Motorcar Parts of America Inc (MPAA) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Motorcar Parts of America fiscal 2017 first-quarter results conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Mr. Gary Maier. Sir, please begin.

Okay, thank you very much, and thanks for joining us for Motorcar Parts of America's fiscal 2017 first-quarter conference 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 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 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. 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 would now like to turn the call over to Selwyn Joffe and begin.

Thank you, Gary. I appreciate you joining us today.

We are excited about our results for the first quarter, so we achieved record profitability for the quarter on a GAAP and adjusted basis. GAAP sales were slightly down at $85.4 million for the first quarter. However, we had record adjusted net sales of $93.8 million for the first quarter. GAAP sales were reduced by customer allowances for new business. These allowances are investments to support our future growth and our ability to gain market share and enhance shareholder value.

I should note that the first two months of the fiscal first quarter were impacted by the mild winter, which should result in some deferred sales opportunities. As I've said before, all of our products which are nondiscretionary fail more frequently in a harsher weather environment, whether colder or hotter. Nonetheless, we did see strength across all of our product lines later in the quarter, though we would have expected stronger performance with harsher weather.

Based on current trends, we expect sales momentum to continue to be strong in the current quarter. As we announced yesterday, we have expanded our product offerings with the introduction of brake power boosters, which will begin shipping later this month. By way of a brief introduction, both vacuum and hydraulic brake power boosters provide additional stopping power by generating increased braking force. Every vehicle that has power assist brakes has a brake power booster. Currently, almost all vehicles have brake power boosters.

Generally, every passenger vehicle and light-duty truck on the road should have at least one replacement during its lifetime. Industry sources estimate the size of this market to be approximately $350 million at the end-user level in the United States.

We see excellent opportunities for us to leverage our footprint and our value-added customer services to gain market share.

This new category, as well as our other nondiscretionary products, is expected to grow as the car population ages. Recently, there have been reports that new car sales have slowed, which may in fact be a positive for us. While there are various factors that may influence replacement rates on a short-term basis, ultimately all of the 250 million vehicles on the road, other than those scrapped, will require replacement parts and our expanding product line will benefit as these vehicles age.

We're also excited about the opportunities that we expect from our acquisition of ZOR Industries, which positions us in the rapidly emerging replacement market for turbochargers in the United States. By way of a brief overview, turbocharger systems utilize the exhaust waste stream to power the turbo. This results in an increase of air flow into the combustion chamber, thereby enhancing engine power and decreasing fuel consumption. In short, turbochargers offer improved power and fuel economy, as well as a reduction in emissions.

We are entering this market with an experienced management team and a developed knowledge base at a time that we see as the beginning of a high growth stage. Based on the industry reports, the turbocharger aftermarket size at the end-user level in the United States is estimated to be more than $500 million, which today is dominated by heavy-duty applications. It is anticipated to be a fast growth category for light-duty passenger vehicle applications, as well as others.

Turbochargers became mainstream in Europe more than 10 years ago. The Europe turbocharger market, including original equipment, is estimated to be over $5 billion. This bodes well for the future opportunity in the US market.

In the US, turbochargers are an emerging technology and utilized in both diesel and gas applications. Today in the US, approximately 8% of new passenger vehicles have turbochargers, with expectations that by 2020 more than 25% of new vehicles will include turbochargers. In addition, turbochargers are being used in a number of heavy-duty industrial, agricultural, and power sports applications. This represents a significant opportunity for aftermarket replacement.

In short, we are excited about the ramp-up and future opportunities for this product line.

For those of you who are new to Motorcar Parts of America, I should mention that a number of factors continue to provide tailwinds to the aftermarket hard parts business. Miles driven has increased for a variety of reasons, including reduced unemployment and lower fuel prices. In addition, despite the growth of new car sales, the average age of vehicles in operation continues to grow, now exceeding 11.5 years, and hopefully will continue to grow.

As vehicles get older, 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 aging of the car population, resulting in accelerated growth for replacement parts.

All of these factors bode 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-plus-year category includes later model vehicles with more sophisticated and higher-priced parts than the earlier models. We anticipate continued positive contributions as we move forward through the aging cycle.

To put our overall potential in perspective, industry sources estimate the market size in the USA and Canada for our current products to be approximately $4.7 billion at the consumer level. The remaining potential in these markets for hard parts is estimated to be $106 billion plus, which should provide us with a lot of opportunity to introduce new parts and grow our business organically with the growth of existing and new product lines and through appropriate acquisitions.

