Motorcar Parts of America, Inc.

Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Motor Car Parts of America, Inc. Fiscal 2025 First Quarter Conference Call and Webcast. 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'd like to withdraw your question, again, press the star and 1. I would now like to turn the call over to Gary Mayer, Vice President of Corporate Communications and Investor Relations. You may begin.

Thank you, Kayla. Thanks, everyone, for joining us for our call. Before I turn the call over to Selwyn Jaffe, Chairman, President, 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 made during today's call. These 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 revise or update any forward-looking statements, whether as 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 various filings with the Securities and Exchange Commission. I would now like to turn the call over to Selwyn and begin today's call.

Thank you, Gary. I appreciate everyone joining us today. We were encouraged by our record sales performance for the quarter and remain optimistic about the quarters ahead and achieving our full year targets. For the quarter, our gross profit and gross margin metrics improved, which David will discuss in more detail, and we expect to realize further improvements through solid sales performance combined with ongoing strategic initiatives to further enhance operations. Unfortunately, our results for the fiscal first quarter were impacted by a sharply unfavorable non-cash mark-to-market foreign exchange loss from the lease liabilities and port contracts due to a strong dollar versus the peso. From an operational standpoint, results were impacted by one-time severance expenses related to strategic cost reductions. This initiative will generate expected annualized savings of approximately $7 million. Approximately 90% of this savings will reduce cost of goods sold, and the remainder will reduce operating expenses. This action was part of a multi-year relocation process to reduce cost, utilizing our new low-cost global footprint, and facilitate further operating efficiencies. We are actively exploring additional initiatives to further reduce cost of goods sold. I should note our results for the quarter reflected some industry choppiness, with the month of June regaining some momentum. This bodes well for the current fiscal second quarter, which historically is stronger than the first quarter. We are off to an excellent start for the second quarter with a strong July. We operate in a market where deferring repairs is not a viable option for too long, other than rotating electrical, which you can't defer at all. Hot weather will certainly hasten the failure of all parts that we offer. Let me take a moment to highlight a few key near-term strategic initiatives that support our favorable outlook. As I noted during our year-end call, volume increases in our break program will help absorb overhead, which in turn will result in accretion to overall margins. We expect accelerating break-related product sales will lead to more opportunities to take advantage of efficiencies from both purchasing and production. As many of you know, we started our brake caliper business as a greenfield operation in August of 2019, and today we are one of the leading suppliers in this category. As our newer brake product lines gain traction, we expect more efficient inventory turns to further support initiatives to neutralize working capital. Second, with respect to generating cash from working capital on a year-over-year basis, we are focused on inventory and accounts payable. which David will expand upon shortly. We have implemented processes to extend days outstanding on accounts payable and to enhance inventory efficiencies. These processes are still in their early stages. However, we are recognizing meaningful benefits, in particular with our supply chain finance program. We continue to evaluate allocation of capital to maximize shareholder value. The first quarter working capital ratios were somewhat negative, though we are confident that working capital ratios will move in the right direction, as David will discuss further. Another positive ongoing initiative is the acceleration of our new part number introductions, targeting at least 800 per year, as supported by the introduction of more than 150 new part numbers last month, covering an additional 49 million vehicles on the road. This maintains our leadership position in the categories we supply, meets a consumer need, and adds organic growth to our sales base. Not only are we growing organically, but we have secured meaningful new business commitments across all of our product lines. With respect to our diagnostic business, as I've previously mentioned, we expect to sell more than $100 million of diagnostic equipment within the next three years, with further opportunities pending. We expect additional service revenue as more testers are deployed. We expect more opportunities outside North America as the business evolves. With regard to our heavy-duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supplying alternators and starters to our channel partners who are leaders in the heavy-duty aftermarket segment. Our growth opportunities continue to gain momentum across multiple platforms, such as agriculture, Class A trucks, refrigeration, construction, material handling, and transit slash motor coaches. Dixie is also evolving as an important supplier to the heavy-duty original equipment manufacturers. As the new fiscal year evolves, we remain focused on sales, profitability, and neutralizing working capital. We are confident that our sales and profitability will grow organically and with our strong new business commitments, as I mentioned earlier. This, along with numerous efficiency initiatives, will enhance profitability and improve cash flow generation. From a strategic standpoint, we are continuing to leverage our strengths, including great products manufactured at state-of-the-art facilities, solid customer relationships, industry-leading SKU coverage, not to mention our value-added merchandising and marketing support. I should mention that we opened a new facility in 2024 in Malaysia to support manufacturing of wheel hubs for direct shipment to our customers, which is expected to enhance our competitive position. Our hard part sales in Mexico continue to gain momentum as we experience increased demand for our aftermarket parts. The rate of growth in this market is exciting, and we are well positioned to utilize our footprint to meet the growing demand. We are focused on increasing share in this region. We continue to benefit and grow sales via relationships with U.S.-based retailers who are gaining a presence in this emerging market. Favorable long-term industry dynamics continue to bode well for the company, and we are extremely well positioned for sustainable top- and bottom-line growth in our hard parts business, as well as our testing solutions business. We are focused on growth across all product lines, including our quality-built brand, which is gaining market share within the professional installer market. This includes our most recent additions to our portfolio of brake calipers, brake pads, and brake rollers. I reiterate, as we grow these product lines, we expect overall gross margin accretion. In short, we have the capacity and capabilities to support our customers' increasing demand across multiple lines. Our expected positive cash flow on an annualized basis will enable us the flexibility to further pay down debt and pursue other related opportunities to enhance shareholder value. In conclusion, non-discretionary aftermarket parts of the internal combustion engine market will be here for decades. An outlook supported by recently updated industry data showing that the average age of vehicles is now 12.8 years. It is worth highlighting that 98.8% of the U.S. car park is comprised of hybrid and internal combustion vehicles. One of our key competitive advantages is our ability to offer a broad range of applications for all makes and models. We remain focused on newer model applications and our ability to meet expected demand as these vehicles enter the replacement market. Finally, before I turn the call over to David, I'd like to comment on our recent announcements regarding Jack Lebo and Anil Srivastava, who are standing for election to our board at the company's annual meeting next month. Their impressive backgrounds and qualifications are detailed in the press releases and proxy statements. Let me just say, both of these candidates offer unique perspectives and insights that will complement our commitment to driving shareholder value at a particularly exciting point in the company's history. These two fine candidates are indicative of our commitment to our board refreshment program. I encourage everyone to read their biographies and support the nominees. I'll now turn the call over to David to review our results in greater detail.