Aftermarket supplier Motorcar Parts of America, Inc. has announced results for its fiscal 2019 third quarter ended December 31, 2018 – reflecting record sales for both the quarter and nine months on a reported and adjusted basis, and investments to support new business, product line expansion, and continued growth.
Net sales for the fiscal 2019 third quarter increased 20.6 percent to $124.1 million from $102.9 million for the same period a year earlier, predominantly as a result of increases in the company’s rotating electrical business.
Adjusted net sales for the fiscal 2019 third quarter increased 14.4 percent to $119.6 million from $104.5 million a year earlier.
All figures in USD.
“The company is at an important inflection point in its multi-year strategy to expand market share within existing and new product categories. We are encouraged by our growth and the progress we are making with our new product lines, as well as the build-out and ramp-up of our existing and expanding facilities,” said Selwyn Joffe, chairman, president and chief executive officer.
Net loss for the fiscal 2019 third quarter was $3.1 million, or $0.16 per share – reflecting the impact of the items listed below compared with net loss of $2.5 million, or $0.13 per share, a year ago.
Adjusted net income for the fiscal 2019 third quarter was $6.7 million, or $0.35 per diluted share, compared with $7.9 million, or $0.41 per diluted share, a year earlier.
The results for the quarter and gross margin were primarily impacted by five items totaling $9.7 million.
- Customer allowances and stock adjustment costs of $2.7 million related to new business and product line expansion, including up-front costs and core buy back premium amortization expense.
- Core sales of $7,753,000, less related cost of goods sold of $7,750,000, and a fixed cost of $767,000 in connection with the cancellation of a customer contract.
- A non-cash write-down of $2.6 million associated with the quarterly revaluation for cores on customers’ shelves. (This does not affect the reimbursable amount for the full value of cores on the customers’ shelves should business with the customer be discontinued.)
- Net tariff costs of $1.5 million paid for products sold before price increases were effective.
- Transition costs of $2.1 million associated with the expansion of manufacturing and distribution capacity to support increased demand for products, including new brake product lines.
Gross profit for the fiscal 2019 third quarter was $21.2 million compared with $26.1 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2019 third quarter was 17.0 percent compared with 25.3 percent a year earlier.
Adjusted gross profit for the fiscal 2019 third quarter was $30.9 million compared with $30.7 million a year ago. Adjusted gross profit as a percentage of adjusted net sales for the three months was 25.8 percent compared with 29.4 percent a year earlier.
Adjusted gross margin for the quarter was impacted by several factors — including higher freight and wage costs, higher returns, the introduction of electric vehicle test systems, overtime and other costs related to the increase in new business, and other strategic initiatives for long-term growth.
“Other than the wage inflation and higher freight costs, these margin headwinds are expected to reverse in the next fiscal year. With respect to off-shore wage inflation, we are evaluating alternative operating efficiencies and pricing strategies,” Joffe said.
Net sales for the fiscal 2019 nine-month period increased 11.7 percent to $343.7 million from $307.8 million a year earlier.
Adjusted net sales for the fiscal 2019 nine-month period increased 9.5 percent to $343.6 million from $313.7 million last year.
Net loss for the fiscal 2019 nine-month period was $5.1 million, or $0.27 per share, compared with net income of $10.9 million, or $0.56 per diluted share, in fiscal 2018.
Adjusted net income for the fiscal 2019 nine-month period was $21.2 million, or $1.10 per diluted share, compared with $26.5 million, or $1.37 per diluted share, in fiscal 2018.
Gross profit for the fiscal 2019 nine-month period was $63.2 million compared with $77.9 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2019 nine-month period was 18.4 percent compared with 25.3 percent a year earlier.
Adjusted gross profit for the fiscal 2019 nine-month period was $89.8 million compared with $90.8 million a year ago. Adjusted gross profit as a percentage of adjusted net sales for the nine months was 26.1 percent compared with 28.9 percent a year earlier.
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 and nine months ended December 31, 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 and nine months ended December 31, 2017 of $1,165,000 and $1,029,000, respectively. The revenue changes were accompanied by related changes to cost of goods sold – an increase to previously reported cost of goods sold for the three and nine months ended December 31, 2017 of $984,000 and $225,000, respectively.
Also, as a result of the adoption of ASC 606 and the resultant changes in company policy, the effect 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.
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 February 11, 2019 through 8:59 p.m. Pacific time on February 18, 2019 by calling (855)-859-2056 (domestic) or (404)-537-3406 (international) and using access code: 6949168.