Q2 2026 Dorman Products Inc Earnings Call

August 4, 2026

Speaker #3: Please stand by. Your meeting is about to begin. Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dorman Products, Q2, 2026 earnings conference call.

Operator: Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dorman Products Q2 2026 Earnings Conference Call. All participant lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker #3: All participant lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Speaker #3: If you would like to ask a question at that time, please press star 1 on your telephone keypad. Please be advised that today's conference is being recorded.

Operator: If you would like to ask a question at that time, please press star one on your telephone keypad. Please be advised that today's conference is being recorded. Lastly, if you should require operator assistance, please press star zero. I will now turn the call over to Alex Whitelam, Vice President of Investor Relations. Please go ahead.

Speaker #3: Lastly, if you should require operator assistance, please press star 0. I will now turn the call over to Alex Whitelam, Vice President of Investor Relations.

Speaker #3: Please go ahead.

Speaker #2: Thank you. Good morning, everyone. Welcome to Dorman Q2 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.

Alex Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's Q2 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 current business environment, along with our segment-level performance and market trends. Charles will walk through our Q2 financial results in more detail, discuss cash flow and capital allocation, as well as our updated guidance before turning 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 on our website investors.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.

Speaker #2: Kevin will begin with a high-level overview of the quarter and current business environment, along with our segment-level performance and market trends. Charles will walk through our Q2 financial results in more detail, discuss cash flow and capital allocation, as well as our updated guidance before turning 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 our website at investors.dormanproducts.com.

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 10Q, 10K, and earnings release for important material assumptions expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements.

Alex 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 on our website. Throughout the presentation, we'll discuss the impact of IEPA tariff refunds that we received in Q2. I point everyone to the schedule we've included in the appendix of our presentation, which details the refund's impact on our results.

Speaker #2: We'll also reference certain non-GAAP measures. Reconciliations 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 our website.

Speaker #2: Throughout the presentation, we'll discuss the impact of IEPA tariff refunds that we received in the second quarter, I point everyone to the schedule we've included in the appendix of our presentation, which details the refunds' impact on our results.

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 questions.

Alex Whitelam: Finally, during the Q&A portion of today's call, we ask that participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions. With that, I'll turn the call over to Kevin.

Speaker #2: And with that, I'll turn the call over to Kevin.

Speaker #3: Thanks, Alex. And good morning, everyone. Thank you for joining us today. I'll begin with a brief overview of our Q2 results. Spend some time on the current business environment and provide commentary on the performance and key trends we're seeing across our business segments.

Kevin Olsen: Thanks, Alex. Good morning, everyone. Thank you for joining us today. I'll begin with a brief overview of our Q2 results, spend some time on the current business environment, and provide commentary on the performance and key trends we're seeing across our business segments. I'll turn it over to Charles. Turning to slide three, we delivered a strong Q2 with record sales, earnings, and robust cash flow generation. Our results were positively impacted by the recovery of IEPA tariff costs, which Charles will cover in just a moment. We continue to be well-positioned to make strategic investments that will allow us to drive medium to long-term growth. Following recent developments, we believe the tariff landscape has stabilized, which is positive for Dorman and our customers.

Speaker #3: I'll then turn it over to Charles. Turning to slide 3, we delivered a strong Q2 with record sales, earnings, and robust cash flow generation.

Speaker #3: Our results were positively impacted by the recovery of IEPA tariff costs, which Charles will cover in just a moment. We continue to be well positioned to make strategic investments that will allow us to drive medium- to long-term growth.

Speaker #3: Following recent developments, we believe the tariff landscape has stabilized, which is positive for Dorman and our customers. With an overall lower tariff environment, we began making targeted price reductions in the quarter, which we expect will continue through the back half of the year.

Kevin Olsen: With an overall lower tariff environment, we began making targeted price reductions in the quarter, which we expect will continue through the back half of the year. Consolidated net sales were $545 million in Q2, up approximately 1% compared to the same period last year. Net sales were impacted by the pricing actions I just mentioned, which we started in the quarter. High level, the fundamentals of our industry and our leadership position within the aftermarket remain strong. I'll cover our end markets in the coming slides. Jumping to the bottom line, adjusted diluted earnings per share for the quarter was a record $3.08, up 50% compared to Q2 of 2025. Given our performance through H1 of the year and the targeted pricing actions we are taking as a result of a more stable tariff environment, we are updating our full year 2026 guidance.

Speaker #3: Sales were $545 million in the second quarter, up approximately 1% compared to the same period last year. Net sales were impacted by the pricing actions I just mentioned, which we started in the quarter.

Speaker #3: High-level, the fundamentals of our industry and our leadership position within the aftermarket remain strong. Consolidated net I'll cover our end markets in the coming slides.

Speaker #3: Jumping to the bottom line, adjusted diluted earnings per share for the quarter was a record $3.08, up 50% compared to the Q2 of 2025.

Speaker #3: Given our performance through the first half of the year, and the targeted pricing actions we are taking as a result of a more stable tariff environment, we are updating our full-year 2026 guidance.

Speaker #3: We now expect year-over-year net sales growth of 3% to 5% and adjusted diluted earnings per share to be in the range of $8.50 to $8.80, Charles will walk through the guidance change in more detail in a moment.

Kevin Olsen: We now expect year-over-year net sales growth of 3% to 5% and adjusted diluted earnings per share to be in the range of $8.50 to $8.80. Charles will walk through the guidance change in more detail in a moment. Turning to slide four in our light-duty segment. Net sales were flat year over year at $424 million as we started reducing pricing with tariff costs coming down. Volume was lower in the quarter, but keep in mind we were comparing against a strong 10% year-over-year growth in Q2 of 2025. Looking more broadly across our top customers, POS from a total dollars perspective was again up in the mid-single digit range, which includes inflation embedded in the overall price at the counter. I'd also mention that the light-duty business has done an excellent job recently capturing business wins in new categories.

Speaker #3: Turning to slide 4 in our light-duty segment, net sales were flat year-over-year at $424 million, as we started reducing pricing with tariff costs coming down.

Speaker #3: Volume was lower in the quarter, but keep in mind we were comparing against a strong 10% year-over-year growth in Q2 of 2025. Looking more broadly across our top customers, POS from a total dollars perspective was again up in the mid-single-digit range, which includes inflation embedded in the overall price at the counter.

Speaker #3: I'd also mention that the light-duty business has done an excellent job recently capturing business wins in new categories, we expect this will drive increased volume growth in the back half of the year and through 2027.

Kevin Olsen: We expect this will drive increased volume growth in the back half of the year and through 2027. Operating margin expanded 620 basis points year over year to 24.7%, driven by refund dynamics. Year to date, operating margin was 19.4%, which is more in line with our normalized rate as the IEPA refund impact was less significant. From an industry perspective, the foundational drivers of the light-duty aftermarket remain positive. The average age of light-duty vehicles now sits at 12.9 years, and vehicle miles traveled continued to increase for the quarter in trailing 12-month periods. Overall, these fundamentals support sustained demand for repair and replacement parts over the long haul. In addition to these macro trends, we continue to keep a close eye on our broad end user base. During the quarter, we saw some modest pressure continue on categories that tend to be DIY-focused and are relatively discretionary.

Speaker #3: Operating margin expanded 620 basis points year over year to 24.7%, driven by refund dynamics. Year-to-date, operating margin was 19.4%, which is more in line with our normalized rate, as the IEPA refund impact was less significant.

Speaker #3: From an industry perspective, the foundational drivers of the light-duty aftermarket remain positive. The average age of light-duty vehicles now sits at 12.9 years, and vehicle miles traveled continue to increase for the quarter and trailing 12-month periods.

