Dorman(DORM) - 2024 Q3 - Quarterly Results

Executive Summary & Business Highlights Third Quarter 2024 Performance Highlights Dorman Products reported strong third quarter 2024 results, with net sales increasing by 3.2% and diluted EPS growing by 41% Q3 2024 Key Financial Highlights | Metric | Q3 2024 | Q3 2023 | Change (%) | | :-------------------- | :------ | :------ | :--------- | | Net sales | $503.8M | $488.2M | 3.2% | | Diluted EPS | $1.80 | $1.28 | 41% | | Adjusted diluted EPS* | $1.96 | $1.40 | 40% | - Repurchased $27 million of its shares during the quarter[1] - Announced a new share repurchase authorization for up to $500 million[1] CEO Commentary Kevin Olsen, Dorman's President and CEO, highlighted strong Q3 performance driven by mid-single digit net sales growth in the Light Duty segment and the company's innovation strategy - Light Duty segment drove mid-single digit net sales growth[2] - Innovation strategy continues to bolster Dorman's leading portfolio of aftermarket solutions[2] - Operational excellence initiatives are enabling streamlined workflows, quicker speeds to market, and increased profitability[2] Updated Full-Year 2024 Guidance Overview Following strong Q3 results and a positive outlook, Dorman updated and narrowed its full-year 2024 net sales and EPS growth guidance, significantly raising EPS expectations Updated Full-Year 2024 Guidance | Metric | Updated 2024 Guidance | Prior 2024 Guidance | | :---------------------- | :-------------------- | :------------------ | | Net Sales Growth vs. 2023 | 3.5% – 4.5% | 3% – 5% | | Diluted EPS | $6.15 – $6.25 | $5.32 – $5.52 | | Adjusted Diluted EPS* | $6.85 – $6.95 | $6.00 – $6.20 | Third Quarter Financial Performance Consolidated Financial Results (Q3) Dorman Products reported a 3.2% increase in net sales for Q3 2024, reaching $503.8 million, with gross profit margin improving to 40.5% and diluted EPS increasing by 41% to $1.80 Q3 2024 Consolidated Financial Results | Metric (in thousands) | Q3 2024 | Q3 2023 | Change (%) | | :-------------------- | :------ | :------ | :--------- | | Net sales | $503,773 | $488,186 | 3.2% | | Gross profit | $203,803 | $183,218 | 11.2% | | Gross profit margin | 40.5% | 37.5% | +300 bps | | SG&A expenses | $124,532 | $119,010 | 4.6% | | SG&A as % of net sales | 24.7% | 24.4% | +30 bps | | Net income | $55,253 | $40,522 | 36.3% | | Diluted earnings per share | $1.80 | $1.28 | 40.6% | Segment Performance (Q3) In Q3 2024, Light Duty net sales grew by 5%, Heavy Duty sales decreased by 5%, and Specialty Vehicle sales remained flat, with all segments showing improved profit margins Q3 2024 Segment Results | Segment | Q3 2024 Net Sales ($M) | Q3 2023 Net Sales ($M) | Net Sales Change (%) | Q3 2024 Profit Margin | Q3 2023 Profit Margin | Profit Margin Change (bps) | | :---------------- | :--------------------- | :--------------------- | :------------------- | :-------------------- | :-------------------- | :------------------------- | | Light Duty | 393.6 | 374.7 | 5% | 19.0% | 16.1% | 290 | | Heavy Duty | 59.6 | 62.8 | -5% | 4.5% | 3.0% | 150 | | Specialty Vehicle | 50.6 | 50.6 | 0% | 17.0% | 13.5% | 350 | Cash Flow and Capital Allocation (Q3) During Q3 2024, Dorman generated $44 million in operating cash flow, invested $9 million in capital expenditures, repaid $11 million of debt, and returned $27 million to shareholders - Generated $44 million in cash from operating activities[7] - Invested $9 million in capital expenditures[7] - Repaid $11 million of debt[7] - Returned $27 million to shareholders through stock repurchases[7] Full-Year 2024 Guidance Update Dorman Products updated its full-year 2024 guidance, raising the lower end of its net sales growth range and significantly increasing both diluted and adjusted diluted EPS expectations Updated Full-Year 2024 Guidance | Metric | Updated 2024 Guidance | Prior 2024 Guidance | | :---------------------- | :-------------------- | :------------------ | | Net Sales Growth vs. 2023 | 3.5% – 4.5% | 3% – 5% | | Diluted EPS | $6.15 – $6.25 | $5.32 – $5.52 | | Growth vs. 2023 | 50% – 52% | 30% – 35% | | Adjusted Diluted EPS* | $6.85 – $6.95 | $6.00 – $6.20 | | Growth vs. 2023 | 51% – 53% | 32% – 37% | | Tax Rate Estimate | 24% | 24% | - Guidance excludes potential impacts from future acquisitions/divestitures, supply chain disruptions, significant