Q3 2024 Motorcar Parts of America Inc Earnings Call
Operator: Subs by www.zeoranger.co.uk Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America third quarter 2024 webcast and conference call. All lines have been placed on mute to prevent any background noise.
Good afternoon, My name is Rob and I will be your conference operator today at this time I would like to welcome everyone to the motorcar parts of America third quarter 2024 webcast and 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. If you would like to ask a question.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star, followed by the number one on your telephone keypad. If you would like to withdraw your question again, press star number one. Thank you, Gary Maier, Vice President of Communications and Investor Relations. You may begin your conference. Thanks, Rob.
During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again prestige Star one. Thank you Gary Maier, Vice President of Communications and Investor Relations you May begin your conference.
Thanks, Thanks, Rob and thanks, everyone for joining us for our call.
Gary S. Maier: Thanks, everyone, for joining us for our call. Before we begin, I turn the call over to Selwyn Joffe, Chairman, President, 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. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during today's conference. Such forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects. However, there can be no assurance that future developments affecting the company will be those anticipated by Motorcar Parts.
Before we begin and I turn the call over to Selwyn, Jonathan Chairman, President and Chief Executive Officer, David Lee The company's Chief Financial Officer.
Like to remind everyone of the Safe Harbor statement included in today's press release, the private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward looking statements, including statements made during today's conference 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 the forward looking statements each forward.
Gary S. Maier: Actual results may differ from those projected in the forward look. These forward-looking statements involve significant risks and uncertainty. Some of which are beyond the control of, and are subject to change based upon their expectations, in particular expectations that anticipated future growth and opportunities with customers may not materialize. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or updates. For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the various filings with With that, I'd like to begin the call and turn it over to you. Thank you, Gary.
Forward looking statements involve significant risks and uncertainties some of which are beyond the control of the company and are subject to change based upon various factors in.
In particular expectations about anticipated future growth and opportunities with customers may not be achieved the company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
A more detailed discussion of some of the ongoing risks and uncertainties of the company's business.
Refer you to the various filings with the Securities and Exchange Commission.
With that I'd like to begin the call and turn it over to Sean. Thank you Gary I appreciate everyone joining us today.
Selwyn H. Joffe: I appreciate everyone joining us today. We are encouraged by our operating results for the quarter, including strong sales performance, increased gross margins, increased EBITDA, and significant positive cash flow, and a revolver paydown of $50 million to $102.8 million of net debt. While some of this cash flow resulted from deferred collection catch-up in the quarter, for the nine months, we generated $48.4 million in positive cash. I might add that these results were particularly impressive considering the industry softness in November and December. Recent extreme weather conditions throughout the country should help bolster this industry sales softness in future quarters.
We're encouraged by our operating results for the quarter, including strong sales performance increased gross margins increased EBITDA and significant positive cash flow and a revolver pay down $50 million to $102 8 million of net debt.
While some of this cash flow resulted from deferred collection catch up in the quarter for the nine months, we generated $48 $4 million in positive cash.
I might add that these results were particularly impressive considering the industry softness in November and December reached.
Recent extreme weather conditions throughout the country should help bolster this industry sales softness in future quarters.
We were also pleased that gross profit for the quarter and nine months increased substantially gross margins continued to improve and benefit from better operating efficiencies as anticipated, particularly from increased overhead absorption with higher sales and production of new product categories.
Selwyn H. Joffe: We were also pleased that gross profit for the quarter and nine months increased substantially. Gross margins continue to improve and benefit from better operating efficiencies as anticipated, particularly from increased overhead absorption with higher sales and production in newer product categories. I should also add that price increases in effect but not yet realized will contribute an additional $10 million in annualized sales and gross profit and EBITDA. We remain focused on three key initiatives.
I should also add that price increases in effect, but not yet realized will contribute an additional $10 million in annualized sales and gross profit and EBITDA.
We remain focused on three key initiatives.
Selwyn H. Joffe: Sales, Profitability, and Neutralizing Working Capital. We are confident that our sales and profitability will grow organically and through market share gains in all of our products. Increased profitability, along with our working capital initiatives, will further enhance cash flow generation. With regard to working capital, we continue to focus on the balance sheet, including extending vendor payment terms. This initiative is being supported by the launch of our vendor finance program offered to our suppliers. This enables us to extend our payment terms while facilitating a program for our suppliers to have early access to capital.
<unk> profitability and neutralizing working capital.
We are confident that our sales and profitability will grow organically and through market share gains in all of our product lines.
Increased profitability, along with our working capital initiatives.
The enhanced cash flow generation.
In regard to working capital, we continue to focus on the balance sheet, including extending vendor payment terms. This initiative is being supported by the launch of our vendor finance program offered to our suppliers.
This enables us to extend our payment terms, while facilitating a program for our suppliers to have early access to capital.
We expect to increase the number of days outstanding for accounts payable, which will result in additional cash generation.
Selwyn H. Joffe: We expect to increase the number of days outstanding for accounts payable, which will result in additional cash generation. While in its early stages, this program is progressing nicely and will gain increased traction in the months ahead. I should note that the effects of this program are not yet reflected in our results and will provide additional upside to cash flow generation. From a strategic standpoint, we are continuing to leverage our strengths, including great products manufactured at state-of-the-art facilities, solid customer relationships, industry-leading SKU coverage, not to mention our value-added merchandising and marketing. We are continuing to expand hard part sales in Mexico with opportunities to further expand in other Latin American countries with multiple product lines as our customers experience increased demand for off-the-market parts.
