Dorman Products, Inc. (DORM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Dorman Products, Inc. Annual Meeting. [Operator Instructions] I would now like to hand the conference over to your speaker today, Kevin Olsen, Director, President and Chief Executive Officer of Dorman. Thank you, sir. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today for the 2020 Annual Meeting of Shareholders of Dorman Products, Inc. This year is the first time we're holding our shareholder meeting in a virtual format given the COVID-19 pandemic. As we've done with our employees and customers, we also wanted to ensure the health and safety of our shareholders and directors by conducting this shareholder meeting virtually. Of course, at the same time, this format does allow us to be more inclusive and reach a greater number of our shareholders. And so we hope that you enjoy the meeting. We'll conduct the formal portion of our meeting first. Then we'll provide an overview of the state of the business and we'll answer questions at the end of the meeting. It's now shortly after 8:30 a.m., and this meeting officially called to order. At this time, I'd like to introduce Steven Berman, Dorman's Executive Chairman, who's in attendance and is presiding over today's meeting. I'd also like to introduce the other members of the Board who are attending today. They are Jack Gavin, Paul R. Lederer, Rich Riley, Kelly Romano and Mike Stakias. Next, I'd like to recognize the members of Dorman's senior leadership team who are participating with Steven and myself. We have with us today: Dave Hession, Dorman's Chief Financial Officer and Treasurer; Joe Braun, Dorman's General Counsel and Corporate Secretary. Joe will serve as the Secretary of this meeting. In addition, joining us today are 2 representatives from our independent auditors, KPMG LLP. They are Kevin Murphy and Caroline and Cody. At the end of the meeting, during the Q&A session, they'll be available for questions. Now I'll turn the floor over to Joe Bruan, who's going to read the notice of the meeting. Joe?

Thanks, Kevin. We're meeting today to vote on the 3 matters described in the proxy statement. After the voting, we'll adjourn the formal meeting, hear from Kevin on the state of the business and provide time for general questions. Only validated shareholders may ask questions in the designated field on the web portal. Out of consideration for others, please limit yourself to 2 questions. Please note that while this meeting is being recorded, no one attending the webcast is permitted to use any recording device. For additional information, please see the rules of conduct for this meeting, which are posted at the bottom of this webcast. Turning now to the formal meeting requirements. I've received proof by affidavit that notice of the meeting has duly given and that a proxy statement and annual report have been made available electronically or have been mailed to Dorman shareholders of record as of March 30, 2020. Those shareholders received information on how they can vote their shares in connection with today's meeting. Our inspector of elections, American Election Services, has filed with me their oath of office and certification that all legal requirements for conducting this meeting have been met. Based on information provided have been met. Based on information provided by the company's transfer agent, there were approximately 32.5 million shares of Dorman's common stock outstanding as of the March 30, 2020, record date. Moreover, based on the information from our inspector of elections, a majority of the voting power of the common stock outstanding and entitled to vote, is present in-person or by proxy at today's meeting. Therefore, a quorum is present for purpose of conducting all of the business of this meeting. A list of the shareholders eligible to vote has been available for inspection at our corporate headquarters in Colmar, Pennsylvania for the past 10 days, and it's also available during this meeting via the link at the bottom of this webcast. Therefore, this meeting is lawfully and properly convened. There are 3 proposals on the agenda today. Proposal 1 is the election of 7 nominees as directors. All 7 current directors have been nominated for reelection, and their biographies are included in the proxy statement beginning on Page 5. A nominee for director will be elected to serve on the Board if the votes cast for such nominee exceed the votes cast against such nominee. Proposal 2 is the advisory approval of the compensation of our named executive officers identified in the proxy statement. A vote on this proposal is a nonbinding vote. Although the Compensation Committee and the Board will certainly take the results of the vote into consideration when making sure compensation decisions. The proposed resolution for adoption is included in the proxy statement on Page 22. To be adopted, this proposal must be approved by a majority of the votes cast. Proposal 3 is the ratification of KPMG as Dorman's independent registered public accounting firm for fiscal 2020. A vote on this proposal is a nonbinding vote, which means that even if the selection has ratified, our Audit committee, in its discretion, may select a different registered public accounting firm at any time during the year, if determined that such a change would be in the best interest of the company and its shareholders. To be adopted, this proposal must be approved by a majority of the votes cast. At this time, we'll proceed to vote on each of the proposals. Let me remind you that if you've already voted, there's no need for you to cast another ballot during this meeting, unless you wish to change the vote that you previously submitted. Any shareholder who hasn't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. I now declare the polls open for voting. [Voting]

Now that everyone has had the opportunity to vote, I now declare the polls closed.

Joe, at this time, can you please provide the preliminary voting results?

We've been informed by the inspector of elections that the preliminary voting report shows that the nominees for election to the Board have been duly elected, the compensation of the named executive officers has been approved by advisory vote and shareholders have ratified the selection of KPMG as Dorman's independent registered public accounting firm for fiscal 2020. We will report the final vote results in an SEC filing within 4 business days.

