Motorcar Parts of America Inc (MPAA) Q4 2022 Earnings Call Transcript

Motorcar Parts of America Inc (NASDAQ:MPAA) Q4 2022 Earnings Call dated Jun. 14, 2022.

Corporate Participants:

Gary S. Maier — Investor Relations

Selwyn Joffe — Chairman, President and Chief Executive Officer

David Lee — Chief Financial Officer

Analysts:

Michael Zabran — ROTH Capital — Analyst

Bill Dezellem — Tieton Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America’s Fiscal 2022 Fourth Quarter and Year End Conference Call. [Operator Instructions]

It is now my pleasure to turn today’s call over to Mr. Gary Maier, Investor Relations. Sir, please go ahead.

Gary S. Maier — Investor Relations

Thank you, Brian. Thanks everyone for joining us. Before I begin the call and I turn it over to Selwyn Joffe, 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 included — including statements made during 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 us. Actual results may differ from these projected 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 various filings with the Securities and Exchange Commission.

With that said, I’d like to begin the call and turn it over to Selwyn for our prepared remarks.

Selwyn Joffe — Chairman, President and Chief Executive Officer

Thank you, Gary. I appreciate everyone joining us today. I hope you’re all safe and healthy. As announced this morning, we delivered record net sales of $650.3 million for fiscal 2022 representing a year-over-year increase of 20.3%. We achieved this exceptional growth despite continued global supply chain challenges and the continued COVID environment.

I should also highlight several additional successes during the year. We developed the comprehensive line of brake pads, utilizing an industry-leading formulation and brake rotors serving the professional store market under the company’s Quality Built brand. We secured multi-year new business commitments and opportunities of more than $100 million primarily across multiple brake related products. We have successfully expanded sales through additional product line offerings in Mexico. We completed a multi-year expansion programs of our facilities in Mexico, including completion of the new brake caliper remanufacturing facility. We have added capacity to support anticipated future growth with limited additional capex investments. We extended the maturity date of our credit facility from June 2023 to May 2026 to enhance our liquidity and capital resources. We secured inventory which enabled us to support our customers meet demand and obtain new business, despite world-wide supply chain and logistics challenges.

We secured purchase orders from all major automotive retailers or routine electrical bench top testing equipment. We opened electric vehicle contract testing centre in Detroit, Michigan, with customers business signed up. We continued a serious — series of prestigious Tier 1 wins for our EV technology with orders from major global automotive aerospace and research institutions. And equally important we continued our social responsibility initiatives with plans to launch in agri farm, organic food and community programs in Mexico and continued our focus on opportunities to enhance a environmental social and governance practices on a global basis.

All these accomplishments enable us to resume annual guidance which at the top range is estimated to reach $700 million in net sales this fiscal year, representing a year-over-year increase of $49.7 million based on our current visibility. Notwithstanding potential quarter-to-quarter fluctuation due to timing awards. Excluding $13.3 million of core revenue, realizing our previous fiscal year, which the company does not expect to — does not expect in fiscal 2023, net sales are expected to increase between 6.8% and 9.9% in fiscal year 2023.

Operating income is expected to between $57 million and $61 million before the non-economic, non-cash foreign exchange impact of lease liabilities and forward contracts. The non-economic non-cash impact of revaluation of course on customer show and supply chain disruptions in cost related to COVID-19. We estimate other non-cash items will be approximately $21 million, including cone finished goods premium amortization and share based compensation. And cash expenses will be approximately $2 million for special electric vehicle related research and development expenses, impacting operating income. Depreciation and amortization are estimated to be approximately $13 million.

In summary, operating income, before the impact of the non-cash and cash items and before depreciation and amortization ass previously mentioned is expected to be between $93 million and $97 million.

Let me provide some additional commentary about the company’s progress. We are particularly focused on meaningful opportunities to enhance gross profit on an annual basis which could leverage our fixed cars. We also expect the benefit from the company’s now completed multi-year investment program to support our expansion, particularly [Indecipherable] global production and distribution capacity. In short, we have successfully built upon our history and industry reputation and expanded our product line offering from a single category, rotating electrical to offering multiple non-discretionary products within a particular important focus on brake related applications. These products have different gross margin profiles that will impact overall gross margins, that we expect to enhance gross profit as we leverage our overhead levels. I should note that we have been in a ramp-up mode for brake related products as Part as should be expected a newly launched products. We expect gross profit and margins will be enhanced as this business matures. Equally important, we expect to grow our product lines without substantial increase in our overhead.

