Motorcar Parts of America Reports Fiscal 2020 First Quarter Results

August 8, 2019 at 8:00 AM EDT

-- Record Sales for a First Quarter; Fiscal Year to Benefit From Growth in Existing and New Product Lines, with Improving Financial Metrics --

LOS ANGELES, Aug. 08, 2019 (GLOBE NEWSWIRE) -- Motorcar Parts of America, Inc. (Nasdaq: MPAA) today reported results for its fiscal 2020 first quarter ended June 30, 2019 -- reflecting record sales for a fiscal first quarter, and expectations for continued top-line growth and sequential margin and operating cash flow improvement as fiscal 2020 evolves.

Net sales for the fiscal 2020 first quarter increased 19.1 percent to $109.1 million from $91.7 million for the same period a year earlier, reflecting sales increases for both hard parts and diagnostic products.

Adjusted net sales for the fiscal 2020 first quarter increased 15.7 percent to $108.6 million from $93.8 million a year earlier.

“We achieved record sales in our hard parts categories for a first quarter, despite relative softness throughout the industry during this period.  The company’s sales growth for both existing and new product lines is expected to gain momentum throughout fiscal 2020, and should further accelerate later in the fiscal year.  Notwithstanding the short-term impact to profitability, related to new business costs and transition expenses associated with our expansion in Mexico and Malaysia, our investment to position the company as a leading supplier of multiple non-discretionary hard parts is transformational. This will become increasingly evident as the fiscal year evolves.

“Equally exciting, we expect our emerging diagnostic and testing equipment business, which includes applications for rotating electrical, electric vehicles and aerospace, to provide further growth opportunities, with favorable economics as the business gains traction. In summary, the outlook remains favorable, our customer relationships are strong and we expect solid value creation as a result of our strategic investments,” said Selwyn Joffe, chairman, president and chief executive officer.

The results for the quarter and gross margin were primarily impacted by four items totaling $8.5 million.

  • Non-cash expenses of $5.7 million, including a write-down of $4.6 million associated with the quarterly revaluation for cores on customers' shelves, and $1.1 million of amortization related to the premium for core buy backs.
  • Transition costs of $1.4 million associated with the move into the new Mexico facilities to support the growth in sales.
  • Net tariff costs of $1.1 million for products sold before cost increases were passed through to customers.
  • Cost accrual of $426,000 related to a pending resolution of a previously cancelled customer contract.

Net loss for the fiscal 2020 first quarter was $6.2 million, or $0.33 per share, reflecting the impact of the items listed above, compared with net loss of $5.5 million, or $0.29 per share, a year ago.

Adjusted net income for the fiscal 2020 first quarter was $1.7 million, or $0.09 per diluted share, compared with $3.0 million, or $0.16 per diluted share, a year earlier.

Gross profit for the fiscal 2020 first quarter was $17.6 million compared with $16.4 million a year earlier.  Gross profit as a percentage of net sales for the fiscal 2020 first quarter was 16.1 percent compared with 17.8 percent a year earlier.

Adjusted gross profit for the fiscal 2020 first quarter was $26.2 million compared with $22.9 million a year ago.  Adjusted gross profit as a percentage of adjusted net sales for the three months was 24.1 percent compared with 24.4 percent a year earlier.

Use of Non-GAAP Measures
This press release includes the following non-GAAP measures - adjusted net sales, adjusted net income (loss), adjusted EBITDA, adjusted gross profit and adjusted gross margin, which are not measures of financial performance under GAAP, and should not be considered as alternatives to net sales, net income (loss), EBITDA, income from operations, gross profit or gross profit margin as a measure of financial performance.  The Company believes these non-GAAP measures, when considered together with the corresponding GAAP measures, provide useful information to investors and management regarding financial and business trends relating to the company’s results of operations.  However, these non-GAAP measures have significant limitations in that they do not reflect all of the costs associated with the operations of the company’s business as determined in accordance with GAAP.  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 reconciliation of adjusted net sales, adjusted net income (loss), adjusted EBITDA, adjusted gross profit and adjusted gross margin to their corresponding GAAP measures, 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 these adjustments.

