MPAA - Earnings call transcript Q1 2020 | Motorcar Parts of America, Inc.

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Operator

Hello, and welcome to the Motorcar Parts of America Fiscal 2020 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s call, Gary Maier.

begin. may You

Gary Maier

and call Yolanda, for us joining Thank thanks, the today. for you, everyone,

begin, call in David Before Joffe, turn Safe like I I the of everyone release. and Chief Officer. the Executive to company’s remind Chairman, statement over Chief Officer; press the and included Lee, Harbor Financial I’d today’s President Selwyn to

Such based There and affecting statements XXXX be their these for certain potential Harbor the those of effects on Private will The differ made company today’s results assurance expectations concerning the the during provides and anticipated developments in Securities are company. Litigation from future Reform future Safe forward-looking Actual conference statements. Motorcar current company’s developments projected Parts can America. call. forward-looking that be statements, by on Act including no the may statements of beliefs forward-looking those

to control whether factors. to events beyond or These result company, and forward-looking which of any publicly statements are subject based information, new otherwise. involve of some a or significant of statements, no forward-looking obligation the uncertainties, revise company undertakes and change upon the as update risks future are The various

company’s the the and For some detailed of of refer risks Commission. various Exchange please of discussion uncertainties and the filings more with Securities business, to ongoing the

I’d that Joffe. it turn Selwyn said, like to With to begin and the over call

Selwyn Joffe

us joining everyone appreciate I today. Gary. Thanks, Okay.

inflection point. stated I fiscal we are our in As exciting an yearend reaching call,

rapidly our product to has grown, expanding growth. our footprint Our are evolving business and global support strategic lines is

seeing flow. profits We now were disappointing sequential the start line, expectations. line quarter, in with while the for to margins, our and improvement in results on financial The cash expect bottom

value with for tangible on clear the future creation. We are focused visibility

the grown, front-loaded While we way have pave incurred the an exciting company future. for to expenditures has

capital and growth invested to value to human support have upfront in and facilitate adding transformational infrastructure creation. We

market we current will expand for along to shipping team this created continue product strategically be allow in footprint our capacity offering, in The this us which launch fair quarter. will remanufacturer. our we have product efficient expanded The a position substantial leading expect as portfolio begin and brake is industry, extremely share. full the our gain products our invested and have particular and our of professionals to to will complete We a to with

Before our business, me and I three taking the are that steps are the one, capacity. making will increase and continue overhead to progress Number discuss new we our expanded in profitability let diagnostics absorption summarize increase near of resulted from we term. we has the key

business in absorption. quarter along that starts additional new this business will support the continued for that incremental in have overhead and to growth increased shipping We business, substantial with our result sales new existing visibility

expanded three, two, locations, to our implemented latter effective Number we half the are of progress have to high-cost locations leveraging Number and relocate capacity. increases, second-quarter. lower-cost price we Malaysia from making operations significant Mexico become our which

what Let the me expect reiterate, we upcoming quarters. in

quarter. and Number flows increased from three, adjusted income Firstly, substantially of the the in and number positive operating quarter gross gross in operating the for higher and third fiscal a scaling income starting margins two, year. And for year-over-year increase sales, up our quarter. cash second operations sequentially second the in adjusted margins starting solid back-half

me traction. Let now diagnostic and is discuss This gaining our emerging testing business. and business

been that new in the tester aftermarket alternate industry is OEM moving direction. standards, production benchtop fast our testers and our While starter long have

experiencing hence, losses. we operating short term, expenses. and electrical evolving. while some In aerospace for have The also are electrification is operating gross the electro-diagnostics market market margins, automotive sales are we absorb positive good adequate related the of And to not the quickly yet vehicles

thereafter, visibility will we benefit equipment and growth service from and software sales, scalable However, quickly in revenue. have businesses are these and and believe maintenance

the in corner the turn to businesses of fourth this quarter year. fiscal these expect We

enthusiastic last aircraft encouraged announced hybrid equipment particularly from for by opportunities are recent to NASA emulation a the testing electric We applications. order are of the our month, electric development and for technology be vehicle about utilized for

