Gary Maier - IR Selwyn Joffe - Chairman, President & CEO David Lee - CFO.

Matt Koranda - ROTH Capital Partners Steve Dyer - Craig-Hallum Jimmy Baker - B.Riley & Company Stephen Andersons - Venator.

Good day, ladies and gentlemen, and welcome to the Motorcar Parts of America Fiscal 2016 Third Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Gary Maier of Investor Relations. Sir, you may begin..

Thank you, Chelsie [ph], and thanks everyone for joining us for the fiscal 2016 third quarter conference 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 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 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 various filings with the SEC.

I would now like to begin the call and turn it over to Selwyn..

Okay. Thank you, Gary. I appreciate you joining us today. I'm particularly pleased that we've achieved all-time record sales and profitability for the quarter supported by continued strength across all of our products lines which currently include rotating electrical, wheel hubs and our emerging brake master cylinder product line.

The outlook is very encouraging and we are well positioned for continued growth in the current fourth quarter and approaching new fiscal year. Adjusted net income for the quarter increased 23.5% to $9.9 million, or $0.52 per diluted share, from $8 million, or $0.43 per diluted share a year earlier.

I should mention that the sales and profit performance for the prior third quarter reflects the benefits of recognizing net core revenue of $12.6 million that was previously deferred which increased the prior year earnings per share by $0.11, same fact our adjusted net income increase was even better.

David will discuss the financial results in more detail in a moment. To take a moment for the benefit of our new shareholders, I should mention that a number of factors continue to provide tailwinds to the aftermarket hard parts business in total. Miles driven have increased as a result of lower unemployment and lower fuel prices.

In addition, despite the growth of new car sales, the average age of vehicles in operation continues to grow, exceeding eleven-and-a-half years and possibly reaching twelve years by the end of 2016. As the vehicles get older, the number of replacement parts needed continues to grow to support their maintenance.

Additionally, whether they are new, strong car sales or not, current indications are that people will continue to keep their cars longer which will contribute to an increased age car population and result in accelerated growth for replacement parts. I might add that our purchasing power with the strong U.S. dollars is also an advantage.

All of these factors bode well for both current and future business for both our parts and all hard parts in the automotive aftermarket industry. In particular, as the number of cars in the 12-plus year old category continue to grow, the failure rates for parts in these vehicles increased significantly, resulting in increased parts replacement.

Since we focus on non-discretionary parts that require increased levels of replacement, as vehicles age, we anticipate continued growth as we move forward. To put our overall potential in perspective, industry sources estimate the market size in the U.S.A. and Canada for our current products to be approximately $3.8 billion at the consumer level.

The remaining potential in these markets for hard parts is estimated to be approximately $106 billion, which should provide us with lots of opportunity to introduce new parts and grow our business organically with growth of existing and new products lines, and through appropriate acquisitions.

We are proud that our service and quality levels continue to exceed expectations, and we believe this, in parts, has allowed us to gain further market share in all of our product categories. Today, we supply more than 23,000 stores and our customers continue to gain share in both, the DIY and professional installer markets.

We expect this will continue to grow, as we further leverage our award winning customer service and product quality to enhance market share gains with a growing offering of non-discretionary products. In summary, the company's growth prospects continue to be very positive, business is strong and we expect our solid growth to continue.

I will now turn the call over to David to review the results for the fiscal third quarter in more detail, and then end with my perspectives on our outlook before we take questions. David, will now discuss our financials..

Thank you, Selwyn. In summary, net sales for the fiscal 2016 third quarter ended December 31, 2015, reached a record high for our quarter -- for the third quarter of $94 million compared with adjusted net sales of $85 million for the prior year third quarter, which represents an increase of $9 million or 10.6%.

Sales and profit performance for the prior year third quarter reflects the benefits of recognizing net core revenue of $12.6 million that was previously deferred excluding the recognition of net revenue related to cores of $12.6 million for the prior year third quarter ended December 31, 2014.

Net sales increased $21.6 million, or 29.8% to $94 million for the current third quarter compared with $72.4 million for the prior year third quarter.

