Good morning, and thank you for standing by. Welcome to the Dorman Products Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I'd now like to turn the conference over to Alex Whitelam, Dorman's New Vice President of Investor Relations and Risk Management. Sir, please go ahead.

Thank you. Good morning, everyone. I'm excited to join the team here at Dorman. I'm looking forward to working with you all. Welcome to Dorman's second quarter 2024 earnings conference call. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer; and David Hession, Dorman's Chief Financial Officer. Kevin will provide a business update, then David will review the quarterly results, followed by closing remarks from Kevin. After that, we'll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at dormanproducts.com. Before we begin, I would like to remind everyone that our prepared remarks, earnings release, and investor presentation include forward-looking statements within the meaning of federal securities laws. We advise listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K, and earnings release for important material assumptions, expectations, and factors that may cause results to differ materially from those anticipated and described in such forward-looking statements. We'll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found on the Investor Relations section of Dorman's website. Finally, during the Q&A portion of today's call, we ask that all 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. Good morning. Thank you for joining us on our second quarter 2024 earnings call. I'm going to begin today with a discussion on the highlights of our quarterly performance on both a consolidated and a segment basis. I'm also going to spend time discussing some of the exciting investments we've made in our operations over the last few years to provide you with insight into how Dorman is innovating not only in product development, but across our entire enterprise. Turn to Slide 3. You are following along with our deck. The momentum we saw in the first quarter of the year continued through the second quarter as we delivered another strong set of financial results. Consolidated net sales increased 5% year-over-year to $503 million, and we achieved a 430 basis point improvement in adjusted operating margin. This margin improvement was a result of higher sales volume, the continued abatement of inflationary costs, and productivity initiatives that drove cost savings. Adjusted diluted EPS increased an impressive 65% over the same period last year. Free cash flow of $51 million continued our positive trend, and we utilized it to repay $15 million of debt and repurchased $25 million of our shares. Most importantly, our performance through the first half of the year, along with our outlook for the balance of 2024 prompted us to increase our full-year earnings guidance. David will cover this in a moment. Moving on to Slide 4, I'll provide some segment observations. In Light Duty, we continue to be encouraged by positive overall market trends. In addition to the long-term underlying growth trend in the Prime VIO, vehicles aged 8 years to 13 years, which are in the sweet spot of Dorman's repair profile, vehicle miles traveled grew year-over-year and we saw hotter than average temperatures…

Thanks, Kevin. Turning to Slide 7, Q2 consolidated net sales of $503 million, up 5% year-over-year. This growth was driven by increased demand in our Light Duty segment, including higher sales of new products. Partially offsetting this growth was the soft market conditions that continue to impact our Heavy Duty and specialty vehicle business. I'll dive deeper into each of the segments in just a moment. Adjusted gross margin for the quarter was 39.6%, a 450 basis point increase compared to last year. The year-over-year margin improvement was driven by the easing of inflationary pressures across the businesses and favorable cost savings initiatives, including the ones that Kevin discussed. Adjusted SG&A expense was 24% of net sales, relatively flat compared to the same period last year. Adjusted operating income was $79 million in the quarter, a 45% increase from the same period last year. Adjusted operating margin was 15.6%, up 430 basis points year-over-year, primarily due to the improvement in gross margin. And finally, adjusted diluted EPS in Q2 was $1.67, an impressive 65% increase versus last year. The growth was mainly due to the increase in adjusted operating income coupled with lower interest expense and share count reduction, partially offset by a higher tax rate. Next, let me provide updates on the quarter for each of our business segments, starting with Light Duty on Slide 8. Q2 Light Duty net sales were $385 million, a 9% increase year-over-year. Shipments were generally aligned with customer POS during the quarter, growing high single digits. Our new products continue to drive meaningful sales for the segment. Light Duty operating margin was 17.1% in Q2, a 550 basis point improvement year-over-year. As with the overall business, lower-cost inventory and cost-saving initiatives continued to improve margins for the Light Duty segment. Moving on to…

Thanks, David. We're proud of our second quarter and year-to-date results. Our strong first-half results and positive outlook for our combined businesses through the balance of 2024 provided us with the confidence to raise our full-year earnings guidance. Our teams in Specialty Vehicle and Heavy Duty businesses have done an admirable job navigating market headwinds, while a Light Duty team continues to drive above-market growth. We remain committed to investing for the future and capitalizing on our innovation strategy to develop new product solutions that allow our customers to succeed. This includes continuing to invest in automation, capabilities in our operations to meet our customers' service level requirements and support our internal growth objectives. Confident that our growth and innovation strategy, coupled with the dedication and hard work of our contributors, will enable us to continue driving momentum for our customers and other stakeholders. With that, I would now like to open the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of Scott Stember with ROTH MKM. Your line is open.

