Motorcar Parts of America, Inc. (NASDAQ:MPAA) Q3 2022 Earnings Conference Call February 9, 2022 1:00 PM ET Company Participants Gary Maier - VP, Corporate Communications and IR Selwyn Joffe - Chairman, President & CEO David Lee - CFO Conference Call Participants Matthew Koranda - ROTH Capital Partners Scott Stember - CL King & Associates Brian Nagel - Oppenheimer William Dezellem - Tieton Capital Management Operator Good morning. My name is David, and I'll be your conference operator today. At this time, I ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging g ...

Motorcar Parts of America, Inc. (NASDAQ:MPAA) Q2 2022 Earnings Conference Call November 9, 2021 1:00 PM ET Company Participants Gary Maier - Investor Relations Selwyn Joffe - Chairman, President, and Chief Executive Officer David Ashley Lee - Chief Financial Officer Conference Call Participants Sarkis Sherbetchyan - B. Riley Securities Matt Koranda - Roth Capital Scott Stember - CL King Brian Nagel - Oppenheimer Bill Dezellem - Tieton Capital Operator Good day and thank you for standing by. Welcome to Motor ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 001-33861 MOTORCAR PARTS OF AMERICA, INC. (Exact name of registrant as specified in its charter) New York 11-2153962 (State or other jurisdiction ...

Motorcar Parts of America, Inc. (NASDAQ:MPAA) Q1 2022 Earnings Conference Call August 9, 2021 1:00 PM ET Company Participants Gary Maier - VP, Corporate Communications and IR Selwyn Joffe - Chairman, President & CEO David Lee - CFO Conference Call Participants Sarkis Sherbetchyan - B. Riley Securities Matthew Koranda - ROTH Capital Partners Brian Nagel - Oppenheimer Scott Stember - CL King & Associates Operator Good day, and thank you for standing by. Welcome to the Motorcar Parts of America's Fiscal 2022 F ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 001-33861 MOTORCAR PARTS OF AMERICA, INC. (Exact name of registrant as specified in its charter) New York 11-2153962 (State or other jurisdiction of i ...

Motorcar Parts of America, Inc. (NASDAQ:MPAA) Q4 2021 Earnings Conference Call June 14, 2021 1:00 PM ET Company Participants Gary Maier - Investor Relations Selwyn Joffe - Chairman, President & Chief Executive Officer David Lee - Chief Financial Officer Conference Call Participants Scott Stember - C.L. King Brian Nagel - Oppenheimer Sarkis Sherbetchyan - B. Riley Securities Michael Zabran - ROTH Capital Matt Dhane - Tieton Capital Management Operator Good day. Thank you for standby. Welcome to the Motorcar ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) MPA is a leading supplier of automotive aftermarket parts and diagnostic equipment, operating in the **$130 billion** North American market with a focus on remanufacturing and EV/aerospace test solutions - MPA operates in the **$130 billion** non-discretionary automotive aftermarket in North America, with a core business in rotating electrical parts and a strategic expansion into brake products and heavy-duty applications[20](index=20&type=chunk)[21](index=21&type=chunk) - Strategically expanding into test solutions and diagnostic equipment for the **EV and aerospace industries**, targeting a multi-billion-dollar global market[22](index=22&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) Customer Concentration (Fiscal Years 2019-2021) | Customer Group | FY 2021 (%) | FY 2020 (%) | FY 2019 (%) | | :--- | :--- | :--- | :--- | | **Three Largest Customers (Aggregate)** | 87% | 84% | 83% | | **Largest Customer (AutoZone)** | 42% | 38% | 38% | - Remanufacturing process primarily in **Mexico, Canada, and Malaysia**, utilizing lean manufacturing and IATF 16949/ISO 9001 quality standards[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) - As of March 31, 2021, the company employed approximately **5,700 people globally**, with **4,800 in Mexico** and **4,700 production employees unionized**[57](index=57&type=chunk) [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, high customer concentration, intense competition, and challenges associated with extensive offshore operations - COVID-19 pandemic poses significant risks including supply chain delays, increased freight costs, and reduced consumer demand[71](index=71&type=chunk)[73](index=73&type=chunk) - High customer concentration is a major risk, with the **three largest customers accounting for 87% of net sales in fiscal 2021**[74](index=74&type=chunk) - The business is highly competitive, facing pressure from large domestic and international suppliers and emerging Chinese manufacturers[75](index=75&type=chunk)[76](index=76&type=chunk) - Offshore operations, especially in Mexico, expose the company to political, economic, and currency risks, with **23% of fiscal 2021 expenses in non-USD currencies**[98](index=98&type=chunk)[100](index=100&type=chunk) - Potential new tariffs on goods imported from China and other countries could materially affect operations[102](index=102&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments have been reported by the company - None [Properties](index=22&type=section&id=Item%202.