Motorcar Parts of America, Inc.

Good morning. My name is David and I'll be your conference operator today. At this time, I would like to welcome everyone to Motorcar Parts of America Fiscal 2022 3Q Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you, Gary Mayer. With Investor Relations, you may begin your conference.

Thank you, Dave, and thanks, everyone, for joining us today for our call. Before I turn the call over to Selwyn Jaffe, 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 conference call. Such forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those anticipated by Motor Car 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 beyond control of the company and are subject to change based upon various factors. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the various filings with the Securities and Exchange Commission. With that, I'd like to begin our call and turn it over to Selwyn Jaffe to begin.

Okay. Thank you, Gary. I appreciate everyone joining us today. I hope you're all safe and healthy. Let me begin by highlighting our very strong fiscal third quarter results and the drivers behind this exceptional growth despite the well-known industry supply chain challenges that were a modest drag on reaching our full potential. We delivered record net sales of 161.8 million, a 32% year-over-year increase. It is also notable that net sales growth was 30.5% on a nine-month basis, also reaching another record for the company, despite quarter-to-quarter variabilities in customer order patterns. More exciting than this exceptional growth are the reasons behind it and the sustainable long-term momentum that we are building. I will share detail on several. First, we have new and existing customer expansion across all of our product lines. Second, we have growing opportunities in brake-related categories. Third, there are emerging opportunities in the electric vehicle space. And finally, favorable underlying fundamentals in the aftermarket parts industry. Let's start with demand for our product lines, which continues to grow across the board. Our strategic focus on multi-growth platforms in our hard parts business contributed to our strong third quarter performance. It is also further establishing MPA as a valued partner to our customers from a quality and supplier standpoint. We expect this momentum to continue. As a complement to our strong and growing position within the automotive aftermarket, our diagnostic business for alternators and starters continues to roll out at retail custom store locations. These benchtop testers enable retailers to offer accurate advice with the latest protocols to diagnose problems for consumers and reduce unnecessary returns. This provides a value added benefit for the retailer while strengthening their consumer relationships. The global automotive testing market is also very large at approximately $5.4 billion, and we believe our efforts in this market will generate solid results. A strong growth in the quarter was unfortunately constrained by manufacturing challenges in Malaysia related to the shutdown of the country by the government due to COVID. This impacted our operations in the country and significantly reduced our capacity. However, our team in Malaysia did an exceptional job outsourcing production to help meet customer demand. And fortunately, operations are now back up and running in Malaysia. David will have more to share on the impact of this important development momentarily. Turning to our brake-related products, As I mentioned earlier, this is an area where we are seeing very strong success. To put our brake-related growth in perspective, products in this category as a percentage of overall sales increased to 15% for the nine-month period, from 9% in the same period a year ago. At the same time, rotating electrical sales and all other product lines also increased. Our state-of-the-art brake caliper remanufacturing operation continues to gain momentum, notwithstanding supply chain challenges that constrained our robust growth. Manufacturing efficiencies will improve as this operation matures, volumes increase, and we continue to mitigate supply chain issues. Moving to our emerging opportunities in the electric vehicle space, our presence in electric vehicle testing applications in the areas of development and production continues to gain traction as demand for test equipment related to performance, endurance, and production of electric vehicle products continues to gain momentum. We remain enthusiastic about the outlook and are encouraged by new strategic partnerships, engineering strength, industry leading technology, and the significant opportunities in front of us as electric mobility evolves. While we are not providing details on this segment just yet, Let me just make a few comments about this exciting business that complements our hard parts business and relationships with our customers. Last quarter, we announced that our electric motor emulator was selected to support the development of the rotor motor controllers for Johns Hopkins Applied Physics Laboratory under a contract with NASA for its Dragonfly mission to Saturn's moon Titan. In addition, our vision is to offer EV manufacturers contract testing services via our newly established Detroit Technical Center. This also offers significant growth opportunities. Our initial customer will commence this quarter, and we plan to host a formal opening ceremony in the spring. This is clearly a testament to our EV technology, its exciting applications, and the potential from our acquisition of DMV Electronics. Now, moving to the favorable industry environment in which we operate, industry reports continue to show that people are keeping their vehicles longer and used car sales continue to climb to record levels. The result is an increase in miles driven by our kind of vehicles, or OKVs, with approximately 287 million vehicles now on the road in the United States alone, and the average age of vehicles is now at 12.1 years and aging. The market for our current hard parts categories represent more than $6 billion at the retail level. I would also note that car lease residuals relative to the value of the vehicle at lease end are now sharply lower than the value of the vehicle. As a result, consumers are buying out their leases rather than leasing new vehicles, further contributing to an increased aging of the vehicle population. All of this bodes well for the aftermarket parts replacement industry, and these favorable dynamics fuel our optimism. We are very well positioned with our significant channel relationships for aftermarket parts and our superior parts and solutions for our customers and consumers. We are building on this through our strategic focus on moving into new product areas, as we are doing with brake calipers, and taking market share in the product categories where we have advantaged opportunities. Certainly, there continue to be challenges facing the aftermarket industry in the near term. Supply chain, freight, raw materials, and other pandemic-related headwinds. We are working hard every day to mitigate these challenges with our global team in collaboration with our suppliers and logistic providers, including through price increases and freight surcharges, for example. We are making very good progress, as David will share shortly. Let me summarize my comments. Our multi-year strategic expansion initiatives are coming to fruition, putting us in a strong position to further benefit from our growth investments. Our footprint for the future is now the footprint of today, and we are encouraged by the favorable underlying demand fundamentals of the automotive replacement parts market. In short, our company is well positioned for sustainable long-term top line and bottom line growth for the non-discretionary parts and solutions that move our world. I'll now turn the call over to David to review our results in greater detail.

