MOTORCAR PARTS OF AMERICA, INC. The following discussion and analysis presents factors that
Disclosure Regarding Private Securities Litigation Reform Act of 1995
This report may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to our future
performance that involve risks and uncertainties. Various factors could cause
actual results to differ materially from those expressed or implied by such
statements. These factors include, but are not limited to: the current and
future impacts of the COVID-19 public health crisis; concentration of sales to a
small number of customers; changes in the financial condition of or our
relationship with any of our major customers; increases in the average accounts
receivable collection period; the loss of sales to customers; delays in payments
by customers; the increasing customer pressure for lower prices and more
favorable payment and other terms; lower revenues than anticipated from new and
existing contracts; the increasing demands on our working capital; the
significant strain on working capital associated with large inventory purchases
from customers; lower efficiency or production due to stay at home orders or
other restrictions issued by governments due to COVID-19 concerns; any
meaningful difference between expected production needs and ultimate sales to
our customers; investments in operational changes or acquisitions; our ability
to obtain any additional financing we may seek or require; our ability to
maintain positive cash flows from operations; our failure to meet the financial
covenants or the other obligations set forth in our credit agreement and the
lenders' refusal to waive any such defaults; increases in interest rates; the
impact of high gasoline prices; consumer preferences and general economic
conditions; increased competition in the automotive parts industry including
increased competition from Chinese and other offshore manufacturers; difficulty
in obtaining Used Cores and component parts or increases in the costs of those
parts; supply chain delays or stoppages due to shipping delays; political,
criminal or economic instability in any of the foreign countries where we
conduct operations; currency exchange fluctuations; potential tariffs,
unforeseen increases in operating costs; risks associated with cyber-attacks;
risks associated with conflict minerals; the impact of new tax laws and
interpretations thereof; uncertainties affecting our ability to estimate our tax
rate and other factors discussed herein and in our other filings with the
Management Overview
We have a multi-pronged platform for growth within the non-discretionary
automotive aftermarket for the replacement parts and test solutions and
diagnostic equipment industry. Our investments in infrastructure and human
resources during the past few years reflects the significant expansion of
manufacturing capacity to support multiple product lines and continues to be
transformative and scalable. These investments included (i) the opening of a
410,000 square foot distribution center, (ii) two buildings totaling 372,000
square feet for remanufacturing and core sorting of brake calipers, and (iii)
the realignment of production at our initial 312,000 square foot facility in
Our products include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads, and brake master cylinders, and (iv) other products, which include turbochargers and test solutions and diagnostic equipment used for electric vehicle powertrain development and manufacturing including electric motor test systems, e-axle test systems, advanced power emulators, charging unit test systems, test systems for alternators, starters, belt starter generators and bench-top testers used by the automotive retail segment.
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Pursuant to the guidance provided under the
Impact of the Novel Coronavirus ("COVID-19")
The COVID-19 pandemic has spread globally and created significant volatility, uncertainty and economic disruption in many countries, including the countries in which we operate. National, state and local governments in these countries continue to implement a variety of measures in response that have the effect of restricting or limiting, among other activities, the operations of certain businesses.
We continue to experience disruptions with worldwide supply chain and logistics services. We are unable to predict accurately the ultimate long-term impact that COVID-19 will have on our business and financial condition. While the near-term outlook appears positive, any additional government shutdowns or the emergence and spread of new variants of the virus, including the delta variant, the likelihood of a resurgence of positive cases, the development, availability and public acceptance of effective treatments and vaccines, the speed at which such vaccines are administered, the efficacy of current vaccines against evolving strains or variants of the virus, could negatively impact our business and financial condition.
There have been no serious outbreaks in any of our production facilities; however, a serious outbreak could affect our production capabilities. We experienced inefficiencies in operations due to the implementation of additional personnel safety measures throughout our facilities. These personnel safety measures include adding an additional shift in conjunction with reducing the number of hours in the existing shift, greater spacing (less personnel) in production areas and sanitizing procedures between shifts. High-risk employees at all of our facilities have been required to remain at home; however, they continue to receive their compensation. We also implemented safe work practices across all of our facilities, including work from home rules, staggered shifts, Plexiglas barriers, and many other safety precautions. Our employees have embraced the challenges of working remotely, continuing to operate through constant communication with team members.
Enhanced levels of communication at all levels within the organization are critical to address the ever-changing landscape brought on by COVID-19, especially with most of our office staff continuing to work from home. Such efforts have included, additional board check-in meetings and executive committee meetings, as needed, and regular town hall style communications with all employees.
We continue to incur costs as a result of COVID-19, including employee costs,
such as expanded benefits and frontline incentives, and other operating costs
associated with the provision of personal protective equipment, which have
negatively impacted our profitability. These expanded benefits, supply costs and
other COVID-19 related costs resulted in total expense, included in cost of
goods sold and operating expenses in the condensed consolidated statements of
income, of
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Table of Contents Results of Operations for the Three Months EndedSeptember 30, 2021 and 2020
The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.
