Motorcar Parts of America Reports Results for Fiscal Third Quarter and Nine Months

About this update from Motorcar Parts Of America, Inc.

– Record Sales for Nine Months; Operating Income Up Sharply; Strong Cash Flow – LOS ANGELES --(BUSINESS WIRE)-- Motorcar Parts of America, Inc. ( Nasdaq: MPAA ) today reported results for its fiscal 2024 third quarter and nine-months ended December 31, 2023 -- reflecting a strong increase in net sales, operating income and cash flow from operating activities. Key highlights for the fiscal third quarter. Net sales increased 13.2 percent to $171.9 million . Gross margin improved by 3.7 percentage points. Gross profit increased 43.1 percent to $30.0 million . Operating income increased 170.1 percent to $9.5 million . The company generated cash of approximately $53.6 million . Net sales for the fiscal 2024 third quarter increased 13.2 percent to $171.9 million from $151.8 million in the prior year. Gross profit for the fiscal 2024 third quarter increased 43.1 percent to $30.0 million from $21.0 million a year earlier. Gross margin for the fiscal 2024 third quarter was 17.5 percent compared with 13.8 percent a year earlier. Gross margin for the fiscal 2024 third quarter was impacted by $4.4 million , or 2.6 percent, of non-cash items, and $1.6 million , or 0.9 percent, of cash items, as detailed in Exhibit 3. Operating income for the fiscal 2024 third quarter increased 170.1 percent to $9.5 million from $3.5 million in the prior year. Interest expense for the fiscal third quarter increased by $6.8 million , or $0.26 per share, to $18.3 million from $11.5 million a year ago -- primarily due to higher market interest rates and higher utilization of the accounts receivable discount programs offered by customers due to higher net sales. Due primarily to $40.4 million , or $2.06 per share, of non-cash items, including a $37.5 million U.S. federal and state deferred tax asset valuation allowance under U.S. GAAP, or $1.91 per share, net loss for the fiscal 2024 third quarter was $47.2 million , or $2.40 per share, compared with net income of $1.0 million , or $0.05 per diluted share, a year ago. The valuation allowance does not impact any operating metrics. The non-cash items discussed above, and cash items of $1.4 million , or $0.07 per share, are detailed in Exhibit 1. The company generated approximately $53.6 million of cash from operating activities during the quarter and approximately $48.4 million of cash from operating activities for the nine-month period. During the nine-month period, the company reduced net bank debt by $43.7 million to $102.8 million from $146.5 million . “Our year-to-date results reflect significant progress in achieving three major initiatives: increasing cash flow from profits and neutralizing working capital, and increasing sales and profitability, despite some unexpected softness throughout the industry in November and December. Our brake-related product categories continue to gain momentum, and we expect to realize ongoing improvements in operational efficiencies as volume further increases. Finally, we remain focused on executing our strategic plans and leveraging our leadership position,” said Selwyn Joffe , chairman, president, and chief executive officer. Nine-Month Results Net sales for the fiscal 2024 nine-month period increased 8.2 percent to a record $528.2 million from $488.3 million . Gross profit for the fiscal 2024 nine-month period increased 25.6 percent to $97.8 million from $77.8 million a year earlier. Gross margin for the fiscal 2024 nine-month period was 18.5 percent compared with 15.9 percent a year earlier. Gross margin for the fiscal 2024 nine-month period was impacted by $12.6 million , or 2.4 percent, of non-cash items, and $6.7 million , or 1.3 percent, of cash items, as detailed in Exhibit 