Motorcar Parts of America Reports Fiscal First Quarter Results

Rhea-AI Summary

Motorcar Parts of America (Nasdaq: MPAA) reported results for its fiscal 2025 first quarter ended June 30, 2024. Net sales increased 6.4% to a record $169.9 million for a first quarter. Gross profit rose 9.8% to $29.2 million, with gross margin improving to 17.2%. However, the company faced challenges, including an $11.1 million non-cash foreign exchange loss and increased interest expenses. Despite these hurdles, MPAA implemented cost-reduction initiatives expected to yield $7 million in annual savings. The company maintains a positive full-year outlook, anticipating improvements in gross margins, profit, and cash flow in upcoming quarters.

Positive

• Record first quarter net sales of $169.9 million, up 6.4% year-over-year
• Gross profit increased 9.8% to $29.2 million
• Gross margin improved to 17.2% from 16.6% in the previous year
• Implemented cost-reduction initiatives expected to provide $7 million in annual savings
• Positive outlook for improving gross margins, profit, and cash flow in upcoming quarters

Negative

• $11.1 million non-cash foreign exchange loss from lease liabilities and forward contracts
• Net loss of $18.1 million compared to $1.4 million loss in the previous year
• Interest expense increased by $2.7 million to $14.4 million
• $2.9 million in severance expenses due to workforce reduction
• Operating expenses increased to $35.6 million from $16.1 million in the previous year

Insights

Financial Analyst

Motorcar Parts of America's Q1 FY2025 results present a mixed picture. While the company achieved record first-quarter sales of $169.9 million, a 6.4% increase year-over-year and improved gross profit by 9.8% to $29.2 million, the bottom line was significantly impacted by non-cash items and increased expenses.

The net loss of $18.1 million is concerning, primarily due to a $15.3 million non-cash foreign exchange loss and increased interest expenses. However, the company's cost-reduction initiatives, expected to save $7 million annually and focus on operational efficiencies are positive steps. The improving industry fundamentals and momentum in ordering activity suggest potential for future growth, but the company needs to address its interest expense challenges and foreign exchange exposure to improve profitability.

Market Research Analyst

The aftermarket auto parts sector, where Motorcar Parts of America operates, is showing signs of strength. The company's record Q1 sales and management's optimistic full-year outlook indicate a favorable market environment. The non-discretionary nature of their products provides some resilience against economic fluctuations.

However, investors should note the company's exposure to foreign exchange risks and rising interest rates, which significantly impacted this quarter's results. The company's strategic initiatives, including resource realignment and pricing strategies, aim to enhance profitability. The focus on Environmental, Social and Governance (ESG) improvements, including board refreshment, aligns with growing investor preferences. The company's adaptability to market trends, including its approach to electric vehicle offerings, will be important for long-term success in the evolving automotive landscape.

Operations Management Expert

Motorcar Parts of America's operational strategy shows promise, but execution remains critical. The completion of their multi-year strategic relocation process and workforce reduction at the Torrance facility demonstrate a commitment to operational efficiency. The expected $7 million in annual cost savings from these initiatives could significantly impact the bottom line if realized.

The company's focus on improving gross margins through price increases and enhanced overhead absorption as brake-related business gains momentum is a sound strategy. However, the increased interest expenses related to accounts receivable discount programs need addressing. The management's emphasis on rational pricing and critical evaluation of electric vehicle offerings shows adaptability to market conditions. Moving forward, the company's ability to balance cost-cutting measures with maintaining product quality and market position will be important for long-term success.

- Record Sales for a First Quarter; Full-Year Outlook Remains on Track

LOS ANGELES--(BUSINESS WIRE)-- Motorcar Parts of America, Inc. (Nasdaq: MPAA) today reported results for its fiscal 2025 first quarter ended June 30, 2024, with a continued favorable full-year outlook supported by a strong competitive industry position and ongoing strategic initiatives to enhance profitability.

Key highlights for the fiscal first quarter.

• Net sales increased 6.4 percent to $169.9 million.
• Gross profit increased 9.8 percent to $29.2 million.
• Gross margin increased modestly to 17.2 percent.
• Operating results impacted by an unfavorable non-cash $11.1 million foreign exchange loss from lease liabilities and forward contracts.
• Implemented cost-reduction initiatives to provide annualized savings of approximately $7 million.

Fiscal 2025 First Quarter Results

Net sales for the fiscal 2025 first quarter increased 6.4 percent to a first quarter record $169.9 million from $159.7 million in the prior year.

Gross profit for the fiscal 2025 first quarter increased 9.8 percent to $29.2 million from $26.6 million a year earlier. Gross margin for the fiscal 2025 first quarter increased to 17.2 percent from 16.6 percent a year earlier. Gross margin for the fiscal 2025 first quarter was impacted by $3.1 million, or 1.8 percent, of non-cash items, as detailed in Exhibit 2.

Due primarily to a $15.3 million increased non-cash mark-to-market foreign exchange loss compared with the prior year and a $1.9 million increased expense resulting from currency exchange rates compared with a year ago, as well as $2.9 million severance expenses, operating expenses were $35.6 million compared with $16.1 million last year. Excluding these items above, operating expenses decreased by $644,000 to $20.7 million compared with $21.3 million a year earlier.

