Motorcar Parts of America (MPAA) Q3 2021 Earnings Call Transcript

Motorcar Parts of America (MPAA -2.46%)
Q3 2021 Earnings Call
Feb 09, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Motorcar Parts of America's fiscal 2021 third-quarter conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Mr. Gary Maier, investor relations. Please, sir, go ahead.

Gary Maier -- Investor Relations

Thank you, and thanks, everyone, for your patience in joining us today for the fiscal 2021 third-quarter call. Before I 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. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during today's call. Such forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company.

There can be no assurance that future developments affecting the company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties, some of which are the 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 a result of new information, future events or otherwise.

For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I'd refer you to the various filings with the Securities and Exchange Commission. I would now like to turn the call over to Selwyn Joffe and begin.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Thank you, Gary. I appreciate everyone joining us today. As noted in this morning's press release, we experienced solid product demand during the quarter and continued to experience solid product demand, even though challenges due to the pandemic, including global supply chain disruptions, resulted in order delays of approximately $17 million for the quarter. We believe these sales will be realized in the current fourth quarter and the first quarter of the new fiscal year.

I might add that we have already experienced record January shipments. Despite these delays, we reported significant increases in profitability for the quarter and nine months, including strong positive cash flow and debt reduction. The company generated solid cash flow for the quarter of $33.2 million from operations and reduced debt by 29.1% to $67.6 million from $95.4 million at September 30. Net income was $0.44 per diluted share as discussed in today's press release.

I should point out that for the trailing 12-month period, we generated $95.8 million in cash from operations. We used this cash to reduce net debt by 53.6% to $67.6 million from $145.6 million at December 31, 2019. And we deployed capital expenditures of approximately $20 million, the majority of which was used to substantially complete our footprint expansion. David will discuss additional details later in the call.

I should also mention that we built inventory to support anticipated strong demand for the quarters ahead. As I noted last quarter, the vast majority of consumers in our target market are unable to work from home and reticent to use mass transportation or rideshare. These dynamics have not changed. As a result, these workers are more dependent than ever on their personal vehicles.

We believe that personal vehicles will also continue to be the preferred mode of transportation for daily activities and vacations for the foreseeable future. All of this bodes well for our business. Furthermore, during the current environment and recessionary times, people keep their vehicles longer. Accordingly, we are seeing strong demand for used cars, with consumers preferring used cars over new, particularly when faced with economic uncertainty.

Obviously, this bodes well for the aftermarket parts replacement industry and our nondiscretionary product offerings. All of this leads to an increased aged fleet, which is currently at a new record of approximately 12 years. As these vehicles age, the rate of replacement of parts increases substantially. For example, cars in the zero- to three-year age group have a replacement rate for alternators of 2.42% compared with 6.65% in the 12-year-and-above age group.

Though new car sales should return at some point, we expect to benefit because used car scrap rates are generally lower than new car sales, resulting in an increased car park and further opportunities for parts replacement. Any addition in new car sales will fuel aftermarket parts replacement in the future. In short, all our initiatives continue to enhance our position as a valued, premier supply of automotive aftermarket parts in North America and the rapidly emerging electric vehicle and aerospace markets. In summary, our entire company is well-positioned for sustainable top and bottom-line growth for parts and solutions that move our world today and tomorrow.

As noted in today's earnings release, given the ongoing global pandemic and near-term-related considerations, the company believes that it is still not prudent to provide annual sales and gross margin guidance for fiscal 2021. However, we are encouraged by continued consumer demand for our aftermarket parts, notwithstanding the near-term impact to sales by the challenges related to COVID-19, which impacted the timing of shipments in the quarter. Our expectations that the fourth quarter will benefit from some of the order delays of product shipments from the fiscal third quarter with the remaining orders to be shipped in the new fiscal year beginning in April. This is based on anticipated factors beyond our immediate control related to the pandemic.

In short, while sales growth has been restrained by global supply chain challenges, our bottom-line performance is expected to continue to benefit from enhanced operating efficiencies as the pandemic situation improves, including increased caliper production volume, along with lower interest rates and reduced net debt. The company continues to evaluate costs related to global inflationary trends, including labor, freight and raw materials. We expect the number of vehicles and their prime parts replacement age will continue to grow. At the same time, we are pleased to see the number of repairs and miles driven for our target customers appear to be regaining momentum despite the human and economic impact and the uncertainty of this terrible pandemic.