We are proud that our service and quality levels continue to exceed expectations and we believe this in part has allowed us to gain further market share in all of 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 a growing offering of nondiscretionary products.

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 are strong and we expect our solid growth to continue.

I will now turn the call over to David to review the results for the fiscal first quarter in more detail and then I will end with an update on the numerous initiatives and progress the Company has made. We will then open the call for questions, and so David will now discuss our financials.

Thank you, Selwyn. I will now review the financial highlights for the first quarter.

Before I begin, I encourage everyone to read the 8-K filed this morning with respect to our June 30, 2016, earnings press release for more detailed explanations of our results, including reconciliation of GAAP to non-GAAP financial measures and the 10-Q, which will be filed later today.

Net sales were $85.4 million for the first quarter, compared with $85.8 million for the prior-year first quarter. Adjusted net sales were $93.8 million for the first quarter, compared with $86.6 million adjusted net sales for the prior year.

The adjusted net sales increase of $7.2 million was due to the following. Rotating electrical adjusted net sales increased $3.2 million or 4.8% to $69.9 million for the first quarter, compared with $66.7 million for the prior year. Adjusted net sales of wheel hub assemblies and bearings increased $3.4 million or 22.3% to $18.8 million for the first quarter, compared with $15.4 million a year earlier. And net sales of brake master cylinders increased approximately $559,000, or 12.4%, to $5.1 million for the first quarter, compared with $4.5 million a year ago.

Gross profit for the first quarter was $20.4 million, compared with $26 million a year earlier. Gross profit as a percentage of sales for the first quarter was 23.9%, compared with 30.3% a year earlier, primarily impacted by customer allowances related to new business.

Adjusted gross profit for the first quarter was $30.3 million, compared with $26.8 million a year earlier. Adjusted gross profit as a percentage of sales for the first quarter was 32.3%, compared with 30.9% for the prior-year first quarter, impacted by overall lower per-unit costs from increased volume of purchases and production resulting in better absorption of overhead costs.

General and administrative expenses decreased $7.7 million to $3.6 million, impacted by a $5.6 million gain recorded due to the change in the fair value of the warrant liability. Adjusted general and administrative expenses increased $587,000 to $7.4 million. Sales and marketing expenses increased $354,000 to $2.6 million. The increase in adjusted general and administrative expenses and sales and marketing expenses reflect new investments for innovation, growth, and acquisitions, as well as the Company's value-added customer service programs, including Motorcar Parts of America's industry-leading customer service, training, and quality assurance initiatives.

Operating income was $13.3 million for the fiscal 2017 first quarter, compared with operating income of $11.6 million for the prior-year first quarter. Adjusted EBITDA for the first quarter was $20.2 million, compared with $17.7 million for the period a year ago. Depreciation and amortization expense was $860,000 for the first quarter.

Interest expense was $2.8 million for the first quarter, compared with $8.4 million last year. The decrease in interest expense was due primarily to the write-off of previous debt issuance cost of $5.1 million for the prior-year first quarter in connection with the financing agreement which was terminated when we entered into a new credit facility in June 2015.

In addition, interest expense decreased due to lower interest rates and lower average outstanding balances on our loans.

The income tax expense rate was approximately 28% for the first quarter. The income tax rate was lower due in part to a nontaxable gain in connection with the fair value adjustment of our warrants.

Net income for the first quarter was $7.5 million or $0.39 per diluted share, compared with net income of $1.9 million or $0.10 per diluted share a year ago. Adjusted net income for the first quarter was $10.1 million or $0.52 per diluted share, compared with $8.4 million or $0.44 per diluted share last year.

At June 30, 2016, we had a $22.7 million term loan, borrowings of $21 million on the revolving credit facility, and approximately $19.7 million in cash, resulting in net bank debt of approximately $23.9 million. There was availability of approximately $98 million on the $120 million revolving credit facility, after reflecting approximately $1 million of outstanding letters of credit. Total cash and availability on the revolver credit facility was approximately $118 million at June 30, 2016.

As I will now discuss, we have a far more flexible loan facility, which will help us deploy capital efficiently for growth. In May, we entered into an amendment to the PNC Bank credit facility, which increased the revolving line of credit to $120 million from $100 million. This amendment allows us to expand in Mexico and increases the preapproved limit for permitted acquisitions.

Currently, loans outstanding under the $120 million revolver facility and our $23 million term loan bear interest at the Company's option at the domestic rate or at the LIBOR rate. In each case, an applicable per annum margin applies. The current applicable LIBOR interest rate for both the revolver and the term loan is 3%, consisting of LIBOR of 0.5% plus a margin of 2.5%.

