Item 1. Financial Statements
Item 1. Financial Statements
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 2024
March 31, 2024
ASSETS
(Unaudited)
Current assets:
Cash and cash equivalents
$
10,810,000
$
13,974,000
Short-term investments
1,909,000
1,837,000
Accounts receivable — net
82,040,000
96,296,000
Inventory — net
367,028,000
397,328,000
Contract assets
22,213,000
27,139,000
Prepaid expenses and other current assets
20,304,000
23,885,000
Total current assets
504,304,000
560,459,000
Plant and equipment — net
30,954,000
38,338,000
Operating lease assets
67,552,000
83,973,000
Long-term deferred income taxes
5,664,000
2,976,000
Long-term contract assets
334,424,000
320,282,000
Goodwill and intangible assets — net
3,846,000
4,274,000
Other assets
2,764,000
1,700,000
TOTAL ASSETS
$
949,508,000
$
1,012,002,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities
$
158,113,000
$
185,182,000
Customer finished goods returns accrual
40,732,000
38,312,000
Contract liabilities
36,239,000
37,591,000
Revolving loan
94,802,000
128,000,000
Other current liabilities
9,417,000
7,021,000
Operating lease liabilities
9,308,000
8,319,000
Total current liabilities
348,611,000
404,425,000
Convertible notes, related party
32,377,000
30,776,000
Long-term contract liabilities
231,962,000
212,068,000
Long-term deferred income taxes
524,000
511,000
Long-term operating lease liabilities
66,833,000
72,240,000
Other liabilities
6,530,000
6,872,000
Total liabilities
686,837,000
726,892,000
Commitments and contingencies
Shareholders' equity:
Preferred stock; par value $ .01 per share, 5,000,000 shares authorized; none issued
-
-
Series A junior participating preferred stock; par value $ .01 per share, 20,000 shares authorized; none issued
-
-
Common stock; par value $ .01 per share, 50,000,000 shares authorized;
19,583,711 and 19,662,380 shares issued and outstanding at December 31,
2024 and March 31, 2024, respectively
196,000
197,000
Additional paid-in capital
236,988,000
236,255,000
Retained earnings
20,755,000
39,503,000
Accumulated other comprehensive income
4,732,000
9,155,000
Total shareholders' equity
262,671,000
285,110,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
949,508,000
$
1,012,002,000
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Net sales
$
186,176,000
$
171,862,000
$
564,249,000
$
528,206,000
Cost of goods sold
141,294,000
141,819,000
448,916,000
430,448,000
Gross profit
44,882,000
30,043,000
115,333,000
97,758,000
Operating expenses:
General and administrative
16,212,000
15,198,000
47,934,000
42,125,000
Sales and marketing
5,621,000
5,931,000
16,904,000
17,038,000
Research and development
3,008,000
2,539,000
7,884,000
7,352,000
Foreign exchange impact of lease liabilities and forward contracts
2,460,000
( 3,149,000
)
18,966,000
( 2,659,000
)
Total operating expenses
27,301,000
20,519,000
91,688,000
63,856,000
Operating income
17,581,000
9,524,000
23,645,000
33,902,000
Other expenses:
Interest expense, net
14,435,000
18,297,000
43,004,000
45,400,000
Change in fair value of compound net derivative liability
( 260,000
)
1,160,000
( 2,460,000
)
1,690,000
Loss on extinguishment of debt
-
-
-
168,000
Total other expenses
14,175,000
19,457,000
40,544,000
47,258,000
Income (loss) before income tax expense
3,406,000
( 9,933,000
)
( 16,899,000
)
( 13,356,000
)
Income tax expense
1,115,000
37,281,000
1,849,000
37,226,000
Net income (loss)
$
2,291,000
$
( 47,214,000
)
$
( 18,748,000
)
$
( 50,582,000
)
Basic net income (loss) per share
$
0.12
$
( 2.40
)
$
( 0.95
)
$
( 2.58
)
Diluted net income (loss) per share
$
0.11
$
( 2.40
)
$
( 0.95
)
$
( 2.58
)
Weighted average number of shares outstanding:
Basic
19,783,170
19,634,306
19,739,481
19,580,960
Diluted
20,416,958
19,634,306
19,739,481
19,580,960
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Net income (loss)
$
2,291,000
$
( 47,214,000
)
$
( 18,748,000
)
$
( 50,582,000
)
Other comprehensive (loss) income, net of tax:
Foreign currency translation (loss) gain
( 2,480,000
)
2,405,000
( 4,423,000
)
7,870,000
Total other comprehensive (loss) income, net of tax
( 2,480,000
)
2,405,000
( 4,423,000
)
7,870,000
Comprehensive loss
$
( 189,000
)
$
( 44,809,000
)
$
( 23,171,000
)
$
( 42,712,000
)
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at March 31, 2024
19,662,380
$
197,000
$
236,255,000
$
39,503,000
$
9,155,000
$
285,110,000
Compensation recognized under employee stock plans
-
-
1,000,000
-
-
1,000,000
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
91,205
1,000
( 182,000
)
-
-
( 181,000
)
Foreign currency translation
-
-
-
-
( 675,000
)
( 675,000
)
Net loss
-
-
-
( 18,085,000
)
-
( 18,085,000
)
Balance at June 30, 2024
19,753,585
$
198,000
$
237,073,000
$
21,418,000
$
8,480,000
$
267,169,000
Compensation recognized under employee stock plans
-
-
1,016,000
-
-
1,016,000
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
22,788
-
-
-
-
-
Foreign currency translation
-
-
-
-
( 1,268,000
)
( 1,268,000
)
Net loss
-
-
-
( 2,954,000
)
-
( 2,954,000
)
Balance at September 30, 2024
19,776,373
$
198,000
$
238,089,000
$
18,464,000
$
7,212,000
$
263,963,000
Compensation recognized under employee stock plans
-
-
993,000
-
-
993,000
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
75,468
1,000
( 1,000
)
-
-
-
Repurchase and cancellation of common shares
( 268,130
)
( 3,000
)
( 2,093,000
)
-
-
( 2,096,000
)
Foreign currency translation
-
-
-
-
( 2,480,000
)
( 2,480,000
)
Net income
-
-
-
2,291,000
-
2,291,000
Balance at December 31, 2024
19,583,711
$
196,000
$
236,988,000
$
20,755,000
$
4,732,000
$
262,671,000
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at March 31, 2023
19,494,615
$
195,000
$
231,836,000
$
88,747,000
$
( 303,000
)
$
320,475,000
Compensation recognized under employee stock plans
-
-
1,310,000
-
-
1,310,000
Issuance of common stock upon vesting of RSUs,
net of shares withheld for employee taxes
104,530
