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Edited Transcript of MPAA earnings conference call or presentation 10-Feb-20 6:00pm GMT

Q3 2020 Motorcar Parts of America Inc Earnings Call

Torrance Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Motorcar Parts of America Inc earnings conference call or presentation Monday, February 10, 2020 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Lee

Motorcar Parts of America, Inc. - CFO

* Gary S. Maier

Motorcar Parts of America, Inc. - VP of Corporate Communications and IR

* Selwyn H. Joffe

Motorcar Parts of America, Inc. - Chairman, President & CEO

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Conference Call Participants

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* Christopher Ralph Van Horn

B. Riley FBR, Inc., Research Division - Analyst

* Justin Lars Clare

Roth Capital Partners, LLC, Research Division - Director & Research Analyst

* Robert Beauregard

Global Alpha Capital Management Ltd. - President, Founding Director, CIO & Lead Portfolio Manager & Director

* Ryan Ronald Sigdahl

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* William J. Dezellem

Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Motorcar Parts of America Third Quarter Earnings Conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Gary Maier. Thank you. Please go ahead, sir.

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Gary S. Maier, Motorcar Parts of America, Inc. - VP of Corporate Communications and IR [2]

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Thank you, Skyler. Thanks, everyone, for joining us today for our call. Before we begin, I turn the call over to Selwyn Joffe, 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. 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 that future developments affecting the company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in these 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 change based upon various factors. 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. For a more detailed discussion of some of these ongoing risks and uncertainties of the company's business, I refer you to the various filings with the Securities and Exchange Commission.

I'd now like to begin the call and turn the call over to Selwyn.

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [3]

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Thank you, Gary. I appreciate everyone joining us today. As stated in the press release issued this morning, the generation of cash flow from operations and profitability and margin improvement were important highlights for the quarter. Notwithstanding sales softness late in the quarter, primarily related to the timing of certain product orders and mild weather, we are making excellent progress in the execution of our strategic investments.

These investments are rapidly creating a transformative platform for growth and profitability, allowing us to leverage our strengths within the growing $125 billion aftermarket hard parts industry and benefit from the changing competitive landscape.

In summary, our footprint of the future initiatives are rapidly advancing. We have substantially completed our transition into our new consolidated distribution facility in Mexico and the final phase of our new facilities build-out is expected to be completed by the end of our fiscal 2021 second quarter.

All of this will further enhance our scalability and our financial performance. Particularly as we realize the benefits of our state-of-the-art production of calipers, the relocation of certain additional product lines to our operations in Mexico from higher cost domestic production and other related overhead absorption initiatives.

As I mentioned last quarter, our facility expansion in Malaysia is substantially complete. This will allow us to increase capacity and productivity for our existing product lines and allow us to utilize the additional capacity to reduce dependence on outsourcing certain products or components.

I want to emphasize that MPA has established itself as a leader in the supply of internal combustion vehicle hard parts to our industry. The market size for our current category is multi billions of dollars.

According to land marketing research, internal combustion engine vehicles in operation in the United States will increase by $36 million from 2020 through 2030, up from $282 million in operation last year.

These vehicles will continue to age, fueling significant growth in the aftermarket parts replacement industry, well beyond 2030. In fact, these statistics should further benefit from vehicles in the peak size years entering the prime replace -- prime parts replacement age.

In short, our strategy is to leverage our significant channel relationships for aftermarket parts and offer superior parts and solutions to our customers and consumers.

Today, we are relentlessly focused on maintaining our growth rates for the hard parts categories that we offer as well as launching and establishing ourselves within the multibillion-dollar brake parts category.

As we approach the end of fiscal 2020, we are well positioned to benefit from our investments for continued growth in fiscal 2021. Our global footprint to export -- expansion across multiple nondiscretionary aftermarket hard parts categories is nearing completion, further solidifying our position as a valued premier supplier in North America.

In addition, our cutting-edge diagnostic and testing equipment for alternators and starters is industry leading. In particular, demand for our benchtop tester, which is critical to determining the root cause of issues related to the vehicle starting and charging system is gaining traction. While sales in the fiscal third quarter was soft, we expect sales volume for these testers to gain momentum in the quarters ahead, particularly in our new fiscal year, as customers upgrade existing testers to meet the latest protocols, which supports the integrity of the advice they provide to consumers.

