LOS ANGELES, Feb. 09, 2018 (GLOBE NEWSWIRE) -- Motorcar Parts of America, Inc. (Nasdaq:MPAA) today reported results for its fiscal 2018 third quarter and nine-months -- reflecting slower than expected sales due to unusually soft demand in the industry and customer inventory reduction programs, with more robust sales activity in the current fourth quarter.

Net sales for the fiscal 2018 third quarter were $100.1 million compared with $112.6 million for the same period a year earlier.  The company’s sales and profit performance for the prior fiscal third quarter reflects the benefits of recognizing a $9.3 million revenue pick-up due to a change in estimate for stock adjustment returns. Additional details are included in the attached financial tables.  Despite market-share increases, the company’s sales for the quarter were soft due to lower orders and customer inventory reduction initiatives, as noted above, both of which now appear to be reversing.

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 2018 third quarter were $103.4 million compared with $112.9 million a year earlier. 

Net loss for the fiscal 2018 third quarter was $6.8 million, or $0.36 loss per share, compared with net income of $11.1 million, or $0.57 per diluted share, a year ago.  The net loss includes a $6.3 million, or $0.33 per share, non-cash book tax charge and a separate transition tax charge of approximately $545,000, or $0.03 per share, payable over eight years, both of which relate to the recently enacted Tax Cuts and Jobs Act (“Tax Reform Act”).

Adjusted net income for the fiscal 2018 third quarter was $6.7 million, or $0.34 per diluted share, compared with $11.7 million, or $0.60 per diluted share, in the same period a year earlier.

Gross profit for the fiscal 2018 third quarter was $22.5 million compared with $32.4 million a year earlier.  Gross profit as a percentage of net sales for the fiscal 2018 third quarter was 22.5 percent compared with 28.7 percent a year earlier – primarily reflecting the impact of customer allowances related to new business, as well as higher returns as a percentage of sales, lower overhead absorption, and product mix.

Adjusted gross profit for the fiscal 2018 third quarter was $28.8 million compared with $33.9 million a year ago.  Adjusted gross profit as a percentage of adjusted net sales for the three months was 27.9 percent compared with 30.1 percent a year earlier.  The current quarter adjusted gross profit as a percentage of adjusted net sales was impacted by higher returns as a percentage of adjusted sales, lower overhead absorption, and product mix.   

Net sales for the fiscal 2018 nine-month period were $307.0 million compared with $306.8 million a year earlier.  As noted above, the company’s sales and profit performance for the prior year period reflects the benefits of recognizing a $9.3 million revenue pick-up due to a change in estimate for stock adjustment returns.

Adjusted net sales for the fiscal 2018 nine-month period were $312.7 million compared with $319.1 million last year.

Net income for the fiscal 2018 nine-month period was $7.1 million, or $0.37 per diluted share, compared with $27.8 million, or $1.43 per diluted share, in fiscal 2017.  Net income includes a $6.3 million, or $0.32 per diluted share, non-cash book tax charge and a separate transition tax charge of approximately $545,000, or $0.03 per diluted share, payable over eight years, both of which relate to the recently enacted Tax Reform Act.

Adjusted net income for the fiscal 2018 nine-month period was $24.7 million, or $1.27 per diluted share, compared with $34.3 million, or $1.77 per diluted share, in fiscal 2017.

Gross profit for the fiscal 2018 nine-month period was $75.5 million compared with $83.4 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2018 nine-month period was 24.6 percent compared with 27.2 percent a year earlier – reflecting the impact of customer allowances and return accruals related to new business, higher returns as a percentage of sales and lower overhead absorption.

Adjusted gross profit for the fiscal 2018 nine-month period was $88.3 million compared with $98.7 million a year ago. Adjusted gross profit as a percentage of adjusted net sales for the nine months was 28.2 percent compared with 30.9 percent a year earlier.  Adjusted gross profit as a percentage of adjusted net sales for the current nine-month period was impacted by higher returns as a percentage of adjusted sales and lower overhead absorption.