Thank you, Selwyn, and good morning, everyone. I would like to encourage everyone to read the earnings press release file as an AK earlier today. It contains more detailed explanations of our results, including our nine-month results. Here on this call, I will focus on our fiscal third quarter, So let's begin with our record reported net sales, which increased 32% to $161.8 million from $122.6 million in the year-ago period. Reported gross profit was $32.6 million, an increase of 34.4% from $24.2 million in the year-ago period. Reported gross profit was impacted by non-cash items as well as cash items. Let me provide details for each, and then I will detail out the financial impacts on each additional line item so you can accurately understand and compare the underlying fundamentals between periods and appreciate the reasons for our optimism moving forward. The non-cash items reflect core and finished goods premium amortization and revaluation of cores on customer shelves. The total for non-cash items in the quarter was approximately $4 million. A more detailed explanation of core accounting is available on our website, and I would encourage anyone with questions about this topic to review the video. In terms of the cash items, let's begin with Malaysia. The shutdown of the country by the government due to COVID and then the slow reopening impacted our facility and our regional network of key suppliers, as someone mentioned. In response, we quickly moved to outsource certain products from China But these products were unfortunately subject to 25% tariffs. These transitory disruptions in the supply chain, as well as timing of shipments, are being eliminated as we ramp back up in Malaysia and our suppliers recover. As a reminder, one of the benefits of production in Malaysia is low tariffs. A return to production there results in fairly immediate relief on tariffs. Next, we incurred higher freight costs that were in excess of the customer freight surcharges that we already implemented. We have taken swift action to implement even higher freight surcharges and further price increases to mitigate this impact going forward. These are expected to be in effect in the fiscal first quarter ending June 30, 2022, and should offset the higher freight costs based on current rates. Freight costs have stabilized for the time being, though we continue to monitor the situation closely. The total cash impact of these transitory cost pressures related to supply chain disruptions on gross profit was $4.3 million. A summary of each can be found in exhibit three of this morning's earnings press release. Before moving on, I should note that there were no ramp up and transition expenses related to our Mexico expansion this quarter compared with $4.2 million in the prior period and from approximately $1 million in the preceding quarter. We are pleased that brake caliper production is increasing nicely. In addition to the non-cash items and the impact of transitory cost pressures related to supply chain disruptions, as you would expect, gross profit was further pressured by inflationary costs related to raw materials and supplies and offshore wage inflation. The freight surcharges and further price increases that I mentioned a moment ago will help offset these pressures. Even in this inflationary environment, reported gross profit as a percentage of net sales was 20.1% and up from 19.8% a year earlier. Reported gross margin was impacted by 250 basis points from the previously mentioned non-cash items, as well as 270 basis points from the previously mentioned cash items from the transitory cost pressures related to supply chain disruptions. Moving on to reported operating expenses, they were $23.9 million compared with $8.3 million for the prior year period. The increase is primarily due to a non-cash gain of $12.5 million