It is clear that personal vehicles are becoming increasingly important in our new normal daily lives. We also believe that our electric vehicle subsidiary show substantial promise. All of this supports our optimism for growth and profitability over the next several years, and we remain more convinced than ever that our strategy to enhance shareholder value is on target. I will now turn the call over to David to review the results for the fiscal third quarter.

David Lee -- Chief Financial Officer

Thank you, Selwyn. To begin, I encourage everyone to read the 8-K filed this morning with respect to our December 31, 2020, earnings press release for more detailed explanations of the results. For information about the items that impacted the results, see Exhibits 1 through 5 of the press release. Let me take a moment to review the financial highlights for our fiscal '21 third quarter.

Net sales for the fiscal '21 third quarter were $122.6 million compared with $125.6 million for the same period a year earlier, impacted by order delays of approximately $17 million due to the continued COVID-19-related challenges, Selwyn mentioned. Gross profit for the fiscal '21 third quarter was $24.2 million compared with $27.7 million a year earlier. Gross profit as a percentage of net sales for the fiscal '21 third quarter was 19.8% compared with 22% a year earlier, reflecting in part the impact of supply chain challenges due to the global pandemic, including higher freight and handling costs. Additional factors impacting gross profit are shown in Exhibit 3 in this morning's earnings press release.

Results for the fiscal third quarter were impacted by approximately $1.6 million on a pre-tax basis or $0.06 per diluted share on a tax-effective basis for cost of goods sold and operating expenses related to safety and health initiatives associated with COVID-19. Approximately $723,000 of the $1.6 million relates to incremental bonuses and wages paid to the company's dedicated operating employees on the front line. The balance of the cost related to personal protection equipment and social distancing initiatives. Total operating expenses decreased by approximately $10.1 million for the fiscal third quarter on a year-over-year basis.

This decrease was comprised of $8.7 million of higher foreign currency-related gains, which are noneconomic; and a $1.8 million reduction in expenses, including decreased travel-related expenses. This was partially offset by higher expenses, such as COVID-related expenses of $558,000. Interest expense was $4.1 million for the third quarter compared with $6.9 million last year. The decrease in interest expense was primarily due to lower interest rates and lower net debt.

Income tax expense for the third quarter was $3.4 million compared with income tax expense of $1.5 million for the prior-year period. Net income for the fiscal '21 third quarter was $8.5 million or $0.44 per diluted share compared with net income of $865,000 or $0.04 per diluted share a year ago. Additional details of items impacting net income are in Exhibit 1 in this morning's earnings press release. Net sales for the fiscal '21 nine-month period were $372.7 million compared with $385.1 million for the same period a year earlier, impacted by a sharp drop in demand in April due to the global pandemic.

In addition, net sales were impacted by current pandemic supply chain challenges in the third quarter, resulting in order delays of approximately $17 million previously mentioned. This was partially offset by the benefit of $12.8 million due to a realignment of inventory at two customer distribution centers with expected future sales benefits as product mix changes. Gross profit for the fiscal '21 nine-month period was $77.4 million compared with $81.8 million a year earlier. Gross profit as a percentage of net sales for fiscal '21 nine-month period was 20.8% compared with 21.2% a year earlier, reflecting in part the impact of supply chain challenges due to the global pandemic, including higher freight and handling costs.

Additional factors impacting gross profit are in Exhibit 4 in this morning's earnings press release. Net income for the fiscal '21 nine-month period was $20.6 million or $1.07 per diluted share compared with net income of $903,000 or $0.05 per diluted share a year ago. Additional details of items impacting net income are in Exhibit 2 in this morning's earnings press release. Net cash provided by operating activities during the fiscal-year '21 third quarter was $33.2 million compared with cash provided by operating activities of $22.3 million for the prior fiscal 2020 third quarter.

Net debt for the third quarter was reduced by 29.1% or $27.8 million to $67.6 million at December 31, 2020, from $95.4 million at September 30, 2020. Net cash provided by operating activities during the fiscal-year '21 nine-month period was $72.5 million compared with cash used in operating activities of $4.4 million for the prior fiscal nine-month period. Net debt for the nine-month period was reduced 46.6% or $58.9 million to $67.6 million at December 31, 2020, from $126.5 million at March 31, 2020. We have generated positive cash flow from operating activities for five straight quarters through the December 31, 2020 quarter.