As Selwyn just mentioned, adjusted net income for the fiscal 2016 third quarter was $9.9 million compared with $8 million for the prior year third quarter, which represents an increase of $1.9 million or 23.5%. And adjusted earnings per share for the third quarter were $0.52 compared with $0.43 for the prior year third quarter.

Prior year results include $0.11 per diluted share from the recognition of previously deferred core revenue of $12.6 million for the prior year.

Adjusted EBITDA increased $2.6 million or 15.4% to $19.6 million from $17 million for the prior year third quarter, which includes $3.9 million EBITDA from the recognition of previously deferred net core revenue of $12.6 million for the prior year.

Excluding the $3.9 million EBITDA from deferred core revenue for the prior year, EBITDA increased $6.5 million or 49.8% to $19.6 million from $13.1 million for the prior year. I will now review the financial results in more detail for the third quarter.

Net sales were $94 million for the third quarter compared with $84 million for the prior year comparative quarter, which represents an increase of $10 million or 11.9%.

Adjusted and reported net sales were $94 million for the third quarter, compared with $85 million adjusted net sales for the prior year third quarter which represents an increase of $9 million or 10.6%. As previously mentioned, the prior year third quarter includes recognition of net revenue related to cores of $12.6 million.

Excluding the recognition of net revenue related to cores of $12.6 million for rotating electrical for the prior year third quarter, net sales increased $21.6 million or 29.8% to $94 million for the third quarter from $72.4 million for the prior year third quarter due to the following; rotating electrical adjusted net sales increased $16.9 million or 29.9% to $73.6 million for the third quarter compared with $56.7 million for the prior year third quarter.

Net sales of wheel hub assemblies and bearings increased $4.1 million or 29.6% to $17.8 million for the third quarter compared with $13.7 million for the prior year third quarter; and net sales of brake master cylinders increased approximately $600,000 or 29.9% to $2.6 million for the third quarter compared with $2 million for the prior year third quarter.

We launched the brake master cylinder line in late July 2014. The gross profit percentage was 30.7% for the third quarter compared with 29.1% for the prior year.

Adjusted for non-cash lower of cost or market revaluation of cores on customer shelf, non-cash inventory step-up amortization, and for the prior year third quarter stock adjustment returns accruals for new business.

Adjusted gross margin for the three months ended December 31, 2015, was 31.5% compared with 29.7% for the prior year, primarily due to overall lower per unit costs.

In dollar terms, adjusted items previously mentioned gross profit for the current third quarter increased to $29.7 million which represents an increase of $4.4 million or 17.4% from $25.3 million for the prior year third quarter which includes $3.9 million gross profit from the recognition of previously deferred net core revenue of $12.6 million for the prior year.

General and administrative expenses increased $1.4 million to $7.5 million after adjusting for non-cash mark-to-market net gains and losses, one-time $5.8 million payment received in connection with the settlement of litigation related to discontinued subsidiaries, $4.5 million bad debt expense resulting from the bankruptcy filing by a customer, discontinued subsidiaries legal fees, severance and other costs, and FAS 123R non-cash stock compensation.

The increase in general and administrative expenses was primarily due to growth and increased business activities. Sales and marketing expenses increased $390,000 to $2.7 million, primarily due to an increase in staff to support our growth initiatives and increased advertising expenses.

Adjusted operating income increased $2.4 million or 15% to $18.8 million for the fiscal 2016 third quarter from $16.4 million for the prior year third quarter, which includes $3.9 million operating income from the recognition of previously deferred net core revenue of $12.6 million for the prior year.

Adjusted EBITDA for the third quarter was $19.6 million compared with $17 million for the prior year third quarter, which represents an increase of $2.6 million or 15.4%.

As previously mentioned, the prior year third quarter ended December 31, 2014 adjusted EBITDA of $17 million includes $3.9 million from the prior year recognition of net revenue related to cores of $12.6 million.

Excluding the $3.9 million EBITDA from deferred core revenue for the prior year, EBITDA increased $6.5 million or 49.8% to $19.6 million from $13.1 million for the prior year. Depreciation and amortization expense was $782,000 for the third quarter. For the trailing 12 months ended December 31, 2015, adjusted EBITDA was $80.1 million.