4. Operating income for the fiscal 2024 nine-month period increased 166.7 percent to $33.9 million from $12.7 million in the prior year. Interest expense increased by $17.7 million , or $0.68 per share, for the nine months to $45.4 million from $27.7 million a year ago, primarily due to higher market interest rates and higher utilization of the accounts receivable discount programs due to higher net sales, as noted above. Due primarily to $49.5 million , or $2.53 per share, of non-cash items, including a $37.5 million U.S. federal and state deferred tax asset valuation allowance under U.S. GAAP, or $1.91 per share, noted above, net loss for the fiscal 2024 nine-month period was $50.6 million , or $2.58 per share, compared with a net loss of $5.7 million , or $0.29 per share, a year ago. The valuation allowance does not impact any operating metrics. The non-cash items discussed above, and cash items of $5.8 million , or $0.30 per share, are detailed in Exhibit 2. Further Considerations Sales volume continuing to gain momentum. Ordering activity expected to benefit from current extreme weather conditions. Industry fundamentals continue to drive product demand. Margin improvement. Enhanced by multiple rounds of price increases. Improving overhead absorption as brake-related business gains further momentum. Improving operational efficiencies through volume increases. 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 February 9, 2024 through 8:59 p.m. Pacific time on February 16, 2024 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 Nine Months Ended December 31 , December 31 , 2023 2022 2023 2022 Net sales $ 171,862,000 $ 151,819,000 $ 528,206,000 $ 488,347,000 Cost of goods sold 141,819,000 130,826,000 430,448,000 410,536,000 Gross profit 30,043,000 20,993,000 97,758,000 77,811,000 Operating expenses: General and administrative 15,198,000 13,599,000 42,125,000 42,079,000 Sales and marketing 5,931,000 5,634,000 17,038,000 17,242,000 Research and development 2,539,000 2,547,000 7,352,000 8,330,000 Foreign exchange impact of lease liabilities and forward contracts (3,149,000) (4,313,000) (2,659,000) (2,553,000) Total operating expenses 20,519,000 17,467,000 63,856,000 65,098,000 Operating income 9,524,000 3,526,000 33,902,000 12,713,000 Other expenses: Interest expense, net 18,297,000 11,471,000 45,400,000 27,675,000 Change in fair value of compound net derivative liability 1,160,000 - 1,690,000 - Loss on extinguishment of debt - - 168,000 - Total other expenses 19,457,000 11,471,000 47,258,000 27,675,000 Loss before income tax expense (benefit) (9,933,000) (7,945,000) (13,356,000) (14,962,000) Income tax expense (benefit) 37,281,000 (8,971,000) 37,226,000 (9,296,000) Net (loss) income $ (47,214,000) $ 1,026,000 $ (50,582,000) $ (5,666,000) Basic net (loss) income per share $ (2.40) $ 0.05 $ (2.58) $ (0.29) Diluted net (loss) income per share $ (2.40) $ 0.05 $ (2.58) $ (0.29) Weighted average number of shares outstanding: Basic 19,634,306 19,474,871 19,580,960 19,383,531 Diluted 19,634,306 19,634,153 19,580,960 19,383,531 MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2023 March 31, 2023 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 12,155,000 $ 11,596,000 Short-term investments 2,206,000 2,011,000 Accounts receivable — net 93,008,000 119,868,000 Inventory 393,777,000 356,254,000 Contract assets 25,236,000 25,443,000 Prepaid expenses and other current assets 17,978,000 22,306,000 Total current assets 544,360,000 537,478,000 Plant and equipment — net 39,644,000 46,052,000 Operating lease assets 85,187,000 87,619,000 Long-term deferred income taxes 2,447,000 32,625,000 Long-term contract assets 318,323,000 318,381,000 Goodwill and intangible assets — net 4,461,000 5,348,000 Other assets 1,511,000 1,062,000 TOTAL ASSETS $ 995,933,000 $ 