%20Properties) The company's material facilities are primarily leased, located in the US, Mexico, Canada, and Asia, including over **1 million sq ft** in Tijuana, Mexico Major Leased Facilities | Location | Type of Facility | Approx. Square Feet | | :--- | :--- | :--- | | Torrance, CA | Remanufacturing, Warehouse, Admin | 231,000 | | Tijuana, Mexico | Distribution Center and Office | 410,000 | | Tijuana, Mexico | Remanufacturing, Warehouse, Office | 312,000 | | Tijuana, Mexico | Remanufacturing, Warehouse, Office | 199,000 | | Tijuana, Mexico | Core Induction, Warehouse, Office | 173,000 | | Ontario, Canada | Remanufacturing, Warehouse, Office | 157,000 | [Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) The company is disputing a **$17 million** claim from U.S. Customs and Border Protection for additional duties on products imported from Mexico - U.S. Customs and Border Protection asserts the company owes approximately **$17 million in additional duties** for products imported from Mexico from 2011 to mid-2018, which the company disputes[117](index=117&type=chunk) [Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under MPAA, with **$1.14 million** in share repurchases in Q4 FY2021 and **$20.17 million** remaining in the repurchase program - The company's common stock trades on the **NASDAQ Global Select Market** under the symbol **MPAA**[120](index=120&type=chunk) Share Repurchase Activity (Q4 FY2021) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | Dollar Value Remaining Under Program ($) | | :--- | :--- | :--- | :--- | | Feb 1 - Feb 28, 2021 | 54,960 | $20.72 | $20,169,000 | | **Total Q4** | **54,960** | **-** | **$20,169,000** | [Selected Financial Data](index=26&type=section&id=Item%206.%20Selected%20Financial%20Data) This section is intentionally left blank by the company - None [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses fiscal 2021 performance, noting **$540.8 million** in net sales, a gross margin decline to **20.2%**, strong operating cash flow of **$56.1 million**, and a **$71.8 million** debt reduction [Impact of COVID-19](index=27&type=section&id=Impact%20of%20COVID-19) The COVID-19 pandemic caused demand fluctuations and supply chain disruptions, leading to **$7.3 million** in related expenses in fiscal 2021, partially offset by **$1.3 million** in government assistance - In fiscal 2021, the company incurred **$7.316 million** in total COVID-19 related expenses[137](index=137&type=chunk) - The company received **$1.301 million** in government assistance payments from Canada and Asia to offset COVID-related costs[137](index=137&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Fiscal 2021 net sales increased to **$540.8 million**, gross margin declined to **20.2%** due to higher costs, and net income was **$21.5 million**, a turnaround from a **$7.3 million** loss in fiscal 2020 Fiscal Year 2021 vs. 2020 Performance | Metric | FY 2021 ($) | FY 2020 ($) | | :--- | :--- | :--- | | Net Sales | $540,782,000 | $535,831,000 | | Gross Profit | $109,461,000 | $118,400,000 | | Gross Profit % | 20.2% | 22.1% | | Net Income (Loss) | $21,476,000 | $(7,290,000) | - Gross profit in FY2021 was negatively impacted by **$5.268 million** in COVID-related costs and **$16.353 million** in Mexico operations transition expenses[191](index=191&type=chunk)[192](index=192&type=chunk) - The company recorded a non-cash gain of **$17.606 million** from foreign exchange impacts in FY2021, compared to an **$18.201 million** loss in FY2020[195](index=195&type=chunk)[199](index=199&type=chunk) Fiscal Year 2020 vs. 2019 Performance | Metric | FY 2020 ($) | FY 2019 ($) | | :--- | :--- | :--- | | Net Sales | $535,831,000 | $472,797,000 | | Gross Profit | $118,400,000 | $89,174,000 | | Gross Profit % | 22.1% | 18.9% | | Net (Loss) | $(7,290,000) | $(7,849,000) | [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity improved in fiscal 2021 with operating cash flow increasing to **$56.1 million**, enabling a **$71.8 million** debt reduction, with **$125.3 million** available under the credit facility Cash Flow Summary (Fiscal Years 2019-2021) | Cash Flow Activity | FY 2021 ($) | FY 2020 ($) | FY 2019 ($) | | :--- | :--- | :--- | :--- | | **Operating Activities** | $56,089,000 | $18,795,000 | $(40,328,000) | | **Investing Activities** | $(14,214,000) | $(11,594,000) | $(22,610,000) | | **Financing Activities** | $(76,567,000) | $32,153,000 | $59,936,000 | - The company has a **$268.6 million** senior secured credit facility, with **$84.0 million** outstanding on the revolving facility and **$20.5 million** on the term loan as of March 31, 2021[226](index=226&type=chunk)[230](index=230&type=chunk)[419](index=419&type=chunk) - The company was in compliance with all financial covenants as of March 31, 2021, with a senior leverage ratio of **1.46** and a fixed charge coverage ratio of **1.26**[228](index=228&type=chunk)[229](index=229&type=chunk) Receivable Discount Program Summary (FY2021 vs FY2020) | Metric | FY 2021 ($) | FY 2020 ($) | | :--- | :--- | :--- | | Receivables Discounted | $491,285,000 | $461,484,000 | | Amount of Discount as Interest Expense | $9,513,000 | $14,780,000 | [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rate fluctuations, foreign currency exposure, and customer credit concentration, with mitigation strategies in place - A hypothetical **1% increase in interest rates** would increase annual net