In summary, new and existing customer expansion across all of our product lines is continuing. Brake related product categories are gaining momentum and being further enhanced by the recent launch of brake pads and rotors. The underlying fundamentals of the aftermarket parts industry are vibrant, supported by an average vehicle age now exceeding 12 years, resulting in increased demand for replacement parts. Demand is strong and we are a valued partner to our customers from a product quality and supplier standpoint.

Our electric vehicle diagnostic testing subsidiaries continues to gain traction. I should mention, we are well positioned to address both internal combustion engine markets and the emerging electric vehicle market with product functionality and applications across both markets. That said, industry observers expect continued growth demand for combustion engine application for decades and we offer a broad line of non-discretionary aftermarket parts necessary to serve the internal combustion engine car population, which is approximately 280 plus million vehicles. At the same time applications and services also offer significant opportunities to address the emerging electric vehicle market. As the EV market continues to gain momentum, we will not only benefit from our non-discretionary product offerings, but also from increasing demand for battery powered emulation, testing and development of inverters, electric motors and high-speed battery charging station applications offered by EV subsidiary.

As I mentioned on previous calls and highlighted earlier, our benchtop testers for alternators and starters continue to rollout at more than 15,000 retail customer store locations. These benchtop testers enable retailers to offer accurate advice, with the latest protocols to diagnose problems for consumers and reduce unnecessary returns. This provides a value added benefit for the retailer, while strengthening their consumer relationships. The global automotive tested market is also very large at approximately $5.4 billion and we remain enthusiastic about our growth opportunities in this market. Notwithstanding the challenges facing the aftermarket industry in the near term, supply chain, freight, raw materials and other pandemic related headwinds, we are working hard every day to mitigate these challenges. Our global team is working in collaboration with our suppliers and logistic providers and we are passing through price increases and freight surcharges to our customers, which we believe are necessary and not unreasonable. David will elaborate in more detail shortly.

I will now turn the call over to David to review our results in greater detail.

David Lee — Chief Financial Officer

Thank you Selwyn, and good morning everyone. I would like to encourage everyone to read the earnings press release filed as an 8-K earlier today. It contains more detailed explanations of our results, including our full fiscal year results.

On this call today, I will review both our fiscal fourth quarter together with the full fiscal year. Before I get into details, I would like to emphasize that our quarterly results are not indicative of our year-over-year potential. As we have stated on previous calls, it is not unusual to experience quarter-to-quarter fluctuations due to timing of orders. We also continue to experience extraordinary global supply chain challenges, inflationary cost pressures, while our price increases were not fully in effect and we made strategic inventory investments to support business growth and mitigate supply chain challenges.

Net sales for the quarter were $163.9 million compared with $168.1 million for the prior year period. However, for the full fiscal year, net sales as Selwyn mentioned increased 20.3% to a record $650.3 million from $540.8 million a year earlier. Gross profit for the quarter was $25.8 million compared with $32.1 million a year earlier. Again for the full fiscal year, gross profit increased $117.9 million from $109.5 million a year earlier.

Gross profit for the quarter was impacted by non-cash items as well as cash items. Let me provide details for each and then I will provide further details on the impact on each additional line item, so you can actually understand the underlying fundamentals between periods and appreciate our optimism as a new fiscal year evolves. The non-cash items reflect core and finished good premium amortization and revaluation of cores on customer shelves which are unique to certain of our products required by GAAP. The total for these non-cash items in the quarter was approximately $4.1 million. A more detailed explanation of core accounting is available on our website and I would encourage anyone with questions about this topic to review the video.

In terms of the cash items, let’s begin with Malaysia. The shutdown in the country by the government due to COVID and then the slow reopening impacted our facility and our regional network of key suppliers. In response, we quickly moved to outsource certain products in China, but these products were unfortunately subject to 25% tariffs. These transitory disruptions in the supply chain as well as timing of shipments are being reduced as we ramp back up in Malaysia and our suppliers we cover. As a reminder, one of the benefits of production in Malaysia is low tariffs, so we turn to production at our facility in this country. results a fairly immediate relief on tariffs.