While in its early stages. This program is progressing nicely and will gain increased traction in the months ahead.
I should note that the effects of this program are not yet reflected in our results and will provide additional upside to cash flow generation.
From a strategic standpoint, we are continuing to leverage our strengths, including great products manufactured at the state of the art facilities solid customer relationships industry, leading SKU coverage not to mention our value added merchandising and marketing support we have.
To expand our sales in Mexico with opportunities to further expand in other Latin American countries with multiple product lines as our customers experience increased demand for aftermarket parts.
The rate of growth is exciting and we are well positioned to utilize our footprint to meet the growing demand for our non discretionary aftermath after market parts.
Selwyn H. Joffe: The rate of growth is exciting, and we are well-positioned to utilize that footprint to meet the growing demand for our non-discretionary off-the-mark, off-the-mark. Our test solutions and diagnostic equipment, in particular, our industry-leading JBT1 benchtop testers for alternator installers used by major automotive retailers and professional installers, continue to grow significantly. We believe the market opportunity for additional growth in the U.S. is approximately $1 Favorable industry dynamics continued to go well for the company, and we're extremely well positioned for sustainable top and bottom line growth in our hard parts business as well as the test. Let me take a moment to further discuss our near-term initiatives to support our long-term growth and profitability. A near-term plan is in motion, as we expect to achieve significant growth in all of our products.
Our test solutions and diagnostic equipment in particular, our industry, leading JBT one bench top tester is for Alternators starters used by major automotive retailers that professional installers continues to grow significantly we believe the market opportunity for additional growth in the U S. It's approximately $110 million.
And we are well on our way.
Favorable industry dynamics continue to bode well for the company and we're extremely well positioned for sustainable top and bottom line growth in our hard parts business as well as the testing solutions.
So let me take a moment to further discuss our near term initiatives to support our long term growth and profitability plan.
Our near term plan is in motion as we expect to achieve significant growth in all of our product lines, including our quality built brand that continues to gain significant market share within the professional market.
Selwyn H. Joffe: Including our quality-built brand that continues to gain significant market share within the professional market. This includes our most recent additions to our portfolio of brake calipers, pads, and rotors. Operating efficiency improvements are continuing as volume, Overall, this growth is supported by investments, especially the company's global footprint expansion in Mexico. Backed by a well-trained and a seasoned team of professional employees. Also, we have expanded our Malaysian operation to add capacity and additional capabilities to support customers. We recently opened a new state-of-the-art wheel hub manufacturing facility in Malaysia, enabling us to ship product directly to our customers.
This includes our most recent additions to our portfolio of brake calipers pads and rotors operating efficient improve efficiency improvements are continuing as volume increases.
Overall this growth is supported by investments, especially the company's global footprint expansion in Mexico backed by well trained and a seasoned team of professional employees.
Also we have expanded our Malaysian operation to add capacity and additional capabilities to support customer.
Recently opened a new state of the art will have manufacturing facility in Malaysia, enabling us to ship product directly to our customers.
Congratulations spectacular operating team, especially to those in Singapore and Malaysia.
Selwyn H. Joffe: Congratulations to our spectacular operating performance, especially to those in Singapore and Malaysia. Our business growth is strategic, and we are focused on generating solid cashflow and profitability. The strong cash generation will enable us to further pay down debt and pursue other related opportunities to enhance shareholder value. In conclusion, non-discretionary aftermarket parts for the internal combustion engine market will be here for decades. Outlook is supported by recently updated industry data showing that the average age of a vehicle is 12 and a half years.
Our business growth and strategic and we are focused on generating solid cash flow and profitability.
Cash generation will enable us the flexibility to further pay down debt and pursue other related opportunities to enhance shareholder value.
In conclusion, non discretionary aftermarket parts for the internal combustion engine market will be here for decades and outlook supported by recently updated industry data showing that the average age of vehicle is 12 and a half year of those.
Selwyn H. Joffe: It is worth highlighting that the population of vehicles operating with internal combustion engines versus EVs represents 98 percent, or approximately 98.3% of all vehicles on the road. One of our key competitive advantages is our ability to offer a broad range of applications for all makes and models. We remain focused on newer model applications and our ability to meet expected demand as these vehicles enter the replacement market. As you probably know, the emerging electric vehicle market is still quite small relative to the overall car park population. Recent news articles regarding EV range, particularly in cold regions of the country, contribute to consumer hesitancy to plug in.
It is worth highlighting that the population of vehicles operating with internal combustion engines versus Evs represents 98 point approximately 98, 3% of all vehicles on the road.
One of our key competitive advantages is our ability to offer a broad range of application for all makes and models.
We remain focused on newer model applications and our ability to meet expected demand as these vehicles that are in place.
As you probably know the emerging electric vehicle market is still quite small relative to the overall car park population.
Recent news articles regarding EMEA range, particularly in cold regions in the country contribute to consume the hesitant hesitancy to plug in.
Selwyn H. Joffe: But as technology improves and these types of issues are addressed, we expect to continue to benefit in both markets. This is product functionality and applications across both EV and ICE applications. Well, I am disappointed in the tax valuation a lot. I want to emphasize that it has no bearing on any operating metrics, cash flow, tax liability, or any economics of the company. It is simply required by Gator.
As technology improves and these types of issues are addressed we expect to continue to benefit in both markets.
<unk> functionality and applications across both <unk> and <unk> applications.
While I am disappointed in the tax valuation allowance.
Wanted to emphasize that it has no bearing on any operating metrics cash flow tax liability or any economics of the company. It is simply required by GAAP.
