Dorman (DORM) Q3 2026 Earnings Call Transcript

DATE

Tuesday, Oct. 27, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations - Alexander Whitelam
• Chairman, President and Chief Executive Officer - Kevin Olsen
• Chief Financial Officer - Charles W. Rayfield

TAKEAWAYS

• Net Sales -- $561.7 million, representing a 3.3% increase driven by volume growth across all three business segments and new product launches.
• Adjusted Diluted EPS -- $2.08, down 21% compared to $2.62 in the prior year period, reflecting the timing of tariff-related pricing advantages in 2025.
• Adjusted Gross Margin -- 39.4%, a decrease of 500 basis points due to lapping prior year benefits from tariff-related pricing without corresponding costs.
• FY 2026 Sales Guidance -- 2% to 3% growth, narrowed from the previous range of 3% to 5% because of soft DIY demand and tariff-related price reductions.
• FY 2026 Adjusted Diluted EPS Guidance -- $8.50 to $8.70, compared to the prior range of $8.50 to $8.80.
• Light Duty Segment Sales -- $443.7 million, up 3% driven by professional repair categories despite pressure in the DIY channel.
• Light Duty Operating Margin -- 18.5%, down 520 basis points from the prior year primarily due to the timing of tariff related pricing.
• Heavy Duty Segment Sales -- $66.1 million, a 5% increase resulting from higher volume and pricing in specific channels.
• Heavy Duty Operating Margin -- 0.0%, reaching breakeven as the segment absorbed higher tariff and shipping costs.
• Specialty Vehicle Segment Sales -- $51.9 million, up 3% supported by portfolio expansion in work-related utility machines.
• Specialty Vehicle Operating Margin -- 13.1%, up 30 basis points due to pricing initiatives and portfolio expansion.
• Adjusted SG&A Expenses -- $132.4 million, or 23.6% of net sales, decreasing 30 basis points through cost management and productivity initiatives.
• Operating Cash Flow -- $64.6 million, increasing from $12.2 million in the prior year period driven by working capital management.
• Free Cash Flow -- $57 million, impacted by a sequential reduction in factoring volume to lower factoring expenses.
• Share Repurchases -- $15 million, deployed to retire 115,000 shares at an average price of $127 per share during the quarter.
• YTD Share Repurchases -- $112 million, representing a company record for the first nine months of the year.
• Net Leverage Ratio -- 0.65x adjusted EBITDA, with total liquidity standing at $966 million.
• Inventories -- $787.4 million, a decline from $959 million at year-end 2025 as the company processed tariff-impacted inventory and reduced stock levels.
• FY 2026 Adjusted Operating Margin Guidance -- 16% to 16.5%, narrowed toward the top end of the previously stated range.
• Effective Tax Rate -- 23.5% to 24%, updated from a previous estimate of 23.5% for the full year.

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RISKS

• Olsen stated, "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," noting a 30% year over year increase in fuel prices during September.
• Rayfield stated, "This update reflects continued soft DIY demand," in reference to the narrowed full-year sales guidance for 2026.
• Rayfield noted the Heavy Duty segment "was impacted by the timing of higher tariff and shipping costs," resulting in a breakeven margin for the quarter.

SUMMARY

Dorman Products, Inc. (NASDAQ:DORM) reported record third-quarter net sales supported by growth across all three business segments, despite margin compression from the expiration of prior year tariff pricing benefits. Management narrowed full-year guidance to reflect ongoing volume-driven growth offset by softer consumer demand in the DIY channel and planned price reductions related to tariff changes. The company maintained a net leverage ratio of 0.65x and executed record year-to-date share repurchases while focusing on nondiscretionary repair categories in the light and heavy-duty markets.

• CEO Olsen noted that while the DIY consumer felt the effects of inflation, the company's DIFM-focused business, which represents the largest share of the portfolio, remained more stable.
• Management identified the increasing average age of vehicles and the growing share of light-duty trucks and SUVs as long-term margin opportunities due to higher average selling prices for those parts.
• The company launched a new four-wheel-drive locking hub actuator under its OE FIX brand, featuring an upgraded diaphragm material to address common original part failures in Ford and Lincoln models.
• CEO Olsen stated, "We see an opportunity to continue to take share from the OE with high quality aftermarket solutions at a lower price point," noting OEs currently control approximately 60% of the heavy-duty aftermarket.
• Management indicated the company is drivetrain agnostic, seeing repair opportunities and higher average selling prices for battery electric vehicle components as they enter the prime repair cycle.
• CFO Rayfield stated that the company reduced factoring volume during the quarter to lower factoring expenses, utilizing additional cash on hand from inventory reductions.
• The Specialty Vehicle segment reported increased demand for utility-focused equipment and hard cab enclosures, even as higher fuel costs softened recreational riding activity.