Speaker #3: Overall, these fundamentals support sustained demand for repair and replacement parts over the long haul. In addition to these macro trends, we continue to keep a close eye on our broad end-user base.

Speaker #3: During the quarter, we saw some modest pressure continue on categories that tend to be DIY-focused and are relatively discretionary. But keep in mind this is a smaller portion of our overall portfolio, as we skew more to the DIFM customer.

Kevin Olsen: Keep in mind, this is a smaller portion of our overall portfolio as we skew more to the DIFM customer. The vast majority of our product portfolio is non-discretionary in nature. This larger makeup of our portfolio was more stable, and again, POS was consistent in the quarter. Stepping back, our innovation strategy continues to drive significant value for our customers and end users. One recent product launch that highlights this is our new aluminum oil pan for a broad set of Ford F-150s. The original OE part is made with plastic and prone to warping and leaking, creating a well-defined pain point for end users and technicians. Our patented OE FIX solution is built from rugged, high-pressure die-cast aluminum, delivering a more durable, longer-lasting repair at an attractive aftermarket price.

Speaker #3: And the vast majority of our product portfolio is non-discretionary in nature. This larger makeup of our portfolio was more stable and, again, POS was consistent in the quarter.

Speaker #3: Stepping back, our innovation strategy continues to drive significant value for our customers and end users. One recent product launch that highlights this is our new aluminum oil pan for a broad set of Ford F-150s.

Speaker #3: The original OE part is made with plastic and prone to warping and leaking, creating a well-defined pain point for end users and technicians. Our patented OE fix solution is built from rugged, high-pressure die-cast aluminum, delivering a more durable, longer-lasting repair at an attractive aftermarket price.

Speaker #3: Additionally, we've included a convenient magnet drain plug, which helps prevent harmful metal debris from damaging the engine, and we've designed the plug with an angled mount boss that enables a complete drain.

Kevin Olsen: Additionally, we've included a convenient magnet drain plug, which helps prevent harmful metal debris from damaging the engine. We've designed the plug with an angled mount boss that enables a complete drain. This is exactly the type of product that reinforces Dorman's leadership in aftermarket innovation. I want to congratulate the light-duty team on another excellent OE FIX launch. Turning to slide five in our Heavy-Duty segment, net sales increased approximately 7% year over year to $66 million, driven by the full year impact of last year's pricing actions, along with business wins in certain categories and channels. Operating margin improved 340 basis points to 4.2%. Excluding the refund benefit, Heavy-Duty's comparable operating margin of 2.3% was up 150 basis points on net sales leverage.

Speaker #3: This is exactly the type of product that reinforces Dorman's leadership in aftermarket innovation, and I want to congratulate the light-duty team on another excellent OE fix launch.

Speaker #3: Turning to slide 5, in our heavy-duty segment, net sales increased approximately 7% year-over-year to $66 million. Driven by the full-year impact of last year's pricing actions, along with business wins in certain categories, and channels.

Speaker #3: Operating margin improved 340 basis points to 4.2%. Excluding the refund benefit, heavy-duty's comparable operating margin of 2.3% was up 150 basis points on net sales leverage.

Speaker #3: While the commercialization and infrastructure investments we've made over the last several years position the heavy-duty segment for long-term growth, they also create an inherent hurdle on the margin front.

Kevin Olsen: While the commercialization and infrastructure investments we've made over the last several years position the Heavy-Duty segment for long-term growth, they also create an inherent hurdle on the margin front. We expect those investments will help us drive higher volume with an eventual freight market rebound, offset increased costs, and allow us to return to our targeted margin profile for the business. On the broader sector, market conditions remain challenged. The great freight recession continued through the Q2, with higher fuel costs and general inflation further weighing on consumer sentiment and freight demand. While freight rates have begun to rebound as fewer fleet operators remain in the market, we do not expect meaningful trucking mileage or tonnage growth in 2026.

Speaker #3: We expect those investments will help us drive higher volume when an eventual freight market rebound occurs, offset increased costs, and allow us to return to our targeted margin profile for the business.

Speaker #3: In the broader sector, market conditions remain challenged. The great freight recession continued through the second quarter, with higher fuel costs and general inflation further weighing on consumer sentiment and freight demand.

Speaker #3: While freight rates have begun to rebound as fewer fleet operators remain in the market, we do not expect meaningful trucking mileage or tonnage growth in 2026.

Speaker #3: That said, and as we highlighted on our last call, we continue to see OE dealers increasingly focused on improving revenue and profitability through their service centers, with new and used vehicle sales lower year over year.

Kevin Olsen: That said, as we highlighted on our last call, we continue to see OE dealers increasingly focused on improving revenue and profitability through their service centers, with new and used vehicle sales lower year over year. Aftermarket partnerships allow these dealers an opportunity to drive improved margin, which is a prime opportunity for us to offer high-quality solutions at aftermarket price points. Needless to say, we're leaning into this channel further. We're also leaning into product and category expansion within our Heavy-Duty segment, especially for solutions above the frame. We recently launched a number of new-to-the-aftermarket products, including a hydrocarbon injection nozzle that is designed to restore critical dosing functionality within the vehicle's emission system. We've also broadened our fluid reservoir portfolio with the introduction of new power steering and windshield washer reservoirs, providing additional coverage for high population applications.

Speaker #3: Aftermarket partnerships allow these dealers an opportunity to drive improved margin, which is a prime opportunity for us to offer high-quality solutions at aftermarket price points.

Speaker #3: Needless to say, we're leaning into this channel further. We're also leaning into product and category expansion within our heavy-duty segment. Especially for solutions above the frame.

Speaker #3: We recently launched a number of new-to-the-aftermarket products, including a hydrocarbon injection nozzle that is designed to restore critical dosing functionality within the vehicle's emission system.

Speaker #3: We've also broadened our fluid reservoir portfolio with the introduction of new power steering and windshield washer reservoirs, providing additional coverage for high-population applications. And finally, we introduced two new LED headlight assemblies for a broad range of international models.

Kevin Olsen: Finally, we introduced two new LED headlight assemblies for a broad range of international models. These are three great examples where we're diversifying our portfolio and providing more solutions to expand our relationship with fleets across North America. Congrats to the HD team for driving innovation across the business. Turning to Slide six in our Specialty Vehicle segment, net sales were down 1% year over year to $54 million. Slightly softer customer demand was partially offset by pricing initiatives in certain categories. Consumer sentiment in our specialty vehicle business remains sensitive to macroeconomic conditions. We believe higher fuel prices, along with broader inflationary pressures, weighed on volume during the quarter. Operating margin expanded 880 basis points to 26.1%.

Speaker #3: These are three great examples where we're diversifying our portfolio and providing more solutions to expand our relationship with fleets across North America, congrats to the dating team for driving innovation across the business.

Speaker #3: Turning to slide 6, in our Specialty Vehicle segment, net sales were down 1% year-over-year to $54 million. Slightly softer customer demand was partially offset by pricing initiatives in certain categories.

Speaker #3: Consumer sentiment in our specialty vehicle business remained sensitive to macroeconomic conditions, and we believe higher fuel prices, along with broader inflationary pressures, weighed on volume during the quarter.

Speaker #3: Operating margin expanded 880 basis points to 26.1%. Excluding the refund benefit, comparable adjusted operating income margin for specialty vehicle was 17.8% in the quarter, or 50 basis points above the same period last year.