Finally, we recently announced change to our sales team.
Selwyn H. Joffe: Finally, we recently announced a change to our sales. Jamie Cook has been promoted to Senior Vice President of Sales and Marketing. She is succeeding Rick Michalski, who will transition to a new role as Senior Vice President of Business Development. Jamie and Rip have worked closely together at MTA for many years. Jamie is recognized throughout the automotive aftermarket.
Jamie Cook has been promoted to senior Vice President of sales and marketing. She is succeeding with mature speed, who will transition to a new role as senior Vice president of business development.
Jamie and ready to work closer together the MTA for many years, Jamie is recognized throughout the automotive aftermarket. She is an exceptional leader with the added benefit of being a role model for womens womens seeking to advance in the industry.
Selwyn H. Joffe: She is an exceptional leader with the added benefit of being a role model for women seeking to advance in the industry. Rick will remain an important member of our team in his new role, helping to drive demand for all of our products, both from existing and new retail professionals. I'll now turn the call over to David to review our results and grade them. Thank you, Selwyn, and good morning, everyone.
Rick will remain an important member of our team in his new role helping to drive demand for all of our products, both from existing and new retail our professional customer.
I'll now turn the call over to David to review our results in greater detail.
Thank you sell it and good morning, everyone.
David Sung Lee: I encourage everyone to read the earnings press release issued this morning, as well as the 10-Q that will be filed later today. But, let me first provide key highlights for the fiscal third quarter. Net sales increased 13.2% to $171.9 million, and gross margin improved by 3.7 percentage points. Gross profit increased 43.1% to $30 million. Operating income increased 170.1% to $9.5 million, and the company generated cash of approximately $53.6 million. I should mention that gross profit for the quarter was impacted by non-cash items as well as cash items. The non-cash items reflect core and finished good premium amortization, and Revaluation of Cores and Customer Shows, which are unique to certain of our products and required by GAAP. The total for these non-cash items in the quarter was approximately $4.4 million.
Encourage everyone to read the earnings press release issued this morning as well as the 10-Q that will be filed later today let.
Let me first provide key highlights for the fiscal third quarter net.
Net sales increased 13, 2% to $171 9 million.
Gross margin improved by three seven percentage point.
Gross profit increased 43, 1% to $30 million.
Operating income increased 171% to $9 5 million.
And the company generated cash of approximately $53 6 million.
I should mention that gross profit for the quarter was impacted by noncash items as well as cash items.
The noncash items reflect core and finished the premium amortization and revaluation of cores on customer shelves, which are unique to certain of our products and required by GAAP.
The total for these noncash items in the quarter with approximately $4 4 million.
A more detailed explanation of core accounting is available on our website and I would encourage anyone with questions about this topic to review the video.
David Sung Lee: A more detailed explanation of core accounting is available on our website, and I would encourage anyone with questions about this topic to review the video. The third quarter gross margin was 17.5%, compared with 13.8% a year earlier. Gross margin was impacted by 2.6% from the previously mentioned non-cash items, as well as 0.9% from cash hires, as detailed in Exhibit 3 of this morning's earnings press. In summary, in addition to the non-cash and cash items explained previously, gross margin for the fiscal 24th third quarter reflects the partial benefit of a price increase that went into effect during the current quarter and was operating a few weeks ago. Additionally, we have meaningful annualized price increases that started in the current fourth quarter, which will further contribute to gross margin enhancement. Operating expenses were $20.5 million, compared with $17.5 million in the prior year period.
Third quarter gross margin was 17, 5% compared with 13, 8% a year earlier.
Gross margin was impacted by two 6% from the previously mentioned noncash items as.
As well as 49% from cash items.
As detailed in exhibit three of this morning's earnings press release.
In summary in addition to the noncash and cash items explained previously.
Gross margin for the fiscal 2000 and for third quarter reflects the partial benefit of price increases that went into effect during the current quarter and operating efficiency.
Additionally, we have meaningful annualized price increases that starting in the current fourth quarter, which will further contribute to gross margin enhancements.
Operating expenses were $20 5 million compared with $17 5 million in the prior year period.
David Sung Lee: This included a non-cash gain of $3.1 million for the foreign exchange impact of lease liabilities and forward contracts, compared with a prior year non-cash gain of $4.3 million. The remaining $1.9 million of operating expense increases included employee-related expenses. Operating income for the third quarter increased 170.1% to $9.5 million from $3.5 million in the prior year.
This included a noncash gain of $3 1 million for the foreign exchange impact of lease liabilities, and Florida contracts compared with the prior year non cash gain of $4 3 million.
The remaining $1 9 million operating expense increases included employee related expenses.
Operating income for the third quarter increased 171% to $9 5 million from $3 5 million in the prior year.
Results for the fiscal third quarter were impacted by $6 8 million or <unk> 26 per share of higher interest expenses, primarily due to higher market interest rates and.
David Sung Lee: Results for the fiscal third quarter were impacted by $6.8 million, or $0.26 per share, of higher interest expenses, primarily due to higher market interest rates and higher utilization of the accounts receivable at discount programs due to higher sales. Interest expense was $18.3 million compared with $11.5 million for last year, which is primarily related to our customers' accounts receivable discount programs. We are working diligently to address the higher interest environment. In particular, areas that we can control, for example, among other initiatives, we're focused on neutralizing working capital to generate positive cash flow and pay down debt, as evidenced by our year-to-date results. In addition, we continue to work with our customers to mitigate higher interest rates, due primarily to a $37.5 million U.S. federal and state deferred tax asset valuation allowance under U.S. GAAP recorded during the fiscal 24 third quarter. Income tax expense was $37.3 million, prepared with an income tax benefit of $9 million, compared with the same period a year ago.
