Q1 2022 Motorcar Parts of America Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to the butter car parts of America's fiscal 'twenty 'twenty 2 first quarter conference call. At this time all participants are in a listen only mode. That's true.
After the Speakers' presentation there'll be a question and answer session to ask a question during the session you'll need of press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and now like to hand, the conference over to your speakers day, Gary Maier, Vice President of the Investor Relations. Please go ahead.
Thanks, Thanks, Christine and thanks, everyone for joining us today for the school 'twenty 2 'twenty 2 first quarter conference call before we begin I turn the call over to Selwyn Joffe, The 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 the 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 of the 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.
Excuse me risks Cigna.
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.
Refer you to the various filings with the Securities and Exchange Commission.
With that said I'd like to begin the call and turn the call over to Soma. Thank you Gary I appreciate everyone. Joining us today I hope everyone is staying safe and healthy.
As noted in this morning's press release release, we achieved record sales for our fiscal first quarter in our new fiscal year is off to an excellent start with strong demand for our products across multiple categories.
Let me start by providing some color of about a hard parts business and then briefly discuss our emerging presence within the electric vehicle market.
The outlook for hard parts replacement continues to accelerate despite global health issues related to new COVID-19 variance and challenges impacting the supply chain, both of which don't really require much explanation given the extensive daily news coverage of the situation, let's just say the challenges of real from the social and <unk>.
Non standpoint, and we are doing our part to keep our employees safe and our customers prepared for continued strong demand for automotive replacement parts.
Historically I might add we do experience some seasonality of the customer order, but all the patents for the fiscal first quarter, usually being somewhat less robust in the second and fourth quarter relatively strong stronger.
Clearly a strong fiscal first quarter sales performance. Despite the associated associated of Covid related challenges seems to have changed the this historical pattern that we will see what the new normal will be in the quarters ahead.
Regardless it is great for our business that drivers of return into the roads and demand for automotive hard parts is the strongest server.
As I mentioned during our call in June we are benefiting from our investments from multi growth platforms and our hard parts business. We expect each of our product lines to grow and we're focused on meeting the increased demand in all categories.
Our newest product line brake calipers.
Continues to gain traction excuse the pun and we are focused on meeting the increasing demand in this important category, taking full advantage of the state of the art brake caliper remanufacturing facilities and infrastructure.
<unk> core sorting and distribution.
The market for current hard parts categories represents more than $6 billion of the retail level.
There are approximately 287 million vehicles on the road with an average age of 12, 1 years in the United States alone, which fuels our optimism about the growth opportunities in our aftermarket hard parts business.
This will fuel growth in the after market parts replacement industries, well beyond electric vehicles, becoming mainstream.
You've heard me say before that people are keeping the vehicles longer.
Used car sales continue to climb to record levels, resulting in increased miles driven by okay. These are kind of vehicles.
Obviously, this bodes well for the aftermarket parts replacement industry and non discretionary product offerings.
I don't want to sound like a broken record, but as vehicles age of the rate of replacement of parts increases substantially, causing the zero to 3 year age group have a replacement rate for alternatives of 242% compared with $6.6 5% in the 12 euro and above age group.
As I mentioned during our fiscal year end call our facility expansion in Malaysia is now complete and we are focused on utilizing this increased capacity and productivity across multiple product lines to reduce depend on some of the outsourcing.
While COVID-19 related supply chain challenges continue in Malaysia, we see tremendous opportunities to leverage our presence in Malaysia and support our customers.
With regard to other emerging presence within the electric vehicle marketplace, we remain enthusiastic about the outlook the car.
By the new strategic partnerships engineering strength industry, leading technology and the significant opportunities as driving electric vehicle driving options evolve while.
While we don't see well we don't segment report, let me just make a few comments about this exciting business.
Many of you know we acquired the DMV electronics business in 2017 empowered to complement our rotating electrical business and all of our retail customers of superior testing product for Alternators and starters than what's currently available.
Sales of increasing and we are gaining of renewed interest from our retail customers as deferred spending due to the pandemic resumes day.
