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

Matt Koranda - ROTH Capital Partners Steve Dyer - Craig-Hallum Capital Group LLC Jimmy Baker - B. Riley and Company Scott Timber - C.L. King & Associates.

Good day, ladies and gentlemen, and welcome to the Motorcar Parts of America Second Quarter 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 conference is being recorded.

I would like to introduce your host for today’s conference, Gary Maier. Sir, you may begin..

Thank you, Oscar, and thanks everyone for joining us for the call this morning for the fiscal second quarter of 2017. Before I 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 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 various filings with the Securities and Exchange Commission.

With that said, I would now like to begin the call and turn it over to Selwyn..

Thank you, Gary. I appreciate you joining us today. Our results for the quarter and six months bode well for fiscal 2017, and we’re excited about the opportunities moving forward.

We achieved record profitability for our second quarter on a GAAP and adjusted basis, with GAAP sales climbing to $108.8 million and non-GAAP’s net sales increasing to $112.4 million. The difference reflects one-time costs relating to new business. We remain excited about our sales outlook for each of our product lines.

As I mentioned briefly in last quarter’s call, both vacuum and hydraulic Brake Power Boosters provide additional stopping power by generating increased braking force. Every vehicle that has power assisted brakes has a brake power booster. Today, almost all vehicles have brake power boosters.

Generally, every passenger vehicle and light-duty truck on the road should have, at least, one replacement during its lifetime. Industry sources estimate the size of the U.S. market to be approximately $350 million at the end-user level.

We see excellent opportunities in this category for us to leverage our footprints and value-added customer services to gain market share. This new category and our other non-discretionary categories are expected to continue to grow as the car population ages.

While there are various factors that may influence rates on a short-term basis, ultimately all of the 250 million vehicles on the road, other than those scrapped, should require our replacement parts and our expanding product lines will benefit as these vehicles age. This also applies to our new product line turbochargers.

Turbocharging systems utilize the exhaust waste stream to power the turbo. This results in an increase of the airflow into the combustion chamber, thereby enhancing engine power and decreasing fuel consumption. In short, turbochargers offer improved power and fuel economy, as well as a reduction in emissions.

Based on the industry reports, the turbocharger aftermarket size at the end-user level in the United States is estimated to be more than $500 million, which today is dominated by heavy-duty applications. It’s anticipated to be a fast growth category for light-duty passenger vehicle applications, as well as others.

Turbochargers became Mainstream in Europe more than 10 years ago. The Europe turbocharger market, including OE is estimated to be over $5 billion. This bodes well for the future opportunity in the U.S. market. In the U.S., turbochargers are an emerging technology and utilized in both diesel and gas applications. Today, in the U.S.

approximately 25% of new passenger vehicles have turbochargers, with expectations for significant growth. In addition, turbochargers are being used in a number of heavy-duty industrial, agricultural, and power sports application. This represents a significant opportunity for aftermarket replacement.

In short, we’re excited about the ramp up and future opportunities for this product line. For those of you who are new to Motorcar Part of America, I should mention that a number of factors continue to provide tailwinds to the aftermarket hard parts business.

Miles driven has increased for a variety of reasons, including reduced unemployment and lower fuel prices. In addition, despite the growth of new car sales, the average age of vehicles in operation continues to grow, now exceeding 11.5 years and continuing upwards.

As vehicles get older, the need for replacement parts grows to support their maintenance. Additionally, whether there are strong new car sales or not, current indications are that people will continue to keep their cars longer, which will contribute to the ageing of the car population, resulting in accelerated growth for replacement parts.

These factors bode well for our current and future business. As the number of cars in the 12-plus-year-old category continues to grow, the failure rates for parts in these vehicles increase significantly, resulting in increased parts replacement.

Also, the 12-plus-year category includes later model vehicles with more sophisticated and higher priced parts than the earlier models. We anticipate continued positive contributions as we move forward through the ageing cycle.

To put our overall potential in perspective, industry sources estimate the market size of the USA and Canada for our current products to be approximately $4.7 billion at the consumer level.