Interest expense for the fiscal first quarter increased by $2.7 million to $14.4 million from $11.7 million a year ago, primarily due to increased collection of receivables utilizing accounts receivable discount programs on higher sales, partially offset by lower average outstanding balances under the company’s credit facility. The company is actively working to address this increased expense.

As a result of the items discussed above, net loss for the fiscal 2025 first quarter was $18.1 million compared with a net loss of $1.4 million a year ago. See Exhibit 1 for further details.

Results were impacted by $2.9 million for severance expenses. The company recently completed a multi-year strategic relocation process -- including a cost-reduction initiative of its workforce at the company’s Torrance, California facility. The closure of certain redundant functions will enable the company to realize further operating efficiencies utilizing the company’s global footprint, a process that was delayed due to the onset of the Covid-19 pandemic, with expected annualized cost savings of approximately $7 million, which includes salary, infrastructure and other related operating expenses.

“As we begin a new fiscal year, we remain optimistic about our year-over-year outlook and the company’s ability to further leverage its leadership position within the non-discretionary aftermarket parts market. We anticipate meaningful improvements to gross margins, gross profit and cash flow in the quarters ahead, supported by ongoing strategic actions throughout the entire organization, such as the realignment of resources, as previously noted. While there are a variety of factors related to financial performance beyond our control, such as non-cash items and interest rates, we are determined to enhance shareholder value through improved operational efficiencies, a critical evaluation of our electric vehicle offerings, and rational pricing,” said Selwyn Joffe, chairman, president, and chief executive officer.

Joffe noted the company’s continued focus on Environmental, Social and Governance improvement, highlighting a recent board refreshment commitment, and the subsequent nomination of two new directors standing for election at the company’s 2024 annual meeting scheduled for September 5, 2024.

Further Considerations

• Sales volume improving:
  • Ordering activity has gained momentum.
  • Industry fundamentals are improving and will 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.
• Positive cash flow outlook.

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 August 8, 2024 through 8:59 p.m. Pacific time on August 15, 2024 by calling (800) 770-2030 (domestic) or (609) 800-9909 (toll) 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 2024 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
		June 30,
		2024				2023
Net sales		$	169,887,000			$	159,705,000
Cost of goods sold			140,713,000				133,138,000
Gross profit			29,174,000				26,567,000
Operating expenses
General and administrative			16,670,000				12,602,000
Sales and marketing			5,449,000				5,419,000
Research and development			2,433,000				2,375,000
Foreign exchange impact of lease liabilities and forward contracts			11,078,000				(4,270,000	)
Total operating expenses			35,630,000				16,126,000
Operating (loss) income			(6,456,000	)			10,441,000
Other expenses:
Interest expense, net			14,387,000				11,720,000
Change in fair value of compound net derivative liability			(2,580,000	)			140,000
Total other expenses.			11,807,000				11,860,000
Loss before income tax benefit			(18,263,000	)			(1,419,000	)
Income tax benefit			(178,000	)			(9,000	)
Net loss		$	(18,085,000	)		$	(1,410,000	)
Basic net loss per share		$	(0.92	)		$	(0.07	)
Diluted net loss per share		$	(0.92	)		$	(0.07	)
Weighted average number of shares outstanding:
Basic			19,674,539				19,508,626
Diluted			19,674,539				19,508,626

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
		June 30, 2024			March 31, 2024
ASSETS		(Unaudited)
Current assets:
Cash and cash equivalents		$	7,531,000		$	13,974,000
Short-term investments			1,887,000			1,837,000
Accounts receivable — net			78,624,000			96,296,000
Inventory — net			402,931,000			397,328,000
Contract assets			27,317,000			27,139,000
Prepaid expenses and other current assets			21,753,000			23,885,000
Total current assets			540,043,000			560,459,000
Plant and equipment — net			35,010,000			38,338,000
Operating lease assets			77,057,000			83,973,000
Long-term deferred income taxes			3,960,000			2,976,000
Long-term contract assets			315,463,000			320,282,000
Goodwill and intangible assets — net			4,102,000			4,274,000
Other assets			2,320,000			1,700,000
TOTAL ASSETS		$	977,955,000		$	1,012,002,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	159,627,000		$	185,182,000
Customer finished goods returns accrual			28,893,000			38,312,000
Contract liabilities			41,504,000			37,591,000
Revolving loan			143,834,000			128,000,000
Other current liabilities			8,363,000			7,021,000
Operating lease liabilities			9,083,000			8,319,000
Total current liabilities			391,304,000			404,425,000
Convertible notes, related party			31,676,000			30,776,000
Long-term contract liabilities			210,378,000			212,068,000
Long-term deferred income taxes			39,000			511,000
Long-term operating lease liabilities			71,044,000			72,240,000
Other liabilities			6,345,000			6,872,000
Total liabilities			710,786,000			726,892,000
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; 19,753,585 and 19,662,380 shares issued and outstanding at June 30, 2024 and March 31, 2024, respectively			198,000			197,000
Additional paid-in capital			237,073,000			236,255,000
Retained earnings			21,418,000			39,503,000
Accumulated other comprehensive income			8,480,000			9,155,000
Total shareholders' equity			267,169,000			285,110,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	977,955,000		$	1,012,002,000