Interest expense was $2.5 million for the third quarter compared with $3.2 million for the prior year third quarter. We entered into a credit facility on June 3, 2015, which resulted in a decrease in interest expense due to lower interest rates and lower average outstanding balances on our loans.

This was partially offset by higher balance of receivables discounted during the three months ended December 31, 2015, compared with the three months ended December 31, 2014. Income tax rate expense was approximately 45% for the three months ended December 31, 2015.

The income tax rate was higher due in-part to non-deductible expenses, primarily losses in connection with a fair value adjustment on the warrants. Adjusted net income for the third quarter increased $1.9 million or 23.5% to $9.9 million or $0.52 per diluted share compared with $8 million or $0.43 per diluted share a year ago.

As previously mentioned, sales and profit performance for the prior year third quarter reflects the benefits of recognizing net core revenue of $12.6 million that was previously deferred which increased earnings per share by $0.11 for the prior year. I would now like to highlight the results for the nine months ended December 31, 2015.

On an adjusted basis, net sales increased $52.5 million or 22.9% to $282.4 million from $229.8 million for the prior year nine month period. Excluding the $12.6 million deferred core revenue for the prior year, net sales increased $65.2 million or 30% to $282.4 million from $217.2 million for the prior year nine month period.

Net income adjusted for the items previously noted and summarized in the financial table of exhibits of this morning's earnings press release was $30.1 million or $1.59 per share compared with $22.9 million or $1.33 per share a year earlier, which represents a $7.1 million or 31.2% increase.

The prior year nine month period includes $0.12 per diluted share from the recognition of previously deferred net core revenue of $12.6 million for the prior fiscal year. Adjusted EBITDA was $60 million for the nine months ended December 31, 2015, compared with $49.4 million a year earlier, which represents an increase of $10.6 million or 21.5%.

Excluding the $3.9 million EBITDA from deferred core revenue for the prior year, EBITDA increased $14.5 million or 31.9% to $60 million from $45.5 million for the prior year nine month period.

At December 31, 2015, we had a $24.2 million term loan, borrowings of $7 million under revolving credit facility, and approximately $13.7 million in cash, resulting in net bank debt of approximately $17.5 million.

There was availability of approximately $91.5 million on the $100 million revolving credit facility, after reflecting approximately $1.5 million of outstanding letters of credit. Total cash and availability on the revolver credit facility was approximately $105 million at December 31, 2015.

In June 2015, we entered into a $125 million credit facility with PNC Bank consisting of a $100 million revolver and $25 million term loan. Loans outstanding under the new credit facility bear interest at the company's option, at the domestic rate or at the LIBOR rate plus, in each case, an applicable per annum margin.

The current applicable LIBOR interest rate for both the revolver and the term loan is 3.2%, consisting of LIBOR of 0.45% plus a margin of 2.75%. At December 31, 2015, the company had approximately $383 million in total assets, current assets were $116 million and current liabilities were $117 million.

Net cash provided by operating activities during the nine months ended December 31, 2015, was approximately $10 million. For the reconciliation of non-GAAP financial measures, please refer to the Exhibits 1 through 7 in this morning's earnings press release. I will now turn the call back to Selwyn..

Okay. Thank you, David. As you can tell, we are excited about the multi-product growth in our business and look forward to continued success ahead. We continue to focus on gaining market share in our existing product lines, as well as actively working to introduce new product lines.

As we previously indicated, we expect to launch a new product line in the second fiscal quarter ending September 30, 2016. We remain dedicated to manage growth and continue to focus on enhancements to our infrastructure and making investments in resources to support our customers.

Our financial position remains strong and our capacity for further growth is excellent. Business continues to be good and we expect the momentum to continue. We remain confident with our sales guidance for fiscal 2016 of $380 million in adjusted sales.

I want to thank all our team members for their commitment and customer-centric focus on service, and for their exceptional pride in all the products we sell, and the excellent customer services that we provide. Our ongoing success and accomplishments are due to this incredible team.

We appreciate your interest in Motorcar Parts of America, and now we welcome your questions..

