Q3 2021 Motorcar Parts of America Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Motorcar parts of America fiscal of 'twenty 'twenty, One third quarter conference call. At this time all participants are in a listen only mode. After the speaker presentation and there will be a question and answer session.
The question during the session you will need the press star one on your telephone if you require any further assistance. Please press star zero.
I would now like turn the conference over to your speaker of today, Mr. Gary Maier Investor Relations. Please Sir go ahead.
Thank you and thanks, everyone for your patients and joining us today for the fiscal 2021 third quarter call before I begin and we turned on.
I turn the call over to sell and Jonathan Chairman, President and Chief Executive Officer, and David Lee The company's Chief Financial Officer, I'd like to remind everyone of the Safe Harbor statement included in today's press release the.
The private Securities Litigation Reform Act of 1995 provides the safe harbor for assortment and certain forward looking statements, including statements made during today's call.
Such forward looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company.
There can be no assurance of the future developments affecting the company will be those anticipated by motorcar parts of America actual results may differ from those projected in forward looking statements. These forward looking statements involve significant risks and uncertainties some of which are beyond the control of the company and are subject to.
And based upon various factors.
<unk> undertakes no obligation to publicly update or revise any forward looking statements, whether a result of new information future events or otherwise for a more detailed discussion of some of the ongoing risks and uncertainties of the company's business.
For you to the various filings with the Securities and Exchange Commission.
I would now like turn the call over to Selwyn Joffe, he and begin.
Gary I appreciate everyone joining us today.
And this morning's press release, we experienced solid product demand during the quarter and continued to experience solid product demand, even though challenges due to the pandemic, including global supply chain disruptions resulted in order delays of approximately $17 million for the quarter.
We believe these sales will be realized and the current fourth quarter and the first quarter of the new fiscal year and.
And my dad that we've already experienced record January shipments.
Despite these delays we reported significant increases and profitability for the quarter at nine months, including strong positive cash flow and debt reduction the company generated solid cash flow for the quarter of $33 2 million from operations and reduced debt by 29, 1% to $67 6 million.
For $95 4 million at September 30th.
Net income was 44 per diluted share as discussed in today's press release I should point out that for the trailing 12 month period, we generated $95 8 million and cash from operations. We used this cash to reduce net debt by 53, 6% to $67 6 million from 140 <unk>.
$5 6 million at December 31, 2019, and.
And we deployed capital expenditures of approximately $20 million the majority of which was used for substantially complete our footprint footprint expansion.
David will discuss additional details later in the call.
I should also mention that we built inventory to support anticipated strong demand for the quarters ahead.
As I noted last quarter, the vast majority of consumers and our target market of unable to work from home and reticent to use mass transportation of Rideshare. These dynamics have not changed.
As a result, these workers and more dependent than ever on their personal vehicles and we.
We believe the personal vehicles will also continue to be the preferred mode of transportation for daily activities and vacations for the foreseeable future all of this bodes well for our business.
Furthermore, during the current environment and recessionary times people keep their vehicles longer.
Accordingly, we are seeing strong demand for used cars with consumers, preferring used cars over new particularly when faced with the economic uncertainty.
Obviously, this bodes well for the aftermarket parts replacement industry and our non discretionary product offerings.
All of this leads to an increased age fleet, which is currently at a new record of approximately 12 years as the.
These vehicles age the rate of replacement of parts increases substantially for.
For example cause and the zero to three year age group have a replacement rate for alternators of 242% compared with $6 six 5% and the 12, you're on above the age group.
The new car sales should return at some point, we expect to benefit because used car of scrap rates are generally lower the new car sales, resulting in an increased car park and further opportunities for parts replacement.
And the addition of new car sales will fuel after market parts replacement and the future.
And short all of our initiatives continue to enhance our position as the valued premier supplier of automotive aftermarket parts of North America, and the rapidly emerging electric vehicle and aerospace markets.
In summary, our entire company is well positioned for sustainable top and bottom line growth for parts and solutions that move out of world today and tomorrow.
As noted in today's earnings release, given the ongoing global pandemic of near term related considerations. The company believes the still not prudent to provide annual sales and gross margin guidance for fiscal 2021.
However, we are encouraged by continued consumer demand for our aftermarket parts, notwithstanding the near and near term impact to sales by the challenges related to Covid, 19, which impacted the timing of shipments and the quarter.
