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

Steve Dyer - Craig Hallum Matt Koranda - ROTH Capital Partners Scott Stember - CL King and Associates Jimmy Baker - B. Riley and Company.

Good day, ladies and gentlemen, and thank you for your patience. You joined the Motorcar Parts of America Fiscal 2017 Fourth Quarter Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time [Operator Instructions].

As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Mr. Gary Maier with Investor Relations. Sir, you may begin..

Thank you, Steve. Thanks everyone for joining us. 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 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 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. With that said, I’d like to begin the call and turn it over to Selwyn..

Okay. Thank you, Gary. And I appreciate everyone joining us today. As highlighted in our earnings press release this morning, we achieved record sales on a reported and adjusted basis for the quarter and the year-end.

We’re particularly proud to highlight the Company’s cash flow performance for the fourth quarter with net cash provided by operating activities of $15.5 million. To put our performance in context, we operate within an estimated $116 billion U.S. automotive hard parts aftermarket industry.

Our product categories represent approximately $4.7 billion of the total market size. We still have a lot of growth opportunities available. Our focus is on non-discretionary products for both the do-it-yourself and do-it-for-me markets.

We are fortunate to have a global footprint that enables the Company to pursue new product line expansion opportunities based on sound economics and quality.

In general, we continue to evaluate new product opportunities based on three criteria; first, we identify non-discretionary product line categories in which we have the ability to compete effectively; then we determine if we can achieve a favorable return on invested capital; and thirdly, we seek to get a strong indication of interest or purchase commitment from at least one customer.

For the fiscal year-end of March 31, 2017, we achieved 37% return on invested capital on a pretax basis. We continuously look for opportunities to further deploy capital at favorable return on investment metrics.

Our current leverage is approximately 0.24 times our adjusted EBITDA, which we regard as low and which continues to provide us an opportunity to deploy more capital in an accretive manner.

Let me reiterate our business plan fundamentals; firstly, we are focused on growing our existing product lines; secondly, we are committed to launching new product lines, leveraging our strong customer relationships; thirdly, we want to deploy capital to enhance shareholder value, including potential stock buybacks and acquisitions; and fourth, we are committed on a daily basis to be more important to our customers through industry leading value added customer services.

While many of our initiative are proprietary, so I can’t get too specific, MPAA is an industry leader in supporting our customers. We have committed SG&A dollars in areas of evolving technology, education, data management, category management, cataloging and other customer support functions.

While the SG&A expense line has increased, our investments in these areas are instrumental in gaining increased business. We have significant new business commitments, most of which will commence in the second half of our fiscal year.

We will continue to pursue new product line opportunities and appropriate acquisitions, and are optimistic on both fronts. As noted previously, we have very little leverage and are committed to deploying capital in an accretive manner, including stock buybacks.

We recently increased the authorized amount to $15 million, which David will discuss further in a few minutes. We expect to continue to repurchase shares based on market conditions and related considerations, while focusing on growing the business organically through new product line expansion and complementary acquisitions.

We hold a leadership position in rotating electrical with more than 30 year of experience, offering alternators and starters. At the consumer sales level, it represents an estimated $2.4 billion market, of which we hold a 39% share at supplier level which is generally 50% of the consumer level.

We continue to expect to grow in this category and/or others. There is a $900 million market for wheel hubs, which we entered in June of 2013, of which we currently have an estimated 18% market share.

Brake Master Cylinders is an estimated $500 million market at the consumer sales level, which we entered in July 2014; we have an approximately 5% market share in this category; Brake power boosters, which is in the early stage of launching, is an estimated $350 million market; Turbochargers is a $500 million market, which we entered through a small acquisition completed in July of 2016.

This emerging technology in the domestic market is utilized in both diesel and gas applications. Turbochargers became mainstream in Europe more than 10-years ago and the aftermarket in the United States is still in its infancy. By way of perspective, the European Turbocharger market, including OE, is estimated to be more than $5 billion.

This bodes well for the future opportunity in the U.S. market. Today, in the U.S., approximately 80% of passenger vehicles have Turbochargers, with expectations for significant growth. Approximately 25% of new vehicles each year are launched with Turbochargers.

Turbochargers provide a nice solution to add power to smaller engine vehicles, while still enhancing fuel consumption. In addition, Turbochargers are being used in numerous heavy-duty applications, including industrial, agricultural, and power sports.