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

We are proud that our service levels and the quality of our products continue to exceed expectations. And we believe this, in part, has allowed us to gain market share in our product categories. Today, we supply more than 25,000 stores, and our customers continue to gain share in both the DIY and the professional installer markets.

We expect continued growth in both segments, as we further leverage our award-winning customer service and product quality, coupled with a growing offering of non-discretionary products. In summary, the company’s growth prospects continue to be positive.

While our industry is very competitive, and pricing pressures continue, we believe the fundamentals of our business are strong, and we expect our solid growth to continue.

I’ll now turn the call over to David to review the results for the fiscal second quarter in more detail, and then I’ll end with an update on the numerous initiatives and progress the company has made, and then we will open the call for questions.

So go ahead, David?.

Thank you, Selwyn. I will now review the financial highlights for the second quarter, reflecting record profitability on both a reported and adjusted basis.

Before I begin, I encourage everyone to read the 8-K filed this morning with respect to our September 30, 2016 earnings press release for 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 sales were $108.8 million for the second quarter, compared with $91.7 million for the prior year second quarter. Adjusted net sales were $112.4 million for the second quarter, compared with $101.7 million adjusted net sales for the prior year. The adjusted net sales increase of $10.6 million was due to the following.

Rotating electrical adjusted net sales increased $5.7 million, or 7.1% to $86.5 million for the second quarter, compared with $80.8 million for the prior year. Adjusted net sales of wheel hub assemblies and bearings increased $4.6 million, or 27.1%, to $21.8 million for the second quarter, compared with $17.1 million a year earlier.

And net sales of brake master cylinders decreased approximately $404,000, or 10.7% to $3.4 million for the second quarter, compared with $3.8 million a year ago impacted by the timing of update orders.

Additionally, the combined adjusted net sales for the second quarter for brake power booster, which we started shipping in August, and for turbochargers started in July was $651,000. Gross profit for the second quarter was 30.7 million compared with 21.8 million a year earlier.

Gross profit as a percentage of net sales for the second quarter was 28.2% compared with 23.8% a year earlier, primarily impacted by higher customer allowances related to new business in the prior year. Adjusted gross profit for the second quarter was $34.5 million, compared with $31.4 million a year earlier.

Adjusted gross profit as a percentage of adjusted net sales for the second quarter was 30.7%, compared with 30.9% for the prior year second quarter.

General and administrative expenses decreased $8.4 million to $9.9 million, due primarily to $9.25 million accrued in the prior year in connection with the settlement of litigation, net of insurance recoveries related to discontinued subsidiaries. Adjusted general and administrative expenses decreased – increased $1 million to $7.3 million.

The increase in adjusted general and administrative expenses reflects both new investments for innovation, growth in acquisitions, as well as the company’s value-added customer service programs, including Motorcar Parts of America’s industry-leading customer service, training and quality assurance initiatives and the unfavorable impact of foreign exchange rates of Asia on a year-over-year basis.

Operating income was $17.2 million for the fiscal of 2017 second quarter, compared with operating income of 323,000 for the prior year second quarter. Adjusted EBIDTA for the second quarter was $24.5 million, compared with $22.7 million for the period a year ago. Depreciation and amortization expense was 910,000 for the second quarter.

Interest expense was $3.2 million for the second quarter, compared with $2.6 million last year. The increase in interest expense was due primarily to higher interest rates on our accounts receivable discount program and higher average outstanding balances on our revolving facility.

Income tax expense rate was approximately 34.6% for the second quarter. Net income for the second quarter was $9.1 million, or $0.47 per diluted share, compared with net loss of $1.4 million, or $0.08 per share a year ago.

Adjusted net income for the second quarter was $12.4 million, or $0.64 per diluted share, compared with $11.8 million, or $0.62 per diluted share last year. We’ll now discuss the results for the six months ended September 30, 2016. Net sales were $194.2 million compared with net sales of $177.5 million for the prior year six months.

