What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-08-02 · 56 added, 54 removed, 203 unchanged (35% of the section changed)

45 unchanged sentences

These investments historically have enabled us to provide an expanding array of new product offerings and grow revenues at levels that generally have exceeded market growth rates.

In the six months ended June 29, 2024, we introduced 3,096 new distinct parts to our customers and end-users, including 997 “New-to-the-Aftermarket” parts.

In the nine months ended September 28, 2024, we introduced 4,498 new distinct parts to our customers and end-users, including 1,374 “New-to-the-Aftermarket” parts.

We introduced 6,106 new distinct parts to our customers and end-users in the fiscal year ended December 31, 2023, including 1,791 “New-to-the-Aftermarket” parts.

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We develop products designed to be compatible across a wide variety of makes and models to enhance both the performance and appearance of customers’ vehicles.

A key component of our strategy is growth through acquisitions, including the October 2022 acquisition of SuperATV, a leading independent supplier to the powersports aftermarket with a family of highly respected brands spanning functional accessories and upgrades, as well as replacement parts for specialty vehicles, and the August 2021 acquisition of Dayton Parts, a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket.

A key component of our strategy is growth through acquisitions, including the October 2022 acquisition of SuperATV and the August 2021 acquisition of Dayton Parts.

SuperATV is a leading independent supplier to the powersports aftermarket with a family of highly respected brands spanning functional accessories and upgrades, as well as replacement parts for specialty vehicles.

Dayton Parts is a manufacturer of chassis and other parts designed to serve the heavy-duty vehicle sector of the aftermarket.

We may acquire businesses in the future to supplement our financial growth, increase our customer base, add to our distribution capabilities or enhance our product development resources, among other reasons.

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dollar may result in a change in the cost of goods that we purchase from China.

However, the cost of the goods we procure is also affected by other factors, including raw material availability, labor cost, tariffs and transportation costs.

However, the cost of the goods we procure is also affected by other factors, including raw material availability, labor costs, tariffs and transportation costs.

We have operations located outside the United States with various functional currencies.

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in the future, resulting in increased costs associated with our accounts receivable sales programs and outstanding borrowings.

During the year ended December 31, 2023, we saw significant increases in Term SOFR, and other reference rates and interest rates have remained elevated throughout the six months ended June 29, 2024, which impacted our results as discussed in Results of Operations that follows.

During the year ended December 31, 2023, we saw significant increases in Term SOFR and other reference rates.

Interest rates remained elevated throughout the first nine months of 2024 but have shown recent signs of beginning to decline.

Impact of Tariffs

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The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in our Condensed Consolidated Statements of Operations:

Three Months Ended* Six Months Ended*

(in thousands, except percentage data) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Three Months Ended* Nine Months Ended*

(in thousands, except percentage data) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Net sales $ 503,773 100.0 % $ 488,186 100.0 % $ 1,475,425 100.0 % $ 1,435,492 100.0 %

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Interest expense, net 9,762 1.9 % 12,215 2.5 % 30,569 2.1 % 36,733 2.6 %

Other (income) expense, net (136) 0.0 % (396) (0.1) % (96) 0.0 % (753) (0.1) %

Other income, net 1,615 0.3 % 605 0.1 % 1,711 0.1 % 1,358 0.1 %

Income before income taxes 71,124 14.1 % 52,598 10.8 % 177,303 12.0 % 102,145 7.1 %

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* Percentage of sales information may not add due to rounding

Three Months Ended June 29, 2024 Compared to Three Months Ended July 1, 2023

Net sales increased $22.4 million, or 5%, for the three months ended June 29, 2024 compared to the prior year period, driven primarily by volume growth in the light duty sector and new product introductions, partially offset by soft market conditions in the heavy duty and specialty vehicle sectors.

Gross profit as a percentage of net sales increased 560 basis points compared to the prior year period primarily due to easing of inflationary pressures across the businesses and favorable cost savings initiatives.

Selling, general and administrative expenses (“SG&A”) increased $18.6 million, or 270 basis points as a percentage of net sales, for the three months ended June 29, 2024, compared to the prior

Three Months Ended September 28, 2024 Compared to Three Months Ended September 30, 2023

Net sales increased $15.6 million, or 3.2%, for the three months ended September 28, 2024 compared to the prior year period, driven primarily by increased customer demand and sales of new products launched in our Light Duty segment, partially offset by soft market conditions in the heavy duty and specialty vehicle sectors.