And for test equipment related to performance endurance of production of electric Motors and voters and belt starter generators for EV vehicles is also gaining momentum.
All of these opportunities have required investments, but given the $5.4 billion estimated global automotive testing market. We believe the investments will generate solid returns for you.
Expect this business to start generating profits beginning of this current fiscal 2022 second quarter.
In addition of vision is to offer the EV manufacturers contract testing services via our newly established the toy Technical Center and this also offer significant growth opportunities and we look forward to announcing developments in this area.
In short our strategy before and since the pandemic has been to leverage our significant channel relationships after market parts and also of superior parts and solutions to our customers and consumers.
Certainly there are extraordinary challenges facing the aftermarket industry today, including supply chain trades and the other pandemic related headwinds.
We continue to experience supply chain challenges for freight steel semiconductors and packaging to mention a few items.
We think these of short term issues, but there is still much uncertainty in the supply chain.
We're working hard with our global team to manage production, while working with our suppliers and logistics providers to address the challenges.
The market dynamics, and rational economics, including price increases supported by our customers will contribute to overcoming these challenges as we focus on taking full advantage of our competitive strengths.
In summary in spite of the challenges our entire company is well positioned for sustainable top and bottom line growth for parts and solutions that move out of world today of Tomorrow.
Our footprint for the future has become a reality and we are encouraged by the strong demand for automotive replacement parts, Despite global Covid dynamics.
I can assure you we remain focused on benefiting from our multi year strategic expansion initiatives, which are expected to be essentially completed by the end of the second quarter.
Our anticipated sales growth on a year over year basis will continue supported by continued demand higher capacity and synergistic opportunities.
We remain focused on enhancing gross margins due to the economies of scale from the consolidation of operations.
As well as further expansion of the brake caliper production pricing initiatives and other product line activities.
I will now turn the call over to David to review the results for the fiscal 2020 to first quarter.
Thank you sell in to begin I encourage everyone to read the 8-K filed this morning with respect to our June 30, 2021earnings press release for more detailed explanations of the adult for.
For information about the items that impacted the results. She exhibits 1 through 3 of the press release.
Let me take a moment to review the financial highlights including record sales for the first quarter net.
Net sales for the fiscal of 'twenty to first quarter increased 56, 3% to 149 million from $95.4 million for the same period a year earlier.
I should mention that on a 2 year comparison from the June 2019, pre Covid first quarter net sales increased by 36, 5% or approximately $40 million.
Gross profit for the fiscal of 'twenty to first quarter was $23.6 million compared with $13.4 million of you earlier.
The profit as a percentage of net sales for the fiscal of 'twenty to first quarter was 15, 8% compared with 14% of a year earlier.
Gross margin for the fiscal 'twenty, 2 first quarter was negatively impacted by an aggregate of 7% by the following 1.
1.3% for brake caliper of startup cost and relocation transition expenses.
3.2 per se due to higher freight costs and expenses related to COVID-19.
1, 7% non cash core premium amortization impacting sales.
<unk>, 7% non cash revaluation of cores on the question Michele endpoint of 1% customer allowances related to new business.
Let me provide a little more color on the factors impacting gross margin for.
For a caliber of set of costs and relocation transition expenses are part of our footprint expansion in Mexico. As you may recall, we completed the construction of our buildings in Mexico of this past fiscal year end of.
Focus on increasing production of brake calipers, including for sorting and related activities to meet the current and future demand.
First quarter startup and transition expenses was significantly reduced by approximately 50% to $2 million for the fiscal 'twenty 1 levels and we will continue to diminish during this first half of the current fiscal year.
We also incurred higher freight and other costs of approximately $4.5 million for the fiscal 'twenty 2 first quarter due to a shortage of freight and supply chain inefficiencies caused by Covid as Selwyn noted earlier.
With regard to additional Covid related expenses, we have the address health and safety initiatives that also impacted gross margins of Fortunately. These COVID-19 related expenses decreased as the point of reference fiscal first quarter expenses were approximately 318000 versus 184 million for the prior year.
The first quarter.
