Good day, ladies and gentlemen. And welcome to the Motorcar Parts of America Fiscal 2019 First Quarter Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this call will be recorded. And now, I would like to introduce your host for today's conference, Mr. Gary Maier, Investor Relations. Please go ahead.

Thank you, Cathleen. Thanks everyone for joining us. Before we begin and I turn the call over so Selwyn Joffe, Chairman, President and Chief Executive Officer, and David Lee the Company’s Chief Financial Officer. I would like to remind everyone of the Safe Harbor statement included in today's press release. Private Securities and Litigation Reform Act of 1995 provides the 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 Motorcar Parts of America. Actual results may differ from those projected in these 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. 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 a more detailed discussion of some of these 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 would like to begin the call and turn the call over to Selwyn Joffe to begin.

Thank you, Gary. I appreciate everyone joining us today. Before I discuss the positive outlook for the balance of the fiscal year, I will address our first our first quarter, which we mentioned will be weak during our fourth quarter conference call. Most of the negative factors for the quarter related to future growth and we are at an inflection point for resumed growth and profitability. From a sales perspective, we have good visibility for the next three quarters and we expect a record for the next nine months and on. In addition, management has the clear bridge from the reported gross margins to the guided gross margins. In fact, we are reaffirming our annual adjusted sales growth at the high end and adjusted gross margins for the year to be approximately at the mid-range of our guidance. We expect our sales growth rate for the balance of fiscal 2019 and fiscal year 2020 to be in the double digits. I will address the quarter first and then move to the strong outlook. The following 10 items significantly affected our first quarter. I mean firstly, lower sales due to very soft start to the quarter, particularly in April. I might add now that we are off to a great start for the second quarter. Second, significant stock adjustments related to new business and future upgrade business. Third, impact of core buybacks relating to new business; fourth, impact of cost relating to the transition of our distribution facilities into our new building, which is beneficial for our growth and efficiency. Fifth, cost in connection with launching our new product lines which will be launched in this fiscal year. Sixth, lower overhead absorption as a result of lower sales, which should now reverse. Seventh, non-cash expense related to the lower cost or…

Thank you, Selwyn. I will review the financial highlights for the fiscal 2019 first quarter. Before I begin, I encourage everyone to read the 8-K filed this morning with respect to our June 30, 2018 earnings press release for a more detailed explanations of the results, including reconciliation of GAAP to non-GAAP financial measures and the 10-Q, which will be filed later today. Net sells for the fiscal 2019 first quarter were $92.6 million compared with $95.5 million for the same period a year earlier. Adjusted net sales for the fiscal 2019 first quarter were $93.8 million compared with $95.9 million a year earlier. The adjusted net sales decrease of approximately $1.7 million was due to the following. Rotating electrical net sales decreased $2.5 million to $72 million for the first quarter from $74.5 million for the prior year. Wheel hub assemblies and bearings net sales decreased $206,000 to $17 million for the first quarter from $17.2 million a year earlier. Brake master cylinders net sales remained flat at $2.5 million for the first quarter. Additionally, the combined net sales for the first quarter for brake power boosters, turbochargers and testers increased $1 million to $2.2 million from $1.2 million in the prior year. There were no tester sales in the prior year. Gross profit for the first quarter was $17.3 million compared with $26.7 million a year earlier. Gross profit as a percentage of net sales for the first quarter was 18.6% compared with 27.9% a year earlier. Gross Margin was impacted by, customer allowances related to new business, transition expenses in connection with the expansion of our operations in Mexico, non-cash lower of cost or net realizable value, reevaluation of cores that are part of the finished goods on the customer shelves and other factors further discussed below.…

Great, thanks David.

[Operator Instructions] And our first question comes from Matt Koranda with ROTH Capital. Your line is open.

