Dorman Products Q4 2024 Earnings Report

Dorman Products EPS Results

• Actual EPS: $2.20
• Consensus EPS: $1.99
• Beat/Miss: Beat by +$0.21
• One Year Ago EPS: N/A

Dorman Products Revenue Results

• Actual Revenue: $533.77 million
• Expected Revenue: $523.95 million
• Beat/Miss: Beat by +$9.82 million
• YoY Revenue Growth: N/A

Dorman Products Announcement Details

• Quarter: Q4 2024
• Date: 2/26/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 27, 2025
• Conference Call Time: 8:00AM ET

Dorman Products (NASDAQ:DORM) is a leading independent global supplier of automotive aftermarket parts and hardware. Headquartered in Colmar, Pennsylvania, the company specializes in the design, manufacture and distribution of replacement components for passenger cars, light trucks and commercial vehicles. Dorman’s offerings span both mechanical and electrical systems, providing solutions that help repair shops and retailers address wear-out and collision-related failures on domestic and import vehicles.

The company’s extensive product portfolio includes steering and suspension components, brake system parts, engine management and cooling products, exterior and body hardware, and an array of fasteners, clips and brackets. Dorman also develops innovative solutions under its OE FIX branding, which replaces obsolete original equipment items with redesigned or enhanced parts. By maintaining more than 700,000 SKUs and an ongoing program of new product introductions, Dorman seeks to meet the evolving needs of the aftermarket and reduce vehicle downtime for end users.

Founded in 1918, Dorman Products has built a broad distribution network that comprises multiple strategically located warehouses and distribution centers across the United States and Canada. The company serves a diverse customer base that includes national and regional auto parts chains, service garages, jobbers and e-commerce platforms. Backed by an experienced executive leadership team, Dorman continues to invest in product development, logistical infrastructure and technology to support its growth in North America and expand its reach into international markets.

Dorman Products Q4 2024 Earnings Call Transcript

Key Takeaways

• 2024 record annual net sales surpassed $2 billion with 4.1% year-over-year growth, driving significant margin expansion and strong cash flow for reinvestment and shareholder returns.
• Fourth-quarter net sales rose 8% year-over-year to $534 million, adjusted operating margin expanded to 17.5% (+210 bps), adjusted EPS jumped 40% to $2.20, and free cash flow of $63 million funded $54 million of debt repayment.
• Light Duty segment delivered an 11% sales increase and 350 bps margin improvement to 20.1%, fueled by new products such as complex electronics and productivity initiatives.
• Heavy Duty segment net sales declined 8% amid ongoing market softness and fixed‐cost margin pressure, though management is investing in new product development and operational efficiencies ahead of an expected rebound.
• 2025 guidance forecasts net sales growth of 3–5% and adjusted EPS of $7.55–$7.85 (+6–10%), while excluding potential tariff impacts due to ongoing trade uncertainty.

Presentation

[Operator]

Good morning and thank you for standing by. Welcome to the Dormant Products Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded.

[Operator]

I would now like to turn the conference over to Alex Svetlum, Vice President of Investor Relations. Sir, please go ahead.

[Alexander Whitelam, Vice President - IR at Dorman Products]

Thank you. Good morning, everyone. Welcome to Dorman's fourth quarter twenty twenty four earnings conference call. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer and David Hessian, Dorman's Chief Financial Officer. Kevin will share updates on the business, then David will review the quarterly results and our guidance for 2025.

[Alexander Whitelam, Vice President - IR at Dorman Products]

Kevin will then close our prepared remarks before opening the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at doormanproducts dot 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. 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.

[Alexander Whitelam, Vice President - IR at Dorman Products]

Reconciliations of these non GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found on the Investor Relations section of Dorman's website. Finally, during the Q and 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. And with that, I'll turn the call over to Kevin. Thanks, Alex.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Good morning and thank you for joining our fourth quarter twenty twenty four earnings call. As Alex mentioned, I'll start out with a high level review of the results. I'll also cover the key to our success in our strategic focus areas for 2025, along with observations within each of our segments. With that, let me begin on Slide three with a few highlights from the year. Our financial performance in 2024 was outstanding.

