Motorcar Parts Of America Inc 10-Q for FY2024 Q1

Motorcar Parts Of America Inc (MPAA)

10-Q 2023-08-09 For: 2023-06-30

Added on April 05, 2026

About this 10-Q

Motorcar Parts Of America Inc filed this 10-Q on August 9, 2023, covering the quarter ended June 30, 2023 (FY2024 Q1).

Headline figures

Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $159.71M; down 2.6% from $163.99M a year earlier
Net loss: $1.41M; compared with a net loss of $175K a year earlier
Diluted EPS: -$0.07; compared with -$0.01 a year earlier

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New York		11-2153962
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2929 California Street, Torrance, California		90503
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	MPAA	The Nasdaq Global Select Market

Large accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4. Controls and Procedures	31

PART II — OTHER INFORMATION
	Item 1. Legal Proceedings	32
	Item 1A. Risk Factors	32
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 3. Defaults Upon Senior Securities	32
	Item 5. Other Information	32
	Item 6. Exhibits	33
	SIGNATURES	36

	June 30, 2023		March 31, 2023
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	10,887,000	$	11,596,000
Short-term investments		2,159,000		2,011,000
Accounts receivable — net		146,645,000		119,868,000
Inventory		364,187,000		356,254,000
Contract assets		27,732,000		25,443,000
Prepaid expenses and other current assets		20,566,000		22,306,000
Total current assets		572,176,000		537,478,000
Plant and equipment — net		44,244,000		46,052,000
Operating lease assets		88,760,000		87,619,000
Long-term deferred income taxes		32,417,000		32,625,000
Long-term contract assets		314,463,000		318,381,000
Goodwill and intangible assets — net		5,046,000		5,348,000
Other assets		1,081,000		1,062,000
TOTAL ASSETS	$	1,058,187,000	$	1,028,565,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	142,965,000	$	141,766,000
Customer finished goods returns accrual		33,378,000		37,984,000
Contract liabilities		49,003,000		40,340,000
Revolving loan		167,000,000		145,200,000
Other current liabilities		5,170,000		4,871,000
Operating lease liabilities		8,914,000		8,767,000
Current portion of term loan		12,020,000		3,664,000
Total current liabilities		418,450,000		382,592,000
Term loan, less current portion		-		9,279,000
Convertible notes, related party		31,252,000		30,994,000
Long-term contract liabilities		194,708,000		193,606,000
Long-term deferred income taxes		1,985,000		718,000
Long-term operating lease liabilities		77,013,000		79,318,000
Other liabilities		11,340,000		11,583,000
Total liabilities		734,748,000		708,090,000
Commitments and contingencies
Shareholders’ equity:
Preferred stock; par value $0.01 per share, 5,000,000 shares authorized; none issued		-		-
Series A junior participating preferred stock; par value $0.01 per share, 20,000 shares authorized; none issued		-		-
Common stock; par value $0.01 per share, 50,000,000 shares authorized; 19,599,145 and 19,494,615 shares issued and outstanding at June 30, 2023 and March 31, 2023, respectively		196,000		195,000
Additional paid-in capital		232,866,000		231,836,000
Retained earnings		87,337,000		88,747,000
Accumulated other comprehensive income (loss)		3,040,000		(303,000	)
Total shareholders’ equity		323,439,000		320,475,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,058,187,000	$	1,028,565,000

	Three Months Ended
	June 30,
	2023			2022

Net sales	$	159,705,000		$	163,985,000
Cost of goods sold		133,138,000			133,683,000
Gross profit		26,567,000			30,302,000
Operating expenses:
General and administrative		12,602,000			13,634,000
Sales and marketing		5,419,000			5,542,000
Research and development		2,375,000			3,113,000
Foreign exchange impact of lease liabilities and forward contracts		(4,270,000	)		678,000
Total operating expenses		16,126,000			22,967,000
Operating income		10,441,000			7,335,000
Other expenses:
Interest expense, net		11,720,000			6,921,000
Change in fair value of compound net derivative liability		140,000			-
Total other expenses		11,860,000			6,921,000
(Loss) income before income tax (benefit) expense		(1,419,000	)		414,000
Income tax (benefit) expense		(9,000	)		589,000
Net loss	$	(1,410,000	)	$	(175,000	)
Basic net loss per share	$	(0.07	)	$	(0.01	)
Diluted net loss per share	$	(0.07	)	$	(0.01	)
Weighted average number of shares outstanding:
Basic		19,508,626			19,123,354
Diluted		19,508,626			19,123,354

