Gary Maier Selwyn H. Joffe - Chairman, Chief Executive Officer and President David Lee - Chief Financial Officer.

Jimmy Baker - B. Riley Caris, Research Division Philip Shen - Roth Capital Partners, LLC, Research Division.

Good day, ladies and gentlemen, and welcome to the Motorcar Parts of America's Fiscal 2014 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Gary Maier of Investor Relations. Please go ahead..

Thank you. Thank you, Kate. Thanks, everyone, for joining us for the call. Before we begin and I turn the call over to Selwyn Joffe, 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 the course of today's 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 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. 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 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. We'd now like to begin the call, and I'll turn it over to Selwyn..

first, the wheel hub assembly contains the anti-lock braking mechanisms. This technology has become more mainstream on vehicles during the last decade, and these vehicles are reaching prime replacement age for wheel hubs.

Secondly, more recently, anti-lock braking technology is being applied to the rear wheels, which should enhance the category growth rate. This category has similar failure rate characteristics as rotating electrical. As cars age, failure rates grow exponentially.

Industry research indicates that this category will grow at a 7% annual compound rate as the car population with anti-lock brakes grows and ages. As we announced this morning, we reported sales for the quarter of $50.2 million for rotating electrical, representing a 7.4% increase from the same period a year ago.

Adjusted EBITDA for the quarter increased approximately 25.6% to $9.8 million, including the adjustment for warrants and forward currency contracts and certain expenses related to our previous subsidiary as detailed in today's financial release.

Our liquidity remains strong, especially in light of the tax refunds and credits of $30 million-plus that we expect to receive. I'll turn it over to David now who will discuss our financials..

warranty and stock adjustment accruals of $712,000; the cost of stock adjustment accrual of $354,000; previous subsidiaries-related financing, severance and other fees of $2.1 million; FAS 123(R) share-based compensation expense of $125,000; and noncash mark-to-market loss of $2.3 million related to the change in the fair value of warrants and forward foreign currency exchange contracts; sales and marketing expenses of $21,000; consulting expenses of $75,000; and revolving credit line interest of $189,000 related to previous subsidiaries and a 39% tax rate.

So by adjusting the above-mentioned items from the reported net income of $103,000, adjusted net income was $3,242,000 or $0.22 per diluted share for the 3 months ended June 30, 2013. Additionally, at the bottom of the exhibit, there is a calculation for EBITDA for the 3 months ended June 30, 2013.

Starting with reported operating income of $4,102,000 and adjusting for the impact of the previous subsidiary-related financing, severance and other fees and noncash items as previously mentioned, and depreciation and amortization expense of $733,000, adjusted EBITDA is $9,784,000.

The adjusted EBITDA of $9,784,000 is also calculated by starting with adjusted net income of $3,242,000 and adding income tax expense of $2,073,000, interest expense of $3,736,000 and depreciation and amortization of $733,000.

Exhibit 2 represents the adjusted calculations for the prior year quarter ended June 30, 2012, showing adjusted earnings per share of $0.14 and adjusted EBITDA of $7.8 million. I will now turn the call back to Selwyn..

Thank you, David. Going forward, MPA will continue to focus on continuous improvement of our excellent levels of customer service, which enhances customer loyalty, brand equity and ultimately, shareholder value. We expect these fundamental qualities to translate well into our new wheel hub assembly product lines.

So we'll now open the call to questions. I'll turn it back to the operator..

[Operator Instructions] Our first question comes from the line of Jimmy Baker with B. Riley & Co..

First, what's a reasonable range of expected contribution for the full fiscal year from your new wheel hubs assembly business? And then, are you actually manufacturing that product or serving more as a distributor?.

We're in the distribution business, primarily with -- in a strategic relationship of a Chinese supplier. And the margins there are generally lower when you're in the distribution business. Of course, expense is a lot lower as well. So that is a little bit of a different margin at this point.

And I think, looking forward, we should start seeing some impact from the wheel hub business this quarter. We've been quite successful in signing up business, and I think the -- again, I think I've mentioned this before but generally, distribution margin is in the 8% to 12% range. So I would assume the lowest for purposes of monitoring at this point..

Okay, that's helpful.

But just trying to gauge the size of the revenue contribution, whether you want to talk about it on a quarterly basis or for the full fiscal year?.

Yes. I think I'll be in a better position to give more accurate guidance at the end of this quarter. But we certainly expect that to be fairly significant, starting -- again, starting at the end of this quarter..

Okay, I suppose I'll wait on that, then.

So could you also just talk about how close you are to potentially refinancing your term loan? And do you expect to change the size of the balance of that when you refinance? And any preliminary expectations for the rate you could receive?.

