Dorman Products, Inc. Reports Second Quarter 2023 Results

Dec 15, 2023

Highlights (All comparisons are to the prior year period unless otherwise noted):

Net sales of $480.6 million, up 15%

Diluted earnings per share (“EPS”) of $1.04, compared to $1.20

Adjusted diluted EPS* of $1.01, compared to $1.29

Generated $67 million of cash from operating activities; repaid $52 million of debt

The Company confirms its full-year 2023 guidance of net sales of $1.95 billion to $2.00 billion, diluted EPS of $4.35 to $4.55, and adjusted diluted EPS* of $5.15 to $5.35

COLMAR, Pa., Aug. 01, 2023 (GLOBE NEWSWIRE) -- Dorman Products, Inc. (the “Company” or “Dorman”) (NASDAQ:DORM), a leading supplier in the motor vehicle aftermarket industry, today announced its financial results for the second quarter ended July 1, 2023.

Second Quarter Financial ResultsThe Company reported second quarter 2023 net sales of $480.6 million, up 15% compared to net sales of $417.4 million in the second quarter of 2022. The sales growth was primarily driven by the addition of SuperATV, along with price increases to offset inflation and the introduction of new products to the market. Net sales growth excluding acquisitions was 1% compared to the second quarter of 2022, and 16% compared to the second quarter of 2021.

Gross profit was $163.5 million in the second quarter of 2023, or 34.0% of net sales, compared to $141.5 million, or 33.9% of net sales, for the same quarter last year. Adjusted gross margin* was 35.1% in the second quarter of 2023 compared to 34.0% in the same quarter last year. The 110-basis-point increase in adjusted gross margin* is primarily due to the recognition of sales of lower-cost inventory, price increases and the addition of SuperATV, which has a higher gross margin percentage than the Company average. In addition, adjusted gross margin* increased 270 basis points compared to the first quarter of 2023.

Selling, general and administrative (“SG&A”) expenses were $108.3 million, or 22.5% of net sales, in the second quarter of 2023 compared to $92.1 million, or 22.1% of net sales, for the same quarter last year. Adjusted SG&A expenses* were $114.4 million, or 23.8% of net sales, in the second quarter of 2023 compared to $88.7 million, or 21.3% of net sales, in the same quarter last year. The increase in adjusted SG&A expenses* as a percentage of net sales was due primarily to the addition of SuperATV, which has higher SG&A expenses as a percentage of net sales than the Company average, and the impact of higher interest rates on our customer accounts receivable factoring programs.

Net interest expense was $12.6 million for the second quarter of 2023 compared to $1.6 million for the same quarter last year. The increase of $11.0 million primarily reflects the addition of the term loan used to complete the acquisition of SuperATV in October 2022, and significantly higher interest rates compared to the prior year.

Income tax expense was $10.3 million, or 23.8% of income before income taxes, compared to $10.1 million, or 21.1% of income before income taxes, in the same quarter last year. The increase in the effective tax rate was due to an increase in state tax expense and the effect of foreign operations.

Net income for the second quarter of 2023 was $32.8 million, or $1.04 per diluted share, compared to $37.9 million, or $1.20 per diluted share, in the prior-year quarter. Adjusted net income* in the second quarter of 2023 was $31.9 million, or $1.01 per diluted share, compared to $40.6 million, or $1.29 per diluted share, in the prior-year quarter.

Kevin Olsen, Dorman’s President and Chief Executive Officer, stated, “We reported another solid quarter due to the continuous dedication and hard work of our Contributors. Overall, the quarter played out largely as expected. The forecasted sequential improvement in adjusted gross margin* materialized as we saw a 270 basis-point improvement over the first quarter of 2023, which drove adjusted diluted EPS* growth of more than 80% over the same period. We expect to see gross margins continue to improve throughout the second half of 2023, as a large portion of products sourced when inflationary pressures were much higher are now out of our inventory.

“We were pleased with net sales performance, recognizing that we were up against strong prior year comparables. During the first half of 2022, we believe we benefited from customers restocking their inventories as global supply chains rebounded from the impact of the global pandemic. As a result, our shipments outpaced customer point-of-sale over that time frame. Year-to-date, end-user demand for our products has remained strong as our customer point-of-sale growth was estimated to be in the low double digits, and we expect this demand profile to continue throughout the balance of 2023.

