Motorcar Parts of America, Inc. (MPAA) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Motorcar Parts of America's Fiscal 2013 Second Quarter Results. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Gary Maier, Investor Relations. Please go ahead.

Thank you, Ellie, and thanks, everyone, for joining us for today's 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 control of the company and 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. I would now like to begin the call and turn the call over to Selwyn.

Okay. Thank you, Gary. I appreciate everyone joining us today for our fiscal 2013 second quarter conference call. I especially want to thank you for your continued patience and support with regard to our delayed financial reporting. However, with the filing of our Form 10-Q for this quarter, we are finally and now current with our financial reporting. While there are still challenges ahead for our undercar business segment, we feel good about our progress related to cost savings, integration and customer service. I'd like to highlight a few accomplishments for the most recent quarter. With respect to our rotating electrical business, we achieved record sales and profitability for both the 3 and the 6 months. Sales were approximately $104 million for this segment for the 6-month period, with EBITDA of approximately $22 million. In the undercar segment, our accomplishments can be best described in terms of initiatives. We have successfully transitioned the accounting system to our company-wide ERP QAD [ph] system. Along with this, we have implemented and integrated a new warehouse management system. In addition, we have successfully eliminated third-party warehouse logistic operations in Pennsylvania, and we continue to pursue other cost cutting initiatives. The most significant portion of the remaining cost cutting initiatives relates to the consolidation of our warehouses. With the completion of our warehouse consolidation, our operating infrastructure becomes more effective and efficient. Due to the fact that we just hosted a conference call a few weeks ago, today I will keep my prepared remarks short, and David will discuss the financials in detail. Following his review of the quarter, we'll open the call to Q&A. Let me just briefly note that we continue to target an EBITDA run rate, as of the end of May, to be in the low $50 million range, with net debt peaking at $120 million by year end before being reduced. In addition, we believe that when we complete our transition, we'll be able to reduce our effective interest expense. The outlook for profitable growth in the undercar segment continues to be very encouraging. The sector is, of course, subject to the same dynamics as rotating electrical products, which benefits from increased demand as a result of the growing aged population of vehicles, as I have discussed in previous calls. In addition, technology for calipers and wheel hubs has changed over the last several years. And today, the majority of passenger vehicles have 4 disc brakes rather than 2. This is starting to result in an increased number of calipers per aged vehicle. In addition, antilock braking mechanisms are now commonly utilized on disc brakes, which create an even further replacement opportunity, with double the number of wheel hubs with anti-lock braking devices. In summary, the fundamentals remain solid in all of our product offerings. In short, our rotating electrical business is strong, and our undercar part segment is in transition but getting stronger. We will continue to capitalize and utilize our MPA operating model and strengths for the benefit of both the rotating electrical products and the undercar products. David will discuss our financial comments, and then we'll come back and be happy to review any questions in detail. Thanks.