And higher utilization of the accounts receivable discount program due to higher sales.
Interest expense was $18 3 million compared with $11 5 million for last year, which is primarily related to our customers' accounts receivable discount program.
We are working diligently to address the higher interest environment, particularly areas that we can control for example, among other initiatives, we're focused on neutralizing working capital and generate positive cash flow to pay down debt.
As evidenced by our year to date results.
In addition, we continue to work with our customers to mitigate higher interest rates.
Due primarily to a $37 5 million U S federal and state deferred tax asset valuation allowance under U S. GAAP recorded during the fiscal 2000 and for third quarter.
Income tax expense was $37 3 million compared with an income tax benefit of $9 million predictable period, a year ago.
David Sung Lee: Let me emphasize that this tax evaluation allowance is required by GAAP and is non-cash and does not impact any operating metric, due primarily to $40.4 million of non-cash items, including a $37.5 million U.S. Federal and State Deferred Tax Asset Evaluation Allowance under U.S. GAAP, as noted previously. We reported a net loss for the fiscal 24th third quarter of $47.2 million, or $2.40 per share, compared with net income of $1 million, or $0.05 per diluted share, a year ago. To re-emphasize, this accounting item is non-cash and does not impact any operating results. The details of the non-cash and cash items impacting results are in Exhibit 1 of this morning's earnings report. As I mentioned previously, we experienced a 13.2% sales increase. Despite industry softness in November and December. With its higher expected sales volume moving forward and the full impact of certain price increases already in effect, results are expected to further improve, as someone mentioned. Please also add that price increases, in effect, will contribute an additional $10 million in annualized sales, gross profit, and EBIT. EBDAL's revenue for the fiscal third quarter was $11.2 million.
Let me emphasize that this tax valuation allowance is required by GAAP and is noncash and does not impact any operating metrics.
Due primarily to $40 4 million of noncash items, including a $37 5 million U S federal and state deferred tax asset valuation allowance under U S. GAAP noted previously.
We reported a net loss for the fiscal year 2000, and for third quarter of $47 2 million or $2 40 per share compared with net income of $1 million or <unk> <unk> per diluted share a year ago.
To reemphasize this accounting item is noncash and does not impact any operating metrics.
The details of the noncash and cash items impacting results are in exhibit one of this morning's earnings press release.
As I mentioned previously we experienced a 13, 2% sales increase despite industry softness in November and December with its higher expected sales volume moving forward and the full impact of certain price increases are we in effect results are expected to further improve.
As Selwyn mentioned I should also add that price increases in effect will contribute an additional $10 million in annualized sales gross profit and EBITDA.
EBITDA for the fiscal third quarter was $11 2 million.
David Sung Lee: EBDAL was impacted by $3.9 million of non-cash items and impacted by $1.9 million in cash items. EBDOT before the impact of non-cash and cash items mentioned above, with $17 million for the third quarter. EBDOT's fiscal third quarter was $6.6 billion. Steve Dyer was impacted by $646,000 of non-cash fines, as well as $3.8 million in cash right now.
EBITDA was impacted by $3 9 million of noncash items and impacted by $1 9 million in cash items.
EBITDA before the impact of noncash and cash items mentioned above.
With $17 million for the third quarter.
EBITDA for the prior years fiscal third quarter was $6 6 million EBITDA was impacted by 646000, a noncash item three.
$3 8 million in cash items.
David Sung Lee: DbDot before the impact of non-cash and cash items mentioned above was $11 million for the prior year's third quarter. Now, let me discuss the nine months. Net sales for the fiscal 24--9 month period increased 8.2% to a record $528.2M from $488.3M.
EBITDA before the impact of noncash and cash items mentioned above.
With $11 million for the prior year third quarter.
Now, let me discuss the nine months results.
Net sales for the fiscal 'twenty nine month period increased eight 2% to a record $528 2 million.
$488 3 million.
Gross profit for the fiscal 'twenty nine month period increased 25, 6% to $97 8 million from $77 8 million a year earlier.
David Sung Lee: Gross profit for the fiscal 24 nine-month period was twenty-five point six percent, to $97.8 million from $77.8 million a year earlier. Gross margin for the fiscal 24-7-9 month period was 18.5%, compared with 15.9% a year earlier.
Gross margin for the fiscal 'twenty nine month period was 18, 5% compared with 15, 9% a year earlier.
David Sung Lee: Gross margin for the fiscal 24-9 month period was impacted by $12.6 million, or 2.4% of non-cash items, and 6.7 million, or 1.3% of cash. Operating income for the nine-month period... 166.7% to $33.9 million, from $12.7 million in the prior year. Results for the nine months were impacted by $17.7 million, or $0.68 per share of higher interest expense, primarily due to higher market interest rates and higher utilization of our customers' accounts receivable discount programs due to higher sales. Interest expense was $45.4 million, compared with $27.7 million for that. As I previously noted, we are working diligently to address the higher interest environment, particularly areas that we can control, due primarily to $49 million of non-cash items, including a $37.5 million U.S. Federal and State Deferred Tax Asset Valuation Allowance under U.S. GAAP. We reported a net loss for the fiscal 24--9 month period of $50.6 million, or $2.58 per share, compared with a net loss of $5.7 million, or $0.29 per share, a year ago.
Gross margin for the fiscal 'twenty nine months period was impacted by $12 6 million or two 4% of noncash items and.