For the trailing 12 months ended December 31, 2020, net cash provided by operating activities was $95.7 million. Net debt for the trailing 12 months ended December 31, 2020, was reduced by 53.6% or $78 million to $67.6 million at December 31, 2020, from $145.6 million at December 31, 2019. As you know, there are various methods to calculate return on invested capital. For our purposes, we calculate ROIC by taking operating income and adding back noncash expenses and certain onetime expenses.

We believe this metric, considered together with GAAP measures, provides useful information to investors and to management regarding the company's return on invested capital. In short, we take this metric, which was approximately $73 million for the 12 months ended December 31, 2020, which included an extraordinarily weak fiscal first quarter as a result of the COVID-19 shutdown across the country, and divide it by the average equity and net debt balance of $405 million, resulting in an 18% pre-tax return on invested capital. We are just starting to realize the benefits of expanding our Mexico operations and the launch of our new brake categories, with the expectation of increased returns from both new and existing product lines. This should result in higher ROIC as the benefits of our strategic expansion are more fully realized.

At December 31, 2020, our net debt was approximately $67.6 million. Total cash and availability on the revolver credit facility was approximately $140 million at December 31, 2020, based on a total 300 -- based on a total of $238.6 million revolver credit facility and is subject to certain limitations. Consolidated EBITDA for the purpose of bank covenant calculations for the 12 months ended December 31, 2020, was $71.6 million and our senior leverage ratio was 1.18. Our credit arrangement for computing the senior leverage ratio only allowed up to $6 million of credit for cash.

I should mention that if we had paid down the revolving credit facility further with cash on hand, our senior leverage ratio would have been 1.12 at December 31, 2020. At December 31, 2020, the company had approximately $799 million in total assets. Current assets were $395 million, and current liabilities were $299 million. For the reconciliation of items that impact results and non-GAAP financial measures, please refer to Exhibits 1 through 5 in this morning's earnings press release.

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

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Matt Koranda from ROTH Capital. Your line is open.

Matt Koranda -- ROTH Capital Partners -- Analyst

Hey, guys. Thanks. Just on the $17 million of delays, can you provide a bit more detail on that because it sounds like it's more of a supply chain challenges that you're alluding to and not necessarily a demand issue? So where are you getting the order delays and which products? And then, why do we have the visibility to say we're going to recognize the $17 million shortfall in the March and June quarters? And what's the split roughly between the two quarters, do we think?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yes. So that's a lot of stuff, Matt. Let me just give you some color, and David can give you more detail. But the big challenge is it's a December -- December year -- December is the year-end for a lot of our customers.

And so we had some inventory reductions from customers pushing orders back into -- from December into January. So that's a piece of it, but no demand issues. I mean, the demand, quite frankly, right now, is exceptionally strong. And then, on the supply chain side, there's just freight challenges everywhere.

There's problems getting containers. There's problems with delays at ports when the product leaves the ports. And then, there's challenges in L.A., and predominantly, which is L.A. and Mexico, in terms of offloading boats, getting a lot of our inventory sitting on ships that are in the port that cannot be offloaded.

So we have a lot of inventory on the water. We have a lot of inventory lined up. We expect to get through this. We think that as you get through to Chinese New Year, so starting in sort of March, we'll see some alleviation of that -- of the products that are stuck in the ports, and we'll just have to see how that continues on.

But the fundamentals, the demand side of our business is exceptionally strong, probably stronger than it's been in some time. It's the supply side that's a challenge. And where it hits the products, it hits across the board because even though you may be remanufacturing, whether it be in the United States or Mexico or Malaysia, you need components, and these components come from various places all over the world. So we're hit across the board.

I will say that we're catching up in most product lines for the demand. And hopefully, we can get through this sooner rather than later. As far as the mix of what is going to happen between the fourth and the first quarter, I think the majority will be in the fourth quarter, but we may have some deferrals in the fourth quarter that go into the first quarter. So I mean, that's an unknown still, and so it's a little difficult.

Dave, do you want to add?

David Lee -- Chief Financial Officer

Later in the 10-Q that we will file, I just wanted to point out, the product mix for the quarter was about 72% rotating electrical, wheel hub was about 14%, brake products about 12% and others about 2%. So you will see that rotating electrical product mix was down compared to prior year third quarter.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah, Matt, actually...

