MPAA - Earnings call transcript Q1 2023 | Motorcar Parts of America, Inc.

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Operator

Hello. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Motorcar Parts of America's Fiscal 2023 First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. you. Thank Instructions] [Operator of and VP may Communications, begin. Investor Maier, Corporate Relations you Gary

Gary Maier

Thanks, today. for you, everyone, Thank Chris. joining

for developments uncertainties, of forward-looking will the America. forward-looking and results those may Motorcar in the of by involve from forward-looking certain today's of statements Before we are beyond Company significant Officer; are forward-looking statements. Litigation Actual the including Private subject begin like Company potential no statement to the anticipated Act some Selwyn these included Parts those which safe and projected be are and Chief Reform of XXXX differ to Company's during I the control These affecting future turn be Chairman, risks about to expectations Such a factors. forward-looking future obligation Company's achieved. press a of publicly Company effects the and the remind no President in everyone assurance upon future can Chief statements safe beliefs developments the growth conference on customers or harbor various call. not events In new and Officer, The today's undertakes particular, opportunities statements, be revise concerning otherwise. statements provides or Securities based whether Executive made on change expectations and Financial any and There that of Lee, Joffe, statements, update David current I'd call to harbor may and Company. as future based information, with over The result release. their anticipated

the and and begin like refer business, said, that various uncertainties discussion Exchange of Joffe. a Company's Commission. turn to risks to Company's Securities ongoing With with the to detailed and Selwyn over call more For filings you it the I of the I'd the

Selwyn Joffe

us joining everyone appreciate safe you're I all I today. Gary. you, and healthy. hope Thank

by continued reaching year this supported North strong start customer our XX% climbing non-discretionary products to year-over-year is a basis, new an announced for off record As across on excellent our fiscal American morning, levels, sales with base. demand

support that optimism evolves. Let our XXXX fiscal as me items highlight several

utilizing rolling brake rotors. is formulation line as pad as Our our an planned, proprietary brake are industry-leading out

brake momentum increases with improvements absorption gain fixed volume opportunities. efficiency as with continues cost calf Our expected operation to operating

business sales We our our fiscal $XXX million the in years. related in are to three reported results brake exceed to targeting above annual XXXX next five

to of $XX product We wheel sales rotating multiple tester hubs years. expect are million automotive sales cumulative master electrical we opportunity benchtop Major with lines, the cylinders. rollout a growing electrical, next over Mexico our in and and reach retailers continue including five rotating this from the

We also expect additional and revenue add-on services. for maintenance

of the business Detroit, all electric continue Our to is fuel an multi-year EV about to and software-as-a-solution, interest vehicles. contract model. initial testing these SaaS, growth. opportunities commitments of We're center our to attract excited This support expect and contract design continues into in testing Michigan entry new numerous development our to

market. our address broad the combustion momentum. offer continues we expect call vehicle internal of with At market As the for June, both both electric the application Clearly, and for markets. we combustion product engine decades strong I population necessary address to fiscal approximately combustion to a and demand are functionality aftermarket of electric also applications car positioned same the Nonetheless, opportunities well during to $XXX market engine our to non-discretionary emphasized gain the significant line internal emerging we year-end engine parts offer the across time, million. market internal and and service emerging applications vehicle in services

charging and emulation, electric testing high-speed inverters, and subsidiary. only increasing motors vehicle our So from battery we will but offered not of electric by our non-discretionary demand applications for battery product from benefit offerings also development power

retail XX,XXX continue for consumers highlighted continuing to their testers retailers benefit the that problems latest more benchtop customer the challenges during facing businesses store diagnose testers to to returns. As value-added relationships. the customers with for while offer and all our the benchtop we suppliers these our starters unnecessary to the advice for alternated working for products. accurate protocols aftermarket out and Notwithstanding These every for with industry earlier, and locations. retailer matter, strengthening are reduce unpredictable I demand consumer than times, This roll enable a day of meet diligently our provides

are today. take me summarize to moment Let a we where

Our completed. strategic investments have been

our of automotive the in industry solidified customer expanded opportunities. an aftermarket position non-discretionary with further have line We and products, commitments

with experience now supported turn approximately our profitability. results greater than global and by to to sales. the We growth to support growth initiatives Our X,XXX believe in will our fuel over more our call vast in review $X scalable, global David to I detail. footprint billion employees is will