in the prior period for the mark-to-market foreign exchange impact of lease liabilities and forward contracts. I should note that the non-cash foreign exchange impact was a $385,000 loss for the current quarter. The remaining $2.7 million increase was primarily due to increased share-based compensation, commissions, and marketing and advertising expenses. Reporting net income was $3.1 million, or $0.16 per diluted share. I should emphasize that results were impact of items that totaled $8.5 million, or $0.44 per diluted share, reflecting non-cash items totaling $4.8 million, or $0.25 per diluted share, and transitory cost pressures related to supply chain disruptions totaling $3.7 million, or $0.19 per diluted share. I should note that reported net income reflects $3.9 million in interest expense compared with $4.1 million for last year, primarily due to lower interest rates on our accounts receivable discount programs as well as $1.6 million in income tax expense compared with $3.4 million in the prior year period. Reported net income in the quarter compares with net income of $8.5 million or $0.44 per diluted share in the year-ago period. Results for the prior period were favorably impacted by a total of $1.7 million or $0.09 per diluted share. These include the favorable impact of non-cash items totaling $6.1 million or $0.31 per diluted share, and cash items totaling $4.3 million, or $0.22 per diluted share, related to brake setup costs and other product relocation expenses related to the expansion in Mexico and COVID-related expenses. EBITDA was $11.9 million. EBITDA was impacted by $6.4 million of non-cash items, as well as $4.9 million in cash items, due to the transitory cost pressures related to supply chain disruptions. EBITDA was $18.8 million in the prior year period, favorably impacted by $8.1 million of non-cash items, primarily related to foreign exchange items, and unfavorably impacted by $5.7 million of cash expenses, which were primarily driven by the company's expansion of its new break-caliber product line. As someone highlighted earlier, We are driving significant growth in brake calipers and production is increasing. Now we'll move on to cash flow and key corporate items. Net cash provided by operating activities during the third quarter was $2.2 million versus $33.2 million in the prior year period. This reflects working capital requirements to support record sales growth and inventory increases for anticipated business growth, as well as a proactive strategy to address potential supply chain disruptions due to the Chinese New Year and COVID-related issues. We believe that these investments in our business will not only mitigate risk, but will also spur further growth for the company on a year-over-year basis. Our return on invested capital on a pre-tax basis at the end of the calendar year was 23.1% compared with 18% a year earlier. We are continuing to realize the benefits of expanding our Mexican operations and the launch of our new break categories with expectations of increased returns from both the new and existing product lines as the benefits of our strategic expansion are more fully realized. During the quarter, we repurchased approximately 106,000 shares of the company's common stock under our share repurchase program for approximately $1.9 million. As of the end of the quarter, we have utilized $18.7 million of the 37 million common stock authorization. Lastly, our net debt at the end of the quarter was approximately 122.9 million, while total cash availability on the revolving credit facility was approximately 108 million. For further explanation of the reconciliation of items that impacted results and non-GAAP financial measures, please refer to Exhibits 1 through 5 in this morning's earnings press release. I would now like to open the line for questions.