interest expense by approximately **$1.045 million** on its **$104.5 million** net debt[244](index=244&type=chunk) - The company uses forward contracts to mitigate foreign currency risks, where a **10% adverse change** in exchange rates would have increased operating expenses by approximately **$3.932 million** at March 31, 2021[245](index=245&type=chunk) - In fiscal 2021, the company recorded a **$7.713 million gain** on forward currency contracts and a **$9.893 million gain** on remeasurement of foreign currency-denominated lease liabilities[245](index=245&type=chunk) [Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the consolidated financial statements and related notes, commencing on page F-1 - The required information is set forth in the consolidated financial statements, commencing on page F-1[247](index=247&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=45&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None [Controls and Procedures](index=45&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2021, with an unqualified audit opinion from Ernst & Young LLP - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[250](index=250&type=chunk) - Management concluded that internal control over financial reporting was effective as of March 31, 2021, based on the COSO framework (2013)[253](index=253&type=chunk) - No material changes in internal control over financial reporting occurred during the period[255](index=255&type=chunk) [Other Information](index=46&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None Part III [Directors, Executive Officers and Corporate Governance](index=47&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the company's Proxy Statement[260](index=260&type=chunk) [Executive Compensation](index=47&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[261](index=261&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=47&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[262](index=262&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=47&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[263](index=263&type=chunk) [Principal Accountant Fees and Services](index=47&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's Definitive Proxy Statement - Information is incorporated by reference to the Proxy Statement[264](index=264&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=48&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K report, including financial statements, schedules, and various exhibits - This item provides an index to the Consolidated Financial Statements and lists all exhibits filed with the report[266](index=266&type=chunk)[267](index=267&type=chunk) [Form 10-K Summary](index=52&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for this item - None Financial Statements [Consolidated Financial Statements](index=59&type=section&id=Consolidated%20Financial%20Statements) The audited consolidated financial statements for fiscal years 2019-2021 are presented, showing fiscal 2021 total assets of **$847.9 million**, net sales of **$540.8 million**, and net income of **$21.5 million** Consolidated Balance Sheet Highlights (As of March 31, 2021) | Account | Amount ($) | | :--- | :--- | | Total Current Assets | $422,856,000 | | Total Assets | $847,882,000 | | Total Current Liabilities | $326,131,000 | | Total Liabilities | $546,737,000 | | Total Shareholders' Equity | $301,145,000 | Consolidated Statement of Operations Highlights (Year Ended March 31, 2021) | Account | Amount ($) | | :--- | :--- | | Net Sales | $540,782,000 | | Gross Profit | $109,461,000 | | Operating Income | $46,633,000 | | Net Income | $21,476,000 | | Diluted EPS | $1.11 | - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of March 31, 2021[286](index=286&type=chunk)[294](index=294&type=chunk) - Critical Audit Matters include the complexity of accounting for **'Contractual Agreements with Core Exchange Programs'** and the completeness of **'Marketing Allowances'**[298](index=298&type=chunk)[299](index=299&type=chunk)[302](index=302&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q3 2021 were $122.6 million, down from $125.6 million year-over-year, impacted by order delays of approximately $17 million due to COVID-19 challenges [22][27] - Gross profit for Q3 2021 was $24.2 million, compared to $27.7 million a year earlier, with gross profit as a percentage of net sales at 19.8% versus 22.0% [23] - Net income for Q3 2021 was $8.5 million or $0.44 per diluted share, compared to $865,000 or $0.04 per diluted share a year ago [26] - Cash flow from operations for Q3 2021 was $33.2 million, up from $22.3 million in Q3 2020 [30] - Net debt was reduced by 29.1% to $67.6 million from $94.4 million at September 30, 2020 [10][30] Business Line Data and Key Metrics Changes - The product mix for Q3 2021 consisted of 72% rotating electrical, 14% wheel hub, 12% brake products, and 2% others, with a decline in rotating electrical compared to the prior year [44] - The company built inventory to support anticipated strong demand for upcoming quarters [12] Market Data and Key Metrics Changes - The average age of the vehicle fleet reached approximately 12 years, leading to increased demand for parts replacement [14] - The company noted strong demand