This represents a significant opportunity for aftermarket replacement, and we’re excited about the ramp up in future opportunities for this product line. Clearly, there is a lot of growth potential for us in our existing product lines.

We see excellent opportunities in all of these categories for us to leverage our footprint and provide value added customer services, all of which further enables Motorcar Parts of America, the ability to gain additional market share. All of our categories are expected to continue to grow as the car population ages.

While there are various factors that may influence replacement rates on a short-term basis, ultimately, all of the approximately 260 million vehicles on the road other than those scrapped should require replacement parts in our product categories. And demand for our expanding product lines will benefit as vehicles age.

For those of you who are new to the Motorcar Parts of America, I should mention there are numerous factors that continue to provide tailwinds to the aftermarket hard parts business. Miles driven has increased.

In addition, despite the relative growth of new car sales, the average age of vehicles in operations continues to increase, now exceeding 11.5 years. As vehicles age, 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.

Interestingly, there have been reports during the past few weeks that the number of vehicles coming off lease is surging, providing consumers with attractive pricing for purchasing used low mileage vehicles. All of this bodes 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-year plus category includes now later models vehicles with more sophisticated and higher priced parts than their earlier models.

We anticipate continued positive contributions as we move through the ageing cycle. We are proud that our service levels and the quality of our products continue to exceed expectations which we believe, 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 growing offerings of non-discretionary products.

We and most of us believe this year’s milder than normal winter has a resulted in the deferral of vehicle failures. We expect this as temporary and we expect to see a recovery. This may result in choppy quarters due to customers adjusting inventory levels.

However, the cars on the road will need replacement of non-discretionary parts; it is only a question of timing. 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 remain strong, and we expect to continue our solid growth. I will now turn the call over to David to review the results for the fiscal fourth quarter in more detail.

And I will then provide an update on the numerous initiatives and progress the Company has made, and then we’ll open the call up for questions.

David?.

Thank you, Selwyn. I will now review the financial highlights for the fourth quarter reflecting, as Selwyn noted, record sales and profitability for our fourth quarter.

Before I begin, I encourage everyone to read the 8-K filed this morning with respect to our March 31, 2017 earnings press release for more detailed explanations of the results, including reconciliation of GAAP to non-GAAP financial measures in the 10-K, which will be filed later today.

Net sales increased 17.4% to $114.4 million for the fourth quarter from $97.4 million for the prior year fourth quarter. The $17 million increase in our net sales was primarily attributable to higher sales of rotating electrical products.

Adjusted net sales increased 13.8% to $114.9 million for the fourth quarter from $100.9 million net sales for the prior year.

The adjusted net sales increase of $14 million was due to the following; rotating electrical net sales increased $15.6 million, or 20.4% to $92.2 million for the fourth quarter from $76.6 million for the prior year, which was partially offset by a decrease in net sales of wheel hub assemblies and bearings of $1.5 million or 6.9% to $20.7 million for the fourth quarter from $22.3 million a year earlier.

This was due to the timing of stock adjustments in the quarter. Though for the 12 months ended March 31, 2017, net sales of wheel hubs actually increased $5.4 million or 7.5% to $78 million from $72.6 million for the prior year 12 month period.

Net sales for brake master cylinders were $516,000 for the fourth quarter compared with $2.1 million a year ago. This decrease in brake master cylinder sales was due in part to higher stock adjustments for remanufactured master cylinders as the mix shifted to more new units compared with remanufactured units.

To clarify, when we replace the remanufactured units with new, we take back the remanufactured inventory from the customer and the credit to the customer is recorded as a reduction to sales.

Additionally, the combined net sales for the fourth quarter for break power boosters, which we started shifting in August last year and for Turbochargers, was $1.5 million. We expect to formally launch Turbochargers in the coming fiscal year. Gross profit for the fourth quarter was $31.6 million compared with $24.2 million a year earlier.

Gross profit, as a percentage of net sales for the fourth quarter, was 27.6% compared with 24.8% a year earlier. Gross margin was impacted by customer allowances related to new business, new product line startup and ramp up costs and lower up cost of market revaluation of cores that are part of finished goods on the customer shelves.

Adjusted gross profit for the fourth quarter was $35.8 million compared with $29.8 million a year earlier. Adjusted gross profit, as a percentage of adjusted net sales for the fourth quarter, was 31.1% compared with 29.6% for the prior year fourth quarter.