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

Good morning, guys. Thanks for taking the questions. Just wanted to start-off with the guidance that you guys reiterated here, $380 million, it does seem to imply a bit lower than where consensus sits for Q4.

Is there an element of conservatism there given some of the customer purchasing patterns you've seen or just maybe talk a little bit about what that [ph]?.

Yes, I think -- look, we will put this guidance out early in this year or the beginning of this year and I'm sure exactly when we put it down. We're comfortable we're going to be there. Fourth quarter is always a very strong quarter for us. We don't expect it to be much different this year.

The revenue though generally comes right at the end of the quarter, so we're just at the beginning now and we'll see -- we will see where it ends up but we think it's going to be a good quarter but the timing of orders at the year -- right at the year-end may affect it positively or negatively.

But again, I can tell you that the fundamentals are very strong, I mean there has been comfort, the weather being a little bit moderate but at the end of the day I think it's just the nominal timing issues, I think our demand is very strong on an ongoing basis..

Okay, great to hear. Maybe we could touch on weather briefly since you did. I mean could you maybe talk about the weather impact on the quarter here? I know that some of your customers had mentioned it was a headwind on the quarter.

So any color on that would be helpful and then maybe just on a go-forward basis, what you guys are seeing in the current quarter..

Yes, look, I think that weather -- extreme weather is really advantageous for the replacement of hard parts. I think replenishment orders are probably a little softer than they could have been had the weather been more extreme.

But despite that I think register sales for us is strong, we're experiencing 80 degree weather on the West Coast as you know, I mean -- the weather is far more moderate than it was last winter.

So that may have some slight effect on us but I -- again, I've never been big on sort of blaming weather or taking credit for extreme weather, helping or hurting sales because it's hard to measure and the effect is -- we have a lot of distribution, the customers we're selling, our strong customers, if they are not buying this week they will buy the following week.

There are 240 million vehicles on the road, they are aging, they are all going to need new alternator starters, wheel hubs, master cylinders and other products. So I would tell you general, without sort of focusing on the weather that the fundamentals for our hub business are strong [ph].

Yes, we could have some more snow and that type of stuff but if you look at miles driven, interest rates, aging car population, currency benefits that we have, productivity benefits and the market share that we've picked up, the industry categories that we're still new in, that we continue to pick up market share, new product launches that are coming, the acquisition potentials that are coming; we continue to see very positive tailwinds for us over the next number of years..

Got it, understood. In terms of margins, I think you guys had really strong adjusted gross margins here up, I think about 180 basis points year-over-year. Maybe you could just help us understand the impact there from the better overhead absorption that you're getting in rotating electrical versus the benefit from the devaluation of the peso.

And then maybe if you can thread in, how much of a headwind was low aluminum and copper pricing and the distribution businesses as well..

Yes, so we had so many different variables effect, pros and cons of where we are. This continued pricing pressure in the industry which is not new continues on, so a lot of productivity eliminating waste really helps offset those which we've been successful in doing.

Certainly the currency translation help us, now we hedge that currency so we're buying nine to ten months out, I mean the gains on this currency probably won't show up for another six, seven, eight, nine months because we're still using currency from seven months, eight months, nine months ago.

But the ringgit is weaker, certainly the peso is weaker, certainly the Chinese RMB is weaker; so purchases of all of our components -- we benefit from that.

The scrap sales with commodity prices lower certainly hurt us a little bit but I think now that the commodity prices have been this low for sort of -- these 12 months, we're now cycling through inventory costs are coming down because we use a 12 month weighted average in standard costing.

And so all in all when you throw it all into the bucket it's fundamentally positive and we expect that to continue on. And the mixes is well, by the way, it affects modules. I mean, this last quarter we had a pretty stable mix, but if we see a big bump in wheel hubs or master cylinders, that may affect the margins a little bit.

But we don't expect major variances right now..

Got it, very helpful. And then one last one for me here, on the acquisition front, I mean with public company multiples taking in last couple of months, maybe you could just comment on what you're seeing in the M&A space amongst some of the private companies you may be looking at or stuff that's in the pipeline, I guess.

And to add on to that, I mean would you continue to expect that 3X to 3.5X leverage that you'd mentioned on potential acquisitions? What do the opportunities look like in the pipeline?.