Gross profit as a percentage of net sales increased 300 basis points compared to the prior year period primarily due to the easing of inflationary pressures across the businesses and favorable mix from higher sales of new products, as well as operational efficiency initiatives delivering cost-savings.

Selling, general and administrative expenses (“SG&A”) increased $5.5 million, or 30 basis points as a percentage of net sales, for the three months ended September 28, 2024, compared to the prior year period due to higher compensation and benefits costs.

In the prior year period, SG&A benefited from a $1.0 million fair value adjustment to the estimated contingent consideration related to a prior acquisition.

Our effective tax rate increased to 24.0% for the three months ended June 29, 2024 from 23.8% for the three months ended July 1, 2023.

Six Months Ended June 29, 2024 Compared to Six Months Ended July 1, 2023

Net sales increased $24.3 million, or 3%, for the six months ended June 29, 2024 compared to the prior year period, driven primarily by volume, including from new product introductions.

Our effective tax rate decreased to 22.3% for the three months ended September 28, 2024 from 23.0% for the three months ended September 30, 2023 due to favorable discrete items in the three months ended September 28, 2024.

Nine Months Ended September 28, 2024 Compared to Nine Months Ended September 30, 2023

Net sales increased $39.9 million, or 2.8%, for the nine months ended September 28, 2024 compared to the prior year period, driven primarily by volume, including from new product introductions.

Gross profit as a percentage of net sales increased 540 basis points compared to the prior year period primarily due to sales of lower-cost inventory and cost savings initiatives.

Selling, general and administrative expenses (“SG&A”) increased $19.3 million, or 130 basis points as a percentage of net sales, for the six months ended June 29, 2024, compared to the prior year period.

The increase in SG&A was driven by a favorable $12.4 million fair value adjustment in the prior year period to the estimated contingent consideration obligation for an acquisition.

Our effective tax rate increased to 24.4% for the six months ended June 29, 2024 from 22.4% for the six months ended July 1, 2023 primarily due to favorable discrete items applied to a lower income before income taxes in the six months ended July 1, 2023.

Selling, general and administrative expenses (“SG&A”) increased $24.8 million, or 110 basis points as a percentage of net sales, for the nine months ended September 28, 2024, compared to the prior year period, primarily due to $13.4 million of favorable fair value adjustments in the prior year period to the estimated contingent consideration obligation for an acquisition and higher compensation and benefits costs in the current year period.

Our effective tax rate increased to 23.6% for the nine months ended September 28, 2024 from 22.7% for the nine months ended September 30, 2023 primarily due to favorable discrete items applied to a lower income before income taxes in the nine months ended September 30, 2023.

Segment Operating Results

Segment operating results were as follows:

For the Three Months Ended For the Six Months Ended

(in thousands) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

For the Three Months Ended For the Nine Months Ended

(in thousands) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Light Duty $ 393,577 $ 374,697 $ 1,138,228 $ 1,076,619

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Total $ 85,916 $ 69,158 $ 229,552 $ 157,137

Three Months Ended June 29, 2024 Compared to Three Months Ended July 1, 2023

Light Duty net sales increased $31.5 million, or 9%, for the three months ended June 29, 2024 compared to the prior year period, primarily due to volume, including new product introductions.

Light Duty segment profit as a percentage of net sales increased to 17.1% for the three months ended June 29, 2024, from 11.6% for the three months ended July 1, 2023.

This increase was primarily driven by the sell-through of lower-cost inventory, cost-saving initiatives and favorable leverage on higher net sales compared to the three months ended July 1, 2023.

Heavy Duty net sales decreased $7.8 million, or 11%, for the three months ended June 29, 2024 compared to the prior year period.

The decrease in net sales primarily reflects lower freight industry shipping volumes in the three months ended June 29, 2024, as well as strong sales performance in the three months ended July 1, 2023 driven by customers’ inventory restocking at the end of the global pandemic.

Heavy Duty segment profit as a percentage of net sales decreased 50 basis points for the three months ended June 29, 2024, compared to the prior year period.

This decrease was primarily driven by the deleveraging of fixed costs on lower net sales, and the impact of investments we made as part of initiatives to grow sales and improve margins on a long-term basis.

Three Months Ended September 28, 2024 Compared to Three Months Ended September 30, 2023

Light Duty net sales increased $18.9 million, or 5.0%, for the three months ended September 28, 2024 compared to the prior year period, primarily due to increased customer demand and sales of new products launched.

Light Duty segment profit as a percentage of net sales increased to 19.0% for the three months ended September 28, 2024, from 16.1% for the three months ended September 30, 2023.

