MPAA
#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.
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.
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.
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.
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.
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.
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 <UNK> was focused on is the cores ---+
On customer shelf.
On customer shelf, is that right.
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, <UNK>, 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.
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.
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.
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.
I think we can start shipping additional customers soon, by year-end at the latest.
By calendar year ---+ <UNK>, just to clarify, by calendar-year end at the latest.
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.
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.
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.
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.
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, <UNK>, 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.
There is something new across the board.
We have new business coming in everywhere.
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.
No.
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.
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.
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.
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.
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.
