Q3 2026 Dorman Products Inc Earnings Call

October 27, 2026

Operator: 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' Q3 2026 earnings conference call. 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. 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 need operator assistance, please press star zero. I will now turn the call over to Alex Whitelam, Vice President of Investor Relations. Please go ahead.

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' Q3 2026 earnings conference call. 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. 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 need 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 #1: At this time, I would like to welcome everyone to the Dorman Products Q3, 2026 earnings conference call. All participant lines have been placed on mute to prevent any background noise.

Speaker #1: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad.

Speaker #1: Please be advised that today's conference is being recorded. Lastly, if you should need operator assistance, please press star zero. I will now turn the call over to Alex Whitelam, Vice President of Investor Relations.

Speaker #1: Please go ahead.

Alex Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's Q3 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, our segment-level performance, and market trends. Charles will walk through our Q3 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 at investors.dormanproducts.com. Before we begin, I'd 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: Thank you. Good morning, everyone. Welcome to Dorman's Q3, 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.

Speaker #2: Kevin will begin with a high-level overview of the quarter, our segment-level performance, and market trends. Charles will walk through our Q3 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'd 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: 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 will also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found on our 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 will turn the call over to Kevin.

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

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 our website.

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.

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

Kevin Olsen: Thanks, Alex, and good morning, everyone. Thank you for joining us today. Let me start with our Q3 results and provide commentary on the performance and key trends we are seeing across the business. I will then turn it over to Charles. Turning to slide 3, we delivered a solid Q3 with top-line growth in each of our three business segments. Consolidated net sales were a record $562 million in Q3, up approximately 3% compared to the same period last year. Consistent with the expectations we outlined in our Q2 earnings call, our growth this quarter was primarily from volume increases in our light-duty and heavy-duty segments, driven by new products and business wins, offset partially by pricing decreases in certain categories. Our largely non-discretionary portfolio continues to perform well through various market cycles. Adjusted operating margin was 15.8%, and adjusted EBITDA margin was 18.5% in the quarter.

Speaker #3: Thanks, Alex. And good morning, everyone. Thank you for joining us today. Let me start with our Q3 results and provide commentary on the performance and key trends we're seeing across the business.

Speaker #3: I'll then turn it over to Charles. Turning to slide three, we delivered a solid Q3 with top-line growth in each of our three business segments.

Speaker #3: Consolidated net sales were a record $562 million in the Q3, up approximately 3% compared to the same period last year. Consistent with the expectations, we outlined in our Q2 earnings call, our growth this quarter was primarily from volume increases in our light-duty and heavy-duty segments.

Speaker #3: Driven by new products and business wins, offset partially by pricing decreases in certain categories. Our largely nondiscretionary portfolio continues to perform well, through various market cycles.

Speaker #3: Adjusted operating margin was 15.8%, and adjusted EBITDA margin was 18.5% in the quarter. Keep in mind, we are lapping a tough comparison, last year's Q3 benefited from the timing of tariff-related pricing, without the higher tariff-related costs.

Kevin Olsen: Keep in mind we are lapping a tough comparison. Last year's Q3 benefited from the timing of tariff-related pricing without the higher tariff-related costs. As a reminder, we will see this dynamic again in Q4 as well. Adjusted diluted EPS in Q3 was $2.08, compared to $2.62 in the same period last year. We are narrowing our full year 2026 guidance given our performance year to date and the visibility we have for the remaining months of the year. We now expect full year net sales growth of 2% to 3% and adjusted diluted EPS for the year to be in the range of $8.50 to $8.70. Charles will walk you through this in more detail shortly. Turning to slide 4, in our light-duty segment, net sales grew approximately 3% year over year to $444 million, driven by our DIFM-focused categories and channels.

Speaker #3: As a reminder, we'll see this dynamic again in the Q4 as well. Adjusted diluted EPS in Q3 was $2.08, compared to $2.62 in the same period last year.

Speaker #3: We are narrowing our full-year 2026 guidance, given our performance year-to-date and the visibility we have for the remaining months of the year. We now expect full-year net sales growth of 2% to to 3%, and adjusted diluted EPS for the year to be in the range of $8.50 to $8.70, Charles will walk you through this in more detail shortly.

Speaker #3: Turning to slide four, in our light-duty segment, net sales grew approximately 3% year-over-year to $444 million, driven by our DIFM-focused categories and channels. Year-to-date, light-duty net sales were up approximately 2%.

Kevin Olsen: Year to date, light-duty net sales were up approximately 2%. During the quarter, POS across our top customers aligned with total net sales growth. We continued to see more pressure on the DIY side, while our DIFM business, which represents the largest share of our portfolio, delivered solid growth. Looking at POS year to date, our performance was up mid-single digits. Operating margin was 18.5%, down 520 basis points year over year, again, due to the timing of tariff-related pricing and associated costs in Q3 of last year. From an industry perspective, the fundamentals of the light-duty aftermarket remain positive. Vehicle miles traveled continued to increase year over year despite increased fuel prices. DIY consumers appeared to feel the effects of more widespread inflation during the quarter, but our DIFM-focused business was more stable.

Speaker #3: During the quarter, POS across our top customers aligned with total net sales growth. We continued to see more pressure on the DIY side, while our DIFM business, which represents the larger share of our portfolio, delivered solid growth.

Speaker #3: Looking at POS year-to-date, our performance was up mid-single digits. Operating margin was 18.5%, down $520 basis points year-over-year, again due to the timing of tariff-related pricing and associated costs in the Q3 of last year.

Speaker #3: From an industry perspective, the fundamentals of the light-duty aftermarket remained positive. Vehicle miles traveled continued to increase year-over-year, despite increased fuel prices. DIY consumers appeared to feel the effects, of more widespread inflation during the quarter, but our DIFM-focused business was more stable.

Kevin Olsen: We also continued to benefit from the evolving mix of the vehicle population as light-duty trucks and SUVs represent a growing share of vehicles on the road. This is contributing to a higher average age of the VIO as drivers tend to hold onto these vehicles longer. They also present margin opportunity over the long term as parts for light-duty trucks and SUVs tend to have higher average selling prices. A great example of how we are expanding our portfolio for these vehicles is the recent launch of our new 4-wheel drive locking hub actuator. This OE FIX solution covers a wide range of vehicle models, including the Ford F-150, Expedition, and Bronco, and the Lincoln Navigator. The original part often fails due to cracking in the internal diaphragm, causing a vacuum leak.

Speaker #3: We also continued to benefit from the evolving mix of the vehicle population as light-duty trucks and SUVs represent a growing share of vehicles on the road, this is contributing to a higher average age of the VIO as drivers tend to hold onto these vehicles longer.