[Kevin Olsen, President, CEO & Director at Dorman Products]

We surpassed the $2,000,000,000 of annual sales mark for the first time in our history, growing net sales by 4.1% year over year. This net sales growth was driven by strong demand in our Light Duty segment, which benefited from recently introduced new products. While market pressures weighed on the results of our other segments, Specialty Vehicle drove slight growth after a positive sales inflection late in the year and Heavy Duty invested in improving customer experience and new product development, which positions them well for when the market rebounds. We also drove significant margin expansion and earnings growth for the enterprise, which led to strong cash flow generation. This allowed us to invest in the business, strengthen our balance sheet for future strategic growth opportunities and return capital to our shareholders.

[Kevin Olsen, President, CEO & Director at Dorman Products]

I'd like to take a minute and thank all of our contributors for all they did this year. We have an exceptionally talented team that stepped up and turned challenges into successes. I'm proud of what we've accomplished together and look forward to the exciting future we have ahead. Speaking of talent, I also wanted to welcome Tayfun Oonner to our leadership team as Head of our Light Duty segment. Tayfun brings tremendous experience to the organization and his new role completes our transition to three distinct segments.

[Kevin Olsen, President, CEO & Director at Dorman Products]

With leadership structures in place now for each of them, it was an important step following our recent realignment of the business and we expect this leadership structure will drive significant value for the entire company. Turning to Slide four, I wanted to briefly touch on the fourth quarter. David will provide more detail, but we exited 2024 with strong momentum. Consolidated net sales for the quarter grew 8% year over year to $534,000,000 dollars as our teams did an excellent job delivering on new product development and customer programs. We also drove solid margin performance.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Adjusted operating margin for the quarter was 17.5%, expanding two ten basis points compared to the same period last year. Our margin improvement was led by light duty as their top line growth and productivity initiatives fueled a three fifty basis point increase in segment profit margin. As a result, adjusted diluted EPS increased an impressive 40% to $2.2 Free cash flow in the quarter was also strong at $63,000,000 allowing us to repay $54,000,000 of debt. All in all, it was an outstanding fourth quarter. We capped an incredible year for Dorman.

[Kevin Olsen, President, CEO & Director at Dorman Products]

I'm proud of our performance this year. And again, it speaks to our talent and positive culture that continues to drive results across the organization. David will cover guidance in a moment, but our outlook for 2025 reflects our strong operational model, strategic growth opportunities, financial strength and positive market trends. On Slide five, we thought it would be helpful to take a step back and highlight the key factors that drive Doreen's success. First, as we've covered on recent calls, innovation is a critical part of our DNA and core to our differentiation.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Our teams have the creativity, tools and expertise to deliver new vehicle repair solutions to our customers. Our innovation also enhances the repair experience for installers, which creates additional sales opportunities for our customers and drives the introduction of new cost effective products for our end users' vehicles. Next is operational excellence. We're constantly challenging our operations to deliver improved performance and have invested prudently to keep our performance at the forefront of the curve. We're of the mindset that improvement and efficiency gains are always possible, and we continue to drive productivity across our footprint.

[Kevin Olsen, President, CEO & Director at Dorman Products]

With efficient operations and new products driving growth, our asset light business has been a cash generator, providing both fuel for our growth and a strong financial foundation that is built for long term success. Our strong financial profile and cash generation has allowed us to deploy capital on strategic investments to compound our growth. This proven business model has driven tremendous results for Dormant over the years. We believe we are well positioned to deliver continued growth in 2025 and beyond. As we look ahead, Slide six lays out our strategic priorities for the year.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Again, innovation is a critical focus area for each of our segments. We continue to develop new light duty repair solutions, including an emphasis on our complex electronics portfolio, which continues gaining traction as we discussed on our last call. We're also focused on further expanding heavy duty's category coverage, deploying our OE FIX solutions methodology further into the sector. We believe the investments we've made in new product development position the business well as the freight recession recovers. Within the specialty vehicle, we remain focused on expanding our non discretionary portfolio and building on the success we've had in those categories since we've acquired SuperATV.

