Motorcar Parts of America, Inc. Announces Third Quarter Fiscal Year 2007 Results
LOS ANGELES, Feb. 20, 2007 -- Motorcar Parts of America, Inc. ("MPA") , a leading provider of remanufactured alternators and starters for the automotive aftermarket, announced today financial results for the third quarter and nine months ended December 31, 2006.
"The first nine months of this fiscal year have been very significant for MPA" said MPA's Chairman, President and CEO, Selwyn Joffe. "The Company has successfully transitioned approximately two-thirds of its production to off-shore facilities. These include our newly established facility in Mexico and a ramped up Malaysian facility. While we incurred substantial related costs during the year, the transition of our production is now substantially completed and is currently on track to meet our expectation of approximately 90% total off-shore production by March 31, 2007.
"In addition, new business we obtained earlier this fiscal year began shipping in August. We estimate this new business should result in additional annualized net revenue of approximately $30 million. In connection with this new business the Company structured commitments which resulted in our expensing of front-loaded marketing allowances. These front-loaded allowances ended in January 2007. In conjunction with this new business the Company experienced significant changeover activity and inventory ramp-up while we were going through a production transition to off-shore facilities. These activities resulted in larger than normal cash expenditures to support the new production levels, inventory build-up and product changeover.
"During this period we terminated the pay-on-scan arrangement with a major customer. The near term impact of this was a negative hit to earnings as well as negative cash flow; however we believe that the ongoing business model is more beneficial as restructured.
"The Company is required to be an accelerated filer and to be subject to section 404 of Sarbanes-Oxley compliance effective with the filing of Form 10-K for the fiscal year ended March 31, 2007 due to be filed no later than June 14, 2007. The Company is vigorously implementing these controls. The cost of this compliance has been significant and is expected to be approximately $2.5 million when completed."
Revenues for the quarter ending December 31, 2006 were $33.3 million, up 10.5% from $30.2 million in the same quarter last year. This increase was primarily due to additional sales to new and existing customers. Gross profit and gross margin were $5.9 million and 17.6%, respectively, as compared to $6.8 million and 22.5%, respectively, in the third quarter of fiscal 2006. Gross profit in the third quarter of fiscal 2007 was negatively impacted by $1.9 million in front-loaded marketing allowances (accounted for as an offset to sales) and $0.9 million in stock adjustments related to update orders which orders should be shipped in the fourth quarter.
Non-GAAP financial results for the three and nine month periods ended December 31, 2006 discussed in this release reflect operating results excluding the impact of (i) revenues and core inventory adjustments recorded as a result of termination of the pay-on-scan ("POS") inventory arrangement, (ii) front-loaded marketing allowances in conjunction with new business, (iii) stock adjustments related to update orders shipped in a later period, (iv) FAS 123R stock compensation expenses, (v) consulting fees incurred in connection with Sarbanes-Oxley ("SOX") compliance, and (vi) restatement expenses.
Non-GAAP financial results for the three and nine months ended December 31, 2005 discussed in this release reflect operating results excluding the impact of (i) front-loaded marketing allowances in conjunction with new business, (ii) stock adjustments related to update orders shipped in a later period (iii) outside professional and consulting fees associated with the SEC's review of the Company's SEC filings and the related restatement of financial statements (iv) consulting fees incurred in connection with SOX compliance, and (v) start-up costs related to the Company's new production location in Mexico and new distribution center in Tennessee.
For a reconciliation of the non-GAAP results to the relevant GAAP results, please see the financial schedules that accompany this release.
Non-GAAP revenues for the quarter ended December 31, 2006 were $36.1 million, up 16.9% from non-GAAP revenues of $30.9 million in the same quarter of the prior year. Non-GAAP gross profit was $8.2 million, or 22.7% of revenues, in the third quarter of fiscal 2007, compared to 24.4% non-GAAP gross profit in the same quarter of the prior year.
Operating loss for the third quarter of fiscal 2007 was $0.1 million, compared to operating income of $2.9 million in the same quarter of the prior year. Operating expenses increased 52.1% in the quarter, driven primarily by consulting fees incurred in connection with SOX compliance, FAS 123R stock compensation expenses, and higher research and development expenses incurred in connection with our Mexico facility. Interest expense also increased in the third quarter of fiscal 2007 due to increased interest rates and higher levels of debt. Net loss in the third quarter of fiscal 2007 was $2.1 million, or $0.25 per diluted share, compared to net income of $1.2 million, or $0.13 per diluted share for the same quarter last fiscal year.