INDUSTRY GLOSSARY

• AIPA: A specific category of tariffs or trade-related adjustments referred to by management in the context of pricing and refunds.
• DIFM: Do-It-For-Me; the segment of the automotive aftermarket where repairs are performed by professional technicians.
• DIY: Do-It-Yourself; the segment of the automotive aftermarket where repairs are performed by the vehicle owner.
• OE FIX: A Dorman-branded product line featuring parts redesigned to address known failure points in original equipment.
• POS: Point of Sale; data representing actual consumer or professional purchases from retailers and distributors.
• SOFR: Secured Overnight Financing Rate; a benchmark interest rate used to calculate factoring and borrowing costs.
• VIO: Vehicles in Operation; the total number of registered vehicles currently on the road.

Full Conference Call Transcript

Operator: While site's on hold. We appreciate your patience and ask To all sites on hold, Your program will begin in 2 minutes. Standby, your meeting is about to begin. 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 Third Quarter 26 Earnings Conference Call. All participant lines have been placed on mute After the speakers' remarks, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I will now turn the call over to Alexander Whitelam, Vice President of Investor Relations. Please go ahead.

Alexander Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's third-quarter 26 Earnings Conference Call. I am joined by Kevin Olsen, Dorman's Chairman, President and Chief Executive Officer and Charles W. Rayfield, Dorman's Chief Financial Officer. Kevin will begin with a high-level overview of the quarter, segment level performance and market trends, Charles will walk through our third quarter 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 will 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 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-Ks 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 1 question with 1 follow-up and to rejoin the queue if they have additional questions. With that, I will turn the call over to Kevin.

Kevin Olsen: Thanks, Alexander, and good morning, everyone. Thank you for joining us today. Let me start with our third quarter 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 third quarter with top line growth in each of our 3 business segments. Consolidated net sales were a record $562 million in the third quarter, up 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. Keep in mind, we are lapping a tough comparison. Last year's third quarter benefited from the timing of tariff related pricing without the higher tariff related costs as a reminder, we will see this dynamic again in the fourth quarter as well. Adjusted diluted EPS 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 3% year over year to $444 million driven by our DIFM-focused categories and channels. Year to date, light duty net sales were up 2%. During the quarter, POS across our top customers aligned with total net sales growth.

We continue 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 Looking at POS year-to-date, our performance was up mid single digits. Operating margin was 18.5%, down 25 basis points year over year again due to the timing of tariff related pricing associated costs in the third quarter 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.

We also continue 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 on to 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. 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 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 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 mentioned in prior calls, the heavier impact of tariffs would be absorbed later in 2026 in the HD segment. 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 third quarter. 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. These launches further expand our above the frame offering 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 Vehicles segment, net sales were 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 1%. Operating income margin was 13.1%, 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.

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 on to 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, OE-alternatives for machines without these features pre installed. 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 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?

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

Our team did a nice job managing expenses in the quarter, and adjusted SG&A as a percentage of net sales was 23.6% down 30 basis points year-over-year. 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 third quarter was $2.08 down 21% year over year, in line with our operating performance. The 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. I would 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 in opportunistic share repurchases that retired 115 thousand shares at an average price of $127 per share.

Through the first 9 months of the year, we have 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. Our total net leverage ratio at the end of Q3 was 0.65x 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 to 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 fourth quarter. That said, we expect growth through the remainder of the year is expected to be volume driven, given the success we are seeing with new product development and the category wins we previously discussed. Consistent with our comments last quarter, we continue to expect gross margin in the fourth quarter at approximately 40%. Exiting the year with a structural base for 2027.

For adjusted operating income margin, we have 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 to our long term approach remains the same. We are focused on our innovation strategy and expanding a non discretionary portfolio driving efficiencies and cost savings across the business.

And delivering for our customers. Additionally, our strong balance sheet gives us meaningful levers to drive growth going forward. With that, I will now turn the call back over to Kevin to conclude. Kevin?

Kevin Olsen: Thanks, Charles. Let me close by reinforcing a few points. First, we delivered solid performance in the quarter. With top line growth across each of our business segments. 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. And finally, we remain focused on our long term strategy to drive shareholder value. The structural drivers of the aftermarket demand remain in place in our innovation engine, diversified supplier network and financial flexibility position us well for the future. Appreciate your continued interest and support And with that, we will open the call up for questions. Operator?

Operator: Thank you. Will take our first question from Scott Stember with ROTH Capital. Please go ahead. Your line is open.