Our expectation is that the fourth quarter will benefit from some of the order delays of product shipments from the fiscal third quarter with the remaining orders to be shipped and the new fiscal year beginning in April this.
This is based on anticipated factors beyond the on media control related to the upon the pandemic.
And short while sales growth has been restrained by global supply chain challenges of bottom line performance is expected to continue to benefit from enhanced operating efficiencies as the pandemic situation improves including increased caliper production volume along with lower interest rates and reduced net debts and the <unk>.
Company continues to evaluate costs related to global inflationary trends, including the labor freight and raw materials.
We expect the number of vehicles on the prime parts replacement the hedge will continue to grow at the same time, we are pleased to see the number of for payers and miles driven for our target customers appear to be regained momentum despite the human and economic impact and the uncertainty of this terrible pandemic it.
It is clear the personal vehicles are becoming increasingly important and a new normal daily lives.
We also believe that on electric vehicle subsidiary show substantial promise all of the supports our optimism for growth and profitability over the next several years and we remain more convinced than ever that our strategy to enhance shareholder values on target and.
I will now turn the call over to David to review the results for the fiscal third quarter.
Thank you sell it to begin I encourage everyone to read the 8-K filed this morning with respect to our December 31, 2020 earnings press release for more detailed explanations of the results for.
For information about the items that impacted the result, the exhibits one through five of the press release.
Let me take a moment to review the financial highlights for our fiscal of 'twenty, one as of third quarter.
Net sales for the fiscal 'twenty, one third quarter were $122 6 million compared with $125 6 million for the same period a year earlier.
Impacted by order delays of approximately $17 million due to the continued COVID-19 related challenges Selwyn mentioned.
Gross profit for the fiscal of 'twenty, one third quarter was $24 2 million compared with $27 7 million a year earlier.
Gross profit as a percentage of net sales for the fiscal 'twenty, one third quarter was 19, 8%.
Paired with 22% a year earlier.
The second part of the impact of supply chain challenges due to the global pandemic, including higher freight and handling cost Adil.
Additional factors impacting gross profit are shown and exhibit three and this morning's earnings press release.
Results for the fiscal third quarter were impacted by approximately $1 6 million on a pre tax basis or <unk> <unk> per diluted share on a tax effected basis for cost of goods sold and operating expenses related to safety and health initiatives associated with COVID-19.
Approximately 723000 of the $1 6 million relates to incremental bonuses and wages paid to the company's dedicated operating is placed on the front nine the.
The balance of the costs relate to the personal protection equipment and social distancing initiatives.
Total operating expenses decreased by approximately $10 1 million for the fiscal third quarter on a year over year basis.
This decrease was comprised of $8 7 million of higher foreign currency related gains, which are non economic and a $1 8 million reduction and expenses.
<unk> decreased travel related expenses.
This was partially offset by higher expenses, such as Covid related expenses of 558000.
Interest expense was $4 1 million for the third quarter compared with $6 9 million last year. The decrease in interest expense was primarily due to lower interest rates and lower net debt.
Income tax expense for the third quarter was $3 4 million compared with income tax expense of 1.5 million for the prior year period.
Net income for the fiscal of 'twenty, one third quarter was eight 5 million of 44 cents per diluted share compared.
Compared with net income of 865000 or <unk> <unk> per diluted share a year ago.
Additional details of items items impacting net income on an exhibit one and this morning's earnings press release.
Net sales for the fiscal 'twenty, one nine months period were $372 7 million compared with $385 1 million for the same period, a year earlier impacted by a sharp drop in demand in April due to the global pandemic.
In addition, net sales were impacted by current pandemic supply chain challenges and the third quarter, resulting in order delays of approximately 17 million previously mentioned.
This was partially offset by the benefit of $12 8 million due to a realignment of inventory of two customer distribution centers with expected future sales benefits as product mix changes.
Gross profit for the fiscal of 'twenty, one nine months period was $77 4 million compared with $81 8 million a year earlier.
Gross profit as a percentage of net sales for fiscal 'twenty. One nine months period was 28 per cent compared with 21, 2% of your earlier.
Reflecting in part the impact of supply chain challenges due to the global pandemic, including higher freight and handling costs.
Additional factors impacting gross profit on exhibit for and this morning's earnings press release.
Net income for the fiscal 'twenty, one nine months period was $20 6 million or $1.07 per diluted share.