inflation, interest rate changes, and additional share repurchases[9] Share Repurchase Program Dorman repurchased $26.7 million of its common stock in Q3 2024 and announced a new share repurchase program, effective January 1, 2025, authorizing up to $500 million in repurchases by the end of 2027 - Repurchased 273,653 shares for $26.7 million at an average price of $97.70 during Q3 2024[11] - A new share repurchase program was authorized for up to $500 million, effective January 1, 2025, through the end of 2027[12] - The prior share repurchase plan, with $134.6 million remaining, will expire on December 31, 2024[11][12] Company Overview & Investor Information About Dorman Products Dorman Products is a leading global supplier in the motor vehicle aftermarket industry, providing tens of thousands of replacement products for over 100 years, covering a wide range of vehicles and components - Over 100 years of driving new solutions in the motor vehicle aftermarket industry[14] - Offers an always-evolving catalog of products covering cars, trucks, and specialty vehicles[15] - Products range from chassis to body, underhood to undercarriage, and hardware to complex electronics[15] Conference Call and Webcast Details Dorman Products will host a conference call and webcast for investors on Friday, November 1, 2024, at 8:00 a.m. Eastern time, with a replay available on the company's website - Conference call and webcast scheduled for Friday, November 1, 2024, at 8:00 a.m. Eastern time[13] - Access via telephone (U.S.: (888) 440-4182, International: +1 (646) 960-0653, Conference ID: 1698878) or live audio webcast on Dorman Products, Inc. - Events[13] Investor Relations Contact Contact information for Dorman Products' VP of Investor Relations & Risk Management, Alex Whitelam, is provided, along with a link to the company's investor relations website - Investor Relations Contact: Alex Whitelam, VP, Investor Relations & Risk Management[18] - Email: awhitelam@dormanproducts.com, Phone: (445) 448-9522[18] - Company website: www.dormanproducts.com, with a dedicated Investor Relations section[18] GAAP Financial Statements Consolidated Statements of Operations Three Months Ended September 28, 2024 and September 30, 2023 For the three months ended September 28, 2024, Dorman reported net sales of $503.8 million, gross profit of $203.8 million (40.5% of sales), and net income of $55.3 million, resulting in diluted EPS of $1.80 Consolidated Statements of Operations (Three Months, in thousands) | Metric | 9/28/2024 | Pct. of Sales | 9/30/2023 | Pct. of Sales | | :----------------------------------- | :-------- | :------------ | :-------- | :------------ | | Net sales | $503,773 | 100.0% | $488,186 | 100.0% | | Cost of goods sold | $299,970 | 59.5% | $304,968 | 62.5% | | Gross profit | $203,803 | 40.5% | $183,218 | 37.5% | | Selling, general and administrative expenses | $124,532 | 24.7% | $119,010 | 24.4% | | Income from operations | $79,271 | 15.7% | $64,208 | 13.2% | | Interest expense, net | $9,762 | 1.9% | $12,215 | 2.5% | | Income before income taxes | $71,124 | 14.1% | $52,598 | 10.8% | | Provision for income taxes | $15,871 | 3.2% | $12,076 | 2.5% | | Net income | $55,253 | 11.0% | $40,522 | 8.3% | | Diluted earnings per share | $1.80 | | $1.28 | | Nine Months Ended September 28, 2024 and September 30, 2023 For the nine months ended September 28, 2024, net sales were $1,475.4 million, gross profit was $584.7 million (39.6% of sales), and net income was $135.5 million, leading to diluted EPS of $4.37 Consolidated Statements of Operations (Nine Months, in thousands) | Metric | 9/28/2024 | Pct. of Sales | 9/30/2023 | Pct. of Sales | | :----------------------------------- | :-------- | :------------ | :-------- | :------------ | | Net sales | $1,475,425 | 100.0% | $1,435,492 | 100.0% | | Cost of goods sold | $890,775 | 60.4% | $944,291 | 65.8% | | Gross profit | $584,650 | 39.6% | $491,201 | 34.2% | | Selling, general and administrative expenses | $378,489 | 25.7% | $353,681 | 24.6% | | Income from operations | $206,161 | 14.0% | $137,520 | 9.6% | | Interest expense, net | $30,569 | 2.1% | $36,733 | 2.6% | | Income before income taxes | $177,303 | 12.0% | $102,145 | 7.1% | | Provision for income taxes | $41,812 | 2.8% | $23,170 | 1.6% | | Net income | $135,491 | 9.2% | $78,975 | 5.5% | | Diluted