$6 7 million or one 3% of cash site.
Operating income for the nine month period increased 166, 7%.
$33 9 million.
$12 7 million in the prior year.
Results for the nine months were impacted by $17 7 million or <unk> 68 per share of higher interest expenses, primarily due to the higher market interest rates and high utilization for our customers' accounts receivable discount program due to higher sales.
Interest expense was $45 4 million compared with $27 7 million for last year.
As I previously noted we are working diligently to address the higher interest environment, particularly areas that we can control.
Due primarily to $49 5 million of noncash items.
Including a $37 5 million U S federal and state deferred tax asset valuation allowance under U S. GAAP.
We reported a net loss for the fiscal year 'twenty nine months period of $50 6 million or $2 58 per share compared with a net loss of $5 7 million or 29 per share a year ago.
David Sung Lee: Once again, this accounting item is non-cash and does not impact any operating... The details of the non-cash and cash items impacting results are on Exhibit 2 of this morning's earnings press release. Results are expected to improve from various initiatives that will be realized, as I discussed earlier, concerning price increases in effect and higher sales volume. EBDOT's EB was impacted by 16 million of non-cash items, as well as 7.7 million in cash. EBITDA before the impact of non-cash and cash items mentioned above was $64.7 million for the current period. EBITDA for the prior year fiscal 23 nine-month period was $22,000.
Once again this accounting item is noncash and does not impact any operating metrics with.
The details of the noncash and cash items impacting results on exhibit two of this morning's earnings press release.
<unk> are expected to improve from various initiatives that will be realized as I discussed earlier continued price increases in effect and higher sales volume.
EBITDA for the fiscal 'twenty nine months period was $40 9 million EBITDA was impacted by $16 million of noncash items as well as $7 7 million in cash items.
EBITDA before the impact of noncash and cash items mentioned above were $64 7 million for the current period.
EBITDA for the prior year fiscal 'twenty three nine months period was $22 million EBITDA was impacted by $12 9 million of noncash items.
It's worth $12 6 million in cash items.
David Sung Lee: EBDAL was impacted by 12.9 million in non-cash items, as well as $12.6 million in cash items. EBDOT before the impact of the non-cash and cash items mentioned above was $47.5 million for the prior year nine-month period. Now we will move on to cash flow and key corporate items. The company generated approximately $53.6 million of cash from operating activities during the quarter, including accounts receivable cash from the prior quarter, and approximately $48.4 million of cash from operating activities for the nine-month period, which is not impacted by any accounts receivable deferral. During a nine-month period, the company reduced net bank debt by $43.7 million to $102.8 million from $146.5 million.
Before the impact of noncash and cash items mentioned above was $47 5 million for the prior year nine months period.
Now I will move on to cash flow and key corporate items.
The company generated approximately $53 6 million of cash from operating activities during the quarter, including accounts receivable catch up from the prior quarter and approximately $48 4 million of cash from operating activities for the nine month period, which is not impacted by any accounts receivable.
For deferral.
During the nine months period, the company reduced net debt by $43 7 million to $102 8 million from $146 5 million.
We expect to generate an increase in operating profit on a year over year basis for fiscal 'twenty for.
Supported by organic growth from customer demand and operating efficiencies from our now completed footprint expansion and generate positive cash flow for fiscal 'twenty for us.
David Sung Lee: We expect to generate an increase in operating profit on an year-over-year basis for Fiscal 24, which is supported by Organic Growth from Customer Demand and Operating Efficiency from a now-completed footprint expansion, and generate positive cash flow for Fiscal Year 24. In addition to our goal of generating increased operating profits, we are diligently focused on opportunities to neutralize working capital growth, including customer product demand. Enhanced Inventory Management and Improving Vendor Payment. Our investment or theirs, We're gratified by the ongoing success of our expanded operations in Mexico and the growth momentum of our emerging brake category, along with expectations of increasing financial from both new and existing products. Our net debt at the end of the quarter, excluding our convertible note, was approximately $102.8 million, while total cash and availability was approximately $126.3 million.
In addition to our goal of generating increased operating profits. We are diligently focused on opportunities to neutralize working capital growth, including customer product demand planning enhanced inventory management and improving vendor payment terms.
Our investments are bearing fruit, we are gratified by the ongoing success of our expanded operations in Mexico, and the growth momentum of our emerging brake categories, along with expectations of increasing financial performance from both new and existing product lines.
Our net debt ended the quarter, excluding a convertible note was approximately $102 8 million, while total cash availability was approximately $126 3 million.
But further explanation on our reconciliation of items that impacted results and non-GAAP financial measures. Please refer to exhibits one through five in this morning's earnings press release.
I would now like to open the line for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Your first question comes from the line of Matt Koranda from Roth <unk>. Your line is open.
David Sung Lee: For further explanation on the reconciliation of items that impact the results and non-GAAP financial measures, please refer to Exhibits 1 through 5 in this morning's Earnings Press. I would now like to open the line for questions. At this time, I would like to remind everyone, in order to ask a question, press the star, then the number 1 on your telephone keypad. Your first question comes from the line of Matt Koranda from Roth M K M. Your line is open. Hey guys, it's Mike Zabrin on permat.
Hey, guys, it's Mike <unk> on for Matt.
Can we just start.
Thank you to all of the breakdown of product revenue by mix.
Yes, so for the third quarter rotating electrical was 65%.
Mike Zabrin: Can we just start, like usual, with the breakdown of product revenue by mix? Yes, so for the third quarter, rotating electrical was 65%, brake-related products with 21%, wheel hubs was 11%, and others was to be, Got it. Helpful.