Thank you, Selwyn. While the integration process for Fenco, the undercar product line segment, continues, MPA's base business in the rotating electrical segment had record results for the second quarter ended September 30, 2012. Net sales for the second quarter were $57.7 million, representing an $11.1 million or 23.8% increase compared with the prior year second quarter, and adjusted EBITDA was approximately $14 million, representing a $5.2 million or 58.5% increase compared with the same period a year ago. As mentioned in our fiscal 2013 second quarter earnings release this morning, operating results for the period ended September 30, 2012, were impacted by the undercar product line segment as the integration strategy progresses. We have made progress in reducing costs in many areas, as we will discuss. We'll now review the financial results for the period ended September 30, 2012. Consolidated net sales for the fiscal 2013 second quarter ended September 30, 2012, were $111.6 million compared with $107.6 million for the same period last year, an increase of $4 million or 3.7%. The net sales in our rotating electrical product line segment increased by $11.1 million or 23.8% to 57.7% (sic) [$57.7 million] for the 3 months ended September 30, 2012, compared with net sales of $46.6 million for this prior year's second quarter. The increase in net sales in our rotating electrical product line segment was due primarily to increased sales to our existing customers. The net sales in our undercar product line segment decreased by $7.9 million or 12.8% to $54 million for the 3 months ended September 30, 2012, compared with net sales of $61.9 million for the prior year second quarter. This decrease in net sales in our undercar product line segment was due primarily to the discontinuation of certain unprofitable product lines and customers as part of our undercar product line turnaround plan. Consolidated gross profit for the fiscal 2013 second quarter was $16.7 million or 15% gross margin, compared with $15 million or 13.9% gross margin for the same period a year ago. The gross profit percentage in our rotating electrical segment -- product line segment increased to 34.9% from 32.4% during the 3 months ended September 30, 2012, which reflects lower per-unit manufacturing costs. Productivity at our rotating electrical manufacturing facilities continues to be excellent. The gross profit percentage in the undercar segment was 2.8% for the quarter, adjusted for contractual customer penalties of approximately $800,000; unique customer allowance and rebates of $500,000; third-party warehouse exit termination fees of $1.4 million; severance of $1.3 million; unusual freight expense of $80,000; and loss from discontinued product lines of $795,000. We believe that gross profits will increase as we implement our transition plan. Consolidated general and administrative expenses decreased $116,000 to $11.2 million for the second quarter, compared with $11.3 million for the same quarter of fiscal 2012. Rotating electrical G&A expenses decreased $2.6 million, primarily due to a gain of $431,000 recorded due to the change in the fair value of forward foreign currency exchange contracts during the second quarter, compared with a loss of $1.8 million recorded during the prior year second quarter and $848,000 of decreased professional services and travel incurred in connection with our undercar operations. Undercar product line segment G&A expenses increased $2.5 million, primarily due to $1.4 million of severance; $1.3 million of increased professional services fees and other consulting fees; approximately $500,000 of increased audit fees; and approximately $300,000 of increased bank charges. Once the transition is completed, we expect these expenses will be eliminated. Consolidated sales and marketing expenses increased $707,000 to $3.9 million for the second quarter, compared with $3.2 million for the same quarter of fiscal 2012. Rotating electrical business sales and marketing expenses decreased $173,000. Undercar product line segment sales and marketing expenses increased $880,000, primarily due to $747,000 of severance and $283,000 of increased travel expenses. Again, once the transition is completed, we expect these expenses will be eliminated. Acquisition costs for the prior year second quarter of $309,000 were in connection with the May 2011 acquisition of the undercar segment. Consolidated operating income increased to $1.2 million for the second quarter compared with an operating loss of $237,000 for the prior year. Operating income for the rotating electrical segment for the fiscal 2013 second quarter more than doubled to $13.5 million from $5.5 million a year ago. Operating loss for the undercar segment was approximately $3.3 million after adjusting for contractual customer penalties, unique customer allowances and rebates, third-party warehouse exit termination fees, severance costs, unusual freight expenses, discontinued product lines and professional fees related to the integration of the undercar segment. As part of the turnaround plan to reduce costs, the undercar segment incurred $1.4 million of termination fees to exit the third-party warehouse arrangement in order to utilize lower costs in company-managed facilities. Additionally, as part of reducing labor costs of integrating the undercar segment acquisition, the undercar product line segment incurred $3.4 million of severance costs, including $1.3 million recorded in cost of goods sold, $1.4 million recorded in G&A expenses and $747,000 recorded in sales and marketing expenses. To recap, adjusted EBITDA for the second quarter for the undercar segment was negative $2.7 million; EBITDA for the second quarter for the rotating electrical segment was $14.2 million, adjusted for various noncash items, including a $160,000 noncash standard inventory revaluation write-down and unusual fees. To recap, on a consolidated basis, adjusted EBITDA was $11.5 million for the second quarter. Net of interest income, consolidated interest expense was $6.2 million for the second quarter, compared with $3.4 million for the prior year second quarter. This was primarily due to higher debt levels and higher interest rates during the 3 months ended September 30, 2012, as well as higher factoring interest expense for the rotating electrical segment due to the record sales for the second quarter compared with the prior year second quarter. Once the undercar segment integration is completed, which is targeted for early