Non-GAAP operating income in the third quarter of fiscal 2007 was $3.4 million, compared to non-GAAP operating income of $3.7 million in the same quarter of the prior year. Non-GAAP net income was $0.9 million, or $0.10 per diluted share, in the third quarter of fiscal 2007.
For the nine months ended December 31, 2006, revenues were $104.9 million, up 30.7% from $80.3 million in the first nine months of fiscal 2006. Revenues in the first nine months of fiscal 2007 were favorably impacted by $19.8 million in revenues from the sale of products previously shipped on a POS basis. Gross profit was $18.0 million, or 17.1% of revenues, in the first nine months fiscal 2007 versus $17.9 million, or 22.3% of revenues in the first nine months of fiscal 2006. Gross profit in the first nine months of fiscal 2007 was negatively impacted by $8.1 million core inventory adjustments recorded as a result of termination of the POS inventory arrangement, $3.1 million in front-loaded marketing allowances, and $2.2 million in stock adjustments related to update orders which orders should be shipped in the fourth quarter.
Non-GAAP revenues for the nine months ended December 31, 2006 were $98.5 million, up 15.7% from non-GAAP revenues of $85.1 million in the same period of fiscal 2006. Non-GAAP gross profit was $25.5 million, or 25.9% of revenues, in the first nine months of fiscal 2007, compared to 26.3% non-GAAP gross profit in the same period of the prior year.
Operating income in the first nine months of fiscal 2007 was $1.1 million, compared to operating income of $3.7 million in the first nine months of fiscal 2006. Operating expenses increased 19.2%, primarily due to the previously mentioned consulting fees incurred in connection with SOX compliance, FAS 123R stock compensation expenses, and higher research and development expenses incurred in connection with our Mexico facility. Net loss was $2.7 million in the first nine months of fiscal 2007, or $0.33 per diluted share, compared to net income of $0.9 million, or $0.10 cents per diluted share, in the first nine months of fiscal 2006.
Non-GAAP operating income in the first nine months of fiscal 2007 was $10.9 million, compared to non-GAAP operating income of $11.2 million in the first nine months of fiscal 2006. Non-GAAP net income was $4.1 million, or $0.47 per diluted share, in the first nine months of fiscal 2007.
Financial Condition
As of December 31, 2006, the Company had cash and equivalents of $0.8 million, working capital of $21.7 million and total assets of $125.9 million. Debt and capital lease obligations totaled $23.9 million and shareholders' equity stood at $50.7 million. Cash flow used in operating activities totaled $7.6 million for the nine months ended December 31, 2006 and cash flow provided by operating activities totaled $6.9 million for the three months ended December 31, 2006. At December 31, 2006, the Company was in violation of certain covenants of its credit agreement. In February 2007, the Company received a waiver of these covenant defaults from its lender.
Business Outlook
"During the first three quarters of fiscal 2007, we moved forward with our strategies of increasing our market share and improving our production cost structure," said Mr. Joffe. "In the final quarter of fiscal 2007, we anticipate continued revenue growth. We will move forward with our cost improvement strategies, and are on track to complete the transition to approximately 90% of our remanufacturing requirements abroad. Our next phase of cost improvements will streamline our distribution and logistics operations, which will be one of our main initiatives in fiscal 2008. We expect our base operating metrics to continue to improve."
"With the filing of our financial results for our third fiscal quarter, we are now current in our financial reporting," Mervyn McCulloch, MPA's Chief Financial Officer said, "and are pleased that the significant level of attention and resources committed to the restatements are now behind us."
Restatement of Financial Statements
The financial statements for the three and nine months ended December 31, 2006 contained in this release have been restated to correct errors which occurred when (i) the Company incorrectly recorded a duplicative entry that continued to recognize a gross profit impact resulting from the accrual for certain cores authorized to be returned, but still in-transit to us from our customers, (ii) the Company incorrectly recorded core charge revenue when the amount of revenue was not fixed and determinable and (iii) the Company did not appropriately accrue losses for all probable customer payment discrepancies. The estimated tax effect of these errors is also reflected in the restatement.
Use of Non-GAAP Financial Measures
To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company is providing certain income statement information that is not calculated according to GAAP. The Company believes that its non-GAAP disclosures are useful in evaluating its operating results as this information supplies the user with another view of the matching of costs and expenses. A reconciliation of the adjustments to GAAP results for the three and nine month periods ended December 31, 2006 and December 31, 2005 is included below. The non-GAAP information presented is supplemental and is not purported to be a substitute for information prepared in accordance with GAAP.