Speaker #3: They also present margin opportunity over the long term, as parts for light-duty trucks and SUVs tend to have higher average selling prices. A great example of how we're expanding our portfolio for these vehicles is the recent launch of our new four-wheel-drive locking hub actuator.

Speaker #3: This OE fixed solution covers a wide range of vehicle models, including the Ford F-150, Expedition, and Bronco, and the Lincoln Navigator. The original part often fails due to cracking in the internal diaphragm, causing a vacuum leak.

Kevin Olsen: We have designed ours with an upgraded diaphragm material that is more resistant to wear, which provides our end users with a more durable, longer-lasting repair. This is exactly the type of product that reinforces Dorman's leadership in the aftermarket innovation. Congratulations to the light-duty team on another excellent OE FIX launch. Turning to slide 5 in our Heavy-Duty segment. Net sales increased approximately 5% year over year to $66 million, driven by higher volume and pricing in certain categories and channels. Year to date, Heavy-Duty net sales were up approximately 8%. Operating income margin was in line with our expectations at breakeven as the quarter was impacted by the timing of higher tariff and shipping costs. As we have mentioned in prior calls, the heavier impacts of tariffs would be absorbed later in 2026 for the HD segment.

Speaker #3: We've designed ours with an upgraded diaphragm material that is more resistant to wear, which provides our end users with a more durable, longer-lasting repair.

Speaker #3: This is exactly the type of product that reinforces Dorman's leadership in the aftermarket innovation. Congratulations to the light-duty team on another excellent OE fixed launch.

Speaker #3: Turning to slide five, in our heavy-duty segment, net sales increased approximately 5% year-over-year to $66 million. Driven by higher volume and pricing in certain categories and channels.

Speaker #3: Year-to-date, heavy-duty net sales were up approximately 8%. Operating income margin was in line with our expectations at break-even, as the quarter was impacted by the timing of higher tariff and shipping costs.

Speaker #3: As we've mentioned in prior calls, the heavier impacts of tariffs would be absorbed later in 2026 for the HD segment. We remain focused on improving the margin profile of the business, as volume continues to improve.

Kevin Olsen: We remain focused on improving the margin profile of the business as volume continues to improve. On the broader sector, pressures in the trucking market continued through the Q3. While we saw increased freight rates as capacity further compressed, we did not see a significant uptick in freight tonnage. That said, we have been cautiously encouraged to see tonnage indicators stabilize over recent months. Across our channels, we continue to see OE dealers drive growth using aftermarket repair solutions in their service centers. This presents a prime opportunity for us to capture share with our high-quality parts at aftermarket price points. On the product front, we continue to diversify our portfolio with innovative solutions. We recently launched a windshield wiper arm that was new to the aftermarket. This part is a component of a holistic offering of wiper-related solutions that are applicable across multiple platforms.

Speaker #3: On the broader sector, pressures in the trucking market continued through the Q3. While we saw increased freight rates, as capacity further compressed, we didn't see a significant uptick in freight tonnage.

Speaker #3: That said, we have been cautiously encouraged to see tonnage indicators stabilize over recent months. Across our channels, we continue to see OE dealers drive growth using aftermarket repair solutions in their service centers.

Speaker #3: This presents a prime opportunity for us to capture share with our high-quality parts at aftermarket price points. On the product front, we continue to diversify our portfolio with innovative solutions.

Speaker #3: We recently launched a windshield wiper arm that was new to the aftermarket. This part is a component of a holistic offering of wiper-related solutions that are applicable across multiple platforms.

Kevin Olsen: These launches further expand our above-the-frame offerings for OE dealers and other customers, which ultimately strengthens our relationship with fleets across North America. Congratulations to the Heavy-Duty team for continuing to drive innovation across the business. Turning to slide 6 in our Specialty Vehicle segment. Net sales were up approximately 3% year over year at $52 million, driven by portfolio expansion and pricing initiatives in certain categories. Year to date, Specialty Vehicle net sales were up approximately 1%. Operating income margin was 13.1%, up 30 basis points year over year, largely driven by the growth I just mentioned. Higher freight costs in the quarter weighed on our overall margin profile. On the broader market, we saw significant growth in new vehicle sales during the quarter, particularly with work-related utility machines and higher-end cab vehicles marketed to affluent riders.

Speaker #3: These launches further expand our above-the-frame offerings for OE dealers and other customers, which ultimately strengthens our relationship with fleets, across North America. Congratulations to the heavy-duty team for continuing to drive innovation across the business.

Speaker #3: Turning to slide six, in our specialty vehicle segment, net sales were up approximately 3% year-over-year at $52 million, driven by portfolio expansion and pricing initiatives in certain categories.

Speaker #3: Year-to-date, specialty vehicle net sales were up approximately 1%. Operating income margin was 13.1%, up 30 basis points year-over-year largely driven by the growth I just mentioned.

Speaker #3: Higher freight costs in the quarter weighed on our overall margin profile. On the broader market, we saw significant growth in new vehicle sales during the quarter, particularly with work-related utility machines and higher-end cab vehicles marketed to affluent riders.

Kevin Olsen: These tend to come with lower attachment rates at the dealer, but our team is doing a nice job expanding our parts portfolio to meet our riders at various stages of the vehicle life cycle. On this front, we are seeing sales of repair and maintenance solutions accelerating as riders hold onto their vehicles longer. Currently, however, we are seeing some riders pull back on the frequency of their riding activities as higher fuel prices are driving up the cost to trailer and ride their vehicles. From an innovation perspective, our team has done an excellent job developing products that meet our riders' evolving needs. As demand for cab units has increased, our team has responded with high-quality alternatives for machines without these features pre-installed. A great example is the recent launch of the hard cab enclosure for the CFMOTO ZFORCE 800.

Speaker #3: These tend to come with lower attachment rates at the dealer, but our team is doing a nice job expanding our parts portfolio to meet our riders at various stages of the vehicle lifecycle.

Speaker #3: On this front, we're seeing sales of a repair and maintenance solutions accelerating as riders hold onto their vehicles longer. Currently, however, we're seeing some riders pull back on the frequency of their riding activities, as higher fuel prices are driving up the cost to trailer and ride their vehicles.

Speaker #3: From an innovation perspective, our team has done an excellent job developing products that meet our riders' evolving needs. As demand for cab units has increased, our team has responded with high-quality alternatives for machines without these features preinstalled.

Speaker #3: A great example is the recent launch of the hard cab enclosure for the CFMoto Z-Force 800. This solution offers riders protection from dust, debris, and harsh elements, while also providing comfort with our breeze-right ventilation.