Core premium amortization and revaluation of cores on the question Michele that impacted gross margins are noncash and non economic.
For the complete summary of items impacting gross profit piece the exhibit Q in this morning's earnings press release.
In addition to the above items gross profit was further impacted by growth initiatives in connection with the expansion of our new product lines and inflationary costs related to the global pandemic, especially disruptions with worldwide supply chain and logistics services.
This includes higher cost for raw materials and supplies.
I'll also mention that we recently experienced offshore wage inflation, which further impacted results.
We are focused on mitigating these expenses, including higher freight costs with price increases that had been implemented and will be realized the shortly.
Total operating expenses increased to $17.8 million for the fiscal first quarter from 13 million for the prior year period.
The increase was primarily due to a $2.3 million larger again for the prior year period of $4.8 million from the foreign exchange impact of lease liabilities and forward contracts compared with smaller gain of $2.5 million for the current year first quarter.
The remaining $2.5 million increased on an year over year basis was primarily due to salary reductions in the prior year in response to COVID-19, pandemic and increased commissions marketing related and travel expenses.
Interest expense was $3.9 million for the fiscal first quarter compared with it for 4 million of last year. The decrease in interest expense was primarily due to low interest rates and lower net debt.
Income tax expense for the first quarter was 900 of 47000 compared with income tax benefit of $1 million for the prior year period I.
I should mention debt the effective tax rate for the 3 months ended June 32021 was primarily impacted by specific foreign jurisdictions from which we do not expect to recognize the benefit of losses. However, we expect these losses will be utilized against future profits, which will benefit future tax rates.
Net income for the fiscal of 'twenty to first quarter was 861000 or the 4 cents per diluted share compared with the net loss of 3 million or 16 cents per share a year ago.
Additional details of items impacting net income on exhibit 1 in this morning's earnings press release.
Net cash used in operating activities during the fiscal year 'twenty, 2 first quarter was $4.7 million, reflecting working capital requirements to support the company's record sales and required inventory levels to support our customers in the face of supply chain challenges due to COVID-19 as well as anticipated business growth in the.
Fiscal of 'twenty 2.
This compares with the cash provided by operating activities of $22.4 million for the prior fiscal year first quarter.
Net debt was 97.6 million at June 30 of 2021, compared with $88.9 million at March 31.2021.
As you know there of various methods to calculate return on invested capital for.
For our purposes, we calculate ROIC day.
By taking operating income and adding back non cash expenses and certain 1 time expenses.
We believe this metric considered together with the GAAP measures provide useful information to investors and to management regarding the company's return on invested capital.
In short we take this metric, which was approximately $88.1 million for the 12 months ended June 30th 2021 divided by the average equity of net debt balance of the $398 million, resulting in a 22, 1% pre tax return on invested capital.
We are continuing to realize the benefits of expanding our Mexican operation and the launch of our new brake categories with expectations of increased returns from both the new and existing product line as the benefits of our strategic expansion of our more fully realized.
As I mentioned at June 32021, our net debt was approximately $97.6 million.
Total cash and availability on the revolver credit facility was approximately $120 million at June 30 of 2021.
Based on a total of $238.6 million revolver credit facility and subject to certain limitations.
At June 32021, the company had approximately $904 million in total assets current assets were 441 million and current liabilities were $336 million.
During the fiscal first quarter the company extended its credit facility with PNC Bank for 5 years through May of 2026, including amendments, which further increase the company's strong liquidity base for.
The reconciliation of items that impact results and non-GAAP financial measures. Please refer to the exhibits 1 to 3 in this morning's earnings press release.
Now for the call for questions and some of them will then provide for closing remarks.
Yeah.
As a reminder to ask a question you'll need of press star 1 on your telephone to withdraw your question press the pound key.
And your first question comes from the Lion's share keys, So breccia with B Riley Securities.
Hey, good morning, and thank you for taking my question here.
Just more of like the morning.
Just wanted to start off with the with a question here on the orders <unk>, obviously very strong just wondering if customers pulled purchases of had you know maybe to the detriment of the following quarters or do you see the the order strength continuing based on kind of the the customer demand you're seeing out there.