Matt Koranda -- ROTH Capital Partners -- Analyst

OK. That's helpful, guys.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

And I will say, Matt, just to add to that, is the fastest recovery is rotating electric as well. So while it was hit the worst, it's the fastest to recover.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK, got it. And then, one thing that -- in your answer, Selwyn, that I wanted you to unpack a little bit more because I don't necessarily understand the dynamic. If you look at most of your customers' same-store sales running incredibly strong, and obviously, that's indicative of good strong end demand. But you're saying that they're pushing orders into January from December.

What is the dynamic at play? And why are they waiting to take on inventory where I would assume they might be a little bit thin toward the end of the year here?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Look, I can -- I can't speak for our customers. But in general, customers have COVID issues in their warehouses as well. So they can't take everything in as fast as they normally could take it in at the end of their quarter. So I assume that they're managing inventory levels for the quarter.

Every customer has got their own shtick, excuse my whatever language that is, Yiddish. But it's -- and I think -- I just -- I think in general that they feel like pushing inventory a couple of weeks back doesn't hurt them and may help them, I don't know.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK. All right. Fair enough. And then, just one more for me.

On the gross margins, they move around quite a bit, and I just want to get a sense for how to forecast this stuff going forward. So I think we're down about 150 basis points year over year if we look at the adjusted gross margins on a consolidated basis. Maybe it'd be helpful, David, if you could provide a bit of a bridge year over year because I know you guys mentioned freight as a big headwind. That's understandable.

Is there a component inflation or labor inflation in there that's causing an additional headwind? Or is it just sort of the mix of product that we are selling is kind of weighing on gross margins? And how should we think about how those items feed into the adjusted gross margin line for the next quarter or 2? Should we be kind of expecting this mid-20% gross margin rate?

David Lee -- Chief Financial Officer

Good question. So the largest impact is going to be the supply chain challenges, higher freight in handling costs. So that will make the most of that differential. And as you mentioned, a small part of that is going to be the product mix.

So rotating electrical was 72% of sales. Again, this will be in the 10-Q. Prior year, it was 75% of sales. So that product mix will have a smaller impact, but by far, the largest impact are the higher freight and the supply chain challenges.

And as revenues increase, we're going to be able to absorb cost and protect overall better margins. So with this increased demand that we're seeing subsequent to December 31, the higher sales will definitely help with margin.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK, got it. I'll jump back in queue, guys. Thank you.

Operator

Your next question comes from Brian Nagel from Oppenheimer. Sir, Your line is open.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Hi. Good morning or good afternoon. Thanks for taking my questions.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Hi, Brian.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

So first question, I think just a bit of a follow-up to the prior question. You spent some time -- you were talking about the supply chain disruptions. It sounds to me like it's primarily industry related. But the question I have, is that right? Or are there aspects here that are unique to Motorcar Parts as well?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Oh, I think it's global supply chain challenges, Brian. I don't think it's us. I don't think it's our category. I don't think it's our industry.

It's -- I'm hearing it in multiple industries. I mean, there's just a shortage of containers. There's been a number of challenges with management of freight. I mean, there's been some freight that's lost in the ocean, I mean, in particular, coming from Shanghai and Singapore.

It's not specific to us at all. I think this is a -- it's a global issue. I think it's across all industries.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Got it. The second question I had, Selwyn, you mentioned in your prepared comments, the business strengthening further in January, so into the current fiscal quarter. Can you quantify that or just size how much better the business has actually gotten here in the last few weeks or so?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Well, I mean, it's a decent double-digit increase. I mean, it's north of 10%, 15% growth. But again, I don't want -- I want to be cautious because I don't want to just assume that that January is going to be flowing through forever. We think that the fundamentals of the industry are much stronger.

We have some catch-up in January from December. So it's very strong. I mean, again, I think it's the -- we -- certainly, the strongest shipments we've ever had in January in our organization. But I want to be cautious because there may be some more deferrals that will come in the fourth quarter as we head into the Chinese New Year.

I'm not sure, and so it's a little difficult to predict. The demand is there. The question is how much product we can get out the door.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Got it. Maybe just one final question also on demand. Given that, clearly, the COVID situation remains quite fluid. But are you seeing -- as you look across, I guess, your customers located throughout the United States, are you seeing a significant difference in demand depending on location and the intensity of the COVID in those specific areas?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

That's a good question. We are tracking mobility trends across the country. We've seen a pickup in areas that were previously soft. So I think in general, what we're seeing is the high concentration of automotive markets is up further, so the Southeast and Northeast and the West.

