Dorman(US:DORM)2025-02-27 22:04Part I Business Dorman Products supplies motor vehicle aftermarket parts, emphasizing product development and a global supply chain, with significant customer concentration - As of December 31, 2024, the company marketed approximately 138,000 distinct parts, an increase from 133,000 in the prior year23 - The company operates in three sectors of the motor vehicle aftermarket: light-duty, heavy-duty, and powersports (specialty vehicles), with a combined estimated total addressable market of over $165 billion in 202424 - In 2024, two major customers accounted for approximately 39% of the company's net sales47 - The company's supply chain is global, with approximately 45% of products purchased from third-party suppliers in China in 2024. No single supplier represented more than 10% of total product purchases48 New Product Introductions (2022-2024) | Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | New to the aftermarket | 1,659 | 1,791 | 1,762 | | Line extensions | 3,676 | 4,315 | 3,667 | | Total distinct parts introduced | 5,335 | 6,106 | 5,429 | Employee Distribution by Function and Region (as of Dec 31, 2024) | Function | U.S. | Non-U.S. | Total | | :--- | :--- | :--- | :--- | | Operations | 2,604 | 232 | 2,836 | | Product Development | 210 | 1 | 211 | | Quality and Engineering | 176 | 79 | 255 | | Sales | 265 | 14 | 279 | | Administration | 197 | 9 | 206 | | Total Employees | 3,452 | 335 | 3,787 | Risk Factors The company faces risks from intense competition, customer concentration, global supply chain reliance, cyber-attacks, and significant debt - A significant portion of sales is concentrated among a few customers. In 2024, two customers accounted for about 39% of net sales, posing a risk if their purchasing behavior changes73 - The company is exposed to U.S. trade policy changes, as approximately 72% of its products were purchased from non-U.S. suppliers in 2024, which could be affected by tariffs and duties91120 - Cyber-attacks pose a significant threat to operations and data security. The company acknowledges the increasing frequency and sophistication of such attacks, including those leveraging AI104 - The company has significant debt, including a $500.0 million term loan and a $600.0 million revolving credit facility. As of December 31, 2024, $468.8 million was outstanding on the term loan and $14.0 million on the revolver109 - The Non-Executive Chairman, Steven L. Berman, and his family beneficially owned approximately 15% of the company's outstanding common stock as of February 24, 2025, allowing them to influence shareholder matters122 Unresolved Staff Comments The company reports no unresolved staff comments - None137 Cybersecurity The company manages cybersecurity risk via a NIST-aligned program overseen by the Audit Committee, reporting no material incidents in 2024 - The company's information security program is managed by an experienced team and includes biannual maturity assessments against the NIST Cybersecurity Framework conducted by a third party138 - Oversight is provided by the Audit Committee of the Board of Directors, with the Senior Vice President and Chief Information Officer (CIO) responsible for the program's operation139140 - To date, the company has not identified any cybersecurity incidents or threats that have materially affected or are reasonably likely to materially affect its business strategy, operations, or financial condition138 Properties Dorman Products operates 38 global warehouse and office facilities, primarily leased, with key locations in Tennessee, Indiana, and Kentucky Principal Facilities | Location | Description | Size (sq. ft.) | Ownership | | :--- | :--- | :--- | :--- | | Portland, TN | Warehouse and office | 997,310 | Leased | | Whiteland, IN | Warehouse and office | 827,180 | Leased | | Warsaw, KY | Warehouse and office | 710,500 | Owned | | Shepherdsville, KY | Warehouse | 436,716 | Leased | | Colmar, PA | Corporate headquarters, Warehouse and office | 342,000 | Leased | - The company leases certain facilities from entities affiliated with its Non-Executive Chairman, Steven L. Berman, and its President, Specialty Vehicles, Lindsay Hunt, with aggregate rent payments of $3.5 million in 2024147 Legal Proceedings The company is involved in routine legal proceedings, none of which are expected to have a material financial impact - Information regarding legal proceedings is incorporated by reference from Note 11, "Commitments and Contingencies," under the heading "Other Contingencies"146 Mine Safety Disclosures This item is not applicable to the company - Not Applicable147 Information about Our Executive Officers This section