Motorcar Parts of America, Inc.

Good day. My name is Rob and I will be your conference operator today. At this time, I'd like to welcome everyone to the Motorcar Parts of America Fiscope 2023 third quarter results conference call. 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star 1. Thank you. Gary Mayer, Vice President of Corporate Communications and Investor Relations. You may begin your conference.

Thank you. Thank you, Rob, and thanks, everyone, for joining us. Before I turn the call over to Selin 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. 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 the control of the company and are subject to change based upon various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved. The company undertakes no obligation to publicly update or revise any forward-looking statements whether it was 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 refer you to the company's various filings with the Securities and Exchange Commission. With that said, I would like to begin the call and turn the call over to Sal.

Thank you, Jerry. I appreciate everyone joining us today. Let me begin by addressing factors that impacted our results and then I will address our expectations for the near future. Before I begin, despite our softer than normal sales for the quarter, let me assure you that there were no customer or shelf space losses. There were two major items impacting our sales for the quarter. First, a certain customer reduced orders by approximately $14 million compared with the same period a year ago. In addition, we were impacted by delays in new business from certain other customers representing approximately $17 million of deferrals for the quarter. As a result, our sales targets for the quarter and nine-month period were affected. We are now experiencing a resumption of ordering levels in the current fiscal fourth quarter, with orders expected to gain further momentum throughout our next fiscal year. As a result of the lower sales volumes, we temporarily reduced production, which impacted overhead absorption, which in turn impacted gross margins. As sales and production volume increases, we expect to incrementally benefit from increased overhead absorption. I should emphasize that in the normal course of business, customer returns remain relatively constant. As such, when sales decrease, returns as a percentage of sales increase. Returns as a percentage of sales were higher for the quarter, which in turn further impacted gross margins. Gross margins were also impacted by inflationary costs not yet covered by price increases. We expect to realize the full benefit of our price increases in the current fiscal fourth quarter with further upside from expected order volume improvement. Operating efficiencies and cost reduction initiatives that we continue to implement across the entire organization. These initiatives including an ongoing company-wide strategic analysis of opportunities to realign our resources and cost structure to enhance profitability and cash flow. Clearly, our results were not acceptable and not what we expected when we hosted our fiscal second quarter call, primarily due to specific customer-related ordering activities and some macroeconomic headwinds, as I just noted. We experienced some supply chain challenges, primarily due to shortages for certain components. which impacted production of some products. Fortunately, sales that were impacted by supply chain issues last quarter are improving. This will also help mitigate the impact on gross margins going forward. High interest rates continue to have a significant impact on profitability, primarily due to rates related to long-established customer supply chain finance programs. David will discuss these items shortly. As you know, we are a major supplier of critical non-discretionary automotive aftermarket parts. We are working with our customers to address the sharply high interest rate environment, which impacts both MPA and our customers, as well as companies doing business with the leading automotive retailers. It's an industry challenge that requires practical solutions and further action. Now let me address our future outlook. We expect sales to increase by $52 million annually, just from resumption of expected normalized order volume from two key customers, starting in the current quarter. In addition, we expect to add incremental sales of approximately $15 million from additional committed new business. We also expect to more than double our business for brake pads and rotors in the next fiscal year. Equally important, Our gross margins will be enhanced by approximately $20 million of incremental price increases that start this quarter. In addition, as we wrap up for an all-time record fourth quarter, we expect to see margin accretion from efficiencies related to the higher volume and cost-cutting initiatives. As noted in our press release today, we have revised our annual guidance to reflect the actual third quarter results and our optimism for the current fourth quarter. While we don't provide quarterly guidance given our revised update, one can easily calculate it. We expect record sales for the fiscal fourth quarter between 183.6 and 191.6 million and record profitability of adjusted EBITDA between 27.5 and 32.5 million dollars. With respect to cash flow, our expectation is to continue to make progress to generate cash. we are committed to maintaining strong organic growth while focused on enhancing our gross margins and cash flow. In short, as a result of all these initiatives, we believe the company is well positioned for sustainable top and bottom line growth for parts and solutions, and our partnerships with our customers will be mutually enhanced. Now let me expand a bit further and discuss the other drivers to support our ability to achieve our longer term financial targets. Our break-related product lines are growing with expected operating efficiency improvements as volume increases with further fixed cost absorption opportunities. We believe our break-related business will exceed 300 million in annual sales above our fiscal 22 reported results within the next four to five years. We will continue to expand sales in Mexico with multiple product lines as our customers experience increased demand for aftermarket parts, which currently includes rotating electrical, wheel hubs, brake boosters, and brake master cylinders. All major automotive retailers are continuing the rollout of our rotating electric benchtop tester, and we expect sales from this opportunity to reach a cumulative $80 million in the next four to five years. We also expect additional revenue for maintenance and add-on services. Our electric vehicle contract testing center in Detroit, Michigan continues to attract customers, including a leading agricultural and construction equipment provider and leading EV automotive manufacturers to support the design and development of electric vehicles. This contract testing is an initial entry into software as a solution. In short, we are well positioned to address both the internal combustion engine market and the emerging electric vehicle market with product functionality and applications across both markets. We expect continued strong demand for ICE, internal combustion engine applications, for decades, notwithstanding electric vehicle growth. which still represents a small percentage of the overall car park. In summary, we have a broad line of non-discretionary aftermarket parts necessary to service the car population of approximately 285 million vehicles on the road, representing an uptick based on recently issued industry data. We remain excited about our opportunities, notwithstanding the headwinds we experienced for the quarter. I can assure you we are working diligently every day with our customers and suppliers to meet the demand for our products, as well as addressing the inflationary pressures we are all facing that I touched on earlier in my remarks. I will now turn the call over to David to review our results in greater detail.