But mostly, the concentration of vehicles on the East Coast are up and down.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Good. Thank you.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Thank you.

David Lee -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Sarkis Sherbetchyan from B. Riley Securities. Your line is open.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Hi. Morning. Thanks for taking my questions here.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Hi, Sarkis.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Yeah. So first question relates to the current level of cash generation. Just help me understand, is this level sustainable even when considering some of the inventory builds and order rates you're forecasting for your customers coming up?

David Lee -- Chief Financial Officer

It really depends on sales levels and growth. We generated good cash flow for the third quarter, starting out with a strong profitability, as well as benefits from working capital. It will fluctuate depending on growth. So I would say depending on a little bit of seasonality, it's going to impact cash flow generation.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Got it. And I guess...

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Overall, Sarkis, is that we believe that we can continue to grow the business and still generate positive cash flow.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Understood. And if we look at kind of the new product start-up costs and transition expenses, when should we expect that to wind down? It seems like your facilities expenses have largely been consumed. So just trying to get a sense for when those new product start-up costs and transition expenses begin to wind down from these current levels.

David Lee -- Chief Financial Officer

So as we continue to ramp-up our facilities in Mexico and production volume of our new product line, that will continue through the March quarter. And starting in the new first quarter of the next fiscal year, it should start to come down.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Got it. And would those metrics come down to 0? Or do you still expect some marginal expenses there throughout the next fiscal year?

David Lee -- Chief Financial Officer

It will come down. There will be a marginal amount in the first quarter, but it will not go down to -- completely to zero. It will be a little bit still in the first quarter.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

OK. And just want to touch a little bit on the testing and diagnostic products and the business there. Have you been able to maybe disclose the run rate sales for that category of testing and diagnostics products?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

We haven't really -- I think we've talked about it in general, but we haven't really quantified it. But I mean, I can give you some insight. It's sort of -- we're looking at north of $20 million in revenue for that business. We're quite optimistic about our initiatives in the electric vehicle space and the battery charging space and electric powertrain space.

And so we are getting quite a lot of good traction there. And so hopefully, we can get in a position where we can accelerate growth in the following years. We think there's a big opportunity waiting there.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

And as of today, how much of that sales metric is like the benchtop testers going into your customer stores versus maybe some of the simulation and emulation equipment that go into the OE manufacturers?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

I guess, we're not really segment reporting that, but again, it's not material to the numbers. But I mean, maybe just in general, giving you some insight is that the diagnostics for combustion engine, which includes the benchtop tester, we expect to have -- assuming that capital budgets are released the way we expect them to be released from the customers. We have indications -- significant indications of interest, more than indications of interest, but indications of volume and orders that we expect, we don't have them yet, but we expect it. And so that in this next fiscal year, it would probably be about two-thirds of the volume.

And again, I'm giving you very rough numbers. But -- and then the electric space is, again, fast evolving. We've had some nice wins, some very prestigious customers and more to come on the electric space.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Got it. And just switching over to the new brake product category. Any indication on kind of the run rate sales or the growth in that category? It sounded like in previous calls, you thought this back half of the year would layer on some nice sales. So just trying to get a little bit more color there.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. Look, in the brake caliper business, we -- I don't know if we've broken it down in the Q on what we expect for the quarter.

David Lee -- Chief Financial Officer

So we had total brake-related products of 12%.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

12%. And I would say that you're going to see significant growth in the next fiscal year on the brake products. We have a lot of new customers that we're starting to ship or haven't started shipping yet. And the outlook for that is strong.

I mean, if you notice the inventory growth, a lot of that inventory growth is in anticipation of demand that we are already seeing for the brake products.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Got it. And one final one for me. I'll hop back in the queue. What was capex, David, inside the quarter? And then, what's your expected level of capital investments for the upcoming fiscal year?

David Lee -- Chief Financial Officer

So capex was approximately about $5 million and most of that was for our Mexico expansion. And for the year, we're expecting a little over $17 million.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

What do you expect next year?

David Lee -- Chief Financial Officer

Next year, we are going to have a little bit remaining to do to finish the Mexico expansion. But after that, it's just going to be mostly maintenance capex.

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Got it. Thank you. I'll hop back in the queue.

Operator

Your next question comes from the line of Steve Dyer from Craig-Hallum Capital. Your line is open.