Kevin Olsen: This solution offers riders protection from dust, debris, and harsh elements while also providing comfort with our BreezeRite ventilation. Our upper doors, along with our front and rear windshields, are built with highly durable, abrasion-resistant polycarbonate material, which is significantly stronger than glass. This is exactly the ruggedness that our brands are known for. Congratulations to the specialty vehicle team for the speed to market with this great solution. With that, I will turn it over to Charles to cover our results in more detail. Charles?

Speaker #3: upper doors along with our front and rear windshields are built with highly durable abrasion-resistant polycarbonate Our material, which is significantly stronger than glass. This is exactly the ruggedness that our brands are known for.

Speaker #3: Congratulations to the specialty vehicle team for their speed-to-market with this great solution. With that, I'll turn it over to Charles to cover our results in more detail.

Speaker #3: Charles?

Charles Rayfield: Thanks, Kevin. Turning to slide 7, I will walk through our consolidated financial performance for the Q3. Total net sales for Q3 were a record $562 million, up approximately 3% compared to the prior year period. As Kevin noted, top-line growth was driven by solid performance across each of our business segments, with our nondiscretionary portfolio enabling growth despite headwinds persisting across our respective markets. Year to date, net sales were $1.64 billion, up approximately 3% compared to the same period in 2025. Adjusted gross margin in the quarter was 39.4%, down 500 basis points year over year. As Kevin mentioned, last year's Q3 benefited from higher pricing without higher tariff related costs impacting our margins. Our team did a nice job managing expenses in the quarter, as adjusted SG&A as a percentage of net sales was 23.6%, down 30 basis points year over year.

Speaker #2: Thanks, Kevin. Turning to slide seven, I'll walk through our consolidated financial performance for the Q3. Total net sales for Q3 were a record $562 million, up approximately 3% compared to the prior year period.

Speaker #2: noted, top-line growth was driven by solid performance across each of our business As Kevin segments, with our non-discretionary portfolio enabling growth despite headwinds persisting across our respective markets.

Speaker #2: $1.64 billion, up approximately Year-to-date, net sales were 3% compared to the same period in 2025. Adjusted gross margin in the quarter was 39.4%, down 500 basis points year-over-year.

Speaker #2: As Kevin mentioned, last year's Q3 benefited from higher pricing without higher tariff-related costs impacting our margins. Our team did a nice job managing expenses in the quarter, as adjusted SG&A is a percentage of net sales was 23.6%, down 30 basis points year-over-year.

Charles Rayfield: Adjusted operating income in the quarter was $89 million, and adjusted operating income margin was 15.8%. Year to date, adjusted operating income was $275 million, down 4% compared to the same period last year. Looking forward, we remain focused on realizing cost savings through our supplier diversification, productivity, and automation initiatives across each of our segments. Adjusted diluted EPS in the Q3 was $2.08, down 21% year over year, in line with our operating performance. A lower share count offset lower other income and a higher tax rate in the quarter. Year to date, adjusted diluted EPS was $6.73, flat compared to the same period last year. Turning now to slide 8, operating cash flow for the quarter was $65 million, and free cash flow was $57 million, highlighting the nice job our team did on the working capital front.

Speaker #2: Adjusted operating income in the quarter was $89 million, and adjusted operating income margin was 15.8%. Year-to-date, adjusted operating income was $275 million, down 4% compared to the same period last year.

Speaker #2: Looking forward, we remain focused on realizing cost savings through our supplier diversification, productivity, and automation initiatives across each of our segments. Adjusted diluted EPS in the Q3 was $2.08, down 21% year-over-year, in line with our operating performance.

Speaker #2: A lower share count offset lower other income and a higher tax rate in the quarter. Year-to-date, adjusted diluted EPS was $6.73, flat compared to the same period last operating cash flow for the quarter was $65 million, and free cash flow was $57 million, highlighting the nice job our team did on the working capital year.

Speaker #2: front. additional cash on hand, we've reduced our I'd also note that with factoring volume. Turning now to slide eight, This lowered free also reduced our factoring expense.

Charles Rayfield: I'd also note that with additional cash on hand, we reduced our factoring volume. This lowered free cash flow sequentially from last quarter, but it also reduced our factoring expense. In regards to capital allocation, we deployed $15 million on opportunistic share repurchases that retired approximately 115,000 shares at an average price of approximately $127 a share. Through the first 9 months of the year, we've deployed a company record of $112 million on share repurchases. Going forward, we have $348 million remaining on our share repurchase authorization that extends through 2027. Turning to slide 9, our balance sheet remains strong. We ended the quarter with net debt of approximately $283 million and total liquidity of $966 million.

Speaker #2: In regards to capital allocation, we deployed $15 million on opportunistic share repurchases that retired approximately $115,000 shares at an average price of approximately $127 a share.

Speaker #2: Through the first nine months of the year, we've deployed a company record of $112 million on share repurchases. Going forward, we have $348 million remaining on our share repurchase authorization that extends through 2027.

Speaker #2: Turning to slide nine, our balance sheet remains strong. We ended the quarter with net debt of approximately $283 million, and total liquidity of $966 million.

Charles Rayfield: Our total net leverage ratio at the end of Q3 was 0.65 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 now to slide 10, we are updating our full year 2026 guidance given our performance through the first 9 months of the year and the visibility we currently have for Q4. On the top line, we now expect full year net sales growth of 2% to 3%. This update reflects continued soft DIY demand and the timing of additional tariff-related price reductions that are expected in the Q4. That said, the growth through the remainder of the year is expected to be volume driven, given the success we're seeing with new product development and the category wins we previously discussed.

Speaker #2: Our total net leverage ratio at the end of Q3 was 0.65 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.

Speaker #2: Turning now to slide ten, we are updating our full year 2026 guidance, given our performance through the first nine months of the year and the visibility we currently have for Q4.

Speaker #2: On the top line, we now expect full year net sales growth of 2% to 3%. This update reflects continued soft DIY demand and the timing of additional tariff-related price reductions that are expected in the Q4.

Speaker #2: That said, the growth through the remainder of the year is expected to be volume-driven, given the success we're seeing with new product development and the category wins we previously discussed.

Charles Rayfield: Consistent with our comments last quarter, we continue to expect gross margin in the Q4 at approximately 40%, exiting the year with a structural base for 2027. For adjusted operating income margin, we've narrowed our guidance to the top end of our prior range and now expect 16% to 16.5% for the full year. In addition, we now expect a full year effective tax rate of 23.5% to 24%. On the bottom line, we now anticipate that adjusted diluted EPS for the year will be in the range of $8.50 to $8.70, narrowed from our prior range of $8.50 to $8.80. While we continue to experience short-term noise in our overall markets and performance, our long-term approach remains the same. We are focused on our innovation strategy and expanding a nondiscretionary portfolio, driving efficiencies and cost savings across the business and delivering for our customers.