Adjusted net sales for the six months, we stay record high $206.2 million, compared with adjusted net sales of $188.4 million for last year. Net income for the six-month period was $16.7 million, compared with $518,000 for the prior year. And earnings per share for the six months was $0.86 compared, with $0.03 a year ago.

Adjusted net income for the six-month was $22.5 million, compared with $20.1 million for the prior year six-month, and adjusted earnings per share were $1.16 compared with $1.07 last year. Adjusted EBITDA was $44.7 million for the six-month period, compared with $40.4 million a year earlier.

As many of you know, return on invested capital on a pre-tax pre-interest basis is an important metric in our business. Our method of calculating ROIC is to divide trailing 12-month adjusted operating income by the average equity and net debt balance for the 12-month period.

So as of September 30, 2016, trailing 12-month adjusted operating income was $80.1 million and the average equity and net debt balance was $235.5 million, resulting in a 34% return on invested capital on a pre-tax pre-interest basis.

At September 30, 2016, we had a $21.9 million term loan, borrowings of $19 million on the revolving credit facility, and approximately $5.5 million in cash, resulting in net bank debt of approximately $35.4 million.

There was availability of approximately $100 million on the $120 million revolving credit facility after reflecting approximately $1 million of outstanding letters of credit. Total cash and availability on the revolver credit facility was approximately $105 million at September 30, 2016.

Currently, loans outstanding under the $120 million revolver facility and our $22 million term loan bear interest at the company’s option at the domestic rate or at the LIBOR rate. In each case, an applicable per annum margin applies.

The current applicable LIBOR interest rate for both the revolver and the term loan is 3.28%, consisting of LIBOR of 0.53% plus a margin of 2.75%. At September 30, 2016, the company had approximately $438 million in total assets. Current assets were $148 million and current liabilities were at $145 million.

Net cash used in operating activities during the three months ended September 30, 2016 was approximately $8.5 million.

The $8.5 million cash used in operating activity is primarily due to an increase in accounts receivable as a result of higher sales during the second fiscal quarter increased inventories for growth and a reduction of accounts payable.

For the reconciliation of non-GAAP financial measures, please refer to the Exhibits one through seven in this morning’s earnings press release. I will now turn the call back to Selwyn..

Thank you, David. As you can tell, we are excited about the multi-product growth in our business, and we look forward to continued success. We are focused on gaining market share in our existing product lines, which now is alternators, starters, wheel hubs, bearings, master cylinders, brake power boosters, and turbochargers.

Master cylinders, brake power boosters, and turbochargers are all in their early launch stages, which bodes well for our growth potential. In addition, the company continues to focus on its award-winning customer service programs.

In fact, we’re proud to mention that we just won an award for training and sales support at AAPEX convention last week in Las Vegas from one of our large customers.

We remain dedicated to manage growth and continue to focus on enhancements to our infrastructure and making investments in resources to support our customers and grow value for our shareholders. We’re busy and have a number of exciting initiatives we’re working on. Our financial position remains strong and our capacity for further growth is excellent.

Despite some softening sales early in the first quarter, which we believe was due to mild weather, we had a strong second quarter and ended the first-half of fiscal 2017 with good results and well-positioned for growth. We’re focused on gaining market share with our existing customers and adding new customers.

The opportunities for our existing product lines provides plenty of upside and we remain encouraged by customer interest in all of our product lines and our initiatives.

Based on the timing of orders and the ramp-up of new business, the company still continues to target net sales of $420 million to $440 million for fiscal year 2017 on an adjusted basis and excluding acquisitions. I want to emphasize that historically sales in the third quarter have been less robust than the fourth quarter.

And, in fact, we expect that this impact will be even more pronounced this year based on preliminary visibility of customer order patents. Nonetheless, we still expect third quarter sales to exceed the prior year’s third quarter. The expansion on our Mexican distribution footprint is proceeding as planned.

Once complete, this facility will position us with greater operating flexibility and leverage as we grow our business, including expansion related to the brake power booster and turbocharger business, as well as other future products.

People might ask what the future holds for our Mexico operations, given the elections? We intent to carefully monitor developments before we make hasty decisions. However, we believe that we have enough flexibility in our structure to adapt to alternative business structures quickly.