“SuperATV, our latest acquisition, continues to perform well. The business generated high-single-digit year-over-year sales growth and was accretive to both our overall operating margin and EPS in the quarter. We couldn’t be happier with the team, which continues to deliver on our integration and synergy plans.

“As global supply chains have improved, we have been able to reduce inventory $113 million from December 31, 2022. Lower inventory drove a robust $67 million of cash from operating activities in the quarter, which was used to repay $52 million of indebtedness, for a total repayment of $79 million for the first half of 2023. We expect strong cash flows to continue in the second half of 2023, driven by further inventory reductions, and to further pay down our debt.

“Regarding new product development, we launched hundreds of new products during the quarter, including a new Dorman® OE FIX™ engine heater hose assembly and torque converter lock-up solenoid, a first-to-the-aftermarket suspension sway bar bracket kit, and additional offerings for the Electric Vehicle (EV) market. We believe that our focus on innovation and new product development will enable us to continue to deliver the products desired by end users and help drive profitable growth for our customers.”

2023 GuidanceThe Company confirms its full-year 2023 guidance, detailed in the table below, which includes the impact of the SuperATV acquisition but excludes any potential impacts from future acquisitions, additional supply chain disruptions, significant interest rate increases, or share repurchases.

2023 Fiscal Year

Net Sales

$1.95B - $2.00B

Growth vs. 2022

12.5% - 15.4%

Diluted EPS

$4.35 - $4.55

Growth vs. 2022

13.0% - 18.2%

Adjusted Diluted EPS*

$5.15 - $5.35

Growth vs. 2022

8.2% - 12.4%

Tax Rate Estimate

24%

About Dorman ProductsDorman gives professionals, enthusiasts and owners greater freedom to fix motor vehicles. For over 100 years, we have been driving new solutions, releasing tens of thousands of aftermarket replacement products engineered to save time and money and increase convenience and reliability.

Founded and headquartered in the United States, we are a pioneering global organization offering an always-evolving catalog of products, covering cars, trucks and specialty vehicles, from chassis to body, from underhood to undercarriage, and from hardware to complex electronics.

*Non-GAAP MeasuresIn addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains Non-GAAP financial measures. The reasons why we believe these measures provide useful information to investors and a reconciliation of these measures to the most directly comparable GAAP measures and other information relating to these Non-GAAP measures are included in the supplemental schedules attached.

Forward-Looking StatementsThis press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to net sales, diluted and adjusted diluted earnings per share, gross profit, gross margin, adjusted gross margin, SG&A, adjusted SG&A, income tax expense, income before income taxes, net income, cash and cash equivalents, indebtedness, liquidity, the Company’s share repurchase program, the Company’s outlook and distribution facility costs and productivity initiatives. Words such as “believe,” “demonstrate,” “expect,” “estimate,” “forecast,” “anticipate,” “plan,” “should,” “will” and “likely” and similar expressions identify forward-looking statements. However, the absence of these words does not mean the statements are not forward-looking. In addition, statements that are not historical should also be considered forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date such statements were made. Such forward-looking statements are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors (many of which are outside of our control). Such risks, uncertainties and other factors relate to, among other things: competition in and the evolution of the motor vehicle aftermarket industry; changes in our relationships with, or the loss of, any customers or suppliers; our ability to develop, market and sell new and existing products; our ability to anticipate and meet customer demand; widespread public health pandemics, such as COVID-19; our ability to purchase necessary materials from our suppliers and the impacts of any related logistics constraints; financial and economic factors, such as our level of indebtedness, fluctuations in interest rates and inflation; political and regulatory matters, such as changes in trade policy, the imposition of tariffs and climate regulation; our ability to protect our intellectual property and defend against any claims of infringement; and our ability to protect our information security systems and defend against cyberattacks.. Please refer to “Statement Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” located in Part I of our in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”), as updated by our subsequent filings with the SEC, for a description of these and other risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements. The Company is under no obligation to, and expressly disclaims any such obligation to, update any of the information in this document, including but not limited to any situation where any forward-looking statement later turns out to be inaccurate whether as a result of new information, future events or otherwise.