Good morning, guys, and thanks for taking my questions.

Good morning, Scott.

Good morning, Scott.

Very impressive POS growth in Light Duty. A couple of your customers on their second quarter conference calls talked about some weakness that popped up, notably, I guess, in hard parts or under-car parts. Just trying to get a sense if you saw that within those numbers and just to kind of parse out market versus share gains for you guys with new products.

Yes, thanks Scott. Good question. I mean, if we look at the POS, I mean, we saw a broad-based growth really across all our categories. I'm not really going to talk specific category growth levels, but it was a solid quarter. No question that the macro trends continue to remain favorable there. In that segment, you've got more used cars, they're older, miles driven, continues to be at solid levels. And the sweet spot for us that we've talked a lot about before, the 8 year to 13 year old vehicle cohort continues to grow. We also continue to see a lot of traction with new products. We had a really solid quarter for new products. We launched roughly 1,700 SKUs or so across the enterprise in the second quarter. Roughly 30% of those were what we would consider new to the aftermarket. So they don't exist in the aftermarket at the time that we launch it, and that was a 20% growth over the previous Q2. So we feel really good with our strategy to continue to deliver innovation to the aftermarket. And as we've said, we believe that will continue to drive above-market growth.

Got it. And then my follow-up question on Heavy Duty and specialty, factoring some of the cost containment measures and assuming sales do come back in specialty later in the year and Heavy Duty next year, what are the margins that we should -- operating margins by segment that you could expect on the incrementals as things come back?

Yes. Scott. It's David. It's a good question. So we've seen some really good work. The team's been focused on margin over the last several quarters, and we've made some great progress. As we kind of think about the three businesses and where we expect the margin profile to be, we expect the Light Duty to be kind of in that high-teens. Same with the specialty vehicle high-teens and then the Heavy Duty business, probably more in the mid-to-high teens. So again, if you look at where our Q2 results came in, we're kind of in the ballpark on two of the three. And like I said, feel good about the progress we've made over the last few quarters.

Got it. Very helpful. Thank you.

Thanks, Scott.

Thanks, Scott.

Your next question comes from the line of Bret Jordan with Jefferies. Your line is open.

Hi, good morning, guys.

Good morning, Bret.

Good morning, Bret.

On the light vehicle, is there a way to sort of look at the same SKU POS? Because that high single digit, obviously is very strong performance versus your customers sales. If we take out what was new product-driven, could we get a feeling for traction in the core SKUs?

Yes, I would say, Bret, that we don't publicly break that out, but frankly, most of our growth is driven by new product, whether it was launched two years ago, three years ago, one year ago or this year. So that has been the driving factor of all our growth, Bret, as you look kind of backwards incrementally to what the market growth is, which we believe is kind of in that low single-digit level.

Yes. Okay. And then within specialty, I guess, give any color on the cadence of POS there? Is the consumer and specialty getting incrementally better as you're sort of looking for some improvement in sell-in, I guess, in the second half? Does that mean the sell-out is improving?

No, I wouldn't say the sellout's improving. I mean, that business right now, frankly, has been flattish. If you look at the first half of the year, we had some modest growth last year. There is some signs that inventory in the dealer channel is starting to come down back to more normalized levels that will help as new machine sale growth ramps up. But we're not going to bank on that, Bret. Our strategy there has been the market is what the market is and we're focused on kind of two major initiatives there, which is continuing to take share in the dealer channel and, you know, increasing our non-discretionary repair part business, which we've been very successful in. That's enabled us to kind of drive flattish to modest growth in what we view as a slightly down market. So those are the things we're going to continue to focus on in addition to productivity initiatives across the business.

What's the sweet spot in specialty? Do you sell more when a new ATV or UTV is sold, or do you sell more into the maintenance of a three year to five year-old ATV?

Yes, a great question, Bret. A very high percentage of our sales come within the first two years of a new vehicle sale. So for us, when we see new vehicle sales drop, that really does impact the business.

Okay, great. Thank you.

There are no further questions at this time. This will conclude today's conference. We thank you for joining. You may now disconnect your lines.