1,028,565,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 178,881,000 $ 141,766,000 Customer finished goods returns accrual 37,883,000 37,984,000 Contract liabilities 43,848,000 40,340,000 Revolving loan 115,000,000 145,200,000 Other current liabilities 5,369,000 4,871,000 Operating lease liabilities 8,564,000 8,767,000 Current portion of term loan - 3,664,000 Total current liabilities 389,545,000 382,592,000 Term loan, less current portion - 9,279,000 Convertible notes, related party 33,226,000 30,994,000 Long-term contract liabilities 206,590,000 193,606,000 Long-term deferred income taxes 74,000 718,000 Long-term operating lease liabilities 73,725,000 79,318,000 Other liabilities 11,021,000 11,583,000 Total liabilities 714,181,000 708,090,000 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; 19,662,380 and 19,494,615 shares issued and outstanding at December 31, 2023 and March 31, 2023 , respectively 197,000 195,000 Additional paid-in capital 235,823,000 231,836,000 Retained earnings 38,165,000 88,747,000 Accumulated other comprehensive income (loss) 7,567,000 (303,000) Total shareholders' equity 281,752,000 320,475,000 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 995,933,000 $ 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 and nine months ended December 31, 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 December 31, 2023 and 2022 Exhibit 1 Three Months Ended December 31 , 2023 2022 $ Per Share $ Per Share GAAP net (loss) income $(47,214,000) $ (2.40) $ 1,026,000 $ 0.05 Non-cash items impacting net (loss) income Core and finished goods premium amortization $ 2,838,000 $ 0.14 $ 3,075,000 $ 0.16 Revaluation - cores on customers' shelves 1,607,000 0.08 863,000 0.04 Share-based compensation expenses 1,425,000 0.07 1,021,000 0.05 Foreign exchange impact of lease liabilities and forward contracts (3,149,000) (0.16) (4,313,000) (0.22) Change in fair value of compound net derivative liability 1,160,000 0.06 - - Tax effect (a) (970,000) (0.05) (162,000) (0.01) Tax valuation allowance 37,461,000 1.91 - - Total non-cash items impacting net (loss) income $ 40,372,000 $ 2.06 $ 484,000 $ 0.02 Cash items impacting net (loss) income Supply chain disruptions and related costs (b) $ 1,555,000 $ 0.08 $ 2,649,000 $ 0.13 New product line start-up costs and transition expenses, and severance (c) 296,000 0.02 1,103,000 0.06 Tax effect (a) (463,000) (0.02) (938,000) (0.05) Total cash items impacting net (loss) income $ 1,388,000 $ 0.07 $ 2,814,000 $ 0.14 (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 December 31, 2023 , consists of $1,555,000 impacting gross profit. For the three-months ended December 31, 2022 , consists of $2,370,000 impacting gross profit and $279,000 included in operating expenses. (c) For the three-months ended December 31, 2023 , consists of $296,000 included in operating expenses. For the three-months ended December 31, 2022 , consists of $1,103,000 included in operating expenses. Items Impacting Net Income for the Nine Months Ended December 31, 2023 and 2022 Exhibit 2 Nine Months Ended December 31 , 2023 2022 $ Per Share $ Per Share GAAP net loss $(50,582,000) $ (2.58) $ (5,666,000) $ (0.29) Non-cash items impacting net loss Core and finished goods premium amortization $ 8,202,000 $ 0.42 $ 9,183,000 $ 0.47 Revaluation - cores on customers' shelves 4,380,000 0.22 2,704,000 0.14 Share-based compensation expenses 4,268,000 0.22 3,521,000 0.18 Foreign exchange impact of lease liabilities and forward contracts (2,659,000) (0.14) (2,553,000) (0.13) Change in fair value of compound net derivative liability and loss on extinguishment of debt 1,858,000 0.09 - - Tax effect (a) (4,012,000) (0.20) (3,214,000) (0.17) Tax valuation allowance 37,461,000 1.91 - - Total non-cash items impacting net loss $ 49,498,000 $ 2.53 $ 9,641,000 $ 0.50 Cash items impacting net loss