1,000
( 280,000
)
-
-
( 279,000
)
Foreign currency translation
-
-
-
-
3,343,000
3,343,000
Net loss
-
-
-
( 1,410,000
)
-
( 1,410,000
)
Balance at June 30, 2023
19,599,145
$
196,000
$
232,866,000
$
87,337,000
$
3,040,000
$
323,439,000
Compensation recognized under employee stock plans
-
-
1,533,000
-
-
1,533,000
Issuance of common stock upon vesting of RSUs,
net of shares withheld for employee taxes
50
-
-
-
-
-
Foreign currency translation
-
-
-
-
2,122,000
2,122,000
Net loss
-
-
-
( 1,958,000
)
-
( 1,958,000
)
Balance at September 30, 2023
19,599,195
$
196,000
$
234,399,000
$
85,379,000
$
5,162,000
$
325,136,000
Compensation recognized under employee stock plans
-
-
1,425,000
-
-
1,425,000
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
63,185
1,000
( 1,000
)
-
-
-
Foreign currency translation
-
-
-
-
2,405,000
2,405,000
Net loss
-
-
-
( 47,214,000
)
-
( 47,214,000
)
Balance at December 31, 2023
19,662,380
$
197,000
$
235,823,000
$
38,165,000
$
7,567,000
$
281,752,000
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
December 31,
2024
2023
Cash flows from operating activities:
Net loss
$
( 18,748,000
)
$
( 50,582,000
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
7,862,000
8,844,000
Amortization of debt issuance costs
1,647,000
1,809,000
Amortization of interest on contract liabilities
578,000
719,000
Accrued interest on convertible notes, related party
2,640,000
2,400,000
Amortization of core premiums paid to customers
7,310,000
7,627,000
Amortization of finished goods premiums paid to customers
703,000
575,000
Noncash lease expense
7,265,000
7,614,000
Foreign exchange impact of lease liabilities and forward contracts
18,966,000
( 2,659,000
)
Change in fair value of compound net derivative liability
( 2,460,000
)
1,690,000
Gain on short-term investments
( 126,000
)
( 237,000
)
Net provision for inventory reserves
11,317,000
9,637,000
Net provision for customer payment discrepancies and credit losses
324,000
1,112,000
Deferred income taxes
( 3,479,000
)
29,721,000
Share-based compensation expense
3,009,000
4,268,000
(Gain) loss on disposal of plant and equipment
( 6,000
)
9,000
Changes in operating assets and liabilities:
Accounts receivable
12,475,000
26,272,000
Inventory
17,546,000
( 46,558,000
)
Prepaid expenses and other current assets
( 1,000,000
)
5,316,000
Other assets
( 1,392,000
)
( 392,000
)
Accounts payable and accrued liabilities
( 22,854,000
)
38,734,000
Customer finished goods returns accrual
2,637,000
( 190,000
)
Contract assets
( 18,031,000
)
( 7,639,000
)
Contract liabilities
18,300,000
15,561,000
Operating lease liabilities
( 6,754,000
)
( 6,368,000
)
Other liabilities
( 1,361,000
)
1,162,000
Net cash provided by operating activities
36,368,000
48,445,000
Cash flows from investing activities:
Purchase of plant and equipment
( 1,716,000
)
( 462,000
)
Proceeds for the sale of plant and equipment
49,000
-
Redemption of short-term investments
53,000
42,000
Net cash used in investing activities
( 1,614,000
)
( 420,000
)
Cash flows from financing activities:
Borrowings under revolving loan
375,461,000
64,005,000
Repayments of revolving loan
( 408,659,000
)
( 94,205,000
)
Repayments of term loan
-
( 13,125,000
)
Payments for debt issuance costs
( 15,000
)
( 2,617,000
)
Payments on finance lease obligations
( 1,306,000
)
( 1,425,000
)
Cash used to net share settle equity awards
( 181,000
)
( 279,000
)
Repurchase of common stock
( 2,096,000
)
-
Net cash used in financing activities
( 36,796,000
)
( 47,646,000
)
Effect of exchange rate changes on cash and cash equivalents
( 1,122,000
)
180,000
Net (decrease) increase in cash and cash equivalents
( 3,164,000
)
559,000
Cash and cash equivalents — Beginning of period
13,974,000
11,596,000
Cash and cash equivalents — End of period
$
10,810,000
$
12,155,000
Supplemental disclosures of cash flow information:
Cash paid for interest, net
$
37,845,000
$
40,826,000
Cash paid for income taxes, net of refunds
4,338,000
8,143,000
Cash paid for operating leases
10,183,000
10,025,000
Cash paid for finance leases
1,446,000
1,595,000
Plant and equipment acquired under finance leases
684,000
33,000
Assets acquired under operating leases
2,512,000
879,000
Non-cash capital expenditures
144,000
71,000
Debt issuance costs included in accounts payable and accrued liabilities
-
1,340,000
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
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Table of Contents
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 2024
(Unaudited)
1. Company Background and Organization
Motorcar Parts of America, Inc. and its subsidiaries (the “Company”, or “MPA”) is a leading supplier of automotive aftermarket non-discretionary replacement parts, and test solutions and diagnostic equipment. These replacement parts are primarily sold to automotive retail chain stores and warehouse distributors throughout North America and to major automobile manufacturers for both their aftermarket programs and warranty replacement programs (“OES”). The Company’s test solutions and diagnostic equipment primarily serves the global automotive component and powertrain testing market. The Company’s products include (i) light duty and heavy duty rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads, brake shoes, and brake master cylinders, and (iv) other products, which include (a) turbochargers and (b) test solutions and diagnostic equipment including: (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power system applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations).
2. Basis of Presentation and New Accounting Pronouncements
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2025. This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2024, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 11, 2024, and the 10-K/A for the fiscal year ended March 31, 2024 as filed with the SEC on June 28, 2024.