Thank you. At this time, I'd like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We'll take our first question from Amet Karanda with Roth Capital.

Hey, guys. Good morning.

Can we just start off with a breakdown? Can we just start off with a breakdown of rotating electrical versus brake products, wheel hub, and other from you, David, maybe. And then just maybe, Selwyn, if you could touch on if there were any update orders or any inventory bill in the quarter from your customers that you think was sort of short-term in nature, or does this feel sort of representative of the underlying demand in the industry at the moment?

Okay, this is David. I'll start. So for the quarter, rotating electrical was 68% of sales. Wheel hub products were 13%. Brake-related products were 15%, and other products were 4%. Excellent.

Thanks, David. And Sal, go for it.

Yeah. So I think, first of all, update orders normally are in the fourth quarter. So none of that. I think this is indicative of the sales trends we're seeing in the aftermarket, increase in used car population, increase in miles driven. particularly in our target market. So, you know, and I think, you know, just historically, we're seeing more cars come into their prime replacement age. I think I've talked about that in the past. So, you know, I think the fundamentals of our business are strong. I do think that, you know, we've built significant inventory for Chinese New Year. Our customers have not really done that, in my opinion. uh i don't think they're i think they're experiencing strong revenue as well i mean so we'll wait to see what the results show but um um i just think it's the the fundamentals i mean it's it's uh it's a strong time for us man okay good to hear um

On the pricing front, can you guys just be super explicit about sort of the rounds of price increases that you put through? I think there were supposed to be two rounds as of the last quarter when you guys were kind of talking through the impacts, and that second round was supposed to go into effect and fully impact the fourth quarter. So have we fully priced for all of that? And then the additional – is the price that you guys have discussed in the prepared remarks and in the release – referring to incremental pricing action over and above those two rounds and then maybe just talk more explicitly about the sort of the timing and the magnitude of that if that is the case sort of how much is split out between surcharge versus sort of ongoing price take yeah very difficult for us to give you exact price increases matt but yeah there is a third round that we've implemented uh and that'll be you know fully captured in the first quarter of uh

the next fiscal year. And at that point, I believe, assuming status quo, which who knows what status quo is anymore, you know, these adjustments will fall away and that will neutralize the effect of the inflationary impacts and numbers, both for freight and for inflation. And I think the second thing that's important to note is, you know, what we did, and this is not directly related to your question, but I thought I'd add it is, You know, we got very aggressive on an inventory build for two reasons. We wanted to, we ourselves wanted to get ahead of the Chinese New Year. Chinese New Year came in later this year. It's just happening now. And this is a big time, you know, where we expect in the first quarter as we come out into the spring, you know, that there's going to be a significant amount of inventory build getting ready for the summer months. And so we, you know, we believe we have excess inventory, and we believe we're in a good position to manage the demand. So we're excited about, you know, our outlook as we come into the new fiscal year.

Okay, great. Very helpful. So I just wanted to cover the, you know, sort of the supply chain bucket, if you could, in more detail. I know you guys broke out $4.9 million in sort of headwinds from supply chain, but maybe you could just put a finer point on how much of that is coming from elevated, excuse me, inbound freight versus sort of outsourcing, anything in that bucket from elevated raw material costs that you've broken out as well. would be helpful just to get a sense for what all is going into that bucket. And then how quickly do we think that that breakout will abate here? Should we expect it to roll off in the next quarter or really next fiscal year is probably the more likely scenario, but would love to get your thoughts there.

Okay, Matt, this is David. So that 4.9 million, good question. More than half of that is going to be freight. And we also mentioned tariffs on our prepared remarks. So with the price increases we mentioned, those numbers will definitely be decreasing in subsequent quarters. The remaining balance, you know, a big part of that is still going to be the wage, the bonuses that are paid to our frontline workers in our Mexican facilities. So that is also coming down. So overall, in the subsequent quarters, that number will be coming down. That was 6 million at the September quarter, down to 4.9, and it will still continue to come down.

Got it. Helpful. I'll leave it there, guys. Thank you. Okay. And next we'll go to Scott Stimber with CL King.

Good afternoon or good morning for you guys. Hey, hey, good morning. The issues in Malaysia, which sounds like will not be a problem going forward, were there any related disruption costs in that 4.9 million that you have listed in Exhibit 1?

Yes, a little over a million dollars relates to those tariffs. Okay. That's included in the 4.9. And those tariffs, as we mentioned in our prepared remarks, so we were outsourcing from, with 25% tariffs. So as Malaysia is now back up and running and our key suppliers in the region are recovering, we will no longer be reducing those higher tariffs from China.

Okay, so the first couple of rounds of price increases that went through, I'm just trying to match things up. I mean, was that to cover raw materials, to cover Malaysian tariffs, and to cover freight and surcharges, like an all-inclusive price increase? Or is this last price increase going to be for something else?

