Motorcar Parts of America(MPAA) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements Unaudited financial statements detail the company's financial position, operations, and cash flows for the period ended December 31, 2020 Condensed Consolidated Balance Sheets 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 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 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] Notes to Condensed Consolidated Financial Statements 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] 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][58] - 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][78] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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) 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] - 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] Results of Operations 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] 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] - 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] Liquidity and Capital Resources 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] - The company paid down its outstanding debt by $95,813,000 during the nine months ended December 31, 2020[150][155] 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II — OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of December 31, 2020, $21,308,000 remained available under the company's $37,000,000 share repurchase program[183] Item 5. Other Information There was no other information to report for the period - No information was reported under this item[184] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and Interactive Data Files