out and prepare remarks. Growth in the quarter was very strong.

Speaker #1: Up 12%. Some of that was due to tariff pricing, but we also did see some nice share gains in the quarter. We expect that to continue.

Kevin M. Olsen: Some of that was due to tariff pricing. We also did see some nice share gains in the quarter. We expect that to continue. However, as we also said in our prepared remarks, we're not expecting the market to recover at this point, just based on kind of some of the freight indexes that we're looking at. You know, we don't have any major expectation. We're going to continue to focus on taking share where we can take share and working on driving productivity initiatives throughout the business and driving new product launches and commercialization through that channel. Which we've had some good success, but we still have a long road ahead of us there.

Kevin Olsen: Some of that was due to tariff pricing. We also did see some nice share gains in the quarter. We expect that to continue. However, as we also said in our prepared remarks, we're not expecting the market to recover at this point, just based on kind of some of the freight indexes that we're looking at. You know, we don't have any major expectation. We're going to continue to focus on taking share where we can take share and working on driving productivity initiatives throughout the business and driving new product launches and commercialization through that channel. Which we've had some good success, but we still have a long road ahead of us there.

Speaker #1: However, as we also said in our prepared remarks, we're not expecting the market to recover at this point. Just based on kind of some of the freight indexes that we're looking at.

Speaker #1: So we don't have any major expectation. We're going to continue to focus on taking share where we can take share. And working on driving productivity initiatives throughout the business and driving new product launches and commercialization.

Speaker #1: Through that channel. Which we've had some good success. But we still have a long road ahead of us there.

Speaker #2: Got it. And then, related to tariffs, a lot has changed in the first quarter. With the IEPAs going away, the 232 is changing, and the 122 is coming in.

Scott Stember: Got it. Related to tariffs, a lot has changed in Q1 with the IEEPA going away, the 232's changing and the 122's coming in. It sounds at least from the tenor of your comments regarding guidance that the changes there were essentially net neutral. Is that correct?

Speaker #2: It sounds at least from the tenor of your comments regarding guidance that the changes there were essentially net neutral. Is that correct?

Speaker #1: Yeah, Scott, that's correct. So when the IEPAs went away, the section 122s, which is essentially a 10% across-the-board, came into play. And there just wasn't a major change either way, just based on how the HGS codes are applied.

Kevin M. Olsen: Yes, Scott, that's correct. So when the IEEPAs went away, the Section 122s, which is essentially 10% across the board, came into play. There just wasn't a major change either way, just based on how the HTS codes are applied. Most of our codes now are, you know, Section 232, whether that's the steel, the steel aluminum tariff or the auto parts tariff on top of the 122 tariffs. You know, as everyone knows that there will be a new tariff regime coming into place when the Section 122s expire later in the summer. We don't know what that's going to look like. Our assumption is basically, it's gonna be roughly in the same neighborhood as it is today.

Kevin Olsen: Yes, Scott, that's correct. So when the IEEPAs went away, the Section 122s, which is essentially 10% across the board, came into play. There just wasn't a major change either way, just based on how the HTS codes are applied. Most of our codes now are, you know, Section 232, whether that's the steel, the steel aluminum tariff or the auto parts tariff on top of the 122 tariffs. You know, as everyone knows that there will be a new tariff regime coming into place when the Section 122s expire later in the summer. We don't know what that's going to look like. Our assumption is basically, it's gonna be roughly in the same neighborhood as it is today.

Speaker #1: Most of our codes now are Section 232, whether that's the steel and aluminum tariff or the auto parts tariff, on top of the 122 tariffs.

Speaker #1: Now, as everyone knows, that there will be a new tariff regime coming into place from the section 122s expire later in the summer. We don't know what that's going to look like.

Speaker #1: Our assumption is, basically, it's going to be roughly in the same neighborhood as it is today.

Speaker #2: Got it. That's all I have. Thanks.

Scott Stember: Got it. That's all I have. Thanks.

Speaker #1: You got it.

Kevin M. Olsen: You got it.

Kevin Olsen: You got it.

Speaker #3: Our next question comes from the line of David Lance with Wells Fargo. Please go ahead.

Operator: Our next question comes from the line of David Vance with Wells Fargo. Please go ahead.

Speaker #4: Hi, good morning, guys. Thanks for taking my questions. So, POS for large customers grew mid-single digits in Q1. But I'm curious if you could talk about how that trended through the quarter.