Kevin Olsen: Excluding the refund benefit, comparable adjusted operating income margin for specialty vehicle was 17.8% in the quarter, or 50 basis points above the same period last year, which highlights that the team did a nice job improving their overall margin profile. We are also expanding SuperATV's presence outside the United States, which we believe will support growth over the long term. While this initiative will take some time to materialize, we are encouraged with our trajectory and the opportunities ahead of us. On the broader specialty vehicle market, we continue to see consumer demand shift across the overall sector. Specifically for Q2, new vehicle sales continued to increase, but the growth came from 2 different types of vehicles and different consumers. First, more affluent riders are driving growth with cab models, which come with more features pre-installed and typically have lower attachment rates at the dealer.

Speaker #3: This highlights that the team did a nice job improving their overall margin profile. We're also expanding SuperATV's presence outside the United States, which we believe will support growth over the long term.

Speaker #3: While this initiative will take some time to materialize, we're encouraged by our trajectory and the opportunities ahead of us. In the broader specialty vehicle market, we continue to see consumer demand shifting across the overall sector.

Speaker #3: Specifically for the second quarter, new vehicle sales continued to increase, but the growth came from two different types of vehicles, and different consumers. First, more affluent riders are driving growth with cab models, which come with more features pre-installed and typically have lower attachment rates at the dealer.

Speaker #3: At the same time, we're seeing continued growth in newly launched models that are geared toward entry-level and less affluent riders. As we highlighted on our last call, these models offer significant opportunities for upgrades and repairs.

Kevin Olsen: At the same time, we are seeing continued growth in newly launched models that are geared towards entry-level and less affluent riders. As we highlighted on our last call, these models offer significant opportunities for upgrades and repairs. Overall, our large and growing set of solutions allows us to win with all types of riders and vehicles. I would also mention that ridership remains strong and riders are holding onto their vehicles longer. To that end, we are purposely expanding our portfolio of non-discretionary repair-oriented solutions for older models still in service, given the elongated repair cycle occurring today. Finally, we are seeing some of the new OEs who have entered the market in recent years continue to launch new models. This broader field of machines provides SuperATV with opportunities to expand their portfolio.

Speaker #3: Overall, our large and growing set of solutions allows us to win with all types of riders and vehicles. I'd also mention that ridership remained strong, and riders are holding onto their vehicles longer. To that end, we're purposely expanding our portfolio of nondiscretionary, repair-oriented solutions for older models still in service, given the elongated repair cycle occurring today.

Speaker #3: Finally, we're seeing some of the new OEs who have entered the market in recent years continue to launch new models. This broader field of machines provides super ATV with opportunities to expand their portfolio.

Speaker #3: One new product that highlights this opportunity well is the SuperATV vented windshield developed for the CFMoto Z10 platform. CFMoto continues to offer riders lower price point vehicles with reputable quality.

Kevin Olsen: One new product that highlights this opportunity well is the SuperATV vented windshield developed for the CFMOTO Z10 platform. CFMOTO continues to offer riders lower price point vehicles with reputable quality. Recently, CFMOTO launched a new sport line with their Z10 platform, and our team was one of the first to market with purpose-built, highly desired upgrade in a vented windshield. The vented design offers comfort, especially in the summer riding months for riders looking for protection from dust and debris in demanding conditions. Speed to market continues to be one of SuperATV's core strengths. Congratulations to the team on another strong product launch. With that, I will turn it over to Charles to cover our results in more detail. Charles?

Speaker #3: Recently, CFMoto launched a new sport line with their Z10 platform, and our team was one of the first to market with a purpose-built, highly desired upgrade in a vented windshield.

Speaker #3: The vented design offers comfort, especially in the summer riding months, for riders looking for protection from dust and debris in demanding conditions. Speed to market continues to be one of Super ATV's core strengths.

Speaker #3: Congratulations to the team on another strong product launch. With that, I'll turn it over to Charles to cover our results in more detail. Charles?

Speaker #2: Thanks, Kevin. Turning to slide 7, I'll walk through our consolidated financial performance for the second quarter. Total net sales for Q2 were a record at $545 million, up approximately 1% compared to the prior year period.

Charles Rayfield: Thanks, Kevin. Turning to Slide seven, I will walk through our consolidated financial performance for Q2. Total net sales for Q2 were a record at $545 million, up approximately 1% compared to the prior year period. As Kevin noted, top line growth was driven by the heavy duty segment, partially offset by lower volume in light duty and specialty vehicle. Year to date, our sales were up 2% compared to the same period in 2025. Adjusted gross margin in the quarter was 46.1%, up 550 basis points compared to last year's Q2. Excluding the refund benefit, comparable gross margin in the quarter was 38%. Year to date, gross margin was 41.1%. Adjusted SG&A expense as a percentage of net sales was 23.8%, down 50 basis points year over year.

Speaker #2: As Kevin noted, top-line growth was driven by the heavy-duty segment, partially offset by lower volume and light-duty and specialty vehicle. Year-to-date, our sales were up 2% compared to the same period in 2025.

Speaker #2: Adjusted gross margin in the quarter was $46.1%, up 550 basis points compared to last year's second quarter. Excluding the refund benefit, comparable gross margin in the quarter was 38%.

Speaker #2: Year-to-date, gross margin was 41.1%. Adjusted SG&A expense is a percentage of net sales was 23.8%, down 50 basis points year-over-year. Adjusted operating income in the quarter was $122 million, and adjusted operating margin was 22.3%, up 600 basis points compared to the prior year period.

Charles Rayfield: Adjusted operating income in the quarter was $122 million, and adjusted operating margin was 22.3%, up 600 basis points compared to the prior year period. Excluding the refund benefit, comparable adjusted operating margin was 14.2%, down 210 basis points from prior year, largely on volume deleverage and light duty. Year to date, the adjusted operating income margin was more in line with our normalized performance, given the IEPA refund impact was less significant. Looking forward, we remain focused on driving margin improvements through our supplier diversification, productivity, and automation initiatives. Adjusted diluted EPS was $3.08, up 50% year-over-year. The one-time impact of the IEPA refund contributed approximately $1.18, representing the recovery of IEPA tariff costs recognized in Q4 2025 and Q1 2026. Excluding this impact, comparable adjusted diluted EPS was $1.90 for the quarter. Again, our year-to-date performance was more in line with our prior year.

Speaker #2: Excluding the refund benefit, comparable adjusted operating margin was 14.2%, down 210 basis points from prior year, largely on volume deleverage and light-duty. Year-to-date, the adjusted operating income margin was more in line with our normalized performance, given the IEPA refund impact was less significant.

Speaker #2: Looking forward, we remain focused on driving margin improvements through our supplier diversification, productivity, and automation initiatives. Adjusted diluted EPS was $3.08, up 50% year-over-year.

Speaker #2: The one-time impact of the IEPA refund contributed approximately $1.18, representing the recovery of IEPA tariff costs recognized in Q4 2025 and Q1 2026. Excluding this impact, comparable adjusted diluted EPS was $1.90 for the quarter.

Speaker #2: Again, our year-to-date performance was more in line with our prior year. As mentioned previously, there is some schedules in the appendix section of the investor presentation that outline these impacts.

Charles Rayfield: As mentioned previously, there are some schedules in the appendix section of the investor presentation that outline these impacts. Lower interest expense and a reduction in shares outstanding were also positive contributors to our EPS growth. On slide eight, operating cash flow for the quarter was $153 million, and free cash flow was $144 million. The business did an excellent job driving working capital improvements, which delivered comparable free cash flow of approximately $62 million, exclusive of the IEPA refund. The strong underlying cash generation and expanded balance sheet capacity provides us with flexibility to reduce costs and deploy capital to drive strategic growth over the medium and long term. On the capital allocation front, we deployed $47 million during the quarter on opportunistic share repurchases that retired approximately 398,000 shares at an average price of approximately $118 per share.