for used cars, as consumers prefer them over new cars during economic uncertainty [13] Company Strategy and Development Direction - The company is focused on enhancing its position as a premier supplier of automotive aftermarket parts in North America and emerging electric vehicle markets [15] - The company is optimistic about growth and profitability over the next several years, particularly in the electric vehicle and aerospace sectors [18] Management's Comments on Operating Environment and Future Outlook - Management indicated that while sales growth has been restrained by global supply chain challenges, bottom line performance is expected to benefit from enhanced operating efficiencies as the pandemic situation improves [17] - The company expects to see a recovery in demand and shipment volumes, particularly in January, with a double-digit increase anticipated [53] Other Important Information - The company has generated positive cash flow from operating activities for five consecutive quarters [31] - The company is optimistic about its electric vehicle subsidiary and its potential for growth [62] Q&A Session Summary Question: Details on the $17 million order delays - Management clarified that the delays were primarily due to supply chain challenges, not demand issues, with inventory reductions from customers pushing orders into January [40][41] Question: Gross margin fluctuations - Management indicated that the largest impact on gross margins was due to supply chain challenges and higher freight costs, with expectations for improved margins as revenues increase [48] Question: Cash generation sustainability - Management stated that cash flow generation will fluctuate based on sales levels and growth, but they believe they can continue to generate positive cash flow [59] Question: New product startup costs - Management expects startup costs to wind down by the first quarter of the next fiscal year, with some marginal expenses remaining [61] Question: Electric vehicle initiatives - Management expressed optimism about the electric vehicle space, indicating significant traction with top companies and potential for growth [102] Question: Accounts receivable drop - Management noted that the drop was primarily a timing phenomenon, with strong cash collections during the quarter [107]

[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited financial statements detail the company's financial position, operations, and cash flows for the period ended December 31, 2020 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of December 31, 2020, total assets increased, driven by higher inventory and offset by lower cash, while debt was significantly reduced Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Mar 31, 2020 | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $12,800 | $49,616 | ($36,816) | | Accounts receivable — net | $45,271 | $91,748 | ($46,477) | | Inventory | $296,281 | $234,680 | $61,601 | | Total current assets | $395,108 | $409,116 | ($14,008) | | Total Assets | $799,236 | $777,029 | $22,207 | | **Liabilities & Equity** | | | | | Revolving loan | $59,000 | $152,000 | ($93,000) | | Total current liabilities | $298,826 | $318,492 | ($19,666) | | Total liabilities | $499,552 | $501,509 | ($1,957) | | Total shareholders' equity | $299,684 | $275,520 | $24,164 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net income surged for the three and nine-month periods despite slightly lower sales, primarily due to significant foreign exchange gains Statement of Income Highlights (in thousands, except per share data) | Metric | Q3 FY2021 (3 mo ended 12/31/20) | Q3 FY2020 (3 mo ended 12/31/19) | YoY Change | 9 Months FY2021 (ended 12/31/20) | 9 Months FY2020 (ended 12/31/19) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $122,568 | $125,574 | -2.4% | $372,654 | $385,096 | -3.2% | | Gross Profit | $24,241 | $27,661 | -12.4% | $77,354 | $81,817 | -5.5% | | Operating Income | $15,893 | $9,246 | +71.9% | $41,163 | $22,230 | +85.2% | | Net Income | $8,469 | $865 | +879.1% | $20,641 | $903 | +2185.8% | | Diluted EPS | $0.44 | $0.04 | +1000% | $1.07 | $0.05 | +2040% | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow improved significantly, shifting from a net use to a source of cash, which was primarily used for debt repayment Cash Flow Summary (Nine Months Ended Dec 31, in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $72,484 | ($4,410) | | Net cash used in investing activities | ($12,295) | ($9,650) | | Net cash (used in) provided by financing activities | ($97,734) | $13,546 | | **Net decrease in cash and cash equivalents** | **($36,816)** | **($453)** | - The company significantly paid down its revolving loan, with repayments of **$93.0 million** in the first nine months of fiscal 2021, compared to net borrowings in the prior year[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's single reportable segment, high customer concentration, credit facility terms, and a customs duty dispute - The company's business comprises three operating segments, but they are aggregated into **one reportable segment** for financial reporting purposes[29](index=29&type=chunk) Significant Customer Concentration (as % of Net Sales) | Customer | Nine Months Ended 