Hey guys. Good morning thanks. I guess the outlook. Your positive outlook sort of on the high-end of your former revenue guidance. Looks like it does require sort of north of 10% revenue growth for the remainder of the year if I kind of evenly split it. What kind of visibility do we have into replenishment or restocking orders and just kind of talk about sort of confidence levels there, and then maybe despite product category if you can break it down. What is sort of driving the majority of the growth is it really going to be more rotating electrical or are we looking at a pickup in some of the distribution products.

Yes. So let's do a visibility first. And then we can do a products. Let me do products first actually. First of all rotating our electrical by far the launch of product line. And so you are going to see a significant amount of growth in rotating electrical. The growth that we are going to experience and our experience and right now is an increasing replenishment rates across the board in addition to market share gains. So the market share gains are incremental to that. So I think what we are seeing right now is really an increase in our base business, replenishment and the potential for new update orders that are coming from that and that applies across the board to hold that product lines that are in the systems now. I think as you get to the fourth quarter, you will see the effects more clearly on market share gains as we ramp up and changeover all the new customers that we have. So, visibility I can tell you we are shipping every single day at record numbers. Our order book is very, very, very strong. And we feel very confident about where we are heading for this year and quite frankly for next year. So I think we have been through the inflection point. I think the weather is particularly helpful. I think the aging of the fleet if you look now the next three years eight to 11 your cars there is going to be an increase in the number of vehicles that go into the eight to 11 year category. Where there hasn't been in the past and that is going to increase replenishment means. And certainly failure rates are hire in that is that set. And then the 12 plus year category [indiscernible] continues to go up. So I think personally the outlook for MPA over the next three years is exceptionally strong, and quite frankly, I feel that way about our industry. So couldn't be more confident of where we are today looking forward.

Okay. And just the one thing I think you didn't touch on was sort of cadence throughout the year and just where we are going to see the strongest growth or is it pretty evenly split in terms of just growth trajectory-like orders?

Yes. So, I think, I tried to mention it, but I will repeat it. I think what you are seeing today in this quarter will be all replenishment and it will be significant growth, but I think it will accelerate as we get through to the end of the year as well, because we will, hopefully continue on with the same product lines and same distribution point growth throughout the year. And then we will see the new market share kick in, which really is towards the later end of the year, which is the latter half of the third quarter and certainly the fourth quarter should be - our run should be pretty spectacular going into the next year.

Okay. And then on margins, I know you guys are dealing with fixed-cost absorption, obviously, freight was called out as well, but I think you guys also called out stock adjustment accruals for, as part of the headwind this quarter. Can you just dumb that down for a little bit? I mean, is that just essentially you are accruing the lower gross margin assuming that you are going to get returns and wanted and that those will reverse once you do the stocking updates. I mean, help me understand the dynamics there and is that a big portion of the year-over-year headwind and margins?

Yes. I think that is a part of it. I mean, I think all of the 10 points David can classified and the size, but just a dumb down the stock adjustments, accounting policy and its most simplest terms is to anticipate what the stock adjustments will be coming in the future and accrued for them now. So we look out six months, we have to make what we anticipated stock adjustment number to be and we take the hits for that. And the update order that usually not usually, always goes with the stock adjustment comes at a later time. So you have expenses being recognized now for revenue that is going to come in, in the future. I mean I just want to just to be sure that we have, when you look at the margin for the first quarter that we have experienced that we had a very detailed reconciliation and bridge from the reported margins where we expect our guidance to be and we feel comfortable we will be there.

Okay. And then I guess to scrap copper factor into the margin issues at all in terms of the headwinds, I mean I don't know if you called that out but just in terms of the pricing degradation there, does that, is that meaningful to your margins in any particular way or is that not really going to be that meaningful?

We think that there is upsides to the margins if coppers - we have sort of got accustomed to the tuff scrap markets certainly over the last two year or 18 months so, we have no anticipation of increases in copper - rates. But certainly the downside, we don't believe will affect our margins if there is a downside.