Ryan Sigdahl -- Craig-Hallum Capital -- Analyst

Good afternoon, guys. Ryan on for Steve. Just want to dig in a little bit deeper on January. I guess, you mentioned record, up 10%, 15%, but also a bunch of deferrals that were realized in the quarter.

So I guess, curious, was that -- absent those deferrals from last quarter into this quarter, would have the quarter still been a record? And then, can you talk about kind of just more normalized trends?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. I believe we would have had a very strong January as well. I can't tell you exactly what was already been shipped in January versus not. So I can't tell you specifically if it's a record, but it was exceptionally strong month, January.

Regardless of the deferrals. There's a lot of orders, a lot of activity. Again, attribute to the personnel. We have to get the number of units out the door that we did in January considering all the social distancing and that.

So I can't quantify that specifically. I don't think we have that data available. But either way, with or without the deferrals, it was very strong.

Ryan Sigdahl -- Craig-Hallum Capital -- Analyst

Good. One other follow-up for me, then I'll hop back. So you mentioned, I think, Selwyn, you say $20 million of diagnostics revenue. I guess, I was thinking that was all in the other products category, which was 1% to 2% of sales this year.

So I guess, is that included in other categories? Or is it all in there? And then, can you talk about kind of maybe if there's deferrals there and kind of that opportunity from this year to next maybe to get to that $20 million?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

So let me start with the deferrals, and then I'm going to let David to give you the details. There's a lot of deferrals there that are not even included in that $17 million. The $17 million that we quantify are actual orders that we know there's demand that we specifically have moved over. So the delays on capital expenditure releases for those testers is not in that $17 million.

We -- again, until you got a purchase order, you don't have anything, but we believe that there is significant pent-up demand for those testers. And David, so you can -- sorry jump in front of you there.

David Lee -- Chief Financial Officer

So as Selwyn mentioned, during the quarter, there was impact on diagnostic-related sales. So for this year, we're going to be under that $20 million, but for next year, we are targeting to be over $20 million.

Ryan Sigdahl -- Craig-Hallum Capital -- Analyst

Gotcha. Thanks, guys. That's it for me.

Operator

Your next question comes from the line of David Berman from Berman Capital. Your line is open.

David Berman -- Berman Capital -- Analyst

Hi, guys.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Hi, David.

David Berman -- Berman Capital -- Analyst

A question for you. Most of my questions have been answered, but the one question, I just wanted to follow up on someone else's question. I think inventories were up about 12% or 10%, and they had been down in prior quarters. And you said there was like an extra category that you're adding.

So honestly -- I mean, not honestly, but I mean, how much do we -- or how do you expect that extra inventory, given that the inventories are up so much, to add to the baseline going forward?

David Lee -- Chief Financial Officer

We're not giving specific guidance, but that new category we're ramping up is the brake calipers, a very exciting product line. We're going to continue to grow business as we are producing from our Mexico facility. So most of that inventory growth is going to be for increasing demand, including brake calipers.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. And then, the other thing, David, is that you've got this new category. In the new category, you're going to see -- just in that category alone, you're going to see double-digit increases, I mean, anywhere between 10% and 20% in that category of growth. And then, you've also got -- we talked about this increasing demand just in our fundamental base business is that we are anticipating, again, with the package that's gone out or was sold last time, we saw a significant increase in demand.

We're anticipating and we are seeing already that demand is going to go up for these products. I mean, there's -- we're fortunate to be category captains. And so our ability to see trends is pretty good. And I mean, although we impacted on the supply side right now, but the demand side looks positive and the inventories is going to be well used.

David Berman -- Berman Capital -- Analyst

Right. OK. And then, related -- just related to the balance sheet, if I can follow up. I'm not sure you discussed this, but your payables have gone up significantly.

And it seems like in your industry, many of your -- many of the other companies get massive terms from the vendors. You're up to almost over four months now, as I see it, which is a dramatic change and departure from your -- what you were doing before. It's a great source of income. So I congratulate you on getting there, but I was just wondering if you can share with us what's going on over there.

David Lee -- Chief Financial Officer

So the growth in payables is directly tied to the growth in inventory. We have very great suppliers that we work with. So the part of the inventory growth strategy is also to extend the terms. So we're able to achieve that during this time...

