Business Wire | Aug 10, 2020 08:00AM EDT

Motorcar Parts of America Reports Fiscal 2021 First Quarter

Aug. 10, 2020

LOS ANGELES--(BUSINESS WIRE)--Aug. 10, 2020--Motorcar Parts of America, Inc. (Nasdaq: MPAA) today reported results for its fiscal 2021 first quarter ended June 30, 2020 -- reflecting the impact of industry softness in April with subsequent month-over-month increases in sales for the quarter, and extending into July.

Net sales for the fiscal 2021 first quarter were $95.4 million compared with $109.1 million for the same period a year earlier.

Net loss for the fiscal 2021 first quarter was $3.0 million, or $0.16 per share, compared with a net loss of $6.2 million, or $0.33 per share, a year ago. Results for the fiscal 2021 first quarter were impacted by expenses of approximately $9.8 million consisting primarily of non-cash expenses totaling $3.7 million for revaluation of cores on customer's shelves, core buy-back premium amortization, and share-based compensation, transition expenses of $3.6 million related to the expansion of the company's footprint in Mexico, and COVID-related expenses of $2.3 million further explained below. These expenses were partially offset by $4.8 million of gains in connection with the re-measurement of the company's Mexico lease liabilities and forward foreign exchange contracts due to the strengthening of the Mexican Peso, resulting in a net negative impact of $5.0 million on a pre-tax basis, or $0.20 per share on a tax-effected basis, as detailed in Exhibit 1.

The net loss for the prior-year period was impacted by items totaling approximately $10.1 million on a pre-tax basis, or $0.41 per share on a tax-effected basis, as detailed in Exhibit 1. As previously announced, the company has decided to eliminate its reporting of certain non-GAAP financial measures. For information about items that impacted the results for the fiscal first quarter, see Exhibits 1 through 3.

"Notwithstanding the sharp drop in demand in April due to the global pandemic, the rebound of demand for our products for the balance of the quarter was better than expected -- reflecting sequential gains in monthly sales, with June exceeding the prior year," said Selwyn Joffe, chairman, president and chief executive officer of Motorcar Parts of America.

In addition to the extraordinary decline in April sales, he emphasized results for the fiscal first quarter were also impacted by increases for cost of goods sold and operating expenses related to safety and health initiatives associated with COVID-19 - including incremental costs for personal protection equipment (PPE), increased disinfecting procedures, extraordinary payroll expenses, special work bonuses and non-work payments to vulnerable personnel. These items impacted results for the quarter by approximately $2.3 million on a pre-tax basis, or $0.09 per share on a tax-effected basis. In addition, results for the first fiscal quarter were further impacted by higher costs of production due to lower production volumes.

Notwithstanding lower year-over year sales for the quarter, cash generated from operating activities was $22.4 million during the three months ended June 30, 2020.

Gross profit for the fiscal 2021 first quarter was $13.4 million compared with $17.6 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2021 first quarter was 14.0 percent compared with 16.1 percent a year earlier.

Adjusted gross profit for the fiscal 2021 first quarter was $17.5 million compared with $22.6 million a year ago. Adjusted gross profit as a percentage of net sales for the three months was 18.4 percent compared with 20.7 percent a year earlier, as detailed in Exhibit 2.

Gross profit and adjusted gross profit as a percentage of net sales for the fiscal 2021 first quarter were further negatively impacted by 3.5 percent, comprised of COVID-19-related expenses impacting cost of goods sold of $1.8 million or 1.9 percent as described above, and 1.6 percent due to non-cash core buyback premium amortization and return accruals related to new business as detailed in Exhibit 2. Additionally, gross profit and adjusted gross profit for the fiscal 2021 first quarter were impacted by higher costs of production due to lower production volumes.

Gross profit and adjusted gross profit as a percentage of net sales for the prior-year period were also impacted by several items as detailed in Exhibit 2, totaling 2.5 percent.

FISCAL 2021 OUTLOOK

After record sales and a strong end to fiscal 2020, April brought a sharp decrease in demand, as home sheltering took effect across the country. As previously reported, the company implemented a variety of safety and cost-savings initiatives commencing in March to proactively address the crisis without compromising its position when demand resumed.

"Despite strong sales activity in June and July, and favorable industry reports indicating that sales of hard parts are gaining momentum, the company believes it is still not prudent to provide annual sales and gross margin guidance for fiscal 2021.