To complement our internal combustion business, we have also embraced the advancement of the fast-growing world of electrified transportation. Consequently, we have made significant investments in the rapidly advancing diagnostics for automotive electric vehicles and the electrification of the aerospace market.

Our offering of complete solutions for simulation, emulation and production testing for the electric drivetrain is gaining traction. Sales activity is gaining momentum, and we have received orders from key blue-chip global companies in both the automotive and aerospace industries.

Our strategic partnership within the space are getting stronger, including our strategic relationship with OPAL-RT, which we announced last quarter. Recently, we announced the appointment of Uday Deshpande as Chief Technology Officer of D&V Electronics.

We look forward to benefiting from his background and experience, working for some of the leading global suppliers, providers of electric transportation systems and the increasing global demand for electronic testing, products and services. All of this represents significant value creation opportunities.

In short, our entire company is well positioned for sustainable growth, enhanced profitability and positive cash flow from operations.

We remain encouraged by the outlook for our current and expanding product lines and the transformative impact of our investments to support our current and future growth. Let me reiterate what we expect for the full 2020 fiscal year, based on the timing and completion of various initiatives and the ramp-up of our new caliper business. One, continued year-over-year sales increases; two, higher adjusted gross margins and operating income; and three, we expect to generate positive cash flow from operations in this fiscal year compared to $40 million of cash used in operating activities in the prior year.

However, due to the factors impacting the fiscal third quarter, particularly sales softness late in this quarter, as well as the recent coronavirus outbreak and its potential impact on the supply chain, we now believe net sales for our fiscal 2020 ending March 31 should be approximately $534 million and adjusted net sales for fiscal 2020 should be approximately $539 million, representing 13% growth year-over-year on both a GAAP and a non-GAAP basis, with sales momentum improving in the current fiscal fourth quarter.

Adjusted gross margin for fiscal 2020 is still expected to be approximately 27%, impacted by product mix. As we discussed, profitability and operating cash flow are expected to improve on a year-over-year basis.

To highlight our overall positive outlook despite some short-term softer demand due to mild weather and deferred orders, I refer you to our investor presentation on our website, which shows some macro industry charts, including a chart related to the expansion of the car park sweet spot for repairs.

As I mentioned earlier, the number of prime replacement aged vehicles is growing. These statistics, along with our aggressive commitment to launch our brake line further support our company's optimism for growth over the next several years.

I'll now turn the call over to David to review the results for the fiscal third quarter.

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David Lee, Motorcar Parts of America, Inc. - CFO [4]

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Thank you, Selwyn. To begin, I encourage everyone to read the 8-K filed this morning with respect to our December 31, 2019, earnings press release for more detailed explanations of the results, including reconciliation of GAAP to non-GAAP financial measures and the 10-Q.

Let me take a moment to review the financial highlights for the fiscal 2020 third quarter reflecting record sales for a third quarter and record 9 months on a reported and adjusted basis.

Net sales for the fiscal 2020 third quarter increased to $125.6 million from $124.1 million for the same period a year earlier. Prior year fiscal third quarter results included approximately net $7 million core revenue in connection with the cancellation of a customer contract.

Adjusted net sales for the fiscal 2020 third quarter increased to $127.7 million from $119.6 million a year earlier. Gross profit for the fiscal 2020 third quarter was $27.7 million compared with $21.2 million a year earlier.

Gross profit as a percentage of net sales for the fiscal 2020 third quarter was 22% compared with 17% a year earlier. Adjusted gross profit for the fiscal 2020 third quarter was $34.3 million compared with $30.9 million a year ago.

Adjusted gross profit as a percentage of adjusted net sales for the 3 months was 26.9% compared with 25.8% a year earlier. The results for the fiscal 2020 third quarter gross margin were primarily impacted by 2 items totaling $5.8 million. First, noncash expenses of $3.7 million, including a write-down of $2.4 million associated with the quarterly revaluation for cores on customer shelves and $1.3 million of amortization related to the premium for core buybacks.

It is important to recognize that even though the core value work cores on customer shelves may be written down on our balance sheet, we are entitled to a full contractual price refund in the event that the relationship with our customer is terminated. Second, transition costs of $2.1 million associated with the move into the new facilities in Mexico to support the company's anticipated growth.