We’re an American automotive parts company with a global footprint with capacity in the United States, Malaysia, China, and Mexico. And we believe that all in all, the current momentum is to support U.S. companies and that we’re well situated to adapt to any necessary changes.

As always, I want to thank all our team members for their commitment in customer centric focus on service, and for their exceptional pride in all the products we sell and the great customer services that we provide. The energy of our team is exciting to see, as we push to execute our plans.

Our success and accomplishments are due to this incredible team. We appreciate your interest in Motorcar Parts of America and we’ll now welcome your questions..

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

Good morning, guys. Thanks for taking the questions..

Good morning, Matt..

Question was just on the seasonality that you mentioned so on for next quarter.

Is there anything that’s driving that greater than usual seasonality that you’re seeing heading into Q3? Is that, you just had a stronger Q2, given the hot weather or other items at work there?.

No, I think the first six month stands on its own two feet, the key of what’s happening is, our backorder demand for fourth quarter shipments is enormous right now. And so we feel like a lot of the update orders have been pushed further out into the fourth quarter.

So, we hope and we hope that the fourth quarter is going to be certainly a record quarter. But the third quarter is – just to be clear, the third quarter was still be strong. But I wanted to emphasize that, not to keep looking at sequential comparative growth. I mean, your have to look at year-over-year growth..

Got it. Okay, that’s helpful. And then on, I know you guys were recently attending, in fact, you’ve called that out in the prepared remarks. But any update on new business when potential after your meetings there.

I think I heard you were saying one of your – the recent public presentations that you had that you guys had want some new business based on the training, some of the differentiated stuffs we’re doing on that process, maybe elaborate a little bit on that?.

Selwyn Joffe:.

So our liquidity situation is very strong. So we’re able to operate in a fairly luxurious way relative to making sure, our supplies are motivated, keep us in supply on time. And we expect the run rate coming out of the fourth quarter this year to be very good for next year..

Okay, that’s helpful. So just wondering gross margins, I mean, they’re still very strong here, but they did dip a little bit sequentially and year-over-year.

Was that a mix issue during the quarter, or pricing driven, any impact from the new business that you’re ramping on?.

I think it’s a combination of all of the above. I mean, there’s definitely a mix issue. There’s definitely pricing pressures that we’ve had to digest. Definitely our operating efficiencies have observed most of that. But it continues to be a price-sensitive.

I think, I’m optimistic, quite frankly, with the new political environment that perhaps things may be more productive for us. So we’ll see where that ends up going. But it’s a combination of everything. I mean, we feel good that we’ve been able to maintain margins and sustain the growth rates that we’re looking for..

Okay. Last one for me and then I’ll jump back in the queue. But on the – I guess, on the customer allowance front, you guys had about $3.5 million in customer allowances, I think, in two buckets.

Can you just help us understand the difference between the initial return in stock adjustments related to new business versus just the customer allowances related to new business?.

Yes, sir. The first category are approvals that we established when we started new business. Return on growth, there’s book entry, they do not cash through the customer. The second category our actual customer allowances that we give to the customer. So that’s how we differentiate the two categories..

Okay. So the second category is actually cash and out, the first category is essentially an accrual-based entry that you do, which will be, I guess, recognized over time as the credits they are.

Is that – how to think about that?.

Well, if you have more – if you establish a business with a customer and you have ongoing business with that customer, you’re going to maintain that initial approval..

So you’ve got to establish it to start up rather than you maintain it.

And so you get this upfront?.

Yes, that’s correct..

Upfront establishment of accruals for warranty and returns or whatever maybe?.

Yes, pluses and minuses. We’re just identifying that upfront accrual..

Okay. Got it. I’ll take the rest offline on that one and thanks, guys..

Thanks..

Our next question comes from the line of Steve Dyer with Craig-Hallum. Your line is now open..

Thanks for taking my question. Good afternoon.

So when you touched on the Mexican facility, can you just sort of remind us again maybe how much of your manufacturing or remanufacturing is there? And you probably would have a ton of time to digest it, but sort of what plan do you have and how quickly you can move to that, if it does come to there?.

