Thank you for standing by. My name is Novi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America Inc. Fiscal 2025 Second Quarter Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Gary Maier, Vice President of Corporate Communications and Investor Relations at Motorcar Parts of America.

Thank you, Novi, and thanks everyone for joining us for our call this morning. Before I turn the call over to Selwyn Joffe, Chairman, President, 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 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. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the various filings with the SEC that we make. I will now turn the call over to Selwyn Joffe to begin our call.

Thank you, Gary. I appreciate everyone joining us today. We are gratified by our continued record sales performance for the quarter and six months. We were excited by the opportunities we see on the horizon and remain optimistic about the second half of fiscal 2025 and achieving our full-year targets. We reported record gross profit for the quarter and six months, and gross margin metrics showed continued improvement, which David will discuss in more detail. We generated approximately $23 million of cash from operating activities, primarily due to strong operating results. Our initiatives to enhance profitability and neutralize working capital are progressing well. The result of these initiatives is to increase profitability and cash flow, which will enhance shareholder value. We are particularly excited by the operational efficiencies we are realizing from our emerging break-related products, which have grown to be our second-largest category. New break business commencing in January will further enhance our product -- production efficiencies, which should result in consolidated margin improvement. Clearly, our accelerating break-related product sales are contributing to efficiencies from both purchasing and production. Our team is doing an exceptional job to enhance performance metrics, and we look forward to continued growth and gross margin accretion for our important non-discretionary products. There are various factors related to our financial performance that are non-cash and beyond our control, particularly the current sharply unfavorable non-cash mark-to-market foreign exchange laws from Mexican lease liabilities and forward contracts. A strengthening dollar versus a peso results in large non-cash mark-to-market expenses, which we internally eliminate when evaluating underlying results. We are continuing to look at opportunities to minimize these non-cash expenses, including funding our Mexico operations with pesos from sales in Mexico. As our sales in Mexico continue to grow, we will purchase fewer forward contracts to meet our…

Thank you, Selwyn, and good morning, everyone. I encourage everyone to read the earnings press release issued this morning, as well as the 10-Q that will be filed later today. Let me first reiterate key financial performance metrics for the fiscal 2025 second quarter that we highlighted in this morning's news release. Net sales increased 5.9% to a record $208.2 million. Gross profit increased to a record $41.3 million, impacted by certain one-time expenses of $2.7 million for onboarding new business, and $1.3 million of transition expenses related to recent strategic relocation of certain operations with expected annualized savings of $7.1 million. Generated cash from operating activities of $22.9 million and reduced net bank debt by $22 million. Results were impacted by non-cash items, totaling $10.6 million, as detailed in the exhibits. Net sales for the fiscal '25 second quarter increased 5.9% to an all-time record $208.2 million, from $196.6 million in the prior year. Gross profit for the fiscal '25 second quarter increased to a record $41.3 million, from $41.1 million a year earlier. I should mention that gross profit for the quarter was impacted by non-cash expenses. The non-cash expenses reflect core and finished good premium amortization and revaluation of cores on customer shelves, which are unique to certain of our products and required by GAAP. The total for these non-cash expenses in the quarter was approximately $3.8 million, or 1.8% impact to gross margin. A more detailed explanation of core accounting is available in a video posted on the company's website. Gross margin for the fiscal '25 second quarter was 19.8%, compared with 20.9% a year earlier. In addition to the non-cash expenses previously explained, as detailed in Exhibit 3 of this morning's earnings press release, gross margin was also impacted by a one-time $1.3 million, or…

[Operator Instructions]. Your first question comes from the line of Bill Dezellem with Tieton Capital.

Thank you. First of all, would you please walk us through the increased guidance for operating income from that $62 million to $67 million range that you had originally and now $79 million to $84 million, and what changed to lead to that increase?

Thank you for that question. There is no change in the net operating income because previously we gave the guidance, as you mentioned, $62 million to $67 million, but we also highlighted there would be $17 million of non-cash items. So what we did was we combined the amounts. So if you add $17 million, the previous $62 million and $67 million, it results in the $79 million to the $84 million. Does that make sense?

It does. Okay, great. Thank you. And then secondarily, I believe in the release you referenced ordering activity was gaining momentum. So I'm looking for a little more perspective behind that. Were there specific customers that that's referring to? Was it specific product lines? Is this counter to the normal seasonal inventory declines that your customers have? So some perspective behind that, please?

Yeah, I mean, we're seeing not two main categories. We're seeing pretty vibrant demand. We've had a strong start to this quarter as well. And I might add, Bill, that this is in light of a pretty soft market out there. I mean, we've just come back from the apex, and I think it's fairly unanimous that people are generally experiencing softness. So I'm excited to be able to say that. I mean, I think that if the market was stronger, we would even see greater opportunity. I think our product lines are holding them. You know, they're non-discretionary, and they're holding their own. And in particular, in the brake caliper line, just the programs that we offer are very strong, and I think they're picking share. So that continues on. You know, we're seeing a bottom out as well, I think. I think, what I'm hearing the industry say within the next sort of February timeframe, it seems like there's a bottom out in the opportunity on the tire replacement and sort of the brake category, I think, has bottomed out. And so we should see a further pickup there. So lots of updates in terms of, you know, we were introducing new part numbers, so a lot of that activity. So in general, I think despite, a relatively soft market, which, by the way, I think is very temporary, all the statistics continue to be positive, we're holding our own, and we expect tailwinds and the winds to change and tailwinds to further increase this.