Next, we incurred higher freight costs that were in excess of the customer freight surcharges that we already implemented. We’ve taken swift action to implement additional breakthrough charges and further price increases to mitigate this impact going forward. These are expect to be further in effect in the fiscal first quarter ending June 30, 2022 and should offset more of the higher freight cost being incurred based on current rates. Freight costs have stabilized for the time being, but we continue to monitor the situation closely. The total cash impact of these transitory cost pressures related to supply chain disruptions on gross profit was $3.3 million as referenced in Exhibit III of this morning’s earnings press release.

Before moving on, I should note that there were no ramp up and transition expenses related to our Mexico expansion this quarter, nor the third quarter compared with $4.8 million in the prior year fourth quarter. We’re pleased that brake caliper production is increasing nicely.

Reported fiscal fourth quarter gross profit as a percentage of net sales was 15.7% compared with 19.1% a year earlier. Reported gross margin was impacted by 2.5% and the previously mentioned non-cash items as well as 2% from the previously mentioned cash items from transitory cost pressures related to supply chain disruptions. In addition, gross profit as you would expect was further impacted by three key items. First we experienced inflationary costs related to raw materials and supplies and offshore wage increases. The price increases, I mentioned a moment ago, should help offset these price pressures. Second, we experienced ramp-up costs related to our growth initiatives, the new brake caliber product line, with price increases and the ramp up of our — for our new business opportunities, we expect enhanced gross margins. Finally, gross margin was impacted by product mix.

Moving on, operating expenses were $21 million compared with $26.6 million for the prior year period. The decrease was primarily due to a non-cash gain of $3.4 million for the mark-to-market, foreign exchange impact of these liabilities and contracts compare within non-cash loss of $3.7 million for the prior year fourth quarter. The remaining $1.5 million increase is primarily due to increased share-based compensation, commissions and travel and outside service expenses. reported net loss was $332,00 or $0.02 per share. I should emphasize our results were impacted by items that totaled $5.1 million or $0.27 per share. This includes non-cash items totaling $1.9 million or $0.10 per share and primarily transitory cost pressures related to supply chain disruptions totaling $3.2 million or $0.17 per share. I should also note that reported net loss reflects $4 million in interest expense compared with $3.7 million for last year, primarily due to higher interest rates on the accounts receivable discount programs offered by our customers and higher borrowings.

Additionally, there was $1 million in interest income tax expense compared with $939,000 in the prior year period. Reported net loss in the quarter, compared with net income of $835,000 or $0.04 per diluted share in the year ago period. Results for the prior period were impacted by a total of $13.7 million or $0.70 per diluted share. This include the non-cash items totaling $6.9 million $0.35 per diluted share and cash items totaling $6.8 million or $0.35 per diluted share primarily related to brake caliper start-up costs and other product [Indecipherable] and expenses related to the expansion in Mexico and corporate related expenses.

EBITDA for the fourth quarter was $8 million. EBITDA was impacted by $2.5 million of non-cash items as well as a $4.3 million in cash items primarily due to the transitory cost pressures related to supply chain disruptions. EBITDA, before the impact of non-cash and cash items mentioned above was $14.8 million for the fourth quarter. EBITDA for the prior year fourth quarter was $8.5 million. EBITDA was impacted by $9.2 million of non-cash items as well as $8.8 million of cash expenses primarily related to brake caliper start-up costs and other product relocation expenses related to the expansion in Mexico. EBITDA, before the impact of non-cash and cash items mentioned above was $26.6 million for the prior year fourth quarter. It is important to recognize that we experienced a particularly strong nine-month period. So the fourth quarter is not indicative of our year-over-year performance or our positive outlook.

Now let me discuss the full fiscal year results. Net sales increased 20.3% to a record $650.3 million from $540.8 million a year earlier. Net sales include a $13.3 million in core revenue compared with $12.8 million in the prior year period due to a realignment of inventory at customer distribution centers that expected future sales benefits as product mix changes. Gross profit for fiscal ’22, was $117.9 million compared with $109.5 million a year earlier. Gross profit as a percentage of net sales for fiscal ’22 was 18.1%% compared with 20.2% a year earlier. Gross margin for fiscal ’22 was impacted by 2.6% of non-cash items and 2.8% primarily by transitory supply chain disruption as detailed in Exhibit 4 in this morning’s earnings press release. Net income for fiscal ’22 was $7.4 million or $0.38 per diluted share compared with net income of $21.5 million or $1.11 per diluted share a year ago. It is important to appreciate the impact of non-cash items in our business, primarily due to the foreign exchange impact of lease liabilities for our Mexico operation and forward contracts which are non-economic and beyond our control.