Yes, the third round, you know, is going to cover those inflationary costs that someone mentioned primarily. So the tariffs, you know, they go away because we're no longer outsourcing from higher tariff countries. But the third round is primarily focused on inflationary costs and a little bit of freight. And all those will contribute to offsetting these items that we've identified that impacted the quarter due to supply chain disruption. And by that first quarter, we'll definitely see significantly reduced items that impacted the results.

And just last question. The first two rounds of price increases, I'm just trying to frame it out. I know you guys, it's hard to tell how much it actually was, but the last few quarters, there's been multiples of millions of dollars that have been on this Exhibit 1 when we tried to come up with an adjusted number. I'm just trying to get a sense the level of price increases, offsetting price increases, which have been going through on the line without being backed out. Just trying to get a sense of how big these price increases are so far and just the magnitude of the third one.

Yeah, I think the way just to summarize all three of them, if you look at what we've called out as excess expenses, the price increases will cover all of those expenses. So, you know, starting in the first quarter of the new fiscal year, we don't expect to, again, assuming status quo, we don't expect to have, to even call these out. These numbers are, you know, it's a transitory expense that will disappear or be offset by these price increases. So if you look at those adjustments, that's a pretty good indicator of everything that's being passed through.

Okay, got it. All right, that's all I have. Thank you. Thank you.

Next, we'll go to Brian Nagel with Oppenheimer. Your line is open.

Hey, guys. Congrats on the next quarter. Thank you. Appreciate it.

So I guess I want to focus a little bigger picture with my questions. So going back to your opening, your prepared comments, and talking about the two issues. I mean, one is what seems to be a very healthy demand environment, and then two, on the supply chain side. So with regard to demand, and you called out the dynamic of consumers now holding on to cars longer, I guess as you're watching your business and you're watching this dynamic take hold, is it getting better or is it just holding better? And how do you view the sustainability? I mean, do you think this is really a structural shift that's happening within this space or is this more a function of, you know, this ongoing disruptions, whether it be chips or whatever? And then a similar type of question with regard, I'm sorry I'm putting this all to one, but with supply chain, I mean, are you starting to see any real significant easing in these supply chain constraints? And at what point with MPA network should we see that taking hold?

Well, let me start with demand, then I'll move to supply chain, if that's okay. So on the demand side, you know, we've been tracking the statistics for a long period of time, and you know, forget about COVID for a second, but as you look at the chart and you look at the aging of the vehicles, the amount of vehicles that are entering or have entered into the prime replacement age has gone up fairly significantly. And that was as a result of, you know, the very low new car sales seven, eight, nine, ten years ago. So, you know, as these cars accumulate in these, you know, greater than 11-year-old range, which is what's happening, more and more cars are accumulating in an older age, which contributes to your high average age, replacement rates go up exponentially for those parts. You know, I think we're certainly benefiting in that new car, you know, sales are low, but, you know, we would actually prefer new car sales to be high as well. and just expand the car population, enable, you know, used car prices are pretty high. So people who have less economic means have a more difficult time owning a vehicle. And so as new car sales come back, which I'm sure they will, I don't anticipate these used cars are going to go off the road. I anticipate we'll have more opportunity for other drivers who have less disposable income right now that can afford it. Used car prices will come down, which means more people will buy them, and the average age will continue to grow. And I think scrap rates will be lower than new cars coming on the road, so the car population will grow. So I believe demand is sustainable. I think we've got many years of demand sustainability. Whether we can continue to grow, and again, I'm not sure how you benchmark what the growth rates are in the industry. I'm certainly not one who believes in a perpetual 30% growth being sustainable. We've had some very good organic growth, and we've also had some market share contributions where we've gained share. We expect organic growth to continue and to remain fairly stable, and we're very optimistic about our market share growth. And so we laid out a plan a number of years ago to expand capacity and expand our low-cost footprint, and we've completed it now. And as you've noticed probably in the numbers, there's no more adjustments for that. And now we focus on ramping into the production capacity that we have. And so I think for MPA, I think we've got a combination of fundamental organic growth within the industry, and we have market share growth. And then the last but not least is, you know, getting, you know, getting, you know, we have a lot of momentum in the electric vehicle space. And I wouldn't even call it electric vehicles. I call it electric mobility. We're doing a lot of, we've had a lot of wins. We can't mention customer names with drone technology. I mean, NASA is an example of that, right? So, and a lot of wins and new, you know, new automotive wins and new truck wins and all across the board. So, I think the fundamental aftermarket will remain solid. I can't tell you the growth rates, but I think it will remain solid for years to come. I think exponential growth, the way we have it, is great, but I would caution to be optimistic but conservative.