combustion provide sales testers are and installed software for benchtop and engine grows. as equipment, well, diagnostic opportunities solutions will additional progressing service base including As our also

several Overall, major which has diagnostics. our in value-creation focus a American previously on electric opportunity. This significant a single and a electrical become change had years and automotive rotating a a aftermarket the alternators to represents starters, multiproduct remanufactured the company, aftermarket company and supplier vehicle North leader in just ago. From

category our The launch under-the-car product represents of we focus an line. complements for product brake expanding a caliper important It week, non-discretionary on program, strategic announced new this us. earlier which our

Our now system a products. program of complete us brake braking offer customers line allows caliper of

have square-foot extension of made our square-foot this state-of-the-art facility, the the to point, completion new by Tijuana. to XXX,XXX progress inflection supported company’s distribution great We get of investments capacity on and XXX,XXX our in remanufacturing

addition, In have Malaysia. we in manufacturing our to added capacity

our discuss a team fiscal which we the a innovative and to moment acquired Dixie dedicated has late in a customer Electric and year. professionals. growing enhanced solid take business, expertise me heavy-duty heavy-duty of base, Let products,

well-positioned about as cash profitability improved wins manufacturing, expansion and through sustainable forward look them. marketing investments growth, short, enhancements we and merchandising We benefits for our And and and from anticipate and our news flow. to sharing In other since the milestones fiscal synergistic acquired we success it in enhanced sales-team year. we are to opportunities, the now

support and product our We XXXX the the for from and current future expanded benefits encouraged to remain growth. lines investments Fiscal guidance. current and by strategic our our outlook

between second sales our we We March for growth is guidance half and will and this XX%, fiscal significantly ramping year up approximately year. gross representing XX, adjusted to of are XXXX $XXX as update the be product XX% in $XXX million, XXXX year-over-year, to XX% the maintaining expected fiscal as impacted be million appropriate year ended point, between mix. margin by year net guidance for the Adjusted At evolves. fiscal

has are website, price deserved to investor related all improve industry the car presentation the latter of increases outlook, the our flow on in to that To sweet a our should some expected operating on to instituted expansion a chart cash the refer much including I basis. across lines profitability and beginning existing year. As I we of year-over-year discussed, product part spot company this our which charts, part, highlight for overall shows you macro repairs. mention positive

is the the We new next years. are age end optimism product These of now the several and from of replacement lower years seeing further time industry’s back prime support company’s prime frame. number over replacement our vehicles recession statistics the parts and growing. sales growth for Essentially,

fiscal results to the I first quarter. will over review call now the turn the David to for

David Lee

everyone results, To encourage X-K filed financial detailed begin, this non-GAAP XXXX reconciliation Selwyn. GAAP to to our read the release of I the XX, to press the with measures morning, and explanation of including more you, earnings for respect Thank June XX-Q.

the quarter, me quarter reported Let on reflecting items the for $X.X record XXXX for impacted by adjusted for totaling and were to and a first primarily gross million. take highlights sales first basis. a financial fiscal review the margin four the moment quarter results The

of contractual written terminated. customer First, customer important relationship balance that with non-cash premium for It that write-down the for a core price on cores the expenses with quarterly $X.X even in our of customer $X.X is down and is associated cores be million, on million may the for buybacks. related million are event to we and amortization refund the of value our to recognize shelves, including shelves revaluation a sheet, entitled though core the full to $X.X

of to company’s support costs anticipated with transition the the Second, New $X.X million growth. move the into associated Mexico facilities

of products million before $X.X Third, pending sold customers. net related previously $XXX,XXX to customer resolution through passed for a cost cost accrual of fourth, of tariff canceled increases a were to cost contract. And

first for period of million year hard net reflecting a XX.X% XX.X% million for quarter first sales sales profit same a with sales both XX.X% $XX.X XXXX million $XX.X earlier. $XXX.X and earlier. the for to Gross million parts as fiscal was quarter compared compared a sales year products. for quarter a year from increased Net increases to fiscal $XXX.X million XXXX $XX.X the net XX.X% diagnostic XXXX earlier. quarter the earlier, Adjusted of profit increased first percentage first fiscal XXXX a year fiscal $XX.X the million for from was with Gross

with fiscal the first a profit Adjusted for compared a million with adjusted gross impacted percentage net as relative was of XXXX earlier, expanded profit XX.X% million a to $XX.X gross lower sales a Adjusted quarter year-ago. absorption, compared $XX.X year was XX.X% the for by three months overhead capacity.