I think that the first quarter orders were pulled forward.
Some of the having said that the second quarter will looks like it will continue to be strong.
But definitely are we seeing of 2 things start piece from the first quarter is number 1 a brake caliper business has grown dramatically.
Seasonality for brake calipers is.
<unk> is generally wouldn't be enough flow from first quarters on a little bit of in the second but most of them of course, which we haven't really seen as much of in the past and then we definitely see some.
Fast ordering from our customers because of the demand at the register has been very strong.
Got it and and regardless of kind of the the brake calipers of business I'm not sure. If you've provided a kind of a number of or as far as kind of the annualized sales level that you've accomplished so far any updates there.
Well I can speak to that 10-Q that we'll file later today, we do break out the product mix. So the brake and related is about 16% of total sales compared to the lower percentages for the previous periods.
Great. Thanks for that and just wanted to also ask you know at what point do you think it's appropriate to provide the annual guide I think the the last call you guys kind of held off just wanted to see if at some point you know you're kind of looking to provide an annual target or it's kind of too soon thank you.
It's a little it's full sort of uncertain I mean with the adult ovarian 2 out there.
I mean, it's just hard to tell him I mean, even.
You know we were as robust as as as we've been in a long time.
I mean, I don't know of guidance on the upside of all the downside I mean I just think of this was a little too unpredictable right now.
The only the.
The the input I would give you is that the first month of the second quarter was result of a strong start.
As of now.
Thanks, I'll hop back in the queue.
Thank you.
And your next question comes from the line of Matt Koranda with Roth capital.
Hey, guys. Good morning. Thanks.
I'm wondering David if you could just provide a further breakdown of the.
Revenue by.
Rotating electrical wheel hub in the sense of you break with the brake products would be helpful.
Yeah, absolutely so for the first quarter rotating electrical was about 67% wheel hub of 14%.
Mentioned brakes and related 16% in the other 3%.
Okay.
Okay helpful.
And then just on the brake products maybe following on from the earlier line of questioning it doesn't look like that's taken a meaningful step up in terms of quarterly run rate and you did reference look it's.
Typically seasonally strong in terms of order flow in Q1, but any help in terms of the way we should be thinking about that on a quarterly basis for 'twenty..2 just given the seasonality of that churn, but the strength of an order flow.
You know the there's 2 factors our market share continues to grow.
And the volume you know the volumes that come into the 1 on the existing share. So it's.
I think the fourth quarter should be of very strong quarters, well for for brake calipers. This year.
And overall of the year will be strong you know I think we will be stronger from calpers, but I think the volumes that you'll see will be the first 2 quarters and the fourth quarter.
For California.
No.
We should see you know as we get to the fourth quarter, we should see success of growth.
Given the above.
The bubbles.
Yes.
Okay. That's helpful. Thank you.
And then just on the Covid related expenses within cost of goods. So I. Appreciate the breakout and you guys mentioned I think close to 3 million net of increased freight costs related to COVID-19. So.
Just wanted to get a little bit more detail on sort of how you allocate the higher freight cost of Covid versus just general supply chain tightness. That's out there that's being experienced and then how much headwind should we be.
Factoring in for the next quarter or so I know the visibility is kind of tough.
But just wanted to get a sense for how much more headwind.
Got to experience for the next quarter or so.
So the freight let me try and starting from David can take over the detail the freight.
Headwinds you know.
All of the incremental cost I believe is.
For the directly or indirectly related to Covid, I mean, where capacity was pulled back dramatically and then demand all of it went up exponentially without capacity catching up.
And so what you saw historically.
Freight costs could it be in those low of $2000 of container coming out of China too.
Day, I mean, I've seen prices as high as the $18000 of container.
So you're looking at 900%.
The increase in those costs I mean, how does it all COVID-19 or are the other things I don't know, but we classify that as Covid I think it's related to capacity and the capacity issue is definitely related to COVID-19.
And.
I think it is kind of go on.
For a few quarters at least.
But at some point that normalizes.
With all of the global capitalistic tendencies.