About MPA
Motorcar Parts of America, Inc. is a leading remanufacturer of replacement alternators and starters for imported and domestic cars and light trucks in the United States and Canada. MPA has facilities in the United States in Torrance, California, and Nashville, Tennessee, as well as in Mexico, Singapore and Malaysia. MPA's websites are located at www.motorcarparts.com and www.quality-built.com.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2006 March 31, 2006
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $845,000 $400,000
Short term investments 750,000 660,000
Accounts receivable - net 5,688,000 13,902,000
Inventory - net 58,799,000 57,881,000
Prepaid income taxes 1,151,000 --
Deferred income tax asset 5,938,000 5,809,000
Inventory unreturned 15,056,000 8,171,000
Prepaid expenses and other current assets 2,303,000 918,000
Total current assets 90,530,000 87,741,000
Plant and equipment - net 14,100,000 12,164,000
Long-term core deposit 20,864,000 826,000
Other assets 419,000 405,000
TOTAL ASSETS $125,913,000 $101,136,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $38,618,000 $21,882,000
Accrued liabilities 1,539,000 1,587,000
Accrued salaries and wages 3,000,000 2,267,000
Accrued workers' compensation claims 4,232,000 3,346,000
Income tax payable 228,000 1,021,000
Line of credit 18,400,000 6,300,000
Deferred compensation 582,000 495,000
Deferred income 133,000 133,000
Other current liabilities 630,000 988,000
Credit due customer -- 1,793,000
Current portion of capital lease
obligations 1,499,000 1,499,000
Total current liabilities 68,861,000 41,311,000
Deferred income, less current portion 288,000 388,000
Deferred income tax liability 15,000 562,000
Deferred gain on sale - leaseback 1,988,000 2,377,000
Other liabilities 46,000 46,000
Capitalized lease obligations, less
current portion 4,019,000 4,857,000
Total liabilities 75,217,000 49,541,000
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,
20,000,000 shares authorized; 8,366,122
and 8,316,105 shares issued and
outstanding at December 31, 2006 and
March 31, 2006, respectively 84,000 83,000
Additional paid-in capital 55,995,000 54,326,000
Accumulated other comprehensive income 237,000 85,000
Accumulated deficit (5,620,000) (2,899,000)
Total shareholders' equity 50,696,000 51,595,000
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $125,913,000 $101,136,000
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
December 31, December 31,
2006 2005 2006 2005
(Restated) (Restated)
Net sales $104,924,000 $80,251,000 $33,334,000 $30,154,000
Cost of goods sold 86,955,000 62,387,000 27,479,000 23,358,000
Gross profit 17,969,000 17,864,000 5,855,000 6,796,000
Operating expenses:
General and
administrative 12,843,000 10,914,000 4,961,000 2,857,000
Sales and marketing 2,940,000 2,466,000 614,000 836,000
Research and
development 1,131,000 808,000 374,000 219,000
Total operating
expenses 16,914,000 14,188,000 5,949,000 3,912,000
Operating income
(loss) 1,055,000 3,676,000 (94,000) 2,884,000
Interest expense -
net of interest
income 4,019,000 2,160,000 1,883,000 958,000
Income (loss) before
income tax expense
(benefit) (2,964,000) 1,516,000 (1,977,000) 1,926,000
Income tax expense
(benefit) (243,000) 652,000 151,000 776,000
Net income (loss) $(2,721,000) $864,000 $(2,128,000) $1,150,000
Basic net income
(loss) per share $(0.33) $0.11 $(0.25) $0.14
Diluted net income
(loss) per share $(0.33) $0.10 $(0.25) $0.13
Weighted average
number of shares
outstanding:
- basic 8,340,731 8,209,728 8,365,288 8,249,308
- diluted 8,340,731 8,620,945 8,365,288 8,642,118
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
December 31,
2006 2005
(Restated)
Cash flows from operating activities:
Net income (loss) $(2,721,000) $864,000
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 1,758,000 1,552,000
Amortization of deferred gain on
sale-leaseback (389,000) (87,000)
Provision for inventory reserves and
stock adjustments 1,973,000 362,000
Provision (recovery) of doubtful accounts (11,000) 2,000
Deferred income taxes (514,000) 746,000
Share-based compensation expense 1,279,000 --
Tax benefit from employee stock options
exercised (166,000) 321,000
Changes in current assets and liabilities:
Accounts receivable 6,474,000 1,920,000
Inventory (1,140,000) (7,384,000)
Prepaid income tax (1,313,000) --
Inventory unreturned (6,885,000) (3,276,000)
Prepaid expenses and other current
assets (1,385,000) (423,000)
Other assets (14,000) 307,000
Accounts payable and accrued
liabilities 18,307,000 6,616,000
