Good morning, and thank you for standing by. Welcome to the Dorman Products First Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'd now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead.

Good morning, everyone. Welcome to Dorman's first quarter 2025 earnings conference call. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer; and David Hession, Dorman's Chief Financial Officer. Kevin will share updates on the business and address the tariff situation. Then David will review our quarterly results and reaffirm guidance. 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 dormanproducts.com. Before we begin, I'd like to remind everyone that our prepared remarks, earnings release and investor presentation, including 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. 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 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, and thank you for joining our first quarter 2025 earnings call. As Alex mentioned, I'll start with a high-level review of the results and then cover the actions we've taken over the last several years to position us well to address tariffs. I'll also touch on the observations we're seeing within each of our segments. Turning to Slide 3. I wanted to briefly touch on the quarter. David will provide more detail, but we had an outstanding first quarter with strong top and bottom line results. Consolidated net sales for the quarter grew 8% year-over-year to $508 million. Our team continues to do a great job on the new product development front, which contributed to our growth. We also delivered solid margin expansion in the quarter. Adjusted operating margin for Q1 2025 was 17%, expanding 310 basis points compared to the same period last year. This margin performance was again led by our light duty business, which drove solid margin improvement over last year's first quarter. Lastly, adjusted diluted EPS increased over last year's first quarter by an impressive 54% to $2.02 and free cash flow in the quarter was $40 million, allowing us to repay $20 million of debt and repurchased $12 million of our common stock. Overall, we began the year with strong results that support our expectations for continued growth this year. On Slide 4, we thought it would be valuable to discuss some of the investments we've made in our business over the last several years, which position us well to perform in situations of economic uncertainty like we currently face. I'd like to caveat that the situation has been highly fluid, as you all know, and we are following it closely. I've been extremely impressed with our team and their ability…

Thanks, Kevin. As we turn to Slide 6, I'd like to point out that we maintained our positive momentum from the fourth quarter. Consolidated net sales in the first quarter were $508 million, up 8% year-over-year driven by strong customer demand. Light duty again drove above-market sales growth on positive macro trends and the success of our new products. I'll cover each of our segments more in just a moment. Adjusted gross margin for the quarter was 40.9%, a 220 basis point increase compared to the prior year period. Margin expanded on the strong sales growth and favorable mix of new products coupled with cost savings generated from supplier diversification as well as productivity and automation initiatives. Adjusted SG&A expense as a percentage of net sales was 23.9%, down 100 basis points compared to the first quarter of 2024. Adjusted operating income was $86 million in the first quarter, up 33% compared to the same period last year. Adjusted operating margin expanded 310 basis points to 17%, largely from the gross margin improvement, I just discussed. Finally, adjusted diluted EPS in the first quarter was $2.02, up 54% compared to last year's first quarter, along with increased adjusted operating income and lower interest expense as a result of our debt repayments over the last 12 months. Our effective tax rate benefited from a timing difference in the quarter. Finally, our share repurchase program activity over the last year contributed to positive EPS growth. Next, let me provide updates on each of our business segments, starting with light duty on Slide 7. Light duty's performance in the first quarter was outstanding, with net sales increasing 14% year-over-year. The growth was driven by strong customer demand, especially for our new products, with foundationally positive macro trends continuing through the first quarter. POS…

Thanks, David. I'll just reinforce what we've said throughout. First and foremost, we had an outstanding first quarter that positions us well for growth this year. While there is significant level of uncertainty that exists with tariffs, we have the experience and talent to address the challenges ahead. Additionally, we have a stronger supplier base, a more diversified customer base and a stronger financial foundation than we've ever had before. We'll continue focusing on the needs of our customers and end users and look to capitalize on the opportunities we see in the marketplace. With that, I would now like to open the call up for questions. Operator?

[Operator Instructions] And our first question comes from the line of Scott Stember with ROTH Capital Partners. Your line is open.

Good morning, guys, and thanks for taking my questions. Very strong performance in heavy duty, very strong high single-digit POS, a few ticks below the sell-in. So I guess the first question is, have you seen any of your bigger customers buying ahead to get ahead of tariffs? And if not, is this just a function that the difference of you guys gaining shelf space with some of your bigger, faster-growing partners that are expanding rapidly.

Yes. Good -- it's Kevin. Good question, Scott. The light duty business was very strong in the quarter. It followed a very strong fourth quarter as well. Our POS, as we noted in the prepared remarks, was up high single digit, very similar to what we were seeing last year, really driven by our new product performance and the macros continue to be favorable as well, as we mentioned. Our sell-in growth actually did exceed our POS growth in the quarter really as a result of an easier comp in the quarter. If we look back and you look at the two-year stack in the quarter, kind of more in line with what the POS growth that we saw some timing issues last year in the first quarter versus the fourth quarter of 2023. To answer your question around the buy ahead, we haven't seen any indications at this point yet of customers getting ahead of the tariffs, at least from ordering from us. That could potentially happen. But as of now, we haven't seen any meaningful evidence of that.