For example, for the prior fiscal year 2021, the foreign exchange impact of these liabilities of four contracts was a favorable pre-tax gain of $17.6 million which resulted in a total non-cash favorable impact of only $80,000 or $0.0 per diluted share. In the current fiscal year ’22, it was only a favorable pre-tax gain of $1.7 million on the foreign exchange impact of lease liabilities and forward contracts which resulted in a total non-cash impact of $16.8 million or $0.86 per share as detailed in Exhibit 2 in this morning’s earnings press release. The company also incurred a cash impact of approximately $14.1 million or $0.72 per diluted share for the current year, compared with $15 million or $0.77 per diluted share the prior year as detailed in Exhibit 2 at this morning’s earnings press release.

To summarize, net income for fiscal ’22 before the impact of non-cash and cash items mentioned above was $38.2 million or $1.95 per diluted share compared with $36.4 million or $1.88 per diluted share last year. It should be noted that startup costs related to Mexico — expansion in Mexico primarily brake calipers were realized during the first half of fiscal ’22 and no cost were incurred during the second half of fiscal ’22. I should mention the effective tax rate was impacted in part due to specific foreign jurisdictions from which we did 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. EBITDA for fiscal ’22 was $21.6 million. EBITDA was impacted by $22.3 million of non-cash items as well as $18.5 million cash items primarily due to the transitory cost pressures related to supply chain disruptions. EBITDA before the impact of non-cash and cash items mentioned above was $82.5 million for fiscal ’22. EBITDA for the prior year fiscal ’21 was $57.8 million. EBITDA was impacted by only $107,000 of non-cash net gains as well as $19.4 million in cash items primarily related to brake caliper startup costs and other product relocation expenses related to the expansion in Mexico. EBITDA before the impact of non-cash and cash items mentioned above was $77.1 million for the prior fiscal 2021.

Now we will move on to cash flow and key corporate items. Net cash used in operating activities during the fourth quarter was $22.7 million versus $16.4 million cash used in operating activities in the prior year period. This reflects working capital requirements to support record sales growth and inventory increases for anticipated business growth as well as proactive strategic initiatives to address potential supply chain disruptions due to the COVID related issues. We believe these investments in our business will not only mitigate risk, but will also spur further growth for the company on a year-over-year basis.

Our return on invested capital on a pre-tax basis at the end of fiscal year was 19.0% compared with 19.1% a year earlier. We are continuing to realize the benefits of expanding our Mexican operations and the launch of our new brake categories with expectations of increased returns from both new and existing product lines as the benefits of our strategic expansion are more fully realized.

And lastly, our net debt at the end of the quarter was approximately $148.7 million, while cash and availability on the revolving credit facility was approximately $100 million. For further explanation on the reconciliation of items that impacted results and non-GAAP financial measures, please refer to Exhibits 1 to 5 in this morning’s earnings press release.

I’d like to open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from the line of Matt Koranda with ROTH Capital. Your line is open.

Michael Zabran — ROTH Capital — Analyst

Hey guys, it’s Mike Zabran on for Matt. Could we just start with the breakdown between [Indecipherable] electrical brake products and [Indecipherable] revenue for the quarter?

David Lee — Chief Financial Officer

Yes. For the fourth quarter ended March 31, ’22 a rotating electrical products were 68% of sales. We also have products 14% of sales, regulated products were 13% and other products were 5% of sales.

Michael Zabran — ROTH Capital — Analyst

Got it. Helpful. So in the quarter certain cash items related to supply chain costs seem to have gotten incrementally better. Can you just elaborate on where specifically, we’re seeing improvement there?

David Lee — Chief Financial Officer

So overall, as we mentioned those supply chain disruption costs have decreased so as further price increases go into effect, we are seeing a smaller impact as you mentioned sequentially over the prior quarter, and we do expect as the further price increases go into effect that those supply chain disruption costs that we identify will continue to come down.

Michael Zabran — ROTH Capital — Analyst

Okay, got it. Helpful. And so in terms of the revenue guidance, it looks really strong, and in the press release you highlighted an expected ramp in growth throughout the year. Could you guys just provide some color on what guidance is factoring into the product category growth in fiscal ’23? Are we assuming kind of similar growth across all products? Or is the guide giving credit to stronger revenues in specific categories?