At June 30, 2016, the Company had approximately $441 million in total assets. Current assets were $159 million and current liabilities were at $156 million.

Net cash used in operating activities during the three months ended June 30, 2016, was approximately $13.8 million, primarily due to inventory ramp-up and upfront customer allowances for new business.

For the reconciliation of non-GAAP financial measures, please refer to Exhibits 1 through 5 in this morning's earnings press release. I will now turn the call back to Selwyn.

Okay, great. Thank you, David.

As you can tell, we are excited by the multiproduct growth in our business and we look forward to continued success. We are focused on gaining market share in our existing product lines, which now includes brake power boosters and our emerging turbocharger line, which is in its early stage.

We remain dedicated to manage growth and continue to focus on enhancements to our infrastructure and making investments in resources to support our customers. Our financial position remains strong and our capacity for further growth is excellent.

Despite some softening sales in April and May, which we believe was due to mild weather, June was stronger and we anticipate ending the first half of our fiscal-year 2017 well positioned with new sales opportunities for our existing product lines and the ramp-up of brake power boosters. The turbocharger business offers tremendous potential and we look forward to reporting our accomplishments and growing this business. There is lots of interest from potential new customers relating to all of our product offerings.

As I noted during our year-end call, we recently doubled our Chinese footprint and expanded our Malaysian operations. At the same time, expansion plans for our Mexican distribution footprint are proceeding as planned. Once complete, this facility will position us with greater operating flexibility and leverage as we grow our business, including expansion relating to the brake power booster and turbocharger businesses, as well as other future product introductions.

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 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 we welcome your questions.

(Operator Instructions). Matt Koranda, ROTH Capital Partners.

I had a quick question on margins. It looks like they were really strong in terms of gross margins this quarter. If I hold margins constant by product category quarter over quarter, it looks like they should have been in the mid-29% range and that's essentially despite having lower sequential revenue, so I can't assume that the improvement here is just from fixed-cost absorption. It does look like you have some fundamental margin improvement going on in at least one of your product categories. Can you just speak to that for a moment?

I think we benefit from beneficial mix this quarter, so, again, we don't want to get ahead of our skis on margin. We had a great quarter on margins. We always try and be at the top end of our guidance on margins, but, David, any comments on the margins? Again, I think the fundamentals have not changed and just we had a fortunate mix to get a good margin.

Due to increased volume, we definitely had (multiple speakers)

Increased overhead absorption, yes.

Absolutely, yes.

That's the big thing. Our volume is definitely ticking up pretty significantly and the overhead absorption has been positive.

You're talking about, I guess, year-on-year comparison, then?

Yes.

Is that how to think about it? Okay, I can take the rest of that stuff offline.

Also, just in terms of the guidance, I know that you guys last quarter talked about 27.5 to 30.5, but essentially you're well ahead of the top end of guidance. Should we assume the run rate starts ticking up toward the low 30s now? Is that the way to think about it or what would give you pause, I guess, if there any kind of elements (multiple speakers)

There is so much pressure, Matt, I mean on pricing. I would stick with the guidance and certainly we hope to be at the top end of that, and we have been -- again, I think the team has done a great job of managing expenses and we continue to take waste out of our system. But it is a very price competitive world we live in. We think we are on the right side of it, but I would be cautious.

Sure, okay. And then the ramp-up, wanted to touch on the ramp-up in new business in rotating electrical. How much of the growth this quarter was driven by that ramp-up in new business in rotating electrical? Could you just break that out versus your existing supply agreements and how that (multiple speakers)

I will tell you it is almost immaterial. It was very small. It started very much at the end of the quarter. We should start seeing more of that this quarter.

Got it, okay. And then, I think you guys came in below what you had commented on OpEx for the year. I think last quarter you had talked about the run rate being similar to Q4 of last year, which I think was around $11.5 million. Maybe just talk to OpEx for the remainder of the year and how you see that playing out.

So previously, we gave guidance on $46 million. The first quarter usually is a smaller, and then as the year progresses, as sales increases, we do expect operating expenses to increase and we are still keeping to the $46 million for the year.

Got it. Okay. Maybe we will touch on new products just briefly here. In terms of the brake booster product, which I understand is beginning to ship this month, could you touch on the mix that you see starting out between reman versus distribution in that category? And maybe just touch also on what margins look like in that category as you hit a full run rate.