	Common Stock
	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total

Balance at March 31, 2023		19,494,615	$	195,000	$	231,836,000		$	88,747,000		$	(303,000	)	$	320,475,000
Compensation recognized under employee stock plans		-		-		1,310,000			-			-			1,310,000
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes		104,530		1,000		(280,000	)		-			-			(279,000	)
Foreign currency translation		-		-		-			-			3,343,000			3,343,000
Net loss		-		-		-			(1,410,000	)		-			(1,410,000	)
Balance at June 30, 2023		19,599,145	$	196,000	$	232,866,000		$	87,337,000		$	3,040,000		$	323,439,000

	June 30, 2023			March 31, 2023
Accounts receivable — trade	$	165,486,000		$	136,076,000
Allowance for credit losses		(303,000	)		(339,000	)
Customer payment discrepancies		(2,076,000	)		(1,634,000	)
Customer returns RGA issued		(16,462,000	)		(14,235,000	)
Total accounts receivable — net	$	146,645,000		$	119,868,000

	June 30, 2023		March 31, 2023
Short-term contract assets
Cores expected to be returned by customers	$	15,915,000	$	13,463,000
Core premiums paid to customers		9,775,000		9,812,000
Upfront payments to customers		1,458,000		1,593,000
Finished goods premiums paid to customers		584,000		575,000
Total short-term contract assets	$	27,732,000	$	25,443,000

Remanufactured cores held at customers’ locations	$	268,906,000	$	271,628,000
Core premiums paid to customers		36,401,000		38,310,000
Long-term core inventory deposits		5,569,000		5,569,000
Finished goods premiums paid to customers		2,651,000		2,530,000
Upfront payments to customers		936,000		344,000
Total long-term contract assets	$	314,463,000	$	318,381,000

	June 30, 2023			March 31, 2023
Accounts receivable - trade
Customer A		34	%		33	%
Customer C		30	%		21	%
Customer B		15	%		18	%
Customer D		8	%		12	%

	June 30, 2023			March 31, 2023
Principal amount of Term Loans	$	12,187,000		$	13,125,000
Unamortized financing fees		(167,000	)		(182,000	)
Net carrying amount of Term Loans		12,020,000			12,943,000
Less current portion of Term Loans		(12,020,000	)		(3,664,000	)
Long-term portion of Term Loans	$	-		$	9,279,000

	June 30, 2023			March 31, 2023

Principal amount of Convertible Notes	$	32,000,000		$	32,000,000
Less: unamortized debt discount attributed to Compound Net Derivative Liability		(8,229,000	)		(8,430,000	)
Less: unamortized debt discount attributed to debt issuance costs		(1,089,000	)		(1,006,000	)
Carrying amount of the Convertible Notes		22,682,000			22,564,000
Plus: Compound Net Derivative Liability		8,570,000			8,430,000
Net carrying amount of Convertible Notes, related party	$	31,252,000		$	30,994,000

	June 30, 2023		March 31, 2023
Short-term contract liabilities
Customer allowances earned	$	23,518,000	$	19,997,000
Customer core returns accruals		16,259,000		11,112,000
Accrued core payment		3,141,000		3,056,000
Customer deposits		3,037,000		3,232,000
Core bank liability		1,699,000		1,686,000
Finished goods liabilities		1,349,000		1,257,000
Total short-term contract liabilities	$	49,003,000	$	40,340,000
Long-term contract liabilities
Customer core returns accruals	$	171,982,000	$	170,420,000
Core bank liability		13,152,000		13,582,000
Accrued core payment		9,213,000		9,171,000
Finished goods liabilities		361,000		433,000
Total long-term contract liabilities	$	194,708,000	$	193,606,000

Leases	Classification	June 30, 2023		March 31, 2023
Assets:
Operating	Operating lease assets	$	88,760,000	$	87,619,000
Finance	Plant and equipment		5,001,000		5,549,000
Total leased assets		$	93,761,000	$	93,168,000

Liabilities:
Current
Operating	Operating lease liabilities	$	8,914,000	$	8,767,000
Finance	Other current liabilities		1,802,000		1,851,000
Long-term
Operating	Long-term operating lease liabilities		77,013,000		79,318,000
Finance	Other liabilities		2,333,000		2,742,000
Total lease liabilities		$	90,062,000	$	92,678,000