Well, I mean we're looking at a lot of opportunities. We're very selective. I think we wanted to be accretive for sure. We're certainly looking for opportunities that will grow into larger opportunities as we get our sort of fundamental attributes applied to these entities.

There are number of deals out there, some big, some small, very hard to find the high quality ones and that's what we continue to look for. We're not desperate to make an acquisition, and we'll make the right one when the time is right. I think the leverage ratio is 3X to 3.5X of the right ratios.

We have almost in leverage right now so -- I think David mentioned the trailing 12 month EBITDA adjusted of $80 million and that fluctuates between zero and $15 million depending on the day.

But we have a lot of liquidity to make the right acquisition, we have a lot of momentum in terms of customer support and our performance and our shipping and fill rates have been very good. I mean we're shipping at -- on the very low end our shipping fill rate will be 95% for us and then the majority of our shipments go out at 99% to 100%.

So our customers are happy with our performance which is the end of the day. It will give us opportunity to grow our business organically and through acquisition. But again, we're not going to rush on acquisition, we're looking for proven earnings; we're looking for proven opportunity and proven growth opportunities..

Got it, very helpful. I'll jump back in queue guys, thank you..

Thank you. And our next question comes from the line of Steve Dyer with Craig-Hallum. Your line is now open..

Thanks, good morning guys..

Good morning, Steve..

I don't want to be labor the Q4, the fiscal '16 guidance issue but if we're to say sort of $380 million that would imply a fourth quarter with year-over-year growth of 7.5% to 8% which is the lowest that it would have been post [ph] which to me seems extremely conservative and I appreciate your desire to keep things conservative but assuming strength overall and then perhaps given a little bit of business from December and March given weather, any color about sort of your -- the level of conservatism you're sort of building in there?.

Again, it's an unknown. Steve, I'd love to come out and say we're going to grow at 20% non-stop but I think over long periods of time when you look at annualized and I'm comfortable that that can happen. Quarter-to-quarter it's a little more tricky, we are laughing now of some significant new business we have last year. So that factors into it.

And then the timing of the orders of the customers, so -- yes, I think it's conservative. We prefer to be conservative than more aggressive. Again, I think that the outlook as we go down through the next fiscal year, we'll continue to grow this business insignificantly and we would not be targeting under 20% growth on an annualized basis.

The quarters are going to fluctuate, up and down. Again, I'm not implying that we have a weak quarter on our hands, I'm trying to be conservative, I don't want people to get out of their sleeves. I think we're going to have a strong quarter but you know, let's see..

And the 20% growth you're targeting, I don't know how you would add the '17 guidance before '17 has even started yet.

But I mean is that kind of the number in the back of your head you guys are shooting for as well?.

I think if you look at our internal discussions of where we need to be as a company, we think we're in the near term of the next couple of years, a 20% growth company but it's not going to all come in one quarter, it's not all going to come organically, there is going to be all sorts of different things happening.

We have a lot of opportunities and we're just managing through capital allocation and infrastructure to deal with growth, and we feel like the industry again, there is a $106 billion at least of opportunity out there and we're trailing 12 months -- I'm not sure what our revenue is but $360 million or something….

$370 million..

$370 million trailing 12 months. We're a baby in terms of the opportunities this company is going to have. And as long as we keep our sales levels up and our integrity up, dealing with the customers with right product quality, we're going to see this work for a number of years..

Got it.

Getting a little bit more granular, new product sounds like September quarter, any sense or are you willing or able to talk about how meaningful that might be, kind of first year out of the gate compared to some of the others you've rolled out?.

Yes, I think it's the similar profile to master cylinders, probably somewhere between master cylinders and wheel hub product line. We already have customers signed up for it and I think it's a nice margin product line as well.

So we're excited, we think the return on capital is going to be good there, we have a number of other products lines that are being evaluated for launch.

We think there is a nice pipeline there, and we think we have a nice acquisition pipeline, and we our organic growth from new customer share is going to be strong, and we think our organic growth from new customer share in all categories will be strong.