Thank you, Joe. There being no further business to come before the meeting. The annual meeting is now adjourned. At this time, I'll give a brief presentation on the state of the business, followed by our Q&A session. Before I begin, though, I'll ask Joe to make a brief statement regarding the information in the presentation. Joe?

Thank you, Kevin. You should note that our remarks may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Dorman's actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the specific risk factors that could cause actual results to differ materially from those expressed in the forward-looking statements, please refer to Dorman's Form 10-K for the year ended December 28, 2019, and it's Form 10-Q for the quarter ended March 28, 2020, each of which is filed with the U.S. Securities and Exchange Commission. In addition, we may include some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in our most recent earnings release for the first quarter of 2020 that is accessible via our Investor Relations homepage, at dormanproducts.com And now I'll turn it over to Kevin for the business update. Kevin?

Thanks, Joe. While these are unprecedented times, Dorman remains committed to delivering long-term value for our shareholders. To that end, I'd like to take this opportunity to provide a quick update on our 2019 performance and our current business operations. 2019 was a transformative year for our company, as we made several important strides in executing our strategy. We expanded the high-growth areas of our business, with over 1,000 heavy-duty SKUs launched in 2019 and sustained momentum in our chassis business with the execution of several large contract wins. Additionally, we leveraged our organic growth engine, utilizing our diverse network of industry resources and R&D capabilities to capitalize on market opportunities. Products launched in the last 2 years made up 17% of our 2019 net sales, driven by a robust offering across our portfolio. Finally, we implemented several structural and organizational changes to position our business for success. This includes successfully integrating our MAS and Flight Systems acquisitions and completing the consolidation of multiple facilities to enhance our productivity and efficiency. Further, we bolstered our executive team with experienced members who are committed to driving long-term success. While we're very proud of our accomplishments during the year, we faced some challenges that weighed on our financial performance, resulting in slight revenue growth year-over-year and earnings per share decline year-over-year, largely due to redundant costs as we consolidated facilities, negative customer mix and increased customer return provisions associated with some new program wins. Positively, these were largely short-term impacts, as evidenced by our first quarter results, reported April 27, which was strong despite the onset of the COVID-19 pandemic. We truly achieved revenue and earnings per share well ahead of our expectations, driven by strong volume across both our retail and warehouse distribution channels. We continue to bring innovative products to market with a 19% increase in our Heavy Duty sales and made significant productivity strides at our Portland, Tennessee facility. While we were pleased to see our strategic initiatives beginning to bear fruit during the first quarter, we were forced to turn our attention to mid-March to the significant challenges presented by the growing COVID-19 pandemic. More specifically, we instituted a robust health and safety plan as the health and safety of our contributors, customers and communities is our top priority. Our safe measures included requiring contributors to work from home where applicable, providing contributors at our sites with face masks and implementing social distancing and enhanced sanitation initiatives across all of our facilities. We also adopted a COVID-19 sick leave policy, providing continued salary and benefits to eligible contributors. We continue to operate as a designated essential business and are rapidly adjusting our contingency plans as appropriate to drive business continuity. Additionally, we have taken steps to proactively bolster our financial position in light of the pandemic, including currently managing our cost, drawing down on our available credit facilities and adjusting our capital allocation priorities as appropriate. These actions have resulted in approximately $300 million of cash and cash equivalents on hand as of April 24, 2020. Overall, the steps we've taken position us well to navigate the current environment. And we firmly believe that once this situation subsides, we'll emerge even stronger, continuing to deliver long-term sustainable value to our shareholders. Now we'd like to open things up for our shareholder questions. We'll take shareholder questions that are being answered today on the portal. Please note, we'll attempt to answer as many questions as time allows, but only questions that are germane to the meeting, will be addressed.

Okay. Thank you. We have a couple of questions that myself and the team will address.

Good morning. This is David Hession. So we have a question on the tariffs that have been published by the current administration and any impact on profits in 2019 and going forward? So the short answer is there's no impact on profits related to tariffs. The way we've dealt with tariffs is as we -- as the tariffs have been imposed, we've implemented pricing to cover the cost of the tariffs so that for every dollar that -- of cost that has gone up, we've offset that with a dollar of pricing. So the profit impact is 0. So there is no profit impact in our 2019 results, and we don't anticipate any profit impact going forward.

And again -- this is Joe Braun, General Counsel of Dorman. We received a question around legal proceedings disclosed in our SEC filings. As we disclosed in our SEC filings, we are subject to ordinary course litigation, but none of the litigation we've received that we believe is -- have a material financial impact to the company. So therefore, we have not disclosed any of those specific proceedings.

Thank you, guys.

And then we have received 1 more question around the stimulus. Have we received any stimulus money because of the coronavirus pandemic? And I'm happy to address that. And the answer is no, we have not.

Okay. That looks like all the questions in the queue have been answered. Our program for the day has concluded. Thank you all for attending today's annual meeting and for your continued support of the company. Be well and stay safe.