Total operating expenses decreased $341,000 to $14.2 million for the fourth quarter from $14.6 million for the prior year. Adjusted operating expenses increased $2 million to $13.5 million from $11.5 million for the prior year due in part to expenses to support our value added customer service programs and sales growth.

As Selwyn explained earlier, these investments have already resulted in new business, which commences in the second half of the new fiscal year. Operating income increased sharply to $17.4 million for the fiscal 2017 fourth quarter from $9.6 million for the prior year fourth quarter.

Adjusted EBITDA for the fourth quarter increased 21.9% to $23.2 million from $19 million for the period a year ago. Depreciation and amortization expense was $1 million for the fourth quarter. Interest expense was $3.7 million for the fourth quarter compared with $2.7 million last year.

The increase in interest expense was due primarily to the increased use of our accounts receivable discount programs during the fourth quarter and higher interest rates on our accounts receivable discount programs, and higher average outstanding balances on our revolving facility.

Income tax expense rate was approximately 28.2% for the fourth quarter, which was positively impacted by the fourth quarter adjustments to reflect the full fiscal year 2017 income tax provision. This includes the impact of the full fiscal year 2017 non-taxable gain in connection with the fair value adjustments on our outstanding warrants.

Net income for the fourth quarter increased sharply $9.8 million or $0.50 per diluted share from $2.3 million or $0.12 per share a year ago. Adjusted net income for the fourth quarter increased 18.3% to $11.3 million or $0.58 per diluted share from $9.5 million or $0.50 per diluted share last year.

For the 12 months ended March 31, 2017, net sales increased 14.2% to a record high $421.3 million from $369 million for the prior year. Adjusted net sales for the 12 months increased 13.2% to a record high $434 million from $383.3 million for last year.

Net income for the 12 months period increased sharply to $37.6 million from $10.6 million a year earlier, and earnings per share was $1.93 compared with $0.55 a year ago. Adjusted net income for the 12 months increased 14.9% to $45.5 million from $39.6 million last year, and adjusted earnings per share were $2.35 compared with $2.08 last year.

Adjusted EBITDA for the 12 month period increased 15.7% to $91.5 million from $79 million a year earlier. As many of you know, return on invested capital on a pre-tax basis is important metric in our business.

Our method of calculating ROIC is to divide trailing 12 months adjusted EBITDA by the average equity and net debt balance for the 12 month period. So as of March 31, 2017, trailing 12 months adjusted EBITDA was $91.5 million and the average equity and net debt balance was $247.4 million, resulting in 37% return on invested capital on a pre-tax basis.

At March 31, 2017, we had $20 million term loan, borrowings of $11 million on the revolving credit facility and approximately $9 million in cash, resulting in net bank debt of approximately $22 million.

There was availability of approximately $108 million on the $120 million revolving credit facility after reflecting $860,000 of offsetting letters of credit. Total cash and availability on the revolving credit facility was approximately $117 million at March 31, 2017.

Currently, loans outstanding under the $120 million revolving facility and our $20 million term loan bear interest currently at 3.5%, consisting of LIBOR of 1%, plus a margin of 2.5%. At March 31, 2017, the Company had approximately $436 million in total assets, current assets were $122 million and current liabilities were $143 million.

Net cash provided by operating activities in the three months ended March 31, 2017, was approximately $15.5 million. The $15.5 million cash provided by operating activities reflect net income during the quarter and increases in accounts payable and accrued liabilities, partially offset by increases in accounts receivable and inventory.

During the fourth quarter, the Company also repurchased 69,659 shares, totaling $1.99 million. As Selwyn mentioned, in March 2017, our Board of Directors increased our share repurchase program authorization from $10 million to $15 million of our common stock.

As of March 31, 2017, $2.38 million of the $15 million has been utilized and $12.62 million remains available to repurchase shares under the currently authorized share repurchase program. For the reconciliation of non-GAAP financial measures, please refer to exhibits one through seven in this morning’s earnings per share.

At this time, I would like to detail the components of the $262.9 million long-term core inventory balance on our balance sheet as of March 31, 2017.

As disclosed in our Company’s filings, long-term core inventory consists of four categories, including; used cores held at the Company’s facilities of $38.7 million; used cores expected to be returned by customers of $11.8 million; remanufactured cores held in finished goods of $27.7 million; and remanufactured cores held at customers’ locations of 185.9 million, which represents the core portion of the Company’s customers’ finished goods at the Company’s customers’ locations.