Compared with net income of 903000, or <unk> <unk> per diluted share of a year ago and.
Additional details of items impacting net income are and exhibit Q in this morning's earnings press release.
Net cash provided by operating activities during the fiscal year 'twenty, one third quarter with $33 2 million compared with cash provided by operating activities of $22 3 million for the prior fiscal of 2023rd quarter.
Net debt for the third quarter was reduced by 29, 1% or $27 8 million to $67 6 million at December 31, 2020 from $95 4 million at September 32020.
Net cash provided by operating activities during the fiscal year 'twenty. One nine months period was $72 5 million compared with cash use and operating activities of for $4 million for the prior fiscal nine month period.
Net debt for the nine months period was reduced 46, 6%.
For $58 9 million too.
$267 6 million at December 31, 2020 for.
$126 5 million at March 31, 2020.
We have generated positive cash flow from operating activities for five straight quarters through the December 31, 2020 quarter.
For the trailing 12 months ended December 31, 2020, net cash provided by operating activities with $95 7 million net.
Net debt for the trailing 12 months ended December 31, 2020 was reduced by 53, 6% for 78 million to $67 6 million at December 31, 2020 from $145 6 million at December 31 2019.
As you know there are various methods to calculate return on invested capital for.
For our purposes, we calculate ROIC by taking operating income.
And adding back non cash expenses and certain onetime expenses and.
We believe this metric considered together with GAAP measures provide useful information to investors and to management regarding the company's return on invested capital.
In short we take this metric, which was approximately $73 million for the 12 months ended December 31 of 2020.
Which included an extraordinarily weak fiscal first quarter as a result of the COVID-19 shutdown across the country and.
And divided by the average equity and net debt balance of 405 million reserve.
The resulting in a 18% pre tax return on invested capital.
We are just starting to realize the benefits of expanding our Mexico operations and the launch of our new brake categories with the expectation of increased returns from both new and existing product lines.
And this should result in higher ROIC and.
And the benefits of our strategic expansion of our more fully realized.
At December 31, 2020, our net debt was approximately $67 6 million total cash and availability on the revolver credit facility was approximately $140 million at December 31, 2020 based on a total of 300 and based on a total of 236 $38 6 million revolver credit facility.
And subject to certain limitations.
Consolidated EBITDA for the purposes of bank Covenant calculation for the 12 months ended December 31 2021.
Was $71 6 million and our senior leverage ratio was 118 on.
And our credit arrangement for <unk>.
And <unk> for computing, the senior leverage ratio only allows up to $6 million of credit for cash I should mentioned that and we had paid down on the revolving credit facility further with cash on hand, our senior leverage ratio would have been 112 at December 31 2020.
At December 31, 2020 of the company had approximately 799 million and total assets current assets were 395 million and current liabilities were $299 million.
For the reconciliation of items that impact of adults and non-GAAP financial measures. Please refer to exhibits one through five and this morning's earnings press release.
I will now open the call for questions and so on would that provide some closing remarks.
Okay.
As a reminder to ask the question he will need the press star one on your telephone and.
Again, Thats star one on your telephone keypad.
Your first question comes from the line of Matt.
Matt Koranda from Roth Capital Your line is open.
Hey, guys. Thanks, just on the the $17 million of delays.
Could you provide a bit more detail on that because it sounds like it's more of a supply chain and challenge that youre alluding to and not necessarily a demand issue.
So where are you getting the order delays and which products and then why do we have the visibility to say, we're going to recognize the 17 million shortfall and the March and June quarters, and whats the split roughly between the two quarters do we think.
Yes, so that's a lot of stuff for Matt. Let me just give you some color and David can give you more detail, but the.
The Big Challenge is it's the December December.
The December is the GRM for a lot of our customers and so we had some inventory reductions from customers pushing lotus back into from December into January.
So that's the piece of it but no demand issues and the demand quite frankly, right now is exceptionally strong.
And then on the supply chain side.
This is Fred challenges everywhere, there's problems getting containers has problems with delays of ports when the product leaves.
Leaves.
The ports and then there's challenges and L. A.
And predominantly which is L. A and Mexico in terms of Offloading boats getting the lot of our inventory sitting on on ships that are and the port of cannot be offloaded. So.
We have a lot of inventory on the water we have a lot of inventory lined up we expect.
