Motorcar Parts of America, Inc.
Nov 9, 2017
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Motorcar Parts of America Reports Fiscal 2018 Second Quarter Results

Customer-Support Services and Testing Equipment Products Expected to Further Distinguish Company

LOS ANGELES, Nov. 09, 2017 (GLOBE NEWSWIRE) -- Motorcar Parts of America, Inc. (Nasdaq:MPAA) today reported record sales for its fiscal 2018 second quarter and six-month period -- despite widely reported industry softness and associated customer ordering dynamics, both of which now appear to be reversing.

Net sales for the fiscal 2018 second quarter increased 2.7 percent to $111.8 million from $108.8 million for the same period a year earlier.

All results labeled as "adjusted" in this press release are non-GAAP measures as discussed more fully below under the heading "Use of Non-GAAP Measures."

Adjusted net sales for the fiscal 2018 second quarter increased 1.7 percent to $114.3 million from $112.4 million a year earlier.  The company's adjusted sales performance for the fiscal 2018 second quarter reflects continued strength of its rotating electrical business, as well as contributions from its other product lines.

Net income for the fiscal 2018 second quarter was $6.3 million, or $0.33 per diluted share, compared with $9.1 million, or $0.47 per diluted share, a year ago.

Adjusted net income for the fiscal 2018 second quarter was $9.7 million, or $0.50 per diluted share, compared with $12.4 million, or $0.64 per diluted share, in the same period a year earlier.

Gross profit for the fiscal 2018 second quarter was $27.2 million compared with $30.7 million a year earlier.  Gross profit as a percentage of net sales for the fiscal 2018 second quarter was 24.3 percent compared with 28.2 percent a year earlier - reflecting the impact of return accruals related to new business, higher returns as a percentage of sales and lower purchasing volume impacting overhead absorption.

Adjusted gross profit for the fiscal 2018 second quarter was $32.3 million compared with $34.5 million a year ago.  Adjusted gross profit as a percentage of adjusted net sales for the three months was 28.2 percent compared with 30.7 percent a year earlier.  The current quarter adjusted gross profit as a percentage of adjusted net sales was impacted by higher returns as a percentage of adjusted sales and lower purchasing volume impacting overhead absorption.   

Net sales for the fiscal 2018 six-month period increased 6.5 percent to $206.8 million from $194.2 million a year earlier.

Adjusted net sales for the fiscal 2018 six-month period increased 1.5 percent to $209.3 million from $206.2 million last year.

Net income for the fiscal 2018 six-month period was $13.9 million, or $0.72 per diluted share, compared with $16.7 million, or $0.86 per diluted share, in fiscal 2017.

Adjusted net income for the fiscal 2018 six-month period was $17.0 million, or $0.88 per diluted share, compared with $22.5 million, or $1.16 per diluted share, in fiscal 2017.

Gross profit for the fiscal 2018 six-month period was $53.0 million compared with $51.0 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2018 first half was 25.6 percent compared with 26.3 percent a year earlier - reflecting the impact of return accruals related to new business, higher returns as a percentage of sales and lower purchasing volume impacting overhead absorption.

Adjusted gross profit for the fiscal 2018 the six-month period was $59.4 million compared with $64.8 million a year ago. Adjusted gross profit as a percentage of adjusted net sales for the six months was 28.4 percent compared with 31.4 percent a year earlier.  The current six-month period adjusted gross profit as a percentage of adjusted net sales was impacted by higher returns as a percentage of adjusted sales and lower purchasing volume impacting overhead absorption.

"The first half of fiscal 2018 was a challenging period, even though we achieved market share gains.   As widely reported by industry observers, we are experiencing industry softness and related headwinds.  Nonetheless, we remain enthusiastic about our longer-term prospects within the $125 billion aftermarket hard parts industry -- supported by organic growth, product line expansion and complementary acquisition opportunities," said Selwyn Joffe, chairman, president and chief executive officer of Motorcar Parts of America.

Joffe added that sales for the fiscal year 2018 second quarter were adversely impacted by a general softness in the market, as indicated above, and by approximately five percent due to certain customer inventory reduction initiatives.

Joffe noted that adjusted gross margins were negatively affected by lower purchasing volume impacting overhead absorption and higher returns as a percentage of adjusted sales related to existing business.  "We expect gross margins will improve as sales volume increases," Joffe said.