The accompanying condensed consolidated financial statements have been prepared on a consistent basis with, and there have been no material changes to the accounting policies described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements that are presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Accounting Pronouncements Not Yet Adopted
Disclosure Improvements
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . This standard was issued in response to the SEC’s disclosure update and simplification initiative, which affects a variety of topics within the Accounting Standards Codification. The amendments apply to all reporting entities within the scope of the affected topics unless otherwise indicated. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.
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Table of Contents
Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280) . This standard requires the Company to disclose significant segment expenses that are regularly provided to the CODM and are included within each reported measure of segment operating results. The standard also requires the Company to disclose the total amount of any other items included in segment operating results, which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these other items. In addition, the standard also requires disclosure of the CODM’s title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) . This standard requires the Company to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires the Company to annually disclose its income taxes paid (net of refunds received), disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied prospective basis, although optional retrospective application is permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”) (Subtopic 220-40) . This standard requires the Company to disclose, in the footnotes at each interim and annual reporting period, information about expenses by the nature of the expense in addition to certain disclosures about selling expenses. Entities are required to include the following relevant expense captions: (i) purchase of inventory, (ii) employee compensation, (iii) depreciation, (iv) intangible asset amortization, and (v) depreciation, depletion and amortization recognized as part of oil and gas producing activities. This guidance is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027 on a prospective basis with the option for retrospective application. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.
Debt with Conversion and Other Options
In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments , which seeks to clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. This guidance is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.
3. Accounts Receivable — Net
The Company has trade accounts receivable that result from the sale of goods and services. Accounts receivable — net includes offset accounts related to allowances for credit losses, customer payment discrepancies, and returned goods authorizations (“RGAs”) issued for in-transit unit returns. The Company uses accounts receivable discount programs with certain customers and their respective banks (see Note 10).
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Table of Contents
Accounts receivable — net is comprised of the following:
December 31, 2024
March 31, 2024
Accounts receivable — trade
$
95,653,000
$
118,500,000
Allowance for credit losses
( 77,000
)
( 189,000
)
Customer payment discrepancies
( 1,706,000
)
( 1,206,000
)
Customer returns RGA issued
( 11,830,000
)
( 20,809,000
)
Total accounts receivable — net
$
82,040,000
$
96,296,000
4. Inventory — Net
Inventory — net is comprised of the following:
December 31, 2024
March 31, 2024
Inventory — net
Raw materials
$ 157,397,000 $ 158,819,000
Work-in-process
9,750,000 7,943,000
Finished goods
201,049,000 227,650,000
368,196,000 394,412,000
Less allowance for excess and obsolete inventory
( 18,538,000 ) ( 17,372,000 )
Inventory
349,658,000 377,040,000
Inventory unreturned
17,370,000 20,288,000
Total inventory — net
$ 367,028,000 $ 397,328,000
5. Contract Assets
During the three months ended December 31, 2024 and 2023, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 758,000 and $ 1,607,000 , respectively. During the nine months ended December 31, 2024 and 2023, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $ 2,316,000 and $ 4,380,000 , respectively.
Contract assets are comprised of the following:
December 31, 2024
March 31, 2024
Short-term contract assets
Cores expected to be returned by customers
$
10,567,000
$
15,409,000
Core premiums paid to customers
9,454,000
9,567,000
Upfront payments to customers
1,450,000
1,407,000
Finished goods premiums paid to customers
742,000
756,000
Total short-term contract assets
$
22,213,000
$
27,139,000
Remanufactured cores held at customers' locations
$
300,166,000
$
279,427,000
Core premiums paid to customers
24,771,000
30,227,000
Long-term core inventory deposits
5,569,000
5,569,000
Finished goods premiums paid to customers
2,138,000
2,341,000
Upfront payments to customers
1,780,000
2,718,000
Total long-term contract assets
$
334,424,000
$
320,282,000
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6. Significant Customer and Other Information
Significant Customer Concentrations
The largest customers accounted for the following percentage of consolidated net sales:
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Net sales
Customer A
41
%
34
%
38
%
35
%
Customer C
23
%
26
%
27
%
27
%
Customer B
22
%
23
%
20
%
21
%
Revenues for these customers were derived from the Hard Parts segment and Test Solutions and Diagnostic Equipment segment. See Note 18 for a discussion of the Company’s segments.
The largest customers accounted for the following percentage of accounts receivable – trade:
December 31, 2024
March 31, 2024
Accounts receivable - trade
Customer A
48
%
35
%
Customer C
2
%
13
%
Customer B
20
%
25
%
Geographic and Product Information
The Company’s products are sold predominantly in North America and accounted for the following percentages of consolidated net sales:
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Product line
Rotating electrical products
68
%
65
%
67
%
66
%
Brake-related products
21
%
21
%
22
%
21
%
Wheel hub products
8
%
11
%
7
%
10
%
Other products
3
%
3
%
4
%
3
%
100
%
100
%
100
%
100
%
Significant Supplier Concentrations
The Company had no suppliers that accounted for more than 10% of inventory purchases for the three and nine months ended December 31, 2024 and 2023.
7. Debt
The Company has $ 268,620,000 in senior secured financing, (as amended from time to time, the “Credit Facility”) consisting of a $ 238,620,000 revolving loan facility (the “Revolving Facility”), subject to certain restrictions, and a $ 30,000,000 term loan facility (the “Term Loans”). The Term Loans were repaid during the year ended March 31, 2024. The Credit Facility matures on December 12, 2028 . The lenders have a security interest in substantially all of the assets of the Company. In June 2024, the Company enrolled in a feature with its lenders, under which the Company sweeps its cash collections to pay down its revolving facility and borrows on-demand to fund payments. This feature is expected to reduce interest expense on borrowings under the Credit Facility.
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Table of Contents
The Company had $ 94,802,000 and $ 128,000,000 outstanding under the Revolving Facility at December 31, 2024 and March 31, 2024, respectively. In addition, $ 7,047,000 was outstanding for letters of credit at December 31, 2024. At December 31, 2024, after certain contractual adjustments, $ 127,962,000 was available under the Revolving Facility. The interest rate on the Company’s Revolving Facility was 7.66 % and 8.43 %, at December 31, 2024 and March 31, 2024, respectively.
The Credit Facility requires the Company to maintain a minimum fixed charge coverage ratio if undrawn availability is less than 22.5 % of the aggregate revolving commitments and a specified minimum undrawn availability. During the nine months ended December 31, 2024, undrawn availability was greater than the 22.5 % threshold, therefore, the fixed charge coverage ratio financial covenant was not required to be tested.