To get through those.
Think of that.
And as you get through to Chinese new year.
So starting on sort of March.
We will see some alleviation of that.
Of the product set of stuck in the ports.
And we'll just have to see how the continues on but.
The fundamentals of the demand side of our businesses and exceptionally strong.
The stronger than and speed and some time at the supply side, that's the challenge and though and.
And where it hits the products of the hits across the board because even though you may be re manufacturing, whether it be and the United States, and Mexico, Malaysia and unique components and the these components come from various places all over the world. So.
So we're really hit across the board and I will say that.
That we're catching up and most product lines.
And for the demand.
And and hopefully we can get through the sooner rather than later.
As far as the mix of what is kind of happened between the the.
The fourth and.
The first quarter I think the majority will be in the fourth quarter.
And we may have some deferrals and the fourth quarter that go into the first quarter. So I mean, that's an unknown score and all.
And so it's a little difficult Dave do you want to add.
Later in the 10-Q that we will file and just wanted to point out of the product mix for the quarter.
It was about 72% rotating electrical wheel of hotspot of 14% brake products of about 12% and others about 2%.
So you will see that of rotating electrical and the product mix was down compared to the prior year third quarter.
And that actually.
That's helpful.
And I will say, Matt just to add to that is the fastest of recoveries is rotating out of Petrobras will.
So while it was hit the worst it's the fastest to recover.
Okay got it.
And then one thing and.
And your answer so on that I wanted to unpack a little bit more because I don't necessarily understand the dynamic. If you look at most of your customers and same store sales running incredibly strong and obviously thats and thats indicative of and good strong and demand. So you are saying that theyre pushing orders into January from December.
And what is the dynamic at play and why are they waiting to take on inventory aware of where I would assume that it might be a little bit fat and towards the end of the year here.
And I can't speak for our customers, but in general and our customers have COVID-19 issues and their warehouses as well so the can't take everything and as fast as the normally could take it in.
At the end of the quarter, so I assume that they're managing inventory levels for the quota.
Every customer has got their own their own stick excuse my whatever language that is yet ish, but.
But you know it's.
And I think I just.
In general that they feel like pushing inventory of couple of weeks back doesn't hurt them.
And may help them I don't know.
Okay, all right fair enough.
And then just one more for me on the gross margin.
On the they move around quite a bit and I just wanted to get a sense for how the forecast of the stuff going forward. So I think we're down about 150 basis points year over year. If we look at the adjusted gross margins on a consolidated basis, maybe it'd be helpful. David If you could provide a bit of of bridge year over year, because I guess I know you.
As mentioned freight as the big headwind and that's understandable is there a component of inflation or labor inflation and there that's causing an additional headwind or is it just sort of the mix of product that we're selling is kind of weighing on gross margins and how should we think about how those items feed into the of.
Adjusted gross margin line for the next quarter or two and should we be kind of expecting the mid 20% gross margin rate.
Good question. So the largest impact is going to be the supply chain challenges of high of freight and handling costs and they'll make the most of that differential and as you mentioned a small part of that is going to be the product mix. So rotating electrical was 72% of sales again this will be and the 10-Q prior year was 75% of sales so that.
Product mix will have a smaller impact but by far the largest impact are the higher freight and the supply chain challenges.
And as revenues increase.
Being able to absorb cost and the type of overall better margins. So with this increased demand that we're seeing and subsequent subsequent to December 31, and the higher sales would definitely help with margin.
Okay got it and I'll jump back and can you guys. Thank you.
Your next question comes from Brian Nagel from Oppenheimer, Sir Your line is open.
Hi, good morning, or good afternoon.
Thanks for taking my questions.
One of them.
So first question and I think just a bit of a follow up to the prior question, but you talked you spent some time youre talking about the supply chain disruptions. It sounds to me like it's primarily industry related but the question I have is is that right or there are there aspects here that are unique to motorcar parts as well.
Oh, I think it's global and global supply chain challenges.
And I don't think it's us.
The only thing that's our category I don't think its our industry. It's.
And all I I'm hearing and multiple industries I mean, this is the shortage of containers.
There's been a number of <unk>.
<unk> with the management of freight.
And then there's been some freight that's lost and the ocean and the main and particularly coming from Shanghai and Singapore.
It's not specific to us at all I think this is a it's a global issue I think it's on.