"Our acquisition in July of D&V Electronics, which designs and manufactures leading edge tester systems utilized for a variety of applications, offers an exciting additional market for accelerating sales of diagnostic equipment related to our current products and growth of diagnostic equipment for the emerging electric vehicle market.  The sales opportunities for D&V testing products that directly relate to our existing product line are significant.  We expect to realize substantial growth over the next few years.  In addition, D&V has developed leading-edge testing capabilities for the key components of electric and hybrid vehicles.  We continue to see significant interest for our technology from original equipment manufacturers and Tier One suppliers.  In addition, this specialized business complements our commitment to innovation and customer support, all of which further distinguishes Motorcar Parts of America's position within the non-discretionary automotive parts market.  The outlook for the automotive aftermarket remains strong, and we remain encouraged by the numerous opportunities for growth as we harness our distribution relationships, leverage our scale, global footprint and financial strength to deliver growth and profits to shareholders," Joffe added.

"We are encouraged by our recent market share gains and anticipate further increasing our overall sales volume in the second half of our fiscal year.  As always, we thank our entire team for their day-in and day-out commitment to excellence as we continue to build shareholder value," Joffe said.

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 November 9, 2017 through 8:59 p.m. Pacific time on November 16, 2017 by calling (855)-859-2056 (domestic) or (404)-537-3406 (international) and using access code: 99544775.

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 master cylinders, brake power boosters and turbochargers utilized in imported and domestic passenger vehicles, light trucks and heavy-duty applications.  In addition, the company designs and manufactures test equipment for performance, endurance and production testing of alternators, starters, electric motors, inverters and belt starter generators for both the OE 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 California, Mexico, Malaysia and China, 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 2017 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 Income
(Unaudited)
         
  Three Months Ended Six Months Ended
  September 30, September 30,
  2017 2016 2017 2016
         
Net sales $  111,774,000 $  108,836,000 $  206,837,000 $  194,248,000
Cost of goods sold    84,612,000    78,178,000    153,836,000    143,199,000
 Gross profit    27,162,000    30,658,000    53,001,000    51,049,000
Operating expenses:        
General and administrative    8,615,000    9,869,000    14,802,000    13,494,000
Sales and marketing    3,457,000    2,707,000    6,851,000    5,341,000
Research and development    1,240,000    905,000    2,242,000    1,774,000
 Total operating expenses    13,312,000    13,481,000    23,895,000    20,609,000
Operating income    13,850,000    17,177,000    29,106,000    30,440,000
Interest expense, net    3,522,000    3,189,000    6,836,000    6,008,000
Income before income tax expense    10,328,000    13,988,000    22,270,000     24,432,000
Income tax expense    4,027,000    4,845,000    8,343,000    7,781,000
         
Net income $  6,301,000 $  9,143,000 $  13,927,000 $  16,651,000
         
Basic net income per share $  0.34 $  0.49 $  0.75 $  0.90
          
Diluted net income per share $  0.33 $  0.47 $  0.72 $  0.86
         
Weighted average number of shares outstanding:        
         
Basic  18,718,709  18,641,324  18,687,179  18,544,118
         
Diluted  19,356,809  19,429,390  19,371,144  19,384,668
          

 

      
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 
      
  September 30, 2017 March 31, 2017 
ASSETS (Unaudited)   
Current assets:     
 Cash and cash equivalents $  15,090,000  $  9,029,000  
 Short-term investments    2,568,000     2,140,000  
 Accounts receivable — net    12,393,000     26,017,000  
 Inventory — net    88,902,000     67,516,000  
 Inventory unreturned    7,704,000     7,581,000  
 Prepaid expenses and other current assets    17,178,000     9,848,000  
 Total current assets    143,835,000     122,131,000  
 Plant and equipment — net    19,868,000     18,437,000  
 Long-term core inventory — net    265,564,000     262,922,000  
 Long-term core inventory deposits    5,569,000     5,569,000  
 Long-term deferred income taxes    14,079,000     13,546,000  
 Goodwill    2,551,000     2,551,000  
 Intangible assets — net    4,191,000     3,993,000   
 Other assets    5,807,000     6,990,000  
 TOTAL ASSETS $  461,464,000  $  436,139,000  
LIABILITIES AND SHAREHOLDERS'  EQUITY    
 Current liabilities:     
 Accounts payable $  85,028,000  $  85,960,000  
 Accrued liabilities    9,061,000     10,077,000  
 Customer finished goods returns accrual    13,421,000     17,667,000  
 Accrued core payment    11,360,000     11,714,000  
 Revolving loan    36,000,000     11,000,000  
 Other current liabilities    3,565,000     3,300,000  
 Current portion of term loan     3,060,000     3,064,000  
 Total current liabilities    161,495,000     142,782,000  
 Term loan, less current portion    15,401,000     16,935,000  
 Long-term accrued core payment    6,808,000     12,349,000  
 Long-term deferred income taxes     205,000     180,000  
 Other liabilities    3,459,000     15,212,000  
 Total liabilities    187,368,000     187,458,000  
 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;     
 19,062,869 and 18,648,854 shares issued and outstanding at September 30, 2017 and      
 March 31, 2017, respectively    191,000     186,000  
 Additional paid-in capital    216,176,000     205,646,000  
 Retained earnings    64,217,000     50,290,000  
 Accumulated other comprehensive loss    (6,488,000)    (7,441,000) 
 Total shareholders' equity    274,096,000     248,681,000  
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $  461,464,000  $  436,139,000  
     