fiscal 2014, we expect to be able to reduce our interest expense with lower interest rates. Consolidated net loss for the second quarter was $8.9 million or a $0.62 loss per share, compared with a net loss of $5.4 million or $0.44 per share for the comparable period a year earlier. Consolidated net income for the second quarter would have been $0.02 per share adjusted for the items previously discussed. For the 6 months ended September 30, 2012, consolidated net sales were $200.7 million and adjusted EBITDA was $15.3 million, including $454,000 of noncash standard inventory revaluation write-downs for the rotating electrical segment. For the 6 months ended September 30, 2012, for the rotating electrical segment, net sales were $104.5 million, and adjusted EBITDA was $22.3 million, including $454,000 of noncash standard inventory revaluation write-downs. For the 6 months ended September 30, 2012, for the undercar product line segment, net sales were $96.2 million and EBITDA was a negative $6.9 million adjusted for the items previously discussed. At September 30, 2012, our balance sheet had $32.3 million in cash and $489 million in total assets. To recap, the rotating electrical segment and the undercar segment have separate bank facilities. The rotating electrical segment had an $85 million term loan; 0 borrowings on the revolving credit facility as of September 30, 2012; and approximately $31.9 million cash, resulting in net debt of approximately $53.1 million. The undercar segment had a $10 million term loan and $42.1 million in borrowings on the $55 million revolving credit facility. During the 3 months ended September 30, 2012, the rotating electrical segment generated $10.9 million of cash flow from operations, reflecting $6.5 million of net income for the second quarter. The undercar segment used $8.7 million of cash flow in operating activities, primarily due to inventory reductions partially offsetting the net loss during the quarter. I will now walk you through the income statement exhibits in our press release distributed this morning, which we believe will make it far easier to understand the various expenses and adjustments for the second quarter ended September 30, 2012. If you can take a moment to turn to the income statement exhibits in the press release, starting with Exhibit 5, we can begin. The income statement exhibit in Exhibit 5 of the earnings press release presents the 3 months ended September 30, 2012, second quarter results of operations for the rotating electrical segment. So when you eliminate the effect of financing-related costs, noncash mark-to-market gain recorded primarily due to changes in the fair value of forward foreign currency exchange contracts and intersegment interest income, diluted earnings per share was $0.39 for the 3 months ended September 30, 2012, for the rotating electrical segment despite the impact of higher interest expenses. It's calculated by taking the reported net income of $6,503,000 and adjusting for financing and other fees of $300,000; and noncash mark-to-market gains of $498,000, primarily related to the changes in the fair value of forward foreign currency exchange contracts; intersegment interest income of $1,273,000; and a 39% tax rate. So by subtracting the above-mentioned items to the reported net income of $6,503,000, adjusted net income was $5,463,000 or $0.39 per diluted share for the 3 months ended September 30, 2012, for the rotating electrical segment. Additionally, at the bottom of the exhibit, for the rotating electrical segment, there was a calculation for EBITDA for the 3 months ended September 30, 2012. Starting with reporting -- reported operating income of $13,519,000 and adjusting for the impact of financing and other fees; and noncash items, as previously mentioned; and depreciation and amortization expense of $704,000, rotating electrical EBITDA is $14 million. In addition, adjusted further for the noncash standard inventory revaluation write-downs of approximately $160,000, rotating electrical EBITDA for the 3 months ended September 30, 2012, was approximately $14.2 million. Exhibits 5 through 8 represent the income statement for the 3 and 6 months ended September 30, 2012, and prior year September 30, 2011, for the rotating electrical segment. Now please turn to Exhibit 1 of the earnings press release, showing both the rotating electrical segment and undercar product line segment results of operations for the 3 months ended September 30, 2012. Consolidated operating results for the 3 months ended September 30, 2012, were impacted by undercar-related expenses and noncash expenses, which are highlighted in the Adjustments column. To recap, these adjustments include: undercar contractual customer penalties and unique customer -- unique current period customer allowance and rebates of $1,317,000; undercar third-party warehouse exit termination fees; severance and unusual freight expenses totaling $2,754,000; financing, severance, professional and other fees and mark-to-market items, primarily due to foreign exchange contracts, totaling $3,247,000. Additionally, severance for undercar sales and marketing was $747,000, and the loss from undercar discontinued product lines was $795,000. So by adding the above-mentioned items, as well as a 39% tax effect for the rotating electrical segment and 0% tax effect for the undercar segment to the reported loss of $0.62 per share, adjusted net income was $0.02 per share for the 3 months ended September 30, 2012, for the combined rotating electrical and undercar product line segments. Additionally, at the bottom of Exhibit 1, there was a calculation for EBITDA for the 3 months ended September 30, 2012. Starting with the reported consolidated operating income of $1,163,000 and adjusting for the impact of undercar-related and noncash items, as previously mentioned, and depreciation and amortization expense of $1,342,000, consolidated EBITDA for the 3 months ended September 30, 2012, is $11,365,000. After further adjusting for approximately $160,000 noncash standard inventory revaluation write-downs, EBITDA for the 3 months ended September 30, 2012, was approximately $11.5 million. Exhibits 1 and 2 represent the income statement for the 3 and 6 months ended September 30, 2012, for the consolidated rotating electrical and undercar product line segment. Exhibits 3 and 4 represent the income statement for the 3 and 6 months ended September 30, 2012, for the undercar product line segment. We will now open the call to questions.

