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Motorcar Parts of America Reports Fiscal 2019 First Quarter Results

Record Sales Expected for the Balance of Fiscal Year; Annual Gross Margin Guidance Reaffirmed

/EIN News/ -- LOS ANGELES, Aug. 09, 2018 (GLOBE NEWSWIRE) -- Motorcar Parts of America, Inc. (Nasdaq: MPAA) today reported results for its fiscal 2019 first quarter ended June 30, 2018.

Net sales for the fiscal 2019 first quarter were $92.6 million compared with $95.5 million for the same period a year earlier -- reflecting various industry factors discussed below and during the fiscal year-end conference call, as well as additional factors highlighted below.

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 2019 first quarter were $93.8 million compared with $95.5 million a year earlier.

“Notwithstanding weak results for the quarter, particularly in the month of April, we are encouraged by the industry regaining momentum and we expect a solid sales recovery in the quarters ahead,” said Selwyn Joffe, chairman, president and chief executive officer.

“The company has reached a positive inflection point for future growth, with the sales and profitability outlook for the short and long term very encouraging,” Joffe said.  He emphasized that sales for the quarter were impacted by customer allowances related to new business, customer stock adjustment accruals in connection with future update orders and the transition to the company’s new distribution center.

He indicated the company expects replenishment, update orders and new business to gain momentum throughout the fiscal year, with the company on track to report annual adjusted net sales at the upper end of its previously issued guidance of 6.5 percent to 8.5 percent revenue growth.

Net loss for the fiscal 2019 first quarter was $5.0 million, or $0.27 per share, compared with net income of $8.2 million, or $0.42 per diluted share, a year ago.

Adjusted net income for the fiscal 2019 first quarter was $2.8 million, or $0.15 per diluted share, compared with $8.3 million, or $0.43 per diluted share, a year earlier.  The current quarter net loss was impacted by a variety of factors, including non-cash expenses of $6.5 million and expenses related to future growth of $3.5 million, adjusted in the aggregate to $7.8 million after-tax, or $0.42 per diluted share, as further detailed in attached Exhibit 3. 

In addition, the following items negatively impacted adjusted net income that have not been adjusted for: (1) customer stock adjustment accruals in connection with future update orders, (2) the impact to sales related to the transition to the company’s new distribution center, (3) lower overhead cost absorption, which is expected to reverse as sales increase, and (4) increased freight expenses related to external market rates.  The impact of the first three items is expected to diminish and have a positive impact in future quarters.  The above four items resulted in a combined negative impact of $0.15 per diluted share.

Gross profit for the fiscal 2019 first quarter was $17.3 million compared with $26.7 million a year earlier.  Gross profit as a percentage of net sales for the fiscal 2019 first quarter was 18.6 percent compared with 27.9 percent a year earlier.

Adjusted gross profit for the fiscal 2019 first quarter was $22.8 million compared with $28.0 million a year ago.  Adjusted gross profit as a percentage of adjusted net sales for the three months was 24.4 percent compared with 29.3 percent a year earlier.  Adjusted gross profit as a percentage of adjusted net sales for the quarter was further negatively impacted by the unadjusted items noted above.  These items resulted in a combined negative impact of 2.7 percent to the adjusted gross profit margin. 

The company expects adjusted gross margins to sequentially improve through the fiscal year and the company reiterates its previously issued annual guidance of between 27 percent to 30 percent.

Increased Stock Repurchase Authorization

Under the authorized share repurchase program, as of June 30, 2018, $11.6 million of the $20.0 million common stock authorization has been purchased and $8.4 million is available to repurchase shares.  Subsequently, its board of directors increased the company’s share repurchase program authorization to $37.0 million from $20.0 million.  Thus, $25.4 million is available to repurchase shares in the open market and private transactions.  Motorcar Parts of America currently has 18.9 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 months ended June 30, 2017 were revised to reflect the adoption of the new revenue recognition accounting standards.  The effects of the adoption were an increase to previously reported revenues for the three months ended June 30, 2017 of $456,000. 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 months ended June 30, 2017 of $381,000. 

Also, as a result of the adoption of ASC 606 and the resultant changes in company policy, the effect of the adoption 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.  