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 and six months ended September 30, 2017 and 2016. 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 and six months ended September 30, 2017 and 2016 are as follows:                                                                          

      
Reconciliation of Non-GAAP Financial Measures  Exhibit 1      
     
     
 Three Months Ended September 30, Six Months Ended September 30, 
 2017 2016 2017  2016 
GAAP Results:        
Net sales$  111,774,000  $  108,836,000  $  206,837,000  $  194,248,000  
Net income   6,301,000     9,143,000     13,927,000     16,651,000  
Diluted income per share (EPS)   0.33     0.47     0.72     0.86  
Gross margin 24.3%  28.2%  25.6%  26.3% 
Non-GAAP Adjusted Results:        
Non-GAAP adjusted net sales$  114,270,000  $  112,383,000  $  209,333,000  $  206,205,000  
Non-GAAP adjusted net income   9,683,000     12,426,000     17,031,000     22,516,000  
Non-GAAP adjusted diluted earnings per share (EPS)   0.50     0.64     0.88     1.16  
Non-GAAP adjusted gross margin 28.2%  30.7%   28.4%  31.4% 
Non-GAAP adjusted EBITDA$  20,509,000  $  24,470,000  $  36,908,000  $  44,689,000  
         

                                                                           

 

      
Reconciliation of Non-GAAP Financial Measures  Exhibit 2      
      
  Three Months Ended September 30, Six Months Ended September 30, 
  2017 2016 2017 2016 
GAAP net sales$  111,774,000 $ 108,836,000 $  206,837,000 $  194,248,000 
Adjustments:        
 Net sales        
 Initial return and stock adjustment accruals related to new business   2,496,000    1,315,000    2,496,000    3,168,000 
 Customer allowances related to new business   -     2,232,000      8,789,000 
Adjusted net sales$  114,270,000 $ 112,383,000 $  209,333,000 $  206,205,000 
          

                                                                         

   
Reconciliation of Non-GAAP Financial Measures Exhibit 3     
   
   Three Months Ended September 30,
   2017 2016
  $ Per Diluted
Share
 $ Per Diluted
Share
GAAP net income$  6,301,000  $  0.33  $  9,143,000  $  0.47 
Adjustments:        
   Net sales       
 Initial return and stock adjustment accruals related to new business   2,496,000  $  0.13     1,315,000  $  0.07 
 Customer allowances related to new business   -   $  -      2,232,000   $  0.11 
 Cost of goods sold       
 New product line start-up and ramp-up costs   -   $  -      16,000  $  0.00 
 Lower of cost or net realizable value revaluation - cores on customers' shelves and
inventory step-up amortization
   2,955,000  $  0.15     475,000  $  0.02 
 Cost of customer allowances and stock adjustment accruals related to new business   (362,000) $  (0.02)    (213,000) $  (0.01)
 Operating expenses       
 Legal, severance, acquisition, financing, transition and other costs    236,000  $  0.01     219,000  $  0.01 
 Share-based compensation expenses   910,000  $  0.05     1,008,000  $  0.05 
 Mark-to-market losses (gains)   (690,000) $  (0.04)    1,331,000  $  0.07 
 Tax effected at 39% tax rate (a)   (2,163,000) $  (0.11)    (3,100,000) $  (0.16)
Adjusted net income$  9,683,000  $  0.50  $  12,426,000  $  0.64 
         
(a) Adjusted net income is calculated by applying an income tax rate of 39%; this rate may differ from the period's actual income tax rate  
         

                                                       

    
Reconciliation of Non-GAAP Financial MeasuresExhibit 4      
    
   Six Months Ended September 30, 
  2017 2016 
  $ Per Diluted
Share
 $  Per Diluted
Share
 