Got it. And on tariffs, obviously, I appreciate there's a lot of uncertainties here, and it's hard to predict anything. But clearly, with 145% as it stands right now, some folks are concerned of what impact it will have on your business. So it sounds like you're a lot better positioned than you were the last time around with tariffs, but could you just again remind us of some of the mitigation efforts that you have in place, and then timing of when we would actually start to see anything hit your results?

Yes, sure. I mean, as you mentioned, Scott, again, it's Kevin. It's really too early to tell. It's a very fluid situation, the 232 auto tariffs just went into effect a couple of days ago. And as we talked about, we do have a very diverse supply chain, much more diverse than it was, say, five, six years ago, and that's intentional. I'll just reiterate what our footprint looks like across Dorman, roughly 30% to 40% is sourced from China in 2025. We estimate and that's obviously depending on product mix. Approximately 30% is in the U.S., and the balance is really spread around the rest of the globe. I also want to point out, keep in mind that the vast majority of our parts, Scott, are nondiscretionary in nature. And it's really been fairly inelastic historically as we've gone through periods like this. And just to hit on your point is when it impacts us, again, we're on FIFO inventory and it all depends on when some of these tariffs has started to come into effect. But in general, we won't see a lot of these tariffs for roughly six months or so after we start incurring them just because of FIFO. In regards to your question on mitigation, I mean, look, we've been down this road before. We feel like we have a really good playbook to deal with this. We're -- obviously, we're going to look to negotiate with our -- both our supply base in terms of cost concessions, driving further productivity initiatives in the business, and then obviously look to offset any difference through price changes.

Great. That's all I have for now. I'll get back in the queue. Thank you.

Thanks, Scott.

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

Hi, guys. Good morning. On that EBIT margin in light vehicle, you talked about product mix versus leverage on the volume, could you sort of break out what was product mix versus leverage on the volume. You talked about a lot of new to the aftermarket and the oil filter housing. And -- could you just sort of bucket where that pretty solid margin expansion came from?

I mean, Bret, if you look back, we've been generating these type of operating margins in light duty for quite some time now. And really, it is mostly due to our product mix, we don't spike out exactly how much is due to just core business, but a lot of it is due to the new product mix. And as we've talked about before, we've had some really successful new products come to market. But also the macros have improved, right? I mean if you look at the sweet spot, the 7- to 14-year-old vehicle, which is where we really target, new product development that vehicle cohort has really grown over the last couple of years, and we see that cohort continuing to grow over the next three to four years. Those two factors have really enabled us to expand margin in the light-duty side.

Okay. And then I guess when you think about the more commoditized mix in the portfolio of maybe chassis, and your supply chain footprint versus competition, is there any material difference? Or is everybody pretty much exposed in the same countries? Have you thought about yourself versus maybe the Tenneco chassis businesses or the MevoTech chassis businesses. Is there any risk that someone will be advantaged given their geographic mix or is pretty much be everybody the same?

Yes. Good question, Bret. I'm not going to comment on a specific category, but I think overall, you're going to see some of that in terms of -- depending on where all the tariffs settle out, which I don't think anyone really knows at this point. There will be situations where someone may be advantage versus somebody else. I'll just say that as we look at our footprint, and if you look at kind of the exposure to kind of the highest tariff region now, hard parts is very -- still very indexed to China. And if we look at kind of our exposure, we think we're a lot less exposed than most. And given our balanced footprint around the globe, overall, we see ourselves in a competitive advantage situation.

Okay. Great. And then on pricing, in the event we do get tariffs and -- the conversations with your large retail customers, does it sound as if everybody is still expecting to be able to pass most of these through? Or is it just the magnitude of the tariffs, something that some place along the line of the supply chain or the retailers, they have to eat some of this higher cost.

Yes, Bret, I'm not going to comment on what our customers are going to do. But I'll just say that from our perspective, we're pretty comfortable that we can offset the net impact at the end of the day. Keep in mind, again, our portfolio is mostly nondiscretionary repair parts, hard parts. Our customers -- we're a strategic partner to all of our customers. We have a strong brand, both to our customers and the end users. And we have a proven playbook. I mean we've done this before back in the 2018 timeframe. And at the end of the day, we think we'll be successful wherever this ends up.

Great. Thank you.

Next question comes from the line of Gary Prestopino with Barrington Research. Your line is open.

Good morning, everyone. David, just a couple of questions on the income statement. It looked like your interest expense really stepped down sequentially. And I'm wondering, is that -- it looks like net interest was about $7.4 million or something like that. Is that a good number to use for the rest -- throughout the rest of the year on a quarterly basis? Or is there something in there that caused that step down?