Convertible Notes
On March 31, 2023, the Company entered into a note purchase agreement, as amended, (the “Note Purchase Agreement”) with Bison Capital Partners VI, L.P. and Bison Capital Partners VI-A, L.P. (collectively, the “Purchasers”) and Bison Capital Partners VI, L.P., as the purchaser representative (the “Purchaser Representative”) for the issuance and sale of $ 32,000,000 in aggregate principal amount of convertible notes due in 2029 (the “Convertible Notes”), which was used for general corporate purposes. The Convertible Notes bear interest at a rate of 10.0 % per annum, compounded annually, and payable (i) in-kind or (ii) in cash, annually in arrears on April 1 of each year, commencing on April 1, 2024. In April 2024, non-cash accrued interest on the Convertible Notes of $ 3,209,000 was paid in-kind and is included in the principal amount of Convertible Notes at December 31, 2024. The Convertible Notes have an initial conversion price of $ 15.00 per share of common stock (“Conversion Option”). Unless and until the Company delivers a redemption notice, the Purchasers of the Convertible Notes may convert their Convertible Notes at any time at their option. Upon conversion, the Convertible Notes will be settled in shares of the Company’s common stock. Except in the case of the occurrence of a fundamental transaction, as defined in the form of convertible promissory note, the Company may not redeem the Convertible Notes prior to March 31, 2026. After March 31, 2026, the Company may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price. The effective interest rate was 18.3 % as of December 31, 2024 and March 31, 2024, respectively.
The Company’s Convertible Notes are comprised of the following:
December 31, 2024
March 31, 2024
Principal amount of Convertible Notes
$
35,209,000
$
32,000,000
Less: unamortized debt discount attributed to Compound Net Derivative Liability
( 6,829,000
)
( 7,576,000
)
Less: unamortized debt discount attributed to debt issuance costs
( 953,000
)
( 1,058,000
)
Carrying amount of the Convertible Notes
27,427,000
23,366,000
Plus: Compound Net Derivative Liability
4,950,000
7,410,000
Net carrying amount of Convertible Notes, related party
$
32,377,000
$
30,776,000
In connection with the Note Purchase Agreement, the Company entered into common stock warrants (the “Warrants”) with the Purchasers, which mature on March 30, 2029 . The fair value of the Warrants, using Level 3 inputs and the Monte Carlo simulation model, was zero at December 31, 2024 and March 31, 2024.
The Company Redemption option has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the condensed consolidated balance sheets at December 31, 2024 and March 31, 2024. The fair value of the Conversion Option and the Company Redemption option using Level 3 inputs and the Monte Carlo simulation model was a liability of $ 5,600,000 and $ 9,800,000 , and an asset of $ 650,000 and $ 2,390,000 at December 31, 2024 and March 31, 2024, respectively. During the three months ended December 31, 2024 and 2023, the Company recorded a gain of $ 260,000 and a loss of $ 1,160,000 , respectively, as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statements of operations. During the nine months ended December 31, 2024 and 2023, the Company recorded a gain of $ 2,460,000 and a loss of $ 1,690,000 , respectively, as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statements of operations and condensed consolidated statements of cash flows.
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The Convertible Notes also contain additional features, such as, default interest and options related to a fundamental transaction, which were not separately accounted for as the value of such features were not material at December 31, 2024 and March 31, 2024.
Interest expense related to the Convertible Notes is as follows:
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Contractual interest expense
$
880,000
$
800,000
$
2,640,000
$
2,400,000
Accretion of debt discount
260,000
217,000
747,000
626,000
Amortization of debt issuance costs
37,000
30,000
105,000
87,000
Total interest expense
$
1,177,000
$
1,047,000
$
3,492,000
$
3,113,000
There are no future payments required under the Convertible Notes prior to their maturity, therefore, the principal amount of the Convertible Notes plus interest payable in-kind, assuming no early redemption or conversion has occurred, of $ 56,704,000 would be paid on March 30, 2029.
8. Contract Liabilities
Contract liabilities are comprised of the following:
December 31, 2024
March 31, 2024
Short-term contract liabilities
Customer allowances earned
$
19,472,000
$
19,789,000
Customer core returns accruals
9,081,000
10,448,000
Accrued core payment
3,144,000
3,476,000
Customer deposits
2,257,000
1,735,000
Core bank liability
1,780,000
1,739,000
Finished goods liabilities
505,000
404,000
Total short-term contract liabilities
$
36,239,000
$
37,591,000
Long-term contract liabilities
Customer core returns accruals
$
216,779,000
$
193,545,000
Core bank liability
10,502,000
11,843,000
Accrued core payment
4,681,000
6,535,000
Finished goods liabilities
-
145,000
Total long-term contract liabilities
$
231,962,000
$
212,068,000
9. Leases
The Company leases various facilities in North America and Asia under operating leases expiring through August 2033. The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of operations. As required for other monetary liabilities, lessees remeasure foreign currency-denominated lease liabilities using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates and are not affected by subsequent changes in the exchange rates. In connection with the remeasurement of these leases, the Company recorded a loss of $ 1,875,000 and a gain of $ 2,608,000 during the three months ended December 31, 2024 and 2023, respectively. In connection with the remeasurement of these leases, the Company recorded a loss of $ 11,562,000 and a gain of $ 4,430,000 during the nine months ended December 31, 2024 and 2023, respectively. These amounts are included in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of operations.
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Table of Contents
During the nine months ended December 31, 2024, the Company ceased manufacturing operations at its Torrance, California facility as a part of its on-going strategy to utilize its global footprint to enhance its operating efficiencies. This represented a significant change to the use of this right-of-use asset, which required a reassessment of the Company’s asset groups. The Company concluded that this right-of-use asset was no longer part of the Hard Parts asset group. The Company performed a test for recoverability (using Level 3 inputs) which resulted in no impairment at December 31, 2024. Any future changes to the assumptions and estimates from those anticipated may affect the carrying value of right-of-use assets and could result in impairment charges.
