Dorman Products, Inc. 10-Q

ITEM 1. Financial Statements DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended (in thousands, except per share data) March 29, 2025 March 30, 2024 Net sales $ 507,692 $ 468,701 Cost of goods sold 299,984 287,255 Gross profit 207,708 181,446 Selling, general, and administrative expenses 127,634 127,008 Income from operations 80,074 54,438 Interest expense, net 7,358 10,605 Other (income) expense, net ( 1,361 ) 40 Income before income taxes 74,077 43,793 Provision for income taxes 16,572 10,965 Net income $ 57,505 $ 32,828 Other comprehensive income: Change in foreign currency translation adjustment 222 ( 1,099 ) Comprehensive Income $ 57,727 $ 31,729 Earnings per share: Basic $ 1.88 $ 1.05 Diluted $ 1.87 $ 1.05 Weighted average shares outstanding: Basic 30,576 31,140 Diluted 30,810 31,250 See accompanying Notes to Condensed Consolidated Financial Statements 3 Table of Contents DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED ) (in thousands, except for share data) March 29, 2025 December 31, 2024 Assets Current assets: Cash and cash equivalents $ 60,612 $ 57,137 Accounts receivable, less allowance for doubtful accounts of $ 1,913 and $ 1,619 555,077 573,787 Inventories 734,575 707,977 Prepaids and other current assets 25,728 30,859 Total current assets 1,375,992 1,369,760 Property, plant, and equipment, net 167,062 164,499 Operating lease right-of-use assets 115,373 118,499 Goodwill 443,153 442,886 Intangible assets, net 272,811 278,213 Deferred tax assets 5,836 5,786 Other assets 47,524 44,878 Total assets $ 2,427,751 $ 2,424,521 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 221,030 $ 231,814 Accrued compensation 21,185 44,002 Accrued customer rebates and returns 203,386 204,355 Revolving credit facility — 13,960 Current portion of long-term debt 21,875 28,125 Other accrued liabilities 58,694 41,546 Total current liabilities 526,170 563,802 Long-term debt 439,613 439,513 Long-term operating lease liabilities 101,451 105,142 Deferred tax liabilities, net 3,710 3,700 Other long-term liabilities 19,403 18,894 Commitments and contingencies (Note 7) Shareholders’ equity: Common stock, $ 0.01 par value; 50,000,000 shares authorized; 30,539,334 and 30,565,855 shares issued and outstanding in 2025 and 2024, respectively 306 306 Additional paid-in capital 117,190 119,077 Retained earnings 1,226,461 1,180,862 Accumulated other comprehensive loss ( 6,553 ) ( 6,775 ) Total shareholders’ equity 1,337,404 1,293,470 Total liabilities and shareholders' equity $ 2,427,751 $ 2,424,521 See accompanying Notes to Condensed Consolidated Financial Statements 4 Table of Contents DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED ) Three Months Ended March 29, 2025 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total (in thousands, except share data) Shares Issued Par Value Balance at December 31, 2024 30,565,855 $ 306 $ 119,077 $ 1,180,862 $ ( 6,775 ) $ 1,293,470 Exercise of stock options 3,840 — 372 — — 372 Compensation expense under incentive stock plans — — 3,613 — — 3,613 Purchase and cancellation of common stock ( 95,870 ) ( 1 ) ( 173 ) ( 11,906 ) — ( 12,080 ) Issuance of common stock under incentive stock plans, net of cancellations 109,461 1 ( 1 ) — — — Other stock-related activity ( 43,952 ) — ( 5,698 ) — — ( 5,698 ) Change in foreign currency translation adjustment — — — — 222 222 Net income — — — 57,505 — 57,505 Balance at March 29, 2025 30,539,334 $ 306 $ 117,190 $ 1,226,461 $ ( 6,553 ) $ 1,337,404 Three Months Ended March 30, 2024 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total (in thousands, except share data) Shares Issued Par Value Balance at December 31, 2023 31,299,770 $ 313 $ 101,045 $ 1,069,435 $ ( 2,590 ) $ 1,168,203 Exercise of stock options 5,540 — 340 — — 340 Compensation expense under incentive stock plans — — 2,931 — — 2,931 Purchase and cancellation of common stock ( 317,932 ) ( 3 ) ( 572 ) ( 26,561 ) — ( 27,136 ) Issuance of common stock under incentive stock plans, net of cancellations 41,357 — — — — — Other stock-related activity ( 16,865 ) — ( 1,533 ) ( 39 ) — ( 1,572 ) Change in foreign currency translation adjustment — — — — ( 1,099 ) ( 1,099 ) Net income — — — 32,828 — 32,828 Balance at March 30, 2024 31,011,870 $ 310 $ 102,211 $ 1,075,663 $ ( 3,689 ) $ 1,174,495 See accompanying Notes to Condensed Consolidated Financial