Break related products was 21%.
We will harvest was 11% and others was 3%.
Got it helpful.
So they are releasing.
On the call you talked about a slowdown in November and December maybe just elaborate a little bit further on what exactly happened.
Selwyn H. Joffe: So in the release and on the call, you talked about a slowdown in November and December. Maybe just elaborate a little bit further on what exactly happened and what our sense is for why demand was weak in those months. Well, we started off the quarter with a great October, and I think a lot of the professional installer bays got soft because I think we had some pretty mild weather.
What's our Sam for wide demand was weak in those.
In those months.
While we started off the quarter.
With a great October.
And I think a lot of the professional installer base got soft I think we are.
Some pretty mild weather again.
Selwyn H. Joffe: I mean, again, you know, it's very hard for me to really put an accurate finger on the pulse as to why things softened up. The fundamental metrics remain good, but we've seen that now that there was some extreme weather, mostly in the west and east part of the country.
It's very hard for me to really put an accurate finger on the pulse as to why things softened up the fundamental metrics remain good but we have seen that now that there were some extreme weather.
Mostly in the west and the east part of the country.
We've seen a pickup so.
Selwyn H. Joffe: We've seen a pickup, so while, you know, it's hard to predict, I mean, we're maintaining our guidance for the year and we... We're, you know, we're optimistic she'll come back. I mean, I just don't know. I wish I could give you an exact, you know, X, Y, Z explanation as to why this happens.
Wow.
It's hard to predict I mean, we are maintaining our guidance for the year and we will.
We are optimistic should come back I mean, I, just don't know I wish I could give you an exact XY Z explanation as to why.
This happens as the other issue that we have is that and I don't know if this is a fact or not but sometimes thats our customers fiscal calendar year ends in may be there.
Selwyn H. Joffe: The other issue that we have is that, and I don't know if this is a fact or not, but sometimes it's our customers' fiscal calendar year ends, and maybe they're, you know, managing their working capital levels. So that could have an effect as well. But really, I think that the fundamentals for November-December on a macro level across the... Cross the Bays, It definitely was a little soft.
Managing their working capital levels, so that could have an effect as well, but really.
I think the fundamentals for November and December on a macro level across the industry across the base.
It definitely was a little soft out there.
Selwyn H. Joffe: I mean, I can only refer to our products, but we think that just the number of vehicles and footprints, and research that we've shown shows a little. Got it. Okay. And Selwyn, you said we were sticking with this guidance through the end of the year. Yeah, so we've had a strong start to this quarter. And we'll see, you know, as we come towards spring. We're still optimistic about the man. We're busy and, uh... Yeah, Worcester, Kentucky.
I mean, I can only refer to our products, but we think that just number of vehicles in footprint.
Research solution and showed a little bit softer.
Got it okay.
So when you said, we are sticking with the guidance through the through the end of the year. So we've had a strong start to this quarter.
And we'll see as we come towards spring.
We are optimistic still about.
About demand we're busy.
And we're sticking to our guidance.
Got it okay.
Selwyn H. Joffe: Got it. Okay. Um, okay, maybe, maybe just help level set us on how much pricing has been put through as of today. And we talked about it a little bit on the call.
Okay, maybe maybe just help level set us on.
How much pricing has been put through as of today.
We talked about it a little bit on the call.
Selwyn H. Joffe: But just, further elaborate on how much pricing has been put through today. Should we expect to keep continuing to take price? And then I have a follow-up as well, but maybe let's just start there.
So just.
Just further elaborate on how much pricing has been put through today should we expect.
Keith.
Continuing to take price and then.
I have a follow up as well, but maybe let's just start there.
Selwyn H. Joffe: Yeah. So it's becoming harder and harder to quantify how much is put through and how much isn't put through. I mean, we put a significant amount through. There's $10 million of annualized pricing that's already in the existing price increases that hasn't been reflected in the numbers that will start this quarter.
Yes.
Becoming harder and harder to quantify how much is put through and how much isn't put through I mean, we put a significant amount through this $10 million of annualized pricing that's already in the existing price increases it hasnt been reflected in our numbers that will start in this quarter.
Selwyn H. Joffe: And we expect to mitigate inflationary costs and hopefully include interest in pricing strategies. We also, as we pick up volume, you know, we become more operationally efficient. And, you know, we've got a lot of initiatives for continuous improvement that continue to drive profitability. So.
And we expect to mitigate inflationary costs and hopefully including interest.
And pricing strategies.
We also as we pick up volume, we become more operationally efficient.
And.
We've got a lot of initiatives on continuous improvement is continue to drive profitability. So across the board I mean, our biggest challenge today.
Selwyn H. Joffe: Across the board, I mean, our biggest challenge today is mitigating the interest expense, and the interest expense is due. The vast majority is due to, you know, more successful sales. And with the new loan agreement that we have, we're able to collect that cash. The C.I.
As mitigating the interest expense and interest expenses is due.
The vast majority is due to more success with sales.
And now with the new loan agreement that we have we were able to collect that cash in.
And you can see our operating metrics, we've paid down over $40 million in debt for the nine months I think the quarter.
Selwyn H. Joffe: operating metrics who paid down over $40 million in debt for the nine months. I think the quarter is a little disproportionate because of some of the deferrals, but the nine months is not. So, you know, we, I think everyone is aware of the interest rates, and we expect to continue to mitigate. Got it. Makes sense.
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Disproportion because of some of the deferrals, but the nine months is not.