“We were disappointed in our results for the quarter, especially since we continued to gain market share across all of our product lines.  While we incurred additional expenses related to new business wins, we did not realize the full benefit of the associated revenues during the quarter.  This was due to various factors, including reduced customer orders, which industry observers attribute to mild weather which seems to have reversed in our current fourth quarter.  In addition, the business was impacted by customer inventory reduction initiatives.  As a result, we were negatively impacted by under-absorption of overhead costs.  We are now pleased to see a return to positive momentum in the marketplace.  We expect the colder winter conditions across the majority of the country to further increase demand. 

“Ongoing positive strategic initiatives supported by organic growth, product line expansion and complementary acquisition opportunities lead me to reconfirm our near-and long-term optimism for growth within the $125 billion aftermarket hard parts industry,” said Selwyn Joffe, chairman, president and chief executive officer of Motorcar Parts of America.

Separately, he said the board of directors last week increased the company’s share repurchase program authorization to $20,000,000 from $15,000,000 of its common stock, with current availability of approximately $13 million.

Joffe noted the company recently added a new 410,000 square-foot facility to support current and new growth.

UPDATED FISCAL 2018 SALES GUIDANCE
Due to the factors impacting the fiscal third quarter noted above, Motorcar Parts of America now believes revenues for its fiscal 2018 ending March 31 should be between $434 million and $440 million, with sales momentum improving in the current fiscal fourth quarter, as discussed above.

IMPACT OF TAX REFORM ACT
The company has preliminarily evaluated its net income tax expense as a result of the recently enacted Tax Reform Act which reduces its federal corporate income tax rate to 21 percent from 35 percent, among other factors.  The company estimates its effective tax rate commencing in fiscal 2019 will be reduced to approximately 25 percent.

The company’s deferred tax assets were provisionally reduced by a non-cash charge of approximately $6.3 million based on current estimates, as explained below.  In addition, transition taxes of approximately $545,000 were provisionally recorded as of December 31, 2017, as explained below. 

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in future years.  Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled.  Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws are enacted. 

Transition taxes are one-time expenses for deemed repatriation of accumulated foreign income.

The company’s fiscal 2018 third quarter results were impacted by $0.36 per diluted share as a result of the Tax Reform Act.  A prorated federal corporate income tax rate of 31.5% will apply for the company’s full 2018 fiscal year.  The full impact of the Tax Reform Act will be effective in the fiscal year commencing April 1, 2018.

These tax charges represent provisional amounts based on the company’s current best estimates. Any future adjustments recorded to the provisional amounts will be included as an adjustment to tax expense as they are identified.  The provisional amounts incorporate assumptions made based upon the company’s current interpretation of the Tax Reform Act and may change as the company receives additional clarification and implementation guidance and completes its analysis.

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 6:00 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 February 9, 2018 through 8:59 p.m. Pacific time on February 16, 2018 by calling (855)-859-2056 (domestic) or (404)-537-3406 (international) and using access code: 8867118.

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 2017 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 Nine Months Ended
  December 31,  December 31,
   2017   2016  2017  2016
         
Net sales  $  100,127,000   $  112,595,000  $  306,964,000  $  306,843,000
Cost of goods sold     77,583,000      80,225,000     231,419,000     223,424,000
Gross profit      22,544,000      32,370,000     75,545,000     83,419,000
Operating expenses:        
General and administrative      11,915,000      7,952,000     26,717,000     21,446,000
Sales and marketing     4,048,000      3,234,000     10,899,000     8,575,000
Research and development      1,678,000      1,039,000     3,920,000     2,813,000
Total operating expenses      17,641,000      12,225,000     41,536,000     32,834,000
Operating income      4,903,000      20,145,000     34,009,000     50,585,000
Interest expense, net      3,953,000      3,357,000     10,789,000     9,365,000
Income before income tax expense      950,000      16,788,000     23,220,000     41,220,000
Income tax expense      7,756,000      5,678,000     16,099,000     13,459,000
         