Statements 5 Table of Contents DORMAN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended (in thousands) March 29, 2025 March 30, 2024 Cash Flows from Operating Activities: Net income $ 57,505 $ 32,828 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, amortization and accretion 13,843 13,851 Provision for doubtful accounts 314 11 (Benefit) provision for deferred income taxes ( 46 ) 475 Provision for stock-based compensation 3,613 2,931 Changes in assets and liabilities: Accounts receivable 18,410 40,454 Inventories ( 26,539 ) 17,235 Prepaids and other current assets 5,635 2,377 Other assets ( 3,275 ) ( 918 ) Accounts payable ( 11,264 ) ( 45,084 ) Accrued customer rebates and returns ( 971 ) ( 18,156 ) Accrued compensation and other liabilities ( 5,988 ) 5,976 Cash provided by operating activities 51,237 51,980 Cash Flows from Investing Activities: Property, plant, and equipment additions ( 10,985 ) ( 10,755 ) Cash used in investing activities ( 10,985 ) ( 10,755 ) Cash Flows from Financing Activities: Payments of revolving credit line ( 13,960 ) ( 11,600 ) Payments of long-term debt ( 6,250 ) ( 3,125 ) Proceeds from exercise of stock options 372 340 Purchase and cancellation of common stock ( 11,274 ) ( 27,609 ) Other stock-related activity ( 5,698 ) ( 1,573 ) Cash used in financing activities ( 36,810 ) ( 43,567 ) Effect of exchange rate changes on Cash and Cash Equivalents 33 ( 39 ) Net Increase (Decrease) in Cash and Cash Equivalents 3,475 ( 2,381 ) Cash and Cash Equivalents, Beginning of Period 57,137 36,814 Cash and Cash Equivalents, End of Period $ 60,612 $ 34,433 Supplemental Cash Flow Information Cash paid for interest expense $ 4,581 $ 10,397 Cash paid for income taxes $ 523 $ 839 See accompanying Notes to Condensed Consolidated Financial Statements 6 Table of Contents DORMAN PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 29, 2025, AND MARCH 30, 2024 (UNAUDITED) 1. Basis of Presentation As used herein, unless the context requires otherwise, “Dorman,” the “Company,” “we,” “us,” or “our” refers to Dorman Products, Inc. and its subsidiaries. Our ticker symbol on The Nasdaq Stock Market LLC is “DORM.” The accompanying unaudited condensed consolidated financial statements have been prepared under U.S. generally accepted accounting principles (“GAAP”) for interim financial information and under the rules and regulations of the U.S. Securities and Exchange Commission. However, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 29, 2025, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2025, or any future period. We may experience significant fluctuations from quarter to quarter in our results of operations due to the timing of orders placed by our customers and the introduction of new products and product lines to customers. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. 2. Sales of Accounts Receivable We have entered into several customer-sponsored programs administered by unrelated financial institutions that permit us to sell (factor) certain accounts receivable at discounted rates to the financial institutions. Transactions under these agreements were accounted for as sales of accounts receivable, and the related accounts receivable were removed from our Condensed Consolidated Balance Sheets when sold. Sales of accounts receivable under these agreements, and related factoring costs, which were included in selling, general, and administrative expenses, were as follows: Three Months Ended (in thousands) March 29, 2025 March 30, 2024 Sales of accounts receivable $ 334,170 $ 285,218 Factoring costs 14,588 13,610 3. Inventories Inventories include the cost of material, freight, duties, direct labor, and overhead utilized in the processing of our products and are stated at the lower of cost or net realizable value. Inventories were as follows: (in thousands) March 29, 2025 December 31, 2024 Raw materials $ 28,854 $ 29,233 Bulk product 243,542 246,604 Finished product 451,371 421,734 Packaging materials 10,808 10,406 Total $ 734,575 $ 707,977 7 Table of Contents 4. Goodwill and Intangible Assets Goodwill Goodwill included the following: (in thousands) Light Duty Heavy Duty Specialty Vehicle Consolidated Balance at December 31, 2024 $ 313,704 $ 55,706 $ 73,476 $ 442,886 Measurement period adjustment — — 154 154 Foreign currency translation — 113 — 113 Balance at March 29, 2025 $ 