[Operator Instructions] Our first question comes from Mark Tobin of Roth Capital Partners.

On the rotating electrical business, obviously a very big quarter. Can you give us a sense of what you expect going forward? How much of this was, I guess, positive lumpiness? And then what's the outlook for the next several quarters or so?

Yes. Well, what's interesting is, for years now, for those who've followed the company, I've been preaching about the market statistics of these increased aged vehicle populations. And it seems to me that over the last, certainly, 12, 18 months in the rotating electrical segment, we've seen the results of these higher replacement rates for vehicles. And in addition to that, I think we see, in the industry, in general, there's a rush to service the professional installer, which brings in new demand which relates to repairing late-model applications. And so I think in the last quarter, we saw the effects of both of those come to fruition, with our customers ramping up inventory levels to really facilitate their increased sales in the professional installer markets and really a pretty vibrant market. We think that the next 6 months will continue to be good. We don't think it'll be as strong as the first 6 months, just because they're extraordinarily high and we do hear of lumpiness in the industry, although I think most of that relates to nondiscretionary parts, I think -- to discretionary parts. I think the nondiscretionary part of the business should continue to be strong. I mean, again, I don't see any real change in the metrics in the marketplace that would say that demand should fall. But in modeling out the remaining year, I wouldn't use the first 6 months. I think that's too aggressive. I think the guidance we've given, Mark, is that we'll be in the high 30s on EBITDA on the undercar. But we do expect to continue to comp up, I mean, in both -- in rotating electrical over the prior year, so in the next couple of quarters and really the next year going forward. But I would like to remain conservative and let's see what happens.

Okay, that's great. And you had reiterated the guidance as far as a low $50 million EBITDA run rate by the end of May. Does that also include a $15 million run rate for the under-the-car business?

Correct, correct. Yes, we think that -- now the undercar business segment's going to be a little bit more noisy as -- of course, I mean, I think everybody who's followed us has seen this. But certainly, what we're doing is we're paring down, a lot of business that we've eliminated, and then we're rebuilding business that makes sense for us. So we'll see dips in revenues and then a big increase in revenues. And just to give you some insight into that, I mean, we're seeing a lot of traction with new business opportunities in the undercar segment. So as we get that model fixed and we're close to that, I think you'll see the revenues dipping and then we'll see some vibrancy, not only -- we hope from the -- sort of the organic growth of the categories, but mostly, the real growth will be from new business that we'll add.