Investor Relations ContactMichael P. DickersonVice President, Investor Relations and Risk [email protected] (517) 667-4003

Visit our website at www.dormanproducts.com. The Investor Relations section of the website contains a significant amount of information about Dorman, including financial and other information for investors. Dorman encourages investors to visit its website periodically to view new and updated information.

DORMAN PRODUCTS, INC.

Consolidated Statements of Operations

(in thousands, except per-share amounts)

Three Months Ended

Three Months Ended

(unaudited)

7/1/23

Pct.*

6/25/22

Pct. *

Net sales

$

480,568

100.0

$

417,419

100.0

Cost of goods sold

317,062

66.0

275,894

66.1

Gross profit

163,506

34.0

141,525

33.9

Selling, general and administrative expenses

108,308

22.5

92,058

22.1

Income from operations

55,198

11.5

49,467

11.9

Interest expense, net

12,565

2.6

1,565

0.4

Other income, net

(396

)

(0.1

)

(111

)

(0.0

)

Income before income taxes

43,029

9.0

48,013

11.5

Provision for income taxes

10,259

2.1

10,108

2.4

Net income

$

32,770

6.8

$

37,905

9.1

Diluted earnings per share

$

1.04

$

1.20

Weighted average diluted shares outstanding

31,528

31,535

Six Months Ended

Six Months Ended

(unaudited)

7/1/23

Pct.*

6/25/22

Pct. *

Net sales

$

947,306

100.0

$

818,998

100.0

Cost of goods sold

639,323

67.5

544,233

66.5

Gross profit

307,983

32.5

274,765

33.5

Selling, general and administrative expenses

234,671

24.8

178,586

21.8

Income from operations

73,312

7.7

96,179

11.7

Interest expense, net

24,518

2.6

2,796

0.3

Other income, net

(753

)

(0.1

)

(195

)

0.0

Income before income taxes

49,547

5.2

93,578

11.4

Provision for income taxes

11,094

1.2

20,466

2.5

Net income

$

38,453

4.1

$

73,112

8.9

Diluted earnings per share

$

1.22

$

2.32

Weighted average diluted shares outstanding

31,533

31,568

* Percentage of sales. Data may not add due to rounding.

DORMAN PRODUCTS, INC.

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

7/1/23

12/31/22

Assets

Current assets:

Cash and cash equivalents

$

35,666

$

46,034

Accounts receivable, less allowance for doubtful accounts of $1,384 and $1,363

452,603

427,385

Inventories

642,721

755,901

Prepaids and other current assets

57,790

39,800

Total current assets

1,188,780

1,269,120

Property, plant and equipment, net

156,544

148,477

Operating lease right-of-use assets

104,294

109,977

Goodwill

443,889

443,035

Intangible assets, net

312,554

322,409

Other assets

50,779

48,768

Total assets

$

2,256,840

$

2,341,786

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable

$

152,121

$

179,819

Accrued compensation

15,311

19,490

Accrued customer rebates and returns

189,409

192,116

Revolving credit facility

166,560

239,363

Current portion of long-term debt

12,500

12,500

Other accrued liabilities

34,470

35,007

Total current liabilities

570,371

678,295

Long-term debt

476,414

482,464

Long-term operating lease liabilities

92,620

98,221

Other long-term liabilities

16,497

28,349

Deferred tax liabilities, net

14,866

11,826

Commitments and contingencies

Shareholders’ equity:

Common stock, $0.01 par value; 50,000,000 shares authorized; 31,488,164 and 31,430,632 shares issued and outstanding in 2023 and 2022, respectively

315

314

Additional paid-in capital

94,452

88,750

Retained earnings

993,923

956,870

Accumulated other comprehensive loss

(2,618

)

(3,303

)

Total shareholders’ equity

1,086,072

1,042,631

Total liabilities and shareholders’ equity

$

2,256,840

$

2,341,786

Selected Cash Flow Information (unaudited):

Three Months Ended

Six Months Ended

(in thousands)

7/1/23

6/25/22

7/1/23

6/25/22

Cash provided by operating activities

$

66,676

$

14,172

$

92,886

$

37,386

Depreciation, amortization and accretion

$

13,429

$

9,857

$

26,969

$

19,600

Capital expenditures

$

12,732

$

8,853

$

23,269

$

16,100

DORMAN PRODUCTS, INC.Non-GAAP Financial Measures(in thousands, except per-share amounts)