That's very helpful.

Then on the supply chain, I guess I'll... Oh, sorry.

Yeah, sorry. The supply chain. You know, I did an interview with Aftermarket News fairly recently, a few weeks ago or about a month ago. And in that interview, I said supply chain was getting better. And, you know, as you look at things change, I'm not so sure. I somehow wish that I wouldn't have said it as much. But it's up and down. You know, it depends on the luck of the draw as to what you're getting out of the ports. But I think on a more macro basis, I think the delays are still there. Production constraints are still there from outside suppliers. Component constraints continue. We certainly think that update orders will be pushed out further and managed in a different way by the retailers so they can manage their labor. So I think you see updates going in slower, but still going in. Development of new part numbers takes longer. So I can't predict it, but I would tell you, Brian, I don't think it's got much better. I mean, I said something different a little bit ago, but as I review and see how things are unfolding, I still think port issues are very real all over the world.

Always helpful. I appreciate it. Congrats again. Thank you very much. Thank you.

Okay, next we'll go to Bill DeZellum with Titan Capital. Your line is open.

Great. Thank you. And congratulations on another really great top-line quarter. Thank you. Relative to the sales and marketing expense growth that you experienced, how much of that is new people versus one year ago?

Well, included in that line is commissions. So with a very solid growth in our sales, commissions have increased. We also attended the aftermarket trade show. So that's all part of the December increase. So it's more on trade show and sales versus headcount.

Yeah, there's no real headcount growth there. It's more just, you know, during the COVID times, we weren't able... Obviously, sales growth and commissions is a big driver. And APEX, which is a big, you know, national... international trade show, which happens on an annual basis in Las Vegas. The prior year we never attended. In fact, I never had it. And this year we attended quite vigorously.

So that's the swing, really.

That's helpful. Thank you. And then shifting to inventories, I'd actually like to continue down this path, but from a slightly different angle. So you've talked about increasing inventories aggressively. and yet inventories were up more like 20% rather than the 30% that your sales were up. Was there some degree of intentionalness kind of behind the scenes there, or is that really indicative of supply chain tightness? Maybe I could just ask you to try to reconcile. It might be a little bit strong, but put those pieces together for us.

I'll give you some examples. insight into it without going through the numbers and then you can follow up with David on the specific numbers. But we saw Chinese New York coming at a very vulnerable time in the demand cycle for us. Coming into summer is really when our customers and the consumer really starts to make replacements. We also have good visibility on some significant new business that we'll be adding. over the next, certainly over the next 12 months, but hopefully on an ongoing basis, but in our planning. So when we came into the quarter, even though we had 32% growth, we were coming in with higher inventories. And I think what bodes well for us now is twofold, is I think that a lot of the incremental expenditures that we've had because of the supply chain challenges will be mitigated by these surcharges and price increases. And then we're in a fairly comfortable position growing into our next year's revenue, which we hope to give guidance at the end of next quarter. And we think that'll help. We certainly believe we'll be generating positive cash from operations. And I think we've got some tailwinds in the inventory numbers as well. So the quarter may be a little bit lower, but we've had a much longer-term outlook, probably the last year and a half, really, getting ready for making sure that we were ready to fulfill demand for our customers during the COVID times, and then also planning for new business that's rolling in.

Thank you, Selwyn. I'm actually going to take the bait you mentioned as part of this answer that you're for new business that you are planning on for the next 12 months. And I believe last quarter on the call, you made reference to line of sight on a significant amount of new business. Would you please discuss in as much detail as you can that new business that you're referring to there?

Yeah, and I think I've alluded in the past to $100 million of opportunity for us. And certainly that hasn't changed. Although we're not, you know, at this point, I don't want to, you know, we're not giving guidance right now. And the speed of the ramp up for all of that will vary. But we hope, you know, we hope to give you some good guidance in the next quarter. You know, so, you know, business continues to be strong on an organic basis for us. Business continues to be strong on a, a market share gain perspective, and business continues to be strong on an evolving technology basis.