Speaker #2: In addition, lower interest expense and a reduction in shares outstanding were also positive contributors to our EPS growth. On slide 8, operating cash flow for the quarter was $153 million, and free cash flow was $144 million.

Speaker #2: The business did an excellent job driving working capital improvements, which delivered comparable free cash flow of approximately $62 million, exclusive of the IEPA refund.

Speaker #2: The strong underlying cash generation and expanded balance sheet capacity provides us with flexibility to reduce costs and deploy capital to drive strategic growth over the medium and long term.

Speaker #2: On the capital allocation front, we deployed $47 million during the quarter on opportunistic share repurchases that retired approximately $398,000 shares at an average price of approximately $118 per share.

Speaker #2: Going forward, we have $363 million remaining on our share repurchase authorization, which extends through 2027. Turning to slide 9, our balance sheet remains strong.

Charles Rayfield: Going forward, we have $363 million remaining on our share repurchase authorization, which extends through 2027. Turning to slide nine, our balance sheet remains strong. During the quarter, we further expanded our liquidity position and balance sheet capacity by refinancing our debt instruments. As previously announced in early June, we amended our credit agreement to increase our revolving credit facility from $600 million to $800 million, which extends maturity to 2031. We also used the proceeds from the issuance of $450 million in senior unsecured notes due in 2034 to repay our prior term loan, which was slated to mature in October of 2027. The refinancing provides us with substantial capacity to make meaningful investments in our long-term growth strategy. Following the debt refinancing, we ended the quarter with net debt of approximately $318 million and total liquidity of $931 million.

Speaker #2: And during the quarter, we further expanded our liquidity position and balance sheet capacity by refinancing our debt instruments. As previously announced in early June, we amended our credit agreement to increase our revolving credit facility from $600 million to $800 million, which extends maturity to 2031.

Speaker #2: We also used the proceeds from the issuance of $450 million in senior unsecured notes due in 2034 to repay our prior term loan, which was slated to mature in October of 2027.

Speaker #2: The refinancing provides us with substantial capacity to make meaningful investments in our long-term growth strategy. Following the debt refinancing, we ended the quarter with net debt of approximately $318 million, and total liquidity of $931 million.

Speaker #2: Our total net leverage ratio at the end of Q2 was 0.69 times our adjusted EBITDA, which positions us extremely well to invest in the business, pursue strategic M&A opportunities, and return capital to shareholders through opportunistic share repurchases.

Charles Rayfield: Our total net leverage ratio at the end of Q2 was 0.69 times our adjusted EBITDA, which positions us extremely well to invest in the business, pursue strategic M&A opportunities, and return capital to shareholders through opportunistic share repurchases. Turning to slide 10, as Kevin mentioned, we are updating our full year 2026 guidance. I'd also point you to our schedules in the appendix that cover our guidance in more detail, which include reconciliations of the comparable figures discussed today. On the top line, we now expect a net sales growth of 3% to 5%, compared to our prior guidance of 7% to 9%. The reduction reflects our performance for H1 of the year and the targeted pricing actions we are taking as a result of a more stable tariff environment.

Speaker #2: Turning to slide 10, as Kevin mentioned, we are updating our full year 2026 guidance. I'd also point you to our schedules in the appendix that cover our guidance in more detail, which include reconciliations, of the comparable figures discussed today.

Speaker #2: On the top line, we now expect that net sales growth of 3 to 5 percent compared to our prior guidance of 7 to 9 percent.

Speaker #2: The reduction reflects our performance for the first half of the year, and the targeted pricing actions we are taking as a result of a more stable tariff environment.

Speaker #2: On the bottom line, we're now we now expect total adjusted diluted EPS to be in the range of $8.50 to $8.80, up from our prior range of $8.10 to $8.50.

Charles Rayfield: On the bottom line, we now expect total adjusted diluted EPS to be in the range of $8.50 to $8.80, up from our prior range of $8.10 to $8.50. The increase to our guidance range is primarily due to the one-time refund benefit of approximately $0.30. This represents the recovery of IEPA tariff costs recognized in Q4 2025. Excluding this benefit, our comparable adjusted diluted EPS range is $8.20 to $8.50. The midpoint of this range of $8.35 is up 10% over last year's comparable base of $7.62 and up 17% on a two-year stack. Let me also provide some additional color on the remainder of the year, which we believe provides a strong foundation for 2027 and beyond. For net sales, we expect our H2 growth rate to be in the mid-single digit range compared to the same period in 2025.

Speaker #2: The increase to our guidance range is primarily due to the one-time refund benefit of approximately $0.30. This represents the recovery of IEPA tariff costs recognized in the fourth quarter of 2025.

Speaker #2: Excluding this benefit, our comparable adjusted diluted EPS range is $8.20 to $8.50. The midpoint of this range of $8.35 is up 10% over last year's comparable base of $7.62, and up 17% on a two-year stack.

Speaker #2: Let me also provide some additional color on the remainder of the year, which we believe provides a strong foundation for 2027 and beyond. For net sales, we expect our second half growth rate to be in the mid-single-digit range compared to the same period in 2025.

Speaker #2: This growth will largely be volume-driven from the new business wins that Kevin mentioned earlier. Across the segments, we expect light-duty to be in this range, with heavy-duty slightly above and specialty vehicles slightly below.

Charles Rayfield: This growth will largely be volume driven from the new business wins that Kevin mentioned earlier. Across the segments, we expect light duty to be in this range, with heavy duty slightly above, and specialty vehicles slightly below. On the margin front, we're now targeting a full year adjusted operating income margin of approximately 15.5% to 16.5%, up from our previous expectations of 15% to 16%. Given the timing dynamics around our pricing actions, we now expect gross margins to exit the year at a more normalized rate of approximately 40%. Finally, we expect adjusted diluted EPS for the H2 2026 to be in the range of $3.85 to $4.15, up 9% to 17% over the comparable H2 adjusted diluted EPS of $3.54 in 2025. Again, barring any unforeseen market challenges, we expect these rates to serve as a structural base to grow from in 2027.

Speaker #2: On the margin front, we're now targeting a full year adjusted operating income margin of approximately 15.5% to 16.5%. Up from our previous expectations of 15 to 16 percent.

Speaker #2: Given the timing dynamics around our pricing actions, we now expect gross margins to exit the year at a more normalized rate of approximately 40%.

Speaker #2: And finally, we expect adjusted diluted EPS for the back half of 2026 to be in the range of $3.85 to $4.15, up 9% to 17% over the comparable second-half adjusted diluted EPS of $3.54 in 2025.

Speaker #2: Again, barring any unforeseen market challenges, we expect these rates will serve as a structural base to grow from in 2027. With that, I'll now turn the call back over to Kevin to conclude.

Charles Rayfield: With that, I'll now turn the call back over to Kevin to conclude. Kevin?

Speaker #2: Kevin?

Speaker #1: Thanks, Charles. Let me close by reinforcing a few points. First, we're pleased with our second quarter results, which included record earnings and exceptionally strong cash generation.

Kevin Olsen: Thanks, Charles. Let me close by reinforcing a few points. First, we're pleased with our Q2 results, which included record earnings and exceptionally strong cash generation. More importantly, our long-term outlook remains unchanged. The structural drivers of the aftermarket demand, growing vehicle age, rising vehicle miles traveled, and the largely non-discretionary nature of our portfolio remain firmly in place. In addition to the stabilizing tariff environment, we believe our diversified supplier network, our innovation engine, and the strength of our balance sheet position us well for the future. We appreciate your continued interest and support. With that, we'll open the call up for questions. Operator?