Okay. And on that same topic, so the December quarter is where we should see the pared down under-the-car business, right, where you cut about 40% of the business out. Is there pare-down beyond that? Or...

I think you'll see it in December and a little bit in March, and then you'll start seeing the revenues tick up. We're going to have some pretty unique revenue opportunities in terms of gains, but we'll adjust them out. I mean, so I think reported numbers may show higher revenue than you may expect, but so did our organic roots. We'll see a drop in the December quarter, slightly in the March quarter, then you'll see them picking up.

Okay, that's helpful. And from a balance sheet perspective, it looks like you're right on track or even ahead of the targets, the peak net debt targets that you had discussed previously. Can you address your comfort level there?

Yes, I think with the guidance we've given in the past, we continue to say that we'll peak at about 120 towards the end of this year. And so we feel pretty comfortable where we are. We're down to the last stages of -- well, the last stages of the transition, which is a big stage. This is the consolidation of the logistics model of warehouses and logistics. So we'll start seeing some real benefits start kicking in there in the March quarter, and even now, but it's moving along nicely.

So you would expect to have the warehouses consolidated by -- in your fiscal fourth quarter?

Well, again, the guidance we're giving is May. Hopefully we can beat that, but really, I think I would stick with that at this point.

Our next question comes from Jimmy Baker of B. Riley & Co.

This is Marcelo Choi in for Jimmy. First question I have is, the growth that you have reported so far in fiscal year '13 for rotating electrical seems to be well ahead of industry growth. Can you talk about where you've gained that share and what has facilitated those share gains?

I think David made the point that it's from predominantly existing customers and it's not really market share-driven. We think we'll see additional gains in the future here for market share, but these gains were from same customers. And really, our mission is that we want our customers to be -- to do better than our competitors' customers. And I think the work that we've done with our customers has positioned them to be industry leaders. We think they're doing a great job and we've developed some very strong partnerships with our existing customer base that's grown our revenue, and we certainly hope that will continue on.

Okay. And can you give us some color on the trajectory for Fenco gross margins over the next couple of quarters and maybe into fiscal year '14?

Yes, I think the target we talked about was in the 17% to 20% range starting in May and we haven't given guidance beyond that. But that's sort of the initial target and that gets us to the $15 million EBITDA rate that we need to be at. And then we'll worry about -- from there, then as we build revenue and we build absorption in the plants and we rebuild the revenue density, we certainly expect that we can become more efficient.

Okay. And I guess just a follow-up on that, I guess before you hit, I guess, those -- that trajectory for May 2013, I guess, you would expect sort of gross margins to be pretty lumpy here before that time period.

Yes, they're going to be affected by the transition. I mean, I think we saw a nice little increase in gross margins this quarter. And certainly, our intent is to continue to increase these margins. But they are all going to be -- it's not going to be a straight-line trajectory up to the 17%, because a lot of the warehouse consolidation costs that we're saving come out of COGS.

Okay. That's helpful. And just last question from me. How long do you guys expect to report these non-GAAP adjustments? And will you be through with these adjustments when the Fenco transition is completed in May?

Yes, I think so. I think the one thing we have is our mark-to-market inventory policy, so those we've done out [ph] and we also do forward currency on foreign exchange, so we've generally reported those. I mean, the severance costs hopefully have come to close to an end. The fees and consulting fees will come close to an end. We think we can bring down our professional audit fees. And as we've now transitioned to a more streamlined accounting base, all of these expenses will go around -- go away. And our fill rates and customer service levels are improving dramatically. And so we think that these, by May, will become very, very little. Diminished, I guess, is a better way to say it.

[Operator Instructions] Our next question comes from Bob Sales of LMK Capital Management.