Yes, so we're in the process. We are certainly looking for fairly significant rate reductions. I'm not sure what the timing will be. Again, it's fairly early in the process as we start reporting clean numbers now without the effect of the former subsidiary. But I think the savings are going to be substantial.

Outstanding debt, we'll -- again, we'll track the outstanding debt. We'd like to do -- to have adequate liquidity in the new facility or amended facilities so that there's no impact on operations. But from a net debt perspective, I don't think anything material is going to change..

Okay.

And so any near-term plans to repay or otherwise reconcile the loan and warrants from Fenco's former supplier?.

We're working through that as well. I mean, so we should be making progress on that sometime this quarter as well..

Okay. Last one for me, and I'll pass it off.

I'm just interested to hear your expectations for full year free cash flow? And if you -- if we should be thinking about a material impact to that from launching the new wheel hubs assembly business?.

Well, I think that near term, you've seen inventory growth, certainly, in our current quarter's numbers. There should be some marginal continuing inventory growth this quarter and then, we expect it all to reverse out. So we don't think that the cash effect during this fiscal year will be material from starting the business..

[Operator Instructions] Our next question comes from the line of Philip Shen with Roth Capital Partners..

I'd like to start off with O'Reilly. They posted some really nice Q2 results and a really robust quarter a couple of weeks back. They're talking about adding 190 new locations and 2 distribution centers in 2013. I think in the quarter, they posted same-store sales of plus 6.5%.

They actually indicated that they were investing a tremendous amount of capital on inventory, and that's a quote.

How did the positive Q2 results from them impact you in the quarter? And going forward, given your exposure to them, how do you see that benefiting your business?.

Well, let me just back up a little bit. I mean, we're not in a position to comment on any of our customer's performance. But having said that, our customer base, in general, have very favorable results. Register sales for our products were very, very good.

Demand for our products, based on all of the things that you read about, the various customers in the market remains very strong. And we expect a strong year in our categories this fiscal and certainly, in the next fiscal in terms of near-term outlook.

Information that O'Reilly and any of the other retailers publish I mean, certainly, is valuable in understanding our business but we really don't comment on any of our customers specifically..

That's fair. Obviously, there's a clear read-through for you. I just want to get a feel for it.

Can you give us a sense for -- in the Fenco bankruptcy, where are we in that bankruptcy? Has the trustee provided some initial or interim reports? And what's your latest expectation as to when you expect that process to wind down?.

Yes, that's a very good question. It's a very, very slow process. We're not aware of anything specifically from the trustee that's happening. It is in a liquidation mode. And that's as much as I really know at this point. We're waiting to see ourselves..

Okay. And congrats on the new wheel hub business, it sounds exciting and like it's a good opportunity. I was wondering if you might be able to provide and just touch more color beyond what you've provided.

So can you talk to us about, have you started to book -- I mean, do you have contracts in place already with customers? How do you expect that business to develop in between now and through the fiscal year?.

Yes. So the answer is yes, we do, we have some strong customer opportunities. We have begun shipping. We're ramping up that program right now. We certainly expect to see double-digit millions of revenue in this quarter in that category.

And I just don't want to jump ahead of myself, and I'd like to see -- get 1 quarter of stability in supply under our belt. And then, I think at the next quarter, I'll be able to give you a little more guidance. But our long-term outlook for this business is significant. We think we can be a fantastic supplier.

We think we have incredible technical expertise in-house, the infrastructure to monitor quality on a global basis. We have a pretty significant Chinese quality group in place, and we have our Chinese management team in place. And we think we'll offer a lot of value to the market in our supplier -- in this category.

And the category is a very vibrant category. It is probably less mature than rotating electrical so there's, I think, probably more upside in the growth rates that are being projected. And so we think over the next couple of years, this is going to be a major contributor to our business.

We don't expect to have any overhang in terms of the startup costs. There's as a positive return on invested capital. And it's a distribution business, so there's not massive amounts of capital expenditures involved with it. It's mostly inventory build.

Once we start moving that inventory out to the customers, you'll see a rebound in the amount of cash that's being generated from that business. So we think it will be cash-positive. We think it'll be profitable, and we think it will contribute accretively to our EBITDA. And we think it will be significant.

But I would like to hold off just for a quarter and just get a better idea of where we are as we launch the program..

And I'm not showing any further questions in the queue at this time. I'd like to turn the call back over to management for closing remarks..

Well, thank you, everybody. I appreciate everybody's interest in MPA. I can tell you we're focused on our business and committed to our customers in terms of excellent customer service, industry-leading fill rates and tremendous technical expertise in supporting our products.

And we expect that, that will translate into building shareholder value quite quickly. And we appreciate everyone's interest. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day..