Total operating expenses decreased by $1.1 million to $18.4 million for the third quarter from $19.5 million for the prior year. This decrease was impacted by a noncash $1.6 million gain for the quarter compared with a noncash loss of $860,000 for the prior year recorded due to the change in the fair value of the forward foreign currency exchange contracts, a noncash gain of $2.1 million due to the remeasurement of foreign currency denominated lease liabilities, partially offset by $1.8 million of operating expenses attributable to our fiscal '19 acquisitions and other costs explained further below.

Adjusted operating expenses increased by $3.9 million to $20.1 million for the fiscal third quarter from $16.2 million for the prior year. This increase in adjusted operating expenses was due in part to $1.5 million expenses attributable to our fiscal 2019 acquisitions, $476,000 of expenses in connection with our internal control remediation efforts and approximately $334,000 of increased depreciation and amortization.

Additionally, approximately $500,000 is related to additional professional fees and approximately $400,000 is related to increases in both personnel and infrastructure expenditures to accommodate our anticipated growth.

Operating income was $9.2 million for the fiscal 2020 third quarter compared with operating income of $1.6 million for the prior year third quarter. Adjusted operating income was $14.2 million for the third quarter compared with $14.7 million in the prior year.

Adjusted EBITDA was $16.5 million for the third quarter compared with $16.2 million for the period a year ago. Depreciation and amortization expense was $2.3 million for the third quarter.

Interest expense was $6.9 million for the third quarter compared with $5.8 million last year. The increase in interest expense was due primarily to increased average outstanding borrowings in connection with our growth initiatives. In addition, interest expense for the third quarter was higher due to increased utilization of our customers' accounts receivable discount program.

Income tax expense for the third quarter was $1.5 million compared with income tax benefit of $1 million for the prior year period. The effective tax rate was 63.5% for the quarter, which reflects the impact of not being able to recognize the tax benefits of a pretax loss in a specific jurisdiction.

Net income for fiscal 2020 third quarter was $865,000 or $0.04 per diluted share compared with net loss of $3.1 million or $0.16 per share a year ago.

Adjusted net income for fiscal 2020 third quarter was $5.5 million or $0.28 per diluted share compared with $6.7 million or $0.35 per diluted share a year earlier.

Let me now discuss the results for the 9 months ended December 31, 2019. Net sales for the fiscal 2020 9-month period increased 12% to $385.1 million compared with net sales of $343.7 million for the prior year 9 months.

Adjusted net sales for the 9 months increased 12.8% to $387.7 million compared with $343.6 million for last year. Gross profit for the fiscal 2020 9-month period was $81.8 million compared with $63.2 million a year earlier.

Gross profit as a percentage of net sales for the fiscal 2020 9 months was 21.2% compared with 18.4% a year earlier. Adjusted gross profit for the fiscal 2020 9-month period was $103.4 million compared with $89.8 million a year ago.

Adjusted gross profit percentage of adjusted net sales for the 9 months was 26.7% compared with 26.1% a year earlier.

Net income for the 9-month period was $903,000 or $0.05 per diluted share compared with net loss of $5.1 million or $0.20 per share a year ago.

Adjusted net income for the 9 months was $20.1 million compared with $21.2 million for the prior year 9 months, and adjusted diluted earnings per share were $1.05 compared with $1.10 per diluted share last year.

Adjusted EBITDA was $53.2 million for the 9-month period compared with $49 million a year earlier.

As of December 31, 2019, our adjusted EBITDA for the trailing 12 months was $78.1 million and the average equity and net debt balance was $409 million, resulting in a 19.1% return on invested capital on a pretax basis. Our method of calculating ROIC is to divide trailing 12 month's adjusted EBITDA by the average equity and net debt balance for the 12 months period.

I should point out that we have just begun to realize the benefits of expanding our Mexico operations and the launch of our new brake categories with the expectation of significant revenue growth from both new and existing product lines.

At December 31, 2019, we had a net bank debt of approximately $145.6 million. Total cash and availability on the revolver credit facility was approximately $83.2 million at December 31, 2019, based on a total $239 million revolver credit facility and subject to certain limitations.