Across all industries.
Got it.
The second question I had.
So when you mentioned and your your prepared comments.
The business strengthening further.
And in January and when do they enter into the current fiscal quarter can you quantify that.
And this how much how much better the businesses and I actually got here and the last few weeks yourself.
Well I mean, it's a decent double digit increase and maintenance north of 10%.
And the 15% growth, but again I don't want and I want to be cautious because.
I don't want to just assume that January is going to be flowing through forever.
We think that the fundamentals of the industry of much stronger.
We have some catch up in January from December so.
It's very strong I mean again I think it's the.
The suddenly the strongest shipments we've ever had and in January.
And our organization, but.
But I want to be cautious because there may be some more deferrals that will come and the fourth quarter as we head into the Chinese new year, I'm I'm not sure and so it's a little difficult to predict the demand is there. The question is how much product we can get out the door.
Got it and then just one.
The final question also on the on demand.
And just given that.
And include the Covid situation and it remains quite fluid.
Fluid.
Are you seeing are you as you look across.
And I guess as your customers located throughout the United States are you seeing a significant difference and demand depending on location and and and the intensity of the COVID-19 and those specific areas.
That's a good question you know we are tracking and <unk>.
The trends across the country.
We've seen a pickup in the areas that were previously previously soft so.
And I think in general what we're seeing is the high concentration of automotive market is up.
And further so the southeast and northeast and the West.
But mostly you know the concentration of vehicles on the East coast.
And Don.
Right.
Okay, well thank you.
Thank you.
Yes.
Your next question comes from the line of market share of Bad Chen from B Riley Securities. Your line is open.
Hi, Good morning, Thanks for taking my question here.
Hi, Sarkis, yes.
So first question.
It relates to the current level of cash generation just help me understand is this level of sustainable even when considering some of the inventory build and the order rates, you're you're forecasting for your customers coming up.
It really depends on.
The sales levels and growth.
We generated good cash flow for the third quarter, starting I'll, let of strong profitability as well as.
Benefits from working capital, but it will fluctuate.
Depending on growth, so I would say depending on.
A little bit of seasonality its going to impact cash flow generation.
Got it and I guess the overall saw cases that we believe that we can continue to grow the business and still generate positive cash flow.
Understood and if we look at.
Kind of the the new product startup costs and transition expenses and what should we expect that to wind down it seems like your facilities.
<unk> expenses of has largely been consumed so just trying to get a sense for when those new product startup costs and transition expenses begin to wind down from these current levels.
So as we continue to wrap up our facilities and Mexico and production volume of our new product line that will continue through the the.
And the March quarter, and starting in the the first quarter of the next fiscal year should start to come down.
Got it and.
What would those.
Metrics come down to zero or do you still expect some marginal expenses there throughout the next fiscal year.
It will it will come down there'll be a marginal amounts and the first quarter, but it will not go down and to complete.
Zero, so it'd be a little bit still in the first quarter.
Okay, and just wanted to touch a little bit on.
The testing and diagnostic products and the business there.
<unk> been able to maybe disclose the run rate sales for that category of testing and diagnostics products.
We haven't really I think we've talked about and in general that.
We haven't really.
Quantified it but I mean, I can give you some inside of that sort of you know and.
And we're looking at north of $20 million and revenue for that business.
We are quite optimistic about our initiatives and <unk>.
And the electric vehicle space and the battery charging space.
Electric powertrain.
Space and the.
So we're getting quite a lot of good traction there and so.
So hopefully we can get get a position, where we can accelerate growth and the <unk>.
Following us you know.
And we think is the big opportunity waiting that.
Mhm and.
As of today, how much of that sales metric is like the bench top tester is going into your customer stores versus maybe some of the stimulation and emulation of equipment that go into the OE manufacturers.
Yes, we have not we don't really segment reporting that but.
But.
And again, it's on material to the numbers, but the.
I mean, maybe just in general what's giving you some inside of the the diagnostics for power for combustion engine, which includes the bench top tester.
We expect to have.
You know assuming the capital budgets are released the way, we expect them to be released from the customers we of indications significant indications of interest.
More than indications of interest but.
Indicated on indications of volume and <unk>.
Orders that we expect we don't have them, yet, but we expect it.
And.
So that in the in this next fiscal year, we'll probably be about two thirds of of the volume and again I'm, giving you very rough numbers.