Net (loss) income  $  (6,806,000) $  11,110,000  $  7,121,000  $  27,761,000
Basic net (loss) income per share  $  (0.36) $  0.59  $  0.38  $  1.49
Diluted net (loss) income per share  $  (0.36) $  0.57  $  0.37  $  1.43
Weighted average number of shares outstanding:        
Basic   19,069,152    18,675,125   18,814,967   18,587,946
Diluted    19,069,152    19,441,265   19,400,744   19,399,857
         



 
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 
     
  December 31, 2017 March 31, 2017
ASSETS (Unaudited)  
Current assets:    
 Cash and cash equivalents   $  10,032,000   $  9,029,000  
 Short-term investments      2,759,000      2,140,000  
 Accounts receivable — net       3,330,000      26,017,000  
 Inventory— net      80,991,000      67,516,000  
 Inventory unreturned       7,249,000       7,581,000  
 Prepaid expenses and other current assets       12,829,000      9,848,000  
 Total current assets      117,190,000      122,131,000  
 Plant and equipment — net      21,040,000      18,437,000  
 Long-term core inventory — net      296,274,000      262,922,000  
 Long-term core inventory deposits      5,569,000      5,569,000  
 Long-term deferred income taxes      14,422,000      13,546,000  
 Goodwill      2,551,000      2,551,000  
 Intangible assets — net      3,970,000      3,993,000  
 Other assets      6,678,000      6,990,000  
 TOTAL ASSETS   $  467,694,000   $  436,139,000  
LIABILITIES AND SHAREHOLDERS'  EQUITY    
 Current liabilities:     
 Accounts payable   $   69,445,000   $  85,960,000  
 Accrued liabilities      11,992,000      10,077,000  
 Customer finished goods returns accrual      15,962,000      17,667,000  
 Accrued core payment      16,718,000      11,714,000  
 Revolving loan      36,000,000      11,000,000  
 Other current liabilities      4,614,000      3,300,000  
 Current portion of term loan      3,068,000      3,064,000  
 Total current liabilities      157,799,000      142,782,000  
 Term loan, less current portion      14,670,000      16,935,000  
 Long-term accrued core payment      22,560,000      12,349,000  
 Long-term deferred income taxes      212,000      180,000  
 Other liabilities      3,920,000      15,212,000  
 Total liabilities      199,161,000      187,458,000  
 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;     
 19,069,782 and 18,648,854 shares issued and outstanding at December 31, 2017 and      
 March 31, 2017, respectively      191,000      186,000  
 Additional paid-in capital      217,089,000       205,646,000  
 Retained earnings      57,411,000      50,290,000  
 Accumulated other comprehensive loss      (6,158,000)     (7,441,000)
 Total shareholders' equity      268,533,000      248,681,000  
 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $  467,694,000   $  436,139,000  
 

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 nine months ended December 31, 2017 and 2016. 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 nine months ended December 31, 2017 and 2016 are as follows:                                                                         

    
Reconciliation of Non-GAAP Financial Measures       Exhibit 1
    
 Three Months Ended December 31, Nine Months Ended December 31,
  2017   2016   2017   2016 
GAAP Results:       
Net sales $  100,127,000   $  112,595,000   $  306,964,000   $  306,843,000  
Net income (loss)     (6,806,000)    11,110,000      7,121,000      27,761,000  
Diluted income (loss) per share (EPS)    (0.36)    0.57      0.37      1.43  
Gross margin  22.5%  28.7%  24.6%  27.2%
Non-GAAP Adjusted Results:       
Non-GAAP adjusted net sales  $  103,369,000   $  112,853,000   $  312,702,000   $  319,058,000  
Non-GAAP adjusted net income     6,700,000      11,744,000       24,707,000      34,260,000  
Non-GAAP adjusted diluted earnings per share (EPS)    0.34      0.60      1.27      1.77  
Non-GAAP adjusted gross margin  27.9%  30.1%  28.2%  30.9%
Non-GAAP adjusted EBITDA  $  15,278,000   $  23,558,000   $  52,186,000   $  68,247,000  
        
Note: Results for the three and nine months ended December 31, 2016 include revenue due to the change in estimate for anticipated stock adjustment returns of $9,261,000 (which had a $4,066,000 gross profit and EBITDA impact, $2,551,000 net income impact and $0.13 earnings per diluted share impact).  The change in estimate also had a 1.3% and 0.5% gross margin impact for the three and nine months ended December 31, 2016, respectively.
 