GAAP net income$  13,927,000  $  0.72  $  16,651,000  $  0.86  
Adjustments:        
   Net sales        
 Initial return and stock adjustment accruals related to new business   2,496,000  $  0.13     3,168,000  $  0.16  
 Customer allowances related to new business   -   $  -      8,789,000  $  0.45  
 Cost of goods sold        
 New product line start-up and ramp-up costs   -   $  -      140,000  $  0.01  
 Lower of cost or net realizable value revaluation - cores on customers' shelves and
inventory step-up amortization
   4,305,000  $  0.22     2,193,000  $  0.11  
 Cost of customer allowances and stock adjustment accruals related to new business   (362,000) $  (0.02)    (568,000) $  (0.03) 
 Operating expenses        
 Legal, severance, acquisition, financing, transition and other costs   501,000  $  0.03     615,000  $  0.03  
 Share-based compensation expenses   1,744,000  $  0.09      1,737,000  $  0.09  
 Mark-to-market losses (gains)   (3,035,000) $  (0.16)    (3,595,000 ) $  (0.19) 
 Tax effected at 39% tax rate (a)   (2,545,000) $  (0.13)    (6,614,000) $  (0.34) 
Adjusted net income$  17,031,000  $  0.88  $  22,516,000  $  1.16  
          
(a) Adjusted net income is calculated by applying an income tax rate of 39%; this rate may differ from the period's actual income tax rate   
          

                                                                            

   
Reconciliation of Non-GAAP Financial MeasuresExhibit 5     
   
   Three Months Ended September 30,
  2017 2016
  $ Gross
Margin
 $ Gross
Margin
GAAP gross profit$  27,162,000  24.3% $   30,658,000  28.2%
Adjustments:       
 Net sales       
 Initial return and stock adjustment accruals related to new business   2,496,000       1,315,000   
 Customer allowances related to new business   -        2,232,000   
 Cost of goods sold       
 New product line start-up and ramp-up costs   -        16,000   
 Lower of cost or net realizable value revaluation - cores on customers' shelves and
inventory step-up amortization
   2,955,000       475,000   
 Cost of customer allowances and stock adjustment accruals related to new business   (362,000)      (213,000)  
Total adjustments   5,089,000  3.9%    3,825,000  2.5%
Adjusted gross profit$  32,251,000  28.2%  $  34,483,000  30.7%
         

                                                                            

    
Reconciliation of Non-GAAP Financial Measures Exhibit 6      
    
   Six Months Ended September 30, 
  2017 2016 
  $ Gross
Margin
 $ Gross
Margin
 
GAAP gross profit$  53,001,000  25.6% $  51,049,000  26.3% 
Adjustments:        
 Net sales        
 Initial return and stock adjustment accruals related to new business   2,496,000       3,168,000    
 Customer allowances related to new business   -        8,789,000    
 Cost of goods sold         
 New product line start-up and ramp-up costs   -        140,000    
 Lower of cost or net realizable value revaluation - cores on customers' shelves and
inventory step-up amortization
   4,305,000       2,193,000    
 Cost of customer allowances and stock adjustment accruals related to new business   (362,000)      (568,000)   
Total adjustments   6,439,000  2.8%    13,722,000  5.1% 
Adjusted gross profit$   59,440,000  28.4% $  64,771,000  31.4% 
          


      
Reconciliation of Non-GAAP Financial Measures  Exhibit 7      
      
  Three Months Ended September 30 , Six Months Ended September 30, 
  2017 2016 2017 2016 
GAAP net income$  6,301,000  $  9,143,000  $  13,927,000  $  16,651,000  
Interest expense, net   3,522,000     3,189,000     6,836,000     6,008,000  
Income tax expense   4,027,000     4,845,000     8,343,000     7,781,000  
Depreciation and amortization   1,114,000     910,000     2,153,000     1,770,000  
EBITDA$  14,964,000   $  18,087,000  $  31,259,000  $  32,210,000  
          
Adjustments:         
 Net sales        
 Initial return and stock adjustment accruals related to new business   2,496,000     1,315,000     2,496,000     3,168,000  
  Customer allowances related to new business   -      2,232,000     -      8,789,000  
 Cost of goods sold       -     
 New product line start-up and ramp-up costs    -      16,000     -      140,000  
 Lower of cost or net realizable value revaluation - cores on customers' shelves and
inventory step-up amortization
   2,955,000     475,000     4,305,000     2,193,000   
 Cost of customer allowances and stock adjustment accruals related to new business   (362,000)    (213,000)    (362,000)    (568,000) 
 Operating expenses       -     
 Legal, severance, acquisition, financing, transition and other costs   236,000     219,000     501,000     615,000  
 Share-based compensation expenses   910,000     1,008,000     1,744,000     1,737,000  
 Mark-to-market losses (gains)   (690,000)     1,331,000     (3,035,000)    (3,595,000) 
Adjusted EBITDA$  20,509,000  $  24,470,000  $  36,908,000  $  44,689,000  
          


CONTACT:

Gary S. Maier

(310) 471-1288

Source: Motorcar Parts of America, Inc.

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