Teleconference and Web Cast
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 Web broadcast at www.motorcarparts.com or live by calling (877)-776-4016 (domestic) or (973)-638-3231 (international).  For those who are not available to listen to the live broadcast, the call will be archived for seven days 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 8, 2019 through 8:59 p.m. Pacific time on August 15, 2019 by calling (855)-859-2056 (domestic) or (404)-537-3406 (international) and using access code: 3797116.

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 bearing and hub assemblies, brake calipers, brake master cylinders, brake power boosters, rotors, brake pads and turbochargers utilized in imported and domestic passenger vehicles, light trucks and heavy-duty applications.  In addition, the company designs and manufactures test solutions for performance, endurance and production testing of electric motors, inverters, alternators, starters, and belt starter generators for the OE, aerospace and aftermarket. Motorcar Parts of America’s products are sold to automotive retail outlets and the professional repair market throughout the United States and Canada, with facilities located in New York, California, Mexico, Malaysia, China and India, and administrative offices located in California, Tennessee, Mexico, Singapore, Malaysia and Canada.  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 2019 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.

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

       
  Three Months Ended
  June 30,
    2019       2018  
      (As Adjusted)
Net sales $  109,148,000     $  91,668,000  
Cost of goods sold    91,565,000        75,316,000  
Gross profit    17,583,000        16,352,000  
Operating expenses:      
General and administrative    12,000,000        12,091,000  
Sales and marketing    4,919,000        4,392,000  
Research and development    2,372,000        1,736,000  
Total operating expenses    19,291,000        18,219,000  
Operating loss    (1,708,000 )      (1,867,000 )
Interest expense, net    6,173,000        5,075,000  
Loss before income tax benefit    (7,881,000 )      (6,942,000 )
Income tax benefit    (1,730,000 )      (1,447,000 )
       
Net loss $  (6,151,000 )   $  (5,495,000 )
       
Basic net loss per share $  (0.33 )   $  (0.29 )
       
Diluted net loss per share $  (0.33 )   $  (0.29 )
Weighted average number of shares outstanding:      
Basic   18,822,178       18,895,847  
Diluted   18,822,178       18,895,847  
               

Note: The Company had revised its financial statements for each of the three years in the period ended March 31, 2018 and for the three months ended June 30, 2018.  As of June 30, 2018, the cumulative error for all periods previously reported was an understatement of net income of $2,938,000.  For further information, please see the Company's September 30, 2018 Form 10-Q. 

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

  June 30, 2019   March 31, 2019
ASSETS (Unaudited)    
Current assets:      
Cash and cash equivalents $  11,207,000     $  9,911,000  
Short-term investments    2,074,000        3,273,000  
Accounts receivable — net    45,042,000        56,015,000  
Inventory— net    262,116,000        233,726,000  
Inventory unreturned    8,349,000        8,469,000  
Contract assets    20,913,000        22,183,000  
Income tax receivable    12,334,000        10,009,000  
Prepaid expenses and other current assets    9,030,000        9,296,000  
Total current assets    371,065,000        352,882,000  
Plant and equipment — net    38,398,000        35,151,000  
Operating lease assets    50,103,000        -  
Long-term deferred income taxes    9,592,000        9,746,000  
Long-term contract assets    212,638,000        221,876,000  
Goodwill    3,205,000        3,205,000  
Intangible assets — net    7,965,000        8,431,000  
Other assets    866,000        1,071,000  
TOTAL ASSETS $  693,832,000     $  632,362,000  
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $  87,973,000     $  92,461,000  
Accrued liabilities    14,762,000        14,604,000  
Customer finished goods returns accrual    21,488,000        22,615,000  
Contract liabilities    30,642,000        30,599,000  
Revolving loan    135,400,000        110,400,000  
Other current liabilities    4,077,000        4,990,000  
Operating lease liabilities    3,976,000        -   
Current portion of term loan    3,678,000        3,685,000  
Total current liabilities    301,996,000        279,354,000  
Term loan, less current portion    23,218,000        24,187,000  
Long-term contract liabilities    39,159,000        40,889,000  
Long-term deferred income taxes    275,000        257,000  
Long-term operating lease liabilities    48,155,000        -   
Other liabilities    6,200,000        7,920,000  
Total liabilities    419,003,000        352,607,000  
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;      
18,854,272 and 18,817,400 shares issued and outstanding at June 30, 2019 and      
March 31, 2019, respectively    189,000        188,000  
Additional paid-in capital    215,672,000        215,047,000  
Retained earnings    65,256,000        71,407,000  
Accumulated other comprehensive loss    (6,288,000 )      (6,887,000 )
Total shareholders' equity    274,829,000        279,755,000  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $  693,832,000     $  632,362,000  
               