[Kevin Olsen, President, CEO & Director at Dorman Products]

We're also focused on furthering our operational excellence initiatives with productivity and automation improvements. We were pleased with the progress we made in 2024 on these initiatives and we see future opportunities across our facilities. In 2025, we'll continue to strategically diversify and optimize our supply chain. The team has done an outstanding job over the last few years, integrating suppliers across the globe and reducing our country specific concentration. Today, our supply chain is significantly more flexible and nimble than it was just a few years ago.

[Kevin Olsen, President, CEO & Director at Dorman Products]

We believe this provides a differentiated added value for our customers and provides us access to leading manufacturers around the world. We're also laser focused on continuing to position heavy duty and specialty vehicle for channel expansion, which we believe will lead to improved sales performance as these markets rebound. As I mentioned, our innovation strategy and commercialization efforts are expanding opportunities. Finally, after strengthening our balance sheet in 2024, we have the firepower to capitalize on new growth opportunities. Our acquisition pipeline remains robust and we expect the broader M and A environment to continue improving.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Moving to Slide seven, let me provide some observations across our three segments. In our Light Duty segment, positive macro trends continued through the end of the year. Vehicle miles traveled were again higher year over year in the fourth quarter. POS was strong, up high single digits, generally consistent with customer shipments. Strong customer demand and new product execution drove outperformance for light duty business.

[Kevin Olsen, President, CEO & Director at Dorman Products]

We've also made strides in diversifying our supplier base across new geographies and improving margin through productivity initiatives. In our Heavy Duty segment, soft market conditions persisted through the end of the year as expected. While recent industry commentary has pointed to a more optimistic outlook, we believe it is still too early to call for the timing of the return to growth. That said, we're seeing encouraging signs from our customers and look to capture share with a broader portfolio of new products when the market rebounds. Further, we plan to implement additional productivity initiatives to help improve Heavy Duty's margin profile.

[Kevin Olsen, President, CEO & Director at Dorman Products]

During the quarter, we saw year over year top line growth for the first time in several quarters for our Specialty Vehicle segment. Our new machine sales remain sluggish as manufacturers continued inventory destocking efforts. Our growth was a result of the investments we've made in innovation and channel expansion. These investments are yielding solid results, and we're excited with what lies ahead for the business. With that, I'll hand off to David to review our Q4 financial performance.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Thanks, Kevin. I'd like to echo your comments regarding the team. It was a particularly strong finish to what ended up being an outstanding year, and we couldn't have done it without the efforts of our contributors across the organization. So I just wanted to thank our contributors for their hard work and dedication. Turning to Slide eight, let me dive into our results.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Consolidated net sales in the fourth quarter were $534,000,000 up 8% year over year driven by strong customer demand. As Kevin mentioned, light duty drove above market sales growth in the quarter given positive macro trends in our new product initiatives. In fact, innovation was a key contributor to our success across each of our segments in the quarter. I'll cover them individually in just a moment. Adjusted gross margin for the quarter was 41.7%, a two forty basis point increase compared to the prior year period.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

This margin expansion was primarily driven by higher sales performance and cost savings generated from our supplier diversification efforts as well as our productivity and automation initiatives. Additionally, margin benefited from a favorable mix of higher sales of new products and greater leverage on volume growth. Adjusted SG and A expense as a percentage of net sales was 24.2%. Adjusted operating income was $93,000,000 for the fourth quarter, up 23% compared to the same period last year. Adjusted operating margin expanded two ten basis points to 17.5%, largely from gross margin improvement.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Finally, fourth quarter adjusted diluted EPS was $2.2 up 40 compared to the prior year period. Along with increased adjusted operating income and lower interest expense, our effective tax rate benefited from one time discrete items in the quarter. Finally, our share repurchase program activity during the year contributed to positive EPS growth. Next, let me provide updates on each of our business segments, starting with light duty on Slide nine. Our light duty business had an exceptional fourth quarter with net sales increasing 11% compared to the same period last year.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

