Motorcar Parts of America, Inc. (NASDAQ:MPAA) Q2 2018 Earnings Conference Call Transcript

Nov 09, 2017 • 01:00 pm ET

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Motorcar Parts of America, Inc. (NASDAQ:MPAA) Q2 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to the Motorcar Parts of America Fiscal 2018 Second Quarter Results Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Gary Maier, IR. Sir, please go ahead.

Executive
Gary Maier

Thank you. Thank you very much. And thanks, everyone, for joining us for our fiscal 2018 second quarter conference call. Before we begin and I turn the call over to Selwyn Joffe, Chairman, President and CEO; and David Lee, the Company's CFO, let me remind everyone of the safe harbor statement included in today's press release. (Forward-Looking Cautionary Statements) With that, I'd like to begin the call and turn the call over to Selwyn Joffe.

Executive
Selwyn Joffe

Okay, thank you, Gary. I appreciate everyone joining us today. As highlighted in our earnings press release this morning, despite industry-wide softness due to various widely discussed factors, we achieved record sales for the second quarter even though our sales were adversely impacted by approximately 5% due to certain customer inventory reduction initiatives.

Despite this factor and record sales, we were disappointed that our performance was not in line with historical growth rates. I want to stress, however, that we remain bullish. Our products are gaining market share, our new product initiatives are gaining momentum, our physical infrastructure and human resources are exceptional, and our expectations for accelerated growth are as strong as ever.

We expect our second half of this fiscal year to have stronger sales, more in line with our historical performance and strengthening at an accelerated rate for our fiscal 2019 year. We are beginning to see sales momentum return, albeit at a moderate pace. We believe that given today's favorable automotive carpark statistics, such as the age of vehicles, miles driven and the related factors, demand for non-discretionary parts is recovering and will continue to get stronger.

It is important to understand that our adjusted gross margins were negatively affected by a reduction in overhead absorption due to lower purchasing volume and higher returns as a percentage of sales. We expect gross margins will improve as sales volume increases.

Our current product categories, excluding diagnostic test equipment, represent approximately $4.7 billion of the estimated $125 billion US automotive hard parts aftermarket industry. We are aggressively growing our Company, and we see a lot of growth opportunities on the horizon. Furthermore, with our recent D&V Electronics acquisition, a new market opportunity has been added, which greatly expands our growth potential in a $5 billion global diagnostic market.

Diagnostic and testing products complement our already well-recognized, value-added client services and are well positioned for fast growth. We believe that revenue growth over the next five years from D&V should be a significant contributor to our overall sales growth. We are fortunate to have a global footprint and an exceptional management team that enables the Company to maintain a competitive cost structure for our existing product lines and to effectively pursue new product line expansion opportunities based