Well, we had about two-thirds of our rotating electrical production is in Mexico. I will say that all of our competitors probably have that and more in Mexico.

So I think the playing field at a minimum is even, should there be any changes in Mexico? We have a completely redundant facility in Malaysia, we’re capable of producing every single unit that we produce in Mexico and Malaysia. And we could very quickly get to that in our California facility if we needed to as well.

We’ve kept key talent here and we keep some special order facilities in California. So we feel good about it. We think that we can adapt very quickly. It’s very early. I mean, I don’t think we can jump to any conclusions as to what’s going to happen. There’s a lot of retroact [ph] in campaigning and then reality kicks in when office takes over.

And so we’ll – we’re honest. We’ve financially secured to make the moves that we need to make. We’re financially capable. We are operationally capable and we’re operationally very, very flexible. I think our lean manufacturing practices need to being able to move plants pretty quickly. But I don’t expect that.

I still think our opportunity in the Mexican marketplace is going to be big. So that facility certainly at a minimum could service the Mexican marketplace and we’re jumping. I think we’re jumping way ahead of what potentially could happen we just don’t know yet..

Got it. Okay And then secondly port order just recently sold some of the former Rene [ph] aftermarket business.

I’m wondering to the extent, you can comment what change you expect, or have seen on the competitive front there?.

Well, we’ve seen no change. Certainly, we’ve been competing with Rene forever, so I think that’s going to continue to go on unfortunately, but that’s life in business. And we feel every year we’re ready to compete with whoever is in the market. We have a low-cost footprint. We have a great product.

We have industry-leading customer service and fill rates. We have some of the best warranty rates in the industry. So we’re ready. We’re ready for anyone who wants to get into the market, and we don’t expect it to hurt out growth rates..

Got it. And then just lastly as it relates to cash flow, obviously working capital has been a drag, as you’ve grown and the cores and customer allowances et cetera.

Is there a point at which you expect that just win back positive in the near future, or is it futures winning business at a rate that – it’s probably going to continue like this for a bit?.

No. Well, we had a big win in the second quarter and a very significant one in rotatating electrical, which I don’t believe you’ve even see the full benefit of it yet. And so I think that is a little unusual in terms of the use of working capital to run for that and the core situation and investment capital that we have to put in.

I think the working capital will get better. I mean, I think you see, we’ve carved out a return on invested capital thesis. Capital pays back quite quickly. We do have a lot of new business, that’s still coming on, but we have a very, very adequate facilities not to worry about growth relative to working capital at this point in time.

Leverage ratios, I mean our trailing 12 months EBITDA on an adjusted basis, I think it’s close to $83 million – $83 million, $84 million, we expect that to grow over the back six months and our dent levels are around $30-million-plus – little over $30 million.

So we don’t foresee any problem thee and we foresee that as we mature in our existing product lines and as our base gets bigger, that our positive cash flow will observe the working capital needs growth. And so we see that coming soon. You can see even on a non-adjusted basis that the earnings per share is now coming back up.

And we’re reaching we reaching levels of where the company is larger and kind of absorb more growth without it hurting the numbers as apparently as it has in the past. So we’re optimistic about that..

Okay, that’s helpful. Thanks, guys..

Our next question comes from the line of Jimmy Baker with B. Riley. Your line is now open..

Hi, good morning, Selwyn, good morning, David, thanks for taking the questions..

Hi, Jim..

Just one of your largest customer spoke recently about the benefit on certain categories due to the hot summer. I know that there can be a significant factor in rotating like your failure rates, but at the same time you’re coming off the more mild winter, which I know you called out as a headwinds.

So can you just kind of talk about maybe the aggregate weather impact by product category? And any color about the monthly cadence of sell-through rates?.

Yes, I mean, that’s a good questions. It’s hard to know exactly, I can give our hypothesis on where we are relative to weather in the cycle of business. I mean, I think starting with the negative, we obviously had a mild winter that negatively affects, in particular, starters and wheel hubs.