"As I stated in our fiscal year-end release, our industry is resilient, and we are continuing to execute our strategic plans for growth and profitability. We are guardedly optimistic about the near- and long-term opportunities as an essential supplier in the $125 billion hard parts industry and look forward to a recovery from this global crisis," Joffe said.

Use of Non-GAAP Measures

This press release includes the following non-GAAP measures - adjusted gross profit, adjusted gross margin and EBITDA, which are not measures of financial performance under GAAP, and should not be considered as alternatives to gross profit, gross profit margin or net loss 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 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 reconciliation of adjusted gross profit, adjusted gross margin and EBITDA 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 measures.

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 (833)-968-1924 (domestic) or (825)-312-2355 (international). For those who are not available to listen to the live broadcast, the call will be archived on Motorcar Parts of America's website www.motorcarparts.com. A telephone playback of the conference call will also be available from approximately 1:00 p.m. Pacific time on August 10, 2020 through 8:59 p.m. Pacific time on August 17, 2020 by calling (800)-585-8367 (domestic) or (416)-621-4642 (international) and using access code: 4547117.

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, 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. 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 2020 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,

2020 2019

$ 95,356,000 $ Net sales 109,148,000

Cost of goods sold 81,969,000 91,565,000

Gross profit 13,387,000 17,583,000

Operating expenses:General and administrative 6,870,000 12,000,000

Sales and marketing 4,200,000 4,919,000

Research and development 1,942,000 2,372,000

Total operating expenses 13,012,000 19,291,000

Operating income (loss) 375,000 (1,708,000 )

Interest expense, net 4,409,000 6,173,000

Loss before income tax benefit (4,034,000 ) (7,881,000 )

Income tax benefit (1,022,000 ) (1,730,000 )

Net loss $ (3,012,000 ) $ (6,151,000 )

Basic net loss per share $ (0.16 ) $ (0.33 )

Diluted net loss per share $ (0.16 ) $ (0.33 )

Weighted average number of sharesoutstanding:Basic 18,976,178 18,822,178

Diluted 18,976,178 18,822,178

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets



June 30, 2020 March 31, 2020

ASSETS (Unaudited)Current assets: $ $ Cash and cash equivalents 27,464,000 49,616,000

Short-term investments 1,061,000 850,000

Accounts receivable - net 66,138,000 91,748,000

Inventory 241,253,000 234,680,000

Contract assets 30,024,000 20,332,000

Prepaid expenses and other current assets 14,658,000 11,890,000

Total current assets 380,598,000 409,116,000

Plant and equipment - net 46,311,000 44,957,000

Operating lease assets 68,729,000 53,029,000

Long-term deferred income taxes 18,578,000 18,950,000

Long-term contract assets 234,735,000 239,540,000

Goodwill and intangible assets - net 9,373,000 9,598,000

Other assets 1,676,000 1,839,000

$ $ TOTAL ASSETS 760,000,000 777,029,000

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities: $ $ Accounts payable and accrued liabilities 101,901,000 95,083,000

Customer finished goods returns accrual 27,595,000 25,326,000

Contract liabilities 34,718,000 27,911,000

Revolving loan 112,000,000 152,000,000

Other current liabilities 7,047,000 9,390,000

Operating lease liabilities 6,249,000 5,104,000

Current portion of term loan 3,678,000 3,678,000

Total current liabilities 293,188,000 318,492,000

Term loan, less current portion 19,543,000 20,462,000

Long-term contract liabilities 90,125,000 92,101,000

Long-term deferred income taxes 73,000 79,000

Long-term operating lease liabilities 74,426,000 61,425,000

Other liabilities 10,544,000 8,950,000

Total liabilities 487,899,000 501,509,000

Commitments and contingenciesShareholders' equity:Preferred stock; par value $.01 per share, - - 5,000,000 shares authorized; none issuedSeries 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;19,002,333 and 18,969,380 shares issued andoutstanding at June 30, 2020 andMarch 31, 2020, respectively 190,000 190,000

Additional paid-in capital 219,437,000 218,581,000

Retained earnings 61,105,000 64,117,000

Accumulated other comprehensive loss (8,631,000 ) (7,368,000 )

Total shareholders' equity 272,101,000 275,520,000

$ $ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 760,000,000 777,029,000

Additional Information and Non-GAAP Financial Measures

To supplement the consolidated financial statements presented in accordance with U.S. generally accepted accounting principles ("GAAP"), the company has included the following additional information and non-GAAP financial measures for the three months ended June 30, 2020 and 2019. 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. The Company is no longer disclosing an Adjusted EBITDA financial measure and is instead providing information about items that could affect EBITDA. A reconciliation of EBITDA to net loss is provided below along with information regarding such items.