Reconciliation of 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 non-GAAP adjusted financial measures in this press release and in the webcast to discuss the Company's financial results for the three months ended June 30, 2019 and 2018. Each of these non-GAAP adjusted financial measures is adjusted from results based on GAAP to exclude certain expenses and gains.  Among other things, the Company uses such non-GAAP adjusted financial measures in addition to and in conjunction with corresponding GAAP measures to help analyze the performance of its business. 

These non-GAAP adjusted financial measures reflect an additional way of viewing aspects of the Company's operations that, when viewed with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of the Company's results of operations and the factors and trends affecting the Company's business. However, these non-GAAP adjusted financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

Income statement information for the three months ended June 30, 2019 and 2018 are as follows:

     
Reconciliation of Non-GAAP Financial Measures    Exhibit 1
     
  Three Months Ended June 30,  
               
    2019       2018  
GAAP Results:       (As Adjusted)
Net sales $  109,148,000     $  91,668,000  
Net loss    (6,151,000 )      (5,495,000 )
Loss per share (EPS)    (0.33 )      (0.29 )
Gross margin   16.1 %     17.8 %
Non-GAAP Adjusted Results:        
Non-GAAP adjusted net sales $  108,561,000     $  93,810,000  
Non-GAAP adjusted net income    1,675,000        3,016,000  
Non-GAAP adjusted diluted earnings per share (EPS)    0.09        0.16  
Non-GAAP adjusted gross margin   24.1 %     24.4 %
Non-GAAP adjusted EBITDA $  10,722,000     $  10,237,000  
               

Note: The Company had revised its financial statements for each of the three years in the period ended March 31, 2018 and for the three months ended June 30, 2018.  As of June 30, 2018, the cumulative error for all periods previously reported was an understatement of net income of $2,938,000.  For further information, please see the Company's September 30, 2018 Form 10-Q.  As of June 30, 2018, the cumulative impact to non-GAAP adjusted net income for all periods previously reported was an understatement of $1,220,000.

     
Reconciliation of Non-GAAP Financial Measures Exhibit 2
     
    Three Months Ended June 30,
               
      2019       2018
          (As Adjusted)
GAAP net sales $  109,148,000     $  91,668,000
Adjustments:        
  Net sales        
  Return and stock adjustment accruals related to new business    159,000        - 
  Customer allowances related to new business    1,108,000        2,142,000
  Impact of sales price increases related to tariffs    (2,280,000 )      - 
  Cost in connection with a cancelled contract    426,000        - 
Adjusted net sales $  108,561,000     $  93,810,000
           


     
 Reconciliation of Non-GAAP Financial Measures  Exhibit 3 
     
    Three Months Ended June 30,
                 
      2019       2018  
            (As Adjusted)
    $   Per Diluted Share   $   Per Diluted Share
GAAP net (loss) income $  (6,151,000 )   $  (0.33 )   $  (5,495,000 )   $  (0.29 )
Adjustments:              
                 
  Net sales              
  Return and stock adjustment accruals related to new business    159,000     $  0.01        -      $  -   
  Customer allowances related to new business    1,108,000     $  0.06        2,142,000     $  0.11  
  Impact of sales price increases related to tariffs    (2,280,000 )   $  (0.12 )      -      $  -   
  Cost in connection with a cancelled contract    426,000     $  0.02        -      $  -   
  Cost of goods sold            
  New product line start-up and ramp-up costs, and transition expenses    1,354,000     $  0.07        1,755,000     $  0.09  
  Revaluation - cores on customers' shelves    4,564,000     $  0.24        2,626,000     $  0.14  
  Cost of stock adjustment accruals related to new business    (59,000 )   $  (0.00 )      -      $  -   
  Tariff costs paid for products sold before price increases were effective    3,347,000     $  0.18        -      $  -   
  Cost of goods sold for cores recorded in connection with a cancelled contract              
  Operating expenses            
  Acquisition, financing, transition, severance, earn-out accruals from acquisitions and other costs    1,045,000     $  0.06        531,000     $  0.03  
                 