Speaker #2: Consistent with our comments last quarter, we continue to expect gross margin in the Q4 at approximately 40%, exiting the year with a structural base for 2027.

Speaker #2: For adjusted operating income margin, we've narrowed our guidance to the top end of our prior range, and now expect 16% to 16.5% for the full year.

Speaker #2: In addition, we now expect a full year effective tax rate of 23.5% to 24%. On the bottom line, we now anticipate that adjusted diluted EPS for the year will be in the range of $8.50 to $8.70, narrowed from our prior range of $8.50 to $8.80.

Speaker #2: While we continue to experience short-term noise in our overall markets and performance, our long-term approach remains the same. We are focused on our innovation strategy and expanding our non-discretionary portfolio, driving efficiencies and cost savings across the business, and delivering for our customers.

Charles Rayfield: Additionally, our strong balance sheet gives us meaningful levers to drive growth going forward. With that, I'll now turn the call back over to Kevin to conclude. Kevin?

Speaker #2: Additionally, our strong balance sheet gives us meaningful levers to drive growth going forward. With that, I'll now turn the call back over to Kevin to conclude.

Speaker #2: Kevin?

Kevin Olsen: Thanks, Charles. Let me close by reinforcing a few points. First, we delivered a solid performance in the quarter with top-line growth across each of our business segments. Second, as Charles mentioned, our strong balance sheet positions us well to make strategic investments in the business, as we demonstrated this quarter with continued share repurchases. Finally, we remain focused on our long-term strategy to drive shareholder value. The structural drivers of the aftermarket demand remain in place, and our innovation engine, diversified supplier network, and financial flexibility position us well for the future. We appreciate your continued interest and support, and with that, we will open the call up for questions. Operator?

Speaker #3: Thanks, Charles. Let me close by reinforcing a few points. First, we delivered a solid performance in the quarter, with top-line growth across each of our business segments.

Speaker #3: Second, and as Charles mentioned, our strong balance sheet positions us well to make strategic investments in the business, as we demonstrated this quarter with continued share repurchases.

Speaker #3: And finally, we remain focused on our long-term strategy to drive shareholder value. The structural drivers of the aftermarket demand remain in place, and our innovation engine, diversified supplier network, and financial flexibility position us well for the future.

Speaker #3: We appreciate your continued interest and support, and with that, we'll open the call up for questions. Operator?

Operator: Thank you. At this time, if you wish 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. 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 Capital. Please go ahead. Your line is open.

Speaker #1: Thank you. At this time, if you wish 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.

Speaker #1: 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 Stamber with Roth Capital.

Speaker #1: Please go ahead, you're line is open.

Scott Stember: Thank you, and thanks for taking my questions. Just a question on POS. I just want to clarify that all of the softness or net softness compared to what we have seen in the last couple of quarters, that was just strictly due to DIY. I just wanted to confirm that DIFM, that the trends have really not changed. Positive trajectory.

Speaker #4: Thank you, and thanks for taking my questions. Just a question on POS. I just want to clarify that all of the softness or net I guess softness compared to what we've seen in the last couple of quarters, that was just strictly due to DIY, and I just wanted to confirm that DIFM that the trends have really not changed.

Speaker #4: Positive trajectory.

Kevin Olsen: Hey, Scott. Good morning. It is Kevin. I will handle that question. Just POS in general, as we talked about in our prepared remarks, we are essentially aligned with our net sales growth in the quarter. I will just note that is down a bit from where we were in previous quarters at mid-single digit growth. That is because we lapped the price increases that went in place last year in Q3, on top of the fact that we started reducing pricing in Q2 of this year. In terms of your question around the segments, you are correct. DIY remained pressured, from a POS standpoint, and DIFM was certainly more stable. The hard part business, DIFM, we have continued to see that strengthening as we have moved through the year. DIY does remain pressured.

Speaker #3: Hey, Scott. Good morning. It's Kevin. I'll handle that question. Just POS in general, as we talked about in our prepared remarks, we're essentially aligned with our net sales growth in the quarter.

Speaker #3: I'll just note that that's down a bit from where we were in previous quarters, that mid-single-digit growth. And that's because we lacked the price increases that went in place last year in the third quarter.

Speaker #3: On top of the fact that we started reducing pricing in the second quarter of this year. In terms of your question around the segments, you are correct.

Speaker #3: DIY remained pressured from a POS standpoint, and DIFM was certainly more stable. The hard part business, DIFM, we've continued to see that strengthening as we've moved through the year.

Speaker #3: But DIY does remain pressured. Now, I'll just also note, when you step back and look at the entire industry dynamics, they continue to remain positive.

Kevin Olsen: And I'll just also note, when you step back and look at the entire industry dynamics, they continue to remain positive. Vehicle miles traveled continue to increase year over year despite the higher fuel prices. It's clearly something that we're keeping a close eye on. As I also mentioned in the prepared remarks, light duty trucks and SUVs continue to become a bigger part of the prime VIO. For us, that's a really good dynamic as it's a higher average age and a higher average selling price opportunity.

Speaker #3: Vehicle miles traveled continue to increase. Year over year, despite the higher fuel prices, but it's clearly something that we're keeping a close eye on.

Speaker #3: And as I also mentioned in the prepared remarks, that light duty trucks and SUVs continue to become a bigger part of the prime VIO, and for us, that's a really good dynamic as we have a it's a higher average age and a higher average selling price opportunity.

Scott Stember: Got it. Last question, in light duty, last quarter, and you just talked about how you've been adjusting pricing with customers due to tariffs. How is that changing now that we have diesel going up 40% since the last quarter and now with short-term rates going up, potentially affecting your factoring expenses?

Speaker #4: Got it. And then last question. In light duty, last quarter, and you just talked about how you've been customers due to tariffs, but how has that changing now that we have diesel going up 40% since the last quarter and now with short-term rates going up potentially affecting your factoring expenses?

Charles Rayfield: Yeah, thanks, Scott. This is Charles. I'll start with that one. All good questions. Ultimately, those are input components. They are things that we factor into our pricing decisions periodically. As we go forward through the next couple of quarters, those are things we'll look to consider in those pricing decisions. Ultimately, to your point, fuel costs have gone up. We're starting to see that. We've also seen some increases in interest rates with the Fed raising the borrowing rate. Ultimately, they're input costs. We consider them as we make those pricing decisions.