Speaker #1: More importantly, our long-term outlook remains unchanged. The structural drivers of the aftermarket demand, growing vehicle age, rising vehicle miles traveled, and the largely non-discretionary nature of our portfolio remain firmly in place.

Speaker #1: In addition to the stabilizing tariff environment, we believe our diversified supplier network, our innovation engine, and the strength of our balance sheet position us well for the future.

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. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2.

Operator: Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star two. We remind you to please pick up your handset and please limit yourself to one question and one follow-up question. We will take our first question from Scott Stember with Roth. Please go ahead. Your line is open.

Speaker #3: We remind you to please pick up your handset, and please limit yourself to one question and one follow-up question. We will take our first question from Scott Stember with Roth.

Speaker #3: Please go ahead, your line is open.

Speaker #4: Good morning. And thanks for taking my questions.

Scott Stember: Good morning. Thanks for taking my questions.

Speaker #5: Good morning, Scott.

Kevin Olsen: Morning, Scott.

Speaker #4: Maybe we could take a step back and just talk about the price reductions that are going to your customers. Just maybe give a little sense of—is it just related to the IEPA refund that you received? And also, you talked about this continuing through the end of this year.

Scott Stember: Maybe we could take a step back and just talk about the price reductions that are going to your customers. That just may give a little sense of is it just related to the IEPA refund that you received? Also, you talked about this continuing through the end of this year. Is this a transitory type of thing just to address the IEPA benefit that you got? Just trying to get a sense of, for 2027, how we should be thinking about pricing, whether we go back to a normalized range.

Speaker #4: Is this a transitory type of thing just to address the IEPA benefit that you got? I'm just trying to get a sense for '27 of how we should be thinking about pricing—whether we go back to a normalized range?

Kevin Olsen: Yeah. Good question, Scott. It's Kevin. Just let me high level talk a little bit about the tariffs. I'll kind of walk back to 2018, 2019. Our tariff philosophy has always been to treat this as a pass-through cost. Whether that's going up, we mitigate what we can. We pass along the balance. Vice versa, if tariff costs come down, we pass those back to our customers. We have kind of always taken that approach. When it comes to IEPA, when we got into Q2, refunds started being issued to us for the IEPA refund, and it became clear that the replacement tariff was going to be a Section 301 tariff. Just as a reminder, Section 301 tariffs have been with us for a very long time, back to 2018 and 2019. We're very familiar with that tariff.

Speaker #1: Good question, Scott. It's Kevin. Hey, just let me high-level talk a little bit about the tariffs. I'll kind of walk back to 2018, '19.

Speaker #1: Our tariff philosophy has always been to treat this as a pass-through cost. Whether that's going up, we mitigate what we can, and we pass along the balance.

Speaker #1: And vice versa, if tariff costs come down, we pass those back to our customers. We have kind of always taken that approach. When it comes to IEPA, when we got into the second quarter, refunds started being issued to us for the IEPA refund, and it became clear that the replacement tariff was going to be a Section 301 tariff.

Speaker #1: And just as a reminder, Section 301 tariffs have been with us for a very long time, going back to 2018 and 2019. So we're very familiar with that tariff.

Kevin Olsen: The difference being, IEPA was what we would consider a stacking tariff. A large portion of our portfolio is subject to Section 232 tariffs, which are the auto part tariff and the steel and aluminum tariff. IEPA stacked on top of that. Section 301 is different, whereas if a part is subject to Section 232, it doesn't apply. When we step back, that for us meant a much lower tariff environment going forward. In Q2, we started to reduce pricing. To your question, it's a one-time kind of price reduction to reflect the ongoing tariff cost. We still have tariffs in the business, Section 232, and there is a component of the business that is subject to Section 301. The pricing will remain in place for those tariffs, but not for IEPA, which allowed us to reduce pricing.

Speaker #1: The difference being IEPA was what we would consider a stacking tariff. So a large portion of our portfolio is subject to 232 tariffs, which are the auto part tariff and the steel and aluminum tariff.

Speaker #1: IEPA stacked on top of that. Section 301 is different. Whereas if a part is subject to 232, it doesn't apply. So when we step back, that for us meant a much lower tariff environment going forward.

Speaker #1: So in the second quarter, we started to reduce pricing. To your question, as to it's a one-time kind of price reduction to reflect the ongoing tariff cost.

Speaker #1: We still have tariffs in the business. Section 232, and there is a component of the business that is subject to section 301. The pricing will remain in place for those tariffs, but not for IEPA, which allowed us to reduce pricing.

Speaker #1: So I think if you kind of go back to prepared comments, as you think about 2027, as Charles mentioned, the financial profile of the business, as we move through the back half of the year, will be much more normalized.

Kevin Olsen: I think if you kind of go back to the prepared comments as you think about 2027, as Charles mentioned, the financial profile of business as we move through H2 will be much more normalized than what you're all used to. In terms of growth, as we look at H2, if you take kind of the implied guidance that we put out there for the full year of 3% to 5% growth, in a lower price environment, that would imply that unit growth will be fairly strong in H2. That's being driven by new business wins that we've talked about in the past that we kind of won late last year, early this year, that'll come online here in H2, and new product launches, which continue to be very strong.

Speaker #1: And what you're all used to. In terms of growth, as we look at the back half of the year, if you take the implied guidance that we put out there for the full year of 3% to 5% growth in a lower price environment, that would imply that unit growth will be fairly strong in the back half of the year.

Speaker #1: And that's being driven by new business wins that we've talked about in the past, that we kind of won late last year, early this year, that'll come online here in the back half.

Speaker #1: And new product launches, which continue to be very strong, will continue through 2027. I hope that answers your question.

Kevin Olsen: That will continue through 2027. I hope that answers your question.

Speaker #4: No, it does. Thanks. And just a quick follow-up before I jump back into the queue. You know, if you look at DIY versus DIFM, you did talk about this is the first time you probably mentioned that your DIY product is seeing a little bit more softness.

Scott Stember: No, it does. Thanks.

Kevin Olsen: You got it.

Scott Stember: A quick follow-up before I jump back into the queue. If you look at DIY versus DIFM, you did talk about. This is the first time you probably mentioned that your DIY product is seeing a little bit more softness. Is there an accelerating trend there, or is there anything that we should be concerned about going forward on that front?

Speaker #4: Is there an accelerating trend there, and is there anything that we should be concerned about going forward on that front?

Speaker #1: Yeah, another good question, Scott. I'd first kind of take you back to our overall POS rates. Going back at least three quarters now, they've been relatively stable.

Kevin Olsen: Yeah. Another good question, Scott. I'd first kind of take you back to our overall POS rates, kind of going back at least three quarters now have been relatively stable. I don't think anything that we're seeing is an accelerating trend. Certainly, I would say that the DIFM channel has been more resilient. As our consumer, the owner of a 13-year-old vehicle, our view is they are under pressure with all the inflationary aspects going on in the economy right now. That's been in place now for quite some time. When you step back and look at our portfolio, the vast majority, as we've said before, is non-discretionary. We like to say that, for the most part, your car isn't running or it isn't running safely for most of our hard part repairs.

Speaker #1: So, I don't think anything that we're seeing is an accelerating trend. But certainly, I would say that the DIFM channel has been more resilient.

Speaker #1: As our consumer, the owner of a 13-year-old vehicle, our view is they are under pressure with all the inflationary aspects going on in the economy right now.

Speaker #1: That's been in place now for quite some time. And when you look when you step back and look at our portfolio, the vast majority as we've said before is non-discretionary.