And so we think.
Thanks to everyone is aware of the interest rates and we expect to continue to mitigate it.
Got it.
Makes sense.
Selwyn H. Joffe: And so then the price increases that we started in the fourth quarter, I guess when do those fully filter through? Do we have a sense for that? Yeah, so they start in the fourth quarter; I just assume, you know, middle to late fourth quarter, but they filter through going forward on an annualized basis.
So then the price increases that we started.
In the fourth quarter I guess when do when do those fully filtered through do we have a sense for that.
So they started in the fourth quarter, just assume intermodal middle to late fourth quarter, but they filter through going forward on an annualized basis. All those there is another 10 million that will be over and above what we've already got in the numbers for the next 12 months.
Selwyn H. Joffe: This is another 10 million. That'll be over and above what we've already got in the numbers for the next 12 months. Got it. Okay, so let's start filtering through as soon as possible, okay? Got it.
Got it okay. So let's start filtering through as soon as well.
Okay.
Got it okay that makes sense.
Selwyn H. Joffe: Okay. That makes sense. Last one for me is the tax valuation allowance.
Last one for me the tax valuation allowance. So I understand it was required by GAAP to non cash expense, we made that very clear, but maybe just why why exactly did we have to recognize that allowance.
Selwyn H. Joffe: So I understand it was required by GAAP and the non-cash expense. We made that very clear. But maybe just why exactly did we have to recognize that allowance?
Selwyn H. Joffe: Help us get a better sense of that. Yeah, so the first thing, let me just sort of back up and say that those assets remain on our balance sheet, and we're optimistic that we're going to be able to use those assets. And as we get more gap income, we'll be able to, you know, reverse it, and it'll take some time. But assuming the company performs, which we expect it to, we'll reverse it. That doesn't affect our tax liability, it doesn't affect cash, it doesn't affect anything. And the real trigger is that, you know, we had a higher expectation for results in the third quarter than we did in this past quarter that we're reporting. And, uh, you know, we had a soft two months out of the three months, and you know, we had to revise our, we had to, we did revise our forecast, internal forecast down, and that resulted in a, um..., Taxable Loss in the U.S. Entities. And so we had to put a reserve on the tax act. It's unfortunate, I hate it, but it's the rules, and that's what happened.
Help us get a better sense for that.
Yes, so the.
Yes.
The first thing, let me just sort of backup and say its those assets remain on our balance sheet and we are optimistic that we are going to be able to use those assets and as we.
Get more GAAP income, we will be able to reverse that and those will take some time, but.
The company performs which we expected to and will reverse of and it doesn't affect our tax liability it doesn't affect cash it doesn't affect anything in the real the trigger is that we had a higher expectation for results in the third quarter.
Past quarter that we're reporting on.
We are at a sub two months out of the three months.
We have to revise upward.
We did revise our forecast internal forecast down and that results in a.
In a taxable loss in the U S entities.
And so we had to put a reserve on the tax asset.
It's unfortunate I hate it.
But it's the rules.
And that's what's happened.
Selwyn H. Joffe: And again, while the optics of it and the rules are the rules, they affect us in no way other than, you know, what the perception is out there. They affect us in terms of anything that we're doing right. And our focus continues to drive, to drive, you know, gap income and all income. And so as that reverses those assets, that valuation will come off of the asset. You got it.
Again, while the optics of it on the rules are the rules.
In no way affects us other than what the perception is out there no way affects us in terms of anything that we're doing right now.
And our focus continues to drive.
To drive.
GAAP income moving to OLED.
And so as Ed Provost is those assets that valuation will come off of the assets.
Got it got it. Thanks, that's all from me guys.
Selwyn H. Joffe: Thanks Selwyn. That's all from me, guys. Thank you very much.
Thank you Eric.
Again, if you'd like to ask a question press star.
Operator: Again, if you'd like to ask a question, press star 1 on the telephone keypad. Your next question comes from the line of Matt Dane from Titan Capital Management. Your line is open.
All day long keypad. Your next question comes from the line of Matt Dane from Titan Capital Management. Your line is open.
Great. Thank you I wanted to ask about the new Malaysian facility that you referenced in the call was hoping you could walk through some of the benefits that you expect from that just wasn't certain if you were just expanding capacity or there is other benefits or just help me understand that.
Matt Koranda: Great, thank you. I wanted to ask about the new Malaysian facility that you referenced in the call. I was hoping you could walk through some of the benefits that you expect from that. I just wasn't certain if you were just expanding capacity or... Let's help you understand. Yeah. So that's a great question, Matt.
So that's a great question Matt.
Selwyn H. Joffe: That's, it's very exciting for us. What we did there is we opened a, You know, we've been in Malaysia, I wish I knew the exact number of years, I mean, probably over three decades, and we've been able to continue to grow the old facility. What we've done is created a brand new, state-of-the-art facility which allows us now to meet all the tests to ship our customers direct from Malaysia to our customers. So it'll never be touched again.
Very exciting for us what we did there is we opened.
We've been in Malaysia.
I wish I knew the exact a number of years I mean, probably over three decades.
And.
We've been able to continue to grow the old facility. What we've done is we've created a brand new state of the art facility, which allows US now to meet all the tests to ship our customers direct direct from Malaysia to our customer so it'll never be touched yet so wheel hubs.