POS and shipments were generally aligned in the quarter at a high single digit growth rate. This growth was driven by strong customer demand, particularly with our recently introduced new products, including complex electronics and our highly successful oil filter housing product. Light duty also drove solid margin improvement during the quarter. Segment profit margin increased to 20.1%, a three fifty basis point increase compared to last year's fourth quarter. This margin expansion benefited from our ongoing automation and productivity initiatives, strong new product sales and customer mix, along with greater leverage on our volume.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

On Slide 10, I'll cover our Heavy Duty segment. Heavy Duty net sales were down 8% year over year as a result of the ongoing market challenges, which Kevin covered. Lower volume had a negative impact on margins as the business has a larger fixed cost manufacturing footprint compared to our other segments. We also continue to invest in the business as we see long term growth opportunities ahead. These investments yielded significant new product development during the year, which we expect will position the business well when the market rebounds.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Moving to Slide 11 for our Specialty Vehicles segment. We were pleased to see year over year sales growth for our Specialty Vehicle business as net sales were up 5% in the quarter. Our new product portfolio and expanded dealer network continue to drive solid results for the business. On the margin front, we continue to invest in the business, which increased variable compensation and benefit expense in the quarter compared to the prior year period. These increases align the Specialty Vehicles segment with our other two segments.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

We believe the investments we've made position this segment for long term growth. Turning to our cash flow on Slide 12. For the fourth quarter, free cash flow was $63,000,000 up 30% compared to the same period in 2023. This growth was particularly impressive given that we increased our inventory spend in part to mitigate any potential impact from tariff changes. We also use this cash flow to strengthen our balance sheet, repaying $54,000,000 in debt, which as I'll highlight on the next slide, provides us with the ability to make strategic growth investments.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

While we paused our share repurchases during the fourth quarter given the uncertainty around the election and geopolitical concerns, we remain committed to our share repurchase program as a core component of our capital deployment strategy going forward. In fact, in October, our Board of Directors authorized a new $500,000,000 stock repurchase plan that became effective January one of this year and expires in December 2027. This performance in the fourth quarter contributed to what was an exceptionally strong year from a cash generation and deployment perspective. Cash flow from operations was an impressive $231,000,000 for the year, allowing us to deploy $39,000,000 in capital expenditures, repay $94,000,000 in debt and return $78,000,000 to our shareholders through the repurchase of 856,000 shares at an average cost of $91 per share. On Slide 13, I'll cover our balance sheet and liquidity.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

As of December 31, our net debt was $426,000,000 or $66,000,000 lower than Q3. Our net leverage ratio was 1.12x adjusted EBITDA, down from 1.36x at the September and 1.87x at the end of last year. Our current leverage remains comfortably below our long term target of 2x. Additionally, our total liquidity was $642,000,000 at the end of the quarter, up from $582,000,000 at the end of Q3. Our balance sheet remains strong and we're pleased with the capacity and flexibility it provides us to continue executing our strategic plan and deploying capital for future growth investment.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Turning to Slide 14, I'd like to cover our guidance for 2025. '20 '20 '4 positioned us well for continued growth through 2025 and beyond. Market trends in our late duty business remain positive and we see the beginnings of market turnaround in the heavy duty and specialty vehicle segments. While uncertainty exists around interest rates, tariffs and other macroeconomic factors, we have the playbook, a more diversified customer and supplier base and a solid financial position to navigate the various challenges we may face in the market. Specifically on tariffs, our 2025 guidance does not include any impact from The U.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

S. Tariffs enacted or proposed in 2025 or any potential retaliatory measures from U. S. Trade partners. The situation remains highly fluid with significant uncertainty regarding what may or may not be implemented and the potential impact on our 2025 results.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