Balance sheet information for leases is as follows:
Leases
Classification
December 31, 2024
March 31, 2024
Assets:
Operating
Operating lease assets
$
67,552,000
$
83,973,000
Finance
Plant and equipment
3,710,000
4,611,000
Total leased assets
$
71,262,000
$
88,584,000
Liabilities:
Current
Operating
Operating lease liabilities
$
9,308,000
$
8,319,000
Finance
Other current liabilities
1,289,000
1,585,000
Long-term
Operating
Long-term operating lease liabilities
66,833,000
72,240,000
Finance
Other liabilities
1,560,000
1,893,000
Total lease liabilities
$
78,990,000
$
84,037,000
Lease cost recognized in the condensed consolidated statements of operations is as follows:
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Lease cost
Operating lease cost
$
3,391,000
$
3,740,000
$
10,673,000
$
11,243,000
Short-term lease cost
267,000
274,000
960,000
917,000
Variable lease cost
83,000
138,000
338,000
470,000
Finance lease cost:
Amortization of finance lease assets
287,000
361,000
940,000
1,155,000
Interest on finance lease liabilities
44,000
51,000
140,000
170,000
Total lease cost
$
4,072,000
$
4,564,000
$
13,051,000
$
13,955,000
Maturities of lease commitments at December 31, 2024 by fiscal year were as follows:
Maturity of lease liabilities
Operating Leases
Finance Leases
Total
2025 - remaining three months
$ 3,315,000 $ 427,000 $ 3,742,000
2026
13,439,000 1,190,000 14,629,000
2027
11,662,000 699,000 12,361,000
2028
11,126,000 483,000 11,609,000
2029
11,132,000 288,000 11,420,000
Thereafter
43,485,000 72,000 43,557,000
Total lease payments
94,159,000 3,159,000 97,318,000
Less amount representing interest
( 18,018,000 ) ( 310,000 ) ( 18,328,000 )
Present value of lease liabilities
$ 76,141,000 $ 2,849,000 $ 78,990,000
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Other information about leases is as follows:
December 31, 2024
March 31, 2024
Lease term and discount rate
Weighted-average remaining lease term (years):
Finance leases
3.0
2.8
Operating leases
7.6
8.3
Weighted-average discount rate:
Finance leases
6.8
%
6.4
%
Operating leases
5.8
%
5.8
%
10. Accounts Receivable Discount Programs
The Company uses accounts receivable discount programs offered by certain customers and their respective banks. Under these programs, the Company may sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allow the Company to accelerate receipt of payment on customers’ receivables.
The following is a summary of accounts receivable discount programs:
Nine Months Ended
December 31,
2024
2023
Receivables discounted
$
488,505,000
$
465,073,000
Weighted average number of days collection was accelerated
342
334
Annualized weighted average discount rate
6.3
%
6.8
%
Amount of discount recognized as interest expense
$
29,202,000
$
29,395,000
11. Supplier Finance Programs
The Company utilizes a supplier finance program, which allows certain of the Company’s suppliers to sell their receivables due from the Company to participating financial institutions at the sole discretion of both the supplier and the financial institutions. The program is administered by a third party. Commitments from participating financial institutions that are available to suppliers under this program increased to $ 27,000,000 from $ 15,000,000 during the three months ended December 31, 2024. The Company has no economic interest in the sale of these receivables and no direct relationship with the financial institution. Payments to the third-party administrator are based on services rendered and are not related to the volume or number of financing agreements between suppliers, financial institution, and the third-party administrator. The Company is not a party to agreements negotiated between participating suppliers and the financial institution. The Company's obligations to its suppliers, including amounts due and payment terms, are not affected by a supplier's decision to participate in this program. The Company does not provide guarantees and there are no assets pledged to the financial institution or the third-party administrator for the committed payment in connection with this program. At December 31, 2024, the Company had $ 31,809,000 of outstanding supplier obligations confirmed as valid under this program, included in accounts payable in the condensed consolidated balance sheet.
12. Net Income (Loss) per Share
Basic net loss per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, Warrants, and Convertible Notes (as defined in Note 7), which would result in the issuance of incremental shares of common stock to the extent such impact is not anti-dilutive.
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Table of Contents
The following presents a reconciliation of basic and diluted net income (loss) per share:
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Net income (loss)
$
2,291,000
$
( 47,214,000
)
$
( 18,748,000
)
$
( 50,582,000
)
Basic shares
19,783,170
19,634,306
19,739,481
19,580,960
Effect of potentially dilutive securities
633,788
-
-
-
Diluted shares
20,416,958
19,634,306
19,739,481
19,580,960
Net income (loss) per share:
Basic net income (loss) per share
$
0.12
$
( 2.40
)
$
( 0.95
)
$
( 2.58
)
Diluted net income (loss) per share
$
0.11
$
( 2.40
)
$
( 0.95
)
$
( 2.58
)
Potential common shares that would have the effect of increasing diluted net income per share or decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net loss per share. For the three months ended December 31, 2024, there were 15,526 of potential common shares not included in the calculation of diluted net income per share because their effect was anti-dilutive. For the nine months ended December 31, 2024, there were 2,516,729 of potential common shares not included in the calculation of diluted net loss per share because their effect was anti-dilutive. For the three and nine months ended December 31, 2023, there were 2,130,615 , respectively, of potential common shares not included in the calculation of diluted net loss per share because their effect was anti-dilutive.
In addition, for the three and nine months ended December 31, 2024 there were 2,523,304 and 2,464,622 , respectively, of potential common shares not included in the calculation of diluted net income (loss) per share under the “if-converted” method for the Convertible Notes because their effect was anti-dilutive. In addition, for the three and nine months ended December 31, 2023, there were 2,293,926 , respectively, of potential common shares not included in the calculation of diluted net loss per share under the “if-converted” method for the Convertible Notes because their effect was anti-dilutive. The potential common shares related to the Warrants issued in connection with the Convertible Notes (see Note 7) are anti-dilutive until they become exercisable and as of December 31, 2024, the Warrants were not exercisable.
13. Income Taxes
The Company recorded income tax expense of $ 1,115,000 , or an effective tax rate of 32.7 %, and $ 37,281,000 , or an effective tax rate of ( 375.3 )%, for the three months ended December 31, 2024 and 2023, respectively. The Company recorded an income tax expense of $ 1,849,000 , or an effective tax rate of ( 10.9 )%, and $ 37,226,000 , or an effective tax rate of ( 278.7 )%, for the nine months ended December 31, 2024 and 2023, respectively. The effective tax rate for the three and nine months ended December 31, 2024, was primarily impacted by (i) foreign income taxed at rates that are different from the federal statutory rate, (ii) the change in valuation allowance, and (iii) specific jurisdictions that the Company does not expect to recognize the benefit of losses. The Company’s effective tax rate for the three and nine months ended December 31, 2023 was primarily impacted by the establishment of a valuation allowance on deferred tax assets that were not expected to be realized.