the December XXXX operating million increased new to and million to $XX.X quarter for year the Total for prior January million impart due operating first XXXX. the in $X.X requisitions $XX.X expenses from for expenses

approximately to $X.X increase January and increases in assets the Adjusted of in increased XXXX the accommodate is expenses to in first operating newly for fees. for expenses by part and due $X.X million balance $XX.X million and million prior in E&M XXXX $XX.X quarter operating million Power personnel for growth. of related was This our $X.X in professional $XXX,XXX to in infrastructure both adjusted expenditures December expenses anticipated to year. acquired million Electronics from Dixie The

several million compared As year margin for of first items the income loss for prior discussed; quarter. primarily operating million $X.X first due with XXXX the $X.X impacting compared loss $X.X operating first was mentioned gross the year. the the previously, to million operating I with was quarter quarter the prior million that fiscal $X.X Adjusted for for

for million was in the our compared we sales. period growth for Interest primarily $XX.X expense million the levels with to was year-ago. first expense $X.X was amortization increase inventory million $X.X borrowings, in year. million initiatives outstanding Depreciation EBITDA with due was higher with The expense anticipated $XX.X a support million the compared $X.X last connection as interest to average build first adjusted Our for and first quarter. for quarter increased quarter the

interest customers an increased that addition, discount utilized level sales receivable expense In to to accounts program. higher due

loss XXXX income million fiscal benefit of a or the $X.X $X.XX year or $X.X prior per for for million share $X.XX per items per $X.X with tax of compared tax $X.XX with Adjusted the income quarter or net impacting quarter year mentioned compared $X diluted the $X.X was the was quarter first share compared million quarter year-ago. diluted period. or $X.X reflecting income net million benefit earlier. $X.XX was share previously Net with loss The for XXXX a for fiscal million share, first million per first

million $XX.X debt XXXX, capital pre-tax net was adjusted resulting and return on a XX, XX was the of June of As EBITDA $XXX balance and XX.X% basis. in on a equity million, average months invested trailing

months ROIC divide of method adjusted is debt balance XX-month for Our XX equity EBITDA period. calculating trailing average the by to net the and

we growth brake Mexico categories our new operations with noted, revenue As expectation both lines. the have expanded launched from of product and Selwyn and significant new existing

XX, June bank total XXXX, based we $XXX under facility Total of net and debt approximately to facility At million XXXX, had credit approximately availability credit million. revolver revolver June subject at a was million on certain XX, $XXX.X $XX cash limitations.

This approximately liability were At June Current company in all million announcement, $XXX and were had million. a adoption the accounting balance and the lease XX, of sheet a of asset liabilities new million assets the requires recognition which $XXX assets. reflects lease current $XXX lease leases. XXXX, total for

in new new also business and the first a businesses. was used million, in for XXXX made made $X.X of to cash fiscal payments in buybacks $XX connection during million growth, due core and with quarter by operating for Net primarily impacted increase to activities customers million $XX.X inventory,

related We fiscal anticipate year. lines in latter this inventory in reductions from flows the this product existing of increased half cash to

second Contributing the a operating flow. buybacks in for help we in expect existing year. will generate be core this, cash the will from of In flows cash to addition, which business, reduction half operations to payments stronger our positive there generate from

this financial to morning’s please of For refer X non-GAAP earnings release. measures, in X Exhibits press the reconciliation to

the open then closing now call provide And will will I Selwyn some questions. for remarks.