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, 2024 and 2023. 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 June 30, 2024 and 2023									Exhibit 1
	Three Months Ended June 30,
	2024								2023
	$				Per Share				$				Per Share
GAAP net loss	$	(18,085,000	)		$	(0.92	)		$	(1,410,000	)		$	(0.07	)
Non-cash items impacting net income
Core and finished goods premium amortization	$	2,728,000			$	0.14			$	2,657,000			$	0.14
Revaluation - cores on customers' shelves		394,000				0.02				778,000				0.04
Share-based compensation expenses		1,000,000				0.05				1,310,000				0.07
Foreign exchange impact of lease liabilities and forward contracts		11,078,000				0.56				(4,270,000	)			(0.22	)
Change in fair value of compound net derivative liability		(2,580,000	)			(0.13	)			140,000				0.01
Tax effect (a)		(3,155,000	)			(0.16	)			(154,000	)			(0.01	)
Total non-cash items impacting net income	$	9,465,000			$	0.48			$	461,000			$	0.02
Cash items impacting net income
Supply chain disruptions and related costs (b)	$	-			$	-			$	1,984,000			$	0.10
New product line start-up costs and transition expenses, and severance (c)		2,940,000				0.15				335,000				0.02
Tax effect (a)		(735,000	)			(0.04	)			(580,000	)			(0.03	)
Total cash items impacting net income	$	2,205,000			$	0.11			$	1,739,000			$	0.09

(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 June 30, 2023, consists of $1,984,000 impacting gross profit.
(c)	For the three-months ended June 30, 2024, consists of $2,940,000 included in operating expenses.
For the three-months ended June 30, 2023, consists of $335,000 included in operating expenses.

Items Impacting Gross Profit for the Three Months Ended June 30, 2024 and 2023							Exhibit 2
	Three Months Ended June 30,
	2024						2023
	$			Gross Margin			$			Gross Margin
GAAP gross profit	$	29,174,000		17.2	%		$	26,567,000		16.6	%
Non-cash items impacting gross profit
Core and finished goods premium amortization	$	2,728,000		1.6	%		$	2,657,000		1.7	%
Revaluation - cores on customers' shelves		394,000		0.2	%			778,000		0.5	%
Total non-cash items impacting gross profit	$	3,122,000		1.8	%		$	3,435,000		2.2	%
Cash items impacting gross profit
Supply chain disruptions and related costs	$	-		0.0	%		$	1,984,000		1.2	%
Total cash items impacting gross profit	$	-		0.0	%		$	1,984,000		1.2	%

Items Impacting EBITDA for the Three Months Ended June 30, 2024 and 2023				Exhibit 3
	Three Months Ended June 30,
	2024				2023
GAAP net loss	$	(18,085,000	)		$	(1,410,000	)
Interest expense, net		14,387,000				11,720,000
Income tax benefit		(178,000	)			(9,000	)
Depreciation and amortization		2,729,000				3,033,000
EBITDA	$	(1,147,000	)		$	13,334,000
Non-cash items impacting EBITDA
Core and finished goods premium amortization	$	2,728,000			$	2,657,000
Revaluation - cores on customers' shelves		394,000				778,000
Share-based compensation expenses		1,000,000				1,310,000
Foreign exchange impact of lease liabilities and forward contracts		11,078,000				(4,270,000	)
Change in fair value of compound net derivative liability		(2,580,000	)			140,000
Total non-cash items impacting EBITDA	$	12,620,000			$	615,000
Cash items impacting EBITDA
Supply chain disruptions and related costs	$	-			$	1,984,000
New product line start-up costs and transition expenses, and severance		2,940,000				335,000
Total cash items impacting EBITDA	$	2,940,000			$	2,319,000

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240808572613/en/

Gary S. Maier

Vice President, Corporate Communications & IR

(310) 972-5124

Source: Motorcar Parts of America, Inc.

FAQ

What were Motorcar Parts of America's (MPAA) fiscal 2025 Q1 net sales?

Motorcar Parts of America reported record first quarter net sales of $169.9 million for fiscal 2025 Q1, representing a 6.4% increase from the previous year.

How did MPAA's gross profit and margin change in fiscal 2025 Q1?

MPAA's gross profit increased 9.8% to $29.2 million, while gross margin improved to 17.2% from 16.6% in the previous year's first quarter.

What was the net loss for MPAA in fiscal 2025 Q1?

Motorcar Parts of America reported a net loss of $18.1 million for fiscal 2025 Q1, compared to a net loss of $1.4 million in the same quarter of the previous year.

How much annual savings does MPAA expect from its recent cost-reduction initiatives?

MPAA expects to realize approximately $7 million in annual cost savings from its recent cost-reduction initiatives, including workforce realignment and closure of redundant functions.