Management continues to monitor its valuation allowance position in its various jurisdictions. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, past financial performance, and tax planning strategies. Based on this analysis, the Company determined that it is more likely than not that certain deferred tax assets will not be realized. As a result, the Company maintained its valuation allowance. The Company will continue to monitor the need for a valuation allowance in future periods, considering any changes in circumstances that may affect the realizability of deferred tax assets.
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Table of Contents
The Company and its subsidiaries file income tax returns for the U.S. federal, various state, and foreign jurisdictions with varying statutes of limitations. The Company was previously under examination by the State of California for fiscal years ended March 31, 2020, 2021 and 2022. During the nine months ended December 31, 2024, this audit was concluded with no changes required to the Company’s filed income tax returns. At December 31, 2024, the Company remains subject to examination from the fiscal years ended March 31, 2020 and forward. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.
14. Financial Risk Management and Derivatives
Purchases and expenses denominated in currencies other than the U.S. dollar, which are primarily related to the Company’s overseas facilities, expose the Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currencies. The Company’s primary risk exposure is from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese yuan. To mitigate these risks, the Company enters into forward foreign currency exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which forward foreign currency exchange contracts are used, is modified periodically in response to the Company’s estimate of market conditions and the terms and length of anticipated requirements.
The Company enters into forward foreign currency exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in currency speculation. The use of derivative financial instruments allows the Company to reduce its exposure to the risk that the eventual cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates between the U.S. dollar and the foreign currencies. The Company does not hold or issue financial instruments for trading purposes. The Company designates forward foreign currency exchange contracts for forecasted expenditure requirements to fund foreign operations.
The Company had forward foreign currency exchange contracts with a U.S. dollar equivalent notional value of $ 50,947,000 and $ 54,092,000 at December 31, 2024 and March 31, 2024, respectively. These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts. The counterparty to these derivative transactions is a major financial institution with investment grade credit rating; however, the Company is exposed to credit risk with this institution. The credit risk is limited to the potential unrealized gains (which offset currency fluctuations adverse to the Company) in any such contract should this counterparty fail to perform as contracted. Any changes in the fair values of forward foreign currency exchange contracts are included in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of operations.
The following shows the effect of derivative instruments on the condensed consolidated statements of operations:
Foreign Exchange Impact of Lease Liabilities and Forward Contracts
Three Months Ended
Nine Months Ended
Derivatives Not Designated as
December 31,
December 31,
Hedging Instruments
2024
2023
2024
2023
(Loss) gain from forward foreign currency exchange contracts
$
( 585,000
)
$
541,000
$
( 7,404,000
)
$
( 1,771,000
)
The fair value of the forward foreign currency exchange contracts of $ 4,888,000 is included in other current liabilities in the condensed consolidated balance sheets at December 31, 2024. The fair value of the forward foreign currency exchange contracts of $ 2,516,000 is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at March 31, 2024. The changes in the fair values of forward foreign currency exchange contracts are included in foreign exchange impact of lease liabilities and forward contracts in the condensed consolidated statements of cash flows for the nine months ended December 31, 2024 and 2023.
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Table of Contents
15. Fair Value Measurements
The following summarizes financial assets and liabilities measured at fair value, by level within the fair value hierarchy:
December 31, 2024
March 31, 2024
Fair Value Measurements
Fair Value Measurements
Using Inputs Considered as
Using Inputs Considered as
Fair Value
Level 1
Level 2
Level 3
Fair Value
Level 1
Level 2
Level 3
Assets
Short-term investments
Mutual funds
$
1,909,000
$
1,909,000
$
-
$
-
$
1,837,000
$
1,837,000
$
-
$
-
Prepaid expenses and other current assets
Forward foreign currency exchange contracts
-
-
-
-
2,516,000
-
2,516,000
-
Liabilities
Other current liabilities
Deferred compensation
1,909,000
1,909,000
-
-
1,837,000
1,837,000
-
-
Forward foreign currency exchange contracts
4,888,000
-
4,888,000
-
-
-
-
-
Convertible notes, related party
Compound Net Derivative Liability
4,950,000
-
-
4,950,000
7,410,000
-
-
7,410,000
Short-term Investments and Deferred Compensation
The Company’s short-term investments, which fund its deferred compensation liabilities, consist of investments in mutual funds. These investments are classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.
Forward Foreign Currency Exchange Contracts
The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers (See Note 14).
Compound Net Derivative Liability
The Company estimates the fair value of the Compound Net Derivative Liability (see Note 7) using Level 3 inputs and the Monte Carlo simulation model at the balance sheet date. The Monte Carlo simulation model requires the input of subjective assumptions including the expected volatility of the underlying stock. These subjective assumptions are based on both historical and other information. Changes in the values assumed and used in the model can materially affect the estimate of fair value. This amount is recorded within convertible notes, related party in the condensed consolidated balance sheets at December 31, 2024 and March 31, 2024. Any changes in the fair value of the Compound Net Derivative Liability are recorded in change in fair value of compound net derivative liability in the condensed consolidated statements of operations and condensed consolidated statements of cash flows.
The following assumptions were used to determine the fair value of the Compound Net Derivative Liability:
December 31, 2024
March 31, 2024
Risk free interest rate
4.35
%
4.36
%
Cost of equity
23.40
%
23.20
%
Weighted average cost of capital
14.40
%
14.90
%
Expected volatility of the Company's common stock
40.00
%
50.00
%
EBITDA volatility
40.00
%
40.00
%
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Table of Contents
The following summarizes the activity for Level 3 fair value measurements:
Three Months Ended
Nine Months Ended
December 31,
December 31,
2024
2023
2024
2023
Beginning balance
$
5,210,000
$
8,960,000
$
7,410,000
$
8,430,000
Changes in fair value of Compound Net Derivative Liability included in earnings
( 260,000
)
1,160,000
( 2,460,000
)
1,690,000
Ending balance
$
4,950,000
$
10,120,000
$
4,950,000
$
10,120,000
During the three and nine months ended December 31, 2024, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics. At December 31, 2024 and March 31, 2024, the net carrying amount of the Convertible Notes was $ 32,377,000 and $ 30,776,000 , respectively (see Note 7). The estimated fair value of the Company’s Convertible Notes was $ 36,168,000 and $ 38,276,000 using Level 3 inputs at December 31, 2024 and March 31, 2024, respectively.