313,704 $ 55,819 $ 73,630 $ 443,153 Intangible Assets Intangible assets included the following: March 29, 2025 December 31, 2024 Intangible assets subject to amortization Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value (in thousands) Customer relationships $ 173,430 $ 43,862 $ 129,568 $ 173,430 $ 41,358 $ 132,072 Trade names 67,690 16,062 51,628 67,690 14,999 52,691 Product portfolio 107,800 18,194 89,606 107,800 16,522 91,278 Technology 2,167 1,380 787 2,167 1,318 849 Patents and other 2,350 1,128 1,222 2,350 1,027 1,323 Total $ 353,437 $ 80,626 $ 272,811 $ 353,437 $ 75,224 $ 278,213 Amortization expense was $ 5.5 million and $ 5.6 million during the three months ended March 29, 2025, and March 30, 2024, respectively. 5. Debt As of March 29, 2025, and December 31, 2024, the interest rate on the outstanding borrowings under our credit facility was 5.67 % and 5.71 %, respectively. 8 Table of Contents 6. Segment and Geographic Information Segment results are as follows: For the Three Months ended March 29, 2025 (in thousands) Light Duty Heavy Duty Specialty Vehicle Total Net sales $ 408,856 $ 51,680 $ 47,156 $ 507,692 Cost of goods sold 236,999 38,477 24,508 299,984 Factoring expense 14,588 — — 14,588 Other segment expenses 75,776 13,366 17,827 106,969 Segment income (loss) from operations $ 81,493 $ ( 163 ) $ 4,821 $ 86,151 For the Three Months ended March 30, 2024 (in thousands) Light Duty Heavy Duty Specialty Vehicle Total Net sales $ 359,293 $ 57,809 $ 51,599 $ 468,701 Cost of goods sold 216,485 44,568 26,194 287,247 Factoring expense 13,610 — — 13,610 Other segment expenses 71,403 13,232 18,236 102,871 Segment income from operations $ 57,795 $ 9 $ 7,169 $ 64,973 A reconciliation of segment income from operations to consolidated income before income taxes is as follows: For the Three Months Ended (in thousands) March 29, 2025 March 30, 2024 Segment income from operations $ 86,151 $ 64,973 Acquisition-related intangible assets amortization ( 5,471 ) ( 5,484 ) Acquisition-related transaction and other costs ( 492 ) ( 483 ) Pretax reduction in workforce costs ( 114 ) ( 4,568 ) Interest expense, net ( 7,358 ) ( 10,605 ) Other income (expense), net 1,361 ( 40 ) Consolidated income before income taxes $ 74,077 $ 43,793 The following table presents our net sales by geographic region: Three Months Ended (in thousands) March 29, 2025 March 30, 2024 Net sales to U.S. customers $ 464,453 $ 428,855 Net sales to non-U.S. customers 43,239 39,846 Total $ 507,692 $ 468,701 9 Table of Contents 7. Commitments and Contingencies We are a party to or otherwise involved in legal proceedings that arise in the ordinary course of business, such as various claims and legal actions involving contracts, employment claims, competitive practices, intellectual property infringement, product liability claims, and other matters arising out of the conduct of our business. In the opinion of management, none of the actions, individually or in the aggregate, taking into account relevant insurance coverage, would likely have a material financial impact on the Company, and we believe the range of reasonably possible losses from current matters, taking into account relevant insurance coverage, is immaterial. However, legal matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of any of these matters could have a material adverse impact on the Company’s cash flows, financial position, or results of operations in the period in which any such effects are recorded. 8. Stock-Based Compensation Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”) We grant RSUs, and prior to January 2020 we granted RSAs, to participants in our equity plans. Performance-based RSUs granted in the three months ended March 29, 2025, included certain grants that vest based on our total shareholder return ranking relative to the Nasdaq US Benchmark Auto Parts Index over a three-year performance period (market condition), and other grants that vest based upon achievement of return on invested capital targets over a three-year performance period (performance condition). Compensation cost related to RSA and RSU grants was $ 3.3 million and $ 2.5 million for the three months ended March 29, 2025, and March 30, 2024, respectively, and was included in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations. The following table summarizes our RSA and RSU activity for