David Lee

of I Thank today, good you, release more I press our our fiscal today, this On the earnings an would first filed earlier like to Selwyn, read encourage explanations will and quarter which contains morning, call everyone. results. to everyone X-K results. review detailed as

'XX someone cash fiscal Gross million million As $XX million as prior we an quarter, net the profit for items was Gross year. items. million for noncash $XXX for or of as fiscal the impacted first well the to million, reaching XX% for or the first increased record achieved from mentioned, increase sales earlier. from $XXX million XX.X% profit $XX.X a by $X.X quarter $XX.X quarter year

to detailed unique in The is anyone noncash GAAP. the the million. website our for topic certain I was would are items on me and fundamentals A The of each required encourage accurately about which I'll details Let cores that and our total this by for provide premium can with products these year optimism available items $X.X review shelves, explanation item on provide reflect as of accounting you each and core periods customer approximately additional amortization and of quarter and underlying questions new the core our on video. revaluation on the line further appreciate then the understand between to evolves. finished impact details noncash more and fiscal

cash slow facility our The the by In begin moved and and government with we network Malaysia. our the country regional of the suppliers. impacted terms then items, due reopening response, certain of let's timing these of quickly well to tariff. COVID key subject in Malaysia to shutdown In as our outsource recover. were shipments in as the in suppliers of as XX% products supply back to transitory chain unfortunately These are up products China but ramp disruptions being we reduced and the

tariffs. the one reminder, benefits in is As a Malaysia low production of of

our this return immediate a at result production is on So tariff. facility country relief to fairly in

freight of we Next, incurred freight customer the surcharges we already implemented. higher were in excess that that costs

gross should freight increases expected price quarter going and based in including supply impact We forward. mitigate the on incurred more cost current on as the to XX, have second The XXXX, million further freight fiscal related taken $X.X are surcharges swift These this chain in action of was to release. earnings this transitory Exhibit September these higher we be of ago, compared additional rates. disruptions press morning's further X freight referenced to and in tariffs offset and cash year million with costs, to $X.X total ending implement impact profit, of a effect

are we these in So encouraged decreasing. short, costs are that

this transition and expansion I million the that $X.X on, year in quarter in first were moving related compared ramp-up should no our prior to with expenses note Before there Mexico quarter.

a from XX.X% XX.X% is items previously previously gross X.X% by profit the as year cash production that nicely. We margin the mentioned gross of are was first from well impacted earlier. with Reported transitory compared percentage quarter increasing X.X% on noncash supply fiscal chain items as sales pleased caliper related net, to was Reported a mentioned disruptions. as costs brake

supply chain global and to We challenges costs. extraordinary continue experience inflationary

increases and strategic While growth chain not we price our to in fully business were effect support inventory challenges. supply mitigate and made investments

as impacted key by was further addition, expect, In you three items. profit, would gross

pressures. should related First, moment materials help offshore we price and wage price that mentioned The supplies costs to and increases offset these a I experienced increases. inflationary raw ago

Second, related for caliper our enhanced opportunities, expect ramp-up and our to new With gross product the line. margins. we business experienced of we increases costs new the brake growth price ramp-up initiatives

impacted mix. Finally, gross margin was by product

reflecting travel, pay fees, customers, generating professional $XXX,XXX higher or working to interest expenses, noncash including due focused foreign rates, addressed are We interest and prior exchange and we are reported period. contracts A $XX to with our million year $XX.X service to being higher employee-related expenses increase remaining was first fluctuations. down the with Moving currency which $XXX,XXX of of cash prior The loss million expenses quarter. primarily mark-to-market, liabilities compared for a noncash impact increased to with The forward $X.X was $X.X due borrowings. expense, the loss net of compared for flow outside for share. the primary factor year commissions, gain on on. by were increase primarily noncash increases, foreign price a and $X.XX of lease a per Operating due million million was

totaled impacted as related items that $XXX,XXX basis million per were of including amortization for previously results million forward costs exchange share. items included follows: that or explained. results transitory to Additionally, share pre-tax million core also cores impact contracts. of per $X.XX totaling $X.X $X.X $X.X the a $X.X and include Noncash per of items loss a items per totaling chain share, or and or impacted customer premium $X.XX and these finished totaling shelves revaluation million, noncash as by include share $X.XX or foreign disruptions supply Cash lease on and $X.XX liabilities