So I'm cautiously optimistic, very optimistic, actually. It's probably more accurate than cautiously.

All right. I'm going to continue to push on this just a bit more. So is that 100 million business that you feel has a high probability of becoming revenue or is that business that you have one and now with all the supply chain questions and typical customer ramp process the unknown factor is really more the timing of when that hundred million rolls in rather than if you get it well I think when you look at new business the only way you can judge or gauge what you're getting is what the historical volumes of being them of course

you don't know exactly what the demand is going to be in the next 12 months. But that's an indication of business that we're very confident of, yeah. And I really, you know, Bill, I know you want to hear everything in much more detail, but it's just very difficult to talk about new business wins at this point.

No worries. I was just giving you the opportunity to say as much as you were comfortable.

Yeah, I think the message is hopefully is clear that we're optimistic about our growth, you know, and that will continue on. More importantly, and as importantly, we're optimistic about our expense structure coming into being and generating positive cash.

And so, you know, we're very excited about those developments.

And actually, on that note, I have two additional questions. Number one is, when did Malaysia... the manufacturing restart up there again? And I'm just trying to gauge the reduction in tariffs and the timing for that. And then secondarily, when would you anticipate the brake caliber efficiencies in Mexico to reach a level of maturation, of maturity?

I'll start with the second question, then I'm going to hand the first question to David. But the brake caliber efficiency

As we get through August, I think you'll see a complete transitional change in the brake caliper business, both from a real efficiency perspective and that factory.

I mean, it's a state-of-the-art lean manufacturing facility. We're very excited about the opportunities and capabilities of that facility. But I think every day, We work to make it better. And I think in the next six to eight months, it'll really, when you say maximize, I mean, we never accept maximum. There's always, we have a philosophy of continuous improvement. And so hopefully we'll never stop reaching for more margin. But I think it's six to eight months where you'll see

you know, material effects on the numbers.

And this is David on Malaysia. At the beginning of the quarter, definitely much lower utilization, but the team out there did a great job of ramping back up. So towards the latter part of the quarter, there was recovery and much better utilization. So we're very excited about that.

So you would have been, you would have started manufacturing early in the December quarter. So would that be the month of October? but December is when you were really ramped up to more full production. Is that kind of the correct interpretation?

Yes.

It takes time, you know, because there are a lot of constraints on labor and movement around the country, but they're doing great, and obviously it takes time to get the inventory from Malaysia to the U.S., and in particular with some of the port delays. So you may see some lingering tariffs, because we only expense what we sell on the tariffs. So you may see some of that linger, but as far as an ongoing cash cost, as the Malaysia goods come in, you don't have that tariff expense.

Great. Thank you both for the time. Thank you, Bill. Appreciate it. Okay.

There are no further questions at this time. I'll now turn the call back over to Selwyn Jaffe for any additional or closing remarks.

Great. Thanks, David. Just our record performance for the quarter of nine months highlights our continued success. Moving forward, we remain intently focused on realizing the potential of our core hard parts aftermarket business and proactively managing and mitigating the supply chain challenges. We expect each of our product lines, including our electric vehicle subsidiary, to be solid platforms for long-term growth, and we see complementary growth opportunities, particularly within brake-related categories. Also, as our new production facilities mature, we will realize increased productivity and efficiencies. While there are many variables in cost today, we expect this to stabilize. We expect our margins to improve through a combination of more appropriate pricing and the enhanced efficiencies discussed earlier. Overall, we anticipate having far fewer items impacting results. This, in conjunction with our accelerated revenue growth, bodes well for increased earnings and shareholder returns. In closing, I want to thank all our team members for their ongoing commitment and customer-centric focus on service. During these challenging times, we are focused on the safety and well-being of our employees, and it is a testament of our employees' commitment that more than 93% globally have been vaccinated, helping us mitigate operational risk. I'm extremely proud of our team members and company, and we appreciate your continued support and thank you again for joining us for the call. We look forward to speaking with you when we host our fiscal 2022 year-end conference call in June and at investor conferences. Thank you.

This concludes today's conference call. You may now disconnect.