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Motorcar Parts of America Reports Fiscal First Quarter Results

– Full-Year Outlook Remains On Track, With Strong Positive Cash Flow –

Motorcar Parts of America, Inc. (Nasdaq: MPAA) today reported results for its fiscal 2024 first quarter ended June 30, 2023, and reiterated the company’s full-year outlook.

Fiscal 2024 First Quarter Results

Net sales for the fiscal 2024 first quarter were $159.7 million compared with $164.0 million in the prior year – primarily reflecting timing of orders. The company noted that the fiscal second quarter is off to an excellent start based on record sales for a July month.

Net loss for the fiscal 2024 first quarter was $1.4 million, or $0.07 per share, compared with a net loss of $175,000, or $0.01 per share, a year ago – impacted by sharply higher interest rates not yet fully absorbed by price increases and product mix.

Interest expense increased by $4.8 million, or $0.18 per share, to $11.7 million from $6.9 million a year ago, mainly due to higher market rates. The company expects to realize annualized price increases throughout this fiscal year, which will contribute to net income enhancement.

Results for the quarter were impacted by changes in product mix and lingering inflationary costs not fully absorbed by price increases. In addition to the above, non-cash items impacted results by $461,000, or $0.02 per share and cash items impacted results by $1.7 million, or $0.09 per share, as detailed in Exhibit 1.

Gross profit for the fiscal 2024 first quarter was $26.6 million compared with $30.3 million a year earlier. Gross margin for the fiscal 2024 first quarter was 16.6 percent compared with 18.5 percent a year earlier. Gross margin for the fiscal 2024 first quarter was impacted by changes in product mix and inflationary costs not fully absorbed by price increases, as noted above. In addition to the above items, gross margin for the fiscal 2024 first quarter was impacted by $3.4 million, or 2.2 percent, of non-cash items, and $2.0 million, or 1.0 percent, of cash items, as detailed in Exhibit 2.

Gross margin improvement is expected to be enhanced as price increases are realized; by higher sales volume; and further anticipated operational efficiencies. The most recent price increases late in the fiscal first quarter will be realized throughout the fiscal 2024 second quarter. Following the completion of the company’s second quarter, on a run-rate basis, all price increases will be realized.

Notwithstanding the use of cash for the quarter of $20.5 million to support operating activities, the company expects a positive reversal in the fiscal second quarter and strong operating cash flow for the fiscal year. The company strategically elected to lower collection of receivables by approximately $20 million paid through its customer-offered supply chain vendor finance programs during the fiscal first quarter, which resulted in interest savings of approximately $1.3 million. This enabled the company to defer interest expenses until price increases for interest rates are recognized.

The company’s strong liquidity allowed it to execute this strategy and additionally, subsequent to quarter end, pay down the company’s $11.25 million term loan. Interest rates on the term loan were approximately two percent higher than rates offered by the company’s customers’ supply chain vendor finance programs.

“With strong demand for critical non-discretionary automotive parts, we are on track to achieve our year-over-year targets, notwithstanding softness for the quarter – primarily due to timing of orders. Our optimism is supported by favorable industry trends, extreme hot weather across the country and further operational efficiency improvements with increasing sales volume,” said Selwyn Joffe, chairman, president, and chief executive officer.

Considerations as Fiscal 2024 Evolves

  • Sales volume is continuing to gain momentum.
    • Ordering activity is strong.
    • Extreme heat and strong industry fundamentals will enhance product demand.
  • Margin improvement expected.
    • Price increases.
    • Better overhead absorption as the brake-related business grows.
      • Overall gross profit is expected to increase in the interim.
    • Operating efficiencies.
  • Enhanced cash flow from working capital initiatives.

Use of Non-GAAP Measure

This press release includes the following non-GAAP measure – EBITDA, which is not a measure of financial performance under GAAP and should not be considered as an alternative to net income as a measure of financial performance. The company believes this non-GAAP measure, when considered together with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to the company’s results of operations. However, this non-GAAP measure has significant limitations in that it does not reflect all the costs and other items associated with the operation of the company’s business as determined in accordance with GAAP. In addition, the company’s non-GAAP measures may be calculated differently and are therefore not comparable to similar measures by other companies. Therefore, investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, measures of financial performance in accordance with GAAP. For a definition and reconciliation of EBITDA to net income, its corresponding GAAP measure, see the financial tables included in this press release. Also, refer to our Form 8-K to which this release is attached, and other filings we make with the SEC, for further information regarding this measure.