                                                                       

    
Reconciliation of Non-GAAP Financial Measures       Exhibit 2
     
  Three Months Ended December 31, Nine Months Ended December 31,
   2017  2016  2017  2016
GAAP net sales$  100,127,000  $  112,595,000  $  306,964,000  $  306,843,000
Adjustments:       
 Net sales       
 Initial return and stock adjustment accruals related to new business   -      -      2,496,000     3,168,000
 Customer allowances related to new business    3,242,000     258,000     3,242,000     9,047,000
Adjusted net sales $  103,369,000  $  112,853,000  $  312,702,000  $  319,058,000
 

                                                                      

   
Reconciliation of Non-GAAP Financial Measures      Exhibit 3
   
   Three Months Ended December 31,
    2017     2016  
   $   Per Diluted
Share 		  $   Per Diluted
Share
GAAP net income (loss) $  (6,806,000) $  (0.36) $  11,110,000   $  0.57  
Adjustments:       
 Net sales       
 Customer allowances related to new business    3,242,000   $  0.17      258,000   $  0.01  
 Cost of goods sold       
 Transition expenses    803,000   $  0.04      -    $  -   
 Lower of cost or net realizable value revaluation - cores on customers' shelves and inventory step-up amortization   2,227,000   $  0.11      1,295,000   $   0.07  
 Operating expenses       
 Legal, severance, acquisition, financing, transition and other costs    236,000   $  0.01      92,000   $  0.00  
 Share-based compensation expenses    914,000   $  0.05      818,000   $  0.04  
 Mark-to-market losses (gains)    1,784,000   $  0.09      2,000   $  0.00  
 Interest       
 Write-off of debt issuance costs    231,000   $   0.01      -    $  -   
 Tax effected (a)    (2,766,000) $  (0.14)    (1,831,000) $  (0.09)
 Tax charge for revaluation of deferred tax assets and liabilities   6,290,000   $  0.33       -    $  -   
 Transition tax on deemed repatriation of accumulated foreign income   545,000   $  0.03      -    $  -   
Adjusted net income $  6,700,000   $  0.34   $  11,744,000   $  0.60  
         
(a) Adjusted net income is calculated by applying an income tax rate of 35.5% for the three months ended December 31, 2017 and 39.0% for the three months ended December 31, 2016; this rate may differ from the period's actual income tax rate
        

                                                             

   
 Reconciliation of Non-GAAP Financial Measures           Exhibit 4
   
   Nine Months Ended December 31,
    2017     2016  
   $   Per Diluted
Share 		  $   Per Diluted
Share
GAAP net income  $  7,121,000   $  0.37   $  27,761,000   $  1.43  
Adjustments:       
 Net sales       
 Initial return and stock adjustment accruals related to new business    2,496,000   $  0.13      3,168,000   $  0.16  
 Customer allowances related to new business    3,242,000   $  0.17      9,047,000   $  0.47  
 Cost of goods sold       
 New product line start-up and ramp-up costs, and transition expenses    803,000   $  0.04      140,000   $  0.01  
 Lower of cost or net realizable value revaluation - cores on customers' shelves and inventory step-up amortization   6,532,000   $  0.34      3,488,000   $  0.18  
 Cost of customer allowances and stock adjustment accruals related to new business   (362,000) $  (0.02)    (568,000) $  (0.03)
 Operating expenses       
 Legal, severance, acquisition, financing, transition and other costs    737,000   $  0.04      707,000   $  0.04  
 Share-based compensation expenses    2,658,000   $  0.14      2,555,000   $  0.13  
 Mark-to-market losses (gains)    (1,251,000) $  (0.06)    (3,593,000) $  (0.19)
 Interest       
 Write-off of debt issuance costs    231,000   $  0.01      -    $  -   
 Tax effected (a)    (4,335,000) $  (0.22)    (8,445,000) $  (0.44)
 Tax charge for revaluation of deferred tax assets and liabilities   6,290,000   $  0.32      -    $  -   
 Transition tax on deemed repatriation of accumulated foreign income   545,000   $  0.03      -    $  -   
Adjusted net income $  24,707,000   $  1.27   $  34,260,000   $  1.77  
         