Yes, so I think -- do you want to talk about revenue first? We should begin shipping any week now. We are ready to go. We've started receiving some orders.

I would -- we are excited that we have one large customer already signed up. We have not offered it to others, although we have significant interest in that product line.

I think in terms of the margin profile, it is going to -- it is in development stage. It is brand new. It is being launched. Until you get the critical volumes and the benefits of higher volume in the production line, we think the margins, again, are appropriate for the guidance levels that we've given. So, somewhere in the -- similar to master cylinder in the margins.

As time goes on, we think that business is going to ramp. We think it will be a faster ramp than perhaps master cylinders even, and margins will increase as we get that incremental volume.

I forgot the first part of your question. I hope I answered that, but it slipped my mind.

Yes, just the mix between reman versus (multiple speakers)

Oh, the mix in reman. It is substantially reman. There will be some fill-in with new units, but it is substantially a reman product line.

Got it, okay. Just last one for me, in terms of inventory, I know it ticked higher here at $73 million. Maybe you can just speak to is that an inventory build in the face of the ramp-up that you have here with the rotating electrical business and the new brake master cylinder product? Maybe just touch on that.

Yes, the increase in the finished good inventory is for the upcoming new business. Typically, our September quarter is a stronger quarter for us, so we're getting ready for the second quarter as well.

Yes, business is strong right now.

Got it, guys. I will jump back in queue. Thank you.

Jimmy Baker, B. Riley & Co.

Thanks for taking my questions. Just a follow-up there on the two new product lines. Can you just break down the market size figures that you quoted earlier on the call between new and reman?

That's a good question, so let's start with brake power boosters. I think the brake power booster line for the most part is a reman line. There is always fill in with new units that you may -- that sometimes are more efficient than reman, but it is substantially a remanufactured product line. Even similar to rotating electrical, there is always some new units, but I would say 95%/5%, 90%/105, about, in terms of reman/new.

On the turbochargers, I think it is again substantially similar to that, right? It is about 95% reman and 5% new.

Okay, that's helpful. Just hoping you could also walk us through the revenue adjustments in the quarter. Some detail behind the allowances and any color as to the magnitude of new business that those allowances are attached to would be very helpful.

In the recap for the first quarter in our earnings press release tables, we show approximately $1.85 million for initial return accruals related to new business and we show $6.6 million for customer allowances related to new business. So the $6.6 million is for new business.

Now we have talked about in the past getting additional rotating electrical business, as well as other product lines. All of the new business is going to be included in our revenue guidance that we are sticking to, which is the $420 million to $440 million.

So is it fair to say that half of the incremental growth that you are seeing this year is generated in part by these allowances? Is there a way for us from the outside looking in to attach an incremental revenue to these incremental incentives?

I think half is probably a fairly close guess. It's hard to tell exactly what -- again, we are estimating run rates, so at the low end of the guidance, probably half of it is in here.

Okay. And then just maybe a bigger-picture question for you, Selwyn, as you think about the capital intensity of the business. I guess using round numbers right now you have, call it, $390 million in trailing 12-month adjusted revenue and about $250 million in core inventory and deposits on the balance sheet. I guess so long as you are growing in reman categories, is it appropriate to think that this ratio holds? In other words, for every incremental $1 of revenue that you generate, you will invest a little more than $0.60 of that in cores separate from what you might have to invest in finished goods inventory?

That number sounds a little high to me. I don't have that at my fingertips to give you an answer on that. Do you?

So that core balance, later today we'll be filing the 10-Q. We break down the core inventory balance by the different categories, so what we -- what Jimmy was focused on is the cores --

On customer shelf?

On customer shelf, is that right?

Right, well, and the deposit is a smaller number, but what I'm trying to understand is if your incremental gross margin is somewhere in the 30% range, is that enough to self-fund the growth going forward, given not only the traditional working capital intensity, but the core inventory intensity?

Yes, again, it depends on how fast you turn that inventory, but we have been turning that inventory about six times.

We internally separate the cores and customer shelf buyback, because that's inventory we don't control and it is cash we get back if we ever lose that business. But if you look at our operating metric and you see that generally the value of cores is worth 30% of the total value of the finished good, and you're generating 30% gross margins, or 31%, 32%, or 29%, whatever we've been doing, if you can turn that inventory more than three times a year, it self-funds the core.

So, that's really what we are doing. We have -- I think last year in our 10-K, we had a close to seven times turn on inventory, and I think in the 10-Q it went down a little bit because we have ramped up significantly for new business and the additional business that comes from existing business in the second quarter, and I think it went down to six times.