                 
                 
  Share-based compensation expenses    988,000     $  0.05        941,000     $  0.05  
  Mark-to-market losses (gains)    (537,000 )   $  (0.03 )      2,666,000     $  0.14  
                 
                 
                 
  Interest              
  Write-off of debt issuance costs    -      $  -         303,000     $  0.02  
  Tax effected (a)    (2,289,000 )   $  (0.12 )      (2,453,000 )   $  (0.13 )
Adjusted net income $  1,675,000     $  0.09     $  3,016,000     $  0.16  
                 
 
(a) Adjusted net income is calculated by applying an income tax rate of 25.0% to adjusted pre-tax income for the three months ended June 30, 2019 and 2018;
this rate may differ from the period's actual income tax rate        


     
Reconciliation of Non-GAAP Financial Measures  Exhibit 4
     
    Three Months Ended June 30,
                 
      2019       2018  
            (As Adjusted)
    $   Gross Margin   $   Gross Margin
GAAP gross profit $  17,583,000     16.1 %   $  16,352,000   17.8 %
Adjustments:              
  Net sales              
  Return and stock adjustment accruals related to new business    159,000            -     
  Customer allowances related to new business    1,108,000            2,142,000    
  Impact of sales price increases related to tariffs    (2,280,000 )          -     
  Cost in connection with a cancelled contract    426,000            -     
  Cost of goods sold              
  New product line start-up and ramp-up costs, and transition expenses    1,354,000            1,755,000    
  Revaluation - cores on customers' shelves    4,564,000            2,626,000    
  Cost of stock adjustment accruals related to new business    (59,000 )          -     
  Tariff costs paid for products sold before price increases were effective    3,347,000            -     
  Cost of goods sold for cores recorded in connection with a cancelled contract    -             -     
Total adjustments    8,619,000     8.0 %      6,523,000   6.6 %
Adjusted gross profit $  26,202,000     24.1 %   $  22,875,000   24.4 %
                         


     
Reconciliation of Non-GAAP Financial Measures  Exhibit 5
     
    Three Months Ended June 30,
                 
      2019       2018  
        (As Adjusted)
GAAP net (loss) income $  (6,151,000 )   $  (5,495,000 )
         
Interest expense, net    6,173,000        5,075,000  
Income tax (benefit) expense    (1,730,000 )      (1,447,000 )
Depreciation and amortization    2,379,000        1,586,000  
EBITDA $  671,000     $  (281,000 )
         
Adjustments:      
  Net sales      
  Return and stock adjustment accruals related to new business    159,000        -   
  Customer allowances related to new business    1,108,000        2,142,000  
  Impact of sales price increases related to tariffs    (2,280,000 )      -   
  Cost in connection with a cancelled contract    426,000        -   
  Cost of goods sold      
  New product line start-up and ramp-up costs, and transition expenses (a)    1,322,000        1,694,000  
  Revaluation - cores on customers' shelves    4,564,000        2,626,000  
  Cost of stock adjustment accruals related to new business    (59,000 )      -   
  Tariff costs paid for products sold before price increases were effective    3,347,000        -   
  Cost of goods sold for cores recorded in connection with a cancelled contract    -         -   
  Operating expenses      
  Acquisition, financing, transition (a), severance, earn-out accruals from acquisitions and other costs    1,013,000        449,000  
           -   
           -   
           -   
  Share-based compensation expenses    988,000        941,000  
  Mark-to-market losses (gains)    (537,000 )      2,666,000  
Adjusted EBITDA $  10,722,000     $  10,237,000  
               
(a) Excludes depreciation              
               
CONTACT:
Gary S. Maier
(310) 471-1288

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Source: Motorcar Parts of America, Inc.