Selwyn Joffe — Chairman, President and Chief Executive Officer

Look, the newer category, as a percentage we are going to have much higher growth, I mean the brake related categories are going to have higher growth. We expect growth across the board. I think our guidance is reflecting sales commitments that we have now. So we think there’s still plenty of opportunity as we go down the road. So I think overall brake related products will continue to grow significantly as well as all of our other product lines on a more stable basis.

Michael Zabran — ROTH Capital — Analyst

Got it. Okay that makes sense. Last one from me. Any implied EBITDA guide, could you just speak to how and to what degree we’re factoring in headwinds into the guide, so headwinds, such as higher gas prices, potentially lower vehicle miles traveled and supply chain pressures?

Selwyn Joffe — Chairman, President and Chief Executive Officer

I think we had looked at that and I think that’s certainly is mitigating what we think could be even incremental growth. I mean we’ve got high gas prices, miles is continuing to be fairly strong, but we’re going to have to wait and see how that unfolds. But I think the fundamentals of the market was the aging population of cars and the lack of new car availability. People are going to be required to repay their and I think regardless of miles driven, we should see some positive growth.

Michael Zabran — ROTH Capital — Analyst

Got it. That’s all from me guys, thanks.

Operator

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

Bill Dezellem — Tieton Capital — Analyst

Thank you. If you allow, I have number of questions. First of all, I would like to get your commentary around the softness that you saw in January and February and what you believe was the cause of that? And conversely, discuss the strength that you saw in March? What led to that and to what degree that strength has continued in April, May, and here into June?

Selwyn Joffe — Chairman, President and Chief Executive Officer

That’s a pretty comprehensive question, Bill. Yes. And yes, we are still focused on the future. I’ll try and sort of recount those months. But we had a soft start certainly to the quarter and that there has been a new sync to update orders, and so the first thing is just the — because of supply chain challenges and not always related to us, but to be related to other suppliers. So sequencing update orders by our customers changes the chain. So we see some push back out of the fourth quarter into later months in this current year of some update orders. The other thing is, there was some pretty reported by our customers, some extreme rain in some high-volume areas and that affected sales. So I can tell you, March, I think was the — I think David it is the biggest month we’ve ever had in the history of the company and it’s a — so you’re right, March did come back strong and things started to normalize more and demand is — while its choppy it continues to be strong. And so our outlook as we go through this next year, we think its strong although we are cautious because there is a high degree of uncertainty, just in the world in general, quite frankly. I think recessionary times for us generally could be, I don’t want to say good, but we certainly don’t suffer like others because of recessionary times and some ways it’s helpful because these costs stay on the road longer and people have got to perform repairs and the repairs they perform for us, we have non-discretionary parts. So you need brakes to drive your car, you need an alternator, you need to starter and etc. So we are very positive about the future.

I think as we think on an EBITDA basis, we are going to be pushing close to $97 million for this fiscal year and while there still will be the non-cash fluctuations, which are completely non-economic with revaluation of leases on our subsidiary, I mean it means absolutely nothing, these are — the lease has to be in the Mexico subsidiary because of the [Indecipherable] rules and it’s a $1 cash lease. So all of these currency fluctuations are completely 100% non-economic. The write-downs are on pause and customer shelves are completely non-economic. Our contracts require that the customer, if ever terminates — if they have ever terminate us, pay a fixed dollar value for those write-downs and completely non-cash, non-economic. So we think that the amount of economic adjustment should come down dramatically. We’re expecting good price increases and so overall, I mean I’m sort of overstepped your question a little bit, but I see strong demand, because we are gaining share in product lines. And I see continued strong demand in the fundamental industry, I mean, average age of vehicles growing and repair rates go up as cars get older and yes, while fuel prices have gone up, that they expect their sales substantially. And so people are driving their cause of vacations and the alternative is better in driving your vehicle than spending on other means of transportation. So that’s our outlook. Hope that answered your question.

Bill Dezellem — Tieton Capital — Analyst

No, that is helpful. And how about the strength that you saw in March. Maybe not continuing with record month levels, as you said March was a record month for a record March. Have you seen that strength then continue in April, May, and here into June, since weather was better and maybe the supply chain is a little less challenging?