Tendencies of the 2.
Provide capacity 1 of the capacity as needed and as that happens I think credit pool will come down.
Our GAAP, but we'll we're going to have to wait and see.
Current inflation and the material costs.
On inflation in labor in them, but all of that week.
We expect.
We have to pass through prices I mean, I for the entire industry is doing that we have done that has not reflected in our numbers yet but.
It's coming out of our direct out of pocket for Covid has come down.
No in terms of just the PPE type stuff.
Again with the adult for Varian, who will have to wait and see how that all unfolds, but.
Right now we continue in Mexico continues to operate of fish efficiently.
We have had challenges in our Malaysia facility.
The country of Malaysia has had some sort of some pretty specific.
Challenges of little bit doing a phenomenal job of catching up explanations right now so.
We are starting to reopen.
Malaysia, let's hope the.
That continues.
Chinese very audits.
Also still going on I mean, with China from the Covid side sort of left to see how that unfolds.
Okay helpful last 1 I guess.
You mentioned labor cost pressure.
The kind of starting to impact a little bit more.
In foreign countries, just wondered if you could give a little bit more granularity about where you're seeing the most pressure on labor is it more of the Mexico manufacturing base and for <unk>.
Some of the elements.
Levers that you have tools that you have at your disposal of the sort of counteract some of the labor inflation, you're saying.
Well again, mostly Mexico, I mean, that's where the majority of the labor forces.
So I think of 35% increase from the minimum wage of federal minimum wage in Mexico earlier this year.
So that contributes to some of the challenges again, that's that's part of what we use when we computed passing through price increases, which should start reflecting at the end of this quarter.
Okay. That's it for me and I'll leave it there. Thanks.
Thanks, Thank you.
And once again that the star 1 for questions. Your next question comes from the line of Brian Nagel with Oppenheimer.
Hi, good afternoon.
Hey, Brian.
So good morning, if you guys sorry, yes.
Good whatever the.
[laughter].
So.
Net of a follow up some of the couple of the prior questions, but just so good.
Good burn.
Very nice start with you just for you here with the sales you talked about continued strength into your fiscal second quarter. So the request of habits I'm trying to get is just what do you view is.
The underlying sustainability is the.
Economy here is pulling the hopefully pulling away from the the Covid crisis. So maybe a way to frame. The question of would be yes, you would kind of geographically across the United States. You know some some parts of the country of further from the Covid crisis and the others are you seeing any regional differences in demand trends for your products.
Well I think the northeast is probably slightly ahead of everywhere else, but I.
I mean this demand everywhere.
Used car lots of empty and those cause of around the road in the them again in a lot of those calls of our older and they need a lot of maintenance I mean, we see.
While many people talk about stimulus checks suddenly of not being spent on just on the on a non discretionary ultimatum or of startup but of what's happening is you've got all of these all the cost that was certainly part of the registration Park car park, but they were sitting in parking lots and all of these cause of being used and so I think you suddenly on non discretionary items.
What caused it has spiked now.
The comparative sort of going to be top of as we go through the euro because the last year, we had the stimulus from.
They had really strong quarters, but having.
Having said that I think that you know this is this is can be a real strong growth year for us.
I think the.
The first 6 months is going to be up over the last year.
And the and the back 6 months with kind of be strong so lots of activity.
In the back 6 months from a lot of new new opportunities opening up this world.
And we're excited about the electric vehicle opportunities. So I think it's sort of sustainable.
Again, I don't think 59% of the.
<unk> 3 percentage of what you should be assuming for.
For growth, but we're going to have double digit growth.
Got it that's helpful. Mike.
My second question is also a follow up but just with respect to the the supply supply disruptions, particularly those tied to the shipping or containers the.
Are you hearing as more and more I mean pretty much every company I talk to you know to some extent talking about you mentioned in your prepared comments, but I guess as we look at the financials, maybe some more of a question for David but you can look at the financials here in fiscal Q1.
Weighted really size.
Where we'd see the these impacts.
All of shipping disruptions and then.