16. Share-based Payments
Stock Options
The Company did no t grant any options to purchase shares of its common stock during the nine months ended December 31, 2024. The Company granted options to purchase 132,133 shares of common stock during the nine months ended December 31, 2023.
The following assumptions were used to derive the weighted average fair value of the stock options granted:
Nine Months Ended
December 31,
2023
Weighted average risk free interest rate
4.53
%
Weighted average expected holding period (years)
6.57
Weighted average expected volatility
51.29
%
Weighted average expected dividend yield
-
Weighted average fair value of options granted
$
3.75
The following is a summary of stock option transactions:
Number of
Weighted Average
Shares
Exercise Price
Outstanding at March 31, 2024
1,108,017
$
20.29
Granted
-
$
-
Exercised
-
$
-
Forfeited/Cancelled
( 17,723
)
$
20.13
Expired
( 36,733
)
$
22.93
Outstanding at December 31, 2024
1,053,561
$
20.20
At December 31, 2024, options to purchase 87,288 shares of common stock were unvested at a weighted average exercise price of $ 9.32 .
At December 31, 2024, there was $ 282,000 of total unrecognized compensation expense related to unvested stock option awards, which will be recognized over the weighted average remaining vesting period of approximately 1.7 years.
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Table of Contents
Restricted Stock Units (“RSUs”)
During the nine months ended December 31, 2024 and 2023, the Company granted 453,453 and 100,624 , respectively, of time-based vesting RSUs, based on the closing market price on the grant date.
The following is a summary of non-vested RSUs:
Number of
Shares
Weighted Average
Grant Date Fair
Value
Outstanding at March 31, 2024
240,923
$
12.23
Granted
453,453
$
6.58
Vested
( 184,850
)
$
12.02
Forfeited/Cancelled
( 4,069
)
$
8.72
Outstanding at December 31, 2024
505,457
$
7.26
At December 31, 2024, there was $ 2,819,000 of unrecognized compensation expense related to RSUs, which will be recognized over the weighted average remaining vesting period of approximately 2.1 years.
Performance Stock Units (“PSUs”)
During the nine months ended December 31, 2024, the Company granted 258,983 PSUs (at target performance levels), which cliff vest after a three -year performance period, subject to continued employment. The number of shares earned at the end of the three-year performance period will vary, based only on actual performance, from 0 % to 150 % of the target number of PSUs granted depending on the Company’s total shareholder return (“TSR”) percentile rank relative to that of a peer group over the performance period. TSR is measured based on a comparison of the closing price on the first trading day of the performance period and the average closing price over the last 30 trading days of the performance period. TSR is considered a market condition because it measures the Company’s return against the performance of the Russell 3000, excluding companies classified as financials and real estate and companies with a market capitalization of more than $ 600 million, over a given period of time.
During the nine months ended December 31, 2023, the Company granted 585,583 PSUs, which vest within a three -year period, subject to continued employment, as follows: (i) if the stock price is greater than or equal to $ 10.00 per share, then 1/3 of the grant will vest, (ii) if the stock price is greater than or equal to $ 15.00 per share then the next 1/3 of the grant will vest, and (iii) if the stock price is greater than or equal to $ 20.00 per share then the final 1/3 of the grant will vest. Recipients are eligible to vest in between 50 % and 150 % of the third tranche by achieving a stock price between $ 17.50 and $ 25.00 per share (each stock price target must be met for 30 consecutive trading days).
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The Company calculated the fair value of these PSUs individually for each tranche using the Monte Carlo Simulation Model at the grant date. Compensation cost is recognized over the estimated derived service period. Compensation cost related to these awards will not be adjusted even if the market condition is not met. The following table summarizes the assumptions used in determining the fair value of these awards subject to market conditions:
Nine Months Ended
December 31,
2024
2023
Risk free interest rate
4.21 - 4.45
%
4.32 - 4.35
%
Expected life in years
3.0
0.2 - 1.8
Expected volatility of the Company's common stock
59.8 - 62.8
%
54.2 - 55.1
%
Average correlation coefficient of peer companies
16.5 - 17.4
%
-
%
Expected dividend yield
-
-
Grant date fair value
$
8.65 - 8.88
$
3.57 - 8.37
The following is a summary of non-vested PSUs:
Number of
Shares
Weighted Average
Grant Date Fair
Value
Outstanding at March 31, 2024
773,923
$
7.73
Granted (1)
269,935
$
8.74
Vested
( 32,848
)
$
22.27
Forfeited/Cancelled
( 53,299
)
$
22.89
Outstanding at December 31, 2024
957,711
$
6.83
(1)
Granted includes 10,952 additional PSUs issued in connection with the vesting of the Company’s June 2021 PSU grant based on actual Company performance metrics exceeding target performance levels.
At December 31, 2024, there was $ 2,248,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 2.2 years.
17. Commitments and Contingencies
Warranty Returns
The Company allows its customers to return goods that their consumers have returned to them, whether or not the returned item is defective (“warranty returns”). The Company accrues an estimate of its exposure to warranty returns based on a historical analysis of the level of this type of return as a percentage of unit sales. Amounts charged to expense for these warranty returns are considered in arriving at the Company’s net sales.
The following summarizes the changes in the warranty returns:
Three Months Ended
Nine Months Ended
December 31,
Dece,ber 31,
2024
2023
2024
2023
Balance at beginning of period
$
16,649,000
$
16,197,000
$
19,326,000
$
19,830,000
Charged to expense
38,116,000
34,532,000
113,212,000
102,666,000
Amounts processed
( 35,390,000
)
( 34,599,000
)
( 113,163,000
)
( 106,366,000
)
Balance at end of period
$
19,375,000
$
16,130,000
$
19,375,000
$
16,130,000
At December 31, 2024 and March 31, 2024, the Company’s total warranty return accrual was $ 19,375,000 and $ 19,326,000 , respectively, of which $ 4,840,000 and $ 5,667,000 , respectively, was included in the customer returns RGA issued within accounts receivable—net and $ 14,535,000 and $ 13,659,000 , respectively, was included in the customer finished goods returns accrual in the condensed consolidated balance sheets.