But the and then the the electric spaces again, the fast evolving we've had some some nice wins for very prestigious customers and.
More to come on the electric space.
Got it and just switching over to the to the new brake product category any indication on kind of the run rate sales or the growth in that category.
It sounded like in previous calls you thought this back half of the year would the layer on some nice sales so just trying to get.
A little bit more color there.
Yeah look on the brake caliper business.
Don't know, if we've broken down and the two and what we expect for the for the quarter. So we had total break related parts of 12%, 12% and I would say that.
You're going to see.
You're going to see significant growth in the net in the next fiscal year on the brake products.
We have a lot of a lot of new customers that we're starting to ship or haven't started shipping yet.
And the outlook for that is strong I mean, if you notice of the inventory growth of lot of that inventory growth is in anticipation of the demand that we are ready.
And for the brake products.
Yeah.
Got it and and one final one for me I'll hop back into the queue.
What was capex and David and inside the quarter and then what's your expected level of capital investments for the upcoming fiscal year.
So capex was approximately.
About $5 million.
And the most of that was for our Mexico.
The expansion.
And for the year, we're expecting a little over $17 million.
What do you expect next year next year, we're going to have a little bit remaining to do the finish the Mexico expansion, but after that it's just kind of be mostly maintenance capex.
Got it thank you I'll hop back in the queue.
Your next question comes from the line of Steve Dyer from Craig Hallum Capital. Your line is open.
Good afternoon, guys Ryan on for Steve.
And just wanted to dig in a little bit deeper on January I guess, you mentioned record up 10, and 15%, but also a bunch of deferrals are realized and the quarter. So I guess curious was that absent those deferrals from last.
Last quarter into this quarter.
What is the cornerstone of and a record and then can you talk about kind of just more normalized trends.
Yes.
Believe we would've had of a very strong January as well I can't tell you exactly what was already been shipped in January versus not and cant tell you specifically fits of record, but it was exceptionally strong months.
Regardless of the deferrals are the.
There's a lot of a lot of a lot of orders of lot of activity.
And again attribute to the to the personnel we have to get the number of units out the door that we did in January.
Considering all the social distancing and on that so.
I can't quantify that specifically I don't think we have that data available but.
The way with or without the deferrals and it was very strong.
Good.
One other follow up for me and I'll hop back. So you mentioned I think so when did you say 20 million of.
Diagnostics revenue I guess I was thinking that was the all in the other products category, which was 1% to 2% of sales this year. So.
So I guess is that included in other categories.
Or is it all on there and then can you talk about kind of maybe if there's deferrals, there and kind of that opportunity from this year of <unk>, maybe to get to that $20 billion.
Let me start with the deferrals and the I'm going to let the.
David and give you the detail there's a lot of deferrals. There that are not even included in that $17 million the $17 million, we quantify the actual orders that we know there's demand that we specifically have moved over.
So the the delays on capital expenditure releases for those tests is not and that $17 million.
Again until you got a purchase order you don't have anything, but we believe that there is significant pent up demand for those vessels.
And David you can sorry share jump in front of you that so as Selwyn mentioned during the quarter. There was impact on diagnostic related sales. So for this year, we're going to be.
Under that $20 million, but for next year, we're tightening the over $20 million.
Yeah.
Got you thanks, guys the free.
Okay.
Your next question comes from the line of David Goldman from Goldman Capital. Your line is open.
Hi, guys.
Question for you and most of my questions have been answered, but the one question I just wanted to follow up on someone else's question and I think inventories were up about 12 per payable of 10% and that had been down and probably call. It and you said there was like and extra category that you're adding the seller.
Obviously, not obviously, but I mean, how much do we.
And how much do you expect that extra inventory given that the inventory and so much and two.
And to the baseline gunning for it.
Yeah, we're not giving specific guidance, but the new category, where we're at and that is the brake calipers and a very exciting product line, we're going to continue to grow business.
As we are producing from our Mexico facility. So most of that inventory growth is going to be for increasing demand, including brake calipers.
Yeah, and then the other thing David is that you've got this new category, the new category, you're going to see.
Just to get in that category alone you're going to see double digit increases I mean, any anywhere between 10, and 20% and that category of growth.
And then you've also got as we talked about this increasing demand.
Just just and a fundamental base business is that.
We are.
We're anticipating again with the.