to also due were higher higher with customers year, interest rates the million interest to compared and prior for Interest last with for primarily higher fiscal discount results receivable accounts by impacted $X.X year. interest $X.X on to programs Additionally, higher expense our higher rates expenses support borrowings due sales. the offered quarter the by million compared was first primarily

prior losses. impacted income due that expense the from part $XXX,XXX mention expect foreign tax tax the should $XXX,XXX of effective jurisdictions with specific rate which compared period. we year not do was also to the was benefit I recognize to Additionally, in in

transitory diluted will diluted against items including total chain and rates. per million liabilities income foreign will noncash we losses primarily share of forward or $XXX,XXX share benefit first was noncash by as quarter $X.XX above impact quarter. the diluted the future EBITDA before impact of or EBITDA gain related $X.XX noncash primarily related period. of lease or million. diluted supply Results well which $X.X of the disruptions. be related quarter. as contracts supply totaling in year $X.XX million items, year pre-tax a diluted EBITDA cash as These ago were items to first and per $X.X include or these mentioned a was However, items transitory million. $XX.X $X.X cash $XX.X totaling ago year share, exchange costs EBITDA prior per primarily EBITDA Net disruptions. was $X per items future the and the the million $X.X a the impacted noncash mentioned due $X.X of tax $X.X EBITDA expect transitory or to share. a $XX.X cash and impacted for first by for $X.X share, year million to million before basis first costs for to as was $X.XX year profits, as per earlier chain in million was million of for costs $X.XX chain quarter $X.X impacted the disruptions. million on by supply was for well a was million items expenses, million impact cash, prior above, the of noncash noncash of cash utilized

disruptions. risk, initiatives business was during year-over-year increases chain 'XX. items. We used business the will cash activities capital do on the year This that we in operating key inventory prior supply in versus growth and to expect fiscal sales generate only flow as $X.X requirements, $XXX,XXX corporate address used but growth million cash move cash proactive on activities strategic will in spur these support to to not anticipated the further period. a in activities well Company We mitigate investments record from operating for also Net as potential and working reflects Now operating fiscal our believe for quarter on first growth basis. cash will

supported customer increases basis, and organic demand, from expect by categories, that operating price completed our an on operating year. introduction in increase of last we product We growth profit year-over-year efficiencies to footprint new expansion generate from a

at basis XX.X% return was pre-tax compared XX.X% year XX, earlier. with Our on on XXXX, invested capital a a June

of further of launch brake the expect lastly, And lines. approximately returns was million, bear credit end product existing the and the availability our of new on Mexican to and at million. our As cash from net quarter while the $XXX.X debt fruit, categories realize $XX.X approximately the our and facility of revolving benefit expectations we operations both expansion from increased with our new investments was

explanation and further earnings results like now line in reconciliation this measures, and would items please release. open press to the the on to X For X non-GAAP of I morning's financial refer questions. that Exhibits for impacted

Operator

Oppenheimer. first Our from question Instructions] [Operator Nagel with is Brian

Brian Nagel

a questions. of So couple

guess, First first, I off, maybe bigger picture.

a the talked you behind about seeing in talk QX lot a sales that. from play question, increase regard, broadly? about that, about, kind just of behind you factors takes of of don't with have recognize it consumer's I laid a underlying with the discretionary factors question how here of guidance really the out we But just guess lot nice the how normalize? here And to perspective, about and of the then and but David, potential given some as or fiscal be margin in I and and various Just think we gross my you gas you begin the there you're the the have long-term puts a spending these what particularly the lot whether I now, should is, second business right think out, should can out margin drivers quarter. prices

Selwyn Joffe

Okay.

me So the with out the of start question. demand just side let

age despite demand aftermarket headwind to parts of I in fundamental we that. of but the the sort the to of that travel strong. in mean, Yes, would our years. gas continue is product a see for average little over think prices have of so and XX and bit be driven say vehicles miles a a growth are continued up we cost across strength the of the I gone seeing board fundamentals alternative see so is but the non-discretionary lines. I

start fairly quarter. sales. reversing see out. comfortable. strong We're this strength We're to that's think I continue We'll to in off a