Operator

Our the Chris first B. question line with Instructions] from comes Van Horn of [Operator Riley.

open. is line Your

Christopher Van Horn

for Good my call. morning. Thanks taking

Selwyn Joffe

Chris. Thanks,

Christopher Van Horn

to hard share. cited the specific think jumps – any throughout maybe line You parts relative Could And of you softness or it said you from industry. that you there sounds sales us little you’re and despite I cite a probably is the in record out softness? anything the term just taking bit product give like category

Selwyn Joffe

Yes.

I about mean, I we’ve that I the in DIY think different first. let that all business. to talk headwinds think public softness statements suppliers, the listening our some just the from customers had other me think, I and

rainy by is, tough. the weekends of that it driven driven most have think well, most by of rainy been – is I feeling it weekends, sequential pretty is

I speak. temporary as industry continue I that the – our We think is it’s again, – we some And say fundamental that to strong. phenomenon, we think we change are that’s of and seeing metrics of a

all is existing certainly Our in lines, is from, reflected product yet growth this none revenue new in – the line growth. driven product this of is

our gains last outperforming that market was performing, the I year. if reflected of weaker through while stronger, could the than end industry perhaps of competitors’ it’s still be And we’ve made what customers. think share still our customers

that’s So really boils down think it I what to.

type this revenue. of expected We

going We the see we’re to to further business. very you the us business second is new But the for are and on. tell expect income will the then, addition existing quarter. goes I forgetting from continue to positive scale business some a expected And the outlook now. right the little timing momentum as growth that new Chris, And also fundamentals, about unpredictable, of the net numbers now. that for right we year the for the just a

Christopher Van Horn

Got it.

rate? what Can of us of to on kind you And year. the terms it might like be you by something your the of the you throughout translate of of XX% gross run the into give Would in hit Okay. is sounds north margin perspective or is might the it that you able think a finish going be target to a year momentum the year? kind that that end

Selwyn Joffe

of if parts lot effect you margin you revenue see those all while a we the A last We’ve of see think we’re happened but the XX% the in fourth the gross it the beginning we at range. get see of around you what product certainly lot see looked higher quarter mix, that And as end undertaken moving I I – the you initiatives these Yes. until now, still. won’t of rates, depends of year, we’ve already won’t levels, but March. through till got to get we inflection the marginal think on can

going said having but be centers, get I restructuring through March, going into the that of of mean, logistic the are read much better done that, The through. are bit of model the significant to cust done with the our of worse. think that, we They of that. versus sourcing, things centers, production that get the end terms after in March. A comes I but please our part left to of the be XXX% versus don’t majority of by complete end small little Chinese fact Mexico in centers, Malaysia all won’t that sort all will be by majority will

should end they as say what the run were will last we that to I So rates, year. get of year, the reflect

now, way mix, have going lot product likely initiatives can a a different we another. affect product on one in barring of Just of lot lines, that or all it existing

Christopher Van Horn

you Got jump queue. me, it. color. that One more Thank for for in back the and I’ll

or margin caliper you in On private of it specific can us could is it brake a brand? give you customers, And maybe that? multiple program, anything terms then, the label, do profile describe, for is you have

Selwyn Joffe

too evasive, I to little get granular. to Yeah, early, I want it’s be – we mean I to would like so a think little a be I don’t don’t but mean,

it significant that. revenue at have We commitments. I’ll leave

for identifying It As leave scaling. customers, I’ll out is as how that now. many far

fact, in shipping actually, started We today.

planned is today lot going you in to out commitments day door But a those based initiatives outlook on. extremely for have on where the or be went out first It’s today. and category all to us ramp-up. be right is existing the going the door going not for today, volume instant, of a certainly not shipments one. positive that So It but the

are the as that say upfront. electrical little a profile. would into The that profile. also potentially of I getting the remanufacturing is cost higher It’s margin rotating margin the same profile business

that, profile but margin the positive. experiencing We’re is

we dilutive when think will be that be gross not think our hopefully And not it accretive. be will will margins. ramps, And to – it we then, it

think first also so category. it’s good we And is step. the It

friction. how that I previously in going full think offering now a those we’re And line announced have we’ve our launching other I been offering, powerful. very rotors and be we’ve quite is think But calculated sales to we categories.

private that label brand, the brand. private to arenas customers both prefer servicing. private be this offer we are I will the in but there about point, talk will We and not At both

Christopher Van Horn

time. so Thank much you the for Great.