Speaker #2: Yeah, thanks, Scott. This is Charles. I'll start with that one. So all good questions. Ultimately, those are input components. There are things that we factor into our pricing decisions periodically.

Speaker #2: So as we go forward through the next couple of quarters, those are things we'll look to to consider in those pricing decisions. But ultimately, yeah, to your point, fuel costs have gone up.

Speaker #2: We're starting to see that. We've also seen some increases in interest rates, with the Fed raising the borrowing rate. But ultimately, they're input costs.

Speaker #2: We consider them as we make those pricing decisions.

Charles Rayfield: Yeah. Scott, I'll just add to Kevin. We have a long track record of handling inflationary and deflationary situations through our history. We have a long track record of being able to handle that, particularly in the last 6 years where we've had some pretty wild swings in inflation and deflation.

Speaker #3: Yeah. Scott, I'll just add to Kevin, we have a long track record of handling inflationary and deflationary situations through our history. We have a long track record of being able to handle that, particularly in the last six years where we've had some pretty wild swings in inflation and deflation.

Scott Stember: Got it. Thank you.

Speaker #4: Got it. Thank you.

Kevin Olsen: Thanks, Scott.

Speaker #2: Thanks, Scott.

Operator: Thank you. We will move next with Jeff Lick with Stephens Inc. Please go ahead. Your line is open.

Speaker #1: Thank you. We will move next with Jeff Lick with Stevens Inc. Please go ahead, you're line is open.

Jeff Lick: Good morning. Thanks for taking my question and congrats on those results. Kevin, we are probably eight months in now to the elevated gas prices and throughout the auto ecosystem, we are seeing a transition to vehicles that are less light duty trucks and SUVs and maybe a marginal preference for even EVs and sedans. I am just curious, I am giving you a two-part question. One is, how does that dynamic affect your ideation process and are you guys already identifying things that might be too early in breakage? Also, are there parts you can come up with or that you have that, because the light duty trucks and the SUVs, they are already in the population, right? So if you have one, you got one. Are there parts that can actually help with fuel efficiency or does the quest for fuel efficiency help you guys?

Speaker #5: Good morning, thanks for taking my question and congrats on nice results. Kevin, we're probably eight months in now to the elevated gas prices, es, and throughout kind of the auto ecosystem, we're seeing a transition to vehicles that are kind of less light-duty trucks and SUVs and maybe a marginal preference for even EVs and sedans.

Speaker #5: I'm just curious, maybe a two-part question. One is, how does that dynamic affect your kind of ideation process and are you guys already identifying things that might be too early in breakage?

Speaker #5: And then also, are there parts you can come up with or that you have that because the light-duty trucks and the SUVs, they're already in the population, right?

Speaker #5: So if you have one, you got one. Are there parts that can actually help with fuel efficiency, or does the quest for fuel efficiency help you guys?

Kevin Olsen: Hey, Jeff, it's Kevin. Good question. I'd say number one, the current VIO continues to be favorable for us. Keep in mind that our prime repair cycle is that vehicle in that 7, 8 year old range, and then we kind of carry that through to about 13 to 14 years old. So any kind of change dynamic on the front end via new car sales takes a long time for it to impact in the aftermarket. So we have a very long tail. That being said, all new vehicles continue to present a lot of repair opportunities, whether it's a pure BEV, a hybrid or a pure ICE vehicle. We're drivetrain agnostic, as we've talked a lot about before. We see a lot of repair opportunities in BEVs. Matter of fact, we see higher average selling prices for repair opportunities in BEVs.

Speaker #3: Hey, Jeff, it's Kevin. Good question. I'd say, number one, the current VIO is continues to be favorable for us. Keep in mind that our prime repair cycle is that vehicle in that seven, eight-year-old range, and then we kind of carry that through to about 13 to 14 years old.

Speaker #3: So any kind of change dynamic on the front end via new car sales takes a long time for it to impact in the aftermarket.

Speaker #3: That being said, so we have a very long tail. That being said, all new vehicles continue to present a lot of repair opportunities, whether it's a pure BEV, a hybrid, or a pure ICE vehicle.

Speaker #3: So we're drivetrain agnostic, as we've talked a lot about before. We see a lot of repair opportunities in BEVs. As a matter of fact, we see higher average selling prices for repair opportunities in BEVs.

Kevin Olsen: Whatever the repair opportunity that presents itself to us, we'll have a solution for it.

Speaker #3: So whatever the repair opportunity that presents itself to us, we'll have a solution for it.

Kevin Olsen: Whatever the repair opportunity that presents itself to us, we'll have a solution for it.

Jeff Lick: Just a quick follow-up, just building on Scott's question. Obviously, 90 days ago, that was a very fluid situation with tariff refunds and the dynamics with the large retailers. I'm just curious, you mentioned two factors, one maybe a softening DIY environment and then obviously the pricing dynamics that were probably tariff related and then last year's compares. Could you just handicap or proportion what part of the revenue guide down was related to the pricing versus the softening environment? Was it 80/20/80? Any help there is much appreciated.

Speaker #5: And just a quick follow-up, just building on Scott's question. Obviously, 90 days ago, that was a very fluid situation with tariff refunds and the dynamics with the large retailers.

Speaker #5: I'm just curious, as you you mentioned two factors. One, maybe a softening DIY environment, and then obviously the pricing dynamics that were probably tariff-related in last year's comparisons.

Speaker #5: Maybe could you just handicap or proportion what part of the revenue guide down was related to the pricing versus the softening environment? Was it 80/20, 20/80, any help there, much appreciated.

Charles Rayfield: Yeah. Thanks, Jeff. This is Charles. Yeah, so we are going to split that out for a variety of reasons. But to your point, just going back to the drivers of that guide, the 2% to 3%, we saw some DIY continued softness in that area. To the point you just made, we continue to go through those negotiations with customers and seeing the IEEPA tariffs down in kind, like we talked about last quarter, the anticipation was, and our high preference was to bring prices down commensurate with how we went up. So on the way down, we took prices down as well. But we're not going to break out the negotiations we've had with those customers or the breakout. But preference was to lower overall pricing because we think this is ultimately going to benefit end customers.

Speaker #3: Yeah, thanks, Jeff. This is Charles. Yeah. So we are going to split that out for a variety of reasons. But to your point, just going back to the drivers of that guide, the two to three percent, we saw some DIY soft continued softness in that area.

Speaker #3: And to the point you just made, we did we continue to go through those negotiations with customers and seeing the IEPA tariffs down in kind, like we talked about last quarter, the anticipation was, and our high preference was to bring prices down commensurate with how we went up.