David Berman -- Berman Capital -- Analyst

Well, usually, it is directly related to the increase in inventories. But in this particular case, your payables are up, as I see it, 51% and your inventories are only up 12%. So it's way in excess of your inventory growth, which leads me to believe that you must have changed your terms. I mean, you're not in financial dire straits, so it can't be because you can't pay.

You must be having better terms, and I was just wondering what that was all about.

David Lee -- Chief Financial Officer

Yes. We continue to work with our suppliers to get better terms overall. So that's definitely part of the extension.

David Berman -- Berman Capital -- Analyst

And is that going to continue? I mean, what is the end -- right now, it's over four months of payables.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

I mean, the net goal for us is inventory net of payables to be zero. I mean, that's where we want to be. But whether we can get to them or not.

David Berman -- Berman Capital -- Analyst

I see. OK. Right, right, right. Interesting.

So your payable is now -- accounts payable is $146 million, if I'm looking at it correctly. Although we don't know from the outside, how much is the crude liabilities. And your inventory is up 296. So if that's the case in the investor case, you still have a long way to go.

David Lee -- Chief Financial Officer

That's correct.

David Berman -- Berman Capital -- Analyst

Yeah. Yeah. It's a wonderful industry you're in with awareness of finance basically finance the inventory.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Well, we are refinancing our customers' inventory right now. So we need to pass it on.

David Berman -- Berman Capital -- Analyst

Thank you. Good job.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

[Operator instructions] Your next question comes from the line of Scott Stember from C.L. King. Your line is open.

Scott Stember -- C.L. King & Associates Inc. -- Analyst

Good afternoon, guys.

David Lee -- Chief Financial Officer

Hi, Scott.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Hi, Scott.

Scott Stember -- C.L. King & Associates Inc. -- Analyst

Selwyn, you talked about how demand is, I guess, that the counter is still very strong. Can you just -- to give us a greater level of comfort, just give us some idea of how well your products are actually selling at point-of-sale to the extent that you could give us?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. Again, I can't -- I mean, that's our customers' business. But fundamentally, point-of-sale data shows every category trending upwards.

Scott Stember -- C.L. King & Associates Inc. -- Analyst

OK. And I'm just trying to get a sense, are we talking double -- like low doubles, high singles? Because at least up until the last couple of quarters, we were kind of looking for low double-digit growth, I guess, just given some of the new product lines that were coming out. I'm just trying to get a sense of if that narrative of demand has changed at all.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

I can't -- again, we're under restrictions in terms of giving out that information. So I can't really tell you what they're experiencing. But we -- as a company at MPA, we still believe that we are on track despite all the challenges. I mean, our run rate -- I had mentioned that we thought our run rate would be at $600 million by the end of this fiscal year, and we haven't changed that.

Scott Stember -- C.L. King & Associates Inc. -- Analyst

OK. That's all I have. Thanks.

Operator

Your last question comes from the line of Bill Dezellem from Tieton Capital. Your line is open.

Bill Dezellem -- Tieton Capital -- Analyst

Great. Thank you. I have a group of questions. The first one, you mentioned in the press release that you expect product mix change to benefit you in the future.

Would you please discuss that in more detail?

David Lee -- Chief Financial Officer

So as we've been growing the brake-related products, brake caliper is going to be a growing category for us, as someone mentioned before, as we've been pointing out. So with that product mix, more brakes that we'll add to the top line.

Bill Dezellem -- Tieton Capital -- Analyst

So specifically, the mix change that you're referencing is brakes, and it is specific to revenue, it's not a margin commentary.

David Lee -- Chief Financial Officer

Yeah. To sales, that's correct, to revenue.

Bill Dezellem -- Tieton Capital -- Analyst

Great. And would you please discuss the electric vehicle subsidiary and the promising aspects that you are -- for instance that you are seeing there?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. Well, there's interesting dynamics in the industry -- automotive industry, let's just deal with that first before we talk about aerospace. But in the automotive industry, you've got continuing growth in the combustion engine car park and you have continuing development in the EV space. And development evolves around designing vehicles, prototyping them and then building them and then keeping them on the road, which is the maintenance of those vehicles, but in particular, the charging systems around them.

Our products are proving -- with the strategic relationships we have and joint venture marketing relationships and sales relationships are getting significant traction with some of the top OE companies in the world and some of the top evolving electric vehicle companies in the world in both battery technology -- in the development of battery technology and in the development of the electric powertrain. We have some exciting things coming that we're -- we haven't quite announced yet that we will be announcing. But the fundamentals of the development and the vibrancy of the amount of development that's going on in the electric space is significant. And when we look at our allocation of capital, we think the electric space has got a lot of opportunity for us, and we think our base technology is going to have some traction, and we can accelerate those applications into that electric space.