Our financial results include certain financial measures not derived in accordance with generally accepted accounting principles (GAAP). Non-GAAP financial measures should not be used as a substitute for GAAP measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. Additionally, these non-GAAP measures may not be comparable to similarly titled measures reported by other companies. However, we have presented these non-GAAP financial measures because we believe this presentation, when reconciled to the corresponding GAAP measure, provides useful information to investors by offering additional ways of viewing our results, profitability trends, and underlying growth relative to prior and future periods and to our peers. Management uses these non-GAAP financial measures in making financial, operating, and planning decisions and in evaluating our performance. Non-GAAP financial measures may reflect adjustments for charges such as fair value adjustments, amortization, transaction costs, severance, accelerated depreciation, and other similar expenses related to acquisitions as well as other items that we believe are not related to our ongoing performance.

Adjusted Net Income:

Three Months Ended

Six Months Ended

(unaudited)

7/1/23

*

6/25/22

*

7/1/23

*

6/25/22

*

Net income (GAAP)

$

32,770

$

37,905

$

38,453

$

73,112

Pretax acquisition-related intangible assets amortization [1]

5,418

2,997

10,851

5,995

Pretax acquisition-related transaction and other costs [2]

5,866

535

14,415

4,686

Executive transition services expense [3]

22

—

1,801

—

Fair value adjustment to contingent consideration [4]

(12,400

)

—

(12,400

)

—

Tax adjustment (related to above items) [5]

201

(829

)

(3,677

)

(2,474

)

Adjusted net income (Non-GAAP)

$

31,877

$

40,608

$

49,443

$

81,319

Diluted earnings per share (GAAP)

$

1.04

$

1.20

$

1.22

$

2.32

Pretax acquisition-related intangible assets amortization [1]

0.17

0.10

0.34

0.19

Pretax acquisition-related transaction and other costs [2]

0.19

0.02

0.46

0.15

Executive transition services expense [3]

0.00

—

0.06

—

Fair value adjustment to contingent consideration [4]

(0.39

)

—

(0.39

)

—

Tax adjustment (related to above items) [5]

0.01

(0.03

)

(0.12

)

(0.08

)

Adjusted diluted earnings per share (Non-GAAP)

$

1.01

$

1.29

$

1.57

$

2.58

Weighted average diluted shares outstanding

31,528

31,535

31,533

31,568

* Amounts may not add due to rounding.See accompanying notes at the end of this supplemental schedule.

Adjusted Gross Profit:

Three Months Ended

Three Months Ended

(unaudited)

7/1/23

Pct.**

6/25/22

Pct.**

Gross profit (GAAP)

$

163,506

34.0

$

141,525

33.9

Pretax acquisition-related transaction and other costs [2]

4,971

1.0

206

0.0

Adjusted gross profit (Non-GAAP)

$

168,477

35.1

$

141,731

34.0

Net sales

$

480,568

$

417,419

Six Months Ended

Six Months Ended

(unaudited)

7/1/23

Pct.**

6/25/22

Pct.**

Gross profit (GAAP)

$

307,983

32.5

$

274,765

33.5

Pretax acquisition-related transaction and other costs [2]

11,800

1.2

4,062

0.5

Adjusted gross profit (Non-GAAP)

$

319,783

33.8

$

278,827

34.0

Net sales

$

947,306

$

818,998

Adjusted SG&A Expenses:

Three Months Ended

Three Months Ended

(unaudited)

7/1/23

Pct.**

6/25/22

Pct.**

SG&A expenses (GAAP)

$

108,308

22.5

$

92,058

22.1

Pretax acquisition-related intangible assets amortization [1]

(5,418

)

(1.1

)

(2,997

)

(0.7

)

Pretax acquisition-related transaction and other costs [2]

(896

)

(0.2

)

(329

)

(0.1

)

Executive transition services expense [3]

(22

)

(0.0

)

—

—

Fair value adjustment to contingent consideration [4]

12,400

2.6

—

—

Adjusted SG&A expenses (Non-GAAP)

$

114,372

23.8

$

88,732

21.3

Net sales

$

480,568

$

417,419

Six Months Ended

Six Months Ended

(unaudited)