At December 31, 2019, the company had approximately $727 million in total assets. Current assets were $373 million, and current liabilities were $298 million. This reflects the adoption of the new lease accounting pronouncement, which requires balance sheet recognition of a leased asset and liability for all leases.

Net cash provided by operating activities during fiscal year 2020 third quarter was $22.3 million due in part to a $16 million decrease in accounts receivable. For the 9 months ended December 31, 2019, cash used in operating activities was $4.4 million. Depending on the timing of shipments, we expect to generate positive cash flows from operations during the current fiscal fourth quarter and breakeven to modest positive overall cash flow from operating activities for the full fiscal year 2020 compared with cash used in operating activities of $40 million for the prior year fiscal 2019.

For the reconciliation of non-GAAP financial measures, please refer to exhibits 1 through 7 in this morning's earnings press release.

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

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [5]

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In summary, our investments are bearing fruit despite some deferral of revenue for this last quarter. We have many growth opportunities ahead and new business commitments are continued supported by our expanding line of products in both hard parts and diagnostics. We are proud of our more than 50-year history in the aftermarket industry and all of us are committed to our vision of being the global leader for parts and solutions to move our world today and tomorrow.

I think at this point, we should open up the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have a question from Chris Van Horn with B. Riley FBR.

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Christopher Ralph Van Horn, B. Riley FBR, Inc., Research Division - Analyst [2]

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Obviously, you had solid execution despite some of those revenue headwinds during the quarter. Could you maybe give a little more detail on specifics driving that mix? Anything else that was the main driver there?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [3]

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Yes. I think we underperformed our expectations. And I think that almost 100% or 100% of it relates to deferral of certain product orders. We had a deferral of a little over $12 million of orders, which will hit in the fourth and in future quarters coming in the New Year. So that was disappointing to us. Had we got those orders, we would have had a very solid quarter.

Having said that, the fundamentals of the business are somewhat intact. I would be cautious on the -- sort of the mild weather. The December month seem to be -- I mean we have a large customer indicated publicly that it was a soft month for them. So I'm not speaking out of school. So a little bit of softness due to mild weather, but the fundamentals in our outlook, we continue to be excited about them.

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Christopher Ralph Van Horn, B. Riley FBR, Inc., Research Division - Analyst [4]

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Okay, got it. Yes. And in the past, you've had order deferrals, and you seem to be able to make them up within the 1 or 2 quarters following. Did you feel different? Are they kind of -- they're similar to what you've seen in the past?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [5]

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Yes. No, I think we expect that. I mean we did update our guidance. So we expect around $150 million in revenue for the fourth quarter. I'll do the arithmetic for everybody. I think it's real simple to compute from what we said. We think that some of that revenue will spill into the first quarter. We are a little bit concerned with the coronavirus in China. Just in that, there's a huge -- there will be a huge backup of shipments. A lot of factories are being deferred from being reopened. We are less dependent on China than most, but that may affect us a little bit, but that's included in our best thinking for this guidance -- for those guidance.

So we do think that there will be some spillover into the first quarter from this deferral. But we feel pretty comfortable with our guidance, and that's our best thinking right now for the fourth quarter. And we think margins will improve as well in the fourth quarter and the outlook for cash flow looks positive. So production and development in the new space is looking very positive. We're remanufacturing calipers, as we speak. Our capacity in Malaysia has increased, as we speak. And our dependence, quite frankly, in China is less, although we still do depend on them for some parts and finished goods.

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Christopher Ralph Van Horn, B. Riley FBR, Inc., Research Division - Analyst [6]

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Okay, got it. And then you mentioned fiscal 2021, you expect continued growth. Would you be able to give any other details around how you might see that playing out for 2021?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [7]

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Yes. So we haven't given guidance and we're not going to give formal guidance for 2021 until next quarter. But having said that, I mean, there's no secret in our strategy. Our strategy is to increase market share for all of our product lines. And now we have new product lines that we intend to gain share in and have lots of opportunity that we need to close on.

So I think we now -- we have set our capacity capability to move through over the next 4 years towards the $1 billion revenue mark. And I think, I would be remiss in saying that really -- our plan really for the next 4 to 5 years is pretty simple. It's grow our existing product lines. Stabilize as move to Mexico with the new launch of the brake parts lines and expand our -- when I say existing product lines, I'm including our electric vehicle capability, which we think is a big added opportunity for growth during the -- certainly, what we see as fast growth in the development of electrification of transportation vehicles, I mean, whether it'd be automotive, heavy-duty and aerospace. So we've got a lot of growth factors, but they're all set in place. I mean, we don't need anything new right now.