The following summarizes certain key operating data:
Three Months Ended
September 30,
2021 2020
Cash flow (used in) provided by operations
4.8 5.0
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(1) Annualized finished goods turnover for the fiscal quarter is calculated by
multiplying cost of goods sold for the quarter by 4 and dividing the result
by the average between beginning and ending non-core finished goods inventory
values for the fiscal quarter. Annualized finished goods turnover for the
three months ended September 30, 2020 has been updated to conform to the
current year presentation for non-core finished goods turnover. We believe
this provides a useful measure of our ability to turn our inventory into
revenues.
Net Sales and Gross Profit
The following summarizes net sales and gross profit:
Three Months Ended
September 30,
2021 2020
Net sales $ 175,548,000 $ 154,730,000
Cost of goods sold 139,597,000 115,004,000
Gross profit 35,951,000 39,726,000
Gross profit percentage 20.5 % 25.7 %
Gross Profit. Our gross profit was
Our gross profit for the three months ended
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In addition, gross profit was impacted by (i) non-cash quarterly revaluation of
cores that are part of the finished goods on the customers' shelves (which are
included in contract assets) to the lower of cost or net realizable value and
gain due to realignment of inventory at customer distribution centers, which
resulted in a net gain of
Operating Expenses
The following summarizes operating expenses:
Three Months Ended
September 30,
2021 2020
General and administrative $ 14,465,000 $ 12,518,000
Sales and marketing 5,520,000 4,326,000
Research and development 2,495,000 1,972,000
Foreign exchange impact of lease liabilities and forward
contracts 3,917,000 (3,985,000 )
Percent of net sales
General and administrative 8.2 % 8.1 %
Sales and marketing 3.1 % 2.8 %
Research and development 1.4 % 1.3 %Foreign exchange impact of lease liabilities and forward contracts
2.2 % (2.6 )%
General and Administrative. Our general and administrative expenses for the
three months ended
Sales and Marketing. Our sales and marketing expenses for the three months ended
Research and Development. Our research and development expenses for the three
months ended
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Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign
exchange impact of lease liabilities and forward contracts for the three months
ended
Interest Expense
Interest Expense, net. Our interest expense for the three months ended
Provision for Income Taxes
Income Tax. We recorded income tax expense of
Results of Operations for the Six Months Ended
The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.
The following summarizes certain key operating data:
Six Months Ended
September 30,
2021 2020
Cash flow (used in) provided by operations
4.6 4.2
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(1) Annualized finished goods turnover for the fiscal period is calculated by
multiplying cost of goods sold for the period by 2 and dividing the result by
the average between beginning and ending non-core finished goods inventory
values for the fiscal period. Annualized finished goods turnover for the six
months ended September 30, 2020 has been updated to conform to the current
year presentation for non-core finished goods turnover. We believe this
provides a useful measure of our ability to turn our inventory into revenues.
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Table of ContentsNet Sales and Gross Profit
The following summarizes net sales and gross profit:
Six Months Ended
September 30,
2021 2020
Net sales $ 324,582,000 $ 250,086,000
Cost of goods sold 265,060,000 196,973,000
Gross profit 59,522,000 53,113,000
Gross profit percentage 18.3 % 21.2 %
Gross Profit. Our gross profit was
Our gross profit for the six months ended
In addition, gross profit was impacted by (i) non-cash quarterly revaluation of
cores that are part of the finished goods on the customers' shelves (which are
included in contract assets) to the lower of cost or net realizable value and
gain due to realignment of inventory at customer distribution centers, which
resulted in a net gain of
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Table of Contents Operating Expenses
The following summarizes operating expenses:
Six Months Ended
September 30,
2021 2020
General and administrative $ 26,951,000 $ 24,205,000
Sales and marketing 10,888,000 8,526,000
Research and development 4,996,000 3,914,000
Foreign exchange impact of lease liabilities and forward
contracts 1,384,000 (8,802,000 )
Percent of net sales
General and administrative 8.3 % 9.7 %
Sales and marketing 3.4 % 3.4 %
Research and development 1.5 % 1.6 %Foreign exchange impact of lease liabilities and forward contracts
0.4 % (3.5 )%
General and Administrative. Our general and administrative expenses for the six
months ended
Sales and Marketing. Our sales and marketing expenses for the six months ended
Research and Development. Our research and development expenses for the six
months ended
Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign
exchange impact of lease liabilities and forward contracts for the six months
ended
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Table of Contents Interest Expense
Interest Expense, net. Our interest expense, net, for the six months ended
Provision for Income Taxes
Income Tax. We recorded income tax expense of
Liquidity and Capital Resources
Overview
We had working capital (current assets minus current liabilities) of
We generated cash during the six months ended
Share Repurchase Program
Our board of directors approved a stock repurchase program of up to
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