Scott Stember: Thank you. Thanks for taking my questions. Just a question on POS. So just want to clarify that all of the softness or net, I guess, softness compared to what we have 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 positive trajectory.

Kevin Olsen: Hey, 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. Mid single digit growth. And that is because we lapped the price increases that went in place last year in the third quarter 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. DIY remained pressured from a POS standpoint. And DIFM was certainly more stable.

On the hard part business, DIFM, we have continued to see that strengthening as we move through the year. But DIY does remain pressured. And I will just also note, when you step back and look at the entire industry, dynamics continue to remain positive. Vehicle miles traveled continue to increase. Year over year despite the higher fuel prices. But it is clearly something that we are keeping a close eye on. 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 is a really good dynamic as we have a, it is a higher average age and higher average selling price opportunity.

Scott Stember: Got it. And then last question in light duty, Last quarter, you just talked about how you have been adjusting pricing with customers due to tariffs. But 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?

Charles W. Rayfield: Yes. Thanks, Scott. This is Charles. I will start with that 1. So all good questions. Ultimately, those are input components. There are things that we factor into our pricing decisions periodically. So as we go forward through the next couple of quarters, those are things we will look to consider in those pricing decisions. But ultimately, yeah, to your point, fuel costs have gone up. We are starting to see that. We have also seen some increase in interest rates, with the Fed raising, you know, the borrowing rates. But also, their input costs, consider them as we make those pricing decisions.

Kevin Olsen: Yeah. Scott, I will just add. it is Kevin. You know, 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, you know, in the last 6 years where we have had some pretty wild swings in inflation and deflation. Got it.

Scott Stember: Thank you.

Kevin Olsen: Thanks, Scott.

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

Jeffrey Lick: Good morning. Thanks for taking my question and congrats on the results. Kevin, we are probably 8 months in now to the elevated gas prices. And throughout kind of the auto ecosystem, we are seeing a transition to vehicles that are kind of less likely be trucks and SUVs and maybe a marginal preference for even EVs and sedans. I am just curious, maybe a 2 part question. 1 is how do does that dynamic affect your kind of ideation process?

And are you guys already identifying things that might be too early in breakage And then also, are there parts you can come up with or that you have that because the light duty trucks and the SUVs are already in the population, right? So if you have 1, you got 1. Are there parts that can actually help with fuel efficiency? Or does the quest for fuel efficiency help you guys?

Kevin Olsen: Jeff, it is Kevin. Good question. I would say, number 1, the current VIO is 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. 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 is a pure BEV, a hybrid or a pure ICE vehicle. So we are drivetrain agnostic.

As we have 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 BEV. So, whatever the repair opportunity that presents itself to us, we will have a solution for it.

Jeffrey Lick: 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. I am just curious, as you mentioned 2 factors: 1, maybe a soft and DIY environment and then obviously the pricing dynamics that were probably tariff related and then last year's compares. Maybe could you just handicap or proportion what part of the revenue guide down was related to the pricing versus the softening Was it eightytwenty, twentyeighty? Any help there would much appreciated.

Charles W. Rayfield: Yes. Thanks, Jeff. This is Charles. Yes. 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. And to the point you just made, know, we did. You know, we continue to go through those negotiations with customers and, you know, seeing the AIPA 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 are not gonna break out, you know, the negotiations we have had with those customers or, you know, the breakout. But preference was to lower overall because we think this is ultimately going to benefit end customers with that said, we feel pretty good with where we are at currently. But you know, we feel good with where we sit here, and the 2 to 3% is reflected of where we see the fourth quarter going as well.

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

Charles W. Rayfield: Yes. Thanks, Jeff.

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

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

Kevin Olsen: Yes, 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 gonna happen or not. But again, you know, we love to see lower prices for our ultimate end customer, the guys hanging the parts on the vehicle 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. We are 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 Aipa refunds? Or was there is there a change around the factoring strategy and has the price of factoring changed materially?

Charles W. Rayfield: Yes. So good question, Bret. This is Charles. As you know, the Fed raise rates, so the factoring costs are SOFR plus in those instances. So, obviously, we have seen some increases you know, in some of those factoring costs. Our overall has not changed. We continually look at our cash flow needs and, you know, relative to the factoring cost. So the overall strategy has not changed. You know, something that we monitor on an ongoing basis, we will continue to do so. But you know, no major change in how we look at it.

Bret Jordan: Great. Thank you.

Charles W. Rayfield: Yeah. You bet.

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

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

Kevin Olsen: Yes, Gary. We have not really broken that out because frankly, that is a difficult 1 to really pin down an exact number on. But I will tell you that in general, the vast majority of our portfolio is nondiscretionary. Your car will either not run safely or it is 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 backroom. Non discretionary hard parts. Okay.