Supply chain disruptions and related costs (b) $ 6,738,000 $ 0.34 $ 9,963,000 $ 0.51 New product line start-up costs and transition expenses, and severance (c) 980,000 0.05 2,642,000 0.14 Tax effect (a) (1,930,000) (0.10) (3,151,000) (0.16) Total cash items impacting net loss $ 5,788,000 $ 0.30 $ 9,454,000 $ 0.49 (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 nine-months ended December 31, 2023 , consists of $6,738,000 impacting gross profit. For the nine-months ended December 31, 2022 , consists of $8,572,000 impacting gross profit and $1,391,000 included in operating expenses. (c) For the nine-months ended December 31, 2023 , consists of $980,000 included in operating expenses. For the nine-months ended December 31, 2022 , consists of $2,642,000 included in operating expenses. Items Impacting Gross Profit for the Three Months Ended December 31, 2023 and 2022 Exhibit 3 Three Months Ended December 31 , 2023 2022 $ Gross Margin $ Gross Margin GAAP gross profit $ 30,043,000 17.5% $ 20,993,000 13.8% Non-cash items impacting gross profit Core and finished goods premium amortization $ 2,838,000 1.7% $ 3,075,000 2.0% Revaluation - cores on customers' shelves 1,607,000 0.9% 863,000 0.6% Total non-cash items impacting gross profit $ 4,445,000 2.6% $ 3,938,000 2.6% Cash items impacting gross profit Supply chain disruptions and related costs $ 1,555,000 0.9% $ 2,370,000 1.6% Total cash items impacting gross profit $ 1,555,000 0.9% $ 2,370,000 1.6% Items Impacting Gross Profit for the Nine Months Ended December 31, 2023 and 2022 Exhibit 4 Nine Months Ended December 31 , 2023 2022 $ Gross Margin $ Gross Margin GAAP gross profit $ 97,758,000 18.5% $ 77,811,000 15.9% Non-cash items impacting gross profit Core and finished goods premium amortization $ 8,202,000 1.6% $ 9,183,000 1.9% Revaluation - cores on customers' shelves 4,380,000 0.8% 2,704,000 0.6% Total non-cash items impacting gross profit $ 12,582,000 2.4% $ 11,887,000 2.4% Cash items impacting gross profit Supply chain disruptions and related costs $ 6,738,000 1.3% $ 8,572,000 1.8% Total cash items impacting gross profit $ 6,738,000 1.3% $ 8,572,000 1.8% Items Impacting EBITDA for the Three and Nine Months Ended December 31, 2023 and 2022 Exhibit 5 Three Months Ended December 31 , Nine Months Ended December 31 , 2023 2022 2023 2022 GAAP net (loss) income $ (47,214,000) $ 1,026,000 $ (50,582,000) $ (5,666,000) Interest expense, net 18,297,000 11,471,000 45,400,000 27,675,000 Income tax expense (benefit) 37,281,000 (8,971,000) 37,226,000 (9,296,000) Depreciation and amortization 2,878,000 3,108,000 8,844,000 9,322,000 EBITDA $ 11,242,000 $ 6,634,000 $ 40,888,000 $ 22,035,000 Non-cash items impacting EBITDA Core and finished goods premium amortization $ 2,838,000 $ 3,075,000 $ 8,202,000 $ 9,183,000 Revaluation - cores on customers' shelves 1,607,000 863,000 4,380,000 2,704,000 Share-based compensation expenses 1,425,000 1,021,000 4,268,000 3,521,000 Foreign exchange impact of lease liabilities and forward contracts (3,149,000) (4,313,000) (2,659,000) (2,553,000) Change in fair value of compound net derivative liability and loss on extinguishment of debt 1,160,000 - 1,858,000 - Total non-cash items impacting EBITDA $ 3,881,000 $ 646,000 $ 16,049,000 $ 12,855,000 Cash items impacting EBITDA Supply chain disruptions and related costs $ 1,555,000 $ 2,649,000 $ 6,738,000 $ 9,963,000 New product line start-up costs and transition expenses, and severance 296,000 1,103,000 980,000 2,642,000 Total cash items impacting EBITDA $ 1,851,000 $ 3,752,000 $ 7,718,000 $ 12,605,000 View source version on businesswire.com : https://www.businesswire.com/news/home/20240209672412/en/ Gary S. Maier Vice President, Corporate Communications & IR (310) 972-5124 Source: Motorcar Parts of America, Inc.

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