This increase was primarily driven by the easing of inflationary pressures, favorable mix driven by higher new product sales, and operational excellence initiatives delivering cost-savings, partially offset by higher compensation and benefits costs.

Heavy Duty net sales decreased $3.2 million, or 5.1%, for the three months ended September 28, 2024 compared to the prior year period.

The decrease in net sales primarily reflects reduced customer demand from lower freight industry shipping volumes, partially offset by sales of new products in the three months ended September 28, 2024.

Heavy Duty segment profit as a percentage of net sales increased 150 basis points for the three months ended September 28, 2024, compared to the prior year period.

This increase was primarily driven by sales of lower-cost inventory, and the impact of investments we made as part of initiatives to grow sales and improve margins on a long-term basis.

Specialty Vehicle

Specialty Vehicle net sales decreased $1.3 million, or 2%, for the three months ended June 29, 2024, compared to the prior year period, due to soft sector demand negatively impacted by higher financing rates and broader economic uncertainty.

Specialty Vehicle segment profit as a percentage of net sales increased to 17.8% from 16.8% for the three months ended June 29, 2024 and July 1, 2023, respectively.

This increase was primarily driven by cost savings initiatives.

Six Months Ended June 29, 2024 Compared to Six Months Ended July 1, 2023

Light Duty net sales increased $42.7 million, or 6%, for the six months ended June 29, 2024 compared to the prior year period, primarily due to volume increases, including new product introductions.

Light Duty segment profit as a percentage of net sales increased to 16.6% for the six months ended June 29, 2024, from 8.9% for the six months ended July 1, 2023.

This increase was primarily driven by the sell-through of lower-cost inventory and cost savings initiatives.

Heavy Duty net sales decreased $17.7 million, or 13%, for the six months ended June 29, 2024 compared to the prior year period.

The decrease in net sales primarily reflects lower freight industry shipping volumes in the six months ended June 29, 2024, as well as strong sales performance in the six months ended July 1, 2023 driven by customers’ inventory restocking at the end of the global pandemic.

Heavy Duty segment profit as a percentage of net sales decreased by 410 basis points for the six months ended June 29, 2024, compared to the prior year period.

Specialty Vehicle net sales remained flat for the three months ended September 28, 2024, compared to the prior year period.

Specialty Vehicle segment profit as a percentage of net sales increased to 17.0% from 13.5% for the three months ended September 28, 2024 and September 30, 2023, respectively.

This increase was primarily driven by sales of lower-cost inventory and cost savings initiatives.

Nine Months Ended September 28, 2024 Compared to Nine Months Ended September 30, 2023

Light Duty net sales increased $61.6 million, or 5.7%, for the nine months ended September 28, 2024 compared to the prior year period, primarily due to volume increases, including sales of new products launched.

Light Duty segment profit as a percentage of net sales increased to 17.4% for the nine months ended September 28, 2024, from 11.4% for the nine months ended September 30, 2023.

This increase was primarily driven by the sell-through of lower-cost inventory and operational excellence initiatives delivering cost-savings, partially offset by higher compensation and benefits costs.

Heavy Duty net sales decreased $20.9 million, or 10.5%, for the nine months ended September 28, 2024 compared to the prior year period.

The decrease in net sales primarily reflects reduced customer demand from lower freight industry shipping volumes in the nine months ended September 28, 2024, as well as sales performance in the nine months ended September 30, 2023 driven by customers’ inventory restocking at the end of the global pandemic.

Heavy Duty segment profit as a percentage of net sales decreased by 230 basis points for the nine months ended September 28, 2024, compared to the prior year period.

This decrease was primarily driven by the deleveraging of fixed costs on lower net sales and the impact of investments we made as part of initiatives to grow sales and improve margins on a long-term basis.

Specialty Vehicle

Specialty Vehicle net sales decreased $0.7 million, or 1%, for the six months ended June 29, 2024, compared to the prior year period, due to lower market demand, partially offset by initiatives to expand our dealer footprint and drive sales to new dealers.

Specialty Vehicle segment profit as a percentage of net sales increased to 15.9% for the six months ended June 29, 2024, from 15.4% for the six months ended July 1, 2023.

This increase was primarily driven by the sell-through of lower-cost inventory and cost savings initiatives compared to the six months ended July 1, 2023.

Specialty Vehicle net sales remained relatively flat for the nine months ended September 28, 2024, compared to the prior year period.

Specialty Vehicle segment profit as a percentage of net sales increased to 16.3% for the nine months ended September 28, 2024, from 14.8% for the nine months ended September 30, 2023.