	June 30, 2023			March 31, 2023
Inventory
Raw materials	$	149,545,000		$	147,880,000
Work-in-process		10,097,000			7,033,000
Finished goods		202,874,000			201,198,000
		362,516,000			356,111,000
Less allowance for excess and obsolete inventory		(16,412,000	)		(16,436,000	)
Inventory — net		346,104,000			339,675,000
Inventory unreturned		18,083,000			16,579,000
Total inventory	$	364,187,000		$	356,254,000

	Three Months Ended
	June 30,
	2023			2022
Product line
Rotating electrical products		64	%		67	%
Brake-related products		22	%		17	%
Wheel hub products		11	%		12	%
Other products		3	%		4	%
		100	%		100	%

	Three Months Ended
	June 30,
	2023		2022
Lease cost
Operating lease cost	$	3,742,000	$	3,165,000
Short-term lease cost		293,000		454,000
Variable lease cost		186,000		185,000
Finance lease cost:
Amortization of finance lease assets		403,000		539,000
Interest on finance lease liabilities		62,000		68,000
Total lease cost	$	4,686,000	$	4,411,000

Maturity of lease liabilities	Operating Leases			Finance Leases			Total
2024 - remaining nine months	$	10,383,000		$	1,521,000		$	11,904,000
2025		12,352,000			1,576,000			13,928,000
2026		12,042,000			844,000			12,886,000
2027		10,822,000			353,000			11,175,000
2028		10,725,000			194,000			10,919,000
Thereafter		53,929,000			2,000			53,931,000
Total lease payments		110,253,000			4,490,000			114,743,000
Less amount representing interest		(24,326,000	)		(355,000	)		(24,681,000	)
Present value of lease liabilities	$	85,927,000		$	4,135,000		$	90,062,000

	June 30, 2023			March 31, 2023
Lease term and discount rate
Weighted-average remaining lease term (years):
Finance leases		2.7			2.9
Operating leases		8.9			9.0
Weighted-average discount rate:
Finance leases		5.9	%		5.9	%
Operating leases		5.8	%		5.8	%

	Gain (Loss) Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts
	Three Months Ended
Derivatives Not Designated as	June 30,
Hedging Instruments	2023		2022
Forward foreign currency exchange contracts	$	500,000	$	(698,000	)

	June 30, 2023								March 31, 2023
			Fair Value Measurements								Fair Value Measurements
			Using Inputs Considered as								Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets
Short-term investments
Mutual funds	$	2,159,000	$	2,159,000	$	-	$	-	$	2,011,000	$	2,011,000	$	-	$	-
Prepaid expenses and other current assets
Forward foreign currency exchange contracts		4,389,000		-		4,389,000		-		3,889,000		-		3,889,000		-

Liabilities
Other current liabilities
Deferred compensation		2,159,000		2,159,000		-		-		2,011,000		2,011,000		-		-
Convertible notes, related party
Compound Net Derivative Liability		8,570,000		-		-		8,570,000		8,430,000		-		-		8,430,000

	June 30, 2023			March 31, 2023
Risk free interest rate		4.09	%		3.64	%
Cost of equity		22.30	%		21.80	%
Weighted average cost of capital		14.70	%		14.60	%
Expected volatility of MPA common stock		50.00	%		50.00	%
EBITDA volatility		40.00	%		35.00	%

	Number of			Weighted Average
	Shares			Exercise Price
Outstanding at March 31, 2023		1,232,745		$	20.20
Granted		-		$	-
Exercised		-		$	-
Forfeited/Cancelled		(97,683	)	$	19.34
Expired		-		$	-
Outstanding at June 30, 2023		1,135,062		$	20.28

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding at March 31, 2023		429,354		$	15.07
Granted		-		$	-
Vested		(147,215	)	$	15.66
Forfeited/Cancelled		(76,585	)	$	13.23
Outstanding at June 30, 2023		205,554		$	15.33

	Three Months Ended June 30, 2023
	Hard Parts		All Other			Total
Net sales to external customers	$	149,747,000	$	9,958,000		$	159,705,000
Intersegment sales		132,000		95,000			227,000
Operating income (loss)		11,506,000		(1,079,000	)		10,427,000
Depreciation and amortization		2,679,000		354,000			3,033,000
Segment assets		1,063,301,000		52,368,000			1,115,669,000
Capital expenditures		40,000		-			40,000