Selwyn Joffe

you. Thank

David Lee

you. Thank

Operator

Thank you.

Stember from question the Our of line CL comes King. next Scott with

Your open. line is

Scott Stember

questions. Good morning thanks my for and taking

David Lee

Good morning.

Selwyn Joffe

Good morning, Scott.

Scott Stember

about just a maybe market, little the again. So

but more least Do-It-Yourself is your about softness, talked side. experience again on You it on some the like, the at – sounds

I more two? talk differences look do-it-for-me last just And If seen over maybe side, quarter channel, the to or key or about your wholesale you at versus you’re guess changes the what’s any there? seeing retail just material the you business, what maybe the have

Selwyn Joffe

Yeah, I retailers market of look, see. you, tell general to the people customers But based Scott, I’m terms my for industry, will statistics, in what that answer. believe, traditional sort those not analysis I stronger. to think, will to and leave I in I factual on of going to believe that I answer the only and the get they continue an the

Number to combustion driven engine stable, or better. getting it’s stable rates about talking up. positive. to Miles Average of not cars grow. remains on continues go age cars. the road continues are Replacement And I’m

only And so it’s of a question timing.

the may entire anyone unless [indiscernible] they tariffs. I lot a statistics purchases. the non-discretionary, and don’t relative industry in our I supply market, There’s are But certainly activity go the effect discretionary of should a And so put right have to Chinese a may the tumultuous it’s now. while lying. little And think up believes believe that. to want on DIY short-term nondiscretionary. entire market it off, It’s with that And

will price not And category. it at inflation of from in And all. replacements affect we there’s necessary volume believe the that parts that nondiscretionary

terms DIY, breakdown complicated. professional the and more getting are between the in mean of I cars I mean, So

a going as percentage, sure. All outgrowing away. believe for is that, market is DIY one having customers no of but believes That’s DIY the that said probably the professional

Scott Stember

implementation And tariffs. X the of impact so, List already? have that at accounted price – any on you’ve the for put your comments XX%, your that if The Great. ducktailing does And business? this on of been has Okay. through increases

Selwyn Joffe

but think XX%, is clear, were round the is referring line to, very latest question The I Scott? not Yeah. of that what was the you

Scott Stember

List talking Yeah, yeah. I’m X. about

Selwyn Joffe

Yeah. Okay.

Okay.

no effect. that I have increased that us. So of to on of our increases has the XXX% we tariff of increases to all tell had through you will to tariff rounds marketplace. mean have And we I the products passed first subject the

has is that so is happened happening. – happening that and And that

tariffs, like next looks We going have to certainly a here but idea the little for to what’s bit. it no on happen stay they’re

have to see. So we’ll

the for headwinds quite in us, end we’re at good the on I think day footprints tariff adjust to the just by significant frankly, of based and a our Malaysia. in Mexico to position China, created

Scott Stember

And just lastly, appreciate it. guidance. details on I all the Got

trying just to the but That I little us improving, second you ramp-up bit half from back to for really just Thanks. give a figure and more gross half It quarter But idea accelerating little alluded margin guess, better give just year. You of the obviously, quarter. be the be the the the like up the maybe will how a be looks back a out bit, in of of little a Could year? should there be will granularity? great. should second much the step into sales,

Selwyn Joffe

a line into I takes track see guidance. I want Yeah. you fourth a in we’ve get a revenue. faster and will on mean But going little with we new to to way that be in – guidance right quarter. sort and even the I basis. mean, it’s revenue time third ramp-up. It that quarterly I the an annual on our clearly, significant accelerate product is announced mean, to think there’s don’t the increase of

second will significantly in are quarter we’re we and the in start initiatives through other more that We the that also right have that ramping some and this third see increases now. current the in but fourth, up

the industry, of the that are worst year, think the you and hope here, So I guidance. slowness a that I I we cautious the earlier. the of is little behind will think we but I mentioned which because as I the we start heavy of go more give don’t heavy through lifting in words for think I I worst the mean, keep my And lifting us. the

in turn And so hopefully may some have upside. we that, if we see a

that So into your without question answers numbers. quarterly hopefully getting

Scott Stember

That’s fine. you. That’s Thank all That’s No. I perfect. have.