Alright. And then last ones is just a balance sheet question. I know you touched on, you are probably have more on the queue. But just wanted to get a sense for I mean, there is a big move of long-term core inventory and it looks like maybe it went to just the current inventory net item, but just wanted to get a sense for sort of the movement there and how that sort of works with ASC 606 there?

So, let me introduce Kevin Daly, who is our Chief Accounting Officer is on the call with us and he can walk you through some of the classification of the balance sheet, the reclassification of balance sheet which by the way I thing is very positive. So Kevin, why don't you.

Okay, just to give you some background Matt. The important sections of the new revenue recognition requirements as they impacted MPA had to primarily do with the previous breakout between unit and core in our financial statements. And that net of core accounting that we use to use was no longer going to be allowable under the new revenue recognition rules. Because the unit and core were deemed to be one performance obligations. So once you delivered a product, which included both the unit and the core, those were deemed to be the satisfaction of one performance obligation and therefore you had to record the revenue at that point in time. So that was some of the impact on the P&L. In addition, the contract identification, once you identify that you have a contract with a customer. That assumes that the collectability of any revenue from that customer. And therefore we did not have to wait for reconciliations to record that revenue was now basically an estimate. In regards to the balance sheet, the reason, the balance sheet items also changed is because we are in fact looking at cores and units as one item. And therefore when items are moved or removed from our finished goods inventory and put into cost of goods sold, they are coming out of one account, the inventory account that is on our books. And that is one of the reasons why the items that were in long-term core county were moved down to the regular inventory accounts. And the other accounts that were established the contract asset and contract liability accounts, which are required under the new revenue recognition guidance are established to basically record any type of liability that you may have under that contract with the customer and any related asset related to that liability that you might have with that customer. So, for example, once we send a core to a customer and he is going to return it. We have to record a liability in order to show that we have that liability to repay the customer for the core, but we also record a contract asset for the value of that core on our books. So that is what you are seeing in terms of movement. The long-term core asset that used to be on the books is now divvied up into contract assets and regular inventory. And the contract liabilities comes from what used to be a contra accounts receivable accounts plus the liability for payment for core that are going to be returning from the customer. So that in a minimum of words is basically what happens.

Excellent number was going to be. But anyhow, hopefully, but we can take it offline, I think it’s mostly [indiscernible] and we will be happy to take it offline. And we have a lot more detail in the 10-Q. and we are going to be positing a new video on all of the accounting on our website, so that is pending within the next week.

That will be helpful. Just one clarifying thing on that though. I mean we are going to be seeing I guess maybe, are we going to get a lift to the revenue line now then? Because we are going to be essentially including cores instead of selling product net of core we are now core so is there an uplift.

So just to clarify that because I want to stop everybody there. I think we still only record revenue net of core. However, if there is no core return, we will have announcement for the underwritten and that will be part of the revenue. It's still very nominal and actually in fact its I think at the end of the day no difference on the revenue recognition.

That is correct.

Okay, alright. I will take the rest offline, guys. Thanks.

Thanks.

Thank you.

Thank you. And our next question comes from Brian Nagel with Oppenheimer. Your line is open.

Hi. Good morning thank you for taking my question. So the question I have I guess somewhat of a follow-up to the first question, just with regard to the bridge on the top-line. And what we saw here in fiscal Q1 is sort of guidance you reiterated and I guess potentially even up to little bit to the full year. But as you look at the first quarter, you called out weakness in April well documented as a result of weather. But can you talk a little bit more about just the trend we saw through fiscal Q1 and maybe to the extent that in of itself gives you confidence to as you look towards the balance of the year.