the three months ended March 29, 2025: Shares Weighted Average Fair Value Balance at December 31, 2024 340,578 $ 97.84 Granted 130,771 $ 141.83 Vested ( 102,178 ) $ 96.75 Canceled ( 7,333 ) $ 101.40 Balance at March 29, 2025 361,838 $ 114.75 For the three months ended March 29, 2025, we granted 21,948 performance-based RSUs containing a market condition with a grant date fair value of $ 195.03 per share. For the three months ended March 30, 2024, we granted 32,109 performance-based RSUs containing a market condition with a grant date fair value of $ 138.58 per share. As of March 29, 2025, there was $ 33.0 million of unrecognized compensation cost related to unvested RSU grants that is expected to be recognized over a weighted average period of 2.3 years. Stock Options From time to time, we grant stock options to participants in our equity plans. Compensation cost related to stock option grants was $ 0.3 million and $ 0.4 million for the three months ended March 29, 2025, and March 30, 2024, respectively, and was included as selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations. 10 Table of Contents The following table summarizes our stock option activity for the three months ended March 29, 2025 : Shares Weighted Average Price Weighted Average Remaining Term (years) Aggregate Intrinsic Value (in thousands) Balance at December 31, 2024 234,289 $ 89.44 Canceled ( 1,775 ) $ 88.77 Exercised ( 3,840 ) $ 96.93 Balance at March 29, 2025 228,674 $ 89.31 4.3 $ 7,179 Exercisable at March 29, 2025 177,296 $ 88.16 4.0 $ 5,771 As of March 29, 2025, there was $ 1.7 million of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted average period of 1.7 years. 9. Earnings Per Share Basic earnings per share was calculated by dividing our net income by the weighted average number of shares of common stock outstanding during the period, excluding unvested RSAs which are considered to be contingently issuable. To calculate diluted earnings per share, common stock equivalents are added to the weighted average number of common shares outstanding. Common stock equivalents are calculated using the treasury stock method and are computed based on outstanding stock-based awards. For the three months ended March 29, 2025, and March 30, 2024, there were approximately 39,000 shares and 319,000 shares, respectively, that were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. The following table sets forth the computation of basic earnings per share and diluted earnings per share: Three Months Ended (in thousands, except per share data) March 29, 2025 March 30, 2024 Net income $ 57,505 $ 32,828 Denominator: Weighted average basic shares outstanding 30,576 31,140 Effect of stock-based compensation awards 234 110 Weighted average diluted shares outstanding 30,810 31,250 Earnings Per Share: Basic $ 1.88 $ 1.05 Diluted $ 1.87 $ 1.05 10. Common Stock Repurchases We periodically repurchase, at the then-current market price, and cancel common stock issued to the Dorman Products, Inc. 401(k) Retirement Plan and Trust (the “401(k) Plan”). 401(k) Plan participants can no longer purchase shares of Dorman common stock as an investment option under the 401(k) Plan. Shares are generally purchased by the Company from the 401(k) Plan when participants sell units as permitted by the 401(k) Plan or elect to leave the 401(k) Plan upon retirement, 11 Table of Contents termination, or other reasons. The following table summarizes the repurchase and cancellation of common stock by the Company for the periods indicated: Three Months Ended March 29, 2025 March 30, 2024 Shares repurchased and canceled 2,070 7,759 Total cost of shares repurchased and canceled (in thousands) $ 261 $ 673 Average price per share $ 126.08 $ 86.77 Separately, our Board of Directors previously authorized the repurchase of up to $ 600 million of our common stock through December 31, 2024, under a share repurchase program and subsequent authorizations (the “Prior Program”). The Prior Program expired on December 31, 2024, along with all amounts that remained available for use under the Prior Program as of that date. In October 2024, the Company’s Board of Directors authorized the purchase of up to $ 500 million of our common stock under a new share repurchase program that is effective from January 1, 2025, through December 31, 2027 (the “New Program”). At March 29, 2025, $ 488 