Speaker #3: So on the way down, we took prices down as well. But we're not going to break out the negotiations we've had with those customers or the breakout.

Speaker #3: But preference was to lower overall pricing because we think this is ultimately going to benefit end customers but with that said, we feel pretty good with where we're at currently.

Charles Rayfield: But with that said, we feel pretty good with where we are currently. We feel good with where we sit here, and the 2% to 3% is reflective of where we see Q4 going as well.

Speaker #3: But we feel good with where we sit here and the two to three percent's reflective of where we see the fourth quarter going as well.

Jeff Lick: Thanks very much for taking my questions. Best of luck in Q4.

Speaker #5: Thanks very much for taking my questions. Best of luck in Q4.

Charles Rayfield: Yeah. Thanks, Jeff.

Speaker #3: Yeah, thanks, Jeff.

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

Speaker #1: Thank you. We will move next with Brett Jordan with Jefferies. Please go ahead.

Bret Jordan: Hey, good morning, guys.

Speaker #4: Hey, good morning, guys. To that last point, hey, to the extent I guess you're going to return the IEPA refunds via lower prices to your customers, but you said you expect that to benefit the end customers.

Charles Rayfield: Hey, Bret.

Bret Jordan: To that last point, hey, to the extent I guess you are going to return the IEEPA refunds via lower prices to your customers, but you said you expect that to benefit the end customers. Do you actually see your customer base lower in retail prices?

Speaker #4: Do you actually see your customer base lower in retail prices?

Kevin Olsen: Yeah. Bret, look, I think we mentioned this is Kevin, we mentioned this last quarter. We obviously would hope that a lower end price to customers becomes a reality, but frankly, we cannot control that, and we are certainly not making any predictions whether that is going to happen or not. But again, we would love to see lower prices for our ultimate end customer, the guys hanging the parts on the vehicles and being able to help the folks that need to repair their vehicles to get to and from work every day. But we cannot control that, and we are not going to make any predictions on what happens in the ultimate end market.

Speaker #3: Yeah, Brett, look, I think we mentioned this as Kevin. We mentioned this last quarter. We obviously would hope that a lower end price to customers becomes a reality, but frankly, we can't control that.

Speaker #3: And we're certainly not making any predictions whether that's going to happen or not. But again, we'd love to see lower prices for our ultimate end customer, the guys hanging the parts on the vehicles and being able to help the folks that need to repair their vehicles to get to and from work every day.

Speaker #3: But we can't control that. We're not going to make any predictions on what happens in the ultimate end market.

Bret Jordan: Okay. And then the decision on factoring volume, is that because you had incremental liquidity from IEEPA refunds, or is there a change around the factoring strategy, and has the price of factoring changed materially?

Speaker #4: Okay. And then the decision on factoring volume, is that because you had incremental liquidity from IEPA refunds, or was there is there a change around the factoring strategy and has the price of factoring changed materially?

Charles Rayfield: Yeah. So, good question, Bret. This is Charles. As you know, the Fed raised rates, so the factoring costs are SOFR plus in most instances. So obviously we've seen some increases in some of those factoring costs. Our overall strategy hasn't changed. We're continually looking at our cash flow needs and relative to the factoring cost. So the overall strategy hasn't changed. Something that we monitor on an ongoing basis, we'll continue to do so, but no major change in how we look at it.

Speaker #2: Yeah. So good question, Brett. This is Charles. As you know, the Fed raised rates, so the factoring costs are software plus in most instances.

Speaker #2: So obviously, we've seen some increases in some of those factoring costs. Our overall strategy hasn't changed. We continually look at our cash flow needs.

Speaker #2: And relative to the factoring costs, so the overall strategy hasn't changed. Something that we monitor on an ongoing basis will continue to do so.

Speaker #2: But no major change in how we look at it.

Bret Jordan: Great. Thank you.

Speaker #4: Great. Thank you.

Charles Rayfield: Yeah, you bet.

Speaker #2: Yeah, you bet.

Operator: Thank you. Our next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Speaker #1: Thank you. Our next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Gary Prestopino: Hi. Good morning, all. Kevin, could you just remind us how much of your portfolio now is discretionary versus non-discretionary?

Speaker #4: Hi. Good morning, all. Hey, Kevin, could you just remind us how much of your portfolio now is discretionary versus non-discretionary?

Kevin Olsen: Yeah, Gary, we haven't really broken that out because frankly, that's a difficult one to really pin down an exact number on. But I will tell you that in general, the vast majority of our portfolio is non-discretionary. Your car is either not running safely or it's not running for the most part. But we certainly do have some more discretionary DIY type items. Those tend to be more in the front rooms of a lot of our customers, but the vast majority is in the back room, non-discretionary hard part.

Speaker #2: Yeah, Gary. We have it really broken that out

Speaker #3: because frankly, that's a difficult one to really pin down an exact number on. But I will tell you that in general, the vast majority of our portfolio is non-discretionary.

Speaker #3: Your car is either not running safely or it's not running for the most part. But we certainly do have some more discretionary DIY-type items.

Speaker #3: Those tend to be more in the front rooms of a lot of our customers. But the vast majority is in the back room. Non-discretionary hard part.

Gary Prestopino: Okay, and then just a follow-up. You mentioned that you're seeing more dealers, OE dealers, using aftermarket parts on the heavy-duty side. Can you give us some idea of how much aftermarket parts have proliferated in the repair process for heavy duty and where you might see that go? I know talking about just for your company, but just in the market itself.

Speaker #4: Okay. And then just a follow-up. You mentioned that you're seeing more dealers, OE dealers using aftermarket parts on the heavy-duty side. Can you give us some idea of how much aftermarket parts have proliferated in the repair process for heavy-duty and where you might see that go?

Speaker #4: I know we're talking about just for your company, but just in the market itself.

Kevin Olsen: Yeah. The market overall, Gary, this is one of the reasons why we entered the heavy-duty market because the OEs still control a very large portion of the aftermarket, right? They are up in the 60% range, whereas on the light-duty side, it is down in the 30% range, and that is really tied to warranty repair. It is one of the reasons why we like this space so much. We see an opportunity to continue to take share from the OE with high-quality aftermarket solutions at a lower price point. You are going to hear us continually talk about that, expanding our above the frame portfolio that will allow us to continue to take share from the OE dealer.

Speaker #3: Yeah. The market overall, Gary, and this is one of the reasons why we entered the heavy-duty market, because the OE still control a very large portion of the aftermarket, right?

Speaker #3: They're up in the 60% range, whereas on the light-duty side, it's down in the 30% range. And that's really tied to warranty repair. So it's one of the reasons why we like this space so much.