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 August 9, 2018 through 8:59 p.m. Pacific time on August 16, 2018 by calling (855)-859-2056 (domestic) or (404)-537-3406 (international) and using access code: 1974404.

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 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
    June 30, 
      2018       2017
         
Net sales   $ 92,565,000     $ 95,519,000
Cost of goods sold     75,314,000       68,843,000
Gross profit     17,251,000       26,676,000
Operating expenses:        
General and administrative     12,340,000       6,187,000
Sales and marketing     4,392,000       3,394,000
Research and development     1,736,000       1,002,000
Total operating expenses     18,468,000       10,583,000
Operating (loss) income     (1,217,000 )     16,093,000
Interest expense, net     5,075,000       3,314,000
(Loss) income before income tax (benefit) expense     (6,292,000 )     12,779,000
Income tax (benefit) expense     (1,278,000 )     4,628,000
         
Net (loss) income   $ (5,014,000 )   $ 8,151,000
         
         
Basic net (loss) income per share   $ (0.27 )   $ 0.44
         
         
Diluted net (loss) income per share   $ (0.27 )   $ 0.42
         
Weighted average number of shares outstanding:        
Basic     18,895,847       18,655,304
         
Diluted     18,895,847       19,421,352
         
         


MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

           
    June 30, 2018   March 31, 2018  
ASSETS   (Unaudited)      
Current assets:          
Cash and cash equivalents   $ 12,242,000     $ 13,049,000    
Short-term investments     3,053,000       2,828,000    
Accounts receivable — net     40,510,000       63,174,000    
Inventory— net     187,342,000       161,210,000    
Inventory unreturned     8,315,000       7,508,000    
Contract assets     16,542,000       15,614,000    
Income tax receivable     9,416,000       7,796,000    
Prepaid expenses and other current assets     13,148,000       11,491,000    
Total current assets     290,568,000       282,670,000    
Plant and equipment — net     28,026,000       28,322,000    
Long-term core inventory — net     -       -    
Long-term core inventory deposits     -       -    
Long-term deferred income taxes     10,343,000       10,317,000    
Long-term contract assets     207,792,000       205,998,000    
Goodwill     2,551,000       2,551,000    
Intangible assets — net     3,567,000       3,766,000    
Other assets     6,406,000       7,392,000    
TOTAL ASSETS   $ 549,253,000     $ 541,016,000    
LIABILITIES AND SHAREHOLDERS'  EQUITY          
Current liabilities:          
Accounts payable   $ 86,633,000     $ 73,273,000    
Accrued liabilities     9,358,000       11,799,000    
Customer finished goods returns accrual     16,438,000       17,805,000    
Accrued core payment     -       -    
Contract liabilities     32,083,000       32,603,000    
Revolving loan     45,406,000       54,000,000    
Other current liabilities     6,159,000       4,471,000    
Current portion of term loan     2,749,000       3,068,000    
Total current liabilities     198,826,000       197,019,000    
Term loan, less current portion     26,954,000       13,913,000    
Long-term accrued core payment     -       -    
Long-term contract liabilities     45,666,000       48,183,000    
Long-term deferred income taxes     216,000       226,000    
Other liabilities     6,853,000       5,957,000    
Total liabilities     278,515,000       265,298,000    
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;          
18,916,108 and 18,893,102 shares issued and outstanding at June 30, 2018 and          
March 31, 2018, respectively     189,000       189,000    
Additional paid-in capital     214,358,000       213,609,000    
Retained earnings     63,080,000       67,348,000    
Accumulated other comprehensive loss     (6,889,000 )     (5,428,000 )  
Total shareholders' equity     270,738,000       275,718,000    
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 549,253,000     $ 541,016,000    
           

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 months ended June 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 months ended June 30, 2018 and 2017 are as follows:

Reconciliation of Non-GAAP Financial Measures                                                                                                                                               Exhibit 1

  Three Months Ended June 30,
    2018       2017  
GAAP Results:      
Net sales $   92,565,000     $   95,519,000  
Net income (loss)     (5,014,000 )       8,151,000  
Diluted income (loss) per share (EPS)     (0.27 )       0.42  
Gross margin   18.6 %     27.9 %
Non-GAAP Adjusted Results:              
Non-GAAP adjusted net sales $   93,772,000     $   95,519,000  
Non-GAAP adjusted net income     2,801,000         8,310,000  
Non-GAAP adjusted diluted earnings per share (EPS)     0.15         0.43  
Non-GAAP adjusted gross margin   24.4 %     29.3 %
Non-GAAP adjusted EBITDA $   10,093,000     $   17,236,000  
       
Note: Prior year three months ended June 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.  For further details, please refer to the
Company's June 30, 2018 10-Q filing.      
       