We are following the evolving trade situation closely and plan to take actions to manage the impact on our business. We'll evaluate updating our guidance as the tariff situation gains clarity. That said, we expect net sales growth to be in the range of 3% to 5% compared to 2024. Looking across our segments, we expect light duty to drive solid sales growth for the year. Our innovation strategy and industry leading portfolio of new products, along with our enhanced commercialization strategies are expected to continue driving value for our customers.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

As I mentioned, predicting a market recovery for heavy duty remains difficult. But given market indicators, we expect net sales to be flattish for the year. For specialty vehicle, we expect net sales to increase modestly as consumer sentiment appears to be improving in that market. On the operational excellence front, we remain focused on driving efficiencies through continued productivity and automation initiatives. With our sales growth expectations coupled with the efficiency gains, we expect adjusted diluted earnings per share to be in the range of $7.55 to $7.85 representing 6% to 10% growth over 2024.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Now I'll turn it back over to Kevin to conclude. Kevin?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Thanks, David. As we look forward, I'm confident in our model for long term success. We'll continue driving innovation and building on our industry leading portfolio of innovative solutions.

[Kevin Olsen, President, CEO & Director at Dorman Products]

We'll continue to build deep relationships across our diverse end markets, leverage our operational expertise and capitalize on strategic growth opportunities to drive Dorman's future growth. On behalf of our management team and the Board, we thank you for your support. With that, I would now like to open the call up for questions. Operator?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Scott Stember from Roth M. K. M. Good

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

morning. Thanks for taking my questions.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Thanks, Scott.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Good morning, Scott.

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

Regarding tariffs, which is obviously one of the bigger topics these days, could you just remind us how far you've come at least with exposure related to China? I know that I think we were less than 50% total Asia exposure maybe as of last year. Could you talk about where we stand right now? And then under the current 10 tariff on China, I'm just trying to get a sense of how manageable that is for you in the near term.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Sure. Scott, it's Kevin. Good question. As you point out, the situation remains very fluid. I mean, I think, we've obviously seen the additional 10% on China imports and the steel and aluminum tariff.

[Kevin Olsen, President, CEO & Director at Dorman Products]

We would characterize those, those two aspects of tariffs as very manageable for us at this point. But obviously, the situation is very fluid and it seems like the reciprocal tariffs, we'll know a lot more about those in the months ahead. I will speak a little bit about the diversity, actions that we've taken and that I've spoken about publicly before. You know, we I will remind you that we have a lot of experience dealing with tariffs. We have a playbook, you know, back in 2018.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Since that timeframe, we have undertaken a lot of actions to diversify the supply chain. In 2025, Scott, we estimate that roughly 30% or so of our purchases will come from The US, whether that's from a partner manufacturer or from dormant manufacturing facilities. Roughly 30% to 40% of our sourcing in 2025 is estimated to come from China. And then outside of that, we're very diverse around the globe. I'll also say Scott that our exposure to Canada and Mexico from a sourcing perspective, is immaterial.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Scott, it's David. The other thing to keep in mind is, from a but we're on FIFO accounting, right. So you'll see the impacts as inventory turns probably about two times. So you'll see that six months after we actually incurred as well.

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

Got it. That's very helpful. Thanks. And then on the heavy duty side, can you talk about some of the early signs that you're seeing and then maybe talk about the channel expansion opportunities there?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Sure, Scott. Good question. Kevin, again. I would say, in general, if we look at the heavy duty market, our business is basically tracking with the market. We'll characterize it as somewhat stabilized.

[Kevin Olsen, President, CEO & Director at Dorman Products]

As we said in our prepared remarks, we're not really calling for a market turnaround in 2025. And it really is unclear how the trade situation will impact, the overall heavy duty market. So, our focus in that sector is going to be to continue on focusing on new products. We had a record year in terms of new product launches in 2024. We expect to increase on that in 2025.