Speaker #3: We see an opportunity to continue to take share from the OE with high-quality aftermarket solutions at a lower price point. So you're going to hear us continually talk about that, expanding our above-the-frame portfolio that will allow us to continue to take share from the OE dealer.

Gary Prestopino: The OEs are right now about 60% of the market?

Speaker #4: So the OEs are right now about 60% of the market.

Kevin Olsen: Roughly. Yep.

Speaker #3: Roughly. Yep.

Gary Prestopino: Okay. Thank you.

Speaker #4: Okay. Thank you.

Kevin Olsen: You got it.

Speaker #3: You got it.

Operator: Thank you. Our next question comes from David Lantz with Wells Fargo. Please go ahead.

Speaker #1: Thank you. Our next question comes from David Lentz with Wells Fargo. Please go ahead.

David Lantz: Hey, guys. Good morning, and thanks for taking my question. Curious if you can talk about the implied Q4 net sales guide. I think it's flattish to slightly down to up 4% plus, and what the drivers could be to get you to the low end versus the high end.

Speaker #5: Hey, guys. Good morning. And thanks for taking my questions. Curious if you can talk about the implied Q4 net sales guide. I think it's flatish to slightly down to up 4% plus.

Speaker #5: And what the drivers could be to get to you to the low end versus the high end.

Charles Rayfield: Yeah. Thanks, David. Appreciate the questions. This is Charles. I will start. We talked a lot about, in the last call, the fact that we thought there would be a lot more volume coming through in the back half of the year. We have certainly seen that in Q3. We would expect that to continue in Q4. So, the guide is reflective of the fact that we continue to see a softened DIY market, given what we see with some of the pricing actions that we have taken related to the tariff downs. We think we will continue to see good volume come through with new product launches and some of the new business that we have brought on board. But a lot of it will be based on how that volume comes through.

Speaker #2: Yeah, thanks, David. Appreciate questions. As Charles all starts. So we talked a lot about in the last call the fact that we thought there'd be a lot more volume coming through in the back half of the year.

Speaker #2: And we've certainly seen that in the third quarter. We would expect that to continue. In the fourth. So the guides reflective of the fact that we continue to see a softened DIY market given what we see with some of the pricing actions that we've taken related to the tariff downs.

Speaker #2: We think we'll continue to see good volume come through with new product launches. And some of the new business that we brought on board.

Speaker #2: But a lot of it will be based on how that volume comes through. But we feel pretty confident with the 2 to 3 percent range.

Charles Rayfield: But we feel pretty confident with the 2% to 3% range, but largely volume driven in the back part of the year in Q4.

Speaker #2: But largely, volume-driven in the back part of the year in Q4.

David Lantz: Got it. That is helpful. Inventory has declined, I think, low double digit year over year in Q3. Curious if you could talk about the drivers of that and how you are thinking about trends over the next couple of quarters on an inventory basis.

Speaker #5: Got it. That's helpful. And then inventory has declined, I think, double-digit year over year in Q3. So curious if you can talk about the drivers of that and how you're thinking about trends over the next couple of quarters on inventory basis.

Charles Rayfield: Yeah, great question. When we saw the inventory increases, a large portion of that was due to some of the heightened IEEPA tariff costs that got capitalized into our inventory. A lot of the flow-through was simply that inventory bleeding out to the P&L. We also strategically took up inventory last year, and bled through some of that. That said, we think we will start to see inventory start to come up a little bit as we go through the next couple of quarters. But expect free cash flow still to be pretty solid and kind of in the range that we had talked about previously, which typical run rates, high $100s, sort of low $200 million-ish range, ex the IEEPA cash impacts.

Speaker #2: Yeah. Yeah, great question. So we saw the inventory increase as a large portion of that was due to some of the heightened IEPA tariff costs that got capitalized into our inventory.

Speaker #2: So a lot of the flow-through was simply that inventory bleeding out to the P&L. We also strategically took up inventory last year and bled through some of that.

Speaker #2: That said, we think we'll start to see inventory start to come up a little bit. As we go through the next couple of quarters.

Speaker #2: But expect free cash flow still to be pretty solid and kind of in the range that we had talked about previously, which typical run rates high 100, sort of low 200 million-ish range X IEPA cash impacts.

David Lantz: Great. Thank you so much.

Speaker #5: Great. Thank you so much.

Charles Rayfield: Yeah, you bet.

Speaker #2: Yeah, you bet.

Operator: Thank you. Once again, that is star and one on your telephone keypad, if you would like to join the queue. We will move next with Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Speaker #1: Thank you. And once again, that is start and one on your telephone keypad if you would like to join the queue. We will move next with Tristan Thomas-Morton with BMO Capital Markets.

Speaker #1: Please go ahead.

Tristan Thomas-Martin: Hey, good morning.

Speaker #6: Hey, good morning.

Charles Rayfield: Morning.

Speaker #5: Morning.

Tristan Thomas-Martin: Just a question on pricing. You began price reductions in Q2 of this year. Does that mean it remains a headwind in Q1 of 2027, then kind of normalizes thereafter?

Speaker #6: Just a question on pricing, right? So you began price reductions in the second quarter of this year. Does that mean it remains a headway in the first quarter of '27 and then kind of normalizes thereafter?

Charles Rayfield: Yeah. Hey, Tristan, this is Charles. So, as Kevin talked about previously, we have started to see some prices come down in Q3. We will expect to see some more of that happening in Q4. That said, we will have to lap that as we go through at least the earlier part of next year. We are obviously not giving guidance on 2027 at this point, but yeah, that will have to have some impact next year. But taken as a whole, we consider a lot of the other cost inputs when we look at pricing. But yeah, overall, we would expect to see some impact of the price downs through next year. That has to be taken into account from some of the volume impacts that we think we will see, as well as other pricing impacts we will have to consider as we go through the first part of the year.

Speaker #2: Yeah. Hey, Tristan. This is Charles. Yeah. So as Kevin talked about previously, we've started to see some prices come down in the third quarter.

Speaker #2: We'll expect to see some more of that happening in the fourth quarter. That said, we will have to lap that as we go through at least the earlier part of next year.

Speaker #2: We're obviously not giving guidance on 2027 at this point, but yeah, that will have to have some impact next year. But all taken as a whole, we consider a lot of the other cost inputs when we look at pricing.

Speaker #2: But yeah, overall, we'd expect to see some impact of the price downs through next year. That has to be taken into account from some of the volume impacts that we think we'll see as well as other pricing impacts that we'll have to consider as we go through the first part of the year.