Of these four categories of long-term core inventory, it should be noted that the Company managers only to sum up used cores of $38.7 million and remanufactured cores of $27.7 million at the Company’s facilities, that’s allowance for excess and obsolete inventory of $1.1 million, totaling $65.2 million, or 25% of the total balance.

The remaining balance of $197.7 million or 75% represents the core portion of finished goods at the customers’ locations of $185.9 million and used cores expected to be returned by customers of $11.8 million, and is tracked by the Company to ensure that we either get a core back or receive payment for the core as a result of a non-return core.

But the Company does not directly manage if or when that core will be returned. I know that many of you have viewed our recently produced video on the Company’s Web site, discussing the dynamics of the cores exchange program. And I encourage those that haven’t to take a look.

The feedback we have received since the posting or the video has been quite positive. I will now turn the call back to Selwyn..

Okay, David. Thank you very much. As you can tell, we’re excited by the multi-product line growth in our business, and look forward to continued success.

I thought it would be useful to identify some of our recently completed key initiatives we have either added or in the process of adding the following facilities; a new wheel hub factory in Malaysia, which began producing units last quarter and we were encouraged by the ramp up and quality of the product; an additional alternator and starter factory in Malaysia; we have opened our Chinese QC and distribution center in Shanghai; the construction of our build-to-suits additional facility Tijuana, Mexico is progressing well with completion of the shale by the end of the second quarter of this fiscal year, and moving schedule for the fourth quarter; a training and technology center in Torrance, which is attracting considerable interest.

We’re excited about the future opportunities that this provides. We’ve also made in-roads in several new product categories. As I mentioned earlier, we launched brake power booster in August of 2016 and we were gaining market share. This complements our wheel hub and master cylinder line launched in 2013 and ‘14.

As I’ve previously discussed, our Turbocharger new product line is ramping up nicely, and we expect a sizeable market opportunity as the domestic market develops. In addition, we continue to evaluate other new product opportunities. As noted last quarter, tuck-in acquisitions are also part of our growth strategy.

As highlighted earlier, we achieved positive free cash flow for the quarter, which demonstrates the opportunity for cash generation in a controlled growth scenario. We expect fluctuations in cash flow for our quarters as we digest some of the new business gains. We are pleased with our inventory management.

For the fiscal year-end of March 31, 2017, finished goods turnover was 6.7 times. For this year, ending in March 31, 2018, we are providing adjusted net sales guidance of between $455 million and $475 million, excluding acquisitions.

This growth represents 7% to 12%, excluding $9.3 million revenue gain due to the change in our accrual for anticipated suck adjustments, for the December 2016 quarter. Our adjusted gross margin target remains the same between 27.5% to 30.5% with an estimate of $49 million of total operating expenses.

This guidance reflects our expectation that the first quarter sales will be negatively impacted by the mild weather experienced with past winter and the delay of the income tax refunds. As I stated earlier, we have significant new business commitments, which will predominantly begin shipping in our second half of fiscal year 2018.

And as such, our growth run rate at the end of the year will exceed our annual guided growth rate for the fiscal year 2018. While new business is currently committed, our growth will be back-ended. As I stated earlier, this may result in choppy quarters due to customers adjusting inventory levels.

However, the cause in the road will need replacement of non-discretionary products. It is only a question of timing. Let me reiterate, we will focus on gaining market share in our existing product lines.

In addition, we are focused of efficient deployment of capital, which may include stock buybacks, acquisitions and new product launches, among other things.

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 to grow value for our shareholders. The Company continues to focus on its award winning customer service programs. We are busy and working on a number of exciting initiatives.

Our financial position remained strong and our capacity for further accretive growth is excellent. As always, I want to thank all of our team members for their commitment and customer centric focus on service, and for their exceptional pride in all the products that we sell and the customer services 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 now, we welcome your questions..

Thank you, sir [Operator Instructions]. Our first question comes from the line of Steve Dyer of Craig Hallum. Your line is open..

As you look forward to the next year, I guess, it sounds like back half loaded growth in the second half.

Any commentary around what category or categories you would expect to drive that, whether that’s an existing one, whether that’s a new one, et cetera?.

We have commitments in all of our categories right now; so rotating electrical will continue to be a driver; we have new wheel hub business; commitments in all of our categories; and we expect Turbochargers to start rolling out this shortly, as well. So we’re optimistic about all the categories.