The second follow up to that would be how should we think about the the cord. These extra costs as you're pushing to Q2 of potentially beyond.
So the supply chain of we've identified them.
The items that impacted the results.
Allan mentioned the straight.
We've had a.
The inefficiencies of the supply chain that we mentioned and you also have the decreasing specific PPE type costs. So we're going to continue to monitor them very carefully and we're working with our supply chain and they have excellent relationships with our suppliers around the globe.
But there is an element of we're doing our very best but there are certain factors that we can't control.
We're working very closely to monitor.
Maybe David you can give the the dollars you mentioned earlier in your prepared remarks somewhat on what those were.
Yes, so for the impact.
Impacting gross profit.
It was about a $4.8 million.
The increased expenses related to Covid and the majority of that is going to be the freight cost.
Yes.
Yeah.
Greatest Charles Thanks for right now.
Yep.
And I guess that $4.8 million gave the cell when debt is there is there a.
The board as to where that would be in Q2 to be recognized as manage the apples to apples the quarter to quarter. The is there thoughts of where that just for point of view.
It would be in Q2.
It's probably will be some of it I mean, if the volumes of some of the and I'm, sorry, I'm expecting it to be similar.
Again by the end of Q2, we should have mitigated some of that because of that price increases will.
We will start reflecting.
Okay.
Well. Thank you I appreciate all the color.
Thank you. Thank you.
And your last question comes from the line of Scott timber with C. L. King.
Good morning, Slash afternoon, guys.
Good morning afternoon.
I was just looking at the gross margin from an adjusted basis after the adjustments that you.
For the debt.
The impact of items that you mentioned in the release and you did 22.8 top versus last year, but last year's numbers, obviously there was significant.
The inefficiencies and shut down from Covid, but if I look at it versus 2 years ago, a little over for the first quarter over 24%.
What's the Delta there is it seems like raw materials and other related supply chain issues.
And labor is that really the different standard I'm, just trying to get a sense of.
Also I know you guys are not guidance, but if you could just give a framework of where.
Pete.
Run rate of margins gross margin could be for the year.
So I mean, we don't adjust for labor the labor is in that number for sure.
And we don't.
Adjusted for what what's recurring I mean, we are trying to identify the unusual COVID-19. So.
In addition, I mentioned, the raw material of the supply the infill.
Hey, Shneur cost those are impacting the margin.
We've been mentioning the price increase the are taking effect this quarter.
To mitigate and offset some of those costs. So that's excluding the.
The the further price increases.
Yes, I just wanted to see if there was anything else from.
All of them, there and it sounds as if.
When the price increases go through in the next quarter so that should.
Certainly cover that right.
Yeah, I think I think the other thing Scott mentioned is over time, you've got to realize the brake caliper facility is very new.
And so and a lot of the expanded the brake booster of production is new in Mexico.
And we have a lot of new production in wheel hubs as well. These factories overtime, you know get far more efficient as the as they mature so.
It doesn't go from the agency it goes slowly through the alphabet in terms of its progress but.
We should see more efficiencies as we get more.
The mature in our production facilities.
Yeah and to the question about.
The margins I guess, I mean, you kind of set of sales double digits at least it looks like.
For the year for just in general, but what about the margin where commodity is there just a range where you think we can get back to on.
On gross margins.
With the price increases.
The we shoot back into at least the mid twenties.
But again, we're not giving a guidance specifically just giving you a flavor for what the price increase with the could do for them.
Got it no that's good.
And just lastly.
It sounds like you said the tumors.
Yes.
Seasonally large orders that all of that.
Were.
You probably didn't expect to happen this quarter that did.
And you also talked about stimulus checks and I was just trying to get a little more flavor net I would think debt.
With the do it for me side, starting to really part of that that wouldn't be as impacted by stimulus checks could you just talk about that.
Yes, I agree with you I don't know I used those words that stimulus because that's sort of the industry has been talking about the.
When you talk about non discretionary items I'm not sure of the stimulus per se does it but it's sort of the environment of people, having more capital and do more things.
I think the fundamental driver for us.