lists the company's executive officers as of February 27, 2025, including their roles and brief professional biographies - The executive team is led by Kevin M. Olsen, President and Chief Executive Officer, who has been with the company since 2016 and CEO since 2019148 - The company has dedicated presidents for each of its key business segments: Tayfun Uner (Light Duty), John R. McKnight (Heavy Duty), and Lindsay Hunt (Specialty Vehicles)148 Part II Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities Dorman's common stock trades on NASDAQ, with no anticipated dividends, and a new $500 million share repurchase program approved for 2025-2027 - The company's common stock is traded on the NASDAQ Global Select Market under the symbol "DORM"161 - The company does not currently pay cash dividends and does not anticipate doing so in the foreseeable future162 - A new share repurchase program was authorized in October 2024, allowing for the purchase of up to $500 million of common stock from January 1, 2025, to December 31, 2027167 Share Repurchases (Q4 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 27 - Nov 23, 2024 | 4,808 | $124.13 | | Nov 24 - Dec 31, 2024 | 2,235 | $129.89 | | Total | 7,043 | - | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In FY2024, Dorman achieved 4.1% net sales growth to $2.01 billion and 47% net income growth to $190.0 million, driven by improved gross margin and strong cash flow Financial Performance Summary (FY 2024 vs. FY 2023) | Metric (in millions) | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,009.2 | $1,929.8 | +4.1% | | Gross Profit | $806.4 | $685.4 | +17.6% | | Gross Margin | 40.1% | 35.5% | +460 bps | | Income from Operations | $292.9 | $214.8 | +36.4% | | Net Income | $190.0 | $129.3 | +47.0% | Segment Net Sales (FY 2024 vs. FY 2023) | Segment (in millions) | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Light Duty | $1,565.6 | $1,462.5 | +7.1% | | Heavy Duty | $231.5 | $256.9 | -9.9% | | Specialty Vehicle | $212.1 | $210.4 | +0.8% | | Total | $2,009.2 | $1,929.8 | +4.1% | - Cash flow from operations increased to $231.0 million in 2024 from $208.8 million in 2023, driven by higher net income219 - The company sold approximately $1.11 billion of accounts receivable in 2024 through customer-sponsored programs, incurring $51.3 million in factoring costs214215 - As of Dec 31, 2024, the company had $482.8 million in total obligations under its credit agreement, with $584.8 million available for borrowing212217 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations, impacting variable-rate debt and accounts receivable factoring programs - The company is exposed to interest rate risk through its variable-rate debt and accounts receivable sales programs, which are tied to rates like Term SOFR234 - A one-percentage-point increase in interest rates would have increased interest expense on variable rate debt by approximately $5.6 million for FY 2024236 - A one-percentage-point increase in discount rates on accounts receivable sales programs would have increased factoring costs by approximately $8.8 million for FY 2024235 Financial Statements and Supplementary Data This section presents audited financial statements and KPMG's unqualified opinion, highlighting a critical audit matter regarding customer credit accruals Report of Independent Registered Public Accounting Firm KPMG issued unqualified opinions on Dorman's financial statements and internal controls, identifying customer credit accruals as a critical audit matter - The auditor, KPMG LLP, issued an unqualified (clean) opinion on both the consolidated financial statements and the company's internal control over financial reporting240241 - A Critical Audit Matter (CAM) was identified related to the 'Accrual for customer credits for defective product returns'. This was due to the subjective auditor judgment needed to evaluate the impact of market conditions on the time lag between a sale and a credit issuance245247 Consolidated Financial Statements Dorman's 2024 financial statements show $2.01 billion net sales, $190.0 million net income, and $231.0 million cash from operations Consolidated Statement of Operations Highlights (FY 2024) | Metric (in thousands) | Amount | | :--- | :--- | | Net Sales | $2,009,197 | | Gross Profit | $806,359 | | Income from Operations | $292,909 | | Net Income | $190,004 | | Diluted EPS | $6.14 | Consolidated Balance Sheet Highlights (as of Dec 31, 2024) | Metric (in thousands) | Amount | | :--- | :--- | | Total Current Assets | $1,369,760 | | Total Assets | $2,424,521 | | Total Current Liabilities | $563,802 | | Total Liabilities | $1,131,051 | | Total Shareholders' Equity | $1,293,470 | Consolidated Statement of Cash Flows Highlights (FY 2024) | Metric (in thousands) | Amount | | :--- | :--- | | Cash provided by operating activities | $231,047 | | Cash used in investing activities | $(39,321) | | Cash used in financing activities | $(170,979) | | Net Increase in Cash | $20,323 | Notes to Consolidated Financial Statements Notes detail accounting policies, segment performance, credit facility terms, revenue recognition, stock compensation, and related-party transactions - The company's three reportable segments are Light Duty, Heavy Duty, and Specialty Vehicle311312 - The company has a credit agreement consisting of a $600.0 million revolving credit facility and a $500.0 million term loan, both maturing on October 4, 2027306 - In 2024, two customers accounted for over 10% of net sales, totaling 39% of consolidated net sales340 - The company has contingent consideration liabilities from prior acquisitions, with a maximum potential payout of $102.0 million. As of December 31, 2024, no liability was accrued as payments were not expected to be due327328 - The company repurchased and canceled 855,971 shares for $78.1 million under its share repurchase program in 2024359 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None363 Controls and Procedures Management and KPMG affirmed the effectiveness of disclosure controls and internal control over financial reporting as of December 31, 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2024364 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, a conclusion supported by an unqualified attestation report from KPMG LLP365366 - There were no changes in internal control over financial reporting during the fourth quarter of 2024 that materially affected, or are reasonably likely to materially affect, these controls367 Other Information The company amended its Cash Bonus Plan and disclosed Rule 10b5-1 trading plans by officers and directors in Q4 2024 - The Dorman Products, Inc. 2018 Cash Bonus Plan was amended and restated on February 21, 2025, to remove the $2 million limit on payments to any participant in a plan year378 - During Q4 2024, several officers and directors, including Donna M. Long, Jeffrey L. Darby, and Steven L. Berman, adopted Rule 10b5-1 trading plans for the purchase or sale of company stock379380 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None381 Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 proxy statement - The required information is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders383 - The company has adopted a "Code of Ethics for Senior Financial Officers," which is available on its website383 Executive Compensation Executive and director compensation details are incorporated by reference from the 2025 proxy statement - The required information is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders384 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Security ownership and equity compensation plan details are incorporated by reference from the 2025 proxy statement - Most of the required information is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders385 Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 234,289 | $89.44 | 1,083,572 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 234,289 | $89.44 | 1,083,572 | Certain Relationships and Related Transactions, and Director Independence Information on related-party transactions and director independence is incorporated by reference from the 2025 proxy statement - The required information is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders386 Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2025 proxy statement - The required information is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders386 Part IV Exhibits, Financial Statement Schedules This section lists all consolidated financial statements, schedules, and exhibits filed with the Form 10-K - This section provides a comprehensive list of all financial statements, schedules, and exhibits filed as part of the Form 10-K388391 - Financial Statement Schedule II - Valuation and Qualifying Accounts is included in the filing389 Form 10-K Summary No Form 10-K summary was provided - None390 Schedule II: Valuation and Qualifying Accounts This schedule details changes in the allowance for doubtful accounts and customer credits for fiscal years 2022-2024 Valuation and Qualifying Accounts (in thousands) | Account | Balance at Dec 31, 2023 | Provision | Charge-offs | Balance at Dec 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts | $3,518 | $90 | $(1,989) | $1,619 | | Allowance for customer credits | $204,495 | $419,611 | $(419,751) | $204,355 |