The package that's fallen out.
What we sort of level.
So last time and saw significant increase in demand, we're anticipating and we're seeing already the demand is kind of go up for these products I mean the.
<unk>.
Uh huh.
And we're fortunate to be category captains.
And so our ability to see.
Trends are pretty good and I made the move.
But we are active on the buy side right now, but the demand side looks positive and the inventories where there's going to be well use.
Right, Okay, and then the Atlanta, just relate to the balance sheet. If I can follow up I'm not sure you've discussed this but youll payables have gone up significantly and it seems like it and your industry. Many of your and many of the other companies.
Get massive terms from the vendors.
You're up to almost four months and I was asked yet which is a dramatic change and departure from the once you were doing before.
It's a great tools and it comes out of congratulation and getting there, but I was just wondering if you could share with us what's gone on over the next.
For the growth and a payable.
Payable is directly tied to the growth and inventory, we have very great suppliers of the Brooklyn.
On the part of the inventory growth strategies also of the extended terms and so we're able to achieve that doing well usually usually it is usually it is directly related to the increase in inventories tight and this particular case your payables and possessed yet.
The 1% and Europe, and really the only up 12% and so its way in the case of you once your growth, which leads me to meet the need that you must have changed your terms and you've got and financial strength started calling me because you call and pay you must be having better terms and I was just wondering what that is the all about.
Yes.
We continue to work with our suppliers to get better terms overall, so that's definitely part of the extension.
And is that kind of continue I mean, what is the and right now it's out of the whole months of of payable.
And the net the net the net growth for US is the inventory net of payables to be zero.
And that's the way we want to be but you know whether we can go out of me okay.
Right and dry dog interesting so your payables payables now.
Accounts payable of $146 million, if I'm looking for cranky, although we don't know if on the outside how much of the accrued liabilities.
And your inventories of about 296, and Thats the case and still have a long way to go.
That's correct yeah.
Yeah Yeah.
And that's the wonderful industry here and win the battle.
You know the finance basically financed the imaging.
Well the refinancing of our customers' inventory right now so we need to pass it on.
Thanks for that guys good job.
Thank you.
And once again to ask the question you will need the press star one on your telephone keypad again Thats star one on your telephone keypad.
Next question comes from the line of Scott timber from C. L. King Your line is open.
Good afternoon guys.
Hi, Scott.
So you've talked about how demand is I guess at the counter and still very strong could you just.
And to give us a greater level of comfort.
Give us some.
Idea of how well your products are actually selling it at point of sales to the extent Inc.
And you could give us.
Yes, again I cant.
That's how customers business, but fundamentally point of sale.
Kind of sale data shows every category trending upwards.
Okay and.
And I'm just trying to get the sense are we talking double like low doubles high singles.
And at least all of them.
And the last couple of quarters, we will kind of looking for a low double digit growth I guess, just given some of the new product lines that were coming out of I'm, just trying to get a sense of and if that narrative of demand has changed at all.
And I can't I can't the again.
Again, where we're under the restriction is in terms of giving out that information. So I can't really tell you.
And what they're experiencing but.
As a company and MPA.
We still we still believe that we are on track.
Despite all the the challenges and our run rate I had mentioned that we pulled our run rate would be at $600 million by the end of this fiscal year and.
We haven't changed that.
Okay.
All of our pipes.
Hi.
Okay.
The last question comes from the line of Bill <unk> from Keybanc capital. Your line is open.
Great. Thank you.
I have a group of questions for the first one of you mentioned and the press release that you expect product mix change to benefit you and the future would you please discuss that and more detail.
So.
As we've been growing the brake related products and great.
Great caliber is going to be a growing category for us and someone mentioned before as you've been pointing out and so with that product mix more breaks that we'll ask the topline.
So specifically the mix changed the sheer that you're referencing is breaks and it is specific to revenue, it's not a margin commentary.
It is just the sales and Thats correct you revenue.
Great. Thank you David.
And the.
Would you please.
Discuss the electric vehicles subsidiary and the promising aspects that you are having the French.
And that you are seeing there.
Yeah.
The interesting dynamics and the industry automotive industry, let's just deal with that first before we talk about or aerospace, but and the automotive industry you have got.
Continuing growth and the combustion engine car Park, and you have continuing development and the EV space.
And.
And then.
All of us around <unk>.
Designing vehicles.