12/31/20 | Nine Months Ended 12/31/19 | | :--- | :--- | :--- | | Customer A | 42% | 39% | | Customer B | 24% | 21% | | Customer C | 21% | 23% | - The company is party to a **$268.6 million senior secured credit facility**, consisting of a $238.6 million revolving facility and a $30.0 million term loan, maturing in June 2023[53](index=53&type=chunk)[58](index=58&type=chunk) - The company uses forward foreign currency exchange contracts to mitigate risk from fluctuations in the Mexican peso and Chinese yuan, with a notional value of **$37.6 million** at quarter-end[76](index=76&type=chunk)[78](index=78&type=chunk) - The U.S. Customs and Border Protection has asserted that the company owes approximately **$17 million** in additional duties from 2011 to mid-2018, which the company disputes[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, highlighting COVID-19 impacts, decreased sales, lower gross margins, and improved liquidity used for debt repayment [Impact of the Novel Coronavirus (COVID-19)](index=25&type=section&id=Impact%20of%20the%20Novel%20Coronavirus%20(COVID-19)) The pandemic caused supply chain disruptions and increased costs, which were partially offset by government assistance payments - For the nine months ended Dec 31, 2020, the company incurred **$5,953,000 in COVID-19 related costs** for expanded benefits, supplies, and other expenses[112](index=112&type=chunk) - The company received government assistance payments totaling **$1,291,000** for the nine months ended Dec 31, 2020, which were recorded as a reduction of cost of goods sold and operating expenses[112](index=112&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Sales decreased due to supply chain disruptions, while gross margin fell from higher costs, but operating income was boosted by foreign exchange gains - Q3 FY2021 net sales were negatively impacted by order delays of approximately **$17,000,000** due to global supply chain and logistics disruptions related to COVID-19[117](index=117&type=chunk) Factors Impacting Q3 FY2021 Gross Profit (in thousands) | Item | Impact on Gross Profit | | :--- | :--- | | COVID-19 related costs | ($1,052) | | Mexico expansion transition expenses | ($4,217) | | Amortization of core premiums | ($1,528) | | Revised tariff costs benefit | $688 | - For the nine months ended Dec 31, 2020, net sales included **$12,779,000 in core revenue** from an inventory realignment at two customer distribution centers[131](index=131&type=chunk) - Interest expense for the nine months ended Dec 31, 2020, **decreased by 38.3% to $12.1 million** from $19.6 million in the prior year, due to lower interest rates and lower average debt balances[142](index=142&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity strengthened with robust operating cash flow, enabling significant debt reduction while maintaining covenant compliance - Net cash provided by operating activities was **$72,484,000** for the nine months ended Dec 31, 2020, compared to net cash used of $4,410,000 in the prior-year period[148](index=148&type=chunk) - The company paid down its outstanding debt by **$95,813,000** during the nine months ended December 31, 2020[150](index=150&type=chunk)[155](index=155&type=chunk) Financial Covenant Compliance (as of Dec 31, 2020) | Covenant | Requirement | Actual Calculation | | :--- | :--- | :--- | | Maximum senior leverage ratio | ≤ 3.00 | 1.18 | | Minimum fixed charge coverage ratio | ≥ 1.10 | 1.24 | - As of December 31, 2020, **$21.3 million remained available** under the company's authorized share repurchase program[146](index=146&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its market risk exposures since its last Annual Report on Form 10-K - There have been **no material changes in market risk** since the company's Annual Report on Form 10-K as of March 31, 2020[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2020[173](index=173&type=chunk) - **No changes occurred** during the quarter ended December 31, 2020, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting[178](index=178&type=chunk) [PART II — OTHER INFORMATION](index=36&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) There have been no material changes to the company's litigation matters since its last Annual Report - **No material changes** to litigation matters were reported since the last Annual Report on Form 10-K[180](index=180&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the company's last Annual Report - **No material changes** to risk factors were reported since the last Annual Report on Form 10-K[181](index=181&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased during the quarter, with $21.3 million remaining available under the authorized program - The company **did not repurchase any of its equity securities** during the three months ended December 31, 2020[183](index=183&type=chunk) - As of December 31, 2020, **$21,308,000 remained available** under the company's $37,000,000 share repurchase program[183](index=183&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) There was no other information to report for the period - **No information was reported** under this item[184](index=184&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and Interactive Data Files