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Christopher Ralph Van Horn, B. Riley FBR, Inc., Research Division - Analyst [8]

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Okay. Yes, that was going to be my next question. What do you -- how do you feel about capacity and CapEx needs? And it sounds like you feel like you're pretty well set up to kind of handle the growth that you expect?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [9]

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Yes. We've got to complete -- the CapEx will come down dramatically as we complete our facilities. We think that our facility should be complete by the end of the second quarter of this fiscal year and CapEx should drop dramatically. Our capacity will skyrocket from there and even though we seem to be gaining a lot of momentum in taking up that capacity. So we're excited about that.

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Christopher Ralph Van Horn, B. Riley FBR, Inc., Research Division - Analyst [10]

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Okay, got it. And then last for me, have lead times changed a little bit with your product mix changing? Or do you think you have a handle on the visibility of some of the new products coming online?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [11]

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I think we have a handle on them. No, I don't think lead times have changed. I think our core competencies in remanufacturing, our supply chain is very strong. Our facilities and manufacturing capabilities in Malaysia are very predictable and very strong. And so barring effects of the coronavirus. I mean, we feel very much in control of where we are and with our lead times and ongoing opportunities.

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Operator [12]

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And our next question comes from Steve Dyer with Craig-Hallum Capital.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [13]

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It's Ryan Sigdahl on for Steve. As it relates to the coronavirus in China, have you guys seen any impact on supply chains or products coming in thus far? Or is that just a potential expectation going forward? And then secondly, on that topic, as I look at inventory on the balance sheet, it seems like you have plenty of inventory for at least the next quarter, if not a little further. So I guess, is there specific product categories that you're worried about? Or how do you think about potential disruptions there?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [14]

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Okay. So let me divide it. There's absolutely no effect as of right now from the coronavirus. We do have good inventory levels going forward. The areas where you get hit is in the fringe demand. So we have unique update orders that you need to supplement with supply out of China. There's risk there. Some componentry that we use in our manufacturing comes out of China, there's risk there. And we do have some inventories in China in a consigned warehouse. And so depending on backlog of shipping, there's a little bit of risk there. But having said that, the risk for us is fringe. It's not -- which we take very seriously. But it's not -- we have good inventory levels and good capability outside of the risk of coronavirus.

It's not a panic situation, but it certainly affects -- may affect do you beat your guidance. So -- and do you make all your shipments exactly on time for the fringe part numbers that you rely on China for.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [15]

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Great. So then if we think about guidance, I mean, at the midpoint, revenue guidance is cut by $18 million. You called out $12 million of deferral of orders. Some of that will be picked up in Q4

And it doesn't sound like the coronavirus will be too impactful, I guess, this quarter. So I guess, what's the remaining delta there?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [16]

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I think we had softness in our base product lines really in December. And so we have -- we saw a reduction in orders and replenishment there.

And so we have seen some softness in demand. Certainly, we have no market share change. And if anything, our market share continues to increase. But again, I think if you listen to the retailer's calls, I think they'll give more color on it. Certainly, there's been one that's been reported already that I would listen to. But the expectation is mild weather in the Northeast has slowed down demand for products that are dependent on cold weather. And products that are dependent on cold weather for us is the charging system, which is alternators and starters. So that was unusual for us to have soft demand in our core product line.

Again, that's just a matter of -- that's very temporary, and we expect that to return.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [17]

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And then last question for me. As it relates to the brake calipers, new line, previously, I think you had said $30 million of contribution this fiscal year. Is that still the right expectation? And then any commentary on potential new customer awards in that category?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [18]

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Just give me one second. I'll give you a little more flavor on that, just give me one second. Yes. I mean, I think we're going to be closer in the $25 million to $30 million of revenue from calipers depending on -- again, a lot of that depends on the timing of the orders.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [19]

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And then any new potential customer awards in that category or the pipeline there?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [20]

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Well, I mean, I don't want to comment on specific categories just because -- it's probably not prudent to do that. But overall, we have a lot of opportunities that are pending.