And is want can it but up also So pad that very, exuberant, don't that changeovers organic fast we're we again, I aftermarket, too profile out I'll ramp within see to success addition I call to brake The lines we on fundamental business. base statistics as ramp we speed can be how and to sort $XXX million from expect, in we I turning of that for in on think get strong. it reach done rotor growth good. the depends and very looks we the the And the experiencing, brake that, through think customers' demand significant be our our shelves. product mentioned and that

there. So very positive

to is going expansion Mexico Our continue business. that well and we grow

committing Our we tester to interest roll in have the benchtop tester, and out their benchtop retailers three all more stores from others.

see here, tester And EV bit I get would longer think the it's fundamentals trying And back last the time a expenditure albeit also that, focused strengthening thought they're taken of bit having our some little business, direction the so and revenues that while some pulling from getting we sort the so front some benchtop that base but new us some thesis then the where in are looks take. like they as they're said there's but on capital OEs than of these we But on it to CapEx. headwinds unfolding of drive perhaps little it software. is expected not supply business to want, in a least, that not we

that facilities, goes on So our all, volume us, bullish through see we've business, for through have an think to right multiple this we're all more when that that many overhead structure growth. in And now you goes opportunity. I volume for our drivers so support the designed our we got

to the leveraging better with the side And revenue on and side. the existing income on certainly incremental gross contribute overhead so will operating margin contributions

the to to short-term, have how happens and get increases. what through inflation to mid that. looking as up think with the going in XXs upper see we with I We're that we we're with keep profile, margin price

from getting We continue the that possibly price certainly it but so our margins we forward. market enhance can increases we we customers with of we to our on the getting as that just are lag any structure increases, eliminating the price go waste through we time delay can and are

Operator

with The next ROTH Matt question is from Koranda Capital.

Matt Koranda

you breakdown So products? is, revenue and category, guess, a traditional David, I brake electrical my by wheel could other of maybe rotating question between usually, hub, provide first just, product

David Lee

Yes.

wheel products, first brake-related So rotating quarter, XX%; was XX%, XX% the hub, X%. and for electrical others was

Matt Koranda

gotten here, a of just through that July, bit that improvement? as the commentary And the said guys improved speak you we've if through And follow-through in obviously, through in any think demand magnitude quarter, May then throughout and then had on I early time sort but commentary had maybe release, any on demand especially on July? frame. follow of Curious that could the August, to the June you just

Selwyn Joffe

of Yes. digits month between strong top the I and months and organic rollout but of exact tester our pad my it's the first don't strong increases and and quarter. to back to know by brake I increase. fueled expect continuing. continue have it's to expect continues be mean, progress, the the as that's Demand then the a growth head, the off And we business new we the demand and and quarters business. to rotor brake also double by

to from that's starting purchase customers orders receive up there are We and nicely. ramping

of a So drivers. lot growth

the get October, the past, in profile kick margin should in I should mentioned of and majority think in. see price increases price that better through I've will them volume September, as see the Matt, that we increases we and

Matt Koranda

if how addition disentangle And there's sounded to you even that discussed is you on curious or to of the action in the last come mention to Since what's contributed just talked what on was you had if on It curious to price the before last you price or did that costs. maybe like in call from sort had about maybe help XX% mentioned higher that what calls incremental price, the what just when factoring quarter? you could already incremental mentioned is understand to growth some on mentioned in us much you maybe call? year-over-year price then I'm we've And reference had action.

Selwyn Joffe

I break when to still register at I'm you the increases I down it's growth. dramatically. mean, differential launch through hard missed of to price second so be fundamental product of pads certainly I Matt, the to continues contributed There And products some mix can strong. that. that because I the changed that the question, of think repeat the sorry. the rotors. part to demand is the the think contributed I and But your has look the new growth

Matt Koranda

sure. Yes,

You the that had was experiencing or above mentioned being to some of discussed is we've that of what curious in just in increase factoring sort in costs place implemented calls? higher if action rates. remarks of incremental I'm and over in that take that prepared on pricing you was the are either offset with the And prior process guys price the just

Selwyn Joffe

Yes, it is.