Earnings Conference Call and Webcast

Selwyn Joffe, chairman, president and chief executive officer, and David Lee, chief financial officer, will host an investor conference call today at 10:00 a.m. Pacific time to discuss the company’s financial results and operations. The call will be open to all interested investors either through a live audio webcast at www.motorcarparts.com or live by calling (888) 440-5584 (domestic) or (646) 960-0457 (international). For those who are not available to listen to the live broadcast, the call will be archived on Motorcar Parts of America’s website www.motorcarparts.com. A telephone playback of the conference call will also be available from approximately 1:00 p.m. Pacific time on August 9, 2023 through 8:59 p.m. Pacific time on August 16, 2023 by calling (800) 770-2030 (domestic) or (647) 362-9199 (international) and using access code: 1545314.

About Motorcar Parts of America, Inc.

Motorcar Parts of America, Inc. is a remanufacturer, manufacturer, and distributor of automotive aftermarket parts -- including alternators, starters, wheel bearings and hub assemblies, brake calipers, brake pads, brake rotors, brake master cylinders, brake power boosters, turbochargers, and diagnostic testing equipment utilized in imported and domestic passenger vehicles, light trucks, and heavy-duty applications. Its products are sold to automotive retail outlets and the professional repair market throughout the United States, Canada, and Mexico, with facilities located in California, New York, Mexico, Malaysia, China and India, and administrative offices located in California, Tennessee, Mexico, Singapore, Malaysia, and Canada. In addition, the company’s electrical vehicle subsidiary designs and manufactures testing solutions for performance, endurance, and production of multiple components in the electric power train – providing simulation, emulation, and production applications for the electrification of both automotive and aerospace industries, including electric vehicle charging systems. Additional information is available at www.motorcarparts.com.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. The statements contained in this press release that are not historical facts are forward-looking statements based on the company’s current expectations and beliefs concerning future developments and their potential effects on the company. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the company) and are subject to change based upon various factors. Reference is also made to the Risk Factors set forth in the company’s Form 10-K Annual Report filed with the Securities and Exchange Commission (SEC) in June 2023 and in its Forms 10-Q filed with the SEC for additional risks and uncertainties facing the company. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

(Financial tables follow)

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

 

Three Months Ended
June 30,

2023

2022

 
Net sales

$

159,705,000

 

$

163,985,000

 

Cost of goods sold

 

133,138,000

 

 

133,683,000

 

Gross profit

 

26,567,000

 

 

30,302,000

 

Operating expenses:
General and administrative

 

12,602,000

 

 

13,634,000

 

Sales and marketing

 

5,419,000

 

 

5,542,000

 

Research and development

 

2,375,000

 

 

3,113,000

 

Foreign exchange impact of lease liabilities and forward contracts

 

(4,270,000

)

 

678,000

 

Total operating expenses

 

16,126,000

 

 

22,967,000

 

Operating income

 

10,441,000

 

 

7,335,000

 

Other expenses:
Interest expense, net

 

11,720,000

 

 

6,921,000

 

Change in fair value of compound net derivative liability

 

140,000

 

 

-

 

Total other expenses

 

11,860,000

 

 

6,921,000

 

(Loss) income before income tax (benefit) expense

 

(1,419,000

)

 

414,000

 

Income tax (benefit) expense

 

(9,000

)

 

589,000

 

 
Net loss

$

(1,410,000

)

$

(175,000

)

Basic net loss per share

$

(0.07

)

$

(0.01

)

Diluted net loss per share

$

(0.07

)

$

(0.01

)

 
Weighted average number of shares outstanding:
Basic

 

19,508,626

 

 

19,123,354

 

Diluted

 

19,508,626

 

 

19,123,354

 

 

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

June 30, 2023 March 31, 2023
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents

$

10,887,000

$

11,596,000

 

Short-term investments

 

2,159,000

 

2,011,000

 

Accounts receivable — net

 

146,645,000

 

119,868,000

 

Inventory

 

364,187,000

 

356,254,000

 

Contract assets

 

27,732,000

 

25,443,000

 

Prepaid expenses and other current assets

 

20,566,000

 

22,306,000

 

Total current assets

 

572,176,000

 

537,478,000

 

Plant and equipment — net

 

44,244,000

 

46,052,000

 

Operating lease assets

 

88,760,000

 

87,619,000

 

Long-term deferred income taxes

 

32,417,000

 

32,625,000

 

Long-term contract assets

 

314,463,000

 

318,381,000

 

Goodwill and intangible assets — net

 

5,046,000

 

5,348,000

 

Other assets

 

1,081,000

 

1,062,000

 

TOTAL ASSETS

$

1,058,187,000

$

1,028,565,000

 

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities

$

142,965,000

$

141,766,000

 

Customer finished goods returns accrual

 

33,378,000

 

37,984,000

 

Contract liabilities

 

49,003,000

 

40,340,000

 

Revolving loan

 

167,000,000

 

145,200,000

 

Other current liabilities

 

5,170,000

 

4,871,000

 

Operating lease liabilities

 

8,914,000

 

8,767,000

 

Current portion of term loan

 

12,020,000

 

3,664,000

 

Total current liabilities

 

418,450,000

 

382,592,000

 

Term loan, less current portion

 

-

 

9,279,000

 

Convertible notes, related party

 

31,252,000

 

30,994,000

 

Long-term contract liabilities

 

194,708,000

 

193,606,000

 

Long-term deferred income taxes

 

1,985,000

 

718,000

 

Long-term operating lease liabilities

 

77,013,000

 

79,318,000

 

Other liabilities

 

11,340,000

 

11,583,000

 

Total liabilities

 

734,748,000

 

708,090,000

 

Commitments and contingencies
Shareholders' equity:
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued

 

-

 

-

 

Series A junior participating preferred stock; par value $.01 per share,
20,000 shares authorized; none issued

 

-

 

-

 

Common stock; par value $.01 per share, 50,000,000 shares authorized;
19,599,145 and 19,494,615 shares issued and outstanding at June 30, 2023 and
March 31, 2023, respectively

 

196,000

 

195,000

 

Additional paid-in capital

 

232,866,000

 

231,836,000

 

Retained earnings

 

87,337,000

 

88,747,000

 

Accumulated other comprehensive income (loss)

 

3,040,000

 

(303,000

)

Total shareholders' equity

 

323,439,000

 

320,475,000

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

1,058,187,000

$

1,028,565,000

 

 

Additional Information and Non-GAAP Financial Measures

To supplement the consolidated financial statements presented in accordance with U.S. generally accepted accounting principles ("GAAP"), the company has included the following additional information and non-GAAP financial measures for the three months ended June 30, 2023 and 2022. Among other things, the company uses such additional information and non-GAAP adjusted financial measures in addition to and together with corresponding GAAP measures to help analyze the performance of its business.

The company believes this information helps provide a more complete understanding of the company's results of operations and the factors and trends affecting the company's business. However, this information should be considered as a supplement to, and not as a substitute for, or superior to, information contained in the company’s financial statements prepared in accordance with GAAP. In addition, the company’s non-GAAP measures may be calculated differently and are therefore not comparable to similar measures by other companies.

The company defines EBITDA as earnings before interest, taxes, depreciation, and amortization. A reconciliation of EBITDA to net income is provided below along with information regarding such items.