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Operator [21]

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And our next question comes from Justin Clare with Roth Capital Partners.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [22]

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So I guess, first off, your guidance on the adjusted gross margin suggests that F Q4 margins could be around 28%. So I'm just thinking, as you ramp up your facilities in Mexico and Malaysia and as we move into fiscal '21, could we see margins improve upon that 28% level?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [23]

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Look, once we get into Mexico, the margin should improve? Absolutely. As long as we don't suffer any losses, which we don't anticipate so don't read anything into that. If we can continue to grow as we expect to grow and settle into that new footprint the economics of our business gets substantially better.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [24]

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Okay. Then I guess, related to that, could you provide a little bit more detail on where you are in the process of relocating manufacturing from higher cost locations to Mexico? How much longer do you have before you're comfortable with where you're manufacturing in all of your different product lines?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [25]

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Right. So we -- I mean, just as a preface to my answer on that is that we are a company that is focused on continuous improvement. So the first phase is just getting down there, and that certainly will happen again by the second quarter of this current fiscal -- the 2021 fiscal year-end, the next fiscal year. We then believe that will increase margins. We should have substantially everything down there. There still will be some items that need to be moved, but that will be substantial. And from there, we'll see -- at that point, you should see a big inflection in our margins. And from there, hopefully, it continues to get better as we can implement continuous improvement.

And then, obviously, we've got all the external variables of competitive environment. I mean, we'll have to see how the competitive environment shakes out. I think today and I don't want to be arrogant about this, but I think we're sitting in a very strong competitive space for the opportunities that are ahead for us.

So we've got to prove it to everybody. And certainly, that's our intent. But we feel like we've got a good handle on the margins and a good handle on the savings as we get through this process. And the opportunity for growth at these savings rates, which is the most exciting part of it.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [26]

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Okay. Okay, great. And then I guess, just shifting to CapEx. You talked a bit about it already. But can you share how much you spent in CapEx in F Q3? What your expectations are for the fourth quarter? And then, should we expect the year-over-year decline in fiscal '21 relative to fiscal '20?

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David Lee, Motorcar Parts of America, Inc. - CFO [27]

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So I can give you the guidance for the full fiscal 2020. We're probably looking at about $6 million to $7 million of maintenance CapEx and probably about $12-plus million for the growth CapEx for our facilities in Mexico. When we come back for our fourth quarter, we can give further guidance on our fiscal '21. But again, we've built out most of it. So there's just a little bit more left to go for fiscal 21.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [28]

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Okay, got it. And then I'll just sneak one more in here. You repaid $14 million, I believe, on your revolver. Net leverage was down to 1.9. Can you just talk about your plans for debt repayment as we move forward here? Should we anticipate the debt levels declining further?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [29]

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Well, I think as we prove to you and to our shareholder base and as we generate additional cash flow, we will look at the most opportune way to deploy that cash flow. I mean, I think with interest rates where they are today, I mean, there's not an immediate rush to pay down debt assuming that we're generating cash. And so there's an opportunity to perhaps return some capital to shareholders as we get stabilized and get through it. But as of this point in time, the focus is minimize the outstanding debt from our revolver as we go through implementing the move. And then once we get the move done and we have proven, stable, positive cash flows, which we certainly expect, we will look at allocation of capital and the most opportune way to build shareholder value.

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Operator [30]

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(Operator Instructions) Our next question comes from Robert Beauregard with Global Alpha Capital.

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Robert Beauregard, Global Alpha Capital Management Ltd. - President, Founding Director, CIO & Lead Portfolio Manager & Director [31]

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Just one question segueing on the debt question. I'm trying to understand what the interest line is based on trying to figure out what is the interest-bearing debt on your balance sheet, that adds up to almost $7 million in interest for the quarter unless there's something I not quite understand.

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David Lee, Motorcar Parts of America, Inc. - CFO [32]

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Yes. So the majority of the interest expense is related to our accounts receivable -- to our customers' accounts receivable discount program. So with the major retail customers that we sell to, we go through a supply chain accounts receivable discount program, and we get paid in about a month. So when we pay -- when we get paid, we pay a small discount fee. So in our 10-Q disclosures, we do disclose how much of the sales have gone through that discount program. And the interest rates, majority of it is related to that program.

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Robert Beauregard, Global Alpha Capital Management Ltd. - President, Founding Director, CIO & Lead Portfolio Manager & Director [33]

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Okay. Just a question then. What is the interest rate on your revolver?

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David Lee, Motorcar Parts of America, Inc. - CFO [34]

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It's about 4.6%.

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Robert Beauregard, Global Alpha Capital Management Ltd. - President, Founding Director, CIO & Lead Portfolio Manager & Director [35]

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Okay. And that -- in terms of real debt, this would be the only interest bearing debt?

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David Lee, Motorcar Parts of America, Inc. - CFO [36]

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Yes, as a revolver and there's a term loan and they're both at about 4.6%.

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Operator [37]

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Our next question comes from Bill Dezellem with Tieton Capital.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [38]

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I'd like to circle back to one of the previous questions you were answering relative to use of capital. If you get to the point that you do have free cash that you are looking to return to shareholders, is your preference through buybacks or dividends? And what's the thought process or logic there?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [39]

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Yes. I mean, that's a question that we haven't concluded on. We'll have to look at that at the right time. So I can't give you an answer, but the logic will be carefully scrutinized to make sure that the allocation and how we use that capital to return to shareholders is best utilized, it may be a combination and may be a continuation of our stock buyback program. That's certainly something that the finance group internally, and the board will be all over, but we need to get there in the next -- we think we can get there in the next hundred -- 6 months and 180 days. And so I think you'll be hearing more about that in the new fiscal year.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [40]

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Great. And then you'd mentioned the mild winter weather, there have been some bouts of cold weather that did hit, at least in the Midwest. Do you see that having a benefit to the business? Or is that just overwhelmed as you're here in the March quarter with the bouts of warm weather that you've been had?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [41]

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Well, I mean, I'm going to quote the O'Reilly's CEO, who basically said, it's still early in the quarter and severe winter certainly is an opportunity. And so I don't know how quickly it translates to us, it's probably much more of an influence for our first quarter as customers work through their inventory. But if there's cold weather going forward, it's always very helpful to us. I mean, in many categories. So we do see some cold weather this week and we're just going to have to see. But in general, I would tell you that in almost all situations where there's extreme weather, whether it'd be hot or cold, it's very helpful to accelerate car failures. Having said that, all these cars are going to fail anyhow. It's just not in this quarter, they will fail in future quarters.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [42]

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And then how much of your wheel hub manufacturing moved out of China by the end of December?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [43]

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We can supply more than 80% of our production needs right now out of our own facilities in Malaysia. We're still working through inventory levels. But yes.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [44]

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And when do we -- given that you are working through the inventory, when do we have the financial benefit of the lower-cost production coming out of Malaysia rather than the higher cost that's flowing through the P&L today?

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [45]

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That's -- it's difficult to tell depending on the volumes, but that's a very competitive category. So I don't want to count on higher margins because of that. The most important there is to be free of any -- of the tariffs. And to be -- have a better quality product than anybody else, which we believe we will have from our own facilities. And so the margin opportunity certainly exists. I think it's 4 to 6 months out at least, but I would not be -- let us give you further guidance as we get into the new fiscal year of where we are with the margins.

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Operator [46]

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And at this time, I'm showing no further questions, I'd like to turn the call back over to Mr. Selwyn Joffe for any closing remarks.

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Selwyn H. Joffe, Motorcar Parts of America, Inc. - Chairman, President & CEO [47]

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Thank you. I want to thank all our team members for their commitment and their customer-centric focus on service and for their exceptional pride in all the products we sell and the customer services we provide. Their commitment to quality and service is also reflected in the wonderful contributions they make to their communities and our society. They are terrific, and I'm proud to work with them. Our company is blessed with a positive outlook and excellent opportunities for continued growth and profitability.

I would also like to wish all the people in China and anyone around the world affected by the coronavirus a speedy recovery. We appreciate your continued support, and we thank you again for joining us for this call, and we look forward to speaking with you when we host our fiscal 2020 fourth quarter conference call in June and at the various conferences that we intend to participate in. Thank you.

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Operator [48]

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Ladies and gentlemen, today's -- that concludes today's conference. Thank you for participating, and you may now disconnect.