Yes, Gary, it's Dave. We've been focused, as you know, on paying down our debt since the acquisition, and we paid down close to $270 million over the last couple of years, which has brought our leverage down to 1x EBITDA. So the balance sheet is as strong as it's ever been. We feel really confident about our ability to navigate in this current situation. As far as the interest expense, Gary, I think using the current quarter is probably a good assumption for your model.

Okay. Great. That's very helpful. And then could you maybe -- just getting back to this whole issue with the tariffs and all that versus when this happened before, which was, I think, 2018, 2019, I believe, how much of your product was been sourced from China? And then what takeaways did you get from that experience that you could definitely use in this current environment, if the tariffs start really impacting the price of products.

Yes, Gary, it's Kevin. Good question. I think six, seven years ago when we went through that before, I believe we disclosed roughly 70-plus percent was China, Taiwan, of which a vast majority of that was China. I think that was the disclosure back then. So we're in a materially different place as we look at Dorman today. When we think about mitigation efforts, what have we learned? I think at the end of the day, that event six, seven years ago caused us to really look at diversifying the supply chain, building a more resilient supply chain, and we've been very successful doing that. So we have kind of a core base of knowledge of these other regions. We know where there's capacity. We know where we can source quality parts at the right value around the globe. So we have experienced folks in all these regions at this point. At the end of the day, we've also spent a lot of time driving productivity throughout our business. We've talked about it before. We undertook an automation exercise where our strategy initiative, where we have automated our distribution facilities, and we're going to continue to look to drive cost out of the business. And whatever is left -- whatever net cost we have less, we look to offset that in price.

Okay. And then just -- if I could just sneak one more in, and it's a real easy one. You cited new products as driving growth in the quarter. Would you be able to maybe not quantify the actual number of -- level of sales, but how many basis points within a range of the growth for the quarter was contributed by new products?

Yes. Gary, we don't break that out, but I will tell you that as you look at the overall market growth across the industry, you're looking at a low single-digit growth -- and that's kind of compared to high single-digit POS growth that we experienced. For the most part, that differential is driven by new products. That has been our business model, and it will continue to be a business model. We've been very comfortable saying historically that we're able to significantly outperform market growth because of our business model. So we think that's going to continue.

Thank you. That's very helpful explanation. Appreciate it.

Thank you.

Next question comes from the line of Justin Ages with CJS Securities. Your line is open.

Hi. Good morning, all. I appreciate the color on how much is sourced from China. Can you give us any indication how that split out amongst the segments like -- of that 30% to 40%, is the majority going to light duty? Or any color on that would be helpful.

Yes, Justin, good question. We're not going to get into the details or disclose the impact in our different segments, mainly because, frankly, it's too fluid at this point and for competitive reasons. I will make a couple of comments, though, on each individual segment. In light duty, as I mentioned before, we believe we have a very diversified supply chain and footprint. We have less exposure, as I mentioned before, to the overall hard parts market in the aftermarket, we think significantly so. So overall, we view that we have a competitive advantage in relation to the competitive set in light duty. If you look at heavy duty, very modest impact from tariffs. We believe, again, as we look around the competitive landscape that we're well advantaged there. In specialty vehicle, we do have some exposure to China, but we also have a large manufacturing footprint in the U.S. in Madison, Indiana. If we look at that entire industry, it's very heavily indexed to China. So again, we think we're well positioned as we look against the competitive set. And also keep in mind, Justin, that we do have a pretty good footprint here in the U.S. As I mentioned before, we do source roughly 30% of our products here in the U.S., some of that through our own plants. We do have six Dorman-owned manufacturing plants in the U.S. And obviously, we'll look to leverage them as much as we can where it makes sense.

All right, that's very helpful. I appreciate you taking the question.

You got it, Justin. Thank you.

And we have a follow-up question from Scott Stember with ROTH Capital Partners. Your line is open.

Hi, guys. Just one follow-up, these 232 tariffs. Just trying to figure out if you guys have been able to ascertain whether there'll be any exemptions and also talking about -- the President talking about on auto parts there being some kind of a clawback. I'm not sure if that is related to just the OEM and OEM production? Or is there some benefit or offset for the pure aftermarket?

Yes. Scott, we're still working through that. But in general, the auto part, the 232 tariffs is really tied to the HTS code and where we have parts to fall into those codes were obviously subject to that tariff. And there's a bunch of other tariffs as well, and they all interplay. But -- for the most part, it's -- that exemption was for the OE, but we're still evaluating the impact on Dorman.

Got it. Thanks again.

Ladies and gentlemen, that concludes the question-and-answer session. Thank you all for joining, and you may now disconnect.