Speaker #1: And we like to say that, for the most part, your car isn't running, or it isn't running safely, for most of our hard part repairs.

Speaker #4: Great, that's all I have for now. Thank you.

Scott Stember: Great. That's all I have for now. Thank you.

Speaker #1: You got it, Scott.

Kevin Olsen: You got it.

Speaker #3: Thank you. Our next question comes from Jeff Lick with Stevens. Please go ahead.

Operator: Thank you. Our next question comes from Jeff Licht with Stephens. Please go ahead.

Speaker #4: Thanks very much for taking my question. Congrats on a nice quarter managing a pretty dynamic environment here. Kevin, just kind of building on some of Scott's themes, I was wondering if the 3 to 5 percent growth versus the 7, 9 percent prior, I was wondering if you'd be obviously, the 7 to 9 was based on a pricing structure that doesn't exist.

Jeff Licht: Thanks very much for taking my question, and congrats on a nice quarter, managing a pretty dynamic environment here. Kevin, just kind of building on some of Scott's themes. I was wondering if the 3% to 5% growth versus the 7% to 9% prior. Obviously, the 7% to 9% was based on a pricing structure that doesn't exist. I'm just kind of curious on an apples-to-apples basis, if you'd give any color as to what changed there, if at all. As it relates to the lower pricing, obviously, that's good in terms of elasticity. How long do you think that might take, where you might actually see some benefits in things like DIY? You do have lower prices throughout the chain, throughout the ecosystem now.

Jeff Lick: Thanks very much for taking my question, and congrats on a nice quarter, managing a pretty dynamic environment here. Kevin, just kind of building on some of Scott's themes. I was wondering if the 3% to 5% growth versus the 7% to 9% prior. Obviously, the 7% to 9% was based on a pricing structure that doesn't exist. I'm just kind of curious on an apples-to-apples basis, if you'd give any color as to what changed there, if at all. As it relates to the lower pricing, obviously, that's good in terms of elasticity. How long do you think that might take, where you might actually see some benefits in things like DIY? You do have lower prices throughout the chain, throughout the ecosystem now.

Speaker #4: So I'm just kind of curious on an apples-to-apples basis. If you'd give any color as to what changed there, if at all. And then as it relates to the lower pricing, obviously, that's good in terms of elasticity.

Speaker #4: How long do you think that might take where you might actually see some benefits in things like DIY? Because you do have lower prices throughout the chain, throughout the ecosystem now.

Speaker #1: Yeah, thanks, Jeff. This is Charles. Maybe I'll start with the first part of your question. So to your point, we took the guide down from 7 to 9 percent to 3 to 5 percent for the full year.

Charles Rayfield: Yeah. Thanks, Jeff. This is Charles. Maybe I'll start with the first part of your question. To your point, we took the guide down from 7% to 9%, to 3% to 5% for the full year. That reduction reflects a couple of things. One, the performance in the H1 that includes some lower volume and, as Kevin mentioned, some pricing reductions that we just discussed in response to some of the tariff environment coming down. Secondly, it's reflective of the pricing reductions that we're expected to take through the H2 of the year. Again, that's a response to the reduction in tariff costs that we've seen as those costs are largely passed through. We're guiding H2 sales growth to the mid-single digit range, which is largely volume driven from the new business wins that Kevin mentioned earlier, as well as new product introductions.

Speaker #1: That reduction reflects a couple of things. One, the performance in the first half that includes some lower volume and as Kevin mentioned, some pricing reductions that we just discussed.

Speaker #1: In response to some of the tariff environment coming down. Secondly, it's reflective of the pricing reductions that we're expected to take through the back half of the year.

Speaker #1: Again, that's a response to the reduction in the tariff costs that we've seen as those costs are largely passed through. So we're guiding second half sales growth to the mid-single digit range.

Speaker #1: Which is largely volume-driven. From the new business ones that Kevin mentioned earlier, as well as new product introductions.

Speaker #2: Yeah, in terms Jeff, it's Kevin. In terms of the elasticity question, look, I mean, obviously, our hope would be that prices do come down for our ultimate end user.

Kevin Olsen: Yeah, Jeff, it's Kevin. In terms of the elasticity question, look, obviously our hope would be that prices do come down for our ultimate end user, the guy hanging the parts on the vehicle and the person that needs their vehicle repaired so they can get to work every day. Ultimately, you need to understand, we don't control that, right? We set pricing to our customers who then control end user pricing. We don't control that. However, hypothetically, if pricing does come down in the market at the end user level, we do expect an uptick. There are certain categories and parts that are more discretionary in nature that will be more elastic. For the most part, the vast majority of our portfolio is what we would consider inelastic, Jeff.

Speaker #2: The guy hanging the parts on the vehicle and the person that needs their vehicle repaired so they can get to work every day. But ultimately, you need to understand we don't control that, right?

Speaker #2: We set pricing to our customers who then control end user pricing. So we don't control that. However, hypothetically, if pricing does come down in the market at the end user level, we do expect an uptick.

Speaker #2: I mean, there are certain categories and parts that are more discretionary in nature that will be more elastic. But for the most part, the vast majority of our portfolio is what we would consider any elastic, Jeff.

Speaker #2: And I'll just add another point there. You talked a little bit about the guide, and I'll just add on to what Charles said. I mean, we continue to kind of see mid-single-digit POS for the portfolio.

Jeff Licht: Yeah.

Jeff Lick: Yeah.

Kevin Olsen: Another point there. You talked a little bit about the guide, I'll just add on to what Charles said. We continue to kind of see mid-single digit POS for the portfolio. As we think about the H2, we don't anticipate that changing in terms of the overall business environment. However, our unit growth will be aided by the things that we mentioned with new business wins and new product launches.

Speaker #2: And as we think about the back half, we don't anticipate that changing in terms of the overall business environment. However, our unit growth will be aided by the things that we mentioned with new business wins and new product launches.

Speaker #4: And then just a quick follow-up here. You haven't mentioned yet, but any updates on the large customer that was kind of retrenching and how that is that kind of out of the system now, and how is that going?

Jeff Licht: Just a quick follow-up. You haven't mentioned yet, but any updates on the large customer that was kind of retrenching and how that, is that kind of out of the system now and how's that going?

Jeff Lick: Just a quick follow-up. You haven't mentioned yet, but any updates on the large customer that was kind of retrenching and how that, is that kind of out of the system now and how's that going?

Speaker #2: Yeah, that's become more normalized. I believe that was back in the fourth quarter. Jeff, and we've seen more normalized kind of order rates in comparison to sell-out.

Kevin Olsen: Yeah, that's become more normalized. I believe that was back in Q4, Jeff, and we've seen more normalized kind of order rates in comparison to sell out.

Speaker #4: Thanks very much, and best of luck in Q3.

Jeff Licht: Thanks very much and best of luck in Q3.

Jeff Lick: Thanks very much and best of luck in Q3.

Speaker #1: You got it.

Kevin Olsen: You got it. Thanks, Jeff.

Speaker #2: Thanks, Jeff.

Speaker #3: Thank you. We will move next with David Lentz with Wells Fargo. Please go ahead.

Operator: Thank you. We will move next with David Hession with Wells Fargo. Please go ahead.

Speaker #5: Hi, good morning, guys, and thanks for taking my questions. I'm curious if we can just dive into gross margin in a little more detail and talk about some of the Q3 and Q4 puts and takes.

David Hession: Hi. Good morning, guys, and thanks for taking my questions. Curious if we can just dive into gross margin in a little more detail and talk about some of the Q3 and Q4 puts and takes. Just one clarification. You mentioned the 40% exit rate for gross margins. Just want to confirm that that's a Q4 comment as opposed to 2026.

