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

Good morning, and welcome to Dorman Products 2021 Annual Meeting of Shareholders. I would now like to introduce the first presenter, Kevin Olsen, Director, President and Chief Executive Officer of Dorman.

Thank you. Good morning, everyone, and thank you for joining us today for the 2021 Annual Meeting of Shareholders of Dorman Products, Inc. Again, I'm Kevin Olsen, Director, President and Chief Executive Officer of Dorman. Similar to last year, we're holding our shareholder meeting in a virtual form given the ongoing impacts of the COVID-19 pandemic. As we've done with our employees and customers, we also wanted to continue 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 I hope you enjoy the meeting. We'll conduct the formal portion of our meeting first, then we'll provide view of the state of our business, and we'll answer any questions at the end of the meeting. It's now shortly after 8:30 a.m., and the meeting is 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 Lisa Bachmann, Jack Gavin, Paul Lederer, Rich Riley, Kelly Romano and Mike Stakias. Next, I'd like to recognize the members of Dorman's senior leadership team who are here 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 secretary of this meeting. In addition, joining us today are 2 representatives from our independent auditors, KPMG LLP. They are Kevin Murphy and Caroline [ Cody ]. At the end of the meeting during the Q&A session, they will be available for questions. Now I'll turn the floor over to Joe Braun, who is going to read the notice of the meeting. Joe?

Thanks, Kevin. We're here today to vote on the 3 matters described in the proxy statement. After the voting, we'll turn 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 and conduct of this meeting, which are posted at the bottom of this webcast. Turning now to the formal meeting requirements. I've received proved by affidavit that the notice of the meeting has been duly given and that the proxy statement and annual report have been made available electronically or have been mailed to Dorman shareholders of record as of March 17, 2021. Those shareholders received information on how they can vote their shares and connect 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 by the company's transfer agent, there were approximately 32.2 million shares of Dorman's common stock as of March 17, 2021, record date. Moreover, information from our inspector of elections, a majority of the voting power of the common stock outstanding and intended to vote is present in person by proxy at today's meeting. Therefore, a quorum is present for the purpose of conducting all the business of this meeting. A list of shareholders eligible to vote has been available at our corporate headquarters in Colmar, Pennsylvania for the past 10 days. It can also be made available upon request. Therefore, this meeting is lawfully and properly convened. As I mentioned, there are 3 proposals on the agenda today. Proposal 1 is the election of 8 nominees as Directors. All 8 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 likely to serve on the Board if the votes cast for such nominee exceeds the vote cast against such nominee. Proposal 2, advisory approval of the compensation of our named executive officers in the proxy statement. A vote on this proposal is a nonbinding vote. And the Compensation Committee and the Board will certainly take the results of the vote into consideration when making future compensation decisions. The proposed resolution for adoption is included in the proxy statement on Page 24. 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 2021. A vote on this proposal is a nonbinding vote, which means that even if the selection is 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 change would be in the best interest of the company and shareholders. The proposed resolution for adoption is included in the proxy statement on Page 26. To be adopted, this proposal must be approved by a majority of the votes cast. At this time, we will proceed to a vote on each of the proposals. Let me remind you that if you've already voted, there is 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 wish 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 the shareholders have ratified the selection of KPMG as Dorman's independent registered public accounting firm for fiscal 2021. We will report the final voting 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 question-and-answer session. Before I begin, though, I'll ask for 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 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 26, 2020, and the Form 10-Q for the quarter ended March 27, 2021, 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 2021 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. Now 2020 represented an important milestone as our record-breaking performance allowed us to deliver over $1 billion in annual sales for the first time in Dorman's history. Our [ performance ] underscores the resilience of our business model and our commitment to delivering long-term value for our shareholders. The COVID-19 pandemic represented a completely unprecedented event for us. However, we remain focused on the aspects of the business within our control. When the pandemic took hold in March of 2020, we acted quickly to implement measures to put health and safety of our valued contributors, customers and channel partners and still manage to continue to drive [ operating efficiencies ] across our business. Our results are a [ testament ] to the hard work of our contributors, and this dedication was critical to our success. Importantly, during the year, we made significant progress on our strategic priorities across the business. Full year net sales growth of 10% was driven by the robust demand across all channels. That reflects our diversified supply chain to deliver for our customers despite global logistical and supply chain issues. Our business, significantly expanding the size of our Heavy Duty product offering, which contributed to a 15% year-over-year increase in Heavy Duty net sales. Finally, we acted decisively to protect our financial position [ and took ] several steps to ensure that our balance sheet remains strong despite the surrounding uncertainty. These prudent measures, combined with our strong cash flow, generated $155 million in cash and effectively at the end of fiscal 2020, which only reinforces the resilience of our business and our capacity to operate in a wide variety of environments. Our commitment to bringing new innovative to the aftermarket remains foundational to our growth strategy here at Dorman. We continue to invest in our R&D efforts and new product development to ensure that we remain at the forefront of innovation within our industry. An important component of maintaining our leadership position in the auto -- that is relying more and more on technology and electrical content. We continue to make the necessary investments in technology and people to capitalize on this shift, including hiring engineers with deep expertise in complex electronics and computer programming. Turning to capital allocation. Our strategy remains balanced with organic investments being our top priority. Executing on strategic acquisitions is our second priority. We started 2020 off strong, completing the acquisition of Powertrain Industries early in the year but M&A activity slowed during 2020 due to the pandemic. However, we do remain optimistic about 2021, and we'll continue to focus our M&A strategy on light and Heavy Duty targets as well as opportunities in adjacencies and additional geographies. And lastly, we are committed to returning excess cash to our shareholders through our share buyback program, as shown by the 36.8 million worth of shares we repurchased in fiscal 2020. Fiscal 2021 got off to a strong start. And while the environment is expected to remain uncertain as we move through the balance of the year, we firmly believe that our culture of contribution, dedication to our customers and relentless focus on innovation position us well to continue executing on our strategic initiatives. And we look forward to building upon the success we saw in 2020 in the year ahead. Now we'd like to open things up for 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. The only questions that are germane to the meeting will be addressed. All right. Our program for the day has concluded. Thank you all for attending today's Annual Meeting and for your continuing support for the company. Be well and stay safe.