David Vance: Hi. Good morning, guys. Thanks for taking my questions. Like, you know, POS for large customers grew mid-single digit in Q1, but curious if you could talk about how that trended through the quarter, what you're seeing quarter to date, and expectations for 2026?

Speaker #4: What you're seeing quarter to date in expectations for 2026.

Kevin M. Olsen: David, I'd say the progression was very similar, of POS up mid-single digit in the quarter. You know, frankly, it's been very similar to what we saw in Q3 of last year and Q4 of last year. Not a lot of change. Just continues to be very solid out-the-door growth at our customers. No real change in progression. I'll say that April is very much in line with what we saw in Q1. You know, to answer the second part of the question, our expectation is similar as we move through the rest of the year.

Kevin Olsen: David, I'd say the progression was very similar, of POS up mid-single digit in the quarter. You know, frankly, it's been very similar to what we saw in Q3 of last year and Q4 of last year. Not a lot of change. Just continues to be very solid out-the-door growth at our customers. No real change in progression. I'll say that April is very much in line with what we saw in Q1. You know, to answer the second part of the question, our expectation is similar as we move through the rest of the year.

Speaker #1: Action, David. I'd say the progression was very similar. Of POS up mid-single digit in the quarter. And frankly, it's been very similar to what we saw in Q3 of last year and Q4 of last year.

Speaker #1: So not a lot changed. Just continues to be very solid out-the-door growth that our customers. So no real change in progression. I'll say that April is very much in line with what we saw in the first quarter.

Speaker #1: And to answer the second question, our expectation is similar. As we move through the rest of the year.

Speaker #4: Got it. Thank you. And then considering the really healthy balance sheet, curious how you're thinking about M&A through the balance of 2026 with potential tuck-ins or geographic expansion.

David Vance: Got it. Thank you. Considering the really healthy balance sheet, curious how you're thinking about M&A through the balance of 2026 with potential tuck-ins or geographic expansion.

Speaker #1: Yeah, I mean, M&A is, as we talk quite a bit about, it continues to be a large part of our strategy, our growth strategy.

Kevin M. Olsen: Yeah, I mean, M&A as we talk quite a bit about, it continues to be a large part of our strategy, our growth strategy. I would tell you that, you know, as we look at our pipeline today across all three segments, it continues to be very healthy. I would say that deal activity was muted or has been muted since, you know, kind of Liberation Day, at least in our industry. I think we're now starting to see that loosen up a little bit as there's more understanding of the impact of tariffs on different companies, different parts of the industry. You know, we expect deal activity to pick up as we move through 2026 and into 2027. Our strategy in terms of the segments has not changed.

Kevin Olsen: Yeah, I mean, M&A as we talk quite a bit about, it continues to be a large part of our strategy, our growth strategy. I would tell you that, you know, as we look at our pipeline today across all three segments, it continues to be very healthy. I would say that deal activity was muted or has been muted since, you know, kind of Liberation Day, at least in our industry. I think we're now starting to see that loosen up a little bit as there's more understanding of the impact of tariffs on different companies, different parts of the industry. You know, we expect deal activity to pick up as we move through 2026 and into 2027. Our strategy in terms of the segments has not changed.

Speaker #1: And I would tell you that, as we look at our pipeline today across all three segments, it continues to be very healthy. I would say that deal activity was muted, or has been muted, since kind of Liberation Day, at least in our industry.

Speaker #1: I think we're now starting to see that loosen up a little bit as there's more understanding of the impact of tariffs on different companies.

Speaker #1: Different parts of the industry. So we expect deal activity to pick up as we move through 2026 and into 2027. Our strategy in terms of the segments has not changed.

Speaker #1: I mean, when we look at light-duty, we're very interested to continue to geographically expand our business there. And continue to enhance our technological capabilities.

Kevin M. Olsen: I mean, when we look at light duty, we're very interested to continue to geographically expand our business there and continue to enhance our technological capabilities. You know, in specialty vehicle, we continue to look to expand geographically. We also look to grow our portfolio of brands through a series of tuck-ins. Still very highly fragmented space. In heavy-duty, kind of similarly, where there are opportunities in the heavy-duty market. We're a very small player in a very large market for us to enter different segments of that space via tuck-in acquisitions.

Kevin Olsen: I mean, when we look at Light Duty, we're very interested to continue to geographically expand our business there and continue to enhance our technological capabilities. You know, in specialty vehicle, we continue to look to expand geographically. We also look to grow our portfolio of brands through a series of tuck-ins. Still very highly fragmented space. In heavy-duty, kind of similarly, where there are opportunities in the heavy-duty market. We're a very small player in a very large market for us to enter different segments of that space via tuck-in acquisitions.