[Kevin Olsen, President, CEO & Director at Dorman Products]

So the new product engine is really working well. We've got to get that flywheel primed and going. And eventually, that's going to become a very large growth engine for us, particularly as the market does recover. We're also focused on productivity initiatives across the business in heavy duty. And as we mentioned in the prepared remarks, we're expecting flattish sales growth for that segment in 2025.

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

Got it. And then just last question, you talked about the pipeline for M and A. Can you maybe just give us an indication of where you're seeing more opportunities and where we can look for you guys to potentially go?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Well, I mean, yes, Scott, it's Kevin. Good question. The pipeline, I would say, is very robust really across the three segments. But I will say that in the last couple of months, it's gone a little bit quiet with all the trade uncertainty. I think once that clears up, we'll start to see some good activity across our funnels.

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

Got it. That's all I have for now. Thank you.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Thanks, Scott.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Thanks, Scott.

[Operator]

Thank you. Our next question comes from the line of Gary Prestopino from Barrington Research. Please go ahead. Hey,

[Gary Prestopino, Managing Director at Barrington Research Associates]

good morning all.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Good morning, Gary.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Good morning, Gary.

[Gary Prestopino, Managing Director at Barrington Research Associates]

I just I have a question just on the whole heavy duty market. I mean, I understand that it's a choppy environment out there and and all, but aren't most of your products going into this market for repair? And is there just a real big diminishment of on the road trucking going on here? Or are truckers just putting off repairs? I'm just trying to get an understanding of what is driving this market to perform as poorly as it has.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yeah, it's a great question, Gary. And I think you're exactly right. I think the overall market is down. We're seeing that across all the freight indexes that we look at. And our parts, as you correctly point out, do primarily go for repair.

[Kevin Olsen, President, CEO & Director at Dorman Products]

And we are seeing delayed repairs across the channels that we operate in.

[Gary Prestopino, Managing Director at Barrington Research Associates]

Okay. So I guess, just from my understanding on this, is there if the truck is not drivable, they've got to repair it, but is there some kind of delayed maintenance kind of repairs that are needed that they're just putting that off?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yes. That happens quite often in this industry, Gary. And I think what you'll see is when the market does start to inflect, you'll start to see a lot of those delayed repairs start coming back online. Okay. So when that inflection happens, we expect a pretty robust ramp back up.

[Gary Prestopino, Managing Director at Barrington Research Associates]

And could you remind me, in a normalized market for both specialty and heavy duty or just however you want to phrase it, what would be the target for operating margins that you could attain or segment margins?

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Yes, Gary, the margins Yes, David, that's a good question. No, it's okay. We don't give guidance on forward guidance, Gary, on segment margins. But we think that as we look forward, what's included in the guide is margin performance pretty consistent with where we are in 2024.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yeah. Let me add to that. I mean, the reason that we're not forecasting in the guide a big increase in 2025 is obviously we're not forecasting the growth. In normal environments, you're talking about, high teens type margins in specialty vehicle. And although we're currently performing well below that in heavy duty, our target there is to get to mid teens operating margins full time. Okay.

[Gary Prestopino, Managing Director at Barrington Research Associates]

Yes. That's what my question revolved around just in a normalized market. So there's plenty of upside once these markets do turn in the affirmative?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Absolutely. Correct.

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from the line of Justin Aches from SJS Securities. Sir, please go ahead.

[Justin Ages, Director - Equity Research at CJS Securities]

Hi, morning all.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Good morning.

[Justin Ages, Director - Equity Research at CJS Securities]

Going back to there was a question on the M and A pipeline, but given the strength in balance sheet and strong free cash flow, can you give us a little indication on capital allocation priorities between share buybacks and M and A and debt pay down?

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Yes, Justin, good question. It's David. Yes, we had a strong year from a cash flow perspective. You look at our strategy, first area that we look at is debt and where we stand on debt and leverage. Then our ladder takes over from there.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

First area we look at is internal investment. We get our best growth there, best returns. M and A is second and then third is returning cash to shareholders. We do that opportunistically. We pause the buybacks in the Q4, given some of the uncertainty around the election and geopolitical concerns.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

You know, but we're, committed to it. In fact, the Board of Directors approved a share repurchase plan of $500,000,000 that was effective January 20, January first of this year. So, So that's how we look at the capital allocation, Justin.