And that applies to automotive. I will tell you that in the aerospace side and space exploration side, we've previously announced that we are supplying to NASA and we are to some other very significant OE aerospace companies. There's a lot of electrification and diagnostic -- incremental diagnostic equipment that's being used in the development of the electrification of aerospace. And while that's a little further out, we're quite excited about how we fit into that space as well, space being a pun, so excuse that.

But -- so I don't think you're going to see massive revenues right now. I mean, we are looking at as a percentage of sales, some significant growth for that business. But we are actively positioning that to play a major role in that marketplace.

Bill Dezellem -- Tieton Capital -- Analyst

Relative to the battery, there's lots of development taking place on the battery front. Are you part of that? Or what role are you in?

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

I think, Bill, I don't want to get too granular on that. You'll be hearing more about our battery initiatives. Hopefully, we can get some -- with agreement with some of our partners in that arena, we can get some more public information out there. But for now, I would just say that the battery space is an important space for us and mostly on the development side of it, not on -- I think it's fairly significant cutting-edge capabilities that we add to the battery -- to the whole battery charging systems.

Bill Dezellem -- Tieton Capital -- Analyst

Great. We'll look forward to those additional announcements. And then, one housekeeping question. The accounts receivable drop, is that simply a timing phenomenon? Or is there something structural that's changing?

David Lee -- Chief Financial Officer

It is a little bit of timing. So we had great cash receipts during the quarter. So it also depends on the timing of sales in a particular month during the quarter. So we had great collections and a lot of that is timing.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. I mean, you can see, if you look at those receivables that October and November were very strong, and we have these big deferrals that came in December. So -- and that's why you can see those...

David Lee -- Chief Financial Officer

That ties in directly, correct.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

Yeah. The net days outstanding on receivables are around 31 days. So you can see that a lot of the volume came in the early part of the quarter. And now we're seeing significant volume in January, so those receivables are up pretty dramatically.

David Lee -- Chief Financial Officer

That's correct.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you, both.

Operator

This concludes our question-and-answer session. I will now turn the call over back to our presenters for the closing remarks.

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

OK. Thank you very much. In closing, I want to thank all our team members for their ongoing commitment and customer-centric focus on service during these challenging times. Great job on meeting significant demand for January and hopefully ongoing.

Their health and safety is our top priority, and we remain extremely vigilant to protect our global team from this horrible virus. For the most part, our corporate team is continuing to work remotely as much as possible, though we remain committed to gradually and safely returning our team back to the office as conditions permit. As a result of everyone's contributions, our operations have continued largely uninterrupted, and I'm extremely proud of our company. In summary, our investments are bearing fruit.

We are reaching important inflection points with strong positive cash flow, solid earnings performance, further debt reduction and meaningful opportunities to enhance shareholder value in a dynamic $130 billion automotive aftermarket industry in the United States alone and the emerging electric vehicle industry. This performance, combined with growth opportunities from our existing and new hard parts product line, as well as our evolving diagnostics businesses in -- for both internal combustion and the electric vehicle and aerospace markets provide a meaningful path for accelerating growth and profitability, which we remain very committed to. We are proud of our more than 50-year history in this -- in the aftermarket, and we are excited about our emerging presence in the electric vehicle space. And all of us are committed to our vision of being the global leader for parts and solutions that move our world today and tomorrow.

We appreciate your continued support, and thank you again for joining us for the call. We look forward to speaking with you when we host our fiscal 2021 fourth quarter and year-end conference call in June and at virtual investor conferences and hopefully in person sometime in the future. Thank you.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Gary Maier -- Investor Relations

Selwyn Joffe -- Chairman, President, and Chief Executive Officer

David Lee -- Chief Financial Officer

Matt Koranda -- ROTH Capital Partners -- Analyst

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Sarkis Sherbetchyan -- B. Riley Securities -- Analyst

Ryan Sigdahl -- Craig-Hallum Capital -- Analyst

David Berman -- Berman Capital -- Analyst

Scott Stember -- C.L. King & Associates Inc. -- Analyst

Bill Dezellem -- Tieton Capital -- Analyst

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