Great. Thank you. And then just a little more color on this, if you would, please. Are you finding it's pretty much across the board, customer-wise, that you're having this order momentum, or does it tend to be with one or two customers?

You know, our top five customers are huge contributors to all of our trends. And so I would say in the majority of that top five, we're seeing that coming from different categories within, what we supply to those top five customers. So I think different customers are experiencing different success with different initiatives. And so rotating electrical and brake calipers in particular, the standouts.

Great. Thank you for the color and perspective.

Thank you.

Thank you.

[Operator Instructions]. Our next question comes from Bill Dezellem with Tieton Capital.

Thank you. I'm going to jump in with a couple more, if I may now, please. So you had the $1.3 million of transition costs. Would you talk about what operations were moved from where to where?

Yeah. So the last -- for a long time, we talked about how we got affected from COVID when Malaysia was closed down for 30 days, and we had to take in paper-bearing wheel hubs into the USA because we didn't want to be the importer of record into Mexico. So, moving that out of the Torrance facility was the last step in getting through that. So a lot of margin accretion will come to the wheel hub business as a result of that. And then in addition to that, there were ongoing special order activities relating to rotating electrical, mostly in conjunction with supplying our original equipment service program to some of the OE, the big OE manufacturers. And so we were able to get that relocated as well. So we're now in the process of evaluating the subleasing alternatives for the space. So we'll see how the market is and what happens. But we're optimistic. We have a below-market rental, and so we think we have a nice opportunity.

That's helpful. And so what is remaining in Torrance now in terms of operations besides offices?

Well, we still have our engineering operations. So a lot of our testing and diagnostic center and our content development center remains in Torrance. So definitely for new products and new pod introductions, we do significant quality testing on our products way beyond, in my opinion, what the aftermarket. We're in the levels of an OE-type player on our quality levels, and we're proud of that. And that helps separate us. And that happens in Torrance. And then in addition to that, we have a tech center, and they go hand-in-hand with each other. But our tech center is where we develop many of our training materials and videos and 3D content. And one of the things that we do is we do live installs. So we're continuously checking applications against live vehicles. So our testers are very reliable, but we embellish that with testing on the actual vehicle. So we have a service center that is a full-blown education center with stadium seating and an ability where our customers can see examples and demonstrations of different installations, procedures, and that's all in Torrance still. And just our regular corporate headquarters as well, administration.

Great. Thank you. And then this quarter you specifically called out $2.7 million of one-time expenses to onboard new business. I don't think I have seen expenses tied with onboarding of new business in the past. Would you detail what that was and what product line and the circumstances around it, please?

Yeah. So it's a new rotating electrical business with a significant customer, and that'll begin shipping. Normally there are these expenses in conjunction with the start of business. This was a little in advance, so that business will start in January. And it's a good business. The return on capital on that business is certainly in the 40% to 50% range or higher. So we're excited about that.

Is this with a new customer?

Existing customer. New business with an existing customer.

Great. Thank you. And then one additional question.

We're getting to the point, Bill, where we have a lot of customers now, so most of the new business is with existing customers. So, yeah.

I had one specific one in mind that I was wondering about. Okay. Thank you. And relative to price increases, you had several. Are there additional rounds of price increases that are in place now?

We have one price increase that we're expecting in January. But the market today is stabilized on that. I mean, we continue to fight for price. I mean, I think that when you have weakness in the industry, it becomes much more challenging to get the price increases that perhaps you deserve. But we continue on, and we're excited about margin accretion opportunities. And I think as we get into the next quarter, we'll start outlining that in a little more detail for everybody. But we're making some great progress on emerging newer product lines that will help margins.

And so when the magnitude of that price increase, we're really trying to gauge the impact on the total business?

Yeah, I think it's all in the guidance right now, Bill. I'd rather not get into the details of that at this point. But it's all in the guidance numbers, and certainly as we give you more visibility on the next fiscal, you'll see more of that.

Okay. That's fine. I'll let you take a pass on that one, if you will. Give a little bit more perspective on or an update on the individual that you hired here several months ago who has lots of experience in the professional installer business.

Yeah. So, not sure what to comment, but that business is growing. We further added to our team there, and we're seeing, to use a pun, great traction from that business.

I will now turn the call back over to Selwyn Joffe, CEO, for closing remarks.

Okay. I think Bill may have got cut off there. I'm not sure. Okay. But thank you. In summary, we're bullish. I'll restate we're bullish as we begin the second half of the fiscal year. We are laser focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet demand for nondiscretionary products, as well as from our diagnostic testing capabilities. We are leveraging our expertise in solid customer and supplier partnerships. This includes our supply chain vendor finance program that benefits our suppliers. Our liquidity is strong, and we have the resources, capacity, and professional expertise to capitalize on significant market opportunities in all of our product lines. In closing, I must recognize the contributions of all of our team members who are continuously focused on providing the highest level of service. We are all committed to being the industry leader for the parts and solutions that move our world today and in the future. We also appreciate the continued support of shareholders and thank everyone again for joining us on the call. We look forward to speaking with you when we host our fiscal 2025 third quarter call in February and at various investor conferences and meetings this fall and in winter. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.