[Justin Ages, Director - Equity Research at CJS Securities]

All right. That's helpful. Thanks. And then moving to Specialty, you talked about the year over year sales growth in the quarter. Just wondering if you could give a little more detail on in specialty vehicle repair versus discretionary and the consumer kind of sentiment that you talked about there?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yes. It's a great question. It's Kevin. I'd say overall, the market, in specialty vehicle, was down for 2024. There were certainly some signs of new vehicle sales stabilizing, and inventory in the channel stabilizing.

[Kevin Olsen, President, CEO & Director at Dorman Products]

But ultimately inflation and high interest rates are going to have kept new machine acquisition prices fairly high, which impacts us. I've talked publicly about that in the past. You know, hence, you know, our focus on, nondiscretionary repair parts, something that they were, you know, especially Super ATV was under indexed at the time of acquisition, and channel expansion. We've made a lot of progress on both those fronts, which enabled us to outperform the market, in the quarter and for the year in 2024. And, we believe we took some decent market share.

[Kevin Olsen, President, CEO & Director at Dorman Products]

It's unclear about when the market is going to recover fully, particularly with the trade uncertainty now on top of that. And we are expecting, again, modest growth in 2025 for the segment.

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

All right.

[Justin Ages, Director - Equity Research at CJS Securities]

Thanks. I appreciate you taking the questions.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Got it. Thanks.

[Operator]

Thank you. Our last question comes from the line of Brad Jordan from Jefferies. Sir, please go ahead.

[Bret Jordan, Managing Director at Jefferies LLC]

Hey, good morning guys. Could you talk about the margin profile of complex electronics within light vehicle? Is that a meaningfully higher margin or in line with the category?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Hey, Brett, it's Kevin. Good question. We don't typically break out the margin profile of segments within our business segments, you know, so product categories. I will tell you that, the overall segment has performed very well when you talk about complex electronics. It certainly outgrew the overall business in 2024, and we continue to predict that'll happen going forward.

[Kevin Olsen, President, CEO & Director at Dorman Products]

The margin profile is strong. I mean, typically, you know, as I said in the past, those products, have a high balance of new to the aftermarket. So, when that product gets launched, the only competitor that we have in the space would be the OE. So in those cases, typically that's where we have the highest margin profile. And we have the highest competitive moat, right?

[Kevin Olsen, President, CEO & Director at Dorman Products]

So with the technical difficulty of a lot of these parts, we typically have a lot more new to the aftermarket and we're exclusive for a lot longer, in complex electronics. Okay.

[Bret Jordan, Managing Director at Jefferies LLC]

And then I guess on the big picture question on the light vehicle side, what do you see as the underlying inflation rate in pricing this year? Obviously, ex tariff, but rates have stayed high, so factoring costs are up. What would you think you will see at POS for inflation?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yes. That's a good question, Brett. And obviously, the elephant in the room is the tariffs, right? So, I can't really predict what's going to happen there given it's so fluid at the moment. Let's assume that there were no tariffs.

[Kevin Olsen, President, CEO & Director at Dorman Products]

I would say you're probably in that very low single one ish type percent because there has been some general inflation outside of tariffs as we move through 2024.

[Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC]

Great. Appreciate it. Thank you. Got it.

[Operator]

Thank you. That concludes our conference call. Thank you for joining today and you may now disconnect.

Participants

Executives

• Alexander Whitelam, Vice President - IR
• Kevin Olsen, President, CEO & Director
• David Hession, Senior VP, CFO & Treasurer

Analysts

• Scott Stember, Executive Director & Senior Research Analyst at Roth Capital Partners, LLC
• Gary Prestopino, Managing Director at Barrington Research Associates
• Justin Ages, Director - Equity Research at CJS Securities
• Bret Jordan, Managing Director at Jefferies LLC