Items Impacting Net Loss for the Three Months Ended June 30, 2020 and 2019 Exhibit 1

Three Months Ended June 30,

2020 2019

$ Per $ Per Share Share

$ ) $ ) $ ) $ )GAAP net loss (3,012,000 (0.16 (6,151,000 (0.33

Items impacting net loss 2,295,000 $ - - COVID-related expenses (a) 0.12

Customer allowances, return accruals and changeover costs 307,000 0.02 212,000 0.01 (b) related to new business, net of costs Core buy-back premium 1,223,000 0.06 1,108,000 0.06 amortization Impact of tariff costs before - - 1,067,000 0.06 being passed through to customers Loss in connection with a - - 426,000 0.02 cancelled contract New product line start-up 3,586,000 0.19 1,914,000 0.10 costs and transition expenses (c) Revaluation - cores on 1,384,000 0.07 4,564,000 0.24 customers' shelves Acquisition costs, earn-out (7,000 ) (0.00 ) 373,000 0.02 accruals and severance Share-based compensation 1,043,000 0.05 988,000 0.05 expenses Mark-to-market gains (4,817,000 ) (0.25 ) (537,000 ) (0.03 )

Tax effect (d) (1,254,000 ) (0.07 ) (2,529,000 ) (0.13 )

(a) Consists of $1,840,000 included in cost of goods sold and $455,000 included in operating expenses for the three months ended June 30, 2020. (b) Includes changeover costs related to new business of $112,000 recorded in operating expenses for the three months ended June 30, 2019. (c) Consists of $3,301,000 included in cost of goods sold and $285,000 included in operating expenses for the three months ended June 30, 2020 and $1,354,000 included in cost of goods sold and $560,000 included in operating expenses for the three months ended June 30, 2019. (d) 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. Historically, the company calculated the tax impact by applying an income tax rate of 25.0% to adjusted pre-tax income; if calculated on that basis, the tax effect would have been ($2,289,000) or ($0.12) per share for three months ended June 30, 2019.

Items Impacting Gross Profit for the Three Months Ended June 30, 2020 and 2019 Exhibit 2

Three Months Ended June 30,

2020 2019

$ Gross $ Gross Margin Margin

$ 14.0 % $ 16.1 %GAAP gross profit 13,387,000 17,583,000

Adjustments: New product line start-up costs 3,301,000 3.5 % 1,354,000 1.2 % and transition expenses Revaluation - cores on 1,384,000 1.5 % 4,564,000 4.2 % customers' shelves Income related to under return (550,000 ) -0.6 % (864,000 ) -0.8 % of coresTotal adjustments 4,135,000 4.3 % 5,054,000 4.6 %

$ 18.4 % $ 20.7 %Adjusted gross profit 17,522,000 22,637,000

Other items not adjusted COVID-related expenses 1,840,000 1.9 % - -

Customer allowances, return accruals and changeover costs 307,000 0.3 % 100,000 0.1 % related to new business, net of costs Core buy-back premium 1,223,000 1.3 % 1,108,000 1.0 % amortization Impact of tariff costs before - - 1,067,000 1.0 % being passed through to customers Loss in connection with a - - 426,000 0.4 % cancelled contract

Items Impacting EBITDA for the Three Months Ended June 30, 2020 and 2019 Exhibit 3

Three Months Ended June 30,

2020 2019

$ ) $ )GAAP net loss (3,012,000 (6,151,000

Interest expense, net 4,409,000 6,173,000

Income tax benefit (1,022,000 ) (1,730,000 )

Depreciation and amortization 2,551,000 2,379,000

$ $ 671,000 EBITDA 2,926,000

Items impacting EBITDA COVID-related expenses 2,295,000 -

Customer allowances, return accruals and 307,000 212,000 changeover costs related to new business, net of costs Core buy-back premium amortization 1,223,000 1,108,000

Impact of tariff costs before being passed through - 1,067,000 to customers Loss in connection with a cancelled contract - 426,000

New product line start-up costs and transition 3,496,000 1,850,000 expenses (a) Revaluation - cores on customers' shelves 1,384,000 4,564,000

Acquisition costs, earn-out accruals and severance (7,000 ) 373,000

Share-based compensation expenses 1,043,000 988,000

Mark-to-market gains (4,817,000 ) (537,000 )

(a) Excludes depreciation, which is included in the depreciation and amortization line item.

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CONTACT: Gary S. Maier (310) 972-5124