Reconciliation of Non-GAAP Financial Measures                                                                                                                                               Exhibit 2

    Three Months Ended June 30,
      2018     2017
GAAP net sales $ 92,565,000   $ 95,519,000
Adjustments:      
  Net sales      
  Customer allowances related to new business   1,207,000     -
Adjusted net sales $ 93,772,000   $ 95,519,000
         

Reconciliation of Non-GAAP Financial Measures                                                                                                                                               Exhibit 3

     Three Months Ended June 30, 
       2018         2017   
     $     Per Diluted
Share
 
   $     Per Diluted
Share
 
GAAP net income (loss) $ (5,014,000 )   $ (0.27 )   $ 8,151,000     $ 0.42  
Adjustments:              
  Net sales              
  Customer allowances related to new business   1,207,000     $ 0.06       -     $ -  
  Cost of goods sold              
  New product line start-up and ramp-up costs, and transition expenses   1,755,000     $ 0.09       -     $ -  
  Lower of cost or net realizable value revaluation - cores on customers' shelves   2,624,000     $ 0.14       1,350,000     $ 0.07  
  Operating expenses              
  Acquisition, financing, transition, severance and other costs   531,000     $ 0.03       265,000     $ 0.01  
  Share-based compensation expenses   941,000     $ 0.05       834,000     $ 0.04  
  Mark-to-market losses (gains)   2,666,000     $ 0.14       (2,345,000 )   $ (0.12 )
  Interest              
  Write-off of debt issuance costs   303,000     $ 0.02       -     $ -  
  Tax effected (a)   (2,212,000 )   $ (0.11 )     55,000     $ 0.00  
Adjusted net income $ 2,801,000     $ 0.15     $ 8,310,000     $ 0.43  
                 
 
(a) Adjusted net income is calculated by applying an income tax rate of 25.0% for the three months ended June 30, 2018 and 35.5% for the three months      
ended June 30, 2017; this rate may differ from the period's actual income tax rate              


Reconciliation of Non-GAAP Financial Measures                                                                                                                                               Exhibit 4

     Three Months Ended June 30, 
    2018
  2017
     $     Gross Margin     $     Gross Margin 
GAAP gross profit $ 17,251,000   18.6 %   $ 26,676,000   27.9 %
Adjustments:              
  Net sales              
  Customer allowances related to new business   1,207,000         -    
  Cost of goods sold              
  New product line start-up and ramp-up costs, and transition expenses   1,755,000         -    
  Lower of cost or net realizable value revaluation - cores on customers' shelves   2,624,000         1,350,000    
Total adjustments   5,586,000   5.8 %     1,350,000   1.4 %
Adjusted gross profit $ 22,837,000   24.4 %   $ 28,026,000   29.3 %
                 

Reconciliation of Non-GAAP Financial Measures                                                                                                                                               Exhibit 5

    Three Months Ended June 30,
      2018       2017  
GAAP net income (loss) $ (5,014,000 )   $ 8,151,000  
Interest expense, net   5,075,000       3,314,000  
Income tax expense (benefit)   (1,278,000 )     4,628,000  
Depreciation and amortization   1,586,000       1,039,000  
EBITDA   $ 369,000     $ 17,132,000  
         
Adjustments:      
Net sales      
Customer allowances related to new business   1,207,000       -  
Cost of goods sold      
New product line start-up and ramp-up costs, and transition expenses   1,755,000       -  
Lower of cost or net realizable value revaluation - cores on customers' shelves   2,624,000       1,350,000  
Operating expenses      
Acquisition, financing, transition, severance and other costs   531,000       265,000  
Share-based compensation expenses   941,000       834,000  
Mark-to-market losses (gains)   2,666,000       (2,345,000 )
Adjusted EBITDA $ 10,093,000     $ 17,236,000  
         

CONTACT: 
                    Gary S. Maier 
                    (310) 471-1288

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