I think that we could have done more on wheel hubs and I think we will see a catch up in the wheel hub category. We have a lot of new business coming in wheel hubs, as well, so we’re optimistic about it. The summer has certainly gotten better in terms of rotating electrical replacements, but we comped against the very strong some of the prior year.

So I don’t see really any unusual pickup there. I mean, I think it’s nice and stable, and then I’d like to see it much more rigorous, but vibrant, but it’s solid. I think we’ll see, as we go down this year, some pick up in the rotating electrical business even further than it has and certainly we picked up share there. So we hope to reflect that.

On the master cylinders, I would say it’s been a little tough for us. We still have a very small customer base and any sort of moving of an update order from one quarter to next becomes so apparent in the numbers. But having said that, I think, there is a lot of upside for us in master cylinders still. Our brake booster business is ramping.

I can tell you that there’s a lot of demand for our product. We just got to produce fast enough and we’re aggressively working towards that. Turbochargers is in that infant stages. We’ve had an incredible amount of interest. I don’t see huge growth in the turbocharge business, at least, for another 12 months, but certainly we’re getting ready for that.

And overall, again, I think, it’s positive. There seems to be a little bit of a migration continue, not seems to be. There is a continuing migration from DIY to DIFM. Our DIFM base of business has grown beautifully in the last two years. And so we expect that will benefit from that as well.

I think the hurricane certainly didn’t help anybody and we had deferred maintenance there and shutdown stores and all sorts of things. So I think that had a little bit of a negative impact. And then may – we may have – actually see some of the hangover there in third quarter, I don’t know.

But I would still say that the third quarter is going to be strong. I don’t think, the growth rates will be as strong, but the fourth quarter is going to be – we’re already seeing it line up with significant update over demand. So fourth quarter looks very strong, it’s a question how we can can get off the door.

I don’t know, if that answer your question, Jimmy..

No, it does. That’s a lot of really helpful color. Just to follow-up on that quarterly cadence. You’ve talked quite a bit about Q4 being stronger than Q3.

Just to be clear, are you expecting Q3 to be down sequentially? I know you mentioned up year-over-year, but down sequentially in terms of sales I mean?.

Yes..

Okay. And then just want to go back to the Mexican commentary, I guess, setting aside the political conjunction and that uncertainty, I guess, what we do know is that the soon in the peso could be a – the pretty nice benefit for you on the margin front. I guess, can you just quantify that benefit to gross margins in the September quarter.

And then what the benefit would be for the balance of the year if the peso stays unchanged like all of these 19.5, 19.75 level, would they keep your gross margin above the guidance range?.

What’s clear, I mean, that’s – it’s crazy that what I’m about to say, but labor has become one of the smallest components of our cost of goods number. And so, this movement in the peso while it’s helpful, it’s nominal and we will say hedge nine months in advance. So we see it slower, as we go through it.

But labor is not – material cost is really our biggest expense right now. And so, I think, the peso rate is good, but not determined on top of anything to read into..

Okay. Got it. And just lastly, I had a couple more balance sheet cash flow question.

So I’m hoping you could just speak to why the accrued core payment liability increased again this quarter despite the increase in core inventory, I guess, did you win some additional business that will require more core buyback? And then, I guess, beyond that liability that you’re carrying on the books and this kind of goes back to your response to an earlier question.

But just hoping you could kind of frame the expected cash investment in long-term core inventory going forward, maybe relative to sales growth, or however, you think just to quantify it?.

During the September quarter, we launched brake power boosters, say, in connection with launching that product line, there was additional core parties. We’re able to take the core parties, but the payments will be over a multi-year. So that’s the reason why accrued core payment increased..

So you took possession from a customer, but didn’t pay for all of it in the quarter in other words?.

Yes, we did not pay for all in the quarter correct. Yes, the multi-year payment has canceled..

Well, that basically it helps us that we use the cash from a new business to make the payments..

Correct..

But doesn’t come out of the base cash..