Items Impacting Net Income for the Three Months Ended June 30, 2023 and 2022

Exhibit 1

 

Three Months Ended June 30,

2023

2022

$

Per Share

$

Per Share

GAAP net loss

$

(1,410,000

)

$

(0.07

)

$

(175,000

)

$

(0.01

)

 
Non-cash items impacting net loss
Core and finished goods premium amortization

$

2,657,000

 

$

0.14

 

$

3,044,000

 

$

0.16

 

Revaluation - cores on customers' shelves

 

778,000

 

 

0.04

 

 

572,000

 

 

0.03

 

Share-based compensation expenses

 

1,310,000

 

 

0.07

 

 

1,249,000

 

 

0.07

 

Foreign exchange impact of lease liabilities and forward contracts

 

(4,270,000

)

 

(0.22

)

 

678,000

 

 

0.04

 

Change in fair value of compound net derivative liability

 

140,000

 

 

0.01

 

 

-

 

 

-

 

Tax effect (a)

 

(154,000

)

 

(0.01

)

 

(1,386,000

)

 

(0.07

)

Total non-cash items impacting net loss

$

461,000

 

$

0.02

 

$

4,157,000

 

$

0.22

 

 
Cash items impacting net loss
Supply chain disruptions and related costs (b)

$

1,984,000

 

$

0.10

 

$

3,094,000

 

$

0.16

 

New product line start-up costs and transition expenses, and severance (c)

 

335,000

 

 

0.02

 

 

618,000

 

 

0.03

 

Tax effect (a)

 

(580,000

)

 

(0.03

)

 

(928,000

)

 

(0.05

)

Total cash items impacting net loss

$

1,739,000

 

$

0.09

 

$

2,784,000

 

$

0.15

 

 

(a) Tax effect is calculated by applying an income tax rate of 25.0% to items listed above; this rate may differ from the period's actual income tax rate.

(b) For the three-months ended June 30, 2023, consists of 1,984,000 impacting gross profit.
For the three-months ended June 30, 2022, consists of $2,548,000 impacting gross profit and $546,000 included in operating expenses.
(c) For the three-months ended June 30, 2023, consists of $335,000 included in operating expenses.
For the three-months ended June 30, 2022, consists of $618,000 included in operating expenses.

Items Impacting Gross Profit for the Three Months Ended June 30, 2023 and 2022

Exhibit 2

 

Three Months Ended June 30,

2023

2022

$ Gross

Margin
$ Gross

Margin
GAAP gross profit

$

26,567,000

16.6

%

$

30,302,000

18.5

%

 
Non-cash items impacting gross profit
Core and finished goods premium amortization

$

2,657,000

1.7

%

$

3,044,000

1.9

%

Revaluation - cores on customers' shelves

 

778,000

0.5

%

 

572,000

0.3

%

Total non-cash items impacting gross profit

$

3,435,000

2.2

%

$

3,616,000

2.2

%

 
Cash items impacting gross profit
Supply chain disruptions and related costs

$

1,984,000

1.0

%

$

2,548,000

1.6

%

Total cash items impacting gross profit

$

1,984,000

1.0

%

$

2,548,000

1.6

%

Items Impacting EBITDA for the Three Months Ended June 30, 2023 and 2022

Exhibit 3

 

Three Months Ended June 30,

2023

2022

GAAP net loss

$

(1,410,000

)

$

(175,000

)

Interest expense, net

 

11,720,000

 

 

6,921,000

 

Income tax (benefit) expense

 

(9,000

)

 

589,000

 

Depreciation and amortization

 

3,033,000

 

 

3,124,000

 

EBITDA

$

13,334,000

 

$

10,459,000

 

 
Non-cash items impacting EBITDA
Core and finished goods premium amortization

$

2,657,000

 

$

3,044,000

 

Revaluation - cores on customers' shelves

 

778,000

 

 

572,000

 

Share-based compensation expenses

 

1,310,000

 

 

1,249,000

 

Foreign exchange impact of lease liabilities and forward contracts

 

(4,270,000

)

 

678,000

 

Change in fair value of compound net derivative liability

 

140,000

 

 

-

 

Total non-cash items impacting EBITDA

$

615,000

 

$

5,543,000

 

 
Cash items impacting EBITDA
Supply chain disruptions and related costs

$

1,984,000

 

$

3,094,000

 

New product line start-up costs and transition expenses, and severance

 

335,000

 

 

618,000

 

Total cash items impacting EBITDA

$

2,319,000

 

$

3,712,000

 

 

Contacts

Gary S. Maier

Vice President, Corporate Communications & IR

(310) 972-5124

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