And having said that, I mean, we are very aggressively pursuing a number of potential new categories as well..

I guess, maybe some color. It sounds like Q1, a little bit impacted by the replenishment rates, following the warm winter.

But what sort of the dynamics are you seeing in the first half of the year that would cause that single digit growth, which is well slower than you've been in quite a while?.

I think it’s that, Steve, it’s all that. Because there is inventory out in the marketplace and sales at the register levels, obviously, as you can see all the different public reports out there, was slower. And so we anticipate some burning down of that inventory before vibrancy returns. I've seen this many times in career here.

I believe it’s temporary. And I believe our customer base is well positioned for a strong come back..

And then you had mentioned, I guess, some shift within Master Cylinder from reman to used -- from reman to new.

Is there any risk of that, do you see another categories, particularly rotating electrical or do you view that as a temporary thing?.

No, I think Masters’ -- I think rotating electrical is more complex than new. I think the -- we do a lot of new already in rotating electrical. There is some risk, but I think it’s nominal. Again, we are on both sides of the equation. So I think it's measured but nominal..

Okay, a lot of chatter lately. And I guess I’ll just give you a chance to comment in a public forum on it about sort of the risk around Amazon and to what extent this industry gets dis-intermediated there.

Maybe just your color or your commentary around what you feel like your role is there and what’s your risk are or not?.

So again, I'm cautious not to comment on any of our customers’ initiatives. But the world has not changed. We don’t see a change in that at all. We think we’re well positioned with all customers. And there is a lot of commentary about online; many of the bricks and mortars have online; online guys are growing a little.

But we’re somewhat agnostic and we don’t believe it will have, whichever direction it goes, we don’t believe it should have much of a major impact on us..

And then lastly from me, and I'll hand it off. Your operating expense guidance of $49 million for this next year, would seem to imply that, maybe there were some one-time items in Q4 such that you'll be below that $13.5 million run rate.

Am I thinking about that right?.

It's correct..

Thank you. Our next question comes from Matt Koranda of ROTH Capital Partners. Your line is open..

For the new business, can we dig into that a bit more? I was just wondering, just given kind of the range in your guidance.

Do you already have essentially all of that second half ramp in hand, or is there something you’re counting on winning between now and the end of the first half of your fiscal year to meet that upper end of the guidance?.

We have the substantial majority of that already pinned or committed; but having said that, we always expect to get more business, as we continue day-by-day. So we’re excited about the commitments that we have and we continue to push for new, for more..

And then, in terms of the long-term core inventory needs to meet that new business. Is there any rule of thumb you can share with us, just given the business that you have today? What that may require in terms of core buys or addition to the long-term core inventory under balance sheet.

I mean, by my calculation, you guys are supporting about $1.35 worth of reman revenue for every dollar of core inventory that you have on the balance sheet.

But can you hold that ratio constant over the coming year? How do you expect that to trend?.

That’s a ratio that’s not rolling off of top of my tongue, I mean top of mind either. So I don’t want to comment on that ratio. I’m happy to dig in with you after the call in that ratio. But the growth on core repurchasing is slanted towards rotating electrical growth. I mean that’s where the majority of the core is sitting out there.

We still do have some core repurchases there, but in some of the other categories, it's light in those areas. So depending on the mix how -- the mix ultimately turns out is how much core repurchasing will have to make.

But I’m not sure about that ratio off the top of -- David, do you have a comment on that?.

Again, it depends on the product line and which product lines we have..

So I’m not sure I can answer that right now, Matt. But we can take it offline..

But just my takeaway is the, rule of thumb is the more skew toward rotating electrical growth, the more core buys essentially is a high level, sort of….

Rotating electrical is predominantly remanufactured and as a result, I mean, the core buyback is a big part of it..

And then could you just help us a little bit in terms of directional commentary at least on the quarterly revenue cadence this year. I mean, I know, we can kind of use some of the puts and takes from your commentary about things being choppy, because of inventory destocking with a stronger back half.

But maybe could we put some numbers, maybe to the first quarter, in terms of up or down relative to last year and just the expectations?.

I think the first quarter is going to be relatively flat compared to last year. Just because we suffering from a hangover of a mild winter here and then replenishment orders, we don’t anticipate we’ll be as strong.