million was available for repurchase under the New Program. Under each of the Prior Program and the New Program, share repurchases may be made from time to time depending on market conditions, share price, share availability, and other factors at the Company’s discretion. The share repurchase programs do not obligate us to acquire any specific number of shares. The following table summarizes the repurchase and cancellation of common stock under the New Program in the three months ended March 29, 2025, and under the Prior Program in the three months ended March 30, 2024: Three Months Ended March 29, 2025 March 30, 2024 Shares repurchased and canceled 93,800 310,173 Total cost of shares repurchased and canceled (in thousands) $ 11,818 $ 26,463 Average price per share $ 125.99 $ 85.32 11. Income Taxes At March 29, 2025, we had $ 10.4 million of net unrecognized tax benefits, $ 8.9 million of which would lower our effective tax rate if recognized. Interest and penalties related to uncertain tax positions are recognized in income tax expense and were not material as of March 29, 2025. We file income tax returns in the United States, Canada, China, India, and Mexico. The statute of limitations for tax years before 2021 is closed for U.S. federal income tax purposes. The statute of limitations for tax years before 2017 is closed for the states in which we filed. The statute of limitations for tax years before 2021 is closed for income tax purposes in Canada and China. The statute of limitations for tax years before 2020 is closed for income tax purposes in India. The statute of limitations for tax years before 2019 is closed for income tax purposes in Mexico. 12. Related-Party Transactions We lease a portion of our Lewisberry, PA facility from an entity in which Mr. Berman and certain of his family members are owners. The Lewisberry lease is a non-cancelable operating lease and expires December 31, 2027. We also lease our facilities in Madison, IN, and Shreveport, LA, from entities in which Lindsay Hunt, our President, Specialty Vehicle, and certain of her family members are owners. Each lease is a 12 Table of Contents non-cancelable operating lease, was renewed in October 2022 in connection with the acquisition of Super ATV, LLC, a leading supplier to the powersports aftermarket ("SuperATV"), and will expire on October 31, 2027. We have service agreements with counterparties that are majority-owned by a family member of Ms. Hunt. These agreements provide for various warehouse and facility-related services at agreed-upon rates. The following table represents the estimated payments for the year ending December 31, 2025, and actual payments for the year ended December 31, 2024, under the related party agreements described above: Year Ending Year Ended (in thousands) December 31, 2025 December 31, 2024 Facility leases with entities related to Steven Berman $ 735 $ 715 Facility leases with entities related to Lindsay Hunt $ 2,812 $ 2,757 Service agreements with entities related to Lindsay Hunt $ 46 $ 54 We are a partner in a joint venture with one of our suppliers and own a minority interest in two other suppliers. Two of these investments are accounted for under the equity method, and one is accounted for under the cost method. 13. Fair Value Disclosures The carrying values of financial instruments such as cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments. The carrying value of borrowings under our credit facility approximates fair value because these borrowings bear interest at rates indexed to a market rate (Term SOFR). 14. Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. The ASU expands disclosures in the income tax rate reconciliations table and cash taxes paid, and is effective for annual periods beginning after December 15, 2024. In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses. The ASU requires additional disclosures about categories of expenses, including, among other things, quantitative disclosures for employee compensation, depreciation, intangible asset amortization, selling expenses, and purchases of inventory. The updated guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. We expect to implement these new standards by their effective dates, and do not expect their adoption to have an impact on our results of operations, financial condition, or cash flows. 13 Table of Contents