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Contingencies
The Company is subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding the Company’s business , and its compliance with law, code, and regulations related to matters including, but not limited to, environmental, information security, taxes, levies, tariffs and such . The Company has an immaterial amount accrued related to these exposures to various lawsuits and claims.
18. Segment Information
The Company’s three operating segments are as follows:
●
Hard Parts , which includes (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,
●
Test Solutions and Diagnostic Equipment , which includes (i) applications for combustion engine vehicles, including bench-top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power system applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations), and
●
Heavy Duty , which includes non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.
The Company’s Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are not required to be separately reported, and are included within the “all other” category.
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Financial information relating to the Company’s segments is as follows:
Three Months Ended December 31, 2024
Hard Parts
All Other
Total
Net sales to external customers
$
174,548,000
$
11,628,000
$
186,176,000
Intersegment sales
344,000
222,000
566,000
Operating income (loss)
19,069,000
(1)
( 1,515,000
)
17,554,000
Depreciation and amortization
2,321,000
211,000
2,532,000
Segment assets
962,855,000
54,855,000
1,017,710,000
Capital expenditures
601,000
68,000
669,000
Three Months Ended December 31, 2023
Hard Parts
All Other
Total
Net sales to external customers
$
161,254,000
$
10,608,000
$
171,862,000
Intersegment sales
242,000
116,000
358,000
Operating income (loss)
9,993,000
(1)
( 473,000
)
9,520,000
Depreciation and amortization
2,557,000
321,000
2,878,000
Segment assets
1,005,470,000
51,965,000
1,057,435,000
Capital expenditures
221,000
72,000
293,000
Nine Months Ended December 31, 2024
Hard Parts
All Other
Total
Net sales to external customers
$
527,412,000
$
36,837,000
$
564,249,000
Intersegment sales
840,000
794,000
1,634,000
Operating income (loss)
23,893,000
(1)
( 322,000
)
23,571,000
Depreciation and amortization
7,247,000
615,000
7,862,000
Capital expenditures
1,402,000
314,000
1,716,000
Nine Months Ended December 31, 2023
Hard Parts
All Other
Total
Net sales to external customers
$
495,422,000
$
32,784,000
$
528,206,000
Intersegment sales
442,000
249,000
691,000
Operating income (loss)
36,702,000
(1)
( 2,852,000
)
33,850,000
Depreciation and amortization
7,825,000
1,019,000
8,844,000
Capital expenditures
352,000
110,000
462,000
Three Months Ended
Nine Months Ended
December 31,
December 31,
Net sales
2024
2023
2024
2023
Total net sales for reportable segment
$
174,892,000
$
161,496,000
$
528,252,000
$
495,864,000
Other net sales
11,850,000
10,724,000
37,631,000
33,033,000
Elimination of intersegment net sales
(566,000
)
(358,000
)
(1,634,000
)
(691,000
)
Total consolidated net sales
$
186,176,000
$
171,862,000
$
564,249,000
$
528,206,000
Three Months Ended
Nine Months Ended
December 31,
December 31,
Profit or loss
2024
2023
2024
2023
Total operating income for reportable segment (1)
$
19,069,000
$
9,993,000
$
23,893,000
$
36,702,000
Other operating loss
( 1,515,000
)
( 473,000
)
( 322,000
)
( 2,852,000
)
Elimination of intersegment operating income
27,000
4,000
74,000
52,000
Interest expense, net
( 14,435,000
)
( 18,297,000
)
( 43,004,000
)
( 45,400,000
)
Change in fair value of compound net derivative liability
260,000
( 1,160,000
)
2,460,000
( 1,690,000
)
Loss on extinguishment of debt
-
-
-
( 168,000
)
Total consolidated income (loss) before income tax expense
$
3,406,000
$
( 9,933,000
)
$
( 16,899,000
)
$
( 13,356,000
)
Assets
December 31, 2024
March 31, 2024
Total assets for reportable segment
$
962,855,000
$
1,019,811,000
Other assets
54,855,000
54,946,000
Elimination of intersegment assets
( 68,202,000
)
( 62,755,000
)
Total consolidated assets
$
949,508,000
$
1,012,002,000
(1)
Operating income for the Company’s Hard Parts segment includes the foreign exchange impact of lease liabilities and forward contracts, which were a loss of $ 2,460,000 and a gain of $ 3,149,000 for the three months ended December 31, 2024 and 2023, respectively, and a loss of $ 18,966,000 and a gain of $ 2,659,000 , for the nine months ended December 31, 2024 and 2023, respectively.
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19. Share Repurchases
In August 2018, the Company’s board of directors approved an increase in its share repurchase program from $ 20,000,000 to $ 37,000,000 of its common stock. During the three and nine months ended December 31, 2024, the Company repurchased 268,130 shares of its common stock for $ 2,096,000 . The Company did no t repurchase any shares of its common stock during the three and nine months ended December 31, 2023. As of December 31, 2024, $ 20,841,000 has been utilized and $ 16,159,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in the Company’s Credit Facility. The Company retired the 1,105,137 shares repurchased under this program through December 31, 2024. The Company’s share repurchase program does not obligate it to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.
20. Related Party Transactions
Lease
In December 2022, the Company entered into an operating lease for its 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. The lease, which commenced January 1, 2023, has an initial term of one year with a base rent of approximately $ 27,000 per month and includes options to renew for up to four years . In November 2023, the Company exercised one of these options to renew for an additional one -year period. In February 2025, the Company exercised a second extension term for an additional three -year period with a base rent of approximately $ 30,000 per month, which took effect on January 1, 2025. The rent expense recorded for the related party lease was $ 81,000 and $ 243,000 for the three and nine months ended December 31, 2024 and 2023.
Convertible Note and Election of Director
In connection with the issuance and sale of the Company’s Convertible Notes on March 31, 2023 (see Note 7), the Board appointed Douglas Trussler, a co-founder of Bison Capital, to the Board. Mr. Trussler’s compensation is consistent with the Company’s previously disclosed standard compensation practices for non-employee directors, which are described in the Company’s Definitive Proxy Statement, filed with the SEC on July 26, 2024.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.