We are optimistic that that’s changing and we will see some changes as we go through the year, but it’s not instant, and so that’s why we’re little cautious on the first six months. And then the backend, we expect replenishment to go up. I mean as we get through more summer and then also launching all of the new business.

I mean even in the existing categories. So we’re very confident in the back end, I mean, we’re little more cautious on the front end..

One more, just in terms of adjustments this quarter, I noticed a larger than normal adjustment related to new product line start-up costs.

Can you just help us understand, essentially what product that’s associated with, and why the higher number than the usual couple of hundred thousand for several quarters?.

That’s great boosters. We’re ramping that up; we’ve had somewhat of a challenge on the cores; on brake boosters we’ve got through that now; we have a lot of demand for that product line. And so I think we’ve been overly aggressive in trying to increase capacity there. And it's showing a little bit in the numbers.

So a lot of those expenses are shown up before these revenues are showing up right now. But the exciting part of that is, is that we’re seeing nice opportunity there..

So that’s essentially -- you’re requiring cores for to boost capacity in that product category to support growth. Is that we’ve been….

Yes, and we’ve acquired than at a premium as well to make sure we can get ahead of our supply curve..

[Operator Instructions] Our next question comes from the line of Scott Stember of CL King, your question please..

Could you talk about the weather, did we see an impact in Q4, which products? And maybe, and obviously we saw the rotating electrical business was up very nicely. I imagine that was all because of new orders rather than a sign of end demand, I guess, or sell through.

Correct?.

That is correct. We had significant new business that you saw the full effect in the fourth quarter for rotating electrical, but replenishment on all product lines was slower. I mean just that was the winter. I think if you read all the major public companies reports on the weather and the effect on sales was definitely a general slowdown.

We had that been a normal winter and we -- our numbers would have been better. And I think what’s -- we had a lot of uptake orders in the fourth quarter. And so you know we were able to have a great quarter, in my opinion, despite very slow replenishment revenue.

And now we’ll see a little bit of hangover in the first quarter, which is April through May -- April through June. And we should see it come back. I mean I’ve seen this many times. And there has been a lot of negative publicity out there on this and that.

But at the end of the day, all those cars are still on the road; the car, the makeup of those calls hasn’t changed; the failure rates of those cars hasn’t changed; and a couple of blips of hot weather here and there and all of a sudden we’ve spoken about how great the industry is again. So we’re optimistic about that.

We’ve seen it over and over again. At some point, these vehicles will have components that are going to fail and it's not a question of whether they will have them, it's just a question of when? So we’ve been cautious in the first six months and really focused on the back-end..

And as far as on the other side of the equation, warmer weather. It's my understanding that a decent portion of your rotating electrical business, in particular, does benefit from hot or the normal summers. Can you talk about how that could be a potential catalyst and how that could potentially benefit you..

I think it will. I mean if we get some hot weather in the summer, I think the rotating electrical is an opportunity to spike because we’ve certainly got some deferred maintenance, right now. I mean we haven’t had these failures. The product line that we get hurt the most is that on wheel hubs we really -- you generally see a spike from lots of snow.

And so I think we’ve missed that and hopefully, we’ll have that for next winter. But on rotating electrical, I think, there could be a substantial -- on all the other product lines, quite frankly, I think there could be a substantial pick up. But we can’t count on that. I mean, at this point, I think we’ve put out some realistic conservative guidance.

We’ve generally lived up to our guidance and we want to be cautious..

And my last question is revolver on the gross margin. It was up very nicely in the quarter. Did you guys call out any one thing with just absorption of startup costs and just higher sales throughput? And also your comment for 2018 suggests that the high end would be a little bit lower than what you actually did in ‘17.

And I'm just wondering if how much of that onetime benefit in the third quarter is creating a difficult comparison? Thank you..

I don’t know. I mean I think our structure is relatively stable. We certainly own a position to absorb a lot of new business, and that will help our absorption going forward. It also depends on our product mix as to where the gross margins are. And obviously there are various competitive factors and it's very difficult to the number of product lines.

But we’ve generally come in at the top end of our guidance. And the fundamentals remain the same as of this point. And so it is price competitive out there, but we feel like we’ve managed our supply chain, we’ve managed our production efficiencies, overhead absorption, to take that into account.

So, I don’t see much change other than product mix, and some of those cyclical demand challenges. If the cores are very soft, obviously, overhead it goes down a little bit but absorption goes down, but it gets made up when you have a stronger quarter with. So I don’t see any fundamental change in the margins.