A couple of follow-ups on earlier questions and a couple of new questions. Selwyn, did you say that the 17% to 20% range was the gross margin range for undercar, the potential that you have in the business?

Correct.

Okay. And you said that was kind of a May -- first stop, if you will, for a May time frame.

Correct.

And that -- the nature of that business, do you -- can you provide or are you willing to provide any sort of view on the gross margin potential beyond that?

Well, I think the key there -- the key to -- the direct expense in terms of material costs, you can get to very quickly in terms of controlling what goes into the components and what goes into the direct labor. The big key there is we have capacity and we've always said this, going back 10 years, when we started our rotating electrical, is we sell capacity. And so we've designed the plants and we've reengineered the whole plants and the operating model in our undercar product to have the same opportunity to grow into the capacity that we have. And so as we get more efficient in picking up and regrowing revenues, the overhead absorption opportunity is significant. And so I don't think that -- certainly, on the reman side, that these sort of 31%, 32% long-term margins are a possibility. I think they are a possibility. On the new unit program, you generally work on lower margins there, so -- and I think we're looking probably at a 50-50 split as we go forward down the road. So I'm thinking in the high 20s would be the second stop. I will show -- I will add that if you look at the gross margin for this last quarter in rotating electrical, I mean, you can see that the big spike in that, that's directly related to the plant operating at higher production levels, and we still have 40% capacity available in the rotating electrical plants, so there's a lot of opportunity there as well.

And just by comparison, the rotating, what percentage of that is reman versus new?

About 90-plus percent is reman in rotating.

Okay. And then this revenue dip that you talked about a few minutes ago for the December and March quarters, can you quantify that one more time? I know...

Yes, so we've basically -- we've probably eliminated $60-plus million of revenue from the original base of business in the categories that we want to be in, and that was business that we didn't think that was -- for the most part, business that we didn't think was profitable for us. We did have a few small losses. That's the reduction. We will see a -- we will see that reduction, but already -- we've already earmarked and been awarded business that we want going forward that's coming on over the next 4 months. I mean, we're seeing tremendous traction in undercar already. So we feel comfortable that as long as we can get this operating model completed, as we believe we can, that we'll see some significant revenue growth in undercar over the next years.

And when the business is whittled down to what you want to keep, what will the big categories look like between, let's say, brake calipers, wheel hubs and whatever else is there, just in very rough terms?

Yes, so let me sort of identify what they are first. I mean, right now, you've got rotating electrical, which represents alternators and starters. Today, that's a little over $200 million in revenue and we expect to continue to grow that business while -- albeit slow, but we do expect that we'll continue to grow that business. On the undercar parts, there will be 3 categories. And so we'll start with just brakes, and brakes would be predominantly brake calipers, with a smaller amount of master cylinders in that category. And we certainly are targeting -- again, this is not for the next 6 months, but if you look at the spectrum, we think that, that's a $100 million opportunity. We then will have steering and steering is in 3 categories, which is racks, gears and pumps, and we think that's a $100 million opportunity. And then we'll have the driveline and driveline will be really in bearings and wheel hubs, and we're close to $100 million there already. So that's sort of the immediate near-term outlook for those 3 categories. And everything else out of the undercar, we're trying to eliminate and have substantially eliminated already. We're selling down some inventory which we continue to take some losses on, but we're just liquidating. There's some capital opportunity in the inventory still.

Okay. And then final question for you. If the debt -- if you think the debt peaks at $120 million, and I assume that, that's a function of inventory overlap while you consolidate the warehouses, when you look forward 12 to 18 months, what is the level of net debt that you think the business will need to carry? And I'm not assuming any free cash flow to pay down debt. I'm just looking past the goals that you'll see over the next few quarters.