So we have invested a little bit Steve in some incremental G&A I think to support other acquisitions group. We have some new technology that we're working on that will help with our backbone of our customer support and so our marketing backbone has been increased.

We've got a little bit of higher G&A expenses but it's all because we anticipate the growth coming in the future..

As it relates to that was there any, sort of one-time, whether it's apex or what have you just with G&A being higher or is it going to be a little bit of higher sort of run rate going forward?.

I think it's going to be a little bit higher. Again, we've added and expanded the marketing department significantly, we've got the new R&D efforts that are going on with new product launches, and we've got full-time dedicated acquisitions group that are working as well, and then we've got a full-time dedicated new products group.

So I think we're sort of at levels now where I think we'll see a stable -- we have ramped it out a little over the last 120 days. But I think it's now at a rate that's a stable rate, to be able to have next way of growth that we expect..

And conversely, now that you have some of the litigation behind you, would you expect any sort of a down pick from the legal expense you've been incurring? It's been pretty heavy obviously for a few years now..

Yes, I think we're getting into the end of all of that, thank God. And yes, I would expect that to go down significantly..

Are you able to give out -- just give us bit more like quantifying that at all?.

In terms of legal expense you mean?.

Yes, I mean what it might save you on an annual basis now that you've got most of that behind you..

Go ahead, David..

This is David. So in our reconciliation table, as we actually back out those litigation expenses, so in the past they've been averaging a few million dollars per quarter. This past December quarter it was $192,000 [ph]. We're already seeing it coming down but we do adjust for that in the reconciliation tables already..

So that's -- I mean if you're looking at maybe, there is always going to be some legal but obviously you're picking up $2 million to $2.5 million a quarter at least in opportunity..

Alright, great, I'll hop back in the queue. Thanks guys..

Thank you..

Thank you. [Operator Instructions] And our next question comes from the line of Jimmy Baker with B.Riley & Company. Your line is now open..

Hi, good morning, Sel and good morning, David..

Good morning, Jimmy..

So just on the 20% topline growth outlook for '17 and I guess beyond as you kind of think about that as a sustainable growth rate going forward. Can you just help us bucket that growth into let's say existing products versus new products you're introducing organically and then the third bucket being M&A.

Did you see that growth coming from somewhat even thirds or more heavily weighted somewhere?.

I think Jimmy you may be getting a little ahead of ourselves. I mean I think we're going to see growth in all of our product lines this year. We certainly feel like our momentum on picking up new market share is strong and we think that the organic growth of the customers we have will continue on.

So I think that we're going to see a nice organic growth whether that's going to be a third of it or half of it or 1% or 2%, I don't really know. The acquisition front is much more hard to forecast what that percentage will be.

I mean there are acquisitions of companies in the hundreds of millions of dollars; we're looking at acquisitions of companies in the $5 million which have strategic opportunity for us going forward. So until the deal happens, we don't know, and the new product launches will continue to be strong.

I mean they gain momentum as they get launched; generally we launch them with one or two customers exclusively in the beginning and then start rolling them out.

But I can tell you that on the acquisition front, on the organic front, and on the new product front there is lots of opportunities right now for the company, we're busy sorting through what the right things are to do than the right capital allocation and being cautious that we manage the growth in a profitable manner.

So I wish I could give you more granular data, maybe next quarter we can focus on that but overall lots of momentum in all of the areas..

Sure, understood. Just a couple of questions here then on the competitive environment.

I guess first, have you seen any change in the way your primary competitor is behaving now under the control of a larger parent? And then separately, could you just comment at all on the Pep Boys transaction and any expectation that they would either evolve their retail square footage or make some strategic changes to underhood/undercar services that might impact your business?.

On the first part of that question, I think there is a new owner, it's still early to tell what they are going to do or not going to do. So nothing I could really talk about there.

On the second part, I mean Pep Boys was acquired, there is a new owner there, we do supply 100% of Pep Boys, we think we have a good program; we've been a great supplier to Pep Boys for a lot of years. What they do there is I think somewhat of a mystery to the industry right now.

We've got a company that's focused on the professional installed business not entering into the retail arena. I think they have announced that they intend to keep the retailers, as well as the commercial business. So we wait to see. I think the owners are now financially strong, they have -- it looks like a good management team in place.

