MPAA

Motorcar Parts of America, Inc. (MPAA)

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Motorcar Parts of America, Inc. (MPAA)

F1Q09 Earnings Call

August 11, 2008 12:00 pm ET

Executives

Gary S. Maier - Maier & Company, Inc

Selwyn Joffe - Chairman, President, Chief Executive Officer

David Lee - Chief Financial Officer

.

Analysts

Mitchell Sachs - Grand Slam

Richard Hoss - Roth Capital Partners

Dimitri Cornasofskia - First Wilshire

Seth W. Hamot - RRH

Rod Cerney - McCarthy

[Bob Sails] – Capital Management

Presentation

Operator

Welcome to the Motorcar Parts of America fiscal 2009 first quarter conference call. (Operator Instructions) At this time for opening remarks I’d like to turn the program over to Gary Maier.

Gary Maier

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 would 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 these forward-looking statements.

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. For a more detailed discussion of some of these ongoing risks and uncertainties of the company’s business, please refer to the various filings with the Securities and Exchange Commission. With that said, we’d like to begin the call, and I’ll turn the call over to Selwyn.

Selwyn Joffe

I appreciate everybody joining us today for our fiscal 2009 first quarter conference call. As highlighted in today’s financial release, the momentum from year-end has continued in the first quarter and the company’s of to an excellent start for its fiscal year, with some solid earnings performance and solid metrics. While sales performance was not as robust as we would have liked, we are nonetheless encourage by our overall success in the challenging environment.

As I noted during our year-end call, we are very focused on the top line sales growth and believe there are numerous opportunities to enhance the company’s market position, both organically and through acquisitions. Our operations in Mexico are performing very well and can easily absorb additional business and enhance margins. Our gross profit climbed 12.5% as highlighted in this morning’s release, with gross margin jumping to 35.1% for the quarter, from 28.8% a year earlier. David will discuss the contributing factors in more detail in a few minutes.

We recorded a $1.3 million inventory write-down of finished goods on hand, to reflect our current lower production costs. This will have a positive impact on future gross margins as we sell through that inventory.

Fiscal first quarter results also reflect the reversal of an accrual of customs expense for cause of approximately $1.3 million, and this is based on the successful resolution of a customs review of certain cost elements in the appraised value of used alternators and starters, which were remanufactured in our Malaysia facilities and returned to the United States since June of 2002.

We continued to believe that certain economic conditions support favorable trends within the automobile after-market industry and support demand for our products. As consumers delay new car purchases, which is happening in the marketplace and hold on to their vehicles longer the replacement of parts becomes more essential. As I’ve noted in recent conference calls and for the benefit of new shareholders the average age of vehicles today’s 9.4 years.

Once vehicles reach the four to seven year age group, the demand for replacement parts climbs dramatically. They double when they enter the 8 to 11 year group and then almost double again once the vehicles are more than 12 years old. Today there are approximately 49 million vehicles within the 8 to 11 year old age group. There are 60 million vehicles registered, that will enter the 8 to 11 year group during the next three years.

A growth of this high replacement opportunity vehicles of 22%, and are compounded with that 22% when it accelerate its replacement rate by 50%, and registered vehicles within the more than 12 year old category are expected to also climb significantly during this period.

So this is obviously good for our business and that of our customers. We would like to stress that in some respects, it makes us recession resistant. The rise in oil prices appears to have cause consumers in certain parts of the country to cut back on driving, which could result in some deferred maintenance and sales fluctuations. However, we still believe that numerous parts of the country, miles driven has not declined and as we have said in the past, the company will not lose a sale but rather sales are deferred if the part failure is pushed out.

So, let me take a moment know to talk a bit about our strategic initiatives, lets first talk about our initiative for sales growth. Despite of our first quarter sales decline our organic business continues to strengthen. We suffered from some timing on shipment of new orders versus recognition of returns. In addition because shipments are coming from our Mexico plant now, we have deferred some revenue recognition to allow for the extra time it takes for the products to reach our customers.

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