Yes, let me try and answer it my way. I may not be hitting it the same way you are, and then maybe you can come back at me. So if you look at $120 million today and we're targeting in the low 50s, let's just call it, say, $53 million of EBITDA, and certainly, the $120 million debt level is very sustainable at that level, we think we'll have free cash flow generating slightly above $20 million a year in free cash flow. We're looking at refinancing the interest expenses. So from a debt level perspective, we don't think there's an imminent need to reduce the debt other than through free cash flow because we believe at those EBITDA levels, that ratio is very comfortable. So that will allow us -- and the thing I'm driving at is it will allow us to also continue to grow, so there's -- without having capital crunch. But we'll be looking at that all the time right now.

Yes, I understood. And then in that -- in the offshoot of reducing interest expense, are you willing to share any of your approach in that? Will it be a -- do you conceive more of a total refi or going back to the same lenders with improved metrics at this point in the business?

At this point, it's a little early because we don't -- I don't believe we're ready for it right now, so I think we'd look at both. I mean, certainly, the existing lenders have been, quite honestly, very, very good to work with on both fronts. Both lenders for both companies are being great. But we -- certainly, we'd look to reduce rates once we have more stability and less risk in our model, which I think is fair. And whatever it took really to get there, that's what we'd do.

Our next question comes from Mitchell Sacks of Grand Slam.

Most of the questions have been answered. The only question -- I just want a little more clarification. So with respect to Fenco, the undercar business, you had mentioned, obviously, December and March, you're still in the process of reducing some of the revenues, I guess, that weren't profitable. But I think you had sort of mentioned there were some other revenue opportunities that were going to cycle in over the next 4 months. Can you just sort of help me think about that, because revenues were a lot higher this quarter in Fenco than I expected? So I just wanted to sort of understand it a little bit more granularly.

Yes, I think you're going to see much higher revenues reported than what we're talking. I mean, I'm talking about adjusted numbers. I think the actual reported numbers are going to be significantly higher than what we're referring to. We've got situations where we have deferred revenue on our balance sheet that we think we'll be able to take into income, and we'll experience some revenue from cores, which will be profitable revenue. I mean, it is very profitable revenue and it's -- that's, again -- that's more -- it's not a sustainable model, I mean, the way we account for our revenues. And it's sort of onetime -- it's lumpy, and onetime pickups.

So in terms of real run rate then, how do we think about that business?

So yes, I think the guidance we talked about was $135 million to $140 million in revenue on the undercar. And that's adjusting for all these extraordinary sort of pickups.

Okay. But is it also adjusting for the revenue that you've won? Or that would be on top of it...

No, no, no. I'm just taking out of the core revenue, unusual revenues. The base organic revenues should be for the next fiscal year, in the $135 million to $140 million a year.

Okay. And is that -- that's plus, then, the new business you've won or that includes all the new business you've won.

That includes what -- the entire revenue recognition. Now that business kicks in through the year, so that won't be -- the run rate should be higher than that, but that's what we expect to report next year, yes.

[Operator Instructions] Our next question comes from George Berman of J.P. Turner & Company.

A quick question. In your financials, you have -- last quarter, you show additional paid-in capital warrant, $1.879 million. This quarter, that's 0. Where did that go?

Okay, so that relates to a pipe that was done 5 years ago in 2007, and those warrants have since expired, so it's just been re-classed one line above into the normal additional paid-in capital line item.

So these warrants expired.

Correct.

I'm showing no further questions at this time and I'd like to turn the conference back over to Selwyn Joffe for any closing remarks.

Right. I just wanted to thank everybody for their time. I'm very excited that we're now current in our filings. I'm optimistic that we'll remain current in our filings. We have successfully moved our entire accounting group and the processes are being put in place. Obviously, it's still new, but we're very optimistic about that, and I think that will be helpful for everybody, not only in terms of financial reporting, but quite frankly, a much more contemporaneous management reports internally. And so we're very excited about the status of that. We're excited about the categories that we're in. We do have a lot of heavy lifting to do still in the next 5 months to hit our targets, but we feel like we're on track. And so I thank everybody for their time and I appreciate all the support.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.