Prototyping them, and then building them and.
And then keeping them on the road, which is the maintenance of those vehicles, but in particular on the charging systems.
Around them.
And our products.
On proving our with with the strategic relationships we have.
And joint venture and marketing relationships and sales relationships are getting significant traction with some of the top of OE companies and.
On the World and.
And some of the top evolving of electric vehicle companies and the world and both.
Battery technology.
And the development of battery technology, and and the development of the electric powertrain.
We have some exciting things coming.
You know where.
We havent quite announced yet that we will be announcing but.
Of the fundamentals of the development on the vibrancy of the amount of development Thats going on and the electric space is significant.
And.
And when we look at our allocation of capital. We think the electric space has got a lot of opportunity for us and we think of base.
<unk> technology.
Is kind of have subtraction, and we can accelerate that those applications into the electric space and that applies to automotive.
I will tell you that and the aerospace side and split the space exploration.
The pre.
Obviously announced that we are supplier to NASA.
And we are to some of the very significant.
Oh, we aerospace companies, there's a lot of electrification.
And and.
And diagnostic incremental diagnostic equipment, that's being used and the development of of the electrification of aerospace on the well that's a little further out.
We're quite excited about how we fit into that space as well spacing of pump so excuse the pun.
But.
So.
You know I don't think you're going to see massive revenues right now.
We are looking at as a percentage of sales from sort of significant growth for for that business.
But.
We are actively positioning that the play a major role of markets within that marketplace.
Relative to the to the battery.
And.
There's lots of.
Lots of development, taking place on the battery front are you part of are you part of that or what role of plain.
I think bill.
Don't want to get too granular on that you'll you'll be hearing more about our battery initiatives.
Hopefully, we can get some with the.
The.
With the agreement or for some of our partners on that and that arena. We can we can get some more public information out there, but for now I would just say that the battery space is important space for us and.
And mostly on the development side of it not on.
And on not on.
How do you think of.
Fairly significant cutting edge capabilities that we add to to the battery for the whole battery charging systems.
Great. Thank you I will look forward to those additional announcements and then one.
The housekeeping question the <unk>.
Counts receivable drop is that simply a timing phenomenon or is there something structural that's changing.
Is it is little bit of timing. So we had a great cash receipts during the quarter. So all of it depends on the timing of sales and of particular month during the quarter.
And we had great collection and.
A lot of that is timing.
And then you can see if you look at those receivables of October and November were very strong and.
And we have these big deferrals of came in December.
So you know and that's why you can see those and directly the net days outstanding on receivables.
And 31 days.
So you can see the a lot of the volume.
Came and the early part of the quarter and now we're seeing significant volume of January so those receivables are up pretty dramatically.
Correct.
Thank you both.
This concludes our question and answer session and we'll now turn the call over back to our presenters for any closing remarks.
Okay. Thank you very much and closing I want to thank all of our team members for their ongoing commitment and customer centric focus on service. During these challenging times great job on meeting significant demand for for January of and hopefully ongoing the health and safety is our top priority and we remain extremely vigilant to protect our global team.
And from this horrible virus for.
For the most part of our corporate team is continuing to work remotely as much as possible, but we remain committed to gradually and safely returning our team back to the office as conditions permit.
As a result of everyones contributions of operations of continued largely uninterrupted and I'm extremely proud of the company.
Summary of the investments are bearing fruit, we are reaching important inflection points with strong positive cash flow solid earnings performance for the debt reduction and meaningful opportunities to enhance shareholder value in the.
The dynamic of 130 billion.
Automotive aftermarket industry, and the United States alone and the emerging electric vehicle industry.
This performance combined with growth opportunities for my existing and new hotspots product line as well as the evolving and diagnostics.
Businesses and for <unk>.
Both internal combustion and in the electric vehicle and aerospace.
Markets provide a meaningful paths for accelerating growth and profitability.
And should remain very committed to it.
We are proud of our more than 50 year history, and Lasalle and the aftermarket and.
And we're excited about on emerging presence and the electric vehicle space and all of us of committed to our vision of being the global leader for parts and solutions that move our world today and tomorrow and.
We appreciate your continued support and thank you again for joining us for the call we.
Look forward to speaking with you when we host the fiscal 2021 fourth quarter and year end conference call in June and the virtual investor conferences on the hopefully and posts on sometime in the future. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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