This increase was primarily driven by the sell-through of lower-cost inventory and cost savings initiatives compared to the nine months ended September 30, 2023.

Liquidity and Capital Resources

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Key components of our liquidity and capital resources were as follows:

(in thousands) June 29, 2024 December 31, 2023

(in thousands) September 28, 2024 December 31, 2023

Cash and cash equivalents $ 45,127 $ 36,814

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Sales of accounts receivable under these programs, and related factoring costs were as follows:

Three Months Ended Six Months Ended

(in thousands) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Three Months Ended Nine Months Ended

(in thousands) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023

Sales of accounts receivable $ 254,657 $ 233,513 $ 791,413 $ 713,190

Factoring costs 11,939 12,255 38,171 37,674

If receivables had not been sold over the previous twelve months, approximately $805.4 million and $526.4 million of additional accounts receivable would have been outstanding at June 29, 2024 and December 31, 2023, respectively, based on our standard payment terms.

If receivables had not been sold over the previous twelve months, approximately $557.7 million and $526.4 million of additional accounts receivable would have been outstanding at September 28, 2024 and December 31, 2023, respectively, based on our standard payment terms.

We had capacity to sell more accounts receivable under these programs if the needs of the business warranted.

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The credit agreement matures on October 4, 2027.

As of June 29, 2024, there was $69.5 million in outstanding borrowings under the revolving credit facility and $478.1 million in outstanding borrowings under the term loan.

As of September 28, 2024, there was $61.8 million in outstanding borrowings under the revolving credit facility and $475.0 million in outstanding borrowings under the term loan.

Also on that date, we had outstanding letters of credit for $1.2 million in aggregate.

outstanding borrowings and letters of credit, we had $529.0 million available under the credit facility at June 29, 2024.

Net of outstanding borrowings and letters of credit, we had $537.0 million available under the credit facility at September 28, 2024.

Our credit agreement contains affirmative and negative covenants.

As of June 29, 2024, we were not in default with respect to our credit agreement.

As of September 28, 2024, we were not in default with respect to our credit agreement.

Refer to Note 7, “Long-Term Debt” to the Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, for additional information.

The following summarizes the activities included in the Condensed Consolidated Statements of Cash Flows:

Six Months Ended

(in thousands) June 29, 2024 July 1, 2023

Nine Months Ended

(in thousands) September 28, 2024 September 30, 2023

Cash provided by operating activities $ 159,622 $ 149,110

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Net increase (decrease) in cash and cash equivalents $ 8,313 $ (14,081)

For the six months ended June 29, 2024, cash provided by operating activities increased $22.4 million over the prior year period, primarily driven by higher net income, partially offset by favorable working capital in the prior year period from significant inventory reductions.

Investing activities used cash of $22.7 million and $23.2 million during the six months ended June 29, 2024 and July 1, 2023, respectively.

The decrease in cash used in investing activities during the six months ended June 29, 2024 over the prior year period is primarily due to higher additions for property, plant and equipment in the prior year period.

Financing activities during the six months ended June 29, 2024 included $51.2 million paid to repurchase 581,880 shares of common stock under our share repurchase plan, and the repayment of $23.3 million of outstanding borrowings under our revolving credit facility and $6.3 million of our term loan balance under our credit agreement.

During the six months ended July 1, 2023, we repaid $72.8 million of outstanding borrowings under our revolving credit facility and $6.3 million of our term loan balance under our credit agreement.

For the nine months ended September 28, 2024, cash provided by operating activities increased $10.5 million over the prior year period, primarily driven by higher net income, partially offset by favorable working capital in the prior year period from significant inventory reductions.

Investing activities used cash of $31.2 million and $32.9 million during the nine months ended September 28, 2024 and September 30, 2023, respectively.

The decrease in cash used in investing activities during the nine months ended September 28, 2024 compared to the prior year period is primarily due to higher additions for property, plant and equipment in the prior year period.

Financing activities during the nine months ended September 28, 2024 included $78.1 million paid to repurchase 855,971 shares of common stock under our share repurchase plan, and the repayments of $31.0 million of outstanding borrowings under our revolving credit facility and $9.4 million of our term loan balance under our credit agreement.

During the nine months ended September 30, 2023, we repaid $119.7 million of outstanding borrowings under our revolving credit facility and $9.4 million of our term loan balance under our credit agreement.

The remaining uses of cash from financing activities in each period resulted primarily from the repurchase of our common stock from our 401(k) Plan and income tax withholding in connection with the vesting of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis