Motorcar Parts of America Reports Fiscal 2019 Second Quarter Results


-- Record Sales for Quarter and Six Months --

LOS ANGELES, Jan. 08, 2019 (GLOBE NEWSWIRE) -- Motorcar Parts of America, Inc. (Nasdaq: MPAA) today announced results for its fiscal 2019 second quarter ended September 30, 2018 – reflecting record sales for both the quarter and six months on a reported and adjusted basis.

Net sales for the fiscal 2019 second quarter increased 16.0 percent to $127.9 million from $110.3 million for the same period a year earlier, predominantly as a result of increases in the company’s rotating electrical business.

Adjusted net sales for the fiscal 2019 second quarter increased 14.5 percent to $130.2 million from $113.7 million a year earlier.

“We are encouraged by our new business wins and revitalization of demand for our products at the consumer level -- both of which support our optimism and expectations for continued growth,” said Selwyn Joffe, chairman, president and chief executive officer.

In addition, Joffe indicated the company expects strong sales contributions in the next fiscal year from its existing and new product offerings.

Net income for the fiscal 2019 second quarter was $3.5 million, or $0.18 per diluted share – reflecting the impact of the items listed below compared with $5.6 million, or $0.29 per diluted share, a year ago.

Adjusted net income for the fiscal 2019 second quarter was $11.5 million, or $0.60 per diluted share, compared with $10.1 million, or $0.52 per diluted share, a year earlier.

The results for the quarter and gross margin were impacted by three items totaling $10.3 million.

  • Customer allowances related to new business of $2.2 million
    °  Up-front one-time costs of $1.2 million related to new business
    °  Core buyback premium amortization of $1.0 million related to new business (Core buyback premium amortization relates to the refundable premium paid or payable to customers for the core value in finished goods on their shelves in connection with new business. The company previously recorded the full amount of the core buyback premiums as a reduction to revenue at the inception of a new customer relationship. As described in “Prior Financial Information” paragraph below, this historical policy was concluded to be a misapplication of GAAP. The company has now revised the application of GAAP, resulting in the amortization of the full amount of the premium costs over a period, typically ranging from six to eight years).
  • The revaluation for cores on customers' shelves resulted in a non-cash write-down of $6.2 million, which does not affect the reimbursable amount for the full value of cores on the customers’ shelves should business with the customer be discontinued.
  • Transition costs of $1.8 million associated with the expansion of manufacturing and distribution capacity to support increased demand for the company’s existing product lines and its recently announced new brake product lines.

Gross profit for the fiscal 2019 second quarter was $25.7 million compared with $26.0 million a year earlier.  Gross profit as a percentage of net sales for the fiscal 2019 second quarter was 20.1 percent compared with 23.6 percent a year earlier.

Adjusted gross profit for the fiscal 2019 second quarter was $36.0 million compared with $32.0 million a year ago.  Adjusted gross profit as a percentage of adjusted net sales for the three months was 27.6 percent compared with 28.2 percent a year earlier, impacted by higher freight related costs compared with the prior year and stock adjustment accruals for future update orders.

Six-Month Results

Net sales for the fiscal 2019 six-month period increased 7.1 percent to $219.6 million from $205.0 million a year earlier.

Adjusted net sales for the fiscal 2019 six-month period increased 7.1 percent to $224.0 million from $209.2 million last year.

Net loss for the fiscal 2019 six-month period was $2.0 million, or $0.10 per share, compared with net income of $13.4 million, or $0.69 per diluted share, in fiscal 2018.

Adjusted net income for the fiscal 2019 six-month period was $14.6 million, or $0.75 per diluted share, compared with $18.6 million, or $0.96 per diluted share, in fiscal 2018.

Gross profit for the fiscal 2019 six-month period was $42.1 million compared with $51.9 million a year earlier.  Gross profit as a percentage of net sales for the fiscal 2019 first half was 19.2 percent compared with 25.3 percent a year earlier.

Adjusted gross profit for the fiscal 2019 six-month period was $58.9 million compared with $60.1 million a year ago.  Adjusted gross profit as a percentage of adjusted net sales for the six months was 26.3 percent compared with 28.7 percent a year earlier, impacted by higher freight related costs compared with the prior year, stock adjustment accruals for future update orders and lower absorption of overhead costs.

New Acquisition Pending

“In addition to the company’s recent acquisition of E&M Power, we expect to close another strategic tuck-in acquisition this week which enhances our existing product line offerings,” Joffe said.

Updated Fiscal 2019 Guidance

Motorcar Parts of America reaffirms its annual adjusted sales guidance of between 6.5% and 8.5% growth year over year, with expectations of reaching the higher end.  Adjusted gross margin for fiscal 2019 is now estimated to be at the lower end of our guidance of 27.0% to 30.0%.

Stock Repurchase Authorization

Under the authorized share repurchase program, as of September 30, 2018, $15.7 million of the $37.0 million common stock authorization has been purchased and $21.3 million is available to repurchase shares.  Motorcar Parts of America currently has 18.8 million shares outstanding.

Revenue Recognition

Effective April 1, 2018, the company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, ("ASC 606") using the full retrospective transition method. As a result, the prior year three and six months ended September 30, 2017 were revised to reflect the adoption of the new revenue recognition accounting standards.  The effects of the adoption were a decrease to previously reported revenues for the three and six months ended September 30, 2017 of $592,000 and $136,000, respectively. The revenue changes were accompanied by related changes to cost of goods sold - a decrease to previously reported cost of goods sold for the three and six months ended September 30, 2017 of $378,000 and $759,000, respectively.

Also, as a result of the adoption of ASC 606 and the resultant changes in company policy, the effect on the consolidated balance sheets was to create contract asset and contract liability accounts to document those balance sheet items being impacted by the new revenue recognition requirements.  Additional information will be available in the company’s Form 10-Q filing later today.

Prior Financial Information

The company has 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 filed later today.  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.

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 3:00 p.m. Pacific time on January 8, 2019 through 8:59 p.m. Pacific time on January 15, 2019 by calling (855)-859-2056 (domestic) or (404)-537-3406 (international) and using access code: 6147027.

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, 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 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 2018 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, 
 2018 2017 2018 2017
   (As Adjusted)   (As Adjusted)
Net sales$127,939,000 $110,261,000 $219,607,000  $204,956,000
Cost of goods sold 102,228,000  84,234,000  177,544,000   153,077,000
Gross profit 25,711,000  26,027,000  42,063,000   51,879,000
Operating expenses:       
General and administrative 8,997,000  8,615,000  21,088,000   14,503,000
Sales and marketing 4,537,000  3,457,000  8,929,000   6,851,000
Research and development 1,784,000  1,240,000  3,520,000   2,242,000
Total operating expenses 15,318,000  13,312,000  33,537,000   23,596,000
Operating income 10,393,000  12,715,000  8,526,000   28,283,000
Interest expense, net 5,699,000  3,522,000  10,774,000   6,836,000
Income (loss) before income tax expense (benefit) 4,694,000  9,193,000  (2,248,000)  21,447,000
Income tax expense (benefit) 1,181,000  3,598,000  (266,000)  8,032,000
Net income (loss)$3,513,000 $5,595,000 $(1,982,000) $13,415,000
Basic net income (loss) per share$0.19 $0.30 $(0.10) $0.72
Diluted net income (loss) per share$0.18 $0.29 $(0.10) $0.69
      
Weighted average number of shares outstanding:     
Basic 18,878,674  18,718,709  18,887,214   18,687,179
Diluted 19,319,465  19,356,809  18,887,214   19,371,144

Note: Prior year three and six months ended September 30, 2017 results reflect the adoption of the new revenue recognition accounting standards.  Effective April 1, 2018, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") using the full retrospective transition method.  Additionally, the Company has 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 filed later today.


MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
    
 September 30, 2018 March 31, 2018
ASSETS(Unaudited) (As Adjusted)
Current assets:   
Cash and cash equivalents$6,175,000  $13,049,000 
Short-term investments 3,230,000   2,828,000 
Accounts receivable — net 56,085,000   63,174,000 
Inventory— net 188,287,000   161,210,000 
Inventory unreturned 9,100,000   7,508,000 
Contract assets 24,272,000   23,206,000 
Income tax receivable 11,572,000   7,972,000 
Prepaid expenses and other current assets 10,200,000   8,608,000 
Total current assets 308,921,000   287,555,000 
Plant and equipment — net 30,512,000   28,322,000 
Long-term deferred income taxes 7,345,000   6,698,000 
Long-term contract assets 230,438,000   222,731,000 
Goodwill 2,551,000   2,551,000 
Intangible assets — net 3,380,000   3,766,000 
Other assets 866,000   804,000 
TOTAL ASSETS$584,013,000  $552,427,000 
LIABILITIES AND SHAREHOLDERS'  EQUITY   
Current liabilities:   
Accounts payable$  92,663,000  $  73,273,000 
Accrued liabilities   10,622,000     12,048,000 
Customer finished goods returns accrual   19,961,000     17,805,000 
Contract liabilities   31,488,000     32,603,000 
Revolving loan   52,906,000     54,000,000 
Other current liabilities 4,970,000   4,471,000 
Current portion of term loan 3,685,000   3,068,000 
Total current liabilities 216,295,000   197,268,000 
Term loan, less current portion 26,032,000   13,913,000 
Long-term contract liabilities 52,535,000   48,183,000 
Long-term deferred income taxes 211,000   226,000 
Other liabilities 6,776,000   5,957,000 
Total liabilities 301,849,000   265,547,000 
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; 18,799,477 and 18,893,102 shares issued and outstanding at September 30, 2018 and March 31, 2018, respectively 188,000   189,000 
Additional paid-in capital 211,593,000   213,609,000 
Retained earnings 77,274,000   78,510,000 
Accumulated other comprehensive loss (6,891,000)  (5,428,000)
Total shareholders' equity 282,164,000   286,880,000 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$584,013,000  $552,427,000 
    

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, 2018 and 2017. 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, 2018 and 2017 are as follows:

Reconciliation of Non-GAAP Financial Measures Exhibit 1
 
 
 Three Months Ended September 30, Six Months Ended September 30,
        
 2018 2017 2018 2017
GAAP Results:  (As Adjusted)   (As Adjusted)
Net sales$127,939,000  $110,261,000  $219,607,000  $204,956,000 
Net income (loss) 3,513,000   5,595,000   (1,982,000)  13,415,000 
Diluted income (loss) per share (EPS) 0.18   0.29   (0.10)  0.69 
Gross margin 20.1%  23.6%  19.2%  25.3%
Non-GAAP Adjusted Results:       
Non-GAAP adjusted net sales$130,152,000  $113,678,000  $223,962,000  $209,197,000 
Non-GAAP adjusted net income 11,540,000   10,100,000   14,557,000   18,602,000 
Non-GAAP adjusted diluted earnings per share (EPS) 0.60   0.52   0.75   0.96 
Non-GAAP adjusted gross margin 27.6%  28.2%  26.3%  28.7%
Non-GAAP adjusted EBITDA$22,534,000  $20,295,000  $32,771,000  $37,830,000 

Note: Prior year three and six months ended September 30, 2017 results reflect the adoption of the new revenue recognition accounting standards.  Effective April 1, 2018, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") using the full retrospective transition method.  Additionally, the Company has 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 filed later today.  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 September 30, Six Months Ended September 30,
        
 2018 2017 2018 2017
   (As Adjusted)   (As Adjusted)
GAAP net sales$127,939,000 $110,261,000 $219,607,000 $204,956,000
Adjustments:       
Net sales       
Initial return and stock adjustment accruals related to new business -  2,496,000  -  2,496,000
Customer allowances related to new business 2,213,000  921,000  4,355,000  1,745,000
Adjusted net sales$130,152,000 $113,678,000 $223,962,000 $209,197,000
        

 

Reconciliation of Non-GAAP Financial MeasuresExhibit 3
 
  
  Three Months Ended September 30, 
 2018 
 2017
     (As Adjusted)
  $   Per Diluted
Share
 
  $   Per Diluted
Share
 
GAAP net income$3,513,000  $0.18  $5,595,000  $0.29 
Adjustments:       
Net sales       
Initial return and stock adjustment accruals related to new business -  $-   2,496,000  $0.13 
Customer allowances related to new business 2,213,000  $0.11   921,000  $0.05 
Cost of goods sold       
New product line start-up and ramp-up costs, and transition expenses 1,833,000  $0.09   -  $- 
Revaluation - cores on customers' shelves and inventory step-up amortization 6,221,000  $0.32   2,955,000  $0.15 
Cost of customer allowances and stock adjustment accruals related to new business -  $-   (362,000) $(0.02)
Operating expenses       
Acquisition, financing, transition, severance, new business and other costs 1,144,000  $0.06   236,000  $0.01 
Share-based compensation expenses 1,180,000  $0.06   910,000  $0.05 
Mark-to-market losses (gains) (1,898,000) $(0.10)  (690,000) $(0.04)
Tax effected (a) (2,666,000) $(0.14)  (1,961,000) $(0.10)
Adjusted net income$11,540,000  $0.60  $10,100,000  $0.52 
        
(a) Adjusted net income is calculated by applying an income tax rate of 25.0% for the three months ended September 30, 2018 and 35.5% for the three months ended September 30, 2017; this rate may differ from the period's actual income tax rate


Reconciliation of Non-GAAP Financial MeasuresExhibit 4
 
  
  Six Months Ended September 30, 
  2018   2017 
     (As Adjusted)
  $  Per Diluted
Share
 