Selwyn Joffe — Chairman, President and Chief Executive Officer

Yes, I’m not going to say, because the March was an extraordinary March, coming off of a very soft January. So they sort of offset each other. All I would say is that the fundamentals are strong right now and we expect to be on the high end of our guidance. So perhaps even better. But we will — we want to be conservative and we want to be — we want to take into account considerations of where we are.

Bill Dezellem — Tieton Capital — Analyst

Okay, that’s helpful. And then actually let’s jump to supply chain. I made a presumption that the supply chain was improving. Maybe you should just ask flat out. Is it improving, is it worsening or is it just really very similar over the last few months?

Selwyn Joffe — Chairman, President and Chief Executive Officer

Well, you saw Shanghai have these enormous shutdowns over the last two months, three months. And so that really put a hold on the improvement in supply chain. Once Shanghai shuts down, you can’t move trucks around and I mean, quite frankly, I’m not sure what happened. I have to check the outcome, but over the weekend, Shanghai went through mass testing and another shutdown over the weekend looking at to see what an infection rates were and it’s hard to predict. There are days I would tell you it’s improving. And then you have an unexpected Chinese event mostly that affect us pretty dramatically. The good news for us is that our Malaysian operations are up and running and producing and in China continues to diminish our brake caliper facility so absorbing more production. And our dependants gets less and less.

Freight is, for a while seem to be getting better in terms of availability and it’s very choppy. And so I would say in general, just with a lot of caution around it right now. Prices are up dramatically on components. And we are pushing them through and we have no choice.

Bill Dezellem — Tieton Capital — Analyst

And speaking of price increases would you please update us in terms of the timing of when price increases will flow through the P&L? And when you were last price increase is expected to be flowing through the P&L?

David Lee — Chief Financial Officer

Yes, Just for clarity on that. So through August mean, is that expect price increases in May. We got the preface in class to push back a little bit, they should have been earlier in the quarter. And to be honest with you, the perpetual price increases going on as we react to the marketplace and so we will have price increases going through all the way through August at this point in time. So we don’t expect that to stop. Unfortunately, or fortunately, I mean there is inflation and they’re just costs that have to be pass-thru to ultimately the consumer. And then so the district clarity on that. So the through August is that price increases that you will be announcing with your customers or the price increases will be flowing through the P&L starting or ending in August as of what you know today.

Selwyn Joffe — Chairman, President and Chief Executive Officer

As of today we have price increases that have already been notified all the way through August.

Bill Dezellem — Tieton Capital — Analyst

Okay, got it. Thank you very much. And then lastly for now, the benchtop testers. Is there an opportunity to reduce the return levels as a result of having the benchtop testers. So here’s the theory or the spirit of the question, if you will, that you’re if 15,000 retail locations are buying these testers from you, but the advantage is that when a consumer comes into the store, they actually know whether they need a new component or not. And if they do then that’s installed in the vehicle and not brought back to the store in return because there was a mistake and that ultimately would lower your cost. Is this a correct line thinking and if so what’s the magnitude how significant is it?

Selwyn Joffe — Chairman, President and Chief Executive Officer

First of all, that’s absolutely correct. The magnitude is going to be interesting as we roll them out. Right now. They are testers and they’re not the testers that are in place and are capable of testing all the new applications that around there. The most important thing though for the store — for the retailer is that they are able to give accurate and trustworthy advice. And so instead of disappointing a customer without solving the problem of the customer is trying to solve, they’ll be able to guide that customer more effectively through making the right choice. I do think that cost will come down. It’s going to be very hard to quantify, it’s going to take some time before we see that.

Bill Dezellem — Tieton Capital — Analyst

Great, thank you.

Selwyn Joffe — Chairman, President and Chief Executive Officer

Thanks, Bill. There are no further questions at this time, I will now turn the call back over to Mr. Selwyn Joffe okay. Thank you everybody. And I just want to say in summary we are excited about our future. We have reached a strategic inflection point in our transition and we expect a strong year with opportunities to build on both our topline and our bottom line, with our existing product lines. In closing, I want to thank all our team members for their ongoing commitment and as usual, customer-centric focus on service. During these challenging times, we remained particularly focused on the safety and well-being of our employees, and I’m extremely proud of our team members and our company, and I look forward and we appreciate your continued support and I thank you again for joining us on the call and we look forward to speaking with you when we host our fiscal 2023 first quarter conference call in August and future investor conferences. Thanks.

Operator

[Operator Closing Remarks]