I mean we are being a little more conservative than what we actually came in and I would recommend that for everybody..

And just to clarify, the growth in the quarter, was related to the strong growth in rotating the electrical, I mean, that part….

Yes, that was the big driver. And then we expect that to, by the way, we expect that to continue. I know people have questioned us on whether we can continue to grow rotating electrical. I will tell you that we have significant new commitments in all the product lines, but in particular, rotating electrical..

Thank you. Our next question comes from Jimmy Baker of B. Riley and Company. Your line is open..

Most of my questions have been answered. But just want to come back to the Master Cylinders.

So first could you just talk about how that sales trend looks on a gross basis, if you were to strip out some of the noise from the returns? And then just a couple of follow-ups there; first, do you expect to be able to redeploy the remaned product that you took back; and I guess second, as the market has shifted towards the new, are you in a situation where that impacts the market value for your cores or other inventory that you're carrying?.

No, I think we write down those cores pretty confidently every quarter. So I don’t think there is any impending big write down on cores at all and Master Cylinders. I would say today, we’re probably 90% of the product, just probably in new units. And so the challenge of growing that and it’s kind of grow. I mean we have a lot of interest in that.

We’re not concerned about the growth. Is that how customers are sitting on reman product, which is being replaced by new units? There is the question of what you do for core, and the reality is that cores are being scrapped. There is no use for that core, going forward. And so we have experience some of those write-downs.

Now, how much more of that’s going to happen, that’s a little bit hard to predict. But I do think that the return -- again, the return on capital in that line is going to be very strong, and even taking into account, the conversion of reman to new in that category..

And what would the sales trend have been, if you just looked at on a gross to gross basis year-over-year?.

Do you know that number?.

Gross unit?.

Yes. .

Yes, gross units increased, but because of the stock adjustments, which is recorded as a reduction to that gross sale that’s how we’re seeing the reduction..

And I’ve got it somewhere, I don’t have it at the top of my -- we don’t have that exact number. But it was up. I mean, I think, I’m guessing now. But I think it was up very high-single-digits, close 8% to 10% sort of range..

And then just one….

There is a lot of new -- we haven’t got too many customers in that area. We’ve been slowly expand that but now it's accelerating in terms of the new business that’s coming from that..

And I’m just curious as it pertains to the first quarter. I mean that was your slowest growth quarter of last year. So I’m just -- maybe this is just a function of back-to-back mild winters.

But I’m wondering if there is any seasonality emerging to stocking initiatives, inventory initiatives that your customers that’s deploy here or this is really just a function of weather?.

I think it’s both. I mean, last year I think -- I think that generally, the April month, is the slowest month of the year. You come off the big updates that are generally coincidently in the March. And March is probably our biggest month and April is probably our slowest month, as it gets granular on it.

So I think the first quarter, in general, is our weakest quarter just because of the cycle of the update orders and stock adjustments. And then it’s us picking up again from that. I think it’s unusual that it’s being hit with -- it’s unusual year because being hit by lower replenishment as well as being a typically slow quarter, slower quarter..

And then just lastly a couple housekeeping items, the $49 million in operating expenses. Is that including or excluding stock comp? And then the interest expense in Q4.

Could you give us the breakdown between factoring expense and interest on the debt that would usually be in your filings?.

So for your first question, the $29 million operating expenses does not include stock-based compensation. And your second question regarding the $3.7 million of interest expense. The majority of our interest expense is going to be related to the vendor financing progress.

So the small debt that we do have, it’s at about 3.5%, the remainder will be factoring. So as sales increases, the interest expense will increase because of the factoring interest expense..

Am I in the ballpark that it's $2.8 million, $2.9 million in the quarter from factoring?.

It’s going to be closer to $3 million..

Thank you. At this time, I’d like to turn the call back over to management for any closing remarks..

Well, I thank everybody for their interest, and we appreciate your continued support. And we thank you for taking the time to join us on the call. And we look forward to our progress and development, and we look forward to speaking you when we host our first quarter results in August and at the investor conferences in the interim. Thank you everybody..

Thank you, sir and thank you, ladies and gentlemen. That does conclude Motorcar Parts of America’s fiscal 2017 fourth quarter results call. You may disconnect your lines, at this time. Have a wonderful day..