Yes. And I think that is a great question. I think a number of other industry players have talked about a quarter little bit - the previously quarter. We definitely have sequentially build and I think we mentioned. So April reflecting almost very bad month for us. I mean for whatever reason I mean the industry quoted out as being a bad month. I think it was one sort of pointed to the weather there. And I think also as we go through the quarter, it probably showed a little worse than it would have based on the timing of orders and some revenue recognition. Some of the orders got pushed out which means they couldn't be recognized in that quarter they will be recognized in this quarter. But having said that, just the volume of reorder and the shared numbers and units of demand, I think the customer base in general is recognizing that inventory needs to be in place, so that they see as a resurgence. So we are seeing enormous amounts of volume coming back towards the product line. And I think the fundamentals are just stronger across border. I don't want to talk to our customers. But certainly our order demand just sequentially it continues to be up. We had a record July, and I would tell you now that we are in the market recruiting significant amount of new people, because we anticipate even continuing growth in revenue base. I would say that the second quarter is strictly almost no new business in this quarter and almost no new business reflected in that. The third quarter will have a little bit of new business reflected and the fourth quarter will have a lot of new business. But our expectation is organically the size of the new business that there is definitely been an inflection point. And I think the confidence level in the market in general seems to be getting stronger.

Got it that is helpful. So the second question I have the separate topic. As you mentioned in your prepared comments in tariffs and you said that pretty - that you would pass along higher costs. The question I have, is that just looking forward, if you actually now started to use a couple some tariffs and right you know putting this in place?

I'm sorry, can you repeat that question? You faded out, I apologize?

Well, the comments you made in your prepared comments regarding tariffs. You indicated that, [indiscernible] pass along or trying to pass along any costs associated with tariff. The question I have is in your business now seen that yet or is that just all looking forward?

I think that is all looking forward. It's just beginning now. So it's looking for I think with the new proposed tariffs, I think everyone in the industry is going to be subject to those. Certainly anyone who is bringing products in China, which is the vast majority of the industry and I don't think there is any choice but to have to pass it through, because these are significant tariffs. And the whole supply chain, there is not going to be able to digest them. So I think that the expectation is that these tariffs will be passed on I think there have been some ready, some of that has begun ready and we expect to do it.

Thank you.

Thank you. We have a question from Scott Stember with CL King and Associates. Your line is open.

Good afternoon guys. Quick question. Obviously, it sounded the replenishment rates are doing just fine. I know that last quarter or the quarter before that there was some issues with inventory optimization, is what you are seeing right now net of any inventory optimization or the inventory optimization process seem like it's certainly in this later innings right now?

We are seeing that net of inventory absolutely - I mean, there is numbers we are talking about the net of that, any adjustments or returns. It isn't the later innings, I do think that there is little bit still going on. And but I think as we go down through the year, that will be further behind us. I think it gets to more normal levels. Again, the fundamentals look - I don't want to again, get ahead of myself on the industry. So I can just comment about our product lines, but our product lines, we are seeing significant increase demand on all of our product lines. And again, I always go back to the statistics, sometimes you can be wrong short-term on statistics, but I think long-term statistics don't lie. And that car population is growing, and the cars that are in higher failure rate, categories or growing and the failure rates in those not failure rate categories are growing and even though we have had higher fuel prices, miles driven is growing. And so statistics don't lie at the end of the day. And so we have invested based on that and I think that the fundamental base investments we have made in the future are going to result in nice returns.

Got it. And as far as cadence, you did a good job of explaining. It sounds like for sale that even with the second quarter being more driven by replenishment orders that you could be a low double-digits across the board I guess throughout the quarter. But when it comes to the gross margin, you talked about being towards the mid-point for the full year. Is that the same case as far as gross margin performance or is there going to be a gradual ramp up throughout the year?

There will be a ramp up as well throughout the year, because just the volume - we have just got our infrastructure now to go to the next level. I mean we certainly focus on reaching a $1 billion level, certain in sales in the minimum evaluation. And so we have begun paving away with infrastructure that will lead to - that will enable us to get to these growth rates. And so we have new products coming. And so we think that as well, that is not in our guidance numbers now, so that will be incremental. And so as we are able to ramp up the sales volume through an increased size infrastructure, the overhead absorption becomes more efficient, shipping becomes more efficient where you can put more product and full truckload into model truck, it’s model units. So everything that we do as we scale through the next phase of our growth and absorb right infrastructure, both from a human capital and from a material capital perspective is kind of help the profitability. Now I will portion one thing is that we are going to have product mix variations and that may affect the margins that on an overall basis, we expect margin accretion from our fundamental infrastructure absorption.