Speaker #1: In specialty vehicle, we continue to look to expand geographically. We also look to grow our portfolio of brands through a series of tuck-ins. Still very highly fragmented space.

Speaker #1: And heavy-duty kind of similarly where there are opportunities in the heavy-duty market where very small player in a very large market for us to enter different segments of that space via tuck-in acquisitions.

Speaker #4: Thanks so much.

David Vance: Thanks so much.

Speaker #1: Got it.

Kevin M. Olsen: Got it.

Kevin Olsen: Got it.

Speaker #3: Our next question comes from the line of Brett Jordan with Jefferies. Please go ahead.

Operator: Our next question comes from the line of Bret Jordan with Jefferies. Please go ahead.

Speaker #2: Hey, good morning, guys. Single-digit POS. Could you sort of carve out what is actual price versus units? And I guess specifically within units, could you comment on the chassis category?

Bret Jordan: Hey, good morning, guys.

Kevin M. Olsen: Morning, Bret.

Kevin Olsen: Morning, Bret.

Bret Jordan: On the mid-single digit POS, could you sort of carve out what is actual price versus units? Specifically within units, could you comment on the chassis category? Did it benefit from any seasonal demand creation this winter?

Speaker #2: Did it benefit from any seasonal demand creation this winter?

Kevin M. Olsen: Bret, I'll first answer. I mean, historically, we've never broken out price versus units for competitive reasons. I will say, look, the POS, there is certainly inflation embedded in those numbers just based on the tariff impact across the industry. There's no question about that. I would say that it's remained relatively steady the last 3 quarters and into April. We don't specifically comment on any specific category, but I will say, you know, in regards to your chassis question, look, it was a good solid year in terms of the weather. Weather, as you know, impacts certain categories more than others, and undercar chassis is certainly one of those.

Kevin Olsen: Bret, I'll first answer. I mean, historically, we've never broken out price versus units for competitive reasons. I will say, look, the POS, there is certainly inflation embedded in those numbers just based on the tariff impact across the industry. There's no question about that. I would say that it's remained relatively steady the last 3 quarters and into April.

Speaker #1: Brett, I'll first answer. I mean, we don't historically, we've never broken out price versus units for competitive reasons. But I will say, look, the POS, there are certainly inflation embedded in those numbers.

Speaker #1: Just based on the tariff impact across the industry, there's no question about that. I would say that it's remained relatively steady the last three quarters.

Speaker #1: And into April. We don't specifically comment on any specific category. But I will say in regards to chassis question, look, it was a good solid year in terms of the weather.

Kevin Olsen: We don't specifically comment on any specific category, but I will say, you know, in regards to your chassis question, look, it was a good solid year in terms of the weather. Weather, as you know, impacts certain categories more than others, and undercar chassis is certainly one of those. You know, that season really starts late in the Q1 into the Q2. So far, we feel really good about that category. I think we had certainly a good winter with a lot of precipitation, that helps that category from a growth perspective.

Speaker #1: Weather, as you know, does impact certain categories more than others. And undercar chassis is certainly one of those. That season really starts late in the first quarter, into the second quarter.

Kevin M. Olsen: You know, that season really starts late in the Q1 into the Q2. So far, we feel really good about that category. I think we had certainly a good winter with a lot of precipitation, that helps that category from a growth perspective.

Speaker #1: And so far, we feel really good about that category. And I think we had certainly a good winter with a lot of precipitation that helps that category.

Speaker #1: From a growth perspective.

Speaker #2: Okay, great. And most of my questions were answered. But could you give us a sort of idea of what you paid in AIPA last year just in case we could get a windfall out of that this year?

Bret Jordan: Okay, great. Most of my questions were answered, but could you give us a sort of idea of what you paid in IEPA last year just in case we could get a windfall out of that this year?

Speaker #1: Yeah. Look, I'll tell you that we've just started the process of recovery on AIPA. And it's still too early to tell how everything's going to settle out and whether or not there'll be any appeals.

Kevin M. Olsen: Look, I'll tell you that we just started the process of recovery on IEPA, and it's still too early to tell how everything's gonna settle out and whether or not there'll be any appeals. It doesn't appear that there's gonna be at this point. At this point, we're not gonna disclose it because we need to work through the process, and we don't wanna get ahead of ourselves and because it's just such an unprecedented situation. More to come, Bret, as that plays out.