David Lantz: Hi. Good morning, guys, and thanks for taking my questions. Curious if we can just dive into gross margin in a little more detail and talk about some of the Q3 and Q4 puts and takes. Just one clarification. You mentioned the 40% exit rate for gross margins. Just want to confirm that that's a Q4 comment as opposed to 2026.

Speaker #5: And then just one clarification. You mentioned the 40% exit rate. For gross margins, just want to confirm that that's a Q4 comment as opposed to 26.

Speaker #1: Yeah, sure. So hey, David, thanks for the question. So I'll take that one. So yeah, so on a comparable basis, excluding the refund for the second quarter, gross margins were 38%.

Charles Rayfield: Yeah, sure. Hey, David, thanks for the question. I'll take that one. On a comparable basis, excluding the refund for the second quarter, gross margins were 38%. Kevin talked a little bit about some of the tariff environment here. As we talked about in the previous quarters, we expected Q1 to be the highest tariff load we had. We expected to start coming down in Q2, which we saw. We're seeing much more normalized rates. There are still tariffs in the business, but at lower levels as we go through the back part of the year. As we talk about exiting the year, Kevin mentioned exiting the year at 40%, that's a Q4 comment. We think that's a structural rate as we exit the year and enter into 2027. We feel pretty positive about that aspect.

Speaker #1: Kevin talked a little bit about some of the tariff environment here. As we talked about in previous quarters, we expected Q1 to be the highest tariff load we had.

Speaker #1: We expected to start coming down in Q2, which we saw. And so we're seeing much more normalized rates. So there are still tariffs in the business, but at lower levels as we go through the back part of the year.

Speaker #1: So as we talk about exiting the year and Kevin mentioned exiting the year at 40%, that's a fourth quarter comment. We think that's a structural rate.

Speaker #1: As we exit the year and enter into 2027. And so we feel pretty positive about that aspect.

Speaker #5: Got it. That's helpful. And then just on the SG&A front, 50 basis points of leverage in the quarter is really strong. So, curious if we can talk through kind of assumptions for the back half, in light of the mid-single-digit top-line expectation.

David Hession: Got it. That's helpful. Just on the SG&A front, 50 basis points of leverage in the quarter is really strong. Curious if we can talk through kind of assumptions for the back half, in light of the mid-single digit top line expectation.

David Lantz: Got it. That's helpful. Just on the SG&A front, 50 basis points of leverage in the quarter is really strong. Curious if we can talk through kind of assumptions for the back half, in light of the mid-single digit top line expectation.

Speaker #1: Yeah, so good question. So yeah, we had some good operational leverage in SG&A. As we came through the second quarter, I think as we look through the back half of the year, with the sales guide that we gave, there's likely to be a little bit of SG&A deleverage, but not a meaningful change in dollar spend.

Charles Rayfield: Yeah. Good question. Yeah, we had some good operational leverage in SG&A as we came through Q2. I think as we look through H2 with the sales guide that we gave, there's likely to be a little bit of SG&A deleverage, but not a meaningful change in dollar spend. I think, dollars are relatively consistent and that'll normalize as we go into 2027, but likely to see some deleverage in the back part of the year.

Speaker #1: So I think dollars are relatively consistent, and that'll normalize as we go into 2027. But we're likely to see some deleverage in the back part of the year.

Speaker #5: Thank you.

David Hession: Thank you.

David Lantz: Thank you.

Speaker #3: Thank you. We will move next with Brett Jordan with Jefferies. Please go ahead.

Operator: Thank you. We will move next with Bret Jordan with Jefferies. Please go ahead.

Speaker #6: Hey, good morning, guys. Good morning. Hey, good morning. Of the 82 million in free cash contribution from the tariff refund, do your customers ask you for outright cash back on your refunds, or can you make it up just on pricing as you sort of give through the lower XIEPA rates?

Bret Jordan: Yeah. Good morning, guys.

Kevin Olsen: Hey, Bret.

Charles Rayfield: Morning.

Bret Jordan: Hey, good morning. Of the $82 million in free cash contribution from the tariff refund, do your customers ask you for outright cash back on your refunds, or can you make it up just on pricing as you sort of give through the lower IEPA rates?

Speaker #2: Yeah, good question, Brett. I mean, we don't disclose specific commercial actions or agreements with any specific customers. As you know, we continue to partner closely with all of our customers.

Kevin Olsen: Yeah, good question, Bret. We don't disclose specific commercial actions or agreements with any specific customers. As you know, we continue to partner closely with all of our customers. I will say that, beginning in Q2, and through the H2, we're going to have lower pricing on a go-forward basis to match the current tariff environment. It definitely provides us more certainty. Hopefully, we see less of the tariff changes on a day-to-day, week-to-week basis that we've seen, and that's all baked into the guide. I'm not going to talk specifically about specific customer agreements.

Speaker #2: But I will say that beginning in Q2, and through the second half, we're going to have lower pricing on a go-forward basis to match the current tariff environment.

Speaker #2: And it's going to definitely provide us more certainty. Hopefully, we see less of the tariff changes on a day-to-day, week-to-week basis that we've seen, and that's all baked into the guide.

Speaker #2: But I'm not going to talk specifically about individual customer agreements.

Speaker #6: Okay. And then on M&A, obviously the balance sheets pretty well liquid and operations on the core business seem pretty solid. What are you thinking?

Bret Jordan: Okay. On M&A, obviously, the balance sheet's pretty well liquid, and operations on the core business seem pretty solid. What are you thinking? Is their M&A activity sort of heating up? Is that more interesting to you? What scope would you be considering in the current environment?

Speaker #6: I mean, is there M&A activity sort of heating up? Is that more interesting to you and sort of what scope would you be considering in the current environment?

Speaker #2: Yeah, good question, Brett. I'd say we're definitely seeing more pipeline activity now than we've seen in the last few years. I think a couple of reasons.

Kevin Olsen: Yeah. Good question, Bret. I'd say we're definitely seeing more pipeline activity now than we've seen in the last few years. I think a couple reasons. I think the tariff environment being a little bit more stable at this point has definitely contributed to that. Interest rates seem to have settled in as well. It seems also that potential sellers have kind of reset with more rational valuations, so we view that as a favorable going forward. Ultimately our M&A strategy has not changed, in terms of how we think about it across the portfolio. It continues to be a pretty big piece for our capital allocation strategy.

Speaker #2: I think the tariff environment being a little bit more stable at this point has definitely contributed to that. Interest rates seem to have settled in as well.

Speaker #2: It seems also that potential sellers have kind of reset with more rational valuations, so we view that as favorable going forward. Ultimately, our M&A strategy has not changed.

Speaker #2: In terms of how we think about it across the portfolio, and it continues to be a pretty big piece of our capital allocation strategy.

Bret Jordan: Great. Thank you.

Speaker #2: You got it.

Kevin Olsen: You got it.

Speaker #3: Thank you. Our next question comes from Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Operator: Thank you. Our next question comes from Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Speaker #5: Hey, good morning. Thanks for all the tariff kind of appendixes and stuff in the price report. Maybe just on a high level, can you kind of go through the kind of the moving pieces of how the dollar 18 tariff refund benefit in the quarter translates to a 30 cents kind of tariff on increase on guidance?

Tristan Thomas-Martin: Hey, good morning.

Kevin Olsen: Morning.

Tristan Thomas-Martin: Thanks for all the tariff kind of appendixes and stuff in the press release. Maybe just at a high level, can you kind of go through the moving pieces of how the $1.18 tariffs refund benefit in the quarter translates to a $0.30 kind of tariff on increase on guidance?