(a) Adjusted net income is calculated by applying an income tax rate of 35.5% for the nine months ended December 31, 2017 and 39.0% for the nine months
 

                                                                      

  
Reconciliation of Non-GAAP Financial MeasuresExhibit 5
   
   Three Months Ended December 31,
    2017     2016  
   $   Gross Margin   $   Gross Margin
GAAP gross profit $  22,544,000  22.5% $  32,370,000  28.7%
Adjustments:       
 Net sales       
 Customer allowances related to new business    3,242,000       258,000   
 Cost of goods sold       
 Transition expenses    803,000       -    
 Lower of cost or net realizable value revaluation - cores on customers' shelves and inventory step-up amortization   2,227,000       1,295,000   
Total adjustments   6,272,000  5.4%    1,553,000  1.4%
Adjusted gross profit $  28,816,000  27.9% $  33,923,000  30.1%
            

                                                                

  
Reconciliation of Non-GAAP Financial Measures           Exhibit 6
   
   Nine Months Ended December 31,
    2017     2016  
   $   Gross Margin   $   Gross Margin
GAAP gross profit $  75,545,000   24.6% $  83,419,000   27.2%
Adjustments:       
 Net sales       
 Initial return and stock adjustment accruals related to new business    2,496,000        3,168,000    
 Customer allowances related to new business    3,242,000        9,047,000    
 Cost of goods sold       
 New product line start-up and ramp-up costs, and transition expenses    803,000        140,000    
 Lower of cost or net realizable value revaluation - cores on customers' shelves and inventory step-up amortization   6,532,000        3,488,000    
 Cost of customer allowances and stock adjustment accruals related to new business   (362,000)      (568,000)  
Total adjustments   12,711,000   3.6%    15,275,000   3.7%
Adjusted gross profit $  88,256,000   28.2% $  98,694,000   30.9%
         

                                                                  

    
Reconciliation of Non-GAAP Financial Measures            Exhibit 7
     
  Three Months Ended December 31, Nine Months Ended December 31,
   2017   2016  2017   2016 
GAAP net income (loss)$  (6,806,000) $  11,110,000  $  7,121,000   $  27,761,000  
Interest expense, net    3,953,000      3,357,000     10,789,000      9,365,000  
Income tax expense    7,756,000      5,678,000     16,099,000      13,459,000  
Depreciation and amortization    1,169,000      948,000     3,322,000      2,718,000  
EBITDA$  6,072,000   $  21,093,000  $  37,331,000   $  53,303,000  
         
Adjustments:       
 Net sales       
 Initial return and stock adjustment accruals related to new business    -       -      2,496,000      3,168,000  
 Customer allowances related to new business    3,242,000      258,000     3,242,000      9,047,000  
 Cost of goods sold       
 New product line start-up and ramp-up costs, and transition expenses    803,000      -      803,000      140,000  
 Lower of cost or net realizable value revaluation - cores on customers' shelves and inventory step-up amortization   2,227,000      1,295,000     6,532,000      3,488,000  
 Cost of customer allowances and stock adjustment accruals related to new business   -       -      (362,000)    (568,000)
 Operating expenses       
 Legal, severance, acquisition, financing, transition and other costs    236,000      92,000     737,000      707,000  
 Share-based compensation expenses    914,000      818,000     2,658,000      2,555,000  
 Mark-to-market losses (gains)    1,784,000      2,000     (1,251,000)    (3,593,000)
Adjusted EBITDA $  15,278,000   $  23,558,000  $  52,186,000   $  68,247,000  
               

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

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