earnings per share | $4.37 | | $2.50 | | Consolidated Balance Sheets As of September 28, 2024, Dorman's total assets were $2,364.1 million, with total current assets at $1,316.1 million, and total liabilities and shareholders' equity matching total assets Consolidated Balance Sheets (in thousands) | Metric | 9/28/2024 | 12/31/2023 | | :-------------------------------- | :-------- | :--------- | | Cash and cash equivalents | $45,127 | $36,814 | | Accounts receivable, net | $571,051 | $526,867 | | Inventories | $665,237 | $637,375 | | Total current assets | $1,316,076 | $1,233,709 | | Property, plant and equipment, net | $165,734 | $160,113 | | Goodwill | $443,340 | $443,889 | | Total assets | $2,364,097 | $2,292,407 | | Total current liabilities | $561,323 | $547,151 | | Long-term debt | $455,038 | $467,239 | | Total shareholders' equity | $1,234,602 | $1,168,203 | | Total liabilities and shareholders' equity | $2,364,097 | $2,292,407 | Cash Flow Activities (Selected) For the nine months ended September 28, 2024, cash provided by operating activities increased to $159.6 million, while capital expenditures slightly decreased Selected Cash Flow Activities (in thousands) | Metric | Three Months 9/28/24 | Three Months 9/30/23 | Nine Months 9/28/24 | Nine Months 9/30/23 | | :-------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Cash provided by operating activities | $44,293 | $56,224 | $159,622 | $149,110 | | Depreciation, amortization and accretion | $14,812 | $13,817 | $43,015 | $40,786 | | Capital expenditures | $8,555 | $9,667 | $31,245 | $32,936 | Non-GAAP Financial Measures Explanation of Non-GAAP Measures Dorman Products uses Non-GAAP financial measures to provide additional insights into its operating performance, profitability trends, and underlying growth, believing they offer useful information to investors when reconciled to GAAP measures - Non-GAAP financial measures provide useful information to investors by offering additional ways of viewing results, profitability trends, and underlying growth[24] - Adjustments may include charges for fair value adjustments, amortization, transaction costs, severance, accelerated depreciation, and other similar expenses related to acquisitions, as well as other items not related to ongoing performance[24] - Non-GAAP measures should not be used as a substitute for GAAP measures or considered in isolation[24] Adjusted Net Income Reconciliation Dorman reconciles GAAP net income to Adjusted Net Income by adding back pretax acquisition-related intangible assets amortization, transaction and other costs, executive transition services expense, reduction in workforce costs, and adjusting for fair value changes to contingent consideration and related tax impacts Adjusted Net Income Reconciliation (in thousands) | Metric | Three Months 9/28/24 | Three Months 9/30/23 | Nine Months 9/28/24 | Nine Months 9/30/23 | | :------------------------------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Net income (GAAP) | $55,253 | $40,522 | $135,491 | $78,975 | | Pretax acquisition-related intangible assets amortization | $6,173 | $5,485 | $17,138 | $16,336 | | Pretax acquisition-related transaction and other costs | $396 | $465 | $1,327 | $14,880 | | Pretax executive transition services expense | — | — | — | $1,801 | | Pretax fair value adjustment to contingent consideration | — | $(1,000) | — | $(13,400) | | Pretax reduction in workforce costs | $76 | — | $4,926 | — | | Tax adjustment (related to above items) | $(1,654) | $(1,214) | $(5,815) | $(4,891) | | Adjusted net income (Non-GAAP) | $60,244 | $44,258 | $153,067 | $93,701 | Adjusted Diluted EPS Reconciliation | Metric | Three Months 9/28/24 | Three Months 9/30/23 | Nine Months 9/28/24 | Nine Months 9/30/23 | | :------------------------------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Diluted earnings per share (GAAP) | $1.80 | $1.28 | $4.37 | $2.50 | | Pretax acquisition-related intangible assets amortization | $0.20 | $0.17 | $0.55 | $0.52 | | Pretax acquisition-related transaction and other costs | $0.01 | $0.01 | $0.04 | $0.47 | | Pretax executive transition services expense | — | — | — | $0.06 | | Pretax fair value adjustment to contingent consideration | — | $(0.03) | — | $(0.42) | | Pretax reduction in workforce costs | $0.00 | — | $0.16 | — | | Tax adjustment (related to above items) | $(0.05) | $(0.04) | $(0.19) | $(0.16) | | Adjusted diluted earnings per share (Non-GAAP) | $1.96 | $1.40 | $4.93 | $2.97 | Adjusted Gross Profit Reconciliation Adjusted Gross Profit is derived by adding back pretax acquisition-related transaction and other costs to GAAP gross profit, with Q3 2024 adjusted gross profit at $203.8 million and a 40.5% margin Adjusted Gross Profit Reconciliation (in thousands) | Metric | Three Months 9/28/24 | Pct.