Number of used cars that are being utilized as opposed to being parked right now and however.
You know I mean, both of those of really are really driving demand.
We continue to see strong demand again, there's some seasonality in there.
There is some change.
Change in order patterns, but overall the continues to be very very strong.
Yeah and just the.
Related to the the hot weather I know rotating electric definitely benefits, which is the starters alternators that benefit from the extreme heat.
Both of both I mean, generally startups benefit more from cold weather the.
But both when that engine compartment of gets hot and you've got electrical items and.
And then you get the benefit of alternate a little more from the heat installed as of a little less from the heat and of the switches when it comes to.
Of the cold weather.
Got it.
That's all I had thanks.
Thank you Gabe.
And you have another question from the line of Matt Koranda with Roth capital.
Hey, guys. Thanks for the follow up just wanted to touch on the price increase.
I may have missed it earlier, but could you just touch on the timing of the <unk>.
The increases that were put through and then if you could help us understand that by maybe characterizing for.
The set of your Skus that saw or you took pricing and then rate increases on average that'd be very helpful.
Yes, I cant give you as much granularity as I'm sure you would love, but just because for competitive purposes.
We cant talk specifically about price increases, but our intent is clearly to mitigate the freight and labor costs.
But that I talked about.
We should see the beginning.
No.
Reflect a little bit in this quarter and the <unk>.
Second quarter and suddenly fully in the third of quota.
Okay got it thank you.
You have no further questions at this time I will now turn it back to management for any closing remarks.
Great.
I'd like to take a few moments to discuss the outlook for our business.
Well the very many variables from the world that we cannot control, we do control our own strategy.
And I am excited to outline what our new capacity allows us to do and where we're taking the company today and in the future.
We are extremely focused on our core hard parts after market business and expect to continue to grow this business organically for each product line.
In addition, we are launching more product lines that we are optimistic about which will even further accelerate our growth.
Also as a footprint of the future, which is now footprint of today matures, we will see increases in productivity, which will result in reduced cost and better margins.
Well there are many variables and cost today, we expect this to stabilize and through a combination of appropriate pricing and enhanced efficiencies that I mentioned, our margins will improve.
This in conjunction with our accelerated revenue growth bodes well for increased earnings and shareholder returns.
In addition to of hard parts business.
Gnostic business in both internal combustion engines and electrical vehicles is picking up momentum and we expect positive EBITDA from both for this year.
Along with this diagnostic business, we are focused on adding contract testing at year end, which should further enhance our revenue and our contribution margins.
It allows us to scale revenues without the linear scaling of the capital expenditures and enables our customer base to get quicker and more efficient results and feedback with less capital outlay.
Our vision of group is also working diligently on numerous technologies that will place us in the EV power system.
Is the software or licensed IP.
While the world of electrification is fast evolving.
Feel that we have a strong opportunity to be a significant player in the space.
These strategies when implemented will serve to grow shareholder value and increase and increase the growth rates in that business.
In closing I want to thank all of our team members for their ongoing commitment and customer centric focus on service during these challenging times.
Their health and safety are our top priority, we remain extremely vigilant to protect our global team from this horrible virus and we're working diligently to get even more of a volume employees and their family members vaccinated.
For the most parts of our corporate team is continuing to work remotely, though we remain committed to gradually and safely returning the team back to the office as conditions permit.
As a result of everyones contributions our operations of continued largely uninterrupted and I'm extremely proud of their work in our company.
In summary, our investments are bearing fruit and we have a meaningful opportunity to enhance shareholder value in the dynamic of $130 billion of automotive aftermarket the industry.
And the emerging electric vehicle industry.
We are proud of our more than 50 year history in the aftermarket industry and are excited about our emerging presence in the electric vehicle space and all of us of committed to our vision of being the global leader for parts and solutions that move our world today and tomorrow.
We appreciate your continued support and thank you again for joining us for the call. We look forward to speaking with you when we host the fiscal 2022 second quarter conference call in November and net of Investor conferences, and hopefully in person in the future.
Thank you.
Yeah.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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Yes.
Yes.
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Non-GAAP.
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