Charles Rayfield: That has to be taken into account from some of the volume impacts that we think we will see, as well as other pricing impacts we will have to consider as we go through the first part of the year.

Tristan Thomas-Martin: Okay. Thank you. On specialty vehicles, I think you are the first company I have heard call out headwinds on enthusiast activity. What are you seeing? What is underlying that claim in terms of what you are seeing?

Speaker #6: Okay. Thank you. And then just on specialty vehicles. I think you're the first company I've heard call out headwinds on enthusiast activity. What are you kind of what do you kind of seeing what's kind of underlying that claim in terms of what you're seeing?

Kevin Olsen: Tristan, can you repeat that? We did not catch the first part of that.

Speaker #3: Tristan, can you repeat that? We didn't catch the first part of that.

Tristan Thomas-Martin: Oh, just higher fuel prices impacting enthusiast activity. What are you seeing specifically to lead you to make that?

Speaker #6: Oh, just higher fuel prices impacting enthusiast activity. What are you kind of like what are you seeing specifically to kind of lead you to make that statement?

Kevin Olsen: Yeah, good question. I would say that we are clearly seeing a stronger performance in the more utility work-related type vehicles. When you look at our more recreational-focused parts and accessories, we are seeing softened demand. It is probably pretty clear that we are seeing that fuel prices are impacting that end market segment. I mean, fuel prices were up 30% year over year in the month of September alone.

Speaker #3: Yeah. Good question. I would say that we're clearly seeing a stronger performance in the more utility work-related type vehicles. And when you look at our more recreational-focused parts and accessories, we're seeing softened demand.

Speaker #3: So it's probably pretty clear that we are seeing that fuel prices are impacting that end market segment. I mean, fuel prices are up 30% year over year in the month of September alone.

Tristan Thomas-Martin: Yeah. Okay. Just maybe I have forgotten, but does SuperATV sell like consumables on the off-road vehicle side?

Speaker #6: Okay. Just maybe I forgot, but the super ATV sell, like consumables on the off-road vehicle side?

Kevin Olsen: I am sorry, Tristan, I did not catch the first half of that again.

Speaker #3: I'm sorry, Tristan. I didn't catch the first half of that again.

Tristan Thomas-Martin: No, it is probably my phone's fault. Does SuperATV sell things like oil? Is there any kind of specific metrics or products you can point to that is indicating a decline in actual activity?

Speaker #6: No, that's probably my phone's fault. But the super ATV sell, things like oil, is there any kind of specific metrics or products you could point to?

Speaker #6: That's indicating a decline in actual activity.

Kevin Olsen: No. Not that we talk about publicly, but I would tell you, Tristan, just in general, roughly half of our portfolio is tied to what we would consider break-fix or non-discretionary repair. Then roughly 40% to 50% of our business is tied more to the utility work type vehicle, if that helps you.

Speaker #3: No, we don't not that we talk about publicly, but I would tell you, Tristan, just in general, roughly half of our portfolio is tied to what we would consider brake fix or kind of non-discretionary repair.

Speaker #3: And then roughly 40 to 50 percent of our business is tied more to the utility work-type vehicle. If that helps you.

Tristan Thomas-Martin: Okay. Thank you.

Speaker #6: Okay. Thank you.

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

Speaker #1: Thank you. We will move next with Justin Ages with CJS Securities. Please go ahead.

Justin Ages: Hi, morning all.

Speaker #7: Hi, morning all.

Charles Rayfield: Good morning.

Speaker #3: Good morning.

Kevin Olsen: Hey, Justin.

Justin Ages: The last few quarters, you guys have had low leverage and you have been active repurchasing shares. Can you just talk a little more detail about capital allocation priorities and where you see the most focus right now?

Speaker #7: The last few quarters you guys have had low leverage and you've been active repurchasing shares. Can you just talk a little more detail about Capital allocation priorities and where you see the most focus right now?

Charles Rayfield: Yeah, sure. I will take that one, Justin. Overall, the capital allocation strategy has not changed. We are looking at debt levels, as you have noted. The leverage level is below 0.7 currently, so not so concerned about that. Next, we are looking to put money back into new product development. We think we get our best returns there. Then third, we are looking at M&A. Kevin has talked about some of the M&A strategy on recent calls. Then fourth, we are looking opportunistically at share buybacks. Thus far this year, we have had a record number of buybacks. We continue to do about $15 million in the quarter, and we will continue to look to that opportunistically. Not putting out any targets for share buybacks at this point. When we tend to do a little bit less M&A, we tend to look a little bit more at share buybacks.

Speaker #2: Yeah, sure. I'll take that one, Justin. So overall, the capital allocation strategy has not changed. So we're looking at debt levels, as you've noted, the leverage level is below 0.7 currently.

Speaker #2: So not so concerned about that. We next year are looking to put money back into new product development. We think we get our best returns there.

Speaker #2: And then third, we're looking at M&A. Kevin's talked about some of the M&A strategy on recent calls. And then fourth, we're looking at opportunistically at share buybacks.

Speaker #2: So thus far, this year, we've had a record number of buybacks. We continue to do about 15 million in the quarter. And we'll continue to look to that opportunistically so not putting out any targets for share buybacks at this point.

Speaker #2: We tend to do a little bit less M&A. We tend to look a little bit more at share buybacks. As we get a little more active, going forward, we may look to pull back on that a little bit.

Charles Rayfield: As we get a little more active going forward, we may look to pull back on that a little bit, but that's the summary of the capital deployment strategy.

Speaker #2: But that's the summary of the capital deployment strategy.

Justin Ages: All right. Thank you for that. Then, you made some comments about the interplay between DIY and DIFM. Can you give us a general idea of the size of each of those channels as it relates to your business?

Speaker #7: All right. Thank you for that. And then you made some comments about the interplay between DIY and DFIM. Can you give us a general idea of the size of each of those channels as it relates to your business?

Kevin Olsen: Yeah, Justin. I think we talked a little bit about this earlier, that we don't break out a specific target. Our DIY-focused portfolio typically tends to be in the front rooms of our customers, but the vast majority of our portfolio would be more DIFM/professional focused, and those are in the back rooms. I hope that helps you.

Speaker #3: Yeah. Justin, yeah, I think we talked a little bit about this earlier that we don't break out of specific target or DIY-focused portfolio. Typically, tends to be in the front rooms of our customers, but the vast majority of our portfolio would be more DIFM/professional-focused.

Speaker #3: And those are in the back rooms. I hope that helps you.

Justin Ages: All right. Yeah. Thanks for taking the question.

Speaker #7: All right. Yeah. Thanks for taking the question.

Kevin Olsen: You got it.

Speaker #3: 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.

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