** | Three Months 9/30/23 | Pct.** | Nine Months 9/28/24 | Pct.** | Nine Months 9/30/23 | Pct.** | | :------------------------------------------------------- | :------------------- | :----- | :------------------- | :----- | :------------------ | :----- | :------------------ | :----- | | Gross profit (GAAP) | $203,803 | 40.5 | $183,218 | 37.5 | $584,650 | 39.6 | $491,201 | 34.2 | | Pretax acquisition-related transaction and other costs | $1 | 0.0 | $6 | 0.0 | $11 | 0.0 | $11,806 | 0.8 | | Adjusted gross profit (Non-GAAP) | $203,804 | 40.5 | $183,224 | 37.5 | $584,661 | 39.6 | $503,007 | 35.0 | Adjusted SG&A Expenses Reconciliation Adjusted SG&A expenses are calculated by excluding pretax acquisition-related intangible assets amortization, transaction and other costs, fair value adjustments to contingent consideration, executive transition services expense, and reduction in workforce costs from GAAP SG&A expenses Adjusted SG&A Expenses Reconciliation (in thousands) | Metric | Three Months 9/28/24 | Pct.** | Three Months 9/30/23 | Pct.** | Nine Months 9/28/24 | Pct.** | Nine Months 9/30/23 | Pct.** | | :------------------------------------------------------- | :------------------- | :----- | :------------------- | :----- | :------------------ | :----- | :------------------ | :----- | | SG&A expenses (GAAP) | $124,532 | 24.7 | $119,010 | 24.4 | $378,489 | 25.7 | $353,681 | 24.6 | | Pretax acquisition-related intangible assets amortization | $(6,173) | (1.2) | $(5,485) | (1.1) | $(17,138) | (1.2) | $(16,336) | (1.1) | | Pretax acquisition-related transaction and other costs | $(395) | (0.1) | $(459) | (0.1) | $(1,316) | (0.1) | $(3,074) | (0.2) | | Executive transition services expense | — | — | — | — | — | — | $(1,801) | (0.1) | | Pretax fair value adjustment to contingent consideration | — | — | $1,000 | 0.2 | — | — | $13,400 | 0.9 | | Pretax reduction in workforce costs | $(76) | (0.0) | — | — | $(4,926) | (0.3) | — | — | | Adjusted SG&A expenses (Non-GAAP) | $117,888 | 23.4 | $114,066 | 23.4 | $355,109 | 24.1 | $345,870 | 24.1 | Notes to Non-GAAP Adjustments This section provides detailed explanations for the various adjustments made to reconcile GAAP to Non-GAAP financial measures, including acquisition-related intangible asset amortization, transaction and other costs, executive transition services expense, fair value adjustments to contingent consideration, reduction in workforce costs, and tax adjustments - Pretax acquisition-related intangible asset amortization results from allocating purchase price to acquired tangible and intangible assets and recognizing the cost over the period of benefit[29] - Pretax acquisition-related transaction and other costs include integration costs, accretion on contingent consideration obligations, inventory fair value adjustments, and facility consolidation and start-up expenses[30][31] - Pretax reduction in workforce costs represent expenses incurred for planned workforce reductions, including severance and other payroll-related costs[34] 2024 Guidance Reconciliation (Non-GAAP) Dorman provides a reconciliation of its GAAP diluted EPS guidance to Adjusted diluted EPS guidance for 2024, incorporating adjustments for acquisition-related intangible assets amortization, transaction and other costs, reduction in workforce costs, and related tax impacts 2024 Guidance Reconciliation (Non-GAAP) | Metric | Low End ($) | High End ($) | | :------------------------------------------------------- | :---------- | :----------- | | Diluted earnings per share (GAAP) | $6.15 | $6.25 | | Pretax acquisition-related intangible assets amortization | $0.73 | $0.73 | | Pretax acquisition transaction and other costs | $0.05 | $0.05 | | Pretax reduction in workforce costs | $0.15 | $0.15 | | Tax adjustment (related to above items) | $(0.23) | $(0.23) | | Adjusted diluted earnings per share (Non-GAAP) | $6.85 | $6.95 |