Sure. So, I guess, going forward, I mean, can you speak to the rate at which you can just leverage that the long-term co-inventory investment, in other words, could we see sales growth grow at twice the rate of the long-term co-inventory.

What’s a reasonable way to sort of frame the relationship there?.

That’s a hard question to answer, because every situation is going to be unique. But I think that I would assume the inventory levels for the buyback and I’m making this is –I’m thinking vary a lot here.

I mean, I’m – this is probably an area, I shouldn’t go into, but I start at and so continue on, is that generally you’re looking at about a years worth of co-inventory that you purchase over multiple years. And so, if you end up with, in many cases, we have a three to five year contracts that pays back pretty quickly.

But the first-year, you generally have about a years worth of co, and then the relative value of co to the finish good revenue, because we don’t book any co-revenue into the income statement. It’s hard to tell, because it varies dramatically based number one, on mix, and number two, on product category.

And so that’s one, I don’t want to venture into, because certain categories co’s are high as a percentage, in certain categories, they are very cheap as a percentage, and then it just fluctuates too much to give you a general answer..

Okay, understood. I’ll take the rest of mine offline. Thanks very much..

Thank you..

Thank you..

[Operator Instructions] Our next question comes from the line of Scott Timber from C. L. King. Your line is now open..

Good morning, guys..

Good morning, Scott..

Good morning..

I jumped on the call late. Did you guys talk about how much contribution from brake power boosters within the quarter.

And are you breaking that out as a separate line item altogether or separate sub-segment?.

Yes, we don’t segment report on anything. We’re in a hot parts business, so rates for all the different product lines we have now is so many and growing. But David can you a little insight into the actual revenue on brake boosters..

Yes. We discussed that during the second quarter the combined net sales in adjusted basis were brake power boosters and turbochargers was $661,000. And you will see later when we filed our K-Q, these two line items will be under line item other products..

Okay. Got it..

And we expect a lot more to come from those categories and then it’s just beginning, just beginning..

In our parts show amount of sales was at quarter, since we launched brake power boosters in August and turbochargers was in later July..

Okay. I think on the last call you made a comment about like any of the ramp up initially to that of the brake master cylinder business.

Just trying to frame out what this can look like, let’s say, a year from now, is it still in the same ballpark?.

Our expectations are that, we will do better, but we have to wait and see. I mean, we have a lot of demand for that product, but we’re into among the two. So it’s a little early to do. But I tell you that the expectation is very positive there..

Okay. Got it.

And you guys made a comment on another rotating electric win, the sizable one within the quarter, can you maybe talk about that?.

Yes, we had – last quarter, within the second quarter, we had a big win. We’ve had a number of wins. I mean, they are all nice wins something in [indiscernible], but they were all, I would say blue chip customers everyone of them customer that we respect significantly. So we had a lot of good momentum in rotating electrical.

We continue to roll that out and it continues to grow and we should see the benefits of it as we keep going down the future..

Okay. And just one last question, I know, obviously, a lot has to be played out with all of the political stuff that’s going on. But you did say that you had redundant operations in Malaysia.

Do you have enough space between that and California to take on in a worst case scenario any business, well, let’s say all of the business from Mexico if you had there?.

Yes. Well, I would say just right the second no, but we have a very scalable facility in Malaysia. And so very quickly we can have a lot of space. We have – the most important thing for us is less so the space, but the expertise in all these countries to absorb the knowledge base and maintain the quality and integrity of the product and we have that.

I mean, I’m comfortable in saying that. And – but we have enough production space. I mean, right now, we would just need some inventories. I’m assuming the worst scenario, where Mexico would shutdown and there was a wall around there and no one can bring in product, which I don’t anticipate at all, we could still manage.

So it will be tricky, but we could manage..

Got it. That’s all I have for now. Talk to you guys offline. Thank you..

Thank you..

Thanks..

At this time, I’m showing no further questions. I would like to turn the call back over to management for any closing remarks..

We appreciate everybody’s interest in joining the call and we certainly look forward to our next quarters and the time ahead. We’re excited about our business opportunities and we look forward to keep in touch with you. Thanks, everybody..

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