Kevin Olsen: Look, I'll tell you that we just started the process of recovery on IEPA, and it's still too early to tell how everything's gonna settle out and whether or not there'll be any appeals. It doesn't appear that there's gonna be at this point. At this point, we're not gonna disclose it because we need to work through the process, and we don't wanna get ahead of ourselves and because it's just such an unprecedented situation. More to come, Bret, as that plays out.

Speaker #1: It doesn't appear. That there's going to be at this point. At this point, we're not going to disclose it because we need to work through the process and we don't want to get ahead of ourselves.

Speaker #1: And because it's just such an unprecedented situation. So more to come, Brett, as that plays out.

Speaker #2: All right. Thank you.

Bret Jordan: All right. Thank you.

Kevin M. Olsen: Bye.

Kevin Olsen: Bye.

Speaker #3: Our next question comes from the line of Justin Ages with CJS Securities. Please go ahead.

Operator: Our next question comes from the line of Justin Ages with CJS Securities. Please go ahead.

[Analyst] (CJS Securities): Hi. This is Will in for Justin. A lot of my questions have been asked. You noted light trucks and SUVs is a growing portion of prime vehicles in operation. Can you give us some more color on how that breaks down further with electric vehicles?

Will Gildea: Hi. This is Will in for Justin. A lot of my questions have been asked. You noted light trucks and SUVs is a growing portion of prime vehicles in operation. Can you give us some more color on how that breaks down further with electric vehicles?

Speaker #5: Hi, this is Willum for Justin. A lot of my questions have been asked. But you noted light trucks and SUVs as a growing portion of prime vehicles in operation.

Speaker #5: Can you give us some more color on how that breaks down further with electric vehicles?

Speaker #1: Well, let me just clarify for electric vehicles, are you talking about in heavy and specialty? Or light-duty?

Kevin M. Olsen: Well, let me just clarify. For electric vehicles, are you talking about in heavy and specialty, or light duty?

Kevin Olsen: Well, let me just clarify. For electric vehicles, are you talking about in heavy and specialty, or Light Duty?

[Analyst] (CJS Securities): yeah. Light duty.

Will Gildea: yeah. Light Duty.

Speaker #5: Light. Light-duty.

Kevin M. Olsen: Light duty, yeah, certainly. You know, light duty right now, from a VIO perspective in North America, light duty is still less than 2% of the VIO. A slightly larger portion of that we would consider alternative drivetrains like hybrid. The vast majority is still ICE. It's gonna take a very long time for that mix to change substantially. Regardless, we continue to be drivetrain agnostic, right? Our technologies and our capabilities could address any drivetrain. We see a lot of opportunities across the new drivetrains. Obviously in a hybrid there's 2 drivetrains, there's a lot more addressable content. We're comfortable with whatever drivetrain becomes prevalent in the future from a VIO perspective.

Speaker #1: Light-duty, yeah, certainly. Light-duty right now, from a VIO perspective in North America, light-duty is still less than 2% of the VIO. Slightly larger portion of that would we would consider alternative drivetrains like hybrid.

Kevin Olsen: Light Duty, yeah, certainly. You know, Light Duty right now, from a VIO perspective in North America, Light Duty is still less than 2% of the VIO. A slightly larger portion of that we would consider alternative drivetrains like hybrid. The vast majority is still ICE. It's gonna take a very long time for that mix to change substantially. Regardless, we continue to be drivetrain agnostic, right? Our technologies and our capabilities could address any drivetrain. We see a lot of opportunities across the new drivetrains. Obviously in a hybrid there's 2 drivetrains, there's a lot more addressable content. We're comfortable with whatever drivetrain becomes prevalent in the future from a VIO perspective.

Speaker #1: So the vast, vast majority is still ICE. And it's going to take a very long time for that mix to change substantially. But irregardless, we continue to be drivetrain agnostic, right?

Speaker #1: Our technologies and our capabilities can address any drivetrain we see a lot of opportunities across the new drivetrains. And obviously, in a hybrid, there's two drivetrains.

Speaker #1: So, there's a lot more addressable content, so we're comfortable with whatever drivetrain becomes prevalent in the future from a VIO perspective.

Speaker #5: Thank you.

[Analyst] (CJS Securities): Thank you.

Will Gildea: Thank you.

Speaker #1: Got it.

Kevin M. Olsen: Got it.

Kevin Olsen: Got it.

Speaker #3: Ladies and gentlemen, this concludes our Q&A session. And today's conference call. We would like to thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, this concludes our Q&A session and today's conference call. We would like to thank you for your participation. You may now disconnect.