in. So the now price we product staged And factoring that come working have definitely cost to we're are increases. increases through

yes. and So that's separate above

Matt Koranda

'XX are of take expectations for the sort and with you your didn't outlook just I outlook of revenue a And to then fiscal here we year the XQ our missed changes maybe I discuss EBITDA, as it hear to reiteration line sort in of sort the guys for but the guidance from standpoint? and any full fiscal 'XX of

Selwyn Joffe

we're still have No, things positive same no outlook really We are developing. feeling how changes. the about but

Matt Koranda

launched three next And new five the of lastly, $XXX million you've you between of that over then a products to just brake sort the mentioned goal years.

pads, like a the or And other products? goal? to progression look what sort if products that million mix maturity out? play call the I'm of in brake we years over to of the of it, when then folks midpoint get terms sort that rotors, be four $XXX calipers business, in if of taking and How factoring in between should linear the brake so, that curious does does next, Just

Selwyn Joffe

me and a one it from is example. Let time. obviously, Linear starting try we're do I good at a probably mean, zero.

business. fiscal year, as sequentially grow expect we business see launch that year. mean, think through double-digit next off that fiscal fiscal to in that coming year, that, the year I a we growth this after in go should And by then we I the XXX% obviously, next

$XXX good. predict. so $XX and calipers I we with get as that new close I the in that's pushing just to north that's pads, million, as with that of million mix, through million mean, So tougher in brake business a one we're our we our include kickoff. to The $XX brake-related products, looking in mix think today, And then rotors customers. a existing commitments probably we're all commitments is of

for a get a of sure rotors breakdown item, And so name. failure out the the replacement they're we formulation that brake have and not the own as to but going largest say exciting a volume turns, that on that. is the to rest and significantly, of item very pads and category not brakes rotor, the it's grow proprietary revenue far category. you installer. not forward, they're being brand our when a the the And is, become unique professional That's the I I'm is fact brake generator eventually, it's their rotors, Certainly, more and just the proven recognized not and will brake out most part us pads formulation a equation mean, by the for well of of very so this formulation going pad a and sold

the as pretty the brand we products other and to have traction out, same to that so product the our our customers in get significant. And all brands ability names tried out may this past not of under is roll the

pad friction as can come your metal. the rotors match a So with where and business you particular, we're on, of mandatory bullish in your sort match along up

rotors going And again, four so going mix the be part pads it. you biggest be to hard what is to longer the of tell five look that you but to term, to years, as and out exactly

Matt Koranda

maturity probably time? than I'm opportunity but rotors like, along a over in not pads the mature caliper little yet the two more is hitting phase, other maybe further paraphrasing caliper probably and sounds eclipsed It eventually growth but the

Selwyn Joffe

so The the size of Yes. well. larger much as is category

fair share categories, be these in to should revenue. if amount significant pads definition, by and just the each we our can very of get rotors of So

Operator

Bill Dezellem Tieton is next The from with Capital. question

Bill Dezellem

I has already accelerating? want about discuss in in up May more June. a to someone and why and Would asked pick momentum that comment else detail building momentum release in the been on has a that little you

Selwyn Joffe

wish I you some Bill. give you know theories. but I tell I exactly, Well, exact can the couldn't reason I

you retailer if public to think in listen lot the there quarter. I reports May, early the of a Firstly, rain was in

weather and of orders when certainly, [DIY] that. certainly when in. bad, electrical you delayed then decline see media update see of it to repairs. have part in we've country for I our the had brakes, so the And failure that sort you that, over come the is, rates, next accelerated and and generally, are have is heat, And then a starting we've their extreme rotating some had extreme and throughout you heat for so And above

new We to in. product are have lines of the our launch come starting

so in have much We new business multiple kicking in categories.

then as We forward go and That price starts business really have ramping increases. that's now new we up.

positive way, in coming positive a different from just coming cautiously lot areas. from I but want of way in be and a optimistic So to a

Bill Dezellem

there? your relative able inventory? fulfill in slide cases inventory, where know maybe to have you of inventory. were orders And to having not like Do won you orders increased feel that a to that were higher others you And you intentionally we in and as result able have

Selwyn Joffe

Yes.