And hopefully, we'll continue to appreciate the great services we do, we'll have some more growth opportunity with them..

Okay, last question for me. It just looks like you added about $8.5 million of net debt to the balance sheet sequentially.

Could you just walk us through some of the bigger cash flow items that were cash consumers and offset the settlement payment?.

Sure..

So it's going to be working capital, it's the book on most of the inventory growth, to fund the growth..

We have -- look, we have a lot of new business coming in, and we're building inventory and we're busy. So the cash flows deployed really in growth other than the legal settlement that we have which took some cash and we recovered some of that..

Okay, thanks guys..

Thank you..

Thank you..

Thank you. And our next question comes from the line of Steve Andersons with Venator. Your line is now open..

Hi, guys.

How are you?.

Good, how are you doing Steve?.

Good. Obviously, I'm just looking at the stock getting the reaction from the quarter. Well, I guess I want to clarify some things.

Are you guys seeing any weakness at all from a macro perspective in your underlying business?.

Any weakness in what business?.

In your business at all?.

Not at all, no, no. Our business is fundamentally strong. I mean it could be stronger if weather were more extreme but it's strong either way.

All of the elements that are out there right now, whether the potential pull back in the growth of the economy or recession of the economy fundamentally lead to good opportunity for us, every indication out there in our marketplace that people are continuing to keep their cars longer. As you keep those cars longer, the replacement rates go up.

The average complexity of our parts continues to go up so the average price point overtime will go up.

The interest rate outlook we think we're comfortable with, the new car sales doesn't really matter, they can sell a lot of cars, and they don't have to sell a lot of cars, all we care about is that fundamentally the car population continues to grow and that's what happening regardless.

Currency translation is all favorable for us, our footprint is favorable, I mean we're doing business in low margin countries, our fundamentals are exceptional. And whether, again, I don't want to be taken [ph] for it and that's why I'm trying to keep a lid on it but our fundamentals are all good.

We think as an entity, we've just come off our planning meetings. As an entity, we have lots and lots of opportunity to really grow this business over the next couple of years to be a significant growth company..

And is there any strange relationships with any of your clients or how you're doing there?.

No, we don't -- no, not that I'm aware. I mean generally it's the opposite. We have excellent relationships with our customers, and our suppliers for that matter, which is equally as important.

So I mean again, I sit here today and I -- certainly the markets do whatever they do and there is nothing we control but our fundamental business is on all fronts positive, I mean there is always challenges with the business but business is fundamentally good..

And typically, how does the spring qualify versus the fall quarter? So Q2 versus Q4, if you look at that historically..

David, you want to comment on that?.

So historically Q4 is there a little bit higher but I think we're seeing -- it really depends on customer order patterns and timing of shipments..

Q4 again, this is -- there is no reason why Q4 won't be strong. I do think weather would -- is affecting at a little bit but….

Yes but the weather wasn't bad in the fall either, right, Selwyn?.

No. So it just depends on the patterns and replenishment orders and there are just so many variables.

The problem that we have in terms of giving guidance is that one order is as a percentage of the potential revenue for a quarter, it's effective quarter, if that shifts on the first day of the next quarter or two days earlier in this quarter you have a variance and what you're cut-off is.

So it's very difficult until we get much more deep into the quarter. Our back orders and all the update orders and all of the activity that are happening is positive right now. We thought a $380 million year would be a fantastic year and certainly we feel that that's going to happen and hopefully we will do better..

Okay, thanks guys..

Thank you..

Thank you..

Thank you. And I'm not showing any further question at this time. I would now like to turn the call back to Mr. Gary Maier for closing remarks..

Alright, I will take it, it's Selwyn. First of all, I want to thank everybody for the continued support. I know the market conditions and the public markets are tough at this point but as an entity we continue to focus on [indiscernible] which is doing a good job for our customers and supplying high quality product on-time.

And we look forward to updating where we are as we go down the road. We look forward to speaking with you when we host our next conference call which will be our year-end fiscal 2016 conference call, sometime in June, and at various conferences in the interim. And we thank you again for your support, and we appreciate your interest..

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