Selwyn H. Joffe: So wheel hubs, the new wheel hub program, which, in line with what we've been doing, the same thing, now has more capacity to go direct with storage for that inventory, staging areas for that inventory, to be shipped directly to our customers around the world, but in particular to the United States. And that's a big deal because our competitors are Chinese-based, and they are subject to tariffs. And our customers buy large orders of this and so want to take the ship direct program. And we think that's going to open up some big opportunities going forward. I think in the short term, you'll see a little bit of a dip in that product line. And then in the next six months, we should see some, I think we'll see some extreme gain. Very exciting, and it's a fabulous plant.
A new wheel hub program, which we which is in.
In light of what we've been doing the same thing now has more capacity to go direct with storage for that inventory staging areas for that inventory to be shipped directly to our customers.
Around the world, but in particular in the United States and Thats.
That's a big deal because of <unk>.
Competitors are Chinese based and they have subject to tariffs and our customers by large orders of this and so I want to take ship direct programs and we think thats going to open up.
Some big opportunities going forward I think short term you will see a little bit of that.
And not in that product line and then in the next six months, we should see some extreme.
I think we will see some extreme gains in that product line.
Very exciting and it's a fabulous plants.
We already had a major customer.
Selwyn H. Joffe: We already had a major customer visit. I'm extremely impressed with it. I mean, and that's all in the CapEx.
And was extremely impressed with.
I mean, and that's all in the Capex Tau painful and done.
Selwyn H. Joffe: It's all paid for and done. Okay, so you expect this plant and the cost efficiency of shipping directly to the customer to basically lead to some substantial revenue gains as you gain share from your Chinese competitors. Is that what I heard you say, more or less?
Okay. So you expect this plant and the cost efficiency of shipping directly to the customers basically can lead to some substantial revenue gains that you gained share from your Chinese competitors is that what I heard you say more or less yes.
Selwyn H. Joffe: Yeah, I think we'll see margin gain and share gain. Great, great. Glad to hear it.
We will see margin gain in share gain in time.
Great great to hear.
Selwyn H. Joffe: I also did want to ask about the quality build product line and reference that very briefly in the call as well. Just was curious about the traction that you are seeing with that product line, how is that relative to your expectations? Well, we have high expectations. I'll start there.
I also did want to ask about the quality build product line that reference that very briefly in the call as well just curious the traction that you are seeing with that product line, how is that relative to your expectations.
Well, we have high expectations I'll start there so although absolute relative I every time I get results.
Selwyn H. Joffe: So answering my relative question, every time I get results of how we're doing, my expectations grow. But we're growing that. We've had over 40% growth rates in that product line, and that product branding name. And it's becoming a nationally recognized brand, and I'm extremely excited about how that's unfolding. We're adding many new customers to that, to the brake line under our quality built name. And we're just getting more and more demand for quality built. And so that brand value and that brand equity. We're excited about that. The other side of that is there's no factoring cost; there's no supply chain cost on launching and growing that business, so that's what's so exciting.
How are we doing my expectations grow, but I mean, we are growing that.
That over 40% growth rates in that product line and that product branding name and its becoming a nationally recognized brand and I am extremely excited about how thats unfolding, where we're adding.
Many new customers to that so the brake line under our quality built name.
And we're just getting more and more demand for quality built and so that brand value in that brand equity.
We're excited about that the other side of that is there is no. There is no factoring costs, there's no supply.
Supply chain cost on launching and growing that business. So that's also encouraging to us.
Selwyn H. Joffe: I appreciate it. Thank you. And there are no further questions at this time. I will now turn the call back over to Selwyn Joffe for some final closing remarks. Okay, thank you.
Okay. Good to know I appreciate it.
Thank you thank.
Thank you.
And there are no further questions at this time I will now turn the call back over to Selwyn choppy for some final closing remarks.
Okay. Thank you. So just in summary, we're excited about year to date accomplishments and our outlook.
Selwyn H. Joffe: So, just in summary, we're excited about the year-to-date accomplishments and our outlook. In particular, our strong cash flow, and our pay down of debt. We expect the further benefit of additional price increases and the opportunities to further enhance shareholder value. We're encouraged by our leadership position in the industry and our solid customer partnerships. We built a platform for growth that is not easily duplicated, and we expect this growth to continue in the future, especially as demand for non-distractionary aftermarket products increases. 7 critical needs for our consumers. The cars are on the road.
In particular, our strong cash flow a pay down of debt, we expect to further benefit of additional price increases and the opportunities to further enhance shareholder value.
We are encouraged by our leadership position in the industry and our solid customer partnerships. We've built a platform for growth that is not easily duplicated.
And we expect.
This growth to continue.
On in the future, especially as the demand from non discretionary aftermarket products.
So the critical needed.
Consumers are thoughts are on the road.
The car population continues to grow.
Selwyn H. Joffe: Our population continues to grow. Non-discretionary products will be there. There may be temporary ups and downs, but in the long-term, there's a medium-term, and a near-term demand. In closing, I must recognize the contributions of all of our team members, who are continuously focused on providing the highest level of service. We are all committed to being the industry leader for parts and solutions that move our world today and in the future. We appreciate your continued support, and we thank you again for joining us on the call, and we look forward to speaking with you when we host our fiscal 2024 Euroend conference call in June and at the various investor companies. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Non discretionary parts will be there that may be temporary ups and downs, but.
Long term this medium term or near term the demand will be done in closing I must recognize the contributions of all of our team members.
We will continuously focused on providing the highest level of service.
We're all committed to being the industry leader for parts and solutions that move our world today and in the future.
We appreciate your continued support and we thank you again for joining us to call on the call and we look forward to speaking with you when we host our fiscal 2024 year end conference call in June.
And the various investor conferences in the interim.
Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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