	Three Months Ended June 30, 2022
	Hard Parts		All Other			Total
Net sales to external customers	$	152,428,000	$	11,557,000		$	163,985,000
Intersegment sales		147,000		142,000			289,000
Operating income (loss)		9,611,000		(2,280,000	)		7,331,000
Depreciation and amortization		2,751,000		373,000			3,124,000
Segment assets		1,005,718,000		44,530,000			1,050,248,000
Capital expenditures		1,342,000		33,000			1,375,000

	Three Months Ended
	June 30,
Profit or loss	2023			2022
Total operating income for reportable segment	$	11,506,000		$	9,611,000
Other operating loss		(1,079,000	)		(2,280,000	)
Elimination of intersegment operating income		14,000			4,000
Interest expense, net		(11,720,000	)		(6,921,000	)
Change in fair value of compound net derivative liability		(140,000	)		-
Total consolidated (loss) income before income tax (benefit) expense	$	(1,419,000	)	$	414,000

	Three Months Ended June 30,
	2023			2022
Consolidated cash flow used in operations	$	(20,470,000	)	$	(982,000	)
Consolidated finished goods turnover (annualized) (1)		3.5			3.1

Periods	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)

April 1 - April 30, 2023:
Open market and privately negotiated purchases		-	$	-		-	$	18,255,000
May 1 - May 31, 2023:
Open market and privately negotiated purchases		-	$	-		-		18,255,000
June 1 - June 30, 2023:
Open market and privately negotiated purchases		-	$	-		-		18,255,000
Total		0				0	$	18,255,000

Number	Description of Exhibit	Method of Filing

3.1	Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement”).

3.2	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995.

3.3	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.

3.4	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”).

3.5	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.

3.6	Amended and Restated By-Laws of Motorcar Parts of America, Inc.	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 24, 2010.

3.7	Certificate of Amendment of the Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 17, 2014.

3.8	Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on June 9, 2016	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 14, 2016.

3.9	Amendment to the Amended and Restated By-Laws of the Company	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 22, 2017.

3.10	Third Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on January 26, 2022	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 1, 2022.

4.1	Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934	Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed on August 9, 2022.

4.2	2004 Non-Employee Director Stock Option Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.

4.3	2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.

4.4	Amended and Restated 2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013.

	MOTORCAR PARTS OF AMERICA, INC.

Dated: August 9, 2023	By:	/s/ David Lee
		David Lee
		Chief Financial Officer

Dated: August 9, 2023	By:	/s/ Kamlesh Shah
		Kamlesh Shah
		Chief Accounting Officer

APPLICABLE MARGINS FOR DOMESTIC RATE LOANS	APPLICABLE MARGINS FOR TERM SOFR RATE LOANS
Revolving Advances, Swing Loans	Revolving Advances
2.25%	3.25%

	US BORROWER:

	MOTORCAR PARTS OF AMERICA, INC.


	By:	/s/ Selwyn Joffe
	Name:	Selwyn Joffe
	Title:	President and Chief Executive Officer

	CANADIAN BORROWERS:

	D & V ELECTRONICS LTD.


	By:	/s/ Kalina Loukanov
	Name:	Kalina Loukanov
	Title:	Acting Chief Executive Officer

	DIXIE ELECTRIC LTD.


	By:	/s/ Selwyn Joffe
	Name:	Selwyn Joffe
	Title:	Chief Executive Officer

	DIXIE ELECTRIC INC.


	By:	/s/ Selwyn Joffe
	Name:	Selwyn Joffe
	Title:	Chief Executive Officer

	AGENT AND LENDER:

	PNC BANK, NATIONAL ASSOCIATION


	By:	/s/ Albert Sarkis
	Name:	Albert Sarkis
	Title:	Senior Vice President

	WEBSTER BUSINESS CREDIT, A DIVISION OF WEBSTER BANK, N.A.


	By:	/s/ John R. Saffioti
	Name:	John R. Saffioti
	Title:	Director, Asset Based Lending

	BANK HAPOALIM B.M.


	By:	/s/ Thomas J. Vigna
	Name:	Thomas J. Vigna
	Title:	Senior Vice President

	By:	/s/ Michael Gorman III
	Name:	Michael Gorman III
	Title:	First Vice President

	CATHAY BANK


	By:	/s/ James Campbell
	Name:	James Campbell
	Title:	Senior Vice President