Income tax payable (627,000) (633,000)
Deferred compensation 87,000 116,000
Deferred income (100,000) (100,000)
Credit due customer (1,793,000) (7,624,000)
Increase in long-term core deposits (20,038,000) (616,000)
Other current liabilities (358,000) 159,000
Net cash used in operating activities (7,576,000) (7,178,000)
Cash flows from investing activities:
Purchase of property, plant and
equipment (3,387,000) (3,275,000)
Proceeds from sale-leaseback
transaction -- 4,110,000
Change in short term investments (90,000) (176,000)
Net cash provided by (used in)
investing activities (3,477,000) 659,000
Cash flows from financing activities:
Net borrowings under line of credit 12,100,000 1,500,000
Net payments on capital lease
obligations (1,145,000) (639,000)
Exercise of stock options 225,000 601,000
Excess tax benefit from employee
stock options exercised 166,000 (321,000)
Net cash provided by financing
activities 11,346,000 1,141,000
Effect of exchange rate changes on cash 152,000 (214,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 445,000 (5,592,000)
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 400,000 6,211,000
CASH AND CASH EQUIVALENTS - END OF PERIOD $845,000 $619,000
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Supplemental Information
Reconciliation of GAAP to Non-GAAP Operating Results
For the three months ended December 31, 2006
Three Months Ended December 31, 2006
GAAP Adjustments Non-GAAP
Net sales $33,334,000 2,765,000 (1) $36,099,000
Cost of goods sold 27,479,000 443,000 (2) 27,922,000
Gross profit 5,855,000 8,177,000
Operating expenses:
General and administrative 4,961,000 (1,187,000) (3) 3,774,000
Sales and marketing 614,000 614,000
Research and development 374,000 374,000
Total operating expenses 5,949,000 4,762,000
Operating income (loss) (94,000) 3,415,000
Interest expense - net of
interest income 1,883,000 1,883,000
Income (loss) before income
tax expense (1,977,000) 1,532,000
Income tax expense 151,000 462,000 (4) 613,000
Net income (loss) ($2,128,000) $919,000
Basic net income (loss) per
share ($0.25) $0.11
Diluted net income (loss) per
share ($0.25) $0.10
Weighted average number of
shares outstanding:
- basic 8,365,288 8,365,288
- diluted 8,365,288 8,784,437
EBITDA 367,000 3,509,000 3,876,000
(1) Adjustment adds back (a) $1.9 million of front-loaded marketing
allowances and (b) $0.9 million in stock adjustments related to update
orders which orders should be shipped in the fourth quarter.
(2) Adjustment adds back the cost of sales of $0.4 million related to the
stock adjustments of $0.9 million.
(3) Adjustment excludes (a) $0.8 million in consulting fees incurred in
connection with Sarbanes-Oxley compliance, (b) $0.3 million in FAS
123R stock compensation expenses and (c) $0.1 million in restatement
expenses.
(4) Adjustment reflects effective tax rate of 40%.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Supplemental Information
Reconciliation of GAAP to Non-GAAP Operating Results
For the Nine Months Ended December 31, 2006
Nine Months Ended December 31, 2006
GAAP Adjustments Non-GAAP
Net sales $104,924,000 (6,440,000) (1) $98,484,000
Cost of goods sold 86,955,000 (13,959,000) (2) 72,996,000
Gross profit 17,969,000 25,488,000
Operating expenses:
General and
administrative 12,843,000 (2,337,000) (3) 10,506,000
Sales and marketing 2,940,000 2,940,000
Research and development 1,131,000 1,131,000
Total operating expenses 16,914,000 14,577,000
Operating income 1,055,000 10,911,000
Interest expense - net of
interest income 4,019,000 4,019,000
Income (loss) before income
tax expense (benefit) (2,964,000) 6,892,000
Income tax expense (benefit) (243,000) 3,000,000 (4) 2,757,000
Net income (loss) ($2,721,000) $4,135,000
Basic net income (loss) per
share ($0.33) $0.50
Diluted net income (loss) per
share ($0.33) $0.47
Weighted average number of
shares outstanding:
- basic 8,340,731 8,340,731
- diluted 8,340,731 8,782,121
EBITDA 2,424,000 9,856,000 12,280,000
(1) Adjustment (a) excludes $19.8 million in revenues from the sale of
products previously shipped on a POS basis, (b) adds back $8.1 million
in core inventory adjustments recorded as a result of termination of
the pay-on-scan inventory arrangement, (c) adds back $3.1 million in
front-loaded marketing allowances and (d) adds back $2.2 million in
stock adjustments related to update orders which orders should be
shipped in the fourth quarter. By including the $19.8 million in
revenues from the sale of products previously shipped on a POS basis,
net sales would be $118.3 million.