inventory. the in the business on having comment dependent really won't others you brake in brake us I pad factual I don't caliper because know business that were and that but significant I the as wins can So on both tell

do is thing to fill that And last I rates to supplier they're again, having chain, chain switching they take competitive is supply a And inventory in a the want actually find think was significant advantage. that without don't the a uncertainty knowing end willing yes. reliable. so supply are at you have on then is a when take excellent. want the not And getting customers out switch your They are of advantage, a Considering to not our suppliers environment, that the chance competitive product. because yes, and the day, chance

Bill Dezellem

then level normal, And this this from hear so fall particularly has feel out or that is you do stated? did what will pardon what peaked but new I next just given a inventory this it said, question, like now and really you just you

Selwyn Joffe

No, up. chain up. in think predict shutdowns barring like supply the hard opening I it's supply seems I the places mean again, to different opening but chain is it is

it. have peaked think percentage start think of coming got the I positive we see some our we of and arms as inventory. out inventory down. cash requirements. Certainly, a revenue we've easing around on I flow And should And inventory should some

Bill Dezellem

this that feeling then but question, And the I growth and both quarter, believe answer we reported I the forward? going are I you've said and to that, understand gross next think will this everything that, for low last like you the with was point sequentially had March quarter adjusted so but margin quarter, that continue now

Selwyn Joffe

health, to fluctuations. I those from And it relating mean, he people said I fluctuations noncash to write-down I assessing the unpredictable. mean, performance same to the theoretically, in that exchange, because company's fluctuations foreign I comment feel we subject exchange be lease is But a in aside, people confused ignore that Warren foreign enough, that Hathaway's Berkshire and whether read have his on or I mean we this And closing correct. think that mark-to-market, interestingly yesterday of our mark-to-market which when just are way. I the this or that of to evaluating portfolio. Look, in I his made customer same Yes. think encourages Buffett is Yes. shelves. morning putting get liabilities he

correct. those, think ignore you're you if So I

a I think that point. we see low did

about can and last new to been I on So take China the Chinese opportunities. mean, a also it which our I income lines product And guidance the five changed and all that to gross new and over the world yes, G&A start aside, we're getting, is just help to profile. susceptible initiatives organization know, also capacity years, there of tariffs. few what we've I that. ultimately leverage it. want seeing optimistic about benefits capacity putting clearly shipping time, will to the Despite the the better as Again, but done given we've to the as the our set We've margin and less I've think feel are less leveraged become strategic makes We've trying start fundamentals And we we've operating I we're new our now unpredictability ramp dependent today, like operating business optimistic imports, can we've unpredictable get our footprint of the leverage control, done to reaping that business we our general. that on production got up, low-cost just changed guidance fundamentally margins. cautious a mean, which to footprint our existing business, from increased in also to completed. we're today, all in the I absorption things. be We've We've say that all under us all as pretty and now do is start the to there, so and is, we

Bill Dezellem

alternatives, one and your like interest And what if time down have expense other any, relative reduce the avoid ask expense, paying do you obvious? more, David, see interest I'd if to to debt the we for to than

David Lee

positive you our generating with year for working borrowings. And increases. down are we to pointed commented, the have customers cash also to as flow we as pricing pay address So out,

Bill Dezellem

are increases part offset AR price those costs? factoring And to essentially in higher the

David Lee

Just overall increased. that market have rates

Operator

you turn marks. further it no time. at have questions Mr. closing to any Joffe, this for We I'll

Selwyn Joffe

and aging team in of product we're us. summary, of parts They've and our bottom as Okay. and supported members excited both all about foundation car outstanding. heard our existing usual, park. the solid you've a want service. built line been to and from growth Well, We've and all top commitment thank line lines for ahead closing, future by prospects I just strong replacement absolutely our demand for ongoing an on for focus as their customer-centric I from tailwinds In think

call our challenging times, conference their safety XXXX well-being proud host and call, fiscal speaking their And continued we employees these you and look During Thank conduct. all November are of joining investor I'm quarter you all future. the for particularly appreciate and performance and in for conferences us the members you. our thank forward of when we support focused we team I on again company the for with and in and at we our extremely to and second

Operator

this conference participating. concludes you call. gentlemen, for and Thank today's Ladies

You may disconnect. now

Motorcar Parts of America (MPAA) 13 Aug 222023 Q1 Earnings call transcript