So I believe, and we also have -- our working capital ratio in receivables and payables is very positive. So I believe it self funds. I believe that the days outstanding on cores in general are closer to 360-day outstanding and the days outstanding on the receivable collection on them is 30 days.

Now those that are on non-core programs, there is a reconciliation in some cases every quarter or every six months and you don't see that cash as quick. But I believe that it self funds the cores. I think all of the reman business self funds the cores, other than the buybacks that we have to make.

And if I can clarify, earlier, Jimmy, you mentioned the June 30 balance for long-term core inventory is about $244 million. Of that, the cores on customer shelf is about $170 million.

Does that make sense to you? So the ongoing -- if you separate the cores on customer shelf, which you buy back, which we view as a deposit, and we look at our cost of capital to get that inventory, the rest of the inventory self funds.

It does make sense. I suppose your track record is so strong you haven't lost a customer, right? And so, to me that is a relatively permanent investment if you are not planning on losing that customer.

So just want to understand what is changing in the business, because it is not as if the net cash balance has been building of late as you have been growing and it sounds like your expectation is going forward you ought to be able to self fund, and if that's the case, I just want to understand maybe what is changing in the business mix or customer mix or if now you have completed these core repurchase obligations and we should see the cash flow profile change going forward.

Yes, so, again, as we -- we have completed many of them, but as we get new business, then new ones come up, so, and it is a one-time buy. So when you get to completing that initial core buyback, then -- again, then my operating metric kicks in, and so that's a one-time buy.

Depending on the size of the category and the price of the cores, it just fluctuates. There is just no way I can give you a summary of what that is. We look at every deal individually to make sure that the arithmetic works.

Understood. I will take the rest offline, if I could just get a quick question on the acquisition. Any framework in terms of their trailing revenue or what you are assuming for a full-year run rate going forward?

Yes, so it is very small. We are looking at probably $0.5 million in revenue, but the key there is all the development work and the management team that we get. So, there is knowledge of -- significant knowledge of the category. There is significant catalog development. There is significant product specifications that have been developed. So, know-how in terms of the remanufacturing of these products, sourcing know-how, where to find the components, where to find the cores.

And so, we think the combination of that in conjunction with the management team that will apply from the MPA side and the new footprint in Mexico is going to make for a formidable offering.

Understood. Thanks very much for the color.

Steve Dyer, Craig-Hallum.

Just digging in a little bit more on the new products. So the brake booster, it sounds like, will ship imminently to the first customer. Potential size for that first customer? Is that more along the lines of the master cylinder or is that more along the lines of the initial wheel hub business, that first (multiple speakers)

It is more on line with the master cylinders. It is a smaller -- a little bit smaller than the master cylinders. Again, I think the ramp will outstrip the master cylinders, but we will wait -- we will see that.

That was my next question, so how long before you would potentially start shipping to subsequent customers there?

I think we can start shipping additional customers soon, by year-end at the latest.

Okay. All right (multiple speakers)

By calendar year -- Steve, just to clarify, by calendar-year end at the latest.

Right, right, okay. And then, just so I'm clear, what is the timing on turbochargers? It was in the same release, but it sounds like maybe it is a little bit later than the brake boosters in terms of shipping, et cetera?

Well, we are shipping. There is existing customers and we intend to ramp what we have got right now. But the real -- I believe the real bump is going to come probably in 12 months.

But this business that we have right now, we are not stopping and the management team is committed to continue to grow it and we have capacity, so -- in the existing facility. So, it is going to -- we're going to continue to sell. We have got some exciting things coming in discussion there as well.

Yes.

It is much more developmental than, say, the brake boosters where we already have a path. This is a new path for us, the turbos, so we will keep you all updated as that progresses.

So size wise, this is maybe even a little bit smaller than the boosters?

For the first year, but I think this category, I think, is going to be another rotating electrical size category. This is a very fast-growing, vibrant category.

Okay. You mentioned the prevalence of turbochargers in Europe. Do you have an opportunity -- I know you don't do much of anything in Europe right now. Do you have an opportunity to capitalize on that going forward?

We could. We certainly could. We are not focused on Europe right now and I would say that our immediate plan is really to focus on the US distribution channel.

Having said that, we are a week or so into this acquisition. We haven't really -- that is a possibility, but, again, our focus is to leverage the US channel right now. But you never know, with our capability we may be able to do something in Europe.