7/1/23

Pct.**

6/25/22

Pct.**

SG&A expenses (GAAP)

$

234,671

24.8

$

178,586

21.8

Pretax acquisition-related intangible assets amortization [1]

(10,851

)

(1.1

)

(5,995

)

(0.7

)

Pretax acquisition-related transaction and other costs [2]

(2,615

)

(0.3

)

(624

)

(0.1

)

Executive transition services expense [3]

(1,801

)

(0.2

)

$

—

—

Fair value adjustment to contingent consideration [4]

12,400

1.3

—

—

Adjusted SG&A expenses (Non-GAAP)

$

231,804

24.5

$

171,967

21.0

Net sales

$

947,306

$

818,998

* *Percentage of sales. Data may not add due to rounding.

[1] – Pretax acquisition-related intangible asset amortization results from allocating the purchase price of acquisitions to the acquired tangible and intangible assets of the acquired business and recognizing the cost of the intangible asset over the period of benefit. Such costs were $5.4 million pretax (or $4.0 million after tax) during the three months ended July 1, 2023 and $10.9 million pretax (or $8.1 million after tax) during the six months ended July 1, 2023. Such costs were $3.0 million pretax (or $2.3 million after tax) during the three months ended June 25, 2022 and $6.0 million pretax (or $4.6 million after tax) during the six months ended June 25, 2022.

[2] – Pretax acquisition-related transaction and other costs include costs incurred to complete and integrate acquisitions, accretion on contingent consideration obligations, inventory fair value adjustments and facility consolidation and start-up expenses. During the three and six months ended July 1, 2023, we incurred charges included in cost of goods sold for integration costs, other facility consolidation expenses and inventory fair value adjustments of $5.0 million pretax (or $3.8 million after tax) and $11.8 million pretax (or $8.9 million after tax), respectively. During the three and six months ended July 1, 2023, we incurred charges included in selling, general and administrative expenses to complete and integrate acquisitions, accretion on contingent consideration obligations and facility consolidation and start-up expenses of $0.9 million pretax (or $0.7 million after tax) and $2.6 million pretax (or $2.0 million after tax), respectively.

During the three and six months ended June 25, 2022, we incurred charges included in cost of goods sold for integration costs, other facility consolidation expenses and inventory fair value adjustments of $0.2 million pretax (or $0.1 million after tax) and $ 4.1 (or $3.1 million after tax), respectively. During the three and six months ended June 25, 2022, we incurred charges included in selling, general and administrative expenses to complete and integrate acquisitions, and facility consolidation and start-up expenses of $0.3 million pretax (or $0.2 million after tax) and $0.6 million pretax (or $0.5 million after tax), respectively.

[3] – Executive transition service expenses represents an accrual for costs required to be paid under an agreement in connection with the planned transition of our Executive Chairman to Non-Executive Chairman, and other professional services rendered in connection with the execution of the agreement. The expense was $1.8 million pretax (or $1.4 million after tax) during the six months ended July 1, 2023.

[4] – Fair value adjustments to contingent consideration represents the change to our estimates of ultimate earnout payment amounts for a previously completed acquisition based on projections of financial performance compared to the target amounts defined in the purchase agreement and totaled $12.4 million pretax (or $9.4 million after tax) during the three and six months ended July 1, 2023.

[5] – Tax adjustments represent the aggregate tax effect of all non-GAAP adjustments reflected in the table above, and totaled $0.2 million and $(3.7) million during the three and six months ended July 1, 2023, respectively, and $(0.8) million and $(2.5) million during the three and six months ended June 25, 2022, respectively. Such items are estimated by applying our statutory tax rate to the pretax amount, or an actual tax amount for discrete items.

2023 Guidance:

The Company provided the following guidance ranges related to their fiscal 2023 outlook:

Year Ending 12/31/2023

(unaudited)

Low End*

High End*

Diluted earnings per share (GAAP)

$

4.35

$

4.55

Pretax acquisition-related intangible assets amortization

0.69

0.69

Pretax acquisition transaction and other costs

0.38

0.38

Tax adjustment (related to above items)

(0.27

)

(0.27

)

Adjusted diluted earnings per share (Non-GAAP)

$

5.15

$

5.35

Weighted average diluted shares outstanding

31,500

31,500

*Data may not add due to rounding.

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