Speaker #1: Yeah, good question, Tristan. This is Charles. I'll take that one. So I think the best way to think about the $18 is those are—that's related to refunds we received for charges that we took prior to Q2 of 2026.

Charles Rayfield: Yeah. Good question, Tristan. This is Charles. I'll take that one. I think the best way to think about the $1.18 is that's related to refunds we received for charges that we took prior to Q2 of 2026. As Kevin talked about in some of the earlier comments, you'll begin paying tariffs throughout 2025. We capitalized a lot of those costs into inventory. Started to see that flow through the P&L at the very back part of 2025 and into 2026. As we talked about previously, we saw some of the heavier loads come through in Q1. That $1.18 is attempting to back out the prior period components. All that remains in Q2 is a more comparable cost basis. Then the $0.30 is related to the time period before 2026.

Speaker #1: So as Kevin talked about in some of the earlier comments, we began paying tariffs throughout 2025. We capitalized a lot of those costs into inventory and started to see that flow through the P&L at the very back part of 2025 and into 2026.

Speaker #1: As we talked about previously, we saw some of the heavier loads come through in the first quarter. So that dollar 18 is attempting to back out the prior period components.

Speaker #1: And so all that remains in Q2 is a more comparable cost basis. And then the 30 cents is related to the time period before 2026.

Speaker #1: That's really related to the fourth quarter of 2025 and the costs that were incurred in that time period.

Charles Rayfield: That's really related to Q4 of 2025 and the costs that were incurred in that time period.

Speaker #5: Okay. And then just two more quick ones. For light duty, when you called out lower volume, does that mean down year over year or a deceleration from prior quarters?

Tristan Thomas-Martin: Okay. Just two more quick ones. For light duty, when you called out lower volume, does that mean down year-over-year or a deceleration from prior quarters?

Speaker #2: No, I think Tristan, it's Kevin. I think how you need to think about that is we've been talking about this for quite some time that the first half was going to be a difficult comp.

Kevin Olsen: No, I think, Tristan, it's Kevin. I think how you need to think about that is, and we've been talking about this for quite some time, that the H1 was going to be a difficult comp. The key point there is POS kind of remained steady in the mid-single-digit range. Last year we had 10% growth in light duty. We had a shipment dynamic last year that was just strong, and we knew that was going to ease as we moved into the H2. It's actually, as we mentioned in the prepared remarks, that Q2 is actually a high watermark for us from a total shipment standpoint. It's a tough comp.

Speaker #2: The key point there is POS kind of remained steady in the mid-single digit range. But last year, we had 10% growth in light duty.

Speaker #2: And so we had a shipment dynamic last year that was just strong and we knew that was going to ease as we moved into the back half.

Speaker #2: As we mentioned in the prepared remarks, Q2 is actually a high watermark for us from a total shipment standpoint. It's a tough comp.

Speaker #5: Okay. And then just one more on specialty vehicles. I kind of get the high-end dynamic, but I'm just curious what you're seeing with the tax rates on some of these new entry-level products the OEMs are putting out.

Tristan Thomas-Martin: Okay. Just one more on specialty vehicles. I kind of get the high-end dynamic, but I'm just curious what you're seeing with attach rates at some of these new entry-level products the OEMs are spitting out. Thanks.

Speaker #5: Thanks.

Speaker #1: Well, we're seeing

Kevin Olsen: Well, without risk of stating the obvious, we're seeing more attach rate with the lower-end machines, obviously, that are more de-contented, and we're seeing a lower attach rate with the higher-end machines. It's a pretty broad spectrum out there right now. I think the high-end consumer continues to purchase higher-level machines that come with full enclosures and more accessorized. The lower-end consumer, it's why you're seeing, I think, a lot of new entrants come in with Segway and CFMOTO, and they're making a lot of noise early on, which obviously is a good dynamic for us over the long-term. As we believe price points will make their way back down over time to address that lower-end segment. We have a broad portfolio, as you know, to address a wide spectrum of vehicles, whether it's high-end or lower-end.

Speaker #2: on the I mean, without risk of stating the obvious, I mean, we're seeing more tax rate with the lower end machines. Obviously, that are more de-contented and we're seeing a lower tax rate with the higher-end machines.

Speaker #2: And I think so it's a pretty broad spectrum out there right now. I think the high-end consumer continues to purchase higher-level machines that come with full enclosures and more accessorized.

Speaker #2: But the lower-end consumer, it's why you're seeing, I think, a lot of new entrants come in with Segway and CFMoto and they're making a lot of noise early on, which obviously is a good dynamic for us over the long term.

Speaker #2: As we believe price points will make their way back down over time. To address that lower-end segment. But we have a broad portfolio as you know to address a wide spectrum of vehicles, whether it's high-end or lower-end.

Speaker #5: Okay. Thank you.

Tristan Thomas-Martin: Okay. Thank you.

Speaker #1: You got it.

Kevin Olsen: You got it.

Speaker #3: Thank you. We will move next to Justin Ages with CJS Securities. Please go ahead.

Operator: Thank you. We will move next with Justin Ages with CJS Securities. Please go ahead.

Speaker #7: Hi, this is Willem for Justin. Thanks for taking our questions. Could you please elaborate on some of the heavy-duty wins that you noted in the quarter, and then, are you seeing any indications of things beginning to improve in heavy-duty in general?

[Analyst] (CJS Securities): Hi, this is William for Justin. Thanks for taking our questions. Could you please elaborate on some of the heavy-duty wins that you noted in the quarter? Are you seeing any indications of things beginning to improve in heavy duty in general?

Speaker #2: Yeah, good question. I'd say we highlighted some new products there and some wins that has really been our focus and we're starting to get traction.

Kevin Olsen: Yeah. Good question. I'd say, we highlighted some new products there and some wins that has really been our focus, and we're starting to get traction. It's really above the frame. We're very strong below the frame in the undercarriage of the commercial vehicle. A large part of our strategy has been to really penetrate the above-frame market, which we're starting to successfully do. We're starting to see that in the results. I'd tell you, just in terms of the overall market, freight rates, I think we've all read in the news that are starting to rebound, which is a good thing. I would say that there is no forecasted or meaningful forecast increase for either mileage driven or tonnage for 2026.

Speaker #2: It's really above the frame. I mean, we're very, very strong below the frame—in the undercarriage of the commercial vehicle. And a large part of our strategy has been to really penetrate the above-frame market, which we're starting to successfully do, and we're starting to see that in the results.

Speaker #2: I would tell you just in terms of the overall market, I mean, freight rates I think we've all read in the news that are starting to rebound.

Speaker #2: Which is a good thing, but I would say that there is no forecasted or meaningful forecast increase for either mileage-driven or tonnage. For 2026.

Speaker #2: So, we continue to remain focused on what we can control, which is becoming a better, more productive operator, and to continue to really prime the flywheel of new products and above-frame.

Kevin Olsen: We continue to remain focused on what we can control, which is become a better, more productive operator, and to continue to really prime the flywheel of new products in above frame. As we also mentioned in prepared remarks, attacking new channels where we're not very penetrated today. The opportunity, as we view it, is large and it's bright.

Speaker #2: And as we also mentioned in prepared remarks, attacking new channels where we're not very penetrated today. So the opportunity as we view it is large and it's bright.

[Analyst] (CJS Securities): All right. Thank you.

Speaker #2: You got it.

Kevin Olsen: You got it.

Operator: Thank you. This concludes our Q&A session and today's conference call. Thank you for your participation. You may now disconnect.

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