Motorcar Parts of America, Inc.

Good morning and welcome to the Motorcar Parts of America fiscal 2023 and fourth quarter and year-end conference call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Gary Meyer, President of Communications and Investor Relations. Thank you. Please go ahead.

Thank you, Julianne. Thanks, everyone, for joining us. Before we begin, and I turn the call over to Selwyn Jaffe, Chairman, President, and Chief Executive Officer, and David Lee, our 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 the company. 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 Motor Car Parts of America and are subject to change based upon various factors. In particular, expectations about future, 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 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 company's various filings with the Securities and Exchange Commission. With that said, I'd like to begin the call and turn it over to Sal. Thank you, Gary.

I appreciate everyone joining us today. We achieved record sales levels for the fourth quarter and fiscal year, reflecting the resumption of more normalized ordering patterns by certain customers as well as continuing favorable industry demand for our non-discretionary automotive or aftermarket parts. The outlook for our product demand is positive as we enter our new fiscal year. Equally important, I must recognize the contributions of all of our team members who are focused every day on providing the highest level of service to our customers. With regard to gross margins, we expect improvement as fiscal 2024 evolves. As sales and production volume increases, we expect incremental benefit from increased overhead absorption. Due to the increased demand for our products and the easing of our inventory reduction initiatives, we are starting to increase our production levels. In addition, we will realize the full benefit of price increases that have already been approved, which will roll out throughout this fiscal year and enhance our gross margins. We anticipate benefits from order volume improvement, operating efficiencies, and cost reduction initiatives that we continue to implement across the entire organization. These initiatives include an ongoing company-wide strategic analysis of opportunities to realign our resources and cost structure to enhance profitability and cash flow, both key areas of particular focus for our team and board in fiscal 2024. Higher interest rates continue to have a significant impact on profitability. primarily due to rates related to long-established customer supply chain finance programs. Fortunately, we have made progress in getting relief from our customers, and we expect to realize benefits as fiscal 2024 evolves. We are a major supplier of critical non-discretionary automotive aftermarket parts, and we are working with our customers to address the sharply higher interest rate environment, which impacts both MPA and our customers, as well as all companies doing business with the leading automotive retailers. It is an industry challenge that requires practical solutions and further action. Now let me address our outlook. As stated in our news release this morning, we expect sales for fiscal 2024 to be between 720 and 740 million, representing between 5.4 and 8.3% year-over-year growth, respectively. We expect to see margin accretion from efficiencies related to the higher volume and cost-cutting initiative, as I noted earlier in my remarks. With respect to cash flow, our expectation is to continue to make progress to generate cash. Operating income is expected to be between $60 and $65 million before the non-cash foreign exchange impact of lease liabilities and forward contracts. the non-cash impact of revaluation of cores on customer shelves, and supply chain disruptions. The company estimates other non-cash items will be approximately $16 million, including core and finished goods premium amortization and share-based compensation. And cash expenses, anticipated to be approximately $2 million for special EV-related research and development expenses impacting operating income. The company estimates depreciation and amortization will be approximately $12 million. In summary, operating income before the impact of the non-cash and cash items and before depreciation and amortization, as previously mentioned, is expected to be between $90 and $95 million. In short, it is a top priority in fiscal 2024 to enhance our gross margins and cash flow. Our multi-year strategic initiatives and favorable industry dynamics bode well for the company, and we are extremely well positioned for sustainable top and bottom line growth in our hard parts businesses, as well as testing solutions. As you know, at the end of the fiscal year, we announced a $32 million strategic convertible node investment to enhance our liquidity and capital resources at a pivotal point in the company's evolution. This strategic investment complements management's ongoing goals and objectives, while enhancing the company's working capital to support building sustainable shareholder value. We not only value the investment, but also the participation of Bison's co-founder. We remain diligently focused on achieving our near and long-term financial targets. Now let me expand a bit further and discuss the other drivers to support our ability to achieve our longer-term financial targets. and why we are enthusiastic about our market position and the opportunities moving forward. We experienced meaningful traction in fiscal 2023 with customers and consumers since the launch of our break-related product lines, with operating efficiency improvements continuing as volume increases and with fixed cost absorption. We are on track to exceed our previously stated goal of achieving $300 million in annual break-related product sales over a several-year period since their launch. We are continuing 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 master cylinders. We are receiving increasing interest in orders for our test solutions and diagnostic equipment, which includes our benchtop testers for alternators and starters, from major retailers and major global automotive aerospace and research institutions for EV mobility product development and design and their related services. We are returning inventory levels to more normalized levels following a strategic buildup to meet demand during recent global supply chain challenges, notwithstanding certain brake-related inventory product requirements. These efforts throughout fiscal 2024 will greatly enable us to enhance our cash flow targets. In short, we continue to be well positioned to address both the internal combustion engine market and the emerging electrical vehicle market with product functionality and applications across both markets. Industry data continues to support our view that strong demand for internal combustion engine applications and our broad line of non-discretionary aftermarket parts will be here for decades. notwithstanding electric vehicle growth, which still represents a small percentage of the overall car park. Despite the global headwinds during the past few years, we, in many respects, have emerged stronger and better positioned to capitalize on our strengths. I will now turn the call over to David to review our results in greater detail.