Got it. And maybe just going to tariffs, a little bit more detail under that. It sounds like you are referring to the latest round, I guess of the $200 billion worth of goods, 25% that was proposed, but under what is actually going into legislation at this point, which I think is 232 any product coming from China. How is that impacting you right now yet? And if so, what maneuvers are you putting in place to patent price increasing to potentially off that?

So yes, some of it is now turning to, some of the first wave does affect sounds our product, it is not that material, but it is real expense. I will tell you that our footprint and our efforts going forward, we think we are well situated to deal with tariffs on a more permanent basis as, if they remain as a permanent basis and in terms of how we will handle that and transition away from and minimize the impact from that, perhaps we will say it that way. So I think we have a very good footprint in a very good plan for that. The second wave affects us more significantly, that really is with a rotating electrical again. So that they were on the list for the second wave and the first wave. Rotating electrical has been very limited effect on us. And again, I think if you look at our footprints, I think we are in a leadership position to be able to facilitate supply and minimize the tariff impact besides passing it on. But we certainly want to be the value-add to the consumer at the end of the day, which means being value added at our customers. And so we need to be very aggressive and making sure that how we source product, how we assemble products, how we add value to products and how we distribute the product is efficient based on whatever the current legislation will be at the time.

Alright. Just one last quick one as far as pricing goes. We talked about freight, interest rates obviously going up but you are factor in your interest expense line. But could you just talked about the process of working with your customers on price to offset this in the future, is any of that within your guidance at this point? And that is all I have. Thank you.

So the guidance does not include patent price increases other than for tariffs. Our customers are tough, I’m sure they are listening in. So they don’t have to panic. No our guidance includes stable pricing where we are today. It includes the existing freight rates, it includes existing interest rates even though we don't guide on net income, but existing interest rates is really where we open for. We are making significant assets and that is our new distribution warehouse to consolidate freight make it more efficient. We think freight is a little more concerning to us as near-term. And then I said the near-term on the next nine months, because of two things capacity issues primarily and secondly fuel cost. I think capacity issues generally have taken place or neutralized with supply and demand. So I think as more capacities demand and I think the industry will finally catch up to capacity and we simply believe that will be the case. The question is what fuel prices will do due to the freight. We are looking at significant more consolidation of freight for our smaller customers in particular who can't because sometimes you saw a truckload of product on their own. So single approach is what is going forward and we get - transitions will help us to be more efficient on the freight. But guidance in the margins includes the risk factor of the freight as it stands today now if it gets much worse, we will keep you updated. But we think it's pretty bad right now and we think it will be stable at these levels for a little bit of time.

Got it. Thanks so much.

Thank you.

Thank you. And our next question comes from Chris Van Horn with B. Riley FBR. Your line is open.

Good morning. Thanks for taking the question. Good. So can you talk a little bit about the new distribution center? It sounds like it was a little bit of the headwind in the quarter. Just was curious how looking at the next couple of quarters is there continue to headwinds? And then ultimately what is the operating efficiencies that we can maybe quantify around this?

Yes that is a great question. So the first phase of the new distribution center has been completed and will be substantially completed. And that is moving, we taking a electrical into that distribution center which is by far the biggest part of the asset. We expect to transition all of the other product lines into that distribution center. And that is probably going to take another nine months before we get through all of that. So we will call out those expenses as we go through, there will be more expense related to that transition. Once we get into that building, we think that there is significant savings coming from that. You know overtime, certainly as high as $5 million on a net new basis, but it will take us a little bit of time to get there. But that is certainly for the next fiscal year in terms of seeing the benefits of it. So we are excited about that as we make space in our other facilities that we are moving out. It enables us to extend our new product development. So not only do we have products lined up to launch this year, but I think we are going to be very hard and that goes into the following fiscal year with additional new product lines. So overall, we call it internally our footprint of the future. And so significant change to how we operate, and we gone through that now which has of course a little bit of noise, but quite frankly we are calling it out and I think the hardest part is probably gone at this point. So hopefully that answers your question. I'm rambling a little.