Sure. And then, just final question for me, as it relates to rotating electrical you guys have gained a ton of share, it seems like, in the last few years and hence a lot of the core purchases and a lot of the revenue growth, et cetera. Do you feel like you're getting close to a ceiling with some of your customers in terms of the portion of that category they are willing to give you or do you feel like there is still a lot of runway left?

We are certainly going to have growth in the rotating electrical this year in share, and we want to keep going. There is still plenty of revenue we don't have and there is plenty of growth in the category. It is not going to be as easy, not that it ever was easy, but it gets more and more competitive as you get more and more share.

So, I think the near term, there is still growth in it the next year or two. We will have to see what happens on the supply chain there. We are seeing lots of opportunity still in terms of new sales opportunities. Again, the category -- all of our categories are price sensitive, so that's the thing we have to balance is growth versus the pricing.

But there is growth. There is definitely growth still in all of the categories, rotating electrical being one that we are more mature in, but all the categories have growth opportunities.

And again when I say that, Steve, we have -- I say that with knowledge of an incredible amount of interest. We never know whether interest converts to sales, but there is a significant amount of interest in every one of the categories.

Sure, got it. All right. Thanks, guys.

(Operator Instructions). Scott Stember, CL King.

I missed the first five minutes of the call when you were talking about the new business wins, and aside from rotating electric, the brake booster, and turbochargers, was there anything else? It sounds like maybe on brake master cylinders there was something new?

There is something new across the board. We have new business coming in everywhere.

Oh, okay.

But we didn't get into anything granular in terms of by product line what the new business is. But, again, I will reiterate that there is not a product line that we have out there that we are not seeing interest and significant opportunity for double-digit growth across the board.

Got it. And as far as the turbocharger business, it sounds as if you're doing a little bit -- obviously, nothing was in this quarter that was reported, right?

No.

Okay. And going forward, brake boosters, that is a totally separate category that you will be reporting in (multiple speakers)

Yes, that will come. Again, we don't segment report, but that will be another offering. We will break down the revenue as we have done in the past. That will begin shipping shortly.

Okay, and going back to rotating electric, to the question about market share, obviously you just had some very big contract wins and there seems to be some business left. But maybe you can just give us an estimate of where you think your market share is in all the categories that you're in right now, and particularly rotating electric, so we just can frame that out?

Yes, so, I mean, rotating electric is probably 35% to 40% of the non-other category in rotating electrical. The other, the smaller conglomeration of customers is actually a fairly decent chunk of the category, but amongst the large customers, I think we probably have 35% to 40% of that.

Okay.

On wheel hubs, I think we got a way to go. I don't know the exact off the top of my head. It is probably closer to 10%. Very competitive category, but a high-growth category that we continue to grow there.

Master cylinders, we're just barely scratching the surface. I would say less than 5% there. Obviously, brake power boosters we haven't begun yet, but it will be less than 5% once we get into it. And turbochargers, it is not even on the radar. It is still very, very small compared to what's out there.

So, lots of opportunity. Again, in my opinion, lots of opportunity for growth.

Got it. Just a couple of last questions. David, maybe you could help with this. On the interest expense line down year over year, could you talk about how factoring costs played in there? But particularly with sales up, I would have thought that would have led to interest expense being a little bit higher, particularly -- even with the fact that you do have lower borrowing costs versus a year ago.

And then, also, on the share count, it looks like it was up about 600,000 shares year over year, 500,000 sequentially. Maybe just talk about that and then I am all good.

So of the $2.8 million interest expense for the June quarter, most of that is factoring interest. If you are comparing versus the prior year, so we indicated in the prior year we had the write-off of the deferred loan fees, but also this year we have lower, again, interest rate, as you mentioned, as well as a lower average loan balance. So going forward, the best way to look at interest expense is as sales increase, because the majority of the interest expense is factoring, so interest expense should increase proportionally as sales increases.

And the second part of the question, we did have additional options exercised, and as a result of our calculation, the share count increased.

Got it. That's all I have, guys. Thanks for taking my questions.

Thank you. At this time, I am showing no further questions. I would like to turn the conference back over to Selwyn Joffe for any closing remarks.

Thank you. Thanks, everybody. Look, we're excited with our business. We appreciate everybody's interest. We appreciate the continued support. Thank you again for joining us for the call. We look forward to speaking with you when we host our fiscal 2017 second-quarter call, which should be in November of 2016, this year, and at various conferences in the interim, which we will be attending. So we, again, thank you, everybody.

Ladies and gentlemen, this concludes the program. You may now disconnect.