Selwyn Joffe

you. Thank

Operator

next Our question with Dyer from Steve comes the of Craig-Hallum. line

Steven Dyer

mine and have asked you. Thank of answered. been Most

of flow. Just I questions, clarify couple a on to cash want

of the I think, the operations anticipating second fiscal flow being a from this you year? What talked of are CapEx positive for half you’ve cash year about perspective. kind from

David Lee

about $XX fiscal anticipating for million are We XXXX.

Steven Dyer

guess... And I so then

Selwyn Joffe

will say, is cash the Steven, I flow pay for will that. that positive

Steven Dyer

free you by anticipate less positive cash So free second defined flow just for cash year from as being an the the as CapEx, ops or half? cash company entire flow

Selwyn Joffe

be this that year expect ops. for the will We from

Steven Dyer

Okay.

leverage has we of a debt progresses? couple here in So, years leverage. I safe down Or X obviously, last differently? that’s anticipate guess, bringing if as around ratio up crept a should net times the quite bit to think number, the the you year probably

Selwyn Joffe

debt some We that down. and get believe – a with as debt forward reduce CapEx of then start we quarter, we and this cash we will coming initiative. as and end everything see Yeah. paying peeking go down this and completed certainly, CapEx the We’ll expect through flow positive CapEx once slight we fund that will will start

Steven Dyer

Got it.

That’s I have. all Okay.

Selwyn Joffe

other mind, add I think to is on you important. don’t if thing, think and I I the just want this Steve,

of. available us huge is a us to with available think lines advantage now. we that’s have the to to that amount There I take right product now we’ve growth of

to it’s starting So the last buildings things to get completed. done the of base pipeline. once is test now spend a And that reiterate cash matter I is then the these want that’s

And dollars. we are billions so are that the categories in of

we think good a of don’t certainly gone we’ve strong in years transformation. do within I very focused through job grow business. big other really have categories don’t our other growth, we categories need we to We but everyone, that categories we and order like not on need the to right so I’m And can number just now. if a a look we’ve of not other, for mean, got

from that, the And debt creating and benefits and it. the to paying value we’re once we start now getting end profit. that, get towards the through of in down We’re milking process

Steven Dyer

it. Got

you. Thank Okay.

Operator

like turn remarks. Thank I’m now for questions time. further to Joffe over back will to no at I closing call showing the Selwyn this you.

Selwyn Joffe

investments I thank to just we everybody. you. to are starting our want believe now appreciate Well, say, bear In fruit. I summary,

have growth ahead of opportunities many We us.

commitments of both hard line continuing, expanding parts diagnostics. supported and our products, are business by nondiscretionary New in business an

history of And We committed the industry. us that to parts all aftermarket XX-year leader are proud today are have of tomorrow. of in our and solutions more being vision our global and move world than for

And team They pride at sell call the commitment as always, contributions want and society. service to support and of November Thank I continued interim. they quality you the also again service conference members our focus to to all for for to we wonderful and the made on XXXX Their quarter all customer-centric call. proud their customer your you. I’m forward you their and thank We all the we communities and you. we of and our joining exceptional provide. with reflected for host And thank the and for in in commitment service is their fiscal work terrific we our in to look conferences various are second and with appreciate in us speaking products when

Operator

Ladies concludes call. you participating. for Thank that and gentlemen, today’s

You wonderful a have day. Everyone may disconnect. now

Motorcar Parts of America (MPAA) 11 Aug 192020 Q1 Earnings call transcript