  $   Per
Diluted Share
 
GAAP net (loss) income$(1,982,000) $(0.10) $13,415,000  $0.69 
Adjustments:       
Net sales       
Initial return and stock adjustment accruals related to new business -  $-   2,496,000  $0.13 
Customer allowances related to new business 4,355,000  $0.23   1,745,000  $0.09 
Cost of goods sold       
New product line start-up and ramp-up costs, and transition expenses 3,588,000  $0.19   -  $- 
Revaluation - cores on customers' shelves and inventory step-up amortization 8,847,000  $0.46   4,305,000  $0.22 
Cost of customer allowances and stock adjustment accruals related to new business -  $-   (362,000) $(0.02)
Operating expenses       
Acquisition, financing, transition, severance, new business and other costs 1,675,000  $0.09   501,000  $0.03 
Share-based compensation expenses 2,121,000  $0.11   1,744,000  $0.09 
Mark-to-market losses (gains) 768,000  $0.04   (3,035,000) $(0.16)
Interest       
Write-off of debt issuance costs 303,000  $0.02   -  $- 
Tax effected (a) (5,118,000) $(0.27)  (2,207,000) $(0.11)
Adjusted net income$14,557,000  $0.75  $18,602,000  $0.96 
        
(a) Adjusted net income is calculated by applying an income tax rate of 25.0% for the six months ended September 30, 2018 and 35.5% for the six months ended September 30, 2017; this rate may differ from the period's actual income tax rate


Reconciliation of Non-GAAP Financial MeasuresExhibit 5
 
  
  Three Months Ended September 30, 
  2018   2017 
     (As Adjusted)
  $   Gross
Margin
  $   Gross
Margin
GAAP gross profit$25,711,000 20.1% $26,027,000  23.6%
Adjustments:       
Net sales       
Initial return and stock adjustment accruals related to new business -    2,496,000   
Customer allowances related to new business 2,213,000    921,000   
Cost of goods sold       
New product line start-up and ramp-up costs, and transition expenses 1,833,000    -   
Revaluation - cores on customers' shelves and inventory step-up amortization 6,221,000    2,955,000   
Cost of customer allowances and stock adjustment accruals related to new business -    (362,000)  
Total adjustments 10,267,000 7.5%  6,010,000  4.6%
Adjusted gross profit$35,978,000 27.6% $32,037,000  28.2%
        


                                                                            

Reconciliation of Non-GAAP Financial MeasuresExhibit 6
 
  
  Six Months Ended September 30, 
  2018   2017 
     (As Adjusted)
  $ Gross
Margin
 
  $ Gross
Margin
 
GAAP gross profit$42,063,000 19.2% $51,879,000  25.3%
Adjustments:       
Net sales       
Initial return and stock adjustment accruals related to new business -    2,496,000   
Customer allowances related to new business 4,355,000    1,745,000   
Cost of goods sold       
New product line start-up and ramp-up costs, and transition expenses 3,588,000    -   
Revaluation - cores on customers' shelves and inventory step-up amortization 8,847,000    4,305,000   
Cost of customer allowances and stock adjustment accruals related to new business -    (362,000)  
Total adjustments 16,790,000 7.1%  8,184,000  3.4%
Adjusted gross profit$58,853,000 26.3% $60,063,000  28.7%
        

                        

Reconciliation of Non-GAAP Financial Measures Exhibit 7
 
    
 Three Months Ended September 30, Six Months Ended September 30,
        
 2018 2017 2018 2017
   (As Adjusted)   (As Adjusted)
GAAP net income (loss)$3,513,000  $5,595,000  $(1,982,000) $13,415,000 
Interest expense, net 5,699,000   3,522,000   10,774,000   6,836,000 
Income tax expense (benefit) 1,181,000   3,598,000   (266,000)  8,032,000 
Depreciation and amortization 1,632,000   1,114,000   3,218,000   2,153,000 
EBITDA$12,025,000  $13,829,000  $11,744,000  $30,436,000 
        
Adjustments:       
Net sales       
Initial return and stock adjustment accruals related to new business -   2,496,000   -   2,496,000 
Customer allowances related to new business 2,213,000   921,000   4,355,000   1,745,000 
Cost of goods sold       
New product line start-up and ramp-up costs, and transition expenses (a) 1,736,000   -   3,430,000   - 
Revaluation - cores on customers' shelves and inventory step-up amortization 6,221,000   2,955,000   8,847,000   4,305,000 
Cost of customer allowances and stock adjustment accruals related to new business -   (362,000)  -   (362,000)
Operating expenses       
Acquisition, financing, transition (a), severance, new business and other costs 1,057,000   236,000   1,506,000   501,000 
Share-based compensation expenses 1,180,000   910,000   2,121,000   1,744,000 
Mark-to-market losses (gains) (1,898,000)  (690,000)  768,000   (3,035,000)
Adjusted EBITDA$22,534,000  $20,295,000  $32,771,000  $37,830,000 
        
(a) Of the total new product line start-up and ramp-up costs, and transition expenses of $1,833,000 and $3,588,000 for the three and six months ended September 30, 2018, and transition expenses included in other operating expense adjustments of $1,144,000 and $1,675,000 for the three and six months ended September 30, 2018, $184,000 and $327,000 represents depreciation and amortization expense


            

Contact Data