Yes, no, no, absolutely. Thank you so much. And then you have had success in new product wins, and I was just curious what you are seeing in the pipeline for some of the new products and maybe even taking share and rotating electrical? Just curious on the update of the pipeline for those.

Yes. So I think we had announced that we had about $40 million in analyze the business coming on board this fiscal year. And I will just clarify appointment so I think that is one of the last questions that came through is how we are going to experience double-digit sales? I will tell you that as we go down sequentially each quarter, that the sales number will increase sequentially. The this quarter we are in, we certainly expected a record quarter and a significant increase in sales, but I think you will see it much greater than the next quarter and even the following quarter. So, and that relates to when we bring on a new business, and I will tell you that we haven't stopped. I would say that the momentum in every one of our product categories continues to be very positive for incremental new business wins. And our challenge today is making sure we can manage customers expectations and making sure we live up to our obligations and while we scaling very quickly we are also cognizant to make sure that our service levels are excellent, so it's controlled. And again we are excited, if you sit in our meetings internally, you read the numbers for this first quarter and you sit in the meetings and look at the outlook, it's two different things and we are happy that this quarter is behind us at this point, and we are excited about that future quarters.

Got it, thanks for that color. And then final one for me. Stock has been little volatile relative to your peers. I think you are treating it as significant discount and now you have increased your share repurchases, giving the outlook, would you be able to, any comment on how you see that playing out from the share with repurchase perspective?

Yes, so I think the board recently increased the authorization. We are very serious about using that authorization. We are not doing it for optics, we think we have a great value in our stock and we intent to buy back stock. Obviously we are going to be calculated and evaluate the appropriateness, but I could tell you that as we sit here today, we are excited of the window to begin opening so can buy back stock. One other thing, and perhaps I have another from where we talk to, and I think this overlaps with a lot of questions is the diagnostic business that we were in and again I publicly welcome Bill and thank the great operating team that he has at D&D electronics, but we really see some nice opportunities unfolding over the next three years in the electric vehicle market for us. I mean, besides the regular internal combustion engine diagnostics, which continues to be exciting to us, but we think that the development phase of electric vehicles throughout the world plays right into the strengths of the D&V diagnostics capabilities. So we are excited to have what we think is a great team in place. We are going to be adding people to that team, and we expect D&V in the years ahead as well to be a big contributor to our results. I mean they are not as significant in this year, but certainly are growing nicely that in the years to come, I think we have got something really special there.

All right, great. Thanks so much for the color.

Thank you.

Thank you. And I'm showing no further questions at this time. I would like to turn the call back to Mr. Selwyn Joffe for closing remarks.

Thanks Catherine. Okay. Well, in summary, as I think you have all heard, we are at an inflection point for significant growth. While we had expenses relating to our growth, I believe there are a necessary part of our path to drive significant shareholder value over the next five years. As we noted in today’s press release, we increased our share repurchase program authorization to 37 million from 20 million, to $25.5 million remaining available. And as always, I want to thank all our team members for their commitment and their customer centric focus on service and for the exceptional pride in all the products we sell and the great customer services that we provide. Their commitment to quality of service is also reflected in the wonderful contributions that they make to their communities now society and we really appreciate that. And we appreciate everybody’s interest and your continued support and thank you again for joining us for the call. And we really look forward to speaking with you when we host our fiscal 2019 second quarter conference call in November. And obviously at the various conferences that we attend in the interim. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.