Gary Prestopino: And then just a follow-up You mentioned that you are 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? Not talking about just for your company, but just in the market itself.

Kevin Olsen: Yes. The market overall, Gary, and this is 1 of the reasons why we entered the heavy duty market because the OE still control a very large portion of the aftermarket, right? 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. So it is 1 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.

So 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.

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

Kevin Olsen: Perfect. Yeah.

Gary Prestopino: Okay. Thank you.

Kevin Olsen: You got it.

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

David Lantz: Hey guys, good morning and thanks for taking my question. Curious if you could talk about the implied Q4 net sales guide. I think it is flattish to slightly down to up 4%+. What the drivers could be to get you to the low end versus the high end?

Charles W. Rayfield: Yes. Thanks, David. Appreciate the questions. This is Charles. I will start. So, you know, 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 and we have certainly seen that in the third quarter. We would expect that to continue in the fourth.

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, you know, good volume come through with new launches and some of the new business that we brought on board, but a lot of it will be you know, based on, you how that volume comes through. But, we feel pretty confident with the 2 to 3% range, but largely volume-driven in the back part of the year in Q4.

David Lantz: Got it. that is helpful. And then inventories declined, I think, low double digit year over year in Q3. So 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?

Charles W. Rayfield: Yes. Great question. So when we saw the inventory increase, there is a large portion of that was due to some of the heightened IEFA tariff costs that got capitalized into our inventory. 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. 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, except for that, free cash flow still would be pretty solid and kind of in the range that we had talked about previously, which typical run rates high $100 million, sort of low $200 million ish range, ex you know, the cash, you know, cash impacts.

David Lantz: Great. Thank you so much.

Charles W. Rayfield: Hey, you bet.

Operator: Thank you. And once again, that is star and 1 on your telephone keypad. If you would like to We will move next with Tristan Thomas-Martin, with BMO Capital Markets. Please go ahead.

Tristan Thomas-Martin: Hey, good morning. Good morning. Just a question on pricing. Right? So you began price reductions in the second quarter of this year. Does that mean it remains a headwind the first quarter of 2027 and then kind of normalizes thereafter?

Charles W. Rayfield: Yes. Hey, Tristan, this is Charles. Yes, So as Kevin talked about previously, we started to see some prices come down in the third quarter. We will expect to see some more of that happening in the fourth quarter. That said, we will have to lap that as we go through, you know, at least the earlier part of next year. Obviously not giving guidance on 2027 at this point, but, you yeah, that will have to have some impact next year. But, all taken as a whole, we consider a lot of the other, you know, 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, you know, 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. And then just on specialty vehicles, I think you are the first company I have heard call out headwinds on enthusiast activity. What are you kind of seeing? Like what is kind of underlying that claim in terms of what you are seeing?

Charles W. Rayfield: Tristan, can you repeat that? We did not catch the first part of that.

Tristan Thomas-Martin: 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?

Kevin Olsen: Yes, good question. I would say that we are 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 are seeing softened demand. So 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.

Tristan Thomas-Martin: Okay. Like just maybe I forgot, but does SuperATV sell, like, consumables on the off road vehicle side. I am sorry, Tristan. I did not catch the first half of that again. No, it is probably my phone. But does SuperATV sell things like oil, is there any like kind of specific metrics or products you can point to?

Kevin Olsen: that is indicating, like a decline in actual activity? 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 kind of non repair. And then roughly 40% to 50% of our business is tied more to the utility work type vehicle. If that helps you.

Tristan Thomas-Martin: Okay. Thank you.

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

Justin Ages: Hi. Good morning all. 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?

Charles W. Rayfield: Yes, sure. I will take that 1, Justin. So overall, the capital allocation strategy has not changed. So we are looking at debt levels, as you have noted. The coverage level is below 0.7 currently, so not so concerned about that. You know, we. You know, next year, looking to put money back into new product development. We think we get our best returns there. And then, you know, third, we are looking, you know, at M&A. You know, Kevin's talked about some of the M&A strategy on recent calls. And then fourth, we are looking opportunistically at share buybacks. So thus far, you know, 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. We are not putting out any targets for share buybacks at this point. You know, we tend to do a little bit less M&A. We tend to look a little bit more at share buybacks. You know, as we get a little more active going forward. We may we may look to pull back on that a little bit, but that is the summary of the capital plan strategy.

Justin Ages: Alright. Thank you for that. And then you know, 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: Yes, Justin. Yes, I think we talked a little bit about this earlier that we do not 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 slash professional focused, and those are in the backrooms. I hope that helps you.

Justin Ages: Alright. Yeah. Thanks for taking the questions.

Kevin Olsen: You got it.

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

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