(2) Adjustment (a) excludes the cost of sales of $15.0 million related to
the $19.8 million in revenues from the sale of products previously
shipped on a POS basis and (b) adds back the cost of sales of $1.1
million related to the stock adjustments of $2.2 million. By including
the $15.0 million cost of goods sold related to the sale of $19.8
million of products previously shipped on a POS basis, cost of goods
sold would be $88.0 million.
(3) Adjustment excludes (a) $1.3 million in FAS 123R stock compensation
expenses, (b) $1.0 million in consulting fees incurred in connection
with Sarbanes-Oxley compliance, and (c) $0.1 million in restatement
expenses.
(4) Adjustment reflects effective tax rate of 40%.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Supplemental Information
Reconciliation of GAAP to Non-GAAP Operating Results
For the Three Months Ended December 31, 2005
Three Months Ended December 31, 2005
GAAP Adjustments Non-GAAP
Net sales $30,154,000 730,000 (1) $30,884,000
Cost of goods sold 23,358,000 23,358,000
Gross profit 6,796,000 7,526,000
Operating expenses:
General and
administrative 2,857,000 (92,000) (2) 2,765,000
Sales and marketing 836,000 836,000
Research and development 219,000 219,000
Total operating expenses 3,912,000 3,820,000
Operating income 2,884,000 3,706,000
Interest expense - net of
interest income 958,000 958,000
Income before income tax
expense 1,926,000 2,748,000
Income tax expense 776,000 323,000 (3) 1,099,000
Net income $1,150,000 $1,649,000
Basic net income per share $0.14 $0.20
Diluted net income per share $0.13 $0.19
Weighted average number of
shares outstanding:
- basic 8,249,308 8,249,308
- diluted 8,642,118 8,642,118
EBITDA 3,361,000 822,000 4,183,000
(1) Adjustment adds back $0.7 million in front-loaded marketing
allowances.
(2) Adjustment excludes outside professional and consulting fees of $0.1
million associated with the SEC's review of the Company's SEC filings
and the related restatement of financial statements.
(3) Adjustment reflects effective tax rate of 40%.
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Supplemental Information
Reconciliation of GAAP to Non-GAAP Operating Results
For the Nine Months Ended December 31, 2005
Nine Months Ended December 31, 2005
GAAP Adjustments Non-GAAP
Net sales $80,251,000 4,850,000 (1) $85,101,000
Cost of goods sold 62,387,000 327,000 (2) 62,714,000
Gross profit 17,864,000 22,387,000
Operating expenses:
General and
administrative 10,914,000 (2,996,000) (3) 7,918,000
Sales and marketing 2,466,000 2,466,000
Research and development 808,000 808,000
Total operating expenses 14,188,000 11,192,000
Operating income 3,676,000 11,195,000
Interest expense - net of
interest income 2,160,000 2,160,000
Income before income tax
expense 1,516,000 9,035,000
Income tax expense 652,000 2,962,000 (4) 3,614,000
Net income $864,000 $5,421,000
Basic net income per share $0.11 $0.66
Diluted net income per share $0.10 $0.63
Weighted average number of
shares outstanding:
- basic 8,209,728 8,209,728
- diluted 8,620,945 8,620,945
EBITDA 5,141,000 7,519,000 12,660,000
(1) Adjustment adds back (a) $2.7 million of front-loaded marketing
allowances and (b) $2.2 million in stock adjustments related to update
orders which orders should be shipped in the fourth quarter.
(2) Adjustment (a) adds back the cost of sales of $1.0 million related to
the stock adjustments of $2.2 million and (b) excludes start-up costs
of $0.7 million related to the Company's new production location in
Mexico and new distribution center in Tennessee.
(3) Adjustment excludes (a) outside professional and consulting fees of
$2.0 million associated with the SEC's review of the Company's SEC
filings and the related restatement of financial statements, (b)
start-up costs of $0.7 million related to the Company's new production
location in Mexico and new distribution center in Tennessee and (c)
$0.3 million in consulting fees incurred in connection with
Sarbanes-Oxley compliance.
(4) Adjustment reflects effective tax rate of 40%.
